Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following is Management’s Discussion and Analysis of Financial Condition and Results of Operations of certain significant factors that have affected Fifth Third Bancorp’s (the “Bancorp” or “Fifth Third”) financial condition and results of operations during the periods included in the Consolidated Financial Statements, which are a part of this filing. Reference to the Bancorp incorporates the parent holding company and all consolidated subsidiaries. The Bancorp’s banking subsidiary is referred to as the Bank.

OVERVIEW

This overview of MD&A highlights selected information in the financial results of the Bancorp and may not contain all of the information that is important to you. For a more complete understanding of trends, events, commitments, uncertainties, liquidity, capital resources and critical accounting policies and estimates, you should carefully read this entire document. Each of these items could have an impact on the Bancorp’s financial condition, results of operations and cash flows. In addition, refer to the Glossary of Abbreviations and Acronyms in this report for a list of terms included as a tool for the reader of this Annual Report on Form 10-K. The abbreviations and acronyms identified therein are used throughout this MD&A, as well as the Consolidated Financial Statements and Notes to Consolidated Financial Statements.

Net interest income, net interest margin, net interest rate spread and the efficiency ratio are presented in MD&A on an FTE basis. The FTE basis adjusts for the tax-favored status of income from certain loans and securities held by the Bancorp that are not taxable for federal income tax purposes. The Bancorp believes this presentation to be the preferred industry measurement of net interest income as it provides a relevant comparison between taxable and non-taxable amounts. The FTE basis for presenting net interest income is a non-GAAP measure. For further information, refer to the Non-GAAP Financial Measures section of MD&A.

The Bancorp’s revenues are dependent on both net interest income and noninterest income. For the year ended December 31, 2020, net interest income on an FTE basis and noninterest income provided 63% and 37% of total revenue, respectively. The Bancorp derives the majority of its revenues within the U.S. from customers domiciled in the U.S. Revenue from foreign countries and external customers domiciled in foreign countries was immaterial to the Consolidated Financial Statements for the year ended December 31, 2020. Changes in interest rates, credit quality, economic trends and the capital markets are primary factors that drive the performance of the Bancorp. As discussed later in the Risk Management section of MD&A, risk identification, measurement, monitoring, control and reporting are important to the management of risk and to the financial performance and capital strength of the Bancorp.

Net interest income is the difference between interest income earned on assets such as loans, leases and securities, and interest expense incurred on liabilities such as deposits, other short-term borrowings and long-term debt. Net interest income is affected by the general level of interest rates, the relative level of short-term and long-term interest rates, changes in interest rates and changes in the amount and composition of interest-earning assets and interest-bearing liabilities. Generally, the rates of interest the Bancorp earns on its assets and pays on its liabilities are established for a period of time. The change in market interest rates over time exposes the Bancorp to interest rate risk through potential adverse changes to net interest income and financial position. The Bancorp manages this risk by continually analyzing and adjusting the composition of its assets and liabilities based on their payment streams and interest rates, the timing of their maturities and their sensitivity to changes in market interest rates. Additionally, in the ordinary course of business, the Bancorp enters into certain derivative transactions as part of its overall strategy to manage its interest rate and prepayment risks. The Bancorp is also exposed to the risk of loss on its loan and lease portfolio as a result of changing expected cash flows caused by borrower credit events, such as loan defaults and inadequate collateral.

Noninterest income is derived from service charges on deposits, commercial banking revenue, wealth and asset management revenue, card and processing revenue, mortgage banking net revenue, leasing business revenue, other noninterest income and net securities gains or losses. Noninterest expense includes compensation and benefits, technology and communications costs, net occupancy expense, leasing business expense, equipment expense, card and processing expense, marketing expense and other noninterest expense.

COVID-19 Global Pandemic

The COVID-19 pandemic has introduced significant economic uncertainty during the year ended December 31, 2020. To address concerns that COVID-19 may overwhelm the health care system, states across the U.S. declared lockdowns that restricted social gatherings and ordered temporary closures of businesses deemed non-essential. Despite the partial lifting of these measures in some of the states in the Bancorp’s geographic footprint, the recent fluctuations in the number of COVID-19 cases mean that it remains unknown when there will be a return to normal economic activity. During the year ended December 31, 2020, the Bancorp observed the impact of the pandemic on its business. The decline of asset prices, reduction in interest rates, widening of credit spreads, borrower and counterparty credit deterioration and market volatility had the most immediate negative impacts on current performance. Although the Bancorp is unable to estimate the extent of the impact, the continuing pandemic and related global economic crisis will adversely impact its future operating results.

As the cases of COVID-19 continued to rise, the disruption in the financial markets led the FRB to enact unprecedented policies to offset forced liquidations and restore liquidity in the financial markets. The FRB cut rates to the zero lower bound, announced unlimited purchases of treasuries along with agency mortgage-backed securities and commercial mortgage-backed securities, and established several facilities designed to support the smooth functioning of credit markets.

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Government Response to the COVID-19 Pandemic

Congress, the FRB and the other U.S. state and federal financial regulatory agencies have taken actions to mitigate disruptions to economic activity and financial stability resulting from the COVID-19 pandemic. The descriptions below summarize certain significant government actions taken in response to the COVID-19 pandemic. The descriptions are qualified in their entirety by reference to the particular statutory or regulatory provisions or government programs summarized.

The CARES Act

The Coronavirus Aid, Relief and Economic Security (“CARES”) Act was signed into law on March 27, 2020 and has subsequently been amended several times, including by the Consolidated Appropriations Act, 2021. Among other provisions, the CARES Act includes funding for the SBA to expand lending, relief from certain U.S. GAAP requirements to allow COVID-19-related loan modifications to not be categorized as TDRs and a range of incentives to encourage deferment, forbearance or modification of consumer credit and mortgage contracts. One of the key CARES Act programs is the Paycheck Protection Program, which has temporarily expanded the SBA’s business loan guarantee program. Paycheck Protection Program loans are available to a broader range of entities than ordinary SBA loans, require deferral of principal and interest repayment, and the loan may be forgiven if the borrower demonstrates that the loan proceeds were used for qualified payroll costs and certain other expenses. The Paycheck Protection Program was expanded to permit a second round of funding, including for certain borrowers who have already received a PPP loan, subject to certain conditions.

The CARES Act contains additional protections for homeowners and renters of properties with federally-backed mortgages, including a 60-day moratorium on the initiation of foreclosure proceedings beginning on March 18, 2020 and a 120-day moratorium on initiating eviction proceedings effective March 27, 2020. Borrowers of federally-backed mortgages have the right under the CARES Act to request up to 360 days of forbearance on their mortgage payments if they experience financial hardship directly or indirectly due to the COVID-19 public health emergency. The Federal Housing Administration, Fannie Mae and Freddie Mac have independently extended their moratorium on foreclosures and evictions for single-family federally backed mortgages until at least June 30, 2021.

Also pursuant to the CARES Act, the U.S. Treasury has the authority to provide loans, guarantees and other investments in support of eligible businesses, states and municipalities affected by the economic effects of COVID-19. Some of these funds have been used to support several FRB programs and facilities described below or additional programs or facilities that are established by its authority under Section 13(3) of the Federal Reserve Act which meet certain criteria.

FRB Actions

The FRB has taken a range of actions to support the flow of credit to households and businesses. For example, on March 15, 2020, the FRB reduced the target range for the federal funds rate to 0 to 0.25% and announced that it would increase its holdings of U.S. Treasury securities and agency mortgage-backed securities and begin purchasing agency commercial mortgage-backed securities. The FRB has also encouraged depository institutions to borrow from the discount window and has lowered the primary credit rate for such borrowing by 150 basis points while extending the term of such loans up to 90 days. Reserve requirements have been reduced to zero as of March 26, 2020.

In addition, the FRB established a range of facilities and programs to support the U.S. economy and U.S. marketplace participants in response to economic disruptions associated with COVID-19. Through these facilities and programs, the FRB, relying on its authority under Section 13(3) of the Federal Reserve Act, has taken steps to directly or indirectly purchase assets from, or make loans to, U.S. companies, financial institutions, municipalities and other market participants.

FRB facilities and programs that expired as of December 31, 2020 included:

Main Street New Loan Facility, a Main Street Priority Loan Facility, and a Main Street Expanded Loan Facility to purchase loan participations, under specified conditions, from banks lending to small and medium U.S. businesses;
Primary Market Corporate Credit Facility to purchase corporate bonds directly from, or make loans directly to, eligible participants;
Secondary Market Corporate Credit Facility to purchase corporate bonds trading in secondary markets, including from exchange-traded funds, that were issued by eligible participants;
Term Asset-Backed Securities Loan Facility to make loans secured by asset-backed securities; and
Municipal Liquidity Facility to purchase bonds directly from U.S. state, city and county issuers.

FRB facilities and programs that remain active include:

Paycheck Protection Program Liquidity Facility to provide financing related to Paycheck Protection Program loans made by banks;
Primary Dealer Credit Facility to provide liquidity to primary dealers through a secured lending facility;
Commercial Paper Funding Facility to purchase the commercial paper of certain U.S. issuers; and
Money Market Mutual Fund Liquidity Facility to purchase certain assets from, or make loans to, financial institutions providing financing to eligible money market mutual funds.

For commercial and consumer customers, Fifth Third has provided a host of relief options, including loan covenant relief, loan maturity extensions, payment deferrals, forbearances and fee waivers.

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Paycheck Protection Program

As previously discussed, the Bancorp is participating in the SBA’s Paycheck Protection Program which was created by the CARES Act on March 27, 2020. As of December 31, 2020, the Bancorp held approximately 24,000 loans with a carrying amount of $4.8 billion under the program.

For further discussion on Fifth Third’s hardship relief programs as a result of the COVID-19 pandemic, refer to the Credit Risk Management subsection of the Risk Management section of MD&A and Note 1 of the Notes to Consolidated Financial Statements.

Senior Notes Offerings

On January 31, 2020, the Bank issued and sold, under its bank notes program, $1.25 billion in aggregate principal amount of senior fixed-rate notes. The bank notes consisted of $650 million of 1.80% senior fixed-rate notes, with a maturity of three years, due on January 30, 2023; and $600 million of 2.25% senior fixed-rate notes, with a maturity of seven years, due on February 1, 2027.

On May 5, 2020, the Bancorp issued and sold $1.25 billion in aggregate principal amount of senior fixed-rate notes. The notes consisted of $500 million of 1.625% senior fixed-rate notes, with a maturity of three years, due on May 5, 2023; and $750 million of 2.55% senior fixed-rate notes, with a maturity of seven years, due on May 5, 2027.

For more information on the senior notes offerings, including disclosure on the redemption options, refer to Note 18 of the Notes to Consolidated Financial Statements.

Preferred Stock Offering

On July 30, 2020, the Bancorp issued in a registered public offering 350,000 depositary shares, representing 14,000 shares of 4.50% fixed-rate reset non-cumulative perpetual preferred stock, Series L, for net proceeds of approximately $346 million. Each preferred share has a $25,000 liquidation preference.

For more information on the preferred stock offering, including disclosure on the redemption options, refer to Note 25 of the Notes to Consolidated Financial Statements.

LIBOR Transition

In July 2017, the Chief Executive of the United Kingdom Financial Conduct Authority (the “FCA”), which regulates LIBOR, announced that FCA will stop persuading or compelling banks to submit rates for the calculation of LIBOR to the administrator of LIBOR after 2021. Since then, central banks around the world, including the Federal Reserve, have commissioned working groups of market participants and official sector representatives with the goal of finding suitable replacements for LIBOR. The Bancorp has substantial exposure to LIBOR-based products within its commercial lending, commercial deposits, business banking, consumer lending and capital markets lines of business as well as corporate treasury function. It is expected that a transition away from the widespread use of LIBOR to alternative reference rates for new financial contracts will occur by the end of 2021. On November 30, 2020, the Federal Reserve, OCC, and FDIC issued a public statement that the administrator of LIBOR announced it will consult on an extension of publication of certain U.S. Dollar (“USD”) LIBOR tenors until June 30, 2023, which would allow additional legacy USD LIBOR contracts to mature before the succession of LIBOR. The administrator has not yet announced the results of its consultation. Although the full impact of LIBOR reforms and actions remains unclear, the Bancorp continues to prepare to transition from LIBOR to these alternative reference rates. In the United States, it is likely that LIBOR-priced transactions and products will transfer to the Secured Overnight Financing Rate (“SOFR”). There are risks inherent with the transition to any alternative rate such as SOFR as the rates may behave differently than LIBOR in reaction to monetary, market and economic events.

The Bancorp’s LIBOR transition plan is organized around key work streams, including continued engagement with central banks and industry working groups and regulators, active client engagement, comprehensive review of legacy documentation, internal operational and technological readiness, and risk management, among other things, to facilitate the transition to alternative reference rates.

For a further discussion of the various risks the Bancorp faces in connection with the expected replacement of LIBOR on its operations, see “Risk Factors—Market Risks—The replacement of LIBOR could adversely affect Fifth Third’s revenue or expenses and the value of those assets or obligations.” in Item 1A. Risk Factors of this Annual Report on Form 10-K.

Key Performance Indicators

The Bancorp, as a banking institution, utilizes various key indicators of financial condition and operating results in managing and monitoring the performance of the business. In addition to traditional financial metrics, such as revenue and expense trends, the Bancorp monitors other financial measures that assist in evaluating growth trends, capital strength and operational efficiencies. The Bancorp analyzes these key performance indicators against its past performance, its forecasted performance and with the performance of its peer banking institutions. These indicators may change from time to time as the operating environment and businesses change.

The following are key performance indicators used by management to make operating decisions and evaluate capital utilization:

CET1 Capital Ratio: CET1 capital divided by risk-weighted assets as defined by the Basel III standardized approach to risk-weighting of assets

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Return on Average Tangible Common Equity (non-GAAP): Tangible net income available to common shareholders divided by average tangible common equity
Efficiency Ratio: Noninterest expense divided by the sum of net interest income on an FTE basis (non-GAAP) and noninterest income
Earnings Per Share, Diluted: Net income allocated to common shareholders divided by average common shares outstanding after the effect of dilutive stock-based awards
Nonperforming Portfolio Assets Ratio: Nonperforming portfolio assets divided by portfolio loans and leases and OREO
Return on Average Assets: Net income divided by average assets
Loan-to-Deposit Ratio: Total loans divided by total deposits


TABLE 1: Condensed Consolidated Statements of Income
For the years ended December 31 ($ in millions, except per share data)	2020		2019	2018	2017	2016
Interest income (FTE)(a)	$	5,585	6,271	5,199	4,515	4,218
Interest expense	790		1,457	1,043	691	578
Net Interest Income (FTE)(a)	4,795		4,814	4,156	3,824	3,640
Provision for credit losses	1,097		471	207	261	366
Net Interest Income After Provision for Credit Losses (FTE)(a)	3,698		4,343	3,949	3,563	3,274
Noninterest income	2,830		3,536	2,790	3,224	2,696
Noninterest expense	4,718		4,660	3,958	3,782	3,737
Income Before Income Taxes (FTE)(a)	1,810		3,219	2,781	3,005	2,233
Fully taxable equivalent adjustment	13		17	16	26	25
Applicable income tax expense	370		690	572	799	665
Net Income	1,427		2,512	2,193	2,180	1,543
Less: Net income attributable to noncontrolling interests	—		—	—	—	(4)
Net Income Attributable to Bancorp	1,427		2,512	2,193	2,180	1,547
Dividends on preferred stock	104		93	75	75	75
Net Income Available to Common Shareholders	$	1,323	2,419	2,118	2,105	1,472
Earnings per share - basic	$	1.84	3.38	3.11	2.86	1.92
Earnings per share - diluted	$	1.83	3.33	3.06	2.81	1.91
Cash dividends declared per common share	$	1.08	0.94	0.74	0.60	0.53

*(a)*These are non-GAAP measures. For further information, refer to the Non-GAAP Financial Measures section of MD&A.

Earnings Summary

The Bancorp’s net income available to common shareholders for the year ended December 31, 2020 was $1.3 billion, or $1.83 per diluted share, which was net of $104 million in preferred stock dividends. The Bancorp’s net income available to common shareholders for the year ended December 31, 2019 was $2.4 billion, or $3.33 per diluted share, which was net of $93 million in preferred stock dividends.

Net interest income on an FTE basis (non-GAAP) was $4.8 billion for both the years ended December 31, 2020 and 2019. Net interest income was negatively impacted by decreases in yields on average interest-earning assets of 108 bps. The decreases in yields on average interest-earning assets were primarily driven by lower yields on total average loans and leases primarily as a result of decreases in yields on average commercial and industrial loans, average commercial mortgage loans, average commercial construction loans and average home equity of 98 bps, 127 bps, 172 bps and 126 bps, respectively, from the year ended December 31, 2019. The decrease in yields on total average loans and leases for the year ended December 31, 2020 was primarily due to a decrease in market rates, impacting the Bancorp’s portfolios of floating interest rate loans, which are primarily LIBOR- and Prime-based. Net interest income was also negatively impacted by increases in average interest checking deposits and average money market deposits of $10.2 billion and $4.0 billion, respectively, from the year ended December 31, 2019. These negative impacts were partially offset by decreases in rates paid on average interest-bearing liabilities of 73 bps. The decreases in rates paid on average interest-bearing liabilities were primarily driven by decreases in rates paid on average interest checking deposits, average money market deposits and average long-term debt of 81 bps, 76 bps and 48 bps, respectively, from the year ended December 31, 2019. Net interest income also benefited from increases in average commercial and industrial loans, average indirect secured consumer loans and average commercial mortgage loans of $3.6 billion, $2.1 billion and $1.1 billion, respectively, from the year ended December 31, 2019. Net interest income for the year ended December 31, 2020 compared to the year ended December 31, 2019 was adversely impacted by lower market interest rates due to the FOMC decisions to lower the target range of the federal funds rate and the Federal Reserve's bond purchase programs. During the years ended December 31, 2020 and 2019, net interest income included $57 million and $65 million, respectively, of amortization and accretion of premiums and discounts on acquired loans and leases and assumed deposits and long-term debt from acquisitions. Net interest margin on an FTE basis (non-GAAP) was 2.78% for the year ended December 31, 2020 compared to 3.31% for the year ended December 31, 2019.

Effective January 1, 2020, the Bancorp adopted ASU 2016-13 which established a new approach for estimating credit losses on certain types of financial instruments. The Bancorp recognized an initial increase to the ACL of approximately $653 million upon adoption of ASU 2016-13 on January 1, 2020, which included $171 million from the non-PCD loan portfolio resulting from the MB Financial, Inc. acquisition. The provision for credit losses was $1.1 billion for the year ended December 31, 2020 compared to $471 million for the prior year. The increase in provision expense for the year ended December 31, 2020 compared to the prior year was primarily due to an increase in the ACL

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reflecting deterioration in the macroeconomic environment as a result of the impact of the COVID-19 pandemic and the resulting impact of this environment on commercial borrowers as reflected in increased levels of commercial criticized assets. The increase in the provision for credit losses also reflected the impact of the change in methodology for estimating credit losses from the incurred loss methodology to the expected credit loss methodology beginning in the first quarter of 2020. Net losses charged off as a percent of average portfolio loans and leases were 0.42% and 0.35% for the years ended December 31, 2020 and 2019, respectively. At December 31, 2020, nonperforming portfolio assets as a percent of portfolio loans and leases and OREO increased to 0.79% compared to 0.62% at December 31, 2019. For further discussion on credit quality refer to the Credit Risk Management subsection of the Risk Management section of MD&A as well as Note 7 of the Notes to Consolidated Financial Statements.

Noninterest income decreased $706 million for the year ended December 31, 2020 compared to the year ended December 31, 2019 primarily due to a decrease in other noninterest income, partially offset by increases in commercial banking revenue, wealth and asset management revenue and mortgage banking net revenue. Other noninterest income decreased $853 million for the year ended December 31, 2020 compared to the year ended December 31, 2019 primarily due to the $562 million gain on sale of Worldpay, Inc. shares recognized during the first quarter of 2019 and a decrease of $272 million in the income from the TRA associated with Worldpay, Inc primarily driven by a $345 million gain recognized in the fourth quarter of 2019 from the Worldpay, Inc. TRA transaction. Commercial banking revenue increased $68 million for the year ended December 31, 2020 compared to the year ended December 31, 2019 primarily driven by increases in institutional sales and bridge fees of $68 million and $10 million, respectively, partially offset by a decrease in loan syndication fees of $20 million. Wealth and asset management revenue increased $33 million for the year ended December 31, 2020 compared to the year ended December 31, 2019 primarily due to increases of $16 million in both private client service fees and broker income. Mortgage banking net revenue increased $33 million for the year ended December 31, 2020 compared to the year ended December 31, 2019 primarily due to an increase of $140 million in origination fees and gains on loan sales, partially offset by an increase of $103 million in net negative valuation adjustments.

Noninterest expense increased $58 million for the year ended December 31, 2020 compared to the year ended December 31, 2019 primarily due to an increase in compensation and benefits expense, partially offset by decreases in technology and communications expense and marketing expense. The Bancorp recognized $16 million of merger-related expenses related to the MB Financial, Inc. acquisition for the year ended December 31, 2020 compared to $222 million for the year ended December 31, 2019. Compensation and benefits expense increased $172 million for the year ended December 31, 2020 compared to the year ended December 31, 2019 primarily due to strategic hiring and the impact of raising the Bancorp’s minimum wage in the fourth quarter of 2019, as well as increases in incentive compensation driven by strong performance in fees related to business growth during the year ended December 31, 2020. Technology and communications expense decreased $60 million for the year ended December 31, 2020 compared to the year ended December 31, 2019 primarily driven by decreased integration and conversion costs related to the acquisition of MB Financial, Inc. Marketing expense decreased $58 million for the year ended December 31, 2020 compared to the year ended December 31, 2019 primarily due to the impact of the COVID-19 pandemic, which resulted in a pause or slowdown in numerous marketing campaigns, including running less advertising as well as the suspension of cash bonus and other account acquisition programs.

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

Capital Summary

The Bancorp calculated its regulatory capital ratios under the Basel III standardized approach to risk-weighting of assets and pursuant to the five-year transition provision option to phase in the effects of CECL on regulatory capital as of December 31, 2020. As of December 31, 2020, the Bancorp’s capital ratios, as defined by the U.S. banking agencies, were:

CET1 capital ratio: 10.34%;
Tier I risk-based capital ratio: 11.83%;
Total risk-based capital ratio: 15.08%;
Tier I leverage ratio: 8.49%

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NON-GAAP FINANCIAL MEASURES

The following are non-GAAP financial measures which provide useful insight to the reader of the Consolidated Financial Statements but should be supplemental to primary U.S. GAAP measures and should not be read in isolation or relied upon as a substitute for the primary U.S. GAAP measures.

The FTE basis adjusts for the tax-favored status of income from certain loans and securities held by the Bancorp that are not taxable for federal income tax purposes. The Bancorp believes this presentation to be the preferred industry measurement of net interest income as it provides a relevant comparison between taxable and non-taxable amounts.

The following table reconciles the non-GAAP financial measures of net interest income on an FTE basis, interest income on an FTE basis, net interest margin, net interest rate spread and the efficiency ratio to U.S. GAAP:


TABLE 2: Non-GAAP Financial Measures - Financial Measures and Ratios on an FTE basis
For the years ended December 31 ($ in millions)	2020			2019	2018
Net interest income (U.S. GAAP)	$	4,782		4,797	4,140
Add: FTE adjustment	13			17	16
Net interest income on an FTE basis (1)	$	4,795		4,814	4,156

Interest income (U.S. GAAP)	$	5,572		6,254	5,183
Add: FTE adjustment	13			17	16
Interest income on an FTE basis (2)	$	5,585		6,271	5,199

Interest expense (3)	$	790		1,457	1,043
Noninterest income (4)	2,830			3,536	2,790
Noninterest expense (5)	4,718			4,660	3,958
Average interest-earning assets (6)	172,688			145,404	128,905
Average interest-bearing liabilities (7)	119,018			104,708	89,959

Ratios:
Net interest margin on an FTE basis (1) / (6)	2.78		%	3.31	3.22
Net interest rate spread on an FTE basis ((2) / (6)) - ((3) / (7))	2.57			2.92	2.87
Efficiency ratio on an FTE basis (5) / ((1) + (4))	61.9			55.8	57.0

The Bancorp believes return on average tangible common equity is an important measure for comparative purposes with other financial institutions, but is not defined under U.S. GAAP, and therefore is considered a non-GAAP financial measure. This measure is useful for evaluating the performance of a business as it calculates the return available to common shareholders without the impact of intangible assets and their related amortization.

The following table reconciles the non-GAAP financial measure of return on average tangible common equity to U.S. GAAP:


TABLE 3: Non-GAAP Financial Measures - Return on Average Tangible Common Equity
For the years ended December 31 ($ in millions)	2020			2019
Net income available to common shareholders (U.S. GAAP)	$	1,323		2,419
Add: Intangible amortization, net of tax	38			35
Tangible net income available to common shareholders (1)	$	1,361		2,454

Average Bancorp shareholders’ equity (U.S. GAAP)	$	22,555		19,902
Less: Average preferred stock	1,916			1,470
Average goodwill	4,258			3,888
Average intangible assets	172			169
Average tangible common equity (2)	$	16,209		14,375

Return on average tangible common equity (1) / (2)	8.4		%	17.1

The Bancorp considers various measures when evaluating capital utilization and adequacy, including the tangible equity ratio and tangible common equity ratio, in addition to capital ratios defined by the U.S. banking agencies. These calculations are intended to complement the capital ratios defined by the U.S. banking agencies for both absolute and comparative purposes. Because U.S. GAAP does not include capital ratio measures, the Bancorp believes there are no comparable U.S. GAAP financial measures to these ratios. These ratios are not formally

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defined by U.S. GAAP or codified in the federal banking regulations and, therefore, are considered to be non-GAAP financial measures. The Bancorp encourages readers to consider its Consolidated Financial Statements in their entirety and not to rely on any single financial measure.

The following table reconciles non-GAAP capital ratios to U.S. GAAP:


TABLE 4: Non-GAAP Financial Measures - Capital Ratios
As of December 31 ($ in millions)	2020			2019
Total Bancorp Shareholders’ Equity (U.S. GAAP)	$	23,111		21,203
Less: Preferred stock	2,116			1,770
Goodwill	4,258			4,252
Intangible assets	139			201
AOCI	2,601			1,192
Tangible common equity, excluding AOCI (1)	13,997			13,788
Add: Preferred stock	2,116			1,770
Tangible equity (2)	$	16,113		15,558

Total Assets (U.S. GAAP)	$	204,680		169,369
Less: Goodwill	4,258			4,252
Intangible assets	139			201
AOCI, before tax	3,292			1,509
Tangible assets, excluding AOCI (3)	$	196,991		163,407

Ratios:
Tangible equity as a percentage of tangible assets (2) / (3)	8.18		%	9.52
Tangible common equity as a percentage of tangible assets (1) / (3)	7.11			8.44

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RECENT ACCOUNTING STANDARDS

Note 1 of the Notes to Consolidated Financial Statements provides a discussion of the significant new accounting standards applicable to the Bancorp during 2020 and the expected impact of significant accounting standards issued, but not yet required to be adopted.

CRITICAL ACCOUNTING POLICIES

The Bancorp’s Consolidated Financial Statements are prepared in accordance with U.S. GAAP. Certain accounting policies require management to exercise judgment in determining methodologies, economic assumptions and estimates that may materially affect the Bancorp’s financial position, results of operations and cash flows. The Bancorp’s critical accounting policies include the accounting for the ALLL, reserve for unfunded commitments, valuation of servicing rights, fair value measurements, goodwill and legal contingencies. On January 1, 2020, the Bancorp adopted ASU 2016-13 (“Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments”) and its related subsequent amendments, along with ASU 2017-04 (“Intangibles—Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment”). For additional information about these ASUs and their impacts on the Bancorp, refer to Note 1 of the Notes to Consolidated Financial Statements. As a result of the adoption of these ASUs, the accounting policies for the ALLL, reserve for unfunded commitments and goodwill have been updated as of January 1, 2020, and the related policies that were in effect for periods prior to January 1, 2020 are provided in the Critical Accounting Policies Applicable Prior to January 1, 2020 section below. There have been no other material changes to the valuation techniques or models described below during the year ended December 31, 2020.

ALLL

The Bancorp disaggregates its portfolio loans and leases into portfolio segments for purposes of determining the ALLL. The Bancorp’s portfolio segments include commercial, residential mortgage and consumer. The Bancorp further disaggregates its portfolio segments into classes for purposes of monitoring and assessing credit quality based on certain risk characteristics. For an analysis of the Bancorp’s ALLL by portfolio segment and credit quality information by class, refer to Note 7 of the Notes to Consolidated Financial Statements.

The Bancorp maintains the ALLL to absorb the amount of credit losses that are expected to be incurred over the remaining contractual terms of the related loans and leases. Contractual terms are adjusted for expected prepayments but are not extended for expected extensions, renewals or modifications except in circumstances where the Bancorp reasonably expects to execute a TDR with the borrower or where certain extension or renewal options are embedded in the original contract and not unconditionally cancellable by the Bancorp. Accrued interest receivable on loans is presented in the Consolidated Financial Statements as a component of other assets. When accrued interest is deemed to be uncollectible (typically when a loan is placed on nonaccrual status), interest income is reversed. The Bancorp follows established policies for placing loans on nonaccrual status, so uncollectible accrued interest receivable is reversed in a timely manner. As a result, the Bancorp has elected not to measure an allowance for credit losses for accrued interest receivable. For additional information on the Bancorp’s accounting policies related to nonaccrual loans and leases, refer to Note 1 of the Notes to Consolidated Financial Statements.

Credit losses are charged and recoveries are credited to the ALLL. The ALLL is maintained at a level the Bancorp considers to be adequate and is based on ongoing quarterly assessments and evaluations of the collectability of loans and leases, including historical credit loss experience, current and forecasted market and economic conditions and consideration of various qualitative factors that, in management’s judgment, deserve consideration in estimating expected credit losses. Provisions for credit losses are recorded for the amounts necessary to adjust the ALLL to the Bancorp’s current estimate of expected credit losses on portfolio loans and leases. The Bancorp’s strategy for credit risk management includes a combination of conservative exposure limits significantly below legal lending limits and conservative underwriting, documentation and collections standards. The strategy also emphasizes diversification on a geographic, industry and customer level, regular credit examinations and quarterly management reviews of large credit exposures and loans experiencing deterioration of credit quality.

The Bancorp’s methodology for determining the ALLL requires significant management judgment and includes an estimate of expected credit losses on a collective basis for groups of loans and leases with similar risk characteristics and specific allowances for loans and leases which are individually evaluated.

Larger commercial loans and leases included within aggregate borrower relationship balances exceeding $1 million that exhibit probable or observed credit weaknesses, as well as loans that have been modified in a TDR, are individually evaluated for an ALLL. The Bancorp considers the current value of collateral, credit quality of any guarantees, the guarantor’s liquidity and willingness to cooperate, the loan or lease structure and other factors when determining the amount of the ALLL. Other factors may include the borrower’s susceptibility to risks presented by the forecasted macroeconomic environment, the industry and geographic region of the borrower, size and financial condition of the borrower, cash flow and leverage of the borrower and the Bancorp’s evaluation of the borrower’s management. Significant management judgment is required when evaluating which of these factors are most relevant in individual circumstances, and when estimating the amount of expected credit losses based on those factors. When loans and leases are individually evaluated, allowances are determined based on management’s estimate of the borrower’s ability to repay the loan or lease given the availability of collateral and other sources of cash flow, as well as an evaluation of legal options available to the Bancorp. Allowances for individually evaluated loans and leases that are collateral-dependent are typically measured based on the fair value of the underlying collateral, less expected costs to sell where applicable. Individually evaluated loans and leases that are not collateral-dependent are measured based on the present value of expected future cash flows discounted at the loan’s effective interest rate. The Bancorp evaluates the collectability of both principal and interest when assessing the need for a loss accrual. Specific allowances on individually evaluated commercial loans and leases, including TDRs, are reviewed quarterly and adjusted as necessary based on changing borrower and/or collateral conditions and actual collection and charge-off experience.

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Expected credit losses are estimated on a collective basis for loans and leases that are not individually evaluated. These include commercial loans and leases that do not meet the criteria for individual evaluation as well as homogeneous loans in the residential mortgage and consumer portfolio segments. For collectively evaluated loans and leases, the Bancorp uses models to forecast expected credit losses based on the probability of a loan or lease defaulting, the expected balance at the estimated date of default and the expected loss percentage given a default. The estimate of the expected balance at the time of default considers prepayments and, for loans with available credit, expected utilization rates. The Bancorp’s expected credit loss models were developed based on historical credit loss experience and observations of migration patterns for various credit risk characteristics (such as internal credit risk grades, external credit ratings or scores, delinquency status, loan-to-value trends, etc.) over time, with those observations evaluated in the context of concurrent macroeconomic conditions. The Bancorp developed its models from historical observations capturing a full economic cycle when possible.

The Bancorp’s expected credit loss models consider historical credit loss experience, current market and economic conditions, and forecasted changes in market and economic conditions if such forecasts are considered reasonable and supportable. Generally, the Bancorp considers its forecasts to be reasonable and supportable for a period of up to three years from the estimation date. For periods beyond the reasonable and supportable forecast period, expected credit losses are estimated by reverting to historical loss information without adjustment for changes in economic conditions. This reversion is phased in over a two-year period. The Bancorp evaluates the length of its reasonable and supportable forecast period, its reversion period and reversion methodology at least annually, or more often if warranted by economic conditions or other circumstances.

The Bancorp also considers qualitative factors in determining the ALLL. These considerations inherently require significant management judgment to determine the appropriate factors to be considered and the extent of their impact on the ALLL estimate. Qualitative factors are used to capture characteristics in the portfolio that impact expected credit losses but that are not fully captured within the Bancorp’s expected credit loss models. These include adjustments for changes in policies or procedures in underwriting, monitoring or collections, lending and risk management personnel and results of internal audit and quality control reviews. These may also include adjustments, when deemed necessary, for specific idiosyncratic risks such as geopolitical events, natural disasters and their effects on regional borrowers and changes in product structures. Qualitative factors may also be used to address the impacts of unforeseen events on key inputs and assumptions within the Bancorp’s expected credit loss models, such as the reasonable and supportable forecast period, changes to historical loss information or changes to the reversion period or methodology. When evaluating the adequacy of allowances, consideration is also given to regional geographic concentrations and the closely associated effect that changing economic conditions may have on the Bancorp’s customers.

Overall, the collective evaluation process requires significant management judgment when determining the estimation methodology and inputs into the models, as well as in evaluating the reasonableness of the modeled results and the appropriateness of qualitative adjustments. The Bancorp’s forecasts of market and economic conditions and the internal risk grades assigned to loans and leases in the commercial portfolio segment are examples of inputs to the expected credit loss models that require significant management judgment. These inputs have the potential to drive significant variability in the resulting ALLL.

Refer to the Allowance for Credit Losses subsection of the Risk Management section of MD&A for a discussion on the Bancorp’s ALLL sensitivity analysis.

Reserve for Unfunded Commitments

The reserve for unfunded commitments is maintained at a level believed by management to be sufficient to absorb estimated expected credit losses related to unfunded credit facilities and is included in other liabilities in the Consolidated Balance Sheets. The determination of the adequacy of the reserve is based upon expected credit losses over the remaining contractual life of the commitments, taking into consideration the current funded balance and estimated exposure over the reasonable and supportable forecast period. This process takes into consideration the same risk elements that are analyzed in the determination of the adequacy of the Bancorp’s ALLL, as previously discussed. Net adjustments to the reserve for unfunded commitments are included in the provision for credit losses in the Consolidated Statements of Income.

Valuation of Servicing Rights

When the Bancorp sells loans through either securitizations or individual loan sales in accordance with its investment policies, it often obtains servicing rights. The Bancorp may also purchase servicing rights. The Bancorp has elected to measure all existing classes of its residential mortgage servicing rights at fair value at each reporting date with changes in the fair value of servicing rights reported in earnings in the period in which the changes occur. Servicing rights are valued using internal OAS models. Significant management judgment is necessary to identify key economic assumptions used in estimating the fair value of the servicing rights including the prepayment speeds of the underlying loans, the weighted-average life, the OAS and the weighted-average coupon rate, as applicable. The primary risk of material changes to the value of the servicing rights resides in the potential volatility in the economic assumptions used, particularly the prepayment speeds. In order to assist in the assessment of the fair value of servicing rights, the Bancorp obtains external valuations of the servicing rights portfolio from third parties and participates in peer surveys that provide additional confirmation of the reasonableness of key assumptions utilized in the internal OAS model. For additional information on servicing rights, refer to Note 14 of the Notes to Consolidated Financial Statements.

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Fair Value Measurements

The Bancorp measures certain financial assets and liabilities at fair value in accordance with U.S. GAAP, which defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The Bancorp employs various valuation approaches to measure fair value including the market, income and cost approaches. The market approach uses prices or relevant information generated by market transactions involving identical or comparable assets or liabilities. The income approach involves discounting future amounts to a single present amount and is based on current market expectations about those future amounts. The cost approach is based on the amount that currently would be required to replace the service capacity of the asset.

U.S. GAAP establishes a fair value hierarchy which prioritizes the inputs to valuation techniques used to measure fair value into three broad levels. The fair value hierarchy gives the highest priority to quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). A financial instrument’s categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the instrument’s fair value measurement. For additional information on the fair value hierarchy and fair value measurements, refer to Note 1 of the Notes to Consolidated Financial Statements.

The Bancorp’s fair value measurements involve various valuation techniques and models, which involve inputs that are observable, when available. Valuation techniques and parameters used for measuring assets and liabilities are reviewed and validated by the Bancorp on a quarterly basis. Additionally, the Bancorp monitors the fair values of significant assets and liabilities using a variety of methods including the evaluation of pricing runs and exception reports based on certain analytical criteria, comparison to previous trades and overall review and assessments for reasonableness. The level of management judgment necessary to determine fair value varies based upon the methods used in the determination of fair value. Financial instruments that are measured at fair value using quoted prices in active markets (Level 1) require minimal judgment. The valuation of financial instruments when quoted market prices are not available (Levels 2 and 3) may require significant management judgment to assess whether quoted prices for similar instruments exist, the impact of changing market conditions including reducing liquidity in the capital markets and the use of estimates surrounding significant unobservable inputs. Table 5 provides a summary of the fair value of financial instruments carried at fair value on a recurring basis and the amounts of financial instruments valued using Level 3 inputs.


TABLE 5: Fair Value Summary
As of ($ in millions)	December 31, 2020				December 31, 2019
	Balance			Level 3	Balance	Level 3
Assets carried at fair value	$	43,079		878	40,446	1,194
As a percent of total assets	21		%	—	24	1
Liabilities carried at fair value	$	1,527		209	890	171
As a percent of total liabilities	1		%	—	1	—

Refer to Note 29 of the Notes to Consolidated Financial Statements for further information on fair value measurements including a description of the valuation methodologies used for significant financial instruments.

Goodwill

Business combinations entered into by the Bancorp typically include the recognition of goodwill. U.S. GAAP requires goodwill to be tested for impairment at the Bancorp’s reporting unit level on an annual basis, which for the Bancorp is September 30, and more frequently if events or circumstances indicate that there may be impairment. Refer to Note 1 of the Notes to Consolidated Financial Statements for a discussion on the methodology used by the Bancorp to assess goodwill for impairment.

Impairment exists when a reporting unit’s carrying amount of goodwill exceeds its implied fair value. In testing goodwill for impairment, U.S. GAAP permits the Bancorp to first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. In this qualitative assessment, the Bancorp evaluates events and circumstances which may include, but are not limited to, the general economic environment, banking industry and market conditions, the overall financial performance of the Bancorp, the performance of the Bancorp’s common stock, the key financial performance metrics of the Bancorp’s reporting units and events affecting the reporting units to determine if it is not more likely than not that the fair value of a reporting unit is less than its carrying amount. If the quantitative impairment test is required or the decision to bypass the qualitative assessment is elected, the Bancorp performs the goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount, including goodwill. If the carrying amount of the reporting unit exceeds its fair value, an impairment loss is recognized in an amount equal to that excess, limited to the total amount of goodwill allocated to that reporting unit. A recognized impairment loss cannot be reversed in future periods even if the fair value of the reporting unit subsequently recovers.

The fair value of a reporting unit is the price that would be received to sell the unit as a whole in an orderly transaction between market participants at the measurement date. As none of the Bancorp’s reporting units are publicly traded, individual reporting unit fair value determinations cannot be directly correlated to the Bancorp’s stock price. The determination of the fair value of a reporting unit is a subjective process that involves the use of estimates and judgments, particularly related to cash flows, the appropriate discount rates and an applicable control premium. The Bancorp employs an income-based approach, utilizing the reporting unit’s forecasted cash flows (including a terminal value approach to estimate cash flows beyond the final year of the forecast) and the reporting unit’s estimated cost of equity as the

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discount rate. Significant management judgment is necessary in the preparation of each reporting unit’s forecasted cash flows surrounding expectations for earnings projections, growth and credit loss expectations and actual results may differ from forecasted results. Additionally, the Bancorp determines its market capitalization based on the average of the closing price of the Bancorp’s stock during the month including the measurement date, incorporating an additional control premium, and compares this market-based fair value measurement to the aggregate fair value of the Bancorp’s reporting units in order to corroborate the results of the income approach. Refer to Note 11 of the Notes to Consolidated Financial Statements for further information regarding the Bancorp’s goodwill.

Legal Contingencies

The Bancorp and its subsidiaries are parties to numerous claims and lawsuits as well as threatened or potential actions or claims concerning matters arising from the conduct of its business activities. The outcome of claims or litigation and the timing of ultimate resolution are inherently difficult to predict and significant judgment may be required in the determination of both the probability of loss and whether the amount of the loss is reasonably estimable. The Bancorp’s estimates are subjective and are based on the status of legal and regulatory proceedings, the merit of the Bancorp’s defenses and consultation with internal and external legal counsel. An accrual for a potential litigation loss is established when information related to the loss contingency indicates both that a loss is probable and that the amount of loss can be reasonably estimated. Refer to Note 20 of the Notes to Consolidated Financial Statements for further information regarding the Bancorp’s legal proceedings.

Critical Accounting Policies Applicable Prior to January 1, 2020

The following paragraphs describe the portions of the Bancorp’s critical accounting policies that were applicable prior to January 1, 2020 but were updated in conjunction with the prospective adoption of ASU 2016-13 and ASU 2017-04 on January 1, 2020. The following paragraphs do not include the portions of the respective policies that were not affected by the adoption of these new accounting standards. Refer to Note 1 of the Notes to Consolidated Financial Statements for additional information.

ALLL

The Bancorp maintained the ALLL to absorb probable loan and lease losses inherent in its portfolio segments. The ALLL was maintained at a level the Bancorp considered to be adequate and was based on ongoing quarterly assessments and evaluations of the collectability and historical loss experience of loans and leases. Credit losses were charged and recoveries were credited to the ALLL. Provisions for loan and lease losses were based on the Bancorp’s review of the historical credit loss experience and such factors that, in management’s judgment, deserved consideration under existing economic conditions in estimating probable credit losses.

The Bancorp’s methodology for determining the ALLL required significant management judgment and was based on historical loss rates, current credit grades, specific allocation on loans modified in a TDR and impaired commercial credits above specified thresholds and other qualitative adjustments. Allowances on individual commercial loans and leases, TDRs and historical loss rates were reviewed quarterly and adjusted as necessary based on changing borrower and/or collateral conditions and actual collection and charge-off experience. An unallocated allowance was maintained to recognize the imprecision in estimating and measuring losses when evaluating allowances for pools of loans and leases.

Larger commercial loans and leases included within aggregate borrower relationship balances exceeding $1 million that exhibited probable or observed credit weaknesses, as well as loans that had been modified in a TDR, were subject to individual review for impairment. The Bancorp considered the current value of collateral, credit quality of any guarantees, the guarantor’s liquidity and willingness to cooperate, the loan or lease structure and other factors when evaluating whether an individual loan or lease was impaired. Other factors might include the industry and geographic region of the borrower, size and financial condition of the borrower, cash flow and leverage of the borrower and the Bancorp’s evaluation of the borrower’s management. When individual loans and leases were impaired, allowances were determined based on management’s estimate of the borrower’s ability to repay the loan or lease given the availability of collateral and other sources of cash flow, as well as an evaluation of legal options available to the Bancorp. Allowances for impaired loans and leases were measured based on the present value of expected future cash flows discounted at the loan’s effective interest rate, fair value of the underlying collateral or readily observable secondary market values. The Bancorp evaluated the collectability of both principal and interest when assessing the need for a loss accrual.

Historical credit loss rates were applied to commercial loans and leases that were not impaired or were impaired, but smaller than the established threshold of $1 million and thus not subject to specific allowance allocations. The loss rates were derived from migration analyses for several portfolio stratifications, which tracked the historical net charge-off experience sustained on loans and leases according to their internal risk grade. The risk grading system utilized for allowance analysis purposes encompassed ten categories, which were based on regulatory guidance for credit risk systems.

Homogenous loans in the residential mortgage and consumer portfolio segments were not individually risk graded. Rather, standard credit scoring systems and delinquency monitoring were used to assess credit risks and allowances were established based on the expected net charge-offs. Loss rates were based on the trailing twelve-month net charge-off history by loan category. Historical loss rates were adjusted for certain prescriptive and qualitative factors that, in management’s judgment, were necessary to reflect losses inherent in the portfolio. The prescriptive loss rate factors included adjustments for delinquency trends, LTV trends, refreshed FICO score trends and product mix.

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The Bancorp also considered qualitative factors in determining the ALLL. These included adjustments for changes in policies or procedures in underwriting, monitoring or collections, economic conditions, portfolio mix, lending and risk management personnel, results of internal audit and quality control reviews, collateral values, geographic concentrations, estimated loss emergence period and specific portfolio loans backed by enterprise valuations and private equity sponsors. The Bancorp considered home price index trends in its footprint and the volatility of collateral valuation trends when determining the collateral value qualitative factor.

Reserve for unfunded commitments

The reserve for unfunded commitments was maintained at a level believed by management to be sufficient to absorb estimated probable losses related to unfunded credit facilities and was included in other liabilities in the Consolidated Balance Sheets. The determination of the adequacy of the reserve was based upon an evaluation of the unfunded credit facilities, including an assessment of historical commitment utilization experience, credit risk grading and historical loss rates based on credit grade migration. This process took into consideration the same risk elements that were analyzed in the determination of the adequacy of the Bancorp’s ALLL, as previously discussed. Net adjustments to the reserve for unfunded commitments were included in provision for credit losses in the Consolidated Statements of Income.

Goodwill

Impairment existed when a reporting unit’s carrying amount of goodwill exceeded its implied fair value. In testing goodwill for impairment, U.S. GAAP permitted the Bancorp to first assess qualitative factors to determine whether it was more likely than not that the fair value of a reporting unit was less than its carrying amount. In this qualitative assessment, the Bancorp evaluated events and circumstances which might include, but were not limited to, the general economic environment, banking industry and market conditions, the overall financial performance of the Bancorp, the performance of the Bancorp’s common stock, the key financial performance metrics of the Bancorp’s reporting units and events affecting the reporting units. If, after assessing the totality of events and circumstances, the Bancorp determined it was not more likely than not that the fair value of a reporting unit was less than its carrying amount, then performing the two-step impairment test would be unnecessary. However, if the Bancorp concluded otherwise or elected to bypass the qualitative assessment, it would then be required to perform the first step (Step 1) of the goodwill impairment test, and continue to the second step (Step 2), if necessary. Step 1 of the goodwill impairment test compared the fair value of a reporting unit with its carrying amount, including goodwill. If the carrying amount of the reporting unit exceeded its fair value, Step 2 of the goodwill impairment test was necessary to measure the amount of impairment loss, which was equal to any excess of the carrying amount of goodwill over its implied fair value with such loss limited to the carrying amount of goodwill.

The fair value of a reporting unit was the price that would be received to sell the unit as a whole in an orderly transaction between market participants at the measurement date. As none of the Bancorp’s reporting units were publicly traded, individual reporting unit fair value determinations could not be directly correlated to the Bancorp’s stock price. To determine the fair value of a reporting unit, the Bancorp employed an income-based approach, utilizing the reporting unit’s forecasted cash flows (including a terminal value approach to estimate cash flows beyond the final year of the forecast) and the reporting unit’s estimated cost of equity as the discount rate. Significant management judgment was necessary in the preparation of each reporting unit’s forecasted cash flows surrounding expectations for earnings projections, growth and credit loss expectations. Additionally, the Bancorp determined its market capitalization based on the average of the closing price of the Bancorp’s stock during the month including the measurement date, incorporating an additional control premium, and compared this market-based fair value measurement to the aggregate fair value of the Bancorp’s reporting units in order to corroborate the results of the income approach.

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STATEMENTS OF INCOME ANALYSIS

Net Interest Income

Net interest income is the interest earned on loans and leases (including yield-related fees), securities and other short-term investments less the interest incurred on core deposits (includes transaction deposits and other time deposits) and wholesale funding (includes certificates $100,000 and over, other deposits, federal funds purchased, other short-term borrowings and long-term debt). The net interest margin is calculated by dividing net interest income by average interest-earning assets. Net interest rate spread is the difference between the average yield earned on interest-earning assets and the average rate paid on interest-bearing liabilities. Net interest margin is typically greater than net interest rate spread due to the interest income earned on those assets that are funded by noninterest-bearing liabilities, or free funding, such as demand deposits or shareholders’ equity.

Tables 6 and 7 present the components of net interest income, net interest margin and net interest rate spread for the years ended December 31, 2020, 2019 and 2018, as well as the relative impact of changes in the average balance sheet and changes in interest rates on net interest income. Nonaccrual loans and leases and loans and leases held for sale have been included in the average loan and lease balances. Average outstanding securities balances are based on amortized cost with any unrealized gains or losses included in average other assets.

Net interest income on an FTE basis (non-GAAP) was $4.8 billion for both the years ended December 31, 2020 and 2019. Net interest income was negatively impacted by decreases in yields on average interest-earning assets of 108 bps. The decreases in yields on average interest-earning assets were primarily driven by lower yields on total average loans and leases primarily as a result of decreases in yields on average commercial and industrial loans, average commercial mortgage loans, average commercial construction loans and average home equity of 98 bps, 127 bps, 172 bps and 126 bps, respectively, from the year ended December 31, 2019. The decrease in yields on total average loans and leases for the year ended December 31, 2020 was primarily due to a decrease in market rates, impacting the Bancorp’s portfolios of floating interest rate loans, which are primarily LIBOR- and Prime-based. The Bancorp’s portfolios of fixed interest rate loans also decreased in yield as a result of increased refinance activity and lower reinvestment yields due to lower overall market rates. Net interest income was also negatively impacted by increases in average interest checking deposits and average money market deposits of $10.2 billion and $4.0 billion, respectively, from the year ended December 31, 2019. These negative impacts were partially offset by decreases in rates paid on average interest-bearing liabilities of 73 bps. The decreases in rates paid on average interest-bearing liabilities were primarily driven by decreases in rates paid on average interest checking deposits, average money market deposits and average long-term debt of 81 bps, 76 bps and 48 bps, respectively, from the year ended December 31, 2019. Net interest income also benefited from increases in average commercial and industrial loans, average indirect secured consumer loans and average commercial mortgage loans of $3.6 billion, $2.1 billion and $1.1 billion, respectively, from the year ended December 31, 2019. The increase in average commercial and industrial loans was primarily as a result of PPP loans originated during the year ended December 31, 2020.

Net interest income for the year ended December 31, 2020 compared to the year ended December 31, 2019 was adversely impacted by the FOMC decisions to lower the target range of the federal funds rate and the Federal Reserve’s bond purchase programs. During the years ended December 31, 2020 and 2019, net interest income included $57 million and $65 million, respectively, of amortization and accretion of premiums and discounts on acquired loans and leases and assumed deposits and long-term debt from acquisitions.

Net interest rate spread on an FTE basis (non-GAAP) was 2.57% during the year ended December 31, 2020 compared to 2.92% during the year ended December 31, 2019. Yields on average interest-earning assets decreased 108 bps, partially offset by a 73 bps decrease in rates paid on average interest-bearing liabilities for the year ended December 31, 2020 compared to the year ended December 31, 2019.

Net interest margin on an FTE basis (non-GAAP) was 2.78% for the year ended December 31, 2020 compared to 3.31% for the year ended December 31, 2019. Net interest margin was negatively impacted by lower market interest rates, a $19.8 billion increase in low-yielding reserves held at the FRB reported in other short-term investments and the previously mentioned growth in PPP loans. These negative impacts were partially offset by increases in average free funding balances as average demand deposits increased $12.8 billion and average shareholders’ equity increased $2.6 billion compared to the year ended December 31, 2019. Net interest margin results are expected to remain suppressed as a result of increased liquidity levels in the form of excess cash balances, which are expected to remain at elevated levels driven by the amount of fiscal stimulus that has increased the banking industry’s balance sheets, including the Bancorp’s.

Interest income on an FTE basis (non-GAAP) from loans and leases decreased $632 million from the year ended December 31, 2019 driven by the previously mentioned decreases in yields on average loans and leases, partially offset by increases in average commercial and industrial loans, average indirect secured consumer loans and average commercial mortgage loans as well as the impact of accelerated PPP fees recognized upon loan forgiveness during the year ended December 31, 2020. For more information on the Bancorp’s loan and lease portfolio, refer to the Loans and Leases subsection of the Balance Sheet Analysis section of MD&A. Interest income on an FTE basis (non-GAAP) from investment securities and other short-term investments decreased $54 million from the year ended December 31, 2019 primarily due to decreases in yields on average other short-term investments and average taxable securities, partially offset by increases in average balances.

Interest expense on core deposits decreased $518 million from the year ended December 31, 2019 primarily due to decreases in the cost of average interest-bearing core deposits to 28 bps for the year ended December 31, 2020 from 96 bps for the year ended December 31, 2019. The decreases in the cost of average interest-bearing core deposits were primarily due to the previously mentioned decreases in the rates paid

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on average interest checking deposits and average money market deposits. Refer to the Deposits subsection of the Balance Sheet Analysis section of MD&A for additional information on the Bancorp’s deposits.

Interest expense on average wholesale funding decreased $149 million for the year ended December 31, 2020 compared to the year ended December 31, 2019 primarily due to the previously mentioned decreases in rates paid on average long-term debt as well as decreases in rates paid on average other short-term borrowings and average certificates $100,000 and over, in addition to a decrease in the average balance of certificates $100,000 and over. Refer to the Borrowings subsection of the Balance Sheet Analysis section of MD&A for additional information on the Bancorp’s borrowings. During the year ended December 31, 2020, average wholesale funding represented 18% of average interest-bearing liabilities compared to 21% for the year ended December 31, 2019. For more information on the Bancorp’s interest rate risk management, including estimated earnings sensitivity to changes in market interest rates, see the Interest Rate and Price Risk Management subsection of the Risk Management section of MD&A.

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TABLE 6: Consolidated Average Balance Sheet and Analysis of Net Interest Income on an FTE Basis
For the years ended December 31	2020						2019						2018
($ in millions)	Average Balance		Revenue/ Cost		Average Yield/ Rate		Average Balance		Revenue/ Cost		Average Yield/ Rate		Average Balance		Revenue/ Cost		Average Yield/ Rate
Assets:
Interest-earning assets:
Loans and leases:(a)
Commercial and industrial loans	$	53,814	1,954		3.63	%	$	50,168	2,313		4.61	%	$	42,668	1,826		4.28	%
Commercial mortgage loans	11,011		391		3.54		9,905		476		4.81		6,661		298		4.47
Commercial construction loans	5,509		201		3.65		5,174		278		5.37		4,793		240		5.01
Commercial leases	3,038		104		3.43		3,578		119		3.31		3,795		108		2.84
Total commercial loans and leases	73,372		2,650		3.61		68,825		3,186		4.63		57,917		2,472		4.27
Residential mortgage loans	17,828		622		3.49		17,337		635		3.66		16,150		580		3.59
Home equity	5,679		222		3.90		6,286		324		5.16		6,631		326		4.92
Indirect secured consumer loans	12,454		490		3.93		10,345		423		4.08		8,993		304		3.38
Credit card	2,230		260		11.64		2,437		304		12.49		2,280		279		12.25
Other consumer loans	2,848		192		6.76		2,564		196		7.63		1,905		132		6.94
Total consumer loans	41,039		1,786		4.35		38,969		1,882		4.83		35,959		1,621		4.51
Total loans and leases	$	114,411	4,436		3.88	%	$	107,794	5,068		4.70	%	$	93,876	4,093		4.36	%
Securities:
Taxable	$	36,109	1,114		3.08	%	$	35,429	1,160		3.28	%	$	33,487	1,079		3.22	%
Exempt from income taxes(a)	233		6		2.61		41		2		3.97		66		2		3.37
Other short-term investments	21,935		29		0.13		2,140		41		1.91		1,476		25		1.68
Total interest-earning assets	$	172,688	5,585		3.23	%	$	145,404	6,271		4.31	%	$	128,905	5,199		4.03	%
Cash and due from banks	2,978						2,748						2,200
Other assets	20,933						16,903						12,203
Allowance for loan and lease losses	(2,369)						(1,119)						(1,125)
Total assets	$	194,230					$	163,936					$	142,183
Liabilities and Equity:
Interest-bearing liabilities:
Interest checking deposits	$	46,890	126		0.27	%	$	36,658	396		1.08	%	$	29,818	252		0.85	%
Savings deposits	16,440		10		0.06		14,041		22		0.16		13,330		14		0.10
Money market deposits	29,879		88		0.29		25,879		272		1.05		21,769		162		0.74
Foreign office deposits	185		—		0.21		209		1		0.63		363		1		0.33
Other time deposits	4,118		47		1.14		5,470		98		1.79		4,106		59		1.44
Total interest-bearing core deposits	97,512		271		0.28		82,257		789		0.96		69,386		488		0.70
Certificates $100,000 and over	3,337		50		1.49		4,504		97		2.14		2,426		41		1.69
Other deposits	71		1		0.76		265		6		2.27		476		9		1.94
Federal funds purchased	385		2		0.58		1,267		29		2.26		1,509		30		1.97
Other short-term borrowings	1,709		14		0.81		1,046		28		2.67		1,611		29		1.82
Long-term debt	16,004		452		2.82		15,369		508		3.30		14,551		446		3.06
Total interest-bearing liabilities	$	119,018	790		0.66	%	$	104,708	1,457		1.39	%	$	89,959	1,043		1.16	%
Demand deposits	47,111						34,343						32,634
Other liabilities	5,546						4,897						3,603
Total liabilities	$	171,675					$	143,948					$	126,196
Total equity	$	22,555					$	19,988					$	15,987
Total liabilities and equity	$	194,230					$	163,936					$	142,183
Net interest income (FTE)(b)			$	4,795					$	4,814					$	4,156
Net interest margin (FTE)(b)					2.78	%					3.31	%					3.22	%
Net interest rate spread (FTE)(b)					2.57						2.92						2.87
Interest-bearing liabilities to interest-earning assets					68.92						72.01						69.79

*(a)*The FTE adjustments included in the above table were $13, $17 and $16 for the years ended December 31, 2020, 2019, and 2018, respectively.

*(b)*Net interest income (FTE), net interest margin (FTE) and net interest rate spread (FTE) are non-GAAP measures. For further information, refer to the Non-GAAP Financial Measures section of MD&A.

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TABLE 7: Changes in Net Interest Income Attributable to Volume and Yield/Rate(a)
For the years ended December 31	2020 Compared to 2019				2019 Compared to 2018
($ in millions)	Volume		Yield/Rate	Total	Volume	Yield/Rate	Total
Assets:
Interest-earning assets:
Loans and leases:
Commercial and industrial loans	$	159	(518)	(359)	338	149	487
Commercial mortgage loans	50		(135)	(85)	154	24	178
Commercial construction loans	17		(94)	(77)	20	18	38
Commercial leases	(19)		4	(15)	(6)	17	11
Total commercial loans and leases	207		(743)	(536)	506	208	714
Residential mortgage loans	17		(30)	(13)	43	12	55
Home equity	(28)		(74)	(102)	(17)	15	(2)
Indirect secured consumer loans	83		(16)	67	50	69	119
Credit card	(24)		(20)	(44)	20	5	25
Other consumer loans	20		(24)	(4)	50	14	64
Total consumer loans	68		(164)	(96)	146	115	261
Total loans and leases	$	275	(907)	(632)	652	323	975
Securities:
Taxable	$	23	(69)	(46)	63	18	81
Exempt from income taxes	5		(1)	4	—	—	—
Other short-term investments	58		(70)	(12)	12	4	16
Total change in interest income	$	361	(1,047)	(686)	727	345	1,072
Liabilities:
Interest-bearing liabilities:
Interest checking deposits	$	88	(358)	(270)	65	79	144
Savings deposits	3		(15)	(12)	—	8	8
Money market deposits	37		(221)	(184)	35	75	110
Foreign office deposits	—		(1)	(1)	(1)	1	—
Other time deposits	(21)		(30)	(51)	22	17	39
Total interest-bearing core deposits	107		(625)	(518)	121	180	301
Certificates $100,000 and over	(22)		(25)	(47)	43	13	56
Other deposits	(2)		(3)	(5)	(4)	1	(3)
Federal funds purchased	(13)		(14)	(27)	(5)	4	(1)
Other short-term borrowings	12		(26)	(14)	(12)	11	(1)
Long-term debt	20		(76)	(56)	25	37	62
Total change in interest expense	$	102	(769)	(667)	168	246	414
Total change in net interest income	$	259	(278)	(19)	559	99	658

*(a)*Changes in interest not solely due to volume or yield/rate are allocated in proportion to the absolute dollar amount of change in volume and yield/rate.

Provision for Credit Losses

The Bancorp provides as an expense an amount for expected credit losses within the loan and lease portfolio and the portfolio of unfunded loan commitments and letters of credit that is based on factors discussed in the Critical Accounting Policies section of MD&A. The provision is recorded to bring the ALLL and reserve for unfunded commitments to a level deemed appropriate by the Bancorp to cover losses expected in the portfolios. Actual credit losses on loans and leases are charged against the ALLL. The amount of loans and leases actually removed from the Consolidated Balance Sheets are referred to as charge-offs. Net charge-offs include current period charge-offs less recoveries on previously charged-off loans and leases.

The provision for credit losses was $1.1 billion for the year ended December 31, 2020 compared to $471 million for the prior year. The increase in provision expense for the year ended December 31, 2020 compared to the prior year was primarily due to an increase in the ACL reflecting deterioration in the macroeconomic environment as a result of the impact of the COVID-19 pandemic and the resulting impact of this environment on commercial borrowers as reflected in increased levels of commercial criticized assets. The increase in the provision for credit losses also reflected the impact of the change in methodology for estimating credit losses from the incurred loss methodology to the expected credit loss methodology beginning in the first quarter of 2020.

The ALLL increased $1.3 billion from December 31, 2019 to $2.5 billion at December 31, 2020. At December 31, 2020, the ALLL as a percent of portfolio loans and leases increased to 2.25%, compared to 1.10% at December 31, 2019. The reserve for unfunded commitments increased $28 million from December 31, 2019 to $172 million at December 31, 2020. The ACL as a percent of portfolio loans and leases increased to 2.41% at December 31, 2020, compared to 1.23% at December 31, 2019. These increases reflect the adoption of ASU 2016-13

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which resulted in a combined increase to the ALLL and reserve for unfunded commitments of approximately $653 million, as well as the previously mentioned items impacting the provision for credit losses.

Refer to the Credit Risk Management subsection of the Risk Management section of MD&A as well as Note 7 of the Notes to Consolidated Financial Statements for more detailed information on the provision for credit losses, including an analysis of loan and lease portfolio composition, nonperforming assets, net charge-offs and other factors considered by the Bancorp in assessing the credit quality of the loan and lease portfolio, ALLL and reserve for unfunded commitments.

Noninterest Income

Noninterest income decreased $706 million for the year ended December 31, 2020 compared to the year ended December 31, 2019. The following table presents the components of noninterest income:


TABLE 8: Components of Noninterest Income
For the years ended December 31 ($ in millions)	2020		2019	2018	2017	2016
Service charges on deposits	$	559	565	549	554	558
Commercial banking revenue	528		460	408	386	400
Wealth and asset management revenue	520		487	444	419	404
Card and processing revenue	352		360	329	313	319
Mortgage banking net revenue	320		287	212	224	285
Leasing business revenue	276		270	114	63	134
Other noninterest income	211		1,064	803	1,261	586
Securities gains (losses), net	62		40	(54)	2	10
Securities gains (losses), net - non-qualifying hedges on MSRs	2		3	(15)	2	—
Total noninterest income	$	2,830	3,536	2,790	3,224	2,696

Service charges on deposits

Service charges on deposits decreased $6 million for the year ended December 31, 2020 compared to the year ended December 31, 2019 driven by a decrease of $32 million in consumer deposit fees due to lower overdraft occurrences as a result of the impact of COVID-19 financial assistance and fiscal stimulus programs, partially offset by an increase of $26 million in commercial deposit fees.

Commercial banking revenue

Commercial banking revenue increased $68 million for the year ended December 31, 2020 compared to the year ended December 31, 2019 primarily driven by increases in institutional sales and bridge fees of $68 million and $10 million, respectively, partially offset by a decrease in loan syndication fees of $20 million.

Wealth and asset management revenue

Wealth and asset management revenue increased $33 million for the year ended December 31, 2020 compared to the year ended December 31, 2019 primarily due to increases of $16 million in both private client service fees and broker income. The Bancorp’s trust and registered investment advisory businesses had approximately $434 billion and $413 billion in total assets under care as of December 31, 2020 and 2019, respectively, and managed $54 billion and $49 billion in assets for individuals, corporations and not-for-profit organizations as of December 31, 2020 and 2019, respectively.

Card and processing revenue

Card and processing revenue decreased $8 million for the year ended December 31, 2020 compared to the year ended December 31, 2019 primarily driven by a decrease in customer spend volume as a result of reduced economic activity related to government-mandated shutdowns of local economies and other COVID-related impacts, partially offset by lower reward costs.

Mortgage banking net revenue

Mortgage banking net revenue increased $33 million for the year ended December 31, 2020 compared to the year ended December 31, 2019.

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The following table presents the components of mortgage banking net revenue:


TABLE 9: Components of Mortgage Banking Net Revenue
For the years ended December 31 ($ in millions)	2020		2019	2018
Origination fees and gains on loan sales	$	315	175	100
Net mortgage servicing revenue:
Gross mortgage servicing fees	263		267	216
Net valuation adjustments on MSRs and free-standing derivatives purchased to economically hedge MSRs	(258)		(155)	(104)
Net mortgage servicing revenue	5		112	112
Total mortgage banking net revenue	$	320	287	212

Origination fees and gains on loan sales increased $140 million for the year ended December 31, 2020 compared to the year ended December 31, 2019 primarily driven by an increase in originations and gain on sale margins due to the lower interest rate environment. Residential mortgage loan originations increased to $15.9 billion for the year ended December 31, 2020 from $11.6 billion for the year ended December 31, 2019.

Net mortgage servicing revenue decreased $107 million for the year ended December 31, 2020 compared to the year ended December 31, 2019 primarily due to an increase in net negative valuation adjustments of $103 million as well as a decrease in gross mortgage servicing fees of $4 million. Refer to Table 10 for the components of net valuation adjustments on the MSR portfolio and the impact of the non-qualifying hedging strategy.


TABLE 10: Components of Net Valuation Adjustments on MSRs
For the years ended December 31 ($ in millions)	2020		2019	2018
Changes in fair value and settlement of free-standing derivatives purchased to economically hedge the MSR portfolio	$	307	221	(21)
Changes in fair value:
Due to changes in inputs or assumptions	(311)		(203)	42
Other changes in fair value	(254)		(173)	(125)
Net valuation adjustments on MSRs and free-standing derivatives purchased to economically hedge MSRs	$	(258)	(155)	(104)

Mortgage rates decreased during the years ended December 31, 2020 and 2019 which caused modeled prepayment speeds to rise. Additionally, mortgage swap spreads widened during the year ended December 31, 2020 which caused modeled OAS assumptions to increase. For the years ended December 31, 2020 and 2019, the fair value of the MSR portfolio decreased $311 million and $203 million, respectively, due to changes to inputs to the valuation model, including prepayment speeds and OAS assumptions, and decreased $254 million and $173 million, respectively, due to the impact of contractual principal payments and actual prepayment activity.

Further detail on the valuation of MSRs can be found in Note 14 of the Notes to Consolidated Financial Statements. The Bancorp maintains a non-qualifying hedging strategy to manage a portion of the risk associated with changes in the valuation of the MSR portfolio. Refer to Note 15 of the Notes to Consolidated Financial Statements for more information on the free-standing derivatives used to economically hedge the MSR portfolio.

In addition to the derivative positions used to economically hedge the MSR portfolio, the Bancorp acquires various securities as a component of its non-qualifying hedging strategy. The Bancorp recognized net gains of $2 million and $3 million during the years ended December 31, 2020 and 2019, respectively, recorded in securities gains (losses), net - non-qualifying hedges on MSRs in the Bancorp’s Consolidated Statements of Income.

The Bancorp’s total residential mortgage loans serviced at December 31, 2020 and 2019 were $86.6 billion and $98.4 billion, respectively, with $68.8 billion and $80.7 billion, respectively, of residential mortgage loans serviced for others.

Leasing business revenue

Leasing business revenue increased $6 million for the year ended December 31, 2020 compared to the year ended December 31, 2019 primarily driven by increases in lease syndication fees and operating lease income of $9 million and $5 million, respectively, partially offset by a decrease in lease remarketing fees of $8 million.

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Other noninterest income

The following table presents the components of other noninterest income:


TABLE 11: Components of Other Noninterest Income
For the years ended December 31 ($ in millions)	2020		2019	2018
Private equity investment income	$	75	65	63
Income from the TRA associated with Worldpay, Inc.	74		346	20
BOLI income	63		60	56
Cardholder fees	44		58	56
Consumer loan and lease fees	20		23	23
Banking center income	20		22	21
Insurance income	20		19	20
Loss on swap associated with the sale of Visa, Inc. Class B Shares	(103)		(107)	(59)
Net losses on disposition and impairment of bank premises and equipment	(31)		(23)	(43)
Gain on sale of Worldpay, Inc. shares	—		562	205
Equity method income from interest in Worldpay Holding, LLC	—		2	1
Gain related to Vantiv, Inc.’s acquisition of Worldpay Group plc.	—		—	414
Other, net	29		37	26
Total other noninterest income	$	211	1,064	803

Other noninterest income decreased $853 million for the year ended December 31, 2020 compared to the year ended December 31, 2019 primarily due to the gain on sale of Worldpay, Inc. shares recognized during the first quarter of 2019 and a decrease in the income from the TRA associated with Worldpay, Inc.

The Bancorp recognized a $562 million gain related to the sale of Worldpay, Inc. shares during the first quarter of 2019. Income from the TRA associated with Worldpay Inc. decreased $272 million from the year ended December 31, 2019 primarily driven by a $345 million gain recognized in the fourth quarter of 2019 from the Worldpay, Inc. TRA transaction. For additional information, refer to Note 21 of the Notes to Consolidated Financial Statements.

Noninterest Expense

The following table presents the components of noninterest expense:


TABLE 12: Components of Noninterest Expense
For the years ended December 31 ($ in millions)	2020			2019	2018	2017	2016
Compensation and benefits	$	2,590		2,418	2,115	1,989	1,951
Technology and communications	362			422	285	245	234
Net occupancy expense	350			332	292	295	299
Leasing business expense	140			133	76	87	86
Equipment expense	130			129	123	117	118
Card and processing expense	121			130	123	129	132
Marketing expense	104			162	147	114	104
Other noninterest expense	921			934	797	806	813
Total noninterest expense	$	4,718		4,660	3,958	3,782	3,737
Efficiency ratio on an FTE basis(a)	61.9		%	55.8	57.0	53.7	59.0

*(a)*This is a non-GAAP measure. For further information, refer to the Non-GAAP Financial Measures section of MD&A.

The Bancorp recognized $16 million and $222 million of merger-related expenses for the years ended December 31, 2020 and 2019, respectively.

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The following table provides a summary of merger-related expenses recorded in noninterest expense:


TABLE 13: Merger-Related Expenses
For the years ended December 31 ($ in millions)	2020		2019
Compensation and benefits	$	4	90
Technology and communications	6		71
Net occupancy expense	4		13
Equipment expense	—		1
Card and processing expense	—		1
Marketing expense	—		7
Other noninterest expense	2		39
Total	$	16	222

Compensation and benefits expense increased $172 million for the year ended December 31, 2020 compared to the year ended December 31, 2019 primarily due to strategic hiring and the impact of raising the Bancorp’s minimum wage in the fourth quarter of 2019, as well as increases in incentive compensation driven by strong performance in fees related to business growth during the year ended December 31, 2020. Compensation and benefits expense for the year ended December 31, 2020 included $10 million of special payments to employees providing essential banking services through the COVID-19 pandemic. Full-time equivalent employees totaled 19,872 at December 31, 2020 compared to 19,869 at December 31, 2019.

Technology and communications expense decreased $60 million for the year ended December 31, 2020 compared to the year ended December 31, 2019 primarily driven by decreased integration and conversion costs related to the acquisition of MB Financial, Inc.

Marketing expense decreased $58 million for the year ended December 31, 2020 compared to the year ended December 31, 2019 primarily due to the impact of the COVID-19 pandemic, which resulted in a pause or slowdown in numerous marketing campaigns, including running less advertising as well as the suspension of cash bonus and other account acquisition programs.

The following table presents the components of other noninterest expense:


TABLE 14: Components of Other Noninterest Expense
For the years ended December 31 ($ in millions)	2020		2019	2018
Loan and lease	$	162	142	112
FDIC insurance and other taxes	118		81	119
Losses and adjustments	100		102	61
Data processing	75		70	57
Professional service fees	49		70	67
Intangible amortization	48		45	5
Postal and courier	36		38	35
Donations	36		30	21
Travel	27		68	52
Recruitment and education	21		28	32
Insurance	15		14	13
Supplies	13		14	13
Other, net	221		232	210
Total other noninterest expense	$	921	934	797

Other noninterest expense decreased $13 million for the year ended December 31, 2020 compared to the year ended December 31, 2019 primarily due to decreases in travel expense and professional service fees, partially offset by increases in FDIC insurance and other taxes and loan and lease expense.

Travel expense decreased $41 million for the year ended December 31, 2020 compared to the year ended December 31, 2019 primarily due to reduced business travel as a direct result of the COVID-19 pandemic. Professional service fees decreased $21 million for the year ended December 31, 2020 compared to the year ended December 31, 2019 primarily due to decreases in acquisition costs, consulting fees and legal expenses. FDIC insurance and other taxes increased $37 million for the year ended December 31, 2020 compared to the year ended December 31, 2019 primarily as a result of an increase in the assessment rate due to a change in asset mix as well as an increase in the assessment base. Loan and lease expense increased $20 million for the year ended December 31, 2020 compared to the year ended December 31, 2019 primarily due to an increase in loan closing expenses.

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Applicable Income Taxes

Applicable income tax expense for all periods includes the benefit from tax-exempt income, tax-advantaged investments, certain gains on sales of leveraged leases that are exempt from federal taxation and tax credits (and other related tax benefits), partially offset by the effect of proportional amortization of qualifying LIHTC investments and certain nondeductible expenses. The tax credits are primarily associated with the Low-Income Housing Tax Credit program established under Section 42 of the IRC, the New Markets Tax Credit program established under Section 45D of the IRC, the Rehabilitation Investment Tax Credit program established under Section 47 of the IRC and the Qualified Zone Academy Bond program established under Section 1397E of the IRC.

The effective tax rates for the years ended December 31, 2020 and 2019 were primarily impacted by $175 million and $160 million, respectively, of low-income housing tax credits and other tax benefits and $27 million and $40 million, respectively, of tax benefits from tax exempt income, and were partially offset by $150 million and $140 million, respectively, of proportional amortization related to qualifying LIHTC investments. The decrease in the effective tax rate for the year ended December 31, 2020 from 2019 was attributable to a decrease in state income taxes.

The Bancorp’s income before income taxes, applicable income tax expense and effective tax rate are as follows:


TABLE 15: Applicable Income Taxes
For the years ended December 31 ($ in millions)	2020			2019	2018	2017	2016
Income before income taxes	$	1,797		3,202	2,765	2,979	2,208
Applicable income tax expense	370			690	572	799	665
Effective tax rate	20.6		%	21.6	20.7	26.8	30.1

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BUSINESS SEGMENT REVIEW

The Bancorp reports on four business segments: Commercial Banking, Branch Banking, Consumer Lending and Wealth and Asset Management. Additional information on each business segment is included in Note 32 of the Notes to Consolidated Financial Statements. Results of the Bancorp’s business segments are presented based on its management structure and management accounting practices. The structure and accounting practices are specific to the Bancorp; therefore, the financial results of the Bancorp’s business segments are not necessarily comparable with similar information for other financial institutions. The Bancorp refines its methodologies from time to time as management’s accounting practices and businesses change.

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

The Bancorp adjusts the FTP charge and credit rates as dictated by changes in interest rates for various interest-earning assets and interest-bearing liabilities and by the review of behavioral assumptions, such as prepayment rates on interest-earning assets and the estimated durations for indeterminate-lived deposits. Key assumptions, including the credit rates provided for deposit accounts, are reviewed annually. Credit rates for deposit products and charge rates for loan products may be reset more frequently in response to changes in market conditions. In general, the charge rates on assets have declined since December 31, 2019 as they were affected by the prevailing level of interest rates and by the duration and repricing characteristics of the portfolio. The credit rates for deposit products also declined due to lower interest rates and modified assumptions. Thus, net interest income for asset-generating business segments improved while deposit-providing business segments were negatively impacted during the year ended December 31, 2020.

The Bancorp’s methodology for allocating provision for credit losses expense to the business segments includes charges or benefits associated with changes in criticized commercial loan levels in addition to actual net charge-offs experienced by the loans and leases owned by each business segment. Provision for credit losses expense attributable to loan and lease growth and changes in ALLL factors is captured in General Corporate and Other. The financial results of the business segments include allocations for shared services and headquarters expenses. Additionally, the business segments form synergies by taking advantage of relationship depth opportunities and funding operations by accessing the capital markets as a collective unit.

The following table summarizes net income (loss) by business segment:


TABLE 16: Net Income (Loss) by Business Segment
For the years ended December 31 ($ in millions)	2020		2019	2018
Income Statement Data
Commercial Banking	$	387	1,424	1,139
Branch Banking	251		860	702
Consumer Lending	117		92	(1)
Wealth and Asset Management	102		112	97
General Corporate and Other	570		24	256
Net income	$	1,427	2,512	2,193

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Commercial Banking

Commercial Banking offers credit intermediation, cash management and financial services to large and middle-market businesses and government and professional customers. In addition to the traditional lending and depository offerings, Commercial Banking products and services include global cash management, foreign exchange and international trade finance, derivatives and capital markets services, asset-based lending, real estate finance, public finance, commercial leasing and syndicated finance.

The following table contains selected financial data for the Commercial Banking segment:


TABLE 17: Commercial Banking
For the years ended December 31 ($ in millions)	2020		2019	2018
Income Statement Data
Net interest income (FTE)(a)	$	1,916	2,377	1,729
Provision for (benefit from) credit losses	1,050		183	(26)
Noninterest income:
Commercial banking revenue	524		455	402
Service charges on deposits	343		308	273
Leasing business revenue	276		270	114
Other noninterest income	158		154	128
Noninterest expense:
Compensation and benefits	557		466	344
Leasing business expense	140		133	76
Other noninterest expense	1,024		1,022	843
Income before income taxes (FTE)	446		1,760	1,409
Applicable income tax expense(a)(b)	59		336	270
Net income	$	387	1,424	1,139
Average Balance Sheet Data
Commercial loans and leases, including held for sale	$	66,552	65,475	54,748
Demand deposits	24,352		16,424	16,560
Interest checking deposits	25,769		18,259	12,203
Savings and money market deposits	6,695		4,904	4,128
Other time deposits and certificates $100,000 and over	154		332	377
Foreign office deposits	184		209	362

*(a)*Includes FTE adjustments of $13, $17 and $16 for the years ended December 31, 2020, 2019 and 2018, respectively.

*(b)*Applicable income tax expense for all periods includes the tax benefit from tax-exempt income, tax-advantaged investments and tax credits partially offset by the effect of certain nondeductible expenses. Refer to the Applicable Income Taxes subsection of the Statements of Income Analysis section of MD&A for additional information.

Comparison of the year ended 2020 with 2019

Net income was $387 million for the year ended December 31, 2020 compared to net income of $1.4 billion for the year ended December 31, 2019. The decrease in net income was primarily driven by an increase in provision for credit losses, a decrease in net interest income on an FTE basis as well as an increase in noninterest expense partially offset by an increase in noninterest income.

Net interest income on an FTE basis decreased $461 million from the year ended December 31, 2019 primarily driven by decreases in yields on average commercial loans and leases as well as decreases in FTP credit rates on demand deposits, interest checking deposits and savings and money market deposits. These negative impacts were partially offset by decreases in FTP charge rates on loans and leases as well as decreases in rates paid on average interest checking deposits and average savings and money market deposits.

Provision for credit losses increased $867 million from the year ended December 31, 2019 primarily driven by an increase in commercial criticized asset levels as well as increases in net charge-offs on commercial and industrial loans, commercial mortgage loans and commercial leases. Net charge-offs as a percent of average portfolio loans and leases increased to 35 bps for the year ended December 31, 2020 compared to 14 bps for the year ended December 31, 2019.

Noninterest income increased $114 million from the year ended December 31, 2019 driven by increases in commercial banking revenue, service charges on deposits and leasing business revenue. Commercial banking revenue increased $69 million from the year ended December 31, 2019 primarily due to increases in institutional sales and bridge fees partially offset by a decrease in loan syndication fees. Service charges on deposits increased $35 million from the year ended December 31, 2019 primarily due to an increase in commercial deposit fees primarily due to lower earnings credit rates. Leasing business revenue increased $6 million from the year ended December 31, 2019 primarily driven by increases in lease syndication fees and operating lease income partially offset by a decrease in lease remarketing fees.

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Noninterest expense increased $100 million from the year ended December 31, 2019 driven by increases in compensation and benefits and leasing business expense. Compensation and benefits increased $91 million from the year ended December 31, 2019 due to an increase in personnel costs primarily as a result of the MB Financial, Inc. acquisition at the end of the first quarter of 2019 and an increase in incentive compensation driven by strong performance in fees related to business growth during the year ended December 31, 2020, as well as strategic hiring. Leasing business expense increased $7 million from the year ended December 31, 2019 primarily due to an increase in operating lease expense driven by the MB Financial, Inc. acquisition at the end of the first quarter of 2019.

Average commercial loans and leases increased $1.1 billion from the year ended December 31, 2019 primarily due to increases in average commercial mortgage loans and average commercial construction loans partially offset by a decrease in average commercial leases. Average commercial mortgage loans increased $1.1 billion from the year ended December 31, 2019 primarily as a result of increases in loan originations and permanent financing from the Bancorp’s commercial construction loan portfolio. Average commercial construction loans increased $360 million from the year ended December 31, 2019 primarily as a result of increased line of credit utilization as well as lower levels of payoffs. Average commercial leases decreased $541 million from the year ended December 31, 2019 primarily as a result of a planned reduction in indirect non-relationship-based lease originations.

Average core deposits increased $17.2 billion from the year ended December 31, 2019 primarily due to increases in average demand deposits, average interest checking deposits and average savings and money market deposits. Average interest checking deposits increased $7.5 billion, average demand deposits increased $7.9 billion and average savings and money market deposits increased $1.8 billion from the year ended December 31, 2019. These increases were primarily as a result of higher average balances per commercial customer account due to increased liquidity levels in the current economic environment.

Comparison of the year ended 2019 with 2018

Net income was $1.4 billion for the year ended December 31, 2019 compared to net income of $1.1 billion for the year ended December 31, 2018. The increase in net income was driven by increases in net interest income on an FTE basis and noninterest income partially offset by increases in noninterest expense and provision for credit losses.

Net interest income on an FTE basis increased $648 million from the year ended December 31, 2018 primarily driven by increases in both average balances and yields on commercial loans and leases, increases in FTP credits on interest checking deposits and increases in FTP credit rates on demand deposits. These increases were partially offset by increases in FTP charges on loans and leases and increases in both average balances and rates paid on interest checking deposits.

Provision for credit losses increased $209 million from the year ended December 31, 2018 driven by the impact of an increase in criticized asset levels partially offset by a decrease in net charge-offs on commercial and industrial loans. Net charge-offs as a percent of average portfolio loans and leases decreased to 14 bps for the year ended December 31, 2019 compared to 18 bps for the year ended December 31, 2018.

Noninterest income increased $270 million from the year ended December 31, 2018 driven by increases in leasing business revenue, commercial banking revenue, service charges on deposits and other noninterest income. Leasing business revenue increased $156 million from the year ended December 31, 2018 primarily due to increases in operating lease income, leasing business solutions revenue and lease remarketing fees partially offset by a decrease in lease syndication fees. Commercial banking revenue increased $53 million from the year ended December 31, 2018 driven by increases in institutional sales revenue and business lending fees. Service charges on deposits increased $35 million from the year ended December 31, 2018 primarily driven by an increase in commercial deposit fees. Other noninterest income increased $26 million from the year ended December 31, 2018 primarily due to increases in card and processing revenue and private equity investment income.

Noninterest expense increased $358 million from the year ended December 31, 2018 due to increases in other noninterest expense, compensation and benefits and leasing business expense. Other noninterest expense increased $179 million from the year ended December 31, 2018 primarily due to increases in corporate overhead allocations, intangible amortization expense and losses and adjustments. Compensation and benefits increased $122 million from the year ended December 31, 2018 due to increases in base compensation and incentive compensation primarily as a result of the MB Financial, Inc. acquisition as well as an increase in employee benefits expense. Leasing business expense increased $57 million from the year ended December 31, 2018 primarily due to an increase in operating lease expense.

Average commercial loans and leases increased $10.7 billion from the year ended December 31, 2018 primarily due to increases in average commercial and industrial loans and average commercial mortgage loans. Average commercial and industrial loans increased $7.4 billion from the year ended December 31, 2018 primarily as a result of the acquisition of MB Financial, Inc. as well as an increase in loan originations. Average commercial mortgage loans increased $3.2 billion from the year ended December 31, 2018 as a result of the acquisition of MB Financial, Inc. and increases in loan originations as well as permanent financing from the Bancorp’s commercial construction loan portfolio.

Average core deposits increased $6.6 billion from the year ended December 31, 2018 primarily driven by increases in average interest checking deposits and average savings and money market deposits partially offset by decreases in average foreign office deposits and average demand deposits. Average interest checking deposits increased $6.1 billion from the year ended December 31, 2018 primarily due to balance migration from demand deposit accounts and an increase in average balances per commercial customer account as well as the acquisition of MB Financial, Inc. Average savings and money market deposits increased $776 million from the year ended December 31, 2018 primarily

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due to the acquisition of MB Financial, Inc. and an increase in average balances per commercial customer account. Average foreign office deposits decreased $153 million from the year ended December 31, 2018 driven by balance migration into interest checking deposits. Average demand deposits decreased $136 million from the year ended December 31, 2018 primarily driven by balance migration into interest checking deposits partially offset by the acquisition of MB Financial, Inc.

Branch Banking

Branch Banking provides a full range of deposit and loan products to individuals and small businesses through 1,134 full-service banking centers. Branch Banking offers depository and loan products, such as checking and savings accounts, home equity loans and lines of credit, credit cards and loans for automobiles and other personal financing needs, as well as products designed to meet the specific needs of small businesses, including cash management services.

The following table contains selected financial data for the Branch Banking segment:


TABLE 18: Branch Banking
For the years ended December 31 ($ in millions)	2020		2019	2018
Income Statement Data
Net interest income	$	1,667	2,371	2,034
Provision for credit losses	231		224	171
Noninterest income:
Card and processing revenue	283		285	266
Service charges on deposits	215		260	275
Wealth and asset management revenue	172		158	150
Other noninterest income	81		99	63
Noninterest expense:
Compensation and benefits	649		601	536
Net occupancy and equipment expense	217		221	225
Card and processing expense	116		123	121
Other noninterest expense	887		915	846
Income before income taxes	318		1,089	889
Applicable income tax expense	67		229	187
Net income	$	251	860	702
Average Balance Sheet Data
Consumer loans	$	12,777	13,200	13,034
Commercial loans, including held for sale	2,268		2,170	1,938
Demand deposits	19,755		15,802	14,336
Interest checking deposits	12,608		10,716	10,187
Savings and money market deposits	37,030		33,173	29,473
Other time deposits and certificates $100,000 and over	5,370		7,532	5,348

Comparison of the year ended 2020 with 2019

Net income was $251 million for the year ended December 31, 2020 compared to net income of $860 million for the year ended December 31, 2019. The decrease was driven by decreases in net interest income and noninterest income as well as increases in noninterest expense and provision for credit losses.

Net interest income decreased $704 million from the year ended December 31, 2019 primarily due to decreases in FTP credit rates on core deposits and FTP credits on certificates $100,000 and over as well as decreases in yields on and average balances of home equity and credit card. These negative impacts were partially offset by decreases in the rates paid on average interest-bearing deposits as well as decreases in FTP charge rates on loans and leases.

Provision for credit losses increased $7 million from the year ended December 31, 2019 primarily due to an increase in commercial criticized asset levels as well as an increase in net charge-offs on commercial and industrial loans partially offset by decreases in net charge-offs on other consumer loans, credit card and home equity. Net charge-offs as a percent of average portfolio loans and leases decreased to 135 bps for the year ended December 31, 2020 compared to 144 bps for the year ended December 31, 2019.

Noninterest income decreased $51 million from the year ended December 31, 2019 primarily driven by decreases in service charges on deposits and other noninterest income partially offset by an increase in wealth and asset management revenue. Service charges on deposits decreased $45 million from the year ended December 31, 2019 driven by decreases in both consumer deposit fees and commercial deposit fees. Other noninterest income decreased $18 million from the year ended December 31, 2019 primarily driven by a decrease in cardholder

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fees and an increase in net losses on disposition and impairment of bank premises and equipment. Wealth and asset management revenue increased $14 million from the year ended December 31, 2019 primarily driven by increases in broker income and private client service fees.

Noninterest expense increased $9 million from the year ended December 31, 2019 primarily due to an increase in compensation and benefits partially offset by decreases in other noninterest expense and card and processing expense. Compensation and benefits increased $48 million from the year ended December 31, 2019 driven by increases in base compensation, employee benefits expense and incentive compensation. Other noninterest expense decreased $28 million from the year ended December 31, 2019 primarily driven by decreases in marketing expense and losses and adjustments partially offset by increases in corporate overhead allocations and FDIC insurance and other taxes. Card and processing expense decreased $7 million from the year ended December 31, 2019 primarily driven by a decrease in customer spend volume.

Average consumer loans decreased $423 million from the year ended December 31, 2019 primarily driven by a decrease in average home equity as payoffs exceeded loan originations as well as a decrease in average credit card driven by the negative economic impacts from the COVID-19 pandemic, including reductions in the number of active accounts as well as higher paydowns relative to spend per active account. These decreases were partially offset by an increase in average other consumer loans primarily as a result of increases in loan originations.

Average deposits increased $7.5 billion from the year ended December 31, 2019 primarily driven by increases in average demand deposits, average savings and money market deposits and average interest checking deposits partially offset by decreases in average other time deposits and certificates $100,000 and over. Average demand deposits increased $4.0 billion, average savings and money market deposits increased $3.9 billion and average interest checking deposits increased $1.9 billion from the year ended December 31, 2019 primarily as a result of higher balances per customer account due to uncertainty regarding the COVID-19 pandemic, fiscal stimulus and decreased consumer spending. Average other time deposits and certificates $100,000 and over decreased $2.2 billion from the year ended December 31, 2019 primarily due to lower offering rates on certificates less than $100,000 as well as a decrease in average certificates $100,000 and over from the year ended December 31, 2019.

Comparison of the year ended 2019 with 2018

Net income was $860 million for the year ended December 31, 2019 compared to net income of $702 million for the year ended December 31, 2018. The increase was driven by increases in net interest income and noninterest income partially offset by increases in noninterest expense and provision for credit losses.

Net interest income increased $337 million from the year ended December 31, 2018. The increase was primarily due to increases in FTP credits on core deposits and certificates $100,000 and over as well as increases in average balances of other consumer loans and credit card. These benefits were partially offset by increases in both the rates paid on and average balances of savings and money market deposits and other time deposits and certificates $100,000 and over as well as an increase in FTP charge rates on loans and leases.

Provision for credit losses increased $53 million from the year ended December 31, 2018 primarily due to increases in net charge-offs on credit card and other consumer loans. Net charge-offs as a percent of average portfolio loans and leases increased to 144 bps for the year ended December 31, 2019 compared to 114 bps for the year ended December 31, 2018.

Noninterest income increased $48 million from the year ended December 31, 2018 driven by increases in other noninterest income, card and processing revenue and wealth and asset management revenue partially offset by a decrease in service charges on deposits. Other noninterest income increased $36 million from the year ended December 31, 2018 primarily due to the impact of impairment on bank premises and equipment recognized during 2018. Card and processing revenue increased $19 million from the year ended December 31, 2018 primarily driven by increases in the number of actively used cards and customer spend volume. Wealth and asset management revenue increased $8 million from the year ended December 31, 2018 primarily driven by increases in broker income and private client service fees. Service charges on deposits decreased $15 million from the year ended December 31, 2018 due to a decrease in consumer deposit fees partially offset by an increase in commercial deposit fees.

Noninterest expense increased $132 million from the year ended December 31, 2018 primarily due to increases in other noninterest expense and compensation and benefits. Other noninterest expense increased $69 million from the year ended December 31, 2018 primarily due to increases in corporate overhead allocations, intangible amortization expense and loan and lease expense partially offset by a decrease in FDIC insurance and other taxes. Compensation and benefits increased $65 million from the year ended December 31, 2018 due to higher base compensation primarily as a result of the MB Financial, Inc. acquisition as well as increases in employee benefits expense and incentive compensation.

Average consumer loans increased $166 million from the year ended December 31, 2018 primarily driven by an increase in average other consumer loans of $649 million primarily due to growth in point-of-sale loan originations. This increase was partially offset by decreases in average home equity loans of $303 million and average residential mortgage loans of $259 million as payoffs exceeded loan production.

Average core deposits increased $7.0 billion from the year ended December 31, 2018 primarily driven by growth in average savings and money market deposits of $3.7 billion and growth in average demand deposits of $1.5 billion. These increases were primarily due to the acquisition of MB Financial, Inc. as well as promotional product offerings, which drove consumer customer acquisition and growth in

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balances from existing customers. The increase in average core deposits also included an increase in interest checking deposits of $529 million from the year ended December 31, 2018 primarily as a result of the acquisition of MB Financial, Inc. Average other time deposits and certificates $100,000 and over increased $2.2 billion from the year ended December 31, 2018 primarily as a result of the acquisition of MB Financial, Inc. as well as promotional product offerings, which drove increased production.

Consumer Lending

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

The following table contains selected financial data for the Consumer Lending segment:


TABLE 19: Consumer Lending
For the years ended December 31 ($ in millions)	2020		2019	2018
Income Statement Data
Net interest income	$	381	325	237
Provision for credit losses	34		49	42
Noninterest income:
Mortgage banking net revenue	307		279	206
Other noninterest income	12		17	(1)
Noninterest expense:
Compensation and benefits	221		196	192
Other noninterest expense	297		259	210
Income (loss) before income taxes	148		117	(2)
Applicable income tax expense (benefit)	31		25	(1)
Net income (loss)	$	117	92	(1)
Average Balance Sheet Data
Residential mortgage loans, including held for sale	$	13,182	13,027	11,803
Home equity	192		220	243
Indirect secured consumer loans	12,273		10,109	8,676

Comparison of the year ended 2020 with 2019

Net income was $117 million for the year ended December 31, 2020 compared to net income of $92 million for the year ended December 31, 2019. The increase was primarily driven by increases in net interest income and noninterest income as well as a decrease in provision for credit losses partially offset by an increase in noninterest expense.

Net interest income increased $56 million from the year ended December 31, 2019 primarily driven by increases in average indirect secured consumer loans and decreases in FTP charge rates on loans and leases partially offset by decreases in FTP credit rates on demand deposits and yields on average residential mortgage loans and average indirect secured consumer loans.

Provision for credit losses decreased $15 million from the year ended December 31, 2019 primarily driven by a decrease in net charge-offs on indirect secured consumer loans. Net charge-offs as a percent of average portfolio loans and leases decreased to 14 bps for the year ended December 31, 2020 compared to 22 bps for the year ended December 31, 2019.

Noninterest income increased $23 million from the year ended December 31, 2019 driven by an increase in mortgage banking net revenue primarily due to an increase in origination fees and gains on loan sales, partially offset by a decrease in net mortgage servicing revenue. Refer to the Noninterest Income subsection of the Statements of Income Analysis section of MD&A for additional information on the fluctuations in mortgage banking net revenue.

Noninterest expense increased $63 million from the year ended December 31, 2019 due to increases in other noninterest expense and compensation and benefits. Other noninterest expense increased $38 million from the year ended December 31, 2019 primarily driven by an increase in corporate overhead allocations partially offset by a decrease in OREO expense. Compensation and benefits increased $25 million from the year ended December 31, 2019 primarily due to increases in base compensation and incentive compensation resulting from the increased mortgage origination activity for the year ended December 31, 2020.

Average consumer loans increased $2.3 billion from the year ended December 31, 2019 primarily due to increases in average indirect secured consumer loans and average residential mortgage loans. Average indirect secured consumer loans increased $2.2 billion from the year ended December 31, 2019 primarily due to loan production exceeding payoffs. Average residential mortgage loans increased $155 million from the

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year ended December 31, 2019 driven by the repurchase of certain loans from GNMA that were in forbearance programs partially offset by higher runoff due to payoffs exceeding loan originations.

Comparison of the year ended 2019 with 2018

Net income was $92 million for the year ended December 31, 2019 compared to a net loss of $1 million for the year ended December 31, 2018. The increase was driven by increases in noninterest income and net interest income partially offset by increases in noninterest expense and provision for credit losses.

Net interest income increased $88 million from the year ended December 31, 2018 primarily driven by increases in both yields on and average balances of indirect secured consumer loans and residential mortgage loans as well as an increase in FTP credits on demand deposits. These benefits were partially offset by increases in FTP charges on loans and leases.

Provision for credit losses increased $7 million from the year ended December 31, 2018 primarily driven by an increase in net charge-offs on indirect secured consumer loans partially offset by a decrease in net charge-offs on residential mortgage loans. Net charge-offs as a percent of average portfolio loans and leases increased to 22 bps for the year ended December 31, 2019 compared to 21 bps for the year ended December 31, 2018.

Noninterest income increased $91 million from the year ended December 31, 2018 driven by increases in mortgage banking net revenue and other noninterest income. Mortgage banking net revenue increased $73 million from the year ended December 31, 2018 primarily driven by an increase in origination fees and gains on loan sales. Refer to the Noninterest Income subsection of the Statements of Income Analysis section of MD&A for additional information on the fluctuations in mortgage banking net revenue. Other noninterest income increased $18 million from the year ended December 31, 2018 primarily due to the recognition of $3 million of gains on securities acquired as a component of the Bancorp’s non-qualifying hedging strategy of MSRs during the year ended December 31, 2019 compared to the recognition of $15 million of losses during the year ended December 31, 2018.

Noninterest expense increased $53 million from the year ended December 31, 2018 primarily due to an increase in other noninterest expense primarily driven by increases in corporate overhead allocations, loan and lease expense and losses and adjustments.

Average consumer loans increased $2.6 billion from the year ended December 31, 2018 primarily driven by increases in average indirect secured consumer loans and average residential mortgage loans. Average indirect secured consumer loans increased $1.4 billion from the year ended December 31, 2018 primarily driven by the acquisition of MB Financial, Inc. and higher loan production exceeding payoffs. Average residential mortgage loans increased $1.2 billion from the year ended December 31, 2018 primarily driven by the acquisition of MB Financial, Inc.

