MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS CREDIT RISK MANAGEMENT Commercial Portfolio  Overview  Fifth Third Bancorp 49  The risk within the commercial loan and lease portfolio is  managed and monitored through an underwriting process utilizing  detailed origination policies, continuous loan level reviews, the  monitoring of industry concentration and product type limits and  continuous portfolio risk management reporting. The origination  policies for commercial real estate outline the risks and underwriting requirements for owner occupied, non-owner occupied and construction lending. Included in the policies are  maturity and amortization terms, maximum LTV, minimum debt  service coverage ratios, construction loan monitoring procedures,  appraisal requirements, pre-leasing requirements (as applicable)  and sensitivity and pro-forma analysis requirements. The Bancorp  requires an appraisal of collateral be performed at origination and  on an as-needed basis, in conformity with market conditions and  regulatory requirements. It is the Bancorp’s policy to obtain an “as  is value” appraisal annually on all criticized assets. Independent  reviews are performed on appraisals to ensure the appraiser is  qualified and consistency in the evaluation process exists. The Bancorp’s credit risk management strategy includes minimizing concentrations of risk through diversification. The  Bancorp has commercial loan concentration limits based on  industry, lines of business within the commercial segment and  credit product type.  Among consumer portfolios, residential mortgage and brokered  home equity portfolios exhibited the most stress. Management  suspended homebuilder and developer lending in the fourth  quarter of 2007 and new commercial non-owner occupied real  estate lending in the second quarter of 2008, discontinued the  origination of brokered home equity products at the end of 2007  and tightened underwriting standards across both the commercial  and consumer loan product offerings. Since the fourth quarter of  2008, in an effort to reduce loan exposure to the real estate and  construction industries, the Bancorp has sold certain consumer  loans and sold or transferred to held for sale certain commercial  loans. Throughout 2009 and 2010, the Bancorp continued to  aggressively engage in other loss mitigation strategies such as  reducing credit commitments, restructuring certain commercial  and consumer loans, tightening underwriting standards on  commercial loans and across the consumer loan portfolio, as well  as utilizing expanded commercial and consumer loan workout  teams. In the financial services industry, there has been  heightened focus on foreclosure activity and processes in recent  months due to issues concerning documentation supporting  foreclosures. Fifth Third actively works with borrowers experiencing difficulties and has modified or provided forbearance  to borrowers on approximately $1.8 billion of its own mortgages  during the past several years where a workable solution could be  found. Foreclosure is a last resort, and the Bancorp undertakes  foreclosures only when it believes they are necessary and  appropriate and are careful to ensure that customer and loan data  are accurate. The Bancorp conducted reviews of its foreclosure  processes and procedures in the third quarter of 2010, which did  not reveal any material deficiencies, and has continued to expand  and extend these reviews and improve its processes as additional  aspects of the industry’s foreclosure practices have come under  intensified scrutiny and criticism. These reviews are ongoing and  the Bancorp may determine to amend its processes and  procedures as a result of these reviews. While any impact to the  Bancorp that ultimately results from continued reviews cannot yet  be determined, management currently believes that such impact  will not materially adversely affect the Bancorp's results of  operations, liquidity or capital resources.  General economic conditions remained weak throughout most of  2009, but showed some signs of moderation during 2010. These  conditions negatively impacted the 2009 performance of a  majority of the Bancorp's loan and lease products. Geographically,  the Bancorp continues to experience the most stress in Michigan  and Florida due to the decline in real estate values. Real estate  value deterioration, as measured by the Home Price Index, was  most prevalent in Florida due to past real estate price appreciation  and related over-development, and in Michigan due in part to  cutbacks in automobile manufacturing and the state's economic  downturn. Among commercial portfolios, the homebuilder and  developer and the remaining non-owner occupied commercial real  estate portfolios remained under stress throughout 2009 and 2010.  The objective of the Bancorp's credit risk management strategy is  to quantify and manage credit risk on an aggregate portfolio basis,  as well as to limit the risk of loss resulting from an individual  customer default. The Bancorp's credit risk management strategy  is based on three core principles: conservatism, diversification and  monitoring. The Bancorp believes that effective credit risk  management begins with conservative lending practices. These  practices include conservative exposure and counterparty limits  and conservative underwriting, documentation and collection  standards. The Bancorp's credit risk management strategy also  emphasizes diversification on a geographic, industry and customer  level as well as regular credit examinations and monthly  management reviews of large credit exposures and credits  experiencing deterioration of credit quality. Lending officers with  the authority to extend credit are delegated specific authority  amounts, the utilization of which is closely monitored. Underwriting activities are centrally managed, and ERM manages  the policy and the authority delegation process directly. The Credit  Risk Review function, which reports to the Risk and Compliance  Committee of the Board of Directors, provides objective  assessments of the quality of underwriting and documentation, the  accuracy of risk grades and the charge-off, nonaccrual and reserve  analysis process. The Bancorp's credit review process and overall  assessment of the adequacy of the allowance for credit losses is  based on quarterly assessments of the probable estimated losses  inherent in the loan and lease portfolio. The Bancorp uses these  assessments to promptly identify potential problem loans or leases  within the portfolio, maintain an adequate reserve and take any  necessary charge-offs. In addition to the individual review of  larger commercial loans that exhibit probable or observed credit  weaknesses, the commercial credit review process includes the use  of two risk grading systems. The risk grading system currently  utilized for reserve analysis purposes encompasses ten categories.  The Bancorp also maintains a dual risk rating system that provides  for thirteen probabilities of default grade categories and an  additional six grade categories for estimating losses given an event  of default. The probability of default and loss given default  evaluations are not separated in the ten-grade risk rating system.  The Bancorp has completed significant validation and testing of  the dual risk rating system. Scoring systems, various analytical  tools and delinquency monitoring are used to assess the credit risk  in the Bancorp's homogenous consumer and small business loan  portfolios. commercial credit exposure, appropriate accounting for charge- offs, and non-accrual status and specific reserves. Credit Risk  Review reports directly to the Risk and Compliance Committee of  the Board of Directors and administratively to the Director of  Internal Audit. 