Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

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Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

128 Fifth Third Bancorp

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the shareholders and the Board of Directors of Fifth Third Bancorp:

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Fifth Third Bancorp and subsidiaries (the “Bancorp”) as of December 31, 2020 and 2019, the related consolidated statements of income, comprehensive income, changes in equity, and cash flows for each of the three years in the period ended December 31, 2020, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Bancorp as of December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2020, in conformity with accounting principles generally accepted in the United States of America.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Bancorp’s internal control over financial reporting as of December 31, 2020, based on the criteria established in Internal Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 26, 2021 expressed an unqualified opinion on the Bancorp’s internal control over financial reporting.

Change in Accounting Principle

As discussed in Note 1 to the Consolidated Financial Statements, the Bancorp has changed its method of accounting for financial assets measured at amortized cost in 2020 due to adoption of ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.

Basis for Opinion

These financial statements are the responsibility of the Bancorp’s management. Our responsibility is to express an opinion on the Bancorp’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Bancorp in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Allowance for Loan and Lease Losses (“ALLL”) — Qualitative Factors — Commercial Loans—Refer to Note 1 and Note 7 of the Notes to Consolidated Financial Statements

Critical Audit Matter Description

The Bancorp maintains the ALLL to absorb the amount of credit losses that are expected to be incurred over the remaining contractual terms of the related loans and leases. The Bancorp’s methodology for determining the ALLL includes an estimate of expected credit losses on a collective basis for groups of loans and leases with similar risk characteristics and specific allowances for loans and leases which are individually evaluated.

For loans that are not individually evaluated, the Bancorp develops its estimate of expected credit losses using quantitative models, subject to certain qualitative adjustments. The expected credit loss models consider historical credit loss experience, current market and economic conditions, and forecasted changes in market and economic conditions to the extent such forecasts are considered reasonable and supportable.

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Qualitative factors are used to capture characteristics in the portfolio that impact expected credit losses but that are not fully captured within the Bancorp’s quantitative models.

At December 31, 2020, the key qualitative factors included adjustments associated with the current economic environment and the COVID-19 pandemic. These qualitative factors address the incremental loss exposures relating to commercial borrowers in certain industries which have been severely impacted by the COVID-19 pandemic or are otherwise experiencing prolonged distress. The qualitative factors also include an adjustment to address the impact of unemployment metrics on the expected credit loss models.

The ALLL for the commercial portfolio segment was $1.5 billion at December 31, 2020, which includes adjustments for the qualitative factors noted above.

Considering the estimation and judgment in determining adjustments for such qualitative factors, our audit of the ALLL and the related disclosures involved subjective judgment about the qualitative adjustments to the commercial portfolio segment ALLL.

How the Critical Audit Matter Was Addressed in the Audit

Our audit procedures related to the qualitative adjustments for the commercial portfolio segment ALLL included the following, among others:

We tested the effectiveness of the Bancorp’s controls over the qualitative adjustments to the ALLL.
We assessed the reasonableness of, and evaluated support for, key qualitative adjustments based on market conditions, external market data and commercial portfolio performance metrics.
We tested the completeness and accuracy and evaluated the relevance of the key data used as inputs to the direct impact qualitative adjustment estimation process, including:

◦Portfolio segment loan balances and other borrower-specific data

◦Relevant macroeconomic indicators and data

With the assistance of our credit specialists, we evaluated the methodology and tested the mathematical accuracy of the underlying support used as a basis for the qualitative adjustments.

/s/ Deloitte & Touche LLP

Cincinnati, Ohio

February 26, 2021

We have served as the Company’s auditor since 1970.

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CONSOLIDATED BALANCE SHEETS


As of December 31 ($ in millions, except share data)	2020		2019
Assets
Cash and due from banks	$	3,147	3,278
Other short-term investments(a)	33,399		1,950
Available-for-sale debt and other securities(b)	37,513		36,028
Held-to-maturity securities(c)	11		17
Trading debt securities	560		297
Equity securities	313		564
Loans and leases held for sale(d)	4,741		1,400
Portfolio loans and leases(a)(e)	108,782		109,558
Allowance for loan and lease losses(a)	(2,453)		(1,202)
Portfolio loans and leases, net	106,329		108,356
Bank premises and equipment(f)	2,088		1,995
Operating lease equipment	777		848
Goodwill	4,258		4,252
Intangible assets	139		201
Servicing rights	656		993
Other assets(a)	10,749		9,190
Total Assets	$	204,680	169,369
Liabilities
Deposits:
Noninterest-bearing deposits	$	57,711	35,968
Interest-bearing deposits(g)	101,370		91,094
Total deposits	159,081		127,062
Federal funds purchased	300		260
Other short-term borrowings	1,192		1,011
Accrued taxes, interest and expenses	2,614		2,441
Other liabilities(a)	3,409		2,422
Long-term debt(a)	14,973		14,970
Total Liabilities	$	181,569	148,166
Equity
Common stock(h)	$	2,051	2,051
Preferred stock(i)	2,116		1,770
Capital surplus	3,635		3,599
Retained earnings	18,384		18,315
Accumulated other comprehensive income	2,601		1,192
Treasury stock(h)	(5,676)		(5,724)
Total Equity	$	23,111	21,203
Total Liabilities and Equity	$	204,680	169,369

*(a)*Includes $55 and $74 of other short-term investments, $756 and $1,354 of portfolio loans and leases, $(7) and $(7) of ALLL, $5 and $8 of other assets, $2 and $2 of other liabilities and $656 and $1,253 of long-term debt from consolidated VIEs that are included in their respective captions above at December 31, 2020 and 2019, respectively. For further information, refer to Note 13.

*(b)*Amortized cost of $34,982 and $34,966 at December 31, 2020 and 2019, respectively.

*(c)*Fair value of $11 and $17 at December 31, 2020 and 2019, respectively.

*(d)*Includes $1,481 and $1,264 of residential mortgage loans held for sale measured at fair value at December 31, 2020 and 2019, respectively.

*(e)*Includes $161 and $183 of residential mortgage loans measured at fair value at December 31, 2020 and 2019, respectively.

*(f)*Includes $35 and $27 of bank premises and equipment held for sale at December 31, 2020 and 2019, respectively. For further information, refer to Note 8.

*(g)*Includes $351 of interest checking deposits held for sale at December 31, 2020.

*(h)*Common shares: Stated value $2.22 per share; authorized 2,000,000,000; outstanding at December 31, 2020 – 712,760,325 (excludes 211,132,256 treasury shares), 2019 – 708,915,629 (excludes 214,976,952 treasury shares).

*(i)*500,000 shares of no par value preferred stock were authorized at both December 31, 2020 and 2019. There were 422,000 and 436,000 unissued shares of undesignated no par value preferred stock at December 31, 2020 and 2019, respectively. Each issued share of no par value preferred stock has a liquidation preference of $25,000. 500,000 shares of no par value Class B preferred stock were authorized at both December 31, 2020 and 2019. There were 300,000 unissued shares of undesignated no par value Class B preferred stock at both December 31, 2020 and 2019. Each issued share of no par value Class B preferred stock has a liquidation preference of $1,000.

Refer to the Notes to Consolidated Financial Statements.

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CONSOLIDATED STATEMENTS OF INCOME


For the years ended December 31 ($ in millions, except share data)	2020		2019	2018
Interest Income
Interest and fees on loans and leases	$	4,424	5,051	4,078
Interest on securities	1,119		1,162	1,080
Interest on other short-term investments	29		41	25
Total interest income	5,572		6,254	5,183
Interest Expense
Interest on deposits	322		892	538
Interest on federal funds purchased	2		29	30
Interest on other short-term borrowings	14		28	29
Interest on long-term debt	452		508	446
Total interest expense	790		1,457	1,043
Net Interest Income	4,782		4,797	4,140
Provision for credit losses	1,097		471	207
Net Interest Income After Provision for Credit Losses	3,685		4,326	3,933
Noninterest Income(a)
Service charges on deposits	559		565	549
Commercial banking revenue	528		460	408
Wealth and asset management revenue	520		487	444
Card and processing revenue	352		360	329
Mortgage banking net revenue	320		287	212
Leasing business revenue	276		270	114
Other noninterest income	211		1,064	803
Securities gains (losses), net	62		40	(54)
Securities gains (losses), net - non-qualifying hedges on mortgage servicing rights	2		3	(15)
Total noninterest income	2,830		3,536	2,790
Noninterest Expense(a)
Compensation and benefits	2,590		2,418	2,115
Technology and communications	362		422	285
Net occupancy expense	350		332	292
Leasing business expense	140		133	76
Equipment expense	130		129	123
Card and processing expense	121		130	123
Marketing expense	104		162	147
Other noninterest expense	921		934	797
Total noninterest expense	4,718		4,660	3,958
Income Before Income Taxes	1,797		3,202	2,765
Applicable income tax expense	370		690	572
Net Income	1,427		2,512	2,193
Dividends on preferred stock	104		93	75
Net Income Available to Common Shareholders	$	1,323	2,419	2,118
Earnings per share - basic	$	1.84	3.38	3.11
Earnings per share - diluted	$	1.83	3.33	3.06
Average common shares outstanding - basic	714,729,585		710,433,611	673,346,168
Average common shares outstanding - diluted	719,735,415		720,065,498	685,488,498

*(a)*During the first quarter of 2020, certain noninterest income and noninterest expense line items were reclassified to better align disclosures to business activities. These reclassifications were retrospectively applied to all prior periods presented. Total noninterest income and noninterest expense did not change as a result of these reclassifications.

Refer to the Notes to Consolidated Financial Statements.

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CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME


For the years ended December 31 ($ in millions)	2020		2019	2018
Net Income	$	1,427	2,512	2,193
Other Comprehensive Income (Loss), Net of Tax:
Unrealized gains (losses) on available-for-sale debt securities:
Unrealized holding gains (losses) arising during the year	1,153		1,046	(371)
Reclassification adjustment for net (gains) losses included in net income	(34)		(7)	9
Unrealized gains on cash flow hedge derivatives:
Unrealized holding gains arising during the year	483		275	169
Reclassification adjustment for net (gains) losses included in net income	(187)		(13)	2
Defined benefit pension plans, net:
Net actuarial (loss) gain arising during the year	(9)		(5)	1
Reclassification of amounts to net periodic benefit costs	7		8	7
Other	(4)		—	—
Other comprehensive income (loss), net of tax	1,409		1,304	(183)
Comprehensive Income	$	2,836	3,816	2,010

Refer to the Notes to Consolidated Financial Statements.

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CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY


	Bancorp Shareholders’ Equity
($ in millions, except per share data)	Common Stock		Preferred Stock	Capital Surplus	Retained Earnings	Accumulated Other Comprehensive Income (Loss)	Treasury Stock	Total Bancorp Shareholders’ Equity	Non- Controlling Interests	Total Equity
Balance at December 31, 2017	$	2,051	1,331	2,790	14,957	73	(5,002)	16,200	20	16,220
Impact of cumulative effect of change in accounting principle					6	(2)		4		4
Balance at January 1, 2018	$	2,051	1,331	2,790	14,963	71	(5,002)	16,204	20	16,224
Net income					2,193			2,193		2,193
Other comprehensive loss, net of tax						(183)		(183)		(183)
Cash dividends declared:
Common stock ($0.74 per share)					(499)			(499)		(499)
Preferred stock:(a)
Series H ($1,275.00 per share)					(30)			(30)		(30)
Series I ($1,656.24 per share)					(30)			(30)		(30)
Series J ($1,225.00 per share)					(15)			(15)		(15)
Shares acquired for treasury				41			(1,494)	(1,453)		(1,453)
Impact of stock transactions under stock compensation plans, net				42			23	65		65
Other					(4)		2	(2)	(20)	(22)
Balance at December 31, 2018	$	2,051	1,331	2,873	16,578	(112)	(6,471)	16,250	—	16,250
Impact of cumulative effect of change in accounting principle					10			10		10
Balance at January 1, 2019	$	2,051	1,331	2,873	16,588	(112)	(6,471)	16,260	—	16,260
Net income					2,512			2,512		2,512
Other comprehensive income, net of tax						1,304		1,304		1,304
Cash dividends declared:
Common stock ($0.94 per share)					(691)			(691)		(691)
Preferred stock:(a)
Series H ($1,275.00 per share)					(30)			(30)		(30)
Series I ($1,656.24 per share)					(30)			(30)		(30)
Series J ($1,559.42 per share)					(19)			(19)		(19)
Series K ($357.50 per share)					(4)			(4)		(4)
Class B, Series A ($20.83 per share)					(4)			(4)		(4)
Other(b) ($30.00 per share)					(6)			(6)		(6)
Shares acquired for treasury							(1,763)	(1,763)		(1,763)
Issuance of preferred stock			242					242		242
Conversion of outstanding preferred stock issued by a Bancorp subsidiary			197					197	(197)	—
Impact of MB Financial, Inc. acquisition				712			2,447	3,159	197	3,356
Impact of stock transactions under stock compensation plans, net				14	2		56	72		72
Other					(3)		7	4		4
Balance at December 31, 2019	$	2,051	1,770	3,599	18,315	1,192	(5,724)	21,203	—	21,203

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CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (continued)


	Bancorp Shareholders’ Equity
($ in millions, except per share data)	Common Stock		Preferred Stock	Capital Surplus	Retained Earnings	Accumulated Other Comprehensive Income	Treasury Stock	Total Bancorp Shareholders’ Equity	Non- Controlling Interests	Total Equity
Balance at December 31, 2019	$	2,051	1,770	3,599	18,315	1,192	(5,724)	21,203	—	21,203
Impact of cumulative effect of change in accounting principle(c)					(472)			(472)		(472)
Balance at January 1, 2020	$	2,051	1,770	3,599	17,843	1,192	(5,724)	20,731	—	20,731
Net income					1,427			1,427		1,427
Other comprehensive income, net of tax						1,409		1,409		1,409
Cash dividends declared:
Common stock ($1.08 per share)					(780)			(780)		(780)
Preferred stock:(a)
Series H ($1,275.00 per share)					(31)			(31)		(31)
Series I ($1,656.24 per share)					(30)			(30)		(30)
Series J ($1,043.48 per share)					(12)			(12)		(12)
Series K ($1,237.52 per share)					(12)			(12)		(12)
Series L ($468.75 per share)					(7)			(7)		(7)
Class B, Series A ($60.00 per share)					(12)			(12)		(12)
Issuance of preferred stock			346					346		346
Impact of stock transactions under stock compensation plans, net				36			46	82		82
Other					(2)		2	—		—
Balance at December 31, 2020	$	2,051	2,116	3,635	18,384	2,601	(5,676)	23,111	—	23,111

*(a)*Refer to Note 25 for further information on dividends declared for preferred stock.

*(b)*Dividends declared for Perpetual Preferred Stock, Series C, of MB Financial, Inc., previously a subsidiary of the Bancorp.

*(c)*Related to the adoption of ASU 2016-13 as of January 1, 2020. Refer to Note 1 for additional information.

Refer to the Notes to Consolidated Financial Statements.

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CONSOLIDATED STATEMENTS OF CASH FLOWS


For the years ended December 31 ($ in millions)	2020		2019	2018
Operating Activities
Net income	$	1,427	2,512	2,193
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for credit losses	1,097		471	207
Depreciation, amortization and accretion	492		472	360
Stock-based compensation expense	123		132	127
(Benefit from) provision for deferred income taxes	(162)		(246)	30
Securities (gains) losses, net	(69)		(50)	69
MSR fair value adjustment	565		376	83
Net gains on sales of loans and fair value adjustments on loans held for sale	(291)		(137)	(71)
Net losses on disposition and impairment of bank premises and equipment	31		23	43
Net (gains) losses on disposition and impairment of operating lease equipment	(5)		1	(6)
Gain related to Vantiv, Inc.’s acquisition of Worldpay Group plc.	—		—	(414)
Gain on sale of Worldpay, Inc. shares	—		(562)	(205)
Gain on the TRA associated with Worldpay, Inc.	(74)		(346)	(20)
Proceeds from sales of loans held for sale	12,481		8,157	5,199
Loans originated or purchased for sale, net of repayments	(14,767)		(8,896)	(5,378)
Dividends representing return on equity investments	17		66	12
Net change in:
Equity and trading debt securities	12		(29)	132
Other assets	(855)		20	303
Accrued taxes, interest and expenses and other liabilities	349		(140)	192
Net Cash Provided by Operating Activities	371		1,824	2,856
Investing Activities
Proceeds from sales:
AFS securities and other investments	1,743		10,596	12,430
Loans and leases	157		259	305
Bank premises and equipment	33		90	57
Proceeds from repayments / maturities of AFS and HTM securities and other investments	3,646		2,271	1,851
Purchases:
AFS securities and other investments	(5,266)		(13,959)	(16,207)
Bank premises and equipment	(305)		(243)	(192)
MSRs	(44)		(26)	(82)
Proceeds from settlement of BOLI	19		28	16
Proceeds from sales and dividends representing return of equity investments	69		1,057	604
Net cash (paid) received for acquisitions and divestitures	(4)		1,210	(43)
Net change in:
Other short-term investments and federal funds sold	(31,446)		(612)	928
Portfolio loans and leases	(451)		(1,407)	(3,866)
Operating lease equipment	(53)		(61)	58
Net Cash Used in Investing Activities	(31,902)		(797)	(4,141)
Financing Activities
Net change in deposits	32,019		3,742	5,673
Net change in other short-term borrowings and federal funds purchased	182		(1,494)	(1,688)
Dividends paid on common and preferred stock	(858)		(753)	(565)
Proceeds from issuance of long-term debt	2,557		3,866	2,438
Repayment of long-term debt	(2,799)		(4,212)	(2,884)
Repurchases of treasury stock and related forward contract	—		(1,763)	(1,453)
Issuance of preferred stock	346		242	—
Other	(47)		(58)	(69)
Net Cash Provided by (Used in) Financing Activities	31,400		(430)	1,452
(Decrease) Increase in Cash and Due from Banks	(131)		597	167
Cash and Due from Banks at Beginning of Period	3,278		2,681	2,514
Cash and Due from Banks at End of Period	$	3,147	3,278	2,681

Refer to the Notes to Consolidated Financial Statements. Note 2 contains cash payments related to interest and income taxes in addition to non-cash investing and financing activities.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. Summary of Significant Accounting and Reporting Policies

Nature of Operations

Fifth Third Bancorp, an Ohio corporation, conducts its principal lending, deposit gathering, transaction processing and service advisory activities through its banking and non-banking subsidiaries from banking centers located throughout the Midwestern and Southeastern regions of the United States.

Basis of Presentation

The Consolidated Financial Statements include the accounts of the Bancorp and its majority-owned subsidiaries and VIEs in which the Bancorp has been determined to be the primary beneficiary. Other entities, including certain joint ventures, in which the Bancorp has the ability to exercise significant influence over operating and financial policies of the investee, but upon which the Bancorp does not possess control, are accounted for by the equity method of accounting and not consolidated. The investments in those entities in which the Bancorp does not have the ability to exercise significant influence are generally carried at fair value unless the investment does not have a readily determinable fair value. The Bancorp accounts for equity investments without a readily determinable fair value using the measurement alternative to fair value, representing the cost of the investment minus any impairment recorded, if any, and plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issuer. Intercompany transactions and balances among consolidated entities have been eliminated. Certain prior period data has been reclassified to conform to current period presentation. Specifically, certain line items within total noninterest income and total noninterest expense have been reclassified to better align disclosures to business activities. These reclassifications were retrospectively applied to all prior periods presented. Total noninterest income and noninterest expense did not change as a result of these reclassifications.

Use of Estimates

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates.

Updates to Significant Accounting and Reporting Policies

In conjunction with the prospective adoption of ASU 2016-13 and ASU 2017-04 on January 1, 2020, the Bancorp has updated its accounting and reporting policies for investment securities, portfolio loans and leases, the ALLL, the reserve for unfunded commitments and goodwill as described below. The accounting and reporting policies for these sections for periods prior to January 1, 2020 are provided in the Significant Accounting and Reporting Policies Applicable Prior to January 1, 2020 section below. Refer to the Accounting and Reporting Developments section for additional information. Further, for loans and leases that were part of the Bancorp’s COVID-19 customer relief programs, the Bancorp has elected certain accounting relief provisions that were provided by the FASB and/or various national banking regulatory agencies. Refer to the Regulatory Developments Related to the COVID-19 Pandemic section for additional information.

Cash and Due from Banks

Cash and due from banks consist of currency and coin, cash items in the process of collection and due from banks. Currency and coin includes both U.S. and foreign currency owned and held at Fifth Third offices and that is in-transit to the FRB. Cash items in the process of collection include checks and drafts that are drawn on another depository institution or the FRB that are payable immediately upon presentation in the U.S. Balances due from banks include noninterest-bearing balances that are funds on deposit at other depository institutions or the FRB.

Investment Securities

Debt securities are classified as held-to-maturity, available-for-sale or trading on the date of purchase. Only those securities which management has the intent and ability to hold to maturity are classified as held-to-maturity and reported at amortized cost. Debt securities are classified as available-for-sale when, in management’s judgment, they may be sold in response to, or in anticipation of, changes in market conditions. Debt securities are classified as trading when bought and held principally for the purpose of selling them in the near term. Trading

debt securities are reported at fair value with unrealized gains and losses included in noninterest income. Available-for-sale debt securities are reported at fair value with unrealized gains and losses, net of related deferred income taxes, included in OCI. Accrued interest receivables on investment securities are presented in the Consolidated Balance Sheets as a component of other assets.

Available-for-sale debt securities with unrealized losses are reviewed quarterly to determine if the decline in fair value is the result of a credit loss or other factors. An allowance for credit losses is recorded against available-for-sale securities to reflect the amount of the unrealized loss attributable to credit; however, this impairment is limited by the amount that the fair value is less than the amortized cost basis. Any remaining unrealized loss is recognized through OCI. Changes in the allowance for credit losses are recognized in earnings.

The determination of whether or not a credit loss exists is based on consideration of the cash flows expected to be collected from the debt security. The Bancorp develops these expectations after considering various factors such as agency ratings, the financial condition of the issuer or underlying obligors, payment history, payment structure of the security, industry and market conditions, underlying collateral and other factors which may be relevant based on the facts and circumstances pertaining to individual securities.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

If the Bancorp intends to sell the debt security or will more likely than not be required to sell the debt security before recovery of its amortized cost basis, then the allowance for credit losses, if previously recorded, is written off and the security’s amortized cost is written down to the security’s fair value at the reporting date, with any incremental impairment recorded as a charge to noninterest income.

Held-to-maturity debt securities are assessed periodically to determine if a valuation allowance is necessary to absorb credit losses expected to occur over the remaining contractual life of the securities. The carrying amount of held-to-maturity debt securities is presented net of the valuation allowance for credit losses when such an allowance is deemed necessary.

Equity securities with readily determinable fair values not accounted for under the equity method are reported at fair value with unrealized gains and losses included in noninterest income in the Consolidated Statements of Income. Equity securities without readily determinable fair values are measured at cost minus impairment, if any, plus or minus changes as a result of an observable price change for the identical or similar investment of the same issuer. At each quarterly reporting period, the Bancorp performs a qualitative assessment to evaluate whether impairment indicators are present. If qualitative indicators are identified, the investment is measured at fair value with the impairment loss included in noninterest income in the Consolidated Statements of Income.

The fair value of a security is determined based on quoted market prices. If quoted market prices are not available, fair value is determined based on quoted prices of similar instruments or DCF models that incorporate market inputs and assumptions including discount rates, prepayment speeds and loss rates.

Premiums on purchased callable debt securities are amortized to the earliest call date if the call feature meets certain criteria. Otherwise, premiums are amortized to maturity similar to discounts on callable debt securities.

Realized securities gains or losses are reported within noninterest income in the Consolidated Statements of Income. The cost of securities sold is based on the specific identification method.

Portfolio Loans and Leases

Basis of accounting

Portfolio loans and leases are generally reported at the principal amount outstanding, net of unearned income, deferred direct loan origination fees and costs and any direct principal charge-offs. Direct loan origination fees and costs are deferred and the net amount is amortized over the estimated life of the related loans as a yield adjustment. Interest income is recognized based on the principal balance outstanding computed using the effective interest method.

Loans and leases acquired by the Bancorp through a purchase business combination are recorded at fair value as of the acquisition date. Purchased loans and finance leases (including both sales-type leases and direct financing leases) are evaluated for evidence of credit deterioration at acquisition and recorded at their initial fair value. For loans and finance leases that do not exhibit evidence of more-than-insignificant credit deterioration since origination, the Bancorp does not carry over the acquired company’s ALLL, but upon acquisition will record an ALLL and provision for credit losses reflective of credit losses expected to be incurred over the remaining contractual life of the acquired loans. Premiums and discounts reflected in the initial fair value are amortized over the contractual life of the loan as an adjustment to yield.

For loans and finance leases that exhibit evidence of more-than-insignificant credit quality deterioration since origination, the Bancorp’s estimate of expected credit losses is added to the ALLL upon acquisition and to the initial purchase price of the loans and leases to determine the initial amortized cost basis for the purchased financial assets with credit deterioration. Any resulting difference between the initial amortized cost basis (as adjusted for expected credit losses) and the par value of the loans and leases at the acquisition date represents the non-credit premium or discount, which is amortized over the contractual life of the loan or lease as an adjustment to yield. This method of accounting for loans acquired with deteriorated credit quality does not apply to loans carried at fair value or residential mortgage loans held for sale. Refer to the Accounting and Reporting Developments section for a discussion on the impact of the adoption of ASU 2016-13 on the accounting for purchased loans and finance leases that exhibited evidence of more-than-insignificant credit deterioration since origination at the time of purchase.

The Bancorp’s lease portfolio consists of sales-type, direct financing and leveraged leases. Sales-type and direct financing leases are carried at the aggregate of lease payments plus estimated residual value of the leased property, less unearned income. Interest income on sales-type and direct financing leases is recognized over the term of the lease to achieve a constant periodic rate of return on the outstanding investment.

Leveraged leases, entered into before January 1, 2019, are carried at the aggregate of lease payments (less nonrecourse debt payments) plus estimated residual value of the leased property, less unearned income. Interest income on leveraged leases is recognized over the term of the lease to achieve a constant rate of return on the outstanding investment in the lease, net of the related deferred income tax liability, in the years in which the net investment is positive. Leveraged lease accounting is no longer applied for leases entered into or modified after the Bancorp’s adoption of ASU 2016-02, Leases, on January 1, 2019.

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Nonaccrual loans and leases

When a loan is placed on nonaccrual status, the accrual of interest, amortization of loan premium, accretion of loan discount and amortization/accretion of deferred net direct loan origination fees or costs are discontinued and all previously accrued and unpaid interest is charged against income. Commercial loans are placed on nonaccrual status when there is a clear indication that the borrower’s cash flows may not be sufficient to meet payments as they become due. Such loans are also placed on nonaccrual status when the principal or interest is past due 90 days or more, unless the loan is both well-secured and in the process of collection. The Bancorp classifies residential mortgage loans that have principal and interest payments that have become past due 150 days as nonaccrual unless the loan is both well-secured and in the process of collection. Residential mortgage loans may stay on nonaccrual status for an extended time as the foreclosure process typically lasts longer than 180 days. Home equity loans and lines of credit are reported on nonaccrual status if principal or interest has been in default for 90 days or more unless the loan is both well-secured and in the process of collection. Home equity loans and lines of credit that have been in default for 60 days or more are also reported on nonaccrual status if the senior lien has been in default 120 days or more, unless the loan is both well secured and in the process of collection. Loans discharged in a Chapter 7 bankruptcy and not reaffirmed by the borrower are classified as collateral-dependent TDRs and placed on nonaccrual status regardless of the borrower’s payment history or capacity to repay in the future. Residential mortgage, home equity, automobile and other consumer loans that have been modified in a TDR and subsequently become past due 90 days are placed on nonaccrual status unless the loan is both well-secured and in the process of collection. Commercial and credit card loans that have been modified in a TDR are classified as nonaccrual unless such loans have sustained repayment performance of six months or more and are reasonably assured of repayment in accordance with the restructured terms. Well-secured loans are collateralized by perfected security interests in real and/or personal property for which the Bancorp estimates proceeds from the sale would be sufficient to recover the outstanding principal and accrued interest balance of the loan and pay all costs to sell the collateral. The Bancorp considers a loan in the process of collection if collection efforts or legal action is proceeding and the Bancorp expects to collect funds sufficient to bring the loan current or recover the entire outstanding principal and accrued interest balance.

Nonaccrual commercial loans and nonaccrual credit card loans are generally accounted for on the cost recovery method. The Bancorp believes the cost recovery method is appropriate for nonaccrual commercial loans and nonaccrual credit card loans because the assessment of collectability of the remaining amortized cost basis of these loans involves a high degree of subjectivity and uncertainty due to the nature or absence of underlying collateral. Under the cost recovery method, any payments received are applied to reduce principal. Once the entire recorded investment is collected, additional payments received are treated as recoveries of amounts previously charged-off until recovered in full, and any subsequent payments are treated as interest income. Nonaccrual residential mortgage loans and other nonaccrual consumer loans are generally accounted for on the cash basis method. The Bancorp believes the cash basis method is appropriate for nonaccrual residential mortgage and other nonaccrual consumer loans because such loans have generally been written down to estimated collateral values and the collectability of the remaining investment involves only an assessment of the fair value of the underlying collateral, which can be measured more objectively with a lesser degree of uncertainty than assessments of typical commercial loan collateral. Under the cash basis method, interest income is recognized when cash is received, to the extent such income would have been accrued on the loan’s remaining balance at the contractual rate. Nonaccrual loans may be returned to accrual status when all delinquent interest and principal payments become current in accordance with the loan agreement and are reasonably assured of repayment in accordance with the contractual terms of the loan agreement, or when the loan is both well-secured and in the process of collection.

Commercial loans on nonaccrual status, including those modified in a TDR, as well as criticized commercial loans with aggregate borrower relationships exceeding $1 million, are subject to an individual review to identify charge-offs. The Bancorp does not have an established delinquency threshold for partially or fully charging off commercial loans. Residential mortgage loans, home equity loans and lines of credit and credit card loans that have principal and interest payments that have become past due 180 days are assessed for a charge-off to the ALLL, unless such loans are both well-secured and in the process of collection. Home equity loans and lines of credit are also assessed for charge-off to the ALLL when such loans or lines of credit have become past due 120 days if the senior lien is also 120 days past due, unless such loans are both well-secured and in the process of collection. Automobile and other consumer loans that have principal and interest payments that have become past due 120 days are assessed for a charge-off to the ALLL, unless such loans are both well-secured and in the process of collection.

Restructured loans and leases

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

The Bancorp measures the impairment loss of a TDR based on the difference between the original loan’s carrying amount and the present value of expected future cash flows discounted at the original, effective yield of the loan. Except for loans discharged in a Chapter 7 bankruptcy that are not reaffirmed by the borrower, residential mortgage loans, home equity loans, automobile loans and other consumer loans modified as part of a TDR are maintained on accrual status, provided there is reasonable assurance of repayment and of performance according to the modified terms based upon a current, well-documented credit evaluation. Loans discharged in a Chapter 7 bankruptcy and not reaffirmed by the borrower are classified as collateral-dependent TDRs and placed on nonaccrual status regardless of the borrower’s

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payment history or capacity to repay in the future. These loans are returned to accrual status provided there is a sustained payment history of twelve months after bankruptcy and collectability is reasonably assured for all remaining contractual payments.

Commercial loans and credit card loans modified as part of a TDR are maintained on accrual status provided there is a sustained payment history of six months or more prior to the modification in accordance with the modified terms and collectability is reasonably assured for all remaining contractual payments under the modified terms. TDRs of commercial loans and credit card loans that do not have a sustained payment history of six months or more in accordance with their modified terms remain on nonaccrual status until a six-month payment history is sustained. In certain cases, commercial TDRs on nonaccrual status may be accounted for using the cash basis method for income recognition, provided that full repayment of principal under the modified terms of the loan is reasonably assured.

Residential mortgage loans that were restructured after receiving a forbearance related to the COVID-19 pandemic but that were not classified as a TDR as a result of the CARES Act are placed on nonaccrual status if they subsequently become past due 90 days unless the loan is both well-secured and in the process of collection, consistent with the Bancorp’s treatment of residential mortgage loan TDRs which subsequently become past due. Refer to the Regulatory Developments Related to the COVID-19 Pandemic section for additional information.

Loans and Leases Held for Sale

Loans and leases held for sale primarily represent conforming fixed-rate residential mortgage loans originated or acquired with the intent to sell in the secondary market and jumbo residential mortgage loans, commercial loans, other residential mortgage loans and other consumer loans that management has the intent to sell. Loans and leases held for sale may be carried at the lower of cost or fair value, or carried at fair value where the Bancorp has elected the fair value option of accounting under U.S. GAAP. The Bancorp has elected to measure certain groups of loans held for sale under the fair value option, including certain residential mortgage loans originated as held for sale and certain purchased commercial loans designated as held for sale at acquisition. For loans in which the Bancorp has not elected the fair value option, the lower of cost or fair value is determined at the individual loan level.

The fair value of residential mortgage loans held for sale for which the fair value election has been made is estimated based upon mortgage-backed securities prices and spreads to those prices or, for certain ARM loans, DCF models that may incorporate the anticipated portfolio composition, credit spreads of asset-backed securities with similar collateral and market conditions. The anticipated portfolio composition includes the effects of interest rate spreads and discount rates due to loan characteristics such as the state in which the loan was originated, the loan amount and the ARM margin. These fair value marks are recorded as a component of noninterest income in mortgage banking net revenue. For residential mortgage loans that it has originated as held for sale, the Bancorp generally has commitments to sell these loans in the secondary market. Gains or losses on sales are recognized in mortgage banking net revenue.

Management’s intent to sell residential mortgage loans classified as held for sale may change over time due to such factors as changes in the overall liquidity in markets or changes in characteristics specific to certain loans held for sale. Consequently, these loans may be reclassified to loans held for investment and, thereafter, reported within the Bancorp’s residential mortgage class of portfolio loans and leases. In such cases, if the fair value election was made, the residential mortgage loans will continue to be measured at fair value, which is based on mortgage-backed securities prices, interest rate risk and an internally developed credit component.

Loans and leases held for sale are placed on nonaccrual status consistent with the Bancorp’s nonaccrual policy for portfolio loans and leases.

Other Real Estate Owned

OREO, which is included in other assets in the Consolidated Balance Sheets, represents property acquired through foreclosure or other proceedings and branch-related real estate no longer intended to be used for banking purposes. OREO is carried at the lower of cost or fair value, less costs to sell. All OREO property is periodically evaluated for impairment and decreases in carrying value are recognized as reductions in other noninterest income in the Consolidated Statements of Income. For government-guaranteed mortgage loans, upon foreclosure, a separate other receivable is recognized if certain conditions are met for the amount of the loan balance (principal and interest) expected to be recovered from the guarantor. This receivable is also included in other assets, separate from OREO, in the Consolidated Balance Sheets.

ALLL

The Bancorp disaggregates its portfolio loans and leases into portfolio segments for purposes of determining the ALLL. The Bancorp’s portfolio segments include commercial, residential mortgage and consumer. The Bancorp further disaggregates its portfolio segments into classes for purposes of monitoring and assessing credit quality based on certain risk characteristics. Classes within the commercial portfolio segment include commercial and industrial, commercial mortgage owner-occupied, commercial mortgage nonowner-occupied, commercial construction and commercial leasing. The residential mortgage portfolio segment is also considered a class. Classes within the consumer portfolio segment include home equity, indirect secured consumer, credit card and other consumer loans. For an analysis of the Bancorp’s ALLL by portfolio segment and credit quality information by class, refer to Note 7.

The Bancorp maintains the ALLL to absorb the amount of credit losses that are expected to be incurred over the remaining contractual terms of the related loans and leases. Contractual terms are adjusted for expected prepayments but are not extended for expected extensions,

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renewals or modifications except in circumstances where the Bancorp reasonably expects to execute a TDR with the borrower or where certain extension or renewal options are embedded in the original contract and not unconditionally cancellable by the Bancorp.

Accrued interest receivable on loans is presented in the Consolidated Financial Statements as a component of other assets. When accrued interest is deemed to be uncollectible (typically when a loan is placed on nonaccrual status), interest income is reversed. The Bancorp follows established policies for placing loans on nonaccrual status, so uncollectible accrued interest receivable is reversed in a timely manner. As a result, the Bancorp has elected not to measure an allowance for credit losses for accrued interest receivable. Refer to the Portfolio Loans and Leases section for additional information.

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

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

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

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

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

The Bancorp also considers qualitative factors in determining the ALLL. Qualitative factors are used to capture characteristics in the portfolio that impact expected credit losses but that are not fully captured within the Bancorp’s expected credit loss models. These include adjustments for changes in policies or procedures in underwriting, monitoring or collections, lending and risk management personnel and results of internal audit and quality control reviews. These may also include adjustments, when deemed necessary, for specific idiosyncratic risks such as geopolitical events, natural disasters and their effects on regional borrowers, and changes in product structures. Qualitative factors may also be used to address the impacts of unforeseen events on key inputs and assumptions within the Bancorp’s expected credit loss models,

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such as the reasonable and supportable forecast period, changes to historical loss information or changes to the reversion period or methodology.

When evaluating the adequacy of allowances, consideration is also given to regional geographic concentrations and the closely associated effect changing economic conditions have on the Bancorp’s customers.

Reserve for Unfunded Commitments

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

Loan Sales and Securitizations

The Bancorp periodically sells loans through either securitizations or individual loan sales in accordance with its investment policies. The sold loans are removed from the Consolidated Balance Sheet and a net gain or loss is recognized in the Consolidated Financial Statements at the time of sale. The Bancorp typically isolates the loans through the use of a VIE and thus is required to assess whether the entity holding the sold or securitized loans is a VIE and whether the Bancorp is the primary beneficiary and therefore consolidator of that VIE. If the Bancorp holds the power to direct activities most significant to the economic performance of the VIE and has the obligation to absorb losses or right to receive benefits that could potentially be significant to the VIE, then the Bancorp will generally be deemed the primary beneficiary of the VIE. If the Bancorp is determined not to be the primary beneficiary of a VIE but holds a variable interest in the entity, such variable interests are accounted for under the equity method of accounting or other accounting standards as appropriate. Refer to Note 13 for further information on consolidated and non-consolidated VIEs.

The Bancorp’s loan sales and securitizations are generally structured with servicing retained, which often results in the recording of servicing rights. The Bancorp may also purchase servicing rights. The Bancorp has elected to measure all existing classes of its residential mortgage servicing rights portfolio at fair value with changes in the fair value of servicing rights reported in mortgage banking net revenue in the Consolidated Statements of Income in the period in which the changes occur.

Servicing rights are valued using internal OAS models. Key economic assumptions used in estimating the fair value of the servicing rights include the prepayment speeds of the underlying loans, the weighted-average life, the OAS and the weighted-average coupon rate, as applicable. The primary risk of material changes to the value of the servicing rights resides in the potential volatility in the economic assumptions used, particularly the prepayment speeds. In order to assist in the assessment of the fair value of servicing rights, the Bancorp obtains external valuations of the servicing rights portfolio from third parties and participates in peer surveys that provide additional confirmation of the reasonableness of the key assumptions utilized in the internal OAS model.

Fees received for servicing loans owned by investors are based on a percentage of the outstanding monthly principal balance of such loans and are included in noninterest income in the Consolidated Statements of Income as loan payments are received. Costs of servicing loans are charged to expense as incurred.

