Fifth Third Bank 2009 Annual Report Download - page 84

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
82 Fifth Third Bancorp
Changes in the servicing asset related to residential mortgage loans for the years ended December 31:
($ in millions) 2009 2008
Carrying amount as of the beginning of period $752 662
Servicing obligations that result from transfer of residential mortgage loans 373 196
Acquisitions - 1
Amortization (146) (107)
Carrying amount before valuation allowance 979 752
Valuation allowance for servicing assets:
Beginning balance (256) (49)
Servicing impairment (24) (207)
Ending balance (280) (256)
Carrying amount as of the end of the period $699 496
Temporary impairment or impairment recovery, effected through a
change in the MSR valuation allowance, is captured as a
component of mortgage banking net revenue in the Consolidated
Statements of Income. The Bancorp maintains a non-qualifying
hedging strategy to manage a portion of the risk associated with
changes in value of the MSR portfolio. This strategy includes the
purchase of free-standing derivatives (principal-only swaps,
swaptions and interest rate swaps) and various available-for-sale
securities. The interest income, mark-to-market adjustments and
gain or loss from sale activities associated with these portfolios are
expected to economically hedge a portion of the change in value of
the MSR portfolio caused by fluctuating discount rates, earnings
rates and prepayment speeds.
The fair value of the servicing asset is based on the present
value of expected future cash flows. The following table displays
the beginning and ending fair value for the years ended December
31:
($ in millions) 2009 2008
Fixed rate residential mortgage loans:
Fair value at beginning of period $458 $565
Fair value at end of period 667 458
Adjustable rate residential mortgage loans:
Fair value at beginning of period 38 50
Fair value at end of period 32 38
During 2009, 2008 and 2007, the Bancorp recognized net gains of
$57 million, $120 million and $6 million, respectively, which were
classified as securities gains in noninterest income, related to sales
of available-for-sale securities purchased to economically hedge the
MSR portfolio. During 2009, 2008 and 2007, the Bancorp
recognized net gains of $41 million, $89 million and $23 million,
respectively, classified as mortgage banking net revenue in
noninterest income, related to changes in fair value and settlement
of free-standing derivatives purchased to economically hedge the
MSR portfolio.
As of December 31, 2009 and December 31, 2008, other
assets included free-standing derivative instruments related to the
MSR portfolio with a fair value of $114 million and $218 million,
respectively, and other liabilities included free-standing derivative
instruments with a fair value of $24 million and $77 million,
respectively. Also as of December 31, 2009 and December 31,
2008, the outstanding notional amounts on the free-standing
derivative instruments related to the MSR portfolio totaled $8.6
billion and $8.5 billion, respectively. As of December 31, 2009, and
December 31, 2008, the available-for-sale securities portfolio
included $449 million and $1.1 billion, respectively, of securities
related to the non-qualifying hedging strategy.
The following table provides a summary of the total loans and
leases managed by the Bancorp, including loans securitized and
loans in the unconsolidated QSPEs as of and for the years ended
December 31:
Balance
Balance of Loans 90
Days or More Past Due
Net Credit
Losses
($ in millions) 2009 2008 2009 2008 2009 2008
Commercial loans $26,458 31,163 $118 76 $718 649
Commercial mortgage 11,936 12,952 59 136 422 613
Commercial construction loans 3,921 5,477 16 74 417 749
Commercial leases 3,535 3,666 4 4 8(1)
Residential mortgage loans 9,795 9,946 189 198 355 242
Home equity loans 12,437 13,025 100 98 325 207
Automobile loans 10,226 10,539 18 22 156 141
Other consumer loans and leases 2,802 3,007 65 57 190 118
Total loans and leases managed and securitized (a) $81,110 89,775 $569 665 $2,591 2,718
Less:
Automobile loans securitized $1,230 1,946
Home equity loans securitized 263 273
Residential mortgage loans securitized -18
Commercial loans sold to unconsolidated QSPE 771 1,943
Loans held for sale 2,067 1,452
Total portfolio loans and leases $76,779 84,143
(a) Excluding securitized assets that the Bancorp continues to service, but has no other continuing involvement.