Related Party Transactions

12 Months Ended

Dec. 31, 2016

19. RELATED PARTY TRANSACTIONS

The Bancorp maintains written policies and procedures covering related party transactions with principal shareholders, directors and executives of the Bancorp. These procedures cover transactions such as employee-stock purchase loans, personal lines of credit, residential secured loans, overdrafts, letters of credit and increases in indebtedness. Such transactions are subject to the Bancorp’s normal underwriting and approval procedures. Prior to approving a loan to a related party, Compliance Risk Management must review and determine whether the transaction requires approval from or a post notification to the Bancorp’s Board of Directors. At December 31, 2016 and 2015, certain directors, executive officers, principal holders of Bancorp common stock and their related interests were indebted, including undrawn commitments to lend, to the Bancorp’s banking subsidiary .

The following table summarizes the Bancorp’s lending activities with its principal shareholders, directors, executives and their related interests at December 31:

($ in millions)		2016	2015
Commitments to lend, net of participations:
Directors and their affiliated companies	$	618	831
Executive officers		4	5
Total	$	622	836

Outstanding balance on loans, net of participations and undrawn commitments	$	54	97

The commitments to lend are in the form of loans and guarantees for various business and personal interests. This indebtedness was incurred in the ordinary course of business on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with unrelated parties. This indebtedness does not involve more than the normal risk of repayment or present other features unfavorable to the Bancorp.

Vantiv Holding, LLC

On June 30, 2009, the Bancorp completed the sale of a majority interest in its processing business, Vantiv Holding, LLC. Advent International acquired an approximate 51% interest in Vantiv Holding, LLC for cash and a warrant. The Bancorp retained the remaining approximate 49% interest in Vantiv Holding, LLC.

During the first quarter of 2012, Vantiv, Inc. priced an IPO of its shares and contributed the net proceeds to Vantiv Holding, LLC for additional ownership interests. As a result of this offering, the Bancorp’s ownership of Vantiv Holding, LLC was reduced to approximately 39%. The impact of the capital contributions to Vantiv Holding, LLC and the resulting dilution in the Bancorp’s interest resulted in a gain of $115 million recognized by the Bancorp in the first quarter of 2012.

The following table provides a summary of the sales transactions that impacted the Bancorp's ownership interest in Vantiv Holding, LLC after the initial IPO:

	Ownership Percentage Sold			Gain on Sale	Remaining Ownership Percentage^(a)
($ in millions)	Ownership Percentage Sold			Gain on Sale	Remaining Ownership Percentage^(a)
Q4 2012	6	%	$	157	33	%
Q2 2013	5			242	28
Q3 2013	3			85	25
Q2 2014	3			125	23
Q4 2015	5			331	18

(a) The Bancorp’s remaining investment in Vantiv Holding, LLC of $414 as of December 31, 2016 was accounted for as an equity method investment in the Bancorp’s Consolidated Financial Statements.

The Bancorp agreed during the fourth quarter of 2015 to cancel rights to purchase approximately 4.8 million Class C Units in Vantiv Holding, LLC, the wholly-owned principal operating subsidiary of Vantiv, Inc., underlying the warrant in exchange for a cash payment of $200 million. Subsequent to this cancellation, the Bancorp exercised its right to purchase approximately 7.8 million Class C Units underlying the warrant at the $15.98 strike price. This exercise was settled on a net basis for approximately 5.4 million Class C Units, which were then exchanged for approximately 5.4 million shares of Vantiv, Inc. Class A Common Stock that were sold in the secondary offering. The Bancorp recognized a gain of $89 million in other noninterest income on the 62% of the warrant that was settled or net exercised. Additionally, during the fourth quarter of 2015, the Bancorp exchanged 8 million Class B Units of Vantiv Holding, LLC for 8 million Class A Shares in Vantiv, Inc., which were also sold in the secondary offering and on which the Bancorp recognized a gain of $331 million in other noninterest income.

