Fifth Third Bank 2011 Annual Report Download - page 103

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Fifth Third Bancorp 101
8. BANK PREMISES AND EQUIPMENT
The following is a summary of bank premises and equipment at December 31:
($ in millions) Estimated Useful Life 2011 2010
Land and improvements $834 797
Buildings 5 to 50 yrs. 1,623 1,593
Equipment 3 to 20 yrs. 1,318 1,296
Leasehold improvements 3 to 40 yrs. 394 393
Construction in progress 140 92
A
ccumulated depreciation and amortizatio
n
(1,862) (1,782)
Total $2,447 2,389
Depreciation and amortization expense related to bank premises
and equipment was $224 million in 2011, $225 million in 2010 and
$227 million in 2009.
Gross occupancy expense for cancelable and noncancelable
leases was $99 million in 2011, $98 million in 2010 and $102 million
in 2009, which was reduced by rental income from leased premises
of $19 million in 2011 and 2010 and $16 million in 2009.
The Bancorp’s subsidiaries have entered into a number of
noncancelable and capital lease agreements with respect to bank
premises and equipment. The following table provides the annual
future minimum payments under capital leases and noncancelable
operating leases at December 31, 2011:
($ in millions) Operating Leases Capital Leases
Y
ear ended December 31,
2012 $92 12
2013 87 5
2014 82 4
2015 78 3
2016 71 1
Thereafter 441 1
Total minimum lease payments $851 26
Less: Amounts representing interest - 3
Present value of net minimum lease payments - 23
9. 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. The Commercial
Banking and Consumer Lending segments’ goodwill carrying
amounts include cumulative impairment charges of $750 million and
$215 million, respectively, that were recognized in the fourth quarter
of 2008. Changes in the net carrying amount of goodwill, by
reporting unit, for the years ended December 31, 2011 and 2010
were as follows:
Commercial Branch Consumer Investment
($ in millions) Banking Banking Lending Advisors Total
Net carrying value as of December 31, 2009 $613 1,656 - 148 2,417
A
cquisition activit
y
- - - - -
Net carrying value as of December 31, 2010 $613 1,656 - 148 2,417
A
cquisition activit
y
- - - - -
Net carrying value as of December 31, 2011 $ 613 1,656 - 148 2,417
The Bancorp completed its annual goodwill impairment test as of
September 30, 2011 and determined that no impairment existed. In
Step 1 of the goodwill impairment test, the Bancorp compared the
fair value of each reporting unit to its carrying amount, including
goodwill. To determine the fair value of a reporting unit, the
Bancorp employed an income-based approach utilizing the
reporting unit’s forecasted cash flows (including a terminal value
approach to estimate cash flows beyond the final year of the
forecast) and the reporting unit’s estimated cost of equity as the
discount rate. The Bancorp believes that this DCF method, using
management projections for the respective reporting units 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 reporting unit 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, and industry
and economic trends, among other considerations.
The long-term growth rate used in determining the terminal
value of each reporting unit was estimated at three percent based on
the Bancorp’s assessment of the minimum expected terminal
growth rate of each reporting unit, as well as broader economic
considerations such as gross domestic product and inflation.
Discount rates were estimated based on a Capital Asset Pricing
Model, which considers the risk-free interest rate, market risk
premium, beta, and in some cases, unsystematic risk and size
premium adjustments specific to a particular reporting unit. The
discount rates used to develop the estimated fair value of the
reporting units were 16.9% for Commercial Banking, 15.9% for
Branch Banking and 18.7% for Investment Advisors.