2 0 2 0 A N N U A L R E P O R T
D E A R S H A R E H O L D E R S :
For 162 years, spanning a Civil War, two world
wars, 34 recessions (including the Great
Depression), 10 banking crises, and two severe
global pandemics, Fifth Third Bank has stood
firmly with our customers, communities and
employees. We always rise to the occasion to
help others and be a source of value and trust,
especially in the most challenging times.
In that regard, this past year was no different—
we remain steadfast in our resolve to always
be a pillar of strength, guidance, and assistance
for all. Yet in virtually every other way, 2020 was
a unique and remarkably challenging year for
many people, forever redefined by the fallout
from the global COVID-19 pandemic that has
reshaped the way many Americans bank, shop,
work, communicate, and live. We have never
witnessed anything like this in our lifetimes,
and neither has our role as a business essential
to the economy been so evident.
With the economic
fallout and even
more devastating
health crisis, my
sincerest thoughts
are with the millions
who have been
affected by the
virus, including all
those who have lost
a loved one.
RISING TO THE
CHALLENGE
Several years of strong and steady financial
results, combined with a diversified mix of
fee revenues and a resilient balance sheet,
give us the strength and capacity to serve
our customers. As the pandemic began filling
hospitals, shutting down businesses, and
fundamentally changing life in the U.S. for
many in early 2020, we at Fifth Third took
proactive steps to continue to be there
for our customers, our employees, and
our communities.
GUIDANCE FOR OUR CUSTOMERS
For all of our customers, we were a leader
among our peers in offering hardship relief
programs, even before the federal government
implemented relief as part of the CARES Act.
The relief we provided customers was one
of the most valuable of assets—time—when,
virtually overnight, the unprecedented
economic sudden stop threatened the stability
of both companies and households. We have
provided various relief programs, including
payment deferrals, covenant waivers, and other
modifications in order to help our customers
bridge the challenges of the pandemic, in
2
0
2
0
H
I
G
H
L
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G
H
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S
*
NE T IN CO ME :
$1.4 BILLION
EA R NI NG S:
$1.83 PER DILUTED
SHARE
ASSETS:
$205 BILLION
CO RE D EPOS ITS :
$157 BILLION
CO MMO N DI V IDE NDS PER SHARE :
15% INCREASE
Greg D. Carmichael
Chairman and Chief Executive Officer,
Fifth Third Bancorp
addition to extending billions in total credit
between consumer and commercial clients
through 2020. Regulated banks like Fifth Third
provide stability not only on an individual
basis, but also on a macro level, acting as a
massive shock absorber for the entire system.
As bankers, we are proud that we fulfilled
this critical function to help stabilize the
broader economy.
Specifically, for our small and mid-sized business
customers, we take great pride in knowing
that Fifth Third has played an essential role by
our lending through the Paycheck Protection
Program (PPP) through last year and into 2021.
We have made a positive, direct, and significant
impact on nearly 40,000 businesses that has
protected approximately 605,000 jobs.
We have stood resolute with our customers in
order to help them get back on their feet, and
we will continue to be there for them as a caring
and trusted source of financial advice and capital.
Their need was not dependent on their size or
profitability, and neither was our service. As a
result, 85% of the PPP loans we originated were
less than $150,000.
Despite our balance sheet’s skew toward larger,
more resilient clients and our No. 53 SBA
ranking prior to the pandemic, we became the
No. 13 top PPP lender in 2020—a testament to
the success we had in providing our existing
customers with necessary funding and
financial assistance. Our dedication to helping
our customers through PPP lending has
continued into 2021 with the latest round
enacted in January. We are proud of the
significant role Fifth Third continues to play
in aiding small businesses throughout our
footprint and will work diligently to remain
a source of strength for our customers during
this challenging time.
It is important to note that we invested a
considerable amount of time, energy, and
expense in our technology division to help
our customers with the PPP process. These
investments include technology solutions that
help customers automate and streamline the
process and minimize the time from application
to funding, as well as helping clients with the
forgiveness process. I am proud of our efforts
to get it right for our customers in an efficient
and operationally sound manner.
Additionally, as we navigated the fallout from
COVID-19, we developed cross-functional
credit advisory forums in our Commercial
business. They included senior members in
credit risk, the line of business, and others
in the organization with in-depth industry
knowledge to drive consistent credit decisions
in a holistic manner, while also helping clients
find the right solutions for their circumstances.
*As of and for the year ended December 31, 2020
FIFTH THIRD BANCORP 2020 ANNUAL REPORT | 1
For our consumer customers, we directly
reached out to them by making over
3 million calls, proactively assessing their
financial and even personal well-being
throughout the pandemic.
As part of the CARES Act relief, we offered
hardship assistance when requested by the
customer, which was one of our many relief
programs. In addition to the accommodative
payment deferral programs I mentioned earlier,
ABOVE & BEYOND
A FIFTH THIRD BETTER®
In March 2020, employees at the
Fremont Banking Center in West Michigan
were making outbound calls to check
in with customers. As employees asked
if they could help in any way, one
customer, a 98-year-old woman, burst
into tears. She said she lived alone and
that her caregiver was unable to deliver
her groceries.
Employees at the banking center sprang
into action. They investigated solutions
only to learn that all resources were
too overwhelmed to respond quickly.
Employees pitched in their own money
and personal time to shop for groceries
and deliver supplies to the customer’s
home. They also provided a list of local
contact numbers that the customer
could call for help in the future.
This is stepping up and delivering a
customer experience above and beyond
a Fifth Third better.®
Congratulations to
Kyleigh Juska, Heather
Youngs, Briana Oatis,
and Jason Stalbaum
for being recognized
as Fifth Third 2020
Summit Award winners.
Nomination submitted
by Shawn Niehaus.
2
we also provided relief to our customers
by halting vehicle repossessions and home
foreclosure evictions and by waiving late fees
and overdraft charges. Since the inception of
our consumer hardship assistance programs, we
processed more than 150,000 hardship requests,
which represent approximately $3 billion in Fifth
Third loan balances in addition to approximately
$6 billion in our mortgage servicing portfolio.
Additionally, since the onset of the pandemic,
we have kept approximately 99% of our
branches open for business and fully
operational, with modified health protocols
to ensure the safety of our customers and
branch employees and amended hours as
appropriate. Our banking centers are the
face of our company for many customers,
so making sure they know we are there for
them has meant a lot to many customers
as a beacon of stability in uncertain times.
We quickly mobilized so our customers could
easily schedule appointments with our bankers
for complex financial matters by calling their
financial center, via our mobile app, or through
our internet banking platform. For many of their
banking needs, we continue to encourage
our customers to use our highly rated
digital platforms in addition to our network
of approximately 52,000 fee-free ATMs.
STRENGTH FOR OUR EMPLOYEES
For our employees, starting in early February
2020, our executive team and Board of Directors
began actively planning and prioritizing
our pandemic response efforts, which led
us to quickly mobilize our workforce to
accommodate remote access for a large
number of employees. At our peak, over 95%
of those working in non-customer facing roles
were doing so remotely. As I mentioned, for
employees who have not been able to do their
job remotely, we acted quickly to adapt our
safety measures.
We continue to emphasize remote working
arrangements for our employees wherever
it is feasible and efficient to do so. The timing
of a larger-scale return to our corporate
offices will commence only when it is safe,
and we may ultimately allow a more flexible
work arrangement for certain employees
going forward.
Face masks required SANITIZING WIPES READILY AVAILABLE
Sanitizing sprays readily available
Face masks required
HAND SANITIZER READILY AVAILABLE SOCIAL-DISTANCED WORK STATIONS
FACE MASKS REQUIRED Sanitizing wipes readily available
SANITIZING SPRAYS READILY AVAILABLE
Face masks required
SANITIZING
WIPES
Social-distanced work stations
Face masks required SANITIZING WIPES READILY AVAILABLE
Face masks required
SANITIZING SPRAYS READILY AVAILABLE
FACE MASKS
REQUIRED
SANITIZING
SPRAYS
HAND
SANITIZER
HAND SANITIZER READILY AVAILABLE SOCIAL-DISTANCED WORK STATIONS
Face masks required Sanitizing wipes readily available
HAND SANITIZER READILY AVAILABLE
MAINTAIN DIVERSE PROPERTY TYPES
Sanitizing sprays readily available
SOCIAL-DISTANCED
WORK STATIONS
HAND SANITIZER READILY AVAILABLE SOCIAL-DISTANCED WORK STATIONS
Face masks required
Strong underwriting & credit quality
Taking care of our
employees’ health
and safety has always
been a top priority. We
strictly follow guidelines
of U.S. CDC officials
regarding enhanced
social distancing and
protective measures
and have improved our
cleaning measures to
safeguard employees
and customers.
Although we have taken precautions to mitigate
health risks through our enhanced safety
measures, we recognize the unavoidable
risk being taken by our front-line employees
given their role in providing essential banking
services. To that end, we provided special
payments of up to $1,000 per impacted
employee. In addition to simply being the
right thing to do, these measures also helped
maintain call center operations and branch
personnel at appropriate levels to serve our
customers best.
We took additional action for our employees,
including providing free meals, enhanced
paid time off, and other benefits during the
pandemic. We paid employees for non-worked
PTO and reloaded their sick time midway
through the year, so they didn’t feel obligated
to work if they were feeling ill.
We also refunded unused and purchased
vacation days and provided most employees
with extra PTO for 2021 in acknowledgment
that most were not able to use vacation time
during the pandemic.
ASSISTANCE TO OUR COMMUNITIES
For our communities, Fifth Third was very
active with helping various local, state, and
national groups to respond to the pandemic.
We led task force groups throughout our
markets, including the Cincinnati USA Regional
Chamber of Commerce’s RESTART task force,
a collaboration of more than 20 CEOs to help
businesses within the region tackle the collective
challenges brought on by the pandemic.
FIFTH THIRD BANCORP 2020 ANNUAL REPORT | 3
Furthermore, we committed nearly $9 million in
philanthropic funds to help address the effects
of the COVID-19 pandemic.
Our COVID-19 response efforts were acknowledged
externally. In July 2020, we were recognized by
an independent third party as the top-performing
bank among the 12 largest U.S. retail banks,
based on our pandemic response for our
customers, communities, and employees.
PREPARING
IN THE GOOD
TIMES FOR THE
HARD TIMES
TO COME
While our performance during and after the
onset of the pandemic was inspiring, it is worth
spending a moment to share with you some
of the deliberate actions we took before the
pandemic that enabled us to be in a significantly
stronger position for our customers today.
Well before the current
health crisis was upon
us, we spent several
years preparing for
an eventual turn in the
economic cycle by
building a more resilient
balance sheet.
While we could not have predicted the specific
catalyst that would put the global economy
into a deep recession and the speed at which
it unfolded, our actions before the downturn
put us in a position of significant strength.
TAKING DELIBERATE ACTIONS
We repositioned and optimized our balance
sheet, diversified our lending exposures, and
4
enhanced the granularity of our loan portfolio
through our 2019 acquisition of MB Financial.
We have remained diligent with respect to client
selection in our commercial business, focusing
on generating relationships with clients who have
more diversified and resilient balance sheets as
well as multiple sources of repayment. We also
reduced our highly monitored leveraged lending
portfolio (which is centrally underwritten and
well-diversified by industry and geography)
by over 50% since 2015, and now this portfolio
makes up just 3% of total loans.
Furthermore, we continue to be well
positioned relative to peers in commercial
real estate (CRE), an area that I believe is
particularly vulnerable in the current economic
environment. Thus we will maintain our relatively
lower exposure versus peers and a focus on
high-quality borrowers, predominantly on top-
tier developers with a track record of resilience
and significantly lower loan-to-value ratios
compared to the last downturn.
Our portfolio is well diversified by geography
(with no MSA weighting greater than 4% of
the total CRE portfolio) and by property type,
with a lower concentration of exposures to
retail and hospitality. We also have the lowest
concentration of CRE as a percentage of
capital among our peers.
In consumer lending, we have maintained
our strong underwriting and credit quality
standards, focusing primarily on prime and
super prime borrowers. As a result, before
the pandemic, our balance-weighted FICO
score for consumer loans was 755. Since the
pandemic, we enhanced underwriting within
most of our portfolios, further enhancing
credit quality. Additionally, around 90% of
our total consumer portfolio is secured, with
approximately 85% of our residential real
estate portfolio in a first lien position.
It is also worth noting that, across both our
consumer and commercial portfolios, we
have focused on maintaining geographical
diversification through several national
businesses, including our auto and residential
mortgage businesses, as well as in our
commercial and industrial and CRE loans.
Our credit risk is well diversified beyond our
retail footprint through these national lending
businesses. This will be instrumental in delivering
a differentiated credit performance given the
likelihood of an uneven economic recovery and
uncertainties surrounding vaccine delivery.
In fact, strengthening our balance sheet has
been a keystone of my tenure since becoming
CEO in 2015. While we clearly did not see
this specific pandemic coming, we had been
preparing for an eventual downturn in the
economy for some time. We have evaluated all
of our businesses and exposures to ensure we
perform well through-the-cycle, under various
business and rate cycles, and not just when
times are good.
Our approach has served us well, as demon-
strated by our performance since the economic
collapse in early 2020. This continues to be our
guiding principle when assessing future growth
opportunities today. We have maintained our
disciplined client selection, stuck to our con-
servative underwriting, and maintained an
overall balance sheet management approach
focused on a long-term performance horizon.
STANDING BY OUR CORE VALUES
In times like these, it is just as important
to note what Fifth Third does not do.
WE DO NOT:
• Engage in commodity trader lending.
• Facilitate margin trading in our Private Bank
or Institutional businesses.
• Engage in mezzanine lending.
• Originate or hold any material land lot loans.
• Originate or hold student loan balances.
• Originate large-ticket indirect leases.
• Knowingly engage with businesses directly
involved in bribery, child labor, illegal logging,
and other prohibited activities listed in our
Environmental and Social Policy.
• Do business with debt collectors, high
interest rate lenders, or manufacturers and
distributors of military-style firearms for non-
law enforcement, non-military use without
performing enhanced due diligence to ensure
they are not in conflict with our Core Values
and Code of Conduct.
• Do business with clients in sectors with elevated
environmental and social risks without enhanced
due diligence to ensure a comprehensive
understanding, including, but not limited to,
forestry, palm oil, coal mining, nuclear power,
and Arctic drilling.
Face masks required
Sanitizing wipes readily available
Focus on high-quality borrowers MAINTAIN DIVERSE PROPERTY TYPES
Maintain geographical diversification
SOCIAL-DISTANCED WORK STATIONS
SOCIAL-DISTANCED WORK STATIONS
SOCIAL-DISTANCED WORK STATIONS
HAND SANITIZER READILY AVAILABLE
FOCUS ON LONG-TERM PERFORMANCE
FOCUS ON HIGH-
QUALITY BORROWERS
MAINTAIN DIVERSE PROPERTY TYPES
MAINTAIN GEOGRAPHICAL DIVERSIFICATION
MAINTAIN DIVERSE
PROPERTY TYPES
Focus on long-term performance
STRONG UNDERWRITING & CREDIT QUALITY STANDARDS
Focus on high-quality borrowers
Strong underwriting & credit quality
MAINTAIN
GEOGRAPHICAL
DIVERSIFICATION
MAINTAIN DIVERSE PROPERTY TYPES
MAINTAIN DIVERSE PROPERTY TYPES
FOCUS ON LONG-TERM
PERFORMANCE
Focus on high-quality borrowers
Face masks required
STRONG UNDERWRITING & CREDIT QUALITY STANDARDS
STRONG UNDERWRITING &
CREDIT QUALITY STANDARDS
Strong underwriting & credit quality
FIFTH THIRD BANCORP 2020 ANNUAL REPORT | 5
FOCUS ON LONG-TERM PERFORMANCE
MAINTAIN DIVERSE PROPERTY TYPES
MAINTAIN DIVERSE PROPERTY TYPES
FOCUS ON LONG-TERM PERFORMANCE
In addition to our balance sheet strength, we
have also been deliberate about diversifying
our fee revenues in areas with a lower correla-
tion to key macroeconomic factors. This helps
cushion the impact of lower rates and helps
produce strong and steady results with lower
volatility during economic downturns.
RESILIENT
BALANCE SHEET
From a capital management perspective,
we have taken action to ensure we continue
to operate safely and soundly, with an ample
cushion above the well capitalized regulatory
levels.
In early 2020 we proactively paused share
repurchases before most U.S. banks and well
before the Federal Reserve mandated that
all 34 of the largest financial institutions had
to suspend share repurchases and common
dividend increases.
Additionally, in the span of 12 months, we ran
six company-wide stress tests for management
and our Board of Directors to evaluate our
resilience under a range of different severely
adverse macroeconomic scenarios, assess
additional shocks applied to idiosyncratic risks
specific to Fifth Third, and evaluate additional
areas of potential hidden risk in order to make
forward-looking and data-driven decisions
regarding our capital deployment plans.
Our regulatory capital ratios improved
through 2020 despite the impacts of building
our credit reserves, with our CET1 ratio
currently at its highest level in over two years.
It is worth noting that we do not include the
unrealized gains from our securities or hedges
in our regulatory capital, which, at $3.5 billion
at year’s end, equates to an incremental
capital cushion of approximately 190 basis
points. Our regulatory capital—combined
with our allowance for credit losses and our
accumulated other comprehensive income
(AOCI)—remains best-in-class among peers.
We are also now
carrying historic levels
of excess liquidity,
currently around 20
times our prepandemic
average.
The liquidity on our balance sheet primarily
reflects our strong and long-standing client
relationships, our customers’ desire to remain
extremely liquid in this dynamic environment,
and the tepid investment and growth opportu-
nities compared to 2019.
Sustainable Finance Goals
MAINTAIN DIVERSE PROPERTY TYPES
STRONG UNDERWRITING & CREDIT QUALITY STANDARDS
Forward-looking, data-driven decisions
THROUGH-THE-CYCLE PERFORMANCE
Focus on high-quality borrowers
Strong underwriting & credit quality
Remain liquid in current dynamic environment
RESILIENCY TESTING STRUCTURAL PROTECTION OF INVESTMENT PORTFOLIO
FORWARD-LOOKING,
DATA-DRIVEN DECISIONS
MAINTAIN DIVERSE PROPERTY TYPES
THROUGH-THE-CYCLE PERFORMANCE
THROUGH-THE-CYCLE
PERFORMANCE
Resiliency testing
Focus on high-quality borrowers
FOCUS ON LONG-TERM PERFORMANCE
MAINTAIN DIVERSE PROPERTY TYPES
STRUCTURAL PROTECTION OF INVESTMENT PORTFOLIO
Remain liquid in current
Forward-looking, data-driven decisions
Resiliency testing STRUCTURAL PROTETION OF INVESTMENT PORTFOLIO
REMAIN LIQUID IN CURRENT
DYNAMIC ENVIRONMENT
RESILIENCY
TESTING
STRUCTURAL
PROTECTION
OF INVESTMENT
PORTFOLIO
Remain liquid in current dynamic environment
6
THROUGH-THE-CYCLE PERFORMANCE
FORWARD-LOOKING, DATA-DRIVEN DECISIONS
Structural protetion of investment portfolio
As a result, our loan-to-deposit ratio is also at
a record low level. We will continue to evaluate
opportunities to deploy our excess liquidity
with our through-the-cycle performance
lens to ensure we make the right decisions
in order to improve our long-term financial
performance.
We remain steadfast in our willingness to use
the strength of our significant capital and
liquidity position to provide maximum support
to our customers and the overall economy.
We believe that strength will serve us well over
the long run.
2020 FINANCIAL
PERFORMANCE
Our balance sheet strength stems from our
ability to generate strong and steady financial
results year in and year out, which we once
again produced in 2020. Here are some of the
key highlights.
Full year net income
was $1.4 billion, or
$1.83 per diluted share.
We delivered strong
financial performance
despite the challenging
operating environment
brought on by the
pandemic.
We continued to generate peer-leading
consumer household growth of 3% in 2020,
with outsized success in Chicago and our key
Southeast markets. While nearly doubling our
reserves, we generated strong returns for the
full year and even stronger returns in the fourth
quarter of 2020.
Additionally, we navigated the unfavorable
interest rate environment better than virtually
all of our peers, given the Federal Reserve’s
lowering short-term interest rates 150 basis
points in a two-week period in early March 2020.
We benefited from several actions we have
taken over the past several years, including the
structural protection of our investment portfolio,
our long duration cashflow hedge portfolio,
which will continue to provide long-term net
interest margin protection for several years,
and the proactive measures we have taken to
manage our borrowing costs during 2020.
Notwithstanding the significant rate pressures,
we generated strong pre-provision net revenue,
reflecting record revenue in commercial bank-
ing (including record capital markets revenue),
and wealth and asset management. We have
achieved this even while maintaining our
culture of expense discipline and demonstrat-
ing our commitment to consistent and solid
through-the-cycle performance.
STRATEGIC
PRIORITIES
As always, generating long-term shareholder
value requires long-term planning and discipline
in executing our strategy. Our key strategic
priorities have not changed over the past several
years, even since the onset of the pandemic.
ACCELERATE DIGITAL TRANSFORMATION
In an increasingly digital-first world, we are
committed to delivering a banking experience
that is simple, seamless, and secure. The pandemic
has accelerated our focus on leveraging technology
in order to digitally enable our customers.
This requires investing in areas of the company
that will also generate efficiencies and scale
benefits in areas such as digitization and auto-
mation (for example: in call center automation
and other improvements in our middle market
and back-office functions, including enhance-
ments in our commercial origination platform).
We also have introduced our digital mortgage
application platform, which guides our borrowers
through a self-service interface accessible on
any device. With its launch in the third quarter,
approximately 75% of retail and direct applica-
tions now run through our digital channel.
FIFTH THIRD BANCORP 2020 ANNUAL REPORT | 7
We are also focused on
improving the resiliency
of our technology
infrastructure to achieve
a world-class network
structure as more
and more customer
interactions are shifting
to digital products.
We will continue to use technology to generate
efficiencies throughout the organization while
also providing a differentiated customer and
employee experience.
INVEST TO DRIVE ORGANIC
GROWTH AND PROFITABILITY
We continue to invest in our businesses to
drive profitable organic growth and to improve
both the employee and customer experience.
Over the past year, we have made several
investments to support our growth plans and
maximize productivity.
In our retail franchise, we continue to invest in
our Next Generation branch design, which is
approximately 40% smaller, highly automated,
and more interactive than our legacy branches.
We currently have 50 next-gen banking
8
centers in our network, with more to come
in 2021 and beyond. As we have continued
to prioritize expanding our retail footprint in
the Southeast, we opened our first location
in South Carolina in September 2020.
Additionally, we continue to invest in expanding
the reach of our middle market banking
operations, adding key talent in the Southeast
and in our newer middle market commercial
banking markets in California and Texas.
In our corporate banking business, we continue
to see positive outcomes from our ongoing
investments in both our sales force and
technology. We also expect significant growth
in our commercial fee-based businesses going
forward, particularly in treasury management
and other managed account services.
Further, we are investing in adding fee-
based capabilities, with a particular focus
on supporting our commercial verticals. For
instance, we recently upgraded the capabilities
of our health care vertical, our largest and
longest-standing vertical. The acquisition of
Hammond Hanlon Camp, or H2C, provides
investment banking and strategic advisory
services for our health care clients. H2C
strengthens our vertical and complements the
capital markets capabilities provided by our
Coker Capital team, which was added in 2018.
We continue to assess non-bank M&A oppor-
tunities where we believe we can generate
strong returns and where it is additive to both
our products and our service capabilities. This
includes, but is not limited to, adding capabilities
in areas such as wealth and asset management,
payments, and capital markets.
EXPAND MARKET SHARE
IN KEY GEOGRAPHIES
A strong retail branch network remains important
in securing the primary customer relationship.
Therefore, we remain committed to generating
smart scale in our retail network by expanding
in our faster-growing, existing Southeast markets,
where we see stronger deposit growth trends,
higher expected population growth, and
greater market vitality than in some of our
legacy markets.
While we remain focused on expanding in
high-growth markets where a top position is
achievable to generate necessary scale, we
also are optimizing our legacy network to
meet evolving customer preferences. Over the
past six years, we have reduced our number
of branches at a rate of 2% per year with less
than 1% incremental customer attrition and
a 3:1 closure to opening ratio.
Moving forward,
we will continue to
evaluate carefully the
optimal size of our
branch network given
customer engagement
preferences.
A good example of our ability to grow
successfully while maintaining expense disci-
pline is in our Chicago market. Over the past
year, we generated 4% household growth while
maintaining our top 3 retail deposit market
share and No. 2 middle-market relationship
share in Chicago. This was achieved while
rationalizing staffing, vendors, and branches
and delivering on all our expense commitments
as part of our acquisition of MB Financial.
MAINTAIN DISCIPLINE
To paraphrase legendary football coach Nick
Saban, either you face the pain of discipline
or the pain of disappointment, and if you can
handle the first you never have to worry about
the second.
Over the past several years, we have main-
tained our culture of expense discipline.
In 2020, we generated an adjusted efficiency
ratio, which was stable compared to the
previous year despite the challenging envi-
ronment. It was near a decade-low level, even
as we continued to invest for future growth.
That notwithstanding, we took proactive and
decisive steps beginning in the fall of 2020
to right-size our expense base in the face
of the revenue headwinds. We took action
to reduce our staffing levels, renegotiated
key vendor contracts, further optimized our
branch network, realized non-branch real
estate savings by reducing total corporate
office space by 20%, and divested non-core
businesses where we did not see a path
forward to achieve the necessary scale to
generate the appropriate returns. Those
included our 401(k) record-keeping and our
property and casualty insurance businesses.
Streamlining the organization enables us to
focus on the areas where we do have the
scale to generate better returns. We will
continue to prioritize areas where we see
the highest probability of driving strong
financial returns and generating long-term
value for our shareholders.
Our balance sheet
strength, diversified
revenues, and continued
focus on disciplined
expense management
will serve us well
as we navigate the
environment in 2021
and beyond.
FIFTH THIRD BANCORP 2020 ANNUAL REPORT | 9
Sustainable Finance Goals
Women in Leadership Roles
Women in Leadership Roles EXCEEDED OUR COMMUNITY COMMITMENT
EXCEEDED OUR COMMUNITY COMMITMENT
Published E&S Policy
Accelerating racial equity, equality & inclusion
Accelerating racial equity, equality & inclusion
CARBON NEUTRAL IN OUR OPERATIONS
SUSTAINABLE FINANCE GOALS
EXCEEDED OUR COMMUNITY COMMITMENT
WOMEN IN LEADERSHIP ROLES EXCEEDED OUR COMMUNITY COMMITMENT
CARBON NEUTRAL IN OUR OPERATIONS
Sustainable Finance Goals
Sustainable Finance Goals
EXCEEDED OUR
COMMITMENT
Accelerating racial equity, equality & inclusion
Accelerating racial equity, equality & inclusion
Exceeded our Community Commitment
Exceeded our Community Commitment SUSTAINABLE FINANCE GOALS
SUSTAINABLE FINANCE GOALS
Carbon Neutral in our Operations
Carbon Neutral in our Operations
SUSTAINABLE
FINANCE GOALS
WOMEN IN
LEADERSHIP ROLES
PUBLISHED
E&S POLICY
ACCELERATING RACIAL EQUITY, EQUALITY & INCLUSION
ACCELERATING RACIAL EQUITY, EQUALITY & INCLUSION
Sustainable Finance Goals
RACIAL EQUITY,
PUBLISHED E&S POLICY EXCEEDED
EQUALITY & INCLUSION
WOMEN IN LEADERSHIP ROLES
SUSTAINABLE FINANCE GOALS
WOMEN IN LEADERSHIP ROLES
CARBON NEUTRAL
IN OUR OPERATIONS
THROUGH-THE-CYCLE PERFORMANCE
STRUCTURAL PROTECTION OF INVESTMENT PORTFOLIO
Structural protetion of investment portfolio
FOCUSED ON ESG
While our financial performance and priorities are
critically important, it is equally important to note
that generating sustainable value means taking
into consideration the long-term implications
of our actions for all our stakeholders, including
shareholders. As evidenced by our pandemic
response, I firmly believe in the important role
that Fifth Third plays in society.
It is a privilege to be in a position to earn our
stakeholders’ value and trust, and to improve
the lives of customers and the well-being of our
communities. It is a responsibility that we at Fifth
Third do not take lightly. We strive always to do
well by doing good. To communicate properly
much of the great work we have been doing
to generate value for all, this past year we
published our inaugural Environmental, Social,
and Governance (ESG) report.
We have made substantial progress as an
organization to improve our ESG-related
outcomes, disclosures, and strategies. We
have highly engaged leadership in our Board
of Directors, with 11 directors experienced
in ESG matters. Additionally, we created a
management-level ESG Committee, which
reports directly to the Nominating and
Governance Committee of the Board, dedicated
to focusing on Fifth Third’s ESG practices and
reporting across a wide array of topics.
The details of the tremendous work we have
done to improve our ESG outcomes can be
found in our ESG report or on our dedicated
ESG webpage, but here are some of our key
highlights at the Bank:
10
• Became the first U.S. commercial bank to join
the SASB Alliance in the GRI community.
• Aligned our ESG report to internationally recog-
nized frameworks (SASB, GRI, TCFD, UN SDGs).
• Completed external stakeholder materiality
assessment to prioritize ESG topics.
• Reported 33% of the Fifth Third Bancorp’s
Directors are women and earned recognition
as a Winning “W” company for 2020 Women
on Boards.
• Established an ESG Committee accountable
to the Nominating and Corporate Governance
Committee of the Board of Directors.
• Exceeded our five-year $32 billion
Community Commitment.
• Announced our $8 billion 2025 sustainable
finance goal.
• Published Environmental & Social Policy.
• Maintained an “A-” Leadership Band score in
2020 from CDP (as well as other ESG awards
and accolades listed in the ESG Report).
• Published other important ESG materials,
including a Human Rights Statement, Supplier
Code of Conduct, and Commitment to Data
Security and Privacy.
• Established an Executive Diversity Leadership
Council and an Inclusion Toolkit.
• Announced a $2.8 billion investment to
accelerate racial equity, equality, and inclusion.
• Recognized by the Ethisphere Institute® as
one of the World’s Most Ethical Companies.
Published E&S Policy
Sustainable Finance Goals
Women in Leadership Roles
THROUGH-THE-CYCLE PERFORMANCE
EXCEEDED OUR
COMMITMENT
PUBLISHED
E&S POLICY
STRUCTURAL PROTECTION OF INVESTMENT PORTFOLIO
Exceeded our Community Commitment
LEADERSHIP ROLES
WOMEN IN
SUSTAINABLE FINANCE GOALS
SUSTAINABLE
FINANCE GOALS
Structural protetion of investment portfolio
Women in Leadership Roles EXCEEDED OUR COMMUNITY COMMITMENT
EXCEEDED OUR COMMUNITY COMMITMENT
SUSTAINABLE FINANCE GOALS
Accelerating racial equity, equality & inclusion
Accelerating racial equity, equality & inclusion
CARBON NEUTRAL IN OUR OPERATIONS
EXCEEDED OUR COMMUNITY COMMITMENT
WOMEN IN LEADERSHIP ROLES EXCEEDED OUR COMMUNITY COMMITMENT
IN CLOSING
ACCELERATING RACIAL EQUITY, EQUALITY & INCLUSION
ACCELERATING RACIAL EQUITY, EQUALITY & INCLUSION
Sustainable Finance Goals
CARBON NEUTRAL IN OUR OPERATIONS
Sustainable Finance Goals
Sustainable Finance Goals
RACIAL EQUITY,
EQUALITY & INCLUSION
PUBLISHED E&S POLICY EXCEEDED
Accelerating racial equity, equality & inclusion
Accelerating racial equity, equality & inclusion
Exceeded our Community Commitment SUSTAINABLE FINANCE GOALS
SUSTAINABLE FINANCE GOALS
WOMEN IN LEADERSHIP ROLES
Carbon Neutral in our Operations
Carbon Neutral in our Operations
WOMEN IN LEADERSHIP ROLES
CARBON NEUTRAL
IN OUR OPERATIONS
We take our commitments to our
customers, employees, communities,
and shareholders very seriously, and we
intend to continue delivering on those
in the years ahead. None of that would
be possible without the hard work and
tremendous efforts by all of our employees
across the Bank, and for that I am grateful
and proud.
Our financial results continue to reflect
our focused execution, discipline, and
through-the-cycle principles. We remain
committed to generating sustainable
long-term value for our shareholders and
anticipate that we will continue improving
our relative performance as a top-performing
regional bank.
Together, we are
working to be the
One Bank people
most value and trust.
Thank you for your
continued support.
GREG D. CARMICHAEL
Chairman and Chief Executive Officer,
Fifth Third Bancorp
FIFTH THIRD BANCORP 2020 ANNUAL REPORT | 11
• Received a 100% on the Human Rights
Campaign Foundation’s Corporate Equality
Index for the sixth consecutive year.
• Launched the first-ever digital version of
the Fifth Third Young Bankers Club®, our
signature program developed in 2004 with
nearly 30,000 students educated.
• We are the first U.S. regional bank to
be carbon neutral in our operations.
“There’s ESG in the
banking sector, and then
there’s Fifth Third Bank.
And that is why we are
happy to call Fifth Third
CleanTechnica’s bank.”
—CleanTechnica, a leading source for cleantech
news and analysis (Jan. 20, 2021)
All members of the Fifth Third team—from
every Board member to each and every
employee—have a responsibility to contribute
to generating sustainable value for our stake-
holders. This includes understanding Fifth
Third’s ESG goals, as well as incorporating
the consideration of ESG principles into
Fifth Third’s operations and businesses. We
will continue building on our momentum
to provide enhanced ESG outcomes and
disclosures going forward.
A BLUEPRINT FOR MEETING
CHANGING NEEDS
In 2018, we announced an initiative to optimize
our retail network that is repositioning our
branch network to invest more in higher-
growth markets, even as we maintain a top
market share in the Midwest. We also are
redesigning our branches and digitizing our
branch operations in an effort to meet ever-
evolving customer preferences.
The financial centers themselves are evolving,
too. Our redesigned branches will improve
the customer experience by providing a
more open atmosphere with increased digital
capabilities. They will encompass approximately
40% less square footage, but these new
branches will meet our customers’ needs
in fresh and exciting ways.
Our efforts to more effectively integrate
digital technology in this rapidly changing
environment will continue to create significant
shareholder value. The Fifth Third Mobile
Banking app continues to average 4+ ratings
in both the Apple App Store and Google Play
Store. We continue to enhance the customer
experience by making everyday banking
possible anywhere at any time.
With tech-enabled self-service capabilities
that are human centered, customers can
manage accounts, transfer funds, or pay bills
online with ease. The seamless physical-digital
integration provides innovative products and
services that digitally equip our bankers to
better serve and empower customers to attain
their financial goals.
KEY BRANCH BANKING INITIATIVES
• Retail network optimization
• Branch redesign
• Digitizing branch operations
2
0
2
0
H
I
G
H
L
I
G
H
T
S
*
TOTAL REVENUE:
$2.4 BILLION
AVERAGE LOANS:
$15.0 BILLION
AVERAGE CORE DEP OSITS:
$73.5 BILLION
DIGITAL BANKING CUSTOMERS:
2.9 MILLION
FULL-SERVICE BANKING
CENTERS:
1,134
BRANCH
BANKING
As our customers’
banking journey evolves,
so do our branches.
PERSONALIZED CUSTOMER EXPERIENCE
From handling complex service needs
to providing advice on important financial
decisions, our financial centers enable
customers to experience our company on
a more personal level. They remain critical
to the future of the Bank.
At Fifth Third, we offer a complete suite of
retail banking products and services through
our localized, high-touch service model
concentrated primarily in the Midwest and
Southeast. While a brick-and-mortar presence
remains important, we also provide customers
with superior, integrated experiences across
branch and digital banking channels—and we
continue to expand our digital capabilities to
adapt to evolving customer preferences.
12
*As of Dec. 31, 2020.
2
0
2
0
H
I
G
H
L
I
G
H
T
S
*
TOTA L RE VEN UE:
$700 MILLION
AV E RAGE LOA NS :
$25.6 BILLION
MO RTG AG E SERV ICI NG
PO RT FO LIO :
$87 BILLION
DEALER INDIRECT AUTO
LENDING NETWORK:
~7,100
ADDRESSING PRESENT AND FUTURE
LENDING NEEDS
To drive profitable growth, meet our
customers’ changing needs and improve the
customer experience, we have focused on
expanding our personal lending offerings.
We continue to explore ways to improve the
financial well-being of our customers, while
providing a holistic digital experience.
We believe lasting relationships start by
working proactively with borrowers to
explore options that make sense with their
current financial situation. To that end, we
will always be committed to being better
listeners and problem-solvers.
CONSUMER
LENDING
Creating new
possibilities and lasting
relationships.
HELPING CUSTOMERS WITH
MAJOR PURCHASES
In Consumer Lending, we are here to help
customers with their major purchases—whether
buying a first home or purchasing a new car.
Offering competitive rates and a variety
of products, our Consumer Lending division
helps customers reach their goals, whether
they’re short-term or long-term. That’s just
the beginning. Our goal is to create lasting
value for our customers well beyond the life
of an initial loan. We do this by striving
to make the loan process as simple as possible,
whether credit customers come to the Bank
through auto, mortgage or other consumer
lending areas.
AUTO & SPECIALTY LENDING
Fifth Third’s auto business is an important
component of lending to consumers. Fifth
Third is one of the largest bank originators
of indirect auto loans in the country, and
we continue to value these relationships
with an extensive dealer network across our
more than 40-state indirect auto footprint.
Included is lending for RV, motorcycle,
marine and power sport products.
MORTGAGE LENDING
The mortgage business is one of the Bank’s
most cyclical. We managed well through the
most recent cycle, in part due to a business
model that can be adjusted quickly in
response to the changing environment.
Fifth Third is primarily an in-footprint retail
lender, though we also have a broad-footprint
direct channel and purchase loans through a
correspondent channel.
*As of Dec. 31, 2020.
FIFTH THIRD BANCORP 2020 ANNUAL REPORT | 13
TOTAL REVENUE:
$3.2 BILLION
AVERAGE LOANS:
$66.6 BILLION
AVERAGE CORE DEPOSITS:
$57.0 BILLION
2
0
2
0
H
I
G
H
L
I
G
H
T
S
*
COMMERCIAL
BANKING
A strategic resource in
our customers’ financial
success.
MAXIMIZING CLIENT VALUE
Fifth Third’s Commercial Banking business
is focused on building and deepening client
relationships through a full-service platform
that combines creative solutions with strategic
insights in order to maximize client value.
The comprehensive offerings of the Commercial
Bank span from traditional lending and treasury
management to capital markets and advisory
services, with a full suite of complementary
products delivered through the One Bank
service model. Our wide range of services and
depth of experience enable the Commercial
Bank to address clients’ needs through strategic
capital and financing solutions, as well as
advanced payments capabilities.
Through focused segmentation and a broad
range of solutions, the Commercial Bank
targets clients in a wide range of industries,
combining a national corporate banking and
commercial real estate franchise, with a middle
market banking group that primarily aligns
with the Bank’s 11-state footprint, as well as
California and Texas.
PLANNING FOR GREATER GROWTH
AND MARKET SHARE
We continue to focus on strengthening our
core middle market banking to expand market
share and enhance profitability. In addition, we
have been successful in using technology and
analytical advancements, as well as leveraging
the One Bank delivery model, to create strategic
partnerships and generate higher returns.
EXPANDING OUR INDUSTRY EXPERTISE
Given the unique challenges our clients face
in their respective industries, the Commercial
Bank has specialized verticals that provide
industry-specific banking expertise and com-
prehensive financial solutions. In addition to the
renewable energy team expansion we initiated in
2019, we continue to provide our clients industry
expertise in consumer & retail, healthcare, financial
institutions, technology, media & telecommunica-
tions, entertainment, and lodging & leisure.
OFFERING ROBUST FINANCING
SOLUTIONS AND STRATEGIC GUIDANCE
The Commercial Banking segment offers a wide
range of solutions, including credit products,
capital markets services and treasury manage-
ment services.
• The credit products group provides comprehensive
specialized commercial financing solutions in asset
based lending, equipment finance and traditional
lending, which have been significantly enhanced with
the addition of the strategic business from the MB
Financial merger. We have materially strengthened our
credit underwriting by adding experienced talent and
by maintaining centralized credit and risk functions.
• Capital markets provide critical market analysis,
strategic guidance and precise execution of capital
solutions through M&A advisory services, debt
capital markets and equity capital markets. Addition-
ally, we offer a robust and state-of-the-art platform
delivering financial risk management products.
• Treasury management solutions include integrated
payables and receivables, risk management and
liquidity solutions.
At the Commercial Bank, we are committed
to providing advisory-based services helping
businesses adapt to a changing economy, drive
innovation and growth, and assure access to the
working capital they need to meet their goals.
14
*As of Dec. 31, 2020.
2
0
2
0
H
I
G
H
L
I
G
H
T
S
*
TOTA L RE VEN UE:
$665 MILLION
AV E RAGE LOA NS :
$3.7 BILLION
AV E RAGE CO RE DEPOSITS:
$11.0 BILLION
ASSETS UNDER MANAGEMENT**:
$54 BILLION
ASSETS UNDE R CA RE**:
$434 BILLION
connected and help navigate the unprecedented
levels of change and challenges in 2020.
ABOUT W&AM
Comprising two businesses, W&AM puts more
than 100 years of experience to work for its
individual and institutional clients:
Fifth Third Private Bank serves complex
financial needs with teams of professionals
dedicated to helping clients achieve their
unique financial goals.
Fifth Third Institutional Services provides
custody, investment and retirement plan
services for corporations, financial institutions,
foundations, endowments and not-for-profit
organizations.
WEALTH &
ASSET
MANAGEMENT
Delivering expert
guidance to clients and
continued growth to
shareholders.
By providing advice, guidance and platforms
that are thoughtful and holistic—and by focusing
on the unique needs of our clients—Wealth &
Asset Management (W&AM) is poised to keep
delivering strong results for shareholders.
TWO-PRONGED CLIENT APPROACH
LEADS TO A YEAR OF INCREASED ASSETS
W&AM draws on the expertise of local advisors
spanning the Bank’s footprint with support
from robust digital capabilities. This approach
enables advisors to create a personalized wealth
strategy for our clients and their families.
In 2020, total client assets under management
grew to $54 billion. Additionally, the number
of Private Bank households grew by 6 percent,
with clients entrusting W&AM with more
than an additional $2 billion in gross new
assets under management, with more
than $500 million of net new assets under
management in the second half of the year.
DIGITAL TRANSFORMATION HELPS
BOLSTER GROWTH
As our clients’ needs and preferences evolve,
investment in secure technology is also
essential for continued growth.
Committed to the client experience, the
business recently rolled out its digital and
paperless client onboarding process. Today, the
front, middle and back offices are all connected
to eliminate what was once a manual process
for client onboarding.
Further, as clients increasingly turned to Fifth
Third amid the pandemic, advisors leveraged
the Bank’s Life360 platform to stay closely
*As of Dec. 31, 2020.
**Includes trust and brokerage assets.
FIFTH THIRD BANCORP 2020 ANNUAL REPORT | 15
COMPANY FACTS
Fifth Third Bancorp is a diversified financial services
company headquartered in Cincinnati, Ohio.
FIFTH THIRD BANK WAS ESTABLISHED IN 1858. AS OF DECEMBER 31, 2020, THE COMPANY HAD:
$205B
IN ASSETS
ACCESS TO APPROXIMATELY
52,000
FEE-
FREE
ATMs
$54B
IN ASSETS UNDER
MANAGEMENT*
1,134
FULL-SERVICE
BANKING CENTERS
$434B
IN ASSETS
UNDER CARE*
4 BUSINESS UNITS
BRANCH BANKING, COMMERCIAL
BANKING, CONSUMER LENDING AND
WEALTH & ASSET MANAGEMENT
FINANCIAL HIGHLIGHTS
COMMON EQUITY
TIER 1 RATIO
CASH DIVIDENDS PER
COMMON SHARE
AVERAGE
ASSETS
%
1
1
:
E
L
A
C
S
N
B
0
0
0
5
1
$
.
:
E
L
A
C
S
.
1
6
0
9 1
3
0
1
.
5
7
9
.
4
3
0
1
.
4
2
0
1
.
1
.
1
:
E
L
A
C
S
3
5
0
.
.
4
9
4 0
7
0 0
6
0
.
.
8
0
.
1
.
3
2
4
9
1
.
4
9
3
6
1
7
1
.
2
4
1
.
3
5
0
4
1
8
1
.
2
4
1
N
B
0
0
0
0
2
$
.
:
E
L
A
C
S
2016 2017 2018 2019
2020
2016 2017 2018 2019
2020
2016 2017 2018 2019
2020
AVERAGE CORE
DEPOSITS
BOOK VALUE
PER SHARE
NET CHARGE-OFF
RATIO
.
2
6
4
4
1
0
6
6
1
1
.
.
8
3
9
9
.
2
8
9
9
.
2
0
2
0
1
6
4
9
2
.
.
1
4
7
2
7
0
3
2
.
3
4
.
1
2
2
6
9
1
.
.
0
0
0
3
$
:
E
L
A
C
S
%
0
.
1
:
E
L
A
C
S
9
3
0
.
2
3
0
.
5
3
0
.
5
3
0
.
2
4
0
.
2016 2017 2018
2019
2020
2016 2017 2018
2019
2020
2016 2017 2018 2019
2020
16
*Assets under management and assets under care include trust and brokerage assets. Fifth Third Bank, National Association. Member FDIC.
Equal Housing Lender.
Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2020
Commission File Number 001-33653
(Exact name of Registrant specified in its charter)
Ohio
(State or other jurisdiction
of incorporation or organization)
31-0854434
(I.R.S. Employer
Identification Number)
38 Fountain Square Plaza
Cincinnati, Ohio 45263
(Address of principal executive offices)
Registrant's telephone number, including area code: (800) 972-3030
Securities registered pursuant to Section 12(b) of the Act:
Title of each class:
Common Stock, Without Par Value
Depositary Shares Representing a 1/1000th Ownership Interest in a Share of
Trading
Symbol(s):
FITB
Name of each exchange
on which registered:
The NASDAQ Stock Market LLC
6.625% Fixed-to-Floating Rate Non-Cumulative Perpetual Preferred Stock, Series I
FITBI
The NASDAQ Stock Market LLC
Depositary Shares Representing a 1/40th Ownership Interest in a Share of
6.00% Non-Cumulative Perpetual Class B Preferred Stock, Series A
FITBP
The NASDAQ Stock Market LLC
Depositary Shares Representing a 1/1000th Ownership Interest in a Share of
4.95% Non-Cumulative Perpetual Preferred Stock, Series K
FITBO
The NASDAQ Stock Market LLC
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes: ☒ No: ☐
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes: ☐ No: ☒
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes: ☒ No: ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to
Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was
required to submit such files). Yes: ☒ No: ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting
company or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and
“emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ☒ Accelerated filer ☐ Non-accelerated filer ☐ Smaller reporting company ☐ Emerging growth company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying
with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its
internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public
accounting firm that prepared or issued its audit report. ☒
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes: ☐ No: ☒
There were 708,697,950 shares of the Bancorp’s Common Stock, without par value, outstanding as of January 31, 2021. The Aggregate
Market Value of the Voting Stock held by non-affiliates of the Bancorp was $12,243,222,418 as of June 30, 2020.
17 Fifth Third Bancorp
Table of Contents
DOCUMENTS INCORPORATED BY REFERENCE
This report incorporates into a single document the requirements of the U.S. Securities and Exchange Commission (the “SEC”) with respect
to annual reports on Form 10-K and annual reports to shareholders. Sections of the Bancorp’s Proxy Statement for the 2021 Annual Meeting
of Shareholders are incorporated by reference into Part III of this report.
Only those sections of this 2020 Annual Report to Shareholders that are specified in this Cross Reference Index constitute part of the
registrant’s Form 10-K for the year ended December 31, 2020. No other information contained in this 2020 Annual Report to Shareholders
shall be deemed to constitute any part of this Form 10-K nor shall any such information be incorporated into the Form 10-K and shall not be
deemed “filed” as part of the registrant’s Form 10-K.
10-K CROSS REFERENCE INDEX
PART I
Item 1.
Business
Employees
Segment Information
Average Balance Sheets
Analysis of Net Interest Income and Net Interest Income Changes
Investment Securities Portfolio
Loan and Lease Portfolio
Risk Elements of Loan and Lease Portfolio
Deposits
Return on Equity and Assets
Short-term Borrowings
Item 1A. Risk Factors
Item 1B. Unresolved Staff Comments
Item 2.
Properties
Item 3.
Legal Proceedings
Item 4. Mine Safety Disclosures
Information about our Executive Officers
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Item 6.
Selected Financial Data
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Item 8.
Financial Statements and Supplementary Data
Item 9.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Item 9A. Controls and Procedures
Item 9B. Other Information
PART III
Item 10. Directors, Executive Officers and Corporate Governance
Item 11. Executive Compensation
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Item 13. Certain Relationships and Related Transactions, and Director Independence
Item 14. Principal Accounting Fees and Services
PART IV
Item 15. Exhibits, Financial Statement Schedules
Item 16. Form 10–K Summary
SIGNATURES
18 Fifth Third Bancorp
20-29
20, 71
73-82, 230-233
66
64-67
87-89, 158-160
86-87, 161-162
94-113
89-91
51
91-92, 189
30-43
44
44
44
44
45-46
47
51
52-128
128
128-233
234
234
236
236
236
236
236
236
237-241
241
242
Table of Contents
FORWARD-LOOKING STATEMENTS
This report contains statements that we believe are “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Rule 175 promulgated
thereunder, and Section 21E of the Securities Exchange Act of 1934, as amended, and Rule 3b-6 promulgated thereunder. These statements relate to our financial condition, results of
operations, plans, objectives, future performance, capital actions or business. They usually can be identified by the use of forward-looking language such as “will likely result,” “may,” “are
expected to,” “is anticipated,” “potential,” “estimate,” “forecast,” “projected,” “intends to,” or may include other similar words or phrases such as “believes,” “plans,” “trend,” “objective,”
“continue,” “remain,” or similar expressions, or future or conditional verbs such as “will,” “would,” “should,” “could,” “might,” “can,” or similar verbs. You should not place undue reliance on
these statements, as they are subject to risks and uncertainties, including but not limited to the risk factors set forth in the Risk Factors section in Item 1A in this Annual Report on Form 10-K.
When considering these forward-looking statements, you should keep in mind these risks and uncertainties, as well as any cautionary statements we may make. Moreover, you should treat
these statements as speaking only as of the date they are made and based only on information then actually known to us. We undertake no obligation to release revisions to these forward-
looking statements or reflect events or circumstances after the date of this document. There are a number of important factors that could cause future results to differ materially from historical
performance and these forward-looking statements. Factors that might cause such a difference include, but are not limited to: (1) effects of the global COVID-19 pandemic; (2) deteriorating
credit quality; (3) loan concentration by location or industry of borrowers or collateral; (4) problems encountered by other financial institutions; (5) inadequate sources of funding or liquidity;
(6) unfavorable actions of rating agencies; (7) inability to maintain or grow deposits; (8) limitations on the ability to receive dividends from subsidiaries; (9) cyber-security risks; (10) Fifth
Third’s ability to secure confidential information and deliver products and services through the use of computer systems and telecommunications networks; (11) failures by third-party service
providers; (12) inability to manage strategic initiatives and/or organizational changes; (13) inability to implement technology system enhancements; (14) failure of internal controls and other
risk management systems; (15) losses related to fraud, theft, misappropriation or violence; (16) inability to attract and retain skilled personnel; (17) adverse impacts of government regulation;
(18) governmental or regulatory changes or other actions; (19) failures to meet applicable capital requirements; (20) regulatory objections to Fifth Third’s capital plan; (21) regulation of Fifth
Third’s derivatives activities; (22) deposit insurance premiums; (23) assessments for the orderly liquidation fund; (24) replacement of LIBOR; (25) weakness in the national or local economies;
(26) global political and economic uncertainty or negative actions; (27) changes in interest rates; (28) changes and trends in capital markets; (29) fluctuation of Fifth Third’s stock price; (30)
volatility in mortgage banking revenue; (31) litigation, investigations, and enforcement proceedings by governmental authorities; (32) breaches of contractual covenants, representations and
warranties; (33) competition and changes in the financial services industry; (34) changing retail distribution strategies, customer preferences and behavior; (35) difficulties in identifying,
acquiring or integrating suitable strategic partnerships, investments or acquisitions; (36) potential dilution from future acquisitions; (37) loss of income and/or difficulties encountered in the
sale and separation of businesses, investments or other assets; (38) results of investments or acquired entities; (39) changes in accounting standards or interpretation or declines in the value of
Fifth Third’s goodwill or other intangible assets; (40) inaccuracies or other failures from the use of models; (41) effects of critical accounting policies and judgments or the use of inaccurate
estimates; (42) weather-related events, other natural disasters, or health emergencies (including pandemics); (43) the impact of reputational risk created by these or other developments on such
matters as business generation and retention, funding and liquidity; and (44) changes in law or requirements imposed by Fifth Third’s regulators impacting our capital actions, including
dividend payments and stock repurchases.
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PART I
ITEM 1. BUSINESS
General Information
Fifth Third Bancorp (the “Bancorp” or “Fifth Third”), an Ohio corporation organized in 1975, is a bank holding company (“BHC”) as defined
by the Bank Holding Company Act of 1956, as amended (the “BHCA”), and has elected to be treated as a financial holding company
(“FHC”) under the Gramm-Leach-Bliley Act of 1999 (“GLBA”) and regulations of the Board of Governors of the Federal Reserve System
(the “FRB”).
The Bancorp is a diversified financial services company headquartered in Cincinnati, Ohio and is the indirect holding company of Fifth Third
Bank, National Association (the “Bank”). As of December 31, 2020, Fifth Third had $205 billion in assets and operates 1,134 full-service
Banking Centers and 2,397 Fifth Third branded ATMs in Ohio, Kentucky, Indiana, Michigan, Illinois, Florida, Tennessee, West Virginia,
Georgia, North Carolina and South Carolina. The Bancorp operates four main businesses: Commercial Banking, Branch Banking, Consumer
Lending and Wealth & Asset Management. Fifth Third is among the largest money managers in the Midwest and, as of December 31, 2020,
had $434 billion in assets under care, of which it managed $54 billion for individuals, corporations and not-for-profit organizations. Investor
information and press releases can be viewed at www.53.com. Information on or accessible through our website is not deemed to be
incorporated into this Annual Report on Form 10-K. Website references in this Annual Report are merely textual references. Fifth Third’s
common stock is traded on the NASDAQ® Global Select Market under the symbol “FITB.”
The Bancorp’s subsidiaries provide a wide range of financial products and services to the commercial, financial, retail, governmental,
educational, energy and healthcare sectors. This includes a variety of checking, savings and money market accounts, wealth management
solutions, payments and commerce solutions, insurance services and credit products such as commercial loans and leases, mortgage loans,
credit cards, installment loans and auto loans. These products and services are delivered through a variety of channels including the
Company’s Banking Centers, other offices, telephone sales, the internet and mobile applications. The Bank has deposit insurance provided by
the Federal Deposit Insurance Corporation (the “FDIC”) through the Deposit Insurance Fund (the “DIF”). Refer to Exhibit 21 filed as an
attachment to this Annual Report on Form 10-K for a list of subsidiaries of the Bancorp as of February 15, 2021.
Additional information regarding the Bancorp’s businesses is included in Management’s Discussion and Analysis of Financial Condition and
Results of Operations.
Availability of Financial Information
The Bancorp files reports with the SEC. Those reports include the annual report on Form 10-K, quarterly reports on Form 10-Q, current
reports on Form 8-K and annual proxy statement, as well as any amendments to those reports. The SEC maintains an internet site that
contains reports, proxy and information statements and other information regarding issuers that file electronically with the SEC at
www.sec.gov. The Bancorp’s annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, annual proxy
statement and amendments to those reports filed or furnished pursuant to section 13(a) or 15(d) of the Exchange Act are accessible at no cost
on the Bancorp’s website at www.53.com on a same day basis after they are electronically filed with or furnished to the SEC.
Information about the Bancorp’s Code of Business Conduct and Ethics (as amended from time to time), is available on Fifth Third’s
corporate website at www.53.com. In addition, any future waivers from a provision of the Fifth Third Code of Business Conduct and Ethics
covering any of Fifth Third’s directors or executive officers (including Fifth Third’s principal executive officer, principal financial officer,
and principal accounting officer or controller) will be posted at this internet address.
Competition
The Bancorp, primarily through the Bank, competes for deposits, loans and other banking services in its principal geographic markets as well
as in selected national markets as opportunities arise. In addition to traditional financial institutions, the Bancorp competes with securities
dealers, brokers, mortgage bankers, investment advisors, specialty finance, telecommunications, technology and insurance companies as well
as large retailers. These companies compete across geographic boundaries and provide customers with meaningful alternatives to traditional
banking services in nearly all significant products. The increasingly competitive environment is a result primarily of changes in regulation,
changes in technology, product delivery systems and the accelerating pace of consolidation among financial service providers. These
competitive trends are likely to continue.
Human Capital Resources
At December 31, 2020, the Bancorp had 19,872 full-time equivalent employees, compared to 19,869 at December 31, 2019. These employees
support Fifth Third’s Vision to be the One Bank people most value and trust by upholding the Company’s four Core Values: Be Respectful &
Inclusive, Take Accountability, Work as One Bank and Act with Integrity.
Inclusion and Diversity
Fifth Third strives to create an intentionally inclusive, diverse and thriving workplace where each person feels valued, respected and
understood.
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Our Human Capital programs are designed to attract, develop and retain a workforce that aims to reflect the communities we serve. As of
December 31, 2020, the makeup of the Company’s employees consisted of approximately 59% women and approximately 26% persons of
color. Additionally, the Bancorp adopted in 2019 a footprint-wide ban on salary history (by not asking for or using an applicant’s current
salary as a factor in an employment offer) to immediately reduce historical gender or racial pay inequities.
To strengthen a sense of belonging for all employees, the Bancorp operates a number of inclusion councils at both enterprise and regional
levels, as well as local Business Resource Groups (BRGs) in the following categories: African American, Asian & Pacific Islander,
Individuals with Disabilities, Latino, LGBTQ+, Military, Women’s and Young Professionals. Senior executives led eight virtual Enterprise
BRGs in 2020 that enabled all employees to participate regardless of their work location—greatly expanding access for employees. In 2020,
the Bancorp also launched a new Executive Diversity Leadership Council that is currently charged to develop and deliver strategic short- and
long-term solutions to advance our diversity efforts relating to Black employees, communities and customers.
Employee Engagement
Fifth Third believes that an engaged workforce is one of its most valuable assets in sustaining its success. The Bancorp’s Board of Directors
and executive management oversee employee engagement on a regular basis by collecting employee feedback, primarily through employee
viewpoints surveys. As further discussed later in this section, the Bancorp performed additional surveys in 2020 in response to the challenges
of remote work and the COVID-19 pandemic.
Compensation and Benefits
The Bancorp is committed to providing competitive compensation and benefits programs that reward employees for delivering the right
products to the right customers, in ways that consider shareholders’ long-term interests, while also staying within the Bancorp’s risk
tolerance. These programs include an $18 per hour minimum wage, a 401(k) retirement program that pays a match up to 7% of an employee’s
compensation and other traditional benefits. The Bancorp also offers parental bonding leave, and several other health, wellness and financial
benefits programs and services that assist employees in maintaining a healthy work-life balance.
Human Capital Response to COVID-19 Pandemic
The Bancorp took significant measures to provide employees with a sense of safety, security and certainty in response to the COVID-19
pandemic. Approximately 50% of employees were transitioned to remote work, supported through enhanced technology solutions, revised
hiring and onboarding programs and increased communication. The Bancorp also rewarded specific employees who provided front-line,
essential banking services during the pandemic with special one-time payments of up to $1,000.
To protect the health and safety of employees and customers and consistent with CDC, state and local guidance, Fifth Third established social
distancing, hygiene and environmental safety protocols for on-site workers at the Bancorp’s banking centers and offices. The Bancorp also
provided free COVID-19 testing for employees enrolled in Fifth Third’s medical coverage, provided backup child care solutions to address
evolving needs and increased paid time away (including mid-year replenishment of sick days, providing additional vacation days to eligible
employees to use in 2021 and reimbursing employees for unused vacation time in certain situations). The Bancorp also developed tracking
and reporting solutions to monitor employee health and work situations related to the COVID-19 pandemic.
Fifth Third also conducted pulse surveys with employees in 2020 to collect feedback on employees’ well-being and their perspective on the
Bancorp’s pandemic response.
Acquisitions and Investments
The Bancorp’s strategy for growth includes strengthening its presence in core markets and broadening its product offerings while taking into
account the integration and other risks of growth. The Bancorp evaluates strategic acquisition and investment opportunities and conducts due
diligence activities in connection with possible transactions. As a result, discussions, and in some cases, negotiations regarding acquisitions
and investments may take place and future transactions involving cash, debt or equity securities may occur. These typically involve the
payment of a premium over book value and current market price, and therefore, some dilution of book value and net income per share may
occur with any future transactions.
Regulation and Supervision
In addition to the generally applicable state and federal laws governing businesses and employers, the Bancorp and the Bank are subject to
extensive regulation and supervision under federal and state laws and regulations applicable to financial institutions and their parent
companies. Virtually all aspects of the business of the Bancorp and the Bank are subject to specific requirements or restrictions and general
regulatory oversight. The principal objectives of state and federal banking laws and regulations and the supervision, regulation and
examination of banks and their parent companies (such as the Bank and the Bancorp) by bank regulatory agencies are the maintenance of the
safety and soundness of financial institutions, the maintenance of the federal deposit insurance system and the protection of consumers or
classes of consumers, rather than the protection of shareholders or debtholders of a bank or the parent company of a bank. The Bancorp and
its subsidiaries are subject to an extensive regulatory framework of complex and comprehensive federal and state laws and regulations
addressing the provision of banking and other financial services and other aspects of the Bancorp’s businesses and operations. The Dodd-
Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank”) and legislation modifying Dodd-Frank, the Economic Growth,
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Regulatory Relief and Consumer Protection Act of 2018 (“EGRRCPA”), will continue to impact the Bancorp and the Bank. To the extent the
following material describes statutory or regulatory provisions, it is qualified in its entirety by reference to the particular statute or regulation.
Both the scope of the laws and regulations and the intensity of the supervision to which the Bancorp and its subsidiaries are subject increased
in response to the financial crisis, as well as other factors, such as technological and market changes. Regulatory enforcement and fines have
also increased across the banking and financial services sector. Many of these changes have occurred as a result of Dodd-Frank and its
implementing regulations, most of which are now in place. While the regulatory environment has recently been in a period of rebalancing the
post financial crisis framework, the Bancorp expects that its business will remain subject to extensive regulation and supervision. It is
possible that the intensity of regulation and supervision will be higher in the Biden Administration.
On May 24, 2018, the EGRRCPA was signed into law. Among other regulatory changes, the EGRRCPA amends various sections of Dodd-
Frank, including section 165, which was revised to raise the asset thresholds for determining the application of enhanced prudential standards
for BHCs. The EGRRCPA’s increased asset thresholds took effect immediately for BHCs with total consolidated assets less than
$100 billion, with the exception of risk committee requirements, which now apply to publicly-traded BHCs with $50 billion or more of
consolidated assets. BHCs with consolidated assets between $100 billion and $250 billion, including the Bancorp, were subject to the
enhanced prudential standards that applied to them before enactment of EGRRCPA until December 31, 2019, when rules adopted by the FRB
that tailor the applicability of enhanced prudential standards and capital and liquidity requirements for BHCs with $100 billion or more in
total consolidated assets became effective, as described in detail below.
On October 10, 2019, the FRB adopted a rule that adjusts the thresholds at which certain enhanced prudential standards (“EPS”) apply to
BHCs with $100 billion or more in total consolidated assets (the “EPS Tailoring Rule”) and the FRB, the Office of the Comptroller of the
Currency (the “OCC”) and FDIC adopted a rule that similarly adjusts the thresholds at which certain other capital and liquidity standards
apply to BHCs and banks with $100 billion or more in total consolidated assets (the “Capital and Liquidity Tailoring Rule” and, together with
the EPS Tailoring Rule, the “Tailoring Rules”). The Tailoring Rules establish four risk-based categories of institutions, and the extent to
which enhanced prudential standards and certain other capital and liquidity standards apply to these BHCs and banks depends on the banking
organization’s category. Under the Tailoring Rules, the Bancorp and the Bank each qualify as a Category IV banking organization subject to
the least restrictive of the requirements applicable to firms with $100 billion or more in total consolidated assets.
Regulators
The Bancorp and/or the Bank are subject to regulation and supervision primarily by the FRB, the Consumer Financial Protection Bureau (the
“CFPB”) and the OCC and additionally by certain other functional regulators and self-regulatory organizations. The Bancorp is also subject
to regulation by the SEC by virtue of its status as a public company and due to the nature of some of its businesses. The Bank is also subject
to regulation by the FDIC, which insures the Bank’s deposits as permitted by law.
The federal and state laws and regulations that are applicable to banks and to BHCs regulate, among other matters, the scope of the Bancorp’s
and the Bank’s businesses, their activities, their investments, their capital and liquidity levels, their ability to make capital distributions (such
as share repurchases and dividends), their reserves against deposits, the timing of the availability of deposited funds, the amount of loans to
individual and related borrowers and the nature, the amount of and collateral for certain loans, and the amount of interest that may be charged
on loans, as applicable. Various federal and state consumer laws and regulations also affect the services provided to consumers.
The Bancorp and the Bank are required to file various reports with and are subject to examination by various regulators, including the FRB
and the OCC. The FRB, the OCC and the CFPB have the authority to issue orders for BHCs and banks to cease and desist from certain
banking practices and violations of conditions imposed by, or violations of agreements with, the FRB, the OCC and the CFPB. Certain of the
Bancorp’s and the Bank’s regulators are also empowered to assess civil money penalties against companies or individuals in certain
situations, such as when there is a violation of a law or regulation. Applicable state and federal laws also grant certain regulators the authority
to impose additional requirements and restrictions on the activities of the Bancorp and the Bank and, in some situations, the imposition of
such additional requirements and restrictions will not be publicly available information.
The following discussion describes certain elements of the comprehensive regulatory framework applicable to the Bancorp and its
subsidiaries. This discussion is not intended to describe all laws and regulations applicable to the Bancorp, the Bank, and the Bancorp’s other
subsidiaries.
Acquisitions
The BHCA requires the prior approval of the FRB for a BHC to acquire substantially all the assets of a bank or to acquire direct or indirect
ownership or control of more than 5% of any class of the voting shares of any bank, BHC or savings association, or to increase any such non-
majority ownership or control of any bank, BHC or savings association, or to merge or consolidate with any BHC.
The BHCA generally prohibits a BHC from acquiring a direct or indirect interest in or control of more than 5% of any class of the voting
shares of a company that is not a bank or a BHC and from engaging directly or indirectly in activities other than those of banking, managing
or controlling banks or furnishing services to its banking subsidiaries, except that it may engage in and may own shares of companies
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engaged in certain activities the FRB has determined to be so closely related to banking or managing or controlling banks as to be proper
incident thereto.
Financial Holding Companies
The Bancorp is registered as a BHC with the FRB under the BHCA and qualifies for and has elected to become an FHC. An FHC is permitted
to engage directly or indirectly in a broader range of activities than those permitted for a BHC under the BHCA. Permitted activities for an
FHC include securities underwriting and dealing, insurance underwriting and brokerage, merchant banking and other activities that are
declared by the FRB, in cooperation with the Treasury Department, to be “financial in nature or incidental thereto” or are declared by the
FRB unilaterally to be “complementary” to financial activities. In addition, an FHC is allowed to conduct permissible new financial activities
or acquire permissible non-bank financial companies with after-the-fact notice to the FRB. A BHC may elect to become an FHC if the BHC
is well-capitalized and is well managed and each of its banking subsidiaries is well-capitalized, is well managed and has at least a
“Satisfactory” rating under the Community Reinvestment Act (“CRA”). To maintain FHC status, a BHC must continue to meet these
requirements. The failure to meet such requirements could result in material restrictions on the activities of the FHC and may also adversely
affect the FHC’s ability to enter into certain transactions (including mergers and acquisitions) or obtain necessary approvals in connection
therewith, as well as loss of FHC status. If restrictions are imposed on the activities of an FHC, such information may not necessarily be
available to the public.
Dividends
The Bancorp is a legal entity separate and distinct from its subsidiaries and depends in part upon dividends received from its direct and
indirect subsidiaries, including the Bank, to fund its activities, including its ability to make capital distributions, such as paying dividends or
repurchasing shares. Under federal law, there are various limitations on the extent to which the Bank can declare and pay dividends to the
Bancorp, including those related to regulatory capital requirements, general regulatory oversight to prevent unsafe or unsound practices, and
federal banking law requirements concerning the payment of dividends out of net profits, surplus, and available earnings. Certain contractual
restrictions also may limit the ability of the Bank to pay dividends to the Bancorp. No assurances can be given that the Bank will, in any
circumstances, pay dividends to the Bancorp.
The Bancorp’s ability to declare and pay dividends is similarly limited by federal banking law and FRB regulations and policy. The FRB has
authority to prohibit BHCs from making capital distributions if they would be deemed to be an unsafe or unsound practice. The FRB has
indicated generally that it may be an unsafe or unsound practice for BHCs to pay dividends unless a BHC’s net income is sufficient to fund
the dividends and the expected rate of earnings retention is consistent with the organization’s capital needs, asset quality and overall financial
condition. In addition, the Bancorp’s ability to make capital distributions, including paying dividends and repurchasing shares, is subject to
the Bancorp complying with the automatic restrictions on capital distributions under the FRBs capital rules (“CCAR”) process discussed
below (see Regulatory Capital Requirements below).
In response to the uncertainty caused by the COVID-19 pandemic, certain large BHCs, including the Bancorp, were not permitted to make
share repurchases, subject to certain limited exceptions, during the third and fourth quarters of 2020, but were permitted to make dividend
payments subject to limits based on the amount of dividends paid in the second quarter and the firm’s average net income for the four
preceding quarters. For the first quarter of 2021, provided that a BHC does not increase its common stock dividends higher than the level paid
in the second quarter of 2020, BHCs, including the Bancorp, are permitted to pay common dividends and make share repurchases that, in the
aggregate, do not exceed an amount equal to the average of the firm’s net income for the four preceding calendar quarters. BHCs may also
make additional share repurchases up to the amount of share issuances related to expensed employee compensation. For further information
on a subsequent event related to an accelerated share repurchase transaction, refer to Note 33 of the Notes to Consolidated Financial
Statements.
Source of Strength
A BHC, including the Bancorp, is expected to act as a source of financial and managerial strength to each of its banking subsidiaries and to
commit resources to their support. This support may be required at times when the BHC may not have the resources to provide it or when
doing so is not otherwise in the interests of the Bancorp or its shareholders or creditors. The FRB may require a BHC to make capital
injections into a troubled subsidiary bank and may charge the BHC with engaging in unsafe and unsound practices if the BHC fails to commit
resources to such a subsidiary bank or if it undertakes actions that the FRB believes might jeopardize the BHC’s ability to commit resources
to such subsidiary bank.
Under these requirements, the Bancorp may in the future be required to provide financial assistance to the Bank should it experience financial
distress. Capital loans by the Bancorp to the Bank would be subordinate in right of payment to deposits and certain other debts of the Bank. In
the event of the Bancorp’s bankruptcy, any commitment by the Bancorp to a federal bank regulatory agency to maintain the capital of the
Bank would be assumed by the bankruptcy trustee and entitled to a priority of payment.
FDIC Assessments
The DIF provides insurance coverage for certain deposits, up to a standard maximum deposit insurance amount of $250,000 per depositor per
account ownership category and is funded through assessments on insured depository institutions, based on the risk each institution poses to
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the DIF. The Bank accepts customer deposits that are insured by the DIF and, therefore, must pay insurance premiums. The FDIC may
increase the Bank’s insurance premiums based on various factors, including the FDIC’s assessment of its risk profile.
The FDIC has required that large insured depository institutions, including the Bank, enhance their deposit account record keeping and
related information technology system capabilities to facilitate prompt payment of insured deposits if such an institution were to fail. The
FDIC has established an initial compliance date of April 1, 2020 while granting institutions an optional extension of the compliance date for
up to one year, to a date no later than April 1, 2021.
As of June 30, 2020, the DIF reserve ratio fell to 1.30%. The FDIC, as required under the Federal Deposit Insurance Act, established a plan
on September 15, 2020 to restore the DIF reserve ratio to meet or exceed 1.35% within eight years. The FDIC’s restoration plan projects the
reserve ratio to exceed 1.35% without increasing the deposit insurance assessment rate, subject to ongoing monitoring over the next eight
years. The FDIC could increase the deposit insurance assessments for certain insured depository institutions, including the Bank, if the DIF
reserve ratio is not restored as projected.
Transactions with Affiliates
Federal banking laws restrict transactions between a bank and its affiliates, including a parent BHC. The Bank is subject to these restrictions,
which include quantitative and qualitative limits on the amounts and types of transactions that may take place, including extensions of credit
to affiliates, investments in the stock or securities of affiliates, purchases of assets from affiliates and certain other transactions with affiliates.
These restrictions also require that credit transactions with affiliates be collateralized and that transactions with affiliates be on market terms
or better for the bank. Generally, a bank’s covered transactions with any affiliate are limited to 10% of the bank’s capital stock and surplus
and covered transactions with all affiliates are limited to 20% of the bank’s capital stock and surplus. Dodd-Frank expanded the scope of
these regulations, including by applying them to the credit exposure arising under derivative transactions, repurchase and reverse repurchase
agreements, and securities borrowing and lending transactions. Federal banking laws also place similar restrictions on loans and other
extensions of credit by FDIC-insured banks, such as the Bank, and their subsidiaries to their directors, executive officers, and principal
shareholders.
Community Reinvestment Act
The CRA generally requires insured depository institutions, including the Bank, to identify the communities they serve and to make loans and
investments and provide services that meet the credit needs of those communities. The CRA requires the OCC to evaluate the performance of
national banks (including the Bank) with respect to these CRA obligations. Depository institutions must maintain comprehensive records of
their CRA activities for purposes of these examinations. The OCC must take into account the institution’s record of performance in meeting
the credit needs of the entire community served, including low-and moderate-income neighborhoods. For purposes of CRA examinations, the
OCC rates each institution’s compliance with the CRA as “Outstanding,” “Satisfactory,” “Needs to Improve” or “Substantial
Noncompliance.” The FRB, which was responsible for CRA evaluations of the Bank prior to its conversion to a national bank charter,
conducted a regularly scheduled examination covering 2014 through 2016 to determine the Bank’s compliance with the CRA. This CRA
examination resulted in a change in rating from “Needs to Improve” to “Outstanding.”
The CRA requires the relevant federal bank regulatory agency to consider a bank’s CRA assessment when considering the bank’s application
to conduct certain mergers or acquisitions or to open or relocate a branch office. The FRB also must consider the CRA record of each
subsidiary bank of a BHC in connection with any acquisition or merger application filed by the BHC. An unsatisfactory CRA record could
substantially delay or result in the denial of an approval or application by the Bancorp or the Bank.
In May 2020, the OCC finalized amendments to its CRA rules, which apply to national banks, including the Bank. The OCC’s final rule
clarifies and expands the types of activities that qualify for positive CRA consideration, updates how banks determine assessment areas in
which they are evaluated, establishes objective performance standards to evaluate CRA performance and imposes more comprehensive CRA-
related data collection and reporting requirements. The Bank must comply with most of these amended requirements by January 1, 2023.
The other federal banking agencies, the FDIC and FRB, are also in the process of proposing amendments to their respective CRA rules.
While FDIC and FRB CRA rules do not apply to the Bank, future rulemaking to harmonize the CRA rules of the three federal banking
agencies could result in changes to CRA requirements applicable to national banks, including the Bank.
Regulatory Capital Requirements
The Bancorp and the Bank are subject to certain risk-based capital and leverage ratio requirements under the capital adequacy rules (the
“Final Capital Rules”) adopted by the FRB, for the Bancorp, and by the OCC, for the Bank. These quantitative calculations are minimums,
and the FRB and OCC may determine that a banking organization, based on its size, complexity, or risk profile, must maintain a higher level
of capital in order to operate in a safe and sound manner. Failure to be well-capitalized or to meet minimum capital requirements could result
in certain mandatory and possible additional discretionary actions by regulators that, if undertaken, could have an adverse material effect on
the Bancorp’s operations or financial condition. Failure to be well-capitalized or to meet minimum capital requirements could also result in
restrictions on the Bancorp’s or the Bank’s ability to pay dividends or otherwise distribute capital or to receive regulatory approval of
applications. Under the Final Capital Rules, the Bancorp’s and the Bank’s assets, exposures, and certain off-balance sheet items are subject to
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risk weights used to determine the institutions’ risk-weighted assets pursuant to the federal banking agencies’ Standardized Approach to risk-
weighting of assets. These risk-weighted assets are used to calculate the following minimum capital ratios for the Bancorp and the Bank:
•
•
•
•
Common Equity Tier 1 (“CET1”) Risk-Based Capital Ratio, equal to the ratio of CET1 capital to risk-weighted assets. CET1 capital
primarily includes common shareholders’ equity subject to certain regulatory adjustments and deductions, including with respect to
goodwill, intangible assets, certain deferred tax assets, and accumulated other comprehensive income (“AOCI”). In the first quarter
of 2015, under the Final Capital Rules, the Bancorp made a one-time election to exclude certain AOCI components, with the result
that those components are not recognized in the Bancorp’s CET1. In July 2019, the FDIC, the FRB and the OCC issued final rules
for institutions that do not apply advanced approaches to regulatory capital, including the Bancorp and the Bank. These rules
simplified the capital treatment of certain items (including mortgage servicing assets, deferred tax assets and investments in the
capital of unconsolidated financial institutions) and simplified the recognition and calculation of minority interests that are
includable in regulatory capital. The advanced approaches to regulatory capital are generally required for large, internationally
active banking organizations including those designated as global systemically important bank holding companies and those with
total assets or cross-jurisdictional activity in excess of certain thresholds. Banking organizations were required to adopt these
changes by April 1, 2020.
Tier 1 Risk-Based Capital Ratio, equal to the ratio of Tier 1 capital to risk-weighted assets. Tier 1 capital is primarily comprised of
CET1 capital, perpetual preferred stock and certain qualifying capital instruments.
Total Risk-Based Capital Ratio, equal to the ratio of total capital, including CET1 capital, Tier 1 capital, and Tier 2 capital, to risk-
weighted assets. Tier 2 capital primarily includes qualifying subordinated debt and qualifying allowance for loan and lease losses
(“ALLL”). Tier 2 capital also includes, among other things, certain trust preferred securities.
Tier 1 Leverage Ratio, equal to the ratio of Tier 1 capital to quarterly average assets (net of goodwill, certain other intangible assets,
and certain other deductions).
In August 2020, the U.S. federal banking agencies adopted a final rule altering the definition of eligible retained income in their respective
capital rules. Under the new rule, eligible retained income is the greater of a firm’s (i) net income for the four preceding calendar quarters,
net of any distributions and associated tax effects not already reflected in net income, and (ii) average net income over the preceding four
quarters. An institution's eligible retained income, when considered in conjunction with capital ratios and the stress capital buffer, provides
limitations on capital distributions (including dividends and share repurchases) and certain executive compensation arrangements for the
quarter following the calculation. As of December 31, 2020, the Bancorp was permitted to use 100% of its eligible retained income for these
purposes in the first quarter of 2021. This definition applies with respect to all of the Bancorp’s capital requirements. In addition, in
December 2018, the U.S. federal banking agencies finalized rules that would permit BHCs and banks to phase-in, for regulatory capital
purposes, the day-one impact of ASU 2016-13 (“CECL”) on retained earnings over a period of three years. As part of their response to the
COVID-19 pandemic, the U.S. federal banking agencies issued another final rule for additional transitional relief to regulatory capital related
to the impact of the adoption of CECL. The final rule provides banking organizations that adopt CECL in the 2020 calendar year with the
option to delay for two years the estimated impact of CECL on regulatory capital, followed by the aforementioned three-year transition period
to phase out the aggregate amount of benefit during the initial two-year delay for a total five-year transition. The estimated impact of CECL
on regulatory capital (modified CECL transitional amount) is calculated as the sum of the day-one impact on retained earnings upon adoption
of CECL (CECL transitional amount) and the calculated change in the ACL relative to the day-one ACL upon adoption of CECL multiplied
by a scaling factor of 25%. The scaling factor is used to approximate the difference in the ACL under CECL relative to the incurred loss
methodology. The modified CECL transitional amount will be calculated each quarter for the first two years of the five-year transition. The
amount of the modified CECL transition amount will be fixed as of December 31, 2021 and that amount will be subject to the three-year
phase out. For further discussion of CECL, see Note 1 of the Notes to Consolidated Financial Statements.
The Final Capital Rules also require banking organizations to maintain a capital conservation buffer of 2.5% or stress capital buffer, as
applicable, to avoid becoming subject to restrictions on capital distributions and certain discretionary bonus payments to management (see
Stress Buffer Requirements below). For more information related to the capital conservation buffer and stress capital buffer, refer to Note 30
of the Notes to Consolidated Financial Statements.
The total minimum regulatory capital ratios and well-capitalized minimum ratios are reflected in the table below. The FRB has not yet
revised the well-capitalized standard for BHCs to reflect the higher capital requirements imposed under the Final Capital Rules. For purposes
of the FRB’s Regulation Y, including determining whether a BHC meets the requirements to be an FHC, BHCs, such as the Bancorp, must
maintain a Tier 1 Risk-Based Capital Ratio of 6.0% or greater and a Total Risk-Based Capital Ratio of 10.0% or greater. If the FRB were to
apply the same or a very similar well-capitalized standard to BHCs as that applicable to the Bank, the Bancorp’s capital ratios as of
December 31, 2020, would exceed such revised well-capitalized standard. The FRB may require BHCs, including the Bancorp, to maintain
capital ratios substantially in excess of mandated minimum levels, depending upon general economic conditions and a BHC’s particular
condition, risk profile, and growth plans.
The following table presents the minimum regulatory capital ratios, minimum ratio plus capital conservation buffer, and well-capitalized
minimums compared with the Bancorp’s and the Bank’s regulatory capital ratios as of December 31, 2020, calculated using the regulatory
capital methodology applicable during 2020:
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Regulatory Capital Ratios:
CET1 risk-based capital ratio:
Fifth Third Bancorp
Fifth Third Bank, National Association
Tier I risk-based capital ratio:
Fifth Third Bancorp
Fifth Third Bank, National Association
Total risk-based capital ratio:
Fifth Third Bancorp
Fifth Third Bank, National Association
Tier I leverage ratio:
Fifth Third Bancorp
Fifth Third Bank, National Association
Minimum Regulatory
Capital Ratio
Minimum Ratio +
Applicable Buffer(a)
Well-Capitalized
Minimums(b)
Actual at
December 31, 2020
4.50 %
4.50
6.00
6.00
8.00
8.00
4.00
4.00
7.00
7.00
8.50
8.50
10.50
10.50
N/A
N/A
N/A
6.50
6.00
8.00
10.00
10.00
N/A
5.00
10.34
12.28
11.83
12.28
15.08
14.17
8.49
8.85
(a) Reflects the capital conservation buffer of 2.5% applicable to the Bank during 2020 and to the Bancorp until September 30, 2020. As of October 1, 2020, the
capital conservation buffer was replaced with a stress capital buffer of 2.5% for the Bancorp.
(b) Reflects the well-capitalized standard applicable to the Bancorp under FRB Regulation Y and the well-capitalized standard applicable to the Bank.
Liquidity Regulation
As a result of the Tailoring Rules, the Bancorp, as a Category IV banking organization, is now exempt from the liquidity coverage ratio
requirement, but remains subject to internal liquidity stress tests and standards.
Capital Planning and Stress Testing
BHCs with $100 billion or more in consolidated assets, including the Bancorp, generally must submit capital plans to the FRB on an annual
basis. In March 2020, the FRB adopted a final rule to integrate the annual capital planning and stress testing requirements with certain
ongoing regulatory capital requirements for large BHCs. As a result, the FRB’s annual CCAR process is now used to calibrate the Bancorp’s
stress capital buffer requirement. Among other changes, the revised capital plan rule also eliminates the assumption that the Bancorp’s
balance sheet assets would increase over the planning horizon. In addition, provided that the Bancorp is otherwise in compliance with
automatic restrictions on distributions under the Final Capital Rules, the Bancorp will no longer be required to seek prior approval to make
capital distributions in excess of those included in its capital plan. The Bancorp is required to provide the FRB notice within 15 days after
making any capital distributions in excess of those included in its capital plan.
Under its CCAR process, the FRB annually evaluates capital adequacy, internal capital adequacy, assessment processes and capital
distribution plans of BHCs with $100 billion or more in total consolidated assets. The CCAR process is intended to help ensure that those
BHCs have robust, forward-looking capital planning processes that account for each company’s unique risks and that permit continued
operations during times of economic and financial stress. The mandatory elements of the capital plan are an assessment of the expected uses
and sources of capital over a nine-quarter planning horizon, a description of all planned capital actions over the planning horizon, a discussion
of any expected changes to the BHC’s business plan that are likely to have a material impact on its capital adequacy or liquidity, a detailed
description of the BHC’s process for assessing capital adequacy and the BHC’s capital policy.
As a result of the EPS Tailoring Rule, the Bancorp is subject to a quantitative assessment of capital through supervisory stress tests every two
years, with the next required submission due in 2022. These supervisory stress tests are forward-looking quantitative evaluations of the
impact of stressful economic and financial market conditions on the Bancorp's capital. Additionally, under the EPS Tailoring Rule, the
Bancorp is no longer required to file semi-annual, company-run stress tests with the FRB and publicly disclose the results.
Stress Buffer Requirements
In March 2020, the FRB issued a final rule amending regulatory capital rules, capital plan rules and stress test rules. Under the final rule, the
capital conservation buffer is replaced with a stress capital buffer requirement. During each supervisory stress testing cycle, the FRB will use
the Bancorp’s supervisory stress test to determine its stress capital buffer, subject to a floor of 2.5%. Similar to the capital conservation
buffer, the Bancorp must maintain capital ratios above the sum of its minimum risk-based capital ratios and the stress capital buffer to avoid
restrictions on capital distributions and discretionary bonus payments to executive officers. The final rule is applicable to BHCs with $100
billion or more in total consolidated assets and was effective on October 1, 2020. The FRB provided the Bancorp with a stress capital buffer
of 2.5% that was effective as of October 1, 2020. The FRB required large banking organizations, including the Bancorp, to resubmit their
capital plans to reflect the stresses caused by the COVID-19 pandemic, and the FRB will notify the Bancorp by March 31, 2021 if it will elect
to recalculate the Bancorp’s stress capital buffer requirement.
Enhanced Prudential Standards
Pursuant to Title I of Dodd-Frank, certain U.S. BHCs are subject to enhanced prudential standards and early remediation requirements. As a
result, the Bancorp is subject to more stringent standards, including liquidity and capital requirements, leverage limits, stress testing,
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resolution planning, and risk management standards, than those applicable to smaller institutions. Certain larger banking organizations are
subject to additional enhanced prudential standards.
As discussed above, under the EPS Tailoring Rule, the Bancorp, as a Category IV banking organization, is subject to the least restrictive
enhanced prudential standards applicable to firms with $100 billion or more in total consolidated assets. As compared to enhanced prudential
standards that were applicable to the Bancorp, under the EPS Tailoring Rule, the Bancorp is no longer subject to company-run stress testing
requirements and is subject to less frequent supervisory stress tests, less frequent internal liquidity stress tests, and reduced liquidity risk
management requirements.
Heightened Governance and Risk Management Standards
The OCC has published guidelines documenting expectations for the governance and risk management practices of certain large financial
institutions, including the Bank. The guidelines require covered institutions to establish and adhere to a written governance framework in
order to manage and control their risk-taking activities. In addition, the guidelines provide standards for the institutions’ boards of directors to
oversee the risk governance framework. The Bank currently has a written governance framework and associated controls.
Privacy and Data Security
The OCC, FRB, FDIC and other bank regulatory agencies have adopted guidelines (the “Guidelines”) for safeguarding confidential, personal
customer information. The Guidelines require each financial institution, under the supervision and ongoing oversight of its board of directors
or an appropriate committee thereof, to create, implement and maintain a comprehensive written information security program designed to
ensure the security and confidentiality of customer information, protect against any anticipated threats or hazards to the security or integrity
of such information and protect against unauthorized access to or use of such information that could result in substantial harm or
inconvenience to any customer. In addition, various U.S. regulators, including the OCC, FRB and the SEC, have increased their focus on
cyber security through guidance, examinations and regulations. The Bancorp has adopted a customer information security program that has
been approved by the Bancorp’s Board of Directors.
The GLBA requires financial institutions to implement policies and procedures regarding the disclosure of nonpublic personal information
about consumers to non-affiliated third parties. In general, the statute requires explanations to consumers on policies and procedures
regarding the disclosure of such nonpublic personal information and, except as otherwise required by law, prohibits disclosing such
information except as provided in the banking subsidiary’s policies and procedures. The Bancorp’s banking subsidiary has implemented a
privacy policy.
States are also increasingly proposing or enacting legislation that relates to data privacy and data protection such as the California Consumer
Privacy Act which went into effect on January 1, 2020. The Bancorp continues to assess the requirements of such laws and proposed
legislation and their applicability to the Bancorp. Moreover, these laws, and proposed legislation, are still subject to revision or formal
guidance and they may be interpreted or applied in a manner inconsistent with our understanding.
Like other lenders, the Bank and other of the Bancorp’s subsidiaries use credit bureau data in their underwriting activities. Use of such data is
regulated under the Fair Credit Reporting Act (“FCRA”), and the FCRA also regulates reporting information to credit bureaus, prescreening
individuals for credit offers, sharing of information between affiliates, and using affiliate data for marketing purposes. Similar state laws may
impose additional requirements on the Bancorp and its subsidiaries.
Anti-Money Laundering and Economic Sanctions
The Bancorp is subject to federal laws that are designed to counter money laundering and terrorist financing, and transactions with persons,
companies or foreign governments sanctioned by the United States. These include the Bank Secrecy Act, the Money Laundering Control Act,
the USA PATRIOT Act and regulations for the International Emergency Economic Powers Act and the Trading with the Enemy Act, as
administered by the United States Treasury Department’s Office of Foreign Assets Control. These laws obligate depository institutions and
broker-dealers to verify their customers’ identity, conduct customer due diligence, report on suspicious activity, file reports of transactions in
currency and conduct enhanced due diligence on certain accounts. They also prohibit U.S. persons from engaging in transactions with certain
designated restricted countries and persons. Depository institutions and broker-dealers are required by their federal regulators to maintain
robust policies and procedures in order to ensure compliance with these obligations.
Failure to comply with these laws or maintain an adequate compliance program can lead to significant monetary penalties and reputational
damage and federal regulators evaluate the effectiveness of an applicant in combating money laundering when determining whether to
approve a proposed bank merger, acquisition, restructuring, or other expansionary activity. There have been a number of significant
enforcement actions by regulators, as well as state attorneys general and the Department of Justice, against banks, broker-dealers and non-
bank financial institutions with respect to these laws and some have resulted in substantial penalties, including criminal pleas. The Bancorp’s
Board has approved policies and procedures that the Bancorp believes comply with these laws.
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Executive Compensation
Pursuant to Dodd-Frank, each public company must give its shareholders the opportunity to vote on the compensation of its executives at
least once every three years. The SEC also adopted rules on disclosure and voting requirements for golden parachute compensation that is
payable to named executive officers in connection with sale transactions.
The SEC’s rules also direct the stock exchanges to prohibit listing classes of equity securities of a company if a company’s compensation
committee members are not independent. The rules also provide that a company’s compensation committee may only select a compensation
consultant, legal counsel or other advisor after taking into consideration factors to be identified by the SEC that affect the independence of a
compensation consultant, legal counsel or other advisor.
The rules implementing the pay ratio provisions of Dodd-Frank require companies to disclose the ratio of the compensation of its chief
executive officer to the median compensation of its employees. For a registrant with a fiscal year ending on December 31, such as the
Bancorp, the pay ratio was first required as part of its executive compensation disclosure in its annual proxy statement or Form 10-K filed
starting in 2018.
Dodd-Frank provides that the SEC must issue rules directing the stock exchanges to prohibit listing any security of a company unless the
company develops and implements a policy providing for disclosure of the policy of the company on incentive-based compensation that is
based on financial information required to be reported under the securities laws. In the event the company is required to prepare an
accounting restatement due to the material noncompliance of the company with any financial reporting requirement under the securities laws,
the company will recover from any current or former executive officer of the company who received incentive-based compensation during
the three-year period preceding the date on which the company is required to prepare the restatement based on the erroneous data, any
exceptional compensation above what would have been paid under the restatement.
Dodd-Frank required the SEC to adopt a rule to require that each company disclose in the proxy materials for its annual meetings whether an
employee or board member is permitted to purchase financial instruments designed to hedge or offset decreases in the market value of equity
securities granted as compensation or otherwise held by the employee or board member. The SEC adopted final rules requiring this disclosure
on December 18, 2018. The Bancorp was required to comply with this new rule beginning July 1, 2019.
The Bancorp’s compensation practices are also subject to oversight by the FRB. The scope and content of compensation regulation in the
financial industry are continuing to develop, and the regulations and resulting market practices are expected to continue to evolve over a
number of years. In June 2016, the SEC and the federal banking agencies issued a proposed rule to implement the incentive-based
compensation provisions of section 956 of Dodd-Frank. The proposal would establish new requirements for incentive-based compensation at
institutions with assets of at least $1 billion. No final rule has been issued, but the Biden Administration may revisit this proposal.
Debit Card Interchange Fees
Dodd-Frank includes a set of rules requiring that interchange transaction fees for electronic debit transactions be reasonable and proportional
to certain costs associated with processing the transactions. Interchange fees for electronic debit transactions are limited to 21 cents plus
0.05% of the transaction, plus an additional one cent per transaction fraud adjustment. These fees impose requirements regarding routing and
exclusivity of electronic debit transactions, and generally require that debit cards be usable in at least two unaffiliated networks.
Resolution Planning
In past years, the Bancorp was required to submit annually to the FRB and the FDIC a resolution plan for the orderly resolution of the
Bancorp and its significant legal entities under the U.S. Bankruptcy Code or other applicable insolvency laws in a rapid and orderly fashion in
the event of future material financial distress or failure. In October 2019, the FRB and the FDIC adopted amendments to their resolution
planning rule to adjust the thresholds at which certain resolution planning requirements apply to BHCs with $100 billion or more in total
consolidated assets, including the Bancorp. As a result of these amendments, the Bancorp is no longer required to submit an annual resolution
plan to the FRB and the FDIC.
In addition, the Bank is required to periodically file a separate resolution plan with the FDIC. EGRRCPA did not change the FDIC’s rules
that require the Bank to periodically file a separate resolution plan. In April 2019, the FDIC released an advanced notice of proposed
rulemaking with respect to the FDIC’s bank resolution plan requirements that requested comments on how to better tailor bank resolution
plans to a firm’s size, complexity, and risk profile. Until the FDIC’s revisions to its bank resolution plan requirement are finalized, no bank
resolution plans will be required to be filed.
Proprietary Trading and Investing in Certain Funds
Dodd-Frank sets forth restrictions on banking organizations’ ability to engage in proprietary trading and to have certain ownership interests in
and relationships with certain covered funds, such as private equity and hedge funds (the “Volcker Rule”). The Volcker Rule generally
prohibits any banking entity from engaging in short-term proprietary trading for its own account, but permits transactions in certain securities
(such as securities of the U.S. government), transactions on behalf of customers and activities such as market making, underwriting and risk-
mitigating hedging. In addition, the Volcker Rule limits the sponsorship of or investment in a covered fund by any banking entity. The
Volcker Rule also prohibits certain types of transactions between a banking entity and any covered fund that is sponsored by the banking
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entity or for which it serves as investment manager or investment advisor, similar to those transactions between banks and their affiliates that
are limited as described above. The FRB granted extensions to banking entities, including the Bancorp, to conform to the requirements of the
Volcker Rule with respect to “illiquid funds,” as defined in the Volcker Rule. The Bancorp is also required to maintain a satisfactory Volcker
Rule compliance program.
As of October 2019, the FRB, OCC, FDIC, Commodity Futures Trading Commission (“CFTC”) and SEC finalized amendments to the
Volcker Rule. These amendments tailor the Volcker Rule’s compliance requirements to the amount of a firm’s trading activity, revise the
definition of trading account, clarify certain key provisions in the Volcker Rule, and modify the information companies are required to
provide to federal agencies. These amendments to the Volcker Rule are not material to our investing and trading activities.
In June 2020, the five federal agencies finalized amendments to the Volcker Rule’s restrictions on ownership interests in and relationships
with covered funds. Among other things, these amendments permit banking entities to have relationships with and offer additional financial
services to additional types of funds and investment vehicles. These requirements are not expected to have a material impact on the Bancorp’s
investing and trading activities
Derivatives
Title VII of Dodd-Frank imposes a regulatory structure on the over-the-counter derivatives market, including requirements for clearing,
exchange trading, capital margin, segregation trade reporting, and recordkeeping. Title VII also requires certain persons to register as a swap
dealer or a security-based swap dealer. The Bank is provisionally registered with the CFTC as a swap dealer. The CFTC and U.S. banking
regulators have finalized most rules applicable to the over-the-counter derivatives markets and swap dealers, and the SEC has finalized most
of its rules related to security-based swaps. The CFTC’s Title VII regulations are applicable to the Bank’s activity as a swap dealer and
include rules related to internal and external business conduct standards, reporting and recordkeeping, mandatory clearing for certain swaps,
and trade documentation and confirmation requirements. In addition, the U.S. banking regulators have finalized regulations applicable to the
Bank regarding mandatory posting and collection of margin by certain swap counterparties and segregation of customer funds. The Bank is
not currently subject to regulation as a security-based swap dealer.
Consumer Protection Regulation and Supervision
The Bancorp is subject to supervision and regulation by the CFPB with respect to federal consumer protection laws. The Bancorp is also
subject to certain state consumer protection laws, and under Dodd-Frank, state attorneys general and other state officials are empowered to
enforce certain federal consumer protection laws and regulations. State authorities have increased their focus on and enforcement of
consumer protection rules. These federal and state consumer protection laws apply to a broad range of our activities and to various aspects of
our business and include laws relating to interest rates, fair lending, disclosures of credit terms and estimated transaction costs to consumer
borrowers, debt collection practices, the use of and the provision of information to consumer reporting agencies, and the prohibition of unfair,
deceptive, or abusive acts or practices in connection with the offer, sale, or provision of consumer financial products and services.
The CFPB has promulgated many mortgage-related final rules since it was established under Dodd-Frank, including rules related to the
ability to repay and qualified mortgage standards, mortgage servicing standards, loan originator compensation standards, high-cost mortgage
requirements, Home Mortgage Disclosure Act requirements, and appraisal and escrow standards for higher priced mortgages. The mortgage-
related final rules issued by the CFPB have materially restructured the origination, servicing, and securitization of residential mortgages in the
United States. These rules have impacted, and will continue to impact, the business practices of mortgage lenders, including the Bancorp.
Future Legislative and Regulatory Initiatives
Federal and state legislators as well as regulatory agencies may introduce or enact new laws and rules, or amend existing laws and rules, that
may affect the regulation of financial institutions and their holding companies. The impact of any future legislative or regulatory changes
cannot be predicted. However, such changes could affect the Bancorp’s business, financial condition and results of operations.
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ITEM 1A. RISK FACTORS
The risks and uncertainties listed below present risks that could have a material impact on the Bancorp’s financial condition, the results of its
operations or its business. Some of these risks and uncertainties are interrelated and the occurrence of one or more of them may exacerbate
the effect of others. The risks and uncertainties described below are not the only ones Fifth Third faces. Additional risks and uncertainties not
presently known to Fifth Third or that Fifth Third currently believes to be immaterial may also adversely affect its business. See “Cautionary
Note Regarding Forward-Looking Statements” elsewhere in this Annual Report on Form 10-K for more information.
CREDIT RISKS
Deteriorating credit quality has adversely impacted Fifth Third in the past and may adversely impact Fifth Third in the future.
When Fifth Third lends money or commits to lend money, the Bancorp incurs credit risk or the risk of loss if borrowers do not repay their
loans, leases, credit cards, derivative obligations, or other credit obligations. The performance of these credit portfolios significantly affects
the Bancorp’s financial results and condition. If the current economic environment were to deteriorate, more customers may have difficulty in
repaying their credit obligations which could result in a higher level of credit losses and reserves for credit losses. Fifth Third reserves for
credit losses by establishing reserves through a charge to earnings. The amount of these reserves is based on Fifth Third’s assessment of
credit losses inherent in the credit portfolios including unfunded credit commitments. The process for determining the amount of the ALLL
and the reserve for unfunded commitments is critical to Fifth Third’s financial results and condition. It requires difficult, subjective and
complex judgments about the environment, including analysis of economic or market conditions that might impair the ability of borrowers to
repay their loans.
Fifth Third might underestimate the credit losses inherent in its portfolios and have credit losses in excess of the amount reserved. Fifth Third
might increase the reserve because of changing economic conditions, including falling home prices or higher unemployment, or other factors
such as changes in borrower’s behavior or changing protections in credit agreements. As an example, borrowers may “strategically default,”
or discontinue making payments on their real estate-secured loans if the value of the real estate is less than what they owe, even if they are
still financially able to make the payments.
Fifth Third believes that both the ALLL and the reserve for unfunded commitments are adequate to cover inherent losses at December 31,
2020; however, there is no assurance that they will be sufficient to cover future credit losses, especially if housing and employment
conditions decline. In the event of significant deterioration in economic conditions, Fifth Third may be required to increase reserves in future
periods, which would reduce earnings.
For more information, refer to the Credit Risk Management subsection of the Risk Management section and the ALLL and Reserve for
Unfunded Commitments subsections of the Critical Accounting Policies section of Management’s Discussion and Analysis of Financial
Condition and Results of Operations.
Fifth Third may have more credit risk and higher credit losses to the extent loans are concentrated by location or industry of the
borrowers or collateral.
Fifth Third’s credit risk and credit losses can increase if its loans are concentrated to borrowers engaged in the same or similar activities or to
borrowers who as a group may be uniquely or disproportionately affected by economic or market conditions. Deterioration in economic
conditions, housing conditions and commodity and real estate values in certain states or locations could result in materially higher credit
losses if loans are concentrated in those locations. Fifth Third has significant exposures to businesses in certain economic sectors such as
manufacturing, real estate, financial services, insurance and healthcare, and weaknesses in those businesses may adversely impact Fifth
Third’s business, results of operations or financial condition. Additionally, Fifth Third has a substantial portfolio of commercial and
residential real estate loans and weaknesses in residential or commercial real estate markets may adversely impact Fifth Third’s business,
results of operations or financial condition.
The COVID-19 pandemic has caused certain industries to have experienced increased stress. These include consumer-driven industries that
require gathering or congregation such as leisure and recreation (including casinos, restaurants, sports, fitness, hotels and other industries),
non-essential retail and leisure travel (primarily including airlines and cruise lines). Certain segments of the healthcare industry (including
skilled nursing, physician offices and surgery/outpatient centers, among others) have also been impacted by the pandemic given delays and
restrictions on in-person visits and elective procedures.
Problems encountered by financial institutions larger than or similar to Fifth Third could adversely affect financial markets generally
and have direct and indirect adverse effects on Fifth Third.
Fifth Third has exposure to counterparties in the financial services industry and other industries, and routinely executes transactions with such
counterparties, including brokers and dealers, commercial banks, investment banks, mutual and hedge funds and other institutional clients.
Many of Fifth Third’s transactions with other financial institutions expose Fifth Third to credit risk in the event of default of a counterparty or
client. In addition, Fifth Third’s credit risk may be affected when the collateral it holds cannot be realized or is liquidated at prices not
sufficient to recover the full amount of the loan or derivative exposure. The commercial soundness of many financial institutions may be
closely interrelated as a result of credit, trading, clearing or other relationships between the institutions. As a result, concerns about, or a
default or threatened default by, one institution could lead to significant market-wide liquidity and credit problems, losses or defaults by other
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institutions. This is sometimes referred to as “systemic risk” and may adversely affect financial intermediaries, such as clearing agencies,
clearing houses, banks, securities firms and exchanges, with which the Bancorp interacts on a daily basis, and therefore could adversely affect
Fifth Third.
LIQUIDITY RISKS
Fifth Third must maintain adequate sources of funding and liquidity.
Fifth Third must maintain adequate funding sources in the normal course of business to support its operations and fund outstanding liabilities,
as well as meet regulatory expectations. Fifth Third primarily relies on bank deposits to be a low cost and stable source of funding for the
loans Fifth Third makes and the operations of Fifth Third’s business. Core deposits, which include transaction deposits and other time
deposits, have historically provided Fifth Third with a sizeable source of relatively stable and low-cost funds (average core deposits funded
74% of average total assets for the year ending December 31, 2020). In addition to customer deposits, sources of liquidity include
investments in the securities portfolio, Fifth Third’s sale or securitization of loans in secondary markets and the pledging of loans and
investment securities to access secured borrowing facilities through the FHLB and the FRB, and Fifth Third’s ability to raise funds in
domestic and international money and capital markets.
Fifth Third’s liquidity and ability to fund and run its business could be materially adversely affected by a variety of conditions and factors,
including financial and credit market disruptions and volatility or a lack of market or customer confidence in financial markets in general
similar to what occurred during the financial crisis in 2008 and early 2009, which may result in a loss of customer deposits or outflows of
cash or collateral and/or ability to access capital markets on favorable terms.
Other conditions and factors that could materially adversely affect Fifth Third’s liquidity and funding include:
•
•
•
•
•
a lack of market or customer confidence in Fifth Third or negative news about Fifth Third or the financial services industry
generally, which also may result in a loss of deposits and/or negatively affect the ability to access the capital markets;
the loss of customer deposits due to competition from other banks or due to alternative investments;
inability to sell or securitize loans or other assets;
increased regulatory requirements; and
reductions in one or more of Fifth Third’s credit ratings.
A reduced credit rating could adversely affect Fifth Third’s ability to borrow funds and raise the cost of borrowings substantially and could
cause creditors and business counterparties to raise collateral requirements or take other actions that could adversely affect Fifth Third’s
ability to raise liquidity or capital. Many of the above conditions and factors may be caused by events over which Fifth Third has little or no
control such as what occurred during the financial crisis. There can be no assurance that significant disruption and volatility in the financial
markets will not occur again in the future.
Regulatory changes relating to liquidity and risk management may also negatively impact Fifth Third’s results of operations and competitive
position. Various regulations have been adopted to impose more stringent liquidity requirements for large financial institutions, including
Fifth Third. These regulations address, among other matters, liquidity stress testing and minimum liquidity requirements. The application of
certain of these regulations to banking organizations, such as Fifth Third, have been modified, including in connection with the
implementation of the EGRRCPA.
If Fifth Third is unable to continue to fund assets through customer bank deposits or access capital markets on favorable terms or if Fifth
Third suffers an increase in borrowing costs or otherwise fails to manage liquidity effectively, then Fifth Third’s liquidity, operating margins
and financial results and condition may be materially adversely affected. Fifth Third may also need to raise additional capital and liquidity
through the issuance of stock, which could dilute the ownership of existing stockholders, or reduce or even eliminate common stock
dividends or share repurchases to preserve capital and liquidity.
Fifth Third and/or the holders of its securities could be adversely affected by unfavorable ratings from rating agencies.
