6. Credit Quality and the Allowance for Loan and Lease Losses

The Bancorp disaggregates ALLL balances and transactions in the ALLL by portfolio segment. Credit quality related disclosures for loans and leases are further disaggregated by class. The disaggregated disclosure requirements relating to information as of the end of a reporting period do not apply to periods ending before December 31, 2010. The disaggregated disclosure requirements relating to activity that occurs during a reporting period do not apply to periods beginning before December 15, 2010.

Allowance for Loan and Lease Losses

The following table summarizes transactions in the ALLL:


	For the three months						For the six months
	ended June 30,						ended June 30,
($ in millions)	2011			2010			2011			2010
Balance, beginning of period	$	2,805			3,802			3,004			3,749
Impact of change in accounting principle		—			—			—			45
Losses charged off		(343	)		(472	)		(740	)		(1,094	)
Recoveries of losses previously charged off		39			38			69			78
Provision for loan and lease losses		113			325			281			915

Balance, end of period	$	2,614			3,693			2,614			3,693

The following tables summarize transactions in the ALLL by portfolio segment:


For the three months ended June 30, 2011 ($ in millions)	Commercial			Residential Mortgage			Consumer			Unallocated			Total
Transactions in the ALLL:
Balance, beginning of period	$	1,855			286			519			145			2,805
Losses charged off		(158	)		(37	)		(148	)		—			(343	)
Recoveries of losses previously charged off		17			1			21			—			39
Provision for loan and lease losses		50			18			60			(15	)		113

Balance, end of period	$	1,764			268			452			130			2,614


For the six months ended June 30, 2011 ($ in millions)	Commercial			Residential Mortgage			Consumer			Unallocated			Total
Transactions in the ALLL:
Balance, beginning of period	$	1,989			310			555			150			3,004
Losses charged off		(334	)		(104	)		(302	)		—			(740	)
Recoveries of losses previously charged off		29			3			37			—			69
Provision for loan and lease losses		80			59			162			(20	)		281

Balance, end of period	$	1,764			268			452			130			2,614

The following tables provide a summary of the ALLL and related loans and leases classified by portfolio segment:

As of June 30, 2011 ($ in millions)

Commercial

Residential
Mortgage

Consumer

Unallocated

Total

ALLL:^(a)

Individually evaluated for impairment

245

126

—

445

Collectively evaluated for impairment

1,518

141

378

—

2,037

Loans acquired with deteriorated credit quality

—

Unallocated

—

130

Total ALLL

1,764

268

452

130

2,614

Loans and leases:^(b)

Individually evaluated for impairment

1,181

1,220

589

—

2,990

Collectively evaluated for impairment

42,252

8,559

24,093

—

74,904

Loans acquired with deteriorated credit quality

—

Total portfolio loans and leases

43,436

9,790

24,682

—

77,908

(a)

Includes $18 related to leverage leases.

(b)

Excludes $59 of residential mortgage loans measured at fair value, and includes $1,015 of leveraged leases, net of unearned income.


			Residential
As of December 31, 2010 ($ in millions)	Commercial		Mortgage		Consumer		Unallocated		Total
ALLL:^(a)
Individually evaluated for impairment	$	209		119		107		—		435
Collectively evaluated for impairment		1,779		189		448		—		2,416
Loans acquired with deteriorated credit quality		1		2		—		—		3
Unallocated		—		—		—		150		150

Total ALLL	$	1,989		310		555		150		3,004

Loans and leases:^(b)
Individually evaluated for impairment	$	1,076		1,180		651		—		2,907
Collectively evaluated for impairment		42,382		7,718		24,414		—		74,514
Loans acquired with deteriorated credit quality		4		12		8		—		24

Total portfolio loans and leases	$	43,462		8,910		25,073		—		77,445

(a)

Includes $15 related to leverage leases.

(b)

Excludes $46 of residential mortgage loans measured at fair value, and includes $1,039 of leveraged leases, net of unearned income.

Credit Risk Profile

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

As of June 30, 2011 ($ in millions)

Pass

Mention

Substandard

Doubtful

Total

Commercial and industrial loans

24,268

1,594

2,077

160

28,099

Commercial mortgage loans owner-occupied

3,995

430

779

5,229

Commercial mortgage loans nonowner-occupied

3,195

640

1,134

5,004

Commercial construction loans

948

303

473

1,778

Commercial leases

3,232

3,326

Total

35,638

3,019

4,503

276

43,436


			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

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. Residential mortgage loans that have principal and interest payments that have become past due one hundred fifty days are classified as nonperforming unless such loans are both well secured and in the process of collection. Home equity, automobile, and other consumer loans and leases that have principal and interest payments that have become past due ninety days are classified as nonperforming unless the loan is both well secured and in the process of collection. 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. All other loans and leases are classified as performing. 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. The following table summarizes the credit risk profile of the Bancorp’s residential mortgage and consumer portfolio segments, by class:


