Our ambition:
to be the One Bank
people most value and trust.
reflecting
underwriting
against
from COVID-19
during the year to strengthen
to credit,
related
with a long-term,
focus. Credit quality
We took several
strong,
programs.
client selection,
benefit
We make decisions
and capital
liquidity
through-the-cycle
remained historically
disciplined
and a continued
stimulus
actions
our balance sheet and protect
lower rates well beyond the next few
years. These actions
of a differentiated
strategy
cash flows, a $15 billion
portfolio
protection
rate lending capabilities.
sheet management
give us confidence
net interest
for multiple
Reserve eventually
basis points.
that will provide hedge
securities
focused on generating
lowers rates by 200
margin of around 3.30%
years even if the Federal
actions
in maintaining
and more
a
through 2031 and our fixed
portfolio
stable
derivatives
These balance
are a combination
more than 27
received
financial
paychecks
to manage their
up to two days early
needs. In 2022 alone,
Banking offering
everyday
these customers
million
and avoided approximately
$39 million
in overdraft
clients
using our accounts
accounts receivable
are estimated
$32 million
during the year.
payable and
automation
saved more than
expenses
in operational
to have
solutions
fees. Similarly, commercial
or
to purchase
very pleased with the
the year ranked #2 in national
Finance.
veterinarians
platforms,
Provide
and other
We were also
strong growth of our fintech
and Dividend
Provide
enables dentists,
medical professionals
expand their medical practices. Provide
finished
market share in its focus markets.
Dividend
with
financing
energy-efficient
ranks #3 nationally
projects.
and, since we
residential
closed the acquisition
of Dividend
2022, the team has helped more than
47,000 homeowners
their own renewable
to start generating
energy.
solar and other
home improvement
provides
for residential
solar financing
homeowners
Dividend
in May
in
'' I am confident
that
we have your Bank
on strong footing
and will perform well
regardless
the macroeconomic
environment
of what
brings.''
We are focused on delivering
innovation
that empowers customers.
their livelihoods,
that the money
We have never forgotten
we handle is more than just money to our
customers.
It represents
their safety nets, their challenges
their dreams. We invest in technology
to empower our customers
things they need to do better,
and with more control
One example of this: More than one
million
consumer households
our innovative
now use
Fifth Third Momentum®
faster
and efficiency.
to do the
and
We are committed
well-being
serve.
the
to enhancing
of the communities
we
responsibility
a special
where they operate,
place in the
and
sustainability
During the year we made
progress
on our $2.8 billion
equity,
racial
Banks inhabit
communities
with that comes a special
to promote vitality,
and equity.
substantial
pledge to accelerate
and inclusion
equality
to fulfill
our commitments
three-year
a new $100 billion
social finance
through 2030.
schedule.
environmental
and
target to be achieved
and are positioned
ahead of the
We also announced
more than 30 visits
Having completed
to our regions and having met with well
over 100 customers
and community
partners
confidence
has never been stronger. Fifth Third was
again recognized
in 2022, I can say with
on its
by Ethisphere
that the Bank's reputation
2 • 2022 ANNUAL REPORT • FIFTH THIRD BANCORP
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, 2022
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
Depositary Shares Representing a 1/1000th Ownership Interest in a Share of
4.95% Non-Cumulative Perpetual Preferred Stock, Series K
FITBP
The NASDAQ Stock Market LLC
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. ☒
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing
reflect the correction of an error to previously issued financial statements. ☐
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by
any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes: ☐ No: ☒
There were 678,585,140 shares of the Bancorp’s Common Stock, without par value, outstanding as of January 31, 2023. The Aggregate Market Value of the
Voting Stock held by non-affiliates of the Bancorp was $20,129,206,051 as of June 30, 2022.
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 2023 Annual Meeting
of Shareholders are incorporated by reference into Part III of this report.
Only those sections of this 2022 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, 2022. No other information contained in this 2022 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 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
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspection
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
20, 70
72, 211
66
65
82, 140
81, 143
89
84
57
86, 172
30
47
47
47
47
48
50
54
117
117
215
215
217
217
217
217
217
217
217
218
222
223
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. All statements other than statements of historical fact are forward-
looking statements. 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. 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. 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 and the effects of inflation; (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; (44) changes in law or requirements imposed by Fifth Third’s regulators impacting our capital actions, including dividend
payments and stock repurchases; and (45) Fifth Third’s ability to meet its environmental and/or social targets, goals and commitments. We expressly disclaim any obligation or undertaking to
release publicly any updates or revisions to any forward-looking statements contained herein to reflect any change in our expectations or any changes in events, conditions or circumstances on
which any such statement is based, except as may be required by law, and we claim the protection of the safe harbor for forward-looking statements contained in the Private Securities
Litigation Reform Act of 1995. The information contained herein is intended to be reviewed in its totality, and any stipulations, conditions or provisos that apply to a given piece of information
in one part of this report should be read as applying mutatis mutandis to every other instance of such information appearing herein.
19 Fifth Third Bancorp
Table of Contents
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, 2022, Fifth Third had $207 billion in assets and operates 1,087 full-service
Banking Centers and 2,132 Fifth Third branded ATMs in Ohio, Kentucky, Indiana, Michigan, Illinois, Florida, Tennessee, West Virginia,
Georgia, North Carolina and South Carolina. The Bancorp operates three main businesses: Commercial Banking, Consumer and Small
Business Banking and Wealth & Asset Management. Fifth Third is among the largest money managers in the Midwest and, as of
December 31, 2022, had $510 billion in assets under care, of which it managed $55 billion for individuals, corporations and not-for-profit
organizations. Investor information and press releases can be viewed on the Bancorp’s Investor Relations website at ir.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
Bancorp’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, 2023.
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 Investor Relations website at ir.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
The Bancorp’s human capital programs are designed to attract, develop and retain a workforce that reflects the communities it serves. As of
December 31, 2022, the Bancorp had 19,319 full-time equivalent employees, compared to 19,112 as of December 31, 2021. These employees
support the organization’s ambition to be the One Bank people most value and trust by upholding its four Core Values: Be Respectful &
Inclusive, Take Accountability, Work as One Bank and Act with Integrity.
20 Fifth Third Bancorp
Table of Contents
Equality, Equity and Inclusion
Fifth Third believes that inclusion and diversity are essential to living its Core Values, serving its customers, delivering financial performance
and being recognized as a leader in building an engaging workplace, a strong supplier base and vibrant communities. As of December 31,
2022, the Bancorp’s employees were approximately 58% female and approximately 28% persons of color: 72% White, 13% Black/African
American, 8% Hispanic/Latino, 5% Asian, and 2% Other.
The Bancorp has continued to focus on accelerating racial equality, equity and inclusion as a key priority. The Bancorp has an Executive
Diversity Leadership Council which continues to lead concentrated strategies across several key workstreams that focus on employees,
customers, and the community.
To support its commitment, the Bancorp has invested in the ongoing growth and expansion of its employee Business Resource Groups
(“BRGs”). These groups: African American, Asian & Pacific Islander, Individuals with Disabilities, Latino, LGBTQ+, Military, Women’s,
Young Professionals, and Sustainability support the Bancorp’s three BRG Pillars; to drive business innovation, encourage community
volunteerism, and provide an environment that supports employee development, engagement and networking. In 2022, Fifth Third launched a
new Sustainability BRG. The group focuses on social, environmental and related matters which include, but are not limited to, community
engagement initiatives, philanthropy, environmental programs and corporate governance practices.
The Bancorp continued to drive meaningful change in our inclusion and diversity efforts by progressing towards the Six Bold Goals it plans
to achieve by 2025:
•
•
•
•
•
•
Complete Unconscious Bias Awareness training for 100% of employees
Ensure the diversity of the Bancorp’s workforce matches the markets it serves
Grow leadership positions at each management level for women and persons of color
Create a work environment where there is no disparity in race or gender
Advance the Bancorp as a leader in diversity and inclusion
Achieve and sustain a 10% supplier diversity spend
Progressing on these goals, the Bancorp has seen an increase in diversity of its workforce in seven of the nine states in its branch network
footprint that include 250 or more employees and continues to be recognized in various nationwide rankings for advancing as a leader in
inclusion and diversity. The Bancorp has also continued to progress towards its goal of achieving and sustaining a 10% supplier diversity
spend during the year ended December 31, 2022.
Engagement and Development
Fifth Third believes that an engaged workforce is one of its most valuable assets in sustaining its success. The Bancorp’s continuous listening
strategy forms the foundation of its employee culture. The Bancorp’s holistic approach to collecting, measuring and responding to employee
feedback enhances engagement with employees at critical points during their careers and during times of change in business or work
environments. Feedback is collected through a variety of methods, including the Employee Viewpoints Survey which includes questions
around engagement, inclusion, customer experience and the Bancorp’s culture.
Each year, the Bancorp requires all employees and contingent workers to complete courses related to risk and compliance on topics that
support strong risk management behaviors and accountability. In addition, the Bancorp’s learning and development strategy delivers
personalized and accessible experiences that fuel career growth and help retain talent. Employees completed over 775,000 training hours
during 2022, including content covering unconscious bias.
Total Rewards – Compensation and Benefits
The Bancorp is committed to providing competitive compensation programs that attract and retain top talent to drive its business strategy,
effectively manage risk within incentive programs designed to pay for performance, consider applicable regulatory expectations with
attention to corporate values and behavioral expectations, and align with the creation of long-term shareholder value.
The Bancorp continuously analyzes its compensation and benefits programs and practices with the objective of providing all employees with
an equal opportunity to maximize their potential. In 2022, the Bancorp raised its minimum wage to $20 per hour and concurrently provided a
wage adjustment for its first four job levels. These changes resulted in a compensation increase for more than 40% of the Bancorp’s
employees. The Bancorp continues to honor a footprint-wide ban on salary history, which means that the Bancorp does not ask for a
candidate’s current salary to use as a factor in determining an employment offer.
The Bancorp offers a holistic suite of benefits that demonstrates its commitment to its employees’ physical, financial and personal health and
well-being. In addition to traditional benefit offerings, the Bancorp offers a 401(k) retirement program that pays a match up to 7% of an
employee’s eligible compensation, parental bonding leave, telemedicine services, and tools that help find the highest quality and lowest cost
treatment options. These services help assist employees in maintaining a healthy work-life balance.
In 2022, the Bancorp conducted a Total Rewards Survey to assess which components of its compensation and benefit programs were most
important to employees. In response to feedback obtained in this survey, the Bancorp made enhancements to its benefits packages, effective
21 Fifth Third Bancorp
Table of Contents
in 2023. These included minimizing benefit cost increases on its medical plans, transitioning to a new paid time off structure that provides
employees more control and flexibility to manage their time away and updating its short-term disability program to enhance the value it
provides to employees.
Recruitment and Retention
In 2022, the Bancorp continued to face a rapidly changing work environment and workforce. The Bancorp responded proactively by
reinforcing its employee value proposition which centers around inclusion and diversity, employee health and wellness and career
development. Through strategic actions and decisions as well as its human capital policies, programs and practices, the Bancorp helped
support a culture of belonging and performance where employees feel valued and motivated to succeed.
Full year 2022 turnover decreased to 21.0% from 21.2% in 2021. Fifth Third executed several retention strategies in 2022 to address trends in
employee attrition including a focus on employee development and career progression, workplace flexibility and continued employee
listening strategies.
The Bancorp’s multicultural recruitment strategy strengthens the organization by developing an employee base that reflects the communities
it serves while also enhancing the lives of tomorrow’s leaders. The Bancorp has strong partnerships with diversity-focused affinity groups,
both with universities and partner organizations, that drive engagement with a diverse candidate population which includes women,
minorities, LGBTQ+ communities, individuals with disabilities and veterans.
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,
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.
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
22 Fifth Third Bancorp
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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,
the OCC, and the CFPB. 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. Some
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 the Bancorp’s 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 merge or consolidate
with any BHC.
The BHCA generally prohibits a BHC from engaging in, or 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 that engages 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 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.
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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” process discussed below (see
Regulatory Capital Requirements below).
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
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.
As of June 30, 2020, the DIF reserve ratio fell to 1.30%, below the statutory minimum of 1.35%. 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 the statutory minimum of
1.35% within eight years. On October 18, 2022, the FDIC adopted an amended restoration plan to increase the likelihood that the reserve
ratio would be restored to at least 1.35% by September 30, 2028. The FDIC’s amended restoration plan increases the initial base deposit
insurance assessment rate schedules uniformly by 2 basis points, beginning in the first quarterly assessment period of 2023. The FDIC could
further 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 Bank received an “Outstanding” rating on its most recent CRA performance examination from the OCC.
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.
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On May 5, 2022, the OCC, FRB, and FDIC issued a notice of proposed rulemaking to provide for a coordinated approach to modernize their
respective CRA regulations, such that all banks will be subject to the same set of CRA rules. No final rule has been issued, but the
rulemaking may affect the Bank’s CRA compliance obligations in the future.
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
“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 Capital Rules, the Bancorp’s and the Bank’s assets, exposures, and certain off-balance sheet items are subject to 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”) 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”). The Bancorp has elected to
exclude certain AOCI components, with the result that those components are not recognized in the Bancorp’s CET1. The FDIC,
FRB and OCC have jointly issued 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.
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.
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, 2022, the Bancorp was permitted to use 100% of its eligible retained income for these
purposes in the first quarter of 2023. 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 adopted 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 was calculated each quarter for the first two years of the five-year transition. The
amount of the modified CECL transition amount was then fixed as of December 31, 2021 and that amount will be subject to the three-year
phase out.
The Capital Rules also require banking organizations to maintain a stress capital buffer to avoid becoming subject to certain limitations on
capital distributions and discretionary bonuses to executive officers (see Stress Buffer Requirements below). For more information related to
the stress capital buffer, refer to Note 29 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 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
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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,
2022, 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 stress capital buffer, and well-capitalized minimums
compared with the Bancorp’s and the Bank’s regulatory capital ratios as of December 31, 2022, calculated using the regulatory capital
methodology applicable during 2022:
Regulatory Capital Ratios:
CET1 risk-based capital ratio:
Fifth Third Bancorp
Fifth Third Bank, National Association
Tier 1 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
Leverage ratio:
Fifth Third Bancorp
Fifth Third Bank, National Association
Minimum Regulatory
Capital Ratio
Minimum Ratio +
Stress Capital Buffer(a)
Well-Capitalized
Minimums(b)
Actual at
December 31, 2022
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
9.28
11.31
10.53
11.31
12.79
12.81
8.56
9.23
(a) Reflects the stress capital buffer of 2.5% applicable during 2022.
(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 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 assessment in 2024. 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 was 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
certain limitations on capital distributions and discretionary bonuses to executive officers. The final rule is applicable to BHCs with $100
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billion or more in total consolidated assets and was effective on October 1, 2020. The FRB uses the supervisory stress test to determine the
Bancorp’s stress capital buffer, subject to a floor of 2.5%. The Bancorp’s stress capital buffer requirement has been 2.5% since the
introduction of this framework and was most recently affirmed in June of 2022 as part of the FRB’s 2022 supervisory stress test with an
effective date of October 1, 2022. The Bancorp’s capital ratios have exceeded the stress capital buffer requirement for all periods presented.
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,
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 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. 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. 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 certain
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
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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.
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.
On August 25, 2022, the SEC finalized rules implementing the pay versus performance disclosure requirement mandated by Dodd–Frank.
Under the new rules, reporting companies are required to include a tabular and narrative disclosure of specified executive compensation and
financial performance measures for the five most recently completed fiscal years in proxy statements for fiscal years ending on or after
December 16, 2022. Additionally, companies are required to use the company information in the table to give a clear description of the
relationships between compensation actually paid to specified executive officers to the cumulative total shareholder return, net income, and
company-selected financial measures.
The SEC has issued rules (as required by Dodd-Frank) requiring 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 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 rules 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
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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.
In June 2021, the FDIC issued a public policy statement describing how the FDIC will implement certain aspects of the FDIC’s resolution
plan rule with respect to banks with $100 billion or more in total assets. Further, in August 2021, the FDIC informed the Bank of certain
requirements applicable to the resolution plan submission required under the FDIC’s rule with a submission due date of on or before
December 1, 2022. The Bank submitted the resolution plan as required.
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
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 do not currently have a material impact and are not
expected to have a future 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.
RISK FACTORS SUMMARY
The following is a summary of the Risk Factors disclosure in this Item 1A:
CREDIT RISKS
•
•
•
•
Deteriorating credit quality has adversely impacted Fifth Third in the past and may adversely impact Fifth Third in the future.
Fifth Third may have more credit risk and higher credit losses to the extent loans are concentrated by exposure to individual
borrowers, location or industry of the borrowers or collateral.
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.
Inability to refinance in capital markets could cause a default that impacts Fifth Third borrowers.
LIQUIDITY RISKS
•
•
•
•
Fifth Third must maintain adequate sources of funding and liquidity.
Fifth Third and/or the holders of its securities could be adversely affected by unfavorable ratings from rating agencies.
If Fifth Third is unable to maintain or grow its deposits, it may be subject to paying higher funding costs.
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.
OPERATIONAL RISKS
•
•
•
•
•
•
•
•
Fifth Third is exposed to cyber security risks that create both operational and reputational risk for the Bank and its customers across
all lines of business.
Fifth Third relies on its systems and certain third-party service providers and certain failures (including those driven by climate-
related weather events) could materially adversely affect operations.
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 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’s framework for managing risks may not be effective in mitigating its risk and loss.
Fifth Third may experience losses related to fraud, theft or violence.
Fifth Third could suffer if it fails to attract and retain skilled personnel.
Fifth Third may experience operational disruption from the effects of climate change.
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 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 is subject to extensive governmental regulation which could adversely impact Fifth Third or the businesses in which
Fifth Third is engaged.
Fifth Third could suffer from unauthorized use of intellectual property.
Fifth Third is subject to various regulatory requirements that may limit its operations and potential growth.
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.
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.
Regulation of Fifth Third by the CFTC imposes additional operational and compliance costs.
Deposit insurance premiums levied against the Bank may increase if the number of bank failures increase or the cost of resolving
failed banks increases.
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•
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.
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.
• 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.
Global and domestic political, social and economic uncertainties and changes may adversely affect Fifth Third.
Changes in interest rates could affect Fifth Third’s income and cash flows.
Changes and trends in the capital markets may affect Fifth Third’s income and cash flows.
Fifth Third’s stock price is volatile.
Fifth Third’s mortgage banking net revenue can be volatile from quarter to quarter.
•
•
•
•
•
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.
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.
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.
Future acquisitions may dilute current shareholders’ ownership of Fifth Third and may cause Fifth Third to become more
susceptible to adverse economic events.
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 increases 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.
REPUTATION RISKS
•
•
Damage to Fifth Third’s reputation could harm its business.
Fifth Third is subject to environmental, social and governance (“ESG”) risks that could adversely affect its reputation, the trading
price of its common stock and/or its business, operations, and earnings.
GENERAL BUSINESS RISKS
•
•
•
•
•
•
•
Changes in accounting standards or interpretations could impact Fifth Third’s reported earnings and financial condition.
Fifth Third uses models for business planning purposes that may not adequately predict future results.
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 effects of global climate change, 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.
Societal responses to climate change could adversely affect Fifth Third’s business and performance, including indirectly through
impacts on Fifth Third’s customers.
Potential noncompliance with evolving federal and state laws governing cannabis-related businesses (“CRBs”) could subject Fifth
Third to liabilities.
The COVID-19 pandemic creates significant risks and uncertainties for Fifth Third’s business.
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 expected to be incurred 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. Such determination
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requires difficult, subjective and complex judgments about the environment, including analysis of economic or market conditions that may
impair the ability of borrowers to repay their loans.
Fifth Third may underestimate the credit losses expected to be incurred in its portfolios and have credit losses in excess of the amount
reserved. Fifth Third may increase the reserve because of changing economic or market 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 expected losses at December 31,
2022; however, there is no assurance that they will be sufficient to cover future credit losses associated with exposures existing at
December 31, 2022, especially if economic conditions decline, including but not limited to housing and employment conditions. In the event
of significant deterioration in economic or market 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 exposure to individual borrowers,
location or industry of the borrowers or collateral.
Fifth Third’s credit risk and credit losses can increase if its loans are concentrated among individual borrowers, borrowers engaged in the
same or similar activities, industries or geographies or to borrowers who as a group may be uniquely or disproportionately affected by
economic or market conditions. Deterioration in economic conditions, including housing conditions or commodity and real estate values in
certain states or locations could result in materially higher credit losses if loans are concentrated in those locations or by other factors. Fifth
Third has significant exposure 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.
Certain industries, including segments of the healthcare industry (including skilled nursing, physician offices and surgery/outpatient centers)
that were impacted by the COVID-19 pandemic continue to struggle with recovery. Additionally, many other affected businesses that have
reopened are experiencing increased costs and labor shortages, which create wide-ranging effects on several industries.
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
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.
Inability to refinance in capital markets could cause a default that impacts Fifth Third borrowers.
Some Fifth Third customers rely on additional sources of capital from outside the Bancorp. If capital markets are disrupted or unavailable to
these borrowers such that they cannot obtain funds for refinancing, those borrowers may experience a shortfall that would leave them unable
to honor short-term and/or long-term obligations to the Bancorp.
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 it makes and the operation of its business. Core deposits, which include transaction deposits and certificates of deposit $250,000 or less,
have historically provided Fifth Third with a sizeable source of relatively stable and low-cost funds (average core deposits funded 78% of
average total assets for the year ending December 31, 2022). In addition to customer deposits, sources of liquidity include investments in the
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securities portfolio, Fifth Third’s sale or securitization of loans in secondary markets, 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 money and capital markets.
Fifth Third’s liquidity and ability to fund and operate 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 customer deposits and/or negatively affect Fifth Third’s 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 collateral requirements;
increased regulatory requirements;
reductions in one or more of Fifth Third’s credit ratings;
increased utilization of revolving lines of credit by customers; and
systematic failure of financial market utilities relied upon by Fifth Third to settle intrabank payment activity.
A reduction in Fifth Third’s credit rating could adversely affect its ability to borrow funds, including by raising 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 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 Tailoring Rules in 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, 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.
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.
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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. The ability of Fifth Third Bancorp’s subsidiaries to pay dividends or make other payments or
distributions depends on their respective operating results and may be restricted by, among other things, regulatory constraints, prevailing
economic conditions (including interest rates), and financial, business and other factors, many of which are beyond the control of Fifth Third
Bancorp. 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, economic conditions and other financial or business
factors 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 in Item 1 of this Annual Report on Form 10-K and
Note 3 of the Notes to Consolidated Financial Statements.
OPERATIONAL RISKS
Fifth Third is exposed to cyber security risks that create both operational and reputational risk for the Bank and its customers across all
lines of business.
In today’s digital world, more and more of Fifth Third’s business is conducted primarily via digital and mobile technology and information
management systems. This includes the use of cloud computing, digital applications and third-party providers that host and store sensitive
employee and customer information. Failures, interruptions of service or breaches in the security of these environments occur across the
financial services industry with some frequency and, if a material event of this nature occurred at Fifth Third or one of its third-party
providers, this could result in disruptions to Fifth Third’s accounting, deposit, lending and other systems, and adversely affect its customer
relationships. While Fifth Third heavily invests in information security, technical resiliency, business continuity and disaster recovery
planning, and has policies and procedures designed to detect, limit, and prevent the impact 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 remediated in such a way to eliminate
the risk.
There will always be efforts on the part of threat actors to breach information 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. Despite Fifth Third’s efforts to prevent a cyber-attack,
a successful cyber-attack could persist for an extended period of time before being detected, and, following detection, it could take
considerable time for Fifth Third to obtain full and reliable information about the cyber security incident and the extent, amount and type of
information compromised. During the course of an investigation, Fifth Third may not necessarily know the full effects of the incident or how
to remediate it, and actions and decisions that are taken or made in an effort to mitigate risk may further increase the costs and other negative
consequences of the incident. Furthermore, financial services companies are regularly the target of cyber-attacks such as distributed denial of
service attacks and ransomware attacks. The unintentional or willful acts or omissions of employees also remains the primary avenue through
which threat actors attempt to gain access to company networks, information systems and data.
An emerging risk is the use of third- and fourth-party providers to host critical data and platforms for Fifth Third, or in some cases provide IT
services to Fifth Third domestically and internationally. Fifth Third must make investments in its ability to oversee third- and fourth-party
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providers and its failure to do so could result in customer losses, operational issues, litigation, regulatory actions and reputational loss.
Industry trends are moving more to cloud providers, Software as a Service partners and hosted platforms that traditionally resided inside Fifth
Third’s firewall and data centers. These emerging risks are further heightened through the increasing use of near real-time money movement
solutions such as Zelle, and increase the difficulty to detect, prevent and recover fraudulent transactions. These emerging risks are increasing
the costs of Fifth Third’s investment in technology and cyber security and require further investment in cyber-related and data loss event
insurance which Fifth Third has in place. Though Fifth Third has insurance against some cyber security risks and attacks, it may not be
sufficient to offset the impact of a material loss event. Future investment in these areas 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.
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.
Fifth Third relies on its systems and certain third-party service providers and certain failures (including those driven by climate-related
weather events) 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. Fifth Third may not be sufficiently resilient and may not recover from significant
operational events in a timely manner which could create operational and reputational risks. 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
customer 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 processes are
highly concentrated or 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. While the Bancorp
believes that its current business continuity 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.
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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
new products, services, partnerships and processes that arise from the execution of these 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 for ongoing product development and process re-engineering. Fifth Third may not be able to successfully implement and
integrate future system enhancements, which could adversely impact the ability to provide timely and accurate financial information in
compliance with legal and regulatory requirements, which could result in sanctions from regulatory authorities. Such sanctions could include
fines and result in reputational harm and have other negative effects. 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. A failure to maintain or enhance Fifth Third’s competitive position with respect to technology, whether because of a
failure to anticipate client expectations or other necessary changes, a failure in the performance of technological developments or an untimely
roll out of developments, may cause Fifth Third to lose market share or incur additional expense.
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. Fifth Third also considers the physical and transition risks arising from climate change to be transverse risk drivers
that impact all of these material risks and have therefore integrated climate change considerations into its risk management framework. 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 industry fraud threat continues to evolve, including but not limited to, card fraud, check fraud,
electronic fraud, wire fraud, social engineering and phishing attacks for identity theft and account takeover. Nationally, reported incidents of
fraud and other financial crimes have increased. Increased use of the internet and telecommunications technologies (including mobile
devices) to conduct financial and other business transactions and operations, coupled with the increased sophistication and activities of
organized crime, perpetrators of fraud, hackers, terrorists and others increases Fifth Third’s security risks. 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
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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.
Fifth Third may experience operational disruption from the effects of climate change.
Fifth Third faces operational risk from the effects of climate change as an increase in severe weather may cause closures, damage to
infrastructure, or damage to Fifth Third’s physical locations that may disrupt the physical operation of the Bancorp. These interruptions may
impair Fifth Third’s ability to operate and may interfere with its ability to carry out business and serve clients and customers.
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 19 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
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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. As a result,
Fifth Third has established reserves in its consolidated financial statements for probable losses related to the residential mortgage loans it has
sold. If economic conditions or the housing market deteriorate or future investor repurchase demand and Fifth Third’s success at appealing
such repurchase requests differ from expectations, Fifth Third could have increased repurchase obligations and increased loss severity on
repurchases, requiring material additions to the repurchase reserve. Due to uncertainties relating to these factors, there can be no assurance
that the reserves Fifth Third establishes will be adequate or that the total amount of losses incurred will not have a material adverse effect on
Fifth Third’s financial condition or results of operations.
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 federal and state 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
for the protection of consumers, borrowers and depositors and are not designed to protect security-holders. In the past decade, the scope of the
laws and regulations and the intensity of the supervision to which Fifth Third is subject increased in response to the 2008-2009 financial crisis
as well as other factors such as technological and market changes. Compliance with these laws and regulations has resulted in and will
continue to result in additional costs, which could be significant, and may have a material and adverse effect on Fifth Third’s results of
operations. In addition, if Fifth Third does not appropriately comply with current or future legislation and regulations, especially those that
apply to its consumer operations, which has been an area of heightened focus, Fifth Third may be subject to fines, penalties or judgments, or
material regulatory restrictions on its businesses, which could adversely affect operations and, in turn, financial results. 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 laws or regulations (including tax laws and
regulations such as the Inflation Reduction Act) 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. In addition, as climate
change issues become more prevalent, the U.S. and foreign governments are beginning to respond to these issues. The increasing government
focus on climate change may result in new environmental regulations, including disclosure required by the SEC, that could result in
additional compliance costs.
The Biden Administration has sought to implement a regulatory agenda that is significantly different than that of the Trump Administration.
This agenda could include a heightened focus on the risks arising from climate change, fair lending, consumer protection, 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 hindered by increased antitrust and other regulatory
scrutiny. Reform proposals are also expected for the short-term wholesale markets. It is uncertain which, if any, of these policies would be
implemented and what their impact would be on Fifth Third.
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 and supervisory and enforcement focus 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 within the course of business, such as rating agencies, insurance companies and investors.
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.
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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 FHC 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, fair lending, 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
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.
The Bancorp is subject to the stress capital buffer requirement and must maintain capital ratios above its buffered minimum (regulatory
minimum plus stress capital buffer) in order to avoid certain limitations on capital distributions and discretionary bonuses to executive
officers. The FRB uses the supervisory stress test to determine the Bancorp’s stress capital buffer, subject to a floor of 2.5%. The Bancorp’s
stress capital buffer requirement has been 2.5% since the introduction of this framework and was most recently affirmed as part of the FRB’s
2022 supervisory stress test for the period from October 1, 2022 to September 30, 2023, based on the Bancorp’s 2022 supervisory stress
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testing results, subject to potential adjustments by the FRB. Further changes to applicable capital and liquidity requirements could result in
unexpected or new limitations on the Bancorp’s ability to pay dividends and engage in share repurchases.
Regulation of Fifth Third by the 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 in Item 1 of this Annual Report on Form 10-K.
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
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.
London Interbank Offered Rate (“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 (the “FCA”), which regulates
LIBOR, publicly announced that it would stop persuading or compelling banks to submit LIBOR rates 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.
On March 5, 2021, the FCA and ICE Benchmark Administration, Limited announced that the publication of the one-week and two-month
U.S. Dollar (“USD”) LIBOR maturities and non-USD LIBOR maturities would cease immediately after December 31, 2021, with the
remaining USD LIBOR maturities ceasing immediately after June 30, 2023. In the United States, the Alternative Rates Reference Committee
(the “ARRC”), a group of market participants convened in 2014 to help ensure a successful transition away from USD LIBOR, identified the
Secured Overnight Financing Rate (“SOFR”) as its preferred alternative rate. 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. The composition and
characteristics of SOFR are not the same as those of LIBOR, and SOFR is fundamentally different from LIBOR for two key reasons: (1)
SOFR is a secured rate, while LIBOR is an unsecured rate, and (2) SOFR is an overnight rate, while LIBOR is a forward-looking rate that
represents interbank funding over different maturities. Notably, other countries are introducing their own local-currency-denominated
alternative reference rates for short-term lending, such as the Sterling Overnight Index Average (“SONIA”), the Swiss Average Rate
Overnight (“SARON”), and the Tokyo Overnight Average Rate (“TONAR”), among others. On March 15, 2022, President Biden signed the
Adjustable Interest Rate (LIBOR) Act (the “LIBOR Act”) into law. The LIBOR Act offers a federal solution for transitioning legacy
instruments that lack sufficient provisions addressing LIBOR’s cessation by outlining a uniform process to govern the transition from LIBOR
to a replacement rate. The LIBOR Act also establishes a safe harbor for lenders, shielding lenders from litigation as a result of their choice of
a replacement rate (such as SOFR) per FRB recommendations. On December 16, 2022, the FRB issued its final regulations which carry out
the terms of the LIBOR Act. These regulations: (i) address the applicability of the LIBOR Act to various LIBOR contracts, (ii) identify the
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FRB-selected benchmark replacements for various types of LIBOR contracts, (iii) include certain benchmark replacement conforming
changes, (iv) address the issue of preemption and (v) provide other clarifications, definitions and information. The regulations will become
effective on February 27, 2023, which is thirty (30) days after the regulations were published in the Federal Register.
The market transition away from LIBOR to an alternative reference rate, such as SOFR, is complex and subjects Fifth Third to financial, legal
and operational risks. In particular, any such transition could:
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•
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•
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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 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.
Fifth Third has been, and will continue to be, impacted by general business and economic conditions in the United States. These conditions
include short-term and long-term interest rates, inflation, money supply, political issues, legislative and regulatory changes, fluctuations in
both debt and equity capital markets, broad trends in industry and finance, unemployment and the strength of the U.S. economy and the local
economies in which Fifth Third operates, all of which are beyond Fifth Third’s control. Deterioration or continued weakness in any of these
conditions could result in a decrease in demand for Fifth Third’s products and services.
Worldwide financial markets have recently experienced periods of extraordinary disruption and volatility, which have been driven by factors
such as the COVID-19 pandemic and the Russia/Ukraine conflict, resulting in heightened credit risk, reduced valuation of investments,
decreased economic activity, heightened risk of cyberattacks, and inflation. 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 and political 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 impacted by, a 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 (such as recent budget deficit concerns and
political conflict over legislation to raise the U.S. government’s debt limit) that may delay investment and hamper economic activity.
International events such as trade disputes, separatist movements, leadership changes and political and military conflicts (such as the ongoing
military tension between Russia and Ukraine) 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, could adversely impact Fifth Third’s ability to raise liquidity via money and capital 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 and inflation, could 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. For example, a tightening of the money supply by the FRB could reduce the demand for a borrower’s products and
services. This could adversely affect the borrower’s earnings and ability to repay a loan, which could have a material adverse effect on Fifth
Third’s financial condition and results of operations. 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
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Fifth Third, its customers and its shareholders. 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%, but a recent pronounced rise in inflation has prompted the FRB to
raise certain benchmark interest rates to combat it. As inflation increases and market interest rates rise, the value of Fifth Third’s investment
securities, particularly those that have fixed rates or longer maturities, could decrease. Increasing rates would also increase debt service
requirements for some of Fifth Third’s borrowers and may adversely affect those borrowers’ ability to pay as contractually obligated and
could result in additional delinquencies or charge-offs. Further, the increase in market interest rates is likely to reduce Fifth Third’s loan
origination volume, particularly refinance volume, and/or reduce its interest rate spread, which could have an adverse effect on Fifth Third’s
profitability and results of operations. Conversely, a lowering in interest rates 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 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.
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 and price risks. 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, SOFR 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 and price risks.
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
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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 1,087 full-service banking
centers, 14 parcels of land held for the development of future banking centers and 45 properties that 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 work arrangements and 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.
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.
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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 increases 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.
REPUTATION RISKS
Damage to Fifth Third’s reputation could harm its business.
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, failure to deliver minimum or required standards of service or quality,
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.
Fifth Third is subject to environmental, social and governance (“ESG”) risks that could adversely affect its reputation, the trading price
of its common stock and/or its business, operations, and earnings.
Certain organizations that provide corporate governance and other corporate risk information to investors and shareholders have developed
scores and ratings to evaluate companies based upon ESG metrics. Currently, there are no universal standards for such scores or ratings, but
ESG evaluations are becoming more important to the reputation and success of many businesses, including financial institutions. Views about
ESG-related issues are diverse, dynamic, and rapidly changing, and if Fifth Third were to fail to maintain appropriate ESG practices and
disclosures or be subject to certain ESG scores or ratings, Fifth Third could face potential negative ESG-related publicity in traditional and
social media, including based on the identity of those Fifth Third chooses to do business with and the public’s view of those customers. If
Fifth Third or its relationships with customers, vendors and suppliers were to become the subject of such negative publicity, Fifth Third’s
ability to attract and retain customers and employees may be negatively impacted and its stock price may also be impacted.
Companies are facing increasing scrutiny from customers, regulators, investors, and other stakeholders related to their ESG practices and
disclosure. For Fifth Third and others in the financial services industry, this focus extends to the practices and disclosures of the customers,
counterparties, and service providers with whom Fifth Third chooses to do business. Investor advocacy groups, investment funds and
influential investors are also increasingly focused on these practices, especially as they relate to the environment, health and safety, diversity,
labor conditions and human rights, and certain investors are beginning to incorporate the business risks and opportunities of climate change
and the adequacy of companies’ responses to climate change and other ESG matters as part of their investment theses. New government
regulations could also result in new or more stringent forms of ESG oversight and expand mandatory and voluntary reporting, diligence and
disclosure. Failure to adapt to or comply with regulatory requirements or investor or stakeholder expectations and standards could negatively
impact Fifth Third’s reputation, ability to do business with certain partners, access to capital, and its stock price. While Fifth Third has
sustainability and corporate responsibility initiatives there can be no assurance that regulators, customers, investors, and employees will
determine that these programs are sufficiently robust. In addition, there can be no assurance that Fifth Third will be able to attain its
announced goals related to its sustainability and corporate responsibility programs, as statements regarding its goals reflect Fifth Third’s
current plans and aspirations and are not guarantees that it will be able to achieve them within the timelines it announces or at all. Actual or
perceived shortcomings with respect to these ESG initiatives and reporting can impact Fifth Third’s ability to hire and retain employees,
increase its customer base, or attract and retain certain types of investors. In addition, certain organizations that provide corporate governance
and other corporate risk information to investors and shareholders have developed scores and ratings to evaluate companies based upon ESG
metrics. Collecting, measuring, and reporting ESG information and metrics can be costly, difficult and time consuming, is subject to evolving
reporting standards, and can present numerous operational, reputational, financial, legal and other risks, any of which could have a material
impact, including on Fifth Third’s reputation and stock price. Inadequate processes to collect and review this information prior to disclosure
could be subject to potential liability related to such information.
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Activists are increasingly targeting financial firms with public criticism for their relationships with clients that are engaged in certain
industries (such as those which are carbon intensive), including businesses whose products are or are perceived to be harmful to health, the
environment, the global climate, or the social good. Activist criticism of Fifth Third’s relationships with clients in sensitive industries could
potentially engender dissatisfaction among stakeholders with how Fifth Third addresses environmental or social concerns through business
activities which could negatively affect its business or reputation.
Conversely, states throughout the Bank’s footprint have taken actions or proposed measures to limit the state’s ability to do business with
financial institutions or other businesses identified as discriminating against certain industries (such as those which are carbon intensive) or
practices based on environmental or social criteria. Although Fifth Third has a defined risk management approach for client selection, Fifth
Third could be inherently exposed to reputational, financial and legal risk, and its ability to retain and attract customers and employees may
be negatively impacted as a result of these contrasting arguments in how a financial institution should address these issues.
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.
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.
The effects of global climate change, 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
that may be negatively affected by economic transition towards a lower-carbon economy. Fifth Third could experience a drop in demand for
its 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,
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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.
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
divergence and continued changes in laws governing CRBs results in challenges to Fifth Third 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 negatively impacted the global economy, disrupted global supply chains, created significant volatility and disruption in financial
markets and increased unemployment levels, all of which may again become heightened concerns upon subsequent waves of infection or
future developments.
In addition, an increase in the remote work force resulting from the COVID-19 pandemic and the potential for a long-term change in remote
work practices may also increase risks related to cybersecurity and information security. The operation of a hybrid workplace may negatively
impact Fifth Third’s ability to attract and retain qualified personnel. Differences in the demands, expectations and priorities of the workforce
may require Fifth Third to rethink and amend its recruiting and retention strategies in order to attract and keep new employees.
The extent to which the consequences of the COVID-19 pandemic continue to impact the Bancorp’s business, results of operations, and
financial condition, as well as its regulatory capital and liquidity ratios, will depend on highly uncertain future developments, including the
scope and duration of the pandemic (including the possibility of further surges of COVID-19 and any virus variants, which may or may not
respond to available vaccinations), the timing and efficacy of the vaccination program in the U.S. and further actions taken by governmental
authorities and other third parties in response to the pandemic. Government actions to mitigate the economic suffering caused by the
COVID-19 pandemic may not be successful or may result in increased pressure on the banking sector, which could adversely affect the
Bancorp’s business, results of operations and financial condition more substantially over a longer period of time. In addition, the unique
historical nature of the pandemic and the unprecedented level of governmental response may also significantly impact the Bancorp’s ability to
effectively manage its business or predict future performance.
The Biden Administration announced that May 11, 2023 will be the final day of the COVID-19 public health emergency declaration. As the
COVID-19 pandemic subsides, the U.S. economy may require some time to fully recover from its effects, the length of which is unknown.
The effects of the COVID-19 pandemic may heighten many of the other risks described in Item 1A. Risk Factors of the Bancorp’s Annual
Report on Form 10-K 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 the Bancorp’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, 2022, the Bancorp, through its banking and non-banking subsidiaries, operated 1,087 banking centers, of which 744 were
owned, 203 were leased and 140 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 19 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 24, 2023 are listed below along with
their business experience during the past five years:
Timothy N. Spence, 44. President and Chief Executive Officer since July 2022. Mr. Spence has been 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.
Greg D. Carmichael, 61. Executive Chairman of the Bancorp since July 2022. Mr. Carmichael has been Chairman of the Board since
February 2018. Previously, Mr. Carmichael was Chief Executive Officer from November 2015 to July 2022. He was also 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.
Kristine R. Garrett, 64. Executive Vice President, Group Regional President and Head of Wealth & Asset Management since July 2022.
Ms. Garrett has been 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.
Kala J. Gibson, 50. Executive Vice President and Chief Corporate Responsibility Officer since February 2022. Mr. Gibson has been an
Executive Vice President of the Bancorp since June 2019. Previously, Mr. Gibson served as Head of Business Banking and Chief Enterprise
Corporate Responsibility Officer from December 2020 to February 2022, Head of Business Banking from September 2013 to December
2020, Senior Vice President from September 2011 to June 2019, and Business Banking Executive for Fifth Third’s East Michigan Region
from July 2011 to September 2013.
Howard Hammond, 57. 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, 57. Executive Vice President and Controller of the Bancorp since February 2010. Mr. Hazel has been an Executive Vice
President of the Bancorp since September 2021. Previously, Mr. Hazel was the Assistant Bancorp Controller since 2006 and was the
Controller of Nonbank entities since 2003.
Kevin P. Lavender, 61. Executive Vice President and Head of Commercial Bank 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, 53. 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.
Nancy C. Pinckney, 59. Executive Vice President and Chief Human Resources Officer since September 2021. Previously, Ms. Pinckney was
Senior Vice President and Director of Human Capital Business Consulting from February 2012 through September 2021 and Director of
Employee Relations from March 2010 to February 2012. Prior to that, she held various positions within Fifth Third’s human resources
division.
Jude A. Schramm, 50. 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, 53. 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.
Richard L. Stein, 53. 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
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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, 48. Executive Vice President and Chief Marketing Officer since February 2023. Previously, Ms. Stevens was Chief
Digital Officer and Head of Digital, Marketing, Design and Innovation from November 2020 to February 2023. She also 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.
Susan B. Zaunbrecher, 63. 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.
49 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 3 of the Notes to Consolidated
Financial Statements, which is incorporated herein by reference. Additionally, as of December 31, 2022, the Bancorp had 34,165 common
shareholders of record.
Issuer Purchases of Equity Securities
Period
October 1 - October 31, 2022
November 1 - November 30, 2022
December 1 - December 31, 2022
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
73,176
23,625
3,089,094
3,185,895
$
$
33.08
34.93
32.47
32.51
—
—
3,079,462
3,079,462
40,785,269
40,785,269
37,705,807
37,705,807
(a)
Includes 106,433 shares repurchased during the fourth quarter of 2022 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 24 and Note 25 of the Notes to Consolidated
Financial Statements, which is incorporated herein by reference.
50 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, 2022, respectively, compared to the S&P 500 Stock, the S&P Banks and the KBW Banks indices.
