Business Segments

6 Months Ended

Jun. 30, 2020

Segment Reporting [Abstract]

Business Segments

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 and credit rates to classes of assets and liabilities, respectively, based on the estimated amount and timing of the 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. In general, the charge rates on assets have declined since December 31, 2019 as they were affected by the prevailing level of interest rates and by the duration and repricing characteristics of the portfolio. The credit rates for deposit products also declined due to lower interest rates and modified assumptions. Both the reduced charge on assets and credit on deposits were partially offset by wider liquidity premiums applied during the second quarter of 2020. Thus, net interest income for asset-generating business segments improved while deposit-providing business segments were negatively impacted during the six months ended June 30, 2020.

The Bancorp’s methodology for allocating provision for credit 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 credit losses expense attributable to loan and lease growth and changes in ALLL factors is 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 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 1,122 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, automobile and other indirect lending activities. Residential mortgage activities within Consumer Lending include the origination, retention and servicing of residential mortgage loans, sales and securitizations of those loans and all associated hedging activities. Residential mortgages are primarily originated through a dedicated sales force and through third-party correspondent lenders. Automobile and other indirect lending activities include extending loans to consumers through automobile dealers, motorcycle dealers, powersport dealers, recreational vehicle dealers and marine 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; Fifth Third Insurance Agency; 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. Fifth Third Insurance Agency assists clients with their financial and risk management needs. Fifth Third Private Bank offers wealth management strategies to high net worth and ultra-high net worth clients

through wealth planning, investment management, banking, insurance, trust and estate services. Fifth Third Institutional Services provides advisory services for institutional clients, including middle market businesses, nonprofits, states and municipalities.

The following tables present the results of operations and assets by business segment for the three months ended:

June 30, 2020 ($ in millions)	Commercial Banking		Branch Banking	Consumer Lending	Wealth and Asset Management	General Corporate and Other		Eliminations		Total
Net interest income	$	570	513	92	51	(26)		—		1,200
Provision for (benefit from) credit losses	457		52	10	(1)	(33)		—		485
Net interest income after provision for credit losses	113		461	82	52	7		—		715
Noninterest income:
Service charges on deposits	79		42	—	—	1		—		122
Commercial banking revenue	136		1	—	1	(1)		—		137
Wealth and asset management revenue	1		39	—	115	—		(35)	(a)	120
Mortgage banking net revenue	—		2	96	1	—		—		99
Card and processing revenue	11		68	—	—	3		—		82
Leasing business revenue	57		—	—	—	—		—		57
Other noninterest income(b)	10		15	2	4	(19)		—		12
Securities gains, net	—		—	—	—	21		—		21
Securities gains, net – non-qualifying hedges on MSRs	—		—	—	—	—		—		—
Total noninterest income	294		167	98	121	5		(35)		650
Noninterest expense:
Compensation and benefits	129		161	53	50	234		—		627
Technology and communications	3		1	2	—	84		—		90
Net occupancy expense(d)	8		44	2	3	25		—		82
Leasing business expense	33		—	—	—	—		—		33
Equipment expense	7		10	—	—	15		—		32
Card and processing expense	2		28	—	—	(1)		—		29
Marketing expense	2		5	1	—	12		—		20
Other noninterest expense	221		205	62	69	(314)		(35)		208
Total noninterest expense	405		454	120	122	55		(35)		1,121
Income (loss) before income taxes	2		174	60	51	(43)		—		244
Applicable income tax expense (benefit)	(10)		36	12	11	—		—		49
Net income (loss)	12		138	48	40	(43)		—		195
Total goodwill	$	1,961	2,047	—	253	—		—		4,261
Total assets	$	76,437	77,219	26,451	11,680	11,119	(c)	—		202,906

(a)Revenue sharing agreements between wealth and asset management and branch banking are eliminated in the Condensed Consolidated Statements of Income.

(b)Includes impairment charges of $12 for branches and land. For more information, refer to Note 8 and Note 23.