	June 30, 2011				December 31, 2010
($ in millions)	Performing		Nonperforming		Performing		Nonperforming
Residential mortgage loans^(a)	$	9,518		272		8,642		268
Home equity		10,990		58		11,457		56
Automobile loans		11,312		3		10,980		3
Credit card		1,806		50		1,841		55
Other consumer loans and leases		460		3		597		84

Total	$	34,086		386		33,517		466

(a)

Excludes $59 and $46 of loans measured at fair value at June 30, 2011 and December 31, 2010, respectively.

Age Analysis of Past Due Loans and Leases

The following tables summarize the Bancorp’s recorded investment in portfolio loans and leases by age and class:

Past Due

As of June 30, 2011

($ in millions)

Current
Loans and
Leases

30-89
Days

90 Days
and
Greater^(c)

Total
Past Due

Total Loans
and Leases

90 Days Past
Due and Still
Accruing

Commercial:

Commercial and industrial loans

27,737

292

362

28,099

Commercial mortgage owner-occupied loans

5,064

124

165

5,229

Commercial mortgage nonowner-occupied loans

4,746

221

258

5,004

Commercial construction loans

1,556

182

222

1,778

Commercial leases

3,314

3,326

Residential mortgage loans^(a)
(b)

9,334

102

354

456

9,790

Consumer:

Home equity

10,775

130

143

273

11,048

Automobile loans

11,234

11,315

Credit card

1,755

101

1,856

Other consumer loans and leases

459

463

—

Total portfolio loans and leases^(a)

75,974

520

1,414

1,934

77,908

279

(a)

Excludes $59 of loans measured at fair value.

(b)

Information for current residential mortgage loans includes advances made pursuant to servicing agreements for GNMA mortgage pools whose repayments are insured by the Federal Housing Administration or guaranteed by the Department of Veterans Affairs. As of June 30, 2011, $28 of these loans were 30-89 days past due and $271 were 90 days or more past due.

(c)

Includes accrual and nonaccrual loans and leases.


			Past Due
As of December 31, 2010 ($ in millions)	Current Loans and Leases		30-89 Days		90 Days and Greater^(c)		Total Past Due		Total Loans and Leases		90 Days Past Due and Still Accruing
Commercial:
Commercial and industrial loans	$	26,687		201		303		504		27,191		16
Commercial mortgage owner-occupied loans		5,151		50		139		189		5,340		8
Commercial mortgage nonowner-occupied loans		5,252		38		215		253		5,505		3
Commercial construction loans		1,831		72		145		217		2,048		3
Commercial leases		3,361		10		7		17		3,378		—
Residential mortgage loans^(a) (b)		8,404		138		368		506		8,910		100
Consumer:
Home equity		11,220		148		145		293		11,513		89
Automobile loans		10,872		96		15		111		10,983		13
Credit card		1,771		35		90		125		1,896		42
Other consumer loans and leases		672		3		6		9		681		—

Total portfolio loans and leases^(a)	$	75,221		791		1,433		2,224		77,445		274

(a)

Excludes $46 of loans measured at fair value.

(b)

Information for current residential mortgage loans includes advances made pursuant to servicing agreements for GNMA mortgage pools whose repayments are insured by the Federal Housing Administration or guaranteed by the Department of Veterans Affairs. As of December 31, 2010 $55 of these loans were 30-89 days past due and $284 were 90 days or more past due.

(c)

Includes accrual and nonaccrual loans and leases.

Impaired Loans and Leases

Larger commercial loans included within aggregate borrower relationship balances exceeding $1 million that exhibit probable or observed credit weaknesses are subject to individual review for impairment. The Bancorp also performs an individual review on loans that are restructured in a troubled debt restructuring. The Bancorp considers the current value of collateral, credit quality of any guarantees, the loan structure, and other factors when evaluating whether an individual loan is impaired. Other factors may include the geography and industry of the borrower, size and financial condition of the borrower, cash flow and leverage of the borrower, and the Bancorp’s evaluation of the borrower’s management.