FIFTH THIRD BANCORP VS. MARKET INDICES
51 Fifth Third Bancorp
Total Return Index5 Year ReturnFITBS&P 500 (SPX)S&P Banks Index (BIX)KBW Banks Index (BKX)201720182019202020212022(20)%0%20%40%60%80%100%120%140%Total Return Index10 Year ReturnFITBS&P 500 (SPX)S&P Banks Index (BIX)KBW Bank Index (BKX)20122013201420152016201720182019202020212022(50)%0%50%100%150%200%250%300%350%400% Table of Contents
2022 ANNUAL REPORT
FINANCIAL CONTENTS
Glossary of Abbreviations and Acronyms
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
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
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
Restrictions on Dividends and 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
126 Long-Term Debt
139 Commitments, Contingent Liabilities and Guarantees
139 Legal and Regulatory Proceedings
140 Related Party Transactions
143 Income Taxes
145 Retirement and Benefit Plans
155 Accumulated Other Comprehensive Income
156 Common, Preferred and Treasury Stock
156 Stock-Based Compensation
158 Other Noninterest Income and Other Noninterest Expense
159 Earnings Per Share
160 Fair Value Measurements
163 Regulatory Capital Requirements and Capital Ratios
165 Parent Company Financial Statements
171 Business Segments
172 Subsequent Event
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
215
216
224
225
52 Fifth Third Bancorp
53
54
59
61
61
65
72
81
88
89
106
112
114
115
116
118
120
121
122
123
125
173
177
181
183
185
187
190
192
194
197
198
199
208
209
211
214
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
CCAR: Comprehensive Capital Analysis and Review
CD: Certificate of Deposit
CDC: Fifth Third Community Development Corporation and Fifth Third NM: Not Meaningful
HTM: Held-To-Maturity
IPO: Initial Public Offering
IRC: Internal Revenue Code
IRLC: Interest Rate Lock Commitment
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
MSR: Mortgage Servicing Right
N/A: Not Applicable
NAV: Net Asset Value
NII: Net Interest Income
Condition and Results of Operations
Community Development Company, LLC
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, Inc.
GDP: Gross Domestic Product
GNMA: Government National Mortgage Association
GSE: United States Government Sponsored Enterprise
OAS: Option-Adjusted Spread
OCC: Office of the Comptroller of the Currency
OCI: Other Comprehensive Income (Loss)
OREO: Other Real Estate Owned
PCD: Purchased Credit Deteriorated
PPP: Paycheck Protection Program
PSA: Performance Share Award
RCC: Risk and 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
53 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 leases 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, 2022, net
interest income on an FTE basis and noninterest income provided 67% and 33% 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, 2022. 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, wealth and asset management revenue, commercial banking revenue, card
and processing revenue, leasing business revenue, mortgage banking net revenue, other noninterest income and net securities gains or losses.
Noninterest expense includes compensation and benefits, technology and communications, net occupancy expense, equipment expense,
leasing business expense, marketing expense, card and processing expense and other noninterest expense.
Current Economic Conditions
Robust demand, labor shortages and supply chain constraints have led to persistent inflationary pressures throughout the economy. In
response to these inflationary pressures, the FRB raised benchmark interest rates and may continue to raise interest rates in response to
economic conditions, particularly a continued high rate of inflation. Amidst these uncertainties, some financial markets continued to
experience volatility.
Changes in interest rates can affect numerous aspects of the Bancorp’s business and may impact the Bancorp’s future performance. If
financial markets remain volatile, this may impact the future performance of various segments of the Bancorp’s business, including the value
of the Bancorp’s investment securities portfolio. The Bancorp continues to closely monitor the pace of inflation and the impacts of inflation
on the larger market, including labor and supply chain impacts.
For further discussion on current economic conditions, refer to the Credit Risk Management subsection of the Risk Management section of
MD&A. Additionally, refer to the Interest Rate and Price Risk Management subsection of the Risk Management section of MD&A for
additional information about the Bancorp’s interest rate risk management activities.
54 Fifth Third Bancorp
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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Accelerated Share Repurchase Transactions
The Bancorp entered into and settled a number of accelerated share repurchase transactions during the years ended December 31, 2022 and
2021. 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. Refer to Note 24 of the Notes to Consolidated Financial Statements for additional information on share
repurchase activity. For further information on a subsequent event related to capital actions, refer to Note 32 of the Notes to Consolidated
Financial Statements.
Senior Notes Offerings
During the year ended December 31, 2022, the Bancorp (including both the parent company and its banking subsidiary) issued and sold
fixed-rate/floating-rate senior notes in a number of debt offerings. These transactions included:
•
•
•
•
A Bancorp issuance on April 25, 2022 of $1 billion of fixed-rate/floating-rate senior notes which included $400 million of notes
maturing on April 25, 2028 and $600 million of notes maturing on April 25, 2033.
A Bancorp issuance on July 28, 2022 of $1 billion of fixed-rate/floating-rate senior notes maturing on July 28, 2030.
A Bancorp issuance on October 27, 2022 of $1 billion of fixed-rate/floating-rate senior notes maturing on October 27, 2028.
A Bank issuance on October 27, 2022 of $1 billion of fixed-rate/floating-rate senior notes maturing on October 27, 2025.
In each of these transactions, the parent company and banking subsidiary entered into interest rate swaps designated as fair value hedges to
convert the fixed-rate period of the notes to a floating rate of interest. For more information, refer to Note 17 of the Notes to Consolidated
Financial Statements.
Business Combination
During the second quarter of 2022, the Bancorp completed the acquisition of a national point-of-sale consumer lender specializing in home
improvement and solar energy installation loans originated through a network of contractors and installers. The acquisition was accounted for
under the acquisition method of accounting which generally requires assets acquired and liabilities assumed to be recorded at their estimated
fair values at acquisition date. These fair value estimates are considered preliminary as of December 31, 2022 and are subject to change for up
to one year after the acquisition date as additional information becomes available. For more information on the acquisition, refer to Notes 10
and 11 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
the FCA would 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.
On March 5, 2021, the FCA and ICE Benchmark Administration, Limited announced that the publication of the one-week and two-month
USD LIBOR maturities and non-USD LIBOR maturities would cease immediately after December 31, 2021, with the remaining USD
LIBOR maturities ceasing immediately after June 30, 2023. In the United States, the Alternative Rates Reference Committee (the “ARRC”),
a group of market participants convened in 2014 to help ensure a successful transition away from USD LIBOR, identified SOFR as its
preferred alternative rate. SOFR is a measure of the cost of borrowing cash overnight, collateralized by U.S. Treasury securities, and is based
on directly observable U.S. Treasury-backed repurchase transactions. The composition and characteristics of SOFR are not the same as those
of LIBOR, and SOFR is fundamentally different from LIBOR for two key reasons: (1) SOFR is a secured rate, while LIBOR is an unsecured
rate, and (2) SOFR is an overnight rate, while LIBOR is a forward-looking rate that represents interbank funding over different maturities. As
a result, there can be no assurance that SOFR, however calculated, will perform the same way as LIBOR would have at any time, including,
as a result of changes in interest and yield rates in the market, market volatility, or global or regional economic, financial, political,
regulatory, judicial or other events.
On March 15, 2022, President Biden signed the Adjustable Interest Rate (LIBOR) Act (the “LIBOR Act”) into law. The LIBOR Act offers a
federal solution for transitioning legacy instruments that lack sufficient provisions addressing LIBOR’s cessation by outlining a uniform
process to govern the transition from LIBOR to a replacement rate. The LIBOR Act also establishes a safe harbor for lenders, shielding
lenders from litigation as a result of their choice of a replacement rate (such as SOFR) per FRB recommendations. On December 16, 2022,
the FRB issued its final regulations which carry out the terms of the LIBOR Act. These regulations: (i) address the applicability of the LIBOR
Act to various LIBOR contracts, (ii) identify the FRB-selected benchmark replacements for various types of LIBOR contracts, (iii) include
certain benchmark replacement conforming changes, (iv) address the issue of preemption and (v) provide other clarifications, definitions and
information. The regulations will become effective on February 27, 2023, which is thirty (30) days after the regulations were published in the
Federal Register.
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.
55 Fifth Third Bancorp
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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Although the full impact of LIBOR reforms and actions remains unclear, the Bancorp has discontinued entering into new LIBOR-based
contracts in accordance with regulatory guidance, except for permissible limited use, such as part of hedging and risk management programs.
During the fourth quarter of 2021, the Bancorp expanded its offering of alternative reference rate products, including SOFR. In addition, the
Bancorp is continuing its transition of existing LIBOR-based exposures to an appropriate alternative reference rate on or before June 30,
2023. As of December 31, 2022, the Bancorp had substantial exposure to LIBOR-based products throughout several of its lines of business.
These exposures included derivative contracts with a total notional value of approximately $96 billion, loans outstanding of approximately
$24 billion, preferred stock of approximately $1.4 billion and long-term debt of approximately $237 million. The Bancorp currently estimates
that approximately 8% of the existing exposures will mature before June 30, 2023. For the contracts that will not mature prior to June 30,
2023, an additional portion of these contracts is subject to contractual terms specifying alternative reference rates (“fallback provisions”) that
would become effective upon cessation of LIBOR’s publication. Existing exposures without fallback provisions are expected to either be
amended prior to June 30, 2023 to include such provisions or to transition to an alternative reference rate pursuant to the terms of the LIBOR
Act and its related regulations.
For a further discussion of the various risks the Bancorp faces in connection with the 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 some of the key indicators used by management to assess the Bancorp’s business performance, including those which are
considered in the Bancorp’s compensation programs:
•
•
•
•
•
•
•
•
•
•
•
CET1 Capital Ratio: CET1 capital divided by risk-weighted assets as defined by the Basel III standardized approach to risk-
weighting of assets
Return on Average Tangible Common Equity (non-GAAP): Tangible net income available to common shareholders divided by
average tangible common equity
Return on Average Common Equity, Excluding AOCI (non-GAAP): Net income available to common shareholders divided by total
equity, excluding AOCI and preferred stock
Net Interest Margin (non-GAAP): Net interest income on an FTE basis divided by average interest-earning assets
Efficiency Ratio (non-GAAP): Noninterest expense divided by the sum of net interest income on an FTE basis 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
Net Charge-off Ratio: Net losses charged-off divided by average portfolio loans and leases
Return on Average Assets: Net income divided by average assets
Loan-to-Deposit Ratio: Total loans divided by total deposits
Household Growth: Change in the number of consumer households with retail relationship-based checking accounts
The list of indicators above is intended to summarize some of the most important metrics utilized by management in evaluating the Bancorp’s
performance and does not represent an all-inclusive list of all performance measures that may be considered relevant or important to
management or investors.
56 Fifth Third Bancorp
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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
TABLE 1: Earnings Summary
For the years ended December 31 ($ in millions, except 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 (benefit from) credit losses
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
2022
2021
2020
$
$
5,609
5,625
2,766
8,391
563
4,719
2,446
2,330
3.38
3.35
1.26
22.26
32.81
1.18 %
13.7
19.7
37.3
4,770
4,782
3,118
7,900
(377)
4,748
2,770
2,659
3.78
3.73
1.14
29.43
43.55
1.34
12.8
16.6
30.2
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
(a) Amounts presented on an FTE basis. The FTE adjustments were $16, $12 and $13 for the years ended December 31, 2022, 2021 and 2020, respectively.
(b) 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, 2022 was $2.3 billion, or $3.35 per diluted
share, which was net of $116 million in preferred stock dividends. The Bancorp’s net income available to common shareholders for the year
ended December 31, 2021 was $2.7 billion, or $3.73 per diluted share, which was net of $111 million in preferred stock dividends.
Net interest income on an FTE basis (non-GAAP) was $5.6 billion for the year ended December 31, 2022, an increase of $843 million
compared to the prior year. Net interest income benefited from increases in market interest rates, resulting in increases in yields on average
loans and leases and average other short-term investments for the year ended December 31, 2022 compared to the prior year. Net interest
income also benefited from increases in average taxable securities and average commercial and industrial loans for the year ended December
31, 2022 compared to the prior year. These positive impacts were partially offset by an increase in rates paid on average interest-bearing core
deposits, an increase in the average balance of FHLB advances and an increase in rates paid on average long-term debt as well as a decrease
in interest income recognized from PPP loans for the year ended December 31, 2022 compared to the prior year. Net interest margin on an
FTE basis (non-GAAP) was 3.02% for the year ended December 31, 2022 compared to 2.59% for the year ended December 31, 2021.
The provision for credit losses was $563 million for the year ended December 31, 2022 compared to a benefit from credit losses of $377
million in the prior year. Provision expense increased for the year ended December 31, 2022 compared to the prior year primarily driven by
factors which caused increases in the ACL during the year ended December 31, 2022 including deterioration in forecasted macroeconomic
conditions and higher period-end loan and lease balances, primarily driven by commercial and industrial loan growth, originations of point-
of-sale solar energy installation loans in the second half of 2022 and loans acquired in a business acquisition completed in the second quarter
of 2022. Net losses charged off as a percent of average portfolio loans and leases were 0.19% and 0.16% for the years ended December 31,
2022 and 2021, respectively. At December 31, 2022, nonperforming portfolio assets as a percent of portfolio loans and leases and OREO
decreased to 0.44% compared to 0.47% at December 31, 2021. 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 6 of the Notes to Consolidated Financial Statements.
Noninterest income decreased $352 million for the year ended December 31, 2022 compared to the year ended December 31, 2021 primarily
due to an increase in securities losses as well as decreases in commercial banking revenue, other noninterest income, leasing business revenue
and mortgage banking net revenue.
Noninterest expense decreased $29 million for the year ended December 31, 2022 compared to the year ended December 31, 2021 primarily
due to decreases in compensation and benefits expense and card and processing expense, partially offset by increases in technology and
communications, other noninterest expense and marketing expense.
For more information on net interest income, noninterest income and noninterest expense, refer to the Statements of Income Analysis section
of MD&A.
57 Fifth Third Bancorp
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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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, 2022. As of December 31,
2022, the Bancorp’s capital ratios, as defined by the U.S. banking agencies, were:
•
•
•
•
CET1 capital ratio: 9.28%;
Tier 1 risk-based capital ratio: 10.53%;
Total risk-based capital ratio: 12.79%;
Leverage ratio: 8.56%
58 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 Bancorp encourages readers to consider its Consolidated Financial Statements in their entirety and not to rely on
any single financial measure.
The FTE basis adjusts for the tax-favored status of income from certain loans and leases 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)
$
$
2022
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))
$
$
$
5,609
16
5,625
6,587
16
6,603
978
2,766
4,719
186,326
119,624
3.02 %
2.72
56.2
2021
2020
4,770
12
4,782
5,211
12
5,223
441
3,118
4,748
184,378
115,469
2.59
2.45
60.1
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
Pre-provision net revenue is net interest income plus noninterest income minus noninterest expense. The Bancorp believes this measure is
important because it provides a ready view of the Bancorp’s pre-tax earnings before the impact of provision expense.
The following table reconciles the non-GAAP financial measure of pre-provision net revenue to U.S. GAAP:
TABLE 3: Non-GAAP Financial Measures - Pre-Provision Net Revenue
For the years ended December 31 ($ in millions)
Net interest income (U.S. GAAP)
Add: Noninterest income
Less: Noninterest expense
Pre-provision net revenue
2022
2021
2020
$
$
5,609
2,766
4,719
3,656
4,770
3,118
4,748
3,140
4,782
2,830
4,718
2,894
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.
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The following table reconciles the non-GAAP financial measure of return on average tangible common equity to U.S. GAAP:
TABLE 4: 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)
$
$
2022
2021
2020
2,330
37
2,367
19,080
2,116
4,779
168
12,017
2,659
34
2,693
22,812
2,116
4,366
142
16,188
1,323
38
1,361
22,555
1,916
4,258
172
16,209
Return on average tangible common equity (1) / (2)
19.7 %
16.6
8.4
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. As 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 defined
by U.S. GAAP or codified in the federal banking regulations and, therefore, are considered to be non-GAAP financial measures.
The following table reconciles non-GAAP capital ratios to U.S. GAAP:
TABLE 5: 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)
2022
17,327
2,116
4,915
169
(5,110)
15,237
2,116
17,353
207,452
4,915
169
(6,468)
208,836
$
$
$
$
2021
22,210
2,116
4,514
156
1,207
14,217
2,116
16,333
211,116
4,514
156
1,528
204,918
8.31 %
7.30
7.97
6.94
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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 standard applicable to the
Bancorp during 2022 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. There
have been no material changes to the valuation techniques or models described below during the year ended December 31, 2022.
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 6 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 a reserve for accrued interest receivable as part of its ALLL. However, the Bancorp does
record a reserve for the portion of accrued interest receivable that it expects to be uncollectible. 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. Refer to the Credit Risk Management section of MD&A for additional information.
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 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.
Consumer and residential mortgage loans that have been modified in a TDR are individually evaluated for an ALLL. Allowances for
individually evaluated loans 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 that are not collateral-dependent are measured based on the present value
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of expected future cash flows discounted at the loan’s effective interest rate and a modeled expected credit loss amount. The Bancorp
evaluates the collectability of both principal and interest when assessing the need for a loss accrual. Specific allowances on individually
evaluated consumer and residential mortgage loans 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 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
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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
third parties and participates in peer surveys that provide additional confirmation of the reasonableness of the key assumptions utilized in the
internal OAS model. For additional information on servicing rights, refer to Note 13 of the Notes to Consolidated Financial Statements.
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 6 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 6: 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, 2022
December 31, 2021
$
$
Balance
57,002
27 %
4,130
2 %
Level 3
Balance
Level 3
1,876
1
203
—
43,685
21
2,310
1
1,287
1
222
—
Refer to Note 28 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 reporting unit level on an annual basis, which the Bancorp performs as of September 30 each year, and more frequently
if events or circumstances indicate that there may be 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
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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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 10 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 19 of the Notes to Consolidated Financial Statements for further information regarding the
Bancorp’s legal proceedings.
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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 and wholesale funding. 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 7 and 8 present the components of net interest income, net interest margin and net interest rate spread for the years ended
December 31, 2022, 2021 and 2020, 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 $5.6 billion for the year ended December 31, 2022, an increase of $843 million
compared to the prior year. Net interest income benefited from increases in market interest rates, resulting in increases in yields of 54 bps on
average loans and leases and 81 bps on average other short-term investments for the year ended December 31, 2022 compared to the prior
year. Net interest income also benefited from increases in average taxable securities and average commercial and industrial loans of $16.1
billion and $6.7 billion, respectively, for the year ended December 31, 2022 compared to the prior year. These positive impacts were partially
offset by an increase in rates paid on average interest-bearing core deposits of 35 bps, an increase in the average balance of FHLB advances
of $3.7 billion and an increase in rates paid on average long-term debt of 61 bps for the year ended December 31, 2022 compared to the prior
year. Interest income recognized from PPP loans decreased to $43 million for the year ended December 31, 2022 compared to $189 million
for the prior year.
Net interest rate spread on an FTE basis (non-GAAP) was 2.72% during the year ended December 31, 2022 compared to 2.45% during the
year ended December 31, 2021. Yields on average interest-earning assets increased 71 bps, partially offset by a 44 bps increase in rates paid
on average interest-bearing liabilities for the year ended December 31, 2022 compared to the year ended December 31, 2021.
Net interest margin on an FTE basis (non-GAAP) was 3.02% for the year ended December 31, 2022 compared to 2.59% for the year ended
December 31, 2021. Net interest margin for the year ended December 31, 2022 was positively impacted by the previously mentioned increase
in the net interest rate spread. Net interest margin results are expected to continue increasing, albeit at a slower pace, driven by the continued
repricing of the Bancorp’s fixed-rate assets portfolios into higher rates and the benefits of expected continued growth of the Bancorp’s other
consumer loan portfolio, partially offset by the impact of rising rates on deposits and other interest-bearing liabilities.
Interest income on an FTE basis (non-GAAP) from loans and leases increased $876 million from the year ended December 31, 2021 driven
by the previously mentioned increases in market interest rates and average commercial and industrial loans, partially offset by lower income
from PPP loans. 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
increased $504 million from the year ended December 31, 2021 primarily due to the previously mentioned increases in average taxable
securities and yields on average other short-term investments.
Interest expense on average core deposits increased $354 million from the year ended December 31, 2021 primarily due to an increase in the
cost of average interest-bearing core deposits to 40 bps for the year ended December 31, 2022 from 5 bps for the year ended December 31,
2021, as a result of increasing short-term interest rates. 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 increased $183 million for the year ended December 31, 2022 compared to the year ended
December 31, 2021 primarily due to the previously mentioned increase in the average balance of FHLB advances and increase in rates paid
on average long-term debt, partially offset by a decrease in the average balance of long-term debt of $1.2 billion from the prior year. Refer to
the Borrowings subsection of the Balance Sheet Analysis section of MD&A for additional information on the Bancorp’s borrowings. During
the year ended December 31, 2022, average wholesale funding represented 15% of average interest-bearing liabilities compared to 13% for
the year ended December 31, 2021. For more information on the Bancorp’s interest rate risk management, including estimated earnings
sensitivity to changes in market interest rates, see the Interest Rate and Price Risk Management subsection of the Risk Management section of
MD&A.
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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
TABLE 7: Consolidated Average Balance Sheets and Analysis of Net Interest Income on an FTE Basis
For the years ended December 31
2022
Interest
Earned/
Paid
Average
Yield/
Rate
Average
Balance
2021
Interest
Earned/
Paid
Average
Yield/
Rate
Average
Balance
2020
Interest
Earned/
Paid
Average
Yield/
Rate
($ 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
CDs $250,000 or less
Total interest-bearing core deposits
CDs over $250,000
Other deposits
Federal funds purchased
Securities sold under repurchase agreements
FHLB advances
Derivative collateral and other borrowed money
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
$ 55,618
10,723
5,458
2,828
74,627
19,731
3,971
16,914
1,737
3,581
45,934
$ 120,561
$ 52,218
1,128
12,419
$ 186,326
3,093
19,490
(1,980)
$ 206,929
$ 45,835
23,445
29,326
170
2,342
101,118
1,688
—
381
482
3,733
329
11,893
$ 119,624
60,185
8,040
$ 187,849
$ 19,080
$ 206,929
2,401
415
239
85
3,140
645
177
560
221
220
1,823
4,963
1,493
31
116
6,603
4.32 % $ 48,966
10,396
3.87
5,783
4.38
3,130
3.02
68,275
4.21
21,359
3.27
4,565
4.46
15,156
3.31
1,783
12.73
2,979
6.16
3.97
45,842
4.12 % $ 114,117
2.86 % $ 36,164
2.72
854
33,243
0.94
3.54 % $ 184,378
1,735
313
181
92
2,321
695
164
508
219
180
1,766
4,087
1,074
20
42
5,223
3.54 % $ 53,814
11,011
3.01
5,509
3.13
3,038
2.94
73,372
3.40
17,828
3.26
5,679
3.59
12,454
3.35
2,230
12.28
2,848
6.03
3.85
41,039
3.58 % $ 114,411
2.97 % $ 36,109
233
2.33
21,935
0.13
2.83 % $ 172,688
1,954
391
201
104
2,650
622
222
490
260
192
1,786
4,436
1,114
6
29
5,585
3.63 %
3.54
3.65
3.43
3.61
3.49
3.90
3.93
11.64
6.76
4.35
3.88 %
3.08 %
2.61
0.13
3.23 %
3,055
21,050
(2,159)
$ 206,324
2,978
20,933
(2,369)
$ 194,230
297
32
67
1
9
406
41
—
6
1
98
9
417
978
0.65 % $ 45,850
20,531
0.14
30,631
0.23
0.74
164
3,214
0.40
100,390
0.40
530
2.45
—
—
333
1.69
594
0.17
—
2.63
2.94
513
3.50
13,109
0.82 % $ 115,469
26
4
12
—
10
52
7
—
—
—
—
2
380
441
0.06 % $ 46,890
16,440
0.02
29,879
0.04
185
0.04
5,247
0.31
98,641
0.05
2,208
1.30
71
—
385
0.12
610
0.02
470
—
629
0.30
2.89
16,004
0.38 % $ 119,018
126
10
88
—
66
290
31
1
2
2
3
9
452
790
0.27 %
0.06
0.29
0.21
1.25
0.29
1.41
0.76
0.58
0.28
0.65
1.44
2.82
0.66 %
62,028
6,015
$ 183,512
$ 22,812
$ 206,324
47,111
5,546
$ 171,675
$ 22,555
$ 194,230
$ 5,625
$ 4,782
$ 4,795
3.02 %
2.72
64.20
2.59 %
2.45
62.63
2.78 %
2.57
68.92
(a) The FTE adjustments included in the above table were $16, $12 and $13 for the years ended December 31, 2022, 2021, and 2020, respectively.
(b) Net interest income (FTE), net interest margin (FTE) and net interest rate spread (FTE) are non-GAAP measures. For further information, refer to the Non-GAAP
Financial Measures section of MD&A.
66 Fifth Third Bancorp
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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
TABLE 8: Changes in Net Interest Income Attributable to Volume and Yield/Rate(a)
2022 Compared to 2021
For the years ended December 31
($ in millions)
Yield/Rate
Assets:
Interest-earning assets:
Loans and leases:
Volume
Total
2021 Compared to 2020
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
CDs $250,000 or less
Total interest-bearing core deposits
CDs over $250,000
Other deposits
Federal funds purchased
Securities sold under repurchase agreements
FHLB advances
Derivative collateral and other borrowed money
Long-term debt
Total change in interest expense
Total change in net interest income
$
$
$
$
$
$
$
255
10
(11)
(9)
245
(53)
(23)
58
(6)
37
13
258
461
7
(42)
684
—
1
(1)
—
(3)
(3)
24
—
—
—
98
(1)
(37)
81
603
411
92
69
2
574
3
36
(6)
8
3
44
618
(42)
4
116
696
271
27
56
1
2
357
10
—
6
1
—
8
74
456
240
666
102
58
(7)
819
(50)
13
52
2
40
57
876
419
11
74
1,380
271
28
55
1
(1)
354
34
—
6
1
98
7
37
537
843
(172)
(22)
10
3
(181)
117
(41)
97
(55)
9
127
(54)
1
15
14
(24)
(3)
2
2
—
(19)
(18)
(22)
(1)
—
—
(3)
—
(83)
(127)
103
(47)
(56)
(30)
(15)
(148)
(44)
(17)
(79)
14
(21)
(147)
(295)
(41)
(1)
(1)
(338)
(97)
(8)
(78)
—
(37)
(220)
(2)
—
(2)
(2)
—
(7)
11
(222)
(116)
(219)
(78)
(20)
(12)
(329)
73
(58)
18
(41)
(12)
(20)
(349)
(40)
14
13
(362)
(100)
(6)
(76)
—
(56)
(238)
(24)
(1)
(2)
(2)
(3)
(7)
(72)
(349)
(13)
(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
commitments and letters of credit that is based on factors previously 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 $563 million for the year ended December 31, 2022 compared to a benefit from credit losses of $377
million in the prior year. Provision expense increased for the year ended December 31, 2022 compared to the prior year primarily driven by
factors which caused increases in the ACL during the year ended December 31, 2022 including deterioration in forecasted macroeconomic
conditions and higher period-end loan and lease balances. The increase in period-end loan and lease balances was primarily driven by
commercial and industrial loan growth, originations of point-of-sale solar energy installation loans in the second half of 2022 and loans
acquired in a business acquisition completed in the second quarter of 2022. The economic forecasts used to estimate the ACL at
December 31, 2022 were generally less favorable than those used at December 31, 2021, reflecting an inflationary environment, rising
67 Fifth Third Bancorp
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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
interest rates and higher oil prices. The benefit from credit losses for year ended December 31, 2021 was driven by decreases in the ACL in
response to improved economic forecasts and improved commercial and consumer credit quality.
The ALLL increased $302 million from December 31, 2021 to $2.2 billion at December 31, 2022. At December 31, 2022, the ALLL as a
percent of portfolio loans and leases increased to 1.81%, compared to 1.69% at December 31, 2021. The reserve for unfunded commitments
increased $34 million from December 31, 2021 to $216 million at December 31, 2022. At December 31, 2022, the ACL as a percent of
portfolio loans and leases increased to 1.98%, compared to 1.85% at December 31, 2021.
Refer to the Credit Risk Management subsection of the Risk Management section of MD&A as well as Note 6 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 and determining the level of the ACL.
Noninterest Income
Noninterest income decreased $352 million for the year ended December 31, 2022 compared to the year ended December 31, 2021. The
following table presents the components of noninterest income:
TABLE 9: Components of Noninterest Income
For the years ended December 31 ($ in millions)
Service charges on deposits
Wealth and asset management revenue
Commercial banking revenue
Card and processing revenue
Leasing business revenue
Mortgage banking net revenue
Other noninterest income
Securities (losses) gains, net
Securities (losses) gains, net - non-qualifying hedges on mortgage servicing rights
Total noninterest income
2022
2021
2020
$
$
589
570
565
409
237
215
265
(82)
(2)
2,766
600
586
637
402
300
270
332
(7)
(2)
3,118
559
520
528
352
276
320
211
62
2
2,830
Service charges on deposits
Service charges on deposits decreased $11 million for the year ended December 31, 2022 compared to the year ended December 31, 2021 due
to a decrease in service charges on both commercial and consumer deposits. Service charges on commercial deposits were $434 million for
the year ended December 31, 2022, a decrease of $3 million from the prior year primarily due to higher treasury management earnings credits
driven by market interest rates, partially offset by an increase in commercial treasury management fees. Service charges on consumer deposits
were $155 million for the year ended December 31, 2022, a decrease of $8 million from the prior year primarily due to a decrease in
consumer deposit fees driven by the elimination of non-sufficient funds fees during 2022.
Wealth and asset management revenue
Wealth and asset management revenue decreased $16 million for the year ended December 31, 2022 compared to the year ended
December 31, 2021 primarily due to decreases in private client service fees and securities income. The Bancorp’s trust and registered
investment advisory businesses had approximately $510 billion and $554 billion in total assets under care as of December 31, 2022 and 2021,
respectively, and managed $55 billion and $65 billion in assets for individuals, corporations and not-for-profit organizations as of
December 31, 2022 and 2021, respectively.
Commercial banking revenue
Commercial banking revenue decreased $72 million for the year ended December 31, 2022 compared to the year ended December 31, 2021
primarily due to decreases in corporate bond fees, loan syndication fees, merger and acquisition fees and equity capital markets fees, partially
offset by an increase in contract revenue from commercial customer derivatives as well as an increase in foreign exchange fees.
Card and processing revenue
Card and processing revenue increased $7 million for the year ended December 31, 2022 compared to the year ended December 31, 2021
primarily due to an increase in credit card interchange, partially offset by increased reward costs as well as a decrease in other electronic
funds transfer income. The increases in credit card interchange and reward costs were primarily driven by an increase in consumer and
business card spend volumes.
68 Fifth Third Bancorp
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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Leasing business revenue
Leasing business revenue decreased $63 million for the year ended December 31, 2022 compared to the year ended December 31, 2021
primarily driven by decreases in lease syndication fees and leasing business solutions revenue, partially offset by an increase in lease
remarketing fees. The decrease in leasing business solutions revenue was related to the disposition of LaSalle Solutions during the second
quarter of 2022.
Mortgage banking net revenue
Mortgage banking net revenue decreased $55 million for the year ended December 31, 2022 compared to the year ended December 31, 2021.
The following table presents the components of mortgage banking net revenue:
TABLE 10: Components of Mortgage Banking Net Revenue
For the years ended December 31 ($ 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
2022
2021
2020
$
$
91
310
(186)
124
215
285
247
(262)
(15)
270
315
263
(258)
5
320
Origination fees and gains on loan sales decreased $194 million for the year ended December 31, 2022 compared to the year ended
December 31, 2021 primarily driven by decreases in gain on sale margins and lower volumes of residential mortgage loan originations and
sales as well as the impact of gains recognized during the year ended December 31, 2021 from sales of government-guaranteed loans that
were previously in forbearance programs. Residential mortgage loan originations decreased to $14.0 billion for the year ended December 31,
2022 from $19.0 billion for the year ended December 31, 2021 due primarily to the impact of higher market interest rates on refinance
activity.
The following table presents the components of net valuation adjustments on the MSR portfolio and the impact of the non-qualifying hedging
strategy.
TABLE 11: Components of Net Valuation Adjustments on MSRs
For the years ended December 31 ($ in millions)
Changes in fair value and settlement of free-standing derivatives purchased to economically
2022
2021
2020
hedge the MSR portfolio
Changes in fair value:
Due to changes in inputs or assumptions(a)
Other changes in fair value(b)
$
(363)
355
(178)
(186)
(123)
142
(281)
(262)
307
(311)
(254)
(258)
Net valuation adjustments on MSRs and free-standing derivatives purchased to
economically hedge MSRs
$
(a) Primarily reflects changes in prepayment speed and OAS assumptions which are updated based on market interest rates.
(b) Primarily reflects changes due to realized cash flows and the passage of time.
For the years ended December 31, 2022 and 2021, the Bancorp recognized income of $177 million and losses of $139 million, respectively,
in mortgage banking net revenue for valuation adjustments on the MSR portfolio. The valuation adjustments on the MSR portfolio included
increases of $355 million and $142 million for the years ended December 31, 2022 and 2021, respectively, due to changes in market rates and
other inputs in the valuation model, including future prepayment speeds and OAS assumptions. Mortgage rates increased during the year
ended December 31, 2022 which caused a reduction in modeled prepayment speeds. There was also an increase in the modeled OAS
assumptions for the year ended December 31, 2022. The fair value of the MSR portfolio also decreased $178 million and $281 million as a
result of contractual principal payments and actual prepayment activity for the years ended December 31, 2022 and 2021, respectively.
Further detail on the valuation of MSRs can be found in Note 13 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 14 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 losses of $2 million during both the years ended December 31, 2022 and
2021 recorded in securities (losses) gains, net - non-qualifying hedges on mortgage servicing rights in the Bancorp’s Consolidated Statements
of Income.
69 Fifth Third Bancorp
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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The Bancorp’s total residential mortgage loans serviced at December 31, 2022 and 2021 were $120.2 billion and $106.8 billion, respectively,
with $103.2 billion and $89.2 billion, respectively, of residential mortgage loans serviced for others.
Other noninterest income
The following table presents the components of other noninterest income:
TABLE 12: Components of Other Noninterest Income
For the years ended December 31 ($ in millions)
Private equity investment income
BOLI income
Cardholder fees
Income from the TRA associated with Worldpay, Inc.
Banking center income
Equity method investment income
Consumer loan fees
Gains on contract sales
Loss on swap associated with the sale of Visa, Inc. Class B Shares
Other, net
Total other noninterest income
2022
2021
2020
$
$
70
64
54
46
24
22
19
3
(84)
47
265
81
61
50
46
23
30
17
62
(86)
48
332
75
63
44
74
20
12
20
2
(103)
4
211
Other noninterest income decreased $67 million for the year ended December 31, 2022 compared to the year ended December 31, 2021
primarily due to decreases in gains on contract sales and private equity investment income.
Gains on contract sales decreased $59 million for the year ended December 31, 2022 compared to December 31, 2021 as the prior year
included the recognition of a $60 million gain on the sale of the Bancorp’s HSA deposit portfolio which was completed in the third quarter of
2021. Private equity investment income decreased $11 million for the year ended December 31, 2022 compared to the prior year primarily
driven by losses recognized on certain private equity investments.
Noninterest Expense
Noninterest expense decreased $29 million for the year ended December 31, 2022 compared to the year ended December 31, 2021.
The following table presents the components of noninterest expense:
TABLE 13: Components of Noninterest Expense
For the years ended December 31 ($ in millions)
Compensation and benefits
Technology and communications
Net occupancy expense
Equipment expense
Leasing business expense
Marketing expense
Card and processing expense
Other noninterest expense
Total noninterest expense
Efficiency ratio on an FTE basis(a)
2022
2021
2020
$
$
2,554
416
307
145
131
118
80
968
4,719
56.2 %
2,626
388
312
138
137
107
89
951
4,748
60.1
2,590
362
350
130
140
104
121
921
4,718
61.9
(a) This is a non-GAAP measure. For further information, refer to the Non-GAAP Financial Measures section of MD&A.
Compensation and benefits expense decreased $72 million for the year ended December 31, 2022 compared to the year ended December 31,
2021 primarily driven by decreases in non-qualified deferred compensation expense and performance-based compensation, partially offset by
the impact of a special broad-based compensation bonus granted in the first quarter of 2022, the additional personnel costs of an acquired
business and the impact of raising the Bancorp’s minimum wage in the third quarter of 2022. Full-time equivalent employees totaled 19,319
at December 31, 2022 compared to 19,112 at December 31, 2021.
Technology and communications expense increased $28 million for the year ended December 31, 2022 compared to the year ended
December 31, 2021 primarily driven by increased investment in strategic initiatives and technology.
Marketing expense increased $11 million for the year ended December 31, 2022 compared to the year ended December 31, 2021 primarily
due to an increase in account acquisition programs.
70 Fifth Third Bancorp
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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Card and processing expense decreased $9 million for the year ended December 31, 2022 compared to the year ended December 31, 2021
primarily due to contract renegotiations with a third-party vendor, partially offset by increased association network charges as a result of
increased credit card spend.
The following table presents the components of other noninterest expense:
TABLE 14: Components of Other Noninterest Expense
For the years ended December 31 ($ in millions)
Loan and lease
FDIC insurance and other taxes
Losses and adjustments
Data processing
Travel
Professional service fees
Intangible amortization
Postal and courier
Other, net
Total other noninterest expense
2022
2021
2020
$
$
167
132
91
82
60
54
47
40
295
968
217
114
69
79
34
63
44
37
294
951
162
118
100
75
27
49
48
36
306
921
Other noninterest expense increased $17 million for the year ended December 31, 2022 compared to the year ended December 31, 2021
primarily due to increases in travel expense, losses and adjustments and FDIC insurance and other taxes, partially offset by a decrease in loan
and lease expense.
Travel expense increased $26 million for the year ended December 31, 2022 compared to the year ended December 31, 2021 due to an
increase in travel as a result of the gradual cessation of travel restrictions related to the COVID-19 pandemic. Losses and adjustments
increased $22 million for the year ended December 31, 2022 compared to the year ended December 31, 2021 primarily due to a reduction in
the net benefit from changes in credit valuation adjustments on customer accommodation derivatives and an increase in operational losses.
FDIC insurance and other taxes increased $18 million for the year ended December 31, 2022 compared to the year ended December 31, 2021
primarily as a result of an increase in the FDIC insurance assessment rate. Loan and lease expense decreased $50 million for the year ended
December 31, 2022 compared to the year ended December 31, 2021 primarily driven by a decrease in loan servicing expenses related to the
Bancorp’s sales of certain government-guaranteed residential mortgage loans that were previously in forbearance programs and serviced by a
third party.
Applicable Income Taxes
Applicable income tax expense for all periods presented 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, 2022 and 2021 were primarily impacted by $219 million and $193 million,
respectively, of low-income housing tax credits and other tax benefits and $26 million and $23 million, respectively, of tax benefits from tax
exempt income and were partially offset by $189 million and $163 million, respectively, of proportional amortization related to qualifying
LIHTC investments.
The Bancorp’s income before income taxes, applicable income tax expense and effective tax rate are as follows:
TABLE 15: Applicable Income Taxes
For the years ended December 31 ($ in millions)
Income before income taxes
Applicable income tax expense
Effective tax rate
2022
2021
2020
$
3,093
647
21.0 %
3,517
747
21.2
1,797
370
20.6
71 Fifth Third Bancorp
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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
BUSINESS SEGMENT REVIEW
During the third quarter of 2022, the Bancorp reorganized its management reporting structure and now reports on three business segments:
Commercial Banking, Consumer and Small Business Banking and Wealth and Asset Management. Additional information on each business
segment is included in Note 31 of the Notes to Consolidated Financial Statements. Prior period results have been adjusted to conform to the
new segment presentation. 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’s
FTP methodology was not adjusted during the years ended December 31, 2022, 2021 and 2020.
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 increased since December 31, 2021 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 increased since December 31,
2021, due to higher interest rates and modified assumptions. Thus, net interest income for asset-generating business segments was negatively
impacted by the rates charged on assets while deposit-providing business segments were positively impacted during the year ended
December 31, 2022.
The Bancorp’s methodology for allocating provision for credit losses 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 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
Consumer and Small Business Banking
Wealth and Asset Management
General Corporate and Other
Net income
2022
2021
2020
$
$
1,649
1,309
198
(710)
2,446
1,554
220
94
902
2,770
398
357
102
570
1,427
72 Fifth Third Bancorp
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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
Certificates of deposit
Foreign office deposits
2022
2021
2020
$
$
$
2,552
33
563
372
237
168
639
131
1,053
2,036
387
1,649
70,904
35,147
21,341
6,019
108
170
1,604
(597)
633
385
300
179
644
137
992
1,925
371
1,554
62,571
38,220
22,452
7,825
117
164
2,022
1,086
527
358
276
172
606
140
1,063
460
62
398
68,175
27,724
26,058
8,003
157
185
Includes FTE adjustments of $10, $8 and $13 for the years ended December 31, 2022, 2021 and 2020, 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 2022 with 2021
Net income was $1.6 billion for both the years ended December 31, 2022 and 2021 as an increase in net interest income on an FTE basis was
partially offset by an increase in provision for credit losses as well as a decrease in noninterest income and an increase in noninterest expense.
Net interest income on an FTE basis increased $948 million from the year ended December 31, 2021 primarily driven by increases in yields
on and average balances of commercial loans and leases as well as increases in FTP credit rates on deposits. These positive impacts were
partially offset by increases in FTP charges on commercial loans and leases as well as increases in rates paid on interest checking deposits
and savings and money market deposits.
The provision for credit losses was $33 million for the year ended December 31, 2022 compared to a benefit from credit losses of
$597 million for the year ended December 31, 2021. The benefit from credit losses for the year ended December 31, 2021 was primarily
driven by a decrease in commercial criticized asset levels during that period. The increase in provision expense for the year ended
December 31, 2022 was primarily driven by an increase in net charge-offs on commercial and industrial loans. Net charge-offs as a percent of
average portfolio loans and leases increased to 12 bps for the year ended December 31, 2022 compared to 9 bps for the year ended
December 31, 2021.
Noninterest income decreased $157 million from the year ended December 31, 2021 driven by decreases in commercial banking revenue,
leasing business revenue, service charges on deposits and other noninterest income. Commercial banking revenue decreased $70 million from
the year ended December 31, 2021 primarily due to decreases in corporate bond fees, loan syndication fees, merger and acquisition fees and
equity capital markets fees, partially offset by an increase in contract revenue from commercial customer derivatives as well as an increase in
foreign exchange fees. Leasing business revenue decreased $63 million from the year ended December 31, 2021 primarily driven by
decreases in lease syndication fees and leasing business solutions revenue, partially offset by an increase in lease remarketing fees. The
decrease in leasing business solutions revenue was related to the disposition of LaSalle Solutions during the second quarter of 2022. Service
charges on deposits decreased $13 million from the year ended December 31, 2021 primarily due to a decrease in commercial deposit fees
73 Fifth Third Bancorp
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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
driven by higher earnings credit rates. Other noninterest income decreased $11 million from the year ended December 31, 2021 primarily
driven by the recognition of securities losses, partially offset by an increase in private equity investment income.
Noninterest expense increased $50 million from the year ended December 31, 2021 driven by an increase in other noninterest expense,
partially offset by decreases in leasing business expense and compensation and benefits. Other noninterest expense increased $61 million
from the year ended December 31, 2021 primarily as a result of increases in allocated expenses related to information technology support
services and cash management services, a reduction in the net benefit from changes in credit valuation adjustments on customer
accommodation derivatives as well as increases in FDIC insurance and other taxes and travel expenses. Leasing business expense decreased
$6 million from the year ended December 31, 2021 primarily due to a decrease in operating lease equipment depreciation. Compensation and
benefits decreased $5 million from the year ended December 31, 2021 primarily as a result of a decrease in incentive compensation, partially
offset by an increase in base compensation.
Average commercial loans and leases increased $8.3 billion from the year ended December 31, 2021 primarily due to an increase in average
commercial and industrial loans partially offset by decreases in average commercial construction loans and average commercial leases.
