Accrued taxes represent the net estimated amount due to  taxing jurisdictions and are reported in accrued taxes, interest and  expenses in the Consolidated Balance Sheets. The Bancorp  evaluates and assesses the relative risks and appropriate tax  treatment of transactions and filing positions after considering  statutes, regulations, judicial precedent and other information and  maintains tax accruals consistent with its evaluation of these  relative risks and merits. Changes to the estimate of accrued taxes  occur periodically due to changes in tax rates, interpretations of  tax laws, the status of examinations being conducted by taxing  authorities and changes to statutory, judicial and regulatory  guidance that impact the relative risks of tax positions. These  changes, when they occur, can affect deferred taxes and accrued  taxes as well as the current period’s income tax expense and can  be significant to the operating results of the Bancorp. For  additional information on income taxes, see Note 21 of the Notes  to Consolidated Financial Statements. Valuation of Servicing Rights  When the Bancorp sells loans through either securitizations or  individual loan sales in accordance with its investment policies, it  often obtains servicing rights. Servicing rights resulting from loan  sales are initially recorded at fair value and subsequently amortized  in proportion to, and over the period of, estimated net servicing  income. Servicing rights are assessed for impairment monthly,  based on fair value, with temporary impairment recognized  through a valuation allowance and permanent impairment recognized through a write-off of the servicing asset and related  valuation allowance. Key economic assumptions used in measuring any potential impairment of the servicing rights include  the prepayment speeds of the underlying loans, the weighted- average life, the discount rate, the weighted-average coupon and  the weighted-average default rate, as applicable. The primary risk  of material changes to the value of the servicing rights resides in  the potential volatility in the economic assumptions used,  particularly the prepayment speeds.  The Bancorp monitors risk and adjusts its valuation  allowance as necessary to adequately reserve for impairment in the  servicing portfolio. For purposes of measuring impairment, the  mortgage servicing rights are stratified into classes based on the  financial asset type and interest rates. Fees received for servicing  loans owned by investors are based on a percentage of the  outstanding monthly principal balance of such loans and are  included in noninterest income in the Consolidated Statements of  Income as loan payments are received. Costs of servicing loans are  charged to expense as incurred. For additional information on  servicing rights, see Note 13 of the Notes to Consolidated  Financial Statements.  Fair Value Measurements  The Bancorp measures fair value in accordance with U.S. GAAP,  which defines fair value as the price that would be received to sell  an asset or paid to transfer a liability in an orderly transaction  between market participants at the measurement date. Valuation  techniques the Bancorp uses to measure fair value include the  market approach, income approach and cost approach. The  market approach uses prices or relevant information generated by  market transactions involving identical or comparable assets or  liabilities. The income approach involves discounting future  amounts to a single present amount and is based on current  market expectations about those future amounts. The cost  approach is based on the amount that currently would be required  to replace the service capacity of the asset.  U.S. GAAP establishes a fair value hierarchy, which prioritizes the inputs to valuation techniques used to measure fair  value into three broad levels. The fair value hierarchy gives the  highest priority to quoted prices in active markets for identical  assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). An instrument’s categorization  within the fair value hierarchy is based upon the lowest level of  input that is significant to the instrument’s fair value measurement. The three levels within the fair value hierarchy are  described as follows: Level 1  - Quoted prices (unadjusted) in active markets  for identical assets or liabilities that the Bancorp has the  ability to access at the measurement date.  Level 2  - Inputs other than quoted prices included within  Level 1 that are observable for the asset or liability,  either directly or indirectly. Level 2 inputs include:  quoted prices for similar assets or liabilities in active  markets; quoted prices for identical or similar assets or  liabilities in markets that are not active; inputs other  than quoted prices that are observable for the asset or  liability; and inputs that are derived principally from or  corroborated by observable market data by correlation  or other means.  Level 3  - Unobservable inputs for the asset or liability for  which there is little, if any, market activity at the  measurement date. Unobservable inputs reflect the  Bancorp’s own assumptions about what market participants would use to price the asset or liability. The  inputs are developed based on the best information  available in the circumstances, which might include the  Bancorp’s own financial data such as internally developed pricing models and discounted cash flow  methodologies, as well as instruments for which the fair  value determination requires significant management  judgment.  The Bancorp's fair value measurements involve various  valuation techniques and models, which involve inputs that are  observable, when available, and include the following significant  instruments: available-for-sale and trading securities, residential  mortgage loans held for investment and held for sale and certain  derivatives. The following is a summary of valuation techniques  utilized by the Bancorp for its significant assets and liabilities  measured at fair value on a recurring basis.  Available-for-sale and trading securities  Where quoted prices are available in an active market,  securities are classified within Level 1 of the valuation  hierarchy. Level 1 securities include government bonds  and exchange traded equities. If quoted market prices  are not available, then fair values are estimated using  pricing models, quoted prices of securities with similar  characteristics, or discounted cash flows. Examples of  such instruments, which are classified within Level 2 of  the valuation hierarchy, include agency and non-agency  mortgage-backed securities, other asset-backed securities, obligations of U.S. Government sponsored  agencies, and corporate and municipal bonds. Agency  mortgage-backed securities, obligations of U.S. Government sponsored agencies, and corporate and  municipal bonds are generally valued using a market  approach based on observable prices of securities with  similar characteristics. Non-agency mortgage-backed  securities and other asset-backed securities are generally  valued using an income approach based on discounted  cash flows, incorporating prepayment speeds, performance of underlying collateral and specific tranche-level attributes. In certain cases where there is  limited activity or less transparency around inputs to the  valuation, securities are classified within Level 3 of the  valuation hierarchy. Trading securities classified as Level  3 consist of auction rate securities. Due to the illiquidity  in the market for these types of securities at December  Fifth Third Bancorp 21  MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS