U.S. Bank’s commercial real estate loans were stable in 4Q14
Strength in numbers – Analyzing U.S. Bank's 4Q14 resultsPART 8 OF 20
By Saul Perez | Jan 29, 2015 11:35 am EST
Commercial real estate, or CRE, loans are taken to acquire, develop, or construct commercial properties. CRE loans can be further classified into CRE mortgage and CRE construction loans.
At the end of 4Q14, CRE loans at U.S. Bank (USB) were $40,966 million. This was 4.2% growth—compared to 4Q13. CRE loans accounted for nearly 16% of U.S. Bank’s loan book.
Out of the total CRE loans, CRE mortgage loans accounted for the biggest amount. U.S. Bank’s CRE mortgages were $31,783 million. Investors were the primary borrowers of CRE mortgages. Investors had $20,793 million in CRE mortgages. Owners accounted for the remaining $10,990 million.
CRE construction loans are smaller in size
The second category of CRE loans are CRE construction loans.
These are given largely for construction of CRE loans. They accounted for loans worth $8,183 million at the end of 4Q14.
CRE loans have excellent charge-off ratios
CRE mortgages are relatively safer. This is because CRE is a high-income yielding property. This is reflected in the very low charge-off ratio for this loan segment. The net charge-off ratio for this loan segment remained negative for 4Q14. This implies that the bank is able to recover more than the loan amount from the lien in case of a delinquent loan.
U.S. Bank is strong in the West and Midwest metropolitan areas. This makes the bank a strong player in CRE loans. In this segment, it faces strong competition from the three biggest banks in the Financial Select Sector SPDR (XLF)—Wells Fargo (WFC), JPMorgan Chase (JPM), and Bank of America (BAC). Strong regional players—like Bank of Montreal and Northern Trust—are also strong competitors in this segment.
Category: Bank loan