Fifth Third Bank 2010 Annual Report Download - page 89

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Fifth Third Bancorp 87
The discount rates used in the goodwill impairment test as of
September 30, 2010 to develop the estimated fair value of the
segments were as follows:
Discount
Rate
Commercial Banking 16.7%
Branch Banking 16.0%
Investment Advisors 17.4%
Discount rates were estimated based on a capital asset pricing
model, which considers the risk-free interest rate, an estimated
equity risk premium, an estimated beta for the Bancorp’s common
stock and size premium adjustments specific to each particular
segment.
Based on the results of the Step 1 test, the Bancorp
determined that the fair value of the Commercial Banking, Branch
Banking, and Investment Advisors segments exceeded their
respective carrying values, and consequently, no further testing
was required.
The Step 1 analysis prepared for the Bancorp’s Branch
Banking segment resulted in the unit’s fair value exceeding its
carrying value, including goodwill, by 7%. The key assumptions
used in estimating the fair value for the segment include deposit
and loan growth rates, forecasted changes in the absolute and
relative levels of interest rates, and the impact of recent and
anticipated regulatory changes affecting retail banking. The
Bancorp forecasts its deposit growth based on an assessment of
its expected funding needs, which includes an analysis of expected
growth in loan and investment balances as well as availability and
expected use of alternative funding sources over that period. The
Bancorp looks at forward interest rate curves to forecast the
future expected interest rate levels, which impact the revenue
from the spread earned on loan balances as well as the funding
benefit generated by the deposit base. The sensitivity of the
Bancorp’s deposit rates to changes in LIBOR is also a key factor
considered in this analysis. The Bancorp also considered the
potential impact of recent and anticipated regulatory changes that
may impact overdraft revenue, debit interchange revenue and
credit card revenue in 2011 and beyond. Changes in these key
assumptions could negatively impact the fair value of the Branch
Banking segment in future periods. These changes would include
unanticipated regulatory changes, movements in interest rates and
economic trends affecting the Branch Banking segment’s
profitability.
11. 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, 2010 of 3.5 years. The
Bancorp reviews intangible assets for possible impairment
whenever events or changes in circumstances indicate that
carrying amounts may not be recoverable. For more information
on servicing rights, see Note 13. The details of the Bancorp’s
intangible assets are shown in the following table.
As of December 31, 2010, all of the Bancorp’s intangible assets were being amortized. Amortization expense recognized on intangible assets,
including servicing rights, for the years ending December 31, 2010, 2009 and 2008 was $181 million, $204 million and $164 million,
respectively. Estimated amortization expense, including servicing rights, for the years ending December 31, 2011 through 2015 is as follows:
($ in millions)
Mortgage
Servicing Rights
Other Intangible
Assets Total
2011 $201 22 $223
2012 163 13 176
2013 133 8 141
2014 109 4 113
2015 90 2 92
($ in millions)
Gross Carrying
Amount
Accumulated
Amortization
Valuation
Allowance
Net Carrying
Amount
A
s of December 31, 2010:
Mortgage servicing rights $2,284 (1,146) (316) 822
Core deposit intangibles 439 (389) - 50
Other 44 (32) - 12
Total intangible assets $2,767 (1,567) (316) 884
A
s of December 31, 2009:
Mortgage servicing rights $1,987 (1,008) (280) 699
Core deposit intangibles 487 (397) - 90
Other consumer and commercial servicing rights 12 (11) - 1
Other 53 (37) - 16
Total intangible assets $2,539 (1,453) (280) 806