Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

117 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, 2022 and 2021, the related consolidated statements of income, comprehensive income, changes in equity, and cash flows for each of the three years in the period ended December 31, 2022, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Bancorp as of December 31, 2022 and 2021, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2022, in conformity with accounting principles generally accepted in the United States of America.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Bancorp’s internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 24, 2023 expressed an unqualified opinion on the Bancorp’s internal control over financial reporting.

Basis for Opinion

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

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

Critical Audit Matter

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

Allowance for Loan and Lease Losses (“ALLL”) — Qualitative Factors — Commercial Loans—Refer to Note 1 and Note 6 of the Notes to Consolidated Financial Statements

Critical Audit Matter Description

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

For collectively evaluated loans and leases, the Bancorp uses models to forecast expected credit losses based on the probability of a loan or lease defaulting, the expected balance at the estimated date of default and the expected loss percentage given a default. The Bancorp also considers qualitative factors in determining the ALLL. These considerations inherently require significant management judgment to determine the appropriate factors to be considered and the extent of their impact on the ALLL estimate. Qualitative factors are used to capture characteristics in the portfolio that impact expected credit losses but that are not fully captured within the Bancorp’s expected credit loss models. When evaluating the adequacy of allowances, consideration is given to the effect that changing economic conditions may have on the Bancorp’s customers.

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Overall, the collective evaluation process requires significant management judgment when determining the estimation methodology and inputs into the models, as well as in evaluating the reasonableness of the modeled results and the appropriateness of qualitative adjustments.

At December 31, 2022, the key qualitative factors included adjustments to the expected credit losses on the commercial loan portfolio associated with the current economic environment.

The ALLL for the commercial portfolio segment was $1.1 billion at December 31, 2022, which includes adjustments for the qualitative factors noted above.

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

How the Critical Audit Matter Was Addressed in the Audit

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

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

◦Portfolio segment loan balances and other borrower-specific data

◦Relevant macroeconomic indicators and data

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

/s/ Deloitte & Touche LLP

Cincinnati, Ohio

February 24, 2023

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

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CONSOLIDATED BALANCE SHEETS


As of December 31 ($ in millions, except share data)	2022		2021
Assets
Cash and due from banks	$	3,466	2,994
Other short-term investments(a)	8,351		34,572
Available-for-sale debt and other securities(b)	51,503		38,110
Held-to-maturity securities(c)	5		8
Trading debt securities	414		512
Equity securities	317		376
Loans and leases held for sale(d)	1,007		4,415
Portfolio loans and leases(a)(e)	121,480		112,050
Allowance for loan and lease losses(a)	(2,194)		(1,892)
Portfolio loans and leases, net	119,286		110,158
Bank premises and equipment(f)	2,187		2,120
Operating lease equipment	627		616
Goodwill	4,915		4,514
Intangible assets	169		156
Servicing rights	1,746		1,121
Other assets(a)	13,459		11,444
Total Assets	$	207,452	211,116
Liabilities
Deposits:
Noninterest-bearing deposits	$	53,125	65,088
Interest-bearing deposits	110,565		104,236
Total deposits	163,690		169,324
Federal funds purchased	180		281
Other short-term borrowings	4,838		980
Accrued taxes, interest and expenses	1,822		2,233
Other liabilities(a)	5,881		4,267
Long-term debt(a)	13,714		11,821
Total Liabilities	$	190,125	188,906
Equity
Common stock(g)	$	2,051	2,051
Preferred stock(h)	2,116		2,116
Capital surplus	3,684		3,624
Retained earnings	21,689		20,236
Accumulated other comprehensive (loss) income	(5,110)		1,207
Treasury stock(g)	(7,103)		(7,024)
Total Equity	$	17,327	22,210
Total Liabilities and Equity	$	207,452	211,116

*(a)*Includes $17 and $24 of other short-term investments, $185 and $322 of portfolio loans and leases, $(2) and $(2) of ALLL, $2 and $2 of other assets, $9 and $1 of other liabilities and $118 and $263 of long-term debt from consolidated VIEs that are included in their respective captions above at December 31, 2022 and 2021, respectively. For further information, refer to Note 12.

*(b)*Amortized cost of $57,530 and $36,941 at December 31, 2022 and 2021, respectively.

*(c)*Fair value of $5 and $8 at December 31, 2022 and 2021, respectively.

*(d)*Includes $600 and $1,023 of residential mortgage loans held for sale measured at fair value at December 31, 2022 and 2021, respectively.

*(e)*Includes $123 and $154 of residential mortgage loans measured at fair value at December 31, 2022 and 2021, respectively.

*(f)*Includes $24 of bank premises and equipment held for sale at both December 31, 2022 and 2021. For further information, refer to Note 7.

*(g)*Common shares: Stated value $2.22 per share; authorized 2,000,000,000; outstanding at December 31, 2022 – 683,385,880 (excludes 240,506,701 treasury shares), 2021 – 682,777,664 (excludes 241,114,917 treasury shares).

*(h)*500,000 shares of no par value preferred stock were authorized at both December 31, 2022 and 2021. There were 422,000 unissued shares of undesignated no par value preferred stock at both December 31, 2022 and 2021. Each issued share of no par value preferred stock has a liquidation preference of $25,000. 500,000 shares of no par value Class B preferred stock were authorized at both December 31, 2022 and 2021. There were 300,000 unissued shares of undesignated no par value Class B preferred stock at both December 31, 2022 and 2021. Each issued share of no par value Class B preferred stock has a liquidation preference of $1,000.

Refer to the Notes to Consolidated Financial Statements.

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CONSOLIDATED STATEMENTS OF INCOME


For the years ended December 31 ($ in millions, except share data)	2022		2021	2020
Interest Income
Interest and fees on loans and leases	$	4,954	4,079	4,424
Interest on securities	1,517		1,090	1,119
Interest on other short-term investments	116		42	29
Total interest income	6,587		5,211	5,572
Interest Expense
Interest on deposits	447		59	322
Interest on federal funds purchased	6		—	2
Interest on other short-term borrowings	108		2	14
Interest on long-term debt	417		380	452
Total interest expense	978		441	790
Net Interest Income	5,609		4,770	4,782
Provision for (benefit from) credit losses	563		(377)	1,097
Net Interest Income After Provision for (Benefit from) Credit Losses	5,046		5,147	3,685
Noninterest Income
Service charges on deposits	589		600	559
Wealth and asset management revenue	570		586	520
Commercial banking revenue	565		637	528
Card and processing revenue	409		402	352
Leasing business revenue	237		300	276
Mortgage banking net revenue	215		270	320
Other noninterest income	265		332	211
Securities (losses) gains, net	(82)		(7)	62
Securities (losses) gains, net - non-qualifying hedges on mortgage servicing rights	(2)		(2)	2
Total noninterest income	2,766		3,118	2,830
Noninterest Expense
Compensation and benefits	2,554		2,626	2,590
Technology and communications	416		388	362
Net occupancy expense	307		312	350
Equipment expense	145		138	130
Leasing business expense	131		137	140
Marketing expense	118		107	104
Card and processing expense	80		89	121
Other noninterest expense	968		951	921
Total noninterest expense	4,719		4,748	4,718
Income Before Income Taxes	3,093		3,517	1,797
Applicable income tax expense	647		747	370
Net Income	2,446		2,770	1,427
Dividends on preferred stock	116		111	104
Net Income Available to Common Shareholders	$	2,330	2,659	1,323
Earnings per share - basic	$	3.38	3.78	1.84
Earnings per share - diluted	$	3.35	3.73	1.83
Average common shares outstanding - basic	688,633,659		702,188,552	714,729,585
Average common shares outstanding - diluted	694,952,038		711,197,805	719,735,415

