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FIFTH THIRD BANCORP - Quarter Report: 2022 March (Form 10-Q)

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended March 31, 2022
Commission File Number 001-33653

fitb-20220331_g1.jpg
(Exact name of Registrant as specified in its charter)
Ohio
31-0854434
(State or other jurisdiction(I.R.S. Employer
of incorporation or organization) Identification Number)
38 Fountain Square Plaza
Cincinnati, Ohio 45263
(Address of principal executive offices)
Registrant’s telephone number, including area code: (800) 972-3030
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 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 the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):
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 is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No

Securities registered pursuant to Section 12(b) of the Act:
Title of each class Trading
Symbol(s)
 Name of each exchange
on which registered:
Common Stock, Without Par Value FITB The NASDAQ Stock Market LLC
Depositary Shares Representing a 1/1000th Ownership Interest in a Share of   
6.625% Fixed-to-Floating Rate Non-Cumulative Perpetual Preferred Stock, Series IFITBIThe 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 AFITBPThe NASDAQ Stock Market LLC
Depositary Shares Representing a 1/1000th Ownership Interest in a Share of   
4.95% Non-Cumulative Perpetual Preferred Stock, Series KFITBOThe NASDAQ Stock Market LLC
There were 686,087,463 shares of the Registrant’s common stock, without par value, outstanding as of April 30, 2022.


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FINANCIAL CONTENTS
Part I. Financial Information
Part II. Other Information

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 our most recent Annual Report on Form 10-K, as updated by our Quarterly Reports on Form 10-Q. When considering these forward-looking statements, you should keep in mind these risks and uncertainties, as well as any cautionary statements we may make. Moreover, you should treat these statements as speaking only as of the date they are made and based only on information then actually known to us. We undertake no obligation to release revisions to these forward-looking statements or reflect events or circumstances after the date of this document. There are a number of important factors that could cause future results to differ materially from historical performance and these forward-looking statements. Factors that might cause such a difference include, but are not limited to: (1) effects of the global COVID-19 pandemic; (2) deteriorating credit quality; (3) loan concentration by location or industry of borrowers or collateral; (4) problems encountered by other financial institutions; (5) inadequate sources of funding or liquidity; (6) unfavorable actions of rating agencies; (7) inability to maintain or grow deposits; (8) limitations on the ability to receive dividends from subsidiaries; (9) cyber-security risks; (10) Fifth Third’s ability to secure confidential information and deliver products and services through the use of computer systems and telecommunications networks; (11) failures by third-party service providers; (12) inability to manage strategic initiatives and/or organizational changes; (13) inability to implement technology system enhancements; (14) failure of internal controls and other risk management systems; (15) losses related to fraud, theft, misappropriation or violence; (16) inability to attract and retain skilled personnel; (17) adverse impacts of government regulation; (18) governmental or regulatory changes or other actions; (19) failures to meet applicable capital requirements; (20) regulatory objections to Fifth Third’s capital plan; (21) regulation of Fifth Third’s derivatives activities; (22) deposit insurance premiums; (23) assessments for the orderly liquidation fund; (24) replacement of LIBOR; (25) weakness in the national or local economies; (26) global political and economic uncertainty or negative actions; (27) changes in interest rates; (28) changes and trends in capital markets; (29) fluctuation of Fifth Third’s stock price; (30) volatility in mortgage banking revenue; (31) litigation, investigations, and enforcement proceedings by governmental authorities; (32) breaches of contractual covenants, representations and warranties; (33) competition and changes in the financial services industry; (34) changing retail distribution strategies, customer preferences and behavior; (35) difficulties in identifying, acquiring or integrating suitable strategic partnerships, investments or acquisitions; (36) potential dilution from future acquisitions; (37) loss of income and/or difficulties encountered in the sale and separation of businesses, investments or other assets; (38) results of investments or acquired entities; (39) changes in accounting standards or interpretation or declines in the value of Fifth Third’s goodwill or other intangible assets; (40) inaccuracies or other failures from the use of models; (41) effects of critical accounting policies and judgments or the use of inaccurate estimates; (42) weather-related events, other natural disasters, or health emergencies (including pandemics); (43) the impact of reputational risk created by these or other developments on such matters as business generation and retention, funding and liquidity; (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 sustainability 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.
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PART I. FINANCIAL INFORMATION
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 Condensed Consolidated Financial Statements and the Notes to Condensed Consolidated Financial Statements.
ACL: Allowance for Credit Losses
GDP: Gross Domestic Product
AFS: Available-For-Sale
GNMA: Government National Mortgage Association
ALCO: Asset Liability Management Committee
GSE: United States Government Sponsored Enterprise
ALLL: Allowance for Loan and Lease Losses
HTM: Held-To-Maturity
AOCI: Accumulated Other Comprehensive Income (Loss)
IPO: Initial Public Offering
APR: Annual Percentage Rate
IRC: Internal Revenue Code
ARM: Adjustable Rate Mortgage
IRLC: Interest Rate Lock Commitment
ASC: Accounting Standards Codification
ISDA: International Swaps and Derivatives Association, Inc.
ASU: Accounting Standards Update
LIBOR: London Interbank Offered Rate
ATM: Automated Teller Machine
LIHTC: Low-Income Housing Tax Credit
BHC: Bank Holding Company
LLC: Limited Liability Company
BOLI: Bank Owned Life Insurance
LTV: Loan-to-Value Ratio
bps: Basis Points
MD&A: Management’s Discussion and Analysis of Financial
CD: Certificate of Deposit
Condition and Results of Operations
CDC: Fifth Third Community Development Corporation
MSR: Mortgage Servicing Right
CECL: Current Expected Credit Loss
N/A: Not Applicable
CET1: Common Equity Tier 1
NII: Net Interest Income
CFPB: United States Consumer Financial Protection Bureau
NM: Not Meaningful
C&I: Commercial and Industrial
OAS: Option-Adjusted Spread
DCF: Discounted Cash Flow
OCC: Office of the Comptroller of the Currency
DTCC: Depository Trust & Clearing Corporation
OCI: Other Comprehensive Income (Loss)
DTI: Debt-to-Income Ratio
OREO: Other Real Estate Owned
ERM: Enterprise Risk Management
PPP: Paycheck Protection Program
ERMC: Enterprise Risk Management Committee
ROU: Right-of-Use
EVE: Economic Value of Equity
SBA: Small Business Administration
FASB: Financial Accounting Standards Board
SEC: United States Securities and Exchange Commission
FDIC: Federal Deposit Insurance Corporation
SOFR: Secured Overnight Financing Rate
FHA: Federal Housing Administration
TBA: To Be Announced
FHLB: Federal Home Loan Bank
TDR: Troubled Debt Restructuring
FHLMC: Federal Home Loan Mortgage Corporation
TILA: Truth in Lending Act
FICO: Fair Isaac Corporation (credit rating)
U.S.: United States of America
FINRA: Financial Industry Regulatory Authority
USD: United States Dollar
FNMA: Federal National Mortgage Association
U.S. GAAP: United States Generally Accepted Accounting
FOMC: Federal Open Market Committee
Principles
FRB: Federal Reserve Bank
VA: United States Department of Veterans Affairs
FTE: Fully Taxable Equivalent
VIE: Variable Interest Entity
FTP: Funds Transfer Pricing
VRDN: Variable Rate Demand Note
FTS: Fifth Third Securities, Inc.


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Management’s Discussion and Analysis of Financial Condition and Results of Operations (Item 2)
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 Condensed 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
Fifth Third Bancorp is a diversified financial services company headquartered in Cincinnati, Ohio. At March 31, 2022, the Bancorp had $211 billion in assets and operated 1,079 full-service banking centers and 2,201 Fifth Third branded ATMs in eleven states throughout the Midwestern and Southeastern regions of the U.S. The Bancorp reports on four business segments: Commercial Banking, Branch Banking, Consumer Lending and Wealth and Asset Management.

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 as well as the Bancorp’s Annual Report on Form 10-K for the year ended December 31, 2021. 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 Quarterly Report on Form 10-Q. The abbreviations and acronyms identified therein are used throughout this MD&A, as well as the Condensed Consolidated Financial Statements and Notes to Condensed 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 three months ended March 31, 2022, net interest income on an FTE basis and noninterest income provided 64% and 36% 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 Condensed Consolidated Financial Statements for the three months ended March 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.

COVID-19 Global Pandemic
The COVID-19 pandemic created significant economic uncertainty and financial disruptions during the years ended December 31, 2021 and 2020, and this uncertainty has continued into 2022. Government and public responses to the COVID-19 pandemic, including temporary closures of businesses and the implementation of social distancing protocols, caused reductions and instability in economic activity that resulted in increased unemployment levels in certain industries and volatility in the financial markets. Markets continue to remain volatile as a result of the pandemic and its evolving impacts, including inflationary concerns as well as stresses in labor markets and supply chains. During the years ended December 31, 2021 and 2020, low interest rates, reduced economic activity and market volatility had the most immediate negative impacts on the Bancorp’s performance. The Bancorp is unable to estimate the extent of the impact that these factors have had on its operating results since the pandemic began and these factors may adversely impact its future operating results.
3


Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)

Although the increased availability of COVID-19 vaccinations began to mitigate the public health effects of the pandemic, there has been a rise of certain variants of COVID-19 and slowing progress on vaccination rates. The recovery from the related economic crisis disproportionately affected certain industries, geographies and demographics more than others, and when combined with the unprecedented nature of the government response to the pandemic, it becomes difficult to predict the extent to which the pandemic will continue to adversely impact the Bancorp and its customers. Furthermore, resurgence risk remains as new virus variants are identified. The Bancorp continues to closely monitor the pandemic and its effects on customers, employees, communities and markets. For further discussion on current economic conditions, refer to the Credit Risk Management subsection of the Risk Management section of MD&A.

LIBOR Transition
In July 2017, the Chief Executive of the United Kingdom Financial Conduct Authority (the “FCA”), which regulates LIBOR, announced that the FCA will stop persuading or compelling banks to submit rates for the calculation of LIBOR to the administrator of LIBOR after 2021. Since then, central banks around the world, including the Federal Reserve, have commissioned working groups of market participants and official sector representatives with the goal of finding suitable replacements for LIBOR.

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 Federal Reserve Board recommendations. The Federal Reserve Board is required to promulgate regulations carrying out the terms of the LIBOR Act not later than 180 days following its enactment.

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.

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 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 March 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 $103 billion, loans outstanding of approximately $47 billion, preferred stock of approximately $1.4 billion and long-term debt of approximately $237 million. The Bancorp currently estimates that approximately 20% 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 be amended prior to June 30, 2023 to include such terms or transition to an alternative reference rate.

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 the Bancorp’s Annual Report on Form 10-K for the year ended December 31, 2021.

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.
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Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)

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
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.
TABLE 1: Earnings Summary
For the three months ended
March 31,
%
($ in millions, except for per share data)20222021Change
Income Statement Data
Net interest income (U.S. GAAP)$1,195 1,176 2
Net interest income (FTE)(a)(b)
1,198 1,179 2
Noninterest income684 749 (9)
Total revenue (FTE)(a)(b)
1,882 1,928 (2)
Provision for (benefit from) credit losses45 (173)NM
Noninterest expense1,222 1,215 1
Net income494 694 (29)
Net income available to common shareholders474 674 (30)
Common Share Data
Earnings per share - basic$0.69 0.94 (27)
Earnings per share - diluted0.68 0.93 (27)
Cash dividends declared per common share0.30 0.27 11
Book value per share26.33 28.78 (9)
Market value per share43.04 37.45 15
Financial Ratios
Return on average assets0.96 %1.38 (30)
Return on average common equity10.0 13.1 (24)
Return on average tangible common equity(b)
13.4 16.8 (20)
Dividend payout43.5 28.7 52
(a)Amounts presented on an FTE basis. The FTE adjustments were $3 for both the three months ended March 31, 2022 and 2021.
(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 first quarter of 2022 was $474 million, or $0.68 per diluted share, which was net of $20 million in preferred stock dividends. The Bancorp’s net income available to common shareholders for the first quarter of 2021 was $674 million, or $0.93 per diluted share, which was net of $20 million in preferred stock dividends.

Net interest income on an FTE basis (non-GAAP) was $1.2 billion for the three months ended March 31, 2022, an increase of $19 million compared to the same period in the prior year. Net interest income benefited from an increase in average interest-earning assets, primarily due to increases in average taxable securities, average indirect secured consumer loans and average commercial and industrial loans for the three months ended March 31, 2022. Net interest income also benefited from a decrease in average long-term debt for the three months ended
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Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)
March 31, 2022 compared to the same period in the prior year. These benefits were partially offset by the impact of lower market rates, resulting in a decrease in yields on average loans and leases primarily driven by decreases in yields on average commercial and industrial loans, average indirect secured consumer loans and average residential mortgage loans. Interest income recognized from PPP loans decreased to $20 million for the three months ended March 31, 2022 compared to $53 million for the same period in the prior year. Net interest margin on an FTE basis (non-GAAP) was 2.59% for the three months ended March 31, 2022 compared to 2.62% for the comparable period in the prior year.

The provision for credit losses was $45 million for the three months ended March 31, 2022 compared to a benefit from credit losses of $173 million during the same period in the prior year. The increase in provision expense for the three months ended March 31, 2022 was primarily driven by factors that caused an increase in the ACL from December 31, 2021 including higher end-of-period commercial and consumer loan balances, partially offset by improvements in commercial credit quality. Net losses charged off as a percent of average portfolio loans and leases were 0.12% and 0.27% for the three months ended March 31, 2022 and 2021, respectively. At March 31, 2022, nonperforming portfolio assets as a percent of portfolio loans and leases and OREO increased to 0.49% 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 Condensed Consolidated Financial Statements.

Noninterest income decreased $65 million for the three months ended March 31, 2022 compared to the same period in the prior year primarily due to decreases in mortgage banking net revenue, leasing business revenue and commercial banking revenue, partially offset by increases in other noninterest income, service charges on deposits and wealth and asset management revenue.

Noninterest expense increased $7 million for the three months ended March 31, 2022 compared to the same period in the prior year primarily due to increases in technology and communications expense, other noninterest expense and compensation and benefits, partially offset by a decrease in card and processing expense.

For more information on net interest income, noninterest income and noninterest expense refer to the Statements of Income Analysis section of MD&A.

Capital Summary
The Bancorp calculated its regulatory capital ratios under the Basel III standardized approach to risk-weighting of assets and pursuant to the five-year transition provision option to phase in the effects of CECL on regulatory capital as of March 31, 2022. As of March 31, 2022, the Bancorp’s capital ratios, as defined by the U.S. banking agencies, were:
CET1 capital ratio: 9.31%;
Tier 1 risk-based capital ratio: 10.63%;
Total risk-based capital ratio: 12.93%;
Leverage ratio: 8.32%.
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Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)
NON-GAAP FINANCIAL MEASURES
The following are non-GAAP financial measures which provide useful insight to the reader of the Condensed 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 Condensed 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 three months ended
March 31,
($ in millions)20222021
Net interest income (U.S. GAAP)$1,195 1,176 
Add: FTE adjustment3 
Net interest income on an FTE basis (1)$1,198 1,179 
Net interest income on an FTE basis (annualized) (2)4,859 4,782 
Interest income (U.S. GAAP)$1,289 1,302 
Add: FTE adjustment3 
Interest income on an FTE basis$1,292 1,305 
Interest income on an FTE basis (annualized) (3)5,240 5,293 
Interest expense (annualized) (4)$381 511 
Noninterest income (5)684 749 
Noninterest expense (6)1,222 1,215 
Average interest-earning assets (7)187,894 182,715 
Average interest-bearing liabilities (8)116,764 116,684 
Ratios:
Net interest margin on an FTE basis (2) / (7)2.59 %2.62 
Net interest rate spread on an FTE basis ((3) / (7)) - ((4) / (8))2.46 2.46 
Efficiency ratio on an FTE basis (6) / ((1) + (5))64.9 63.0 
The Bancorp believes return on average tangible common equity is an important measure for comparative purposes with other financial institutions, but is not defined under U.S. GAAP, and therefore is considered a non-GAAP financial measure. This measure is useful for evaluating the performance of a business as it calculates the return available to common shareholders without the impact of intangible assets and their related amortization.

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Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)
The following table reconciles the non-GAAP financial measure of return on average tangible common equity to U.S. GAAP:
TABLE 3: Non-GAAP Financial Measures - Return on Average Tangible Common Equity
For the three months ended
March 31,
($ in millions)
20222021
Net income available to common shareholders (U.S. GAAP)$474 674 
Add: Intangible amortization, net of tax9 
Tangible net income available to common shareholders$483 683 
Tangible net income available to common shareholders (annualized) (1)1,959 2,770 
Average Bancorp shareholders’ equity (U.S. GAAP)$21,402 22,952 
Less: Average preferred stock2,116 2,116 
Average goodwill4,514 4,259 
Average intangible assets150 133 
Average tangible common equity (2)$14,622 16,444 
Return on average tangible common equity (1) / (2)13.4 %16.8 

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 4: Non-GAAP Financial Measures - Capital Ratios
As of ($ in millions)March 31,
2022
December 31,
2021
Total Bancorp Shareholders’ Equity (U.S. GAAP)$20,177 22,210 
Less: Preferred stock2,116 2,116 
Goodwill4,514 4,514 
Intangible assets145 156 
AOCI(1,096)1,207 
Tangible common equity, excluding AOCI (1)$14,498 14,217 
Add: Preferred stock2,116 2,116 
Tangible equity (2)$16,614 16,333 
Total Assets (U.S. GAAP)$211,459 211,116 
Less: Goodwill4,514 4,514 
Intangible assets145 156 
AOCI, before tax(1,387)1,528 
Tangible assets, excluding AOCI (3)$208,187 204,918 
Ratios:
Tangible equity as a percentage of tangible assets (2) / (3)7.98  %7.97 
Tangible common equity as a percentage of tangible assets (1) / (3)6.96 6.94 

8


Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)
RECENT ACCOUNTING STANDARDS
Note 3 of the Notes to Condensed Consolidated Financial Statements provides a discussion of the significant new accounting standard applicable to the Bancorp and the expected impact of significant accounting standards issued, but not yet required to be adopted.

CRITICAL ACCOUNTING POLICIES
The Bancorp’s Condensed 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. These accounting policies are discussed in detail in the Critical Accounting Policies section of the Bancorp’s Annual Report on Form 10-K for the year ended December 31, 2021. There have been no material changes to the valuation techniques or models during the three months ended March 31, 2022.


9


Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)
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 (including transaction deposits and CDs $250,000 or less) and wholesale funding (including CDs over $250,000, other deposits, federal funds purchased, other short-term borrowings and long-term debt). The net interest margin is calculated by dividing net interest income by average interest-earning assets. Net interest rate spread is the difference between the average yield earned on interest-earning assets and the average rate paid on interest-bearing liabilities. Net interest margin is typically greater than net interest rate spread due to the interest income earned on those assets that are funded by noninterest-bearing liabilities, or free funding, such as demand deposits or shareholders’ equity.

Table 5 presents the components of net interest income, net interest margin and net interest rate spread for the three months ended March 31, 2022 and 2021, 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 $1.2 billion for the three months ended March 31, 2022, an increase of $19 million compared to the same period in the prior year. Net interest income benefited from an increase in average interest-earning assets, primarily due to increases in average taxable securities, average indirect secured consumer loans and average commercial and industrial loans of $5.6 billion, $3.2 billion and $2.8 billion, respectively, for the three months ended March 31, 2022 compared to the same period in the prior year. Net interest income also benefited from a decrease in average long-term debt of $3.7 billion for the three months ended March 31, 2022 compared to the same period in the prior year. These benefits were partially offset by the impact of lower market rates as compared to the three months ended March 31, 2021. Yields on total average loans and leases decreased 27 bps from the three months ended March 31, 2021 primarily as a result of decreases in yields on average commercial and industrial loans, average indirect secured consumer loans and average residential mortgage loans of 31 bps, 50 bps and 19 bps, respectively. Interest income recognized from PPP loans decreased to $20 million for the three months ended March 31, 2022 compared to $53 million for the same period in the prior year.

Net interest rate spread on an FTE basis (non-GAAP) was 2.46% during both the three months ended March 31, 2022 and 2021. Yields on average interest-earning assets decreased 11 bps, offset by a decrease in rates paid on average interest-bearing liabilities of 11 bps for the three months ended March 31, 2022 compared to the three months ended March 31, 2021.

Net interest margin on an FTE basis (non-GAAP) was 2.59% for the three months ended March 31, 2022 compared to 2.62% for the comparable period in the prior year. Net interest margin for the three months ended March 31, 2022 was negatively impacted by the aforementioned impacts of lower market rates on loans and leases, partially offset by an increase in the rate earned on excess reserves included in other short-term investments for the three months ended March 31, 2022 compared to the same period in the prior year. Net interest margin results are expected to increase as rates rise and short-term investments continue to be reallocated into assets with longer durations.

Interest income on an FTE basis (non-GAAP) from loans and leases decreased $47 million during the three months ended March 31, 2022 compared to the three months ended March 31, 2021 primarily driven by lower income from PPP loans and the previously mentioned impacts of lower market rates, partially offset by the previously mentioned increases in average indirect secured consumer loans and average commercial and industrial 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 $34 million during the three months ended March 31, 2022 compared to the three months ended March 31, 2021 primarily due to the previously mentioned increase in average taxable securities, partially offset by a decrease in yields on taxable securities.

Interest expense on core deposits decreased $7 million for the three months ended March 31, 2022 compared to the three months ended March 31, 2021 primarily due to a decrease in the cost of average interest-bearing core deposits to 4 bps for the three months ended March 31, 2022 from 7 bps for the three months ended March 31, 2021. Refer to the Deposits subsection of the Balance Sheet Analysis section of MD&A for additional information on the Bancorp’s deposits.

Interest expense on average wholesale funding decreased $25 million for the three months ended March 31, 2022 compared to the three months ended March 31, 2021 primarily due to a decrease in the average balance of long-term debt partially offset by an increase in the rates paid on average long-term debt. Refer to the Borrowings subsection of the Balance Sheet Analysis section of MD&A for additional information on the Bancorp’s borrowings. During the three months ended March 31, 2022, average wholesale funding represented 11% of average interest-bearing liabilities, compared to 15% for the three months ended March 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.

10


Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)
TABLE 5: Condensed Average Balance Sheets and Analysis of Net Interest Income on an FTE Basis
For the three months endedMarch 31, 2022March 31, 2021
Attribution of Change in
Net Interest Income(a)
($ in millions)Average BalanceRevenue/
Cost
Average Yield/ RateAverage BalanceRevenue/
Cost
Average Yield/ RateVolumeYield/ RateTotal
Assets:
Interest-earning assets:
Loans and leases:(b)
Commercial and industrial loans$52,562 427 3.29 %$49,715 441 3.60 %$25 (39)(14)
Commercial mortgage loans10,529 78 3.00 10,534 80 3.06 — (2)(2)
Commercial construction loans5,371 44 3.29 6,039 48 3.20 (5)(4)
Commercial leases2,943 21 2.85 3,130 24 3.17 (1)(2)(3)
Total commercial loans and leases$71,405 570 3.23 $69,418 593 3.46 $19 (42)(23)
Residential mortgage loans20,179 158 3.17 20,444 170 3.36 (2)(10)(12)
Home equity4,010 35 3.52 5,009 44 3.58 (8)(1)(9)
Indirect secured consumer loans17,136 130 3.08 13,955 123 3.58 26 (19)
Credit card1,691 51 12.31 1,879 57 12.36 (6)— (6)
Other consumer loans2,741 41 6.08 2,996 45 6.12 (4)— (4)
Total consumer loans$45,757 415 3.68 $44,283 439 4.02 $(30)(24)
Total loans and leases$117,162 985 3.41 %$113,701 1,032 3.68 %$25 (72)(47)
Securities:
Taxable41,412 289 2.84 35,764 262 2.97 39 (12)27 
Exempt from income taxes(b)
1,010 6 2.40 533 2.26 — 
Other short-term investments28,310 12 0.18 32,717 0.10 (1)
Total interest-earning assets$187,894 1,292 2.79 %$182,715 1,305 2.90 %$66 (79)(13)
Cash and due from banks2,962 2,991 
Other assets20,186 20,580 
Allowance for loan and lease losses(1,892)(2,450)
Total assets
$209,150 $203,836 
Liabilities and Equity:
Interest-bearing liabilities:
Interest checking deposits$48,659 6 0.05 %$45,568 0.07 %$(2)(1)
Savings deposits22,772 1 0.02 18,951 0.03 — — — 
Money market deposits30,263 2 0.03 30,601 0.05 — (2)(2)
Foreign office deposits126  0.04 128 — 0.05 — — — 
CDs $250,000 or less2,376 1 0.12 3,828 0.50 (1)(3)(4)
Total interest-bearing core deposits$104,196 10 0.04 $99,076 17 0.07 $— (7)(7)
CDs over $250,000254 1 0.85 1,226 1.31 (2)(1)(3)
Federal funds purchased259  0.15 324 — 0.13 — — — 
Securities sold under repurchase agreements491  0.01 663 — 0.04 — — — 
Derivative collateral and other secured borrowings399  0.31 546 0.48 (1)— (1)
Long-term debt11,165 83 3.02 14,849 104 2.83 (27)(21)
Total interest-bearing liabilities$116,764 94 0.33 %$116,684 126 0.44 %$(30)(2)(32)
Demand deposits64,212 58,586 
Other liabilities6,772 5,614 
Total liabilities$187,748 $180,884 
Total equity$21,402 $22,952 
Total liabilities and equity$209,150 $203,836 
Net interest income (FTE)(c)
$1,198 $1,179 $96 (77)19 
Net interest margin (FTE)(c)
2.59 %2.62 %
Net interest rate spread (FTE)(c)
2.46 2.46 
Interest-bearing liabilities to interest-earning assets62.14 63.86 
(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.
(b)The FTE adjustments included in the above table were $3 for both the three months ended March 31, 2022 and 2021.
(c)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.


11


Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)
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 the Bancorp’s Annual Report on Form 10-K for the year ended December 31, 2021. 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 Condensed 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 $45 million for the three months ended March 31, 2022 compared to a benefit from credit losses of $173 million during the same period in the prior year. The increase in provision expense for the three months ended March 31, 2022 was primarily driven by factors that caused an increase in the ACL from December 31, 2021 including higher end-of-period commercial and consumer loan balances, partially offset by improvements in commercial credit quality. The benefit from credit losses in the three months ended March 31, 2021 was driven by decreases in the ACL in response to improved economic forecasts, improved credit quality and changes in product mix.

The ALLL was $1.9 billion at both March 31, 2022 and December 31, 2021. At March 31, 2022, the ALLL as a percent of portfolio loans and leases decreased to 1.65%, compared to 1.69% at December 31, 2021. The reserve for unfunded commitments decreased $5 million from December 31, 2021 to $177 million at March 31, 2022. The ACL as a percent of portfolio loans and leases decreased to 1.80% at March 31, 2022, compared to 1.85% at December 31, 2021. The decrease in the ACL as a percent of portfolio loans and leases was primarily attributable to improvements in commercial credit quality, partially offset by deterioration in economic forecasts, primarily reflecting the impacts from escalating geopolitical tensions, higher inflation and rising interest rates.

Refer to the Credit Risk Management subsection of the Risk Management section of MD&A as well as Note 6 of the Notes to Condensed 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 $65 million for the three months ended March 31, 2022 compared to the three months ended March 31, 2021.

The following table presents the components of noninterest income:
TABLE 6: Components of Noninterest Income
For the three months ended
March 31,
($ in millions)20222021% Change
Service charges on deposits$152 144 6
Wealth and asset management revenue149 143 4
Commercial banking revenue135 153 (12)
Card and processing revenue97 94 3
Leasing business revenue62 87 (29)
Mortgage banking net revenue52 85 (39)
Other noninterest income52 42 24
Securities (losses) gains, net(14)NM
Securities losses, net – non-qualifying hedges on mortgage servicing rights
(1)(2)(50)
Total noninterest income$684 749 (9)

Service charges on deposits
Service charges on deposits increased $8 million for the three months ended March 31, 2022 compared to the three months ended March 31, 2021 primarily due to an increase in commercial treasury management fees.

Wealth and asset management revenue
Wealth and asset management revenue increased $6 million for the three months ended March 31, 2022 compared to the three months ended March 31, 2021 primarily driven by increases in private client service fees and broker income, partially offset by a decrease in institutional fees. The Bancorp’s trust and registered investment advisory businesses had approximately $549 billion and $464 billion in total assets under care as of March 31, 2022 and 2021, respectively, and managed $61 billion and $58 billion in assets for individuals, corporations and not-for-profit organizations as of March 31, 2022 and 2021, respectively.

12


Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)
Commercial banking revenue
Commercial banking revenue decreased $18 million for the three months ended March 31, 2022 compared to the three months ended March 31, 2021 primarily driven by decreases in debt capital markets revenue, partially offset by an increase in contract revenue from commercial customer derivatives.

Card and processing revenue
Card and processing revenue increased $3 million for the three months ended March 31, 2022 compared to the three months ended March 31, 2021 primarily due to an increase in credit card interchange, partially offset by increased reward costs. The increases in credit card interchange and reward costs were driven by an increase in consumer and business card spend volumes.

Leasing business revenue
Leasing business revenue decreased $25 million for the three months ended March 31, 2022 compared to the three months ended March 31, 2021 primarily due to a decrease in lease syndication fees, partially offset by an increase in lease remarketing fees.

