Fifth Third Bank 2012 Annual Report Download - page 68

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
66 Fifth Third Bancorp
assets, including OREO and other repossessed property. A
summary of nonperforming assets is included in Table 48.
Residential mortgage loans are typically placed on nonaccrual
status when principal and interest payments have become past due
150 days unless such loans are both well secured and in the process
of collection. Residential mortgage loans may stay on nonaccrual
status for an extended time as the foreclosure process typically lasts
longer than 180 days. Typically, home equity loans are reported on
nonaccrual status if principal or interest has been in default for 180
days or more unless the loan is both well secured and in the process
of collection. Residential mortgage, home equity, automobile and
other consumer loans and leases that have been modified in a TDR
and subsequently become past due 90 days are placed on nonaccrual
status unless the loan is both well secured and in the process of
collection. Commercial and credit card loans that have been
modified in a TDR are classified as nonaccrual unless such loans
have a sustained repayment performance of six months or greater
and the Bancorp is 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. When a loan is placed on
nonaccrual status, the accrual of interest, amortization of loan
premiums, accretion of loan discounts and amortization or accretion
of deferred net loan fees or costs are discontinued and previously
accrued, but unpaid interest is reversed. Commercial loans on
nonaccrual status are reviewed for impairment at least quarterly. If
the principal or a portion of the principal is deemed a loss, the loss
amount is charged off to the ALLL.
Total nonperforming assets, including loans held for sale, were
$1.3 billion at December 31 2012 compared to $2.0 billion at
December 31, 2011. At December 31, 2012, $29 million of
nonaccrual loans, consisting primarily of real estate secured loans,
were held for sale, compared to $138 million at December 31, 2011.
Nonperforming assets as a percentage of total loans, leases and
other assets, including OREO and nonaccrual loans held for sale as
of December 31, 2012 were 1.48%, compared to 2.32% as of
December 31, 2011. Excluding nonaccrual loans held for sale,
nonperforming assets as a percentage of portfolio loans, leases and
other assets, including OREO was 1.49% as of December 31, 2012,
compared to 2.23% as of December 31, 2011. The composition of
nonaccrual loans and leases continues to be concentrated in real
estate as 67% of nonaccrual loans and leases were secured by real
estate as of December 31, 2012 compared to 69% as of December
31, 2011.
Commercial nonperforming loans and leases were $726 million
at December 31, 2012, a decrease of $470 million from December
31, 2011. Excluding commercial nonperforming loans and leases
held for sale, commercial nonperforming loans and leases at
December 2012 decreased $361 million compared to December 31,
2011. The decrease from December 31, 2011 was due to a
continued decrease in new nonaccruals and an increase in paydowns
and payoffs in 2012 due to improved delinquency metrics and an
improvement in underlying loss trends.
Consumer nonperforming loans and leases were $332 million
at December 31, 2012, a decrease of $48 million from December 31,
2011. The decrease is due to the continued moderation in general
economic conditions in 2012. Home equity nonaccrual levels remain
modest as the Bancorp continues to fully charge-off a high
proportion of the severely delinquent loans at 180 days past due.
Geography continues to be a large driver of nonaccrual activity as
Florida properties represent approximately 14% and 8% of
residential mortgage and home equity balances, respectively, but
represent 47% and 19% of nonaccrual loans for each category.
Refer to Table 49 for a rollforward of the nonperforming loans and
leases.
Consumer restructured loans on accrual status totaled $1.7
billion and $1.6 billion at December 31, 2012 and 2011, respectively.
As of December 31, 2012, the percentage of restructured residential
mortgage loans, home equity loans and credit card loans that are
past due 30 days or more are 25%, 13% and 14%, respectively.
OREO and other repossessed property was $257 million at
December 31, 2012, compared to $378 million at December 31,
2011. The decrease from December 31, 2011 was primarily due to a
decrease in new OREO properties reflecting the changes made to
the Bancorp’s underwriting of real estate loans in prior periods as
well as improvements in general economic conditions during 2011
and 2012. The Bancorp recognized $74 million and $171 million in
losses on the sale or write-down of OREO properties in 2012 and
2011, respectively. These losses are primarily reflective of the
continued stress in the Michigan and Florida markets for
commercial real estate and residential mortgage loans as Michigan
and Florida represented 14% and 17%, respectively, of total OREO
losses in 2012 compared with 16% and 26%, respectively, in 2011.
Properties in Michigan and Florida accounted for 38% of OREO at
December 31, 2012, compared to 42% at December 31, 2011.
In 2012 and 2011, approximately $102 million and $125
million, respectively, of interest income would have been recorded if
the nonaccrual and renegotiated loans and leases on nonaccrual
status had been current in accordance with their original terms.
Although these values help demonstrate the costs of carrying
nonaccrual credits, the Bancorp does not expect to recover the full
amount of interest as nonaccrual loans and leases are generally
carried below their principal balance.