Related Party Transactions

12 Months Ended

Dec. 31, 2018

18. RELATED PARTY TRANSACTIONS

The Bancorp maintains written policies and procedures covering related party transactions with principal shareholders, directors and executives of the Bancorp. These procedures cover transactions such as employee-stock purchase loans, personal lines of credit, residential secured loans, overdrafts, letters of credit and increases in indebtedness. Such transactions are subject to the Bancorp’s normal underwriting and approval procedures. Prior to approving a loan to a related party, Compliance Risk Management must review and determine whether the transaction requires approval from or a post notification to the Bancorp’s Board of Directors. At December 31, 2018 and 2017, certain directors, executive officers, principal holders of Bancorp common stock and their related interests were indebted, including undrawn commitments to lend, to the Bancorp’s banking subsidiary.

The following table summarizes the Bancorp’s lending activities with its principal shareholders, directors, executives and their related interests at December 31:

($ in millions)		2018	2017
Commitments to lend, net of participations:
Directors and their affiliated companies	$	700	546
Executive officers		6	6
Total	$	706	552

Outstanding balance on loans, net of participations and undrawn commitments	$	10	20

The commitments to lend are in the form of loans and guarantees for various business and personal interests. This indebtedness was incurred in the ordinary course of business on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with unrelated parties. This indebtedness does not involve more than the normal risk of repayment or present other features unfavorable to the Bancorp.

Worldpay, Inc. and Worldpay Holding, LLC

On June 30, 2009, the Bancorp completed the sale of a majority interest in its processing business, Vantiv Holding, LLC (now Worldpay Holding, LLC). Advent International acquired an approximate 51% interest in Worldpay Holding, LLC for cash and a warrant. The Bancorp retained the remaining approximate 49% interest in Worldpay Holding, LLC.

During the first quarter of 2012, Vantiv, Inc. (now Worldpay, Inc.) priced an IPO of its shares and contributed the net proceeds to Worldpay Holding, LLC for additional ownership interests. As a result of this offering, the Bancorp’s ownership of Worldpay Holding, LLC was reduced to approximately 39%. The impact of the capital contributions to Worldpay Holding, LLC and the resulting dilution in the Bancorp’s interest resulted in a gain of $115 million recognized by the Bancorp in the first quarter of 2012.

The Bancorp agreed during the fourth quarter of 2015 to cancel rights to purchase approximately 4.8 million Class C Units in Worldpay Holding, LLC, the wholly-owned principal operating subsidiary of Worldpay, Inc., underlying the warrant in exchange for a cash payment of $200 million. Subsequent to this cancellation, the Bancorp exercised its right to purchase approximately 7.8 million Class C Units underlying the warrant at the $15.98 strike price. This exercise was settled on a net basis for approximately 5.4 million Class C Units, which were then exchanged for approximately 5.4 million shares of Worldpay, Inc. Class A Common Stock that were sold in the secondary offering. The Bancorp recognized a gain of $89 million in other noninterest income on the 62% of the warrant that was settled or net exercised. Additionally, during the fourth quarter of 2015, the Bancorp exchanged 8 million Class B Units of Worldpay Holding, LLC for 8 million Class A Shares in Worldpay, Inc., which were also sold in the secondary offering and on which the Bancorp recognized a gain of $331 million in other noninterest income.

During the fourth quarter of 2016, the Bancorp exercised its right to purchase approximately 7.8 million Class C Units underlying the warrant at the $15.98 strike price. This exercise was settled on a net basis for approximately 5.7 million Class C Units, which were then exchanged for approximately 5.7 million shares of Worldpay, Inc. Class A Common Stock of which 4.8 million shares were sold in a secondary offering and 0.9 million shares were repurchased by Worldpay, Inc. The Bancorp recognized a gain of $9 million in other noninterest income in the Consolidated Statements of Income in 2016 on the exercise of the remaining warrant in Worldpay Holding, LLC.

During the third quarter of 2017, the Bancorp and Fifth Third Bank entered into a transaction agreement with Worldpay, Inc. and Worldpay Holding, LLC under which Fifth Third Bank agreed to exercise its right to exchange 19.79 million of its Class B Units in Worldpay Holding, LLC for 19.79 million shares of Worldpay, Inc.’s Class A Common Stock and Worldpay, Inc. agreed to repurchase the newly issued shares of Class A Common Stock upon issue directly from Fifth Third Bank at a price of $64.04 per share, the closing share price of the Class A Common Stock on the New York Stock Exchange on August 4, 2017. As a result of these transactions, the Bancorp recognized a gain of approximately $1.0 billion in other noninterest income in the Consolidated Statements of Income during the third quarter of 2017.