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)	2022		2021	2020
Net Income	$	2,446	2,770	1,427
Other Comprehensive (Loss) Income, Net of Tax:
Net unrealized (losses) gains on available-for-sale debt securities:
Unrealized holding (losses) gains arising during the year	(5,478)		(1,043)	1,153
Reclassification adjustment for net (gains) losses included in net income	(2)		3	(34)
Net unrealized (losses) gains on cash flow hedge derivatives:
Unrealized holding (losses) gains arising during the year	(774)		(142)	483
Reclassification adjustment for net gains included in net income	(77)		(223)	(187)
Defined benefit pension plans, net:
Net actuarial gain (loss) arising during the year	9		4	(9)
Reclassification of amounts to net periodic benefit costs	5		7	7
Other	—		—	(4)
Other comprehensive (loss) income, net of tax	(6,317)		(1,394)	1,409
Comprehensive (Loss) Income	$	(3,871)	1,376	2,836

Refer to the Notes to Consolidated Financial Statements.

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CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY


($ in millions, except per share data)	Common Stock		Preferred Stock	Capital Surplus	Retained Earnings	Accumulated Other Comprehensive Income	Treasury Stock	Total Equity
Balance at December 31, 2019	$	2,051	1,770	3,599	18,315	1,192	(5,724)	21,203
Impact of cumulative effect of change in accounting principle					(472)			(472)
Balance at January 1, 2020	$	2,051	1,770	3,599	17,843	1,192	(5,724)	20,731
Net income					1,427			1,427
Other comprehensive income, net of tax						1,409		1,409
Cash dividends declared:
Common stock ($1.08 per share)					(780)			(780)
Preferred stock:(a)
Series H ($1,275.00 per share)					(31)			(31)
Series I ($1,656.24 per share)					(30)			(30)
Series J ($1,043.48 per share)					(12)			(12)
Series K ($1,237.52 per share)					(12)			(12)
Series L ($468.75 per share)					(7)			(7)
Class B, Series A ($60.00 per share)					(12)			(12)

Issuance of preferred stock			346					346


Impact of stock transactions under stock compensation plans, net				36			46	82
Other					(2)		2	—
Balance at December 31, 2020	$	2,051	2,116	3,635	18,384	2,601	(5,676)	23,111
Net income					2,770			2,770
Other comprehensive loss, net of tax						(1,394)		(1,394)
Cash dividends declared:
Common stock ($1.14 per share)					(805)			(805)
Preferred stock:(a)
Series H ($1,275.00 per share)					(31)			(31)
Series I ($1,656.24 per share)					(30)			(30)
Series J ($839.62 per share)					(10)			(10)
Series K ($1,237.50 per share)					(12)			(12)
Series L ($1,125.00 per share)					(16)			(16)
Class B, Series A ($60.00 per share)					(12)			(12)
Shares acquired for treasury							(1,393)	(1,393)
Impact of stock transactions under stock compensation plans, net				(11)			44	33
Other					(2)		1	(1)
Balance at December 31, 2021	$	2,051	2,116	3,624	20,236	1,207	(7,024)	22,210

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CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (continued)


($ in millions, except per share data)	Common Stock		Preferred Stock	Capital Surplus	Retained Earnings	Accumulated Other Comprehensive (Loss) Income	Treasury Stock	Total Equity
Balance at December 31, 2021	$	2,051	2,116	3,624	20,236	1,207	(7,024)	22,210
Net income					2,446			2,446
Other comprehensive loss, net of tax						(6,317)		(6,317)
Cash dividends declared:
Common stock ($1.26 per share)					(877)			(877)
Preferred stock:(a)
Series H ($1,275.00 per share)					(31)			(31)
Series I ($1,656.24 per share)					(30)			(30)
Series J ($1,249.19 per share)					(15)			(15)
Series K ($1,237.50 per share)					(12)			(12)
Series L ($1,125.00 per share)					(16)			(16)
Class B, Series A ($60.00 per share)					(12)			(12)
Shares acquired for treasury							(100)	(100)
Impact of stock transactions under stock compensation plans, net				60			21	81

Balance at December 31, 2022	$	2,051	2,116	3,684	21,689	(5,110)	(7,103)	17,327

*(a)*Refer to Note 24 for further information on dividends declared for preferred stock.

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)	2022		2021	2020
Operating Activities
Net income	$	2,446	2,770	1,427
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for (benefit from) credit losses	563		(377)	1,097
Depreciation, amortization and accretion	436		349	492
Stock-based compensation expense	165		120	123
Benefit from deferred income taxes	(60)		(14)	(162)
Securities losses (gains), net	84		16	(69)
MSR fair value adjustment	(177)		139	565
Net gains on sales of loans and fair value adjustments on loans held for sale	(126)		(335)	(291)
Net (gains) losses on disposition and impairment of bank premises and equipment and operating lease equipment	(1)		10	26
Gain on sale of HSA deposit portfolio	—		(60)	—
Gain on the TRA associated with Worldpay, Inc.	(46)		(46)	(74)
Proceeds from sales of loans held for sale	13,123		17,204	12,481
Loans originated or purchased for sale, net of repayments	(10,239)		(16,888)	(14,767)
Dividends representing return on equity investments	50		55	17
Net change in:
Equity and trading debt securities	70		15	12
Other assets	646		(37)	(855)
Accrued taxes, interest and expenses and other liabilities	(506)		(217)	349
Net Cash Provided by Operating Activities	6,428		2,704	371
Investing Activities
Proceeds from sales:
AFS securities and other investments	4,359		3,125	1,743
Loans and leases	155		718	157
Bank premises and equipment	2		19	33
Proceeds from repayments / maturities of AFS and HTM securities and other investments	4,495		6,079	3,646
Purchases:
AFS securities and other investments	(29,714)		(11,713)	(5,266)
Bank premises and equipment	(348)		(309)	(305)
MSRs	(213)		(381)	(44)
Proceeds from settlement of BOLI	49		24	19
Proceeds from sales and dividends representing return of equity investments	87		63	69
Net cash received for divestitures	66		—	19
Net cash paid on acquisitions	(917)		(297)	(23)
Net cash paid on sale of HSA deposit portfolio	—		(431)	—
Net change in:
Other short-term investments	26,224		(1,172)	(31,446)
Portfolio loans and leases	(8,992)		(3,721)	(451)
Operating lease equipment	(124)		28	(53)
Net Cash Used in Investing Activities	(4,871)		(7,968)	(31,902)
Financing Activities
Net change in deposits	(5,994)		10,734	32,019
Net change in other short-term borrowings and federal funds purchased	3,757		(193)	182
Dividends paid on common and preferred stock	(927)		(897)	(858)
Proceeds from issuance of long-term debt	4,026		562	2,557
Repayment of long-term debt	(1,762)		(3,603)	(2,799)
Repurchases of treasury stock and related forward contract	(100)		(1,393)	—
Issuance of preferred stock	—		—	346
Other	(85)		(99)	(47)
Net Cash (Used in) Provided by Financing Activities	(1,085)		5,111	31,400
Increase (Decrease) in Cash and Due from Banks	472		(153)	(131)
Cash and Due from Banks at Beginning of Period	2,994		3,147	3,278
Cash and Due from Banks at End of Period	$	3,466	2,994	3,147