Average commercial and industrial loans increased from the year ended December 31, 2021 primarily driven by increased revolving line of
credit utilization and increased production. Average commercial construction loans decreased from the year ended December 31, 2021 as
payoffs exceeded draws on existing commitments and loan originations. Average commercial leases decreased from the year ended
December 31, 2021 primarily as a result of a planned reduction in indirect non-relationship-based lease originations.
Average deposits decreased $6.0 billion from the year ended December 31, 2021 primarily due to decreases in average demand deposits,
average savings and money market deposits and average interest checking deposits. Average demand deposits decreased $3.1 billion from the
year ended December 31, 2021 primarily as a result of lower average balances per commercial customer account and balance migration into
interest checking deposits. Average savings and money market deposits decreased $1.8 billion from the year ended December 31, 2021
primarily as a result of lower average balances per commercial customer account. Average interest checking deposits decreased $1.1 billion
from the year ended December 31, 2021 primarily as a result of lower average balances per commercial customer account, partially offset by
balance migration from demand deposits. Lower average commercial customer account balances in demand deposits, money market deposits
and interest checking deposits included the impact of deliberate runoff during the second quarter of 2022 of certain higher cost commercial
deposits.
Comparison of the year ended 2021 with 2020
Net income was $1.6 billion for the year ended December 31, 2021 compared to net income of $398 million for the year ended December 31,
2020. The increase in net income was primarily driven by a decrease in provision for credit losses as well as an increase in noninterest income
and a decrease in noninterest expense, partially offset by a decrease in net interest income on an FTE basis.
Net interest income on an FTE basis decreased $418 million from the year ended December 31, 2020 primarily driven by decreases in yields
on and average balances of commercial loans and leases as well as decreases in FTP credit rates on interest checking deposits, demand
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 and average balances of interest checking deposits and savings and money market deposits.
The benefit from credit losses was $597 million for the year ended December 31, 2021 compared to a provision for credit losses of
$1.1 billion for the year ended December 31, 2020. The decrease for the year ended December 31, 2021 was primarily driven by a decrease in
commercial criticized asset levels as well as decreases in net charge-offs on commercial loans and leases. Net charge-offs as a percent of
average portfolio loans and leases decreased to 9 bps for the year ended December 31, 2021 compared to 36 bps for the year ended December
31, 2020.
Noninterest income increased $164 million from the year ended December 31, 2020 primarily driven by increases in commercial banking
revenue, service charges on deposits and leasing business revenue. Commercial banking revenue increased $106 million from the year ended
December 31, 2020 primarily due to increases in loan syndication fees, business lending fees and institutional sales partially offset by a
decrease in bridge fees. Service charges on deposits increased $27 million from the year ended December 31, 2020 primarily due to an
increase in commercial deposit fees primarily due to growth in volume-based service revenues, with continued benefit from lower earnings
credit rates. Leasing business revenue increased $24 million from the year ended December 31, 2020 primarily due to an increase in lease
syndication fees partially offset by a decrease in lease remarketing fees.
Noninterest expense decreased $36 million from the year ended December 31, 2020 primarily driven by a decrease in other noninterest
expense partially offset by an increase in compensation and benefits. Other noninterest expense decreased $71 million from the year ended
December 31, 2020 primarily as a result of a decline in credit valuation adjustments on derivatives associated with customer accommodation
contracts and decreases in allocated expenses related to cash management services. Compensation and benefits increased $38 million from
the year ended December 31, 2020 primarily as a result of increases in incentive compensation and employee benefits expense driven by
strong performance in fees related to business growth and expansion initiatives during the year ended December 31, 2021 as well as an
increase in base compensation.
74 Fifth Third Bancorp
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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Average commercial loans and leases decreased $5.6 billion from the year ended December 31, 2020 primarily due to decreases in average
commercial and industrial loans and average commercial mortgage loans partially offset by an increase in average commercial construction
loans. Average commercial and industrial loans decreased from the year ended December 31, 2020 primarily driven by elevated revolving
line of credit utilization during the year ended December 31, 2020 as well as paydowns in excess of loan originations. Average commercial
mortgage loans decreased from the year ended December 31, 2020 as payoffs exceeded loan originations. Average commercial construction
loans increased from the year ended December 31, 2020 as draws on existing commitments exceeded payoffs.
Average deposits increased $6.7 billion from the year ended December 31, 2020 primarily due to an increase in average demand deposits,
partially offset by decreases in average interest checking deposits and average savings and money market deposits. Average demand deposits
increased $10.5 billion from the year ended December 31, 2020 primarily as a result of commercial customers maintaining increased levels of
liquidity driven by the amount of fiscal and monetary stimulus, as well as growth in the number of accounts and migration of balances from
interest checking deposits. Average interest checking deposits decreased $3.6 billion from the year ended December 31, 2020 primarily as a
result of the aforementioned balance migration into demand deposits and lower average balances per commercial customer account. Average
savings and money market deposits decreased $178 million from the year ended December 31, 2020 primarily as a result of a decline in
average balances per commercial customer account.
Consumer and Small Business Banking
Consumer and Small Business Banking provides a full range of deposit and loan products to individuals and small businesses through a
network of full-service banking centers and relationships with indirect and correspondent loan originators in addition to providing products
designed to meet the specific needs of small businesses, including cash management services. Consumer and Small Business Banking
includes the Bancorp’s residential mortgage, home equity loans and lines of credit, credit cards, automobile and other indirect lending and
other consumer lending activities. Residential mortgage activities include the origination, retention and servicing of residential mortgage
loans, sales and securitizations of those loans and all associated hedging activities. Indirect lending activities include extending loans to
consumers through automobile dealers, motorcycle dealers, powersport dealers, recreational vehicle dealers and marine dealers. Other
consumer lending activities include home improvement and solar energy installation loans originated through a network of contractors and
installers.
The following table contains selected financial data for the Consumer and Small Business Banking segment:
TABLE 18: Consumer and Small Business Banking
For the years ended December 31 ($ in millions)
Income Statement Data
Net interest income
Provision for credit losses
Noninterest income:
Card and processing revenue
Service charges on deposits
Mortgage banking net revenue
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, including held for sale
Commercial loans, including held for sale
Demand deposits
Interest checking deposits
Savings and money market deposits
Certificates of deposit
2022
2021
2020
$
$
$
3,131
139
308
216
214
204
111
828
234
72
1,255
1,656
347
1,309
43,049
1,727
23,600
15,191
43,054
2,543
1,685
120
312
214
267
206
108
833
235
85
1,242
277
57
220
43,072
928
22,932
14,633
40,647
3,292
1,942
229
269
200
315
172
82
821
226
116
1,136
452
95
357
38,424
645
18,642
12,319
35,722
5,367
75 Fifth Third Bancorp
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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Comparison of the year ended 2022 with 2021
Net income was $1.3 billion for the year ended December 31, 2022 compared to net income of $220 million for the year ended December 31,
2021. The increase was primarily driven by an increase in net interest income, partially offset by a decrease in noninterest income and an
increase in provision for credit losses.
Net interest income increased $1.4 billion from the year ended December 31, 2021 primarily due to increases in FTP credit rates on deposits.
This positive impact was partially offset by an increase in FTP charge rates on loans and leases as well as increases in rates paid on and
average balances of savings and money market deposits.
Provision for credit losses increased $19 million from the year ended December 31, 2021 primarily due to increases in net charge-offs on
indirect secured consumer loans and other consumer loans, partially offset by a decrease in net charge-offs on credit card. Net charge-offs as
a percent of average portfolio loans and leases increased to 33 bps for the year ended December 31, 2022 compared to 32 bps for the year
ended December 31, 2021.
Noninterest income decreased $54 million from the year ended December 31, 2021 primarily driven by a decrease in mortgage banking net
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 decreased $6 million from the year ended December 31, 2021 primarily due to decreases in card and processing expense
and compensation and benefits, partially offset by an increase in other noninterest expense. Card and processing expense decreased $13
million from the year ended December 31, 2021 primarily due to contract renegotiations with a third-party vendor, partially offset by
increased association network charges as a result of increased credit card spend. Compensation and benefits decreased $5 million from the
year ended December 31, 2021 primarily driven by a decrease in incentive compensation related to lower residential mortgage origination
volumes, partially offset by the incremental impact of acquired businesses. Other noninterest expense increased $13 million from the year
ended December 31, 2021 primarily due to increases in marketing expense and FDIC insurance and other taxes as well as allocated expenses
related to information technology support services. These increases were partially offset by a decrease in loan servicing expenses related to
the Bancorp’s sales of certain government-guaranteed residential mortgage loans that were previously in forbearance programs and serviced
by a third party.
Average consumer loans decreased $23 million from the year ended December 31, 2021 primarily driven by decreases in average residential
mortgage loans and average home equity, partially offset by increases in average indirect secured consumer loans and average other
consumer loans. Average residential mortgage loans decreased from the year ended December 31, 2021 primarily due to decreases in
residential mortgage loans held for sale as the Bancorp sold government-guaranteed loans that were previously in forbearance programs.
Average home equity decreased from the year ended December 31, 2021 as payoffs exceeded loan originations and new advances. Average
indirect secured consumer loans increased from the year ended December 31, 2021 primarily driven by higher demand and other favorable
market conditions as well as lower indirect automobile prepayments and increased loan production in non-automobile indirect loans. Average
other consumer loans increased from the year ended December 31, 2021 primarily driven by originations of point-of-sale solar energy
installation loans in the second half of 2022, in addition to loans acquired in a business acquisition completed in the second quarter of 2022.
Average commercial loans increased $799 million from the year ended December 31, 2021 primarily driven by increases in average
commercial and industrial loans and average commercial mortgage loans as loan originations exceeded payoffs.
Average deposits increased $2.9 billion from the year ended December 31, 2021 driven by increases in average savings and money market
deposits, average demand deposits and average interest checking deposits, partially offset by a decrease in average certificates of deposit.
Average savings and money market deposits increased $2.4 billion, average demand deposits increased $668 million and average interest
checking deposits increased $558 million from the year ended December 31, 2021 primarily as a result of higher balances per customer
account as well as growth in the number of accounts. Average certificates of deposit decreased $749 million from the year ended
December 31, 2021 primarily due to lower offering rates during the first three quarters of 2022, partially offset by higher offering rates during
the fourth quarter of 2022.
Comparison of the year ended 2021 with 2020
Net income was $220 million for the year ended December 31, 2021 compared to net income of $357 million for the year ended
December 31, 2020. The decrease was primarily driven by a decrease in net interest income and an increase in noninterest expense, partially
offset by a decrease in provision for credit losses and an increase in noninterest income.
Net interest income decreased $257 million from the year ended December 31, 2020 primarily due to decreases in FTP credit rates on
deposits, partially offset by decreases in FTP charge rates on loans and decreases in rates paid on deposits. Interest income on loans was
negatively impacted by decreases in yields, but these impacts were substantially offset by increases in average balances of consumer and
commercial loans.
Provision for credit losses decreased $109 million from the year ended December 31, 2020 primarily due to decreases in net charge-offs on
loans and leases, driven by a decrease in net charge-offs on credit card, for the year ended December 31, 2021. Net charge-offs as a percent of
76 Fifth Third Bancorp
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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
average portfolio loans and leases decreased to 32 bps for the year ended December 31, 2021 compared to 60 bps for the year ended
December 31, 2020.
Noninterest income increased $69 million from the year ended December 31, 2020 driven by increases in card and processing revenue,
wealth and asset management revenue, other noninterest income and service charges on deposits. These increases were partially offset by a
decrease in mortgage banking net revenue. Card and processing revenue increased $43 million from the year ended December 31, 2020
primarily as a result of an increase in consumer customer spend volume, partially offset by increased reward costs. Wealth and asset
management revenue increased $34 million from the year ended December 31, 2020 primarily due to increases in broker income and private
client service fees. Other noninterest income increased $26 million from the year ended December 31, 2020 primarily driven by decreases in
net losses on disposition and impairment of bank premises and equipment as well as increases in cardholder fees and banking center income.
Service charges on deposits increased $14 million from the year ended December 31, 2020 driven by increases in both consumer deposit fees
and commercial deposit fees. Mortgage banking net revenue decreased $48 million from the year ended December 31, 2020, primarily driven
by decreases in origination fees and gains on loans sales and gross mortgage servicing fees.
Noninterest expense increased $96 million from the year ended December 31, 2020 primarily due to increases in other noninterest expense,
compensation and benefits and net occupancy and equipment expense, partially offset by a decrease in card and processing expense. Other
noninterest expense increased $106 million from the year ended December 31, 2020 primarily due to an increase in loan and lease expense
driven by an increase in loan servicing expenses associated with the Bancorp’s purchases of certain government-guaranteed residential
mortgage loans in forbearance programs. The increase was also driven by increases in losses and adjustments and marketing expense.
Compensation and benefits increased $12 million from the year ended December 31, 2020 primarily due to an increase in incentive
compensation resulting from the increased mortgage origination activity for the year ended December 31, 2021. Net occupancy and
equipment expense increased $9 million from the year ended December 31, 2020 primarily due to increases in allocated occupancy costs.
Card and processing expense decreased $31 million from the year ended December 31, 2020 primarily driven by contract renegotiations with
a third-party vendor.
Average consumer loans increased $4.6 billion from the year ended December 31, 2020 primarily driven by increases in average residential
mortgage loans and average indirect secured consumer loans, partially offset by decreases in average home equity and average credit card.
The increase in average residential mortgage loans was primarily driven by the Bancorp’s purchases of certain government-guaranteed loans
in forbearance programs. The increase in average indirect secured consumer loans was primarily driven by higher demand and other
favorable market conditions, which contributed to increased loan production. Average home equity decreased as payoffs exceeded loan
originations and new advances. The decrease in average credit card was primarily driven by the cumulative impacts from the COVID-19
pandemic, including accelerated paydown activity due to the amount of fiscal stimulus programs and lower consumer demand for credit.
Average commercial loans increased $283 million from the year ended December 31, 2020 primarily driven by increases in average
commercial and industrial loans and average commercial mortgage loans.
Average deposits increased $9.5 billion from the year ended December 31, 2020 driven by increases in average savings and money market
deposits, average demand deposits and average interest checking deposits, partially offset by a decrease in average certificates of deposit.
Average savings and money market deposits increased $4.9 billion, average demand deposits increased $4.3 billion and average interest
checking deposits increased $2.3 billion from the year ended December 31, 2020 primarily as a result of higher balances per customer
account due to the amount of fiscal stimulus, uncertainty regarding the COVID-19 pandemic and decreased consumer outflows. Average
certificates of deposits decreased $2.1 billion from the year ended December 31, 2020 primarily due to lower offering rates on certificates.
77 Fifth Third Bancorp
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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Wealth and Asset Management
Wealth and Asset Management provides a full range of wealth management services for individuals, companies and not-for-
profit organizations. Wealth and Asset Management is made up of three main businesses: FTS, an indirect wholly-owned subsidiary of the
Bancorp; Fifth Third Private Bank; and Fifth Third Institutional Services. FTS offers full service retail brokerage services to individual clients
and broker-dealer services to the institutional marketplace. Fifth Third Private Bank offers wealth management strategies to high net worth
and ultra-high net worth clients through wealth planning, investment management, banking, insurance, trust and estate services. Fifth Third
Institutional Services provides advisory services for institutional clients including middle market businesses, non-profits, states and
municipalities.
The following table contains selected financial data for the Wealth and Asset Management segment:
TABLE 19: Wealth and Asset Management
For the years ended December 31 ($ in millions)
Income Statement Data
Net interest income
(Benefit from) 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
Deposits
2022
2021
2020
262
—
540
5
218
338
251
53
198
88
(1)
558
12
205
335
119
25
94
139
3
498
28
218
315
129
27
102
4,413
12,725
3,852
11,480
3,659
11,085
$
$
$
Comparison of the year ended 2022 with 2021
Net income was $198 million for the year ended December 31, 2022 compared to net income of $94 million for the year ended December 31,
2021. The increase in net income was primarily driven by an increase in net interest income partially offset by a decrease in noninterest
income and an increase in noninterest expense.
Net interest income increased $174 million from the year ended December 31, 2021 primarily driven by an increase in FTP credits on
deposits as well as increases in yields on and average balances of loans and leases. These positive impacts were partially offset by increases
in rates paid on average deposits as well as an increase in FTP charges on loans and leases for the year ended December 31, 2022 compared
to the prior year.
Noninterest income decreased $25 million from the year ended December 31, 2021 primarily due to a decrease in wealth and asset
management revenue, which decreased $18 million from the year ended December 31, 2021 primarily as a result of decreases in private client
service fees and securities income.
Noninterest expense increased $16 million from the year ended December 31, 2021 primarily due to an increase in compensation and
benefits. Compensation and benefits increased $13 million from the year ended December 31, 2021 primarily as a result of increases in
incentive compensation and base compensation.
Average loans and leases increased $561 million from the year ended December 31, 2021 primarily driven by an increase in average
commercial and industrial loans as a result of higher loan production.
Average deposits increased $1.2 billion from the year ended December 31, 2021 primarily driven by increases in average savings and money
market deposits, average interest checking deposits and average demand deposits as a result of higher average balances per customer account.
Comparison of the year ended 2021 with 2020
Net income was $94 million for the year ended December 31, 2021 compared to net income of $102 million for the year ended December 31,
2020. The decrease in net income was primarily driven by a decrease in net interest income and an increase in noninterest expense partially
offset by an increase in noninterest income and a decrease in provision for credit losses.
78 Fifth Third Bancorp
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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Net interest income decreased $51 million from the year ended December 31, 2020 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 rates paid on
average interest-bearing deposits as well as decreases in FTP charge rates on loans and leases.
The benefit from credit losses was $1 million for the year ended December 31, 2021 compared to a provision for credit losses of $3 million
for the year ended December 31, 2020. The decrease was primarily driven by a decrease in net charge-offs on residential mortgage loans.
Noninterest income increased $44 million from the year ended December 31, 2020 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 $60 million from the year
ended December 31, 2020 primarily as a result of increases in private client service fees and broker income partially offset by a decrease in
institutional fees. Other noninterest income decreased $16 million from the year ended December 31, 2020 primarily due to a decrease in
insurance income driven by the sale of the Bancorp’s property and casualty insurance business in the fourth quarter of 2020.
Noninterest expense increased $7 million from the year ended December 31, 2020 due to an increase in other noninterest expense partially
offset by a decrease in compensation and benefits. Other noninterest expense increased $20 million from the year ended December 31, 2020
primarily due to increases in expenses associated with intercompany revenue sharing agreements. Compensation and benefits decreased $13
million from the year ended December 31, 2020 primarily as a result of a decrease in base compensation which included a decline due to the
sale of the Bancorp’s property and casualty insurance business in the fourth quarter of 2020.
Average loans and leases increased $193 million from the year ended December 31, 2020 primarily driven by increases in average other
consumer loans and average residential mortgage loans as a result of higher loan production, partially offset by a decrease in average home
equity.
Average deposits increased $395 million from the year ended December 31, 2020 primarily driven by increases in average savings and
money market deposits, average interest checking deposits and average demand deposits as a result of higher average balances per customer
account due to the amount of fiscal stimulus, uncertainty regarding the COVID-19 pandemic and decreased consumer spending.
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 2022 with 2021
Net interest income on an FTE basis decreased $1.7 billion from the year ended December 31, 2021 primarily driven by an increase in FTP
credits on deposits allocated to the business segments, a decrease in interest income on PPP loans and an increase in interest expense on other
short-term borrowings. These negative impacts were partially offset by an increase in the benefit related to FTP charge rates on loans and
leases allocated to the business segments and an increase in interest income on investment securities.
The provision for credit losses increased $290 million from the year ended December 31, 2021 primarily driven by factors which caused
increases in the ACL during the year ended December 31, 2022 including deterioration in forecasted macroeconomic conditions and higher
period-end loan and lease balances, partially offset by the impact of allocations to the business segments.
Noninterest income decreased $119 million from the year ended December 31, 2021 primarily driven by a $60 million gain on the sale of the
Bancorp’s HSA deposit portfolio in the third quarter of 2021, a decrease in private equity investment income and an increase in net securities
losses.
Noninterest expense decreased $92 million from the year ended December 31, 2021 primarily driven by a decrease in compensation and
benefits due to a decrease in non-qualified deferred compensation expense. The decrease also included the impact of an increase in corporate
overhead allocations from General Corporate and Other to the other business segments partially offset by increases in technology and
communications expense and travel expense.
Comparison of the year ended 2021 with 2020
Net interest income on an FTE basis increased $709 million from the year ended December 31, 2020 primarily driven by decreases in FTP
credit rates on deposits allocated to the business segments, an increase in interest income on PPP loans and decreases in interest expense on
long-term debt and deposits. These positive impacts were partially offset by a decrease in the benefit related to FTP charge rates on loans and
leases allocated to the business segments and a decrease in interest income on investment securities.
The provision for credit losses was $101 million for the year ended December 31, 2021 compared to a benefit from credit losses of $221
million for the year ended December 31, 2020. The increase for the year ended December 31, 2021 was primarily driven by an increase in the
benefits provided to the business segments associated with the decline in the level of commercial criticized assets owned by the business
segments.
79 Fifth Third Bancorp
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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Noninterest income increased $38 million from the year ended December 31, 2020 primarily driven by the recognition of a gain on the sale of
the Bancorp’s HSA deposit portfolio in the third quarter of 2021, an increase in private equity investment income, a decrease in the loss on
the swap associated with the sale of Visa, Inc. Class B shares and a decrease in net losses on disposition and impairment of bank premises and
equipment. These impacts were partially offset by the recognition of securities losses of $15 million for the year ended December 31, 2021
compared to securities gains of $62 million for the year ended December 31, 2020.
Noninterest expense decreased $10 million from the year ended December 31, 2020 primarily driven by a decrease in net occupancy expense,
partially offset by a decrease in corporate overhead allocations from General Corporate and Other to the other business segments and
increases in technology and communications expense and equipment expense.
80 Fifth Third Bancorp
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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
BALANCE SHEET ANALYSIS
Loans and Leases
The Bancorp classifies its commercial loans and leases based upon primary purpose and consumer loans based upon product or collateral.
Table 20 summarizes end of period loans and leases, including loans and leases held for sale, and Table 21 summarizes average total loans
and leases, including average loans and leases held for sale.
TABLE 20: Components of Total Loans and Leases (including loans and leases held for sale)
As of December 31 ($ in millions)
Commercial loans and leases:
2022
2021
Commercial and industrial loans(a)
Commercial mortgage loans
Commercial construction loans
Commercial leases
Total commercial loans and leases
Consumer loans:
Residential mortgage loans
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)
$
$
$
$
$
57,305
11,020
5,433
2,704
76,462
18,562
4,039
16,552
1,874
4,998
46,025
122,487
121,480
51,666
10,329
5,241
3,053
70,289
20,791
4,084
16,783
1,766
2,752
46,176
116,465
112,050
(a)
Includes $94 million and $1.3 billion as of December 31, 2022 and 2021, respectively, related to the SBA’s Paycheck Protection Program.
Total loans and leases, including loans and leases held for sale, increased $6.0 billion, or 5%, from December 31, 2021 primarily as a result of
a $6.2 billion, or 9%, increase in commercial loans and leases.
Commercial loans and leases increased $6.2 billion from December 31, 2021 due to increases in commercial and industrial loans, commercial
mortgage loans and commercial construction loans, partially offset by a decrease in commercial leases. Commercial and industrial loans
increased $5.6 billion, or 11%, from December 31, 2021 primarily as a result of increased revolving line of credit utilization and stronger
production, partially offset by PPP loan forgiveness and paydowns. Commercial mortgage loans increased $691 million, or 7%, from
December 31, 2021 as loan originations exceeded payoffs. Commercial construction loans increased $192 million, or 4%, from December 31,
2021 as draws on existing commitments and loan originations exceeded payoffs. Commercial leases decreased $349 million, or 11%, from
December 31, 2021 primarily as a result of a planned reduction in indirect non-relationship-based lease originations.
Consumer loans decreased $151 million from December 31, 2021 primarily due to decreases in residential mortgage loans and indirect
secured consumer loans, partially offset by increases in other consumer loans and credit card. Residential mortgage loans decreased $2.2
billion, or 11%, from December 31, 2021 primarily due to decreases in residential mortgage loans held for sale as the Bancorp sold
government-guaranteed loans that were previously in forbearance programs. Indirect secured consumer loans decreased $231 million, or 1%,
from December 31, 2021 primarily driven by indirect automobile payoffs exceeding loan production, partially offset by increased loan
production in non-automobile indirect loans. Other consumer loans increased $2.2 billion, or 82%, from December 31, 2021 primarily driven
by originations of point-of-sale solar energy installation loans in the second half of 2022, in addition to loans acquired in a business
acquisition completed in the second quarter of 2022. Credit card increased $108 million, or 6%, from December 31, 2021 primarily due to
increases in balance-active customers and average balances per active account.
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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
TABLE 21: Components of Average Loans and Leases (including average loans and leases held for sale)
For the years ended December 31 ($ in millions)
Commercial loans and leases:
2022
2021
Commercial and industrial loans
Commercial mortgage loans
Commercial construction loans
Commercial leases
Total commercial loans and leases
Consumer loans:
Residential mortgage loans
Home equity
Indirect secured consumer loans
Credit card
Other consumer loans
Total consumer loans
Total average loans and leases
Total average portfolio loans and leases (excluding loans and leases held for sale)
$
$
$
$
$
55,618
10,723
5,458
2,828
74,627
19,731
3,971
16,914
1,737
3,581
45,934
120,561
118,069
48,966
10,396
5,783
3,130
68,275
21,359
4,565
15,156
1,783
2,979
45,842
114,117
108,737
Average loans and leases, including average loans and leases held for sale, increased $6.4 billion, or 6%, from December 31, 2021 primarily
as result of a $6.4 billion, or 9%, increase in average commercial loans and leases.
Average commercial loans and leases increased $6.4 billion from December 31, 2021 due to increases in average commercial and industrial
loans and average commercial mortgage loans, partially offset by decreases in average commercial construction loans and average
commercial leases. Average commercial and industrial loans increased $6.7 billion, or 14%, from December 31, 2021 primarily driven by
increased revolving line of credit utilization and increased production, partially offset by PPP loan forgiveness and paydowns. Average
commercial mortgage loans increased $327 million, or 3%, from December 31, 2021 as loan originations exceeded payoffs. Average
commercial construction loans decreased $325 million, or 6%, from December 31, 2021 as payoffs exceeded draws on existing commitments
and loan originations. Average commercial leases decreased $302 million, or 10%, from December 31, 2021 primarily as a result of a planned
reduction in indirect non-relationship-based lease originations.
Average consumer loans increased $92 million from December 31, 2021 primarily due to increases in average indirect secured consumer
loans and average other consumer loans, partially offset by decreases in average residential mortgage loans and average home equity.
Average indirect secured consumer loans increased $1.8 billion, or 12%, from December 31, 2021 primarily driven by higher demand and
other favorable market conditions as well as lower indirect automobile prepayments and increased loan production in non-automobile indirect
loans. Average other consumer loans increased $602 million, or 20%, from December 31, 2021 primarily driven by originations of point-of-
sale solar energy installation loans in the second half of 2022, in addition to loans acquired in a business acquisition completed in the second
quarter of 2022. Average residential mortgage loans decreased $1.6 billion, or 8%, from December 31, 2021 primarily due to decreases in
residential mortgage loans held for sale as the Bancorp sold government-guaranteed loans that were previously in forbearance programs.
Average home equity decreased $594 million, or 13%, from December 31, 2021 as payoffs exceeded loan originations and new advances.
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 $52.2 billion and $39.0 billion at December 31, 2022 and 2021, respectively. The
taxable available-for-sale debt and other investment securities portfolio had an effective duration of 5.4 at December 31, 2022 compared to
4.8 at December 31, 2021.
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, 2022, the Bancorp’s investment portfolio consisted primarily of AAA-rated available-for-sale debt and other
securities. The Bancorp held an immaterial amount of below-investment grade available-for-sale debt and other securities at both
December 31, 2022 and 2021.
During the years ended December 31, 2022 and 2021, the Bancorp recognized $1 million and $19, respectively, of impairment losses on
available-for-sale debt and other securities, included in securities (losses) gains, net, in the Consolidated Statements of Income. These losses
related to certain securities in unrealized loss positions that the Bancorp intended to sell prior to recovery of their amortized cost bases. The
Bancorp did not consider these losses to be credit-related.
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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
At both December 31, 2022 and 2021, the Bancorp completed its evaluation of the available-for-sale debt and other securities in an unrealized
loss position and did not recognize an allowance for credit losses. The Bancorp did not recognize provision expense for both the years ended
December 31, 2022 and 2021 related to available-for-sale debt and other securities in an unrealized loss position.
The following table summarizes the end of period components of investment securities:
TABLE 22: Components of Investment Securities
As of December 31 ($ in millions)
Available-for-sale debt and other securities (amortized cost basis):
2022
2021
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
Other securities(a)
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)
$
$
$
$
$
$
$
2,683
18
12,604
29,824
5,235
6,292
874
57,530
3
2
5
45
14
8
347
414
317
85
18
8,432
18,236
4,364
5,287
519
36,941
6
2
8
84
32
105
291
512
376
(a) 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 increased $20.6 billion from December 31, 2021 as a result of the
deployment of excess short-term investments into longer duration assets in the investment portfolio.
On an amortized cost basis, available-for-sale debt and other securities were 30% and 20% of total interest-earning assets at December 31,
2022 and 2021, respectively. The estimated weighted-average life of the debt securities in the available-for-sale debt and other securities
portfolio was 6.8 years and 6.6 years at December 31, 2022 and 2021, respectively. In addition, at December 31, 2022 and 2021, the debt
securities in the available-for-sale debt and other securities portfolio had a weighted-average yield of 2.97% and 2.77%, respectively.
Information presented in Table 23 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
losses on the available-for-sale debt and other securities portfolio were $6.0 billion at December 31, 2022 compared to net unrealized gains of
$1.2 billion at December 31, 2021. The fair value of investment securities is impacted by interest rates, credit spreads, market volatility and
liquidity conditions. The fair value of the Bancorp’s investment securities portfolio generally decreases when interest rates increase or when
credit spreads widen.
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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
TABLE 23: Characteristics of Available-for-Sale Debt and Other Securities
As of December 31, 2022 ($ in millions)
U.S. Treasury and federal agencies securities:
Average life after one year through five years
Average life after five years through ten years
Total
Obligations of states and political subdivisions securities:
Average life within one year
Average life after ten years
Total
Agency residential mortgage-backed securities:
Average life within one year
Average life after one year through five years
Average life after five years through ten years
Average life after ten years
Total
Agency commercial mortgage-backed securities:(a)
Average life within one year
Average life after one year through five years
Average life after five years through ten years
Average life after ten years
Total
Non-agency commercial mortgage-backed securities:
Average life within one year
Average life after one year through five years
Average life after five years through ten years
Total
Asset-backed securities and other debt securities:
Average life within one year
Average life after one year through five years
Average life after five years through ten years
Total
Other securities
Total available-for-sale debt and other securities
$
$
$
$
$
$
$
$
Amortized
Cost
Fair Value
Weighted-Average
Life (in years)
Weighted-Average
Yield
1,165
1,518
2,683
17
1
18
32
950
10,455
1,167
12,604
67
7,714
16,675
5,368
29,824
267
2,861
2,107
5,235
373
3,528
2,391
6,292
874
57,530
1,081
1,414
2,495
17
1
18
31
881
9,348
977
11,237
66
7,143
14,710
4,403
26,322
262
2,686
1,767
4,715
351
3,277
2,214
5,842
874
51,503
3.8
5.9
5.0
0.2
13.9
1.0
0.6
3.5
8.1
11.9
8.1
0.6
3.7
7.5
12.2
7.4
0.8
2.9
8.4
5.0
0.7
3.0
6.7
4.3
6.8
2.12 %
2.71
2.45 %
1.80
7.00
2.11 %
2.35
2.82
3.03
3.17
3.03 %
3.35
2.80
2.87
2.89
2.86 %
3.72
3.24
2.75
3.07 %
3.17
3.36
3.83
3.53 %
2.97 %
(a) Taxable-equivalent yield adjustments included in the above table are 0.15% and 0.03% 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 $8.4 billion and $34.6 billion at
December 31, 2022 and 2021, respectively. The decrease of $26.2 billion from December 31, 2021 was primarily attributable to purchases of
investment securities, a decline in core deposit balances and loan growth during the year ended December 31, 2022.
Deposits
The Bancorp’s deposit balances represent an important source of funding and revenue growth opportunity. The Bancorp continues to focus on
core deposit growth in its retail and commercial franchises by improving customer satisfaction, building full relationships and offering
competitive rates. Average core deposits represented 78% and 79% of average total assets for the years ended December 31, 2022 and 2021,
respectively.
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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following table presents the end of period components of deposits:
TABLE 24: Components of Deposits
As of December 31 ($ in millions)
Demand
Interest checking
Savings
Money market
Foreign office
Total transaction deposits
CDs $250,000 or less
Total core deposits
CDs over $250,000(a)
Total deposits
(a)
Includes retail brokered certificates of deposit.
2022
2021
$
$
53,125
51,653
23,469
28,220
182
156,649
3,809
160,458
3,232
163,690
65,088
48,870
22,227
30,263
121
166,569
2,486
169,055
269
169,324
Core deposits decreased $8.6 billion, or 5%, from December 31, 2021, driven by a decrease in transaction deposits, partially offset by an
increase in CDs $250,000 or less. Transaction deposits decreased $9.9 billion, or 6%, from December 31, 2021 primarily due to decreases in
demand deposits and money market deposits, partially offset by increases in interest checking deposits and savings deposits. Demand
deposits decreased $12.0 billion, or 18%, from December 31, 2021 primarily as a result of lower balances per commercial customer account
and balance migration into interest checking deposits, partially offset by consumer balance growth. Money market deposits decreased $2.0
billion, or 7%, from December 31, 2021 primarily as a result of lower balances per commercial customer account, balance migration into
interest checking deposits and lower balances per consumer customer account due to inflationary pressures. Interest checking deposits
increased $2.8 billion, or 6%, from December 31, 2021 primarily as a result of balance migration from demand deposits and money market
deposits, partially offset by lower balances per customer account. Lower commercial customer account balances in demand deposits, money
market deposits and interest checking deposits included the impact of deliberate runoff during the second quarter of 2022 of certain higher
cost commercial deposits. Savings deposits increased $1.2 billion, or 6%, from December 31, 2021 primarily as a result of consumer balance
growth and balance migration from interest checking deposits. CDs $250,000 or less increased $1.3 billion, or 53%, from December 31, 2021
primarily due to higher offering rates.
CDs over $250,000 increased $3.0 billion from December 31, 2021 primarily due to an increase in retail brokered certificates of deposit
issued.
The following table presents the components of average deposits for the years ended December 31:
TABLE 25: Components of Average Deposits
($ in millions)
Demand
Interest checking
Savings
Money market
Foreign office
Total transaction deposits
CDs $250,000 or less
Total core deposits
CDs over $250,000(a)
Total average deposits
(a)
Includes retail brokered certificates of deposit.
2022
2021
$
$
60,185
45,835
23,445
29,326
170
158,961
2,342
161,303
1,688
162,991
62,028
45,850
20,531
30,631
164
159,204
3,214
162,418
530
162,948
On an average basis, core deposits decreased $1.1 billion, or 1%, from December 31, 2021 due to a decrease in average CDs $250,000 or less
and a decrease in average transaction deposits. Average CDs $250,000 or less decreased $872 million, or 27%, primarily due to lower
offering rates during the first three quarters of 2022, partially offset by higher offering rates during the fourth quarter of 2022. Average
transaction deposits decreased $243 million from December 31, 2021, primarily driven by decreases in average demand deposits and average
money market deposits, partially offset by an increase in average savings deposits. Average demand deposits decreased $1.8 billion, or 3%,
from December 31, 2021 primarily as a result of lower average balances per commercial customer account and balance migration into interest
checking deposits, partially offset by higher average balances per consumer customer account. Average money market deposits decreased
$1.3 billion, or 4%, from December 31, 2021 primarily as a result of lower average balances per commercial customer account and balance
migration into interest checking deposits, partially offset by higher average balances per consumer customer account. Average interest
checking deposits decreased $15 million from December 31, 2021 primarily as a result of lower average balances per commercial customer
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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
account, partially offset by balance migration from demand deposits and money market deposits. Lower average commercial customer
account balances in demand deposits, money market deposits and interest checking deposits included the impact of deliberate runoff during
the second quarter of 2022 of certain higher cost commercial deposits. Average savings deposits increased $2.9 billion, or 14%, from
December 31, 2021 primarily as a result of consumer balance growth.
Average CDs over $250,000 increased $1.2 billion from December 31, 2021 primarily due to an increase in retail brokered certificates of
deposit issued.
Contractual maturities
The contractual maturities of CDs as of December 31, 2022 are summarized in the following table:
TABLE 26: Contractual Maturities of CDs(a)
($ in millions)
Next 12 months
13-24 months
25-36 months
37-48 months
49-60 months
After 60 months
Total CDs
(a)
Includes CDs $250,000 or less and CDs over $250,000.
$
$
6,746
162
77
45
7
4
7,041
Deposit insurance
The FDIC generally provides a standard amount of insurance of $250,000 per depositor, per insured bank, for each account ownership
category defined by the FDIC. Depositors may qualify for coverage of accounts over $250,000 if they have funds in different ownership
categories and all FDIC requirements are met. All deposits that an account holder has in the same ownership category at the same bank are
added together and insured up to the standard insurance amount. As of December 31, 2022 and December 31, 2021, approximately
$69.4 billion and $80.2 billion, respectively, of the Bancorp’s domestic deposits were uninsured. At December 31, 2022 and December 31,
2021, approximately $727 million and $468 million, respectively, of the Bancorp’s time deposits were not fully insured. The estimated
uninsured portions of those time deposits were $306 million and $236 million at December 31, 2022 and December 31, 2021, respectively.
Where information is not readily available to determine the amount of insured deposits, the amount of uninsured deposits is estimated,
consistent with the methodologies and assumptions utilized in providing information to the Bank’s regulators.
Borrowings
The Bancorp accesses a variety of short-term and long-term funding sources. Borrowings with original maturities of one year or less are
classified as short-term and include federal funds purchased and other short-term borrowings. Total average borrowings as a percent of
average interest-bearing liabilities were 14% at December 31, 2022 compared to 13% at December 31, 2021.
The following table summarizes the end of period components of borrowings:
TABLE 27: Components of Borrowings
As of December 31 ($ in millions)
Federal funds purchased
Other short-term borrowings
Long-term debt
Total borrowings
2022
2021
$
$
180
4,838
13,714
18,732
281
980
11,821
13,082
Total borrowings increased $5.7 billion, or 43%, from December 31, 2021 primarily due to increases in other short-term borrowings and
long-term debt. Other short-term borrowings increased $3.9 billion from December 31, 2021 primarily due to increased funding needs
resulting from an increase in investment securities, loan growth and a decline in core deposit balances. 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 16 of the Notes to Consolidated Financial
Statements. Long-term debt increased $1.9 billion from December 31, 2021 primarily driven by the issuances of senior fixed-rate/floating-
rate notes in April, July and October of 2022 totaling $4.0 billion. These increases were partially offset by the early redemptions under the par
call options of $1.5 billion of notes, $460 million of fair value adjustments associated with interest rate swaps hedging long-term debt and
$182 million of paydowns on long-term debt associated with loan securitizations during the year ended December 31, 2022. For additional
information regarding the long-term debt issuances, refer to Note 17 of the Notes to Consolidated Financial Statements.
86 Fifth Third Bancorp
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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following table summarizes the components of average borrowings:
TABLE 28: Components of Average Borrowings
For the years ended December 31 ($ in millions)
Federal funds purchased
Other short-term borrowings
Long-term debt
Total average borrowings
2022
2021
$
$
381
4,544
11,893
16,818
333
1,107
13,109
14,549
Total average borrowings increased $2.3 billion, or 16%, compared to December 31, 2021 primarily due to an increase in average other short-
term borrowings, partially offset by a decrease in average long-term debt. Average other short-term borrowings increased $3.4 billion
compared to December 31, 2021 primarily due to increased funding needs resulting from an increase in investment securities, loan growth
and a decline in core deposit balances. Average long-term debt decreased $1.2 billion compared to December 31, 2021 primarily driven by
the early redemptions under the par call options of $1.5 billion of notes, $460 million of fair value adjustments associated with interest rate
swaps hedging long-term debt and $182 million of paydowns on long-term debt associated with loan securitizations during the year ended
December 31, 2022, partially offset by the issuances of senior fixed-rate/floating-rate notes in April, July and October of 2022 totaling $4.0
billion. 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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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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 are influenced by both internal and external factors. 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 Enterprise 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
RCC, ERMC 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 approve the
risk appetite, which is considered in the development of business strategies and forms the basis for enterprise risk management.
The core principles that define the Bancorp’s risk appetite are as follows:
◦
◦
◦
◦
◦
◦
◦
Act with integrity in all activities.
Understand the risks taken and ensure that they are in alignment with the Bancorp’s business strategies and risk appetite.
Avoid risks that cannot be understood, managed or monitored.
Provide transparency of risk to the Bancorp’s management and Board by escalating risks and issues as necessary.
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.
Only offer products or services that are 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.
◦ 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.
Protect the Bancorp’s reputation by thoroughly understanding the consequences of business strategies, products and
processes.
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 and Ethics, which may be found on www.53.com, while carrying out their responsibilities.
Fifth Third’s Corporate Reputation Risk 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, reputation risk and strategic risk.
The Bancorp identifies and monitors existing and potential risks that may impact the company’s risk profile, including emerging
risks that create uncertainties and/or would have broad implications if materialized (e.g. global pandemics, climate change, etc.).
Enhanced monitoring and action plans are implemented as necessary to proactively mitigate 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, performance and compensation 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 (and enterprise-wide functions that support front-line units) that create risk
or are involved in risk-taking activities 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, and managing
the risks associated with their activities consistent with established risk appetite and limits.
The second line of defense, or Independent Risk Management, consists of Risk Management, Compliance and Credit Risk Review.
The second line is responsible for developing enterprise frameworks and policies to govern risk-taking activities, overseeing risk-
taking of the organization, advising on controlling that risk, assessing risks and issues independent of the first line of defense, 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 Bancorp Risk Appetite. Additionally, the second line of
defense is responsible for identifying, assessing, managing, monitoring 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 designs 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 based on risk and exposure amount, the use of which is closely monitored. Underwriting activities are
centrally managed, and Credit Risk Management 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
ACL is based on quarterly assessments of the estimated losses expected in the loan and lease portfolio. The Bancorp uses these assessments
to maintain an adequate ACL and record any necessary charge-offs. Additional loans and leases with probable or observed credit weaknesses
receive enhanced monitoring and undergo a periodic review. Refer to Note 6 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 at the individual loan level during credit underwriting.
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 is 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 separately 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. This “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 grade categories for estimating probabilities of default 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 regulatory risk rating system.
The Bancorp utilizes internally developed models to estimate expected credit losses for portfolio loans and leases. 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.
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 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
With nominal growth significantly above trend and inflationary pressures building in 2022, the Federal Reserve engaged in the most
aggressive monetary tightening cycle since the early 1980’s. The target federal funds rate increased 425 bps compared to market expectations
entering the year of only 75 bps in rate hikes. At the same time the Federal Reserve began the process of reducing their holdings of Treasury
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and Agency MBS securities at a pace of $95 billion per month. Financial markets experienced one of their worst years on record as the
tightening in monetary policy resulted in negative returns for both equities and bonds.
Financial market volatility remained high throughout the fourth quarter of 2022 as investors assessed the impact of the FOMC’s aggressive
rate hikes on the macroeconomic outlook. As the Federal Reserve continues to tighten monetary policy, investors have become more
concerned about a recession and its impact on economic growth and corporate earnings in 2023. Although employment data has remained
resilient, other economic reports for consumer spending and business investment along with sentiment surveys have reflected a slowing
economy.
