Fifth Third Bank 2003 Annual Report Download - page 41

FIFTH THIRD BANCORP AND SUBSIDIARIES
39
Notes to Consolidated Financial Statements
Funded status . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (41) (66)
Unrecognized transition amount. . . . . . . . . . . . . . (1) (4)
Unrecognized prior service cost. . . . . . . . . . . . . . . 45
Unrecognized actuarial loss. . . . . . . . . . . . . . . . . . 103 98
Net amount recognized . . . . . . . . . . . . . . . . . . . . $65 33
Amounts recognized in the Consolidated
Balance Sheets consist of:
Prepaid benefit cost . . . . . . . . . . . . . . . . . . . . . . . $3 5
Accrued benefit liability . . . . . . . . . . . . . . . . . . . . (39) (57)
Intangible asset . . . . . . . . . . . . . . . . . . . . . . . . . . 45
Deferred tax asset. . . . . . . . . . . . . . . . . . . . . . . . . 34 28
Accumulated nonowner changes in equity. . . . . . . 63 52
Net amount recognized . . . . . . . . . . . . . . . . . . . . $65 33
($ in millions) 2003 2002 2001
Components of net periodic pension
cost:
Service cost. . . . . . . . . . . . . . . . . . $1 112
Interest cost . . . . . . . . . . . . . . . . . 16 16 18
Curtailment . . . . . . . . . . . . . . . . . —22
Expected return on assets . . . . . . . (15) (23) (29)
Amortization and deferral of transition
amount . . . . . . . . . . . . . . . . . . . (2) (2) (2)
Amortization of actuarial
loss (gain) . . . . . . . . . . . . . . . . . 15 — (2)
Amortization of unrecognized prior
service cost . . . . . . . . . . . . . . . . 1—1
Settlement . . . . . . . . . . . . . . . . . . 15 19 2
Net periodic pension cost . . . . . . . . . . $31 13 2
Net periodic pension cost is recorded as a component of employee
benefits in the Consolidated Statements of Income. Net periodic
pension cost for 2003 and 2002 included settlement charges of $15
million and $19 million, respectively, related to an increased level of
lump-sum distributions made during the respective years as a result of
the headcount reductions that occurred in connection with the
integration of Old Kent.
The Plan assumptions are evaluated annually and are updated
as necessary. The discount rate assumption reflects the yield of a
portfolio of high quality fixed-income instruments that have a
similar duration to the Plan’s liabilities. The expected long-term
rate of return assumption reflects the average return expected on
the assets invested to provide for the Plan’s liabilities. In
determining the expected long-term rate of return assumption, the
Bancorp evaluated actuarial and economic inputs, including long-
term inflation rate assumptions and broad equity and bond indices
long-term return projections, as well as actual long-term historical
Plan performance.
Assumptions 2003 2002 2001
Weighted-average assumptions:
For disclosure:
Discount rate . . . . . . . . . . . . . . 6.00% 6.75% 7.25%
Rate of compensation increase . . 5.00 5.10 4.86
Expected return on plan assets . . 8.75 9.00 8.99
For measuring net periodic pension
cost:
Discount rate . . . . . . . . . . . . . . 6.75 7.25 7.80
Rate of compensation increase . . 5.10 4.86 4.77
Expected return on plan assets . . 9.00 8.99 9.52
Plan assets consist primarily of common trust and mutual funds
(equities and fixed income) managed by Fifth Third Bank, an
affiliate of the Bancorp, and Bancorp common stock securities. The
following table provides the Bancorp’s weighted-average asset
allocations by asset category for 2003 and 2002:
Weighted-Average
Asset Allocation
2003 2002
Equity securities . . . . . . . . . . . . . . . . . . . . 54% 52%
Bancorp common stock . . . . . . . . . . . . . . . 18 23
Total equity securities . . . . . . . . . . . . . . . . 72 75
Total fixed income securities . . . . . . . . . . . 26 24
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100% 100%
The Bancorp’s policy for the investment of Plan assets is to
employ investment strategies that achieve a weighted-average target
asset allocation of 70% to 80% in equity securities, 20% to 25% in
fixed income securities and up to 5% in cash.
The accumulated benefit obligation for all defined benefit plans
was $262 million and $232 million at December 31, 2003 and
December 31, 2002, respectively. For the Bancorp’s defined benefit
plans, with an accumulated benefit obligation exceeding assets, the
total projected benefit obligation, accumulated benefit obligation and
fair value of plan assets were $260 million, $257 million and $218
million, respectively, as of December 31, 2003 and $236 million,
$228 million and $169 million, respectively, as of December 31,
2002. The increase in the additional minimum pension liability,
recorded as a reduction to shareholders’ equity, was $11 million, net
of a tax benefit of $6 million, in 2003 and $52 million, net of a tax
benefit of $28 million, in 2002.
Based on the actuarial assumptions, the Bancorp expects to make
no cash contribution to the Plan in 2004. Estimated pension benefit
payments, which reflects expected future service, for fiscal years
2004 through 2013 are as follows:
For the years ended December 31 ($ in millions)
2004 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $24
2005 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
2006 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
2007 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
2008 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
2009-2013. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78
The Bancorp’s profit sharing plan contribution was $48 million
for 2003, $58 million for 2002, and $34 million for 2001.
Expenses recognized during the years ended December 31, 2003,
2002 and 2001 for matching contributions to the Bancorp’s
defined contribution savings plans were $12 million, $14 million
and $12 million, respectively.
($ in millions) 2003 2002