Reserve for Representation and Warranty Provisions

Conforming residential mortgage loans sold to unrelated third parties are generally sold with representation and warranty provisions. A contractual liability arises only in the event of a breach of these representations and warranties and, in general, only when a loss results from the breach. The Bancorp may be required to repurchase any previously sold loan or indemnify (make whole) the investor or insurer for which the representation or warranty of the Bancorp proves to be inaccurate, incomplete or misleading. The Bancorp establishes a residential mortgage repurchase reserve related to various representations and warranties that reflects management’s estimate of losses based on a combination of factors.

The Bancorp’s estimation process requires management to make subjective and complex judgments about matters that are inherently uncertain, such as future demand expectations, economic factors and the specific characteristics of the loans subject to repurchase. Such factors incorporate historical investor audit and repurchase demand rates, appeals success rates, historical loss severity and any additional information obtained from the GSEs regarding future mortgage repurchase and file request criteria. At the time of a loan sale, the Bancorp records a representation and warranty reserve at the estimated fair value of the Bancorp’s guarantee and continually updates the reserve during the life of the loan as losses in excess of the reserve become probable and reasonably estimable. The provision for the estimated fair value of the representation and warranty guarantee arising from the loan sales is recorded as an adjustment to the gain on sale, which is included in other noninterest income in the Consolidated Statements of Income at the time of sale. Updates to the reserve are recorded in other noninterest expense in the Consolidated Statements of Income.

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Legal Contingencies

Bank Premises and Equipment and Other Long-Lived Assets

Bank premises and equipment, including leasehold improvements, are carried at cost less accumulated depreciation and amortization. Depreciation is calculated using the straight-line method based on estimated useful lives of the assets for book purposes, while accelerated depreciation is used for income tax purposes. Amortization of leasehold improvements is computed using the straight-line method over the lives of the related leases or useful lives of the related assets, whichever is shorter. Whenever events or changes in circumstances dictate, the Bancorp tests its long-lived assets for impairment by determining whether the sum of the estimated undiscounted future cash flows attributable to a long-lived asset or asset group is less than the carrying amount of the long-lived asset or asset group through a probability-weighted approach. In the event the carrying amount of the long-lived asset or asset group is not recoverable, an impairment loss is measured as the amount by which the carrying amount of the long-lived asset or asset group exceeds its fair value. Maintenance, repairs and minor improvements are charged to noninterest expense in the Consolidated Statements of Income as incurred.

Lessee Accounting

ROU assets and lease liabilities are recognized for all leases unless the initial term of the lease is twelve months or less. Lease costs for operating leases are recognized on a straight-line basis over the lease term unless another systematic basis is more representative of the pattern of consumption. The lease term includes any renewal period that the Bancorp is reasonably certain to exercise. The Bancorp uses its incremental borrowing rate to discount the lease payments if the rate implicit in the lease is not readily determinable. Variable lease payments associated with operating leases are recognized in the period in which the obligation for payments is incurred.

For finance leases, the lease liability is measured using the effective interest method such that the liability is increased for interest based on the discount rate that is implicit in the lease or the Bancorp’s incremental borrowing rate if the implicit rate cannot be readily determined, offset by a decrease in the liability resulting from the periodic lease payments. The ROU asset associated with the finance lease is amortized on a straight-line basis unless there is another systematic and rational basis that better reflects how the benefits of the underlying assets are consumed over the lease term. The period over which the ROU asset is amortized is generally the lesser of the remaining lease term or the remaining useful life of the leased asset. Variable lease payments associated with finance leases are recognized in the period in which the obligation for those payments is incurred.

When the lease liability is remeasured to reflect changes to the lease payments as a result of a lease modification, the ROU asset is adjusted for the amount of the lease liability remeasurement. If a lease modification reduces the scope of a lease, the ROU asset would be reduced proportionately based on the change in the lease liability and the difference between the lease liability adjustment and the resulting ROU asset adjustment would be recognized as a gain or loss in the Consolidated Statements of Income. Additionally, the amortization of the ROU asset is adjusted prospectively from the date of remeasurement.

The Bancorp performs impairment assessments for ROU assets when events or changes in circumstances indicate that their carrying values may not be recoverable. Any impairment loss is recognized in net occupancy expense. Refer to the Bank Premises and Equipment and Other Long-Lived Assets section of this note for further information.

Derivative Financial Instruments

The Bancorp accounts for its derivatives as either assets or liabilities measured at fair value through adjustments to AOCI and/or current earnings, as appropriate. On the date the Bancorp enters into a derivative contract, the Bancorp designates the derivative instrument as either a fair value hedge, cash flow hedge or as a free-standing derivative instrument. For a fair value hedge, changes in the fair value of the derivative instrument and changes in the fair value of the hedged asset or liability attributable to the hedged risk are recorded in current period net income. For a cash flow hedge, changes in the fair value of the derivative instrument are recorded in AOCI and subsequently reclassified to net income in the same period(s) that the hedged transaction impacts net income. For free-standing derivative instruments, changes in fair values are reported in current period net income.

When entering into a hedge transaction, the Bancorp formally documents the relationship between the hedging instrument and the hedged item, as well as the risk management objective and strategy for undertaking the hedge transaction before the end of the quarter in which the transaction is consummated. This process includes linking the derivative instrument designated as a fair value or cash flow hedge to a specific asset or liability on the balance sheet or to specific forecasted transactions and the risk being hedged, along with a formal assessment at the inception of the hedge as to the effectiveness of the derivative instrument in offsetting changes in fair values or cash flows of the hedged item.

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The Bancorp continues to assess hedge effectiveness on an ongoing basis using either a qualitative or a quantitative assessment (regression analysis). Additionally, the Bancorp may also utilize the shortcut method to evaluate hedge effectiveness for certain qualifying hedges with matched terms that permit the assumption of perfect offset. If the shortcut method is no longer appropriate, the Bancorp would apply the long-haul method identified at inception of the hedging transaction for assessing hedge effectiveness as long as the hedge is highly effective. If it is determined that the derivative instrument is not highly effective as a hedge, hedge accounting is discontinued.

Investments in Qualified Affordable Housing Projects

The Bancorp invests in projects to create affordable housing, revitalize business and residential areas and preserve historic landmarks. These investments are classified as other assets on the Bancorp’s Consolidated Balance Sheets. Investments in affordable housing projects that qualify for LIHTC are accounted for using the proportional amortization method. Under the proportional amortization method, the initial cost of the investment is amortized in proportion to the tax credits and other benefits received and recognized as a component of applicable income tax expense in the Consolidated Statements of Income. Investments which do not meet the qualification criteria for the proportional amortization method are accounted for using the equity method of accounting with impairment associated with the investments recognized in other noninterest expense in the Consolidated Statements of Income.

Income Taxes

The Bancorp accounts for income taxes using the asset and liability method, which requires the recognition of deferred tax assets and liabilities for expected future tax consequences. Under the asset and liability method, deferred tax assets and liabilities are determined by applying the federal and state tax rates to the differences between financial statement carrying amounts and the corresponding tax bases of assets and liabilities. Deferred tax assets are also recorded for any tax attributes, such as tax credits and net operating loss carryforwards. The net balances of deferred tax assets and liabilities are reported in other assets and accrued taxes, interest and expenses in the Consolidated Balance Sheets. Any effect of a change in federal or state tax rates on deferred tax assets and liabilities is recognized in income tax expense in the period that includes the enactment date. The Bancorp reflects the expected amount of income tax to be paid or refunded during the year as current income tax expense or benefit. Accrued taxes represent the net expected amount due to and/or from taxing jurisdictions and are reported in accrued taxes, interest and expenses in the Consolidated Balance Sheets.

The Bancorp evaluates the realization of deferred tax assets based on all positive and negative evidence available at the balance sheet date. Realization of deferred tax assets is based on the Bancorp’s judgment about relevant factors affecting their realization, including the taxable income within any applicable carry back periods, future projected taxable income, the reversal of taxable temporary differences and tax-planning strategies. The Bancorp records a valuation allowance for deferred tax assets where the Bancorp does not believe that it is more-likely-than-not that the deferred tax assets will be realized.

Income tax benefits from uncertain tax positions are recognized in the financial statements only if the Bancorp believes that it is more-likely-than-not that the uncertain tax position will be sustained based solely on the technical merits of the tax position and consideration of the relevant taxing authority’s widely understood administrative practices and precedents. If the Bancorp does not believe that it is more-likely-than-not that an uncertain tax position will be sustained, the Bancorp records a liability for the uncertain tax position. If the Bancorp believes that it is more likely than not that an uncertain tax position will be sustained, the Bancorp only records a tax benefit for the portion of the uncertain tax position where the likelihood of realization is greater than 50% upon settlement with the relevant taxing authority that has full knowledge of all relevant information. The Bancorp recognizes interest expense, interest income and penalties related to unrecognized tax benefits within current income tax expense. Refer to Note 22 for further discussion regarding income taxes.

Earnings Per Share

Basic earnings per share is computed by dividing net income available to common shareholders by the weighted-average number of shares of common stock outstanding during the period. Earnings per diluted share is computed by dividing adjusted net income available to common shareholders by the weighted-average number of shares of common stock and common stock equivalents outstanding during the period. Dilutive common stock equivalents represent the exercise of dilutive stock-based awards and the dilutive effect of the settlement of outstanding forward contracts.

The Bancorp calculates earnings per share pursuant to the two-class method. The two-class method is an earnings allocation formula that determines earnings per share separately for common stock and participating securities according to dividends declared and participation rights in undistributed earnings. For purposes of calculating earnings per share under the two-class method, restricted shares that contain nonforfeitable rights to dividends are considered participating securities until vested. While the dividends declared per share on such restricted shares are the same as dividends declared per common share outstanding, the dividends recognized on such restricted shares may be less because dividends paid on restricted shares that are expected to be forfeited are reclassified to compensation expense during the period when forfeiture is expected.

Goodwill

Business combinations entered into by the Bancorp typically include the recognition of goodwill. U.S. GAAP requires goodwill to be tested for impairment at the Bancorp’s reporting unit level on an annual basis, which for the Bancorp is September 30, and more frequently if events

or circumstances indicate that there may be impairment.

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

The fair value of a reporting unit is the price that would be received to sell the unit as a whole in an orderly transaction between market participants at the measurement date. As none of the Bancorp’s reporting units are publicly traded, individual reporting unit fair value determinations cannot be directly correlated to the Bancorp’s stock price. The determination of the fair value of a reporting unit is a subjective process that involves the use of estimates and judgments, particularly related to cash flows, the appropriate discount rates and an applicable control premium. The determination of the fair value of the Bancorp's reporting units includes both an income-based approach and a market-based approach. The income-based approach utilizes the reporting unit’s forecasted cash flows (including a terminal value approach to estimate cash flows beyond the final year of the forecast) and the reporting unit’s estimated cost of equity as the discount rate. Significant management judgment is necessary in the preparation of each reporting unit’s forecasted cash flows surrounding expectations for earnings projections, growth and credit loss expectations and actual results may differ from forecasted results. Additionally, the Bancorp determines its market capitalization based on the average of the closing price of the Bancorp’s stock during the month including the measurement date, incorporating an additional control premium, and compares this market-based fair value measurement to the aggregate fair value of the Bancorp’s reporting units in order to corroborate the results of the income approach. Refer to Note 11 for further information regarding the Bancorp’s goodwill.

Fair Value Measurements

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

U.S. GAAP establishes a fair value hierarchy, which prioritizes the inputs to valuation techniques used to measure fair value into three broad levels. The fair value hierarchy gives the highest priority to quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). A financial instrument’s categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the instrument’s fair value measurement. The three levels within the fair value hierarchy are described as follows:

Level 1 – Quoted prices (unadjusted) in active markets for identical assets or liabilities that the Bancorp has the ability to access at the measurement date.

Level 2 – Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. Level 2 inputs include: quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active; inputs other than quoted prices that are observable for the asset or liability; and inputs that are derived principally from or corroborated by observable market data by correlation or other means.

Level 3 – Unobservable inputs for the asset or liability for which there is little, if any, market activity at the measurement date. Unobservable inputs reflect the Bancorp’s own assumptions about what market participants would use to price the asset or liability. The inputs are developed based on the best information available in the circumstances, which might include the Bancorp’s own financial data such as internally developed pricing models and DCF methodologies, as well as instruments for which the fair value determination requires significant management judgment.

The Bancorp’s fair value measurements involve various valuation techniques and models, which involve inputs that are observable, when available. Valuation techniques and parameters used for measuring assets and liabilities are reviewed and validated by the Bancorp on a quarterly basis. Additionally, the Bancorp monitors the fair values of significant assets and liabilities using a variety of methods including the evaluation of pricing runs and exception reports based on certain analytical criteria, comparison to previous trades and overall review and assessments for reasonableness. The Bancorp may, as a practical expedient, measure the fair value of certain investments on the basis of the net asset value per share of the investment, or its equivalent. Any investments which are valued using this practical expedient are not classified in the fair value hierarchy. Refer to Note 29 for further information on fair value measurements.

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Stock-Based Compensation

The Bancorp recognizes compensation expense for the grant-date fair value of stock-based awards that are expected to vest over the requisite service period. All awards, both those with cliff vesting and graded vesting, are expensed on a straight-line basis over the requisite service period. Awards to employees that meet eligible retirement status are expensed immediately. As compensation expense is recognized, a deferred tax asset is recorded that represents an estimate of the future tax deduction from exercise or release of restrictions. At the time awards are exercised, cancelled, expire or restrictions are released, the Bancorp recognizes an adjustment to income tax expense for the difference between the previously estimated tax deduction and the actual tax deduction realized. For further information on the Bancorp’s stock-based compensation plans, refer to Note 26.

Pension Plans

The Bancorp uses an expected long-term rate of return applied to the fair market value of assets as of the beginning of the year and the expected cash flow during the year for calculating the expected investment return on all pension plan assets. Amortization of the net gain or loss resulting from experience different from that assumed and from changes in assumptions (excluding asset gains and losses not yet reflected in market-related value) is included as a component of net periodic benefit cost. If, as of the beginning of the year, that net gain or loss exceeds 10% of the greater of the projected benefit obligation and the market-related value of plan assets, the amortization is that excess divided by the average remaining service period of participating employees expected to receive benefits under the plan. The Bancorp uses a third-party actuary to compute the remaining service period of participating employees. This period reflects expected turnover, pre-retirement mortality and other applicable employee demographics.

Revenue Recognition

The Bancorp generally measures revenue based on the amount of consideration the Bancorp expects to be entitled for the transfer of goods or services to a customer, then recognizes this revenue when or as the Bancorp satisfies its performance obligations under the contract, except in transactions where U.S. GAAP provides other applicable guidance. When the amount of consideration is variable, the Bancorp will only recognize revenue to the extent that it is probable that the cumulative amount recognized will not be subject to a significant reversal in the future. Substantially all of the Bancorp’s contracts with customers have expected durations of one year or less and payments are typically due when or as the services are rendered or shortly thereafter. When third parties are involved in providing goods or services to customers, the Bancorp recognizes revenue on a gross basis when it has control over those goods or services prior to transfer to the customer; otherwise, revenue is recognized for the net amount of any fee or commission. The Bancorp excludes sales taxes from the recognition of revenue and recognizes the incremental costs of obtaining contracts as an expense if the period of amortization for those costs would be one year or less.

The Bancorp’s interest income is derived from loans and leases, securities and other short-term investments. The Bancorp recognizes interest income in accordance with the applicable guidance in U.S. GAAP for these assets. Refer to the Portfolio Loans and Leases and Investment Securities sections of this footnote for further information. The following provides additional information about the components of noninterest income:

Service charges on deposits consist primarily of treasury management fees for commercial clients, monthly service charges on consumer deposit accounts, transaction-based fees (such as overdraft fees and wire transfer fees), and other deposit account-related charges. The Bancorp’s performance obligations for treasury management fees and consumer deposit account service charges are typically satisfied over time while performance obligations for transaction-based fees are typically satisfied at a point in time. Revenues are recognized on an accrual basis when or as the services are provided to the customer, net of applicable discounts, waivers and reversals. Payments are typically collected from customers directly from the related deposit account at the time the transaction is processed and/or at the end of the customer’s statement cycle (typically monthly).
Commercial banking revenue consists primarily of service fees and other income related to loans to commercial clients, underwriting revenue recognized by the Bancorp’s broker-dealer subsidiary and fees for other services provided to commercial clients. Revenue related to loans is recognized in accordance with the Bancorp’s policies for portfolio loans and leases. Underwriting revenue is generally recognized on the trade date, which is when the Bancorp’s performance obligations are satisfied.
Wealth and asset management revenue consists primarily of service fees for investment management, custody, and trust administration services provided to commercial and consumer clients. The Bancorp’s performance obligations for these services are generally satisfied over time and revenues are recognized monthly based on the fee structure outlined in individual contracts. Transaction prices are most commonly based on the market value of assets under management or care and/or a fee per transaction processed. The Bancorp also offers certain services for which the performance obligations are satisfied and revenue is recognized at a point in time, when the services are performed. Wealth and asset management revenue also includes trailing commissions received from investments and annuities held in customer accounts, which are recognized in revenue when the Bancorp determines that it has satisfied its performance obligations and has sufficient information to estimate the amount of the commissions to which it expects to be entitled.
Leasing business revenue consists primarily of noninterest income such as operating lease income, leasing business solutions revenue, lease remarketing fees and lease syndication fees from lease arrangements to commercial clients. Revenue related to leases is recognized either in accordance with the Bancorp’s policies for portfolio loans and leases or when the Bancorp’s performance obligations are satisfied.
Card and processing revenue consists primarily of ATM fees and interchange fees earned when the Bancorp’s credit and debit cards are processed through card association networks. The Bancorp’s performance obligations are generally complete when the

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transactions generating the fees are processed. Revenue is recognized on an accrual basis as such services are performed, net of certain costs not controlled by the Bancorp (primarily interchange fees charged by credit card associations and expenses of certain transaction-based rewards programs offered to customers).

Mortgage banking net revenue consists primarily of origination fees and gains on loan sales, mortgage servicing fees and the impact of MSRs. Refer to the Loans and Leases Held for Sale and Loan Sales and Securitizations sections of this footnote for further information.
Other noninterest income includes certain fees derived from loans, BOLI income, gains and losses on other assets, and other miscellaneous revenues and gains.

Other

Securities and other property held by Fifth Third Wealth and Asset Management, a division of the Bancorp’s banking subsidiary, in a fiduciary or agency capacity are not included in the Consolidated Balance Sheets because such items are not assets of the subsidiaries.

Other short-term investments have original maturities less than one year and primarily include interest-bearing balances that are funds on deposit at other depository institutions or the FRB, federal funds sold and reverse repurchase agreements. The Bancorp uses other short-term investments as part of its liquidity risk management activities.

The Bancorp purchases life insurance policies on the lives of certain directors, officers and employees and is the owner and beneficiary of the policies. The Bancorp invests in these policies, known as BOLI, to provide an efficient form of funding for long-term retirement and other employee benefits costs. Certain BOLI policies have a stable value agreement through either a large, well-rated bank or multi-national insurance carrier that provides limited cash surrender value protection from declines in the value of each policy’s underlying investments. The Bancorp records these BOLI policies within other assets in the Consolidated Balance Sheets at each policy’s respective cash surrender value, with changes recorded in other noninterest income in the Consolidated Statements of Income.

Intangible assets consist of core deposit intangibles, customer relationships, operating leases, non-compete agreements, trade names and books of business. Intangible assets are amortized on either a straight-line or an accelerated basis over their estimated useful lives. The Bancorp reviews intangible assets for impairment whenever events or changes in circumstances indicate that carrying amounts may not be recoverable.

Securities sold under repurchase agreements are accounted for as secured borrowings and included in other short-term borrowings in the Consolidated Balance Sheets at the amounts at which the securities were sold plus accrued interest.

Acquisitions of treasury stock are carried at cost. Reissuance of shares in treasury for acquisitions, exercises of stock-based awards or other corporate purposes is recorded based on the specific identification method.

Advertising costs are generally expensed as incurred.

Significant Accounting and Reporting Policies Applicable Prior to January 1, 2020

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

Investment securities

Available-for-sale and held-to-maturity debt securities with unrealized losses were reviewed quarterly for possible OTTI. If the Bancorp intended to sell the debt security or would more likely than not be required to sell the debt security before recovery of the entire amortized cost basis, then an OTTI was deemed to have occurred. However, even if the Bancorp did not intend to sell the debt security and would not likely be required to sell the debt security before recovery of its entire amortized cost basis, the Bancorp evaluated expected cash flows to be received to determine if a credit loss had occurred. In the event of a credit loss, the credit component of the impairment was recognized within noninterest income and the non-credit component was recognized through OCI.

Portfolio loans and leases – basis of accounting

Loans acquired by the Bancorp through a purchase business combination were recorded at fair value as of the acquisition date. The Bancorp did not carry over the acquired company’s ALLL, nor did the Bancorp add to its existing ALLL as part of purchase accounting.

Purchased loans were evaluated for evidence of credit deterioration at acquisition and recorded at their initial fair value. For loans acquired with no evidence of credit deterioration, the fair value discount or premium was amortized over the contractual life of the loan as an adjustment to yield. For loans acquired with evidence of credit deterioration, the Bancorp determined at the acquisition date the excess of the loan’s contractually required payments over all cash flows expected to be collected as an amount that should not be accreted into interest income (nonaccretable difference). The remaining amount representing the difference in the expected cash flows of acquired loans and the initial investment in the acquired loans was accreted into interest income over the remaining life of the loan or pool of loans (accretable

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yield). Subsequent to the acquisition date, increases in expected cash flows over those expected at the acquisition date were recognized prospectively as interest income over the remaining life of the loan. The present values of any decreases in expected cash flows resulting directly from a change in the contractual interest rate were recognized prospectively as a reduction of the accretable yield. The present values of any decreases in expected cash flows after the acquisition date as a result of credit deterioration were recognized by recording an ALLL or a direct charge-off. Subsequent to the acquisition date, the methods utilized to estimate the required ALLL were similar to originated loans. This method of accounting for loans acquired with deteriorated credit quality did not apply to loans carried at fair value, residential mortgage loans held for sale and loans under revolving credit agreements.

Impaired loans and leases

A loan was considered to be impaired when, based on current information and events, it was probable that the Bancorp would be unable to collect all amounts due (including both principal and interest) according to the contractual terms of the loan agreement. Impaired loans generally consisted of nonaccrual loans and leases, loans modified in a TDR and loans over $1 million that were currently on accrual status and not yet modified in a TDR, but for which the Bancorp had determined that it was probable that it would grant a payment concession in the near term due to the borrower’s financial difficulties. For loans modified in a TDR, the contractual terms of the loan agreement referred to the terms specified in the original loan agreement. A loan restructured in a TDR was no longer considered impaired in years after the restructuring if the restructuring agreement specified a rate equal to or greater than the rate the Bancorp was willing to accept at the time of the restructuring for a new loan with comparable risk and the loan was not impaired based on the terms specified by the restructuring agreement. Refer to the following ALLL section for discussion regarding the Bancorp’s methodology for identifying impaired loans and determination of the need for a loss accrual.

ALLL

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

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

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

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

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

The Bancorp also considered qualitative factors in determining the ALLL. These included adjustments for changes in policies or procedures in underwriting, monitoring or collections, economic conditions, portfolio mix, lending and risk management personnel, results of internal audit and quality control reviews, collateral values, geographic concentrations, estimated loss emergence period and specific portfolio loans

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backed by enterprise valuations and private equity sponsors. The Bancorp considered home price index trends in its footprint and the volatility of collateral valuation trends when determining the collateral value qualitative factor.

Reserve for unfunded commitments

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

Goodwill

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

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

ACCOUNTING AND REPORTING DEVELOPMENTS

Standards Adopted in 2020

The Bancorp adopted the following new accounting standards effective January 1, 2020:

ASU 2016-13 – Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments

In June 2016, the FASB issued ASU 2016-13, which establishes a new approach to estimate credit losses on certain types of financial instruments. The new approach changes the impairment model for most financial assets, and requires the use of an “expected credit loss” model for financial instruments measured at amortized cost and certain other instruments. This model applies to trade and other receivables, loans, debt securities, net investments in leases, and off-balance sheet credit exposures (such as loan commitments, standby letters of credit, and financial guarantees not accounted for as insurance). This model requires entities to estimate the lifetime expected credit loss on such instruments and record an allowance that represents the portion of the amortized cost basis that the entity does not expect to collect. This allowance is deducted from the financial asset’s amortized cost basis to present the net amount expected to be collected. The expected credit loss model also applies to purchased financial assets with credit deterioration, superseding previous accounting guidance for such assets. The amended guidance also amends the impairment model for available-for-sale debt securities, requiring entities to determine whether all or a portion of the unrealized loss on such securities is a credit loss, and also eliminating the option for management to consider the length of time a security has been in an unrealized loss position as a factor in concluding whether or not a credit loss exists. The amended model requires an entity to recognize an allowance for credit losses on available-for-sale debt securities as a contra account to the amortized cost basis, instead of a direct reduction of the amortized cost basis of the investment, as under previous guidance. As a result, entities will recognize improvements to estimated credit losses on available-for-sale debt securities immediately in earnings as opposed to in interest income over time. There are also additional disclosure requirements included in this guidance. Subsequent to the issuance of ASU 2016-13, the FASB has issued additional ASUs containing clarifying guidance, transition relief provisions and minor updates to the original ASU. These include ASU 2018-19 (issued in November 2018), ASU 2019-04 (issued in April 2019), ASU 2019-05 (issued in May 2019) and ASU 2019-11 (issued in November 2019).

The Bancorp adopted the amended guidance on January 1, 2020, using a modified retrospective approach, although certain provisions of the guidance are only required to be applied on a prospective basis. Upon adoption, the Bancorp recorded a combined increase to the ALLL and

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reserve for unfunded commitments of approximately $653 million and a cumulative-effect adjustment to retained earnings of $472 million. Of the increase to the ALLL, approximately $33 million pertained to the recognition of an ALLL on purchased financial assets with credit deterioration and was also added to the carrying value of the related loans. Adoption of the amended guidance did not have a material impact to the Bancorp’s investment securities portfolio. The required disclosures are included in Note 7.

ASU 2017-04 – Intangibles—Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment

In January 2017, the FASB issued ASU 2017-04 which simplifies the test for goodwill impairment by removing the second step, which measures the amount of impairment loss, if any. Instead, the amended guidance states that an entity should recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value, except that the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. This would apply to all reporting units, including those with zero or negative carrying amounts of net assets. The Bancorp adopted the amended guidance on January 1, 2020. The amended guidance will be applied prospectively to all goodwill impairment tests performed after the adoption date.

ASU 2018-13 – Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement

In August 2018, the FASB issued ASU 2018-13 which modifies the disclosure requirements for fair value measurements. The amendments remove the requirements to disclose the amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy, the policy for timing of transfers between levels and the valuation processes for Level 3 fair value measurements. The amendments also add new disclosure requirements regarding unrealized gains and losses from recurring Level 3 fair value measurements and the significant unobservable inputs used to develop Level 3 fair value measurements. The Bancorp adopted the amended guidance on January 1, 2020 and the required disclosures are included in Note 29.

ASU 2018-15– Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract

In August 2018, the FASB issued ASU 2018-15, which provides guidance on the accounting for implementation, setup, and other upfront costs incurred by customers in cloud computing arrangements that are accounted for as service contracts. The amendments require that implementation costs be evaluated for capitalization using the framework applicable to costs incurred to develop or obtain internal-use software. Those capitalized costs are to be expensed over the term of the cloud computing arrangement and presented in the same financial statement line items as the service contract and its associated fees. The Bancorp adopted the amended guidance on January 1, 2020 on a prospective basis.

ASU 2020-04 – Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate on Financial Reporting and ASU 2021-01 – Reference Rate Reform (Topic 848): Scope

In March 2020, the FASB issued ASU 2020-04, which provides optional expedients and exceptions for applying U.S. GAAP to contracts, hedging relationships and other transactions affected by reference rate reform if certain criteria are met. The amendments in the ASU apply only to contracts, hedging relationships and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform. ASU 2021-01 clarified that the optional expedients and exceptions in Topic 848 for contract modifications and hedge accounting also apply to derivatives that are affected by the discounting transition. The expedients and exceptions provided by the amendments do not apply to contract modifications made and hedging relationships entered into or evaluated after December 31, 2022, except for hedging relationships existing as of December 31, 2022 that an entity has elected certain optional expedients for and that are retained through the end of the hedging relationship. The amendments in this ASU are effective for the Bancorp as of March 12, 2020 through December 31, 2022. The Bancorp is in the process of evaluating and applying, as applicable, the optional expedients and exceptions in accounting for eligible contract modifications, eligible existing hedging relationships and new hedging relationships available through December 31, 2022.

Standards Issued but Not Yet Adopted

The following accounting standard was issued but not yet adopted by the Bancorp as of December 31, 2020:

ASU 2019-12 – Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes

In December 2019, the FASB issued ASU 2019-12, which simplifies the accounting for income taxes by removing certain exceptions to the general principles in Topic 740. The amendments also clarify and amend existing guidance for other areas of Topic 740. The amended guidance was adopted by the Bancorp on January 1, 2021 either prospectively or retrospectively for the specific amendment based on the transition method prescribed by the FASB. The adoption of the amended guidance did not have a material impact on the Consolidated Financial Statements.

Regulatory Developments Related to the COVID-19 Pandemic

On March 22, 2020, various national banking regulatory agencies jointly issued an interagency statement addressing loan modifications and reporting for financial institutions working with customers affected by the COVID-19 pandemic. The statement describes the agencies’ interpretation of how existing guidance in U.S. GAAP applies to certain loan modifications related to COVID-19. Among other things, the statement affirms that short-term modifications (e.g., six months) made on a good faith basis in response to COVID-19 to borrowers who were less than 30 days past due on contractual payments at the time a modification program is implemented would not be considered TDRs.

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The statement also clarifies that loans modified in response to the COVID-19 pandemic should be evaluated on the basis of their modified terms when reporting loans as past due and evaluating for nonaccrual status and charge-off.

On March 27, 2020, the CARES Act was signed into law. Section 4013 of the CARES Act provides financial institutions the option to temporarily suspend certain requirements under U.S. GAAP related to TDRs for a limited period of time in certain circumstances. This temporary suspension may only be applied to modifications of loans that were not more than 30 days past due as of December 31, 2019 and may not be applied to modifications that are not related to the COVID-19 pandemic. If elected, the temporary suspension may be applied to eligible modifications executed during the period beginning on March 1, 2020 and ending on the earlier of December 31, 2020 or 60 days after the termination of the COVID-19 national emergency. The December 31, 2020 expiration date was subsequently extended to January 1, 2022 upon passage of the Consolidated Appropriations Act of 2021. On April 7, 2020, the national banking regulatory agencies revised their previously issued interagency statement to clarify the interactions with the provisions of Section 4013 of the CARES Act.

The Bancorp has elected to apply the temporary suspension of TDR requirements provided by the CARES Act for eligible loan modifications. For loan modifications that are not eligible for the suspension offered by the CARES Act or that are executed outside its applicable period, the Bancorp considers the interpretive guidance provided in the revised interagency statement to evaluate loan modifications within its scope, or existing TDR evaluation policies if the modification does not fall within the scope of the interagency statement.

Loans and leases which received payment deferrals or forbearances as part of the Bancorp’s COVID-19 hardship relief programs are generally not reported as delinquent during the forbearance or deferral period if the loan or lease was less than 30 days past due at March 1, 2020 (the effective date of the COVID-19 national emergency declaration) unless the loan or lease subsequently becomes delinquent according to its modified terms. Those loans and leases that were 30 days or more past due at March 1, 2020 continue to be reported at their March 1, 2020 delinquency status unless the borrower makes supplemental payments to resolve the delinquency. After the conclusion of the payment deferral or forbearance period, borrowers who were delinquent as of March 1, 2020 may be returned to current status once they demonstrate a willingness and ability to repay the loan according to its modified terms. This may be evidenced by payment history after the payment deferral or forbearance period, or by completing an evaluation of the borrower’s creditworthiness upon exit from the Bancorp’s hardship programs.

For loans that received payment deferrals or forbearances as part of the Bancorp’s COVID-19 hardship relief programs, the Bancorp continues to accrue interest and recognize interest income during the period of the deferral. Depending on the terms of each program, all or a portion of this accrued interest may be paid directly by the borrower (either during the relief period, at the end of the relief period or at maturity of the loan) or added to the customer’s outstanding balance. For certain programs, the maturity date of the loan may also be extended by the number of payments deferred. Interest income will continue to be recognized at the original contractual interest rate unless that rate is concurrently modified upon entering the relief program (in which case, the modified rate would be used to recognize interest).

On April 10, 2020, the FASB staff issued a question-and-answer document (Q&A) to address questions on the application of the lease accounting guidance for lease concessions related to the effects of the COVID-19 pandemic. Under Topic 842, subsequent changes to lease payments that are not stipulated in the original lease contract are generally accounted for as lease modifications. Some contracts may contain explicit or implicit enforceable rights and obligations that require lease concessions in certain circumstances and therefore would not be considered a lease modification. Given the significant cost and complexity in assessing the large volume of lease contracts for which concessions are being granted due to the COVID-19 pandemic, the FASB clarified in this Q&A that an entity can elect to account for lease concessions associated with the COVID-19 pandemic as though enforceable rights and obligations for those concessions existed. This guidance eliminates the requirement to analyze each contract to determine whether enforceable rights and obligations to provide concessions exist and allows an entity to elect to apply or not apply the lease modification guidance in Topic 842. This election is only available for concessions related to the effect of the COVID-19 pandemic that do not result in a substantial increase in the rights of the lessor or the obligations of the lessee.

The Bancorp has elected to not apply the lease modification accounting guidance in Topic 842 for lease concessions granted as a result of the COVID-19 pandemic as the deferrals only affect the timing of the payments and the amount of consideration to be received is substantially the same as that required by the original contract.

For commercial leases that received payment deferrals under the Bancorp’s COVID-19 hardship relief programs, the Bancorp continues to recognize interest income during the deferral period, but the yield is recalculated based on the timing and amount of remaining payments over the remaining lease term. The revised yield is used for prospectively recognizing interest income and adjusting the net investment in the lease. The Bancorp’s hardship relief programs for commercial leases affect the timing of payments but do not generally result in an increase in the rights of the lessor or the obligations of the lessee. Therefore, the Bancorp has elected to forego certain requirements that would typically apply for lease modifications when accounting for the effects of the hardship relief programs.

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2. Supplemental Cash Flow Information

Cash payments related to interest and income taxes in addition to non-cash investing and financing activities are presented in the following table for the years ended December 31:


($ in millions)	2020		2019	2018
Cash Payments:
Interest	$	825	1,441	1,016
Income taxes	491		726	359

Transfers:
Portfolio loans and leases to loans and leases held for sale(a)	$	926	211	275
Loans and leases held for sale to portfolio loans and leases	49		37	95
Portfolio loans and leases to OREO	12		29	39
Loans and leases held for sale to OREO	2		—	—

Supplemental Disclosures:
Additions to lease liabilities under operating leases	$	56	76	—
Additions to lease liabilities under finance leases	110		24	—
Right-of-use assets recognized at adoption of ASU 2016-02	—		509	—
Conversion of outstanding preferred stock issued by a Bancorp subsidiary	—		197	—

(a) Includes $794 of residential mortgage loans previously sold to GNMA which the Bancorp was initially deemed to have regained effective control over under ASC Topic 860 and which were recorded as portfolio loans. The Bancorp subsequently repurchased these loans and classified them as held for sale.

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3. Business Combination

On March 22, 2019, Fifth Third Bancorp completed its acquisition of MB Financial, Inc. in a stock and cash transaction valued at approximately $3.6 billion. MB Financial, Inc. was headquartered in Chicago, Illinois with reported assets of approximately $20 billion and 86 branches (91 locations) as of December 31, 2018 and was the holding company of MB Financial Bank, N.A. The acquisition resulted in a combined company with a larger Chicago market presence and core deposit funding base while also building scale in a strategically important market.

Under the terms of the agreement, the Bancorp acquired 100% of the common stock of MB Financial, Inc. In exchange, common shareholders of MB Financial, Inc. received 1.45 shares of Fifth Third Bancorp common stock and $5.54 in cash for each share of MB Financial, Inc. common stock, for a total value per share of $42.49, based on the $25.48 closing price of Fifth Third Bancorp’s common stock on March 21, 2019. Upon closing of the transaction, MB Financial, Inc. became a subsidiary of the Bancorp. However, MB Financial, Inc.’s 6.00% non-cumulative Series C perpetual preferred stock with a fair value of $197 million remained outstanding and was recognized as a noncontrolling interest on the Consolidated Balance Sheets. Through its ownership of all of the common stock, the Bancorp controlled 95% of the voting equity interests in MB Financial, Inc. with the remainder attributable to the preferred shareholders’ noncontrolling interest.

On June 24, 2019, MB Financial, Inc. entered into an Agreement and Plan of Merger with the Bancorp to provide for the merger of MB Financial, Inc. with and into the Bancorp, with the Bancorp as the surviving corporation. A special meeting of MB Financial, Inc.’s stockholders was held on August 23, 2019 at which the holders of MB Financial, Inc.’s common stock and preferred stock, voting together as a single class, approved the merger. In the merger, each outstanding share of MB Financial, Inc.’s preferred stock was converted into the right to receive one share of a newly created series of preferred stock of the Bancorp having substantially the same terms as the MB Financial, Inc. preferred stock.

On August 26, 2019, the Bancorp issued 200,000 shares of 6.00% non-cumulative Class B perpetual preferred stock, Series A. Each preferred share has a $1,000 liquidation preference. These shares were issued to the holders of MB Financial, Inc.’s 6.00% non-cumulative Series C perpetual preferred stock in conjunction with the merger of MB Financial, Inc. with and into Fifth Third Bancorp. This transaction resulted in the elimination of the noncontrolling interest in MB Financial, Inc. which was previously reported in the Bancorp’s Consolidated Financial Statements. The newly issued shares of Class B preferred stock, Series A were recognized by the Bancorp at the carrying value previously assigned to the MB Financial, Inc. Series C preferred stock prior to the transaction.

The acquisition of MB Financial, Inc. constituted a business combination and was accounted for under the acquisition method of accounting. Accordingly, the assets acquired, liabilities assumed and noncontrolling interest recognized were recorded at their estimated fair values as of the acquisition date. These fair value estimates were final as of March 31, 2020.

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The following table reflects consideration paid and the noncontrolling interest recognized for MB Financial, Inc.’s net assets and the amounts of acquired identifiable assets and liabilities assumed at their fair values as of the acquisition date:


($ in millions)
Consideration paid
Cash payments				$	469
Fair value of common stock issued				3,121
Stock-based awards				38
Dividend receivable from MB Financial, Inc.				(20)
Total consideration paid				$	3,608
Fair value of noncontrolling interest in acquiree				$	197
Net Identifiable Assets Acquired, at Fair Value:
Assets
Cash and due from banks	$	1,679
Federal funds sold	35
Other short-term investments	53
Available-for-sale debt and other securities	832
Held-to-maturity securities	4
Equity securities	51
Loans and leases held for sale	12
Portfolio loans and leases	13,414		(a)
Bank premises and equipment	266		(a)
Operating lease equipment	394		(a)
Intangible assets	219		(a)
Servicing rights	263
Other assets	750		(a)
Total assets acquired	$	17,972
Liabilities
Deposits	$	14,489
Other short-term borrowings	267		(a)
Accrued taxes, interest and expenses	276		(a)
Other liabilities	194		(a)
Long-term debt	727		(a)
Total liabilities assumed	$	15,953
Net identifiable assets acquired				$	2,019
Goodwill				$	1,786

*(a)*Fair values have been updated from the estimates reported in the March 31, 2019 quarterly report on Form 10-Q.

