Fifth Third Bank 2011 Annual Report Download - page 115

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Fifth Third Bancorp 113
Risk ratings of the notional amount of risk participation agreements under this risk rating system are summarized in the following table:
A
t December 31 ($ in millions) 2011 2010
Pass $ 772 744
Special mention 14 37
Substandard 18 69
Doubtful 4 1
Total $ 808 851
The net gains (losses) recorded in the Consolidated Statements of Income relating to free-standing derivative instruments used for customer
accommodation are summarized in the following table:
For the year ended December 31 Consolidated Statements of
Income Caption ($ in millions) 2011 2010 2009
Interest rate contracts:
Interest rate contracts for customers (contract revenue) Corporate banking revenue $ 28 26 21
Interest rate contracts for customers (credit losses) Other noninterest expense (13) (22) (33)
Interest rate contracts for customers (credit portion of fair value adjustment) Other noninterest expense 13 (1) (7)
Interest rate lock commitments Mortgage banking net revenue 206 187 129
Commodity contracts:
Commodity contracts for customers (contract revenue) Corporate banking revenue 8 8 6
Commodity contracts for customers (credit portion of fair value adjustment) Other noninterest expense - - 2
Foreign exchange contracts:
Foreign exchange contracts - customers (contract revenue) Corporate banking revenue 47 63 76
Foreign exchange contracts - customers (credit portion of fair value adjustment) Other noninterest expense 1 (1) 2
14. OTHER ASSETS
The following table provides the components of other assets included in the Consolidated Balance Sheets as of December 31:
($ in millions) 2011 2010
Derivative instruments $2,356 2,074
Bank owned life insurance 1,742 1,715
Partnership investments 1,413 1,367
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ccounts receivable and drafts-in-process 955 1,023
Bankers' acceptances 726 369
Investment in Vantiv Holding, LLC 576 522
OREO and other repossessed personal property 442 532
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ccrued interest receivable 382 413
Prepaid expenses 84 133
Income tax receivable 5 1
Deferred tax asset - 13
Other 182 238
Total $8,863 8,400
The Bancorp incorporates the utilization of derivative instruments
as part of its overall risk management strategy to reduce certain risks
related to interest rate, prepayment and foreign currency volatility.
The Bancorp also holds derivatives instruments for the benefit of its
commercial customers. For further information on derivative
instruments, see Note 13.
The Bancorp purchases life insurance policies on the lives of
certain directors, officers and employees and is the owner and
beneficiary of the policies. See Note 1 for further information.
Certain BOLI policies have a stable value agreement through either
a large, well-rated bank or multi-national insurance carrier that
provides limited cash surrender value protection from declines in
the value of each policy’s underlying investments. During 2009, the
value of the investments underlying one of the Bancorp’s BOLI
policies continued to decline due to disruptions in the credit
markets, widening of credit spreads between U.S. treasuries/swaps
versus municipal bonds and bank trust preferred securities, and
illiquidity in the asset-backed securities market. These factors caused
the cash surrender value to decline further beyond the protection
provided by the stable value agreement. As a result of exceeding the
cash surrender value protection, the Bancorp recorded charges of
$10 million during 2009 to reflect declines in the policy’s cash
surrender value. The cash surrender value of this BOLI policy was
$237 million at December 31, 2009.
During 2009, the Bancorp notified the related insurance carrier
of its intent to surrender this BOLI policy. Due to the fact the
Bancorp had not yet decided the manner in which it would
surrender the policy, which may have impacted the cash surrender
value protection, and because of ongoing developments in litigation
with the insurance carrier, the Bancorp recognized charges of $43
million in 2009 to fully reserve for the potential loss of the cash
surrender value protection associated with the policy. In addition,
the Bancorp recognized tax benefits of $106 million in 2009 related
to losses recorded in prior periods on this policy that are now
expected to be tax deductible.
During 2010, an agreement to settle the claims with the
insurance carrier was reached among the parties to the litigation. As
a result of this settlement and the corresponding receipt of
settlement proceeds from the insurance carrier in the third quarter
of 2010, the Bancorp recorded $152 million in other noninterest
income and $25 million associated with legal fees related to the
settlement in other noninterest expense in the Bancorp’s
Consolidated Statements of Income.