Business Segments

3 Months Ended

Mar. 31, 2018

22. 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, 2018 to reflect the current market rates and updated market assumptions. These rates were generally higher than those in place during 2017, thus net interest income for deposit-providing business segments was positively impacted during 2018. 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 2018.

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 results of operations and financial position for the three months ended March 31, 2017 were adjusted to reflect changes in internal expense allocation methodologies.

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 1,153 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 three months ended:

					Wealth	General
		Commercial	Branch	Consumer	and Asset	Corporate
March 31, 2018 ($ in millions)		Banking	Banking	Lending	Management	and Other	Eliminations	Total
Net interest income	$	419	466	59	43	9	-	996
Provision for (benefit from) loan and lease losses		(20)	44	12	16	(29)	-	23
Net interest income after provision for loan and lease losses		439	422	47	27	38	-	973
Noninterest income:
Service charges on deposits		71	66	-	-	-	-	137
Wealth and asset management revenue		1	37	-	109	-	(34)^(a)	113
Corporate banking revenue		86 ^(c)	1	-	1	-	-	88
Card and processing revenue		14	64	-	1	-	-	79
Mortgage banking net revenue		-	1	55	-	-	-	56
Other noninterest income		49	15 ^(b)	4	5	387	-	460
Securities losses, net		(2)	-	-	-	(9)	-	(11)
Securities losses, net - non-qualifying hedges on MSRs		-	-	(13)	-	-	-	(13)
Total noninterest income		219	184	46	116	378	(34)	909
Noninterest expense:
Salaries, wages and incentives		70	110	39	44	184	-	447
Employee benefits		18	26	11	10	45	-	110
Net occupancy expense		7	43	3	3	19	-	75
Technology and communications		2	1	1	-	64	-	68
Equipment expense		5	13	-	-	13	-	31
Card and processing expense		1	29	-	-	(1)	-	29
Other noninterest expense		281	215	52	74	(302)	(34)	286
Total noninterest expense		384	437	106	131	22	(34)	1,046
Income (loss) before income taxes		274	169	(13)	12	394	-	836
Applicable income tax expense (benefit)		15	35	(3)	3	82	-	132
Net income (loss)		259	134	(10)	9	312	-	704
Total goodwill	$	630	1,655	-	177	-	-	2,462
Total assets	$	58,829	60,197	22,384	10,611	(10,521)^(d)	-	141,500

Revenue sharing agreements between wealth and asset management and branch banking are eliminated in the Condensed Consolidated Statements of Income.
Includes impairment charges of $8 for branches and land. For more information refer to Note 7 and Note 21.

Includes bank premises and equipment of $20 classified as held for sale. For more information refer to Note 7.

					Wealth	General
		Commercial	Branch	Consumer	and Asset	Corporate
March 31, 2017 ($ in millions)		Banking	Banking	Lending	Management	and Other	Eliminations	Total
Net interest income	$	425	430	61	38	(21)	-	933
Provision for loan and lease losses		6	42	15	4	7	-	74
Net interest income after provision for loan and lease losses		419	388	46	34	(28)	-	859
Noninterest income:
Service charges on deposits		73	65	-	-	-	-	138
Wealth and asset management revenue		1	36	-	105	-	(34)^(a)	108
Corporate banking revenue		73 ^(c)	1	-	-	-	-	74
Card and processing revenue		14	59	-	1	-	-	74
Mortgage banking net revenue		-	1	51	-	-	-	52
Other noninterest income		41	22 ^(b)	4	-	10	-	77
Total noninterest income		202	184	55	106	10	(34)	523
Noninterest expense:
Salaries, wages and incentives		67	104	37	39	164	-	411
Employee benefits		18	27	11	9	46	-	111
Net occupancy expense		7	47	3	2	19	-	78
Technology and communications		3	1	1	-	53	-	58
Equipment expense		4	13	-	-	11	-	28
Card and processing expense		1	29	-	-	-	-	30
Other noninterest expense		260	192	54	67	(269)	(34)	270
Total noninterest expense		360	413	106	117	24	(34)	986
Income (loss) before income taxes		261	159	(5)	23	(42)	-	396
Applicable income tax expense (benefit)		44	56	(2)	8	(15)	-	91
Net income (loss)		217	103	(3)	15	(27)	-	305
Total goodwill	$	613	1,655	-	151	-	-	2,419
Total assets	$	57,672	57,883	21,994	9,644	(6,993)^(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 21.
Includes impairment charges of $31 for operating lease equipment. For more information refer to Note 21.
Includes bank premises and equipment of $51 classified as held for sale. For more information refer to Note 7.