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Business Segments
 6 Months Ended
Jun. 30, 2014
Segment Reporting  
Business Segments

22. 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 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 were generally 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 and six months ended June 30, 2013 were adjusted 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 adjusted 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 1,309 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 and six months ended June 30, 2014 and 2013 are:
         
      General  
  CommercialBranch ConsumerInvestment Corporate  
($ in millions) BankingBankingLendingAdvisorsand OtherEliminationsTotal
Three months ended June 30, 2014        
Net interest income $ 409 377 65 29 20 - 900
Provision for loan and lease losses  40 47 13 1 (25) - 76
Net interest income after provision for loan         
and lease losses  369 330 52 28 45 - 824
Noninterest income:        
Service charges on deposits  71 67 - 1 - - 139
Corporate banking revenue  108 1 - - (2) - 107
Investment advisory revenue  1 39 - 99 1 (38)(a) 102
Mortgage banking net revenue  - 2 76 - - - 78
Card and processing revenue  17 58 - 1 - - 76
Other noninterest income  22 3(b) 13 - 188 - 226
Securities gains, net  - - - - 8 - 8
Securities gains, net - non-qualifying hedges on         
mortgage servicing rights  - - - - - - -
Total noninterest income  219 170 89 101 195 (38) 736
Noninterest expense:        
Salaries, wages and incentives  65 105 26 34 138 - 368
Employee benefits  10 27 6 6 30 - 79
Net occupancy expense  6 47 2 2 22 - 79
Technology and communications  3 1 1 - 47 - 52
Card and processing expense  3 34 - - - - 37
Equipment expense  2 15 - - 13 - 30
Other noninterest expense  241 155 129 69 (247) (38) 309
Total noninterest expense  330 384 164 111 3 (38) 954
Income (loss) before income taxes   258 116 (23) 18 237 - 606
Applicable income tax expense (benefit)  44 41 (8) 6 84 - 167
Net income (loss)  214 75 (15) 12 153 - 439
Less: Net income attributable to noncontrolling interests  - - - - - - -
Net income (loss) attributable to Bancorp  214 75 (15) 12 153 - 439
Dividends on preferred stock   - - - - 23 - 23
Net income (loss) available to common shareholders $ 214 75 (15) 12 130 - 416
Total goodwill$ 613 1,655 - 148 - - 2,416
Total assets$ 56,591 49,185 22,352 9,251 (4,817) - 132,562

  • Revenue sharing agreements between Investment Advisors and Branch Banking are eliminated in the Condensed Consolidated Statements of Income.
  • Includes an impairment charge of $18 for branches and land. For more information refer to Note 7 and Note 21 of the Notes to Condensed Consolidated Financial Statements.

 

         
      General  
  CommercialBranch ConsumerInvestment Corporate  
($ in millions) BankingBankingLendingAdvisorsand OtherEliminationsTotal
Three months ended June 30, 2013        
Net interest income $ 387 332 85 35 41 - 880
Provision for loan and lease losses  39 49 22 1 (47) - 64
Net interest income after provision for loan         
and lease losses  348 283 63 34 88 - 816
Noninterest income:        
Service charges on deposits  65 70 - 1 - - 136
Corporate banking revenue  103 2 - 1 - - 106
Investment advisory revenue  2 37 - 96 - (37)(a) 98
Mortgage banking net revenue  - 3 230 - - - 233
Card and processing revenue  15 51 - 1 - - 67
Other noninterest income  25 22 14 - 353 - 414
Securities gains, net  - - - - - - -
Securities gains, net - non-qualifying hedges on        
mortgage servicing rights  - - 6 - - - 6
Total noninterest income  210 185 250 99 353 (37) 1,060
Noninterest expense:        
Salaries, wages and incentives  63 106 57 34 144 - 404
Employee benefits  10 28 11 6 28 - 83
Net occupancy expense  6 46 2 2 20 - 76
Technology and communications  2 1 - - 47 - 50
Card and processing expense  2 32 - - (1) - 33
Equipment expense  1 14 - - 13 - 28
Other noninterest expense  217 166 138 81 (204) (37) 361
Total noninterest expense  301 393 208 123 47 (37) 1,035
Income before income taxes   257 75 105 10 394 - 841
Applicable income tax expense   44 27 38 3 138 - 250
Net income  213 48 67 7 256 - 591
Less: Net income attributable to noncontrolling interests  - - - - - - -
Net income attributable to Bancorp  213 48 67 7 256 - 591
Dividends on preferred stock   - - - - 9 - 9
Net income available to common shareholders $ 213 48 67 7 247 - 582
Total goodwill$ 613 1,655 - 148 - - 2,416
Total assets$ 53,232 47,077 23,973 8,480 (9,402) - 123,360