With the FOMC moving monetary policy into a restrictive setting, the increase in real yields along with the inversion of the yield curve are
signaling increasing risks of a recession. At the December 2022 FOMC meeting, FRB officials indicated monetary policy would need to
remain restrictive throughout 2023 to achieve a better balance of supply and demand in the labor market. FRB officials have indicated a
positive real federal funds rate will be necessary to return personal consumption expenditures inflation to their long-term target of 2%. The
real federal funds rate has been negative since 2007. This adjustment to a positive real federal funds rate may be disruptive to economic
activity in 2023.
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 is closely monitoring various economic conditions and their impacts on commercial borrowers, including the pace of inflation,
rising interest rates, labor and supply chain issues, and changes in consumer discretionary spending patterns, among others. The Bancorp
maintains focus on disciplined client selection, adherence to underwriting policy and attention to borrower and industry concentrations.
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.
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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 29: 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
Retail trade
Accommodation and food
Mining
Communication and information
Construction
Transportation and warehousing
Utilities
Entertainment and recreation
Other services
Agribusiness
Public administration
Individuals
Other
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
California
Texas
Florida
Michigan
Georgia
Indiana
Tennessee
North Carolina
Kentucky
South Carolina
Other
Total
Outstanding
2022
Exposure
Nonaccrual
Outstanding
2021
Exposure
Nonaccrual
$
$
11,275
11,024
9,927
5,971
5,576
5,538
4,495
4,340
3,634
3,428
2,945
2,621
1,862
1,729
1,088
456
343
76
61
76,389
4 %
7
5
14
23
47
100 %
9 %
9
9
9
7
5
4
3
3
3
2
2
35
100 %
17,938
21,174
20,674
10,240
7,838
10,620
10,570
7,028
6,811
6,944
6,265
4,664
4,172
3,053
1,484
651
451
117
62
140,756
3
6
4
12
22
53
100
9
11
8
9
7
5
4
3
3
2
2
2
35
100
25
88
—
4
28
4
9
10
—
—
15
2
—
67
9
—
1
—
1
263
17
12
17
28
26
—
100
30
8
3
9
6
5
1
—
2
2
1
—
33
100
10,370
11,131
9,196
5,149
5,011
4,733
4,053
4,354
2,512
2,969
2,918
2,774
1,446
1,401
1,140
355
606
61
89
70,268
5
8
6
15
24
42
100
11
10
8
8
8
6
3
3
3
2
2
2
34
100
16,067
22,082
18,562
9,481
7,608
9,266
10,001
7,089
5,023
6,665
6,111
4,628
3,698
2,948
1,501
616
856
93
90
132,385
3
6
5
14
24
48
100
9
12
8
8
7
5
4
4
3
2
2
1
35
100
37
82
—
23
6
6
2
28
16
24
6
8
—
86
8
1
3
—
1
337
14
14
8
42
22
—
100
29
4
2
6
2
9
8
2
3
1
1
—
33
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.
The Bancorp maintains an appraisal review department to order and review third-party appraisals in accordance with regulatory requirements.
Collateral values on nonaccrual assets with relationships exceeding $1 million are reviewed quarterly to assess the appropriateness of the
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value ascribed in the assessment of charge-offs and specific reserves. Additionally, collateral values are also reviewed at least annually for all
criticized assets.
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 for an ACL. The Bancorp does not typically aggregate the LTV ratios
for commercial mortgage loans less than $1 million.
TABLE 30: Commercial Mortgage Loans Outstanding by LTV, Loans Greater Than $1 Million
As of December 31, 2022 ($ in millions)
Commercial mortgage owner-occupied loans
Commercial mortgage nonowner-occupied loans
Total
$
$
LTV > 100%
LTV 80-100%
LTV < 80%
63
4
67
533
65
598
3,566
4,510
8,076
TABLE 31: Commercial Mortgage Loans Outstanding by LTV, Loans Greater Than $1 Million
As of December 31, 2021 ($ in millions)
Commercial mortgage owner-occupied loans
Commercial mortgage nonowner-occupied loans
Total
LTV > 100%
166
46
212
$
$
LTV 80-100%
416
120
536
LTV < 80%
3,164
4,197
7,361
The Bancorp views nonowner-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 32: Nonowner-Occupied Commercial Real Estate (excluding loans held for sale)(a)
As of December 31, 2022 ($ in millions)
Outstanding
Exposure
90 Days
Past Due
Nonaccrual
Net Charge-offs
For the Year Ended
December 31, 2022
By State:
Illinois
Florida
Ohio
Michigan
Texas
Georgia
North Carolina
Indiana
All other states
Total
$
$
1,401
1,127
1,061
837
788
382
344
338
4,018
10,296
1,695
1,864
1,462
1,145
1,356
920
549
529
6,229
15,749
—
—
—
—
—
—
—
—
—
—
22
—
—
1
—
—
1
—
—
24
—
—
—
—
—
—
—
—
3
3
(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.
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TABLE 33: Nonowner-Occupied Commercial Real Estate (excluding loans held for sale)(a)
As of December 31, 2021 ($ in millions)
Outstanding
Exposure
90 Days
Past Due
Nonaccrual
For the Year Ended
December 31, 2021
Net (Recoveries)
Charge-offs
By State:
Illinois
Florida
Ohio
Michigan
Texas
Georgia
North Carolina
Indiana
All other states
Total
$
$
1,498
1,126
1,165
844
735
326
239
307
3,847
10,087
1,711
1,753
1,536
1,049
1,132
766
403
563
5,330
14,243
—
—
—
—
—
—
—
—
—
—
21
—
—
—
—
—
1
—
10
32
2
—
—
—
—
—
—
—
(3)
(1)
(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.
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.
The Bancorp actively manages the consumer portfolio through concentration limits, which mitigate credit risk through limiting the exposure
to lower FICO scores, higher LTVs and specific geographic concentration risks.
The Bancorp continues to ensure that underwriting standards and guidelines adequately account for the broader economic conditions that the
consumer portfolio faces in a rising-rate environment. Guidelines are designed to ensure that the various consumer products fall within the
Bancorp’s risk appetite. These guidelines will be monitored and adjusted as deemed appropriate in response to the prevailing economic
conditions while remaining within the Bancorp’s risk tolerance limits.
The payment structures for certain variable rate products (such as residential mortgage loans, home equity and credit card) are susceptible to
changes in benchmark interest rates. With continued increases in interest rates, minimum payments on these products also increase, raising
the potential for the environment to be disruptive to some borrowers. The Bancorp actively monitors the portion of its consumer portfolio that
is susceptible to increases in minimum payments and continues to assess the impact on the overall risk appetite and soundness of the
portfolio.
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 $514 million of
ARM loans will have rate resets during the next twelve months. Of these resets, substantially all are expected to experience an increase in
rate, with an average increase of approximately 1.97%. Underlying characteristics of these borrowers are relatively strong with a weighted-
average origination DTI of 35% and weighted-average origination LTV of 72%.
Certain residential mortgage products have characteristics that may increase the Bancorp’s credit loss rates in the event of a decline in
housing values. These types of mortgage products offered by the Bancorp include loans with high LTVs, multiple loans secured by the same
collateral that when combined result in an LTV greater than 80% and interest-only loans. The Bancorp has deemed residential mortgage loans
with greater than 80% LTVs and no mortgage insurance as loans that represent a higher level of risk.
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The following table provides an analysis of the residential mortgage portfolio loans outstanding by LTV at origination as of:
TABLE 34: Residential Mortgage Portfolio Loans by LTV at Origination
As of December 31 ($ in millions)
LTV ≤ 80%
LTV > 80%, with mortgage insurance(a)
LTV > 80%, no mortgage insurance
Total
(a)
Includes loans with either borrower or lender paid mortgage insurance.
2022
2021
Outstanding
Weighted-
Average LTV
Outstanding
Weighted-
Average LTV
$
$
12,395
3,092
2,141
17,628
61.9 % $
94.7
90.5
71.3 % $
12,207
2,227
1,963
16,397
62.5 %
94.9
90.8
70.9 %
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 35: Residential Mortgage Portfolio Loans, LTV Greater Than 80% at Origination, No Mortgage Insurance
As of December 31, 2022 ($ in millions)
Outstanding
90 Days
Past Due
Nonaccrual
Net Charge-offs
For the Year Ended
December 31, 2022
By State:
Ohio
Illinois
Florida
Michigan
Indiana
North Carolina
Kentucky
All other states
Total
$
$
500
430
347
163
157
147
112
285
2,141
1
—
—
—
—
—
—
—
1
9
5
3
2
2
—
1
7
29
—
—
—
—
—
—
—
—
—
TABLE 36: Residential Mortgage Portfolio Loans, LTV Greater Than 80% at Origination, No Mortgage Insurance
As of December 31, 2021 ($ in millions)
Outstanding
90 Days
Past Due
Nonaccrual
Net (Recoveries) Charge-offs
For the Year Ended
December 31, 2021
By State:
Ohio
Illinois
Florida
Michigan
Indiana
North Carolina
Kentucky
All other states
Total
$
$
460
398
305
153
135
134
104
274
1,963
5
3
2
2
2
—
1
3
18
4
2
1
—
—
—
—
1
8
—
(1)
—
—
—
—
—
—
(1)
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. Approximately 37% of the outstanding balances of the Bancorp’s portfolio of
home equity lines of credit have a balloon structure at maturity. Peak maturity years for the balloon home equity lines of credit are 2025 to
2028 and approximately 15% 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
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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 38 and Table 39. Of the
total $4.0 billion of outstanding home equity loans:
•
•
•
•
78% reside within the Bancorp’s Midwest footprint of Ohio, Michigan, Illinois, Indiana and Kentucky as of December 31, 2022;
39% are in senior lien positions and 61% are in junior lien positions at December 31, 2022;
78% of non-delinquent borrowers made at least one payment greater than the minimum payment during the year ended
December 31, 2022; and
The portfolio had a weighted-average refreshed FICO score of 751 at December 31, 2022.
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 and Note 1 of the Notes to Consolidated Financial Statements for more information.
The following table provides an analysis of home equity portfolio loans outstanding disaggregated based upon refreshed FICO score:
TABLE 37: 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
2022
2021
Outstanding
% of Total
Outstanding
% of Total
$
$
$
$
122
205
1,262
1,589
211
433
1,806
2,450
4,039
3 % $
5
31
39 % $
5
11
45
61 % $
100 % $
143
228
1,333
1,704
245
430
1,705
2,380
4,084
3 %
6
33
42 %
6
10
42
58 %
100 %
The Bancorp believes that home equity portfolio loans with a greater than 80% LTV (including senior liens, if applicable) 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 38: 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
2022
2021
Outstanding
Weighted-
Average LTV
Outstanding
Weighted-
Average LTV
$
$
$
$
1,395
194
1,589
1,628
822
2,450
4,039
52.1 % $
88.8
56.8 % $
65.6
89.2
74.1 % $
67.2 % $
1,485
219
1,704
1,479
901
2,380
4,084
53.5 %
88.8
58.3 %
66.4
89.7
76.0 %
68.4 %
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The following tables provide an analysis of home equity portfolio loans outstanding by state with a LTV greater than 80% (including senior
liens, if applicable) at origination:
TABLE 39: Home Equity Portfolio Loans Outstanding with an LTV Greater than 80% at Origination
As of December 31, 2022 ($ in millions)
By State:
Ohio
Illinois
Michigan
Indiana
Kentucky
Florida
All other states
Total
Outstanding
Exposure
90 Days
Past Due
Nonaccrual
For the Year Ended
December 31, 2022
Net (Recoveries)
Charge-offs
$
$
315
165
160
99
84
77
116
1,016
859
367
432
260
219
191
295
2,623
—
1
—
—
—
—
—
1
8
4
3
2
1
2
3
23
(1)
(1)
(1)
—
—
—
(1)
(4)
TABLE 40: Home Equity Portfolio Loans Outstanding with an LTV Greater than 80% at Origination
As of December 31, 2021 ($ in millions)
By State:
Ohio
Illinois
Michigan
Indiana
Kentucky
Florida
All other states
Total
Outstanding
Exposure
90 Days
Past Due
Nonaccrual
$
$
351
181
190
108
89
79
122
1,120
894
373
468
256
223
170
275
2,659
—
1
—
—
—
—
—
1
8
5
4
3
2
1
4
27
For the Year Ended
December 31, 2021
Net (Recoveries)
Charge-offs
—
(1)
(1)
—
—
(1)
(1)
(4)
Indirect secured consumer portfolio
The indirect secured consumer portfolio is comprised of $14.0 billion of automobile loans and $2.6 billion of indirect motorcycle,
powersport, recreational vehicle and marine loans as of December 31, 2022. All concentration and guideline changes are monitored monthly
to ensure alignment with original credit performance and return projections.
The following table provides an analysis of indirect secured consumer portfolio loans outstanding disaggregated based upon FICO score at
origination:
TABLE 41: Indirect Secured Consumer Portfolio Loans Outstanding by FICO Score at Origination
As of December 31 ($ in millions)
FICO ≤ 659
FICO 660-719
FICO ≥ 720
Total
2022
2021
Outstanding
% of Total
Outstanding
% of Total
$
$
248
3,564
12,740
16,552
1 % $
22
77
100 % $
312
3,745
12,726
16,783
2 %
22
76
100 %
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.
96 Fifth Third Bancorp
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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following table provides an analysis of indirect secured consumer portfolio loans outstanding by LTV at origination:
TABLE 42: Indirect Secured Consumer Portfolio Loans Outstanding by LTV at Origination
2022
2021
As of December 31 ($ in millions)
LTV ≤ 100%
LTV > 100%
Total
Outstanding
Weighted-
Average LTV
Outstanding
Weighted-
Average LTV
$
$
12,087
4,465
16,552
79.6 % $
110.5
87.9 % $
12,327
4,456
16,783
79.5 %
111.1
88.1 %
The following table provides an analysis of the Bancorp’s indirect secured consumer portfolio loans outstanding with an LTV greater than
100% at origination as of and for the years ended:
TABLE 43: Indirect Secured Consumer Portfolio Loans Outstanding with an LTV Greater than 100% at Origination
($ in millions)
December 31, 2022
December 31, 2021
Outstanding
90 Days Past
Due and Accruing
Nonaccrual
$
4,465
4,456
—
6
Net Charge-offs
23
11
16
16
Credit card portfolio
The credit card portfolio consists of predominantly prime accounts with 98% of balances existing within the Bancorp’s footprint at both
December 31, 2022 and December 31, 2021. At both December 31, 2022 and 2021, 72% of the outstanding balances were originated through
branch-based relationships with the remainder coming from direct mail campaigns and online acquisitions.
The following table provides an analysis of the Bancorp’s outstanding credit card portfolio disaggregated based upon FICO score at
origination:
TABLE 44: Credit Card Portfolio Loans Outstanding by FICO Score at Origination
As of December 31 ($ in millions)
FICO ≤ 659
FICO 660-719
FICO ≥ 720
Total
2022
2021
Outstanding
% of Total
Outstanding
% of Total
$
$
80
528
1,266
1,874
4 % $
28
68
100 % $
82
518
1,166
1,766
5 %
29
66
100 %
Other consumer portfolio loans
Other consumer portfolio loans are comprised of secured and unsecured loans originated through the Bancorp’s branch network, home
improvement and solar energy installation loans originated through a network of contractors and installers, and other point-of-sale loans
originated or purchased in connection with third-party companies. The Bancorp closely monitors the credit performance of point-of-sale
loans. Loans originated in connection with one third-party company are impacted by certain credit loss protection coverage provided by that
company. The Bancorp discontinued origination of new loans with this third-party company in September 2022.
The following table provides an analysis of other consumer portfolio loans outstanding by product type:
TABLE 45: Other Consumer Portfolio Loans Outstanding by Product Type
As of December 31 ($ in millions)
Point-of-sale
Third-party point-of-sale
Other secured
Unsecured
Total
2022
2021
Outstanding
% of Total
Outstanding
% of Total
$
$
2,297
1,262
909
530
4,998
46 % $
25
18
11
100 % $
—
1,464
797
491
2,752
— %
53
29
18
100 %
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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 consumer loans which do not meet the requirements to be classified as a performing
asset; and certain other assets, including OREO and other repossessed property. A summary of nonperforming assets is included in Table 46.
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 $539 million at December 31, 2022 compared to $542 million at December 31, 2021. At December 31, 2022, an
immaterial amount of nonaccrual loans were held for sale, compared to $15 million at December 31, 2021.
Nonperforming portfolio assets as a percent of portfolio loans and leases and OREO were 0.44% and 0.47% at December 31, 2022 and 2021,
respectively. Nonaccrual loans and leases secured by real estate were 42% of nonaccrual loans and leases as of December 31, 2022 compared
to 33% as of December 31, 2021.
Portfolio commercial nonaccrual loans and leases were $263 million at December 31, 2022, a decrease of $74 million from December 31,
2021. Portfolio consumer nonaccrual loans were $252 million at December 31, 2022, an increase of $91 million from December 31, 2021.
Refer to Table 47 for a rollforward of the portfolio nonaccrual loans and leases.
OREO and other repossessed property was $24 million and $29 million at December 31, 2022 and 2021, respectively. The Bancorp
recognized an immaterial amount and $6 million in losses on the transfer, sale or write-down of OREO properties during the years ended
December 31, 2022 and 2021, respectively.
During the years ended December 31, 2022 and 2021, approximately $34 million and $33 million, respectively, of interest income would
have been recognized if the nonaccrual and restructured loans and leases on nonaccrual status had been current in accordance with their
contractual terms. Although these values help demonstrate the costs of carrying nonaccrual credits, the Bancorp does not expect to recover
the full amount of interest as nonaccrual loans and leases are generally carried below their principal balance.
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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
TABLE 46: Summary of Nonperforming Assets and Delinquent Loans and Leases
As of December 31 ($ in millions)
Nonaccrual portfolio loans and leases:
Commercial and industrial loans
Commercial mortgage loans
Commercial construction loans
Commercial leases
Residential mortgage loans(c)
Home equity
Indirect secured consumer loans
Other consumer loans
Nonaccrual portfolio restructured loans:
Commercial and industrial loans
Commercial mortgage loans
Commercial construction loans
Residential mortgage loans(c)
Home equity
Indirect secured consumer loans
Credit card
Total nonaccrual portfolio loans and leases(b)
OREO and other repossessed property
Total nonperforming portfolio loans and leases and OREO
Nonaccrual loans held for sale
Total nonperforming assets
Total portfolio loans and leases 90 days past due and still accruing:
Commercial and industrial loans
Commercial mortgage loans
Commercial construction loans
Commercial leases
Residential mortgage loans(a)(c)
Home equity
Indirect secured consumer loans
Credit card
Other consumer loans
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
Nonperforming portfolio loans and leases as a percent of portfolio loans and leases
ACL as a percent of nonperforming portfolio loans and leases
ACL as a percent of nonperforming portfolio assets
2022
2021
$
$
$
$
90
10
1
—
53
43
19
5
125
30
7
71
24
10
27
515
24
539
—
539
11
—
—
2
7
1
—
18
1
40
0.44 %
0.42
468
447
116
42
6
4
10
47
5
1
163
6
—
23
30
22
23
498
29
527
15
542
17
1
1
—
72
1
9
15
1
117
0.47
0.44
416
394
(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 $212 and $349 as of December 31, 2022 and 2021, respectively. The Bancorp recognized losses of $2 for
both the years ended December 31, 2022 and 2021 due to claim denials and curtailments associated with these insured or guaranteed loans.
Includes $15 and $26 of nonaccrual government insured commercial loans whose repayments are insured by the SBA as of December 31, 2022 and 2021,
respectively, of which $11 are restructured nonaccrual government insured commercial loans as of both December 31, 2022 and 2021.
(c) During the first quarter of 2022, the Bancorp amended its definition of nonperforming loans to include residential mortgage loans that are past due 150 days or
more and not fully or partially guaranteed by government agencies.
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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following tables provide a rollforward of portfolio nonaccrual loans and leases, by portfolio segment:
TABLE 47: Rollforward of Portfolio Nonaccrual Loans and Leases
For the year ended December 31, 2022 ($ 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
Commercial
Residential
Mortgage(a)
Consumer
Total
$
$
337
262
(7)
(23)
(180)
—
(131)
5
263
33
146
(28)
—
(23)
(6)
(1)
3
124
128
154
(65)
—
(52)
—
(37)
—
128
498
562
(100)
(23)
(255)
(6)
(169)
8
515
(a) During the first quarter of 2022, the Bancorp amended its definition of nonperforming loans to include residential mortgage loans that are past due 150 days or
more and not fully or partially guaranteed by government agencies.
TABLE 48: Rollforward of Portfolio Nonaccrual Loans and Leases
For the year ended December 31, 2021 ($ 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
Commercial
Residential
Mortgage
Consumer
Total
$
$
638
239
(27)
(90)
(333)
(1)
(119)
30
337
60
43
(68)
—
(1)
(2)
—
1
33
136
163
(88)
—
(54)
—
(30)
1
128
834
445
(183)
(90)
(388)
(3)
(149)
32
498
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. Refer to Note 1 of the Notes to Consolidated Financial Statements for
further information on the Bancorp’s accounting for TDRs.
Consumer restructured loans on accrual status totaled $725 million and $675 million at December 31, 2022 and 2021, respectively. As of
December 31, 2022, the percentages of restructured residential mortgage loans, home equity and credit card that were past due 30 days or
more from their modified terms were 29%, 19% and 33%, respectively.
The following tables summarize portfolio TDRs by loan type and delinquency status:
TABLE 49: Accruing and Nonaccruing Portfolio TDRs
As of December 31, 2022 ($ in millions)
Commercial loans(a)
Residential mortgage loans(b)
Home equity
Indirect secured consumer loans
Credit card
Total
Accruing
30-89 Days
Past Due
90 Days or
More Past Due
Current
Nonaccruing
Total
$
$
254
396
126
77
15
868
—
28
6
10
2
46
—
65
—
—
—
65
162
71
24
10
27
294
416
560
156
97
44
1,273
(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 or USDA. As of December 31, 2022, these advances represented $199 of current loans, $21 of 30-89 days past due loans, $65 of 90 days or more past due
loans and $22 of nonaccrual loans.
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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
TABLE 50: Accruing and Nonaccruing Portfolio TDRs
As of December 31, 2021 ($ in millions)
Commercial loans(a)
Residential mortgage loans(b)
Home equity
Indirect secured consumer loans
Credit card
Total
Accruing
30-89 Days
Past Due
Current
90 Days or
More Past Due
Nonaccruing
Total
$
$
156
328
141
66
18
709
—
17
5
4
3
29
1
92
1
—
—
94
169
23
30
22
23
267
326
460
177
92
44
1,099
(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, 2021, these advances represented $144 of current loans, $14 of 30-89 days past due loans and $69 of 90 days or more past due loans.
Analysis of Net Loan Charge-offs
Net charge-offs were 19 bps and 16 bps of average portfolio loans and leases for the years ended December 31, 2022 and 2021, respectively.
Table 51 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 as a percent of average portfolio commercial loans and leases increased to 13 bps
during the year ended December 31, 2022, compared to 10 bps during the same period in the prior year primarily due to an increase in net
charge-offs on commercial and industrial loans of $36 million, partially offset by a decrease in net charge-offs on commercial mortgage loans
of $9 million.
The ratio of consumer loan net charge-offs as a percent of average portfolio consumer loans increased to 29 bps during the year ended
December 31, 2022, compared to 26 bps during the same period in the prior year primarily due to increases in net charge-offs on indirect
secured consumer loans and other consumer loans of $22 million and $11 million, respectively, partially offset by a decrease in net charge-
offs on credit card of $18 million.
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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
TABLE 51: Summary of Credit Loss Experience
For the years ended December 31 ($ 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
2022
2021
2020
$
$
$
$
$
$
(121)
—
(3)
(7)
(3)
(9)
(68)
(68)
(83)
(362)
25
1
1
3
5
11
32
16
41
135
(96)
1
(2)
(4)
2
2
(36)
(52)
(42)
(227)
0.17 %
(0.01)
0.04
0.13
0.13 %
(0.01)
(0.05)
0.21
2.98
1.15
0.29 %
0.19 %
(103)
(13)
—
(3)
(3)
(7)
(51)
(91)
(73)
(344)
43
5
—
4
7
11
37
21
42
170
(60)
(8)
—
1
4
4
(14)
(70)
(31)
(174)
0.12
0.08
—
(0.02)
0.10
(0.03)
(0.09)
0.09
3.93
1.06
0.26
0.16
(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
(a) For the years ended December 31, 2022, 2021 and 2020, the Bancorp recorded $32, $33 and $42, respectively, in both losses charged off and recoveries of losses
previously 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 described in Note 1 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 (as adjusted for prepayments and reasonably expected TDRs). The
Bancorp’s methodology for determining the ALLL includes an estimate of expected credit losses on a collective basis for groups of loans and
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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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.
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 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.
At both December 31, 2022 and 2021, 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 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, 2022 ACL
The ACL as of December 31, 2022 was impacted by several factors, including growth in portfolio loan and lease balances, primarily
concentrated in the commercial and industrial loan and other consumer loan portfolios and deterioration in the forecasted macroeconomic
conditions in each of the three forecast scenarios. As a result of these factors, the Bancorp incorporated a combination of quantitative model-
based estimates and qualitative adjustments. As of December 31, 2022, the Bancorp’s economic scenarios included estimates of the expected
impacts of the changes in economic conditions caused by inflationary and rising interest rate pressures and the ongoing Russia-Ukraine
conflict. At December 31, 2022, the Bancorp assigned an 80% probability weighting to the Baseline scenario and 10% to each the Upside
and Downside scenarios.
The Baseline scenario assumed real GDP growth for the year ended 2022 at 1.8% with the forecast decreasing to 0.7% in 2023, and then
increasing to 2.1% in 2024 and 2.7% in 2025. The Baseline scenario also assumed an average unemployment rate of 3.7% for the year ended
2022, increasing to an average of 4.0% in the forecast for both 2023 and 2024, modestly decreasing to an average of 3.8% in 2025. Lastly, the
Baseline scenario assumed continued increases to the target federal funds rate, peaking at an average of 4.6% in 2023, and decreasing to an
average of 3.9% and 3.0% in 2024 and 2025, respectively. The Upside scenario assumed a faster than anticipated resolution to the Russia-
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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Ukraine conflict with related improvement to economic measures. The Upside scenario assumed that on an average annual basis, the change
in real GDP is 3.4% in 2023, decreasing to 2.9% and 2.0% in 2024 and 2025, respectively. The Upside scenario also assumed an
unemployment rate at an annual average of 3.4% in both 2023 and 2024, slightly declining to 3.3% in 2025. In the Upside scenario, the
forecast for the federal funds rate was consistent with the Baseline scenario but with slightly lower increases resulting from an improving
inflation outlook. The Downside scenario included significant worsening of the Russia-Ukraine conflict resulting in continued inflation,
causing the U.S. economy to fall into a recession in the first quarter of 2023. The Downside scenario assumed that real GDP will decline
throughout 2023, at an average of (1.5%), recovering to an average growth rate of 0.2% and 3.2% in 2024 and 2025, respectively. The
Downside scenario unemployment rate peaks at 7.8% in the first quarter of 2024 and decreases to an average of 5.9% in 2025. In the
Downside scenario, the forecast for the federal funds rate included higher increases than the Baseline scenario through the fourth quarter of
2023, followed by rapid decreases through 2025.
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 $2.2 billion. This sensitivity calculation only reflects the
impact of changing the probability weighting of the scenarios in the quantitative credit loss models and excludes any additional
considerations associated with the qualitative component of the ACL that might be warranted if probability weights were adjusted.
The following table provides a rollforward of the Bancorp’s ACL:
TABLE 52: Changes in Allowance for Credit Losses
For the years ended December 31 ($ in millions)
ALLL:
Balance, beginning of period
Losses charged-off(a)
Recoveries of losses previously charged-off(a)
Provision for (benefit from) loan and lease losses
Impact of adoption of ASU 2016-13
Balance, end of period
Reserve for unfunded commitments:
Balance, beginning of period
Provision for the reserve for unfunded commitments
Impact of adoption of ASU 2016-13
Balance, end of period
2022
2021
2020
$
$
$
$
1,892
(362)
135
529
—
2,194
182
34
—
216
2,453
(344)
170
(387)
—
1,892
172
10
—
182
1,202
(611)
140
1,079
643
2,453
144
18
10
172
(a) For the years ended December 31, 2022, 2021 and 2020, the Bancorp recorded $32, $33 and $42, respectively, in both losses charged-off and recoveries of losses
previously charged-off related to customer defaults on point-of-sale consumer loans for which the Bancorp obtained recoveries under third-party credit
enhancements.
104 Fifth Third Bancorp
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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following table provides an attribution of the Bancorp’s ALLL to portfolio loans and leases:
TABLE 53: Attribution of Allowance for Loan and Lease Losses to Portfolio Loans and Leases
As of December 31 ($ in millions)
Attributed ALLL:
2022
2021
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 ALLL
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
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
Total ALLL as a percent of portfolio loans and leases
Total ACL as a percent of portfolio loans and leases
(a)
Includes $123 and $154 of residential mortgage loans measured at fair value at December 31, 2022 and 2021, respectively.
$
$
776
246
90
15
245
133
187
254
248
2,194
$
57,232
11,020
5,433
2,704
17,628
4,039
16,552
1,874
4,998
$ 121,480
1.36 %
2.23
1.66
0.55
1.39
3.29
1.13
13.55
4.96
1.81 %
1.98
711
304
72
15
235
123
119
209
104
1,892
51,659
10,316
5,241
3,052
16,397
4,084
16,783
1,766
2,752
112,050
1.38
2.95
1.37
0.49
1.43
3.01
0.71
11.83
3.78
1.69
1.85
The Bancorp’s ALLL may vary significantly from period to period based on changes in economic conditions, economic forecasts and the
composition and credit quality of the Bancorp’s loan and lease portfolio. For additional information on the Bancorp’s methodology for
measuring the ACL, refer to Note 1 of the Notes to Consolidated Financial Statements.
105 Fifth Third Bancorp
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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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 Banking and Wealth and Asset Management lines of business manage price risk for capital markets sales and trading
activities related to their respective businesses. The Consumer and Small Business Banking 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 and reports to the Corporate Credit
Committee (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. The NII simulation model does not represent a forecast of the Bancorp’s net interest income but is a tool utilized
to assess the risk of the impact of changing market interest rates across a range of market interest rate environments. As a result, actual results
will differ from simulated results for multiple reasons, which may include actual balance sheet composition differences, timing, magnitude
and frequency of interest rate changes, deviations from projected customer behavioral assumptions as well as from changes in market
conditions and management strategies.
As of December 31, 2022, 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 under parallel ramped increases and decreases in interest rates. Policy limits are utilized for scenarios assuming
a 200 bps increase and a 200 bps decrease in interest rates over twelve months. The Bancorp routinely analyzes various potential and extreme
scenarios, including parallel ramps and shocks as well as steepening and other non-parallel shifts in rates, 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.
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 $1 billion of additional demand deposit balances run-off over 24 months for each 100 bps
increase in short-term market interest rates. Similarly, the Bancorp’s NII sensitivity modeling incorporates approximately $1 billion of
incremental growth in noninterest-bearing deposit balances over 24 months 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.
106 Fifth Third Bancorp
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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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 the
Bancorp’s interest-bearing deposit rates will change for a given change in short-term market rates. The Bancorp utilizes dynamic deposit beta
models to adjust assumed repricing sensitivity depending on market rate levels. The dynamic beta models were developed utilizing the
Bancorp’s performance during prior interest rate cycles. During the year ended December 31, 2022, the Bancorp’s actual deposit repricing
has been slower than what was experienced in prior interest rate cycles, and as a result, the Bancorp has outperformed previous NII
simulation expectations. Using the dynamic beta models, the Bancorp’s NII sensitivity modeling assumes weighted-average rising-rate
interest-bearing deposit betas at the end of the ramped parallel scenarios of 68% and 70%, for a 100 bps and 200 bps increase in rates,
respectively. In the event of rate cuts, this approach assumes a weighted-average falling-rate interest-bearing deposit beta at the end of the
ramped 200 bps decrease in rates of 60% at December 31, 2022, while also maintaining that deposit rates themselves will not become
negative. The modeling assumes 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. In addition, assumed deposit migration from low-beta deposit products to more rate-sensitive
deposit products contribute additional beta of 5%-10% across the rising-rate ramps, resulting in an effective beta of approximately 75-80% in
our baseline NII sensitivity profile. Given the performance during the year ended December 31, 2022, the Bancorp may continue to exceed
the NII simulation expectations. However, the actual performance will be dependent on market conditions, the level of competition for
deposits and the magnitude of continued interest rate increases. The Bancorp provides sensitivity analysis in Tables 55 and 56 for key
assumptions related to its deposit modeling, including beta and DDA balance performance.
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 54: 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
-200 Ramp over 12 months
2022
2021
% Change in NII
(FTE)
12
Months
13-24
Months
(2.93) % (3.17)
(1.14)
(1.31)
N/A
N/A
(4.69)
(0.68)
ALCO
Policy Limit
12
Months
(4.00)
N/A
N/A
(8.00)
13-24
Months
(6.00)
N/A
N/A
(12.00)
% Change in NII
(FTE)
12
Months
13-24
Months
10.68 % 20.60
12.66
6.13
(2.99)
(2.12)
N/A
N/A
ALCO
Policy Limit
12
Months
(4.00)
N/A
N/A
N/A
13-24
Months
(6.00)
N/A
N/A
N/A
At December 31, 2022, the Bancorp’s NII sensitivity is liability sensitive in years one and two due to the previously discussed deposit
dynamic beta and balance migration assumptions. The Bancorp’s NII simulation projects a decrease in both year one and year two NII under
the parallel 200 bps ramp decrease in interest rates. 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 certain falling-rate scenarios. However, continued re-positioning into
securities with less near-term principal cash flows and the execution of additional receive-fixed hedges have added significant protection
from declining rates. The changes in the estimated NII sensitivity profile compared to December 31, 2021 were primarily attributable to
significant deployment of cash and other short-term investments into long-term fixed-rate securities and higher market interest rates driving
higher expected betas.
Tables 55 and 56 provide the sensitivity of the Bancorp’s estimated NII profile at December 31, 2022 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 $2 billion decrease and an immediate $2
billion increase in demand deposit balances as of December 31, 2022:
TABLE 55: Estimated NII Sensitivity Profile at December 31, 2022 with a $2 Billion Change in Demand Deposit Assumption
Change in Interest Rates (bps)
+200 Ramp over 12 months
+100 Ramp over 12 months
-200 Ramp over 12 months
% Change in NII (FTE)
Immediate $2 Billion Balance
Decrease
Immediate $2 Billion Balance
Increase
12
Months
13-24
Months
12
Months
13-24
Months
(4.63) %
(2.84)
(1.70)
(4.95)
(2.36)
(5.36)
(1.24)
0.22
0.35
(1.39)
0.08
(4.03)
107 Fifth Third Bancorp
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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following table includes the Bancorp’s estimated NII sensitivity profile with a 10% increase and a 10% decrease to the corresponding
deposit beta assumptions as of December 31, 2022:
TABLE 56: Estimated NII Sensitivity Profile at December 31, 2022 with Deposit Beta Assumptions Changes
Change in Interest Rates (bps)
+200 Ramp over 12 months
+100 Ramp over 12 months
-200 Ramp over 12 months
% Change in NII (FTE)
Betas 10% Higher(a)
Betas 10% Lower(a)
12
Months
13-24
Months
12
Months
13-24
Months
(4.23) %
(1.94)
0.19
(5.44)
(2.24)
(3.39)
(1.64)
(0.67)
(1.56)
(0.90)
(0.04)
(6.03)
(a) Applies a +/- 10% multiple on assumed betas and includes deposit migration assumptions based on the changes in rates.
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 57: Estimated EVE Sensitivity Profile
Change in Interest Rates (bps)
+200 Shock
+100 Shock
-25 Shock
-200 Shock
2022
2021
% Change in
EVE
ALCO
Policy Limit
% Change in
EVE
ALCO
Policy Limit
(7.53) %
(2.72)
N/A
1.24
(12.00)
N/A
N/A
(12.00)
4.51
3.16
(1.24)
N/A
(12.00)
N/A
N/A
N/A
The EVE sensitivity is negative in a +200 bps rising-rate scenario and positive in a -200 bps falling-rate scenario at December 31, 2022. The
changes in the estimated EVE sensitivity profile from December 31, 2021 were primarily related to the significant deployment of cash and
other short-term investments into long-term fixed-rate securities, the execution of new forward-starting receive-fixed hedging transactions
and increased deposit repricing betas.
While an instantaneous shift in spot interest rates followed by forward projections 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 account for 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, SOFR, 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 58 and 59 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.,
notional amounts) to another interest rate index, to hedge the exposure to changes in fair value of a recognized asset attributable to changes in
108 Fifth Third Bancorp
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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
the benchmark interest rate 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, refer to Note 14 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 58: Weighted-Average Maturity, Receive Rate and Pay Rate on Qualifying Hedging Instruments
As of December 31, 2022 ($ in millions)
Interest rate swaps related to C&I loans – cash flow – receive-fixed
Interest rate swaps related to C&I loans – cash flow – receive-fixed –
forward starting(a)
Interest rate swaps related to commercial mortgage and commercial
construction loans – cash flow – receive-fixed
Interest rate swaps related to commercial mortgage and commercial
construction loans – cash flow – receive-fixed – forward starting(a)
Interest rate swaps related to long-term debt – fair value – receive-
fixed
Total interest rate swaps
Interest rate floors related to C&I loans– cash flow – receive-fixed
$
$
Notional
Amount
$
8,000
Fair Value
Remaining
(years)
(76)
22
(25)
5
(69)
(143)
4
1.0
8.3
2.1
9.1
5.9
2.0
Fixed Rate
3.02 %
3.05
0.99
3.50
5.18
2.25
Index
1 ML
1 ML
1 ML
1 ML
1 ML / 3 ML /
SOFR
1 ML
11,000
4,000
4,000
5,955
32,955
3,000
(a) Forward starting swaps will become effective on various dates between February 2023 and February 2025.
TABLE 59: Weighted-Average Maturity, Receive Rate and Pay Rate on Qualifying Hedging Instruments
As of December 31, 2021 ($ in millions)
Interest rate swaps related to C&I loans – cash flow – receive-fixed
Interest rate swaps related to commercial mortgage and commercial
construction loans – cash flow – receive-fixed
Interest rate swaps related to long-term debt – fair value – receive-fixed
Interest rate swaps related to available-for-sale debt and other securities
– fair value – receive-floating / pay-fixed
$
Total interest rate swaps
Interest rate floors related to C&I loans – cash flow – receive-fixed
$
$
Notional
Amount
Fair Value
Remaining
(years)
8,000
(1)
4,000
1,955
445
14,400
3,000
—
391
7
397
122
2.0
3.1
8.4
7.4
3.0
Fixed Rate
3.02 %
Index
1 ML
0.99
4.93
2.40
1 ML
1 ML / 3 ML
1 ML
2.25
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 potential future 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 14 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.
109 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, excluding interest receivable, disaggregated
by scheduled principal repayment, as of December 31, 2022:
TABLE 60: Cash Flows from Portfolio Loans and Leases
($ in millions)
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 portfolio loans and leases
Due in 1 year
or less
Due after 1 year
through 5 years
Due after 5 years
through 15 years
Due after 15
years
Total
$
$
12,116
3,109
1,723
639
17,587
756
179
3,418
1,874
1,036
7,263
24,850
41,633
6,321
3,426
1,595
52,975
3,115
851
10,555
—
2,217
16,738
69,713
3,459
1,530
251
393
5,633
7,042
659
2,166
—
1,529
11,396
17,029
24
60
33
77
194
6,715
2,350
413
—
216
9,694
9,888
57,232
11,020
5,433
2,704
76,389
17,628
4,039
16,552
1,874
4,998
45,091
121,480
The following table displays a summary of cash flows, excluding interest receivable, occurring after one year for both fixed and floating/
adjustable-rate loans and leases as of December 31, 2022:
TABLE 61: Cash Flows from Portfolio Loans and Leases Occurring After One Year
($ in millions)
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
Other consumer loans
Total consumer loans
Total portfolio loans and leases
Interest Rate
Fixed
Floating or Adjustable
$
$
5,165
1,595
82
2,065
8,907
13,971
183
13,120
3,674
30,948
39,855
39,951
6,316
3,628
—
49,895
2,901
3,677
14
288
6,880
56,775
Residential Mortgage Servicing Rights and Price Risk
The fair value of the residential MSR portfolio was $1.7 billion and $1.1 billion at December 31, 2022 and 2021, 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. For further information on the significant drivers and components of the valuation adjustments on MSRs, refer to
the Noninterest Income subsection of the Statements of Income Analysis section of MD&A. 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. 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 given the economic environment. Refer to Note 13 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, 2022 and 2021 was $1.0 billion and $995
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 potential future exposure on these contracts, counterparty credit approvals and country limits performed by
independent risk management.
110 Fifth Third Bancorp
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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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 potential future exposure on these contracts and counterparty credit approvals
performed by independent risk management.
111 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 18 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 60 of the Interest Rate and Price Risk Management subsection of the Risk Management section of MD&A presents information about
the timing of cash flows from loan and lease repayments. Of the $51.5 billion of securities in the Bancorp’s available-for-sale debt and other
securities portfolio at December 31, 2022, $4.6 billion in principal and interest is expected to be received in the next 12 months and an
additional $4.9 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 and
leases, home equity loans, automobile loans and other consumer loans are also capable of being securitized or sold. The Bancorp sold loans
and leases totaling $13.5 billion during the year ended December 31, 2022 compared to $17.5 billion during the year ended December 31,
2021. For further information, refer to Note 13 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 87% and 90% of its average total assets for the years ended December 31, 2022 and
2021, 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. Management does not rely on any one source of liquidity and manages availability in response to
changing balance sheet needs.
In June of 2022, the Board of Directors authorized $5.0 billion of debt or other securities for issuance, of which $3.0 billion of debt or other
securities were available for issuance as of December 31, 2022. 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. The
Bancorp issued and sold fixed-rate/floating-rate senior notes of $1 billion in April of 2022, $1 billion in July of 2022 and $1 billion in
October of 2022 as further discussed in Note 17 of the Notes to Consolidated Financial Statements.
As of December 31, 2022, the Bank’s global bank note program had a borrowing capacity of $25.0 billion, of which $20.3 billion was
available for issuance. The Bank issued and sold fixed-rate/floating-rate senior notes of $1 billion in October of 2022 as further discussed in
112 Fifth Third Bancorp
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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Note 17 of the Notes to Consolidated Financial Statements. Additionally, at December 31, 2022, the Bank had approximately $51.0 billion of
borrowing capacity available through secured borrowing sources, including the FRB and FHLB.
Current Liquidity Position
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, while supplementing with a variety of secured and unsecured wholesale funding sources across the maturity
spectrum, which allows for the effective management of concentration and rollover risk. A significant portion of the Bancorp’s excess cash
and other short-term investments have been invested in long-term fixed-rate securities since the start of 2022. The Bancorp’s investment
portfolio remains highly concentrated in liquid and readily marketable instruments and is a significant source of secured borrowing capacity.
As of December 31, 2022, the Bancorp (parent company) 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 24 months.
The Bancorp and its subsidiaries, on a consolidated basis, have certain obligations and commitments to make future payments under various
types of contracts. In addition to commitments to extend credit and letters of credit (which are further discussed in Note 18 of the Notes to
Consolidated Financial Statements), these include deposits, lease obligations, partnership investment commitments, derivative contracts,
borrowings, and pension benefit payments. Refer to the Deposits subsection of the Balance Sheet Analysis section of MD&A and Notes 9,
12, 14, 16, 17 and 22 of the Notes to Consolidated Financial Statements for additional information on these contractual obligations.
