Page 26 - CNB Bank Shares 2018 Annual Report

CNB BANK SHARES, INC. AND SUBSIDIARIES CNB BANK SHARES, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements Notes to Consolidated Financial Statements

The carrying value of debt securities pledged to secure public funds, securities sold under repurchase Agricultural loans, i.e., those loans which fund crop production, livestock production, and capital
agreements, certain short- and long-term borrowings, and for other purposes amounted to approximately purchases, are structured to coincide with the purpose or seasonality. Collateral support, determined
$148,884,000 and $108,548,000 at December 31, 2018 and 2017, respectively. The Banks have also pledged repayment ability, and creditworthiness are all considered in the loan approval process.
letters of credit from the Federal Home Loan Bank of Chicago totaling $34,020,000 and $8,000,000 as
additional collateral to secure public funds at December 31, 2018 and 2017, respectively. Commercial business loans vary in type and include secured and unsecured commercial business loans for
the purpose of financing equipment acquisition, expansion, working capital, and other general business
During 2018 and 2017, certain available-for-sale securities were sold for proceeds totaling $23,648,022 and purposes, including issuing letters of credit. The Company’s commercial business loan portfolio is
$1,949,892, respectively, resulting in gross gains of $106,995 and $54,002, respectively, and gross losses of
$75,929 and $2,906, respectively. comprised of loans for a variety of purposes and generally is secured by equipment, machinery, and other
business assets. The terms of these loans are generally for less than seven years. The loans are either
NOTE 4 – LOANS negotiated on a fixed-rate basis or carry variable interest rates that float in accordance with a designated public
The composition of the loan portfolio at December 31, 2018 and 2017 is as follows: index. Commercial credit decisions are based upon a complete credit review of the borrower. A
determination is made as to the borrower’s ability to repay in accordance with the proposed loan terms,
2018 2017 as well as an overall assessment of the credit risks involved. Personal guarantees of borrowers are
Commercial: generally required. In evaluating a commercial business loan, the Banks consider debt service
Real estate $ 227,498,414 178,935,183 capabilities, actual and projected cash flows, and the borrower’s inherent industry risks.
Agricultural production 104,647,993 84,140,086
Other 161,814,664 134,205,096 Construction lending generally involves a greater degree of risk than the Banks’ other real estate lending.
Real estate: The construction phase of a loan generally lasts 9 to 18 months. As with the Banks’ other loan types,
Construction 50,010,853 39,217,672
Residential 188,431,580 134,629,219 the underwriting standards require proper loan-to-value coverage and the borrower’s ability to service the
Farmland 183,257,890 133,336,874 debt. Prior to approval of the construction loan, the Banks determine that the borrower has the approval,
Consumer 28,247,084 11,686,140 capacity, and wherewithal to handle the permanent financing.
$ 943,908,478 716,150,270
Residential real estate loans are predominantly collateralized by properties located in the Banks’ market
The Banks grant commercial, industrial, residential, agricultural, and consumer loans throughout south- areas. The Banks adhere to strict underwriting standards that have been reviewed by the Boards of
central Illinois, suburban southwestern Chicago, and the St. Louis, Missouri metropolitan area. With the Directors and the banking regulators. The underwriting standards include, but are not limited to, repayment
exception of agricultural credits, the Banks do not have any particular concentration of credit in any one capacity, creditworthiness, proper loan-to-value coverage, and proper lien positions supported by title
economic sector; however, a substantial portion of the portfolio is concentrated in and secured by real estate policies.
in the Banks’ market areas. The ability of the Banks’ borrowers to honor their contractual obligations is
dependent upon the local economies and their effect on the real estate market. Included in consumer loans Multifamily real estate loans are generally secured by apartment buildings and rental properties.
are overdrafts of $282,109 and $143,870 at December 31, 2018 and 2017, respectively.
Multifamily real estate loans are typically offered with interest rates that are fixed or adjust with a
The following describe the risk characteristics relevant to each of the portfolio segments: designated public index. When originating multifamily real estate loans, the Banks evaluate the
qualifications and financial condition of the borrower, profitability, and expertise, as well as the value and
Commercial real estate loans are secured by various commercial property types (including office and condition of the mortgaged property securing the loans. The Banks also consider the financial resources of
industrial buildings, warehouses, small retail shopping centers, and various special purpose properties, the borrower, the borrower’s experience in owning and managing similar properties, the cash flow the
including hotels, restaurants, and nursing homes), a majority of which are owner-occupied and in the Banks’ property generates (i.e., the gross rental income minus associated expenses), and the borrower’s global
market areas. The Banks originate commercial real estate loans with a typical term of three or five years obligations to determine sustainable repayment capacity. Multifamily real estate loans are carefully
with a fixed or adjustable rate feature generally tied to a designated public index. These loans are typically underwritten to determine proper valuation of the property, as well as the ability to service the debt.
amortized over 15 or 25 years. Strict underwriting standards are in place that include, but are not limited
to, independent appraisals, cash flow analyses, creditworthiness, experience, and management. For Home equity lines of credit are designed for owner-occupied homes. These are typically junior liens, thus
owner-occupied properties, the primary source of cash flow is from the ongoing operations and activities the Banks pay particular attention to the loan-to-value coverage and the debt service capacity of the borrower.
conducted by the party that owns the property. Nonowner-occupied properties are those loans where Strict underwriting standards are followed to ensure safe and sound lending.
the primary source of repayment is derived from rental income associated with the property or the
proceeds of the sale, refinancing, or permanent financing of the property. Farm real estate loans are not unique to the Banks’ market areas. The underwriting criteria is much the
same as for other loans; i.e., loan-to-value coverage, repayment ability, and creditworthiness are paramount.
Farm real estate loans may be structured to coincide with the seasonal nature of agriculture. In determining
the loan-to-value coverage, the Banks utilize appraisers that are familiar with agricultural real estate values.

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