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 as well as through other offices, telephone sales, the internet and mobile applications.

Basis of Presentation

The Consolidated Financial Statements include the accounts of the Bancorp and its majority-owned subsidiaries and VIEs in which the Bancorp has been determined to be the primary beneficiary. Other entities, including certain joint ventures in which the Bancorp has the ability to exercise significant influence over operating and financial policies of the investee, but upon which the Bancorp does not possess control, are accounted for by the equity method and not consolidated. The investments in those entities in which the Bancorp does not have the ability to exercise significant influence are generally carried at fair value unless the investment does not have a readily determinable fair value. The Bancorp accounts for equity investments without a readily determinable fair value using the measurement alternative to fair value, representing the cost of the investment minus any impairment recorded and plus or minus changes resulting from observable price changes in orderly transactions for an identical or a similar investment of the same issuer. Intercompany transactions and balances among consolidated entities have been eliminated.

Use of Estimates

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

Cash and Due from Banks

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

Investment Securities

Debt securities are classified as held-to-maturity, available-for-sale or trading on the date of purchase. Only those securities which management has the intent and ability to hold to maturity are classified as held-to-maturity and reported at amortized cost. Debt securities are classified as available-for-sale when, in management’s judgment, they may be sold in response to, or in anticipation of, changes in market conditions. Debt securities are classified as trading when bought and held principally for the purpose of selling them in the near term. Trading debt securities are reported at fair value with unrealized gains and losses included in noninterest income. Available-for-sale debt securities are reported at fair value with unrealized gains and losses, net of related deferred income taxes, included in OCI. For available-for-sale debt securities hedged in a fair value hedge, the amortized cost basis of the hedged items (excluding unrealized gains and losses) includes the cumulative fair value hedging basis adjustments. Changes in the fair value of these securities which are attributable to changes in the hedged risk are recognized in earnings instead of OCI. Accrued interest receivable on investment securities is presented in the Consolidated Balance Sheets as a component of other assets.

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

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

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

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

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

The fair value of a security is determined based on quoted market prices. If quoted market prices are not available, fair value is determined based on quoted prices of similar instruments.

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

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

Portfolio Loans and Leases

Basis of accounting

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

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

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

The Bancorp’s lease portfolio consists of sales-type, direct financing and leveraged leases. Leases are classified as sales-type if the Bancorp transfers control of the underlying asset to the lessee. The Bancorp classifies leases that do not meet any of the criteria for a sales-type lease as a direct financing lease if the present value of the sum of the lease payments and any residual value guaranteed by the lessee and/or any other third party equals or exceeds substantially all of the fair value of the underlying asset and the collection of the lease payments and residual value guarantee is probable. Sales-type and direct financing leases are carried at the aggregate of lease payments plus estimated residual value of the leased property, less unearned income. Interest income on sales-type and direct financing leases is recognized over the term of the lease to achieve a constant periodic rate of return on the outstanding investment.

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

Nonaccrual loans and leases

The Bancorp places loans and leases on nonaccrual status when full repayment of principal and interest is not expected, unless the loan or lease is well-secured and in the process of collection. When a loan is placed on nonaccrual status, the accrual of interest, amortization of loan premium, accretion of loan discount and amortization/accretion of deferred net direct loan origination fees or costs are discontinued and all

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previously accrued and unpaid interest is reversed against income. The Bancorp utilizes the following policies to determine when full repayment of principal and interest on a loan or lease is not expected:

Commercial loans are placed on nonaccrual status when there is a clear indication that the borrower’s cash flows may not be sufficient to meet payments as they become due. Such loans are also placed on nonaccrual status when the principal or interest is past due 90 days or more, unless the loan is fully or partially guaranteed by a government agency.
Residential mortgage loans are placed on nonaccrual status when principal and interest payments become past due 150 days or more, unless repayment of the loan is fully or partially guaranteed by a government agency. Residential mortgage loans may stay on nonaccrual status for an extended time as the foreclosure process typically lasts longer than 180 days. The Bancorp maintains a reserve for the portion of accrued interest receivable that it estimates will be uncollectible, at the portfolio level, for residential mortgage loans which are past due 90 days or more and on accrual status. This reserve is recorded as a component of other assets on the Bancorp’s Consolidated Balance Sheets, consistent with the classification of the related accrued interest receivable.
Residential mortgage loans that have been modified in a TDR and subsequently become past due 90 days or more are placed on nonaccrual status unless the loan is fully or partially guaranteed by a government agency.
Home equity loans and lines of credit are placed on nonaccrual status if principal or interest has been in default for 90 days or more. Home equity loans and lines of credit that have been in default for 60 days or more are also placed on nonaccrual status if the senior lien has been in default 120 days or more.
Credit card accounts that have been modified in a TDR are placed on nonaccrual status at the time of the modification. Subsequent to the modification, accounts are placed on nonaccrual status when required payments become past due 90 days or more.
Indirect secured consumer loans and other consumer loans are generally placed on nonaccrual status when principal or interest becomes past due 90 days or more.
Loans discharged in a Chapter 7 bankruptcy and not reaffirmed by the borrower are classified as collateral-dependent TDRs and placed on nonaccrual status regardless of the borrower’s payment history or capacity to repay in the future.

Well-secured loans are collateralized by perfected security interests in real and/or personal property for which the Bancorp estimates proceeds from the sale would be sufficient to recover the outstanding principal and accrued interest balance of the loan and pay all costs to sell the collateral. The Bancorp considers a loan in the process of collection if collection efforts or legal action is proceeding and the Bancorp expects to collect funds sufficient to bring the loan current or recover the entire outstanding principal and accrued interest balance in the near future.