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

         
      General  
  CommercialBranch ConsumerInvestment Corporate  
($ in millions) BankingBankingLendingAdvisorsand OtherEliminationsTotal
Six months ended June 30, 2014        
Net interest income$ 814 762 129 60 28 - 1,793
Provision for loan and lease losses  139 91 38 2 (124) - 146
Net interest income after provision for loan         
and lease losses  675 671 91 58 152 - 1,647
Noninterest income:        
Service charges on deposits  141 130 - 1 - - 272
Corporate banking revenue  212 2 - 1 (4) - 211
Investment advisory revenue  2 75 - 199 - (72)(a) 204
Mortgage banking net revenue  - 2 184 1 - - 187
Card and processing revenue  34 108 - 2 - - 144
Other noninterest income  41 22(b) 23 1 181 - 268
Securities gains, net  - - - - 14 - 14
Securities gains, net - non-qualifying hedges on         
mortgage servicing rights  - - - - - - -
Total noninterest income  430 339 207 205 191 (72) 1,300
Noninterest expense:        
Salaries, wages and incentives  129 210 50 68 270 - 727
Employee benefits  28 62 16 15 59 - 180
Net occupancy expense  13 93 4 5 43 - 158
Technology and communications  5 2 1 - 97 - 105
Card and processing expense  5 63 - - - - 68
Equipment expense  4 30 - - 26 - 60
Other noninterest expense  479 313 260 134 (509) (72) 605
Total noninterest expense  663 773 331 222 (14) (72) 1,903
Income (loss) before income taxes   442 237 (33) 41 357 - 1,044
Applicable income tax expense (benefit)  64 83 (11) 14 137 - 287
Net income (loss)  378 154 (22) 27 220 - 757
Less: Net income attributable to noncontrolling interests  - - - - 1 - 1
Net income (loss) attributable to Bancorp  378 154 (22) 27 219 - 756
Dividends on preferred stock   - - - - 32 - 32
Net income (loss) available to common shareholders $ 378 154 (22) 27 187 - 724
Total goodwill$ 613 1,655 - 148 - - 2,416
Total assets$ 56,591 49,185 22,352 9,251 (4,817) - 132,562

  • Revenue sharing agreements between Investment Advisors and Branch Banking are eliminated in the Condensed Consolidated Statements of Income.
  • Includes an impairment charge of $18 for branches and land. For more information refer to Note 7 and Note 21 of the Notes to Condensed Consolidated Financial Statements.

         
      General  
  CommercialBranch ConsumerInvestment Corporate  
($ in millions) BankingBankingLendingAdvisorsand OtherEliminationsTotal
Six months ended June 30, 2013        
Net interest income$ 772 655 170 70 101 - 1,768
Provision for loan and lease losses  84 106 51 2 (117) - 126
Net interest income after provision for loan         
and lease losses  688 549 119 68 218 - 1,642
Noninterest income:        
Service charges on deposits  131 135 - 1 - - 267
Corporate banking revenue  201 3 - 1 - - 205
Investment advisory revenue  2 74 - 194 - (72)(a) 198
Mortgage banking net revenue  - 7 445 1 - - 453
Card and processing revenue  30 100 - 2 - - 132
Other noninterest income  39 44 26 7 407 - 523
Securities gains, net  - - - - 17 - 17
Securities gains, net - non-qualifying hedges on         
mortgage servicing rights  - - 8 - - - 8
Total noninterest income  403 363 479 206 424 (72) 1,803
Noninterest expense:        
Salaries, wages and incentives  133 215 107 67 281 - 803
Employee benefits  30 64 24 15 64 - 197
Net occupancy expense  12 92 4 5 42 - 155
Technology and communications  5 2 - - 92 - 99
Card and processing expense  4 61 - - - - 65
Equipment expense  1 29 1 - 25 - 56
Other noninterest expense  414 321 249 151 (425) (72) 638
Total noninterest expense  599 784 385 238 79 (72) 2,013
Income before income taxes   492 128 213 36 563 - 1,432
Applicable income tax expense   80 46 75 13 215 - 429
Net income  412 82 138 23 348 - 1,003
Less: Net income attributable to noncontrolling interests  - - - - (10) - (10)
Net income attributable to Bancorp  412 82 138 23 358 - 1,013
Dividends on preferred stock   - - - - 18 - 18
Net income available to common shareholders $ 412 82 138 23 340 - 995
Total goodwill$ 613 1,655 - 148 - - 2,416
Total assets$ 53,232 47,077 23,973 8,480 (9,402) - 123,360

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