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Business Segments
3 Months Ended
Mar. 31, 2017
Segment Reporting  
Business Segments

20. Business Segments

The Bancorp reports on four business segments: Commercial Banking, Branch Banking, Consumer Lending and Wealth and Asset Management. 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, the business segments are insulated from most benchmark interest rate volatility, enabling them to focus on serving customers through the origination of loans and acceptance of deposits. The FTP methodology assigns charge rates and credit rates to classes of assets and liabilities, respectively, based on the estimated amount and timing of cash flows for each transaction. Assigning the FTP rate based on matching the duration of cash flows allocates interest income and interest expense to each business segment so its resulting net interest income is insulated from future changes in benchmark interest rates. The Bancorp’s FTP methodology also allocates the contribution to net interest income of the asset-generating and deposit-providing businesses on a duration-adjusted basis to better attribute the driver of the performance. As the asset and liability durations are not perfectly matched, the residual impact of the FTP methodology is captured in General Corporate and Other. The charge and credit rates are determined using the FTP rate curve, which is based on an estimate of Fifth Third’s marginal borrowing cost in the wholesale funding markets. The FTP curve is constructed using the U.S. swap curve, brokered CD pricing and unsecured debt pricing.

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 behavioral assumptions, such as prepayment rates on interest-earning assets and the estimated durations for indeterminate-lived deposits. Key assumptions, including the credit rates provided for deposit accounts, are reviewed annually. Credit rates for deposit products and charge rates for loan products may be reset more frequently in response to changes in market conditions. The credit rates for several deposit products were reset January 1, 2017 to reflect the current market rates and updated market assumptions. These rates were generally higher than those in place during 2016, thus net interest income for deposit-providing business segments was positively impacted during 2017. FTP charge rates on assets were affected by the prevailing level of interest rates and by the duration and repricing characteristics of the portfolio. As overall market rates increased, the FTP charge increased for asset-generating business segments during 2017.

The Bancorp’s methodology for allocating provision for loan and lease losses expense to the business segments includes charges or benefits associated with changes in criticized commercial loan levels in addition to actual net charge-offs experienced by the loans and leases owned by each business segment. Provision for loan and lease losses 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 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 1,155 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.

Wealth and Asset Management provides a full range of investment alternatives for individuals, companies and not-for-profit organizations. Wealth and Asset Management 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:
WealthGeneral
CommercialBranch Consumerand AssetCorporate
March 31, 2017 ($ in millions)BankingBankingLendingManagementand OtherEliminationsTotal
Net interest income $4254306138(21)-933
Provision for loan and lease losses6421547-74
Net interest income after provision for loan and lease losses4193884634(28)-859
Total noninterest income 202 (c) 184 (b)5510610 (34)(a)523
Total noninterest expense37040212011315(34)986
Income (loss) before income taxes 251170(19)27(33)-396
Applicable income tax expense (benefit)4060(7)10(12)-91
Net income (loss)211110(12)17(21)-305
Less: Net income attributable to noncontrolling interests-------
Net income (loss) attributable to Bancorp211110(12)17(21)-305
Dividends on preferred stock ----15-15
Net income (loss) available to common shareholders $211110(12)17(36)-290
Total goodwill$6131,655-151--2,419
Total assets$57,67257,87621,9949,641 (6,983)(d) - 140,200

  • Revenue sharing agreements between wealth and asset management and branch banking are eliminated in the Condensed Consolidated Statements of Income.
  • Includes impairment charges of $3 for branches and land. For more information refer to Note 7 and Note 19.
  • Includes impairment charges of $31 for operating lease equipment. For more information refer to Note 8 and Note 19.
  • Includes bank premises and equipment of $51 classified as held for sale. For more information, refer to Note 7.

WealthGeneral
CommercialBranch Consumerand AssetCorporate
March 31, 2016 ($ in millions)BankingBankingLendingManagementand Other(d)EliminationsTotal(d)
Net interest income $4514266043(77)-903
Provision for loan and lease losses653412-8-119
Net interest income after provision for loan and lease losses3863924843(85)-784
Total noninterest income223 189 (b)8310075 (33)(a) 637
Total noninterest expense36341111810720(33)986
Income (loss) before income taxes 2461701336(30)-435
Applicable income tax expense3560513(4)-109
Net income (loss)211110823(26)-326
Less: Net income attributable to noncontrolling interests-------
Net income (loss) attributable to Bancorp211110823(26)-326
Dividends on preferred stock ----15-15
Net income (loss) available to common shareholders $211110823(41)-311
Total goodwill$6131,655-148--2,416
Total assets$59,65254,52822,4758,900 (3,125)(c) - 142,430

  • Revenue sharing agreements between wealth and asset management and branch banking are eliminated in the Condensed Consolidated Statements of Income.
  • Includes impairment charges of $2 for branches and land. For more information, refer to Note 7 and Note 19.
  • Includes bank premises and equipment of $68 classified as held for sale. For more information, refer to Note 7.
  • A net tax deficiency of $1 million was reclassified from capital surplus to applicable income tax expense at March 31, 2016, related to the early adoption of ASU 2016-09 during the fourth quarter of 2016, with an effective date of January 1, 2016.