Fifth Third Bank 2004 Annual Report Download - page 49

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Fifth Third Bancorp 47
As of December 31, 2004, the reserve for unfunded commit-
ments, totaling $72 million, is included in other liabilities. The
December 31, 2003 reserve for unfunded commitments has been
reclassifi ed from the reserve for loan and lease losses to other liabili-
ties and all subsequent activity has been reclassifi ed to conform to
the current period presentation. See Note 1 for a discussion of the
reserve for unfunded commitments.
As of December 31, 2004, impaired loans, under SFAS No.
114, with a valuation reserve totaled $108 million and impaired
loans without a valuation reserve totaled $54 million. The total
valuation reserve on the impaired loans at December 31, 2004 was
$28 million. As of December 31, 2003, impaired loans with a valu-
ation reserve totaled $173 million and impaired loans without a
valuation reserve totaled $32 million. The total valuation reserve
on the impaired loans at December 31, 2003 was $40 million.
Average impaired loans, net of valuation reserves, were $140
million in 2004, $166 million in 2003 and $163 million in 2002.
Cash basis interest income recognized on those loans during each
of the years was immaterial.
Depreciation and amortization expense related to bank prem-
ises and equipment was $130 million in 2004, $106 million in
2003 and $97 million in 2002.
Occupancy expense has been reduced by rental income from
leased premises of $12 million in 2004, $14 million in 2003 and
$14 million in 2002.
The Bancorp’s subsidiaries have entered into a number of
noncancelable lease agreements with respect to bank premises and
equipment. The minimum annual rental commitments under
noncancelable lease agreements for land and buildings at Decem-
ber 31, 2004, exclusive of income taxes and other charges, are $49
million in 2005, $45 million in 2006, $42 million in 2007, $37
million in 2008, $32 million in 2009 and $186 million in 2010 and
subsequent years.
Rental expense for cancelable and noncancelable leases was $57
million for 2004, $56 million for 2003 and $48 million for 2002.
4. BANK PREMISES AND EQUIPMENT
A summary of bank premises and equipment as of December 31:
($ in millions) Estimated Useful Life 2004 2003
Land and improvements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 265 210
Buildings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 to 50 yrs. 933 858
Equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 to 20 yrs. 811 723
Leasehold improvements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 to 30 yrs. 175 118
Construction in progress . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 133 63
Accumulated depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,002) (911)
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,315 1,061
Intangible assets consist of servicing rights, core deposits, acquired
merchant processing portfolios, customer lists and non-compete
agreements. Intangibles are amortized on either a straight-line or
an accelerated basis over their estimated useful lives, generally over
a period of up to 25 years. The Bancorp reviews intangible assets for
possible impairment whenever events or changes in circumstances
indicate that carrying amounts may not be recoverable.
Detail of amortizable intangible assets as of December 31:
7. INTANGIBLE ASSETS
6. GOODWILL
Changes in the net carrying amount of goodwill by operating segment for the years ended December 31, 2004 and 2003 were as follows:
($ in millions) Commercial Banking Retail Banking Investment Advisors Processing Solutions Total
Balance as of December 31, 2002 . . . . . . . . . . . . . . $188 234 101 217 740
Goodwill adjustment . . . . . . . . . . . . . . . . . . . . . . . — — (2) — (2)
Balance as of December 31, 2003 . . . . . . . . . . . . . . 188 234 99 217 738
Acquisition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 185 78 4 — 267
Divestiture . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — — — (26) (26)
Balance as of December 31, 2004 . . . . . . . . . . . . . . $373 312 103 191 979
Operating lease equipment primarily consists of automobiles leased
to customers, which are reported at cost, net of accumulated depre-
ciation. 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-leaseback
transactions with the Bancorp. See Note 1 for further discussion of
the adoption of FIN 46.
Operating lease equipment at December 31, 2004 and 2003
was $304 million and $767 million, net of accumulated deprecia-
tion of $244 million and $542 million, respectively. Depreciable
lives for operating lease equipment generally range from three years
to ten years. The minimum future lease rental payments due from
customers on operating lease equipment at December 31, 2004,
totaled $270 million, of which $190 million is due in 2005, $77
million in 2006 and $3 million in 2007. Depreciation expense
related to operating lease equipment for the years ended December
31, 2004 and 2003 was $106 million and $87 million, respectively.
5. OPERATING LEASE EQUIPMENT
SFAS No. 142, “Goodwill and Other Intangible Assets,” issued in
June 2001, discontinued the practice of amortizing goodwill 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 Statement as of September 30,
2004 and has determined that no impairment exists.