In connection with the acquisition, the Bancorp recognized approximately $1.8 billion of goodwill, of which $15 million relates to 15-year tax deductible goodwill from MB Financial, Inc.’s prior acquisitions. See Note 11 for further information on goodwill recognized and Note 12 for further information on intangible assets acquired in the acquisition of MB Financial, Inc.

The following is a description of the methods used to determine the estimated fair values of significant assets and liabilities presented above.

Cash and due from banks and other short-term investments

For financial instruments with a short-term or no stated maturity, prevailing market rates and limited credit risk, carrying amounts approximate fair value.

Available-for-sale debt and other securities, held-to-maturity securities and equity securities

Fair values for securities were based on quoted market prices, where available. If quoted market prices were not available, fair value estimates were based on observable inputs including quoted market prices for similar instruments, quoted market prices that are not in an active market or other inputs that are observable in the market. In the absence of observable inputs, fair value was estimated based on pricing models and/or DCF methodologies.

Loans and leases held for sale and portfolio loans and leases

Fair values for loans were based on a DCF methodology that considered factors including the type of loan and related collateral, fixed or variable interest rate, remaining term, credit quality ratings or scores, amortization status and current discount rates. Loans with similar characteristics were pooled together when applying various valuation techniques. The discount rates used for loans were based on an evaluation of current market rates for new originations of comparable loans and a market participant’s required rate of return to purchase

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similar assets, including adjustments for liquidity and credit quality when necessary. For PCI loans (now PCD loans effective January 1, 2020 upon the adoption of ASU 2016-13), the DCF methodology was based on the Bancorp’s estimate of contractual cash flows expected to be collected.

Bank premises and equipment

Fair values for bank premises and equipment were generally based on appraisals of the property values.

Operating lease equipment

Fair values for operating lease equipment were generally developed using the cost approach. The seller’s historical cost was adjusted by cost trend indices relevant to the asset type and vintage to arrive at a current reproduction cost. This reproduction cost was then adjusted for deterioration based on the age and typical life of each class of assets. Residual values were estimated based on analysis of the seller’s historical trends of residual value realization by asset class.

Intangible assets

The core deposit intangible asset represents the value of relationships with deposit customers. The fair value was estimated based on a DCF methodology that considered expected customer attrition rates, net maintenance cost of the deposit base, alternative cost of funds and the interest costs associated with customer deposits. The core deposit intangible is being amortized on an accelerated basis over its estimated useful life.

For acquired operating leases where the Bancorp is the lessor, intangible assets are recognized when contract terms of the lease are more favorable than market terms as of the acquisition date. Operating lease intangibles are amortized on a straight-line basis over the remaining lease term.

Servicing rights

Fair values for servicing rights were estimated using internal OAS models with certain unobservable inputs, primarily prepayment speed assumptions, OAS and weighted-average lives.

Other assets

Fair values for ROU assets associated with real estate operating leases were based on current market rental rates for similar properties in the same area, discounted at the Bancorp’s incremental borrowing rates as of the acquisition date. Estimates of current market rental rates were generally based on third- party market rent studies performed for each significant property.

Deposits

The fair values for time deposits were estimated using a DCF methodology whereby the contractual remaining cash flows were discounted using market rates currently being offered for time deposits of similar maturities. For transactional deposits, carrying amounts approximate fair value.

Long-term debt

The fair values of long-term debt instruments were estimated based on quoted market prices for identical or similar instruments if available, or by using DCF analyses based on current incremental borrowing rates for similar types of instruments.

Merger-Related Expenses

Direct merger-related expenses related to the acquisition of MB Financial, Inc. were expensed as incurred by the Bancorp and were $16 million and $222 million for the years ended December 31, 2020 and 2019, respectively.

The following table provides a summary of merger-related expenses recorded in noninterest expense for the years ended December 31:


($ in millions)	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

Pro Forma Information

The following table presents unaudited pro forma information as if the acquisition of MB Financial, Inc. had occurred on January 1, 2018. This pro forma information combines the historical condensed consolidated results of operations of Fifth Third Bancorp and MB Financial,

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Inc. after giving effect to certain adjustments, including purchase accounting fair value adjustments, amortization of intangibles, stock-based compensation expense and acquisition costs, as well as the related income tax effects of those adjustments. The pro forma results also reflect reclassification adjustments to noninterest income and noninterest expense to conform MB Financial, Inc.’s presentation of operating lease income and the related depreciation expense with the Bancorp’s presentation. Direct costs associated with the acquisition were included in pro forma earnings as of January 1, 2018.

The pro forma information does not necessarily reflect the results of operations that would have occurred had Fifth Third Bancorp acquired MB Financial, Inc. on January 1, 2018. Furthermore, cost savings and other business synergies related to the acquisition are not reflected in the unaudited pro forma amounts.


	Unaudited Pro Forma Information
($ in millions)	For the year ended December 31, 2019
Net interest income	$	4,918
Noninterest income		3,638
Net income available to common shareholders		2,534

Acquired Loans and Leases

Prior to the adoption of ASU 2016-13 on January 1, 2020, purchased loans were evaluated for evidence of credit deterioration at acquisition and recorded at their initial fair value. Generally, the fair value discount or premium on acquired loans and leases was amortized over the contractual life of the loan as an adjustment to yield. For loans acquired with evidence of credit impairment (PCI loans), the Bancorp determined at the acquisition date the excess of the loan’s contractually required payments over all cash flows expected to be collected as an amount that should not be accreted into interest income (nonaccretable difference). The remaining amount representing the difference in the expected cash flows of acquired loans and the initial investment in the acquired loans was accreted into interest income over the remaining life of the loan or pool of loans (accretable yield). This method of accounting for loans acquired with credit impairment did not apply to loans carried at fair value, residential mortgage loans held for sale and loans under revolving credit agreements. Refer to Note 1 for additional information on the accounting for PCI loans. The Bancorp elected to account for loans acquired from MB Financial, Inc., which were not considered impaired but exhibited evidence of credit deterioration since origination, in the same manner as PCI loans.

The following table reflects the contractually required payments receivable, cash flows expected to be collected and estimated fair value of loans identified as PCI loans on the acquisition date of MB Financial, Inc. These fair value estimates were final as of March 31, 2020.


($ in millions)	March 22, 2019
Contractually required payments including interest	$	1,139
Less: Nonaccretable difference	81
Cash flows expected to be collected	1,058
Less: Accretable yield	202
Fair value of loans acquired	$	856

A summary of activity related to accretable yield is as follows:


($ in millions)	Accretable Yield
Balance as of December 31, 2018	$	—
Additions	202
Accretion	(41)
Reclassifications (to) from nonaccretable difference	(14)
Balance as of December 31, 2019	$	147

At the MB Financial, Inc. acquisition date, contractual balances on the purchased non-PCI loans and leases totaled $12.7 billion with a corresponding fair value of $12.5 billion.

ASU 2016-13, which was adopted by the Bancorp on January 1, 2020, superseded the accounting for PCI loans and transitioned to the accounting for PCD loans. As such, the Bancorp no longer recognizes a nonaccretable difference or accretable yield, but instead includes expected credit losses on loans acquired with evidence of credit deterioration as part of the ALLL and amortizes any remaining noncredit discount over the remaining contractual life of the loan as an adjustment to yield. Upon adoption, the Bancorp increased the ALLL by $33 million to reflect expected credit losses on loans previously designated as PCI loans. This amount was added to the amortized cost basis of the loans at transition. After this adjustment, the remaining difference between the amortized cost basis and unpaid principal balance is considered to be a noncredit discount. The noncredit discount totaled $87 million as of January 1, 2020. Refer to Note 1 for additional information about ASU 2016-13 and refer to Note 7 for additional information on the Bancorp’s portfolio of PCD loans.

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Bank Merger

On May 3, 2019 MB Financial Bank, N.A. merged with and into Fifth Third Bank (now Fifth Third Bank, National Association), with Fifth Third Bank, National Association as the surviving entity. Fifth Third Bank, National Association is an indirect subsidiary of Fifth Third Bancorp.

4. Restrictions on Cash, Dividends and Other Capital Actions

Reserve Requirement

The FRB, under Regulation D, requires that banks hold cash in reserve against deposit liabilities when total reservable deposit liabilities are greater than the regulatory exemption, known as the reserve requirement. The reserve requirement is calculated based on a two-week average of daily net transaction account deposits as defined by the FRB and may be satisfied with average vault cash during the following two-week maintenance period. When vault cash is not sufficient to meet the reserve requirement, the remaining amount must be satisfied with average funds held at the FRB. As part of the government response to the COVID-19 pandemic, the FRB has taken a range of actions to support the flow of credit to households and businesses, including reducing the reserve requirement to zero effective March 26, 2020. The reserve requirement continued to be zero at December 31, 2020. At December 31, 2019, the Bancorp’s banking subsidiary reserve requirement was $1.7 billion. Additionally, the Bancorp’s banking subsidiary average reserve requirement was $1.7 billion in 2019.

Restrictions on Cash Dividends

The principal source of income and funds for the Bancorp (parent company) are dividends from its subsidiaries. The dividends paid by the Bancorp’s banking subsidiary are subject to regulations and limitations prescribed by state and federal supervisory agencies. The Bancorp’s banking subsidiary paid the Bancorp’s nonbank subsidiary holding company, which in turn paid the Bancorp $1.3 billion and $2.0 billion in dividends during the years ended December 31, 2020 and 2019, respectively. Additionally, a $200 million dividend was paid by MB Financial, Inc. to the Bancorp during the year ended December 31, 2019. The Bancorp’s nonbank subsidiaries are also limited by certain federal and state statutory provisions and regulations covering the amount of dividends that may be paid in any given year. Additionally, as discussed below, during 2020 the FRB took actions in response to the COVID-19 pandemic that limit the amount of cash dividends that the Bancorp may pay to its shareholders.

Capital Actions

The Bancorp is subject to restrictions on its capital actions, primarily as a result of supervisory policies set by the FRB. The Bancorp is required to develop and maintain a capital plan that governs its capacity to pay dividends and execute share repurchases and this plan is required to be submitted to the FRB periodically.

In June 2020, the FRB took several actions in connection with its announcement of stress test results in light of the uncertainty caused by the COVID-19 pandemic. Specifically, for the third quarter of 2020, the FRB required large banking organizations, including the Bancorp, to suspend share repurchases, cap dividend payments to the amount paid during the second quarter of 2020, and further limit dividends according to a formula based on recent income. Additionally, on September 30, 2020 the FRB extended the third quarter of 2020 restrictions on share repurchases and dividends to the fourth quarter of 2020, and dividends remain limited according to a formula based on recent income. The Bancorp did not execute any accelerated share repurchase or open market share repurchase transactions during the year ended December 31, 2020 but increased its quarterly common stock dividend to $0.27 per share in the first quarter of 2020.

The FRB also required large banking organizations, including the Bancorp, to reevaluate their longer-term capital plans, and such organizations were required to update and resubmit their capital plans to reflect stresses caused by the COVID-19 pandemic. The Bancorp resubmitted its capital plan as required. The FRB may conduct additional analysis each quarter to determine if adjustments to this response are appropriate.

In December 2020, the FRB announced an extension of its restrictions on distributions through the first quarter of 2021, but with certain modifications. For the first quarter of 2021, both dividends and share repurchases are limited to an amount based on recent income provided the Bancorp does not increase the amount of its common stock dividend. Refer to Note 33 for further information about a subsequent event related to capital actions.

The Bancorp executed accelerated share repurchase and open market share repurchase transactions during the year ended December 31, 2019. For more information related to these transactions, refer to Note 25.

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5. Investment Securities

The following table provides the amortized cost, unrealized gains and losses and fair value for the major categories of the available-for-sale debt and other securities and held-to-maturity securities portfolios as of December 31:


	2020					2019
($ in millions)	Amortized Cost		Unrealized Gains	Unrealized Losses	Fair Value	Amortized Cost	Unrealized Gains	Unrealized Losses	Fair Value
Available-for-sale debt and other securities:
U.S. Treasury and federal agencies securities	$	74	4	—	78	74	1	—	75
Obligations of states and political subdivisions securities	17		—	—	17	18	—	—	18
Mortgage-backed securities:
Agency residential mortgage-backed securities	11,147		768	(8)	11,907	13,746	388	(19)	14,115
Agency commercial mortgage-backed securities	16,745		1,481	(5)	18,221	15,141	564	(12)	15,693
Non-agency commercial mortgage-backed securities	3,323		267	—	3,590	3,242	123	—	3,365
Asset-backed securities and other debt securities	3,152		48	(24)	3,176	2,189	29	(12)	2,206
Other securities(a)	524		—	—	524	556	—	—	556
Total available-for-sale debt and other securities	$	34,982	2,568	(37)	37,513	34,966	1,105	(43)	36,028
Held-to-maturity securities:
Obligations of states and political subdivisions securities	$	9	—	—	9	15	—	—	15
Asset-backed securities and other debt securities	2		—	—	2	2	—	—	2
Total held-to-maturity securities	$	11	—	—	11	17	—	—	17

*(a)*Other securities consist of FHLB, FRB and DTCC restricted stock holdings of $40, $482 and $2, respectively, at December 31, 2020 and $76, $478 and $2, respectively, at December 31, 2019, that are carried at cost.

The following table provides the fair value of trading debt securities and equity securities as of December 31:


($ in millions)	2020		2019
Trading debt securities	$	560	297
Equity securities	313		564

The amounts reported in the preceding tables exclude accrued interest receivable on investment securities of $87 million at December 31, 2020, which is presented as a component of other assets in the Consolidated Balance Sheets.

The Bancorp uses investment securities as a means of managing interest rate risk, providing collateral for pledging purposes and for liquidity to satisfy regulatory requirements. As part of managing interest rate risk, the Bancorp acquires securities as a component of its MSR non-qualifying hedging strategy, with net gains or losses recorded in securities gains (losses), net – non-qualifying hedges on MSRs in the Consolidated Statements of Income.

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The following table presents securities gains (losses) recognized in the Consolidated Statements of Income for the years ended December 31:


($ in millions)	2020		2019	2018
Available-for-sale debt and other securities:
Realized gains	$	47	60	72
Realized losses	(2)		(50)	(82)
OTTI	—		(1)	—
Net realized gains (losses) on available-for-sale debt and other securities	$	45	9	(10)
Total trading debt securities gains (losses)	$	2	3	(15)
Total equity securities gains (losses)(a)	$	17	31	(44)
Total gains (losses) recognized in income from available-for-sale debt and other securities, trading debt securities and equity securities(b)	$	64	43	(69)

*(a)*Includes $7 of net unrealized gains, $26 of net unrealized gains and $45 of net unrealized losses for the years ended December 31, 2020, 2019 and 2018, respectively.

*(b)*Excludes $5 and $7 of net securities gains for the years ended December 31, 2020 and 2019, respectively, and an insignificant amount of net securities losses for the year ended December 31, 2018 related to securities held by FTS to facilitate the timely execution of customer transactions. These gains (losses) are included in commercial banking revenue and wealth and asset management revenue in the Consolidated Statements of Income.

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

At December 31, 2020, the Bancorp completed its evaluation of the available-for-sale debt and other securities in an unrealized loss position and did not recognize an allowance for credit losses. The Bancorp did not recognize provision expense for the year ended December 31, 2020 related to available-for-sale debt and other securities in an unrealized loss position.

At December 31, 2020 and 2019, investment securities with a fair value of $11.0 billion and $8.1 billion, respectively, were pledged to secure borrowings, public deposits, trust funds, derivative contracts and for other purposes as required or permitted by law.

The expected maturity distribution of the Bancorp’s mortgage-backed securities and the contractual maturity distribution of the remainder of the Bancorp’s available-for-sale debt and other securities and held-to-maturity investment securities as of December 31, 2020 are shown in the following table:


	Available-for-Sale Debt and Other			Held-to-Maturity
($ in millions)	Amortized Cost		Fair Value	Amortized Cost	Fair Value
Debt securities:(a)
Less than 1 year	$	633	648	2	2
1-5 years	15,881		16,959	7	7
5-10 years	12,214		13,385	—	—
Over 10 years	5,730		5,997	2	2
Other securities	524		524	—	—
Total	$	34,982	37,513	11	11

*(a)*Actual maturities may differ from contractual maturities when a right to call or prepay obligations exists with or without call or prepayment penalties.

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The following table provides the fair value and gross unrealized losses on available-for-sale debt and other securities in an unrealized loss position, aggregated by investment category and length of time the individual securities have been in a continuous unrealized loss position as of December 31:


	Less than 12 months			12 months or more		Total
($ in millions)	Fair Value		Unrealized Losses	Fair Value	Unrealized Losses	Fair Value	Unrealized Losses
2020
Agency residential mortgage-backed securities	$	426	(8)	1	—	427	(8)
Agency commercial mortgage-backed securities	388		(5)	—	—	388	(5)
Non-agency commercial mortgage-backed securities	2		—	—	—	2	—
Asset-backed securities and other debt securities	520		(7)	603	(17)	1,123	(24)
Total	$	1,336	(20)	604	(17)	1,940	(37)
2019
Agency residential mortgage-backed securities	$	2,159	(19)	4	—	2,163	(19)
Agency commercial mortgage-backed securities	1,602		(12)	—	—	1,602	(12)
Asset-backed securities and other debt securities	367		(3)	379	(9)	746	(12)
Total	$	4,128	(34)	383	(9)	4,511	(43)

At December 31, 2020 and 2019, $1 million and an immaterial amount of unrealized losses in the available-for-sale debt and other securities portfolio were represented by non-rated securities, respectively.

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6. Loans and Leases

The Bancorp diversifies its loan and lease portfolio by offering a variety of loan and lease products with various payment terms and rate structures. The Bancorp’s commercial loan and lease portfolio consists of lending to various industry types. Management periodically reviews the performance of its loan and lease products to evaluate whether they are performing within acceptable interest rate and credit risk levels and changes are made to underwriting policies and procedures as needed. The Bancorp maintains an allowance to absorb loan and lease losses that are expected to be incurred over the remaining contractual terms of the related loans and leases. For further information on credit quality and the ALLL, refer to Note 7.

The following table provides a summary of commercial loans and leases classified by primary purpose and consumer loans classified based upon product or collateral as of December 31:


($ in millions)	2020		2019
Loans and leases held for sale:
Commercial and industrial loans	$	230	135
Commercial mortgage loans	7		1
Commercial leases	39		—
Residential mortgage loans	4,465		1,264
Total loans and leases held for sale	$	4,741	1,400
Portfolio loans and leases:
Commercial and industrial loans(a)	$	49,665	50,542
Commercial mortgage loans	10,602		10,963
Commercial construction loans	5,815		5,090
Commercial leases	2,915		3,363
Total commercial loans and leases	68,997		69,958
Residential mortgage loans(b)	15,928		16,724
Home equity	5,183		6,083
Indirect secured consumer loans	13,653		11,538
Credit card	2,007		2,532
Other consumer loans	3,014		2,723
Total consumer loans	39,785		39,600
Total portfolio loans and leases	$	108,782	109,558

*(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 for further information.

Portfolio loans and leases are recorded net of unearned income, which totaled $280 million as of December 31, 2020 and $354 million as of December 31, 2019. Additionally, portfolio loans and leases are recorded net of unamortized premiums and discounts, deferred direct loan origination fees and costs and fair value adjustments (associated with acquired loans or loans designated as fair value upon origination) which totaled a net premium of $251 million and $249 million as of December 31, 2020 and 2019, respectively. The amortized cost basis of loans and leases excludes accrued interest receivable of $350 million at December 31, 2020, which is presented as a component of other assets in the Consolidated Balance Sheets.

The Bancorp’s FHLB and FRB borrowings are primarily secured by loans. The Bancorp had loans of $15.5 billion and $16.7 billion at December 31, 2020 and 2019, respectively, pledged at the FHLB, and loans of $37.8 billion and $47.3 billion at December 31, 2020 and 2019, respectively, pledged at the FRB.

The following table presents a summary of the total loans and leases owned by the Bancorp and net charge-offs (recoveries) as of and for the years ended December 31:

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	Carrying Value			90 Days Past Due and Still Accruing		Net Charge-Offs (Recoveries)
($ in millions)	2020		2019	2020	2019	2020	2019
Commercial and industrial loans	$	49,895	50,677	39	11	198	103
Commercial mortgage loans	10,609		10,964	8	15	45	(2)
Commercial construction loans	5,815		5,090	—	—	—	—
Commercial leases	2,954		3,363	1	—	23	7
Residential mortgage loans	20,393		17,988	70	50	2	4
Home equity	5,183		6,083	2	1	5	18
Indirect secured consumer loans	13,653		11,538	10	10	32	50
Credit card	2,007		2,532	31	42	126	134
Other consumer loans	3,014		2,723	2	1	40	55
Total loans and leases	$	113,523	110,958	163	130	471	369
Less: Loans and leases held for sale	$	4,741	1,400
Total portfolio loans and leases	$	108,782	109,558

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

The following table presents the components of the net investment in leases as of December 31:


($ in millions)(a)	2020		2019
Net investment in direct financing leases:
Lease payment receivable (present value)	$	1,400	2,196
Unguaranteed residual assets (present value)	181		220
Net discount on acquired leases	(1)		(7)
Net investment in sales-type leases:
Lease payment receivable (present value)	976		510
Unguaranteed residual assets (present value)	36		15

*(a)*Excludes $323 and $429 of leveraged leases at December 31, 2020 and 2019, respectively.

Interest income recognized in the Consolidated Statements of Income for the years ended December 31, 2020 and 2019 was $64 million and $88 million, respectively, for direct financing leases and $28 million and $13 million, respectively, for sales-type leases.

The following table presents undiscounted cash flows for both direct financing and sales-type leases for 2021 through 2025 and thereafter as well as a reconciliation of the undiscounted cash flows to the total lease receivables as follows:


As of December 31, 2020 ($ in millions)	Direct Financing Leases		Sales-Type Leases
2021	$	470	297
2022	360		253
2023	227		183
2024	161		132
2025	115		69
Thereafter	164		129
Total undiscounted cash flows	$	1,497	1,063
Less: Difference between undiscounted cash flows and discounted cash flows	97		87
Present value of lease payments (recognized as lease receivables)	$	1,400	976

The lease residual value represents the present value of the estimated fair value of the leased equipment at the end of the lease. The Bancorp performs quarterly reviews of residual values associated with its leasing portfolio considering factors such as the subject equipment, structure of the transaction, industry, prior experience with the lessee and other factors that impact the residual value to assess for impairment. The Bancorp maintained an allowance of $29 million at December 31, 2020 to cover the losses that are expected to be incurred over the remaining contractual terms of the related leases, including the potential losses related to the residual value, in the net investment in leases. The Bancorp maintained an allowance of $17 million at December 31, 2019 to cover the inherent losses, including the potential losses related to the residual value, in the net investment in leases. Refer to Note 7 for additional information on credit quality and the ALLL.

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7. Credit Quality and the Allowance for Loan and Lease Losses

The Bancorp disaggregates ALLL balances and transactions in the ALLL by portfolio segment. Credit quality related disclosures for loans and leases are further disaggregated by class.

Allowance for Loan and Lease Losses

The following tables summarize transactions in the ALLL by portfolio segment for the years ended December 31:


2020 ($ in millions)	Commercial		Residential Mortgage	Consumer	Unallocated	Total
Balance, beginning of period	$	710	73	298	121	1,202
Impact of adoption of ASU 2016-13(a)	160		196	408	(121)	643
Losses charged-off(b)	(282)		(9)	(320)	—	(611)
Recoveries of losses previously charged-off(b)	16		7	117	—	140
Provision for loan and lease losses	852		27	200	—	1,079
Balance, end of period	$	1,456	294	703	—	2,453

*(a)*Includes $31, $2 and $1 in Commercial, Residential Mortgage and Consumer, respectively, related to the initial recognition of an ALLL on PCD loans.

*(b)*The Bancorp recorded $42 in both losses charged-off and recoveries of losses charged-off related to customer defaults on point-of-sale consumer loans for which the Bancorp obtained recoveries under third-party credit enhancements.


2019 ($ in millions)	Commercial		Residential Mortgage	Consumer	Unallocated	Total
Balance, beginning of period	$	645	81	267	110	1,103
Losses charged-off(a)	(127)		(9)	(374)	—	(510)
Recoveries of losses previously charged-off(a)	19		5	117	—	141
Provision for (benefit from) loan and lease losses	173		(4)	288	11	468
Balance, end of period	$	710	73	298	121	1,202

*(a)*The Bancorp recorded $48 in both losses charged-off and recoveries of losses charged-off related to customer defaults on point-of-sale consumer loans for which the Bancorp obtained recoveries under third-party credit enhancements.


2018 ($ in millions)	Commercial		Residential Mortgage	Consumer	Unallocated	Total
Balance, beginning of period	$	753	89	234	120	1,196
Losses charged-off(a)	(157)		(13)	(280)	—	(450)
Recoveries of losses previously charged-off(a)	25		6	89	—	120
Provision for (benefit from) loan and lease losses	24		(1)	224	(10)	237
Balance, end of period	$	645	81	267	110	1,103

*(a)*The Bancorp recorded $29 in both losses charged-off and recoveries of losses charged-off related to customer defaults on point-of-sale consumer loans for which the Bancorp obtained recoveries under third-party credit enhancements.

The following tables provide a summary of the ALLL and related loans and leases classified by portfolio segment:


As of December 31, 2020 ($ in millions)	Commercial		Residential Mortgage	Consumer	Total
ALLL:(a)
Individually evaluated	$	114	68	43	225
Collectively evaluated	1,342		226	660	2,228
Total ALLL	$	1,456	294	703	2,453
Portfolio loans and leases:(b)
Individually evaluated	$	962	628	273	1,863
Collectively evaluated	67,701		15,073	23,569	106,343
Purchased credit deteriorated(c)	334		66	15	415
Total portfolio loans and leases	$	68,997	15,767	23,857	108,621

*(a)*Includes $3 related to commercial leveraged leases at December 31, 2020.

*(b)*Excludes $161 of residential mortgage loans measured at fair value and includes $323 of commercial leveraged leases, net of unearned income, at December 31, 2020.

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

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As of December 31, 2019 ($ in millions)	Commercial		Residential Mortgage	Consumer	Unallocated	Total
ALLL:(a)
Individually evaluated for impairment	$	82	55	33	—	170
Collectively evaluated for impairment	628		18	265	—	911
Unallocated	—		—	—	121	121
Total ALLL	$	710	73	298	121	1,202
Portfolio loans and leases:(b)
Individually evaluated for impairment	$	413	814	302	—	1,529
Collectively evaluated for impairment	69,047		15,690	22,558	—	107,295
Purchased credit impaired	498		37	16	—	551
Total portfolio loans and leases	$	69,958	16,541	22,876	—	109,375

*(a)*Includes $1 related to commercial leveraged leases at December 31, 2019.

*(b)*Excludes $183 of residential mortgage loans measured at fair value and includes $429 of commercial leveraged leases, net of unearned income at December 31, 2019.

CREDIT RISK PROFILE

Commercial Portfolio Segment

For purposes of monitoring the credit quality and risk characteristics of its commercial portfolio segment, the Bancorp disaggregates the segment into the following classes: commercial and industrial, commercial mortgage owner-occupied, commercial mortgage nonowner-occupied, commercial construction and commercial leases.

To facilitate the monitoring of credit quality within the commercial portfolio segment, the Bancorp utilizes the following categories of credit grades: pass, special mention, substandard, doubtful and loss. The five categories, which are derived from standard regulatory rating definitions, are assigned upon initial approval of credit to borrowers and updated periodically thereafter.

Pass ratings, which are assigned to those borrowers that do not have identified potential or well-defined weaknesses and for which there is a high likelihood of orderly repayment, are updated at least annually based on the size and credit characteristics of the borrower. All other categories are updated on a quarterly basis during the month preceding the end of the calendar quarter.

The Bancorp assigns a special mention rating to loans and leases that have potential weaknesses that deserve management’s close attention. If left uncorrected, these potential weaknesses may, at some future date, result in the deterioration of the repayment prospects for the loan or lease or the Bancorp’s credit position.

The Bancorp assigns a substandard rating to loans and leases that are inadequately protected by the current sound worth and paying capacity of the borrower or of the collateral pledged. Substandard loans and leases have well-defined weaknesses or weaknesses that could jeopardize the orderly repayment of the debt. Loans and leases in this grade also are characterized by the distinct possibility that the Bancorp will sustain some loss if the deficiencies noted are not addressed and corrected.

The Bancorp assigns a doubtful rating to loans and leases that have all the attributes of a substandard rating with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions and values, highly questionable and improbable. The possibility of loss is extremely high, but because of certain important and reasonable specific pending factors that may work to the advantage of and strengthen the credit quality of the loan or lease, its classification as an estimated loss is deferred until its more exact status may be determined. Pending factors may include a proposed merger or acquisition, liquidation proceeding, capital injection, perfecting liens on additional collateral or refinancing plans.

Loans and leases classified as loss are considered uncollectible and are charged off in the period in which they are determined to be uncollectible. Because loans and leases in this category are fully charged off, they are not included in the following tables.

For loans and leases that are collectively evaluated, the Bancorp utilizes models to forecast expected credit losses over a reasonable and supportable forecast period based on the probability of a loan or lease defaulting, the expected balance at the estimated date of default and the expected loss percentage given a default. For the commercial portfolio segment, the estimates for probability of default are primarily based on internal ratings assigned to each commercial borrower on a 13-point scale and historical observations of how those ratings migrate to a default over time in the context of macroeconomic conditions. For loans with available credit, the estimate of the expected balance at the time of default considers expected utilization rates, which are primarily based on macroeconomic conditions and the utilization history of similar borrowers under those economic conditions. The estimates for loss severity are primarily based on collateral type and coverage levels and the susceptibility of those characteristics to changes in macroeconomic conditions. Refer to Note 1 for additional information about the Bancorp’s processes for developing these models, estimating credit losses for periods beyond the reasonable and supportable forecast period and for estimating credit losses for individually evaluated loans.

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The following table summarizes the credit risk profile of the Bancorp’s commercial portfolio segment, by class and vintage:


As of December 31, 2020 ($ in millions)	Term Loans and Leases Amortized Cost Basis by Origination Year							Revolving Loans Amortized Cost Basis	Revolving Loans Converted to Term Loans Amortized Cost Basis
2020	2019		2018	2017	2016	Prior	Total
Commercial and industrial loans:
Pass	$	7,042	2,144	1,114	700	471	703	31,657	—	43,831
Special mention	66		46	167	46	5	21	2,317	—	2,668
Substandard	119		80	107	60	39	104	2,639	—	3,148
Doubtful	—		2	9	—	—	—	7	—	18
Total commercial and industrial loans	$	7,227	2,272	1,397	806	515	828	36,620	—	49,665
Commercial mortgage owner-occupied loans:
Pass	$	1,047	655	416	288	249	420	1,025	—	4,100
Special mention	58		12	16	7	2	17	64	—	176
Substandard	211		17	33	7	13	30	88	—	399
Doubtful	—		—	—	—	—	—	—	—	—
Total commercial mortgage owner-occupied loans	$	1,316	684	465	302	264	467	1,177	—	4,675
Commercial mortgage nonowner-occupied loans:
Pass	$	902	679	548	247	223	341	1,626	—	4,566
Special mention	252		68	17	8	36	9	416	—	806
Substandard	149		3	49	14	2	25	301	—	543
Doubtful	12		—	—	—	—	—	—	—	12
Total commercial mortgage nonowner-occupied loans	$	1,315	750	614	269	261	375	2,343	—	5,927
Commercial construction loans:
Pass	$	98	49	27	—	9	12	4,721	—	4,916
Special mention	67		—	—	—	—	—	591	—	658
Substandard	8		—	—	—	—	—	233	—	241
Doubtful	—		—	—	—	—	—	—	—	—
Total commercial construction loans	$	173	49	27	—	9	12	5,545	—	5,815
Commercial leases:
Pass	$	622	374	315	369	314	824	—	—	2,818
Special mention	5		16	5	—	—	—	—	—	26
Substandard	7		4	16	21	6	17	—	—	71
Doubtful	—		—	—	—	—	—	—	—	—
Total commercial leases	$	634	394	336	390	320	841	—	—	2,915
Total commercial loans and leases:
Pass	$	9,711	3,901	2,420	1,604	1,266	2,300	39,029	—	60,231
Special mention	448		142	205	61	43	47	3,388	—	4,334
Substandard	494		104	205	102	60	176	3,261	—	4,402
Doubtful	12		2	9	—	—	—	7	—	30
Total commercial loans and leases	$	10,665	4,149	2,839	1,767	1,369	2,523	45,685	—	68,997

The following table summarizes the credit risk profile of the Bancorp’s commercial portfolio segment, by class:


As of December 31, 2019 ($ in millions)	Pass		Special Mention	Substandard	Doubtful	Total
Commercial and industrial loans	$	47,671	1,423	1,406	42	50,542
Commercial mortgage owner-occupied loans	4,421		162	293	4	4,880
Commercial mortgage nonowner-occupied loans	5,866		135	82	—	6,083
Commercial construction loans	4,963		52	75	—	5,090
Commercial leases	3,222		53	88	—	3,363
Total commercial loans and leases	$	66,143	1,825	1,944	46	69,958

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Age Analysis of Past Due Commercial Loans and Leases

The following tables summarize the Bancorp’s amortized cost basis in portfolio commercial loans and leases, by age and class:


	Current Loans and Leases(a)			Past Due					Total Loans and Leases	90 Days Past Due and Still Accruing
As of December 31, 2020 ($ in millions)			30-89 Days(a)		90 Days or More(a)		Total Past Due
Commercial loans and leases:
Commercial and industrial loans	$	49,421		119		125		244	49,665	39
Commercial mortgage owner-occupied loans	4,645			7		23		30	4,675	7
Commercial mortgage nonowner-occupied loans	5,860			31		36		67	5,927	1
Commercial construction loans	5,808			7		—		7	5,815	—
Commercial leases	2,906			7		2		9	2,915	1
Total portfolio commercial loans and leases	$	68,640		171		186		357	68,997	48

*(a)*Includes accrual and nonaccrual loans and leases.


	Current Loans and Leases(a)			Past Due					Total Loans and Leases	90 Days Past Due and Still Accruing
As of December 31, 2019 ($ in millions)			30-89 Days(a)		90 Days or More(a)		Total Past Due
Commercial loans and leases:
Commercial and industrial loans	$	50,305		133		104		237	50,542	11
Commercial mortgage owner-occupied loans	4,853			4		23		27	4,880	9
Commercial mortgage nonowner-occupied loans	6,072			5		6		11	6,083	6
Commercial construction loans	5,089			1		—		1	5,090	—
Commercial leases	3,338			11		14		25	3,363	—
Total portfolio commercial loans and leases	$	69,657		154		147		301	69,958	26

*(a)*Includes accrual and nonaccrual loans and leases.

Residential Mortgage and Consumer Portfolio Segments

For purposes of monitoring the credit quality and risk characteristics of its consumer portfolio segment, the Bancorp disaggregates the segment into the following classes: home equity, indirect secured consumer loans, credit card and other consumer loans. The Bancorp’s residential mortgage portfolio segment is also a separate class.

The Bancorp considers repayment performance as the best indicator of credit quality for residential mortgage and consumer loans, which includes both the delinquency status and performing versus nonperforming status of the loans. The delinquency status of all residential mortgage and consumer loans and the performing versus nonperforming status is presented in the following table. Refer to the nonaccrual loans and leases section of Note 1 for additional delinquency and nonperforming information. Loans and leases which received payment deferrals or forbearances as part of the Bancorp’s COVID-19 customer relief programs are generally not reported as delinquent during the forbearance or deferral period if the loan or lease was less than 30 days past due at March 1, 2020 (the effective date of the COVID-19 national emergency declaration) unless the loan or lease subsequently becomes delinquent according to its modified terms. Refer to Note 1 for additional information.

For collectively evaluated loans in the consumer and residential mortgage portfolio segments, the Bancorp’s expected credit loss models primarily utilize the borrower’s FICO score and delinquency history in combination with macroeconomic conditions when estimating the probability of default. The estimates for loss severity are primarily based on collateral type and coverage levels and the susceptibility of those characteristics to changes in macroeconomic conditions. The expected balance at the estimated date of default is also particularly significant for portfolio classes which generally have longer terms (such as residential mortgage loans and home equity) and portfolio classes containing a high concentration of loans with revolving privileges (such as credit card and home equity). The estimate of the expected balance at the time of default considers expected prepayment and utilization rates where applicable, which are primarily based on macroeconomic conditions and the utilization history of similar borrowers under those economic conditions. Refer to Note 1 for additional information about the Bancorp’s process for developing these models and its process for estimating credit losses for periods beyond the reasonable and supportable forecast period.

The following table presents a summary of the Bancorp’s residential mortgage and consumer portfolio segments, by class and vintage, disaggregated by both age and performing versus nonperforming status:

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As of December 31, 2020 ($ in millions)	Term Loans Amortized Cost Basis by Origination Year							Revolving Loans Amortized Cost Basis	Revolving Loans Converted to Term Loans Amortized Cost Basis
2020	2019		2018	2017	2016	Prior	Total
Residential mortgage loans:
Performing:
Current(a)	$	4,006	2,128	827	1,635	2,301	4,719	—	—	15,616
30-89 days past due	1		1	3	3	1	12	—	—	21
90 days or more past due	—		6	2	7	7	48	—	—	70
Total performing	4,007		2,135	832	1,645	2,309	4,779	—	—	15,707
Nonperforming	1		—	2	2	3	52	—	—	60
Total residential mortgage loans(b)	$	4,008	2,135	834	1,647	2,312	4,831	—	—	15,767
Home equity:
Performing:
Current	$	11	24	30	4	2	153	4,825	10	5,059
30-89 days past due	—		—	—	—	—	3	33	—	36
90 days or more past due	—		—	—	—	—	2	—	—	2
Total performing	11		24	30	4	2	158	4,858	10	5,097
Nonperforming	—		—	—	—	—	10	75	1	86
Total home equity	$	11	24	30	4	2	168	4,933	11	5,183
Indirect secured consumer loans:
Performing:
Current	$	6,626	3,752	1,678	860	372	214	—	—	13,502
30-89 days past due	25		41	31	17	7	4	—	—	125
90 days or more past due	1		2	3	2	1	1	—	—	10
Total performing	6,652		3,795	1,712	879	380	219	—	—	13,637
Nonperforming	1		5	4	3	2	1	—	—	16
Total indirect secured consumer loans	$	6,653	3,800	1,716	882	382	220	—	—	13,653
Credit card:
Performing:
Current	$	—	—	—	—	—	—	1,914	—	1,914
30-89 days past due	—		—	—	—	—	—	30	—	30
90 days or more past due	—		—	—	—	—	—	31	—	31
Total performing	—		—	—	—	—	—	1,975	—	1,975
Nonperforming	—		—	—	—	—	—	32	—	32
Total credit card	$	—	—	—	—	—	—	2,007	—	2,007
Other consumer loans
Performing:
Current	$	883	546	437	178	32	40	878	1	2,995
30-89 days past due	2		5	4	2	—	—	2	—	15
90 days or more past due	—		2	—	—	—	—	—	—	2
Total performing	885		553	441	180	32	40	880	1	3,012
Nonperforming	—		—	—	—	—	1	1	—	2
Total other consumer loans	$	885	553	441	180	32	41	881	1	3,014
Total residential mortgage and consumer loans
Performing:
Current	$	11,526	6,450	2,972	2,677	2,707	5,126	7,617	11	39,086
30-89 days past due	28		47	38	22	8	19	65	—	227
90 days or more past due	1		10	5	9	8	51	31	—	115
Total performing	11,555		6,507	3,015	2,708	2,723	5,196	7,713	11	39,428
Nonperforming	2		5	6	5	5	64	108	1	196
Total residential mortgage and consumer loans(b)	$	11,557	6,512	3,021	2,713	2,728	5,260	7,821	12	39,624

*(a)*Information includes advances made pursuant to servicing agreements for GNMA mortgage pools whose repayments are insured by the FHA or guaranteed by the VA. As of December 31, 2020, $103 of these loans were 30-89 days past due and $242 were 90 days or more past due. The Bancorp recognized $3 of losses during the year ended December 31, 2020 due to claim denials and curtailments associated with these insured or guaranteed loans.