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 62. 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 62: Agency Ratings
As of February 24, 2023
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
A1
A3
A3
Standard and
Poor’s
A-2
BBB+
BBB
A-2
No rating
No rating
A-
BBB+
Rating Agency Outlook for Fifth Third Bancorp and Fifth
Third Bank, National Association:
Stable
Stable
Fitch
F1
A-
BBB+
F1
F1
A
A-
BBB+
Stable
DBRS
Morningstar
R-1L
A
AL
R-1M
No rating
AH
AH
A
Stable
113 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 Enterprise 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 enterprise 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. These include programs, such as risk and control self-assessments, product delivery risk
assessments, scenario analysis, new product/initiative risk reviews, key risk indicators, Third-Party Risk Management, cyber-security risk
management, review of operational losses and monitoring of significant organizational or process changes. 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 enterprise 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 Information Security Governance Committee and Model Risk Committee report to the Operational Risk Committee and are
responsible for governance of information security and model risks. The Operational Risk Committee reports to the ERMC, which reports to
the RCC of the Board of Directors of Fifth Third Bancorp and Fifth Third Bank, National Association.
Increased external threats have elevated fraud and cyber-security risks. The Bancorp’s strategic initiatives also have the potential to increase
operational risk as changes to process and technology are implemented. Additionally, to the extent utilized in executing these changes, other
factors such as increased reliance on third parties and increased use of emerging and cloud-based technologies may also introduce additional
operational risk considerations. 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.
The Bancorp is aware of and actively monitoring climate-related risks. Climate-related risks could impact the Bancorp in the form of physical
risks due to acute or chronic weather related events that could disrupt the operations of the Bancorp, or could impair the ability of clients to
meet financial obligations. The Bancorp also faces transition risk resulting from economic transition towards a lower-carbon future which
may negatively impact some clients or present credit, strategic or reputational risks to the Bancorp.
Climate risk is a priority for management and accordingly the Board oversees both the RCC and the Nominating and Corporate Governance
Committee. The RCC is responsible for overseeing the development and implementation of Fifth Third’s Enterprise Risk Management
Framework including climate risks. In the course of business, the Bancorp’s Environmental Risk Group works with partners to manage or
mitigate environmental risks including climate-related risks. As part of its larger environmental, social and governance responsibilities the
Nominating and Corporate Governance Committee is responsible for overseeing climate strategy and climate-related issues in the context of
stakeholder concerns.
114 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 enterprise 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. As part of Compliance Risk Management, the Financial Crimes Division conducts and
oversees anti-money laundering and economic sanctions processes. Compliance Risk Management 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 RCC of the Board of Directors of Fifth
Third Bancorp and Fifth Third Bank, National Association.
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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. For additional information regarding the prescribed capital ratios, refer to Note 29 of the Notes to Consolidated Financial
Statements.
The Bancorp is subject to the stress capital buffer requirement and must maintain capital ratios above its buffered minimum (regulatory
minimum plus stress capital buffer) in order to avoid certain limitations on capital distributions and discretionary bonuses to executive
officers. The FRB uses the supervisory stress test to determine the Bancorp’s stress capital buffer, subject to a floor of 2.5%. The Bancorp’s
stress capital buffer requirement has been 2.5% since the introduction of this framework and was most recently affirmed as part of the FRB’s
2022 supervisory stress test with an effective date of October 1, 2022. The Bancorp’s capital ratios have exceeded the stress capital buffer
requirement for all periods presented.
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 Bancorp’s modified CECL transition amount became subject to the
phase-out provisions of the final rule on January 1, 2022, and will be fully phased-out by January 1, 2025. The impact of the modified CECL
transition amount on the Bancorp’s regulatory capital at December 31, 2022 was an increase in capital of approximately $373 million. On a
fully phased-in basis, the Bancorp’s CET1 ratio would be reduced by 21 bps as of December 31, 2022.
The following table summarizes the Bancorp’s capital ratios as of December 31:
TABLE 63: Capital Ratios
($ in millions)
Average total Bancorp shareholders’ equity as a percent of average assets
Tangible equity as a percent of tangible assets(a)(b)
Tangible common equity as a percent of tangible assets(a)(b)
Regulatory capital:(c)
CET1 capital
Tier 1 capital
Total regulatory capital
Risk-weighted assets
Regulatory capital ratios:(c)
CET1 capital
Tier 1 risk-based capital
Total risk-based capital
Leverage
2022
2021
2020
$
9.22 %
8.31
7.30
15,670
17,786
21,606
168,909
9.28 %
10.53
12.79
8.56
11.06
7.97
6.94
14,781
16,897
20,789
154,860
9.54
10.91
13.42
8.27
11.61
8.18
7.11
14,682
16,797
21,412
141,974
10.34
11.83
15.08
8.49
(a) These are non-GAAP measures. For further information, refer to the Non-GAAP Financial Measures section of MD&A.
(b) Excludes AOCI.
(c) Regulatory capital ratios as of December 31, 2022 are calculated pursuant to the five-year transition provision option to phase in the effects of CECL on
regulatory capital.
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.
Under the Enhanced Prudential Standards tailoring rules, 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. However, the Bancorp is required
to develop and maintain a capital plan approved by the Board of Directors on an annual basis. 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 certain 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. The Bancorp was subject to the 2022 supervisory
116 Fifth Third Bancorp
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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
stress test conducted by the FRB and submitted the Board-approved capital plan and information contained in Schedule C - Regulatory
Capital Instruments as required.
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 $1.26 and $1.14 during the
years ended December 31, 2022 and 2021, respectively.
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. Under this
authorization, the Bancorp entered into and settled one accelerated share repurchase transaction during the year ended December 31, 2022.
Refer to Note 24 of the Notes to Consolidated Financial Statements for additional information on the accelerated share repurchase activity.
The following table summarizes shares authorized for repurchase as part of publicly announced plans or programs:
TABLE 64: 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)
2022
40,785,269
—
(3,079,462)
37,705,807
32.47
2021
76,437,348
—
(35,652,079)
40,785,269
39.07
$
(a) Excludes 1,891,160 and 2,793,463 shares repurchased during the years ended December 31, 2022 and 2021, 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.
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 (Management’s Discussion and Analysis of
Financial Condition and Results of Operations) of this Report 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
117 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,
2022 and 2021, 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, 2022, 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, 2022 and 2021, and the
results of its operations and its cash flows for each of the three years in the period ended December 31, 2022, 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, 2022, based on criteria established in Internal Control—Integrated
Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 24,
2023 expressed an unqualified opinion on the Bancorp’s internal control over financial reporting.
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 6 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 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 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. When evaluating the adequacy of allowances, consideration is given to the effect that changing economic conditions may have on
the Bancorp’s customers.
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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.
At December 31, 2022, the key qualitative factors included adjustments to the expected credit losses on the commercial loan portfolio
associated with the current economic environment.
The ALLL for the commercial portfolio segment was $1.1 billion at December 31, 2022, which includes adjustments for the qualitative
factors noted above.
Considering the estimation and judgment in determining adjustments for such qualitative factors, our audit of the ALLL and the related
disclosures involved subjective judgment about the qualitative adjustments to the commercial portfolio segment ALLL.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to the qualitative adjustments for the commercial portfolio segment ALLL included the following, among others:
• We tested the effectiveness of the Bancorp’s controls over the qualitative adjustments to the ALLL.
• We assessed the reasonableness of, and evaluated support for, key qualitative adjustments based on market conditions, external
market data and commercial portfolio performance metrics.
• We tested the completeness and accuracy and evaluated the relevance of the key data used as inputs to the qualitative adjustment
estimation process, including:
◦
◦
Portfolio segment loan balances and other borrower-specific data
Relevant macroeconomic indicators and data
• With the assistance of our credit specialists, we tested the mathematical accuracy of the underlying support used as a basis for the
qualitative adjustments.
/s/ Deloitte & Touche LLP
Cincinnati, Ohio
February 24, 2023
We have served as the Company’s auditor since 1970.
119 Fifth Third Bancorp
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CONSOLIDATED BALANCE SHEETS
As of December 31 ($ 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
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(g)
Preferred stock(h)
Capital surplus
Retained earnings
Accumulated other comprehensive (loss) income
Treasury stock(g)
Total Equity
Total Liabilities and Equity
2022
2021
$
$
$
$
$
$
$
3,466
8,351
51,503
5
414
317
1,007
121,480
(2,194)
119,286
2,187
627
4,915
169
1,746
13,459
207,452
53,125
110,565
163,690
180
4,838
1,822
5,881
13,714
190,125
2,051
2,116
3,684
21,689
(5,110)
(7,103)
17,327
207,452
2,994
34,572
38,110
8
512
376
4,415
112,050
(1,892)
110,158
2,120
616
4,514
156
1,121
11,444
211,116
65,088
104,236
169,324
281
980
2,233
4,267
11,821
188,906
2,051
2,116
3,624
20,236
1,207
(7,024)
22,210
211,116
(a)
Includes $17 and $24 of other short-term investments, $185 and $322 of portfolio loans and leases, $(2) and $(2) of ALLL, $2 and $2 of other assets, $9 and $1 of
other liabilities and $118 and $263 of long-term debt from consolidated VIEs that are included in their respective captions above at December 31, 2022 and 2021,
respectively. For further information, refer to Note 12.
(b) Amortized cost of $57,530 and $36,941 at December 31, 2022 and 2021, respectively.
(c) Fair value of $5 and $8 at December 31, 2022 and 2021, respectively.
(d)
(e)
(f)
(g) Common shares: Stated value $2.22 per share; authorized 2,000,000,000; outstanding at December 31, 2022 – 683,385,880 (excludes 240,506,701 treasury
Includes $600 and $1,023 of residential mortgage loans held for sale measured at fair value at December 31, 2022 and 2021, respectively.
Includes $123 and $154 of residential mortgage loans measured at fair value at December 31, 2022 and 2021, respectively.
Includes $24 of bank premises and equipment held for sale at both December 31, 2022 and 2021. For further information, refer to Note 7.
(h)
shares), 2021 – 682,777,664 (excludes 241,114,917 treasury shares).
500,000 shares of no par value preferred stock were authorized at both December 31, 2022 and 2021. There were 422,000 unissued shares of undesignated no
par value preferred stock at both December 31, 2022 and 2021. 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, 2022 and 2021. There were 300,000 unissued shares of
undesignated no par value Class B preferred stock at both December 31, 2022 and 2021. Each issued share of no par value Class B preferred stock has a
liquidation preference of $1,000.
Refer to the Notes to Consolidated Financial Statements.
120 Fifth Third Bancorp
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CONSOLIDATED STATEMENTS OF INCOME
For the years ended December 31 ($ 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 (benefit from) credit losses
Net Interest Income After Provision for (Benefit from) Credit Losses
Noninterest Income
Service charges on deposits
Wealth and asset management revenue
Commercial banking revenue
Card and processing revenue
Leasing business revenue
Mortgage banking net revenue
Other noninterest income
Securities (losses) gains, net
Securities (losses) gains, net - non-qualifying hedges on mortgage servicing rights
Total noninterest income
Noninterest Expense
Compensation and benefits
Technology and communications
Net occupancy expense
Equipment expense
Leasing business expense
Marketing expense
Card and processing 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
Refer to the Notes to Consolidated Financial Statements.
$
2022
2021
2020
4,954
1,517
116
6,587
447
6
108
417
978
5,609
563
5,046
589
570
565
409
237
215
265
(82)
(2)
2,766
4,079
1,090
42
5,211
59
—
2
380
441
4,770
(377)
5,147
600
586
637
402
300
270
332
(7)
(2)
3,118
4,424
1,119
29
5,572
322
2
14
452
790
4,782
1,097
3,685
559
520
528
352
276
320
211
62
2
2,830
2,554
416
307
145
131
118
80
968
4,719
3,093
647
2,446
116
2,330
3.38
3.35
688,633,659
694,952,038
2,626
388
312
138
137
107
89
951
4,748
3,517
747
2,770
111
2,659
3.78
3.73
702,188,552
711,197,805
2,590
362
350
130
140
104
121
921
4,718
1,797
370
1,427
104
1,323
1.84
1.83
714,729,585
719,735,415
$
$
$
121 Fifth Third Bancorp
Table of Contents
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
For the years ended December 31 ($ in millions)
Net Income
Other Comprehensive (Loss) Income, Net of Tax:
Net unrealized (losses) gains on available-for-sale debt securities:
Unrealized holding (losses) gains arising during the year
Reclassification adjustment for net (gains) losses included in net income
Net unrealized (losses) gains on cash flow hedge derivatives:
Unrealized holding (losses) gains arising during the year
Reclassification adjustment for net gains included in net income
Defined benefit pension plans, net:
Net actuarial gain (loss) arising during the year
Reclassification of amounts to net periodic benefit costs
Other
Other comprehensive (loss) income, net of tax
Comprehensive (Loss) Income
Refer to the Notes to Consolidated Financial Statements.
2022
2021
2020
$
2,446
2,770
1,427
(5,478)
(2)
(774)
(77)
9
5
—
(6,317)
(3,871)
$
(1,043)
3
(142)
(223)
4
7
—
(1,394)
1,376
1,153
(34)
483
(187)
(9)
7
(4)
1,409
2,836
122 Fifth Third Bancorp
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CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
($ in millions, except per share data)
Balance at December 31, 2019
Impact of cumulative effect of change in accounting
principle
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
Other
Balance at December 31, 2020
Net income
Other comprehensive loss, net of tax
Cash dividends declared:
Common stock ($1.14 per share)
Preferred stock:(a)
Series H ($1,275.00 per share)
Series I ($1,656.24 per share)
Series J ($839.62 per share)
Series K ($1,237.50 per share)
Series L ($1,125.00 per share)
Class B, Series A ($60.00 per share)
Shares acquired for treasury
Impact of stock transactions under stock compensation
plans, net
Other
Balance at December 31, 2021
Capital
Surplus
Retained
Earnings
Accumulated
Other
Comprehensive
Income
Treasury
Stock
1,770
3,599 18,315
1,192
(5,724)
Common
Stock
$ 2,051
Preferred
Stock
$ 2,051
1,770
(472)
3,599 17,843
1,427
1,192
(5,724)
1,409
(780)
(31)
(30)
(12)
(12)
(7)
(12)
346
$ 2,051
2,116
36
(2)
3,635 18,384
2,770
46
2
(5,676)
2,601
(1,394)
(805)
(31)
(30)
(10)
(12)
(16)
(12)
$ 2,051
2,116
(11)
(2)
3,624 20,236
1,207
(1,393)
44
1
(7,024)
Total Equity
21,203
(472)
20,731
1,427
1,409
(780)
(31)
(30)
(12)
(12)
(7)
(12)
346
82
—
23,111
2,770
(1,394)
(805)
(31)
(30)
(10)
(12)
(16)
(12)
(1,393)
33
(1)
22,210
123 Fifth Third Bancorp
Table of Contents
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (continued)
($ in millions, except per share data)
Balance at December 31, 2021
Net income
Other comprehensive loss, net of tax
Cash dividends declared:
Common stock ($1.26 per share)
Preferred stock:(a)
Series H ($1,275.00 per share)
Series I ($1,656.24 per share)
Series J ($1,249.19 per share)
Series K ($1,237.50 per share)
Series L ($1,125.00 per share)
Class B, Series A ($60.00 per share)
Shares acquired for treasury
Impact of stock transactions under stock compensation
plans, net
Capital
Surplus
Retained
Earnings
Accumulated
Other
Comprehensive
(Loss) Income
Treasury
Stock
2,116
3,624 20,236
1,207
(7,024)
Common
Stock
$ 2,051
Preferred
Stock
(6,317)
2,446
(877)
(31)
(30)
(15)
(12)
(16)
(12)
60
Total Equity
22,210
2,446
(6,317)
(877)
(31)
(30)
(15)
(12)
(16)
(12)
(100)
81
17,327
(100)
21
(7,103)
Balance at December 31, 2022
$ 2,051
2,116
3,684 21,689
(5,110)
(a) Refer to Note 24 for further information on dividends declared for preferred stock.
Refer to the Notes to Consolidated Financial Statements.
124 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:
2022
2021
2020
$ 2,446 2,770 1,427
Provision for (benefit from) credit losses
Depreciation, amortization and accretion
Stock-based compensation expense
Benefit from deferred income taxes
Securities losses (gains), net
MSR fair value adjustment
Net gains on sales of loans and fair value adjustments on loans held for sale
Net (gains) losses on disposition and impairment of bank premises and equipment and operating lease equipment
Gain on sale of HSA deposit portfolio
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 received for divestitures
Net cash paid on acquisitions
Net cash paid on sale of HSA deposit portfolio
Net change in:
Other short-term investments
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 (Used in) Provided by Financing Activities
Increase (Decrease) in Cash and Due from Banks
Cash and Due from Banks at Beginning of Period
Cash and Due from Banks at End of Period
563
436
165
(60)
84
(177)
(126)
(1)
—
(46)
(377) 1,097
492
349
123
120
(162)
(14)
(69)
16
565
139
(291)
(335)
26
10
—
(60)
(74)
(46)
13,123 17,204 12,481
(10,239) (16,888) (14,767)
17
55
50
70
646
(506)
15
(37)
(217)
6,428 2,704
12
(855)
349
371
4,359 3,125 1,743
157
33
4,495 6,079 3,646
718
19
155
2
(29,714) (11,713) (5,266)
(305)
(44)
19
69
19
(23)
—
(309)
(381)
24
63
—
(297)
(431)
(348)
(213)
49
87
66
(917)
—
26,224 (1,172) (31,446)
(451)
(8,992) (3,721)
(53)
28
(4,871) (7,968) (31,902)
(124)
(5,994) 10,734 32,019
182
3,757
(193)
(897)
(927)
(858)
4,026
562 2,557
(1,762) (3,603) (2,799)
—
346
(47)
(1,085) 5,111 31,400
(131)
2,994 3,147 3,278
$ 3,466 2,994 3,147
(100) (1,393)
—
(99)
—
(85)
(153)
472
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.
125 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 as well as through other offices, telephone sales, the internet and mobile applications.
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 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 and plus or minus changes resulting from observable price changes in
orderly transactions for an identical or a similar investment of the same issuer. Intercompany transactions and balances among consolidated
entities have been eliminated.
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.
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. For available-for-sale debt
securities hedged in a fair value hedge, the amortized cost basis of the hedged items (excluding unrealized gains and losses) includes the
cumulative fair value hedging basis adjustments. Changes in the fair value of these securities which are attributable to changes in the hedged
risk are recognized in earnings instead of OCI. Accrued interest receivable on investment securities is 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.
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.
126 Fifth Third Bancorp
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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.
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 contractual life or estimated life, if prepayments are estimated, 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.
The Bancorp’s lease portfolio consists of sales-type, direct financing and leveraged leases. 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. 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.
Nonaccrual loans and leases
The Bancorp places loans and leases on nonaccrual status when full repayment of principal and interest is not expected, unless the loan or
lease is well-secured and in the process of collection. 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
127 Fifth Third Bancorp
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
previously accrued and unpaid interest is reversed against income. The Bancorp utilizes the following policies to determine when full
repayment of principal and interest on a loan or lease is not expected:
•
•
•
•
•
•
•
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 fully or partially guaranteed by a government agency.
Residential mortgage loans are placed on nonaccrual status when principal and interest payments become past due 150 days or
more, unless repayment of the loan is fully or partially guaranteed by a government agency. Residential mortgage loans may stay on
nonaccrual status for an extended time as the foreclosure process typically lasts longer than 180 days. The Bancorp maintains a
reserve for the portion of accrued interest receivable that it estimates will be uncollectible, at the portfolio level, for residential
mortgage loans which are past due 90 days or more and on accrual status. This reserve is recorded as a component of other assets on
the Bancorp’s Consolidated Balance Sheets, consistent with the classification of the related accrued interest receivable.
Residential mortgage loans that have been modified in a TDR and subsequently become past due 90 days or more are placed on
nonaccrual status unless the loan is fully or partially guaranteed by a government agency.
Home equity loans and lines of credit are placed on nonaccrual status if principal or interest has been in default for 90 days or more.
Home equity loans and lines of credit that have been in default for 60 days or more are also placed on nonaccrual status if the senior
lien has been in default 120 days or more.
Credit card accounts that have been modified in a TDR are placed on nonaccrual status at the time of the modification. Subsequent
to the modification, accounts are placed on nonaccrual status when required payments become past due 90 days or more.
Indirect secured consumer loans and other consumer loans are generally placed on nonaccrual status when principal or interest
becomes past due 90 days or more.
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.
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 in the near future.
Nonaccrual loans and leases may be returned to accrual status when all delinquent principal and interest payments become current in
accordance with the loan agreement and the remaining principal and interest payments 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. Nonaccrual loans that
have been modified in a TDR may not be returned to accrual status unless such loans have sustained repayment performance of six months or
more and are reasonably assured of repayment in accordance with the restructured terms. Loans discharged in a Chapter 7 bankruptcy and not
reaffirmed by the borrower may be returned to accrual status provided there is a sustained payment history of twelve months or more after
bankruptcy and collectability is reasonably assured for all remaining contractual payments.
Except for loans discharged in a Chapter 7 bankruptcy that are not reaffirmed by the borrower, accruing residential mortgage loans, home
equity loans and lines of credit, indirect secured consumer 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. Accruing commercial 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 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.
Nonaccrual loans and leases are generally accounted for on the cost recovery method due to the existence of doubt as to the collectability of
the remaining amortized cost basis of nonaccrual assets. Under the cost recovery method, any payments received are applied to reduce
principal. Once the entire amortized cost basis 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. In certain circumstances when the remaining
amortized cost basis of a nonaccrual loan or lease is deemed to be fully collectible, the Bancorp may utilize the cash basis method to account
for interest payments received on a nonaccrual loan or lease. 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.
The Bancorp records a charge-off to the ALLL when all or a portion of a loan or lease is deemed to be uncollectible, after considering the net
realizable value of any underlying collateral. Commercial loans and leases 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 and leases.
The Bancorp records charge-offs on consumer loans in accordance with applicable regulatory guidelines, which are primarily based on a
loan’s delinquency status.
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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.
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.
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 in the Consolidated Statements of Income. 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 in the
Consolidated Statements of Income.
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 policies 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 6.
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.
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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 a reserve for accrued interest receivable as part of its ALLL. However, the Bancorp does
record a reserve for the portion of accrued interest receivable that it expects to be uncollectible. 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 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 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 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. 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.
Consumer and residential mortgage loans that have been modified in a TDR are individually evaluated for an ALLL. Allowances for
individually evaluated loans 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 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 and a modeled expected credit loss amount. The Bancorp
evaluates the collectability of both principal and interest when assessing the need for a loss accrual. Specific allowances on individually
evaluated consumer and residential mortgage loans 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 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
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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.
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 12 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, and operating lease equipment are carried at cost less accumulated
depreciation and amortization. Generally, 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
generally 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. Lease payments received for operating lease equipment are recognized in leasing business revenue in the Consolidated Statements
of Income over the lease term on a straight-line basis unless another systematic and rational basis is more representative of the pattern in
which benefit is expected to be derived from use of the underlying equipment.
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 in the Consolidated Statements of Income. Refer to the
Bank Premises and Equipment and Other Long-Lived Assets section of this note for further information.
Derivative Financial Instruments and Hedge Accounting
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.
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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.
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. For fair value hedges, if
hedge accounting is discontinued, the cumulative basis adjustments related to the hedged asset or liability are amortized to earnings in the
same manner as other components of the carrying amount of that asset of liability. For cash flow hedges, upon discontinuation of hedge
accounting, any amounts in AOCI related to that relationship should affect earnings at the same time and in the same manner in which the
hedged transaction affects earnings. However, if it becomes probable that the forecasted transaction will not occur, any related amounts in
AOCI are reclassified to earnings immediately.
Investments in Qualified Affordable Housing Projects
The Bancorp invests in projects to create affordable housing and revitalize business and residential areas. 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.
Deposits
Deposits generally include the unpaid balance of cash or its equivalent received or held by the Bank for its commercial and consumer
customers. Deposits are classified as either transactional or non-transactional and include both interest-bearing and noninterest-bearing
balances. Interest expense incurred on interest-bearing deposits is recognized in accordance with applicable guidance in U.S. GAAP for these
liabilities and includes certain ongoing deposit placement fees paid on custodial accounts.
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 uses the deferral method of accounting on
investments that generate investment tax credits. Under this method, the investment tax credits are recognized as a reduction to the related
asset.
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 applicable income tax expense in the Consolidated Statements of Income. Refer to Note 21 for further discussion regarding
income taxes.
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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 outstanding, adjusted for the impact of potentially dilutive common
shares arising from the exercise or settlement of stock-based awards and 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 reporting unit level on an annual basis, which the Bancorp performs as of September 30 each year, and more frequently
if events or circumstances indicate that there may be 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 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 10 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.
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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 28 for further information on fair value measurements.
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 25.
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’s interest income is derived from loans and leases, investment 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 Bancorp generally measures noninterest income 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 following provides additional information about the components of noninterest income:
•
•
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.
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
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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).
•
• 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.
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
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).
Leasing business revenue consists primarily of 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.
• 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. 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 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. 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.
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ACCOUNTING AND REPORTING DEVELOPMENTS
Standard Adopted in 2022
The Bancorp adopted the following new accounting standard effective January 1, 2022:
ASU 2020-06 – Debt-Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging – Contracts in Entity’s Own
Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Equity’s Own Equity
In August 2020, the FASB issued ASU 2020-06, which simplified the accounting for certain financial instruments with characteristics of
liabilities and equity, including convertible instruments and contracts on an entity’s own equity. The Bancorp adopted the amended guidance
on January 1, 2022 using the modified retrospective transition method. The adoption did not have a material impact on the Bancorp’s
Consolidated Financial Statements.
Significant Accounting Standards Issued but Not Yet Adopted
The following significant accounting standards were issued but not yet adopted by the Bancorp as of December 31, 2022:
ASU 2021-08 – Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers
In October 2021, the FASB issued ASU 2021-08, which provided guidance on the accounting for revenue contracts with customers which are
acquired in a business combination. The amendments generally state that an acquirer accounts for an acquired revenue contract with a
customer as if it had originated the contract. The amendments also provide certain practical expedients for acquirers when recognizing and
measuring acquired contract assets and liabilities. The Bancorp adopted the amended guidance on January 1, 2023 on a prospective basis and
will apply the amendments for business combinations occurring on or after the adoption date.
ASU 2022-01 – Derivatives and Hedging (Topic 815): Fair Value Hedging-Portfolio Layer Method
In March 2022, the FASB issued ASU 2022-01, which clarifies the guidance in ASC 815 on fair value hedge accounting of interest rate risk
for portfolios of financial assets and renames the last-of-layer method the portfolio layer method. Under current guidance, the last-of-layer
method enables an entity to apply fair value hedging to a stated amount of a closed portfolio of prepayable financial assets without having to
consider prepayment risk or credit risk when measuring those assets. ASU 2022-01 expands the scope of this guidance to allow entities to
apply the portfolio layer method to portfolios of all financial assets, including both prepayable and nonprepayable financial assets. It allows
entities to designate multiple layers within a single closed portfolio as individual hedged items. Further, ASU 2022-01 clarifies that the fair
value basis adjustments should be adjusted at the portfolio level and should not be allocated to individual assets within the portfolio. The
Bancorp adopted the amended guidance on January 1, 2023 on a prospective basis, except for the amendments related to fair value basis
adjustments that, if applicable, were required to be applied on a modified retrospective basis. The adoption did not have a material impact on
the Bancorp’s Consolidated Financial Statements.
ASU 2022-02 – Financial Instruments-Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures
In March 2022, the FASB issued ASU 2022-02, which eliminates the accounting guidance on troubled debt restructurings for creditors in
ASC 310-40 and requires entities to evaluate all receivable modifications under ASC 310-20 to determine whether a modification made to a
borrower results in a new loan or a continuation of the existing loan. The amended guidance adds enhanced disclosures for creditors with
respect to loan refinancings and restructurings for borrowers experiencing financial difficulty. The amended guidance also requires disclosure
of current period gross charge-offs by year of origination within the vintage disclosures required by ASC 326. The Bancorp adopted the
amended guidance on January 1, 2023 on a prospective basis, except for the amendments impacting the measurement of the ACL for TDRs
and reasonably expected TDRs, which were adopted on a modified retrospective basis. Upon adoption, the Bancorp recorded a decrease to
the ACL of approximately $49 million and a cumulative-effect adjustment to retained earnings of approximately $37 million, net of tax. The
Bancorp will be subject to the amended disclosure requirements beginning with the filing of its Quarterly Report on Form 10-Q for the first
quarter of 2023.
ASU 2022-03 – Fair Value Measurement (Topic 820): Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions
In June 2022, the FASB issued ASU 2022-03, which clarifies the guidance in ASC 820 on the fair value measurement of an equity security
that is subject to contractual sale restrictions, stating that such restrictions are not considered part of the unit of account of the security and
therefore are not considered in measuring fair value. The amended guidance also requires disclosure of the fair value of equity securities
subject to contractual sale restrictions and certain additional information about those restrictions. The amended guidance is effective for the
Bancorp on January 1, 2024, with early adoption permitted, and is to be applied prospectively.
ASU 2022-04 – Liabilities-Supplier Finance Programs (Subtopic 405-50): Disclosure of Supplier Finance Program Obligations
In September 2022, the FASB issued ASU 2022-04, which provides guidance on the disclosure requirements for supplier finance programs.
The amendments require that a buyer in a supplier finance program disclose sufficient qualitative and quantitative information about the
program to allow a user of financial statements to understand the program’s nature, activity during the period, changes from period to period,
and potential magnitude. The Bancorp adopted the amended guidance on January 1, 2023 on a retrospective basis, except for the amendments
related to disclosure of rollforward information, which are required to be adopted on January 1, 2024 on a prospective basis. The adoption did
not have a material impact on the Bancorp’s Consolidated Financial Statements.
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Reference Rate Reform and LIBOR Transition
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. In January 2021, the FASB issued ASU 2021-01, which 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 did 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 for which
an entity had elected certain optional expedients and that are retained through the end of the hedging relationship. Subsequently, in December
2022, the FASB issued ASU 2022-06 which deferred the sunset date of Topic 848 from December 31, 2022 to December 31, 2024, after
which entities will no longer be permitted to apply the relief in Topic 848. The amendments in ASU 2020-04 (as amended) are effective for
the Bancorp as of March 12, 2020 and may be applied through December 31, 2024. 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, 2024.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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
Bank premises and equipment to OREO
Supplemental Disclosures:
Net additions to lease liabilities under operating leases
Net additions to lease liabilities under finance leases
2022
2021
2020
$
$
$
869
272
105
409
8
1
24
152
27
465
607
447
49
8
—
21
66
35
825
491
926
49
12
2
2
47
106
(a)
Includes $167 and $794 for the years ended December 31, 2021 and 2020, respectively, 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.
3. Restrictions on Dividends and Capital Actions
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
indirect banking subsidiary did not pay dividends during the year ended December 31, 2022 and paid the Bancorp’s direct nonbank
subsidiary holding company, which in turn paid the Bancorp, $3.0 billion in dividends during the year ended December 31, 2021. 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.
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. As part of its capital plan, the Bancorp increased its quarterly common stock dividend to
$0.33 per share in the third quarter of 2022. Additionally, the Bancorp entered into and settled accelerated share repurchase transactions
during the year ended December 31, 2022. For more information related to these transactions, refer to Note 24.
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4. Investment Securities
The following tables provide the amortized cost, unrealized gains and losses and fair value for the major categories of the available-for-
sale debt and other securities and held-to-maturity securities portfolios as of December 31:
($ in millions)
Available-for-sale debt and other securities:
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
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
Amortized Cost
Unrealized
Gains
Unrealized
Losses
Fair
Value
2022
$
$
$
$
2,683
18
12,604
29,824
5,235
6,292
874
57,530
3
2
5
—
—
5
11
—
3
—
19
—
—
—
(188)
—
(1,372)
(3,513)
(520)
(453)
—
(6,046)
—
—
—
2,495
18
11,237
26,322
4,715
5,842
874
51,503
3
2
5
(a) Other securities consist of FHLB, FRB and DTCC restricted stock holdings of $381, $491 and $2, respectively, at December 31, 2022, that are carried at cost.
($ in millions)
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
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
Amortized Cost
Unrealized
Gains
Unrealized
Losses
Fair
Value
2021
$
$
$
$
85
18
8,432
18,236
4,364
5,287
519
36,941
6
2
8
1
—
368
784
128
32
—
1,313
—
—
—
—
—
(18)
(69)
(13)
(44)
—
(144)
—
—
—
86
18
8,782
18,951
4,479
5,275
519
38,110
6
2
8
(a) Other securities consist of FHLB, FRB and DTCC restricted stock holdings of $30, $486 and $3, respectively, at December 31, 2021, that are carried at cost.
The following table provides the fair value of trading debt securities and equity securities as of December 31:
($ in millions)
Trading debt securities
Equity securities
2022
2021
$
414
317
512
376
The amounts reported in the preceding tables exclude accrued interest receivable on investment securities of $131 million and $82 million at
December 31, 2022 and 2021, respectively, which is presented as a component of other assets in the Consolidated Balance Sheets.
The Bancorp uses investment securities as a means of managing interest rate risk, providing collateral for pledging purposes and for liquidity
risk management. As part of managing interest rate risk, the Bancorp acquires securities as a component of its MSR non-qualifying hedging
strategy, with net gains or losses recorded in securities (losses) gains, net – non-qualifying hedges on mortgage servicing rights in the
Consolidated Statements of Income.
140 Fifth Third Bancorp
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The following table presents securities (losses) gains recognized in the Consolidated Statements of Income for the years ended December 31:
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($ in millions)
Available-for-sale debt and other securities:
Realized gains
Realized losses
Impairment losses
Net realized gains (losses) on available-for-sale debt and other securities
Trading debt securities:
Net realized (losses) gains
Net unrealized gains (losses)
Net trading debt securities gains (losses)
Equity securities:
Net realized gains
Net unrealized (losses) gains
Net equity securities (losses) gains
Total (losses) gains recognized in income from available-for-sale debt and other securities,
trading debt securities and equity securities(a)
2022
2021
2020
$
$
$
$
$
16
(13)
(1)
2
(2)
11
9
1
(96)
(95)
(84)
34
(19)
(19)
(4)
(2)
(3)
(5)
7
(7)
—
(9)
47
(2)
—
45
2
—
2
10
7
17
64
(a) Excludes an immaterial amount and $7 of net securities losses for the years ended December 31, 2022 and 2021, respectively, and $5 of net securities gains for
the year ended December 31, 2020, related to securities held by FTS to facilitate the timely execution of customer transactions. These (losses) gains are included
in commercial banking revenue and wealth and asset management revenue in the Consolidated Statements of Income.
The Bancorp recognized impairment losses on available-for-sale debt and other securities of $1 million and $19 million during the years
ended December 31, 2022 and 2021, respectively. These losses related to certain securities in unrealized loss positions that the Bancorp
intended to sell prior to recovery of their amortized cost bases. The Bancorp did not consider these losses to be credit-related.
At both December 31, 2022 and 2021, 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 related to available-for-
sale debt and other securities in an unrealized loss position during both the years ended December 31, 2022 and 2021.
At December 31, 2022 and 2021, investment securities with a fair value of $11.0 billion and $11.2 billion, respectively, were pledged to
secure borrowings, public deposits, trust funds, derivative contracts and for other purposes as required or permitted by law.
The expected maturity distribution of the Bancorp’s mortgage-backed securities and the contractual maturity distribution of the remainder of
the Bancorp’s available-for-sale debt and other securities and held-to-maturity securities as of December 31, 2022 are shown in the following
table:
($ in millions)
Debt securities:(a)
Due in 1 year or less
Due after 1 year through 5 years
Due after 5 years through 10 years
Due after 10 years
Other securities
Total
Available-for-Sale Debt and Other
Fair Value
Amortized Cost
Held-to-Maturity
Amortized Cost
Fair Value
$
$
381
13,506
31,661
11,108
874
57,530
374
12,557
28,101
9,597
874
51,503
3
—
—
2
—
5
3
—
—
2
—
5
(a) Actual maturities may differ from contractual maturities when a right to call or prepay obligations exists with or without call or prepayment penalties.
141 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)
2022
U.S. Treasury and federal agencies securities
Obligations of states and political subdivisions securities
Agency residential mortgage-backed securities
Agency commercial mortgage-backed securities
Non-agency commercial mortgage-backed securities
Asset-backed securities and other debt securities
Total
2021
Agency residential mortgage-backed securities
Agency commercial mortgage-backed securities
Non-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
$
$
$
$
2,400
—
10,078
22,083
3,621
3,164
41,346
935
2,886
1,052
2,870
7,743
(188)
—
(1,170)
(2,487)
(272)
(178)
(4,295)
(10)
(49)
(13)
(34)
(106)
—
1
938
3,697
1,059
2,495
8,190
161
424
—
367
952
—
—
(202)
(1,026)
(248)
(275)
(1,751)
(8)
(20)
—
(10)
(38)
2,400
1
11,016
25,780
4,680
5,659
49,536
1,096
3,310
1,052
3,237
8,695
(188)
—
(1,372)
(3,513)
(520)
(453)
(6,046)
(18)
(69)
(13)
(44)
(144)
At December 31, 2022 and 2021, $42 million and $2 million, respectively, of unrealized losses in the available-for-sale debt and other
securities portfolio were related to non-rated securities.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5. Loans and Leases
The Bancorp diversifies its loan and lease portfolio by offering a variety of loan and lease products with various payment terms and rate
structures. The Bancorp’s commercial loan and lease portfolio consists of lending to various industry types. Management periodically reviews
the performance of its loan and lease products to evaluate whether they are performing within acceptable interest rate and credit risk levels
and changes are made to underwriting policies and procedures as needed. The Bancorp maintains an allowance to absorb loan and lease
losses that are expected to be incurred over the remaining contractual terms of the related loans and leases. For further information on credit
quality and the ALLL, refer to Note 6.
The following table provides a summary of commercial loans and leases classified by primary purpose and consumer loans classified based
upon product or collateral as of December 31:
($ 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
Home equity
Indirect secured consumer loans
Credit card
Other consumer loans
Total consumer loans
Total portfolio loans and leases
2022
2021
$
$
$
$
$
$
$
73
—
—
934
1,007
57,232
11,020
5,433
2,704
76,389
17,628
4,039
16,552
1,874
4,998
45,091
121,480
7
13
1
4,394
4,415
51,659
10,316
5,241
3,052
70,268
16,397
4,084
16,783
1,766
2,752
41,782
112,050
(a)
Includes $94 million and $1.3 billion as of December 31, 2022 and 2021, respectively, related to the SBA’s Paycheck Protection Program.
Portfolio loans and leases are recorded net of unearned income, which totaled $238 million and $244 million as of December 31, 2022 and
2021, respectively. 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 $146 million and $498 million as of December 31, 2022 and 2021, respectively. The amortized cost basis of loans
and leases excludes accrued interest receivable of $518 million and $332 million at December 31, 2022 and 2021, respectively, 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 $15.9 billion and $15.3 billion at
December 31, 2022 and 2021, respectively, pledged to the FHLB, and loans of $57.1 billion and $50.9 billion at December 31, 2022 and
2021, respectively, pledged to the FRB.
143 Fifth Third Bancorp
Table of Contents
The following table presents a summary of the total loans and leases owned by the Bancorp and net charge-offs (recoveries) as of and for the
years ended December 31:
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($ 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
Carrying Value
2022
2021
90 Days Past Due
and Still Accruing(a)
2021
2022
Net Charge-Offs (Recoveries)
2022
2021
$
$
$
57,305
11,020
5,433
2,704
18,562
4,039
16,552
1,874
4,998
122,487
1,007
121,480
51,666
10,329
5,241
3,053
20,791
4,084
16,783
1,766
2,752
116,465
4,415
112,050
11
—
—
2
7
1
—
18
1
40
17
1
1
—
72
1
9
15
1
117
96
(1)
2
4
(2)
(2)
36
52
42
227
60
8
—
(1)
(4)
(4)
14
70
31
174
(a) Excludes government guaranteed residential mortgage loans.
The following table presents the components of the net investment in portfolio 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 premium on acquired leases
Net investment in sales-type leases:
Lease payment receivable (present value)
Unguaranteed residual assets (present value)
2022
2021
$
570
107
—
1,704
76
886
147
1
1,678
55
(a) Excludes $247 and $285 of leveraged leases at December 31, 2022 and 2021, respectively.
Interest income recognized in the Consolidated Statements of Income for the years ended December 31, 2022, 2021 and 2020 was $29
million, $42 million and $64 million, respectively, for direct financing leases and $50 million, $42 million and $28 million, respectively, for
sales-type leases.
The following table presents undiscounted cash flows for both direct financing and sales-type leases for 2023 through 2027 and thereafter as
well as a reconciliation of the undiscounted cash flows to the total lease receivables as follows:
As of December 31, 2022 ($ in millions)
2023
2024
2025
2026
2027
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
$
$
$
188
148
100
83
44
44
607
37
570
502
440
376
211
156
155
1,840
136
1,704
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 $15 million at both December 31, 2022 and 2021 to cover the losses that are expected to be incurred
over the remaining contractual terms of the related leases, including the potential losses related to the lease residual value. Refer to Note 6 for
additional information on credit quality and the ALLL.
144 Fifth Third Bancorp
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
6. Credit Quality and the Allowance for Loan and Lease Losses
The Bancorp disaggregates ALLL balances and transactions in the ALLL by portfolio segment. Credit quality related disclosures for loans
and leases are further disaggregated by class.
Allowance for Loan and Lease Losses
The following tables summarize transactions in the ALLL by portfolio segment for the years ended December 31:
2022 ($ in millions)
Balance, beginning of period
Losses charged off(a)
Recoveries of losses previously charged off(a)
Provision for loan and lease losses
Balance, end of period
Commercial
Residential
Mortgage
Consumer
Total
$
$
1,102
(131)
30
126
1,127
235
(3)
5
8
245
555
(228)
100
395
822
1,892
(362)
135
529
2,194
(a) The Bancorp recorded $32 in both losses charged-off and recoveries of losses previously charged-off related to customer defaults on point-of-sale consumer loans
for which the Bancorp obtained recoveries under third-party credit enhancements.
2021 ($ in millions)
Balance, beginning of period
Losses charged off(a)
Recoveries of losses previously charged off(a)
Benefit from loan and lease losses
Balance, end of period
Commercial
Residential
Mortgage
Consumer
Total
$
$
1,456
(119)
52
(287)
1,102
294
(3)
7
(63)
235
703
(222)
111
(37)
555
2,453
(344)
170
(387)
1,892
(a) The Bancorp recorded $33 in both losses charged-off and recoveries of losses previously charged-off related to customer defaults on point-of-sale consumer loans
for which the Bancorp obtained recoveries under third-party credit enhancements.
2020 ($ 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 $42 in both losses charged-off and recoveries of losses previously charged-off related to customer defaults on point-of-sale consumer loans
for which the Bancorp obtained recoveries under third-party credit enhancements.
The following tables provide a summary of the ALLL and related loans and leases classified by portfolio segment:
As of December 31, 2022 ($ in millions)
ALLL:(a)
Individually evaluated
Collectively evaluated
Total ALLL
Portfolio loans and leases:(b)
Individually evaluated
Collectively evaluated
Total portfolio loans and leases
Commercial
Residential
Mortgage
Consumer
Total
$
$
$
$
30
1,097
1,127
531
75,858
76,389
47
198
245
560
16,945
17,505
45
777
822
122
2,072
2,194
297
27,166
27,463
1,388
119,969
121,357
Includes $2 related to commercial leveraged leases at December 31, 2022.
(a)
(b) Excludes $123 of residential mortgage loans measured at fair value and includes $247 of commercial leveraged leases, net of unearned income, at December 31,
2022.
145 Fifth Third Bancorp
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2021 ($ in millions)
ALLL:(a)
Individually evaluated
Collectively evaluated
Total ALLL
Portfolio loans and leases:(b)
Individually evaluated
Collectively evaluated
Total portfolio loans and leases
Commercial
Residential
Mortgage
Consumer
Total
$
$
$
$
77
1,025
1,102
579
69,689
70,268
46
189
235
460
15,783
16,243
41
514
555
164
1,728
1,892
313
1,352
25,072 110,544
25,385 111,896
Includes $2 related to commercial leveraged leases at December 31, 2021.
