CASH 2018 Annual Report

14 Consumer Lending . The Company originates a variety of secured consumer loans, including home equity, home improvement, automobile and boat loans, as well as loans secured by savings deposits in its primary market areas and surrounding areas. Substantially all of the Company’s home equity loans and lines of credit are secured by second mortgages on principal residences. The Bank will lend amounts which, together with all prior liens, may be up to 90% of the appraised value of the property securing the loan. Home equity loans and lines of credit generally have maximum terms of five years. Consumer loan terms vary according to the type and value of collateral, length of contract and creditworthiness of the borrower. The underwriting standards employed by the Bank for consumer loans include an application, a determination of the applicant’s payment history on other debts and an assessment of ability to meet existing obligations and payments on the proposed loan. Although creditworthiness of the applicant is a primary consideration, the underwriting process also may include a comparison of the value of the security, if any, in relation to the proposed loan amount. ORIGINATIONS, SALES AND SERVICING OF LOANS AND LEASES Loans and leases are generally originated by the Company’s staff of lending officers. Loan and lease applications are taken and processed in the branches, loan production offices, and the main office of the Company. While the Company originates both adjustable-rate and fixed-rate loans and leases, its ability to originate loans and leases is dependent upon the relative customer demand for loans and leases in its market. Demand is affected by the interest rate and economic environment. The Company, from time to time, sells loan participations, generally without recourse. At September 30, 2018, there were no outstanding loans sold by the Company with recourse. When loan participations are sold, the Company may retain the responsibility for collecting and remitting loan payments, making certain that real estate tax payments are made on behalf of borrowers, and otherwise servicing the loans. The servicing fee is recognized as income over the life of the loans. The Company services loans that it originated and sold totaling $134.0 million at September 30, 2018, of which $98.9 million were sold to SBA/USDA, $2.3 million were sold to Fannie Mae, and $32.7 million were sold to others. We generally sell the guaranteed portion of our SBA 7(a) loans and USDA program loans in the secondary market. These sales have resulted in premium income for us at the time of sale and created a stream of future servicing income. When we sell the guaranteed portion of our loans, we incur credit risk on the non-guaranteed portion of the loans, and if a customer defaults on the loan, we share any loss and recovery related to the loan pro-rata with the SBA or USDA, as applicable. If the SBA or USDA establishes that a loss on a guaranteed loan is attributable to significant technical deficiencies in the manner in which the loan was originated, funded or serviced by us, the SBA or USDA may seek recovery of the principal loss related to the deficiency from us, which could materially adversely affect our business, results of operations and financial condition. In periods of economic uncertainty, the Company’s ability to originate large dollar volumes of loans and leases may be substantially reduced or restricted, with a resultant decrease in related loan origination fees, other fee income and operating earnings. In addition, the Company’s ability to sell loans may substantially decrease if potential buyers (principally government agencies) reduce their purchasing activities.