Mortgage banking net revenue
Mortgage banking net revenue decreased $33 million for the three months ended March 31, 2022 compared to the three months ended March 31, 2021.

The following table presents the components of mortgage banking net revenue:
TABLE 7: Components of Mortgage Banking Net Revenue
For the three months ended
March 31,
($ in millions)20222021
Origination fees and gains on loan sales$25 89 
Net mortgage servicing revenue:
Gross mortgage servicing fees71 59 
Net valuation adjustments on MSRs and free-standing derivatives purchased to economically hedge MSRs
(44)(63)
Net mortgage servicing revenue27 (4)
Total mortgage banking net revenue$52 85 

Origination fees and gains on loan sales decreased $64 million for the three months ended March 31, 2022 compared to the three months ended March 31, 2021 primarily driven by decreases in gain on sale margins and lower volume. Residential mortgage loan originations decreased to $3.5 billion for the three months ended March 31, 2022 from $4.7 billion for the three months ended March 31, 2021.

Net mortgage servicing revenue increased $31 million for the three months ended March 31, 2022 compared to the three months ended March 31, 2021 primarily due to a decrease in net negative valuation adjustments and an increase in gross mortgage servicing fees. Refer to Table 8 for the components of net valuation adjustments on the MSR portfolio and the impact of the non-qualifying hedging strategy.
TABLE 8: Components of Net Valuation Adjustments on MSRs
For the three months ended
March 31,
($ in millions)20222021
Changes in fair value and settlement of free-standing derivatives purchased to economically hedge the MSR portfolio
$(181)(134)
Changes in fair value:
Due to changes in inputs or assumptions(a)
190 152 
Other changes in fair value(b)
(53)(81)
Net valuation adjustments on MSRs and free-standing derivatives purchased to economically hedge MSRs
$(44)(63)
(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 three months ended March 31, 2022 and 2021, the Bancorp recognized income of $137 million and $71 million, respectively, in mortgage banking net revenue for valuation adjustments on the MSR portfolio. The valuation adjustments on the MSR portfolio included increases of $190 million and $152 million for the three months ended March 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 three months ended March 31, 2022, which resulted in a reduction to modeled prepayment speeds and a widening of the spread between mortgage rates and swap rates. There was also an increase in the modeled OAS assumptions for the three months ended March 31, 2022. The fair value of the MSR portfolio decreased $53 million and $81 million as a result of contractual principal payments and actual prepayment activity for the three months ended March 31, 2022 and 2021, respectively.

13


Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)
Further detail on the valuation of MSRs can be found in Note 12 of the Notes to Condensed 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 13 of the Notes to Condensed 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 $1 million and $2 million during the three months ended March 31, 2022 and 2021, respectively, recorded in securities losses, net – non-qualifying hedges on mortgage servicing rights in the Bancorp’s Condensed Consolidated Statements of Income.

The Bancorp’s total residential mortgage loans serviced as of March 31, 2022 and 2021 were $114.5 billion and $86.7 billion, respectively, with $97.7 billion and $65.9 billion, respectively, of residential mortgage loans serviced for others.

Other noninterest income
The following table presents the components of other noninterest income:
TABLE 9: Components of Other Noninterest Income
For the three months ended
March 31,
($ in millions)20222021
BOLI income$16 16 
Cardholder fees13 12 
Equity method investment income8 
Banking center income5 
Consumer loan fees4 
Insurance income2 
Private equity investment income (loss)1 (1)
Loss on swap associated with the sale of Visa, Inc. Class B Shares(11)(13)
Other, net14 11 
Total other noninterest income$52 42 
Noninterest Expense
Noninterest expense increased $7 million for the three months ended March 31, 2022 compared to the three months ended March 31, 2021.

The following table presents the components of noninterest expense:
TABLE 10: Components of Noninterest Expense
For the three months ended
March 31,
($ in millions)20222021% Change
Compensation and benefits$711 706 1
Technology and communications101 93 9
Net occupancy expense77 79 (3)
Equipment expense36 34 6
Leasing business expense32 35 (9)
Marketing expense24 23 4
Card and processing expense19 30 (37)
Other noninterest expense222 215 3
Total noninterest expense$1,222 1,215 1
Efficiency ratio on an FTE basis(a)
64.9 %63.0 
(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 increased $5 million for the three months ended March 31, 2022 compared to the same period in the prior year primarily driven by the impact of a special broad-based compensation bonus granted in the first quarter of 2022, partially offset by a decrease in non-qualified deferred compensation expense. Full-time equivalent employees totaled 19,247 at March 31, 2022 compared to 19,819 at March 31, 2021.

Technology and communications expense increased $8 million for the three months ended March 31, 2022 compared to the same period in the prior year primarily driven by increased investment in strategic initiatives and technology. Card and processing expense decreased $11
14


Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)
million for the three months ended March 31, 2022 compared to the same period in the prior year primarily due to contract renegotiations with a third-party vendor.

The following table presents the components of other noninterest expense:
TABLE 11: Components of Other Noninterest Expense
For the three months ended
March 31,
($ in millions)20222021
Loan and lease$45 49 
FDIC insurance and other taxes31 28 
Data processing19 20 
Losses and adjustments14 
Professional service fees13 16 
Travel13 
Intangible amortization11 11 
Postal and courier10 
Other, net66 71 
Total other noninterest expense$222 215 

Other noninterest expense increased $7 million for the three months ended March 31, 2022 compared to the same period in the prior year primarily due to increases in travel expense and losses and adjustments, partially offset by a decrease in loan and lease expense.

Travel expense increased $9 million for the three months ended March 31, 2022 compared to the same period in the prior year due to the gradual cessation of travel restrictions related to the COVID-19 pandemic. Losses and adjustments increased $7 million for the three months ended March 31, 2022 compared to the same period in the prior year primarily due to a smaller net benefit from changes in credit valuation adjustments on customer accommodation derivatives, partially offset by a decrease in legal settlements. Loan and lease expense decreased $4 million for the three months ended March 31, 2022 compared to the same period in the prior year primarily driven by lower collection costs.

Applicable Income Taxes
The Bancorp’s income before income taxes, applicable income tax expense and effective tax rate are as follows:
TABLE 12: Applicable Income Taxes
For the three months ended
March 31,
($ in millions)20222021
Income before income taxes$612 883 
Applicable income tax expense118 189 
Effective tax rate19.2  %21.4 

Applicable income tax expense for all periods includes the benefit from tax-exempt income, tax-advantaged investments, 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 rate decreased to 19.2% for the three months ended March 31, 2022 compared to 21.4% for the same period in the prior year primarily related to an increase in excess tax benefits related to share-based compensation.
15


Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)
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 13 summarizes end of period loans and leases, including loans and leases held for sale, and Table 14 summarizes average total loans and leases, including average loans and leases held for sale.    
TABLE 13: Components of Total Loans and Leases (including loans and leases held for sale)
March 31, 2022December 31, 2021
As of ($ in millions)Carrying Value% of TotalCarrying Value% of Total
Commercial loans and leases:
Commercial and industrial loans(a)
$53,931 46 %$51,666 44  %
Commercial mortgage loans10,694 9 10,329 
Commercial construction loans5,420 5 5,241 
Commercial leases2,916 2 3,053 
Total commercial loans and leases$72,961 62 $70,289 60 
Consumer loans:
Residential mortgage loans19,737 17 20,791 18 
Home equity3,916 3 4,084 
Indirect secured consumer loans17,424 15 16,783 14 
Credit card1,690 1 1,766 
Other consumer loans2,753 2 2,752 
Total consumer loans$45,520 38 $46,176 40 
Total loans and leases$118,481 100  %$116,465 100 %
Total portfolio loans and leases (excluding loans and leases held for sale)$115,865 $112,050 
(a)Includes $737 million and $1.3 billion as of March 31, 2022 and December 31, 2021, respectively, related to the SBA’s Paycheck Protection Program.

Total loans and leases, including loans and leases held for sale, increased $2.0 billion from December 31, 2021. The increase from December 31, 2021 was the result of a $2.7 billion, or 4%, increase in commercial loans and leases, partially offset by a $656 million, or 1%, decrease in consumer loans.

Commercial loans and leases increased $2.7 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 $2.3 billion, or 4%, 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 $365 million, or 4%, from December 31, 2021 as loan originations exceeded payoffs. Commercial construction loans increased $179 million, or 3%, from December 31, 2021 as draws on existing commitments and loan originations exceeded payoffs. Commercial leases decreased $137 million, or 4%, from December 31, 2021 primarily as a result of seasonally lower production in the first quarter and a planned reduction in indirect non-relationship-based lease originations.

Consumer loans decreased $656 million from December 31, 2021 primarily due to decreases in residential mortgage loans, home equity and credit card, partially offset by an increase in indirect secured consumer loans. Residential mortgage loans decreased $1.1 billion, or 5%, 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. Home equity decreased $168 million, or 4%, from December 31, 2021 as payoffs exceeded loan originations. Credit card decreased $76 million, or 4%, from December 31, 2021 primarily due to seasonal paydowns on year-end balances. Indirect secured consumer loans increased $641 million, or 4%, from December 31, 2021 primarily driven by strong loan production. Indirect secured consumer production is expected to be lower in 2022 compared to 2021 (particularly indirect automobile lending), reflecting the Bancorp’s decision to improve returns on capital in light of current market dynamics.
16


Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)
TABLE 14: Components of Average Loans and Leases (including average loans and leases held for sale)
March 31, 2022March 31, 2021
For the three months ended ($ in millions)Carrying Value% of TotalCarrying Value% of Total
Commercial loans and leases:
Commercial and industrial loans$52,562 45  %$49,715 44  %
Commercial mortgage loans10,529 9 10,534 
Commercial construction loans5,371 5 6,039 
Commercial leases2,943 3 3,130 
Total commercial loans and leases$71,405 62 $69,418 61 
Consumer loans:
Residential mortgage loans20,179 17 20,444 18 
Home equity4,010 3 5,009 
Indirect secured consumer loans17,136 15 13,955 12 
Credit card1,691 1 1,879 
Other consumer loans2,741 2 2,996 
Total consumer loans$45,757 38 $44,283 39 
Total average loans and leases$117,162 100  %$113,701 100  %
Total average portfolio loans and leases
    (excluding loans and leases held for sale)
$113,467 $108,956 

Average loans and leases, including average loans and leases held for sale, increased $3.5 billion, or 3%, for the three months ended March 31, 2022 compared to the same period in the prior year as a result of a $2.0 billion, or 3%, increase in average commercial loans and leases and a $1.5 billion, or 3%, increase in average consumer loans.

Average commercial loans and leases increased $2.0 billion for the three months ended March 31, 2022 compared to the same period in the prior year 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 $2.8 billion, or 6%, for the three months ended March 31, 2022 compared to the same period in the prior year primarily driven by increased revolving line of credit utilization and stronger production, partially offset by PPP loan forgiveness and paydowns. Average commercial construction loans decreased $668 million, or 11%, for the three months ended March 31, 2022 compared to the same period in the prior year as payoffs exceeded draws on existing commitments and loan originations. Average commercial leases decreased $187 million, or 6%, for the three months ended March 31, 2022 compared to the same period in the prior year primarily as a result of a planned reduction in indirect non-relationship-based lease originations.

Average consumer loans increased $1.5 billion for the three months ended March 31, 2022 compared to the same period in the prior year due to an increase in average indirect secured consumer loans, partially offset by decreases in average home equity, average residential mortgage loans, average other consumer loans and average credit card. Average indirect secured consumer loans increased $3.2 billion, or 23%, for the three months ended March 31, 2022 compared to the same period in the prior year primarily driven by higher demand and other favorable market conditions, which contributed to increased loan production. Average home equity decreased $999 million, or 20%, for the three months ended March 31, 2022 compared to the same period in the prior year as payoffs exceeded loan originations. Average residential mortgage loans decreased $265 million, or 1%, for the three months ended March 31, 2022 compared to the same period in the prior year primarily due to decreases in residential mortgage loans held for sale driven by a decline in mortgage originations. Average other consumer loans decreased $255 million, or 9%, for the three months ended March 31, 2022 compared to the same period in the prior year primarily as a result of payoffs exceeding loan originations. Average credit card decreased $188 million, or 10%, for the three months ended March 31, 2022 compared to the same period in the prior year primarily due to a decrease in average balances per active account.

Investment Securities
The Bancorp uses investment securities as a means of managing interest rate risk, providing collateral for pledging purposes and for liquidity risk management. Total investment securities were $49.5 billion and $39.0 billion at March 31, 2022 and December 31, 2021, respectively. The taxable available-for-sale debt and other investment securities portfolio had an effective duration of 5.4 at March 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 March 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 March 31, 2022 and December 31, 2021.

17


Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)
During the three months ended March 31, 2021, the Bancorp recognized $7 million of impairment losses on its available-for-sale debt and other securities, included in securities (losses) gains, net, in the Condensed 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.

At both March 31, 2022 and December 31, 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 the three months ended March 31, 2022 and 2021.

The following table summarizes the end of period components of investment securities:
TABLE 15: Components of Investment Securities

As of ($ in millions)
March 31,
2022
December 31,
2021
Available-for-sale debt and other securities (amortized cost basis):
U.S. Treasury and federal agencies securities$1,729 85 
Obligations of states and political subdivisions securities18 18 
Mortgage-backed securities:
Agency residential mortgage-backed securities11,066 8,432 
Agency commercial mortgage-backed securities25,369 18,236 
Non-agency commercial mortgage-backed securities5,125 4,364 
Asset-backed securities and other debt securities6,346 5,287 
Other securities(a)
518 519 
Total available-for-sale debt and other securities$50,171 36,941 
Held-to-maturity securities (amortized cost basis):
Obligations of states and political subdivisions securities$4 
Asset-backed securities and other debt securities2 
Total held-to-maturity securities$6 
Trading debt securities (fair value):
U.S. Treasury and federal agencies securities$62 84 
Obligations of states and political subdivisions securities20 32 
Agency residential mortgage-backed securities9 105 
Asset-backed securities and other debt securities233 291 
Total trading debt securities$324 512 
Total equity securities (fair value)$358 376 
(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 $13.2 billion from December 31, 2021 as a result of the deployment of excess short-term investments into longer duration assets in the investment portfolio in the first quarter of 2022.

On an amortized cost basis, available-for-sale debt and other securities were 26% and 20% of total interest-earning assets at March 31, 2022 and December 31, 2021, respectively. The estimated weighted-average life of the debt securities in the available-for-sale debt and other securities portfolio was 7.2 years at March 31, 2022 compared to 6.6 years at December 31, 2021. In addition, at March 31, 2022, the debt securities in the available-for-sale debt and other securities portfolio had a weighted-average yield of 2.64% compared to 2.77% at December 31, 2021.

Information presented in Table 16 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 $1.3 billion at March 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 increases when interest rates decrease or when credit spreads contract.
18


Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)
TABLE 16: Characteristics of Available-for-Sale Debt and Other Securities
As of March 31, 2022 ($ in millions)
Amortized Cost

Fair Value
Weighted-Average Life
(in years)
Weighted-Average Yield
U.S. Treasury and federal agencies securities:
Average life after one year through five years$474 465 4.02.04 %
Average life after five years through ten years1,255 1,223 6.11.99 
Total$1,729 1,688 5.62.00 %
Obligations of states and political subdivisions securities:
Average life within one year17 17 0.91.80 
Average life after ten years14.67.00 
Total$18 18 1.72.11 %
Agency residential mortgage-backed securities:
Average life within one year216 216 0.73.19 
Average life after one year through five years2,088 2,069 3.53.09 
Average life after five years through ten years8,012 7,896 7.12.89 
Average life after ten years750 710 12.52.94 
Total$11,066 10,891 6.62.94  %
Agency commercial mortgage-backed securities:(a)
Average life within one year264 266 0.53.51 
Average life after one year through five years7,051 7,035 3.33.15 
Average life after five years through ten years10,717 10,437 7.02.51 
Average life after ten years7,337 6,855 14.42.45 
Total$25,369 24,593 8.02.68  %
Non-agency commercial mortgage-backed securities:
Average life within one year83 82 0.73.12 
Average life after one year through five years3,309 3,281 3.03.17 
Average life after five years through ten years1,733 1,606 8.92.42 
Total$5,125 4,969 5.02.92  %
Asset-backed securities and other debt securities:
Average life within one year327 323 0.62.94 
Average life after one year through five years2,962 2,872 3.52.01 
Average life after five years through ten years1,199 1,168 6.31.75 
Average life after ten years1,858 1,792 15.31.58 
Total$6,346 6,155 7.31.88  %
Other securities518 518 
Total available-for-sale debt and other securities$50,171 48,832 7.22.64  %
(a)Taxable-equivalent yield adjustments included in the above table are 0.06% and 0.02% 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 and federal funds sold. The Bancorp uses other short-term investments as part of its liquidity risk management tools. Other short-term investments were $20.5 billion and $34.6 billion at March 31, 2022 and December 31, 2021, respectively. The decrease of $14.1 billion from December 31, 2021 was primarily attributable to purchases of investment securities, loan growth and early redemptions under the par call options of long-term debt during the three months ended March 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 81% and 77% of the Bancorp’s average asset funding base for the three months ended March 31, 2022 and 2021, respectively.

19


Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)
The following table presents the end of period components of deposits:
TABLE 17: Components of Deposits
March 31, 2022December 31, 2021
As of ($ in millions)Balance% of TotalBalance% of Total
Demand$65,590 38 %$65,088 38 %
Interest checking48,836 29 48,870 29 
Savings23,622 14 22,227 13 
Money market29,947 18 30,263 18 
Foreign office115  121 — 
Total transaction deposits$168,110 99 $166,569 98 
CDs $250,000 or less2,267 1 2,486 
Total core deposits$170,377 100 $169,055 100 
CDs over $250,000234  269 — 
Total deposits$170,611 100 %$169,324 100 %

Core deposits increased $1.3 billion, or 1%, from December 31, 2021 primarily due to increases in savings deposits and demand deposits, partially offset by decreases in money market deposits and CDs $250,000 or less. Savings deposits increased $1.4 billion, or 6%, from December 31, 2021 primarily as a result of consumer balance growth. Demand deposits increased $502 million, or 1%, from December 31, 2021 primarily as a result of consumer balance growth, partially offset by lower balances per commercial customer account. Money market deposits decreased $316 million, or 1%, from December 31, 2021 primarily as a result of lower balances per commercial customer account, partially offset by higher balances per consumer customer account. CDs $250,000 or less decreased $219 million, or 9%, from December 31, 2021 primarily due to lower offering rates.

The following table presents the components of average deposits for the three months ended:
TABLE 18: Components of Average Deposits
March 31, 2022March 31, 2021
($ in millions)Balance% of TotalBalance% of Total
Demand$64,212 38 %$58,586 37 %
Interest checking48,659 29 45,568 29 
Savings22,772 14 18,951 12 
Money market30,263 18 30,601 19 
Foreign office126  128 — 
Total transaction deposits$166,032 99 $153,834 97 
CDs $250,000 or less2,376 1 3,828 
Total core deposits$168,408 100 $157,662 99 
CDs over $250,000254  1,226 
Total average deposits$168,662 100 %$158,888 100 %

On an average basis, core deposits increased $10.7 billion, or 7%, for the three months ended March 31, 2022 compared to the same period in the prior year primarily driven by increases in average demand deposits, average savings deposits and average interest checking deposits, partially offset by decreases in average CDs $250,000 or less and average money market deposits. Average demand deposits increased $5.6 billion, or 10%, for the three months ended March 31, 2022 compared to the same period in the prior year primarily as a result of higher average balances per customer account as well as growth in the number of accounts. Average savings deposits increased $3.8 billion, or 20%, for the three months ended March 31, 2022 compared to the same period in the prior year primarily as a result of higher average balances per customer account. Average interest checking deposits increased $3.1 billion, or 7%, for the three months ended March 31, 2022 compared to the same period in the prior year primarily as a result of higher average balances per customer account. Average CDs $250,000 or less decreased $1.5 billion, or 38% primarily due to lower offering rates. Average money market deposits decreased $338 million, or 1%, for the three months ended March 31, 2022 compared to the same period in the prior year primarily as a result of lower average balances per commercial account, partially offset by higher average balances per consumer customer account.

Average CDs over $250,000 decreased $972 million, or 79%, for the three months ended March 31, 2022 compared to the same period in the prior year primarily due to maturities which were not replaced with new issuances given current market conditions and liquidity levels.

20


Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)
Contractual maturities
The contractual maturities of CDs as of March 31, 2022 are summarized in the following table:
TABLE 19: Contractual Maturities of CDs(a)
($ in millions)
Next 12 months$2,013 
13-24 months284 
25-36 months96 
37-48 months66 
49-60 months38 
After 60 months
Total CDs$2,501 
(a)Includes CDs $250,000 or less and CDs over $250,000.

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 March 31, 2022 and December 31, 2021, approximately $79.7 billion and $80.2 billion, respectively, of the Bancorp’s domestic deposits were uninsured, including $491 million and $468 million, respectively, of time deposits. 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 11% and 14% for the three months ended March 31, 2022 and 2021, respectively.

The following table summarizes the end of period components of borrowings:
TABLE 20: Components of Borrowings
As of ($ in millions)March 31,
2022
December 31,
2021
Federal funds purchased$250 281 
Other short-term borrowings872 980 
Long-term debt10,815 11,821 
Total borrowings$11,937 13,082 

Total borrowings decreased $1.1 billion, or 9%, from December 31, 2021 primarily due to decreases in long-term debt and other short-term borrowings. Long-term debt decreased $1.0 billion from December 31, 2021 primarily driven by the early redemptions under the par call options of $800 million of notes, $152 million of fair value adjustments associated with interest rate swaps hedging long-term debt and $52 million of paydowns on long-term debt associated with automobile loan securitizations during the three months ended March 31, 2022. For further information on a subsequent event related to long-term debt, refer to Note 22 of the Notes to the Condensed Consolidated Financial Statements. Other short-term borrowings decreased $108 million from December 31, 2021 primarily as a result of a decrease in derivative collateral driven by market fluctuations as well as a decrease in securities sold under repurchase agreements driven by a decrease in commercial customer activity. The level of other short-term borrowings can fluctuate significantly from period to period depending on funding needs and the sources that are used to satisfy those needs. For further information on the components of other short-term borrowings, refer to Note 14 of the Notes to Condensed Consolidated Financial Statements.

The following table summarizes components of average borrowings for the three months ended:
TABLE 21: Components of Average Borrowings
($ in millions)March 31,
2022
March 31,
2021
Federal funds purchased$259 324 
Other short-term borrowings890 1,209 
Long-term debt11,165 14,849 
Total average borrowings$12,314 16,382 

21


Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)
Total average borrowings decreased $4.1 billion, or 25%, for the three months ended March 31, 2022 compared to the same period in the prior year primarily due to decreases in average long-term debt and average other short-term borrowings. Average long-term debt decreased $3.7 billion for the three months ended March 31, 2022 compared to the same period in the prior year primarily driven by the early redemptions under the par call options of $4.0 billion of notes, $144 million of fair value adjustments associated with interest rate swaps hedging long-term debt and $315 million of paydowns on long-term debt associated with automobile loan securitizations since March 31, 2021. These decreases were partially offset by the issuance of $500 million of senior fixed-rate/floating-rate notes in November of 2021. Average other short-term borrowings decreased $319 million for the three months ended March 31, 2022 compared to the same period in the prior year primarily as a result of a decrease in derivative collateral driven by market fluctuations as well as a decrease in securities sold under repurchase agreements driven by a decrease in commercial customer activity. 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.

22


Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)
BUSINESS SEGMENT REVIEW
The Bancorp reports on four business segments: Commercial Banking, Branch Banking, Consumer Lending and Wealth and Asset Management. Additional information on each business segment is included in Note 21 of the Notes to Condensed Consolidated Financial Statements. Results of the Bancorp’s business segments are presented based on its management structure and management accounting practices. The structure and accounting practices are specific to the Bancorp; therefore, the financial results of the Bancorp’s business segments are not necessarily comparable with similar information for other financial institutions. The Bancorp refines its methodologies from time to time as management’s accounting practices and businesses change.

The Bancorp manages interest rate risk centrally at the corporate level. By employing an FTP methodology, the business segments are insulated from most benchmark interest rate volatility, enabling them to focus on serving customers through the origination of loans and acceptance of deposits. The FTP methodology assigns charge and credit rates to classes of assets and liabilities, respectively, based on the estimated amount and timing of cash flows for each transaction. Assigning the FTP rate based on matching the duration of cash flows allocates interest income and interest expense to each business segment so its resulting net interest income is insulated from future changes in benchmark interest rates. The Bancorp’s FTP methodology also allocates the contribution to net interest income of the asset-generating and deposit-providing businesses on a duration-adjusted basis to better attribute the driver of the performance. As the asset and liability durations are not perfectly matched, the residual impact of the FTP methodology is captured in General Corporate and Other. The charge and credit rates are determined using the FTP rate curve, which is based on an estimate of Fifth Third’s marginal borrowing cost in the wholesale funding markets. The FTP curve is constructed using the U.S. swap curve, brokered CD pricing and unsecured debt pricing.

The Bancorp adjusts the FTP charge and credit rates as dictated by changes in interest rates for various interest-earning assets and interest-bearing liabilities and by the review of behavioral assumptions, such as prepayment rates on interest-earning assets and the estimated durations for indeterminate-lived deposits. Key assumptions, including the credit rates provided for deposit accounts, are reviewed annually. Credit rates for deposit products and charge rates for loan products may be reset more frequently in response to changes in market conditions. In general, the charge rates on assets decreased throughout 2021, but 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 three months ended March 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 22: Net Income (Loss) by Business Segment
For the three months ended
March 31,
($ in millions)20222021
Income Statement Data
Commercial Banking$318 312 
Branch Banking109 (24)
Consumer Lending26 32 
Wealth and Asset Management29 20 
General Corporate and Other12 354 
Net income$494 694 

23


Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)
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 23: Commercial Banking
For the three months ended
March 31,
($ in millions)20222021
Income Statement Data
Net interest income (FTE)(a)
$481 367 
Benefit from credit losses(28)(76)
Noninterest income:
Commercial banking revenue133 151 
Service charges on deposits94 90 
Leasing business revenue62 87 
Other noninterest income38 33 
Noninterest expense:
Compensation and benefits166 156 
Leasing business expense32 35 
Other noninterest expense248 229 
Income before income taxes (FTE)390 384 
Applicable income tax expense(a)(b)
72 72 
Net income$318 312 
Average Balance Sheet Data
Commercial loans and leases, including held for sale$65,526 60,258 
Demand deposits33,430 31,532 
Interest checking deposits20,871 21,135 
Savings and money market deposits5,073 6,370 
Certificates of deposit113 100 
Foreign office deposits126 127 
(a)Includes FTE adjustments of $2 for both the three months ended March 31, 2022 and 2021.
(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.

Net income was $318 million for the three months ended March 31, 2022 compared to $312 million for the same period in the prior year. The increase was primarily driven by an increase in net interest income on an FTE basis partially offset by a decrease in the benefit from credit losses as well as a decrease in noninterest income and an increase in noninterest expense.

Net interest income on an FTE basis increased $114 million for the three months ended March 31, 2022 compared to the same period in the prior year primarily driven by increases in FTP credit rates on demand deposits and interest checking deposits as well as an increase in average balances of commercial and industrial loans and a decrease in FTP charge rates on loans and leases. These positive impacts were partially offset by a decrease in yields on commercial loans and leases.

The benefit from credit losses was $28 million for the three months ended March 31, 2022 compared to $76 million for the three months ended March 31, 2021. The decrease in benefit for the three months ended March 31, 2022 compared to the same period in the prior year was primarily driven by the impact of the benefit of lower commercial criticized asset levels for the three months ended March 31, 2021 partially offset by a decrease in net charge-offs on commercial and industrial loans. Annualized net charge-offs as a percent of average portfolio loans and leases decreased to 3 bps for the three months ended March 31, 2022 compared to 15 bps for the same period in the prior year.

Noninterest income decreased $34 million for the three months ended March 31, 2022 compared to the same period in the prior year primarily driven by decreases in leasing business revenue and commercial banking revenue partially offset by increases in other noninterest income and service charges on deposits. Leasing business revenue decreased $25 million for the three months ended March 31, 2022 compared to the same period in the prior year primarily due to a decrease in lease syndication fees partially offset by an increase in lease remarketing fees. Commercial banking revenue decreased $18 million for the three months ended March 31, 2022 compared to the same period in the prior year primarily due to decreases in debt capital markets revenue partially offset by an increase in contract revenue from
24


Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)
commercial customer derivatives. Other noninterest income increased $5 million for the three months ended March 31, 2022 compared to the same period in the prior year primarily due to an increase in private equity investment income. Service charges on deposits increased $4 million for the three months ended March 31, 2022 compared to the same period in the prior year primarily due to an increase in commercial treasury management fees.

Noninterest expense increased $26 million for the three months ended March 31, 2022 compared to the same period in the prior year primarily driven by increases in other noninterest expense and compensation and benefits. Other noninterest expense increased $19 million for the three months ended March 31, 2022 compared to the same period in the prior year primarily due to increases in losses and adjustments and travel expense. Compensation and benefits increased $10 million for the three months ended March 31, 2022 compared to the same period in the prior year primarily as a result of increases in base compensation and employee benefits expense primarily driven by higher merit payout, retention efforts and expansion initiatives during the three months ended March 31, 2022.

