Fifth Third Bank 2014 Annual Report Download - page 98

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
96 Fifth Third Bancorp
derived principally from or corroborated by observable
market data by correlation or other means.
Level 3 – Unobservable inputs for the asset or liability for
which there is little, if any, market activity at the
measurement date. Unobservable inputs reflect the
Bancorp’s own assumptions about what market participants
would use to price the asset or liability. The inputs are
developed based on the best information available in the
circumstances, which might include the Bancorp’s own
financial data such as internally developed pricing models
and DCF methodologies, as well as instruments for which
the fair value determination requires significant management
judgment.
The Bancorp’s fair value measurements involve various
valuation techniques and models, which involve inputs that are
observable, when available. Valuation techniques and parameters
used for measuring assets and liabilities are reviewed and validated
by the Bancorp on a quarterly basis. Additionally, the Bancorp
monitors the fair values of significant assets and liabilities using a
variety of methods including the evaluation of pricing runs and
exception reports based on certain analytical criteria, comparison to
previous trades and overall review and assessments for
reasonableness. Refer to Note 27 for further information on fair
value measurements.
Stock-Based Compensation
The Bancorp recognizes compensation expense for the grant-date
fair value of stock-based awards that are expected to vest over the
requisite service period. All awards, both those with cliff vesting and
graded vesting, are expensed on a straight-line basis. Awards to
employees that meet eligible retirement status are expensed
immediately. As compensation expense is recognized, a deferred tax
asset is recorded that represents an estimate of the future tax
deduction from exercise or release of restrictions. At the time
awards are exercised, cancelled, expire, or restrictions are released,
the Bancorp may be required to recognize an adjustment to income
tax expense for the difference between the previously estimated tax
deduction and the actual tax deduction realized. For further
information on the Bancorp’s stock-based compensation plans,
refer to Note 24.
Pension Plans
The Bancorp uses an expected long-term rate of return applied to
the fair market value of assets as of the beginning of the year and
the expected cash flow during the year for calculating the expected
investment return on all pension plan assets. Amortization of the
net gain or loss resulting from experience different from that
assumed and from changes in assumptions (excluding asset gains
and losses not yet reflected in market-related value) is included as a
component of net periodic benefit cost. If, as of the beginning of
the year, that net gain or loss exceeds 10% of the greater of the
projected benefit obligation and the market-related value of plan
assets, the amortization is that excess divided by the average
remaining service period of participating employees expected to
receive benefits under the plan. The Bancorp uses a third-party
actuary to compute the remaining service period of participating
employees. This period reflects expected turnover, pre-retirement
mortality, and other applicable employee demographics.
Other
Securities and other property held by Fifth Third Investment
Advisors, a division of the Bancorp’s banking subsidiary, in a
fiduciary or agency capacity are not included in the Consolidated
Balance Sheets because such items are not assets of the subsidiaries.
Investment advisory revenue in the Consolidated Statements of
Income is recognized on the accrual basis. Investment advisory
service revenues are recognized monthly based on a fee charged per
transaction processed and/or a fee charged on the market value of
average account balances associated with individual contracts.
The Bancorp recognizes revenue from its card and processing
services on an accrual basis as such services are performed,
recording revenues net of certain costs (primarily interchange fees
charged by credit card associations) not controlled by the Bancorp.
The Bancorp purchases life insurance policies on the lives of
certain directors, officers and employees and is the owner and
beneficiary of the policies. The Bancorp invests in these policies,
known as BOLI, to provide an efficient form of funding for long-
term retirement and other employee benefits costs. The Bancorp
records these BOLI policies within other assets in the Consolidated
Balance Sheets at each policy’s respective cash surrender value, with
changes recorded in other noninterest income in the Consolidated
Statements of Income.
Other intangible assets consist of core deposit intangibles,
customer lists, non-compete agreements and cardholder
relationships. Other intangible assets are amortized on either a
straight-line or an accelerated basis over their estimated useful lives.
The Bancorp reviews other intangible assets for impairment
whenever events or changes in circumstances indicate that carrying
amounts may not be recoverable.
Securities sold under repurchase agreements are accounted for
as secured borrowings and included in other short-term borrowings
in the Consolidated Balance Sheets at the amounts at which the
securities were sold plus accrued interest.
Acquisitions of treasury stock are carried at cost. Reissuance of
shares in treasury for acquisitions, exercises of stock-based awards
or other corporate purposes is recorded based on the specific
identification method.
Advertising costs are generally expensed as incurred.
Accounting and Reporting Developments
Obligations Resulting from Joint and Several Liability Arrangements for
Which the Total Amount of the Obligation is Fixed at the Reporting Date
In February 2013, the FASB issued amended guidance relating to
the measurement of obligations resulting from joint and several
liability arrangements for which the total amount under the
arrangement is fixed at the reporting date. For the total amount of
an obligation under an arrangement to be considered fixed at the
reporting date, there can be no measurement uncertainty relating to
the total amount of the obligation. The obligation resulting from
joint and several liability arrangements would be measured initially
as the sum of 1) the amount the Bancorp has agreed to pay on the
basis of its arrangement among its co-obligors and 2) any additional
amount the Bancorp expects to pay on behalf of its co-obligors.
The amended guidance also would require the Bancorp to disclose
the nature and amount of the obligation as well as information
about the risks that such obligations pose to future cash flows. The
amended guidance was effective for reporting periods beginning
after December 15, 2013 and was applied retrospectively to all prior
periods presented for those obligations resulting from joint and
several liability arrangements that exist at the beginning of the fiscal
year of adoption. The Bancorp adopted the amended guidance on
January 1, 2014 and the adoption did not have a material impact on
the Bancorp’s Consolidated Financial Statements.