Fifth Third Bank 2006 Annual Report Download - page 78

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Fifth Third Bancorp
76
21. INCOME TAXES
The Bancorp and its subsidiaries file a consolidated Federal income tax return. The following is a summary of applicable income taxes
included in the Consolidated Statements of Income at December 31:
($ in millions) 2006 2005 2004
Current income taxes:
U.S. income taxes $457 654 691
State and local income taxes 7 21 34
Total current tax 464 675 725
Deferred income taxes:
U.S. income taxes (24) (7) (12)
State and local income taxes 3 (9) (1)
Total deferred taxes (21) (16) (13)
Applicable income taxes $443 659 712
Deferred income taxes are included as a component of accrued taxes, interest and expenses in the Consolidated Balance Sheets and are
comprised of the following temporary differences at December 31:
($ in millions) 2006 2005
Deferred tax assets:
Allowance for credit losses $270 260
Deferred compensation 160 149
Other comprehensive income 98 225
State net operating losses 112 129
Other 117 127
Total deferred tax assets 757 890
Deferred tax liabilities:
Lease financing 1,750 1,786
State deferred taxes 189 203
Bank premises and equipment 70 61
Mortgage servicing rights 124 99
Other 173 186
Total deferred tax liabilities 2,306 2,335
Total net deferred tax liability $1,549 1,445
A reconciliation between the statutory U.S. income tax rate and the Bancorp’s effective tax rate for the years ended December 31:
2006 2005 2004
Statutory tax rate 35.0% 35.0 35.0
Increase (decrease) resulting from:
State taxes, net of federal benefit .4 .4 1.0
Tax-exempt income (2.8) (2.3) (2.0)
Credits (3.9) (2.3) (1.7)
Dividends on subsidiary preferred stock (2.2) (1.7) (1.7)
Other, net .7 .8 1.2
Effective tax rate 27.2% 29.9 31.8
Retained earnings at December 31, 2006 includes $157 million
in allocations of earnings for bad debt deductions of former thrift
subsidiaries for which no income tax has been provided. Under
current tax law, if certain of the Bancorp’s subsidiaries use these
bad debt reserves for purposes other than to absorb bad debt
losses, they will be subject to Federal income tax at the current
corporate tax rate.