*(b)*Excludes $161 of residential mortgage loans measured at fair value at December 31, 2020.

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The following table presents a summary of the Bancorp’s residential mortgage and consumer portfolio segments, by class, disaggregated into performing versus nonperforming status:


As of December 31, 2019 ($ in millions)	Performing		Nonperforming
Residential mortgage loans(a)	$	16,450	91
Home equity	5,989		94
Indirect secured consumer loans	11,531		7
Credit card	2,505		27
Other consumer loans	2,721		2
Total residential mortgage and consumer loans(a)	$	39,196	221

*(a)*Excludes $183 of residential mortgage loans measured at fair value at December 31, 2019.

Age Analysis of Past Due Consumer Loans

The following table summarizes the Bancorp’s amortized cost basis of portfolio consumer loans, by age and class:


	Current Loans and Leases(b)(c)			Past Due					Total Loans and Leases	90 Days Past Due and Still Accruing
As of December 31, 2019 ($ in millions)			30-89 Days(c)		90 Days or More(c)		Total Past Due
Residential mortgage loans(a)	$	16,372		27		142		169	16,541	50
Consumer loans:
Home equity	5,965			61		57		118	6,083	1
Indirect secured consumer loans	11,389			132		17		149	11,538	10
Credit card	2,434			50		48		98	2,532	42
Other consumer loans	2,702			18		3		21	2,723	1
Total portfolio consumer loans(a)	$	38,862		288		267		555	39,417	104

*(a)*Excludes $183 of residential mortgage loans measured at fair value at December 31, 2019.

*(b)*Information includes advances made pursuant to servicing agreements for GNMA mortgage pools whose repayments are insured by the FHA or guaranteed by the VA. As of December 31, 2019, $94 of these loans were 30-89 days past due and $261 were 90 days or more past due. The Bancorp recognized $4 of losses during the year ended December 31, 2019 due to claim denials and curtailments associated with these insured or guaranteed loans.

*(c)*Includes accrual and nonaccrual loans.

Collateral-Dependent Loans and Leases

The Bancorp considers a loan or lease to be collateral-dependent when the borrower is experiencing financial difficulty and repayment is expected to be provided substantially through the operation or sale of the collateral. When a loan or lease is collateral-dependent, its fair value is generally based on the fair value less cost to sell of the underlying collateral.

The following table presents the amortized cost basis of the Bancorp’s collateral-dependent loans and leases, by portfolio class:


As of December 31, 2020 ($ in millions)	Amortized Cost Basis
Commercial loans and leases:
Commercial and industrial loans	$	810
Commercial mortgage owner-occupied loans	101
Commercial mortgage nonowner-occupied loans	82
Commercial construction loans	19
Commercial leases	6
Total commercial loans and leases	1,018
Residential mortgage loans	80
Consumer loans:
Home equity	71
Indirect secured consumer loans	9
Other consumer loans	—
Total consumer loans	80
Total portfolio loans and leases	$	1,178

Nonperforming Assets

Nonperforming assets include nonaccrual loans and leases for which ultimate collectability of the full amount of the principal and/or interest is uncertain; restructured loans which have not yet met the requirements to be returned to accrual status; certain restructured consumer and residential mortgage loans which are 90 days past due based on the restructured terms unless the loan is both well-secured and in the process of collection; and certain other assets, including OREO and other repossessed property.

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The following table presents the amortized cost basis of the Bancorp’s nonaccrual loans and leases, by class, and OREO and other repossessed property:


As of December 31, 2020 ($ in millions)					For the year ended December 31, 2020
	With an ALLL		No Related ALLL	Total	Interest Income Recognized
Commercial loans and leases:
Commercial and industrial loans	$	213	260	473	8
Commercial mortgage owner-occupied loans	20		60	80	—
Commercial mortgage nonowner-occupied loans	34		43	77	1
Commercial construction loans	1		—	1	—
Commercial leases	6		1	7	1
Total nonaccrual portfolio commercial loans and leases	274		364	638	10
Residential mortgage loans	11		49	60	28
Consumer loans:
Home equity	55		31	86	9
Indirect secured consumer loans	8		8	16	—
Credit card	32		—	32	4
Other consumer loans	2		—	2	—
Total nonaccrual portfolio consumer loans	97		39	136	13
Total nonaccrual portfolio loans and leases(a)(b)	$	382	452	834	51
OREO and other repossessed property	—		30	30	—
Total nonperforming portfolio assets(a)(b)	$	382	482	864	51

*(a)*Excludes $5 of nonaccrual loans held for sale and $1 of nonaccrual restructured loans held for sale.

*(b)*Includes $29 of nonaccrual government insured commercial loans whose repayments are insured by the SBA, of which $17 are restructured nonaccrual government insured commercial loans.

The following table presents the Bancorp’s nonaccrual loans and leases, by class, and OREO and other repossessed property as of:


($ in millions)	December 31, 2019
Commercial loans and leases:
Commercial and industrial loans	$	338
Commercial mortgage owner-occupied loans	29
Commercial mortgage nonowner-occupied loans	1
Commercial construction loans	1
Commercial leases	28
Total nonaccrual portfolio commercial loans and leases	397
Residential mortgage loans	91
Consumer loans:
Home equity	94
Indirect secured consumer loans	7
Credit card	27
Other consumer loans	2
Total nonaccrual portfolio consumer loans	130
Total nonaccrual portfolio loans and leases(a)(b)	$	618
OREO and other repossessed property	62
Total nonperforming portfolio assets(a)(b)	$	680

*(a)*Excludes $7 of nonaccrual loans and leases held for sale.

*(b)*Includes $16 of nonaccrual government insured commercial loans whose repayments are insured by the SBA, of which $11 are restructured nonaccrual government insured commercial loans.

The Bancorp’s amortized cost basis of consumer mortgage loans secured by residential real estate properties for which formal foreclosure proceedings are in process according to local requirements of the applicable jurisdiction was $136 million and $212 million as of December 31, 2020 and 2019, respectively.

Troubled Debt Restructurings

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stated interest rate of the loan, an extension of the loan’s maturity date with a stated rate lower than the current market rate for a new loan with similar risk, or in limited circumstances, a reduction of the principal balance of the loan or the loan’s accrued interest. Modifying the terms of a loan may result in an increase or decrease to the ALLL depending upon the terms modified, the method used to measure the ALLL for a loan prior to modification, the extent of collateral, and whether any charge-offs were recorded on the loan before or at the time of modification. Refer to the ALLL section of Note 1 for information on the Bancorp’s ALLL methodology. Upon modification of a loan, the Bancorp measures the expected credit loss as either the difference between the amortized cost of the loan and the fair value of collateral less cost to sell or the difference between the estimated future cash flows expected to be collected on the modified loan, discounted at the original effective yield of the loan, and the carrying value of the loan. The resulting measurement may result in the need for minimal or no allowance regardless of which is used because it is probable that all cash flows will be collected under the modified terms of the loan. In addition, if the stated interest rate was increased in a TDR that is not collateral-dependent, the cash flows on the modified loan, using the pre-modification interest rate as the discount rate, often exceed the amortized cost basis of the loan. Conversely, upon a modification that reduces the stated interest rate on a loan that is not collateral-dependent, the Bancorp recognizes an increase to the ALLL. If a TDR involves a reduction of the principal balance of the loan or the loan’s accrued interest, that amount is charged off to the ALLL. Loans discharged in a Chapter 7 bankruptcy and not reaffirmed by the borrower are treated as nonaccrual collateral-dependent loans with a charge-off recognized to reduce the carrying values of such loans to the fair value of the related collateral less costs to sell. Certain loan modifications which were made in response to the COVID-19 pandemic were not evaluated for classification as a TDR. Refer to the Regulatory Developments Related to the COVID-19 Pandemic section of Note 1 for additional information.

The Bancorp had commitments to lend additional funds to borrowers whose terms have been modified in a TDR, consisting of line of credit and letter of credit commitments of $67 million and $72 million, respectively, as of December 31, 2020 compared with $41 million and $58 million, respectively, as of December 31, 2019.

The following tables provide a summary of portfolio loans and leases, by class, modified in a TDR by the Bancorp during the years ended December 31:


2020 ($ in millions)	Number of Loans Modified in a TDR During the Year(a)	Amortized Cost Basis of Loans Modified in a TDR During the Year		Increase (Decrease) to ALLL Upon Modification	Charge-offs Recognized Upon Modification
Commercial loans:
Commercial and industrial loans	124	$	305	26	7
Commercial mortgage owner-occupied loans	43	58		(11)	—
Commercial mortgage nonowner-occupied loans	19	44		(2)	—
Commercial construction loans	3	21		1	—
Residential mortgage loans	424	58		1	—
Consumer loans:
Home equity	147	7		(4)	—
Indirect secured consumer loans	70	—		—	—
Credit card	5,701	32		11	1
Total portfolio loans	6,531	$	525	22	8

*(a)*Represents number of loans post-modification and excludes loans previously modified in a TDR.


2019 ($ in millions)(a)(b)	Number of Loans Modified in a TDR During the Year(c)	Recorded Investment in Loans Modified in a TDR During the Year		(Decrease) Increase to ALLL Upon Modification	Charge-offs Recognized Upon Modification
Commercial loans:
Commercial and industrial loans	97	$	223	(19)	5
Commercial mortgage owner-occupied loans	15	12		—	—
Commercial mortgage nonowner-occupied loans	1	—		—	—
Residential mortgage loans	722	101		1	—
Consumer loans:
Home equity	80	4		—	—
Indirect secured consumer loans	100	—		—	—
Credit card	6,041	34		8	3
Total portfolio loans	7,056	$	374	(10)	8

*(a)*Excludes all loans acquired with deteriorated credit quality which were accounted for within a pool.

*(b)*Excludes loans classified as TDRs as a result of the Bancorp’s conformance to OCC guidance with regard to non-reaffirmed loans included in Chapter 7 bankruptcy filings.

*(c)*Represents number of loans post-modification and excludes loans previously modified in a TDR.

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2018 ($ in millions)(a)	Number of Loans Modified in a TDR During the Year(b)	Recorded Investment in Loans Modified in a TDR During the Year		Increase (Decrease) to ALLL Upon Modification	Charge-offs Recognized Upon Modification
Commercial loans:
Commercial and industrial loans	54	$	200	1	7
Commercial mortgage owner-occupied loans	6	3		(1)	—
Commercial mortgage nonowner-occupied loans	3	—		—	—
Residential mortgage loans	1,128	168		4	—
Consumer loans:
Home equity	111	7		—	—
Indirect secured consumer loans	84	—		—	—
Credit card	7,483	37		9	2
Total portfolio loans	8,869	$	415	13	9

*(a)*Excludes all loans acquired with deteriorated credit quality which were accounted for within a pool.

*(b)*Represents number of loans post-modification and excludes loans previously modified in a TDR.

The Bancorp considers TDRs that become 90 days or more past due under the modified terms as subsequently defaulted. For commercial loans not subject to individual evaluation for an ALLL, the applicable commercial models are applied for purposes of determining the ALLL as well as qualitatively assessing whether those loans are reasonably expected to be further restructured prior to their maturity date and, if so, the impact such a restructuring would have on the remaining contractual life of the loans. When a residential mortgage, home equity, indirect secured consumer or other consumer loan that has been modified in a TDR subsequently defaults, the present value of expected cash flows used in the measurement of the expected credit loss is generally limited to the expected net proceeds from the sale of the loan’s underlying collateral and any resulting collateral shortfall is reflected as a charge-off or an increase in ALLL. The Bancorp recognizes an ALLL for the entire balance of the credit card loans modified in a TDR that subsequently default.

The following tables provide a summary of TDRs that subsequently defaulted during the years ended December 31, 2020, 2019 and 2018 and were within 12 months of the restructuring date:


December 31, 2020 ($ in millions)(a)	Number of Contracts	Amortized Cost
Commercial loans:
Commercial and industrial loans	13	$	5
Commercial mortgage owner-occupied loans	8	3
Commercial mortgage nonowner-occupied loans	3	11
Residential mortgage loans	149	23
Consumer loans:
Home equity	6	—
Indirect secured consumer loans	18	—
Credit card	260	1
Total portfolio loans	457	$	43

*(a)*Excludes all loans held for sale and loans acquired with deteriorated credit quality which were accounted for within a pool.


December 31, 2019 ($ in millions)(a)(b)	Number of Contracts	Recorded Investment
Commercial loans:
Commercial and industrial loans	12	$	20
Commercial mortgage owner-occupied loans	4	1
Commercial mortgage nonowner-occupied loans	1	—
Residential mortgage loans	274	42
Consumer loans:
Home equity	15	—
Credit card	655	3
Total portfolio loans	961	$	66

*(a)*Excludes all loans held for sale and loans acquired with deteriorated credit quality which were accounted for within a pool.

*(b)*Excludes loans classified as TDRs as a result of the Bancorp’s conformance to OCC guidance with regard to non-reaffirmed loans included in Chapter 7 bankruptcy filings.

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December 31, 2018 ($ in millions)(a)	Number of Contracts	Recorded Investment
Commercial loans:
Commercial and industrial loans	8	$	61
Commercial mortgage owner-occupied loans	2	—
Residential mortgage loans	225	35
Consumer loans:
Home equity	10	—
Credit card	655	4
Total portfolio loans	900	$	100

*(a)*Excludes all loans held for sale and loans acquired with deteriorated credit quality which were accounted for within a pool.

8. Bank Premises and Equipment

The following table provides a summary of bank premises and equipment as of December 31:


($ in millions)	Estimated Useful Life			2020		2019
Land and improvements(a)				$	636	639
Buildings(a)	1	-	30 years	1,612		1,575
Equipment	2	-	20 years	2,302		2,126
Leasehold improvements	1	-	30 years	467		432
Construction in progress(a)				108		85
Bank premises and equipment held for sale:
Land and improvements				27		8
Buildings				8		18
Equipment				—		1
Accumulated depreciation and amortization				(3,072)		(2,889)
Total bank premises and equipment				$	2,088	1,995

*(a)*At December 31, 2020 and 2019, land and improvements, buildings and construction in progress included $46 and $51, respectively, associated with parcels of undeveloped land intended for future branch expansion.

Depreciation and amortization expense related to bank premises and equipment, including amortization of finance lease ROU assets, was $256 million, $255 million and $238 million for the years ended December 31, 2020, 2019 and 2018, respectively.

The Bancorp monitors changing customer preferences associated with the channels it uses for banking transactions to evaluate the efficiency, competitiveness and quality of the customer service experience in its consumer distribution network. As part of this ongoing assessment, the Bancorp may determine that it is no longer fully committed to maintaining full-service branches at certain of its existing banking center locations. Similarly, the Bancorp may also determine that it is no longer fully committed to building banking centers on certain parcels of land which had previously been held for future branch expansion.

During the second quarter of 2018, the Bancorp adopted a plan to close approximately 100 to 125 branches over the next three years, exclusive of branches identified for closure as part of the MB Financial, Inc. acquisition. As of December 31, 2020, 102 branches have been closed under this plan. Additionally, the Bancorp has identified 36 branches that it expects to close in the first quarter of 2021 and seven in the second quarter of 2021.

As a result of the MB Financial, Inc. acquisition, the Bancorp identified 46 branches in the Chicago market that it planned to close. Of these locations, 45 were closed in the third quarter of 2019 and the final location was closed in the first quarter of 2020. These 46 branches were not part of the aforementioned plan and were in addition to the branch in the Chicago market that the Bancorp closed in November 2018. In addition, the Bancorp previously identified 11 other non-branch locations that it planned to sell that were acquired from MB Financial, Inc. These locations had a fair value, less cost to sell, of $15 million. Of these locations, eight have been sold as of December 31, 2020.

The Bancorp performs assessments of the recoverability of long-lived assets when events or changes in circumstances indicate that their carrying values may not be recoverable. Impairment losses associated with such assessments and lower of cost or market adjustments were $30 million, $28 million and $45 million for the years ended December 31, 2020, 2019 and 2018, respectively. For the year ended December 31, 2019, impairment charges included $14 million associated with Fifth Third branches in the Chicago market that were assessed for impairment as a result of the MB Financial, Inc. acquisition. The recognized impairment losses were recorded in other noninterest income in the Consolidated Statements of Income.

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9. Operating Lease Equipment

Operating lease equipment was $777 million and $848 million at December 31, 2020 and 2019, respectively, net of accumulated depreciation of $290 million and $237 million at December 31, 2020 and 2019, respectively. The Bancorp recorded lease income of $156 million, $151 million and $84 million relating to lease payments for operating leases in leasing business revenue in the Consolidated Statements of Income for the years ended December 31, 2020, 2019 and 2018, respectively. Depreciation expense related to operating lease equipment was $126 million, $122 million and $73 million for the years ended December 31, 2020, 2019 and 2018, respectively. The Bancorp received payments of $161 million and $157 million related to operating leases during the years ended December 31, 2020 and 2019, respectively.

The Bancorp performs assessments of the recoverability of long-lived assets when events or changes in circumstances indicate that their carrying values may not be recoverable. As a result of these recoverability assessments, the Bancorp recognized $7 million, $3 million and $4 million of impairment losses associated with operating lease assets for the years ended December 31, 2020, 2019 and 2018, respectively. The recognized impairment losses were recorded in leasing business revenue in the Consolidated Statements of Income.

The following table presents undiscounted future lease payments for operating leases for 2021 through 2025 and thereafter:


As of December 31, 2020 ($ in millions)	Undiscounted Cash Flows
2021	$	143
2022	119
2023	91
2024	55
2025	34
Thereafter	51
Total operating lease payments	$	493

10. Lease Obligations - Lessee

The Bancorp leases certain banking centers, ATM sites, land for owned buildings and equipment. The Bancorp’s lease agreements typically do not contain any residual value guarantees or any material restrictive covenants.

The following table provides a summary of lease assets and lease liabilities as of December 31:


($ in millions)	Consolidated Balance Sheets Caption	2020		2019
Assets
Operating lease right-of-use assets	Other assets	$	423	473
Finance lease right-of-use assets	Bank premises and equipment	129		34
Total right-of-use assets(a)		$	552	507
Liabilities
Operating lease liabilities	Accrued taxes, interest and expenses	$	527	555
Finance lease liabilities	Long-term debt	130		35
Total lease liabilities		$	657	590

*(a)*Operating and finance lease right-of-use assets are recorded net of accumulated amortization of $152 and $29, respectively, as of December 31, 2020, and $75 and $27, respectively, as of December 31, 2019.

The following table presents the components of lease costs for the years ended December 31:


($ in millions)	Consolidated Statements of Income Caption	2020		2019
Lease costs:
Amortization of ROU assets	Net occupancy and equipment expense	$	11	6
Interest on lease liabilities	Interest on long-term debt	3		1
Total finance lease costs		$	14	7
Operating lease cost	Net occupancy expense	$	110	96
Short-term lease cost	Net occupancy expense	1		1
Variable lease cost	Net occupancy expense	29		30
Sublease income	Net occupancy expense	(3)		(3)
Total operating lease costs		$	137	124
Total lease costs		$	151	131

Gross occupancy expense for cancelable and noncancelable leases, which was included in net occupancy expense in the Consolidated Statements of Income, was $101 million for the year ended December 31, 2018.

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The Bancorp performs impairment assessments for ROU assets when events or changes in circumstances indicate that their carrying values may not be recoverable. In addition to the lease costs disclosed in the table above, the Bancorp recognized $8 million and $15 million of impairment losses and termination charges for the ROU assets related to certain operating leases for the years ended December 31, 2020 and 2019, respectively. The recognized losses were recorded in net occupancy expense in the Consolidated Statements of Income.

The following table presents undiscounted cash flows for both operating leases and finance leases for 2021 through 2025 and thereafter as well as a reconciliation of the undiscounted cash flows to the total lease liabilities as follows:


As of December 31, 2020 ($ in millions)	Operating Leases		Finance Leases	Total
2021	$	86	18	104
2022	81		19	100
2023	74		16	90
2024	65		17	82
2025	58		10	68
Thereafter	246		78	324
Total undiscounted cash flows	$	610	158	768
Less: Difference between undiscounted cash flows and discounted cash flows	83		28	111
Present value of lease liabilities	$	527	130	657

The following table presents the weighted-average remaining lease term and weighted-average discount rate as of December 31:


	2020		2019
Weighted-average remaining lease term (years):
Operating leases	9.06		9.48
Finance leases	12.93		14.17
Weighted-average discount rate:
Operating leases	3.05	%	3.19
Finance leases	2.39		4.30

The following table presents information related to lease transactions for the years ended December 31:


($ in millions)	2020		2019
Cash paid for amounts included in the measurement of lease liabilities:(a)
Operating cash flows from operating leases	$	91	97
Operating cash flows from finance leases	3		1
Financing cash flows from finance leases	11		5

Gains on sale and leaseback transactions	3		5

*(a)*The cash flows related to the short-term and variable lease payments are not included in the amounts in the table as they were not included in the measurement of lease liabilities.

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11. Goodwill

Business combinations entered into by the Bancorp typically result in the recognition of goodwill. Acquisition activity includes acquisitions in the respective period in addition to purchase accounting adjustments related to previous acquisitions. On March 22, 2019, the Bancorp completed its acquisition of MB Financial, Inc. In connection with the acquisition, the Bancorp recorded $1.8 billion of goodwill in 2019. During the first quarter of 2020, the Bancorp finalized the valuations for the assets acquired, liabilities assumed and noncontrolling interest recognized based on additional information available subsequent to the acquisition date. As a result, the Bancorp recognized additional goodwill of $9 million in connection with the acquisition of MB Financial, Inc. during the three months ended March 31, 2020.

The Bancorp completed its annual goodwill impairment test as of September 30, 2020 and the estimated fair values of the Commercial Banking, Branch Banking and Wealth and Asset Management reporting units exceeded their carrying amounts, including goodwill. The Bancorp performed a qualitative assessment of its goodwill as of December 31, 2020 in consideration of the overall economic impact of the COVID-19 pandemic as well as the uncertainties it has introduced. Based upon this assessment, the Bancorp concluded that it was not more likely than not that the fair values of its reporting units were less than their carrying amounts.

Changes in the net carrying amount of goodwill, by reporting unit, for the years ended December 31, 2020 and 2019 were as follows:


($ in millions)	Commercial Banking		Branch Banking	Consumer Lending	Wealth and Asset Management	General Corporate and Other	Total
Goodwill	$	1,380	1,655	215	193	—	3,443
Accumulated impairment losses	(750)		—	(215)	—	—	(965)
Net carrying amount as of December 31, 2018	$	630	1,655	—	193	—	2,478
Acquisition activity	1,324		391	—	62	—	1,777
Sale of business	—		—	—	(3)	—	(3)
Net carrying amount as of December 31, 2019	$	1,954	2,046	—	252	—	4,252
Acquisition activity	26		1	—	1	—	28
Sale of business	—		—	—	(22)	—	(22)
Net carrying amount as of December 31, 2020	$	1,980	2,047	—	231	—	4,258

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12. Intangible Assets

Intangible assets consist of core deposit intangibles, customer relationships, operating leases, non-compete agreements, trade names and books of business. Intangible assets are amortized on either a straight-line or an accelerated basis over their estimated useful lives and, based on the type of intangible asset, the amortization expense may be recorded in either leasing business revenue or other noninterest expense in the Consolidated Statements of Income.

On March 22, 2019, the Bancorp completed its acquisition of MB Financial, Inc. In connection with the acquisition, the Bancorp recorded a $195 million core deposit intangible asset with a weighted-average amortization period of 7.2 years. Additionally, the Bancorp recorded a $24 million operating lease intangible asset with a weighted-average amortization period of 1.7 years. The fair values of these intangibles were finalized as of March 31, 2020.

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


($ in millions)	Gross Carrying Amount		Accumulated Amortization	Net Carrying Amount
As of December 31, 2020
Core deposit intangibles	$	229	(116)	113
Customer relationships	24		(5)	19
Operating leases	17		(12)	5
Other	3		(1)	2
Total intangible assets	$	273	(134)	139
As of December 31, 2019
Core deposit intangibles	$	229	(70)	159
Customer relationships	29		(6)	23
Operating leases	23		(9)	14
Non-compete agreements	13		(11)	2
Other	4		(1)	3
Total intangible assets	$	298	(97)	201

As of December 31, 2020, all of the Bancorp’s intangible assets were being amortized. Amortization expense recognized on intangible assets was $55 million, $54 million and $5 million for the years ended December 31, 2020, 2019 and 2018, respectively. The Bancorp’s projections of amortization expense shown in the following table are based on existing asset balances as of December 31, 2020. Future amortization expense may vary from these projections.

Estimated amortization expense for the years ending December 31, 2021 through 2025 is as follows:


($ in millions)	Total
2021	$	43
2022	33
2023	24
2024	16
2025	9

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13. Variable Interest Entities

The Bancorp, in the normal course of business, engages in a variety of activities that involve VIEs, which are legal entities that lack sufficient equity at risk to finance their activities without additional subordinated financial support or the equity investors of the entities as a group lack any of the characteristics of a controlling interest. The Bancorp evaluates its interest in certain entities to determine if these entities meet the definition of a VIE and whether the Bancorp is the primary beneficiary and should consolidate the entity based on the variable interests it held both at inception and when there is a change in circumstances that requires a reconsideration. If the Bancorp is determined to be the primary beneficiary of a VIE, it must account for the VIE as a consolidated subsidiary. If the Bancorp is determined not to be the primary beneficiary of a VIE but holds a variable interest in the entity, such variable interests are accounted for under the equity method of accounting or other accounting standards as appropriate.

Consolidated VIEs

The Bancorp has consolidated VIEs related to certain automobile loan securitizations where it has determined that it is the primary beneficiary. The following table provides a summary of assets and liabilities carried on the Consolidated Balance Sheets for consolidated VIEs as of:


($ in millions)	December 31, 2020		December 31, 2019
Assets:
Other short-term investments	$	55	74
Indirect secured consumer loans	756		1,354
ALLL	(7)		(7)
Other assets	5		8
Total assets	$	809	1,429
Liabilities:
Other liabilities	$	2	2
Long-term debt	656		1,253
Total liabilities	$	658	1,255

In a securitization transaction that occurred in 2019, the Bancorp transferred approximately $1.43 billion in automobile loans to a bankruptcy remote trust which was deemed to be a VIE. This trust then subsequently issued approximately $1.37 billion of asset-backed notes, of which approximately $68 million were retained by the Bancorp. Refer to Note 18 for further information. The Bancorp also has previously completed securitization transactions in which the Bancorp transferred certain consumer automobile loans to bankruptcy remote trusts which were also deemed to be VIEs. In each of these securitization transactions, the primary purposes of the VIEs were to issue asset-backed securities with varying levels of credit subordination and payment priority, as well as residual interests, and to provide the Bancorp with access to liquidity for its originated loans. The Bancorp retained residual interests in the VIEs and, therefore, has an obligation to absorb losses and a right to receive benefits from the VIEs that could potentially be significant to the VIEs. In addition, the Bancorp retained servicing rights for the underlying loans and, therefore, holds the power to direct the activities of the VIEs that most significantly impact the economic performance of the VIEs. As a result, the Bancorp concluded that it is the primary beneficiary of the VIEs and has consolidated these VIEs. The assets of the VIEs are restricted to the settlement of the asset-backed securities and other obligations of the VIEs. The third party holders of the asset-backed notes do not have recourse to the general assets of the Bancorp.

The economic performance of the VIEs is most significantly impacted by the performance of the underlying loans. The principal risks to which the VIEs are exposed include credit risk and prepayment risk. The credit and prepayment risks are managed through credit enhancements in the form of reserve accounts, overcollateralization, excess interest on the loans and the subordination of certain classes of asset-backed securities to other classes.

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Non-consolidated VIEs

The following tables provide a summary of assets and liabilities carried on the Consolidated Balance Sheets related to non-consolidated VIEs for which the Bancorp holds an interest, but is not the primary beneficiary of the VIE, as well as the Bancorp’s maximum exposure to losses associated with its interests in the entities as of:


December 31, 2020 ($ in millions)	Total Assets		Total Liabilities	Maximum Exposure
CDC investments	$	1,546	478	1,546
Private equity investments	117		—	200
Loans provided to VIEs	2,420		—	3,649
Lease pool entities	73		—	73

December 31, 2019 ($ in millions)	Total Assets		Total Liabilities	Maximum Exposure
CDC investments	$	1,435	428	1,435
Private equity investments	89		—	164
Loans provided to VIEs	2,715		—	4,083
Lease pool entities	74		—	74

CDC investments

CDC, a wholly-owned indirect subsidiary of the Bancorp, was created to invest in projects to create affordable housing, revitalize business and residential areas and preserve historic landmarks. CDC generally co-invests with other unrelated companies and/or individuals and typically makes investments in a separate legal entity that owns the property under development. The entities are usually formed as limited partnerships and LLCs and CDC typically invests as a limited partner/investor member in the form of equity contributions. The economic performance of the VIEs is driven by the performance of their underlying investment projects as well as the VIEs’ ability to operate in compliance with the rules and regulations necessary for the qualification of tax credits generated by equity investments. The Bancorp has determined that it is not the primary beneficiary of these VIEs because it lacks the power to direct the activities that most significantly impact the economic performance of the underlying project or the VIEs’ ability to operate in compliance with the rules and regulations necessary for the qualification of tax credits generated by equity investments. This power is held by the managing members who exercise full and exclusive control of the operations of the VIEs. For information regarding the Bancorp’s accounting for these investments, refer to Note 1.

The Bancorp’s funding requirements are limited to its invested capital and any additional unfunded commitments for future equity contributions. The Bancorp’s maximum exposure to loss as a result of its involvement with the VIEs is limited to the carrying amounts of the investments, including the unfunded commitments. The carrying amounts of these investments, which are included in other assets in the Consolidated Balance Sheets, and the liabilities related to the unfunded commitments, which are included in other liabilities in the Consolidated Balance Sheets, are included in the previous tables for all periods presented. The Bancorp has no other liquidity arrangements or obligations to purchase assets of the VIEs that would expose the Bancorp to a loss. In certain arrangements, the general partner/managing member of the VIE has guaranteed a level of projected tax credits to be received by the limited partners/investor members, thereby minimizing a portion of the Bancorp’s risk.

At December 31, 2020 and 2019, the Bancorp’s CDC investments included $1.3 billion and $1.2 billion, respectively, of investments in affordable housing tax credits recognized in other assets in the Consolidated Balance Sheets. The unfunded commitments related to these investments were $478 million and $428 million at December 31, 2020 and 2019, respectively. The unfunded commitments as of December 31, 2020 are expected to be funded from 2021 to 2036.

The Bancorp has accounted for all of its qualifying LIHTC investments using the proportional amortization method of accounting. The following table summarizes the impact to the Consolidated Statements of Income related to these investments for the years ended December 31:


($ in million)	Consolidated Statements of Income Caption(a)	2020		2019	2018
Proportional amortization	Applicable income tax expense	$	150	140	154
Tax credits and other benefits	Applicable income tax expense	(175)		(163)	(192)

*(a)*The Bancorp did not recognize impairment losses resulting from the forfeiture or ineligibility of tax credits or other circumstances during the years ended December 31, 2020, 2019 and 2018.

Private equity investments

The Bancorp invests as a limited partner in private equity investments which provide the Bancorp an opportunity to obtain higher rates of return on invested capital, while also creating cross selling opportunities for the Bancorp’s commercial products. Each of the limited partnerships has an unrelated third-party general partner responsible for appointing the fund manager. The Bancorp has not been appointed fund manager for any of these private equity investments. The funds finance primarily all of their activities from the partners’ capital contributions and investment returns. The Bancorp has determined that it is not the primary beneficiary of the funds because it does not have the obligation to absorb the funds’ expected losses or the right to receive the funds’ expected residual returns that could potentially be significant to the funds and lacks the power to direct the activities that most significantly impact the economic performance of the funds. The

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Bancorp, as a limited partner, does not have substantive participating or substantive kick-out rights over the general partner. Therefore, the Bancorp accounts for its investments in these limited partnerships under the equity method of accounting.

The Bancorp is exposed to losses arising from the negative performance of the underlying investments in the private equity investments. As a limited partner, the Bancorp’s maximum exposure to loss is limited to the carrying amounts of the investments plus unfunded commitments. The carrying amounts of these investments, which are included in other assets in the Consolidated Balance Sheets, are presented in previous tables. Also, at December 31, 2020 and 2019, the Bancorp’s unfunded commitment amounts to the private equity funds were $83 million and $75 million, respectively. As part of previous commitments, the Bancorp made capital contributions to private equity investments of $19 million and $12 million during the years ended December 31, 2020 and 2019, respectively. The Bancorp did not recognize OTTI associated with certain nonconforming investments affected by the Volcker Rule during the years ended December 31, 2020 and 2019 and recognized $8 million for the year ended December 31, 2018.

Loans provided to VIEs

The Bancorp has provided funding to certain unconsolidated VIEs sponsored by third parties. These VIEs are generally established to finance certain consumer and small business loans originated by third parties. The entities are primarily funded through the issuance of a loan from the Bancorp or a syndication through which the Bancorp is involved. The sponsor/administrator of the entities is responsible for servicing the underlying assets in the VIEs. Because the sponsor/administrator, not the Bancorp, holds the servicing responsibilities, which include the establishment and employment of default mitigation policies and procedures, the Bancorp does not hold the power to direct the activities that most significantly impact the economic performance of the entity and, therefore, is not the primary beneficiary.

The principal risk to which these entities are exposed is credit risk related to the underlying assets. The Bancorp’s maximum exposure to loss is equal to the carrying amounts of the loans and unfunded commitments to the VIEs. The Bancorp’s outstanding loans to these VIEs are included in commercial loans in Note 6. As of December 31, 2020 and 2019, the Bancorp’s unfunded commitments to these entities were $1.2 billion and $1.4 billion, respectively. The loans and unfunded commitments to these VIEs are included in the Bancorp’s overall analysis of the ALLL and reserve for unfunded commitments, respectively. The Bancorp does not provide any implicit or explicit liquidity guarantees or principal value guarantees to these VIEs.

Lease pool entities

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

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

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14. Sales of Receivables and Servicing Rights

Residential Mortgage Loan Sales

The Bancorp sold fixed and adjustable-rate residential mortgage loans during the years ended December 31, 2020, 2019 and 2018. In those sales, the Bancorp obtained servicing responsibilities and provided certain standard representations and warranties, however the investors have no recourse to the Bancorp’s other assets for failure of debtors to pay when due. The Bancorp receives servicing fees based on a percentage of the outstanding balance. The Bancorp identifies classes of servicing assets based on financial asset type and interest rates.

Information related to residential mortgage loan sales and the Bancorp’s mortgage banking activity, which is included in mortgage banking net revenue in the Consolidated Statements of Income, for the years ended December 31 is as follows:


($ in millions)	2020		2019	2018
Residential mortgage loan sales(a)	$	11,827	7,781	5,078

Origination fees and gains on loan sales	315		175	100
Gross mortgage servicing fees	263		267	216

*(a)*Represents the unpaid principal balance at the time of the sale.

Servicing Rights

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

The following table presents changes in the servicing rights related to residential mortgage loans for the years ended December 31:


($ in millions)	2020		2019
Balance, beginning of period	$	993	938
Servicing rights originated	184		142
Servicing rights purchased	44		26
Servicing rights obtained in acquisition	—		263
Changes in fair value:
Due to changes in inputs or assumptions(a)	(311)		(203)
Other changes in fair value(b)	(254)		(173)
Balance, end of period	$	656	993

*(a)*Primarily reflects changes in prepayment speed and OAS assumptions which are updated based on market interest rates.

*(b)*Primarily reflects changes due to collection of contractual cash flows and the passage of time.

The Bancorp maintains a non-qualifying hedging strategy to manage a portion of the risk associated with changes in the value of the MSR portfolio. This strategy may include the purchase of free-standing derivatives and various available-for-sale debt and trading debt securities. The interest income, mark-to-market adjustments and gain or loss from sale activities associated with these portfolios are expected to economically hedge a portion of the change in value of the MSR portfolio caused by fluctuating OAS, earnings rates and prepayment speeds. The fair value of the servicing asset is based on the present value of expected future cash flows.

The following table presents activity related to valuations of the MSR portfolio and the impact of the non-qualifying hedging strategy for the years ended December 31:


($ in millions)	2020		2019	2018
Securities gains (losses), net -non-qualifying hedges on MSRs	$	2	3	(15)
Changes in fair value and settlement of free-standing derivatives purchased to economically hedge the MSR portfolio(a)	307		221	(21)
MSR fair value adjustment due to changes in inputs or assumptions(a)	(311)		(203)	42

*(a)*Included in mortgage banking net revenue in the Consolidated Statements of Income.

The key economic assumptions used in measuring the interests in residential mortgage loans that continued to be held by the Bancorp at the date of sale, securitization, or purchase resulting from transactions completed during the years ended December 31 were as follows:


		2020				2019
	Rate	Weighted- Average Life (in years)	Prepayment Speed (annual)		OAS (bps)	Weighted-Average Life (in years)	Prepayment Speed (annual)		OAS (bps)
Residential mortgage loans:
Servicing rights	Fixed	5.9	12.1	%	727	5.9	12.6	%	530
Servicing rights	Adjustable	3.8	18.3	%	681	—	—		—

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Based on historical credit experience, expected credit losses for residential mortgage loan servicing rights have been deemed immaterial, as the Bancorp sold the majority of the underlying loans without recourse. At December 31, 2020 and 2019, the Bancorp serviced $68.8 billion and $80.7 billion, respectively, of residential mortgage loans for other investors. The value of MSRs that continue to be held by the Bancorp is subject to credit, prepayment and interest rate risks on the sold financial assets.

At December 31, 2020, the sensitivity of the current fair value of residual cash flows to immediate 10%, 20% and 50% adverse changes in prepayment speed assumptions and immediate 10% and 20% adverse changes in OAS are as follows:


	Rate	Fair Value		Weighted- Average Life (in years)	Prepayment Speed Assumption						OAS Assumption
($ in millions)(a)		Impact of Adverse Change on Fair Value					OAS (bps)		Impact of Adverse Change on Fair Value
Rate	10%	20%		50%	10%		20%
Residential mortgage loans:
Servicing rights	Fixed	$	649	4.2	17.8	%	$	(21)	(41)	(91)	723	$	(16)	(30)
Servicing rights	Adjustable	7		3.5	22.6		(1)		(1)	(2)	950	—		—

*(a)*The impact of the weighted-average default rate on the current fair value of residual cash flows for all scenarios is immaterial.

These sensitivities are hypothetical and should be used with caution. As the figures indicate, changes in fair value based on these variations in the assumptions typically cannot be extrapolated because the relationship of the change in assumption to the change in fair value may not be linear. The Bancorp believes variations of these levels are reasonably possible; however, there is the potential that adverse changes in key assumptions could be even greater. Also, in the previous table, the effect of a variation in a particular assumption on the fair value of the interests that continue to be held by the Bancorp is calculated without changing any other assumption; in reality, changes in one factor may result in changes in another (for example, increases in market interest rates may result in lower prepayments), which might magnify or counteract these sensitivities.

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15. Derivative Financial Instruments

The Bancorp maintains an overall risk management strategy that incorporates the use of derivative instruments to reduce certain risks related to interest rate, prepayment and foreign currency volatility. Additionally, the Bancorp holds derivative instruments for the benefit of its commercial customers and for other business purposes. The Bancorp does not enter into unhedged speculative derivative positions.

