commercial & industrial, commercial mortgage owner-occupied,  commercial mortgage nonowner-occupied, commercial construction, and commercial leasing. The residential mortgage  portfolio segment is also considered a class. Classes within the  consumer segment include home equity, automobile, credit card,  and other consumer loans and leases. For an analysis of the  Bancorp’s ALLL by portfolio segment and credit quality information by class, see Note 7. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  The Bancorp maintains the ALLL to absorb probable loan  and lease losses inherent in its portfolio segments. The ALLL is  maintained at a level the Bancorp considers to be adequate and is  based on ongoing quarterly assessments and evaluations of the  collectibility and historical loss experience of loans and leases.  Credit losses are charged and recoveries are credited to the ALLL.  Provisions for loan and lease losses are based on the Bancorp’s  review of the historical credit loss experience and such factors  that, in management’s judgment, deserve consideration under  existing economic conditions in estimating probable credit losses.  In determining the appropriate level of the ALLL, the Bancorp  estimates losses using a range derived from “base” and “conservative” estimates. The Bancorp’s strategy for credit risk  management includes a combination of conservative exposure  limits significantly below legal lending limits and conservative  underwriting, documentation and collections standards. The  strategy also emphasizes diversification on a geographic, industry  and customer level, regular credit examinations and quarterly  management reviews of large credit exposures and loans experiencing deterioration of credit quality. The Bancorp’s current methodology for determining the  ALLL is based on historical loss rates, current credit grades,  specific allocation on loans modified in a TDR and impaired  commercial credits above specified thresholds and other qualitative adjustments. Allowances on individual commercial  loans, TDRs and historical loss rates are reviewed quarterly and  adjusted as necessary based on changing borrower and/or  collateral conditions and actual collection and charge-off experience. An unallocated allowance is maintained to recognize  the imprecision in estimating and measuring losses when  evaluating allowances for individual loans or pools of loans. Historical credit loss rates are applied to commercial loans  that are not impaired or are impaired, but smaller than the  established threshold of $1 million and thus not subject to specific  allowance allocations. The loss rates are derived from a migration  analysis, which tracks the historical net charge-off experience  sustained on loans according to their internal risk grade. The risk  grading system currently utilized for allowance analysis purposes  Larger commercial loans included within aggregate borrower  relationship balances exceeding $1 million that exhibit probable or  observed credit weaknesses, as well as loans that have been  modified in a TDR, are subject to individual review for  impairment. The Bancorp considers the current value of collateral,  credit quality of any guarantees, the guarantor’s liquidity and  willingness to cooperate, the loan structure, and other factors  when evaluating whether an individual loan is impaired. Other  factors may include the industry and geographic region of the  borrower, size and financial condition of the borrower, cash flow,  leverage of the borrower, and the Bancorp’s evaluation of the  borrower’s management. When individual loans are impaired,  allowances are determined based on management’s estimate of the  borrower’s ability to repay the loan given the availability of  collateral, other sources of cash flow, as well as evaluation of legal  options available to the Bancorp. Allowances for impaired loans  are measured based on the present value of expected future cash  flows discounted at the loan’s effective interest rate, fair value of  the underlying collateral or readily observable secondary market  values. The Bancorp evaluates the collectibility of both principal  and interest when assessing the need for a loss accrual. When the Bancorp sells loans through either securitizations or  individual loan sales in accordance with its investment policies, it  is required to assess whether the entity holding the sold or  securitized loans is a VIE and whether the Bancorp is the primary  beneficiary and therefore consolidator of that VIE. If the  Bancorp holds the power to direct activities most significant to  the economic performance of the VIE and has the obligation to  absorb losses or right to receive benefits that could potentially be  significant to the VIE, then the Bancorp will generally be deemed  the primary beneficiary of the VIE. When the Bancorp previously  sold loans into isolated trusts or conduits, it obtained one or more  subordinated tranches or other residual interests in these trusts or  conduits, as well as the servicing rights to the underlying loans. As  a result, effective with the January 1, 2010 adoption of the VIE  consolidation guidance further discussed in the Accounting and  Reporting Developments section below, the Bancorp was required  to consolidate these VIEs, and accordingly, the underlying loans  and other assets and liabilities of these VIEs are included in the  Bancorp’s Consolidated Balance Sheet as of December 31, 2010. Prior to the January 1, 2010 adoption of the VIE  consolidation guidance referenced above, the subordinated tranches and other residual interests in the trusts and conduits  The reserve for unfunded commitments is maintained at a level  believed by management to be sufficient to absorb estimated  probable losses related to unfunded credit facilities and is included  in other liabilities in the Consolidated Balance Sheets. The  determination of the adequacy of the reserve is based upon an  evaluation of the unfunded credit facilities, including an assessment of historical commitment utilization experience, credit  risk grading and credit grade migration. This process takes into  consideration the same risk elements that are analyzed in the  determination of the adequacy of the Bancorp’s ALLL, as  discussed above. Net adjustments to the reserve for unfunded  commitments are included in other noninterest expense in the  Consolidated Statements of Income. In the current year, the Bancorp has not substantively  changed any material aspect to its overall approach to determining  its ALLL for any of its portfolio segments. There have been no  material changes in criteria or estimation techniques as compared  to prior periods that impacted the determination of the current  period ALLL for any of the Bancorp’s portfolio segments. The Bancorp’s primary market areas for lending are the  Midwestern and Southeastern regions of the Unites States. When  evaluating the adequacy of allowances, consideration is given to  these regional geographic concentrations and the closely associated effect changing economic conditions have on the  Bancorp’s customers. Homogenous loans and leases in the residential mortgage and  consumer portfolio segments are not individually risk graded.  Rather, standard credit scoring systems and delinquency monitoring are used to assess credit risks, and allowances are  established based on the expected net charge-offs. Loss rates are  based on the average net charge-off history by loan category.  Historical loss rates may be adjusted for significant factors that, in  management’s judgment, are necessary to reflect losses inherent in  the portfolio. Factors that management considers in the analysis  include the effects of the national and local economies; trends in  the nature and volume of delinquencies, charge-offs and nonaccrual loans; changes in loan mix; credit score migration  comparisons; asset quality trends; risk management and loan  administration; changes in the internal lending policies and credit  standards; collection practices; and examination results from bank  regulatory agencies and the Bancorp’s internal credit examiners. encompasses ten categories. Loan Sales and Securitizations  74 Fifth Third Bancorp