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Wealth and Asset Management

Wealth and Asset Management provides a full range of investment alternatives for individuals, companies and not-for-profit organizations. Wealth and Asset Management is made up of four main businesses: FTS, an indirect wholly-owned subsidiary of the Bancorp; Fifth Third Insurance Agency; Fifth Third Private Bank; and Fifth Third Institutional Services. FTS offers full service retail brokerage services to individual clients and broker-dealer services to the institutional marketplace. Fifth Third Insurance Agency assists clients with their financial and risk management needs. Fifth Third Private Bank offers wealth management strategies to high net worth and ultra-high net worth clients through wealth planning, investment management, banking, insurance, trust and estate services. Fifth Third Institutional Services provides advisory services for institutional clients including middle market businesses, non-profits, states and municipalities.

The following table contains selected financial data for the Wealth and Asset Management segment:


TABLE 20: Wealth and Asset Management
For the years ended December 31 ($ in millions)	2020		2019	2018
Income Statement Data
Net interest income	$	139	182	182
Provision for credit losses	3		—	12
Noninterest income:
Wealth and asset management revenue	498		469	429
Other noninterest income	28		20	27
Noninterest expense:
Compensation and benefits	218		217	202
Other noninterest expense	315		312	302
Income before income taxes	129		142	122
Applicable income tax expense	27		30	25
Net income	$	102	112	97
Average Balance Sheet Data
Loans and leases, including held for sale	$	3,659	3,580	3,421
Core deposits	10,967		9,701	9,332

Comparison of the year ended 2020 with 2019

Net income was $102 million for the year ended December 31, 2020 compared to net income of $112 million for the year ended December 31, 2019. The decrease in net income was primarily driven by a decrease in net interest income partially offset by an increase in noninterest income.

Net interest income decreased $43 million for the year ended December 31, 2020 compared to the year ended December 31, 2019 primarily driven by decreases in FTP credit rates on deposits as well as decreases in yields on average loans and leases. These negative impacts were partially offset by decreases in the rates paid on average interest checking deposits and average savings and money market deposits as well as decreases in FTP charge rates on loans and leases.

Provision for credit losses increased $3 million from the year ended December 31, 2019 primarily driven by an increase in net charge-offs on residential mortgage loans.

Noninterest income increased $37 million from the year ended December 31, 2019 due to increases in wealth and asset management revenue and other noninterest income. Wealth and asset management revenue increased $29 million from the year ended December 31, 2019 primarily as a result of increases in broker income, private client service fees and institutional fees. Other noninterest income increased $8 million from the year ended December 31, 2019 primarily due to a loss on sale of a business recognized during the year ended December 31, 2019.

Noninterest expense increased $4 million from the year ended December 31, 2019 primarily due to an increase in other noninterest expense driven by an increase in corporate overhead allocations partially offset by a decrease in travel expense.

Average loans and leases increased $79 million from the year ended December 31, 2019 primarily driven by increases in average residential mortgage loans and average other consumer loans as a result of higher loan production, partially offset by a decrease in average commercial and industrial loans as payoffs exceeded new loan production.

Average core deposits increased $1.3 billion from the year ended December 31, 2019 primarily due to increases in average interest checking deposits and average savings and money market deposits as a result of higher balances per customer account due to the current economic environment.

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Comparison of the year ended 2019 with 2018

Net income was $112 million for the year ended December 31, 2019 compared to net income of $97 million for the year ended December 31, 2018. The increase in net income was driven by an increase in noninterest income as well as a decrease in provision for credit losses partially offset by an increase in noninterest expense.

Net interest income remained flat for the year ended December 31, 2019 compared to the year ended December 31, 2018. Net interest income was positively impacted by increases in FTP credits on interest checking deposits and savings and money market deposits as well as increases in both yields on and average balances of loans and leases. These positive impacts were offset by an increase in the rates paid on interest checking deposits as well as an increase in FTP charges on loans and leases.

Provision for credit losses decreased $12 million from the year ended December 31, 2018 driven by a decrease in net charge-offs on commercial and industrial loans. This decrease was partially offset by the impact of the benefit of lower criticized asset levels for the year ended December 31, 2018.

Noninterest income increased $33 million from the year ended December 31, 2018 due to an increase in wealth and asset management revenue partially offset by a decrease in other noninterest income. Wealth and asset management revenue increased $40 million from the year ended December 31, 2018 primarily due to an increase in private client service fees driven by increased sales production and strong market performance as well as the full-year benefit from acquisitions in 2018 and the acquisition of MB Financial, Inc. Other noninterest income decreased $7 million from the year ended December 31, 2018 primarily due to a loss on sale of a business recognized during the second quarter of 2019.

Noninterest expense increased $25 million from the year ended December 31, 2018 due to increases in compensation and benefits and other noninterest expense. Compensation and benefits increased $15 million from the year ended December 31, 2018 primarily due to higher base compensation driven by the full-year impact from acquisitions in 2018 and the acquisition of MB Financial, Inc. Other noninterest expense increased $10 million from the year ended December 31, 2018 primarily driven by an increase in corporate overhead allocations partially offset by a decrease in FDIC insurance and other taxes.

Average loans and leases increased $159 million from the year ended December 31, 2018 primarily due to an increase in average residential mortgage loans driven by the acquisition of MB Financial, Inc., partially offset by a decrease in average commercial and industrial loans as payoffs exceeded new loan production.

Average core deposits increased $369 million from the year ended December 31, 2018 primarily due to an increase in average interest checking deposits primarily as a result of the acquisition of MB Financial, Inc. as well as an increase in average savings and money market deposits.

General Corporate and Other

General Corporate and Other includes the unallocated portion of the investment securities portfolio, securities gains and losses, certain non-core deposit funding, unassigned equity, unallocated provision for credit losses expense or a benefit from the reduction of the ACL, the payment of preferred stock dividends and certain support activities and other items not attributed to the business segments.

Comparison of the year ended 2020 with 2019

Net interest income increased $1.1 billion from the year ended December 31, 2019 primarily driven by decreases in FTP credit rates on deposits allocated to the business segments, increases in interest income on loans and leases and decreases in interest expense on long-term debt, federal funds purchased, deposits and other short-term borrowings. These positive impacts were partially offset by decreases in the benefit related to FTP charge rates on loans and leases and a decrease in interest income on taxable securities.

The benefit from credit losses was $221 million for the year ended December 31, 2020 compared to a provision for credit losses of $15 million for the year ended December 31, 2019. The decrease for the year ended December 31, 2020 was primarily driven by an increase in the allocation of provision expense to the business segments due to an increase in commercial criticized asset levels, partially offset by an increase in the ACL reflecting deterioration in the macroeconomic environment as a result of the impact of the COVID-19 pandemic and the resulting impact of this environment on commercial borrowers. The change in provision for credit losses also reflected the impact of the change in methodology for estimating credit losses from the incurred loss methodology to the expected credit loss methodology beginning in the first quarter of 2020.

Noninterest income decreased $819 million from the year ended December 31, 2019 primarily due to the recognition of a $74 million gain from the TRA associated with Worldpay, Inc. for the year ended December 31, 2020 compared to the recognition of a $562 million gain related to the sale of Worldpay, Inc. shares in addition to the recognition of a $345 million gain from the Worldpay, Inc. TRA transaction during the year ended December 31, 2019. These negative impacts were partially offset by the recognition of securities gains of $62 million for the year ended December 31, 2020 compared to securities gains of $40 million for the year ended December 31, 2019.

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Noninterest expense decreased $108 million from the year ended December 31, 2019 primarily driven by a decrease in technology and communications expense and an increase in corporate overhead allocations from General Corporate and Other to the other business segments, as well as decreases in travel expense, marketing expense and consulting fees, partially offset by increases in net occupancy expense and FDIC insurance and other taxes.

Comparison of the year ended 2019 with 2018

Net interest income decreased $415 million from the year ended December 31, 2018 primarily driven by an increase in FTP credits on deposits allocated to the business segments and increases in interest expense on long-term debt. These negative impacts were partially offset by an increase in the benefit related to FTP charges on loans and leases and an increase in interest income on taxable securities.

Provision for credit losses increased $7 million from the year ended December 31, 2018 primarily due to increases in both outstanding loan balances and unfunded commitments in 2019, exclusive of loans and leases acquired in the MB Financial, Inc. acquisition. This was partially offset by an increase in the allocation of provision expense to the business segments driven by an increase in commercial criticized asset levels.

Noninterest income increased $309 million from the year ended December 31, 2018 primarily driven by the recognition of a $562 million gain on the sale of Worldpay, Inc. shares for the year ended December 31, 2019 in addition to a $345 million gain recognized in the fourth quarter of 2019 from the Worldpay, Inc. TRA transaction compared to a $205 million gain on the sale of Worldpay, Inc. shares for the year ended December 31, 2018 and a $414 million gain recognized in the first quarter of 2018 related to Vantiv, Inc.’s acquisition of Worldpay Group plc. The increase from the year ended December 31, 2018 also included securities gains of $40 million during the year ended December 31, 2019 compared to securities losses of $54 million during the year ended December 31, 2018. These positive impacts were partially offset by an increase in the loss on the swap associated with the sale of Visa, Inc. Class B Shares. The Bancorp recognized negative valuation adjustments of $107 million related to the Visa total return swap for the year ended December 31, 2019 compared to negative valuation adjustments of $59 million during the year ended December 31, 2018.

Noninterest expense increased $139 million from the year ended December 31, 2018. The increase was primarily due to increases in technology and communications expense, compensation and benefits and net occupancy expense driven by merger-related expenses as a result of the acquisition of MB Financial, Inc. partially offset by an increase in corporate overhead allocations from General Corporate and Other to the other business segments. Refer to the Noninterest Expense subsection of the Statements of Income Analysis section of MD&A for additional information on merger-related expenses.

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FOURTH QUARTER REVIEW

The Bancorp’s 2020 fourth quarter net income available to common shareholders was $569 million, or $0.78 per diluted share, compared to net income available to common shareholders of $562 million, or $0.78 per diluted share, for the third quarter of 2020 and net income available to common shareholders of $701 million, or $0.96 per diluted share, for the fourth quarter of 2019.

Net interest income on an FTE basis (non-GAAP) was $1.2 billion for the fourth quarter of 2020, an increase of $12 million from the third quarter of 2020 and a decrease of $47 million from the fourth quarter of 2019. The increase from the third quarter of 2020 was primarily driven by lower core deposit and wholesale borrowing costs, an increase in accelerated PPP fees recognized upon loan forgiveness and elevated investment portfolio prepayment penalty proceeds, partially offset by the impact of lower commercial loan balances and a decline in mortgage rates. The decrease from the fourth quarter of 2019 was primarily driven by lower yields and lower balances on commercial loans, partially offset by lower deposits costs, the favorable impact of previously executed cash flow hedges and growth from PPP loans. Net interest income for the fourth quarter of 2020 included $12 million of amortization and accretion of premiums and discounts on acquired loans and leases and assumed deposits and long-term debt from acquisitions compared to $13 million in the third quarter of 2020 and $18 million in the fourth quarter of 2019.

Noninterest income was $787 million for the fourth quarter of 2020, an increase of $65 million compared to the third quarter of 2020 and a decrease of $248 million compared to the fourth quarter of 2019. The increase from the third quarter of 2020 was primarily due to an increase in other noninterest income, partially offset by decreases in mortgage banking net revenue and net securities gains. The decrease compared to the fourth quarter of 2019 was primarily driven by decreases in other noninterest income and mortgage banking net revenue.

Service charges on deposits were $146 million for the fourth quarter of 2020, an increase of $2 million compared to the previous quarter and a decrease of $3 million compared to the fourth quarter of 2019. The increase from the third quarter of 2020 was primarily due to an increase in consumer deposit fees. The decrease compared to the fourth quarter of 2019 was primarily due to a decrease in consumer deposit fees, partially offset by an increase in commercial deposit fees.

Commercial banking revenue was $141 million for the fourth quarter of 2020, an increase of $16 million compared to the third quarter of 2020 and $14 million compared to the fourth quarter of 2019. The increase from the previous quarter was primarily driven by increases in institutional sales and loan syndication fees, partially offset by lower corporate bond fees. The increase compared to the fourth quarter of 2019 was primarily driven by increases in institutional sales and corporate bond fees.

Mortgage banking net revenue was $25 million for the fourth quarter of 2020, a decrease of $51 million compared to the third quarter of 2020 and $48 million compared to the fourth quarter of 2019. The decrease in mortgage banking net revenue compared to the third quarter of 2020 was primarily driven by lower origination fees and gains on loan sales resulting from a decrease in originations, the decision to retain certain mortgages originated during the fourth quarter of 2020 and margin compression. The decrease in mortgage banking net revenue compared to the fourth quarter of 2019 was primarily driven by an increase in net negative valuation adjustments on MSRs and higher prepayment speeds. Mortgage banking net revenue is affected by net valuation adjustments, which include MSR valuation adjustments caused by fluctuating OAS, earning rates and prepayment speeds, as well as mark-to-market adjustments on free-standing derivatives used to economically hedge the MSR portfolio. Net negative valuation adjustments on MSRs were $88 million and $83 million in the fourth and third quarters of 2020, respectively, and $47 million in the fourth quarter of 2019. Residential mortgage originations for the fourth quarter of 2020 were $3.9 billion, compared with $4.5 billion in the previous quarter and $3.8 billion the fourth quarter of 2019. Originations for the fourth quarter of 2020 resulted in gains of $47 million on mortgages sold, compared with gains of $93 million for the previous quarter and $49 million for the fourth quarter of 2019. Gross mortgage servicing fees were $66 million in both the fourth and third quarters of 2020 and $72 million in the fourth quarter of 2019.

Wealth and asset management revenue was $133 million for the fourth quarter of 2020, an increase of $1 million from the previous quarter and $4 million from the fourth quarter of 2019. The increase from the third quarter of 2020 was primarily driven by higher personal asset management revenue and brokerage income, partially offset by lower institutional trust fees. The increase compared to the fourth quarter of 2019 was primarily driven by higher personal asset management revenue and brokerage income.

Card and processing revenue was $92 million for both the fourth and third quarters of 2020 and was $3 million lower than the fourth quarter of 2019. The decrease from the fourth quarter of 2019 was primarily driven by lower commercial and consumer card spend volumes, partially offset by lower reward costs.

Leasing business revenue was $69 million for the fourth quarter of 2020, a decrease of $8 million from the third quarter of 2020 and $2 million from the fourth quarter of 2019. The decrease from the third quarter of 2020 was primarily driven by a decrease in business solutions revenue. The decrease compared to the fourth quarter of 2019 was primarily driven by decreases in lease remarketing fees and operating lease income.

Other noninterest income was $168 million for the fourth quarter of 2020, an increase of $142 million compared to the third quarter of 2020 and a decrease of $214 million from the fourth quarter of 2019. The increase from the third quarter of 2020 was primarily driven by an increase in private equity investment income as well as income from the TRA associated with Worldpay, Inc. recognized during the fourth

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quarter of 2020. The decrease compared to the fourth quarter of 2019 was primarily due to a decrease in the income recognized from the TRA associated with Worldpay, Inc. driven by the Worldpay, Inc. transaction in the fourth quarter of 2019, partially offset by an increase in private equity investment income. For additional information on the Worldpay, Inc. transaction, refer to Note 21 of the Notes to Consolidated Financial Statements.

The net gains on investment securities were $14 million for the fourth quarter of 2020, $51 million for the third quarter of 2020 and $10 million for the fourth quarter of 2019. Net losses on securities held as non-qualifying hedges for MSRs were $1 million for both the fourth and third quarters of 2020 as well as the fourth quarter of 2019.

Noninterest expense was $1.2 billion for the fourth quarter of 2020, an increase of $75 million from the previous quarter and $76 million from the fourth quarter of 2019. The increase in noninterest expense from the previous quarter was primarily due to increases in compensation and benefits expense and other noninterest expense. Compensation and benefits expense increased from the prior quarter primarily due to increases in incentive compensation driven by strong performance in fees related to business growth during the fourth quarter of 2020, partially offset by a decrease in base compensation. Other noninterest expense increased from the prior quarter primarily driven by an increase in donations expense, partially offset by a decrease in losses and adjustments. The increase in noninterest expense compared to the fourth quarter of 2019 was primarily driven by an increase in compensation and benefits expense, partially offset by decreases in marketing expense, technology and communications expenses and other noninterest expense. Compensation and benefits expense increased from the fourth quarter of 2019 primarily due to increases in incentive compensation, base compensation and employee benefits expense. Marketing expense decreased from the fourth quarter of 2019 primarily due to the impact of the COVID-19 pandemic which resulted in a pause or slowdown in numerous marketing campaigns. Technology and communications expense decreased from the fourth quarter of 2019 primarily attributable to non-recurring integration and conversion costs incurred in the fourth quarter of 2019. Other noninterest expense decreased from the fourth quarter of 2019 primarily driven by decreases in losses and adjustments and travel expense, partially offset by increases in FDIC insurance and other taxes.

The ALLL as a percentage of portfolio loans and leases was 2.25% as of December 31, 2020 compared to 2.32% as of September 30, 2020 and 1.10% as of December 31, 2019. The benefit from credit losses was $13 million in the fourth quarter of 2020 compared with $15 million in the third quarter of 2020, and a provision for credit losses of $162 million in the fourth quarter of 2019. Net losses charged-off were $118 million in the fourth quarter of 2020, or 43 bps of average portfolio loans and leases on an annualized basis, compared with net losses charged-off of $101 million in the third quarter of 2020 and $113 million in the fourth quarter of 2019.


TABLE 21: Quarterly Information (unaudited)
	2020					2019
For the three months ended ($ in millions, except per share data)	December, 31		September, 30	June, 30	March, 31	December, 31	September, 30	June, 30	March, 31
Net interest income(a)	$	1,185	1,173	1,203	1,233	1,232	1,246	1,250	1,086
(Benefit from) provision for credit losses	(13)		(15)	485	640	162	134	85	90
Noninterest income	787		722	650	671	1,035	740	660	1,101
Noninterest expense	1,236		1,161	1,121	1,200	1,160	1,159	1,243	1,097
Net income	604		581	195	46	734	549	453	775
Net income available to common shareholders	569		562	163	29	701	530	427	760
Earnings per share, basic	$	0.79	0.78	0.23	0.04	0.97	0.72	0.57	1.14
Earnings per share, diluted	$	0.78	0.78	0.23	0.04	0.96	0.71	0.57	1.12

*(a)*Amounts presented on an FTE basis. The FTE adjustment was $3 for the three months ended December 31, 2020, September 30, 2020 and June 30, 2020 and $4 for the three months ended March 31, 2020. The FTE adjustment was $4 for both the three months ended December 31, 2019 and September 30, 2019, $5 for the three months ended June 30, 2019 and $4 for the three months ended March 31, 2019.

COMPARISON OF THE YEAR ENDED 2019 WITH 2018

The Bancorp’s net income available to common shareholders for the year ended December 31, 2019 was $2.4 billion, or $3.33 per diluted share, which was net of $93 million in preferred stock dividends. The Bancorp’s net income available to common shareholders for the year ended December 31, 2018 was $2.1 billion, or $3.06 per diluted share, which was net of $75 million in preferred stock dividends.

The provision for credit losses was $471 million for the year ended December 31, 2019 compared to $207 million for the same period in the prior year. The increase in provision expense for the year ended December 31, 2019 compared to the prior year was primarily due to increases in specific reserves on certain impaired commercial loans and the level of commercial criticized assets as well as increases in both outstanding loan balances and unfunded commitments in 2019, exclusive of loans and leases acquired in the MB Financial, Inc. acquisition. The ALLL increased $99 million from December 31, 2018 to $1.2 billion at December 31, 2019. At December 31, 2019, the ALLL as a percent of portfolio loans and leases decreased to 1.10%, compared to 1.16% at December 31, 2018. This decrease reflects the impact of the MB Financial, Inc. acquisition, which added approximately $13.4 billion in portfolio loans and leases at the acquisition date. Loans acquired

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by the Bancorp through a purchase business combination are recorded at fair value as of the acquisition date. The Bancorp did not carry over the acquired company’s ALLL, nor did the Bancorp add to its existing ALLL as part of purchase accounting. The reserve for unfunded commitments increased $13 million from December 31, 2018 to $144 million at December 31, 2019. This increase reflects the impact of the MB Financial, Inc. acquisition, which included approximately $8 million in reserves for unfunded commitments at the acquisition date.

Net interest income on an FTE basis (non-GAAP) was $4.8 billion and $4.2 billion for the years ended December 31, 2019 and 2018, respectively. Net interest income was positively impacted by increases in average commercial and industrial loans and average commercial mortgage loans from the year ended December 31, 2018. Additionally, net interest income benefited from an increase in yields on average loans and leases from the year ended December 31, 2018. These positive impacts were partially offset by increases in both the rates paid on and balances of average interest-bearing core deposits and average long-term debt as well as an increase in average certificates $100,000 and over for the year ended December 31, 2019 compared to the year ended December 31, 2018. Additionally, net interest income was negatively impacted by the August 2019, September 2019 and October 2019 decisions of the FOMC to lower the target range of the federal funds rate. Net interest income for the year ended December 31, 2019 included $65 million of amortization and accretion of premiums and discounts on acquired loans and leases and assumed deposits and long-term debt from acquisitions. Net interest margin on an FTE basis (non-GAAP) was 3.31% for the year ended December 31, 2019 compared to 3.22% for the year ended December 31, 2018.

Noninterest income increased $746 million for the year ended December 31, 2019 compared to the year ended December 31, 2018 primarily due to increases in other noninterest income, leasing business revenue, mortgage banking net revenue, commercial banking revenue and wealth and asset management revenue. Other noninterest income increased $261 million for the year ended December 31, 2019 compared to the year ended December 31, 2018 primarily due to the recognition of gains on the sale of Worldpay Inc. shares driven by the Bancorp’s sale of shares during the first quarter of 2019, an increase in the income from the TRA associated with Worldpay, Inc. and a decrease in the net losses on disposition and impairment of bank premises and equipment. These benefits were partially offset by the gain related to Vantiv, Inc.’s acquisition of Worldpay Group plc. recognized during the first quarter of 2018 as well as an increase in the loss on the swap associated with the sale of Visa, Inc. Class B Shares. Leasing business revenue increased $156 million for the year ended December 31, 2019 compared to the year ended December 31, 2018. The increase from the prior year was primarily driven by increases in operating lease income, leasing business solutions revenue and lease remarketing fees of $67 million, $50 million and $44 million, respectively. The increase in leasing business solutions revenue was driven by the acquisition of MB Financial, Inc. Mortgage banking net revenue increased $75 million for the year ended December 31, 2019 compared to the year ended December 31, 2018 primarily due to a $75 million increase in origination fees and gains on loan sales due to the lower interest rate environment. Commercial banking revenue increased $52 million for the year ended December 31, 2019 compared to the year ended December 31, 2018. The increase from the prior year was primarily driven by increases in institutional sales revenue and business lending fees of $26 million and $21 million, respectively. Wealth and asset management revenue increased $43 million for the year ended December 31, 2019 compared to the year ended December 31, 2018 primarily due to an increase of $37 million in private client service fees. This increase was driven by increased sales production and strong market performance as well as the full-year benefit from acquisitions in 2018 and the acquisition of MB Financial, Inc.

Noninterest expense increased $702 million for the year ended December 31, 2019 compared to the year ended December 31, 2018 primarily due to increases in compensation and benefits expense, other noninterest expense and technology and communications expense. Compensation and benefits expense increased $303 million for the year ended December 31, 2019 compared to the year ended December 31, 2018 driven by $90 million in merger-related expenses for the year ended December 31, 2019, the addition of personnel costs from the acquisition of MB Financial, Inc. and higher deferred compensation expense. Other noninterest expense increased $137 million for the year ended December 31, 2019 compared to the year ended December 31, 2018 and included the impact of an increase of $23 million in merger-related expenses related to the acquisition of MB Financial, Inc. as well as increases in intangible amortization expense, losses and adjustments and loan and lease expense, partially offset by a decrease in FDIC insurance and other taxes. Technology and communications expense increased $137 million for the year ended December 31, 2019 compared to the year ended December 31, 2018 driven by $71 million in merger-related expenses for the year ended December 31, 2019, as well as increased investment in contemporizing information technology architecture, mitigating information security risks and growth initiatives.

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BALANCE SHEET ANALYSIS

Loans and Leases

The Bancorp classifies its commercial loans and leases based upon primary purpose and consumer loans based upon product or collateral. Table 22 summarizes end of period loans and leases, including loans and leases held for sale and Table 23 summarizes average total loans and leases, including average loans and leases held for sale.


TABLE 22: Components of Total Loans and Leases (including loans and leases held for sale)
As of December 31 ($ in millions)	2020		2019	2018	2017	2016
Commercial loans and leases:
Commercial and industrial loans(a)	$	49,895	50,677	44,407	41,170	41,736
Commercial mortgage loans	10,609		10,964	6,977	6,610	6,904
Commercial construction loans	5,815		5,090	4,657	4,553	3,903
Commercial leases	2,954		3,363	3,600	4,068	3,974
Total commercial loans and leases	69,273		70,094	59,641	56,401	56,517
Consumer loans:
Residential mortgage loans(b)	20,393		17,988	16,041	16,077	15,737
Home equity	5,183		6,083	6,402	7,014	7,695
Indirect secured consumer loans	13,653		11,538	8,976	9,112	9,983
Credit card	2,007		2,532	2,470	2,299	2,237
Other consumer loans	3,014		2,723	2,342	1,559	680
Total consumer loans	44,250		40,864	36,231	36,061	36,332
Total loans and leases	$	113,523	110,958	95,872	92,462	92,849
Total portfolio loans and leases (excluding loans and leases held for sale)(c)	$	108,782	109,558	95,265	91,970	92,098

*(a)*Includes $4.8 billion, as of December 31, 2020, related to the SBA’s Paycheck Protection Program.

*(b)*Includes $39, as of December 31, 2020, of residential mortgage loans previously sold to GNMA for which the Bancorp is deemed to have regained effective control over under ASC Topic 860, but did not exercise its option to repurchase. Refer to Note 17 of the Notes to Consolidated Financial Statements for further information.

*(c)*Subsequent to the Bancorp's earnings release furnished in a Form 8-K on January 21, 2021, the Bancorp reclassified $178 of loans from portfolio loans and leases to loans and leases held for sale because it was determined that those loans met the criteria for classification as held for sale as of December 31, 2020.

Total loans and leases, including loans and leases held for sale, increased $2.6 billion, or 2%, from December 31, 2019. The increase from December 31, 2019 was the result of an increase of $3.4 billion, or 8%, in consumer loans partially offset by a decrease of $821 million, or 1%, in commercial loans and leases.

Commercial loans and leases decreased $821 million from December 31, 2019 due to decreases in commercial and industrial loans, commercial leases and commercial mortgage loans, partially offset by an increase in commercial construction loans. Commercial and industrial loans decreased $782 million, or 2%, from December 31, 2019 primarily as a result of a decrease in revolving line of credit utilization, the strategic exit of certain relationships as well as payoffs outpacing production, partially offset by loans originated under the SBA’s Paycheck Protection Program during 2020. Commercial leases decreased $409 million, or 12%, from December 31, 2019 primarily as a result of a planned reduction in indirect non-relationship-based lease originations. Commercial mortgage loans decreased $355 million, or 3%, from December 31, 2019 as payoffs exceeded loan originations. Commercial construction loans increased $725 million, or 14%, from December 31, 2019 primarily as a result of increased line of credit utilization as well as lower levels of payoffs.

Consumer loans increased $3.4 billion from December 31, 2019 due to increases in residential mortgage loans, indirect secured consumer loans and other consumer loans, partially offset by decreases in home equity and credit card. Residential mortgage loans increased $2.4 billion, or 13%, from December 31, 2019 primarily due to increases in residential mortgage loans held for sale as the Bancorp purchased $2.1 billion of government-guaranteed loans in forbearance programs and also repurchased certain loans from GNMA that were in forbearance programs. These increases were partially offset by payoffs exceeding loan originations on portfolio loans. Indirect secured consumer loans increased $2.1 billion, or 18%, from December 31, 2019 primarily as a result of loan production exceeding payoffs. Other consumer loans increased $291 million, or 11%, from December 31, 2019 primarily as a result of the purchase of a portfolio of point-of-sale loans as well as increases in loan originations. Home equity decreased $900 million, or 15%, from December 31, 2019 as payoffs exceeded loan originations. Credit card decreased $525 million, or 21%, from December 31, 2019 primarily due to the economic impacts from the COVID-19 pandemic, including reductions in the number of active accounts as well as higher net paydowns per active account.

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TABLE 23: Components of Average Loans and Leases (including average loans and leases held for sale)
For the years ended December 31 ($ in millions)	2020		2019	2018	2017	2016
Commercial loans and leases:
Commercial and industrial loans	$	53,814	50,168	42,668	41,577	43,184
Commercial mortgage loans	11,011		9,905	6,661	6,844	6,899
Commercial construction loans	5,509		5,174	4,793	4,374	3,648
Commercial leases	3,038		3,578	3,795	4,011	3,916
Total commercial loans and leases	73,372		68,825	57,917	56,806	57,647
Consumer loans:
Residential mortgage loans	17,828		17,337	16,150	16,053	15,101
Home equity	5,679		6,286	6,631	7,308	7,998
Indirect secured consumer loans	12,454		10,345	8,993	9,407	10,708
Credit card	2,230		2,437	2,280	2,141	2,205
Other consumer loans	2,848		2,564	1,905	1,016	661
Total consumer loans	41,039		38,969	35,959	35,925	36,673
Total average loans and leases	$	114,411	107,794	93,876	92,731	94,320
Total average portfolio loans and leases (excluding loans and leases held for sale)	$	112,993	106,840	93,216	92,068	93,426

Average loans and leases, including average loans and leases held for sale, increased $6.6 billion, or 6%, from December 31, 2019 as the result of a $4.5 billion, or 7%, increase in average commercial loans and leases as well as a $2.1 billion, or 5%, increase in average consumer loans.

Average commercial loans and leases increased $4.5 billion from December 31, 2019 due to increases in average commercial and industrial loans, average commercial mortgage loans and average commercial construction loans, partially offset by a decrease in average commercial leases. Average commercial and industrial loans increased $3.6 billion, or 7%, from December 31, 2019 primarily driven by the aforementioned increases in Paycheck Protection Program loans. Average commercial mortgage loans increased $1.1 billion, or 11%, from December 31, 2019 primarily as a result of increases in loan originations and permanent financing from the Bancorp’s commercial construction loan portfolio. Average commercial construction loans increased $335 million, or 6%, from December 31, 2019 primarily as a result of increased line of credit utilization as well as lower levels of payoffs. Average commercial leases decreased $540 million, or 15%, from December 31, 2019 primarily as a result of a planned reduction in indirect non-relationship-based lease originations.

Average consumer loans increased $2.1 billion from December 31, 2019 due to increases in average indirect secured consumer loans, average residential mortgage loans and average other consumer loans, partially offset by decreases in average home equity and average credit card. Average indirect secured consumer loans increased $2.1 billion, or 20%, from December 31, 2019 primarily due to loan production exceeding payoffs. Average residential mortgage loans increased $491 million, or 3%, from December 31, 2019 primarily driven by the repurchase of certain loans from GNMA that were in forbearance programs, partially offset by higher runoff due to payoffs exceeding loan originations. Average other consumer loans increased $284 million, or 11%, from December 31, 2019 primarily as a result of increases in loan originations. Average home equity decreased $607 million, or 10%, from December 31, 2019 as payoffs exceeded loan originations. Average credit card decreased $207 million, or 8%, from December 31, 2019 driven by the negative economic impacts from the COVID-19 pandemic, including reductions in the number of active accounts as well as higher net paydowns per active account.

Investment Securities

The Bancorp uses investment securities as a means of managing interest rate risk, providing collateral for pledging purposes and for liquidity risk management. Total investment securities were $38.4 billion and $36.9 billion at December 31, 2020 and December 31, 2019, respectively. The taxable available-for-sale debt and other investment securities portfolio had an effective duration of 4.4 years at December 31, 2020 compared to 5.1 years at December 31, 2019.

Debt securities are classified as available-for-sale when, in management’s judgment, they may be sold in response to, or in anticipation of, changes in market conditions. Securities that management has the intent and ability to hold to maturity are classified as held-to-maturity and reported at amortized cost. Debt securities are classified as trading when bought and held principally for the purpose of selling them in the near term. At December 31, 2020, the Bancorp’s investment portfolio consisted primarily of AAA-rated available-for-sale debt and other securities. The Bancorp held an immaterial amount in below-investment grade available-for-sale debt and other securities at both December 31, 2020 and 2019.

Upon adoption of ASU 2016-13 on January 1, 2020, the Bancorp evaluates available-for-sale debt and other securities in an unrealized loss position to determine whether all or a portion of the unrealized loss on such securities is a credit loss. If credit losses are identified, they are generally recognized as an allowance for credit losses (a contra account to the amortized cost basis of the securities) with the periodic change in the allowance recognized in earnings. Prior to January 1, 2020, investment securities were evaluated for OTTI with any identified OTTI recognized as a charge to income and a direct reduction of the amortized cost basis of the securities.

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At December 31, 2020, the Bancorp completed its evaluation of the available-for-sale debt and other securities in an unrealized loss position and did not recognize an allowance for credit losses. The Bancorp did not recognize provision expense for the year ended December 31, 2020 related to available-for-sale debt and other securities in an unrealized loss position. During the year ended December 31, 2019, the Bancorp recognized $1 million of OTTI on its available-for-sale debt and other securities, included in securities gains (losses), net, in the Consolidated Statements of Income.

