Fifth Third Bank 2010 Annual Report Download - page 92

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
90 Fifth Third Bancorp
of a loan from the Bancorp or syndication through which the
Bancorp is involved. The sponsor/administrator of the entities is
responsible for servicing the underlying assets in the VIEs. Because
the sponsor/administrator, not the Bancorp, holds the servicing
responsibilities, which include the establishment and employment
of default mitigation policies and procedures, the Bancorp does not
hold the power to direct the activities most significant to the
economic performance of the entity and, therefore, is not the
primary beneficiary.
The principle risk to which these entities are exposed is credit
risk related to the underlying assets. The Bancorp’s maximum
exposure to loss is equal to the carrying amounts of the loans and
unfunded commitments to the VIEs. As of December 31, 2010
and 2009, the Bancorp had outstanding loans to these VIEs of $1.2
billion included in commercial loans in the Consolidated Balance
Sheets. Also as of December 31, 2010 and 2009, the Bancorp’s
unfunded commitments to these entities were $733 million and
$539 million, respectively. The loans and unfunded commitments
to these VIEs are included in the Bancorp’s overall analysis of the
allowance for loan and lease losses and reserve for unfunded
commitments, respectively. The Bancorp does not provide any
implicit or explicit liquidity guarantees or principal value guarantees
to these VIEs.
Restructured Loans
As part of loan restructuring efforts in 2009 and 2010, the Bancorp
received equity capital from certain borrowers to facilitate the
restructuring of the borrower’s debt. These borrowers meet the
definition of a VIE because the Bancorp was involved in their
refinancing and because their equity capital is insufficient to fund
ongoing operations. These restructurings were intended to provide
the VIEs with serviceable debt levels while providing the Bancorp
an opportunity to maximize the recovery of the loans. The VIEs
finance their operations from earned income, capital contributions,
and through restructured debt agreements. Assets of the VIEs are
used to settle their specific obligations, including loan payments
due to the Bancorp. The Bancorp continues to maintain its
relationship with these VIEs as a lender and minority shareholder,
however, it is not involved in management decisions and does not
have sufficient voting rights to control the membership of the
respective boards. Therefore, the Bancorp accounts for its equity
investments in these VIEs under the equity method or cost
method based on its percentage of ownership and ability to
exercise significant influence.
The Bancorp’s maximum exposure to loss as a result of its
involvement with these VIEs is limited to the equity investments,
the principal and accrued interest on the outstanding loans, and any
unfunded commitments. Due to the VIEs’ short-term cash deficit
projections at the restructuring dates, the Bancorp determined that
the fair value of its equity investments in these VIEs was zero. As
of December 31, 2010, the Bancorp’s carrying value of these equity
investments was zero. Additionally, as of December 31, 2010 and
2009, the Bancorp had outstanding loans to these VIEs of $12
million and $23 million, respectively, included in commercial loans
in the Consolidated Balance Sheets. The Bancorp’s unfunded loan
commitments to these VIEs were $1 million as of December 31,
2010 and 2009. The loans and unfunded commitments to these
VIEs are included in the Bancorp’s overall analysis of the
allowance for loan and lease losses and reserve for unfunded
commitments, respectively. The Bancorp does not provide any
implicit or explicit liquidity guarantees or principal value guarantees
to these VIEs.
13. SALES OF RECEIVABLES AND SERVICING RIGHTS
Residential Mortgage Loan Sales
The Bancorp sold fixed and adjustable rate residential mortgage
loans during 2010, 2009 and 2008. In those sales, the Bancorp
obtained servicing responsibilities and the investors have no
recourse to the Bancorp’s other assets for failure of debtors to pay
when due. The Bancorp receives annual servicing fees based on a
percentage of the outstanding balance. The Bancorp identifies
classes of servicing assets based on financial asset type and interest
rates.
Information related to residential mortgage loan sales and the
Bancorp’s mortgage banking activity, which is included in mortgage
banking net revenue in the Consolidated Statements of Income for
the years ended December 31 is as follows:
($ in millions) 2010 2009 2008
Residential mortgage loan sales $17,861 20,605 11,529
Origination fees and gains on loan sales 490 485 260
Servicing fees 221 197 164
Servicing Assets
The following table presents changes in the servicing assets related to residential mortgage loans for the years ended:
($ in millions) 2010 2009
Carrying amount as of the beginning of period $979 752
Servicing obligations that result from transfer of residential mortgage loans 297 373
A
mortization (138) (146)
Carrying amount before valuation allowance 1,138 979
V
aluation allowance for servicing assets:
Beginning balance (280) (256)
Servicing impairment (36) (24)
Ending balance (316) (280)
Carrying amount as of the end of the period $822 699