Fifth Third Bank 2009 Annual Report Download - page 33

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Fifth Third Bancorp 31
for unfunded commitments was consistent with 2008 as estimates
of inherent losses resulting from deterioration in the credit quality
of the underlying borrowers remained high.
The Bancorp incurred $269 million of FDIC insurance and
other taxes in 2009 compared to $73 million in 2008 as the result
of an increase in deposit insurance and for participation in the
TLGP. In December 2008, the FDIC implemented an interim rule
under the FDIC restoration plan which increased the deposit
insurance assessment rates 7 bp from the 2008 level for all banks
for the first quarter of 2009. In February 2009, the FDIC adopted
the final rule for the FDIC restoration plan that, effective April 1,
2009, made the assessment rates more risk sensitive and widened
the range (7.0-77.5 bp) the FDIC may charge banks. Additionally,
the FDIC imposed a special assessment, effective June 30, 2009,
on each insured depository institution calculated as 5 bp of total
assets less Tier 1 capital. As a result, the Bancorp recognized a $55
million special assessment charge in the second quarter of 2009.
The Bancorp participates in the FDIC’s TLGP which
temporarily guarantees qualifying senior debt of participating
FDIC-insured institutions and certain holding companies, as well
as deposits in qualifying noninterest-bearing deposit transaction
accounts. The Bancorp did not have qualifying senior debt insured
under the TLGP in 2009, but did have qualifying deposit
accounts.
The efficiency ratio (noninterest expense divided by the sum
of net interest income (FTE) and noninterest income) was 46.9%
and 70.4% for 2009 and 2008, respectively. Excluding the
goodwill impairment charge of $965 million in 2008, the efficiency
ratio was 55.5% (comparison being provided to supplement an
understanding of fundamental trends). The Bancorp continues to
focus on efficiency initiatives, as part of its core emphasis on
operating leverage and on expense control.
Applicable Income Taxes
The Bancorp’s income (loss) before income taxes, applicable
income tax expense (benefit) and effective tax rate for each of the
periods indicated are shown in Table 12. Applicable income tax
expense for all periods includes the benefit from tax-exempt
income, tax-advantaged investments and general business tax
credits, partially offset by the effect of nondeductible expenses.
The effective tax rate for the tax year ended December 31, 2009
was primarily impacted by $112 million in tax credits, a $106
million tax benefit related to the decision to surrender one of the
Bancorp’s BOLI policies and the determination that losses on the
policy recorded in prior periods are now tax deductible, and a $55
million reduction in income tax expense related to the Bancorp’s
leveraged lease litigation settlement with the IRS. The effective tax
rate for the year ended December 31, 2008 was primarily impacted
by the pre-tax loss for the year partially offset by tax expense of
approximately $140 million required for interest related to the tax
treatment of certain of the Bancorp’s leveraged leases for previous
years and the nondeductible portion of the goodwill impairment
charge. Additionally, see Note 20 of the Notes to Consolidated
Financial Statements for further information on income taxes.
TABLE 11: COMPONENTS OF OTHER NONINTEREST
EXPENSE
For the years ended December 31
($ in millions) 2009 2008 2007
FDIC insurance and other taxes $269 73 31
Loan and lease 234 188 119
Provision for unfunded commitments and
letters of credit 99 98 16
A
ffordable housing investments
impairment 83 67 57
Marketing 79 102 84
Professional services fees 63 102 54
Intangible asset amortization 57 56 42
Postal and courier 53 54 52
Insurance expense 50 30 17
Travel 41 54 54
Operating lease 39 32 22
Recruitment and education 30 33 41
Supplies 25 31 31
Other real estate owned expense 24 11 6
Data processing 21 14 14
V
isa litigation reserve (73) (99) 172
Other 277 243 177
Total other noninterest expense $1,371 1,089 989
TABLE 12: APPLICABLE INCOME TAXES
For the years ended December 31 ($ in millions) 2009 2008 2007 2006 2005
Income (loss) before income taxes and cumulative effect $767 (2,664) 1,537 1,627 2,208
A
pplicable income tax expense (benefit) 30 (551) 461 443 659
Effective tax rate 3.9% (20.7) 30.0 27.2 29.9