The following table summarizes the end of period components of investment securities:


TABLE 24: Components of Investment Securities
As of December 31 ($ in millions)	2020		2019	2018	2017	2016
Available-for-sale debt and other securities (amortized cost basis):
U.S. Treasury and federal agencies securities	$	74	74	98	98	547
Obligations of states and political subdivisions securities	17		18	2	43	44
Mortgage-backed securities:
Agency residential mortgage-backed securities(a)	11,147		13,746	16,403	15,281	15,525
Agency commercial mortgage-backed securities	16,745		15,141	10,770	10,113	9,029
Non-agency commercial mortgage-backed securities	3,323		3,242	3,305	3,247	3,076
Asset-backed securities and other debt securities	3,152		2,189	1,998	2,183	2,106
Other securities(b)	524		556	552	612	607
Total available-for-sale debt and other securities	$	34,982	34,966	33,128	31,577	30,934
Held-to-maturity securities (amortized cost basis):
Obligations of states and political subdivisions securities	$	9	15	16	22	24
Asset-backed securities and other debt securities	2		2	2	2	2
Total held-to-maturity securities	$	11	17	18	24	26
Trading debt securities (fair value):
U.S. Treasury and federal agencies securities	$	81	2	16	12	23
Obligations of states and political subdivisions securities	10		9	35	22	39
Agency residential mortgage-backed securities	30		55	68	395	8
Asset-backed securities and other debt securities	439		231	168	63	15
Total trading debt securities	$	560	297	287	492	85
Total equity securities (fair value)	$	313	564	452	439	416

*(a)*Includes interest-only mortgage-backed securities recorded at fair value with fair value changes recorded in securities gains (losses), net in the Consolidated Statements of Income.

*(b)*Other securities consist of FHLB, FRB and DTCC restricted stock holdings that are carried at cost.

On an amortized cost basis, available-for-sale debt and other securities were 19% and 24% of total interest-earning assets at December 31, 2020 and 2019, respectively. The estimated weighted-average life of the debt securities in the available-for-sale debt and other securities portfolio was 5.7 and 6.6 years at December 31, 2020 and 2019, respectively. In addition, at December 31, 2020 and 2019 the debt securities in the available-for-sale debt and other securities portfolio had a weighted-average yield of 3.05% and 3.22%, respectively.

Information presented in Table 25 is on a weighted-average life basis, anticipating future prepayments. Yield information is presented on an FTE basis and is computed using amortized cost balances and reflects the impact of prepayments. Maturity and yield calculations for the total available-for-sale debt and other securities portfolio exclude other securities that have no stated yield or maturity. Total net unrealized gains on the available-for-sale debt and other securities portfolio were $2.5 billion at December 31, 2020 compared to $1.1 billion at December 31, 2019. The fair value of investment securities is impacted by interest rates, credit spreads, market volatility and liquidity conditions. The fair value of investment securities generally increases when interest rates decrease or when credit spreads contract.

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TABLE 25: Characteristics of Available-for-Sale Debt and Other Securities
As of December 31, 2020 ($ in millions)	Amortized Cost		Fair Value	Weighted-Average Life (in years)	Weighted-Average Yield
U.S. Treasury and federal agencies securities:
Average life 1 – 5 years	$	74	78	2.1	2.12	%
Total	$	74	78	2.1	2.12	%
Obligations of states and political subdivisions securities:
Average life of 1 year or less	—		—	0.1	5.90
Average life 1 – 5 years	17		17	2.2	1.81
Total	$	17	17	2.2	1.82	%
Agency residential mortgage-backed securities:
Average life of 1 year or less	551		565	0.6	4.14
Average life 1 – 5 years	5,347		5,666	3.3	3.18
Average life 5 – 10 years	4,510		4,864	6.7	3.01
Average life greater than 10 years	739		812	14.0	2.97
Total	$	11,147	11,907	5.2	3.15	%
Agency commercial mortgage-backed securities:(a)
Average life of 1 year or less	45		47	0.3	2.80
Average life 1 – 5 years	7,104		7,623	3.2	3.11
Average life 5 – 10 years	7,146		7,912	7.4	3.25
Average life greater than 10 years	2,450		2,639	13.2	2.61
Total	$	16,745	18,221	6.4	3.09	%
Non-agency commercial mortgage-backed securities:
Average life of 1 year or less	36		36	0.5	2.38
Average life 1 – 5 years	2,836		3,055	3.7	3.20
Average life 5 – 10 years	451		499	5.8	3.26
Total	$	3,323	3,590	4.0	3.20	%
Asset-backed securities and other debt securities:
Average life of 1 year or less	175		176	0.5	4.26
Average life 1 – 5 years	1,211		1,233	2.6	3.07
Average life 5 – 10 years	1,340		1,336	6.8	1.94
Average life greater than 10 years	426		431	13.9	1.16
Total	$	3,152	3,176	5.8	2.39	%
Other securities	524		524
Total available-for-sale debt and other securities	$	34,982	37,513	5.7	3.05	%

*(a)*Taxable-equivalent yield adjustments included in the above table are 0.08% and 0.01% for securities with an average life greater than 10 years and in total, respectively.

Other Short-Term Investments

Other short-term investments primarily include overnight interest-earning investments, including reserves held at the FRB. The Bancorp uses other short-term investments as part of its liquidity risk management tools. Other short-term investments were $33.4 billion and $2.0 billion at December 31, 2020 and December 31, 2019, respectively. The increase of $31.4 billion from December 31, 2019 was primarily attributable to deposit growth during the year ended December 31, 2020.

Deposits

The Bancorp’s deposit balances represent an important source of funding and revenue growth opportunity. The Bancorp continues to focus on core deposit growth in its retail and commercial franchises by improving customer satisfaction, building full relationships and offering competitive rates. Average core deposits represented 74% and 71% of the Bancorp’s average asset funding base at December 31, 2020 and 2019, respectively.

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The following table presents the end of period components of deposits:


TABLE 26: Components of Deposits
As of December 31 ($ in millions)	2020		2019	2018	2017	2016
Demand	$	57,711	35,968	32,116	35,276	35,782
Interest checking	47,270		40,409	34,058	27,703	26,679
Savings	18,258		14,248	12,907	13,425	13,941
Money market	30,650		27,277	22,597	20,097	20,749
Foreign office	143		221	240	484	426
Total transaction deposits	154,032		118,123	101,918	96,985	97,577
Other time	3,023		5,237	4,490	3,775	3,866
Total core deposits	157,055		123,360	106,408	100,760	101,443
Certificates $100,000 and over(a)	2,026		3,702	2,427	2,402	2,378
Total deposits	$	159,081	127,062	108,835	103,162	103,821

*(a)*Includes $1.3 billion, $2.1 billion, $1.2 billion, $1.3 billion and $1.3 billion of institutional, retail and wholesale certificates $250,000 and over at December 31, 2020, 2019, 2018, 2017 and 2016, respectively.

Core deposits increased $33.7 billion, or 27%, from December 31, 2019, driven by an increase in transaction deposits, partially offset by a decrease in other time deposits. Transaction deposits increased $35.9 billion, or 30%, from December 31, 2019 primarily due to increases in demand deposits, interest checking deposits, savings deposits and money market deposits. Demand deposits increased $21.7 billion, or 60%, from December 31, 2019 primarily as a result of higher balances per commercial customer account due to increased liquidity levels in the form of excess cash balances driven by the amount of fiscal stimulus during the year ended December 31, 2020 as well as balance migration from interest checking deposits. Interest checking deposits increased $6.9 billion, or 17%, from December 31, 2019 primarily as a result of higher balances per customer account due to the previously mentioned increased liquidity levels in the current economic environment, partially offset by the aforementioned balance migration into demand deposits. Savings deposits increased $4.0 billion, or 28%, and money market deposits increased $3.4 billion, or 12%, from December 31, 2019 primarily as a result of higher balances per customer account due to uncertainty regarding the COVID-19 pandemic, fiscal stimulus as well as higher demand for low-risk investment alternatives and decreased consumer spending. Other time deposits decreased $2.2 billion, or 42%, from December 31, 2019 primarily due to lower offering rates on certificates less than $100,000.

Certificates $100,000 and over decreased $1.7 billion, or 45%, from December 31, 2019, primarily due to a decrease in certificates of deposit issued since December 31, 2019.

The following table presents the components of average deposits for the years ended December 31:


TABLE 27: Components of Average Deposits
($ in millions)	2020		2019	2018	2017	2016
Demand	$	47,111	34,343	32,634	35,093	35,862
Interest checking	46,890		36,658	29,818	26,382	25,143
Savings	16,440		14,041	13,330	13,958	14,346
Money market	29,879		25,879	21,769	20,231	19,523
Foreign office	185		209	363	388	497
Total transaction deposits	140,505		111,130	97,914	96,052	95,371
Other time	4,118		5,470	4,106	3,771	4,010
Total core deposits	144,623		116,600	102,020	99,823	99,381
Certificates $100,000 and over(a)	3,337		4,504	2,426	2,564	2,735
Other deposits	71		265	476	277	333
Total average deposits	$	148,031	121,369	104,922	102,664	102,449

*(a)*Includes $2.2 billion, $2.6 billion, $1.1 billion, $1.4 billion and $1.5 billion of average institutional, retail and wholesale certificates $250,000 and over during the years ended December 31, 2020, 2019, 2018, 2017 and 2016, respectively.

On an average basis, core deposits increased $28.0 billion, or 24%, from December 31, 2019 due to an increase of $29.4 billion, or 26%, in average transaction deposits, partially offset by a decrease of $1.4 billion, or 25%, in average other time deposits. The increase in average transaction deposits was driven by increases in average demand deposits, average interest checking deposits, average money market deposits and average savings deposits. Average demand deposits increased $12.8 billion, or 37%, from December 31, 2019 primarily as a result of higher average balances per commercial customer account due to the previously mentioned increased liquidity levels in the current economic environment in the form of excess cash balances driven by the amount of fiscal stimulus as well as balance migration from interest checking deposits. Average interest checking deposits increased $10.2 billion, or 28%, from December 31, 2019 primarily as a result of higher average balances per customer account due to the previously mentioned increased liquidity levels in the current economic environment in the form of

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excess cash balances driven by the amount of fiscal stimulus partially offset by the aforementioned balance migration into demand deposits. Average money market deposits increased $4.0 billion, or 15%, and average savings deposits increased $2.4 billion, or 17% from December 31, 2019 primarily as a result of higher average balances per customer account due to the previously mentioned increased liquidity levels in the current economic environment as well as higher demand for low-risk investment alternatives and decreased consumer spending amidst uncertainty regarding the COVID-19 pandemic. Average other time deposits decreased primarily due to lower offering rates on certificates less than $100,000.

Average certificates $100,000 and over decreased $1.2 billion, or 26%, from December 31, 2019 primarily due to a decrease in average certificates of deposit issued since December 31, 2019. Average other deposits decreased $194 million, or 73%, from December 31, 2019 primarily due to a decrease in average Eurodollar trade deposits.

Contractual Maturities

The contractual maturities of certificates $100,000 and over as of December 31, 2020 are summarized in the following table:


TABLE 28: Contractual Maturities of Certificates $100,000 and Over
($ in millions)
Next 3 months	$	586
3-6 months	1,032
6-12 months	211
After 12 months	197
Total certificates $100,000 and over	$	2,026

The contractual maturities of other time deposits and certificates $100,000 and over as of December 31, 2020 are summarized in the following table:


TABLE 29: Contractual Maturities of Other Time Deposits and Certificates $100,000 and Over
($ in millions)
Next 12 months	$	4,413
13-24 months	355
25-36 months	128
37-48 months	73
49-60 months	59
After 60 months	21
Total other time deposits and certificates $100,000 and over	$	5,049

Borrowings

The Bancorp accesses a variety of short-term and long-term funding sources. Borrowings with original maturities of one year or less are classified as short-term and include federal funds purchased and other short-term borrowings. Total average borrowings as a percent of average interest-bearing liabilities were 15% at December 31, 2020 compared to 17% at December 31, 2019.

The following table summarizes the end of period components of borrowings:


TABLE 30: Components of Borrowings
As of December 31 ($ in millions)	2020		2019	2018	2017	2016
Federal funds purchased	$	300	260	1,925	174	132
Other short-term borrowings	1,192		1,011	573	4,012	3,535
Long-term debt	14,973		14,970	14,426	14,904	14,388
Total borrowings	$	16,465	16,241	16,924	19,090	18,055

Total borrowings increased $224 million, or 1%, from December 31, 2019 due to increases in other short-term borrowings, federal funds purchased and long-term debt. Other short-term borrowings increased $181 million from December 31, 2019 primarily as a result of increases in securities sold under repurchase agreements driven by an increase in commercial customer activity. The level of other short-term borrowings can fluctuate significantly from period to period depending on funding needs and the sources that are used to satisfy those needs. For further information on the components of other short-term borrowings, refer to Note 17 of the Notes to Consolidated Financial Statements. Federal funds purchased increased $40 million from December 31, 2019 primarily due to an increase in commercial customer activity. Long-term debt increased $3 million from December 31, 2019 primarily driven by the issuance of $1.25 billion of unsecured senior fixed-rate bank notes in January of 2020, the issuance of $1.25 billion of unsecured senior fixed-rate notes in May of 2020 and $133 million of fair value adjustments associated with interest rate swaps hedging long-term debt during the year ended December 31, 2020. These increases were partially offset by the maturity of $1.1 billion of unsecured senior fixed-rate notes, the maturity of $750 million of unsecured

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senior fixed-rate bank notes, the maturity of $300 million of unsecured senior floating-rate bank notes and $568 million of paydowns on long-term debt associated with automobile loan securitizations during the year ended December 31, 2020. For additional information regarding the long-term debt issuances, refer to Note 18 of the Notes to Consolidated Financial Statements.

The following table summarizes the components of average borrowings:


TABLE 31: Components of Average Borrowings
For the years ended December 31 ($ in millions)	2020		2019	2018	2017	2016
Federal funds purchased	$	385	1,267	1,509	557	506
Other short-term borrowings	1,709		1,046	1,611	3,158	2,845
Long-term debt	16,004		15,369	14,551	13,804	15,394
Total average borrowings	$	18,098	17,682	17,671	17,519	18,745

Total average borrowings increased $416 million, or 2%, compared to December 31, 2019 due to increases in average other short-term borrowings and average long-term debt, partially offset by a decrease in average federal funds purchased. Average other short-term borrowings increased $663 million compared to December 31, 2019 driven primarily by an increase in FHLB advances attributable to short-term advances executed during the early stages of the COVID-19 pandemic. Average long-term debt increased $635 million compared to December 31, 2019 primarily driven by the issuances of $1.25 billion of unsecured senior fixed-rate bank notes and $1.25 billion of unsecured senior fixed-rate notes during the year ended December 31, 2020 and the issuance of $750 million of unsecured senior fixed-rate notes in the fourth quarter in 2019. These increases were partially offset by the maturity of $1.1 billion of unsecured senior fixed-rate notes, the maturity of $750 million of unsecured senior fixed-rate bank notes, the maturity of $300 million of unsecured senior floating-rate bank notes and $568 million of paydowns on long-term debt associated with automobile loan securitizations since December 31, 2019. Average federal funds purchased decreased $882 million compared to December 31, 2019 primarily due to lower short-term funding needs given core deposit growth. Information on the average rates paid on borrowings is discussed in the Net Interest Income subsection of the Statements of Income Analysis section of MD&A. In addition, refer to the Liquidity Risk Management subsection of the Risk Management section of MD&A for a discussion on the role of borrowings in the Bancorp’s liquidity management.

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RISK MANAGEMENT - OVERVIEW

Effective risk management is critical to the Bancorp’s ongoing success and ensures that the Bancorp operates in a safe and sound manner, complies with applicable laws and regulations and safeguards the Bancorp’s brand and reputation. Risks are inherent in the Bancorp’s business, and the Bancorp is responsible for managing these risks effectively to deliver through-the-cycle value and performance for the Bancorp’s shareholders, customers, employees and communities.

Fifth Third’s Risk Management Framework, which is approved annually by the Capital Committee, ERMC, RCC and the Board of Directors, includes the following key elements:

The Bancorp ensures transparency and escalation of risk through defined risk policies and a governance structure that includes the Risk and Compliance Committee of the Board of Directors, the Enterprise Risk Management Committee and other management-level risk committees and councils.
The Bancorp establishes a risk appetite in alignment with its strategic, financial and capital plans. The Bancorp’s risk appetite is defined using quantitative metrics and qualitative measures to ensure prudent risk taking and drive balanced decision making. The Bancorp’s goal is to ensure that aggregate residual risks do not exceed the Bancorp’s risk appetite, and that risks taken are supportive of the Bancorp’s portfolio diversification and profitability objectives. The Board and executive management define the risk appetite, which is considered in the development of business strategies and forms the basis for risk management.
The core principles that define the Bancorp’s risk appetite are as follows:

◦To act with integrity in all activities.

◦To understand the risks taken and ensure that they are in alignment with the Bancorp’s business strategies and risk appetite.

◦To avoid risks that cannot be understood, managed or monitored.

◦To provide transparency of risk to the Bancorp’s management and Board by escalating risks and issues as necessary.

◦To ensure Fifth Third’s products and services are aligned to the Bancorp’s core customer base and are designed, delivered and maintained to provide value and benefit to the Bancorp’s customers and to Fifth Third.

◦Not to offer products or services that are not appropriate or suitable for the Bancorp’s customers.

◦Focus on providing operational excellence by providing reliable, accurate, and efficient services to meet the Bancorp’s customers’ needs.

◦To maintain a strong financial position to ensure the Bancorp meets its strategic objectives through all economic cycles and is able to access the capital markets at all times, even under stressed conditions.

◦To protect the Bancorp’s reputation by thoroughly understanding the consequences of business strategies, products and processes.

◦To conduct the Bancorp’s business in compliance with all applicable laws, rules and regulations and in alignment with internal policies and procedures.

Fifth Third’s core values and culture provide the foundation for sound risk management practices by establishing expectations for appropriate conduct and accountability across the organization. All employees are expected to conduct themselves in alignment with Fifth Third’s Code of Business Conduct & Ethics, which may be found on www.53.com, while carrying out their responsibilities. Fifth Third’s Corporate Responsibility and Reputation Committee provides oversight of business conduct policies, programs and strategies, and monitors reporting of potential misconduct, trends or themes across the enterprise. Prudent risk management is a responsibility that is expected from all employees and is a foundational element of Fifth Third’s culture.
The Bancorp manages eight defined risk types to a prescribed appetite. The risk types are credit risk, liquidity risk, interest rate risk, price risk, legal and regulatory compliance risk, operational risk, reputational risk and strategic risk.
Fifth Third’s Risk Management Process provides a consistent and integrated approach for managing risks. The five components of the Risk Management Process are: identify, assess, manage, monitor and report. The Bancorp has also established processes and programs to manage and report concentration risks, to ensure robust talent, compensation and performance management and to aggregate risks across the enterprise.

Fifth Third drives accountability for managing risk through its Three Lines of Defense structure:

The first line of defense is comprised of front line units that create risk and are accountable for managing risk. These groups are the Bancorp’s primary risk takers and are responsible for implementing effective internal controls and maintaining processes for identifying, assessing, controlling and mitigating the risks associated with their activities consistent with established risk appetite and limits. The first line of defense also includes business units that provide information technology, operations, servicing, processing or other support.
The second line of defense, or Independent Risk Management, consists of Risk Management, Compliance and Credit Review. The second line is responsible for developing frameworks and policies to govern risk-taking activities, overseeing risk-taking of the organization, advising on controlling that risk and providing input on key risk decisions. Risk Management complements the front line’s management of risk-taking activities through its monitoring and reporting responsibilities, including adherence to the risk appetite. Additionally, Risk Management is responsible for identifying, measuring, monitoring, controlling and reporting on aggregate risks enterprise-wide.
The third line of defense is Internal Audit, which provides oversight of the first and second lines of defense, and independent assurance to the Board on the effectiveness of governance, risk management and internal controls.

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CREDIT RISK MANAGEMENT

The objective of the Bancorp’s credit risk management strategy is to quantify and manage credit risk on an aggregate portfolio basis, as well as to limit the risk of loss resulting from the failure of a borrower or counterparty to honor its financial or contractual obligations to the Bancorp. The Bancorp’s credit risk management strategy is based on three core principles: conservatism, diversification and monitoring. The Bancorp believes that effective credit risk management begins with conservative lending practices which are described below. These practices include the use of intentional risk-based limits for single name exposures and counterparty selection criteria designed to reduce or eliminate exposure to borrowers who have higher than average default risk and defined weaknesses in financial performance. The Bancorp carefully designed and monitors underwriting, documentation and collection standards. The Bancorp’s credit risk management strategy also emphasizes diversification on a geographic, industry and customer level as well as ongoing portfolio monitoring and timely management reviews of large credit exposures and credits experiencing deterioration of credit quality. Credit officers with the authority to extend credit are delegated specific authority amounts, the utilization of which is closely monitored. Underwriting activities are centrally managed, and ERM manages the policy and the authority delegation process directly. The Credit Risk Review function provides independent and objective assessments of the quality of underwriting and documentation, the accuracy of risk grades and the charge-off, nonaccrual and reserve analysis process. The Bancorp’s credit review process and overall assessment of the adequacy of the allowance for credit losses is based on quarterly assessments of the estimated losses expected in the loan and lease portfolio. The Bancorp uses these assessments to promptly identify potential problem loans or leases within the portfolio, maintain an adequate allowance for credit losses and record any necessary charge-offs. The Bancorp defines potential problem loans and leases as those rated substandard that do not meet the definition of a nonaccrual loan or a restructured loan. Refer to Note 7 of the Notes to Consolidated Financial Statements for further information on the Bancorp’s credit grade categories, which are derived from standard regulatory rating definitions. In addition, stress testing is performed on various commercial and consumer portfolios utilizing various models. For certain portfolios, such as real estate and leveraged lending, stress testing is performed by Credit department personnel at the individual loan level during credit underwriting.

The following tables provide a summary of potential problem portfolio loans and leases:


TABLE 32: Potential Problem Portfolio Loans and Leases
As of December 31, 2020 ($ in millions)	Carrying Value		Unpaid Principal Balance	Exposure
Commercial and industrial loans	$	2,641	2,651	3,687
Commercial mortgage loans	784		798	792
Commercial construction loans	240		240	252
Commercial leases	72		72	72
Total potential problem portfolio loans and leases	$	3,737	3,761	4,803


TABLE 33: Potential Problem Portfolio Loans and Leases
As of December 31, 2019 ($ in millions)	Carrying Value		Unpaid Principal Balance	Exposure
Commercial and industrial loans	$	1,100	1,120	1,488
Commercial mortgage loans	342		390	342
Commercial construction loans	75		82	84
Commercial leases	61		61	61
Total potential problem portfolio loans and leases	$	1,578	1,653	1,975

In addition to the individual review of larger commercial loans that exhibit probable or observed credit weaknesses, the commercial credit review process includes the use of two risk grading systems. The first of these risk grading systems encompasses ten categories, which are based on regulatory guidance for credit risk systems. These ratings are used by the Bancorp to monitor and manage its credit risk. The Bancorp also maintains a dual risk rating system for credit approval and pricing, portfolio monitoring and capital allocation that includes a “through-the-cycle” rating philosophy for assessing a borrower’s creditworthiness. A “through-the-cycle” rating philosophy uses a grading scale that assigns ratings based on average default rates through an entire business cycle for borrowers with similar financial performance. The dual risk rating system includes thirteen probabilities of default grade categories and an additional eleven grade categories for estimating losses given an event of default. The probability of default and loss given default evaluations are not separated in the ten-category regulatory risk rating system.

The Bancorp has also developed models to estimate expected credit losses as part of the Bancorp’s adoption of ASU 2016-13 “Measurement of Credit Losses on Financial Instruments” on January 1, 2020. For loans and leases that are collectively evaluated, the Bancorp utilizes these models to forecast expected credit losses over a reasonable and supportable forecast period based on the probability of a loan or lease defaulting, the expected balance at the estimated date of default and the expected loss percentage given a default. Refer to Note 1 of the Notes to Consolidated Financial Statements for additional information about the Bancorp’s processes for developing these models, estimating credit losses for periods beyond the reasonable and supportable forecast period and for estimating credit losses for individually evaluated loans.

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For the commercial portfolio segment, the estimated probabilities of default are primarily based on the probability of default ratings assigned under the through-the-cycle dual risk rating system and historical observations of how those ratings migrate to a default over time in the context of macroeconomic conditions. For loans with available credit, the estimate of the expected balance at the time of default considers expected utilization rates, which are primarily based on macroeconomic conditions and the utilization history of similar borrowers under those economic conditions. The estimates for loss severity are primarily based on collateral type and coverage levels and the susceptibility of those characteristics to changes in macroeconomic conditions.

For collectively evaluated loans in the consumer and residential mortgage portfolio segments, the Bancorp’s expected credit loss models primarily utilize the borrower’s FICO score and delinquency history in combination with macroeconomic conditions when estimating the probability of default. The estimates for loss severity are primarily based on collateral type and coverage levels and the susceptibility of those characteristics to changes in macroeconomic conditions. The expected balance at the estimated date of default is also especially impactful in the expected credit loss models for portfolio classes which generally have longer terms (such as residential mortgage loans and home equity) and portfolio classes containing a high concentration of loans with revolving privileges (such as credit card and home equity). The estimate of the expected balance at the time of default considers expected prepayment and utilization rates where applicable, which are primarily based on macroeconomic conditions and the utilization history of similar borrowers under those economic conditions. The Bancorp also utilizes various scoring systems, analytical tools and portfolio performance monitoring processes to assess the credit risk of the consumer and residential mortgage portfolios.

Overview

Financial markets began the year optimistic as the signing of the Phase I trade between China and the U.S. lifted investor expectations for global growth in 2020. In February, the onset of the COVID-19 pandemic and the related shutdown of the economy led to a dramatic repricing of financial markets. From mid-February to late March 2020 the S&P 500 declined 34%, the 10-year Treasury fell to all-time lows, investment grade credit spreads widened 350 basis points, and the U.S. dollar appreciated strongly versus other currencies. In response to the economic and financial market dislocations, unprecedented fiscal and monetary policies were implemented to offset the economic shock. These policies along with the development of multiple vaccines helped support the recovery from the COVID-19 pandemic as the year progressed.

Economic recovery continued in the fourth quarter of 2020 as accommodative monetary policy and additional fiscal stimulus supported economic activity while the beginning of COVID-19 vaccinations in December 2020 supported the risk on sentiment in financial markets. The Federal Reserve maintained their commitment to keeping the target rate for federal funds at 0% to 0.25% for the foreseeable future while continuing to expand their balance sheet holdings by at least $80 billion of treasuries and $40 billion of agency mortgage-backed securities per month. At the December 2020 FOMC meeting, federal officials indicated balance sheet purchases would continue at the current pace “until substantial further progress has been made toward the Committee’s maximum employment and price stability goals.” In December 2020, the federal government enacted legislation that provides additional relief for individuals, businesses and hospitals in response to the economic distress caused by the COVID-19 pandemic. The $900 billion relief legislation included an extension of the Federal Pandemic Unemployment Compensation program, a new round of stimulus checks for individuals, a second round of the Paycheck Protection Program, assistance for schools and the transportation sector and funding to assist states with COVID-19 testing and vaccine distribution.

Although COVID-19 cases rose to new records in December 2020, along with hospitalizations and deaths, the start of the vaccination process supported investors’ expectations for an end of the pandemic in 2021. In addition, the results of the federal elections in November 2020 supported investors’ expectations of additional fiscal stimulus and a robust recovery in the second half of 2021. The bullish sentiment led to yield curve steepening in the treasury market, all-time high equity valuations, tighter credit spreads and flatter credit curves. The housing market remained robust as low mortgage rates and tight inventory levels supported the strongest home price growth since 2014, while the S&P 500 increased 12.15% in the fourth quarter of 2020 and 18.40% for the year ended December 31, 2020. With the rise in asset prices, household net worth reached a record at the end of the third quarter of 2020, up approximately 7% year-over-year. Lastly, the U.S. employment picture continued to improve during the fourth quarter of 2020 as the unemployment rate declined from 7.8% to 6.7% despite the new COVID-19 lockdown restrictions which led to higher unemployment claims and a loss in jobs in the most recent employment report.

COVID-19 Hardship Relief Programs

In response to the COVID-19 pandemic, beginning in March 2020, the Bancorp began providing financial hardship relief to borrowers that were negatively impacted by the pandemic and its related economic impacts. For retail borrowers, these relief programs included three-month payment deferrals for non-real estate secured and unsecured portfolios, six-month payment deferrals for home equity loans and lines of credit and six-month forbearances for residential mortgages. The Bancorp also temporarily waived fees for certain products and services, suspended initiating any new repossession actions on vehicles and suspended all residential foreclosure activity. In most cases, these offers are not classified as TDRs and do not result in loans being placed on nonaccrual status. The fee waiver, repossession suspension and payment deferral programs for non-real estate secured and unsecured and home equity loans and lines of credit were discontinued early in the third quarter of 2020. However, new programs to assist consumer customers are now being offered to meet the uniqueness of the current economic environment. These primarily include a short-term hardship program which allows for a reduced payment amount for six months with full payments resuming thereafter or placement into a loan modification program that could include permanent rate reductions or maturity extensions.

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The Bancorp currently plans to continue to offer the six-month forbearance program for its residential mortgage borrowers in alignment with the forbearances offered for federally-backed mortgage loans under the provisions of the CARES Act. Upon completion of the initial six-month forbearance period for residential mortgage loans, borrowers may request to extend the forbearance period for an additional period of up to six months. Additionally, the Bancorp will continue to follow the specific GSE guidance for other non-forbearance related COVID-19 pandemic relief programs when servicing its residential mortgage portfolio. These programs include traditional loan modifications and/or deferral of past due payments to the maturity of the loan. The Bancorp continues to suspend residential foreclosure activity in alignment with GSE practices. The Bancorp will also be responsive to any legislative changes related to foreclosure activity.

The Bancorp has also offered a variety of relief options to its commercial borrowers that have been impacted by the COVID-19 pandemic. While these offers are individually negotiated and tailored to each borrower’s specific facts and circumstances, the most commonly offered relief measures include temporary covenant waivers and/or deferrals of principal and/or interest payments for up to 90 days. After the deferral program, a customer may have the option to resume normal payments, enter into a formal loan modification program or restructure the loan arrangement.

For loans that receive a payment deferral or forbearance under these hardship relief programs, the Bancorp continues to accrue interest and recognize interest income during the period of the deferral. Depending on the terms of each program, all or a portion of this accrued interest may be paid directly by the borrower (either during the relief period, at the end of the relief period or at maturity of the loan) or added to the customer’s outstanding balance. For certain programs, the maturity date of the loan may also be extended by the number of payments deferred. Interest income will continue to be recognized at the original contractual interest rate unless that rate is concurrently modified upon entering the relief program (in which case, the modified rate would be used to recognize interest).

For commercial leases that receive payment deferrals under the Bancorp’s COVID-19 pandemic hardship relief programs, the Bancorp will continue to recognize interest income during the deferral period, but the yield will be recalculated based on the timing and amount of remaining payments over the remaining lease term. The revised yield will be used for prospectively recognizing interest income and adjusting the net investment in the lease. The Bancorp’s hardship relief programs for commercial leases affect the timing of payments but do not generally result in an increase in the rights of the lessor or the obligations of the lessee. Therefore, the Bancorp has elected to forego certain requirements that would typically apply for lease modifications when accounting for the effects of the hardship relief programs. Refer to the Regulatory Developments Related to the COVID-19 Pandemic section of Note 1 of the Notes to Consolidated Financial Statements for further information.

As of December 31, 2020, the Bancorp had discontinued new enrollments for its consumer hardship relief programs except for the residential mortgage forbearance program previously discussed. The remaining consumer loans that were in an active relief period as of December 31, 2020 primarily consisted of borrowers who were previously enrolled in a hardship relief program and then subsequently requested additional assistance. These extended assistance periods generally provide reduced payments for a period of up to six months and are expected to be substantially complete in the first quarter of 2021. As previously discussed, residential mortgage borrowers may receive a total forbearance of up to one year so borrowers will be in active relief periods for a longer period of time. However, the Bancorp currently expects most of its residential mortgage loans to exit forbearance in the first half of 2021.

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The following table provides a summary of portfolio loans and leases as of December 31, 2020, by class, that have received payment deferrals or forbearances as part of the Bancorp’s COVID-19 pandemic hardship relief programs:


TABLE 34: Summary of Portfolio Loans and Leases Enrolled In Hardship Relief Programs
	Amortized Cost Basis of Loans and Leases					Past Due(c)
	Completed Relief Period		In Active Relief Period(a)	Total that Have Received Payment Relief(b)
December 31, 2020 ($ in millions)	Current(c)		30-89 Days	90 Days or More	Total Past Due
Commercial loans:
Commercial and industrial loans	$	1,355	10	1,365	1,347	14	4	18
Commercial mortgage owner-occupied loans	564		16	580	575	4	1	5
Commercial mortgage nonowner-occupied loans	1,081		97	1,178	1,125	27	26	53
Commercial construction loans	470		15	485	485	—	—	—
Commercial leases	91		—	91	91	—	—	—
Residential mortgage loans(b)	859		615	1,474	1,243	53	178	231
Consumer loans:
Home equity	195		11	206	183	15	8	23
Indirect secured consumer loans(d)	771		216	987	922	49	16	65
Credit card	110		25	135	109	12	14	26
Other consumer loans	95		14	109	103	4	2	6
Total portfolio loans and leases	$	5,591	1,019	6,610	6,183	178	249	427

*(a)*Includes loans and leases that are still in the initial payment relief period (primarily residential mortgage and home equity loans) and loans that have requested additional relief.

