Business Segments

12 Months Ended

Dec. 31, 2019

Business Segments

Business Segments

32. 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 1,149 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 years ended December 31:​​​​​​​

2019 ($ in millions)	Commercial Banking		Branch   Banking		Consumer Lending		Wealth and Asset Management		General Corporate and Other			Eliminations			Total
Net interest income	$	2,360		2,371		325		182		(441	)		-			4,797
Provision for credit losses		183		224		49		-		15			-			471
Net interest income after provision for credit losses		2,177		2,147		276		182		(456	)		-			4,326
Noninterest income:
Corporate banking revenue		565(c)		4		-		1		-			-			570
Service charges on deposits		308		260		-		1		(4	)		-			565
Wealth and asset management revenue		3		158		-		469		-			(143)(a)			487
Card and processing revenue		66		285		-		3		6			-			360
Mortgage banking net revenue		-		6		279		2		-			-			287
Other noninterest income(b)		245		89		14		13		863			-			1,224
Securities gains, net		-		-		-		-		40			-			40
Securities gains, net - non-qualifying hedges on MSRs		-		-		3		-		-			-			3
Total noninterest income		1,187		802		296		489		905			(143	)		3,536
Noninterest expense:
Salaries, wages and incentives		406		489		158		185		763			-			2,001
Employee benefits		60		112		38		32		175			-			417
Technology and communications		11		4		8		1		398			-			422
Net occupancy expense(e)		28		173		10		13		108			-			332
Card and processing expense		8		123		-		1		(2	)		-			130
Equipment expense		25		48		-		1		55			-			129
Other noninterest expense		1,083		911		241		296		(1,159	)		(143	)		1,229
Total noninterest expense		1,621		1,860		455		529		338			(143	)		4,660
Income before income taxes		1,743		1,089		117		142		111			-			3,202
Applicable income tax expense		319		229		25		30		87			-			690
Net income		1,424		860		92		112		24			-			2,512
Total goodwill	$	1,954		2,046		-		252		-			-			4,252
Total assets	$	74,570		69,413		26,555		10,500		(11,669)(d)			-			169,369

(a) Revenue sharing agreements between wealth and asset management and branch banking are eliminated in the Consolidated Statements of Income. 

(b) Includes impairment charges of $28 for branches and land. For more information, refer to Note 8 and Note 29. 

(c) Includes impairment charges of $3 for operating lease equipment. For more information, refer to Note 9 and Note 29. 

(d) Includes bank premises and equipment of $27 classified as held for sale. For more information, refer to Note 8. 

(e) Includes impairment losses and termination charges of $15 for ROU assets related to certain operating leases. For more information, refer to Note 10. 

2018 ($ in millions)	Commercial Banking			Branch   Banking		Consumer Lending			Wealth and Asset Management		General Corporate and Other			Eliminations			Total
Net interest income	$	1,713			2,034		237			182		(26	)		-			4,140
Provision for (benefit from) credit losses		(26	)		171		42			12		8			-			207
Net interest income after provision for credit losses		1,739			1,863		195			170		(34	)		-			3,933
Noninterest income:
Corporate banking revenue		432(c)			5		-			2		(1	)		-			438
Service charges on deposits		273			275		-			1		-			-			549
Wealth and asset management revenue		3			150		-			429		-			(138)(a)			444
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
Technology and communications		7			5		5			1		267			-			285
Net occupancy expense		26			175		10			12		69			-			292
Card and processing expense		4			121		-			-		(2	)		-			123
Equipment expense		23			50		-			1		49			-			123
Other noninterest expense		859			841		195			288		(1,025	)		(138	)		1,020
Total noninterest expense		1,263			1,728		402			504		199			(138	)		3,958
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)(d)			-			146,069

(a) Revenue sharing agreements between wealth and asset management and branch banking are eliminated in the Consolidated Statements of Income.

(b) Includes impairment charges of $45 for branches and land. For more information, refer to Note 8 and Note 29.

(c) Includes impairment charges of $4 for operating lease equipment. For more information, refer to Note 9 and Note 29.

(d) Includes bank premises and equipment of $42 classified as held for sale. For more information, refer to Note 8.

2017 ($ in millions)	Commercial Banking		Branch   Banking		Consumer Lending		Wealth and Asset Management		General Corporate and Other			Eliminations			Total
Net interest income	$	1,652		1,782		240		154		(30	)		-			3,798
Provision for credit losses		38		153		40		6		24			-			261
Net interest income after provision for credit losses		1,614		1,629		200		148		(54	)		-			3,537
Noninterest income:
Corporate banking revenue		348(c)		5		-		1		(1	)		-			353
Service charges on deposits		287		265		-		1		1			-			554
Wealth and asset management revenue		3		141		-		407		-			(132)(a)			419
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
Technology and communications		9		4		2		-		230			-			245
Net occupancy expense		26		176		10		11		72			-			295
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

(a) Revenue sharing agreements between wealth and asset management and branch banking are eliminated in the Consolidated Statements of Income.

(b) Includes impairment charges of $7 for branches and land. For more information, refer to Note 8.

(c) Includes impairment charges of $52 for operating lease equipment. For more information, refer to Note 9.

(d) Includes bank premises and equipment of $27 classified as held for sale.