(c)Includes bank premises and equipment of $53 classified as held for sale. For more information, refer to Note 8.

(d)Includes impairment losses and termination charges of $3 for ROU assets related to certain operating leases. For more information, refer to Note 10.

June 30, 2019 ($ in millions)	Commercial Banking		Branch Banking	Consumer Lending	Wealth and Asset Management	General Corporate and Other		Eliminations		Total
Net interest income	$	629	620	83	48	(135)		—		1,245
Provision for (benefit from) credit losses	25		55	7	—	(2)		—		85
Net interest income after provision for credit losses	604		565	76	48	(133)		—		1,160
Noninterest income:
Service charges on deposits	82		63	—	—	(2)		—		143
Commercial banking revenue	105		1	—	—	1		—		107
Wealth and asset management revenue	1		40	—	117	—		(36)	(a)	122
Mortgage banking net revenue	—		1	62	—	—		—		63
Card and processing revenue	18		73	—	1	—		—		92
Leasing business revenue	76		—	—	—	—		—		76
Other noninterest income(b)	19		24	3	—	1		—		47
Securities gains, net	—		—	—	—	8		—		8
Securities gains, net – non-qualifying hedges on MSRs	—		—	2	—	—		—		2
Total noninterest income	301		202	67	118	8		(36)		660
Noninterest expense:
Compensation and benefits	119		152	52	57	261		—		641
Technology and communications	3		1	2	—	130		—		136
Net occupancy expense	7		43	3	3	32		—		88
Leasing business expense	38		—	—	—	—		—		38
Equipment expense	6		12	—	—	15		—		33
Card and processing expense	2		32	—	—	—		—		34
Marketing expense	2		18	1	1	19		—		41
Other noninterest expense	243		209	60	74	(318)		(36)		232
Total noninterest expense	420		467	118	135	139		(36)		1,243
Income (loss) before income taxes	485		300	25	31	(264)		—		577
Applicable income tax expense (benefit)	90		63	5	7	(41)		—		124
Net income (loss)	395		237	20	24	(223)		—		453
Total goodwill	$	630	1,655	—	190	1,809	(d)	—		4,284
Total assets	$	74,033	69,577	25,506	9,841	(10,155)	(c)	—		168,802

(a)Revenue sharing agreements between wealth and asset management and branch banking are eliminated in the Condensed Consolidated Statements of Income.

(b)Includes impairment charges of $2 for branches and land. For more information, refer to Note 8 and Note 23.

(c)Includes bank premises and equipment of $70 classified as held for sale. For more information, refer to Note 8.

(d)The Bancorp was in the process of completing its analysis of the allocation of the goodwill across its four business segments; therefore, goodwill was presented as part of General Corporate and Other as of June 30, 2019.

The following tables present the results of operations and assets by business segment for the six months ended:

June 30, 2020 ($ in millions)	Commercial Banking			Branch Banking	Consumer Lending	Wealth and Asset Management	General Corporate and Other		Eliminations		Total
Net interest income	$	1,078		1,017	181	88	65		—		2,429
Provision for credit losses	502			114	23	—	486		—		1,125
Net interest income after provision for credit losses	576			903	158	88	(421)		—		1,304
Noninterest income:
Service charges on deposits	162			107	—	1	—		—		270
Commercial banking revenue	260			2	—	1	(2)		—		261
Wealth and asset management revenue	2			84	—	244	—		(75)	(a)	255
Mortgage banking net revenue	—			4	213	2	—		—		219
Card and processing revenue	26			133	—	1	7		—		167
Leasing business revenue	131		(c)	—	—	—	—		—		131
Other noninterest income(b)	(1)			34	6	9	(30)		—		18
Securities losses, net	—			—	—	—	(3)		—		(3)
Securities gains, net – non-qualifying hedges on MSRs	—			—	3	—	—		—		3
Total noninterest income	580			364	222	258	(28)		(75)		1,321
Noninterest expense:
Compensation and benefits	278			330	104	112	450		—		1,274
Technology and communications	6			1	5	—	171		—		183
Net occupancy expense(e)	15			87	5	6	51		—		164
Leasing business expense	68			—	—	—	—		—		68
Equipment expense	14			21	—	—	29		—		64
Card and processing expense	4			58	—	—	(2)		—		60
Marketing expense	4			17	2	1	27		—		51
Other noninterest expense	495			426	128	147	(664)		(75)		457
Total noninterest expense	884			940	244	266	62		(75)		2,321
Income (loss) before income taxes	272			327	136	80	(511)		—		304
Applicable income tax expense (benefit)	35			69	29	16	(88)		—		61
Net income (loss)	237			258	107	64	(423)		—		243
Total goodwill	$	1,961		2,047	—	253	—		—		4,261
Total assets	$	76,437		77,219	26,451	11,680	11,119	(d)	—		202,906