(a)
(b) Excludes $154 of residential mortgage loans measured at fair value and includes $285 of commercial leveraged leases, net of unearned income, at December 31,
2021.
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.
146 Fifth Third Bancorp
Table of Contents
The following tables present the amortized cost basis of the Bancorp’s commercial portfolio segment, by class and vintage, disaggregated by
credit risk grade:
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2022
($ 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 by Origination Year
2022
2021
2020
2019
2018
Prior
Revolving
Loans
Revolving
Loans
Converted
to Term
Loans
$ 3,825
65
150
—
$ 4,040
3,098
24
77
—
3,199
994
15
233
—
1,242
$ 1,177
17
51
—
826
15
14
—
522
13
20
—
445
36
26
—
507
257
12
73
—
269
10
7
—
286
160
13
11
—
488
24
107
—
619
264
2
25
—
44,521
1,221
1,597
—
47,339
1,624
56
106
—
—
—
—
—
—
—
—
—
—
Total
53,640
1,395
2,197
—
57,232
4,830
128
300
—
$ 1,245
855
555
342
184
291
1,786
—
5,258
$ 1,127
1
65
—
462
84
19
—
490
26
18
—
397
—
1
—
220
—
1
—
170
23
17
—
2,453
88
100
—
—
—
—
—
5,319
222
221
—
$ 1,193
565
534
398
221
210
2,641
—
5,762
$
$
$
$
82
—
53
—
135
584
—
1
—
585
31
—
—
—
31
664
4
20
—
688
93
—
—
—
93
306
2
2
—
310
8
—
—
—
8
192
4
4
—
200
$ 6,795
83
320
—
$ 7,198
5,081
127
130
—
5,338
2,405
56
273
—
2,734
1,299
52
104
—
1,455
35
—
—
—
35
146
7
21
—
174
830
30
40
—
900
7
—
2
—
9
696
19
32
—
747
4,684
293
145
—
5,122
—
—
—
—
—
1,625
68
183
—
1,876
53,282
1,658
1,948
—
56,888
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
4,940
293
200
—
5,433
2,588
36
80
—
2,704
71,317
2,074
2,998
—
76,389
147 Fifth Third Bancorp
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Term Loans and Leases by Origination Year
2021
2020
2019
2018
2017
Prior
Revolving
Loans
Converted to
Term Loans
Revolving
Loans
Total
$ 4,266
37
19
—
$ 4,322
2,291
22
52
—
2,365
1,198
12
36
—
1,246
$ 1,082
—
22
—
804
31
38
—
471
46
3
—
552
29
69
—
650
296
17
12
—
356
22
52
—
430
183
2
3
—
752
5
115
—
872
331
40
27
—
39,486
665
1,623
—
41,774
1,141
69
91
—
—
—
—
—
—
—
—
—
—
48,901
792
1,966
—
51,659
4,308
205
196
—
$ 1,104
873
520
325
188
398
1,301
—
4,709
$
$
$
$
635
89
160
—
733
12
78
—
595
11
4
—
284
5
3
—
141
7
9
—
302
9
3
—
1,977
162
388
—
—
—
—
—
4,667
295
645
—
884
823
610
292
157
314
2,527
—
5,607
50
—
17
—
67
$ 1,019
4
7
—
$ 1,030
69
39
—
—
108
436
4
3
—
443
11
—
—
—
11
284
5
8
—
297
37
—
—
—
37
231
9
10
—
250
—
—
—
—
—
233
—
13
—
246
9
—
—
—
9
776
8
2
—
786
4,488
193
328
—
5,009
—
—
—
—
—
$ 7,052
130
225
—
$ 7,407
4,333
108
171
—
4,612
2,559
74
51
—
2,684
1,400
60
94
—
1,554
913
31
77
—
1,021
2,170
62
147
—
2,379
47,092
1,089
2,430
—
50,611
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
4,664
232
345
—
5,241
2,979
30
43
—
3,052
65,519
1,554
3,195
—
70,268
As of December 31, 2021
($ 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
148 Fifth Third Bancorp
Table of Contents
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:
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2022 ($ in millions)
Commercial loans and leases:
Commercial and industrial loans(b)
Commercial mortgage owner-occupied loans
Commercial mortgage nonowner-occupied loans
Commercial construction loans
Commercial leases
Total portfolio commercial 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
$
$
57,092
5,241
5,756
5,424
2,698
76,211
98
14
6
7
4
129
42
3
—
2
2
49
140
17
6
9
6
178
57,232
5,258
5,762
5,433
2,704
76,389
11
—
—
—
2
13
(a)
(b)
Includes accrual and nonaccrual loans and leases.
Includes loans related to the SBA’s Paycheck Protection Program, of which an immaterial amount were 30-89 days past due and $2 were 90 days or more past
due.
As of December 31, 2021 ($ in millions)
Commercial loans and leases:
Commercial and industrial loans(b)
Commercial mortgage owner-occupied loans
Commercial mortgage nonowner-occupied loans
Commercial construction loans
Commercial leases
Total portfolio commercial 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
$
$
51,549
4,701
5,606
5,241
3,035
70,132
61
4
—
—
16
81
49
4
1
—
1
55
110
8
1
—
17
136
51,659
4,709
5,607
5,241
3,052
70,268
17
1
—
1
—
19
(a)
(b)
Includes accrual and nonaccrual loans and leases.
Includes loans related to the SBA’s Paycheck Protection Program, of which $20 were 30-89 days past due and $6 were 90 days or more past due.
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 are presented in the following tables.
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 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.
149 Fifth Third Bancorp
Table of Contents
The following tables present the amortized cost basis of the Bancorp’s residential mortgage and consumer portfolio segments, by class and
vintage, disaggregated by both age and performing versus nonperforming status:
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2022
($ in millions)
Residential mortgage loans:
Term Loans by Origination Year
2022
2021
2020
2019
2018
Prior
Revolving
Loans
Converted to
Term Loans
Total
Revolving
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:
Performing:
Current
30-89 days past due
90 days or more past due
$ 6,034
34
—
6,068
4
Total indirect secured consumer loans $ 6,072
Credit card:
Total performing
Nonperforming
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
Performing:
Current
30-89 days past due
90 days or more past due
Total performing
Nonperforming
Total residential mortgage and
consumer loans(b)
Total other consumer loans
Total residential mortgage and consumer loans:
$ 3,195
4
—
3,199
—
$ 3,199
5,440
4
—
5,444
3
5,447
2,981
3
1
2,985
4
2,989
1,051
1
—
1,052
4
1,056
344
2
1
347
7
354
4,336
15
5
4,356
104
4,460
$
$
46
—
—
46
—
46
3
—
—
3
—
3
7
—
—
7
—
7
15
—
—
15
—
15
5,875
42
—
5,917
6
5,923
2,600
28
—
2,628
7
2,635
1,217
22
—
1,239
6
1,245
—
—
—
—
—
—
540
6
—
546
1
547
—
—
—
—
—
—
355
3
—
358
—
358
—
—
—
—
—
—
169
2
—
171
—
171
$ —
—
—
—
—
$ —
$ 2,704
14
—
2,718
2
$ 2,720
52
—
$ 11,979 11,858
52
—
12,031 11,910
10
6
5,943
34
1
5,978
11
2,452
25
—
2,477
10
17
—
—
17
—
17
416
11
—
427
4
431
—
—
—
—
—
—
112
2
—
114
—
114
889
15
1
905
11
94
2
1
97
8
105
239
5
—
244
2
246
—
—
—
—
—
—
146
2
—
148
1
149
4,815
24
6
4,845
115
—
—
—
—
—
—
3,741
28
—
3,769
58
3,827
—
—
—
—
—
—
1,808
21
18
1,847
27
1,874
908
3
1
912
1
913
6,457
52
19
6,528
86
—
—
—
—
—
—
18
—
—
18
1
19
—
—
—
—
—
—
—
—
—
—
—
—
26
—
—
26
—
26
44
—
—
44
1
17,347
29
7
17,383
122
17,505
3,941
30
1
3,972
67
4,039
16,381
142
—
16,523
29
16,552
1,808
21
18
1,847
27
1,874
4,960
32
1
4,993
5
4,998
44,437
254
27
44,718
250
$ 12,037 11,920
5,989
2,487
916
4,960
6,614
45
44,968
(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, 2022, $81 of these loans were 30-89 days past due and $147 were 90 days or more past due. The Bancorp recognized $2 of losses during
the year ended December 31, 2022 due to claim denials and curtailments associated with these insured or guaranteed loans.
(b) Excludes $123 of residential mortgage loans measured at fair value at December 31, 2022, including $1 of 30-89 days past due loans and $2 of nonperforming
loans.
150 Fifth Third Bancorp
Term Loans by Origination Year
2021
2020
2019
2018
2017
Prior
Revolving
Loans
Revolving Loans
Converted to
Term Loans
Total
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2021 ($ 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:
Performing:
Current
30-89 days past due
90 days or more past due
Total performing
Nonperforming
Total indirect secured consumer loans
Credit card:
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
1
2
$ 5,886 3,309 1,294
1
1
—
4
5,887 3,312 1,299
— —
$ 5,887 3,312 1,300
418
1
3
422
1 —
422
1
9
954 4,261
13
52
964 4,326
30
966 4,356
2
—
—
—
—
—
—
6
2
18
13
$
2
— — — — —
— — — — —
2
— — — — —
2
$
13
18
13
18
6
2
6
2
113
3
1
117
9
126
3,815
22
—
3,837
67
3,904
24
2
26
2
$ 8,732 4,206 2,221
25
2
8,760 4,232 2,248
—
5
$ 8,760 4,244 2,253
12
902
17
2
921
5
926
194
389
3
8
1 —
197
2
199
398
3
401
—
—
—
—
—
—
$ — — — — — —
— — — — — —
— — — — — —
— — — — — —
— — — — — —
$ — — — — — —
1,710
18
15
1,743
23
1,766
105
174
2
$ 692
3
530
2
— —
532
47
275
3
1 —
1 — — —
47
— — — — — —
47
$ 695
176
532
695
279
176
279
106
106
30
2
$ 15,312 8,051 3,803 1,512 1,450 4,615
19
53
15,344 8,082 3,839 1,537 1,470 4,687
41
—
20
5
29
7
10
10
27
4
12
5
5
6
913
2
—
915
1
916
6,438
42
15
6,495
91
— 16,122
18
—
—
70
— 16,210
—
33
— 16,243
12 3,981
25
—
—
1
12 4,007
77
1
13 4,084
— 16,644
103
—
—
9
— 16,756
—
27
— 16,783
— 1,710
18
—
—
15
— 1,743
—
23
— 1,766
— 2,736
1
14
1
—
1 2,751
—
1
1 2,752
12 41,193
178
1
96
—
13 41,467
161
1
14 41,628
Total residential mortgage and consumer loans(b)
$ 15,344 8,094 3,845 1,542 1,475 4,728
6,586
(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, 2021, $49 of these loans were 30-89 days past due and $139 were 90 days or more past due. The Bancorp recognized $2 of losses during
the year ended December 31, 2021 due to claim denials and curtailments associated with these insured or guaranteed loans.
(b) Excludes $154 of residential mortgage loans measured at fair value at December 31, 2021, including $2 of 30-89 days past due loans and $2 of 90 days or more
past due loans.
151 Fifth Third Bancorp
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Collateral-Dependent Loans and Leases
The Bancorp considers a loan or lease to be collateral-dependent when the borrower is experiencing financial difficulty and repayment is
expected to be provided substantially through the operation or sale of the collateral. When a loan or lease is collateral-dependent, its fair value
is generally based on the fair value less cost to sell of the underlying collateral.
The following table presents the amortized cost basis of the Bancorp’s collateral-dependent loans and leases, by portfolio class, as of:
($ 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
Total consumer loans
Total portfolio loans and leases
December 31,
2022
December 31,
2021
$
$
$
$
433
14
27
56
1
531
57
46
6
52
640
467
22
31
56
3
579
60
58
8
66
705
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 consumer loans which do not meet the requirements to be classified as a performing
asset; and certain other assets, including OREO and other repossessed property.
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:
($ 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, 2022
No Related
ALLL
With an
ALLL
Total
December 31, 2021
No Related
ALLL
With an
ALLL
Total
$
114
101
215
151
128
9
20
6
—
149
81
45
26
27
5
103
333
—
333
$
$
$
$
7
4
2
—
114
43
22
3
—
—
25
182
24
206
16
24
8
—
263
124
67
29
27
5
128
515
24
539
10
22
6
3
192
14
53
21
23
1
98
304
—
304
13
3
—
1
145
19
24
6
—
—
30
194
29
223
279
23
25
6
4
337
33
77
27
23
1
128
498
29
527
(a) Excludes an immaterial amount and $15 of nonaccrual loans held for sale as of December 31, 2022 and 2021, respectively.
(b)
Includes $15 and $26 of nonaccrual government insured commercial loans whose repayments are insured by the SBA as of December 31, 2022 and 2021,
respectively, of which $11 are restructured nonaccrual government insured commercial loans as of both December 31, 2022 and 2021.
152 Fifth Third Bancorp
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Bancorp recognized an immaterial amount of interest income on nonaccrual loans and leases for both the years ended December 31,
2022 and 2021.
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 $154 million and $84 million as of
December 31, 2022 and 2021, 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
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.
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 $130 million and $60 million, respectively, as of December 31, 2022 compared to $121 million and $66
million, respectively, as of December 31, 2021.
The following tables provide a summary of portfolio loans, by class, modified in a TDR by the Bancorp during the years ended December 31:
2022 ($ 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
89 $
12
7
3
1,073
231
3,394
5,282
10,091 $
234
7
24
10
163
16
63
28
545
3
—
—
(2)
7
(3)
2
12
19
9
—
—
—
—
—
—
—
9
(a) Represents number of loans post-modification and excludes loans previously modified in a TDR.
153 Fifth Third Bancorp
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2021 ($ 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
86 $
10
5
1
519
206
4,567
5,488
10,882 $
150
8
29
34
93
10
96
30
450
1
—
—
—
4
(3)
1
9
12
—
—
—
—
—
—
—
1
1
(a) Represents number of loans post-modification and excludes loans previously modified in a TDR.
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.
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, 2022, 2021 and 2020 and
were within 12 months of the restructuring date:
December 31, 2022 ($ in millions)(a)
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
Contracts
Amortized
Cost
8 $
2
1
1
247
24
157
356
796 $
—
—
—
2
33
1
3
1
40
(a) Excludes all loans held for sale and loans acquired with deteriorated credit quality which were accounted for within a pool.
154 Fifth Third Bancorp
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2021 ($ 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
7 $
3
2
82
28
130
215
467 $
(a) Excludes all loans held for sale and loans acquired with deteriorated credit quality which were accounted for within a pool.
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 $
1
1
25
10
1
2
1
41
5
3
11
23
—
—
1
43
(a) Excludes all loans held for sale and loans acquired with deteriorated credit quality which were accounted for within a pool.
7. Bank Premises and Equipment
The following table provides a summary of bank premises and equipment as of December 31:
($ in millions)
Equipment
Buildings(a)
Land and improvements(a)
Leasehold improvements
Construction in progress(a)
Bank premises and equipment held for sale:
Land and improvements
Buildings
Accumulated depreciation and amortization
Total bank premises and equipment
Estimated
Useful Life
2 - 20 years
1 - 30 years
1 - 30 years
2022
2021
$
$
2,492
1,699
640
568
124
17
7
(3,360)
2,187
2,392
1,668
645
517
84
18
6
(3,210)
2,120
(a) At December 31, 2022 and 2021, land and improvements, buildings and construction in progress included $27 and $39, 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
$273 million, $270 million and $256 million for the years ended December 31, 2022, 2021 and 2020, 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 banking centers at certain 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. The Bancorp closed a total of 43 banking centers throughout its footprint during the year ended
December 31, 2022.
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
$9 million, $7 million and $30 million for the years ended December 31, 2022, 2021 and 2020, respectively. The recognized impairment
losses were recorded in other noninterest income in the Consolidated Statements of Income.
155 Fifth Third Bancorp
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
8. Operating Lease Equipment
Operating lease equipment was $627 million and $616 million at December 31, 2022 and 2021, respectively, net of accumulated depreciation
of $338 million and $304 million at December 31, 2022 and 2021, respectively. The Bancorp recorded lease income of $146 million,
$152 million and $156 million relating to lease payments for operating leases in leasing business revenue in the Consolidated Statements of
Income for the years ended December 31, 2022, 2021 and 2020, respectively. Depreciation expense related to operating lease equipment was
$121 million, $124 million and $126 million for the years ended December 31, 2022, 2021 and 2020, respectively. The Bancorp received
payments of $147 million and $155 million related to operating leases during the years ended December 31, 2022 and 2021, 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 $2 million, $25 million and
$7 million of impairment losses associated with operating lease assets for the years ended December 31, 2022, 2021 and 2020, respectively.
The recognized impairment losses were recorded in leasing business revenue in the Consolidated Statements of Income.
The following table presents future lease payments receivable from operating leases for 2023 through 2027 and thereafter:
As of December 31, 2022 ($ in millions)
2023
2024
2025
2026
2027
Thereafter
Total operating lease payments
Undiscounted
Cash Flows
$
$
139
106
80
51
25
25
426
9. 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
2022
2021
Other assets
Bank premises and equipment
Accrued taxes, interest and expenses
Long-term debt
$
$
$
$
508
150
658
599
156
755
427
145
572
520
149
669
(a) Operating and finance lease right-of-use assets are recorded net of accumulated amortization of $255 and $66, respectively, as of December 31, 2022, and $198
and $47, respectively, as of December 31, 2021.
The following table presents the components of lease costs for the years ended December 31:
($ 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
2022
2021
2020
Net occupancy and equipment expense
Interest on long-term debt
Net occupancy expense
Net occupancy expense
Net occupancy expense
Net occupancy expense
$
$
$
$
$
19
5
24
84
1
28
(3)
110
134
18
4
22
80
2
31
(3)
110
132
11
3
14
110
1
29
(3)
137
151
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 $2 million, $3 million and
$8 million of impairment losses and termination charges for the ROU assets related to certain operating leases for the years ended
156 Fifth Third Bancorp
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2022, 2021 and 2020, respectively. The recognized losses were recorded in net occupancy expense in the Consolidated
Statements of Income.
The following table presents undiscounted cash flows for both operating leases and finance leases for 2023 through 2027 and thereafter as
well as a reconciliation of the undiscounted cash flows to the total lease liabilities:
As of December 31, 2022 ($ in millions)
2023
2024
2025
2026
2027
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
$
$
$
90
85
78
68
61
350
732
133
599
21
21
14
9
8
128
201
45
156
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
2022
2021
10.80
15.31
3.35 %
2.94
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)
2022
2021
2020
Operating cash flows from operating leases
Operating cash flows from finance leases
Financing cash flows from finance leases
Gains on sale-leaseback transactions
$
90
5
23
4
88
4
16
2
111
106
92
77
69
478
933
178
755
8.92
14.70
2.88
2.74
91
3
11
3
(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.
157 Fifth Third Bancorp
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
10. 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. During the third quarter of 2022, the
Bancorp reorganized its management reporting structure and now reports on three business segments, which are also reporting units:
Commercial Banking, Consumer and Small Business Banking and Wealth and Asset Management. In conjunction with this reorganization,
the Bancorp reallocated a portion of its goodwill from Consumer and Small Business Banking to Commercial Banking using a relative fair
value approach for the portions of the business which were transferred between reporting units. Refer to Note 31 for additional information.
The Bancorp completed its annual goodwill impairment test as of September 30, 2022 and the estimated fair values of the Commercial
Banking, Consumer and Small Business Banking and Wealth and Asset Management reporting units exceeded their carrying values,
including goodwill.
Changes in the net carrying amount of goodwill, by reporting unit, for the years ended December 31, 2022 and 2021 were as follows:
($ in millions)
Goodwill
Accumulated impairment losses
Net carrying value as of December 31, 2020
Acquisition activity
Net carrying value as of December 31, 2021
Acquisition activity
Reallocation of goodwill
Sale of businesses
Net carrying value as of December 31, 2022
$
$
$
$
Commercial
Banking
Consumer and
Small Business
Banking
Wealth and Asset
Management
General
Corporate and
Other
Total
2,730
(750)
1,980
—
1,980
—
378
(34)
2,324
2,262
(215)
2,047
256
2,303
440
(378)
—
2,365
231
—
231
—
231
—
—
(5)
226
—
—
—
—
—
—
—
—
—
5,223
(965)
4,258
256
4,514
440
—
(39)
4,915
158 Fifth Third Bancorp
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
11. Intangible Assets
Intangible assets consist of core deposit intangibles, developed technology, customer relationships, and other intangible assets which include
trade names, backlog, operating leases and non-compete agreements. 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. The increase in the gross carrying amount of
intangible assets from the year ended December 31, 2021 reflects acquisition activity during 2022, which included the recognition of
$44 million in developed technology, $12 million in customer relationships, $7 million in trade name and $3 million of backlog. These assets
will be amortized over their remaining useful life, which was estimated to be 5, 12, 5 and 5 years, respectively, at the time of acquisition.
The details of the Bancorp’s intangible assets are shown in the following table:
($ in millions)
As of December 31, 2022
Core deposit intangibles
Developed technology
Customer relationships
Other
Total intangible assets
As of December 31, 2021
Core deposit intangibles
Developed technology
Customer relationships
Other
Total intangible assets
Gross Carrying
Amount
Accumulated
Amortization
Net Carrying
Amount
$
$
$
$
229
106
30
20
385
229
62
25
15
331
(182)
(17)
(7)
(10)
(216)
(153)
(3)
(7)
(12)
(175)
47
89
23
10
169
76
59
18
3
156
As of December 31, 2022, all of the Bancorp’s intangible assets were being amortized. Amortization expense recognized on intangible assets
was $48 million, $47 million and $55 million for the years ended December 31, 2022, 2021 and 2020, respectively. The Bancorp’s
projections of amortization expense shown in the following table are based on existing asset balances as of December 31, 2022. Future
amortization expense may vary from these projections.
Estimated amortization expense for the years ending December 31, 2023 through 2027 is as follows:
($ in millions)
2023
2024
2025
2026
2027
Total
$
43
35
28
22
14
159 Fifth Third Bancorp
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
12. 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 an automobile loan securitization and a solar loan securitization 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 the
consolidated VIEs as of:
($ in millions)
Assets:
Other short-term investments
Indirect secured consumer loans
Other consumer loans
ALLL
Other assets
Total assets
Liabilities:
Other liabilities
Long-term debt
Total liabilities
December 31,
2022
December 31,
2021
$
$
$
$
17
141
44
(2)
2
202
9
118
127
24
322
—
(2)
2
346
1
263
264
As a result of a business acquisition in the second quarter of 2022, the Bancorp acquired interests in a previously completed securitization
transaction in which solar loans were transferred to a bankruptcy remote trust which was deemed to be a VIE. Additionally, the Bancorp
previously completed a securitization transaction in which the Bancorp transferred certain consumer automobile loans to a bankruptcy remote
trust which was deemed to be a VIE. 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 access to liquidity for
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.
160 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, 2022 ($ in millions)
CDC investments
Private equity investments
Loans provided to VIEs
Lease pool entities
Solar loan securitizations
December 31, 2021 ($ in millions)
CDC investments
Private equity investments
Loans provided to VIEs
Lease pool entities
$
$
Total Assets
Total Liabilities Maximum Exposure
1,856
186
4,374
61
10
653
—
—
—
—
1,856
349
6,438
61
10
Total Assets
Total Liabilities Maximum Exposure
1,705
133
3,386
68
580
—
—
—
1,705
257
4,873
68
CDC investments
CDC invests in projects to create affordable housing and revitalize business and residential areas. 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, 2022 and 2021, the Bancorp’s CDC investments included $1.6 billion and $1.4 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 $643 million and $573 million at December 31, 2022 and 2021, respectively. The unfunded commitments as of
December 31, 2022 are expected to be funded from 2023 to 2039.
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:
Proportional amortization
Tax credits and other benefits
Applicable income tax expense
Applicable income tax expense
$
189
(219)
163
(193)
150
(175)
(a) The Bancorp did not recognize impairment losses resulting from the forfeiture or ineligibility of tax credits or other circumstances during the years ended
Consolidated Statements of Income Caption(a)
2022
2021
2020
December 31, 2022, 2021 and 2020.
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 providing strategic opportunities in certain cases. 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
161 Fifth Third Bancorp
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
power to direct the activities that most significantly impact the economic performance of the funds. The 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, 2022 and 2021, the Bancorp’s unfunded commitment amounts to the private equity funds were $163 million
and $124 million, respectively. As part of previous commitments, the Bancorp made capital contributions to private equity investments of
$44 million and $17 million during the years ended December 31, 2022 and 2021, respectively.
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 5. As of December 31, 2022 and 2021, the Bancorp’s unfunded commitments to these entities were
$2.1 billion and $1.5 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’s maximum exposure to loss is
equal to the carrying amount of the investments. 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.
Solar loan securitizations
As a result of a business acquisition in the second quarter of 2022, the Bancorp acquired interests in previously completed securitization
transactions in which solar loans were transferred to bankruptcy remote trusts which were 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 access to liquidity for originated loans. The Bancorp retained certain risk retention
interests in the classes of securities issued by the VIEs and retained servicing rights for the underlying loans. The Bancorp’s maximum
exposure to loss is equal to the carrying amount of the investments. The Bancorp has determined that it is not the primary beneficiary of the
VIEs because it does not have the obligation to absorb the VIEs expected losses or the right to receive the VIEs expected residual returns that
could potentially be significant to the VIEs. The risk retention interests held by the Bancorp were included in available-for-sale debt and other
securities in the Consolidated Balance Sheets.
162 Fifth Third Bancorp
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13. 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, 2022, 2021 and 2020. 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.
2022
2021
2020
$
13,307
16,900
11,827
91
310
285
247
315
263
Servicing Rights
The Bancorp measures all of its mortgage 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
Changes in fair value:
Due to changes in inputs or assumptions(a)
Other changes in fair value(b)
Balance, end of period
2022
2021
$
$
1,121
235
213
355
(178)
1,746
656
223
381
142
(281)
1,121
(a) Primarily reflects changes in prepayment speed and OAS assumptions which are updated based on market interest rates.
(b) Primarily reflects changes due to realized 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 (losses) gains, net - non-qualifying hedges on mortgage servicing rights
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)
$
2022
2021
2020
(2)
(363)
355
(2)
(123)
142
2
307
(311)
(a)
Included in mortgage banking net revenue in the Consolidated Statements of Income.
The key economic assumptions used in measuring the servicing rights related to 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:
Fixed-rate
Adjustable-rate
Weighted-
Average Life
(in years)
2022
Prepayment
Speed
(annual)
7.6
2.8
9.2 %
29.0
OAS
(bps)
753
803
Weighted-
Average Life
(in years)
2021
Prepayment
Speed
(annual)
6.5
2.7
10.7 %
28.8
OAS
(bps)
693
626
163 Fifth Third Bancorp
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
At December 31, 2022 and 2021, the Bancorp serviced $103.2 billion and $89.2 billion, respectively, of residential mortgage loans for other
investors. The value of MSRs that continue to be held by the Bancorp is subject to credit, prepayment and interest rate risks on the sold
financial assets. The weighted-average coupon of the MSR portfolio was 3.59% and 3.45% at December 31, 2022 and 2021, respectively
At December 31, 2022, the sensitivity of the current fair value of residual cash flows to immediate 10%, 20% and 50% adverse changes in
prepayment speed assumptions and immediate 10% and 20% adverse changes in OAS for servicing rights related to residential mortgage
loans are as follows:
Prepayment Speed Assumption
OAS Assumption
($ in millions)(a)
Fixed-rate
Adjustable-rate
Fair Value
$
1,741
5
Weighted-
Average Life
(in years)
Impact of Adverse Change
on Fair Value
Rate
10%
20%
50%
9.1
5.2
5.1 % $
20.3
(37)
(1)
(71)
(1)
OAS
(bps)
734
(2) 1,204
(159)
Impact of Adverse
Change on Fair Value
10%
20%
$
(51)
—
(100)
—
(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 that 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.
164 Fifth Third Bancorp
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
14. 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, 2022 and 2021, the balance of collateral held by the Bancorp for derivative assets was $1.3 billion and $1.1
billion, respectively. For derivative contracts cleared through certain central clearing parties whose rules treat variation margin payments as
settlements of the derivative contract, the payments for variation margin of $1.0 billion and $771 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, 2022 and 2021,
respectively. The credit component negatively impacting the fair value of derivative assets associated with customer accommodation
contracts was $9 million and $20 million as of December 31, 2022 and 2021, 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, 2022 and 2021, the balance of collateral
posted by the Bancorp for derivative liabilities was $913 million and $1.3 billion, respectively. Additionally, $1.0 billion and $570 million of
variation margin payments were applied to the respective derivative contracts to reduce the Bancorp’s derivative liabilities as of
December 31, 2022 and 2021, respectively, and were also not included in the total amount of collateral posted. Certain of the Bancorp’s
derivative liabilities contain credit-risk related contingent features that could result in the requirement to post additional collateral upon the
occurrence of specified events. As of December 31, 2022 and 2021, the fair value of the additional collateral that could be required to be
posted as a result of the credit-risk related contingent features being triggered was immaterial to the Bancorp’s Consolidated Financial
Statements. The posting of collateral has been determined to remove the need for further consideration of credit risk. As a result, the Bancorp
determined that the impact of the Bancorp’s credit risk to the valuation of its derivative liabilities was immaterial to the Bancorp’s
Consolidated Financial Statements.
165 Fifth Third Bancorp
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Bancorp holds certain derivative instruments that qualify for hedge accounting treatment and are designated as either fair value hedges or
cash flow hedges. Derivative instruments that do not qualify for hedge accounting treatment, or for which hedge accounting is not
established, are held as free-standing derivatives. All customer accommodation derivatives are held as free-standing derivatives.
The following tables reflect the notional amounts and fair values for all derivative instruments included in the Consolidated Balance Sheets as
of:
December 31, 2022 ($ 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
Interest rate swaps related to C&I loans - forward starting(c)
Interest rate swaps related to commercial mortgage and commercial construction loans
Interest rate swaps related to commercial mortgage and commercial construction loans -
forward starting(c)
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(b)
Swap associated with the sale of Visa, Inc. Class B Shares
Foreign exchange contracts
Interest-only strips
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
TBA securities
Foreign exchange contracts
Total free-standing derivatives - customer accommodation
Total derivatives not designated as qualifying hedging instruments
Total
Notional
Amount
Derivative
Assets
Derivative
Liabilities
Fair Value
$
5,955
3,000
8,000
11,000
4,000
4,000
2,975
1,869
3,358
156
58
12,000
597
83,605
216
16,122
62
25,322
$
126
126
4
—
22
—
5
31
157
62
9
—
1
4
9
—
85
998
2
1,478
—
453
2,931
3,016
3,173
195
195
—
76
—
25
—
101
296
17
7
195
—
—
1
—
220
1,663
1
1,350
—
422
3,436
3,656
3,952
(a) Derivative assets and liabilities are presented net of variation margin of $694 and $37, respectively.
(b)
Includes forward sale and forward purchase contracts which are utilized to manage market risk on residential mortgage loans held for sale and the related
interest rate lock commitments.
(c) Forward starting swaps will become effective on various dates between February 2023 and February 2025.
166 Fifth Third Bancorp
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2021 ($ in millions)
Derivatives Designated as Qualifying Hedging Instruments
Fair value hedges:
Interest rate swaps related to long-term debt
Interest rate swaps related to available-for-sale debt and other securities
$
Total fair value hedges
Cash flow hedges:
Interest rate floors related to C&I loans
Interest rate swaps related to C&I loans
Interest rate swaps related to commercial mortgage and commercial construction 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(b)
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
TBA securities
Foreign exchange contracts
Total free-standing derivatives - customer accommodation
Total derivatives not designated as qualifying hedging instruments
Total
Notional
Amount
Derivative
Assets
Derivative
Liabilities
Fair Value
1,955
445
3,000
8,000
4,000
6,260
1,952
3,545
158
12,000
2,372
76,061
673
12,376
55
23,148
$
393
7
400
122
—
—
122
522
140
2
—
—
5
—
147
578
12
1,326
—
323
2,239
2,386
2,908
2
—
2
—
1
—
1
3
—
2
214
1
4
—
221
232
—
1,260
—
297
1,789
2,010
2,013
(a) Derivative assets and liabilities are presented net of variation margin of $104 and $472, respectively.
(b)
Includes forward sale and forward purchase contracts which are utilized to manage market risk on residential mortgage loans held for sale and the related
interest rate lock commitments.
Fair Value Hedges
The Bancorp may enter into interest rate swaps to convert its fixed-rate funding to floating-rate or to hedge the exposure to changes in fair
value of a recognized asset attributable to changes in the benchmark interest rate. Decisions to enter into these interest rate swaps are made
primarily through consideration of the asset/liability mix of the Bancorp, the desired asset/liability sensitivity and interest rate levels. As of
December 31, 2022, certain interest rate swaps met the criteria required to qualify for the shortcut method of accounting that permits the
assumption of perfect offset. For all designated fair value hedges of interest rate risk as of December 31, 2022 that were not accounted for
under the shortcut method of accounting, the Bancorp performed an assessment of hedge effectiveness using regression analysis with changes
in the fair value of the derivative instrument and changes in the fair value of the hedged asset or liability attributable to the hedged risk
recorded in the same income statement line in current period net income.
167 Fifth Third Bancorp
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table reflects the changes in fair value of interest rate contracts, designated as fair value hedges and the changes in fair value of
the related hedged items attributable to the risk being hedged, as well as the line items in the Consolidated Statements of Income in which the
corresponding gains or losses are recorded:
For the years ended December 31 ($ in millions)
Long-term debt:
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
Available-for-sale debt and other securities:
Consolidated Statements of
Income Caption
2022
2021
2020
Interest on long-term debt
$
(460)
(138)
134
Interest on long-term debt
460
138
(133)
Change in fair value of interest rate swaps hedging available-for-sale
debt and other securities
Change in fair value of hedged available-for-sale debt and other
securities attributable to the risk being hedged
Interest on securities
Interest on securities
8
(8)
7
(7)
—
—
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)
Long-term debt:
Consolidated Balance
Sheets Caption
Carrying amount of the hedged items
Cumulative amount of fair value hedging adjustments included in
the carrying amount of the hedged items
Long-term debt
Long-term debt
Available-for-sale debt and other securities:
Carrying amount of the hedged items(a)
Cumulative amount of fair value hedging adjustments included in
the carrying amount of the hedged items
Cumulative amount of fair value hedging adjustments remaining
for hedged items for which hedge accounting has been
discontinued
Available-for-sale debt and other securities
Available-for-sale debt and other securities
Available-for-sale debt and other securities
2022
2021
$
5,865
2,339
(64)
—
—
(14)
396
465
(8)
—
(a) The carrying amount represents the amortized cost basis of the hedged items (which excludes unrealized gains and losses) plus the fair value hedging adjustments.
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, 2022, 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, 2022, the maximum length of time over which the Bancorp is hedging its exposure to the variability in future
cash flows is 109 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, 2022 and 2021, respectively, $498 million of net deferred losses, net of tax, and
$353 million of net deferred gains, net of tax, on cash flow hedges were recorded in AOCI in the Consolidated Balance Sheets. As of
December 31, 2022, $253 million in net unrealized losses, net of tax, recorded in AOCI are expected to be reclassified into earnings during
the next 12 months. This amount could differ from amounts actually recognized due to changes in interest rates, hedge de-designations or the
addition of other hedges subsequent to December 31, 2022.
During both the years ended December 31, 2022 and 2021, there were no gains or losses reclassified from AOCI into earnings associated
with the discontinuance of cash flow hedges because it was probable that the original forecasted transaction would no longer occur by the end
of the originally specified time period or within the additional period of time as defined by U.S. GAAP.
The following table presents the pre-tax net (losses) gains recorded in the Consolidated Statements of Income and in the Consolidated
Statements of Comprehensive Income relating to derivative instruments designated as cash flow hedges:
For the years ended December 31 ($ in millions)
Amount of pre-tax net (losses) gains recognized in OCI
Amount of pre-tax net gains reclassified from OCI into net income
2022
2021
2020
$
(1,006)
99
(185)
293
611
237
168 Fifth Third Bancorp
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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. These contracts generally settle within one year or less. 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 28 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 clearing parties, which reduced its credit exposure to the 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.
The net (losses) gains 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:
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:
Consolidated Statements of
Income Caption
2022
2021
2020
Mortgage banking net revenue
Mortgage banking net revenue
$
3
(363)
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
12
(84)
15
(123)
(3)
(12)
307
(3)
(86)
(103)
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, 2022 and 2021, the total notional amount of the risk participation agreements was $3.7 billion and $3.8 billion, respectively,
169 Fifth Third Bancorp
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
and the fair value was a liability of $7 million and $8 million, respectively, which is included in other liabilities in the Consolidated Balance
Sheets. As of December 31, 2022, the risk participation agreements had a weighted-average remaining life of 3.3 years.
The Bancorp’s maximum exposure in the risk participation agreements is contingent on the fair value of the underlying interest rate
derivative contracts in an asset position at the time of default. The Bancorp monitors the credit risk associated with the underlying customers
in the risk participation agreements through the same risk grading system currently utilized for establishing loss reserves in its loan and lease
portfolio.
Risk ratings of the notional amount of risk participation agreements under this risk rating system are summarized in the following table as of
December 31:
($ in millions)
Pass
Special mention
Substandard
Total
2022
2021
$
$
3,597
81
32
3,710
3,733
13
34
3,780
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:
Consolidated Statements of
Income Caption
2022
2021
2020
Interest rate contracts for customers (contract revenue)
Interest rate contracts for customers (credit portion of fair value
adjustment)
Interest rate lock commitments
Commercial banking revenue
$
Other noninterest expense
Mortgage banking net revenue
Commodity contracts:
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
48
10
16
44
—
—
70
8
(3)
38
21
149
23
(1)
—
61
2
—
36
(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.
170 Fifth Third Bancorp
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The following table provides a summary of offsetting derivative financial instruments:
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2022
Derivative assets
Derivative liabilities
As of December 31, 2021
Derivative assets
Derivative liabilities
Gross Amount Recognized in the
Consolidated Balance Sheets(a)
Gross Amounts Not Offset in the
Consolidated Balance Sheets
Collateral(b)
Derivatives
Net Amount
$
$
3,171
3,951
2,896
2,013
(1,405)
(1,405)
(837)
(837)
(887)
(406)
(548)
(712)
879
2,140
1,511
464
(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.
15. 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
Partnership investments
Bank owned life insurance
Deferred tax assets
Accrued interest and fees receivable
Operating lease right-of-use assets
Worldpay, Inc. TRA receivable
Prepaid expenses
Income tax receivable
OREO and other repossessed property
Other
Total other assets
2022
2021
$
$
3,173
2,579
2,153
2,056
1,553
703
508
183
145
74
24
308
13,459
2,908
2,560
2,022
2,041
6
465
427
317
139
237
29
293
11,444
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.
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 a portion of
the 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 $183 million and $317 million as of December 31, 2022 and 2021, respectively.
Separate from the impact of the TRA settlement agreement discussed above, the Bancorp recognized $46 million, $46 million and
$74 million in other noninterest income in the Consolidated Statements of Income associated with the TRA during the years ended
December 31, 2022, 2021 and 2020, respectively. The Bancorp expects to receive approximately $33 million of future payments through
2025 under the TRA that are not subject to the call or put options. These remaining cash flows will be recognized in future periods when the
related uncertainties are resolved.
171 Fifth Third Bancorp
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
16. Short-Term Borrowings
Borrowings with original maturities of one year or less are classified as short-term and include federal funds purchased and other short-term
borrowings. Federal funds purchased are excess balances in reserve accounts held at the FRB that the Bancorp purchased from other member
banks on an overnight basis. Other short-term borrowings may include securities sold under repurchase agreements, derivative collateral,
FHLB advances and other borrowings with original maturities of one year or less.
The following table summarizes short-term borrowings and weighted-average rates:
2022
2021
Amount
Rate
Amount
Rate
($ 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
$
$
$
180
4,838
381
4,544
1,312
8,606
The following table presents a summary of the Bancorp’s other short-term borrowings as of December 31:
($ in millions)
FHLB advances
Securities sold under repurchase agreements
Derivative collateral
Other borrowed money
Total other short-term borrowings
4.22 % $
3.75
1.69 % $
2.39
0.13 %
0.04
0.12 %
0.15
281
980
333
1,107
365
1,353
2022
2021
4,300
388
124
26
4,838
—
544
436
—
980
$
$
$
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, 2022 and 2021, all securities sold under repurchase agreements were secured by agency residential mortgage-
backed securities and the repurchase agreements had an overnight remaining contractual maturity.
172 Fifth Third Bancorp
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17. Long-Term Debt
The following table is a summary of the Bancorp’s long-term borrowings at December 31:
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Maturity
Interest Rate
2022
2021
($ in millions)
Parent Company
Senior:
Fixed-rate notes
Fixed-rate notes
Fixed-rate notes
Fixed-rate notes
Fixed-rate notes
Fixed-rate notes
Fixed-rate/floating-rate notes(c)
Fixed-rate notes
Fixed-rate/floating-rate notes(c)
Fixed-rate/floating-rate notes(c)
Fixed-rate/floating-rate notes(c)
Fixed-rate/floating-rate notes(c)
Subordinated:(a)
Fixed-rate notes
Fixed-rate notes
Subsidiaries
Senior:
Floating-rate notes(a)(e)
Fixed-rate notes
Fixed-rate notes
Fixed-rate/floating-rate notes(c)
Fixed-rate notes
Subordinated:(a)
Fixed-rate notes
Fixed-rate notes
Junior subordinated:
2022
2022
2023
2024
2025
2027
2027
2028
2028
2028
2030
2033
2024
2038
2022
2023
2025
2025
2027
2026
2027
2.60%
3.50%
1.625%
3.65%
2.375%
2.55%
1.707%
3.95%
4.055%
6.361%
4.772%
4.337%
4.30%
8.25%
0.772%
1.80%
3.95%
5.852%
2.25%
3.85%
4.00%
$
—
—
500
1,498
748
747
448
648
381
1,012
936
556
749
1,108
—
650
723
999
599
749
173
53
21
700
500
499
1,496
748
746
496
647
—
—
—
—
749
1,346
300
649
795
—
598
748
172
54
44
75
39
302
$ 13,714
250
—
284
11,821
Floating-rate debentures(a)(b)
FHLB advances(d)
Notes associated with consolidated VIEs:
Automobile loan securitization, fixed-rate notes
Solar loan securitization, fixed-rate notes
Other
Total
2035
2023 - 2047
6.189% - 6.459%
3.81%
2023 - 2026
2038
2023 - 2052
2.64% - 2.69%
‘
- 7.00%
4.05%
Varies
(a)
In aggregate, $1.9 billion and $2.5 billion qualifies as Tier 2 capital for regulatory capital purposes for the years ended December 31, 2022 and 2021,
respectively.
(b) These rates reflect the floating rates as of December 31, 2022.
(c)
This rate reflects the fixed rate in effect as of December 31, 2022.
(d) This rate reflects the weighted-average rate as of December 31, 2022.
These rates reflect the floating rates as of December 31, 2021.
(e)
The Bancorp pays down long-term debt in accordance with contractual terms over maturity periods summarized in the previous table. The
aggregate annual maturities of long-term debt obligations (based on final maturity dates) as of December 31, 2022 are presented in the
following table:
($ in millions)
2023
2024
2025
2026
2027
Thereafter
Total
Parent Company
Subsidiaries
Total
$
$
500
2,247
748
—
1,195
4,641
9,331
669
12
1,772
843
789
298
4,383
1,169
2,259
2,520
843
1,984
4,939
13,714
173 Fifth Third Bancorp
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
At December 31, 2022, the Bancorp’s long-term borrowings consisted of outstanding principal balances of $13.8 billion, net discounts of $19
million, debt issuance costs of $32 million and reductions for mark-to-market adjustments on its hedged debt of $64 million. At
December 31, 2021, the Bancorp’s long-term borrowings consisted of outstanding principal balances of $11.5 billion, net discounts of $16
million, debt issuance costs of $24 million and additions for mark-to-market adjustments on its hedged debt of $396 million. The Bancorp
was in compliance with all debt covenants at December 31, 2022 and 2021.
