Commercial Real Estate and Multi-Family Lending.
Our commercial real estate and multi-family loans generally have amortization
terms of 15 to 25 years and have adjustable interest rates. The adjustable rate
loans are typically fixed for the first five years and either adjust annually
thereafter or have a balloon payment due at the end of the fixed term. Our commercial
real estate and multi-family loans are generally tied to a margin above the
appropriate three or five year treasury. The maximum loan-to-value ratio of
our commercial real estate and multifamily loans is generally 80% of the lower
of cost or appraised value of the property securing the loan. Our commercial
real estate loans are typically secured by multifamily, hotel, agricultural,
medical, retail, churches or other commercial properties.
Commercial and multi-family real estate loans entail greater credit risks compared
to one-to-four family residential real estate loans because they typically involve
larger loan balances concentrated with single borrowers or groups of related
borrowers. In addition, the payment of loans secured by income-producing properties
typically depends on the successful operation of the property, as repayment
of the loan generally is dependent, in large part, on sufficient income from
the property to cover operating expenses and debt service. Changes in economic
conditions that are not in the control of the borrower or lender could affect
the value of the collateral for the loan or the future cash flow of the property.
Additionally, any decline in real estate values may be more pronounced for commercial
and multi-family real estate than residential properties.
Commercial Business Lending. Our business strategy is to increase our originations
of commercial business loans. We offer commercial term loans, lines of credit,
agricultural production, equipment financing, and revolving lines of credit
with a target loan size of $100,000 to $2.0 million to small businesses in our
market area to finance short-term working capital needs such as accounts receivable
and inventory. Our commercial lines of credit are typically adjustable-rate
and are generally priced on a floating rate basis utilizing the prime rate.
We generally obtain personal guarantees with respect to all commercial business
lines of credit.
We typically originate commercial business loans on the basis of the borrower’s
ability to make repayment from the cash flow of the borrower’s business,
the experience and stability of the borrower’s management team, earnings
projections and the underlying assumptions, and the value and marketability
of any collateral securing the loan. As a result, the availability of funds
for the repayment of commercial business loans may be substantially dependent
on the success of the business itself and the general economic environment in
our market area. Therefore, commercial business loans that we originate generally
have greater credit risk than one-to-four family residential real estate loans
or consumer loans. In addition, commercial business loans often result in larger
outstanding balances to single borrowers, or related groups of borrowers, and
also generally require substantially greater evaluation and oversight efforts.
Construction and Land Lending. We offer both fixed-rate and adjustable-rate
construction and land loans, although most of these loans have fixed interest
rates. The maximum loan-to-value of these loans is 80% of the lesser of the
appraised value or the purchase price of the property. The Bank offers a onetime
closed Residential Construction to Permanent product with our correspondent
lending partners. These loans are processed, underwritten, closed both by our
internal bank consumer lending staff and the correspondent lender. This process
is done simultaneously to ensure these loans meet both the internal underwriting
criteria and the correspondent lenders criteria to ensure these loans are conformable
to secondary marketing standards at loan modification after the construction
phase is completed. We fund the construction portion of the loan and monitor
the draw process to ensure completion of the construction project according
to the originally approved specifications. These loans are reported as loans
held for sale on the consolidated statement of condition.
Home Equity Loans. Home equity loans consists of either revolving lines of
credit, term, or second mortgage loans secured by one-to-four residential real
estate. These loans are underwritten based on repayment capacity and source,
value of the underlying property, and credit history. Home equity loans are
generally considered to have more credit risk than traditional one-to four-family
residential loans because the Bank tends to have a subordinate lien position.
Our home equity loans are secured by a first or second mortgage on the borrower’s
principal residence or their second/vacation home (excluding investment/rental
property) at a maximum current loan-to-value of 80%. There are minimum credit
score standards, maximum debt to income ratios and credit requirements on each
Home equity product that is defined in the Bank’s Lending Policy. All
credit decisions for home equity loans are made centrally by the Bank’s
consumer lending department.
Consumer Lending. To a much lesser extent, we offer a variety of consumer loans
to individuals who reside or work in our market area. Consumer loans can have
either a variable rate based on index of Wall Street Journal Prime rate or a
fixed-rate of interest for a term of up to 10 years, depending on the type of
collateral, product and the creditworthiness of the borrower. Our lending policy
allows for unsecured, non- real estate secured, and real estate secured loan
products that are either installment or open end credit. Our consumer loans
may be secured with deposits, automobiles, boats, motorcycles, recreational
vehicles or real property.