Business Segments

9 Months Ended

Sep. 30, 2017

24. 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 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 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:

					Wealth	General
		Commercial	Branch	Consumer	and Asset	Corporate
September 30, 2017 ($ in millions)		Banking	Banking	Lending	Management	and Other	Eliminations	Total
Net interest income	$	422	453	59	38	(2)	-	970
Provision for (benefit from) loan and lease losses		(3)	35	8	(1)	28	-	67
Net interest income after provision for loan and lease losses		425	418	51	39	(30)	-	903
Total noninterest income		216	191 ^(b)	68	101	1,017	(32)^(a)	1,561
Total noninterest expense		356	403	116	108	24	(32)	975
Income before income taxes		285	206	3	32	963	-	1,489
Applicable income tax expense		51	72	1	11	340	-	475
Net income		234	134	2	21	623	-	1,014
Less: Net income attributable to noncontrolling interests		-	-	-	-	-	-	-
Net income attributable to Bancorp		234	134	2	21	623	-	1,014
Dividends on preferred stock		-	-	-	-	15	-	15
Net income available to common shareholders	$	234	134	2	21	608	-	999
Total goodwill	$	613	1,655	-	155	-	-	2,423
Total assets	$	58,752	57,219	22,447	8,813	(4,967)^(c)	-	142,264

Revenue sharing agreements between wealth and asset management and branch banking are eliminated in the Condensed Consolidated Statements of Income.
Includes impairment charges of $1 for branches and land. For more information refer to Note 7 and Note 23.
Includes bank premises and equipment of $36 classified as held for sale. For more information refer to Note 7.

					Wealth	General
		Commercial	Branch	Consumer	and Asset	Corporate
September 30, 2016 ($ in millions)		Banking	Banking	Lending	Management	and Other	Eliminations	Total
Net interest income	$	456	414	63	40	(66)	-	907
Provision for (benefit from) loan and lease losses		(18)	34	12	-	52	-	80
Net interest income after provision for loan and lease losses		474	380	51	40	(118)	-	827
Total noninterest income		228 ^(c)	163 ^(b)	71	99	312	(33)^(a)	840
Total noninterest expense		349	402	117	103	35	(33)	973
Income before income taxes		353	141	5	36	159	-	694
Applicable income tax expense		74	50	2	13	39	-	178
Net income		279	91	3	23	120	-	516
Less: Net income attributable to noncontrolling interests		-	-	-	-	-	-	-
Net income attributable to Bancorp		279	91	3	23	120	-	516
Dividends on preferred stock		-	-	-	-	15	-	15
Net income available to common shareholders	$	279	91	3	23	105	-	501
Total goodwill	$	613	1,655	-	148	-	-	2,416
Total assets	$	59,392	54,955	22,430	8,437	(1,935)^(d)	-	143,279

Revenue sharing agreements between wealth and asset management and branch banking are eliminated in the Condensed Consolidated Statements of Income.
Includes impairment charges of $28 for branches and land. For more information refer to Note 8 and Note 25.
Includes impairment charges of $4 for operating lease equipment. For more information refer to Note 9 and Note 25.
Includes bank premises and equipment of $45 classified as held for sale. For more information refer to Note 8.

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

					Wealth	General
		Commercial	Branch	Consumer	and Asset	Corporate
September 30, 2017 ($ in millions)		Banking	Banking	Lending	Management	and Other	Eliminations	Total
Net interest income	$	1,261	1,320	179	114	(32)	-	2,842
Provision for loan and lease losses		25	115	30	2	21	-	193
Net interest income after provision for loan and lease losses		1,236	1,205	149	112	(53)	-	2,649
Total noninterest income		645 ^(c)	563 ^(b)	182	312	1,045	(99)^(a)	2,648
Total noninterest expense		1,071	1,204	355	334	53	(99)	2,918
Income (loss) before income taxes		810	564	(24)	90	939	-	2,379
Applicable income tax expense (benefit)		138	199	(8)	31	334	-	694
Net income (loss)		672	365	(16)	59	605	-	1,685
Less: Net income attributable to noncontrolling interests		-	-	-	-	-	-	-
Net income (loss) attributable to Bancorp		672	365	(16)	59	605	-	1,685
Dividends on preferred stock		-	-	-	-	52	-	52
Net income (loss) available to common shareholders	$	672	365	(16)	59	553	-	1,633
Total goodwill	$	613	1,655	-	155	-	-	2,423
Total assets	$	58,752	57,219	22,447	8,813	(4,967)^(d)	-	142,264

Revenue sharing agreements between wealth and asset management and branch banking are eliminated in the Condensed Consolidated Statements of Income.
Includes impairment charges of $6 for branches and land. For more information refer to Note 8 and Note 25.
Includes impairment charges of $31 for operating lease equipment. For more information refer to Note 9 and Note 25.
Includes bank premises and equipment of $36 classified as held for sale. For more information refer to Note 8.

					Wealth	General
		Commercial	Branch	Consumer	and Asset	Corporate
September 30, 2016 ($ in millions)		Banking	Banking	Lending	Management	and Other^(e)	Eliminations	Total^(e)
Net interest income	$	1,367	1,272	185	127	(239)	-	2,712
Provision for loan and lease losses		119	104	32	1	33	-	289
Net interest income after provision for loan and lease losses		1,248	1,168	153	126	(272)	-	2,423
Total noninterest income		683 ^(c)	566 ^(b)	234	302	390	(100)^(a)	2,075
Total noninterest expense		1,065	1,223	358	317	79	(100)	2,942
Income before income taxes		866	511	29	111	39	-	1,556
Applicable income tax expense		151	181	11	38	9	-	390
Net income		715	330	18	73	30	-	1,166
Less: Net income attributable to noncontrolling interests		-	-	-	-	(4)	-	(4)
Net income attributable to Bancorp		715	330	18	73	34	-	1,170
Dividends on preferred stock		-	-	-	-	52	-	52
Net income (loss) available to common shareholders	$	715	330	18	73	(18)	-	1,118
Total goodwill	$	613	1,655	-	148	-	-	2,416
Total assets	$	59,392	54,955	22,430	8,437	(1,935)^(d)	-	143,279

Revenue sharing agreements between wealth and asset management and branch banking are eliminated in the Condensed Consolidated Statements of Income.
Includes impairment charges of $31 for branches and land. For more information refer to Note 8 and Note 25.
Includes impairment charges of $9 for operating lease equipment. For more information refer to Note 9 and Note 25.
Includes bank premises and equipment of $45 classified as held for sale. For more information refer to Note 8.
Net tax deficiencies of $6 were reclassified from capital surplus to applicable income tax expense for the nine months ended September 30, 2016, related to the early adoption of ASU 2016-09 during the fourth quarter of 2016, with an effective date of January 1, 2016.