Fifth Third Bank 2003 Annual Report Download - page 29

Notes to Consolidated Financial Statements
FIFTH THIRD BANCORP AND SUBSIDIARIES
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3. Lease Financing
A summary of the gross investment in lease financing at December 31:
($ in millions) 2003 2002
Direct financing leases . . . . . . . . . . . . . . . $4,978 5,005
Leveraged leases . . . . . . . . . . . . . . . . . . . . 2,161 1,619
Total lease financing . . . . . . . . . . . . . . . . $7,139 6,624
The components of the investment in lease financing at December 31:
($ in millions) 2003 2002
Rentals receivable, net of principal and
interest on nonrecourse debt . . . . . . . . . $4,917 4,520
Estimated residual value of leased assets. . . 2,222 2,104
Gross investment in lease financing. . . . . . 7,139 6,624
Unearned income. . . . . . . . . . . . . . . . . . . (1,427) (1,262)
Net investment in lease financing . . . . . . . $5,712 5,362
At December 31, 2003, the minimum future lease payments
receivable for each of the years 2004 through 2008 were $1,643
million, $1,434 million, $1,225 million, $850 million and $466
million, respectively.
4. Reserve For Credit Losses
Transactions in the reserve for credit losses for the years ended
December 31:
($ in millions) 2003 2002 2001
Balance at January 1 . . . . . . . . . . $683 624 609
Losses charged off. . . . . . . . . . . . (380) (273) (309)
Recoveries of losses previously
charged off . . . . . . . . . . . . . . . 68 86 82
Net charge-offs. . . . . . . . . . . . . . (312) (187) (227)
Provision charged to operations. . 399 246 201
Merger-related provision
charged to operations. . . . . . . . ——35
Reserve of acquired institutions
and other . . . . . . . . . . . . . . . . ——6
Balance at December 31 . . . . . . . $770 683 624
Impaired loan information, under SFAS No. 114, at
December 31:
($ in millions) 2003 2002
Impaired loans with a valuation reserve . . . $182 180
Impaired loans with no valuation reserve. . 23 40
Total impaired loans . . . . . . . . . . . . . . . . $205 220
Valuation reserve on impaired loans . . . . . $40 56
Average impaired loans, net of valuation reserves, were $166
million in 2003, $163 million in 2002 and $142 million in 2001.
Cash basis interest income recognized on those loans during each of
the years was immaterial.
5. Bank Premises and Equipment
A summary of bank premises and equipment at December 31:
Estimated
($ in millions) Useful Life 2003 2002
Land and improvements. . . . . . $ 273 216
Buildings. . . . . . . . . . . . . . . . . 10 to 50 yrs. 858 784
Equipment . . . . . . . . . . . . . . . 3 to 20 yrs. 723 642
Leasehold improvements . . . . . 5 to 30 yrs. 118 114
Accumulated depreciation
and amortization . . . . . . . . . (911) (865)
Total bank premises and
equipment . . . . . . . . . . . . . . $1,061 891
Depreciation and amortization expense related to bank premises
and equipment was $106 million in 2003, $97 million in 2002
and $99 million in 2001.
Occupancy expense has been reduced by rental income from
leased premises of $14 million in 2003, $14 million in 2002 and
$16 million in 2001.
The Bancorp’s subsidiaries have entered into a number of
noncancelable lease agreements with respect to bank premises and
equipment. A summary of the minimum annual rental commit-
ments under noncancelable lease agreements for land and buildings
at December 31, 2003, exclusive of income taxes and other charges
payable by the lessee:
Land and
($ in millions) Buildings
2004 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 42
2005 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
2006 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
2007 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
2008 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
2009 and subsequent years . . . . . . . . . . . . . . . . . . . . . . . . 114
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $276
Rental expense for cancelable and noncancelable leases was $56
million for 2003, $48 million for 2002, and $57 million for 2001.
6. Operating Lease Equipment
Operating lease equipment primarily consists of automobiles leased
to customers, which are reported at cost, net of accumulated
depreciation. Upon the early adoption of FIN 46 on July 1, 2003,
the Bancorp was required to consolidate operating lease assets of an
unrelated and previously unconsolidated asset-backed SPE that was
formed for the sole purpose of participating in sale and subsequent
leaseback transactions with the Bancorp. See Note 1 for further
discussion of adoption of FIN 46.
Operating lease equipment at December 31, 2003 was $.8
billion, net of accumulated depreciation of $.5 billion. Depreciable
lives for operating lease equipment generally range from 3 years to
10 years.
The minimum future lease rental payments due from customers
on operating lease equipment at December 31, 2003, totaled $809
million, of which $452 million is due in 2004, $253 million in
2005, $100 million in 2006 and $4 million in 2007. Depreciation
expense related to operating lease equipment for the year ended
December 31, 2003 was $87 million.