Fifth Third Bank 2003 Annual Report Download - page 68

FIFTH THIRD BANCORP AND SUBSIDIARIES
66
Management’s Discussion and Analysis of
Financial Condition and Results of Operations
assumption would be approximately $18 million and $39 million,
respectively. The change in the fair value of MSR's at December 31,
2003, to immediate 10 percent and 20 percent adverse changes in
the discount rate assumption would be approximately $8 million
and $14 million, respectively, and to immediate 10 percent and 20
percent favorable changes in the discount rate assumption would be
approximately $8 million and $16 million, respectively. Sensitivity
analysis related to other consumer and commercial servicing rights is
not material to the Bancorp's Consolidated Financial Statements.
These sensitivities are hypothetical and should be used with caution.
As the figures indicate, change in fair value based on a 10 percent
and 20 percent variation in assumptions generally cannot be
extrapolated because the relationship of the change in assumptions
to changes in fair value may not be linear. Also, the effect of a
variation in a particular assumption on the fair value of the retained
interests is calculated without changing any other assumption; in
reality, changes in one factor may result in changes in another,
which might magnify or counteract the sensitivities.
New Accounting Pronouncements
In June 2001, the Financial Accounting Standards Board (FASB)
issued SFAS No. 142, “Goodwill and Other Intangible Assets.”
This Statement discontinued the practice of amortizing goodwill
and indefinite lived intangible assets and initiated an annual review
for impairment. Impairment is to be examined more frequently if
certain indicators are encountered. The Bancorp has completed its
most recent annual goodwill impairment test required by this
Standard as of September 30, 2003 and has determined that no
impairment exists. Intangible assets with a determinable useful life
will continue to be amortized over that period. The Bancorp adopted
the amortization provisions of SFAS No. 142 effective January 1,
2002. See Note 7 for certain pro forma financial disclosures related
to SFAS No.142.
In June 2001, the FASB issued SFAS No. 143, “Accounting for
Asset Retirement Obligations.” This Statement addresses financial
accounting and reporting for obligations associated with the retirement
of tangible long-lived assets and the associated asset retirement costs.
This Statement amends SFAS No. 19, “Financial Accounting and
Reporting by Oil and Gas Producing Companies,” and was effective
for financial statements issued for fiscal years beginning after June 15,
2002. Adoption of this Standard did not have a material effect on the
Bancorp’s Consolidated Financial Statements.
In August 2001, the FASB issued SFAS No. 144, “Accounting
for the Impairment or Disposal of Long-Lived Assets.” This
Statement eliminates the allocation of goodwill to long-lived assets
to be tested for impairment and details both a “probability-weighted”
and “primary-asset” approach to estimate cash flows in testing for
impairment of a long-lived asset. This Statement supersedes SFAS
No. 121, “Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to Be Disposed Of,” and the accounting and
reporting provisions of the Accounting Principles Board (APB)
Opinion No. 30, “Reporting the Results of Operations—Reporting
the Effects of Disposal of a Segment of a Business, and Extraordinary,
Unusual and Infrequently Occurring Events and Transactions.”
This Statement also amends Accounting Research Bulletin (ARB)
No. 51, “Consolidated Financial Statements.” SFAS No. 144 was
effective for financial statements issued for fiscal years beginning
after December 15, 2001. Adoption of this Standard did not have a
material effect on the Bancorp’s Consolidated Financial Statements.
In April 2002, the FASB issued SFAS No. 145, “Rescission of
SFAS Statements No. 4, 44, and 64, Amendment of SFAS No. 13,
and Technical Corrections.” This Statement amends SFAS No. 13,
“Accounting for Leases,” to eliminate an inconsistency between the
required accounting for sale-leaseback transactions and the required
accounting for certain lease modifications that have economic effects
that are similar to sale-leaseback transactions. This Statement also
amends other existing authoritative pronouncements to make
various technical corrections, clarify meanings, or describe their
applicability under changed conditions. SFAS No. 145 was effective
for transactions occurring after May 15, 2002. Adoption of this
Standard did not have a material effect on the Bancorp’s
Consolidated Financial Statements.
In June 2002, the FASB issued SFAS No. 146, “Accounting for
Costs Associated with Exit or Disposal Activities.” This Statement
addresses financial accounting and reporting for costs associated with
exit or disposal activities and nullifies EITF Issue No. 94-3, “Liability
Recognition for Certain Employee Termination Benefits and Other
Costs to Exit an Activity (including Certain Costs Incurred in a
Restructuring).” This Statement requires recognition of a liability for
a cost associated with an exit or disposal activity when the liability is
incurred, as opposed to being recognized at the date an entity
commits to an exit plan. This Statement also establishes that fair value
is the objective for initial measurement of the liability. This Statement
was effective for exit or disposal activities that are initiated after
December 31, 2002 and has not had a material effect on the
Bancorp’s Consolidated Financial Statements.
In October 2002, the FASB issued SFAS No. 147, “Acquisitions
of Certain Financial Institutions.” This Statement addresses the
financial accounting and reporting for the acquisition of all or part
of a financial institution, except for a transaction between two or
more mutual enterprises. This Statement requires transactions to be
accounted for in accordance with SFAS No. 141 and SFAS No.
142. In addition, this Statement amends SFAS No. 144 to include
in its scope long-term customer relationship intangible assets of
financial institutions such as depositor and borrower-relationship
intangible assets and credit cardholder intangible assets.
Consequently, those intangible assets are subject to the same
undiscounted cash flow recoverability test and impairment loss
recognition and measurement provisions that SFAS No. 144
requires for other long-lived assets that are held and used. This
Statement was effective October 1, 2002. Adoption of this Standard
did not have a material effect on the Bancorp’s Consolidated
Financial Statements.
In December 2002, the FASB issued SFAS No. 148, “Accounting
for Stock-Based Compensation-Transition and Disclosure—an
Amendment of FASB Statement No. 123.” This Statement provides
alternative methods of transition for a voluntary change to the fair
value method of accounting for stock-based employee compensation.
This Statement was effective for financial statements for fiscal years
ending after December 15, 2002. As permitted by SFAS No. 148,
during 2003 the Bancorp continued to apply the provisions of APB
Opinion No. 25, “Accounting for Stock-Based Compensation,” for all
employee stock option grants and provide all disclosures required. In
addition, the Bancorp anticipates adopting the fair value method of
expense recognition for employee stock-based compensation on a
retroactive basis during the first quarter of 2004.
In April 2003, the FASB issued SFAS No. 149, “Amendment of
Statement 133 on Derivative Instruments and Hedging Activities.”
This Statement amends and clarifies financial accounting and
reporting for derivative instruments, including certain embedded