One- to Four-Family Residential Real Estate Lending. The focus of our lending
program has historically been the origination of one- to four-family residential
real estate loans. We primarily originate adjustable-rate residential mortgage
loans, but we also offer fixed-rate residential mortgage loans and home equity
loans.
Commercial Real Estate, Multi-Family and Non-Owner Occupied Residential Lending.
Consistent with our strategy to diversify our loan portfolio and increase our
yield, we are focused on increasing our origination of commercial real estate
loans, with a target loan size of $1.0 million to $1.3 million. Subject to future
economic, market and regulatory conditions, we intend to engage in a disciplined
increase in commercial real estate, multi-family and non-owner occupied residential
lending in our market area.
Our commercial real estate and multi-family loans are all adjustable-rate loans,
and historically had terms of 25 years. Recently, as we have endeavored to customize
these loans to meet the needs of our customers, they generally have initial
terms of up to five years and amortization terms of 20 to 25 years with a balloon
payment at the end of the initial term. The maximum loan-to-value ratio of our
commercial real estate loans and multi-family loans is generally 70% of the
lower of cost or appraised value of the property securing the loan, subject
to increase up to 75% upon the approval of the Executive Committee. Our commercial
real estate loans are typically secured by retail, industrial, warehouse, service,
medical or other commercial properties, and our multi-family loans are typically
secured by five and six unit residential properties or apartment buildings.
Construction financing generally involves greater credit risk than long-term
financing on improved, owner-occupied real estate. Risk of loss on a construction
loan depends largely upon the accuracy of the initial estimate of the value
of the property at completion of construction compared to the estimated cost
(including interest) of construction and other assumptions. If the estimate
of construction cost is inaccurate, we may be required to advance additional
funds beyond the amount originally committed in order to protect the value of
the property. Moreover, if the estimated value of the completed project is inaccurate,
the borrower may hold a property with a value that is insufficient to assure
full repayment of the construction loan upon the sale of the property. Construction
loans also expose us to the risk that improvements will not be completed on
time in accordance with specifications and projected costs. In addition, the
ultimate sale or rental of the property may not occur as anticipated.
Commercial and Industrial Lending. Our commercial and industrial loans are
generally annual revolving loans, but we may also offer term loans with terms
of five to ten years depending on the needs of the borrower. We make commercial
and industrial loans to businesses operating in our market area for purchasing
equipment, property improvements, business expansion or working capital. Our
commercial and industrial term loans are generally secured by equipment, furniture
and fixtures, inventory, accounts receivable or other business assets, or, in
very limited circumstances, may be unsecured. If a commercial and industrial
loan is secured by equipment, we fix the maturity of a term loan at up to seven
years, depending on the useful life of equipment purchased, the source of repayment
for the loan and the purpose of the loan. Our revolving lines of credit are
generally used to finance short-term working capital needs such as accounts
payable and inventory. We generally obtain personal guarantees with commercial
and industrial loans. We have also purchased approximately $1.5 million of USDA-guaranteed
agricultural loans.
Consumer Lending. We offer consumer loans on a very limited basis, and generally
as a convenience to customers with whom we have banking relationships.
Consumer loans have either a variable or fixed-rate of interest for a term of
up to 72 months, depending on the type of collateral and the creditworthiness
of the borrower. Our consumer loans may be secured by deposits, automobiles,
boats, motorcycles or recreational vehicles, and loans of up to $50,000 may
be unsecured. Secured consumer loans are generally limited to 80% of the value
of the collateral, depending on the age of the collateral, except that loans
secured by passbook savings accounts or certificates of deposit are limited
to 95% of the deposit account balance.
Consumer loans generally have shorter terms to maturity, which reduces our exposure
to changes in interest rates. Consumer loans generally have greater risk compared
to longer-term loans secured by improved, owner-occupied real estate, particularly
unsecured loans and consumer loans that are secured by rapidly depreciable assets,
such as automobiles. In these cases, any repossessed collateral for a defaulted
loan may not provide an adequate source of repayment of the outstanding loan
balance. As a result, consumer loan collections are dependent on the borrower’s
continuing financial stability and thus are more likely to be adversely affected
by job loss, divorce, illness or personal bankruptcy.