Commercial and Industrial Loans
Loans for commercial purposes in various lines of businesses are a major component
of the Bank’s loan portfolio. The targets in the commercial loan markets
are retail establishments, professional service providers, in particular dentists,
and small-to-medium-sized businesses. The terms of these loans vary by purpose
and by type of underlying collateral, if any. The commercial loans primarily
are underwritten on the basis of the borrower’s ability to service the
loan from income and their creditworthiness. The Bank will typically make equipment
loans for a term of ten years or less at fixed or variable rates, with the loan
fully amortized over the term. Loans to support working capital will typically
have terms not exceeding one year and will usually be secured by accounts receivable,
inventory or personal guarantees of the principals of the business. For loans
secured by accounts receivable or inventory, principal will typically be repaid
as the assets securing the loan are converted into cash, and for loans secured
with other types of collateral, principal will typically be repaid over the
term of the loan or due at maturity.
Real Estate Loans
The Bank makes commercial real estate loans, construction and development loans,
owner occupied commercial real estate loans to small businesses, and residential
real estate loans. On some of these loans, the Bank takes a security interest
in real estate as a prudent practice and measure and not as the principal collateral
for the loan.
Government Enhanced Small Business Lending
The Bank originates and services commercial and real estate loans under programs
guaranteed by the U.S. Small Business Administration and the U.S. Department
of Agriculture. The principal balance of these loans is generally guaranteed
75% by these agencies. These loans generally offer borrowers more flexible terms
and conditions than may be available for conventional commercial loans. Examples
of more flexible terms include longer amortization periods, lower required down
payments, and less borrower operating history. These loans are generally secured
by equipment, real estate, and other tangible collateral. Loan-to-value ratios
may, in some instances, be higher than conventional loans. Loans secured by
business assets that do not include real estate have terms that are generally
ten years or less and are fully amortizing. Loans secured by real estate as
the principal collateral are generally twenty five years or less and are also
fully amortizing. Most loans are adjustable rate loans but may be fixed for
the term of the loan. Repayment of the loans is based on an analysis of the
borrower’s ability to generate sufficient income from operations. This
analysis may rely more heavily on projected future earnings than on conventional
loans. The Bank also analyzes the industry sector to determine the feasibility
of the projected income.
Consumer Installment Loans
On a limited basis, the Bank makes loans to individuals for personal, family
and household purposes, including secured and unsecured installment and term
loans. These loans are typically to the principals and employees of our business
customers. Repayment of consumer loans depends upon the borrower’s financial
stability and is more likely to be adversely affected by divorce, job loss,
illness and personal hardships than repayment of other loans. Because many consumer
loans are secured by depreciable assets such as boats, cars and trailers, the
loan should be amortized over the useful life of the asset. The loan officer
will review the borrower’s past credit history, past income level, debt
history and, when applicable, cash flow and determine the impact of all these
factors on the ability of the borrower to make future payments as agreed. The
principal competitors for consumer loans are the established banks and finance
companies in our market.