(b)Excludes $921 of loans previously sold to GNMA that the Bancorp had the option to repurchase as a result of forbearance, $882 of which were repurchased and are classified as held for sale.

*(c)For loans which are still in an active relief period, past due status is based on the borrower's status as of March 1, 2020, as adjusted based on the borrower’*s compliance with modified loan terms.

*(d)*Indirect secured consumer loans which are still in an active relief period as of December 31, 2020 are required to make payments but at a reduced amount from original contractual terms.

As of December 31, 2020, $1.5 billion of the Bancorp’s residential mortgage loans had been enrolled in a COVID-19 forbearance program (either active or completed). These loans had a weighted-average FICO score of approximately 690 and a weighted-average origination LTV of approximately 81%. Approximately 60% of these borrowers made at least one payment since entering forbearance, and 84% of balances are reported as current as of December 31, 2020. The Bancorp had $615 million of these loans in an active relief period as of December 31, 2020 and these loans had a weighted-average FICO score of approximately 660 and a weighted-average origination LTV of approximately 83%. Approximately one third of borrowers in an active forbearance period have made at least one payment since entering forbearance and approximately 85% of the residential mortgage loans still in an active relief period have completed the initial six-month forbearance period and have requested an extended forbearance for up to an additional six months.

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Commercial Portfolio

The Bancorp’s credit risk management strategy seeks to minimize concentrations of risk through diversification. The Bancorp has commercial loan concentration limits based on industry, lines of business within the commercial segment, geography and credit product type. The risk within the commercial loan and lease portfolio is managed and monitored through an underwriting process utilizing detailed origination policies, continuous loan level reviews, monitoring of industry concentration and product type limits and continuous portfolio risk management reporting.

The Bancorp provides loans to a variety of customers ranging from large multinational firms to middle market businesses, sole proprietors and high net worth individuals. The origination policies for commercial and industrial loans outline the risks and underwriting requirements for loans to businesses in various industries. Included in the policies are maturity and amortization terms, collateral and leverage requirements, cash flow coverage measures and hold limits. The Bancorp aligns credit and sales teams with specific industry expertise to better monitor and manage different industry segments of the portfolio.

Certain industries have experienced increased stress due to the COVID-19 pandemic. These include consumer-driven industries that require gathering or congregation such as leisure and recreation (including casinos, restaurants, sports, fitness, hotels and other industries), non-essential retail and leisure travel (primarily including airlines and cruise lines). Certain segments of the healthcare industry (including skilled nursing, physician offices and surgery/outpatient centers, among others) have also been impacted by the pandemic given delays and restrictions on in-person visits and elective procedures. The following table presents industries impacted the most severely within the Bancorp’s commercial and industrial and commercial real estate loan portfolios as of December 31, 2020:


TABLE 35: Industries Impacted the Most Severely by the COVID-19 Pandemic
($ in millions)	Balance		Exposure	Industry Classification(b)
Commercial and industrial loans:(a)
Leisure and recreation(c)	$	3,827	7,254	Accommodation and food / Entertainment and recreation
Healthcare	834		1,560	Healthcare
Retail - non-essential	690		3,043	Retail trade
Leisure travel	416		585	Transportation and warehousing
Total commercial and industrial loans	5,767		12,442
Commercial real estate loans:
Leisure and recreation(c)	2,225		2,568	Accommodation and food / Entertainment and recreation
Healthcare	1,647		2,025	Healthcare
Retail - non-essential	1,242		1,335	Real estate
Total commercial real estate loans	5,114		5,928
Total	$	10,881	18,370

*(a)*Excludes PPP loans.

*(b)*As defined by the North American Industry Classification System.

*(c)*Balances include exposures to casinos, restaurants, sports, fitness, hotels and other.

Additionally, the Bancorp’s energy loan portfolio of $2.6 billion for oil and gas production and related industries was also impacted by significant declines in oil prices during the year ended December 31, 2020.

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The following table provides detail on commercial loans and leases by industry classification (as defined by the North American Industry Classification System), by loan size and by state, illustrating the diversity and granularity of the Bancorp’s commercial loans and leases:


TABLE 36: Commercial Loan and Lease Portfolio (excluding loans and leases held for sale)
	2020					2019
As of December 31 ($ in millions)	Outstanding			Exposure	Nonaccrual	Outstanding	Exposure	Nonaccrual
By Industry:
Real estate	$	11,416		16,865	143	11,320	16,993	9
Manufacturing	10,699			21,986	68	11,996	22,079	87
Financial services and insurance	6,868			15,113	—	7,214	15,398	—
Business services	5,344			9,114	66	5,170	8,579	75
Healthcare	5,168			7,874	41	4,984	7,206	38
Wholesale trade	4,204			7,990	25	4,502	7,715	17
Accommodation and food	4,166			6,600	35	3,745	6,525	21
Retail trade	3,651			8,871	6	3,948	8,255	39
Communication and information	3,128			5,802	39	3,166	5,567	2
Transportation and warehousing	2,846			4,596	13	2,880	4,996	12
Construction	2,631			6,053	4	2,526	5,327	4
Mining	2,626			4,171	94	3,046	4,966	37
Entertainment and recreation	2,248			3,537	84	1,905	3,327	40
Other services	1,362			1,770	7	1,224	1,662	4
Utilities	1,162			3,011	—	991	2,672	—
Public administration	880			1,428	—	782	1,107	—
Agribusiness	394			616	10	344	554	9
Other	127			129	2	151	153	3
Individuals	77			123	1	64	128	—
Total	$	68,997		125,649	638	69,958	123,209	397
By Loan Size:
Less than $1 million	7		%	5	10	4	3	10
$1 million to $5 million	9			7	18	9	7	22
$5 million to $10 million	7			6	14	7	6	11
$10 million to $25 million	18			16	27	20	17	27
$25 million to $50 million	24			23	31	24	24	30
Greater than $50 million	35			43	—	36	43	—
Total	100		%	100	100	100	100	100
By State:
Illinois	14		%	12	28	15	12	18
Ohio	11			12	4	10	11	6
Florida	8			7	1	7	7	6
Michigan	6			6	7	6	6	7
Indiana	4			4	1	4	4	2
Georgia	3			4	7	3	4	11
North Carolina	3			2	3	3	3	10
Tennessee	2			3	1	3	3	1
Kentucky	2			2	4	2	2	9
Other	47			48	44	47	48	30
Total	100		%	100	100	100	100	100

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

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The Bancorp assesses all real estate and non-real estate collateral securing a loan and considers all cross-collateralized loans in the calculation of the LTV ratio. The following tables provide detail on the most recent LTV ratios for commercial mortgage loans greater than $1 million, excluding commercial mortgage loans that are individually evaluated. The Bancorp does not typically aggregate the LTV ratios for commercial mortgage loans less than $1 million.


TABLE 37: Commercial Mortgage Loans Outstanding by LTV, Loans Greater Than $1 Million
As of December 31, 2020 ($ in millions)	LTV > 100%		LTV 80-100%	LTV < 80%
Commercial mortgage owner-occupied loans	$	121	310	3,209
Commercial mortgage nonowner-occupied loans	51		72	4,757
Total	$	172	382	7,966


TABLE 38: Commercial Mortgage Loans Outstanding by LTV, Loans Greater Than $1 Million
As of December 31, 2019 ($ in millions)	LTV > 100%		LTV 80-100%	LTV < 80%
Commercial mortgage owner-occupied loans	$	126	393	3,199
Commercial mortgage nonowner-occupied loans	58		107	4,562
Total	$	184	500	7,761

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

The following tables provide an analysis of nonowner-occupied commercial real estate loans by state (excluding loans held for sale):


TABLE 39: Nonowner-Occupied Commercial Real Estate (excluding loans held for sale)(a)
As of December 31, 2020 ($ in millions)						For the Year Ended December 31, 2020
	Outstanding		Exposure	90 Days Past Due	Nonaccrual	Net Charge-offs
By State:
Illinois	$	2,844	3,375	1	45	6
Ohio	1,405		1,990	—	4	—
Florida	1,132		1,668	—	—	—
North Carolina	854		1,124	—	2	—
Michigan	810		926	—	1	—
Indiana	580		1,029	—	—	—
Georgia	424		924	—	1	—
All other states	2,981		4,539	—	25	35
Total	$	11,030	15,575	1	78	41

*(a)*Included in commercial mortgage loans and commercial construction loans in the Loans and Leases subsection of the Balance Sheet Analysis section of MD&A.


TABLE 40: Nonowner-Occupied Commercial Real Estate (excluding loans held for sale)(a)
As of December 31, 2019 ($ in millions)						For the Year Ended December 31, 2019
	Outstanding		Exposure	90 Days Past Due	Nonaccrual	Net Charge-offs
By State:
Illinois	$	3,097	3,639	6	—	2
Ohio	1,402		1,861	—	1	—
Florida	951		1,605	—	—	—
North Carolina	635		1,040	—	—	—
Michigan	714		849	—	—	—
Indiana	582		865	—	—	—
Georgia	351		897	—	—	—
All other states	2,883		4,569	—	—	—
Total	$	10,615	15,325	6	1	2

*(a)*Included in commercial mortgage loans and commercial construction loans in the Loans and Leases subsection of the Balance Sheet Analysis section of MD&A.

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Consumer Portfolio

Consumer credit risk management utilizes a framework that encompasses consistent processes for identifying, assessing, managing, monitoring and reporting credit risk. These processes are supported by a credit risk governance structure that includes Board oversight, policies, risk limits and risk committees.

The Bancorp’s consumer portfolio is materially comprised of five categories of loans: residential mortgage loans, home equity, indirect secured consumer loans, credit card and other consumer loans. The Bancorp has identified certain credit characteristics within these five categories of loans which it believes represent a higher level of risk compared to the rest of the consumer loan portfolio. The Bancorp does not update LTVs for the consumer portfolio subsequent to origination except as part of the charge-off process for real estate secured loans. Credit risk management continues to closely monitor the indirect secured consumer portfolio performance, which includes automobile loans. The automobile market has exhibited industry-wide gradual loosening of credit standards such as lower FICOs, longer terms and higher LTVs. The Bancorp has adjusted credit standards focused on improving risk-adjusted returns while maintaining credit risk tolerance. The Bancorp actively manages the automobile portfolio through concentration limits, which mitigate credit risk through limiting the exposure to lower FICO scores, higher advance rates and extended term originations.

Additionally, the Bancorp enhanced its credit underwriting guidelines across the entire consumer portfolio in response to the economic stress created by the COVID-19 pandemic. The Bancorp routinely and consistently evaluates underwriting practices to align with economic conditions as part of standard risk management protocols. The Bancorp will continue to evaluate these practices based on underlying economic factors and internal considerations.

Residential mortgage portfolio

The Bancorp manages credit risk in the residential mortgage portfolio through underwriting guidelines that limit exposure to higher LTVs and lower FICO scores. Additionally, the portfolio is governed by concentration limits that ensure geographic, product and channel diversification. The Bancorp may also package and sell loans in the portfolio.

The Bancorp does not originate residential mortgage loans that permit customers to defer principal payments or make payments that are less than the accruing interest. The Bancorp originates both fixed-rate and ARM loans. Within the ARM portfolio approximately $559 million of ARM loans will have rate resets during the next twelve months. Of these resets, 6% are expected to experience an increase in rate, with an average increase of approximately 0.4%. Underlying characteristics of these borrowers are relatively strong with a weighted-average origination DTI of 32% and weighted-average origination LTV of 71%.

Certain residential mortgage products have contractual features that may increase credit exposure to the Bancorp in the event of a decline in housing values. These types of mortgage products offered by the Bancorp include loans with high LTVs, multiple loans secured by the same collateral that when combined result in an LTV greater than 80% and interest-only loans. The Bancorp has deemed residential mortgage loans with greater than 80% LTVs and no mortgage insurance as loans that represent a higher level of risk.

Portfolio residential mortgage loans from 2010 and later vintages represented 94% of the portfolio as of December 31, 2020 and had a weighted-average origination LTV of 73% and a weighted-average origination FICO of 762.

In response to the COVID-19 pandemic, the Bancorp has provided forbearances for up to six months for customers who are experiencing a hardship related to COVID-19, with an option for borrowers to extend the forbearance period for an additional period of up to six months upon request. Additionally, the Bancorp has maintained tighter credit underwriting guidelines for new originations, raising the minimum FICO score at origination to 680 and lowering the maximum allowable LTV to 80%. For further information on reporting of past due loans, refer to Note 1 of the Notes to Consolidated Financial Statements.

The following table provides an analysis of the residential mortgage portfolio loans outstanding by LTV at origination:


TABLE 41: Residential Mortgage Portfolio Loans by LTV at Origination
	2020				2019
As of December 31 ($ in millions)	Outstanding		Weighted-Average LTV		Outstanding		Weighted-Average LTV
LTV ≤ 80%	$	11,336	65.2	%	$	12,100	66.3	%
LTV > 80%, with mortgage insurance(a)	2,535		95.5		2,373		95.2
LTV > 80%, no mortgage insurance	2,057		91.1		2,251		93.1
Total	$	15,928	73.9	%	$	16,724	74.3	%

*(a)*Includes loans with both borrower and lender paid mortgage insurance.

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The following tables provide an analysis of the residential mortgage portfolio loans outstanding by state with a greater than 80% LTV at origination and no mortgage insurance:


TABLE 42: Residential Mortgage Portfolio Loans, LTV Greater Than 80% at Origination, No Mortgage Insurance
As of December 31, 2020 ($ in millions)					For the Year Ended December 31, 2020
	Outstanding		90 Days Past Due	Nonaccrual	Net Charge-offs
By State:
Ohio	$	459	4	4	2
Illinois	410		3	1	—
Florida	306		1	2	—
Michigan	180		2	1	—
Indiana	147		1	1	—
North Carolina	139		2	—	—
Kentucky	92		1	—	—
All other states	324		3	2	—
Total	$	2,057	17	11	2


TABLE 43: Residential Mortgage Portfolio Loans, LTV Greater Than 80% at Origination, No Mortgage Insurance
As of December 31, 2019 ($ in millions)					For the Year Ended December 31, 2019
	Outstanding		90 Days Past Due	Nonaccrual	Net Charge-offs (Recoveries)
By State:
Ohio	$	482	3	4	1
Illinois	468		2	3	1
Florida	305		2	1	(1)
Michigan	217		2	1	—
Indiana	175		1	1	—
North Carolina	139		—	2	—
Kentucky	93		—	—	—
All other states	372		3	3	1
Total	$	2,251	13	15	2

Home equity portfolio

The Bancorp’s home equity portfolio is primarily comprised of home equity lines of credit. Beginning in the first quarter of 2013, the Bancorp’s newly originated home equity lines of credit have a 10-year interest-only draw period followed by a 20-year amortization period. The home equity line of credit previously offered by the Bancorp was a revolving facility with a 20-year term, minimum payments of interest-only and a balloon payment of principal at maturity. Peak maturity years for the balloon home equity lines of credit are 2025 to 2028 and approximately 23% of the balances mature before 2025.

The ALLL provides coverage for expected losses in the home equity portfolio. The allowance attributable to the portion of the home equity portfolio that has not been restructured in a TDR is determined on a pooled basis using a probability of default, loss given default and exposure at default model framework to generate expected losses. The expected losses for the home equity portfolio are dependent upon loan delinquency, FICO scores, LTV, loan age and their historical correlation with macroeconomic variables including unemployment and the home price index. The expected losses generated from models are adjusted by certain qualitative adjustment factors to reflect risks associated with current conditions and trends. The qualitative factors include adjustments for changes in policies or procedures in underwriting, monitoring or collections, economic conditions, portfolio mix, lending and risk management personnel, results of internal audit and quality control reviews, collateral values and geographic concentrations.

The home equity portfolio is managed in two primary groups: loans outstanding with a combined LTV greater than 80% and those loans with an LTV of 80% or less based upon appraisals at origination. For additional information on these loans, refer to Table 45 and Table 46. Of the total $5.2 billion of outstanding home equity loans:

80% reside within the Bancorp’s Midwest footprint of Ohio, Michigan, Kentucky, Indiana and Illinois as of December 31, 2020;
39% are in senior lien positions and 61% are in junior lien positions at December 31, 2020;
78% of non-delinquent borrowers made at least one payment greater than the minimum payment during the year ended December 31, 2020; and
The portfolio had a weighted-average refreshed FICO score of 748 at December 31, 2020.

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The Bancorp actively manages lines of credit and makes adjustments in lending limits when it believes it is necessary based on FICO score deterioration and property devaluation. The Bancorp does not routinely obtain appraisals on performing loans to update LTVs after origination. However, the Bancorp monitors the local housing markets by reviewing various home price indices and incorporates the impact of the changing market conditions in its ongoing credit monitoring processes. For junior lien home equity loans which become 60 days or more past due, the Bancorp tracks the performance of the senior lien loans in which the Bancorp is the servicer and utilizes consumer credit bureau attributes to monitor the status of the senior lien loans that the Bancorp does not service. If the senior lien loan is found to be 120 days or more past due, the junior lien home equity loan is placed on nonaccrual status unless both loans are well-secured and in the process of collection. Additionally, if the junior lien home equity loan becomes 120 days or more past due and the senior lien loan is also 120 days or more past due, the junior lien home equity loan is assessed for charge-off. Refer to the Analysis of Nonperforming Assets subsection of the Risk Management section of MD&A for more information.

The Bancorp has enhanced its credit underwriting guidelines on new home equity originations in response to the COVID-19 pandemic, raising the minimum FICO score at origination to 720, lowering the maximum LTV to 80% and instituting more stringent verification of employment requirements. Additionally, applicants must have a Fifth Third deposit relationship to be considered for approval.

The following table provides an analysis of home equity portfolio loans outstanding disaggregated based upon refreshed FICO score:


TABLE 44: Home Equity Portfolio Loans Outstanding by Refreshed FICO Score
	2020				2019
As of December 31 ($ in millions)	Outstanding		% of Total		Outstanding		% of Total
Senior Liens:
FICO ≤ 659	$	174	3	%	$	219	4	%
FICO 660-719	284		6		330		5
FICO ≥ 720	1,546		30		1,732		28
Total senior liens	2,004		39		2,281		37
Junior Liens:
FICO ≤ 659	339		6		446		7
FICO 660-719	610		12		716		12
FICO ≥ 720	2,230		43		2,640		44
Total junior liens	3,179		61		3,802		63
Total	$	5,183	100	%	$	6,083	100	%

The Bancorp believes that home equity portfolio loans with a greater than 80% combined LTV present a higher level of risk. The following table provides an analysis of the home equity portfolio loans outstanding in a senior and junior lien position by LTV at origination:


TABLE 45: Home Equity Portfolio Loans Outstanding by LTV at Origination
	2020				2019
As of December 31 ($ in millions)	Outstanding		Weighted-Average LTV		Outstanding		Weighted-Average LTV
Senior Liens:
LTV ≤ 80%	$	1,728	53.8	%	$	1,964	53.8	%
LTV > 80%	276		89.1		317		88.8
Total senior liens	2,004		58.8		2,281		58.9
Junior Liens:
LTV ≤ 80%	1,864		66.5		2,213		66.8
LTV > 80%	1,315		89.8		1,589		89.7
Total junior liens	3,179		77.1		3,802		77.4
Total	$	5,183	69.8	%	$	6,083	70.3	%

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The following tables provide an analysis of home equity portfolio loans outstanding by state with a combined LTV greater than 80% at origination:


TABLE 46: Home Equity Portfolio Loans Outstanding with an LTV Greater than 80% at Origination
As of December 31, 2020 ($ in millions)						For the Year Ended December 31, 2020
	Outstanding		Exposure	90 Days Past Due	Nonaccrual	Net Charge-offs (Recoveries)
By State:
Ohio	$	493	1,109	—	9	1
Michigan	283		590	—	4	(1)
Illinois	251		468	2	7	—
Indiana	148		318	—	3	—
Kentucky	126		280	—	1	—
Florida	113		220	—	3	—
All other states	177		347	—	4	—
Total	$	1,591	3,332	2	31	—


TABLE 47: Home Equity Portfolio Loans Outstanding with an LTV Greater than 80% at Origination
As of December 31, 2019 ($ in millions)						For the Year Ended December 31, 2019
	Outstanding		Exposure	90 Day Past Due	Nonaccrual	Net Charge-offs
By State:
Ohio	$	610	1,269	—	10	3
Michigan	356		674	—	7	1
Illinois	263		486	—	5	3
Indiana	182		365	—	4	1
Kentucky	155		321	—	2	—
Florida	132		246	—	3	1
All other states	208		389	—	4	1
Total	$	1,906	3,750	—	35	10

Indirect secured consumer portfolio

The indirect secured consumer portfolio is comprised of $12.6 billion of automobile loans and $1.0 billion of indirect motorcycle, powersport, recreational vehicle and marine loans as of December 31, 2020. The concentration of lower FICO (≤659) origination balances remained within targeted credit risk tolerance during the year ended December 31, 2020. All concentration and guideline changes are monitored monthly to ensure alignment with original credit performance and return projections.

The following table provides an analysis of indirect secured consumer portfolio loans outstanding disaggregated based upon FICO score at

origination:


TABLE 48: Indirect Secured Consumer Portfolio Loans Outstanding by FICO Score at Origination
	2020				2019
As of December 31 ($ in millions)	Outstanding		% of Total		Outstanding		% of Total
FICO ≤ 659	$	417	3	%	$	508	4	%
FICO 660-719	3,568		26		3,449		30
FICO ≥ 720	9,668		71		7,581		66
Total	$	13,653	100	%	$	11,538	100	%

As of December 31, 2020, 94% of the indirect secured consumer loan portfolio is comprised of automobile loans, powersport loans and motorcycle loans. It is a common industry practice to advance on these types of loans an amount in excess of the collateral value due to the inclusion of negative equity trade-in, maintenance/warranty products, taxes, title and other fees paid at closing. The Bancorp monitors its exposure to these higher risk loans. The remainder of the indirect secured consumer loan portfolio is comprised of marine and recreational vehicle loans. The Bancorp’s credit policies limit the maximum advance rate on these to 100% of collateral value.

In response to the COVID-19 pandemic, the Bancorp enhanced its credit underwriting guidelines for indirect automobile originations. These enhancements include lowering maximum advance rates to 110%, raising the minimum FICO score at origination to 650, raising internal

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score cutoffs and tightening capacity to repay standards. Revised credit underwriting guidelines have also been implemented in the marine, recreational vehicle and powersport channels, raising the minimum FICO score at origination and reducing the maximum allowable advance.

The following table provides an analysis of indirect secured consumer portfolio loans outstanding by LTV at origination:


TABLE 49: Indirect Secured Consumer Portfolio Loans Outstanding by LTV at Origination
	2020				2019
As of December 31 ($ in millions)	Outstanding		Weighted-Average LTV		Outstanding		Weighted-Average LTV
LTV ≤ 100%	$	9,371	80.3	%	$	7,420	81.3	%
LTV > 100%	4,282		112.7		4,118		113.4
Total	$	13,653	90.8	%	$	11,538	93.1	%

The following table provides an analysis of the Bancorp’s indirect secured consumer portfolio loans outstanding with an LTV at origination greater than 100% as of and for the years ended:


TABLE 50: Indirect Secured Consumer Portfolio Loans Outstanding with an LTV Greater than 100% at Origination
($ in millions)	Outstanding		90 Days Past Due and Accruing	Nonaccrual	Net Charge-offs
December 31, 2020	$	4,282	6	10	26
December 31, 2019	4,118		7	4	37

Credit card portfolio

The credit card portfolio consists of predominantly prime accounts with 97% of balances existing within the Bancorp’s footprint at both December 31, 2020 and December 31, 2019. At December 31, 2020 and 2019, 69% and 67%, respectively, of the outstanding balances were originated through branch-based relationships with the remainder coming from direct mail campaigns and online acquisitions.

Card origination strategies have also been revised in response to the COVID-19 pandemic. The minimum FICO score at origination was raised to 720 with a qualifying Fifth Third deposit relationship requirement. New customer prospect marketing has also been suspended.

The following table provides an analysis of credit card portfolio loans outstanding disaggregated based upon FICO score at origination:


TABLE 51: Credit Card Portfolio Loans Outstanding by FICO Score at Origination
	2020				2019
As of December 31 ($ in millions)	Outstanding		% of Total		Outstanding		% of Total
FICO ≤ 659	$	94	5	%	$	107	4	%
FICO 660-719	654		32		834		33
FICO ≥ 720	1,259		63		1,591		63
Total	$	2,007	100	%	$	2,532	100	%

Other consumer portfolio loans

Other consumer portfolio loans are comprised of secured and unsecured loans originated through the Bancorp’s branch network as well as point-of-sale loans originated in connection with third-party financial technology companies. The Bancorp had $285 million in unfunded commitments associated with loans originated in connection with third-party financial technology companies as of December 31, 2020. The Bancorp closely monitors the credit performance of point-of-sale loans which, for the Bancorp, is impacted by certain credit loss protection coverage provided by the third-party financial technology companies.

In response to the COVID-19 pandemic, the minimum FICO score at origination for unsecured loans originated through Fifth Third has been raised to 720. The minimum FICO scores at originations for loans originated through third parties is now set at 680. Additionally, for Fifth Third originated unsecured loans, a qualifying Fifth Third deposit relationship is now required.

The following table provides an analysis of other consumer portfolio loans outstanding by product type:


TABLE 52: Other Consumer Portfolio Loans Outstanding by Product Type
	2020				2019
As of December 31 ($ in millions)	Outstanding		% of Total		Outstanding		% of Total
Unsecured	$	683	23	%	$	783	29	%
Other secured	774		26		530		19
Point-of-sale	1,557		51		1,410		52
Total	$	3,014	100	%	$	2,723	100	%

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Analysis of Nonperforming Assets

Nonperforming assets include nonaccrual loans and leases for which ultimate collectability of the full amount of the principal and/or interest is uncertain; restructured commercial, credit card and certain consumer loans which have not yet met the requirements to be classified as a performing asset; restructured consumer loans which are 90 days past due based on the restructured terms unless the loan is both well-secured and in the process of collection; and certain other assets, including OREO and other repossessed property. A summary of nonperforming assets is included in Table 53. For further information on the Bancorp’s policies related to accounting for delinquent and nonperforming loans and leases, refer to the Nonaccrual Loans and Leases section of Note 1 of the Notes to Consolidated Financial Statements.

Nonperforming assets were $870 million at December 31, 2020 compared to $687 million at December 31, 2019. At December 31, 2020, $6 million of nonaccrual loans were held for sale, compared to $7 million at December 31, 2019.

Nonperforming portfolio assets as a percent of portfolio loans and leases and OREO were 0.79% as of December 31, 2020 compared to 0.62% as of December 31, 2019. Nonaccrual loans and leases secured by real estate were 36% of nonaccrual loans and leases as of December 31, 2020 compared to 35% as of December 31, 2019.

Portfolio commercial nonaccrual loans and leases were $638 million at December 31, 2020, an increase of $241 million from December 31, 2019. Portfolio consumer nonaccrual loans were $196 million at December 31, 2020, a decrease of $25 million from December 31, 2019. Refer to Table 54 for a rollforward of the portfolio nonaccrual loans and leases.

OREO and other repossessed property was $30 million at December 31, 2020, compared to $62 million at December 31, 2019. The Bancorp recognized $7 million and $6 million in losses on the transfer, sale or write-down of OREO properties during the years ended December 31, 2020 and 2019, respectively.

During the years ended December 31, 2020 and 2019, approximately $38 million and $35 million, respectively, of interest income would have been recognized if the nonaccrual and renegotiated loans and leases on nonaccrual status had been current in accordance with their original terms. Although these values help demonstrate the costs of carrying nonaccrual credits, the Bancorp does not expect to recover the full amount of interest as nonaccrual loans and leases are generally carried below their principal balance.

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TABLE 53: Summary of Nonperforming Assets and Delinquent Loans and Leases
As of December 31 ($ in millions)	2020			2019	2018	2017	2016
Nonaccrual portfolio loans and leases:
Commercial and industrial loans	$	230		118	54	144	302
Commercial mortgage loans	82			21	9	12	27
Commercial construction loans	—			1	—	—	—
Commercial leases	7			26	18	—	2
Residential mortgage loans(a)	25			12	10	17	17
Home equity	52			55	56	56	55
Indirect secured consumer loans	9			1	—	—	—
Other consumer loans	2			2	1	—	—
Nonaccrual portfolio restructured loans and leases:
Commercial and industrial loans	243			220	139	132	176
Commercial mortgage loans	75			9	4	14	14
Commercial construction loans	1			—	—	—	—
Commercial leases	—			2	4	4	2
Residential mortgage loans(a)	35			79	12	13	17
Home equity	34			39	13	18	18
Indirect secured consumer loans	7			6	1	1	2
Credit card	32			27	27	26	28
Total nonaccrual portfolio loans and leases(b)	834			618	348	437	660
OREO and other repossessed property(c)	30			62	47	52	78
Total nonperforming portfolio loans and leases and OREO	864			680	395	489	738
Nonaccrual loans held for sale	5			—	—	5	4
Nonaccrual restructured loans held for sale	1			7	16	1	9
Total nonperforming assets	$	870		687	411	495	751
Portfolio loans and leases 90 days past due and still accruing:
Commercial and industrial loans	$	39		11	4	3	4
Commercial mortgage loans	8			15	2	—	—
Commercial leases	1			—	—	—	—
Residential mortgage loans(a)	70			50	38	57	49
Home equity	2			1	—	—	—
Indirect secured consumer loans	10			10	12	10	9
Credit card	31			42	37	27	22
Other consumer loans	2			1	—	—	—
Total portfolio loans and leases 90 days past due and still accruing	$	163		130	93	97	84
Nonperforming portfolio assets as a percent of portfolio loans and leases and OREO	0.79		%	0.62	0.41	0.53	0.80
ALLL as a percent of nonperforming portfolio assets	284			177	279	245	170
ACL as a percent of nonperforming portfolio assets	304			198	317	274	190

*(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 $317, $261, $195, $290 and $312 as of December 31, 2020, 2019, 2018, 2017 and 2016, respectively. The Bancorp recognized losses of $3, $4, $5, $5 and $6 for the years ended December 31, 2020, 2019, 2018, 2017 and 2016, respectively.

*(b)*Includes $29, $16, $6, $3 and $4 of nonaccrual government insured commercial loans whose repayments are insured by the SBA at December 31, 2019, 2019, 2018, 2017 and 2016, respectively, of which $17, $11, $2, $3 and $1 were restructured nonaccrual government insured commercial loans at December 31, 2020, 2019, 2018, 2017 and 2016, respectively.

*(c)*Upon completion of Fifth Third Bank’s conversion to a national charter in 2019, the Bancorp conformed to OCC guidance with regard to branch-related real estate no longer intended to be used for banking purposes. The impact of the change resulted in an increase to OREO of approximately $30 million with an offsetting reduction to bank premises and equipment.

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The following tables provide a rollforward of portfolio nonaccrual loans and leases, by portfolio segment:


TABLE 54: Rollforward of Portfolio Nonaccrual Loans and Leases
For the year ended December 31, 2020 ($ in millions)	Commercial		Residential Mortgage	Consumer	Total
Balance, beginning of period	$	397	91	130	618
Transfers to nonaccrual status	794		136	170	1,100
Transfers to accrual status	(34)		(149)	(85)	(268)
Transfers to held for sale	(46)		—	—	(46)
Loan paydowns/payoffs	(216)		(8)	(47)	(271)
Transfers to OREO	(1)		(7)	—	(8)
Charge-offs	(282)		(3)	(34)	(319)
Draws/other extensions of credit	26		—	2	28
Balance, end of period	$	638	60	136	834

TABLE 55: Rollforward of Portfolio Nonaccrual Loans and Leases
For the year ended December 31, 2019 ($ in millions)	Commercial		Residential Mortgage	Consumer	Total
Balance, beginning of period	$	228	22	98	348
Transfers to nonaccrual status	456		107	176	739
Acquired nonaccrual loans	8		—	—	8
Transfers to accrual status	—		(20)	(72)	(92)
Transfers to held for sale	(17)		—	—	(17)
Loan paydowns/payoffs	(165)		(9)	(30)	(204)
Transfers to OREO	(5)		(7)	(4)	(16)
Charge-offs	(127)		(2)	(38)	(167)
Draws/other extensions of credit	19		—	—	19
Balance, end of period	$	397	91	130	618

Troubled Debt Restructurings

A loan is accounted for as a TDR if the Bancorp, for economic or legal reasons related to the borrower’s financial difficulties, grants a concession to the borrower that it would not otherwise consider. TDRs include concessions granted under reorganization, arrangement or other provisions of the Federal Bankruptcy Act. A TDR typically involves a modification of terms such as a reduction of the stated interest rate or remaining principal amount of the loan, a reduction of accrued interest or an extension of the maturity date at a stated interest rate lower than the current market rate for a new loan with similar risk.

At the time of modification, the Bancorp maintains certain consumer loan TDRs (including certain residential mortgage loans, home equity loans and other consumer loans) on accrual status, provided there is reasonable assurance of repayment and performance according to the modified terms based upon a current, well-documented credit evaluation. Loans discharged in a Chapter 7 bankruptcy and not reaffirmed by the borrower are classified as collateral-dependent TDRs and placed on nonaccrual status regardless of the borrower’s payment history or capacity to repay in the future. These loans are returned to accrual status provided there is a sustained payment history of twelve months after bankruptcy and collectability is reasonably assured for all remaining contractual payments. Commercial loans modified as part of a TDR are maintained on accrual status provided there is a sustained payment history of six months or greater prior to the modification in accordance with the modified terms and all remaining contractual payments under the modified terms are reasonably assured of collection. TDRs of commercial loans and credit card loans that do not have a sustained payment history of six months or greater in accordance with the modified terms remain on nonaccrual status until a six-month payment history is sustained. Refer to the Regulatory Developments Related to the COVID-19 Pandemic section of Note 1 of the Notes to Consolidated Financial Statements for additional information on loans that were modified related to the COVID-19 pandemic but not classified as TDRs.

