Fifth Third Bank 2008 Annual Report Download - page 73

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Fifth Third Bancorp 71
8. GOODWILL
Changes in the net carrying amount of goodwill by reporting segment for the years ended December 31, 2008 and 2007 were as follows:
Commercial Branch Consumer Investment Processing
($ in millions) Banking Banking Lending Advisors Solutions Total
Balance as of December 31, 2006 $871 797 182 138 205 2,193
Acquisition activity 124 153 - - - 277
Balance as of December 31, 2007 995 950 182 138 205 2,470
Acquisition activity 369 707 33 10 - 1,119
Impairment (750) - (215) - - (965)
Balance as of December 31, 2008 $614 1,657 - 148 205 2,624
Business combinations entered into by the Bancorp typically
include the acquisition of goodwill. Acquisition activity includes
acquisitions in the respective period in addition to purchase
accounting adjustments related to previous acquisitions. During
the second quarter of 2008, the Bancorp acquired First Charter,
which resulted in the recognition of $1.1 billion of goodwill.
During 2007, the Bancorp acquired Crown, which resulted in the
recognition of $268 million in goodwill; of this amount $249
million was deductible for tax purposes.
At September 30, 2008, the Bancorp completed its annual
goodwill impairment test and determined that no impairment
existed. As prescribed in SFAS No. 142, goodwill should be tested
for impairment between annual tests if an event occurs or
circumstances change that would more-likely-than-not reduce the
fair value of a reporting unit below its carrying amount. During
the fourth quarter of 2008, the Bancorp experienced a sustained,
significant decline in its stock price, which was primarily
attributable to the continuing economic slowdown and increased
market concern surrounding financial services companies’ credit
risks and capital positions. The Bancorp determined these events
resulted in certain of its reporting units’ fair values being more-
likely-than-not reduced below their carrying amounts. Therefore,
the Bancorp performed a goodwill impairment test as of December
31, 2008.
Based on the results of the Step 1 test as defined in SFAS No.
142, the Commercial Banking, Consumer Lending, and Branch
Banking reporting units’ carrying amounts, including goodwill,
exceeded their related fair values. Upon completion of the Step 2
test, the Bancorp determined that the Commercial Banking and
Consumer Lending reporting units’ goodwill carrying amounts
exceeded their associated implied fair values by $750 million and
$215 million, respectively. The resulting $965 million goodwill
impairment charge was recorded in the fourth quarter of 2008.
9. INTANGIBLE ASSETS
Intangible assets consist of servicing rights, core deposit
intangibles, customer lists, non-compete agreements and
cardholder relationships. Intangible assets, excluding servicing
rights, are amortized on either a straight-line or an accelerated
basis over their estimated useful lives and have an estimated
weighted-average life at December 31, 2008 of 2.8 years. The
Bancorp reviews intangible assets for possible impairment
whenever events or changes in circumstances indicate that
carrying amounts may not be recoverable. The details of the
Bancorp’s intangible assets are shown in the following table. For
further information on servicing rights, see Note 10.
As of December 31, 2008, all of the Bancorp’s intangible assets were being amortized. Amortization expense recognized on intangible
assets, including servicing rights, for 2008 and 2007 was $164 million and $135 million, respectively. Estimated amortization expense, including
servicing rights, for the years ending December 31, 2009 through 2013 is as follows:
($ in millions)
2009 $217
2010 165
2011 115
2012 86
2013 66
($ in millions)
Gross Carrying
Amount
Accumulated
Amortization
Valuation
Allowance
Net Carrying
Amount
As of December 31, 2008:
Mortgage servicing rights $1,614 (862) (256) 496
Other consumer and commercial servicing rights 13 (10) - 3
Core deposit intangibles 487 (346) - 141
Other 61 (34) - 27
Total intangible assets $2,175 (1,252) (256) 667
As of December 31, 2007:
Mortgage servicing rights $1,417 (755) (49) 613
Other consumer and commercial servicing rights 24 (19) - 5
Core deposit intangibles 430 (302) - 128
Other 44 (25) - 19
Total intangible assets $1,915 (1,101) (49) 765