Fifth Third Bank 2005 Annual Report Download - page 75

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Fifth Third Bancorp 73
Balance
Balance of Loans 90 Days or
More Past Due
Net Credit
Losses
($ in millions) 2005 2004 2005 2004 2005 2004
Commercial loans $19,299 16,058 $20 21 $75 81
Commercial mortgage 9,188 7,636 8 8 99
Commercial leases 3,698 3,426 1 1 37 7
Construction loans 7,037 4,726 11 9 46
Residential mortgage 8,353 7,629 49 44 19 15
Other consumer loans 22,987 20,222 65 62 147 118
Consumer leases 1,595 2,051 3 3 14 19
Total loans and leases managed and securitized (a) 72,157 61,748 $157 148 $305 255
Less:
Loans securitized 928 1,381
Loans held for sale 1,304 559
Total portfolio loans and leases $69,925 59,808
(a) Excluding securitized assets that the Bancorp continues to service but with which it has no other continuing involvement.
Static pool credit losses are calculated by aggregating the
actual and projected future credit losses for a securitization and
dividing these losses by the original balance in each pool of assets.
For the home equity lines of credit securitized in 2003, the static
pool credit losses were .70% and .78% as of December 31, 2005
and 2004, respectively. For the automotive loans securitized in
2004, the static pool credit losses were 1.00% and 1.14% as of
December 31, 2005 and 2004, respectively.
During 2005 and 2004, the Bancorp transferred, subject to
credit recourse, certain primarily floating-rate, short-term,
investment grade commercial loans to an unconsolidated QSPE
that is wholly owned by an independent third-party. Generally, the
loans transferred provide a lower yield due to their investment
grade nature, and therefore transferring these loans to the QSPE
allows the Bancorp to reduce its exposure to these lower yielding
loan assets while maintaining the customer relationships. At
December 31, 2005 and 2004, the outstanding balance of loans
transferred was $2.8 billion and $1.9 billion, respectively. These
loans may be transferred back to the Bancorp upon the occurrence
of an event specified in the legal documents that established the
QSPE. These events include borrower default on the loans
transferred, bankruptcy preferences initiated against underlying
borrowers and ineligible loans transferred by the Bancorp to the
QSPE. These commercial loans are transferred at par with no gain
or loss recognized. The Bancorp receives rights to future cash
flows arising after the investors in the securitization trust have
received the return for which they contracted. No value has been
assigned to this retained future stream of fees to be received. As of
December 31, 2005, the $2.8 billion balance of outstanding loans
had a weighted-average remaining maturity of 2.5 years.
During 2004, the Bancorp securitized and sold $750 million in
automotive loans to an unconsolidated QSPE that is wholly owned
by an independent third party. The Bancorp retained servicing
rights and receives a servicing fee based on a percentage of the
outstanding balance. Additionally, the Bancorp retained a
subordinated tranche of securities and rights to future cash flows
arising after investors in the securitization trust have received the
return for which they contracted. The investors and the
securitization trust have no recourse to the Bancorp’s other assets
for failure of debtors to pay when due. The Bancorp’s retained
interest is subordinate to investor’s interests and its value is subject
to credit, prepayment and interest rate risks on the sold automotive
loans. As of December 31, 2005, the remaining balance of sold
automotive loans was $316 million.
During 2003, the Bancorp securitized and sold $903 million in
home equity lines of credit to an unconsolidated QSPE that is
wholly owned by an independent third party. The Bancorp
retained servicing rights and receives a servicing fee based on a
percentage of the outstanding balance. Additionally, the Bancorp
retained rights to future cash flows arising after investors in the
securitization trust have received the return for which they
contracted. The investors and the securitization trust have no
recourse to the Bancorp’s other assets for failure of debtors to pay
when due. The Bancorp’s retained interest is subordinate to
investor’s interests and its value is subject to credit, prepayment
and interest rate risks on the sold home equity lines of credit.
During 2005, pursuant to the terms of the sales and servicing
agreement, $18 million in fixed-rate home equity line of credit
balances were putback to the Bancorp. As of December 31, 2005,
the remaining balance of sold home equity lines of credit was $555
million.
The Bancorp had the following cash flows with
unconsolidated QSPEs during 2005 and 2004:
($ in millions) 2005 2004
Proceeds from transfers, including new securitizations $1,680 1,379
Proceeds from collections reinvested in revolving-period securitizations 132 162
Transfers received from QSPEs (18) -
Fees received 32 32
21. DISCONTINUED OPERATIONS
In November 2003, the Bancorp announced an agreement to sell
its corporate trust business, a component of the Commercial
Banking segment. The transaction closed in December 2003. The
Bancorp recognized an after tax gain of $40 million on the sale,
which is captured as a component of income from discontinued
operations, net of tax, in the Consolidated Statements of Income.
Financial information for discontinued operations is
summarized below:
($ in millions) 2003
Total revenues $12
Gain on sale 62
Total expenses 6
Income before income taxes 68
Applicable income taxes 24
Net income from discontinued operations $44
Total assets $2