The Bancorp’s interest rate risk management strategy involves modifying the repricing characteristics of certain financial instruments so that changes in interest rates do not adversely affect the Bancorp’s net interest margin and cash flows. Derivative instruments that the Bancorp may use as part of its interest rate risk management strategy include interest rate swaps, interest rate floors, interest rate caps, forward contracts, forward starting interest rate swaps, options, swaptions and TBA securities. Interest rate swap contracts are exchanges of interest payments, such as fixed-rate payments for floating-rate payments, based on a stated notional amount and maturity date. Interest rate floors protect against declining rates, while interest rate caps protect against rising interest rates. Forward contracts are contracts in which the buyer agrees to purchase, and the seller agrees to make delivery of, a specific financial instrument at a predetermined price or yield. Options provide the purchaser with the right, but not the obligation, to purchase or sell a contracted item during a specified period at an agreed upon price. Swaptions are financial instruments granting the owner the right, but not the obligation, to enter into or cancel a swap.

Prepayment volatility arises mostly from changes in fair value of the largely fixed-rate MSR portfolio, mortgage loans and mortgage-backed securities. The Bancorp may enter into various free-standing derivatives (principal-only swaps, interest rate swaptions, interest rate floors, mortgage options, TBA securities and interest rate swaps) to economically hedge prepayment volatility. Principal-only swaps are total return swaps based on changes in the value of the underlying mortgage principal-only trust. TBA securities are a forward purchase agreement for a mortgage-backed securities trade whereby the terms of the security are undefined at the time the trade is made.

Foreign currency volatility occurs as the Bancorp enters into certain loans denominated in foreign currencies. Derivative instruments that the Bancorp may use to economically hedge these foreign denominated loans include foreign exchange swaps and forward contracts.

The Bancorp also enters into derivative contracts (including foreign exchange contracts, commodity contracts and interest rate contracts) for the benefit of commercial customers and other business purposes. The Bancorp economically hedges significant exposures related to these free-standing derivatives by entering into offsetting third-party contracts with approved, reputable and independent counterparties with substantially matching terms and currencies. Credit risk arises from the possible inability of counterparties to meet the terms of their contracts. The Bancorp’s exposure is limited to the replacement value of the contracts rather than the notional, principal or contract amounts. Credit risk is minimized through credit approvals, limits, counterparty collateral and monitoring procedures.

The fair value of derivative instruments is presented on a gross basis, even when the derivative instruments are subject to master netting arrangements. Derivative instruments with a positive fair value are reported in other assets in the Consolidated Balance Sheets while derivative instruments with a negative fair value are reported in other liabilities in the Consolidated Balance Sheets. Cash collateral payables and receivables associated with the derivative instruments are not added to or netted against the fair value amounts with the exception of certain variation margin payments that are considered legal settlements of the derivative contracts. For derivative contracts cleared through certain central clearing parties who have modified their rules to treat variation margin payments as settlements, the variation margin payments are applied to net the fair value of the respective derivative contracts.

The Bancorp’s derivative assets include certain contractual features in which the Bancorp requires the counterparties to provide collateral in the form of cash and securities to offset changes in the fair value of the derivatives, including changes in the fair value due to credit risk of the counterparty. As of December 31, 2020 and 2019, the balance of collateral held by the Bancorp for derivative assets was $1.0 billion and $894 million, respectively. For derivative contracts cleared through certain central clearing parties whose rules treat variation margin payments as settlement of the derivative contract, the payments for variation margin of $1.1 billion and $623 million were applied to reduce the respective derivative contracts and were also not included in the total amount of collateral held as of December 31, 2020 and 2019, respectively. The credit component negatively impacting the fair value of derivative assets associated with customer accommodation contracts was $42 million and $17 million as of December 31, 2020 and 2019, respectively.

In measuring the fair value of derivative liabilities, the Bancorp considers its own credit risk, taking into consideration collateral maintenance requirements of certain derivative counterparties and the duration of instruments with counterparties that do not require collateral maintenance. When necessary, the Bancorp posts collateral primarily in the form of cash and securities to offset changes in fair value of the derivatives, including changes in fair value due to the Bancorp’s credit risk. As of December 31, 2020 and 2019, the balance of collateral posted by the Bancorp for derivative liabilities was $463 million and $347 million, respectively. Additionally, $1.1 billion and $488 million of variation margin payments were applied to the respective derivative contracts to reduce the Bancorp’s derivative liabilities as of December 31, 2020 and 2019, respectively, and were also not included in the total amount of collateral posted. Certain of the Bancorp’s derivative liabilities contain credit-risk related contingent features that could result in the requirement to post additional collateral upon the occurrence of specified events. As of December 31, 2020 and 2019, the fair value of the additional collateral that could be required to be posted as a result of the credit-risk related contingent features being triggered was immaterial to the Bancorp’s Consolidated Financial Statements. The posting of collateral has been determined to remove the need for further consideration of credit risk. As a result, the Bancorp determined that the impact of the Bancorp’s credit risk to the valuation of its derivative liabilities was immaterial to the Bancorp’s Consolidated Financial Statements.

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The Bancorp holds certain derivative instruments that qualify for hedge accounting treatment and are designated as either fair value hedges or cash flow hedges. Derivative instruments that do not qualify for hedge accounting treatment, or for which hedge accounting is not established, are held as free-standing derivatives. All customer accommodation derivatives are held as free-standing derivatives.

The following tables reflect the notional amounts and fair values for all derivative instruments included in the Consolidated Balance Sheets as of:


			Fair Value
December 31, 2020 ($ in millions)	Notional Amount		Derivative Assets		Derivative Liabilities
Derivatives Designated as Qualifying Hedging Instruments
Fair value hedges:
Interest rate swaps related to long-term debt	$	1,955	528		—
Total fair value hedges			528		—
Cash flow hedges:
Interest rate floors related to C&I loans	3,000		244		—
Interest rate swaps related to C&I loans	8,000		16		2
Total cash flow hedges			260		2
Total derivatives designated as qualifying hedging instruments			788		2
Derivatives Not Designated as Qualifying Hedging Instruments
Free-standing derivatives - risk management and other business purposes:
Interest rate contracts related to MSR portfolio	6,910		202		1
Forward contracts related to residential mortgage loans held for sale	2,903		1		16
Swap associated with the sale of Visa, Inc. Class B Shares	3,588		—		201
Foreign exchange contracts	204		—		3
Interest rate contracts for collateral management	12,000		3		1
Interest rate contracts for LIBOR transition	2,372		—		—
Total free-standing derivatives - risk management and other business purposes			206		222
Free-standing derivatives - customer accommodation:
Interest rate contracts(a)	77,806		1,238		265
Interest rate lock commitments	1,830		57		—
Commodity contracts	7,762		375		359
Foreign exchange contracts	14,587		255		224
Total free-standing derivatives - customer accommodation			1,925		848
Total derivatives not designated as qualifying hedging instruments			2,131		1,070
Total			$	2,919	1,072

*(a)*Derivative assets and liabilities are presented net of variation margin of $47 and $1,063, respectively.

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			Fair Value
December 31, 2019 ($ in millions)	Notional Amount		Derivative Assets		Derivative Liabilities
Derivatives Designated as Qualifying Hedging Instruments
Fair value hedges:
Interest rate swaps related to long-term debt	$	2,705	393		—
Total fair value hedges			393		—
Cash flow hedges:
Interest rate floors related to C&I loans	3,000		115		—
Interest rate swaps related to C&I loans	8,000		—		2
Total cash flow hedges			115		2
Total derivatives designated as qualifying hedging instruments			508		2
Derivatives Not Designated as Qualifying Hedging Instruments
Free-standing derivatives - risk management and other business purposes:
Interest rate contracts related to MSR portfolio	6,420		131		2
Forward contracts related to residential mortgage loans held for sale	2,901		1		5
Swap associated with the sale of Visa, Inc. Class B Shares	3,082		—		163
Foreign exchange contracts	195		—		5
Total free-standing derivatives - risk management and other business purposes			132		175
Free-standing derivatives - customer accommodation:
Interest rate contracts(a)	73,327		579		148
Interest rate lock commitments	907		18		—
Commodity contracts	8,525		271		270
TBA securities	50		—		—
Foreign exchange contracts	14,144		165		146
Total free-standing derivatives - customer accommodation			1,033		564
Total derivatives not designated as qualifying hedging instruments			1,165		739
Total			$	1,673	741

*(a)*Derivative assets and liabilities are presented net of variation margin of $40 and $493, respectively.

Fair Value Hedges

The Bancorp may enter into interest rate swaps to convert its fixed-rate funding to floating-rate. Decisions to convert fixed-rate funding to floating are made primarily through consideration of the asset/liability mix of the Bancorp, the desired asset/liability sensitivity and interest rate levels. As of December 31, 2020, certain interest rate swaps met the criteria required to qualify for the shortcut method of accounting that permits the assumption of perfect offset. For all designated fair value hedges of interest rate risk as of December 31, 2020 that were not accounted for under the shortcut method of accounting, the Bancorp performed an assessment of hedge effectiveness using regression analysis with changes in the fair value of the derivative instrument and changes in the fair value of the hedged asset or liability attributable to the hedged risk recorded in the same income statement line in current period net income.

The following table reflects the change in fair value of interest rate contracts, designated as fair value hedges, as well as the change in fair value of the related hedged items attributable to the risk being hedged, included in the Consolidated Statements of Income:


For the years ended December 31 ($ in millions)	Consolidated Statements of Income Caption	2020		2019	2018
Change in fair value of interest rate swaps hedging long-term debt	Interest on long-term debt	$	134	152	(36)
Change in fair value of hedged long-term debt attributable to the risk being hedged	Interest on long-term debt	(133)		(147)	41

The following amounts were recorded in the Consolidated Balance Sheets related to cumulative basis adjustments for fair value hedges as of December 31:


($ in millions)	Consolidated Balance Sheets Caption	2020		2019
Carrying amount of the hedged items	Long-term debt	$	2,478	3,093
Cumulative amount of fair value hedging adjustments included in the carrying amount of the hedged items	Long-term debt	534		402

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Cash Flow Hedges

The Bancorp may enter into interest rate swaps to convert floating-rate assets and liabilities to fixed rates or to hedge certain forecasted transactions for the variability in cash flows attributable to the contractually specified interest rate. The assets or liabilities may be grouped in circumstances where they share the same risk exposure that the Bancorp desires to hedge. The Bancorp may also enter into interest rate caps and floors to limit cash flow variability of floating rate assets and liabilities. As of December 31, 2020, all hedges designated as cash flow hedges were assessed for effectiveness using regression analysis. The entire change in the fair value of the interest rate swap included in the assessment of hedge effectiveness is recorded in AOCI and reclassified from AOCI to current period earnings when the hedged item affects earnings. As of December 31, 2020, the maximum length of time over which the Bancorp is hedging its exposure to the variability in future cash flows is 48 months.

Reclassified gains and losses on interest rate contracts related to commercial and industrial loans are recorded within interest income in the Consolidated Statements of Income. As of December 31, 2020 and 2019, $718 million and $422 million, respectively, of net deferred gains, net of tax, on cash flow hedges were recorded in AOCI in the Consolidated Balance Sheets. As of December 31, 2020, $226 million in net unrealized gains, net of tax, recorded in AOCI are expected to be reclassified into earnings during the next 12 months. This amount could differ from amounts actually recognized due to changes in interest rates, hedge de-designations or the addition of other hedges subsequent to December 31, 2020.

During both the years ended December 31, 2020 and 2019, there were no gains or losses reclassified from AOCI into earnings associated with the discontinuance of cash flow hedges because it was probable that the original forecasted transaction would no longer occur by the end of the originally specified time period or within the additional period of time as defined by U.S. GAAP.

The following table presents the pre-tax net gains (losses) recorded in the Consolidated Statements of Income and in the Consolidated Statements of Comprehensive Income relating to derivative instruments designated as cash flow hedges:


For the years ended December 31 ($ in millions)	2020		2019	2018
Amount of pre-tax net gains recognized in OCI	$	611	348	214
Amount of pre-tax net gains (losses) reclassified from OCI into net income	237		16	(2)

Free-Standing Derivative Instruments – Risk Management and Other Business Purposes

As part of its overall risk management strategy relative to its mortgage banking activity, the Bancorp may enter into various free-standing derivatives (principal-only swaps, interest rate swaptions, interest rate floors, mortgage options, TBA securities and interest rate swaps) to economically hedge changes in fair value of its largely fixed-rate MSR portfolio. Principal-only swaps hedge the spread between mortgage rates and LIBOR because these swaps appreciate in value as a result of tightening spreads. Principal-only swaps also provide prepayment protection by increasing in value when prepayment speeds increase, as opposed to MSRs that lose value in a faster prepayment environment. Receive fixed/pay floating interest rate swaps and swaptions increase in value when interest rates do not increase as quickly as expected.

The Bancorp enters into forward contracts and mortgage options to economically hedge the change in fair value of certain residential mortgage loans held for sale due to changes in interest rates. IRLCs issued on residential mortgage loan commitments that will be held for sale are also considered free-standing derivative instruments and the interest rate exposure on these commitments is economically hedged primarily with forward contracts. Revaluation gains and losses from free-standing derivatives related to mortgage banking activity are recorded as a component of mortgage banking net revenue in the Consolidated Statements of Income.

In conjunction with the sale of Visa, Inc. Class B Shares in 2009, the Bancorp entered into a total return swap in which the Bancorp will make or receive payments based on subsequent changes in the conversion rate of the Class B Shares into Class A Shares. This total return swap is accounted for as a free-standing derivative. Refer to Note 29 for further discussion of significant inputs and assumptions used in the valuation of this instrument.

The Bancorp entered into certain interest rate swap contracts for the purpose of managing its collateral positions across two central clearing parties. These interest rate swaps were perfectly offsetting positions that allowed the Bancorp to lower the cash posted as required initial margin at the central clearing parties, which reduced its credit exposure to the central clearing parties. Given that all relevant terms for these interest rate swaps are offsetting, these trades create no additional market risk for the Bancorp.

As part of the LIBOR to SOFR transition, the Bancorp received certain interest rate swap contracts from the two central clearing parties that are moving from an Effective Federal Funds Rate discounting curve to a SOFR discounting curve. The purpose of these interest rate swaps was to neutralize the impact on collateral requirements due to the change in discounting curves implemented by the central clearing parties.

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The net gains (losses) recorded in the Consolidated Statements of Income relating to free-standing derivative instruments used for risk management and other business purposes are summarized in the following table:


For the years ended December 31 ($ in millions)	Consolidated Statements of Income Caption	2020		2019	2018
Interest rate contracts:
Forward contracts related to residential mortgage loans held for sale	Mortgage banking net revenue	$	(12)	4	(8)
Interest rate contracts related to MSR portfolio	Mortgage banking net revenue	307		221	(21)
Foreign exchange contracts:
Foreign exchange contracts for risk management purposes	Other noninterest income	(3)		(7)	10
Equity contracts:
Swap associated with sale of Visa, Inc. Class B Shares	Other noninterest income	(103)		(107)	(59)

Free-Standing Derivative Instruments – Customer Accommodation

The majority of the free-standing derivative instruments the Bancorp enters into are for the benefit of its commercial customers. These derivative contracts are not designated against specific assets or liabilities on the Consolidated Balance Sheets or to forecasted transactions and, therefore, do not qualify for hedge accounting. These instruments include foreign exchange derivative contracts entered into for the benefit of commercial customers involved in international trade to hedge their exposure to foreign currency fluctuations and commodity contracts to hedge such items as natural gas and various other derivative contracts. The Bancorp may economically hedge significant exposures related to these derivative contracts entered into for the benefit of customers by entering into offsetting contracts with approved, reputable, independent counterparties with substantially matching terms. The Bancorp hedges its interest rate exposure on commercial customer transactions by executing offsetting swap agreements with primary dealers. Revaluation gains and losses on interest rate, foreign exchange, commodity and other commercial customer derivative contracts are recorded as a component of commercial banking revenue or other noninterest income in the Consolidated Statements of Income.

The Bancorp enters into risk participation agreements, under which the Bancorp assumes credit exposure relating to certain underlying interest rate derivative contracts. The Bancorp only enters into these risk participation agreements in instances in which the Bancorp has participated in the loan that the underlying interest rate derivative contract was designed to hedge. The Bancorp will make payments under these agreements if a customer defaults on its obligation to perform under the terms of the underlying interest rate derivative contract. As of December 31, 2020 and 2019, the total notional amount of the risk participation agreements was $3.4 billion and $3.9 billion, respectively, and the fair value was a liability of $8 million at both December 31, 2020 and 2019 which is included in other liabilities in the Consolidated Balance Sheets. As of December 31, 2020, the risk participation agreements had a weighted-average remaining life of 3.5 years.

The Bancorp’s maximum exposure in the risk participation agreements is contingent on the fair value of the underlying interest rate derivative contracts in an asset position at the time of default. The Bancorp monitors the credit risk associated with the underlying customers in the risk participation agreements through the same risk grading system currently utilized for establishing loss reserves in its loan and lease portfolio.

Risk ratings of the notional amount of risk participation agreements under this risk rating system are summarized in the following table as of December 31:


($ in millions)	2020		2019
Pass	$	3,231	3,841
Special mention	113		86
Substandard	52		16
Total	$	3,396	3,943

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The net gains (losses) recorded in the Consolidated Statements of Income relating to free-standing derivative instruments used for customer accommodation are summarized in the following table:


For the years ended December 31 ($ in millions)	Consolidated Statements of Income Caption	2020		2019	2018
Interest rate contracts:
Interest rate contracts for customers (contract revenue)	Commercial banking revenue	$	36	40	32
Interest rate contracts for customers (credit portion of fair value adjustment)	Other noninterest expense	(22)		(15)	—
Interest rate lock commitments	Mortgage banking net revenue	271		144	70
Commodity contracts:
Commodity contracts for customers (contract revenue)	Commercial banking revenue	15		8	9
Commodity contracts for customers (credit losses)	Other noninterest expense	(1)		—	—
Commodity contracts for customers (credit portion of fair value adjustment)	Other noninterest expense	(2)		1	(1)
Foreign exchange contracts:
Foreign exchange contracts for customers (contract revenue)	Commercial banking revenue	55		49	55
Foreign exchange contracts for customers (contract revenue)	Other noninterest expense	(11)		12	14
Foreign exchange contracts for customers (credit portion of fair value adjustment)	Other noninterest expense	(1)		—	1

Offsetting Derivative Financial Instruments

The Bancorp’s derivative transactions are generally governed by ISDA Master Agreements and similar arrangements, which include provisions governing the setoff of assets and liabilities between the parties. When the Bancorp has more than one outstanding derivative transaction with a single counterparty, the setoff provisions contained within these agreements generally allow the non-defaulting party the right to reduce its liability to the defaulting party by amounts eligible for setoff, including the collateral received as well as eligible offsetting transactions with that counterparty, irrespective of the currency, place of payment or booking office. The Bancorp’s policy is to present its derivative assets and derivative liabilities on the Consolidated Balance Sheets on a gross basis, even when provisions allowing for setoff are in place. However, for derivative contracts cleared through certain central clearing parties who have modified their rules to treat variation margin payments as settlements, the fair value of the respective derivative contracts is reported net of the variation margin payments.

Collateral amounts included in the tables below consist primarily of cash and highly-rated government-backed securities and do not include variation margin payments for derivative contracts with legal rights of setoff for both periods shown.

The following tables provide a summary of offsetting derivative financial instruments:


	Gross Amount Recognized in the Consolidated Balance Sheets(a)			Gross Amounts Not Offset in the Consolidated Balance Sheets
As of December 31, 2020 ($ in millions)			Derivatives		Collateral(b)		Net Amount
Assets:
Derivatives	$	2,862		(621)		(755)		1,486
Total assets	2,862			(621)		(755)		1,486

Liabilities:
Derivatives	1,072			(621)		(221)		230
Total liabilities	$	1,072		(621)		(221)		230

(a) Amount does not include IRLCs because these instruments are not subject to master netting or similar arrangements.

*(b)*Amount of collateral received as an offset to asset positions or pledged as an offset to liability positions. Collateral values in excess of related derivative amounts recognized in the Consolidated Balance Sheets were excluded from this table.

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	Gross Amount Recognized in the Consolidated Balance Sheets(a)			Gross Amounts Not Offset in the Consolidated Balance Sheets
As of December 31, 2019 ($ in millions)			Derivatives		Collateral(b)		Net Amount
Assets:
Derivatives	$	1,655		(417)		(504)		734
Total assets	1,655			(417)		(504)		734

Liabilities:
Derivatives	741			(417)		(97)		227
Total liabilities	$	741		(417)		(97)		227

*(a)*Amount does not include IRLCs because these instruments are not subject to master netting or similar arrangements.

16. Other Assets

The following table provides the components of other assets included in the Consolidated Balance Sheets as of December 31:


($ in millions)	2020		2019
Derivative instruments	$	2,919	1,673
Accounts receivable and drafts-in-process	2,121		2,278
Bank owned life insurance	2,003		1,960
Partnership investments	1,872		1,729
Accrued interest and fees receivable	486		424
Operating lease right-of-use assets	423		473
Worldpay, Inc. TRA receivable	321		345
Income tax receivable	166		32
Prepaid expenses	129		101
OREO and other repossessed property	30		64
Other	279		111
Total other assets	$	10,749	9,190

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17. Short-Term Borrowings

Borrowings with original maturities of one year or less are classified as short-term and include federal funds purchased and other short-term borrowings. Federal funds purchased are excess balances in reserve accounts held at the FRB that the Bancorp purchased from other member banks on an overnight basis. Other short-term borrowings include securities sold under repurchase agreements, derivative collateral, FHLB advances and other borrowings with original maturities of one year or less.

The following table summarizes short-term borrowings and weighted-average rates:


	2020				2019
($ in millions)	Amount		Rate		Amount		Rate
As of December 31:
Federal funds purchased	$	300	0.14	%	$	260	1.49	%
Other short-term borrowings	1,192		0.19		1,011		1.24
Average for the years ended December 31:
Federal funds purchased	$	385	0.58	%	$	1,267	2.26	%
Other short-term borrowings	1,709		0.81		1,046		2.67
Maximum month-end balance for the years ended December 31:
Federal funds purchased	$	1,625			$	2,693
Other short-term borrowings	4,542				4,046

The following table presents a summary of the Bancorp’s other short-term borrowings as of December 31:


($ in millions)	2020		2019
Securities sold under repurchase agreements	$	679	469
Derivative collateral	474		542
Other secured borrowings	39		—
Total other short-term borrowings	$	1,192	1,011

The Bancorp’s securities sold under repurchase agreements are accounted for as secured borrowings and are collateralized by securities included in available-for-sale debt and other securities in the Consolidated Balance Sheets. These securities are subject to changes in market value and, therefore, the Bancorp may increase or decrease the level of securities pledged as collateral based upon these movements in market value. As of both December 31, 2020 and 2019, all securities sold under repurchase agreements were secured by agency residential mortgage-backed securities and the repurchase agreements have an overnight remaining contractual maturity.

As of December 31, 2020, other secured borrowings primarily includes obligations recognized by the Bancorp under ASC Topic 860 related to certain loans sold to GNMA and serviced by the Bancorp. Under ASC Topic 860, once the Bancorp has the unilateral right to repurchase the GNMA loans due to the borrower missing three consecutive payments, the Bancorp is considered to have regained effective control over the loan. As such, the Bancorp is required to recognize both the loan and the repurchase liability on the balance sheet, regardless of the intent to repurchase the loans.

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18. Long-Term Debt

The following table is a summary of the Bancorp’s long-term borrowings at December 31:


($ in millions)	Maturity			Interest Rate			2020		2019
Parent Company
Senior:
Fixed-rate notes	2020			2.875%			$	—	1,099
Floating-rate notes(b)	2021			0.70%			250		250
Fixed-rate notes	2022			2.60%			699		699
Fixed-rate notes	2022			3.50%			499		499
Fixed-rate notes	2023			1.625%			498		—
Fixed-rate notes	2024			3.65%			1,494		1,493
Fixed-rate notes	2025			2.375%			747		746
Fixed-rate notes	2027			2.55%			746		—
Fixed-rate notes	2028			3.95%			647		646
Subordinated:(a)
Fixed-rate notes	2024			4.30%			748		748
Fixed-rate notes	2038			8.25%			1,433		1,333
Subsidiaries
Senior:
Fixed-rate notes	2020			2.20%			—		752
Floating-rate notes(c)	2020			2.186%			—		300
Fixed-rate notes	2021			2.25%			1,249		1,249
Fixed-rate notes	2021			2.875%			849		848
Fixed-rate notes	2021			3.35%			506		508
Floating-rate notes(b)	2021			0.655%			300		299
Floating-rate notes(b)	2022			0.854%			300		299
Fixed-rate notes	2023			1.80%			648		—
Fixed-rate notes	2025			3.95%			836		797
Fixed-rate notes	2027			2.25%			598		—
Subordinated:(a)
Fixed-rate bank notes	2026			3.85%			748		748
Fixed-rate bank notes	2027			4.00%			172		171
Junior subordinated:
Floating-rate debentures(b)	2035			1.73%	-	1.91%	54		53
FHLB advances	2021	-	2047	0.05%	-	5.91	67		91
Notes associated with consolidated VIEs:
Automobile loan securitizations:
Fixed-rate notes	2022	-	2026	1.80%	-	2.69%	623		1,147
Floating-rate notes(b)	2022			0.33%			—		42
Other	2021	-	2041	Varies			262		153
Total							$	14,973	14,970

*(a)*In aggregate, $2.8 billion and $2.7 billion qualifies as Tier II capital for regulatory capital purposes for the years ended December 31, 2020 and 2019, respectively.

*(b)*These rates reflect the floating rates as of December 31, 2020.

*(c)*These rates reflect the floating rates as of December 31, 2019.

The Bancorp pays down long-term debt in accordance with contractual terms over maturity periods summarized in the previous table. The aggregate annual maturities of long-term debt obligations (based on final maturity dates) as of December 31, 2020 are presented in the following table:


($ in millions)	Parent		Subsidiaries	Total
2021	$	250	2,912	3,162
2022	1,198		325	1,523
2023	498		1,143	1,641
2024	2,242		98	2,340
2025	747		910	1,657
Thereafter	2,826		1,824	4,650
Total	$	7,761	7,212	14,973

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At December 31, 2020, the Bancorp’s long-term borrowings consisted of outstanding principal balances of $14.5 billion, net discounts of $19 million, debt issuance costs of $31 million and additions for mark-to-market adjustments on its hedged debt of $534 million. At December 31, 2019, the Bancorp’s long-term borrowings consisted of outstanding principal balances of $14.6 billion, net discounts of $18 million, debt issuance costs of $33 million and additions for mark-to-market adjustments on its hedged debt of $402 million. The Bancorp was in compliance with all debt covenants at December 31, 2020 and 2019.

Parent Company Long-Term Borrowings

Senior notes

On March 7, 2012, the Bancorp issued and sold $500 million of senior notes to third-party investors and entered into a Supplemental Indenture dated March 7, 2012 with the Trustee, which modified the existing Indenture for Senior Debt Securities dated April 30, 2008. The Supplemental Indenture and the Indenture define the rights of the senior notes and that they are represented by a Global Security dated as of March 7, 2012. The senior notes bear a fixed-rate of interest of 3.50% per annum. The notes are unsecured, senior obligations of the Bancorp. Payment of the full principal amounts of the notes will be due upon maturity on March 15, 2022. These fixed-rate senior notes will be redeemable by the Bancorp, in whole or in part, on or after the date that is 30 days prior to the maturity date at a redemption price equal to 100% of the principal amount plus accrued and unpaid interest up to, but excluding, the redemption date.

On June 15, 2017, the Bancorp issued and sold $700 million of senior notes to third-party investors. The senior notes bear a fixed-rate of interest of 2.60% per annum. The notes are unsecured, senior obligations of the Bancorp. Payment of the full principal amounts of the notes is due upon maturity on June 15, 2022. These fixed-rate senior notes will be redeemable by the Bancorp, in whole or in part, on or after the date that is 30 days prior to the maturity date at a redemption price equal to 100% of the principal amount plus accrued and unpaid interest up to, but excluding, the redemption date.

On March 14, 2018, the Bancorp issued and sold $650 million of senior notes to third-party investors. The senior notes bear a fixed-rate of interest of 3.95% per annum. The notes are unsecured, senior obligations of the Bancorp. Payment of the full principal amounts of the notes is due upon maturity on March 14, 2028. These fixed-rate senior notes will be redeemable by the Bancorp, in whole or in part, on or after the date that is 30 days prior to the maturity date at a redemption price equal to 100% of the principal amount plus accrued and unpaid interest up to, but excluding, the redemption date.

On June 5, 2018, the Bancorp issued and sold $250 million of senior notes to third-party investors. The senior notes bear a floating-rate of three-month LIBOR plus 47 bps. The notes are unsecured, senior obligations of the Bancorp. Payment of the full principal amounts of the notes is due upon maturity on June 4, 2021. These floating-rate senior notes will be redeemable by the Bancorp, in whole or in part, on or after the date that is 30 days prior to the maturity date at a redemption price equal to 100% of the principal amount plus accrued and unpaid interest up to, but excluding, the redemption date.

On January 25, 2019, the Bancorp issued and sold $1.5 billion of senior notes to third-party investors. The senior notes bear a fixed-rate of interest of 3.65% per annum. The notes are unsecured, senior obligations of the Bancorp. Payment of the full principal amounts of the notes is due upon maturity on January 25, 2024. These fixed-rate senior notes will be redeemable by the Bancorp, in whole or in part, on or after the date that is 30 days prior to the maturity date at a redemption price equal to 100% of the principal amount plus accrued and unpaid interest up to, but excluding, the redemption date.

On October 28, 2019, the Bancorp issued and sold $750 million of senior notes to third-party investors. The senior notes bear a fixed-rate of interest of 2.375% per annum. The notes are unsecured, senior obligations of the Bancorp. Payment of the full principal amounts of the notes is due upon maturity on January 28, 2025. These notes will be redeemable at the Bancorp’s option, in whole or in part, at any time or from time to time, on or after April 25, 2020, and prior to December 29, 2024, in each case at a redemption price, plus accrued and unpaid interest thereon, if any, to, but excluding, the redemption date, equal to the greater of (i) 100% of the aggregate principal amount of the notes being redeemed on that redemption date; and (ii) the sum of the present values of the remaining scheduled payments of principal and interest on the notes being redeemed that would be due if the notes to be redeemed matured on December 29, 2024 discounted to the redemption date on a semi-annual basis at the applicable treasury rate plus 15 bps. Additionally, these notes will be redeemable by the Bancorp, in whole or in part, on or after the date that is 30 days prior to the maturity date at a redemption price equal to 100% of the principal amount of the notes to be redeemed plus accrued and unpaid interest thereon to, but excluding, the redemption date.

On May 5, 2020, the Bancorp issued and sold $1.25 billion in aggregate principal amount of senior fixed-rate notes. The notes consisted of $500 million of 1.625% senior fixed-rate notes, with a maturity of three years, due on May 5, 2023; and $750 million of 2.55% senior fixed-rate notes, with a maturity of seven years, due on May 5, 2027. The 1.625% and 2.55% senior fixed-rate notes will be redeemable on or after April 5, 2023 and April 5, 2027, respectively (the respective “Applicable Par Call Date”), in whole or in part, at any time and from time to time, at the Bancorp’s option at a redemption price equal to 100% of the aggregate principal amount of the senior fixed-rate notes being redeemed, plus accrued and unpaid interest thereon, if any, to, but excluding, the redemption date. Additionally, the 1.625% and 2.55% senior fixed-rate notes will be redeemable at the Bancorp’s option, in whole or in part, at any time or from time to time, on or after November 2, 2020, and prior to the notes’ respective Applicable Par Call Date, in each case at a redemption price, plus accrued and unpaid interest thereon, if any, to, but excluding, the redemption date, equal to the greater of: (a) 100% of the aggregate principal amount of the senior fixed-rate notes being redeemed on that redemption date; and (b) the sum of the present values of the remaining scheduled payments of principal and

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interest on the senior fixed-rate notes being redeemed that would be due if the senior fixed-rate notes to be redeemed matured on their respective Applicable Par Call Date (not including any portion of such payments of interest accrued to the redemption date) discounted to the redemption date on a semi-annual basis (assuming a 360-day year consisting of twelve 30-day months) at the applicable Treasury Rate plus either 25 bps (for the 1.625% senior fixed-rate notes) or 35 bps (for the 2.55% senior fixed-rate notes), as the case may be.

Subordinated debt

The Bancorp has entered into interest rate swaps to convert part of its subordinated fixed-rate notes due in 2038 to floating-rate. Of the $1.0 billion in 8.25% subordinated fixed-rate notes due in 2038, $705 million were subsequently hedged to floating-rate and paid a rate of 3.27% at December 31, 2020.

On November 20, 2013, the Bancorp issued and sold $750 million of 4.30% unsecured subordinated fixed-rate notes due on January 16, 2024. These fixed-rate notes will be redeemable by the Bancorp, in whole or in part, on or after the date that is 30 days prior to the maturity date at a redemption price equal to 100% of the principal amount plus accrued and unpaid interest up to, but excluding, the redemption date.

Subsidiary Long-Term Borrowings

Senior and subordinated debt

Medium-term senior notes and subordinated bank notes with maturities ranging from one year to 30 years can be issued by the Bancorp’s banking subsidiary. Under the Bancorp’s banking subsidiary’s global bank note program, the Bank’s capacity to issue its senior and subordinated unsecured bank notes is $25.0 billion. As of December 31, 2020, $19.1 billion was available for future issuance under the global bank note program.

On September 5, 2014, the Bank issued and sold, under its bank notes program, $850 million of 2.875% unsecured senior fixed-rate bank notes due on October 1, 2021. These bank notes will be redeemable by the Bank, in whole or in part, on or after the date that is 30 days prior to the maturity date at a redemption price equal to 100% of the principal amount plus accrued and unpaid interest up to, but excluding, the redemption date.

On March 15, 2016, the Bank issued and sold, under its bank notes program, $750 million of 3.85% subordinated fixed-rate notes due on March 15, 2026. These bank notes will be redeemable by the Bank, in whole or in part, on or after the date that is 30 days prior to the maturity date at a redemption price equal to 100% of the principal amount plus accrued and unpaid interest up to, but excluding, the redemption date.

On June 14, 2016, the Bank issued and sold, under its bank notes program, $1.3 billion of 2.25% unsecured senior fixed-rate notes due on June 14, 2021. These bank notes will be redeemable by the Bank, in whole or in part, on or after the date that is 30 days prior to the maturity date at a redemption price equal to 100% of the principal amount plus accrued and unpaid interest up to, but excluding, the redemption date.

On July 26, 2018 the Bank issued and sold, under its bank notes program, $1.55 billion in aggregate principal amount of unsecured senior bank notes. The bank notes consisted of $500 million of 3.35% senior fixed-rate notes, with a maturity of three years, due on July 26, 2021; $300 million of senior floating-rate notes at three-month LIBOR plus 44 bps, with a maturity of three years, due on July 26, 2021; and $750 million of 3.95% senior fixed-rate notes, with a maturity of seven years, due July 28, 2025. The Bank entered into interest rate swaps to convert the fixed-rate notes due in 2021 and 2025 to a floating-rate, which resulted in an effective interest rate of one-month LIBOR plus 53 bps and 104 bps, respectively. These bank notes will be redeemable by the Bank, in whole or in part, on or after the date that is 30 days prior to the maturity date at a redemption price equal to 100% of the principal amount plus accrued and unpaid interest up to, but excluding, the redemption date.

On February 1, 2019, the Bank issued and sold, under its bank notes program, $300 million in unsecured senior floating-rate bank notes due on February 1, 2022. Interest on the floating-rate notes is three-month LIBOR plus 64 bps. These notes will be redeemable by the Bank, in whole or in part, on or after the date that is 30 days prior to the maturity date at a redemption price equal to 100% of the principal amount of the notes to be redeemed plus accrued and unpaid interest up to, but excluding, the redemption date.

As a result of the MB Financial, Inc. acquisition, the Bank assumed $175 million of 4.00% subordinated fixed-rate notes due on December 1, 2027. These bank notes will be redeemable by the Bank, in whole or in part, on any interest payment date on or after December 1, 2022 at a redemption price equal to 100% of the principal amount plus accrued and unpaid interest up to, but excluding, the redemption date. From December 1, 2022 until maturity, the bank notes pay interest quarterly on the first day of March, June, September and December.

On January 31, 2020, the Bank issued and sold, under its bank notes program, $1.25 billion in aggregate principal amount of senior fixed-rate notes. The bank notes consisted of $650 million of 1.80% senior fixed-rate notes, with a maturity of three years, due on January 30, 2023; and $600 million of 2.25% senior fixed-rate notes, with a maturity of seven years, due on February 1, 2027. On or after the date that is 30 days before the maturity date, the 1.80% senior fixed-rate notes will be redeemable, in whole or in part, at any time and from time to time, at the Bank’s option at a redemption price equal to 100% of the aggregate principal amount of the 1.80% senior fixed-rate notes being redeemed, plus accrued and unpaid interest thereon, if any, to, but excluding, the redemption date. The 2.25% senior fixed-rate notes will be redeemable at the Bank’s option, in whole or in part, at any time or from time to time, on or after July 31, 2020, and prior to January 4, 2027 (the

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“Applicable Par Call Date”), in each case at a redemption price, plus accrued and unpaid interest thereon, if any, to, but excluding, the redemption date, equal to the greater of: (a) 100% of the aggregate principal amount of the 2.25% senior fixed-rate notes being redeemed on that redemption date; and (b) the sum of the present values of the remaining scheduled payments of principal and interest on the 2.25% senior fixed-rate notes being redeemed that would be due if the 2.25% senior fixed-rate notes to be redeemed matured on the Applicable Par Call Date (not including any portion of such payments of interest accrued to the redemption date) discounted to the redemption date on a semiannual basis (assuming a 360-day year consisting of twelve 30-day months) at the applicable Treasury Rate plus the Applicable Spread for the Notes to be redeemed. Additionally, on or after January 4, 2027, the 2.25% senior fixed-rate notes will also be redeemable, in whole or in part, at any time and from time to time, at the Bank’s option at a redemption price equal to 100% of the aggregate principal amount of the 2.25% senior fixed-rate notes being redeemed, plus accrued and unpaid interest thereon, if any, to, but excluding, the redemption date.

Junior subordinated debt

The junior subordinated floating-rate debentures due in 2035 were assumed by the Bancorp’s direct nonbank subsidiary holding company as part of the acquisition of First Charter in June 2008. The obligation was issued to First Charter Capital Trust I and II. The notes of First Charter Capital Trust I and II pay a floating rate at three-month LIBOR plus 169 bps and 142 bps, respectively. The Bancorp’s nonbank subsidiary holding company has fully and unconditionally guaranteed all obligations under the acquired TruPS issued by First Charter Capital Trust I and II.

FHLB advances

At December 31, 2020, FHLB advances have rates ranging from 0.05% to 5.91%, with interest payable monthly. The Bancorp has pledged $16.7 billion of certain residential mortgage loans and securities to secure its borrowing capacity at the FHLB which is partially utilized to fund $67 million in FHLB advances that are outstanding. The FHLB advances mature as follows: $1 million in 2021, $1 million in 2022, $51 million in 2023, an immaterial amount in 2024, $5 million in 2025, and $9 million thereafter.

