Fifth Third Bank 2010 Annual Report Download - page 59

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Fifth Third Bancorp 57
year ended December 31, 2010 was .19%, or five percent of the
total ALLL, compared to .25%, or five percent of the total ALLL,
as of December 31, 2009. The unallocated allowance was held
consistent to the total ALLL due to many of the impacts of recent
economic events being more fully incorporated into the historical
loss rates within the portfolio specific models and stabilization in
general economic factors including real estate values in certain of
the Bancorp’s lending markets.
The ALLL as a percent of the total loan and lease portfolio
decreased to 3.88% at December 31, 2010, compared to 4.88% at
December 31, 2009. Total ALLL was $3.0 billion and $3.7 billion
as of December 31, 2010 and 2009, respectively. This decrease is
reflective of a number of factors including decreases in net charge-
offs and delinquencies and signs of moderation in general
economic conditions during 2010.
The Bancorp’s determination of the allowance for
commercial loans is sensitive to the risk grades it assigns to these
loans. In the event that 10% of commercial loans in each risk
category would experience a downgrade of one risk category, the
allowance for commercial loans would increase by approximately
$156 million at December 31, 2010. In addition, the Bancorp’s
determination of the allowance for residential mortgage loans and
consumer loans is sensitive to changes in estimated loss rates. In
the event that estimated loss rates would increase 10%, the
allowance for residential mortgage loans and consumer loans
would increase approximately $31 million and $56 million,
respectively at December 31, 2010. As several qualitative and
quantitative factors are considered in determining the ALLL, these
sensitivity analyses do not necessarily reflect the nature and extent
of future changes in the ALLL. They are intended to provide
insights into the impact of adverse changes to risk grades and
estimated loss rates and do not imply any expectation of future
deterioration in the risk ratings or loss rates. Given current
processes employed by the Bancorp, management believes the risk
grades and estimated loss rates currently assigned are appropriate.
Total impaired loans consist of loans and leases that are
restructured in a troubled debt restructuring and larger commercial
loans included with aggregate borrower relationship balances
exceeding $1 million that exhibit probable or observed credit
weaknesses. Impaired loans are subject to individual review and
decreased from $3.3 billion as of December 31, 2009 to $2.9
billion as of December 31, 2010.
The Bancorp continually reviews its credit administration and
loan and lease portfolio and makes changes based on the
performance of its products. Management discontinued the
origination of brokered home equity products at the end of 2007,
suspended homebuilder lending in the fourth quarter of 2007 and
new commercial non-owner occupied real estate lending in 2008,
and raised underwriting standards across both the commercial and
consumer loan product offerings.
TABLE 41: ATTRIBUTION OF ALLOWANCE FOR LOAN AND LEASE LOSSES TO PORTFOLIO LOANS AND LEASES
A
s of December 31 ($ in millions) 2010 2009 2008 2007 2006
A
llowance attributed to:
Commercial and industrial loans $1,123 1,282 824 271 252
Commercial mortgage loans 597 734 363 135 95
Commercial construction loans 158 380 252 98 49
Commercial leases 111 121 61 27 24
Residential mortgage loans 310 375 388 67 51
Consumer loans 554 660 611 287 247
Consumer leases 149 5 5
Unallocated 150 193 279 47 48
Total ALLL $3,004 3,749 2,787 937 771
Portfolio loans and leases:
Commercial and industrial loans $27,191 25,683 29,197 24,813 20,831
Commercial mortgage loans 10,845 11,803 12,502 11,862 10,405
Commercial construction loans 2,048 3,784 5,114 5,561 6,168
Commercial leases 3,378 3,535 3,666 3,737 3,842
Residential mortgage loans 8,956 8,035 9,385 10,540 8,830
Consumer loans 24,801 23,439 23,509 22,943 23,204
Consumer leases 272 500 770 797 1,073
Total portfolio loans and leases $77,491 76,779 84,143 80,253 74,353
A
ttributed allowance as a percent of respective portfolio loans:
Commercial and industrial loans 4.13 % 4.99 2.82 1.09 1.21
Commercial mortgage loans 5.50 6.22 2.90 1.14 .91
Commercial construction loans 7.71 10.04 4.93 1.77 .80
Commercial leases 3.29 3.42 1.66 .72 .62
Residential mortgage loans 3.35 4.67 4.13 .63 .58
Consumer loans 2.23 2.81 2.60 1.25 1.06
Consumer leases .37 .80 1.17 .63 .47
Unallocated (as a percent of total portfolio loans and leases) .19 .25 .33 .06 .06
Total portfolio loans and leases 3.88 % 4.88 3.31 1.17 1.04
TABLE 40: CHANGES IN ALLOWANCE FOR CREDIT LOSSES
For the years ended December 31 ($ in millions) 2010 2009 2008 2007 2006
Balance beginning of period $3,749 2,787 937 771 744
Impact of change in accounting principle 45 -- - -
Net losses charged off (2,328) (2,581) (2,710) (462) (316)
Provision for loan and lease losses 1,538 3,543 4,560 628 343
Balance, end of year $3,004 3,749 2,787 937 771
Reserve for unfunded commitments:
Balance beginning of period 294 195 95 76 70
Impact of change in accounting principle (43) -- - -
Provision for unfunded commitments (24) 99 100 19 6
Balance, end of year $227 294 195 95 76