Fifth Third Bank 2014 Annual Report Download - page 112

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
110 Fifth Third Bancorp
Nonperforming Assets
Nonperforming assets include nonaccrual loans and leases for which ultimate collectability of the full amount of the principal and/or interest is
uncertain; commercial and credit card TDRs which have not yet met the requirements to be classified as a performing asset; consumer TDRs
w
hich are 90 days past due based on the restructured terms unless the loan is both well-secured and in the process of collection; and certain othe
r
assets, including OREO and other repossessed property. The following table summarizes the Bancorp’s nonperforming loans and leases, by class,
as of December 31:
($ in millions) 2014 2013
Commercial:
Commercial and industrial loans $228 281
Commercial mortgage owner-occupied loans(a) 78 95
Commercial mortgage nonowner-occupied loans 57 48
Commercial construction loans - 29
Commercial leases 4 5
Total commercial loans and leases 367 458
Residential mortgage loans 77 166
Consumer:
Home equity 93 93
A
utomobile loans 1 1
Credit card 41 33
Total consumer loans and leases 135 127
Total nonperforming loans and leases(b)(c) $579 751
OREO and other repossessed property(d) 165 229
(a) Excludes $21 of restructured nonaccrual loans at December 31, 2014 and 2013 associated with a consolidated VIE in which the Bancorp has no continuing credit risk due the risk being
assumed by a third party.
(b) Excludes $39 and $6 of nonaccrual loans held for sale at December 31, 2014 and 2013, respectively.
(c) Includes $9 and $10 of nonaccrual government insured commercial loans whose repayments are insured by the SBA at December 31, 2014 and 2013, respectively, and $4 and $2 of restructured
nonaccrual government insured commercial loans at December 31, 2014 and 2013, respectively.
(d) Excludes $71 and $77 of OREO related to government insured loans at December 31, 2014 and 2013, respectively.
A
Troubled Debt Restructurings
If a borrower is experiencing financial difficulty, the Bancorp may
consider, in certain circumstances, modifying the terms of their loan
to maximize collection of amounts due. Within each of the
Bancorp’s loan classes, TDRs typically involve either a reduction of
the stated interest rate of the loan, an extension of the loan’s
maturity date(s) with a stated rate lower than the current market rate
for a new loan with similar risk, or in limited circumstances, a
reduction of the principal balance of the loan or the loan’s accrued
interest. Modifying the terms of a loan may result in an increase or
decrease to the ALLL depending upon the terms modified, the
method used to measure the ALLL for a loan prior to modification,
and whether any charge-offs were recorded on the loan before or at
the time of modification. Refer to the ALLL section of Note 1 for
information on the Bancorp’s ALLL methodology. Upon
modification of a loan, the Bancorp measures the related
impairment as the difference between the estimated future cash
flows expected to be collected on the modified loan, discounted at
the original effective yield of the loan, and the carrying value of the
loan. The resulting measurement may result in the need for minimal
or no valuation allowance because it is probable that all cash flows
will be collected under the modified terms of the loan. In addition,
if the stated interest rate was increased in a TDR, the cash flows on
the modified loan, using the pre-modification interest rate as the
discount rate, often exceed the recorded investment of the loan.
Conversely, upon a modification that reduces the stated interest rate
on a loan, the Bancorp recognizes an impairment loss as an increase
to the ALLL.
If a TDR involves a reduction of the principal balance of the
loan or the loan’s accrued interest, that amount is charged-off to the
ALLL. As of December 31, 2014 and 2013, the Bancorp had $89
million and $86 million in line of credit and letter of credit
commitments, respectively, to lend additional funds to borrowers
whose terms have been modified in a TDR.