Business Segments

3 Months Ended

Mar. 31, 2014

Business Segments

Business Segments

20.Business Segments

The Bancorp reports on four business segments: Commercial Banking, Branch Banking, Consumer Lending and Investment Advisors. Results of the Bancorp's business segments are presented based on its management structure and management accounting practices. The structure and accounting practices are specific to the Bancorp; therefore, the financial results of the Bancorp's business segments are not necessarily comparable with similar information for other financial institutions. The Bancorp refines its methodologies from time to time as management's accounting practices are improved and businesses change.

The Bancorp manages interest rate risk centrally at the corporate level by employing an FTP methodology. This methodology insulates the business segments from interest rate volatility, enabling them to focus on serving customers through loan originations and deposit taking. The FTP system assigns charge rates and credit rates to classes of assets and liabilities, respectively, based on expected duration and the U.S. swap curve. Matching duration allocates interest income and interest expense to each segment so its resulting net interest income is insulated from interest rate risk. In a rising rate environment, the Bancorp benefits from the widening spread between deposit costs and wholesale funding costs. However, the Bancorp's FTP system credits this benefit to deposit-providing businesses, such as Branch Banking and Investment Advisors, on a duration-adjusted basis. The net impact of the FTP methodology is captured in General Corporate and Other.

The Bancorp adjusts the FTP charge and credit rates as dictated by changes in interest rates for various interest-earning assets and interest-bearing liabilities and by the review of the estimated durations for the indeterminate-lived deposits. The credit rate provided for demand deposit accounts is reviewed annually based upon the account type, its estimated duration and the corresponding fed funds, U.S. swap curve or swap rate. The credit rates for several deposit products were reset January 1, 2014 to reflect the current market rates and updated market assumptions. These rates weregenerally higher than those in place during 2013, thus net interest income for deposit providing businesses was positively impacted during 2014.

The business segments are charged provision expense based on the actual net charge-offs experienced by the loans and leases owned by each segment. Provision expense attributable to loan and leases growth and changes in ALLL factors are captured in General Corporate and Other. The financial results of the business segments include allocations for shared services and headquarters expenses. Even with these allocations, the financial results are not necessarily indicative of the business segments' financial condition and results of operations as if they existed as independent entities. Additionally, the business segments form synergies by taking advantage of cross-sell opportunities and when funding operations, by accessing the capital markets as a collective unit.

The results of operations and financial position for the three months ended March 31, 2013 were restated to reflect the transfer of certain customers and Bancorp employees from Branch Banking to Commercial Banking, effective January 1, 2014. In addition, the prior year balances were restated to reflect a change in internal allocation methodology.

The following is a description of each of the Bancorp's business segments, and the products and services they provide to their respective client bases.

Commercial Banking offers credit intermediation, cash management and financial services to large and middle-market businesses and government and professional customers. In addition to the traditional lending and depository offerings, Commercial Banking products and services include global cash management, foreign exchange and international trade finance, derivatives and capital markets services, asset-based lending, real estate finance, public finance, commercial leasing and syndicated finance.

Branch Banking provides a full range of deposit and loan and lease products to individuals and small businesses through 1,311 full-service Banking Centers. Branch Banking offers depository and loan products, such as checking and savings accounts, home equity loans and lines of credit, credit cards and loans for automobiles and other personal financing needs, as well as products designed to meet the specific needs of small businesses, including cash management services.

Consumer Lending includes the Bancorp's mortgage, home equity, automobile and other indirect lending activities. Mortgage and home equity lending activities include the origination, retention and servicing of mortgage, automobile and home equity loans or lines of credit, sales and securitizations of those loans, pools of loans or lines of credit, and all associated hedging activities. Indirect lending activities include extending loans to consumers through mortgage brokers and automobile dealers.

Investment Advisors provides a full range of investment alternatives for individuals, companies and not-for-profit organizations. Investment Advisors is made up of four main businesses: FTS, an indirect wholly-owned subsidiary of the Bancorp; ClearArc Capital, Inc., an indirect wholly-owned subsidiary of the Bancorp; Fifth Third Private Bank; and Fifth Third Institutional Services. FTS offers full service retail brokerage services to individual clients and broker dealer services to the institutional marketplace. ClearArc Capital, Inc. provides asset management services and previously advised the Bancorp's proprietary family of mutual funds. Fifth Third Private Bank offers holistic strategies to affluent clients in wealth planning, investing, insurance and wealth protection. Fifth Third Institutional Services provides advisory services for institutional clients including states and municipalities.

