One-to-Four Family Residential Loans. We offer two types of residential mortgage
loans: fixed-rate loans, with terms of up to 30 years, and adjustable-rate loans,
with interest rates and payments that adjust annually after an initial fixed
period of one, three or five years. Interest rates and payments on our adjustable-rate
loans generally are adjusted to a rate equal to a percentage above the appropriate
U.S. Treasury Security Index. Our adjustable-rate single-family residential
real estate loans generally have caps on increases or decreases in the interest
rate at any adjustment date, and a maximum adjustment limit over the life of
the loan. Although we offer adjustable-rate loans with initial rates below the
fully indexed rate, loans tied to the one-year constant maturity treasury are
underwritten using methods approved by the Federal Home Loan Mortgage Corporation,
which require borrowers to be qualified at a rate equal to 200 basis points
above the discounted loan rate under certain conditions.
Borrower demand for adjustable-rate loans compared to fixed-rate loans is a
function of the level of interest rates, the expectations of changes in the
level of interest rates, and the difference between the interest rates and loan
fees offered for fixed-rate mortgage loans as compared to the interest rates
and loan fees for adjustable-rate loans, among other factors. The loan fees,
interest rates and other provisions of mortgage loans are determined by us on
the basis of our own pricing criteria and competitive market conditions.
Most of our residential loans are underwritten to standards established by the
secondary market. We also offer VA and FHA loans via a third party lending source.
While one-to-four family residential real estate loans are normally originated
with up to 30-year terms, such loans typically remain outstanding for substantially
shorter periods because borrowers often prepay their loans in full either upon
sale of the property pledged as security or upon refinancing the original loan.
Therefore, average loan maturity is a function of, among other factors, the
level of purchase and sale activity in the real estate market, prevailing interest
rates and the interest rates payable on outstanding loans. We do not offer loans
with negative amortization or interest only loans.
We offer home equity loans and lines of credit, typically with a maximum combined
loan-to-value ratio of 80%. Home equity loans generally have fixed-rates of
interest and are originated with terms of up to 15 years. Home equity lines
of credit generally have variable rates and are indexed to the prime rate. Home
equity lines of credit generally have draw periods with 20 year repayment periods.
We generally do not make high loan-to-value loans (defined as loans with a loan-to-value
ratio in excess of 80%) without private mortgage insurance. The maximum loan-to-value
ratio we generally permit is 95% with private mortgage insurance. We require
all properties securing mortgage loans to be appraised by a board-approved independent
appraiser. We generally require title insurance on all first mortgage loans.
Borrowers must obtain hazard insurance, and flood insurance is required for
loans on properties located in a flood zone.
Commercial Real Estate Loans. We offer commercial real estate loans secured
by real estate primarily with adjustable rates. We originate a variety of commercial
real estate loans generally for terms up to 25 years and payments based on an
amortization schedule of up to 25 years. These loans are typically based on
either the Federal Home Loan Bank borrowing rate or our own pricing criteria
and adjust every three to five years. Commercial real estate loans also are
originated for the acquisition and development of land, including development
for residential use. Conditions of acquisition and development loans originated
generally limit the number of model homes and homes built on speculation, and
draws are scheduled against executed agreements of sale. Commercial real estate
loans for the acquisition and development of land are typically based upon the
prime rate. Commercial real estate loans for developed real estate and for real
estate acquisition and development are originated generally with loan-to-value
ratios up to 75%, while loans for the acquisition of land are originated with
a maximum loan to value ratio of 65%.
Commercial Loans. We offer commercial business loans to professionals, sole
proprietorships and small businesses in our market area. We offer installment
loans for capital improvements, equipment acquisition and long-term working
capital. These loans are typically priced at short term fixed rates or variable
rates based on the prime rate. These loans are secured by business assets other
than real estate, such as business equipment and inventory, and, generally,
are backed by personal guarantees of the owner or owners of the business. We
originate lines of credit to finance the working capital needs of businesses
to be repaid by seasonal cash flows or to provide a period of time during which
the business can borrow funds for planned equipment purchases.
When making commercial business loans, we consider the consolidated financial
statements of the borrower and any guarantors, the borrower’s payment
history of both corporate and personal debt, the debt service capabilities of
the borrower, the projected cash flows of the business and guarantor, the viability
of the industry in which the customer operates and the value of the collateral.
Consumer Loans. We offer a variety of consumer loans, including lines of credit,
automobile loans and loans secured by savings accounts and certificates of deposit.
We also offer unsecured loans.
We offer loans secured by new and used automobiles, primarily indirectly through
dealerships. These loans have fixed interest rates and generally have terms
up to six years. We offer automobile loans with loan-to-value ratios of up to
100% of the purchase price of the vehicle depending upon the credit history
of the borrower and other factors.
We offer consumer loans secured by savings accounts and certificates of deposit
held by us based upon the deposit rates plus a margin with terms up to five
years. We offer such loans up to 100% of the principal balance of the certificate
of deposit or balance in the savings account. We also offer unsecured loans
and lines of credit with terms up to five years. Our unsecured loans and lines
of credit bear a substantially higher interest rate than our secured loans and
lines of credit.
The procedures for underwriting consumer loans include an assessment of the
applicant’s payment history on other debts and ability to meet existing
obligations and payments on the proposed loan. Although the applicant’s
creditworthiness is a primary consideration, the underwriting process also includes
a comparison of the value of the collateral, if any, to the proposed loan amount.
We have adhered and continue to adhere to credit policies, both prior to and
during the recent economic downturn, which management believes are sound. Our
loan policies require verification of information provided by loan applicants
as well as an assessment of their ability to repay for all loans. At no time
have we made loans similar to those commonly referred to as “no doc”
or “stated income” loans.
While the vast majority of the loans in our loan portfolio are secured by collateral,
we have made and will continue to make loans on an unsecured basis. Unsecured
commercial loans are only granted to those borrowers exhibiting historically
strong cash flow and capacity with seasoned management. Unsecured consumer loans
are made for relatively short terms and to borrowers with strong credit histories.
We consider requests to modify, restructure or otherwise change the terms of
loans on an individual basis as circumstances and/or reasons for such changes
may vary. All such changes in terms must be authorized by the appropriate approval
body. Also, our credit policy prohibits the modification of loans or the extension
of additional credit to borrowers who are not current on their payments. Exceptions
are approved only where our position in the credit relationship is expected
to be enhanced by such action.