Business Segments

6 Months Ended

Jun. 30, 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 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. 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 funding operations by accessing the capital markets as a collective unit.

The results of operations and financial position for the three and six months ended June 30, 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 1,158 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
June 30, 2018 ($ in millions)		Banking	Banking	Lending	Management	and Other	Eliminations	Total
Net interest income	$	427	499	59	45	(10)	-	1,020
Provision for (benefit from) loan and lease losses		(10)	47	8	(11)	(1)	-	33
Net interest income after provision for loan and lease losses		437	452	51	56	(9)	-	987
Noninterest income:
Service charges on deposits		70	67	-	-	-	-	137
Wealth and asset management revenue		1	37	-	104	-	(34)^(a)	108
Corporate banking revenue		119	1	-	-	-	-	120
Card and processing revenue		14	69	-	1	-	-	84
Mortgage banking net revenue		-	1	52	-	-	-	53
Other noninterest income^(b)		25	(8)	4	4	225	-	250
Securities losses, net		-	-	-	-	(5)	-	(5)
Securities losses, net - non-qualifying hedges on MSRs		-	-	(4)	-	-	-	(4)
Total noninterest income		229	167	52	109	220	(34)	743
Noninterest expense:
Salaries, wages and incentives		71	111	42	43	204	-	471
Employee benefits		9	26	10	7	26	-	78
Net occupancy expense		6	44	3	3	18	-	74
Technology and communications		2	1	1	-	63	-	67
Equipment expense		6	12	-	-	12	-	30
Card and processing expense		1	30	-	-	(1)	-	30
Other noninterest expense		263	208	51	70	(271)	(34)	287
Total noninterest expense		358	432	107	123	51	(34)	1,037
Income (loss) before income taxes		308	187	(4)	42	160	-	693
Applicable income tax expense (benefit)		19	40	(1)	9	40	-	107
Net income (loss)		289	147	(3)	33	120	-	586
Total goodwill	$	630	1,655	-	177	-	-	2,462
Total assets	$	58,763	60,281	22,128	9,270	(9,747)^(c)	-	140,695

Revenue sharing agreements between wealth and asset management and branch banking are eliminated in the Condensed Consolidated Statements of Income.
Includes impairment charges of $33 for branches and land. For more information refer to Note 7 and Note 21.
Includes bank premises and equipment of $37 classified as held for sale. For more information refer to Note 7.

Includes bank premises and equipment of $37 classified as held for sale. For more information refer to Note 7.

					Wealth	General
		Commercial	Branch	Consumer	and Asset	Corporate
June 30, 2017 ($ in millions)		Banking	Banking	Lending	Management	and Other	Eliminations	Total
Net interest income	$	415	437	59	37	(9)	-	939
Provision for (benefit from) loan and lease losses		22	39	7	(1)	(15)	-	52
Net interest income after provision for loan and lease losses		393	398	52	38	6	-	887
Noninterest income:
Service charges on deposits		73	66	-	-	-	-	139
Wealth and asset management revenue		1	35	-	100	-	(33)^(a)	103
Corporate banking revenue		100	1	-	-	-	-	101
Card and processing revenue		14	64	-	1	-	-	79
Mortgage banking net revenue		-	1	54	-	-	-	55
Other noninterest income^(b)		40	22	6	-	17	-	85
Securities gains, net - non-qualifying hedges on MSRs		-	-	2	-	-	-	2
Total noninterest income		228	189	62	101	17	(33)	564
Noninterest expense:
Salaries, wages and incentives		60	104	40	37	156	-	397
Employee benefits		9	26	10	7	34	-	86
Net occupancy expense		7	43	3	2	15	-	70
Technology and communications		2	1	1	-	53	-	57
Equipment expense		4	13	-	-	12	-	29
Card and processing expense		1	33	-	-	(1)	-	33
Other noninterest expense		247	196	55	67	(247)	(33)	285
Total noninterest expense		330	416	109	113	22	(33)	957
Income before income taxes		291	171	5	26	1	-	494
Applicable income tax expense		54	60	2	9	2	-	127
Net income (loss)		237	111	3	17	(1)	-	367
Total goodwill	$	613	1,655	-	155	-	-	2,423
Total assets	$	57,766	57,396	22,442	8,238	(4,775)^(c)	-	141,067

Revenue sharing agreements between wealth and asset management and branch banking are eliminated in the Condensed Consolidated Statements of Income.
Includes impairment charges of $2 for branches and land. For more information refer to Note 7 and Note 21.
Includes bank premises and equipment of $41 classified as held for sale. For more information refer to Note 7.

