US Bank 2008 Annual Report Download - page 39

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general, 5 percent of losses in excess of those estimated at
acquisition).
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, the consumer finance division
specializes in serving channel-specific and alternative lending
markets in residential mortgages, home equity and
installment loan financing. The consumer finance division
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 and
for home equity and second mortgages, credit risk is also
managed by diversifying geography and monitoring loan-to-
values during the underwriting process.
The following tables provide summary information of the
loan-to-values of residential mortgages and home equity and
second mortgages by distribution channel and type at
December 31, 2008 (excluding covered assets):
Residential mortgages
(Dollars in Millions)
Interest
Only Amortizing Total
Percent
of Total
Consumer Finance
Less than or equal to 80% . . $ 981 $ 2,737 $ 3,718 37.7%
Over 80% through 90% . . . . 729 1,553 2,282 23.1
Over 90% through 100% . . . 759 2,962 3,721 37.7
Over 100% . . . . . . . . . . . . – 146 146 1.5
Tota l ............. $2,469 $ 7,398 $ 9,867 100.0%
Other Retail
Less than or equal to 80% . . $2,323 $10,017 $12,340 90.0%
Over 80% through 90% . . . . 88 571 659 4.8
Over 90% through 100% . . . 163 551 714 5.2
Over 100% . . . . . . . . . . . . – – – –
Tota l ............. $2,574 $11,139 $13,713 100.0%
Total Company
Less than or equal to 80% . . $3,304 $12,754 $16,058 68.1%
Over 80% through 90% . . . . 817 2,124 2,941 12.5
Over 90% through 100% . . . 922 3,513 4,435 18.8
Over 100% . . . . . . . . . . . . – 146 146 .6
Tota l ............. $5,043 $18,537 $23,580 100.0%
Note: loan-to-values determined as of the date of origination and consider mortgage
insurance, as applicable.
Home equity and second mortgages
(Dollars in Millions) Lines Loans Total
Percent
of Total
Consumer Finance (a)
Less than or equal to 80% . . . $ 391 $ 200 $ 591 27.3%
Over 80% through 90% . . . . . 303 192 495 22.9
Over 90% through 100% . . . . 415 455 870 40.3
Over 100% . . . . . . . . . . . . . 70 136 206 9.5
Tota l .............. $ 1,179 $ 983 $ 2,162 100.0%
Other Retail
Less than or equal to 80% . . . $11,274 $1,953 $13,227 77.7%
Over 80% through 90% . . . . . 1,730 548 2,278 13.4
Over 90% through 100% . . . . 905 529 1,434 8.4
Over 100% . . . . . . . . . . . . . 54 22 76 .5
Tota l .............. $13,963 $3,052 $17,015 100.0%
Total Company
Less than or equal to 80% . . . $11,665 $2,153 $13,818 72.0%
Over 80% through 90% . . . . . 2,033 740 2,773 14.5
Over 90% through 100% . . . . 1,320 984 2,304 12.0
Over 100% . . . . . . . . . . . . . 124 158 282 1.5
Tota l .............. $15,142 $4,035 $19,177 100.0%
(a) Consumer finance category included credit originated and managed by the consumer
finance division, as well as the majority of home equity and second mortgages with a
loan-to-value greater than 100 percent that were originated in the branches.
Note: Loan-to-values determined at current amortized loan balance, or maximum of current
commitment or current balance on lines.
Within the consumer finance division, at December 31,
2008 approximately $2.9 billion of residential mortgages
were to customers that may be defined as sub-prime
borrowers based on credit scores from independent credit
rating agencies at loan origination.
U.S. BANCORP 37