Average commercial loans and leases increased $5.3 billion for the three months ended March 31, 2022 compared to the same period in the prior year primarily due to an increase in average commercial and industrial loans partially offset by a decrease in average commercial construction loans. Average commercial and industrial loans increased for the three months ended March 31, 2022 compared to the same period in the prior year primarily driven by increased revolving line of credit utilization and stronger production. Average commercial construction loans decreased for the three months ended March 31, 2022 compared to the same period in the prior year as payoffs exceeded draws on existing commitments and loan originations.

Average deposits increased $349 million for the three months ended March 31, 2022 compared to the same period in the prior year primarily due to an increase in average demand deposits partially offset by decreases in average savings and money market deposits and average interest checking deposits. Average demand deposits increased $1.9 billion for the three months ended March 31, 2022 compared to the same period in the prior year primarily as a result of higher average balances per commercial customer account as well as growth in the number of accounts. Average savings and money market deposits decreased $1.3 billion for the three months ended March 31, 2022 compared to the same period in the prior year primarily as a result of lower average balances per commercial customer account. Average interest checking deposits decreased $264 million for the three months ended March 31, 2022 compared to the same period in the prior year primarily as a result of lower average balances per commercial customer account.
25


Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)
Branch Banking
Branch Banking provides a full range of deposit and loan products to individuals and small businesses through 1,079 full-service banking centers. Branch Banking offers depository and loan products, such as checking and savings accounts, home equity loans and lines of credit, credit cards and loans for automobiles and other personal financing needs, as well as products designed to meet the specific needs of small businesses, including cash management services.

The following table contains selected financial data for the Branch Banking segment:
TABLE 24: Branch Banking
For the three months ended
March 31,
($ in millions)20222021
Income Statement Data
Net interest income$430 295 
Provision for credit losses17 41 
Noninterest income:
Card and processing revenue78 77 
Service charges on deposits59 54 
Wealth and asset management revenue51 49 
Other noninterest income28 24 
Noninterest expense:
Compensation and benefits177 170 
Net occupancy and equipment expense56 57 
Card and processing expense18 30 
Other noninterest expense239 232 
Income (loss) before income taxes$139 (31)
Applicable income tax expense (benefit)30 (7)
Net income (loss)$109 (24)
Average Balance Sheet Data
Consumer loans$11,914 12,083 
Commercial loans, including held for sale3,417 2,981 
Demand deposits27,681 23,958 
Interest checking deposits17,401 15,372 
Savings and money market deposits44,579 40,559 
Certificates of deposit2,622 3,893 

Net income was $109 million for the three months ended March 31, 2022 compared to a net loss of $24 million for the same period in the prior year. The increase was primarily driven by an increase in net interest income as well as a decrease in the provision for credit losses and an increase in noninterest income.

Net interest income increased $135 million for the three months ended March 31, 2022 compared to the same period in the prior year primarily due to increases in FTP credits on deposits as well as decreases in rates paid on deposits. These positive impacts were partially offset by decreases in yields on average commercial loans and decreases in yields and average balances for consumer loans.

Provision for credit losses decreased $24 million for the three months ended March 31, 2022 compared to the same period in the prior year primarily due to decreases in net charge-offs on credit card and commercial and industrial loans as well as a decrease in commercial criticized asset levels for the three months ended March 31, 2022. Annualized net charge-offs as a percent of average portfolio loans and leases decreased to 63 bps for the three months ended March 31, 2022 compared to 111 bps for the same period in the prior year.

Noninterest income increased $12 million for the three months ended March 31, 2022 compared to the same period in the prior year primarily driven by increases in service charges on deposits and other noninterest income. Service charges on deposits increased $5 million for the three months ended March 31, 2022 compared to the same period in the prior year primarily driven by an increase in commercial treasury management fees. Other noninterest income increased $4 million for the three months ended March 31, 2022 compared to the same period in the prior year primarily driven by gains on the sale of OREO as well as a decrease in impairment charges for bank premises and equipment.

Noninterest expense increased $1 million for the three months ended March 31, 2022 compared to the same period in the prior year primarily driven by increases in compensation and benefits and other noninterest expense, partially offset by a decrease in card and processing expense. Compensation and benefits increased $7 million for the three months ended March 31, 2022 compared to the same period in the prior year
26


Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)
primarily driven by an increase in incentive compensation. Other noninterest expense increased $7 million for the three months ended March 31, 2022 compared to the same period in the prior year primarily due to increases in allocated expenses primarily related to information technology support services and marketing expense partially offset by decreases in losses and adjustments and loan and lease expense. Card and processing expense decreased $12 million for the three months ended March 31, 2022 compared to the same period in the prior year primarily driven by contract renegotiations with a third-party vendor.

Average consumer loans decreased $169 million for the three months ended March 31, 2022 compared to the same period in the prior year primarily driven by decreases in average home equity as payoffs exceeded loan originations, as well as a decrease in average credit card primarily due to a decrease in average balances per active account. These decreases were partially offset by an increase in average residential mortgage loans for the three months ended March 31, 2022 primarily as a result of an increase in loan originations. Average commercial loans increased $436 million for the three months ended March 31, 2022 compared to the same period in the prior year primarily driven by an increase in average commercial and industrial loans.

Average deposits increased $8.5 billion for the three months ended March 31, 2022 compared to the same period in the prior year primarily 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 CDs. Average savings and money market deposits increased $4.0 billion, average demand deposits increased $3.7 billion and average interest checking deposits increased $2.0 billion for the three months ended March 31, 2022 compared to the same period in the prior year primarily as a result of higher balances per customer account and decreased consumer outflows, as well as growth in the number of accounts. Average CDs decreased $1.3 billion for the three months ended March 31, 2022 compared to the same period in the prior year primarily due to lower offering rates on certificates.

Consumer Lending
Consumer Lending includes the Bancorp’s residential mortgage, automobile and other indirect lending activities. Residential mortgage activities within Consumer Lending include the origination, retention and servicing of residential mortgage loans, sales and securitizations of those loans and all associated hedging activities. Residential mortgages are primarily originated through a dedicated sales force and through third-party correspondent lenders. Automobile and other indirect lending activities include extending loans to consumers through automobile dealers, motorcycle dealers, powersport dealers, recreational vehicle dealers and marine dealers.

The following table contains selected financial data for the Consumer Lending segment:
TABLE 25: Consumer Lending
For the three months ended
March 31,
($ in millions)20222021
Income Statement Data
Net interest income$131 128 
Provision for credit losses6 
Noninterest income:
Mortgage banking net revenue50 82 
Other noninterest income2 — 
Noninterest expense:
Compensation and benefits57 66 
Other noninterest expense87 95 
Income before income taxes$33 41 
Applicable income tax expense7 
Net income$26 32 
Average Balance Sheet Data
Residential mortgage loans, including held for sale$13,962 15,475 
Home equity121 164 
Indirect secured consumer loans17,056 13,815 

Net income was $26 million for the three months ended March 31, 2022 compared to $32 million for the same period in the prior year. The decrease for the three months ended March 31, 2022 compared to the same period in the prior year was primarily due to a decrease in noninterest income, partially offset by a decrease in noninterest expense as well as an increase in net interest income.

Net interest income increased $3 million for the three months ended March 31, 2022 compared to the same period in the prior year primarily driven by decreases in FTP charge rates on loans and leases and an increase in the average balances of indirect secured consumer loans. These increases were partially offset by decreases in yields on indirect secured consumer loans and residential mortgage loans as well as a decrease in the average balances of residential mortgage loans.
27


Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)

Provision for credit losses decreased $2 million for the three months ended March 31, 2022 compared to the same period in the prior year primarily driven by decreases in net charge-offs on indirect secured consumer loans and home equity. Annualized net charge-offs as a percent of average portfolio loans and leases decreased to 9 bps for the three months ended March 31, 2022 compared to 13 bps for the three months ended March 31, 2021.

Noninterest income decreased $30 million for the three months ended March 31, 2022 compared to the same period in the prior year 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 $17 million for the three months ended March 31, 2022 compared to the same period in the prior year due to decreases in compensation and benefits and other noninterest expense. Compensation and benefits decreased $9 million for the three months ended March 31, 2022 compared to the same period in the prior year primarily due to decreases in incentive compensation and base compensation resulting from the decreased mortgage origination activity for the three months ended March 31, 2022. Other noninterest expense decreased $8 million for the three months ended March 31, 2022 compared to the same period in the prior year primarily driven by decreases in corporate overhead allocations, loan and lease expense and losses and adjustments.

Average consumer loans increased $1.7 billion for the three months ended March 31, 2022 compared to the same period in the prior year primarily due to an increase in average indirect secured consumer loans partially offset by a decrease in average residential mortgage loans. Average indirect secured consumer loans increased $3.2 billion for the three months ended March 31, 2022 compared to the same period in the prior year primarily driven by higher demand and other favorable market conditions, which contributed to increased loan production. Average residential mortgage loans decreased $1.5 billion for the three months ended March 31, 2022 compared to the same period in the prior year primarily due to higher runoff driven by payoffs exceeding loan originations.

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 26: Wealth and Asset Management
For the three months ended
March 31,
($ in millions)20222021
Income Statement Data
Net interest income$35 21 
Benefit from credit losses (1)
Noninterest income:
Wealth and asset management revenue142 136 
Other noninterest income2 
Noninterest expense:
Compensation and benefits60 53 
Other noninterest expense82 82 
Income before income taxes$37 25 
Applicable income tax expense8 
Net income$29 20 
Average Balance Sheet Data
Loans and leases, including held for sale$4,143 3,746 
Deposits13,874 11,724 

Net income was $29 million for the three months ended March 31, 2022 compared to $20 million for the same period in the prior year. The increase was primarily driven by increases in net interest income and noninterest income partially offset by an increase in noninterest expense.
28


Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)

Net interest income increased $14 million for the three months ended March 31, 2022 compared to the same period in the prior year primarily driven by an increase in FTP credits on deposits as well as an increase in average commercial and industrial loans.

Noninterest income increased $6 million for the three months ended March 31, 2022 compared to the same period in the prior year driven by an increase in wealth and asset management revenue. Wealth and asset management revenue increased $6 million for the three months ended March 31, 2022 compared to the same period in the prior year primarily as a result of increases in private client service fees and broker income, partially offset by a decrease in institutional fees.

Noninterest expense increased $7 million for the three months ended March 31, 2022 compared to the same period in the prior year driven by an increase in compensation and benefits. Compensation and benefits increased $7 million for the three months ended March 31, 2022 compared to the same period in the prior year primarily as a result of an increase in incentive compensation.

Average loans and leases increased $397 million for the three months ended March 31, 2022 compared to the same period in the prior year primarily driven by increases in average commercial and industrial loans and average residential mortgage loans as a result of higher loan production, partially offset by a decrease in average other consumer loans.

Average deposits increased $2.2 billion for the three months ended March 31, 2022 compared to the same period in the prior year primarily driven by increases in average interest checking deposits, average savings and money market deposits and average demand deposits as a result of higher average balances per customer account.

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.

Net interest income on an FTE basis decreased $247 million for the three months ended March 31, 2022 compared to the same period in the prior year primarily driven by an increase in FTP credits on deposits allocated to the business segments as well as a decrease in the benefit related to FTP charge rates on loans and leases allocated to the business segments. These negative impacts were partially offset by an increase in interest income on investment securities and a decrease in interest expense on long-term debt.

The provision for credit losses was $50 million for the three months ended March 31, 2022 compared to a benefit from credit losses of $145 million for the three months ended March 31, 2021. The increase in provision expense for the three months ended March 31, 2022 compared to the same period in the prior year was primarily driven by factors affecting the ACL including higher end-of-period commercial and consumer loan balances, partially offset by improvements in commercial credit quality. This increase was partially offset by the impact of allocations to the business segments.

Noninterest income decreased $18 million for the three months ended March 31, 2022 compared to the same period in the prior year primarily driven by an increase in securities losses as well as a decrease in private equity investment income. These negative impacts were partially offset by a decrease in the loss recognized on the swap associated with the sale of Visa, Inc. Class B shares for the three months ended March 31, 2022 compared to the same period in the prior year.

Noninterest expense decreased $9 million for the three months ended March 31, 2022 compared to the same period in the prior year primarily driven by a decrease in compensation and benefits due to a decrease in benefits expense partially offset by an increase in incentive compensation. 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.
29


Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)
RISK MANAGEMENT - OVERVIEW
The Risk Management sections included in Item 7 of the Bancorp’s Annual Report on Form 10-K describe the Bancorp’s Enterprise Risk Management Framework and Three Lines of Defense structure as well as key areas of risk, which include credit risk, liquidity risk, interest rate risk, price risk, legal and regulatory compliance risk, operational risk, reputation risk and strategic risk. These sections also include additional detailed information about the Bancorp’s processes related to operational risk management as well as legal and regulatory compliance risk management. The following information should be read in conjunction with the Bancorp’s Annual Report on Form 10-K.

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, the utilization 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 promptly identify potential problem loans or leases within the portfolio, maintain an adequate ACL and record any necessary charge-offs. The Bancorp defines potential problem loans and leases as those rated substandard that do not meet the definition of a nonaccrual loan or a restructured loan. Refer to Note 6 of the Notes to Condensed Consolidated Financial Statements for further information on the Bancorp’s credit grade categories, which are derived from standard regulatory rating definitions. In addition, stress testing is performed on various commercial and consumer portfolios utilizing various models. For certain portfolios, such as real estate and leveraged lending, stress testing is performed by Credit department personnel at the individual loan level during credit underwriting.

The following tables provide a summary of potential problem portfolio loans and leases:
TABLE 27: Potential Problem Portfolio Loans and Leases
As of March 31, 2022 ($ in millions)Carrying
Value
Unpaid
Principal
Balance

Exposure
Commercial and industrial loans$1,697 1,699 2,914 
Commercial mortgage loans818 822 827 
Commercial construction loans327 327 342 
Commercial leases54 54 54 
Total potential problem portfolio loans and leases$2,896 2,902 4,137 
TABLE 28: Potential Problem Portfolio Loans and Leases
As of December 31, 2021 ($ in millions)Carrying
Value
Unpaid
Principal
Balance

Exposure
Commercial and industrial loans$1,587 1,589 2,842 
Commercial mortgage loans783 787 791 
Commercial construction loans339 339 357 
Commercial leases59 59 60 
Total potential problem portfolio loans and leases$2,768 2,774 4,050 
In addition to the individual review of larger commercial loans that exhibit probable or observed credit weaknesses, the commercial credit review process includes the use of two risk grading systems. The first of these risk grading systems encompasses ten categories, which are based on regulatory guidance for credit risk systems. These ratings are used by the Bancorp to monitor and manage its credit risk. The Bancorp also maintains a dual risk rating system for credit approval and pricing, portfolio monitoring and capital allocation that includes a “through-the-cycle” rating philosophy for assessing a borrower’s creditworthiness. A “through-the-cycle” rating philosophy uses a grading scale that assigns ratings based on average default rates through an entire business cycle for borrowers with similar financial performance. The dual risk rating system includes thirteen probabilities of default grade categories and an additional eleven grade categories for estimating losses given an event of default. The probability of default and loss given default evaluations are not separated in the ten-category regulatory risk rating system.
30


Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)

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 included in the Bancorp’s Annual Report on Form 10-K for the year ended December 31, 2021 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
The first quarter of 2022 was defined by extreme volatility in financial markets as persistent inflationary pressures led the Federal Reserve to pivot to a considerably tighter monetary policy compared to what was communicated in the fourth quarter of 2021. Federal Reserve officials grew concerned that the supply-demand imbalances in labor markets could lead to a wage-price spiral that drives inflation higher as workers demand higher wages. Geopolitics took center stage in late February when Russia invaded Ukraine. The invasion led to a surge in commodity prices that added to already elevated inflationary pressures while introducing additional downside risks for global economic growth.

Despite the volatility in financial markets, the labor market remained resilient as job growth averaged 562,000 jobs per month and the unemployment rate dropped to 3.6%. The tightening of the labor market helped support strong wage growth as average hourly earnings increased 5.6% year-over-year. With wage growth strong and people less concerned about the health issues associated with the COVID-19 pandemic, spending on travel and leisure activities was robust during the first quarter of 2022 due to pent up demand, excess savings and record high asset prices.

Robust demand, combined with labor shortages and supply chain constraints, is leading to more persistent inflationary pressures throughout the economy. The March Consumer Price Index report continued the trend of accelerating inflation as headline inflation rose to 8.5% from a year ago. This was the sixth straight month of inflation above 6% and the fastest annual increase since December 1981. With the labor market continuing to tighten, Federal Reserve officials have promised a series of rate hikes to slow consumer demand and bring inflation down. The FOMC is attempting to manage the economy to a soft landing where it slows growth and brings down inflation without causing a recession.

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 the pace of inflation, rising interest rates, labor and supply chain impacts and the impacts of these upon commercial borrowers. 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
31


Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)
requirements, cash flow coverage measures and hold limits. The Bancorp aligns credit and sales teams with specific industry expertise to better monitor and manage different industry segments of the portfolio.

Certain industries have experienced increased stress due to the COVID-19 pandemic. These include consumer-driven industries that require gathering or congregation such as leisure and recreation (including casinos, restaurants, sports, fitness, hotels and other industries), non-essential retail and leisure travel (primarily including airlines and cruise lines). Certain segments of the healthcare industry (including skilled nursing, physician offices and surgery/outpatient centers, among others) have also been impacted by the pandemic given the delays and restrictions on in-person visits and elective procedures. Many affected businesses that have reopened are experiencing labor shortages, which create wide-ranging effects on several industries, including decreased hours of service and increased labor costs.

The following table presents industries impacted the most severely within the Bancorp’s commercial and industrial and commercial real estate loan portfolios as of March 31, 2022:
TABLE 29: Industries Impacted the Most Severely by the COVID-19 Pandemic
($ in millions)BalanceExposure
Industry Classification(b)
Commercial and industrial loans:(a)
Leisure and recreation(c)
$3,632 7,574 Accommodation and food / Entertainment and recreation
Retail - non-essential831 3,359 Retail trade
Healthcare1,577 2,186 Healthcare
Leisure travel308 543 Transportation and warehousing
Total commercial and industrial loans$6,348 13,662 
Commercial real estate owner-occupied loans:
Leisure and recreation(c)
375 419 Accommodation and food / Entertainment and recreation
Retail - non-essential94 104 Real estate
Healthcare1,506 1,636 Healthcare
Total commercial real estate owner-occupied loans$1,975 2,159 
Commercial real estate nonowner-occupied loans:
Leisure and recreation(c)
1,811 1,979 Accommodation and food / Entertainment and recreation
Retail - non-essential813 852 Real estate
Healthcare90 108 Healthcare
Total commercial real estate nonowner-occupied loans$2,714 2,939 
Total$11,037 18,760 
(a)Excludes loans related to the SBAs Paycheck Protection Program.
(b)As defined by the North American Industry Classification System.
(c)Balances include exposures to casinos, restaurants, sports, fitness, hotels and other.

32


Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)
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 as of:

TABLE 30: Commercial Loan and Lease Portfolio (excluding loans and leases held for sale)
March 31, 2022December 31, 2021
($ in millions)OutstandingExposureNonaccrualOutstandingExposureNonaccrual
By Industry:
Manufacturing$11,650 21,845 79 11,131 22,082 82 
Real estate10,867 16,323 32 10,370 16,067 37 
Financial services and insurance9,217 18,533  9,196 18,562 — 
Business services5,380 9,605 3 5,149 9,481 23 
Wholesale trade5,244 9,563 5 4,733 9,266 
Healthcare5,119 7,584 41 5,011 7,608 
Accommodation and food4,478 7,050 26 4,354 7,089 28 
Retail trade4,264 9,872 2 4,053 10,001 
Construction3,032 6,120 7 2,918 6,111 
Communication and information3,002 6,618 18 2,969 6,665 24 
Transportation and warehousing2,783 4,564 2 2,774 4,628 
Mining2,672 5,084 15 2,512 5,023 16 
Utilities1,512 3,390  1,446 3,698 — 
Entertainment and recreation1,474 2,954 80 1,401 2,948 86 
Other services1,139 1,510 10 1,140 1,501 
Public administration491 684 1 606 856 
Agribusiness468 608 1 355 616 
Other85 89 1 89 90 
Individuals61 99  61 93 — 
Total$72,938 132,095 323 70,268 132,385 337 
By Loan Size:
Less than $1 million4  %3 14 14 
$1 million to $5 million7 6 11 14 
$5 million to $10 million6 5 11 
$10 million to $25 million15 14 31 15 14 42 
$25 million to $50 million24 24 33 24 24 22 
Greater than $50 million44 48  42 48 — 
Total100  %100 100 100 100 100 
By State:
Illinois11  %9 27 11 29 
Ohio10 11 4 10 12 
Florida8 7 2 
California8 8 2 
Texas8 8 6 
Michigan6 5 9 
Indiana3 4 1 
Georgia3 4 1 
Tennessee3 3 13 
North Carolina3 3 2 
Kentucky2 2 1 
South Carolina2 2  — 
Other33 34 32 34 35 33 
Total100  %100 100 100 100 100 

33


Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)
The origination policies for commercial real estate outline the risks and underwriting requirements for owner and nonowner-occupied and construction lending. Included in the policies are maturity and amortization terms, maximum LTVs, minimum debt service coverage ratios, construction loan monitoring procedures, appraisal requirements, pre-leasing requirements (as applicable), pro forma analysis requirements and interest rate sensitivity. The Bancorp requires a valuation of real estate collateral, which may include third-party appraisals, be performed at the time of origination and renewal in accordance with regulatory requirements and on an as-needed basis when market conditions justify. Although the Bancorp does not back test these collateral value assumptions, the Bancorp maintains an appraisal review department to order and review third-party appraisals in accordance with regulatory requirements. Collateral values on criticized assets with relationships exceeding $1 million are reviewed quarterly to assess the appropriateness of the value ascribed in the assessment of charge-offs and specific reserves.

The Bancorp assesses all real estate and non-real estate collateral securing a loan and considers all cross-collateralized loans in the calculation of the LTV ratio. The following tables provide detail on the most recent LTV ratios for commercial mortgage loans greater than $1 million, excluding commercial mortgage loans that are individually evaluated. The Bancorp does not typically aggregate the LTV ratios for commercial mortgage loans less than $1 million.
TABLE 31: Commercial Mortgage Loans Outstanding by LTV, Loans Greater Than $1 Million
As of March 31, 2022 ($ in millions)LTV > 100%LTV 80-100%LTV < 80%
Commercial mortgage owner-occupied loans$153 421 3,396 
Commercial mortgage nonowner-occupied loans18 78 4,360 
Total$171 499 7,756 
TABLE 32: Commercial Mortgage Loans Outstanding by LTV, Loans Greater Than $1 Million
As of December 31, 2021 ($ in millions)LTV > 100%LTV 80-100%LTV < 80%
Commercial mortgage owner-occupied loans$166 4163,164
Commercial mortgage nonowner-occupied loans46 1204,197
Total$212 5367,361

The Bancorp views non-owner-occupied commercial real estate as a higher credit risk product compared to some other commercial loan portfolios due to the higher volatility of the industry.

The following tables provide an analysis of nonowner-occupied commercial real estate loans by state (excluding loans held for sale):
TABLE 33: Nonowner-Occupied Commercial Real Estate (excluding loans held for sale)(a)
As of March 31, 2022 ($ in millions)
For the three months ended March 31, 2022
OutstandingExposure90 Days
Past Due
NonaccrualNet Charge-offs
By State:
Illinois$1,628 1,832  21  
Florida1,130 1,706    
Ohio1,114 1,433 1   
Texas800 1,147    
Michigan778 965    
Indiana296 499    
North Carolina287 436 1 2  
All other states4,315 6,217  6  
Total$10,348 14,235 2 29  
(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.

34


Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)
TABLE 34: Nonowner-Occupied Commercial Real Estate (excluding loans held for sale)(a)
As of March 31, 2021 ($ in millions)
For the three months ended March 31, 2021
OutstandingExposure90 Days
Past Due
NonaccrualNet Charge-offs
By State:
Illinois$2,033 2,307 — 42 — 
Florida1,296 1,923 — — — 
Ohio1,057 1,536 — — 
Texas574 943 — — — 
Michigan805 988 — — 
Indiana299 575 — — — 
North Carolina436 526 — — 
All other states4,672 6,655 — 26 — 
Total$11,172 15,453 — 72 — 
(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 Bancorps 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. As interest rates increase, minimum payments on these products also increase, so a rising-rate environment may be disruptive to some borrowers. The Bancorp actively monitors the portion of its consumer portfolio that is susceptible to increases in minimum payments.

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 $502 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 1.73% based on benchmark interest rates as of March 31, 2022. Underlying characteristics of these borrowers are relatively strong with a weighted average origination DTI of 36% and weighted average origination LTV of 73%.

Certain residential mortgage products have characteristics that may increase the Bancorps 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.

35


Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)
The following table provides an analysis of the residential mortgage portfolio loans outstanding by LTV at origination as of:

TABLE 35: Residential Mortgage Portfolio Loans by LTV at Origination
March 31, 2022December 31, 2021
($ in millions)
Outstanding
Weighted-
Average LTV

Outstanding
Weighted-
Average LTV
LTV ≤ 80%$12,194 62.0  %$12,207 62.5 %
LTV > 80%, with mortgage insurance(a)
2,949 94.8 2,227 94.9 
LTV > 80%, no mortgage insurance2,001 90.7 1,963 90.8 
Total$17,144 71.1  %$16,397 70.9 %
(a)Includes loans with either borrower or lender paid mortgage insurance.

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 36: Residential Mortgage Portfolio Loans, LTV Greater Than 80% at Origination, No Mortgage Insurance
As of March 31, 2022 ($ in millions)
For the three months ended March 31, 2022
Outstanding90 Days
Past Due
NonaccrualNet (Recoveries) Charge-offs
By State:
Ohio$471 2 8  
Illinois410 1 3  
Florida312  3 (1)
Michigan158  2  
Indiana139  2  
North Carolina133    
Kentucky106  1  
All other states272  4  
Total$2,001 3 23 (1)

TABLE 37: Residential Mortgage Portfolio Loans, LTV Greater Than 80% at Origination, No Mortgage Insurance
As of March 31, 2021 ($ in millions)
For the three months ended
March 31, 2021
Outstanding90 Days
Past Due
NonaccrualNet Charge-offs
By State:
Ohio$428 — 
Illinois388 — 
Florida281 — 
Michigan166 — — 
Indiana135 — — 
North Carolina127 — 
Kentucky86 — — 
All other states288 — 
Total$1,899 19 12 — 

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 46% 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 19% 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
36


Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)
delinquency, FICO scores, LTV, loan age and their historical correlation with macroeconomic variables including unemployment and the home price index. The expected losses generated from models are adjusted by certain qualitative adjustment factors to reflect risks associated with current conditions and trends. The qualitative factors include adjustments for changes in policies or procedures in underwriting, monitoring or collections, economic conditions, portfolio mix, lending and risk management personnel, results of internal audit and quality control reviews, collateral values and geographic concentrations.

The home equity portfolio is managed in two primary groups: loans outstanding with a combined LTV greater than 80% and those loans with an LTV of 80% or less based upon appraisals at origination. For additional information on these loans, refer to Table 39 and Table 40. Of the total $3.9 billion of outstanding home equity loans:
80% reside within the Bancorp’s Midwest footprint of Ohio, Michigan, Illinois, Indiana and Kentucky as of March 31, 2022;
42% are in senior lien positions and 58% are in junior lien positions at March 31, 2022;
78% of non-delinquent borrowers made at least one payment greater than the minimum payment during the three months ended March 31, 2022; and
The portfolio had a weighted average refreshed FICO score of 750 at March 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 included in the Bancorp’s Annual Report on Form 10-K for the year ended December 31, 2021 for more information.

The following table provides an analysis of home equity portfolio loans outstanding disaggregated based upon refreshed FICO score as of:
TABLE 38: Home Equity Portfolio Loans Outstanding by Refreshed FICO Score
March 31, 2022December 31, 2021
($ in millions)Outstanding% of TotalOutstanding% of Total
Senior Liens:
FICO ≤ 659$136 3  %$143  %
FICO 660-719227 6 228 
FICO ≥ 7201,295 33 1,333 33 
Total senior liens$1,658 42 1,704 42 
Junior Liens:
FICO ≤ 659229 6 245 
FICO 660-719408 11 430 10 
FICO ≥ 7201,621 41 1,705 42 
Total junior liens$2,258 58 2,380 58 
Total$3,916 100  %$4,084 100  %
37


Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)

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 as of:
TABLE 39: Home Equity Portfolio Loans Outstanding by LTV at Origination
March 31, 2022December 31, 2021

($ in millions)

Outstanding
Weighted-
Average LTV

Outstanding
Weighted-
Average LTV
Senior Liens:
LTV ≤ 80%$1,447 53.3  %$1,485 53.5  %
LTV > 80%211 88.8 219 88.8 
Total senior liens
$1,658 58.0 1,704 58.3 
Junior Liens:
LTV ≤ 80%1,428 66.3 1,479 66.4 
LTV > 80%830 89.7 901 89.7 
Total junior liens
$2,258 75.7 2,380 76.0 
Total$3,916 68.0  %$4,084 68.4  %

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 40: Home Equity Portfolio Loans Outstanding with an LTV Greater than 80% at Origination
As of March 31, 2022 ($ in millions)
For the three months ended
March 31, 2022
OutstandingExposure90 Days
Past Due
NonaccrualNet (Recoveries) Charge-offs
By State:
Ohio$326 856 — 8  
Michigan175 453 — 4 (2)
Illinois170 360 1 5 (2)
Indiana100 246 — 3 — 
Kentucky85 217 — 2 — 
Florida71 163 — 1 (1)
All other states114 268 — 4 (1)
Total$1,041 2,563 1 27 (6)

TABLE 41: Home Equity Portfolio Loans Outstanding with an LTV Greater than 80% at Origination
As of March 31, 2021 ($ in millions)
For the three months ended
March 31, 2021
OutstandingExposure90 Days
Past Due
NonaccrualNet Charge-offs
By State:
Ohio$451 1,050 — — 
Michigan258 556 — — 
Illinois233 446 — 
Indiana137 302 — — 
Kentucky115 264 — — 
Florida102 205 — — 
All other states160 329 — — 
Total$1,456 3,152 31 — 

Indirect secured consumer portfolio
The indirect secured consumer portfolio is comprised of $15.8 billion of automobile loans and $1.6 billion of indirect motorcycle, powersport, recreational vehicle and marine loans as of March 31, 2022. All concentration and guideline changes are monitored monthly to ensure alignment with original credit performance and return projections.

