Business Segments

3 Months Ended

Mar. 31, 2019

26. 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, 2019 to reflect the current market rates and updated market assumptions. These rates were generally higher than those in place during 2018, thus net interest income for deposit-providing business segments was positively impacted during 2019. 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 2019.

The Bancorp’s methodology for allocating provision for credit 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 credit 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 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 1,207 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, specialty 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, automobile dealers, motorcycle dealers, powersport dealers, recreational vehicle dealers and marine 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 wealth management strategies to high net worth and ultra-high net worth clients through wealth planning, investment management, banking, insurance, trust and estate services. Fifth Third Institutional Services provides advisory services for institutional clients including middle market businesses, non-profits, 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, 2019 ($ in millions)		Banking	Banking	Lending	Management	and Other	Eliminations	Total
Net interest income	$	509	584	63	49	(123)	-	1,082
Provision for credit losses		20	52	13	-	5	-	90
Net interest income after provision for credit losses		489	532	50	49	(128)	-	992
Noninterest income:
Service charges on deposits		66	64	-	-	1	-	131
Wealth and asset management revenue		1	36	-	108	-	(33)^(a)	112
Corporate banking revenue		112	1	-	-	(1)	-	112
Card and processing revenue		15	63	-	1	-	-	79
Mortgage banking net revenue		-	1	55	-	-	-	56
Other noninterest income^(b)		33	18	3	5	533	-	592
Securities gains, net		-	-	-	-	16	-	16
Securities gains, net - non-qualifying hedges on MSRs		-	-	3	-	-	-	3
Total noninterest income		227	183	61	114	549	(33)	1,101
Noninterest expense:
Salaries, wages and incentives		87	114	35	45	198	-	479
Employee benefits		22	29	10	11	59	-	131
Technology and communications		2	1	2	-	78	-	83
Net occupancy expense		7	43	2	3	20	-	75
Card and processing expense		2	29	-	-	-	-	31
Equipment expense		6	12	-	-	12	-	30
Other noninterest expense		230	212	52	71	(264)	(33)	268
Total noninterest expense		356	440	101	130	103	(33)	1,097
Income before income taxes		360	275	10	33	318	-	996
Applicable income tax expense		66	58	2	7	88	-	221
Net income		294	217	8	26	230	-	775
Total goodwill	$	630	1,655	-	193	1,843 ^(d)	-	4,321
Total assets	$	74,377	69,599	24,662	9,916	(10,701)^(c)	-	167,853

Revenue sharing agreements between wealth and asset management and branch banking are eliminated in the Condensed Consolidated Statements of Income.
Includes impairment charges of $20 for branches and land. For more information refer to Note 8 and Note 25.
Includes bank premises and equipment of $78 classified as held for sale. For more information refer to Note 8.
Due to the timing of the MB Financial, Inc. acquisition, the Bancorp is in the process of completing its analysis of the allocation of the goodwill across its four business segments, therefore goodwill is presented as part of General Corporate and Other as of March 31, 2019.

					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) credit losses		(20)	44	12	16	(39)	-	13
Net interest income after provision for credit losses		439	422	47	27	48	-	983
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^(b)		49	15	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
Technology and communications		2	1	1	-	64	-	68
Net occupancy expense		7	43	3	3	19	-	75
Card and processing expense		1	29	-	-	(1)	-	29
Equipment expense		5	13	-	-	13	-	31
Other noninterest expense		235	215	52	74	(292)	(34)	250
Total noninterest expense		338	437	106	131	32	(34)	1,010
Income (loss) before income taxes		320	169	(13)	12	394	-	882
Applicable income tax expense (benefit)		64	35	(3)	3	82	-	181
Net income (loss)		256	134	(10)	9	312	-	701
Total goodwill	$	630	1,655	-	177	-	-	2,462
Total assets	$	58,712	60,197	22,384	10,611	(10,521)^(d)	-	141,383

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 8 and Note 25.
Includes impairment charges of $2 for operating lease equipment. For more information refer to Note 9.
Includes bank premises and equipment of $20 classified as held for sale. For more information refer to Note 8.