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Business Segments
 9 Months Ended
Sep. 30, 2015
Segment Reporting  
Business Segments

23. 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 nine months ended September 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 1,295 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 residential mortgage, home equity, automobile and other indirect lending activities. Direct lending activities include the origination, retention and servicing of residential 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 September 30, 2015 and 2014:
         
      General  
  CommercialBranch ConsumerInvestment Corporate  
September 30, 2015 ($ in millions) BankingBankingLendingAdvisorsand OtherEliminationsTotal
Net interest income $ 413 395 62 33 (2) - 901
Provision for loan and lease losses  138 39 11 - (32) - 156
Net interest income after provision for loan and lease losses  275 356 51 33 30 - 745
Total noninterest income  228(c) 197(b) 76 102 148 (38)(a) 713
Total noninterest expense  342 396 106 112 25 (38) 943
Income before income taxes   161 157 21 23 153 - 515
Applicable income tax expense  8 55 8 8 55 - 134
Net income  153 102 13 15 98 - 381
Less: Net income attributable to noncontrolling interests  - - - - - - -
Net income attributable to Bancorp  153 102 13 15 98 - 381
Dividends on preferred stock   - - - - 15 - 15
Net income available to common shareholders $ 153 102 13 15 83 - 366
Total goodwill$ 613 1,655 - 148 - - 2,416
Total assets$ 59,448 52,163 22,805 8,964 (1,462) - 141,918

  • Revenue sharing agreements between Investment Advisors and Branch Banking are eliminated in the Condensed Consolidated Statements of Income.
  • Includes an impairment charge of $2 for branches and land. For more information refer to Note 7 and Note 22.
  • Includes an impairment charge of $2 for operating lease equipment. For more information refer to Note 8 and Note 22.

         
      General  
  CommercialBranch ConsumerInvestment Corporate  
September 30, 2014 ($ in millions) BankingBankingLendingAdvisorsand OtherEliminationsTotal
Net interest income $ 411 396 64 30 2 - 903
Provision for loan and lease losses  47 50 17 1 (44) - 71
Net interest income after provision for loan and lease losses  364 346 47 29 46 - 832
Total noninterest income  218 194 71 102 (27) (38)(a) 520
Total noninterest expense  323 392 114 111 (14) (38) 888
Income before income taxes   259 148 4 20 33 - 464
Applicable income tax expense  47 52 1 7 17 - 124
Net income  212 96 3 13 16 - 340
Less: Net income attributable to noncontrolling interests  - - - - - - -
Net income attributable to Bancorp  212 96 3 13 16 - 340
Dividends on preferred stock   - - - - 12 - 12
Net income available to common shareholders $ 212 96 3 13 4 - 328
Total goodwill$ 613 1,655 - 148 - - 2,416
Total assets$ 55,906 50,125 22,644 9,856 (4,343) - 134,188

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

The following tables present the results of operations and assets by business segment for the nine months ended September 30, 2015 and 2014:
         
      General  
  CommercialBranch ConsumerInvestment Corporate  
September 30, 2015 ($ in millions) BankingBankingLendingAdvisorsand OtherEliminationsTotal
Net interest income$ 1,207 1,148 187 91 3 - 2,636
Provision for loan and lease losses  208 122 33 3 (61) - 305
Net interest income after provision for loan and lease losses  999 1,026 154 88 64 - 2,331
Total noninterest income  630(c) 468(b) 327 315 274 (114)(a) 1,900
Total noninterest expense  1,056 1,183 322 342 25 (114) 2,814
Income before income taxes   573 311 159 61 313 - 1,417
Applicable income tax expense  54 110 57 21 125 - 367
Net income  519 201 102 40 188 - 1,050
Less: Net income attributable to noncontrolling interests  - - - - (6) - (6)
Net income attributable to Bancorp  519 201 102 40 194 - 1,056
Dividends on preferred stock   - - - - 52 - 52
Net income available to common shareholders $ 519 201 102 40 142 - 1,004
Total goodwill$ 613 1,655 - 148 - - 2,416
Total assets$ 59,448 52,163 22,805 8,964 (1,462) - 141,918

  • Revenue sharing agreements between Investment Advisors and Branch Banking are eliminated in the Condensed Consolidated Statements of Income.
  • Includes an impairment charge of $104 for branches and land. For more information refer to Note 7 and Note 22.
  • Includes an impairment charge of $36 for operating lease equipment. For more information refer to Note 8 and Note 22.

         
      General  
  CommercialBranch ConsumerInvestment Corporate  
September 30, 2014 ($ in millions) BankingBankingLendingAdvisorsand OtherEliminationsTotal
Net interest income$ 1,212 1,171 193 90 31 - 2,697
Provision for loan and lease losses  184 142 55 3 (168) - 216
Net interest income after provision for loan and lease losses  1,028 1,029 138 87 199 - 2,481
Total noninterest income  642 538(b) 280 308 162 (110)(a) 1,820
Total noninterest expense  986 1,168 446 333 (31) (110) 2,792
Income (loss) before income taxes   684 399 (28) 62 392 - 1,509
Applicable income tax expense (benefit)  104 141 (10) 22 154 - 411
Net income (loss)  580 258 (18) 40 238 - 1,098
Less: Net income attributable to noncontrolling interests  - - - - 2 - 2
Net income (loss) attributable to Bancorp  580 258 (18) 40 236 - 1,096
Dividends on preferred stock   - - - - 44 - 44
Net income (loss) available to common shareholders $ 580 258 (18) 40 192 - 1,052
Total goodwill$ 613 1,655 - 148 - - 2,416
Total assets$ 55,906 50,125 22,644 9,856 (4,343) - 134,188

  • 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 22.