Consumer restructured loans on accrual status totaled $796 million and $965 million at December 31, 2020 and 2019, respectively. As of December 31, 2020, the percentage of restructured residential mortgage loans, home equity loans, and credit card loans that are past due 30 days or more from their modified terms were 27%, 19% and 31%, respectively.

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The following tables summarize portfolio TDRs by loan type and delinquency status:


TABLE 56: Accruing and Nonaccruing Portfolio TDRs
	Accruing(d)
As of December 31, 2020 ($ in millions)	Current		30-89 Days Past Due	90 Days or More Past Due	Nonaccruing(c)	Total
Commercial loans(a)	$	92	—	—	319	411
Residential mortgage loans(b)	462		32	102	35	631
Home equity	171		7	—	34	212
Indirect secured consumer loans	5		—	—	7	12
Credit card	15		2	—	32	49
Total	$	745	41	102	427	1,315

*(a)*Excludes restructured nonaccrual loans held for sale.

*(b)*Information includes advances made pursuant to servicing agreements for GNMA mortgage pools whose repayments are insured by the FHA or guaranteed by the VA. As of December 31, 2020, these advances represented $276 of current loans, $28 of 30-89 days past due loans and $78 of 90 days or more past due loans.

*(c)*Excludes approximately $3 of residential mortgage loans that were modified prior to repurchase.

*(d)*Excludes approximately $142 of residential mortgage loans that were modified prior to repurchase.


TABLE 57: Accruing and Nonaccruing Portfolio TDRs
	Accruing
As of December 31, 2019 ($ in millions)	Current		30-89 Days Past Due	90 Days or More Past Due	Nonaccruing	Total
Commercial loans(a)	$	23	—	—	231	254
Residential mortgage loans(b)	552		49	134	79	814
Home equity	199		8	—	39	246
Indirect secured consumer loans	6		—	—	6	12
Credit card	14		3	—	27	44
Total(c)	$	794	60	134	382	1,370

*(a)*Excludes restructured nonaccrual loans held for sale.

*(b)*Information includes advances made pursuant to servicing agreements for GNMA mortgage pools whose repayments are insured by the FHA or guaranteed by the VA. As of December 31, 2020, these advances represented $321 of current loans, $40 of 30-89 days past due loans and $109 of 90 days or more past due loans.

*(c)*Upon completion of Fifth Third Bank’s conversion to a national charter, the Bancorp conformed to OCC guidance with regard to non-reaffirmed loans included in Chapter 7 bankruptcy filings to be accounted for as TDRs and collateral dependent loans regardless of payment history and capacity to pay in the future. The impact of the change resulted in an increase to TDRs of approximately $105, of which $83 were transferred to nonaccrual status.

Analysis of Net Loan Charge-offs

Net charge-offs were 42 bps and 35 bps of average portfolio loans and leases for the years ended December 31, 2020 and 2019, respectively. Table 58 provides a summary of credit loss experience and net charge-offs as a percentage of average portfolio loans and leases outstanding by loan category.

The ratio of commercial loan and lease net charge-offs to average portfolio commercial loans and leases increased to 36 bps during the year ended December 31, 2020, compared to 16 bps during the year ended December 31, 2019. The increase was primarily due to increases in net charge-offs on commercial and industrial loans and commercial mortgage loans of $95 million and $47 million, respectively.

The ratio of consumer loan net charge-offs to average portfolio consumer loans decreased to 52 bps for the year ended December 31, 2020 compared to 68 bps for the year ended December 31, 2019. The decrease was primarily due to decreases in net charge-offs on indirect secured consumer loans and other consumer loans of $18 million and $15 million, respectively. The decreases for the year ended December 31, 2020 included the impact of government stimulus programs and the Bancorp’s hardship programs.

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TABLE 58: Summary of Credit Loss Experience
For the years ended December 31 ($ in millions)	2020			2019	2018	2017	2016
Losses charged-off:
Commercial and industrial loans	$	(210)		(120)	(151)	(136)	(205)
Commercial mortgage loans	(46)			—	(5)	(16)	(22)
Commercial construction loans	—			—	—	—	—
Commercial leases	(26)			(7)	(1)	(2)	(5)
Residential mortgage loans	(9)			(9)	(13)	(15)	(19)
Home equity	(14)			(28)	(23)	(32)	(41)
Indirect secured consumer loans	(67)			(81)	(63)	(58)	(54)
Credit card	(147)			(156)	(125)	(94)	(89)
Other consumer loans(a)	(92)			(109)	(69)	(28)	(21)
Total losses charged-off	$	(611)		(510)	(450)	(381)	(456)
Recoveries of losses previously charged-off:
Commercial and industrial loans	$	12		17	19	25	33
Commercial mortgage loans	1			2	6	4	7
Commercial construction loans	—			—	—	—	1
Commercial leases	3			—	—	—	1
Residential mortgage loans	7			5	6	8	9
Home equity	9			10	11	13	14
Indirect secured consumer loans	35			31	23	21	19
Credit card	21			22	24	10	9
Other consumer loans(a)	52			54	31	2	1
Total recoveries of losses previously charged-off	$	140		141	120	83	94
Net losses charged-off:
Commercial and industrial loans	$	(198)		(103)	(132)	(111)	(172)
Commercial mortgage loans	(45)			2	1	(12)	(15)
Commercial construction loans	—			—	—	—	1
Commercial leases	(23)			(7)	(1)	(2)	(4)
Residential mortgage loans	(2)			(4)	(7)	(7)	(10)
Home equity	(5)			(18)	(12)	(19)	(27)
Indirect secured consumer loans	(32)			(50)	(40)	(37)	(35)
Credit card	(126)			(134)	(101)	(84)	(80)
Other consumer loans	(40)			(55)	(38)	(26)	(20)
Total net losses charged-off	$	(471)		(369)	(330)	(298)	(362)
Net losses charged-off as a percent of average portfolio loans and leases:
Commercial and industrial loans	0.37		%	0.20	0.31	0.27	0.40
Commercial mortgage loans	0.41			(0.02)	(0.01)	0.17	0.23
Commercial construction loans	—			—	—	—	(0.01)
Commercial leases	0.76			0.21	0.03	0.06	0.10
Total commercial loans and leases	0.36		%	0.16	0.23	0.22	0.33
Residential mortgage loans	0.02			0.03	0.04	0.04	0.07
Home equity	0.08			0.28	0.17	0.26	0.33
Indirect secured consumer loans	0.26			0.48	0.45	0.39	0.33
Credit card	5.63			5.49	4.44	3.93	3.69
Other consumer loans	1.39			2.16	1.93	2.57	2.93
Total consumer loans	0.52		%	0.68	0.56	0.49	0.48
Total net losses charged-off as a percent of average portfolio loans and leases	0.42		%	0.35	0.35	0.32	0.39

*(a)*For the years ended December 31, 2020 and 2019, the Bancorp recorded $42 and $48, respectively, in both losses charged-off and recoveries of losses charged-off related to customer defaults on point-of-sale consumer loans for which the Bancorp obtained recoveries under third-party credit enhancements.

Allowance for Credit Losses

The allowance for credit losses is comprised of the ALLL and the reserve for unfunded commitments. As further described in Note 1 of the Notes to Consolidated Financial Statements, the Bancorp adopted ASU 2016-13 on January 1, 2020 which established a new approach for estimating credit losses on certain types of financial instruments. After adoption of this amended guidance, the Bancorp maintains the ALLL to absorb the amount of credit losses that are expected to be incurred over the remaining contractual terms of the related loans and leases (as adjusted for prepayments and reasonably expected TDRs). The Bancorp’s methodology for determining the ALLL includes an estimate of

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expected credit losses on a collective basis for groups of loans and leases with similar risk characteristics and specific allowances for loans and leases which are individually evaluated. For collectively evaluated loans and leases, the Bancorp uses quantitative models to forecast expected credit losses based on the probability of a loan or lease defaulting, the expected balance at the estimated date of default and the expected loss percentage given a default. The Bancorp’s expected credit loss models consider historical credit loss experience, current market and economic conditions, and forecasted changes in market and economic conditions if such forecasts are considered reasonable and supportable.

The Bancorp also considers qualitative factors in determining the ALLL. Qualitative adjustments are used to capture characteristics in the portfolio that impact expected credit losses which are not fully captured within the Bancorp’s expected credit loss models. These factors include adjustments for changes in policies or procedures in underwriting, monitoring or collections, lending and risk management personnel and results of internal audit and quality control reviews. In addition, the qualitative adjustment framework can be utilized to address specific idiosyncratic risks such as geopolitical events, natural disasters or changes in current economic conditions that are not reflected in the quantitative credit loss models, and their effects on regional borrowers and changes in product structures. Qualitative factors may also be used to address the impacts of unforeseen events on key inputs and assumptions within the Bancorp’s expected credit loss models, such as the reasonable and supportable forecast period, changes to historical loss information or changes to the reversion period or methodology.

Refer to Note 1 of the Notes to Consolidated Financial Statements for discussion of the accounting policies for the ALLL and reserve for unfunded commitments for periods prior to January 1, 2020.

In addition to the ALLL, the Bancorp maintains a reserve for unfunded commitments recorded in other liabilities in the Consolidated Balance Sheets. The methodology used to determine the adequacy of this reserve is similar to the Bancorp’s methodology for determining the ALLL. The provision for unfunded commitments is included in the provision for credit losses in the Consolidated Statements of Income.

For the commercial portfolio segment, the estimates for probability of default are primarily based on internal ratings assigned to each commercial borrower on a 13-point scale and historical observations of how those ratings migrate to a default over time in the context of macroeconomic conditions. For loans with available credit, the estimate of the expected balance at the time of default considers expected utilization rates, which are primarily based on macroeconomic conditions and the utilization history of similar borrowers under those economic conditions. The estimates for loss severity are primarily based on collateral type and coverage levels and the susceptibility of those characteristics to changes in macroeconomic conditions.

Day 1 Adoption Impact

Upon adoption of ASU 2016-13 on January 1, 2020, the Bancorp used three forward-looking economic scenarios during the reasonable and supportable forecast period in its expected credit loss models to address the inherent imprecision in macroeconomic forecasting. Each of the three scenarios was developed by a third party that is subject to the Bancorp’s Third-Party Risk Management program including oversight by the Bancorp’s independent model risk management group. The scenarios included a most likely outcome (Baseline) and two less probable scenarios with one being more favorable than the Baseline and the other being less favorable. The more favorable alternative scenario (Upside) depicted a stronger near-term growth outlook while the less favorable outlook (Downside) depicted a moderate recession. The Baseline scenario was assigned a probability weighting of 80% with each of the Upside and Downside scenarios being assigned a 10% weighting.

The Baseline scenario was developed such that the expectation is that the economy will perform better than the projection 50% of the time and worse than the projection 50% of the time. The Upside scenario was developed such that there is a 10% probability that the economy will perform better than the projection and a 90% probability that it will perform worse. The Downside scenario was developed such that there is a 90% probability that the economy will perform better than the projection and a 10% probability that it will perform worse.

December 31, 2020 ACL

The ACL as of December 31, 2020 was impacted by several factors, including general improvement in the economic outlook. As a result, the Bancorp incorporated a combination of quantitative model-based estimates and qualitative overlays. For the quantitative estimates, the Bancorp incorporated three scenarios developed by the third party in November 2020 that included estimates of the expected impacts of the changes in economic conditions caused by the COVID-19 pandemic. The Baseline scenario was assigned a probability weighting of 60%, with a more favorable scenario (Upside) assigned a probability weighting of 20% and a less favorable scenario (Downside) assigned a probability of 20%. The Baseline scenario utilized by the Bancorp assumes additional stimulus enacted in the first quarter of 2021 including

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unemployment and individual benefits, but no aid to state and local governments. GDP growth is expected to be at a 3.1% annualized rate in 2021 and at a 4.1% annualized rate in 2022. The Baseline scenario also assumes a 7.2% unemployment rate through the fourth quarter of 2020 with an average unemployment rate of 8.2% in the first half of 2021. The Upside scenario assumes that the COVID-19 crisis resolves sooner than anticipated, with businesses returning to full operation sooner than expected and an increase in consumer spending. In this scenario, housing prices rise by 3.7% (compared to 0.4% in the Baseline) during 2021. Upside real GDP growth is expected to be 6.6% in 2021, and a full-employment rate is expected to be achieved by mid-2022, a year earlier than Baseline. The Downside scenario reflects no additional federal fiscal stimulus, which causes an increase in unemployment to above 10% by the end of 2021. This scenario shows annual average GDP growth of 0% in 2021 and 2.3% in 2022 and housing prices decreasing by 10% through 2021.

The Bancorp’s quantitative credit loss models are sensitive to changes in economic forecast assumptions over the reasonable and supportable forecast period. Applying a 100% probability weighting to the Downside scenario rather than using the probability-weighted three scenario approach would result in an increase in the quantitative ACL of approximately $897 million. This sensitivity calculation only reflects the impact of changing the probability weighting of the scenarios in the quantitative credit loss models and excludes any additional considerations associated with the qualitative component of the ACL that might be warranted in the circumstance.

At December 31, 2020, the qualitative component of the ACL included consideration of certain factors that represent emerging risks specifically associated with the current economic environment and the COVID-19 pandemic. These considerations resulted in qualitative adjustments to increase the ACL, primarily related to volatility in short-term unemployment rates, commercial borrowers experiencing prolonged distress, commercial borrowers in certain industries which have been severely impacted by the COVID-19 pandemic and consumer borrowers that deferred contractual payments under COVID-19 forbearance or hardship programs.


TABLE 59: Changes in Allowance for Credit Losses
For the years ended December 31 ($ in millions)	2020(b)		2019(c)	2018(c)	2017(c)	2016(c)
ALLL:
Balance, beginning of period	$	1,202	1,103	1,196	1,253	1,272
Impact of adoption of ASU 2016-13	643		—	—	—	—
Losses charged-off(a)	(611)		(510)	(450)	(381)	(456)
Recoveries of losses previously charged-off(a)	140		141	120	83	94
Provision for loan and lease losses	1,079		468	237	261	343
Deconsolidation of a VIE	—		—	—	(20)	—
Balance, end of period	$	2,453	1,202	1,103	1,196	1,253
Reserve for unfunded commitments:
Balance, beginning of period	$	144	131	161	161	138
Impact of adoption of ASU 2016-13	10		—	—	—	—
Reserve for acquired unfunded commitments	—		8	—	—	—
Provision for (benefit from) the reserve for unfunded commitments	18		5	(30)	—	23
Balance, end of period	$	172	144	131	161	161

*(b)*The ALLL and Reserve for unfunded commitments were calculated under the expected loss methodology upon the adoption of ASU 2016-13 on January 1, 2020.

*(c)*The ALLL and Reserve for unfunded commitments were calculated under the incurred loss methodology for periods ending prior to January 1, 2020.

As shown in Table 60, the ALLL as a percent of portfolio loans and leases was 2.25% at December 31, 2020, compared to 1.10% at December 31, 2019. The ALLL was $2.5 billion and $1.2 billion at December 31, 2020 and 2019, respectively.

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TABLE 60: Attribution of Allowance for Loan and Lease Losses to Portfolio Loans and Leases
As of December 31 ($ in millions)	2020(a)			2019(b)	2018(b)	2017(b)	2016(b)
Attributed ALLL:
Commercial and industrial loans	$	901		561	515	651	718
Commercial mortgage loans	402			87	80	65	82
Commercial construction loans	124			45	32	23	16
Commercial leases	29			17	18	14	15
Residential mortgage loans	294			73	81	89	96
Home equity	201			37	36	46	58
Indirect secured consumer loans	131			53	42	38	42
Credit card	252			168	156	117	102
Other consumer loans	119			40	33	33	12
Unallocated	N/A			121	110	120	112
Total ALLL	$	2,453		1,202	1,103	1,196	1,253
Portfolio loans and leases:
Commercial and industrial loans	$	49,665		50,542	44,340	41,170	41,676
Commercial mortgage loans	10,602			10,963	6,974	6,604	6,899
Commercial construction loans	5,815			5,090	4,657	4,553	3,903
Commercial leases	2,915			3,363	3,600	4,068	3,974
Residential mortgage loans	15,928			16,724	15,504	15,591	15,051
Home equity	5,183			6,083	6,402	7,014	7,695
Indirect secured consumer loans	13,653			11,538	8,976	9,112	9,983
Credit card	2,007			2,532	2,470	2,299	2,237
Other consumer loans	3,014			2,723	2,342	1,559	680
Total portfolio loans and leases	$	108,782		109,558	95,265	91,970	92,098
Attributed ALLL as a percent of respective portfolio loans and leases:
Commercial and industrial loans	1.81		%	1.11	1.16	1.58	1.72
Commercial mortgage loans	3.79			0.79	1.15	0.98	1.19
Commercial construction loans	2.13			0.88	0.69	0.51	0.41
Commercial leases	0.99			0.51	0.50	0.34	0.38
Residential mortgage loans	1.85			0.44	0.52	0.57	0.64
Home equity	3.88			0.61	0.56	0.66	0.75
Indirect secured consumer loans	0.96			0.46	0.47	0.42	0.42
Credit card	12.56			6.64	6.32	5.09	4.56
Other consumer loans	3.95			1.47	1.41	2.12	1.76
Unallocated (as a percent of portfolio loans and leases)	N/A			0.11	0.12	0.13	0.12
Total ALLL as a percent of portfolio loans and leases	2.25		%	1.10	1.16	1.30	1.36
Total ACL as a percent of portfolio loans and leases	2.41			1.23	1.30	1.48	1.54

*(a)*The ALLL and ACL were calculated under the expected loss methodology upon the adoption of ASU 2016-13 on January 1, 2020.

*(b)*The ALLL and ACL were calculated under the incurred loss methodology for periods ending prior to January 1, 2020.

As previously mentioned, the Bancorp adopted ASU 2016-13 on January 1, 2020. Based on portfolio characteristics and economic conditions and expectations as of January 1, 2020, the Bancorp recorded a combined increase to the ALLL and reserve for unfunded commitments on January 1, 2020 of approximately $653 million upon the adoption of ASU 2016-13. The increase in the ALLL at the date of adoption was primarily attributable to longer duration home equity and residential mortgage loans.

The Bancorp’s ALLL may vary significantly from period to period after the adoption date as it will be based on changes in economic conditions, economic forecasts and the composition and credit quality of the Bancorp’s loan and lease portfolio. The adoption of ASU 2016-13 will also have an impact on the provision for credit losses in periods after adoption, which could differ materially from historical trends. For additional information on ASU 2016-13, refer to Note 1 of the Notes to Consolidated Financial Statements.

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INTEREST RATE AND PRICE RISK MANAGEMENT

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

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

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

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

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

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

Net Interest Income Sensitivity

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

As of December 31, 2020, the Bancorp’s interest rate risk exposure is governed by a risk framework that utilizes the change in NII over 12-month and 24-month horizons assuming a 200 bps parallel ramped increase in interest rates. Given the unlikely probability associated with a potential negative rate environment, the Bancorp does not have a policy limit for scenarios that include negative rates. Therefore, the Bancorp has no policy limit for a scenario with a decrease in interest rates currently in effect as the Federal Funds target range is currently between zero and 25 basis points. However, the Bancorp routinely analyzes various potential and extreme scenarios, including ramps, shocks and non-parallel shifts in rates, including negative rate scenarios, to assess where risks to net interest income persist or develop as changes in the balance sheet and market rates evolve. Additionally, the Bancorp routinely evaluates its exposures to changes in the bases between interest rates. The ongoing COVID-19 pandemic has caused significant changes to interest rates, volatilities, and the composition of the Bancorp’s balance sheet, including significant increases in deposit funding related to stimulus programs, which has resulted in an excess liquidity position. The excess liquidity is likely to continue negatively impacting net interest margin if short-term interest rates hold steady or move lower, but may be partially offset by the amortization of fees related to PPP loans and investment opportunities should the yield curve continue steepening.

In order to recognize the risk of noninterest-bearing demand deposit balance run-off in a rising interest rate environment, the Bancorp’s NII sensitivity modeling assumes that approximately $5 billion of additional demand deposit balances run-off over 24 months above what is included in senior management’s baseline projections for each 100 bps increase in short-term market interest rates. Similarly, the Bancorp’s NII sensitivity modeling incorporates approximately $5 billion of incremental growth in noninterest-bearing deposit balances over 24 months

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

Another important deposit modeling assumption is the amount by which interest-bearing deposit rates will increase or decrease when market interest rates increase or decrease. This deposit repricing sensitivity is known as the beta, and it represents the expected amount by which Bancorp deposit rates will change for a given change in short-term market rates. The Bancorp’s NII sensitivity modeling assumes a weighted-average rising-rate interest-bearing deposit beta of 70% at December 31, 2020, which is approximately 10 to 30 percentage points higher than the average beta that the Bancorp experienced in the FRB tightening cycles from June 2004 to June 2006 and from December 2015 to December 2018. In the event of further rate cuts by the FRB into negative territory, the Bancorp’s NII sensitivity modeling assumes a weighted-average falling-rate interest-bearing deposit beta of 35% at December 31, 2020 while maintaining that deposit rates themselves will not become negative. In addition, the modeling assumes there is no lag between the timing of changes in market rates and the timing of deposit repricing despite such timing lags having occurred in prior rate cycles.

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

The following table shows the Bancorp’s estimated NII sensitivity profile and ALCO policy limits as of December 31:


TABLE 61: Estimated NII Sensitivity Profile and ALCO Policy Limits
	2020				2019
	% Change in NII (FTE)		ALCO Policy Limits		% Change in NII (FTE)		ALCO Policy Limits
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 months	2.93 %	7.73	(4.00)	(6.00)	(0.22)	3.94	(4.00)	(6.00)
+ 100 Ramp over 12 months	1.69	4.95	N/A	N/A	(0.16)	2.07	N/A	N/A
–25 Ramp over 3 months	(1.93)	(2.88)	N/A	N/A	N/A	N/A	N/A	N/A
–100 Ramp over 12 months	N/A	N/A	N/A	N/A	(2.66)	(7.90)	(8.00)	(12.00)

At December 31, 2020, the Bancorp’s NII would benefit in both year one and year two under the parallel rate ramp increases. The Bancorp maintains an asymmetric NII sensitivity profile, which is attributable to the level of floating-rate assets, including the predominantly floating-rate commercial loan portfolio, exceeding the level of floating-rate liabilities due to the increased amount of deposit rates near zero in this low interest rate environment and other fixed-rate borrowings. Reductions in the yield of the commercial loan portfolio would be expected to be only partially offset by a decline in the cost of interest-bearing deposits in a falling-rate scenario. However, proactive management of the securities and derivatives portfolios has reduced the ongoing near-term risk to declining market rates and provided significant protection from the decline in rates experienced as the COVID-19 pandemic unfolded. The changes in the estimated NII sensitivity profile compared to December 31, 2019 were primarily attributable to the impact of the current near-zero interest rate environment on the previously discussed interest rate profile and the significant increase in noninterest-bearing and low-cost interest-bearing deposits. The down rate scenarios were also impacted by the higher composition of low-cost deposits hitting their floor rates more quickly in the current-year scenarios due to the low-rate environment.

Tables 62 and 63 provide the sensitivity of the Bancorp’s estimated NII profile at December 31, 2020 to changes to certain deposit balance and deposit repricing sensitivity (betas) assumptions.

The following table includes the Bancorp’s estimated NII sensitivity profile with an immediate $1 billion decrease and an immediate $1 billion increase in demand deposit balances as of December 31, 2020:


TABLE 62: Estimated NII Sensitivity Profile at December 31, 2020 with a $1 Billion Change in Demand Deposit Assumption
	% Change in NII (FTE)
	Immediate $1 Billion Balance Decrease			Immediate $1 Billion Balance Increase
Change in Interest Rates (bps)	12 Months		13-24 Months	12 Months	13-24 Months
+ 200 Ramp over 12 months	2.71	%	7.28	3.15	8.19
+ 100 Ramp over 12 months	1.58		4.72	1.80	5.18
–25 Ramp over 3 months	(1.98)		(2.94)	(1.88)	(2.82)

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The following table includes the Bancorp’s estimated NII sensitivity profile with a 25% increase and a 25% decrease to the corresponding deposit beta assumptions as of December 31, 2020:


TABLE 63: Estimated NII Sensitivity Profile at December 31, 2020 with Deposit Beta Assumptions Changes
	% Change in NII (FTE)
	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 months	(0.95)	%	0.65	6.81	14.81
+ 100 Ramp over 12 months	(0.25)		1.44	3.62	8.46
–25 Ramp over 3 months	(1.80)		(2.77)	(2.08)	(3.01)

*(a)*Includes weighted-average rising-rate and falling-rate interest-bearing deposit betas of 87% and 44%, respectively.

*(b)*Includes weighted-average rising-rate and falling-rate interest-bearing deposit betas of 52% and 27%, respectively..

Economic Value of Equity Sensitivity

The Bancorp also uses EVE as a measurement tool in managing interest rate risk. Whereas the NII sensitivity analysis highlights the impact on forecasted NII on an FTE basis (non-GAAP) over one and two-year time horizons, EVE is a point-in-time analysis of the economic sensitivity of current positions that incorporates all cash flows over their estimated remaining lives. The EVE of the balance sheet is defined as the discounted present value of all asset and net derivative cash flows less the discounted value of all liability cash flows. Due to this longer horizon, the sensitivity of EVE to changes in the level of interest rates is a measure of longer-term interest rate risk. EVE values only the current balance sheet and does not incorporate the balance growth assumptions used in the NII sensitivity analysis. As with the NII simulation model, assumptions about the timing and variability of existing balance sheet cash flows are critical in the EVE analysis. Particularly important are assumptions driving loan and security prepayments and the expected balance attrition and pricing of indeterminate-lived deposits.

The following table shows the Bancorp’s estimated EVE sensitivity profile as of December 31:


TABLE 64: Estimated EVE Sensitivity Profile
	2020			2019
Change in Interest Rates (bps)	% Change in EVE		ALCO Policy Limit	% Change in EVE	ALCO Policy Limit
+ 200 Shock	(0.05)	%	(12.00)	(5.12)	(12.00)
+ 100 Shock	0.64		N/A	(2.01)	N/A
–25 Shock	(0.92)		N/A	N/A	N/A
–150 Shock	N/A		N/A	(6.07)	(12.00)

The EVE sensitivity is neutral in a +200 bps rising-rate scenario at December 31, 2020. The changes in the estimated EVE sensitivity profile from December 31, 2019 were primarily related to the low-rate environment, growth in noninterest-bearing and low-cost interest-bearing deposits and the shorter expected lives of prepayable, fixed-rate assets due to the decrease in market interest rates. These items were partially offset by continued repositioning of the investment portfolio into securities with less principal cash flows in the near term.

While an instantaneous shift in interest rates is used in this analysis to provide an estimate of exposure, the Bancorp believes that a gradual shift in interest rates would have a much more modest impact. Since EVE measures the discounted present value of cash flows over the estimated lives of instruments, the change in EVE does not directly correlate to the degree that earnings would be impacted over a shorter time horizon (e.g., the current fiscal year). Further, EVE does not take into account factors such as future balance sheet growth, changes in product mix, changes in yield curve relationships and changing product spreads that could mitigate or exacerbate the impact of changes in interest rates. The NII simulations and EVE analyses do not necessarily include certain actions that management may undertake to manage risk in response to actual changes in interest rates.

The Bancorp regularly evaluates its exposures to a static balance sheet forecast, LIBOR, Prime Rate and other basis risks, yield curve twist risks and embedded options risks. In addition, the impacts on NII on an FTE basis and EVE of extreme changes in interest rates are modeled, wherein the Bancorp employs the use of yield curve shocks and environment-specific scenarios.

Use of Derivatives to Manage Interest Rate Risk

An integral component of the Bancorp’s interest rate risk management strategy is its use of derivative instruments to minimize significant fluctuations in earnings caused by changes in market interest rates. Examples of derivative instruments that the Bancorp may use as part of its interest rate risk management strategy include interest rate swaps, interest rate floors, interest rate caps, forward contracts, forward starting interest rate swaps, options, swaptions and TBA securities.

Tables 65 and 66 show all swap and floor positions that are utilized for purposes of managing the Bancorp’s exposures to the variability of interest rates. These positions are used to convert the contractual interest rate index of agreed-upon amounts of assets and liabilities (i.e.,

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notional amounts) to another interest rate index or to hedge forecasted transactions for the variability in cash flows attributable to the contractually specified interest rate. The volume, maturity and mix of portfolio swaps change frequently as the Bancorp adjusts its broader interest rate risk management objectives and the balance sheet positions to be hedged. For further information, including the notional amount and fair values of these derivatives, refer to Note 15 of the Notes to Consolidated Financial Statements.

The following tables present additional information about the interest rate swaps and floors used in Fifth Third’s asset and liability management activities:


TABLE 65: Weighted-Average Maturity, Receive Rate and Pay Rate on Qualifying Hedging Instruments
As of December 31, 2020 ($ in millions)	Notional Amount		Fair Value	Remaining (years)	Receive/ Strike Rate		Index
Interest rate swaps – cash flow – receive-fixed	$	8,000	14	3.0	3.02	%	1 ML
Interest rate swaps – fair value – receive-fixed	1,955		528	8.1	5.35		1 ML / 3 ML
Total interest rate swaps	$	9,955	542
Interest rate floors – cash flow – receive-fixed	$	3,000	244	4.0	2.25		1 ML


TABLE 66: Weighted-Average Maturity, Receive Rate and Pay Rate on Qualifying Hedging Instruments
As of December 31, 2019 ($ in millions)	Notional Amount		Fair Value	Remaining (years)	Receive/Strike Rate		Index
Interest rate swaps – cash flow – receive-fixed	$	7,000	(2)	3.9	3.00	%	1 ML
Interest rate swaps – cash flow – receive-fixed – forward starting(a)	1,000		—	5.0	3.20		1 ML
Interest rate swaps – fair value – receive-fixed	2,705		393	6.8	4.41		1 ML / 3 ML
Total interest rate swaps	$	10,705	391
Interest rate floors – cash flow – receive-fixed	$	3,000	115	5.0	2.25		1 ML

*(a)*Forward starting swaps became effective January 2, 2020.

Additionally, as part of its overall risk management strategy relative to its residential mortgage banking activities, the Bancorp enters into forward contracts accounted for as free-standing derivatives to economically hedge IRLCs that are also considered free-standing derivatives. The Bancorp economically hedges its exposure to residential mortgage loans held for sale through the use of forward contracts and mortgage options as well. See the Residential Mortgage Servicing Rights and Price Risk section for the discussion of the use of derivatives to economically hedge this exposure.

The Bancorp also enters into derivative contracts with major financial institutions to economically hedge market risks assumed in interest rate derivative contracts with commercial customers. Generally, these contracts have similar terms in order to protect the Bancorp from market volatility. Credit risk arises from the possible inability of the counterparties to meet the terms of their contracts, which the Bancorp minimizes through collateral arrangements, approvals, limits and monitoring procedures. The Bancorp has risk limits and internal controls in place to help ensure excessive risk is not being taken in providing this service to customers. These controls include an independent determination of interest rate volatility and credit equivalent exposure on these contracts and counterparty credit approvals performed by independent risk management. For further information, including the notional amount and fair values of these derivatives, refer to Note 15 of the Notes to Consolidated Financial Statements.

Portfolio Loans and Leases and Interest Rate Risk

Although the Bancorp’s portfolio loans and leases contain both fixed and floating/adjustable-rate products, the rates of interest earned by the Bancorp on the outstanding balances are generally established for a period of time. The interest rate sensitivity of loans and leases is directly related to the length of time the rate earned is established.

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The following table summarizes the carrying value of the Bancorp’s portfolio loans and leases expected cash flows, excluding interest receivable, as of December 31, 2020:


TABLE 67: Portfolio Loans and Leases Expected Cash Flows(a)
($ in millions)	Less than 1 Year		1-5 Years	Over 5 Years	Total
Commercial and industrial loans	$	23,547	25,118	999	49,665
Commercial mortgage loans	3,973		5,722	907	10,602
Commercial construction loans	2,966		2,737	112	5,815
Commercial leases	829		1,547	539	2,915
Total commercial loans and leases	31,315		35,124	2,557	68,997
Residential mortgage loans(b)	4,009		6,803	5,116	15,928
Home equity	1,421		2,805	957	5,183
Indirect secured consumer loans	4,639		8,160	854	13,653
Credit card	401		1,606	—	2,007
Other consumer loans	1,727		1,123	164	3,014
Total consumer loans	12,197		20,497	7,091	39,785
Total portfolio loans and leases	$	43,512	55,621	9,648	108,782

*(a)*Expected cash flows from portfolio loans and leases do not reflect changes in timing due to hardship programs offered in response to the COVID-19 pandemic which are not expected to be significant.

*(b)*Includes residential mortgage loans previously sold to GNMA for which the Bancorp is deemed to have regained effective control over under ASC Topic 860, but did not exercise its option to repurchase.