38


Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)
The following table provides an analysis of indirect secured consumer portfolio loans outstanding disaggregated based upon FICO score at origination as of:
TABLE 42: Indirect Secured Consumer Portfolio Loans Outstanding by FICO Score at Origination
March 31, 2022December 31, 2021
($ in millions)
Outstanding
% of Total
Outstanding
% of Total
FICO ≤ 659$297 2  %$312  %
FICO 660-7193,844 22 3,745 22 
FICO ≥ 72013,283 76 12,726 76 
Total$17,424 100  %$16,783 100  %

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.

The following table provides an analysis of indirect secured consumer portfolio loans outstanding by LTV at origination as of:
TABLE 43: Indirect Secured Consumer Portfolio Loans Outstanding by LTV at Origination
March 31, 2022December 31, 2021
($ in millions)OutstandingWeighted- Average LTVOutstandingWeighted- Average LTV
LTV ≤ 100%$12,693 79.4  %$12,327 79.5  %
LTV > 100%4,731 110.9 4,456 111.1 
Total$17,424 88.0  %$16,783 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:

TABLE 44: Indirect Secured Consumer Portfolio Loans Outstanding with an LTV Greater than 100% at Origination
As of ($ in millions)
Outstanding
90 Days Past
Due and Accruing
NonaccrualNet Charge-offs for the
Three Months Ended
March 31, 2022$4,731 5 13 5 
March 31, 20214,267 32 

Credit card portfolio
The credit card portfolio consists of predominantly prime accounts with 98% of balances existing within the Bancorp’s footprint at both March 31, 2022 and December 31, 2021. At both March 31, 2022 and December 31, 2021, 72% and 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 as of:
TABLE 45: Credit Card Portfolio Loans Outstanding by FICO Score at Origination
March 31, 2022December 31, 2021
($ in millions)Outstanding% of TotalOutstanding% of Total
FICO ≤ 659$78 5  %$82  %
FICO 660-719494 29 518 29 
FICO ≥ 7201,118 66 1,166 66 
Total$1,690 100  %$1,766 100  %

Other consumer portfolio loans
Other consumer portfolio loans are comprised of secured and unsecured loans originated through the Bancorp’s branch network as well as point-of-sale loans originated or purchased in connection with third-party companies. The Bancorp had $169 million in unfunded commitments associated with loans originated in connection with third-party companies as of March 31, 2022. 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. In the event that the origination agreement with this third-party company is terminated, loans with an outstanding balance of $1.2 billion at March 31, 2022 would become subject to a 90-day call option that gives the third-party company the right, but not the obligation, to purchase loans from the Bancorp at a price equal to 100% of the principal amount plus accrued and unpaid interest less service fees.
39


Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)

The following table provides an analysis of other consumer portfolio loans outstanding by product type as of:
TABLE 46: Other Consumer Portfolio Loans Outstanding by Product Type
March 31, 2022December 31, 2021
($ in millions)Outstanding% of Total
Outstanding
% of Total
Unsecured$485 18  %$491 18 %
Other secured890 32 797 29 
Point-of-sale1,378 50 1,464 53 
Total$2,753 100  %$2,752 100 %

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 47. 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 included in the Bancorp’s Annual Report on Form 10-K for the year ended December 31, 2021.

Nonperforming assets were $570 million at March 31, 2022 compared to $542 million at December 31, 2021. At March 31, 2022, $4 million 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 0.49% and 0.47% as of March 31, 2022 and December 31, 2021, respectively. Nonaccrual loans and leases secured by real estate were 37% of nonaccrual loans and leases as of March 31, 2022 compared to 33% as of December 31, 2021.

Portfolio commercial nonaccrual loans and leases were $323 million at March 31, 2022, a decrease of $14 million from December 31, 2021. Portfolio consumer nonaccrual loans were $211 million at March 31, 2022, an increase of $50 million from December 31, 2021. Refer to Table 48 for a rollforward of the portfolio nonaccrual loans and leases.

OREO and other repossessed property was $32 million and $29 million at March 31, 2022 and December 31, 2021, respectively. The Bancorp recognized $1 million in gains and $6 million in losses on the transfer, sale or write-down of OREO properties for the three months ended March 31, 2022 and 2021, respectively.

For the three months ended March 31, 2022 and 2021, approximately $6 million and $9 million, respectively, of interest income would have been recognized if the nonaccrual and renegotiated loans and leases on nonaccrual status had been current in accordance with their original terms. Although these values help demonstrate the costs of carrying nonaccrual credits, the Bancorp does not expect to recover the full amount of interest as nonaccrual loans and leases are generally carried below their principal balance.

40


Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)
TABLE 47: Summary of Nonperforming Assets and Delinquent Loans and Leases
As of ($ in millions)March 31,
2022
December 31,
2021
Nonaccrual portfolio loans and leases:
Commercial and industrial loans$105 116 
Commercial mortgage loans32 42 
Commercial construction loans6 
Commercial leases3 
Residential mortgage loans(a)(c)
42 10 
Home equity49 47 
Indirect secured consumer loans5 
Other consumer loans1 
Nonaccrual portfolio restructured loans and leases:
Commercial and industrial loans167 163 
Commercial mortgage loans10 
Residential mortgage loans(a)(c)
46 23 
Home equity28 30 
Indirect secured consumer loans17 22 
Credit card23 23 
Total nonaccrual portfolio loans and leases(b)
$534 498 
OREO and other repossessed property32 29 
Total nonperforming portfolio loans and leases and OREO$566 527 
Nonaccrual loans held for sale 15 
Nonaccrual restructured loans held for sale4 — 
Total nonperforming assets$570 542 
Total portfolio loans and leases 90 days past due and still accruing:
Commercial and industrial loans$9 17 
Commercial mortgage loans2 
Commercial construction loans 
Residential mortgage loans(a)
14 72 
Home equity1 
Indirect secured consumer loans9 
Credit card14 15 
Other consumer loans1 
Total portfolio loans and leases 90 days past due and still accruing$50 117 
Nonperforming portfolio assets as a percent of portfolio loans and leases and OREO0.49 %0.47 
Nonperforming portfolio loans and leases as a percent of portfolio loans and leases0.46 0.44 
ACL as a percent of nonperforming portfolio loans and leases391 416 
ACL as a percent of nonperforming portfolio assets369 394 
(a)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 $316 as of March 31, 2022 and $349 as of December 31, 2021. The Bancorp recognized losses of $1 for both the three months ended March 31, 2022 and 2021 due to claim denials and curtailments associated with these insured or guaranteed loans.
(b)Includes $20 and $26 of nonaccrual government insured commercial loans whose repayments are insured by the SBA as of March 31, 2022 and December 31, 2021, respectively, of which $11 are restructured nonaccrual government insured commercial loans as of both March 31, 2022 and December 31, 2021.
(c)During the first quarter of 2022, the Bancorp amended its definition of nonperforming loans to include $56 million of residential mortgage loans that are past due 150 days or more and not fully or partially guaranteed by government agencies.

41


Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)
The following tables provide a rollforward of portfolio nonaccrual loans and leases, by portfolio segment:
TABLE 48: Rollforward of Portfolio Nonaccrual Loans and Leases
For the three months ended March 31, 2022 ($ in millions)
Commercial
Residential Mortgage(a)
ConsumerTotal
Balance, beginning of period$337 33 128 498 
Transfers to nonaccrual status54 64 33 151 
Transfers to accrual status(2)(7)(16)(25)
Transfers to held for sale(4)  (4)
Loan paydowns/payoffs(52)(1)(15)(68)
Transfers to OREO (1) (1)
Charge-offs(11) (7)(18)
Draws/other extensions of credit1   1 
Balance, end of period$323 88 123 534 
(a)During the first quarter of 2022, the Bancorp amended its definition of nonperforming loans to include $56 million of residential mortgage loans that are past due 150 days or more and not fully or partially guaranteed by government agencies.

TABLE 49: Rollforward of Portfolio Nonaccrual Loans and Leases
For the three months ended March 31, 2021 ($ in millions)
CommercialResidential MortgageConsumerTotal
Balance, beginning of period$638 60 136 834 
Transfers to nonaccrual status29 16 87 132 
Transfers to accrual status(1)(20)(24)(45)
Transfers to held for sale(42)— — (42)
Loan paydowns/payoffs(99)— (13)(112)
Transfers to OREO(1)(1)— (2)
Charge-offs(35)— (11)(46)
Draws/other extensions of credit20 22 
Balance, end of period$509 56 176 741 

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. For further information on the Bancorp’s accounting for TDRs, refer to Note 1 of the Notes to Consolidated Financial Statements included in the Bancorp’s Annual Report on Form 10-K for the year ended December 31, 2021.

Consumer restructured loans on accrual status totaled $756 million and $675 million at March 31, 2022 and December 31, 2021, respectively. As of March 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 27%, 20% and 27%, respectively.

The following tables summarize portfolio TDRs by loan type and delinquency status:
TABLE 50: Accruing and Nonaccruing Portfolio TDRs
Accruing
30-89 Days90 Days or
As of March 31, 2022 ($ in millions)CurrentPast DueMore Past DueNonaccruingTotal
Commercial loans(a)
$194 1  177 372 
Residential mortgage loans(b)
400 22 81 46 549 
Home equity138 6 1 28 173 
Indirect secured consumer loans84 5  17 106 
Credit card17 2  23 42 
Total$833 36 82 291 1,242 
(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 March 31, 2022, these advances represented $192 of current loans, $17 of 30-89 days past due loans and $78 of 90 days or more past due loans.

42


Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)
TABLE 51: Accruing and Nonaccruing Portfolio TDRs
Accruing
30-89 Days90 Days or
As of December 31, 2021 ($ in millions)CurrentPast DueMore Past DueNonaccruingTotal
Commercial loans(a)
$156 — 169 326 
Residential mortgage loans(b)
328 17 92 23 460 
Home equity141 30 177 
Indirect secured consumer loans66 — 22 92 
Credit card18 — 23 44 
Total$709 29 94 267 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 12 bps and 27 bps of average portfolio loans and leases for the three months ended March 31, 2022 and 2021, respectively. Table 52 provides a summary of credit loss experience and net charge-offs as a percent 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 decreased to 5 bps during the three months ended March 31, 2022 compared to 17 bps during the three months ended March 31, 2021. The decrease was primarily due to a decrease in net charge-offs on commercial and industrial loans of $18 million for the three months ended March 31, 2022 compared to the same period in the prior year.

The ratio of consumer loan net charge-offs as a percent of average portfolio consumer loans decreased to 25 bps during the three months ended March 31, 2022 compared to 43 bps during the three months ended March 31, 2021. The decrease was primarily due to a decrease in net charge-offs on credit card of $12 million for the three months ended March 31, 2022 compared to the same period in the prior year.
43


Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)
TABLE 52: Summary of Credit Loss Experience
For the three months ended
March 31,
($ in millions)20222021
Losses charged-off:
Commercial and industrial loans$(11)(32)
Commercial mortgage loans (3)
Commercial leases — 
Residential mortgage loans(1)(1)
Home equity(2)(3)
Indirect secured consumer loans(16)(18)
Credit card(17)(31)
Other consumer loans(a)
(17)(21)
Total losses charged-off$(64)(109)
Recoveries of losses previously charged-off:
Commercial and industrial loans$2 
Commercial mortgage loans1 
Commercial leases 
Residential mortgage loans2 
Home equity3 
Indirect secured consumer loans9 
Credit card4 
Other consumer loans(a)
9 12 
Total recoveries of losses previously charged-off$30 38 
Net losses charged-off:
Commercial and industrial loans$(9)(27)
Commercial mortgage loans1 (2)
Commercial leases 
Residential mortgage loans1 — 
Home equity1 — 
Indirect secured consumer loans(7)(9)
Credit card(13)(25)
Other consumer loans(8)(9)
Total net losses charged-off$(34)(71)
Net losses charged-off as a percent of average portfolio loans and leases:
Commercial and industrial loans0.07 %0.22 
Commercial mortgage loans(0.03)0.09 
Commercial leases(0.02)(0.09)
Total commercial loans and leases0.05 %0.17 
Residential mortgage loans(0.02)(0.01)
Home equity(0.07)0.01 
Indirect secured consumer loans0.17 0.25 
Credit card3.13 5.50 
Other consumer loans1.07 1.17 
Total consumer loans0.25 %0.43 
Total net losses charged-off as a percent of average portfolio loans and leases0.12 %0.27 
(a)For the three months ended March 31, 2022 and 2021, the Bancorp recorded $8 and $10, 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 included in the Bancorp’s Annual Report on Form 10-K for the year ended December 31, 2021, 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 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
44


Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)
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 Condensed 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 Condensed 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 March 31, 2022 and December 31, 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.

March 31, 2022 ACL
The ACL as of March 31, 2022 was impacted by several factors, including continued improvement in credit quality, a relatively stable Baseline and Upside economic outlook, and some deterioration observed in the forecast for the Downside scenario. As a result of these factors, the Bancorp incorporated a combination of quantitative model-based estimates and qualitative adjustments. As of March 2022, the Bancorp’s economic scenarios included estimates of the expected impacts of the changes in economic conditions caused by rising geopolitical tensions, inflationary and rising interest rate pressures, and the COVID-19 pandemic. The Baseline scenario was assigned a probability weighting of 60%, with the more favorable scenario (Upside) assigned a probability weighting of 20% and the less favorable scenario (Downside) assigned a probability of 20%. The Baseline scenario assumed that disruptions to oil, natural gas, and other commodities resulting from rising geopolitical tensions would be temporary. The Baseline scenario assumed real GDP growth for 2022 at 3.5%, which is lower than the December 2021 scenario, partially due to the effects of increased energy prices. The Baseline scenario also assumes an average unemployment rate of 3.6% in 2022, with full employment achieved by early 2023. The Upside scenario assumes a faster than expected resolution to the rising geopolitical uncertainty with related improvement to economic measures. The Upside scenario also assumes that on an average annual basis, the change in real GDP is 5.0% in 2022 and 4.6% in 2023, with the unemployment rate at 3.3% in 2022 and 2.9% in 2023. The Downside scenario includes significant worsening of geopolitical tensions along with a related increase in oil prices and inflation, causing the U.S. economy to fall into a recession in the second quarter of 2022. The Downside scenario assumes that real GDP will decline
45


Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)
through the fourth quarter of 2022, with the change in real GDP on an average annual basis at 0.9% in 2022 and (0.4%) in 2023. The Downside scenario unemployment rate peaks at 7.9% in the second quarter of 2023 and decreases to an average of 6.1% in 2024.

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 $1.1 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.

At March 31, 2022, the qualitative component of the ACL included consideration of certain factors that represent remaining risks specifically associated with the COVID-19 pandemic. These considerations resulted in qualitative adjustments to increase the ACL, primarily related to commercial borrowers experiencing prolonged distress and commercial borrowers in certain industries which have been severely impacted by the COVID-19 pandemic.

The following table provides a rollforward of the Bancorp’s ACL:

TABLE 53: Changes in Allowance for Credit Losses
For the three months ended
March 31,
($ in millions)
2022
2021
ALLL:
Balance, beginning of period$1,892 2,453 
Losses charged-off(a)
(64)(109)
Recoveries of losses previously charged-off(a)
30 38 
Provision for (benefit from) loan and lease losses50 (174)
Balance, end of period$1,908 2,208 
Reserve for unfunded commitments:
Balance, beginning of period$182 172 
(Benefit from) provision for the reserve for unfunded commitments(5)
Balance, end of period$177 173 
(a)For the three months ended March 31, 2022 and 2021, the Bancorp recorded $8 and $10, 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.














46


Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)
The following table provides an attribution of the Bancorp’s ALLL to portfolio loans and leases:
TABLE 54: Attribution of Allowance for Loan and Lease Losses to Portfolio Loans and Leases
As of ($ in millions)March 31,
2022
December 31,
2021
Attributed ALLL:
Commercial and industrial loans$761 711 
Commercial mortgage loans253 304 
Commercial construction loans79 72 
Commercial leases17 15 
Residential mortgage loans239 235 
Home equity115 123 
Indirect secured consumer loans139 119 
Credit card204 209 
Other consumer loans101 104 
Total ALLL$1,908 1,892 
Portfolio loans and leases:
Commercial and industrial loans$53,909 51,659 
Commercial mortgage loans10,694 10,316 
Commercial construction loans5,420 5,241 
Commercial leases2,915 3,052 
Residential mortgage loans17,144 16,397 
Home equity3,916 4,084 
Indirect secured consumer loans17,424 16,783 
Credit card1,690 1,766 
Other consumer loans2,753 2,752 
Total portfolio loans and leases$115,865 112,050 
Attributed ALLL as a percent of respective portfolio loans and leases:
Commercial and industrial loans1.41  %1.38 
Commercial mortgage loans2.37 2.95 
Commercial construction loans1.46 1.37 
Commercial leases0.58 0.49 
Residential mortgage loans1.39 1.43 
Home equity2.94 3.01 
Indirect secured consumer loans0.80 0.71 
Credit card12.07 11.83 
Other consumer loans3.67 3.78 
Total ALLL as a percent of portfolio loans and leases1.65  %1.69 
Total ACL as a percent of portfolio loans and leases1.80 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 included in the Bancorp’s Annual Report on Form 10‑K for the year ended December 31, 2021.
47


Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)
INTEREST RATE AND PRICE RISK MANAGEMENT
Interest rate risk is the risk to earnings or capital arising from movement of interest rates. This risk primarily impacts the Bancorp’s income categories through changes in interest income on earning assets and the cost of interest-bearing liabilities, and through fee items that are related to interest sensitive activities such as mortgage origination and servicing income and through earnings credits earned on commercial deposits that offset commercial deposit fees. Price risk is the risk to earnings or capital arising from changes in the value of financial instruments and portfolios due to movements in interest rates, volatilities, foreign exchange rates, equity prices and commodity prices. Management considers interest rate risk a prominent market risk in terms of its potential impact on earnings. Interest rate risk may occur for any one or more of the following reasons:

Assets and liabilities mature or reprice at different times;
Short-term and long-term market interest rates change by different amounts; or
The expected maturities of various assets or liabilities shorten or lengthen as interest rates change.

In addition to the direct impact of interest rate changes on NII and interest-sensitive fees, interest rates can impact earnings through their effect on loan and deposit demand, credit losses, mortgage origination volumes, the value of servicing rights and other sources of the Bancorp’s earnings. Changes in interest rates and other market factors can impact earnings through changes in the value of portfolios, if not appropriately hedged. Stability of the Bancorp’s net income is largely dependent upon the effective management of interest rate risk and to a lesser extent price risk. Management continually reviews the Bancorp’s on- and off-balance sheet composition, earnings flows, and hedging strategies and models interest rate risk and price risk exposures, and possible actions to manage these risks, given numerous possible future interest rate and market factor scenarios. A series of policy limits and key risk indicators are employed to ensure that risks are managed within the Bancorp’s risk tolerance for interest rate risk and price risk.

In addition to the traditional forms of interest rate risk discussed in this section, the Bancorp is exposed to interest rate risk associated with the retirement and replacement of LIBOR. For more information on the LIBOR transition, refer to the Overview section of MD&A.

The Commercial and Wealth and Asset Management lines of business manage price risk for capital markets sales and trading activities related to their respective businesses. The Mortgage line of business manages price risk for the origination and sale of conforming residential mortgage loans to government agencies and government-sponsored enterprises. The Bancorp’s Treasury department manages interest rate risk and price risk for all other activities. Independent oversight is provided by ERM, and key risk indicators and Board-approved policy limits are used to ensure risks are managed within the Bancorp’s risk tolerance.

The Bancorp’s Market Risk Management Committee, which includes senior management representatives, is accountable to the ERMC, provides oversight and monitors price risk for the capital markets sales and trading activities. The Bancorp’s ALCO, which includes senior management representatives and is accountable to the ERMC, provides oversight and monitors interest rate and price risks for Mortgage and Treasury activities.

Net Interest Income Sensitivity
The Bancorp employs a variety of measurement techniques to identify and manage its interest rate risk, including the use of an NII simulation model to analyze the sensitivity of NII to changes in interest rates. The model is based on contractual and estimated cash flows and repricing characteristics for all of the Bancorp’s assets, liabilities and off-balance sheet exposures and incorporates market-based assumptions regarding the effect of changing interest rates on the prepayment rates of certain assets and attrition rates of certain liabilities. The model also includes senior management’s projections of the future volume and pricing of each of the product lines offered by the Bancorp as well as other pertinent assumptions. Actual results may differ from simulated results due to timing, magnitude and frequency of interest rate changes, deviations from projected assumptions as well as from changes in market conditions and management strategies.

As of March 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 in interest rates over twelve months and a 25 bps decrease in rates over three 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, including negative rate scenarios, to assess where risks to net interest income persist or develop as changes in the balance sheet and market rates evolve. Additionally, the Bancorp routinely evaluates its exposures to changes in the bases between interest rates. The ongoing COVID-19 pandemic has caused significant changes to interest rates, volatilities and the composition of the Bancorp’s balance sheet, including significant increases in deposit funding related to stimulus programs, which has resulted in an excess liquidity position. The excess liquidity persists but has declined as of March 31, 2022, as a portion of the Bancorp’s cash was invested in long-term fixed-rate securities during the quarter.

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 $4.5 billion of additional demand deposit balances run-off over 24 months above what is included in senior management’s baseline projections for each 100 bps increase in short-term market interest rates. Similarly, the Bancorp’s NII sensitivity modeling incorporates approximately $4.5 billion of incremental growth in noninterest-bearing deposit balances over 24
48


Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)
months above senior management’s baseline projections for each 100 bps decrease in short-term market interest rates. The incremental balance run-off and growth are modeled to flow into and out of funding products that reprice in conjunction with short-term market rate changes and reflect the Bank’s excess liquidity position.

Another important deposit modeling assumption is the amount by which interest-bearing deposit rates will increase or decrease when market interest rates increase or decrease. This deposit repricing sensitivity is known as the beta, and it represents the expected amount by which the Bancorp’s interest-bearing transaction deposit rates will change for a given change in short-term market rates. At December 31, 2021, dynamic deposit beta models were implemented and utilized to adjust assumed pricing sensitivity depending on market rate levels. This change preserves alignment to prior rate hike cycles and adjusts expectations for a wide range of scenarios. Using this approach, the Bancorp’s NII sensitivity modeling assumes weighted-average rising-rate interest-bearing deposit betas at the end of the ramped parallel scenarios of 34% and 39%, 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 25 bps decrease in rates of 25% at March 31, 2022, while maintaining that deposit rates themselves will not become negative. In addition, the modeling assumes there is no lag between the timing of changes in market rates and the timing of deposit repricing despite such timing lags having occurred in prior rate cycles.

The Bancorp continually evaluates the sensitivity of its interest rate risk measures to these important deposit modeling assumptions. The Bancorp also regularly monitors the sensitivity of other important modeling assumptions, such as loan and security prepayments and early withdrawals on fixed-rate customer liabilities.

The following table shows the Bancorp’s estimated NII sensitivity profile and ALCO policy limits as of:
TABLE 55: Estimated NII Sensitivity Profile and ALCO Policy Limits
March 31, 2022March 31, 2021
% Change in NII (FTE)ALCO
Policy Limit
% Change in NII (FTE)ALCO
Policy Limit
Change in Interest Rates (bps)12
 Months
13-24
Months
12
Months
13-24
Months
12
 Months
13-24
Months
12
Months
13-24
Months
+200 Ramp over 12 months5.64  %13.59 (4.00)(6.00)10.39 21.35 (4.00)(6.00)
+100 Ramp over 12 months3.45 8.61 N/AN/A5.38 11.59 N/A
N/A
-25 Ramp over 3 months(2.72)(3.99)(8.00)(12.00)(1.98)(3.11)N/AN/A

At March 31, 2022, the Bancorp’s NII would benefit moderately in year one and significantly in year two under the parallel rate ramp increases. The Bancorp maintains an asymmetric NII sensitivity profile, which is attributable to the level of floating-rate assets, including the predominantly floating-rate commercial loan portfolio, exceeding the level of floating-rate liabilities due to the increased amount of deposits with rates near zero in this low interest rate environment and other fixed-rate borrowings. Reductions in the yield of the commercial loan portfolio would be expected to be only partially offset by a decline in the cost of interest-bearing deposits in a falling-rate scenario. However, continued re-positioning into securities with less near-term principal cash flows and the execution of additional receive-fix hedges have added significant protection from declining rates. The changes in the estimated NII sensitivity profile compared to March 31, 2021 were primarily attributable to significant deployment of cash into long-term fixed-rate securities during the first quarter of 2022 and the dynamic beta implementation mentioned previously. These items were partially offset by continued increases in noninterest-bearing and low-cost interest-bearing deposits.

Tables 56 and 57 provide the sensitivity of the Bancorp’s estimated NII profile at March 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 $5 billion decrease and an immediate $5 billion increase in demand deposit balances as of March 31, 2022:
TABLE 56: Estimated NII Sensitivity Profile at March 31, 2022 with a $5 Billion Change in Demand Deposit Assumption
% Change in NII (FTE)
Immediate $5 Billion Balance
Decrease
Immediate $5 Billion Balance
Increase
Change in Interest Rates (bps)12
Months
13-24
Months
12
Months
13-24
Months
+200 Ramp over 12 months4.28  %11.26 7.00 15.92 
+100 Ramp over 12 months2.58 7.25 4.32 9.97 
-25 Ramp over 3 months(3.33)(4.62)(2.11)(3.36)

49


Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)
The following table includes the Bancorp’s estimated NII sensitivity profile with a 25% increase and a 25% decrease to the corresponding deposit beta assumptions as of March 31, 2022:
TABLE 57: Estimated NII Sensitivity Profile at March 31, 2022 with Deposit Beta Assumptions Changes
% Change in NII (FTE)
Betas 25% Higher(a)
Betas 25% Lower(b)
Change in Interest Rates (bps)12
 Months
13-24
Months
12
Months
13-24
Months
+200 Ramp over 12 months3.83 %9.63 7.46 17.55 
+100 Ramp over 12 months2.66 6.95 4.24 10.27 
-25 Ramp over 3 months(2.72)(3.99)(2.73)(3.99)
(a)Includes weighted-average dynamic interest-bearing deposit betas of 49%, 42% and 31%, in the order of scenarios shown top to bottom.
(b)Includes weighted-average dynamic interest-bearing deposit betas of 29%, 25% and 19% in the order of scenarios shown top to bottom.

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:
TABLE 58: Estimated EVE Sensitivity Profile
March 31, 2022March 31, 2021
Change in Interest Rates (bps)% Change in EVEALCO
Policy Limit
% Change in EVEALCO
Policy Limit
+200 Shock(3.63)%(12.00)6.49 (12.00)
+100 Shock(1.46)N/A3.77 N/A
-25 Shock0.16 (12.00)(1.20)N/A

The EVE sensitivity is moderately negative in a +200 bps rising-rate scenario at March 31, 2022. The changes in the estimated EVE sensitivity profile from March 31, 2021 were primarily related to significant deployment of cash into long-term fixed-rate securities during the first quarter of 2022 and the implementation of dynamic deposit beta models which have a detrimental effect to EVE-at-Risk due to current implied long-term rate levels. These items were partially offset by continued growth in noninterest-bearing and low-cost interest-bearing deposits.

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.

50


Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)
Tables 59 and 60 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 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, including the notional amount and fair values of these derivatives, refer to Note 13 of the Notes to Condensed 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 59: Weighted-Average Maturity, Receive Rate and Pay Rate on Qualifying Hedging Instruments
As of March 31, 2022 ($ in millions)Notional
Amount
Fair
Value
Remaining
(years)
Fixed Rate
Index
Interest rate swaps related to C&I loans – cash flow – receive-fixed$8,000 (2)1.8 3.02  %1 ML
Interest rate swaps related to commercial mortgage and commercial construction loans – cash flow – receive-fixed
4,000 (15)2.8 0.99 1 ML
Interest rate swaps related to long-term debt – fair value – receive-fixed1,955 239 8.2 4.93 1 ML / 3 ML
Total interest rate swaps$13,955 222 

Interest rate floors – cash flow – receive-fixed
$3,000 46 2.7 2.25 
1 ML
TABLE 60: Weighted-Average Maturity, Receive Rate and Pay Rate on Qualifying Hedging Instruments
As of December 31, 2021 ($ in millions)Notional AmountFair ValueRemaining (years)Fixed Rate
Index
Interest rate swaps related to C&I loans – cash flow – receive-fixed$8,000 (1)2.0 3.02  %1 ML
Interest rate swaps related to commercial mortgage and commercial construction loans – cash flow – receive-fixed
4,000  3.1 0.99 1 ML
Interest rate swaps related to long-term debt – fair value – receive-fixed1,955 391 8.4 4.93 1 ML / 3 ML
Interest rate swaps related to available-for-sale debt and other securities – fair value – receive-floating / pay-fixed445 7.42.40 1 ML
Total interest rate swaps$14,400 397 
Interest rate floors – cash flow – receive-fixed$3,000 122 3.0 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 credit equivalent exposure on these contracts and counterparty credit approvals performed by independent risk management. For further information, including the notional amount and fair values of these derivatives, refer to Note 13 of the Notes to Condensed Consolidated Financial Statements.