During the fourth quarter of 2016, the Bancorp exercised its right to purchase approximately 7.8 million Class C Units underlying the warrant at the $15.98 strike price. This exercise was settled on a net basis for approximately 5.7 million Class C Units, which were then exchanged for approximately 5.7 million shares of Vantiv, Inc. Class A Common Stock of which 4.8 million shares were sold in a secondary offering and 0.9 million shares were repurchased by Vantiv, Inc. The Bancorp recognized a gain of $9 million in other noninterest income in the Consolidated Statements of Income in 2016 on the exercise of the remaining warrant in Vantiv Holding, LLC.

As of December 31, 2016, the Bancorp continued to hold approximately 35 million Class B Units of Vantiv Holding, LLC which may be exchanged for Class A Common Stock of Vantiv, Inc. on a one-for-one basis or at Vantiv, Inc.’s option for cash which represents approximately 17.9% ownership of Vantiv, Holding, LLC. In addition, the Bancorp holds approximately 35 million Class B Common Shares of Vantiv, Inc. The Class B Common Shares give the Bancorp voting rights, but no economic interest in Vantiv, Inc. At any time, other than in connection with a stockholder vote with respect to a change in control in Vantiv, Inc., the voting rights attributable to the Class B Common Shares are limited to the lesser of 18.5% or the Bancorp’s ownership percentage of Vantiv Holding, LLC, currently 17.9%. These securities are subject to certain terms and restrictions.

The Bancorp recognized $66 million, $63 million and $48 million, respectively, in other noninterest income as part of its equity method investment in Vantiv Holding, LLC for the years ended December 31, 2016, 2015 and 2014 and received cash distributions totaling $9 million, $11 million and $23 million during the years ended December 31, 2016, 2015 and 2014, respectively. The Bancorp’s remaining investment in Vantiv Holding, LLC continues to be accounted for under the equity method of accounting as of December 31, 2016.

During the fourth quarter of 2015, the Bancorp entered into an agreement with Vantiv, Inc. under which a portion of its TRA with Vantiv, Inc. was terminated and settled in full for a cash payment of approximately $49 million from Vantiv, Inc. Under the agreement, the Bancorp sold certain TRA cash flows it expected to receive from 2017 to 2030, totaling an estimated $140 million. Approximately half of the sold TRA cash flows related to 2025 and later. This sale did not impact the TRA payment recognized during the fourth quarter of 2015.

During the third quarter of 2016, the Bancorp entered into an agreement with Vantiv, Inc. under which a portion of its TRA with Vantiv, Inc. was terminated and settled in full for consideration of a cash payment in the amount of $116 million from Vantiv, Inc. Under the agreement, the Bancorp terminated and settled certain TRA cash flows it expected to receive in the years 2019 to 2035, totaling an estimated $331 million. The Bancorp recognized a gain of $116 million in other noninterest income from this settlement. Additionally, the agreement provides that Vantiv, Inc. may be obligated to pay up to a total of approximately $171 million to the Bancorp to terminate and settle certain remaining TRA cash flows, totaling an estimated $394 million, upon the exercise of certain call options by Vantiv, Inc. or certain put options by the Bancorp. If the associated call options or put options are exercised, 10% of the obligations would be settled with respect to each quarter in 2017 and 15% of the obligations would be settled with respect to each quarter in 2018. The Bancorp recognized a gain of $164 million in other noninterest income associated with these options. This agreement did not impact the TRA payments recognized in the fourth quarter of 2016 and is not expected to impact the TRA payment expected in the fourth quarter of 2017.

In addition to the impact of the TRA terminations discussed above, the Bancorp recognized $33 million, $31 million and $23 million in noninterest income in the Consolidated Statements of Income associated with the TRA during the years ended December 31, 2016, 2015 and 2014, respectively.

