Fifth Third Bank 2010 Annual Report Download - page 58

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
56 Fifth Third Bancorp
Allowance for Credit Losses
The allowance for credit losses is comprised of the ALLL and the
reserve for unfunded commitments. The ALLL provides coverage
for probable and estimable losses in the loan and lease portfolio.
The Bancorp evaluates the ALLL each quarter to determine its
adequacy to cover inherent losses. Several factors are taken into
consideration in the determination of the overall ALLL, including
an unallocated component. These factors include, but are not
limited to, the overall risk profile of the loan and lease portfolios,
net charge-off experience, the extent of impaired loans and leases,
the level of nonaccrual loans and leases, the level of 90 days past
due loans and leases and the overall percentage level of the ALLL.
The Bancorp also considers overall asset quality trends, credit
administration and portfolio management practices, risk
identification practices, credit policy and underwriting practices,
overall portfolio growth, portfolio concentrations and current
national and local economic conditions. See the Critical
Accounting Policies section for more information.
In 2010 the Bancorp did not substantively change any
material aspect of its overall approach in the determination of the
ALLL and there have been no material changes in assumptions or
estimation techniques as compared to prior periods that impacted
the determination of the current period allowance. In addition to
the ALLL, the Bancorp maintains a reserve for unfunded
commitments recorded in other liabilities in the Consolidated
Balance Sheets. The methodology used to determine the adequacy
of this reserve is similar to the Bancorp’s methodology for
determining the ALLL. The provision for unfunded commitments
is included in other noninterest expense in the Consolidated
Statements of Income.
Certain inherent, but unconfirmed losses are probable within
the loan and lease portfolio. The Bancorp’s current methodology
for determining the level of losses is based on historical loss rates,
current credit grades, specific allocation on loans modified in a
TDR and impaired commercial credits above specified thresholds
and other qualitative adjustments. Due to the heavy reliance on
realized historical losses and the credit grade rating process, the
model derived required reserves tend to slightly lag the
deterioration in the portfolio, in a stable or deteriorating credit
environment, and tend not to be as responsive when improved
conditions have presented themselves. Given these model
limitations, the qualitative adjustment factors may be incremental
or decremental to the quantitative model results. An unallocated
component to the ALLL is maintained to recognize the
imprecision in estimating and measuring loss. The unallocated
allowance as a percent of total portfolio loans and leases for the
TABLE 39: SUMMARY OF CREDIT LOSS EXPERIENCE
For the years ended December 31 ($ in millions) 2010 2009 2008 2007 2006
Losses charged off:
Commercial and industrial loans ($631) (768) (667) (121) (131)
Commercial mortgage loans (541) (436) (618) (46) (27)
Commercial construction loans (265) (420) (750) (29) (7)
Commercial leases (7) (11) - (1) (4)
Residential mortgage loans (441) (359) (243) (43) (23)
Home equity (276) (330) (212) (106) (65)
Automobile loans (132) (189) (168) (117) (87)
Credit card (164) (178) (101) (54) (36)
Other consumer loans and leases (28) (28) (32) (27) (28)
Total losses (2,485) (2,719) (2,791) (544) (408)
Recoveries of losses previously charged off:
Commercial and industrial loans 45 50 18 12 24
Commercial mortgage loans 17 14 5 2 3
Commercial construction loans 13 42 - -
Commercial leases 541 15
Residential mortgage loans 22- --
Home equity 12 87 99
Automobile loans 44 41 34 32 30
Credit card 987 85
Other consumer loans and leases 10 7 7 18 16
Total recoveries 157 138 81 82 92
Net losses charged off:
Commercial and industrial loans (586) (718) (649) (109) (107)
Commercial mortgage loans (524) (422) (613) (44) (24)
Commercial construction loans (252) (416) (748) (29) (7)
Commercial leases (2) (7) 1 - 1
Residential mortgage loans (439) (357) (243) (43) (23)
Home equity (264) (322) (205) (97) (56)
Automobile loans (88) (148) (134) (85) (57)
Credit card (155) (170) (94) (46) (31)
Other consumer loans and leases (18) (21) (25) (9) (12)
Total net losses charged off ($2,328) (2,581) (2,710) (462) (316)
Net charge-offs as a percent of average loans and leases (excluding held for sale):
Commercial and industrial loans 2.23 % 2.61 2.31 .49 .53
Commercial mortgage loans 4.58 3.43 4.80 .40 .25
Commercial construction loans 8.48 9.24 12.80 .51 .11
Commercial leases 0.05 0.22 (.02) .01 (.03)
Total commercial loans and leases 3.10 3.27 3.99 .43 .34
Residential mortgage loans 5.49 4.15 2.47 .48 .27
Home equity 2.20 2.57 1.67 .82 .46
Automobile loans 0.85 1.68 1.56 .83 .60
Credit card 8.28 8.87 5.51 3.55 3.65
Other consumer loans and leases 2.58 2.14 2.10 .83 .91
Total consumer loans and leases 2.92 3.10 2.08 .84 .55
Total net losses charged off 3.02 % 3.20 3.23 .61 .44