Fifth Third’s ability to access the capital markets is important to its overall funding profile. This access is affected by the ratings assigned by
rating agencies to Fifth Third, certain of its subsidiaries and particular classes of securities they issue. The interest rates that Fifth Third pays
on its securities are also influenced by, among other things, the credit ratings that it, its subsidiaries and/or its securities receive from
recognized rating agencies. A downgrade to Fifth Third or its subsidiaries’ credit rating could affect its ability to access the capital markets,
increase its borrowing costs and negatively impact its profitability. A ratings downgrade to Fifth Third, its subsidiaries or their securities
could also create obligations or liabilities of Fifth Third under the terms of its outstanding securities that could increase Fifth Third’s costs or
otherwise have a negative effect on its results of operations or financial condition.
Additionally, a downgrade of the credit rating of any particular security issued by Fifth Third or its subsidiaries could negatively affect the
ability of the holders of that security to sell the securities and the prices at which any such securities may be sold.
On April 28, 2020, Fitch Ratings Inc. (“Fitch”) revised Fifth Third Bancorp’s Rating Outlook on its Long- and Short-Term Issuer Default
Ratings to “Negative” from “Stable” as part of an ongoing horizontal review of all U.S. banks the agency is conducting as a result of concerns
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about significant operating environment challenges due to the disruption to economic activity and financial markets from the COVID-19
pandemic. On May 20, 2020, DBRS, Inc. (“DBRS”) also revised the trend for all long-term ratings at Fifth Third Bancorp and Fifth Third
Bank, National Association to “Negative” from “Stable.” As of the date of this filing, Fifth Third is under review by Fitch and DBRS, and
neither Fitch, nor DBRS, has changed its ratings. Accordingly, Fifth Third’s Fitch and DBRS ratings are subject to change at any time.
Other rating agencies may also take actions to downgrade their ratings of the securities issued by Fifth Third or its subsidiaries. There can be
no assurances that Fifth Third or its subsidiaries will retain any specific rating from any specific rating agency.
If Fifth Third is unable to maintain or grow its deposits, it may be subject to paying higher funding costs.
The total amount that Fifth Third pays for funding costs is dependent, in part, on Fifth Third’s ability to maintain or grow its deposits. If Fifth
Third is unable to sufficiently maintain or grow its deposits to meet liquidity objectives, it may be subject to paying higher funding costs.
Fifth Third competes with banks and other financial services companies for deposits. If competitors raise the rates they pay on deposits, Fifth
Third’s funding costs may increase, either because Fifth Third raises rates to avoid losing deposits or because Fifth Third loses deposits and
must rely on more expensive sources of funding. Also, customers typically move money from bank deposits to alternative investments during
rising interest rate environments. Customers may also move noninterest-bearing deposits to interest-bearing accounts increasing the cost of
those deposits. Checking and savings account balances and other forms of customer deposits may decrease when customers perceive
alternative investments, such as the stock market, as providing a better risk/return trade-off. Fifth Third’s bank customers could take their
money out of the Bank and put it in alternative investments, causing Fifth Third to lose a lower cost source of funding. Higher funding costs
reduce Fifth Third’s net interest margin and net interest income.
The Bancorp’s ability to receive dividends from its subsidiaries accounts for most of its revenue and could affect its liquidity and ability to
pay dividends.
Fifth Third Bancorp is a separate and distinct legal entity from its subsidiaries. Fifth Third Bancorp typically receives substantially all of its
revenue from dividends from its subsidiaries. These dividends are the principal source of funds to pay dividends on Fifth Third Bancorp’s
stock and interest and principal on its debt. Various federal and/or state laws and regulations, as well as regulatory expectations, limit the
amount of dividends that the Bancorp’s banking subsidiary and certain nonbank subsidiaries may pay to the Bancorp. Regulatory scrutiny of
liquidity and capital levels at bank holding companies and insured depository institutions has resulted in increased regulatory focus on all
aspects of capital planning, including dividends and other distributions to shareholders of banks such as the parent bank holding companies.
In addition, Fifth Third Bancorp’s right to participate in a distribution of assets upon a subsidiary’s liquidation or reorganization is subject to
the prior claims of that subsidiary’s creditors.
Regulatory limitations on the Bancorp’s ability to receive dividends from its subsidiaries could have a material adverse effect on its liquidity
and ability to pay dividends on stock or interest and principal on its debt and to engage in share repurchases. For further information, refer to
Regulation and Supervision and Note 4 of the Notes to Consolidated Financial Statements.
OPERATIONAL RISKS
Fifth Third is exposed to cyber security risks, including denial of service, hacking and identity theft, which could result in the disclosure,
theft or destruction of confidential information.
Fifth Third relies heavily on communications and information systems to conduct its business. This includes the use of networks, the internet,
digital applications and the telecommunications and computer systems of third party service providers to perform business activities.
Additionally, digital and mobile technologies are leveraged to interact with customers, which increases the risk of information security
breaches. Failures, interruptions or breaches in the security of these systems occur across Fifth Third's industry with some frequency and, if a
material event of this nature affects Fifth Third, this could result in disruptions to Fifth Third’s accounting, deposit, loan and other systems,
and adversely affect its customer relationships. While Fifth Third has policies and procedures designed to prevent or limit the effect of these
possible events, there can be no assurance that any such failure, interruption or security breach will not occur or, if any does occur, that it can
be sufficiently remediated.
There have been increasing efforts on the part of threat actors, including through cyber-attacks, to breach data security at financial institutions
or with respect to financial transactions. There have been several recent instances involving financial services, credit bureaus and consumer-
based companies reporting the unauthorized disclosure of client or customer information or the destruction or theft of corporate data, by both
private individuals and foreign governments. In addition, because the techniques used to cause such security breaches change frequently,
often are not recognized until launched against a target and may originate from less regulated and remote areas around the world, Fifth Third
may be unable to proactively address these techniques or to implement adequate preventative measures. Furthermore, there has been a well-
publicized series of apparently related distributed denial of service attacks on large financial services companies and “ransom” attacks where
hackers have requested payments in exchange for not disclosing customer information. The unintentional or willful acts or omissions of
employees may also create or exacerbate cybersecurity risks.
Cyber threats are rapidly evolving and Fifth Third may not be able to anticipate or prevent all such attacks. Additionally, Fifth Third may be
impacted by a breach where Fifth Third is not the primary target (i.e. SolarWinds event). These risks are heightened through the increasing
use of digital and mobile solutions which allow for rapid money movement and increase the difficulty to detect and prevent fraudulent
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transactions. Across Fifth Third's industry, the cost of minimizing these risks and investigating incidents has continued to increase with the
frequency and sophistication of these threats. Despite its efforts, the occurrence of any failure, interruption or security breach of Fifth Third’s
systems or third-party service providers (or providers to such third-party service providers), particularly if widespread or resulting in financial
losses to customers, could also seriously damage Fifth Third’s reputation, result in a loss of customer business, result in substantial
remediation costs, additional cyber-security protection costs and increased insurance premiums, subject it to additional regulatory scrutiny, or
expose it to civil litigation and financial liability. Fifth Third’s insurance may be inadequate to compensate for losses from a cyber-attack.
Fifth Third relies on its systems and certain third-party service providers and certain failures could materially adversely affect operations.
Fifth Third’s operations, including its financial and accounting systems, use computer systems and telecommunications networks operated by
both Fifth Third and third-party service providers. Additionally, Fifth Third collects, processes and stores sensitive consumer data by utilizing
those and other systems and networks. Fifth Third has security, backup and recovery systems in place, as well as a business continuity plan to
ensure the systems will not be inoperable. Fifth Third also has security to prevent unauthorized access to the systems. In addition, Fifth Third
requires its third-party service providers to maintain similar controls. However, Fifth Third cannot be certain that the measures will be
successful.
A security breach in these systems or the loss or corruption of confidential information such as business results, transaction records and
related information could adversely impact Fifth Third’s ability to provide timely and accurate financial information in compliance with legal
and regulatory requirements, which could result in sanctions from regulatory authorities, significant reputational harm and the loss of
confidence in Fifth Third. Additionally, security breaches or the loss, theft or corruption of customer information such as social security
numbers, credit card numbers, account balances or other information could result in losses by Fifth Third's customers, litigation, regulatory
sanctions, lost customers and revenue, increased costs and significant reputational harm.
Fifth Third’s necessary dependence upon automated systems to record and process its transaction volume poses the risk that technical system
flaws or employee errors, tampering or manipulation of those systems will result in losses and may be difficult to detect. Fifth Third may also
be subject to disruptions of its operating systems arising from events that are beyond its control (for example, computer viruses or electrical
or telecommunications outages).
Third party service providers with which the Bancorp does business both domestically and offshore, as well as vendors and other third parties
with which the Bancorp’s customers do business, can also be sources of operational risk to the Bancorp, particularly where activities of
customers are beyond the Bancorp’s security and control systems, such as through the use of the internet, personal computers, tablets, smart
phones and other mobile services. Security breaches affecting the Bancorp’s customers, or systems breakdowns or failures, security breaches
or employee misconduct affecting such other third party service providers, may require the Bancorp to take steps to protect the integrity of its
own operational systems or to safeguard confidential information of the Bancorp or its customers, thereby increasing the Bancorp’s
operational costs and potentially diminishing customer satisfaction. If personal, confidential or proprietary information of customers or clients
in the Bancorp’s or such vendors’ or other third parties’ possession were to be mishandled or misused, the Bancorp could suffer significant
regulatory consequences, reputational damage and financial loss. Such mishandling or misuse could include circumstances where, for
example, such information was erroneously provided to parties who are not permitted to have the information, either through the fault of the
Bancorp’s systems, employees or counterparties, or where such information was intercepted or otherwise compromised by threat actors. The
Bancorp may be subject to disruptions of its operating systems arising from events that are wholly or partially beyond the Bancorp’s control,
which may include, for example, security breaches; electrical or telecommunications outages; failures of computer components or servers or
other damage to the Bancorp’s property or assets; natural disasters or severe weather conditions; health emergencies; or events arising from
local or larger-scale political events, including outbreaks of hostilities or terrorist acts. For example, it has been reported that there is a
fundamental security flaw in computer chips found in many types of computing devices, including phones, tablets, laptops and desktops.
While the Bancorp believes that its current resiliency plans are both sufficient and adequate, there can be no assurance that such plans will
fully mitigate all potential business continuity risks to the Bancorp or its customers and clients.
Any failures or disruptions of the Bancorp’s systems or operations could give rise to losses in service to customers and clients, adversely
affect the Bancorp’s business and results of operations by subjecting the Bancorp to losses or liability, or require the Bancorp to expend
significant resources to correct the failure or disruption, as well as by exposing the Bancorp to reputational harm, litigation, regulatory fines
or penalties or losses not covered by insurance. The Bancorp could also be adversely affected if it loses access to information or services from
a third-party service provider as a result of a security breach or system or operational failure, or disruption affecting the third-party service
provider. Fifth Third’s insurance may be inadequate to compensate for failures by, or affecting third party service providers upon which Fifth
Third relies.
Fifth Third may not be able to effectively manage organizational changes and implement key initiatives in a timely fashion, or at all, due
to competing priorities which could adversely affect its business, results of operations, financial condition and reputation.
Fifth Third is subject to rapid changes in technology, regulation and product innovation, and faces intense competition for customers, sources
of revenue, capital, services, qualified employees and other essential business resources. In order to meet these challenges, Fifth Third is or
may be engaged in numerous critical strategic initiatives at the same time. Accomplishing these initiatives may be complex, time intensive
and require significant financial, technological, management and other resources. These initiatives may consume management’s attention and
may compete for limited resources. In addition, organizational changes may need to be implemented throughout Fifth Third as a result of the
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new products, services, partnerships and processes that arise from the execution of the various strategic initiatives. Fifth Third may have
difficulty managing these organizational changes and executing these initiatives effectively in a timely fashion, or at all. Fifth Third’s failure
to do so could expose it to litigation or regulatory action and may damage Fifth Third’s business, results of operations, financial condition and
reputation.
Fifth Third may not be able to successfully implement future information technology system enhancements, which could adversely affect
Fifth Third’s business operations and profitability.
Fifth Third invests significant resources in information technology system enhancements in order to provide functionality and security at an
appropriate level. Fifth Third may not be able to successfully implement and integrate future system enhancements, or may not be able to do
so on a cost-effective basis. Such sanctions could include fines and result in reputational harm and have other negative effects. In addition,
future system enhancements could have higher than expected costs and/or result in operating inefficiencies, which could increase the costs
associated with the implementation as well as ongoing operations. Failure to properly utilize system enhancements that are implemented in
the future could result in impairment charges that adversely impact Fifth Third’s financial condition and results of operations and could result
in significant costs to remediate or replace the defective components. In addition, Fifth Third may incur significant training, licensing,
maintenance, consulting and amortization expenses during and after systems implementations, and any such costs may continue for an
extended period of time.
Fifth Third’s framework for managing risks may not be effective in mitigating its risk and loss.
Fifth Third’s risk management framework seeks to mitigate risk and loss. Fifth Third has established processes and procedures intended to
identify, measure, monitor, report and manage the types of risk to which it is subject, including liquidity risk, credit risk, interest rate risk,
price risk, legal and regulatory compliance risk, strategic risk, reputational risk and operational risk related to its employees, systems and
vendors, among others. Any system of control and any system to reduce risk exposure, however well designed and operated, is based in part
on certain assumptions and can provide only reasonable, not absolute, assurances that the objectives of the system are met. A failure in Fifth
Third’s internal controls could have a significant negative impact not only on its earnings, but also on the perception that customers,
regulators and investors may have of Fifth Third. Fifth Third continues to devote a significant amount of effort, time and resources to
improving its controls and ensuring compliance with complex regulations.
Additionally, instruments, systems and strategies used to hedge or otherwise manage exposure to various types of interest rate, price, legal
and regulatory compliance, credit, liquidity, operational and business risks and enterprise-wide risk could be less effective than anticipated.
As a result, Fifth Third may not be able to effectively mitigate its risk exposures in particular market environments or against particular types
of risk. If Fifth Third’s risk management framework proves ineffective, Fifth Third could incur litigation, negative regulatory consequences,
reputational damages among other adverse consequences and Fifth Third could suffer unexpected losses that may affect its financial
condition or results of operations.
Fifth Third may experience losses related to fraud, theft or violence.
Fifth Third has experienced, and may experience again in the future, losses incurred due to customer or employee fraud, theft or physical
violence. Additionally, physical violence may negatively affect Fifth Third’s key personnel, facilities or systems. These losses may be
material and negatively affect Fifth Third’s results of operations, financial condition or prospects. These losses could also lead to significant
reputational risks and other effects. The sophistication of external fraud actors continues to increase, and in some cases includes large
criminal rings, which increases the resources and infrastructure needed to thwart these attacks. The industry fraud threat continues to evolve,
including but not limited to card fraud, check fraud, social engineering and phishing attacks for identity theft and account takeover. Fifth
Third continues to invest in fraud prevention in the forms of people and systems designed to prevent, detect and mitigate the customer and
financial impacts.
Fifth Third could suffer if it fails to attract and retain skilled personnel.
Fifth Third’s success depends, in large part, on its ability to attract and retain key individuals. Competition for qualified candidates in the
activities and markets that Fifth Third serves is intense, which may increase Fifth Third’s expenses and may result in Fifth Third not being
able to hire candidates or retain them. If Fifth Third is not able to hire qualified candidates or retain its key personnel, Fifth Third may be
unable to execute its business strategies and may suffer adverse consequences to its business, operations and financial condition.
Compensation paid by financial institutions such as Fifth Third is heavily regulated, particularly under Dodd-Frank, which affects the amount
and form of compensation Fifth Third pays to hire and retain talented employees. If Fifth Third is unable to attract and retain qualified
employees, or do so at rates necessary to maintain its competitive position, or if compensation costs required to attract and retain employees
become more expensive, Fifth Third’s performance, including its competitive position, could be materially adversely affected.
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LEGAL AND REGULATORY COMPLIANCE RISKS
Fifth Third and/or its affiliates are or may become involved from time to time in information-gathering requests, investigations and
litigation, regulatory or other enforcement proceedings by various governmental regulatory agencies and law enforcement authorities, as
well as self-regulatory agencies which may lead to adverse consequences.
Fifth Third and/or its affiliates are or may become involved from time to time in information-gathering requests, reviews, investigations and
proceedings (both formal and informal) by governmental regulatory agencies and law enforcement authorities, as well as self-regulatory
agencies, regarding their respective customers and businesses, as well as their sales practices, data security, product offerings, compensation
practices and other compliance issues. Also, a violation of law or regulation by another financial institution may give rise to an inquiry or
investigation by regulators or other authorities of the same or similar practices by Fifth Third. In addition, the complexity of the federal and
state regulatory and enforcement regimes in the U.S. means that a single event or topic may give rise to numerous and overlapping
investigations and regulatory proceedings. Furthermore, Fifth Third and certain of its directors and officers have been named from time to
time as defendants in various class actions and other litigation relating to Fifth Third’s business and activities, as well as regulatory or other
enforcement proceedings. Past, present and future litigation have included or could include claims for substantial compensatory and/or
punitive damages or claims for indeterminate amounts of damages. Enforcement authorities may seek admissions of wrongdoing and, in
some cases, criminal pleas as part of the resolutions of matters and any such resolution of a matter involving Fifth Third which could lead to
increased exposure to private litigation, could adversely affect Fifth Third’s reputation and could result in limitations on Fifth Third’s ability
to do business in certain jurisdictions.
Each of the matters described above may result in material adverse consequences, including without limitation, adverse judgments,
settlements, fines, penalties, injunctions or other actions, amendments and/or restatements of Fifth Third’s SEC filings and/or financial
statements, as applicable, and/or determinations of material weaknesses in its disclosure controls and procedures. In addition, responding to
information-gathering requests, reviews, investigations and proceedings, regardless of the ultimate outcome of the matter, could be time-
consuming and expensive.
Like other large financial institutions and companies, Fifth Third is also subject to risk from potential employee misconduct, including non-
compliance with policies and improper use or disclosure of confidential information. Substantial legal liability or significant regulatory or
other enforcement action against Fifth Third could materially adversely affect its business, financial condition or results of operations and/or
cause significant reputational harm to its business. The outcome of lawsuits and regulatory proceedings may be difficult to predict or
estimate. Although Fifth Third establishes accruals for legal proceedings when information related to the loss contingencies represented by
those matters indicates both that a loss is probable and that the amount of loss can be reasonably estimated, Fifth Third does not have accruals
for all legal proceedings where it faces a risk of loss. In addition, due to the inherent subjectivity of the assessments and unpredictability of
the outcome of legal proceedings, amounts accrued may not represent the ultimate loss to Fifth Third from the legal proceedings in question.
Thus, Fifth Third’s ultimate losses may be higher, and possibly significantly so, than the amounts accrued for legal loss contingencies, which
could adversely affect Fifth Third’s results of operations.
In addition, there has been a trend of public settlements with governmental agencies that may adversely affect other financial institutions, to
the extent such settlements are used as a template for future settlements. The uncertain regulatory enforcement environment makes it difficult
to estimate probable losses, which can lead to substantial disparities between legal reserves and actual settlements or penalties.
For further information on specific legal and regulatory proceedings, refer to Note 20 of the Notes to Consolidated Financial Statements.
Fifth Third may be required to repurchase residential mortgage loans or reimburse investors and others as a result of breaches in
contractual representations and warranties.
Fifth Third sells residential mortgage loans to various parties, including government-sponsored enterprises (“GSE”) and other financial
institutions that purchase residential mortgage loans for investment or private label securitization. Fifth Third may be required to repurchase
residential mortgage loans, indemnify the securitization trust, investor or insurer, or reimburse the securitization trust, investor or insurer, for
credit losses incurred on loans in the event of a breach of contractual representations or warranties that is not remedied within a specified
period (usually 60 days or less) after Fifth Third receives notice of the breach. Contracts for residential mortgage loan sales to the GSEs
include various types of specific remedies and penalties that could be applied to inadequate responses to repurchase requests. If economic
conditions and the housing market deteriorate or future investor repurchase demand and Fifth Third’s success at appealing repurchase
requests differ from past experience, Fifth Third could have increased repurchase obligations and increased loss severity on repurchases,
requiring material additions to the repurchase reserve.
Fifth Third is subject to extensive governmental regulation which could adversely impact Fifth Third or the businesses in which Fifth
Third is engaged.
Government regulation and legislation subject Fifth Third and other financial institutions to restrictions, oversight and/or costs that may have
an impact on Fifth Third’s business, financial condition, results of operations or the price of its common stock.
Fifth Third is subject to extensive state and federal regulation, supervision and legislation that govern almost all aspects of its operations and
limit the businesses in which Fifth Third may engage. These laws and regulations may change from time to time and are primarily intended
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for the protection of consumers, borrowers and depositors and are not designed to protect security-holders. The impact of any changes to laws
and regulations or other actions by regulatory agencies may negatively impact Fifth Third or its ability to increase the value of its business.
Additionally, actions by regulatory agencies or significant litigation against Fifth Third could cause it to devote significant time and resources
to defending itself and may lead to penalties that materially affect Fifth Third and its shareholders. Future changes in the laws, including tax
laws, or regulations or their interpretations or enforcement may also be materially adverse to Fifth Third and its shareholders or may require
Fifth Third to expend significant time and resources to comply with such requirements.
Fifth Third expects that the Biden Administration will seek to implement a regulatory reform agenda that is significantly different than that of
the Trump Administration. This reform agenda could include a heightened focus on the regulation of loan portfolios and credit concentrations
to borrowers impacted by climate change, heightened scrutiny on Bank Secrecy Act and anti-money laundering requirements, topics related
to social equity, executive compensation, and increased capital and liquidity, as well as limits on share buybacks and dividends. In addition,
mergers and acquisitions could be dampened by increased antitrust scrutiny. Reform proposals are also expected for the short-term wholesale
markets. It is too early to assess which, if any of these policies, would be implemented and what their impact would be.
Fifth Third cannot predict whether any pending or future legislation will be adopted or the substance and impact of any such new legislation
on Fifth Third. Changes in regulation could affect Fifth Third in a substantial way and could have an adverse effect on its business, financial
condition and results of operations. Additionally, legislation or regulatory reform could affect the behaviors of third parties that Fifth Third
deals with in the course of business, such as rating agencies, insurance companies and investors. The extent to which Fifth Third can adjust its
strategies to offset such adverse impacts also is not known at this time.
In addition, changes in laws or regulations that affect Fifth Third’s customers and business partners could negatively affect Fifth Third’s
revenues and expenses. Certain changes in laws such as tax law reforms that impose limitations on the deductibility of interest may decrease
the demand for Fifth Third’s products or services and could negatively affect its revenues and results of operations. Other changes in laws or
regulations could cause Fifth Third’s third-party service providers and other vendors to increase the prices they charge to Fifth Third and
negatively affect Fifth Third’s expenses and financial results.
Fifth Third could suffer from unauthorized use of intellectual property.
Fifth Third develops for itself, and licenses from others, intellectual property for use in conducting its business. This intellectual property has
been, and may be, subject to misappropriation or infringement by third parties as well as claims that Fifth Third’s use of certain technology or
other intellectual property infringes on rights owned by others. Fifth Third has been, and may be, subject to disputes and/or litigation
concerning these claims and could be held responsible for significant damages covering past activities and substantial fees to continue to
engage in these activities in the future. Fifth Third may also be unable to acquire rights to use certain intellectual property that is important for
its business and may be unable to effectively engage in critical business activities. If Fifth Third is unable to protect or acquire rights to use
intellectual property it owns or licenses, it may lose certain competitive advantages, incur expenses and/or lose revenue and may suffer harm
to its business results and financial condition.
Fifth Third is subject to various regulatory requirements that may limit its operations and potential growth.
Under federal and state laws and regulations pertaining to the safety and soundness of insured depository institutions and their holding
companies, the FRB, the FDIC, the CFPB and the OCC have the authority to compel or restrict certain actions by the Bancorp and the Bank.
The Bancorp and the Bank are subject to such supervisory authority and, more generally, must, in certain instances, obtain prior regulatory
approval before engaging in certain activities or corporate decisions. There can be no assurance that such approvals, if required, would be
forthcoming or that such approvals would be granted in a timely manner. Failure to receive any such approval, if required, could limit or
impair the Bancorp’s operations, restrict its growth, ability to compete, innovate or participate in industry consolidation and/or affect its
dividend policy. Such actions and activities that may be subject to prior approval include, but are not limited to, increasing dividends or other
capital distributions by the Bancorp or the Bank, entering into a merger or acquisition transaction, acquiring or establishing new branches,
and entering into certain new businesses.
Failure by the Bancorp or the Bank to meet the applicable eligibility requirements for FHC status (including capital and management
requirements and that the Bank maintain at least a “Satisfactory” CRA rating) may result in restrictions on certain activities of the Bancorp,
including the commencement of new activities and mergers with or acquisitions of other financial institutions and could ultimately result in
the loss of financial holding company status.
Fifth Third and other financial institutions are subject to scrutiny from government authorities, including bank regulatory authorities,
stemming from broader systemic regulatory concerns, including with respect to stress testing, liquidity and capital levels, asset quality,
provisioning, AML/BSA, consumer compliance and other prudential matters and efforts to ensure that financial institutions take steps to
improve their risk management and prevent future crises.
In this regard, government authorities, including the bank regulatory agencies and law enforcement, are also pursuing aggressive enforcement
actions with respect to compliance and other legal matters involving financial activities, which heightens the risks associated with actual and
perceived compliance failures and may also adversely affect Fifth Third’s ability to enter into certain transactions or engage in certain
activities, or obtain necessary regulatory approvals in connection therewith. The government enforcement authority includes, among other
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things, the ability to assess significant civil or criminal monetary penalties, fines, or restitution; to issue cease and desist or removal orders;
and to initiate injunctive actions against banking organizations and institution-affiliated parties. These enforcement actions may be initiated
for violations of laws and regulations and unsafe or unsound practices.
In some cases, regulatory agencies may take supervisory actions that may not be publicly disclosed, which restrict or limit a financial
institution. Finally, as part of Fifth Third’s regular examination process, the Bancorp and the Bank’s respective regulators may advise it and
its banking subsidiary to operate under various restrictions as a prudential matter. Such supervisory actions or restrictions, if and in whatever
manner imposed, could negatively affect Fifth Third’s ability to engage in new activities and certain transactions, as well as have a material
adverse effect on Fifth Third’s business and results of operations and may not be publicly disclosed.
Fifth Third could face serious negative consequences if its third-party service providers, business partners or investments fail to comply
with applicable laws, rules or regulations.
Fifth Third is expected to oversee the legal and regulatory compliance of its business endeavors, including those performed by third-party
service providers, business partners, other vendors and certain companies in which Fifth Third has invested. Legal authorities and regulators
could hold Fifth Third responsible for failures by these parties to comply with applicable laws, rules or regulations. These failures could
expose Fifth Third to significant litigation or regulatory action that could limit its activities or impose significant fines or other financial
losses. Additionally, Fifth Third could be subject to significant litigation from consumers or other parties harmed by these failures and could
suffer significant losses of business and revenue, as well as reputational harm as a result of these failures.
As a regulated entity, the Bancorp is subject to certain capital requirements that may limit its operations, potential growth and ability to
pay or increase dividends on its common stock or to repurchase its capital stock.
As a BHC and an FHC, the Bancorp is subject to the comprehensive, consolidated supervision and regulation of the FRB, including risk-
based and leverage capital requirements, investment practices, dividend policy and growth. The Bancorp must maintain certain risk-based and
leverage capital ratios as required by the FRB which can change depending upon general economic conditions and the Bancorp’s particular
condition, risk profile and growth plans. Compliance with the capital requirements, including leverage ratios, may limit operations that
require the intensive use of capital and could adversely affect the Bancorp’s ability to expand or maintain present business levels.
Failure by the Bank to meet applicable capital requirements could subject it to a variety of enforcement actions available to the federal
regulatory authorities. These include limitations on the ability of the Bancorp to pay dividends and/or repurchase shares, the issuance by the
regulatory authority of a capital directive to increase capital, loss of FHC status and the termination of deposit insurance by the FDIC.
In response to the uncertainty caused by the COVID-19 pandemic, certain large BHCs, including the Bancorp, were not permitted to make
share repurchases, subject to certain limited exceptions, during the third and fourth quarters of 2020, but were permitted to make dividend
payments subject to certain limitations. For the first quarter of 2021, provided that a BHC does not increase its common stock dividends
higher than the level paid in the second quarter of 2020, BHCs, including the Bancorp, are permitted to pay common dividends and make
share repurchases that, in the aggregate, do not exceed an amount equal to the average of the firm’s net income for the four preceding
calendar quarters. BHCs may also make additional share repurchases up to the amount of share issuances related to expensed employee
compensation. For further information on a subsequent event related to an accelerated share repurchase transaction, refer to Note 33 of the
Notes to Consolidated Financial Statements.
Regulation of Fifth Third by the Commodity Futures Trading Commission (“CFTC”) imposes additional operational and compliance
costs.
The CFTC and SEC are primarily responsible for regulation of the U.S. derivatives markets. While most of the provisions related to
derivatives markets are now in effect, several additional requirements await final regulations from the relevant regulatory agencies for
derivatives, including the CFTC and the SEC. As a result of this regulatory regime, the CFTC has a meaningful supervisory role with respect
to some of Fifth Third’s businesses. The Bank is provisionally registered as a swap dealer with the CFTC and is subject to certain
requirements, including real time trade reporting and robust record keeping requirements, business conduct requirements (including daily
valuations, disclosure of material risks associated with swaps and disclosure of material incentives and conflicts of interest) and mandatory
clearing and exchange trading of certain swaps designated by the relevant regulatory agencies as required to be cleared. Fifth Third’s
derivatives activity is also subject to the U.S. banking regulators’ margin and segregation requirements for uncleared swaps. These
requirements collectively impose implementation and ongoing compliance burdens on Fifth Third and introduce additional legal risk,
including as a result of antifraud and anti-manipulation provisions and private rights of action. These rules raise the costs and liquidity burden
associated with Fifth Third’s derivatives activities and could have an adverse effect on its business, financial condition and results of
operations. For more information, refer to Regulation and Supervision—Derivatives.
Deposit insurance premiums levied against the Bank may increase if the number of bank failures increase or the cost of resolving failed
banks increases.
The FDIC maintains a Deposit Insurance Fund (“DIF”) to protect insured depositors in the event of bank failures. The DIF is funded by fees
assessed on insured depository institutions including the Bank. Future deposit premiums paid by the Bank depend on FDIC rules, which are
subject to change, the level of the DIF and the magnitude and cost of future bank failures. The Bank may be required to pay significantly
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higher FDIC premiums if market developments change such that the DIF balance is reduced or the FDIC changes its rules to require higher
premiums.
If an orderly liquidation of a systemically important BHC or non-bank financial company were triggered, Fifth Third could face
assessments for the Orderly Liquidation Fund.
Dodd-Frank created authority for the orderly liquidation of systemically important BHCs and non-bank financial companies and is based on
the FDIC’s bank resolution model. The Secretary of the U.S. Treasury may trigger liquidation under this authority only after consultation
with the President of the United States and after receiving a recommendation from the board of the FDIC and the FRB upon a two-thirds vote.
Liquidation proceedings will be funded by the Orderly Liquidation Fund established under Dodd-Frank, which will borrow from the U.S.
Treasury and impose risk-based assessments on covered financial companies. Risk-based assessments would be made, first, on entities that
received more in the resolution than they would have received in the liquidation to the extent of such excess and second, if necessary, on,
among others, bank holding companies with total consolidated assets of $50 billion or more, such as Fifth Third. Any such assessments may
adversely affect Fifth Third’s business, financial condition or results of operations.
MARKET RISKS: INTEREST RATE RISKS AND PRICE RISKS
The replacement of LIBOR could adversely affect Fifth Third’s revenue or expenses and the value of those assets or obligations.
LIBOR and certain other “benchmarks” are the subject of recent national, international and other regulatory guidance and proposals for
reform. These reforms may cause such benchmarks to perform differently than in the past or have other consequences which cannot be
predicted. On July 27, 2017, the United Kingdom’s Financial Conduct Authority, which regulates LIBOR, publicly announced that it intends
to stop persuading or compelling banks to submit LIBOR rates after 2021. The announcement indicates that the continuation of LIBOR on
the current basis cannot be guaranteed after 2021. While there is no consensus on what rate or rates may become accepted alternatives to
LIBOR, a group of large banks, the Alternative Reference Rate Committee (“ARRC”), selected and the Federal Reserve Bank of New York
started in May 2018 to publish the Secured Overnight Finance Rate as an alternative to LIBOR. SOFR is a broad measure of the cost of
borrowing cash overnight collateralized by Treasury securities, given the depth and robustness of the U.S. Treasury repurchase market.
Furthermore, in 2018, the Bank of England commenced publication of a reformed Sterling Overnight Index Average (“SONIA”), comprised
of a broader set of overnight Sterling money market transactions. The SONIA has been recommended as the alternative to Sterling LIBOR by
the Working Group on Sterling Risk-Free Reference Rates. In the United States, it is likely that LIBOR-priced transactions and products will
transfer to SOFR. On November 30, 2020, the FRB, OCC and FDIC issued a public statement that the administrator of LIBOR announced it
will consult on an extension of publication of certain U.S. Dollar LIBOR tenors until June 30, 2023, which would allow additional legacy
USD LIBOR contracts to mature before the succession of LIBOR. The administrator has not yet announced the results of its consultation.
The market transition away from LIBOR to an alternative reference rate, including SOFR or SONIA, is complex and subjects Fifth Third to
financial, legal and operational risks. In particular, any such transition could:
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adversely affect the interest rates paid or received on, and the revenue and expenses associated with, the Bancorp’s floating rate
obligations, loans, deposits, derivatives and other financial instruments tied to LIBOR rates, or other securities or financial
arrangements given LIBOR’s role in determining market interest rates globally;
adversely affect the value of the Bancorp’s floating rate obligations, loans, deposits, derivatives and other financial instruments tied
to LIBOR rates, or other securities or financial arrangements given LIBOR’s role in determining market interest rates globally;
prompt inquiries or other actions from regulators in respect of the Bancorp’s preparation and readiness for the replacement of
LIBOR with an alternative reference rate;
result in certain LIBOR-based instruments such as the Bancorp's Series H, Series I and Series J preferred stock moving from
floating-rate instruments to fixed-rate instruments if the fallback language is unable to be amended to adopt alternative rates;
result in disputes, litigation or other actions with counterparties regarding the interpretation and enforceability of certain fallback
language in LIBOR-based securities; and
require the transition to or development of appropriate systems and analytics to effectively transition the Bancorp’s risk
management processes from LIBOR-based products to those based on the applicable alternative pricing benchmark, such as SOFR
or reformed SONIA.
The manner and impact of this transition, as well as the effect of these developments on Fifth Third’s funding costs, loan and investment and
trading securities portfolios, asset-liability management, and business, is uncertain.
Weakness in the U.S. economy, including within Fifth Third’s geographic footprint, has adversely affected Fifth Third in the past and
may adversely affect Fifth Third in the future.
If the strength of the U.S. economy in general or the strength of the local economies in which Fifth Third conducts operations declines, this
could result in, among other things, a decreased demand for Fifth Third’s products and services, a deterioration in credit quality or a reduced
demand for credit, including a resultant effect on Fifth Third’s loan portfolio and ALLL and in the receipt of lower proceeds from the sale of
loans and foreclosed properties. These factors could result in higher delinquencies, greater charge-offs and increased losses in future periods,
which could materially adversely affect Fifth Third’s financial condition and results of operations.
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Financial disruption or a prolonged economic downturn could materially and adversely affect Fifth Third’s business.
Worldwide financial markets have recently experienced periods of extraordinary disruption and volatility, which has been exacerbated by the
COVID-19 pandemic, resulting in heightened credit risk, reduced valuation of investments and decreased economic activity. Moreover, many
companies have experienced reduced liquidity and uncertainty as to their ability to raise capital during such periods of market disruption and
volatility. In the event that these conditions recur or result in a prolonged economic downturn, Fifth Third’s results of operations, financial
position and/or liquidity could be materially and adversely affected. These market conditions may affect the Bancorp’s ability to access debt
and equity capital markets. In addition, as a result of recent financial events, Fifth Third may face increased regulation. Many of the other risk
factors discussed in this Risk Factors section identify risks that result from, or are exacerbated by, financial economic downturn. These
include risks related to Fifth Third’s investments portfolio, the competitive environment and regulatory developments.
Global and domestic political, social and economic uncertainties and changes may adversely affect Fifth Third.
Global financial markets, including the United States, face political and economic uncertainties that may delay investment and hamper
economic activity. International events such as trade disputes, separatist movements, leadership changes and political and military conflicts
could adversely affect global financial activity and markets and could negatively affect the U.S. economy. Additionally, the FRB and other
major central banks have begun the process of removing or reducing monetary accommodation, increasing the risk of recession and may also
negatively impact asset values and credit spreads that were impacted by extraordinary monetary stimulus. These potential negative effects on
financial markets and economic activity could lead to reduced revenues, increased costs, increased credit risks and volatile markets, and could
negatively impact Fifth Third’s businesses, results of operations and financial condition.
Changes in interest rates could affect Fifth Third’s income and cash flows.
Fifth Third’s income and cash flows depend to a great extent on the difference between the interest rates earned on interest-earning assets
such as loans and investment securities and the interest rates paid on interest-bearing liabilities such as deposits and borrowings. These rates
are highly sensitive to many factors that are beyond Fifth Third’s control, including general economic conditions in the U.S. or abroad and the
policies of various governmental and regulatory agencies (in particular, the FRB). Changes in monetary policy, including changes in interest
rates, will influence the origination of loans, the prepayment speed of loans, the purchase of investments, the generation of deposits and the
rates received on loans and investment securities and paid on deposits or other sources of funding as well as customers’ ability to repay loans.
The impact of these changes may be magnified if Fifth Third does not effectively manage the relative sensitivity of its assets and liabilities to
changes in market interest rates. Fluctuations in these areas may adversely affect Fifth Third, its customers and its shareholders. In addition,
in response to the outbreak of the COVID-19 pandemic and its economic consequences, the FRB lowered its target for the federal funds rate
to a range of 0% to 0.25%. As a result of the high percentage of Fifth Third’s assets and liabilities that are in the form of interest-bearing or
interest-related instruments, this change in interest rates could adversely affect Fifth Third’s profitability. Moreover, such low rates increase
the risk in the U.S. of a negative interest rate environment in which interest rates drop below zero, either broadly or for some types of
instruments. For example, yields on one-month and three-month Treasuries briefly dropped below zero in March 2020. Such an occurrence
would likely further reduce the interest Fifth Third earns on loans and other earning assets. Fifth Third cannot predict the nature or timing of
future changes in monetary policies in response to the COVID-19 pandemic or the precise effects that they may have on Fifth Third’s
activities and financial results.
Changes and trends in the capital markets may affect Fifth Third’s income and cash flows.
Fifth Third enters into and maintains trading and investment positions in the capital markets on its own behalf and manages investment
positions on behalf of its customers. These investment positions include derivative financial instruments. The revenues and profits Fifth Third
derives from managing proprietary and customer trading and investment positions are dependent on market prices. Market changes and trends
may result in a decline in wealth and asset management revenue or investment or trading losses that may impact Fifth Third. Losses on behalf
of its customers could expose Fifth Third to reputational issues, litigation, credit risks or loss of revenue from those clients and customers.
Additionally, losses in Fifth Third’s trading and investment positions could lead to a loss with respect to those investments and may adversely
affect Fifth Third’s income, cash flows and funding costs.
Fifth Third’s stock price is volatile.
Fifth Third’s stock price has been volatile in the past and several factors could cause the price to fluctuate substantially in the future. These
factors include, without limitation:
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actual or anticipated variations in earnings;
changes in analysts’ recommendations or projections;
Fifth Third’s announcements of developments related to its businesses;
operating and stock performance of other companies deemed to be peers;
actions by government regulators and changes in the regulatory regime;
new technology used or services offered by traditional and non-traditional competitors;
news reports of trends, concerns and other issues related to the financial services industry;
U.S. and global economic conditions;
natural disasters;
geopolitical conditions such as acts or threats of terrorism, military conflicts and withdrawal from the EU by EU member countries.
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The price for shares of Fifth Third’s common stock may fluctuate significantly in the future, and these fluctuations may be unrelated to Fifth
Third’s performance. General market price declines or market volatility in the future could adversely affect the price for shares of Fifth
Third’s common stock and the current market price of such shares may not be indicative of future market prices.
Fifth Third’s mortgage banking net revenue can be volatile from quarter to quarter.
Fifth Third earns revenue from the fees it receives for originating mortgage loans and for servicing mortgage loans. When rates rise, the
demand for mortgage loans tends to fall, reducing the revenue Fifth Third receives from loan originations. At the same time, revenue from
mortgage servicing rights (“MSR”) can increase through increases in fair value. When rates fall, mortgage originations tend to increase and
the value of MSRs tends to decline, also with some offsetting revenue effect. Even though the origination of mortgage loans can act as a
“natural hedge,” the hedge is not perfect, either in amount or timing. For example, the negative effect on revenue from a decrease in the fair
value of residential MSRs is immediate, but any offsetting revenue benefit from more originations and the MSRs relating to the new loans
would accrue over time. It is also possible that even if interest rates were to fall, mortgage originations may also fall or any increase in
mortgage originations may not be enough to offset the decrease in the MSRs value caused by the lower rates.
Fifth Third typically uses derivatives and other instruments to hedge its mortgage banking interest rate risk. Fifth Third generally does not
hedge all of its risks and the fact that Fifth Third attempts to hedge any of the risks does not mean Fifth Third will be successful. Hedging is a
complex process, requiring sophisticated models and constant monitoring. Fifth Third may use hedging instruments tied to U.S. Treasury
rates, LIBOR or Eurodollars that may not perfectly correlate with the value or income being hedged. Fifth Third could incur significant losses
from its hedging activities. There may be periods where Fifth Third elects not to use derivatives and other instruments to hedge mortgage
banking interest rate risk.
STRATEGIC RISKS
If Fifth Third does not respond to intense competition and rapid changes in the financial services industry or otherwise adapt to changing
customer preferences, its financial performance may suffer.
Fifth Third’s ability to deliver strong financial performance and returns on investment to shareholders will depend in part on its ability to
expand the scope of available financial services to meet the needs and demands of its customers. In addition to the challenge of competing
against other banks in attracting and retaining customers for traditional banking services, Fifth Third’s competitors also include securities
dealers, brokers, mortgage bankers, investment advisors and specialty finance, telecommunications, technology and insurance companies as
well as large retailers who seek to offer one-stop financial services in addition to other products and services desired by consumers that may
include services that banks have not been able or allowed to offer to their customers in the past or may not be currently able or allowed to
offer. Many of these other firms may be significantly larger than Fifth Third and may have access to customers and financial resources that
are beyond Fifth Third’s capability. Fifth Third competes with these firms with respect to capital, access to capital, revenue generation,
products, services, transaction execution, innovation, reputation, talent and price.
This increasingly competitive environment is primarily a result of changes in customer preferences, regulation, changes in technology and
product delivery systems, as well as the accelerating pace of consolidation among financial service providers. Rapidly changing technology
and consumer preferences may require Fifth Third to effectively implement new technology-driven products and services in order to compete
and meet customer demands. Fifth Third may not be able to do so or be successful in marketing these products and services to its customers.
As a result, Fifth Third’s ability to effectively compete to retain or acquire new business may be impaired, and its business, financial
condition or results of operations, may be adversely affected.
Fifth Third may make strategic investments and may expand an existing line of business or enter into new lines of business to remain
competitive. If Fifth Third’s chosen strategies are not appropriate to allow Fifth Third to effectively compete or Fifth Third does not execute
them in an appropriate or timely manner, Fifth Third’s business and results may suffer. Additionally, these strategies, products and lines of
business may bring with them unforeseeable or unforeseen risks and may not generate the expected results or returns, which could adversely
affect Fifth Third’s results of operations or future growth prospects and cause Fifth Third to fail to meet its stated goals and expectations.
Changes in retail distribution strategies and consumer behavior may adversely impact Fifth Third’s investments in its bank premises and
equipment and other assets and may lead to increased expenditures to change its retail distribution channel.
Fifth Third has significant investments in bank premises and equipment for its branch network including its 1,134 full-service banking centers
and 59 locations held for the development of future banking centers of which 44 locations are developed or in the process of being developed
as branches, as well as its retail work force and other branch banking assets. Advances in technology such as e-commerce, telephone, internet
and mobile banking, and in-branch self-service technologies including automatic teller machines and other equipment, as well as changing
customer preferences for these other methods of accessing Fifth Third’s products and services, could affect the value of Fifth Third’s branch
network or other retail distribution assets and may cause it to change its retail distribution strategy, close and/or sell certain branches or
parcels of land held for development and restructure or reduce its remaining branches and work force. Further advances in technology and/or
changes in customer preferences could have additional changes in Fifth Third’s retail distribution strategy and/or branch network. These
actions could lead to losses on these assets or could adversely impact the carrying value of other long-lived assets and may lead to increased
expenditures to renovate and reconfigure remaining branches or to otherwise reform its retail distribution channel.
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Difficulties in identifying suitable opportunities or combining the operations of acquired entities or assets with Fifth Third’s own
operations or assessing the effectiveness of businesses in which Fifth Third makes strategic investments or with which Fifth Third enters
into strategic contractual relationships may prevent Fifth Third from achieving the expected benefits from these acquisitions, investments
or relationships.
Inherent uncertainties exist when assessing, acquiring or integrating the operations of another business or investment or relationship
opportunity. Fifth Third may not be able to fully achieve its strategic objectives and planned operating efficiencies relevant to an acquisition
or strategic relationship. In addition, the markets and industries in which Fifth Third and its potential acquisition and investment targets
operate are highly competitive. Acquisition or investment targets may lose customers or otherwise perform poorly or unprofitably, or in the
case of an acquired business or strategic relationship, cause Fifth Third to lose customers or perform poorly or unprofitably. Future
acquisition and investment activities and efforts to monitor newly acquired businesses or reap the benefits of a new strategic relationship may
require Fifth Third to devote substantial time and resources and may cause these acquisitions, investments and relationships to be unprofitable
or cause Fifth Third to be unable to pursue other business opportunities.
After completing an acquisition, Fifth Third may find that certain material information was not adequately disclosed during the due diligence
process or that certain items were not accounted for properly in accordance with financial accounting and reporting standards. Fifth Third
may also not realize the expected benefits of the acquisition due to lower financial results pertaining to the acquired entity or assets. For
example, Fifth Third could experience higher charge-offs than originally anticipated related to the acquired loan portfolio. Additionally,
acquired companies or businesses may increase Fifth Third’s risk of regulatory action or restrictions related to the operations of the acquired
business.
Future acquisitions may dilute current shareholders’ ownership of Fifth Third and may cause Fifth Third to become more susceptible to
adverse economic events.
Future business acquisitions could be material to Fifth Third and it may issue additional shares of stock to pay for those acquisitions, which
would dilute current shareholders’ ownership interests. Acquisitions also could require Fifth Third to use substantial cash or other liquid
assets or to incur debt. In those events, Fifth Third could become more susceptible to economic downturns, dislocations in capital markets
and competitive pressures.
Fifth Third may sell or consider selling one or more of its businesses or investments. Should it determine to sell such a business or
investment, it may not be able to generate gains on sale or related increase in shareholders’ equity commensurate with desirable levels.
Moreover, if Fifth Third sold such businesses or investments, the loss of income could have an adverse effect on its earnings and future
growth.
Fifth Third owns, or owns a minority stake in, as applicable, several non-strategic businesses, investments and other assets that are not
significantly synergistic with its core financial services businesses or, in the future, may no longer be aligned with Fifth Third’s strategic
plans or regulatory expectations. If Fifth Third were to sell one or more of its businesses or investments, it would be subject to market forces
that may affect the timing or pricing of such sale or result in an unsuccessful sale. If Fifth Third were to complete the sale of any of its
businesses, investments and/or interests in third parties, it would lose the income from the sold businesses and/or interests, including those
accounted for under the equity method of accounting, and such loss of income could have an adverse effect on its future earnings and growth.
Additionally, Fifth Third may encounter difficulties in separating the operations of any businesses it sells, which may affect its business or
results of operations.
GENERAL BUSINESS RISKS
Changes in accounting standards or interpretations could impact Fifth Third’s reported earnings and financial condition.
The accounting standard setters, including the FASB, the SEC and other regulatory agencies, periodically change the financial accounting and
reporting standards that govern the preparation of Fifth Third’s consolidated financial statements. These changes can be hard to predict and
can materially impact how Fifth Third records and reports its financial condition and results of operations. In some cases, Fifth Third could be
required to apply a new or revised standard retroactively, which would result in the recasting of Fifth Third’s prior period financial
statements.
Fifth Third uses models for business planning purposes that may not adequately predict future results.
Fifth Third uses financial models to aid in its planning for various purposes including its capital and liquidity needs and other purposes. The
models used may not accurately account for all variables, may fail to predict outcomes accurately, and/or may overstate or understate certain
effects. As a result of these potential failures, Fifth Third may not adequately prepare for future events and may suffer losses or other setbacks
due to these failures.
Also, information Fifth Third provides to the public or to its regulators based on models could be inaccurate or misleading due to inadequate
design or implementation, for example. Decisions that its regulators make, including those related to capital distributions to its shareholders,
could be affected adversely due to the perception that the models used to generate the relevant information are unreliable or inadequate.
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The preparation of financial statements requires Fifth Third to make subjective determinations and use estimates that may vary from
actual results and materially impact its results of operations or financial position.
The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make significant estimates that
affect the financial statements. If new information arises that results in a material change to a reserve amount, such a change could result in a
change to previously announced financial results. Refer to the Critical Accounting Policies section of Management’s Discussion and Analysis
of Financial Condition and Results of Operation for more information regarding management’s significant estimates.
Weather-related events, other natural disasters, or health emergencies may have an effect on the performance of Fifth Third’s loan
portfolios, thereby adversely impacting its results of operations.
Fifth Third’s footprint stretches from the upper Midwestern to lower Southeastern regions of the United States and it has offices in many
other areas of the country. Some of these regions have experienced weather events including hurricanes, tornadoes, fires and other natural
disasters. The nature and level of these events and the impact of global climate change upon their frequency and severity cannot be predicted.
If large scale events occur, they may significantly impact its loan portfolios by damaging properties pledged as collateral as well as impairing
its borrowers’ ability to repay their loans.
Additionally, the impact of widespread health emergencies may adversely impact Fifth Third’s results of operations, such as the potential
impact from the COVID-19 pandemic. If its borrowers are adversely affected due to a widespread health emergency that impacts Fifth Third
employees, vendors or economic growth generally, Fifth Third’s financial condition and results of operations could be adversely affected.
Societal responses to climate change could adversely affect Fifth Third’s business and performance, including indirectly through impacts
on Fifth Third’s customers.
Concerns over the long-term impacts of climate change have led and may continue to lead to governmental efforts around the world to
mitigate those impacts. Consumers and businesses also may change their behavior on their own as a result of these concerns. Fifth Third and
its customers will need to respond to new laws and regulations, as well as consumer and business preferences resulting from climate change
concerns. Fifth Third and its customers may face cost increases, asset value reductions, operating process changes, and the like. The impact
on Fifth Third’s customers will likely vary depending on their specific attributes, including reliance on or role in carbon intensive activities.
Fifth Third could experience a drop in demand for Fifth Third’s products and services, particularly in certain sectors. In addition, Fifth Third
could face reductions in creditworthiness on the part of some customers or in the value of assets securing loans. Fifth Third’s efforts to take
these risks into account in making lending and other decisions, including by increasing business relationships with climate-friendly
companies, may not be effective in protecting Fifth Third from the negative impact of new laws and regulations or changes in consumer or
business behavior.
Fifth Third is exposed to reputational risk.
Fifth Third’s actual or alleged conduct in activities, such as certain sales and lending practices, data security, corporate governance and
acquisitions, inappropriate behavior or misconduct of employees, association with particular customers, business partners, investments or
vendors, as well as developments from any of the other risks described above, may result in negative public opinion at large (or with certain
segments of the public) and may damage Fifth Third’s reputation. Actions taken by government regulators, shareholder activists and
community organizations may also damage Fifth Third’s reputation. Additionally, whereas negative public opinion once was primarily driven
by adverse news coverage in traditional media, the advent and expansion of social media facilitates the rapid dissemination of information or
misinformation. Though Fifth Third monitors social media channels, the potential remains for rapid and widespread dissemination of
inaccurate, misleading or false information or other negative information that could damage Fifth Third’s reputation. Negative public opinion
can adversely affect Fifth Third’s ability to attract and keep customers and can increase the risk that it will be a target of litigation and
regulatory action. Social activists are increasingly targeting financial firms with public criticism for their relationships with clients that are
engaged in certain sensitive industries, including businesses whose products are or are perceived to be harmful to health, the environment or
the social good. Activist criticism of Fifth Third’s relationships with clients in sensitive industries could potentially engender dissatisfaction
among clients, customers, investors, politicians, the government and employees with how Fifth Third addresses social concerns through
business activities which could negatively affect its business or reputation.
Furthermore, investors have begun to consider how corporations are addressing environmental, social and governance matters, commonly
known as “ESG matters,” when making investment decisions. For example, certain investors are beginning to incorporate the business risks
of climate change and the adequacy of companies’ responses to climate change and other ESG matters as part of their investment theses.
These shifts in investing priorities may result in adverse effects on the trading price of Fifth Third’s common stock if investors determine that
Fifth Third has not made sufficient progress on ESG matters.
Potential noncompliance with evolving federal and state laws governing cannabis-related businesses (CRBs) could subject Fifth Third to
liabilities.
While a significant majority of states have legalized some form of marijuana, it remains a Schedule I controlled substance under federal law.
Hemp is no longer classified as a Schedule I controlled substance under federal law; however, the regulatory scheme governing hemp has not
been fully developed. Further, the “naked eye” cannot distinguish between legal hemp and illegal marijuana under federal law. There are a
number of states where Fifth Third operates with laws permitting medicinal or recreational marijuana, which increases the probability of
individuals or entities using bank products or services to sell, distribute, cultivate, manufacture or profit from marijuana. This, and the
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divergence and continued changes in laws governing CRBs results in challenges to us to maintain compliance with them, particularly in
connection with Fifth Third's commercial and consumer lending and capital markets businesses. While Fifth Third monitors regulatory
developments in this area to avoid noncompliance, Fifth Third cannot assure that it will be at all times fully compliant with CRB-related laws,
which could result in significant fines, penalties or other losses.
The COVID-19 pandemic creates significant risks and uncertainties for Fifth Third’s business.
In March 2020, the World Health Organization declared novel coronavirus disease 2019 (COVID-19) a global pandemic. The COVID-19
pandemic has negatively impacted the global economy, disrupted global supply chains, lowered equity market valuations, created significant
volatility and disruption in financial markets, and increased unemployment levels, all of which may become heightened concerns upon
subsequent waves of infection or future developments. In addition, the pandemic resulted in temporary closures of many businesses and the
institution of social distancing and sheltering in place requirements in many states and communities, including those in major markets in
which the Bancorp is located or does business.
As a result, the demand for the Bancorp’s products and services has been, and is expected to continue to be, significantly impacted.
Furthermore, the pandemic could influence the recognition of credit losses in the Bancorp’s loan and lease portfolios and increase its
allowance for credit losses as both businesses and consumers are negatively impacted by the economic downturn. In addition, governmental
actions are meaningfully influencing the interest-rate environment, which could adversely affect the Bancorp’s results of operations and
financial condition. The business operations of subsidiaries of the Bancorp, such as Fifth Third Bank, National Association, have been, and
may also be disrupted in the future, if significant portions of their workforce are unable to work effectively, including because of illness,
quarantines, government actions, or other restrictions in connection with the pandemic, travel restrictions, technology limitations and/or
disruptions. Furthermore, the business operations of subsidiaries of the Bancorp have been, and may again in the future be, disrupted due to
vendors and third party service providers being unable to work or provide services effectively, including because of illness, quarantines,
government actions, or other restrictions in connection with the pandemic. An increase in remote work force due to the COVID-19 pandemic
and the potential for a long-term change in Fifth Third’s remote work strategy may also increase risks related to cybersecurity and
information security.
In response to the pandemic, the Bancorp provided financial hardship relief to borrowers that were negatively impacted by the pandemic and
its related economic impacts. These programs included payment deferrals and forbearances for both commercial and retail borrowers. The
Bancorp also temporarily suspended initiating any new repossession actions on vehicles and temporarily suspended all residential foreclosure
activity. These actions are expected to negatively impact revenue and other results of operations of the Bancorp in the near term and, if not
effective in mitigating the effect of the COVID-19 pandemic on the Bancorp’s customers, may adversely affect the Bancorp’s business and
results of operations more substantially over a longer period of time.
Among other relief programs, the Bancorp participated in the SBA’s Paycheck Protection Program in 2020. Paycheck Protection Program
loans are fixed, unsecured, low interest rate loans that are guaranteed by the SBA and subject to numerous other regulatory requirements, and
a borrower may apply to have all or a portion of the loan forgiven. If Paycheck Protection Program borrowers fail to qualify for loan
forgiveness, the Bancorp faces a heightened risk of holding these loans at unfavorable interest rates for an extended period of time. While the
Paycheck Protection Program loans are guaranteed by the SBA, various regulatory requirements will apply to the Bancorp’s ability to seek
recourse under the guarantees, and related procedures are currently subject to uncertainty. If a borrower defaults on a Paycheck Protection
Program loan, these requirements and uncertainties may limit the Bancorp’s ability to fully recover against the loan guarantee or to seek full
recourse against the borrower. The extent to which the COVID-19 pandemic impacts the Bancorp’s business, results of operations, and
financial condition, as well as its regulatory capital and liquidity ratios, will depend on future developments, which are highly uncertain,
including the scope and duration of the pandemic and actions taken by governmental authorities and other third parties in response to the
pandemic. Even after the COVID-19 pandemic subsides, the U.S. economy will likely require some time to recover from its effects, the
length of which is unknown and during which time the U.S. may experience a recession. As a result, Fifth Third anticipates its business may
be materially and adversely affected during this recovery. Moreover, the effects of the COVID-19 pandemic may heighten many of the other
risks described in this Section 1A entitled “Risk Factors” and any subsequent Quarterly Report on Form 10-Q or Current Report on Form 8-
K, including, but not limited to, risks of credit deterioration, interest rate changes, rating agency actions, governmental actions, market
volatility, theft, fraud, security breaches and technology interruptions.
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ITEM 1B. UNRESOLVED STAFF COMMENTS
There are no SEC staff comments regarding Fifth Third’s periodic or current reports under the Exchange Act that are pending resolution.
ITEM 2. PROPERTIES
The Bancorp’s executive offices and the main office of the Bank are located on Fountain Square Plaza in downtown Cincinnati, Ohio in a 32-
story office tower and a five-story office building with an attached parking garage known as the Fifth Third Center and the William S. Rowe
Building, respectively. The Bancorp’s main operations campus is located in Cincinnati, Ohio, and is comprised of a three-story building with
an attached parking garage known as the George A. Schaefer, Jr. Operations Center, and a two-story building with surface parking known as
the Madisonville Office Building. The Bank owns 100% of these buildings.
At December 31, 2020, the Bancorp, through its banking and non-banking subsidiaries, operated 1,134 banking centers, of which 792 were
owned, 231 were leased and 111 for which the buildings are owned but the land is leased. The banking centers are located in the states of
Ohio, Kentucky, Indiana, Michigan, Illinois, Florida, Tennessee, West Virginia, Georgia, North Carolina and South Carolina. The Bancorp’s
significant owned properties are owned free from mortgages and major encumbrances.
ITEM 3. LEGAL PROCEEDINGS
Refer to Note 20 of the Notes to Consolidated Financial Statements in Part II, Item 8 of this report for information regarding legal
proceedings, which is incorporated herein by reference.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
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INFORMATION ABOUT OUR EXECUTIVE OFFICERS
Officers are appointed annually by the Board of Directors at the meeting of Directors immediately following the Annual Meeting of
Shareholders. The names, ages and positions of the Executive Officers of the Bancorp as of February 26, 2021 are listed below along with
their business experience during the past five years:
Greg D. Carmichael, 59. Chairman of the Board since February 2018 and Chief Executive Officer of the Bancorp since November 2015.
Previously, Mr. Carmichael was President of the Bancorp from September 2012 to October 2020, Chief Operating Officer of the Bancorp
from June 2006 to August 2015, Executive Vice President of the Bancorp from June 2006 to September 2012 and Chief Information Officer
of the Bancorp from June 2003 to June 2006.
Lars C. Anderson, 59. Executive Vice President and Vice Chairman of Commercial Banking Strategic Growth Initiatives since January
2020. Previously, Mr. Anderson was Executive Vice President and Chief Operating Officer of the Bancorp from August 2015 to January
2020. Mr. Anderson was Vice Chairman of Comerica Incorporated and Comerica Bank from December 2010 to August 2015.
Kristine R. Garrett, 62, Executive Vice President and Head of Wealth & Asset Management since November 2020. Previously she was
Senior Vice President and Head of Wealth & Asset Management from July 2019 to November 2020 and Head of Fifth Third Private Bank
from October 2017 until July 2019. Previously, she was President of Private Wealth in Chicago at CIBC U.S. from 2009 to 2017.
Howard Hammond, 55, Executive Vice President and Head of Consumer Bank since February 2021. Previously, he was Senior Vice
President and Head of Retail Banking and Retail Brokerage from April 2020 through February 2021, Head of Retail and Brokerage
Distribution from June 2019 through April 2020, and Head Managing Director of Fifth Third Securities from March 2006 through June 2019.
Mark D. Hazel, 55. Senior Vice President and Controller of the Bancorp since February 2010. Prior to that, Mr. Hazel was the Assistant
Bancorp Controller since 2006 and was the Controller of Nonbank entities since 2003.
Margaret B. Jula, 53, Executive Vice President and Chief Human Resource Officer since November 2020. Previously, Ms. Jula was Senior
Vice President and Director of Business Controls for Human Capital from July 2014 to November 2020. Prior to that, she held various
positions in Fifth Third’s human capital organization.
Kevin P. Lavender, 59. Executive Vice President and Head of Commercial Banking of the Bancorp since January 2020. Mr. Lavender has
been Executive Vice President of the Bank since 2016 and was the Head of Corporate Banking from 2016 to January 2020. Previously,
Mr. Lavender was Senior Vice President and Managing Director of Large Corporate and Specialized Lending from January 2009 to 2016 and
the Senior Vice President and Head of National Healthcare Lending from December 2005 to January 2009.
James C. Leonard, 51. Executive Vice President and Chief Financial Officer since November 2020. Mr. Leonard has been an Executive
Vice President of the Bancorp since September 2015. Previously, Mr. Leonard was Chief Risk Officer from February 2020 to November
2020, Treasurer of the Bancorp from October 2013 to January 2020, Senior Vice President from October 2013 to September 2015, the
Director of Business Planning and Analysis from 2006 to 2013 and the Chief Financial Officer of the Commercial Banking Division from
2001 to 2006.
Jude A. Schramm, 48. Executive Vice President and Chief Information Officer since March 2018. Previously, Mr. Schramm served as Chief
Information Officer for GE Aviation and held various positions at GE beginning in 2001.
Robert P. Shaffer, 51. Executive Vice President and Chief Risk Officer since November 2020. Previously, Mr. Shaffer was Chief Human
Resource Officer from February 2017 to November 2020 and Chief Auditor from August 2007 to February 2017. He was named Executive
Vice President in 2010 and Senior Vice President in 2004. Prior to that, he held various positions within Fifth Third’s audit division.
Timothy N. Spence, 42. President since October 2020. Previously, Mr. Spence was Executive Vice President and Head of Consumer Bank,
Payments, and Strategy of the Bancorp from August 2018 to October 2020, Head of Payments, Strategy and Digital Solutions from 2017 to
2020, and Chief Strategy Officer of the Bancorp from September 2015 to October 2020. He also previously served as a senior partner in the
Financial Services practice at Oliver Wyman since 2006, a global strategy and risk management consulting firm.
Richard L. Stein, 51, Executive Vice President and Chief Credit Officer since November 2020. Mr. Stein has been an Executive Vice
President of the Bancorp since April 2016. Previously, Mr. Stein was Chief Credit Officer from March 2018 through November 2020, Head
of the Commercial Bank from March 2016 through March 2018 and Senior Vice President and Chief Credit Officer from November 2014
through March 2016.
Melissa S. Stevens, 46, Executive Vice President and Chief Digital Officer and Head of Digital, Marketing, Design and Innovation since
November 2020. Previously, Ms. Stevens served as Senior Vice President, Chief Digital Officer, and Head of Omnichannel Banking
Experiences, Design, and Innovation from May 2016 through November 2020. Prior to joining Fifth Third, she served in several senior
management positions at Citigroup, including Chief Operating Officer and Managing Director of Citi FinTech from November 2015 through
April 2016.
45 Fifth Third Bancorp
Table of Contents
Susan B. Zaunbrecher, 61. Executive Vice President and Chief Legal Officer of the Bancorp since May 2018. Previously, Ms. Zaunbrecher
was a partner at the law firm Dinsmore and Shohl LLP, where she practiced for 28 years and served as the Chair of the Corporate Department
and a member of the firm’s board of directors and executive committee.
46 Fifth Third Bancorp
Table of Contents
PART II
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER
PURCHASES OF EQUITY SECURITIES
The Bancorp’s common stock is traded in the over-the-counter market and is listed under the symbol “FITB” on the NASDAQ® Global
Select Market System.
See a discussion of dividend limitations that the subsidiaries can pay to the Bancorp discussed in Note 4 of the Notes to Consolidated
Financial Statements, which is incorporated herein by reference. Additionally, as of December 31, 2020, the Bancorp had 36,824
shareholders of record.
Issuer Purchases of Equity Securities
Period
October 2020
November 2020
December 2020
Total
Total Number
of Shares
Purchased(a)
Average Price Paid
Per Share
Total Number of Shares
Purchased as Part of Publicly
Announced Plans or
Programs
Maximum Number of
Shares that May Yet be
Purchased Under the Plans
or Programs
44,736
129,978
97,521
272,235
$
$
22.91
25.27
26.80
25.43
—
—
—
—
76,437,348
76,437,348
76,437,348
76,437,348
(a)
Shares repurchased during the fourth quarter of 2020 were in connection with various employee compensation plans of the Bancorp. These purchases do not
count against the maximum number of shares that may yet be purchased under the Board of Directors’ authorization.
See further discussion on share repurchase transactions and stock-based compensation in Note 25 and Note 26 of the Notes to Consolidated
Financial Statements, which is incorporated herein by reference.
47 Fifth Third Bancorp
Table of Contents
The following performance graphs do not constitute soliciting material and should not be deemed filed or incorporated by reference into any
other Company filing under the Securities Act of 1933 or the Securities Exchange Act of 1934, except to the extent the Bancorp specifically
incorporates the performance graphs by reference therein.
Total Return Analysis
The graphs below summarize the cumulative return experienced by the Bancorp’s shareholders over the five and ten year periods ended
December 31, 2020, respectively, compared to the S&P 500 Stock and the S&P Banks indices.
FIFTH THIRD BANCORP VS. MARKET INDICES
48 Fifth Third Bancorp
Total Return Index5 Year ReturnFITBS&P 500 (SPX)S&P Banks Index (BIX)201520162017201820192020(20)%0%20%40%60%80%100%120%140%Total Return Index10 Year ReturnFITBS&P 500 (SPX)S&P Banks Index (BIX)20102011201220132014201520162017201820192020(50)%0%50%100%150%200%250%300% Table of Contents
2020 ANNUAL REPORT
FINANCIAL CONTENTS
Glossary of Abbreviations and Acronyms
Selected Financial Data
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Overview
Non-GAAP Financial Measures
Recent Accounting Standards
Critical Accounting Policies
Statements of Income Analysis
Business Segment Review
Fourth Quarter Review
Balance Sheet Analysis
Risk Management - Overview
Credit Risk Management
Interest Rate and Price Risk Management
Liquidity Risk Management
Operational Risk Management
Legal and Regulatory Compliance Risk Management
Capital Management
Off-Balance Sheet Arrangements
Contractual Obligations and Other Commitments
Report of Independent Registered Public Accounting Firm
Financial Statements
Consolidated Balance Sheets
Consolidated Statements of Income
Consolidated Statements of Comprehensive Income
Consolidated Statements of Changes in Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
Summary of Significant Accounting and Reporting Policies
Supplemental Cash Flow Information
Business Combination
Restrictions on Cash, Dividends and Other Capital Actions
Investment Securities
Loans and Leases
Credit Quality and the Allowance for Loan and Lease Losses
Bank Premises and Equipment
Operating Lease Equipment
Lease Obligations – Lessee
Goodwill
Intangible Assets
Variable Interest Entities
Sales of Receivables and Servicing Rights
Derivative Financial Instruments
Other Assets
Short-Term Borrowings
137 Long-Term Debt
152 Commitments, Contingent Liabilities and Guarantees
153 Legal and Regulatory Proceedings
157 Related Party Transactions
158 Income Taxes
161 Retirement and Benefit Plans
163 Accumulated Other Comprehensive Income
172 Common, Preferred and Treasury Stock
173 Stock-Based Compensation
173 Other Noninterest Income and Other Noninterest Expense
175 Earnings Per Share
176 Fair Value Measurements
177 Regulatory Capital Requirements and Capital Ratios
180 Parent Company Financial Statements
182 Business Segments
188 Subsequent Event
189
Management’s Assessment as to the Effectiveness of Internal
Control over Financial Reporting
Report of Independent Registered Public Accounting Firm
Consolidated Ten Year Comparison
Directors and Officers
Corporate Information
234
235
243
244
50
51
52
57
59
59
64
73
83
86
93
94
114
120
122
123
124
127
128
129
131
132
133
134
136
190
194
198
201
203
205
208
210
212
216
217
218
227
228
230
233
49 Fifth Third Bancorp
Table of Contents
GLOSSARY OF ABBREVIATIONS AND ACRONYMS
Fifth Third Bancorp provides the following list of abbreviations and acronyms as a tool for the reader that are used in Management’s
Discussion and Analysis of Financial Condition and Results of Operations, the Consolidated Financial Statements and the Notes to
Consolidated Financial Statements.
ACL: Allowance for Credit Losses
AFS: Available For Sale
ALCO: Asset Liability Management Committee
ALLL: Allowance for Loan and Lease Losses
AOCI: Accumulated Other Comprehensive Income (Loss)
APR: Annual Percentage Rate
ARM: Adjustable Rate Mortgage
ASC: Accounting Standards Codification
ASU: Accounting Standards Update
ATM: Automated Teller Machine
BHC: Bank Holding Company
BOLI: Bank Owned Life Insurance
bps: Basis Points
CARES: Coronavirus Aid, Relief and Economic Security
CCAR: Comprehensive Capital Analysis and Review
CDC: Fifth Third Community Development Corporation
CECL: Current Expected Credit Loss
CET1: Common Equity Tier 1
CFPB: United States Consumer Financial Protection Bureau
C&I: Commercial and Industrial
DCF: Discounted Cash Flow
DTCC: Depository Trust & Clearing Corporation
DTI: Debt-to-Income Ratio
ERM: Enterprise Risk Management
ERMC: Enterprise Risk Management Committee
EVE: Economic Value of Equity
FASB: Financial Accounting Standards Board
FDIC: Federal Deposit Insurance Corporation
FHA: Federal Housing Administration
FHLB: Federal Home Loan Bank
FHLMC: Federal Home Loan Mortgage Corporation
FICO: Fair Isaac Corporation (credit rating)
FINRA: Financial Industry Regulatory Authority
FNMA: Federal National Mortgage Association
FOMC: Federal Open Market Committee
FRB: Federal Reserve Bank
FTE: Fully Taxable Equivalent
FTP: Funds Transfer Pricing
FTS: Fifth Third Securities
GDP: Gross Domestic Product
GNMA: Government National Mortgage Association
GSE: United States Government Sponsored Enterprise
HTM: Held-To-Maturity
IPO: Initial Public Offering
IRC: Internal Revenue Code
IRLC: Interest Rate Lock Commitment
IRS: Internal Revenue Service
ISDA: International Swaps and Derivatives Association, Inc.
LIBOR: London Interbank Offered Rate
LIHTC: Low-Income Housing Tax Credit
LLC: Limited Liability Company
LTV: Loan-to-Value Ratio
MD&A: Management’s Discussion and Analysis of Financial
Condition and Results of Operations
MSR: Mortgage Servicing Right
N/A: Not Applicable
NAV: Net Asset Value
NII: Net Interest Income
NM: Not Meaningful
OAS: Option-Adjusted Spread
OCC: Office of the Comptroller of the Currency
OCI: Other Comprehensive Income (Loss)
OREO: Other Real Estate Owned
OTTI: Other-Than-Temporary Impairment
PCI: Purchase Credit Impaired
PCD: Purchased Credit Deteriorated
PPP: Paycheck Protection Program
PSA: Performance Share Award
RCC: Risk Compliance Committee
ROU: Right-of-Use
RSA: Restricted Stock Award
RSU: Restricted Stock Unit
SAR: Stock Appreciation Right
SBA: Small Business Administration
SEC: United States Securities and Exchange Commission
SOFR: Secured Overnight Financing Rate
TBA: To Be Announced
TDR: Troubled Debt Restructuring
TILA: Truth in Lending Act
TRA: Tax Receivable Agreement
TruPS: Trust Preferred Securities
U.S.: United States of America
USD: United States Dollar
U.S. GAAP: United States Generally Accepted Accounting
Principles
VA: United States Department of Veterans Affairs
VIE: Variable Interest Entity
VRDN: Variable Rate Demand Note
50 Fifth Third Bancorp
SELECTED FINANCIAL DATA
Table of Contents
ITEM 6. SELECTED FINANCIAL DATA
As of and for the years ended December 31
($ in millions, except for per share data)
Income Statement Data
Net interest income (U.S. GAAP)
Net interest income (FTE)(a)(b)
Noninterest income
Total revenue (FTE)(a)(b)
Provision for credit losses(c)
Noninterest expense
Net income
Net income available to common shareholders
Common Share Data
Earnings per share - basic
Earnings per share - diluted
Cash dividends declared per common share
Book value per share
Market value per share
Financial Ratios
Return on average assets
Return on average common equity
Return on average tangible common equity(b)
Dividend payout
Average total Bancorp shareholders’ equity as a percent of average assets
Tangible common equity as a percent of tangible assets (excluding AOCI)(b)
Net interest margin(a)(b)
Net interest rate spread(a)(b)
Efficiency(a)(b)
Credit Quality
Net losses charged-off
Net losses charged-off as a percent of average portfolio loans and leases
ALLL as a percent of portfolio loans and leases
ACL as a percent of portfolio loans and leases(d)
Nonperforming portfolio assets as a percent of portfolio loans and leases
and OREO
Average Balances
Loans and leases, including held for sale
Securities and other short-term investments
Total assets
Transaction deposits(e)
Core deposits(f)
Wholesale funding(g)
Bancorp shareholders’ equity
Regulatory Capital(h)
CET1 capital
Tier I risk-based capital
Total risk-based capital
Tier I leverage
2020
2019
2018
2017
2016
$
$
$
4,782
4,795
2,830
7,625
1,097
4,718
1,427
1,323
1.84
1.83
1.08
29.46
27.57
0.73 %
6.4
8.4
58.7
11.61
7.11
2.78
2.57
61.9
471
0.42 %
2.25
2.41
0.79
4,797
4,814
3,536
8,350
471
4,660
2,512
2,419
3.38
3.33
0.94
27.41
30.74
1.53
13.1
17.1
27.8
12.14
8.44
3.31
2.92
55.8
369
0.35
1.10
1.23
0.62
4,140
4,156
2,790
6,946
207
3,958
2,193
2,118
3.11
3.06
0.74
23.07
23.53
1.54
14.5
17.5
23.8
11.23
8.71
3.22
2.87
57.0
330
0.35
1.16
1.30
0.41
3,798
3,824
3,224
7,048
261
3,782
2,180
2,105
2.86
2.81
0.60
21.43
30.34
1.55
13.9
16.6
21.0
11.69
8.83
3.03
2.76
53.7
298
0.32
1.30
1.48
0.53
3,615
3,640
2,696
6,336
366
3,737
1,543
1,472
1.92
1.91
0.53
19.62
26.97
1.09
9.7
11.6
27.6
11.57
8.77
2.88
2.66
59.0
362
0.39
1.36
1.54
0.80
$ 114,411
58,277
194,230
140,505
144,623
21,506
22,555
107,794
37,610
163,936
111,130
116,600
22,451
19,902
93,876
35,029
142,183
97,914
102,020
20,573
15,970
92,731
33,562
140,527
96,052
99,823
20,360
16,424
94,320
31,965
142,173
95,371
99,381
21,813
16,453
10.34 %
11.83
15.08
8.49
9.75
10.99
13.84
9.54
10.24
11.32
14.48
9.72
10.61
11.74
15.16
10.01
10.39
11.50
15.02
9.90
(a) Amounts presented on an FTE basis. The FTE adjustment for the years ended December 31, 2020, 2019, 2018, 2017, and 2016 was $13, $17, $16, $26 and $25,
respectively.
The provision for credit losses is the sum of the provision for loan and lease losses and the provision for (benefit from) the reserve for unfunded commitments.
(b) These are non-GAAP measures. For further information, refer to the Non-GAAP Financial Measures section of MD&A.
(c)
(d) The ACL is the sum of the ALLL and the reserve for unfunded commitments.
(e)
(f)
(g)
(h) Regulatory capital ratios as of December 31, 2020 are calculated pursuant to the five-year transition provision option to phase in the effects of CECL on
Includes demand deposits, interest checking deposits, savings deposits, money market deposits and foreign office deposits.
Includes transaction deposits and other time deposits.
Includes certificates $100,000 and over, other deposits, federal funds purchased, other short-term borrowings and long-term debt.
regulatory capital.
51 Fifth Third Bancorp
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following is Management’s Discussion and Analysis of Financial Condition and Results of Operations of certain significant factors that
have affected Fifth Third Bancorp’s (the “Bancorp” or “Fifth Third”) financial condition and results of operations during the periods included
in the Consolidated Financial Statements, which are a part of this filing. Reference to the Bancorp incorporates the parent holding company
and all consolidated subsidiaries. The Bancorp’s banking subsidiary is referred to as the Bank.
OVERVIEW
This overview of MD&A highlights selected information in the financial results of the Bancorp and may not contain all of the information
that is important to you. For a more complete understanding of trends, events, commitments, uncertainties, liquidity, capital resources and
critical accounting policies and estimates, you should carefully read this entire document. Each of these items could have an impact on the
Bancorp’s financial condition, results of operations and cash flows. In addition, refer to the Glossary of Abbreviations and Acronyms in this
report for a list of terms included as a tool for the reader of this Annual Report on Form 10-K. The abbreviations and acronyms identified
therein are used throughout this MD&A, as well as the Consolidated Financial Statements and Notes to Consolidated Financial Statements.
Net interest income, net interest margin, net interest rate spread and the efficiency ratio are presented in MD&A on an FTE basis. The FTE
basis adjusts for the tax-favored status of income from certain loans and securities held by the Bancorp that are not taxable for federal income
tax purposes. The Bancorp believes this presentation to be the preferred industry measurement of net interest income as it provides a relevant
comparison between taxable and non-taxable amounts. The FTE basis for presenting net interest income is a non-GAAP measure. For further
information, refer to the Non-GAAP Financial Measures section of MD&A.
The Bancorp’s revenues are dependent on both net interest income and noninterest income. For the year ended December 31, 2020, net
interest income on an FTE basis and noninterest income provided 63% and 37% of total revenue, respectively. The Bancorp derives the
majority of its revenues within the U.S. from customers domiciled in the U.S. Revenue from foreign countries and external customers
domiciled in foreign countries was immaterial to the Consolidated Financial Statements for the year ended December 31, 2020. Changes in
interest rates, credit quality, economic trends and the capital markets are primary factors that drive the performance of the Bancorp. As
discussed later in the Risk Management section of MD&A, risk identification, measurement, monitoring, control and reporting are important
to the management of risk and to the financial performance and capital strength of the Bancorp.
Net interest income is the difference between interest income earned on assets such as loans, leases and securities, and interest expense
incurred on liabilities such as deposits, other short-term borrowings and long-term debt. Net interest income is affected by the general level of
interest rates, the relative level of short-term and long-term interest rates, changes in interest rates and changes in the amount and composition
of interest-earning assets and interest-bearing liabilities. Generally, the rates of interest the Bancorp earns on its assets and pays on its
liabilities are established for a period of time. The change in market interest rates over time exposes the Bancorp to interest rate risk through
potential adverse changes to net interest income and financial position. The Bancorp manages this risk by continually analyzing and adjusting
the composition of its assets and liabilities based on their payment streams and interest rates, the timing of their maturities and their
sensitivity to changes in market interest rates. Additionally, in the ordinary course of business, the Bancorp enters into certain derivative
transactions as part of its overall strategy to manage its interest rate and prepayment risks. The Bancorp is also exposed to the risk of loss on
its loan and lease portfolio as a result of changing expected cash flows caused by borrower credit events, such as loan defaults and inadequate
collateral.
Noninterest income is derived from service charges on deposits, commercial banking revenue, wealth and asset management revenue, card
and processing revenue, mortgage banking net revenue, leasing business revenue, other noninterest income and net securities gains or losses.
Noninterest expense includes compensation and benefits, technology and communications costs, net occupancy expense, leasing business
expense, equipment expense, card and processing expense, marketing expense and other noninterest expense.
COVID-19 Global Pandemic
The COVID-19 pandemic has introduced significant economic uncertainty during the year ended December 31, 2020. To address concerns
that COVID-19 may overwhelm the health care system, states across the U.S. declared lockdowns that restricted social gatherings and
ordered temporary closures of businesses deemed non-essential. Despite the partial lifting of these measures in some of the states in the
Bancorp’s geographic footprint, the recent fluctuations in the number of COVID-19 cases mean that it remains unknown when there will be a
return to normal economic activity. During the year ended December 31, 2020, the Bancorp observed the impact of the pandemic on its
business. The decline of asset prices, reduction in interest rates, widening of credit spreads, borrower and counterparty credit deterioration
and market volatility had the most immediate negative impacts on current performance. Although the Bancorp is unable to estimate the extent
of the impact, the continuing pandemic and related global economic crisis will adversely impact its future operating results.
As the cases of COVID-19 continued to rise, the disruption in the financial markets led the FRB to enact unprecedented policies to offset
forced liquidations and restore liquidity in the financial markets. The FRB cut rates to the zero lower bound, announced unlimited purchases
of treasuries along with agency mortgage-backed securities and commercial mortgage-backed securities, and established several facilities
designed to support the smooth functioning of credit markets.
52 Fifth Third Bancorp
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Government Response to the COVID-19 Pandemic
Congress, the FRB and the other U.S. state and federal financial regulatory agencies have taken actions to mitigate disruptions to economic
activity and financial stability resulting from the COVID-19 pandemic. The descriptions below summarize certain significant government
actions taken in response to the COVID-19 pandemic. The descriptions are qualified in their entirety by reference to the particular statutory or
regulatory provisions or government programs summarized.
The CARES Act
The Coronavirus Aid, Relief and Economic Security (“CARES”) Act was signed into law on March 27, 2020 and has subsequently been
amended several times, including by the Consolidated Appropriations Act, 2021. Among other provisions, the CARES Act includes funding
for the SBA to expand lending, relief from certain U.S. GAAP requirements to allow COVID-19-related loan modifications to not be
categorized as TDRs and a range of incentives to encourage deferment, forbearance or modification of consumer credit and mortgage
contracts. One of the key CARES Act programs is the Paycheck Protection Program, which has temporarily expanded the SBA’s business
loan guarantee program. Paycheck Protection Program loans are available to a broader range of entities than ordinary SBA loans, require
deferral of principal and interest repayment, and the loan may be forgiven if the borrower demonstrates that the loan proceeds were used for
qualified payroll costs and certain other expenses. The Paycheck Protection Program was expanded to permit a second round of funding,
including for certain borrowers who have already received a PPP loan, subject to certain conditions.
The CARES Act contains additional protections for homeowners and renters of properties with federally-backed mortgages, including a 60-
day moratorium on the initiation of foreclosure proceedings beginning on March 18, 2020 and a 120-day moratorium on initiating eviction
proceedings effective March 27, 2020. Borrowers of federally-backed mortgages have the right under the CARES Act to request up to 360
days of forbearance on their mortgage payments if they experience financial hardship directly or indirectly due to the COVID-19 public
health emergency. The Federal Housing Administration, Fannie Mae and Freddie Mac have independently extended their moratorium on
foreclosures and evictions for single-family federally backed mortgages until at least June 30, 2021.
Also pursuant to the CARES Act, the U.S. Treasury has the authority to provide loans, guarantees and other investments in support of eligible
businesses, states and municipalities affected by the economic effects of COVID-19. Some of these funds have been used to support several
FRB programs and facilities described below or additional programs or facilities that are established by its authority under Section 13(3) of
the Federal Reserve Act which meet certain criteria.
FRB Actions
The FRB has taken a range of actions to support the flow of credit to households and businesses. For example, on March 15, 2020, the FRB
reduced the target range for the federal funds rate to 0 to 0.25% and announced that it would increase its holdings of U.S. Treasury securities
and agency mortgage-backed securities and begin purchasing agency commercial mortgage-backed securities. The FRB has also encouraged
depository institutions to borrow from the discount window and has lowered the primary credit rate for such borrowing by 150 basis points
while extending the term of such loans up to 90 days. Reserve requirements have been reduced to zero as of March 26, 2020.
In addition, the FRB established a range of facilities and programs to support the U.S. economy and U.S. marketplace participants in response
to economic disruptions associated with COVID-19. Through these facilities and programs, the FRB, relying on its authority under Section
13(3) of the Federal Reserve Act, has taken steps to directly or indirectly purchase assets from, or make loans to, U.S. companies, financial
institutions, municipalities and other market participants.
FRB facilities and programs that expired as of December 31, 2020 included:
• Main Street New Loan Facility, a Main Street Priority Loan Facility, and a Main Street Expanded Loan Facility to purchase loan
•
•
participations, under specified conditions, from banks lending to small and medium U.S. businesses;
Primary Market Corporate Credit Facility to purchase corporate bonds directly from, or make loans directly to, eligible participants;
Secondary Market Corporate Credit Facility to purchase corporate bonds trading in secondary markets, including from exchange-
traded funds, that were issued by eligible participants;
Term Asset-Backed Securities Loan Facility to make loans secured by asset-backed securities; and
•
• Municipal Liquidity Facility to purchase bonds directly from U.S. state, city and county issuers.
FRB facilities and programs that remain active include:
Paycheck Protection Program Liquidity Facility to provide financing related to Paycheck Protection Program loans made by banks;
Primary Dealer Credit Facility to provide liquidity to primary dealers through a secured lending facility;
Commercial Paper Funding Facility to purchase the commercial paper of certain U.S. issuers; and
•
•
•
• Money Market Mutual Fund Liquidity Facility to purchase certain assets from, or make loans to, financial institutions providing
financing to eligible money market mutual funds.
For commercial and consumer customers, Fifth Third has provided a host of relief options, including loan covenant relief, loan maturity
extensions, payment deferrals, forbearances and fee waivers.
53 Fifth Third Bancorp
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Paycheck Protection Program
As previously discussed, the Bancorp is participating in the SBA’s Paycheck Protection Program which was created by the CARES Act on
March 27, 2020. As of December 31, 2020, the Bancorp held approximately 24,000 loans with a carrying amount of $4.8 billion under the
program.
For further discussion on Fifth Third’s hardship relief programs as a result of the COVID-19 pandemic, refer to the Credit Risk Management
subsection of the Risk Management section of MD&A and Note 1 of the Notes to Consolidated Financial Statements.
Senior Notes Offerings
On January 31, 2020, the Bank issued and sold, under its bank notes program, $1.25 billion in aggregate principal amount of senior fixed-rate
notes. The bank notes consisted of $650 million of 1.80% senior fixed-rate notes, with a maturity of three years, due on January 30, 2023; and
$600 million of 2.25% senior fixed-rate notes, with a maturity of seven years, due on February 1, 2027.
On May 5, 2020, the Bancorp issued and sold $1.25 billion in aggregate principal amount of senior fixed-rate notes. The notes consisted of
$500 million of 1.625% senior fixed-rate notes, with a maturity of three years, due on May 5, 2023; and $750 million of 2.55% senior fixed-
rate notes, with a maturity of seven years, due on May 5, 2027.
For more information on the senior notes offerings, including disclosure on the redemption options, refer to Note 18 of the Notes to
Consolidated Financial Statements.
Preferred Stock Offering
On July 30, 2020, the Bancorp issued in a registered public offering 350,000 depositary shares, representing 14,000 shares of 4.50% fixed-
rate reset non-cumulative perpetual preferred stock, Series L, for net proceeds of approximately $346 million. Each preferred share has a
$25,000 liquidation preference.
For more information on the preferred stock offering, including disclosure on the redemption options, refer to Note 25 of the Notes to
Consolidated Financial Statements.
LIBOR Transition
In July 2017, the Chief Executive of the United Kingdom Financial Conduct Authority (the “FCA”), which regulates LIBOR, announced that
FCA will stop persuading or compelling banks to submit rates for the calculation of LIBOR to the administrator of LIBOR after 2021. Since
then, central banks around the world, including the Federal Reserve, have commissioned working groups of market participants and official
sector representatives with the goal of finding suitable replacements for LIBOR. The Bancorp has substantial exposure to LIBOR-based
products within its commercial lending, commercial deposits, business banking, consumer lending and capital markets lines of business as
well as corporate treasury function. It is expected that a transition away from the widespread use of LIBOR to alternative reference rates for
new financial contracts will occur by the end of 2021. On November 30, 2020, the Federal Reserve, OCC, and FDIC issued a public
statement that the administrator of LIBOR announced it will consult on an extension of publication of certain U.S. Dollar (“USD”) LIBOR
tenors until June 30, 2023, which would allow additional legacy USD LIBOR contracts to mature before the succession of LIBOR. The
administrator has not yet announced the results of its consultation. Although the full impact of LIBOR reforms and actions remains unclear,
the Bancorp continues to prepare to transition from LIBOR to these alternative reference rates. In the United States, it is likely that LIBOR-
priced transactions and products will transfer to the Secured Overnight Financing Rate (“SOFR”). There are risks inherent with the transition
to any alternative rate such as SOFR as the rates may behave differently than LIBOR in reaction to monetary, market and economic events.
.
The Bancorp’s LIBOR transition plan is organized around key work streams, including continued engagement with central banks and
industry working groups and regulators, active client engagement, comprehensive review of legacy documentation, internal operational and
technological readiness, and risk management, among other things, to facilitate the transition to alternative reference rates.
For a further discussion of the various risks the Bancorp faces in connection with the expected replacement of LIBOR on its operations, see
“Risk Factors—Market Risks—The replacement of LIBOR could adversely affect Fifth Third’s revenue or expenses and the value of those
assets or obligations.” in Item 1A. Risk Factors of this Annual Report on Form 10-K.
Key Performance Indicators
The Bancorp, as a banking institution, utilizes various key indicators of financial condition and operating results in managing and monitoring
the performance of the business. In addition to traditional financial metrics, such as revenue and expense trends, the Bancorp monitors other
financial measures that assist in evaluating growth trends, capital strength and operational efficiencies. The Bancorp analyzes these key
performance indicators against its past performance, its forecasted performance and with the performance of its peer banking institutions.
These indicators may change from time to time as the operating environment and businesses change.
The following are key performance indicators used by management to make operating decisions and evaluate capital utilization:
•
CET1 Capital Ratio: CET1 capital divided by risk-weighted assets as defined by the Basel III standardized approach to risk-
weighting of assets
54 Fifth Third Bancorp
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
•
•
•
•
•
•
Return on Average Tangible Common Equity (non-GAAP): Tangible net income available to common shareholders divided by
average tangible common equity
Efficiency Ratio: Noninterest expense divided by the sum of net interest income on an FTE basis (non-GAAP) and noninterest
income
Earnings Per Share, Diluted: Net income allocated to common shareholders divided by average common shares outstanding after the
effect of dilutive stock-based awards
Nonperforming Portfolio Assets Ratio: Nonperforming portfolio assets divided by portfolio loans and leases and OREO
Return on Average Assets: Net income divided by average assets
Loan-to-Deposit Ratio: Total loans divided by total deposits
TABLE 1: Condensed Consolidated Statements of Income
For the years ended December 31 ($ in millions, except per share data)
Interest income (FTE)(a)
Interest expense
Net Interest Income (FTE)(a)
Provision for credit losses
Net Interest Income After Provision for Credit Losses (FTE)(a)
Noninterest income
Noninterest expense
Income Before Income Taxes (FTE)(a)
Fully taxable equivalent adjustment
Applicable income tax expense
Net Income
Less: Net income attributable to noncontrolling interests
Net Income Attributable to Bancorp
Dividends on preferred stock
Net Income Available to Common Shareholders
Earnings per share - basic
Earnings per share - diluted
Cash dividends declared per common share
$
$
$
$
$
2020
2019
2018
2017
2016
5,585
790
4,795
1,097
3,698
2,830
4,718
1,810
13
370
1,427
—
1,427
104
1,323
1.84
1.83
1.08
6,271
1,457
4,814
471
4,343
3,536
4,660
3,219
17
690
2,512
—
2,512
93
2,419
3.38
3.33
0.94
5,199
1,043
4,156
207
3,949
2,790
3,958
2,781
16
572
2,193
—
2,193
75
2,118
3.11
3.06
0.74
4,515
691
3,824
261
3,563
3,224
3,782
3,005
26
799
2,180
—
2,180
75
2,105
2.86
2.81
0.60
4,218
578
3,640
366
3,274
2,696
3,737
2,233
25
665
1,543
(4)
1,547
75
1,472
1.92
1.91
0.53
(a) These are non-GAAP measures. For further information, refer to the Non-GAAP Financial Measures section of MD&A.
Earnings Summary
The Bancorp’s net income available to common shareholders for the year ended December 31, 2020 was $1.3 billion, or $1.83 per diluted
share, which was net of $104 million in preferred stock dividends. The Bancorp’s net income available to common shareholders for the year
ended December 31, 2019 was $2.4 billion, or $3.33 per diluted share, which was net of $93 million in preferred stock dividends.
Net interest income on an FTE basis (non-GAAP) was $4.8 billion for both the years ended December 31, 2020 and 2019. Net interest
income was negatively impacted by decreases in yields on average interest-earning assets of 108 bps. The decreases in yields on average
interest-earning assets were primarily driven by lower yields on total average loans and leases primarily as a result of decreases in yields on
average commercial and industrial loans, average commercial mortgage loans, average commercial construction loans and average home
equity of 98 bps, 127 bps, 172 bps and 126 bps, respectively, from the year ended December 31, 2019. The decrease in yields on total average
loans and leases for the year ended December 31, 2020 was primarily due to a decrease in market rates, impacting the Bancorp’s portfolios of
floating interest rate loans, which are primarily LIBOR- and Prime-based. Net interest income was also negatively impacted by increases in
average interest checking deposits and average money market deposits of $10.2 billion and $4.0 billion, respectively, from the year ended
December 31, 2019. These negative impacts were partially offset by decreases in rates paid on average interest-bearing liabilities of 73 bps.
The decreases in rates paid on average interest-bearing liabilities were primarily driven by decreases in rates paid on average interest
checking deposits, average money market deposits and average long-term debt of 81 bps, 76 bps and 48 bps, respectively, from the year
ended December 31, 2019. Net interest income also benefited from increases in average commercial and industrial loans, average indirect
secured consumer loans and average commercial mortgage loans of $3.6 billion, $2.1 billion and $1.1 billion, respectively, from the year
ended December 31, 2019. Net interest income for the year ended December 31, 2020 compared to the year ended December 31, 2019 was
adversely impacted by lower market interest rates due to the FOMC decisions to lower the target range of the federal funds rate and the
Federal Reserve's bond purchase programs. During the years ended December 31, 2020 and 2019, net interest income included $57 million
and $65 million, respectively, of amortization and accretion of premiums and discounts on acquired loans and leases and assumed deposits
and long-term debt from acquisitions. Net interest margin on an FTE basis (non-GAAP) was 2.78% for the year ended December 31, 2020
compared to 3.31% for the year ended December 31, 2019.
Effective January 1, 2020, the Bancorp adopted ASU 2016-13 which established a new approach for estimating credit losses on certain types
of financial instruments. The Bancorp recognized an initial increase to the ACL of approximately $653 million upon adoption of ASU
2016-13 on January 1, 2020, which included $171 million from the non-PCD loan portfolio resulting from the MB Financial, Inc. acquisition.
The provision for credit losses was $1.1 billion for the year ended December 31, 2020 compared to $471 million for the prior year. The
increase in provision expense for the year ended December 31, 2020 compared to the prior year was primarily due to an increase in the ACL
55 Fifth Third Bancorp
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
reflecting deterioration in the macroeconomic environment as a result of the impact of the COVID-19 pandemic and the resulting impact of
this environment on commercial borrowers as reflected in increased levels of commercial criticized assets. The increase in the provision for
credit losses also reflected the impact of the change in methodology for estimating credit losses from the incurred loss methodology to the
expected credit loss methodology beginning in the first quarter of 2020. Net losses charged off as a percent of average portfolio loans and
leases were 0.42% and 0.35% for the years ended December 31, 2020 and 2019, respectively. At December 31, 2020, nonperforming
portfolio assets as a percent of portfolio loans and leases and OREO increased to 0.79% compared to 0.62% at December 31, 2019. For
further discussion on credit quality refer to the Credit Risk Management subsection of the Risk Management section of MD&A as well as
Note 7 of the Notes to Consolidated Financial Statements.
Noninterest income decreased $706 million for the year ended December 31, 2020 compared to the year ended December 31, 2019 primarily
due to a decrease in other noninterest income, partially offset by increases in commercial banking revenue, wealth and asset management
revenue and mortgage banking net revenue. Other noninterest income decreased $853 million for the year ended December 31, 2020
compared to the year ended December 31, 2019 primarily due to the $562 million gain on sale of Worldpay, Inc. shares recognized during the
first quarter of 2019 and a decrease of $272 million in the income from the TRA associated with Worldpay, Inc primarily driven by a $345
million gain recognized in the fourth quarter of 2019 from the Worldpay, Inc. TRA transaction. Commercial banking revenue increased $68
million for the year ended December 31, 2020 compared to the year ended December 31, 2019 primarily driven by increases in institutional
sales and bridge fees of $68 million and $10 million, respectively, partially offset by a decrease in loan syndication fees of $20 million.
Wealth and asset management revenue increased $33 million for the year ended December 31, 2020 compared to the year ended
December 31, 2019 primarily due to increases of $16 million in both private client service fees and broker income. Mortgage banking net
revenue increased $33 million for the year ended December 31, 2020 compared to the year ended December 31, 2019 primarily due to an
increase of $140 million in origination fees and gains on loan sales, partially offset by an increase of $103 million in net negative valuation
adjustments.
Noninterest expense increased $58 million for the year ended December 31, 2020 compared to the year ended December 31, 2019 primarily
due to an increase in compensation and benefits expense, partially offset by decreases in technology and communications expense and
marketing expense. The Bancorp recognized $16 million of merger-related expenses related to the MB Financial, Inc. acquisition for the year
ended December 31, 2020 compared to $222 million for the year ended December 31, 2019. Compensation and benefits expense increased
$172 million for the year ended December 31, 2020 compared to the year ended December 31, 2019 primarily due to strategic hiring and the
impact of raising the Bancorp’s minimum wage in the fourth quarter of 2019, as well as increases in incentive compensation driven by strong
performance in fees related to business growth during the year ended December 31, 2020. Technology and communications expense
decreased $60 million for the year ended December 31, 2020 compared to the year ended December 31, 2019 primarily driven by decreased
integration and conversion costs related to the acquisition of MB Financial, Inc. Marketing expense decreased $58 million for the year ended
December 31, 2020 compared to the year ended December 31, 2019 primarily due to the impact of the COVID-19 pandemic, which resulted
in a pause or slowdown in numerous marketing campaigns, including running less advertising as well as the suspension of cash bonus and
other account acquisition programs.
For more information on net interest income, noninterest income and noninterest expense, refer to the Statements of Income Analysis section
of MD&A.
Capital Summary
The Bancorp calculated its regulatory capital ratios under the Basel III standardized approach to risk-weighting of assets and pursuant to the
five-year transition provision option to phase in the effects of CECL on regulatory capital as of December 31, 2020. As of December 31,
2020, the Bancorp’s capital ratios, as defined by the U.S. banking agencies, were:
•
•
•
•
CET1 capital ratio: 10.34%;
Tier I risk-based capital ratio: 11.83%;
Total risk-based capital ratio: 15.08%;
Tier I leverage ratio: 8.49%
56 Fifth Third Bancorp
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
NON-GAAP FINANCIAL MEASURES
The following are non-GAAP financial measures which provide useful insight to the reader of the Consolidated Financial Statements but
should be supplemental to primary U.S. GAAP measures and should not be read in isolation or relied upon as a substitute for the primary
U.S. GAAP measures.
The FTE basis adjusts for the tax-favored status of income from certain loans and securities held by the Bancorp that are not taxable for
federal income tax purposes. The Bancorp believes this presentation to be the preferred industry measurement of net interest income as it
provides a relevant comparison between taxable and non-taxable amounts.
The following table reconciles the non-GAAP financial measures of net interest income on an FTE basis, interest income on an FTE basis,
net interest margin, net interest rate spread and the efficiency ratio to U.S. GAAP:
TABLE 2: Non-GAAP Financial Measures - Financial Measures and Ratios on an FTE basis
For the years ended December 31 ($ in millions)
Net interest income (U.S. GAAP)
Add: FTE adjustment
Net interest income on an FTE basis (1)
$
$
2020
Interest income (U.S. GAAP)
Add: FTE adjustment
Interest income on an FTE basis (2)
Interest expense (3)
Noninterest income (4)
Noninterest expense (5)
Average interest-earning assets (6)
Average interest-bearing liabilities (7)
Ratios:
Net interest margin on an FTE basis (1) / (6)
Net interest rate spread on an FTE basis ((2) / (6)) - ((3) / (7))
Efficiency ratio on an FTE basis (5) / ((1) + (4))
$
$
$
4,782
13
4,795
5,572
13
5,585
790
2,830
4,718
172,688
119,018
2.78 %
2.57
61.9
2019
2018
4,797
17
4,814
6,254
17
6,271
1,457
3,536
4,660
145,404
104,708
3.31
2.92
55.8
4,140
16
4,156
5,183
16
5,199
1,043
2,790
3,958
128,905
89,959
3.22
2.87
57.0
The Bancorp believes return on average tangible common equity is an important measure for comparative purposes with other financial
institutions, but is not defined under U.S. GAAP, and therefore is considered a non-GAAP financial measure. This measure is useful for
evaluating the performance of a business as it calculates the return available to common shareholders without the impact of intangible assets
and their related amortization.
The following table reconciles the non-GAAP financial measure of return on average tangible common equity to U.S. GAAP:
TABLE 3: Non-GAAP Financial Measures - Return on Average Tangible Common Equity
For the years ended December 31 ($ in millions)
Net income available to common shareholders (U.S. GAAP)
Add: Intangible amortization, net of tax
Tangible net income available to common shareholders (1)
Average Bancorp shareholders’ equity (U.S. GAAP)
Less: Average preferred stock
Average goodwill
Average intangible assets
Average tangible common equity (2)
2020
2019
$
$
$
$
1,323
38
1,361
22,555
1,916
4,258
172
16,209
2,419
35
2,454
19,902
1,470
3,888
169
14,375
Return on average tangible common equity (1) / (2)
8.4 %
17.1
The Bancorp considers various measures when evaluating capital utilization and adequacy, including the tangible equity ratio and tangible
common equity ratio, in addition to capital ratios defined by the U.S. banking agencies. These calculations are intended to complement the
capital ratios defined by the U.S. banking agencies for both absolute and comparative purposes. Because U.S. GAAP does not include capital
ratio measures, the Bancorp believes there are no comparable U.S. GAAP financial measures to these ratios. These ratios are not formally
57 Fifth Third Bancorp
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
defined by U.S. GAAP or codified in the federal banking regulations and, therefore, are considered to be non-GAAP financial measures. The
Bancorp encourages readers to consider its Consolidated Financial Statements in their entirety and not to rely on any single financial measure.
The following table reconciles non-GAAP capital ratios to U.S. GAAP:
TABLE 4: Non-GAAP Financial Measures - Capital Ratios
As of December 31 ($ in millions)
Total Bancorp Shareholders’ Equity (U.S. GAAP)
Less: Preferred stock
Goodwill
Intangible assets
AOCI
Tangible common equity, excluding AOCI (1)
Add: Preferred stock
Tangible equity (2)
Total Assets (U.S. GAAP)
Less: Goodwill
Intangible assets
AOCI, before tax
Tangible assets, excluding AOCI (3)
Ratios:
Tangible equity as a percentage of tangible assets (2) / (3)
Tangible common equity as a percentage of tangible assets (1) / (3)
2020
23,111
2,116
4,258
139
2,601
13,997
2,116
16,113
204,680
4,258
139
3,292
196,991
$
$
$
$
2019
21,203
1,770
4,252
201
1,192
13,788
1,770
15,558
169,369
4,252
201
1,509
163,407
8.18 %
7.11
9.52
8.44
58 Fifth Third Bancorp
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RECENT ACCOUNTING STANDARDS
Note 1 of the Notes to Consolidated Financial Statements provides a discussion of the significant new accounting standards applicable to the
Bancorp during 2020 and the expected impact of significant accounting standards issued, but not yet required to be adopted.
CRITICAL ACCOUNTING POLICIES
The Bancorp’s Consolidated Financial Statements are prepared in accordance with U.S. GAAP. Certain accounting policies require
management to exercise judgment in determining methodologies, economic assumptions and estimates that may materially affect the
Bancorp’s financial position, results of operations and cash flows. The Bancorp’s critical accounting policies include the accounting for the
ALLL, reserve for unfunded commitments, valuation of servicing rights, fair value measurements, goodwill and legal contingencies. On
January 1, 2020, the Bancorp adopted ASU 2016-13 (“Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on
Financial Instruments”) and its related subsequent amendments, along with ASU 2017-04 (“Intangibles—Goodwill and Other (Topic 350):
Simplifying the Test for Goodwill Impairment”). For additional information about these ASUs and their impacts on the Bancorp, refer to
Note 1 of the Notes to Consolidated Financial Statements. As a result of the adoption of these ASUs, the accounting policies for the ALLL,
reserve for unfunded commitments and goodwill have been updated as of January 1, 2020, and the related policies that were in effect for
periods prior to January 1, 2020 are provided in the Critical Accounting Policies Applicable Prior to January 1, 2020 section below. There
have been no other material changes to the valuation techniques or models described below during the year ended December 31, 2020.
ALLL
The Bancorp disaggregates its portfolio loans and leases into portfolio segments for purposes of determining the ALLL. The Bancorp’s
portfolio segments include commercial, residential mortgage and consumer. The Bancorp further disaggregates its portfolio segments into
classes for purposes of monitoring and assessing credit quality based on certain risk characteristics. For an analysis of the Bancorp’s ALLL
by portfolio segment and credit quality information by class, refer to Note 7 of the Notes to Consolidated Financial Statements.
The Bancorp maintains the ALLL to absorb the amount of credit losses that are expected to be incurred over the remaining contractual terms
of the related loans and leases. Contractual terms are adjusted for expected prepayments but are not extended for expected extensions,
renewals or modifications except in circumstances where the Bancorp reasonably expects to execute a TDR with the borrower or where
certain extension or renewal options are embedded in the original contract and not unconditionally cancellable by the Bancorp. Accrued
interest receivable on loans is presented in the Consolidated Financial Statements as a component of other assets. When accrued interest is
deemed to be uncollectible (typically when a loan is placed on nonaccrual status), interest income is reversed. The Bancorp follows
established policies for placing loans on nonaccrual status, so uncollectible accrued interest receivable is reversed in a timely manner. As a
result, the Bancorp has elected not to measure an allowance for credit losses for accrued interest receivable. For additional information on the
Bancorp’s accounting policies related to nonaccrual loans and leases, refer to Note 1 of the Notes to Consolidated Financial Statements.