The following table provides the estimated cash flows to be received as of December 31, 2016 associated with the TRA for the years ending December 31, 2017 and thereafter:

		Cash Flows to be Received From Put/Call Option Exercises (Fixed Amounts)^(b)	Estimated Cash Flows to be Received not Subject to Put/Call Option^(a)

($ in millions)
2017	$	63	33
2018		108	42
2019		-	8
2020		-	8
2021		-	8
2022		-	8
2023		-	9
2024		-	9
2025		-	9
2026		-	10
Thereafter		-	102
Total	$	171	246

(a) The 2017 cash flow of $33 has been agreed upon with Vantiv, Inc. for settlement in January 2017 and was recognized as a gain in noninterest income during the fourth quarter of 2016. The remaining estimated cash flows in this column (which include TRA benefits associated with the net exercise of the warrant and the subsequent exchange of Vantiv Holding units in the fourth quarter of 2016) will be recognized in future periods when the related uncertainties are resolved.

(b) As part of the agreement the Bancorp entered into with Vantiv, Inc. on July 27, 2016, Vantiv, Inc. may be obligated to pay a total of approximately $171 to the Bancorp to terminate certain remaining TRA cash flows, totaling an estimated $394, upon the exercise of certain call options by Vantiv, Inc. or certain put options by the Bancorp.

The Bancorp and Vantiv Holding, LLC have various agreements in place covering services relating to the operations of Vantiv Holding, LLC. The services provided by the Bancorp to Vantiv Holding, LLC were initially required to support Vantiv Holding, LLC as a standalone entity during the deconversion period. The majority of services previously provided by the Bancorp to support Vantiv Holding, Inc. as a standalone entity are no longer necessary and are now limited to certain general business resources. Vantiv Holding, LLC paid the Bancorp $1 million for these services for each of the years ended December 31, 2016, 2015 and 2014. Other services provided to Vantiv Holding, LLC by the Bancorp, have continued beyond the deconversion period, include interchange clearing, settlement and sponsorship. Vantiv Holding, LLC paid the Bancorp $58 million, $47 million and $44 million for these services for the years ended December 31, 2016, 2015 and 2014, respectively. In addition to the previously mentioned services, the Bancorp previously entered into an agreement under which Vantiv Holding, LLC will provide processing services to the Bancorp. The total amount of fees relating to the processing services provided to the Bancorp by Vantiv Holding, LLC totaled $76 million, $89 million and $83 million for the years ended December 31, 2016, 2015 and 2014, respectively. These fees are reported as a component of card and processing expense in the Consolidated Statements of Income.

As part of the initial sale, Vantiv Holding, LLC assumed loans totaling $1.25 billion owed to the Bancorp, which were refinanced in 2010 into a larger syndicated loan structure that included the Bancorp. The outstanding carrying value of loans to Vantiv Holding, LLC was $210 million and $191 million at December 31, 2016 and 2015, respectively. Interest income relating to the loans was $4 million, $4 million and $5 million, respectively, for the years ended December 31, 2016, 2015 and 2014 and is included in interest and fees on loans and leases in the Consolidated Statements of Income. Vantiv Holding, LLC’s unused line of credit was $59 million and $46 million as of December 31, 2016 and 2015, respectively.

SLK Global

As of December 31, 2016, the Bancorp owns 100% of Fifth Third Mauritius Holdings Limited, which owns 49% of SLK Global, and accounts for this investment under the equity method of accounting. The Bancorp’s investment in SLK Global was $6 million at both December 31, 2016 and 2015. The Bancorp recognized $3 million in other noninterest income in the Consolidated Statements of Income as part of its equity method investment in SLK Global for each of the years ended December 31, 2016, 2015, and 2014 and received an immaterial amount of cash distributions during the years ended December 31, 2016, 2015 and 2014. The Bancorp paid SLK Global $20 million, $17 million and $13 million for their process and software services during the years ended December 31, 2016, 2015 and 2014, respectively.

CDC Investments

The Bancorp’s subsidiary, CDC, has equity investments in entities in which the Bancorp had $76 million and $5 million of loans outstanding at December 31, 2016 and 2015, respectively, and unfunded commitment balances of $18 million and $88 million at December 31, 2016 and 2015, respectively. The Bancorp held $28 million and $23 million of deposits for these entities at December 31, 2016 and 2015, respectively. For further information on CDC investments, refer to Note 11.