Business Segments

6 Months Ended

Jun. 30, 2019

Segment Reporting

Business Segments

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
June 30, 2019 ($ in millions)		Banking	Banking	Lending	Management	and Other	Eliminations	Total
Net interest income	$	629	620	83	48	(135)	-	1,245
Provision for (benefit from) credit losses		25	55	7	-	(2)	-	85
Net interest income after provision for credit losses		604	565	76	48	(133)	-	1,160
Noninterest income:
Service charges on deposits		82	63	-	-	(2)	-	143
Corporate banking revenue		135	1	-	-	1	-	137
Wealth and asset management revenue		1	40	-	117	-	(36(a))	122
Card and processing revenue		18	73	-	1	-	-	92
Mortgage banking net revenue		-	1	62	-	-	-	63
Other noninterest income(b)		65	24	3	-	1	-	93
Securities gains, net		-	-	-	-	8	-	8
Securities gains, net - non-qualifying hedges on MSRs		-	-	2	-	-	-	2
Total noninterest income		301	202	67	118	8	(36)	660
Noninterest expense:
Salaries, wages and incentives		105	123	42	49	225	-	544
Employee benefits		14	29	10	8	36	-	97
Technology and communications		3	1	2	-	130	-	136
Net occupancy expense		7	43	3	3	32	-	88
Card and processing expense		2	32	-	-	-	-	34
Equipment expense		6	12	-	-	15	-	33
Other noninterest expense		283	227	61	75	(299)	(36)	311
Total noninterest expense		420	467	118	135	139	(36)	1,243
Income (loss) before income taxes		485	300	25	31	(264)	-	577
Applicable income tax expense (benefit)		90	63	5	7	(41)	-	124
Net income (loss)		395	237	20	24	(223)	-	453
Total goodwill	$	630	1,655	-	190	1,809(d)	-	4,284
Total assets	$	74,033	69,577	25,506	9,841	(10,155(c))	-	168,802

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 8 and Note 25.Includes bank premises and equipment of $70 classified as held for sale. For more information refer to Note 8.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 June 30, 2019.

						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) credit losses			(10)	47	8	(11)	(20)	-	14
Net interest income after provision for credit losses			437	452	51	56	10	-	1,006
Noninterest income:
Service charges on deposits			70	67	-	-	-	-	137
Corporate banking revenue			119	1	-	-	-	-	120
Wealth and asset management revenue			1	37	-	104	-	(34(a))	108
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
Technology and communications			2	1	1	-	63	-	67
Net occupancy expense			6	44	3	3	18	-	74
Card and processing expense			1	30	-	-	(1)	-	30
Equipment expense			6	12	-	-	12	-	30
Other noninterest expense			208	208	51	70	(252)	(34)	251
Total noninterest expense			303	432	107	123	70	(34)	1,001
Income (loss) before income taxes			363	187	(4)	42	160	-	748
Applicable income tax expense (benefit)			58	40	(1)	9	40	-	146
Net income (loss)			305	147	(3)	33	120	-	602
Total goodwill		$	630	1,655	-	177	-	-	2,462
Total assets		$	58,663	60,281	22,128	9,270	(9,747(c))	-	140,595
(a)	Revenue sharing agreements between wealth and asset management and branch banking are eliminated in the Condensed Consolidated Statements of Income.
(b)	Includes impairment charges of $33 for branches and land. For more information refer to Note 8 and Note 25.
(c)	Includes bank premises and equipment of $37 classified as held for sale. For more information refer to Note 8.

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, 2019 ($ in millions)		Banking	Banking	Lending	Management	and Other	Eliminations	Total
Net interest income	$	1,138	1,204	146	97	(258)	-	2,327
Provision for credit losses		46	107	20	-	2	-	175
Net interest income after provision for credit losses		1,092	1,097	126	97	(260)	-	2,152
Noninterest income:
Service charges on deposits		149	127	-	-	(2)	-	274
Corporate banking revenue		247	2	-	-	-	-	249
Wealth and asset management revenue		1	76	-	226	-	(69(a))	234
Card and processing revenue		32	137	-	2	-	-	171
Mortgage banking net revenue		-	2	117	-	-	-	119
Other noninterest income(b)		98	42	7	5	532	-	684
Securities gains, net		-	-	-	-	25	-	25
Securities gains, net - non-qualifying hedges on MSRs		-	-	5	-	-	-	5
Total noninterest income		527	386	129	233	555	(69)	1,761
Noninterest expense:
Salaries, wages and incentives		191	237	77	94	424	-	1,023
Employee benefits		36	58	20	19	95	-	228
Technology and communications		5	2	4	1	207	-	219
Net occupancy expense		14	86	5	7	52	-	164
Card and processing expense		4	61	-	-	(1)	-	64
Equipment expense		12	24	-	-	27	-	63
Other noninterest expense		514	439	114	146	(564)	(69)	580
Total noninterest expense		776	907	220	267	240	(69)	2,341
Income before income taxes		843	576	35	63	55	-	1,572
Applicable income tax expense		156	121	7	14	46	-	344
Net income		687	455	28	49	9	-	1,228
Total goodwill	$	630	1,655	-	190	1,809(d)	-	4,284
Total assets	$	74,033	69,577	25,506	9,841	(10,155(c))	-	168,802

Revenue sharing agreements between wealth and asset management and branch banking are eliminated in the Condensed Consolidated Statements of Income.Includes impairment charges of $22 for branches and land. For more information refer to Note 8 and Note 25.Includes bank premises and equipment of $70 classified as held for sale. For more information refer to Note 8.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 June 30, 2019.

						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) credit losses			(29)	90	20	5	(59)	-	27
Net interest income after provision for credit losses			875	875	98	83	58	-	1,989
Total noninterest income
Service charges on deposits			139	134	-	1	1	-	275
Corporate banking revenue			205(c)	2	-	1	-	-	208
Wealth and asset management revenue			2	74	-	214	-	(69(a))	221
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
Technology and communications			4	3	2	-	126	-	135
Net occupancy expense			13	88	5	6	37	-	149
Card and processing expense			2	59	-	-	(1)	-	60
Equipment expense			11	25	-	-	25	-	61
Other noninterest expense			444	423	102	144	(544)	(69)	500
Total noninterest expense			642	871	211	254	102	(69)	2,011
Income (loss) before income taxes			680	357	(17)	56	554	-	1,630
Applicable income tax expense (benefit)			120	75	(3)	12	123	-	327
Net income (loss)			560	282	(14)	44	431	-	1,303
Total goodwill		$	630	1,655	-	177	-	-	2,462
Total assets		$	58,663	60,281	22,128	9,270	(9,747(d))	-	140,595
(a)	Revenue sharing agreements between wealth and asset management and branch banking are eliminated in the Condensed Consolidated Statements of Income.
(b)	Includes impairment charges of $41 for branches and land. For more information refer to Note 8 and Note 25.
(c)	Includes impairment charges of $2 for operating lease equipment. For more information refer to Note 25.
(d)	Includes bank premises and equipment of $37 classified as held for sale. For more information refer to Note 8.