Business Segments

9 Months Ended

Sep. 30, 2018

Segment Reporting

Business Segments

23.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 nine months ended September 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 1,152 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
September 30, 2018 ($ in millions)		Banking	Banking	Lending	Management	and Other	Eliminations	Total
Net interest income	$	427	525	60	46	(15)	-	1,043
Provision for (benefit from) loan and lease losses		(11)	34	10	3	50	-	86
Net interest income after provision for loan and lease losses		438	491	50	43	(65)	-	957
Noninterest income:
Service charges on deposits		68	71	-	-	-	-	139
Wealth and asset management revenue		1	38	-	110	-	(35)(a)	114
Corporate banking revenue		100	1	-	-	(1)	-	100
Card and processing revenue		14	67	-	1	-	-	82
Mortgage banking net revenue		-	1	48	-	-	-	49
Other noninterest income		52	26	3	4	1	-	86
Securities losses, net		-	-	-	-	(6)	-	(6)
Securities losses, net - non-qualifying hedges on MSRs		-	-	(1)	-	-	-	(1)
Total noninterest income		235	204	50	115	(6)	(35)	563
Noninterest expense:
Salaries, wages and incentives		71	109	38	44	159	-	421
Employee benefits		8	22	8	6	38	-	82
Net occupancy expense		6	44	3	3	14	-	70
Technology and communications		2	1	2	-	66	-	71
Equipment expense		6	12	-	-	13	-	31
Card and processing expense		2	30	-	-	(1)	-	31
Other noninterest expense		250	215	49	73	(250)	(35)	302
Total noninterest expense		345	433	100	126	39	(35)	1,008
Income (loss) before income taxes		328	262	-	32	(110)	-	512
Applicable income tax expense (benefit)		30	55	-	7	(13)	-	79
Net income (loss)		298	207	-	25	(97)	-	433
Total goodwill	$	630	1,655	-	177	-	-	2,462
Total assets	$	60,135	60,222	22,188	9,171	(10,031)(b)	-	141,685

• Revenue sharing agreements between wealth and asset management and branch banking are eliminated in the Condensed Consolidated Statements of Income.
• Includes bank premises and equipment of $38 classified as held for sale. For more information refer to Note 7.

Includes bank premises and equipment of $38 classified as held for sale. For more information refer to Note 7.