Residential Mortgage Servicing Rights and Price Risk
The fair value of the residential MSR portfolio was $1.4 billion and $1.1 billion at March 31, 2022 and December 31, 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 recognized net losses of $182 million and $136 million on its non-qualifying hedging strategy for the three months ended March 31, 2022 and 2021, respectively. These amounts included net losses of $1 million and $2 million for the three months ended March 31, 2022, and 2021, respectively, on securities related to the Bancorp’s non-qualifying hedging strategy. The Bancorp may adjust its hedging strategy to reflect its assessment of the composition of its MSR portfolio, the cost of hedging
51


Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)
and the anticipated effectiveness of the hedges given the economic environment. Refer to Note 12 of the Notes to Condensed 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 Condensed Consolidated Statements of Income. The balance of the Bancorp’s foreign denominated loans at March 31, 2022 and December 31, 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 credit equivalent exposure on these contracts, counterparty credit approvals and country limits performed by independent risk management.

Commodity Risk
The Bancorp also enters into commodity contracts for the benefit of commercial customers to hedge their exposure to commodity price fluctuations. Similar to the hedging of foreign exchange and price risk from interest rate derivative contracts, the Bancorp also enters into commodity contracts with major financial institutions to economically hedge a substantial portion of the exposure from client driven commodity activity. The Bancorp may also offset this risk with exchange-traded commodity contracts. The Bancorp has risk limits and internal controls in place to help ensure excessive risk is not taken in providing this service to customers. These controls include an independent determination of commodity volatility and credit equivalent exposure on these contracts and counterparty credit approvals performed by independent risk management.
52


Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)
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 15 of the Notes to Condensed 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.

Of the $48.8 billion of securities in the Bancorp’s available-for-sale debt and other securities portfolio at March 31, 2022, $4.2 billion in principal and interest is expected to be received in the next 12 months and an additional $4.7 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. For the three months ended March 31, 2022 and 2021, the Bancorp sold loans and leases totaling $3.5 billion and $3.6 billion, respectively. For further information, refer to Note 12 of the Notes to Condensed 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 91% and 88% of its average total assets for the three months ended March 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.

As of March 31, 2022, $4.2 billion of debt or other securities were available for issuance under the current Bancorp’s Board of Directors’ authorizations and the Bancorp is authorized to file any necessary registration statements with the SEC to permit ready access to the public securities markets; however, access to these markets may depend on market conditions. For further information on a subsequent event related to long-term debt, refer to Note 22 of the Notes to Condensed Consolidated Financial Statements.

As of March 31, 2022, the Bank’s global bank note program had a borrowing capacity of $25.0 billion, of which $22.3 billion was available for issuance. Additionally, at March 31, 2022, the Bank had approximately $53.1 billion of borrowing capacity available through secured borrowing sources, including the FRB and FHLB.
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Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)

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 which allows for the effective management of concentration and rollover risk. 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 March 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 21 months.

Credit Ratings
The cost and availability of financing to the Bancorp and Bank are impacted by its credit ratings. A downgrade to the Bancorp’s or Bank’s credit ratings could affect its ability to access the credit markets and increase its borrowing costs, thereby adversely impacting the Bancorp’s or Bank’s financial condition and liquidity. Key factors in maintaining high credit ratings include a stable and diverse earnings stream, strong credit quality, strong capital ratios and diverse funding sources, in addition to disciplined liquidity monitoring procedures.

The Bancorp’s and Bank’s credit ratings are summarized in Table 61. 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 61: Agency Ratings
As of May 9, 2022Moody’sStandard and Poor’sFitchDBRS Morningstar
 Fifth Third Bancorp:
Short-term borrowingsNo ratingA-2F1R-1L
Senior debtBaa1BBB+A-A
Subordinated debtBaa1BBBBBB+AL
Fifth Third Bank, National Association:
Short-term borrowingsP-2A-2F1R-1M
Short-term depositP-1No ratingF1No rating
Long-term depositA1No ratingAAH
Senior debtA3A-A-AH
Subordinated debtA3BBB+BBB+A
Rating Agency Outlook for Fifth Third Bancorp and Fifth Third Bank, National AssociationStableStableStableStable



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Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)
CAPITAL MANAGEMENT
Management regularly reviews the Bancorp’s capital levels to help ensure it is appropriately positioned under various operating environments. The Bancorp has established a Capital Committee which is responsible for making capital plan recommendations to management. These recommendations are reviewed by the ERMC and the annual capital plan is approved by the Board of Directors. The Capital Committee is responsible for execution and oversight of the capital actions of the capital plan.

Regulatory Capital Ratios
The Basel III Final Rule sets minimum regulatory capital ratios as well as defines the measure of “well-capitalized” for insured depository institutions.
TABLE 62: Prescribed Capital Ratios
MinimumWell-Capitalized
CET1 capital:
Fifth Third Bancorp4.50  %N/A
Fifth Third Bank, National Association
4.50 6.50 
Tier 1 risk-based capital:
Fifth Third Bancorp6.00 6.00 
Fifth Third Bank, National Association
6.00 8.00 
Total risk-based capital:
Fifth Third Bancorp8.00 10.00 
Fifth Third Bank, National Association
8.00 10.00 
Leverage:
Fifth Third Bancorp4.00 N/A
Fifth Third Bank, National Association
4.00 5.00 

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 on June 24, 2021. 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 March 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 22 basis points as of March 31, 2022.

55


Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)
The following table summarizes the Bancorp’s capital ratios as of:
TABLE 63: Capital Ratios
($ in millions)
March 31,
2022
December 31,
2021
Quarterly average total Bancorp shareholders’ equity as a percent of average assets10.23  %10.71 
Tangible equity as a percent of tangible assets(a)(b)
7.98 7.97 
Tangible common equity as a percent of tangible assets(a)(b)
6.96 6.94 
Regulatory capital:(c)
CET1 capital$14,937 14,781 
Tier 1 capital17,053 16,897 
Total regulatory capital20,729 20,789 
Risk-weighted assets
160,352 154,860 
Regulatory capital ratios:(c)
CET1 capital9.31  %9.54 
Tier 1 risk-based capital10.63 10.91 
Total risk-based capital12.93 13.42 
Leverage8.32 8.27 
(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 March 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 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 $0.30 and $0.27 for the three months ended March 31, 2022 and 2021, respectively.

56


Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)
The following table summarizes the monthly share repurchase activity for the three months ended March 31, 2022:
TABLE 64: Share Repurchases

Period
Total Number
of Shares Purchased(a)
Average Price
Paid per Share
Total Number of Shares
Purchased as a Part of
Publicly Announced
Plans or Programs
Maximum Number of
Shares that May Yet Be
Purchased under the
Plans or Programs(b)
January 1 - January 31, 2022472,720$46.08 40,785,269
February 1 - February 28, 20221,034,58347.97 40,785,269
March 1 - March 31, 202290,75246.58 40,785,269
Total1,598,055$47.33 40,785,269
(a)    Shares repurchased during the periods presented were in connection with various employee compensation plans. These purchases do not count against the maximum number of shares that may yet be purchased under the Board of Directors authorization.
(b)    In June 2019, the Bancorp announced that its Board of Directors had authorized management to purchase 100 million shares of the Bancorps common stock through the open market or in any private party transactions. This authorization did not include specific targets or an expiration date.
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Table of Contents
Quantitative and Qualitative Disclosures about Market Risk (Item 3)
Information presented in the Interest Rate and Price Risk Management section of Management’s Discussion and Analysis of Financial Condition and Results of Operations is incorporated herein by reference. This information contains certain statements that we believe are forward-looking statements. Refer to page 1 for cautionary information regarding forward-looking statements.

Controls and Procedures (Item 4)
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 the Bancorp’s management, including its Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

The Bancorp’s management also conducted an evaluation of internal control over financial reporting to determine whether any changes occurred during the period 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 period covered by this report.
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Fifth Third Bancorp and Subsidiaries
Condensed Consolidated Financial Statements and Notes (Item 1)
CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited)
As of
March 31,December 31,
($ in millions, except share data)20222021
Assets
Cash and due from banks$3,049 2,994 
Other short-term investments(a)
20,529 34,572 
Available-for-sale debt and other securities(b)
48,832 38,110 
Held-to-maturity securities(c)
6 
Trading debt securities324 512 
Equity securities358 376 
Loans and leases held for sale(d)
2,616 4,415 
Portfolio loans and leases(a)(e)
115,865 112,050 
Allowance for loan and lease losses(a)
(1,908)(1,892)
Portfolio loans and leases, net113,957 110,158 
Bank premises and equipment(f)
2,102 2,120 
Operating lease equipment622 616 
Goodwill4,514 4,514 
Intangible assets145 156 
Servicing rights1,444 1,121 
Other assets(a)
12,961 11,444 
Total Assets$211,459 211,116 
Liabilities
Deposits:
Noninterest-bearing deposits$65,590 65,088 
Interest-bearing deposits105,021 104,236 
Total deposits170,611 169,324 
Federal funds purchased250 281 
Other short-term borrowings872 980 
Accrued taxes, interest and expenses1,471 2,233 
Other liabilities(a)
7,263 4,267 
Long-term debt(a)
10,815 11,821 
Total Liabilities$191,282 188,906 
Equity
Common stock(g)
$2,051 2,051 
Preferred stock(h)
2,116 2,116 
Capital surplus3,615 3,624 
Retained earnings20,501 20,236 
Accumulated other comprehensive (loss) income(1,096)1,207 
Treasury stock(g)
(7,010)(7,024)
Total Equity$20,177 22,210 
Total Liabilities and Equity$211,459 211,116 
(a)Includes $24 and $24 of other short-term investments, $266 and $322 of portfolio loans and leases, $(2) and $(2) of ALLL, $2 and $2 of other assets, an immaterial amount and $1 of other liabilities, and $209 and $263 of long-term debt from consolidated VIEs that are included in their respective captions above at March 31, 2022 and December 31, 2021, respectively. For further information, refer to Note 11.
(b)Amortized cost of $50,171 and $36,941 at March 31, 2022 and December 31, 2021, respectively.
(c)Fair value of $6 and $8 at March 31, 2022 and December 31, 2021, respectively.
(d)Includes $858 and $1,023 of residential mortgage loans held for sale measured at fair value at March 31, 2022 and December 31, 2021, respectively.
(e)Includes $145 and $154 of residential mortgage loans measured at fair value at March 31, 2022 and December 31, 2021, respectively.
(f)Includes $25 and $24 of bank premises and equipment held for sale at March 31, 2022 and December 31, 2021, respectively.
(g)Common shares: Stated value $2.22 per share; authorized 2,000,000,000; outstanding at March 31, 2022 – 685,905,240 (excludes 237,987,341 treasury shares), December 31, 2021 – 682,777,664 (excludes 241,114,917 treasury shares).
(h)500,000 shares of no par value preferred stock were authorized at both March 31, 2022 and December 31, 2021. There were 422,000 unissued shares of undesignated no par value preferred stock at both March 31, 2022 and December 31, 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 March 31, 2022 and December 31, 2021. There were 300,000 unissued shares of undesignated no par value Class B preferred stock at both March 31, 2022 and December 31, 2021. Each issued share of no par value Class B preferred stock has a liquidation preference of $1,000.

Refer to the Notes to Condensed Consolidated Financial Statements.
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Fifth Third Bancorp and Subsidiaries
Condensed Consolidated Financial Statements and Notes (continued)
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (unaudited)
For the three months ended
March 31,
($ in millions, except share data)20222021
Interest Income
Interest and fees on loans and leases$983 1,030 
Interest on securities294 264 
Interest on other short-term investments12 
Total interest income1,289 1,302 
Interest Expense
Interest on deposits11 21 
Interest on other short-term borrowings 
Interest on long-term debt83 104 
Total interest expense94 126 
Net Interest Income1,195 1,176 
Provision for (benefit from) credit losses45 (173)
Net Interest Income After Provision for (Benefit from) Credit Losses1,150 1,349 
Noninterest Income
Service charges on deposits152 144 
Wealth and asset management revenue149 143 
Commercial banking revenue135 153 
Card and processing revenue97 94 
Leasing business revenue62 87 
Mortgage banking net revenue52 85 
Other noninterest income52 42 
Securities (losses) gains, net(14)
Securities losses, net non-qualifying hedges on mortgage servicing rights
(1)(2)
Total noninterest income684 749 
Noninterest Expense
Compensation and benefits711 706 
Technology and communications101 93 
Net occupancy expense77 79 
Equipment expense36 34 
Leasing business expense32 35 
Marketing expense24 23 
Card and processing expense19 30 
Other noninterest expense222 215 
Total noninterest expense1,222 1,215 
Income Before Income Taxes612 883 
Applicable income tax expense118 189 
Net Income494 694 
Dividends on preferred stock20 20 
Net Income Available to Common Shareholders$474 674 
Earnings per share - basic$0.69 0.94 
Earnings per share - diluted$0.68 0.93 
Average common shares outstanding - basic687,537,989 714,432,813 
Average common shares outstanding - diluted696,242,395 723,425,111 

Refer to the Notes to Condensed Consolidated Financial Statements.
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Fifth Third Bancorp and Subsidiaries
Condensed Consolidated Financial Statements and Notes (continued)
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (unaudited)
For the three months ended
March 31,
($ in millions)20222021
Net Income$494 694 
Other Comprehensive Loss, Net of Tax:
Net unrealized (losses) gains on available-for-sale debt securities:
Unrealized holding losses arising during period(1,929)(700)
Reclassification adjustment for net (gains) losses included in net income(2)11 
Net unrealized (losses) gains on cash flow hedge derivatives:
Unrealized holding losses arising during period(313)(64)
Reclassification adjustment for net gains included in net income(60)(57)
Defined benefit pension plans, net:
Reclassification of amounts to net periodic benefit costs1 
Other comprehensive loss, net of tax(2,303)(809)
Comprehensive Loss$(1,809)(115)

Refer to the Notes to Condensed Consolidated Financial Statements.
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Fifth Third Bancorp and Subsidiaries
Condensed Consolidated Financial Statements and Notes (continued)
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (unaudited)
($ in millions, except per share data)Common
Stock
Preferred
Stock
Capital
Surplus
Retained
Earnings
Accumulated
Other
Comprehensive
(Loss) Income
Treasury
Stock
Total
Equity
Balance at December 31, 2020$2,051 2,116 3,635 18,384 2,601 (5,676)23,111 
Net income694 694 
Other comprehensive loss, net of tax(809)(809)
Cash dividends declared:
Common stock ($0.27 per share)
(195)(195)
Preferred stock:
     Series I ($414.06 per share)
(7)(7)
     Series J ($211.50 per share)
(3)(3)
     Series K ($309.38 per share)
(3)(3)
     Series L ($281.25 per share)
(4)(4)
     Class B, Series A ($15.00 per share)
(3)(3)
Shares acquired for treasury(180)(180)
Impact of stock transactions under stock compensation plans, net(43)37 (6)
Balance at March 31, 2021$2,051 2,116 3,592 18,863 1,792 (5,819)22,595 

Balance at December 31, 2021$2,051 2,116 3,624 20,236 1,207 (7,024)22,210 
Net income494 494 
Other comprehensive loss, net of tax(2,303)(2,303)
Cash dividends declared:
Common stock ($0.30 per share)
(209)(209)
Preferred stock:
     Series I ($414.06 per share)
(7)(7)
     Series J ($209.48 per share)
(3)(3)
     Series K ($309.38 per share)
(3)(3)
     Series L ($281.25 per share)
(4)(4)
     Class B, Series A ($15.00 per share)
(3)(3)
Impact of stock transactions under stock compensation plans, net(9)14 5 
Balance at March 31, 2022$2,051 2,116 3,615 20,501 (1,096)(7,010)20,177 

Refer to the Notes to Condensed Consolidated Financial Statements.


























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Fifth Third Bancorp and Subsidiaries
Condensed Consolidated Financial Statements and Notes (continued)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
For the three months ended March 31,
($ in millions)20222021
Operating Activities
Net income$494 694 
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for (benefit from) credit losses45 (173)
Depreciation, amortization and accretion109 122 
Stock-based compensation expense79 55 
Provision for (benefit from) deferred income taxes19 (186)
Securities losses, net18 
MSR fair value adjustment(137)(71)
Net gains on sales of loans and fair value adjustments on loans held for sale(8)(48)
Net (gains) losses on disposition and impairment of bank premises and equipment and operating lease equipment(3)23 
Proceeds from sales of loans held for sale3,398 3,557 
Loans originated or purchased for sale, net of repayments(2,001)(4,174)
Dividends representing return on equity investments11 
Net change in:
Equity and trading debt securities186 (155)
Other assets287 265 
Accrued taxes, interest and expenses and other liabilities(810)(284)
Net Cash Provided by (Used in) Operating Activities1,687 (366)
Investing Activities
Proceeds from sales:
AFS securities and other investments993 453 
Loans and leases43 155 
Bank premises and equipment 12 
Proceeds from repayments / maturities of AFS and HTM securities and other investments1,438 1,341 
Purchases:
AFS securities and other investments(14,423)(3,092)
Bank premises and equipment(63)(60)
MSRs(139)(18)
Proceeds from settlement of BOLI19 11 
Proceeds from sales and dividends representing return of equity investments8 16 
Net change in:
Other short-term investments and federal funds sold14,043 (788)
Portfolio loans and leases(3,504)(355)
Operating lease equipment(32)
Net Cash Used in Investing Activities(1,617)(2,322)
Financing Activities
Net change in deposits1,287 3,312 
Net change in other short-term borrowings and federal funds purchased(139)(82)
Dividends paid on common and preferred stock(230)(215)
Proceeds from issuance of long-term debt12 25 
Repayment of long-term debt(870)(131)
Repurchases of treasury stock and related forward contract (180)
Other(75)(66)
Net Cash (Used in) Provided by Financing Activities(15)2,663 
Increase (Decrease) in Cash and Due from Banks55 (25)
Cash and Due from Banks at Beginning of Period2,994 3,147 
Cash and Due from Banks at End of Period$3,049 3,122 

Refer to the Notes to Condensed Consolidated Financial Statements. Note 2 contains cash payments related to interest and income taxes in addition to non-cash investing and financing activities.
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Fifth Third Bancorp and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited)

1. Basis of Presentation
The Condensed 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.

In the opinion of management, the unaudited Condensed Consolidated Financial Statements include all adjustments, which consist of normal recurring accruals, necessary to present fairly the results for the periods presented. In accordance with U.S. GAAP and the rules and regulations of the SEC for interim financial information, these statements do not include certain information and footnote disclosures required for complete annual financial statements and it is suggested that these Condensed Consolidated Financial Statements be read in conjunction with the Bancorp’s Annual Report on Form 10-K. The results of operations, comprehensive income, changes in equity and cash flows for the three months ended March 31, 2022 and 2021 are not necessarily indicative of the results to be expected for the full year. Financial information as of December 31, 2021 has been derived from the Bancorp’s Annual Report on Form 10-K.

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.

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 three months ended March 31:

($ in millions)20222021
Cash Payments:
Interest$158 182 
Income taxes11 209 
Transfers:
Portfolio loans and leases to loans and leases held for sale$71 220 
Loans and leases held for sale to portfolio loans and leases402 10 
Portfolio loans and leases to OREO2 
Bank premises and equipment to OREO15 16 
Supplemental Disclosures:
Net additions to lease liabilities under operating leases
$31 15 
Net additions to lease liabilities under finance leases
3 18 

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Fifth Third Bancorp and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited)
3. Accounting and Reporting Developments

Standards Adopted in 2022
The Bancorp adopted the following new accounting standard during the three months ended March 31, 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 simplifies 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 Condensed 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 March 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 amended guidance is effective for the Bancorp on January 1, 2023, with early adoption permitted, and is to be applied prospectively to business combinations occurring on or after the adoption date. The amended guidance may be applied retrospectively to the beginning of the fiscal year of adoption if early adopted in an interim period.

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 amended guidance is effective for the Bancorp on January 1, 2023 with early adoption permitted. Upon adoption, the Bancorp may designate multiple hedged layers of a single closed portfolio on a prospective basis. The amendments related to the fair value basis adjustments should be applied on a modified retrospective basis by recording a cumulative effect adjustment to retained earnings as of the beginning of the year of adoption. The Bancorp may elect to apply the disclosure requirements prospectively or retrospectively. The Bancorp is in the process of evaluating the impact of the amended guidance on its Condensed 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 amended guidance is effective for the Bancorp on January 1, 2023 with early adoption permitted. The amendments on TDR disclosures and vintage disclosures should be adopted prospectively. The elimination of the TDR guidance may be adopted either prospectively or using a modified retrospective transition method. The Bancorp is in the process of evaluating the impact of the amended guidance on its Condensed Consolidated Financial Statements.

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. Subsequently, 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 do not apply to contract modifications made and hedging relationships entered into or evaluated after December 31, 2022, except for hedging relationships existing as of December 31, 2022 for which an entity has elected certain optional expedients and that are retained through the end of the hedging relationship. The amendments in this ASU are effective for the Bancorp as of March 12, 2020 through December 31, 2022. The Bancorp is in the process of evaluating and applying, as applicable, the optional expedients and exceptions in accounting for eligible contract modifications, eligible existing hedging relationships and new hedging relationships available through December 31, 2022.
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Fifth Third Bancorp and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited)
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:
March 31, 2022 ($ in millions)Amortized
Cost
Unrealized
Gains
Unrealized
Losses
Fair
Value
Available-for-sale debt and other securities:
U.S. Treasury and federal agencies securities$1,729  (41)1,688 
Obligations of states and political subdivisions securities18   18 
Mortgage-backed securities:
Agency residential mortgage-backed securities11,066 40 (215)10,891 
Agency commercial mortgage-backed securities25,369 120 (896)24,593 
Non-agency commercial mortgage-backed securities5,125 5 (161)4,969 
Asset-backed securities and other debt securities6,346 15 (206)6,155 
Other securities(a)
518   518 
Total available-for-sale debt and other securities$50,171 180 (1,519)48,832 
Held-to-maturity securities:
Obligations of states and political subdivisions securities$4   4 
Asset-backed securities and other debt securities2   2 
Total held-to-maturity securities$6   6 
(a)Other securities consist of FHLB, FRB and DTCC restricted stock holdings of $30, $486 and $2, respectively, at March 31, 2022, that are carried at cost.

December 31, 2021 ($ in millions)Amortized
Cost
Unrealized
Gains
Unrealized
Losses
Fair
Value
Available-for-sale debt and other securities:
U.S. Treasury and federal agencies securities$85 — 86 
Obligations of states and political subdivisions securities18 — — 18 
Mortgage-backed securities:
Agency residential mortgage-backed securities8,432 368 (18)8,782 
Agency commercial mortgage-backed securities18,236 784 (69)18,951 
Non-agency commercial mortgage-backed securities4,364 128 (13)4,479 
Asset-backed securities and other debt securities5,287 32 (44)5,275 
Other securities(a)
519 — — 519 
Total available-for-sale debt and other securities$36,941 1,313 (144)38,110 
Held-to-maturity securities:
Obligations of states and political subdivisions securities$— — 
Asset-backed securities and other debt securities— — 
Total held-to-maturity securities$— — 
(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:

($ in millions)
March 31,
2022
December 31,
2021
Trading debt securities$324 512 
Equity securities358 376 

The amounts reported in the preceding tables exclude accrued interest receivable on investment securities of $109 million and $82 million at March 31, 2022 and December 31, 2021, respectively, which is presented as a component of other assets in the Condensed 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, net – non-qualifying hedges on mortgage servicing rights in the Condensed Consolidated Statements of Income.

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Fifth Third Bancorp and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited)
The following table presents the components of net securities gains and losses recognized in the Condensed Consolidated Statements of Income, including those recognized related to the Bancorp’s non-qualifying hedging strategy for MSRs:
For the three months ended March 31,
($ in millions)20222021
Available-for-sale debt and other securities:
Realized gains$3 
Realized losses (10)
Impairment losses (7)
Net realized gains (losses) on available-for-sale debt and other securities$3 (15)
Trading debt securities:
Net realized losses(1)(2)
Net unrealized gains11 
Net trading debt securities gains$10 
Equity securities:
Net realized gains1 
Net unrealized (losses) gains(29)
Net equity securities (losses) gains$(28)
Total (losses) gains recognized in income from available-for-sale debt and other securities, trading debt securities and equity securities(a)
$(15)
(a)Excludes $3 and $2 of net securities losses for the three months ended March 31, 2022 and 2021, respectively, related to securities held by FTS to facilitate the timely execution of customer transactions. These losses are included in commercial banking revenue and wealth and asset management revenue in the Condensed Consolidated Statements of Income.

The Bancorp recognized impairment losses on available-for-sale debt and other securities of $7 million during the three months ended March 31, 2021. 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 March 31, 2022 and December 31, 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 three months ended March 31, 2022 and 2021.

At March 31, 2022 and December 31, 2021, investment securities with a fair value of $9.7 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 March 31, 2022 are shown in the following table:
($ in millions)Available-for-Sale Debt and OtherHeld-to-Maturity
Amortized CostFair ValueAmortized CostFair Value
Debt securities:(a)
Due in 1 year or less$926 923 
Due after 1 year through 5 years13,519 13,437 
Due after 5 years through 10 years22,391 21,811 — — 
Due after 10 years12,817 12,143 
Other securities518 518 — — 
Total$50,171 48,832 
(a)Actual maturities may differ from contractual maturities when a right to call or prepay obligations exists with or without call or prepayment penalties.

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Fifth Third Bancorp and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited)
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:
Less than 12 months12 months or moreTotal
($ in millions)Fair ValueUnrealized
Losses
Fair ValueUnrealized
Losses
Fair ValueUnrealized
Losses
March 31, 2022
Obligations of states and political subdivisions securities$1    1  
U.S. Treasury and federal agencies securities1,688 (41)  1,688 (41)
Agency residential mortgage-backed securities7,613 (197)153 (18)7,766 (215)
Agency commercial mortgage-backed securities14,945 (798)858 (98)15,803 (896)
Non-agency commercial mortgage-backed securities3,994 (161)  3,994 (161)
Asset-backed securities and other debt securities4,380 (191)459 (15)4,839 (206)
Total$32,621 (1,388)1,470 (131)34,091 (1,519)
December 31, 2021
Agency residential mortgage-backed securities$935 (10)161 (8)1,096 (18)
Agency commercial mortgage-backed securities2,886 (49)424 (20)3,310 (69)
Non-agency commercial mortgage-backed securities1,052 (13)— — 1,052 (13)
Asset-backed securities and other debt securities2,870 (34)367 (10)3,237 (44)
Total$7,743 (106)952 (38)8,695 (144)

At March 31, 2022 and December 31, 2021, $19 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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Fifth Third Bancorp and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited)
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:

($ in millions)
March 31,
2022
December 31,
2021
Loans and leases held for sale:
Commercial and industrial loans$22 
Commercial mortgage loans 13 
Commercial leases1 
Residential mortgage loans2,593 4,394 
Total loans and leases held for sale$2,616 4,415 
Portfolio loans and leases:
Commercial and industrial loans(a)
$53,909 51,659 
Commercial mortgage loans10,694 10,316 
Commercial construction loans5,420 5,241 
Commercial leases2,915 3,052 
Total commercial loans and leases$72,938 70,268 
Residential mortgage loans$17,144 16,397 
Home equity3,916 4,084 
Indirect secured consumer loans17,424 16,783 
Credit card1,690 1,766 
Other consumer loans2,753 2,752 
Total consumer loans$42,927 41,782 
Total portfolio loans and leases$115,865 112,050 
(a)Includes $737 million and $1.3 billion as of March 31, 2022 and December 31, 2021, respectively, related to the SBA’s Paycheck Protection Program.

Portfolio loans and leases are recorded net of unearned income, which totaled $235 million and $244 million as of March 31, 2022 and December 31, 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 $537 million and $498 million as of March 31, 2022 and December 31, 2021, respectively. The amortized cost basis of loans and leases excludes accrued interest receivable of $328 million and $332 million at March 31, 2022 and December 31, 2021, respectively, which is presented as a component of other assets in the Condensed Consolidated Balance Sheets.

The Bancorp’s FHLB and FRB borrowings are primarily secured by loans. The Bancorp had loans of $15.4 billion and $15.3 billion as of March 31, 2022 and December 31, 2021, respectively, pledged at the FHLB, and loans of $53.5 billion and $50.9 billion at March 31, 2022 and December 31, 2021, respectively, pledged at the FRB.