Credit losses are charged and recoveries are credited to the ALLL. The ALLL is maintained at a level the Bancorp considers to be adequate
and is based on ongoing quarterly assessments and evaluations of the collectability of loans and leases, including historical credit loss
experience, current and forecasted market and economic conditions and consideration of various qualitative factors that, in management’s
judgment, deserve consideration in estimating expected credit losses. Provisions for credit losses are recorded for the amounts necessary to
adjust the ALLL to the Bancorp’s current estimate of expected credit losses on portfolio loans and leases. The Bancorp’s strategy for credit
risk management includes a combination of conservative exposure limits significantly below legal lending limits and conservative
underwriting, documentation and collections standards. The strategy also emphasizes diversification on a geographic, industry and customer
level, regular credit examinations and quarterly management reviews of large credit exposures and loans experiencing deterioration of credit
quality.
The Bancorp’s methodology for determining the ALLL requires significant management judgment and includes an estimate of expected
credit losses on a collective basis for groups of loans and leases with similar risk characteristics and specific allowances for loans and leases
which are individually evaluated.
Larger commercial loans and leases included within aggregate borrower relationship balances exceeding $1 million that exhibit probable or
observed credit weaknesses, as well as loans that have been modified in a TDR, are individually evaluated for an ALLL. The Bancorp
considers the current value of collateral, credit quality of any guarantees, the guarantor’s liquidity and willingness to cooperate, the loan or
lease structure and other factors when determining the amount of the ALLL. Other factors may include the borrower’s susceptibility to risks
presented by the forecasted macroeconomic environment, the industry and geographic region of the borrower, size and financial condition of
the borrower, cash flow and leverage of the borrower and the Bancorp’s evaluation of the borrower’s management. Significant management
judgment is required when evaluating which of these factors are most relevant in individual circumstances, and when estimating the amount
of expected credit losses based on those factors. When loans and leases are individually evaluated, allowances are determined based on
management’s estimate of the borrower’s ability to repay the loan or lease given the availability of collateral and other sources of cash flow,
as well as an evaluation of legal options available to the Bancorp. Allowances for individually evaluated loans and leases that are collateral-
dependent are typically measured based on the fair value of the underlying collateral, less expected costs to sell where applicable.
Individually evaluated loans and leases that are not collateral-dependent are measured based on the present value of expected future cash
flows discounted at the loan’s effective interest rate. The Bancorp evaluates the collectability of both principal and interest when assessing the
need for a loss accrual. Specific allowances on individually evaluated commercial loans and leases, including TDRs, are reviewed quarterly
and adjusted as necessary based on changing borrower and/or collateral conditions and actual collection and charge-off experience.
59 Fifth Third Bancorp
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Expected credit losses are estimated on a collective basis for loans and leases that are not individually evaluated. These include commercial
loans and leases that do not meet the criteria for individual evaluation as well as homogeneous loans in the residential mortgage and
consumer portfolio segments. For collectively evaluated loans and leases, the Bancorp uses models to forecast expected credit losses based on
the probability of a loan or lease defaulting, the expected balance at the estimated date of default and the expected loss percentage given a
default. The estimate of the expected balance at the time of default considers prepayments and, for loans with available credit, expected
utilization rates. The Bancorp’s expected credit loss models were developed based on historical credit loss experience and observations of
migration patterns for various credit risk characteristics (such as internal credit risk grades, external credit ratings or scores, delinquency
status, loan-to-value trends, etc.) over time, with those observations evaluated in the context of concurrent macroeconomic conditions. The
Bancorp developed its models from historical observations capturing a full economic cycle when possible.
The Bancorp’s expected credit loss models consider historical credit loss experience, current market and economic conditions, and forecasted
changes in market and economic conditions if such forecasts are considered reasonable and supportable. Generally, the Bancorp considers its
forecasts to be reasonable and supportable for a period of up to three years from the estimation date. For periods beyond the reasonable and
supportable forecast period, expected credit losses are estimated by reverting to historical loss information without adjustment for changes in
economic conditions. This reversion is phased in over a two-year period. The Bancorp evaluates the length of its reasonable and supportable
forecast period, its reversion period and reversion methodology at least annually, or more often if warranted by economic conditions or other
circumstances.
The Bancorp also considers qualitative factors in determining the ALLL. These considerations inherently require significant management
judgment to determine the appropriate factors to be considered and the extent of their impact on the ALLL estimate. Qualitative factors are
used to capture characteristics in the portfolio that impact expected credit losses but that are not fully captured within the Bancorp’s expected
credit loss models. These include adjustments for changes in policies or procedures in underwriting, monitoring or collections, lending and
risk management personnel and results of internal audit and quality control reviews. These may also include adjustments, when deemed
necessary, for specific idiosyncratic risks such as geopolitical events, natural disasters and their effects on regional borrowers and changes in
product structures. Qualitative factors may also be used to address the impacts of unforeseen events on key inputs and assumptions within the
Bancorp’s expected credit loss models, such as the reasonable and supportable forecast period, changes to historical loss information or
changes to the reversion period or methodology. When evaluating the adequacy of allowances, consideration is also given to regional
geographic concentrations and the closely associated effect that changing economic conditions may have on the Bancorp’s customers.
Overall, the collective evaluation process requires significant management judgment when determining the estimation methodology and
inputs into the models, as well as in evaluating the reasonableness of the modeled results and the appropriateness of qualitative adjustments.
The Bancorp’s forecasts of market and economic conditions and the internal risk grades assigned to loans and leases in the commercial
portfolio segment are examples of inputs to the expected credit loss models that require significant management judgment. These inputs have
the potential to drive significant variability in the resulting ALLL.
Refer to the Allowance for Credit Losses subsection of the Risk Management section of MD&A for a discussion on the Bancorp’s ALLL
sensitivity analysis.
Reserve for Unfunded Commitments
The reserve for unfunded commitments is maintained at a level believed by management to be sufficient to absorb estimated expected credit
losses related to unfunded credit facilities and is included in other liabilities in the Consolidated Balance Sheets. The determination of the
adequacy of the reserve is based upon expected credit losses over the remaining contractual life of the commitments, taking into consideration
the current funded balance and estimated exposure over the reasonable and supportable forecast period. This process takes into consideration
the same risk elements that are analyzed in the determination of the adequacy of the Bancorp’s ALLL, as previously discussed. Net
adjustments to the reserve for unfunded commitments are included in the provision for credit losses in the Consolidated Statements of
Income.
Valuation of Servicing Rights
When the Bancorp sells loans through either securitizations or individual loan sales in accordance with its investment policies, it often obtains
servicing rights. The Bancorp may also purchase servicing rights. The Bancorp has elected to measure all existing classes of its residential
mortgage servicing rights at fair value at each reporting date with changes in the fair value of servicing rights reported in earnings in the
period in which the changes occur. Servicing rights are valued using internal OAS models. Significant management judgment is necessary to
identify key economic assumptions used in estimating the fair value of the servicing rights including the prepayment speeds of the underlying
loans, the weighted-average life, the OAS and the weighted-average coupon rate, as applicable. The primary risk of material changes to the
value of the servicing rights resides in the potential volatility in the economic assumptions used, particularly the prepayment speeds. In order
to assist in the assessment of the fair value of servicing rights, the Bancorp obtains external valuations of the servicing rights portfolio from
third parties and participates in peer surveys that provide additional confirmation of the reasonableness of key assumptions utilized in the
internal OAS model. For additional information on servicing rights, refer to Note 14 of the Notes to Consolidated Financial Statements.
60 Fifth Third Bancorp
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Fair Value Measurements
The Bancorp measures certain financial assets and liabilities at fair value in accordance with U.S. GAAP, which defines fair value as the price
that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement
date. The Bancorp employs various valuation approaches to measure fair value including the market, income and cost approaches. The
market approach uses prices or relevant information generated by market transactions involving identical or comparable assets or liabilities.
The income approach involves discounting future amounts to a single present amount and is based on current market expectations about those
future amounts. The cost approach is based on the amount that currently would be required to replace the service capacity of the asset.
U.S. GAAP establishes a fair value hierarchy which prioritizes the inputs to valuation techniques used to measure fair value into three broad
levels. The fair value hierarchy gives the highest priority to quoted prices in active markets for identical assets or liabilities (Level 1) and the
lowest priority to unobservable inputs (Level 3). A financial instrument’s categorization within the fair value hierarchy is based upon the
lowest level of input that is significant to the instrument’s fair value measurement. For additional information on the fair value hierarchy and
fair value measurements, refer to Note 1 of the Notes to Consolidated Financial Statements.
The Bancorp’s fair value measurements involve various valuation techniques and models, which involve inputs that are observable, when
available. Valuation techniques and parameters used for measuring assets and liabilities are reviewed and validated by the Bancorp on a
quarterly basis. Additionally, the Bancorp monitors the fair values of significant assets and liabilities using a variety of methods including the
evaluation of pricing runs and exception reports based on certain analytical criteria, comparison to previous trades and overall review and
assessments for reasonableness. The level of management judgment necessary to determine fair value varies based upon the methods used in
the determination of fair value. Financial instruments that are measured at fair value using quoted prices in active markets (Level 1) require
minimal judgment. The valuation of financial instruments when quoted market prices are not available (Levels 2 and 3) may require
significant management judgment to assess whether quoted prices for similar instruments exist, the impact of changing market conditions
including reducing liquidity in the capital markets and the use of estimates surrounding significant unobservable inputs. Table 5 provides a
summary of the fair value of financial instruments carried at fair value on a recurring basis and the amounts of financial instruments valued
using Level 3 inputs.
TABLE 5: Fair Value Summary
As of ($ in millions)
Assets carried at fair value
As a percent of total assets
Liabilities carried at fair value
As a percent of total liabilities
December 31, 2020
December 31, 2019
Balance
Level 3
Balance
Level 3
$
$
43,079
21 %
1,527
1 %
878
—
209
—
40,446
24
890
1
1,194
1
171
—
Refer to Note 29 of the Notes to Consolidated Financial Statements for further information on fair value measurements including a
description of the valuation methodologies used for significant financial instruments.
Goodwill
Business combinations entered into by the Bancorp typically include the recognition of goodwill. U.S. GAAP requires goodwill to be tested
for impairment at the Bancorp’s reporting unit level on an annual basis, which for the Bancorp is September 30, and more frequently if events
or circumstances indicate that there may be impairment. Refer to Note 1 of the Notes to Consolidated Financial Statements for a discussion
on the methodology used by the Bancorp to assess goodwill for impairment.
Impairment exists when a reporting unit’s carrying amount of goodwill exceeds its implied fair value. In testing goodwill for impairment,
U.S. GAAP permits the Bancorp to first assess qualitative factors to determine whether it is more likely than not that the fair value of a
reporting unit is less than its carrying amount. In this qualitative assessment, the Bancorp evaluates events and circumstances which may
include, but are not limited to, the general economic environment, banking industry and market conditions, the overall financial performance
of the Bancorp, the performance of the Bancorp’s common stock, the key financial performance metrics of the Bancorp’s reporting units and
events affecting the reporting units to determine if it is not more likely than not that the fair value of a reporting unit is less than its carrying
amount. If the quantitative impairment test is required or the decision to bypass the qualitative assessment is elected, the Bancorp performs
the goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount, including goodwill. If the carrying
amount of the reporting unit exceeds its fair value, an impairment loss is recognized in an amount equal to that excess, limited to the total
amount of goodwill allocated to that reporting unit. A recognized impairment loss cannot be reversed in future periods even if the fair value
of the reporting unit subsequently recovers.
The fair value of a reporting unit is the price that would be received to sell the unit as a whole in an orderly transaction between market
participants at the measurement date. As none of the Bancorp’s reporting units are publicly traded, individual reporting unit fair value
determinations cannot be directly correlated to the Bancorp’s stock price. The determination of the fair value of a reporting unit is a
subjective process that involves the use of estimates and judgments, particularly related to cash flows, the appropriate discount rates and an
applicable control premium. The Bancorp employs an income-based approach, utilizing the reporting unit’s forecasted cash flows (including
a terminal value approach to estimate cash flows beyond the final year of the forecast) and the reporting unit’s estimated cost of equity as the
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discount rate. Significant management judgment is necessary in the preparation of each reporting unit’s forecasted cash flows surrounding
expectations for earnings projections, growth and credit loss expectations and actual results may differ from forecasted results. Additionally,
the Bancorp determines its market capitalization based on the average of the closing price of the Bancorp’s stock during the month including
the measurement date, incorporating an additional control premium, and compares this market-based fair value measurement to the aggregate
fair value of the Bancorp’s reporting units in order to corroborate the results of the income approach. Refer to Note 11 of the Notes to
Consolidated Financial Statements for further information regarding the Bancorp’s goodwill.
Legal Contingencies
The Bancorp and its subsidiaries are parties to numerous claims and lawsuits as well as threatened or potential actions or claims concerning
matters arising from the conduct of its business activities. The outcome of claims or litigation and the timing of ultimate resolution are
inherently difficult to predict and significant judgment may be required in the determination of both the probability of loss and whether the
amount of the loss is reasonably estimable. The Bancorp’s estimates are subjective and are based on the status of legal and regulatory
proceedings, the merit of the Bancorp’s defenses and consultation with internal and external legal counsel. An accrual for a potential
litigation loss is established when information related to the loss contingency indicates both that a loss is probable and that the amount of loss
can be reasonably estimated. Refer to Note 20 of the Notes to Consolidated Financial Statements for further information regarding the
Bancorp’s legal proceedings.
Critical Accounting Policies Applicable Prior to January 1, 2020
The following paragraphs describe the portions of the Bancorp’s critical accounting policies that were applicable prior to January 1, 2020 but
were updated in conjunction with the prospective adoption of ASU 2016-13 and ASU 2017-04 on January 1, 2020. The following paragraphs
do not include the portions of the respective policies that were not affected by the adoption of these new accounting standards. Refer to Note
1 of the Notes to Consolidated Financial Statements for additional information.
ALLL
The Bancorp maintained the ALLL to absorb probable loan and lease losses inherent in its portfolio segments. The ALLL was maintained at a
level the Bancorp considered to be adequate and was based on ongoing quarterly assessments and evaluations of the collectability and
historical loss experience of loans and leases. Credit losses were charged and recoveries were credited to the ALLL. Provisions for loan and
lease losses were based on the Bancorp’s review of the historical credit loss experience and such factors that, in management’s judgment,
deserved consideration under existing economic conditions in estimating probable credit losses.
The Bancorp’s methodology for determining the ALLL required significant management judgment and was based on historical loss rates,
current credit grades, specific allocation on loans modified in a TDR and impaired commercial credits above specified thresholds and other
qualitative adjustments. Allowances on individual commercial loans and leases, TDRs and historical loss rates were reviewed quarterly and
adjusted as necessary based on changing borrower and/or collateral conditions and actual collection and charge-off experience. An
unallocated allowance was maintained to recognize the imprecision in estimating and measuring losses when evaluating allowances for pools
of loans and leases.
Larger commercial loans and leases included within aggregate borrower relationship balances exceeding $1 million that exhibited probable or
observed credit weaknesses, as well as loans that had been modified in a TDR, were subject to individual review for impairment. The
Bancorp considered the current value of collateral, credit quality of any guarantees, the guarantor’s liquidity and willingness to cooperate, the
loan or lease structure and other factors when evaluating whether an individual loan or lease was impaired. Other factors might include the
industry and geographic region of the borrower, size and financial condition of the borrower, cash flow and leverage of the borrower and the
Bancorp’s evaluation of the borrower’s management. When individual loans and leases were impaired, allowances were determined based on
management’s estimate of the borrower’s ability to repay the loan or lease given the availability of collateral and other sources of cash flow,
as well as an evaluation of legal options available to the Bancorp. Allowances for impaired loans and leases were measured based on the
present value of expected future cash flows discounted at the loan’s effective interest rate, fair value of the underlying collateral or readily
observable secondary market values. The Bancorp evaluated the collectability of both principal and interest when assessing the need for a loss
accrual.
Historical credit loss rates were applied to commercial loans and leases that were not impaired or were impaired, but smaller than the
established threshold of $1 million and thus not subject to specific allowance allocations. The loss rates were derived from migration analyses
for several portfolio stratifications, which tracked the historical net charge-off experience sustained on loans and leases according to their
internal risk grade. The risk grading system utilized for allowance analysis purposes encompassed ten categories, which were based on
regulatory guidance for credit risk systems.
Homogenous loans in the residential mortgage and consumer portfolio segments were not individually risk graded. Rather, standard credit
scoring systems and delinquency monitoring were used to assess credit risks and allowances were established based on the expected net
charge-offs. Loss rates were based on the trailing twelve-month net charge-off history by loan category. Historical loss rates were adjusted for
certain prescriptive and qualitative factors that, in management’s judgment, were necessary to reflect losses inherent in the portfolio. The
prescriptive loss rate factors included adjustments for delinquency trends, LTV trends, refreshed FICO score trends and product mix.
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The Bancorp also considered qualitative factors in determining the ALLL. These included adjustments for changes in policies or procedures
in underwriting, monitoring or collections, economic conditions, portfolio mix, lending and risk management personnel, results of internal
audit and quality control reviews, collateral values, geographic concentrations, estimated loss emergence period and specific portfolio loans
backed by enterprise valuations and private equity sponsors. The Bancorp considered home price index trends in its footprint and the
volatility of collateral valuation trends when determining the collateral value qualitative factor.
Reserve for unfunded commitments
The reserve for unfunded commitments was maintained at a level believed by management to be sufficient to absorb estimated probable
losses related to unfunded credit facilities and was included in other liabilities in the Consolidated Balance Sheets. The determination of the
adequacy of the reserve was based upon an evaluation of the unfunded credit facilities, including an assessment of historical commitment
utilization experience, credit risk grading and historical loss rates based on credit grade migration. This process took into consideration the
same risk elements that were analyzed in the determination of the adequacy of the Bancorp’s ALLL, as previously discussed. Net adjustments
to the reserve for unfunded commitments were included in provision for credit losses in the Consolidated Statements of Income.
Goodwill
Impairment existed when a reporting unit’s carrying amount of goodwill exceeded its implied fair value. In testing goodwill for impairment,
U.S. GAAP permitted the Bancorp to first assess qualitative factors to determine whether it was more likely than not that the fair value of a
reporting unit was less than its carrying amount. In this qualitative assessment, the Bancorp evaluated events and circumstances which might
include, but were not limited to, the general economic environment, banking industry and market conditions, the overall financial
performance of the Bancorp, the performance of the Bancorp’s common stock, the key financial performance metrics of the Bancorp’s
reporting units and events affecting the reporting units. If, after assessing the totality of events and circumstances, the Bancorp determined it
was not more likely than not that the fair value of a reporting unit was less than its carrying amount, then performing the two-step impairment
test would be unnecessary. However, if the Bancorp concluded otherwise or elected to bypass the qualitative assessment, it would then be
required to perform the first step (Step 1) of the goodwill impairment test, and continue to the second step (Step 2), if necessary. Step 1 of the
goodwill impairment test compared the fair value of a reporting unit with its carrying amount, including goodwill. If the carrying amount of
the reporting unit exceeded its fair value, Step 2 of the goodwill impairment test was necessary to measure the amount of impairment loss,
which was equal to any excess of the carrying amount of goodwill over its implied fair value with such loss limited to the carrying amount of
goodwill.
The fair value of a reporting unit was the price that would be received to sell the unit as a whole in an orderly transaction between market
participants at the measurement date. As none of the Bancorp’s reporting units were publicly traded, individual reporting unit fair value
determinations could not be directly correlated to the Bancorp’s stock price. To determine the fair value of a reporting unit, the Bancorp
employed an income-based approach, utilizing the reporting unit’s forecasted cash flows (including a terminal value approach to estimate
cash flows beyond the final year of the forecast) and the reporting unit’s estimated cost of equity as the discount rate. Significant management
judgment was necessary in the preparation of each reporting unit’s forecasted cash flows surrounding expectations for earnings projections,
growth and credit loss expectations. Additionally, the Bancorp determined its market capitalization based on the average of the closing price
of the Bancorp’s stock during the month including the measurement date, incorporating an additional control premium, and compared this
market-based fair value measurement to the aggregate fair value of the Bancorp’s reporting units in order to corroborate the results of the
income approach.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
STATEMENTS OF INCOME ANALYSIS
Net Interest Income
Net interest income is the interest earned on loans and leases (including yield-related fees), securities and other short-term investments less
the interest incurred on core deposits (includes transaction deposits and other time deposits) and wholesale funding (includes certificates
$100,000 and over, other deposits, federal funds purchased, other short-term borrowings and long-term debt). The net interest margin is
calculated by dividing net interest income by average interest-earning assets. Net interest rate spread is the difference between the average
yield earned on interest-earning assets and the average rate paid on interest-bearing liabilities. Net interest margin is typically greater than net
interest rate spread due to the interest income earned on those assets that are funded by noninterest-bearing liabilities, or free funding, such as
demand deposits or shareholders’ equity.
Tables 6 and 7 present the components of net interest income, net interest margin and net interest rate spread for the years ended
December 31, 2020, 2019 and 2018, as well as the relative impact of changes in the average balance sheet and changes in interest rates on net
interest income. Nonaccrual loans and leases and loans and leases held for sale have been included in the average loan and lease balances.
Average outstanding securities balances are based on amortized cost with any unrealized gains or losses included in average other assets.
Net interest income on an FTE basis (non-GAAP) was $4.8 billion for both the years ended December 31, 2020 and 2019. Net interest
income was negatively impacted by decreases in yields on average interest-earning assets of 108 bps. The decreases in yields on average
interest-earning assets were primarily driven by lower yields on total average loans and leases primarily as a result of decreases in yields on
average commercial and industrial loans, average commercial mortgage loans, average commercial construction loans and average home
equity of 98 bps, 127 bps, 172 bps and 126 bps, respectively, from the year ended December 31, 2019. The decrease in yields on total average
loans and leases for the year ended December 31, 2020 was primarily due to a decrease in market rates, impacting the Bancorp’s portfolios of
floating interest rate loans, which are primarily LIBOR- and Prime-based. The Bancorp’s portfolios of fixed interest rate loans also decreased
in yield as a result of increased refinance activity and lower reinvestment yields due to lower overall market rates. Net interest income was
also negatively impacted by increases in average interest checking deposits and average money market deposits of $10.2 billion and $4.0
billion, respectively, from the year ended December 31, 2019. These negative impacts were partially offset by decreases in rates paid on
average interest-bearing liabilities of 73 bps. The decreases in rates paid on average interest-bearing liabilities were primarily driven by
decreases in rates paid on average interest checking deposits, average money market deposits and average long-term debt of 81 bps, 76 bps
and 48 bps, respectively, from the year ended December 31, 2019. Net interest income also benefited from increases in average commercial
and industrial loans, average indirect secured consumer loans and average commercial mortgage loans of $3.6 billion, $2.1 billion and $1.1
billion, respectively, from the year ended December 31, 2019. The increase in average commercial and industrial loans was primarily as a
result of PPP loans originated during the year ended December 31, 2020.
Net interest income for the year ended December 31, 2020 compared to the year ended December 31, 2019 was adversely impacted by the
FOMC decisions to lower the target range of the federal funds rate and the Federal Reserve’s bond purchase programs. During the years
ended December 31, 2020 and 2019, net interest income included $57 million and $65 million, respectively, of amortization and accretion of
premiums and discounts on acquired loans and leases and assumed deposits and long-term debt from acquisitions.
Net interest rate spread on an FTE basis (non-GAAP) was 2.57% during the year ended December 31, 2020 compared to 2.92% during the
year ended December 31, 2019. Yields on average interest-earning assets decreased 108 bps, partially offset by a 73 bps decrease in rates paid
on average interest-bearing liabilities for the year ended December 31, 2020 compared to the year ended December 31, 2019.
Net interest margin on an FTE basis (non-GAAP) was 2.78% for the year ended December 31, 2020 compared to 3.31% for the year ended
December 31, 2019. Net interest margin was negatively impacted by lower market interest rates, a $19.8 billion increase in low-yielding
reserves held at the FRB reported in other short-term investments and the previously mentioned growth in PPP loans. These negative impacts
were partially offset by increases in average free funding balances as average demand deposits increased $12.8 billion and average
shareholders’ equity increased $2.6 billion compared to the year ended December 31, 2019. Net interest margin results are expected to remain
suppressed as a result of increased liquidity levels in the form of excess cash balances, which are expected to remain at elevated levels driven
by the amount of fiscal stimulus that has increased the banking industry’s balance sheets, including the Bancorp’s.
Interest income on an FTE basis (non-GAAP) from loans and leases decreased $632 million from the year ended December 31, 2019 driven
by the previously mentioned decreases in yields on average loans and leases, partially offset by increases in average commercial and
industrial loans, average indirect secured consumer loans and average commercial mortgage loans as well as the impact of accelerated PPP
fees recognized upon loan forgiveness during the year ended December 31, 2020. For more information on the Bancorp’s loan and lease
portfolio, refer to the Loans and Leases subsection of the Balance Sheet Analysis section of MD&A. Interest income on an FTE basis (non-
GAAP) from investment securities and other short-term investments decreased $54 million from the year ended December 31, 2019 primarily
due to decreases in yields on average other short-term investments and average taxable securities, partially offset by increases in average
balances.
Interest expense on core deposits decreased $518 million from the year ended December 31, 2019 primarily due to decreases in the cost of
average interest-bearing core deposits to 28 bps for the year ended December 31, 2020 from 96 bps for the year ended December 31, 2019.
The decreases in the cost of average interest-bearing core deposits were primarily due to the previously mentioned decreases in the rates paid
64 Fifth Third Bancorp
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
on average interest checking deposits and average money market deposits. Refer to the Deposits subsection of the Balance Sheet Analysis
section of MD&A for additional information on the Bancorp’s deposits.
Interest expense on average wholesale funding decreased $149 million for the year ended December 31, 2020 compared to the year ended
December 31, 2019 primarily due to the previously mentioned decreases in rates paid on average long-term debt as well as decreases in rates
paid on average other short-term borrowings and average certificates $100,000 and over, in addition to a decrease in the average balance of
certificates $100,000 and over. Refer to the Borrowings subsection of the Balance Sheet Analysis section of MD&A for additional
information on the Bancorp’s borrowings. During the year ended December 31, 2020, average wholesale funding represented 18% of average
interest-bearing liabilities compared to 21% for the year ended December 31, 2019. For more information on the Bancorp’s interest rate risk
management, including estimated earnings sensitivity to changes in market interest rates, see the Interest Rate and Price Risk Management
subsection of the Risk Management section of MD&A.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
TABLE 6: Consolidated Average Balance Sheet and Analysis of Net Interest Income on an FTE Basis
For the years ended December 31
2019
2020
2018
($ in millions)
Assets:
Interest-earning assets:
Loans and leases:(a)
Commercial and industrial loans
Commercial mortgage loans
Commercial construction loans
Commercial leases
Total commercial loans and leases
Residential mortgage loans
Home equity
Indirect secured consumer loans
Credit card
Other consumer loans
Total consumer loans
Total loans and leases
Securities:
Taxable
Exempt from income taxes(a)
Other short-term investments
Total interest-earning assets
Cash and due from banks
Other assets
Allowance for loan and lease losses
Total assets
Liabilities and Equity:
Interest-bearing liabilities:
Interest checking deposits
Savings deposits
Money market deposits
Foreign office deposits
Other time deposits
Total interest-bearing core deposits
Certificates $100,000 and over
Other deposits
Federal funds purchased
Other short-term borrowings
Long-term debt
Total interest-bearing liabilities
Demand deposits
Other liabilities
Total liabilities
Total equity
Total liabilities and equity
Net interest income (FTE)(b)
Net interest margin (FTE)(b)
Net interest rate spread (FTE)(b)
Interest-bearing liabilities to interest-
earning assets
Average
Balance
Revenue/
Cost
Average
Yield/
Rate
Average
Balance
Revenue/
Cost
Average
Yield/
Rate
Average
Balance
Revenue/
Cost
Average
Yield/
Rate
$ 53,814
11,011
5,509
3,038
73,372
17,828
5,679
12,454
2,230
2,848
41,039
$ 114,411
$ 36,109
233
21,935
$ 172,688
2,978
20,933
(2,369)
$ 194,230
$ 46,890
16,440
29,879
185
4,118
97,512
3,337
71
385
1,709
16,004
$ 119,018
47,111
5,546
$ 171,675
$ 22,555
$ 194,230
1,954
391
201
104
2,650
622
222
490
260
192
1,786
4,436
1,114
6
29
5,585
126
10
88
—
47
271
50
1
2
14
452
790
3.63 % $ 50,168
9,905
3.54
5,174
3.65
3,578
3.43
68,825
3.61
17,337
3.49
6,286
3.90
10,345
3.93
2,437
11.64
2,564
6.76
4.35
38,969
3.88 % $ 107,794
3.08 % $ 35,429
2.61
41
2,140
0.13
3.23 % $ 145,404
2,748
16,903
(1,119)
$ 163,936
0.27 % $ 36,658
14,041
0.06
25,879
0.29
209
0.21
5,470
1.14
82,257
0.28
4,504
1.49
265
0.76
1,267
0.58
1,046
0.81
2.82
15,369
0.66 % $ 104,708
34,343
4,897
$ 143,948
$ 19,988
$ 163,936
2,313
476
278
119
3,186
635
324
423
304
196
1,882
5,068
1,160
2
41
6,271
396
22
272
1
98
789
97
6
29
28
508
1,457
4.61 % $ 42,668
6,661
4.81
4,793
5.37
3.31
3,795
57,917
4.63
16,150
3.66
6,631
5.16
8,993
4.08
2,280
12.49
7.63
1,905
4.83
35,959
4.70 % $ 93,876
3.28 % $ 33,487
3.97
66
1,476
1.91
4.31 % $ 128,905
2,200
12,203
(1,125)
$ 142,183
1.08 % $ 29,818
13,330
0.16
21,769
1.05
363
0.63
4,106
1.79
69,386
0.96
2,426
2.14
476
2.27
1,509
2.26
2.67
1,611
3.30
14,551
1.39 % $ 89,959
32,634
3,603
$ 126,196
$ 15,987
$ 142,183
1,826
298
240
108
2,472
580
326
304
279
132
1,621
4,093
1,079
2
25
5,199
252
14
162
1
59
488
41
9
30
29
446
1,043
$ 4,795
$ 4,814
$ 4,156
2.78 %
2.57
68.92
3.31 %
2.92
72.01
4.28 %
4.47
5.01
2.84
4.27
3.59
4.92
3.38
12.25
6.94
4.51
4.36 %
3.22 %
3.37
1.68
4.03 %
0.85 %
0.10
0.74
0.33
1.44
0.70
1.69
1.94
1.97
1.82
3.06
1.16 %
3.22 %
2.87
69.79
(a) The FTE adjustments included in the above table were $13, $17 and $16 for the years ended December 31, 2020, 2019, and 2018, respectively.
(b) Net interest income (FTE), net interest margin (FTE) and net interest rate spread (FTE) are non-GAAP measures. For further information, refer to the Non-GAAP
Financial Measures section of MD&A.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
TABLE 7: Changes in Net Interest Income Attributable to Volume and Yield/Rate(a)
2020 Compared to 2019
For the years ended December 31
($ in millions)
Yield/Rate
Assets:
Interest-earning assets:
Loans and leases:
Volume
Total
2019 Compared to 2018
Yield/Rate
Volume
Total
Commercial and industrial loans
Commercial mortgage loans
Commercial construction loans
Commercial leases
Total commercial loans and leases
Residential mortgage loans
Home equity
Indirect secured consumer loans
Credit card
Other consumer loans
Total consumer loans
Total loans and leases
Securities:
Taxable
Exempt from income taxes
Other short-term investments
Total change in interest income
Liabilities:
Interest-bearing liabilities:
Interest checking deposits
Savings deposits
Money market deposits
Foreign office deposits
Other time deposits
Total interest-bearing core deposits
Certificates $100,000 and over
Other deposits
Federal funds purchased
Other short-term borrowings
Long-term debt
Total change in interest expense
Total change in net interest income
$
$
$
$
$
$
$
159
50
17
(19)
207
17
(28)
83
(24)
20
68
275
23
5
58
361
88
3
37
—
(21)
107
(22)
(2)
(13)
12
20
102
259
(518)
(135)
(94)
4
(743)
(30)
(74)
(16)
(20)
(24)
(164)
(907)
(69)
(1)
(70)
(1,047)
(358)
(15)
(221)
(1)
(30)
(625)
(25)
(3)
(14)
(26)
(76)
(769)
(278)
(359)
(85)
(77)
(15)
(536)
(13)
(102)
67
(44)
(4)
(96)
(632)
(46)
4
(12)
(686)
(270)
(12)
(184)
(1)
(51)
(518)
(47)
(5)
(27)
(14)
(56)
(667)
(19)
338
154
20
(6)
506
43
(17)
50
20
50
146
652
63
—
12
727
65
—
35
(1)
22
121
43
(4)
(5)
(12)
25
168
559
149
24
18
17
208
12
15
69
5
14
115
323
18
—
4
345
79
8
75
1
17
180
13
1
4
11
37
246
99
487
178
38
11
714
55
(2)
119
25
64
261
975
81
—
16
1,072
144
8
110
—
39
301
56
(3)
(1)
(1)
62
414
658
(a) Changes in interest not solely due to volume or yield/rate are allocated in proportion to the absolute dollar amount of change in volume and yield/rate.
Provision for Credit Losses
The Bancorp provides as an expense an amount for expected credit losses within the loan and lease portfolio and the portfolio of unfunded
loan commitments and letters of credit that is based on factors discussed in the Critical Accounting Policies section of MD&A. The provision
is recorded to bring the ALLL and reserve for unfunded commitments to a level deemed appropriate by the Bancorp to cover losses expected
in the portfolios. Actual credit losses on loans and leases are charged against the ALLL. The amount of loans and leases actually removed
from the Consolidated Balance Sheets are referred to as charge-offs. Net charge-offs include current period charge-offs less recoveries on
previously charged-off loans and leases.
The provision for credit losses was $1.1 billion for the year ended December 31, 2020 compared to $471 million for the prior year. The
increase in provision expense for the year ended December 31, 2020 compared to the prior year was primarily due to an increase in the ACL
reflecting deterioration in the macroeconomic environment as a result of the impact of the COVID-19 pandemic and the resulting impact of
this environment on commercial borrowers as reflected in increased levels of commercial criticized assets. The increase in the provision for
credit losses also reflected the impact of the change in methodology for estimating credit losses from the incurred loss methodology to the
expected credit loss methodology beginning in the first quarter of 2020.
The ALLL increased $1.3 billion from December 31, 2019 to $2.5 billion at December 31, 2020. At December 31, 2020, the ALLL as a
percent of portfolio loans and leases increased to 2.25%, compared to 1.10% at December 31, 2019. The reserve for unfunded commitments
increased $28 million from December 31, 2019 to $172 million at December 31, 2020. The ACL as a percent of portfolio loans and leases
increased to 2.41% at December 31, 2020, compared to 1.23% at December 31, 2019. These increases reflect the adoption of ASU 2016-13
67 Fifth Third Bancorp
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
which resulted in a combined increase to the ALLL and reserve for unfunded commitments of approximately $653 million, as well as the
previously mentioned items impacting the provision for credit losses.
Refer to the Credit Risk Management subsection of the Risk Management section of MD&A as well as Note 7 of the Notes to Consolidated
Financial Statements for more detailed information on the provision for credit losses, including an analysis of loan and lease portfolio
composition, nonperforming assets, net charge-offs and other factors considered by the Bancorp in assessing the credit quality of the loan and
lease portfolio, ALLL and reserve for unfunded commitments.
Noninterest Income
Noninterest income decreased $706 million for the year ended December 31, 2020 compared to the year ended December 31, 2019. The
following table presents the components of noninterest income:
TABLE 8: Components of Noninterest Income
For the years ended December 31 ($ in millions)
Service charges on deposits
Commercial banking revenue
Wealth and asset management revenue
Card and processing revenue
Mortgage banking net revenue
Leasing business revenue
Other noninterest income
Securities gains (losses), net
Securities gains (losses), net - non-qualifying hedges on
MSRs
Total noninterest income
2020
2019
2018
2017
2016
$
559
528
520
352
320
276
211
62
2
2,830
$
565
460
487
360
287
270
1,064
40
3
3,536
549
408
444
329
212
114
803
(54)
(15)
2,790
554
386
419
313
224
63
1,261
2
2
3,224
558
400
404
319
285
134
586
10
—
2,696
Service charges on deposits
Service charges on deposits decreased $6 million for the year ended December 31, 2020 compared to the year ended December 31, 2019
driven by a decrease of $32 million in consumer deposit fees due to lower overdraft occurrences as a result of the impact of COVID-19
financial assistance and fiscal stimulus programs, partially offset by an increase of $26 million in commercial deposit fees.
Commercial banking revenue
Commercial banking revenue increased $68 million for the year ended December 31, 2020 compared to the year ended December 31, 2019
primarily driven by increases in institutional sales and bridge fees of $68 million and $10 million, respectively, partially offset by a decrease
in loan syndication fees of $20 million.
Wealth and asset management revenue
Wealth and asset management revenue increased $33 million for the year ended December 31, 2020 compared to the year ended
December 31, 2019 primarily due to increases of $16 million in both private client service fees and broker income. The Bancorp’s trust and
registered investment advisory businesses had approximately $434 billion and $413 billion in total assets under care as of December 31, 2020
and 2019, respectively, and managed $54 billion and $49 billion in assets for individuals, corporations and not-for-profit organizations as of
December 31, 2020 and 2019, respectively.
Card and processing revenue
Card and processing revenue decreased $8 million for the year ended December 31, 2020 compared to the year ended December 31, 2019
primarily driven by a decrease in customer spend volume as a result of reduced economic activity related to government-mandated shutdowns
of local economies and other COVID-related impacts, partially offset by lower reward costs.
Mortgage banking net revenue
Mortgage banking net revenue increased $33 million for the year ended December 31, 2020 compared to the year ended December 31, 2019.
68 Fifth Third Bancorp
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following table presents the components of mortgage banking net revenue:
TABLE 9: Components of Mortgage Banking Net Revenue
For the years ended December 31 ($ in millions)
Origination fees and gains on loan sales
Net mortgage servicing revenue:
Gross mortgage servicing fees
Net valuation adjustments on MSRs and free-standing derivatives purchased to
economically hedge MSRs
Net mortgage servicing revenue
Total mortgage banking net revenue
2020
2019
2018
$
$
315
263
(258)
5
320
175
267
(155)
112
287
100
216
(104)
112
212
Origination fees and gains on loan sales increased $140 million for the year ended December 31, 2020 compared to the year ended
December 31, 2019 primarily driven by an increase in originations and gain on sale margins due to the lower interest rate environment.
Residential mortgage loan originations increased to $15.9 billion for the year ended December 31, 2020 from $11.6 billion for the year ended
December 31, 2019.
Net mortgage servicing revenue decreased $107 million for the year ended December 31, 2020 compared to the year ended December 31,
2019 primarily due to an increase in net negative valuation adjustments of $103 million as well as a decrease in gross mortgage servicing fees
of $4 million. Refer to Table 10 for the components of net valuation adjustments on the MSR portfolio and the impact of the non-
qualifying hedging strategy.
TABLE 10: Components of Net Valuation Adjustments on MSRs
For the years ended December 31 ($ in millions)
Changes in fair value and settlement of free-standing derivatives purchased to economically
hedge the MSR portfolio
Changes in fair value:
Due to changes in inputs or assumptions
Other changes in fair value
Net valuation adjustments on MSRs and free-standing derivatives purchased to
economically hedge MSRs
2020
2019
2018
$
$
307
(311)
(254)
(258)
221
(203)
(173)
(155)
(21)
42
(125)
(104)
Mortgage rates decreased during the years ended December 31, 2020 and 2019 which caused modeled prepayment speeds to rise.
Additionally, mortgage swap spreads widened during the year ended December 31, 2020 which caused modeled OAS assumptions to
increase. For the years ended December 31, 2020 and 2019, the fair value of the MSR portfolio decreased $311 million and $203 million,
respectively, due to changes to inputs to the valuation model, including prepayment speeds and OAS assumptions, and decreased
$254 million and $173 million, respectively, due to the impact of contractual principal payments and actual prepayment activity.
Further detail on the valuation of MSRs can be found in Note 14 of the Notes to Consolidated Financial Statements. The Bancorp maintains
a non-qualifying hedging strategy to manage a portion of the risk associated with changes in the valuation of the MSR portfolio. Refer to
Note 15 of the Notes to Consolidated Financial Statements for more information on the free-standing derivatives used to economically hedge
the MSR portfolio.
In addition to the derivative positions used to economically hedge the MSR portfolio, the Bancorp acquires various securities as a component
of its non-qualifying hedging strategy. The Bancorp recognized net gains of $2 million and $3 million during the years ended December 31,
2020 and 2019, respectively, recorded in securities gains (losses), net - non-qualifying hedges on MSRs in the Bancorp’s Consolidated
Statements of Income.
The Bancorp’s total residential mortgage loans serviced at December 31, 2020 and 2019 were $86.6 billion and $98.4 billion, respectively,
with $68.8 billion and $80.7 billion, respectively, of residential mortgage loans serviced for others.
Leasing business revenue
Leasing business revenue increased $6 million for the year ended December 31, 2020 compared to the year ended December 31, 2019
primarily driven by increases in lease syndication fees and operating lease income of $9 million and $5 million, respectively, partially offset
by a decrease in lease remarketing fees of $8 million.
69 Fifth Third Bancorp
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Other noninterest income
The following table presents the components of other noninterest income:
TABLE 11: Components of Other Noninterest Income
For the years ended December 31 ($ in millions)
Private equity investment income
Income from the TRA associated with Worldpay, Inc.
BOLI income
Cardholder fees
Consumer loan and lease fees
Banking center income
Insurance income
Loss on swap associated with the sale of Visa, Inc. Class B Shares
Net losses on disposition and impairment of bank premises and equipment
Gain on sale of Worldpay, Inc. shares
Equity method income from interest in Worldpay Holding, LLC
Gain related to Vantiv, Inc.’s acquisition of Worldpay Group plc.
Other, net
Total other noninterest income
2020
2019
2018
$
$
75
74
63
44
20
20
20
(103)
(31)
—
—
—
29
211
65
346
60
58
23
22
19
(107)
(23)
562
2
—
37
1,064
63
20
56
56
23
21
20
(59)
(43)
205
1
414
26
803
Other noninterest income decreased $853 million for the year ended December 31, 2020 compared to the year ended December 31, 2019
primarily due to the gain on sale of Worldpay, Inc. shares recognized during the first quarter of 2019 and a decrease in the income from the
TRA associated with Worldpay, Inc.
The Bancorp recognized a $562 million gain related to the sale of Worldpay, Inc. shares during the first quarter of 2019. Income from the
TRA associated with Worldpay Inc. decreased $272 million from the year ended December 31, 2019 primarily driven by a $345 million gain
recognized in the fourth quarter of 2019 from the Worldpay, Inc. TRA transaction. For additional information, refer to Note 21 of the Notes
to Consolidated Financial Statements.
Noninterest Expense
Noninterest expense increased $58 million for the year ended December 31, 2020 compared to the year ended December 31, 2019 primarily
due to an increase in compensation and benefits expense, partially offset by decreases in technology and communications expense and
marketing expense.
The following table presents the components of noninterest expense:
TABLE 12: Components of Noninterest Expense
For the years ended December 31 ($ in millions)
Compensation and benefits
Technology and communications
Net occupancy expense
Leasing business expense
Equipment expense
Card and processing expense
Marketing expense
Other noninterest expense
Total noninterest expense
Efficiency ratio on an FTE basis(a)
2020
2019
2018
2017
2016
$
$
2,590
362
350
140
130
121
104
921
4,718
61.9 %
2,418
422
332
133
129
130
162
934
4,660
55.8
2,115
285
292
76
123
123
147
797
3,958
57.0
1,989
245
295
87
117
129
114
806
3,782
53.7
1,951
234
299
86
118
132
104
813
3,737
59.0
(a) This is a non-GAAP measure. For further information, refer to the Non-GAAP Financial Measures section of MD&A.
The Bancorp recognized $16 million and $222 million of merger-related expenses for the years ended December 31, 2020 and 2019,
respectively.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following table provides a summary of merger-related expenses recorded in noninterest expense:
TABLE 13: Merger-Related Expenses
For the years ended December 31 ($ in millions)
Compensation and benefits
Technology and communications
Net occupancy expense
Equipment expense
Card and processing expense
Marketing expense
Other noninterest expense
Total
2020
2019
$
$
4
6
4
—
—
—
2
16
90
71
13
1
1
7
39
222
Compensation and benefits expense increased $172 million for the year ended December 31, 2020 compared to the year ended December 31,
2019 primarily due to strategic hiring and the impact of raising the Bancorp’s minimum wage in the fourth quarter of 2019, as well as
increases in incentive compensation driven by strong performance in fees related to business growth during the year ended December 31,
2020. Compensation and benefits expense for the year ended December 31, 2020 included $10 million of special payments to employees
providing essential banking services through the COVID-19 pandemic. Full-time equivalent employees totaled 19,872 at December 31, 2020
compared to 19,869 at December 31, 2019.
Technology and communications expense decreased $60 million for the year ended December 31, 2020 compared to the year ended
December 31, 2019 primarily driven by decreased integration and conversion costs related to the acquisition of MB Financial, Inc.
Marketing expense decreased $58 million for the year ended December 31, 2020 compared to the year ended December 31, 2019 primarily
due to the impact of the COVID-19 pandemic, which resulted in a pause or slowdown in numerous marketing campaigns, including running
less advertising as well as the suspension of cash bonus and other account acquisition programs.
The following table presents the components of other noninterest expense:
TABLE 14: Components of Other Noninterest Expense
For the years ended December 31 ($ in millions)
Loan and lease
FDIC insurance and other taxes
Losses and adjustments
Data processing
Professional service fees
Intangible amortization
Postal and courier
Donations
Travel
Recruitment and education
Insurance
Supplies
Other, net
Total other noninterest expense
2020
2019
2018
$
$
162
118
100
75
49
48
36
36
27
21
15
13
221
921
142
81
102
70
70
45
38
30
68
28
14
14
232
934
112
119
61
57
67
5
35
21
52
32
13
13
210
797
Other noninterest expense decreased $13 million for the year ended December 31, 2020 compared to the year ended December 31, 2019
primarily due to decreases in travel expense and professional service fees, partially offset by increases in FDIC insurance and other taxes and
loan and lease expense.
Travel expense decreased $41 million for the year ended December 31, 2020 compared to the year ended December 31, 2019 primarily due to
reduced business travel as a direct result of the COVID-19 pandemic. Professional service fees decreased $21 million for the year ended
December 31, 2020 compared to the year ended December 31, 2019 primarily due to decreases in acquisition costs, consulting fees and legal
expenses. FDIC insurance and other taxes increased $37 million for the year ended December 31, 2020 compared to the year ended
December 31, 2019 primarily as a result of an increase in the assessment rate due to a change in asset mix as well as an increase in the
assessment base. Loan and lease expense increased $20 million for the year ended December 31, 2020 compared to the year ended
December 31, 2019 primarily due to an increase in loan closing expenses.
71 Fifth Third Bancorp
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Applicable Income Taxes
Applicable income tax expense for all periods includes the benefit from tax-exempt income, tax-advantaged investments, certain gains on
sales of leveraged leases that are exempt from federal taxation and tax credits (and other related tax benefits), partially offset by the effect of
proportional amortization of qualifying LIHTC investments and certain nondeductible expenses. The tax credits are primarily associated with
the Low-Income Housing Tax Credit program established under Section 42 of the IRC, the New Markets Tax Credit program established
under Section 45D of the IRC, the Rehabilitation Investment Tax Credit program established under Section 47 of the IRC and the Qualified
Zone Academy Bond program established under Section 1397E of the IRC.
The effective tax rates for the years ended December 31, 2020 and 2019 were primarily impacted by $175 million and $160 million,
respectively, of low-income housing tax credits and other tax benefits and $27 million and $40 million, respectively, of tax benefits from tax
exempt income, and were partially offset by $150 million and $140 million, respectively, of proportional amortization related to qualifying
LIHTC investments. The decrease in the effective tax rate for the year ended December 31, 2020 from 2019 was attributable to a decrease in
state income taxes.
The Bancorp’s income before income taxes, applicable income tax expense and effective tax rate are as follows:
TABLE 15: Applicable Income Taxes
For the years ended December 31 ($ in millions)
Income before income taxes
Applicable income tax expense
Effective tax rate
2020
2019
2018
2017
2016
$
1,797
370
20.6 %
3,202
690
21.6
2,765
572
20.7
2,979
799
26.8
2,208
665
30.1
72 Fifth Third Bancorp
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
BUSINESS SEGMENT REVIEW
The Bancorp reports on four business segments: Commercial Banking, Branch Banking, Consumer Lending and Wealth and Asset
Management. Additional information on each business segment is included in Note 32 of the Notes to Consolidated Financial Statements.
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 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.
In general, the charge rates on assets have declined since December 31, 2019 as they were affected by the prevailing level of interest rates and
by the duration and repricing characteristics of the portfolio. The credit rates for deposit products also declined due to lower interest rates and
modified assumptions. Thus, net interest income for asset-generating business segments improved while deposit-providing business segments
were negatively impacted during the year ended December 31, 2020.
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 relationship depth opportunities and funding operations
by accessing the capital markets as a collective unit.
The following table summarizes net income (loss) by business segment:
TABLE 16: Net Income (Loss) by Business Segment
For the years ended December 31 ($ in millions)
Income Statement Data
Commercial Banking
Branch Banking
Consumer Lending
Wealth and Asset Management
General Corporate and Other
Net income
2020
2019
2018
$
$
387
251
117
102
570
1,427
1,424
860
92
112
24
2,512
1,139
702
(1)
97
256
2,193
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Commercial Banking
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.
The following table contains selected financial data for the Commercial Banking segment:
TABLE 17: Commercial Banking
For the years ended December 31 ($ in millions)
Income Statement Data
Net interest income (FTE)(a)
Provision for (benefit from) credit losses
Noninterest income:
Commercial banking revenue
Service charges on deposits
Leasing business revenue
Other noninterest income
Noninterest expense:
Compensation and benefits
Leasing business expense
Other noninterest expense
Income before income taxes (FTE)
Applicable income tax expense(a)(b)
Net income
Average Balance Sheet Data
Commercial loans and leases, including held for sale
Demand deposits
Interest checking deposits
Savings and money market deposits
Other time deposits and certificates $100,000 and over
Foreign office deposits
2020
2019
2018
$
$
$
1,916
1,050
524
343
276
158
557
140
1,024
446
59
387
66,552
24,352
25,769
6,695
154
184
2,377
183
455
308
270
154
466
133
1,022
1,760
336
1,424
65,475
16,424
18,259
4,904
332
209
1,729
(26)
402
273
114
128
344
76
843
1,409
270
1,139
54,748
16,560
12,203
4,128
377
362
Includes FTE adjustments of $13, $17 and $16 for the years ended December 31, 2020, 2019 and 2018, respectively.
(a)
(b) Applicable income tax expense for all periods includes the tax benefit from tax-exempt income, tax-advantaged investments and tax credits partially offset by the
effect of certain nondeductible expenses. Refer to the Applicable Income Taxes subsection of the Statements of Income Analysis section of MD&A for additional
information.
Comparison of the year ended 2020 with 2019
Net income was $387 million for the year ended December 31, 2020 compared to net income of $1.4 billion for the year ended December 31,
2019. The decrease in net income was primarily driven by an increase in provision for credit losses, a decrease in net interest income on an
FTE basis as well as an increase in noninterest expense partially offset by an increase in noninterest income.
Net interest income on an FTE basis decreased $461 million from the year ended December 31, 2019 primarily driven by decreases in yields
on average commercial loans and leases as well as decreases in FTP credit rates on demand deposits, interest checking deposits and savings
and money market deposits. These negative impacts were partially offset by decreases in FTP charge rates on loans and leases as well as
decreases in rates paid on average interest checking deposits and average savings and money market deposits.
Provision for credit losses increased $867 million from the year ended December 31, 2019 primarily driven by an increase in commercial
criticized asset levels as well as increases in net charge-offs on commercial and industrial loans, commercial mortgage loans and commercial
leases. Net charge-offs as a percent of average portfolio loans and leases increased to 35 bps for the year ended December 31, 2020 compared
to 14 bps for the year ended December 31, 2019.
Noninterest income increased $114 million from the year ended December 31, 2019 driven by increases in commercial banking revenue,
service charges on deposits and leasing business revenue. Commercial banking revenue increased $69 million from the year ended
December 31, 2019 primarily due to increases in institutional sales and bridge fees partially offset by a decrease in loan syndication fees.
Service charges on deposits increased $35 million from the year ended December 31, 2019 primarily due to an increase in commercial
deposit fees primarily due to lower earnings credit rates. Leasing business revenue increased $6 million from the year ended December 31,
2019 primarily driven by increases in lease syndication fees and operating lease income partially offset by a decrease in lease remarketing
fees.
74 Fifth Third Bancorp
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Noninterest expense increased $100 million from the year ended December 31, 2019 driven by increases in compensation and benefits and
leasing business expense. Compensation and benefits increased $91 million from the year ended December 31, 2019 due to an increase in
personnel costs primarily as a result of the MB Financial, Inc. acquisition at the end of the first quarter of 2019 and an increase in incentive
compensation driven by strong performance in fees related to business growth during the year ended December 31, 2020, as well as strategic
hiring. Leasing business expense increased $7 million from the year ended December 31, 2019 primarily due to an increase in operating lease
expense driven by the MB Financial, Inc. acquisition at the end of the first quarter of 2019.
Average commercial loans and leases increased $1.1 billion from the year ended December 31, 2019 primarily due to increases in average
commercial mortgage loans and average commercial construction loans partially offset by a decrease in average commercial leases. Average
commercial mortgage loans increased $1.1 billion from the year ended December 31, 2019 primarily as a result of increases in loan
originations and permanent financing from the Bancorp’s commercial construction loan portfolio. Average commercial construction loans
increased $360 million from the year ended December 31, 2019 primarily as a result of increased line of credit utilization as well as lower
levels of payoffs. Average commercial leases decreased $541 million from the year ended December 31, 2019 primarily as a result of a
planned reduction in indirect non-relationship-based lease originations.
Average core deposits increased $17.2 billion from the year ended December 31, 2019 primarily due to increases in average demand deposits,
average interest checking deposits and average savings and money market deposits. Average interest checking deposits increased $7.5 billion,
average demand deposits increased $7.9 billion and average savings and money market deposits increased $1.8 billion from the year ended
December 31, 2019. These increases were primarily as a result of higher average balances per commercial customer account due to increased
liquidity levels in the current economic environment.
Comparison of the year ended 2019 with 2018
Net income was $1.4 billion for the year ended December 31, 2019 compared to net income of $1.1 billion for the year ended December 31,
2018. The increase in net income was driven by increases in net interest income on an FTE basis and noninterest income partially offset by
increases in noninterest expense and provision for credit losses.
Net interest income on an FTE basis increased $648 million from the year ended December 31, 2018 primarily driven by increases in both
average balances and yields on commercial loans and leases, increases in FTP credits on interest checking deposits and increases in FTP
credit rates on demand deposits. These increases were partially offset by increases in FTP charges on loans and leases and increases in both
average balances and rates paid on interest checking deposits.
Provision for credit losses increased $209 million from the year ended December 31, 2018 driven by the impact of an increase in criticized
asset levels partially offset by a decrease in net charge-offs on commercial and industrial loans. Net charge-offs as a percent of average
portfolio loans and leases decreased to 14 bps for the year ended December 31, 2019 compared to 18 bps for the year ended December 31,
2018.
Noninterest income increased $270 million from the year ended December 31, 2018 driven by increases in leasing business revenue,
commercial banking revenue, service charges on deposits and other noninterest income. Leasing business revenue increased $156 million
from the year ended December 31, 2018 primarily due to increases in operating lease income, leasing business solutions revenue and lease
remarketing fees partially offset by a decrease in lease syndication fees. Commercial banking revenue increased $53 million from the year
ended December 31, 2018 driven by increases in institutional sales revenue and business lending fees. Service charges on deposits increased
$35 million from the year ended December 31, 2018 primarily driven by an increase in commercial deposit fees. Other noninterest income
increased $26 million from the year ended December 31, 2018 primarily due to increases in card and processing revenue and private equity
investment income.
Noninterest expense increased $358 million from the year ended December 31, 2018 due to increases in other noninterest expense,
compensation and benefits and leasing business expense. Other noninterest expense increased $179 million from the year ended December
31, 2018 primarily due to increases in corporate overhead allocations, intangible amortization expense and losses and adjustments.
Compensation and benefits increased $122 million from the year ended December 31, 2018 due to increases in base compensation and
incentive compensation primarily as a result of the MB Financial, Inc. acquisition as well as an increase in employee benefits expense.
Leasing business expense increased $57 million from the year ended December 31, 2018 primarily due to an increase in operating lease
expense.
Average commercial loans and leases increased $10.7 billion from the year ended December 31, 2018 primarily due to increases in average
commercial and industrial loans and average commercial mortgage loans. Average commercial and industrial loans increased $7.4 billion
from the year ended December 31, 2018 primarily as a result of the acquisition of MB Financial, Inc. as well as an increase in loan
originations. Average commercial mortgage loans increased $3.2 billion from the year ended December 31, 2018 as a result of the acquisition
of MB Financial, Inc. and increases in loan originations as well as permanent financing from the Bancorp’s commercial construction loan
portfolio.
Average core deposits increased $6.6 billion from the year ended December 31, 2018 primarily driven by increases in average interest
checking deposits and average savings and money market deposits partially offset by decreases in average foreign office deposits and average
demand deposits. Average interest checking deposits increased $6.1 billion from the year ended December 31, 2018 primarily due to balance
migration from demand deposit accounts and an increase in average balances per commercial customer account as well as the acquisition of
MB Financial, Inc. Average savings and money market deposits increased $776 million from the year ended December 31, 2018 primarily
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due to the acquisition of MB Financial, Inc. and an increase in average balances per commercial customer account. Average foreign office
deposits decreased $153 million from the year ended December 31, 2018 driven by balance migration into interest checking deposits.
Average demand deposits decreased $136 million from the year ended December 31, 2018 primarily driven by balance migration into interest
checking deposits partially offset by the acquisition of MB Financial, Inc.
Branch Banking
Branch Banking provides a full range of deposit and loan products to individuals and small businesses through 1,134 full-service banking
centers. Branch Banking offers depository and loan products, such as checking and savings accounts, home equity loans and lines of credit,
credit cards and loans for automobiles and other personal financing needs, as well as products designed to meet the specific needs of small
businesses, including cash management services.
The following table contains selected financial data for the Branch Banking segment:
TABLE 18: Branch Banking
For the years ended December 31 ($ in millions)
Income Statement Data
Net interest income
Provision for credit losses
Noninterest income:
Card and processing revenue
Service charges on deposits
Wealth and asset management revenue
Other noninterest income
Noninterest expense:
Compensation and benefits
Net occupancy and equipment expense
Card and processing expense
Other noninterest expense
Income before income taxes
Applicable income tax expense
Net income
Average Balance Sheet Data
Consumer loans
Commercial loans, including held for sale
Demand deposits
Interest checking deposits
Savings and money market deposits
Other time deposits and certificates $100,000 and over
2020
2019
2018
$
1,667
231
283
215
172
81
649
217
116
887
318
67
251
12,777
2,268
19,755
12,608
37,030
5,370
$
$
2,371
224
285
260
158
99
601
221
123
915
1,089
229
860
13,200
2,170
15,802
10,716
33,173
7,532
2,034
171
266
275
150
63
536
225
121
846
889
187
702
13,034
1,938
14,336
10,187
29,473
5,348
Comparison of the year ended 2020 with 2019
Net income was $251 million for the year ended December 31, 2020 compared to net income of $860 million for the year ended
December 31, 2019. The decrease was driven by decreases in net interest income and noninterest income as well as increases in noninterest
expense and provision for credit losses.
Net interest income decreased $704 million from the year ended December 31, 2019 primarily due to decreases in FTP credit rates on core
deposits and FTP credits on certificates $100,000 and over as well as decreases in yields on and average balances of home equity and credit
card. These negative impacts were partially offset by decreases in the rates paid on average interest-bearing deposits as well as decreases in
FTP charge rates on loans and leases.
Provision for credit losses increased $7 million from the year ended December 31, 2019 primarily due to an increase in commercial criticized
asset levels as well as an increase in net charge-offs on commercial and industrial loans partially offset by decreases in net charge-offs on
other consumer loans, credit card and home equity. Net charge-offs as a percent of average portfolio loans and leases decreased to 135 bps for
the year ended December 31, 2020 compared to 144 bps for the year ended December 31, 2019.
Noninterest income decreased $51 million from the year ended December 31, 2019 primarily driven by decreases in service charges on
deposits and other noninterest income partially offset by an increase in wealth and asset management revenue. Service charges on deposits
decreased $45 million from the year ended December 31, 2019 driven by decreases in both consumer deposit fees and commercial deposit
fees. Other noninterest income decreased $18 million from the year ended December 31, 2019 primarily driven by a decrease in cardholder
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fees and an increase in net losses on disposition and impairment of bank premises and equipment. Wealth and asset management revenue
increased $14 million from the year ended December 31, 2019 primarily driven by increases in broker income and private client service fees.
Noninterest expense increased $9 million from the year ended December 31, 2019 primarily due to an increase in compensation and benefits
partially offset by decreases in other noninterest expense and card and processing expense. Compensation and benefits increased $48 million
from the year ended December 31, 2019 driven by increases in base compensation, employee benefits expense and incentive compensation.
Other noninterest expense decreased $28 million from the year ended December 31, 2019 primarily driven by decreases in marketing expense
and losses and adjustments partially offset by increases in corporate overhead allocations and FDIC insurance and other taxes. Card and
processing expense decreased $7 million from the year ended December 31, 2019 primarily driven by a decrease in customer spend volume.
Average consumer loans decreased $423 million from the year ended December 31, 2019 primarily driven by a decrease in average home
equity as payoffs exceeded loan originations as well as a decrease in average credit card driven by the negative economic impacts from the
COVID-19 pandemic, including reductions in the number of active accounts as well as higher paydowns relative to spend per active account.
These decreases were partially offset by an increase in average other consumer loans primarily as a result of increases in loan originations.
Average deposits increased $7.5 billion from the year ended December 31, 2019 primarily driven by increases in average demand deposits,
average savings and money market deposits and average interest checking deposits partially offset by decreases in average other time deposits
and certificates $100,000 and over. Average demand deposits increased $4.0 billion, average savings and money market deposits increased
$3.9 billion and average interest checking deposits increased $1.9 billion from the year ended December 31, 2019 primarily as a result of
higher balances per customer account due to uncertainty regarding the COVID-19 pandemic, fiscal stimulus and decreased consumer
spending. Average other time deposits and certificates $100,000 and over decreased $2.2 billion from the year ended December 31, 2019
primarily due to lower offering rates on certificates less than $100,000 as well as a decrease in average certificates $100,000 and over from
the year ended December 31, 2019.
Comparison of the year ended 2019 with 2018
Net income was $860 million for the year ended December 31, 2019 compared to net income of $702 million for the year ended December
31, 2018. The increase was driven by increases in net interest income and noninterest income partially offset by increases in noninterest
expense and provision for credit losses.
Net interest income increased $337 million from the year ended December 31, 2018. The increase was primarily due to increases in FTP
credits on core deposits and certificates $100,000 and over as well as increases in average balances of other consumer loans and credit card.
These benefits were partially offset by increases in both the rates paid on and average balances of savings and money market deposits and
other time deposits and certificates $100,000 and over as well as an increase in FTP charge rates on loans and leases.
Provision for credit losses increased $53 million from the year ended December 31, 2018 primarily due to increases in net charge-offs on
credit card and other consumer loans. Net charge-offs as a percent of average portfolio loans and leases increased to 144 bps for the year
ended December 31, 2019 compared to 114 bps for the year ended December 31, 2018.
Noninterest income increased $48 million from the year ended December 31, 2018 driven by increases in other noninterest income, card and
processing revenue and wealth and asset management revenue partially offset by a decrease in service charges on deposits. Other noninterest
income increased $36 million from the year ended December 31, 2018 primarily due to the impact of impairment on bank premises and
equipment recognized during 2018. Card and processing revenue increased $19 million from the year ended December 31, 2018 primarily
driven by increases in the number of actively used cards and customer spend volume. Wealth and asset management revenue increased $8
million from the year ended December 31, 2018 primarily driven by increases in broker income and private client service fees. Service
charges on deposits decreased $15 million from the year ended December 31, 2018 due to a decrease in consumer deposit fees partially offset
by an increase in commercial deposit fees.
Noninterest expense increased $132 million from the year ended December 31, 2018 primarily due to increases in other noninterest expense
and compensation and benefits. Other noninterest expense increased $69 million from the year ended December 31, 2018 primarily due to
increases in corporate overhead allocations, intangible amortization expense and loan and lease expense partially offset by a decrease in FDIC
insurance and other taxes. Compensation and benefits increased $65 million from the year ended December 31, 2018 due to higher base
compensation primarily as a result of the MB Financial, Inc. acquisition as well as increases in employee benefits expense and incentive
compensation.
Average consumer loans increased $166 million from the year ended December 31, 2018 primarily driven by an increase in average other
consumer loans of $649 million primarily due to growth in point-of-sale loan originations. This increase was partially offset by decreases in
average home equity loans of $303 million and average residential mortgage loans of $259 million as payoffs exceeded loan production.
Average core deposits increased $7.0 billion from the year ended December 31, 2018 primarily driven by growth in average savings and
money market deposits of $3.7 billion and growth in average demand deposits of $1.5 billion. These increases were primarily due to the
acquisition of MB Financial, Inc. as well as promotional product offerings, which drove consumer customer acquisition and growth in
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balances from existing customers. The increase in average core deposits also included an increase in interest checking deposits of $529
million from the year ended December 31, 2018 primarily as a result of the acquisition of MB Financial, Inc. Average other time deposits and
certificates $100,000 and over increased $2.2 billion from the year ended December 31, 2018 primarily as a result of the acquisition of MB
Financial, Inc. as well as promotional product offerings, which drove increased production.
Consumer Lending
Consumer Lending includes the Bancorp’s residential mortgage, automobile and other indirect lending activities. Residential mortgage
activities within Consumer Lending include the origination, retention and servicing of residential mortgage loans, sales and securitizations of
those loans and all associated hedging activities. Residential mortgages are primarily originated through a dedicated sales force and through
third-party correspondent lenders. Automobile and other indirect lending activities include extending loans to consumers through automobile
dealers, motorcycle dealers, powersport dealers, recreational vehicle dealers and marine dealers.
The following table contains selected financial data for the Consumer Lending segment:
TABLE 19: Consumer Lending
For the years ended December 31 ($ in millions)
Income Statement Data
Net interest income
Provision for credit losses
Noninterest income:
Mortgage banking net revenue
Other noninterest income
Noninterest expense:
Compensation and benefits
Other noninterest expense
Income (loss) before income taxes
Applicable income tax expense (benefit)
Net income (loss)
Average Balance Sheet Data
Residential mortgage loans, including held for sale
Home equity
Indirect secured consumer loans
$
$
$
2020
2019
2018
381
34
307
12
221
297
148
31
117
325
49
279
17
196
259
117
25
92
237
42
206
(1)
192
210
(2)
(1)
(1)
13,182
192
12,273
13,027
220
10,109
11,803
243
8,676
Comparison of the year ended 2020 with 2019
Net income was $117 million for the year ended December 31, 2020 compared to net income of $92 million for the year ended December 31,
2019. The increase was primarily driven by increases in net interest income and noninterest income as well as a decrease in provision for
credit losses partially offset by an increase in noninterest expense.
Net interest income increased $56 million from the year ended December 31, 2019 primarily driven by increases in average indirect secured
consumer loans and decreases in FTP charge rates on loans and leases partially offset by decreases in FTP credit rates on demand deposits
and yields on average residential mortgage loans and average indirect secured consumer loans.
Provision for credit losses decreased $15 million from the year ended December 31, 2019 primarily driven by a decrease in net charge-offs on
indirect secured consumer loans. Net charge-offs as a percent of average portfolio loans and leases decreased to 14 bps for the year ended
December 31, 2020 compared to 22 bps for the year ended December 31, 2019.
Noninterest income increased $23 million from the year ended December 31, 2019 driven by an increase in mortgage banking net revenue
primarily due to an increase in origination fees and gains on loan sales, partially offset by a decrease in net mortgage servicing revenue. Refer
to the Noninterest Income subsection of the Statements of Income Analysis section of MD&A for additional information on the fluctuations
in mortgage banking net revenue.
Noninterest expense increased $63 million from the year ended December 31, 2019 due to increases in other noninterest expense and
compensation and benefits. Other noninterest expense increased $38 million from the year ended December 31, 2019 primarily driven by an
increase in corporate overhead allocations partially offset by a decrease in OREO expense. Compensation and benefits increased $25 million
from the year ended December 31, 2019 primarily due to increases in base compensation and incentive compensation resulting from the
increased mortgage origination activity for the year ended December 31, 2020.
Average consumer loans increased $2.3 billion from the year ended December 31, 2019 primarily due to increases in average indirect secured
consumer loans and average residential mortgage loans. Average indirect secured consumer loans increased $2.2 billion from the year ended
December 31, 2019 primarily due to loan production exceeding payoffs. Average residential mortgage loans increased $155 million from the
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year ended December 31, 2019 driven by the repurchase of certain loans from GNMA that were in forbearance programs partially offset by
higher runoff due to payoffs exceeding loan originations.
Comparison of the year ended 2019 with 2018
Net income was $92 million for the year ended December 31, 2019 compared to a net loss of $1 million for the year ended December 31,
2018. The increase was driven by increases in noninterest income and net interest income partially offset by increases in noninterest expense
and provision for credit losses.
Net interest income increased $88 million from the year ended December 31, 2018 primarily driven by increases in both yields on and
average balances of indirect secured consumer loans and residential mortgage loans as well as an increase in FTP credits on demand deposits.
These benefits were partially offset by increases in FTP charges on loans and leases.
Provision for credit losses increased $7 million from the year ended December 31, 2018 primarily driven by an increase in net charge-offs on
indirect secured consumer loans partially offset by a decrease in net charge-offs on residential mortgage loans. Net charge-offs as a percent of
average portfolio loans and leases increased to 22 bps for the year ended December 31, 2019 compared to 21 bps for the year ended
December 31, 2018.
Noninterest income increased $91 million from the year ended December 31, 2018 driven by increases in mortgage banking net revenue and
other noninterest income. Mortgage banking net revenue increased $73 million from the year ended December 31, 2018 primarily driven by
an increase in origination fees and gains on loan sales. Refer to the Noninterest Income subsection of the Statements of Income Analysis
section of MD&A for additional information on the fluctuations in mortgage banking net revenue. Other noninterest income increased $18
million from the year ended December 31, 2018 primarily due to the recognition of $3 million of gains on securities acquired as a component
of the Bancorp’s non-qualifying hedging strategy of MSRs during the year ended December 31, 2019 compared to the recognition of $15
million of losses during the year ended December 31, 2018.
Noninterest expense increased $53 million from the year ended December 31, 2018 primarily due to an increase in other noninterest expense
primarily driven by increases in corporate overhead allocations, loan and lease expense and losses and adjustments.
Average consumer loans increased $2.6 billion from the year ended December 31, 2018 primarily driven by increases in average indirect
secured consumer loans and average residential mortgage loans. Average indirect secured consumer loans increased $1.4 billion from the
year ended December 31, 2018 primarily driven by the acquisition of MB Financial, Inc. and higher loan production exceeding payoffs.
Average residential mortgage loans increased $1.2 billion from the year ended December 31, 2018 primarily driven by the acquisition of MB
Financial, Inc.
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Wealth and Asset Management
Wealth and Asset Management provides a full range of investment alternatives for individuals, companies and not-for-profit organizations.
Wealth and Asset Management is made up of four main businesses: FTS, an indirect wholly-owned subsidiary of the Bancorp; Fifth Third
Insurance Agency; Fifth Third Private Bank; and Fifth Third Institutional Services. FTS offers full service retail brokerage services to
individual clients and broker-dealer services to the institutional marketplace. Fifth Third Insurance Agency assists clients with their financial
and risk management needs. Fifth Third Private Bank offers wealth management strategies to high net worth and ultra-high net worth clients
through wealth planning, investment management, banking, insurance, trust and estate services. Fifth Third Institutional Services provides
advisory services for institutional clients including middle market businesses, non-profits, states and municipalities.
The following table contains selected financial data for the Wealth and Asset Management segment:
TABLE 20: Wealth and Asset Management
For the years ended December 31 ($ in millions)
Income Statement Data
Net interest income
Provision for credit losses
Noninterest income:
Wealth and asset management revenue
Other noninterest income
Noninterest expense:
Compensation and benefits
Other noninterest expense
Income before income taxes
Applicable income tax expense
Net income
Average Balance Sheet Data
Loans and leases, including held for sale
Core deposits
2020
2019
2018
139
3
498
28
218
315
129
27
102
182
—
469
20
217
312
142
30
112
182
12
429
27
202
302
122
25
97
3,659
10,967
3,580
9,701
3,421
9,332
$
$
$
Comparison of the year ended 2020 with 2019
Net income was $102 million for the year ended December 31, 2020 compared to net income of $112 million for the year ended
December 31, 2019. The decrease in net income was primarily driven by a decrease in net interest income partially offset by an increase in
noninterest income.
Net interest income decreased $43 million for the year ended December 31, 2020 compared to the year ended December 31, 2019 primarily
driven by decreases in FTP credit rates on deposits as well as decreases in yields on average loans and leases. These negative impacts were
partially offset by decreases in the rates paid on average interest checking deposits and average savings and money market deposits as well as
decreases in FTP charge rates on loans and leases.
Provision for credit losses increased $3 million from the year ended December 31, 2019 primarily driven by an increase in net charge-offs on
residential mortgage loans.
Noninterest income increased $37 million from the year ended December 31, 2019 due to increases in wealth and asset management revenue
and other noninterest income. Wealth and asset management revenue increased $29 million from the year ended December 31, 2019
primarily as a result of increases in broker income, private client service fees and institutional fees. Other noninterest income increased
$8 million from the year ended December 31, 2019 primarily due to a loss on sale of a business recognized during the year ended
December 31, 2019.
Noninterest expense increased $4 million from the year ended December 31, 2019 primarily due to an increase in other noninterest expense
driven by an increase in corporate overhead allocations partially offset by a decrease in travel expense.
Average loans and leases increased $79 million from the year ended December 31, 2019 primarily driven by increases in average residential
mortgage loans and average other consumer loans as a result of higher loan production, partially offset by a decrease in average commercial
and industrial loans as payoffs exceeded new loan production.
Average core deposits increased $1.3 billion from the year ended December 31, 2019 primarily due to increases in average interest checking
deposits and average savings and money market deposits as a result of higher balances per customer account due to the current economic
environment.
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Comparison of the year ended 2019 with 2018
Net income was $112 million for the year ended December 31, 2019 compared to net income of $97 million for the year ended December 31,
2018. The increase in net income was driven by an increase in noninterest income as well as a decrease in provision for credit losses partially
offset by an increase in noninterest expense.
Net interest income remained flat for the year ended December 31, 2019 compared to the year ended December 31, 2018. Net interest income
was positively impacted by increases in FTP credits on interest checking deposits and savings and money market deposits as well as increases
in both yields on and average balances of loans and leases. These positive impacts were offset by an increase in the rates paid on interest
checking deposits as well as an increase in FTP charges on loans and leases.
Provision for credit losses decreased $12 million from the year ended December 31, 2018 driven by a decrease in net charge-offs on
commercial and industrial loans. This decrease was partially offset by the impact of the benefit of lower criticized asset levels for the year
ended December 31, 2018.
Noninterest income increased $33 million from the year ended December 31, 2018 due to an increase in wealth and asset management
revenue partially offset by a decrease in other noninterest income. Wealth and asset management revenue increased $40 million from the year
ended December 31, 2018 primarily due to an increase in private client service fees driven by increased sales production and strong market
performance as well as the full-year benefit from acquisitions in 2018 and the acquisition of MB Financial, Inc. Other noninterest income
decreased $7 million from the year ended December 31, 2018 primarily due to a loss on sale of a business recognized during the second
quarter of 2019.
Noninterest expense increased $25 million from the year ended December 31, 2018 due to increases in compensation and benefits and other
noninterest expense. Compensation and benefits increased $15 million from the year ended December 31, 2018 primarily due to higher base
compensation driven by the full-year impact from acquisitions in 2018 and the acquisition of MB Financial, Inc. Other noninterest expense
increased $10 million from the year ended December 31, 2018 primarily driven by an increase in corporate overhead allocations partially
offset by a decrease in FDIC insurance and other taxes.
Average loans and leases increased $159 million from the year ended December 31, 2018 primarily due to an increase in average residential
mortgage loans driven by the acquisition of MB Financial, Inc., partially offset by a decrease in average commercial and industrial loans as
payoffs exceeded new loan production.
Average core deposits increased $369 million from the year ended December 31, 2018 primarily due to an increase in average interest
checking deposits primarily as a result of the acquisition of MB Financial, Inc. as well as an increase in average savings and money market
deposits.
General Corporate and Other
General Corporate and Other includes the unallocated portion of the investment securities portfolio, securities gains and losses, certain non-
core deposit funding, unassigned equity, unallocated provision for credit losses expense or a benefit from the reduction of the ACL, the
payment of preferred stock dividends and certain support activities and other items not attributed to the business segments.
Comparison of the year ended 2020 with 2019
Net interest income increased $1.1 billion from the year ended December 31, 2019 primarily driven by decreases in FTP credit rates on
deposits allocated to the business segments, increases in interest income on loans and leases and decreases in interest expense on long-term
debt, federal funds purchased, deposits and other short-term borrowings. These positive impacts were partially offset by decreases in the
benefit related to FTP charge rates on loans and leases and a decrease in interest income on taxable securities.
The benefit from credit losses was $221 million for the year ended December 31, 2020 compared to a provision for credit losses of $15
million for the year ended December 31, 2019. The decrease for the year ended December 31, 2020 was primarily driven by an increase in the
allocation of provision expense to the business segments due to an increase in commercial criticized asset levels, partially offset by an
increase in the ACL reflecting deterioration in the macroeconomic environment as a result of the impact of the COVID-19 pandemic and the
resulting impact of this environment on commercial borrowers. The change in provision for credit losses also reflected the impact of the
change in methodology for estimating credit losses from the incurred loss methodology to the expected credit loss methodology beginning in
the first quarter of 2020.
Noninterest income decreased $819 million from the year ended December 31, 2019 primarily due to the recognition of a $74 million gain
from the TRA associated with Worldpay, Inc. for the year ended December 31, 2020 compared to the recognition of a $562 million gain
related to the sale of Worldpay, Inc. shares in addition to the recognition of a $345 million gain from the Worldpay, Inc. TRA transaction
during the year ended December 31, 2019. These negative impacts were partially offset by the recognition of securities gains of $62 million
for the year ended December 31, 2020 compared to securities gains of $40 million for the year ended December 31, 2019.
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Noninterest expense decreased $108 million from the year ended December 31, 2019 primarily driven by a decrease in technology and
communications expense and an increase in corporate overhead allocations from General Corporate and Other to the other business segments,
as well as decreases in travel expense, marketing expense and consulting fees, partially offset by increases in net occupancy expense and
FDIC insurance and other taxes.
Comparison of the year ended 2019 with 2018
Net interest income decreased $415 million from the year ended December 31, 2018 primarily driven by an increase in FTP credits on
deposits allocated to the business segments and increases in interest expense on long-term debt. These negative impacts were partially offset
by an increase in the benefit related to FTP charges on loans and leases and an increase in interest income on taxable securities.
Provision for credit losses increased $7 million from the year ended December 31, 2018 primarily due to increases in both outstanding loan
balances and unfunded commitments in 2019, exclusive of loans and leases acquired in the MB Financial, Inc. acquisition. This was partially
offset by an increase in the allocation of provision expense to the business segments driven by an increase in commercial criticized asset
levels.
Noninterest income increased $309 million from the year ended December 31, 2018 primarily driven by the recognition of a $562 million
gain on the sale of Worldpay, Inc. shares for the year ended December 31, 2019 in addition to a $345 million gain recognized in the fourth
quarter of 2019 from the Worldpay, Inc. TRA transaction compared to a $205 million gain on the sale of Worldpay, Inc. shares for the year
ended December 31, 2018 and a $414 million gain recognized in the first quarter of 2018 related to Vantiv, Inc.’s acquisition of Worldpay
Group plc. The increase from the year ended December 31, 2018 also included securities gains of $40 million during the year ended
December 31, 2019 compared to securities losses of $54 million during the year ended December 31, 2018. These positive impacts were
partially offset by an increase in the loss on the swap associated with the sale of Visa, Inc. Class B Shares. The Bancorp recognized negative
valuation adjustments of $107 million related to the Visa total return swap for the year ended December 31, 2019 compared to negative
valuation adjustments of $59 million during the year ended December 31, 2018.
Noninterest expense increased $139 million from the year ended December 31, 2018. The increase was primarily due to increases in
technology and communications expense, compensation and benefits and net occupancy expense driven by merger-related expenses as a
result of the acquisition of MB Financial, Inc. partially offset by an increase in corporate overhead allocations from General Corporate and
Other to the other business segments. Refer to the Noninterest Expense subsection of the Statements of Income Analysis section of MD&A
for additional information on merger-related expenses.
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FOURTH QUARTER REVIEW
The Bancorp’s 2020 fourth quarter net income available to common shareholders was $569 million, or $0.78 per diluted share, compared to
net income available to common shareholders of $562 million, or $0.78 per diluted share, for the third quarter of 2020 and net income
available to common shareholders of $701 million, or $0.96 per diluted share, for the fourth quarter of 2019.
Net interest income on an FTE basis (non-GAAP) was $1.2 billion for the fourth quarter of 2020, an increase of $12 million from the third
quarter of 2020 and a decrease of $47 million from the fourth quarter of 2019. The increase from the third quarter of 2020 was primarily
driven by lower core deposit and wholesale borrowing costs, an increase in accelerated PPP fees recognized upon loan forgiveness and
elevated investment portfolio prepayment penalty proceeds, partially offset by the impact of lower commercial loan balances and a decline in
mortgage rates. The decrease from the fourth quarter of 2019 was primarily driven by lower yields and lower balances on commercial loans,
partially offset by lower deposits costs, the favorable impact of previously executed cash flow hedges and growth from PPP loans. Net
interest income for the fourth quarter of 2020 included $12 million of amortization and accretion of premiums and discounts on acquired
loans and leases and assumed deposits and long-term debt from acquisitions compared to $13 million in the third quarter of 2020 and $18
million in the fourth quarter of 2019.
Noninterest income was $787 million for the fourth quarter of 2020, an increase of $65 million compared to the third quarter of 2020 and a
decrease of $248 million compared to the fourth quarter of 2019. The increase from the third quarter of 2020 was primarily due to an increase
in other noninterest income, partially offset by decreases in mortgage banking net revenue and net securities gains. The decrease compared to
the fourth quarter of 2019 was primarily driven by decreases in other noninterest income and mortgage banking net revenue.
Service charges on deposits were $146 million for the fourth quarter of 2020, an increase of $2 million compared to the previous quarter and
a decrease of $3 million compared to the fourth quarter of 2019. The increase from the third quarter of 2020 was primarily due to an increase
in consumer deposit fees. The decrease compared to the fourth quarter of 2019 was primarily due to a decrease in consumer deposit fees,
partially offset by an increase in commercial deposit fees.
Commercial banking revenue was $141 million for the fourth quarter of 2020, an increase of $16 million compared to the third quarter of
2020 and $14 million compared to the fourth quarter of 2019. The increase from the previous quarter was primarily driven by increases in
institutional sales and loan syndication fees, partially offset by lower corporate bond fees. The increase compared to the fourth quarter of
2019 was primarily driven by increases in institutional sales and corporate bond fees.
Mortgage banking net revenue was $25 million for the fourth quarter of 2020, a decrease of $51 million compared to the third quarter of 2020
and $48 million compared to the fourth quarter of 2019. The decrease in mortgage banking net revenue compared to the third quarter of 2020
was primarily driven by lower origination fees and gains on loan sales resulting from a decrease in originations, the decision to retain certain
mortgages originated during the fourth quarter of 2020 and margin compression. The decrease in mortgage banking net revenue compared to
the fourth quarter of 2019 was primarily driven by an increase in net negative valuation adjustments on MSRs and higher prepayment speeds.
Mortgage banking net revenue is affected by net valuation adjustments, which include MSR valuation adjustments caused by fluctuating
OAS, earning rates and prepayment speeds, as well as mark-to-market adjustments on free-standing derivatives used to economically hedge
the MSR portfolio. Net negative valuation adjustments on MSRs were $88 million and $83 million in the fourth and third quarters of 2020,
respectively, and $47 million in the fourth quarter of 2019. Residential mortgage originations for the fourth quarter of 2020 were $3.9 billion,
compared with $4.5 billion in the previous quarter and $3.8 billion the fourth quarter of 2019. Originations for the fourth quarter of 2020
resulted in gains of $47 million on mortgages sold, compared with gains of $93 million for the previous quarter and $49 million for the fourth
quarter of 2019. Gross mortgage servicing fees were $66 million in both the fourth and third quarters of 2020 and $72 million in the fourth
quarter of 2019.
Wealth and asset management revenue was $133 million for the fourth quarter of 2020, an increase of $1 million from the previous quarter
and $4 million from the fourth quarter of 2019. The increase from the third quarter of 2020 was primarily driven by higher personal asset
management revenue and brokerage income, partially offset by lower institutional trust fees. The increase compared to the fourth quarter of
2019 was primarily driven by higher personal asset management revenue and brokerage income.
Card and processing revenue was $92 million for both the fourth and third quarters of 2020 and was $3 million lower than the fourth quarter
of 2019. The decrease from the fourth quarter of 2019 was primarily driven by lower commercial and consumer card spend volumes, partially
offset by lower reward costs.
Leasing business revenue was $69 million for the fourth quarter of 2020, a decrease of $8 million from the third quarter of 2020 and $2
million from the fourth quarter of 2019. The decrease from the third quarter of 2020 was primarily driven by a decrease in business solutions
revenue. The decrease compared to the fourth quarter of 2019 was primarily driven by decreases in lease remarketing fees and operating lease
income.
Other noninterest income was $168 million for the fourth quarter of 2020, an increase of $142 million compared to the third quarter of 2020
and a decrease of $214 million from the fourth quarter of 2019. The increase from the third quarter of 2020 was primarily driven by an
increase in private equity investment income as well as income from the TRA associated with Worldpay, Inc. recognized during the fourth
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quarter of 2020. The decrease compared to the fourth quarter of 2019 was primarily due to a decrease in the income recognized from the TRA
associated with Worldpay, Inc. driven by the Worldpay, Inc. transaction in the fourth quarter of 2019, partially offset by an increase in private
equity investment income. For additional information on the Worldpay, Inc. transaction, refer to Note 21 of the Notes to Consolidated
Financial Statements.
The net gains on investment securities were $14 million for the fourth quarter of 2020, $51 million for the third quarter of 2020 and $10
million for the fourth quarter of 2019. Net losses on securities held as non-qualifying hedges for MSRs were $1 million for both the fourth
and third quarters of 2020 as well as the fourth quarter of 2019.
Noninterest expense was $1.2 billion for the fourth quarter of 2020, an increase of $75 million from the previous quarter and $76 million
from the fourth quarter of 2019. The increase in noninterest expense from the previous quarter was primarily due to increases in
compensation and benefits expense and other noninterest expense. Compensation and benefits expense increased from the prior quarter
primarily due to increases in incentive compensation driven by strong performance in fees related to business growth during the fourth
quarter of 2020, partially offset by a decrease in base compensation. Other noninterest expense increased from the prior quarter primarily
driven by an increase in donations expense, partially offset by a decrease in losses and adjustments. The increase in noninterest expense
compared to the fourth quarter of 2019 was primarily driven by an increase in compensation and benefits expense, partially offset by
decreases in marketing expense, technology and communications expenses and other noninterest expense. Compensation and benefits
expense increased from the fourth quarter of 2019 primarily due to increases in incentive compensation, base compensation and employee
benefits expense. Marketing expense decreased from the fourth quarter of 2019 primarily due to the impact of the COVID-19 pandemic
which resulted in a pause or slowdown in numerous marketing campaigns. Technology and communications expense decreased from the
fourth quarter of 2019 primarily attributable to non-recurring integration and conversion costs incurred in the fourth quarter of 2019. Other
noninterest expense decreased from the fourth quarter of 2019 primarily driven by decreases in losses and adjustments and travel expense,
partially offset by increases in FDIC insurance and other taxes.
The ALLL as a percentage of portfolio loans and leases was 2.25% as of December 31, 2020 compared to 2.32% as of September 30, 2020
and 1.10% as of December 31, 2019. The benefit from credit losses was $13 million in the fourth quarter of 2020 compared with $15 million
in the third quarter of 2020, and a provision for credit losses of $162 million in the fourth quarter of 2019. Net losses charged-off were
$118 million in the fourth quarter of 2020, or 43 bps of average portfolio loans and leases on an annualized basis, compared with net losses
charged-off of $101 million in the third quarter of 2020 and $113 million in the fourth quarter of 2019.
TABLE 21: Quarterly Information (unaudited)
2020
2019
For the three months ended
($ in millions, except per share
data)
Net interest income(a)
(Benefit from) provision for
credit losses
Noninterest income
Noninterest expense
Net income
Net income available to common
shareholders
Earnings per share, basic
Earnings per share, diluted
$
$
December,
31
September,
30
June,
30
March,
31
December,
31
September,
30
June,
30
March,
31
$
1,185
1,173
1,203
1,233
1,232
1,246
1,250
1,086
(13)
787
1,236
604
569
0.79
0.78
(15)
722
1,161
581
562
0.78
0.78
485
650
1,121
195
163
0.23
0.23
640
671
1,200
46
29
0.04
0.04
162
1,035
1,160
734
701
0.97
0.96
134
740
1,159
549
530
0.72
0.71
85
660
1,243
453
427
0.57
0.57
90
1,101
1,097
775
760
1.14
1.12
(a) Amounts presented on an FTE basis. The FTE adjustment was $3 for the three months ended December 31, 2020, September 30, 2020 and June 30, 2020 and $4
for the three months ended March 31, 2020. The FTE adjustment was $4 for both the three months ended December 31, 2019 and September 30, 2019, $5 for the
three months ended June 30, 2019 and $4 for the three months ended March 31, 2019.
COMPARISON OF THE YEAR ENDED 2019 WITH 2018
The Bancorp’s net income available to common shareholders for the year ended December 31, 2019 was $2.4 billion, or $3.33 per diluted
share, which was net of $93 million in preferred stock dividends. The Bancorp’s net income available to common shareholders for the year
ended December 31, 2018 was $2.1 billion, or $3.06 per diluted share, which was net of $75 million in preferred stock dividends.
The provision for credit losses was $471 million for the year ended December 31, 2019 compared to $207 million for the same period in the
prior year. The increase in provision expense for the year ended December 31, 2019 compared to the prior year was primarily due to increases
in specific reserves on certain impaired commercial loans and the level of commercial criticized assets as well as increases in both
outstanding loan balances and unfunded commitments in 2019, exclusive of loans and leases acquired in the MB Financial, Inc. acquisition.
The ALLL increased $99 million from December 31, 2018 to $1.2 billion at December 31, 2019. At December 31, 2019, the ALLL as a
percent of portfolio loans and leases decreased to 1.10%, compared to 1.16% at December 31, 2018. This decrease reflects the impact of the
MB Financial, Inc. acquisition, which added approximately $13.4 billion in portfolio loans and leases at the acquisition date. Loans acquired
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by the Bancorp through a purchase business combination are recorded at fair value as of the acquisition date. The Bancorp did not carry over
the acquired company’s ALLL, nor did the Bancorp add to its existing ALLL as part of purchase accounting. The reserve for unfunded
commitments increased $13 million from December 31, 2018 to $144 million at December 31, 2019. This increase reflects the impact of the
MB Financial, Inc. acquisition, which included approximately $8 million in reserves for unfunded commitments at the acquisition date.
Net interest income on an FTE basis (non-GAAP) was $4.8 billion and $4.2 billion for the years ended December 31, 2019 and 2018,
respectively. Net interest income was positively impacted by increases in average commercial and industrial loans and average commercial
mortgage loans from the year ended December 31, 2018. Additionally, net interest income benefited from an increase in yields on average
loans and leases from the year ended December 31, 2018. These positive impacts were partially offset by increases in both the rates paid on
and balances of average interest-bearing core deposits and average long-term debt as well as an increase in average certificates $100,000 and
over for the year ended December 31, 2019 compared to the year ended December 31, 2018. Additionally, net interest income was negatively
impacted by the August 2019, September 2019 and October 2019 decisions of the FOMC to lower the target range of the federal funds rate.
Net interest income for the year ended December 31, 2019 included $65 million of amortization and accretion of premiums and discounts on
acquired loans and leases and assumed deposits and long-term debt from acquisitions. Net interest margin on an FTE basis (non-GAAP) was
3.31% for the year ended December 31, 2019 compared to 3.22% for the year ended December 31, 2018.
Noninterest income increased $746 million for the year ended December 31, 2019 compared to the year ended December 31, 2018 primarily
due to increases in other noninterest income, leasing business revenue, mortgage banking net revenue, commercial banking revenue and
wealth and asset management revenue. Other noninterest income increased $261 million for the year ended December 31, 2019 compared to
the year ended December 31, 2018 primarily due to the recognition of gains on the sale of Worldpay Inc. shares driven by the Bancorp’s sale
of shares during the first quarter of 2019, an increase in the income from the TRA associated with Worldpay, Inc. and a decrease in the net
losses on disposition and impairment of bank premises and equipment. These benefits were partially offset by the gain related to Vantiv,
Inc.’s acquisition of Worldpay Group plc. recognized during the first quarter of 2018 as well as an increase in the loss on the swap associated
with the sale of Visa, Inc. Class B Shares. Leasing business revenue increased $156 million for the year ended December 31, 2019 compared
to the year ended December 31, 2018. The increase from the prior year was primarily driven by increases in operating lease income, leasing
business solutions revenue and lease remarketing fees of $67 million, $50 million and $44 million, respectively. The increase in leasing
business solutions revenue was driven by the acquisition of MB Financial, Inc. Mortgage banking net revenue increased $75 million for the
year ended December 31, 2019 compared to the year ended December 31, 2018 primarily due to a $75 million increase in origination fees and
gains on loan sales due to the lower interest rate environment. Commercial banking revenue increased $52 million for the year ended
December 31, 2019 compared to the year ended December 31, 2018. The increase from the prior year was primarily driven by increases in
institutional sales revenue and business lending fees of $26 million and $21 million, respectively. Wealth and asset management revenue
increased $43 million for the year ended December 31, 2019 compared to the year ended December 31, 2018 primarily due to an increase of
$37 million in private client service fees. This increase was driven by increased sales production and strong market performance as well as
the full-year benefit from acquisitions in 2018 and the acquisition of MB Financial, Inc.
Noninterest expense increased $702 million for the year ended December 31, 2019 compared to the year ended December 31, 2018 primarily
due to increases in compensation and benefits expense, other noninterest expense and technology and communications expense.
Compensation and benefits expense increased $303 million for the year ended December 31, 2019 compared to the year ended December 31,
2018 driven by $90 million in merger-related expenses for the year ended December 31, 2019, the addition of personnel costs from the
acquisition of MB Financial, Inc. and higher deferred compensation expense. Other noninterest expense increased $137 million for the year
ended December 31, 2019 compared to the year ended December 31, 2018 and included the impact of an increase of $23 million in merger-
related expenses related to the acquisition of MB Financial, Inc. as well as increases in intangible amortization expense, losses and
adjustments and loan and lease expense, partially offset by a decrease in FDIC insurance and other taxes. Technology and communications
expense increased $137 million for the year ended December 31, 2019 compared to the year ended December 31, 2018 driven by $71 million
in merger-related expenses for the year ended December 31, 2019, as well as increased investment in contemporizing information technology
architecture, mitigating information security risks and growth initiatives.
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BALANCE SHEET ANALYSIS
Loans and Leases
The Bancorp classifies its commercial loans and leases based upon primary purpose and consumer loans based upon product or collateral.
Table 22 summarizes end of period loans and leases, including loans and leases held for sale and Table 23 summarizes average total loans
and leases, including average loans and leases held for sale.
TABLE 22: Components of Total Loans and Leases (including loans and leases held for sale)
As of December 31 ($ in millions)
2019
Commercial loans and leases:
2020
2018
2017
2016
Commercial and industrial loans(a)
Commercial mortgage loans
Commercial construction loans
Commercial leases
Total commercial loans and leases
Consumer loans:
Residential mortgage loans(b)
Home equity
Indirect secured consumer loans
Credit card
Other consumer loans
Total consumer loans
Total loans and leases
Total portfolio loans and leases (excluding loans and leases held for
sale)(c)
$
$
$
49,895
10,609
5,815
2,954
69,273
20,393
5,183
13,653
2,007
3,014
44,250
113,523
50,677
10,964
5,090
3,363
70,094
17,988
6,083
11,538
2,532
2,723
40,864
110,958
44,407
6,977
4,657
3,600
59,641
16,041
6,402
8,976
2,470
2,342
36,231
95,872
41,170
6,610
4,553
4,068
56,401
16,077
7,014
9,112
2,299
1,559
36,061
92,462
41,736
6,904
3,903
3,974
56,517
15,737
7,695
9,983
2,237
680
36,332
92,849
108,782
109,558
95,265
91,970
92,098
(a)
(b)
(c)
Includes $4.8 billion, as of December 31, 2020, related to the SBA’s Paycheck Protection Program.
Includes $39, as of December 31, 2020, of residential mortgage loans previously sold to GNMA for which the Bancorp is deemed to have regained effective
control over under ASC Topic 860, but did not exercise its option to repurchase. Refer to Note 17 of the Notes to Consolidated Financial Statements for further
information.
Subsequent to the Bancorp's earnings release furnished in a Form 8-K on January 21, 2021, the Bancorp reclassified $178 of loans from portfolio loans and
leases to loans and leases held for sale because it was determined that those loans met the criteria for classification as held for sale as of December 31, 2020.
Total loans and leases, including loans and leases held for sale, increased $2.6 billion, or 2%, from December 31, 2019. The increase from
December 31, 2019 was the result of an increase of $3.4 billion, or 8%, in consumer loans partially offset by a decrease of $821 million, or
1%, in commercial loans and leases.
Commercial loans and leases decreased $821 million from December 31, 2019 due to decreases in commercial and industrial loans,
commercial leases and commercial mortgage loans, partially offset by an increase in commercial construction loans. Commercial and
industrial loans decreased $782 million, or 2%, from December 31, 2019 primarily as a result of a decrease in revolving line of credit
utilization, the strategic exit of certain relationships as well as payoffs outpacing production, partially offset by loans originated under the
SBA’s Paycheck Protection Program during 2020. Commercial leases decreased $409 million, or 12%, from December 31, 2019 primarily as
a result of a planned reduction in indirect non-relationship-based lease originations. Commercial mortgage loans decreased $355 million, or
3%, from December 31, 2019 as payoffs exceeded loan originations. Commercial construction loans increased $725 million, or 14%, from
December 31, 2019 primarily as a result of increased line of credit utilization as well as lower levels of payoffs.
Consumer loans increased $3.4 billion from December 31, 2019 due to increases in residential mortgage loans, indirect secured consumer
loans and other consumer loans, partially offset by decreases in home equity and credit card. Residential mortgage loans increased $2.4
billion, or 13%, from December 31, 2019 primarily due to increases in residential mortgage loans held for sale as the Bancorp purchased $2.1
billion of government-guaranteed loans in forbearance programs and also repurchased certain loans from GNMA that were in forbearance
programs. These increases were partially offset by payoffs exceeding loan originations on portfolio loans. Indirect secured consumer loans
increased $2.1 billion, or 18%, from December 31, 2019 primarily as a result of loan production exceeding payoffs. Other consumer loans
increased $291 million, or 11%, from December 31, 2019 primarily as a result of the purchase of a portfolio of point-of-sale loans as well as
increases in loan originations. Home equity decreased $900 million, or 15%, from December 31, 2019 as payoffs exceeded loan originations.
Credit card decreased $525 million, or 21%, from December 31, 2019 primarily due to the economic impacts from the COVID-19 pandemic,
including reductions in the number of active accounts as well as higher net paydowns per active account.
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TABLE 23: Components of Average Loans and Leases (including average loans and leases held for sale)
For the years ended December 31 ($ in millions)
Commercial loans and leases:
2019
2020
2018
2017
2016
Commercial and industrial loans
Commercial mortgage loans
Commercial construction loans
Commercial leases
Total commercial loans and leases
Consumer loans:
$
53,814
11,011
5,509
3,038
73,372
Residential mortgage loans
Home equity
Indirect secured consumer loans
Credit card
Other consumer loans
17,828
5,679
12,454
2,230
2,848
41,039
Total consumer loans
$ 114,411
Total average loans and leases
Total average portfolio loans and leases (excluding loans and leases held for sale) $ 112,993
50,168
9,905
5,174
3,578
68,825
17,337
6,286
10,345
2,437
2,564
38,969
107,794
106,840
42,668
6,661
4,793
3,795
57,917
16,150
6,631
8,993
2,280
1,905
35,959
93,876
93,216
41,577
6,844
4,374
4,011
56,806
16,053
7,308
9,407
2,141
1,016
35,925
92,731
92,068
43,184
6,899
3,648
3,916
57,647
15,101
7,998
10,708
2,205
661
36,673
94,320
93,426
Average loans and leases, including average loans and leases held for sale, increased $6.6 billion, or 6%, from December 31, 2019 as the
result of a $4.5 billion, or 7%, increase in average commercial loans and leases as well as a $2.1 billion, or 5%, increase in average consumer
loans.
Average commercial loans and leases increased $4.5 billion from December 31, 2019 due to increases in average commercial and industrial
loans, average commercial mortgage loans and average commercial construction loans, partially offset by a decrease in average commercial
leases. Average commercial and industrial loans increased $3.6 billion, or 7%, from December 31, 2019 primarily driven by the
aforementioned increases in Paycheck Protection Program loans. Average commercial mortgage loans increased $1.1 billion, or 11%, from
December 31, 2019 primarily as a result of increases in loan originations and permanent financing from the Bancorp’s commercial
construction loan portfolio. Average commercial construction loans increased $335 million, or 6%, from December 31, 2019 primarily as a
result of increased line of credit utilization as well as lower levels of payoffs. Average commercial leases decreased $540 million, or 15%,
from December 31, 2019 primarily as a result of a planned reduction in indirect non-relationship-based lease originations.
Average consumer loans increased $2.1 billion from December 31, 2019 due to increases in average indirect secured consumer loans, average
residential mortgage loans and average other consumer loans, partially offset by decreases in average home equity and average credit card.
Average indirect secured consumer loans increased $2.1 billion, or 20%, from December 31, 2019 primarily due to loan production exceeding
payoffs. Average residential mortgage loans increased $491 million, or 3%, from December 31, 2019 primarily driven by the repurchase of
certain loans from GNMA that were in forbearance programs, partially offset by higher runoff due to payoffs exceeding loan originations.
Average other consumer loans increased $284 million, or 11%, from December 31, 2019 primarily as a result of increases in loan
originations. Average home equity decreased $607 million, or 10%, from December 31, 2019 as payoffs exceeded loan originations. Average
credit card decreased $207 million, or 8%, from December 31, 2019 driven by the negative economic impacts from the COVID-19 pandemic,
including reductions in the number of active accounts as well as higher net paydowns per active account.
Investment Securities
The Bancorp uses investment securities as a means of managing interest rate risk, providing collateral for pledging purposes and for liquidity
risk management. Total investment securities were $38.4 billion and $36.9 billion at December 31, 2020 and December 31, 2019,
respectively. The taxable available-for-sale debt and other investment securities portfolio had an effective duration of 4.4 years at
December 31, 2020 compared to 5.1 years at December 31, 2019.
Debt securities are classified as available-for-sale when, in management’s judgment, they may be sold in response to, or in anticipation of,
changes in market conditions. Securities that management has the intent and ability to hold to maturity are classified as held-to-maturity and
reported at amortized cost. Debt securities are classified as trading when bought and held principally for the purpose of selling them in the
near term. At December 31, 2020, the Bancorp’s investment portfolio consisted primarily of AAA-rated available-for-sale debt and other
securities. The Bancorp held an immaterial amount in below-investment grade available-for-sale debt and other securities at both
December 31, 2020 and 2019.
Upon adoption of ASU 2016-13 on January 1, 2020, the Bancorp evaluates available-for-sale debt and other securities in an unrealized loss
position to determine whether all or a portion of the unrealized loss on such securities is a credit loss. If credit losses are identified, they are
generally recognized as an allowance for credit losses (a contra account to the amortized cost basis of the securities) with the periodic change
in the allowance recognized in earnings. Prior to January 1, 2020, investment securities were evaluated for OTTI with any identified OTTI
recognized as a charge to income and a direct reduction of the amortized cost basis of the securities.
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At December 31, 2020, the Bancorp completed its evaluation of the available-for-sale debt and other securities in an unrealized loss position
and did not recognize an allowance for credit losses. The Bancorp did not recognize provision expense for the year ended December 31, 2020
related to available-for-sale debt and other securities in an unrealized loss position. During the year ended December 31, 2019, the Bancorp
recognized $1 million of OTTI on its available-for-sale debt and other securities, included in securities gains (losses), net, in the Consolidated
Statements of Income.
The following table summarizes the end of period components of investment securities:
TABLE 24: Components of Investment Securities
As of December 31 ($ in millions)
Available-for-sale debt and other securities (amortized cost basis):
U.S. Treasury and federal agencies securities
Obligations of states and political subdivisions securities
Mortgage-backed securities:
Agency residential mortgage-backed securities(a)
Agency commercial mortgage-backed securities
Non-agency commercial mortgage-backed securities
Asset-backed securities and other debt securities
Other securities(b)
Total available-for-sale debt and other securities
Held-to-maturity securities (amortized cost basis):
Obligations of states and political subdivisions securities
Asset-backed securities and other debt securities
Total held-to-maturity securities
Trading debt securities (fair value):
U.S. Treasury and federal agencies securities
Obligations of states and political subdivisions securities
Agency residential mortgage-backed securities
Asset-backed securities and other debt securities
Total trading debt securities
Total equity securities (fair value)
2020
2019
2018
2017
2016
$
$
$
$
$
$
$
74
17
11,147
16,745
3,323
3,152
524
34,982
9
2
11
81
10
30
439
560
313
74
18
13,746
15,141
3,242
2,189
556
34,966
15
2
17
2
9
55
231
297
564
98
2
16,403
10,770
3,305
1,998
552
33,128
16
2
18
16
35
68
168
287
452
98
43
15,281
10,113
3,247
2,183
612
31,577
22
2
24
12
22
395
63
492
439
547
44
15,525
9,029
3,076
2,106
607
30,934
24
2
26
23
39
8
15
85
416
(a)
Includes interest-only mortgage-backed securities recorded at fair value with fair value changes recorded in securities gains (losses), net in the Consolidated
Statements of Income.
(b) Other securities consist of FHLB, FRB and DTCC restricted stock holdings that are carried at cost.
