Fifth Third Bank 2011 Annual Report Download - page 96

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
94 Fifth Third Bancorp
CREDIT RISK PROFILE
Commercial Portfolio Segment
For purposes of monitoring the credit quality and risk
characteristics of its commercial portfolio segment, the Bancorp
disaggregates the segment into the following classes: commercial
and industrial, commercial mortgage owner-occupied, commercial
mortgage nonowner-occupied, commercial construction and
commercial leasing.
To facilitate the monitoring of credit quality within the
commercial portfolio segment, and for purposes of analyzing
historical loss rates used in the determination of the ALLL for the
commercial portfolio segment, the Bancorp utilizes the following
categories of credit grades: pass, special mention, substandard,
doubtful or loss. The five categories, which are derived from
standard regulatory rating definitions, are assigned upon initial
approval of credit to borrowers and updated periodically thereafter.
Pass ratings, which are assigned to those borrowers that do not have
identified potential or well defined weaknesses and for which there
is a high likelihood of orderly repayment, are updated periodically
based on the size and credit characteristics of the borrower. All
other categories are updated on a quarterly basis during the month
preceding the end of the calendar quarter.
The Bancorp assigns a special mention rating to loans and
leases that have potential weaknesses that deserve management’s
close attention. If left uncorrected, these potential weaknesses may,
at some future date, result in the deterioration of the repayment
prospects for the loan or lease or the Bancorp’s credit position.
The Bancorp assigns a substandard rating to loans and leases
that are inadequately protected by the current sound worth and
paying capacity of the borrower or of the collateral pledged.
Substandard loans and leases have well defined weaknesses or
weaknesses that could jeopardize the orderly repayment of the debt.
Loans and leases in this grade also are characterized by the distinct
possibility that the Bancorp will sustain some loss if the deficiencies
noted are not addressed and corrected.
The Bancorp assigns a doubtful rating to loans and leases that
have all the attributes of a substandard rating with the added
characteristic that the weaknesses make collection or liquidation in
full, on the basis of currently existing facts, conditions, and values,
highly questionable and improbable. The possibility of loss is
extremely high, but because of certain important and reasonable
specific pending factors that may work to the advantage of and
strengthen the credit quality of the loan or lease, its classification as
an estimated loss is deferred until its more exact status may be
determined. Pending factors may include a proposed merger or
acquisition, liquidation proceeding, capital injection, perfecting liens
on additional collateral or refinancing plans.
Loans and leases classified as loss are considered uncollectible
and are charged off in the period in which they are determined to be
uncollectible. Because loans and leases in this category are fully
charged down, they are not included in the following tables.
The following table summarizes the credit risk profile of the Bancorp’s commercial portfolio segment, by class:
Special
A
s of December 31, 2011 ($ in millions) Pass Mention Substandard Doubtful Total
Commercial and industrial loans $ 27,199 1,641 1,831 112 30,783
Commercial mortgage loans owner-occupied 3,893 567 778 28 5,266
Commercial mortgage loans nonowner-occupied 3,328 521 984 39 4,872
Commercial construction loans 343 235 413 29 1,020
Commercial leases 3,434 52 44 1 3,531
Total $ 38,197 3,016 4,050 209 45,472
Special
December 31, 2010 ($ in millions) Pass Mention Substandard Doubtful Total
Commercial and industrial loans $ 23,147 1,406 2,541 97 27,191
Commercial mortgage loans owner-occupied 4,034 430 854 22 5,340
Commercial mortgage loans nonowner-occupied 3,620 647 1,174 64 5,505
Commercial construction loans 1,034 416 540 58 2,048
Commercial leases 3,269 60 48 1 3,378
Total $ 35,104 2,959 5,157 242 43,462
Consumer Portfolio Segment
For purposes of monitoring the credit quality and risk
characteristics of its consumer portfolio segment, the Bancorp
disaggregates the segment into the following classes: home equity,
automobile loans, credit card, and other consumer loans and leases.
The Bancorp’s residential mortgage portfolio segment is also a
separate class.
The Bancorp considers repayment performance as the best
indicator of credit quality for residential mortgage and consumer
loans, which includes both the delinquency status and performing
versus nonperforming status of the loans. The delinquency status
of all residential mortgage and consumer loans is presented by
class in the age analysis section below while the performing versus
nonperforming status is presented in the table below. Residential
mortgage loans that have principal and interest payments that have
become past due 150 days and home equity loans with principal
and interest payments that have become past due 180 days are
classified as nonperforming unless such loans are both well secured
and in the process of collection. Automobile and other consumer
loans and leases that have been modified in a TDR and
subsequently become past due 90 days are classified as
nonperforming. Credit card loans that have been modified in a
TDR are classified as nonperforming unless such loans have a
sustained repayment performance of six months or greater and are
reasonably assured of repayment in accordance with the
restructured terms. Well secured loans are collateralized by
perfected security interests in real and/or personal property for
which the Bancorp estimates proceeds from sale would be
sufficient to recover the outstanding principal and accrued interest
balance of the loan and pay all costs to sell the collateral. The
Bancorp considers a loan in the process of collection if collection
efforts or legal action is proceeding and the Bancorp expects to
collect funds sufficient to bring the loan current or recover the
entire outstanding principal and accrued interest balance.