Results of operations and assets by segment for the three months ended March 31, 2014 and 2013 are:
						General
		Commercial	Branch	Consumer	Investment	Corporate
($ in millions)		Banking	Banking	Lending	Advisors	and Other	Eliminations	Total
Three months ended March 31, 2014
Net interest income	$	404	385	64	32	8	-	893
Provision for loan and lease losses		97	45	25	-	(98)	-	69
Net interest income after provision for loan
and lease losses		307	340	39	32	106	-	824
Noninterest income:
Service charges on deposits		69	63	-	1	-	-	133
Mortgage banking net revenue		-	1	108	-	-	-	109
Corporate banking revenue		104	1	-	1	(2)	-	104
Investment advisory revenue		1	36	-	100	-	(35)(a)	102
Card and processing revenue		16	51	-	1	-	-	68
Other noninterest income		20	20	10	-	(9)	-	41
Securities gains, net		-	-	-	-	7	-	7
Securities gains, net - non-qualifying hedges on
mortgage servicing rights		-	-	-	-	-	-	-
Total noninterest income		210	172	118	103	(4)	(35)	564
Noninterest expense:
Salaries, wages and incentives		64	105	25	34	131	-	359
Employee benefits		19	35	9	9	29	-	101
Net occupancy expense		6	46	2	2	24	-	80
Technology and communications		3	2	-	-	48	-	53
Card and processing expense		2	29	-	-	-	-	31
Equipment expense		2	15	-	-	13	-	30
Other noninterest expense		238	158	130	65	(260)	(35)	296
Total noninterest expense		334	390	166	110	(15)	(35)	950
Income (loss) before income taxes		183	122	(9)	25	117	-	438
Applicable income tax expense (benefit)		19	42	(3)	8	53	-	119
Net income (loss)		164	80	(6)	17	64	-	319
Less: Net income attributable to noncontrolling interests		-	-	-	-	1	-	1
Net income (loss) attributable to Bancorp		164	80	(6)	17	63	-	318
Dividends on preferred stock		-	-	-	-	9	-	9
Net income (loss) available to common shareholders	$	164	80	(6)	17	54	-	309
Total goodwill	$	613	1,655	-	148	-	-	2,416
Total assets	$	55,676	48,888	22,436	9,775	(7,121)	-	129,654

• Revenue sharing agreements between Investment Advisors and Branch Banking are eliminated in the Condensed Consolidated Statements of Income.

						General
		Commercial	Branch	Consumer	Investment	Corporate
($ in millions)		Banking	Banking	Lending	Advisors	and Other	Eliminations	Total
Three months ended March 31, 2013
Net interest income	$	384	323	85	36	60	-	888
Provision for loan and lease losses		44	57	29	1	(69)	-	62
Net interest income after provision for loan
and lease losses		340	266	56	35	129	-	826
Noninterest income:
Service charges on deposits		65	65	-	1	-	-	131
Mortgage banking net revenue		-	4	216	-	-	-	220
Corporate banking revenue		97	1	-	1	-	-	99
Investment advisory revenue		1	37	-	98	-	(36)(a)	100
Card and processing revenue		15	49	-	1	-	-	65
Other noninterest income		16	22	11	7	53	-	109
Securities gains, net		-	-	-	-	17	-	17
Securities gains, net - non-qualifying hedges on
mortgage servicing rights		-	-	2	-	-	-	2
Total noninterest income		194	178	229	108	70	(36)	743
Noninterest expense:
Salaries, wages and incentives		70	109	50	33	137	-	399
Employee benefits		20	36	13	9	36	-	114
Net occupancy expense		6	46	2	3	22	-	79
Technology and communications		3	1	-	-	45	-	49
Card and processing expense		1	29	-	-	1	-	31
Equipment expense		1	14	-	-	13	-	28
Other noninterest expense		199	155	112	70	(222)	(36)	278
Total noninterest expense		300	390	177	115	32	(36)	978
Income before income taxes		234	54	108	28	167	-	591
Applicable income tax expense		36	20	38	10	75	-	179
Net income		198	34	70	18	92	-	412
Less: Net income attributable to noncontrolling interests		-	-	-	-	(10)	-	(10)
Net income attributable to Bancorp		198	34	70	18	102	-	422
Dividends on preferred stock		-	-	-	-	9	-	9
Net income available to common shareholders	$	198	34	70	18	93	-	413
Total goodwill	$	613	1,655	-	148	-	-	2,416
Total assets	$	52,117	47,527	24,026	9,114	(11,402)	-	121,382

• Revenue sharing agreements between Investment Advisors and Branch Banking are eliminated in the Condensed Consolidated Statements of Income.