Fifth Third Bank 2008 Annual Report Download - page 45

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Fifth Third Bancorp 43
Residential Mortgage Portfolio
The Bancorp manages credit risk in the mortgage portfolio
through conservative underwriting and documentation standards
and geographic and product diversification. The Bancorp may
also package and sell loans in the portfolio without recourse or
may purchase mortgage insurance for the loans sold in order to
mitigate credit risk.
Certain mortgage products have contractual features that may
increase the risk of loss to the Bancorp in the event of a decline in
housing prices. These types of mortgage products offered by the
Bancorp include loans with high loan-to-value (LTV) ratios,
multiple loans on the same collateral that when combined result in
an LTV greater than 80% (80/20 loans) and interest-only loans.
Table 28 shows the Bancorp’s originations of these products for
the year ended December 31, 2008 and 2007. The Bancorp does
not originate mortgage loans that permit customers to defer
principal payments or make payments that are less than the
accruing interest.
Table 29 provides the amount of these loans as a percent of
the residential mortgage loans in the Bancorp’s portfolio and the
delinquency rates of these loan products as of December 31, 2008
and 2007. Reset of rates on adjustable rate mortgages are not
expected to have a material impact on credit cost as two-thirds of
adjustable rate mortgages have an LTV less than 80%.
Geographically, the Bancorp’s residential mortgage portfolio is
dominated by three states with Florida, Michigan and Ohio
representing 31%, 23% and 14% of the portfolio, respectively.
The Bancorp previously originated certain non-conforming
residential mortgage loans known as “Alt-A” loans. Borrower
qualifications were comparable to other conforming residential
mortgage products. As of December 31, 2008, the Bancorp held
$115 million of Alt-A mortgage loans in its portfolio with
approximately $17 million on nonaccrual.
The Bancorp previously sold certain mortgage products in
the secondary market with recourse. At December 31, 2008 and
2007, the outstanding balances on these loans sold with recourse
were approximately $1.3 billion and $1.5 billion, respectively, and
the delinquency rates were approximately 6.40% and 3.03%,
respectively. At December 31, 2008 and 2007, the Bancorp
maintained an estimated credit loss reserve on these loans sold
with recourse of approximately $20 million and $17 million,
respectively. See Note 10 of the Notes to Consolidated Financial
Statements for further information.
TABLE 27: COMMERCIAL LOAN AND LEASE PORTFOLIO EXPOSURE (a)
2008 2007
As of December 31 ($ in millions) Outstanding Exposure Nonaccrual Outstandin
g
Exposure Nonaccrual
By industry:
Real estate $11,925 14,428 583 11,564 14,450 147
Manufacturing 7,382 14,310 92 6,570 14,365 28
Construction 5,030 7,788 698 5,226 8,534 258
Retail trade 3,621 6,874 167 4,175 7,251 29
Financial services and insurance 3,601 8,164 28 2,484 6,916 6
Healthcare 3,081 5,057 20 2,347 4,007 15
Business services 2,925 5,141 38 2,266 4,251 25
Transportation and warehousing 2,726 3,224 26 2,565 3,076 21
Wholesale trade 2,567 4,772 25 2,179 4,127 16
Other services 1,203 1,712 22 1,049 1,455 17
Accommodation and food 1,163 1,560 38 1,036 1,470 21
Individuals 1,053 1,354 38 1,252 1,626 15
Communication and information 951 1,547 19 741 1,439 1
Mining 838 1,275 18 578 1,090 3
Entertainment and recreation 765 1,009 35 617 873 6
Public administration 725 938 - 737 957 -
Agribusiness 635 815 21 606 788 3
Utilities 584 1,231 - 389 1,210 2
Other 178 369 11 963 1,897 59
Total $50,953 81,568 1,879 47,334 79,782 672
By loan size:
Less than $200,000 3 % 2 5 3 3 9
$200,000 to $1 million 12 9 21 13 10 24
$1 million to $5 million 25 21 45 28 23 43
$5 million to $10 million 14 13 20 26 23 19
$10 million to $25 million 23 24 9 13 14 5
Greater than $25 million 23 31 - 17 27 -
Total 100 % 100 100 100 100 100
By state:
Ohio 26 % 30 14 26 30 20
Michigan 17 16 22 20 18 36
Florida 982511 9 23
Illinois 89 89 9 6
Indiana 77 88 8 9
Kentucky 55 55 5 2
North Carolina 33 41 1 -
Tennessee 32 33 3 1
All other states 22 20 11 17 17 3
Total 100 % 100 100 100 100 100
(a) Outstanding reflects total commercial customer loan and lease balances, including held for sale and net of unearned income, and exposure reflects total commercial customer lending commitments.