Fifth Third Bank 2010 Annual Report Download - page 107

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Fifth Third Bancorp 105
its principal shareholders, directors and executives at December 31:
($ in millions) 2010 2009
Commitments to lend, net of participations:
Directors and their affiliated companies $157 143
Executive officers 3 6
Total 160 149
Outstanding balance on loans, net of
participations and undrawn commitments 74 68
The commitments to lend are in the form of loans and
guarantees for various business and personal interests. This
indebtedness was incurred in the ordinary course of business on
substantially the same terms, including interest rates and collateral,
as those prevailing at the time for comparable transactions with
unrelated parties. This indebtedness does not involve more than
the normal risk of repayment or present other features unfavorable
to the Bancorp.
On June 30, 2009, the Bancorp completed the sale of a
majority interest in its Processing Businesses, FTPS. Advent
International acquired an approximate 51% interest in FTPS for
cash and warrants. The Bancorp retained the remaining
approximate 49% interest in FTPS and, as part of the sale, FTPS
assumed loans totaling $1.25 billion owed to the Bancorp. The
Bancorp recognized $26 million and $15 million, respectively, in
noninterest income as part of its equity method investment in
FTPS for the years ended December 31, 2010 and 2009 and
received distributions totaling $25 million and $18 million,
respectively, during 2010 and 2009.
The Bancorp and FTPS have various agreements in place
covering services relating to the operations of FTPS. The services
provided by the Bancorp to FTPS were required to support FTPS
as a standalone entity during the deconversion period. These
services involve transition support, including product development,
risk management, legal, accounting and general business resources.
FTPS paid the Bancorp $49 million and $76 million, respectively,
for these services for the years ended December 31, 2010 and
2009. Other services provided to FTPS by the Bancorp, which will
continue beyond the deconversion period, include treasury
management, clearing, settlement, sponsorship, data center support
and office space. FTPS paid the Bancorp $34 million and $14
million, respectively, for these services for the years ended
December 31, 2010 and 2009. In addition to the previously
mentioned services, the Bancorp entered into an agreement under
which FTPS will provide processing services to the Bancorp. The
total amount of fees relating to the processing services provided to
the Bancorp by FTPS totaled $64 million and $33 million,
respectively, for the years ended December 31, 2010 and 2009.
During the fourth quarter of 2010, FTPS refinanced its debt
into a larger syndicated loan structure that included the Bancorp.
As a result, loans to FTPS declined to $381 million as of December
31, 2010 from $1.24 billion at December 31, 2009. The Bancorp
recognized $4 million in syndication fees in 2010 associated with
the refinanced loan to FTPS. The amount of FTPS’ line of credit
with the Bancorp was also reduced to $50 million as of December
31, 2010 from $125 million as of December 31, 2009. FTPS did
not draw upon its lines of credit during the years ended December
31, 2010 or 2009. Interest income relating to the loans was $102
million and $60 million, respectively, for the years ended December
31, 2010 and 2009 and is included in interest and fees on loans and
leases in the Consolidated Statements of Income.
21. INCOME TAXES
The Bancorp and its subsidiaries file a consolidated federal income tax return. The following is a summary of applicable income taxes included in
the Consolidated Statements of Income for the years ended December 31:
($ in millions) 2010 2009 2008
Current income tax (benefit) expense:
U.S. income taxes ($5) (157) 560
State and local income taxes 16 6 25
Non-U.S. income taxes - (3) 3
Total current tax (benefit) expense 11 (154) 588
Deferred income tax expense (benefit):
U.S. income taxes 165 190 (1,090)
State and local income taxes 11 (8) (47)
Non-U.S. income taxes - 2(2)
Total deferred tax expense (benefit) 176 184 (1,139)
A
pplicable income tax expense (benefit) $187 30 (551)
The following is a reconciliation between the statutory U.S. income tax rate and the Bancorp’s effective tax rate for the years ended December 31:
2010 2009 2008
Statutory tax rate 35.0% 35.0 (35.0)
Increase (decrease) resulting from:
State taxes, net of federal benefit 1.8 (.1) (.5)
Tax-exempt income (3.6) (18.7) 1.5
Credits (14.1) (14.6) (3.6)
Goodwill -8.7 11.9
Interest to taxing authority, net of tax (0.8) (7.6) 5.1
Other changes in unrecognized tax benefits (1.8) --
Unrealized stock-based compensation benefits 2.5 0.6 -
Other, net 0.8 0.6 (.1)
Effective tax rate 19.8% 3.9 (20.7)
Tax-exempt income in the rate reconciliation table includes
interest on municipal bonds, interest on tax-exempt lending,
income/charges on life insurance policies held by the Bancorp,
and certain gains on sales of leases that are exempt from federal
taxation.
During 2010, the Bancorp settled its outstanding dispute with
the IRS relating to a specific capital raising transaction. This
favorable settlement reduced income tax expense (including
interest) by $19 million. During 2009, the Bancorp settled its
outstanding dispute with the IRS relating to certain leveraged