On an amortized cost basis, available-for-sale debt and other securities were 19% and 24% of total interest-earning assets at December 31,
2020 and 2019, respectively. The estimated weighted-average life of the debt securities in the available-for-sale debt and other securities
portfolio was 5.7 and 6.6 years at December 31, 2020 and 2019, respectively. In addition, at December 31, 2020 and 2019 the debt securities
in the available-for-sale debt and other securities portfolio had a weighted-average yield of 3.05% and 3.22%, respectively.
Information presented in Table 25 is on a weighted-average life basis, anticipating future prepayments. Yield information is presented on an
FTE basis and is computed using amortized cost balances and reflects the impact of prepayments. Maturity and yield calculations for the
total available-for-sale debt and other securities portfolio exclude other securities that have no stated yield or maturity. Total net unrealized
gains on the available-for-sale debt and other securities portfolio were $2.5 billion at December 31, 2020 compared to $1.1 billion at
December 31, 2019. The fair value of investment securities is impacted by interest rates, credit spreads, market volatility and liquidity
conditions. The fair value of investment securities generally increases when interest rates decrease or when credit spreads contract.
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TABLE 25: Characteristics of Available-for-Sale Debt and Other Securities
As of December 31, 2020 ($ in millions)
U.S. Treasury and federal agencies securities:
Average life 1 – 5 years
Total
Obligations of states and political subdivisions securities:
Average life of 1 year or less
Average life 1 – 5 years
Total
Agency residential mortgage-backed securities:
Average life of 1 year or less
Average life 1 – 5 years
Average life 5 – 10 years
Average life greater than 10 years
Total
Agency commercial mortgage-backed securities:(a)
Average life of 1 year or less
Average life 1 – 5 years
Average life 5 – 10 years
Average life greater than 10 years
Total
Non-agency commercial mortgage-backed securities:
Average life of 1 year or less
Average life 1 – 5 years
Average life 5 – 10 years
Total
Asset-backed securities and other debt securities:
Average life of 1 year or less
Average life 1 – 5 years
Average life 5 – 10 years
Average life greater than 10 years
Total
Other securities
Total available-for-sale debt and other securities
$
$
$
$
$
$
$
$
Amortized
Cost
Fair Value
Weighted-Average
Life (in years)
Weighted-Average
Yield
74
74
—
17
17
551
5,347
4,510
739
11,147
45
7,104
7,146
2,450
16,745
36
2,836
451
3,323
175
1,211
1,340
426
3,152
524
34,982
78
78
—
17
17
565
5,666
4,864
812
11,907
47
7,623
7,912
2,639
18,221
36
3,055
499
3,590
176
1,233
1,336
431
3,176
524
37,513
2.1
2.1
0.1
2.2
2.2
0.6
3.3
6.7
14.0
5.2
0.3
3.2
7.4
13.2
6.4
0.5
3.7
5.8
4.0
0.5
2.6
6.8
13.9
5.8
5.7
2.12 %
2.12 %
5.90
1.81
1.82 %
4.14
3.18
3.01
2.97
3.15 %
2.80
3.11
3.25
2.61
3.09 %
2.38
3.20
3.26
3.20 %
4.26
3.07
1.94
1.16
2.39 %
3.05 %
(a) Taxable-equivalent yield adjustments included in the above table are 0.08% and 0.01% for securities with an average life greater than 10 years and in total,
respectively.
Other Short-Term Investments
Other short-term investments primarily include overnight interest-earning investments, including reserves held at the FRB. The Bancorp uses
other short-term investments as part of its liquidity risk management tools. Other short-term investments were $33.4 billion and $2.0 billion at
December 31, 2020 and December 31, 2019, respectively. The increase of $31.4 billion from December 31, 2019 was primarily attributable
to deposit growth during the year ended December 31, 2020.
Deposits
The Bancorp’s deposit balances represent an important source of funding and revenue growth opportunity. The Bancorp continues to focus on
core deposit growth in its retail and commercial franchises by improving customer satisfaction, building full relationships and offering
competitive rates. Average core deposits represented 74% and 71% of the Bancorp’s average asset funding base at December 31, 2020 and
2019, respectively.
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The following table presents the end of period components of deposits:
TABLE 26: Components of Deposits
As of December 31 ($ in millions)
Demand
Interest checking
Savings
Money market
Foreign office
Total transaction deposits
Other time
Total core deposits
Certificates $100,000 and over(a)
Total deposits
2020
2019
2018
2017
2016
$
$
57,711
47,270
18,258
30,650
143
154,032
3,023
157,055
2,026
159,081
35,968
40,409
14,248
27,277
221
118,123
5,237
123,360
3,702
127,062
32,116
34,058
12,907
22,597
240
101,918
4,490
106,408
2,427
108,835
35,276
27,703
13,425
20,097
484
96,985
3,775
100,760
2,402
103,162
35,782
26,679
13,941
20,749
426
97,577
3,866
101,443
2,378
103,821
(a)
Includes $1.3 billion, $2.1 billion, $1.2 billion, $1.3 billion and $1.3 billion of institutional, retail and wholesale certificates $250,000 and over at December 31,
2020, 2019, 2018, 2017 and 2016, respectively.
Core deposits increased $33.7 billion, or 27%, from December 31, 2019, driven by an increase in transaction deposits, partially offset by a
decrease in other time deposits. Transaction deposits increased $35.9 billion, or 30%, from December 31, 2019 primarily due to increases in
demand deposits, interest checking deposits, savings deposits and money market deposits. Demand deposits increased $21.7 billion, or 60%,
from December 31, 2019 primarily as a result of higher balances per commercial customer account due to increased liquidity levels in the
form of excess cash balances driven by the amount of fiscal stimulus during the year ended December 31, 2020 as well as balance migration
from interest checking deposits. Interest checking deposits increased $6.9 billion, or 17%, from December 31, 2019 primarily as a result of
higher balances per customer account due to the previously mentioned increased liquidity levels in the current economic environment,
partially offset by the aforementioned balance migration into demand deposits. Savings deposits increased $4.0 billion, or 28%, and money
market deposits increased $3.4 billion, or 12%, from December 31, 2019 primarily as a result of higher balances per customer account due to
uncertainty regarding the COVID-19 pandemic, fiscal stimulus as well as higher demand for low-risk investment alternatives and decreased
consumer spending. Other time deposits decreased $2.2 billion, or 42%, from December 31, 2019 primarily due to lower offering rates on
certificates less than $100,000.
Certificates $100,000 and over decreased $1.7 billion, or 45%, from December 31, 2019, primarily due to a decrease in certificates of deposit
issued since December 31, 2019.
The following table presents the components of average deposits for the years ended December 31:
TABLE 27: Components of Average Deposits
($ in millions)
Demand
Interest checking
Savings
Money market
Foreign office
Total transaction deposits
Other time
Total core deposits
Certificates $100,000 and over(a)
Other deposits
Total average deposits
2020
2019
2018
2017
2016
$
$
47,111
46,890
16,440
29,879
185
140,505
4,118
144,623
3,337
71
148,031
34,343
36,658
14,041
25,879
209
111,130
5,470
116,600
4,504
265
121,369
32,634
29,818
13,330
21,769
363
97,914
4,106
102,020
2,426
476
104,922
35,093
26,382
13,958
20,231
388
96,052
3,771
99,823
2,564
277
102,664
35,862
25,143
14,346
19,523
497
95,371
4,010
99,381
2,735
333
102,449
(a)
Includes $2.2 billion, $2.6 billion, $1.1 billion, $1.4 billion and $1.5 billion of average institutional, retail and wholesale certificates $250,000 and over during
the years ended December 31, 2020, 2019, 2018, 2017 and 2016, respectively.
On an average basis, core deposits increased $28.0 billion, or 24%, from December 31, 2019 due to an increase of $29.4 billion, or 26%, in
average transaction deposits, partially offset by a decrease of $1.4 billion, or 25%, in average other time deposits. The increase in average
transaction deposits was driven by increases in average demand deposits, average interest checking deposits, average money market deposits
and average savings deposits. Average demand deposits increased $12.8 billion, or 37%, from December 31, 2019 primarily as a result of
higher average balances per commercial customer account due to the previously mentioned increased liquidity levels in the current economic
environment in the form of excess cash balances driven by the amount of fiscal stimulus as well as balance migration from interest checking
deposits. Average interest checking deposits increased $10.2 billion, or 28%, from December 31, 2019 primarily as a result of higher average
balances per customer account due to the previously mentioned increased liquidity levels in the current economic environment in the form of
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excess cash balances driven by the amount of fiscal stimulus partially offset by the aforementioned balance migration into demand deposits.
Average money market deposits increased $4.0 billion, or 15%, and average savings deposits increased $2.4 billion, or 17% from
December 31, 2019 primarily as a result of higher average balances per customer account due to the previously mentioned increased liquidity
levels in the current economic environment as well as higher demand for low-risk investment alternatives and decreased consumer spending
amidst uncertainty regarding the COVID-19 pandemic. Average other time deposits decreased primarily due to lower offering rates on
certificates less than $100,000.
Average certificates $100,000 and over decreased $1.2 billion, or 26%, from December 31, 2019 primarily due to a decrease in average
certificates of deposit issued since December 31, 2019. Average other deposits decreased $194 million, or 73%, from December 31, 2019
primarily due to a decrease in average Eurodollar trade deposits.
Contractual Maturities
The contractual maturities of certificates $100,000 and over as of December 31, 2020 are summarized in the following table:
TABLE 28: Contractual Maturities of Certificates $100,000 and Over
($ in millions)
Next 3 months
3-6 months
6-12 months
After 12 months
Total certificates $100,000 and over
$
$
586
1,032
211
197
2,026
The contractual maturities of other time deposits and certificates $100,000 and over as of December 31, 2020 are summarized in the
following table:
TABLE 29: Contractual Maturities of Other Time Deposits and Certificates $100,000 and Over
($ in millions)
Next 12 months
13-24 months
25-36 months
37-48 months
49-60 months
After 60 months
Total other time deposits and certificates $100,000 and over
$
$
4,413
355
128
73
59
21
5,049
Borrowings
The Bancorp accesses a variety of short-term and long-term funding sources. Borrowings with original maturities of one year or less are
classified as short-term and include federal funds purchased and other short-term borrowings. Total average borrowings as a percent of
average interest-bearing liabilities were 15% at December 31, 2020 compared to 17% at December 31, 2019.
The following table summarizes the end of period components of borrowings:
TABLE 30: Components of Borrowings
As of December 31 ($ in millions)
Federal funds purchased
Other short-term borrowings
Long-term debt
Total borrowings
2020
2019
2018
2017
2016
$
$
300
1,192
14,973
16,465
260
1,011
14,970
16,241
1,925
573
14,426
16,924
174
4,012
14,904
19,090
132
3,535
14,388
18,055
Total borrowings increased $224 million, or 1%, from December 31, 2019 due to increases in other short-term borrowings, federal funds
purchased and long-term debt. Other short-term borrowings increased $181 million from December 31, 2019 primarily as a result of increases
in securities sold under repurchase agreements driven by an increase in commercial customer activity. The level of other short-term
borrowings can fluctuate significantly from period to period depending on funding needs and the sources that are used to satisfy those needs.
For further information on the components of other short-term borrowings, refer to Note 17 of the Notes to Consolidated Financial
Statements. Federal funds purchased increased $40 million from December 31, 2019 primarily due to an increase in commercial customer
activity. Long-term debt increased $3 million from December 31, 2019 primarily driven by the issuance of $1.25 billion of unsecured senior
fixed-rate bank notes in January of 2020, the issuance of $1.25 billion of unsecured senior fixed-rate notes in May of 2020 and $133 million
of fair value adjustments associated with interest rate swaps hedging long-term debt during the year ended December 31, 2020. These
increases were partially offset by the maturity of $1.1 billion of unsecured senior fixed-rate notes, the maturity of $750 million of unsecured
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senior fixed-rate bank notes, the maturity of $300 million of unsecured senior floating-rate bank notes and $568 million of paydowns on long-
term debt associated with automobile loan securitizations during the year ended December 31, 2020. For additional information regarding the
long-term debt issuances, refer to Note 18 of the Notes to Consolidated Financial Statements.
The following table summarizes the components of average borrowings:
TABLE 31: Components of Average Borrowings
For the years ended December 31 ($ in millions)
Federal funds purchased
Other short-term borrowings
Long-term debt
Total average borrowings
2020
2019
2018
2017
2016
$
$
385
1,709
16,004
18,098
1,267
1,046
15,369
17,682
1,509
1,611
14,551
17,671
557
3,158
13,804
17,519
506
2,845
15,394
18,745
Total average borrowings increased $416 million, or 2%, compared to December 31, 2019 due to increases in average other short-term
borrowings and average long-term debt, partially offset by a decrease in average federal funds purchased. Average other short-term
borrowings increased $663 million compared to December 31, 2019 driven primarily by an increase in FHLB advances attributable to short-
term advances executed during the early stages of the COVID-19 pandemic. Average long-term debt increased $635 million compared to
December 31, 2019 primarily driven by the issuances of $1.25 billion of unsecured senior fixed-rate bank notes and $1.25 billion of
unsecured senior fixed-rate notes during the year ended December 31, 2020 and the issuance of $750 million of unsecured senior fixed-rate
notes in the fourth quarter in 2019. These increases were partially offset by the maturity of $1.1 billion of unsecured senior fixed-rate notes,
the maturity of $750 million of unsecured senior fixed-rate bank notes, the maturity of $300 million of unsecured senior floating-rate bank
notes and $568 million of paydowns on long-term debt associated with automobile loan securitizations since December 31, 2019. Average
federal funds purchased decreased $882 million compared to December 31, 2019 primarily due to lower short-term funding needs given core
deposit growth. Information on the average rates paid on borrowings is discussed in the Net Interest Income subsection of the Statements of
Income Analysis section of MD&A. In addition, refer to the Liquidity Risk Management subsection of the Risk Management section of
MD&A for a discussion on the role of borrowings in the Bancorp’s liquidity management.
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RISK MANAGEMENT - OVERVIEW
Effective risk management is critical to the Bancorp’s ongoing success and ensures that the Bancorp operates in a safe and sound manner,
complies with applicable laws and regulations and safeguards the Bancorp’s brand and reputation. Risks are inherent in the Bancorp’s
business, and the Bancorp is responsible for managing these risks effectively to deliver through-the-cycle value and performance for the
Bancorp’s shareholders, customers, employees and communities.
Fifth Third’s Risk Management Framework, which is approved annually by the Capital Committee, ERMC, RCC and the Board of Directors,
includes the following key elements:
•
•
•
•
•
•
The Bancorp ensures transparency and escalation of risk through defined risk policies and a governance structure that includes the
Risk and Compliance Committee of the Board of Directors, the Enterprise Risk Management Committee and other management-
level risk committees and councils.
The Bancorp establishes a risk appetite in alignment with its strategic, financial and capital plans. The Bancorp’s risk appetite is
defined using quantitative metrics and qualitative measures to ensure prudent risk taking and drive balanced decision making. The
Bancorp’s goal is to ensure that aggregate residual risks do not exceed the Bancorp’s risk appetite, and that risks taken are
supportive of the Bancorp’s portfolio diversification and profitability objectives. The Board and executive management define the
risk appetite, which is considered in the development of business strategies and forms the basis for risk management.
The core principles that define the Bancorp’s risk appetite are as follows:
◦
◦
◦
◦
◦
◦
◦
◦
◦
◦
To act with integrity in all activities.
To understand the risks taken and ensure that they are in alignment with the Bancorp’s business strategies and risk
appetite.
To avoid risks that cannot be understood, managed or monitored.
To provide transparency of risk to the Bancorp’s management and Board by escalating risks and issues as necessary.
To ensure Fifth Third’s products and services are aligned to the Bancorp’s core customer base and are designed, delivered
and maintained to provide value and benefit to the Bancorp’s customers and to Fifth Third.
Not to offer products or services that are not appropriate or suitable for the Bancorp’s customers.
Focus on providing operational excellence by providing reliable, accurate, and efficient services to meet the Bancorp’s
customers’ needs.
To maintain a strong financial position to ensure the Bancorp meets its strategic objectives through all economic cycles
and is able to access the capital markets at all times, even under stressed conditions.
To protect the Bancorp’s reputation by thoroughly understanding the consequences of business strategies, products and
processes.
To conduct the Bancorp’s business in compliance with all applicable laws, rules and regulations and in alignment with
internal policies and procedures.
Fifth Third’s core values and culture provide the foundation for sound risk management practices by establishing expectations for
appropriate conduct and accountability across the organization. All employees are expected to conduct themselves in alignment with
Fifth Third’s Code of Business Conduct & Ethics, which may be found on www.53.com, while carrying out their responsibilities.
Fifth Third’s Corporate Responsibility and Reputation Committee provides oversight of business conduct policies, programs and
strategies, and monitors reporting of potential misconduct, trends or themes across the enterprise. Prudent risk management is a
responsibility that is expected from all employees and is a foundational element of Fifth Third’s culture.
The Bancorp manages eight defined risk types to a prescribed appetite. The risk types are credit risk, liquidity risk, interest rate risk,
price risk, legal and regulatory compliance risk, operational risk, reputational risk and strategic risk.
Fifth Third’s Risk Management Process provides a consistent and integrated approach for managing risks. The five components of
the Risk Management Process are: identify, assess, manage, monitor and report. The Bancorp has also established processes and
programs to manage and report concentration risks, to ensure robust talent, compensation and performance management and to
aggregate risks across the enterprise.
Fifth Third drives accountability for managing risk through its Three Lines of Defense structure:
•
•
•
The first line of defense is comprised of front line units that create risk and are accountable for managing risk. These groups are the
Bancorp’s primary risk takers and are responsible for implementing effective internal controls and maintaining processes for
identifying, assessing, controlling and mitigating the risks associated with their activities consistent with established risk appetite
and limits. The first line of defense also includes business units that provide information technology, operations, servicing,
processing or other support.
The second line of defense, or Independent Risk Management, consists of Risk Management, Compliance and Credit Review. The
second line is responsible for developing frameworks and policies to govern risk-taking activities, overseeing risk-taking of the
organization, advising on controlling that risk and providing input on key risk decisions. Risk Management complements the front
line’s management of risk-taking activities through its monitoring and reporting responsibilities, including adherence to the risk
appetite. Additionally, Risk Management is responsible for identifying, measuring, monitoring, controlling and reporting on
aggregate risks enterprise-wide.
The third line of defense is Internal Audit, which provides oversight of the first and second lines of defense, and independent
assurance to the Board on the effectiveness of governance, risk management and internal controls.
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CREDIT RISK MANAGEMENT
The objective of the Bancorp’s credit risk management strategy is to quantify and manage credit risk on an aggregate portfolio basis, as well
as to limit the risk of loss resulting from the failure of a borrower or counterparty to honor its financial or contractual obligations to the
Bancorp. The Bancorp’s credit risk management strategy is based on three core principles: conservatism, diversification and monitoring. The
Bancorp believes that effective credit risk management begins with conservative lending practices which are described below. These
practices include the use of intentional risk-based limits for single name exposures and counterparty selection criteria designed to reduce or
eliminate exposure to borrowers who have higher than average default risk and defined weaknesses in financial performance. The Bancorp
carefully designed and monitors underwriting, documentation and collection standards. The Bancorp’s credit risk management strategy also
emphasizes diversification on a geographic, industry and customer level as well as ongoing portfolio monitoring and timely management
reviews of large credit exposures and credits experiencing deterioration of credit quality. Credit officers with the authority to extend credit are
delegated specific authority amounts, the utilization of which is closely monitored. Underwriting activities are centrally managed, and ERM
manages the policy and the authority delegation process directly. The Credit Risk Review function provides independent and objective
assessments of the quality of underwriting and documentation, the accuracy of risk grades and the charge-off, nonaccrual and reserve analysis
process. The Bancorp’s credit review process and overall assessment of the adequacy of the allowance for credit losses is based on quarterly
assessments of the estimated losses expected in the loan and lease portfolio. The Bancorp uses these assessments to promptly identify
potential problem loans or leases within the portfolio, maintain an adequate allowance for credit losses and record any necessary charge-offs.
The Bancorp defines potential problem loans and leases as those rated substandard that do not meet the definition of a nonaccrual loan or a
restructured loan. Refer to Note 7 of the Notes to Consolidated Financial Statements for further information on the Bancorp’s credit grade
categories, which are derived from standard regulatory rating definitions. In addition, stress testing is performed on various commercial and
consumer portfolios utilizing various models. For certain portfolios, such as real estate and leveraged lending, stress testing is performed by
Credit department personnel at the individual loan level during credit underwriting.
The following tables provide a summary of potential problem portfolio loans and leases:
TABLE 32: Potential Problem Portfolio Loans and Leases
As of December 31, 2020 ($ in millions)
Commercial and industrial loans
Commercial mortgage loans
Commercial construction loans
Commercial leases
Total potential problem portfolio loans and leases
TABLE 33: Potential Problem Portfolio Loans and Leases
As of December 31, 2019 ($ in millions)
Commercial and industrial loans
Commercial mortgage loans
Commercial construction loans
Commercial leases
Total potential problem portfolio loans and leases
Carrying
Value
Unpaid
Principal
Balance
Exposure
2,641
784
240
72
3,737
2,651
798
240
72
3,761
3,687
792
252
72
4,803
Carrying
Value
Unpaid
Principal
Balance
Exposure
1,100
342
75
61
1,578
1,120
390
82
61
1,653
1,488
342
84
61
1,975
$
$
$
$
In addition to the individual review of larger commercial loans that exhibit probable or observed credit weaknesses, the commercial credit
review process includes the use of two risk grading systems. The first of these risk grading systems encompasses ten categories, which are
based on regulatory guidance for credit risk systems. These ratings are used by the Bancorp to monitor and manage its credit risk. The
Bancorp also maintains a dual risk rating system for credit approval and pricing, portfolio monitoring and capital allocation that includes a
“through-the-cycle” rating philosophy for assessing a borrower’s creditworthiness. A “through-the-cycle” rating philosophy uses a grading
scale that assigns ratings based on average default rates through an entire business cycle for borrowers with similar financial performance.
The dual risk rating system includes thirteen probabilities of default grade categories and an additional eleven grade categories for estimating
losses given an event of default. The probability of default and loss given default evaluations are not separated in the ten-category regulatory
risk rating system.
The Bancorp has also developed models to estimate expected credit losses as part of the Bancorp’s adoption of ASU 2016-13 “Measurement
of Credit Losses on Financial Instruments” on January 1, 2020. For loans and leases that are collectively evaluated, the Bancorp utilizes these
models to forecast expected credit losses over a reasonable and supportable forecast period based on the probability of a loan or lease
defaulting, the expected balance at the estimated date of default and the expected loss percentage given a default. Refer to Note 1 of the Notes
to Consolidated Financial Statements for additional information about the Bancorp’s processes for developing these models, estimating credit
losses for periods beyond the reasonable and supportable forecast period and for estimating credit losses for individually evaluated loans.
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For the commercial portfolio segment, the estimated probabilities of default are primarily based on the probability of default ratings assigned
under the through-the-cycle dual risk rating system and historical observations of how those ratings migrate to a default over time in the
context of macroeconomic conditions. For loans with available credit, the estimate of the expected balance at the time of default considers
expected utilization rates, which are primarily based on macroeconomic conditions and the utilization history of similar borrowers under
those economic conditions. The estimates for loss severity are primarily based on collateral type and coverage levels and the susceptibility of
those characteristics to changes in macroeconomic conditions.
For collectively evaluated loans in the consumer and residential mortgage portfolio segments, the Bancorp’s expected credit loss models
primarily utilize the borrower’s FICO score and delinquency history in combination with macroeconomic conditions when estimating the
probability of default. The estimates for loss severity are primarily based on collateral type and coverage levels and the susceptibility of those
characteristics to changes in macroeconomic conditions. The expected balance at the estimated date of default is also especially impactful in
the expected credit loss models for portfolio classes which generally have longer terms (such as residential mortgage loans and home equity)
and portfolio classes containing a high concentration of loans with revolving privileges (such as credit card and home equity). The estimate of
the expected balance at the time of default considers expected prepayment and utilization rates where applicable, which are primarily based
on macroeconomic conditions and the utilization history of similar borrowers under those economic conditions. The Bancorp also utilizes
various scoring systems, analytical tools and portfolio performance monitoring processes to assess the credit risk of the consumer and
residential mortgage portfolios.
Overview
Financial markets began the year optimistic as the signing of the Phase I trade between China and the U.S. lifted investor expectations for
global growth in 2020. In February, the onset of the COVID-19 pandemic and the related shutdown of the economy led to a dramatic
repricing of financial markets. From mid-February to late March 2020 the S&P 500 declined 34%, the 10-year Treasury fell to all-time lows,
investment grade credit spreads widened 350 basis points, and the U.S. dollar appreciated strongly versus other currencies. In response to the
economic and financial market dislocations, unprecedented fiscal and monetary policies were implemented to offset the economic shock.
These policies along with the development of multiple vaccines helped support the recovery from the COVID-19 pandemic as the year
progressed.
Economic recovery continued in the fourth quarter of 2020 as accommodative monetary policy and additional fiscal stimulus supported
economic activity while the beginning of COVID-19 vaccinations in December 2020 supported the risk on sentiment in financial markets.
The Federal Reserve maintained their commitment to keeping the target rate for federal funds at 0% to 0.25% for the foreseeable future while
continuing to expand their balance sheet holdings by at least $80 billion of treasuries and $40 billion of agency mortgage-backed securities
per month. At the December 2020 FOMC meeting, federal officials indicated balance sheet purchases would continue at the current pace
“until substantial further progress has been made toward the Committee’s maximum employment and price stability goals.” In December
2020, the federal government enacted legislation that provides additional relief for individuals, businesses and hospitals in response to the
economic distress caused by the COVID-19 pandemic. The $900 billion relief legislation included an extension of the Federal Pandemic
Unemployment Compensation program, a new round of stimulus checks for individuals, a second round of the Paycheck Protection Program,
assistance for schools and the transportation sector and funding to assist states with COVID-19 testing and vaccine distribution.
Although COVID-19 cases rose to new records in December 2020, along with hospitalizations and deaths, the start of the vaccination process
supported investors’ expectations for an end of the pandemic in 2021. In addition, the results of the federal elections in November 2020
supported investors’ expectations of additional fiscal stimulus and a robust recovery in the second half of 2021. The bullish sentiment led to
yield curve steepening in the treasury market, all-time high equity valuations, tighter credit spreads and flatter credit curves. The housing
market remained robust as low mortgage rates and tight inventory levels supported the strongest home price growth since 2014, while the
S&P 500 increased 12.15% in the fourth quarter of 2020 and 18.40% for the year ended December 31, 2020. With the rise in asset prices,
household net worth reached a record at the end of the third quarter of 2020, up approximately 7% year-over-year. Lastly, the U.S.
employment picture continued to improve during the fourth quarter of 2020 as the unemployment rate declined from 7.8% to 6.7% despite the
new COVID-19 lockdown restrictions which led to higher unemployment claims and a loss in jobs in the most recent employment report.
COVID-19 Hardship Relief Programs
In response to the COVID-19 pandemic, beginning in March 2020, the Bancorp began providing financial hardship relief to borrowers that
were negatively impacted by the pandemic and its related economic impacts. For retail borrowers, these relief programs included three-month
payment deferrals for non-real estate secured and unsecured portfolios, six-month payment deferrals for home equity loans and lines of credit
and six-month forbearances for residential mortgages. The Bancorp also temporarily waived fees for certain products and services, suspended
initiating any new repossession actions on vehicles and suspended all residential foreclosure activity. In most cases, these offers are not
classified as TDRs and do not result in loans being placed on nonaccrual status. The fee waiver, repossession suspension and payment
deferral programs for non-real estate secured and unsecured and home equity loans and lines of credit were discontinued early in the third
quarter of 2020. However, new programs to assist consumer customers are now being offered to meet the uniqueness of the current economic
environment. These primarily include a short-term hardship program which allows for a reduced payment amount for six months with full
payments resuming thereafter or placement into a loan modification program that could include permanent rate reductions or maturity
extensions.
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The Bancorp currently plans to continue to offer the six-month forbearance program for its residential mortgage borrowers in alignment with
the forbearances offered for federally-backed mortgage loans under the provisions of the CARES Act. Upon completion of the initial six-
month forbearance period for residential mortgage loans, borrowers may request to extend the forbearance period for an additional period of
up to six months. Additionally, the Bancorp will continue to follow the specific GSE guidance for other non-forbearance related COVID-19
pandemic relief programs when servicing its residential mortgage portfolio. These programs include traditional loan modifications and/or
deferral of past due payments to the maturity of the loan. The Bancorp continues to suspend residential foreclosure activity in alignment with
GSE practices. The Bancorp will also be responsive to any legislative changes related to foreclosure activity.
The Bancorp has also offered a variety of relief options to its commercial borrowers that have been impacted by the COVID-19 pandemic.
While these offers are individually negotiated and tailored to each borrower’s specific facts and circumstances, the most commonly offered
relief measures include temporary covenant waivers and/or deferrals of principal and/or interest payments for up to 90 days. After the deferral
program, a customer may have the option to resume normal payments, enter into a formal loan modification program or restructure the loan
arrangement.
For loans that receive a payment deferral or forbearance under these hardship relief programs, the Bancorp continues to accrue interest and
recognize interest income during the period of the deferral. Depending on the terms of each program, all or a portion of this accrued interest
may be paid directly by the borrower (either during the relief period, at the end of the relief period or at maturity of the loan) or added to the
customer’s outstanding balance. For certain programs, the maturity date of the loan may also be extended by the number of payments
deferred. Interest income will continue to be recognized at the original contractual interest rate unless that rate is concurrently modified upon
entering the relief program (in which case, the modified rate would be used to recognize interest).
For commercial leases that receive payment deferrals under the Bancorp’s COVID-19 pandemic hardship relief programs, the Bancorp will
continue to recognize interest income during the deferral period, but the yield will be recalculated based on the timing and amount of
remaining payments over the remaining lease term. The revised yield will be used for prospectively recognizing interest income and adjusting
the net investment in the lease. The Bancorp’s hardship relief programs for commercial leases affect the timing of payments but do not
generally result in an increase in the rights of the lessor or the obligations of the lessee. Therefore, the Bancorp has elected to forego certain
requirements that would typically apply for lease modifications when accounting for the effects of the hardship relief programs. Refer to the
Regulatory Developments Related to the COVID-19 Pandemic section of Note 1 of the Notes to Consolidated Financial Statements for
further information.
As of December 31, 2020, the Bancorp had discontinued new enrollments for its consumer hardship relief programs except for the residential
mortgage forbearance program previously discussed. The remaining consumer loans that were in an active relief period as of December 31,
2020 primarily consisted of borrowers who were previously enrolled in a hardship relief program and then subsequently requested additional
assistance. These extended assistance periods generally provide reduced payments for a period of up to six months and are expected to be
substantially complete in the first quarter of 2021. As previously discussed, residential mortgage borrowers may receive a total forbearance of
up to one year so borrowers will be in active relief periods for a longer period of time. However, the Bancorp currently expects most of its
residential mortgage loans to exit forbearance in the first half of 2021.
96 Fifth Third Bancorp
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following table provides a summary of portfolio loans and leases as of December 31, 2020, by class, that have received payment
deferrals or forbearances as part of the Bancorp’s COVID-19 pandemic hardship relief programs:
TABLE 34: Summary of Portfolio Loans and Leases Enrolled In Hardship Relief Programs
Amortized Cost Basis of Loans and Leases
Total that
Have
Received
Payment
Relief(b)
In Active
Relief
Period(a)
Completed
Relief Period
December 31, 2020 ($ in millions)
Commercial loans:
Current(c)
30-89
Days
Past Due(c)
90 Days or
More
Total Past
Due
Commercial and industrial loans
Commercial mortgage owner-occupied loans
Commercial mortgage nonowner-occupied loans
Commercial construction loans
Commercial leases
Residential mortgage loans(b)
Consumer loans:
Home equity
Indirect secured consumer loans(d)
Credit card
Other consumer loans
Total portfolio loans and leases
$
$
1,355
564
1,081
470
91
859
195
771
110
95
5,591
10
16
97
15
—
615
11
216
25
14
1,019
1,365
580
1,178
485
91
1,474
206
987
135
109
6,610
1,347
575
1,125
485
91
1,243
183
922
109
103
6,183
14
4
27
—
—
53
15
49
12
4
178
4
1
26
—
—
178
8
16
14
2
249
18
5
53
—
—
231
23
65
26
6
427
(a)
Includes loans and leases that are still in the initial payment relief period (primarily residential mortgage and home equity loans) and loans that have requested
additional relief.
(b) Excludes $921 of loans previously sold to GNMA that the Bancorp had the option to repurchase as a result of forbearance, $882 of which were repurchased and
are classified as held for sale.
(c) For loans which are still in an active relief period, past due status is based on the borrower's status as of March 1, 2020, as adjusted based on the borrower’s
(d)
compliance with modified loan terms.
Indirect secured consumer loans which are still in an active relief period as of December 31, 2020 are required to make payments but at a reduced amount from
original contractual terms.
As of December 31, 2020, $1.5 billion of the Bancorp’s residential mortgage loans had been enrolled in a COVID-19 forbearance program
(either active or completed). These loans had a weighted-average FICO score of approximately 690 and a weighted-average origination LTV
of approximately 81%. Approximately 60% of these borrowers made at least one payment since entering forbearance, and 84% of balances
are reported as current as of December 31, 2020. The Bancorp had $615 million of these loans in an active relief period as of December 31,
2020 and these loans had a weighted-average FICO score of approximately 660 and a weighted-average origination LTV of approximately
83%. Approximately one third of borrowers in an active forbearance period have made at least one payment since entering forbearance and
approximately 85% of the residential mortgage loans still in an active relief period have completed the initial six-month forbearance period
and have requested an extended forbearance for up to an additional six months.
97 Fifth Third Bancorp
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Commercial Portfolio
The Bancorp’s credit risk management strategy seeks to minimize concentrations of risk through diversification. The Bancorp has
commercial loan concentration limits based on industry, lines of business within the commercial segment, geography and credit product type.
The risk within the commercial loan and lease portfolio is managed and monitored through an underwriting process utilizing detailed
origination policies, continuous loan level reviews, monitoring of industry concentration and product type limits and continuous portfolio risk
management reporting.
The Bancorp provides loans to a variety of customers ranging from large multinational firms to middle market businesses, sole proprietors
and high net worth individuals. The origination policies for commercial and industrial loans outline the risks and underwriting requirements
for loans to businesses in various industries. Included in the policies are maturity and amortization terms, collateral and leverage
requirements, cash flow coverage measures and hold limits. The Bancorp aligns credit and sales teams with specific industry expertise to
better monitor and manage different industry segments of the portfolio.
Certain industries have experienced increased stress due to the COVID-19 pandemic. These include consumer-driven industries that require
gathering or congregation such as leisure and recreation (including casinos, restaurants, sports, fitness, hotels and other industries), non-
essential retail and leisure travel (primarily including airlines and cruise lines). Certain segments of the healthcare industry (including skilled
nursing, physician offices and surgery/outpatient centers, among others) have also been impacted by the pandemic given delays and
restrictions on in-person visits and elective procedures. The following table presents industries impacted the most severely within the
Bancorp’s commercial and industrial and commercial real estate loan portfolios as of December 31, 2020:
TABLE 35: Industries Impacted the Most Severely by the COVID-19 Pandemic
($ in millions)
Commercial and industrial loans:(a)
Exposure
Balance
Leisure and recreation(c)
Healthcare
Retail - non-essential
Leisure travel
Total commercial and industrial loans
Commercial real estate loans:
Leisure and recreation(c)
Healthcare
Retail - non-essential
Total commercial real estate loans
Total
$
$
3,827
834
690
416
5,767
2,225
1,647
1,242
5,114
10,881
7,254
1,560
3,043
585
12,442
2,568
2,025
1,335
5,928
18,370
(a) Excludes PPP loans.
(b) As defined by the North American Industry Classification System.
(c) Balances include exposures to casinos, restaurants, sports, fitness, hotels and other.
Industry Classification(b)
Accommodation and food / Entertainment and recreation
Healthcare
Retail trade
Transportation and warehousing
Accommodation and food / Entertainment and recreation
Healthcare
Real estate
Additionally, the Bancorp’s energy loan portfolio of $2.6 billion for oil and gas production and related industries was also impacted by
significant declines in oil prices during the year ended December 31, 2020.
98 Fifth Third Bancorp
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following table provides detail on commercial loans and leases by industry classification (as defined by the North American Industry
Classification System), by loan size and by state, illustrating the diversity and granularity of the Bancorp’s commercial loans and leases:
TABLE 36: Commercial Loan and Lease Portfolio (excluding loans and leases held for sale)
As of December 31 ($ in millions)
By Industry:
Real estate
Manufacturing
Financial services and insurance
Business services
Healthcare
Wholesale trade
Accommodation and food
Retail trade
Communication and information
Transportation and warehousing
Construction
Mining
Entertainment and recreation
Other services
Utilities
Public administration
Agribusiness
Other
Individuals
Total
By Loan Size:
Less than $1 million
$1 million to $5 million
$5 million to $10 million
$10 million to $25 million
$25 million to $50 million
Greater than $50 million
Total
By State:
Illinois
Ohio
Florida
Michigan
Indiana
Georgia
North Carolina
Tennessee
Kentucky
Other
Total
Outstanding
2020
Exposure
Nonaccrual
Outstanding
2019
Exposure
Nonaccrual
$
$
11,416
10,699
6,868
5,344
5,168
4,204
4,166
3,651
3,128
2,846
2,631
2,626
2,248
1,362
1,162
880
394
127
77
68,997
7 %
9
7
18
24
35
100 %
14 %
11
8
6
4
3
3
2
2
47
100 %
16,865
21,986
15,113
9,114
7,874
7,990
6,600
8,871
5,802
4,596
6,053
4,171
3,537
1,770
3,011
1,428
616
129
123
125,649
5
7
6
16
23
43
100
12
12
7
6
4
4
2
3
2
48
100
143
68
—
66
41
25
35
6
39
13
4
94
84
7
—
—
10
2
1
638
10
18
14
27
31
—
100
28
4
1
7
1
7
3
1
4
44
100
11,320
11,996
7,214
5,170
4,984
4,502
3,745
3,948
3,166
2,880
2,526
3,046
1,905
1,224
991
782
344
151
64
69,958
4
9
7
20
24
36
100
15
10
7
6
4
3
3
3
2
47
100
16,993
22,079
15,398
8,579
7,206
7,715
6,525
8,255
5,567
4,996
5,327
4,966
3,327
1,662
2,672
1,107
554
153
128
123,209
3
7
6
17
24
43
100
12
11
7
6
4
4
3
3
2
48
100
9
87
—
75
38
17
21
39
2
12
4
37
40
4
—
—
9
3
—
397
10
22
11
27
30
—
100
18
6
6
7
2
11
10
1
9
30
100
The origination policies for commercial real estate outline the risks and underwriting requirements for owner and nonowner-occupied and
construction lending. Included in the policies are maturity and amortization terms, maximum LTVs, minimum debt service coverage ratios,
construction loan monitoring procedures, appraisal requirements, pre-leasing requirements (as applicable), pro forma analysis requirements
and interest rate sensitivity. The Bancorp requires a valuation of real estate collateral, which may include third-party appraisals, be performed
at the time of origination and renewal in accordance with regulatory requirements and on an as-needed basis when market conditions justify.
Although the Bancorp does not back test these collateral value assumptions, the Bancorp maintains an appraisal review department to order
and review third-party appraisals in accordance with regulatory requirements. Collateral values on criticized assets with relationships
exceeding $1 million are reviewed quarterly to assess the appropriateness of the value ascribed in the assessment of charge-offs and specific
reserves.
99 Fifth Third Bancorp
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The Bancorp assesses all real estate and non-real estate collateral securing a loan and considers all cross-collateralized loans in the calculation
of the LTV ratio. The following tables provide detail on the most recent LTV ratios for commercial mortgage loans greater than $1 million,
excluding commercial mortgage loans that are individually evaluated. The Bancorp does not typically aggregate the LTV ratios for
commercial mortgage loans less than $1 million.
TABLE 37: Commercial Mortgage Loans Outstanding by LTV, Loans Greater Than $1 Million
As of December 31, 2020 ($ in millions)
Commercial mortgage owner-occupied loans
Commercial mortgage nonowner-occupied loans
Total
$
$
LTV > 100%
LTV 80-100%
LTV < 80%
121
51
172
310
72
382
3,209
4,757
7,966
TABLE 38: Commercial Mortgage Loans Outstanding by LTV, Loans Greater Than $1 Million
As of December 31, 2019 ($ in millions)
Commercial mortgage owner-occupied loans
Commercial mortgage nonowner-occupied loans
Total
LTV > 100%
126
58
184
$
$
LTV 80-100%
393
107
500
LTV < 80%
3,199
4,562
7,761
The Bancorp views non-owner-occupied commercial real estate as a higher credit risk product compared to some other commercial loan
portfolios due to the higher volatility of the industry.
The following tables provide an analysis of nonowner-occupied commercial real estate loans by state (excluding loans held for sale):
TABLE 39: Nonowner-Occupied Commercial Real Estate (excluding loans held for sale)(a)
As of December 31, 2020 ($ in millions)
Outstanding
Exposure
90 Days
Past Due
Nonaccrual
Net Charge-offs
For the Year Ended
December 31, 2020
By State:
Illinois
Ohio
Florida
North Carolina
Michigan
Indiana
Georgia
All other states
Total
$
$
2,844
1,405
1,132
854
810
580
424
2,981
11,030
3,375
1,990
1,668
1,124
926
1,029
924
4,539
15,575
1
—
—
—
—
—
—
—
1
45
4
—
2
1
—
1
25
78
6
—
—
—
—
—
—
35
41
(a)
Included in commercial mortgage loans and commercial construction loans in the Loans and Leases subsection of the Balance Sheet Analysis section of MD&A.
TABLE 40: Nonowner-Occupied Commercial Real Estate (excluding loans held for sale)(a)
As of December 31, 2019 ($ in millions)
Outstanding
Exposure
90 Days
Past Due
Nonaccrual
Net Charge-offs
For the Year Ended
December 31, 2019
By State:
Illinois
Ohio
Florida
North Carolina
Michigan
Indiana
Georgia
All other states
Total
$
$
3,097
1,402
951
635
714
582
351
2,883
10,615
3,639
1,861
1,605
1,040
849
865
897
4,569
15,325
6
—
—
—
—
—
—
—
6
—
1
—
—
—
—
—
—
1
2
—
—
—
—
—
—
—
2
(a)
Included in commercial mortgage loans and commercial construction loans in the Loans and Leases subsection of the Balance Sheet Analysis section of MD&A.
100 Fifth Third Bancorp
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Consumer Portfolio
Consumer credit risk management utilizes a framework that encompasses consistent processes for identifying, assessing, managing,
monitoring and reporting credit risk. These processes are supported by a credit risk governance structure that includes Board oversight,
policies, risk limits and risk committees.
The Bancorp’s consumer portfolio is materially comprised of five categories of loans: residential mortgage loans, home equity, indirect
secured consumer loans, credit card and other consumer loans. The Bancorp has identified certain credit characteristics within these five
categories of loans which it believes represent a higher level of risk compared to the rest of the consumer loan portfolio. The Bancorp does
not update LTVs for the consumer portfolio subsequent to origination except as part of the charge-off process for real estate secured loans.
Credit risk management continues to closely monitor the indirect secured consumer portfolio performance, which includes automobile loans.
The automobile market has exhibited industry-wide gradual loosening of credit standards such as lower FICOs, longer terms and higher
LTVs. The Bancorp has adjusted credit standards focused on improving risk-adjusted returns while maintaining credit risk tolerance. The
Bancorp actively manages the automobile portfolio through concentration limits, which mitigate credit risk through limiting the exposure to
lower FICO scores, higher advance rates and extended term originations.
Additionally, the Bancorp enhanced its credit underwriting guidelines across the entire consumer portfolio in response to the economic stress
created by the COVID-19 pandemic. The Bancorp routinely and consistently evaluates underwriting practices to align with economic
conditions as part of standard risk management protocols. The Bancorp will continue to evaluate these practices based on underlying
economic factors and internal considerations.
Residential mortgage portfolio
The Bancorp manages credit risk in the residential mortgage portfolio through underwriting guidelines that limit exposure to higher LTVs and
lower FICO scores. Additionally, the portfolio is governed by concentration limits that ensure geographic, product and channel
diversification. The Bancorp may also package and sell loans in the portfolio.
The Bancorp does not originate residential mortgage loans that permit customers to defer principal payments or make payments that are less
than the accruing interest. The Bancorp originates both fixed-rate and ARM loans. Within the ARM portfolio approximately $559 million of
ARM loans will have rate resets during the next twelve months. Of these resets, 6% are expected to experience an increase in rate, with an
average increase of approximately 0.4%. Underlying characteristics of these borrowers are relatively strong with a weighted-average
origination DTI of 32% and weighted-average origination LTV of 71%.
Certain residential mortgage products have contractual features that may increase credit exposure to the Bancorp in the event of a decline in
housing values. These types of mortgage products offered by the Bancorp include loans with high LTVs, multiple loans secured by the same
collateral that when combined result in an LTV greater than 80% and interest-only loans. The Bancorp has deemed residential mortgage loans
with greater than 80% LTVs and no mortgage insurance as loans that represent a higher level of risk.
Portfolio residential mortgage loans from 2010 and later vintages represented 94% of the portfolio as of December 31, 2020 and had a
weighted-average origination LTV of 73% and a weighted-average origination FICO of 762.
In response to the COVID-19 pandemic, the Bancorp has provided forbearances for up to six months for customers who are experiencing a
hardship related to COVID-19, with an option for borrowers to extend the forbearance period for an additional period of up to six months
upon request. Additionally, the Bancorp has maintained tighter credit underwriting guidelines for new originations, raising the minimum
FICO score at origination to 680 and lowering the maximum allowable LTV to 80%. For further information on reporting of past due loans,
refer to Note 1 of the Notes to Consolidated Financial Statements.
The following table provides an analysis of the residential mortgage portfolio loans outstanding by LTV at origination:
TABLE 41: Residential Mortgage Portfolio Loans by LTV at Origination
As of December 31 ($ in millions)
LTV ≤ 80%
LTV > 80%, with mortgage insurance(a)
LTV > 80%, no mortgage insurance
Total
(a)
Includes loans with both borrower and lender paid mortgage insurance.
2020
2019
Outstanding
Weighted-
Average LTV
Outstanding
Weighted-
Average LTV
$
$
11,336
2,535
2,057
15,928
65.2 % $
95.5
91.1
73.9 % $
12,100
2,373
2,251
16,724
66.3 %
95.2
93.1
74.3 %
101 Fifth Third Bancorp
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following tables provide an analysis of the residential mortgage portfolio loans outstanding by state with a greater than 80% LTV at
origination and no mortgage insurance:
TABLE 42: Residential Mortgage Portfolio Loans, LTV Greater Than 80% at Origination, No Mortgage Insurance
As of December 31, 2020 ($ in millions)
By State:
Ohio
Illinois
Florida
Michigan
Indiana
North Carolina
Kentucky
All other states
Total
Outstanding
90 Days
Past Due
Nonaccrual
Net Charge-offs
For the Year Ended
December 31, 2020
$
$
459
410
306
180
147
139
92
324
2,057
4
3
1
2
1
2
1
3
17
4
1
2
1
1
—
—
2
11
2
—
—
—
—
—
—
—
2
TABLE 43: Residential Mortgage Portfolio Loans, LTV Greater Than 80% at Origination, No Mortgage Insurance
As of December 31, 2019 ($ in millions)
By State:
Ohio
Illinois
Florida
Michigan
Indiana
North Carolina
Kentucky
All other states
Total
Outstanding
90 Days
Past Due
Nonaccrual
For the Year Ended
December 31, 2019
Net Charge-offs
(Recoveries)
$
$
482
468
305
217
175
139
93
372
2,251
3
2
2
2
1
—
—
3
13
4
3
1
1
1
2
—
3
15
1
1
(1)
—
—
—
—
1
2
Home equity portfolio
The Bancorp’s home equity portfolio is primarily comprised of home equity lines of credit. Beginning in the first quarter of 2013, the
Bancorp’s newly originated home equity lines of credit have a 10-year interest-only draw period followed by a 20-year amortization period.
The home equity line of credit previously offered by the Bancorp was a revolving facility with a 20-year term, minimum payments of
interest-only and a balloon payment of principal at maturity. Peak maturity years for the balloon home equity lines of credit are 2025 to 2028
and approximately 23% of the balances mature before 2025.
The ALLL provides coverage for expected losses in the home equity portfolio. The allowance attributable to the portion of the home equity
portfolio that has not been restructured in a TDR is determined on a pooled basis using a probability of default, loss given default and
exposure at default model framework to generate expected losses. The expected losses for the home equity portfolio are dependent upon loan
delinquency, FICO scores, LTV, loan age and their historical correlation with macroeconomic variables including unemployment and the
home price index. The expected losses generated from models are adjusted by certain qualitative adjustment factors to reflect risks associated
with current conditions and trends. The qualitative factors include adjustments for changes in policies or procedures in underwriting,
monitoring or collections, economic conditions, portfolio mix, lending and risk management personnel, results of internal audit and quality
control reviews, collateral values and geographic concentrations.
The home equity portfolio is managed in two primary groups: loans outstanding with a combined LTV greater than 80% and those loans with
an LTV of 80% or less based upon appraisals at origination. For additional information on these loans, refer to Table 45 and Table 46. Of the
total $5.2 billion of outstanding home equity loans:
•
•
•
•
80% reside within the Bancorp’s Midwest footprint of Ohio, Michigan, Kentucky, Indiana and Illinois as of December 31, 2020;
39% are in senior lien positions and 61% are in junior lien positions at December 31, 2020;
78% of non-delinquent borrowers made at least one payment greater than the minimum payment during the year ended
December 31, 2020; and
The portfolio had a weighted-average refreshed FICO score of 748 at December 31, 2020.
102 Fifth Third Bancorp
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The Bancorp actively manages lines of credit and makes adjustments in lending limits when it believes it is necessary based on FICO score
deterioration and property devaluation. The Bancorp does not routinely obtain appraisals on performing loans to update LTVs after
origination. However, the Bancorp monitors the local housing markets by reviewing various home price indices and incorporates the impact
of the changing market conditions in its ongoing credit monitoring processes. For junior lien home equity loans which become 60 days or
more past due, the Bancorp tracks the performance of the senior lien loans in which the Bancorp is the servicer and utilizes consumer credit
bureau attributes to monitor the status of the senior lien loans that the Bancorp does not service. If the senior lien loan is found to be 120 days
or more past due, the junior lien home equity loan is placed on nonaccrual status unless both loans are well-secured and in the process of
collection. Additionally, if the junior lien home equity loan becomes 120 days or more past due and the senior lien loan is also 120 days or
more past due, the junior lien home equity loan is assessed for charge-off. Refer to the Analysis of Nonperforming Assets subsection of the
Risk Management section of MD&A for more information.
The Bancorp has enhanced its credit underwriting guidelines on new home equity originations in response to the COVID-19 pandemic,
raising the minimum FICO score at origination to 720, lowering the maximum LTV to 80% and instituting more stringent verification of
employment requirements. Additionally, applicants must have a Fifth Third deposit relationship to be considered for approval.
The following table provides an analysis of home equity portfolio loans outstanding disaggregated based upon refreshed FICO score:
TABLE 44: Home Equity Portfolio Loans Outstanding by Refreshed FICO Score
As of December 31 ($ in millions)
Senior Liens:
FICO ≤ 659
FICO 660-719
FICO ≥ 720
Total senior liens
Junior Liens:
FICO ≤ 659
FICO 660-719
FICO ≥ 720
Total junior liens
Total
2020
2019
Outstanding
% of Total
Outstanding
% of Total
$
$
174
284
1,546
2,004
339
610
2,230
3,179
5,183
3 % $
6
30
39
6
12
43
61
100 % $
219
330
1,732
2,281
446
716
2,640
3,802
6,083
4 %
5
28
37
7
12
44
63
100 %
The Bancorp believes that home equity portfolio loans with a greater than 80% combined LTV present a higher level of risk. The following
table provides an analysis of the home equity portfolio loans outstanding in a senior and junior lien position by LTV at origination:
TABLE 45: Home Equity Portfolio Loans Outstanding by LTV at Origination
As of December 31 ($ in millions)
Senior Liens:
LTV ≤ 80%
LTV > 80%
Total senior liens
Junior Liens:
LTV ≤ 80%
LTV > 80%
Total junior liens
Total
2020
2019
Outstanding
Weighted-
Average LTV
Outstanding
Weighted-
Average LTV
$
$
1,728
276
2,004
1,864
1,315
3,179
5,183
53.8 % $
89.1
58.8
66.5
89.8
77.1
69.8 % $
1,964
317
2,281
2,213
1,589
3,802
6,083
53.8 %
88.8
58.9
66.8
89.7
77.4
70.3 %
103 Fifth Third Bancorp
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following tables provide an analysis of home equity portfolio loans outstanding by state with a combined LTV greater than 80% at
origination:
TABLE 46: Home Equity Portfolio Loans Outstanding with an LTV Greater than 80% at Origination
As of December 31, 2020 ($ in millions)
By State:
Ohio
Michigan
Illinois
Indiana
Kentucky
Florida
All other states
Total
Outstanding
Exposure
90 Days
Past Due
Nonaccrual
For the Year Ended
December 31, 2020
Net Charge-offs
(Recoveries)
$
$
493
283
251
148
126
113
177
1,591
1,109
590
468
318
280
220
347
3,332
—
—
2
—
—
—
—
2
9
4
7
3
1
3
4
31
1
(1)
—
—
—
—
—
—
TABLE 47: Home Equity Portfolio Loans Outstanding with an LTV Greater than 80% at Origination
As of December 31, 2019 ($ in millions)
By State:
Ohio
Michigan
Illinois
Indiana
Kentucky
Florida
All other states
Total
Outstanding
Exposure
90 Day
Past Due
Nonaccrual
Net Charge-offs
For the Year Ended
December 31, 2019
$
$
610
356
263
182
155
132
208
1,906
1,269
674
486
365
321
246
389
3,750
—
—
—
—
—
—
—
—
10
7
5
4
2
3
4
35
3
1
3
1
—
1
1
10
Indirect secured consumer portfolio
The indirect secured consumer portfolio is comprised of $12.6 billion of automobile loans and $1.0 billion of indirect motorcycle,
powersport, recreational vehicle and marine loans as of December 31, 2020. The concentration of lower FICO (≤659) origination balances
remained within targeted credit risk tolerance during the year ended December 31, 2020. All concentration and guideline changes are
monitored monthly to ensure alignment with original credit performance and return projections.
The following table provides an analysis of indirect secured consumer portfolio loans outstanding disaggregated based upon FICO score at
origination:
TABLE 48: Indirect Secured Consumer Portfolio Loans Outstanding by FICO Score at Origination
As of December 31 ($ in millions)
FICO ≤ 659
FICO 660-719
FICO ≥ 720
Total
2020
2019
Outstanding
% of Total
Outstanding
% of Total
$
$
417
3,568
9,668
13,653
3 % $
26
71
100 % $
508
3,449
7,581
11,538
4 %
30
66
100 %
As of December 31, 2020, 94% of the indirect secured consumer loan portfolio is comprised of automobile loans, powersport loans and
motorcycle loans. It is a common industry practice to advance on these types of loans an amount in excess of the collateral value due to the
inclusion of negative equity trade-in, maintenance/warranty products, taxes, title and other fees paid at closing. The Bancorp monitors its
exposure to these higher risk loans. The remainder of the indirect secured consumer loan portfolio is comprised of marine and recreational
vehicle loans. The Bancorp’s credit policies limit the maximum advance rate on these to 100% of collateral value.
In response to the COVID-19 pandemic, the Bancorp enhanced its credit underwriting guidelines for indirect automobile originations. These
enhancements include lowering maximum advance rates to 110%, raising the minimum FICO score at origination to 650, raising internal
104 Fifth Third Bancorp
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
score cutoffs and tightening capacity to repay standards. Revised credit underwriting guidelines have also been implemented in the marine,
recreational vehicle and powersport channels, raising the minimum FICO score at origination and reducing the maximum allowable advance.
The following table provides an analysis of indirect secured consumer portfolio loans outstanding by LTV at origination:
TABLE 49: Indirect Secured Consumer Portfolio Loans Outstanding by LTV at Origination
2020
2019
As of December 31 ($ in millions)
LTV ≤ 100%
LTV > 100%
Total
Outstanding
Weighted-
Average LTV
Outstanding
Weighted-
Average LTV
$
$
9,371
4,282
13,653
80.3 % $
112.7
90.8 % $
7,420
4,118
11,538
81.3 %
113.4
93.1 %
The following table provides an analysis of the Bancorp’s indirect secured consumer portfolio loans outstanding with an LTV at origination
greater than 100% as of and for the years ended:
TABLE 50: Indirect Secured Consumer Portfolio Loans Outstanding with an LTV Greater than 100% at Origination
($ in millions)
December 31, 2020
December 31, 2019
Outstanding
90 Days Past
Due and Accruing
Nonaccrual
$
4,282
4,118
6
7
Net Charge-offs
26
37
10
4
Credit card portfolio
The credit card portfolio consists of predominantly prime accounts with 97% of balances existing within the Bancorp’s footprint at both
December 31, 2020 and December 31, 2019. At December 31, 2020 and 2019, 69% and 67%, respectively, of the outstanding balances were
originated through branch-based relationships with the remainder coming from direct mail campaigns and online acquisitions.
Card origination strategies have also been revised in response to the COVID-19 pandemic. The minimum FICO score at origination was
raised to 720 with a qualifying Fifth Third deposit relationship requirement. New customer prospect marketing has also been suspended.
The following table provides an analysis of credit card portfolio loans outstanding disaggregated based upon FICO score at origination:
TABLE 51: Credit Card Portfolio Loans Outstanding by FICO Score at Origination
As of December 31 ($ in millions)
FICO ≤ 659
FICO 660-719
FICO ≥ 720
Total
2020
2019
Outstanding
% of Total
Outstanding
% of Total
$
$
94
654
1,259
2,007
5 % $
32
63
100 % $
107
834
1,591
2,532
4 %
33
63
100 %
Other consumer portfolio loans
Other consumer portfolio loans are comprised of secured and unsecured loans originated through the Bancorp’s branch network as well as
point-of-sale loans originated in connection with third-party financial technology companies. The Bancorp had $285 million in unfunded
commitments associated with loans originated in connection with third-party financial technology companies as of December 31, 2020. The
Bancorp closely monitors the credit performance of point-of-sale loans which, for the Bancorp, is impacted by certain credit loss protection
coverage provided by the third-party financial technology companies.
In response to the COVID-19 pandemic, the minimum FICO score at origination for unsecured loans originated through Fifth Third has been
raised to 720. The minimum FICO scores at originations for loans originated through third parties is now set at 680. Additionally, for Fifth
Third originated unsecured loans, a qualifying Fifth Third deposit relationship is now required.
The following table provides an analysis of other consumer portfolio loans outstanding by product type:
TABLE 52: Other Consumer Portfolio Loans Outstanding by Product Type
As of December 31 ($ in millions)
Unsecured
Other secured
Point-of-sale
Total
2020
2019
Outstanding
% of Total
Outstanding
% of Total
$
$
683
774
1,557
3,014
23 % $
26
51
100 % $
783
530
1,410
2,723
29 %
19
52
100 %
105 Fifth Third Bancorp
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Analysis of Nonperforming Assets
Nonperforming assets include nonaccrual loans and leases for which ultimate collectability of the full amount of the principal and/or interest
is uncertain; restructured commercial, credit card and certain consumer loans which have not yet met the requirements to be classified as a
performing asset; restructured consumer loans which are 90 days past due based on the restructured terms unless the loan is both well-secured
and in the process of collection; and certain other assets, including OREO and other repossessed property. A summary of nonperforming
assets is included in Table 53. For further information on the Bancorp’s policies related to accounting for delinquent and nonperforming loans
and leases, refer to the Nonaccrual Loans and Leases section of Note 1 of the Notes to Consolidated Financial Statements.
Nonperforming assets were $870 million at December 31, 2020 compared to $687 million at December 31, 2019. At December 31, 2020, $6
million of nonaccrual loans were held for sale, compared to $7 million at December 31, 2019.
Nonperforming portfolio assets as a percent of portfolio loans and leases and OREO were 0.79% as of December 31, 2020 compared to
0.62% as of December 31, 2019. Nonaccrual loans and leases secured by real estate were 36% of nonaccrual loans and leases as of December
31, 2020 compared to 35% as of December 31, 2019.
Portfolio commercial nonaccrual loans and leases were $638 million at December 31, 2020, an increase of $241 million from December 31,
2019. Portfolio consumer nonaccrual loans were $196 million at December 31, 2020, a decrease of $25 million from December 31, 2019.
Refer to Table 54 for a rollforward of the portfolio nonaccrual loans and leases.
OREO and other repossessed property was $30 million at December 31, 2020, compared to $62 million at December 31, 2019. The Bancorp
recognized $7 million and $6 million in losses on the transfer, sale or write-down of OREO properties during the years ended December 31,
2020 and 2019, respectively.
During the years ended December 31, 2020 and 2019, approximately $38 million and $35 million, respectively, of interest income would
have been recognized if the nonaccrual and renegotiated loans and leases on nonaccrual status had been current in accordance with their
original terms. Although these values help demonstrate the costs of carrying nonaccrual credits, the Bancorp does not expect to recover the
full amount of interest as nonaccrual loans and leases are generally carried below their principal balance.
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TABLE 53: Summary of Nonperforming Assets and Delinquent Loans and Leases
2020
2019
2018
2017
2016
As of December 31 ($ in millions)
Nonaccrual portfolio loans and leases:
Commercial and industrial loans
Commercial mortgage loans
Commercial construction loans
Commercial leases
Residential mortgage loans(a)
Home equity
Indirect secured consumer loans
Other consumer loans
Nonaccrual portfolio restructured loans and leases:
Commercial and industrial loans
Commercial mortgage loans
Commercial construction loans
Commercial leases
Residential mortgage loans(a)
Home equity
Indirect secured consumer loans
Credit card
Total nonaccrual portfolio loans and leases(b)
OREO and other repossessed property(c)
Total nonperforming portfolio loans and leases and
OREO
Nonaccrual loans held for sale
Nonaccrual restructured loans held for sale
Total nonperforming assets
Portfolio loans and leases 90 days past due and still
accruing:
Commercial and industrial loans
Commercial mortgage loans
Commercial leases
Residential mortgage loans(a)
Home equity
Indirect secured consumer loans
Credit card
Other consumer loans
$
$
$
230
82
—
7
25
52
9
2
243
75
1
—
35
34
7
32
834
30
864
5
1
870
39
8
1
70
2
10
31
2
Total portfolio loans and leases 90 days past due and
still accruing
Nonperforming portfolio assets as a percent of
portfolio loans and leases and OREO
ALLL as a percent of nonperforming portfolio assets
ACL as a percent of nonperforming portfolio assets
$
163
0.79 %
284
304
118
21
1
26
12
55
1
2
220
9
—
2
79
39
6
27
618
62
680
—
7
687
11
15
—
50
1
10
42
1
130
0.62
177
198
54
9
—
18
10
56
—
1
139
4
—
4
12
13
1
27
348
47
395
—
16
411
4
2
—
38
—
12
37
—
93
0.41
279
317
144
12
—
—
17
56
—
—
132
14
—
4
13
18
1
26
437
52
489
5
1
495
3
—
—
57
—
10
27
—
97
0.53
245
274
302
27
—
2
17
55
—
—
176
14
—
2
17
18
2
28
660
78
738
4
9
751
4
—
—
49
—
9
22
—
84
0.80
170
190
(a)
(b)
Information for all periods presented excludes advances made pursuant to servicing agreements for GNMA mortgage pools whose repayments are insured by the
FHA or guaranteed by the VA. These advances were $317, $261, $195, $290 and $312 as of December 31, 2020, 2019, 2018, 2017 and 2016, respectively. The
Bancorp recognized losses of $3, $4, $5, $5 and $6 for the years ended December 31, 2020, 2019, 2018, 2017 and 2016, respectively.
Includes $29, $16, $6, $3 and $4 of nonaccrual government insured commercial loans whose repayments are insured by the SBA at December 31, 2019, 2019,
2018, 2017 and 2016, respectively, of which $17, $11, $2, $3 and $1 were restructured nonaccrual government insured commercial loans at December 31, 2020,
2019, 2018, 2017 and 2016, respectively.
(c) Upon completion of Fifth Third Bank’s conversion to a national charter in 2019, the Bancorp conformed to OCC guidance with regard to branch-related real
estate no longer intended to be used for banking purposes. The impact of the change resulted in an increase to OREO of approximately $30 million with an
offsetting reduction to bank premises and equipment.
107 Fifth Third Bancorp
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The following tables provide a rollforward of portfolio nonaccrual loans and leases, by portfolio segment:
TABLE 54: Rollforward of Portfolio Nonaccrual Loans and Leases
For the year ended December 31, 2020 ($ in millions)
Balance, beginning of period
Transfers to nonaccrual status
Transfers to accrual status
Transfers to held for sale
Loan paydowns/payoffs
Transfers to OREO
Charge-offs
Draws/other extensions of credit
Balance, end of period
TABLE 55: Rollforward of Portfolio Nonaccrual Loans and Leases
For the year ended December 31, 2019 ($ in millions)
Balance, beginning of period
Transfers to nonaccrual status
Acquired nonaccrual loans
Transfers to accrual status
Transfers to held for sale
Loan paydowns/payoffs
Transfers to OREO
Charge-offs
Draws/other extensions of credit
Balance, end of period
Commercial
Residential
Mortgage
Consumer
Total
397
794
(34)
(46)
(216)
(1)
(282)
26
638
91
136
(149)
—
(8)
(7)
(3)
—
60
130
170
(85)
—
(47)
—
(34)
2
136
618
1,100
(268)
(46)
(271)
(8)
(319)
28
834
Commercial
Residential
Mortgage
Consumer
Total
228
456
8
—
(17)
(165)
(5)
(127)
19
397
22
107
—
(20)
—
(9)
(7)
(2)
—
91
98
176
—
(72)
—
(30)
(4)
(38)
—
130
348
739
8
(92)
(17)
(204)
(16)
(167)
19
618
$
$
$
$
Troubled Debt Restructurings
A loan is accounted for as a TDR if the Bancorp, for economic or legal reasons related to the borrower’s financial difficulties, grants a
concession to the borrower that it would not otherwise consider. TDRs include concessions granted under reorganization, arrangement or
other provisions of the Federal Bankruptcy Act. A TDR typically involves a modification of terms such as a reduction of the stated interest
rate or remaining principal amount of the loan, a reduction of accrued interest or an extension of the maturity date at a stated interest rate
lower than the current market rate for a new loan with similar risk.
At the time of modification, the Bancorp maintains certain consumer loan TDRs (including certain residential mortgage loans, home equity
loans and other consumer loans) on accrual status, provided there is reasonable assurance of repayment and performance according to the
modified terms based upon a current, well-documented credit evaluation. Loans discharged in a Chapter 7 bankruptcy and not reaffirmed by
the borrower are classified as collateral-dependent TDRs and placed on nonaccrual status regardless of the borrower’s payment history or
capacity to repay in the future. These loans are returned to accrual status provided there is a sustained payment history of twelve months after
bankruptcy and collectability is reasonably assured for all remaining contractual payments. Commercial loans modified as part of a TDR are
maintained on accrual status provided there is a sustained payment history of six months or greater prior to the modification in accordance
with the modified terms and all remaining contractual payments under the modified terms are reasonably assured of collection. TDRs of
commercial loans and credit card loans that do not have a sustained payment history of six months or greater in accordance with the modified
terms remain on nonaccrual status until a six-month payment history is sustained. Refer to the Regulatory Developments Related to the
COVID-19 Pandemic section of Note 1 of the Notes to Consolidated Financial Statements for additional information on loans that were
modified related to the COVID-19 pandemic but not classified as TDRs.
Consumer restructured loans on accrual status totaled $796 million and $965 million at December 31, 2020 and 2019, respectively. As of
December 31, 2020, the percentage of restructured residential mortgage loans, home equity loans, and credit card loans that are past due 30
days or more from their modified terms were 27%, 19% and 31%, respectively.
108 Fifth Third Bancorp
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following tables summarize portfolio TDRs by loan type and delinquency status:
TABLE 56: Accruing and Nonaccruing Portfolio TDRs
As of December 31, 2020 ($ in millions)
Commercial loans(a)
Residential mortgage loans(b)
Home equity
Indirect secured consumer loans
Credit card
Total
Accruing(d)
30-89 Days
Past Due
Current
$
$
92
462
171
5
15
745
—
32
7
—
2
41
90 Days or
More Past Due
—
102
—
—
—
102
Nonaccruing(c)
319
35
34
7
32
427
Total
411
631
212
12
49
1,315
(a) Excludes restructured nonaccrual loans held for sale.
(b)
Information includes advances made pursuant to servicing agreements for GNMA mortgage pools whose repayments are insured by the FHA or guaranteed by the
VA. As of December 31, 2020, these advances represented $276 of current loans, $28 of 30-89 days past due loans and $78 of 90 days or more past due loans.
(c) Excludes approximately $3 of residential mortgage loans that were modified prior to repurchase.
(d) Excludes approximately $142 of residential mortgage loans that were modified prior to repurchase.
TABLE 57: Accruing and Nonaccruing Portfolio TDRs
As of December 31, 2019 ($ in millions)
Commercial loans(a)
Residential mortgage loans(b)
Home equity
Indirect secured consumer loans
Credit card
Total(c)
Accruing
30-89 Days
Past Due
Current
$
$
23
552
199
6
14
794
—
49
8
—
3
60
90 Days or
More Past Due
—
134
—
—
—
134
Nonaccruing
Total
231
79
39
6
27
382
254
814
246
12
44
1,370
(a) Excludes restructured nonaccrual loans held for sale.
(b)
Information includes advances made pursuant to servicing agreements for GNMA mortgage pools whose repayments are insured by the FHA or guaranteed by the
VA. As of December 31, 2020, these advances represented $321 of current loans, $40 of 30-89 days past due loans and $109 of 90 days or more past due loans.
(c) Upon completion of Fifth Third Bank’s conversion to a national charter, the Bancorp conformed to OCC guidance with regard to non-reaffirmed loans included
in Chapter 7 bankruptcy filings to be accounted for as TDRs and collateral dependent loans regardless of payment history and capacity to pay in the future. The
impact of the change resulted in an increase to TDRs of approximately $105, of which $83 were transferred to nonaccrual status.
Analysis of Net Loan Charge-offs
Net charge-offs were 42 bps and 35 bps of average portfolio loans and leases for the years ended December 31, 2020 and 2019, respectively.
Table 58 provides a summary of credit loss experience and net charge-offs as a percentage of average portfolio loans and leases outstanding
by loan category.
The ratio of commercial loan and lease net charge-offs to average portfolio commercial loans and leases increased to 36 bps during the year
ended December 31, 2020, compared to 16 bps during the year ended December 31, 2019. The increase was primarily due to increases in net
charge-offs on commercial and industrial loans and commercial mortgage loans of $95 million and $47 million, respectively.
The ratio of consumer loan net charge-offs to average portfolio consumer loans decreased to 52 bps for the year ended December 31, 2020
compared to 68 bps for the year ended December 31, 2019. The decrease was primarily due to decreases in net charge-offs on indirect
secured consumer loans and other consumer loans of $18 million and $15 million, respectively. The decreases for the year ended
December 31, 2020 included the impact of government stimulus programs and the Bancorp’s hardship programs.
109 Fifth Third Bancorp
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
$
$
$
$
$
$
TABLE 58: Summary of Credit Loss Experience
For the years ended December 31 ($ in millions)
Losses charged-off:
Commercial and industrial loans
Commercial mortgage loans
Commercial construction loans
Commercial leases
Residential mortgage loans
Home equity
Indirect secured consumer loans
Credit card
Other consumer loans(a)
Total losses charged-off
Recoveries of losses previously charged-off:
Commercial and industrial loans
Commercial mortgage loans
Commercial construction loans
Commercial leases
Residential mortgage loans
Home equity
Indirect secured consumer loans
Credit card
Other consumer loans(a)
Total recoveries of losses previously charged-off
Net losses charged-off:
Commercial and industrial loans
Commercial mortgage loans
Commercial construction loans
Commercial leases
Residential mortgage loans
Home equity
Indirect secured consumer loans
Credit card
Other consumer loans
Total net losses charged-off
Net losses charged-off as a percent of average
portfolio loans and leases:
Commercial and industrial loans
Commercial mortgage loans
Commercial construction loans
Commercial leases
Total commercial loans and leases
Residential mortgage loans
Home equity
Indirect secured consumer loans
Credit card
Other consumer loans
Total consumer loans
Total net losses charged-off as a percent of average
portfolio loans and leases
2020
2019
2018
2017
2016
(210)
(46)
—
(26)
(9)
(14)
(67)
(147)
(92)
(611)
12
1
—
3
7
9
35
21
52
140
(198)
(45)
—
(23)
(2)
(5)
(32)
(126)
(40)
(471)
0.37 %
0.41
—
0.76
0.36 %
0.02
0.08
0.26
5.63
1.39
0.52 %
0.42 %
(120)
—
—
(7)
(9)
(28)
(81)
(156)
(109)
(510)
17
2
—
—
5
10
31
22
54
141
(103)
2
—
(7)
(4)
(18)
(50)
(134)
(55)
(369)
0.20
(0.02)
—
0.21
0.16
0.03
0.28
0.48
5.49
2.16
0.68
0.35
(151)
(5)
—
(1)
(13)
(23)
(63)
(125)
(69)
(450)
19
6
—
—
6
11
23
24
31
120
(132)
1
—
(1)
(7)
(12)
(40)
(101)
(38)
(330)
0.31
(0.01)
—
0.03
0.23
0.04
0.17
0.45
4.44
1.93
0.56
0.35
(136)
(16)
—
(2)
(15)
(32)
(58)
(94)
(28)
(381)
25
4
—
—
8
13
21
10
2
83
(111)
(12)
—
(2)
(7)
(19)
(37)
(84)
(26)
(298)
0.27
0.17
—
0.06
0.22
0.04
0.26
0.39
3.93
2.57
0.49
0.32
(205)
(22)
—
(5)
(19)
(41)
(54)
(89)
(21)
(456)
33
7
1
1
9
14
19
9
1
94
(172)
(15)
1
(4)
(10)
(27)
(35)
(80)
(20)
(362)
0.40
0.23
(0.01)
0.10
0.33
0.07
0.33
0.33
3.69
2.93
0.48
0.39
(a) For the years ended December 31, 2020 and 2019, the Bancorp recorded $42 and $48, respectively, in both losses charged-off and recoveries of losses charged-
off related to customer defaults on point-of-sale consumer loans for which the Bancorp obtained recoveries under third-party credit enhancements.
Allowance for Credit Losses
The allowance for credit losses is comprised of the ALLL and the reserve for unfunded commitments. As further described in Note 1 of the
Notes to Consolidated Financial Statements, the Bancorp adopted ASU 2016-13 on January 1, 2020 which established a new approach for
estimating credit losses on certain types of financial instruments. After adoption of this amended guidance, the Bancorp maintains the ALLL
to absorb the amount of credit losses that are expected to be incurred over the remaining contractual terms of the related loans and leases (as
adjusted for prepayments and reasonably expected TDRs). The Bancorp’s methodology for determining the ALLL includes an estimate of
110 Fifth Third Bancorp
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
expected credit losses on a collective basis for groups of loans and leases with similar risk characteristics and specific allowances for loans
and leases which are individually evaluated. For collectively evaluated loans and leases, the Bancorp uses quantitative models to forecast
expected credit losses based on the probability of a loan or lease defaulting, the expected balance at the estimated date of default and the
expected loss percentage given a default. The Bancorp’s expected credit loss models consider historical credit loss experience, current market
and economic conditions, and forecasted changes in market and economic conditions if such forecasts are considered reasonable and
supportable.
The Bancorp also considers qualitative factors in determining the ALLL. Qualitative adjustments are used to capture characteristics in the
portfolio that impact expected credit losses which are not fully captured within the Bancorp’s expected credit loss models. These factors
include adjustments for changes in policies or procedures in underwriting, monitoring or collections, lending and risk management personnel
and results of internal audit and quality control reviews. In addition, the qualitative adjustment framework can be utilized to address specific
idiosyncratic risks such as geopolitical events, natural disasters or changes in current economic conditions that are not reflected in the
quantitative credit loss models, and their effects on regional borrowers and changes in product structures. Qualitative factors may also be used
to address the impacts of unforeseen events on key inputs and assumptions within the Bancorp’s expected credit loss models, such as the
reasonable and supportable forecast period, changes to historical loss information or changes to the reversion period or methodology.
Refer to Note 1 of the Notes to Consolidated Financial Statements for discussion of the accounting policies for the ALLL and reserve for
unfunded commitments for periods prior to January 1, 2020.
In addition to the ALLL, the Bancorp maintains a reserve for unfunded commitments recorded in other liabilities in the Consolidated Balance
Sheets. The methodology used to determine the adequacy of this reserve is similar to the Bancorp’s methodology for determining the ALLL.
The provision for unfunded commitments is included in the provision for credit losses in the Consolidated Statements of Income.
For the commercial portfolio segment, the estimates for probability of default are primarily based on internal ratings assigned to each
commercial borrower on a 13-point scale and historical observations of how those ratings migrate to a default over time in the context of
macroeconomic conditions. For loans with available credit, the estimate of the expected balance at the time of default considers expected
utilization rates, which are primarily based on macroeconomic conditions and the utilization history of similar borrowers under those
economic conditions. The estimates for loss severity are primarily based on collateral type and coverage levels and the susceptibility of those
characteristics to changes in macroeconomic conditions.
For collectively evaluated loans in the consumer and residential mortgage portfolio segments, the Bancorp’s expected credit loss models
primarily utilize the borrower’s FICO score and delinquency history in combination with macroeconomic conditions when estimating the
probability of default. The estimates for loss severity are primarily based on collateral type and coverage levels and the susceptibility of those
characteristics to changes in macroeconomic conditions. The expected balance at the estimated date of default is also especially impactful in
the expected credit loss models for portfolio classes which generally have longer terms (such as residential mortgage loans and home equity)
and portfolio classes containing a high concentration of loans with revolving privileges (such as credit card and home equity). The estimate of
the expected balance at the time of default considers expected prepayment and utilization rates where applicable, which are primarily based
on macroeconomic conditions and the utilization history of similar borrowers under those economic conditions.
Day 1 Adoption Impact
Upon adoption of ASU 2016-13 on January 1, 2020, the Bancorp used three forward-looking economic scenarios during the reasonable and
supportable forecast period in its expected credit loss models to address the inherent imprecision in macroeconomic forecasting. Each of the
three scenarios was developed by a third party that is subject to the Bancorp’s Third-Party Risk Management program including oversight by
the Bancorp’s independent model risk management group. The scenarios included a most likely outcome (Baseline) and two less probable
scenarios with one being more favorable than the Baseline and the other being less favorable. The more favorable alternative scenario
(Upside) depicted a stronger near-term growth outlook while the less favorable outlook (Downside) depicted a moderate recession. The
Baseline scenario was assigned a probability weighting of 80% with each of the Upside and Downside scenarios being assigned a 10%
weighting.
The Baseline scenario was developed such that the expectation is that the economy will perform better than the projection 50% of the time
and worse than the projection 50% of the time. The Upside scenario was developed such that there is a 10% probability that the economy will
perform better than the projection and a 90% probability that it will perform worse. The Downside scenario was developed such that there is a
90% probability that the economy will perform better than the projection and a 10% probability that it will perform worse.
December 31, 2020 ACL
The ACL as of December 31, 2020 was impacted by several factors, including general improvement in the economic outlook. As a result, the
Bancorp incorporated a combination of quantitative model-based estimates and qualitative overlays. For the quantitative estimates, the
Bancorp incorporated three scenarios developed by the third party in November 2020 that included estimates of the expected impacts of the
changes in economic conditions caused by the COVID-19 pandemic. The Baseline scenario was assigned a probability weighting of 60%,
with a more favorable scenario (Upside) assigned a probability weighting of 20% and a less favorable scenario (Downside) assigned a
probability of 20%. The Baseline scenario utilized by the Bancorp assumes additional stimulus enacted in the first quarter of 2021 including
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unemployment and individual benefits, but no aid to state and local governments. GDP growth is expected to be at a 3.1% annualized rate in
2021 and at a 4.1% annualized rate in 2022. The Baseline scenario also assumes a 7.2% unemployment rate through the fourth quarter of
2020 with an average unemployment rate of 8.2% in the first half of 2021. The Upside scenario assumes that the COVID-19 crisis resolves
sooner than anticipated, with businesses returning to full operation sooner than expected and an increase in consumer spending. In this
scenario, housing prices rise by 3.7% (compared to 0.4% in the Baseline) during 2021. Upside real GDP growth is expected to be 6.6% in
2021, and a full-employment rate is expected to be achieved by mid-2022, a year earlier than Baseline. The Downside scenario reflects no
additional federal fiscal stimulus, which causes an increase in unemployment to above 10% by the end of 2021. This scenario shows annual
average GDP growth of 0% in 2021 and 2.3% in 2022 and housing prices decreasing by 10% through 2021.
The Bancorp’s quantitative credit loss models are sensitive to changes in economic forecast assumptions over the reasonable and supportable
forecast period. Applying a 100% probability weighting to the Downside scenario rather than using the probability-weighted three scenario
approach would result in an increase in the quantitative ACL of approximately $897 million. This sensitivity calculation only reflects the
impact of changing the probability weighting of the scenarios in the quantitative credit loss models and excludes any additional
considerations associated with the qualitative component of the ACL that might be warranted in the circumstance.
At December 31, 2020, the qualitative component of the ACL included consideration of certain factors that represent emerging risks
specifically associated with the current economic environment and the COVID-19 pandemic. These considerations resulted in qualitative
adjustments to increase the ACL, primarily related to volatility in short-term unemployment rates, commercial borrowers experiencing
prolonged distress, commercial borrowers in certain industries which have been severely impacted by the COVID-19 pandemic and consumer
borrowers that deferred contractual payments under COVID-19 forbearance or hardship programs.
TABLE 59: Changes in Allowance for Credit Losses
For the years ended December 31 ($ in millions)
ALLL:
Balance, beginning of period
$
Impact of adoption of ASU 2016-13
Losses charged-off(a)
Recoveries of losses previously charged-off(a)
Provision for loan and lease losses
Deconsolidation of a VIE
Balance, end of period
Reserve for unfunded commitments:
Balance, beginning of period
Impact of adoption of ASU 2016-13
Reserve for acquired unfunded commitments
Provision for (benefit from) the reserve for
unfunded commitments
Balance, end of period
$
$
$
2020(b)
2019(c)
2018(c)
2017(c)
2016(c)
1,202
643
(611)
140
1,079
—
2,453
144
10
—
18
172
1,103
—
(510)
141
468
—
1,202
131
—
8
5
144
1,196
—
(450)
120
237
—
1,103
161
—
—
(30)
131
1,253
—
(381)
83
261
(20)
1,196
161
—
—
—
161
1,272
—
(456)
94
343
—
1,253
138
—
—
23
161
(a) For the years ended December 31, 2020 and 2019, the Bancorp recorded $42 and $48, respectively, in both losses charged-off and recoveries of losses charged-
off related to customer defaults on point-of-sale consumer loans for which the Bancorp obtained recoveries under third-party credit enhancements.
(b) The ALLL and Reserve for unfunded commitments were calculated under the expected loss methodology upon the adoption of ASU 2016-13 on January 1, 2020.
(c)
The ALLL and Reserve for unfunded commitments were calculated under the incurred loss methodology for periods ending prior to January 1, 2020.
As shown in Table 60, the ALLL as a percent of portfolio loans and leases was 2.25% at December 31, 2020, compared to 1.10% at
December 31, 2019. The ALLL was $2.5 billion and $1.2 billion at December 31, 2020 and 2019, respectively.
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TABLE 60: Attribution of Allowance for Loan and Lease Losses to Portfolio Loans and Leases
As of December 31 ($ in millions)
Attributed ALLL:
2019(b)
2020(a)
2018(b)
2017(b)
2016(b)
Commercial and industrial loans
Commercial mortgage loans
Commercial construction loans
Commercial leases
Residential mortgage loans
Home equity
Indirect secured consumer loans
Credit card
Other consumer loans
Unallocated
Total ALLL
Portfolio loans and leases:
Commercial and industrial loans
Commercial mortgage loans
Commercial construction loans
Commercial leases
Residential mortgage loans
Home equity
Indirect secured consumer loans
Credit card
Other consumer loans
Total portfolio loans and leases
Attributed ALLL as a percent of respective portfolio loans and leases:
Commercial and industrial loans
Commercial mortgage loans
Commercial construction loans
Commercial leases
Residential mortgage loans
Home equity
Indirect secured consumer loans
Credit card
Other consumer loans
Unallocated (as a percent of portfolio loans and leases)
Total ALLL as a percent of portfolio loans and leases
Total ACL as a percent of portfolio loans and leases
$
$
901
402
124
29
294
201
131
252
119
N/A
2,453
$
49,665
10,602
5,815
2,915
15,928
5,183
13,653
2,007
3,014
$ 108,782
1.81 %
3.79
2.13
0.99
1.85
3.88
0.96
12.56
3.95
N/A
2.25 %
2.41
561
87
45
17
73
37
53
168
40
121
1,202
50,542
10,963
5,090
3,363
16,724
6,083
11,538
2,532
2,723
109,558
1.11
0.79
0.88
0.51
0.44
0.61
0.46
6.64
1.47
0.11
1.10
1.23
515
80
32
18
81
36
42
156
33
110
1,103
44,340
6,974
4,657
3,600
15,504
6,402
8,976
2,470
2,342
95,265
1.16
1.15
0.69
0.50
0.52
0.56
0.47
6.32
1.41
0.12
1.16
1.30
651
65
23
14
89
46
38
117
33
120
1,196
41,170
6,604
4,553
4,068
15,591
7,014
9,112
2,299
1,559
91,970
1.58
0.98
0.51
0.34
0.57
0.66
0.42
5.09
2.12
0.13
1.30
1.48
718
82
16
15
96
58
42
102
12
112
1,253
41,676
6,899
3,903
3,974
15,051
7,695
9,983
2,237
680
92,098
1.72
1.19
0.41
0.38
0.64
0.75
0.42
4.56
1.76
0.12
1.36
1.54
(a) The ALLL and ACL were calculated under the expected loss methodology upon the adoption of ASU 2016-13 on January 1, 2020.
(b) The ALLL and ACL were calculated under the incurred loss methodology for periods ending prior to January 1, 2020.
As previously mentioned, the Bancorp adopted ASU 2016-13 on January 1, 2020. Based on portfolio characteristics and economic conditions
and expectations as of January 1, 2020, the Bancorp recorded a combined increase to the ALLL and reserve for unfunded commitments on
January 1, 2020 of approximately $653 million upon the adoption of ASU 2016-13. The increase in the ALLL at the date of adoption was
primarily attributable to longer duration home equity and residential mortgage loans.
The Bancorp’s ALLL may vary significantly from period to period after the adoption date as it will be based on changes in economic
conditions, economic forecasts and the composition and credit quality of the Bancorp’s loan and lease portfolio. The adoption of ASU
2016-13 will also have an impact on the provision for credit losses in periods after adoption, which could differ materially from historical
trends. For additional information on ASU 2016-13, refer to Note 1 of the Notes to Consolidated Financial Statements.
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INTEREST RATE AND PRICE RISK MANAGEMENT
Interest rate risk is the risk to earnings or capital arising from movement of interest rates. This risk primarily impacts the Bancorp’s income
categories through changes in interest income on earning assets and the cost of interest-bearing liabilities, and through fee items that are
related to interest sensitive activities such as mortgage origination and servicing income and through earnings credits earned on commercial
deposits that offset commercial deposit fees. Price risk is the risk to earnings or capital arising from changes in the value of financial
instruments and portfolios due to movements in interest rates, volatilities, foreign exchange rates, equity prices and commodity prices.
Management considers interest rate risk a prominent market risk in terms of its potential impact on earnings. Interest rate risk may occur for
any one or more of the following reasons:
•
•
•
Assets and liabilities mature or reprice at different times;
Short-term and long-term market interest rates change by different amounts; or
The expected maturities of various assets or liabilities shorten or lengthen as interest rates change.
In addition to the direct impact of interest rate changes on NII and interest-sensitive fees, interest rates can impact earnings through their
effect on loan and deposit demand, credit losses, mortgage origination volumes, the value of servicing rights and other sources of the
Bancorp’s earnings. Changes in interest rates and other market factors can impact earnings through changes in the value of portfolios, if not
appropriately hedged. Stability of the Bancorp’s net income is largely dependent upon the effective management of interest rate risk and to a
lesser extent price risk. Management continually reviews the Bancorp’s on- and off-balance sheet composition, earnings flows, and hedging
strategies and models interest rate risk and price risk exposures, and possible actions to manage these risks, given numerous possible future
interest rate and market factor scenarios. A series of Policy Limits and Key Risk Indicators are employed to ensure that risks are managed
within the Bancorp’s risk tolerance for interest rate risk and price risk.
In addition to the traditional forms of interest rate risk discussed in this section, the Bancorp is exposed to interest rate risk associated with the
retirement and replacement of LIBOR. For more information on the LIBOR transition, refer to the Overview section of MD&A.
The Commercial and Wealth and Asset Management lines of business manage price risk for capital markets sales and trading activities
related to their respective businesses. The Mortgage line of business manages price risk for the origination and sale of conforming residential
mortgage loans to government agencies and government-sponsored enterprises. The Bancorp’s Treasury department manages interest rate
risk and price risk for all other activities. Independent oversight is provided by ERM, and key risk indicators and Board-approved policy
limits are used to ensure risks are managed within the Bancorp’s risk tolerance.
The Bancorp’s Market Risk Management Committee, which includes senior management representatives, is accountable to the ERMC,
provides oversight and monitors price risk for the capital markets sales and trading activities. The Bancorp’s ALCO, which includes senior
management representatives and is accountable to the ERMC, provides oversight and monitors interest rate and price risks for Mortgage and
Treasury activities.
Net Interest Income Sensitivity
The Bancorp employs a variety of measurement techniques to identify and manage its interest rate risk, including the use of an NII simulation
model to analyze the sensitivity of NII to changes in interest rates. The model is based on contractual and estimated cash flows and repricing
characteristics for all of the Bancorp’s assets, liabilities and off-balance sheet exposures and incorporates market-based assumptions
regarding the effect of changing interest rates on the prepayment rates of certain assets and attrition rates of certain liabilities. The model also
includes senior management’s projections of the future volume and pricing of each of the product lines offered by the Bancorp as well as
other pertinent assumptions. Actual results may differ from simulated results due to timing, magnitude and frequency of interest rate changes,
deviations from projected assumptions, as well as from changes in market conditions and management strategies.
As of December 31, 2020, the Bancorp’s interest rate risk exposure is governed by a risk framework that utilizes the change in NII over 12-
month and 24-month horizons assuming a 200 bps parallel ramped increase in interest rates. Given the unlikely probability associated with a
potential negative rate environment, the Bancorp does not have a policy limit for scenarios that include negative rates. Therefore, the Bancorp
has no policy limit for a scenario with a decrease in interest rates currently in effect as the Federal Funds target range is currently between
zero and 25 basis points. However, the Bancorp routinely analyzes various potential and extreme scenarios, including ramps, shocks and non-
parallel shifts in rates, including negative rate scenarios, to assess where risks to net interest income persist or develop as changes in the
balance sheet and market rates evolve. Additionally, the Bancorp routinely evaluates its exposures to changes in the bases between interest
rates. The ongoing COVID-19 pandemic has caused significant changes to interest rates, volatilities, and the composition of the Bancorp’s
balance sheet, including significant increases in deposit funding related to stimulus programs, which has resulted in an excess liquidity
position. The excess liquidity is likely to continue negatively impacting net interest margin if short-term interest rates hold steady or move
lower, but may be partially offset by the amortization of fees related to PPP loans and investment opportunities should the yield curve
continue steepening.
In order to recognize the risk of noninterest-bearing demand deposit balance run-off in a rising interest rate environment, the Bancorp’s NII
sensitivity modeling assumes that approximately $5 billion of additional demand deposit balances run-off over 24 months above what is
included in senior management’s baseline projections for each 100 bps increase in short-term market interest rates. Similarly, the Bancorp’s
NII sensitivity modeling incorporates approximately $5 billion of incremental growth in noninterest-bearing deposit balances over 24 months
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above senior management’s baseline projections for each 100 bps decrease in short-term market interest rates. The incremental balance run-
off and growth are modeled to flow into and out of funding products that reprice in conjunction with short-term market rate changes and
reflect the Bank’s excess liquidity position.
Another important deposit modeling assumption is the amount by which interest-bearing deposit rates will increase or decrease when market
interest rates increase or decrease. This deposit repricing sensitivity is known as the beta, and it represents the expected amount by which
Bancorp deposit rates will change for a given change in short-term market rates. The Bancorp’s NII sensitivity modeling assumes a weighted-
average rising-rate interest-bearing deposit beta of 70% at December 31, 2020, which is approximately 10 to 30 percentage points higher than
the average beta that the Bancorp experienced in the FRB tightening cycles from June 2004 to June 2006 and from December 2015 to
December 2018. In the event of further rate cuts by the FRB into negative territory, the Bancorp’s NII sensitivity modeling assumes a
weighted-average falling-rate interest-bearing deposit beta of 35% at December 31, 2020 while maintaining that deposit rates themselves will
not become negative. In addition, the modeling assumes there is no lag between the timing of changes in market rates and the timing of
deposit repricing despite such timing lags having occurred in prior rate cycles.
The Bancorp continually evaluates the sensitivity of its interest rate risk measures to these important deposit modeling assumptions. The
Bancorp also regularly monitors the sensitivity of other important modeling assumptions, such as loan and security prepayments and early
withdrawals on fixed-rate customer liabilities.
The following table shows the Bancorp’s estimated NII sensitivity profile and ALCO policy limits as of December 31:
TABLE 61: Estimated NII Sensitivity Profile and ALCO Policy Limits
Change in Interest Rates (bps)
+ 200 Ramp over 12 months
+ 100 Ramp over 12 months
– 25 Ramp over 3 months
– 100 Ramp over 12 months
% Change in NII (FTE)
2020
12
Months
2.93 %
1.69
(1.93)
N/A
13-24
Months
7.73
4.95
(2.88)
N/A
ALCO Policy Limits
13-24
Months
(6.00)
N/A
N/A
N/A
12
Months
(4.00)
N/A
N/A
N/A
% Change in NII (FTE)
2019
12
Months
(0.22)
(0.16)
N/A
(2.66)
13-24
Months
3.94
2.07
N/A
(7.90)
ALCO Policy Limits
13-24
Months
(6.00)
N/A
N/A
(12.00)
12
Months
(4.00)
N/A
N/A
(8.00)
At December 31, 2020, the Bancorp’s NII would benefit in both year one and year two under the parallel rate ramp increases. The Bancorp
maintains an asymmetric NII sensitivity profile, which is attributable to the level of floating-rate assets, including the predominantly floating-
rate commercial loan portfolio, exceeding the level of floating-rate liabilities due to the increased amount of deposit rates near zero in this low
interest rate environment and other fixed-rate borrowings. Reductions in the yield of the commercial loan portfolio would be expected to be
only partially offset by a decline in the cost of interest-bearing deposits in a falling-rate scenario. However, proactive management of the
securities and derivatives portfolios has reduced the ongoing near-term risk to declining market rates and provided significant protection from
the decline in rates experienced as the COVID-19 pandemic unfolded. The changes in the estimated NII sensitivity profile compared to
December 31, 2019 were primarily attributable to the impact of the current near-zero interest rate environment on the previously discussed
interest rate profile and the significant increase in noninterest-bearing and low-cost interest-bearing deposits. The down rate scenarios were
also impacted by the higher composition of low-cost deposits hitting their floor rates more quickly in the current-year scenarios due to the
low-rate environment.
Tables 62 and 63 provide the sensitivity of the Bancorp’s estimated NII profile at December 31, 2020 to changes to certain deposit balance
and deposit repricing sensitivity (betas) assumptions.
The following table includes the Bancorp’s estimated NII sensitivity profile with an immediate $1 billion decrease and an immediate $1
billion increase in demand deposit balances as of December 31, 2020:
TABLE 62: Estimated NII Sensitivity Profile at December 31, 2020 with a $1 Billion Change in Demand Deposit Assumption
Change in Interest Rates (bps)
+ 200 Ramp over 12 months
+ 100 Ramp over 12 months
– 25 Ramp over 3 months
% Change in NII (FTE)
Immediate $1 Billion Balance Decrease
Immediate $1 Billion Balance Increase
12
Months
13-24
Months
12
Months
13-24
Months
2.71 %
1.58
(1.98)
7.28
4.72
(2.94)
3.15
1.80
(1.88)
8.19
5.18
(2.82)
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The following table includes the Bancorp’s estimated NII sensitivity profile with a 25% increase and a 25% decrease to the corresponding
deposit beta assumptions as of December 31, 2020:
TABLE 63: Estimated NII Sensitivity Profile at December 31, 2020 with Deposit Beta Assumptions Changes
% Change in NII (FTE)
Change in Interest Rates (bps)
+ 200 Ramp over 12 months
+ 100 Ramp over 12 months
– 25 Ramp over 3 months
Betas 25% Higher(a)
Betas 25% Lower(b)
12
Months
13-24
Months
12
Months
13-24
Months
(0.95) %
(0.25)
(1.80)
0.65
1.44
(2.77)
6.81
3.62
(2.08)
14.81
8.46
(3.01)
(a)
(b)
Includes weighted-average rising-rate and falling-rate interest-bearing deposit betas of 87% and 44%, respectively.
Includes weighted-average rising-rate and falling-rate interest-bearing deposit betas of 52% and 27%, respectively..
Economic Value of Equity Sensitivity
The Bancorp also uses EVE as a measurement tool in managing interest rate risk. Whereas the NII sensitivity analysis highlights the impact
on forecasted NII on an FTE basis (non-GAAP) over one and two-year time horizons, EVE is a point-in-time analysis of the economic
sensitivity of current positions that incorporates all cash flows over their estimated remaining lives. The EVE of the balance sheet is defined
as the discounted present value of all asset and net derivative cash flows less the discounted value of all liability cash flows. Due to this
longer horizon, the sensitivity of EVE to changes in the level of interest rates is a measure of longer-term interest rate risk. EVE values only
the current balance sheet and does not incorporate the balance growth assumptions used in the NII sensitivity analysis. As with the NII
simulation model, assumptions about the timing and variability of existing balance sheet cash flows are critical in the EVE analysis.
Particularly important are assumptions driving loan and security prepayments and the expected balance attrition and pricing of indeterminate-
lived deposits.
The following table shows the Bancorp’s estimated EVE sensitivity profile as of December 31:
TABLE 64: Estimated EVE Sensitivity Profile
2020
2019
Change in Interest Rates (bps)
+ 200 Shock
+ 100 Shock
– 25 Shock
– 150 Shock
% Change in EVE
(0.05) %
0.64
(0.92)
N/A
ALCO Policy Limit % Change in EVE
ALCO Policy Limit
(12.00)
N/A
N/A
N/A
(5.12)
(2.01)
N/A
(6.07)
(12.00)
N/A
N/A
(12.00)
The EVE sensitivity is neutral in a +200 bps rising-rate scenario at December 31, 2020. The changes in the estimated EVE sensitivity profile
from December 31, 2019 were primarily related to the low-rate environment, growth in noninterest-bearing and low-cost interest-bearing
deposits and the shorter expected lives of prepayable, fixed-rate assets due to the decrease in market interest rates. These items were partially
offset by continued repositioning of the investment portfolio into securities with less principal cash flows in the near term.
While an instantaneous shift in interest rates is used in this analysis to provide an estimate of exposure, the Bancorp believes that a gradual
shift in interest rates would have a much more modest impact. Since EVE measures the discounted present value of cash flows over the
estimated lives of instruments, the change in EVE does not directly correlate to the degree that earnings would be impacted over a shorter
time horizon (e.g., the current fiscal year). Further, EVE does not take into account factors such as future balance sheet growth, changes in
product mix, changes in yield curve relationships and changing product spreads that could mitigate or exacerbate the impact of changes in
interest rates. The NII simulations and EVE analyses do not necessarily include certain actions that management may undertake to manage
risk in response to actual changes in interest rates.
The Bancorp regularly evaluates its exposures to a static balance sheet forecast, LIBOR, Prime Rate and other basis risks, yield curve twist
risks and embedded options risks. In addition, the impacts on NII on an FTE basis and EVE of extreme changes in interest rates are modeled,
wherein the Bancorp employs the use of yield curve shocks and environment-specific scenarios.
Use of Derivatives to Manage Interest Rate Risk
An integral component of the Bancorp’s interest rate risk management strategy is its use of derivative instruments to minimize significant
fluctuations in earnings caused by changes in market interest rates. Examples of derivative instruments that the Bancorp may use as part of its
interest rate risk management strategy include interest rate swaps, interest rate floors, interest rate caps, forward contracts, forward starting
interest rate swaps, options, swaptions and TBA securities.
Tables 65 and 66 show all swap and floor positions that are utilized for purposes of managing the Bancorp’s exposures to the variability of
interest rates. These positions are used to convert the contractual interest rate index of agreed-upon amounts of assets and liabilities (i.e.,
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notional amounts) to another interest rate index or to hedge forecasted transactions for the variability in cash flows attributable to the
contractually specified interest rate. The volume, maturity and mix of portfolio swaps change frequently as the Bancorp adjusts its broader
interest rate risk management objectives and the balance sheet positions to be hedged. For further information, including the notional amount
and fair values of these derivatives, refer to Note 15 of the Notes to Consolidated Financial Statements.
The following tables present additional information about the interest rate swaps and floors used in Fifth Third’s asset and liability
management activities:
TABLE 65: Weighted-Average Maturity, Receive Rate and Pay Rate on Qualifying Hedging Instruments
As of December 31, 2020 ($ in millions)
Interest rate swaps – cash flow – receive-fixed
Interest rate swaps – fair value – receive-fixed
Total interest rate swaps
Interest rate floors – cash flow – receive-fixed
Notional
Amount
Fair Value
Remaining
(years)
Receive/ Strike
Rate
$
$
$
8,000
1,955
9,955
3,000
14
528
542
244
3.0
8.1
4.0
3.02 %
5.35
Index
1 ML
1 ML / 3 ML
2.25
1 ML
TABLE 66: Weighted-Average Maturity, Receive Rate and Pay Rate on Qualifying Hedging Instruments
As of December 31, 2019 ($ in millions)
Interest rate swaps – cash flow – receive-fixed
Interest rate swaps – cash flow – receive-fixed – forward
starting(a)
Interest rate swaps – fair value – receive-fixed
Total interest rate swaps
Interest rate floors – cash flow – receive-fixed
(a) Forward starting swaps became effective January 2, 2020.
Notional
Amount
Fair Value
Remaining
(years)
Receive/Strike
Rate
$
$
$
7,000
1,000
2,705
10,705
3,000
(2)
—
393
391
115
3.9
5.0
6.8
5.0
3.00 %
3.20
4.41
2.25
Index
1 ML
1 ML
1 ML / 3 ML
1 ML
Additionally, as part of its overall risk management strategy relative to its residential mortgage banking activities, the Bancorp enters into
forward contracts accounted for as free-standing derivatives to economically hedge IRLCs that are also considered free-standing derivatives.
The Bancorp economically hedges its exposure to residential mortgage loans held for sale through the use of forward contracts and mortgage
options as well. See the Residential Mortgage Servicing Rights and Price Risk section for the discussion of the use of derivatives to
economically hedge this exposure.
The Bancorp also enters into derivative contracts with major financial institutions to economically hedge market risks assumed in interest rate
derivative contracts with commercial customers. Generally, these contracts have similar terms in order to protect the Bancorp from market
volatility. Credit risk arises from the possible inability of the counterparties to meet the terms of their contracts, which the Bancorp minimizes
through collateral arrangements, approvals, limits and monitoring procedures. The Bancorp has risk limits and internal controls in place to
help ensure excessive risk is not being taken in providing this service to customers. These controls include an independent determination of
interest rate volatility and credit equivalent exposure on these contracts and counterparty credit approvals performed by independent risk
management. For further information, including the notional amount and fair values of these derivatives, refer to Note 15 of the Notes to
Consolidated Financial Statements.
Portfolio Loans and Leases and Interest Rate Risk
Although the Bancorp’s portfolio loans and leases contain both fixed and floating/adjustable-rate products, the rates of interest earned by the
Bancorp on the outstanding balances are generally established for a period of time. The interest rate sensitivity of loans and leases is directly
related to the length of time the rate earned is established.
117 Fifth Third Bancorp
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following table summarizes the carrying value of the Bancorp’s portfolio loans and leases expected cash flows, excluding interest
receivable, as of December 31, 2020:
TABLE 67: Portfolio Loans and Leases Expected Cash Flows(a)
($ in millions)
Commercial and industrial loans
Commercial mortgage loans
Commercial construction loans
Commercial leases
Total commercial loans and leases
Residential mortgage loans(b)
Home equity
Indirect secured consumer loans
Credit card
Other consumer loans
Total consumer loans
Total portfolio loans and leases
Less than 1 Year
23,547
$
3,973
2,966
829
31,315
4,009
1,421
4,639
401
1,727
12,197
43,512
$
1-5 Years
Over 5 Years
Total
25,118
5,722
2,737
1,547
35,124
6,803
2,805
8,160
1,606
1,123
20,497
55,621
999
907
112
539
2,557
5,116
957
854
—
164
7,091
9,648
49,665
10,602
5,815
2,915
68,997
15,928
5,183
13,653
2,007
3,014
39,785
108,782
(a) Expected cash flows from portfolio loans and leases do not reflect changes in timing due to hardship programs offered in response to the COVID-19 pandemic
(b)
which are not expected to be significant.
Includes residential mortgage loans previously sold to GNMA for which the Bancorp is deemed to have regained effective control over under ASC Topic 860, but
did not exercise its option to repurchase.
The following table displays a summary of expected cash flows, excluding interest receivable, occurring after one year for both fixed and
floating/adjustable-rate loans and leases as of December 31, 2020:
TABLE 68: Portfolio Loans and Leases Expected Cash Flows Occurring After One Year(a)
($ in millions)
Commercial and industrial loans
Commercial mortgage loans
Commercial construction loans
Commercial leases
Total commercial loans and leases
Residential mortgage loans(b)
Home equity
Indirect secured consumer loans
Credit card
Other consumer loans
Total consumer loans
Total portfolio loans and leases
Interest Rate
Fixed
Floating or Adjustable
$
$
3,164
1,461
46
2,086
6,757
9,510
370
9,000
244
1,018
20,142
26,899
22,953
5,168
2,803
—
30,924
2,409
3,392
14
1,362
269
7,446
38,370
(a) Expected cash flows from portfolio loans and leases do not reflect changes in timing due to hardship programs offered in response to the COVID-19 pandemic
(b)
which are not expected to be significant.
Includes residential mortgage loans previously sold to GNMA for which the Bancorp is deemed to have regained effective control over under ASC Topic 860, but
did not exercise its option to repurchase.
Residential Mortgage Servicing Rights and Price Risk
The fair value of the residential MSR portfolio was $656 million and $993 million at December 31, 2020 and December 31, 2019,
respectively. The value of servicing rights can fluctuate sharply depending on changes in interest rates and other factors. Generally, as interest
rates decline and loans are prepaid to take advantage of refinancing, the total value of existing servicing rights declines because no further
servicing fees are collected on repaid loans. The Bancorp maintains a non-qualifying hedging strategy relative to its mortgage banking
activity in order to manage a portion of the risk associated with changes in the value of its MSR portfolio as a result of changing interest rates.