Parent Company Long-Term Borrowings
Senior notes
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 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
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.
On November 1, 2021, the Bancorp issued and sold $500 million of fixed-rate/floating-rate senior notes which will mature on November 1,
2027. The senior notes bear a fixed rate of interest of 1.707% per annum to, but excluding, November 1, 2026. From, and including,
November 1, 2026 until, but excluding, November 1, 2027, the senior notes will have an interest rate of compounded SOFR plus 0.685%.
The Bancorp entered into interest rate swaps designated as fair value hedges to convert the fixed-rate period of the notes to a floating rate of
one-month LIBOR plus 57 bps, and the Bancorp paid a rate of 4.69% at December 31, 2022. The notes will be redeemable in whole, but not
in part, by the Bancorp on November 1, 2026, the date that is one year prior to the maturity date, at a redemption price equal to 100% of the
principal amount of the notes, plus accrued and unpaid interest thereon, if any, to, but excluding, the redemption date. In addition, the notes
will be redeemable, in whole or in part, by the Bancorp 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 being redeemed, plus accrued and unpaid interest thereon, if any, to, but excluding, the
redemption date.
On April 25, 2022, the Bancorp issued and sold $1 billion of fixed-rate/floating-rate senior notes. $400 million of the notes will bear interest
at a rate of 4.055% per annum to, but excluding, April 25, 2027, followed by an interest rate of compounded SOFR plus 1.355% until
maturity on April 25, 2028. The remaining $600 million of the notes will bear interest at a rate of 4.337% per annum to, but excluding, April
25, 2032, followed by an interest rate of compounded SOFR plus 1.660% until maturity on April 25, 2033. The Bancorp entered into interest
174 Fifth Third Bancorp
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
rate swaps designated as fair value hedges to convert the fixed-rate periods of the notes to floating rates of one-month LIBOR plus 1.239%
and one-month LIBOR plus 1.543% for the notes due April 25, 2028 and the notes due April 25, 2033, respectively. The Bancorp paid rates
on these swaps of 5.63% and 5.93%, respectively, at December 31, 2022. Each tranche of notes is redeemable in whole at par plus accrued
and unpaid interest one year prior to its maturity date, or may be wholly or partially redeemed 30 days or 90 days prior to maturity for the
2028 notes and the 2033 notes, respectively.
On July 28, 2022, the Bancorp issued and sold $1 billion of fixed-rate/floating-rate senior notes which will mature on July 28, 2030. The
senior notes bear interest at a rate of 4.772% per annum to, but excluding, July 28, 2029. From, and including July 28, 2029 until, but
excluding July 28, 2030, the senior notes will bear interest at a rate of compounded SOFR plus 2.127%. The Bancorp entered into interest rate
swaps designated as fair value hedges to convert the fixed-rate period of the notes to a floating rate of compounded SOFR plus 2.132%, and
the Bancorp paid a rate of 6.43% at December 31, 2022. The senior notes are redeemable in whole at par plus accrued and unpaid interest one
year prior to their maturity date, or may be wholly or partially redeemed 60 days prior to maturity.
On October 27, 2022, the Bancorp issued and sold $1 billion of fixed-rate/floating-rate senior notes which will mature on October 27, 2028.
The senior notes will bear interest at a rate of 6.361% per annum to, but excluding, October 27, 2027. From, and including October 27, 2027
until, but excluding October 27, 2028, the senior notes will bear interest at a rate of compounded SOFR plus 2.192%. The Bancorp entered
into interest rate swaps designated as fair value hedges to convert the fixed-rate period of the notes to a floating rate of compounded SOFR
plus 2.193%, and the Bancorp paid a rate of 6.49% at December 31, 2022. The senior notes are redeemable in whole at par plus accrued and
unpaid interest one year prior to their maturity date, or may be wholly or partially redeemed on or after 30 days prior to maturity.
Additionally, the senior notes are redeemable at the Bancorp’s option, in whole or in part, beginning 180 days after the issue date and prior to
October 27, 2027, at the greater of: (a) the aggregate principal amount of the senior notes being redeemed, or (b) the discounted present value
of the remaining scheduled payments of principal and interest that would be due if the senior notes being redeemed matured on October 27,
2027.
Subordinated debt
The Bancorp has entered into interest rate swaps to convert part of its subordinated fixed-rate notes due in 2038 to a floating rate. Of the $1.0
billion in 8.25% subordinated fixed-rate notes due in 2038, the Bancorp entered into interest rate swaps designated as fair value hedges to
convert $705 million of the notes to a floating rate of three-month LIBOR plus 3.05%, and the Bancorp paid a rate of 7.81% on the hedged
portion of these notes at December 31, 2022.
On November 20, 2013, the Bancorp issued and sold $750 million of 4.30% unsecured subordinated fixed-rate notes which will mature 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, 2022, $20.3 billion was available for future issuance under the global
bank note program.
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 July 26, 2018 the Bank issued and sold, under its bank notes program, $750 million of 3.95% senior fixed-rate notes due on July 28, 2025.
The Bank entered into interest rate swaps designated as fair value hedges to convert these fixed-rate notes to a floating rate of one-month
LIBOR plus 1.04%, and the Bancorp paid a rate of 5.43% at December 31, 2022. 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.
As a result of the MB Financial, Inc. acquisition in March 2019, 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
175 Fifth Third Bancorp
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
$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
“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.
On October 27, 2022, under its bank notes program, the Bank issued and sold $1 billion of fixed-rate/floating-rate senior notes which will
mature on October 27, 2025. The senior notes will bear interest at a rate of 5.852% per annum to, but excluding, October 27, 2024. From, and
including October 27, 2024 until, but excluding October 27, 2025, the senior notes will bear interest at a rate of compounded SOFR plus
1.230%. The Bank entered into interest rate swaps designated as fair value hedges to convert the fixed-rate period of the notes to a floating
rate of compounded SOFR plus 1.218%, and the Bank paid a rate of 5.52% at December 31, 2022. The senior notes are redeemable in whole
at par plus accrued and unpaid interest one year prior to their maturity date, or may be wholly or partially redeemed on or after 30 days prior
to maturity.
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 1.69% and 1.42%, 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, 2022, FHLB advances have a weighted-average rate of 3.81%, with interest payable monthly. The Bancorp has pledged
$18.6 billion of loans and securities to secure its borrowing capacity at the FHLB which is partially utilized to fund $21 million in FHLB
advances that are outstanding. The FHLB advances mature as follows: $9 million in 2023, an immaterial amount in 2024, $5 million in 2025,
an immaterial amount in 2026, an immaterial amount in 2027, and $7 million thereafter.
Notes associated with consolidated VIEs
As discussed in Note 12, the Bancorp was determined to be the primary beneficiary of various VIEs associated with certain automobile and
solar loan securitizations. Third-party holders of this debt do not have recourse to the general assets of the Bancorp. Approximately $114
million of outstanding notes related to these VIEs are included in long-term debt in the Consolidated Balance Sheets as of December 31,
2022.
176 Fifth Third Bancorp
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
18. Commitments, Contingent Liabilities and Guarantees
The Bancorp, in the normal course of business, enters into financial instruments and various agreements to meet the financing needs of its
customers. The Bancorp also enters into certain transactions and agreements to manage its interest rate and prepayment risks, provide
funding, equipment and locations for its operations and invest in its communities. These instruments and agreements involve, to varying
degrees, elements of credit risk, counterparty risk and market risk in excess of the amounts recognized in the Consolidated Balance Sheets.
The creditworthiness of counterparties for all instruments and agreements is evaluated on a case-by-case basis in accordance with the
Bancorp’s credit policies. The Bancorp’s significant commitments, contingent liabilities and guarantees in excess of the amounts recognized
in the Consolidated Balance Sheets are discussed in the following sections.
Commitments
The Bancorp has certain commitments to make future payments under contracts. The following table reflects a summary of significant
commitments as of December 31:
($ in millions)
Commitments to extend credit
Letters of credit
Forward contracts related to residential mortgage loans held for sale
Capital commitments for private equity investments
Purchase obligations
Capital expenditures
$
2022
2021
83,437
2,009
1,869
163
113
94
80,641
1,953
1,952
124
160
78
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, 2022 and 2021, the Bancorp
had a reserve for unfunded commitments, including letters of credit, totaling $216 million and $182 million, respectively, included in other
liabilities in the Consolidated Balance Sheets. The Bancorp monitors the credit risk associated with commitments to extend credit using the
same standard regulatory risk rating systems utilized for its loan and lease portfolio.
Risk ratings of outstanding commitments to extend credit under this risk rating system are summarized in the following table as of December
31:
($ in millions)
Pass
Special mention
Substandard
Total commitments to extend credit
2022
2021
$
$
81,345
976
1,116
83,437
78,298
1,058
1,285
80,641
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, 2022:
($ in millions)
Less than 1 year(a)
1 - 5 years(a)
Over 5 years
Total letters of credit
$
$
951
1,052
6
2,009
(a)
Includes $1 and $2 issued on behalf of commercial customers to facilitate trade payments in U.S. dollars and foreign currencies which expire in 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, 2022 and 2021 and are considered
guarantees in accordance with U.S. GAAP. Approximately 67% and 71% of the total standby letters of credit were collateralized as of
December 31, 2022 and 2021, 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 was included in the total reserve for unfunded commitments, was $22 million and $24
million at December 31, 2022 and 2021, respectively. The Bancorp monitors the credit risk associated with letters of credit using the same
standard regulatory risk rating systems utilized for its loan and lease portfolio.
177 Fifth Third Bancorp
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Risk ratings of outstanding letters of credit under this risk rating system are summarized in the following table as of December 31:
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($ in millions)
Pass
Special mention
Substandard
Total letters of credit
2022
2021
$
$
1,827
47
135
2,009
1,778
40
135
1,953
At December 31, 2022 and 2021, 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, 2022 and 2021, total VRDNs, of which FTS was the remarketing agent for all, were $423 million and $464 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 $102 million and $118 million of the VRDNs remarketed by FTS at
December 31, 2022 and 2021, respectively. These letters of credit are included in the total letters of credit balance provided in the previous
tables. The Bancorp held $3 million and $1 million of these VRDNs in its portfolio and classified them as trading debt securities at
December 31, 2022 and 2021, 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 19 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 both December 31, 2022 and 2021, the Bancorp maintained reserves related to loans sold with representation and warranty provisions
totaling $9 million 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, 2022 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 $11 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.
During both the years ended December 31, 2022 and 2021, the Bancorp paid an immaterial amount in the form of make-whole payments and
repurchased $63 million and $42 million, respectively, in outstanding principal of loans to satisfy investor demands. Total repurchase demand
178 Fifth Third Bancorp
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
requests during the years ended December 31, 2022 and 2021 were $104 million and $64 million, respectively. Total outstanding repurchase
demand inventory was $25 million and $18 million at December 31, 2022 and 2021, 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 $20 million at December 31, 2022 and 2021,
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, 2022 and 2021.
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 28 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, 2022, 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 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 $195 million and $214 million at December 31, 2022 and 2021, respectively. Refer to Note 14
and Note 28 for further information.
179 Fifth Third Bancorp
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
After the Bancorp’s sale of the Class B Shares, Visa has funded additional amounts into the litigation escrow account which have resulted in
further dilutive adjustments to the conversion of Class B Shares into Class A Shares, and along with other terms of the total return swap,
required the Bancorp to make cash payments in varying amounts to the swap counterparty as follows:
Period ($ in millions)
Q2 2010
Q4 2010
Q2 2011
Q1 2012
Q3 2012
Q3 2014
Q2 2018
Q3 2019
Q4 2021
Q2 2022
Q4 2022
Visa
Funding Amount
$
500
800
400
1,565
150
450
600
300
250
600
350
Bancorp Cash
Payment Amount
20
35
19
75
6
18
26
12
11
25
(a)
(a) The Bancorp made a cash payment of $15 million to the swap counterparty on January 13, 2023 as a result of the Visa escrow funding in the fourth quarter of
2022.
180 Fifth Third Bancorp
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19. 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 18 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. 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, which is currently pending appeal. 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. On September 27, 2021, the Court entered an order
certifying a class of merchants pursuing claims for injunctive relief. The ultimate outcome in this matter, including the timing of resolution,
remains uncertain. Refer to Note 18 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 action lawsuits 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, attorneys’ 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 $440 million, plus prejudgment interest. On March 26, 2021, the trial court granted plaintiffs’ motion for class
certification. The court has set a trial date for April 17, 2023.
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 case is currently in discovery and no trial date has
been set.
Shareholder Litigation
On July 31, 2020, a putative shareholder class action lawsuit 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 an alleged improper cross-selling
strategy in filings made in connection with the Bancorp’s merger with MB Financial, Inc. On March 19, 2021, the trial court denied the
181 Fifth Third Bancorp
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
defendants’ motion to dismiss. The parties have reached an agreement in principle to resolve the matter, subject to documentation and court
approval. The Bancorp does not expect the settlement to have a material impact on the Bancorp’s Consolidated Financial Statements.
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. Five lawsuits have been consolidated into a single
action pending in the U.S. District Court for the Northern District of Illinois 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); (4)
Hansen v. Carmichael, et al., Case No. 20-cv-5339 (filed September 10, 2020); and (5) Reese v. Carmichael, et al., Case No. 1:21-cv-01631
(filed November 4, 2020 originally as Case No. 20-cv-866 in the Southern District of Ohio). On March 31, 2022, the district court granted the
defendants’ motion to dismiss those cases without prejudice. On April 29, 2022, plaintiffs filed an amended complaint. Also separately
pending in the Hamilton County, Ohio Court of Common Pleas is Sandys v. Carmichael, et al., Case No. A2004539 (filed December 28,
2020) and The City of Miami Firefighters’ and Police Officers’ Retirement Trust v. Carmichael, et al., Case No. A2200330 (filed January 27,
2022). On April 18, 2022, the Sandys shareholder voluntarily dismissed the lawsuit without prejudice. The case brought by The City of
Miami Firefighters’ and Police Officers’ Retirement Trust is pending.
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 shareholder demands 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.
Howards v. Fifth Third Bank
On March 8, 2018, Plaintiff Troy Howards filed a putative class action against Fifth Third Bank in the United States District Court for the
Central District of California (Case No. 1:18-CV-869, S.D. OH 2018), alleging that Fifth Third improperly charged certain fees related to
insufficient funds, customer overdrafts, and out-of-network ATM use. Venue was subsequently transferred to the United States District Court
for the Southern District of Ohio. Plaintiff filed claims for breach of contract, breach of the implied covenant of good faith and fair dealing,
for violation of the California Unfair Competition Law (Ca. Bus. & Prof. Code sec. 17200, et seq)., and the California Consumer Legal
Remedies Act (Cal. Civ. Code sec. 1750 et seq.). Plaintiff seeks to represent putative nationwide classes and California classes of consumers
allegedly charged improper repeated insufficient funds fees, improper overdraft fees, and fees for out-of-network ATM use from the
beginning of the applicable statute of limitations to present. Plaintiff seeks damages of restitution and disgorgement in the amount of the
allegedly unlawfully charged fees, damages proved at trial together with interest as allowed by applicable law. Fifth Third filed a motion to
dismiss all claims. On February 6, 2023, the trial court issued an order dismissing the Plaintiff’s breach of contract claim with respect to out-
of-network ATM fees and dismissing the two claims for violations of California consumer protection statutes. The Court denied Fifth Third’s
motion to dismiss as it relates to the claims for breach of contract and breach of the implied covenant of good faith and fair dealing for certain
customer overdrafts and insufficient funds fees. The case is now set to begin discovery, and no trial date has been set.
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. For example, the Bancorp’s broker-dealer and investment advisory subsidiaries are cooperating
with an investigation by the SEC regarding compliance with certain record-keeping requirements for business-related electronic
communications on unapproved channels. The SEC is conducting similar investigations of record-keeping practices at other financial
institutions. 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.
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
182 Fifth Third Bancorp
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 $150 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.
20. 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, 2022 and 2021, 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
2022
2021
$
$
$
183
5
188
85
157
7
164
115
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.
Coforge Business Process Solutions Private Limited
As of December 31, 2022, the Bancorp owns 100% of Fifth Third Mauritius Holdings Limited, which owns 40% of Coforge Business
Process Solutions Private Limited (formerly known as SLK Global Solutions Private Limited), and accounts for this investment under the
equity method of accounting. During the second quarter of 2021, Coforge Limited acquired a controlling interest in SLK Global Solutions
Private Limited. As part of this transaction, the Bancorp sold a 9% interest in SLK Global Solutions Private Limited to Coforge Limited and
recognized a gain of $12 million as a result of the transaction. The Bancorp recognized $7 million, $3 million and $5 million in other
noninterest income in the Consolidated Statements of Income as part of its equity method investment in Coforge Business Process Solutions
Private Limited for the years ended December 31, 2022, 2021 and 2020, respectively. The Bancorp received cash distributions of $9 million,
$5 million and $1 million during the years ended December 31, 2022, 2021 and 2020, respectively. The Bancorp’s investment in Coforge
Business Process Solutions Private Limited was $17 million and $19 million at December 31, 2022 and 2021, respectively. The Bancorp paid
Coforge Business Process Solutions Private Limited $26 million, $21 million and $27 million for their process and software services during
the years ended December 31, 2022, 2021 and 2020, respectively, which are included in other noninterest expense in the Consolidated
Statements of Income.
183 Fifth Third Bancorp
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CDC investments
The Bancorp holds equity investments in non-consolidated VIEs related to CDC. The Bancorp had loans outstanding to these VIEs of
$10 million and $22 million at December 31, 2022 and 2021, respectively, as well as unfunded commitment balances of $16 million and
$36 million at December 31, 2022 and 2021, respectively. The Bancorp also held $73 million and $51 million of deposits for these entities at
December 31, 2022 and 2021, respectively. For further information on CDC investments, refer to Note 12.
184 Fifth Third Bancorp
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
21. Income Taxes
The Bancorp and its subsidiaries file a consolidated federal income tax return. The following is a summary of applicable income taxes
included in the Consolidated Statements of Income for the years ended December 31:
($ 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
Applicable income tax expense
2022
2021
2020
$
$
570
126
11
707
(31)
(29)
—
(60)
647
657
102
2
761
(21)
8
(1)
(14)
747
463
69
—
532
(140)
(23)
1
(162)
370
The current U.S. Federal income taxes above include proportional amortization for qualifying LIHTC investments of $189 million, $163
million and $150 million for the years ended December 31, 2022, 2021 and 2020, respectively.
The following is a reconciliation between the statutory U.S. Federal income tax rate and the Bancorp’s effective tax rate for the years ended
December 31:
Statutory tax rate
Increase (decrease) resulting from:
State taxes, net of federal benefit
Tax-exempt income
LIHTC investment and other tax benefits
LIHTC investment proportional amortization
Other tax credits
Other, net
Effective tax rate
2022
2021
2020
21.0 %
2.5
(0.8)
(7.1)
6.1
(0.4)
(0.3)
21.0 %
21.0
2.5
(0.6)
(5.5)
4.6
(0.2)
(0.6)
21.2
21.0
2.0
(1.5)
(9.7)
8.3
(0.4)
0.9
20.6
Other tax credits in the rate reconciliation table include New Markets, Rehabilitation Investment and Qualified Zone Academy Bond tax
credits. Tax-exempt income in the rate reconciliation table includes interest on municipal bonds, interest on tax-exempt lending, income on
life insurance policies held by the Bancorp and certain gains on sales of leases that are exempt from federal taxation.
The following table provides a reconciliation of the beginning and ending amounts of the Bancorp’s unrecognized tax benefits:
($ 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)
2022
2021
2020
$
$
102
3
(5)
11
—
(17)
94
100
10
(4)
11
—
(15)
102
65
29
(3)
12
(1)
(2)
100
(a) With the exception of $6 in 2020, all amounts represent unrecognized tax benefits that, if recognized, would affect the annual effective tax rate.
The Bancorp’s unrecognized tax benefits as of December 31, 2022, 2021 and 2020 primarily related to state income tax exposures from
taking tax positions where the Bancorp believes it is likely that, upon examination, a state would take a position contrary to the position taken
by the Bancorp.
While it is reasonably possible that the amount of the unrecognized tax benefits with respect to certain of the Bancorp’s uncertain tax
positions could increase or decrease during the next twelve months, the Bancorp believes it is unlikely that its unrecognized tax benefits will
change by a material amount during the next twelve months.
185 Fifth Third Bancorp
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Deferred income taxes are comprised of the following items at December 31:
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($ in millions)
Deferred tax assets:
Other comprehensive income
Allowance for loan and lease losses
Deferred compensation
Reserves for unfunded commitments
Reserves
Federal net operating loss carryforwards
State deferred taxes
State net operating loss carryforwards
Other
Total deferred tax assets
Deferred tax liabilities:
Lease financing
MSRs and related economic hedges
Goodwill and intangible assets
Bank premises and equipment
Investments in joint ventures and partnership interests
Other comprehensive income
State deferred taxes
Other
Total deferred tax liabilities
Total net deferred tax asset (liability)
2022
2021
1,595 $
461
105
45
34
31
20
14
231
2,536 $
561 $
120
78
66
61
—
—
101
987 $
1,549
—
397
106
38
30
15
—
3
187
776
553
116
68
65
61
367
6
51
1,287
(511)
$
$
$
$
At December 31, 2022 and 2021, the Bancorp recorded deferred tax assets of $14 million and $3 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
$5 million and $4 million at December 31, 2022 and 2021, respectively. If these carryforwards are not utilized, they will expire in varying
amounts through 2042.
The Bancorp has determined that a valuation allowance is not needed against the remaining deferred tax assets as of December 31, 2022 or
2021. 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, 2022 and 2021 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, its projected future
taxable income and tax-planning strategies.
The statute of limitations for the Bancorp’s federal income tax returns remains open for tax years 2019 through 2022. 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, 2022, 2021 and 2020, the Bancorp recognized $1 million, $1
million and $3 million, respectively, of interest expense in connection with income taxes. At December 31, 2022 and 2021, the Bancorp had
accrued interest liabilities, net of the related tax benefits, of $8 million and $7 million, respectively. No material liabilities were recorded for
penalties related to income taxes.
Retained earnings at December 31, 2022 and 2021 included $157 million in allocations of earnings for bad debt deductions of former thrift
subsidiaries for which no income tax has been provided. Under current tax law, if certain of the Bancorp’s subsidiaries use these bad debt
reserves for purposes other than to absorb bad debt losses, they will be subject to federal income tax at the current corporate tax rate.
186 Fifth Third Bancorp
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
22. Retirement and Benefit Plans
The Bancorp’s qualified defined benefit plan’s benefits were frozen in 1998, except for grandfathered employees. The Bancorp’s other
defined benefit retirement plans consist of non-qualified plans which are frozen and funded on an as-needed basis. A majority of these plans
were obtained in acquisitions and are included with the qualified defined benefit plan in the following tables (“the Plan”). The Bancorp
recognizes the overfunded or underfunded status of the Plan in other assets and accrued taxes, interest and expenses, respectively, in the
Consolidated Balance Sheets.
The following table summarizes the defined benefit retirement plans as of and for the years ended December 31:
($ 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 gain
Benefits paid
Projected benefit obligation at December 31
Underfunded projected benefit obligation at December 31
Accumulated benefit obligation at December 31(a)
2022
2021
$
$
$
$
$
$
152
(27)
2
(11)
(7)
109
176
5
(11)
(43)
(7)
120
(11)
120
173
(3)
1
(12)
(7)
152
203
4
(12)
(12)
(7)
176
(24)
176
(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, 2022 and 2021.
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 (gain) loss
Amortization of net actuarial loss
Settlement
Total recognized in other comprehensive income
Total recognized in net periodic benefit cost and other comprehensive income
$
2022
2021
2020
5
(4)
3
3
7
(11)
(3)
(3)
(17)
(10)
4
(4)
6
3
9
(5)
(6)
(3)
(14)
(5)
6
(4)
6
3
11
12
(6)
(3)
3
14
Fair Value Measurements of Plan Assets
The following tables summarize Plan assets measured at fair value on a recurring basis as of December 31:
2022 ($ in millions)
Cash equivalents
Debt securities:
U.S. Treasury and federal agencies 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
$
$
$
8
54
—
54
62
—
3
44
47
47
—
—
—
—
—
Total Fair Value
8
57
44
101
109
187 Fifth Third Bancorp
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2021 ($ 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
$
$
$
5
51
54
—
—
54
110
—
—
5
1
36
42
42
—
—
—
—
—
—
—
Total Fair Value
5
51
59
1
36
96
152
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 which
primarily utilize quoted prices of securities with similar characteristics. 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:
Discount rate
For measuring net periodic benefit cost:
Discount rate
Expected return on plan assets
2022
2021
2020
5.37 %
3.69
3.91
2.85
2.26
2.43
2.26
3.05
2.64
Lowering both the expected rate of return on the plan assets and the discount rate by 0.25% would have increased the 2022 pension expense
by approximately $1 million.
Based on the actuarial assumptions, the Bancorp expects to contribute $2 million to the Plan in 2023. Estimated pension benefit payments are
$14 million for 2023, $13 million for 2024, $13 million for 2025, $12 million for 2026 and $12 million for 2027. The total estimated
payments for the years 2028 through 2032 is $47 million.
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-
188 Fifth Third Bancorp
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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, with mutual and
exchange-traded funds incorporated according to their underlying investments, for the years ended December 31:
Equity securities
Fixed-income securities
Alternative strategies
Cash or cash equivalents
Total
Targeted Range
0-55 %
50-100
0-5
0-100
2022
2021
—
92
—
8
100 %
—
96
—
4
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, 2022.
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. 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 for the years ended December 31, 2022, 2021 and 2020.
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 $111 million, $108 million and $105 million for the years ended December 31, 2022, 2021 and 2020, respectively. The
Bancorp did not make profit sharing contributions during the years ended December 31, 2022, 2021 and 2020. 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 $7 million, $5 million and $5 million for the years
ended December 31, 2022, 2021 and 2020, respectively.
189 Fifth Third Bancorp
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23. Accumulated Other Comprehensive Income
The tables below present the activity of the components of OCI and AOCI for the years ended December 31:
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2022 ($ in millions)
Unrealized holding losses 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 losses on available-for-sale debt securities
Unrealized holding losses 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 losses 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
Pre-tax
Activity
Total OCI
Tax
Effect
Net
Activity
Beginning
Balance
Total AOCI
Net
Activity
Ending
Balance
$
(7,194)
1,716
(5,478)
(2)
(7,196)
—
1,716
(2)
(5,480)
891
(5,480)
(4,589)
(1,006)
(99)
(1,105)
11
6
17
232
22
254
(2)
(1)
(3)
(774)
(77)
(851)
9
5
14
353
(851)
(498)
(33)
14
(19)
Other
Total
—
(8,284)
$
—
1,967
—
(6,317)
(4)
1,207
—
(6,317)
(4)
(5,110)
2021 ($ 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 gains on available-for-sale debt securities
Unrealized holding losses 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 gain 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
$
(1,366)
323
(1,043)
4
(1,362)
(1)
322
3
(1,040)
1,931
(1,040)
891
(185)
(293)
(478)
5
9
14
43
70
113
(1)
(2)
(3)
(142)
(223)
(365)
4
7
11
718
(365)
353
(44)
11
(33)
Other
Total
—
(1,826)
$
—
432
—
(1,394)
(4)
2,601
—
(1,394)
(4)
1,207
190 Fifth Third Bancorp
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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
The table below presents reclassifications out of AOCI for the years ended December 31:
($ in millions)
Net unrealized (losses) gains on available-for-sale debt securities:(b)
Net gains (losses) included in net income
Net unrealized (losses) gains on cash flow hedge derivatives:(b)
Interest rate contracts related to C&I, commercial mortgage and
commercial construction loans
Net periodic benefit costs:(b)
Amortization of net actuarial loss
Settlements
Total reclassifications for the period
Consolidated Statements of
Income Caption
2022
2021
2020
Securities (losses) gains, 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
$
$
2
2
—
2
99
99
(22)
77
(3)
(3)
(6)
1
(5)
74
(4)
(4)
1
(3)
293
293
(70)
223
(6)
(3)
(9)
2
(7)
213
45
45
(11)
34
237
237
(50)
187
(6)
(3)
(9)
2
(7)
214
(a) This AOCI component is included in the computation of net periodic benefit cost. Refer to Note 22 for information on the computation of net periodic benefit cost.
(b) Amounts in parentheses indicate reductions to net income.
191 Fifth Third Bancorp
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24. Common, Preferred and Treasury Stock
The table presents a summary of the share activity within common, preferred and treasury stock for the years ended:
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($ in millions, except share data)
December 31, 2019
Issuance of preferred shares, Series L
Impact of stock transactions under stock
compensation plans, net
Other
December 31, 2020
Shares acquired for treasury
Impact of stock transactions under stock
compensation plans, net
Other
December 31, 2021
Shares acquired for treasury
Impact of stock transactions under stock
compensation plans, net
Other
December 31, 2022
Common Stock
Preferred Stock
Treasury Stock
Value
Shares
Value
Shares
Value
Shares
$
2,051 923,892,581 $
1,770
264,000
$
(5,724) 214,976,952
346
14,000
—
—
—
—
—
—
—
—
—
—
$
2,051 923,892,581 $
2,116
—
—
—
—
—
—
$
2,051 923,892,581 $
—
—
—
—
—
—
—
—
—
2,116
—
—
—
$
2,051 923,892,581 $
2,116
—
—
278,000
—
$
—
—
278,000
$
—
—
—
278,000
$
46
2
(3,818,518)
(26,178)
(5,676) 211,132,256
35,652,079
(1,393)
44
1
(5,621,878)
(47,540)
(7,024) 241,114,917
3,079,462
(100)
21
—
(3,687,834)
156
(7,103) 240,506,701
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.
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
192 Fifth Third Bancorp
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 $25,000
liquidation preference. The preferred stock accrues dividends, on a non-cumulative semi-annual basis, at an annual rate of 5.10% through but
excluding June 30, 2023, at which time it converts to a quarterly floating-rate dividend of three-month LIBOR plus 3.033%. Subject to any
required regulatory approval, the Bancorp may redeem the Series H preferred shares at its option in whole or in part, at any time on or after
June 30, 2023 and may redeem in whole but not in part, following a regulatory capital event at any time prior to June 30, 2023. The Series H
preferred shares are not convertible into Bancorp common shares or any other securities.
Treasury Stock
In June of 2019, the Board of Directors authorized the Bancorp to repurchase up to 100 million common shares in the open market or in
privately negotiated transactions and to utilize any derivative or similar instrument to effect share repurchase transactions.
Under this authorization, the Bancorp entered into and settled a number of accelerated share repurchase transactions during the years ended
December 31, 2022 and 2021. As part of these transactions, the Bancorp entered into forward contracts in which the final number of shares
delivered at settlement was based generally on a discount to the average daily volume-weighted average price of the Bancorp’s common
stock during the term of these repurchase agreements. The accelerated share repurchases were treated as two separate transactions: (i) the
repurchase of treasury shares on the repurchase date and (ii) a forward contract indexed to the Bancorp’s common stock.
The following table presents a summary of the Bancorp’s accelerated share repurchase transactions that were entered into and settled during
the years ended December 31, 2022 and 2021:
Repurchase Date
January 26, 2021
April 23, 2021
July 27, 2021(a)
October 29, 2021
December 8, 2022
Amount
($ in millions)
$
180
347
550
316
100
Shares Repurchased on
Repurchase Date
Shares Received from
Forward Contract
Settlement
Total Shares
Repurchased
4,951,456
7,894,807
13,065,958
6,211,841
2,636,476
366,939
675,295
1,413,211
1,072,572
442,986
5,318,395
8,570,102
14,479,169
7,284,413
3,079,462
Final Settlement Date
March 31, 2021
June 11, 2021
September 29, 2021
December 2, 2021
December 19, 2022
(a) This accelerated share repurchase transaction consisted of two supplemental confirmations each with a notional amount of $275 million.
193 Fifth Third Bancorp
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
25. 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 2021 Incentive Compensation Plan was approved by shareholders on April 13, 2021 and authorized the
issuance of up to 50 million shares as equity compensation. The plan authorizes the issuance of SARs, RSAs, RSUs, stock options,
performance share or unit awards, dividend or dividend equivalent rights and stock awards. As of December 31, 2022, there were 36.8
million shares available for future issuance. Based on total stock-based awards outstanding (including SARs, RSUs, stock options and PSAs)
and shares remaining for future grants under the 2021 Incentive Compensation Plan, the potential dilution to which the Bancorp’s common
shareholders 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, RSUs, stock options and PSAs outstanding represent 3% of the Bancorp’s issued shares at
December 31, 2022.
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 terms
up to ten years and vest and typically become exercisable ratably over a three 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. RSUs are typically
released after three or four years or ratably over three or four years of continued employment and receive dividend equivalents. 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 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, 2022.
Stock-based compensation expense was $165 million, $120 million and $123 million for the years ended December 31, 2022, 2021 and 2020,
respectively, and is included in compensation and benefits expense in the Consolidated Statements of Income. The total related income tax
benefit recognized was $34 million, $25 million and $26 million for the years ended December 31, 2022, 2021 and 2020, respectively.
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
2022
2021
2020
7
31 %
3.4
2.7
7
29
3.2
0.9
7
24
3.2
1.5
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.
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 $12.76, $7.84 and $6.82 per share for the years ended December 31, 2022, 2021 and 2020, respectively. The total grant-
date fair value of SARs that vested during the years ended December 31, 2022, 2021 and 2020 was $2 million, $8 million and $15 million,
respectively.
At December 31, 2022, there was $2 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, 2022 of 1.8 years.
194 Fifth Third Bancorp
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The following table summarizes SARs activity for the years ended December 31:
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2022
2021
2020
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
11,185 $
304
(2,358)
(19)
9,112 $
8,487 $
20.47
46.96
17.05
30.43
22.22
20.97
19,258 $
322
(8,367)
(28)
11,185 $
10,515 $
18.83
33.53
17.20
23.01
20.47
19.80
Weighted-
Average Grant
Price Per Share
18.38
29.64
16.10
25.50
18.83
18.19
21,449 $
365
(2,420)
(136)
19,258 $
17,979 $
The following table summarizes outstanding and exercisable SARs by grant price per share at December 31, 2022.
Outstanding SARs
Exercisable SARs
SARs (in thousands, except per share data)
$10.01-$20.00
$20.01-$30.00
$30.01-$40.00
Over $40.00
All SARs
Number of
SARs
Weighted-
Average Grant
Price Per Share
17.56
24.95
33.41
49.51
22.22
4,845 $
3,449
568
250
9,112 $
Weighted-
Average Remaining
Contractual Life
(in years)
Number of
SARs
Weighted-
Average Remaining
Contractual Life
(in years)
Weighted-
Average Grant
Price Per Share
17.56
24.78
33.28
—
20.97
2.2
3.5
7.2
9.1
3.2
4,845 $
3,335
307
—
8,487 $
2.2
3.3
6.1
—
2.8
Restricted Stock Units
The total grant-date fair value of RSUs that were released during the years ended December 31, 2022, 2021 and 2020 was $110 million, $99
million and $107 million, respectively. At December 31, 2022, there was $183 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, 2022 of 2.4 years.
The following table summarizes RSUs activity for the years ended December 31:
RSUs (in thousands, except per unit data)
Outstanding at January 1
Granted
Released
Forfeited
Outstanding at December 31
2022
Weighted-
Average Grant-
Date Fair Value
Per Unit
2021
Weighted-
Average Grant-
Date Fair Value
Per Unit
Units
Units
2020
Weighted-
Average Grant-
Date Fair Value
Per Unit
Units
9,487 $
4,682
(3,608)
(655)
9,906 $
30.67
47.11
30.54
37.12
38.04
9,466 $
4,186
(3,432)
(733)
9,487 $
28.38
34.25
28.87
29.80
30.67
10,006 $
4,177
(4,076)
(641)
9,466 $
27.30
28.75
26.19
27.70
28.38
The following table summarizes outstanding RSUs by grant-date fair value per unit at December 31, 2022.
RSUs (in thousands)
Under $25.00
$25.01-$30.00
$30.01-$35.00
$35.01-$40.00
$40.01-$45.00
$45.01 and over
All RSUs
Outstanding RSUs
Weighted-
Average Remaining
Contractual Life
(in years)
Units
431
2,249
2,471
1,021
165
3,569
9,906
0.2
0.4
1.2
1.3
1.9
1.6
1.1
195 Fifth Third Bancorp
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Stock Options
There were no stock options granted during the years ended December 31, 2022, 2021 and 2020. The Bancorp generally utilizes the Black-
Scholes option pricing model to measure the fair value of stock option grants.
The total intrinsic value of stock options exercised was $2 million, $7 million and $3 million for the years ended December 31, 2022, 2021
and 2020, respectively. Cash received from stock options exercised was $1 million, $6 million and $5 million for the years ended
December 31, 2022, 2021 and 2020, respectively. The tax benefit realized from exercised stock options was immaterial for the year ended
December 31, 2022 and $1 million for both the years ended December 31, 2021 and 2020. An immaterial amount of stock options vested
during the years ended December 31, 2022, 2021 and 2020. As of December 31, 2022, the aggregate intrinsic value of both outstanding stock
options and exercisable stock options was $3 million.
The following table summarizes stock options activity for the years ended December 31:
Stock Options (in thousands, except per share data)
Outstanding at January 1
Exercised
Forfeited or expired
Outstanding at December 31
Exercisable at December 31
2022
2021
2020
Weighted-
Average
Exercise Price
Per Share
Number of
Options
Weighted-
Average
Exercise Price
Per Share
Number of
Options
Weighted-
Average
Exercise Price
Per Share
Number of
Options
409 $
(97)
—
312 $
312 $
21.51
21.06
—
21.65
21.65
793 $
(384)
—
409 $
386 $
20.81
20.06
—
21.51
21.31
1,381 $
(440)
(148)
793 $
725 $
20.15
17.48
23.99
20.81
20.34
The following table summarizes outstanding and exercisable stock options by exercise price per share at December 31, 2022.
Outstanding Stock Options
Exercisable Stock Options
Stock Options (in thousands, except per
share data)
Under $10.00
$10.01-$20.00
$20.01-$30.00
All stock options
Number of
Options
Weighted-
Exercise Price
Per Share
2 $
172
138
312 $
8.98
18.40
25.86
21.65
Weighted-
Average
Remaining
Contractual Life
(in years)
Number of
Options
Weighted-
Exercise Price
Per Share
Weighted-
Average
Remaining
Contractual Life
(in years)
3.6
2.2
3.0
2.6
2 $
172
138
312 $
8.98
18.40
25.86
21.65
3.6
2.2
3.0
2.6
Other Stock-Based Compensation
PSAs are payable contingent upon the Bancorp achieving certain predefined performance targets over a three-year measurement period.
Depending on performance, between zero and 1.2 million shares may be released to settle the PSAs outstanding at December 31, 2022 once
the applicable performance periods are completed. Awards granted during the years ended December 31, 2022, 2021 and 2020 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, 2022, 2021
and 2020, approximately 288 thousand, 251 thousand and 280 thousand PSAs, respectively, were granted by the Bancorp. These awards were
granted at a weighted-average grant-date fair value of $47.03, $33.53 and $29.64 per unit during the years ended December 31, 2022, 2021
and 2020, 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, 2022, 2021 and 2020, there were approximately 520 thousand, 470 thousand and
884 thousand shares, respectively, purchased by participants and the Bancorp recognized stock-based compensation expense of $2 million in
each of the respective years. As of December 31, 2022, there were approximately 2.7 million shares available for future issuance, which
represents the remaining shares of Fifth Third common stock under the Bancorp’s 1993 Stock Purchase Plan, as amended and restated,
including an additional 1.5 million shares approved by shareholders on March 28, 2007 and an additional 12 million shares approved by
shareholders on April 21, 2009.
196 Fifth Third Bancorp
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
26. Other Noninterest Income and Other Noninterest Expense
The following table presents the major components of other noninterest income and other noninterest expense for the years ended December
31:
($ in millions)
Other noninterest income:
Private equity investment income
BOLI income
Cardholder fees
Income from the TRA associated with Worldpay, Inc.
Banking center income
Equity method investment income
Consumer loan fees
Gains on contract sales
Loss on swap associated with the sale of Visa, Inc. Class B Shares
Other, net
Total other noninterest income
Other noninterest expense:
Loan and lease
FDIC insurance and other taxes
Losses and adjustments
Data processing
Travel
Professional service fees
Intangible amortization
Postal and courier
Other, net
Total other noninterest expense
2022
2021
2020
$
$
$
$
70
64
54
46
24
22
19
3
(84)
47
265
167
132
91
82
60
54
47
40
295
968
81
61
50
46
23
30
17
62
(86)
48
332
217
114
69
79
34
63
44
37
294
951
75
63
44
74
20
12
20
2
(103)
4
211
162
118
100
75
27
49
48
36
306
921
197 Fifth Third Bancorp
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
27. 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
2022
Average
Shares
Income
Per Share
Amount
Income
2021
Average
Shares
Per Share
Amount
Income
2020
Average
Shares
Per Share
Amount
$ 2,330
2
2,659
7
1,323
6
$ 2,328
689
3.38
2,652
702
3.78
1,317
715
1.84
$ 2,330
2,659
1,323
—
6
—
9
—
5
2,330
2
2,659
7
1,323
6
$ 2,328
695
3.35
2,652
711
3.73
1,317
720
1.83
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, 2022, 2021 and 2020 excludes 3 million, an immaterial amount
and 7 million shares, respectively, of stock-based awards because their inclusion would have been anti-dilutive.
198 Fifth Third Bancorp
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
28. 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, 2022 ($ 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
$
$
$
$
2,495
—
—
—
—
—
2,495
23
—
—
—
23
306
—
—
—
12
—
56
68
2,892
7
—
—
92
99
66
—
66
165
—
18
11,237
26,322
4,715
5,842
48,134
22
14
8
347
391
11
600
—
—
1,222
454
1,422
3,098
52,234
1,970
422
—
1,258
3,650
—
112
112
3,762
—
—
—
—
—
—
—
—
—
—
—
—
—
—
123
1,746
7
—
—
7
1,876
8
—
195
—
203
—
—
—
203
2,495
18
11,237
26,322
4,715
5,842
50,629
45
14
8
347
414
317
600
123
1,746
1,241
454
1,478
3,173
57,002
1,985
422
195
1,350
3,952
66
112
178
4,130
(a) Excludes FHLB, FRB and DTCC restricted stock holdings totaling $381, $491 and $2, respectively, at December 31, 2022.
Includes residential mortgage loans originated as held for sale and subsequently transferred to held for investment.
(b)
Included in other assets in the Consolidated Balance Sheets.
(c)
Included in other liabilities in the Consolidated Balance Sheets.
(d)
199 Fifth Third Bancorp
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2021 ($ 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
$
$
$
$
86
—
—
—
—
—
86
72
—
—
—
72
365
—
—
—
2
—
26
28
551
2
—
—
285
287
96
—
96
383
—
18
8,782
18,951
4,479
5,275
37,505
12
32
105
291
440
11
1,023
—
—
1,245
323
1,300
2,868
41,847
231
298
—
975
1,504
—
201
201
1,705
—
—
—
—
—
—
—
—
—
—
—
—
—
—
154
1,121
12
—
—
12
1,287
8
—
214
—
222
—
—
—
222
86
18
8,782
18,951
4,479
5,275
37,591
84
32
105
291
512
376
1,023
154
1,121
1,259
323
1,326
2,908
43,685
241
298
214
1,260
2,013
96
201
297
2,310
(a) Excludes FHLB, FRB and DTCC restricted stock holdings totaling $30, $486 and $3, respectively, at December 31, 2021.
