Fifth Third Bank 2009 Annual Report Download - page 92

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
90 Fifth Third Bancorp
Bancorp’s obligations under the transaction documents, taken
together, have the effect of providing a full and unconditional
guarantee by the Bancorp, on a subordinated basis, of the
payment obligations under the trust preferred securities. The
junior subordinated notes 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 with a carrying value of $804
million mature in 2010. The Bancorp entered into an interest rate
swap to convert this fixed-rate debt into floating rate. At
December 31, 2009, the rate paid on this swap was 0.31%. In
April of 2009, the Bancorp repaid $275 million in senior fixed rate
bank notes maturing in 2019.
The senior floating-rate bank notes due in 2013 pay a floating
rate at three-month LIBOR plus 11 bp.
Senior extendable notes totaling $400 million and $797
million matured on April 27, 2009
For the subordinated fixed-rate bank notes due in 2015, the
Bancorp entered into interest rate swaps to convert the fixed-rate
debt into floating rate. At December 31, 2009, the weighted-
average rate paid on the swaps was 0.38%.
The junior subordinated floating-rate bank notes due in 2032
and 2033 were assumed by a subsidiary of the Bancorp as part of
the acquisition of Crown in November 2008. Two of the notes
pay a floating rate at three-month LIBOR plus 310 and 325 bp.
The third note pays a floating rate 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 subsidiary of the Bancorp 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 issued by First Charter Capital
Trust I and II.
At December 31, 2009, 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 $15.0 billion. At December 31, 2009, $1.5 billion of
FHLB advances are floating rate. The Bancorp entered into an
interest rate swap with a notional value of $500 million to convert
the floating rate advances to a fixed rate. At December 31, 2009,
the interest rate paid on this swap was 2.63%. The Bancorp has an
interest rate cap, with a notional amount of $1.0 billion, held
against the remaining floating rate FHLB advance borrowings.
The $2.6 billion in advances mature as follows: $1 million in
2010, $2 million in 2011, $1.0 billion in 2012, $500 million in 2013
and $1.1 billion in 2014 and thereafter.
Medium-term senior notes and subordinated bank notes with
maturities ranging from one year to 30 years can be issued by the
Bancorp’s subsidiary bank, of which $1.8 billion was outstanding
at December 31, 2009 with $18.2 billion available for future
issuance.
16. COMMITMENTS, CONTINGENT LIABILITIES AND GUARANTEES
The Bancorp, in the normal course of business, enters into
financial instruments and various agreements to meet the
financing needs of its customers. The Bancorp also enters into
certain transactions and agreements to manage its interest rate and
prepayment risks, provide funding, equipment and locations for
its operations and invest in its communities. These instruments
and agreements involve, to varying degrees, elements of credit
risk, counterparty risk and market risk in excess of the amounts
recognized in the Bancorp’s Consolidated Balance Sheets. The
creditworthiness of counterparties for all instruments and
agreements is evaluated on a case-by-case basis in accordance with
the Bancorp’s credit policies. The Bancorp’s significant
commitments, contingent liabilities and guarantees in excess of
the amounts recognized in the Consolidated Balance Sheets are
discussed in further detail as follows:
Commitments
The Bancorp has certain commitments to make future payments
under contracts. The following table reflects a summary of
significant commitments:
($ in millions) 2009 2008
Commitments to extend credit $42,591 49,391
Letters of credit (including standby letters
of credit) 6,657 8,951
Forward contracts to sell mortgage loans 3,633 3,235
Noncancelable lease obligations 906 937
Capital commitments for private equity
investments 90 79
Capital lease obligations 44 38
Capital expenditures 27 68
Purchase obligations 25 43
Commitments to extend credit
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 by the counterparty 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, 2009 and 2008, the Bancorp
had a reserve for unfunded commitments totaling $294 million
and $195 million, respectively, included in other liabilities in the
Consolidated Balance Sheets.
Letters of credit
Standby and commercial letters of credit are conditional
commitments issued to guarantee the performance of a customer
to a third party. At December 31, 2009, approximately $2.5 billion
of letters of credit expire within one year (including $40 million
issued on behalf of commercial customers to facilitate trade
payments in dollars and foreign currencies), $3.9 billion expire
between one and five years and $257 million expire thereafter.
Standby letters of credit are considered guarantees in accordance
with U.S. GAAP. At December 31, 2009 and 2008, the reserve
related to these standby letters of credit was $6 million and $3
million, respectively. Approximately 58% and 66% of the total
standby letters of credit were secured as of December 31, 2009
and 2008, 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.