Nonaccrual loans and leases may be returned to accrual status when all delinquent principal and interest payments become current in accordance with the loan agreement and the remaining principal and interest payments are reasonably assured of repayment in accordance with the contractual terms of the loan agreement, or when the loan is both well-secured and in the process of collection. Nonaccrual loans that have been modified in a TDR may not be returned to accrual status unless such loans have sustained repayment performance of six months or more and are reasonably assured of repayment in accordance with the restructured terms. Loans discharged in a Chapter 7 bankruptcy and not reaffirmed by the borrower may be returned to accrual status provided there is a sustained payment history of twelve months or more after bankruptcy and collectability is reasonably assured for all remaining contractual payments.

Except for loans discharged in a Chapter 7 bankruptcy that are not reaffirmed by the borrower, accruing residential mortgage loans, home equity loans and lines of credit, indirect secured consumer loans and other consumer loans modified as part of a TDR are maintained on accrual status, provided there is reasonable assurance of repayment and of performance according to the modified terms based upon a current, well-documented credit evaluation. Accruing commercial loans modified as part of a TDR are maintained on accrual status provided there is a sustained payment history of six months or more prior to the modification and collectability is reasonably assured for all remaining contractual payments under the modified terms. TDRs of commercial loans and credit card loans that do not have a sustained payment history of six months or more in accordance with their modified terms remain on nonaccrual status until a six-month payment history is sustained.

Nonaccrual loans and leases are generally accounted for on the cost recovery method due to the existence of doubt as to the collectability of the remaining amortized cost basis of nonaccrual assets. Under the cost recovery method, any payments received are applied to reduce principal. Once the entire amortized cost basis is collected, additional payments received are treated as recoveries of amounts previously charged-off until recovered in full, and any subsequent payments are treated as interest income. In certain circumstances when the remaining amortized cost basis of a nonaccrual loan or lease is deemed to be fully collectible, the Bancorp may utilize the cash basis method to account for interest payments received on a nonaccrual loan or lease. Under the cash basis method, interest income is recognized when cash is received, to the extent such income would have been accrued on the loan’s remaining balance at the contractual rate.

The Bancorp records a charge-off to the ALLL when all or a portion of a loan or lease is deemed to be uncollectible, after considering the net realizable value of any underlying collateral. Commercial loans and leases on nonaccrual status, including those modified in a TDR, as well as criticized commercial loans with aggregate borrower relationships exceeding $1 million, are subject to an individual review to identify charge-offs. The Bancorp does not have an established delinquency threshold for partially or fully charging off commercial loans and leases. The Bancorp records charge-offs on consumer loans in accordance with applicable regulatory guidelines, which are primarily based on a loan’s delinquency status.

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Restructured loans and leases

Upon modification of a loan, the Bancorp measures the expected credit loss as either the difference between the amortized cost of the loan and the fair value of collateral less cost to sell or the difference between the estimated future cash flows expected to be collected on the modified loan, discounted at the original effective yield of the loan, and the carrying value of the loan.

Loans and Leases Held for Sale

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

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

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

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

Other Real Estate Owned

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

ALLL

The Bancorp disaggregates its portfolio loans and leases into portfolio segments for purposes of determining the ALLL. The Bancorp’s portfolio segments include commercial, residential mortgage and consumer. The Bancorp further disaggregates its portfolio segments into classes for purposes of monitoring and assessing credit quality based on certain risk characteristics. Classes within the commercial portfolio segment include commercial and industrial, commercial mortgage owner-occupied, commercial mortgage nonowner-occupied, commercial construction and commercial leasing. The residential mortgage portfolio segment is also considered a class. Classes within the consumer portfolio segment include home equity, indirect secured consumer, credit card and other consumer loans. For an analysis of the Bancorp’s ALLL by portfolio segment and credit quality information by class, refer to Note 6.

The Bancorp maintains the ALLL to absorb the amount of credit losses that are expected to be incurred over the remaining contractual terms of the related loans and leases. Contractual terms are adjusted for expected prepayments but are not extended for expected extensions, renewals or modifications except in circumstances where the Bancorp reasonably expects to execute a TDR with the borrower or where certain extension or renewal options are embedded in the original contract and not unconditionally cancellable by the Bancorp.

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

Credit losses are charged and recoveries are credited to the ALLL. The ALLL is maintained at a level the Bancorp considers to be adequate and is based on ongoing quarterly assessments and evaluations of the collectability of loans and leases, including historical credit loss experience, current and forecasted market and economic conditions and consideration of various qualitative factors that, in management’s judgment, deserve consideration in estimating expected credit losses. Provisions for credit losses are recorded for the amounts necessary to adjust the ALLL to the Bancorp’s current estimate of expected credit losses on portfolio loans and leases.

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

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

Consumer and residential mortgage loans that have been modified in a TDR are individually evaluated for an ALLL. Allowances for individually evaluated loans that are collateral-dependent are typically measured based on the fair value of the underlying collateral, less expected costs to sell where applicable. Individually evaluated loans that are not collateral-dependent are measured based on the present value of expected future cash flows discounted at the loan’s effective interest rate and a modeled expected credit loss amount. The Bancorp evaluates the collectability of both principal and interest when assessing the need for a loss accrual. Specific allowances on individually evaluated consumer and residential mortgage loans are reviewed quarterly and adjusted as necessary based on changing borrower and/or collateral conditions and actual collection and charge-off experience.

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

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

The Bancorp also considers qualitative factors in determining the ALLL. Qualitative factors are used to capture characteristics in the portfolio that impact expected credit losses but that are not fully captured within the Bancorp’s expected credit loss models. These include adjustments for changes in policies or procedures in underwriting, monitoring or collections, lending and risk management personnel and results of internal audit and quality control reviews. These may also include adjustments, when deemed necessary, for specific idiosyncratic risks such

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as geopolitical events, natural disasters and their effects on regional borrowers, and changes in product structures. Qualitative factors may also be used to address the impacts of unforeseen events on key inputs and assumptions within the Bancorp’s expected credit loss models, such as the reasonable and supportable forecast period, changes to historical loss information or changes to the reversion period or methodology.

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

Reserve for Unfunded Commitments

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

Loan Sales and Securitizations

The Bancorp periodically sells loans through either securitizations or individual loan sales in accordance with its investment policies. The sold loans are removed from the Consolidated Balance Sheet and a net gain or loss is recognized in the Consolidated Financial Statements at the time of sale. The Bancorp typically isolates the loans through the use of a VIE and thus is required to assess whether the entity holding the sold or securitized loans is a VIE and whether the Bancorp is the primary beneficiary and therefore consolidator of that VIE. If the Bancorp holds the power to direct activities most significant to the economic performance of the VIE and has the obligation to absorb losses or right to receive benefits that could potentially be significant to the VIE, then the Bancorp will generally be deemed the primary beneficiary of the VIE. If the Bancorp is determined not to be the primary beneficiary of a VIE but holds a variable interest in the entity, such variable interests are accounted for under the equity method of accounting or other accounting standards as appropriate. Refer to Note 12 for further information on consolidated and non-consolidated VIEs.

