One- to Four-Family Residential Mortgage Loans. Our adjustable-rate mortgage loans
generally provide for maximum annual rate adjustments of 200 basis points, with
a lifetime maximum adjustment of 600 basis points. Our adjustable-rate mortgage
loans typically amortize over terms of up to 30 years, and are indexed to the
12-month LIBOR rate. We do not and have never offered residential mortgage loans
specifically designed for borrowers with sub-prime credit scores, including Alt-A
and negative amortization loans. Further, prior to 2007, we did not offer indexed,
adjustable-rate loans other than home equity lines of credit, and we have never
offered "teaser rate" first mortgage products.
Adjustable rate mortgage loans can decrease the interest rate risk associated
with changes in market interest rates by periodically repricing, but involve
other risks because, as interest rates increase, the loan payments by the borrower
increase, thus increasing the potential for default by the borrower. At the
same time, the marketability of the underlying collateral may be adversely affected
by higher interest rates. Upward adjustment of the contractual interest rate
is also limited by the maximum periodic and lifetime interest rate adjustments
permitted by our loan documents and, therefore, the effectiveness of adjustable
rate mortgage loans in decreasing the risk associated with changes in interest
rates may be limited during periods of rapidly rising interest rates. Moreover,
during periods of rapidly declining interest rates the interest income received
from the adjustable rate loans can be significantly reduced, thereby adversely
affecting interest income.
Multi-family Real Estate Loans. These loans are generally secured by properties
located in our primary market area. Our multi-family real estate underwriting
policies generally provide that such real estate loans may be made in amounts
of up to 80% of the appraised value of the property provided the loan complies
with our current loans-to-one borrower limit. Multi-family real estate loans
are offered with interest rates that are fixed for periods of up to five years
or are variable and either adjust based on a market index or at our discretion.
Contractual maturities do not exceed 10 years while principal and interest payments
are typically based on a 30-year amortization period. In reaching a decision
whether to make a multi-family real estate loan, we consider gross revenues
and the net operating income of the property, the borrower's expertise and credit
history, business cash flow, and the appraised value of the underlying property.
In addition, we will also consider the terms and conditions of the leases and
the credit quality of the tenants. We generally require that the properties
securing these real estate loans have debt service coverage ratios (the ratio
of earnings before interest, income taxes, depreciation and amortization divided
by interest expense and current maturities of long term debt) of at least 1.15
times. Generally, multi-family loans made to corporations, partnerships and
other business entities require personal guarantees by the principals and by
the owners of 20% or more of the borrower.
Home Equity Loans and Lines of Credit. We also offer home equity loans and
home equity lines of credit, both of which are secured by owner-occupied and
non-owner occupied one- to four-family residences. The underwriting standards
utilized for home equity loans and home equity lines of credit include a determination
of the applicant's credit history, an assessment of the applicant's ability
to meet existing obligations and payments on the proposed loan, and the value
of the collateral securing the loan. Home equity loans are offered with adjustable
rates of interest and with terms up to 10 years. The loan-to-value ratio for
our home equity loans and our lines of credit is generally limited to 90% when
combined with the first security lien, if applicable.
Construction and Land Loans. We originate construction loans for the acquisition
of land and the construction of single-family residences, multi-family residences,
and commercial real estate buildings. Our construction mortgage loans generally
provide for the payment of interest only during the construction phase, which
is typically up to nine months although our policy is to consider construction
periods as long as 12 months or more. At the end of the construction phase,
the construction loan converts to a longer-term mortgage loan. Construction
loans can be made with a maximum loan-to-value ratio of 90%, provided that the
borrower obtains private mortgage insurance if the loan balance exceeds 80%
of the lesser of the appraised value or acquisition cost of the secured property.
Commercial Real Estate Loans. These loans are generally secured by property
located in our primary market area. Our commercial real estate underwriting
policies provide that such real estate loans may be made in amounts of up to
80% of the appraised value of the property. Commercial real estate loans are
offered with interest rates that are fixed up to five years or are variable
and either adjust based on a market index or at our discretion. Contractual
maturities do not exceed 10 years while principal and interest payments are
typically based on a 30-year amortization period. In reaching a decision whether
to make a commercial real estate loan, we consider gross revenues and the net
operating income of the property, the borrower's expertise and credit history,
business cash flow, and the appraised value of the underlying property. In addition,
we will also consider the terms and conditions of the leases and the credit
quality of the tenants. We generally require that the properties securing these
real estate loans have debt service coverage ratios (the ratio of earnings before
interest, income taxes, depreciation and amortization divided by interest expense
and current maturities of long term debt) of at least 1.15 times. Environmental
surveys are required for commercial real estate loans when environmental risks
are identified. Generally, commercial real estate loans made to corporations,
partnerships and other business entities require personal guarantees by the
principals and by the owners of 20% or more of the borrower.
Commercial Loans. Our commercial loans are generally made to borrowers that
are located in our primary market area. Working capital lines of credit are
granted for the purpose of carrying inventory and accounts receivable or purchasing
equipment. These lines require that certain working capital ratios must be maintained
and are monitored on a monthly or quarterly basis. Working capital lines of
credit are short-term loans of 12 months or less with variable interest rates.