Business Segments

12 Months Ended

Dec. 31, 2018

29. 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 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 years ended December 31, 2017 and 2016 were adjusted to reflect changes in internal expense allocation methodologies as well as a change in accounting policy for qualifying LIHTC investments.

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 1,121 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 four main businesses: FTS, an indirect wholly-owned subsidiary of the Bancorp; Fifth Third Insurance Agency; 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. Fifth Third Insurance Agency 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
2018 ($ in millions)		Banking	Banking	Lending	Management	and Other	Eliminations	Total
Net interest income	$	1,713	2,034	237	182	(26)	-	4,140
Provision for (benefit from) loan and lease losses		(26)	171	42	12	38	-	237
Net interest income after provision for loan and lease losses		1,739	1,863	195	170	(64)	-	3,903
Noninterest income:
Service charges on deposits		273	275	-	1	-	-	549
Wealth and asset management revenue		3	150	-	429	-	(138)^(a)	444
Corporate banking revenue		432	5	-	2	(1)	-	438
Card and processing revenue		58	266	-	5	-	-	329
Mortgage banking net revenue		-	5	206	1	-	-	212
Other noninterest income^(b)		151	53	14	18	651	-	887
Securities losses, net		-	-	-	-	(54)	-	(54)
Securities losses, net - non-qualifying hedges on MSRs		-	-	(15)	-	-	-	(15)
Total noninterest income		917	754	205	456	596	(138)	2,790
Noninterest expense:
Salaries, wages and incentives		300	438	156	173	716	-	1,783
Employee benefits		44	98	36	29	125	-	332
Net occupancy expense		26	175	10	12	69	-	292
Technology and communications		7	5	5	1	267	-	285
Card and processing expense		4	121	-	-	(2)	-	123
Equipment expense		23	50	-	1	49	-	123
Other noninterest expense		859	841	195	288	(1,055)	(138)	990
Total noninterest expense		1,263	1,728	402	504	169	(138)	3,928
Income (loss) before income taxes		1,393	889	(2)	122	363	-	2,765
Applicable income tax expense (benefit)		254	187	(1)	25	107	-	572
Net income (loss)		1,139	702	(1)	97	256	-	2,193
Total goodwill	$	630	1,655	-	193	-	-	2,478
Total assets	$	61,630	61,040	22,044	10,337	(8,982)^(c)	-	146,069

Revenue sharing agreements between wealth and asset management and branch banking are eliminated in the Consolidated Statements of Income.
Includes impairment charges of $45 for branches and land. For more information refer to Note 7 and Note 26.
Includes bank premises and equipment of $42 classified as held for sale. For more information refer to Note 7.

					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
Noninterest income:
Service charges on deposits		287	265	-	1	1	-	554
Wealth and asset management revenue		3	141	-	407	-	(132)^(a)	419
Corporate banking revenue		348 ^(c)	5	-	1	(1)	-	353
Card and processing revenue		57	251	-	5	-	-	313
Mortgage banking net revenue		-	6	217	1	-	-	224
Other noninterest income^(b)		143	88	18	4	1,104	-	1,357
Securities gains, net		-	-	-	-	2	-	2
Securities gains, net - non-qualifying hedges on MSRs		-	-	2	-	-	-	2
Total noninterest income		838	756	237	419	1,106	(132)	3,224
Noninterest expense:
Salaries, wages and incentives		252	425	152	154	650	-	1,633
Employee benefits		42	101	37	27	149	-	356
Net occupancy expense		26	176	10	11	72	-	295
Technology and communications		9	4	2	-	230	-	245
Card and processing expense		3	127	-	-	(1)	-	129
Equipment expense		18	52	-	-	47	-	117
Other noninterest expense		884	796	210	276	(1,027)	(132)	1,007
Total noninterest expense		1,234	1,681	411	468	120	(132)	3,782
Income before income taxes		1,218	704	26	99	932	-	2,979
Applicable income tax expense		391	249	9	34	116	-	799
Net income		827	455	17	65	816	-	2,180
Total goodwill	$	613	1,655	-	177	-	-	2,445
Total assets	$	58,456	57,931	22,218	9,494	(6,018)^(d)	-	142,081

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 26.
Includes impairment charges of $52 for operating lease equipment. For more information refer to Note 26.
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
Noninterest income:
Service charges on deposits		292	265	-	2	(1)	-	558
Wealth and asset management revenue		4	140	-	391	-	(131)^(a)	404
Corporate banking revenue		430 ^(c)	5	-	-	(3)	-	432
Card and processing revenue		62	253	-	4	-	-	319
Mortgage banking net revenue		-	7	277	1	-	-	285
Other noninterest income^(b)		119	85	26	1	457	-	688
Securities gains, net		-	-	-	-	10	-	10
Total noninterest income		907	755	303	399	463	(131)	2,696
Noninterest expense:
Salaries, wages and incentives		254	419	158	142	639	-	1,612
Employee benefits		42	101	37	26	133	-	339
Net occupancy expense		26	178	10	10	75	-	299
Technology and communications		13	3	1	-	217	-	234
Card and processing expense		4	128	-	-	-	-	132
Equipment expense		16	56	-	-	46	-	118
Other noninterest expense		873	798	224	254	(992)	(131)	1,026
Total noninterest expense		1,228	1,683	430	432	118	(131)	3,760
Income (loss) before income taxes		1,417	603	77	134	(23)	-	2,208
Applicable income tax expense (benefit)		403	213	27	48	(26)	-	665
Net income		1,014	390	50	86	3	-	1,543
Total goodwill	$	613	1,655	-	148	-	-	2,416
Total assets	$	57,995	55,979	22,041	9,494	(3,429)^(d)	-	142,080

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.
Includes impairment charges of $20 for operating lease equipment.
Includes bank premises and equipment of $39 classified as held for sale.