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Fifth Third Bancorp and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited)
The following table presents a summary of the total loans and leases owned by the Bancorp as of:
Carrying Value
90 Days Past Due and Still Accruing(a)

($ in millions)
March 31,
2022
December 31,
2021
March 31,
2022
December 31,
2021
Commercial and industrial loans$53,931 51,666 9 17 
Commercial mortgage loans10,694 10,329 2 
Commercial construction loans5,420 5,241  
Commercial leases2,916 3,053  — 
Residential mortgage loans19,737 20,791 14 72 
Home equity3,916 4,084 1 
Indirect secured consumer loans17,424 16,783 9 
Credit card1,690 1,766 14 15 
Other consumer loans2,753 2,752 1 
Total loans and leases$118,481 116,465 50 117 
Less: Loans and leases held for sale$2,616 4,415 
Total portfolio loans and leases$115,865 112,050 
(a)Excludes government guaranteed residential mortgage loans.

The following table presents a summary of net charge-offs (recoveries):
For the three months ended
March 31,
($ in millions)20222021
Commercial and industrial loans$9 27 
Commercial mortgage loans(1)
Commercial leases (1)
Residential mortgage loans(1)— 
Home equity(1)— 
Indirect secured consumer loans7 
Credit card13 25 
Other consumer loans8 
Total net charge-offs$34 71 

The Bancorp engages in commercial lease products primarily related to the financing of commercial equipment. Leases are classified as sales-type if the Bancorp transfers control of the underlying asset to the lessee. The Bancorp classifies leases that do not meet any of the criteria for a sales-type lease as a direct financing lease if the present value of the sum of the lease payments and any residual value guaranteed by the lessee and/or any other third party equals or exceeds substantially all of the fair value of the underlying asset and the collection of the lease payments and residual value guarantee is probable.

The following table presents the components of the net investment in leases as of:
($ in millions)(a)
March 31,
2022
December 31, 2021
Net investment in direct financing leases:
Lease payment receivable (present value)$812 886 
Unguaranteed residual assets (present value)143 147 
Net premium on acquired leases1 
Net investment in sales-type leases:
Lease payment receivable (present value)1,639 1,678 
Unguaranteed residual assets (present value)59 55 
(a)Excludes $262 and $285 of leveraged leases at March 31, 2022 and December 31, 2021, respectively.

Interest income recognized in the Condensed Consolidated Statements of Income for the three months ended March 31, 2022 and 2021 was $8 million and $12 million, respectively, for direct financing leases and $11 million and $10 million, respectively, for sales-type leases.

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Fifth Third Bancorp and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited)
The following table presents undiscounted cash flows for both direct financing and sales-type leases for the remainder of 2022 through 2027 and thereafter as well as a reconciliation of the undiscounted cash flows to the total lease receivables as follows:
As of March 31, 2022 ($ in millions)Direct Financing
Leases
Sales-Type Leases
Remainder of 2022$213 406 
2023216 409 
2024156 320 
2025111 265 
202682 129 
202744 100 
Thereafter43 117 
Total undiscounted cash flows$865 1,746 
Less: Difference between undiscounted cash flows and discounted cash flows53 107 
Present value of lease payments (recognized as lease receivables)$812 1,639 

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 $17 million and $15 million at March 31, 2022 and December 31, 2021, respectively, to cover the losses that are expected to be incurred over the remaining contractual terms of the related leases, including the potential losses related to the residual value, in the net investment in leases. Refer to Note 6 for additional information on credit quality and the ALLL.

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Fifth Third Bancorp and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited)
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 three months ended March 31, 2022 ($ in millions)
Commercial
Residential
Mortgage

Consumer

Total
Balance, beginning of period$1,102 235 555 1,892 
Losses charged off(a)
(11)(1)(52)(64)
Recoveries of losses previously charged off(a)
3 2 25 30 
Provision for loan and lease losses16 3 31 50 
Balance, end of period$1,110 239 559 1,908 
(a)The Bancorp recorded $8 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.

For the three months ended March 31, 2021 ($ in millions)

Commercial
Residential
Mortgage

Consumer

Total
Balance, beginning of period$1,456 294 703 2,453 
Losses charged off(a)
(35)(1)(73)(109)
Recoveries of losses previously charged off(a)
30 38 
Benefit from loan and lease losses(99)(47)(28)(174)
Balance, end of period$1,329 247 632 2,208 
(a)The Bancorp recorded $10 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 March 31, 2022 ($ in millions)
Commercial
Residential
Mortgage

Consumer

Total
ALLL:(a)
Individually evaluated$82 47 44 173 
Collectively evaluated1,028 192 515 1,735 
Total ALLL$1,110 239 559 1,908 
Portfolio loans and leases:(b)
Individually evaluated$572 549 321 1,442 
Collectively evaluated72,366 16,450 25,462 114,278 
Total portfolio loans and leases$72,938 16,999 25,783 115,720 
(a)Includes $2 related to commercial leveraged leases at March 31, 2022.
(b)Excludes $145 of residential mortgage loans measured at fair value and includes $262 of commercial leveraged leases, net of unearned income at March 31, 2022.

As of December 31, 2021 ($ in millions)

Commercial
Residential
Mortgage

Consumer

Total
ALLL:(a)
Individually evaluated$77 46 41 164 
Collectively evaluated1,025 189 514 1,728 
Total ALLL$1,102 235 555 1,892 
Portfolio loans and leases:(b)
Individually evaluated$579 460 313 1,352 
Collectively evaluated69,689 15,783 25,072 110,544 
Total portfolio loans and leases$70,268 16,243 25,385 111,896 
(a)Includes $2 related to commercial leveraged leases at December 31, 2021.
(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.

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Fifth Third Bancorp and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited)
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. For more 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, refer to Note 1 of the Notes to Consolidated Financial Statements included in the Bancorp’s Annual Report on Form 10-K for the year ended December 31, 2021.

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Fifth Third Bancorp and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited)
The following tables present the amortized cost basis of the Bancorp’s commercial portfolio segment, by class and vintage, disaggregated by credit risk grade:
As of March 31, 2022 ($ in millions) Term Loans and Leases by Origination YearRevolving LoansRevolving Loans Converted to Term Loans
20222021202020192018PriorTotal
Commercial and industrial loans:
Pass$1,270 4,635 1,823 1,038 491 897 40,918  51,072 
Special mention 41 18 12 8 18 631  728 
Substandard14 40 56 26 50 209 1,714  2,109 
Doubtful         
Total commercial and industrial loans$1,284 4,716 1,897 1,076 549 1,124 43,263  53,909 
Commercial mortgage owner-occupied loans:

Pass$443 997 652 347 263 441 1,339  4,482 
Special mention6 36 33 45 12 5 64  201 
Substandard4 4 47 40 22 69 107  293 
Doubtful         
Total commercial mortgage owner- occupied loans$453 1,037 732 432 297 515 1,510  4,976 
Commercial mortgage nonowner-occupied loans:

Pass$481 572 653 578 269 371 1,985  4,909 
Special mention5 89  7 3 15 116  235 
Substandard44 144 41 4 3 10 328  574 
Doubtful         
Total commercial mortgage nonowner-occupied loans$530 805 694 589 275 396 2,429  5,718 
Commercial construction loans:

Pass$ 25 98 14 36 9 4,707  4,889 
Special mention      198  198 
Substandard 10     323  333 
Doubtful         
Total commercial construction loans 35 98 14 36 9 5,228  5,420 
Commercial leases:

Pass$102 891 401 270 216 970   2,850 
Special mention 4 3 5 8 6   26 
Substandard 6 2 7 9 15   39 
Doubtful         
Total commercial leases$102 901 406 282 233 991   2,915 
Total commercial loans and leases:
Pass$2,296 7,120 3,627 2,247 1,275 2,688 48,949  68,202 
Special mention11 170 54 69 31 44 1,009  1,388 
Substandard62 204 146 77 84 303 2,472  3,348 
Doubtful         
Total commercial loans and leases$2,369 7,494 3,827 2,393 1,390 3,035 52,430  72,938 

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Fifth Third Bancorp and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited)
As of December 31, 2021 ($ in millions) Term Loans and Leases by Origination YearRevolving LoansRevolving Loans Converted to Term Loans
20212020201920182017PriorTotal
Commercial and industrial loans:
Pass$4,266 2,291 1,198 552 356 752 39,486 — 48,901 
Special mention37 22 12 29 22 665 — 792 
Substandard19 52 36 69 52 115 1,623 — 1,966 
Doubtful— — — — — — — — — 
Total commercial and industrial loans$4,322 2,365 1,246 650 430 872 41,774 — 51,659 
Commercial mortgage owner-occupied loans:
Pass$1,082 804 471 296 183 331 1,141 — 4,308 
Special mention— 31 46 17 40 69 — 205 
Substandard22 38 12 27 91 — 196 
Doubtful— — — — — — — — — 
Total commercial mortgage owner-occupied loans
$1,104 873 520 325 188 398 1,301 — 4,709 
Commercial mortgage nonowner-occupied loans:
Pass$635 733 595 284 141 302 1,977 — 4,667 
Special mention89 12 11 162 — 295 
Substandard160 78 388 — 645 
Doubtful— — — — — — — — — 
Total commercial mortgage nonowner-occupied loans
$884 823 610 292 157 314 2,527 — 5,607 
Commercial construction loans:
Pass$50 69 11 37 — 4,488 — 4,664 
Special mention— 39 — — — — 193 — 232 
Substandard17 — — — — — 328 — 345 
Doubtful— — — — — — — — — 
Total commercial construction loans$67 108 11 37 — 5,009 — 5,241 
Commercial leases:
Pass$1,019 436 284 231 233 776 — — 2,979 
Special mention— — — 30 
Substandard10 13 — — 43 
Doubtful— — — — — — — — — 
Total commercial leases$1,030 443 297 250 246 786 — — 3,052 
Total commercial loans and leases:
Pass$7,052 4,333 2,559 1,400 913 2,170 47,092 — 65,519 
Special mention130 108 74 60 31 62 1,089 — 1,554 
Substandard225 171 51 94 77 147 2,430 — 3,195 
Doubtful— — — — — — — — — 
Total commercial loans and leases$7,407 4,612 2,684 1,554 1,021 2,379 50,611 — 70,268 














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Fifth Third Bancorp and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited)
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:
Current
Loans and
Leases(a)
Past DueTotal Loans
and Leases
90 Days Past
Due and Still
Accruing
As of March 31, 2022 ($ in millions)
30-89
Days(a)
90 Days
or More(a)
Total
Past Due
Commercial loans and leases:
Commercial and industrial loans(b)
$53,789 86 34 120 53,909 9 
Commercial mortgage owner-occupied loans4,968 5 3 8 4,976 1 
Commercial mortgage nonowner-occupied loans5,710 5 3 8 5,718 1 
Commercial construction loans5,411 9  9 5,420  
Commercial leases2,905 7 3 10 2,915  
Total portfolio commercial loans and leases$72,783 112 43 155 72,938 11 
(a)Includes accrual and nonaccrual loans and leases.
(b)Includes loans related to the SBA’s Paycheck Protection Program of which $5 were 30-89 days past due and $2 were 90 days or more past due.

Current
Loans and
Leases(a)
Past DueTotal Loans
and Leases
90 Days Past
Due and Still
Accruing
As of December 31, 2021 ($ in millions)
30-89
Days(a)
90 Days
or More(a)
Total
Past Due
Commercial loans and leases:
Commercial and industrial loans(b)
$51,549 61 49 110 51,659 17 
Commercial mortgage owner-occupied loans4,701 4,709 
Commercial mortgage nonowner-occupied loans5,606 — 5,607 — 
Commercial construction loans5,241 — — — 5,241 
Commercial leases3,035 16 17 3,052 — 
Total portfolio commercial loans and leases$70,132 81 55 136 70,268 19 
(a)Includes accrual and nonaccrual loans and leases.
(b)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 is presented in the following table. Loans and leases which received payment deferrals or forbearances as part of the Bancorp’s COVID-19 customer relief programs are generally not reported as delinquent during the forbearance or deferral period if the loan or lease was less than 30 days past due at March 1, 2020 (the effective date of the COVID-19 national emergency declaration) unless the loan or lease subsequently becomes delinquent according to its modified terms. Refer to Note 1 of the Notes to Consolidated Financial Statements included in the Bancorp’s Annual Report on Form 10-K for the year ended December 31, 2021 for additional information.

For collectively evaluated loans in the consumer and residential mortgage portfolio segments, the Bancorp’s expected credit loss models primarily utilize the borrower’s FICO score and delinquency history in combination with macroeconomic conditions when estimating the probability of default. The estimates for loss severity are primarily based on collateral type and coverage levels and the susceptibility of those characteristics to changes in macroeconomic conditions. The expected balance at the estimated date of default is also particularly significant for portfolio classes which generally have longer terms (such as residential mortgage loans and home equity) and portfolio classes containing a high concentration of loans with revolving privileges (such as 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 of the Notes to Consolidated Financial Statements included in the Bancorp’s Annual Report on Form 10-K for the year ended December 31, 2021 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.

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Fifth Third Bancorp and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited)
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:
As of March 31, 2022 ($ in millions)Term Loans by Origination YearRevolving LoansRevolving Loans Converted to Term Loans
20222021202020192018PriorTotal
Residential mortgage loans:
Performing:
Current(a)
$1,124 5,773 3,255 1,203 413 5,116   16,884 
30-89 days past due  1 1 1 12   15 
90 days or more past due  1  1 10   12 
Total performing1,124 5,773 3,257 1,204 415 5,138   16,911 
Nonperforming 1 2 2 3 80   88 
Total residential mortgage loans(b)
$1,124 5,774 3,259 1,206 418 5,218   16,999 
Home equity:

Performing:

Current$ 2 5 12 16 106 3,657 15 3,813 
30-89 days past due     3 22  25 
90 days or more past due     1   1 
Total performing 2 5 12 16 110 3,679 15 3,839 
Nonperforming     10 66 1 77 
Total home equity$ 2 5 12 16 120 3,745 16 3,916 
Indirect secured consumer loans:

Performing:









Current$2,591 7,860 3,715 1,901 741 477   17,285 
30-89 days past due4 32 25 24 14 9   108 
90 days or more past due 3 2 2 1 1   9 
Total performing2,595 7,895 3,742 1,927 756 487   17,402 
Nonperforming 1 9 5 4 3   22 
Total indirect secured consumer loans$2,595 7,896 3,751 1,932 760 490   17,424 
Credit card:

Performing:
Current$      1,636  1,636 
30-89 days past due      17  17 
90 days or more past due      14  14 
Total performing      1,667  1,667 
Nonperforming      23  23 
Total credit card$      1,690  1,690 
Other consumer loans:

Performing:

Current$122 642 465 238 153 135 974 10 2,739 
30-89 days past due 3 2 2 2 1 2  12 
90 days or more past due   1     1 
Total performing122 645 467 241 155 136 976 10 2,752 
Nonperforming      1  1 
Total other consumer loans$122 645 467 241 155 136 977 10 2,753 
Total residential mortgage and consumer loans:
Performing:
Current$3,837 14,277 7,440 3,354 1,323 5,834 6,267 25 42,357 
30-89 days past due4 35 28 27 17 25 41  177 
90 days or more past due 3 3 3 2 12 14  37 
Total performing3,841 14,315 7,471 3,384 1,342 5,871 6,322 25 42,571 
Nonperforming 2 11 7 7 93 90 1 211 
Total residential mortgage and consumer loans(b)
$3,841 14,317 7,482 3,391 1,349 5,964 6,412 26 42,782 
(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 March 31, 2022, $64 of these loans were 30-89 days past due and $172 were 90 days or more past due. The Bancorp recognized $1 of losses during the three months ended March 31, 2022 due to claim denials and curtailments associated with these insured or guaranteed loans.
(b)Excludes $145 of residential mortgage loans measured at fair value at March 31, 2022.
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Fifth Third Bancorp and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited)
As of December 31, 2021 ($ in millions) Term Loans by Origination YearRevolving LoansRevolving Loans Converted to Term Loans
20212020201920182017PriorTotal
Residential mortgage loans:
Performing:
Current(a)
$5,886 3,309 1,294 418 954 4,261 — — 16,122 
30-89 days past due13 — — 18 
90 days or more past due— 52 — — 70 
Total performing5,887 3,312 1,299 422 964 4,326 — — 16,210 
Nonperforming— — — 30 — — 33 
Total residential mortgage loans(b)
$5,887 3,312 1,300 422 966 4,356 — — 16,243 
Home equity:
Performing:
Current$13 18 113 3,815 12 3,981 
30-89 days past due— — — — — 22 — 25 
90 days or more past due— — — — — — — 
Total performing13 18 117 3,837 12 4,007 
Nonperforming— — — — — 67 77 
Total home equity$13 18 126 3,904 13 4,084 
Indirect secured consumer loans:
Performing:
Current$8,732 4,206 2,221 902 389 194 — — 16,644 
30-89 days past due26 24 25 17 — — 103 
90 days or more past due— — — 
Total performing8,760 4,232 2,248 921 398 197 — — 16,756 
Nonperforming— 12 — — 27 
Total indirect secured consumer loans$8,760 4,244 2,253 926 401 199 — — 16,783 
Credit card:
Performing:
Current$— — — — — — 1,710 — 1,710 
30-89 days past due— — — — — — 18 — 18 
90 days or more past due— — — — — — 15 — 15 
Total performing— — — — — — 1,743 — 1,743 
Nonperforming— — — — — — 23 — 23 
Total credit card$— — — — — — 1,766 — 1,766 
Other consumer loans:
Performing:
Current$692 530 275 174 105 47 913 — 2,736 
30-89 days past due— 14 
90 days or more past due— — — — — — — 
Total performing695 532 279 176 106 47 915 2,751 
Nonperforming— — — — — — — 
Total other consumer loans$695 532 279 176 106 47 916 2,752 
Total residential mortgage and consumer loans:
Performing:
Current$15,312 8,051 3,803 1,512 1,450 4,615 6,438 12 41,193 
30-89 days past due30 27 29 20 10 19 42 178 
90 days or more past due10 53 15 — 96 
Total performing15,344 8,082 3,839 1,537 1,470 4,687 6,495 13 41,467 
Nonperforming— 12 41 91 161 
Total residential mortgage and consumer loans(b)
$15,344 8,094 3,845 1,542 1,475 4,728 6,586 14 41,628 
(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 $1 of losses during the three months ended March 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.


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Fifth Third Bancorp and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited)
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)March 31,
2022
December 31,
2021
Commercial loans and leases:
Commercial and industrial loans$470 467 
Commercial mortgage owner-occupied loans15 22 
Commercial mortgage nonowner-occupied loans28 31 
Commercial construction loans56 56 
Commercial leases3 
Total commercial loans and leases$572 579 
Residential mortgage loans57 60 
Consumer loans:
Home equity54 58 
Indirect secured consumer loans7 
Total consumer loans$61 66 
Total portfolio loans and leases$690 705 

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:
March 31, 2022December 31, 2021
 ($ in millions)With an ALLLNo Related
ALLL
TotalWith an ALLLNo Related
ALLL
Total
Commercial loans and leases:
Commercial and industrial loans$167 105 272 151 128 279 
Commercial mortgage owner-occupied loans8 12 20 10 13 23 
Commercial mortgage nonowner-occupied loans22  22 22 25 
Commercial construction loans6  6 — 
Commercial leases3  3 
Total nonaccrual portfolio commercial loans and leases$206 117 323 192 145 337 
Residential mortgage loans45 43 88 14 19 33 
Consumer loans:
Home equity55 22 77 53 24 77 
Indirect secured consumer loans17 5 22 21 27 
Credit card23  23 23 — 23 
Other consumer loans1  1 — 
Total nonaccrual portfolio consumer loans$96 27 123 98 30 128 
Total nonaccrual portfolio loans and leases(a)(b)
$347 187 534 304 194 498 
OREO and other repossessed property 32 32 — 29 29 
Total nonperforming portfolio assets(a)(b)
$347 219 566 304 223 527 
(a)Excludes $4 and $15 of nonaccrual loans held for sale as of March 31, 2022 and December 31, 2021, respectively.
(b)Includes $20 and $26 of nonaccrual government insured commercial loans whose repayments are insured by the SBA as of March 31, 2022 and December 31, 2021, respectively, of which $11 are restructured nonaccrual government insured commercial loans as of both March 31, 2022 and December 31, 2021.
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Fifth Third Bancorp and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited)
The Bancorp recognized an immaterial amount of interest income on nonaccrual loans and leases for both the three months ended March 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 $144 million and $84 million as of March 31, 2022 and December 31, 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 of the Notes to Consolidated Financial Statements included in the Bancorp’s Annual Report on Form 10-K for the year ended December 31, 2021 for information on the Bancorp’s ALLL methodology. Upon modification of a loan, the Bancorp measures the expected credit loss as either the difference between the amortized cost of the loan and the fair value of collateral less cost to sell or the difference between the estimated future cash flows expected to be collected on the modified loan, discounted at the original effective yield of the loan, and the carrying value of the loan. The resulting measurement may result in the need for minimal or no allowance regardless of which is used because it is probable that all cash flows will be collected under the modified terms of the loan. In addition, if the stated interest rate was increased in a TDR that is not collateral-dependent, the cash flows on the modified loan, using the pre-modification interest rate as the discount rate, often exceed the amortized cost basis of the loan. Conversely, upon a modification that reduces the stated interest rate on a loan that is not collateral-dependent, the Bancorp recognizes an increase to the ALLL. If a TDR involves a reduction of the principal balance of the loan or the loan’s accrued interest, that amount is charged off to the ALLL. Loans discharged in a Chapter 7 bankruptcy and not reaffirmed by the borrower are treated as nonaccrual collateral-dependent loans with a charge-off recognized to reduce the carrying values of such loans to the fair value of the related collateral less costs to sell. Certain loan modifications which were made in response to the COVID-19 pandemic were not evaluated for classification as a TDR. Refer to the Regulatory Developments Related to the COVID-19 Pandemic section of Note 1 of the Notes to Consolidated Financial Statements included in the Bancorp’s Annual Report on Form 10-K for the year ended December 31, 2021 for additional information.

The Bancorp had commitments to lend additional funds to borrowers whose terms have been modified in a TDR, consisting of line of credit and letter of credit commitments of $147 million and $65 million, respectively, as of March 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 three months ended:
March 31, 2022 ($ in millions)
Number of Loans
Modified in a TDR
During the Period(a)
Amortized Cost Basis
of Loans Modified
in a TDR
During the Period
Increase
(Decrease)
to ALLL Upon
Modification
Charge-offs
Recognized Upon
Modification
Commercial loans:
Commercial and industrial loans30$91 13  
Commercial mortgage owner-occupied loans54 (1) 
Residential mortgage loans26042 3  
Consumer loans:
Home equity527 (1) 
Indirect secured consumer loans1,27427   
Credit card1,1216 2  
Total portfolio loans2,742 $177 16  
(a)Represents number of loans post-modification and excludes loans previously modified in a TDR.

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Fifth Third Bancorp and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited)
March 31, 2021 ($ in millions)
Number of Loans
Modified in a TDR
During the Period(a)
Amortized Cost Basis
in Loans Modified
in a TDR
During the Period
Increase
(Decrease)
to ALLL Upon
Modification
Charge-offs
Recognized Upon
Modification
Commercial loans:
Commercial and industrial loans19$— 
Commercial mortgage owner-occupied loans1— — 
Commercial mortgage nonowner-occupied loans325 — — 
Residential mortgage loans17836 — 
Consumer loans:
Home equity58(1)— 
Indirect secured consumer loans1,74343 — 
Credit card1,79510 — 
Total portfolio loans3,797$127 — 
(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 three months ended March 31, 2022 and 2021 and were within 12 months of the restructuring date:
March 31, 2022 ($ in millions)(a)
Number of
Contracts
Amortized
Cost
Commercial loans:
Commercial and industrial loans6 $ 
Residential mortgage loans29 3 
Consumer loans:
Home equity10 1 
Indirect secured consumer loans25  
Credit card105 1 
Total portfolio loans175 $5 
(a)Excludes all loans held for sale and loans acquired with deteriorated credit quality which were accounted for within a pool.

March 31, 2021 ($ in millions)(a)
Number of
Contracts
Amortized
Cost
Commercial loans:
Commercial mortgage nonowner-occupied loans$25 
Residential mortgage loans35 
Consumer loans:
Home equity12 
Indirect secured consumer loans26 
Credit card23 — 
Total portfolio loans97 $31 
(a)Excludes all loans held for sale and loans acquired with deteriorated credit quality which were accounted for within a pool.


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Fifth Third Bancorp and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited)
7. Bank Premises and Equipment
The following table provides a summary of bank premises and equipment as of:
($ in millions)March 31,
2022
December 31,
2021
Equipment$2,401 2,392 
Buildings(a)
1,653 1,668 
Land and improvements(a)
638 645 
Leasehold improvements519 517 
Construction in progress(a)
78 84 
Bank premises and equipment held for sale:
Land and improvements18 18 
Buildings7 
Accumulated depreciation and amortization(3,212)(3,210)
Total bank premises and equipment$2,102 2,120 
(a)Buildings, land and improvements and construction in progress included $35 and $39 associated with parcels of undeveloped land intended for future branch expansion at March 31, 2022 and December 31, 2021, 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 41 banking centers throughout its footprint during the three months ended March 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 immaterial and $2 million for the three months ended March 31, 2022 and 2021, respectively. The recognized impairment losses were recorded in other noninterest income in the Condensed Consolidated Statements of Income.

8. Operating Lease Equipment
Operating lease equipment was $622 million and $616 million at March 31, 2022 and December 31, 2021, respectively, net of accumulated depreciation of $312 million and $304 million at March 31, 2022 and December 31, 2021, respectively. The Bancorp recorded lease income of $36 million and $39 million relating to lease payments for operating leases in leasing business revenue in the Condensed Consolidated Statements of Income during the three months ended March 31, 2022 and 2021, respectively. Depreciation expense related to operating lease equipment was $29 million and $32 million during the three months ended March 31, 2022 and 2021, respectively. The Bancorp received payments of $36 million and $39 million related to operating leases during the three months ended March 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 and $25 million of impairment losses associated with operating lease assets during the three months ended March 31, 2022 and 2021, respectively. The recognized impairment losses were recorded in leasing business revenue in the Condensed Consolidated Statements of Income.

The following table presents future lease payments receivable from operating leases for the remainder of 2022 through 2027 and thereafter:
As of March 31, 2022 ($ in millions)Undiscounted
Cash Flows
Remainder of 2022$102 
2023114 
202479 
202553 
202632 
202715 
Thereafter18 
Total operating lease payments$413 

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Fifth Third Bancorp and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited)
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. For more information on the accounting for lease obligations, refer to Note 1 of the Notes to Consolidated Financial Statements included in the Bancorp’s Annual Report on Form 10-K for the year ended December 31, 2021.

The following table provides a summary of lease assets and lease liabilities as of:
($ in millions)Condensed Consolidated Balance Sheets CaptionMarch 31,
2022
December 31,
2021
Assets
Operating lease right-of-use assetsOther assets$442 427 
Finance lease right-of-use assetsBank premises and equipment143 145 
Total right-of-use assets(a)
$585 572 
Liabilities
Operating lease liabilitiesAccrued taxes, interest and expenses$533 520 
Finance lease liabilitiesLong-term debt148 149 
Total lease liabilities$681 669 
(a)    Operating and finance lease right-of-use assets are recorded net of accumulated amortization of $213 and $51, respectively, as of March 31, 2022, and $198 and $47, respectively, as of December 31, 2021.

The following table presents the components of lease costs:
($ in millions)Condensed Consolidated Statements of Income CaptionFor the three months ended
March 31,
20222021
Lease costs:
Amortization of ROU assetsNet occupancy and equipment expense$5 
Interest on lease liabilitiesInterest on long-term debt1 
Total finance lease costs$6 
Operating lease costNet occupancy expense$20 20 
Short-term lease costNet occupancy expense 
Variable lease costNet occupancy expense7 
Sublease incomeNet occupancy expense(1)(1)
Total operating lease costs$26 28 
Total lease costs$32 34 

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 $1 million and an immaterial amount of impairment losses and termination charges for the ROU assets related to certain operating leases during the three months ended March 31, 2022 and 2021, respectively. The recognized losses were recorded in net occupancy expense in the Condensed Consolidated Statements of Income.

The following table presents undiscounted cash flows for both operating leases and finance leases for the remainder of 2022 through 2027 and thereafter as well as a reconciliation of the undiscounted cash flows to the total lease liabilities:
As of March 31, 2022 ($ in millions)
Operating
Leases
Finance
Leases

Total
Remainder of 2022$66 16 82 
202381 19 100 
202473 19 92 
202566 12 78 
202657 64 
202750 57 
Thereafter223 107 330 
Total undiscounted cash flows$616 187 803 
Less: Difference between undiscounted cash flows and discounted cash flows83 39 122 
Present value of lease liabilities$533 148 681 

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Fifth Third Bancorp and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited)
The following table presents the weighted-average remaining lease term and weighted-average discount rate as of:
March 31,
2022
December 31,
2021
Weighted-average remaining lease term (years):
Operating leases9.498.92
Finance leases14.7614.70
Weighted-average discount rate:
Operating leases2.87 %2.88 
Finance leases2.69 2.74 

The following table presents information related to lease transactions for the three months ended March 31:
($ in millions)20222021
Cash paid for amounts included in the measurement of lease liabilities:(a)
Operating cash flows from operating leases$22 22 
Operating cash flows from finance leases1 
Financing cash flows from finance leases4 
(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.