On January 16, 2018, Worldpay, Inc. completed its previously announced acquisition of Worldpay Group plc. with the resulting combined company named Worldpay, Inc. As a result of this transaction, the Bancorp recognized a gain of $414 million in other noninterest income in the Consolidated Statements of Income during the first quarter of 2018 associated with the dilution in its ownership interest in Worldpay Holding, LLC from approximately 8.6% to approximately 4.9%.

On June 27, 2018, the Bancorp completed the sale of 5 million shares of Class A common stock of Worldpay, Inc. The Bancorp had previously received these Class A shares in exchange for Class B Units of Worldpay Holding, LLC. The Bancorp recognized a gain of $205 million in other noninterest income in the Consolidated Statements of Income related to the sale.

The following table provides a summary of the transactions that impacted the Bancorp's ownership interest in Worldpay Holding, LLC after the initial IPO:

			Remaining Ownership
($ in millions)		Gain on Transactions	Percentage^(a)
Q4 2012	$	157	33.1	%
Q2 2013		242	27.7
Q3 2013		85	25.1
Q2 2014		125	22.8
Q4 2015		331	18.3
Q3 2017		1,037	8.6
Q1 2018		414	4.9
Q2 2018		205	3.3

(a) The Bancorp’s remaining investment in Worldpay Holding, LLC of $420 as of December 31, 2018 was accounted for as an equity method investment in the Bancorp’s Consolidated Financial Statements.

As of December 31, 2018, the Bancorp continued to hold approximately 10.3 million Class B Units of Worldpay Holding, LLC which may be exchanged for Class A Common Stock of Worldpay, Inc., on a one-for-one basis or at Worldpay, Inc.’s option for cash which represented approximately 3.3% ownership of Worldpay Holding, LLC as of December 31, 2018. In addition, the Bancorp holds approximately 10.3 million Class B Common Shares of Worldpay, Inc. which give the Bancorp voting rights, but no economic interest in Worldpay, Inc. These securities are subject to certain terms and restrictions.

The Bancorp recognized $1 million, $47 million and $66 million, respectively, in other noninterest income as part of its equity method investment in Worldpay Holding, LLC for the years ended December 31, 2018, 2017 and 2016 and received cash distributions totaling $3 million, $19 million and $9 million during the years ended December 31, 2018, 2017 and 2016, respectively. Given the nature of Worldpay Holding, LLC’s structure as a limited liability company and contractual arrangements with Worldpay Holding, LLC, the Bancorp’s remaining investment in Worldpay Holding, LLC continues to be accounted for under the equity method of accounting as of December 31, 2018.

During the fourth quarter of 2015, the Bancorp entered into an agreement with Worldpay, Inc. under which a portion of its TRA with Worldpay, Inc. was terminated and settled in full for a cash payment of approximately $49 million from Worldpay, Inc. Under the agreement, the Bancorp sold certain TRA cash flows it expected to receive from 2017 to 2030, totaling to a then estimated $140 million. Approximately half of the sold TRA cash flows related to 2025 and later. This sale did not impact the TRA payment recognized during the fourth quarter of 2015.

During the third quarter of 2016, the Bancorp entered into an agreement with Worldpay, Inc. under which a portion of its TRA with Worldpay, Inc. was terminated and settled in full for consideration of a cash payment in the amount of $116 million from Worldpay, Inc. Under the agreement, the Bancorp terminated and settled certain TRA cash flows it expected to receive in the years 2019 to 2035, totaling to a then estimated $331 million. The Bancorp recognized a gain of $116 million in other noninterest income in the Consolidated Statements of Income from this settlement. Additionally, the agreement provides that Worldpay, Inc. may be obligated to pay up to a total of approximately $171 million to the Bancorp to terminate and settle certain remaining TRA cash flows, totaling to a then estimated $394 million, upon the exercise of certain call options by Worldpay, Inc. or certain put options by the Bancorp. In 2016, the Bancorp recognized a gain of $164 million in other noninterest income in the Consolidated Statements of Income associated with these options. The Bancorp received $63 million and $108 million in settlement for the call options and put options exercised during 2017 and 2018, respectively. As of December 31, 2018, there are no remaining call options or put options. This agreement did not impact the TRA payment recognized in the fourth quarter of 2017.

In addition to the impact of the TRA terminations discussed above, the Bancorp recognized $20 million, $44 million and $33 million in other noninterest income in the Consolidated Statements of Income associated with the TRA during the years ended December 31, 2018, 2017 and 2016, respectively.

