Sales of Receivables and Servicing Rights (Tables)

9 Months Ended

Sep. 30, 2014

Sales of Receivables and Servicing Rights

Activity Related to Mortgage Banking Net Revenue

Information related to residential mortgage loan sales and the Bancorp’s mortgage banking activity, which is included in mortgage banking net revenue in the Condensed Consolidated Statements of Income, is as follows:
		For the three months		For the nine months
		ended September 30,		ended September 30,
($ in millions)		2014	2013	2014	2013
Residential mortgage loan sales	$	1,228	5,105	4,423	19,115
Origination fees and gains on loan sales		34	74	117	393
Gross mortgage servicing fees		61	63	186	187

Changes in the Servicing Assets

Servicing Rights
The following table presents changes in the servicing rights related to residential mortgage and automobile loans for the nine months ended September 30:
($ in millions)		2014	2013
Carrying amount before valuation allowance as of the beginning of the period	$	1,440	1,358
Servicing rights that result from the transfer of residential mortgage loans		60	211
Servicing rights that result from the transfer of automobile loans		-	6
Amortization		(89)	(145)
Carrying amount before valuation allowance		1,411	1,430
Valuation allowance for servicing rights:
Beginning balance		(469)	(661)
(Provision for) recovery of MSR impairment		(7)	150
Ending balance		(476)	(511)
Carrying amount as of the end of the period	$	935	919

Estimated Amortization Expense on Servicing Rights

The Bancorp's projections of amortization expense shown below are based on existing asset balances as of September 30, 2014. Future amortization expense may vary from these projections. Estimated amortization expense for the remainder of 2014 through 2018 is as follows:
($ in millions)		Total
Remainder of 2014	$	1
2015		2
2016		2
2017		2
2018		2

Estimated amortization expense for the remainder of 2014 through 2018 is as follows:

($ in millions)		Total
Remainder of 2014	$	32
2015		119
2016		108
2017		99
2018		90

Fair Value of the Servicing Assets

The following table displays the beginning and ending fair value of the servicing rights for the nine months ended September 30:
($ in millions)		2014	2013
Fixed-rate residential mortgage loans:
Beginning balance	$	929	664
Ending balance		898	876
Adjustable rate residential mortgage loans:
Beginning balance		38	33
Ending balance		35	39
Fixed-rate automobile loans:
Beginning balance		4	-
Ending balance		2	4

Activity Related to the MSR Portfolio

The following table presents activity related to valuations of the MSR portfolio and the impact of the non-qualifying hedging strategy, which is included in the Condensed Consolidated Statements of Income:
		For the three months		For the nine months
		ended September 30,		ended September 30,
($ in millions)		2014	2013	2014	2013
Securities gains, net - non-qualifying hedges on MSRs	$	-	5	-	13
Changes in fair value and settlement of free-standing derivatives purchased
to economically hedge the MSR portfolio (Mortgage banking net revenue)		(22)	24	40	(13)
Recovery of (Provision for) MSR impairment (Mortgage banking net revenue)		21	(1)	(7)	150

Servicing Assets and Residual Interests Economic Assumptions

As of September 30, 2014 and 2013, the key economic assumptions used in measuring the interests in residential mortgage loans that continued to be held by the Bancorp at the date of sale or securitization resulting from transactions completed during the three months ended were as follows:
		September 30, 2014						September 30, 2013
	Rate	Weighted-Average Life (in years)	Prepayment Speed (annual)		Discount Rate (annual)		Weighted-Average Default rate	Weighted-Average Life (in years)	Prepayment Speed (annual)		Discount Rate (annual)		Weighted-Average Default rate
Residential mortgage loans:
Servicing rights	Fixed	7.0	10.5	%	9.9	%	N/A	7.7	8.5	%	10.2	%	N/A
Servicing rights	Adjustable	3.7	22.2		11.8		N/A	3.7	22.4		11.5		N/A

Sensitivity of the Current Fair Value of Residual Cash Flows to Immediate 10%, 20% and 50% Adverse Changes in Assumptions

At September 30, 2014, the sensitivity of the current fair value of residual cash flows to immediate 10%, 20% and 50% adverse changes in prepayment speed assumptions and immediate 10% and 20% adverse changes in other assumptions are as follows:
					Prepayment						Residual Servicing
					Speed Assumption						Cash Flows
			Fair	Weighted-Average Life (in				Impact of Adverse Change on Fair Value			Discount			Impact of Adverse Change on Fair Value
($ in millions)(a)	Rate		Value	years)	Rate			10%	20%	50%	Rate			10%	20%
Residential mortgage loans:
Servicing rights	Fixed	$	898	6.4	10.8	%	$	(38)	(73)	(164)	9.9	%	$	(33)	(65)
Servicing rights	Adjustable		35	3.1	26.0			(1)	(2)	(5)	11.8			(1)	(2)

• The impact of the weighted-average default rate on the current fair value of residual cash flows for all scenarios is immaterial.