Fifth Third Bank 2008 Annual Report Download - page 83

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Fifth Third Bancorp 81
VII held by the Trust VII bear a fixed rate of interest of 8.875%
until May 15, 2058. Thereafter, the notes pay a floating rate at
three-month LIBOR plus 500 bp. The Bancorp entered into an
interest rate swap to convert $275 million of the fixed-rate debt
into floating. At December 31, 2008, the rate paid on the swap
was 6.05%. The JSN VII may be redeemed at the option of the
Bancorp on or after May 15, 2013, or in certain other limited
circumstances, at a redemption price of 100% of the principal
amount plus accrued but unpaid interest. All redemptions are
subject to certain conditions and generally require approval by the
Federal Reserve Board.
Subsidiary Long-Term Borrowings
The senior fixed-rate bank notes due from 2009 to 2019 are the
obligations of a subsidiary bank. The maturities of the face value
of the senior fixed-rate bank notes are as follows: $36 million in
2009, $800 million in 2010 and $275 million in 2019. The
Bancorp entered into interest rate swaps to convert $1.1 billion of
the fixed-rate debt into floating rates. At December 31, 2008, the
rates paid on these swaps were 2.19% on $800 million and 2.20%
on $275 million. In August 2008, $500 million of senior fixed-rate
bank notes issued in July of 2003 matured and were paid. These
long-term bank notes were issued to third-party investors at a
fixed rate of 3.375%.
The senior floating-rate bank notes due in 2013 are the
obligations of a subsidiary bank. The notes pay a floating rate at
three-month LIBOR plus 11 bp.
The senior extendable notes consist of $797 million that
currently pay interest at three-month LIBOR plus 4 bp and $400
million that pay at the Federal Funds open rate plus 12 bp.
The subordinated fixed-rate bank notes due in 2015 are the
obligations of a subsidiary bank. The Bancorp entered into
interest rate swaps to convert the fixed-rate debt into floating rate.
At December 31, 2008, the weighted-average rate paid on the
swaps was 3.29%.
The junior subordinated floating-rate bank notes due in 2032
and 2033 were assumed by a Bancorp subsidiary as part of the
acquisition of Crown in November 2007. Two of the notes pay
floating at three-month LIBOR plus 310 and 325 bp. The third
note pays floating at six-month LIBOR plus 370 bp.
The three-month LIBOR plus 290 bp and the three-month
LIBOR plus 279 bp junior subordinated debentures due in 2033
and 2034, respectively, were assumed by a subsidiary of the
Bancorp in connection with the acquisition of First National
Bank. The obligations were issued to FNB Statutory Trusts I and
II, respectively.
The junior subordinated floating-rate bank notes due in 2035
were assumed by a Bancorp subsidiary as part of the acquisition of
First Charter in May 2008. The obligations were issued to First
Charter Capital Trust I and II, respectively. The notes of First
Charter Capital Trust I and II pay floating at three-month LIBOR
plus 169 bp and 142 bp, respectively. The Bancorp has fully and
unconditionally guaranteed all obligations under the acquired trust
preferred securities.
At December 31, 2008, FHLB advances have rates ranging
from 0% to 8.34%, with interest payable monthly. The advances
are secured by certain residential mortgage loans and securities
totaling $8.6 billion. At December 31, 2008, $2.5 billion of FHLB
advances are floating rate. The Bancorp has interest rate caps,
with a notional of $1.5 billion, held against its FHLB advance
borrowings. The $3.6 billion in advances mature as follows: $1.5
billion in 2009, $1 million in 2010, $2 million in 2011, $1 billion in
2012 and $1.1 billion in 2013 and thereafter.
Medium-term senior notes and subordinated bank notes with
maturities ranging from one year to 30 years can be issued by two
subsidiary banks, of which $3.8 billion was outstanding at
December 31, 2008 with $16.2 billion available for future
issuance. There were no other medium-term senior notes
outstanding on either of the two subsidiary banks as of December
31, 2008.
15. COMMITMENTS, CONTINGENT LIABILITIES AND GUARANTEES
The Bancorp, in the normal course of business, enters into
financial instruments and various agreements to meet the
financing needs of its customers. The Bancorp also enters into
certain transactions and agreements to manage its interest rate and
prepayment risks, provide funding, equipment and locations for
its operations and invest in its communities. These instruments
and agreements involve, to varying degrees, elements of credit
risk, counterparty risk and market risk in excess of the amounts
recognized in the Bancorp’s Consolidated Balance Sheets.
Creditworthiness for all instruments and agreements is evaluated
on a case-by-case basis in accordance with the Bancorp’s credit
policies. The Bancorp’s significant commitments, contingent
liabilities and guarantees in excess of the amounts recognized in
the Consolidated Balance Sheets are summarized as follows:
Commitments
The Bancorp has certain commitments to make future payments
under contracts. A summary of significant commitments at
December 31:
($ in millions) 2008 2007
Commitments to extend credit $49,470 49,788
Letters of credit (including standby letters of
credit) 8,951 8,522
Forward contracts to sell mortgage loans 3,235 1,511
Noncancelable lease obligations 937 734
Purchase obligations 81 52
Capital expenditures 68 94
Commitments to extend credit are agreements to lend,
typically having fixed expiration dates or other termination clauses
that may require payment of a fee. Since many of the
commitments to extend credit may expire without being drawn
upon, the total commitment amounts do not necessarily represent
future cash flow requirements. The Bancorp is exposed to credit
risk in the event of nonperformance for the amount of the
contract. Fixed-rate commitments are also subject to market risk
resulting from fluctuations in interest rates and the Bancorp’s
exposure is limited to the replacement value of those
commitments. As of December 31, 2008 and 2007, the Bancorp
had a reserve for unfunded commitments totaling $195 million
and $95 million, respectively, included in other liabilities in the
Consolidated Balance Sheets.
Standby and commercial letters of credit are conditional
commitments issued to guarantee the performance of a customer
to a third party. At December 31, 2008, approximately $3.3
billion of letters of credit expire within one year (including $57
million issued on behalf of commercial customers to facilitate
trade payments in dollars and foreign currencies), $5.3 billion
expire between one to five years and $0.4 billion expire thereafter.
Standby letters of credit are considered guarantees in accordance
with FASB Interpretation No. 45, “Guarantor’s Accounting and
Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others” (FIN 45). At December
31, 2008, the reserve related to these standby letters of credit was
$3 million. Approximately 66% and 70% of the total standby
letters of credit were secured as of December 31, 2008 and 2007,
respectively. In the event of nonperformance by the customers,
the Bancorp has rights to the underlying collateral, which can
include commercial real estate, physical plant and property,
inventory, receivables, cash and marketable securities. The
Bancorp monitors the credit risk associated with the standby
letters of credit using the same dual risk rating system utilized for