Business Segments

12 Months Ended

Dec. 31, 2014

Business Segments

Business Segments

30. 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 lease 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. 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 years ended December 31, 2013 and 2012 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 2013 and 2012 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 1,302 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. Direct lending activities include the origination, retention and servicing of mortgage 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 correspondent lenders 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 each of the three years ended December 31 are:
							General
		Commercial	Branch		Consumer	Investment	Corporate
2014 ($ in millions)		Banking	Banking		Lending	Advisors	and Other	Eliminations		Total
Net interest income	$	1,652	1,546		257	121	3	-		3,579
Provision for loan and lease losses		235	181		156	3	(260)	-		315
Net interest income after provision for loan
and lease losses		1,417	1,365		101	118	263	-		3,264
Noninterest income:
Service charges on deposits		286	272		-	2	-	-		560
Corporate banking revenue		429	4		-	2	(5)	-		430
Investment advisory revenue		3	152		-	397	1	(146)	a(a)	407
Mortgage banking net revenue		-	5		304	1	-	-		310
Card and processing revenue		64	226		-	5	-	-		295
Other noninterest income		105	61	a(b)	42	3	239	-		450
Securities gains, net		-	-		-	-	21	-		21
Securities gains, net - non-qualifying hedges on
mortgage servicing rights		-	-		-	-	-	-		-
Total noninterest income		887	720		346	410	256	(146)		2,473
Noninterest expense:
Salaries, wages and incentives		259	421		95	136	538	-		1,449
Employee benefits		47	116		27	26	118	-		334
Net occupancy expense		26	187		8	9	83	-		313
Technology and communications		10	4		2	-	196	-		212
Card and processing expense		8	133		-	-	-	-		141
Equipment expense		10	59		-	-	52	-		121
Other noninterest expense		959	631		420	274	(999)	(146)		1,139
Total noninterest expense		1,319	1,551		552	445	(12)	(146)		3,709
Income (loss) before income taxes		985	534		(105)	83	531	-		2,028
Applicable income tax expense (benefit)		166	188		(37)	29	199	-		545
Net income (loss)		819	346		(68)	54	332	-		1,483
Less: Net income attributable to noncontrolling interests		-	-		-	-	2	-		2
Net income (loss) attributable to Bancorp		819	346		(68)	54	330	-		1,481
Dividends on preferred stock		-	-		-	-	67	-		67
Net income (loss) available to common shareholders	$	819	346		(68)	54	263	-		1,414
Total goodwill	$	613	1,655		-	148	-	-		2,416
Total assets	$	56,871	50,920		22,554	10,443	(2,082)	-		138,706

• Revenue sharing agreements between Investment Advisors and Branch Banking are eliminated in the Consolidated Statements of Income.
• Includes an impairment charge of $20 for branches and land. For more information refer to Note 7 and Note 27 of the Notes to Consolidated Financial Statements.

							General
		Commercial	Branch		Consumer	Investment	Corporate
2013 ($ in millions)		Banking	Banking		Lending	Advisors	and Other	Eliminations		Total
Net interest income	$	1,592	1,356		312	154	147	-		3,561
Provision for loan and lease losses		194	210		92	2	(269)	-		229
Net interest income after provision for loan
and lease losses		1,398	1,146		220	152	416	-		3,332
Noninterest income:
Service charges on deposits		267	279		-	3	-	-		549
Corporate banking revenue		392	7		-	3	(2)	-		400
Investment advisory revenue		5	148		-	384	-	(144)	a(a)	393
Mortgage banking net revenue		-	12		687	1	-	-		700
Card and processing revenue		60	207		-	5	-	-		272
Other noninterest income		94	87	a(b)	45	10	643	-		879
Securities gains, net		-	-		3	-	18	-		21
Securities gains, net - non-qualifying hedges on
mortgage servicing rights		-	-		13	-	-	-		13
Total noninterest income		818	740		748	406	659	(144)		3,227
Noninterest expense:
Salaries, wages and incentives		261	429		175	134	582	-		1,581
Employee benefits		49	118		40	25	125	-		357
Net occupancy expense		25	183		8	10	81	-		307
Technology and communications		11	4		1	-	188	-		204
Card and processing expense		8	125		-	-	1	-		134
Equipment expense		4	58		1	-	51	-		114
Other noninterest expense		877	656		460	284	(869)	(144)		1,264
Total noninterest expense		1,235	1,573		685	453	159	(144)		3,961
Income before income taxes		981	313		283	105	916	-		2,598
Applicable income tax expense		167	109		100	37	359	-		772
Net income		814	204		183	68	557	-		1,826
Less: Net income attributable to noncontrolling interests		-	-		-	-	(10)	-		(10)
Net income attributable to Bancorp		814	204		183	68	567	-		1,836
Dividends on preferred stock		-	-		-	-	37	-		37
Net income available to common shareholders	$	814	204		183	68	530	-		1,799
Total goodwill	$	613	1,655		-	148	-	-		2,416
Total assets	$	55,081	47,221		22,610	10,711	(5,180)	-		130,443

• Revenue sharing agreements between Investment Advisors and Branch Banking are eliminated in the Consolidated Statements of Income.
• Includes an impairment charge of $6 for branches and land.

							General
		Commercial	Branch		Consumer	Investment	Corporate
2012 ($ in millions)		Banking	Banking		Lending	Advisors	and Other	Eliminations		Total
Net interest income	$	1,533	1,261		314	117	370	-		3,595
Provision for loan and lease losses		249	268		176	10	(400)	-		303
Net interest income after provision for loan
and lease losses		1,284	993		138	107	770	-		3,292
Noninterest income:
Service charges on deposits		251	268		-	3	-	-		522
Corporate banking revenue		402	8		-	3	-	-		413
Investment advisory revenue		6	129		-	366	-	(127)	a(a)	374
Mortgage banking net revenue		-	14		830	1	-	-		845
Card and processing revenue		54	195		-	4	-	-		253
Other noninterest income		61	85	a(b)	42	19	367	-		574
Securities gains, net		-	-		1	-	14	-		15
Securities gains, net - non-qualifying hedges on
mortgage servicing rights		-	-		3	-	-	-		3
Total noninterest income		774	699		876	396	381	(127)		2,999
Noninterest expense:
Salaries, wages and incentives		257	420		192	136	602	-		1,607
Employee benefits		47	117		39	25	143	-		371
Net occupancy expense		24	184		8	11	75	-		302
Technology and communications		10	3		1	-	182	-		196
Card and processing expense		5	115		-	-	1	-		121
Equipment expense		2	54		1	1	52	-		110
Other noninterest expense		842	576		429	264	(610)	(127)		1,374
Total noninterest expense		1,187	1,469		670	437	445	(127)		4,081
Income before income taxes		871	223		344	66	706	-		2,210
Applicable income tax expense		157	79		121	23	256	-		636
Net income		714	144		223	43	450	-		1,574
Less: Net income attributable to noncontrolling interests		-	-		-	-	(2)	-		(2)
Net income attributable to Bancorp		714	144		223	43	452	-		1,576
Dividends on preferred stock		-	-		-	-	35	-		35
Net income available to common shareholders	$	714	144		223	43	417	-		1,541
Total goodwill	$	613	1,655		-	148	-	-		2,416
Total assets	$	51,392	46,157		24,657	9,212	(9,524)	-		121,894

• Revenue sharing agreements between Investment Advisors and Branch Banking are eliminated in the Consolidated Statements of Income.
• Includes an impairment charge of $21 for branches and land.