Notes associated with consolidated VIEs

As previously discussed in Note 13, the Bancorp was determined to be the primary beneficiary of various VIEs associated with certain automobile loan securitizations. Third-party holders of this debt do not have recourse to the general assets of the Bancorp. In a securitization transaction that occurred in 2019, the Bancorp transferred approximately $1.43 billion in automobile loans to a bankruptcy remote trust which was deemed to be a VIE. This trust then subsequently issued approximately $1.37 billion of asset-backed notes, of which approximately $68 million were retained by the Bancorp. Approximately $543 million of outstanding notes from the 2019 securitization transaction are included in long-term debt in the Consolidated Balance Sheets as of December 31, 2020. Additionally, in prior years the Bancorp completed securitization transactions in which the Bancorp transferred certain consumer automobile loans to bankruptcy remote trusts which were also deemed to be VIEs. As such, approximately $80 million of outstanding notes related to these VIEs were included in long-term debt in the Consolidated Balance Sheets as of December 31, 2020.

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19. Commitments, Contingent Liabilities and Guarantees

The Bancorp, in the normal course of business, enters into financial instruments and various agreements to meet the financing needs of its customers. The Bancorp also enters into certain transactions and agreements to manage its interest rate and prepayment risks, provide funding, equipment and locations for its operations and invest in its communities. These instruments and agreements involve, to varying degrees, elements of credit risk, counterparty risk and market risk in excess of the amounts recognized in the Consolidated Balance Sheets. The creditworthiness of counterparties for all instruments and agreements is evaluated on a case-by-case basis in accordance with the Bancorp’s credit policies. The Bancorp’s significant commitments, contingent liabilities and guarantees in excess of the amounts recognized in the Consolidated Balance Sheets are discussed in the following sections.

Commitments

The Bancorp has certain commitments to make future payments under contracts. The following table reflects a summary of significant commitments as of December 31:


($ in millions)	2020		2019
Commitments to extend credit	$	74,499	75,696
Forward contracts related to residential mortgage loans held for sale	2,903		2,901
Letters of credit	1,982		2,137
Purchase obligations	195		113
Capital commitments for private equity investments	83		75
Capital expenditures	75		84

Commitments to extend credit

Commitments to extend credit are agreements to lend, typically having fixed expiration dates or other termination clauses that may require payment of a fee. Since many of the commitments to extend credit may expire without being drawn upon, the total commitment amounts do not necessarily represent future cash flow requirements. The Bancorp is exposed to credit risk in the event of nonperformance by the counterparty for the amount of the contract. Fixed-rate commitments are also subject to market risk resulting from fluctuations in interest rates and the Bancorp’s exposure is limited to the replacement value of those commitments. As of December 31, 2020 and 2019, the Bancorp had a reserve for unfunded commitments, including letters of credit, totaling $172 million and $144 million, respectively, included in other liabilities in the Consolidated Balance Sheets. The Bancorp monitors the credit risk associated with commitments to extend credit using the same standard regulatory risk rating systems utilized for its loan and lease portfolio.

Risk ratings of outstanding commitments to extend credit under this risk rating system are summarized in the following table as of December 31:


($ in millions)	2020		2019
Pass	$	71,386	74,654
Special mention	2,049		633
Substandard	1,063		408
Doubtful	1		1
Total commitments to extend credit	$	74,499	75,696

Letters of credit

Standby and commercial letters of credit are conditional commitments issued to guarantee the performance of a customer to a third party and expire as summarized in the following table as of December 31, 2020:


($ in millions)
Less than 1 year(a)	$	1,098
1 - 5 years(a)	883
Over 5 years	1
Total letters of credit	$	1,982

*(a)*Includes $9 and $2 issued on behalf of commercial customers to facilitate trade payments in U.S. dollars and foreign currencies which expire less than 1 year and between 1 -5 years, respectively.

Standby letters of credit accounted for approximately 99% of total letters of credit at both December 31, 2020 and 2019 and are considered guarantees in accordance with U.S. GAAP. Approximately 68% and 66% of the total standby letters of credit were collateralized as of December 31, 2020 and 2019, respectively. In the event of nonperformance by the customers, the Bancorp has rights to the underlying collateral, which can include commercial real estate, physical plant and property, inventory, receivables, cash and marketable securities. The reserve related to these standby letters of credit, which is included in the total reserve for unfunded commitments, was $27 million at December 31, 2020 and $20 million at December 31, 2019. The Bancorp monitors the credit risk associated with letters of credit using the same standard regulatory risk rating systems utilized for its loan and lease portfolio.

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Risk ratings of outstanding letters of credit under this risk rating system are summarized in the following table as of December 31:


($ in millions)	2020		2019
Pass	$	1,739	2,005
Special mention	111		20
Substandard	132		111
Doubtful	—		1
Total letters of credit	$	1,982	2,137

At December 31, 2020 and 2019, the Bancorp had outstanding letters of credit that were supporting certain securities issued as VRDNs. The Bancorp facilitates financing for its commercial customers, which consist of companies and municipalities, by marketing the VRDNs to investors. The VRDNs pay interest to holders at a rate of interest that fluctuates based upon market demand. The VRDNs generally have long-term maturity dates, but can be tendered by the holder for purchase at par value upon proper advance notice. When the VRDNs are tendered, a remarketing agent generally finds another investor to purchase the VRDNs to keep the securities outstanding in the market. As of December 31, 2020 and 2019, total VRDNs in which the Bancorp was the remarketing agent or were supported by a Bancorp letter of credit were $385 million and $449 million, respectively, of which FTS acted as the remarketing agent to issuers on $385 million and $445 million, respectively. As remarketing agent, FTS is responsible for actively remarketing VRDNs to other investors when they have been tendered. If another investor is not identified, FTS may choose to purchase the VRDNs into inventory at its discretion while it continues to remarket them. If FTS purchases the VRDNs into inventory, it can subsequently tender back the VRDNs to the issuer’s trustee with proper advance notice. The Bancorp issued letters of credit, as a credit enhancement, to $142 million and $187 million of the VRDNs remarketed by FTS, in addition to zero and $3 million in VRDNs remarketed by third parties at December 31, 2020 and 2019, respectively. These letters of credit are included in the total letters of credit balance provided in the previous table. The Bancorp held zero and $3 million of these VRDNs in its portfolio and classified them as trading securities at December 31, 2020 and 2019, respectively.

Forward contracts related to residential mortgage loans held for sale

The Bancorp enters into forward contracts to economically hedge the change in fair value of certain residential mortgage loans held for sale due to changes in interest rates. The outstanding notional amounts of these forward contracts are included in the summary of significant commitments table for all periods presented.

Other commitments

The Bancorp has entered into a limited number of agreements for work related to banking center construction and to purchase goods or services.

Contingent Liabilities

Legal claims

There are legal claims pending against the Bancorp and its subsidiaries that have arisen in the normal course of business. Refer to Note 20 for additional information regarding these proceedings.

Guarantees

The Bancorp has performance obligations upon the occurrence of certain events under financial guarantees provided in certain contractual arrangements as discussed in the following sections.

Residential mortgage loans sold with representation and warranty provisions

Conforming residential mortgage loans sold to unrelated third parties are generally sold with representation and warranty provisions. A contractual liability arises only in the event of a breach of these representations and warranties and, in general, only when a loss results from the breach. The Bancorp may be required to repurchase any previously sold loan, or indemnify or make whole the investor or insurer for which the representation or warranty of the Bancorp proves to be inaccurate, incomplete or misleading. For more information on how the Bancorp establishes the residential mortgage repurchase reserve, refer to Note 1.

As of December 31, 2020 and 2019, the Bancorp maintained reserves related to loans sold with representation and warranty provisions totaling $8 million and $6 million, respectively, included in other liabilities in the Consolidated Balance Sheets.

The Bancorp uses the best information available when estimating its mortgage representation and warranty reserve; however, the estimation process is inherently uncertain and imprecise and, accordingly, losses in excess of the amounts reserved as of December 31, 2020, are reasonably possible. The Bancorp currently estimates that it is reasonably possible that it could incur losses related to mortgage representation and warranty provisions in an amount up to approximately $8 million in excess of amounts reserved. This estimate was derived by modifying the key assumptions to reflect management’s judgment regarding reasonably possible adverse changes to those assumptions. The actual repurchase losses could vary significantly from the recorded mortgage representation and warranty reserve or this estimate of reasonably possible losses, depending on the outcome of various factors, including those previously discussed.

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During both the years ended December 31, 2020 and 2019, the Bancorp paid an immaterial amount in the form of make whole payments and repurchased $25 million in outstanding principal of loans to satisfy investor demands. Total repurchase demand requests during the years ended December 31, 2020 and 2019 were $32 million and $45 million, respectively. Total outstanding repurchase demand inventory was $5 million and $6 million at December 31, 2020 and 2019, respectively.

Margin accounts

FTS, an indirect wholly-owned subsidiary of the Bancorp, guarantees the collection of all margin account balances held by its brokerage clearing agent for the benefit of its customers. FTS is responsible for payment to its brokerage clearing agent for any loss, liability, damage, cost or expense incurred as a result of customers failing to comply with margin or margin maintenance calls on all margin accounts. The margin account balances held by the brokerage clearing agent were $14 million and $12 million at December 31, 2020 and 2019, respectively. In the event of customer default, FTS has rights to the underlying collateral provided. Given the existence of the underlying collateral provided and negligible historical credit losses, the Bancorp does not maintain a loss reserve related to the margin accounts.

Long-term borrowing obligations

The Bancorp had certain fully and unconditionally guaranteed long-term borrowing obligations issued by wholly-owned issuing trust entities of $62 million at both December 31, 2020 and 2019.

Visa litigation

The Bancorp, as a member bank of Visa prior to Visa’s reorganization and IPO (the “IPO”) of its Class A common shares (the “Class A Shares”) in 2008, had certain indemnification obligations pursuant to Visa’s certificate of incorporation and bylaws and in accordance with its membership agreements. In accordance with Visa’s bylaws prior to the IPO, the Bancorp could have been required to indemnify Visa for the Bancorp’s proportional share of losses based on the pre-IPO membership interests. As part of its reorganization and IPO, the Bancorp’s indemnification obligation was modified to include only certain known or anticipated litigation (the “Covered Litigation”) as of the date of the restructuring. This modification triggered a requirement for the Bancorp to recognize a liability equal to the fair value of the indemnification liability.

In conjunction with the IPO, the Bancorp received 10.1 million of Visa’s Class B common shares (the “Class B Shares”) based on the Bancorp’s membership percentage in Visa prior to the IPO. The Class B Shares are not transferable (other than to another member bank) until the later of the third anniversary of the IPO closing or the date on which the Covered Litigation has been resolved; therefore, the Bancorp’s Class B Shares were classified in other assets and accounted for at their carryover basis of $0. Visa deposited $3 billion of the proceeds from the IPO into a litigation escrow account, established for the purpose of funding judgments in, or settlements of, the Covered Litigation. Since then, when Visa’s litigation committee determined that the escrow account was insufficient, Visa issued additional Class A Shares and deposited the proceeds from the sale of the Class A Shares into the litigation escrow account. When Visa funded the litigation escrow account, the Class B Shares were subjected to dilution through an adjustment in the conversion rate of Class B Shares into Class A Shares.

In 2009, the Bancorp completed the sale of Visa, Inc. Class B Shares and entered into a total return swap in which the Bancorp will make or receive payments based on subsequent changes in the conversion rate of the Class B Shares into Class A Shares. The swap terminates on the later of the third anniversary of Visa’s IPO or the date on which the Covered Litigation is settled. Refer to Note 29 for additional information on the valuation of the swap. The counterparty to the swap as a result of its ownership of the Class B Shares will be impacted by dilutive adjustments to the conversion rate of the Class B Shares into Class A Shares caused by any Covered Litigation losses in excess of the litigation escrow account. If actual judgments in, or settlements of, the Covered Litigation significantly exceed current expectations, then additional funding by Visa of the litigation escrow account and the resulting dilution of the Class B Shares could result in a scenario where the Bancorp’s ultimate exposure associated with the Covered Litigation (the “Visa Litigation Exposure”) exceeds the value of the Class B Shares owned by the swap counterparty (the “Class B Value”). In the event the Bancorp concludes that it is probable that the Visa Litigation Exposure exceeds the Class B Value, the Bancorp would record a litigation reserve liability and a corresponding amount of other noninterest expense for the amount of the excess. Any such litigation reserve liability would be separate and distinct from the fair value derivative liability associated with the total return swap.

As of the date of the Bancorp’s sale of the Visa Class B Shares and through December 31, 2020, the Bancorp has concluded that it is not probable that the Visa Litigation Exposure will exceed the Class B Value. Based on this determination, upon the sale of the Class B Shares, the Bancorp reversed its net Visa litigation reserve liability and recognized a free-standing derivative liability associated with the total return swap. The fair value of the swap liability was $201 million and $163 million at December 31, 2020 and 2019, respectively. Refer to Note 15 and Note 29 for further information.

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After the Bancorp’s sale of the Class B Shares, Visa has funded additional amounts into the litigation escrow account which have resulted in further dilutive adjustments to the conversion of Class B Shares into Class A Shares, and along with other terms of the total return swap, required the Bancorp to make cash payments in varying amounts to the swap counterparty as follows:


Period ($ in millions)	Visa Funding Amount		Bancorp Cash Payment Amount
Q2 2010	$	500	20
Q4 2010	800		35
Q2 2011	400		19
Q1 2012	1,565		75
Q3 2012	150		6
Q3 2014	450		18
Q2 2018	600		26
Q3 2019	300		12

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20. Legal and Regulatory Proceedings

Litigation

Visa/MasterCard Merchant Interchange Litigation

In April 2006, the Bancorp was added as a defendant in a consolidated antitrust class action lawsuit originally filed against Visa®, MasterCard® and several other major financial institutions in the United States District Court for the Eastern District of New York (In re: Payment Card Interchange Fee and Merchant Discount Antitrust Litigation, Case No. 5-MD-1720). The plaintiffs, merchants operating commercial businesses throughout the U.S. and trade associations, claimed that the interchange fees charged by card-issuing banks were unreasonable and sought injunctive relief and unspecified damages. In addition to being a named defendant, the Bancorp is currently also subject to a possible indemnification obligation of Visa as discussed in Note 19 and has also entered into judgment and loss sharing agreements with Visa, MasterCard and certain other named defendants. In October 2012, the parties to the litigation entered into a settlement agreement that was initially approved by the trial court but reversed by the U.S. Second Circuit Court of Appeals and remanded to the district court for further proceedings. Pursuant to the terms of the overturned settlement agreement, the Bancorp had previously paid $46 million into a class settlement escrow account. Approximately 8,000 merchants requested exclusion from the class settlement, and therefore, pursuant to the terms of the overturned settlement agreement, approximately 25% of the funds paid into the class settlement escrow account had been already returned to the control of the defendants. The remaining settlement funds paid by the Bancorp have been maintained in the escrow account. More than 500 of the merchants who requested exclusion from the class filed separate federal lawsuits against Visa, MasterCard and certain other defendants alleging similar antitrust violations. These individual federal lawsuits were transferred to the United States District Court for the Eastern District of New York. While the Bancorp is only named as a defendant in one of the individual federal lawsuits, it may have obligations pursuant to indemnification arrangements and/or the judgment or loss sharing agreements noted above. On September 17, 2018, the defendants in the consolidated class action signed a second settlement agreement (the “Amended Settlement Agreement”) resolving the claims seeking monetary damages by the proposed plaintiffs’ class (the “Plaintiff Damages Class”) and superseding the original settlement agreement entered into in October 2012. The Amended Settlement Agreement included, among other terms, a release from participating class members for liability for claims that accrue no later than five years after the Amended Settlement Agreement becomes final. The Amended Settlement Agreement provided for a total payment by all defendants of approximately $6.24 billion, composed of approximately $5.34 billion held in escrow plus an additional $900 million in new funds. Pursuant to the terms of the Settlement Agreement, $700 million of the additional $900 million has been returned to the defendants due to the level of opt-outs from the class. The Bancorp’s allocated share of the settlement is within existing reserves, including funds maintained in escrow. On December 13, 2019, the Court entered an order granting final approval for the settlement. The settlement does not resolve the claims of the separate proposed plaintiffs’ class seeking injunctive relief or the claims of merchants who have opted out of the proposed class settlement and are pursuing, or may in the future decide to pursue, private lawsuits. The ultimate outcome in this matter, including the timing of resolution, therefore remains uncertain. Refer to Note 19 for further information.

Klopfenstein v. Fifth Third Bank

On August 3, 2012, William Klopfenstein and Adam McKinney filed a lawsuit against Fifth Third Bank in the United States District Court for the Northern District of Ohio (Klopfenstein et al. v. Fifth Third Bank), alleging that the 120% APR that Fifth Third disclosed on its Early Access program was misleading. Early Access is a deposit-advance program offered to eligible customers with checking accounts. The plaintiffs sought to represent a nationwide class of customers who used the Early Access program and repaid their cash advances within 30 days. On October 31, 2012, the case was transferred to the United States District Court for the Southern District of Ohio. In 2013, four similar putative class actions were filed against Fifth Third Bank in federal courts throughout the country (Lori and Danielle Laskaris v. Fifth Third Bank, Janet Fyock v. Fifth Third Bank, Jesse McQuillen v. Fifth Third Bank, and Brian Harrison v. Fifth Third Bank). Those four lawsuits were transferred to the Southern District of Ohio and consolidated with the original lawsuit as In re: Fifth Third Early Access Cash Advance Litigation (Case No. 1:12-CV-851). On behalf of a putative class, the plaintiffs sought unspecified monetary and statutory damages, injunctive relief, punitive damages, attorney’s fees, and pre- and post-judgment interest. On March 30, 2015, the court dismissed all claims alleged in the consolidated lawsuit except a claim under the TILA. On May 28, 2019, the Sixth Circuit Court of Appeals reversed the dismissal of plaintiffs’ breach of contract claim and remanded for further proceedings. The plaintiffs’ claimed damages for the alleged breach of contract claim exceed $280 million. The plaintiffs’ motion for class certification was filed on April 20, 2020 and is now fully briefed and awaiting decision. No trial date has been set.

Helton v. Fifth Third Bank

On August 31, 2015, trust beneficiaries filed an action against Fifth Third Bank, as trustee, in the Probate Court for Hamilton County, Ohio (Helen Clarke Helton, et al. v. Fifth Third Bank, Case No. 2015003814). The plaintiffs alleged breach of the duty to diversify, breach of the duty of impartiality, breach of trust/fiduciary duty, and unjust enrichment, based on Fifth Third’s alleged failure to diversify assets held in two trusts for the plaintiffs’ benefit. The lawsuit sought over $800 million in alleged damages, attorney’s fees, removal of Fifth Third as trustee, and injunctive relief. On April 20, 2018, the Court denied plaintiffs’ motion for summary judgment and granted summary judgment to Fifth Third, dismissing the case in its entirety. On December 18, 2019, the Ohio Court of Appeals affirmed the Probate Court’s dismissal of all of plaintiffs’ claims based upon allegations of Fifth Third’s alleged failure to diversify assets held in two trusts for plaintiffs’ benefit. The appeals court reversed summary judgment on one claim related to Fifth Third’s alleged unjust enrichment through its receipt of certain fees in managing the trusts. The Court of Appeals remanded the case to the Probate Court for further consideration of the lone surviving claim, which comprises a small fraction of the damages originally sought by plaintiffs in the lawsuit. Plaintiffs filed an appeal to the Ohio Supreme Court, seeking review of the decision from the Ohio Court of Appeals. On April 14, 2020, the Ohio Supreme Court announced its denial of

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plaintiffs’ request for review, and subsequently denied plaintiffs’ request for reconsideration. Thereafter, the case returned to the trial court for further adjudication of the lone surviving claim. On January 8, 2021 the trial court issued an order denying Fifth Third’s motion for summary judgment on the remaining claim leaving it to be resolved at trial.

Bureau of Consumer Financial Protection v. Fifth Third Bank, National Association

On March 9, 2020, the CFPB filed a lawsuit against Fifth Third in the United States District Court for the Northern District of Illinois entitled CFPB v. Fifth Third Bank, National Association, Case No. 1:20-CV-1683 (N.D. Ill.) (ABW), alleging violations of the Consumer Financial Protection Act, TILA, and Truth in Savings Act related to Fifth Third’s alleged opening of unspecified numbers of allegedly unauthorized credit card, savings, checking, online banking and early access accounts from 2010 through 2016. The CFPB seeks unspecified amounts of civil monetary penalties as well as unspecified customer remediation. On February 12, 2021, the court granted Fifth Third's motion to transfer venue to the United States District Court for the Southern District of Ohio. The Bancorp is also subject to a consumer class action related to the alleged opening of unauthorized accounts.

Shareholder Litigation

On April 7, 2020, Plaintiff Lee Christakis filed a putative class action against Fifth Third Bancorp, Fifth Third President and Chief Executive Officer Greg D. Carmichael, and former Fifth Third Chief Financial Officer Tayfun Tuzun in the U.S. District Court for the Northern District of Illinois entitled Lee Christakis, individually and on behalf of all others similarly situated v. Fifth Third Bancorp, et al., Case No. 1:20-cv-2176 (N.D. Ill). The case brings two claims for violation of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, alleging that the Defendants made material misstatements and omissions in connection with the alleged unauthorized opening of credit card, savings, checking, online banking and early access accounts from 2010 through 2016. The plaintiff seeks certification of a class, unspecified damages, attorneys’ fees and costs. On June 29, 2020, the Court appointed Heavy & General Laborers’ Local 472 & 172 Pension and Annuity Funds as lead plaintiff, and Robins Geller Rudman & Dowd LLP as lead counsel for the plaintiff. On September 14, 2020, the lead plaintiff filed its amended consolidated complaint.

On July 31, 2020, a second putative shareholder class action captioned Dr. Steven Fox, individually and on behalf of all others similarly situated v. Fifth Third Bancorp, et al., Case No. 2020CH05219 was filed on behalf of former shareholders of MB Financial, Inc. in the Cook County, Illinois Circuit Court. The suit brings claims for violation of Sections 11 and 12(a)(2) of the Securities Act of 1933, alleging that the Bancorp and certain of its officers and directors made material misstatements and omissions regarding the alleged improper cross-selling strategy in filings made in connection with the Bancorp’s merger with MB Financial, Inc.

In addition, shareholder derivative lawsuits have been filed seeking monetary damages on behalf of the Bancorp alleging certain claims against various officers and directors relating to an alleged improper cross-selling strategy. Four lawsuits filed in the U.S. District Court for the Northern District of Illinois have been consolidated into a single action captioned In re Fifth Third Bancorp Derivative Litigation, Case No. 1:20-cv-04115. Those cases consist of: (1) Pemberton v. Carmichael, et al., Case No. 20-cv-4115 (filed July 13, 2020); (2) Meyer v. Carmichael, et al., Case No. 20-cv-4244 (filed July 17, 2020); (3) Cox v. Carmichael, et al., Case No. 20-cv-4660 (filed August 7, 2020); and (4) Hansen v. Carmichael, et al., Case No. 20-cv-5339 (filed September 10, 2020). Also pending are shareholder derivative matters Reese v. Carmichael, et al., Case No. 20-cv-866 pending in the U.S. District Court of the Southern District of Ohio (filed November 4, 2020) and Sandys v. Carmichael, et al., Case No. A2004539 pending in the Hamilton County, Ohio Court of Common Pleas (filed December 28, 2020). The Bancorp has also received several shareholder demands under Ohio Rev. Code § 1701.37(c) and lawsuits have been filed arising out of the same. Finally, the Bancorp has received a shareholder demand that the Bancorp’s Board of Directors investigate and commence a civil action for failure to detect and/or prevent the alleged illegal cross-selling strategy. The shareholder subsequently filed the aforementioned Sandys v. Carmichael, et al. matter.

Other litigation

The Bancorp and its subsidiaries are not parties to any other material litigation. However, there are other litigation matters that arise in the normal course of business. While it is impossible to ascertain the ultimate resolution or range of financial liability with respect to these contingent matters, management believes that the resulting liability, if any, from these other actions would not have a material effect upon the Bancorp’s consolidated financial position, results of operations or cash flows.

Governmental Investigations and Proceedings

The Bancorp and/or its affiliates are or may become involved in information-gathering requests, reviews, investigations and proceedings (both formal and informal) by various governmental regulatory agencies and law enforcement authorities, including but not limited to the FRB, OCC, CFPB, SEC, FINRA, U.S. Department of Justice, etc., as well as state and other governmental authorities and self-regulatory bodies regarding their respective businesses. Additional matters will likely arise from time to time. Any of these matters may result in material adverse consequences or reputational harm to the Bancorp, its affiliates and/or their respective directors, officers and other personnel, including adverse judgments, findings, settlements, fines, penalties, orders, injunctions or other actions, amendments and/or restatements of the Bancorp’s SEC filings and/or financial statements, as applicable, and/or determinations of material weaknesses in our disclosure controls and procedures. Investigations by regulatory authorities may from time to time result in civil or criminal referrals to law enforcement. Additionally, in some cases, regulatory authorities may take supervisory actions that are considered to be confidential supervisory information which may not be publicly disclosed.

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Reasonably Possible Losses in Excess of Accruals

The Bancorp and its subsidiaries are parties to numerous claims and lawsuits as well as threatened or potential actions or claims concerning matters arising from the conduct of its business activities. The outcome of claims or litigation and the timing of ultimate resolution are inherently difficult to predict. The following factors, among others, contribute to this lack of predictability: claims often include significant legal uncertainties, damages alleged by plaintiffs are often unspecified or overstated, discovery may not have started or may not be complete and material facts may be disputed or unsubstantiated. As a result of these factors, the Bancorp is not always able to provide an estimate of the range of reasonably possible outcomes for each claim. An accrual for a potential litigation loss is established when information related to the loss contingency indicates both that a loss is probable and that the amount of loss can be reasonably estimated. Any such accrual is adjusted from time to time thereafter as appropriate to reflect changes in circumstances. The Bancorp also determines, when possible (due to the uncertainties described above), estimates of reasonably possible losses or ranges of reasonably possible losses, in excess of amounts accrued. Under U.S. GAAP, an event is “reasonably possible” if “the chance of the future event or events occurring is more than remote but less than likely” and an event is “remote” if “the chance of the future event or events occurring is slight.” Thus, references to the upper end of the range of reasonably possible loss for cases in which the Bancorp is able to estimate a range of reasonably possible loss mean the upper end of the range of loss for cases for which the Bancorp believes the risk of loss is more than slight. For matters where the Bancorp is able to estimate such possible losses or ranges of possible losses, the Bancorp currently estimates that it is reasonably possible that it could incur losses related to legal and regulatory proceedings in an aggregate amount up to approximately $65 million in excess of amounts accrued, with it also being reasonably possible that no losses will be incurred in these matters. The estimates included in this amount are based on the Bancorp’s analysis of currently available information, and as new information is obtained the Bancorp may change its estimates.

For these matters and others where an unfavorable outcome is reasonably possible but not probable, there may be a range of possible losses in excess of the established accrual that cannot be estimated. Based on information currently available, advice of counsel, available insurance coverage and established accruals, the Bancorp believes that the eventual outcome of the actions against the Bancorp and/or its subsidiaries, including the matters described above, will not, individually or in the aggregate, have a material adverse effect on the Bancorp’s consolidated financial position. However, in the event of unexpected future developments, it is possible that the ultimate resolution of those matters, if unfavorable, may be material to the Bancorp’s results of operations for any particular period, depending, in part, upon the size of the loss or liability imposed and the operating results for the applicable period.

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21. Related Party Transactions

The Bancorp maintains written policies and procedures covering related party transactions with principal shareholders, directors and executives of the Bancorp. These procedures cover transactions such as employee-stock purchase loans, personal lines of credit, residential secured loans, overdrafts, letters of credit and increases in indebtedness. Such transactions are subject to the Bancorp’s normal underwriting and approval procedures. Prior to approving a loan to a related party, Compliance Risk Management must review and determine whether the transaction requires approval from or a post notification to the Bancorp’s Board of Directors. At December 31, 2020 and 2019, certain directors, executive officers, principal holders of Bancorp common stock and their related interests were indebted, including undrawn commitments to lend, to the Bancorp’s banking subsidiary.

The following table summarizes the Bancorp’s lending activities with its principal shareholders, directors, executives and their related interests at December 31:


($ in millions)	2020		2019
Commitments to lend, net of participations:
Directors and their affiliated companies	$	79	736
Executive officers	7		5
Total	$	86	741

Outstanding balance on loans, net of participations and undrawn commitments	$	67	49

The commitments to lend are in the form of loans and guarantees for various business and personal interests. This indebtedness was incurred in the ordinary course of business on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with unrelated parties. This indebtedness does not involve more than the normal risk of repayment or present other features unfavorable to the Bancorp.

Worldpay, Inc. and Worldpay Holding, LLC

On June 30, 2009, the Bancorp completed the sale of a majority interest in its processing business, Vantiv Holding, LLC (now Worldpay Holding, LLC). Advent International acquired an approximate 51% interest in Worldpay Holding, LLC for cash and a warrant. The Bancorp retained the remaining approximate 49% interest in Worldpay Holding, LLC.

During the first quarter of 2012, Vantiv, Inc. (now Worldpay, Inc.) priced an IPO of its shares and contributed the net proceeds to Worldpay Holding, LLC for additional ownership interests, reducing the Bancorp’s ownership percentage to 39%. Subsequent to the IPO, the Bancorp consummated a series of sales transactions which culminated in the sale of all of its remaining interests in Worldpay Holding, LLC in the first quarter of 2019. The Bancorp recognized a gain of $562 million in other noninterest income during the first quarter of 2019 as a result of the final sale transaction. As of January 1, 2020, Worldpay Holding, LLC and Worldpay, Inc. are no longer considered related parties of the Bancorp as the Bancorp no longer beneficially owns any of Worldpay, Inc.’s equity securities.

In conjunction with Worldpay, Inc.’s IPO in 2012, the Bancorp entered into two TRAs with Worldpay, Inc. The TRAs provide for payments by Worldpay, Inc. to the Bancorp of 85% of the cash savings actually realized as a result of the increase in tax basis that results from the historical or future purchase of equity in Worldpay Holding, LLC from the Bancorp or from the exchange of equity units in Worldpay Holding, LLC for cash or Class A Stock, as well as any tax benefits attributable to payments made under the TRA. One of the TRAs has been settled and terminated and the Bancorp accounts for the remaining TRA as a gain contingency and recognizes income when all uncertainties surrounding the realization of such amounts are resolved.

During the fourth quarter of 2019, the Bancorp entered into an agreement with Fidelity National Information Services, Inc. and Worldpay, Inc. under which Worldpay, Inc. may be obligated to pay up to approximately $366 million to the Bancorp to terminate and settle certain remaining TRA cash flows, totaling an estimated $720 million, upon the exercise of certain call options by Worldpay, Inc. or certain put options by the Bancorp. In 2019, the Bancorp recognized a gain of approximately $345 million in other noninterest income associated with these options. The Worldpay, Inc. TRA receivable associated with this transaction, recorded in other assets in the Consolidated Balance Sheets, was $321 million and $345 million as of December 31, 2020 and 2019, respectively.

Separate from the impact of the TRA settlement agreement discussed above, the Bancorp recognized $74 million, $1 million and $20 million in other noninterest income in the Consolidated Statements of Income associated with the TRA during the years ended December 31, 2020, 2019 and 2018, respectively. The Bancorp expects to receive approximately $122 million of future payments through 2025 under the TRA that are not subject to the call or put options. These remaining cash flows will be recognized in future periods when the related uncertainties are resolved.

The Bancorp and Worldpay Holding, LLC had various agreements in place covering services including interchange clearing, settlement and sponsorship. Worldpay Holding, LLC paid the Bancorp $87 million and $75 million for these services for the years ended December 31, 2019 and 2018, respectively. In addition to the previously mentioned services, the Bancorp previously entered into an agreement under which Worldpay Holding, LLC would provide processing services to the Bancorp. The total amount of fees relating to the processing services

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provided to the Bancorp by Worldpay Holding, LLC totaled $77 million and $74 million for the years ended December 31, 2019 and 2018, respectively. These fees were primarily reported as a component of card and processing expense in the Consolidated Statements of Income.

SLK Global Solutions Private Limited

As of December 31, 2020, the Bancorp owns 100% of Fifth Third Mauritius Holdings Limited, which owns 49% of SLK Global Solutions Private Limited, and accounts for this investment under the equity method of accounting. The Bancorp recognized $5 million, $3 million and $2 million in other noninterest income in the Consolidated Statements of Income as part of its equity method investment in SLK Global Solutions Private Limited for the years ended December 31, 2020, 2019 and 2018, respectively. The Bancorp received cash distributions of $1 million during both the years ended December 31, 2020 and 2019. The Bancorp’s investment in SLK Global Solutions Private Limited was $26 million at both December 31, 2020 and 2019. The Bancorp paid SLK Global Solutions Private Limited $27 million, $22 million and $21 million for their process and software services during the years ended December 31, 2020, 2019 and 2018, respectively, which are included in other noninterest expense in the Consolidated Statements of Income.

CDC investments

The Bancorp’s subsidiary, CDC, has equity investments in entities in which the Bancorp had $18 million and $12 million of loans outstanding at December 31, 2020 and 2019, respectively, and unfunded commitment balances of $39 million and $21 million at December 31, 2020 and 2019, respectively. The Bancorp held $63 million and $116 million of deposits for these entities at December 31, 2020 and 2019, respectively. For further information on CDC investments, refer to Note 13.

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22. Income Taxes

The Bancorp and its subsidiaries file a consolidated federal income tax return. The following is a summary of applicable income taxes included in the Consolidated Statements of Income for the years ended December 31:


($ in millions)	2020		2019	2018
Current income tax expense:
U.S. Federal income taxes	$	463	788	463
State and local income taxes	69		148	71
Foreign income taxes	—		—	8
Total current income tax expense	532		936	542
Deferred income tax (benefit) expense:
U.S. Federal income taxes	(140)		(212)	24
State and local income taxes	(23)		(35)	4
Foreign income taxes	1		1	2
Total deferred income tax (benefit) expense	(162)		(246)	30
Applicable income tax expense	$	370	690	572

The current U.S. Federal income taxes above include proportional amortization for qualifying LIHTC investments of $150 million, $140 million and $154 million for the years ended December 31, 2020, 2019 and 2018, respectively.

The following is a reconciliation between the federal statutory corporate tax rate and the Bancorp’s effective tax rate for the years ended December 31:


	2020		2019	2018
Statutory tax rate	21.0	%	21.0	21.0
Increase (decrease) resulting from:
State taxes, net of federal benefit	2.0		2.8	2.1
Tax-exempt income	(1.5)		(1.2)	(0.8)
LIHTC investment and other tax benefits	(9.7)		(5.0)	(6.8)
LIHTC investment proportional amortization	8.3		4.4	5.6
Other tax credits	(0.4)		(0.2)	(0.1)
Other, net	0.9		(0.2)	(0.3)
Effective tax rate	20.6	%	21.6	20.7

Other tax credits in the rate reconciliation table include New Markets, Rehabilitation Investment and Qualified Zone Academy Bond tax credits. Tax-exempt income in the rate reconciliation table includes interest on municipal bonds, interest on tax-exempt lending, income on life insurance policies held by the Bancorp and certain gains on sales of leases that are exempt from federal taxation.

The following table provides a reconciliation of the beginning and ending amounts of the Bancorp’s unrecognized tax benefits:


($ in millions)	2020		2019	2018
Unrecognized tax benefits at January 1	$	65	55	34
Gross increases for tax positions taken during prior period	29		25	20
Gross decreases for tax positions taken during prior period	(3)		(3)	(1)
Gross increases for tax positions taken during current period	12		6	8
Settlements with taxing authorities	(1)		(9)	(5)
Lapse of applicable statute of limitations	(2)		(9)	(1)
Unrecognized tax benefits at December 31(a)	$	100	65	55

*(a)*With the exception of $6, $6 and $5 in 2020, 2019 and 2018, respectively, all amounts represent unrecognized tax benefits that, if recognized, would affect the annual effective tax rate.

The Bancorp’s unrecognized tax benefits as of December 31, 2020, 2019 and 2018 primarily related to state income tax exposures from taking tax positions where the Bancorp believes it is likely that, upon examination, a state will take a position contrary to the position taken by the Bancorp.

While it is reasonably possible that the amount of the unrecognized tax benefits with respect to certain of the Bancorp’s uncertain tax positions could increase or decrease during the next twelve months, the Bancorp believes it is unlikely that its unrecognized tax benefits will change by a material amount during the next twelve months.

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Deferred income taxes are comprised of the following items at December 31:


($ in millions)	2020		2019
Deferred tax assets:
Allowance for loan and lease losses	$	515	252
Deferred compensation	107		103
Reserves	40		32
Reserve for unfunded commitments	36		30
State net operating loss carryforwards	3		9
State deferred taxes	1		—
Other	160		154
Total deferred tax assets	$	862	580
Deferred tax liabilities:
Other comprehensive income	$	779	352
Lease financing	638		650
MSRs and related economic hedges	120		144
Bank premises and equipment	91		73
Investments in joint ventures and partnership interests	58		25
State deferred taxes	—		47
Other	128		127
Total deferred tax liabilities	$	1,814	1,418
Total net deferred tax liability	$	(952)	(838)

At December 31, 2020 and 2019, the Bancorp recorded deferred tax assets of $3 million and $9 million, respectively, related to state net operating loss carryforwards. The deferred tax assets relating to state net operating losses are presented net of specific valuation allowances of $4 million and $17 million at December 31, 2020 and 2019, respectively. If these carryforwards are not utilized, they will expire in varying amounts through 2039.

The Bancorp has determined that a valuation allowance is not needed against the remaining deferred tax assets as of December 31, 2020 or 2019. The Bancorp considered all of the positive and negative evidence available to determine whether it is more likely than not that the deferred tax assets will ultimately be realized and, based upon that evidence, the Bancorp believes it is more likely than not that the deferred tax assets recorded at December 31, 2020 and 2019 will ultimately be realized. The Bancorp reached this conclusion as it is expected that the Bancorp’s remaining deferred tax assets will be realized through the reversal of its existing taxable temporary differences and its projected future taxable income.

The IRS has concluded its examination of the Bancorp’s 2016 federal income tax return. The statute of limitations for the Bancorp’s federal income tax returns remains open for tax years 2017 through 2020. On occasion, as various state and local taxing jurisdictions examine the returns of the Bancorp and its subsidiaries, the Bancorp may agree to extend the statute of limitations for a reasonable period of time. Otherwise, the statutes of limitations for state income tax returns remain open only for tax years in accordance with each state’s statutes.

Any interest and penalties incurred in connection with income taxes are recorded as a component of applicable income tax expense in the Consolidated Financial Statements. During the years ended December 31, 2020, 2019 and 2018, the Bancorp recognized $3 million, $1 million and $1 million, respectively, of interest expense in connection with income taxes. At December 31, 2020 and 2019, the Bancorp had accrued interest liabilities, net of the related tax benefits, of $7 million and $4 million, respectively. No material liabilities were recorded for penalties related to income taxes.

Retained earnings at December 31, 2020 and 2019 included $157 million in allocations of earnings for bad debt deductions of former thrift subsidiaries for which no income tax has been provided. Under current tax law, if certain of the Bancorp’s subsidiaries use these bad debt reserves for purposes other than to absorb bad debt losses, they will be subject to federal income tax at the current corporate tax rate.

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23. Retirement and Benefit Plans

The Bancorp’s qualified defined benefit plan’s benefits were frozen in 1998, except for grandfathered employees. The Bancorp’s other defined benefit retirement plans consist of non-qualified plans which are frozen and funded on an as-needed basis. A majority of these plans were obtained in acquisitions and are included with the qualified defined benefit plan in the following tables (“the Plan”). The Bancorp recognizes the overfunded or underfunded status of the Plan in other assets and accrued taxes, interest and expenses, respectively, in the Consolidated Balance Sheets.

