Business Segments

12 Months Ended

Dec. 31, 2017

Business Segments

Business Segments

30. 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 rates 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 rates 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 benefitsassociated with changes in criticized commercial loan levels in addition to actual net charge-offs experienced by the loans and leases ownedby each business segment. Provision for loan and lease losses expense attributable to loan and lease growth and changes in ALLL factors iscaptured in General Corporate and Other. The financial results of the business segments include allocations for shared services andheadquarters expenses. Additionally, the business segments form synergies by taking advantage of cross-sell opportunities and when fundingoperations 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 1,154 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 five main businesses: FTS, an indirect wholly-owned subsidiary of the Bancorp; ClearArc Capital, Inc., an indirect wholly-owned subsidiary of the Bancorp; Fifth Third Insurance Agency, 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 Insurance Agency, Inc. assists clients with their financial and risk management needs. 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 years ended December 31:
					Wealth	General
		Commercial	Branch	Consumer	and Asset	Corporate
2017 ($ in millions)		Banking	Banking	Lending	Management	and Other	Eliminations	Total
Net interest income	$	1,652	1,782	240	154	(30)	-	3,798
Provision for loan and lease losses		38	153	40	6	24	-	261
Net interest income after provision for loan and lease losses		1,614	1,629	200	148	(54)	-	3,537
Total noninterest income		838 (c)	756 (b)	237	419	1,106	(132)(a)	3,224
Total noninterest expense		1,496	1,621	467	454	84	(132)	3,990
Income (loss) before income taxes		956	764	(30)	113	968	-	2,771
Applicable income tax expense (benefit)		150	270	(11)	39	129	-	577
Net income (loss)		806	494	(19)	74	839	-	2,194
Less: Net income attributable to noncontrolling interests		-	-	-	-	-	-	-
Net income (loss) attributable to Bancorp		806	494	(19)	74	839	-	2,194
Dividends on preferred stock		-	-	-	-	75	-	75
Net income (loss) available to common shareholders	$	806	494	(19)	74	764	-	2,119
Total goodwill	$	613	1,655	-	177	-	-	2,445
Total assets	$	58,568	57,892	22,218	9,485	(5,970)(d)	-	142,193

• Revenue sharing agreements between wealth and asset management and branch banking are eliminated in the Consolidated Statements of Income.
• Includes impairment charges of $7 for branches and land. For more information refer to Note 7 and Note 27.
• Includes impairment charges of $52 for operating lease equipment. For more information refer to Note 8 and Note 27.
• Includes bank premises and equipment of $27 classified as held for sale. For more information, refer to Note 7.

					Wealth	General
		Commercial	Branch	Consumer	and Asset	Corporate
2016 ($ in millions)		Banking	Banking	Lending	Management	and Other	Eliminations	Total
Net interest income	$	1,814	1,669	248	168	(284)	-	3,615
Provision for loan and lease losses		76	138	44	1	84	-	343
Net interest income after provision for loan and lease losses		1,738	1,531	204	167	(368)	-	3,272
Total noninterest income		907 (c)	755 (b)	303	399	463	(131)(a)	2,696
Total noninterest expense		1,426	1,621	475	422	90	(131)	3,903
Income before income taxes		1,219	665	32	144	5	-	2,065
Applicable income tax expense		224	234	12	51	(16)	-	505
Net income		995	431	20	93	21	-	1,560
Less: Net income attributable to noncontrolling interests		-	-	-	-	(4)	-	(4)
Net income attributable to Bancorp		995	431	20	93	25	-	1,564
Dividends on preferred stock		-	-	-	-	75	-	75
Net income available to common shareholders	$	995	431	20	93	(50)	-	1,489
Total goodwill	$	613	1,655	-	148	-	-	2,416
Total assets	$	58,092	55,940	22,041	9,487	(3,383)(d)	-	142,177

• Revenue sharing agreements between wealth and asset management and branch banking are eliminated in the Consolidated Statements of Income.
• Includes impairment charges of $32 for branches and land. For more information refer to Note 7 and Note 27.
• Includes impairment charges of $20 for operating lease equipment. For more information, refer to Note 8 and Note 27.
• Includes bank premises and equipment of $39 classified as held for sale. For more information, refer to Note 7.

					Wealth	General
		Commercial	Branch	Consumer	and Asset	Corporate
2015 ($ in millions)		Banking	Banking	Lending	Management	and Other	Eliminations	Total
Net interest income	$	1,625	1,555	249	128	(24)	-	3,533
Provision for loan and lease losses		298	151	44	3	(100)	-	396
Net interest income after provision for loan and lease losses		1,327	1,404	205	125	76	-	3,137
Total noninterest income		853 (c)	652 (b)	407	418	822	(149)(a)	3,003
Total noninterest expense		1,369	1,598	440	455	62	(149)	3,775
Income before income taxes		811	458	172	88	836	-	2,365
Applicable income tax expense		93	161	61	30	314	-	659
Net income		718	297	111	58	522	-	1,706
Less: Net income attributable to noncontrolling interests		-	-	-	-	(6)	-	(6)
Net income attributable to Bancorp		718	297	111	58	528	-	1,712
Dividends on preferred stock		-	-	-	-	75	-	75
Net income available to common shareholders	$	718	297	111	58	453	-	1,637
Total goodwill	$	613	1,655	-	148	-	-	2,416
Total assets	$	58,105	53,609	22,656	9,939	(3,261)(d)	-	141,048

• Revenue sharing agreements between wealth and asset management and branch banking are eliminated in the Consolidated Statements of Income.
• Includes impairment charges of $109 for branches and land. For more information refer to Note 7.
• Includes impairment charges of $36 for operating lease equipment. For more information, refer to Note 8.
• Includes bank premises and equipment of $81 classified as held for sale.