US Bank 2009 Annual Report Download - page 39

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deterioration due to excess home inventory levels and
declining valuations. During 2009, the Company recorded
$614 million of net charge-offs in the total commercial real
estate portfolio. Included in commercial real estate at year-
end 2009 was approximately $975 million in loans related
to land held for development and $1.9 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. The commercial real estate
portfolio is diversified across the Company’s geographical
markets with 86.9 percent of total commercial real estate
loans outstanding at December 31, 2009, within the 24-state
banking region.
The assets acquired from the FDIC assisted acquisitions
of Downey, PFF and FBOP included nonperforming loans
and other loans with characteristics indicative of a high
credit risk profile, including a substantial concentration in
California, loans with negative-amortization payment
options, and homebuilder and other construction finance
loans. Because most of these loans are covered under loss
sharing agreements with the FDIC, the Company’s financial
exposure to losses from these assets is substantially reduced.
To the extent actual losses exceed the Company’s estimates
at acquisition, the Company’s financial risk would only be
its share of those losses under the loss sharing agreements.
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
diversified by geography and managed by adherence to
loan-to-value and borrower credit criteria 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, 2009 (excluding covered assets):
Residential mortgages
(Dollars in Millions)
Interest
Only Amortizing Total
Percent
of Total
Consumer Finance
Less than or equal to 80% . . $1,240 $ 3,555 $ 4,795 46.7%
Over 80% through 90% .... 608 1,729 2,337 22.7
Over 90% through 100% . . . 583 2,423 3,006 29.3
Over 100% ............ – 134 134 1.3
Tot al .............
$2,431 $ 7,841 $10,272 100.0%
Other Retail
Less than or equal to 80% . . $2,097 $12,369 $14,466 91.7%
Over 80% through 90% .... 68 571 639 4.0
Over 90% through 100% . . . 91 588 679 4.3
Over 100% ............ – – – –
Tot al .............
$2,256 $13,528 $15,784 100.0%
Total Company
Less than or equal to 80% . . $3,337 $15,924 $19,261 73.9%
Over 80% through 90% .... 676 2,300 2,976 11.4
Over 90% through 100% . . . 674 3,011 3,685 14.2
Over 100% ............ – 134 134 .5
Tot al .............
$4,687 $21,369 $26,056 100.0%
Note: Loan-to-values determined as of the date of origination and adjusted for cumulative
principal payments, and consider mortgage insurance, as applicable.
U.S. BANCORP 37