US Bank 2007 Annual Report Download - page 38

$29.2 billion, or 19.0 percent of total loans, compared with
$28.6 billion at December 31, 2006. Within commercial real
estate loans, different property types have varying degrees of
credit risk. Table 9 provides a summary of the significant
property types and geographical locations of commercial real
estate loans outstanding at December 31, 2007 and 2006. At
December 31, 2007, approximately 35.4 percent of the
commercial real estate loan portfolio represented business
owner-occupied properties that tend to exhibit credit risk
characteristics similar to the middle market commercial loan
portfolio. Generally, the investment-based real estate
mortgages are diversified among various property types with
somewhat higher concentrations in office and retail
properties. While investment-based commercial real estate
continues to perform well with relatively strong occupancy
levels and cash flows, these categories of loans can be
adversely impacted during a rising rate environment. During
2007, the Company continued to reduce its level of exposure
to homebuilders, given the stress in the homebuilding industry
sector. Beginning in mid-2006, construction financing of
condominium projects was significantly curtailed, given the
deterioration in unit pricing in several regions of the country.
From a geographical perspective, the Company’s commercial
real estate portfolio is generally well diversified. However, at
December 31, 2007, the Company had 19.8 percent of its
portfolio within California, which has experienced higher
delinquency levels and credit quality deterioration due to
excess home inventory levels and declining valuations. Credit
losses may increase within this portfolio. Included in
commercial real estate at year end 2007 was approximately
$.9 billion in loans related to land held for development and
$2.6 billion of loans related to residential and commercial
acquisition and development properties. These loans are
subject to quarterly monitoring for changes in local market
conditions due to a higher credit risk profile. Acquisition and
development loans continued to perform well, despite a slow
down in the housing market and softening of demand. The
commercial real estate portfolio is diversified across the
Company’s geographical markets with 91.4 percent of total
commercial real estate loans outstanding at December 31,
2007, within the 24-state banking region.
The Company’s retail lending business utilizes several
distinct business processes and channels to originate retail
credit, including traditional branch lending, indirect lending,
portfolio acquisitions and a consumer finance division. Each
distinct underwriting and origination activity manages unique
credit risk characteristics and prices its loan production
commensurate with the differing risk profiles. Within
Consumer Banking, U.S. Bank Consumer Finance (“USBCF”),
a division of the Company, participates in substantially all
facets of the Company’s consumer lending activities. USBCF
specializes in serving channel-specific and alternative lending
markets in residential mortgages, home equity and installment
loan financing. USBCF manages loans originated through a
broker network, correspondent relationships and U.S. Bank
branch offices. Generally, loans managed by the Company’s
consumer finance division exhibit higher credit risk
characteristics, but are priced commensurate with the
differing risk profile.
Residential mortgages represent an important financial
product for consumer customers of the Company and are
originated through the Company’s branches, loan production
offices, a wholesale network of originators and the consumer
finance division. With respect to residential mortgages
originated through these channels, the Company may either
retain the loans on its balance sheet or sell its interest in the
balances into the secondary market while retaining the
servicing rights and customer relationships. Utilizing the
secondary markets enables the Company to effectively
reduce its credit and other asset/liability risks. For residential
mortgages that are retained in the Company’s portfolio,
credit risk is also diversified by geography and by
monitoring loan-to-values during the underwriting process.
The following table provides summary information of the
loan-to-values of residential mortgages by distribution
channel and type at December 31, 2007:
(Dollars in Millions)
Interest
Only Amortizing Total
Percent
of Total
Consumer Finance
Less than or equal to 80% . . $ 730 $ 2,279 $ 3,009 30.9%
Over 80% through 90% . . . . 819 1,637 2,456 25.2
Over 90% through 100% . . . 831 3,354 4,185 42.9
Over 100% . . . . . . . . . . . . – 97 97 1.0
Total. . . . . . . . . . . . . . $2,380 $ 7,367 $ 9,747 100.0%
Other Retail
Less than or equal to 80% . . $2,164 $ 9,335 $11,499 88.2%
Over 80% through 90% . . . . 273 637 910 7.0
Over 90% through 100% . . . 132 494 626 4.8
Over 100% . . . . . . . . . . . . – – – –
Total. . . . . . . . . . . . . . $2,569 $10,466 $13,035 100.0%
Total Company
Less than or equal to 80% . . $2,894 $11,614 $14,508 63.7%
Over 80% through 90% . . . . 1,092 2,274 3,366 14.8
Over 90% through 100% . . . 963 3,848 4,811 21.1
Over 100% . . . . . . . . . . . . – 97 97 .4
Total. . . . . . . . . . . . . . $4,949 $17,833 $22,782 100.0%
Note: loan-to-values determined as of the date of origination and consider mortgage
insurance, as applicable.
Within the consumer finance division approximately
$3.3 billion, or 33.5 percent of that division, represents
residential mortgages to customers that may be defined as
sub-prime borrowers. Of these loans, 34.0 percent had a
loan-to-value of less than or equal to 80 percent of the
origination amount, while 24.9 percent had loan-to-values of
over 80 percent through 90 percent and 39.1 percent had
loan-to-values of over 90 percent through 100 percent.
36 U.S. BANCORP