Mortgage rates decreased during the years ended December 31, 2020 and 2019 which caused modeled prepayment speeds to rise. The fair
value of the MSR portfolio decreased $311 million and $203 million, respectively, due to changes to inputs to the valuation model, including
prepayment speeds and OAS assumptions, and decreased $254 million and $173 million, respectively, due to the impact of contractual
principal payments and actual prepayment activity for the years ended December 31, 2020 and 2019.
The Bancorp recognized net gains of $309 million and $224 million, respectively, on its non-qualifying hedging strategy during the years
ended December 31, 2020 and 2019. These amounts included net gains of $2 million and $3 million during the years ended December 31,
2020 and 2019, respectively, on securities related to the Bancorp’s non-qualifying hedging strategy. The Bancorp may adjust its hedging
strategy to reflect its assessment of the composition of its MSR portfolio, the cost of hedging and the anticipated effectiveness of the hedges
118 Fifth Third Bancorp
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
given the economic environment. Refer to Note 14 of the Notes to Consolidated Financial Statements for further discussion on servicing
rights and the instruments used to hedge price risk on MSRs.
Foreign Currency Risk
The Bancorp may enter into foreign exchange derivative contracts to economically hedge certain foreign denominated loans. The derivatives
are classified as free-standing instruments with the revaluation gain or loss being recorded in other noninterest income in the Consolidated
Statements of Income. The balance of the Bancorp’s foreign denominated loans at December 31, 2020 and 2019 was $655 million and $880
million, respectively. The Bancorp also enters into foreign exchange contracts for the benefit of commercial customers to hedge their
exposure to foreign currency fluctuations. Similar to the hedging of price risk from interest rate derivative contracts entered into with
commercial customers, the Bancorp also enters into foreign exchange contracts with major financial institutions to economically hedge a
substantial portion of the exposure from client driven foreign exchange activity. The Bancorp has risk limits and internal controls in place to
help ensure excessive risk is not being taken in providing this service to customers. These controls include an independent determination of
currency volatility and credit equivalent exposure on these contracts, counterparty credit approvals and country limits performed by
independent risk management.
Commodity Risk
The Bancorp also enters into commodity contracts for the benefit of commercial customers to hedge their exposure to commodity price
fluctuations. Similar to the hedging of foreign exchange and price risk from interest rate derivative contracts, the Bancorp also enters into
commodity contracts with major financial institutions to economically hedge a substantial portion of the exposure from client driven
commodity activity. The Bancorp may also offset this risk with exchange-traded commodity contracts. The Bancorp has risk limits and
internal controls in place to help ensure excessive risk is not taken in providing this service to customers. These controls include an
independent determination of commodity volatility and credit equivalent exposure on these contracts and counterparty credit approvals
performed by independent risk management.
119 Fifth Third Bancorp
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
LIQUIDITY RISK MANAGEMENT
The goal of liquidity management is to provide adequate funds to meet changes in loan and lease demand, unexpected levels of deposit
withdrawals and other contractual obligations. Mitigating liquidity risk is accomplished by maintaining liquid assets in the form of cash and
investment securities, maintaining sufficient unused borrowing capacity in the debt markets and delivering consistent growth in core deposits.
A summary of certain obligations and commitments to make future payments under contracts is included in Note 19 of the Notes to
Consolidated Financial Statements.
The Bancorp’s Treasury department manages funding and liquidity based on point-in-time metrics as well as forward-looking projections,
which incorporate different sources and uses of funds under base and stress scenarios. Liquidity risk is monitored and managed by the
Treasury department with independent oversight provided by ERM, and a series of Policy Limits and Key Risk Indicators are established to
ensure risks are managed within the Bancorp’s risk tolerance. The Bancorp maintains a contingency funding plan that provides for liquidity
stress testing, which assesses the liquidity needs under varying market conditions, time horizons, asset growth rates and other events. The
contingency plan provides for ongoing monitoring of unused borrowing capacity and available sources of contingent liquidity to prepare for
unexpected liquidity needs and to cover unanticipated events that could affect liquidity. The contingency plan also outlines the Bancorp’s
response to various levels of liquidity stress and actions that should be taken during various scenarios.
Liquidity risk is monitored and managed for both Fifth Third Bancorp and its subsidiaries. The Bancorp receives substantially all of its
liquidity from dividends from its subsidiaries, primarily Fifth Third Bank, National Association. Subsidiary dividends are supplemented with
term debt to enable the Bancorp to maintain sufficient liquidity to meet its cash obligations, including debt service and scheduled maturities,
common and preferred dividends, unfunded commitments to subsidiaries and other planned capital actions in the form of share repurchases.
Liquidity resources are more limited at the Bancorp, making its liquidity position more susceptible to market disruptions. Bancorp liquidity is
assessed using a cash coverage horizon, ensuring the entity maintains sufficient liquidity to withstand a period of sustained market disruption
while meeting its anticipated obligations over an extended stressed horizon.
The Bancorp’s ALCO, which includes senior management representatives and is accountable to the ERMC, monitors and manages liquidity
and funding risk within Board-approved policy limits. In addition to the risk management activities of ALCO, the Bancorp has a liquidity risk
management function as part of ERM that provides independent oversight of liquidity risk management.
Sources of Funds
The Bancorp’s primary sources of funds relate to cash flows from loan and lease repayments, payments from securities related to sales and
maturities, the sale or securitization of loans and leases and funds generated by core deposits, in addition to the use of public and private debt
offerings.
Table 67 of the Interest Rate and Price Risk Management subsection of the Risk Management section of MD&A illustrates the expected
maturities from loan and lease repayments. Of the $37.5 billion of securities in the Bancorp’s available-for-sale debt and other securities
portfolio at December 31, 2020, $4.6 billion in principal and interest is expected to be received in the next 12 months and an additional $5.0
billion is expected to be received in the next 13 to 24 months. For further information on the Bancorp’s securities portfolio, refer to the
Investment Securities subsection of the Balance Sheet Analysis section of MD&A.
Asset-driven liquidity is provided by the Bancorp’s ability to sell or securitize loans and leases. In order to reduce the exposure to interest rate
fluctuations and to manage liquidity, the Bancorp has developed securitization and sale procedures for several types of interest-sensitive
assets. A majority of the long-term, fixed-rate single-family residential mortgage loans underwritten according to FHLMC or FNMA
guidelines are sold for cash upon origination. Additional assets such as certain other residential mortgage loans, certain commercial loans,
home equity loans, automobile loans and other consumer loans are also capable of being securitized or sold. The Bancorp sold or securitized
loans and leases totaling $12.3 billion during the year ended December 31, 2020 compared to $9.7 billion during the year ended
December 31, 2019. For further information, refer to Note 13 and Note 14 of the Notes to Consolidated Financial Statements.
Core deposits have historically provided the Bancorp with a sizeable source of relatively stable and low-cost funds. The Bancorp’s average
core deposits and average shareholders’ equity funded 86% and 83% of its average total assets for the years ended December 31, 2020 and
2019, respectively. In addition to core deposit funding, the Bancorp also accesses a variety of other short-term and long-term funding sources,
which include the use of the FHLB system. Certificates $100,000 and over and certain deposits in the Bancorp’s foreign branch located in the
Cayman Islands are wholesale funding tools utilized to fund asset growth. Management does not rely on any one source of liquidity and
manages availability in response to changing balance sheet needs.
As of December 31, 2020, $4.7 billion of debt or other securities were available for issuance under the current Bancorp’s Board of Directors’
authorizations and the Bancorp is authorized to file any necessary registration statements with the SEC to permit ready access to the public
securities markets; however, access to these markets may depend on market conditions. During the year ended December 31, 2020, the
Bancorp issued and sold $1.25 billion in aggregate principal amount of senior fixed-rate notes and issued in a registered public offering
350,000 depositary shares, representing 14,000 shares of 4.50% fixed-rate reset non-cumulative perpetual preferred stock, Series L, for net
proceeds of approximately $346 million.
120 Fifth Third Bancorp
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
As of December 31, 2020, the Bank’s global bank note program had a borrowing capacity of $25.0 billion, of which $19.1 billion was
available for issuance. During the year ended December 31, 2020, the Bank issued and sold $1.25 billion in aggregate principal amount of
senior fixed-rate notes. Additionally, at December 31, 2020, the Bank had approximately $44.0 billion of borrowing capacity available
through secured borrowing sources including the FRB and FHLB.
Current Liquidity Position
The COVID-19 pandemic has significantly impacted the economic environment, although financial markets, initially supported by Federal
Reserve programs, have been stable and well-functioning following the onset of the crisis and the early monetary and fiscal response. During
2020, the Bancorp’s core deposit funding increased, while revolving line of credit utilization and portfolio loans and leases decreased. As a
result, the Bancorp maintains a strong liquidity profile driven by strong core deposit funding and over $100 billion in current available
liquidity. The Bancorp is managing liquidity prudently in the current environment and maintains a liquidity profile focused on core deposit
and stable long-term funding sources which allows for the effective management of concentration and rollover risk.
As of December 31, 2020, the Bancorp has sufficient liquidity to meet contractual obligations and all preferred and common dividends
without accessing the capital markets or receiving upstream dividends from the Bank subsidiary for 32 months.
Credit Ratings
The cost and availability of financing to the Bancorp and Bank are impacted by its credit ratings. A downgrade to the Bancorp’s or Bank’s
credit ratings could affect its ability to access the credit markets and increase its borrowing costs, thereby adversely impacting the Bancorp’s
or Bank’s financial condition and liquidity. Key factors in maintaining high credit ratings include a stable and diverse earnings stream, strong
credit quality, strong capital ratios and diverse funding sources, in addition to disciplined liquidity monitoring procedures.
The Bancorp’s and Bank’s credit ratings are summarized in Table 69. The ratings reflect the ratings agency’s view on the Bancorp’s and
Bank’s capacity to meet financial commitments.*
*As an investor, you should be aware that a security rating is not a recommendation to buy, sell or hold securities, that it may be subject to
revision or withdrawal at any time by the assigning rating organization and that each rating should be evaluated independently of any other
rating. Additional information on the credit rating ranking within the overall classification system is located on the website of each credit
rating agency.
TABLE 69: Agency Ratings
As of February 26, 2021
Fifth Third Bancorp:
Short-term borrowings
Senior debt
Subordinated debt
Fifth Third Bank, National Association:
Short-term borrowings
Short-term deposit
Long-term deposit
Senior debt
Subordinated debt
Moody’s
No rating
Baa1
Baa1
P-2
P-1
Aa3
A3
Baa1
Standard and
Poor’s
A-2
BBB+
BBB
A-2
No rating
No rating
A-
BBB+
Fitch
F1
A-
BBB+
F1
F1
A
A-
BBB+
DBRS
R-1L
A
AL
R-1M
No rating
AH
AH
A
Rating Agency Outlook for Fifth Third Bancorp and Fifth
Third Bank, National Association:
Stable
Stable
Negative
Negative
121 Fifth Third Bancorp
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OPERATIONAL RISK MANAGEMENT
Operational risk is the risk to current or projected financial condition and resilience arising from inadequate or failed internal processes or
systems, human errors or misconduct or adverse external events that are neither market- nor credit-related. Operational risk is inherent in the
Bancorp’s activities and can manifest itself in various ways, including fraudulent acts, business interruptions, inappropriate behavior of
employees, unintentional failure to comply with applicable laws and regulations, poor design or delivery of products and services, cyber-
security or physical security incidents and privacy breaches or failure of third parties to perform in accordance with their arrangements. These
events could result in financial losses, litigation and regulatory fines, as well as other damage to the Bancorp. The Bancorp’s risk
management goal is to keep operational risk at appropriate levels consistent with the Bancorp’s risk appetite, financial strength, the
characteristics of its businesses, the markets in which it operates and the competitive and regulatory environment to which it is subject.
To control, monitor and govern operational risk, the Bancorp maintains an overall Risk Management Framework which comprises
governance oversight, risk assessment, capital measurement, monitoring and reporting as well as a formal three lines of defense approach.
ERM is responsible for prescribing the framework to the lines of business and corporate functions and providing independent oversight of its
implementation (second line of defense). Business Controls groups are in place in each of the lines of business to ensure consistent
implementation and execution of managing day-to-day operational risk (first line of defense).
The Bancorp’s risk management framework consists of five integrated components, including identifying, assessing, managing, monitoring
and independent governance reporting of risk. The corporate Operational Risk Management function within Enterprise Risk is responsible for
developing and overseeing the implementation of the Bancorp’s approach to managing operational risk. This includes providing governance,
awareness and training, tools, guidance and oversight to support implementation of key risk programs and systems as they relate to
operational risk management, such as risk and control self-assessments, new product/initiative risk reviews, key risk indicators, Third-Party
Risk Management, cyber-security risk management and review of operational losses. The function is also responsible for developing reports
that support the proactive management of operational risk across the enterprise. The lines of business and corporate functions are responsible
for managing the operational risks associated with their areas in accordance with the risk management framework. The framework is intended
to enable the Bancorp to function with a sound and well-controlled operational environment. These processes support the Bancorp’s goals to
minimize future operational losses and strengthen the Bancorp’s performance by maintaining sufficient capital to absorb operational losses
that are incurred.
The Bancorp also maintains a robust information security program to support the management of cyber-security risk within the organization
with a focus on prevention, detection and recovery processes. Fifth Third utilizes a wide array of techniques to secure its operations and
proprietary information such as Board-approved policies and programs, network monitoring and testing, access controls and dedicated
security personnel. Fifth Third has adopted the National Institute of Standards and Technology Cybersecurity Framework for the management
and deployment of cyber-security controls and is an active participant in the financial sector information sharing organization structure,
known as the Financial Services Information Sharing and Analysis Center. To ensure resiliency of key Bancorp functions, Fifth Third also
employs redundancy protocols that include a robust business continuity function that works to mitigate any potential impacts to Fifth Third
customers and its systems.
Fifth Third also focuses on the reporting and escalation of operational control issues to senior management and the Board of Directors. The
Operational Risk Committee is the key committee that oversees and supports Fifth Third in the management of operational risk across the
enterprise. The Operational Risk Committee reports to the ERMC, which reports to the Risk and Compliance Joint Committee of the Board of
Directors of Fifth Third Bancorp and Fifth Third Bank, National Association.
The COVID-19 pandemic has created heightened operational risks and impacts to the Bancorp, including risks related to new systems and
processes to support remote work strategies, new customer hardship programs and functions that cannot be fully executed by outsourced
service providers. Additionally, increased external threats have increased fraud and cyber-security risks. These risks continue to be carefully
managed and monitored to ensure effective controls are in place, with appropriate oversight and governance by the second line of defense.
Fifth Third has a defined pandemic plan and robust business continuity management process, which have been leveraged to support the
continuity of processes across the Bank. Fifth Third’s operational risk management team has been actively engaged to oversee and evaluate
business changes required to ensure continuity of critical business services with the focus on impacts to customers and Bancorp employees.
122 Fifth Third Bancorp
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
LEGAL AND REGULATORY COMPLIANCE RISK MANAGEMENT
Legal and regulatory compliance risk is the risk of legal or regulatory sanctions, financial loss or damage to reputation as a result of
noncompliance with (i) applicable laws, regulations, rules and other regulatory requirements (including but not limited to the risk of
consumers experiencing economic loss or other legal harm as a result of noncompliance with consumer protection laws, regulations and
requirements); (ii) internal policies and procedures, standards of best practice or codes of conduct; and (iii) principles of integrity and fair
dealing applicable to Fifth Third’s activities and functions. Legal risks include the risk of actions against the institution that result in
unenforceable contracts, lawsuits, legal sanctions, or adverse judgments, which disrupt or otherwise negatively affect the operations or
condition of the institution. Failure to effectively manage such risks can elevate the risk level or manifest itself as other types of key risks,
including reputational or operational risk. Fifth Third focuses on managing legal and regulatory compliance risk in accordance with the
Bancorp’s integrated risk management framework, which ensures consistent processes for identifying, assessing, managing, monitoring and
reporting risks. The Bancorp’s risk management goal is to keep compliance risk at appropriate levels, consistent with the Bancorp’s risk
appetite.
To mitigate such risks, Compliance Risk Management provides independent oversight to foster consistency and sufficiency in the execution
of the program, and ensures that lines of business and support functions are adequately identifying, assessing and monitoring legal and
regulatory compliance risks and adopting proper mitigation strategies. Moreover, such strategies are modified from time to time to respond to
new or emerging risks in the environment. Compliance Risk Management and the Legal Division provide guidance to the lines of business
and enterprise functions, which are ultimately responsible for managing such risks associated with their areas. The Chief Compliance Officer
is responsible for formulating and directing the strategy, development, implementation, communication and maintenance of the Compliance
Risk Management program, which implements key compliance processes, including but not limited to, executive- and board-level governance
and reporting routines, compliance-related policies, risk assessments, key risk indicators, issues tracking, regulatory change management, and
regulatory compliance testing and monitoring. Compliance Risk Management and the Legal Division partner with the Financial Crimes
Division to oversee anti-money laundering processes, and Compliance Risk Management also partners with the Community and Economic
Development team to oversee the Bancorp’s compliance with the Community Reinvestment Act.
Fifth Third also reports and escalates legal and regulatory compliance issues to senior management and the Board of Directors. The
Management Compliance Committee, which is chaired by the Chief Compliance Officer, is the key committee that oversees and supports
Fifth Third in the management of compliance risk across the enterprise. The Management Compliance Committee oversees Bancorp-wide
compliance issues, industry best practices, legislative developments, regulatory concerns and other leading indicators of legal and regulatory
compliance risk. The Management Compliance Committee reports to the ERMC, which reports to the Risk and Compliance Joint Committee
of the Board of Directors of Fifth Third Bancorp and Fifth Third Bank, National Association.
123 Fifth Third Bancorp
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
CAPITAL MANAGEMENT
Management regularly reviews the Bancorp’s capital levels to help ensure it is appropriately positioned under various operating
environments. The Bancorp has established a Capital Committee which is responsible for making capital plan recommendations to
management. These recommendations are reviewed by the ERMC and the annual capital plan is approved by the Board of Directors. The
Capital Committee is responsible for execution and oversight of the capital actions of the capital plan.
Regulatory Capital Ratios
The Basel III Final Rule sets minimum regulatory capital ratios as well as defines the measure of “well-capitalized” for insured depository
institutions.
TABLE 70: Prescribed Capital Ratios
CET1 capital:
Fifth Third Bancorp
Fifth Third Bank, National Association
Tier I risk-based capital:
Fifth Third Bancorp
Fifth Third Bank, National Association
Total risk-based capital:
Fifth Third Bancorp
Fifth Third Bank, National Association
Tier I leverage:
Fifth Third Bancorp
Fifth Third Bank, National Association
Minimum
Well-Capitalized
4.50 %
4.50
6.00
6.00
8.00
8.00
4.00
4.00
N/A
6.50
6.00
8.00
10.00
10.00
N/A
5.00
The Bancorp was subject to a capital conservation buffer of 2.5%, in addition to the minimum capital ratios, in order to avoid limitations on
certain capital distributions and discretionary bonus payments to executive officers through September 30, 2020. On October 1, 2020, the
Bancorp became subject to the stress capital buffer requirement which replaced the capital conservation buffer. During each supervisory
stress testing cycle, the FRB uses the Bancorp’s supervisory stress test to determine its stress capital buffer, subject to a floor of 2.5%. On
August 7, 2020, the FRB provided the Bancorp a final stress capital buffer requirement of 2.5% which is effective for the period of October 1,
2020 to September 30, 2021. After evaluating the Bancorp’s capital plan which was re-submitted on November 5, 2020, the FRB may update
the Bancorp’s stress capital buffer until March 31, 2021. The Bancorp exceeded these “capital conservation buffer” and “stress capital buffer”
ratios for all periods presented.
In April 2018, the federal banking regulators proposed transitional arrangements to permit banking organizations to phase in the day-one
impact of the adoption of ASU 2016-13, referred to as CECL, on regulatory capital over a period of three years. The proposed rule was
adopted as final effective July 1, 2019. The phase-in provisions of the final rule are optional for a banking organization that experiences a
reduction in retained earnings due to CECL adoption as of the beginning of the fiscal year in which the banking organization adopts CECL. A
banking organization that elects the phase-in provisions of the final rule for regulatory capital purposes must phase in 25% of the transitional
amounts impacting regulatory capital in the first year of adoption of CECL, 50% in the second year, 75% in the third year, with full impact
beginning in the fourth year.
In March 2020, the banking agencies issued an interim final rule for additional transitional relief to regulatory capital related to the impact of
the adoption of CECL given the disruption in economic activity caused by the COVID-19 pandemic. The interim final rule provides banking
organizations that adopt CECL in the 2020 calendar year with the option to delay for two years the estimated impact of CECL on regulatory
capital, followed by the aforementioned three-year transition period to phase out the aggregate amount of benefit during the initial two-year
delay for a total five-year transition. The estimated impact of CECL on regulatory capital (modified CECL transitional amount) is calculated
as the sum of the day-one impact on retained earnings upon adoption of CECL (CECL transitional amount) and the calculated change in the
ACL relative to the day-one ACL upon adoption of CECL multiplied by a scaling factor of 25%. The scaling factor is used to approximate
the difference in the ACL under CECL relative to the incurred loss methodology. The modified CECL transitional amount will be calculated
each quarter for the first two years of the five-year transition. The amount of the modified CECL transition amount will be fixed as of
December 31, 2021 and that amount will be subject to the three-year phase out.
The Bancorp adopted ASU 2016-13 on January 1, 2020 and elected the five-year transition phase-in option for the impact of CECL on
regulatory capital with its regulatory filings as of March 31, 2020. The impact of the modified CECL transition amount on the Bancorp’s
regulatory capital at December 31, 2020 was an increase in capital of approximately $630 million. On a fully phased-in basis, the Bancorp’s
CET1 ratio would be reduced by 39 basis points as of December 31, 2020. For additional information on ASU 2016-13, refer to Note 1 of the
Notes to Consolidated Financial Statements.
On July 22, 2019, the federal banking regulators published the Regulatory Capital Simplification final rule in the Federal Register. Under the
final rule, non-advanced approach banks, such as the Bancorp, will be subject to simpler regulatory capital requirements for mortgage
124 Fifth Third Bancorp
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
servicing assets, certain deferred tax assets arising from temporary differences and investments in the capital of unconsolidated financial
institutions than those currently applied. The final rule increases the deduction threshold for mortgage servicing assets, certain deferred tax
assets arising from temporary differences and investments in the capital of unconsolidated financial institutions from 10% to 25% of CET1,
but increases the risk-weighted assets percentage for the non-deducted elements from 100% to 250%. The final rule pertaining to these
regulatory capital elements was effective on April 1, 2020.
The following table summarizes the Bancorp’s capital ratios as of December 31:
TABLE 71: Capital Ratios
($ in millions)
Average total Bancorp shareholders’ equity as a percent of average assets
Tangible equity as a percent of tangible assets(a)(c)(d)
Tangible common equity as a percent of tangible assets(a)(c)(d)
Regulatory capital:
CET1 capital(b)
Tier I capital(b)
Total regulatory capital(b)
Risk-weighted assets
Regulatory capital ratios:(b)
CET1 capital
Tier I risk-based capital
Total risk-based capital
Tier I leverage(d)
2020
11.61 %
8.18
7.11
2019
2018
2017
2016
12.14
9.52
8.44
11.23
9.63
8.71
11.69
9.79
8.83
11.57
9.72
8.77
$ 14,682
16,797
21,412
141,974
13,847
15,616
19,661
142,065
12,534
13,864
17,723
122,432
12,517
13,848
17,887
117,997
12,426
13,756
17,972
119,632
10.34 %
11.83
15.08
8.49
9.75
10.99
13.84
9.54
10.24
11.32
14.48
9.72
10.61
11.74
15.16
10.01
10.39
11.50
15.02
9.90
(a) These are non-GAAP measures. For further information, refer to the Non-GAAP Financial Measures section of MD&A.
(b) Regulatory capital ratios as of December 31, 2020 are calculated pursuant to the five-year transition provision option to phase in the effects of CECL on
regulatory capital.
(c) Excludes AOCI.
(d) The decrease in these capital ratios is primarily attributable to the Bancorp’s growth of assets during the year ended December 31, 2020.
Capital Planning
In 2011, the FRB adopted the capital plan rule, which requires BHCs with consolidated assets of $50 billion or more to submit annual capital
plans to the FRB for review. Under the rule, these capital plans must include detailed descriptions of the following: the BHC’s internal
processes for assessing capital adequacy; the policies governing capital actions such as common stock issuances, dividends and share
repurchases; and all planned capital actions over a nine-quarter planning horizon. Furthermore, each BHC must report to the FRB the results
of stress tests conducted by the BHC under a number of scenarios that assess the sources and uses of capital under baseline and stressed
economic conditions.
On October 10, 2019, the Federal Reserve Board adopted final rules to tailor certain prudential standards for large domestic and foreign
banking organizations. As a result of the EPS Tailoring Rule, the Bancorp is subject to category IV standards, under which the Bancorp is no
longer required to file semi-annual, company-run stress tests with the FRB and publicly disclose the results. As an institution subject to
category IV standards, the Bancorp is subject to the FRB’s supervisory stress tests every two years, the Board capital plan rule and FR Y-14
reporting requirements. The supervisory stress tests are forward-looking quantitative evaluations of the impact of stressful economic and
financial market conditions on the Bancorp's capital. The Bancorp became subject to category IV standards on December 31, 2019, and the
requirements outlined above apply to the stress test cycle that started on January 1, 2020. As noted above, the Bancorp remains subject to the
Board’s capital plan rule, and its requirement to develop and maintain a capital plan, and the Board of Directors of the Bancorp must review
and approve the capital plan.
On March 4, 2020, the Bancorp was informed by the FRB that the deadline to submit the required information related to its capital plan
within the FR Y-14A was extended until April 5, 2021, with the exception of the information contained in Schedule C – Regulatory Capital
Instruments. The information contained in Schedule C remained due on or before April 6, 2020, which the Bancorp submitted as required.
In June 2019, the Bancorp announced its capital distribution capacity of approximately $2 billion for the period of July 1, 2019 through June
30, 2020. This included the ability to execute share repurchases up to $1.24 billion as well as increase quarterly common stock dividends by
up to $0.03 per share. These distributions were governed under the FRB’s 2019 extended stress test process for BHCs with less than $250
billion of total consolidated assets. On March 16, 2020, the Bancorp announced it was temporarily suspending share repurchases that it had
capacity to execute under the 2019 CCAR plan. The decision on share repurchases is consistent with Fifth Third’s objective to use the
Bancorp’s capital and liquidity to provide support to individuals, businesses and the broader economy through lending and other important
services. Fifth Third did not execute any open market or accelerated share repurchases in 2020.
In June 2020, the FRB took several actions in connection with its announcement of stress test results in light of the uncertainty caused by the
COVID-19 pandemic. Specifically, for the third quarter of 2020, the FRB required large banking organizations, including the Bancorp, to
125 Fifth Third Bancorp
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
suspend share repurchases, cap dividend payments to the amount paid during the second quarter of 2020, and further limit dividends
according to a formula based on recent income. The FRB also required large banking organizations, including the Bancorp, to reevaluate their
longer-term capital plans, and such organizations will be required to update and resubmit their capital plans later this year to reflect current
stresses caused by the COVID-19 pandemic. The FRB may conduct additional analysis each quarter to determine if adjustments to this
response are appropriate.
In September 2020, the Bancorp was informed by the FRB that the capital plan resubmission due date was November 2, 2020, which the
Bancorp submitted, as required. Additionally, on September 30, 2020 the FRB extended the third quarter of 2020 restrictions on share
repurchases and dividends to the fourth quarter of 2020, and dividends remained limited according to a formula based on recent income.
In December 2020, in connection with its announcement of the stress test resubmission results, the FRB extended the fourth quarter of 2020
restrictions on share repurchases and dividends to the first quarter of 2021, with modifications. Specifically, the Bancorp is authorized to pay
dividends and execute share repurchases according to a formula based on recent income provided the Bancorp does not increase the amount
of its dividend. For further information on a subsequent event related to an accelerated share repurchase transaction, refer to Note 33 of the
Notes to Consolidated Financial Statements.
Preferred Stock Transactions
On July 30, 2020, the Bancorp issued in a registered public offering 350,000 depositary shares, representing 14,000 shares of 4.50% fixed-
rate reset non-cumulative perpetual preferred stock, Series L, for net proceeds of approximately $346 million. Each preferred share has a
$25,000 liquidation preference.
For more information on the preferred stock offering, including disclosure on the redemption options, refer to Note 25 of the Notes to
Consolidated Financial Statements.
Dividend Policy and Stock Repurchase Program
The Bancorp’s common stock dividend policy and stock repurchase program reflect its earnings outlook, desired payout ratios, the need to
maintain adequate capital levels, the ability of its subsidiaries to pay dividends and the need to comply with safe and sound banking practices
as well as meet regulatory requirements and expectations. The Bancorp declared dividends per common share of $1.08 and $0.94 during the
years ended December 31, 2020 and 2019, respectively.
The following table summarizes shares authorized for repurchase as part of publicly announced plans or programs:
TABLE 72: Share Repurchases
For the years ended December 31
Shares authorized for repurchase at January 1
Additional authorizations
Share repurchases(a)
Shares authorized for repurchase at December 31
Average price paid per share(a)
2020
76,437,348
—
—
76,437,348
—
2019
60,564,282
80,474,957
(64,601,891)
76,437,348
26.05
$
(a) Excludes 1,915,872 and 2,693,318 shares repurchased during the years ended December 31, 2020 and 2019, respectively, in connection with various employee
compensation plans. These purchases are not included in the calculation for average price paid per share and do not count against the maximum number of
shares that may yet be repurchased under the Board of Directors’ authorization.
126 Fifth Third Bancorp
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OFF-BALANCE SHEET ARRANGEMENTS
In the ordinary course of business, the Bancorp enters into financial transactions that are considered off-balance sheet arrangements as they
involve varying elements of interest rate, price, credit and liquidity risk in excess of the amounts recognized in the Bancorp’s Consolidated
Balance Sheets. The Bancorp’s off-balance sheet arrangements include commitments, contingent liabilities, guarantees and transactions with
non-consolidated VIEs. A brief discussion of these transactions is as follows:
Commitments
The Bancorp has certain commitments to make future payments under contracts, including commitments to extend credit, forward contracts
related to residential mortgage loans held for sale, letters of credit, purchase obligations, capital commitments for private equity investments
and capital expenditures. Refer to Note 19 of the Notes to Consolidated Financial Statements for additional information on commitments.
Contingent Liabilities and Guarantees
The Bancorp has performance obligations upon the occurrence of certain events provided in certain contractual arrangements, including
residential mortgage loans sold with representation and warranty provisions. Refer to Note 19 of the Notes to Consolidated Financial
Statements for additional information on contingent liabilities and guarantees.
Transactions with Non-consolidated VIEs
The Bancorp engages in a variety of activities that involve VIEs, which are legal entities that lack sufficient equity to finance their activities,
or the equity investors of the entities as a group lack any of the characteristics of a controlling interest. The investments in those entities in
which the Bancorp was determined not to be the primary beneficiary but holds a variable interest in the entity are accounted for under the
equity method of accounting or other accounting standards as appropriate and not consolidated. Refer to Note 13 of the Notes to Consolidated
Financial Statements for additional information on non-consolidated VIEs.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
CONTRACTUAL OBLIGATIONS AND OTHER COMMITMENTS
The Bancorp has certain obligations and commitments to make future payments under contracts. The aggregate contractual obligations and
commitments at December 31, 2020 are shown in Table 73. As of December 31, 2020, the Bancorp had unrecognized tax benefits that, if
recognized, would impact the effective tax rate in future periods. Due to the uncertainty of the amounts to be ultimately paid as well as the
timing of such payments, all uncertain tax liabilities that have not been paid have been excluded from the following table. For further detail
on the impact of income taxes, refer to Note 22 of the Notes to Consolidated Financial Statements.
TABLE 73: Contractual Obligations and Other Commitments
As of December 31, 2020 ($ in millions)
Contractually obligated payments due by period:
Deposits with no stated maturity(a)(b)
Long-term debt(a)(c)
Time deposits(a)(d)
Forward contracts related to residential mortgage loans held for
sale(f)
Short-term borrowings(a)(e)
Operating lease obligations(g)
Partnership investment commitments(h)
Purchase obligations and capital expenditures(j)
Finance lease obligations(g)
Pension benefit payments(i)
Total contractually obligated payments due by period
Other commitments by expiration period:
Commitments to extend credit(k)
Letters of credit(l)
Total other commitments by expiration period
Less than 1
year
1-3 years
3-5 years
Greater than
5 years
Total
$
$
$
$
154,032
3,162
4,413
2,903
1,492
86
223
76
18
18
166,423
26,372
1,098
27,470
—
3,164
483
—
—
155
188
135
35
35
4,195
—
3,997
132
—
—
123
30
59
27
34
4,402
23,567
565
24,132
16,997
318
17,315
—
4,650
21
—
—
246
37
—
78
66
5,098
7,646
1
7,647
154,032
14,973
5,049
2,903
1,492
610
478
270
158
153
180,118
74,582
1,982
76,564
(a)
(b)
(c)
(d)
(e)
Interest-bearing obligations are principally used to fund interest-earning assets. Interest charges on contractual obligations were excluded from reported
amounts, as the potential cash outflows would have corresponding cash inflows from interest-earning assets.
Includes demand, interest checking, savings, money market and foreign office deposits. For additional information, refer to the Deposits subsection of the Balance
Sheet Analysis section of MD&A.
Includes debt obligations with an original maturity of greater than one year. Refer to Note 18 of the Notes to Consolidated Financial Statements for additional
information on these debt instruments.
Includes other time deposits and certificates $100,000 and over. For additional information, refer to the Deposits subsection of the Balance Sheet Analysis section
of MD&A.
Includes federal funds purchased and borrowings with an original maturity of less than one year. For additional information, refer to Note 17 of the Notes to
Consolidated Financial Statements.
Refer to Note 15 of the Notes to Consolidated Financial Statements for additional information on forward contracts to sell residential mortgage loans.
(f)
(g) Refer to Note 10 of the Notes to Consolidated Financial Statements for additional information on lease obligations.
Includes LIHTC investments. For additional information, refer to Note 13 of the Notes to Consolidated Financial Statements.
(h)
Refer to Note 23 of the Notes to Consolidated Financial Statements for additional information on pension obligations.
(i)
(j)
Represents agreements to purchase goods or services and includes commitments to various general contractors for work related to banking center construction.
(k) Commitments to extend credit are agreements to lend, typically having fixed expiration dates or other termination clauses that may require payment of a fee.
Many of the commitments to extend credit may expire without being drawn upon. The total commitment amounts include capital commitments for private equity
investments and do not necessarily represent future cash flow requirements. For additional information, refer to Note 19 of the Notes to Consolidated Financial
Statements.
Letters of credit are conditional commitments issued to guarantee the performance of a customer to a third party. For additional information, refer to Note 19 of
the Notes to Consolidated Financial Statements.
(l)
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
This information is set forth in the Interest Rate and Price Risk Management section of Item 7 of this Report on pages 114-119 and is
incorporated herein by reference. This information contains certain statements that we believe are forward-looking statements. Refer to page
19 for cautionary information regarding forward-looking statements.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
128 Fifth Third Bancorp
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the shareholders and the Board of Directors of Fifth Third Bancorp:
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Fifth Third Bancorp and subsidiaries (the “Bancorp”) as of December 31,
2020 and 2019, the related consolidated statements of income, comprehensive income, changes in equity, and cash flows for each of the three
years in the period ended December 31, 2020, and the related notes (collectively referred to as the “financial statements”). In our opinion, the
financial statements present fairly, in all material respects, the financial position of the Bancorp as of December 31, 2020 and 2019, and the
results of its operations and its cash flows for each of the three years in the period ended December 31, 2020, in conformity with accounting
principles generally accepted in the United States of America.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the
Bancorp’s internal control over financial reporting as of December 31, 2020, based on the criteria established in Internal Control—Integrated
Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 26,
2021 expressed an unqualified opinion on the Bancorp’s internal control over financial reporting.
Change in Accounting Principle
As discussed in Note 1 to the Consolidated Financial Statements, the Bancorp has changed its method of accounting for financial assets
measured at amortized cost in 2020 due to adoption of ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of
Credit Losses on Financial Instruments.
Basis for Opinion
These financial statements are the responsibility of the Bancorp’s management. Our responsibility is to express an opinion on the Bancorp’s
financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with
respect to the Bancorp in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and
Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our
audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud,
and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts
and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made
by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable
basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was
communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the
financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit
matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical
audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Allowance for Loan and Lease Losses (“ALLL”) — Qualitative Factors — Commercial Loans—Refer to Note 1 and Note 7 of the
Notes to Consolidated Financial Statements
Critical Audit Matter Description
The Bancorp maintains the ALLL to absorb the amount of credit losses that are expected to be incurred over the remaining contractual terms
of the related loans and leases. The Bancorp’s methodology for determining the ALLL includes an estimate of expected credit losses on a
collective basis for groups of loans and leases with similar risk characteristics and specific allowances for loans and leases which are
individually evaluated.
For loans that are not individually evaluated, the Bancorp develops its estimate of expected credit losses using quantitative models, subject to
certain qualitative adjustments. The expected credit loss models consider historical credit loss experience, current market and economic
conditions, and forecasted changes in market and economic conditions to the extent such forecasts are considered reasonable and supportable.
129 Fifth Third Bancorp
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Qualitative factors are used to capture characteristics in the portfolio that impact expected credit losses but that are not fully captured within
the Bancorp’s quantitative models.
At December 31, 2020, the key qualitative factors included adjustments associated with the current economic environment and the
COVID-19 pandemic. These qualitative factors address the incremental loss exposures relating to commercial borrowers in certain industries
which have been severely impacted by the COVID-19 pandemic or are otherwise experiencing prolonged distress. The qualitative factors also
include an adjustment to address the impact of unemployment metrics on the expected credit loss models.
The ALLL for the commercial portfolio segment was $1.5 billion at December 31, 2020, which includes adjustments for the qualitative
factors noted above.
Considering the estimation and judgment in determining adjustments for such qualitative factors, our audit of the ALLL and the related
disclosures involved subjective judgment about the qualitative adjustments to the commercial portfolio segment ALLL.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to the qualitative adjustments for the commercial portfolio segment ALLL included the following, among others:
• We tested the effectiveness of the Bancorp’s controls over the qualitative adjustments to the ALLL.
• We assessed the reasonableness of, and evaluated support for, key qualitative adjustments based on market conditions, external
market data and commercial portfolio performance metrics.
• We tested the completeness and accuracy and evaluated the relevance of the key data used as inputs to the direct impact qualitative
adjustment estimation process, including:
◦
◦
Portfolio segment loan balances and other borrower-specific data
Relevant macroeconomic indicators and data
• With the assistance of our credit specialists, we evaluated the methodology and tested the mathematical accuracy of the underlying
support used as a basis for the qualitative adjustments.
/s/ Deloitte & Touche LLP
Cincinnati, Ohio
February 26, 2021
We have served as the Company’s auditor since 1970.
130 Fifth Third Bancorp
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CONSOLIDATED BALANCE SHEETS
As of December 31 ($ in millions, except share data)
Assets
Cash and due from banks
Other short-term investments(a)
Available-for-sale debt and other securities(b)
Held-to-maturity securities(c)
Trading debt securities
Equity securities
Loans and leases held for sale(d)
Portfolio loans and leases(a)(e)
Allowance for loan and lease losses(a)
Portfolio loans and leases, net
Bank premises and equipment(f)
Operating lease equipment
Goodwill
Intangible assets
Servicing rights
Other assets(a)
Total Assets
Liabilities
Deposits:
Noninterest-bearing deposits
Interest-bearing deposits(g)
Total deposits
Federal funds purchased
Other short-term borrowings
Accrued taxes, interest and expenses
Other liabilities(a)
Long-term debt(a)
Total Liabilities
Equity
Common stock(h)
Preferred stock(i)
Capital surplus
Retained earnings
Accumulated other comprehensive income
Treasury stock(h)
Total Equity
Total Liabilities and Equity
2020
2019
$
$
$
$
$
$
$
3,147
33,399
37,513
11
560
313
4,741
108,782
(2,453)
106,329
2,088
777
4,258
139
656
10,749
204,680
57,711
101,370
159,081
300
1,192
2,614
3,409
14,973
181,569
2,051
2,116
3,635
18,384
2,601
(5,676)
23,111
204,680
3,278
1,950
36,028
17
297
564
1,400
109,558
(1,202)
108,356
1,995
848
4,252
201
993
9,190
169,369
35,968
91,094
127,062
260
1,011
2,441
2,422
14,970
148,166
2,051
1,770
3,599
18,315
1,192
(5,724)
21,203
169,369
(a)
Includes $55 and $74 of other short-term investments, $756 and $1,354 of portfolio loans and leases, $(7) and $(7) of ALLL, $5 and $8 of other assets, $2 and $2
of other liabilities and $656 and $1,253 of long-term debt from consolidated VIEs that are included in their respective captions above at December 31, 2020 and
2019, respectively. For further information, refer to Note 13.
(b) Amortized cost of $34,982 and $34,966 at December 31, 2020 and 2019, respectively.
(c) Fair value of $11 and $17 at December 31, 2020 and 2019, respectively.
(d)
(e)
(f)
(g)
(h) Common shares: Stated value $2.22 per share; authorized 2,000,000,000; outstanding at December 31, 2020 – 712,760,325 (excludes 211,132,256 treasury
Includes $1,481 and $1,264 of residential mortgage loans held for sale measured at fair value at December 31, 2020 and 2019, respectively.
Includes $161 and $183 of residential mortgage loans measured at fair value at December 31, 2020 and 2019, respectively.
Includes $35 and $27 of bank premises and equipment held for sale at December 31, 2020 and 2019, respectively. For further information, refer to Note 8.
Includes $351 of interest checking deposits held for sale at December 31, 2020.
(i)
shares), 2019 – 708,915,629 (excludes 214,976,952 treasury shares).
500,000 shares of no par value preferred stock were authorized at both December 31, 2020 and 2019. There were 422,000 and 436,000 unissued shares of
undesignated no par value preferred stock at December 31, 2020 and 2019, respectively. Each issued share of no par value preferred stock has a liquidation
preference of $25,000. 500,000 shares of no par value Class B preferred stock were authorized at both December 31, 2020 and 2019. There were 300,000
unissued shares of undesignated no par value Class B preferred stock at both December 31, 2020 and 2019. Each issued share of no par value Class B preferred
stock has a liquidation preference of $1,000.
Refer to the Notes to Consolidated Financial Statements.
131 Fifth Third Bancorp
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CONSOLIDATED STATEMENTS OF INCOME
For the years ended December 31 ($ in millions, except share data)
Interest Income
Interest and fees on loans and leases
Interest on securities
Interest on other short-term investments
Total interest income
Interest Expense
Interest on deposits
Interest on federal funds purchased
Interest on other short-term borrowings
Interest on long-term debt
Total interest expense
Net Interest Income
Provision for credit losses
Net Interest Income After Provision for Credit Losses
Noninterest Income(a)
Service charges on deposits
Commercial banking revenue
Wealth and asset management revenue
Card and processing revenue
Mortgage banking net revenue
Leasing business revenue
Other noninterest income
Securities gains (losses), net
Securities gains (losses), net - non-qualifying hedges on mortgage servicing rights
Total noninterest income
Noninterest Expense(a)
Compensation and benefits
Technology and communications
Net occupancy expense
Leasing business expense
Equipment expense
Card and processing expense
Marketing expense
Other noninterest expense
Total noninterest expense
Income Before Income Taxes
Applicable income tax expense
Net Income
Dividends on preferred stock
Net Income Available to Common Shareholders
Earnings per share - basic
Earnings per share - diluted
Average common shares outstanding - basic
Average common shares outstanding - diluted
$
2020
2019
2018
4,424
1,119
29
5,572
322
2
14
452
790
4,782
1,097
3,685
559
528
520
352
320
276
211
62
2
2,830
5,051
1,162
41
6,254
892
29
28
508
1,457
4,797
471
4,326
565
460
487
360
287
270
1,064
40
3
3,536
4,078
1,080
25
5,183
538
30
29
446
1,043
4,140
207
3,933
549
408
444
329
212
114
803
(54)
(15)
2,790
2,590
362
350
140
130
121
104
921
4,718
1,797
370
1,427
104
1,323
1.84
1.83
714,729,585
719,735,415
2,418
422
332
133
129
130
162
934
4,660
3,202
690
2,512
93
2,419
3.38
3.33
710,433,611
720,065,498
2,115
285
292
76
123
123
147
797
3,958
2,765
572
2,193
75
2,118
3.11
3.06
673,346,168
685,488,498
$
$
$
(a) During the first quarter of 2020, certain noninterest income and noninterest expense line items were reclassified to better align disclosures to business activities.
These reclassifications were retrospectively applied to all prior periods presented. Total noninterest income and noninterest expense did not change as a result of
these reclassifications.
Refer to the Notes to Consolidated Financial Statements.
132 Fifth Third Bancorp
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CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
For the years ended December 31 ($ in millions)
Net Income
Other Comprehensive Income (Loss), Net of Tax:
Unrealized gains (losses) on available-for-sale debt securities:
Unrealized holding gains (losses) arising during the year
Reclassification adjustment for net (gains) losses included in net income
Unrealized gains on cash flow hedge derivatives:
Unrealized holding gains arising during the year
Reclassification adjustment for net (gains) losses included in net income
Defined benefit pension plans, net:
Net actuarial (loss) gain arising during the year
Reclassification of amounts to net periodic benefit costs
Other
Other comprehensive income (loss), net of tax
Comprehensive Income
Refer to the Notes to Consolidated Financial Statements.
2020
2019
2018
$
1,427
2,512
2,193
1,153
(34)
483
(187)
(9)
7
(4)
1,409
2,836
$
1,046
(7)
275
(13)
(5)
8
—
1,304
3,816
(371)
9
169
2
1
7
—
(183)
2,010
133 Fifth Third Bancorp
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CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
Bancorp Shareholders’ Equity
Capital
Surplus
Retained
Earnings
Accumulated
Other
Comprehensive
Income (Loss)
Common
Stock
$ 2,051
Preferred
Stock
1,331 2,790 14,957
Treasury
Stock
(5,002)
73
Total
Bancorp
Shareholders’
Equity
Non-
Controlling
Interests
Total
Equity
20 16,220
$ 2,051
6
1,331 2,790 14,963
(2)
71
(5,002)
(183)
2,193
(499)
(30)
(30)
(15)
41
42
$ 2,051
(4)
1,331 2,873 16,578
(112)
(1,494)
23
2
(6,471)
$ 2,051
1,331 2,873 16,588
(112)
(6,471)
10
1,304
2,512
(691)
(30)
(30)
(19)
(4)
(4)
(6)
242
197
712
14
2
(3)
1,770 3,599 18,315
$ 2,051
1,192
(1,763)
2,447
56
7
(5,724)
16,200
4
16,204
2,193
(183)
(499)
(30)
(30)
(15)
(1,453)
65
(2)
16,250
10
16,260
2,512
1,304
(691)
(30)
(30)
(19)
(4)
(4)
(6)
(1,763)
242
4
20 16,224
2,193
(183)
(499)
(30)
(30)
(15)
(1,453)
65
(20)
(22)
— 16,250
10
— 16,260
2,512
1,304
(691)
(30)
(30)
(19)
(4)
(4)
(6)
(1,763)
242
197
3,159
(197) —
197 3,356
72
4
21,203
72
4
— 21,203
($ in millions, except per share data)
Balance at December 31, 2017
Impact of cumulative effect of change in
accounting principle
Balance at January 1, 2018
Net income
Other comprehensive loss, net of tax
Cash dividends declared:
Common stock ($0.74 per share)
Preferred stock:(a)
Series H ($1,275.00 per share)
Series I ($1,656.24 per share)
Series J ($1,225.00 per share)
Shares acquired for treasury
Impact of stock transactions under stock
compensation plans, net
Other
Balance at December 31, 2018
Impact of cumulative effect of change in
accounting principle
Balance at January 1, 2019
Net income
Other comprehensive income, net of tax
Cash dividends declared:
Common stock ($0.94 per share)
Preferred stock:(a)
Series H ($1,275.00 per share)
Series I ($1,656.24 per share)
Series J ($1,559.42 per share)
Series K ($357.50 per share)
Class B, Series A ($20.83 per share)
Other(b) ($30.00 per share)
Shares acquired for treasury
Issuance of preferred stock
Conversion of outstanding preferred stock
issued by a Bancorp subsidiary
Impact of MB Financial, Inc. acquisition
Impact of stock transactions under stock
compensation plans, net
Other
Balance at December 31, 2019
134 Fifth Third Bancorp
Table of Contents
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (continued)
Bancorp Shareholders’ Equity
Capital
Surplus
Retained
Earnings
Accumulated
Other
Comprehensive
Income
1,770 3,599 18,315
1,192
Common
Stock
$ 2,051
Preferred
Stock
Total
Bancorp
Shareholders’
Equity
Treasury
Stock
(5,724)
Non-
Controlling
Interests
Total
Equity
— 21,203
($ in millions, except per share data)
Balance at December 31, 2019
Impact of cumulative effect of change in
accounting principle(c)
Balance at January 1, 2020
Net income
Other comprehensive income, net of tax
Cash dividends declared:
Common stock ($1.08 per share)
Preferred stock:(a)
Series H ($1,275.00 per share)
Series I ($1,656.24 per share)
Series J ($1,043.48 per share)
Series K ($1,237.52 per share)
Series L ($468.75 per share)
Class B, Series A ($60.00 per share)
Issuance of preferred stock
Impact of stock transactions under stock
compensation plans, net
$ 2,051
(472)
1,770 3,599 17,843
1,427
(780)
(31)
(30)
(12)
(12)
(7)
(12)
346
36
Other
Balance at December 31, 2020
$ 2,051
(2)
2,116 3,635 18,384
21,203
(472)
20,731
1,427
1,409
(780)
(31)
(30)
(12)
(12)
(7)
(12)
346
82
—
23,111
1,192
(5,724)
1,409
46
2
(5,676)
2,601
(472)
— 20,731
1,427
1,409
(780)
(31)
(30)
(12)
(12)
(7)
(12)
346
82
—
— 23,111
(a) Refer to Note 25 for further information on dividends declared for preferred stock.
(b) Dividends declared for Perpetual Preferred Stock, Series C, of MB Financial, Inc., previously a subsidiary of the Bancorp.
(c) Related to the adoption of ASU 2016-13 as of January 1, 2020. Refer to Note 1 for additional information.
Refer to the Notes to Consolidated Financial Statements.
135 Fifth Third Bancorp
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CONSOLIDATED STATEMENTS OF CASH FLOWS
For the years ended December 31 ($ in millions)
Operating Activities
Net income
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for credit losses
Depreciation, amortization and accretion
Stock-based compensation expense
(Benefit from) provision for deferred income taxes
Securities (gains) losses, net
MSR fair value adjustment
Net gains on sales of loans and fair value adjustments on loans held for sale
Net losses on disposition and impairment of bank premises and equipment
Net (gains) losses on disposition and impairment of operating lease equipment
Gain related to Vantiv, Inc.’s acquisition of Worldpay Group plc.
Gain on sale of Worldpay, Inc. shares
Gain on the TRA associated with Worldpay, Inc.
Proceeds from sales of loans held for sale
Loans originated or purchased for sale, net of repayments
Dividends representing return on equity investments
Net change in:
Equity and trading debt securities
Other assets
Accrued taxes, interest and expenses and other liabilities
Net Cash Provided by Operating Activities
Investing Activities
Proceeds from sales:
AFS securities and other investments
Loans and leases
Bank premises and equipment
Proceeds from repayments / maturities of AFS and HTM securities and other investments
Purchases:
AFS securities and other investments
Bank premises and equipment
MSRs
Proceeds from settlement of BOLI
Proceeds from sales and dividends representing return of equity investments
Net cash (paid) received for acquisitions and divestitures
Net change in:
Other short-term investments and federal funds sold
Portfolio loans and leases
Operating lease equipment
Net Cash Used in Investing Activities
Financing Activities
Net change in deposits
Net change in other short-term borrowings and federal funds purchased
Dividends paid on common and preferred stock
Proceeds from issuance of long-term debt
Repayment of long-term debt
Repurchases of treasury stock and related forward contract
Issuance of preferred stock
Other
Net Cash Provided by (Used in) Financing Activities
(Decrease) Increase in Cash and Due from Banks
Cash and Due from Banks at Beginning of Period
Cash and Due from Banks at End of Period
$
2020
2019
2018
$
1,427
2,512
2,193
1,097
492
123
(162)
(69)
565
(291)
31
(5)
—
—
(74)
12,481
(14,767)
17
12
(855)
349
371
1,743
157
33
3,646
(5,266)
(305)
(44)
19
69
(4)
(31,446)
(451)
(53)
(31,902)
32,019
182
(858)
2,557
(2,799)
—
346
(47)
31,400
(131)
3,278
3,147
471
472
132
(246)
(50)
376
(137)
23
1
—
(562)
(346)
8,157
(8,896)
66
(29)
20
(140)
1,824
10,596
259
90
2,271
(13,959)
(243)
(26)
28
1,057
1,210
(612)
(1,407)
(61)
(797)
3,742
(1,494)
(753)
3,866
(4,212)
(1,763)
242
(58)
(430)
597
2,681
3,278
207
360
127
30
69
83
(71)
43
(6)
(414)
(205)
(20)
5,199
(5,378)
12
132
303
192
2,856
12,430
305
57
1,851
(16,207)
(192)
(82)
16
604
(43)
928
(3,866)
58
(4,141)
5,673
(1,688)
(565)
2,438
(2,884)
(1,453)
—
(69)
1,452
167
2,514
2,681
Refer to the Notes to Consolidated Financial Statements. Note 2 contains cash payments related to interest and income taxes in addition to non-cash investing and
financing activities.
136 Fifth Third Bancorp
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of Significant Accounting and Reporting Policies
Nature of Operations
Fifth Third Bancorp, an Ohio corporation, conducts its principal lending, deposit gathering, transaction processing and service advisory
activities through its banking and non-banking subsidiaries from banking centers located throughout the Midwestern and Southeastern
regions of the United States.
Basis of Presentation
The Consolidated Financial Statements include the accounts of the Bancorp and its majority-owned subsidiaries and VIEs in which the
Bancorp has been determined to be the primary beneficiary. Other entities, including certain joint ventures, in which the Bancorp has the
ability to exercise significant influence over operating and financial policies of the investee, but upon which the Bancorp does not possess
control, are accounted for by the equity method of accounting and not consolidated. The investments in those entities in which the Bancorp
does not have the ability to exercise significant influence are generally carried at fair value unless the investment does not have a readily
determinable fair value. The Bancorp accounts for equity investments without a readily determinable fair value using the measurement
alternative to fair value, representing the cost of the investment minus any impairment recorded, if any, and plus or minus changes resulting
from observable price changes in orderly transactions for the identical or a similar investment of the same issuer. Intercompany transactions
and balances among consolidated entities have been eliminated. Certain prior period data has been reclassified to conform to current period
presentation. Specifically, certain line items within total noninterest income and total noninterest expense have been reclassified to better
align disclosures to business activities. These reclassifications were retrospectively applied to all prior periods presented. Total noninterest
income and noninterest expense did not change as a result of these reclassifications.
Use of Estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect
the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates.
Updates to Significant Accounting and Reporting Policies
In conjunction with the prospective adoption of ASU 2016-13 and ASU 2017-04 on January 1, 2020, the Bancorp has updated its accounting
and reporting policies for investment securities, portfolio loans and leases, the ALLL, the reserve for unfunded commitments and goodwill as
described below. The accounting and reporting policies for these sections for periods prior to January 1, 2020 are provided in the Significant
Accounting and Reporting Policies Applicable Prior to January 1, 2020 section below. Refer to the Accounting and Reporting Developments
section for additional information. Further, for loans and leases that were part of the Bancorp’s COVID-19 customer relief programs, the
Bancorp has elected certain accounting relief provisions that were provided by the FASB and/or various national banking regulatory agencies.
Refer to the Regulatory Developments Related to the COVID-19 Pandemic section for additional information.
Cash and Due from Banks
Cash and due from banks consist of currency and coin, cash items in the process of collection and due from banks. Currency and coin
includes both U.S. and foreign currency owned and held at Fifth Third offices and that is in-transit to the FRB. Cash items in the process of
collection include checks and drafts that are drawn on another depository institution or the FRB that are payable immediately upon
presentation in the U.S. Balances due from banks include noninterest-bearing balances that are funds on deposit at other depository
institutions or the FRB.
Investment Securities
Debt securities are classified as held-to-maturity, available-for-sale or trading on the date of purchase. Only those securities which
management has the intent and ability to hold to maturity are classified as held-to-maturity and reported at amortized cost. Debt securities are
classified as available-for-sale when, in management’s judgment, they may be sold in response to, or in anticipation of, changes in market
conditions. Debt securities are classified as trading when bought and held principally for the purpose of selling them in the near term. Trading
debt securities are reported at fair value with unrealized gains and losses included in noninterest income. Available-for-sale debt securities are
reported at fair value with unrealized gains and losses, net of related deferred income taxes, included in OCI. Accrued interest receivables on
investment securities are presented in the Consolidated Balance Sheets as a component of other assets.
Available-for-sale debt securities with unrealized losses are reviewed quarterly to determine if the decline in fair value is the result of a credit
loss or other factors. An allowance for credit losses is recorded against available-for-sale securities to reflect the amount of the unrealized loss
attributable to credit; however, this impairment is limited by the amount that the fair value is less than the amortized cost basis. Any
remaining unrealized loss is recognized through OCI. Changes in the allowance for credit losses are recognized in earnings.
The determination of whether or not a credit loss exists is based on consideration of the cash flows expected to be collected from the debt
security. The Bancorp develops these expectations after considering various factors such as agency ratings, the financial condition of the
issuer or underlying obligors, payment history, payment structure of the security, industry and market conditions, underlying collateral and
other factors which may be relevant based on the facts and circumstances pertaining to individual securities.
137 Fifth Third Bancorp
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
If the Bancorp intends to sell the debt security or will more likely than not be required to sell the debt security before recovery of its
amortized cost basis, then the allowance for credit losses, if previously recorded, is written off and the security’s amortized cost is written
down to the security’s fair value at the reporting date, with any incremental impairment recorded as a charge to noninterest income.
Held-to-maturity debt securities are assessed periodically to determine if a valuation allowance is necessary to absorb credit losses expected
to occur over the remaining contractual life of the securities. The carrying amount of held-to-maturity debt securities is presented net of the
valuation allowance for credit losses when such an allowance is deemed necessary.
Equity securities with readily determinable fair values not accounted for under the equity method are reported at fair value with unrealized
gains and losses included in noninterest income in the Consolidated Statements of Income. Equity securities without readily determinable fair
values are measured at cost minus impairment, if any, plus or minus changes as a result of an observable price change for the identical or
similar investment of the same issuer. At each quarterly reporting period, the Bancorp performs a qualitative assessment to evaluate whether
impairment indicators are present. If qualitative indicators are identified, the investment is measured at fair value with the impairment loss
included in noninterest income in the Consolidated Statements of Income.
The fair value of a security is determined based on quoted market prices. If quoted market prices are not available, fair value is determined
based on quoted prices of similar instruments or DCF models that incorporate market inputs and assumptions including discount rates,
prepayment speeds and loss rates.
Premiums on purchased callable debt securities are amortized to the earliest call date if the call feature meets certain criteria. Otherwise,
premiums are amortized to maturity similar to discounts on callable debt securities.
Realized securities gains or losses are reported within noninterest income in the Consolidated Statements of Income. The cost of securities
sold is based on the specific identification method.
Portfolio Loans and Leases
Basis of accounting
Portfolio loans and leases are generally reported at the principal amount outstanding, net of unearned income, deferred direct loan origination
fees and costs and any direct principal charge-offs. Direct loan origination fees and costs are deferred and the net amount is amortized over
the estimated life of the related loans as a yield adjustment. Interest income is recognized based on the principal balance outstanding
computed using the effective interest method.
Loans and leases acquired by the Bancorp through a purchase business combination are recorded at fair value as of the acquisition date.
Purchased loans and finance leases (including both sales-type leases and direct financing leases) are evaluated for evidence of credit
deterioration at acquisition and recorded at their initial fair value. For loans and finance leases that do not exhibit evidence of more-than-
insignificant credit deterioration since origination, the Bancorp does not carry over the acquired company’s ALLL, but upon acquisition will
record an ALLL and provision for credit losses reflective of credit losses expected to be incurred over the remaining contractual life of the
acquired loans. Premiums and discounts reflected in the initial fair value are amortized over the contractual life of the loan as an adjustment
to yield.
For loans and finance leases that exhibit evidence of more-than-insignificant credit quality deterioration since origination, the Bancorp’s
estimate of expected credit losses is added to the ALLL upon acquisition and to the initial purchase price of the loans and leases to determine
the initial amortized cost basis for the purchased financial assets with credit deterioration. Any resulting difference between the initial
amortized cost basis (as adjusted for expected credit losses) and the par value of the loans and leases at the acquisition date represents the
non-credit premium or discount, which is amortized over the contractual life of the loan or lease as an adjustment to yield. This method of
accounting for loans acquired with deteriorated credit quality does not apply to loans carried at fair value or residential mortgage loans held
for sale. Refer to the Accounting and Reporting Developments section for a discussion on the impact of the adoption of ASU 2016-13 on the
accounting for purchased loans and finance leases that exhibited evidence of more-than-insignificant credit deterioration since origination at
the time of purchase.
The Bancorp’s lease portfolio consists of sales-type, direct financing and leveraged leases. Sales-type and direct financing leases are carried
at the aggregate of lease payments plus estimated residual value of the leased property, less unearned income. Interest income on sales-type
and direct financing leases is recognized over the term of the lease to achieve a constant periodic rate of return on the outstanding investment.
Leveraged leases, entered into before January 1, 2019, are carried at the aggregate of lease payments (less nonrecourse debt payments) plus
estimated residual value of the leased property, less unearned income. Interest income on leveraged leases is recognized over the term of the
lease to achieve a constant rate of return on the outstanding investment in the lease, net of the related deferred income tax liability, in the
years in which the net investment is positive. Leveraged lease accounting is no longer applied for leases entered into or modified after the
Bancorp’s adoption of ASU 2016-02, Leases, on January 1, 2019.
138 Fifth Third Bancorp
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Nonaccrual loans and leases
When a loan is placed on nonaccrual status, the accrual of interest, amortization of loan premium, accretion of loan discount and
amortization/accretion of deferred net direct loan origination fees or costs are discontinued and all previously accrued and unpaid interest is
charged against income. Commercial loans are placed on nonaccrual status when there is a clear indication that the borrower’s cash flows
may not be sufficient to meet payments as they become due. Such loans are also placed on nonaccrual status when the principal or interest is
past due 90 days or more, unless the loan is both well-secured and in the process of collection. The Bancorp classifies residential mortgage
loans that have principal and interest payments that have become past due 150 days as nonaccrual unless the loan is both well-secured and in
the process of collection. Residential mortgage loans may stay on nonaccrual status for an extended time as the foreclosure process typically
lasts longer than 180 days. Home equity loans and lines of credit are reported on nonaccrual status if principal or interest has been in default
for 90 days or more unless the loan is both well-secured and in the process of collection. Home equity loans and lines of credit that have been
in default for 60 days or more are also reported on nonaccrual status if the senior lien has been in default 120 days or more, unless the loan is
both well secured and in the process of collection. Loans discharged in a Chapter 7 bankruptcy and not reaffirmed by the borrower are
classified as collateral-dependent TDRs and placed on nonaccrual status regardless of the borrower’s payment history or capacity to repay in
the future. Residential mortgage, home equity, automobile and other consumer loans that have been modified in a TDR and subsequently
become past due 90 days are placed on nonaccrual status unless the loan is both well-secured and in the process of collection. Commercial
and credit card loans that have been modified in a TDR are classified as nonaccrual unless such loans have sustained repayment performance
of six months or more and are reasonably assured of repayment in accordance with the restructured terms. Well-secured loans are
collateralized by perfected security interests in real and/or personal property for which the Bancorp estimates proceeds from the sale would be
sufficient to recover the outstanding principal and accrued interest balance of the loan and pay all costs to sell the collateral. The Bancorp
considers a loan in the process of collection if collection efforts or legal action is proceeding and the Bancorp expects to collect funds
sufficient to bring the loan current or recover the entire outstanding principal and accrued interest balance.
Nonaccrual commercial loans and nonaccrual credit card loans are generally accounted for on the cost recovery method. The Bancorp
believes the cost recovery method is appropriate for nonaccrual commercial loans and nonaccrual credit card loans because the assessment of
collectability of the remaining amortized cost basis of these loans involves a high degree of subjectivity and uncertainty due to the nature or
absence of underlying collateral. Under the cost recovery method, any payments received are applied to reduce principal. Once the entire
recorded investment is collected, additional payments received are treated as recoveries of amounts previously charged-off until recovered in
full, and any subsequent payments are treated as interest income. Nonaccrual residential mortgage loans and other nonaccrual consumer loans
are generally accounted for on the cash basis method. The Bancorp believes the cash basis method is appropriate for nonaccrual residential
mortgage and other nonaccrual consumer loans because such loans have generally been written down to estimated collateral values and the
collectability of the remaining investment involves only an assessment of the fair value of the underlying collateral, which can be measured
more objectively with a lesser degree of uncertainty than assessments of typical commercial loan collateral. Under the cash basis method,
interest income is recognized when cash is received, to the extent such income would have been accrued on the loan’s remaining balance at
the contractual rate. Nonaccrual loans may be returned to accrual status when all delinquent interest and principal payments become current
in accordance with the loan agreement and are reasonably assured of repayment in accordance with the contractual terms of the loan
agreement, or when the loan is both well-secured and in the process of collection.
Commercial loans on nonaccrual status, including those modified in a TDR, as well as criticized commercial loans with aggregate borrower
relationships exceeding $1 million, are subject to an individual review to identify charge-offs. The Bancorp does not have an established
delinquency threshold for partially or fully charging off commercial loans. Residential mortgage loans, home equity loans and lines of credit
and credit card loans that have principal and interest payments that have become past due 180 days are assessed for a charge-off to the ALLL,
unless such loans are both well-secured and in the process of collection. Home equity loans and lines of credit are also assessed for charge-off
to the ALLL when such loans or lines of credit have become past due 120 days if the senior lien is also 120 days past due, unless such loans
are both well-secured and in the process of collection. Automobile and other consumer loans that have principal and interest payments that
have become past due 120 days are assessed for a charge-off to the ALLL, unless such loans are both well-secured and in the process of
collection.
Restructured loans and leases
A loan is accounted for as a TDR if the Bancorp, for economic or legal reasons related to the borrower’s financial difficulties, grants a
concession to the borrower that it would not otherwise consider. TDRs include concessions granted under reorganization, arrangement or
other provisions of the Federal Bankruptcy Act. A TDR typically involves a modification of terms such as a reduction of the stated interest
rate or remaining principal amount of the loan, a reduction of accrued interest or an extension of the maturity date at a stated interest rate
lower than the current market rate for a new loan with similar risk.
The Bancorp measures the impairment loss of a TDR based on the difference between the original loan’s carrying amount and the present
value of expected future cash flows discounted at the original, effective yield of the loan. Except for loans discharged in a Chapter 7
bankruptcy that are not reaffirmed by the borrower, residential mortgage loans, home equity loans, automobile loans and other consumer
loans modified as part of a TDR are maintained on accrual status, provided there is reasonable assurance of repayment and of performance
according to the modified terms based upon a current, well-documented credit evaluation. Loans discharged in a Chapter 7 bankruptcy and
not reaffirmed by the borrower are classified as collateral-dependent TDRs and placed on nonaccrual status regardless of the borrower’s
139 Fifth Third Bancorp
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
payment history or capacity to repay in the future. These loans are returned to accrual status provided there is a sustained payment history of
twelve months after bankruptcy and collectability is reasonably assured for all remaining contractual payments.
Commercial loans and credit card loans modified as part of a TDR are maintained on accrual status provided there is a sustained payment
history of six months or more prior to the modification in accordance with the modified terms and collectability is reasonably assured for all
remaining contractual payments under the modified terms. TDRs of commercial loans and credit card loans that do not have a sustained
payment history of six months or more in accordance with their modified terms remain on nonaccrual status until a six-month payment
history is sustained. In certain cases, commercial TDRs on nonaccrual status may be accounted for using the cash basis method for income
recognition, provided that full repayment of principal under the modified terms of the loan is reasonably assured.
Residential mortgage loans that were restructured after receiving a forbearance related to the COVID-19 pandemic but that were not
classified as a TDR as a result of the CARES Act are placed on nonaccrual status if they subsequently become past due 90 days unless the
loan is both well-secured and in the process of collection, consistent with the Bancorp’s treatment of residential mortgage loan TDRs which
subsequently become past due. Refer to the Regulatory Developments Related to the COVID-19 Pandemic section for additional information.
Loans and Leases Held for Sale
Loans and leases held for sale primarily represent conforming fixed-rate residential mortgage loans originated or acquired with the intent to
sell in the secondary market and jumbo residential mortgage loans, commercial loans, other residential mortgage loans and other consumer
loans that management has the intent to sell. Loans and leases held for sale may be carried at the lower of cost or fair value, or carried at fair
value where the Bancorp has elected the fair value option of accounting under U.S. GAAP. The Bancorp has elected to measure certain
groups of loans held for sale under the fair value option, including certain residential mortgage loans originated as held for sale and certain
purchased commercial loans designated as held for sale at acquisition. For loans in which the Bancorp has not elected the fair value option,
the lower of cost or fair value is determined at the individual loan level.
The fair value of residential mortgage loans held for sale for which the fair value election has been made is estimated based upon mortgage-
backed securities prices and spreads to those prices or, for certain ARM loans, DCF models that may incorporate the anticipated portfolio
composition, credit spreads of asset-backed securities with similar collateral and market conditions. The anticipated portfolio composition
includes the effects of interest rate spreads and discount rates due to loan characteristics such as the state in which the loan was originated, the
loan amount and the ARM margin. These fair value marks are recorded as a component of noninterest income in mortgage banking net
revenue. For residential mortgage loans that it has originated as held for sale, the Bancorp generally has commitments to sell these loans in
the secondary market. Gains or losses on sales are recognized in mortgage banking net revenue.
Management’s intent to sell residential mortgage loans classified as held for sale may change over time due to such factors as changes in the
overall liquidity in markets or changes in characteristics specific to certain loans held for sale. Consequently, these loans may be reclassified
to loans held for investment and, thereafter, reported within the Bancorp’s residential mortgage class of portfolio loans and leases. In such
cases, if the fair value election was made, the residential mortgage loans will continue to be measured at fair value, which is based on
mortgage-backed securities prices, interest rate risk and an internally developed credit component.
Loans and leases held for sale are placed on nonaccrual status consistent with the Bancorp’s nonaccrual policy for portfolio loans and leases.
Other Real Estate Owned
OREO, which is included in other assets in the Consolidated Balance Sheets, represents property acquired through foreclosure or other
proceedings and branch-related real estate no longer intended to be used for banking purposes. OREO is carried at the lower of cost or fair
value, less costs to sell. All OREO property is periodically evaluated for impairment and decreases in carrying value are recognized as
reductions in other noninterest income in the Consolidated Statements of Income. For government-guaranteed mortgage loans, upon
foreclosure, a separate other receivable is recognized if certain conditions are met for the amount of the loan balance (principal and interest)
expected to be recovered from the guarantor. This receivable is also included in other assets, separate from OREO, in the Consolidated
Balance Sheets.
ALLL
The Bancorp disaggregates its portfolio loans and leases into portfolio segments for purposes of determining the ALLL. The Bancorp’s
portfolio segments include commercial, residential mortgage and consumer. The Bancorp further disaggregates its portfolio segments into
classes for purposes of monitoring and assessing credit quality based on certain risk characteristics. Classes within the commercial portfolio
segment include commercial and industrial, commercial mortgage owner-occupied, commercial mortgage nonowner-occupied, commercial
construction and commercial leasing. The residential mortgage portfolio segment is also considered a class. Classes within the consumer
portfolio segment include home equity, indirect secured consumer, credit card and other consumer loans. For an analysis of the Bancorp’s
ALLL by portfolio segment and credit quality information by class, refer to Note 7.
The Bancorp maintains the ALLL to absorb the amount of credit losses that are expected to be incurred over the remaining contractual terms
of the related loans and leases. Contractual terms are adjusted for expected prepayments but are not extended for expected extensions,
140 Fifth Third Bancorp
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
renewals or modifications except in circumstances where the Bancorp reasonably expects to execute a TDR with the borrower or where
certain extension or renewal options are embedded in the original contract and not unconditionally cancellable by the Bancorp.
Accrued interest receivable on loans is presented in the Consolidated Financial Statements as a component of other assets. When accrued
interest is deemed to be uncollectible (typically when a loan is placed on nonaccrual status), interest income is reversed. The Bancorp follows
established policies for placing loans on nonaccrual status, so uncollectible accrued interest receivable is reversed in a timely manner. As a
result, the Bancorp has elected not to measure an allowance for credit losses for accrued interest receivable. Refer to the Portfolio Loans and
Leases section for additional information.
Credit losses are charged and recoveries are credited to the ALLL. The ALLL is maintained at a level the Bancorp considers to be adequate
and is based on ongoing quarterly assessments and evaluations of the collectability of loans and leases, including historical credit loss
experience, current and forecasted market and economic conditions and consideration of various qualitative factors that, in management’s
judgment, deserve consideration in estimating credit losses. Provisions for credit losses are recorded for the amounts necessary to adjust the
ALLL to the Bancorp’s current estimate of expected credit losses on portfolio loans and leases. The Bancorp’s strategy for credit risk
management includes a combination of conservative exposure limits significantly below legal lending limits and conservative underwriting,
documentation and collections standards. The strategy also emphasizes diversification on a geographic, industry and customer level, regular
credit examinations and quarterly management reviews of large credit exposures and loans experiencing deterioration of credit quality.
The Bancorp’s methodology for determining the ALLL includes an estimate of expected credit losses on a collective basis for groups of loans
and leases with similar risk characteristics and specific allowances for loans and leases which are individually evaluated.
Larger commercial loans and leases included within aggregate borrower relationship balances exceeding $1 million that exhibit probable or
observed credit weaknesses, as well as loans that have been modified in a TDR, are individually evaluated for an ALLL. The Bancorp
considers the current value of collateral, credit quality of any guarantees, the guarantor’s liquidity and willingness to cooperate, the loan
structure and other factors when determining the amount of ALLL. Other factors may include the borrower’s susceptibility to risks presented
by the forecasted macroeconomic environment, the industry and geographic region of the borrower, size and financial condition of the
borrower, cash flow and leverage of the borrower and the Bancorp’s evaluation of the borrower’s management. When loans and leases are
individually evaluated, allowances are determined based on management’s estimate of the borrower’s ability to repay the loan or lease given
the availability of collateral and other sources of cash flow, as well as an evaluation of legal options available to the Bancorp. Allowances for
individually evaluated loans and leases that are collateral-dependent are measured based on the fair value of the underlying collateral, less
expected costs to sell where applicable. Individually evaluated loans and leases that are not collateral-dependent are measured based on the
present value of expected future cash flows discounted at the loan’s effective interest rate. The Bancorp evaluates the collectability of both
principal and interest when assessing the need for a loss accrual. Specific allowances on individually evaluated commercial loans and leases,
including TDRs, are reviewed quarterly and adjusted as necessary based on changing borrower and/or collateral conditions and actual
collection and charge-off experience.
Expected credit losses are estimated on a collective basis for loans and leases that are not individually evaluated. These include commercial
loans and leases that do not meet the criteria for individual evaluation as well as homogeneous loans and leases in the residential mortgage
and consumer portfolio segments. For collectively evaluated loans and leases, the Bancorp uses models to forecast expected credit losses
based on the probability of a loan or lease defaulting, the expected balance at the estimated date of default and the expected loss percentage
given a default. The estimate of the expected balance at the time of default considers prepayments and, for loans with available credit,
expected utilization rates. The Bancorp’s expected credit loss models were developed based on historical credit loss experience and
observations of migration patterns for various credit risk characteristics (such as internal credit risk grades, external credit ratings or scores,
delinquency status, loan-to-value trends, etc.) over time, with those observations evaluated in the context of concurrent macroeconomic
conditions. The Bancorp developed its models from historical observations capturing a full economic cycle when possible.
The Bancorp’s expected credit loss models consider historical credit loss experience, current market and economic conditions, and forecasted
changes in market and economic conditions if such forecasts are considered reasonable and supportable. Generally, the Bancorp considers its
forecasts to be reasonable and supportable for a period of up to three years from the estimation date. For periods beyond the reasonable and
supportable forecast period, expected credit losses are estimated by reverting to historical loss information without adjustment for changes in
economic conditions. This reversion is phased in over a two-year period. The Bancorp evaluates the length of its reasonable and supportable
forecast period, its reversion period and reversion methodology at least annually, or more often if warranted by economic conditions or other
circumstances.
The Bancorp also considers qualitative factors in determining the ALLL. Qualitative factors are used to capture characteristics in the portfolio
that impact expected credit losses but that are not fully captured within the Bancorp’s expected credit loss models. These include adjustments
for changes in policies or procedures in underwriting, monitoring or collections, lending and risk management personnel and results of
internal audit and quality control reviews. These may also include adjustments, when deemed necessary, for specific idiosyncratic risks such
as geopolitical events, natural disasters and their effects on regional borrowers, and changes in product structures. Qualitative factors may
also be used to address the impacts of unforeseen events on key inputs and assumptions within the Bancorp’s expected credit loss models,
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such as the reasonable and supportable forecast period, changes to historical loss information or changes to the reversion period or
methodology.
When evaluating the adequacy of allowances, consideration is also given to regional geographic concentrations and the closely associated
effect changing economic conditions have on the Bancorp’s customers.
Reserve for Unfunded Commitments
The reserve for unfunded commitments is maintained at a level believed by management to be sufficient to absorb estimated expected credit
losses related to unfunded credit facilities and is included in other liabilities in the Consolidated Balance Sheets. The determination of the
adequacy of the reserve is based upon expected credit losses over the remaining contractual life of the commitments, taking into consideration
the current funded balance and estimated exposure over the reasonable and supportable forecast period. This process takes into consideration
the same risk elements that are analyzed in the determination of the adequacy of the Bancorp’s ALLL, as previously discussed. Net
adjustments to the reserve for unfunded commitments are included in the provision for credit losses in the Consolidated Statements of
Income.
Loan Sales and Securitizations
The Bancorp periodically sells loans through either securitizations or individual loan sales in accordance with its investment policies. The
sold loans are removed from the Consolidated Balance Sheet and a net gain or loss is recognized in the Consolidated Financial Statements at
the time of sale. The Bancorp typically isolates the loans through the use of a VIE and thus is required to assess whether the entity holding the
sold or securitized loans is a VIE and whether the Bancorp is the primary beneficiary and therefore consolidator of that VIE. If the Bancorp
holds the power to direct activities most significant to the economic performance of the VIE and has the obligation to absorb losses or right to
receive benefits that could potentially be significant to the VIE, then the Bancorp will generally be deemed the primary beneficiary of the
VIE. If the Bancorp is determined not to be the primary beneficiary of a VIE but holds a variable interest in the entity, such variable interests
are accounted for under the equity method of accounting or other accounting standards as appropriate. Refer to Note 13 for further
information on consolidated and non-consolidated VIEs.
The Bancorp’s loan sales and securitizations are generally structured with servicing retained, which often results in the recording of servicing
rights. The Bancorp may also purchase servicing rights. The Bancorp has elected to measure all existing classes of its residential mortgage
servicing rights portfolio at fair value with changes in the fair value of servicing rights reported in mortgage banking net revenue in the
Consolidated Statements of Income in the period in which the changes occur.
Servicing rights are valued using internal OAS models. Key economic assumptions used in estimating the fair value of the servicing rights
include the prepayment speeds of the underlying loans, the weighted-average life, the OAS and the weighted-average coupon rate, as
applicable. The primary risk of material changes to the value of the servicing rights resides in the potential volatility in the economic
assumptions used, particularly the prepayment speeds. In order to assist in the assessment of the fair value of servicing rights, the Bancorp
obtains external valuations of the servicing rights portfolio from third parties and participates in peer surveys that provide additional
confirmation of the reasonableness of the key assumptions utilized in the internal OAS model.
Fees received for servicing loans owned by investors are based on a percentage of the outstanding monthly principal balance of such loans
and are included in noninterest income in the Consolidated Statements of Income as loan payments are received. Costs of servicing loans are
charged to expense as incurred.
Reserve for Representation and Warranty Provisions
Conforming residential mortgage loans sold to unrelated third parties are generally sold with representation and warranty provisions. A
contractual liability arises only in the event of a breach of these representations and warranties and, in general, only when a loss results from
the breach. The Bancorp may be required to repurchase any previously sold loan or indemnify (make whole) the investor or insurer for which
the representation or warranty of the Bancorp proves to be inaccurate, incomplete or misleading. The Bancorp establishes a residential
mortgage repurchase reserve related to various representations and warranties that reflects management’s estimate of losses based on a
combination of factors.
The Bancorp’s estimation process requires management to make subjective and complex judgments about matters that are inherently
uncertain, such as future demand expectations, economic factors and the specific characteristics of the loans subject to repurchase. Such
factors incorporate historical investor audit and repurchase demand rates, appeals success rates, historical loss severity and any additional
information obtained from the GSEs regarding future mortgage repurchase and file request criteria. At the time of a loan sale, the Bancorp
records a representation and warranty reserve at the estimated fair value of the Bancorp’s guarantee and continually updates the reserve
during the life of the loan as losses in excess of the reserve become probable and reasonably estimable. The provision for the estimated fair
value of the representation and warranty guarantee arising from the loan sales is recorded as an adjustment to the gain on sale, which is
included in other noninterest income in the Consolidated Statements of Income at the time of sale. Updates to the reserve are recorded in
other noninterest expense in the Consolidated Statements of Income.
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Legal Contingencies
The Bancorp and its subsidiaries are parties to numerous claims and lawsuits as well as threatened or potential actions or claims concerning
matters arising from the conduct of its business activities. The outcome of claims or litigation and the timing of ultimate resolution are
inherently difficult to predict and significant judgment may be required in the determination of both the probability of loss and whether the
amount of the loss is reasonably estimable. The Bancorp’s estimates are subjective and are based on the status of legal and regulatory
proceedings, the merit of the Bancorp’s defenses and consultation with internal and external legal counsel. An accrual for a potential
litigation loss is established when information related to the loss contingency indicates both that a loss is probable and that the amount of loss
can be reasonably estimated. This accrual is included in other liabilities in the Consolidated Balance Sheets and is adjusted from time to time
as appropriate to reflect changes in circumstances. Legal expenses are recorded in other noninterest expense in the Consolidated Statements
of Income.
Bank Premises and Equipment and Other Long-Lived Assets
Bank premises and equipment, including leasehold improvements, are carried at cost less accumulated depreciation and amortization.
Depreciation is calculated using the straight-line method based on estimated useful lives of the assets for book purposes, while accelerated
depreciation is used for income tax purposes. Amortization of leasehold improvements is computed using the straight-line method over the
lives of the related leases or useful lives of the related assets, whichever is shorter. Whenever events or changes in circumstances dictate, the
Bancorp tests its long-lived assets for impairment by determining whether the sum of the estimated undiscounted future cash flows
attributable to a long-lived asset or asset group is less than the carrying amount of the long-lived asset or asset group through a probability-
weighted approach. In the event the carrying amount of the long-lived asset or asset group is not recoverable, an impairment loss is measured
as the amount by which the carrying amount of the long-lived asset or asset group exceeds its fair value. Maintenance, repairs and minor
improvements are charged to noninterest expense in the Consolidated Statements of Income as incurred.
Lessee Accounting
ROU assets and lease liabilities are recognized for all leases unless the initial term of the lease is twelve months or less. Lease costs for
operating leases are recognized on a straight-line basis over the lease term unless another systematic basis is more representative of the
pattern of consumption. The lease term includes any renewal period that the Bancorp is reasonably certain to exercise. The Bancorp uses its
incremental borrowing rate to discount the lease payments if the rate implicit in the lease is not readily determinable. Variable lease payments
associated with operating leases are recognized in the period in which the obligation for payments is incurred.
For finance leases, the lease liability is measured using the effective interest method such that the liability is increased for interest based on
the discount rate that is implicit in the lease or the Bancorp’s incremental borrowing rate if the implicit rate cannot be readily determined,
offset by a decrease in the liability resulting from the periodic lease payments. The ROU asset associated with the finance lease is amortized
on a straight-line basis unless there is another systematic and rational basis that better reflects how the benefits of the underlying assets are
consumed over the lease term. The period over which the ROU asset is amortized is generally the lesser of the remaining lease term or the
remaining useful life of the leased asset. Variable lease payments associated with finance leases are recognized in the period in which the
obligation for those payments is incurred.
When the lease liability is remeasured to reflect changes to the lease payments as a result of a lease modification, the ROU asset is adjusted
for the amount of the lease liability remeasurement. If a lease modification reduces the scope of a lease, the ROU asset would be reduced
proportionately based on the change in the lease liability and the difference between the lease liability adjustment and the resulting ROU asset
adjustment would be recognized as a gain or loss in the Consolidated Statements of Income. Additionally, the amortization of the ROU asset
is adjusted prospectively from the date of remeasurement.
The Bancorp performs impairment assessments for ROU assets when events or changes in circumstances indicate that their carrying values
may not be recoverable. Any impairment loss is recognized in net occupancy expense. Refer to the Bank Premises and Equipment and Other
Long-Lived Assets section of this note for further information.
Derivative Financial Instruments
The Bancorp accounts for its derivatives as either assets or liabilities measured at fair value through adjustments to AOCI and/or current
earnings, as appropriate. On the date the Bancorp enters into a derivative contract, the Bancorp designates the derivative instrument as either
a fair value hedge, cash flow hedge or as a free-standing derivative instrument. For a fair value hedge, changes in the fair value of the
derivative instrument and changes in the fair value of the hedged asset or liability attributable to the hedged risk are recorded in current period
net income. For a cash flow hedge, changes in the fair value of the derivative instrument are recorded in AOCI and subsequently reclassified
to net income in the same period(s) that the hedged transaction impacts net income. For free-standing derivative instruments, changes in fair
values are reported in current period net income.
When entering into a hedge transaction, the Bancorp formally documents the relationship between the hedging instrument and the hedged
item, as well as the risk management objective and strategy for undertaking the hedge transaction before the end of the quarter in which the
transaction is consummated. This process includes linking the derivative instrument designated as a fair value or cash flow hedge to a specific
asset or liability on the balance sheet or to specific forecasted transactions and the risk being hedged, along with a formal assessment at the
inception of the hedge as to the effectiveness of the derivative instrument in offsetting changes in fair values or cash flows of the hedged item.
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The Bancorp continues to assess hedge effectiveness on an ongoing basis using either a qualitative or a quantitative assessment (regression
analysis). Additionally, the Bancorp may also utilize the shortcut method to evaluate hedge effectiveness for certain qualifying hedges with
matched terms that permit the assumption of perfect offset. If the shortcut method is no longer appropriate, the Bancorp would apply the
long-haul method identified at inception of the hedging transaction for assessing hedge effectiveness as long as the hedge is highly effective.
If it is determined that the derivative instrument is not highly effective as a hedge, hedge accounting is discontinued.
Investments in Qualified Affordable Housing Projects
The Bancorp invests in projects to create affordable housing, revitalize business and residential areas and preserve historic landmarks. These
investments are classified as other assets on the Bancorp’s Consolidated Balance Sheets. Investments in affordable housing projects that
qualify for LIHTC are accounted for using the proportional amortization method. Under the proportional amortization method, the initial cost
of the investment is amortized in proportion to the tax credits and other benefits received and recognized as a component of applicable
income tax expense in the Consolidated Statements of Income. Investments which do not meet the qualification criteria for the proportional
amortization method are accounted for using the equity method of accounting with impairment associated with the investments recognized in
other noninterest expense in the Consolidated Statements of Income.
Income Taxes
The Bancorp accounts for income taxes using the asset and liability method, which requires the recognition of deferred tax assets and
liabilities for expected future tax consequences. Under the asset and liability method, deferred tax assets and liabilities are determined by
applying the federal and state tax rates to the differences between financial statement carrying amounts and the corresponding tax bases of
assets and liabilities. Deferred tax assets are also recorded for any tax attributes, such as tax credits and net operating loss carryforwards. The
net balances of deferred tax assets and liabilities are reported in other assets and accrued taxes, interest and expenses in the Consolidated
Balance Sheets. Any effect of a change in federal or state tax rates on deferred tax assets and liabilities is recognized in income tax expense in
the period that includes the enactment date. The Bancorp reflects the expected amount of income tax to be paid or refunded during the year as
current income tax expense or benefit. Accrued taxes represent the net expected amount due to and/or from taxing jurisdictions and are
reported in accrued taxes, interest and expenses in the Consolidated Balance Sheets.
The Bancorp evaluates the realization of deferred tax assets based on all positive and negative evidence available at the balance sheet date.
Realization of deferred tax assets is based on the Bancorp’s judgment about relevant factors affecting their realization, including the taxable
income within any applicable carry back periods, future projected taxable income, the reversal of taxable temporary differences and tax-
planning strategies. The Bancorp records a valuation allowance for deferred tax assets where the Bancorp does not believe that it is more-
likely-than-not that the deferred tax assets will be realized.
Income tax benefits from uncertain tax positions are recognized in the financial statements only if the Bancorp believes that it is more-likely-
than-not that the uncertain tax position will be sustained based solely on the technical merits of the tax position and consideration of the
relevant taxing authority’s widely understood administrative practices and precedents. If the Bancorp does not believe that it is more-likely-
than-not that an uncertain tax position will be sustained, the Bancorp records a liability for the uncertain tax position. If the Bancorp believes
that it is more likely than not that an uncertain tax position will be sustained, the Bancorp only records a tax benefit for the portion of the
uncertain tax position where the likelihood of realization is greater than 50% upon settlement with the relevant taxing authority that has full
knowledge of all relevant information. The Bancorp recognizes interest expense, interest income and penalties related to unrecognized tax
benefits within current income tax expense. Refer to Note 22 for further discussion regarding income taxes.
Earnings Per Share
Basic earnings per share is computed by dividing net income available to common shareholders by the weighted-average number of shares of
common stock outstanding during the period. Earnings per diluted share is computed by dividing adjusted net income available to common
shareholders by the weighted-average number of shares of common stock and common stock equivalents outstanding during the period.
Dilutive common stock equivalents represent the exercise of dilutive stock-based awards and the dilutive effect of the settlement of
outstanding forward contracts.
The Bancorp calculates earnings per share pursuant to the two-class method. The two-class method is an earnings allocation formula that
determines earnings per share separately for common stock and participating securities according to dividends declared and participation
rights in undistributed earnings. For purposes of calculating earnings per share under the two-class method, restricted shares that contain
nonforfeitable rights to dividends are considered participating securities until vested. While the dividends declared per share on such
restricted shares are the same as dividends declared per common share outstanding, the dividends recognized on such restricted shares may be
less because dividends paid on restricted shares that are expected to be forfeited are reclassified to compensation expense during the period
when forfeiture is expected.
Goodwill
Business combinations entered into by the Bancorp typically include the recognition of goodwill. U.S. GAAP requires goodwill to be tested
for impairment at the Bancorp’s reporting unit level on an annual basis, which for the Bancorp is September 30, and more frequently if events
or circumstances indicate that there may be impairment.
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Impairment exists when a reporting unit’s carrying amount of goodwill exceeds its implied fair value. In testing goodwill for impairment,
U.S. GAAP permits the Bancorp to first assess qualitative factors to determine whether it is more likely than not that the fair value of a
reporting unit is less than its carrying amount. In this qualitative assessment, the Bancorp evaluates events and circumstances which may
include, but are not limited to, the general economic environment, banking industry and market conditions, the overall financial performance
of the Bancorp, the performance of the Bancorp’s common stock, the key financial performance metrics of the Bancorp’s reporting units and
events affecting the reporting units to determine if it is not more likely than not that the fair value of a reporting unit is less than its carrying
amount. If the quantitative impairment test is required or the decision to bypass the qualitative assessment is elected, the Bancorp performs
the goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount, including goodwill. If the carrying
amount of the reporting unit exceeds its fair value, an impairment loss is recognized in an amount equal to that excess, limited to the total
amount of goodwill allocated to that reporting unit. A recognized impairment loss cannot be reversed in future periods even if the fair value
of the reporting unit subsequently recovers.
The fair value of a reporting unit is the price that would be received to sell the unit as a whole in an orderly transaction between market
participants at the measurement date. As none of the Bancorp’s reporting units are publicly traded, individual reporting unit fair value
determinations cannot be directly correlated to the Bancorp’s stock price. The determination of the fair value of a reporting unit is a
subjective process that involves the use of estimates and judgments, particularly related to cash flows, the appropriate discount rates and an
applicable control premium. The determination of the fair value of the Bancorp's reporting units includes both an income-based approach and
a market-based approach. The income-based approach utilizes the reporting unit’s forecasted cash flows (including a terminal value approach
to estimate cash flows beyond the final year of the forecast) and the reporting unit’s estimated cost of equity as the discount rate. Significant
management judgment is necessary in the preparation of each reporting unit’s forecasted cash flows surrounding expectations for earnings
projections, growth and credit loss expectations and actual results may differ from forecasted results. Additionally, the Bancorp determines its
market capitalization based on the average of the closing price of the Bancorp’s stock during the month including the measurement date,
incorporating an additional control premium, and compares this market-based fair value measurement to the aggregate fair value of the
Bancorp’s reporting units in order to corroborate the results of the income approach. Refer to Note 11 for further information regarding the
Bancorp’s goodwill.
Fair Value Measurements
The Bancorp measures certain financial assets and liabilities at fair value in accordance with U.S. GAAP, which defines fair value as the price
that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement
date. The Bancorp employs various valuation approaches to measure fair value including the market, income and cost approaches. The
market approach uses prices or relevant information generated by market transactions involving identical or comparable assets or liabilities.
The income approach involves discounting future amounts to a single present amount and is based on current market expectations about those
future amounts. The cost approach is based on the amount that currently would be required to replace the service capacity of the asset.
U.S. GAAP establishes a fair value hierarchy, which prioritizes the inputs to valuation techniques used to measure fair value into three broad
levels. The fair value hierarchy gives the highest priority to quoted prices in active markets for identical assets or liabilities (Level 1) and the
lowest priority to unobservable inputs (Level 3). A financial instrument’s categorization within the fair value hierarchy is based upon the
lowest level of input that is significant to the instrument’s fair value measurement. The three levels within the fair value hierarchy are
described as follows:
Level 1 – Quoted prices (unadjusted) in active markets for identical assets or liabilities that the Bancorp has the ability to access at the
measurement date.
Level 2 – Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly.
Level 2 inputs include: quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities
in markets that are not active; inputs other than quoted prices that are observable for the asset or liability; and inputs that are derived
principally from or corroborated by observable market data by correlation or other means.
Level 3 – Unobservable inputs for the asset or liability for which there is little, if any, market activity at the measurement date. Unobservable
inputs reflect the Bancorp’s own assumptions about what market participants would use to price the asset or liability. The inputs are
developed based on the best information available in the circumstances, which might include the Bancorp’s own financial data such as
internally developed pricing models and DCF methodologies, as well as instruments for which the fair value determination requires
significant management judgment.
The Bancorp’s fair value measurements involve various valuation techniques and models, which involve inputs that are observable, when
available. Valuation techniques and parameters used for measuring assets and liabilities are reviewed and validated by the Bancorp on a
quarterly basis. Additionally, the Bancorp monitors the fair values of significant assets and liabilities using a variety of methods including the
evaluation of pricing runs and exception reports based on certain analytical criteria, comparison to previous trades and overall review and
assessments for reasonableness. The Bancorp may, as a practical expedient, measure the fair value of certain investments on the basis of the
net asset value per share of the investment, or its equivalent. Any investments which are valued using this practical expedient are not
classified in the fair value hierarchy. Refer to Note 29 for further information on fair value measurements.
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Stock-Based Compensation
The Bancorp recognizes compensation expense for the grant-date fair value of stock-based awards that are expected to vest over the requisite
service period. All awards, both those with cliff vesting and graded vesting, are expensed on a straight-line basis over the requisite service
period. Awards to employees that meet eligible retirement status are expensed immediately. As compensation expense is recognized, a
deferred tax asset is recorded that represents an estimate of the future tax deduction from exercise or release of restrictions. At the time
awards are exercised, cancelled, expire or restrictions are released, the Bancorp recognizes an adjustment to income tax expense for the
difference between the previously estimated tax deduction and the actual tax deduction realized. For further information on the Bancorp’s
stock-based compensation plans, refer to Note 26.
Pension Plans
The Bancorp uses an expected long-term rate of return applied to the fair market value of assets as of the beginning of the year and the
expected cash flow during the year for calculating the expected investment return on all pension plan assets. Amortization of the net gain or
loss resulting from experience different from that assumed and from changes in assumptions (excluding asset gains and losses not yet
reflected in market-related value) is included as a component of net periodic benefit cost. If, as of the beginning of the year, that net gain or
loss exceeds 10% of the greater of the projected benefit obligation and the market-related value of plan assets, the amortization is that excess
divided by the average remaining service period of participating employees expected to receive benefits under the plan. The Bancorp uses a
third-party actuary to compute the remaining service period of participating employees. This period reflects expected turnover, pre-
retirement mortality and other applicable employee demographics.
Revenue Recognition
The Bancorp generally measures revenue based on the amount of consideration the Bancorp expects to be entitled for the transfer of goods or
services to a customer, then recognizes this revenue when or as the Bancorp satisfies its performance obligations under the contract, except in
transactions where U.S. GAAP provides other applicable guidance. When the amount of consideration is variable, the Bancorp will only
recognize revenue to the extent that it is probable that the cumulative amount recognized will not be subject to a significant reversal in the
future. Substantially all of the Bancorp’s contracts with customers have expected durations of one year or less and payments are typically due
when or as the services are rendered or shortly thereafter. When third parties are involved in providing goods or services to customers, the
Bancorp recognizes revenue on a gross basis when it has control over those goods or services prior to transfer to the customer; otherwise,
revenue is recognized for the net amount of any fee or commission. The Bancorp excludes sales taxes from the recognition of revenue and
recognizes the incremental costs of obtaining contracts as an expense if the period of amortization for those costs would be one year or less.
The Bancorp’s interest income is derived from loans and leases, securities and other short-term investments. The Bancorp recognizes interest
income in accordance with the applicable guidance in U.S. GAAP for these assets. Refer to the Portfolio Loans and Leases and Investment
Securities sections of this footnote for further information. The following provides additional information about the components of
noninterest income:
•
•
Service charges on deposits consist primarily of treasury management fees for commercial clients, monthly service charges on
consumer deposit accounts, transaction-based fees (such as overdraft fees and wire transfer fees), and other deposit account-related
charges. The Bancorp’s performance obligations for treasury management fees and consumer deposit account service charges are
typically satisfied over time while performance obligations for transaction-based fees are typically satisfied at a point in time.
Revenues are recognized on an accrual basis when or as the services are provided to the customer, net of applicable discounts,
waivers and reversals. Payments are typically collected from customers directly from the related deposit account at the time the
transaction is processed and/or at the end of the customer’s statement cycle (typically monthly).
Commercial banking revenue consists primarily of service fees and other income related to loans to commercial clients,
underwriting revenue recognized by the Bancorp’s broker-dealer subsidiary and fees for other services provided to commercial
clients. Revenue related to loans is recognized in accordance with the Bancorp’s policies for portfolio loans and leases.
Underwriting revenue is generally recognized on the trade date, which is when the Bancorp’s performance obligations are satisfied.
• Wealth and asset management revenue consists primarily of service fees for investment management, custody, and trust
administration services provided to commercial and consumer clients. The Bancorp’s performance obligations for these services are
generally satisfied over time and revenues are recognized monthly based on the fee structure outlined in individual contracts.
Transaction prices are most commonly based on the market value of assets under management or care and/or a fee per transaction
processed. The Bancorp also offers certain services for which the performance obligations are satisfied and revenue is recognized at
a point in time, when the services are performed. Wealth and asset management revenue also includes trailing commissions received
from investments and annuities held in customer accounts, which are recognized in revenue when the Bancorp determines that it has
satisfied its performance obligations and has sufficient information to estimate the amount of the commissions to which it expects to
be entitled.
Leasing business revenue consists primarily of noninterest income such as operating lease income, leasing business solutions
revenue, lease remarketing fees and lease syndication fees from lease arrangements to commercial clients. Revenue related to leases
is recognized either in accordance with the Bancorp’s policies for portfolio loans and leases or when the Bancorp’s performance
obligations are satisfied.
Card and processing revenue consists primarily of ATM fees and interchange fees earned when the Bancorp’s credit and debit cards
are processed through card association networks. The Bancorp’s performance obligations are generally complete when the
•
•
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transactions generating the fees are processed. Revenue is recognized on an accrual basis as such services are performed, net of
certain costs not controlled by the Bancorp (primarily interchange fees charged by credit card associations and expenses of certain
transaction-based rewards programs offered to customers).
• Mortgage banking net revenue consists primarily of origination fees and gains on loan sales, mortgage servicing fees and the impact
of MSRs. Refer to the Loans and Leases Held for Sale and Loan Sales and Securitizations sections of this footnote for further
information.
Other noninterest income includes certain fees derived from loans, BOLI income, gains and losses on other assets, and other
miscellaneous revenues and gains.
•
Other
Securities and other property held by Fifth Third Wealth and Asset Management, a division of the Bancorp’s banking subsidiary, in a
fiduciary or agency capacity are not included in the Consolidated Balance Sheets because such items are not assets of the subsidiaries.
Other short-term investments have original maturities less than one year and primarily include interest-bearing balances that are funds on
deposit at other depository institutions or the FRB, federal funds sold and reverse repurchase agreements. The Bancorp uses other short-term
investments as part of its liquidity risk management activities.
The Bancorp purchases life insurance policies on the lives of certain directors, officers and employees and is the owner and beneficiary of the
policies. The Bancorp invests in these policies, known as BOLI, to provide an efficient form of funding for long-term retirement and other
employee benefits costs. Certain BOLI policies have a stable value agreement through either a large, well-rated bank or multi-national
insurance carrier that provides limited cash surrender value protection from declines in the value of each policy’s underlying investments.
The Bancorp records these BOLI policies within other assets in the Consolidated Balance Sheets at each policy’s respective cash surrender
value, with changes recorded in other noninterest income in the Consolidated Statements of Income.
Intangible assets consist of core deposit intangibles, customer relationships, operating leases, non-compete agreements, trade names and
books of business. Intangible assets are amortized on either a straight-line or an accelerated basis over their estimated useful lives. The
Bancorp reviews intangible assets for impairment whenever events or changes in circumstances indicate that carrying amounts may not be
recoverable.
Securities sold under repurchase agreements are accounted for as secured borrowings and included in other short-term borrowings in the
Consolidated Balance Sheets at the amounts at which the securities were sold plus accrued interest.
Acquisitions of treasury stock are carried at cost. Reissuance of shares in treasury for acquisitions, exercises of stock-based awards or other
corporate purposes is recorded based on the specific identification method.
Advertising costs are generally expensed as incurred.
Significant Accounting and Reporting Policies Applicable Prior to January 1, 2020
The following paragraphs describe the portions of the Bancorp’s accounting and reporting policies that were applicable prior to January 1,
2020 but were updated in conjunction with the prospective adoption of ASU 2016-13 and ASU 2017-04 on January 1, 2020. The following
paragraphs do not include the portions of the respective policies that were not affected by the adoption of these new accounting standards.
Refer to the Accounting and Reporting Developments section for additional information.
Investment securities
Available-for-sale and held-to-maturity debt securities with unrealized losses were reviewed quarterly for possible OTTI. If the Bancorp
intended to sell the debt security or would more likely than not be required to sell the debt security before recovery of the entire amortized
cost basis, then an OTTI was deemed to have occurred. However, even if the Bancorp did not intend to sell the debt security and would not
likely be required to sell the debt security before recovery of its entire amortized cost basis, the Bancorp evaluated expected cash flows to be
received to determine if a credit loss had occurred. In the event of a credit loss, the credit component of the impairment was recognized
within noninterest income and the non-credit component was recognized through OCI.
Portfolio loans and leases – basis of accounting
Loans acquired by the Bancorp through a purchase business combination were recorded at fair value as of the acquisition date. The Bancorp
did not carry over the acquired company’s ALLL, nor did the Bancorp add to its existing ALLL as part of purchase accounting.
Purchased loans were evaluated for evidence of credit deterioration at acquisition and recorded at their initial fair value. For loans acquired
with no evidence of credit deterioration, the fair value discount or premium was amortized over the contractual life of the loan as an
adjustment to yield. For loans acquired with evidence of credit deterioration, the Bancorp determined at the acquisition date the excess of the
loan’s contractually required payments over all cash flows expected to be collected as an amount that should not be accreted into interest
income (nonaccretable difference). The remaining amount representing the difference in the expected cash flows of acquired loans and the
initial investment in the acquired loans was accreted into interest income over the remaining life of the loan or pool of loans (accretable
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yield). Subsequent to the acquisition date, increases in expected cash flows over those expected at the acquisition date were recognized
prospectively as interest income over the remaining life of the loan. The present values of any decreases in expected cash flows resulting
directly from a change in the contractual interest rate were recognized prospectively as a reduction of the accretable yield. The present values
of any decreases in expected cash flows after the acquisition date as a result of credit deterioration were recognized by recording an ALLL or
a direct charge-off. Subsequent to the acquisition date, the methods utilized to estimate the required ALLL were similar to originated loans.
This method of accounting for loans acquired with deteriorated credit quality did not apply to loans carried at fair value, residential mortgage
loans held for sale and loans under revolving credit agreements.
Impaired loans and leases
A loan was considered to be impaired when, based on current information and events, it was probable that the Bancorp would be unable to
collect all amounts due (including both principal and interest) according to the contractual terms of the loan agreement. Impaired loans
generally consisted of nonaccrual loans and leases, loans modified in a TDR and loans over $1 million that were currently on accrual status
and not yet modified in a TDR, but for which the Bancorp had determined that it was probable that it would grant a payment concession in
the near term due to the borrower’s financial difficulties. For loans modified in a TDR, the contractual terms of the loan agreement referred to
the terms specified in the original loan agreement. A loan restructured in a TDR was no longer considered impaired in years after the
restructuring if the restructuring agreement specified a rate equal to or greater than the rate the Bancorp was willing to accept at the time of
the restructuring for a new loan with comparable risk and the loan was not impaired based on the terms specified by the restructuring
agreement. Refer to the following ALLL section for discussion regarding the Bancorp’s methodology for identifying impaired loans and
determination of the need for a loss accrual.
ALLL
The Bancorp maintained the ALLL to absorb probable loan and lease losses inherent in its portfolio segments. The ALLL was maintained at a
level the Bancorp considered to be adequate and was based on ongoing quarterly assessments and evaluations of the collectability and
historical loss experience of loans and leases. Credit losses were charged and recoveries were credited to the ALLL. Provisions for loan and
lease losses were based on the Bancorp’s review of the historical credit loss experience and such factors that, in management’s judgment,
deserved consideration under existing economic conditions in estimating probable credit losses.
The Bancorp’s methodology for determining the ALLL required significant management judgment and was based on historical loss rates,
current credit grades, specific allocation on loans modified in a TDR and impaired commercial credits above specified thresholds and other
qualitative adjustments. Allowances on individual commercial loans and leases, TDRs and historical loss rates were reviewed quarterly and
adjusted as necessary based on changing borrower and/or collateral conditions and actual collection and charge-off experience. An
unallocated allowance was maintained to recognize the imprecision in estimating and measuring losses when evaluating allowances for pools
of loans and leases.
