Construction Loans
We originate fixed-rate and adjustable-rate loans to individuals and builders
to finance the construction of residential dwellings. We also originate construction
loans for commercial development projects, including multifamily buildings,
restaurants, shopping centers and owner-occupied properties used for businesses.
Within these project types, the Bank also offers land development loans. Our
construction loans generally provide for the payment of interest only during
the construction phase which is usually twelve months for residential owner
occupied properties and twelve to eighteen months for commercial properties
and upwards to 36 months for land development projects, depending on the size
and scope of the project. At the end of the commercial or residential construction
phase, the loan can either be converted to a permanent loan or paid in full.
Before making a commitment to fund a construction loan, we require an appraisal
of the property by a bank approved independent licensed appraiser, appropriate
environmental due diligence, a construction cost review, an inspection of the
property before disbursement of funds during the stages of the construction
process, and pre-qualification from an identified source for the permanent takeout.
Construction financing is generally considered to involve a higher degree of
risk of loss than long-term financing on improved, occupied real estate. Risk
of loss on a construction loan depends largely upon the accuracy of the initial
estimate of the property’s value at completion of construction and the
estimated cost (including interest) of construction. During the construction
phase, a number of factors could result in delays and cost overruns. If the
estimate of construction costs proves to be inaccurate, we may be required to
advance funds beyond the amount originally committed to permit completion of
the building. If the estimate of value proves to be inaccurate, we may be confronted,
at or before the maturity of the loan, with a building having a value which
is insufficient to assure full repayment. If we are forced to foreclose on a
building before or at completion due to a default, there can be no assurance
that we will be able to recover all of the unpaid balance of, and accrued interest
on, the loan as well as related foreclosure and holding costs.
Commercial and Industrial and Commercial Real Estate Loans
The Bank originates commercial and industrial loans for business purposes to
sole proprietorships, partnerships, corporations, limited liability companies,
and small businesses in our lending market areas. We extend commercial business
loans on a secured and unsecured basis. Secured commercial loans are generally
collateralized by residential and nonresidential real estate, marketable securities,
accounts receivable, inventory, industrial/commercial machinery and equipment,
and furniture and fixtures. To further enhance our security position, we typically
require personal guarantees of the principal owners of the entities to which
we extend credit. These loans are made on both lines of credit and fixed-term
basis ranging from one to five years in duration.
When making commercial business loans, we consider the financial statements
and/or tax returns of the borrower, the borrower’s payment history along
with the principal owners’ payment history, the debt service capabilities
of the borrower, the projected cash flows of the business, the value of the
collateral and the financial strength of the guarantor.
Commercial real estate loans are made to local commercial, retail and professional
firms and individuals for the acquisition of property or the refinancing of
existing property. These loans are typically related to commercial businesses
and secured by the underlying real estate used in these businesses or real property
of the principals. These loans are generally offered on a fixed or variable
rate basis, subject to rate re-adjustments every five years and amortization
schedules ranging from 5 to 25 years.
Our established written underwriting guidelines for commercial loans are periodically
reviewed and enhanced as needed. Pursuant to these guidelines, in granting commercial
loans, we look primarily to the borrower’s cash flow as the principal
source of loan repayment. To monitor cash flows on income properties, we require
borrowers and loan guarantors of loan relationships to provide annual financial
statements, rent rolls and/or tax returns. Collateral and personal guarantees
of the principals of the entities to which we lend are consistent with the requirements
of our loan policy.
Commercial loans are often larger and may involve greater risks than other types
of lending. Because payments of such loans are often dependent on the successful
operation of the business involved, repayment of such loans may be more sensitive
than other types of loans and are subject to adverse conditions in the real
estate market, or the general economy. We are also involved with off-balance
sheet financial instruments, which include collateralized commercial and standby
letters of credit. We seek to minimize these risks through our underwriting
guidelines and prudent risk management techniques. Any collateral securing such
loans may depreciate over time, may be difficult to appraise and may fluctuate
in value. Environmental surveys and inspections are obtained when circumstances
suggest the possible presence of hazardous materials. There can be no assurances,
however, of success in the efforts to minimize these risks.
Unlike residential mortgage loans, which generally are made on the basis of
the borrower’s ability to make repayment from his or her employment or
other income and which are secured by real property the value of which tends
to be more easily ascertainable, commercial loans are of higher risk and typically
are made on the basis of the borrower’s ability to make repayment from
the cash flow of the borrower’s business operation. As a result, the availability
of funds for the repayment of commercial loans may depend substantially on the
success of the business itself as the primary source of repayment. Further,
any collateral securing such loans may depreciate over time and may be difficult
to appraise as values fluctuate.
Residential Real Estate Loans / Mortgage Banking
The Company’s mortgage banking activity is primarily related to the origination
of one-to-four family residential real estate located within our primary market
areas in Monmouth, Ocean, Union and Middlesex Counties of New Jersey. We offer
a full range of residential real estate loans. We do not originate subprime
or negative amortization loans. Each residential mortgage loan is evidenced
by a promissory note secured by a mortgage or deed of trust creating a first
lien on one-to-four family residential property. Residential real estate properties
underlying residential mortgage loans consist of single-family detached units,
individual condominium units, two-to-four family dwelling units and townhouses.
We typically retain adjustable-rate mortgage (“ARM”) loans in our
portfolio. In recent periods, borrowers have largely trended towards fixed-rate
loans as a result of the continuation of the historically low interest rate
market. The Company’s fixed-rate banking activities are typically limited
to the sale of mortgage loans with contractual maturities generally exceeding
fifteen years and beyond. These loans are sold, on a case-by-case basis, in
the secondary market as part of the Company’s efforts to manage interest
rate risk.
Consumer Loans
The Bank offers consumer loans that are extended to individuals for personal
or household purposes. These loans consist of home equity lines of credit, home
equity loans, personal loans, automobile loans and overdraft protection.