The following table summarizes the Bancorp’s impaired loans and leases by class:


	Unpaid
As of June 30, 2011	Principal		Recorded
($ in millions)	Balance		Investment		Allowance
With a related allowance recorded:
Commercial:
Commercial and industrial loans	$	414		394		184
Commercial mortgage owner-occupied loans		49		38		5
Commercial mortgage nonowner-occupied loans		208		162		30
Commercial construction loans		207		156		19
Commercial leases		12		19		8
Restructured residential mortgage loans		1,101		1,053		127
Restructured consumer:
Home equity		392		389		50
Automobile loans		36		36		5
Credit card		105		96		18
Other consumer loans and leases		5		5		1

Total impaired loans with a related allowance	$	2,529		2,348		447

With no related allowance recorded:
Commercial:
Commercial and industrial loans	$	210		155		—
Commercial mortgage owner-occupied loans		60		83		—
Commercial mortgage nonowner-occupied loans		148		139		—
Commercial construction loans		70		34		—
Commercial leases		4		4		—
Restructured residential mortgage loans		221		178		—
Restructured consumer:
Home equity		62		59		—
Automobile loans		4		4		—

Total impaired loans with no related allowance	$	779		656		—

The following table summarizes the Bancorp’s average impaired loans and leases and interest income by class for the three and six months ended June 30, 2011:


	For the three months ended June 30, 2011				For the six months ended June 30, 2011
($ in millions)	Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized


Commercial:
Commercial and industrial loans	$	521		12		495		25
Commercial mortgage owner-occupied loans		121		5		126		10
Commercial mortgage nonowner-occupied loans		280		8		290		16
Commercial construction loans		197		6		183		11
Commercial leases		19		—		23		—
Restructured residential mortgage loans		1,222		11		1,209		21
Restructured consumer:
Home equity		440		11		444		17
Automobile loans		40		1		39		1
Credit card		100		1		98		2
Other consumer loans and leases		40		—		56		—

Total impaired loans	$	2,980		55		2,963		103

The following table summarizes the Bancorp’s impaired loans and leases by class as of December 31, 2010:


	Unpaid
As of December 31, 2010	Principal		Recorded
($ in millions)	Balance		Investment		Allowance
With a related allowance recorded:
Commercial:
Commercial and industrial loans	$	404		291		128
Commercial mortgage owner-occupied loans		49		37		4
Commercial mortgage nonowner-occupied loans		386		202		40
Commercial construction loans		240		150		31
Commercial leases		15		15		7
Restructured residential mortgage loans		1,126		1,071		121
Restructured consumer:
Home equity		400		397		53
Automobile loans		33		32		5
Credit card		100		100		18
Other consumer loans and leases		78		78		31

Total impaired loans with a related allowance	$	2,831		2,373		438

With no related allowance recorded:
Commercial:
Commercial and industrial loans	$	194		153		—
Commercial mortgage owner-occupied loans		113		99		—
Commercial mortgage nonowner-occupied loans		126		108		—
Commercial construction loans		24		8		—
Commercial leases		17		17		—
Restructured residential mortgage loans		146		121		—
Restructured consumer:
Home equity		48		46		—
Automobile loans		6		6		—

Total impaired loans with no related allowance	$	674		558		—

During the three and six months ended June 30, 2010, interest income of $67 million and $111 million, respectively, was recognized on impaired loans that had an average balance of $3.3 billion, and $3.2 billion, respectively.

Nonperforming Assets

The following table summarizes the Bancorp’s nonperforming assets as of:


	June 30,		December 31,		June 30,
($ in millions)	2011		2010		2010
Nonaccrual loans and leases	$	1,240		1,333		2,236
Restructured nonaccrual loans and leases		399		347		294

Total nonperforming loans and leases		1,639		1,680		2,530
OREO and other repossessed property^(a)		449		494		439

Total nonperforming assets^(b)		2,088		2,174		2,969

Total loans and leases 90 days past due and still accruing	$	279		274		397

(a)

Excludes $54, $38 and $30 of OREO related to government insured loans at June 30, 2011, December 31, 2010 and June 30, 2010, respectively.

(b)

Excludes $176, $294 and $167 of nonaccrual loans held for sale at June 30, 2011, December 31, 2010 and June 30, 2010, respectively.

The following table summarizes the Bancorp’s nonperforming loans and leases, by class, as of:


	June 30,		December 31,
($ in millions)	2011		2010
Commercial:
Commercial and industrial loans	$	607		568
Commercial mortgage owner-occupied loans		286		168
Commercial mortgage nonowner-occupied loans		178		267
Commercial construction loans		160		192
Commercial leases		22		19

Total commercial loans and leases		1,253		1,214

Residential mortgage loans		272		268
Consumer:
Home equity		58		56
Automobile loans		3		3
Credit card		50		55
Other consumer loans and leases		3		84

Total consumer loans and leases		114		198

Total nonperforming loans and leases^(a)	$	1,639		1,680

(a)

Excludes $176 and $294 of nonaccrual loans held for sale at June 30, 2011 and December 31, 2010, respectively.