Fifth Third Bank 2010 Annual Report Download - page 88

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
86 Fifth Third Bancorp
9. BANK PREMISES AND EQUIPMENT
The following is a summary of bank premises and equipment at December 31:
($ in millions) Estimated Useful Life 2010 2009
Land and improvements $797 748
Buildings 5 to 50 yrs. 1,593 1,539
Equipment 3 to 20 yrs. 1,296 1,354
Leasehold improvements 3 to 40 yrs. 393 401
Construction in progress 92 105
A
ccumulated depreciation and amortization (1,782) (1,747)
Total $2,389 2,400
Depreciation and amortization expense related to bank premises
and equipment was $225 million in 2010, $227 million in 2009 and
$218 million in 2008.
Gross occupancy expense for cancelable and noncancelable
leases was $98 million in 2010, $102 million in 2009 and $98
million in 2008, which is reduced by rental income from leased
premises of $19 million in 2010, $16 million in 2009 and $13
million in 2008.
The Bancorp’s subsidiaries have entered into a number of
noncancelable and capital lease agreements with respect to bank
premises and equipment. The following table provides the annual
future minimum payments under capital leases and noncancelable
operating leases at December 31, 2010:
($ in millions) Operating Leases Capital Leases
Y
ear ended December 31
,
2011 $91 12
2012 87 13
2013 83 3
2014 79 -
2015 75 -
T
hereafte
r
454 1
T
otal minimum lease
p
a
y
ments
$
869 29
A
mounts re
p
resentin
g
interest -3
Present value o
f
net minimum lease
p
a
y
ments -32
10. GOODWILL
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 fourth quarter of 2008, the Bancorp determined that the
Commercial Banking and Consumer Lending segments’ goodwill
carrying amounts exceeded their associated implied fair values by
$750 million and $215 million, respectively. The resulting $965
million goodwill impairment charge was recorded in the fourth
quarter of 2008 and represents the total amount of accumulated
impairment losses as of December 31, 2010.
Changes in the net carrying amount of goodwill by reporting segment for the years ended December 31, 2010 and 2009 were as follows:
Commercial Branch Consumer Investment Processing
($ in millions) Banking Banking Lending Advisors Solutions (a) Total
Balance as of December 31, 2008 $614 1,657 - 148 205 2,624
A
cquisition activit
y
(1) (1) - - 7 5
Sale of Processing Business - - - - (212) (212)
Balance as of December 31, 2009 613 1,656 - 148 - 2,417
A
cquisition activit
y
- - - - -
Balance as of December 31, 2010 $613 1,656 - 148 2,417
(a) As a result of the Processing Business Sale on June 30, 2009, Processing Solutions is no longer a segment of the Bancorp.
The Bancorp conducts its evaluation of goodwill impairment as of
September 30th each year, and more frequently if events or
circumstances indicate that there may be impairment. The
Bancorp completed its annual goodwill impairment test as of
September 30, 2010 and determined that no impairment existed.
The Bancorp evaluates goodwill for impairment at the segment
level.
In Step 1 of the goodwill impairment test, the Bancorp
compared the fair value of each segment to its carrying amount,
including goodwill. To determine the fair value of a segment, the
Bancorp employed an income-based approach utilizing the
segment’s forecasted cash flows (including a terminal value
approach to estimate cash flows beyond the final year of the
forecast) and the segment’s estimated cost of equity as the
discount rate. The Bancorp believes that this DCF method, using
management projections for the respective segments and an
appropriate risk adjusted discount rate, is most reflective of a
market participant’s view of fair values given current market
conditions. Under the DCF method, the forecasted cash flows
were developed for each segment by considering several key
business drivers such as new business initiatives, client retention
standards, market share changes, anticipated loan and deposit
growth, forward interest rates, historical performance, recent and
anticipated regulatory changes, and industry and economic trends,
among other considerations.
The long-term growth rate used in determining the terminal
value of each segment was estimated at three percent based on the
Bancorp’s assessment of the long-term expected growth rate of
each segment, as well as broader economic considerations such as
long-term expectations for gross domestic product and inflation.
The cash flow growth rate required to avoid failing Step 1 was
determined to be negative 0.5%.