US Bank 2011 Annual Report Download - page 38

specialized products such as asset-based lending, commercial
lease financing, agricultural credit, warehouse mortgage
lending, commercial real estate, health care and correspondent
banking. The Company also offers an array of consumer
lending products, including residential mortgages, credit card
loans, retail leases, home equity, revolving credit, lending to
students and other consumer loans. These consumer lending
products are primarily offered through the branch office
network, home mortgage and loan production offices, indirect
distribution channels, such as automobile dealers, and a
consumer finance division. The Company monitors and
manages the portfolio diversification by industry, customer
and geography. Table 6 provides information with respect to
the overall product diversification and changes in the mix
during 2011.
The commercial loan class is diversified among various
industries with somewhat higher concentrations in consumer
products and services, financial services, healthcare, capital
goods (including manufacturing and commercial construction-
related businesses), and commercial services and supplies.
Additionally, the commercial loan class is diversified across
the Company’s geographical markets with 67.6 percent of
total commercial loans within the Company’s Consumer and
Small Business Banking markets. Credit relationships outside
of the Company’s Consumer and Small Business Banking
markets relate to the corporate banking, mortgage banking,
auto dealer and leasing businesses, focusing on large national
customers and specifically targeted industries. Loans to
mortgage banking customers are primarily warehouse lines
which are collateralized with the underlying mortgages. The
Company regularly monitors its mortgage collateral position
to manage its risk exposure. Table 7 provides a summary of
significant industry groups and geographical locations of
commercial loans outstanding at December 31, 2011 and
2010.
The commercial real estate loan class reflects the
Company’s focus on serving business owners within its
geographic footprint as well as regional and national
investment-based real estate owners and builders. Within the
commercial real estate loan class, different property types
have varying degrees of credit risk. Table 8 provides a
summary of the significant property types and geographical
locations of commercial real estate loans outstanding at
December 31, 2011 and 2010. At December 31, 2011,
approximately 32.8 percent of the commercial real estate
loans represented business owner-occupied properties that
tend to exhibit less credit risk than nonowner-occupied
properties. The investment-based real estate mortgages are
diversified among various property types with somewhat
higher concentrations in multi-family and retail properties.
During 2011, the Company continued to reduce its level of
exposure to homebuilders, given the stress in the
homebuilding industry sector. From a geographical
perspective, the Company’s commercial real estate loan class
is generally well diversified. However, at December 31, 2011,
21.3 percent of the Company’s commercial real estate loans
were secured by collateral in California, which has
experienced higher delinquency levels and credit quality
deterioration due to excess home inventory levels and
declining valuations. Included in commercial real estate at
year-end 2011 was approximately $1.1 billion in loans related
to land held for development and $1.5 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 loan class is diversified
across the Company’s geographical markets with 87.4 percent
of total commercial real estate loans outstanding at
December 31, 2011, within the Company’s Consumer and
Small Business Banking markets.
The Company’s consumer lending segment utilizes several
distinct business processes and channels to originate consumer
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 and Small Business Banking, the consumer finance
division specializes in serving channel-specific and alternate
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 the Company’s 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. The Company may retain residential
mortgage loans it originates on its balance sheet or sell the
loans 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 Company recently began estimating updated
loan-to-value information quarterly, based on a method that
combines automated valuation model updates and
36 U.S. BANCORP