The following table displays a summary of expected cash flows, excluding interest receivable, occurring after one year for both fixed and floating/adjustable-rate loans and leases as of December 31, 2020:


TABLE 68: Portfolio Loans and Leases Expected Cash Flows Occurring After One Year(a)
	Interest Rate
($ in millions)	Fixed		Floating or Adjustable
Commercial and industrial loans	$	3,164	22,953
Commercial mortgage loans	1,461		5,168
Commercial construction loans	46		2,803
Commercial leases	2,086		—
Total commercial loans and leases	6,757		30,924
Residential mortgage loans(b)	9,510		2,409
Home equity	370		3,392
Indirect secured consumer loans	9,000		14
Credit card	244		1,362
Other consumer loans	1,018		269
Total consumer loans	20,142		7,446
Total portfolio loans and leases	$	26,899	38,370

Residential Mortgage Servicing Rights and Price Risk

The fair value of the residential MSR portfolio was $656 million and $993 million at December 31, 2020 and December 31, 2019, respectively. The value of servicing rights can fluctuate sharply depending on changes in interest rates and other factors. Generally, as interest rates decline and loans are prepaid to take advantage of refinancing, the total value of existing servicing rights declines because no further servicing fees are collected on repaid loans. The Bancorp maintains a non-qualifying hedging strategy relative to its mortgage banking activity in order to manage a portion of the risk associated with changes in the value of its MSR portfolio as a result of changing interest rates.

Mortgage rates decreased during the years ended December 31, 2020 and 2019 which caused modeled prepayment speeds to rise. The fair value of the MSR portfolio decreased $311 million and $203 million, respectively, due to changes to inputs to the valuation model, including prepayment speeds and OAS assumptions, and decreased $254 million and $173 million, respectively, due to the impact of contractual principal payments and actual prepayment activity for the years ended December 31, 2020 and 2019.

The Bancorp recognized net gains of $309 million and $224 million, respectively, on its non-qualifying hedging strategy during the years ended December 31, 2020 and 2019. These amounts included net gains of $2 million and $3 million during the years ended December 31, 2020 and 2019, respectively, on securities related to the Bancorp’s non-qualifying hedging strategy. The Bancorp may adjust its hedging strategy to reflect its assessment of the composition of its MSR portfolio, the cost of hedging and the anticipated effectiveness of the hedges

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given the economic environment. Refer to Note 14 of the Notes to Consolidated Financial Statements for further discussion on servicing rights and the instruments used to hedge price risk on MSRs.

Foreign Currency Risk

The Bancorp may enter into foreign exchange derivative contracts to economically hedge certain foreign denominated loans. The derivatives are classified as free-standing instruments with the revaluation gain or loss being recorded in other noninterest income in the Consolidated Statements of Income. The balance of the Bancorp’s foreign denominated loans at December 31, 2020 and 2019 was $655 million and $880 million, respectively. The Bancorp also enters into foreign exchange contracts for the benefit of commercial customers to hedge their exposure to foreign currency fluctuations. Similar to the hedging of price risk from interest rate derivative contracts entered into with commercial customers, the Bancorp also enters into foreign exchange contracts with major financial institutions to economically hedge a substantial portion of the exposure from client driven foreign exchange activity. The Bancorp has risk limits and internal controls in place to help ensure excessive risk is not being taken in providing this service to customers. These controls include an independent determination of currency volatility and credit equivalent exposure on these contracts, counterparty credit approvals and country limits performed by independent risk management.

Commodity Risk

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

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LIQUIDITY RISK MANAGEMENT

The goal of liquidity management is to provide adequate funds to meet changes in loan and lease demand, unexpected levels of deposit withdrawals and other contractual obligations. Mitigating liquidity risk is accomplished by maintaining liquid assets in the form of cash and investment securities, maintaining sufficient unused borrowing capacity in the debt markets and delivering consistent growth in core deposits. A summary of certain obligations and commitments to make future payments under contracts is included in Note 19 of the Notes to Consolidated Financial Statements.

The Bancorp’s Treasury department manages funding and liquidity based on point-in-time metrics as well as forward-looking projections, which incorporate different sources and uses of funds under base and stress scenarios. Liquidity risk is monitored and managed by the Treasury department with independent oversight provided by ERM, and a series of Policy Limits and Key Risk Indicators are established to ensure risks are managed within the Bancorp’s risk tolerance. The Bancorp maintains a contingency funding plan that provides for liquidity stress testing, which assesses the liquidity needs under varying market conditions, time horizons, asset growth rates and other events. The contingency plan provides for ongoing monitoring of unused borrowing capacity and available sources of contingent liquidity to prepare for unexpected liquidity needs and to cover unanticipated events that could affect liquidity. The contingency plan also outlines the Bancorp’s response to various levels of liquidity stress and actions that should be taken during various scenarios.

Liquidity risk is monitored and managed for both Fifth Third Bancorp and its subsidiaries. The Bancorp receives substantially all of its liquidity from dividends from its subsidiaries, primarily Fifth Third Bank, National Association. Subsidiary dividends are supplemented with term debt to enable the Bancorp to maintain sufficient liquidity to meet its cash obligations, including debt service and scheduled maturities, common and preferred dividends, unfunded commitments to subsidiaries and other planned capital actions in the form of share repurchases. Liquidity resources are more limited at the Bancorp, making its liquidity position more susceptible to market disruptions. Bancorp liquidity is assessed using a cash coverage horizon, ensuring the entity maintains sufficient liquidity to withstand a period of sustained market disruption while meeting its anticipated obligations over an extended stressed horizon.

The Bancorp’s ALCO, which includes senior management representatives and is accountable to the ERMC, monitors and manages liquidity and funding risk within Board-approved policy limits. In addition to the risk management activities of ALCO, the Bancorp has a liquidity risk management function as part of ERM that provides independent oversight of liquidity risk management.

Sources of Funds

The Bancorp’s primary sources of funds relate to cash flows from loan and lease repayments, payments from securities related to sales and maturities, the sale or securitization of loans and leases and funds generated by core deposits, in addition to the use of public and private debt offerings.

Table 67 of the Interest Rate and Price Risk Management subsection of the Risk Management section of MD&A illustrates the expected maturities from loan and lease repayments. Of the $37.5 billion of securities in the Bancorp’s available-for-sale debt and other securities portfolio at December 31, 2020, $4.6 billion in principal and interest is expected to be received in the next 12 months and an additional $5.0 billion is expected to be received in the next 13 to 24 months. For further information on the Bancorp’s securities portfolio, refer to the Investment Securities subsection of the Balance Sheet Analysis section of MD&A.

Asset-driven liquidity is provided by the Bancorp’s ability to sell or securitize loans and leases. In order to reduce the exposure to interest rate fluctuations and to manage liquidity, the Bancorp has developed securitization and sale procedures for several types of interest-sensitive assets. A majority of the long-term, fixed-rate single-family residential mortgage loans underwritten according to FHLMC or FNMA guidelines are sold for cash upon origination. Additional assets such as certain other residential mortgage loans, certain commercial loans, home equity loans, automobile loans and other consumer loans are also capable of being securitized or sold. The Bancorp sold or securitized loans and leases totaling $12.3 billion during the year ended December 31, 2020 compared to $9.7 billion during the year ended December 31, 2019. For further information, refer to Note 13 and Note 14 of the Notes to Consolidated Financial Statements.

Core deposits have historically provided the Bancorp with a sizeable source of relatively stable and low-cost funds. The Bancorp’s average core deposits and average shareholders’ equity funded 86% and 83% of its average total assets for the years ended December 31, 2020 and 2019, respectively. In addition to core deposit funding, the Bancorp also accesses a variety of other short-term and long-term funding sources, which include the use of the FHLB system. Certificates $100,000 and over and certain deposits in the Bancorp’s foreign branch located in the Cayman Islands are wholesale funding tools utilized to fund asset growth. Management does not rely on any one source of liquidity and manages availability in response to changing balance sheet needs.

As of December 31, 2020, $4.7 billion of debt or other securities were available for issuance under the current Bancorp’s Board of Directors’ authorizations and the Bancorp is authorized to file any necessary registration statements with the SEC to permit ready access to the public securities markets; however, access to these markets may depend on market conditions. During the year ended December 31, 2020, the Bancorp issued and sold $1.25 billion in aggregate principal amount of senior fixed-rate notes and issued in a registered public offering 350,000 depositary shares, representing 14,000 shares of 4.50% fixed-rate reset non-cumulative perpetual preferred stock, Series L, for net proceeds of approximately $346 million.

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As of December 31, 2020, the Bank’s global bank note program had a borrowing capacity of $25.0 billion, of which $19.1 billion was available for issuance. During the year ended December 31, 2020, the Bank issued and sold $1.25 billion in aggregate principal amount of senior fixed-rate notes. Additionally, at December 31, 2020, the Bank had approximately $44.0 billion of borrowing capacity available through secured borrowing sources including the FRB and FHLB.

Current Liquidity Position

The COVID-19 pandemic has significantly impacted the economic environment, although financial markets, initially supported by Federal Reserve programs, have been stable and well-functioning following the onset of the crisis and the early monetary and fiscal response. During 2020, the Bancorp’s core deposit funding increased, while revolving line of credit utilization and portfolio loans and leases decreased. As a result, the Bancorp maintains a strong liquidity profile driven by strong core deposit funding and over $100 billion in current available liquidity. The Bancorp is managing liquidity prudently in the current environment and maintains a liquidity profile focused on core deposit and stable long-term funding sources which allows for the effective management of concentration and rollover risk.

As of December 31, 2020, the Bancorp has sufficient liquidity to meet contractual obligations and all preferred and common dividends without accessing the capital markets or receiving upstream dividends from the Bank subsidiary for 32 months.

Credit Ratings

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

The Bancorp’s and Bank’s credit ratings are summarized in Table 69. The ratings reflect the ratings agency’s view on the Bancorp’s and Bank’s capacity to meet financial commitments.*

*As an investor, you should be aware that a security rating is not a recommendation to buy, sell or hold securities, that it may be subject to revision or withdrawal at any time by the assigning rating organization and that each rating should be evaluated independently of any other rating. Additional information on the credit rating ranking within the overall classification system is located on the website of each credit rating agency.


TABLE 69: Agency Ratings
As of February 26, 2021	Moody’s	Standard and Poor’s	Fitch	DBRS
Fifth Third Bancorp:
Short-term borrowings	No rating	A-2	F1	R-1L
Senior debt	Baa1	BBB+	A-	A
Subordinated debt	Baa1	BBB	BBB+	AL
Fifth Third Bank, National Association:
Short-term borrowings	P-2	A-2	F1	R-1M
Short-term deposit	P-1	No rating	F1	No rating
Long-term deposit	Aa3	No rating	A	AH
Senior debt	A3	A-	A-	AH
Subordinated debt	Baa1	BBB+	BBB+	A
Rating Agency Outlook for Fifth Third Bancorp and Fifth Third Bank, National Association:	Stable	Stable	Negative	Negative

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OPERATIONAL RISK MANAGEMENT

Operational risk is the risk to current or projected financial condition and resilience arising from inadequate or failed internal processes or systems, human errors or misconduct or adverse external events that are neither market- nor credit-related. Operational risk is inherent in the Bancorp’s activities and can manifest itself in various ways, including fraudulent acts, business interruptions, inappropriate behavior of employees, unintentional failure to comply with applicable laws and regulations, poor design or delivery of products and services, cyber-security or physical security incidents and privacy breaches or failure of third parties to perform in accordance with their arrangements. These events could result in financial losses, litigation and regulatory fines, as well as other damage to the Bancorp. The Bancorp’s risk management goal is to keep operational risk at appropriate levels consistent with the Bancorp’s risk appetite, financial strength, the characteristics of its businesses, the markets in which it operates and the competitive and regulatory environment to which it is subject.

To control, monitor and govern operational risk, the Bancorp maintains an overall Risk Management Framework which comprises governance oversight, risk assessment, capital measurement, monitoring and reporting as well as a formal three lines of defense approach. ERM is responsible for prescribing the framework to the lines of business and corporate functions and providing independent oversight of its implementation (second line of defense). Business Controls groups are in place in each of the lines of business to ensure consistent implementation and execution of managing day-to-day operational risk (first line of defense).

The Bancorp’s risk management framework consists of five integrated components, including identifying, assessing, managing, monitoring and independent governance reporting of risk. The corporate Operational Risk Management function within Enterprise Risk is responsible for developing and overseeing the implementation of the Bancorp’s approach to managing operational risk. This includes providing governance, awareness and training, tools, guidance and oversight to support implementation of key risk programs and systems as they relate to operational risk management, such as risk and control self-assessments, new product/initiative risk reviews, key risk indicators, Third-Party Risk Management, cyber-security risk management and review of operational losses. The function is also responsible for developing reports that support the proactive management of operational risk across the enterprise. The lines of business and corporate functions are responsible for managing the operational risks associated with their areas in accordance with the risk management framework. The framework is intended to enable the Bancorp to function with a sound and well-controlled operational environment. These processes support the Bancorp’s goals to minimize future operational losses and strengthen the Bancorp’s performance by maintaining sufficient capital to absorb operational losses that are incurred.

The Bancorp also maintains a robust information security program to support the management of cyber-security risk within the organization with a focus on prevention, detection and recovery processes. Fifth Third utilizes a wide array of techniques to secure its operations and proprietary information such as Board-approved policies and programs, network monitoring and testing, access controls and dedicated security personnel. Fifth Third has adopted the National Institute of Standards and Technology Cybersecurity Framework for the management and deployment of cyber-security controls and is an active participant in the financial sector information sharing organization structure, known as the Financial Services Information Sharing and Analysis Center. To ensure resiliency of key Bancorp functions, Fifth Third also employs redundancy protocols that include a robust business continuity function that works to mitigate any potential impacts to Fifth Third customers and its systems.

Fifth Third also focuses on the reporting and escalation of operational control issues to senior management and the Board of Directors. The Operational Risk Committee is the key committee that oversees and supports Fifth Third in the management of operational risk across the enterprise. The Operational Risk Committee reports to the ERMC, which reports to the Risk and Compliance Joint Committee of the Board of Directors of Fifth Third Bancorp and Fifth Third Bank, National Association.

The COVID-19 pandemic has created heightened operational risks and impacts to the Bancorp, including risks related to new systems and processes to support remote work strategies, new customer hardship programs and functions that cannot be fully executed by outsourced service providers. Additionally, increased external threats have increased fraud and cyber-security risks. These risks continue to be carefully managed and monitored to ensure effective controls are in place, with appropriate oversight and governance by the second line of defense. Fifth Third has a defined pandemic plan and robust business continuity management process, which have been leveraged to support the continuity of processes across the Bank. Fifth Third’s operational risk management team has been actively engaged to oversee and evaluate business changes required to ensure continuity of critical business services with the focus on impacts to customers and Bancorp employees.

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LEGAL AND REGULATORY COMPLIANCE RISK MANAGEMENT

Legal and regulatory compliance risk is the risk of legal or regulatory sanctions, financial loss or damage to reputation as a result of noncompliance with (i) applicable laws, regulations, rules and other regulatory requirements (including but not limited to the risk of consumers experiencing economic loss or other legal harm as a result of noncompliance with consumer protection laws, regulations and requirements); (ii) internal policies and procedures, standards of best practice or codes of conduct; and (iii) principles of integrity and fair dealing applicable to Fifth Third’s activities and functions. Legal risks include the risk of actions against the institution that result in unenforceable contracts, lawsuits, legal sanctions, or adverse judgments, which disrupt or otherwise negatively affect the operations or condition of the institution. Failure to effectively manage such risks can elevate the risk level or manifest itself as other types of key risks, including reputational or operational risk. Fifth Third focuses on managing legal and regulatory compliance risk in accordance with the Bancorp’s integrated risk management framework, which ensures consistent processes for identifying, assessing, managing, monitoring and reporting risks. The Bancorp’s risk management goal is to keep compliance risk at appropriate levels, consistent with the Bancorp’s risk appetite.

To mitigate such risks, Compliance Risk Management provides independent oversight to foster consistency and sufficiency in the execution of the program, and ensures that lines of business and support functions are adequately identifying, assessing and monitoring legal and regulatory compliance risks and adopting proper mitigation strategies. Moreover, such strategies are modified from time to time to respond to new or emerging risks in the environment. Compliance Risk Management and the Legal Division provide guidance to the lines of business and enterprise functions, which are ultimately responsible for managing such risks associated with their areas. The Chief Compliance Officer is responsible for formulating and directing the strategy, development, implementation, communication and maintenance of the Compliance Risk Management program, which implements key compliance processes, including but not limited to, executive- and board-level governance and reporting routines, compliance-related policies, risk assessments, key risk indicators, issues tracking, regulatory change management, and regulatory compliance testing and monitoring. Compliance Risk Management and the Legal Division partner with the Financial Crimes Division to oversee anti-money laundering processes, and Compliance Risk Management also partners with the Community and Economic Development team to oversee the Bancorp’s compliance with the Community Reinvestment Act.

Fifth Third also reports and escalates legal and regulatory compliance issues to senior management and the Board of Directors. The Management Compliance Committee, which is chaired by the Chief Compliance Officer, is the key committee that oversees and supports Fifth Third in the management of compliance risk across the enterprise. The Management Compliance Committee oversees Bancorp-wide compliance issues, industry best practices, legislative developments, regulatory concerns and other leading indicators of legal and regulatory compliance risk. The Management Compliance Committee reports to the ERMC, which reports to the Risk and Compliance Joint Committee of the Board of Directors of Fifth Third Bancorp and Fifth Third Bank, National Association.

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CAPITAL MANAGEMENT

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

Regulatory Capital Ratios

The Basel III Final Rule sets minimum regulatory capital ratios as well as defines the measure of “well-capitalized” for insured depository institutions.


TABLE 70: Prescribed Capital Ratios
	Minimum		Well-Capitalized
CET1 capital:
Fifth Third Bancorp	4.50	%	N/A
Fifth Third Bank, National Association	4.50		6.50
Tier I risk-based capital:
Fifth Third Bancorp	6.00		6.00
Fifth Third Bank, National Association	6.00		8.00
Total risk-based capital:
Fifth Third Bancorp	8.00		10.00
Fifth Third Bank, National Association	8.00		10.00
Tier I leverage:
Fifth Third Bancorp	4.00		N/A
Fifth Third Bank, National Association	4.00		5.00

The Bancorp was subject to a capital conservation buffer of 2.5%, in addition to the minimum capital ratios, in order to avoid limitations on certain capital distributions and discretionary bonus payments to executive officers through September 30, 2020. On October 1, 2020, the Bancorp became subject to the stress capital buffer requirement which replaced the capital conservation buffer. During each supervisory stress testing cycle, the FRB uses the Bancorp’s supervisory stress test to determine its stress capital buffer, subject to a floor of 2.5%. On August 7, 2020, the FRB provided the Bancorp a final stress capital buffer requirement of 2.5% which is effective for the period of October 1, 2020 to September 30, 2021. After evaluating the Bancorp’s capital plan which was re-submitted on November 5, 2020, the FRB may update the Bancorp’s stress capital buffer until March 31, 2021. The Bancorp exceeded these “capital conservation buffer” and “stress capital buffer” ratios for all periods presented.

In April 2018, the federal banking regulators proposed transitional arrangements to permit banking organizations to phase in the day-one impact of the adoption of ASU 2016-13, referred to as CECL, on regulatory capital over a period of three years. The proposed rule was adopted as final effective July 1, 2019. The phase-in provisions of the final rule are optional for a banking organization that experiences a reduction in retained earnings due to CECL adoption as of the beginning of the fiscal year in which the banking organization adopts CECL. A banking organization that elects the phase-in provisions of the final rule for regulatory capital purposes must phase in 25% of the transitional amounts impacting regulatory capital in the first year of adoption of CECL, 50% in the second year, 75% in the third year, with full impact beginning in the fourth year.

In March 2020, the banking agencies issued an interim final rule for additional transitional relief to regulatory capital related to the impact of the adoption of CECL given the disruption in economic activity caused by the COVID-19 pandemic. The interim final rule provides banking organizations that adopt CECL in the 2020 calendar year with the option to delay for two years the estimated impact of CECL on regulatory capital, followed by the aforementioned three-year transition period to phase out the aggregate amount of benefit during the initial two-year delay for a total five-year transition. The estimated impact of CECL on regulatory capital (modified CECL transitional amount) is calculated as the sum of the day-one impact on retained earnings upon adoption of CECL (CECL transitional amount) and the calculated change in the ACL relative to the day-one ACL upon adoption of CECL multiplied by a scaling factor of 25%. The scaling factor is used to approximate the difference in the ACL under CECL relative to the incurred loss methodology. The modified CECL transitional amount will be calculated each quarter for the first two years of the five-year transition. The amount of the modified CECL transition amount will be fixed as of December 31, 2021 and that amount will be subject to the three-year phase out.

The Bancorp adopted ASU 2016-13 on January 1, 2020 and elected the five-year transition phase-in option for the impact of CECL on regulatory capital with its regulatory filings as of March 31, 2020. The impact of the modified CECL transition amount on the Bancorp’s regulatory capital at December 31, 2020 was an increase in capital of approximately $630 million. On a fully phased-in basis, the Bancorp’s CET1 ratio would be reduced by 39 basis points as of December 31, 2020. For additional information on ASU 2016-13, refer to Note 1 of the Notes to Consolidated Financial Statements.

On July 22, 2019, the federal banking regulators published the Regulatory Capital Simplification final rule in the Federal Register. Under the final rule, non-advanced approach banks, such as the Bancorp, will be subject to simpler regulatory capital requirements for mortgage

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servicing assets, certain deferred tax assets arising from temporary differences and investments in the capital of unconsolidated financial institutions than those currently applied. The final rule increases the deduction threshold for mortgage servicing assets, certain deferred tax assets arising from temporary differences and investments in the capital of unconsolidated financial institutions from 10% to 25% of CET1, but increases the risk-weighted assets percentage for the non-deducted elements from 100% to 250%. The final rule pertaining to these regulatory capital elements was effective on April 1, 2020.

The following table summarizes the Bancorp’s capital ratios as of December 31:


TABLE 71: Capital Ratios
($ in millions)	2020			2019	2018	2017	2016
Average total Bancorp shareholders’ equity as a percent of average assets	11.61		%	12.14	11.23	11.69	11.57
Tangible equity as a percent of tangible assets(a)(c)(d)	8.18			9.52	9.63	9.79	9.72
Tangible common equity as a percent of tangible assets(a)(c)(d)	7.11			8.44	8.71	8.83	8.77
Regulatory capital:
CET1 capital(b)	$	14,682		13,847	12,534	12,517	12,426
Tier I capital(b)	16,797			15,616	13,864	13,848	13,756
Total regulatory capital(b)	21,412			19,661	17,723	17,887	17,972
Risk-weighted assets	141,974			142,065	122,432	117,997	119,632
Regulatory capital ratios:(b)
CET1 capital	10.34		%	9.75	10.24	10.61	10.39
Tier I risk-based capital	11.83			10.99	11.32	11.74	11.50
Total risk-based capital	15.08			13.84	14.48	15.16	15.02
Tier I leverage(d)	8.49			9.54	9.72	10.01	9.90

*(a)*These are non-GAAP measures. For further information, refer to the Non-GAAP Financial Measures section of MD&A.

*(b)*Regulatory capital ratios as of December 31, 2020 are calculated pursuant to the five-year transition provision option to phase in the effects of CECL on regulatory capital.

*(c)*Excludes AOCI.

*(d)*The decrease in these capital ratios is primarily attributable to the Bancorp’s growth of assets during the year ended December 31, 2020.

Capital Planning

In 2011, the FRB adopted the capital plan rule, which requires BHCs with consolidated assets of $50 billion or more to submit annual capital plans to the FRB for review. Under the rule, these capital plans must include detailed descriptions of the following: the BHC’s internal processes for assessing capital adequacy; the policies governing capital actions such as common stock issuances, dividends and share repurchases; and all planned capital actions over a nine-quarter planning horizon. Furthermore, each BHC must report to the FRB the results of stress tests conducted by the BHC under a number of scenarios that assess the sources and uses of capital under baseline and stressed economic conditions.

On October 10, 2019, the Federal Reserve Board adopted final rules to tailor certain prudential standards for large domestic and foreign banking organizations. As a result of the EPS Tailoring Rule, the Bancorp is subject to category IV standards, under which the Bancorp is no longer required to file semi-annual, company-run stress tests with the FRB and publicly disclose the results. As an institution subject to category IV standards, the Bancorp is subject to the FRB’s supervisory stress tests every two years, the Board capital plan rule and FR Y-14 reporting requirements. The supervisory stress tests are forward-looking quantitative evaluations of the impact of stressful economic and financial market conditions on the Bancorp's capital. The Bancorp became subject to category IV standards on December 31, 2019, and the requirements outlined above apply to the stress test cycle that started on January 1, 2020. As noted above, the Bancorp remains subject to the Board’s capital plan rule, and its requirement to develop and maintain a capital plan, and the Board of Directors of the Bancorp must review and approve the capital plan.

On March 4, 2020, the Bancorp was informed by the FRB that the deadline to submit the required information related to its capital plan within the FR Y-14A was extended until April 5, 2021, with the exception of the information contained in Schedule C – Regulatory Capital Instruments. The information contained in Schedule C remained due on or before April 6, 2020, which the Bancorp submitted as required.

In June 2019, the Bancorp announced its capital distribution capacity of approximately $2 billion for the period of July 1, 2019 through June 30, 2020. This included the ability to execute share repurchases up to $1.24 billion as well as increase quarterly common stock dividends by up to $0.03 per share. These distributions were governed under the FRB’s 2019 extended stress test process for BHCs with less than $250 billion of total consolidated assets. On March 16, 2020, the Bancorp announced it was temporarily suspending share repurchases that it had capacity to execute under the 2019 CCAR plan. The decision on share repurchases is consistent with Fifth Third’s objective to use the Bancorp’s capital and liquidity to provide support to individuals, businesses and the broader economy through lending and other important services. Fifth Third did not execute any open market or accelerated share repurchases in 2020.

In June 2020, the FRB took several actions in connection with its announcement of stress test results in light of the uncertainty caused by the COVID-19 pandemic. Specifically, for the third quarter of 2020, the FRB required large banking organizations, including the Bancorp, to

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suspend share repurchases, cap dividend payments to the amount paid during the second quarter of 2020, and further limit dividends according to a formula based on recent income. The FRB also required large banking organizations, including the Bancorp, to reevaluate their longer-term capital plans, and such organizations will be required to update and resubmit their capital plans later this year to reflect current stresses caused by the COVID-19 pandemic. The FRB may conduct additional analysis each quarter to determine if adjustments to this response are appropriate.

In September 2020, the Bancorp was informed by the FRB that the capital plan resubmission due date was November 2, 2020, which the Bancorp submitted, as required. Additionally, on September 30, 2020 the FRB extended the third quarter of 2020 restrictions on share repurchases and dividends to the fourth quarter of 2020, and dividends remained limited according to a formula based on recent income.

In December 2020, in connection with its announcement of the stress test resubmission results, the FRB extended the fourth quarter of 2020 restrictions on share repurchases and dividends to the first quarter of 2021, with modifications. Specifically, the Bancorp is authorized to pay dividends and execute share repurchases according to a formula based on recent income provided the Bancorp does not increase the amount of its dividend. For further information on a subsequent event related to an accelerated share repurchase transaction, refer to Note 33 of the Notes to Consolidated Financial Statements.

Preferred Stock Transactions

For more information on the preferred stock offering, including disclosure on the redemption options, refer to Note 25 of the Notes to Consolidated Financial Statements.

Dividend Policy and Stock Repurchase Program

The Bancorp’s common stock dividend policy and stock repurchase program reflect its earnings outlook, desired payout ratios, the need to maintain adequate capital levels, the ability of its subsidiaries to pay dividends and the need to comply with safe and sound banking practices as well as meet regulatory requirements and expectations. The Bancorp declared dividends per common share of $1.08 and $0.94 during the years ended December 31, 2020 and 2019, respectively.

The following table summarizes shares authorized for repurchase as part of publicly announced plans or programs:


TABLE 72: Share Repurchases
For the years ended December 31	2020		2019
Shares authorized for repurchase at January 1	76,437,348		60,564,282
Additional authorizations	—		80,474,957
Share repurchases(a)	—		(64,601,891)
Shares authorized for repurchase at December 31	76,437,348		76,437,348
Average price paid per share(a)	$	—	26.05

*(a)*Excludes 1,915,872 and 2,693,318 shares repurchased during the years ended December 31, 2020 and 2019, respectively, in connection with various employee compensation plans. These purchases are not included in the calculation for average price paid per share and do not count against the maximum number of shares that may yet be repurchased under the Board of Directors’ authorization.

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OFF-BALANCE SHEET ARRANGEMENTS

In the ordinary course of business, the Bancorp enters into financial transactions that are considered off-balance sheet arrangements as they involve varying elements of interest rate, price, credit and liquidity risk in excess of the amounts recognized in the Bancorp’s Consolidated Balance Sheets. The Bancorp’s off-balance sheet arrangements include commitments, contingent liabilities, guarantees and transactions with non-consolidated VIEs. A brief discussion of these transactions is as follows:

Commitments

The Bancorp has certain commitments to make future payments under contracts, including commitments to extend credit, forward contracts related to residential mortgage loans held for sale, letters of credit, purchase obligations, capital commitments for private equity investments and capital expenditures. Refer to Note 19 of the Notes to Consolidated Financial Statements for additional information on commitments.

Contingent Liabilities and Guarantees

The Bancorp has performance obligations upon the occurrence of certain events provided in certain contractual arrangements, including residential mortgage loans sold with representation and warranty provisions. Refer to Note 19 of the Notes to Consolidated Financial Statements for additional information on contingent liabilities and guarantees.

Transactions with Non-consolidated VIEs

The Bancorp engages in a variety of activities that involve VIEs, which are legal entities that lack sufficient equity to finance their activities, or the equity investors of the entities as a group lack any of the characteristics of a controlling interest. The investments in those entities in which the Bancorp was determined not to be the primary beneficiary but holds a variable interest in the entity are accounted for under the equity method of accounting or other accounting standards as appropriate and not consolidated. Refer to Note 13 of the Notes to Consolidated Financial Statements for additional information on non-consolidated VIEs.

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CONTRACTUAL OBLIGATIONS AND OTHER COMMITMENTS

The Bancorp has certain obligations and commitments to make future payments under contracts. The aggregate contractual obligations and commitments at December 31, 2020 are shown in Table 73. As of December 31, 2020, the Bancorp had unrecognized tax benefits that, if recognized, would impact the effective tax rate in future periods. Due to the uncertainty of the amounts to be ultimately paid as well as the timing of such payments, all uncertain tax liabilities that have not been paid have been excluded from the following table. For further detail on the impact of income taxes, refer to Note 22 of the Notes to Consolidated Financial Statements.


TABLE 73: Contractual Obligations and Other Commitments
As of December 31, 2020 ($ in millions)	Less than 1 year		1-3 years	3-5 years	Greater than 5 years	Total
Contractually obligated payments due by period:
Deposits with no stated maturity(a)(b)	$	154,032	—	—	—	154,032
Long-term debt(a)(c)	3,162		3,164	3,997	4,650	14,973
Time deposits(a)(d)	4,413		483	132	21	5,049
Forward contracts related to residential mortgage loans held for sale(f)	2,903		—	—	—	2,903
Short-term borrowings(a)(e)	1,492		—	—	—	1,492
Operating lease obligations(g)	86		155	123	246	610
Partnership investment commitments(h)	223		188	30	37	478
Purchase obligations and capital expenditures(j)	76		135	59	—	270
Finance lease obligations(g)	18		35	27	78	158
Pension benefit payments(i)	18		35	34	66	153
Total contractually obligated payments due by period	$	166,423	4,195	4,402	5,098	180,118
Other commitments by expiration period:
Commitments to extend credit(k)	$	26,372	23,567	16,997	7,646	74,582
Letters of credit(l)	1,098		565	318	1	1,982
Total other commitments by expiration period	$	27,470	24,132	17,315	7,647	76,564

*(a)*Interest-bearing obligations are principally used to fund interest-earning assets. Interest charges on contractual obligations were excluded from reported amounts, as the potential cash outflows would have corresponding cash inflows from interest-earning assets.

*(b)*Includes demand, interest checking, savings, money market and foreign office deposits. For additional information, refer to the Deposits subsection of the Balance Sheet Analysis section of MD&A.

*(c)*Includes debt obligations with an original maturity of greater than one year. Refer to Note 18 of the Notes to Consolidated Financial Statements for additional information on these debt instruments.

*(d)*Includes other time deposits and certificates $100,000 and over. For additional information, refer to the Deposits subsection of the Balance Sheet Analysis section of MD&A.

*(e)*Includes federal funds purchased and borrowings with an original maturity of less than one year. For additional information, refer to Note 17 of the Notes to Consolidated Financial Statements.

*(f)*Refer to Note 15 of the Notes to Consolidated Financial Statements for additional information on forward contracts to sell residential mortgage loans.

*(g)*Refer to Note 10 of the Notes to Consolidated Financial Statements for additional information on lease obligations.

*(h)*Includes LIHTC investments. For additional information, refer to Note 13 of the Notes to Consolidated Financial Statements.

*(i)*Refer to Note 23 of the Notes to Consolidated Financial Statements for additional information on pension obligations.

*(j)*Represents agreements to purchase goods or services and includes commitments to various general contractors for work related to banking center construction.

*(k)*Commitments to extend credit are agreements to lend, typically having fixed expiration dates or other termination clauses that may require payment of a fee. Many of the commitments to extend credit may expire without being drawn upon. The total commitment amounts include capital commitments for private equity investments and do not necessarily represent future cash flow requirements. For additional information, refer to Note 19 of the Notes to Consolidated Financial Statements.

*(l)*Letters of credit are conditional commitments issued to guarantee the performance of a customer to a third party. For additional information, refer to Note 19 of the Notes to Consolidated Financial Statements.

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