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

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

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

Reserve for Representation and Warranty Provisions

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

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

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Legal Contingencies

The Bancorp and its subsidiaries are parties to numerous claims and lawsuits as well as threatened or potential actions or claims concerning matters arising from the conduct of its business activities. The outcome of claims or litigation and the timing of ultimate resolution are inherently difficult to predict and significant judgment may be required in the determination of both the probability of loss and whether the amount of the loss is reasonably estimable. The Bancorp’s estimates are subjective and are based on the status of legal and regulatory proceedings, the merit of the Bancorp’s defenses and consultation with internal and external legal counsel. An accrual for a potential litigation loss is established when information related to the loss contingency indicates both that a loss is probable and that the amount of loss can be reasonably estimated. This accrual is included in other liabilities in the Consolidated Balance Sheets and is adjusted from time to time as appropriate to reflect changes in circumstances. Legal expenses are recorded in other noninterest expense in the Consolidated Statements of Income.

Bank Premises and Equipment and Other Long-Lived Assets

Bank premises and equipment, including leasehold improvements, and operating lease equipment are carried at cost less accumulated depreciation and amortization. Generally, depreciation is calculated using the straight-line method based on estimated useful lives of the assets for book purposes, while accelerated depreciation is used for income tax purposes. Amortization of leasehold improvements is generally computed using the straight-line method over the lives of the related leases or useful lives of the related assets, whichever is shorter. Whenever events or changes in circumstances dictate, the Bancorp tests its long-lived assets for impairment by determining whether the sum of the estimated undiscounted future cash flows attributable to a long-lived asset or asset group is less than the carrying amount of the long-lived asset or asset group through a probability-weighted approach. In the event the carrying amount of the long-lived asset or asset group is not recoverable, an impairment loss is measured as the amount by which the carrying amount of the long-lived asset or asset group exceeds its fair value. Maintenance, repairs and minor improvements are charged to noninterest expense in the Consolidated Statements of Income as incurred. Lease payments received for operating lease equipment are recognized in leasing business revenue in the Consolidated Statements of Income over the lease term on a straight-line basis unless another systematic and rational basis is more representative of the pattern in which benefit is expected to be derived from use of the underlying equipment.

Lessee Accounting

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

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

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

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

Derivative Financial Instruments and Hedge Accounting

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

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When entering into a hedge transaction, the Bancorp formally documents the relationship between the hedging instrument and the hedged item, as well as the risk management objective and strategy for undertaking the hedge transaction before the end of the quarter in which the transaction is consummated. This process includes linking the derivative instrument designated as a fair value or cash flow hedge to a specific asset or liability on the balance sheet or to specific forecasted transactions and the risk being hedged, along with a formal assessment at the inception of the hedge as to the effectiveness of the derivative instrument in offsetting changes in fair values or cash flows of the hedged item. The Bancorp continues to assess hedge effectiveness on an ongoing basis using either a qualitative or a quantitative assessment (regression analysis). Additionally, the Bancorp may also utilize the shortcut method to evaluate hedge effectiveness for certain qualifying hedges with matched terms that permit the assumption of perfect offset. If the shortcut method is no longer appropriate, the Bancorp would apply the long-haul method identified at inception of the hedging transaction for assessing hedge effectiveness as long as the hedge is highly effective. If it is determined that the derivative instrument is not highly effective as a hedge, hedge accounting is discontinued. For fair value hedges, if hedge accounting is discontinued, the cumulative basis adjustments related to the hedged asset or liability are amortized to earnings in the same manner as other components of the carrying amount of that asset of liability. For cash flow hedges, upon discontinuation of hedge accounting, any amounts in AOCI related to that relationship should affect earnings at the same time and in the same manner in which the hedged transaction affects earnings. However, if it becomes probable that the forecasted transaction will not occur, any related amounts in AOCI are reclassified to earnings immediately.

Investments in Qualified Affordable Housing Projects

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

Deposits

Deposits generally include the unpaid balance of cash or its equivalent received or held by the Bank for its commercial and consumer customers. Deposits are classified as either transactional or non-transactional and include both interest-bearing and noninterest-bearing balances. Interest expense incurred on interest-bearing deposits is recognized in accordance with applicable guidance in U.S. GAAP for these liabilities and includes certain ongoing deposit placement fees paid on custodial accounts.

Income Taxes

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

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

Income tax benefits from uncertain tax positions are recognized in the financial statements only if the Bancorp believes that it is more likely than not that the uncertain tax position will be sustained based solely on the technical merits of the tax position and consideration of the relevant taxing authority’s widely understood administrative practices and precedents. If the Bancorp does not believe that it is more likely than not that an uncertain tax position will be sustained, the Bancorp records a liability for the uncertain tax position. If the Bancorp believes that it is more likely than not that an uncertain tax position will be sustained, the Bancorp only records a tax benefit for the portion of the uncertain tax position where the likelihood of realization is greater than 50% upon settlement with the relevant taxing authority that has full knowledge of all relevant information. The Bancorp recognizes interest expense, interest income and penalties related to unrecognized tax benefits within applicable income tax expense in the Consolidated Statements of Income. Refer to Note 21 for further discussion regarding income taxes.

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Earnings Per Share

Basic earnings per share is computed by dividing net income available to common shareholders by the weighted-average number of shares of common stock outstanding during the period. Earnings per diluted share is computed by dividing adjusted net income available to common shareholders by the weighted-average number of shares of common stock outstanding, adjusted for the impact of potentially dilutive common shares arising from the exercise or settlement of stock-based awards and the settlement of outstanding forward contracts.

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

Goodwill

Business combinations entered into by the Bancorp typically include the recognition of goodwill. U.S. GAAP requires goodwill to be tested for impairment at the reporting unit level on an annual basis, which the Bancorp performs as of September 30 each year, and more frequently if events or circumstances indicate that there may be impairment.

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

The fair value of a reporting unit is the price that would be received to sell the unit as a whole in an orderly transaction between market participants at the measurement date. As none of the Bancorp’s reporting units are publicly traded, individual reporting unit fair value determinations cannot be directly correlated to the Bancorp’s stock price. The determination of the fair value of a reporting unit is a subjective process that involves the use of estimates and judgments, particularly related to cash flows, the appropriate discount rates and an applicable control premium. The determination of the fair value of the Bancorp’s reporting units includes both an income-based approach and a market-based approach. The income-based approach utilizes the reporting unit’s forecasted cash flows (including a terminal value approach to estimate cash flows beyond the final year of the forecast) and the reporting unit’s estimated cost of equity as the discount rate. Significant management judgment is necessary in the preparation of each reporting unit’s forecasted cash flows surrounding expectations for earnings projections, growth and credit loss expectations and actual results may differ from forecasted results. Additionally, the Bancorp determines its market capitalization based on the average of the closing price of the Bancorp’s stock during the month including the measurement date, incorporating an additional control premium, and compares this market-based fair value measurement to the aggregate fair value of the Bancorp’s reporting units in order to corroborate the results of the income approach. Refer to Note 10 for further information regarding the Bancorp’s goodwill.