Larger commercial loans and leases included within aggregate borrower relationship balances exceeding $1 million that exhibited probable or
observed credit weaknesses, as well as loans that had been modified in a TDR, were subject to individual review for impairment. The
Bancorp considered the current value of collateral, credit quality of any guarantees, the guarantor’s liquidity and willingness to cooperate, the
loan or lease structure and other factors when evaluating whether an individual loan or lease was impaired. Other factors might include the
industry and geographic region of the borrower, size and financial condition of the borrower, cash flow and leverage of the borrower and the
Bancorp’s evaluation of the borrower’s management. When individual loans and leases were impaired, allowances were determined based on
management’s estimate of the borrower’s ability to repay the loan or lease given the availability of collateral and other sources of cash flow,
as well as an evaluation of legal options available to the Bancorp. Allowances for impaired loans and leases were measured based on the
present value of expected future cash flows discounted at the loan’s effective interest rate, fair value of the underlying collateral or readily
observable secondary market values. The Bancorp evaluated the collectability of both principal and interest when assessing the need for a loss
accrual.
Historical credit loss rates were applied to commercial loans and leases that were not impaired or were impaired, but smaller than the
established threshold of $1 million and thus not subject to specific allowance allocations. The loss rates were derived from migration analyses
for several portfolio stratifications, which tracked the historical net charge-off experience sustained on loans and leases according to their
internal risk grade. The risk grading system utilized for allowance analysis purposes encompassed ten categories, which were based on
regulatory guidance for credit risk systems.
Homogenous loans in the residential mortgage and consumer portfolio segments were not individually risk graded. Rather, standard credit
scoring systems and delinquency monitoring were used to assess credit risks and allowances were established based on the expected net
charge-offs. Loss rates were based on the trailing twelve-month net charge-off history by loan category. Historical loss rates were adjusted for
certain prescriptive and qualitative factors that, in management’s judgment, were necessary to reflect losses inherent in the portfolio. The
prescriptive loss rate factors included adjustments for delinquency trends, LTV trends, refreshed FICO score trends and product mix.
The Bancorp also considered qualitative factors in determining the ALLL. These included adjustments for changes in policies or procedures
in underwriting, monitoring or collections, economic conditions, portfolio mix, lending and risk management personnel, results of internal
audit and quality control reviews, collateral values, geographic concentrations, estimated loss emergence period and specific portfolio loans
148 Fifth Third Bancorp
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
backed by enterprise valuations and private equity sponsors. The Bancorp considered home price index trends in its footprint and the
volatility of collateral valuation trends when determining the collateral value qualitative factor.
Reserve for unfunded commitments
The reserve for unfunded commitments was maintained at a level believed by management to be sufficient to absorb estimated probable
losses related to unfunded credit facilities and was included in other liabilities in the Consolidated Balance Sheets. The determination of the
adequacy of the reserve was based upon an evaluation of the unfunded credit facilities, including an assessment of historical commitment
utilization experience, credit risk grading and historical loss rates based on credit grade migration. This process took into consideration the
same risk elements that were analyzed in the determination of the adequacy of the Bancorp’s ALLL, as previously discussed. Net adjustments
to the reserve for unfunded commitments were included in provision for credit losses in the Consolidated Statements of Income.
Goodwill
Impairment existed when a reporting unit’s carrying amount of goodwill exceeded its implied fair value. In testing goodwill for impairment,
U.S. GAAP permitted the Bancorp to first assess qualitative factors to determine whether it was more likely than not that the fair value of a
reporting unit was less than its carrying amount. In this qualitative assessment, the Bancorp evaluated events and circumstances which might
include, but were not limited to, the general economic environment, banking industry and market conditions, the overall financial
performance of the Bancorp, the performance of the Bancorp’s common stock, the key financial performance metrics of the Bancorp’s
reporting units and events affecting the reporting units. If, after assessing the totality of events and circumstances, the Bancorp determined it
was not more likely than not that the fair value of a reporting unit was less than its carrying amount, then performing the two-step impairment
test would be unnecessary. However, if the Bancorp concluded otherwise or elected to bypass the qualitative assessment, it would then be
required to perform the first step (Step 1) of the goodwill impairment test, and continue to the second step (Step 2), if necessary. Step 1 of the
goodwill impairment test compared the fair value of a reporting unit with its carrying amount, including goodwill. If the carrying amount of
the reporting unit exceeded its fair value, Step 2 of the goodwill impairment test was necessary to measure the amount of impairment loss,
which was equal to any excess of the carrying amount of goodwill over its implied fair value with such loss limited to the carrying amount of
goodwill.
The fair value of a reporting unit was the price that would be received to sell the unit as a whole in an orderly transaction between market
participants at the measurement date. As none of the Bancorp’s reporting units were publicly traded, individual reporting unit fair value
determinations could not be directly correlated to the Bancorp’s stock price. To determine the fair value of a reporting unit, the Bancorp
employed an income-based approach, utilizing the reporting unit’s forecasted cash flows (including a terminal value approach to estimate
cash flows beyond the final year of the forecast) and the reporting unit’s estimated cost of equity as the discount rate. Additionally, the
Bancorp determined its market capitalization based on the average of the closing price of the Bancorp’s stock during the month including the
measurement date, incorporating an additional control premium, and compared this market-based fair value measurement to the aggregate fair
value of the Bancorp’s reporting units in order to corroborate the results of the income approach.
ACCOUNTING AND REPORTING DEVELOPMENTS
Standards Adopted in 2020
The Bancorp adopted the following new accounting standards effective January 1, 2020:
ASU 2016-13 – Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments
In June 2016, the FASB issued ASU 2016-13, which establishes a new approach to estimate credit losses on certain types of financial
instruments. The new approach changes the impairment model for most financial assets, and requires the use of an “expected credit loss”
model for financial instruments measured at amortized cost and certain other instruments. This model applies to trade and other receivables,
loans, debt securities, net investments in leases, and off-balance sheet credit exposures (such as loan commitments, standby letters of credit,
and financial guarantees not accounted for as insurance). This model requires entities to estimate the lifetime expected credit loss on such
instruments and record an allowance that represents the portion of the amortized cost basis that the entity does not expect to collect. This
allowance is deducted from the financial asset’s amortized cost basis to present the net amount expected to be collected. The expected credit
loss model also applies to purchased financial assets with credit deterioration, superseding previous accounting guidance for such assets. The
amended guidance also amends the impairment model for available-for-sale debt securities, requiring entities to determine whether all or a
portion of the unrealized loss on such securities is a credit loss, and also eliminating the option for management to consider the length of time
a security has been in an unrealized loss position as a factor in concluding whether or not a credit loss exists. The amended model requires an
entity to recognize an allowance for credit losses on available-for-sale debt securities as a contra account to the amortized cost basis, instead
of a direct reduction of the amortized cost basis of the investment, as under previous guidance. As a result, entities will recognize
improvements to estimated credit losses on available-for-sale debt securities immediately in earnings as opposed to in interest income over
time. There are also additional disclosure requirements included in this guidance. Subsequent to the issuance of ASU 2016-13, the FASB has
issued additional ASUs containing clarifying guidance, transition relief provisions and minor updates to the original ASU. These include
ASU 2018-19 (issued in November 2018), ASU 2019-04 (issued in April 2019), ASU 2019-05 (issued in May 2019) and ASU 2019-11
(issued in November 2019).
The Bancorp adopted the amended guidance on January 1, 2020, using a modified retrospective approach, although certain provisions of the
guidance are only required to be applied on a prospective basis. Upon adoption, the Bancorp recorded a combined increase to the ALLL and
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
reserve for unfunded commitments of approximately $653 million and a cumulative-effect adjustment to retained earnings of $472 million.
Of the increase to the ALLL, approximately $33 million pertained to the recognition of an ALLL on purchased financial assets with credit
deterioration and was also added to the carrying value of the related loans. Adoption of the amended guidance did not have a material impact
to the Bancorp’s investment securities portfolio. The required disclosures are included in Note 7.
ASU 2017-04 – Intangibles—Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment
In January 2017, the FASB issued ASU 2017-04 which simplifies the test for goodwill impairment by removing the second step, which
measures the amount of impairment loss, if any. Instead, the amended guidance states that an entity should recognize an impairment charge
for the amount by which the carrying amount exceeds the reporting unit’s fair value, except that the loss recognized should not exceed the
total amount of goodwill allocated to that reporting unit. This would apply to all reporting units, including those with zero or negative
carrying amounts of net assets. The Bancorp adopted the amended guidance on January 1, 2020. The amended guidance will be applied
prospectively to all goodwill impairment tests performed after the adoption date.
ASU 2018-13 – Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value
Measurement
In August 2018, the FASB issued ASU 2018-13 which modifies the disclosure requirements for fair value measurements. The amendments
remove the requirements to disclose the amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy, the
policy for timing of transfers between levels and the valuation processes for Level 3 fair value measurements. The amendments also add new
disclosure requirements regarding unrealized gains and losses from recurring Level 3 fair value measurements and the significant
unobservable inputs used to develop Level 3 fair value measurements. The Bancorp adopted the amended guidance on January 1, 2020 and
the required disclosures are included in Note 29.
ASU 2018-15– Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation
Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract
In August 2018, the FASB issued ASU 2018-15, which provides guidance on the accounting for implementation, setup, and other upfront
costs incurred by customers in cloud computing arrangements that are accounted for as service contracts. The amendments require that
implementation costs be evaluated for capitalization using the framework applicable to costs incurred to develop or obtain internal-use
software. Those capitalized costs are to be expensed over the term of the cloud computing arrangement and presented in the same financial
statement line items as the service contract and its associated fees. The Bancorp adopted the amended guidance on January 1, 2020 on a
prospective basis.
ASU 2020-04 – Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate on Financial Reporting and ASU 2021-01 –
Reference Rate Reform (Topic 848): Scope
In March 2020, the FASB issued ASU 2020-04, which provides optional expedients and exceptions for applying U.S. GAAP to contracts,
hedging relationships and other transactions affected by reference rate reform if certain criteria are met. The amendments in the ASU apply
only to contracts, hedging relationships and other transactions that reference LIBOR or another reference rate expected to be discontinued
because of reference rate reform. ASU 2021-01 clarified that the optional expedients and exceptions in Topic 848 for contract modifications
and hedge accounting also apply to derivatives that are affected by the discounting transition. The expedients and exceptions provided by the
amendments do not apply to contract modifications made and hedging relationships entered into or evaluated after December 31, 2022,
except for hedging relationships existing as of December 31, 2022 that an entity has elected certain optional expedients for and that are
retained through the end of the hedging relationship. The amendments in this ASU are effective for the Bancorp as of March 12, 2020
through December 31, 2022. The Bancorp is in the process of evaluating and applying, as applicable, the optional expedients and exceptions
in accounting for eligible contract modifications, eligible existing hedging relationships and new hedging relationships available through
December 31, 2022.
Standards Issued but Not Yet Adopted
The following accounting standard was issued but not yet adopted by the Bancorp as of December 31, 2020:
ASU 2019-12 – Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes
In December 2019, the FASB issued ASU 2019-12, which simplifies the accounting for income taxes by removing certain exceptions to the
general principles in Topic 740. The amendments also clarify and amend existing guidance for other areas of Topic 740. The amended
guidance was adopted by the Bancorp on January 1, 2021 either prospectively or retrospectively for the specific amendment based on the
transition method prescribed by the FASB. The adoption of the amended guidance did not have a material impact on the Consolidated
Financial Statements.
Regulatory Developments Related to the COVID-19 Pandemic
On March 22, 2020, various national banking regulatory agencies jointly issued an interagency statement addressing loan modifications and
reporting for financial institutions working with customers affected by the COVID-19 pandemic. The statement describes the agencies’
interpretation of how existing guidance in U.S. GAAP applies to certain loan modifications related to COVID-19. Among other things, the
statement affirms that short-term modifications (e.g., six months) made on a good faith basis in response to COVID-19 to borrowers who
were less than 30 days past due on contractual payments at the time a modification program is implemented would not be considered TDRs.
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The statement also clarifies that loans modified in response to the COVID-19 pandemic should be evaluated on the basis of their modified
terms when reporting loans as past due and evaluating for nonaccrual status and charge-off.
On March 27, 2020, the CARES Act was signed into law. Section 4013 of the CARES Act provides financial institutions the option to
temporarily suspend certain requirements under U.S. GAAP related to TDRs for a limited period of time in certain circumstances. This
temporary suspension may only be applied to modifications of loans that were not more than 30 days past due as of December 31, 2019 and
may not be applied to modifications that are not related to the COVID-19 pandemic. If elected, the temporary suspension may be applied to
eligible modifications executed during the period beginning on March 1, 2020 and ending on the earlier of December 31, 2020 or 60 days
after the termination of the COVID-19 national emergency. The December 31, 2020 expiration date was subsequently extended to January 1,
2022 upon passage of the Consolidated Appropriations Act of 2021. On April 7, 2020, the national banking regulatory agencies revised their
previously issued interagency statement to clarify the interactions with the provisions of Section 4013 of the CARES Act.
The Bancorp has elected to apply the temporary suspension of TDR requirements provided by the CARES Act for eligible loan
modifications. For loan modifications that are not eligible for the suspension offered by the CARES Act or that are executed outside its
applicable period, the Bancorp considers the interpretive guidance provided in the revised interagency statement to evaluate loan
modifications within its scope, or existing TDR evaluation policies if the modification does not fall within the scope of the interagency
statement.
Loans and leases which received payment deferrals or forbearances as part of the Bancorp’s COVID-19 hardship relief programs are
generally not reported as delinquent during the forbearance or deferral period if the loan or lease was less than 30 days past due at March 1,
2020 (the effective date of the COVID-19 national emergency declaration) unless the loan or lease subsequently becomes delinquent
according to its modified terms. Those loans and leases that were 30 days or more past due at March 1, 2020 continue to be reported at their
March 1, 2020 delinquency status unless the borrower makes supplemental payments to resolve the delinquency. After the conclusion of the
payment deferral or forbearance period, borrowers who were delinquent as of March 1, 2020 may be returned to current status once they
demonstrate a willingness and ability to repay the loan according to its modified terms. This may be evidenced by payment history after the
payment deferral or forbearance period, or by completing an evaluation of the borrower’s creditworthiness upon exit from the Bancorp’s
hardship programs.
For loans that received payment deferrals or forbearances as part of the Bancorp’s COVID-19 hardship relief programs, the Bancorp
continues to accrue interest and recognize interest income during the period of the deferral. Depending on the terms of each program, all or a
portion of this accrued interest may be paid directly by the borrower (either during the relief period, at the end of the relief period or at
maturity of the loan) or added to the customer’s outstanding balance. For certain programs, the maturity date of the loan may also be extended
by the number of payments deferred. Interest income will continue to be recognized at the original contractual interest rate unless that rate is
concurrently modified upon entering the relief program (in which case, the modified rate would be used to recognize interest).
On April 10, 2020, the FASB staff issued a question-and-answer document (Q&A) to address questions on the application of the lease
accounting guidance for lease concessions related to the effects of the COVID-19 pandemic. Under Topic 842, subsequent changes to lease
payments that are not stipulated in the original lease contract are generally accounted for as lease modifications. Some contracts may contain
explicit or implicit enforceable rights and obligations that require lease concessions in certain circumstances and therefore would not be
considered a lease modification. Given the significant cost and complexity in assessing the large volume of lease contracts for which
concessions are being granted due to the COVID-19 pandemic, the FASB clarified in this Q&A that an entity can elect to account for lease
concessions associated with the COVID-19 pandemic as though enforceable rights and obligations for those concessions existed. This
guidance eliminates the requirement to analyze each contract to determine whether enforceable rights and obligations to provide concessions
exist and allows an entity to elect to apply or not apply the lease modification guidance in Topic 842. This election is only available for
concessions related to the effect of the COVID-19 pandemic that do not result in a substantial increase in the rights of the lessor or the
obligations of the lessee.
The Bancorp has elected to not apply the lease modification accounting guidance in Topic 842 for lease concessions granted as a result of the
COVID-19 pandemic as the deferrals only affect the timing of the payments and the amount of consideration to be received is substantially
the same as that required by the original contract.
For commercial leases that received payment deferrals under the Bancorp’s COVID-19 hardship relief programs, the Bancorp continues to
recognize interest income during the deferral period, but the yield is recalculated based on the timing and amount of remaining payments over
the remaining lease term. The revised yield is used for prospectively recognizing interest income and adjusting the net investment in the lease.
The Bancorp’s hardship relief programs for commercial leases affect the timing of payments but do not generally result in an increase in the
rights of the lessor or the obligations of the lessee. Therefore, the Bancorp has elected to forego certain requirements that would typically
apply for lease modifications when accounting for the effects of the hardship relief programs.
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2. Supplemental Cash Flow Information
Cash payments related to interest and income taxes in addition to non-cash investing and financing activities are presented in the following
table for the years ended December 31:
($ in millions)
Cash Payments:
Interest
Income taxes
Transfers:
Portfolio loans and leases to loans and leases held for sale(a)
Loans and leases held for sale to portfolio loans and leases
Portfolio loans and leases to OREO
Loans and leases held for sale to OREO
Supplemental Disclosures:
Additions to lease liabilities under operating leases
Additions to lease liabilities under finance leases
Right-of-use assets recognized at adoption of ASU 2016-02
Conversion of outstanding preferred stock issued by a Bancorp subsidiary
2020
2019
2018
$
$
$
825
491
926
49
12
2
56
110
—
—
1,441
726
1,016
359
211
37
29
—
76
24
509
197
275
95
39
—
—
—
—
—
(a)
Includes $794 of residential mortgage loans previously sold to GNMA which the Bancorp was initially deemed to have regained effective control over under ASC
Topic 860 and which were recorded as portfolio loans. The Bancorp subsequently repurchased these loans and classified them as held for sale.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3. Business Combination
On March 22, 2019, Fifth Third Bancorp completed its acquisition of MB Financial, Inc. in a stock and cash transaction valued at
approximately $3.6 billion. MB Financial, Inc. was headquartered in Chicago, Illinois with reported assets of approximately $20 billion and
86 branches (91 locations) as of December 31, 2018 and was the holding company of MB Financial Bank, N.A. The acquisition resulted in a
combined company with a larger Chicago market presence and core deposit funding base while also building scale in a strategically important
market.
Under the terms of the agreement, the Bancorp acquired 100% of the common stock of MB Financial, Inc. In exchange, common
shareholders of MB Financial, Inc. received 1.45 shares of Fifth Third Bancorp common stock and $5.54 in cash for each share of MB
Financial, Inc. common stock, for a total value per share of $42.49, based on the $25.48 closing price of Fifth Third Bancorp’s common stock
on March 21, 2019. Upon closing of the transaction, MB Financial, Inc. became a subsidiary of the Bancorp. However, MB Financial, Inc.’s
6.00% non-cumulative Series C perpetual preferred stock with a fair value of $197 million remained outstanding and was recognized as a
noncontrolling interest on the Consolidated Balance Sheets. Through its ownership of all of the common stock, the Bancorp controlled 95%
of the voting equity interests in MB Financial, Inc. with the remainder attributable to the preferred shareholders’ noncontrolling interest.
On June 24, 2019, MB Financial, Inc. entered into an Agreement and Plan of Merger with the Bancorp to provide for the merger of MB
Financial, Inc. with and into the Bancorp, with the Bancorp as the surviving corporation. A special meeting of MB Financial, Inc.’s
stockholders was held on August 23, 2019 at which the holders of MB Financial, Inc.’s common stock and preferred stock, voting together as
a single class, approved the merger. In the merger, each outstanding share of MB Financial, Inc.’s preferred stock was converted into the right
to receive one share of a newly created series of preferred stock of the Bancorp having substantially the same terms as the MB Financial, Inc.
preferred stock.
On August 26, 2019, the Bancorp issued 200,000 shares of 6.00% non-cumulative Class B perpetual preferred stock, Series A. Each preferred
share has a $1,000 liquidation preference. These shares were issued to the holders of MB Financial, Inc.’s 6.00% non-cumulative Series C
perpetual preferred stock in conjunction with the merger of MB Financial, Inc. with and into Fifth Third Bancorp. This transaction resulted in
the elimination of the noncontrolling interest in MB Financial, Inc. which was previously reported in the Bancorp’s Consolidated Financial
Statements. The newly issued shares of Class B preferred stock, Series A were recognized by the Bancorp at the carrying value previously
assigned to the MB Financial, Inc. Series C preferred stock prior to the transaction.
The acquisition of MB Financial, Inc. constituted a business combination and was accounted for under the acquisition method of accounting.
Accordingly, the assets acquired, liabilities assumed and noncontrolling interest recognized were recorded at their estimated fair values as of
the acquisition date. These fair value estimates were final as of March 31, 2020.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table reflects consideration paid and the noncontrolling interest recognized for MB Financial, Inc.’s net assets and the amounts
of acquired identifiable assets and liabilities assumed at their fair values as of the acquisition date:
($ in millions)
Consideration paid
Cash payments
Fair value of common stock issued
Stock-based awards
Dividend receivable from MB Financial, Inc.
Total consideration paid
Fair value of noncontrolling interest in acquiree
Net Identifiable Assets Acquired, at Fair Value:
Assets
Cash and due from banks
Federal funds sold
Other short-term investments
Available-for-sale debt and other securities
Held-to-maturity securities
Equity securities
Loans and leases held for sale
Portfolio loans and leases
Bank premises and equipment
Operating lease equipment
Intangible assets
Servicing rights
Other assets
Total assets acquired
Liabilities
Deposits
Other short-term borrowings
Accrued taxes, interest and expenses
Other liabilities
Long-term debt
Total liabilities assumed
Net identifiable assets acquired
Goodwill
$
$
$
469
3,121
38
(20)
3,608
197
$
$
$
1,679
35
53
832
4
51
12
13,414 (a)
266 (a)
394 (a)
219 (a)
263
750 (a)
17,972
14,489
267 (a)
276 (a)
194 (a)
727 (a)
$
15,953
$
$
2,019
1,786
(a) Fair values have been updated from the estimates reported in the March 31, 2019 quarterly report on Form 10-Q.
In connection with the acquisition, the Bancorp recognized approximately $1.8 billion of goodwill, of which $15 million relates to 15-year
tax deductible goodwill from MB Financial, Inc.’s prior acquisitions. See Note 11 for further information on goodwill recognized and Note
12 for further information on intangible assets acquired in the acquisition of MB Financial, Inc.
The following is a description of the methods used to determine the estimated fair values of significant assets and liabilities presented above.
Cash and due from banks and other short-term investments
For financial instruments with a short-term or no stated maturity, prevailing market rates and limited credit risk, carrying amounts
approximate fair value.
Available-for-sale debt and other securities, held-to-maturity securities and equity securities
Fair values for securities were based on quoted market prices, where available. If quoted market prices were not available, fair value
estimates were based on observable inputs including quoted market prices for similar instruments, quoted market prices that are not in an
active market or other inputs that are observable in the market. In the absence of observable inputs, fair value was estimated based on pricing
models and/or DCF methodologies.
Loans and leases held for sale and portfolio loans and leases
Fair values for loans were based on a DCF methodology that considered factors including the type of loan and related collateral, fixed or
variable interest rate, remaining term, credit quality ratings or scores, amortization status and current discount rates. Loans with similar
characteristics were pooled together when applying various valuation techniques. The discount rates used for loans were based on an
evaluation of current market rates for new originations of comparable loans and a market participant’s required rate of return to purchase
154 Fifth Third Bancorp
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
similar assets, including adjustments for liquidity and credit quality when necessary. For PCI loans (now PCD loans effective January 1, 2020
upon the adoption of ASU 2016-13), the DCF methodology was based on the Bancorp’s estimate of contractual cash flows expected to be
collected.
Bank premises and equipment
Fair values for bank premises and equipment were generally based on appraisals of the property values.
Operating lease equipment
Fair values for operating lease equipment were generally developed using the cost approach. The seller’s historical cost was adjusted by cost
trend indices relevant to the asset type and vintage to arrive at a current reproduction cost. This reproduction cost was then adjusted for
deterioration based on the age and typical life of each class of assets. Residual values were estimated based on analysis of the seller’s
historical trends of residual value realization by asset class.
Intangible assets
The core deposit intangible asset represents the value of relationships with deposit customers. The fair value was estimated based on a DCF
methodology that considered expected customer attrition rates, net maintenance cost of the deposit base, alternative cost of funds and the
interest costs associated with customer deposits. The core deposit intangible is being amortized on an accelerated basis over its estimated
useful life.
For acquired operating leases where the Bancorp is the lessor, intangible assets are recognized when contract terms of the lease are more
favorable than market terms as of the acquisition date. Operating lease intangibles are amortized on a straight-line basis over the remaining
lease term.
Servicing rights
Fair values for servicing rights were estimated using internal OAS models with certain unobservable inputs, primarily prepayment speed
assumptions, OAS and weighted-average lives.
Other assets
Fair values for ROU assets associated with real estate operating leases were based on current market rental rates for similar properties in the
same area, discounted at the Bancorp’s incremental borrowing rates as of the acquisition date. Estimates of current market rental rates were
generally based on third- party market rent studies performed for each significant property.
Deposits
The fair values for time deposits were estimated using a DCF methodology whereby the contractual remaining cash flows were discounted
using market rates currently being offered for time deposits of similar maturities. For transactional deposits, carrying amounts approximate
fair value.
Long-term debt
The fair values of long-term debt instruments were estimated based on quoted market prices for identical or similar instruments if available,
or by using DCF analyses based on current incremental borrowing rates for similar types of instruments.
Merger-Related Expenses
Direct merger-related expenses related to the acquisition of MB Financial, Inc. were expensed as incurred by the Bancorp and were $16
million and $222 million for the years ended December 31, 2020 and 2019, respectively.
The following table provides a summary of merger-related expenses recorded in noninterest expense for the years ended December 31:
($ in millions)
Compensation and benefits
Technology and communications
Net occupancy expense
Equipment expense
Card and processing expense
Marketing expense
Other noninterest expense
Total
2020
2019
$
$
4
6
4
—
—
—
2
16
90
71
13
1
1
7
39
222
Pro Forma Information
The following table presents unaudited pro forma information as if the acquisition of MB Financial, Inc. had occurred on January 1, 2018.
This pro forma information combines the historical condensed consolidated results of operations of Fifth Third Bancorp and MB Financial,
155 Fifth Third Bancorp
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Inc. after giving effect to certain adjustments, including purchase accounting fair value adjustments, amortization of intangibles, stock-based
compensation expense and acquisition costs, as well as the related income tax effects of those adjustments. The pro forma results also reflect
reclassification adjustments to noninterest income and noninterest expense to conform MB Financial, Inc.’s presentation of operating lease
income and the related depreciation expense with the Bancorp’s presentation. Direct costs associated with the acquisition were included in
pro forma earnings as of January 1, 2018.
The pro forma information does not necessarily reflect the results of operations that would have occurred had Fifth Third Bancorp acquired
MB Financial, Inc. on January 1, 2018. Furthermore, cost savings and other business synergies related to the acquisition are not reflected in
the unaudited pro forma amounts.
($ in millions)
Net interest income
Noninterest income
Net income available to common shareholders
Unaudited Pro Forma Information
For the year ended December 31,
2019
$
4,918
3,638
2,534
Acquired Loans and Leases
Prior to the adoption of ASU 2016-13 on January 1, 2020, purchased loans were evaluated for evidence of credit deterioration at acquisition
and recorded at their initial fair value. Generally, the fair value discount or premium on acquired loans and leases was amortized over the
contractual life of the loan as an adjustment to yield. For loans acquired with evidence of credit impairment (PCI loans), the Bancorp
determined at the acquisition date the excess of the loan’s contractually required payments over all cash flows expected to be collected as an
amount that should not be accreted into interest income (nonaccretable difference). The remaining amount representing the difference in the
expected cash flows of acquired loans and the initial investment in the acquired loans was accreted into interest income over the remaining
life of the loan or pool of loans (accretable yield). This method of accounting for loans acquired with credit impairment did not apply to loans
carried at fair value, residential mortgage loans held for sale and loans under revolving credit agreements. Refer to Note 1 for additional
information on the accounting for PCI loans. The Bancorp elected to account for loans acquired from MB Financial, Inc., which were not
considered impaired but exhibited evidence of credit deterioration since origination, in the same manner as PCI loans.
The following table reflects the contractually required payments receivable, cash flows expected to be collected and estimated fair value of
loans identified as PCI loans on the acquisition date of MB Financial, Inc. These fair value estimates were final as of March 31, 2020.
($ in millions)
Contractually required payments including interest
Less: Nonaccretable difference
Cash flows expected to be collected
Less: Accretable yield
Fair value of loans acquired
A summary of activity related to accretable yield is as follows:
($ in millions)
Balance as of December 31, 2018
Additions
Accretion
Reclassifications (to) from nonaccretable difference
Balance as of December 31, 2019
March 22, 2019
$
1,139
81
1,058
202
856
$
Accretable Yield
—
$
202
(41)
(14)
147
$
At the MB Financial, Inc. acquisition date, contractual balances on the purchased non-PCI loans and leases totaled $12.7 billion with a
corresponding fair value of $12.5 billion.
ASU 2016-13, which was adopted by the Bancorp on January 1, 2020, superseded the accounting for PCI loans and transitioned to the
accounting for PCD loans. As such, the Bancorp no longer recognizes a nonaccretable difference or accretable yield, but instead includes
expected credit losses on loans acquired with evidence of credit deterioration as part of the ALLL and amortizes any remaining noncredit
discount over the remaining contractual life of the loan as an adjustment to yield. Upon adoption, the Bancorp increased the ALLL by
$33 million to reflect expected credit losses on loans previously designated as PCI loans. This amount was added to the amortized cost basis
of the loans at transition. After this adjustment, the remaining difference between the amortized cost basis and unpaid principal balance is
considered to be a noncredit discount. The noncredit discount totaled $87 million as of January 1, 2020. Refer to Note 1 for additional
information about ASU 2016-13 and refer to Note 7 for additional information on the Bancorp’s portfolio of PCD loans.
156 Fifth Third Bancorp
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Bank Merger
On May 3, 2019 MB Financial Bank, N.A. merged with and into Fifth Third Bank (now Fifth Third Bank, National Association), with Fifth
Third Bank, National Association as the surviving entity. Fifth Third Bank, National Association is an indirect subsidiary of Fifth Third
Bancorp.
4. Restrictions on Cash, Dividends and Other Capital Actions
Reserve Requirement
The FRB, under Regulation D, requires that banks hold cash in reserve against deposit liabilities when total reservable deposit liabilities are
greater than the regulatory exemption, known as the reserve requirement. The reserve requirement is calculated based on a two-week average
of daily net transaction account deposits as defined by the FRB and may be satisfied with average vault cash during the following two-week
maintenance period. When vault cash is not sufficient to meet the reserve requirement, the remaining amount must be satisfied with average
funds held at the FRB. As part of the government response to the COVID-19 pandemic, the FRB has taken a range of actions to support the
flow of credit to households and businesses, including reducing the reserve requirement to zero effective March 26, 2020. The reserve
requirement continued to be zero at December 31, 2020. At December 31, 2019, the Bancorp’s banking subsidiary reserve requirement was
$1.7 billion. Additionally, the Bancorp’s banking subsidiary average reserve requirement was $1.7 billion in 2019.
Restrictions on Cash Dividends
The principal source of income and funds for the Bancorp (parent company) are dividends from its subsidiaries. The dividends paid by the
Bancorp’s banking subsidiary are subject to regulations and limitations prescribed by state and federal supervisory agencies. The Bancorp’s
banking subsidiary paid the Bancorp’s nonbank subsidiary holding company, which in turn paid the Bancorp $1.3 billion and $2.0 billion in
dividends during the years ended December 31, 2020 and 2019, respectively. Additionally, a $200 million dividend was paid by MB
Financial, Inc. to the Bancorp during the year ended December 31, 2019. The Bancorp’s nonbank subsidiaries are also limited by certain
federal and state statutory provisions and regulations covering the amount of dividends that may be paid in any given year. Additionally, as
discussed below, during 2020 the FRB took actions in response to the COVID-19 pandemic that limit the amount of cash dividends that the
Bancorp may pay to its shareholders.
Capital Actions
The Bancorp is subject to restrictions on its capital actions, primarily as a result of supervisory policies set by the FRB. The Bancorp is
required to develop and maintain a capital plan that governs its capacity to pay dividends and execute share repurchases and this plan is
required to be submitted to the FRB periodically.
In June 2020, the FRB took several actions in connection with its announcement of stress test results in light of the uncertainty caused by the
COVID-19 pandemic. Specifically, for the third quarter of 2020, the FRB required large banking organizations, including the Bancorp, to
suspend share repurchases, cap dividend payments to the amount paid during the second quarter of 2020, and further limit dividends
according to a formula based on recent income. Additionally, on September 30, 2020 the FRB extended the third quarter of 2020 restrictions
on share repurchases and dividends to the fourth quarter of 2020, and dividends remain limited according to a formula based on recent
income. The Bancorp did not execute any accelerated share repurchase or open market share repurchase transactions during the year ended
December 31, 2020 but increased its quarterly common stock dividend to $0.27 per share in the first quarter of 2020.
The FRB also required large banking organizations, including the Bancorp, to reevaluate their longer-term capital plans, and such
organizations were required to update and resubmit their capital plans to reflect stresses caused by the COVID-19 pandemic. The Bancorp
resubmitted its capital plan as required. The FRB may conduct additional analysis each quarter to determine if adjustments to this response
are appropriate.
In December 2020, the FRB announced an extension of its restrictions on distributions through the first quarter of 2021, but with certain
modifications. For the first quarter of 2021, both dividends and share repurchases are limited to an amount based on recent income provided
the Bancorp does not increase the amount of its common stock dividend. Refer to Note 33 for further information about a subsequent event
related to capital actions.
The Bancorp executed accelerated share repurchase and open market share repurchase transactions during the year ended December 31, 2019.
For more information related to these transactions, refer to Note 25.
157 Fifth Third Bancorp
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5. Investment Securities
The following table provides the amortized cost, unrealized gains and losses and fair value for the major categories of the available-for-
sale debt and other securities and held-to-maturity securities portfolios as of December 31:
($ in millions)
Available-for-sale debt and other securities:
2020
2019
Amortized
Cost
Unrealized
Gains
Unrealized
Losses
Fair
Value
Amortized
Cost
Unrealized
Gains
Unrealized
Losses
Fair
Value
U.S. Treasury and federal agencies securities $
Obligations of states and political
subdivisions securities
Mortgage-backed securities:
Agency residential mortgage-backed
securities
Agency commercial mortgage-backed
securities
Non-agency commercial mortgage-backed
securities
Asset-backed securities and other debt
74
17
4
—
—
—
78
17
74
18
1
—
—
—
75
18
11,147
768
(8)
11,907
13,746
388
(19)
14,115
16,745
1,481
(5)
18,221
15,141
564
(12)
15,693
3,323
267
—
3,590
3,242
123
—
3,365
3,152
524
48
—
(24)
—
3,176
524
2,189
556
29
—
(12)
—
2,206
556
securities
Other securities(a)
Total available-for-sale debt and other
securities
Held-to-maturity securities:
Obligations of states and political
subdivisions securities
Asset-backed securities and other debt
securities
Total held-to-maturity securities
$ 34,982
2,568
(37)
37,513
34,966
1,105
(43)
36,028
$
$
9
2
11
—
—
—
—
—
—
9
2
11
15
2
17
—
—
—
—
—
—
15
2
17
(a) Other securities consist of FHLB, FRB and DTCC restricted stock holdings of $40, $482 and $2, respectively, at December 31, 2020 and $76, $478 and $2,
respectively, at December 31, 2019, that are carried at cost.
The following table provides the fair value of trading debt securities and equity securities as of December 31:
($ in millions)
Trading debt securities
Equity securities
2020
2019
$
560
313
297
564
The amounts reported in the preceding tables exclude accrued interest receivable on investment securities of $87 million at December 31,
2020, which is presented as a component of other assets in the Consolidated Balance Sheets.
The Bancorp uses investment securities as a means of managing interest rate risk, providing collateral for pledging purposes and for liquidity
to satisfy regulatory requirements. As part of managing interest rate risk, the Bancorp acquires securities as a component of its MSR non-
qualifying hedging strategy, with net gains or losses recorded in securities gains (losses), net – non-qualifying hedges on MSRs in the
Consolidated Statements of Income.
158 Fifth Third Bancorp
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The following table presents securities gains (losses) recognized in the Consolidated Statements of Income for the years ended December 31:
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($ in millions)
Available-for-sale debt and other securities:
Realized gains
Realized losses
OTTI
Net realized gains (losses) on available-for-sale debt and other securities
Total trading debt securities gains (losses)
Total equity securities gains (losses)(a)
Total gains (losses) recognized in income from available-for-sale debt and other securities,
trading debt securities and equity securities(b)
2020
2019
2018
$
$
$
$
$
47
(2)
—
45
2
17
64
60
(50)
(1)
9
3
31
43
72
(82)
—
(10)
(15)
(44)
(69)
(a)
Includes $7 of net unrealized gains, $26 of net unrealized gains and $45 of net unrealized losses for the years ended December 31, 2020, 2019 and 2018,
respectively.
(b) Excludes $5 and $7 of net securities gains for the years ended December 31, 2020 and 2019, respectively, and an insignificant amount of net securities losses for
the year ended December 31, 2018 related to securities held by FTS to facilitate the timely execution of customer transactions. These gains (losses) are included
in commercial banking revenue and wealth and asset management revenue in the Consolidated Statements of Income.
Upon adoption of ASU 2016-13 on January 1, 2020, the Bancorp evaluates available-for-sale debt and other securities in an unrealized loss
position to determine whether all or a portion of the unrealized loss on such securities is a credit loss. If credit losses are identified, they are
generally recognized as an allowance for credit losses (a contra account to the amortized cost basis of the securities) with the periodic change
in the allowance recognized in earnings. Prior to January 1, 2020, investment securities were evaluated for OTTI with any identified OTTI
recognized as a charge to income and a direct reduction of the amortized cost basis of the securities.
At December 31, 2020, the Bancorp completed its evaluation of the available-for-sale debt and other securities in an unrealized loss position
and did not recognize an allowance for credit losses. The Bancorp did not recognize provision expense for the year ended December 31, 2020
related to available-for-sale debt and other securities in an unrealized loss position.
At December 31, 2020 and 2019, investment securities with a fair value of $11.0 billion and $8.1 billion, respectively, were pledged to secure
borrowings, public deposits, trust funds, derivative contracts and for other purposes as required or permitted by law.
The expected maturity distribution of the Bancorp’s mortgage-backed securities and the contractual maturity distribution of the remainder of
the Bancorp’s available-for-sale debt and other securities and held-to-maturity investment securities as of December 31, 2020 are shown in
the following table:
($ in millions)
Debt securities:(a)
Less than 1 year
1-5 years
5-10 years
Over 10 years
Other securities
Total
Available-for-Sale Debt and Other
Fair Value
Amortized Cost
Held-to-Maturity
Amortized Cost
Fair Value
$
$
633
15,881
12,214
5,730
524
34,982
648
16,959
13,385
5,997
524
37,513
2
7
—
2
—
11
2
7
—
2
—
11
(a) Actual maturities may differ from contractual maturities when a right to call or prepay obligations exists with or without call or prepayment penalties.
159 Fifth Third Bancorp
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table provides the fair value and gross unrealized losses on available-for-sale debt and other securities in an unrealized loss
position, aggregated by investment category and length of time the individual securities have been in a continuous unrealized loss position as
of December 31:
($ in millions)
2020
Agency residential mortgage-backed securities
Agency commercial mortgage-backed securities
Non-agency commercial mortgage-backed securities
Asset-backed securities and other debt securities
Total
2019
Agency residential mortgage-backed securities
Agency commercial mortgage-backed securities
Asset-backed securities and other debt securities
Total
Less than 12 months
12 months or more
Total
Fair Value
Unrealized
Losses
Fair Value
Unrealized
Losses
Fair Value
Unrealized
Losses
$
$
$
$
426
388
2
520
1,336
2,159
1,602
367
4,128
(8)
(5)
—
(7)
(20)
(19)
(12)
(3)
(34)
1
—
—
603
604
4
—
379
383
—
—
—
(17)
(17)
—
—
(9)
(9)
427
388
2
1,123
1,940
2,163
1,602
746
4,511
(8)
(5)
—
(24)
(37)
(19)
(12)
(12)
(43)
At December 31, 2020 and 2019, $1 million and an immaterial amount of unrealized losses in the available-for-sale debt and other securities
portfolio were represented by non-rated securities, respectively.
160 Fifth Third Bancorp
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
6. Loans and Leases
The Bancorp diversifies its loan and lease portfolio by offering a variety of loan and lease products with various payment terms and rate
structures. The Bancorp’s commercial loan and lease portfolio consists of lending to various industry types. Management periodically reviews
the performance of its loan and lease products to evaluate whether they are performing within acceptable interest rate and credit risk levels
and changes are made to underwriting policies and procedures as needed. The Bancorp maintains an allowance to absorb loan and lease
losses that are expected to be incurred over the remaining contractual terms of the related loans and leases. For further information on credit
quality and the ALLL, refer to Note 7.
The following table provides a summary of commercial loans and leases classified by primary purpose and consumer loans classified based
upon product or collateral as of December 31:
($ in millions)
Loans and leases held for sale:
Commercial and industrial loans
Commercial mortgage loans
Commercial leases
Residential mortgage loans
Total loans and leases held for sale
Portfolio loans and leases:
Commercial and industrial loans(a)
Commercial mortgage loans
Commercial construction loans
Commercial leases
Total commercial loans and leases
Residential mortgage loans(b)
Home equity
Indirect secured consumer loans
Credit card
Other consumer loans
Total consumer loans
Total portfolio loans and leases
2020
2019
$
$
$
$
230
7
39
4,465
4,741
49,665
10,602
5,815
2,915
68,997
15,928
5,183
13,653
2,007
3,014
39,785
108,782
135
1
—
1,264
1,400
50,542
10,963
5,090
3,363
69,958
16,724
6,083
11,538
2,532
2,723
39,600
109,558
(a)
(b)
Includes $4.8 billion, as of December 31, 2020, related to the SBA’s Paycheck Protection Program.
Includes $39, as of December 31, 2020, of residential mortgage loans previously sold to GNMA for which the Bancorp is deemed to have regained effective
control over under ASC Topic 860, but did not exercise its option to repurchase. Refer to Note 17 for further information.
Portfolio loans and leases are recorded net of unearned income, which totaled $280 million as of December 31, 2020 and $354 million as of
December 31, 2019. Additionally, portfolio loans and leases are recorded net of unamortized premiums and discounts, deferred direct loan
origination fees and costs and fair value adjustments (associated with acquired loans or loans designated as fair value upon origination) which
totaled a net premium of $251 million and $249 million as of December 31, 2020 and 2019, respectively. The amortized cost basis of loans
and leases excludes accrued interest receivable of $350 million at December 31, 2020, which is presented as a component of other assets in
the Consolidated Balance Sheets.
The Bancorp’s FHLB and FRB borrowings are primarily secured by loans. The Bancorp had loans of $15.5 billion and $16.7 billion at
December 31, 2020 and 2019, respectively, pledged at the FHLB, and loans of $37.8 billion and $47.3 billion at December 31, 2020 and
2019, respectively, pledged at the FRB.
The following table presents a summary of the total loans and leases owned by the Bancorp and net charge-offs (recoveries) as of and for the
years ended December 31:
161 Fifth Third Bancorp
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($ in millions)
Commercial and industrial loans
Commercial mortgage loans
Commercial construction loans
Commercial leases
Residential mortgage loans
Home equity
Indirect secured consumer loans
Credit card
Other consumer loans
Total loans and leases
Less: Loans and leases held for sale
Total portfolio loans and leases
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Carrying Value
90 Days Past Due
and Still Accruing
Net Charge-Offs (Recoveries)
2020
2019
2020
2019
2020
2019
$
$
$
$
49,895
10,609
5,815
2,954
20,393
5,183
13,653
2,007
3,014
113,523
4,741
108,782
50,677
10,964
5,090
3,363
17,988
6,083
11,538
2,532
2,723
110,958
1,400
109,558
39
8
—
1
70
2
10
31
2
163
11
15
—
—
50
1
10
42
1
130
198
45
—
23
2
5
32
126
40
471
103
(2)
—
7
4
18
50
134
55
369
The Bancorp engages in commercial lease products primarily related to the financing of commercial equipment. Leases are classified as
sales-type if the Bancorp transfers control of the underlying asset to the lessee. The Bancorp classifies leases that do not meet any of the
criteria for a sales-type lease as a direct financing lease if the present value of the sum of the lease payments and any residual value
guaranteed by the lessee and/or any other third party equals or exceeds substantially all of the fair value of the underlying asset and the
collection of the lease payments and residual value guarantee is probable.
The following table presents the components of the net investment in leases as of December 31:
($ in millions)(a)
Net investment in direct financing leases:
Lease payment receivable (present value)
Unguaranteed residual assets (present value)
Net discount on acquired leases
Net investment in sales-type leases:
Lease payment receivable (present value)
Unguaranteed residual assets (present value)
2020
2019
$
1,400
181
(1)
976
36
2,196
220
(7)
510
15
(a) Excludes $323 and $429 of leveraged leases at December 31, 2020 and 2019, respectively.
Interest income recognized in the Consolidated Statements of Income for the years ended December 31, 2020 and 2019 was $64 million and
$88 million, respectively, for direct financing leases and $28 million and $13 million, respectively, for sales-type leases.
The following table presents undiscounted cash flows for both direct financing and sales-type leases for 2021 through 2025 and thereafter as
well as a reconciliation of the undiscounted cash flows to the total lease receivables as follows:
As of December 31, 2020 ($ in millions)
2021
2022
2023
2024
2025
Thereafter
Total undiscounted cash flows
Less: Difference between undiscounted cash flows and discounted cash flows
Present value of lease payments (recognized as lease receivables)
Direct Financing
Leases
Sales-Type
Leases
$
$
$
470
360
227
161
115
164
1,497
97
1,400
297
253
183
132
69
129
1,063
87
976
The lease residual value represents the present value of the estimated fair value of the leased equipment at the end of the lease. The Bancorp
performs quarterly reviews of residual values associated with its leasing portfolio considering factors such as the subject equipment, structure
of the transaction, industry, prior experience with the lessee and other factors that impact the residual value to assess for impairment. The
Bancorp maintained an allowance of $29 million at December 31, 2020 to cover the losses that are expected to be incurred over the remaining
contractual terms of the related leases, including the potential losses related to the residual value, in the net investment in leases. The Bancorp
maintained an allowance of $17 million at December 31, 2019 to cover the inherent losses, including the potential losses related to the
residual value, in the net investment in leases. Refer to Note 7 for additional information on credit quality and the ALLL.
162 Fifth Third Bancorp
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7. Credit Quality and the Allowance for Loan and Lease Losses
The Bancorp disaggregates ALLL balances and transactions in the ALLL by portfolio segment. Credit quality related disclosures for loans
and leases are further disaggregated by class.
Allowance for Loan and Lease Losses
The following tables summarize transactions in the ALLL by portfolio segment for the years ended December 31:
2020 ($ in millions)
Balance, beginning of period
Impact of adoption of ASU 2016-13(a)
Losses charged-off(b)
Recoveries of losses previously charged-off(b)
Provision for loan and lease losses
Balance, end of period
Commercial
Residential
Mortgage
Consumer
Unallocated
Total
$
$
710
160
(282)
16
852
1,456
73
196
(9)
7
27
294
298
408
(320)
117
200
703
121
(121)
—
—
—
—
1,202
643
(611)
140
1,079
2,453
Includes $31, $2 and $1 in Commercial, Residential Mortgage and Consumer, respectively, related to the initial recognition of an ALLL on PCD loans.
(a)
(b) The Bancorp recorded $42 in both losses charged-off and recoveries of losses charged-off related to customer defaults on point-of-sale consumer loans for which
the Bancorp obtained recoveries under third-party credit enhancements.
2019 ($ in millions)
Balance, beginning of period
Losses charged-off(a)
Recoveries of losses previously charged-off(a)
Provision for (benefit from) loan and lease losses
Balance, end of period
Commercial
Residential
Mortgage
Consumer
Unallocated
Total
$
$
645
(127)
19
173
710
81
(9)
5
(4)
73
267
(374)
117
288
298
110
—
—
11
121
1,103
(510)
141
468
1,202
(a) The Bancorp recorded $48 in both losses charged-off and recoveries of losses charged-off related to customer defaults on point-of-sale consumer loans for which
the Bancorp obtained recoveries under third-party credit enhancements.
2018 ($ in millions)
Balance, beginning of period
Losses charged-off(a)
Recoveries of losses previously charged-off(a)
Provision for (benefit from) loan and lease losses
Balance, end of period
Commercial
Residential
Mortgage
Consumer
Unallocated
Total
$
$
753
(157)
25
24
645
89
(13)
6
(1)
81
234
(280)
89
224
267
120
—
—
(10)
110
1,196
(450)
120
237
1,103
(a) The Bancorp recorded $29 in both losses charged-off and recoveries of losses charged-off related to customer defaults on point-of-sale consumer loans for which
the Bancorp obtained recoveries under third-party credit enhancements.
The following tables provide a summary of the ALLL and related loans and leases classified by portfolio segment:
As of December 31, 2020 ($ in millions)
ALLL:(a)
Individually evaluated
Collectively evaluated
Total ALLL
Portfolio loans and leases:(b)
Individually evaluated
Collectively evaluated
Purchased credit deteriorated(c)
Total portfolio loans and leases
Commercial
Residential
Mortgage
Consumer
Total
$
$
$
$
114
1,342
1,456
962
67,701
334
68,997
68
226
294
628
15,073
66
15,767
43
660
703
273
23,569
15
23,857
225
2,228
2,453
1,863
106,343
415
108,621
Includes $3 related to commercial leveraged leases at December 31, 2020.
(a)
(b) Excludes $161 of residential mortgage loans measured at fair value and includes $323 of commercial leveraged leases, net of unearned income, at December 31,
(c)
2020.
Includes $39, as of December 31, 2020, of residential mortgage loans previously sold to GNMA for which the Bancorp is deemed to have regained effective
control over under ASC Topic 860, but did not exercise its option to repurchase. Refer to Note 17 for further information.
163 Fifth Third Bancorp
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2019 ($ in millions)
ALLL:(a)
Individually evaluated for impairment
Collectively evaluated for impairment
Unallocated
Total ALLL
Portfolio loans and leases:(b)
Individually evaluated for impairment
Collectively evaluated for impairment
Purchased credit impaired
Total portfolio loans and leases
Commercial
Residential
Mortgage
Consumer
Unallocated
Total
$
$
$
$
82
628
—
710
413
69,047
498
69,958
55
18
—
73
814
15,690
37
16,541
33
265
—
298
302
22,558
16
22,876
—
—
121
121
170
911
121
1,202
—
—
—
—
1,529
107,295
551
109,375
Includes $1 related to commercial leveraged leases at December 31, 2019.
(a)
(b) Excludes $183 of residential mortgage loans measured at fair value and includes $429 of commercial leveraged leases, net of unearned income at December 31,
2019.
CREDIT RISK PROFILE
Commercial Portfolio Segment
For purposes of monitoring the credit quality and risk characteristics of its commercial portfolio segment, the Bancorp disaggregates the
segment into the following classes: commercial and industrial, commercial mortgage owner-occupied, commercial mortgage nonowner-
occupied, commercial construction and commercial leases.
To facilitate the monitoring of credit quality within the commercial portfolio segment, the Bancorp utilizes the following categories of credit
grades: pass, special mention, substandard, doubtful and loss. The five categories, which are derived from standard regulatory rating
definitions, are assigned upon initial approval of credit to borrowers and updated periodically thereafter.
Pass ratings, which are assigned to those borrowers that do not have identified potential or well-defined weaknesses and for which there is a
high likelihood of orderly repayment, are updated at least annually based on the size and credit characteristics of the borrower. All other
categories are updated on a quarterly basis during the month preceding the end of the calendar quarter.
The Bancorp assigns a special mention rating to loans and leases that have potential weaknesses that deserve management’s close attention. If
left uncorrected, these potential weaknesses may, at some future date, result in the deterioration of the repayment prospects for the loan or
lease or the Bancorp’s credit position.
The Bancorp assigns a substandard rating to loans and leases that are inadequately protected by the current sound worth and paying capacity
of the borrower or of the collateral pledged. Substandard loans and leases have well-defined weaknesses or weaknesses that could jeopardize
the orderly repayment of the debt. Loans and leases in this grade also are characterized by the distinct possibility that the Bancorp will sustain
some loss if the deficiencies noted are not addressed and corrected.
The Bancorp assigns a doubtful rating to loans and leases that have all the attributes of a substandard rating with the added characteristic that
the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions and values, highly questionable and
improbable. The possibility of loss is extremely high, but because of certain important and reasonable specific pending factors that may work
to the advantage of and strengthen the credit quality of the loan or lease, its classification as an estimated loss is deferred until its more exact
status may be determined. Pending factors may include a proposed merger or acquisition, liquidation proceeding, capital injection, perfecting
liens on additional collateral or refinancing plans.
Loans and leases classified as loss are considered uncollectible and are charged off in the period in which they are determined to be
uncollectible. Because loans and leases in this category are fully charged off, they are not included in the following tables.
For loans and leases that are collectively evaluated, the Bancorp utilizes models to forecast expected credit losses over a reasonable and
supportable forecast period based on the probability of a loan or lease defaulting, the expected balance at the estimated date of default and the
expected loss percentage given a default. For the commercial portfolio segment, the estimates for probability of default are primarily based on
internal ratings assigned to each commercial borrower on a 13-point scale and historical observations of how those ratings migrate to a
default over time in the context of macroeconomic conditions. For loans with available credit, the estimate of the expected balance at the time
of default considers expected utilization rates, which are primarily based on macroeconomic conditions and the utilization history of similar
borrowers under those economic conditions. The estimates for loss severity are primarily based on collateral type and coverage levels and the
susceptibility of those characteristics to changes in macroeconomic conditions. Refer to Note 1 for additional information about the
Bancorp’s processes for developing these models, estimating credit losses for periods beyond the reasonable and supportable forecast period
and for estimating credit losses for individually evaluated loans.
164 Fifth Third Bancorp
Table of Contents
The following table summarizes the credit risk profile of the Bancorp’s commercial portfolio segment, by class and vintage:
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2020
($ in millions)
Commercial and industrial loans:
Pass
Special mention
Substandard
Doubtful
Total commercial and industrial loans
Commercial mortgage owner-occupied
loans:
Pass
Special mention
Substandard
Doubtful
Total commercial mortgage owner-
occupied loans
Commercial mortgage nonowner-
occupied loans:
Pass
Special mention
Substandard
Doubtful
Total commercial mortgage nonowner-
occupied loans
Commercial construction loans:
Pass
Special mention
Substandard
Doubtful
Total commercial construction loans
Commercial leases:
Pass
Special mention
Substandard
Doubtful
Total commercial leases
Total commercial loans and leases:
Pass
Special mention
Substandard
Doubtful
Total commercial loans and leases
Term Loans and Leases
Amortized Cost Basis by Origination Year
2020
2019
2018
2017
2016
Prior
Revolving
Loans
Converted
to
Term Loans
Amortized
Cost Basis
Revolving
Loans
Amortized
Cost Basis
$ 7,042
66
119
—
$ 7,227
2,144
46
80
2
2,272
1,114
167
107
9
1,397
$ 1,047
58
211
—
655
12
17
—
416
16
33
—
700
46
60
—
806
288
7
7
—
471
5
39
—
515
249
2
13
—
703
21
104
—
828
420
17
30
—
31,657
2,317
2,639
7
36,620
1,025
64
88
—
—
—
—
—
—
—
—
—
—
Total
43,831
2,668
3,148
18
49,665
4,100
176
399
—
$ 1,316
684
465
302
264
467
1,177
—
4,675
$
902
252
149
12
679
68
3
—
548
17
49
—
247
8
14
—
223
36
2
—
341
9
25
—
1,626
416
301
—
—
—
—
—
4,566
806
543
12
$ 1,315
750
614
269
261
375
2,343
—
5,927
$
$
$
$
98
67
8
—
173
622
5
7
—
634
49
—
—
—
49
374
16
4
—
394
27
—
—
—
27
315
5
16
—
336
—
—
—
—
—
369
—
21
—
390
9
—
—
—
9
314
—
6
—
320
12
—
—
—
12
824
—
17
—
841
4,721
591
233
—
5,545
—
—
—
—
—
$ 9,711
448
494
12
$ 10,665
3,901
142
104
2
4,149
2,420
205
205
9
2,839
1,604
61
102
—
1,767
1,266
43
60
—
1,369
2,300
47
176
—
2,523
39,029
3,388
3,261
7
45,685
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
4,916
658
241
—
5,815
2,818
26
71
—
2,915
60,231
4,334
4,402
30
68,997
The following table summarizes the credit risk profile of the Bancorp’s commercial portfolio segment, by class:
As of December 31, 2019 ($ in millions)
Commercial and industrial loans
Commercial mortgage owner-occupied loans
Commercial mortgage nonowner-occupied loans
Commercial construction loans
Commercial leases
Total commercial loans and leases
Pass
Special
Mention
Substandard
Doubtful
Total
$
$
47,671
4,421
5,866
4,963
3,222
66,143
1,423
162
135
52
53
1,825
1,406
293
82
75
88
1,944
42
4
—
—
—
46
50,542
4,880
6,083
5,090
3,363
69,958
165 Fifth Third Bancorp
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Age Analysis of Past Due Commercial Loans and Leases
The following tables summarize the Bancorp’s amortized cost basis in portfolio commercial loans and leases, by age and class:
As of December 31, 2020 ($ in millions)
Commercial loans and leases:
Commercial and industrial loans
Commercial mortgage owner-occupied loans
Commercial mortgage nonowner-occupied loans
Commercial construction loans
Commercial leases
Total portfolio commercial loans and leases
(a)
Includes accrual and nonaccrual loans and leases.
As of December 31, 2019 ($ in millions)
Commercial loans and leases:
Commercial and industrial loans
Commercial mortgage owner-occupied loans
Commercial mortgage nonowner-occupied loans
Commercial construction loans
Commercial leases
Total portfolio commercial loans and leases
(a)
Includes accrual and nonaccrual loans and leases.
Current
Loans and
Leases(a)
30-89
Days(a)
Past Due
90 Days
or More(a)
Total
Past Due
Total Loans
and Leases
90 Days Past
Due and Still
Accruing
$
$
49,421
4,645
5,860
5,808
2,906
68,640
119
7
31
7
7
171
125
23
36
—
2
186
244
30
67
7
9
357
49,665
4,675
5,927
5,815
2,915
68,997
39
7
1
—
1
48
Current
Loans and
Leases(a)
30-89
Days(a)
Past Due
90 Days
or More(a)
Total
Past Due
Total Loans
and Leases
90 Days Past
Due and Still
Accruing
$
$
50,305
4,853
6,072
5,089
3,338
69,657
133
4
5
1
11
154
104
23
6
—
14
147
237
27
11
1
25
301
50,542
4,880
6,083
5,090
3,363
69,958
11
9
6
—
—
26
Residential Mortgage and Consumer Portfolio Segments
For purposes of monitoring the credit quality and risk characteristics of its consumer portfolio segment, the Bancorp disaggregates the
segment into the following classes: home equity, indirect secured consumer loans, credit card and other consumer loans. The Bancorp’s
residential mortgage portfolio segment is also a separate class.
The Bancorp considers repayment performance as the best indicator of credit quality for residential mortgage and consumer loans, which
includes both the delinquency status and performing versus nonperforming status of the loans. The delinquency status of all residential
mortgage and consumer loans and the performing versus nonperforming status is presented in the following table. Refer to the nonaccrual
loans and leases section of Note 1 for additional delinquency and nonperforming information. Loans and leases which received payment
deferrals or forbearances as part of the Bancorp’s COVID-19 customer relief programs are generally not reported as delinquent during the
forbearance or deferral period if the loan or lease was less than 30 days past due at March 1, 2020 (the effective date of the COVID-19
national emergency declaration) unless the loan or lease subsequently becomes delinquent according to its modified terms. Refer to Note 1
for additional information.
For collectively evaluated loans in the consumer and residential mortgage portfolio segments, the Bancorp’s expected credit loss models
primarily utilize the borrower’s FICO score and delinquency history in combination with macroeconomic conditions when estimating the
probability of default. The estimates for loss severity are primarily based on collateral type and coverage levels and the susceptibility of those
characteristics to changes in macroeconomic conditions. The expected balance at the estimated date of default is also particularly significant
for portfolio classes which generally have longer terms (such as residential mortgage loans and home equity) and portfolio classes containing
a high concentration of loans with revolving privileges (such as credit card and home equity). The estimate of the expected balance at the
time of default considers expected prepayment and utilization rates where applicable, which are primarily based on macroeconomic
conditions and the utilization history of similar borrowers under those economic conditions. Refer to Note 1 for additional information about
the Bancorp’s process for developing these models and its process for estimating credit losses for periods beyond the reasonable and
supportable forecast period.
The following table presents a summary of the Bancorp’s residential mortgage and consumer portfolio segments, by class and vintage,
disaggregated by both age and performing versus nonperforming status:
166 Fifth Third Bancorp
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Term Loans
Amortized Cost Basis by Origination Year
2020
2019
2018
2017
2016
Prior
Revolving
Loans
Converted to
Term Loans
Amortized
Cost Basis
Revolving
Loans
Amortized
Cost Basis
Total
$ 4,006
1
—
4,007
1
$ 4,008
2,128
1
6
2,135
—
2,135
827
3
2
832
2
834
1,635
3
7
1,645
2
1,647
2,301
1
7
2,309
3
2,312
4,719
12
48
4,779
52
4,831
As of December 31, 2020
($ in millions)
Residential mortgage loans:
Performing:
Current(a)
30-89 days past due
90 days or more past due
Total performing
Nonperforming
Total residential mortgage loans(b)
Home equity:
Performing:
Current
30-89 days past due
90 days or more past due
Total performing
Nonperforming
Total home equity
Indirect secured consumer loans:
$
$
11
—
—
11
—
11
24
—
—
24
—
24
30
—
—
30
—
30
Performing:
Current
30-89 days past due
90 days or more past due
$ 6,626
25
1
6,652
1
Total indirect secured consumer loans $ 6,653
Credit card:
Total performing
Nonperforming
3,752
41
2
3,795
5
3,800
1,678
31
3
1,712
4
1,716
$ —
—
—
—
—
$ —
$
$
883
2
—
885
—
885
—
—
—
—
—
—
546
5
2
553
—
553
—
—
—
—
—
—
437
4
—
441
—
441
Performing:
Current
30-89 days past due
90 days or more past due
Total performing
Nonperforming
Total credit card
Other consumer loans
Performing:
Current
30-89 days past due
90 days or more past due
Total performing
Nonperforming
Total other consumer loans
Total residential mortgage and
consumer loans
Performing:
Current
30-89 days past due
90 days or more past due
Total performing
Nonperforming
Total residential mortgage and
consumer loans(b)
4
—
—
4
—
4
860
17
2
879
3
882
—
—
—
—
—
—
178
2
—
180
—
180
2
—
—
2
—
2
372
7
1
380
2
382
—
—
—
—
—
—
32
—
—
32
—
32
153
3
2
158
10
168
214
4
1
219
1
220
—
—
—
—
—
—
40
—
—
40
1
41
—
—
—
—
—
—
4,825
33
—
4,858
75
4,933
—
—
—
—
—
—
1,914
30
31
1,975
32
2,007
878
2
—
880
1
881
7,617
65
31
7,713
108
—
—
—
—
—
—
10
—
—
10
1
11
—
—
—
—
—
—
—
—
—
—
—
—
1
—
—
1
—
1
15,616
21
70
15,707
60
15,767
5,059
36
2
5,097
86
5,183
13,502
125
10
13,637
16
13,653
1,914
30
31
1,975
32
2,007
2,995
15
2
3,012
2
3,014
11
—
—
11
1
39,086
227
115
39,428
196
$ 11,526
28
1
11,555
2
6,450
47
10
6,507
5
2,972
38
5
3,015
6
2,677
22
9
2,708
5
2,707
8
8
2,723
5
5,126
19
51
5,196
64
$ 11,557
6,512
3,021
2,713
2,728
5,260
7,821
12
39,624
(a)
Information includes advances made pursuant to servicing agreements for GNMA mortgage pools whose repayments are insured by the FHA or guaranteed by the
VA. As of December 31, 2020, $103 of these loans were 30-89 days past due and $242 were 90 days or more past due. The Bancorp recognized $3 of losses
during the year ended December 31, 2020 due to claim denials and curtailments associated with these insured or guaranteed loans.
(b) Excludes $161 of residential mortgage loans measured at fair value at December 31, 2020.
167 Fifth Third Bancorp
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table presents a summary of the Bancorp’s residential mortgage and consumer portfolio segments, by class, disaggregated into
performing versus nonperforming status:
As of December 31, 2019 ($ in millions)
Residential mortgage loans(a)
Home equity
Indirect secured consumer loans
Credit card
Other consumer loans
Total residential mortgage and consumer loans(a)
Performing
$
$
16,450
5,989
11,531
2,505
2,721
39,196
Nonperforming
91
94
7
27
2
221
(a) Excludes $183 of residential mortgage loans measured at fair value at December 31, 2019.
Age Analysis of Past Due Consumer Loans
The following table summarizes the Bancorp’s amortized cost basis of portfolio consumer loans, by age and class:
As of December 31, 2019 ($ in millions)
Residential mortgage loans(a)
Consumer loans:
Home equity
Indirect secured consumer loans
Credit card
Other consumer loans
Total portfolio consumer loans(a)
Current
Loans and
Leases(b)(c)
$
16,372
5,965
11,389
2,434
2,702
38,862
$
30-89
Days(c)
27
61
132
50
18
288
Past Due
90 Days
or More(c)
142
Total
Past Due
169
Total Loans
and Leases
16,541
57
17
48
3
267
118
149
98
21
555
6,083
11,538
2,532
2,723
39,417
90 Days Past
Due and Still
Accruing
50
1
10
42
1
104
(a) Excludes $183 of residential mortgage loans measured at fair value at December 31, 2019.
(b)
Information includes advances made pursuant to servicing agreements for GNMA mortgage pools whose repayments are insured by the FHA or guaranteed by the
VA. As of December 31, 2019, $94 of these loans were 30-89 days past due and $261 were 90 days or more past due. The Bancorp recognized $4 of losses during
the year ended December 31, 2019 due to claim denials and curtailments associated with these insured or guaranteed loans.
Includes accrual and nonaccrual loans.
(c)
Collateral-Dependent Loans and Leases
The Bancorp considers a loan or lease to be collateral-dependent when the borrower is experiencing financial difficulty and repayment is
expected to be provided substantially through the operation or sale of the collateral. When a loan or lease is collateral-dependent, its fair value
is generally based on the fair value less cost to sell of the underlying collateral.
The following table presents the amortized cost basis of the Bancorp’s collateral-dependent loans and leases, by portfolio class:
As of December 31, 2020 ($ in millions)
Commercial loans and leases:
Commercial and industrial loans
Commercial mortgage owner-occupied loans
Commercial mortgage nonowner-occupied loans
Commercial construction loans
Commercial leases
Total commercial loans and leases
Residential mortgage loans
Consumer loans:
Home equity
Indirect secured consumer loans
Other consumer loans
Total consumer loans
Total portfolio loans and leases
Amortized Cost
Basis
$
$
810
101
82
19
6
1,018
80
71
9
—
80
1,178
Nonperforming Assets
Nonperforming assets include nonaccrual loans and leases for which ultimate collectability of the full amount of the principal and/or interest
is uncertain; restructured loans which have not yet met the requirements to be returned to accrual status; certain restructured consumer and
residential mortgage loans which are 90 days past due based on the restructured terms unless the loan is both well-secured and in the process
of collection; and certain other assets, including OREO and other repossessed property.
168 Fifth Third Bancorp
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table presents the amortized cost basis of the Bancorp’s nonaccrual loans and leases, by class, and OREO and other
repossessed property:
As of December 31, 2020 ($ in millions)
Commercial loans and leases:
Commercial and industrial loans
Commercial mortgage owner-occupied loans
Commercial mortgage nonowner-occupied loans
Commercial construction loans
Commercial leases
Total nonaccrual portfolio commercial loans and leases
Residential mortgage loans
Consumer loans:
Home equity
Indirect secured consumer loans
Credit card
Other consumer loans
Total nonaccrual portfolio consumer loans
Total nonaccrual portfolio loans and leases(a)(b)
OREO and other repossessed property
Total nonperforming portfolio assets(a)(b)
With an ALLL
No Related
ALLL
Total
Interest Income Recognized
For the year ended
December 31, 2020
$
$
$
213
20
34
1
6
274
11
55
8
32
2
97
382
—
382
260
60
43
—
1
364
49
31
8
—
—
39
452
30
482
473
80
77
1
7
638
60
86
16
32
2
136
834
30
864
8
—
1
—
1
10
28
9
—
4
—
13
51
—
51
(a) Excludes $5 of nonaccrual loans held for sale and $1 of nonaccrual restructured loans held for sale.
(b)
Includes $29 of nonaccrual government insured commercial loans whose repayments are insured by the SBA, of which $17 are restructured nonaccrual
government insured commercial loans.
The following table presents the Bancorp’s nonaccrual loans and leases, by class, and OREO and other repossessed property as of:
($ in millions)
Commercial loans and leases:
Commercial and industrial loans
Commercial mortgage owner-occupied loans
Commercial mortgage nonowner-occupied loans
Commercial construction loans
Commercial leases
Total nonaccrual portfolio commercial loans and leases
Residential mortgage loans
Consumer loans:
Home equity
Indirect secured consumer loans
Credit card
Other consumer loans
Total nonaccrual portfolio consumer loans
Total nonaccrual portfolio loans and leases(a)(b)
OREO and other repossessed property
Total nonperforming portfolio assets(a)(b)
December 31,
2019
$
$
$
338
29
1
1
28
397
91
94
7
27
2
130
618
62
680
(a) Excludes $7 of nonaccrual loans and leases held for sale.
(b)
Includes $16 of nonaccrual government insured commercial loans whose repayments are insured by the SBA, of which $11 are restructured nonaccrual
government insured commercial loans.
The Bancorp’s amortized cost basis of consumer mortgage loans secured by residential real estate properties for which formal foreclosure
proceedings are in process according to local requirements of the applicable jurisdiction was $136 million and $212 million as of
December 31, 2020 and 2019, respectively.
Troubled Debt Restructurings
A loan is accounted for as a TDR if the Bancorp, for economic or legal reasons related to the borrower’s financial difficulties, grants a
concession to the borrower that it would not otherwise consider. TDRs include concessions granted under reorganization, arrangement or
other provisions of the Federal Bankruptcy Act. Within each of the Bancorp’s loan classes, TDRs typically involve either a reduction of the
169 Fifth Third Bancorp
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
stated interest rate of the loan, an extension of the loan’s maturity date with a stated rate lower than the current market rate for a new loan
with similar risk, or in limited circumstances, a reduction of the principal balance of the loan or the loan’s accrued interest. Modifying the
terms of a loan may result in an increase or decrease to the ALLL depending upon the terms modified, the method used to measure the ALLL
for a loan prior to modification, the extent of collateral, and whether any charge-offs were recorded on the loan before or at the time of
modification. Refer to the ALLL section of Note 1 for information on the Bancorp’s ALLL methodology. Upon modification of a loan, the
Bancorp measures the expected credit loss as either the difference between the amortized cost of the loan and the fair value of collateral less
cost to sell or the difference between the estimated future cash flows expected to be collected on the modified loan, discounted at the original
effective yield of the loan, and the carrying value of the loan. The resulting measurement may result in the need for minimal or no allowance
regardless of which is used because it is probable that all cash flows will be collected under the modified terms of the loan. In addition, if the
stated interest rate was increased in a TDR that is not collateral-dependent, the cash flows on the modified loan, using the pre-modification
interest rate as the discount rate, often exceed the amortized cost basis of the loan. Conversely, upon a modification that reduces the stated
interest rate on a loan that is not collateral-dependent, the Bancorp recognizes an increase to the ALLL. If a TDR involves a reduction of the
principal balance of the loan or the loan’s accrued interest, that amount is charged off to the ALLL. Loans discharged in a Chapter 7
bankruptcy and not reaffirmed by the borrower are treated as nonaccrual collateral-dependent loans with a charge-off recognized to reduce
the carrying values of such loans to the fair value of the related collateral less costs to sell. Certain loan modifications which were made in
response to the COVID-19 pandemic were not evaluated for classification as a TDR. Refer to the Regulatory Developments Related to the
COVID-19 Pandemic section of Note 1 for additional information.
The Bancorp had commitments to lend additional funds to borrowers whose terms have been modified in a TDR, consisting of line of credit
and letter of credit commitments of $67 million and $72 million, respectively, as of December 31, 2020 compared with $41 million and $58
million, respectively, as of December 31, 2019.
The following tables provide a summary of portfolio loans and leases, by class, modified in a TDR by the Bancorp during the years ended
December 31:
2020 ($ in millions)
Commercial loans:
Commercial and industrial loans
Commercial mortgage owner-occupied loans
Commercial mortgage nonowner-occupied loans
Commercial construction loans
Residential mortgage loans
Consumer loans:
Home equity
Indirect secured consumer loans
Credit card
Total portfolio loans
Number of Loans
Modified in a TDR
During the Year(a)
Amortized Cost Basis
of Loans Modified
in a TDR
During the Year
Increase
(Decrease)
to ALLL Upon
Modification
Charge-offs
Recognized Upon
Modification
124 $
43
19
3
424
147
70
5,701
6,531 $
305
58
44
21
58
7
—
32
525
26
(11)
(2)
1
1
(4)
—
11
22
7
—
—
—
—
—
—
1
8
(a) Represents number of loans post-modification and excludes loans previously modified in a TDR.
2019 ($ in millions)(a)(b)
Commercial loans:
Commercial and industrial loans
Commercial mortgage owner-occupied loans
Commercial mortgage nonowner-occupied loans
Residential mortgage loans
Consumer loans:
Home equity
Indirect secured consumer loans
Credit card
Total portfolio loans
Number of Loans
Modified in a TDR
During the Year(c)
Recorded Investment
in Loans Modified
in a TDR
During the Year
(Decrease)
Increase
to ALLL Upon
Modification
Charge-offs
Recognized Upon
Modification
97 $
15
1
722
80
100
6,041
7,056 $
223
12
—
101
4
—
34
374
(19)
—
—
1
—
—
8
(10)
5
—
—
—
—
—
3
8
(a) Excludes all loans acquired with deteriorated credit quality which were accounted for within a pool.
(b) Excludes loans classified as TDRs as a result of the Bancorp’s conformance to OCC guidance with regard to non-reaffirmed loans included in Chapter 7
bankruptcy filings.
(c) Represents number of loans post-modification and excludes loans previously modified in a TDR.
170 Fifth Third Bancorp
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2018 ($ in millions)(a)
Commercial loans:
Commercial and industrial loans
Commercial mortgage owner-occupied loans
Commercial mortgage nonowner-occupied loans
Residential mortgage loans
Consumer loans:
Home equity
Indirect secured consumer loans
Credit card
Total portfolio loans
Number of Loans
Modified in a TDR
During the Year(b)
Recorded Investment
in Loans Modified
in a TDR
During the Year
Increase
(Decrease)
to ALLL Upon
Modification
Charge-offs
Recognized Upon
Modification
54 $
6
3
1,128
111
84
7,483
8,869 $
200
3
—
168
7
—
37
415
1
(1)
—
4
—
—
9
13
7
—
—
—
—
—
2
9
(a) Excludes all loans acquired with deteriorated credit quality which were accounted for within a pool.
(b) Represents number of loans post-modification and excludes loans previously modified in a TDR.
The Bancorp considers TDRs that become 90 days or more past due under the modified terms as subsequently defaulted. For commercial
loans not subject to individual evaluation for an ALLL, the applicable commercial models are applied for purposes of determining the ALLL
as well as qualitatively assessing whether those loans are reasonably expected to be further restructured prior to their maturity date and, if so,
the impact such a restructuring would have on the remaining contractual life of the loans. When a residential mortgage, home equity, indirect
secured consumer or other consumer loan that has been modified in a TDR subsequently defaults, the present value of expected cash flows
used in the measurement of the expected credit loss is generally limited to the expected net proceeds from the sale of the loan’s underlying
collateral and any resulting collateral shortfall is reflected as a charge-off or an increase in ALLL. The Bancorp recognizes an ALLL for the
entire balance of the credit card loans modified in a TDR that subsequently default.
The following tables provide a summary of TDRs that subsequently defaulted during the years ended December 31, 2020, 2019 and 2018 and
were within 12 months of the restructuring date:
December 31, 2020 ($ in millions)(a)
Commercial loans:
Commercial and industrial loans
Commercial mortgage owner-occupied loans
Commercial mortgage nonowner-occupied loans
Residential mortgage loans
Consumer loans:
Home equity
Indirect secured consumer loans
Credit card
Total portfolio loans
Number of
Contracts
Amortized
Cost
13 $
8
3
149
6
18
260
457 $
(a) Excludes all loans held for sale and loans acquired with deteriorated credit quality which were accounted for within a pool.
December 31, 2019 ($ in millions)(a)(b)
Commercial loans:
Commercial and industrial loans
Commercial mortgage owner-occupied loans
Commercial mortgage nonowner-occupied loans
Residential mortgage loans
Consumer loans:
Home equity
Credit card
Total portfolio loans
Number of
Contracts
Recorded
Investment
12 $
4
1
274
15
655
961 $
5
3
11
23
—
—
1
43
20
1
—
42
—
3
66
(a) Excludes all loans held for sale and loans acquired with deteriorated credit quality which were accounted for within a pool.
(b) Excludes loans classified as TDRs as a result of the Bancorp’s conformance to OCC guidance with regard to non-reaffirmed loans included in Chapter 7
bankruptcy filings.
171 Fifth Third Bancorp
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2018 ($ in millions)(a)
Commercial loans:
Commercial and industrial loans
Commercial mortgage owner-occupied loans
Residential mortgage loans
Consumer loans:
Home equity
Credit card
Total portfolio loans
Number of
Contracts
Recorded
Investment
8 $
2
225
10
655
900 $
61
—
35
—
4
100
(a) Excludes all loans held for sale and loans acquired with deteriorated credit quality which were accounted for within a pool.
8. Bank Premises and Equipment
The following table provides a summary of bank premises and equipment as of December 31:
($ in millions)
Land and improvements(a)
Buildings(a)
Equipment
Leasehold improvements
Construction in progress(a)
Bank premises and equipment held for sale:
Land and improvements
Buildings
Equipment
Accumulated depreciation and amortization
Total bank premises and equipment
Estimated
Useful Life
1 - 30 years
2 - 20 years
1 - 30 years
2020
2019
$
$
636
1,612
2,302
467
108
27
8
—
(3,072)
2,088
639
1,575
2,126
432
85
8
18
1
(2,889)
1,995
(a) At December 31, 2020 and 2019, land and improvements, buildings and construction in progress included $46 and $51, respectively, associated with parcels of
undeveloped land intended for future branch expansion.
Depreciation and amortization expense related to bank premises and equipment, including amortization of finance lease ROU assets, was
$256 million, $255 million and $238 million for the years ended December 31, 2020, 2019 and 2018, respectively.
The Bancorp monitors changing customer preferences associated with the channels it uses for banking transactions to evaluate the efficiency,
competitiveness and quality of the customer service experience in its consumer distribution network. As part of this ongoing assessment, the
Bancorp may determine that it is no longer fully committed to maintaining full-service branches at certain of its existing banking center
locations. Similarly, the Bancorp may also determine that it is no longer fully committed to building banking centers on certain parcels of
land which had previously been held for future branch expansion.
During the second quarter of 2018, the Bancorp adopted a plan to close approximately 100 to 125 branches over the next three years,
exclusive of branches identified for closure as part of the MB Financial, Inc. acquisition. As of December 31, 2020, 102 branches have been
closed under this plan. Additionally, the Bancorp has identified 36 branches that it expects to close in the first quarter of 2021 and seven in
the second quarter of 2021.
As a result of the MB Financial, Inc. acquisition, the Bancorp identified 46 branches in the Chicago market that it planned to close. Of these
locations, 45 were closed in the third quarter of 2019 and the final location was closed in the first quarter of 2020. These 46 branches were
not part of the aforementioned plan and were in addition to the branch in the Chicago market that the Bancorp closed in November 2018. In
addition, the Bancorp previously identified 11 other non-branch locations that it planned to sell that were acquired from MB Financial, Inc.
These locations had a fair value, less cost to sell, of $15 million. Of these locations, eight have been sold as of December 31, 2020.
The Bancorp performs assessments of the recoverability of long-lived assets when events or changes in circumstances indicate that their
carrying values may not be recoverable. Impairment losses associated with such assessments and lower of cost or market adjustments were
$30 million, $28 million and $45 million for the years ended December 31, 2020, 2019 and 2018, respectively. For the year ended
December 31, 2019, impairment charges included $14 million associated with Fifth Third branches in the Chicago market that were assessed
for impairment as a result of the MB Financial, Inc. acquisition. The recognized impairment losses were recorded in other noninterest income
in the Consolidated Statements of Income.
172 Fifth Third Bancorp
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
9. Operating Lease Equipment
Operating lease equipment was $777 million and $848 million at December 31, 2020 and 2019, respectively, net of accumulated depreciation
of $290 million and $237 million at December 31, 2020 and 2019, respectively. The Bancorp recorded lease income of $156 million,
$151 million and $84 million relating to lease payments for operating leases in leasing business revenue in the Consolidated Statements of
Income for the years ended December 31, 2020, 2019 and 2018, respectively. Depreciation expense related to operating lease equipment was
$126 million, $122 million and $73 million for the years ended December 31, 2020, 2019 and 2018, respectively. The Bancorp received
payments of $161 million and $157 million related to operating leases during the years ended December 31, 2020 and 2019, respectively.
The Bancorp performs assessments of the recoverability of long-lived assets when events or changes in circumstances indicate that their
carrying values may not be recoverable. As a result of these recoverability assessments, the Bancorp recognized $7 million, $3 million and
$4 million of impairment losses associated with operating lease assets for the years ended December 31, 2020, 2019 and 2018, respectively.
The recognized impairment losses were recorded in leasing business revenue in the Consolidated Statements of Income.
The following table presents undiscounted future lease payments for operating leases for 2021 through 2025 and thereafter:
As of December 31, 2020 ($ in millions)
2021
2022
2023
2024
2025
Thereafter
Total operating lease payments
Undiscounted
Cash Flows
$
$
143
119
91
55
34
51
493
10. Lease Obligations - Lessee
The Bancorp leases certain banking centers, ATM sites, land for owned buildings and equipment. The Bancorp’s lease agreements typically
do not contain any residual value guarantees or any material restrictive covenants.
The following table provides a summary of lease assets and lease liabilities as of December 31:
($ in millions)
Assets
Operating lease right-of-use assets
Finance lease right-of-use assets
Total right-of-use assets(a)
Liabilities
Operating lease liabilities
Finance lease liabilities
Total lease liabilities
Consolidated Balance Sheets Caption
2020
2019
Other assets
Bank premises and equipment
Accrued taxes, interest and expenses
Long-term debt
$
$
$
$
423
129
552
527
130
657
473
34
507
555
35
590
(a) Operating and finance lease right-of-use assets are recorded net of accumulated amortization of $152 and $29, respectively, as of December 31, 2020, and $75
and $27, respectively, as of December 31, 2019.
The following table presents the components of lease costs for the years ended December 31:
($ in millions)
Lease costs:
Amortization of ROU assets
Interest on lease liabilities
Total finance lease costs
Operating lease cost
Short-term lease cost
Variable lease cost
Sublease income
Total operating lease costs
Total lease costs
Consolidated Statements of Income Caption
2020
2019
Net occupancy and equipment expense
Interest on long-term debt
Net occupancy expense
Net occupancy expense
Net occupancy expense
Net occupancy expense
$
$
$
$
$
11
3
14
110
1
29
(3)
137
151
6
1
7
96
1
30
(3)
124
131
Gross occupancy expense for cancelable and noncancelable leases, which was included in net occupancy expense in the Consolidated
Statements of Income, was $101 million for the year ended December 31, 2018.
173 Fifth Third Bancorp
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Bancorp performs impairment assessments for ROU assets when events or changes in circumstances indicate that their carrying values
may not be recoverable. In addition to the lease costs disclosed in the table above, the Bancorp recognized $8 million and $15 million of
impairment losses and termination charges for the ROU assets related to certain operating leases for the years ended December 31, 2020 and
2019, respectively. The recognized losses were recorded in net occupancy expense in the Consolidated Statements of Income.
The following table presents undiscounted cash flows for both operating leases and finance leases for 2021 through 2025 and thereafter as
well as a reconciliation of the undiscounted cash flows to the total lease liabilities as follows:
As of December 31, 2020 ($ in millions)
2021
2022
2023
2024
2025
Thereafter
Total undiscounted cash flows
Less: Difference between undiscounted cash flows and discounted cash flows
Present value of lease liabilities
Operating
Leases
Finance
Leases
Total
$
$
$
86
81
74
65
58
246
610
83
527
18
19
16
17
10
78
158
28
130
104
100
90
82
68
324
768
111
657
The following table presents the weighted-average remaining lease term and weighted-average discount rate as of December 31:
Weighted-average remaining lease term (years):
Operating leases
Finance leases
Weighted-average discount rate:
Operating leases
Finance leases
The following table presents information related to lease transactions for the years ended December 31:
($ in millions)
Cash paid for amounts included in the measurement of lease liabilities:(a)
Operating cash flows from operating leases
Operating cash flows from finance leases
Financing cash flows from finance leases
Gains on sale and leaseback transactions
2020
2019
9.06
12.93
3.05 %
2.39
9.48
14.17
3.19
4.30
2020
2019
$
91
3
11
3
97
1
5
5
(a) The cash flows related to the short-term and variable lease payments are not included in the amounts in the table as they were not included in the measurement of
lease liabilities.
174 Fifth Third Bancorp
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
11. Goodwill
Business combinations entered into by the Bancorp typically result in the recognition of goodwill. Acquisition activity includes acquisitions
in the respective period in addition to purchase accounting adjustments related to previous acquisitions. On March 22, 2019, the Bancorp
completed its acquisition of MB Financial, Inc. In connection with the acquisition, the Bancorp recorded $1.8 billion of goodwill in 2019.
During the first quarter of 2020, the Bancorp finalized the valuations for the assets acquired, liabilities assumed and noncontrolling interest
recognized based on additional information available subsequent to the acquisition date. As a result, the Bancorp recognized additional
goodwill of $9 million in connection with the acquisition of MB Financial, Inc. during the three months ended March 31, 2020.
The Bancorp completed its annual goodwill impairment test as of September 30, 2020 and the estimated fair values of the Commercial
Banking, Branch Banking and Wealth and Asset Management reporting units exceeded their carrying amounts, including goodwill. The
Bancorp performed a qualitative assessment of its goodwill as of December 31, 2020 in consideration of the overall economic impact of the
COVID-19 pandemic as well as the uncertainties it has introduced. Based upon this assessment, the Bancorp concluded that it was not more
likely than not that the fair values of its reporting units were less than their carrying amounts.
Changes in the net carrying amount of goodwill, by reporting unit, for the years ended December 31, 2020 and 2019 were as follows:
$
($ in millions)
Goodwill
Accumulated impairment losses
Net carrying amount as of December 31, 2018
Acquisition activity
Sale of business
Net carrying amount as of December 31, 2019 $
Acquisition activity
Sale of business
Net carrying amount as of December 31, 2020 $
$
Commercial
Banking
Branch
Banking
Consumer
Lending
Wealth and Asset
Management
1,380
(750)
630
1,324
—
1,954
26
—
1,980
1,655
—
1,655
391
—
2,046
1
—
2,047
215
(215)
—
—
—
—
—
—
—
193
—
193
62
(3)
252
1
(22)
231
General
Corporate
and Other
—
—
—
—
—
—
—
—
—
Total
3,443
(965)
2,478
1,777
(3)
4,252
28
(22)
4,258
175 Fifth Third Bancorp
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
12. Intangible Assets
Intangible assets consist of core deposit intangibles, customer relationships, operating leases, non-compete agreements, trade names and
books of business. Intangible assets are amortized on either a straight-line or an accelerated basis over their estimated useful lives and, based
on the type of intangible asset, the amortization expense may be recorded in either leasing business revenue or other noninterest expense in
the Consolidated Statements of Income.
On March 22, 2019, the Bancorp completed its acquisition of MB Financial, Inc. In connection with the acquisition, the Bancorp recorded a
$195 million core deposit intangible asset with a weighted-average amortization period of 7.2 years. Additionally, the Bancorp recorded a
$24 million operating lease intangible asset with a weighted-average amortization period of 1.7 years. The fair values of these intangibles
were finalized as of March 31, 2020.
The details of the Bancorp’s intangible assets are shown in the following table:
($ in millions)
As of December 31, 2020
Core deposit intangibles
Customer relationships
Operating leases
Other
Total intangible assets
As of December 31, 2019
Core deposit intangibles
Customer relationships
Operating leases
Non-compete agreements
Other
Total intangible assets
Gross Carrying
Amount
Accumulated
Amortization
Net Carrying
Amount
$
$
$
$
229
24
17
3
273
229
29
23
13
4
298
(116)
(5)
(12)
(1)
(134)
(70)
(6)
(9)
(11)
(1)
(97)
113
19
5
2
139
159
23
14
2
3
201
As of December 31, 2020, all of the Bancorp’s intangible assets were being amortized. Amortization expense recognized on intangible assets
was $55 million, $54 million and $5 million for the years ended December 31, 2020, 2019 and 2018, respectively. The Bancorp’s projections
of amortization expense shown in the following table are based on existing asset balances as of December 31, 2020. Future amortization
expense may vary from these projections.
Estimated amortization expense for the years ending December 31, 2021 through 2025 is as follows:
Total
$
43
33
24
16
9
($ in millions)
2021
2022
2023
2024
2025
176 Fifth Third Bancorp
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
13. Variable Interest Entities
The Bancorp, in the normal course of business, engages in a variety of activities that involve VIEs, which are legal entities that lack sufficient
equity at risk to finance their activities without additional subordinated financial support or the equity investors of the entities as a group lack
any of the characteristics of a controlling interest. The Bancorp evaluates its interest in certain entities to determine if these entities meet the
definition of a VIE and whether the Bancorp is the primary beneficiary and should consolidate the entity based on the variable interests it held
both at inception and when there is a change in circumstances that requires a reconsideration. If the Bancorp is determined to be the primary
beneficiary of a VIE, it must account for the VIE as a consolidated subsidiary. If the Bancorp is determined not to be the primary beneficiary
of a VIE but holds a variable interest in the entity, such variable interests are accounted for under the equity method of accounting or other
accounting standards as appropriate.
Consolidated VIEs
The Bancorp has consolidated VIEs related to certain automobile loan securitizations where it has determined that it is the primary
beneficiary. The following table provides a summary of assets and liabilities carried on the Consolidated Balance Sheets for consolidated
VIEs as of:
($ in millions)
Assets:
Other short-term investments
Indirect secured consumer loans
ALLL
Other assets
Total assets
Liabilities:
Other liabilities
Long-term debt
Total liabilities
December 31,
2020
December 31,
2019
$
$
$
$
55
756
(7)
5
809
2
656
658
74
1,354
(7)
8
1,429
2
1,253
1,255
In a securitization transaction that occurred in 2019, the Bancorp transferred approximately $1.43 billion in automobile loans to a bankruptcy
remote trust which was deemed to be a VIE. This trust then subsequently issued approximately $1.37 billion of asset-backed notes, of which
approximately $68 million were retained by the Bancorp. Refer to Note 18 for further information. The Bancorp also has previously
completed securitization transactions in which the Bancorp transferred certain consumer automobile loans to bankruptcy remote trusts which
were also deemed to be VIEs. In each of these securitization transactions, the primary purposes of the VIEs were to issue asset-backed
securities with varying levels of credit subordination and payment priority, as well as residual interests, and to provide the Bancorp with
access to liquidity for its originated loans. The Bancorp retained residual interests in the VIEs and, therefore, has an obligation to absorb
losses and a right to receive benefits from the VIEs that could potentially be significant to the VIEs. In addition, the Bancorp retained
servicing rights for the underlying loans and, therefore, holds the power to direct the activities of the VIEs that most significantly impact the
economic performance of the VIEs. As a result, the Bancorp concluded that it is the primary beneficiary of the VIEs and has consolidated
these VIEs. The assets of the VIEs are restricted to the settlement of the asset-backed securities and other obligations of the VIEs. The third
party holders of the asset-backed notes do not have recourse to the general assets of the Bancorp.
The economic performance of the VIEs is most significantly impacted by the performance of the underlying loans. The principal risks to
which the VIEs are exposed include credit risk and prepayment risk. The credit and prepayment risks are managed through credit
enhancements in the form of reserve accounts, overcollateralization, excess interest on the loans and the subordination of certain classes of
asset-backed securities to other classes.
177 Fifth Third Bancorp
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Non-consolidated VIEs
The following tables provide a summary of assets and liabilities carried on the Consolidated Balance Sheets related to non-consolidated VIEs
for which the Bancorp holds an interest, but is not the primary beneficiary of the VIE, as well as the Bancorp’s maximum exposure to losses
associated with its interests in the entities as of:
December 31, 2020 ($ in millions)
CDC investments
Private equity investments
Loans provided to VIEs
Lease pool entities
December 31, 2019 ($ in millions)
CDC investments
Private equity investments
Loans provided to VIEs
Lease pool entities
$
$
Total Assets
Total Liabilities Maximum Exposure
1,546
117
2,420
73
478
—
—
—
1,546
200
3,649
73
Total Assets
Total Liabilities Maximum Exposure
1,435
89
2,715
74
428
—
—
—
1,435
164
4,083
74
CDC investments
CDC, a wholly-owned indirect subsidiary of the Bancorp, was created to invest in projects to create affordable housing, revitalize business
and residential areas and preserve historic landmarks. CDC generally co-invests with other unrelated companies and/or individuals and
typically makes investments in a separate legal entity that owns the property under development. The entities are usually formed as limited
partnerships and LLCs and CDC typically invests as a limited partner/investor member in the form of equity contributions. The economic
performance of the VIEs is driven by the performance of their underlying investment projects as well as the VIEs’ ability to operate in
compliance with the rules and regulations necessary for the qualification of tax credits generated by equity investments. The Bancorp has
determined that it is not the primary beneficiary of these VIEs because it lacks the power to direct the activities that most significantly impact
the economic performance of the underlying project or the VIEs’ ability to operate in compliance with the rules and regulations necessary for
the qualification of tax credits generated by equity investments. This power is held by the managing members who exercise full and exclusive
control of the operations of the VIEs. For information regarding the Bancorp’s accounting for these investments, refer to Note 1.
The Bancorp’s funding requirements are limited to its invested capital and any additional unfunded commitments for future equity
contributions. The Bancorp’s maximum exposure to loss as a result of its involvement with the VIEs is limited to the carrying amounts of the
investments, including the unfunded commitments. The carrying amounts of these investments, which are included in other assets in the
Consolidated Balance Sheets, and the liabilities related to the unfunded commitments, which are included in other liabilities in the
Consolidated Balance Sheets, are included in the previous tables for all periods presented. The Bancorp has no other liquidity arrangements
or obligations to purchase assets of the VIEs that would expose the Bancorp to a loss. In certain arrangements, the general partner/managing
member of the VIE has guaranteed a level of projected tax credits to be received by the limited partners/investor members, thereby
minimizing a portion of the Bancorp’s risk.
At December 31, 2020 and 2019, the Bancorp’s CDC investments included $1.3 billion and $1.2 billion, respectively, of investments in
affordable housing tax credits recognized in other assets in the Consolidated Balance Sheets. The unfunded commitments related to these
investments were $478 million and $428 million at December 31, 2020 and 2019, respectively. The unfunded commitments as of
December 31, 2020 are expected to be funded from 2021 to 2036.
The Bancorp has accounted for all of its qualifying LIHTC investments using the proportional amortization method of accounting. The
following table summarizes the impact to the Consolidated Statements of Income related to these investments for the years ended December
31:
($ in million)
Proportional amortization
Tax credits and other benefits
Consolidated Statements of Income Caption(a)
2020
2019
2018
Applicable income tax expense
Applicable income tax expense
$
150
(175)
140
(163)
154
(192)
(a) The Bancorp did not recognize impairment losses resulting from the forfeiture or ineligibility of tax credits or other circumstances during the years ended
December 31, 2020, 2019 and 2018.
Private equity investments
The Bancorp invests as a limited partner in private equity investments which provide the Bancorp an opportunity to obtain higher rates of
return on invested capital, while also creating cross selling opportunities for the Bancorp’s commercial products. Each of the limited
partnerships has an unrelated third-party general partner responsible for appointing the fund manager. The Bancorp has not been appointed
fund manager for any of these private equity investments. The funds finance primarily all of their activities from the partners’ capital
contributions and investment returns. The Bancorp has determined that it is not the primary beneficiary of the funds because it does not have
the obligation to absorb the funds’ expected losses or the right to receive the funds’ expected residual returns that could potentially be
significant to the funds and lacks the power to direct the activities that most significantly impact the economic performance of the funds. The
178 Fifth Third Bancorp
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Bancorp, as a limited partner, does not have substantive participating or substantive kick-out rights over the general partner. Therefore, the
Bancorp accounts for its investments in these limited partnerships under the equity method of accounting.
The Bancorp is exposed to losses arising from the negative performance of the underlying investments in the private equity investments. As a
limited partner, the Bancorp’s maximum exposure to loss is limited to the carrying amounts of the investments plus unfunded commitments.
The carrying amounts of these investments, which are included in other assets in the Consolidated Balance Sheets, are presented in previous
tables. Also, at December 31, 2020 and 2019, the Bancorp’s unfunded commitment amounts to the private equity funds were $83 million and
$75 million, respectively. As part of previous commitments, the Bancorp made capital contributions to private equity investments of $19
million and $12 million during the years ended December 31, 2020 and 2019, respectively. The Bancorp did not recognize OTTI associated
with certain nonconforming investments affected by the Volcker Rule during the years ended December 31, 2020 and 2019 and recognized
$8 million for the year ended December 31, 2018.
Loans provided to VIEs
The Bancorp has provided funding to certain unconsolidated VIEs sponsored by third parties. These VIEs are generally established to finance
certain consumer and small business loans originated by third parties. The entities are primarily funded through the issuance of a loan from
the Bancorp or a syndication through which the Bancorp is involved. The sponsor/administrator of the entities is responsible for servicing the
underlying assets in the VIEs. Because the sponsor/administrator, not the Bancorp, holds the servicing responsibilities, which include the
establishment and employment of default mitigation policies and procedures, the Bancorp does not hold the power to direct the activities that
most significantly impact the economic performance of the entity and, therefore, is not the primary beneficiary.
The principal risk to which these entities are exposed is credit risk related to the underlying assets. The Bancorp’s maximum exposure to loss
is equal to the carrying amounts of the loans and unfunded commitments to the VIEs. The Bancorp’s outstanding loans to these VIEs are
included in commercial loans in Note 6. As of December 31, 2020 and 2019, the Bancorp’s unfunded commitments to these entities were
$1.2 billion and $1.4 billion, respectively. The loans and unfunded commitments to these VIEs are included in the Bancorp’s overall analysis
of the ALLL and reserve for unfunded commitments, respectively. The Bancorp does not provide any implicit or explicit liquidity guarantees
or principal value guarantees to these VIEs.
Lease pool entities
The Bancorp is a co-investor with other unrelated leasing companies in three LLCs designed for the purpose of purchasing pools of residual
interests in leases which have been originated or purchased by the other investing member. For each LLC, the leasing company is the
managing member and has full authority over the day-to-day operations of the entity. While the Bancorp holds more than 50% of the equity
interests in each LLC, the operating agreements require both members to consent to significant corporate actions, such as liquidating the
entity or removing the manager. In addition, the Bancorp has a preference with regards to distributions such that all of the Bancorp’s equity
contribution for each pool must be distributed, plus a pre-defined rate of return, before the other member may receive distributions. The
leasing company is also entitled to the return of its investment plus a pre-defined rate of return before any residual profits are distributed to
the members.
The lease pool entities are primarily subject to risk of losses on the lease residuals purchased. The Bancorp has determined that it is not the
primary beneficiary of these VIEs because it does not have the power to direct the activities that most significantly impact the economic
performance of the entities. This power is held by the leasing company, who as managing member controls the servicing of the leases and
collection of the proceeds on the residual interests.
179 Fifth Third Bancorp
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14. Sales of Receivables and Servicing Rights
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Residential Mortgage Loan Sales
The Bancorp sold fixed and adjustable-rate residential mortgage loans during the years ended December 31, 2020, 2019 and 2018. In those
sales, the Bancorp obtained servicing responsibilities and provided certain standard representations and warranties, however the investors
have no recourse to the Bancorp’s other assets for failure of debtors to pay when due. The Bancorp receives servicing fees based on a
percentage of the outstanding balance. The Bancorp identifies classes of servicing assets based on financial asset type and interest rates.
Information related to residential mortgage loan sales and the Bancorp’s mortgage banking activity, which is included in mortgage banking
net revenue in the Consolidated Statements of Income, for the years ended December 31 is as follows:
($ in millions)
Residential mortgage loan sales(a)
Origination fees and gains on loan sales
Gross mortgage servicing fees
(a) Represents the unpaid principal balance at the time of the sale.
2020
2019
2018
$
11,827
7,781
5,078
315
263
175
267
100
216
Servicing Rights
The Bancorp measures all of its servicing rights at fair value with changes in fair value reported in mortgage banking net revenue in the
Consolidated Statements of Income.
The following table presents changes in the servicing rights related to residential mortgage loans for the years ended December 31:
($ in millions)
Balance, beginning of period
Servicing rights originated
Servicing rights purchased
Servicing rights obtained in acquisition
Changes in fair value:
Due to changes in inputs or assumptions(a)
Other changes in fair value(b)
Balance, end of period
2020
2019
$
$
993
184
44
—
(311)
(254)
656
938
142
26
263
(203)
(173)
993
(a) Primarily reflects changes in prepayment speed and OAS assumptions which are updated based on market interest rates.
(b) Primarily reflects changes due to collection of contractual cash flows and the passage of time.
The Bancorp maintains a non-qualifying hedging strategy to manage a portion of the risk associated with changes in the value of the MSR
portfolio. This strategy may include the purchase of free-standing derivatives and various available-for-sale debt and trading debt securities.
The interest income, mark-to-market adjustments and gain or loss from sale activities associated with these portfolios are expected to
economically hedge a portion of the change in value of the MSR portfolio caused by fluctuating OAS, earnings rates and prepayment speeds.
The fair value of the servicing asset is based on the present value of expected future cash flows.
The following table presents activity related to valuations of the MSR portfolio and the impact of the non-qualifying hedging strategy for the
years ended December 31:
($ in millions)
Securities gains (losses), net -non-qualifying hedges on MSRs
Changes in fair value and settlement of free-standing derivatives purchased to economically
hedge the MSR portfolio(a)
MSR fair value adjustment due to changes in inputs or assumptions(a)
$
2020
2019
2018
2
307
(311)
3
221
(203)
(15)
(21)
42
(a)
Included in mortgage banking net revenue in the Consolidated Statements of Income.
The key economic assumptions used in measuring the interests in residential mortgage loans that continued to be held by the Bancorp at the
date of sale, securitization, or purchase resulting from transactions completed during the years ended December 31 were as follows:
2020
2019
Weighted-
Average Life
(in years)
Prepayment
Speed
(annual)
OAS
(bps)
Weighted-
Average Life
(in years)
Prepayment
Speed
(annual)
OAS
(bps)
5.9
3.8
12.1 % 727
18.3 % 681
5.9
—
12.6 % 530
— —
Rate
Fixed
Adjustable
Residential mortgage loans:
Servicing rights
Servicing rights
180 Fifth Third Bancorp
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Based on historical credit experience, expected credit losses for residential mortgage loan servicing rights have been deemed immaterial, as
the Bancorp sold the majority of the underlying loans without recourse. At December 31, 2020 and 2019, the Bancorp serviced $68.8 billion
and $80.7 billion, respectively, of residential mortgage loans for other investors. The value of MSRs that continue to be held by the Bancorp
is subject to credit, prepayment and interest rate risks on the sold financial assets.
At December 31, 2020, the sensitivity of the current fair value of residual cash flows to immediate 10%, 20% and 50% adverse changes in
prepayment speed assumptions and immediate 10% and 20% adverse changes in OAS are as follows:
($ in millions)(a)
Residential mortgage loans:
Servicing rights
Servicing rights
Prepayment Speed Assumption
OAS Assumption
Fair
Value
Weighted-
Average Life
(in years)
Rate
Impact of Adverse Change
on Fair Value
Rate
10%
20%
50%
Impact of Adverse Change
on Fair Value
10%
20%
OAS
(bps)
Fixed
Adjustable
$ 649
7
4.2
3.5
17.8 % $
22.6
(21)
(1)
(41)
(1)
(91)
(2)
723
950
$
(16)
—
(30)
—
(a) The impact of the weighted-average default rate on the current fair value of residual cash flows for all scenarios is immaterial.
These sensitivities are hypothetical and should be used with caution. As the figures indicate, changes in fair value based on these variations in
the assumptions typically cannot be extrapolated because the relationship of the change in assumption to the change in fair value may not be
linear. The Bancorp believes variations of these levels are reasonably possible; however, there is the potential that adverse changes in key
assumptions could be even greater. Also, in the previous table, the effect of a variation in a particular assumption on the fair value of the
interests that continue to be held by the Bancorp is calculated without changing any other assumption; in reality, changes in one factor may
result in changes in another (for example, increases in market interest rates may result in lower prepayments), which might magnify or
counteract these sensitivities.
181 Fifth Third Bancorp
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
15. Derivative Financial Instruments
The Bancorp maintains an overall risk management strategy that incorporates the use of derivative instruments to reduce certain risks related
to interest rate, prepayment and foreign currency volatility. Additionally, the Bancorp holds derivative instruments for the benefit of its
commercial customers and for other business purposes. The Bancorp does not enter into unhedged speculative derivative positions.
The Bancorp’s interest rate risk management strategy involves modifying the repricing characteristics of certain financial instruments so that
changes in interest rates do not adversely affect the Bancorp’s net interest margin and cash flows. Derivative instruments that the Bancorp
may use as part of its interest rate risk management strategy include interest rate swaps, interest rate floors, interest rate caps, forward
contracts, forward starting interest rate swaps, options, swaptions and TBA securities. Interest rate swap contracts are exchanges of interest
payments, such as fixed-rate payments for floating-rate payments, based on a stated notional amount and maturity date. Interest rate floors
protect against declining rates, while interest rate caps protect against rising interest rates. Forward contracts are contracts in which the buyer
agrees to purchase, and the seller agrees to make delivery of, a specific financial instrument at a predetermined price or yield. Options provide
the purchaser with the right, but not the obligation, to purchase or sell a contracted item during a specified period at an agreed upon price.
Swaptions are financial instruments granting the owner the right, but not the obligation, to enter into or cancel a swap.
Prepayment volatility arises mostly from changes in fair value of the largely fixed-rate MSR portfolio, mortgage loans and mortgage-backed
securities. The Bancorp may enter into various free-standing derivatives (principal-only swaps, interest rate swaptions, interest rate floors,
mortgage options, TBA securities and interest rate swaps) to economically hedge prepayment volatility. Principal-only swaps are total return
swaps based on changes in the value of the underlying mortgage principal-only trust. TBA securities are a forward purchase agreement for a
mortgage-backed securities trade whereby the terms of the security are undefined at the time the trade is made.
Foreign currency volatility occurs as the Bancorp enters into certain loans denominated in foreign currencies. Derivative instruments that the
Bancorp may use to economically hedge these foreign denominated loans include foreign exchange swaps and forward contracts.