The following table provides the estimated cash flows to be received as of December 31, 2018 associated with the TRA for the years ending December 31, 2019 and thereafter:

		Estimated Cash Flows to
		be Received not Subject
($ in millions)		to Put/Call Option^(a)(b)
2019		20
2020		29
2021		32
2022		33
2023		33
2024		34
2025		35
2026		36
Thereafter		357
Total	$	609

(a) The 2019 cash flow of $20 has been agreed upon with Worldpay, Inc., for settlement in January 2019 and was recognized as a gain in other noninterest income during the fourth quarter of 2018. The remaining estimated cash flows in this column (which include TRA benefits associated with the net exercise of the warrant in 2016, the subsequent exchange of Worldpay Holding, LLC units in the third quarter of 2017 and the subsequent exchange of Worldpay Holding, LLC units in the second quarter of 2018) will be recognized in future periods when the related uncertainties are resolved.

(b) The estimated cash flows assume that Worldpay, Inc. has sufficient taxable income to utilize the tax deductions associated with the TRA.

The Bancorp and Worldpay Holding, LLC have various agreements in place covering services relating to the operations of Worldpay Holding, LLC. The services provided by the Bancorp to Worldpay Holding, LLC were initially required to support Worldpay Holding, LLC as a standalone entity during the deconversion period. The majority of services previously provided by the Bancorp to support Worldpay Holding, Inc. as a standalone entity are no longer necessary and are now limited to certain general business resources. Worldpay Holding, LLC paid the Bancorp $1 million for these services for each of the years ended December 31, 2018, 2017 and 2016. Other services provided to Worldpay Holding, LLC by the Bancorp, have continued beyond the deconversion period, include interchange clearing, settlement and sponsorship. Worldpay Holding, LLC paid the Bancorp $75 million, $68 million and $58 million for these services for the years ended December 31, 2018, 2017 and 2016, respectively. In addition to the previously mentioned services, the Bancorp previously entered into an agreement under which Worldpay Holding, LLC will provide processing services to the Bancorp. The total amount of fees relating to the processing services provided to the Bancorp by Worldpay Holding, LLC totaled $74 million, $72 million and $76 million for the years ended December 31, 2018, 2017 and 2016, respectively. These fees are primarily reported as a component of card and processing expense in the Consolidated Statements of Income.

As part of the initial sale, Worldpay Holding, LLC assumed loans totaling $1.25 billion owed to the Bancorp, which were refinanced in 2010 into a larger syndicated loan structure that included the Bancorp. The outstanding carrying value of loans to Worldpay Holding, LLC was $187 million and $203 million at December 31, 2018 and 2017, respectively. Additionally, as of December 31, 2018 and 2017, the Bancorp had derivative assets of an immaterial amount and $2 million, respectively, related to interest rate contracts entered into with Worldpay Holding, LLC which are included in other assets on the Consolidated Balance Sheets. Interest income relating to the loans was $7 million, $5 million and $4 million for the years ended December 31, 2018, 2017 and 2016, respectively, and is included in interest and fees on loans and leases in the Consolidated Statements of Income. Worldpay Holding, LLC’s unused line of credit was $74 million and $4 million as of December 31, 2018 and 2017, respectively.

SLK Global Solutions Private Limited

As of December 31, 2018, the Bancorp owns 100% of Fifth Third Mauritius Holdings Limited, which owns 49% of SLK Global Solutions Private Limited, and accounts for this investment under the equity method of accounting. The Bancorp recognized $2 million and $3 million in other noninterest income in the Consolidated Statements of Income as part of its equity method investment in SLK Global Solutions Private Limited for the years ended December 31, 2018 and 2017, respectively. The Bancorp did not receive cash distributions during both the years ended December 31, 2018 and 2017. The Bancorp’s investment in SLK Global Solutions Private Limited was $23 million and $22 million at December 31, 2018 and 2017, respectively. The Bancorp paid SLK Global Solutions Private Limited $21 million, $21 million and $20 million for their process and software services during the years ended December 31, 2018, 2017 and 2016, respectively, which are included other noninterest expense in the Consolidated Statements of Income.

CDC Investments

The Bancorp’s subsidiary, CDC, has equity investments in entities in which the Bancorp had $83 million of loans outstanding at both December 31, 2018 and 2017, and unfunded commitment balances of $80 million at both December 31, 2018 and 2017. The Bancorp held $77 million and $26 million of deposits for these entities at December 31, 2018 and 2017, respectively. For further information on CDC investments, refer to Note 10.