Fifth Third Bank 2012 Annual Report Download - page 44

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
42 Fifth Third Bancorp
BUSINESS SEGMENT REVIEW
The Bancorp reports on four business segments: Commercial
Banking, Branch Banking, Consumer Lending and Investment
Advisors. Additional detailed financial information on each business
segment is included in Note 29 of the Notes to Consolidated
Financial Statements. 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 are improved or businesses change.
The Bancorp manages interest rate risk centrally at the
corporate level and employs a FTP methodology at the business
segment level. 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. 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, 2012 to reflect the current
market rates and updated duration assumptions. These rates were
lower than those in place during 2011, thus net interest income for
deposit providing businesses was negatively impacted during 2012.
The business segments are charged provision expense based on
the actual net charge-offs experienced on 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.
Even with these allocations, the financial results are not necessarily
indicative of the business segments’ financial condition and results
of operations as if they existed as independent entities. 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.
Net income by business segment is summarized in the following table:
TABLE 12: BUSINESS SEGMENT NET INCOME AVAILABLE TO COMMON SHAREHOLDERS
For the years ended December 31 ($ in millions) 2012 2011 2010
Income Statement Data
Commercial Banking $ 694 441 178
Branch Banking 186 190 185
Consumer Lending 223 56 (26)
Investment Advisors 43 24 29
General Corporate & Other 428 587 387
Net income 1,574 1,298 753
Less: Net income attributable to noncontrolling interests (2) 1 -
Net income attributable to Bancorp 1,576 1,297 753
Dividends on preferred stock 35 203 250
Net income available to common shareholders $ 1,541 1,094 503