Fifth Third Bank 2001 Annual Report Download - page 24

Notes to Consolidated Financial Statements
FIFTH THIRD BANCORP AND SUBSIDIARIES
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criteria for recognition of intangible assets separately from goodwill.
This statement is effective for business combinations completed after
June 30, 2001.
Securities and other property held by Fifth Third Investment
Advisors, a division of the Bancorp’s banking subsidiaries, in a
fiduciary or agency capacity are not included in the Consolidated
Balance Sheets because such items are not assets of the subsidiaries.
Investment advisory income in the Consolidated Statements of
Income is recognized on the accrual basis. Investment advisory
services revenues are recognized monthly based on a fee charged per
transaction processed and a fee charged on the market value of ending
account balances associated with individual contracts.
The Bancorp recognizes revenue from its electronic payment
processing services as such services are performed, recording revenues
net of certain costs (primarily interchange fees charged by credit card
associations) not controlled by the Bancorp.
Treasury stock is carried at cost.
2. Securities
Securities available-for-sale as of December 31:
2001
Amortized Unrealized Unrealized Fair
($ in millions) Cost Gains Losses Value
U.S. Government
and agencies
obligations. . . . . $ 1,950.1 17.6 ( 80.5) 1,887.2
Obligations of
states and political
subdivisions. . . . 1,144.9 35.4 ( 4.7) 1,175.6
Agency mortgage-
backed
securities . . . . . . 14,611.5 175.0 (171.0) 14,615.5
Other bonds,
notes and
debentures. . . . . 2,113.0 34.6 ( 13.2) 2,134.4
Other securities. . . 659.5 35.5 ( 1.1) 693.9
Total securities . . . $20,479.0 298.1 (270.5) 20,506.6
2000
Amortized Unrealized Unrealized Fair
($ in millions) Cost Gains Losses Value
U.S. Government
and agencies
obligations. . . . . $ 1,446.7 13.2 ( 22.0) 1,437.9
Obligations of
states and political
subdivisions. . . . 888.8 19.6 ( 4.9) 903.5
Agency mortgage-
backed
securities . . . . . . 13,897.3 113.6 ( 70.9) 13,940.0
Other bonds,
notes and
debentures. . . . . 1,977.8 5.9 ( 27.1) 1,956.6
Other securities. . . 775.7 25.3 ( 10.2) 790.8
Total securities . . . $18,986.3 177.6 (135.1) 19,028.8
loans to fixed. The Bancorp has approximately $15.6 million in
deferred losses related to existing cash flow hedges on floating-rate
liabilities included in other short-term borrowings in the December
31, 2001 Consolidated Balance Sheet.
Free-Standing Derivative Instruments
The Bancorp enters into various derivative contracts which primarily
focus on providing derivative products to customers. These derivative
contracts are not linked to specific assets and liabilities on the balance
sheet or to forecasted transactions and, therefore, do not qualify for
hedge accounting. Interest rate lock commitments issued on
residential mortgage loans intended to be held for resale are also
considered free-standing derivative instruments. The interest rate
exposure on these commitments is economically hedged primarily
with forward contracts. Additionally, the Bancorp enters into a
combination of free-standing derivative instruments (PO swaps,
floors, forward contracts and interest rate swaps) to hedge changes in
fair value of its fixed rate mortgage servicing rights portfolio. The
commitments and free-standing derivative instruments are marked to
market and recorded as a component of mortgage banking revenue in
the Consolidated Statements of Income. For the year ended
December 31, 2001, the Bancorp recorded gains of $23.1 million on
foreign exchange contracts for customers, gains of $2.4 million on the
net change in interest rate locks and forward contracts and gains of
$5.8 million on free-standing derivatives related to mortgage servicing
rights. The Bancorp has approximately $3.7 million of free-standing
derivatives related to customer transactions included in accrued
income receivable, a net $2.1 million of free-standing derivatives
related to interest rate locks and forward commitments to sell
included in other assets and $18.3 million related to mortgage
servicing rights included in other assets in the December 31, 2001
Consolidated Balance Sheet.
Earnings Per Share
In accordance with SFAS No. 128, “Earnings Per Share,” basic
earnings per share are computed by dividing net income available to
common shareholders by the weighted average number of shares of
common stock outstanding during the period. Earnings per diluted
share are computed by dividing adjusted net income available to
common shareholders by the weighted average number of shares of
common stock and common stock equivalents outstanding during
the period. Dilutive common stock equivalents represent the
assumed conversion of convertible subordinated debentures,
convertible preferred stock and the exercise of stock options.
Other
In September 2000, the FASB issued SFAS No. 140, “Accounting
for Transfer and Servicing of Financial Assets and Extinguishments
of Liabilities.” This statement is effective for transfers and servicing
of financial assets occurring after March 31, 2001, with certain
disclosure and reclassification requirements effective for financial
statements for fiscal years ending after December 15, 2000. Included
in SFAS No. 140, which replaced SFAS No. 125 of the same name,
are the accounting and reporting standards related to securitizations
and Qualifying Special Purpose Entities (“QSPE”). The adoption of
SFAS No. 140 did not have a material effect on the Bancorp.
SFAS No. 141, “Business Combinations,” was issued in June
2001 and eliminates the pooling of interests method of accounting
for business combinations with limited exceptions for combinations
initiated prior to July 1, 2001. In addition, it further clarifies the