Fair Value Measurements

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

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

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

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

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

The Bancorp’s fair value measurements involve various valuation techniques and models, which involve inputs that are observable, when available. Valuation techniques and parameters used for measuring assets and liabilities are reviewed and validated by the Bancorp on a quarterly basis. Additionally, the Bancorp monitors the fair values of significant assets and liabilities using a variety of methods including the evaluation of pricing runs and exception reports based on certain analytical criteria, comparison to previous trades and overall review and assessments for reasonableness. The Bancorp may, as a practical expedient, measure the fair value of certain investments on the basis of the net asset value per share of the investment, or its equivalent. Any investments which are valued using this practical expedient are not classified in the fair value hierarchy. Refer to Note 28 for further information on fair value measurements.

Stock-Based Compensation

The Bancorp recognizes compensation expense for the grant-date fair value of stock-based awards that are expected to vest over the requisite service period. All awards, both those with cliff vesting and graded vesting, are expensed on a straight-line basis over the requisite service period. Awards to employees that meet eligible retirement status are expensed immediately. As compensation expense is recognized, a deferred tax asset is recorded that represents an estimate of the future tax deduction from exercise or release of restrictions. At the time awards are exercised, cancelled, expire or restrictions are released, the Bancorp recognizes an adjustment to income tax expense for the difference between the previously estimated tax deduction and the actual tax deduction realized. For further information on the Bancorp’s stock-based compensation plans, refer to Note 25.

Pension Plans

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

Revenue Recognition

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

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

Commercial banking revenue consists primarily of service fees and other income related to loans to commercial clients, underwriting revenue recognized by the Bancorp’s broker-dealer subsidiary and fees for other services provided to commercial clients. Revenue related to loans is recognized in accordance with the Bancorp’s policies for portfolio loans and leases. Underwriting revenue is generally recognized on the trade date, which is when the Bancorp’s performance obligations are satisfied.
Service charges on deposits consist primarily of treasury management fees for commercial clients, monthly service charges on consumer deposit accounts, transaction-based fees (such as overdraft fees and wire transfer fees), and other deposit account-related charges. The Bancorp’s performance obligations for treasury management fees and consumer deposit account service charges are

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typically satisfied over time while performance obligations for transaction-based fees are typically satisfied at a point in time. Revenues are recognized on an accrual basis when or as the services are provided to the customer, net of applicable discounts, waivers and reversals. Payments are typically collected from customers directly from the related deposit account at the time the transaction is processed and/or at the end of the customer’s statement cycle (typically monthly).

Wealth and asset management revenue consists primarily of service fees for investment management, custody, and trust administration services provided to commercial and consumer clients. The Bancorp’s performance obligations for these services are generally satisfied over time and revenues are recognized monthly based on the fee structure outlined in individual contracts. Transaction prices are most commonly based on the market value of assets under management or care and/or a fee per transaction processed. The Bancorp also offers certain services for which the performance obligations are satisfied and revenue is recognized at a point in time, when the services are performed. Wealth and asset management revenue also includes trailing commissions received from investments and annuities held in customer accounts, which are recognized in revenue when the Bancorp determines that it has satisfied its performance obligations and has sufficient information to estimate the amount of the commissions to which it expects to be entitled.
Card and processing revenue consists primarily of ATM fees and interchange fees earned when the Bancorp’s credit and debit cards are processed through card association networks. The Bancorp’s performance obligations are generally complete when the transactions generating the fees are processed. Revenue is recognized on an accrual basis as such services are performed, net of certain costs not controlled by the Bancorp (primarily interchange fees charged by credit card associations and expenses of certain transaction-based rewards programs offered to customers).
Leasing business revenue consists primarily of operating lease income, leasing business solutions revenue, lease remarketing fees and lease syndication fees from lease arrangements to commercial clients. Revenue related to leases is recognized either in accordance with the Bancorp’s policies for portfolio loans and leases or when the Bancorp’s performance obligations are satisfied.
Mortgage banking net revenue consists primarily of origination fees and gains on loan sales, mortgage servicing fees and the impact of MSRs. Refer to the Loans and Leases Held for Sale and Loan Sales and Securitizations sections of this footnote for further information.
Other noninterest income includes certain fees derived from loans, BOLI income, gains and losses on other assets, and other miscellaneous revenues and gains.

Other

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

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

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

Intangible assets are amortized on either a straight-line or an accelerated basis over their estimated useful lives and, based on the type of intangible asset, the amortization expense may be recorded in either leasing business revenue or other noninterest expense in the Consolidated Statements of Income. The Bancorp reviews intangible assets for impairment whenever events or changes in circumstances indicate that carrying amounts may not be recoverable.

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

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

Advertising costs are generally expensed as incurred.

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ACCOUNTING AND REPORTING DEVELOPMENTS

Standard Adopted in 2022

The Bancorp adopted the following new accounting standard effective January 1, 2022:

ASU 2020-06 – Debt-Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging – Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Equity’s Own Equity

In August 2020, the FASB issued ASU 2020-06, which simplified the accounting for certain financial instruments with characteristics of liabilities and equity, including convertible instruments and contracts on an entity’s own equity. The Bancorp adopted the amended guidance on January 1, 2022 using the modified retrospective transition method. The adoption did not have a material impact on the Bancorp’s Consolidated Financial Statements.

Significant Accounting Standards Issued but Not Yet Adopted

The following significant accounting standards were issued but not yet adopted by the Bancorp as of December 31, 2022:

ASU 2021-08 – Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers

In October 2021, the FASB issued ASU 2021-08, which provided guidance on the accounting for revenue contracts with customers which are acquired in a business combination. The amendments generally state that an acquirer accounts for an acquired revenue contract with a customer as if it had originated the contract. The amendments also provide certain practical expedients for acquirers when recognizing and measuring acquired contract assets and liabilities. The Bancorp adopted the amended guidance on January 1, 2023 on a prospective basis and will apply the amendments for business combinations occurring on or after the adoption date.