The following table summarizes the defined benefit retirement plans as of and for the years ended December 31:


($ in millions)	2020		2019
Fair value of plan assets at January 1	$	175	164
Actual return on assets	13		26
Contributions	2		2
Settlement	(9)		(9)
Benefits paid	(8)		(8)
Fair value of plan assets at December 31	$	173	175
Projected benefit obligation at January 1	$	194	181
Interest cost	6		7
Settlement	(9)		(9)
Actuarial loss	20		23
Benefits paid	(8)		(8)
Projected benefit obligation at December 31	$	203	194
Underfunded projected benefit obligation at December 31	$	(30)	(19)
Accumulated benefit obligation at December 31(a)	$	203	194

*(a)*Since the Plan’s benefits are frozen, the rate of compensation increase is no longer an assumption used to calculate the accumulated benefit obligation. Therefore, the accumulated benefit obligation was the same as the projected benefit obligation at both December 31, 2020 and 2019.

The following table summarizes net periodic benefit cost and other changes in the Plan’s assets and benefit obligations recognized in OCI for the years ended December 31:


($ in millions)	2020		2019	2018
Components of net periodic benefit cost:
Interest cost	$	6	7	7
Expected return on assets	(4)		(8)	(11)
Amortization of net actuarial loss	6		6	6
Settlement	3		3	3
Net periodic benefit cost	$	11	8	5
Other changes in plan assets and benefit obligations recognized in other comprehensive income:
Net actuarial loss (gain)	$	12	5	(1)
Amortization of net actuarial loss	(6)		(6)	(6)
Settlement	(3)		(3)	(3)
Total recognized in other comprehensive income	3		(4)	(10)
Total recognized in net periodic benefit cost and other comprehensive income	$	14	4	(5)

Fair Value Measurements of Plan Assets

The following tables summarize Plan assets measured at fair value on a recurring basis as of December 31:


	Fair Value Measurements Using(a)
2020 ($ in millions)	Level 1		Level 2	Level 3	Total Fair Value
Cash equivalents	$	4	—	—	4
Mutual and exchange-traded funds	68		—	—	68
Debt securities:
U.S. Treasury and federal agencies securities	57		6	—	63
Mortgage-backed securities:
Non-agency commercial mortgage-backed securities	—		1	—	1
Asset-backed securities and other debt securities(b)	—		37	—	37
Total debt securities	$	57	44	—	101
Total Plan assets	$	129	44	—	173

*(a)*For further information on fair value hierarchy levels, refer to Note 1.

*(b)*Includes corporate bonds.

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	Fair Value Measurements Using(a)
2019 ($ in millions)	Level 1		Level 2	Level 3	Total Fair Value
Cash equivalents	$	14	—	—	14
Mutual and exchange-traded funds	76		—	—	76
Debt securities:
U.S. Treasury and federal agencies securities	57		6	—	63
Mortgage-backed securities:
Non-agency commercial mortgage-backed securities	—		1	—	1
Asset-backed securities and other debt securities(b)	—		21	—	21
Total debt securities	$	57	28	—	85
Total Plan assets	$	147	28	—	175

*(a)*For further information on fair value hierarchy levels, refer to Note 1.

*(b)*Includes corporate bonds.

The following is a description of the valuation methodologies used for instruments measured at fair value, as well as the general classification of such instruments pursuant to the valuation hierarchy.

Cash equivalents

Cash equivalents are comprised of money market mutual funds that invest in short-term money market instruments that are issued and payable in U.S. dollars. The Plan measures its cash equivalent funds that are exchange-traded using the fund’s quoted price, which is in an active market. Therefore, these investments are classified within Level 1 of the valuation hierarchy.

Mutual and exchange-traded funds

The Plan measures its mutual and exchange-traded funds, which are registered with the SEC, using the funds’ quoted prices which are available in an active market. Therefore, these investments are classified within Level 1 of the valuation hierarchy. The mutual and exchange-traded funds held by the Plan are open-ended funds and are required to publicly publish their NAV on a daily basis. The funds are also required to transact and use the daily NAV as a basis for transactions. Therefore, the NAV reflects the fair value of the Plan’s investment.

Debt securities

Where quoted prices are available in an active market, securities are classified within Level 1 of the valuation hierarchy. Level 1 securities include U.S. Treasury securities. If quoted market prices are not available, then fair values are estimated using pricing models, quoted prices of securities with similar characteristics, or DCFs. Examples of such instruments, which are classified within Level 2 of the valuation hierarchy, include federal agencies securities, non-agency commercial mortgage-backed securities and asset-backed securities and other debt securities.

Plan Assumptions

The Plan’s assumptions are evaluated annually and are updated as necessary. The discount rate assumption reflects the yield on a portfolio of high quality fixed-income instruments that have a similar duration to the Plan’s liabilities. The expected long-term rate of return assumption reflects the average return expected on the assets invested to provide for the Plan’s liabilities. In determining the expected long-term rate of return, the Bancorp evaluated actuarial and economic inputs, including long-term inflation rate assumptions and broad equity and bond indices long-term return projections, as well as actual long-term historical plan performance.

The following table summarizes the weighted-average plan assumptions for the years ended December 31:


	2020		2019	2018
For measuring benefit obligations at year end:(a)
Discount rate	2.26	%	3.05	4.10
For measuring net periodic benefit cost:(a)
Discount rate	3.05		4.10	3.47
Expected return on plan assets	2.64		5.50	6.00

*(a)*Since the Plan’s benefits were frozen, except for grandfathered employees, the rate of compensation increase is no longer applicable beginning in 2014 since minimal grandfathered employees are still accruing benefits.

Lowering both the expected rate of return on the plan assets and the discount rate by 0.25% would have increased the 2020 pension expense by approximately $1 million.

Based on the actuarial assumptions, the Bancorp expects to contribute $2 million to the Plan in 2021. Estimated pension benefit payments are $18 million for 2021, $17 million for 2022, $18 million for 2023, $16 million for 2024 and $18 million for 2025. The total estimated payments for the years 2026 through 2030 is $66 million.

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Investment Policies and Strategies

The Bancorp’s policy for the investment of Plan assets is to employ investment strategies that achieve a range of weighted-average target asset allocations relating to equity securities, fixed-income securities (including U.S. Treasury and federal agencies securities, mortgage-backed securities, asset-backed securities, corporate bonds and municipal bonds), alternative strategies (including traditional mutual funds, precious metals and commodities) and cash.

The following table provides the Bancorp’s targeted and actual weighted-average asset allocations by asset category for the years ended December 31:


	Targeted Range(b)	2020		2019
Equity securities(a)	0-55 %	3		19
Fixed-income securities	50-100	90		59
Alternative strategies	0-5	—		—
Cash or cash equivalents	0-100	7		22
Total		100	%	100

*(a)*Includes mutual and exchange-traded funds.

*(b)*These reflect the targeted ranges for the year ended December 31, 2020.

Plan Management’s objective is to achieve and maintain a fully-funded status of the qualified defined benefit plan while also minimizing the risk of excess assets. As a result, the portfolio assets of the qualified defined benefit plan will continue to increase the weighting of long duration fixed income, or liability matching assets, as the funded status increases. There were no significant concentrations of risk associated with the investments of the Plan at December 31, 2020.

Permitted asset classes of the Plan include cash and cash equivalents, fixed-income (domestic and non-U.S. bonds), equities (U.S., non-U.S., emerging markets and real estate investment trusts), equipment leasing and mortgages. The Plan utilizes derivative instruments including puts, calls, straddles or other option strategies, as approved by management.

Fifth Third Bank, National Association, as Trustee, is expected to manage Plan assets in a manner consistent with the Plan agreement and other regulatory, federal and state laws. As of December 31, 2020 and 2019, $173 million and $175 million, respectively, of Plan assets were managed by Fifth Third Bank, National Association. The Fifth Third Bank Pension, 401(k) and Medical Plan Committee (the “Committee”) is the plan administrator. The Trustee is required to provide to the Committee monthly and quarterly reports covering a list of Plan assets, portfolio performance, transactions and asset allocation. The Trustee is also required to keep the Committee apprised of any material changes in the Trustee’s outlook and recommended investment policy. There were no fees paid by the Plan for investment management, accounting or administrative services provided by the Trustee.

Other Information on Retirement and Benefit Plans

The Bancorp has a qualified defined contribution savings plan that allows participants to make voluntary 401(k) contributions on a pre-tax or Roth basis, subject to statutory limitations. Expenses recognized for matching contributions to the Bancorp’s qualified defined contribution savings plan were $105 million, $90 million and $83 million for the years ended December 31, 2020, 2019 and 2018, respectively. The Bancorp did not make profit sharing contributions during both the years ended December 31, 2020 and 2018. The Bancorp recognized $4 million of profit sharing expense associated with the MB Financial, Inc. acquisition during the year ended December 31, 2019. In addition, the Bancorp has a non-qualified defined contribution plan that allows certain employees to make voluntary contributions into a deferred compensation plan. Expenses recognized by the Bancorp for its non-qualified defined contribution plan were $5 million, $6 million and $4 million for the years ended December 31, 2020, 2019 and 2018, respectively.

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24. Accumulated Other Comprehensive Income

The tables below present the activity of the components of OCI and AOCI for the years ended December 31:


	Total OCI				Total AOCI
2020 ($ in millions)	Pre-tax Activity		Tax Effect	Net Activity	Beginning Balance	Net Activity	Ending Balance
Unrealized holding gains on available-for-sale debt securities arising during the year	$	1,514	(361)	1,153
Reclassification adjustment for net gains on available-for-sale debt securities included in net income	(45)		11	(34)
Net unrealized gains on available-for-sale debt securities	1,469		(350)	1,119	812	1,119	1,931

Unrealized holding gains on cash flow hedge derivatives arising during the year	611		(128)	483
Reclassification adjustment for net gains on cash flow hedge derivatives included in net income	(237)		50	(187)
Net unrealized gains on cash flow hedge derivatives	374		(78)	296	422	296	718

Net actuarial loss arising during the year	(12)		3	(9)
Reclassification of amounts to net periodic benefit costs	9		(2)	7
Defined benefit pension plans, net	(3)		1	(2)	(42)	(2)	(44)

Other	(4)		—	(4)	—	(4)	(4)
Total	$	1,836	(427)	1,409	1,192	1,409	2,601


	Total OCI				Total AOCI
2019 ($ in millions)	Pre-tax Activity		Tax Effect	Net Activity	Beginning Balance	Net Activity	Ending Balance
Unrealized holding gains on available-for-sale debt securities arising during the year	$	1,369	(323)	1,046
Reclassification adjustment for net gains on available-for-sale debt securities included in net income	(9)		2	(7)
Net unrealized gains on available-for-sale debt securities	1,360		(321)	1,039	(227)	1,039	812

Unrealized holding gains on cash flow hedge derivatives arising during the year	348		(73)	275
Reclassification adjustment for net gains on cash flow hedge derivatives included in net income	(16)		3	(13)
Net unrealized gains on cash flow hedge derivatives	332		(70)	262	160	262	422

Net actuarial loss arising during the year	(5)		—	(5)
Reclassification of amounts to net periodic benefit costs	9		(1)	8
Defined benefit pension plans, net	4		(1)	3	(45)	3	(42)
Total	$	1,696	(392)	1,304	(112)	1,304	1,192

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	Total OCI				Total AOCI
2018 ($ in millions)	Pre-tax Activity		Tax Effect	Net Activity	Beginning Balance	Net Activity	Ending Balance
Unrealized holding losses on available-for-sale debt securities arising during the year	$	(483)	112	(371)
Reclassification adjustment for net losses on available-for-sale debt securities included in net income	11		(2)	9
Net unrealized losses on available-for-sale debt securities	(472)		110	(362)	135	(362)	(227)

Unrealized holding gains on cash flow hedge derivatives arising during the year	214		(45)	169
Reclassification adjustment for net losses on cash flow hedge derivatives included in net income	2		—	2
Net unrealized gains on cash flow hedge derivatives	216		(45)	171	(11)	171	160

Net actuarial gain arising during the year	1		—	1
Reclassification of amounts to net periodic benefit costs	9		(2)	7
Defined benefit pension plans, net	10		(2)	8	(53)	8	(45)
Total	$	(246)	63	(183)	71	(183)	(112)

The table below presents reclassifications out of AOCI for the years ended December 31:


Components of AOCI: ($ in millions)	Consolidated Statements of Income Caption	2020		2019	2018
Net unrealized gains (losses) on available-for-sale debt securities:(b)
Net gains (losses) included in net income	Securities gains (losses), net	$	45	9	(11)
	Income before income taxes	45		9	(11)
	Applicable income tax expense	(11)		(2)	2
	Net income	34		7	(9)
Net unrealized gains (losses) on cash flow hedge derivatives:(b)
Interest rate contracts related to C&I loans	Interest and fees on loans and leases	237		16	(2)
	Income before income taxes	237		16	(2)
	Applicable income tax expense	(50)		(3)	—
	Net income	187		13	(2)
Net periodic benefit costs:(b)
Amortization of net actuarial loss	Compensation and benefits(a)	(6)		(6)	(6)
Settlements	Compensation and benefits(a)	(3)		(3)	(3)
	Income before income taxes	(9)		(9)	(9)
	Applicable income tax expense	2		1	2
	Net income	(7)		(8)	(7)
Total reclassifications for the period	Net income	$	214	12	(18)

*(a)*This AOCI component is included in the computation of net periodic benefit cost. Refer to Note 23 for information on the computation of net periodic benefit cost.

*(b)*Amounts in parentheses indicate reductions to net income.

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25. Common, Preferred and Treasury Stock

The table presents a summary of the share activity within common, preferred and treasury stock for the years ended:


	Common Stock			Preferred Stock			Treasury Stock
($ in millions, except share data)	Value		Shares	Value		Shares	Value		Shares
December 31, 2017	$	2,051	923,892,581	$	1,331	54,000	$	(5,002)	230,087,688
Shares acquired for treasury	—		—	—		—	(1,494)		49,967,134
Impact of stock transactions under stock compensation plans, net	—		—	—		—	23		(2,698,451)
Other	—		—	—		—	2		(94,647)
December 31, 2018	$	2,051	923,892,581	$	1,331	54,000	$	(6,471)	277,261,724
Shares acquired for treasury	—		—	—		—	(1,763)		64,601,891
Issuance of preferred shares, Series K	—		—	242		10,000	—		—
Conversion of outstanding preferred stock issued by a Bancorp subsidiary	—		—	197		200,000	—		—
Impact of MB Financial, Inc. acquisition	—		—	—		—	2,447		(122,848,442)
Impact of stock transactions under stock compensation plans, net	—		—	—		—	56		(4,258,132)
Other	—		—	—		—	7		219,911
December 31, 2019	$	2,051	923,892,581	$	1,770	264,000	$	(5,724)	214,976,952
Issuance of preferred shares, Series L	—		—	346		14,000	—		—
Impact of stock transactions under stock compensation plans, net	—		—	—		—	46		(3,818,518)
Other	—		—	—		—	2		(26,178)
December 31, 2020	$	2,051	923,892,581	$	2,116	278,000	$	(5,676)	211,132,256

Preferred Stock—Series L

On July 30, 2020, the Bancorp issued in a registered public offering 350,000 depositary shares, representing 14,000 shares of 4.50% fixed-rate reset non-cumulative perpetual preferred stock, Series L, for net proceeds of approximately $346 million. Each preferred share has a $25,000 liquidation preference. The preferred stock accrues dividends on a non-cumulative basis at an annual rate of 4.50% through but excluding September 30, 2025. From, and including, September 30, 2025 and for each dividend reset period thereafter, dividends will accrue on the Series L preferred stock, on a non-cumulative basis, at a rate equal to the five-year U.S. Treasury rate as of the most recent reset dividend determination date plus 4.215%. Dividends will be payable, when, as and if declared by the Bancorp’s Board of Directors, quarterly in arrears on each of March 31, June 30, September 30 and December 31, beginning on September 30, 2020. Subject to obtaining all required regulatory approvals, on any dividend payment date on or after September 30, 2025, the Bancorp may redeem the Series L preferred stock and the related depositary shares in whole or in part, at 100% of their liquidation preference, plus an amount equal to any declared and unpaid dividends, without accumulation of any undeclared dividends. In addition, the Series L preferred stock and the related depositary shares may be redeemed, subject to obtaining all required regulatory approvals, in whole but not in part, at any time, following the occurrence of a regulatory capital event, at 100% of their liquidation preference, plus an amount equal to any declared and unpaid dividends, without accumulation of any undeclared dividends. The Series L preferred shares are not convertible into Bancorp common shares or any other securities.

Preferred Stock—Series K

On September 17, 2019, the Bancorp issued, in a registered public offering 10,000,000 depositary shares, representing 10,000 shares of 4.95% non-cumulative Series K perpetual preferred stock, for net proceeds of approximately $242 million. Each preferred share has a $25,000 liquidation preference. Subject to any required regulatory approval, the Bancorp may redeem the Series K preferred shares at its option in whole or in part, on any dividend payment date on or after September 30, 2024 and may redeem in whole, but not in part, at any time following a regulatory capital event. The Series K preferred shares are not convertible into Bancorp common shares or any other securities.

Preferred Stock—Class B, Series A

On August 26, 2019, the Bancorp issued 200,000 shares of 6.00% non-cumulative perpetual Class B preferred stock, Series A. Each preferred share has a $1,000 liquidation preference. These shares were issued to the holders of MB Financial, Inc.’s 6.00% non-cumulative perpetual preferred stock, Series C, in conjunction with the merger of MB Financial, Inc. with and into Fifth Third Bancorp. This transaction resulted in the elimination of the noncontrolling interest in MB Financial, Inc. which was previously reported in the Bancorp’s Consolidated Financial Statements. The newly issued shares of Class B preferred stock, Series A were recognized by the Bancorp at the carrying value previously assigned to the MB Financial, Inc. Series C preferred stock prior to the transaction.

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Preferred Stock—Series J

On June 5, 2014, the Bancorp issued, in a registered public offering, 300,000 depositary shares, representing 12,000 shares of 4.90% fixed to floating-rate non-cumulative Series J perpetual preferred stock, for net proceeds of $297 million. Each preferred share has a $25,000 liquidation preference. The preferred stock accrued dividends, on a non-cumulative semi-annual basis, at an annual rate of 4.90% through but excluding September 30, 2019, at which time it converted to a quarterly floating-rate dividend of three-month LIBOR plus 3.129%. Subject to any required regulatory approval, the Bancorp may redeem the Series J preferred shares at its option, in whole or in part, at any time on or after September 30, 2019, or any time prior following a regulatory capital event. The Series J preferred shares are not convertible into Bancorp common shares or any other securities.

Preferred Stock—Series I

On December 9, 2013, the Bancorp issued, in a registered public offering, 18,000,000 depositary shares, representing 18,000 shares of 6.625% fixed to floating-rate non-cumulative Series I perpetual preferred stock, for net proceeds of $441 million. Each preferred share has a $25,000 liquidation preference. The preferred stock accrues dividends, on a non-cumulative quarterly basis, at an annual rate of 6.625% through but excluding December 31, 2023, at which time it converts to a quarterly floating-rate dividend of three-month LIBOR plus 3.71%. Subject to any required regulatory approval, the Bancorp may redeem the Series I preferred shares at its option in whole or in part, at any time on or after December 31, 2023 and may redeem in whole but not in part, following a regulatory capital event at any time prior to December 31, 2023. The Series I preferred shares are not convertible into Bancorp common shares or any other securities.

Preferred Stock—Series H

On May 16, 2013, the Bancorp issued, in a registered public offering, 600,000 depositary shares, representing 24,000 shares of 5.10% fixed to floating-rate non-cumulative Series H perpetual preferred stock, for net proceeds of $593 million. Each preferred share has a $25,000 liquidation preference. The preferred stock accrues dividends, on a non-cumulative semi-annual basis, at an annual rate of 5.10% through but excluding June 30, 2023, at which time it converts to a quarterly floating-rate dividend of three-month LIBOR plus 3.033%. Subject to any required regulatory approval, the Bancorp may redeem the Series H preferred shares at its option in whole or in part, at any time on or after June 30, 2023 and may redeem in whole but not in part, following a regulatory capital event at any time prior to June 30, 2023. The Series H preferred shares are not convertible into Bancorp common shares or any other securities.

Treasury Stock

In June of 2019, the Board of Directors authorized the Bancorp to repurchase up to 100 million common shares in the open market or in privately negotiated transactions and to utilize any derivative or similar instrument to effect share repurchase transactions. This share repurchase authorization replaced the Board’s previous authorization from February of 2018.

The Bancorp entered into a number of accelerated share repurchase transactions during the year ended December 31, 2019. As part of these transactions, the Bancorp entered into forward contracts in which the final number of shares delivered at settlement was based generally on a discount to the average daily volume weighted-average price of the Bancorp’s common stock during the term of these repurchase agreements. The accelerated share repurchases were treated as two separate transactions: (i) the repurchase of treasury shares on the repurchase date and (ii) a forward contract indexed to the Bancorp’s common stock.

The following table presents a summary of the Bancorp’s accelerated share repurchase transactions that were entered into or settled during the year ended December 31, 2019:


Repurchase Date	Amount ($ in millions)		Shares Repurchased on Repurchase Date	Shares Received from Forward Contract	Total Shares Repurchased	Settlement Date
March 27, 2019(a)	$	913	31,779,280	2,026,584	33,805,864	June 28, 2019
April 29, 2019(b)	200		6,015,570	1,217,805	7,233,375	May 23, 2019 - May 24, 2019
August 7, 2019	100		3,150,482	694,238	3,844,720	August 16, 2019
August 9, 2019(b)	200		6,405,426	1,475,487	7,880,913	August 28, 2019
October 25, 2019	300		9,020,163	1,149,121	10,169,284	December 17, 2019

*(a)*This accelerated share repurchase transaction consisted of two supplemental confirmations each with a notional amount of $456.5 million.

*(b)*This accelerated share repurchase transaction consisted of two supplemental confirmations each with a notional amount of $100 million.

Between July 29, 2019 and July 30, 2019, the Bancorp repurchased 1,667,735 shares, or approximately $50 million, of its outstanding common stock through open market repurchase transactions, which settled between July 31, 2019 and August 1, 2019.

For further information on a subsequent event related to treasury stock refer to Note 33.

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26. Stock-Based Compensation

Stock-based awards are eligible for issuance under the Bancorp’s Incentive Compensation Plan to executives, directors and key employees of the Bancorp and its subsidiaries. The 2019 Incentive Compensation Plan was approved by shareholders on April 16, 2019 and authorized the issuance of up to 40 million shares, as equity compensation and provides for SARs, RSAs, RSUs, stock options, performance share or unit awards, dividend or dividend equivalent rights and stock awards. As of December 31, 2020, there were 28.7 million shares available for future issuance. Based on total stock-based awards outstanding (including SARs, RSAs, RSUs, stock options and PSAs) and shares remaining for future grants under the 2019 Incentive Compensation Plan, the potential dilution to which the Bancorp’s shareholders of common stock are exposed due to the potential that stock-based compensation will be awarded to executives, directors or key employees of the Bancorp and its subsidiaries is 8%. SARs, RSAs, RSUs, stock options and PSAs outstanding represent 4% of the Bancorp’s issued shares at December 31, 2020.

All of the Bancorp’s stock-based awards are to be settled with stock. The Bancorp has historically used treasury stock to settle stock-based awards, when available. SARs, issued at fair value based on the closing price of the Bancorp’s common stock on the date of grant, have up to ten year terms and vest and become exercisable ratably over a three or four-year period of continued employment. The Bancorp does not grant discounted SARs or stock options, re-price previously granted SARs or stock options or grant reload stock options. RSAs and RSUs are released after three or four years or ratably over three or four years of continued employment. RSAs include dividend and voting rights while RSUs receive dividend equivalents only. Dividend equivalents are accrued and paid in cash when the underlying shares are distributed, except for certain RSUs which have the rights to receive dividend equivalents paid in cash at each dividend payment date. For PSAs that are eligible to receive dividend equivalents, the accrued cash dividends are adjusted by the payout percentage achieved on the underlying awards. Stock options were previously issued at fair value based on the closing price of the Bancorp’s common stock on the date of grant, had up to ten year terms and vested and became fully exercisable ratably over a three or four-year period of continued employment. PSAs have three-year cliff vesting terms with performance conditions as defined by the plan. All of the Bancorp’s executive stock-based awards contain an annual performance hurdle of 2% return on tangible common equity. If this threshold is not met in any one of the three years during the performance period, one-third of PSAs are forfeited. Additionally, if this threshold is not met, all SARs, RSAs and RSUs that would vest in the next year may also be forfeited at the discretion of the Human Capital and Compensation Committee of the Board of Directors. The Bancorp met this threshold as of December 31, 2020.

Under the terms of the merger agreement with MB Financial, Inc., the Bancorp granted stock-based awards to replace those awards previously granted by MB Financial, Inc. that were outstanding as of March 22, 2019. The replacement awards included RSAs, RSUs, and stock options. Approximately 1.65 replacement awards were granted to replace each outstanding MB Financial, Inc. award and the strike prices of replacement stock options were also adjusted to reflect this exchange ratio. Otherwise, the replacement awards were granted with substantially the same terms as the MB Financial, Inc. awards that were being replaced, including vesting and expiration dates.

The fair value of the awards being replaced and the replacement awards were measured as of the date of the merger. The portion of the fair value of the awards being replaced which was attributable to pre-combination service was included as a component of the consideration paid in the merger. The portion attributable to post-combination service, in addition to any increased value of the replacement awards over the awards being replaced, was recognized as stock-based compensation expense over each award’s remaining service period.

Stock-based compensation expense was $123 million, $132 million and $127 million for the years ended December 31, 2020, 2019 and 2018, respectively, and is included in compensation and benefits expense in the Consolidated Statements of Income. The total related income tax benefit recognized was $26 million for the year ended December 31, 2020 and $27 million for both the years ended December 31, 2019 and 2018.

Stock Appreciation Rights

The Bancorp uses assumptions, which are evaluated and revised as necessary, in estimating the grant-date fair value of each SAR grant.

The weighted-average assumptions were as follows for the years ended December 31:


	2020		2019	2018
Expected life (in years)	7		7	7
Expected volatility	24	%	32	35
Expected dividend yield	3.2		3.3	1.9
Risk-free interest rate	1.5		2.6	2.6

The expected life is generally derived from historical exercise patterns and represents the amount of time that SARs granted are expected to be outstanding. The expected volatility is based on a combination of historical and implied volatilities of the Bancorp’s common stock. The expected dividend yield is based on annual dividends divided by the Bancorp’s stock price. Annual dividends are based on projected dividends, estimated using an expected long-term dividend payout ratio, over the estimated life of the awards. The risk-free interest rate for periods within the contractual life of the SARs is based on the U.S. Treasury yield curve in effect at the time of grant.

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The grant-date fair value of SARs is measured using the Black-Scholes option-pricing model. The weighted-average grant-date fair value of SARs granted was $6.82, $7.38 and $11.33 per share for the years ended December 31, 2020, 2019 and 2018, respectively. The total grant-date fair value of SARs that vested during the years ended December 31, 2020, 2019 and 2018 was $15 million, $20 million and $26 million, respectively.

At December 31, 2020, there was $1 million of stock-based compensation expense related to outstanding SARs not yet recognized. The expense is expected to be recognized over an estimated remaining weighted-average period at December 31, 2020 of 1.2 years.


	2020			2019			2018
SARs (in thousands, except per share data)	Number of SARs	Weighted- Average Grant Price Per Share		Number of SARs	Weighted- Average Grant Price Per Share		Number of SARs	Weighted- Average Grant Price Per Share
Outstanding at January 1	21,449	$	18.38	26,196	$	17.30	31,929	$	17.22
Granted	365	29.64		399	26.72		272	33.15
Exercised	(2,420)	16.10		(4,829)	13.34		(5,058)	16.96
Forfeited or expired	(136)	25.50		(317)	23.47		(947)	20.93
Outstanding at December 31	19,258	$	18.83	21,449	$	18.38	26,196	$	17.30
Exercisable at December 31	17,979	$	18.19	18,249	$	17.50	20,132	$	15.90

The following table summarizes outstanding and exercisable SARs by grant price per share at December 31, 2020.


	Outstanding SARs				Exercisable SARs
SARs (in thousands, except per share data)	Number of SARs	Weighted-Average Grant Price Per Share		Weighted- Average Remaining Contractual Life (in years)	Number of SARs	Weighted-Average Grant Price Per Share		Weighted- Average Remaining Contractual Life (in years)
$10.01-$20.00	13,661	$	16.23	2.9	13,661	$	16.23	2.9
$20.01-$30.00	5,343	24.81		5.3	4,148	24.04		4.7
$30.01-$40.00	254	33.15		7.1	170	33.15		7.1
All SARs	19,258	$	18.83	3.6	17,979	$	18.19	3.3

Restricted Stock Awards

The total grant-date fair value of RSAs that were released was immaterial during the year ended December 31, 2020 and $16 million and $27 million for the years ended December 31, 2019 and 2018, respectively. The Bancorp has not granted any RSAs in the years ended December 31, 2020, 2019 or 2018 and the number of RSAs outstanding at December 31, 2020 was immaterial.


	2019			2018
RSAs (in thousands, except per share data)	Shares	Weighted-Average Grant-Date Fair Value Per Share		Shares	Weighted-Average Grant-Date Fair Value Per Share
Outstanding at January 1	868	$	19.18	2,321	$	19.72
Assumed	11	25.48		—	—
Released	(867)	18.91		(1,347)	20.09
Forfeited	(12)	19.01		(106)	19.40
Outstanding at December 31	—	$	25.48	868	$	19.18

Restricted Stock Units

The total grant-date fair value of RSUs that were released during the years ended December 31, 2020, 2019 and 2018 was $107 million, $73 million and $42 million, respectively. At December 31, 2020, there was $119 million of stock-based compensation expense related to outstanding RSUs not yet recognized. The expense is expected to be recognized over an estimated remaining weighted-average period at December 31, 2020 of 2.4 years.

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	2020			2019			2018
RSUs (in thousands, except per unit data)	Units	Weighted-Average Grant-Date Fair Value Per Unit		Units	Weighted-Average Grant-Date Fair Value Per Unit		Units	Weighted-Average Grant-Date Fair Value Per Unit
Outstanding at January 1	10,006	$	27.30	8,020	$	27.04	6,986	$	22.25
Granted	4,177	28.75		4,375	26.68		3,674	32.84
Assumed	—	—		1,476	25.48		—	—
Released	(4,076)	26.19		(2,951)	24.76		(1,977)	21.15
Forfeited	(641)	27.70		(914)	27.41		(663)	26.45
Outstanding at December 31	9,466	$	28.38	10,006	$	27.30	8,020	$	27.04

The following table summarizes outstanding RSUs by grant-date fair value per unit at December 31, 2020.


	Outstanding RSUs
RSUs (in thousands)	Units	Weighted-Average Remaining Contractual Life (in years)
Under $15.00	51	1.6
$15.01-$20.00	249	0.4
$20.01-$25.00	259	1.2
$25.01-$30.00	7,380	1.3
$30.01-$35.00	1,527	0.6
All RSUs	9,466	1.1

Stock Options

There were no stock options granted during the years ended December 31, 2020, 2019 and 2018, except for replacement stock option awards assumed in conjunction with the MB Financial, Inc. acquisition. While the Bancorp has historically utilized the Black-Scholes option pricing model to measure the fair value of stock option grants, the fair value of these grants were measured using the Hull-White option pricing model as it was expected to provide a more precise estimate of fair value in a business combination scenario. The assumptions used in the valuation model varied for each grant tranche, but included expected volatility of 23%-29%, no expected dividend yield, risk-free interest rates of 2.34%-2.51%, a departure rate of 10% and exercise ratios of 2.2-2.8. The replacement stock option awards had a weighted-average time to maturity of 5.4 years as of March 22, 2019.

The total intrinsic value of stock options exercised was $3 million and $7 million for the years ended December 31, 2020 and 2019, respectively, and was immaterial for year ended December 31, 2018. Cash received from stock options exercised was $5 million and $11 million for the years ended December 31, 2020 and 2019, respectively, and immaterial for the year ended December 31, 2018. The tax benefit realized from exercised stock options was $1 million for both the years ended December 31, 2020 and 2019 and immaterial for the year ended December 31, 2018. No stock options vested during the years ended December 31, 2020, 2019 or 2018. As of December 31, 2020, the aggregate intrinsic value of both outstanding stock options and exercisable stock options was $5 million.


	2020			2019			2018
Stock Options (in thousands, except per share data)	Number of Options	Weighted-Average Exercise Price Per Share		Number of Options	Weighted-Average Exercise Price Per Share		Number of Options	Weighted-Average Exercise Price Per Share
Outstanding at January 1	1,381	$	20.15	—	$	—	2	$	16.50
Assumed	—	—		2,120	19.34		—	—
Exercised	(440)	17.48		(660)	17.36		(1)	8.59
Forfeited or expired	(148)	23.99		(79)	22.18		(1)	24.41
Outstanding at December 31	793	$	20.81	1,381	$	20.15	—	$	—
Exercisable at December 31	725	$	20.34	1,162	$	19.17	—	$	—

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The following table summarizes outstanding and exercisable stock options by exercise price per share at December 31, 2020.


	Outstanding Stock Options				Exercisable Stock Options
Stock Options (in thousands, except per share data)	Number of Options	Weighted-Exercise Price Per Share		Weighted-Average Contractual Life (in years)	Number of Options	Weighted-Exercise Price Per Share		Weighted-Average Contractual Life (in years)
Under $10.00	7	$	8.58	5.6	7	$	8.58	5.6
$10.01-$20.00	481	17.53		2.9	481	17.52		2.9
$20.01-$30.00	305	26.26		4.4	237	26.39		3.7
All stock options	793	$	20.81	3.5	725	$	20.34	3.2

Other Stock-Based Compensation

PSAs are payable contingent upon the Bancorp achieving certain predefined performance targets over the three-year measurement period and ranges from zero shares to approximately 1 million shares. Awards granted during the years ended December 31, 2020, 2019 and 2018 will be entirely settled in stock. The performance targets are based on the Bancorp’s performance relative to a defined peer group. PSAs use a performance-based metric based on return on tangible common equity in relation to peers. During the years ended December 31, 2020, 2019 and 2018, 280,026, 328,068 and 279,568 PSAs, respectively, were granted by the Bancorp. These awards were granted at a weighted-average grant-date fair value of $29.64, $26.72 and $33.15 per unit during the years ended December 31, 2020, 2019 and 2018, respectively.

The Bancorp sponsors an employee stock purchase plan that allows qualifying employees to purchase shares of the Bancorp’s common stock with a 15% match. During the years ended December 31, 2020, 2019 and 2018, there were 883,735, 564,061 and 471,818 shares, respectively, purchased by participants and the Bancorp recognized stock-based compensation expense of $2 million in each of the respective years. As of December 31, 2020, there were 3.7 million shares available for future issuance, which represents the remaining shares of Fifth Third common stock under the Bancorp’s 1993 Stock Purchase Plan, as amended and restated, including an additional 1.5 million shares approved by shareholders on March 28, 2007 and an additional 12 million shares approved by shareholders on April 21, 2009.

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27. Other Noninterest Income and Other Noninterest Expense

The following table presents the major components of other noninterest income and other noninterest expense for the years ended December 31:


($ in millions)	2020		2019	2018
Other noninterest income:
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 expense:
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

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28. Earnings Per Share

The following table provides the calculation of earnings per share and the reconciliation of earnings per share and earnings per diluted share for the years ended December 31:


	2020				2019			2018
($ in millions, except per share data)	Income		Average Shares	Per Share Amount	Income	Average Shares	Per Share Amount	Income	Average Shares	Per Share Amount
Earnings Per Share:
Net income available to common shareholders	$	1,323			2,419			2,118
Less: Income allocated to participating securities	6				21			23
Net income allocated to common shareholders	$	1,317	715	1.84	2,398	710	3.38	2,095	673	3.11
Earnings Per Diluted Share:
Net income available to common shareholders	$	1,323			2,419			2,118
Effect of dilutive securities:
Stock-based awards	—		5		—	10		—	12
Net income available to common shareholders plus assumed conversions	1,323				2,419			2,118
Less: Income allocated to participating securities	6				21			23
Net income allocated to common shareholders plus assumed conversions	$	1,317	720	1.83	2,398	720	3.33	2,095	685	3.06

Shares are excluded from the computation of earnings per diluted share when their inclusion has an anti-dilutive effect on earnings per share. The diluted earnings per share computation for the years ended December 31, 2020, 2019 and 2018 excludes 7 million, 2 million and 3 million shares, respectively, of stock-based awards because their inclusion would have been anti-dilutive.

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29. Fair Value Measurements

Assets and Liabilities Measured at Fair Value on a Recurring Basis

The following tables summarize assets and liabilities measured at fair value on a recurring basis as of:


	Fair Value Measurements Using
December 31, 2020 ($ in millions)	Level 1		Level 2	Level 3	Total Fair Value
Assets:
Available-for-sale debt and other securities:
U.S. Treasury and federal agencies securities	$	78	—	—	78
Obligations of states and political subdivisions securities	—		17	—	17
Mortgage-backed securities:
Agency residential mortgage-backed securities	—		11,907	—	11,907
Agency commercial mortgage-backed securities	—		18,221	—	18,221
Non-agency commercial mortgage-backed securities	—		3,590	—	3,590
Asset-backed securities and other debt securities	—		3,176	—	3,176
Available-for-sale debt and other securities(a)	78		36,911	—	36,989
Trading debt securities:
U.S. Treasury and federal agencies securities	81		—	—	81
Obligations of states and political subdivisions securities	—		10	—	10
Agency residential mortgage-backed securities	—		30	—	30
Asset-backed securities and other debt securities	—		439	—	439
Trading debt securities	81		479	—	560
Equity securities	293		20	—	313
Residential mortgage loans held for sale	—		1,481	—	1,481
Residential mortgage loans(b)	—		—	161	161
Servicing rights	—		—	656	656
Derivative assets:
Interest rate contracts	1		2,227	61	2,289
Foreign exchange contracts	—		255	—	255
Commodity contracts	24		351	—	375
Derivative assets(c)	25		2,833	61	2,919
Total assets	$	477	41,724	878	43,079
Liabilities:
Derivative liabilities:
Interest rate contracts	$	16	261	8	285
Foreign exchange contracts	—		227	—	227
Equity contracts	—		—	201	201
Commodity contracts	55		304	—	359
Derivative liabilities(d)	71		792	209	1,072
Short positions:
U.S. Treasury and federal agencies securities	63		—	—	63
Asset-backed securities and other debt securities	—		392	—	392
Short positions(d)	63		392	—	455
Total liabilities	$	134	1,184	209	1,527

*(a)*Excludes FHLB, FRB and DTCC restricted stock holdings totaling $40, $482 and $2, respectively, at December 31, 2020.

*(b)*Includes residential mortgage loans originated as held for sale and subsequently transferred to held for investment.

*(c)*Included in other assets in the Consolidated Balance Sheets.

*(d)*Included in other liabilities in the Consolidated Balance Sheets.