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

					Wealth	General
		Commercial	Branch	Consumer	and Asset	Corporate
June 30, 2018 ($ in millions)		Banking	Banking	Lending	Management	and Other	Eliminations	Total
Net interest income	$	846	965	118	88	(1)	-	2,016
Provision for (benefit from) loan and lease losses		(29)	90	20	5	(30)	-	56
Net interest income after provision for loan and lease losses		875	875	98	83	29	-	1,960
Noninterest income:
Service charges on deposits		139	134	-	1	1	-	275
Wealth and asset management revenue		2	74	-	214	-	(69)^(a)	221
Corporate banking revenue		205 ^(c)	2	-	1	-	-	208
Card and processing revenue		28	133	-	2	-	-	163
Mortgage banking net revenue		-	3	106	-	-	-	109
Other noninterest income^(b)		73	7	7	9	612	-	708
Securities losses, net		-	-	-	-	(15)	-	(15)
Securities losses, net - non-qualifying hedges on MSRs		-	-	(17)	-	-	-	(17)
Total noninterest income		447	353	96	227	598	(69)	1,652
Noninterest expense:
Salaries, wages and incentives		141	220	82	87	388	-	918
Employee benefits		27	53	20	17	71	-	188
Net occupancy expense		13	88	5	6	37	-	149
Technology and communications		4	3	2	-	126	-	135
Equipment expense		11	25	-	-	25	-	61
Card and processing expense		2	59	-	-	(1)	-	60
Other noninterest expense		545	423	102	144	(573)	(69)	572
Total noninterest expense		743	871	211	254	73	(69)	2,083
Income (loss) before income taxes		579	357	(17)	56	554	-	1,529
Applicable income tax expense (benefit)		32	75	(3)	12	123	-	239
Net income (loss)		547	282	(14)	44	431	-	1,290
Total goodwill	$	630	1,655	-	177	-	-	2,462
Total assets	$	58,763	60,281	22,128	9,270	(9,747)^(d)	-	140,695

Revenue sharing agreements between wealth and asset management and branch banking are eliminated in the Condensed Consolidated Statements of Income.
Includes impairment charges of $41 for branches and land. For more information refer to Note 7 and Note 21.
Includes impairment charges of $2 for operating lease equipment. For more information refer to Note 21.
Includes bank premises and equipment of $37 classified as held for sale. For more information refer to Note 7.

					Wealth	General
		Commercial	Branch	Consumer	and Asset	Corporate
June 30, 2017 ($ in millions)		Banking	Banking	Lending	Management	and Other	Eliminations	Total
Net interest income	$	839	867	120	75	(29)	-	1,872
Provision for (benefit from) loan and lease losses		29	80	22	3	(8)	-	126
Net interest income after provision for loan and lease losses		810	787	98	72	(21)	-	1,746
Total noninterest income
Service charges on deposits		146	130	-	1	-	-	277
Wealth and asset management revenue		2	71	-	205	-	(67)^(a)	211
Corporate banking revenue		173 ^(c)	3	-	-	(1)	-	175
Card and processing revenue		28	122	-	3	-	-	153
Mortgage banking net revenue		-	3	105	-	-	-	108
Other noninterest income^(b)		80	45	9	-	26	-	160
Securities gains, net		-	-	-	-	1	-	1
Securities gains, net - non-qualifying hedges on MSRs		-	-	2	-	-	-	2
Total noninterest income		429	374	116	209	26	(67)	1,087
Noninterest expense
Salaries, wages and incentives		127	208	77	76	320	-	808
Employee benefits		27	53	20	16	80	-	196
Net occupancy expense		13	90	5	5	35	-	148
Technology and communications		5	2	1	-	108	-	116
Equipment expense		8	26	-	-	23	-	57
Card and processing expense		2	62	-	-	(1)	-	63
Other noninterest expense		507	388	110	134	(517)	(67)	555
Total noninterest expense		689	829	213	231	48	(67)	1,943
Income (loss) before income taxes		550	332	1	50	(43)	-	890
Applicable income tax expense (benefit)		97	117	-	17	(13)	-	218
Net income (loss)		453	215	1	33	(30)	-	672
Total goodwill	$	613	1,655	-	155	-	-	2,423
Total assets	$	57,766	57,396	22,442	8,238	(4,775)^(d)	-	141,067

Revenue sharing agreements between wealth and asset management and branch banking are eliminated in the Condensed Consolidated Statements of Income.
Includes impairment charges of $5 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 $41 classified as held for sale. For more information refer to Note 7.