ASU 2022-01 – Derivatives and Hedging (Topic 815): Fair Value Hedging-Portfolio Layer Method

In March 2022, the FASB issued ASU 2022-01, which clarifies the guidance in ASC 815 on fair value hedge accounting of interest rate risk for portfolios of financial assets and renames the last-of-layer method the portfolio layer method. Under current guidance, the last-of-layer method enables an entity to apply fair value hedging to a stated amount of a closed portfolio of prepayable financial assets without having to consider prepayment risk or credit risk when measuring those assets. ASU 2022-01 expands the scope of this guidance to allow entities to apply the portfolio layer method to portfolios of all financial assets, including both prepayable and nonprepayable financial assets. It allows entities to designate multiple layers within a single closed portfolio as individual hedged items. Further, ASU 2022-01 clarifies that the fair value basis adjustments should be adjusted at the portfolio level and should not be allocated to individual assets within the portfolio. The Bancorp adopted the amended guidance on January 1, 2023 on a prospective basis, except for the amendments related to fair value basis adjustments that, if applicable, were required to be applied on a modified retrospective basis. The adoption did not have a material impact on the Bancorp’s Consolidated Financial Statements.

ASU 2022-02 – Financial Instruments-Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures

In March 2022, the FASB issued ASU 2022-02, which eliminates the accounting guidance on troubled debt restructurings for creditors in ASC 310-40 and requires entities to evaluate all receivable modifications under ASC 310-20 to determine whether a modification made to a borrower results in a new loan or a continuation of the existing loan. The amended guidance adds enhanced disclosures for creditors with respect to loan refinancings and restructurings for borrowers experiencing financial difficulty. The amended guidance also requires disclosure of current period gross charge-offs by year of origination within the vintage disclosures required by ASC 326. The Bancorp adopted the amended guidance on January 1, 2023 on a prospective basis, except for the amendments impacting the measurement of the ACL for TDRs and reasonably expected TDRs, which were adopted on a modified retrospective basis. Upon adoption, the Bancorp recorded a decrease to the ACL of approximately $49 million and a cumulative-effect adjustment to retained earnings of approximately $37 million, net of tax. The Bancorp will be subject to the amended disclosure requirements beginning with the filing of its Quarterly Report on Form 10-Q for the first quarter of 2023.

ASU 2022-03 – Fair Value Measurement (Topic 820): Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions

In June 2022, the FASB issued ASU 2022-03, which clarifies the guidance in ASC 820 on the fair value measurement of an equity security that is subject to contractual sale restrictions, stating that such restrictions are not considered part of the unit of account of the security and therefore are not considered in measuring fair value. The amended guidance also requires disclosure of the fair value of equity securities subject to contractual sale restrictions and certain additional information about those restrictions. The amended guidance is effective for the Bancorp on January 1, 2024, with early adoption permitted, and is to be applied prospectively.

ASU 2022-04 – Liabilities-Supplier Finance Programs (Subtopic 405-50): Disclosure of Supplier Finance Program Obligations

In September 2022, the FASB issued ASU 2022-04, which provides guidance on the disclosure requirements for supplier finance programs. The amendments require that a buyer in a supplier finance program disclose sufficient qualitative and quantitative information about the program to allow a user of financial statements to understand the program’s nature, activity during the period, changes from period to period, and potential magnitude. The Bancorp adopted the amended guidance on January 1, 2023 on a retrospective basis, except for the amendments related to disclosure of rollforward information, which are required to be adopted on January 1, 2024 on a prospective basis. The adoption did not have a material impact on the Bancorp’s Consolidated Financial Statements.

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Reference Rate Reform and LIBOR Transition

In March 2020, the FASB issued ASU 2020-04, which provides optional expedients and exceptions for applying U.S. GAAP to contracts, hedging relationships and other transactions affected by reference rate reform if certain criteria are met. The amendments in the ASU apply only to contracts, hedging relationships and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform. In January 2021, the FASB issued ASU 2021-01, which clarified that the optional expedients and exceptions in Topic 848 for contract modifications and hedge accounting also apply to derivatives that are affected by the discounting transition. The expedients and exceptions provided by the amendments did not apply to contract modifications made and hedging relationships entered into or evaluated after December 31, 2022, except for hedging relationships existing as of December 31, 2022 for which an entity had elected certain optional expedients and that are retained through the end of the hedging relationship. Subsequently, in December 2022, the FASB issued ASU 2022-06 which deferred the sunset date of Topic 848 from December 31, 2022 to December 31, 2024, after which entities will no longer be permitted to apply the relief in Topic 848. The amendments in ASU 2020-04 (as amended) are effective for the Bancorp as of March 12, 2020 and may be applied through December 31, 2024. The Bancorp is in the process of evaluating and applying, as applicable, the optional expedients and exceptions in accounting for eligible contract modifications, eligible existing hedging relationships and new hedging relationships available through December 31, 2024.

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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)	2022		2021	2020
Cash Payments:
Interest	$	869	465	825
Income taxes	272		607	491

Transfers:
Portfolio loans and leases to loans and leases held for sale(a)	$	105	447	926
Loans and leases held for sale to portfolio loans and leases	409		49	49
Portfolio loans and leases to OREO	8		8	12
Loans and leases held for sale to OREO	1		—	2
Bank premises and equipment to OREO	24		21	2

Supplemental Disclosures:
Net additions to lease liabilities under operating leases	$	152	66	47
Net additions to lease liabilities under finance leases	27		35	106

*(a)*Includes $167 and $794 for the years ended December 31, 2021 and 2020, respectively, of residential mortgage loans previously sold to GNMA which the Bancorp was initially deemed to have regained effective control over under ASC Topic 860 and which were recorded as portfolio loans. The Bancorp subsequently repurchased these loans and classified them as held for sale.

3. Restrictions on Dividends and Capital Actions

Restrictions on Cash Dividends

The principal source of income and funds for the Bancorp (parent company) are dividends from its subsidiaries. The dividends paid by the Bancorp’s banking subsidiary are subject to regulations and limitations prescribed by state and federal supervisory agencies. The Bancorp’s indirect banking subsidiary did not pay dividends during the year ended December 31, 2022 and paid the Bancorp’s direct nonbank subsidiary holding company, which in turn paid the Bancorp, $3.0 billion in dividends during the year ended December 31, 2021. The Bancorp’s nonbank subsidiaries are also limited by certain federal and state statutory provisions and regulations covering the amount of dividends that may be paid in any given year.

Capital Actions

The Bancorp is subject to restrictions on its capital actions, primarily as a result of supervisory policies set by the FRB. The Bancorp is required to develop and maintain a capital plan that governs its capacity to pay dividends and execute share repurchases and this plan is required to be submitted to the FRB periodically. As part of its capital plan, the Bancorp increased its quarterly common stock dividend to $0.33 per share in the third quarter of 2022. Additionally, the Bancorp entered into and settled accelerated share repurchase transactions during the year ended December 31, 2022. For more information related to these transactions, refer to Note 24.

