Regions Bank 2008 Annual Report Download - page 63

During late 2007, the residential homebuilder portfolio, which totaled $4.4 billion as of December 31, 2008,
came under significant stress. In Table 9 “Loan Portfolio”, the majority of these loans are reported in the
construction loan category, while a smaller portion is reported under the commercial real estate loan category.
The residential homebuilder portfolio is geographically concentrated in Florida and North Georgia. Regions
realigned its organizational structure in January 2008 to enable some of the Company’s most experienced
bankers to concentrate their efforts on management of this portfolio. See the “Residential Homebuilder Portfolio”
table in the “Credit Risk” section later in this report for further detail on the residential homebuilder portfolio.
Residential First Mortgage—Residential first mortgage loans represent loans to consumers to finance a
residence. These loans are typically financed over a 15 to 30 year term and, in most cases, are extended to
borrowers to finance their primary residence. These loans experienced a $1.1 billion decline to $15.8 billion in
2008. Demand for this type of lending slowed during 2008 as property values declined, new and used home sales
reached historically low levels, and credit markets contracted in general. However, due to declining mortgage
rates, which became especially attractive late in 2008 and into early 2009, refinancing activity increased
substantially as 2009 began.
Loans to consumers with weak credit history, generally called sub-prime loans, became a cause for industry
concern beginning in 2007 and the performance of these loans deteriorated significantly as 2008 progressed.
Regions’ exposure to sub-prime loans is insignificant, at approximately $77.3 million at December 31, 2008, and
continues to decline. This is a product that Regions does not currently originate. The credit loss exposure related
to these loans is addressed in management’s periodic determination of the allowance for credit losses.
Home Equity—Home equity lending includes both home equity loans and lines of credit. This type of
lending, which is secured by a first or second mortgage on the borrower’s residence, allows customers to borrow
against the equity in their home. Real estate market values as of the time the loan or line is secured directly affect
the amount of credit extended and, in addition, changes in these values impact the depth of potential losses.
During 2008, home equity balances increased $1.2 billion to $16.1 billion, driven by a slowing of paydowns and
an increase in lending to creditworthy customers.
The majority of Regions’ home equity lending balances was originated through its branch network and the
Company has not purchased broker-originated or other third-party production. However, home equity losses still
increased significantly in 2008, impacted by the unprecedented drop in real estate values coupled with a
deteriorating economy. The main source of stress has been in Florida, where home values declined precipitously
in 2007 and 2008. Further, losses on relationships in Florida where Regions is in a second lien position have been
especially high; much higher, in fact, than the remaining areas of Regions geographic footprint.
Indirect—Indirect lending, which is lending initiated through third-party business partners, is largely
comprised of loans made through automotive dealerships. Loans of this type decreased $84.3 million, or 2.1
percent, during 2008 largely due to the Company’s decision to exit certain lines of business. Regions continually
rationalizes the risk/reward characteristics of each of its lending lines and, as noted, ceased new originations
within the indirect auto lending business in 2008 and the marine and recreational vehicle lending businesses in
2007. Each of these portfolios is a declining element in the overall loan portfolio and will continue to reduce as
loans are repaid. Losses within the indirect portfolio increased during the year primarily driven by economic
conditions, including high gasoline prices and rising unemployment levels.
Other Consumer—Other consumer loans include direct consumer installment loans, overdrafts and other
revolving credit, and educational loans. Other consumer loans decreased 47.5 percent in 2008 to $1.2 billion due
to the sale or transfer to held for sale of student loans and a general contraction in credit markets.
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