Business Segments

9 Months Ended

Sep. 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 1,143 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, automobile and other indirect lending activities. Residential mortgage activities within Consumer Lending include the origination, retention and servicing of residential mortgage loans, sales and securitizations of those loans, pools of loans and all associated hedging activities. Residential mortgages are primarily originated through a dedicated sales force and through third-party correspondent lenders. Automobile and other indirect lending activities include extending loans to consumers through 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
September 30, 2019 ($ in millions)		Banking	Banking	Lending	Management	and Other	Eliminations	Total
Net interest income	$	623	598	88	44	(111)	-	1,242
Provision for credit losses		54	58	14	-	8	-	134
Net interest income after provision for credit losses		569	540	74	44	(119)	-	1,108
Noninterest income:
Corporate banking revenue		167	1	-	-	-	-	168
Service charges on deposits		79	65	-	-	(1)	-	143
Wealth and asset management revenue		1	41	-	119	-	(37)(a)	124
Card and processing revenue		16	74	-	1	3	-	94
Mortgage banking net revenue		-	2	92	1	-	-	95
Other noninterest income(b)		72	21	4	4	10	-	111
Securities gains, net		-	-	-	-	5	-	5
Securities gains, net - non-qualifying hedges on MSRs		-	-	-	-	-	-	-
Total noninterest income		335	204	96	125	17	(37)	740
Noninterest expense:
Salaries, wages and incentives		107	122	39	45	184	-	497
Employee benefits		11	26	9	6	35	-	87
Technology and communications		3	1	2	-	94	-	100
Net occupancy expense		7	44	3	3	27	-	84
Card and processing expense		2	32	-	-	(1)	-	33
Equipment expense		7	12	-	-	14	-	33
Other noninterest expense		288	232	61	75	(294)	(37)	325
Total noninterest expense		425	469	114	129	59	(37)	1,159
Income (loss) before income taxes		479	275	56	40	(161)	-	689
Applicable income tax expense (benefit)		86	58	12	8	(24)	-	140
Net income (loss)		393	217	44	32	(137)	-	549
Total goodwill	$	1,982	2,054	-	254	-	-	4,290
Total assets	$	75,143	69,021	26,171	9,961	(9,217)(c)	-	171,079

Revenue sharing agreements between wealth and asset management and branch banking are eliminated in the Condensed Consolidated Statements of Income.Includes impairment charges of $5 for branches and land. For more information refer to Note 8 and Note 25.Includes bank premises and equipment of $87 classified as held for sale. For more information refer to Note 8.

						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) credit losses			(11)	34	10	3	48	-	84
Net interest income after provision for credit losses			438	491	50	43	(63)	-	959
Noninterest income:
Corporate banking revenue			100 (c)	1	-	-	(1)	-	100
Service charges on deposits			68	71	-	-	-	-	139
Wealth and asset management revenue			1	38	-	110	-	(35)(a)	114
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
Technology and communications			2	1	2	-	66	-	71
Net occupancy expense			6	44	3	3	14	-	70
Card and processing expense			2	30	-	-	(1)	-	31
Equipment expense			6	12	-	-	13	-	31
Other noninterest expense			212	215	49	73	(248)	(35)	266
Total noninterest expense			307	433	100	126	41	(35)	972
Income (loss) before income taxes			366	262	-	32	(110)	-	550
Applicable income tax expense (benefit)			65	55	-	7	(13)	-	114
Net income (loss)			301	207	-	25	(97)	-	436
Total goodwill		$	630	1,655	-	177	-	-	2,462
Total assets		$	60,040	60,222	22,188	9,171	(10,031)(b)	-	141,590
(a)	Revenue sharing agreements between wealth and asset management and branch banking are eliminated in the Condensed Consolidated Statements of Income.
(b)	Includes bank premises and equipment of $38 classified as held for sale. For more information refer to Note 8.
(c)	Includes impairment charges of $2 for operating lease equipment. For more information refer to Note 25.

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, 2019 ($ in millions)		Banking	Banking	Lending	Management	and Other	Eliminations	Total
Net interest income	$	1,761	1,802	234	141	(369)	-	3,569
Provision for credit losses		100	164	34	-	12	-	310
Net interest income after provision for credit losses		1,661	1,638	200	141	(381)	-	3,259
Noninterest income:
Corporate banking revenue		413	3	-	1	-	-	417
Service charges on deposits		227	191	-	1	(2)	-	417
Wealth and asset management revenue		2	117	-	345	-	(106)(a)	358
Card and processing revenue		49	212	-	2	3	-	266
Mortgage banking net revenue		-	4	209	1	-	-	214
Other noninterest income(b)		170	63	10	9	542	-	794
Securities gains, net		-	-	-	-	30	-	30
Securities gains, net - non-qualifying hedges on MSRs		-	-	5	-	-	-	5
Total noninterest income		861	590	224	359	573	(106)	2,501
Noninterest expense:
Salaries, wages and incentives		299	360	117	140	611	-	1,527
Employee benefits		47	84	29	25	131	-	316
Technology and communications		8	3	6	1	301	-	319
Net occupancy expense		21	130	8	10	79	-	248
Card and processing expense		6	92	-	1	(1)	-	98
Equipment expense		18	35	-	1	42	-	96
Other noninterest expense		799	671	175	219	(863)	(106)	895
Total noninterest expense		1,198	1,375	335	397	300	(106)	3,499
Income (loss) before income taxes		1,324	853	89	103	(108)	-	2,261
Applicable income tax expense		242	179	19	22	21	-	483
Net income (loss)		1,082	674	70	81	(129)	-	1,778
Total goodwill	$	1,982	2,054	-	254	-	-	4,290
Total assets	$	75,143	69,021	26,171	9,961	(9,217)(c)	-	171,079

Revenue sharing agreements between wealth and asset management and branch banking are eliminated in the Condensed Consolidated Statements of Income.Includes impairment charges of $27 for branches and land. For more information refer to Note 8 and Note 25.Includes bank premises and equipment of $87 classified as held for sale. For more information refer to Note 8.

						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) credit losses			(41)	124	30	8	(10)	-	111
Net interest income after provision for credit losses			1,314	1,366	148	126	(6)	-	2,948
Total noninterest income
Corporate banking revenue			304 (c)	4	-	1	(1)	-	308
Service charges on deposits			207	205	-	1	1	-	414
Wealth and asset management revenue			3	113	-	324	(1)	(104)(a)	335
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
Technology and communications			6	4	3	1	192	-	206
Net occupancy expense			20	131	8	9	51	-	219
Card and processing expense			3	89	-	-	(1)	-	91
Equipment expense			18	37	-	-	37	-	92
Other noninterest expense			652	638	151	217	(787)	(104)	767
Total noninterest expense			949	1,303	310	381	145	(104)	2,984
Income (loss) before income taxes			1,046	621	(16)	89	439	-	2,179
Applicable income tax expense (benefit)			184	131	(3)	19	111	-	442
Net income (loss)			862	490	(13)	70	328	-	1,737
Total goodwill		$	630	1,655	-	177	-	-	2,462
Total assets		$	60,040	60,222	22,188	9,171	(10,031)(d)	-	141,590
(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 $4 for operating lease equipment. For more information refer to Note 25.
(d)	Includes bank premises and equipment of $38 classified as held for sale. For more information refer to Note 8.