Fifth Third Bank 2013 Annual Report Download - page 122

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
120 Fifth Third Bancorp
11. SALES OF RECEIVABLES AND SERVICING RIGHTS
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 Bancorp utilized a
securitization trust to facilitate the securitization process. The trust
issued asset-backed securities in the form of notes and equity
certificates, with varying levels of credit subordination and payment
priority. The Bancorp does not hold any of the notes or equity
certificates issued by the trust, and the investors in these securities
have no credit recourse to the Bancorp’s assets for failure of debtors
to pay when due. As part of the sale, the Bancorp obtained servicing
responsibilities and recognized a servicing asset with an initial fair
value of $6 million.
Residential Mortgage Loan Sales
The Bancorp sold fixed and adjustable rate residential mortgage
loans during 2013, 2012, and 2011. In those sales, the Bancorp
obtained servicing responsibilities and the investors have no
recourse to the Bancorp’s other assets for failure of debtors to pay
when due. The Bancorp receives annual servicing fees based on a
percentage of the outstanding balance. The Bancorp identifies
classes of servicing assets based on financial asset type and interest
rates.
Information related to residential mortgage loan sales and the Bancorp’s mortgage banking activity, which is included in mortgage banking net
revenue in the Consolidated Statements of Income, for the years ended December 31 is as follows:
($ in millions) 2013 2012 2011
Residential mortgage loan sales $ 21,529 21,574 14,733
Origination fees and gains on loan sales 453 821 396
Servicing fees 251 250 234
Servicing Assets
The following table presents changes in the servicing assets related to residential mortgage and automobile loans for the years ended December 31:
($ in millions) 2013 2012
Carrying amount before valuation allowance as of the beginning of the period $ 1,358 1,239
Servicing obligations that result from the transfer of residential mortgage loans 244 305
Servicing obligations that result from the transfer of automobile loans 6 -
A
mortization (168) (186)
Carrying amount before valuation allowance 1,440 1,358
V
aluation allowance for servicing assets:
Beginning balance (661) (558)
Recovery of (provision for) MSR impairment 192 (103)
Ending balance (469) (661)
Carrying amount as of the end of the period $ 971 697
Amortization expense recognized on servicing rights for the years
ended December 31, 2013, 2012 and 2011 was $168 million, $186
million and $135 million, respectively. The Bancorp's projections of
amortization expense shown below are based on existing asset
balances as of December 31, 2013. Future amortization expense
may vary from these projections.
Estimated amortization expense for the years ending December 31, 2014 through 2018 is as follows:
($ in millions) Total
2014 $95
2015 88
2016 81
2017 76
2018 71
Temporary impairment or impairment recovery, affected through a
change in the MSR valuation allowance, is captured as a component
of mortgage banking net revenue in the Consolidated Statements of
Income. The Bancorp maintains a non-qualifying hedging strategy
to manage a portion of the risk associated with changes in the value
of the MSR portfolio. This strategy includes the purchase of free-
standing derivatives and various available-for-sale securities. The
interest income, mark-to-market adjustments and gain or loss from
sale activities associated with these portfolios are expected to
economically hedge a portion of the change in value of the MSR
portfolio caused by fluctuating discount rates, earnings rates and
prepayment speeds. The fair value of the servicing asset is based on
the present value of expected future cash flows.