Fifth Third Bank 2010 Annual Report Download - page 79

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Fifth Third Bancorp 77
mortgage securitizations, in order to meet the amended sale
treatment criteria under the amended guidance. In addition, see
the discussion below regarding amended guidance on the
consolidation of VIEs and the impact on the Bancorp’s
Consolidated Financial Statements for assets previously
transferred to QSPEs.
Consolidation of Variable Interest Entities
In June 2009, the FASB issued guidance amending the accounting
for the consolidation of VIEs. This guidance, adopted by the
Bancorp on January 1, 2010, amends the methodology for
determining the primary beneficiary (and therefore consolidator)
of a VIE and requires such assessment to be performed on an
ongoing basis. Under this new guidance, the primary beneficiary
of a VIE is defined as the enterprise that has both (1) the power
to direct activities of the VIE that most significantly impact the
VIE’s economic performance, and (2) the obligation to absorb
losses or right to receive benefits from the VIE that could
potentially be significant to the VIE. Due to the concurrent
issuance and effective date of the previously discussed amended
guidance for the transfers of financial assets and the removal of
the QSPE concept, the Bancorp was required to assess all VIEs,
including those formed as QSPEs in transfers that occurred prior
to January 1, 2010, to determine whether the Bancorp was the
primary beneficiary of the VIE under the amended guidance. The
Bancorp is also required under the amended guidance to provide
additional disclosures about its involvement with both
consolidated and non-consolidated VIEs, any significant changes
in risk exposure due to that involvement, and how that
involvement affects the Bancorp’s Consolidated Financial
Statements. See Note 12 for further discussion.
In accordance with the transition guidance for the initial
consolidation of VIEs resulting from the adoption of the
amended guidance, the Bancorp initially measured the assets and
liabilities of newly consolidated VIEs at their carrying amounts,
defined as the amounts at which the assets and liabilities would
have been carried in the Bancorp’s Consolidated Financial
Statements if the amended guidance had been effective when the
Bancorp first met the conditions to be the primary beneficiary
under the amended guidance. The difference between the
amounts added to the Bancorp’s Consolidated Balance Sheets and
the amounts of previously recognized interests in the newly
consolidated VIEs was recognized as a cumulative effect
adjustment to retained earnings. The consolidation of these VIEs
on January 1, 2010 resulted in an increase in total assets of
approximately $1.3 billion, a negative adjustment of $1 million to
accumulated other comprehensive income and a negative
cumulative effect adjustment to retained earnings of $77 million.
The impact of consolidating these VIEs did not have a material
effect on the Bancorp’s regulatory capital ratios.
In February 2010, the FASB issued guidance deferring the above
amendments to the consolidation of VIEs for a reporting entity’s
interest in registered money market funds. In addition, the deferral
also applies to a reporting entity’s interest in entities meeting either of
the following two criteria: (1) the entity has all the attributes of an
investment company as specified in ASC Topic 946, “Financial
Services - Investment Companies,” or (2) it is an entity for which it is
acceptable based on industry practice to apply measurement
principles that are consistent with those in ASC Topic 946 (including
recognizing changes in fair value currently in the statement of
operations) for financial reporting purposes. The deferral does not
apply to those entities in situations in which a reporting entity has the
explicit or implicit obligation to fund losses of an entity that could
potentially be significant to the entity. As a result of this deferral, the
Bancorp has determined that its interests in private equity funds,
mutual funds and money market funds are not subject to the above
amended guidance for the consolidation of VIEs. For entities that
meet the deferral criteria, the primary beneficiary of the VIE is the
enterprise that will absorb a majority of the VIE’s expected losses or
receive a majority of the VIE’s expected residual returns.
Disclosures about Fair Value Measurements
In January 2010, the FASB issued new guidance clarifying current
fair value disclosure requirements and also requiring certain
additional disclosures about fair value measurements. The
disclosure requirements under this new guidance were
implemented by the Bancorp during the first quarter of 2010 and
are included in Note 28.
Embedded Credit Derivatives
In March 2010, the FASB issued guidance clarifying the type of
embedded credit derivative that is exempt from bifurcation
requirements. Under the guidance, the only form of embedded
credit derivative that qualifies for the exemption is one that is
related only to the subordination of one financial instrument to
another. The adoption of this guidance on July 1, 2010 did not
have a material impact on the Bancorp’s Consolidated Financial
Statements.
Modification of a Loan Included in a Pool Accounted for as a Single Asset
In April 2010, the FASB issued guidance clarifying that
modifications of loans that are accounted for within a pool under
ASC Subtopic 310-30 do not result in the removal of those loans
from the pool even if the modification of those loans would
otherwise be considered a TDR. Under the new guidance, an
entity will continue to be required to consider whether the pool of
assets in which the loan is included is impaired if expected cash
flows for the pool change. The adoption of this guidance on July
1, 2010 did not have a material impact on the Bancorp’s
Consolidated Financial Statements.
Disclosures about the Credit Quality of Financing Receivables and the
Allowance for Credit Losses
In July 2010, the FASB issued guidance that requires the Bancorp
to disclose a greater level of disaggregated information about the
credit quality of its loans and leases and the ALLL. The new
guidance defines two levels of disaggregation—portfolio segment
and class. A portfolio segment is defined as the level at which the
Bancorp develops and documents a systematic method for
determining its ALLL. Classes generally represent a further
disaggregation of a portfolio segment based on certain risk
characteristics. The new disclosures relating to information as of
the end of a reporting period are effective for interim and annual
reporting periods ending on or after December 15, 2010 and have
been included in Note 7. The new disclosures about activity that
occurs during a reporting period are effective for interim and
annual reporting periods beginning on or after December 15,
2010.
In January 2011, the FASB issued guidance that temporarily
delayed the effective date of the disclosures about TDR’s that are
included in this July 2010 guidance on disclosures about credit
quality and the ALLL. The TDR disclosure guidance will be
coordinated with the FASB’s proposed guidance for determining
what constitutes a TDR and is currently anticipated to be effective
for interim and annual periods ending after June 15, 2011.