Fifth Third Bank 2013 Annual Report Download - page 121

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
119 Fifth Third Bancorp
Loans Provided to VIEs
The Bancorp has provided funding to certain unconsolidated VIEs
sponsored by third parties. These VIEs are generally established to
finance certain consumer and small business loans originated by
third parties. The entities are primarily funded through the issuance
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 principal 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. The Bancorp’s outstanding
loans to these VIEs, included in commercial loans in the
Consolidated Balance Sheets, are included in the previous tables for
all periods presented. Also, as of December 31, 2013 and 2012, the
Bancorp’s unfunded commitments to these entities were $962
million and $843 million, respectively. The loans and unfunded
commitments to these VIEs are included in the Bancorp’s overall
analysis of the ALLL and reserve for unfunded commitments,
respectively. The Bancorp does not provide any implicit or explicit
liquidity guarantees or principal value guarantees to these VIEs.
Automobile Loan Securitization
In March of 2013, the Bancorp recognized an immaterial loss on the
securitization and sale of certain automobile loans with a carrying
amount of approximately $509 million. The securitization and the
resulting sale of all underlying securities qualified for sale
accounting. The Bancorp has concluded that it is not the primary
beneficiary of the trust because it has neither the obligation to
absorb losses of the entity that could potentially be significant to the
VIE nor the right to receive benefits from the entity that could
potentially be significant to the VIE. The Bancorp is not required
and does not currently intend to provide any additional financial
support to the trust. Investors and creditors only have recourse to
the assets held by the trust. The interest the Bancorp holds in the
VIE relates to servicing rights that are included in the Bancorp’s
Consolidated Balance Sheets. The maximum exposure to loss is
equal to the carrying value of the servicing asset.
Restructured Loans
As part of loan restructuring efforts, 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 initial fair value of its equity investments in these VIEs was zero.
As of December 31, 2013 and 2012, the Bancorp’s carrying value of
these equity investments was immaterial to the Bancorp’s
Consolidated Balance Sheets. Additionally, the Bancorp had
outstanding loans to these VIEs, included in commercial loans in
the Consolidated Balance Sheets, which are included in the previous
tables for all periods presented. The Bancorp had no unfunded loan
commitments to these VIEs as of December 31, 2013 and 2012.
The loans to these VIEs are included in the Bancorp’s overall
analysis of the ALLL. The Bancorp does not provide any implicit or
explicit liquidity guarantees or principal value guarantees to these
VIEs.