Fifth Third Bank 2009 Annual Report Download - page 83

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Fifth Third Bancorp 81
As of December 31, 2009 and 2008, the Bancorp held retained
interests in the QSPEs in the form of asset-backed securities
totaling $63 million and $51 million, respectively, and residual
interests totaling $98 million and $124 million, respectively. These
retained interests are included in available-for-sale securities in the
Consolidated Balance Sheets. During the years ended December
31, 2009 and 2008, the Bancorp received cash flows of $4 million
and $3 million, respectively, from the asset-backed securities and
$34 million and $37 million, respectively, from the residual
interests. The asset-backed securities are measured at fair value
using quoted market prices for similar assets. The residual interests
are measured at fair value based on the present value of future
expected cash flows using management’s best estimates for the key
assumptions, which are further discussed later in this footnote.
Commercial Loan Sales to a QSPE
During 2008, 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. The transfers of loans to the QSPE
were accounted for as sales. The QSPE issues commercial paper
and uses the proceeds to fund the acquisition of commercial loans
transferred to it by the Bancorp. The Bancorp did not transfer any
new loans to the QSPE during 2009.
For the years ended December 31, 2009 and 2008, the
Bancorp collected $6 million and $13 million, respectively, in
servicing fees from the QSPE. For the year ended December 31,
2008, the Bancorp collected $334 million in net cash proceeds
from loan transfers to the QSPE. Refer to Note 16 for further
discussion on the liquidity support and credit enhancement
provided by the Bancorp to this QSPE.
Servicing Assets & Residual Interests
As of December 31, 2009 and 2008, the key economic assumptions
used in measuring the interests that continued to be held by the
Bancorp at the date of sale or securitization resulting from
transactions completed during the years ended December 31, 2009
and 2008 were as follows:
Based on historical credit experience, expected credit losses for
residential mortgage loan servicing assets have been deemed
immaterial, as the Bancorp sold the majority of the underlying
loans without recourse. At December 31, 2009 and 2008, the
Bancorp serviced $48.6 billion and $40.4 billion, respectively, of
residential mortgage loans for other investors.
The value of interests that continue to be held by the
Bancorp is subject to credit, prepayment and interest rate risks on
the sold financial assets. At December 31, 2009, the sensitivity of
the current fair value of residual cash flows to immediate 10% and
20% adverse changes in those assumptions are as follows:
These sensitivities are hypothetical and should be used with
caution. As the figures indicate, changes in fair value based on a
10% variation in assumptions typically cannot be extrapolated
because the relationship of the change in assumption to the change
in fair value may not be linear. Also, in the previous table, the
effect of a variation in a particular assumption on the fair value of
the interests that continue to be held by the Bancorp is calculated
without changing any other assumption; in reality, changes in one
factor may result in changes in another (for example, increases in
market interest rates may result in lower prepayments and
increased credit losses), which might magnify or counteract the
sensitivities.
December 31, 2009 December 31, 2008
Rate
Weighted-
Average
Life
(in years)
Prepayment
Speed
(annual)
Discount
Rate
(annual)
Weighted-
Average
Default
Rate
Weighted-
Average
Life
(in years)
Prepayment
Speed
(annual)
Discount
Rate
(annual)
Weighted-
Average
Default
Rate
Residential mortgage loans:
Servicing assets Fixed 6.6 12.0% 9.8% N/A 5.9 19.2% 9.7% N/A
Servicing assets Adjustable 2.7 35.5 10.8 N/A 2.7 30.8 14.5 N/A
Prepayment Speed
Assumption Residual Servicing Cash Flows
Weighted-Average
Default
Fair
Impact of Adverse
Change on Fair
Value Discount
Impact of Adverse
Change on Fair
Value
Impact of Adverse
Change on Fair
Value
($ in millions) Rate Value
Weighted-
Average
Life (in
years) Rate 10% 20% Rate 10% 20% Rate 10% 20%
Residential mortgage loans:
Servicing assets Fixed $667 5.3 16.1% $34 65 10.4% $24 46 - % $- -
Servicing assets Adjustable 32 3.3 24.1 2 4 11.2 1 2 - - -
Automobile loans:
Residual interest Fixed 102 1.6 27.4 1 2 11.4 3 5 2.1 1 3