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 which primarily utilize quoted prices of securities with similar characteristics. 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
200 Fifth Third Bancorp
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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
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 transferred from Level 2 to 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 13 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. As of December 31, 2022 and 2021, 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 18 for additional information on the Covered Litigation.
The net asset fair value of the Bancorp’s IRLCs at December 31, 2022 was $1 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 $2 million and $3 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 $2 million
and $4 million, respectively. Immediate changes in the assumed loan closing rates, either adverse or favorable, of 10% and 20% would result
in changes in the fair value of IRLCs of approximately an immaterial amount. These sensitivities are hypothetical and should be used with
caution, as changes in fair value based on a variation in assumptions typically cannot be extrapolated because the relationship of the change in
assumptions to the change in fair value may not be linear.
Short positions
Where quoted prices are available in an active market, short positions are classified within Level 1 of the valuation hierarchy. Level 1
securities include U.S. Treasury securities. If quoted market prices are not available, then fair values are estimated using pricing models
which primarily utilize quoted prices of securities with similar characteristics and therefore are classified within Level 2 of the valuation
hierarchy. Level 2 securities include asset-backed and other debt securities.
201 Fifth Third Bancorp
Table of Contents
The following tables are a reconciliation of assets and liabilities measured at fair value on a recurring basis using significant unobservable
inputs (Level 3):
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the year ended December 31, 2022 ($ in millions)
Balance, beginning of period
Total gains (losses) (realized/unrealized):(b)
Included in earnings
Purchases/originations
Settlements
Transfers into Level 3(c)
Balance, end of period
The amount of total gains (losses) for the period
included in earnings attributable to the change in
unrealized gains or losses relating to instruments
still held at December 31, 2022
Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
Residential
Mortgage
Loans
Servicing
Rights
Interest Rate
Derivatives,
Net(a)
Equity
Derivatives
Total Fair
Value
$
154
1,121
4
(214)
1,065
(18)
—
(23)
10
123
177
448
—
—
1,746
22
1
(28)
—
(1)
(84)
—
103
—
(195)
97
449
52
10
1,673
(18)
311
6
(84)
215
$
$
(a) Net interest rate derivatives include derivative assets and liabilities of $7 and $8, respectively, as of December 31, 2022.
(b) There were no unrealized gains or losses for the period included in other comprehensive income for instruments still held at December 31, 2022.
(c)
Includes certain residential mortgage loans originated as held for sale that were transferred to held for investment.
For the year ended December 31, 2021 ($ in millions)
Balance, beginning of period
Total (losses) gains (realized/unrealized):(b)
Included in earnings
Purchases/originations
Settlements
Transfers into Level 3(c)
Balance, end of period
The amount of total gains (losses) for the period
included in earnings attributable to the change in
unrealized gains or losses relating to instruments
still held at December 31, 2021
Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
Residential
Mortgage
Loans
Servicing
Rights
Interest Rate
Derivatives,
Net(a)
Equity
Derivatives
Total Fair
Value
$
161
656
53
(201)
669
(2)
—
(54)
49
154
(139)
604
—
—
1,121
153
(3)
(199)
—
4
(86)
—
73
—
(214)
(74)
601
(180)
49
1,065
(2)
78
15
(86)
5
$
$
(a) Net interest rate derivatives include derivative assets and liabilities of $12 and $8, respectively, as of December 31, 2021.
(b) There were no unrealized gains or losses for the period included in other comprehensive income for instruments still held at December 31, 2021.
(c)
Includes certain residential mortgage loans originated as held for sale that were transferred to held for investment.
For the year ended December 31, 2020 ($ in millions)
Balance, beginning of period
Total (losses) gains (realized/unrealized):(b)
Included in earnings
Purchases/originations
Settlements
Transfers into Level 3(c)
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
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 $8, respectively, as of December 31, 2020.
(b) There were no unrealized gains or losses for the period included in other comprehensive income for instruments still held at December 31, 2020.
(c)
Includes certain residential mortgage loans originated as held for sale that were transferred to held for investment.
202 Fifth Third Bancorp
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The total gains and losses included in earnings for assets and liabilities measured at fair value on a recurring basis using significant
unobservable inputs (Level 3) were recorded in the Consolidated Statements of Income for the years ended December 31, 2022, 2021 and
2020 as follows:
($ in millions)
Mortgage banking net revenue
Commercial banking revenue
Other noninterest income
Total gains (losses)
2022
2021
2020
$
$
177
4
(84)
97
9
3
(86)
(74)
(291)
2
(104)
(393)
The total gains and losses included in earnings attributable to changes in unrealized gains and losses related to Level 3 assets and liabilities
still held at December 31, 2022, 2021 and 2020 were recorded in the Consolidated Statements of Income as follows:
($ in millions)
Mortgage banking net revenue
Commercial banking revenue
Other noninterest income
Total gains (losses)
2022
2021
2020
$
$
295
4
(84)
215
88
3
(86)
5
(167)
2
(104)
(269)
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, 2022 ($ in millions)
Financial Instrument
Residential mortgage loans
Fair Value
Valuation
Technique
Significant Unobservable
Inputs
$
123 Loss rate model
Interest rate risk factor
Credit risk factor
Range of Inputs
(24.1) - 2.4%
— - 22.9%
Servicing rights
1,746 DCF
Prepayment speed
IRLCs, net
Swap associated with the sale
of Visa, Inc. Class B Shares
1 DCF
(195) 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)
— - 100.0% (Adjustable)
(Fixed)
(Adjustable)
542 - 1,513
34.7 - 97.5%
Q1 2024 - Q1 2027
Weighted-Average
(12.3) % (a)
0.5 % (a)
5.1 % (b)
20.3 % (b)
734 (b)
1,204 (b)
86.6 % (c)
Q2 2025 (d)
As of December 31, 2021 ($ in millions)
Financial Instrument
Residential mortgage loans
Fair Value
Valuation
Technique
Significant Unobservable
Inputs
$
154 Loss rate model
Interest rate risk factor
Credit risk factor
Range of Inputs
(8.5) - 8.8%
— - 28.5%
Servicing rights
1,121 DCF
Prepayment speed
IRLCs, net
Swap associated with the sale
of Visa, Inc. Class B Shares
12 DCF
(214) 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)
— - 100.0% (Adjustable)
(Fixed)
(Adjustable)
479 - 1,587
8.9 - 97.2%
Q1 2023 - Q2 2025
Weighted-Average
0.4 % (a)
0.3 % (a)
10.7 % (b)
20.6 % (b)
686 (b)
1,087 (b)
80.9 % (c)
Q1 2024 (d)
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.
203 Fifth Third Bancorp
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following tables provide the fair value hierarchy and carrying amount of all assets that were held as of December 31, 2022 and 2021, and
for which a nonrecurring fair value adjustment was recorded during the years ended December 31, 2022 and 2021, 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.
As of December 31, 2022 ($ in millions)
Commercial loans held for sale
Commercial loans and leases
Consumer and residential mortgage loans
OREO
Bank premises and equipment
Operating lease equipment
Private equity investments
Total
As of December 31, 2021 ($ in millions)
Commercial loans held for sale
Commercial loans and leases
Consumer and residential mortgage loans
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, 2022
—
—
—
—
—
—
—
—
—
—
—
—
—
—
9
9
40
162
109
3
19
1
1
335
Fair Value Measurements Using
Level 1
Level 2
Level 3
Total
—
—
—
—
—
—
—
—
—
—
—
—
—
—
1
1
2
236
125
7
11
13
14
408
40
162
109
3
19
1
10
344
2
236
125
7
11
13
15
409
(1)
(83)
1
—
(9)
(2)
(8)
(102)
Total (Losses) Gains
For the year ended
December 31, 2021
2
(29)
(1)
(6)
(6)
(21)
38
(23)
The following tables present information as of December 31, 2022 and 2021 about significant unobservable inputs related to the Bancorp’s
material categories of Level 3 financial assets and liabilities measured on a nonrecurring basis:
As of December 31, 2022 ($ in millions)
Financial Instrument
Commercial loans held for sale
Commercial loans and leases
Consumer and residential mortgage loans
OREO
Bank premises and equipment
Operating lease equipment
Private equity investments
As of December 31, 2021 ($ in millions)
Financial Instrument
Commercial loans held for sale
Commercial loans and leases
Consumer and residential mortgage loans
OREO
Bank premises and equipment
Operating lease equipment
Private equity investments
Fair Value
$
Valuation Technique
Significant Unobservable Inputs
40 Comparable company analysis Market comparable transactions
162 Appraised value
109 Appraised value
3 Appraised value
19 Appraised value
1 Appraised value
1 Comparable company analysis Market comparable transactions
Collateral value
Collateral value
Appraised value
Appraised value
Appraised value
Fair Value
$
Valuation Technique
Significant Unobservable Inputs
2 Comparable company analysis Market comparable transactions
236 Appraised value
125 Appraised value
7 Appraised value
11 Appraised value
13 Appraised value
14 Comparable company analysis Market comparable transactions
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
Ranges of
Inputs
Weighted-
Average
NM
NM
NM
NM
NM
NM
NM
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 years ended December 31, 2022 and 2021, resulting
in a negative fair value adjustment of $1 million and a positive fair value adjustment of $1 million during the years ended December 31, 2022
and 2021, respectively. 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). The Bancorp recognized losses on the sale of
204 Fifth Third Bancorp
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
certain commercial loans held for sale of an immaterial amount and gains of $1 million during the years ended December 31, 2022 and 2021,
respectively.
Portfolio loans and leases
During the years ended December 31, 2022 and 2021, the Bancorp recorded nonrecurring adjustments to certain collateral-dependent
portfolio loans and leases. When a 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 amortized cost basis of the loan or lease exceeds the estimated net realizable value of the collateral, then an ALLL is recognized, or
a charge-off once the remaining amount is considered uncollectible.
OREO
During the years ended December 31, 2022 and 2021, the Bancorp recorded nonrecurring adjustments to certain commercial and residential
real estate properties and branch-related real estate no longer intended to be used for banking purposes 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 the years ended December 31, 2022 and 2021, these losses include an immaterial amount and $5 million in losses,
respectively, recorded as charge-offs on new OREO properties transferred from loans during the respective periods and an immaterial amount
recorded as positive fair value adjustments and $1 million recorded as negative fair value adjustments for properties subsequent to their
transfer into OREO, respectively. 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 7.
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 $4 million and $41 million during the years ended December 31, 2022 and 2021, respectively,
resulting from observable price changes. The carrying value of the Bancorp’s private equity investments still held as of December 31, 2022
includes a cumulative $40 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 impairments of $12 million and $3 million during the years ended December 31, 2022 and 2021, respectively. The
carrying value of the Bancorp’s private equity investments still held as of December 31, 2022 includes a cumulative $34 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
205 Fifth Third Bancorp
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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.
Fair value changes recognized in earnings for residential mortgage loans held at December 31, 2022 and 2021 for which the fair value option
was elected, as well as the changes in fair value of the underlying IRLCs, included losses of $10 million and gains of $28 million,
respectively. These losses and 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 $1 million and an immaterial amount at December 31, 2022 and 2021, respectively. Interest on loans measured at
fair value is accrued as it is earned using the effective interest method and is reported as interest income in the Consolidated Statements of
Income.
The following table summarizes the difference between the fair value and the unpaid principal balance for residential mortgage loans
measured at fair value as of:
($ in millions)
December 31, 2022
Residential mortgage loans measured at fair value
Past due loans of 30-89 days
Nonaccrual loans
December 31, 2021
Residential mortgage loans measured at fair value
Past due loans of 90 days or more
Aggregate
Fair Value
Aggregate Unpaid
Principal Balance
Difference
$
$
723
1
2
1,177
3
733
1
2
1,149
3
(10)
—
—
28
—
The Bancorp may invest in certain hybrid financial instruments with embedded derivatives that are not clearly and closely related to the host
contracts. The Bancorp elected to measure the entire instrument at fair value with changes in fair value recognized in earnings. The Bancorp
did not hold these investments as of December 31, 2022 and the carrying value of these investments was $89 million as of December 31,
2021 and the investments were classified as trading debt securities in the Consolidated Balance Sheets. Fair value changes recognized in
earnings included gains of $11 million and losses of $3 million for the years ended December 31, 2022 and 2021, respectively, reported in
securities (losses) gains, net in the Consolidated Statements of Income.
206 Fifth Third Bancorp
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Fair Value of Certain Financial Instruments
The following tables summarize the carrying amounts and estimated fair values for certain financial instruments, excluding financial
instruments measured at fair value on a recurring basis:
As of December 31, 2022 ($ 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 loans and leases
Consumer and residential mortgage loans
Total portfolio loans and leases, net
Financial liabilities:
Deposits
Federal funds purchased
Other short-term borrowings
Long-term debt
As of December 31, 2021 ($ 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 loans and leases
Consumer and residential mortgage loans
Total portfolio loans and leases, net
Financial liabilities:
Deposits
Federal funds purchased
Other short-term borrowings
Long-term debt
Net Carrying
Amount
$
$
$
3,466
8,351
874
5
407
75,262
43,901
119,163
163,690
180
4,838
13,778
Net Carrying
Amount
$
$
$
2,994
34,572
519
8
3,392
69,166
40,838
110,004
169,324
281
980
11,425
Fair Value Measurements Using
Level 2
Level 3
Level 1
3,466
8,351
—
—
—
—
—
—
—
180
—
13,218
—
—
874
—
—
—
—
—
163,634
—
4,829
411
—
—
—
5
414
75,104
42,193
117,297
—
—
—
—
Fair Value Measurements Using
Level 2
Level 3
Level 1
2,994
34,572
—
—
—
—
—
—
—
281
—
12,091
—
—
519
—
—
—
—
—
169,316
—
980
387
—
—
—
8
3,405
69,924
41,632
111,556
—
—
—
—
Total
Fair Value
3,466
8,351
874
5
414
75,104
42,193
117,297
163,634
180
4,829
13,629
Total
Fair Value
2,994
34,572
519
8
3,405
69,924
41,632
111,556
169,316
281
980
12,478
207 Fifth Third Bancorp
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
29. 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, define and set minimum regulatory capital requirements as well as the measure of “well-capitalized” status. Additionally,
the U.S. 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 1 risk-based capital:
Fifth Third Bancorp
Fifth Third Bank, National Association
Total risk-based capital:
Fifth Third Bancorp
Fifth Third Bank, National Association
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 is subject to the stress capital
buffer requirement and must maintain capital ratios above its buffered minimum (regulatory minimum plus stress capital buffer) in order to
avoid certain limitations on capital distributions and discretionary bonuses to executive officers. The FRB uses the supervisory stress test to
determine the Bancorp’s stress capital buffer, subject to a floor of 2.5%. The Bancorp’s stress capital buffer requirement has been 2.5% since
the introduction of this framework and was most recently affirmed as part of the FRB’s 2022 supervisory stress test with an effective date of
October 1, 2022. The Bancorp’s capital ratios have exceeded the stress capital buffer requirement for all periods presented.
The Bancorp and its banking subsidiary, Fifth Third Bank, National Association, had CET1 capital, Tier 1 risk-based capital, Total risk-based
capital and Leverage ratios above the “well-capitalized” levels at both December 31, 2022 and 2021. 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 1 risk-based capital:
Fifth Third Bancorp
Fifth Third Bank, National Association
Total risk-based capital:
Fifth Third Bancorp
Fifth Third Bank, National Association
Leverage:(a)
Fifth Third Bancorp
Fifth Third Bank, National Association
2022
2021
Amount
Ratio
Amount
Ratio
$
15,670
18,952
17,786
18,952
21,606
21,463
17,786
18,952
9.28 % $
11.31
10.53
11.31
12.79
12.81
8.56
9.23
14,781
16,723
16,897
16,723
20,789
18,917
16,897
16,723
9.54 %
10.90
10.91
10.90
13.42
12.33
8.27
8.29
(a) Quarterly average assets are a component of the Leverage ratio and for this purpose do not include goodwill and any other intangible assets and other
investments that the U.S. banking agencies determine should be deducted from Tier 1 capital.
208 Fifth Third Bancorp
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
30. 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 (losses) gains, net
Interest
Total income
Expenses
Interest
Other
Total expenses
(Loss) Income Before Income Taxes and Equity in Undistributed Earnings of Subsidiaries
Applicable income tax benefit
(Loss) Income Before Equity in Undistributed Earnings of Subsidiaries
Equity in undistributed earnings
Net Income Attributable to Bancorp
Other Comprehensive Income
Comprehensive Income Attributable to Bancorp
2022
2021
2020
$
$
$
165
(9)
11
167
311
19
330
(163)
(76)
(87)
2,533
2,446
—
2,446
3,040
1
11
3,052
250
30
280
2,772
(62)
2,834
(64)
2,770
—
2,770
1,285
1
17
1,303
266
26
292
1,011
(65)
1,076
351
1,427
—
1,427
(a)
Includes dividends paid by the Bancorp’s indirect banking subsidiary to the Bancorp’s direct nonbank subsidiary holding company of $3.0 billion and $1.3 billion
for the years ended December 31, 2021 and 2020, respectively. The Bancorp’s indirect banking subsidiary did not pay dividends during the year ended
December 31, 2022.
Condensed Balance Sheets (Parent Company Only)
As of December 31 ($ in millions)
Assets
Cash
Other short-term investments
Available-for-sale debt and other securities
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 (loss) income
Treasury stock
Total Equity
Total Liabilities and Equity
2022
2021
$
$
$
$
$
$
120
5,667
1,000
34
60
20,256
80
326
27,543
121
764
9,331
10,216
2,051
2,116
3,684
21,689
(5,110)
(7,103)
17,327
27,543
122
6,234
—
49
192
23,877
80
431
30,985
361
487
7,927
8,775
2,051
2,116
3,624
20,236
1,207
(7,024)
22,210
30,985
209 Fifth Third Bancorp
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:
2022
2021
2020
$
2,446
2,770
1,427
Amortization and accretion
(Benefit from) provision for deferred income taxes
Securities losses (gains), net
Equity in undistributed earnings
Net change in:
Equity securities
Other assets
Accrued expenses and other liabilities
Net Cash (Used in) Provided by Operating Activities
Investing Activities
Purchase of securities issued by subsidiary
Net change in:
Other short-term investments
Loans to nonbank subsidiaries
Net Cash Used in Investing Activities
Financing Activities
Net change in other short-term borrowings
Proceeds from issuance of long-term debt
Repayment of long-term debt
Dividends paid on common and preferred stock
Repurchase of treasury stock and related forward contract
Issuance of preferred stock
Other, net
Net Cash Provided by (Used in) Financing Activities
(Decrease) Increase in Cash
Cash at Beginning of Period
Cash at End of Period
7
(3)
9
(2,533)
6
(115)
45
(138)
7
(1)
(1)
64
1
(40)
(80)
2,720
(1,000)
—
567
132
(301)
(240)
2,986
(1,200)
(927)
(100)
—
(82)
437
(2)
122
120
(656)
158
(498)
(89)
498
(250)
(897)
(1,393)
—
(89)
(2,220)
2
120
122
7
—
(1)
(351)
—
(1)
—
1,081
—
(855)
94
(761)
91
1,243
(1,100)
(858)
—
346
(40)
(318)
2
118
120
$
210 Fifth Third Bancorp
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
31. Business Segments
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.
During the third quarter of 2022, the Bancorp reorganized its management reporting structure and now reports on three business segments:
Commercial Banking, Consumer and Small Business Banking and Wealth and Asset Management. This reorganization primarily involved
merging the Bancorp’s previously reported Branch Banking and Consumer Lending segments and the transfer of certain portions of the
newly combined segment to the Commercial Banking segment. These portions primarily included the loans, deposits and other services
provided to relationship manager assigned lower middle-market business customers, along with the income and expenses associated with
those customers. Prior period results have been adjusted to conform to the new segment presentation.
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’s
FTP methodology was not adjusted during the years ended December 31, 2022, 2021 and 2020.
The Bancorp adjusts the FTP charge and credit rates as dictated by changes in interest rates for various interest-earning assets and interest-
bearing liabilities and by the review of behavioral assumptions, such as prepayment rates on interest-earning assets and the estimated
durations for indeterminate-lived deposits. Key assumptions, including the credit rates provided for deposit accounts, are reviewed annually.
Credit rates for deposit products and charge rates for loan products may be reset more frequently in response to changes in market conditions.
The Bancorp’s methodology for allocating provision for credit losses 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 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.
Consumer and Small Business Banking provides a full range of deposit and loan products to individuals and small businesses through a
network of full-service banking centers and relationships with indirect and correspondent loan originators in addition to providing products
designed to meet the specific needs of small businesses, including cash management services. Consumer and Small Business Banking
includes the Bancorp’s residential mortgage, home equity loans and lines of credit, credit cards, automobile and other indirect lending and
other consumer lending activities. Residential mortgage activities include the origination, retention and servicing of residential mortgage
loans, sales and securitizations of those loans and all associated hedging activities. Indirect lending activities include extending loans to
consumers through automobile dealers, motorcycle dealers, powersport dealers, recreational vehicle dealers and marine dealers. Other
consumer lending activities include home improvement and solar energy installation loans originated through a network of contractors and
installers.
Wealth and Asset Management provides a full range of wealth management services for individuals, companies and not-for-profit
organizations. Wealth and Asset Management is made up of three main businesses: FTS, an indirect wholly-owned subsidiary of the Bancorp;
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 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
211 Fifth Third Bancorp
Table of Contents
Institutional Services provides advisory services for institutional clients including middle market businesses, non-profits, states and
municipalities.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following tables present the results of operations and assets by business segment for the years ended December 31:
2022 ($ in millions)
Net interest income
Provision for credit losses
Net interest income after provision for credit
losses
Noninterest income:
Service charges on deposits
Wealth and asset management revenue
Commercial banking revenue
Card and processing revenue
Leasing business revenue
Mortgage banking net 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(d)
Equipment expense
Leasing business expense
Marketing expense
Card and processing expense
Other noninterest expense
Total noninterest expense
Income (loss) before income taxes
Applicable income tax expense (benefit)
Net income (loss)
Total goodwill
Total assets
Commercial
Banking
$
2,542
33
2,509
372
3
563
87
237 (c)
—
111
(33)
—
1,340
639
11
40
27
131
5
11
959
1,823
2,026
377
1,649
2,324
83,535
$
$
Consumer
and Small
Business
Banking
Wealth
and Asset
Management
General
Corporate
and Other
3,131
139
2,992
216
204
3
308
—
214
110
—
(2)
1,053
828
22
196
38
—
58
72
1,175
2,389
1,656
347
1,309
2,365
83,697
262
—
262
1
540
1
2
—
1
—
—
—
545
218
1
13
—
—
1
1
322
556
251
53
198
226
14,253
(326)
391
(717)
—
—
(2)
12
—
—
44
(49)
—
5
869
382
58
80
—
54
(4)
(1,311)
128
(840)
(130)
(710)
—
25,967 (e)
Eliminations
—
—
—
—
(177) (a)
—
—
—
—
—
—
—
(177)
—
—
—
—
—
—
—
(177)
(177)
—
—
—
—
—
Total
5,609
563
5,046
589
570
565
409
237
215
265
(82)
(2)
2,766
2,554
416
307
145
131
118
80
968
4,719
3,093
647
2,446
4,915
207,452
(a) Revenue sharing agreements between Wealth and Asset Management and Consumer and Small Business Banking are eliminated in the Consolidated Statements of
Income.
Includes impairment charges of $6 recorded in Consumer and Small Business Banking and $3 recorded in General Corporate and Other for bank premises and
equipment. For more information, refer to Note 7 and Note 28.
Includes impairment charges of $2 for operating lease equipment. For more information, refer to Note 8 and Note 28.
Includes impairment losses and termination charges of $2 for ROU assets related to certain operating leases. For more information, refer to Note 9.
Includes bank premises and equipment of $24 classified as held for sale. For more information, refer to Note 7.
(b)
(c)
(d)
(e)
212 Fifth Third Bancorp
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Commercial
Banking
Consumer
and Small
Business
Banking
Wealth
and Asset
Management
General
Corporate
and Other
2021 ($ in millions)
Net interest income
(Benefit from) provision for credit losses
Net interest income after (benefit from) provision
for credit losses
Noninterest income:
$
Service charges on deposits
Wealth and asset management revenue
Commercial banking revenue
Card and processing revenue
Leasing business revenue
Mortgage banking net revenue
Other noninterest income(b)
Securities (losses) gains, net
Securities losses, net -non-qualifying
hedges on MSRs
Total noninterest income
Noninterest expense:
Compensation and benefits
Technology and communications
Net occupancy expense(d)
Equipment expense
Leasing business expense
Marketing expense
Card and processing expense
Other noninterest expense
Total noninterest expense
Income before income taxes
Applicable income tax expense
Net income
Total goodwill
Total assets
$
$
1,596
(597)
2,193
385
2
633
78
300 (c)
—
91
8
—
1,497
644
17
37
26
137
7
7
898
1,773
1,917
363
1,554
1,980
75,387
1,685
120
1,565
214
206
2
312
—
267
108
—
(2)
1,107
833
16
197
38
—
41
85
1,185
2,395
277
57
220
2,303
85,455
88
(1)
89
1
558
2
2
—
3
4
—
—
570
205
1
15
—
—
2
1
316
540
119
25
94
231
13,836
1,401
101
1,300
—
—
—
10
—
—
129
(15)
—
124
944
354
63
74
—
57
(4)
(1,268)
220
1,204
302
902
—
36,438
(e)
Eliminations
—
—
—
—
(180) (a)
—
—
—
—
—
—
—
(180)
—
—
—
—
—
—
—
(180)
(180)
—
—
—
—
—
Total
4,770
(377)
5,147
600
586
637
402
300
270
332
(7)
(2)
3,118
2,626
388
312
138
137
107
89
951
4,748
3,517
747
2,770
4,514
211,116
(a) Revenue sharing agreements between Wealth and Asset Management and Consumer and Small Business Banking are eliminated in the Consolidated Statements of
Income.
Includes impairment charges of $6 recorded in Consumer and Small Business Banking and $1 recorded in General Corporate and Other for bank premises and
equipment. For more information, refer to Note 7 and Note 28.
Includes impairment charges of $25 for operating lease equipment. For more information, refer to Note 8 and Note 28.
Includes impairment losses and termination charges of $3 for ROU assets related to certain operating leases. For more information, refer to Note 9.
Includes bank premises and equipment of $24 classified as held for sale. For more information, refer to Note 7.
(b)
(c)
(d)
(e)
213 Fifth Third Bancorp
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2020 ($ 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
Wealth and asset management revenue
Commercial banking revenue
Card and processing revenue
Leasing business revenue
Mortgage banking net 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(d)
Equipment expense
Leasing business expense
Marketing expense
Card and processing expense
Other noninterest expense
Total noninterest expense
Income before income taxes
Applicable income tax expense
Net income
Total goodwill
Total assets
Commercial
Banking
$
2,009
1,086
923
358
3
527
68
276
—
101
—
(c)
—
1,333
606
13
32
27
140
9
7
975
1,809
447
49
398
1,980
71,801
$
$
Consumer
and Small
Business
Banking
Wealth
and Asset
Management
General
Corporate
and Other
1,942
229
1,713
200
172
2
269
—
315
78
—
2
1,038
821
12
185
41
—
34
116
1,090
2,299
452
95
357
2,047
77,169
139
3
136
1
498
2
2
—
5
18
—
—
526
218
1
12
1
—
2
1
298
533
129
27
102
231
12,466
692
(221)
913
—
—
(3)
13
—
—
14
62
—
86
945
336
121
61
—
59
(3)
(1,289)
230
769
199
570
—
43,244
(e)
Eliminations
—
—
—
—
(153) (a)
—
—
—
—
—
—
—
(153)
—
—
—
—
—
—
—
(153)
(153)
—
—
—
—
—
Total
4,782
1,097
3,685
559
520
528
352
276
320
211
62
2
2,830
2,590
362
350
130
140
104
121
921
4,718
1,797
370
1,427
4,258
204,680
(a) Revenue sharing agreements between Wealth and Asset Management and Consumer and Small Business Banking are eliminated in the Consolidated Statements of
Income.
Includes impairment charges of $15 recorded in Consumer and Small Business Banking and $15 recorded in General Corporate and Other for bank premises and
equipment. For more information, refer to Note 7.
Includes impairment charges of $7 for operating lease equipment. 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 9.
Includes bank premises and equipment of $35 classified as held for sale. For more information, refer to Note 7.
(b)
(c)
(d)
(e)
32. Subsequent Event
On January 20, 2023, the Bancorp entered into an accelerated share repurchase transaction with a counterparty pursuant to which the Bancorp
paid $200 million on January 24, 2023 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 30, 2023.
214 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, 2022. 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, 2022. Based on this assessment, management believes that the Bancorp maintained effective internal
control over financial reporting as of December 31, 2022. 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, 2022. This report appears on page 216 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/ Timothy N. Spence
Timothy N. Spence
/s/ James C. Leonard
James C. Leonard
President and Chief Executive Officer
Executive Vice President and Chief Financial Officer
February 24, 2023
February 24, 2023
215 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,
2022, 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, 2022, 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, 2022, of the Bancorp and our report dated February 24, 2023
expressed an unqualified opinion on those consolidated financial statements.
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 24, 2023
216 Fifth Third Bancorp
Table of Contents
ITEM 9B. OTHER INFORMATION
None.
ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTION
Not applicable.
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 2023 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 2023 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.
The information required by this item concerning Delinquent Section 16(a) Reports is incorporated herein by reference under the caption
“Delinquent Section 16(a) Reports” of the Bancorp’s Proxy Statement for the 2023 Annual Meeting of Shareholders.
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 2023
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 2023 Annual Meeting of Shareholders.
The information required by this item concerning Equity Compensation Plan information is included in Note 25 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 2023
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 2023 Annual Meeting of Shareholders. The Bancorp’s principal independent external audit firm is
Deloitte & Touche LLP, whose PCAOB Firm ID is 34.
217 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
118, 216
120
126
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
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.
3.1
3.2
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
4.18
4.19
4.20
Amended Articles of Incorporation of Fifth Third Bancorp. Incorporated by reference to Exhibit 3.1 to the Registrant’s Quarterly Report on
Form 10-Q filed with the SEC on May 7, 2021.
Regulations of Fifth Third Bancorp, as Amended as of April 12, 2022. Incorporated by reference to Exhibit 3.2 to the Registrant’s Quarterly Report
on Form 10-Q filed with the SEC on May 9, 2022.
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.
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.
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.
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.
218 Fifth Third Bancorp
Table of Contents
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
4.44
4.45
4.46
4.47
4.48
4.49
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.
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 on Form 8-K filed with the SEC on July 30, 2020.
Eleventh Supplemental Indenture dated as of November 1, 2021 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 November 1, 2021.
Form of 1.707% Fixed Rate/Floating Rate Senior Notes due 2027. Incorporated by reference to Exhibit 4.2 to the Registrant’s Current Report on
Form 8-K filed with the SEC on November 1, 2021.
Twelfth Supplemental Indenture dated as of April 25, 2022 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 April 25, 2022.
Form of 4.055% Fixed Rate/Floating Rate 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 April 25, 2022.
Form of 4.337% Fixed Rate/Floating Rate Senior Notes due 2033. Incorporated by reference to Exhibit 4.3 to the Registrant’s Current Report on
Form 8-K filed with the SEC on April 25, 2022.
Thirteenth Supplemental Indenture dated as of July 28, 2022 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, as amended by Article 4 of the
Twelfth Supplemental Indenture dated April 25, 2022 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 28, 2022.
Form of 4.772% Fixed Rate/Floating Rate Senior Notes due 2030. Incorporated by reference to Exhibit 4.2 to the Registrant’s Current Report on
Form 8-K filed with the SEC on July 28, 2022.
Fourteenth Supplemental Indenture dated as of October 27, 2022 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, as amended by Article 4 of the
Twelfth Supplemental Indenture dated April 25, 2022 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 27, 2022.
Form of 6.361% Fixed Rate/Floating Rate 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 October 27, 2022.
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. Incorporated by reference to Exhibit 4.44 to the Registrant’s Annual Report on Form 10-K filed with the SEC
on February 25, 2022.
219 Fifth Third Bancorp
Table of Contents
10.1
10.2
10.3
10.4
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
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.*
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.*
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).*
Fifth Third Bancorp 2021 Incentive Compensation Plan. Incorporated by reference to Annex A to the Registrant’s Proxy Statement filed on March
2, 2021.*
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.*
Second Amendment to the Fifth Third Bancorp Executive Change in Control Severance Plan. Incorporated by reference to Exhibit 99.2 of the
Registrant’s Current Report on Form 8-K filed on February 23, 2021.*
Fifth Third Bank, National Association Executive Severance Benefits Plan. Incorporated by reference to Exhibit 99.1 of the Registrant’s Current
Report on Form 8-K filed on February 23, 2021.*
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.*
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.*
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.*
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.**
220 Fifth Third Bancorp
Table of Contents
10.34
10.35
10.36
10.37
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
10.67
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.**
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.*
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.*
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. Incorporated by reference to Exhibit 10.63 to the Registrant’s
Annual Report on Form 10-K for the fiscal year ended December 31, 2020.*
2021 Performance Share Award Agreement. Incorporated by reference to Exhibit 10.64 to the Registrant’s Annual Report on Form 10-K for the
fiscal year ended December 31, 2020.*
2021 Restricted Stock Unit Agreement (for Executive Officers). Incorporated by reference to Exhibit 10.65 to the Registrant’s Annual Report on
Form 10-K for the fiscal year ended December 31, 2020.*
2021 Stock Appreciation Right Award Agreement (for Executive Officers). Incorporated by reference to Exhibit 10.66 to the Registrant’s Annual
Report on Form 10-K for the fiscal year ended December 31, 2020.*
2021 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 June 30, 2021.*
2021 Long-Term Incentive Compensation Program Overview February 2022 Grants. Incorporated by reference to Exhibit 10.71 to the Registrant’s
Annual Report on Form 10-K for the fiscal year ended December 31, 2021.*
2022 Performance Share Award Agreement. Incorporated by reference to Exhibit 10.72 to the Registrant’s Annual Report on Form 10-K for the
fiscal year ended December 31, 2021.*
2022 Restricted Stock Unit Agreement (for Executive Officers). Incorporated by reference to Exhibit 10.73 to the Registrant’s Annual Report on
Form 10-K for the fiscal year ended December 31, 2021.*
2022 Stock Appreciation Right Award 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, 2021.*
2022 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 June 30, 2022.
2022 Long-Term Incentive Compensation Program Overview February 2023 Grants.*
2023 Performance Share Award Agreement.*
221 Fifth Third Bancorp
Table of Contents
10.68
10.69
10.70
10.71
10.72
10.73
21
23
31(i)
31(ii)
32(i)
2023 Restricted Stock Unit Agreement (for Executive Officers).*
2023 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.***
Supplemental Confirmation dated December 6, 2022, to Master Confirmation dated July 29, 2015, for accelerated share repurchase transaction
between Fifth Third Bancorp and Morgan Stanley & Co. LLC.***
Supplemental Confirmation dated January 20, 2023, to Master Confirmation dated July 29, 2015, for accelerated share repurchase transaction
between Fifth Third Bancorp and Morgan Stanley & Co. LLC.***
Fifth Third Bancorp Subsidiaries, as of February 15, 2023.
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.
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.
222 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/ Timothy N. Spence
Timothy N. Spence
President and CEO
Principal Executive Officer
February 24, 2023
Pursuant to requirements of the Securities Exchange Act of 1934,
this report has been signed on February 24, 2023 by the
following persons on behalf of the Registrant and in the
capacities indicated.
OFFICERS:
/s/ Timothy N. Spence
Timothy N. Spence
President 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
Executive Vice President and Controller
Principal Accounting Officer
DIRECTORS:
/s/ Greg D. Carmichael
Greg D. Carmichael
Executive Chairman
/s/ Nicholas K. Akins
Nicholas K. Akins
Lead Independent Director
/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/ Linda W. Clement-Holmes
Linda W. Clement-Holmes
/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/ Jewell D. Hoover
Jewell D. Hoover
/s/ Eileen A. Mallesch
Eileen A. Mallesch
/s/ Michael B. McCallister
Michael B. McCallister
/s/ Timothy N. Spence
Timothy N. Spence
/s/ Marsha C. Williams
Marsha C. Williams
223 Fifth Third Bancorp
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
$
120,561
114,117
114,411
107,794
93,876
92,731
94,320
93,339
91,127
89,093
12,419
33,243
21,935
2,140
1,476
1,390
1,866
3,258
3,043
2,417
53,346
37,018
36,342
35,470
33,553
32,172
30,099
26,987
21,823
16,444
186,326
184,378
172,688
145,404
128,905
126,293
126,285
123,584
115,993
107,954
3,093
3,055
2,978
2,748
2,200
2,224
2,303
2,608
2,892
2,482
19,490
21,050
20,933
16,903
12,203
13,236
14,870
15,100
14,443
15,025
AVERAGE DEPOSITS AND SHORT-TERM BORROWINGS FOR THE YEARS ENDED DECEMBER 31 ($ IN MILLIONS)
Demand
Interest
Checking
Savings
Money
Market
Certificates of
Deposit(a)
Foreign Office and
Other
Total
Deposits
$
60,185
62,028
47,111
34,343
32,634
35,093
35,862
35,164
31,755
29,925
45,835
45,850
46,890
36,658
29,818
26,382
25,143
26,160
25,382
23,582
23,445
20,531
16,440
14,041
13,330
13,958
14,346
14,951
16,080
18,440
29,326
30,631
29,879
25,879
21,769
20,231
19,523
18,152
14,670
9,467
4,030
3,744
7,455
9,974
6,532
6,335
6,745
6,920
7,691
10,099
170
164
256
474
839
665
830
874
1,828
1,518
162,991
162,948
148,031
121,369
104,922
102,664
102,449
102,221
97,406
93,031
Short-Term
Borrowings(b)
4,925
1,440
2,094
2,313
3,120
3,715
3,351
2,641
2,331
3,527
INCOME FOR THE YEARS ENDED DECEMBER 31 ($ IN MILLIONS, EXCEPT PER SHARE DATA)
Per Share
206,929
206,324
194,230
163,936
142,183
140,527
142,173
139,999
131,847
123,704
Total
167,916
164,388
150,125
123,682
108,042
106,379
105,800
104,862
99,737
96,558
Interest Income
6,587
$
5,211
5,572
6,254
5,183
4,489
4,193
4,028
4,030
3,973
Interest
Expense
Noninterest
Income
Noninterest
Expense
Net Income Available
to Common
Shareholders
Earnings
Diluted
Earnings
Dividends
Declared
978
441
790
1,457
1,043
691
578
495
451
412
2,766
3,118
2,830
3,536
2,790
3,224
2,696
3,003
2,473
3,227
4,719
4,748
4,718
4,660
3,958
3,782
3,737
3,643
3,619
3,978
2,330
2,659
1,323
2,419
2,118
2,105
1,472
1,610
1,384
1,799
3.38
3.78
1.84
3.38
3.11
2.86
1.92
2.00
1.65
2.05
3.35
3.73
1.83
3.33
3.06
2.81
1.91
1.97
1.63
2.02
1.26
1.14
1.08
0.94
0.74
0.60
0.53
0.52
0.51
0.47
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
(Loss) Income
Treasury
Stock
Total
Book Value
Per Share
683,385,880 $
682,777,664
712,760,325
708,915,629
646,630,857
693,804,893
750,479,299
785,080,314
824,046,952
855,305,745
2,051
2,051
2,051
2,051
2,051
2,051
2,051
2,051
2,051
2,051
2,116
2,116
2,116
1,770
1,331
1,331
1,331
1,331
1,331
1,034
3,684
3,624
3,635
3,599
2,873
2,790
2,756
2,666
2,646
2,561
21,689
20,236
18,384
18,315
16,578
14,957
13,290
12,224
11,034
10,156
(5,110)
1,207
2,601
1,192
(112)
73
59
197
429
82
(7,103) 17,327
(7,024) 22,210
(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
Allowance for
Loan and
Lease Losses
2,194
1,892
2,453
1,202
1,103
1,196
1,253
1,272
1,322
1,582
22.26
29.43
29.46
27.41
23.07
21.43
19.62
18.31
17.22
15.85
Year
2022
2021
2020
2019
2018
2017
2016
2015
2014
2013
Year
2022
2021
2020
2019
2018
2017
2016
2015
2014
2013
Year
2022
2021
2020
2019
2018
2017
2016
2015
2014
2013
Year
2022
2021
2020
2019
2018
2017
2016
2015
2014
2013
(a) Includes CDs $250,000 or less and CDs over $250,000.
(b) Includes federal funds purchased and other short-term borrowings.
224 Fifth Third Bancorp
Table of Contents
FIFTH THIRD BANCORP DIRECTORS
Greg D. Carmichael
Executive Chairman
Fifth Third Bancorp
Nicholas K. Akins, Lead Director
Executive Chair
American Electric Power Company
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.
DIRECTORS AND OFFICERS
FIFTH THIRD BANCORP OFFICERS
Timothy N. Spence
President & Chief Executive Officer
Greg D.Carmichael
Executive Chairman
Kristine R. Garrett
Executive Vice President,
Group Regional President &
Head of Wealth & Asset Management
Kala J. Gibson
Executive Vice President &
Chief Corporate Responsibility Officer
Howard Hammond
Executive Vice President &
Head of Consumer Bank
Emerson L. Brumback
Retired President & Chief Operating Officer
M&T Bank
Mark D. Hazel
Executive Vice President &
Controller
Linda W. Clement-Holmes
Retired Chief Information Officer
The Procter & Gamble Company
C. Bryan Daniels
Founding Partner
Prairie Capital
Mitchell S. Feiger
Retired CEO and President
MB Financial, Inc.
Kevin P. Lavender
Executive Vice President &
Head of Commercial Bank
James C. Leonard
Executive Vice President &
Chief Financial Officer
Nancy C. Pinckney
Executive Vice President &
Chief Human Resource Officer
Thomas H. Harvey
Chief Executive Officer
Energy Innovation: Policy and Technology, LLC
Jude A. Schramm
Executive Vice President &
Chief Information Officer
Gary R. Heminger
Retired Chief Executive Officer & Chairman
Marathon Petroleum Corporation
Robert P. Shaffer
Executive Vice President &
Chief Risk Officer
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
Richard L. Stein
Executive Vice President &
Chief Credit Officer
Melissa S. Stevens
Executive Vice President &
Chief Marketing Officer
Michael B. McCallister
Retired Chairman & Chief Executive Officer
Humana, Inc.
Susan B. Zaunbrecher
Executive Vice President &
Chief Legal Officer
Timothy N. Spence
President & Chief Executive Officer
Fifth Third Bancorp
Marsha C. Williams
Retired Chief Financial Officer
Orbitz Worldwide, Inc
REGIONAL PRESIDENTS
Michael Ash
David Briggs
Timothy Elsbrock
Lee Fite
David Girodat
Kimberly Halbauer
Mark Heckler
Francie Henry
Randy Koporc
Tom Partridge
Cary Putrino
Jim Weiss
Thomas G. Welch, Jr.
Joseph Yurosek
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
Thomas H. Harvey
Eileen A. Mallesch
Michael B. McCallister
Marsha C. Williams
Human Capital and Compensation
Committee
Michael B. McCallister, Chair
Nicholas K. Akins
Emerson L. Brumback
Gary R. Heminger
Eileen A. Mallesch
Marsha C. Williams
Nominating and Corporate
Governance Committee
Thomas H. Harvey, Chair
Nicholas K. Akins
B. Evan Bayh, III
Jorge L. Benitez
Katherine B. Blackburn
Marsha C. Williams
Risk and Compliance Committee
Emerson L. Brumback, Chair
Linda W. Clement-Holmes
C. Bryan Daniels
Gary R. Heminger
Jewell D. Hoover
Eileen A. Mallesch
Technology Committee
Jorge L. Benitez, Chair
B. Evan Bayh, III
Linda W. Clement-Holmes
C. Bryan Daniels
Thomas H. Harvey
225 Fifth Third Bancorp