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Fifth Third Bancorp and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited)
10. Intangible Assets
Intangible assets consist of core deposit intangibles, developed technology, customer relationships, operating leases, non-compete agreements, trade names and books of business. Intangible assets are amortized on either a straight-line or an accelerated basis over their estimated useful lives and, based on the type of intangible asset, the amortization expense may be recorded in either leasing business revenue or other noninterest expense in the Condensed Consolidated Statements of Income.

The details of the Bancorp’s intangible assets are shown in the following table:

($ in millions)
Gross Carrying
Amount
Accumulated
Amortization
Net Carrying
Amount
As of March 31, 2022
Core deposit intangibles
$229 (161)68 
Developed technology62 (5)57 
Customer relationships
25 (8)17 
Operating leases
10 (8)2 
Other
4 (3)1 
Total intangible assets
$330 (185)145 
As of December 31, 2021

Core deposit intangibles
$229 (153)76 
Developed technology62 (3)59 
Customer relationships
25 (7)18 
Operating leases
11 (9)
Other
(3)
Total intangible assets
$331 (175)156 

As of March 31, 2022, all of the Bancorp’s intangible assets were being amortized. Amortization expense recognized on intangible assets was $11 million and $12 million for the three months ended March 31, 2022 and 2021, respectively. The Bancorp’s projections of amortization expense shown in the following table are based on existing asset balances as of March 31, 2022. Future amortization expense may vary from these projections.

Estimated amortization expense for the remainder of 2022 through 2026 is as follows:
($ in millions)Total
Remainder of 2022$29 
202332 
202424 
202517 
202611 

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Fifth Third Bancorp and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited)
11. 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 a VIE related to an automobile 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 Condensed Consolidated Balance Sheets for the consolidated VIE as of:
($ in millions)March 31,
2022
December 31,
2021
Assets:
Other short-term investments$24 24 
Indirect secured consumer loans266 322 
ALLL(2)(2)
Other assets2 
Total assets$290 346 
Liabilities:
Other liabilities$ 
Long-term debt209 263 
Total liabilities$209 264 

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 this securitization transaction, the primary purpose of the VIE was to issue asset-backed securities with varying levels of credit subordination and payment priority, as well as residual interests, and to provide the Bancorp with access to liquidity for its originated loans. The Bancorp retained residual interests in the VIE and, therefore, has an obligation to absorb losses and a right to receive benefits from the VIE that could potentially be significant to the VIE. In addition, the Bancorp retained servicing rights for the underlying loans and, therefore, holds the power to direct the activities of the VIE that most significantly impact the economic performance of the VIE. As a result, the Bancorp concluded that it is the primary beneficiary of the VIE and has consolidated this VIE. The assets of the VIE are restricted to the settlement of the asset-backed securities and other obligations of the VIE. 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 VIE is most significantly impacted by the performance of the underlying loans. The principal risks to which the VIE is 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.

Non-consolidated VIEs
The following tables provide a summary of assets and liabilities carried on the Condensed 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:
March 31, 2022 ($ in millions)Total
Assets
Total
Liabilities
Maximum
Exposure
CDC investments$1,683 529 1,683 
Private equity investments143  278 
Loans provided to VIEs3,668  5,171 
Lease pool entities66  66 
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Fifth Third Bancorp and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited)
December 31, 2021 ($ in millions)Total
Assets
Total
Liabilities
Maximum
Exposure
CDC investments$1,705 580 1,705 
Private equity investments133 — 257 
Loans provided to VIEs3,386 — 4,873 
Lease pool entities68 — 68 

CDC investments
CDC, a wholly-owned indirect subsidiary of the Bancorp, was created to invest 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 of the Notes to Consolidated Financial Statements included in the Bancorp’s Annual Report on Form 10-K for the year ended December 31, 2021.

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 Condensed Consolidated Balance Sheets, and the liabilities related to the unfunded commitments, which are included in other liabilities in the Condensed 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 both March 31, 2022 and December 31, 2021, the Bancorp’s CDC investments included $1.4 billion of investments in affordable housing tax credits recognized in other assets in the Condensed Consolidated Balance Sheets. The unfunded commitments related to these investments were $521 million and $573 million at March 31, 2022 and December 31, 2021, respectively. The unfunded commitments as of March 31, 2022 are expected to be funded from 2022 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 Condensed Consolidated Statements of Income related to these investments:
Condensed Consolidated
Statements of Income Caption(a)
For the three months ended March 31,
($ in millions)20222021
Proportional amortizationApplicable income tax expense$35 44 
Tax credits and other benefitsApplicable income tax expense(41)(51)
(a)The Bancorp did not recognize impairment losses resulting from the forfeiture or ineligibility of tax credits or other circumstances during both the three months ended March 31, 2022 and 2021.

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 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 Condensed Consolidated Balance Sheets, are presented
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Fifth Third Bancorp and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited)
in previous tables. Also, at March 31, 2022 and December 31, 2021, the Bancorp’s unfunded commitment amounts to the private equity funds were $135 million and $124 million, respectively. As part of previous commitments, the Bancorp made capital contributions to private equity investments of $9 million and $2 million during the three months ended March 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. At both March 31, 2022 and December 31, 2021, the Bancorp’s unfunded commitments to these entities were $1.5 billion. The loans and unfunded commitments to these VIEs are included in the Bancorp’s overall analysis of the ALLL and reserve for unfunded commitments, respectively. The Bancorp does not provide any implicit or explicit liquidity guarantees or principal value guarantees to these VIEs.

Lease pool entities
The Bancorp is a co-investor with other unrelated leasing companies in three LLCs designed for the purpose of purchasing pools of residual interests in leases which have been originated or purchased by the other investing member. For each LLC, the leasing company is the managing member and has full authority over the day-to-day operations of the entity. While the Bancorp holds more than 50% of the equity interests in each LLC, the operating agreements require both members to consent to significant corporate actions, such as liquidating the entity or removing the manager. In addition, the Bancorp has a preference with regards to distributions such that all of the Bancorp’s equity contribution for each pool must be distributed, plus a pre-defined rate of return, before the other member may receive distributions. The leasing company is also entitled to the return of its investment plus a pre-defined rate of return before any residual profits are distributed to the members.

The lease pool entities are primarily subject to risk of losses on the lease residuals purchased. The Bancorp has determined that it is not the primary beneficiary of these VIEs because it does not have the power to direct the activities that most significantly impact the economic performance of the entities. This power is held by the leasing company, who as managing member controls the servicing of the leases and collection of the proceeds on the residual interests.

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Fifth Third Bancorp and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited)
12. Sales of Receivables and Servicing Rights

Residential Mortgage Loan Sales
The Bancorp sold fixed and adjustable-rate residential mortgage loans during the three months ended March 31, 2022 and 2021. 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 Condensed Consolidated Statements of Income, is as follows:
For the three months ended
March 31,
($ in millions)20222021
Residential mortgage loan sales(a)
$3,400 3,207 
Origination fees and gains on loan sales25 89 
Gross mortgage servicing fees71 59 
(a)Represents the unpaid principal balance at the time of the sale.

Servicing Rights
The Bancorp measures all of its servicing rights at fair value with changes in fair value reported in mortgage banking net revenue in the Condensed Consolidated Statements of Income.

The following table presents changes in the servicing rights related to residential mortgage loans for the three months ended March 31:
($ in millions)20222021
Balance, beginning of period$1,121 656 
Servicing rights originated47 39 
Servicing rights purchased139 18 
Changes in fair value:
Due to changes in inputs or assumptions(a)
190 152 
Other changes in fair value(b)
(53)(81)
Balance, end of period$1,444 784 
(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 three months ended
March 31,
($ in millions)20222021
Securities losses, net – non-qualifying hedges on mortgage servicing rights$(1)(2)
Changes in fair value and settlement of free-standing derivatives purchased to economically hedge the MSR portfolio(a)
(181)(134)
MSR fair value adjustment due to changes in inputs or assumptions(a)
190 152 
(a)Included in mortgage banking net revenue in the Condensed Consolidated Statements of Income.

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Fifth Third Bancorp and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited)
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 three months ended March 31, 2022 and 2021 were as follows:
March 31, 2022March 31, 2021
Weighted-
Average Life
(in years)
Prepayment
Speed
(annual)
OAS
(bps)
Weighted-
Average Life
(in years)
Prepayment
Speed
(annual)
OAS
(bps)
Fixed-rate7.38.1 %729 5.911.6  %612 
Adjustable-rate2.827.7 798 — — — 

At March 31, 2022 and December 31, 2021, the Bancorp serviced $97.7 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.

At March 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
Fair Value
($ in millions)(a)
Weighted-
Average Life
(in years)
Impact of Adverse Change
on Fair Value
OAS
(bps)
Impact of Adverse Change on Fair Value
Rate10%20%50%10%20%
Fixed-rate$1,439 8.16.7 %$(41)(78)(175)749 $(43)(83)
Adjustable-rate4.519.7 (1)(1)(2)1,092 — — 
(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.
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Fifth Third Bancorp and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited)
13. 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 Condensed Consolidated Balance Sheets while derivative instruments with a negative fair value are reported in other liabilities in the Condensed 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 March 31, 2022 and December 31, 2021, the balance of collateral held by the Bancorp for derivative assets was $1.2 billion and $1.1 billion, respectively. For derivative contracts cleared through certain central clearing parties whose rules treat variation margin payments as settlement of the derivative contract, the payments for variation margin of $759 million and $771 million as of March 31, 2022 and December 31, 2021, respectively, were applied to reduce the respective derivative contracts and were also not included in the total amount of collateral held. As of March 31, 2022 and December 31, 2021, the credit component negatively impacting the fair value of derivative assets associated with customer accommodation contracts was $11 million and $20 million, 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 March 31, 2022 and December 31, 2021, the balance of collateral posted by the Bancorp for derivative liabilities was $2.3 billion and $1.3 billion, respectively. Additionally, as of March 31, 2022 and December 31, 2021, $465 million and $570 million, respectively, of variation margin payments were applied to the respective derivative contracts to reduce the Bancorp’s derivative liabilities 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 both March 31, 2022 and December 31, 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 Condensed Consolidated Financial Statements. The posting of collateral has been determined to remove the need for further consideration of
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Fifth Third Bancorp and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited)
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 Condensed 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 Condensed Consolidated Balance Sheets as of:
Fair Value
March 31, 2022 ($ in millions)Notional
Amount
Derivative
Assets
Derivative
Liabilities
Derivatives Designated as Qualifying Hedging Instruments:
Fair value hedges:
Interest rate swaps related to long-term debt$1,955 266 27 
Total fair value hedges266 27 
Cash flow hedges:
Interest rate floors related to C&I loans3,000 46  
Interest rate swaps related to C&I loans8,000  2 
Interest rate swaps related to commercial mortgage and commercial construction loans4,000  15 
Total cash flow hedges46 17 
Total derivatives designated as qualifying hedging instruments312 44 
Derivatives Not Designated as Qualifying Hedging Instruments:
Free-standing derivatives - risk management and other business purposes:
Interest rate contracts related to MSR portfolio4,965 57 1 
Forward contracts related to residential mortgage loans held for sale(b)
2,505 40 7 
Swap associated with the sale of Visa, Inc. Class B Shares3,627  198 
Foreign exchange contracts187  3 
Interest rate contracts for collateral management12,000 7 7 
Interest rate contracts for LIBOR transition2,372   
Total free-standing derivatives – risk management and other business purposes
104 216 
Free-standing derivatives – customer accommodation:
Interest rate contracts(a)
76,263 423 674 
Interest rate lock commitments773 8 2 
Commodity contracts14,720 3,056 2,951 
TBA securities48   
Foreign exchange contracts22,264 367 354 
Total free-standing derivatives – customer accommodation
3,854 3,981 
Total derivatives not designated as qualifying hedging instruments3,958 4,197 
Total$4,270 4,241 
(a)Derivative assets and liabilities are presented net of variation margin of $316 and $80, 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.



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Fifth Third Bancorp and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited)
Fair Value
December 31, 2021 ($ in millions)Notional
Amount
Derivative
Assets
Derivative
Liabilities
Derivatives Designated as Qualifying Hedging Instruments:
Fair value hedges:
Interest rate swaps related to long-term debt$1,955 393 
Interest rate swaps related to available-for-sale debt and other securities445— 
Total fair value hedges400 
Cash flow hedges:
Interest rate floors related to C&I loans3,000 122 — 
Interest rate swaps related to C&I loans8,000 — 
Interest rate swaps related to commercial mortgage and commercial construction loans4,000 — — 
Total cash flow hedges122 
Total derivatives designated as qualifying hedging instruments522 
Derivatives Not Designated as Qualifying Hedging Instruments:
Free-standing derivatives – risk management and other business purposes:
Interest rate contracts related to MSR portfolio6,260 140 — 
Forward contracts related to residential mortgage loans held for sale(b)
1,952 
Swap associated with the sale of Visa, Inc. Class B Shares3,545 — 214 
Foreign exchange contracts158 — 
Interest rate contracts for collateral management12,000 
Interest rate contracts for LIBOR transition2,372 — — 
Total free-standing derivatives – risk management and other business purposes
147 221 
Free-standing derivatives – customer accommodation:
Interest rate contracts(a)
76,061 578 232 
Interest rate lock commitments673 12 — 
Commodity contracts12,376 1,326 1,260 
TBA securities55 —  
Foreign exchange contracts23,148 323 297 
Total free-standing derivatives – customer accommodation
2,239 1,789 
Total derivatives not designated as qualifying hedging instruments2,386 2,010 
Total$2,908 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 March 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 March 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.

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Notes to Condensed Consolidated Financial Statements (unaudited)
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 Condensed Consolidated Statements of Income in which the corresponding gains or losses are recorded:
Condensed Consolidated
Statements of
Income Caption
For the three months ended
March 31,
($ in millions)20222021
Long-term debt:
Change in fair value of interest rate swaps hedging long-term debtInterest on long-term debt$(152)(145)
Change in fair value of hedged long-term debt attributable to the risk being hedgedInterest on long-term debt152 145 
Available-for-sale debt and other securities:
Change in fair value of interest rate swaps hedging available-for-sale debt and other securitiesInterest on securities8 — 
Change in fair value of hedged available-for-sale debt and other securities attributable to the risk being hedgedInterest on securities(8)— 

The following amounts were recorded in the Condensed Consolidated Balance Sheets related to cumulative basis adjustments for fair value hedges as of:
($ in millions)Condensed Consolidated
Balance Sheets Caption
March 31,
2022
December 31,
2021
Long-term debt:
Carrying amount of the hedged itemsLong-term debt$2,187 2,339 
Cumulative amount of fair value hedging adjustments included in the carrying amount of the hedged itemsLong-term debt244 396 
Available-for-sale debt and other securities:
Carrying amount of the hedged items(a)
Available-for-sale debt and other securities  465 
Cumulative amount of fair value hedging adjustments included in the carrying amount of the hedged itemsAvailable-for-sale debt and other securities (8)
Cumulative amount of fair value hedging adjustments remaining for hedged items for which hedge accounting has been discontinuedAvailable-for-sale debt and other securities(15)— 
(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 March 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 March 31, 2022, the maximum length of time over which the Bancorp is hedging its exposure to the variability in future cash flows is 34 months.

Reclassified gains and losses on interest rate contracts related to commercial and industrial loans are recorded within interest income in the Condensed Consolidated Statements of Income. As of March 31, 2022 and December 31, 2021, $20 million and $353 million, respectively, of net deferred losses and net deferred gains, net of tax, on cash flow hedges were recorded in AOCI in the Condensed Consolidated Balance Sheets. As of March 31, 2022, $63 million in net unrealized gains, net of tax, recorded in AOCI are expected to be reclassified into earnings during the next 12 months. This amount could differ from amounts actually recognized due to changes in interest rates, hedge de-designations or the addition of other hedges subsequent to March 31, 2022.

During both the three months ended March 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.

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Notes to Condensed Consolidated Financial Statements (unaudited)
The following table presents the pre-tax net (losses) gains recorded in the Condensed Consolidated Statements of Income and in the Condensed Consolidated Statements of Comprehensive Income relating to derivative instruments designated as cash flow hedges:
For the three months ended
March 31,
($ in millions)20222021
Amount of pre-tax net losses recognized in OCI$(407)(84)
Amount of pre-tax net gains reclassified from OCI into net income78 72 

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 Condensed 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 20 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 gains (losses) recorded in the Condensed Consolidated Statements of Income relating to free-standing derivative instruments used for risk management and other business purposes are summarized in the following table:
Condensed Consolidated
Statements of
Income Caption
For the three months ended
March 31,
($ in millions)20222021
Interest rate contracts:
Forward contracts related to residential mortgage loans held for sale
Mortgage banking net revenue$33 67 
Interest rate contracts related to MSR portfolioMortgage banking net revenue(181)(134)
Foreign exchange contracts:
Foreign exchange contracts for risk management purposes
Other noninterest income(2)(2)
Equity contracts:
Swap associated with sale of Visa, Inc. Class B Shares
Other noninterest income(11)(13)

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 Condensed 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
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Notes to Condensed Consolidated Financial Statements (unaudited)
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 Condensed 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. The total notional amount of the risk participation agreements was $3.7 billion and $3.8 billion at March 31, 2022 and December 31, 2021, respectively, and the fair value was a liability of $8 million at both March 31, 2022 and December 31, 2021 which is included in other liabilities in the Condensed Consolidated Balance Sheets. As of March 31, 2022, the risk participation agreements had a weighted-average remaining life of 3.4 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:
($ in millions)March 31,
2022
December 31,
2021
Pass$3,676 3,733 
Special mention 13 
Substandard34 34 
Total$3,710 3,780 

The net gains (losses) recorded in the Condensed Consolidated Statements of Income relating to free-standing derivative instruments used for customer accommodation are summarized in the following table:
Condensed Consolidated
Statements of Income Caption
For the three months ended
March 31,
($ in millions)20222021
Interest rate contracts:
Interest rate contracts for customers (contract revenue)
Commercial banking revenue$16 
Interest rate contracts for customers (credit portion of fair value adjustment)
Other noninterest expense6 15 
Interest rate lock commitmentsMortgage banking net revenue 32 
Commodity contracts:
Commodity contracts for customers (contract revenue)
Commercial banking revenue9 
Commodity contracts for customers (credit portion of fair value adjustment)
Other noninterest expense(1)
Foreign exchange contracts:
Foreign exchange contracts for customers (contract revenue)
Commercial banking revenue16 14 
Foreign exchange contracts for customers (contract revenue)
Other noninterest income2 
Foreign exchange contracts for customers (credit portion of fair value adjustment)
Other noninterest expense(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 Condensed 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.
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Notes to Condensed Consolidated Financial Statements (unaudited)

The following table provides a summary of offsetting derivative financial instruments:
Gross Amount
Recognized in the
Condensed Consolidated
Balance Sheets(a)
Gross Amounts Not Offset in the
Condensed Consolidated Balance Sheets
Derivatives
Collateral(b)
Net Amount
As of March 31, 2022
Derivative assets$4,262 (1,456)(484)2,322 
Derivative liabilities4,239 (1,456)(1,560)1,223 
As of December 31, 2021
Derivative assets$2,896 (837)(548)1,511 
Derivative liabilities2,013 (837)(712)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 Condensed Consolidated Balance Sheets were excluded from this table.

14. Other Short-Term Borrowings
Borrowings with original maturities of one year or less are classified as short-term. The following table presents a summary of the Bancorp’s other short-term borrowings as of:
($ in millions)March 31,
2022
December 31,
2021
Securities sold under repurchase agreements$501 544 
Derivative collateral 371 436 
Total other short-term borrowings$872 980 

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 Condensed 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 March 31, 2022 and December 31, 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.

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Notes to Condensed Consolidated Financial Statements (unaudited)
15. 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 Condensed 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 Condensed 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:
($ in millions)March 31,
2022
December 31,
2021
Commitments to extend credit$79,019 80,641 
Forward contracts related to residential mortgage loans held for sale2,505 1,952 
Letters of credit2,067 1,953 
Purchase obligations147 160 
Capital commitments for private equity investments135 124 
Capital expenditures79 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 March 31, 2022 and December 31, 2021, the Bancorp had a reserve for unfunded commitments, including letters of credit, totaling $177 million and $182 million, respectively, included in other liabilities in the Condensed 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:
($ in millions)March 31,
2022
December 31,
2021
Pass$77,009 78,298 
Special mention698 1,058 
Substandard1,312 1,285 
Total commitments to extend credit$79,019 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 March 31, 2022:
($ in millions)
Less than 1 year(a)
$1,038 
1 - 5 years(a)
1,028 
Over 5 years
Total letters of credit$2,067 
(a)Includes $1 and $3 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 March 31, 2022 and December 31, 2021 and are considered guarantees in accordance with U.S. GAAP. Approximately 68% and 71% of the total standby letters of credit were collateralized as of March 31, 2022 and December 31, 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 $25 million and $24 million at March 31, 2022 and December 31, 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.
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Notes to Condensed Consolidated Financial Statements (unaudited)

Risk ratings of outstanding letters of credit under this risk rating system are summarized in the following table as of:
($ in millions)March 31,
2022
December 31,
2021
Pass$1,905 1,778 
Special mention22 40 
Substandard140 135 
Total letters of credit$2,067 1,953 

At March 31, 2022 and December 31, 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 March 31, 2022 and December 31, 2021, total VRDNs, of which FTS was the remarketing agent for all, were $460 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 $112 million and $118 million of the VRDNs remarketed by FTS at March 31, 2022 and December 31, 2021, respectively. These letters of credit are included in the total letters of credit balance provided in the previous tables. The Bancorp held $1 million of these VRDNs in its portfolio and classified them as trading debt securities at both March 31, 2022 and December 31, 2021.

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 16 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 of the Notes to Consolidated Financial Statements included in the Bancorp’s Annual Report on Form 10-K for the year ended December 31, 2021.

As of both March 31, 2022 and December 31, 2021, the Bancorp maintained reserves related to loans sold with representation and warranty provisions totaling $9 million, included in other liabilities in the Condensed 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 March 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 $10 million in excess of amounts reserved. This estimate was derived by modifying the key assumptions to reflect management’s judgment regarding reasonably possible adverse changes to those assumptions. The actual repurchase losses could vary significantly from the recorded mortgage representation and warranty reserve or this estimate of reasonably possible losses, depending on the outcome of various factors, including those previously discussed.
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Notes to Condensed Consolidated Financial Statements (unaudited)

During both the three months ended March 31, 2022 and 2021, the Bancorp paid an immaterial amount in the form of make-whole payments and repurchased $14 million and $10 million, respectively, in outstanding principal of loans to satisfy investor demands. Total repurchase demand requests during the three months ended March 31, 2022 and 2021 were $23 million and $10 million, respectively. Total outstanding repurchase demand inventory was $12 million and $18 million at March 31, 2022 and December 31, 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 $23 million and $20 million at March 31, 2022 and December 31, 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 March 31, 2022 and December 31, 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 20 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 March 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 $198 million at March 31, 2022 and $214 million at December 31, 2021. Refer to Note 13 and Note 20 for further information.

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Notes to Condensed Consolidated Financial Statements (unaudited)
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)Visa
Funding Amount
Bancorp Cash
Payment Amount
Q2 2010$500 20 
Q4 2010800 35 
Q2 2011400 19 
Q1 20121,565 75 
Q3 2012150 
Q3 2014450 18 
Q2 2018600 26 
Q3 2019300 12 
Q4 2021250 11 
.
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Notes to Condensed Consolidated Financial Statements (unaudited)
16. Legal and Regulatory Proceedings

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 15 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 15 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 $280 million, plus interest under Ohio law. On March 26, 2021, the trial court granted plaintiffs’ motion for class certification. The court has set a trial date in April 2023.

Helton v. Fifth Third Bank
On August 31, 2015, trust beneficiaries filed an action against Fifth Third Bank, as trustee, in the Probate Court for Hamilton County, Ohio (Helen Clarke Helton, et al. v. Fifth Third Bank, Case No. 2015003814). The plaintiffs alleged breach of the duty to diversify, breach of the duty of impartiality, breach of trust/fiduciary duty, and unjust enrichment, based on Fifth Third’s alleged failure to diversify assets held in two trusts for the plaintiffs’ benefit. The lawsuit sought over $800 million in alleged damages, attorneys’ fees, removal of Fifth Third as trustee, and injunctive relief. On April 20, 2018, the Court denied plaintiffs’ motion for summary judgment and granted summary judgment to Fifth Third, dismissing the case in its entirety. On December 18, 2019, the Ohio Court of Appeals affirmed the Probate Court’s dismissal of all of plaintiffs’ claims based upon allegations of Fifth Third’s alleged failure to diversify assets held in two trusts for plaintiffs’ benefit. The appeals court reversed summary judgment on one claim related to Fifth Third’s alleged unjust enrichment through its receipt of certain fees in managing the trusts. The Court of Appeals remanded the case to the Probate Court for further consideration of the lone surviving claim, which comprises a small fraction of the damages originally sought by plaintiffs in the lawsuit. Plaintiffs filed an appeal to the Ohio Supreme Court, seeking review of the decision from the Ohio Court of Appeals. On April 14, 2020, the Ohio Supreme Court announced its denial of plaintiffs’ request for review, and subsequently denied plaintiffs’ request for reconsideration. Thereafter, the case returned to the trial court for further adjudication of the lone surviving claim. On July 28, 2021 the trial court issued an order granting summary judgment to Fifth
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Third on a portion of plaintiffs’ unjust enrichment claim, leaving the remainder of the claim to be resolved at trial. Plaintiffs appealed the order granting partial summary judgment on the unjust enrichment claim. Plaintiffs abandoned the remainder of the unjust enrichment claim on appeal and the trial court has vacated the trial date. On March 30, 2022, the appellate court affirmed the trial court’s grant of summary judgment.

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 April 7, 2020, Plaintiff Lee Christakis filed a putative class action lawsuit against Fifth Third Bancorp, Fifth Third Chairman and Chief Executive Officer Greg D. Carmichael, and former Fifth Third Chief Financial Officer Tayfun Tuzun in the U.S. District Court for the Northern District of Illinois entitled Lee Christakis, individually and on behalf of all others similarly situated v. Fifth Third Bancorp, et al., Case No. 1:20-cv-2176 (N.D. Ill). The case brings two claims for violation of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, alleging that the Defendants made material misstatements and omissions in connection with the alleged unauthorized opening of credit card, savings, checking, online banking and early access accounts from 2010 through 2016. The plaintiff seeks certification of a class, unspecified damages, attorneys’ fees and costs. On June 29, 2020, the Court appointed Heavy & General Laborers’ Local 472 & 172 Pension and Annuity Funds as lead plaintiff, and Robins Geller Rudman & Dowd LLP as lead counsel for the plaintiff. On September 14, 2020, the lead plaintiff filed its amended consolidated complaint. On April 27, 2021, the Court granted the defendants’ motion to dismiss without prejudice, and provided the plaintiff with leave to amend to attempt to cure the deficiencies. On October 8, 2021, the plaintiff filed an amended complaint.

On July 31, 2020, a second 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 the 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 defendants’ motion to dismiss. The case is currently in discovery and no trial date has been set.

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 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.

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
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bodies regarding their respective businesses. Additional matters will likely arise from time to time. Any of these matters may result in material adverse consequences or reputational harm to the Bancorp, its affiliates and/or their respective directors, officers and other personnel, including adverse judgments, findings, settlements, fines, penalties, orders, injunctions or other actions, amendments and/or restatements of the Bancorp’s SEC filings and/or financial statements, as applicable, and/or determinations of material weaknesses in our disclosure controls and procedures. Investigations by regulatory authorities may from time to time result in civil or criminal referrals to law enforcement. Additionally, in some cases, regulatory authorities may take supervisory actions that are considered to be confidential supervisory information which may not be publicly disclosed.

Reasonably Possible Losses in Excess of Accruals
The Bancorp and its subsidiaries are parties to numerous claims and lawsuits as well as threatened or potential actions or claims concerning matters arising from the conduct of its business activities. The outcome of claims or litigation and the timing of ultimate resolution are inherently difficult to predict. The following factors, among others, contribute to this lack of predictability: claims often include significant legal uncertainties, damages alleged by plaintiffs are often unspecified or overstated, discovery may not have started or may not be complete and material facts may be disputed or unsubstantiated. As a result of these factors, the Bancorp is not always able to provide an estimate of the range of reasonably possible outcomes for each claim. An accrual for a potential litigation loss is established when information related to the loss contingency indicates both that a loss is probable and that the amount of loss can be reasonably estimated. Any such accrual is adjusted from time to time thereafter as appropriate to reflect changes in circumstances. The Bancorp also determines, when possible (due to the uncertainties described above), estimates of reasonably possible losses or ranges of reasonably possible losses, in excess of amounts accrued. Under U.S. GAAP, an event is “reasonably possible” if “the chance of the future event or events occurring is more than remote but less than likely” and an event is “remote” if “the chance of the future event or events occurring is slight.” Thus, references to the upper end of the range of reasonably possible loss for cases in which the Bancorp is able to estimate a range of reasonably possible loss mean the upper end of the range of loss for cases for which the Bancorp believes the risk of loss is more than slight. For matters where the Bancorp is able to estimate such possible losses or ranges of possible losses, the Bancorp currently estimates that it is reasonably possible that it could incur losses related to legal and regulatory proceedings, in an aggregate amount up to approximately $60 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.

17. Income Taxes
The applicable income tax expense was $118 million and $189 million for the three months ended March 31, 2022 and 2021, respectively. The effective tax rates for the three months ended March 31, 2022 and 2021 were 19.2% and 21.4%, respectively.

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.