					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
Noninterest income:
Service charges on deposits		71	67	-	-	-	-	138
Wealth and asset management revenue		1	35	-	99	(1)	(32)(a)	102
Corporate banking revenue		100	1	-	-	-	-	101
Card and processing revenue		14	64	-	1	-	-	79
Mortgage banking net revenue		-	2	61	-	-	-	63
Other noninterest income(b)		30	22	5	1	1,018	-	1,076
Securities gains, net - non-qualifying hedges on MSRs		-	-	2	-	-	-	2
Total noninterest income		216	191	68	101	1,017	(32)	1,561
Noninterest expense:
Salaries, wages and incentives		64	104	38	37	164	-	407
Employee benefits		7	22	8	5	35	-	77
Net occupancy expense		6	43	3	3	19	-	74
Technology and communications		2	1	-	-	59	-	62
Equipment expense		5	13	-	-	12	-	30
Card and processing expense		1	31	-	-	-	-	32
Other noninterest expense		256	205	52	66	(254)	(32)	293
Total noninterest expense		341	419	101	111	35	(32)	975
Income before income taxes		300	190	18	29	952	-	1,489
Applicable income tax expense		56	66	6	10	337	-	475
Net income		244	124	12	19	615	-	1,014
Total goodwill	$	613	1,655	-	155	-	-	2,423
Total assets	$	58,752	57,246	22,447	8,821	(5,002)(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 22.
• Includes bank premises and equipment of $36 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 nine months ended:
					Wealth	General
		Commercial	Branch	Consumer	and Asset	Corporate
September 30, 2018 ($ in millions)		Banking	Banking	Lending	Management	and Other	Eliminations	Total
Net interest income	$	1,273	1,490	178	134	(16)	-	3,059
Provision for (benefit from) loan and lease losses		(41)	124	30	8	21	-	142
Net interest income after provision for loan and lease losses		1,314	1,366	148	126	(37)	-	2,917
Noninterest income:
Service charges on deposits		207	205	-	1	1	-	414
Wealth and asset management revenue		3	113	-	324	(1)	(104)(a)	335
Corporate banking revenue		304 (c)	4	-	1	(1)	-	308
Card and processing revenue		42	199	-	4	-	-	245
Mortgage banking net revenue		-	4	153	1	-	-	158
Other noninterest income(b)		125	33	11	13	612	-	794
Securities losses, net		-	-	-	-	(21)	-	(21)
Securities losses, net - non-qualifying hedges on MSRs		-	-	(18)	-	-	-	(18)
Total noninterest income		681	558	146	344	590	(104)	2,215
Noninterest expense:
Salaries, wages and incentives		214	329	120	131	545	-	1,339
Employee benefits		36	75	28	23	108	-	270
Net occupancy expense		20	131	8	9	51	-	219
Technology and communications		6	4	3	1	192	-	206
Equipment expense		18	37	-	-	37	-	92
Card and processing expense		3	89	-	-	(1)	-	91
Other noninterest expense		792	638	151	217	(821)	(104)	873
Total noninterest expense		1,089	1,303	310	381	111	(104)	3,090
Income (loss) before income taxes		906	621	(16)	89	442	-	2,042
Applicable income tax expense (benefit)		63	131	(3)	19	111	-	321
Net income (loss)		843	490	(13)	70	331	-	1,721
Total goodwill	$	630	1,655	-	177	-	-	2,462
Total assets	$	60,135	60,222	22,188	9,171	(10,031)(d)	-	141,685

• Revenue sharing agreements between wealth and asset management and branch banking are eliminated in the Condensed Consolidated Statements of Income.
• Includes impairment charges of $41for branches and land. For more information refer to Note 7 and Note 22.
• Includes impairment charges of $2for operating lease equipment. For more information refer to Note 22.
• Includes bank premises and equipment of $38 classified as held for sale. For more information refer to Note 7.

					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
Service charges on deposits		217	196	-	1	1	-	415
Wealth and asset management revenue		2	106	-	304	-	(99)(a)	313
Corporate banking revenue		272 (c)	4	-	1	(1)	-	276
Card and processing revenue		43	185	-	4	-	-	232
Mortgage banking net revenue		-	5	164	1	-	-	170
Other noninterest income(b)		111	67	14	1	1,044	-	1,237
Securities gains, net		-	-	-	-	1	-	1
Securities gains, net - non-qualifying hedges on MSRs		-	-	4	-	-	-	4
Total noninterest income		645	563	182	312	1,045	(99)	2,648
Noninterest expense
Salaries, wages and incentives		191	312	113	114	485	-	1,215
Employee benefits		34	75	29	22	114	-	274
Net occupancy expense		20	133	8	8	52	-	221
Technology and communications		7	3	2	-	165	-	177
Equipment expense		14	39	-	-	35	-	88
Card and processing expense		2	93	-	-	-	-	95
Other noninterest expense		763	592	161	201	(770)	(99)	848
Total noninterest expense		1,031	1,247	313	345	81	(99)	2,918
Income before income taxes		850	521	18	79	911	-	2,379
Applicable income tax expense		152	183	7	27	325	-	694
Net income		698	338	11	52	586	-	1,685
Total goodwill	$	613	1,655	-	155	-	-	2,423
Total assets	$	58,752	57,246	22,447	8,821	(5,002)(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 7 and Note 22.
• Includes impairment charges of $31 for operating lease equipment. For more information refer to Note 22.
• Includes bank premises and equipment of $36 classified as held for sale. For more information refer to Note 7.