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	Fair Value Measurements Using
December 31, 2019 ($ in millions)	Level 1		Level 2	Level 3	Total Fair Value
Assets:
Available-for-sale debt and other securities:
U.S. Treasury and federal agencies securities	$	75	—	—	75
Obligations of states and political subdivisions securities	—		18	—	18
Mortgage-backed securities:
Agency residential mortgage-backed securities	—		14,115	—	14,115
Agency commercial mortgage-backed securities	—		15,693	—	15,693
Non-agency commercial mortgage-backed securities	—		3,365	—	3,365
Asset-backed securities and other debt securities	—		2,206	—	2,206
Available-for-sale debt and other securities(a)	75		35,397	—	35,472
Trading debt securities:
U.S. Treasury and federal agencies securities	2		—	—	2
Obligations of states and political subdivisions securities	—		9	—	9
Agency residential mortgage-backed securities	—		55	—	55
Asset-backed securities and other debt securities	—		231	—	231
Trading debt securities	2		295	—	297
Equity securities	554		10	—	564
Residential mortgage loans held for sale	—		1,264	—	1,264
Residential mortgage loans(b)	—		—	183	183
Servicing rights	—		—	993	993
Derivative assets:
Interest rate contracts	1		1,218	18	1,237
Foreign exchange contracts	—		165	—	165
Commodity contracts	37		234	—	271
Derivative assets(c)	38		1,617	18	1,673
Total assets	$	669	38,583	1,194	40,446
Liabilities:
Derivative liabilities:
Interest rate contracts	$	5	144	8	157
Foreign exchange contracts	—		151	—	151
Equity contracts	—		—	163	163
Commodity contracts	17		253	—	270
Derivative liabilities(d)	22		548	171	741
Short positions:
U.S. Treasury and federal agencies securities	49		—	—	49
Asset-backed securities and other debt securities	—		100	—	100
Short positions(d)	$	49	100	—	149
Total liabilities	$	71	648	171	890

*(a)*Excludes FHLB, FRB and DTCC restricted stock holdings totaling $76, $478 and $2, respectively, at December 31, 2019.

*(b)*Includes residential mortgage loans originated as held for sale and subsequently transferred to held for investment.

*(c)*Included in other assets in the Consolidated Balance Sheets.

*(d)*Included in other liabilities in the Consolidated Balance Sheets.

The following is a description of the valuation methodologies used for significant instruments measured at fair value, as well as the general classification of such instruments pursuant to the valuation hierarchy.

Available-for-sale debt and other securities, trading debt securities and equity securities

Where quoted prices are available in an active market, securities are classified within Level 1 of the valuation hierarchy. Level 1 securities include U.S. Treasury securities and equity securities. If quoted market prices are not available, then fair values are estimated using pricing models, quoted prices of securities with similar characteristics or DCFs. Level 2 securities may include federal agencies securities, obligations of states and political subdivisions securities, agency residential mortgage-backed securities, agency and non-agency commercial mortgage-backed securities, asset-backed securities and other debt securities and equity securities. These securities are generally valued using a market approach based on observable prices of securities with similar characteristics.

Residential mortgage loans held for sale

For residential mortgage loans held for sale for which the fair value election has been made, fair value is estimated based upon mortgage-backed securities prices and spreads to those prices or, for certain ARM loans, DCF models that may incorporate the anticipated portfolio

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composition, credit spreads of asset-backed securities with similar collateral and market conditions. The anticipated portfolio composition includes the effect of interest rate spreads and discount rates due to loan characteristics such as the state in which the loan was originated, the loan amount and the ARM margin. Residential mortgage loans held for sale that are valued based on mortgage-backed securities prices are classified within Level 2 of the valuation hierarchy as the valuation is based on external pricing for similar instruments. ARM loans classified as held for sale are also classified within Level 2 of the valuation hierarchy due to the use of observable inputs in the DCF model. These observable inputs include interest rate spreads from agency mortgage-backed securities market rates and observable discount rates.

Residential mortgage loans

Residential mortgage loans held for sale that are reclassified to held for investment are transferred from Level 2 to Level 3 of the fair value hierarchy. For residential mortgage loans for which the fair value election has been made, and that are reclassified from held for sale to held for investment, the fair value estimation is based on mortgage-backed securities prices, interest rate risk and an internally developed credit component. Therefore, these loans are classified within Level 3 of the valuation hierarchy. An adverse change in the loss rate or severity assumption would result in a decrease in fair value of the related loans.

Servicing rights

MSRs do not trade in an active, open market with readily observable prices. While sales of MSRs do occur, the precise terms and conditions typically are not readily available. Accordingly, the Bancorp estimates the fair value of MSRs using internal OAS models with certain unobservable inputs, primarily prepayment speed assumptions, OAS and weighted-average lives, resulting in a classification within Level 3 of the valuation hierarchy. Refer to Note 14 for further information on the assumptions used in the valuation of the Bancorp’s MSRs.

Derivatives

Exchange-traded derivatives valued using quoted prices and certain over-the-counter derivatives valued using active bids are classified within Level 1 of the valuation hierarchy. Most of the Bancorp’s derivative contracts are valued using DCF or other models that incorporate current market interest rates, credit spreads assigned to the derivative counterparties and other market parameters and, therefore, are classified within Level 2 of the valuation hierarchy. Such derivatives include basic and structured interest rate, foreign exchange and commodity swaps and options. Derivatives that are valued based upon models with significant unobservable market parameters are classified within Level 3 of the valuation hierarchy. During the years ended December 31, 2020 and 2019, derivatives classified as Level 3, which are valued using models containing unobservable inputs, consisted primarily of a total return swap associated with the Bancorp’s sale of Visa, Inc. Class B Shares as well as IRLCs, which utilize internally generated loan closing rate assumptions as a significant unobservable input in the valuation process.

Under the terms of the total return swap, the Bancorp will make or receive payments based on subsequent changes in the conversion rate of the Visa, Inc. Class B Shares into Class A Shares. Additionally, the Bancorp will make a quarterly payment based on Visa’s stock price and the conversion rate of the Visa, Inc. Class B Shares into Class A Shares until the date on which the Covered Litigation is settled. The fair value of the total return swap was calculated using a DCF model based on unobservable inputs consisting of management’s estimate of the probability of certain litigation scenarios, the timing of the resolution of the Covered Litigation and Visa litigation loss estimates in excess, or shortfall, of the Bancorp’s proportional share of escrow funds.

An increase in the loss estimate or a delay in the resolution of the Covered Litigation would result in an increase in the fair value of the derivative liability; conversely, a decrease in the loss estimate or an acceleration of the resolution of the Covered Litigation would result in a decrease in the fair value of the derivative liability. Refer to Note 19 for additional information on the Covered Litigation.

The net asset fair value of the IRLCs at December 31, 2020 was $57 million. Immediate decreases in current interest rates of 25 bps and 50 bps would result in increases in the fair value of the IRLCs of approximately $13 million and $25 million, respectively. Immediate increases of current interest rates of 25 bps and 50 bps would result in decreases in the fair value of the IRLCs of approximately $13 million and $26 million, respectively. The decrease in fair value of IRLCs due to immediate 10% and 20% adverse changes in the assumed loan closing rates would be approximately $6 million and $12 million, respectively, and the increase in fair value due to immediate 10% and 20% favorable changes in the assumed loan closing rates would be approximately $6 million and $12 million, respectively. These sensitivities are hypothetical and should be used with caution, as changes in fair value based on a variation in assumptions typically cannot be extrapolated because the relationship of the change in assumptions to the change in fair value may not be linear.

Short positions

Where quoted prices are available in an active market, short positions are classified within Level 1 of the valuation hierarchy. Level 1 securities include U.S. Treasury securities. If quoted market prices are not available, then fair values are estimated using pricing models, quoted prices of securities with similar characteristics or DCFs and therefore are classified within Level 2 of the valuation hierarchy. Level 2 securities include asset-backed and other debt securities.

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The following tables are a reconciliation of assets and liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3):


	Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
For the year ended December 31, 2020 ($ in millions)	Residential Mortgage Loans		Servicing Rights	Interest Rate Derivatives, Net(a)	Equity Derivatives	Total Fair Value
Balance, beginning of period	$	183	993	10	(163)	1,023
Total (losses) gains (realized/unrealized):(d)
Included in earnings	3		(565)	272	(103)	(393)
Purchases/originations	—		228	4	—	232
Settlements	(74)		—	(233)	65	(242)
Transfers into Level 3(b)	49		—	—	—	49
Balance, end of period	$	161	656	53	(201)	669
The amount of total (losses) gains for the period included in earnings attributable to the change in unrealized gains or losses relating to instruments still held at December 31, 2020(c)	$	3	(227)	58	(103)	(269)

*(a)*Net interest rate derivatives include derivative assets and liabilities of $61 and $8, respectively, as of December 31, 2020.

*(b)*Includes certain residential mortgage loans originated as held for sale that were transferred to held for investment.

*(c)*Includes interest income and expense.

*(d)*There were no unrealized gains or losses for the period included in other comprehensive income for instruments still held at December 31, 2020.


	Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
For the year ended December 31, 2019 ($ in millions)	Residential Mortgage Loans		Servicing Rights	Interest Rate Derivatives, Net(a)	Equity Derivatives	Total Fair Value
Balance, beginning of period	$	179	938	(1)	(125)	991
Total (losses) gains (realized/unrealized):
Included in earnings	(1)		(376)	145	(107)	(339)
Purchases/originations	—		431	(3)	—	428
Settlements	(31)		—	(131)	69	(93)
Transfers into Level 3(b)	36		—	—	—	36
Balance, end of period	$	183	993	10	(163)	1,023
The amount of total (losses) gains for the period included in earnings attributable to the change in unrealized gains or losses relating to instruments still held at December 31, 2019(c)	$	(1)	(250)	20	(107)	(338)

*(a)*Net interest rate derivatives include derivative assets and liabilities of $18 and $8, respectively, as of December 31, 2019.

*(b)*Includes certain residential mortgage loans held for sale that were transferred to held for investment.

*(c)*Includes interest income and expense.


	Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
For the year ended December 31, 2018 ($ in millions)	Residential Mortgage Loans		Servicing Rights	Interest Rate Derivatives, Net(a)	Equity Derivatives	Total Fair Value
Balance, beginning of period	$	137	858	3	(137)	861
Total (losses) gains (realized/unrealized):
Included in earnings	(3)		(83)	72	(59)	(73)
Purchases/originations	—		163	(5)	—	158
Settlements	(19)		—	(71)	71	(19)
Transfers into Level 3(b)	64		—	—	—	64
Balance, end of period	$	179	938	(1)	(125)	991
The amount of total (losses) gains for the period included in earnings attributable to the change in unrealized gains or losses relating to instruments still held at December 31, 2018(c)	$	(3)	(4)	9	(59)	(57)

*(a)*Net interest rate derivatives include derivative assets and liabilities of $7 and $8, respectively, as of December 31, 2018.

*(b)*Includes certain residential mortgage loans held for sale that were transferred to held for investment.

*(c)*Includes interest income and expense.

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The total losses and gains included in earnings for assets and liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) were recorded in the Consolidated Statements of Income for the years ended December 31, 2020, 2019 and 2018 as follows:


($ in millions)	2020		2019	2018
Mortgage banking net revenue	$	(291)	(235)	(16)
Commercial banking revenue	2		3	2
Other noninterest income	(104)		(107)	(59)
Total losses	$	(393)	(339)	(73)

The total losses and gains included in earnings attributable to changes in unrealized gains and losses related to Level 3 assets and liabilities still held at December 31, 2020, 2019 and 2018 were recorded in the Consolidated Statements of Income as follows:


($ in millions)	2020		2019	2018
Mortgage banking net revenue	$	(167)	(233)	—
Commercial banking revenue	2		2	2
Other noninterest income	(104)		(107)	(59)
Total losses	$	(269)	(338)	(57)

The following tables present information about significant unobservable inputs related to the Bancorp’s material categories of Level 3 financial assets and liabilities measured at fair value on a recurring basis:


As of December 31, 2020 ($ in millions)
Financial Instrument	Fair Value		Valuation Technique	Significant Unobservable Inputs	Range of Inputs			Weighted-Average
Residential mortgage loans	$	161	Loss rate model	Interest rate risk factor	(8.2)	-	7.8%		1.7	%	(a)
				Credit risk factor	—	-	25.7%		0.6	%	(a)
								(Fixed)	17.8	%	(b)
Servicing rights	656		DCF	Prepayment speed	0.5	-	99.9%	(Adjustable)	22.6	%	(b)
								(Fixed)	723		(b)
				OAS (bps)	536	-	1,587	(Adjustable)	950		(b)
IRLCs, net	57		DCF	Loan closing rates	18.1	-	97.2%		60.8	%	(c)
Swap associated with the sale of Visa, Inc. Class B Shares	(201)		DCF	Timing of the resolution of the Covered Litigation	Q3 2022	-	Q3 2024		Q2 2023		(d)

(a) Unobservable inputs were weighted by the relative carrying value of the instruments.

(b) Unobservable inputs were weighted by the relative unpaid principal balance of the instruments.

(c) Unobservable inputs were weighted by the relative notional amount of the instruments.

(d) Unobservable inputs were weighted by the probability of the final funding date of the instruments.


As of December 31, 2019 ($ in millions)
Financial Instrument	Fair Value		Valuation Technique	Significant Unobservable Inputs	Range of Inputs			Weighted-Average
Residential mortgage loans	$	183	Loss rate model	Interest rate risk factor	(9.2)	-	9.8%		(0.2)	%
				Credit risk factor	—	-	26.5%		0.5	%
								(Fixed)	13.0	%
Servicing rights	993		DCF	Prepayment speed	0.5	-	97.0%	(Adjustable)	22.6	%
								(Fixed)	602
				OAS (bps)	507	-	1,513	(Adjustable)	921
IRLCs, net	18		DCF	Loan closing rates	7.3	-	97.1%		81.7	%
Swap associated with the sale of Visa, Inc. Class B Shares	(163)		DCF	Timing of the resolution of the Covered Litigation	Q1 2022	-	Q4 2023		Q3 2022

Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis

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

The following tables provide the fair value hierarchy and carrying amount of all assets that were held as of December 31, 2020 and 2019 and for which a nonrecurring fair value adjustment was recorded during the years ended December 31, 2020 and 2019, and the related gains and losses from fair value adjustments on assets sold during the period as well as assets still held as of the end of the period.

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	Fair Value Measurements Using					Total (Losses) Gains
As of December 31, 2020 ($ in millions)	Level 1		Level 2	Level 3	Total	For the year ended December 31, 2020
Commercial loans held for sale	$	—	8	16	24	(5)
Commercial and industrial loans	—		—	422	422	(176)
Commercial mortgage loans	—		—	78	78	(54)
Commercial leases	—		—	4	4	(13)
Consumer loans	—		—	159	159	1
OREO	—		—	20	20	(7)
Bank premises and equipment	—		—	26	26	(30)
Operating lease equipment	—		—	35	35	(6)
Private equity investments	—		27	69	96	18
Total	$	—	35	829	864	(272)

	Fair Value Measurements Using					Total (Losses) Gains
As of December 31, 2019 ($ in millions)	Level 1		Level 2	Level 3	Total	For the year ended December 31, 2019
Commercial and industrial loans	$	—	—	169	169	(96)
Commercial mortgage loans	—		—	12	12	—
Commercial leases	—		—	20	20	(6)
OREO	—		—	13	13	(6)
Bank premises and equipment	—		—	27	27	(27)
Operating lease equipment	—		—	6	6	(3)
Private equity investments	—		11	2	13	8
Total	$	—	11	249	260	(130)

The following tables present information as of December 31, 2020 and 2019 about significant unobservable inputs related to the Bancorp’s categories of Level 3 financial assets and liabilities measured on a nonrecurring basis:


As of December 31, 2020 ($ in millions)
Financial Instrument	Fair Value		Valuation Technique	Significant Unobservable Inputs	Ranges of Inputs	Weighted-Average
Commercial loans held for sale	$	16	Comparable company analysis	Market comparable transactions	NM	NM
Commercial and industrial loans	422		Appraised value	Collateral value	NM	NM
Commercial mortgage loans	78		Appraised value	Collateral value	NM	NM
Commercial leases	4		Appraised value	Collateral value	NM	NM
Consumer loans	159		Appraised value	Collateral value	NM	NM
OREO	20		Appraised value	Appraised value	NM	NM
Bank premises and equipment	26		Appraised value	Appraised value	NM	NM
Operating lease equipment	35		Appraised value	Appraised value	NM	NM
Private equity investments	69		Comparable company analysis	Market comparable transactions	NM	NM

As of December 31, 2019 ($ in millions)
Financial Instrument	Fair Value		Valuation Technique	Significant Unobservable Inputs	Ranges of Inputs	Weighted-Average
Commercial and industrial loans	$	169	Appraised value	Collateral value	NM	NM
Commercial mortgage loans	12		Appraised value	Collateral value	NM	NM
Commercial leases	20		Appraised value	Collateral value	NM	NM
OREO	13		Appraised value	Appraised value	NM	NM
Bank premises and equipment	27		Appraised value	Appraised value	NM	NM
Operating lease equipment	6		Appraised value	Appraised value	NM	NM
Private equity investments	2		Comparable company analysis	Market comparable transactions	NM	NM

Commercial loans held for sale

The Bancorp estimated the fair value of certain commercial loans held for sale during the year ended December 31, 2020, resulting in a negative fair value adjustment totaling $5 million. These valuations were based on quoted prices for similar assets in active markets (Level 2 of the valuation hierarchy), appraisals of the underlying collateral or by applying unobservable inputs such as an estimated market discount to the unpaid principal balance of the loans or the appraised values of the assets (Level 3 of the valuation hierarchy).

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Portfolio loans and leases

During the years ended December 31, 2020 and 2019, the Bancorp recorded nonrecurring impairment adjustments to certain collateral-dependent portfolio loans and leases. When the loan is collateral-dependent, the fair value of the loan is generally based on the fair value less cost to sell of the underlying collateral supporting the loan and therefore these loans were classified within Level 3 of the valuation hierarchy. In cases where the carrying value exceeds the fair value, an impairment loss is recognized. The fair values and recognized impairment losses are reflected in the previous tables.

OREO

During the years ended December 31, 2020 and 2019, the Bancorp recorded nonrecurring adjustments to certain commercial and residential real estate properties classified as OREO and measured at the lower of carrying amount or fair value. These nonrecurring losses were primarily due to declines in real estate values of the properties recorded in OREO. For both the years ended December 31, 2020 and 2019, these losses include $3 million in losses recorded as charge-offs on new OREO properties transferred from loans during the respective periods and $4 million and $3 million, respectively, recorded as negative fair value adjustments on OREO in other noninterest expense in the Consolidated Statements of Income subsequent to their transfer from loans. The fair value amounts are generally based on appraisals of the property values, resulting in a classification within Level 3 of the valuation hierarchy. In cases where the carrying amount exceeds the fair value, less costs to sell, an impairment loss is recognized. The previous tables reflect the fair value measurements of the properties before deducting the estimated costs to sell.

Bank premises and equipment

The Bancorp performs assessments of the recoverability of long-lived assets when events or changes in circumstances indicate that their carrying values may not be recoverable. These properties were written down to their lower of cost or market values. At least annually thereafter, the Bancorp will review these properties for market fluctuations. The fair value amounts were generally based on appraisals of the property values, resulting in a classification within Level 3 of the valuation hierarchy. For further information on bank premises and equipment, refer to Note 8.

Operating lease equipment

The Bancorp performs assessments of the recoverability of long-lived assets when events or changes in circumstances indicate that their carrying values may not be recoverable. When evaluating whether an individual asset is impaired, the Bancorp considers the current fair value of the asset, the changes in overall market demand for the asset and the rate of change in advancements associated with technological improvements that impact the demand for the specific asset under review. As part of this ongoing assessment, the Bancorp determined that the carrying values of certain operating lease equipment were not recoverable and as a result, the Bancorp recorded an impairment loss equal to the amount by which the carrying value of the assets exceeded the fair value. The fair value amounts were generally based on appraised values of the assets, resulting in a classification within Level 3 of the valuation hierarchy.

Private equity investments

The Bancorp accounts for its private equity investments using the measurement alternative to fair value, except for those accounted for under the equity method of accounting. Under the measurement alternative, the Bancorp carries each investment at its cost basis minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for identical or similar investments of the same issuer. The Bancorp recognized gains of $23 million and $13 million during the years ended December 31, 2020 and 2019, respectively, resulting from observable price changes. The carrying value of the Bancorp’s private equity investments still held as of December 31, 2020 includes a cumulative $69 million of positive adjustments as a result of observable price changes since January 1, 2018. Because these adjustments are based on observable transactions in inactive markets, they are classified in Level 2 of the fair value hierarchy.

For private equity investments which are accounted for using the measurement alternative to fair value, the Bancorp qualitatively evaluates each investment quarterly to determine if impairment may exist. If necessary, the Bancorp then measures impairment by estimating the value of its investment and comparing that to the investment’s carrying value, whether or not the Bancorp considers the impairment to be temporary. These valuations are typically developed using a DCF method, but other methods may be used if more appropriate for the circumstances. These valuations are based on unobservable inputs and therefore are classified in Level 3 of the fair value hierarchy. The Bancorp recognized impairment of $9 million and $5 million during the years ended December 31, 2020 and 2019, respectively. During the year ended December 31, 2020, the Bancorp recognized a gain of $4 million on the sale of certain private equity investments that previously recognized an impairment. The carrying value of the Bancorp’s private equity investments still held as of December 31, 2020 includes a cumulative $21 million of impairment charges recognized since adoption of the measurement alternative to fair value on January 1, 2018.

Fair Value Option

The Bancorp elected to measure certain residential mortgage loans held for sale under the fair value option as allowed under U.S. GAAP. Electing to measure residential mortgage loans held for sale at fair value reduces certain timing differences and better matches changes in the value of these assets with changes in the value of derivatives used as economic hedges for these assets. Management’s intent to sell residential mortgage loans classified as held for sale may change over time due to such factors as changes in the overall liquidity in markets or changes in characteristics specific to certain loans held for sale. Consequently, these loans may be reclassified to loans held for investment and maintained in the Bancorp’s loan portfolio. In such cases, the loans will continue to be measured at fair value.

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Fair value changes recognized in earnings for residential mortgage loans held at December 31, 2020 and 2019 for which the fair value option was elected, as well as the changes in fair value of the underlying IRLCs, included gains of $75 million and $37 million, respectively. These gains are reported in mortgage banking net revenue in the Consolidated Statements of Income.

Valuation adjustments related to instrument-specific credit risk for residential mortgage loans measured at fair value negatively impacted the fair value of those loans by $1 million at both December 31, 2020 and 2019. Interest on loans measured at fair value is accrued as it is earned using the effective interest method and is reported as interest income in the Consolidated Statements of Income.

The following table summarizes the difference between the fair value and the unpaid principal balance for residential mortgage loans measured at fair value as of:


($ in millions)	Aggregate Fair Value		Aggregate Unpaid Principal Balance	Difference
December 31, 2020
Residential mortgage loans measured at fair value	$	1,642	1,567	75
Past due loans of 90 days or more	3		3	—
Nonaccrual loans	—		—	—
December 31, 2019
Residential mortgage loans measured at fair value	$	1,447	1,410	37
Past due loans of 90 days or more	2		2	—
Nonaccrual loans	1		1	—

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Fair Value of Certain Financial Instruments

The following tables summarize the carrying amounts and estimated fair values for certain financial instruments, excluding financial instruments measured at fair value on a recurring basis:


	Net Carrying		Fair Value Measurements Using			Total
As of December 31, 2020 ($ in millions)	Amount		Level 1	Level 2	Level 3	Fair Value
Financial assets:
Cash and due from banks	$	3,147	3,147	—	—	3,147
Other short-term investments	33,399		33,399	—	—	33,399
Other securities	524		—	524	—	524
Held-to-maturity securities	11		—	—	11	11
Loans and leases held for sale	3,260		—	—	3,269	3,269
Portfolio loans and leases:
Commercial and industrial loans	48,764		—	—	49,140	49,140
Commercial mortgage loans	10,200		—	—	9,968	9,968
Commercial construction loans	5,691		—	—	5,860	5,860
Commercial leases	2,886		—	—	2,842	2,842
Residential mortgage loans	15,473		—	—	16,884	16,884
Home equity	4,982		—	—	5,275	5,275
Indirect secured consumer loans	13,522		—	—	13,331	13,331
Credit card	1,755		—	—	1,934	1,934
Other consumer loans	2,895		—	—	3,098	3,098
Total portfolio loans and leases, net	$	106,168	—	—	108,332	108,332
Financial liabilities:
Deposits	$	159,081	—	159,094	—	159,094
Federal funds purchased	300		300	—	—	300
Other short-term borrowings	1,192		—	1,192	—	1,192
Long-term debt	14,973		15,606	923	—	16,529

	Net Carrying		Fair Value Measurements Using			Total
As of December 31, 2019 ($ in millions)	Amount		Level 1	Level 2	Level 3	Fair Value
Financial assets:
Cash and due from banks	$	3,278	3,278	—	—	3,278
Other short-term investments	1,950		1,950	—	—	1,950
Other securities	556		—	556	—	556
Held-to-maturity securities	17		—	—	17	17
Loans and leases held for sale	136		—	—	136	136
Portfolio loans and leases:
Commercial and industrial loans	49,981		—	—	51,128	51,128
Commercial mortgage loans	10,876		—	—	10,823	10,823
Commercial construction loans	5,045		—	—	5,249	5,249
Commercial leases	3,346		—	—	3,133	3,133
Residential mortgage loans	16,468		—	—	17,509	17,509
Home equity	6,046		—	—	6,315	6,315
Indirect secured consumer loans	11,485		—	—	11,331	11,331
Credit card	2,364		—	—	2,774	2,774
Other consumer loans	2,683		—	—	2,866	2,866
Unallocated ALLL	(121)		—	—	—	—
Total portfolio loans and leases, net	$	108,173	—	—	111,128	111,128
Financial liabilities:
Deposits	$	127,062	—	127,059	—	127,059
Federal funds purchased	260		260	—	—	260
Other short-term borrowings	1,011		—	1,011	—	1,011
Long-term debt	14,970		15,244	700	—	15,944

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30. Regulatory Capital Requirements and Capital Ratios

The Board of Governors of the Federal Reserve System issued capital adequacy guidelines pursuant to which it assesses the adequacy of capital in examining and supervising a BHC. These guidelines include quantitative measures that assign risk weightings to assets and off-balance sheet items, as well as define and set minimum regulatory capital requirements. The regulatory capital requirements were revised by the Banking Agencies with the Basel III Final Rule which was effective for the Bancorp on January 1, 2015. It established quantitative measures defining minimum regulatory capital requirements as well as the measure of “well-capitalized” status. Additionally, the Banking Agencies issued similar guidelines for minimum regulatory capital requirements and “well-capitalized” measurements for banking subsidiaries.

The following table summarizes the prescribed capital ratios for the Bancorp and its banking subsidiary.


	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

Failure to meet the minimum capital requirements or falling below the “well-capitalized” measure can initiate certain actions by regulators that could have a direct material effect on the Consolidated Financial Statements of the Bancorp. The Bancorp was subject to a capital conservation buffer of 2.5%, in addition to the minimum capital ratios, in order to avoid limitations on certain capital distributions and discretionary bonus payments to executive officers through September 30, 2020. On October 1, 2020, the Bancorp became subject to the stress capital buffer requirement which replaced the capital conservation buffer. During each supervisory stress testing cycle, the FRB uses the Bancorp’s supervisory stress test to determine its stress capital buffer, subject to a floor of 2.5%. On August 7, 2020, the FRB provided the Bancorp a final stress capital buffer requirement of 2.5% which is effective for the period of October 1, 2020 to September 30, 2021. After evaluating the Bancorp’s capital plan which was re-submitted on November 5, 2020, the FRB may update the Bancorp’s stress capital buffer until March 31, 2021. The Bancorp exceeded these “capital conservation buffer” and “stress capital buffer” ratios for all periods presented.

The Bancorp and its banking subsidiary, Fifth Third Bank, National Association, had CET1 capital, Tier I risk-based capital, Total risk-based capital and Tier I leverage ratios above the “well-capitalized” levels at both December 31, 2020 and 2019. To continue to qualify for financial holding company status pursuant to the Gramm-Leach-Bliley Act of 1999, the Bancorp’s banking subsidiary must, among other things, maintain “well-capitalized” capital ratios.

The following table presents capital and risk-based capital and leverage ratios for the Bancorp and its banking subsidiary at December 31:


	2020				2019
($ in millions)	Amount		Ratio		Amount		Ratio
CET1 capital:
Fifth Third Bancorp	$	14,682	10.34	%	$	13,847	9.75	%
Fifth Third Bank, National Association	17,253		12.28		16,704		11.86
Tier I risk-based capital:
Fifth Third Bancorp	16,797		11.83		15,616		10.99
Fifth Third Bank, National Association	17,253		12.28		16,704		11.86
Total risk-based capital:
Fifth Third Bancorp	21,412		15.08		19,661		13.84
Fifth Third Bank, National Association	19,915		14.17		18,968		13.46
Tier I leverage:(a)
Fifth Third Bancorp	16,797		8.49		15,616		9.54
Fifth Third Bank, National Association	17,253		8.85		16,704		10.36

*(a)*Quarterly average assets are a component of the Tier I leverage ratio and for this purpose do not include goodwill and any other intangible assets and other investments that the Banking Agencies determine should be deducted from Tier I capital.

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31. Parent Company Financial Statements


Condensed Statements of Income (Parent Company Only)
For the years ended December 31 ($ in millions)	2020		2019	2018
Income
Dividends from consolidated nonbank subsidiaries(a)	$	1,285	2,155	1,890
Securities gains, net	1		2	—
Interest on loans to subsidiaries	17		24	24
Total income	1,303		2,181	1,914
Expenses
Interest	266		267	211
Other	26		65	34
Total expenses	292		332	245
Income Before Income Taxes and Change in Undistributed Earnings of Subsidiaries	1,011		1,849	1,669
Applicable income tax benefit	(65)		(69)	(50)
Income Before Change in Undistributed Earnings of Subsidiaries	1,076		1,918	1,719
Equity in undistributed earnings	351		594	474
Net Income Attributable to Bancorp	$	1,427	2,512	2,193
Other Comprehensive Income	—		—	—
Comprehensive Income Attributable to Bancorp	$	1,427	2,512	2,193

*(a)*The Bancorp’s indirect banking subsidiary paid dividends to the Bancorp’s direct nonbank subsidiary holding company of $1.3 billion, $2.0 billion and $1.9 billion for the years ended December 31, 2020, 2019 and 2018, respectively. Additionally, a $200 million dividend was paid by MB Financial, Inc. to the Bancorp during the year ended December 31, 2019.


Condensed Balance Sheets (Parent Company Only)
As of December 31 ($ in millions)	2020		2019
Assets
Cash	$	120	118
Other short-term investments	5,578		4,723
Equity securities	49		49
Loans to nonbank subsidiaries	350		444
Investment in nonbank subsidiaries	25,214		23,779
Goodwill	80		80
Other assets	479		379
Total Assets	$	31,870	29,572
Liabilities
Other short-term borrowings	$	450	359
Accrued expenses and other liabilities	548		497
Long-term debt (external)	7,761		7,513
Total Liabilities	$	8,759	8,369
Equity
Common stock	$	2,051	2,051
Preferred stock	2,116		1,770
Capital surplus	3,635		3,599
Retained earnings	18,384		18,315
Accumulated other comprehensive income	2,601		1,192
Treasury stock	(5,676)		(5,724)
Total Equity	23,111		21,203
Total Liabilities and Equity	$	31,870	29,572

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Condensed Statements of Cash Flows (Parent Company Only)
For the years ended December 31 ($ in millions)	2020		2019	2018
Operating Activities
Net income	$	1,427	2,512	2,193
Adjustments to reconcile net income to net cash provided by operating activities:
Amortization and accretion	7		7	4
Provision for (benefit from) deferred income taxes	—		(11)	3
Securities gains, net	(1)		(2)	—
Equity in undistributed earnings	(351)		(594)	(474)
Net change in:
Equity securities	—		(49)	—
Other assets	(1)		(80)	61
Accrued expenses and other liabilities	—		127	(120)
Net Cash Provided by Operating Activities	1,081		1,910	1,667
Investing Activities
Net change in:
Other short-term investments	(855)		(1,081)	(149)
Loans to nonbank subsidiaries	94		127	272
Net cash paid on acquisition	—		(469)	—
Net Cash (Used in) Provided by Investing Activities	(761)		(1,423)	123
Financing Activities
Net change in other short-term borrowings	91		106	(62)
Dividends paid on common and preferred stock	(858)		(753)	(565)
Proceeds from issuance of long-term debt	1,243		2,235	895
Repayment of long-term debt	(1,100)		(500)	(500)
Issuance of preferred stock	346		242	—
Repurchase of treasury stock and related forward contract	—		(1,763)	(1,453)
Other, net	(40)		(56)	(65)
Net Cash Used in Financing Activities	(318)		(489)	(1,750)
Increase (Decrease) in Cash	2		(2)	40
Cash at Beginning of Period	118		120	80
Cash at End of Period	$	120	118	120

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32. Business Segments

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

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

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

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

The following is a description of each of the Bancorp’s business segments and the products and services they provide to their respective client bases.

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

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

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

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

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The following tables present the results of operations and assets by business segment for the years ended December 31:


2020 ($ in millions)	Commercial Banking			Branch Banking	Consumer Lending	Wealth and Asset Management	General Corporate and Other		Eliminations		Total
Net interest income	$	1,903		1,667	381	139	692		—		4,782
Provision for (benefit from) credit losses	1,050			231	34	3	(221)		—		1,097
Net interest income after provision for (benefit from) credit losses	853			1,436	347	136	913		—		3,685
Noninterest income:
Service charges on deposits	343			215	—	1	—		—		559
Commercial banking revenue	524			5	—	2	(3)		—		528
Wealth and asset management revenue	3			172	—	498	—		(153)	(a)	520
Card and processing revenue	54			283	—	2	13		—		352
Mortgage banking net revenue	—			8	307	5	—		—		320
Leasing business revenue	276		(c)	—	—	—	—		—		276
Other noninterest income(b)	101			68	10	18	14		—		211
Securities gains, net	—			—	—	—	62		—		62
Securities gains, net -non-qualifying hedges on MSRs	—			—	2	—	—		—		2
Total noninterest income	1,301			751	319	526	86		(153)		2,830
Noninterest expense:
Compensation and benefits	557			649	221	218	945		—		2,590
Technology and communications	13			4	8	1	336		—		362
Net occupancy expense(e)	31			176	10	12	121		—		350
Leasing business expense	140			—	—	—	—		—		140
Equipment expense	27			41	—	1	61		—		130
Card and processing expense	7			116	—	1	(3)		—		121
Marketing expense	8			32	3	2	59		—		104
Other noninterest expense	938			851	276	298	(1,289)		(153)		921
Total noninterest expense	1,721			1,869	518	533	230		(153)		4,718
Income before income taxes	433			318	148	129	769		—		1,797
Applicable income tax expense	46			67	31	27	199		—		370
Net income	387			251	117	102	570		—		1,427
Total goodwill	$	1,980		2,047	—	231	—		—		4,258
Total assets	$	70,241		79,982	30,480	12,466	11,511	(d)	—		204,680

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

*(b)*Includes impairment charges of $30 for branches and land. For more information, refer to Note 8 and Note 29.

*(c)*Includes impairment charges of $7 f**or operating lease equipment. For more information, refer to Note 9 and Note 29.

*(d)*Includes bank premises and equipment of $35 classified as held for sale. For more information, refer to Note 8.

*(e)*Includes impairment losses and termination charges of $8 for ROU assets related to certain operating leases. For more information, refer to Note 10.

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2019 ($ in millions)	Commercial Banking			Branch Banking	Consumer Lending	Wealth and Asset Management	General Corporate and Other		Eliminations		Total
Net interest income	$	2,360		2,371	325	182	(441)		—		4,797
Provision for credit losses	183			224	49	—	15		—		471
Net interest income after provision for credit losses	2,177			2,147	276	182	(456)		—		4,326
Noninterest income:
Service charges on deposits	308			260	—	1	(4)		—		565
Commercial banking revenue	455			4	—	1	—		—		460
Wealth and asset management revenue	3			158	—	469	—		(143)	(a)	487
Card and processing revenue	66			285	—	3	6		—		360
Mortgage banking net revenue	—			6	279	2	—		—		287
Leasing business revenue	270		(c)	—	—	—	—		—		270
Other noninterest income(b)	85			89	14	13	863		—		1,064
Securities gains, net	—			—	—	—	40		—		40
Securities gains, net -non-qualifying hedges on MSRs	—			—	3	—	—		—		3
Total noninterest income	1,187			802	296	489	905		(143)		3,536
Noninterest expense:
Compensation and benefits	466			601	196	217	938		—		2,418
Technology and communications	11			4	8	1	398		—		422
Net occupancy expense(e)	28			173	10	13	108		—		332
Leasing business expense	133			—	—	—	—		—		133
Equipment expense	25			48	—	1	55		—		129
Card and processing expense	8			123	—	1	(2)		—		130
Marketing expense	12			72	4	5	69		—		162
Other noninterest expense	938			839	237	291	(1,228)		(143)		934
Total noninterest expense	1,621			1,860	455	529	338		(143)		4,660
Income before income taxes	1,743			1,089	117	142	111		—		3,202
Applicable income tax expense	319			229	25	30	87		—		690
Net income	1,424			860	92	112	24		—		2,512
Total goodwill	$	1,954		2,046	—	252	—		—		4,252
Total assets	$	74,570		69,413	26,555	10,500	(11,669)	(d)	—		169,369

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

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

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

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

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

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2018 ($ in millions)	Commercial Banking			Branch Banking	Consumer Lending	Wealth and Asset Management	General Corporate and Other		Eliminations		Total
Net interest income	$	1,713		2,034	237	182	(26)		—		4,140
Provision for (benefit from) credit losses	(26)			171	42	12	8		—		207
Net interest income after provision for (benefit from) credit losses	1,739			1,863	195	170	(34)		—		3,933
Noninterest income:
Service charges on deposits	273			275	—	1	—		—		549
Commercial banking revenue	402			5	—	2	(1)		—		408
Wealth and asset management revenue	3			150	—	429	—		(138)	(a)	444
Card and processing revenue	58			266	—	5	—		—		329
Mortgage banking net revenue	—			5	206	1	—		—		212
Leasing business revenue	114		(c)	—	—	—	—		—		114
Other noninterest income(b)	67			53	14	18	651		—		803
Securities losses, net	—			—	—	—	(54)		—		(54)
Securities losses, net -non-qualifying hedges on MSRs	—			—	(15)	—	—		—		(15)
Total noninterest income	917			754	205	456	596		(138)		2,790
Noninterest expense:
Compensation and benefits	344			536	192	202	841		—		2,115
Technology and communications	7			5	5	1	267		—		285
Net occupancy expense	26			175	10	12	69		—		292
Leasing business expense	76			—	—	—	—		—		76
Equipment expense	23			50	—	1	49		—		123
Card and processing expense	4			121	—	—	(2)		—		123
Marketing expense	6			67	4	4	66		—		147
Other noninterest expense	777			774	191	284	(1,091)		(138)		797
Total noninterest expense	1,263			1,728	402	504	199		(138)		3,958
Income (loss) before income taxes	1,393			889	(2)	122	363		—		2,765
Applicable income tax expense (benefit)	254			187	(1)	25	107		—		572
Net income (loss)	1,139			702	(1)	97	256		—		2,193
Total goodwill	$	630		1,655	—	193	—		—		2,478
Total assets	$	61,630		61,040	22,044	10,337	(8,982)	(d)	—		146,069

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

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

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

*(d)*Includes bank premises and equipment of $42 classified as held for sale.

33. Subsequent Event

On January 22, 2021, the Bancorp entered into an accelerated share repurchase transaction with a counterparty pursuant to which the Bancorp paid $180 million on January 26, 2021 to repurchase shares of its outstanding common stock. The Bancorp is repurchasing the shares of its common stock as part of its Board-approved 100 million share repurchase program previously announced on June 18, 2019. The Bancorp expects the settlement of the transaction to occur on or before March 31, 2021.

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