(a)Revenue sharing agreements between wealth and asset management and branch banking are eliminated in the Condensed Consolidated Statements of Income.

(b)Includes impairment charges of $14 for branches and land. For more information, refer to Note 8 and Note 23.

(c)Includes impairment charges of $3 for operating lease equipment. For more information, refer to Note 9 and Note 23.

(d)Includes bank premises and equipment of $53 classified as held for sale. For more information, refer to Note 8.

(e)Includes impairment losses and termination charges of $5 for ROU assets related to certain operating leases. For more information, refer to Note 10.

June 30, 2019 ($ in millions)	Commercial Banking		Branch Banking	Consumer Lending	Wealth and Asset Management	General Corporate and Other		Eliminations		Total
Net interest income	$	1,138	1,204	146	97	(258)		—		2,327
Provision for credit losses	46		107	20	—	2		—		175
Net interest income after provision for credit losses	1,092		1,097	126	97	(260)		—		2,152
Noninterest income:
Service charges on deposits	149		127	—	—	(2)		—		274
Commercial banking revenue	207		2	—	—	—		—		209
Wealth and asset management revenue	1		76	—	226	—		(69)	(a)	234
Mortgage banking net revenue	—		2	117	—	—		—		119
Card and processing revenue	32		137	—	2	—		—		171
Leasing business revenue	108		—	—	—	—		—		108
Other noninterest income(b)	30		42	7	5	532		—		616
Securities gains, net	—		—	—	—	25		—		25
Securities gains, net – non-qualifying hedges on MSRs	—		—	5	—	—		—		5
Total noninterest income	527		386	129	233	555		(69)		1,761
Noninterest expense:
Compensation and benefits	227		295	97	113	519		—		1,251
Technology and communications	5		2	4	1	207		—		219
Net occupancy expense	14		86	5	7	52		—		164
Leasing business expense	57		—	—	—	—		—		57
Equipment expense	12		24	—	—	27		—		63
Card and processing expense	4		61	—	—	(1)		—		64
Marketing expense	3		32	2	2	38		—		77
Other noninterest expense	454		407	112	144	(602)		(69)		446
Total noninterest expense	776		907	220	267	240		(69)		2,341
Income before income taxes	843		576	35	63	55		—		1,572
Applicable income tax expense	156		121	7	14	46		—		344
Net income	687		455	28	49	9		—		1,228
Total goodwill	$	630	1,655	—	190	1,809	(d)	—		4,284
Total assets	$	74,033	69,577	25,506	9,841	(10,155)	(c)	—		168,802

(a)Revenue sharing agreements between wealth and asset management and branch banking are eliminated in the Condensed Consolidated Statements of Income.

(b)Includes impairment charges of $22 for branches and land. For more information, refer to Note 8 and Note 23.

(c)Includes bank premises and equipment of $70 classified as held for sale. For more information, refer to Note 8.

(d)The Bancorp was in the process of completing its analysis of the allocation of the goodwill across its four business segments; therefore, goodwill was presented as part of General Corporate and Other as of June 30, 2019.