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Business Segments
 6 Months Ended
Jun. 30, 2015
Segment Reporting  
Business Segments

21. 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 business 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, 2015 to reflect the current market rates and updated market assumptions. These rates were generally lower than those in place during 2014, thus net interest income for deposit providing businesses was negatively impacted during 2015.

 

The business segments are charged provision expense based on the actual net charge-offs experienced by the loans and leases owned by each business 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 three and six months ended June 30, 2014 were adjusted to reflect the transfer of certain customers and Bancorp employees from Commercial Banking to Branch Banking, effective January 1, 2015. 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 1,299 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. 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.

 

The following tables present the results of operations and assets by business segment for the three months ended June 30, 2015 and 2014:
         
      General  
  CommercialBranch ConsumerInvestment Corporate  
June 30, 2015 ($ in millions) BankingBankingLendingAdvisorsand OtherEliminationsTotal
Net interest income $ 402 376 63 29 17 - 887
Provision for loan and lease losses  38 38 8 2 (7) - 79
Net interest income after provision for loan and lease losses  364 338 55 27 24 - 808
Total noninterest income  232(c) 94(b) 122 103 44 (39)(a) 556
Total noninterest expense  356 396 112 115 7 (39) 947
Income before income taxes   240 36 65 15 61 - 417
Applicable income tax expense  34 13 23 6 32 - 108
Net income  206 23 42 9 29 - 309
Less: Net income attributable to noncontrolling interests  - - - - (6) - (6)
Net income attributable to Bancorp  206 23 42 9 35 - 315
Dividends on preferred stock   - - - - 23 - 23
Net income available to common shareholders $ 206 23 42 9 12 - 292
Total goodwill$ 613 1,655 - 148 - - 2,416
Total assets$ 58,695 52,497 22,534 10,264 (2,332) - 141,658

  • Revenue sharing agreements between Investment Advisors and Branch Banking are eliminated in the Condensed Consolidated Statements of Income.
  • Includes an impairment charge of $98 for branches and land. For more information refer to Note 7 and Note 20.
  • Includes an impairment charge of $4 for operating lease equipment. For more information refer to Note 8 and Note 20.

         
      General  
  CommercialBranch ConsumerInvestment Corporate  
June 30, 2014 ($ in millions) BankingBankingLendingAdvisorsand OtherEliminationsTotal
Net interest income $ 403 384 65 29 19 - 900
Provision for loan and lease losses  40 47 13 1 (25) - 76
Net interest income after provision for loan and lease losses  363 337 52 28 44 - 824
Total noninterest income  216 171(b) 90 101 196 (38)(a) 736
Total noninterest expense  330 385 165 111 1 (38) 954
Income (loss) before income taxes   249 123 (23) 18 239 - 606
Applicable income tax expense (benefit)  41 43 (8) 6 85 - 167
Net income (loss)  208 80 (15) 12 154 - 439
Less: Net income attributable to noncontrolling interests  - - - - - - -
Net income (loss) attributable to Bancorp  208 80 (15) 12 154 - 439
Dividends on preferred stock   - - - - 23 - 23
Net income (loss) available to common shareholders $ 208 80 (15) 12 131 - 416
Total goodwill$ 613 1,655 - 148 - - 2,416
Total assets$ 56,001 49,764 22,365 9,251 (4,819) - 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 20.

The following tables present the results of operations and assets by business segment for the six months ended June 30, 2015 and 2014:
         
      General  
  CommercialBranch ConsumerInvestment Corporate  
June 30, 2015 ($ in millions) BankingBankingLendingAdvisorsand OtherEliminationsTotal
Net interest income$ 794 752 125 58 5 - 1,734
Provision for loan and lease losses  71 81 22 3 (29) - 148
Net interest income after provision for loan and lease losses  723 671 103 55 34 - 1,586
Total noninterest income  404(c) 270(b) 251 212 126 (76)(a) 1,187
Total noninterest expense  713 787 214 231 2 (76) 1,871
Income before income taxes   414 154 140 36 158 - 902
Applicable income tax expense  46 55 49 13 69 - 232
Net income  368 99 91 23 89 - 670
Less: Net income attributable to noncontrolling interests  - - - - (6) - (6)
Net income attributable to Bancorp  368 99 91 23 95 - 676
Dividends on preferred stock   - - - - 38 - 38
Net income available to common shareholders $ 368 99 91 23 57 - 638
Total goodwill$ 613 1,655 - 148 - - 2,416
Total assets$ 58,695 52,497 22,534 10,264 (2,332) - 141,658

  • Revenue sharing agreements between Investment Advisors and Branch Banking are eliminated in the Condensed Consolidated Statements of Income.
  • Includes an impairment charge of $102 for branches and land. For more information refer to Note 7 and Note 20.
  • Includes an impairment charge of $34 for operating lease equipment. For more information refer to Note 8 and Note 20.

         
      General  
  CommercialBranch ConsumerInvestment Corporate  
June 30, 2014 ($ in millions) BankingBankingLendingAdvisorsand OtherEliminationsTotal
Net interest income$ 801 775 129 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  662 684 91 58 152 - 1,647
Total noninterest income  425 343(b) 209 205 190 (72)(a) 1,300
Total noninterest expense  663 775 330 222 (15) (72) 1,903
Income (loss) before income taxes   424 252 (30) 41 357 - 1,044
Applicable income tax expense (benefit)  58 89 (11) 14 137 - 287
Net income (loss)  366 163 (19) 27 220 - 757
Less: Net income attributable to noncontrolling interests  - - - - 1 - 1
Net income (loss) attributable to Bancorp  366 163 (19) 27 219 - 756
Dividends on preferred stock   - - - - 32 - 32
Net income (loss) available to common shareholders $ 366 163 (19) 27 187 - 724
Total goodwill$ 613 1,655 - 148 - - 2,416
Total assets$ 56,001 49,764 22,365 9,251 (4,819) - 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 20.