Fifth Third Bank 2008 Annual Report Download - page 72

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
70 Fifth Third Bancorp
6. LOANS ACQUIRED IN A TRANSFER
In 2008 and 2007, the Bancorp acquired certain loans for which
there was evidence of deterioration of credit quality since
origination and for which it was probable, at acquisition, that all
contractually required payments would not be collected. These
loans were evaluated either individually or segregated into pools
based on common risk characteristics and accounted for under
Statement of Position 03-3, “Accounting for Certain Loans or
Debt Securities Acquired in a Transfer” (SOP 03-3). SOP 03-3
requires acquired loans within its scope to be recorded at their
initial fair value and prohibits carrying over valuation allowances
when applying purchase accounting. Loans carried at fair value,
mortgage loans held for sale and loans under revolving credit
agreements are excluded from the scope of SOP 03-3. During
2008, the Bancorp recorded provision expense for loans
accounted for under SOP 03-3 of $35 million in the Consolidated
Statements of Income. As of December 31, 2008 the Bancorp
maintained an allowance for loan and lease losses of $6 million on
loans accounted for under SOP 03-3.
The following table reflects the outstanding balance of all
contractually required payments and carrying amounts of those
loans accounted for under SOP 03-3 at December 31:
($ in millions) 2008 2007
Commercial $224 94
Consumer 87 135
Outstanding balance $311 229
Carrying amount $106 101
At the acquisition date, the Bancorp determines the excess of the
loan’s contractually required payments over all cash flows
expected to be collected as an amount that should not be accreted
into interest income (nonaccretable difference). The remaining
amount representing the difference in the expected cash flows of
acquired loans and the initial investment in the acquired loans is
accreted into interest income over the remaining life of the loan or
pool of loans (accretable yield). A summary of activity is provided.
($ in millions) Accretable Yield
Balance as of December 31, 2006 $-
Additions 8
Accretion (2)
Reclassifications from (to)
nonaccretable difference -
Balance as of December 31, 2007 $6
Additions 24
Accretion (15)
Reclassifications from (to)
nonaccretable difference 13
Balance as of December 31, 2008 $28
The following table reflects loans acquired, for which it was
probable at acquisition that all contractually required payments
would not be collected as of December 31:
($ in millions) 2008 2007
Contractually required payments receivable at acquisition:
Commercial $182 99
Consumer 34 136
Total $216 235
Cash flows expected to be collected at acquisition $90 113
Fair value of acquired loans at acquisition 66 105
7. BANK PREMISES AND EQUIPMENT
A summary of bank premises and equipment at December 31:
($ in millions) Estimated Useful Life 2008 2007
Land and improvements $743 620
Buildings 10 to 50 yrs. 1,518 1,383
Equipment 3 to 20 yrs. 1,317 1,210
Leasehold improvements 3 to 40 yrs. 378 320
Construction in progress 120 113
Accumulated depreciation and amortization (1,582) (1,423)
Total $2,494 2,223
Depreciation and amortization expense related to bank premises
and equipment was $218 million in 2008, $205 million in 2007 and
$187 million in 2006.
Occupancy expense for cancelable and noncancelable leases
was $98 million for 2008, $85 million for 2007 and $78 million for
2006. Occupancy expense has been reduced by rental income
from leased premises of $13 million in 2008 and $12 million in
2007 and 2006.
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
December 31, 2008, exclusive of income taxes and other charges,
are $90 million in 2009, $83 million in 2010, $78 million in 2011
$74 million in 2012, $70 million in 2013 and $543 million in 2014
and subsequent years.