Fifth Third Bank 2013 Annual Report Download - page 109

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
107 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 non-owner 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, 2013 ($ in millions) Pass Mention Substandard Doubtful Total
Commercial and industrial loans $ 36,776 1,118 1,419 3 39,316
Commercial mortgage owner occupied loans 3,866 209 415 17 4,507
Commercial mortgage non-owner occupied loans 2,879 248 431 1 3,559
Commercial construction loans 855 32 152 - 1,039
Commercial leases 3,546 56 23 - 3,625
Total $ 47,922 1,663 2,440 21 52,046
Special
A
s of December 31, 2012 ($ in millions) Pass Mention Substandard Doubtful Total
Commercial and industrial loans $ 33,521 1,113 1,379 25 36,038
Commercial mortgage owner occupied loans 3,934 338 603 1 4,876
Commercial mortgage non-owner occupied loans 2,958 449 815 5 4,227
Commercial construction loans 444 59 195 - 698
Commercial leases 3,483 48 18 - 3,549
Total $ 44,340 2,007 3,010 31 49,388
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 are classified as
nonperforming unless such loans are both well secured and in the
process of collection. During the fourth quarter of 2013, the
Bancorp modified its nonaccrual policy for home equity loans and
lines of credit. Home equity loans and lines of credit are reported as
nonperforming if principal or interest has been in default for 90
days or more unless the loan is both well secured and in the process
of collection. Home equity loans and lines of credit that have been
in default for 60 days or more are also reported as nonperforming if
the senior lien has been in default 120 days or more, unless the loan
is both well secured and in the process of collection. As a result of
the modification of the nonaccrual policy for home equity loans and
lines of credit, $46 million of home equity loans and lines of credit
were reclassified from performing to nonperforming status during
the fourth quarter of 2013. In addition, the Bancorp modified its
charge-off policy during the fourth quarter of 2013. Home equity
loans and lines of credit that have been in default 120 days or more
are assessed for a charge-off if the senior lien has been in default
120 days or more. Residential mortgage, home equity, automobile
and other consumer loans and leases that have been modified in a