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18. Accumulated Other Comprehensive Income
The tables below present the activity of the components of OCI and AOCI for the three months ended:

Total OCI Total AOCI
March 31, 2022 ($ in millions)Pre-tax
Activity
Tax
Effect
Net
Activity
Beginning
Balance
Net
Activity
Ending
Balance
Unrealized holding losses on available-for-sale debt securities arising during period$(2,505)576 (1,929)
Reclassification adjustment for net gains on available-for-sale debt securities included in net income(3)1 (2)
Net unrealized losses on available-for-sale debt securities(2,508)577 (1,931)891 (1,931)(1,040)
Unrealized holding losses on cash flow hedge derivatives arising during period(407)94 (313)
Reclassification adjustment for net gains on cash flow hedge derivatives included in net income(78)18 (60)
Net unrealized losses on cash flow hedge derivatives(485)112 (373)353 (373)(20)
Reclassification of amounts to net periodic benefit costs1  1 
Defined benefit pension plans, net
1  1 (33)1 (32)
Other   (4) (4)
Total$(2,992)689 (2,303)1,207 (2,303)(1,096)

Total OCI Total AOCI
March 31, 2021 ($ in millions)Pre-tax
Activity
Tax
Effect
Net
Activity
Beginning
Balance
Net
Activity
Ending
Balance
Unrealized holding losses on available-for-sale debt securities arising during period$(914)214 (700)
Reclassification adjustment for net losses on available-for-sale debt securities included in net income15 (4)11 
Net unrealized gains on available-for-sale debt securities(899)210 (689)1,931 (689)1,242 
Unrealized holding losses on cash flow hedge derivatives arising during period(84)20 (64)
Reclassification adjustment for net gains on cash flow hedge derivatives included in net income(72)15 (57)
Net unrealized gains on cash flow hedge derivatives(156)35 (121)718 (121)597 
Reclassification of amounts to net periodic benefit costs(1)
Defined benefit pension plans, net(1)(44)(43)
Other— — — (4)— (4)
Total$(1,053)244 (809)2,601 (809)1,792 







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The table below presents reclassifications out of AOCI:
Condensed Consolidated Statements of
Income Caption
For the three months ended
March 31,
($ in millions)20222021
Net unrealized (losses) gains on available-for-sale debt securities:(b)
Net gains (losses) included in net incomeSecurities (losses) gains, net$3 (15)
Income before income taxes3 (15)
Applicable income tax expense(1)
Net income2 (11)
Net unrealized (losses) gains on cash flow hedge derivatives:(b)
Interest rate contracts related to C&I, commercial mortgage and commercial construction loans
Interest and fees on loans and leases78 72 
Income before income taxes78 72 
Applicable income tax expense(18)(15)
Net income60 57 
Net periodic benefit costs:(b)
Amortization of net actuarial loss
Compensation and benefits(a)
(1)(2)
Income before income taxes(1)(2)
Applicable income tax expense 
Net income(1)(1)
Total reclassifications for the periodNet income$61 45 
(a)This AOCI component is included in the computation of net periodic benefit cost. Refer to Note 22 of the Notes to Consolidated Financial Statements included in the Bancorp’s Annual Report on Form 10-K for the year ended December 31, 2021 for further information.
(b)Amounts in parentheses indicate reductions to net income.

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19. 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:
20222021
For the three months ended March 31,
(in millions, except per share data)
IncomeAverage
Shares
Per Share
Amount
IncomeAverage
Shares
Per Share
Amount
Earnings Per Share:
Net income available to common shareholders$474 $674 
Less: Income allocated to participating securities1 
Net income allocated to common shareholders$473 688$0.69 $672 714$0.94 
Earnings Per Diluted Share:
Net income available to common shareholders$474 $674 
Effect of dilutive securities:
Stock-based awards 8— 9
Net income available to common shareholders plus assumed conversions$474 $674 
Less: Income allocated to participating securities1 
Net income allocated to common shareholders plus assumed conversions$473 696$0.68 $672 723$0.93 

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 three months ended March 31, 2022 and 2021 excludes 1 million shares and an immaterial amount, respectively, of stock-based awards because their inclusion would have been anti-dilutive.

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20. 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. 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 more information regarding the fair value hierarchy, refer to Note 1 of the Notes to Consolidated Financial Statements included in the Bancorp’s Annual Report on Form 10-K for the year ended December 31, 2021.

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:
Fair Value Measurements Using
March 31, 2022 ($ in millions)Level 1Level 2Level 3Total Fair Value
Assets:
Available-for-sale debt and other securities:
U.S. Treasury and federal agencies securities$1,688   1,688 
Obligations of states and political subdivisions securities 18  18 
Mortgage-backed securities:

Agency residential mortgage-backed securities 10,891  10,891 
Agency commercial mortgage-backed securities 24,593  24,593 
Non-agency commercial mortgage-backed securities 4,969  4,969 
Asset-backed securities and other debt securities 6,155  6,155 
Available-for-sale debt and other securities(a)
1,688 46,626  48,314 
Trading debt securities:

U.S. Treasury and federal agencies securities50 12  62 
Obligations of states and political subdivisions securities 20  20 
Agency residential mortgage-backed securities 9  9 
Asset-backed securities and other debt securities 233  233 
Trading debt securities50 274  324 
Equity securities346 12  358 
Residential mortgage loans held for sale 858  858 
Residential mortgage loans(b)
  145 145 
Servicing rights  1,444 1,444 
Derivative assets:
Interest rate contracts41 798 8 847 
Foreign exchange contracts 367  367 
Commodity contracts59 2,997  3,056 
Derivative assets(c)
100 4,162 8 4,270 
Total assets$2,184 51,932 1,597 55,713 
Liabilities:

Derivative liabilities:

Interest rate contracts$7 718 10 735 
Foreign exchange contracts 357  357 
Equity contracts  198 198 
Commodity contracts700 2,251  2,951 
Derivative liabilities(d)
707 3,326 208 4,241 
Short positions:

U.S. Treasury and federal agencies securities70   70 
Asset-backed securities and other debt securities 209  209 
Short positions(d)
70 209  279 
Total liabilities$777 3,535 208 4,520 
(a)Excludes FHLB, FRB and DTCC restricted stock holdings totaling $30, $486 and $2, respectively, at March 31, 2022.
(b)Includes residential mortgage loans originated as held for sale and subsequently transferred to held for investment.
(c)Included in other assets in the Condensed Consolidated Balance Sheets.
(d)Included in other liabilities in the Condensed Consolidated Balance Sheets.
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Fair Value Measurements Using
December 31, 2021 ($ in millions)Level 1Level 2Level 3Total Fair Value
Assets:
Available-for-sale debt and other securities:
U.S. Treasury and federal agencies securities$86 — — 86 
Obligations of states and political subdivisions securities— 18 — 18 
Mortgage-backed securities:
Agency residential mortgage-backed securities— 8,782 — 8,782 
Agency commercial mortgage-backed securities— 18,951 — 18,951 
Non-agency commercial mortgage-backed securities— 4,479 — 4,479 
Asset-backed securities and other debt securities— 5,275 — 5,275 
Available-for-sale debt and other securities(a)
86 37,505 — 37,591 
Trading debt securities:
U.S. Treasury and federal agencies securities72 12 — 84 
Obligations of states and political subdivisions securities— 32 — 32 
Agency residential mortgage-backed securities— 105 — 105 
Asset-backed securities and other debt securities— 291 — 291 
Trading debt securities72 440 — 512 
Equity securities365 11 — 376 
Residential mortgage loans held for sale— 1,023 — 1,023 
Residential mortgage loans(b)
— — 154 154 
Servicing rights— — 1,121 1,121 
Derivative assets:
Interest rate contracts1,245 12 1,259 
Foreign exchange contracts— 323 — 323 
Commodity contracts26 1,300 — 1,326 
Derivative assets(c)
28 2,868 12 2,908 
Total assets$551 41,847 1,287 43,685 
Liabilities:
Derivative liabilities:
Interest rate contracts$231 241 
Foreign exchange contracts— 298 — 298 
Equity contracts— — 214 214 
Commodity contracts285 975 — 1,260 
Derivative liabilities(d)
287 1,504 222 2,013 
Short positions:
U.S. Treasury and federal agencies securities96 — — 96 
Asset-backed securities and other debt securities— 201 — 201 
Short positions(d)
96 201 — 297 
Total liabilities$383 1,705 222 2,310 
(a)Excludes FHLB, FRB and DTCC restricted stock holdings totaling $30, $486 and $3, respectively, at December 31, 2021.
(b)Includes residential mortgage loans originated as held for sale and subsequently transferred to held for investment.
(c)Included in other assets in the Condensed Consolidated Balance Sheets.
(d)Included in other liabilities in the Condensed Consolidated Balance Sheets.

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.

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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 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 12 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. At March 31, 2022 and December 31, 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 15 for additional information on the Covered Litigation.

The net asset fair value of the Bancorp’s IRLCs at March 31, 2022 was $6 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 $7 million and $13 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 $7 million and $15 million, respectively. The decrease in fair value of IRLCs due to immediate 10% and 20% adverse changes in the assumed loan closing rates would both be approximately $1 million, and the increase in fair value due to immediate 10% and 20% favorable changes in the assumed loan closing rates would both be approximately $1 million. 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.

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Notes to Condensed Consolidated Financial Statements (unaudited)
The following tables are a reconciliation of assets and liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3):
Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
For the three months ended March 31, 2022 ($ in millions)
Residential
Mortgage
Loans
Servicing
Rights
Interest Rate
Derivatives,
Net(a)
Equity
Derivatives
Total
Fair Value
Balance, beginning of period$154 1,121 4 (214)1,065 
Total (losses) gains (realized/unrealized):(b)
 Included in earnings(6)137 2 (11)122 
Purchases/originations 186 (2) 184 
Settlements(9) (6)27 12 
Transfers into Level 3(c)
6    6 
Balance, end of period$145 1,444 (2)(198)1,389 
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 March 31, 2022
$(6)207 7 (11)197 
(a)Net interest rate derivatives include derivative assets and liabilities of $8 and $10, respectively, as of March 31, 2022.
(b)There were no unrealized gains or losses for the period included in other comprehensive income for instruments still held at March 31, 2022.
(c)Includes certain residential mortgage loans originated as held for sale that were transferred to held for investment.

Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
For the three months ended March 31, 2021 ($ in millions)
Residential
Mortgage
Loans
Servicing
Rights
Interest Rate
Derivatives,
Net(a)
Equity
Derivatives
Total
Fair Value
Balance, beginning of period$161 656 53 (201)669 
Total gains (losses) (realized/unrealized):(b)
 Included in earnings(1)71 35 (13)92 
Purchases/originations— 57 (1)— 56 
Settlements(16)— (57)19 (54)
Transfers into Level 3(c)
— — — 
Balance, end of period$153 784 30 (195)772 
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 March 31, 2021
$(1)138 29 (13)153 
(a)Net interest rate derivatives include derivative assets and liabilities of $39 and $9, respectively, as of March 31, 2021.
(b)There were no unrealized gains or losses for the period included in other comprehensive income for instruments still held at March 31, 2021.
(c)Includes certain residential mortgage loans originated as held for sale that were transferred to held for investment.


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 Condensed Consolidated Statements of Income as follows:
For the three months ended
March 31,
($ in millions)20222021
Mortgage banking net revenue$132 104 
Commercial banking revenue1 
Other noninterest income(11)(13)
Total gains$122 92 

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Notes to Condensed Consolidated Financial Statements (unaudited)
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 March 31, 2022 and 2021 were recorded in the Condensed Consolidated Statements of Income as follows:
For the three months ended
March 31,
($ in millions)20222021
Mortgage banking net revenue$207 165 
Commercial banking revenue1 
Other noninterest income(11)(13)
Total gains$197 153 

The following tables present information as of March 31, 2022 and 2021 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 March 31, 2022 ($ in millions)
Financial InstrumentFair ValueValuation
Technique
Significant
Unobservable Inputs
Range of Inputs
Weighted-Average
Residential mortgage loans$145 Loss rate modelInterest rate risk factor(13.2)-5.9%(3.7)%
(a)
Credit risk factor -20.7%0.2 %
(a)
(Fixed)
6.7 %
(b)
Servicing rights1,444 DCFPrepayment speed -100%
(Adjustable)
19.7 %
(b)
(Fixed)
749 
(b)
OAS (bps)615 -1,513
(Adjustable)
1,092 
(b)
IRLCs, net6 DCFLoan closing rates42.0 -98.3%85.9 %
(c)
Swap associated with the sale of Visa, Inc. Class B Shares(198)DCFTiming of the resolution
   of the Covered Litigation
Q1 2023-Q2 2025Q2 2024
(d)
(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.

As of March 31, 2021 ($ in millions)
Financial InstrumentFair ValueValuation
Technique
Significant
Unobservable Inputs
Range of InputsWeighted-Average
Residential mortgage loans$153 Loss rate modelInterest rate risk factor(9.3)-7.8 %0.8 %
(a)
Credit risk factor— -25.6 %0.4 %
(a)
(Fixed)13.0 %
(b)
Servicing rights784 DCFPrepayment speed0.4 -99.9 %(Adjustable)21.4 %
(b)
(Fixed)645 
(b)
OAS (bps)536-1,587(Adjustable)968 
(b)
IRLCs, net38 DCFLoan closing rates7.2 -97.2 %75.9 %
(c)
Swap associated with the sale of Visa, Inc. Class B Shares
(195)DCFTiming of the resolution
   of the Covered Litigation
Q4 2022-Q4 2024Q3 2023
(d)
(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.

Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis
Certain assets and liabilities are measured at fair value on a nonrecurring basis. These assets and liabilities are not measured at fair value on an ongoing basis; however, they are subject to fair value adjustments in certain circumstances, such as when there is evidence of impairment.

The following tables provide the fair value hierarchy and carrying amount of all assets that were held as of March 31, 2022 and 2021, and for which a nonrecurring fair value adjustment was recorded during the three months ended March 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.

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Notes to Condensed Consolidated Financial Statements (unaudited)
Fair Value Measurements UsingTotal (Losses) Gains
As of March 31, 2022 ($ in millions)Level 1Level 2Level 3Total
For the three months ended March 31, 2022
Commercial loans and leases$  178 178 (32)
Consumer and residential mortgage loans  117 117  
OREO  1 1 1 
Bank premises and equipment  1 1  
Operating lease equipment  6 6 (2)
Private equity investments 9 2 11 (6)
Total$ 9 305 314 (39)

Fair Value Measurements UsingTotal (Losses) Gains
As of March 31, 2021 ($ in millions)Level 1Level 2Level 3Total
For the three months ended March 31, 2021
Commercial loans held for sale$— — 14 14 
Commercial loans and leases— — 311 311 (5)
Consumer and residential mortgage loans— — 153 153 (2)
OREO— — (6)
Bank premises and equipment— — (2)
Operating lease equipment— — 35 35 (25)
Private equity investments— — 
Total$— 530 531 (39)

The following tables present information as of March 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 March 31, 2022 ($ in millions)
Financial InstrumentFair ValueValuation TechniqueSignificant Unobservable InputsRanges of
Inputs
Weighted-Average
Commercial loans and leases$178 Appraised valueCollateral valueNMNM
Consumer and residential mortgage loans117 Appraised valueCollateral valueNMNM
OREO1 Appraised valueAppraised valueNMNM
Bank premises and equipment1 Appraised valueAppraised valueNMNM
Operating lease equipment6 Appraised valueAppraised valueNMNM
Private equity investments2 Comparable company analysisMarket comparable transactionsNMNM

As of March 31, 2021 ($ in millions)
Financial InstrumentFair ValueValuation TechniqueSignificant Unobservable InputsRanges of
Inputs
Weighted-Average
Commercial loans held for sale$14 Comparable company analysisMarket comparable transactionsNMNM
Commercial loans and leases311 Appraised valueCollateral valueNMNM
Consumer and residential mortgage loans153 Appraised valueCollateral valueNMNM
OREOAppraised valueAppraised valueNMNM
Bank premises and equipmentAppraised valueAppraised valueNMNM
Operating lease equipment35 Appraised valueAppraised valueNMNM
Private equity investmentsComparable company analysisMarket comparable transactionsNMNM

Commercial loans held for sale
The Bancorp estimated the fair value of certain commercial loans held for sale, resulting in a positive fair value adjustment of an immaterial amount during the three months ended March 31, 2021. 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 gains of $1 million on the sale of certain commercial loans held for sale during the three months ended March 31, 2021.

Portfolio loans and leases
During the three months ended March 31, 2022 and 2021, the Bancorp recorded nonrecurring impairment 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
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Notes to Condensed Consolidated Financial Statements (unaudited)
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 three months ended March 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. These losses include an immaterial amount and $5 million in losses, recorded as charge-offs on new OREO properties transferred from loans, during the three months ended March 31, 2022 and 2021, respectively. These losses also included $1 million recorded as positive fair value adjustments on OREO for the three months ended March 31, 2022 and $1 million recorded as negative fair value adjustments on OREO for the three months ended March 31, 2021, in other noninterest expense or other noninterest income in the Condensed Consolidated Statements of Income subsequent to their transfer into OREO. 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 an immaterial amount during the three months ended March 31, 2022 and 2021, respectively, resulting from observable price changes. The carrying value of the Bancorp’s private equity investments still held as of March 31, 2022 includes a cumulative $72 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 $10 million and an immaterial amount for the three months ended March 31, 2022 and 2021, respectively. The carrying value of the Bancorp’s private equity investments still held as of March 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 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.

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Fifth Third Bancorp and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited)
Fair value changes recognized in earnings for residential mortgage loans held at March 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 $30 million, respectively. These gains are reported in mortgage banking net revenue in the Condensed 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 an immaterial amount at both March 31, 2022 and December 31, 2021. 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 Condensed 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:
March 31, 2022 ($ in millions)
Aggregate
Fair Value
Aggregate Unpaid
Principal Balance

Difference
Residential mortgage loans measured at fair value
$1,003 1,013 (10)
Past due loans of 90 days or more
3 3  
Nonaccrual loans
1 1  
December 31, 2021

Residential mortgage loans measured at fair value
$1,177 1,149 28 
Past due loans of 90 days or more
— 
Nonaccrual loans
— — — 

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 March 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 Condensed Consolidated Balance Sheets. Fair value changes recognized in earnings included gains of $11 million and $9 million for the three months ended March 31, 2022 and 2021, respectively, reported in securities (losses) gains, net in the Condensed Consolidated Statements of Income.

Fair Value of Certain Financial Instruments
The following tables summarize the carrying amounts and estimated fair values for certain financial instruments, excluding financial instruments measured at fair value on a recurring basis:
Net Carrying
Amount
Fair Value Measurements UsingTotal
Fair Value
As of March 31, 2022 ($ in millions)Level 1Level 2Level 3
Financial assets:
Cash and due from banks$3,049 3,049   3,049 
Other short-term investments20,529 20,529   20,529 
Other securities518  518  518 
Held-to-maturity securities6   6 6 
Loans and leases held for sale1,758   1,767 1,767 
Portfolio loans and leases:

Commercial loans and leases71,828   72,153 72,153 
Consumer and residential mortgage loans41,984   41,802 41,802 
Total portfolio loans and leases, net$113,812   113,955 113,955 
Financial liabilities:

Deposits$170,611  170,585  170,585 
Federal funds purchased250 250   250 
Other short-term borrowings872  872  872 
Long-term debt10,571 10,659 376  11,035 
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Notes to Condensed Consolidated Financial Statements (unaudited)
Net Carrying
Amount
Fair Value Measurements UsingTotal
Fair Value
As of December 31, 2021 ($ in millions)Level 1Level 2Level 3
Financial assets:
Cash and due from banks$2,994 2,994 — — 2,994 
Other short-term investments34,572 34,572 — — 34,572 
Other securities519 — 519 — 519 
Held-to-maturity securities— — 
Loans and leases held for sale3,392 — — 3,405 3,405 
Portfolio loans and leases:
Commercial loans and leases69,166 — — 69,924 69,924 
Consumer and residential mortgage loans40,838 — — 41,632 41,632 
Total portfolio loans and leases, net$110,004 — — 111,556 111,556 
Financial liabilities:
Deposits$169,324 — 169,316 — 169,316 
Federal funds purchased281 281 — — 281 
Other short-term borrowings980 — 980 — 980 
Long-term debt11,425 12,091 387 — 12,478 
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Fifth Third Bancorp and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited)
21. Business Segments
The Bancorp reports on four business segments: Commercial Banking, Branch Banking, Consumer Lending and Wealth and Asset Management. Results of the Bancorp’s business segments are presented based on its management structure and management accounting practices. The structure and accounting practices are specific to the Bancorp; therefore, the financial results of the Bancorp’s business segments are not necessarily comparable with similar information for other financial institutions. The Bancorp refines its methodologies from time to time as management’s accounting practices and businesses change.

The Bancorp manages interest rate risk centrally at the corporate level. By employing an FTP methodology, the business segments are insulated from most benchmark interest rate volatility, enabling them to focus on serving customers through the origination of loans and acceptance of deposits. The FTP methodology assigns charge and credit rates to classes of assets and liabilities, respectively, based on the estimated amount and timing of the cash flows for each transaction. Assigning the FTP rate based on matching the duration of cash flows allocates interest income and interest expense to each business segment so its resulting net interest income is insulated from future changes in benchmark interest rates. The Bancorp’s FTP methodology also allocates the contribution to net interest income of the asset-generating and deposit-providing businesses on a duration-adjusted basis to better attribute the driver of the performance. As the asset and liability durations are not perfectly matched, the residual impact of the FTP methodology is captured in General Corporate and Other. The charge and credit rates are determined using the FTP rate curve, which is based on an estimate of Fifth Third’s marginal borrowing cost in the wholesale funding markets. The FTP curve is constructed using the U.S. swap curve, brokered CD pricing and unsecured debt pricing.

The Bancorp adjusts the FTP charge and credit rates as dictated by changes in interest rates for various interest-earning assets and interest-bearing liabilities and by the review of behavioral assumptions, such as prepayment rates on interest-earning assets and the estimated durations for indeterminate-lived deposits. Key assumptions, including the credit rates provided for deposit accounts, are reviewed annually. Credit rates for deposit products and charge rates for loan products may be reset more frequently in response to changes in market conditions.

The 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.

Branch Banking provides a full range of deposit and loan and lease products to individuals and small businesses through 1,079 full-service banking centers. Branch Banking offers depository and loan products, such as checking and savings accounts, home equity loans and lines of credit, credit cards and loans for automobiles and other personal financing needs, as well as products designed to meet the specific needs of small businesses, including cash management services.

Consumer Lending includes the Bancorp’s residential mortgage, automobile and other indirect lending activities. Residential mortgage activities within Consumer Lending include the origination, retention and servicing of residential mortgage loans, sales and securitizations of those loans and all associated hedging activities. Residential mortgages are primarily originated through a dedicated sales force and through third-party correspondent lenders. Automobile and other indirect lending activities include extending loans to consumers through automobile dealers, motorcycle dealers, powersport dealers, recreational vehicle dealers and marine dealers.

Wealth and Asset Management provides a full range of 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.

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Fifth Third Bancorp and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited)
The following tables present the results of operations and assets by business segment for the three months ended:
March 31, 2022 ($ in millions)Commercial
Banking
Branch
Banking
Consumer
Lending
Wealth
and Asset
Management
General
Corporate
and Other
EliminationsTotal
Net interest income$479 430 131 35 120  1,195 
Provision for (benefit from) credit losses(28)17 6  50  45 
Net interest income after provision for (benefit from) credit losses
$507 413 125 35 70 

 

1,150 
Noninterest income:

Service charges on deposits$94 59   (1) 152 
Wealth and asset management revenue 51  142  (44)
(a)
149 
Commercial banking revenue133 2     135 
Card and processing revenue16 78  1 2  97 
Leasing business revenue62 
(c)
     62 
Mortgage banking net revenue 2 50    52 
Other noninterest income(b)
22 24 3 1 2  52 
Securities losses, net    (14) (14)
Securities losses, net non-qualifying hedges on MSRs
  (1)   (1)
Total noninterest income$327 216 52 144 (11)

(44)

684 
Noninterest expense:

Compensation and benefits$166 177 57 60 251  711 
Technology and communications5 1 3  92  101 
Net occupancy expense(e)
9 47 2 3 16  77 
Equipment expense7 9   20  36 
Leasing business expense32      32 
Marketing expense1 10 1  12  24 
Card and processing expense2 18   (1) 19 
Other noninterest expense224 228 81 79 (346)(44)222 
Total noninterest expense$446 490 144 142 44 

(44)

1,222 
Income before income taxes$388 139 33 37 15  612 
Applicable income tax expense70 30 7 8 3  118 
Net income$318 109 26 29 12 

 

494 
Total goodwill$1,980 2,303  231   4,514 
Total assets$77,820 94,552 32,680 13,715 (7,308)
(d)
 211,459 
(a)Revenue sharing agreements between wealth and asset management and branch banking are eliminated in the Condensed Consolidated Statements of Income.
(b)Includes an immaterial amount of impairment charges for bank premises and equipment recorded in Branch Banking. For more information, refer to Note 7 and Note 20.
(c)Includes impairment charges of $2 for operating lease equipment. For more information, refer to Note 8 and Note 20.
(d)Includes bank premises and equipment of $25 classified as held for sale. For more information, refer to Note 7.
(e)Includes $1 of impairment losses and termination charges for ROU assets related to certain operating leases. For more information, refer to Note 9.

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Notes to Condensed Consolidated Financial Statements (unaudited)
March 31, 2021 ($ in millions)Commercial
Banking
Branch
Banking
Consumer
Lending
Wealth
and Asset
Management
General
Corporate
and Other
EliminationsTotal
Net interest income$365 295 128 21 367 — 1,176 
(Benefit from) provision for credit losses(76)41 (1)(145)— (173)
Net interest income after (benefit from) provision for credit losses$441 254 120 22 512 

— 1,349 
Noninterest income:

Service charges on deposits$90 54 — — — — 144 
Wealth and asset management revenue49 — 136 — (43)
(a)
143 
Commercial banking revenue151 — — — — 153 
Card and processing revenue14 77 — — — 94 
Leasing business revenue87 
(c)
— — — — — 87 
Mortgage banking net revenue— 82 — — 85 
Other noninterest income(b)
12 20 — 42 
Securities gains (losses), net— — — (3)— 
Securities losses, net non-qualifying hedges on MSRs
— — (2)— — — (2)
Total noninterest income$361 204 82 138 

(43)

749 
Noninterest expense:

Compensation and benefits$156 170 66 53 261 — 706 
Technology and communications— 86 — 93 
Net occupancy expense47 17 — 79 
Equipment expense10 — — 18 — 34 
Leasing business expense35 — — — — — 35 
Marketing expense— — 14 — 23 
Card and processing expense30 — — (1)— 30 
Other noninterest expense209 223 90 78 (342)(43)215 
Total noninterest expense$420 489 161 135 53 

(43)1,215 
Income (loss) before income taxes$382 (31)41 25 466 — 883 
Applicable income tax expense (benefit)70 (7)112 — 189 
Net income (loss)$312 (24)32 20 354 

— 694 
Total goodwill$1,980 2,047 — 232 — 

— 4,259 
Total assets$68,645 87,645 31,873 11,654 7,082 
(d)
— 206,899 
(a)Revenue sharing agreements between wealth and asset management and branch banking are eliminated in the Condensed Consolidated Statements of Income.
(b)Includes impairment charges of $1 recorded in Branch Banking and $1 recorded in General Corporate and Other for bank premises and equipment. For more information, refer to Note 7 and Note 20.
(c)Includes impairment charges of $25 for operating lease equipment. For more information, refer to Note 8 and Note 20.
(d)Includes bank premises and equipment of $27 classified as held for sale. For more information, refer to Note 7.

22. Subsequent Event
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 rate swaps to convert the fixed-rate periods of the notes to floating-rate, resulting in effective rates of 1.907% and 2.211% for the notes due April 25, 2028 and the notes due April 25, 2033, respectively. 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.
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PART II. OTHER INFORMATION

Legal Proceedings (Item 1)
Refer to Note 16 of the Notes to Condensed Consolidated Financial Statements in Part I, Item 1 for information regarding legal proceedings.

Risk Factors (Item 1A)
There have been no material changes made during the first quarter of 2022 to any of the risk factors as previously disclosed in the Bancorp’s Annual Report on Form 10-K for the year ended December 31, 2021.

Unregistered Sales of Equity Securities and Use of Proceeds (Item 2)
Refer to the “Capital Management” section within Management’s Discussion and Analysis in Part I, Item 2 for information regarding purchases and sales of equity securities by the Bancorp during the first quarter of 2022.

Defaults Upon Senior Securities (Item 3)
None.

Mine Safety Disclosures (Item 4)
Not applicable.

Other Information (Item 5)
None.
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Exhibits (Item 6)
3.1
3.2
31(i)
31(ii)
32(i)
32(ii)
101.INSInline XBRL Instance Document.
101.SCHInline XBRL Taxonomy Extension Schema.
101.CALInline XBRL Taxonomy Extension Calculation Linkbase.
101.LABInline XBRL Taxonomy Extension Label Linkbase.
101.PREInline XBRL Taxonomy Extension Presentation Linkbase.
101.DEFInline XBRL Taxonomy Definition Linkbase.
104Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).
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Signature

Pursuant to the requirements 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

Date: May 9, 2022
/s/ James C. Leonard
James C. Leonard
Executive Vice President and
Chief Financial Officer
(Duly Authorized Officer & Principal Financial Officer)
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