The Bancorp also enters into derivative contracts (including foreign exchange contracts, commodity contracts and interest rate contracts) for
the benefit of commercial customers and other business purposes. The Bancorp economically hedges significant exposures related to these
free-standing derivatives by entering into offsetting third-party contracts with approved, reputable and independent counterparties with
substantially matching terms and currencies. Credit risk arises from the possible inability of counterparties to meet the terms of their
contracts. The Bancorp’s exposure is limited to the replacement value of the contracts rather than the notional, principal or contract amounts.
Credit risk is minimized through credit approvals, limits, counterparty collateral and monitoring procedures.
The fair value of derivative instruments is presented on a gross basis, even when the derivative instruments are subject to master netting
arrangements. Derivative instruments with a positive fair value are reported in other assets in the Consolidated Balance Sheets while
derivative instruments with a negative fair value are reported in other liabilities in the Consolidated Balance Sheets. Cash collateral payables
and receivables associated with the derivative instruments are not added to or netted against the fair value amounts with the exception of
certain variation margin payments that are considered legal settlements of the derivative contracts. For derivative contracts cleared through
certain central clearing parties who have modified their rules to treat variation margin payments as settlements, the variation margin payments
are applied to net the fair value of the respective derivative contracts.
The Bancorp’s derivative assets include certain contractual features in which the Bancorp requires the counterparties to provide collateral in
the form of cash and securities to offset changes in the fair value of the derivatives, including changes in the fair value due to credit risk of the
counterparty. As of December 31, 2020 and 2019, the balance of collateral held by the Bancorp for derivative assets was $1.0 billion and
$894 million, respectively. For derivative contracts cleared through certain central clearing parties whose rules treat variation margin
payments as settlement of the derivative contract, the payments for variation margin of $1.1 billion and $623 million were applied to reduce
the respective derivative contracts and were also not included in the total amount of collateral held as of December 31, 2020 and 2019,
respectively. The credit component negatively impacting the fair value of derivative assets associated with customer accommodation
contracts was $42 million and $17 million as of December 31, 2020 and 2019, respectively.
In measuring the fair value of derivative liabilities, the Bancorp considers its own credit risk, taking into consideration collateral maintenance
requirements of certain derivative counterparties and the duration of instruments with counterparties that do not require collateral
maintenance. When necessary, the Bancorp posts collateral primarily in the form of cash and securities to offset changes in fair value of the
derivatives, including changes in fair value due to the Bancorp’s credit risk. As of December 31, 2020 and 2019, the balance of collateral
posted by the Bancorp for derivative liabilities was $463 million and $347 million, respectively. Additionally, $1.1 billion and $488 million
of variation margin payments were applied to the respective derivative contracts to reduce the Bancorp’s derivative liabilities as of
December 31, 2020 and 2019, respectively, and were also not included in the total amount of collateral posted. Certain of the Bancorp’s
derivative liabilities contain credit-risk related contingent features that could result in the requirement to post additional collateral upon the
occurrence of specified events. As of December 31, 2020 and 2019, the fair value of the additional collateral that could be required to be
posted as a result of the credit-risk related contingent features being triggered was immaterial to the Bancorp’s Consolidated Financial
Statements. The posting of collateral has been determined to remove the need for further consideration of credit risk. As a result, the Bancorp
determined that the impact of the Bancorp’s credit risk to the valuation of its derivative liabilities was immaterial to the Bancorp’s
Consolidated Financial Statements.
182 Fifth Third Bancorp
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Bancorp holds certain derivative instruments that qualify for hedge accounting treatment and are designated as either fair value hedges or
cash flow hedges. Derivative instruments that do not qualify for hedge accounting treatment, or for which hedge accounting is not
established, are held as free-standing derivatives. All customer accommodation derivatives are held as free-standing derivatives.
The following tables reflect the notional amounts and fair values for all derivative instruments included in the Consolidated Balance Sheets as
of:
Notional
Amount
Derivative
Assets
Derivative
Liabilities
Fair Value
$
1,955
December 31, 2020 ($ in millions)
Derivatives Designated as Qualifying Hedging Instruments
Fair value hedges:
Interest rate swaps related to long-term debt
Total fair value hedges
Cash flow hedges:
Interest rate floors related to C&I loans
Interest rate swaps related to C&I loans
Total cash flow hedges
Total derivatives designated as qualifying hedging instruments
Derivatives Not Designated as Qualifying Hedging Instruments
Free-standing derivatives - risk management and other business purposes:
Interest rate contracts related to MSR portfolio
Forward contracts related to residential mortgage loans held for sale
Swap associated with the sale of Visa, Inc. Class B Shares
Foreign exchange contracts
Interest rate contracts for collateral management
Interest rate contracts for LIBOR transition
Total free-standing derivatives - risk management and other business purposes
Free-standing derivatives - customer accommodation:
Interest rate contracts(a)
Interest rate lock commitments
Commodity contracts
Foreign exchange contracts
Total free-standing derivatives - customer accommodation
Total derivatives not designated as qualifying hedging instruments
Total
(a) Derivative assets and liabilities are presented net of variation margin of $47 and $1,063, respectively.
3,000
8,000
6,910
2,903
3,588
204
12,000
2,372
77,806
1,830
7,762
14,587
$
528
528
244
16
260
788
202
1
—
—
3
—
206
1,238
57
375
255
1,925
2,131
2,919
—
—
—
2
2
2
1
16
201
3
1
—
222
265
—
359
224
848
1,070
1,072
183 Fifth Third Bancorp
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2019 ($ in millions)
Derivatives Designated as Qualifying Hedging Instruments
Fair value hedges:
Interest rate swaps related to long-term debt
Total fair value hedges
Cash flow hedges:
Interest rate floors related to C&I loans
Interest rate swaps related to C&I loans
Total cash flow hedges
Total derivatives designated as qualifying hedging instruments
Derivatives Not Designated as Qualifying Hedging Instruments
Free-standing derivatives - risk management and other business purposes:
Interest rate contracts related to MSR portfolio
Forward contracts related to residential mortgage loans held for sale
Swap associated with the sale of Visa, Inc. Class B Shares
Foreign exchange contracts
Total free-standing derivatives - risk management and other business purposes
Free-standing derivatives - customer accommodation:
Interest rate contracts(a)
Interest rate lock commitments
Commodity contracts
TBA securities
Foreign exchange contracts
Notional
Amount
Derivative
Assets
Derivative
Liabilities
Fair Value
$
2,705
393
393
115
—
115
508
131
1
—
—
132
579
18
271
—
165
1,033
1,165
1,673
—
—
—
2
2
2
2
5
163
5
175
148
—
270
—
146
564
739
741
3,000
8,000
6,420
2,901
3,082
195
73,327
907
8,525
50
14,144
$
Total free-standing derivatives - customer accommodation
Total derivatives not designated as qualifying hedging instruments
Total
(a) Derivative assets and liabilities are presented net of variation margin of $40 and $493, respectively.
Fair Value Hedges
The Bancorp may enter into interest rate swaps to convert its fixed-rate funding to floating-rate. Decisions to convert fixed-rate funding to
floating are made primarily through consideration of the asset/liability mix of the Bancorp, the desired asset/liability sensitivity and interest
rate levels. As of December 31, 2020, certain interest rate swaps met the criteria required to qualify for the shortcut method of accounting that
permits the assumption of perfect offset. For all designated fair value hedges of interest rate risk as of December 31, 2020 that were not
accounted for under the shortcut method of accounting, the Bancorp performed an assessment of hedge effectiveness using regression
analysis with changes in the fair value of the derivative instrument and changes in the fair value of the hedged asset or liability attributable to
the hedged risk recorded in the same income statement line in current period net income.
The following table reflects the change in fair value of interest rate contracts, designated as fair value hedges, as well as the change in fair
value of the related hedged items attributable to the risk being hedged, included in the Consolidated Statements of Income:
For the years ended December 31 ($ in millions)
Change in fair value of interest rate swaps hedging long-term debt
Change in fair value of hedged long-term debt attributable to the risk
being hedged
Consolidated Statements of
Income Caption
2020
2019
2018
Interest on long-term debt
$
134
152
Interest on long-term debt
(133)
(147)
(36)
41
The following amounts were recorded in the Consolidated Balance Sheets related to cumulative basis adjustments for fair value hedges as of
December 31:
($ in millions)
Carrying amount of the hedged items
Cumulative amount of fair value hedging adjustments included in the carrying amount
of the hedged items
Consolidated Balance
Sheets Caption
2020
2019
Long-term debt
$
2,478
3,093
Long-term debt
534
402
184 Fifth Third Bancorp
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Cash Flow Hedges
The Bancorp may enter into interest rate swaps to convert floating-rate assets and liabilities to fixed rates or to hedge certain forecasted
transactions for the variability in cash flows attributable to the contractually specified interest rate. The assets or liabilities may be grouped in
circumstances where they share the same risk exposure that the Bancorp desires to hedge. The Bancorp may also enter into interest rate caps
and floors to limit cash flow variability of floating rate assets and liabilities. As of December 31, 2020, all hedges designated as cash flow
hedges were assessed for effectiveness using regression analysis. The entire change in the fair value of the interest rate swap included in the
assessment of hedge effectiveness is recorded in AOCI and reclassified from AOCI to current period earnings when the hedged item affects
earnings. As of December 31, 2020, the maximum length of time over which the Bancorp is hedging its exposure to the variability in future
cash flows is 48 months.
Reclassified gains and losses on interest rate contracts related to commercial and industrial loans are recorded within interest income in the
Consolidated Statements of Income. As of December 31, 2020 and 2019, $718 million and $422 million, respectively, of net deferred gains,
net of tax, on cash flow hedges were recorded in AOCI in the Consolidated Balance Sheets. As of December 31, 2020, $226 million in net
unrealized gains, net of tax, recorded in AOCI are expected to be reclassified into earnings during the next 12 months. This amount could
differ from amounts actually recognized due to changes in interest rates, hedge de-designations or the addition of other hedges subsequent to
December 31, 2020.
During both the years ended December 31, 2020 and 2019, there were no gains or losses reclassified from AOCI into earnings associated
with the discontinuance of cash flow hedges because it was probable that the original forecasted transaction would no longer occur by the end
of the originally specified time period or within the additional period of time as defined by U.S. GAAP.
The following table presents the pre-tax net gains (losses) recorded in the Consolidated Statements of Income and in the Consolidated
Statements of Comprehensive Income relating to derivative instruments designated as cash flow hedges:
For the years ended December 31 ($ in millions)
Amount of pre-tax net gains recognized in OCI
Amount of pre-tax net gains (losses) reclassified from OCI into net income
2020
2019
2018
$
611
237
348
16
214
(2)
Free-Standing Derivative Instruments – Risk Management and Other Business Purposes
As part of its overall risk management strategy relative to its mortgage banking activity, the Bancorp may enter into various free-standing
derivatives (principal-only swaps, interest rate swaptions, interest rate floors, mortgage options, TBA securities and interest rate swaps) to
economically hedge changes in fair value of its largely fixed-rate MSR portfolio. Principal-only swaps hedge the spread between mortgage
rates and LIBOR because these swaps appreciate in value as a result of tightening spreads. Principal-only swaps also provide prepayment
protection by increasing in value when prepayment speeds increase, as opposed to MSRs that lose value in a faster prepayment environment.
Receive fixed/pay floating interest rate swaps and swaptions increase in value when interest rates do not increase as quickly as expected.
The Bancorp enters into forward contracts and mortgage options to economically hedge the change in fair value of certain residential
mortgage loans held for sale due to changes in interest rates. IRLCs issued on residential mortgage loan commitments that will be held for
sale are also considered free-standing derivative instruments and the interest rate exposure on these commitments is economically hedged
primarily with forward contracts. Revaluation gains and losses from free-standing derivatives related to mortgage banking activity are
recorded as a component of mortgage banking net revenue in the Consolidated Statements of Income.
In conjunction with the sale of Visa, Inc. Class B Shares in 2009, the Bancorp entered into a total return swap in which the Bancorp will make
or receive payments based on subsequent changes in the conversion rate of the Class B Shares into Class A Shares. This total return swap is
accounted for as a free-standing derivative. Refer to Note 29 for further discussion of significant inputs and assumptions used in the valuation
of this instrument.
The Bancorp entered into certain interest rate swap contracts for the purpose of managing its collateral positions across two central clearing
parties. These interest rate swaps were perfectly offsetting positions that allowed the Bancorp to lower the cash posted as required initial
margin at the central clearing parties, which reduced its credit exposure to the central clearing parties. Given that all relevant terms for these
interest rate swaps are offsetting, these trades create no additional market risk for the Bancorp.
As part of the LIBOR to SOFR transition, the Bancorp received certain interest rate swap contracts from the two central clearing parties that
are moving from an Effective Federal Funds Rate discounting curve to a SOFR discounting curve. The purpose of these interest rate swaps
was to neutralize the impact on collateral requirements due to the change in discounting curves implemented by the central clearing parties.
185 Fifth Third Bancorp
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The net gains (losses) recorded in the Consolidated Statements of Income relating to free-standing derivative instruments used for risk
management and other business purposes are summarized in the following table:
Consolidated Statements of
Income Caption
2020
2019
2018
For the years ended December 31 ($ in millions)
Interest rate contracts:
Forward contracts related to residential mortgage loans held for
sale
Interest rate contracts related to MSR portfolio
Foreign exchange contracts:
Foreign exchange contracts for risk management purposes
Other noninterest income
Equity contracts:
Swap associated with sale of Visa, Inc. Class B Shares
Other noninterest income
(103)
(107)
Mortgage banking net revenue
Mortgage banking net revenue
$
(12)
307
(3)
4
221
(7)
(8)
(21)
10
(59)
Free-Standing Derivative Instruments – Customer Accommodation
The majority of the free-standing derivative instruments the Bancorp enters into are for the benefit of its commercial customers. These
derivative contracts are not designated against specific assets or liabilities on the Consolidated Balance Sheets or to forecasted transactions
and, therefore, do not qualify for hedge accounting. These instruments include foreign exchange derivative contracts entered into for the
benefit of commercial customers involved in international trade to hedge their exposure to foreign currency fluctuations and commodity
contracts to hedge such items as natural gas and various other derivative contracts. The Bancorp may economically hedge significant
exposures related to these derivative contracts entered into for the benefit of customers by entering into offsetting contracts with approved,
reputable, independent counterparties with substantially matching terms. The Bancorp hedges its interest rate exposure on commercial
customer transactions by executing offsetting swap agreements with primary dealers. Revaluation gains and losses on interest rate, foreign
exchange, commodity and other commercial customer derivative contracts are recorded as a component of commercial banking revenue or
other noninterest income in the Consolidated Statements of Income.
The Bancorp enters into risk participation agreements, under which the Bancorp assumes credit exposure relating to certain underlying
interest rate derivative contracts. The Bancorp only enters into these risk participation agreements in instances in which the Bancorp has
participated in the loan that the underlying interest rate derivative contract was designed to hedge. The Bancorp will make payments under
these agreements if a customer defaults on its obligation to perform under the terms of the underlying interest rate derivative contract. As of
December 31, 2020 and 2019, the total notional amount of the risk participation agreements was $3.4 billion and $3.9 billion, respectively,
and the fair value was a liability of $8 million at both December 31, 2020 and 2019 which is included in other liabilities in the Consolidated
Balance Sheets. As of December 31, 2020, the risk participation agreements had a weighted-average remaining life of 3.5 years.
The Bancorp’s maximum exposure in the risk participation agreements is contingent on the fair value of the underlying interest rate
derivative contracts in an asset position at the time of default. The Bancorp monitors the credit risk associated with the underlying customers
in the risk participation agreements through the same risk grading system currently utilized for establishing loss reserves in its loan and lease
portfolio.
Risk ratings of the notional amount of risk participation agreements under this risk rating system are summarized in the following table as of
December 31:
2020
2019
$
$
3,231
113
52
3,396
3,841
86
16
3,943
($ in millions)
Pass
Special mention
Substandard
Total
186 Fifth Third Bancorp
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The net gains (losses) recorded in the Consolidated Statements of Income relating to free-standing derivative instruments used for customer
accommodation are summarized in the following table:
For the years ended December 31 ($ in millions)
Interest rate contracts:
Interest rate contracts for customers (contract revenue)
Interest rate contracts for customers (credit portion of fair value
adjustment)
Interest rate lock commitments
Commodity contracts:
Commercial banking revenue
$
36
Other noninterest expense
Mortgage banking net revenue
Consolidated Statements of
Income Caption
2020
2019
2018
Commodity contracts for customers (contract revenue)
Commodity contracts for customers (credit losses)
Commodity contracts for customers (credit portion of fair value
adjustment)
Commercial banking revenue
Other noninterest expense
Other noninterest expense
Foreign exchange contracts:
Foreign exchange contracts for customers (contract revenue)
Foreign exchange contracts for customers (contract revenue)
Foreign exchange contracts for customers (credit portion of fair
value adjustment)
Commercial banking revenue
Other noninterest expense
Other noninterest expense
40
(15)
144
8
—
1
49
12
—
32
—
70
9
—
(1)
55
14
1
(22)
271
15
(1)
(2)
55
(11)
(1)
Offsetting Derivative Financial Instruments
The Bancorp’s derivative transactions are generally governed by ISDA Master Agreements and similar arrangements, which include
provisions governing the setoff of assets and liabilities between the parties. When the Bancorp has more than one outstanding derivative
transaction with a single counterparty, the setoff provisions contained within these agreements generally allow the non-defaulting party the
right to reduce its liability to the defaulting party by amounts eligible for setoff, including the collateral received as well as eligible offsetting
transactions with that counterparty, irrespective of the currency, place of payment or booking office. The Bancorp’s policy is to present its
derivative assets and derivative liabilities on the Consolidated Balance Sheets on a gross basis, even when provisions allowing for setoff are
in place. However, for derivative contracts cleared through certain central clearing parties who have modified their rules to treat variation
margin payments as settlements, the fair value of the respective derivative contracts is reported net of the variation margin payments.
Collateral amounts included in the tables below consist primarily of cash and highly-rated government-backed securities and do not include
variation margin payments for derivative contracts with legal rights of setoff for both periods shown.
The following tables provide a summary of offsetting derivative financial instruments:
As of December 31, 2020 ($ in millions)
Assets:
Derivatives
Total assets
Liabilities:
Derivatives
Total liabilities
Gross Amount Recognized in the
Consolidated Balance Sheets(a)
Gross Amounts Not Offset in the
Consolidated Balance Sheets
Collateral(b)
Derivatives
Net Amount
$
$
2,862
2,862
1,072
1,072
(621)
(621)
(621)
(621)
(755)
(755)
(221)
(221)
1,486
1,486
230
230
Amount does not include IRLCs because these instruments are not subject to master netting or similar arrangements.
(a)
(b) Amount of collateral received as an offset to asset positions or pledged as an offset to liability positions. Collateral values in excess of related derivative amounts
recognized in the Consolidated Balance Sheets were excluded from this table.
187 Fifth Third Bancorp
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2019 ($ in millions)
Assets:
Derivatives
Total assets
Liabilities:
Derivatives
Total liabilities
Gross Amount Recognized in the
Consolidated Balance Sheets(a)
Gross Amounts Not Offset in the
Consolidated Balance Sheets
Collateral(b)
Derivatives
Net Amount
$
$
1,655
1,655
741
741
(417)
(417)
(417)
(417)
(504)
(504)
(97)
(97)
734
734
227
227
(a) Amount does not include IRLCs because these instruments are not subject to master netting or similar arrangements.
(b) Amount of collateral received as an offset to asset positions or pledged as an offset to liability positions. Collateral values in excess of related derivative amounts
recognized in the Consolidated Balance Sheets were excluded from this table.
16. Other Assets
The following table provides the components of other assets included in the Consolidated Balance Sheets as of December 31:
($ in millions)
Derivative instruments
Accounts receivable and drafts-in-process
Bank owned life insurance
Partnership investments
Accrued interest and fees receivable
Operating lease right-of-use assets
Worldpay, Inc. TRA receivable
Income tax receivable
Prepaid expenses
OREO and other repossessed property
Other
Total other assets
2020
2019
$
$
2,919
2,121
2,003
1,872
486
423
321
166
129
30
279
10,749
1,673
2,278
1,960
1,729
424
473
345
32
101
64
111
9,190
188 Fifth Third Bancorp
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
17. Short-Term Borrowings
Borrowings with original maturities of one year or less are classified as short-term and include federal funds purchased and other short-term
borrowings. Federal funds purchased are excess balances in reserve accounts held at the FRB that the Bancorp purchased from other member
banks on an overnight basis. Other short-term borrowings include securities sold under repurchase agreements, derivative collateral, FHLB
advances and other borrowings with original maturities of one year or less.
The following table summarizes short-term borrowings and weighted-average rates:
2020
2019
Amount
Rate
Amount
Rate
($ in millions)
As of December 31:
Federal funds purchased
Other short-term borrowings
Average for the years ended December 31:
Federal funds purchased
Other short-term borrowings
Maximum month-end balance for the years ended December 31:
Federal funds purchased
Other short-term borrowings
$
$
$
300
1,192
385
1,709
1,625
4,542
The following table presents a summary of the Bancorp’s other short-term borrowings as of December 31:
($ in millions)
Securities sold under repurchase agreements
Derivative collateral
Other secured borrowings
Total other short-term borrowings
0.14 % $
0.19
0.58 % $
0.81
1.49 %
1.24
2.26 %
2.67
260
1,011
1,267
1,046
2,693
4,046
2020
2019
679
474
39
1,192
469
542
—
1,011
$
$
$
The Bancorp’s securities sold under repurchase agreements are accounted for as secured borrowings and are collateralized by securities
included in available-for-sale debt and other securities in the Consolidated Balance Sheets. These securities are subject to changes in market
value and, therefore, the Bancorp may increase or decrease the level of securities pledged as collateral based upon these movements in market
value. As of both December 31, 2020 and 2019, all securities sold under repurchase agreements were secured by agency residential mortgage-
backed securities and the repurchase agreements have an overnight remaining contractual maturity.
As of December 31, 2020, other secured borrowings primarily includes obligations recognized by the Bancorp under ASC Topic 860 related
to certain loans sold to GNMA and serviced by the Bancorp. Under ASC Topic 860, once the Bancorp has the unilateral right to repurchase
the GNMA loans due to the borrower missing three consecutive payments, the Bancorp is considered to have regained effective control over
the loan. As such, the Bancorp is required to recognize both the loan and the repurchase liability on the balance sheet, regardless of the intent
to repurchase the loans.
189 Fifth Third Bancorp
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
18. Long-Term Debt
The following table is a summary of the Bancorp’s long-term borrowings at December 31:
($ in millions)
Parent Company
Senior:
Fixed-rate notes
Floating-rate notes(b)
Fixed-rate notes
Fixed-rate notes
Fixed-rate notes
Fixed-rate notes
Fixed-rate notes
Fixed-rate notes
Fixed-rate notes
Subordinated:(a)
Fixed-rate notes
Fixed-rate notes
Subsidiaries
Senior:
Fixed-rate notes
Floating-rate notes(c)
Fixed-rate notes
Fixed-rate notes
Fixed-rate notes
Floating-rate notes(b)
Floating-rate notes(b)
Fixed-rate notes
Fixed-rate notes
Fixed-rate notes
Subordinated:(a)
Fixed-rate bank notes
Fixed-rate bank notes
Junior subordinated:
Floating-rate debentures(b)
FHLB advances
Notes associated with consolidated VIEs:
Automobile loan securitizations:
Fixed-rate notes
Floating-rate notes(b)
Other
Total
Maturity
Interest Rate
2020
2019
2020
2021
2022
2022
2023
2024
2025
2027
2028
2024
2038
2020
2020
2021
2021
2021
2021
2022
2023
2025
2027
2026
2027
2.875%
0.70%
2.60%
3.50%
1.625%
3.65%
2.375%
2.55%
3.95%
4.30%
8.25%
2.20%
2.186%
2.25%
2.875%
3.35%
0.655%
0.854%
1.80%
3.95%
2.25%
3.85%
4.00%
2035
2021 - 2047
1.73% - 1.91%
5.91
0.05% -
$
—
250
699
499
498
1,494
747
746
647
748
1,433
—
—
1,249
849
506
300
300
648
836
598
748
172
54
67
1,099
250
699
499
—
1,493
746
—
646
748
1,333
752
300
1,249
848
508
299
299
—
797
—
748
171
53
91
2022 - 2026
2022
2021 - 2041
1.80% - 2.69%
0.33%
Varies
623
—
262
$ 14,973
1,147
42
153
14,970
(a)
In aggregate, $2.8 billion and $2.7 billion qualifies as Tier II capital for regulatory capital purposes for the years ended December 31, 2020 and 2019,
respectively.
(b) These rates reflect the floating rates as of December 31, 2020.
These rates reflect the floating rates as of December 31, 2019.
(c)
The Bancorp pays down long-term debt in accordance with contractual terms over maturity periods summarized in the previous table. The
aggregate annual maturities of long-term debt obligations (based on final maturity dates) as of December 31, 2020 are presented in the
following table:
($ in millions)
2021
2022
2023
2024
2025
Thereafter
Total
190 Fifth Third Bancorp
Parent
Subsidiaries
Total
$
$
250
1,198
498
2,242
747
2,826
7,761
2,912
325
1,143
98
910
1,824
7,212
3,162
1,523
1,641
2,340
1,657
4,650
14,973
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
At December 31, 2020, the Bancorp’s long-term borrowings consisted of outstanding principal balances of $14.5 billion, net discounts of $19
million, debt issuance costs of $31 million and additions for mark-to-market adjustments on its hedged debt of $534 million. At
December 31, 2019, the Bancorp’s long-term borrowings consisted of outstanding principal balances of $14.6 billion, net discounts of $18
million, debt issuance costs of $33 million and additions for mark-to-market adjustments on its hedged debt of $402 million. The Bancorp
was in compliance with all debt covenants at December 31, 2020 and 2019.
Parent Company Long-Term Borrowings
Senior notes
On March 7, 2012, the Bancorp issued and sold $500 million of senior notes to third-party investors and entered into a Supplemental
Indenture dated March 7, 2012 with the Trustee, which modified the existing Indenture for Senior Debt Securities dated April 30, 2008. The
Supplemental Indenture and the Indenture define the rights of the senior notes and that they are represented by a Global Security dated as of
March 7, 2012. The senior notes bear a fixed-rate of interest of 3.50% per annum. The notes are unsecured, senior obligations of the Bancorp.
Payment of the full principal amounts of the notes will be due upon maturity on March 15, 2022. These fixed-rate senior notes will be
redeemable by the Bancorp, in whole or in part, on or after the date that is 30 days prior to the maturity date at a redemption price equal to
100% of the principal amount plus accrued and unpaid interest up to, but excluding, the redemption date.
On June 15, 2017, the Bancorp issued and sold $700 million of senior notes to third-party investors. The senior notes bear a fixed-rate of
interest of 2.60% per annum. The notes are unsecured, senior obligations of the Bancorp. Payment of the full principal amounts of the notes is
due upon maturity on June 15, 2022. These fixed-rate senior notes will be redeemable by the Bancorp, in whole or in part, on or after the date
that is 30 days prior to the maturity date at a redemption price equal to 100% of the principal amount plus accrued and unpaid interest up to,
but excluding, the redemption date.
On March 14, 2018, the Bancorp issued and sold $650 million of senior notes to third-party investors. The senior notes bear a fixed-rate of
interest of 3.95% per annum. The notes are unsecured, senior obligations of the Bancorp. Payment of the full principal amounts of the notes is
due upon maturity on March 14, 2028. These fixed-rate senior notes will be redeemable by the Bancorp, in whole or in part, on or after the
date that is 30 days prior to the maturity date at a redemption price equal to 100% of the principal amount plus accrued and unpaid interest up
to, but excluding, the redemption date.
On June 5, 2018, the Bancorp issued and sold $250 million of senior notes to third-party investors. The senior notes bear a floating-rate of
three-month LIBOR plus 47 bps. The notes are unsecured, senior obligations of the Bancorp. Payment of the full principal amounts of the
notes is due upon maturity on June 4, 2021. These floating-rate senior notes will be redeemable by the Bancorp, in whole or in part, on or
after the date that is 30 days prior to the maturity date at a redemption price equal to 100% of the principal amount plus accrued and unpaid
interest up to, but excluding, the redemption date.
On January 25, 2019, the Bancorp issued and sold $1.5 billion of senior notes to third-party investors. The senior notes bear a fixed-rate of
interest of 3.65% per annum. The notes are unsecured, senior obligations of the Bancorp. Payment of the full principal amounts of the notes is
due upon maturity on January 25, 2024. These fixed-rate senior notes will be redeemable by the Bancorp, in whole or in part, on or after the
date that is 30 days prior to the maturity date at a redemption price equal to 100% of the principal amount plus accrued and unpaid interest up
to, but excluding, the redemption date.
On October 28, 2019, the Bancorp issued and sold $750 million of senior notes to third-party investors. The senior notes bear a fixed-rate of
interest of 2.375% per annum. The notes are unsecured, senior obligations of the Bancorp. Payment of the full principal amounts of the notes
is due upon maturity on January 28, 2025. These notes will be redeemable at the Bancorp’s option, in whole or in part, at any time or from
time to time, on or after April 25, 2020, and prior to December 29, 2024, in each case at a redemption price, plus accrued and unpaid interest
thereon, if any, to, but excluding, the redemption date, equal to the greater of (i) 100% of the aggregate principal amount of the notes being
redeemed on that redemption date; and (ii) the sum of the present values of the remaining scheduled payments of principal and interest on the
notes being redeemed that would be due if the notes to be redeemed matured on December 29, 2024 discounted to the redemption date on a
semi-annual basis at the applicable treasury rate plus 15 bps. Additionally, these notes will be redeemable by the Bancorp, in whole or in part,
on or after the date that is 30 days prior to the maturity date at a redemption price equal to 100% of the principal amount of the notes to be
redeemed plus accrued and unpaid interest thereon to, but excluding, the redemption date.
On May 5, 2020, the Bancorp issued and sold $1.25 billion in aggregate principal amount of senior fixed-rate notes. The notes consisted of
$500 million of 1.625% senior fixed-rate notes, with a maturity of three years, due on May 5, 2023; and $750 million of 2.55% senior fixed-
rate notes, with a maturity of seven years, due on May 5, 2027. The 1.625% and 2.55% senior fixed-rate notes will be redeemable on or after
April 5, 2023 and April 5, 2027, respectively (the respective “Applicable Par Call Date”), in whole or in part, at any time and from time to
time, at the Bancorp’s option at a redemption price equal to 100% of the aggregate principal amount of the senior fixed-rate notes being
redeemed, plus accrued and unpaid interest thereon, if any, to, but excluding, the redemption date. Additionally, the 1.625% and 2.55% senior
fixed-rate notes will be redeemable at the Bancorp’s option, in whole or in part, at any time or from time to time, on or after November 2,
2020, and prior to the notes’ respective Applicable Par Call Date, in each case at a redemption price, plus accrued and unpaid interest thereon,
if any, to, but excluding, the redemption date, equal to the greater of: (a) 100% of the aggregate principal amount of the senior fixed-rate
notes being redeemed on that redemption date; and (b) the sum of the present values of the remaining scheduled payments of principal and
191 Fifth Third Bancorp
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
interest on the senior fixed-rate notes being redeemed that would be due if the senior fixed-rate notes to be redeemed matured on their
respective Applicable Par Call Date (not including any portion of such payments of interest accrued to the redemption date) discounted to the
redemption date on a semi-annual basis (assuming a 360-day year consisting of twelve 30-day months) at the applicable Treasury Rate plus
either 25 bps (for the 1.625% senior fixed-rate notes) or 35 bps (for the 2.55% senior fixed-rate notes), as the case may be.
Subordinated debt
The Bancorp has entered into interest rate swaps to convert part of its subordinated fixed-rate notes due in 2038 to floating-rate. Of the $1.0
billion in 8.25% subordinated fixed-rate notes due in 2038, $705 million were subsequently hedged to floating-rate and paid a rate of 3.27%
at December 31, 2020.
On November 20, 2013, the Bancorp issued and sold $750 million of 4.30% unsecured subordinated fixed-rate notes due on January 16,
2024. These fixed-rate notes will be redeemable by the Bancorp, in whole or in part, on or after the date that is 30 days prior to the maturity
date at a redemption price equal to 100% of the principal amount plus accrued and unpaid interest up to, but excluding, the redemption date.
Subsidiary Long-Term Borrowings
Senior and subordinated debt
Medium-term senior notes and subordinated bank notes with maturities ranging from one year to 30 years can be issued by the Bancorp’s
banking subsidiary. Under the Bancorp’s banking subsidiary’s global bank note program, the Bank’s capacity to issue its senior and
subordinated unsecured bank notes is $25.0 billion. As of December 31, 2020, $19.1 billion was available for future issuance under the global
bank note program.
On September 5, 2014, the Bank issued and sold, under its bank notes program, $850 million of 2.875% unsecured senior fixed-rate bank
notes due on October 1, 2021. These bank notes will be redeemable by the Bank, in whole or in part, on or after the date that is 30 days prior
to the maturity date at a redemption price equal to 100% of the principal amount plus accrued and unpaid interest up to, but excluding, the
redemption date.
On March 15, 2016, the Bank issued and sold, under its bank notes program, $750 million of 3.85% subordinated fixed-rate notes due on
March 15, 2026. These bank notes will be redeemable by the Bank, in whole or in part, on or after the date that is 30 days prior to the
maturity date at a redemption price equal to 100% of the principal amount plus accrued and unpaid interest up to, but excluding, the
redemption date.
On June 14, 2016, the Bank issued and sold, under its bank notes program, $1.3 billion of 2.25% unsecured senior fixed-rate notes due on
June 14, 2021. These bank notes will be redeemable by the Bank, in whole or in part, on or after the date that is 30 days prior to the maturity
date at a redemption price equal to 100% of the principal amount plus accrued and unpaid interest up to, but excluding, the redemption date.
On July 26, 2018 the Bank issued and sold, under its bank notes program, $1.55 billion in aggregate principal amount of unsecured senior
bank notes. The bank notes consisted of $500 million of 3.35% senior fixed-rate notes, with a maturity of three years, due on July 26, 2021;
$300 million of senior floating-rate notes at three-month LIBOR plus 44 bps, with a maturity of three years, due on July 26, 2021; and $750
million of 3.95% senior fixed-rate notes, with a maturity of seven years, due July 28, 2025. The Bank entered into interest rate swaps to
convert the fixed-rate notes due in 2021 and 2025 to a floating-rate, which resulted in an effective interest rate of one-month LIBOR plus 53
bps and 104 bps, respectively. These bank notes will be redeemable by the Bank, in whole or in part, on or after the date that is 30 days prior
to the maturity date at a redemption price equal to 100% of the principal amount plus accrued and unpaid interest up to, but excluding, the
redemption date.
On February 1, 2019, the Bank issued and sold, under its bank notes program, $300 million in unsecured senior floating-rate bank notes due
on February 1, 2022. Interest on the floating-rate notes is three-month LIBOR plus 64 bps. These notes will be redeemable by the Bank, in
whole or in part, on or after the date that is 30 days prior to the maturity date at a redemption price equal to 100% of the principal amount of
the notes to be redeemed plus accrued and unpaid interest up to, but excluding, the redemption date.
As a result of the MB Financial, Inc. acquisition, the Bank assumed $175 million of 4.00% subordinated fixed-rate notes due on December 1,
2027. These bank notes will be redeemable by the Bank, in whole or in part, on any interest payment date on or after December 1, 2022 at a
redemption price equal to 100% of the principal amount plus accrued and unpaid interest up to, but excluding, the redemption date. From
December 1, 2022 until maturity, the bank notes pay interest quarterly on the first day of March, June, September and December.
On January 31, 2020, the Bank issued and sold, under its bank notes program, $1.25 billion in aggregate principal amount of senior fixed-rate
notes. The bank notes consisted of $650 million of 1.80% senior fixed-rate notes, with a maturity of three years, due on January 30, 2023; and
$600 million of 2.25% senior fixed-rate notes, with a maturity of seven years, due on February 1, 2027. On or after the date that is 30 days
before the maturity date, the 1.80% senior fixed-rate notes will be redeemable, in whole or in part, at any time and from time to time, at the
Bank’s option at a redemption price equal to 100% of the aggregate principal amount of the 1.80% senior fixed-rate notes being redeemed,
plus accrued and unpaid interest thereon, if any, to, but excluding, the redemption date. The 2.25% senior fixed-rate notes will be redeemable
at the Bank’s option, in whole or in part, at any time or from time to time, on or after July 31, 2020, and prior to January 4, 2027 (the
192 Fifth Third Bancorp
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
“Applicable Par Call Date”), in each case at a redemption price, plus accrued and unpaid interest thereon, if any, to, but excluding, the
redemption date, equal to the greater of: (a) 100% of the aggregate principal amount of the 2.25% senior fixed-rate notes being redeemed on
that redemption date; and (b) the sum of the present values of the remaining scheduled payments of principal and interest on the 2.25% senior
fixed-rate notes being redeemed that would be due if the 2.25% senior fixed-rate notes to be redeemed matured on the Applicable Par Call
Date (not including any portion of such payments of interest accrued to the redemption date) discounted to the redemption date on a
semiannual basis (assuming a 360-day year consisting of twelve 30-day months) at the applicable Treasury Rate plus the Applicable Spread
for the Notes to be redeemed. Additionally, on or after January 4, 2027, the 2.25% senior fixed-rate notes will also be redeemable, in whole
or in part, at any time and from time to time, at the Bank’s option at a redemption price equal to 100% of the aggregate principal amount of
the 2.25% senior fixed-rate notes being redeemed, plus accrued and unpaid interest thereon, if any, to, but excluding, the redemption date.
Junior subordinated debt
The junior subordinated floating-rate debentures due in 2035 were assumed by the Bancorp’s direct nonbank subsidiary holding company as
part of the acquisition of First Charter in June 2008. The obligation was issued to First Charter Capital Trust I and II. The notes of First
Charter Capital Trust I and II pay a floating rate at three-month LIBOR plus 169 bps and 142 bps, respectively. The Bancorp’s nonbank
subsidiary holding company has fully and unconditionally guaranteed all obligations under the acquired TruPS issued by First Charter Capital
Trust I and II.
FHLB advances
At December 31, 2020, FHLB advances have rates ranging from 0.05% to 5.91%, with interest payable monthly. The Bancorp has pledged
$16.7 billion of certain residential mortgage loans and securities to secure its borrowing capacity at the FHLB which is partially utilized to
fund $67 million in FHLB advances that are outstanding. The FHLB advances mature as follows: $1 million in 2021, $1 million in 2022, $51
million in 2023, an immaterial amount in 2024, $5 million in 2025, and $9 million thereafter.
Notes associated with consolidated VIEs
As previously discussed in Note 13, the Bancorp was determined to be the primary beneficiary of various VIEs associated with certain
automobile loan securitizations. Third-party holders of this debt do not have recourse to the general assets of the Bancorp. In a securitization
transaction that occurred in 2019, the Bancorp transferred approximately $1.43 billion in automobile loans to a bankruptcy remote trust which
was deemed to be a VIE. This trust then subsequently issued approximately $1.37 billion of asset-backed notes, of which approximately $68
million were retained by the Bancorp. Approximately $543 million of outstanding notes from the 2019 securitization transaction are included
in long-term debt in the Consolidated Balance Sheets as of December 31, 2020. Additionally, in prior years the Bancorp completed
securitization transactions in which the Bancorp transferred certain consumer automobile loans to bankruptcy remote trusts which were also
deemed to be VIEs. As such, approximately $80 million of outstanding notes related to these VIEs were included in long-term debt in the
Consolidated Balance Sheets as of December 31, 2020.
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19. Commitments, Contingent Liabilities and Guarantees
The Bancorp, in the normal course of business, enters into financial instruments and various agreements to meet the financing needs of its
customers. The Bancorp also enters into certain transactions and agreements to manage its interest rate and prepayment risks, provide
funding, equipment and locations for its operations and invest in its communities. These instruments and agreements involve, to varying
degrees, elements of credit risk, counterparty risk and market risk in excess of the amounts recognized in the Consolidated Balance Sheets.
The creditworthiness of counterparties for all instruments and agreements is evaluated on a case-by-case basis in accordance with the
Bancorp’s credit policies. The Bancorp’s significant commitments, contingent liabilities and guarantees in excess of the amounts recognized
in the Consolidated Balance Sheets are discussed in the following sections.
Commitments
The Bancorp has certain commitments to make future payments under contracts. The following table reflects a summary of significant
commitments as of December 31:
($ in millions)
Commitments to extend credit
Forward contracts related to residential mortgage loans held for sale
Letters of credit
Purchase obligations
Capital commitments for private equity investments
Capital expenditures
$
2020
2019
74,499
2,903
1,982
195
83
75
75,696
2,901
2,137
113
75
84
Commitments to extend credit
Commitments to extend credit are agreements to lend, typically having fixed expiration dates or other termination clauses that may require
payment of a fee. Since many of the commitments to extend credit may expire without being drawn upon, the total commitment amounts do
not necessarily represent future cash flow requirements. The Bancorp is exposed to credit risk in the event of nonperformance by the
counterparty for the amount of the contract. Fixed-rate commitments are also subject to market risk resulting from fluctuations in interest
rates and the Bancorp’s exposure is limited to the replacement value of those commitments. As of December 31, 2020 and 2019, the Bancorp
had a reserve for unfunded commitments, including letters of credit, totaling $172 million and $144 million, respectively, included in other
liabilities in the Consolidated Balance Sheets. The Bancorp monitors the credit risk associated with commitments to extend credit using the
same standard regulatory risk rating systems utilized for its loan and lease portfolio.
Risk ratings of outstanding commitments to extend credit under this risk rating system are summarized in the following table as of December
31:
($ in millions)
Pass
Special mention
Substandard
Doubtful
Total commitments to extend credit
2020
2019
$
$
71,386
2,049
1,063
1
74,499
74,654
633
408
1
75,696
Letters of credit
Standby and commercial letters of credit are conditional commitments issued to guarantee the performance of a customer to a third party and
expire as summarized in the following table as of December 31, 2020:
($ in millions)
Less than 1 year(a)
1 - 5 years(a)
Over 5 years
Total letters of credit
$
$
1,098
883
1
1,982
(a)
Includes $9 and $2 issued on behalf of commercial customers to facilitate trade payments in U.S. dollars and foreign currencies which expire less than 1 year and
between 1 -5 years, respectively.
Standby letters of credit accounted for approximately 99% of total letters of credit at both December 31, 2020 and 2019 and are considered
guarantees in accordance with U.S. GAAP. Approximately 68% and 66% of the total standby letters of credit were collateralized as of
December 31, 2020 and 2019, respectively. In the event of nonperformance by the customers, the Bancorp has rights to the underlying
collateral, which can include commercial real estate, physical plant and property, inventory, receivables, cash and marketable securities. The
reserve related to these standby letters of credit, which is included in the total reserve for unfunded commitments, was $27 million at
December 31, 2020 and $20 million at December 31, 2019. The Bancorp monitors the credit risk associated with letters of credit using the
same standard regulatory risk rating systems utilized for its loan and lease portfolio.
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Risk ratings of outstanding letters of credit under this risk rating system are summarized in the following table as of December 31:
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($ in millions)
Pass
Special mention
Substandard
Doubtful
Total letters of credit
2020
2019
$
$
1,739
111
132
—
1,982
2,005
20
111
1
2,137
At December 31, 2020 and 2019, the Bancorp had outstanding letters of credit that were supporting certain securities issued as VRDNs. The
Bancorp facilitates financing for its commercial customers, which consist of companies and municipalities, by marketing the VRDNs to
investors. The VRDNs pay interest to holders at a rate of interest that fluctuates based upon market demand. The VRDNs generally have
long-term maturity dates, but can be tendered by the holder for purchase at par value upon proper advance notice. When the VRDNs are
tendered, a remarketing agent generally finds another investor to purchase the VRDNs to keep the securities outstanding in the market. As of
December 31, 2020 and 2019, total VRDNs in which the Bancorp was the remarketing agent or were supported by a Bancorp letter of credit
were $385 million and $449 million, respectively, of which FTS acted as the remarketing agent to issuers on $385 million and $445 million,
respectively. As remarketing agent, FTS is responsible for actively remarketing VRDNs to other investors when they have been tendered. If
another investor is not identified, FTS may choose to purchase the VRDNs into inventory at its discretion while it continues to remarket
them. If FTS purchases the VRDNs into inventory, it can subsequently tender back the VRDNs to the issuer’s trustee with proper advance
notice. The Bancorp issued letters of credit, as a credit enhancement, to $142 million and $187 million of the VRDNs remarketed by FTS, in
addition to zero and $3 million in VRDNs remarketed by third parties at December 31, 2020 and 2019, respectively. These letters of credit
are included in the total letters of credit balance provided in the previous table. The Bancorp held zero and $3 million of these VRDNs in its
portfolio and classified them as trading securities at December 31, 2020 and 2019, respectively.
Forward contracts related to residential mortgage loans held for sale
The Bancorp enters into forward contracts to economically hedge the change in fair value of certain residential mortgage loans held for sale
due to changes in interest rates. The outstanding notional amounts of these forward contracts are included in the summary of significant
commitments table for all periods presented.
Other commitments
The Bancorp has entered into a limited number of agreements for work related to banking center construction and to purchase goods or
services.
Contingent Liabilities
Legal claims
There are legal claims pending against the Bancorp and its subsidiaries that have arisen in the normal course of business. Refer to Note 20 for
additional information regarding these proceedings.
Guarantees
The Bancorp has performance obligations upon the occurrence of certain events under financial guarantees provided in certain contractual
arrangements as discussed in the following sections.
Residential mortgage loans sold with representation and warranty provisions
Conforming residential mortgage loans sold to unrelated third parties are generally sold with representation and warranty provisions. A
contractual liability arises only in the event of a breach of these representations and warranties and, in general, only when a loss results from
the breach. The Bancorp may be required to repurchase any previously sold loan, or indemnify or make whole the investor or insurer for
which the representation or warranty of the Bancorp proves to be inaccurate, incomplete or misleading. For more information on how the
Bancorp establishes the residential mortgage repurchase reserve, refer to Note 1.
As of December 31, 2020 and 2019, the Bancorp maintained reserves related to loans sold with representation and warranty provisions
totaling $8 million and $6 million, respectively, included in other liabilities in the Consolidated Balance Sheets.
The Bancorp uses the best information available when estimating its mortgage representation and warranty reserve; however, the estimation
process is inherently uncertain and imprecise and, accordingly, losses in excess of the amounts reserved as of December 31, 2020, are
reasonably possible. The Bancorp currently estimates that it is reasonably possible that it could incur losses related to mortgage representation
and warranty provisions in an amount up to approximately $8 million in excess of amounts reserved. This estimate was derived by modifying
the key assumptions to reflect management’s judgment regarding reasonably possible adverse changes to those assumptions. The actual
repurchase losses could vary significantly from the recorded mortgage representation and warranty reserve or this estimate of reasonably
possible losses, depending on the outcome of various factors, including those previously discussed.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
During both the years ended December 31, 2020 and 2019, the Bancorp paid an immaterial amount in the form of make whole payments and
repurchased $25 million in outstanding principal of loans to satisfy investor demands. Total repurchase demand requests during the years
ended December 31, 2020 and 2019 were $32 million and $45 million, respectively. Total outstanding repurchase demand inventory was $5
million and $6 million at December 31, 2020 and 2019, respectively.
Margin accounts
FTS, an indirect wholly-owned subsidiary of the Bancorp, guarantees the collection of all margin account balances held by its brokerage
clearing agent for the benefit of its customers. FTS is responsible for payment to its brokerage clearing agent for any loss, liability, damage,
cost or expense incurred as a result of customers failing to comply with margin or margin maintenance calls on all margin accounts. The
margin account balances held by the brokerage clearing agent were $14 million and $12 million at December 31, 2020 and 2019,
respectively. In the event of customer default, FTS has rights to the underlying collateral provided. Given the existence of the underlying
collateral provided and negligible historical credit losses, the Bancorp does not maintain a loss reserve related to the margin accounts.
Long-term borrowing obligations
The Bancorp had certain fully and unconditionally guaranteed long-term borrowing obligations issued by wholly-owned issuing trust entities
of $62 million at both December 31, 2020 and 2019.
Visa litigation
The Bancorp, as a member bank of Visa prior to Visa’s reorganization and IPO (the “IPO”) of its Class A common shares (the “Class A
Shares”) in 2008, had certain indemnification obligations pursuant to Visa’s certificate of incorporation and bylaws and in accordance with its
membership agreements. In accordance with Visa’s bylaws prior to the IPO, the Bancorp could have been required to indemnify Visa for the
Bancorp’s proportional share of losses based on the pre-IPO membership interests. As part of its reorganization and IPO, the Bancorp’s
indemnification obligation was modified to include only certain known or anticipated litigation (the “Covered Litigation”) as of the date of
the restructuring. This modification triggered a requirement for the Bancorp to recognize a liability equal to the fair value of the
indemnification liability.
In conjunction with the IPO, the Bancorp received 10.1 million of Visa’s Class B common shares (the “Class B Shares”) based on the
Bancorp’s membership percentage in Visa prior to the IPO. The Class B Shares are not transferable (other than to another member bank) until
the later of the third anniversary of the IPO closing or the date on which the Covered Litigation has been resolved; therefore, the Bancorp’s
Class B Shares were classified in other assets and accounted for at their carryover basis of $0. Visa deposited $3 billion of the proceeds from
the IPO into a litigation escrow account, established for the purpose of funding judgments in, or settlements of, the Covered Litigation. Since
then, when Visa’s litigation committee determined that the escrow account was insufficient, Visa issued additional Class A Shares and
deposited the proceeds from the sale of the Class A Shares into the litigation escrow account. When Visa funded the litigation escrow
account, the Class B Shares were subjected to dilution through an adjustment in the conversion rate of Class B Shares into Class A Shares.
In 2009, the Bancorp completed the sale of Visa, Inc. Class B Shares and entered into a total return swap in which the Bancorp will make or
receive payments based on subsequent changes in the conversion rate of the Class B Shares into Class A Shares. The swap terminates on the
later of the third anniversary of Visa’s IPO or the date on which the Covered Litigation is settled. Refer to Note 29 for additional information
on the valuation of the swap. The counterparty to the swap as a result of its ownership of the Class B Shares will be impacted by dilutive
adjustments to the conversion rate of the Class B Shares into Class A Shares caused by any Covered Litigation losses in excess of the
litigation escrow account. If actual judgments in, or settlements of, the Covered Litigation significantly exceed current expectations, then
additional funding by Visa of the litigation escrow account and the resulting dilution of the Class B Shares could result in a scenario where
the Bancorp’s ultimate exposure associated with the Covered Litigation (the “Visa Litigation Exposure”) exceeds the value of the Class B
Shares owned by the swap counterparty (the “Class B Value”). In the event the Bancorp concludes that it is probable that the Visa Litigation
Exposure exceeds the Class B Value, the Bancorp would record a litigation reserve liability and a corresponding amount of other noninterest
expense for the amount of the excess. Any such litigation reserve liability would be separate and distinct from the fair value derivative
liability associated with the total return swap.
As of the date of the Bancorp’s sale of the Visa Class B Shares and through December 31, 2020, the Bancorp has concluded that it is not
probable that the Visa Litigation Exposure will exceed the Class B Value. Based on this determination, upon the sale of the Class B Shares,
the Bancorp reversed its net Visa litigation reserve liability and recognized a free-standing derivative liability associated with the total return
swap. The fair value of the swap liability was $201 million and $163 million at December 31, 2020 and 2019, respectively. Refer to Note 15
and Note 29 for further information.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
After the Bancorp’s sale of the Class B Shares, Visa has funded additional amounts into the litigation escrow account which have resulted in
further dilutive adjustments to the conversion of Class B Shares into Class A Shares, and along with other terms of the total return swap,
required the Bancorp to make cash payments in varying amounts to the swap counterparty as follows:
Period ($ in millions)
Q2 2010
Q4 2010
Q2 2011
Q1 2012
Q3 2012
Q3 2014
Q2 2018
Q3 2019
Visa
Funding Amount
$
500
800
400
1,565
150
450
600
300
Bancorp Cash
Payment Amount
20
35
19
75
6
18
26
12
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20. Legal and Regulatory Proceedings
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Litigation
Visa/MasterCard Merchant Interchange Litigation
In April 2006, the Bancorp was added as a defendant in a consolidated antitrust class action lawsuit originally filed against Visa®,
MasterCard® and several other major financial institutions in the United States District Court for the Eastern District of New York (In re:
Payment Card Interchange Fee and Merchant Discount Antitrust Litigation, Case No. 5-MD-1720). The plaintiffs, merchants operating
commercial businesses throughout the U.S. and trade associations, claimed that the interchange fees charged by card-issuing banks were
unreasonable and sought injunctive relief and unspecified damages. In addition to being a named defendant, the Bancorp is currently also
subject to a possible indemnification obligation of Visa as discussed in Note 19 and has also entered into judgment and loss sharing
agreements with Visa, MasterCard and certain other named defendants. In October 2012, the parties to the litigation entered into a settlement
agreement that was initially approved by the trial court but reversed by the U.S. Second Circuit Court of Appeals and remanded to the district
court for further proceedings. Pursuant to the terms of the overturned settlement agreement, the Bancorp had previously paid $46 million into
a class settlement escrow account. Approximately 8,000 merchants requested exclusion from the class settlement, and therefore, pursuant to
the terms of the overturned settlement agreement, approximately 25% of the funds paid into the class settlement escrow account had been
already returned to the control of the defendants. The remaining settlement funds paid by the Bancorp have been maintained in the escrow
account. More than 500 of the merchants who requested exclusion from the class filed separate federal lawsuits against Visa, MasterCard and
certain other defendants alleging similar antitrust violations. These individual federal lawsuits were transferred to the United States District
Court for the Eastern District of New York. While the Bancorp is only named as a defendant in one of the individual federal lawsuits, it may
have obligations pursuant to indemnification arrangements and/or the judgment or loss sharing agreements noted above. On September 17,
2018, the defendants in the consolidated class action signed a second settlement agreement (the “Amended Settlement Agreement”) resolving
the claims seeking monetary damages by the proposed plaintiffs’ class (the “Plaintiff Damages Class”) and superseding the original
settlement agreement entered into in October 2012. The Amended Settlement Agreement included, among other terms, a release from
participating class members for liability for claims that accrue no later than five years after the Amended Settlement Agreement becomes
final. The Amended Settlement Agreement provided for a total payment by all defendants of approximately $6.24 billion, composed of
approximately $5.34 billion held in escrow plus an additional $900 million in new funds. Pursuant to the terms of the Settlement Agreement,
$700 million of the additional $900 million has been returned to the defendants due to the level of opt-outs from the class. The Bancorp’s
allocated share of the settlement is within existing reserves, including funds maintained in escrow. On December 13, 2019, the Court entered
an order granting final approval for the settlement. The settlement does not resolve the claims of the separate proposed plaintiffs’ class
seeking injunctive relief or the claims of merchants who have opted out of the proposed class settlement and are pursuing, or may in the
future decide to pursue, private lawsuits. The ultimate outcome in this matter, including the timing of resolution, therefore remains uncertain.
Refer to Note 19 for further information.
Klopfenstein v. Fifth Third Bank
On August 3, 2012, William Klopfenstein and Adam McKinney filed a lawsuit against Fifth Third Bank in the United States District Court
for the Northern District of Ohio (Klopfenstein et al. v. Fifth Third Bank), alleging that the 120% APR that Fifth Third disclosed on its Early
Access program was misleading. Early Access is a deposit-advance program offered to eligible customers with checking accounts. The
plaintiffs sought to represent a nationwide class of customers who used the Early Access program and repaid their cash advances within 30
days. On October 31, 2012, the case was transferred to the United States District Court for the Southern District of Ohio. In 2013, four similar
putative class actions were filed against Fifth Third Bank in federal courts throughout the country (Lori and Danielle Laskaris v. Fifth Third
Bank, Janet Fyock v. Fifth Third Bank, Jesse McQuillen v. Fifth Third Bank, and Brian Harrison v. Fifth Third Bank). Those four lawsuits
were transferred to the Southern District of Ohio and consolidated with the original lawsuit as In re: Fifth Third Early Access Cash Advance
Litigation (Case No. 1:12-CV-851). On behalf of a putative class, the plaintiffs sought unspecified monetary and statutory damages,
injunctive relief, punitive damages, attorney’s fees, and pre- and post-judgment interest. On March 30, 2015, the court dismissed all claims
alleged in the consolidated lawsuit except a claim under the TILA. On May 28, 2019, the Sixth Circuit Court of Appeals reversed the
dismissal of plaintiffs’ breach of contract claim and remanded for further proceedings. The plaintiffs’ claimed damages for the alleged breach
of contract claim exceed $280 million. The plaintiffs’ motion for class certification was filed on April 20, 2020 and is now fully briefed and
awaiting decision. No trial date has been set.
Helton v. Fifth Third Bank
On August 31, 2015, trust beneficiaries filed an action against Fifth Third Bank, as trustee, in the Probate Court for Hamilton County, Ohio
(Helen Clarke Helton, et al. v. Fifth Third Bank, Case No. 2015003814). The plaintiffs alleged breach of the duty to diversify, breach of the
duty of impartiality, breach of trust/fiduciary duty, and unjust enrichment, based on Fifth Third’s alleged failure to diversify assets held in
two trusts for the plaintiffs’ benefit. The lawsuit sought over $800 million in alleged damages, attorney’s fees, removal of Fifth Third as
trustee, and injunctive relief. On April 20, 2018, the Court denied plaintiffs’ motion for summary judgment and granted summary judgment to
Fifth Third, dismissing the case in its entirety. On December 18, 2019, the Ohio Court of Appeals affirmed the Probate Court’s dismissal of
all of plaintiffs’ claims based upon allegations of Fifth Third’s alleged failure to diversify assets held in two trusts for plaintiffs’ benefit. The
appeals court reversed summary judgment on one claim related to Fifth Third’s alleged unjust enrichment through its receipt of certain fees in
managing the trusts. The Court of Appeals remanded the case to the Probate Court for further consideration of the lone surviving claim,
which comprises a small fraction of the damages originally sought by plaintiffs in the lawsuit. Plaintiffs filed an appeal to the Ohio Supreme
Court, seeking review of the decision from the Ohio Court of Appeals. On April 14, 2020, the Ohio Supreme Court announced its denial of
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
plaintiffs’ request for review, and subsequently denied plaintiffs’ request for reconsideration. Thereafter, the case returned to the trial court
for further adjudication of the lone surviving claim. On January 8, 2021 the trial court issued an order denying Fifth Third’s motion for
summary judgment on the remaining claim leaving it to be resolved at trial.
Bureau of Consumer Financial Protection v. Fifth Third Bank, National Association
On March 9, 2020, the CFPB filed a lawsuit against Fifth Third in the United States District Court for the Northern District of Illinois entitled
CFPB v. Fifth Third Bank, National Association, Case No. 1:20-CV-1683 (N.D. Ill.) (ABW), alleging violations of the Consumer Financial
Protection Act, TILA, and Truth in Savings Act related to Fifth Third’s alleged opening of unspecified numbers of allegedly unauthorized
credit card, savings, checking, online banking and early access accounts from 2010 through 2016. The CFPB seeks unspecified amounts of
civil monetary penalties as well as unspecified customer remediation. On February 12, 2021, the court granted Fifth Third's motion to transfer
venue to the United States District Court for the Southern District of Ohio. The Bancorp is also subject to a consumer class action related to
the alleged opening of unauthorized accounts.
Shareholder Litigation
On April 7, 2020, Plaintiff Lee Christakis filed a putative class action against Fifth Third Bancorp, Fifth Third President and Chief Executive
Officer Greg D. Carmichael, and former Fifth Third Chief Financial Officer Tayfun Tuzun in the U.S. District Court for the Northern District
of Illinois entitled Lee Christakis, individually and on behalf of all others similarly situated v. Fifth Third Bancorp, et al., Case No. 1:20-
cv-2176 (N.D. Ill). The case brings two claims for violation of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, alleging that
the Defendants made material misstatements and omissions in connection with the alleged unauthorized opening of credit card, savings,
checking, online banking and early access accounts from 2010 through 2016. The plaintiff seeks certification of a class, unspecified damages,
attorneys’ fees and costs. On June 29, 2020, the Court appointed Heavy & General Laborers’ Local 472 & 172 Pension and Annuity Funds as
lead plaintiff, and Robins Geller Rudman & Dowd LLP as lead counsel for the plaintiff. On September 14, 2020, the lead plaintiff filed its
amended consolidated complaint.
On July 31, 2020, a second putative shareholder class action captioned Dr. Steven Fox, individually and on behalf of all others similarly
situated v. Fifth Third Bancorp, et al., Case No. 2020CH05219 was filed on behalf of former shareholders of MB Financial, Inc. in the Cook
County, Illinois Circuit Court. The suit brings claims for violation of Sections 11 and 12(a)(2) of the Securities Act of 1933, alleging that the
Bancorp and certain of its officers and directors made material misstatements and omissions regarding the alleged improper cross-selling
strategy in filings made in connection with the Bancorp’s merger with MB Financial, Inc.
In addition, shareholder derivative lawsuits have been filed seeking monetary damages on behalf of the Bancorp alleging certain claims
against various officers and directors relating to an alleged improper cross-selling strategy. Four lawsuits filed in the U.S. District Court for
the Northern District of Illinois have been consolidated into a single action captioned In re Fifth Third Bancorp Derivative Litigation, Case
No. 1:20-cv-04115. Those cases consist of: (1) Pemberton v. Carmichael, et al., Case No. 20-cv-4115 (filed July 13, 2020); (2) Meyer v.
Carmichael, et al., Case No. 20-cv-4244 (filed July 17, 2020); (3) Cox v. Carmichael, et al., Case No. 20-cv-4660 (filed August 7, 2020); and
(4) Hansen v. Carmichael, et al., Case No. 20-cv-5339 (filed September 10, 2020). Also pending are shareholder derivative matters Reese v.
Carmichael, et al., Case No. 20-cv-866 pending in the U.S. District Court of the Southern District of Ohio (filed November 4, 2020) and
Sandys v. Carmichael, et al., Case No. A2004539 pending in the Hamilton County, Ohio Court of Common Pleas (filed December 28, 2020).
The Bancorp has also received several shareholder demands under Ohio Rev. Code § 1701.37(c) and lawsuits have been filed arising out of
the same. Finally, the Bancorp has received a shareholder demand that the Bancorp’s Board of Directors investigate and commence a civil
action for failure to detect and/or prevent the alleged illegal cross-selling strategy. The shareholder subsequently filed the aforementioned
Sandys v. Carmichael, et al. matter.
Other litigation
The Bancorp and its subsidiaries are not parties to any other material litigation. However, there are other litigation matters that arise in the
normal course of business. While it is impossible to ascertain the ultimate resolution or range of financial liability with respect to these
contingent matters, management believes that the resulting liability, if any, from these other actions would not have a material effect upon the
Bancorp’s consolidated financial position, results of operations or cash flows.
Governmental Investigations and Proceedings
The Bancorp and/or its affiliates are or may become involved in information-gathering requests, reviews, investigations and proceedings
(both formal and informal) by various governmental regulatory agencies and law enforcement authorities, including but not limited to the
FRB, OCC, CFPB, SEC, FINRA, U.S. Department of Justice, etc., as well as state and other governmental authorities and self-regulatory
bodies regarding their respective businesses. Additional matters will likely arise from time to time. Any of these matters may result in
material adverse consequences or reputational harm to the Bancorp, its affiliates and/or their respective directors, officers and other
personnel, including adverse judgments, findings, settlements, fines, penalties, orders, injunctions or other actions, amendments and/or
restatements of the Bancorp’s SEC filings and/or financial statements, as applicable, and/or determinations of material weaknesses in our
disclosure controls and procedures. Investigations by regulatory authorities may from time to time result in civil or criminal referrals to law
enforcement. Additionally, in some cases, regulatory authorities may take supervisory actions that are considered to be confidential
supervisory information which may not be publicly disclosed.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Reasonably Possible Losses in Excess of Accruals
The Bancorp and its subsidiaries are parties to numerous claims and lawsuits as well as threatened or potential actions or claims concerning
matters arising from the conduct of its business activities. The outcome of claims or litigation and the timing of ultimate resolution are
inherently difficult to predict. The following factors, among others, contribute to this lack of predictability: claims often include significant
legal uncertainties, damages alleged by plaintiffs are often unspecified or overstated, discovery may not have started or may not be complete
and material facts may be disputed or unsubstantiated. As a result of these factors, the Bancorp is not always able to provide an estimate of
the range of reasonably possible outcomes for each claim. An accrual for a potential litigation loss is established when information related to
the loss contingency indicates both that a loss is probable and that the amount of loss can be reasonably estimated. Any such accrual is
adjusted from time to time thereafter as appropriate to reflect changes in circumstances. The Bancorp also determines, when possible (due to
the uncertainties described above), estimates of reasonably possible losses or ranges of reasonably possible losses, in excess of amounts
accrued. Under U.S. GAAP, an event is “reasonably possible” if “the chance of the future event or events occurring is more than remote but
less than likely” and an event is “remote” if “the chance of the future event or events occurring is slight.” Thus, references to the upper end of
the range of reasonably possible loss for cases in which the Bancorp is able to estimate a range of reasonably possible loss mean the upper
end of the range of loss for cases for which the Bancorp believes the risk of loss is more than slight. For matters where the Bancorp is able to
estimate such possible losses or ranges of possible losses, the Bancorp currently estimates that it is reasonably possible that it could incur
losses related to legal and regulatory proceedings in an aggregate amount up to approximately $65 million in excess of amounts accrued, with
it also being reasonably possible that no losses will be incurred in these matters. The estimates included in this amount are based on the
Bancorp’s analysis of currently available information, and as new information is obtained the Bancorp may change its estimates.
For these matters and others where an unfavorable outcome is reasonably possible but not probable, there may be a range of possible losses in
excess of the established accrual that cannot be estimated. Based on information currently available, advice of counsel, available insurance
coverage and established accruals, the Bancorp believes that the eventual outcome of the actions against the Bancorp and/or its subsidiaries,
including the matters described above, will not, individually or in the aggregate, have a material adverse effect on the Bancorp’s consolidated
financial position. However, in the event of unexpected future developments, it is possible that the ultimate resolution of those matters, if
unfavorable, may be material to the Bancorp’s results of operations for any particular period, depending, in part, upon the size of the loss or
liability imposed and the operating results for the applicable period.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
21. Related Party Transactions
The Bancorp maintains written policies and procedures covering related party transactions with principal shareholders, directors and
executives of the Bancorp. These procedures cover transactions such as employee-stock purchase loans, personal lines of credit, residential
secured loans, overdrafts, letters of credit and increases in indebtedness. Such transactions are subject to the Bancorp’s normal underwriting
and approval procedures. Prior to approving a loan to a related party, Compliance Risk Management must review and determine whether the
transaction requires approval from or a post notification to the Bancorp’s Board of Directors. At December 31, 2020 and 2019, certain
directors, executive officers, principal holders of Bancorp common stock and their related interests were indebted, including undrawn
commitments to lend, to the Bancorp’s banking subsidiary.
The following table summarizes the Bancorp’s lending activities with its principal shareholders, directors, executives and their related
interests at December 31:
($ in millions)
Commitments to lend, net of participations:
Directors and their affiliated companies
Executive officers
Total
Outstanding balance on loans, net of participations and undrawn commitments
2020
2019
$
$
$
79
7
86
67
736
5
741
49
The commitments to lend are in the form of loans and guarantees for various business and personal interests. This indebtedness was incurred
in the ordinary course of business on substantially the same terms, including interest rates and collateral, as those prevailing at the time for
comparable transactions with unrelated parties. This indebtedness does not involve more than the normal risk of repayment or present other
features unfavorable to the Bancorp.
Worldpay, Inc. and Worldpay Holding, LLC
On June 30, 2009, the Bancorp completed the sale of a majority interest in its processing business, Vantiv Holding, LLC (now Worldpay
Holding, LLC). Advent International acquired an approximate 51% interest in Worldpay Holding, LLC for cash and a warrant. The Bancorp
retained the remaining approximate 49% interest in Worldpay Holding, LLC.
During the first quarter of 2012, Vantiv, Inc. (now Worldpay, Inc.) priced an IPO of its shares and contributed the net proceeds to Worldpay
Holding, LLC for additional ownership interests, reducing the Bancorp’s ownership percentage to 39%. Subsequent to the IPO, the Bancorp
consummated a series of sales transactions which culminated in the sale of all of its remaining interests in Worldpay Holding, LLC in the first
quarter of 2019. The Bancorp recognized a gain of $562 million in other noninterest income during the first quarter of 2019 as a result of the
final sale transaction. As of January 1, 2020, Worldpay Holding, LLC and Worldpay, Inc. are no longer considered related parties of the
Bancorp as the Bancorp no longer beneficially owns any of Worldpay, Inc.’s equity securities.
In conjunction with Worldpay, Inc.’s IPO in 2012, the Bancorp entered into two TRAs with Worldpay, Inc. The TRAs provide for payments
by Worldpay, Inc. to the Bancorp of 85% of the cash savings actually realized as a result of the increase in tax basis that results from the
historical or future purchase of equity in Worldpay Holding, LLC from the Bancorp or from the exchange of equity units in Worldpay
Holding, LLC for cash or Class A Stock, as well as any tax benefits attributable to payments made under the TRA. One of the TRAs has been
settled and terminated and the Bancorp accounts for the remaining TRA as a gain contingency and recognizes income when all uncertainties
surrounding the realization of such amounts are resolved.
During the fourth quarter of 2019, the Bancorp entered into an agreement with Fidelity National Information Services, Inc. and Worldpay,
Inc. under which Worldpay, Inc. may be obligated to pay up to approximately $366 million to the Bancorp to terminate and settle certain
remaining TRA cash flows, totaling an estimated $720 million, upon the exercise of certain call options by Worldpay, Inc. or certain put
options by the Bancorp. In 2019, the Bancorp recognized a gain of approximately $345 million in other noninterest income associated with
these options. The Worldpay, Inc. TRA receivable associated with this transaction, recorded in other assets in the Consolidated Balance
Sheets, was $321 million and $345 million as of December 31, 2020 and 2019, respectively.
Separate from the impact of the TRA settlement agreement discussed above, the Bancorp recognized $74 million, $1 million and $20 million
in other noninterest income in the Consolidated Statements of Income associated with the TRA during the years ended December 31, 2020,
2019 and 2018, respectively. The Bancorp expects to receive approximately $122 million of future payments through 2025 under the TRA
that are not subject to the call or put options. These remaining cash flows will be recognized in future periods when the related uncertainties
are resolved.
The Bancorp and Worldpay Holding, LLC had various agreements in place covering services including interchange clearing, settlement and
sponsorship. Worldpay Holding, LLC paid the Bancorp $87 million and $75 million for these services for the years ended December 31,
2019 and 2018, respectively. In addition to the previously mentioned services, the Bancorp previously entered into an agreement under which
Worldpay Holding, LLC would provide processing services to the Bancorp. The total amount of fees relating to the processing services
201 Fifth Third Bancorp
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
provided to the Bancorp by Worldpay Holding, LLC totaled $77 million and $74 million for the years ended December 31, 2019 and 2018,
respectively. These fees were primarily reported as a component of card and processing expense in the Consolidated Statements of Income.
SLK Global Solutions Private Limited
As of December 31, 2020, the Bancorp owns 100% of Fifth Third Mauritius Holdings Limited, which owns 49% of SLK Global Solutions
Private Limited, and accounts for this investment under the equity method of accounting. The Bancorp recognized $5 million, $3 million and
$2 million in other noninterest income in the Consolidated Statements of Income as part of its equity method investment in SLK Global
Solutions Private Limited for the years ended December 31, 2020, 2019 and 2018, respectively. The Bancorp received cash distributions of
$1 million during both the years ended December 31, 2020 and 2019. The Bancorp’s investment in SLK Global Solutions Private Limited
was $26 million at both December 31, 2020 and 2019. The Bancorp paid SLK Global Solutions Private Limited $27 million, $22 million and
$21 million for their process and software services during the years ended December 31, 2020, 2019 and 2018, respectively, which are
included in other noninterest expense in the Consolidated Statements of Income.
CDC investments
The Bancorp’s subsidiary, CDC, has equity investments in entities in which the Bancorp had $18 million and $12 million of loans
outstanding at December 31, 2020 and 2019, respectively, and unfunded commitment balances of $39 million and $21 million at
December 31, 2020 and 2019, respectively. The Bancorp held $63 million and $116 million of deposits for these entities at December 31,
2020 and 2019, respectively. For further information on CDC investments, refer to Note 13.
202 Fifth Third Bancorp
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
22. Income Taxes
The Bancorp and its subsidiaries file a consolidated federal income tax return. The following is a summary of applicable income taxes
included in the Consolidated Statements of Income for the years ended December 31:
($ in millions)
Current income tax expense:
U.S. Federal income taxes
State and local income taxes
Foreign income taxes
Total current income tax expense
Deferred income tax (benefit) expense:
U.S. Federal income taxes
State and local income taxes
Foreign income taxes
Total deferred income tax (benefit) expense
Applicable income tax expense
2020
2019
2018
$
$
463
69
—
532
(140)
(23)
1
(162)
370
788
148
—
936
(212)
(35)
1
(246)
690
463
71
8
542
24
4
2
30
572
The current U.S. Federal income taxes above include proportional amortization for qualifying LIHTC investments of $150 million, $140
million and $154 million for the years ended December 31, 2020, 2019 and 2018, respectively.
The following is a reconciliation between the federal statutory corporate tax rate and the Bancorp’s effective tax rate for the years ended
December 31:
Statutory tax rate
Increase (decrease) resulting from:
State taxes, net of federal benefit
Tax-exempt income
LIHTC investment and other tax benefits
LIHTC investment proportional amortization
Other tax credits
Other, net
Effective tax rate
2020
2019
2018
21.0 %
2.0
(1.5)
(9.7)
8.3
(0.4)
0.9
20.6 %
21.0
2.8
(1.2)
(5.0)
4.4
(0.2)
(0.2)
21.6
21.0
2.1
(0.8)
(6.8)
5.6
(0.1)
(0.3)
20.7
Other tax credits in the rate reconciliation table include New Markets, Rehabilitation Investment and Qualified Zone Academy Bond tax
credits. Tax-exempt income in the rate reconciliation table includes interest on municipal bonds, interest on tax-exempt lending, income on
life insurance policies held by the Bancorp and certain gains on sales of leases that are exempt from federal taxation.
The following table provides a reconciliation of the beginning and ending amounts of the Bancorp’s unrecognized tax benefits:
($ in millions)
Unrecognized tax benefits at January 1
Gross increases for tax positions taken during prior period
Gross decreases for tax positions taken during prior period
Gross increases for tax positions taken during current period
Settlements with taxing authorities
Lapse of applicable statute of limitations
Unrecognized tax benefits at December 31(a)
2020
2019
2018
$
$
65
29
(3)
12
(1)
(2)
100
55
25
(3)
6
(9)
(9)
65
34
20
(1)
8
(5)
(1)
55
(a) With the exception of $6, $6 and $5 in 2020, 2019 and 2018, respectively, all amounts represent unrecognized tax benefits that, if recognized, would affect the
annual effective tax rate.
The Bancorp’s unrecognized tax benefits as of December 31, 2020, 2019 and 2018 primarily related to state income tax exposures from
taking tax positions where the Bancorp believes it is likely that, upon examination, a state will take a position contrary to the position taken
by the Bancorp.
While it is reasonably possible that the amount of the unrecognized tax benefits with respect to certain of the Bancorp’s uncertain tax
positions could increase or decrease during the next twelve months, the Bancorp believes it is unlikely that its unrecognized tax benefits will
change by a material amount during the next twelve months.
203 Fifth Third Bancorp
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Deferred income taxes are comprised of the following items at December 31:
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($ in millions)
Deferred tax assets:
Allowance for loan and lease losses
Deferred compensation
Reserves
Reserve for unfunded commitments
State net operating loss carryforwards
State deferred taxes
Other
Total deferred tax assets
Deferred tax liabilities:
Other comprehensive income
Lease financing
MSRs and related economic hedges
Bank premises and equipment
Investments in joint ventures and partnership interests
State deferred taxes
Other
Total deferred tax liabilities
Total net deferred tax liability
2020
2019
$
$
$
$
$
515
107
40
36
3
1
160
862
779
638
120
91
58
—
128
1,814
(952)
252
103
32
30
9
—
154
580
352
650
144
73
25
47
127
1,418
(838)
At December 31, 2020 and 2019, the Bancorp recorded deferred tax assets of $3 million and $9 million, respectively, related to state net
operating loss carryforwards. The deferred tax assets relating to state net operating losses are presented net of specific valuation allowances of
$4 million and $17 million at December 31, 2020 and 2019, respectively. If these carryforwards are not utilized, they will expire in varying
amounts through 2039.
The Bancorp has determined that a valuation allowance is not needed against the remaining deferred tax assets as of December 31, 2020 or
2019. The Bancorp considered all of the positive and negative evidence available to determine whether it is more likely than not that the
deferred tax assets will ultimately be realized and, based upon that evidence, the Bancorp believes it is more likely than not that the deferred
tax assets recorded at December 31, 2020 and 2019 will ultimately be realized. The Bancorp reached this conclusion as it is expected that the
Bancorp’s remaining deferred tax assets will be realized through the reversal of its existing taxable temporary differences and its projected
future taxable income.
The IRS has concluded its examination of the Bancorp’s 2016 federal income tax return. The statute of limitations for the Bancorp’s federal
income tax returns remains open for tax years 2017 through 2020. On occasion, as various state and local taxing jurisdictions examine the
returns of the Bancorp and its subsidiaries, the Bancorp may agree to extend the statute of limitations for a reasonable period of time.
Otherwise, the statutes of limitations for state income tax returns remain open only for tax years in accordance with each state’s statutes.
Any interest and penalties incurred in connection with income taxes are recorded as a component of applicable income tax expense in the
Consolidated Financial Statements. During the years ended December 31, 2020, 2019 and 2018, the Bancorp recognized $3 million, $1
million and $1 million, respectively, of interest expense in connection with income taxes. At December 31, 2020 and 2019, the Bancorp had
accrued interest liabilities, net of the related tax benefits, of $7 million and $4 million, respectively. No material liabilities were recorded for
penalties related to income taxes.
Retained earnings at December 31, 2020 and 2019 included $157 million in allocations of earnings for bad debt deductions of former thrift
subsidiaries for which no income tax has been provided. Under current tax law, if certain of the Bancorp’s subsidiaries use these bad debt
reserves for purposes other than to absorb bad debt losses, they will be subject to federal income tax at the current corporate tax rate.
204 Fifth Third Bancorp
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
23. Retirement and Benefit Plans
The Bancorp’s qualified defined benefit plan’s benefits were frozen in 1998, except for grandfathered employees. The Bancorp’s other
defined benefit retirement plans consist of non-qualified plans which are frozen and funded on an as-needed basis. A majority of these plans
were obtained in acquisitions and are included with the qualified defined benefit plan in the following tables (“the Plan”). The Bancorp
recognizes the overfunded or underfunded status of the Plan in other assets and accrued taxes, interest and expenses, respectively, in the
Consolidated Balance Sheets.
The following table summarizes the defined benefit retirement plans as of and for the years ended December 31:
($ in millions)
Fair value of plan assets at January 1
Actual return on assets
Contributions
Settlement
Benefits paid
Fair value of plan assets at December 31
Projected benefit obligation at January 1
Interest cost
Settlement
Actuarial loss
Benefits paid
Projected benefit obligation at December 31
Underfunded projected benefit obligation at December 31
Accumulated benefit obligation at December 31(a)
2020
2019
$
$
$
$
$
$
175
13
2
(9)
(8)
173
194
6
(9)
20
(8)
203
(30)
203
164
26
2
(9)
(8)
175
181
7
(9)
23
(8)
194
(19)
194
(a)
Since the Plan’s benefits are frozen, the rate of compensation increase is no longer an assumption used to calculate the accumulated benefit obligation. Therefore,
the accumulated benefit obligation was the same as the projected benefit obligation at both December 31, 2020 and 2019.
The following table summarizes net periodic benefit cost and other changes in the Plan’s assets and benefit obligations recognized in OCI for
the years ended December 31:
($ in millions)
Components of net periodic benefit cost:
Interest cost
Expected return on assets
Amortization of net actuarial loss
Settlement
$
$
Net periodic benefit cost
Other changes in plan assets and benefit obligations recognized in other comprehensive income:
$
Net actuarial loss (gain)
Amortization of net actuarial loss
Settlement
Total recognized in other comprehensive income
Total recognized in net periodic benefit cost and other comprehensive income
$
2020
2019
2018
6
(4)
6
3
11
12
(6)
(3)
3
14
7
(8)
6
3
8
5
(6)
(3)
(4)
4
7
(11)
6
3
5
(1)
(6)
(3)
(10)
(5)
Fair Value Measurements of Plan Assets
The following tables summarize Plan assets measured at fair value on a recurring basis as of December 31:
2020 ($ in millions)
Cash equivalents
Mutual and exchange-traded funds
Debt securities:
U.S. Treasury and federal agencies securities
Mortgage-backed securities:
Non-agency commercial mortgage-backed securities
Asset-backed securities and other debt securities(b)
Total debt securities
Total Plan assets
(a) For further information on fair value hierarchy levels, refer to Note 1.
(b)
Includes corporate bonds.
Fair Value Measurements Using(a)
Level 1
Level 2
Level 3
$
$
$
4
68
57
—
—
57
129
—
—
6
1
37
44
44
—
—
—
—
—
—
—
Total Fair Value
4
68
63
1
37
101
173
205 Fifth Third Bancorp
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2019 ($ in millions)
Cash equivalents
Mutual and exchange-traded funds
Debt securities:
U.S. Treasury and federal agencies securities
Mortgage-backed securities:
Non-agency commercial mortgage-backed securities
Asset-backed securities and other debt securities(b)
Total debt securities
Total Plan assets
(a) For further information on fair value hierarchy levels, refer to Note 1.
(b)
Includes corporate bonds.
Fair Value Measurements Using(a)
Level 1
Level 2
Level 3
$
$
$
14
76
57
—
—
57
147
—
—
6
1
21
28
28
—
—
—
—
—
—
—
Total Fair Value
14
76
63
1
21
85
175
The following is a description of the valuation methodologies used for instruments measured at fair value, as well as the general classification
of such instruments pursuant to the valuation hierarchy.
Cash equivalents
Cash equivalents are comprised of money market mutual funds that invest in short-term money market instruments that are issued and
payable in U.S. dollars. The Plan measures its cash equivalent funds that are exchange-traded using the fund’s quoted price, which is in an
active market. Therefore, these investments are classified within Level 1 of the valuation hierarchy.
Mutual and exchange-traded funds
The Plan measures its mutual and exchange-traded funds, which are registered with the SEC, using the funds’ quoted prices which are
available in an active market. Therefore, these investments are classified within Level 1 of the valuation hierarchy. The mutual and exchange-
traded funds held by the Plan are open-ended funds and are required to publicly publish their NAV on a daily basis. The funds are also
required to transact and use the daily NAV as a basis for transactions. Therefore, the NAV reflects the fair value of the Plan’s investment.
Debt securities
Where quoted prices are available in an active market, securities are classified within Level 1 of the valuation hierarchy. Level 1 securities
include U.S. Treasury securities. If quoted market prices are not available, then fair values are estimated using pricing models, quoted prices
of securities with similar characteristics, or DCFs. Examples of such instruments, which are classified within Level 2 of the valuation
hierarchy, include federal agencies securities, non-agency commercial mortgage-backed securities and asset-backed securities and other debt
securities.
Plan Assumptions
The Plan’s assumptions are evaluated annually and are updated as necessary. The discount rate assumption reflects the yield on a portfolio of
high quality fixed-income instruments that have a similar duration to the Plan’s liabilities. The expected long-term rate of return assumption
reflects the average return expected on the assets invested to provide for the Plan’s liabilities. In determining the expected long-term rate of
return, the Bancorp evaluated actuarial and economic inputs, including long-term inflation rate assumptions and broad equity and bond
indices long-term return projections, as well as actual long-term historical plan performance.
The following table summarizes the weighted-average plan assumptions for the years ended December 31:
For measuring benefit obligations at year end:(a)
Discount rate
For measuring net periodic benefit cost:(a)
Discount rate
Expected return on plan assets
2020
2019
2018
2.26 %
3.05
2.64
3.05
4.10
5.50
4.10
3.47
6.00
(a)
Since the Plan’s benefits were frozen, except for grandfathered employees, the rate of compensation increase is no longer applicable beginning in 2014 since
minimal grandfathered employees are still accruing benefits.
Lowering both the expected rate of return on the plan assets and the discount rate by 0.25% would have increased the 2020 pension expense
by approximately $1 million.
Based on the actuarial assumptions, the Bancorp expects to contribute $2 million to the Plan in 2021. Estimated pension benefit payments are
$18 million for 2021, $17 million for 2022, $18 million for 2023, $16 million for 2024 and $18 million for 2025. The total estimated
payments for the years 2026 through 2030 is $66 million.
206 Fifth Third Bancorp
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Investment Policies and Strategies
The Bancorp’s policy for the investment of Plan assets is to employ investment strategies that achieve a range of weighted-average target
asset allocations relating to equity securities, fixed-income securities (including U.S. Treasury and federal agencies securities, mortgage-
backed securities, asset-backed securities, corporate bonds and municipal bonds), alternative strategies (including traditional mutual funds,
precious metals and commodities) and cash.
The following table provides the Bancorp’s targeted and actual weighted-average asset allocations by asset category for the years ended
December 31:
Equity securities(a)
Fixed-income securities
Alternative strategies
Cash or cash equivalents
Total
Includes mutual and exchange-traded funds.
(a)
(b) These reflect the targeted ranges for the year ended December 31, 2020.
Targeted Range(b)
0-55 %
50-100
0-5
0-100
2020
2019
3
90
—
7
100 %
19
59
—
22
100
Plan Management’s objective is to achieve and maintain a fully-funded status of the qualified defined benefit plan while also minimizing the
risk of excess assets. As a result, the portfolio assets of the qualified defined benefit plan will continue to increase the weighting of long
duration fixed income, or liability matching assets, as the funded status increases. There were no significant concentrations of risk associated
with the investments of the Plan at December 31, 2020.
Permitted asset classes of the Plan include cash and cash equivalents, fixed-income (domestic and non-U.S. bonds), equities (U.S., non-U.S.,
emerging markets and real estate investment trusts), equipment leasing and mortgages. The Plan utilizes derivative instruments including
puts, calls, straddles or other option strategies, as approved by management.
Fifth Third Bank, National Association, as Trustee, is expected to manage Plan assets in a manner consistent with the Plan agreement and
other regulatory, federal and state laws. As of December 31, 2020 and 2019, $173 million and $175 million, respectively, of Plan assets were
managed by Fifth Third Bank, National Association. The Fifth Third Bank Pension, 401(k) and Medical Plan Committee (the “Committee”)
is the plan administrator. The Trustee is required to provide to the Committee monthly and quarterly reports covering a list of Plan assets,
portfolio performance, transactions and asset allocation. The Trustee is also required to keep the Committee apprised of any material changes
in the Trustee’s outlook and recommended investment policy. There were no fees paid by the Plan for investment management, accounting or
administrative services provided by the Trustee.
Other Information on Retirement and Benefit Plans
The Bancorp has a qualified defined contribution savings plan that allows participants to make voluntary 401(k) contributions on a pre-tax or
Roth basis, subject to statutory limitations. Expenses recognized for matching contributions to the Bancorp’s qualified defined contribution
savings plan were $105 million, $90 million and $83 million for the years ended December 31, 2020, 2019 and 2018, respectively. The
Bancorp did not make profit sharing contributions during both the years ended December 31, 2020 and 2018. The Bancorp recognized
$4 million of profit sharing expense associated with the MB Financial, Inc. acquisition during the year ended December 31, 2019. In addition,
the Bancorp has a non-qualified defined contribution plan that allows certain employees to make voluntary contributions into a deferred
compensation plan. Expenses recognized by the Bancorp for its non-qualified defined contribution plan were $5 million, $6 million and $4
million for the years ended December 31, 2020, 2019 and 2018, respectively.
207 Fifth Third Bancorp
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
24. Accumulated Other Comprehensive Income
The tables below present the activity of the components of OCI and AOCI for the years ended December 31:
2020 ($ in millions)
Unrealized holding gains on available-for-sale debt securities
arising during the year
Reclassification adjustment for net gains on available-for-sale debt
securities included in net income
Net unrealized gains on available-for-sale debt securities
Unrealized holding gains on cash flow hedge derivatives arising
during the year
Reclassification adjustment for net gains on cash flow hedge
derivatives included in net income
Net unrealized gains on cash flow hedge derivatives
Net actuarial loss arising during the year
Reclassification of amounts to net periodic benefit costs
Defined benefit pension plans, net
Pre-tax
Activity
Total OCI
Tax
Effect
Net
Activity
Beginning
Balance
Total AOCI
Net
Activity
Ending
Balance
$
1,514
(361)
1,153
(45)
1,469
11
(350)
(34)
1,119
812
1,119
1,931
611
(128)
483
(237)
374
(12)
9
(3)
50
(78)
3
(2)
1
(187)
296
(9)
7
(2)
422
296
718
(42)
(2)
(44)
Other
Total
(4)
1,836
$
—
(427)
(4)
1,409
—
1,192
(4)
1,409
(4)
2,601
2019 ($ in millions)
Unrealized holding gains on available-for-sale debt securities
arising during the year
Reclassification adjustment for net gains on available-for-sale debt
securities included in net income
Net unrealized gains on available-for-sale debt securities
Unrealized holding gains on cash flow hedge derivatives arising
during the year
Reclassification adjustment for net gains on cash flow hedge
derivatives included in net income
Net unrealized gains on cash flow hedge derivatives
Net actuarial loss arising during the year
Reclassification of amounts to net periodic benefit costs
Defined benefit pension plans, net
Total
Pre-tax
Activity
Total OCI
Tax
Effect
Net
Activity
Beginning
Balance
Total AOCI
Net
Activity
Ending
Balance
$
1,369
(323)
1,046
(9)
1,360
2
(321)
(7)
1,039
(227)
1,039
812
348
(16)
332
(5)
9
4
1,696
$
(73)
3
(70)
—
(1)
(1)
(392)
275
(13)
262
(5)
8
3
1,304
160
262
422
(45)
(112)
3
1,304
(42)
1,192
208 Fifth Third Bancorp
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2018 ($ in millions)
Unrealized holding losses on available-for-sale debt securities
arising during the year
Reclassification adjustment for net losses on available-for-sale debt
securities included in net income
Net unrealized losses on available-for-sale debt securities
Unrealized holding gains on cash flow hedge derivatives arising
during the year
Reclassification adjustment for net losses on cash flow hedge
derivatives included in net income
Net unrealized gains on cash flow hedge derivatives
Net actuarial gain arising during the year
Reclassification of amounts to net periodic benefit costs
Defined benefit pension plans, net
Total
$
Pre-tax
Activity
$
(483)
Total OCI
Tax
Effect
Net
Activity
Beginning
Balance
Total AOCI
Net
Activity
Ending
Balance
112
(2)
110
(45)
—
(45)
—
(2)
(2)
63
(371)
9
(362)
169
2
171
1
7
8
(183)
135
(362)
(227)
(11)
171
160
(53)
71
8
(183)
(45)
(112)
11
(472)
214
2
216
1
9
10
(246)
The table below presents reclassifications out of AOCI for the years ended December 31:
Components of AOCI: ($ in millions)
Net unrealized gains (losses) on available-for-sale debt securities:(b)
Net gains (losses) included in net income
Net unrealized gains (losses) on cash flow hedge derivatives:(b)
Interest rate contracts related to C&I loans
Net periodic benefit costs:(b)
Amortization of net actuarial loss
Settlements
Total reclassifications for the period
Consolidated Statements of
Income Caption
2020
2019
2018
Securities gains (losses), net
Income before income taxes
Applicable income tax expense
Net income
Interest and fees on loans and leases
Income before income taxes
Applicable income tax expense
Net income
Compensation and benefits(a)
Compensation and benefits(a)
Income before income taxes
Applicable income tax expense
Net income
Net income
$
$
45
45
(11)
34
237
237
(50)
187
(6)
(3)
(9)
2
(7)
214
9
9
(2)
7
16
16
(3)
13
(6)
(3)
(9)
1
(8)
12
(11)
(11)
2
(9)
(2)
(2)
—
(2)
(6)
(3)
(9)
2
(7)
(18)
(a) This AOCI component is included in the computation of net periodic benefit cost. Refer to Note 23 for information on the computation of net periodic benefit cost.
(b) Amounts in parentheses indicate reductions to net income.
209 Fifth Third Bancorp
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
25. Common, Preferred and Treasury Stock
The table presents a summary of the share activity within common, preferred and treasury stock for the years ended:
($ in millions, except share data)
December 31, 2017
Shares acquired for treasury
Impact of stock transactions under stock
compensation plans, net
Other
December 31, 2018
Shares acquired for treasury
Issuance of preferred shares, Series K
Conversion of outstanding preferred stock
issued by a Bancorp subsidiary
Impact of MB Financial, Inc. acquisition
Impact of stock transactions under stock
compensation plans, net
Other
December 31, 2019
Issuance of preferred shares, Series L
Impact of stock transactions under stock
compensation plans, net
Other
December 31, 2020
Common Stock
Preferred Stock
Treasury Stock
Value
Shares
Value
Shares
Value
Shares
$
2,051 923,892,581 $
1,331
—
—
—
—
—
—
—
—
—
$
2,051 923,892,581 $
1,331
—
—
—
—
—
—
—
—
—
—
—
—
$
2,051 923,892,581 $
—
—
—
—
—
—
—
242
197
—
—
—
1,770
346
—
—
$
2,051 923,892,581 $
2,116
$
54,000
—
(5,002) 230,087,688
49,967,134
(1,494)
—
—
54,000
—
10,000
200,000
—
—
—
264,000
14,000
—
—
278,000
$
$
$
23
2
(2,698,451)
(94,647)
(6,471) 277,261,724
64,601,891
(1,763)
—
—
—
—
2,447 (122,848,442)
56
7
(4,258,132)
219,911
(5,724) 214,976,952
—
—
46
2
(3,818,518)
(26,178)
(5,676) 211,132,256
Preferred Stock—Series L
On July 30, 2020, the Bancorp issued in a registered public offering 350,000 depositary shares, representing 14,000 shares of 4.50% fixed-
rate reset non-cumulative perpetual preferred stock, Series L, for net proceeds of approximately $346 million. Each preferred share has a
$25,000 liquidation preference. The preferred stock accrues dividends on a non-cumulative basis at an annual rate of 4.50% through but
excluding September 30, 2025. From, and including, September 30, 2025 and for each dividend reset period thereafter, dividends will accrue
on the Series L preferred stock, on a non-cumulative basis, at a rate equal to the five-year U.S. Treasury rate as of the most recent reset
dividend determination date plus 4.215%. Dividends will be payable, when, as and if declared by the Bancorp’s Board of Directors, quarterly
in arrears on each of March 31, June 30, September 30 and December 31, beginning on September 30, 2020. Subject to obtaining all required
regulatory approvals, on any dividend payment date on or after September 30, 2025, the Bancorp may redeem the Series L preferred stock
and the related depositary shares in whole or in part, at 100% of their liquidation preference, plus an amount equal to any declared and unpaid
dividends, without accumulation of any undeclared dividends. In addition, the Series L preferred stock and the related depositary shares may
be redeemed, subject to obtaining all required regulatory approvals, in whole but not in part, at any time, following the occurrence of a
regulatory capital event, at 100% of their liquidation preference, plus an amount equal to any declared and unpaid dividends, without
accumulation of any undeclared dividends. The Series L preferred shares are not convertible into Bancorp common shares or any other
securities.
Preferred Stock—Series K
On September 17, 2019, the Bancorp issued, in a registered public offering 10,000,000 depositary shares, representing 10,000 shares of
4.95% non-cumulative Series K perpetual preferred stock, for net proceeds of approximately $242 million. Each preferred share has a
$25,000 liquidation preference. Subject to any required regulatory approval, the Bancorp may redeem the Series K preferred shares at its
option in whole or in part, on any dividend payment date on or after September 30, 2024 and may redeem in whole, but not in part, at any
time following a regulatory capital event. The Series K preferred shares are not convertible into Bancorp common shares or any other
securities.
Preferred Stock—Class B, Series A
On August 26, 2019, the Bancorp issued 200,000 shares of 6.00% non-cumulative perpetual Class B preferred stock, Series A. Each preferred
share has a $1,000 liquidation preference. These shares were issued to the holders of MB Financial, Inc.’s 6.00% non-cumulative perpetual
preferred stock, Series C, in conjunction with the merger of MB Financial, Inc. with and into Fifth Third Bancorp. This transaction resulted in
the elimination of the noncontrolling interest in MB Financial, Inc. which was previously reported in the Bancorp’s Consolidated Financial
Statements. The newly issued shares of Class B preferred stock, Series A were recognized by the Bancorp at the carrying value previously
assigned to the MB Financial, Inc. Series C preferred stock prior to the transaction.
210 Fifth Third Bancorp
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Preferred Stock—Series J
On June 5, 2014, the Bancorp issued, in a registered public offering, 300,000 depositary shares, representing 12,000 shares of 4.90% fixed to
floating-rate non-cumulative Series J perpetual preferred stock, for net proceeds of $297 million. Each preferred share has a $25,000
liquidation preference. The preferred stock accrued dividends, on a non-cumulative semi-annual basis, at an annual rate of 4.90% through but
excluding September 30, 2019, at which time it converted to a quarterly floating-rate dividend of three-month LIBOR plus 3.129%. Subject
to any required regulatory approval, the Bancorp may redeem the Series J preferred shares at its option, in whole or in part, at any time on or
after September 30, 2019, or any time prior following a regulatory capital event. The Series J preferred shares are not convertible into
Bancorp common shares or any other securities.
Preferred Stock—Series I
On December 9, 2013, the Bancorp issued, in a registered public offering, 18,000,000 depositary shares, representing 18,000 shares of
6.625% fixed to floating-rate non-cumulative Series I perpetual preferred stock, for net proceeds of $441 million. Each preferred share has a
$25,000 liquidation preference. The preferred stock accrues dividends, on a non-cumulative quarterly basis, at an annual rate of 6.625%
through but excluding December 31, 2023, at which time it converts to a quarterly floating-rate dividend of three-month LIBOR plus 3.71%.
Subject to any required regulatory approval, the Bancorp may redeem the Series I preferred shares at its option in whole or in part, at any time
on or after December 31, 2023 and may redeem in whole but not in part, following a regulatory capital event at any time prior to
December 31, 2023. The Series I preferred shares are not convertible into Bancorp common shares or any other securities.
Preferred Stock—Series H
On May 16, 2013, the Bancorp issued, in a registered public offering, 600,000 depositary shares, representing 24,000 shares of 5.10% fixed
to floating-rate non-cumulative Series H perpetual preferred stock, for net proceeds of $593 million. Each preferred share has a $25,000
liquidation preference. The preferred stock accrues dividends, on a non-cumulative semi-annual basis, at an annual rate of 5.10% through but
excluding June 30, 2023, at which time it converts to a quarterly floating-rate dividend of three-month LIBOR plus 3.033%. Subject to any
required regulatory approval, the Bancorp may redeem the Series H preferred shares at its option in whole or in part, at any time on or after
June 30, 2023 and may redeem in whole but not in part, following a regulatory capital event at any time prior to June 30, 2023. The Series H
preferred shares are not convertible into Bancorp common shares or any other securities.
Treasury Stock
In June of 2019, the Board of Directors authorized the Bancorp to repurchase up to 100 million common shares in the open market or in
privately negotiated transactions and to utilize any derivative or similar instrument to effect share repurchase transactions. This share
repurchase authorization replaced the Board’s previous authorization from February of 2018.
The Bancorp entered into a number of accelerated share repurchase transactions during the year ended December 31, 2019. As part of these
transactions, the Bancorp entered into forward contracts in which the final number of shares delivered at settlement was based generally on a
discount to the average daily volume weighted-average price of the Bancorp’s common stock during the term of these repurchase agreements.
The accelerated share repurchases were treated as two separate transactions: (i) the repurchase of treasury shares on the repurchase date and
(ii) a forward contract indexed to the Bancorp’s common stock.
The following table presents a summary of the Bancorp’s accelerated share repurchase transactions that were entered into or settled during
the year ended December 31, 2019:
Repurchase Date
March 27, 2019(a)
April 29, 2019(b)
August 7, 2019
August 9, 2019(b)
October 25, 2019
Amount
($ in millions)
$
913
200
100
200
300
Shares Repurchased on
Repurchase Date
Shares Received from
Forward Contract
Total Shares
Repurchased
Settlement Date
31,779,280
6,015,570
3,150,482
6,405,426
9,020,163
2,026,584
1,217,805
694,238
1,475,487
1,149,121
33,805,864
June 28, 2019
7,233,375 May 23, 2019 - May 24, 2019
August 16, 2019
3,844,720
August 28, 2019
7,880,913
December 17, 2019
10,169,284
(a) This accelerated share repurchase transaction consisted of two supplemental confirmations each with a notional amount of $456.5 million.
(b) This accelerated share repurchase transaction consisted of two supplemental confirmations each with a notional amount of $100 million.
Between July 29, 2019 and July 30, 2019, the Bancorp repurchased 1,667,735 shares, or approximately $50 million, of its outstanding
common stock through open market repurchase transactions, which settled between July 31, 2019 and August 1, 2019.
For further information on a subsequent event related to treasury stock refer to Note 33.
211 Fifth Third Bancorp
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
26. Stock-Based Compensation
Stock-based awards are eligible for issuance under the Bancorp’s Incentive Compensation Plan to executives, directors and key employees of
the Bancorp and its subsidiaries. The 2019 Incentive Compensation Plan was approved by shareholders on April 16, 2019 and authorized the
issuance of up to 40 million shares, as equity compensation and provides for SARs, RSAs, RSUs, stock options, performance share or unit
awards, dividend or dividend equivalent rights and stock awards. As of December 31, 2020, there were 28.7 million shares available for
future issuance. Based on total stock-based awards outstanding (including SARs, RSAs, RSUs, stock options and PSAs) and shares remaining
for future grants under the 2019 Incentive Compensation Plan, the potential dilution to which the Bancorp’s shareholders of common stock
are exposed due to the potential that stock-based compensation will be awarded to executives, directors or key employees of the Bancorp and
its subsidiaries is 8%. SARs, RSAs, RSUs, stock options and PSAs outstanding represent 4% of the Bancorp’s issued shares at December 31,
2020.
All of the Bancorp’s stock-based awards are to be settled with stock. The Bancorp has historically used treasury stock to settle stock-based
awards, when available. SARs, issued at fair value based on the closing price of the Bancorp’s common stock on the date of grant, have up to
ten year terms and vest and become exercisable ratably over a three or four-year period of continued employment. The Bancorp does not
grant discounted SARs or stock options, re-price previously granted SARs or stock options or grant reload stock options. RSAs and RSUs are
released after three or four years or ratably over three or four years of continued employment. RSAs include dividend and voting rights while
RSUs receive dividend equivalents only. Dividend equivalents are accrued and paid in cash when the underlying shares are distributed,
except for certain RSUs which have the rights to receive dividend equivalents paid in cash at each dividend payment date. For PSAs that are
eligible to receive dividend equivalents, the accrued cash dividends are adjusted by the payout percentage achieved on the underlying awards.
Stock options were previously issued at fair value based on the closing price of the Bancorp’s common stock on the date of grant, had up to
ten year terms and vested and became fully exercisable ratably over a three or four-year period of continued employment. PSAs have three-
year cliff vesting terms with performance conditions as defined by the plan. All of the Bancorp’s executive stock-based awards contain an
annual performance hurdle of 2% return on tangible common equity. If this threshold is not met in any one of the three years during the
performance period, one-third of PSAs are forfeited. Additionally, if this threshold is not met, all SARs, RSAs and RSUs that would vest in
the next year may also be forfeited at the discretion of the Human Capital and Compensation Committee of the Board of Directors. The
Bancorp met this threshold as of December 31, 2020.
Under the terms of the merger agreement with MB Financial, Inc., the Bancorp granted stock-based awards to replace those awards
previously granted by MB Financial, Inc. that were outstanding as of March 22, 2019. The replacement awards included RSAs, RSUs, and
stock options. Approximately 1.65 replacement awards were granted to replace each outstanding MB Financial, Inc. award and the strike
prices of replacement stock options were also adjusted to reflect this exchange ratio. Otherwise, the replacement awards were granted with
substantially the same terms as the MB Financial, Inc. awards that were being replaced, including vesting and expiration dates.
The fair value of the awards being replaced and the replacement awards were measured as of the date of the merger. The portion of the fair
value of the awards being replaced which was attributable to pre-combination service was included as a component of the consideration paid
in the merger. The portion attributable to post-combination service, in addition to any increased value of the replacement awards over the
awards being replaced, was recognized as stock-based compensation expense over each award’s remaining service period.
Stock-based compensation expense was $123 million, $132 million and $127 million for the years ended December 31, 2020, 2019 and 2018,
respectively, and is included in compensation and benefits expense in the Consolidated Statements of Income. The total related income tax
benefit recognized was $26 million for the year ended December 31, 2020 and $27 million for both the years ended December 31, 2019 and
2018.
Stock Appreciation Rights
The Bancorp uses assumptions, which are evaluated and revised as necessary, in estimating the grant-date fair value of each SAR grant.
The weighted-average assumptions were as follows for the years ended December 31:
Expected life (in years)
Expected volatility
Expected dividend yield
Risk-free interest rate
2020
2019
2018
7
24 %
3.2
1.5
7
32
3.3
2.6
7
35
1.9
2.6
The expected life is generally derived from historical exercise patterns and represents the amount of time that SARs granted are expected to
be outstanding. The expected volatility is based on a combination of historical and implied volatilities of the Bancorp’s common stock. The
expected dividend yield is based on annual dividends divided by the Bancorp’s stock price. Annual dividends are based on projected
dividends, estimated using an expected long-term dividend payout ratio, over the estimated life of the awards. The risk-free interest rate for
periods within the contractual life of the SARs is based on the U.S. Treasury yield curve in effect at the time of grant.
212 Fifth Third Bancorp
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The grant-date fair value of SARs is measured using the Black-Scholes option-pricing model. The weighted-average grant-date fair value of
SARs granted was $6.82, $7.38 and $11.33 per share for the years ended December 31, 2020, 2019 and 2018, respectively. The total grant-
date fair value of SARs that vested during the years ended December 31, 2020, 2019 and 2018 was $15 million, $20 million and $26 million,
respectively.
At December 31, 2020, there was $1 million of stock-based compensation expense related to outstanding SARs not yet recognized. The
expense is expected to be recognized over an estimated remaining weighted-average period at December 31, 2020 of 1.2 years.
2020
2019
2018
SARs (in thousands, except per share data)
Outstanding at January 1
Granted
Exercised
Forfeited or expired
Outstanding at December 31
Exercisable at December 31
Number of
SARs
Weighted-
Average Grant
Price Per Share
Number of
SARs
Weighted-
Average Grant
Price Per Share
Number of
SARs
21,449 $
365
(2,420)
(136)
19,258 $
17,979 $
18.38
29.64
16.10
25.50
18.83
18.19
26,196 $
399
(4,829)
(317)
21,449 $
18,249 $
17.30
26.72
13.34
23.47
18.38
17.50
Weighted-
Average Grant
Price Per Share
17.22
33.15
16.96
20.93
17.30
15.90
31,929 $
272
(5,058)
(947)
26,196 $
20,132 $
The following table summarizes outstanding and exercisable SARs by grant price per share at December 31, 2020.
Outstanding SARs
Exercisable SARs
SARs (in thousands, except per share data)
$10.01-$20.00
$20.01-$30.00
$30.01-$40.00
All SARs
Number of
SARs
Weighted-
Average Grant
Price Per Share
16.23
24.81
33.15
18.83
13,661 $
5,343
254
19,258 $
Weighted-
Average Remaining
Contractual Life
(in years)
Number of
SARs
Weighted-
Average Grant
Price Per Share
16.23
24.04
33.15
18.19
13,661 $
4,148
170
17,979 $
Weighted-
Average Remaining
Contractual Life
(in years)
2.9
4.7
7.1
3.3
2.9
5.3
7.1
3.6
Restricted Stock Awards
The total grant-date fair value of RSAs that were released was immaterial during the year ended December 31, 2020 and $16 million and $27
million for the years ended December 31, 2019 and 2018, respectively. The Bancorp has not granted any RSAs in the years ended
December 31, 2020, 2019 or 2018 and the number of RSAs outstanding at December 31, 2020 was immaterial.
RSAs (in thousands, except per share data)
Outstanding at January 1
Assumed
Released
Forfeited
Outstanding at December 31
2019
2018
Weighted-
Average Grant-
Date Fair Value
Per Share
Weighted-
Average Grant-
Date Fair Value
Per Share
Shares
Shares
868 $
11
(867)
(12)
— $
19.18
25.48
18.91
19.01
25.48
2,321 $
—
(1,347)
(106)
868 $
19.72
—
20.09
19.40
19.18
Restricted Stock Units
The total grant-date fair value of RSUs that were released during the years ended December 31, 2020, 2019 and 2018 was $107 million, $73
million and $42 million, respectively. At December 31, 2020, there was $119 million of stock-based compensation expense related to
outstanding RSUs not yet recognized. The expense is expected to be recognized over an estimated remaining weighted-average period at
December 31, 2020 of 2.4 years.
213 Fifth Third Bancorp
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
RSUs (in thousands, except per unit data)
Outstanding at January 1
Granted
Assumed
Released
Forfeited
Outstanding at December 31
2020
Weighted-
Average Grant-
Date Fair Value
Per Unit
2019
Weighted-
Average Grant-
Date Fair Value
Per Unit
Units
Units
2018
Weighted-
Average Grant-
Date Fair Value
Per Unit
Units
10,006 $
4,177
—
(4,076)
(641)
9,466 $
27.30
28.75
—
26.19
27.70
28.38
8,020 $
4,375
1,476
(2,951)
(914)
10,006 $
27.04
26.68
25.48
24.76
27.41
27.30
6,986 $
3,674
—
(1,977)
(663)
8,020 $
22.25
32.84
—
21.15
26.45
27.04
The following table summarizes outstanding RSUs by grant-date fair value per unit at December 31, 2020.
RSUs (in thousands)
Under $15.00
$15.01-$20.00
$20.01-$25.00
$25.01-$30.00
$30.01-$35.00
All RSUs
Outstanding RSUs
Weighted-
Average Remaining
Contractual Life
(in years)
Units
51
249
259
7,380
1,527
9,466
1.6
0.4
1.2
1.3
0.6
1.1
Stock Options
There were no stock options granted during the years ended December 31, 2020, 2019 and 2018, except for replacement stock option awards
assumed in conjunction with the MB Financial, Inc. acquisition. While the Bancorp has historically utilized the Black-Scholes option pricing
model to measure the fair value of stock option grants, the fair value of these grants were measured using the Hull-White option pricing
model as it was expected to provide a more precise estimate of fair value in a business combination scenario. The assumptions used in the
valuation model varied for each grant tranche, but included expected volatility of 23%-29%, no expected dividend yield, risk-free interest
rates of 2.34%-2.51%, a departure rate of 10% and exercise ratios of 2.2-2.8. The replacement stock option awards had a weighted-average
time to maturity of 5.4 years as of March 22, 2019.
The total intrinsic value of stock options exercised was $3 million and $7 million for the years ended December 31, 2020 and 2019,
respectively, and was immaterial for year ended December 31, 2018. Cash received from stock options exercised was $5 million and $11
million for the years ended December 31, 2020 and 2019, respectively, and immaterial for the year ended December 31, 2018. The tax benefit
realized from exercised stock options was $1 million for both the years ended December 31, 2020 and 2019 and immaterial for the year ended
December 31, 2018. No stock options vested during the years ended December 31, 2020, 2019 or 2018. As of December 31, 2020, the
aggregate intrinsic value of both outstanding stock options and exercisable stock options was $5 million.
Stock Options (in thousands, except per share data)
Outstanding at January 1
Assumed
Exercised
Forfeited or expired
Outstanding at December 31
Exercisable at December 31
2020
2019
2018
Weighted-
Average
Exercise Price
Per Share
Weighted-
Average
Exercise Price
Per Share
Weighted-
Average
Exercise Price
Per Share
Number of
Options
Number of
Options
Number of
Options
1,381 $
—
(440)
(148)
793 $
725 $
20.15
—
17.48
23.99
20.81
20.34
— $
2,120
(660)
(79)
1,381 $
1,162 $
—
19.34
17.36
22.18
20.15
19.17
2 $
—
(1)
(1)
— $
— $
16.50
—
8.59
24.41
—
—
214 Fifth Third Bancorp
Table of Contents
The following table summarizes outstanding and exercisable stock options by exercise price per share at December 31, 2020.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Stock Options (in thousands, except per
share data)
Under $10.00
$10.01-$20.00
$20.01-$30.00
All stock options
Outstanding Stock Options
Exercisable Stock Options
Number of
Options
Weighted-
Exercise Price
Per Share
Weighted-
Average
Contractual Life
(in years)
Number of
Options
Weighted-
Exercise Price
Per Share
Weighted-
Average
Contractual Life
(in years)
7 $
481
305
793 $
8.58
17.53
26.26
20.81
5.6
2.9
4.4
3.5
7 $
481
237
725 $
8.58
17.52
26.39
20.34
5.6
2.9
3.7
3.2
Other Stock-Based Compensation
PSAs are payable contingent upon the Bancorp achieving certain predefined performance targets over the three-year measurement period and
ranges from zero shares to approximately 1 million shares. Awards granted during the years ended December 31, 2020, 2019 and 2018 will
be entirely settled in stock. The performance targets are based on the Bancorp’s performance relative to a defined peer group. PSAs use a
performance-based metric based on return on tangible common equity in relation to peers. During the years ended December 31, 2020, 2019
and 2018, 280,026, 328,068 and 279,568 PSAs, respectively, were granted by the Bancorp. These awards were granted at a weighted-average
grant-date fair value of $29.64, $26.72 and $33.15 per unit during the years ended December 31, 2020, 2019 and 2018, respectively.
The Bancorp sponsors an employee stock purchase plan that allows qualifying employees to purchase shares of the Bancorp’s common stock
with a 15% match. During the years ended December 31, 2020, 2019 and 2018, there were 883,735, 564,061 and 471,818 shares,
respectively, purchased by participants and the Bancorp recognized stock-based compensation expense of $2 million in each of the respective
years. As of December 31, 2020, there were 3.7 million shares available for future issuance, which represents the remaining shares of Fifth
Third common stock under the Bancorp’s 1993 Stock Purchase Plan, as amended and restated, including an additional 1.5 million shares
approved by shareholders on March 28, 2007 and an additional 12 million shares approved by shareholders on April 21, 2009.
215 Fifth Third Bancorp
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
27. Other Noninterest Income and Other Noninterest Expense
The following table presents the major components of other noninterest income and other noninterest expense for the years ended December
31:
($ in millions)
Other noninterest income:
Private equity investment income
Income from the TRA associated with Worldpay, Inc.
BOLI income
Cardholder fees
Consumer loan and lease fees
Banking center income
Insurance income
Loss on swap associated with the sale of Visa, Inc. Class B Shares
Net losses on disposition and impairment of bank premises and equipment
Gain on sale of Worldpay, Inc. shares
Equity method income from interest in Worldpay Holding, LLC
Gain related to Vantiv, Inc.’s acquisition of Worldpay Group plc.
Other, net
Total other noninterest income
Other noninterest expense:
Loan and lease
FDIC insurance and other taxes
Losses and adjustments
Data processing
Professional service fees
Intangible amortization
Postal and courier
Donations
Travel
Recruitment and education
Insurance
Supplies
Other, net
Total other noninterest expense
2020
2019
2018
$
$
$
$
75
74
63
44
20
20
20
(103)
(31)
—
—
—
29
211
162
118
100
75
49
48
36
36
27
21
15
13
221
921
65
346
60
58
23
22
19
(107)
(23)
562
2
—
37
1,064
142
81
102
70
70
45
38
30
68
28
14
14
232
934
63
20
56
56
23
21
20
(59)
(43)
205
1
414
26
803
112
119
61
57
67
5
35
21
52
32
13
13
210
797
216 Fifth Third Bancorp
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
28. Earnings Per Share
The following table provides the calculation of earnings per share and the reconciliation of earnings per share and earnings per diluted share
for the years ended December 31:
($ in millions, except per share data)
Earnings Per Share:
Net income available to common
shareholders
Less: Income allocated to participating
securities
Net income allocated to common
shareholders
Earnings Per Diluted Share:
Net income available to common
shareholders
Effect of dilutive securities:
Stock-based awards
Net income available to common
shareholders plus assumed conversions
Less: Income allocated to participating
securities
Net income allocated to common
shareholders plus assumed conversions
2020
Average
Shares
Income
Per Share
Amount
Income
2019
Average
Shares
Per Share
Amount
Income
2018
Average
Shares
Per Share
Amount
$ 1,323
6
2,419
21
2,118
23
$ 1,317
715
1.84
2,398
710
3.38
2,095
673
3.11
$ 1,323
2,419
2,118
—
5
—
10
—
12
1,323
6
2,419
21
2,118
23
$ 1,317
720
1.83
2,398
720
3.33
2,095
685
3.06
Shares are excluded from the computation of earnings per diluted share when their inclusion has an anti-dilutive effect on earnings per share.
The diluted earnings per share computation for the years ended December 31, 2020, 2019 and 2018 excludes 7 million, 2 million and
3 million shares, respectively, of stock-based awards because their inclusion would have been anti-dilutive.
217 Fifth Third Bancorp
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
29. Fair Value Measurements
The Bancorp measures certain financial assets and liabilities at fair value in accordance with U.S. GAAP, which defines fair value as the price
that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement
date. U.S. GAAP also establishes a fair value hierarchy, which prioritizes the inputs to valuation techniques used to measure fair value into
three broad levels. For more information regarding the fair value hierarchy and how the Bancorp measures fair value, refer to Note 1.
Assets and Liabilities Measured at Fair Value on a Recurring Basis
The following tables summarize assets and liabilities measured at fair value on a recurring basis as of:
December 31, 2020 ($ in millions)
Assets:
Available-for-sale debt and other securities:
U.S. Treasury and federal agencies securities
Obligations of states and political subdivisions securities
Mortgage-backed securities:
Agency residential mortgage-backed securities
Agency commercial mortgage-backed securities
Non-agency commercial mortgage-backed securities
Asset-backed securities and other debt securities
Available-for-sale debt and other securities(a)
Trading debt securities:
U.S. Treasury and federal agencies securities
Obligations of states and political subdivisions securities
Agency residential mortgage-backed securities
Asset-backed securities and other debt securities
Trading debt securities
Equity securities
Residential mortgage loans held for sale
Residential mortgage loans(b)
Servicing rights
Derivative assets:
Interest rate contracts
Foreign exchange contracts
Commodity contracts
Derivative assets(c)
Total assets
Liabilities:
Derivative liabilities:
Interest rate contracts
Foreign exchange contracts
Equity contracts
Commodity contracts
Derivative liabilities(d)
Short positions:
U.S. Treasury and federal agencies securities
Asset-backed securities and other debt securities
Short positions(d)
Total liabilities
Fair Value Measurements Using
Level 2
Level 1
Level 3
Total Fair Value
$
$
$
$
78
—
—
—
—
—
78
81
—
—
—
81
293
—
—
—
1
—
24
25
477
16
—
—
55
71
63
—
63
134
—
17
11,907
18,221
3,590
3,176
36,911
—
10
30
439
479
20
1,481
—
—
2,227
255
351
2,833
41,724
261
227
—
304
792
—
392
392
1,184
—
—
—
—
—
—
—
—
—
—
—
—
—
—
161
656
61
—
—
61
878
8
—
201
—
209
—
—
—
209
78
17
11,907
18,221
3,590
3,176
36,989
81
10
30
439
560
313
1,481
161
656
2,289
255
375
2,919
43,079
285
227
201
359
1,072
63
392
455
1,527
(a) Excludes FHLB, FRB and DTCC restricted stock holdings totaling $40, $482 and $2, respectively, at December 31, 2020.
Includes residential mortgage loans originated as held for sale and subsequently transferred to held for investment.
(b)
Included in other assets in the Consolidated Balance Sheets.
(c)
Included in other liabilities in the Consolidated Balance Sheets.
(d)
218 Fifth Third Bancorp
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2019 ($ in millions)
Assets:
Available-for-sale debt and other securities:
U.S. Treasury and federal agencies securities
Obligations of states and political subdivisions securities
Mortgage-backed securities:
Agency residential mortgage-backed securities
Agency commercial mortgage-backed securities
Non-agency commercial mortgage-backed securities
Asset-backed securities and other debt securities
Available-for-sale debt and other securities(a)
Trading debt securities:
U.S. Treasury and federal agencies securities
Obligations of states and political subdivisions securities
Agency residential mortgage-backed securities
Asset-backed securities and other debt securities
Trading debt securities
Equity securities
Residential mortgage loans held for sale
Residential mortgage loans(b)
Servicing rights
Derivative assets:
Interest rate contracts
Foreign exchange contracts
Commodity contracts
Derivative assets(c)
Total assets
Liabilities:
Derivative liabilities:
Interest rate contracts
Foreign exchange contracts
Equity contracts
Commodity contracts
Derivative liabilities(d)
Short positions:
U.S. Treasury and federal agencies securities
Asset-backed securities and other debt securities
Short positions(d)
Total liabilities
Fair Value Measurements Using
Level 2
Level 3
Level 1
Total Fair Value
$
$
$
$
$
75
—
—
—
—
—
75
2
—
—
—
2
554
—
—
—
1
—
37
38
669
5
—
—
17
22
49
—
49
71
—
18
14,115
15,693
3,365
2,206
35,397
—
9
55
231
295
10
1,264
—
—
1,218
165
234
1,617
38,583
144
151
—
253
548
—
100
100
648
—
—
—
—
—
—
—
—
—
—
—
—
—
—
183
993
18
—
—
18
1,194
8
—
163
—
171
—
—
—
171
75
18
14,115
15,693
3,365
2,206
35,472
2
9
55
231
297
564
1,264
183
993
1,237
165
271
1,673
40,446
157
151
163
270
741
49
100
149
890
(a) Excludes FHLB, FRB and DTCC restricted stock holdings totaling $76, $478 and $2, respectively, at December 31, 2019.
Includes residential mortgage loans originated as held for sale and subsequently transferred to held for investment.
(b)
Included in other assets in the Consolidated Balance Sheets.
(c)
Included in other liabilities in the Consolidated Balance Sheets.
(d)
The following is a description of the valuation methodologies used for significant instruments measured at fair value, as well as the general
classification of such instruments pursuant to the valuation hierarchy.
Available-for-sale debt and other securities, trading debt securities and equity securities
Where quoted prices are available in an active market, securities are classified within Level 1 of the valuation hierarchy. Level 1 securities
include U.S. Treasury securities and equity securities. If quoted market prices are not available, then fair values are estimated using pricing
models, quoted prices of securities with similar characteristics or DCFs. Level 2 securities may include federal agencies securities,
obligations of states and political subdivisions securities, agency residential mortgage-backed securities, agency and non-agency commercial
mortgage-backed securities, asset-backed securities and other debt securities and equity securities. These securities are generally valued using
a market approach based on observable prices of securities with similar characteristics.
Residential mortgage loans held for sale
For residential mortgage loans held for sale for which the fair value election has been made, fair value is estimated based upon mortgage-
backed securities prices and spreads to those prices or, for certain ARM loans, DCF models that may incorporate the anticipated portfolio
219 Fifth Third Bancorp
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
composition, credit spreads of asset-backed securities with similar collateral and market conditions. The anticipated portfolio composition
includes the effect of interest rate spreads and discount rates due to loan characteristics such as the state in which the loan was originated, the
loan amount and the ARM margin. Residential mortgage loans held for sale that are valued based on mortgage-backed securities prices are
classified within Level 2 of the valuation hierarchy as the valuation is based on external pricing for similar instruments. ARM loans classified
as held for sale are also classified within Level 2 of the valuation hierarchy due to the use of observable inputs in the DCF model. These
observable inputs include interest rate spreads from agency mortgage-backed securities market rates and observable discount rates.
Residential mortgage loans
Residential mortgage loans held for sale that are reclassified to held for investment are transferred from Level 2 to Level 3 of the fair value
hierarchy. For residential mortgage loans for which the fair value election has been made, and that are reclassified from held for sale to held
for investment, the fair value estimation is based on mortgage-backed securities prices, interest rate risk and an internally developed credit
component. Therefore, these loans are classified within Level 3 of the valuation hierarchy. An adverse change in the loss rate or severity
assumption would result in a decrease in fair value of the related loans.
Servicing rights
MSRs do not trade in an active, open market with readily observable prices. While sales of MSRs do occur, the precise terms and conditions
typically are not readily available. Accordingly, the Bancorp estimates the fair value of MSRs using internal OAS models with certain
unobservable inputs, primarily prepayment speed assumptions, OAS and weighted-average lives, resulting in a classification within Level 3
of the valuation hierarchy. Refer to Note 14 for further information on the assumptions used in the valuation of the Bancorp’s MSRs.
Derivatives
Exchange-traded derivatives valued using quoted prices and certain over-the-counter derivatives valued using active bids are classified within
Level 1 of the valuation hierarchy. Most of the Bancorp’s derivative contracts are valued using DCF or other models that incorporate current
market interest rates, credit spreads assigned to the derivative counterparties and other market parameters and, therefore, are classified within
Level 2 of the valuation hierarchy. Such derivatives include basic and structured interest rate, foreign exchange and commodity swaps and
options. Derivatives that are valued based upon models with significant unobservable market parameters are classified within Level 3 of the
valuation hierarchy. During the years ended December 31, 2020 and 2019, derivatives classified as Level 3, which are valued using models
containing unobservable inputs, consisted primarily of a total return swap associated with the Bancorp’s sale of Visa, Inc. Class B Shares as
well as IRLCs, which utilize internally generated loan closing rate assumptions as a significant unobservable input in the valuation process.
Under the terms of the total return swap, the Bancorp will make or receive payments based on subsequent changes in the conversion rate of
the Visa, Inc. Class B Shares into Class A Shares. Additionally, the Bancorp will make a quarterly payment based on Visa’s stock price and
the conversion rate of the Visa, Inc. Class B Shares into Class A Shares until the date on which the Covered Litigation is settled. The fair
value of the total return swap was calculated using a DCF model based on unobservable inputs consisting of management’s estimate of the
probability of certain litigation scenarios, the timing of the resolution of the Covered Litigation and Visa litigation loss estimates in excess, or
shortfall, of the Bancorp’s proportional share of escrow funds.
An increase in the loss estimate or a delay in the resolution of the Covered Litigation would result in an increase in the fair value of the
derivative liability; conversely, a decrease in the loss estimate or an acceleration of the resolution of the Covered Litigation would result in a
decrease in the fair value of the derivative liability. Refer to Note 19 for additional information on the Covered Litigation.
The net asset fair value of the IRLCs at December 31, 2020 was $57 million. Immediate decreases in current interest rates of 25 bps and 50
bps would result in increases in the fair value of the IRLCs of approximately $13 million and $25 million, respectively. Immediate increases
of current interest rates of 25 bps and 50 bps would result in decreases in the fair value of the IRLCs of approximately $13 million and
$26 million, respectively. The decrease in fair value of IRLCs due to immediate 10% and 20% adverse changes in the assumed loan closing
rates would be approximately $6 million and $12 million, respectively, and the increase in fair value due to immediate 10% and 20%
favorable changes in the assumed loan closing rates would be approximately $6 million and $12 million, respectively. These sensitivities are
hypothetical and should be used with caution, as changes in fair value based on a variation in assumptions typically cannot be extrapolated
because the relationship of the change in assumptions to the change in fair value may not be linear.
Short positions
Where quoted prices are available in an active market, short positions are classified within Level 1 of the valuation hierarchy. Level 1
securities include U.S. Treasury securities. If quoted market prices are not available, then fair values are estimated using pricing models,
quoted prices of securities with similar characteristics or DCFs and therefore are classified within Level 2 of the valuation hierarchy. Level 2
securities include asset-backed and other debt securities.
220 Fifth Third Bancorp
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following tables are a reconciliation of assets and liabilities measured at fair value on a recurring basis using significant unobservable
inputs (Level 3):
For the year ended December 31, 2020 ($ in millions)
Balance, beginning of period
Total (losses) gains (realized/unrealized):(d)
Included in earnings
Purchases/originations
Settlements
Transfers into Level 3(b)
Balance, end of period
The amount of total (losses) gains for the period
included in earnings attributable to the change in
unrealized gains or losses relating to instruments
still held at December 31, 2020(c)
Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
Residential
Mortgage
Loans
Servicing
Rights
Interest Rate
Derivatives,
Net(a)
Equity
Derivatives
Total Fair
Value
$
183
993
10
(163)
1,023
3
—
(74)
49
161
(565)
228
—
—
656
272
4
(233)
—
53
(103)
—
65
—
(201)
(393)
232
(242)
49
669
3
(227)
58
(103)
(269)
$
$
(a) Net interest rate derivatives include derivative assets and liabilities of $61 and $8, respectively, as of December 31, 2020.
Includes certain residential mortgage loans originated as held for sale that were transferred to held for investment.
(b)
Includes interest income and expense.
(c)
(d) There were no unrealized gains or losses for the period included in other comprehensive income for instruments still held at December 31, 2020.
For the year ended December 31, 2019 ($ in millions)
Balance, beginning of period
Total (losses) gains (realized/unrealized):
Included in earnings
Purchases/originations
Settlements
Transfers into Level 3(b)
Balance, end of period
The amount of total (losses) gains for the period
included in earnings attributable to the change in
unrealized gains or losses relating to instruments
still held at December 31, 2019(c)
Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
Residential
Mortgage
Loans
Servicing
Rights
Interest Rate
Derivatives,
Net(a)
Equity
Derivatives
Total Fair
Value
$
179
938
(1)
(125)
991
(1)
—
(31)
36
183
(376)
431
—
—
993
145
(3)
(131)
—
10
(107)
—
69
—
(163)
(339)
428
(93)
36
1,023
(1)
(250)
20
(107)
(338)
$
$
(a) Net interest rate derivatives include derivative assets and liabilities of $18 and $8, respectively, as of December 31, 2019.
(b)
(c)
Includes certain residential mortgage loans held for sale that were transferred to held for investment.
Includes interest income and expense.
For the year ended December 31, 2018 ($ in millions)
Balance, beginning of period
Total (losses) gains (realized/unrealized):
Included in earnings
Purchases/originations
Settlements
Transfers into Level 3(b)
Balance, end of period
The amount of total (losses) gains for the period
included in earnings attributable to the change in
unrealized gains or losses relating to instruments
still held at December 31, 2018(c)
$
$
Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
Residential
Mortgage
Loans
Servicing
Rights
Interest Rate
Derivatives,
Net(a)
Equity
Derivatives
Total Fair
Value
$
137
858
3
(137)
(3)
—
(19)
64
179
(83)
163
—
—
938
72
(5)
(71)
—
(1)
(59)
—
71
—
(125)
861
(73)
158
(19)
64
991
(3)
(4)
9
(59)
(57)
(a) Net interest rate derivatives include derivative assets and liabilities of $7 and $8, respectively, as of December 31, 2018.
(b)
(c)
Includes certain residential mortgage loans held for sale that were transferred to held for investment.
Includes interest income and expense.
221 Fifth Third Bancorp
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The total losses and gains included in earnings for assets and liabilities measured at fair value on a recurring basis using significant
unobservable inputs (Level 3) were recorded in the Consolidated Statements of Income for the years ended December 31, 2020, 2019 and
2018 as follows:
($ in millions)
Mortgage banking net revenue
Commercial banking revenue
Other noninterest income
Total losses
2020
2019
2018
$
$
(291)
2
(104)
(393)
(235)
3
(107)
(339)
(16)
2
(59)
(73)
The total losses and gains included in earnings attributable to changes in unrealized gains and losses related to Level 3 assets and liabilities
still held at December 31, 2020, 2019 and 2018 were recorded in the Consolidated Statements of Income as follows:
($ in millions)
Mortgage banking net revenue
Commercial banking revenue
Other noninterest income
Total losses
2020
2019
2018
$
$
(167)
2
(104)
(269)
(233)
2
(107)
(338)
—
2
(59)
(57)
The following tables present information about significant unobservable inputs related to the Bancorp’s material categories of Level 3
financial assets and liabilities measured at fair value on a recurring basis:
As of December 31, 2020 ($ in millions)
Financial Instrument
Residential mortgage loans
Fair Value
Valuation
Technique
Significant Unobservable
Inputs
$
161 Loss rate model
Interest rate risk factor
Credit risk factor
Range of Inputs
(8.2) - 7.8%
— - 25.7%
Servicing rights
656 DCF
Prepayment speed
IRLCs, net
Swap associated with the sale
of Visa, Inc. Class B Shares
57 DCF
(201) DCF
OAS (bps)
Loan closing rates
Timing of the resolution of
the Covered Litigation
(a) Unobservable inputs were weighted by the relative carrying value of the instruments.
(b) Unobservable inputs were weighted by the relative unpaid principal balance of the instruments.
(c) Unobservable inputs were weighted by the relative notional amount of the instruments.
(d) Unobservable inputs were weighted by the probability of the final funding date of the instruments.
(Fixed)
0.5 - 99.9% (Adjustable)
(Fixed)
(Adjustable)
536 - 1,587
18.1 - 97.2%
Q3 2022 - Q3 2024
Weighted-Average
1.7 % (a)
0.6 % (a)
17.8 % (b)
22.6 % (b)
723 (b)
950 (b)
60.8 % (c)
Q2 2023 (d)
As of December 31, 2019 ($ in millions)
Financial Instrument
Residential mortgage loans
Fair Value
Valuation
Technique
Significant Unobservable
Inputs
$
183 Loss rate model
Interest rate risk factor
Credit risk factor
Range of Inputs
(9.2) - 9.8%
— - 26.5%
Servicing rights
993 DCF
Prepayment speed
0.5 - 97.0%
IRLCs, net
Swap associated with the sale
of Visa, Inc. Class B Shares
18 DCF
(163) DCF
OAS (bps)
Loan closing rates
Timing of the resolution of
the Covered Litigation
507 - 1,513
7.3 - 97.1%
Q1 2022 - Q4 2023
Weighted-Average
(Fixed)
(Adjustable)
(Fixed)
(Adjustable)
(0.2) %
0.5 %
13.0 %
22.6 %
602
921
81.7 %
Q3 2022
Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis
Certain assets and liabilities are measured at fair value on a nonrecurring basis. These assets and liabilities are not measured at fair value on
an ongoing basis; however, they are subject to fair value adjustments in certain circumstances, such as when there is evidence of impairment.
The following tables provide the fair value hierarchy and carrying amount of all assets that were held as of December 31, 2020 and 2019 and
for which a nonrecurring fair value adjustment was recorded during the years ended December 31, 2020 and 2019, and the related gains and
losses from fair value adjustments on assets sold during the period as well as assets still held as of the end of the period.
222 Fifth Third Bancorp
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2020 ($ in millions)
Commercial loans held for sale
Commercial and industrial loans
Commercial mortgage loans
Commercial leases
Consumer loans
OREO
Bank premises and equipment
Operating lease equipment
Private equity investments
Total
As of December 31, 2019 ($ in millions)
Commercial and industrial loans
Commercial mortgage loans
Commercial leases
OREO
Bank premises and equipment
Operating lease equipment
Private equity investments
Total
$
$
$
$
Fair Value Measurements Using
Level 1
Level 2
Level 3
Total
Total (Losses) Gains
For the year ended
December 31, 2020
—
—
—
—
—
—
—
—
—
—
8
—
—
—
—
—
—
—
27
35
16
422
78
4
159
20
26
35
69
829
Fair Value Measurements Using
Level 1
Level 2
Level 3
Total
—
—
—
—
—
—
—
—
—
—
—
—
—
—
11
11
169
12
20
13
27
6
2
249
24
422
78
4
159
20
26
35
96
864
169
12
20
13
27
6
13
260
(5)
(176)
(54)
(13)
1
(7)
(30)
(6)
18
(272)
Total (Losses) Gains
For the year ended
December 31, 2019
(96)
—
(6)
(6)
(27)
(3)
8
(130)
The following tables present information as of December 31, 2020 and 2019 about significant unobservable inputs related to the Bancorp’s
categories of Level 3 financial assets and liabilities measured on a nonrecurring basis:
As of December 31, 2020 ($ in millions)
Financial Instrument
Commercial loans held for sale
Commercial and industrial loans
Commercial mortgage loans
Commercial leases
Consumer loans
OREO
Bank premises and equipment
Operating lease equipment
Private equity investments
Fair Value
$
Valuation Technique
Significant Unobservable Inputs
16 Comparable company analysis Market comparable transactions
422 Appraised value
78 Appraised value
4 Appraised value
159 Appraised value
20 Appraised value
26 Appraised value
35 Appraised value
69 Comparable company analysis Market comparable transactions
Collateral value
Collateral value
Collateral value
Collateral value
Appraised value
Appraised value
Appraised value
As of December 31, 2019 ($ in millions)
Financial Instrument
Commercial and industrial loans
Commercial mortgage loans
Commercial leases
OREO
Bank premises and equipment
Operating lease equipment
Private equity investments
Fair Value
$
Valuation Technique
169 Appraised value
12 Appraised value
20 Appraised value
13 Appraised value
27 Appraised value
6 Appraised value
2 Comparable company analysis Market comparable transactions
Significant Unobservable Inputs
Collateral value
Collateral value
Collateral value
Appraised value
Appraised value
Appraised value
Ranges of
Inputs
Weighted-
Average
NM
NM
NM
NM
NM
NM
NM
NM
NM
NM
NM
NM
NM
NM
NM
NM
NM
NM
Ranges of
Inputs
NM
NM
NM
NM
NM
NM
NM
Weighted-
Average
NM
NM
NM
NM
NM
NM
NM
Commercial loans held for sale
The Bancorp estimated the fair value of certain commercial loans held for sale during the year ended December 31, 2020, resulting in a
negative fair value adjustment totaling $5 million. These valuations were based on quoted prices for similar assets in active markets (Level 2
of the valuation hierarchy), appraisals of the underlying collateral or by applying unobservable inputs such as an estimated market discount to
the unpaid principal balance of the loans or the appraised values of the assets (Level 3 of the valuation hierarchy).
223 Fifth Third Bancorp
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Portfolio loans and leases
During the years ended December 31, 2020 and 2019, the Bancorp recorded nonrecurring impairment adjustments to certain collateral-
dependent portfolio loans and leases. When the loan is collateral-dependent, the fair value of the loan is generally based on the fair value less
cost to sell of the underlying collateral supporting the loan and therefore these loans were classified within Level 3 of the valuation hierarchy.
In cases where the carrying value exceeds the fair value, an impairment loss is recognized. The fair values and recognized impairment losses
are reflected in the previous tables.
OREO
During the years ended December 31, 2020 and 2019, the Bancorp recorded nonrecurring adjustments to certain commercial and residential
real estate properties classified as OREO and measured at the lower of carrying amount or fair value. These nonrecurring losses were
primarily due to declines in real estate values of the properties recorded in OREO. For both the years ended December 31, 2020 and 2019,
these losses include $3 million in losses recorded as charge-offs on new OREO properties transferred from loans during the respective
periods and $4 million and $3 million, respectively, recorded as negative fair value adjustments on OREO in other noninterest expense in the
Consolidated Statements of Income subsequent to their transfer from loans. The fair value amounts are generally based on appraisals of the
property values, resulting in a classification within Level 3 of the valuation hierarchy. In cases where the carrying amount exceeds the fair
value, less costs to sell, an impairment loss is recognized. The previous tables reflect the fair value measurements of the properties before
deducting the estimated costs to sell.
Bank premises and equipment
The Bancorp performs assessments of the recoverability of long-lived assets when events or changes in circumstances indicate that their
carrying values may not be recoverable. These properties were written down to their lower of cost or market values. At least annually
thereafter, the Bancorp will review these properties for market fluctuations. The fair value amounts were generally based on appraisals of the
property values, resulting in a classification within Level 3 of the valuation hierarchy. For further information on bank premises and
equipment, refer to Note 8.
Operating lease equipment
The Bancorp performs assessments of the recoverability of long-lived assets when events or changes in circumstances indicate that their
carrying values may not be recoverable. When evaluating whether an individual asset is impaired, the Bancorp considers the current fair
value of the asset, the changes in overall market demand for the asset and the rate of change in advancements associated with technological
improvements that impact the demand for the specific asset under review. As part of this ongoing assessment, the Bancorp determined that
the carrying values of certain operating lease equipment were not recoverable and as a result, the Bancorp recorded an impairment loss equal
to the amount by which the carrying value of the assets exceeded the fair value. The fair value amounts were generally based on appraised
values of the assets, resulting in a classification within Level 3 of the valuation hierarchy.
Private equity investments
The Bancorp accounts for its private equity investments using the measurement alternative to fair value, except for those accounted for under
the equity method of accounting. Under the measurement alternative, the Bancorp carries each investment at its cost basis minus impairment,
if any, plus or minus changes resulting from observable price changes in orderly transactions for identical or similar investments of the same
issuer. The Bancorp recognized gains of $23 million and $13 million during the years ended December 31, 2020 and 2019, respectively,
resulting from observable price changes. The carrying value of the Bancorp’s private equity investments still held as of December 31, 2020
includes a cumulative $69 million of positive adjustments as a result of observable price changes since January 1, 2018. Because these
adjustments are based on observable transactions in inactive markets, they are classified in Level 2 of the fair value hierarchy.
For private equity investments which are accounted for using the measurement alternative to fair value, the Bancorp qualitatively evaluates
each investment quarterly to determine if impairment may exist. If necessary, the Bancorp then measures impairment by estimating the value
of its investment and comparing that to the investment’s carrying value, whether or not the Bancorp considers the impairment to be
temporary. These valuations are typically developed using a DCF method, but other methods may be used if more appropriate for the
circumstances. These valuations are based on unobservable inputs and therefore are classified in Level 3 of the fair value hierarchy. The
Bancorp recognized impairment of $9 million and $5 million during the years ended December 31, 2020 and 2019, respectively. During the
year ended December 31, 2020, the Bancorp recognized a gain of $4 million on the sale of certain private equity investments that previously
recognized an impairment. The carrying value of the Bancorp’s private equity investments still held as of December 31, 2020 includes a
cumulative $21 million of impairment charges recognized since adoption of the measurement alternative to fair value on January 1, 2018.
Fair Value Option
The Bancorp elected to measure certain residential mortgage loans held for sale under the fair value option as allowed under U.S. GAAP.
Electing to measure residential mortgage loans held for sale at fair value reduces certain timing differences and better matches changes in the
value of these assets with changes in the value of derivatives used as economic hedges for these assets. Management’s intent to sell
residential mortgage loans classified as held for sale may change over time due to such factors as changes in the overall liquidity in markets
or changes in characteristics specific to certain loans held for sale. Consequently, these loans may be reclassified to loans held for investment
and maintained in the Bancorp’s loan portfolio. In such cases, the loans will continue to be measured at fair value.
224 Fifth Third Bancorp
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Fair value changes recognized in earnings for residential mortgage loans held at December 31, 2020 and 2019 for which the fair value option
was elected, as well as the changes in fair value of the underlying IRLCs, included gains of $75 million and $37 million, respectively. These
gains are reported in mortgage banking net revenue in the Consolidated Statements of Income.
Valuation adjustments related to instrument-specific credit risk for residential mortgage loans measured at fair value negatively impacted the
fair value of those loans by $1 million at both December 31, 2020 and 2019. Interest on loans measured at fair value is accrued as it is earned
using the effective interest method and is reported as interest income in the Consolidated Statements of Income.
The following table summarizes the difference between the fair value and the unpaid principal balance for residential mortgage loans
measured at fair value as of:
($ in millions)
December 31, 2020
Residential mortgage loans measured at fair value
Past due loans of 90 days or more
Nonaccrual loans
December 31, 2019
Residential mortgage loans measured at fair value
Past due loans of 90 days or more
Nonaccrual loans
Aggregate
Fair Value
Aggregate Unpaid
Principal Balance
Difference
$
$
1,642
3
—
1,447
2
1
1,567
3
—
1,410
2
1
75
—
—
37
—
—
225 Fifth Third Bancorp
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Fair Value of Certain Financial Instruments
The following tables summarize the carrying amounts and estimated fair values for certain financial instruments, excluding financial
instruments measured at fair value on a recurring basis:
Net Carrying
Amount
$
$
$
3,147
33,399
524
11
3,260
48,764
10,200
5,691
2,886
15,473
4,982
13,522
1,755
2,895
106,168
159,081
300
1,192
14,973
Net Carrying
Amount
$
$
$
3,278
1,950
556
17
136
49,981
10,876
5,045
3,346
16,468
6,046
11,485
2,364
2,683
(121)
108,173
127,062
260
1,011
14,970
As of December 31, 2020 ($ in millions)
Financial assets:
Cash and due from banks
Other short-term investments
Other securities
Held-to-maturity securities
Loans and leases held for sale
Portfolio loans and leases:
Commercial and industrial loans
Commercial mortgage loans
Commercial construction loans
Commercial leases
Residential mortgage loans
Home equity
Indirect secured consumer loans
Credit card
Other consumer loans
Total portfolio loans and leases, net
Financial liabilities:
Deposits
Federal funds purchased
Other short-term borrowings
Long-term debt
As of December 31, 2019 ($ in millions)
Financial assets:
Cash and due from banks
Other short-term investments
Other securities
Held-to-maturity securities
Loans and leases held for sale
Portfolio loans and leases:
Commercial and industrial loans
Commercial mortgage loans
Commercial construction loans
Commercial leases
Residential mortgage loans
Home equity
Indirect secured consumer loans
Credit card
Other consumer loans
Unallocated ALLL
Total portfolio loans and leases, net
Financial liabilities:
Deposits
Federal funds purchased
Other short-term borrowings
Long-term debt
226 Fifth Third Bancorp
Fair Value Measurements Using
Level 2
Level 3
Level 1
3,147
33,399
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
524
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
11
3,269
49,140
9,968
5,860
2,842
16,884
5,275
13,331
1,934
3,098
108,332
—
300
—
15,606
159,094
—
1,192
923
Fair Value Measurements Using
Level 2
Level 3
Level 1
3,278
1,950
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
556
—
—
—
—
—
—
—
—
—
—
—
—
—
—
260
—
15,244
127,059
—
1,011
700
Total
Fair Value
3,147
33,399
524
11
3,269
49,140
9,968
5,860
2,842
16,884
5,275
13,331
1,934
3,098
108,332
159,094
300
1,192
16,529
Total
Fair Value
3,278
1,950
556
17
136
51,128
10,823
5,249
3,133
17,509
6,315
11,331
2,774
2,866
—
111,128
127,059
260
1,011
15,944
—
—
—
—
—
—
—
17
136
51,128
10,823
5,249
3,133
17,509
6,315
11,331
2,774
2,866
—
111,128
—
—
—
—
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
30. Regulatory Capital Requirements and Capital Ratios
The Board of Governors of the Federal Reserve System issued capital adequacy guidelines pursuant to which it assesses the adequacy of
capital in examining and supervising a BHC. These guidelines include quantitative measures that assign risk weightings to assets and off-
balance sheet items, as well as define and set minimum regulatory capital requirements. The regulatory capital requirements were revised by
the Banking Agencies with the Basel III Final Rule which was effective for the Bancorp on January 1, 2015. It established quantitative
measures defining minimum regulatory capital requirements as well as the measure of “well-capitalized” status. Additionally, the Banking
Agencies issued similar guidelines for minimum regulatory capital requirements and “well-capitalized” measurements for banking
subsidiaries.
The following table summarizes the prescribed capital ratios for the Bancorp and its banking subsidiary.
CET1 capital:
Fifth Third Bancorp
Fifth Third Bank, National Association
Tier I risk-based capital:
Fifth Third Bancorp
Fifth Third Bank, National Association
Total risk-based capital:
Fifth Third Bancorp
Fifth Third Bank, National Association
Tier I leverage:
Fifth Third Bancorp
Fifth Third Bank, National Association
Minimum
Well-Capitalized
4.50 %
4.50
6.00
6.00
8.00
8.00
4.00
4.00
N/A
6.50
6.00
8.00
10.00
10.00
N/A
5.00
Failure to meet the minimum capital requirements or falling below the “well-capitalized” measure can initiate certain actions by regulators
that could have a direct material effect on the Consolidated Financial Statements of the Bancorp. The Bancorp was subject to a capital
conservation buffer of 2.5%, in addition to the minimum capital ratios, in order to avoid limitations on certain capital distributions and
discretionary bonus payments to executive officers through September 30, 2020. On October 1, 2020, the Bancorp became subject to the
stress capital buffer requirement which replaced the capital conservation buffer. During each supervisory stress testing cycle, the FRB uses
the Bancorp’s supervisory stress test to determine its stress capital buffer, subject to a floor of 2.5%. On August 7, 2020, the FRB provided
the Bancorp a final stress capital buffer requirement of 2.5% which is effective for the period of October 1, 2020 to September 30, 2021.
After evaluating the Bancorp’s capital plan which was re-submitted on November 5, 2020, the FRB may update the Bancorp’s stress capital
buffer until March 31, 2021. The Bancorp exceeded these “capital conservation buffer” and “stress capital buffer” ratios for all periods
presented.
The Bancorp and its banking subsidiary, Fifth Third Bank, National Association, had CET1 capital, Tier I risk-based capital, Total risk-based
capital and Tier I leverage ratios above the “well-capitalized” levels at both December 31, 2020 and 2019. To continue to qualify for financial
holding company status pursuant to the Gramm-Leach-Bliley Act of 1999, the Bancorp’s banking subsidiary must, among other things,
maintain “well-capitalized” capital ratios.
The following table presents capital and risk-based capital and leverage ratios for the Bancorp and its banking subsidiary at December 31:
($ in millions)
CET1 capital:
Fifth Third Bancorp
Fifth Third Bank, National Association
Tier I risk-based capital:
Fifth Third Bancorp
Fifth Third Bank, National Association
Total risk-based capital:
Fifth Third Bancorp
Fifth Third Bank, National Association
Tier I leverage:(a)
Fifth Third Bancorp
Fifth Third Bank, National Association
2020
2019
Amount
Ratio
Amount
Ratio
$
14,682
17,253
16,797
17,253
21,412
19,915
16,797
17,253
10.34 % $
12.28
11.83
12.28
15.08
14.17
8.49
8.85
13,847
16,704
15,616
16,704
19,661
18,968
15,616
16,704
9.75 %
11.86
10.99
11.86
13.84
13.46
9.54
10.36
(a) Quarterly average assets are a component of the Tier I leverage ratio and for this purpose do not include goodwill and any other intangible assets and other
investments that the Banking Agencies determine should be deducted from Tier I capital.
227 Fifth Third Bancorp
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
31. Parent Company Financial Statements
Condensed Statements of Income (Parent Company Only)
For the years ended December 31 ($ in millions)
Income
Dividends from consolidated nonbank subsidiaries(a)
Securities gains, net
Interest on loans to subsidiaries
Total income
Expenses
Interest
Other
Total expenses
Income Before Income Taxes and Change in Undistributed Earnings of Subsidiaries
Applicable income tax benefit
Income Before Change in Undistributed Earnings of Subsidiaries
Equity in undistributed earnings
Net Income Attributable to Bancorp
Other Comprehensive Income
Comprehensive Income Attributable to Bancorp
$
$
$
2020
2019
2018
1,285
1
17
1,303
266
26
292
1,011
(65)
1,076
351
1,427
—
1,427
2,155
2
24
2,181
267
65
332
1,849
(69)
1,918
594
2,512
—
2,512
1,890
—
24
1,914
211
34
245
1,669
(50)
1,719
474
2,193
—
2,193
(a) The Bancorp’s indirect banking subsidiary paid dividends to the Bancorp’s direct nonbank subsidiary holding company of $1.3 billion, $2.0 billion and
$1.9 billion for the years ended December 31, 2020, 2019 and 2018, respectively. Additionally, a $200 million dividend was paid by MB Financial, Inc. to the
Bancorp during the year ended December 31, 2019.
Condensed Balance Sheets (Parent Company Only)
As of December 31 ($ in millions)
Assets
Cash
Other short-term investments
Equity securities
Loans to nonbank subsidiaries
Investment in nonbank subsidiaries
Goodwill
Other assets
Total Assets
Liabilities
Other short-term borrowings
Accrued expenses and other liabilities
Long-term debt (external)
Total Liabilities
Equity
Common stock
Preferred stock
Capital surplus
Retained earnings
Accumulated other comprehensive income
Treasury stock
Total Equity
Total Liabilities and Equity
228 Fifth Third Bancorp
2020
2019
$
$
$
$
$
$
120
5,578
49
350
25,214
80
479
31,870
450
548
7,761
8,759
2,051
2,116
3,635
18,384
2,601
(5,676)
23,111
31,870
118
4,723
49
444
23,779
80
379
29,572
359
497
7,513
8,369
2,051
1,770
3,599
18,315
1,192
(5,724)
21,203
29,572
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Condensed Statements of Cash Flows (Parent Company Only)
For the years ended December 31 ($ in millions)
Operating Activities
Net income
Adjustments to reconcile net income to net cash provided by operating activities:
2020
2019
2018
$
1,427
2,512
2,193
Amortization and accretion
Provision for (benefit from) deferred income taxes
Securities gains, net
Equity in undistributed earnings
Net change in:
Equity securities
Other assets
Accrued expenses and other liabilities
Net Cash Provided by Operating Activities
Investing Activities
Net change in:
Other short-term investments
Loans to nonbank subsidiaries
Net cash paid on acquisition
Net Cash (Used in) Provided by Investing Activities
Financing Activities
Net change in other short-term borrowings
Dividends paid on common and preferred stock
Proceeds from issuance of long-term debt
Repayment of long-term debt
Issuance of preferred stock
Repurchase of treasury stock and related forward contract
Other, net
Net Cash Used in Financing Activities
Increase (Decrease) in Cash
Cash at Beginning of Period
Cash at End of Period
7
—
(1)
(351)
—
(1)
—
1,081
(855)
94
—
(761)
91
(858)
1,243
(1,100)
346
—
(40)
(318)
2
118
120
7
(11)
(2)
(594)
(49)
(80)
127
1,910
(1,081)
127
(469)
(1,423)
106
(753)
2,235
(500)
242
(1,763)
(56)
(489)
(2)
120
118
4
3
—
(474)
—
61
(120)
1,667
(149)
272
—
123
(62)
(565)
895
(500)
—
(1,453)
(65)
(1,750)
40
80
120
$
229 Fifth Third Bancorp
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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.
In general, the charge rates on assets have declined since December 31, 2019 as they were affected by the prevailing level of interest rates and
by the duration and repricing characteristics of the portfolio. The credit rates for deposit products also declined due to lower interest rates and
modified assumptions. Thus, net interest income for asset-generating business segments improved while deposit-providing business segments
were negatively impacted during the year ended December 31, 2020.
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 relationship depth 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 1,134 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 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, nonprofits, states and municipalities.
230 Fifth Third Bancorp
Table of Contents
The following tables present the results of operations and assets by business segment for the years ended December 31:
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2020 ($ in millions)
Net interest income
Provision for (benefit from) credit losses
Net interest income after provision for (benefit
from) credit losses
Noninterest income:
Service charges on deposits
Commercial banking revenue
Wealth and asset management revenue
Card and processing revenue
Mortgage banking net revenue
Leasing business revenue
Other noninterest income(b)
Securities gains, net
Securities gains, net -non-qualifying hedges
on MSRs
Total noninterest income
Noninterest expense:
Compensation and benefits
Technology and communications
Net occupancy expense(e)
Leasing business expense
Equipment expense
Card and processing expense
Marketing expense
Other noninterest expense
Total noninterest expense
Income before income taxes
Applicable income tax expense
Net income
Total goodwill
Total assets
Commercial
Banking
Branch
Banking
Consumer
Lending
Wealth
and Asset
Management
$
1,903
1,050
1,667
231
381
34
General
Corporate
and Other
692
(221)
139
3
Eliminations
—
—
853
1,436
347
136
913
—
343
524
3
54
—
276 (c)
101
—
—
1,301
557
13
31
140
27
7
8
938
1,721
433
46
387
1,980
70,241
$
$
215
5
172
283
8
—
68
—
—
751
649
4
176
—
41
116
32
851
1,869
318
67
251
2,047
79,982
—
—
—
—
307
—
10
—
2
319
221
8
10
—
—
—
3
276
518
148
31
117
—
30,480
1
2
498
2
5
—
18
—
—
526
218
1
12
—
1
1
2
298
533
129
27
102
231
12,466
—
(3)
—
13
—
—
14
62
—
86
945
336
121
—
61
(3)
59
(1,289)
230
769
199
570
—
11,511 (d)
—
—
(153) (a)
—
—
—
—
—
—
(153)
—
—
—
—
—
—
—
(153)
(153)
—
—
—
—
—
Total
4,782
1,097
3,685
559
528
520
352
320
276
211
62
2
2,830
2,590
362
350
140
130
121
104
921
4,718
1,797
370
1,427
4,258
204,680
(a) Revenue sharing agreements between wealth and asset management and branch banking are eliminated in the Consolidated Statements of Income.
(b)
(c)
(d)
(e)
Includes impairment charges of $30 for branches and land. For more information, refer to Note 8 and Note 29.
Includes impairment charges of $7 for operating lease equipment. For more information, refer to Note 9 and Note 29.
Includes bank premises and equipment of $35 classified as held for sale. For more information, refer to Note 8.
Includes impairment losses and termination charges of $8 for ROU assets related to certain operating leases. For more information, refer to Note 10.
231 Fifth Third Bancorp
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Commercial
Banking
Branch
Banking
Consumer
Lending
Wealth
and Asset
Management
General
Corporate
and Other
2,371
224
325
49
182
—
(441)
15
Eliminations
—
—
Total
4,797
471
2019 ($ in millions)
Net interest income
Provision for credit losses
Net interest income after provision for credit
losses
Noninterest income:
Service charges on deposits
Commercial banking revenue
Wealth and asset management revenue
Card and processing revenue
Mortgage banking net revenue
Leasing business revenue
Other noninterest income(b)
Securities gains, net
Securities gains, net -non-qualifying
hedges on MSRs
Total noninterest income
Noninterest expense:
Compensation and benefits
Technology and communications
Net occupancy expense(e)
Leasing business expense
Equipment expense
Card and processing expense
Marketing expense
Other noninterest expense
Total noninterest expense
Income before income taxes
Applicable income tax expense
Net income
Total goodwill
Total assets
$
2,360
183
2,177
308
455
3
66
—
270 (c)
85
—
—
1,187
466
11
28
133
25
8
12
938
1,621
1,743
319
1,424
1,954
74,570
$
$
2,147
276
182
(456)
—
4,326
260
4
158
285
6
—
89
—
—
802
601
4
173
—
48
123
72
839
1,860
1,089
229
860
2,046
69,413
—
—
—
—
279
—
14
—
3
296
196
8
10
—
—
—
4
237
455
117
25
92
—
26,555
1
1
469
3
2
—
13
—
—
489
(4)
—
—
6
—
—
863
40
—
905
217
1
13
—
1
1
5
291
529
142
30
112
252
10,500
938
398
108
—
55
(2)
69
(1,228)
338
111
87
24
—
(11,669) (d)
—
—
(143) (a)
—
—
—
—
—
—
(143)
—
—
—
—
—
—
—
(143)
(143)
—
—
—
—
—
565
460
487
360
287
270
1,064
40
3
3,536
2,418
422
332
133
129
130
162
934
4,660
3,202
690
2,512
4,252
169,369
(a) Revenue sharing agreements between wealth and asset management and branch banking are eliminated in the Consolidated Statements of Income.
(b)
(c)
(d)
(e)
Includes impairment charges of $28 for branches and land. For more information, refer to Note 8 and Note 29.
Includes impairment charges of $3 for operating lease equipment. For more information, refer to Note 9 and Note 29.
Includes bank premises and equipment of $27 classified as held for sale. For more information, refer to Note 8.
Includes impairment losses and termination charges of $15 for ROU assets related to certain operating leases. For more information, refer to Note 10.
232 Fifth Third Bancorp
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Commercial
Banking
Branch
Banking
Consumer
Lending
Wealth
and Asset
Management
General
Corporate
and Other
$
1,713
(26)
2,034
171
237
42
1,739
1,863
195
2018 ($ in millions)
Net interest income
Provision for (benefit from) credit losses
Net interest income after provision for (benefit
from) credit losses
Noninterest income:
Service charges on deposits
Commercial banking revenue
Wealth and asset management revenue
Card and processing revenue
Mortgage banking net revenue
Leasing business revenue
Other noninterest income(b)
Securities losses, net
Securities losses, net -non-qualifying hedges
on MSRs
Total noninterest income
Noninterest expense:
Compensation and benefits
Technology and communications
Net occupancy expense
Leasing business expense
Equipment expense
Card and processing expense
Marketing expense
Other noninterest expense
Total noninterest expense
Income (loss) before income taxes
Applicable income tax expense (benefit)
Net income (loss)
Total goodwill
Total assets
$
$
273
402
3
58
—
114 (c)
67
—
—
917
344
7
26
76
23
4
6
777
1,263
1,393
254
1,139
630
61,630
275
5
150
266
5
—
53
—
—
754
536
5
175
—
50
121
67
774
1,728
889
187
702
1,655
61,040
—
—
—
—
206
—
14
—
(15)
205
192
5
10
—
—
—
4
191
402
(2)
(1)
(1)
—
22,044
182
12
170
1
2
429
5
1
—
18
—
—
456
(26)
8
(34)
—
(1)
—
—
—
—
651
(54)
—
596
202
1
12
—
1
—
4
284
504
122
25
97
193
10,337
841
267
69
—
49
(2)
66
(1,091)
199
363
107
256
—
(8,982) (d)
Eliminations
—
—
Total
4,140
207
—
3,933
—
—
(138) (a)
—
—
—
—
—
—
(138)
—
—
—
—
—
—
—
(138)
(138)
—
—
—
—
—
549
408
444
329
212
114
803
(54)
(15)
2,790
2,115
285
292
76
123
123
147
797
3,958
2,765
572
2,193
2,478
146,069
(a) Revenue sharing agreements between wealth and asset management and branch banking are eliminated in the Consolidated Statements of Income.
(b)
(c)
(d)
Includes impairment charges of $45 for branches and land. For more information, refer to Note 8.
Includes impairment charges of $4 for operating lease equipment. For more information, refer to Note 9.
Includes bank premises and equipment of $42 classified as held for sale.
33. Subsequent Event
On January 22, 2021, the Bancorp entered into an accelerated share repurchase transaction with a counterparty pursuant to which the Bancorp
paid $180 million on January 26, 2021 to repurchase shares of its outstanding common stock. The Bancorp is repurchasing the shares of its
common stock as part of its Board-approved 100 million share repurchase program previously announced on June 18, 2019. The Bancorp
expects the settlement of the transaction to occur on or before March 31, 2021.
233 Fifth Third Bancorp
Table of Contents
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
ITEM 9A. CONTROLS AND PROCEDURES
EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES
The Bancorp conducted an evaluation, under the supervision and with the participation of the Bancorp’s management, including the
Bancorp’s Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Bancorp’s disclosure
controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934). Based on the foregoing, as
of the end of the period covered by this report, the Bancorp’s Chief Executive Officer and Chief Financial Officer concluded that the
Bancorp’s disclosure controls and procedures were effective, in all material respects, to ensure that information required to be disclosed in the
reports the Bancorp files and submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported as and
when required and information is accumulated and communicated to management including its Chief Executive Officer and Chief Financial
Officer, as appropriate to allow timely decisions regarding required disclosure.
MANAGEMENT’S ASSESSMENT AS TO THE EFFECTIVENESS OF INTERNAL CONTROL OVER FINANCIAL
REPORTING
The management of Fifth Third Bancorp is responsible for establishing and maintaining adequate internal control, designed to provide
reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in
accordance with accounting principles generally accepted in the United States of America. The Bancorp’s management assessed the
effectiveness of the Bancorp’s internal control over financial reporting as of December 31, 2020. Management’s assessment is based on the
criteria established in the Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the
Treadway Commission and was designed to provide reasonable assurance that the Bancorp maintained effective internal control over
financial reporting as of December 31, 2020. Based on this assessment, management believes that the Bancorp maintained effective internal
control over financial reporting as of December 31, 2020. The Bancorp’s independent registered public accounting firm, that audited the
Bancorp’s consolidated financial statements included in this annual report, has issued an audit report on our internal control over financial
reporting as of December 31, 2020. This report appears on page 235 of the annual report.
CHANGES IN INTERNAL CONTROLS
The Bancorp’s management also conducted an evaluation of internal control over financial reporting to determine whether any changes
occurred during the year covered by this report that have materially affected, or are reasonably likely to materially affect, the Bancorp’s
internal control over financial reporting. Based on this evaluation, there has been no such change during the year covered by this report.
/s/ Greg D. Carmichael
Greg D. Carmichael
/s/ James C. Leonard
James C. Leonard
Chairman and Chief Executive Officer
Executive Vice President and Chief Financial Officer
February 26, 2021
February 26, 2021
234 Fifth Third Bancorp
Table of Contents
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the shareholders and Board of Directors of Fifth Third Bancorp:
Opinion on Internal Control over Financial Reporting
We have audited the internal control over financial reporting of Fifth Third Bancorp and subsidiaries (the “Bancorp”) as of December 31,
2020, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO). In our opinion, the Bancorp maintained, in all material respects, effective internal
control over financial reporting as of December 31, 2020, based on criteria established in Internal Control — Integrated Framework (2013)
issued by COSO.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the
consolidated financial statements as of and for the year ended December 31, 2020, of the Bancorp and our report dated February 26, 2021
expressed an unqualified opinion on those consolidated financial statements and included an explanatory paragraph regarding the Bancorp’s
change in its method of accounting for financial assets measured at amortized cost due to adoption of ASU 2016-13, Financial Instruments -
Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.
Basis for Opinion
The Bancorp's management is responsible for maintaining effective internal control over financial reporting and for its assessment of the
effectiveness of internal control over financial reporting, included in the accompanying Management’s Assessment as to the Effectiveness of
Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Bancorp’s internal control over financial
reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to
the Bancorp in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange
Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit
included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and
evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we
considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting
principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of
records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide
reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally
accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of
management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any
evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or
that the degree of compliance with the policies or procedures may deteriorate.
/s/ Deloitte & Touche LLP
Cincinnati, Ohio
February 26, 2021
235 Fifth Third Bancorp
Table of Contents
ITEM 9B. OTHER INFORMATION
None.
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The information required by this item relating to the Executive Officers of the Registrant is included in PART I under “INFORMATION
ABOUT OUR EXECUTIVE OFFICERS.”
The information required by this item concerning Directors and the nomination process is incorporated herein by reference under the caption
“ELECTION OF DIRECTORS” of the Bancorp’s Proxy Statement for the 2021 Annual Meeting of Shareholders.
The information required by this item concerning the Audit Committee and Code of Business Conduct and Ethics is incorporated herein by
reference under the captions “CORPORATE GOVERNANCE” and “BOARD OF DIRECTORS, ITS COMMITTEES, MEETINGS AND
FUNCTIONS” of the Bancorp’s Proxy Statement for the 2021 Annual Meeting of Shareholders. Fifth Third’s Code of Business Conduct and
Ethics is available on Fifth Third’s corporate website at www.53.com. In addition, any future amendments to, or waivers from, a provision of
the Fifth Third Code of Business Conduct and Ethics that applies to Fifth Third’s directors or executive officers (including Fifth Third’s
principal executive officer, principal financial officer, and principal accounting officer or controller) will be posted at this internet address.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item is incorporated herein by reference under the captions “COMPENSATION DISCUSSION AND
ANALYSIS,” “COMPENSATION OF NAMED EXECUTIVE OFFICERS,” “BOARD OF DIRECTORS COMPENSATION,” “CEO PAY
RATIO,” “HUMAN CAPITAL AND COMPENSATION COMMITTEE REPORT” and “COMPENSATION COMMITTEE INTERLOCKS
AND INSIDER PARTICIPATION” of the Bancorp’s Proxy Statement for the 2021 Annual Meeting of Shareholders.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
STOCKHOLDER MATTERS
Security ownership information of certain beneficial owners and management is incorporated herein by reference under the captions
“CERTAIN BENEFICIAL OWNERS,” “ELECTION OF DIRECTORS,” “COMPENSATION DISCUSSION AND ANALYSIS,” “BOARD
OF DIRECTORS COMPENSATION,” and “COMPENSATION OF NAMED EXECUTIVE OFFICERS” of the Bancorp’s Proxy Statement
for the 2021 Annual Meeting of Shareholders.
The information required by this item concerning Equity Compensation Plan information is included in Note 26 of the Notes to Consolidated
Financial Statements.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
The information required by this item is incorporated herein by reference under the captions “CERTAIN TRANSACTIONS”, “ELECTION
OF DIRECTORS”, “CORPORATE GOVERNANCE” and “BOARD OF DIRECTORS, ITS COMMITTEES, MEETINGS AND
FUNCTIONS” of the Bancorp’s Proxy Statement for the 2021 Annual Meeting of Shareholders.
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
The information required by this item is incorporated herein by reference under the caption “PRINCIPAL INDEPENDENT EXTERNAL
AUDIT FIRM FEES” of the Bancorp’s Proxy Statement for the 2021 Annual Meeting of Shareholders.
236 Fifth Third Bancorp
Table of Contents
PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
Public Accounting Firm
Fifth Third Bancorp and Subsidiaries Consolidated Financial Statements
Notes to Consolidated Financial Statements
Pages
129-130,
235
131-136
137-233
The schedules for the Bancorp and its subsidiaries are omitted because of the absence of conditions under which they are required, or because
the information is set forth in the Consolidated Financial Statements or the notes thereto.
The following lists the Exhibits to the Annual Report on Form 10-K:
2.1
3.1
3.2
3.3
3.4
3.5
4.1
4.2
4.3
4.4
4.5
4.6
4.7
4.8
4.9
4.10
4.11
4.12
4.13
4.14
4.15
4.16
4.17
Agreement and Plan of Merger by and among Fifth Third Bancorp, Fifth Third Financial Corporation and MB Financial, Inc. dated as of May 20,
2018. Incorporated by reference to Exhibit 2.1 to the Registrants Current Report on Form 8-K filed with the SEC on May 22, 2018.
Amended Articles of Incorporation of Fifth Third Bancorp. Incorporated by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K
filed with the SEC on June 20, 2019.
Amendment to the Amended Articles of Incorporation of Fifth Third Bancorp. Incorporated by reference to Exhibit 3.1 to the Registrant’s Current
Report on Form 8-K filed with the SEC on August 26, 2019.
Amendment to the Amended Articles of Incorporation of Fifth Third Bancorp, as Amended (included as Attachment to Exhibit 3.3). Incorporated by
reference to Exhibit 4.1 to the Registrant’s Current Report on Form 8-K filed with the SEC on September 17, 2019.
Amendment to the Amended Articles of Incorporation of Fifth Third Bancorp, as Amended (included as Attachment to Exhibit 3.4). Incorporated by
reference to Exhibit 4.1 to the Registrant’s Current Report on Form 8-K filed with the SEC on July 30, 2020.
Regulations of Fifth Third Bancorp, as Amended as of March 23, 2020. Incorporated by reference to Exhibit 3.2 to the Registrant’s Current Report
on Form 8-K filed with the SEC on March 24, 2020.
Indenture, dated as of May 23, 2003, between Fifth Third Bancorp and Wilmington Trust Company, as Trustee. Incorporated by reference to Exhibit
4.1 to the Registrant’s Current Report on Form 8-K filed with the SEC on May 22, 2003.
First Supplemental Indenture, dated as of December 20, 2006, between Fifth Third Bancorp and Wilmington Trust Company, as Trustee.
Incorporated by reference to Exhibit 4.14 to Registrant’s Annual Report on Form 10-K for the fiscal year ended December 31, 2006.
Global Security dated as of March 4, 2008 representing Fifth Third Bancorp’s $500,000,000 8.25% Subordinated Notes due 2038. Incorporated by
reference to Exhibit 4.1 to the Registrant’s Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 2008. (1)
Indenture for Senior Debt Securities dated as of April 30, 2008 between Fifth Third Bancorp and Wilmington Trust Company, as trustee.
Incorporated by reference to Exhibit 4.2 to the Registrant’s Current Report on Form 8-K filed with the SEC on May 6, 2008.
First Supplemental Indenture dated as of January 25, 2011 between Fifth Third Bancorp and Wilmington Trust Company, as Trustee, to the
Indenture for Senior Debt Securities dated as of April 30, 2008 between Fifth Third and the Trustee. Incorporated by reference to Exhibit 4.2 to the
Registrant’s Current Report on Form 8-K filed with the SEC on January 25, 2011.
Second Supplemental Indenture dated as of March 7, 2012 between Fifth Third Bancorp and Wilmington Trust Company, as Trustee, to the
Indenture for Senior Debt Securities dated as of April 30, 2008 between Fifth Third Bancorp and the Wilmington Trust Company. Incorporated by
reference to Exhibit 4.1 to the Registrant’s Current Report on Form 8-K filed with the SEC on March 7, 2012.
Global Security dated as of March 7, 2012 representing Fifth Third Bancorp’s $500,000,000 3.500% Senior Notes due 2022. Incorporated by
reference to Exhibit 4.2 to the Registrant’s Current Report on Form 8-K/A filed with the SEC on March 7, 2012.
Deposit Agreement dated as of May 16, 2013, between Fifth Third Bancorp, as issuer, Wilmington Trust, National Association, as depositary and
calculation agent, American Stock Transfer & Trust Company, LLC, as transfer agent and registrar, and the holders from time to time of the
depositary receipts issued thereunder. Incorporated by reference to Exhibit 4.3 of the Registrant’s Current Report on Form 8-K filed with the SEC on
May 16, 2013.
Form of Certificate Representing the 5.10% Fixed-to-Floating Rate Non-Cumulative Perpetual Preferred Stock, Series H, of Fifth Third Bancorp.
Incorporated by reference to Exhibit 4.2 of the Registrant’s Current Report on Form 8-K filed with the SEC on May 16, 2013.
Form of Depositary Receipt for the 5.10% Fixed-to-Floating Rate Non-Cumulative Perpetual Preferred Stock, Series H, of Fifth Third Bancorp.
Incorporated by reference as Exhibit A to Exhibit 4.3 of the Registrant’s Current Report on Form 8-K filed with the SEC on May 16, 2013.
Global Security dated as of November 20, 2013 representing Fifth Third Bancorp’s $500,000,000 4.30% Subordinated Notes due 2024. Incorporated
by reference to Exhibit 4.1 of the Registrant’s Current Report on Form 8-K filed with the SEC on November 20, 2013. (2)
Deposit Agreement dated December 9, 2013, between Fifth Third Bancorp, as issuer, Wilmington Trust, National Association, as depositary and
calculation agent, American Stock Transfer & Trust Company, LLC as transfer agent and registrar, and the holders from time to time of the
depositary receipts issued thereunder. Incorporated by reference to Exhibit 4.3 of the Registrant’s Current Report on Form 8-K filed with the SEC on
December 9, 2013.
Form of Certificate Representing the 6.625% Fixed-to-Floating Rate Non-Cumulative Perpetual Preferred Stock, Series I, of Fifth Third Bancorp.
Incorporated by reference to Exhibit 4.2 of the Registrant’s Current Report on Form 8-K filed with the SEC on December 9, 2013.
Form of Depositary Receipt for the 6.625% Fixed-to-Floating Rate Non-Cumulative Perpetual Preferred Stock, Series I, of Fifth Third Bancorp.
Incorporated by reference as Exhibit A to Exhibit 4.3 of the Registrant’s Current Report on Form 8-K filed with the SEC on December 9, 2013.
Deposit Agreement dated June 5, 2014, among Fifth Third Bancorp, as issuer, Wilmington Trust, National Association, as depositary and
calculation agent, American Stock Transfer & Trust Company, LLC as transfer agent and registrar, and the holders from time to time of the
depositary receipts issued thereunder. Incorporated by reference to Exhibit 4.3 of the Registrant’s Current Report on Form 8-K filed with the SEC on
June 5, 2014.
Form of Certificate Representing the 4.90% Fixed-to-Floating Rate Non-Cumulative Perpetual Preferred Stock, Series J, of Fifth Third Bancorp.
Incorporated by reference to Exhibit 4.2 of the Registrant’s Current Report on Form 8-K filed with the SEC on June 5, 2014.
Form of Depositary Receipt for the 4.90% Fixed-to-Floating Rate Non-Cumulative Perpetual Preferred Stock, Series J, of Fifth Third Bancorp.
Incorporated by reference as Exhibit A to Exhibit 4.3 of the Registrant’s Current Report on Form 8-K filed with the SEC on June 5, 2014.
237 Fifth Third Bancorp
Table of Contents
4.18
4.19
4.20
4.21
4.22
4.23
4.24
4.25
4.26
4.27
4.28
4.29
4.30
4.31
4.32
4.33
4.34
4.35
4.36
4.37
4.38
4.39
4.40
4.41
4.42
4.43
10.1
10.2
10.3
10.4
Third Supplemental Indenture dated as of February 28, 2014 between Fifth Third Bancorp and Wilmington Trust Company, as Trustee, to the
Indenture for Senior Debt Securities dated as of April 30, 2008 between Fifth Third Bancorp and the Trustee. Incorporated by reference to Exhibit
4.1 of the Registrant’s Current Report on Form 8-K filed with the SEC on February 28, 2014.
Fourth Supplemental Indenture dated as of July 27, 2015 between Fifth Third Bancorp and Wilmington Trust Company, as Trustee, to the Indenture
for Senior Debt Securities dated as of April 30, 2008 between Fifth Third Bancorp and the Trustee. Incorporated by reference to Exhibit 4.1 to the
Registrant’s Current Report on Form 8-K filed with the SEC on July 27, 2015.
Fifth Supplemental Indenture dated as of June 15, 2017 between Fifth Third Bancorp and Wilmington Trust Company, as Trustee, to the Indenture
for Senior Debt Securities dated as of April 30, 2008 between Fifth Third Bancorp and the Trustee. Incorporated by reference to Exhibit 4.1 to the
Registrant’s Current Report on Form 8-K filed with the SEC on June 15, 2017.
Form of 2.600% Senior Notes due 2022. Incorporated by reference to Exhibit 4.2 to the Registrant’s Current Report on Form 8-K filed with the SEC
on June 15, 2017.
Sixth Supplemental Indenture dated as of March 14, 2018 between Fifth Third Bancorp and Wilmington Trust Company, as Trustee, to the
Indenture for Senior Debt Securities dated as of April 30, 2008 between Fifth Third Bancorp and the Trustee. Incorporated by reference to Exhibit
4.1 to the Registrant’s Current Report on Form 8-K filed with the SEC on March 14, 2018.
Form of 3.950% Senior Notes due 2028. Incorporated by reference to Exhibit 4.2 to the Registrant’s Current Report on Form 8-K filed with the SEC
on March 14, 2018.
Seventh Supplemental Indenture dated as of June 5, 2018 between Fifth Third Bancorp and Wilmington Trust Company, as Trustee, to the Indenture
for Senior Debt Securities dated as of April 30, 2008 between Fifth Third Bancorp and the Trustee. Incorporated by reference to Exhibit 4.1 to the
Registrant’s Current Report on Form 8-K filed with the SEC on June 5, 2018.
Form of Floating Rate Senior Notes due 2021. Incorporated by reference to Exhibit 4.2 to the Registrant’s Current Report on Form 8-K filed with
the SEC on June 5, 2018.
Amendment dated as of August 31, 2018 to Seventh Supplemental Indenture dated as of June 5, 2018 between Fifth Third Bancorp and Wilmington
Trust Company, as Trustee, to the Indenture for Senior Debt Securities dated as of April 30, 2008 between Fifth Third Bancorp and the Trustee.
Incorporated by reference to Exhibit 4.1 to the Registrant’s Quarterly Report on Form 10-Q for the fiscal quarter ended September 30, 2018.
Eighth Supplemental Indenture dated as of January 25, 2019 between Fifth Third Bancorp and Wilmington Trust Company, as Trustee, to the
Indenture for Senior Debt Securities dated as of April 30, 2008 between Fifth Third Bancorp and the Trustee. Incorporated by reference to Exhibit
4.1 to the Registrant’s Current Report on Form 8-K filed with the SEC on January 25, 2019.
Form of 3.650% Senior Notes due 2024. Incorporated by reference to Exhibit 4.2 to the Registrant’s Current Report on Form 8-K filed with the SEC
on January 25, 2019.
Second Amended and Restated Deposit Agreement, dated as of August 26, 2019, among Fifth Third Bancorp, as issuer, and American Stock
Transfer & Trust Company, LLC, as depositary, transfer agent and registrar, and the holders from time to time of the depositary receipts issued.
Incorporated by reference to Exhibit 4.1 to the Registrant’s Form 8-A filed with the SEC on August 26, 2019.
Form of depositary receipt representing the Depositary Shares (included as Exhibit A to Exhibit 4.34). Incorporated by reference to Exhibit 4.1 to
the Registrant’s Form 8-A filed with the SEC on August 26, 2019.
Deposit Agreement dated September 17, 2019, between Fifth Third Bancorp, as issuer, American Stock Transfer & Trust Company, LLC, as
depositary, transfer agent and registrar, relating to receipts, Depositary Shares and related 4.95% Non-Cumulative Perpetual Preferred Stock, Series
K. Incorporated by reference to Exhibit 4.3 to the Registrant’s Current Report on Form 8-K filed with the SEC on September 17, 2019.
Form of Certificate Representing the 4.95% Non-Cumulative Perpetual Preferred Stock, Series K, of Fifth Third Bancorp. Incorporated by reference
to Exhibit 4.2 to the Registrant’s Current Report on Form 8-K filed with the SEC on September 17, 2019.
Form of Depositary Receipt for the 4.95% Non-Cumulative Perpetual Preferred Stock, Series K, of Fifth Third Bancorp. Incorporated by reference
to Exhibit 4.4 to the Registrant’s Current Report on Form 8-K filed with the SEC on September 17, 2019.
Ninth Supplemental Indenture dated as of October 28, 2019 between Fifth Third Bancorp and Wilmington Trust Company, as Trustee, to the
Indenture for Senior Debt Securities dated as of April 30, 2008 between Fifth Third Bancorp and the Trustee. Incorporated by reference to Exhibit
4.1 to the Registrant’s Current Report on Form 8-K filed with the SEC on October 28, 2019.
Form of 2.375% Senior Notes due 2025. Incorporated by reference to Exhibit 4.2 to the Registrant’s Current Report on Form 8-K filed with the SEC
on October 28, 2019.
Tenth Supplemental Indenture dated as of May 5, 2020 between Fifth Third Bancorp and Wilmington Trust Company, as Trustee, to the Indenture
for Senior Debt Securities dated as of April 30, 2008 between Fifth Third Bancorp and the Trustee. Incorporated by reference to Exhibit 4.1 to the
Registrant’s Current Report on Form 8-K filed with the SEC on May 5, 2020.
Form of 1.625% Senior Notes due 2023. Incorporated by reference to Exhibit 4.2 to the Registrant’s Current Report on Form 8-K filed with the
SEC on May 5, 2020.
Form of 2.550% Senior Notes due 2027. Incorporated by reference to Exhibit 4.3 to the Registrant’s Current Report on Form 8-K filed with the
SEC on May 5, 2020.
Form of Certificate Representing the 4.500% Fixed-Rate Reset Non-Cumulative Perpetual Preferred Stock, Series L, of Fifth Third Bancorp.
Incorporated by reference to Exhibit 4.2 of the Registrant’s Current Report on Form 8-K filed with the SEC on July 30, 2020.
Deposit Agreement dated July 30, 2020, between Fifth Third Bancorp, as issuer, American Stock Transfer & Trust Company, LLC, as depositary,
transfer agent and registrar, and the holders from time to time of depositary receipts issued. Incorporated by reference to Exhibit 4.3 to the
Registrant’s Current Report on Form 8-K filed with the SEC on July 30, 2020.
Form of Depositary Receipt for the 4.500% Fixed-Rate Reset Non-Cumulative Perpetual Preferred Stock, Series L, of Fifth Third Bancorp.
Incorporated by reference to Exhibit A of Exhibit 4.3 to the Registrant’s Current Report of Form 8-K filed with the SEC on July 30, 2020.
Certain instruments defining the rights of holders of long-term debt securities of the Registrant and its subsidiaries are omitted pursuant to Item
601(b)(4)(iii) of Regulation S-K. The Registrant hereby undertakes to furnish to the SEC, upon request, copies of any such instruments.
Description of Registrant’s Securities.
Fifth Third Bancorp Unfunded Deferred Compensation Plan for Non-Employee Directors (as amended and restated effective as of September 1,
2020). Incorporated by reference to Exhibit 10.2 of the Registrant’s Quarterly Report on Form 10-Q for the fiscal quarter ended September 30,
2020.*
Fifth Third Bancorp Master Profit Sharing Plan, as Amended and Restated. Incorporated by reference to Exhibit 10.5 to the Registrant’s Annual
Report on Form 10-K for the fiscal year ended December 31, 2011.*
First Amendment to Fifth Third Bancorp Master Profit Sharing Plan, as Amended and Restated. Incorporated by reference to Exhibit 10.6 to the
Registrant’s Annual Report on Form 10-K for the fiscal year ended December 31, 2011.*
Second Amendment to Fifth Third Bancorp Master Profit Sharing Plan, as Amended and Restated. Incorporated by reference to Exhibit 10.7 to the
Registrant’s Annual Report on Form 10-K for the fiscal year ended December 31, 2012.*
238 Fifth Third Bancorp
Table of Contents
10.5
10.6
10.7
10.8
10.9
10.10
10.11
10.12
10.13
10.14
10.15
10.16
10.17
10.18
10.19
10.20
10.21
10.22
10.23
10.24
10.25
10.26
10.27
10.28
10.29
10.30
10.31
10.32
10.33
10.34
10.35
10.36
10.37
Third Amendment to Fifth Third Bancorp Master Profit Sharing Plan, as Amended and Restated. Incorporated by reference to Exhibit 10.8 of the
Registrant’s Quarterly Report on Form 10-Q for the fiscal quarter ended June 30, 2013.*
Fifth Third Bancorp 401(k) Savings Plan, as Amended and Restated effective January 1, 2020. Incorporated by reference to Exhibit 10.15 to the
Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 2019.*
The Fifth Third Bancorp Master Retirement Plan, as Amended and Restated. Incorporated by reference to Exhibit 10.8 of the Registrant’s Annual
Report on Form 10-K for the fiscal year ended December 31, 2014.*
First Amendment to The Fifth Third Bancorp Master Retirement Plan, as Amended and Restated. Incorporated by reference to Exhibit 10.10 to the
Registrant’s Annual Report on Form 10-K for the fiscal year ended December 31, 2015.*
Second Amendment to The Fifth Third Bancorp Master Retirement Plan, as Amended and Restated. Incorporated by reference to Exhibit 10.11 to
the Registrant’s Annual Report on Form 10-K for the fiscal year ended December 31, 2016.*
Third Amendment to The Fifth Third Bancorp Master Retirement Plan, as Amended and Restated. Incorporated by reference to Exhibit 10.16 to the
Registrant’s Annual Report on Form 10-K for the fiscal year ended December 31, 2017.*
Fourth Amendment to The Fifth Third Bancorp Master Retirement Plan, as Amended and Restated. Incorporated by reference to Exhibit 10.19 to the
Registrant’s Annual Report on Form 10-K for the fiscal year ended December 31, 2018.*
Fifth Third Bancorp 2008 Incentive Compensation Plan. Incorporated by reference to Annex 2 to the Registrant’s Proxy Statement dated March 6,
2008.*
First Amendment to the Fifth Third Bancorp 2008 Incentive Compensation Plan. Incorporated by reference to Exhibit 10.22 to the Registrant’s
Annual Report on Form 10-K for the fiscal year ended December 31, 2018.*
Fifth Third Bancorp 2011 Incentive Compensation Plan. Incorporated by reference to Annex 1 to the Registrant’s Proxy Statement dated March 10,
2011.*
First Amendment to the Fifth Third Bancorp 2011 Incentive Compensation Plan. Incorporated by reference to Exhibit 10.24 to the Registrant’s
Annual Report on Form 10-K for the fiscal year ended December 31, 2018.*
Fifth Third Bancorp 2014 Incentive Compensation Plan. Incorporated by reference to Annex A to the Registrant’s Proxy Statement dated March 6,
2014.*
First Amendment to the Fifth Third Bancorp 2014 Incentive Compensation Plan. Incorporated by reference to Exhibit 10.26 to the Registrant’s
Annual Report on Form 10-K for the fiscal year ended December 31, 2018.*
Fifth Third Bancorp 2017 Incentive Compensation Plan. Incorporated by reference to Annex A to the Registrant’s Proxy Statement dated March 9,
2017.*
First Amendment to the Fifth Third Bancorp 2017 Incentive Compensation Plan. Incorporated by reference to Exhibit 10.28 to the Registrant’s
Annual Report on Form 10-K for the fiscal year ended December 31, 2018.*
Fifth Third Bancorp 2019 Incentive Compensation Plan. Incorporated by reference to Exhibit 4.3 to the Registrant’s Form S-8 Registration
Statement filed on April 16, 2019 (Registration Statement No. 333-230900).*
Amended and Restated Fifth Third Bancorp 1993 Stock Purchase Plan. Incorporated by reference to Exhibit 10.8 to the Registrant’s Annual Report
on Form 10-K for the fiscal year ended December 31, 2011.*
Fifth Third Bancorp Non-qualified Deferred Compensation Plan (as amended and restated effective as of September 1, 2020). Incorporated by
reference to Exhibit 10.1 to the Registrant’s Quarterly Report on Form 10-Q for the fiscal quarter ended September 30, 2020.*
Fifth Third Bancorp Stock Option Gain Deferral Plan. Incorporated by reference to Annex 5 to the Registrant’s Proxy Statement dated February 9,
2001.*
Amendment No. 1 to Fifth Third Bancorp Stock Option Gain Deferral Plan. Incorporated by reference to Exhibit 10.1 to the Registrant’s Current
Report on Form 8-K filed with the SEC on May 26, 2005.*
Amended and Restated First National Bankshares of Florida, Inc. 2003 Incentive Plan. Incorporated by reference to Exhibit 10.10 to First National
Bankshares of Florida, Inc.’s Annual Report on Form 10-K for the fiscal year ended December 31, 2003.*
Fifth Third Bancorp Executive Change in Control Severance Plan, effective January 1, 2015. Incorporated by reference to Exhibit 10.1 to
Registrant’s Current Report on Form 8-K filed with the SEC on November 21, 2014.*
First Amendment to the Fifth Third Bancorp Executive Change in Control Severance Plan. Incorporated by reference to Exhibit 10.40 to the
Registrant’s Annual Report on Form 10-K for the fiscal year ended December 31, 2018.*
Stock Appreciation Right Award Agreement. Incorporated by reference to Exhibit 10.2 of the Registrant’s Quarterly Report on Form 10-Q for the
fiscal quarter ended June 30, 2013.*
Performance Share Award Agreement. Incorporated by reference to Exhibit 10.3 of the Registrant’s Quarterly Report on Form 10-Q for the fiscal
quarter ended June 30, 2013.*
Restricted Stock Award Agreement (for Directors). Incorporated by reference to Exhibit 10.4 of the Registrant’s Quarterly Report on Form 10-Q for
the fiscal quarter ended June 30, 2013.*
Restricted Stock Award Agreement (for Executive Officers). Incorporated by reference to Exhibit 10.5 of the Registrant’s Quarterly Report on Form
10-Q for the fiscal quarter ended June 30, 2013.*
Stock Appreciation Right Award Agreement. Incorporated by reference to Exhibit 10.34 of the Registrant’s Annual Report on Form 10-K for the
fiscal year ended December 31, 2014.*
Performance Share Award Agreement. Incorporated by reference to Exhibit 10.35 of the Registrant’s Annual Report on Form 10-K for the fiscal
year ended December 31, 2014.*
Restricted Stock Unit Agreement (for Directors). Incorporated by reference to Exhibit 10.36 of the Registrant’s Annual Report on Form 10-K for the
fiscal year ended December 31, 2014.*
Restricted Stock Award Agreement (for Executive Officers). Incorporated by reference to Exhibit 10.37 of the Registrant’s Annual Report on Form
10-K for the fiscal year ended December 31, 2014.*
Master Confirmation for accelerated share repurchase transaction between Fifth Third Bancorp and Deutsche Bank AG, London Branch, with
Deutsche Bank Securities Inc. acting as agent. Incorporated by reference to Exhibit 10.6 to the Registrant’s Quarterly Report on Form 10-Q for the
fiscal quarter ended June 30, 2013.**
Master Confirmation, as supplemented by a Supplemental Confirmation, for accelerated share repurchase transaction dated October 20, 2014
between Fifth Third Bancorp and Deutsche Bank AG, London Branch. Incorporated by reference to Exhibit 10.38 of the Registrant’s Annual Report
on Form 10-K for the fiscal year ended December 31, 2014.**
239 Fifth Third Bancorp
Table of Contents
10.38
10.39
10.40
10.41
10.42
10.43
10.44
10.45
10.46
10.47
10.48
10.49
10.50
10.51
10.52
10.53
10.54
10.55
10.56
10.57
10.58
10.59
10.60
10.61
10.62
10.63
10.64
10.65
10.66
10.70
10.71
10.72
21
23
31(i)
31(ii)
Master Confirmation, as supplemented by a Supplemental Confirmation, for accelerated share repurchase transaction dated July 29, 2015 between
Fifth Third Bancorp and Morgan Stanley & Co. LLC. Incorporated by reference to Exhibit 10.1 to the Registrant’s Quarterly Report on Form 10-Q
for the fiscal quarter ended September 30, 2015.**
Master Confirmation, as supplemented by a Supplemental Confirmation, for accelerated share repurchase transaction dated April 27, 2015 between
Fifth Third Bancorp and Barclays Bank PLC, through its agent Barclays Capital Inc. Incorporated by reference to Exhibit 10.1 to the Registrant’s
Quarterly Report on Form 10-Q for the fiscal quarter ended June 30, 2015.**
Master Confirmation, dated January 22, 2015, and Supplemental Confirmation, for accelerated share repurchase transaction dated January 22, 2015
between Fifth Third Bancorp and Wells Fargo Bank, National Association. Incorporated by reference to Exhibit 10.1 to the Registrant’s Quarterly
Report on Form 10-Q for the fiscal quarter ended March 31, 2015.**
Bancorp Director Pay Program. Incorporated by reference to Exhibit 10.2 to the Registrant’s Quarterly Report on Form 10-Q for the fiscal quarter
ended September 30, 2016.*
2016 Restricted Stock Unit Grant Agreement (for Directors). Incorporated by reference to Exhibit 10.48 of the Registrant’s Annual Report on Form
10-K for the fiscal year ended December 31, 2016.*
2017 Stock Appreciation Right Award Agreement (for Executive Officers). Incorporated by reference to Exhibit 10.49 of the Registrant’s Annual
Report on Form 10-K for the fiscal year ended December 31, 2016.*
2017 Performance Share Award Agreement. Incorporated by reference to Exhibit 10.50 of the Registrant’s Annual Report on Form 10-K for the
fiscal year ended December 31, 2016.*
2017 Restricted Stock Unit Grant Agreement (for Executive Officers). Incorporated by reference to Exhibit 10.51 of the Registrant’s Annual Report
on Form 10-K for the fiscal year ended December 31, 2016.*
Long-Term Incentive Award Overview February 2017 Grants. Incorporated by reference to Exhibit 10.52 of the Registrant’s Annual Report on
Form 10-K for the fiscal year ended December 31, 2016.*
Restricted Stock Unit Grant Agreement (for Directors) for Fifth Third Bancorp 2017 Incentive Compensation Plan. Incorporated by reference to
Exhibit 10.3 to the Registrant’s Quarterly Report on Form 10-Q for the fiscal quarter ended June 30, 2017.*
2018 Stock Appreciation Right Award Agreement (for Executive Officers). Incorporated by reference to Exhibit 10.67 to the Registrant’s Annual
Report on Form 10-K for the fiscal year ended December 31, 2017.*
2018 Performance Share Award Agreement. Incorporated by reference to Exhibit 10.68 to the Registrant’s Annual Report on Form 10-K for the
fiscal year ended December 31, 2017.*
2018 Restricted Stock Unit Agreement (for Executive Officers). Incorporated by reference to Exhibit 10.69 to the Registrant’s Annual Report on
Form 10-K for the fiscal year ended December 31, 2017.*
Long-Term Incentive Award Overview 2018 Grants. Incorporated by reference to Exhibit 10.70 to the Registrant’s Annual Report on Form 10-K for
the fiscal year ended December 31, 2017.*
2018 Restricted Stock Unit Grant Agreement (for Directors). Incorporated by reference to Exhibit 10.3 to the Registrant’s Quarterly Report on Form
10-Q for the fiscal quarter ended March 31, 2018.*
2018 Long-Term Incentive Compensation Program Overview February 2019 Grants. Incorporated by reference to Exhibit 10.74 to the Registrant’s
Annual Report on Form 10-K for the fiscal year ended December 31, 2018.*
2019 Performance Share Award Agreement. Incorporated by reference to Exhibit 10.75 to the Registrant’s Annual Report on Form 10-K for the
fiscal year ended December 31, 2018.*
2019 Restricted Stock Unit Agreement (for Executive Officers). Incorporated by reference to Exhibit 10.76 to the Registrant’s Annual Report on
Form 10-K for the fiscal year ended December 31, 2018.*
2019 Stock Appreciation Right Award Agreement (for Executive Officers). Incorporated by reference to Exhibit 10.77 to the Registrant’s Annual
Report on Form 10-K for the fiscal year ended December 31, 2018.*
2019 Long-Term Incentive Compensation Program Overview February 2020 Grants. Incorporated by reference to Exhibit 10.72 to the Registrant’s
Annual Report on Form 10-K for the fiscal year ended December 31, 2019.*
2020 Performance Share Award Agreement. Incorporated by reference to Exhibit 10.73 to the Registrant’s Annual Report on Form 10-K for the
fiscal year ended December 31, 2019.*
2020 Restricted Stock Unit Agreement (for Executive Officers). Incorporated by reference to Exhibit 10.74 to the Registrant’s Annual Report on
Form 10-K for the fiscal year ended December 31, 2019.*
2020 Stock Appreciation Right Award Agreement (for Executive Officers). Incorporated by reference to Exhibit 10.75 to the Registrant’s Annual
Report on Form 10-K for the fiscal year ended December 31, 2019.*
2019 Restricted Stock Unit Grant Agreement (for Directors). Incorporated by reference to Exhibit 10.76 to the Registrant’s Annual Report on Form
10-K for the fiscal year ended December 31, 2019.*
2020 Restricted Stock Unit Grant Agreement (for Directors). Incorporated by reference to Exhibit 10.1 to the Registrant’s Quarterly Report on Form
10-Q for the fiscal quarter ended March 31, 2020.*
2020 Long-Term Incentive Compensation Program Overview February 2021 Grants.*
2021 Performance Share Award Agreement.*
2021 Restricted Stock Unit Agreement (for Executive Officers).*
2021 Stock Appreciation Right Award Agreement (for Executive Officers).*
Master Confirmation, as supplemented by two Supplemental Confirmations, for accelerated share repurchase transaction dated March 11, 2019
between Fifth Third Bancorp and JPMorgan Chase Bank, National Association, London Branch. Incorporated by reference to Exhibit 10.1 to the
Registrant’s Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 2019.**
Master Confirmation dated as of August 5, 2019, as supplemented by a Supplemental Confirmation dated August 5, 2019, for accelerated share
repurchase transaction between Fifth Third Bancorp and Citibank, N.A. Incorporated by reference to Exhibit 10.2 to the Registrant’s Quarterly
Report on Form 10-Q for the fiscal quarter ended September 30, 2019.***
Employment Agreement between Fifth Third Bancorp, Fifth Third Bank, and Teresa Tanner dated July 1, 2019. Incorporated by reference to Exhibit
10.1 to the Registrant’s Current Report on Form 8-K/A filed with the SEC on July 3, 2019.*
Fifth Third Bancorp Subsidiaries, as of February 15, 2021.
Consent of Independent Registered Public Accounting Firm-Deloitte & Touche LLP.
Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 by Chief Executive Officer.
Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 by Chief Financial Officer.
240 Fifth Third Bancorp
Table of Contents
32(i)
Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 by Chief Executive
Officer.
Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 by Chief Financial Officer.
32(ii)
101.INSXBRL Instance Document.
101.SCHXBRL Taxonomy Extension Schema Document.
101.CALXBRL Taxonomy Extension Calculation Linkbase Document.
101.DEFXBRL Taxonomy Extension Definition Linkbase Document.
101.LABXBRL Taxonomy Extension Label Linkbase Document.
101.PREXBRL Taxonomy Extension Presentation Linkbase Document.
104
Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).
(1) Fifth Third Bancorp also entered into an identical security on March 4, 2008 representing an additional $500,000,000 of its 8.25% Subordinated Notes due
2038.
(2) Fifth Third Bancorp also entered into an identical security on November 20, 2013 representing an additional $250,000,000 in principal amount of its 4.30%
Subordinated Notes due 2024.
* Denotes management contract or compensatory plan or arrangement.
** An application for confidential treatment for selected portions of this exhibit has been filed with the SEC.
*** Selected portions of this exhibit have been omitted in accordance with Item 601(b)(10) of Regulation S-K.
ITEM 16. FORM 10–K SUMMARY
None.
241 Fifth Third Bancorp
Table of Contents
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Registrant has duly caused
this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
FIFTH THIRD BANCORP
Registrant
/s/ Greg D. Carmichael
Greg D. Carmichael
Chairman and CEO
Principal Executive Officer
February 26, 2021
Pursuant to requirements of the Securities Exchange Act of 1934,
this report has been signed on February 26, 2021 by the
following persons on behalf of the Registrant and in the
capacities indicated.
OFFICERS:
/s/ Greg D. Carmichael
Greg D. Carmichael
Chairman and CEO
Principal Executive Officer
/s/ James C. Leonard
James C. Leonard
Executive Vice President and CFO
Principal Financial Officer
/s/ Mark D. Hazel
Mark D. Hazel
Senior Vice President and Controller
Principal Accounting Officer
242 Fifth Third Bancorp
DIRECTORS:
/s/ Greg D. Carmichael
Greg D. Carmichael
Chairman
/s/ Marsha C. Williams
Marsha C. Williams
Lead Independent Director
/s/ Nicholas K. Akins
Nicholas K. Akins
/s/ B. Evan Bayh III
B. Evan Bayh III
/s/ Jorge L. Benitez
Jorge L. Benitez
/s/ Katherine B. Blackburn
Katherine B. Blackburn
/s/ Emerson L. Brumback
Emerson L. Brumback
/s/ C. Bryan Daniels
C. Bryan Daniels
/s/ Mitchell S. Feiger
Mitchell S. Feiger
/s/ Thomas H. Harvey
Thomas H. Harvey
/s/ Gary R. Heminger
Gary R. Heminger
/s/ Linda W. Clement-Holmes
Linda W. Clement-Holmes
/s/ Jewell D. Hoover
Jewell D. Hoover
/s/ Eileen A. Mallesch
Eileen A. Mallesch
/s/ Michael B. McCallister
Michael B. McCallister
Table of Contents
CONSOLIDATED TEN YEAR COMPARISON
AVERAGE ASSETS FOR THE YEARS ENDED DECEMBER 31 ($ IN MILLIONS)
Interest-Earning Assets
Loans and
Leases
Other Short-Term
Investments
Investment
Securities
Total
Cash and Due
from Banks
Other Assets
Total Average
Assets
$
114,411
107,794
93,876
92,731
94,320
93,339
91,127
89,093
84,822
80,214
21,935
2,140
1,476
1,390
1,866
3,258
3,043
2,417
1,495
2,031
36,342
35,470
33,553
32,172
30,099
26,987
21,823
16,444
15,319
15,437
172,688
145,404
128,905
126,293
126,285
123,584
115,993
107,954
101,636
97,682
2,978
2,748
2,200
2,224
2,303
2,608
2,892
2,482
2,355
2,352
20,933
16,903
12,203
13,236
14,870
15,100
14,443
15,025
15,643
15,259
194,230
163,936
142,183
140,527
142,173
139,999
131,847
123,704
117,562
112,590
AVERAGE DEPOSITS AND SHORT-TERM BORROWINGS FOR THE YEARS ENDED DECEMBER 31 ($ IN MILLIONS)
Demand
Interest
Checking
Savings
Money
Market
$
47,111
34,343
32,634
35,093
35,862
35,164
31,755
29,925
27,196
23,389
46,890
36,658
29,818
26,382
25,143
26,160
25,382
23,582
23,096
18,707
16,440
14,041
13,330
13,958
14,346
14,951
16,080
18,440
21,393
21,652
29,879
25,879
21,769
20,231
19,523
18,152
14,670
9,467
4,903
5,154
Deposits
Other Time
4,118
5,470
4,106
3,771
4,010
4,051
3,762
3,760
4,306
6,260
Certificates
$100,000 and Over
3,337
4,504
2,426
2,564
2,735
2,869
3,929
6,339
3,102
3,656
Foreign
Office and Other
256
474
839
665
830
874
1,828
1,518
1,555
3,497
Total
148,031
121,369
104,922
102,664
102,449
102,221
97,406
93,031
85,551
82,315
Short-Term
Borrowings(a)
2,094
2,313
3,120
3,715
3,351
2,641
2,331
3,527
4,806
3,122
Total
150,125
123,682
108,042
106,379
105,800
104,862
99,737
96,558
90,357
85,437
INCOME FOR THE YEARS ENDED DECEMBER 31 ($ IN MILLIONS, EXCEPT PER SHARE DATA)
Per Share
Interest Income
5,572
$
6,254
5,183
4,489
4,193
4,028
4,030
3,973
4,107
4,218
Interest
Expense
Noninterest
Income
Noninterest
Expense
Net Income Available
to Common
Shareholders
Earnings
Diluted
Earnings
Dividends
Declared
790
1,457
1,043
691
578
495
451
412
512
661
2,830
3,536
2,790
3,224
2,696
3,003
2,473
3,227
2,999
2,455
4,718
4,660
3,958
3,782
3,737
3,643
3,619
3,978
4,083
3,804
1,323
2,419
2,118
2,105
1,472
1,610
1,384
1,799
1,541
1,094
1.84
3.38
3.11
2.86
1.92
2.00
1.65
2.05
1.69
1.20
1.83
3.33
3.06
2.81
1.91
1.97
1.63
2.02
1.66
1.18
1.08
0.94
0.74
0.60
0.53
0.52
0.51
0.47
0.36
0.28
MISCELLANEOUS AT DECEMBER 31 ($ IN MILLIONS, EXCEPT PER SHARE DATA)
Equity
Common Shares
Outstanding
Common
Stock
Preferred
Stock
Capital
Surplus
Retained
Earnings
Accumulated Other
Comprehensive
Income (Loss)
Treasury
Stock
Total
Book Value
Per Share
712,760,325 $
708,915,629
646,630,857
693,804,893
750,479,299
785,080,314
824,046,952
855,305,745
882,152,057
919,804,436
2,051
2,051
2,051
2,051
2,051
2,051
2,051
2,051
2,051
2,051
2,116
1,770
1,331
1,331
1,331
1,331
1,331
1,034
398
398
3,635
3,599
2,873
2,790
2,756
2,666
2,646
2,561
2,758
2,792
18,384
18,315
16,578
14,957
13,290
12,224
11,034
10,156
8,768
7,554
2,601
1,192
(112)
73
59
197
429
82
375
470
(5,676) 23,111
(5,724) 21,203
(6,471) 16,250
(5,002) 16,200
(3,433) 16,054
(2,764) 15,705
(1,972) 15,519
(1,295) 14,589
(634) 13,716
(64) 13,201
Allowance for
Loan and
Lease Losses
2,453
1,202
1,103
1,196
1,253
1,272
1,322
1,582
1,854
2,255
29.46
27.41
23.07
21.43
19.62
18.31
17.22
15.85
15.10
13.92
Year
2020
2019
2018
2017
2016
2015
2014
2013
2012
2011
Year
2020
2019
2018
2017
2016
2015
2014
2013
2012
2011
Year
2020
2019
2018
2017
2016
2015
2014
2013
2012
2011
Year
2020
2019
2018
2017
2016
2015
2014
2013
2012
2011
(a)
Includes federal funds purchased and other short-term investments.
243 Fifth Third Bancorp
Table of Contents
DIRECTORS AND OFFICERS
FIFTH THIRD BANCORP DIRECTORS
Greg D. Carmichael
Chairman & Chief Executive Officer
Fifth Third Bancorp
FIFTH THIRD BANCORP OFFICERS
Greg D. Carmichael
Chairman &
Chief Executive Officer
Marsha C. Williams, Lead Director
Retired Chief Financial Officer
Orbitz Worldwide, Inc.
Nicholas K. Akins
Chairman, President & Chief Executive Officer
American Electric Power Company
Lars C. Anderson
Executive Vice President &
Vice Chairman of Commercial Banking
Strategic Growth Initiatives
Kristine Garrett
Executive Vice President &
Head of Wealth & Asset Management
REGIONAL PRESIDENTS
Michael Ash
David Briggs
David A. Call
Joseph DiRocco
Timothy Elsbrock
Lee Fite
David Girodat
Kimberly Halbauer
Francie Henry
Mark Hoppe
Randy Koporc
Cary Putrino
Thomas G. Welch, Jr.
B. Evan Bayh III
Senior Advisor
Apollo Global Management
Jorge L. Benitez
Retired Chief Executive Officer
North America of Accenture plc
Katherine B. Blackburn
Executive Vice President
Cincinnati Bengals, Inc.
Emerson L. Brumback
Retired President & Chief Operating Officer
M&T Bank
C. Bryan Daniels
Founding Partner
Prairie Capital
Mitchell S. Feiger
Retired CEO and President
MB Financial, Inc.
Thomas H. Harvey
Chief Executive Officer
Energy Innovation: Policy and Technology, LLC
Gary R. Heminger
Chief Executive Officer & Chairman
Marathon Petroleum Corporation
Linda W. Clement-Holmes
Retired Chief Information Officer
The Procter & Gamble Company
Jewell D. Hoover
Retired Senior Official
Comptroller of the Currency
Eileen A. Mallesch
Retired Chief Financial Officer
Nationwide Property & Casualty Segment,
Nationwide Mutual Insurance Company
Michael B. McCallister
Retired Chairman & Chief Executive Officer
Humana, Inc.
Howard Hammond
Executive Vice President &
Head of Consumer Bank
Mark D. Hazel
Senior Vice President &
Controller
Margaret P. Jula
Executive Vice President &
Chief Human Resource Officer
Kevin P. Lavender
Executive Vice President &
Head of Commercial Banking
James C. Leonard
Executive Vice President &
Chief Financial Officer
Jude A. Schramm
Executive Vice President &
Chief Information Officer
Robert P. Shaffer
Executive Vice President &
Chief Risk Officer
Timothy N. Spence
President
Richard L. Stein
Executive Vice President &
Chief Credit Officer
Melissa S. Stevens
Executive Vice President &
Head of Digital, Marketing, Design and
Innovation
Susan B. Zaunbrecher
Executive Vice President &
Chief Legal Officer
FIFTH THIRD BANCORP BOARD
COMMITTEES
Audit Committee
Eileen A. Mallesch, Chair
Katherine B. Blackburn
Thomas H. Harvey
Jewell D. Hoover
Michael B. McCallister
Finance Committee
Gary R. Heminger, Chair
Nicholas K. Akins
Jorge L. Benitez
Emerson L. Brumback
Michael B. McCallister
Marsha C. Williams
Human Capital and Compensation
Committee
Michael B. McCallister, Chair
Emerson L. Brumback
Gary R. Heminger
Eileen A. Mallesch
Marsha C. Williams
Nominating and Corporate
Governance Committee
Nicholas K. Akins, Chair
B. Evan Bayh III
Jorge L. Benitez
Katherine B. Blackburn
Thomas H. Harvey
Marsha C. Williams
Risk and Compliance Committee
Emerson L. Brumback, Chair
C. Bryan Daniels
Gary R. Heminger
Jewell D. Hoover
Eileen A. Mallesch
Technology Committee
Jorge L. Benitez, Chair
Nicholas K. Akins
B. Evan Bayh III
Linda W. Clement-Holmes
C. Bryan Daniels
Thomas H. Harvey
244 Fifth Third Bancorp
PERFORMANCE
COMPARISON
For the years ended Dec. 31
$ in millions, except per share data
2020
2019
2018
EARNINGS AND DIVIDENDS
Net Income
$ 1,427
$ 2,512
$ 2,193
Common Dividends Declared
Preferred Dividends Declared
780
104
691
93
499
75
PER COMMON SHARE
Earnings
Diluted Earnings
Cash Dividends Declared
Book Value
AT YEAR-END
Total Assets
$ 1.84
$ 3.38
1.83
1.08
29.46
3.33
0.94
27.41
$ 3.11
3.06
0.74
23.07
$ 204,680
$ 169,369
$ 146,069
Total Loans and Leases (incl. Held-for-Sale)
113,523
110,958
95,872
Deposits
Bancorp Shareholders’ Equity
KEY RATIOS
Net Interest Margin (FTE)1
Efficiency Ratio (FTE)1,2
CET1 Ratio
Tier 1 Risk-Based Ratio
Total Risk-Based Capital Ratio
ACTUALS
159,081
23,111
127,062
21,203
108,835
16,250
2.78%
61.9%
10.34%
11.83%
15.08%
3.31%
55.8%
9.75%
10.99%
13.84%
3.22%
57.0%
10.24%
11.32%
14.48%
Common Shares Outstanding (000's)
712,760
708,916
646,631
Banking Centers
ATMs
Full-Time Equivalent Employees
1,134
2,397
19,872
1,149
1,121
2,481
2,419
19,869
17,437
1 Non-GAAP measure. For further information, see the Non-GAAP Financial Measures section of MD&A.
2 Certain prior period data has been reclassified to conform to current period presentation.
2020
2019
Stock
Performance
High
Low
Dividends
Declared
Per Share
High
Low
Dividends
Declared
Per Share
Fourth Quarter
$ 28.11
$ 20.52
$ 0.27
$ 31.64
$ 25.42
$ 0.24
Third Quarter
Second Quarter
First Quarter
22.55
24.93
31.02
17.28
13.15
11.10
0.27
0.27
0.27
30.20
24.97
29.18
25.48
29.00
23.11
0.24
0.24
0.22
Includes intraday stock prices.
Fifth Third’s common stock is traded on the NASDAQ® Global Select Market under the symbol “FITB.”
FIFTH THIRD BANCORP
Corporate Address
38 Fountain Square Plaza
Cincinnati, OH 45263
www.53.com
1.800.972.3030
Investor Relations
(For Inquiries of Shareholders Only)
38 Fountain Square Plaza
MD 1090QC
Cincinnati, OH 45263
ir@53.com
1.866.670.0468
TRANSFER AGENT
American Stock Transfer
and Trust Company, LLC.
For Correspondence:
6201 15th Ave.
Brooklyn, NY 11219
www.astfinancial.com
1.888.294.8285
For Dividend Reinvestment
and Direct Stock Purchase
Plan Transaction Processing:
P.O. Box 922
Wall Street Station
New York, NY 10269-0560