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4. Investment Securities

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


	2022
($ in millions)	Amortized Cost		Unrealized Gains	Unrealized Losses	Fair Value
Available-for-sale debt and other securities:
U.S. Treasury and federal agencies securities	$	2,683	—	(188)	2,495
Obligations of states and political subdivisions securities	18		—	—	18
Mortgage-backed securities:
Agency residential mortgage-backed securities	12,604		5	(1,372)	11,237
Agency commercial mortgage-backed securities	29,824		11	(3,513)	26,322
Non-agency commercial mortgage-backed securities	5,235		—	(520)	4,715
Asset-backed securities and other debt securities	6,292		3	(453)	5,842
Other securities(a)	874		—	—	874
Total available-for-sale debt and other securities	$	57,530	19	(6,046)	51,503
Held-to-maturity securities:
Obligations of states and political subdivisions securities	$	3	—	—	3
Asset-backed securities and other debt securities	2		—	—	2
Total held-to-maturity securities	$	5	—	—	5

*(a)*Other securities consist of FHLB, FRB and DTCC restricted stock holdings of $381, $491 and $2, respectively, at December 31, 2022, that are carried at cost.


	2021
($ in millions)	Amortized Cost		Unrealized Gains	Unrealized Losses	Fair Value
Available-for-sale debt and other securities:
U.S. Treasury and federal agencies securities	$	85	1	—	86
Obligations of states and political subdivisions securities	18		—	—	18
Mortgage-backed securities:
Agency residential mortgage-backed securities	8,432		368	(18)	8,782
Agency commercial mortgage-backed securities	18,236		784	(69)	18,951
Non-agency commercial mortgage-backed securities	4,364		128	(13)	4,479
Asset-backed securities and other debt securities	5,287		32	(44)	5,275
Other securities(a)	519		—	—	519
Total available-for-sale debt and other securities	$	36,941	1,313	(144)	38,110
Held-to-maturity securities:
Obligations of states and political subdivisions securities	$	6	—	—	6
Asset-backed securities and other debt securities	2		—	—	2
Total held-to-maturity securities	$	8	—	—	8

*(a)*Other securities consist of FHLB, FRB and DTCC restricted stock holdings of $30, $486 and $3, respectively, at December 31, 2021, that are carried at cost.

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


($ in millions)	2022		2021
Trading debt securities	$	414	512
Equity securities	317		376

The amounts reported in the preceding tables exclude accrued interest receivable on investment securities of $131 million and $82 million at December 31, 2022 and 2021, respectively, which is presented as a component of other assets in the Consolidated Balance Sheets.

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

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


($ in millions)	2022		2021	2020
Available-for-sale debt and other securities:
Realized gains	$	16	34	47
Realized losses	(13)		(19)	(2)
Impairment losses	(1)		(19)	—
Net realized gains (losses) on available-for-sale debt and other securities	$	2	(4)	45
Trading debt securities:
Net realized (losses) gains	(2)		(2)	2
Net unrealized gains (losses)	11		(3)	—
Net trading debt securities gains (losses)	$	9	(5)	2
Equity securities:
Net realized gains	1		7	10
Net unrealized (losses) gains	(96)		(7)	7
Net equity securities (losses) gains	$	(95)	—	17
Total (losses) gains recognized in income from available-for-sale debt and other securities, trading debt securities and equity securities(a)	$	(84)	(9)	64

*(a)*Excludes an immaterial amount and $7 of net securities losses for the years ended December 31, 2022 and 2021, respectively, and $5 of net securities gains for the year ended December 31, 2020, related to securities held by FTS to facilitate the timely execution of customer transactions. These (losses) gains are included in commercial banking revenue and wealth and asset management revenue in the Consolidated Statements of Income.

The Bancorp recognized impairment losses on available-for-sale debt and other securities of $1 million and $19 million during the years ended December 31, 2022 and 2021, respectively. These losses related to certain securities in unrealized loss positions that the Bancorp intended to sell prior to recovery of their amortized cost bases. The Bancorp did not consider these losses to be credit-related.

At both December 31, 2022 and 2021, the Bancorp completed its evaluation of the available-for-sale debt and other securities in an unrealized loss position and did not recognize an allowance for credit losses. The Bancorp did not recognize provision expense related to available-for-sale debt and other securities in an unrealized loss position during both the years ended December 31, 2022 and 2021.

At December 31, 2022 and 2021, investment securities with a fair value of $11.0 billion and $11.2 billion, respectively, were pledged to secure borrowings, public deposits, trust funds, derivative contracts and for other purposes as required or permitted by law.

The expected maturity distribution of the Bancorp’s mortgage-backed securities and the contractual maturity distribution of the remainder of the Bancorp’s available-for-sale debt and other securities and held-to-maturity securities as of December 31, 2022 are shown in the following table:


	Available-for-Sale Debt and Other			Held-to-Maturity
($ in millions)	Amortized Cost		Fair Value	Amortized Cost	Fair Value
Debt securities:(a)
Due in 1 year or less	$	381	374	3	3
Due after 1 year through 5 years	13,506		12,557	—	—
Due after 5 years through 10 years	31,661		28,101	—	—
Due after 10 years	11,108		9,597	2	2
Other securities	874		874	—	—
Total	$	57,530	51,503	5	5

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

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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
2022
U.S. Treasury and federal agencies securities	$	2,400	(188)	—	—	2,400	(188)
Obligations of states and political subdivisions securities	—		—	1	—	1	—
Agency residential mortgage-backed securities	10,078		(1,170)	938	(202)	11,016	(1,372)
Agency commercial mortgage-backed securities	22,083		(2,487)	3,697	(1,026)	25,780	(3,513)
Non-agency commercial mortgage-backed securities	3,621		(272)	1,059	(248)	4,680	(520)
Asset-backed securities and other debt securities	3,164		(178)	2,495	(275)	5,659	(453)
Total	$	41,346	(4,295)	8,190	(1,751)	49,536	(6,046)
2021
Agency residential mortgage-backed securities	$	935	(10)	161	(8)	1,096	(18)
Agency commercial mortgage-backed securities	2,886		(49)	424	(20)	3,310	(69)
Non-agency commercial mortgage-backed securities	1,052		(13)	—	—	1,052	(13)
Asset-backed securities and other debt securities	2,870		(34)	367	(10)	3,237	(44)
Total	$	7,743	(106)	952	(38)	8,695	(144)

At December 31, 2022 and 2021, $42 million and $2 million, respectively, of unrealized losses in the available-for-sale debt and other securities portfolio were related to non-rated securities.

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5. Loans and Leases

The Bancorp diversifies its loan and lease portfolio by offering a variety of loan and lease products with various payment terms and rate structures. The Bancorp’s commercial loan and lease portfolio consists of lending to various industry types. Management periodically reviews the performance of its loan and lease products to evaluate whether they are performing within acceptable interest rate and credit risk levels and changes are made to underwriting policies and procedures as needed. The Bancorp maintains an allowance to absorb loan and lease losses that are expected to be incurred over the remaining contractual terms of the related loans and leases. For further information on credit quality and the ALLL, refer to Note 6.

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


($ in millions)	2022		2021
Loans and leases held for sale:
Commercial and industrial loans	$	73	7
Commercial mortgage loans	—		13
Commercial leases	—		1
Residential mortgage loans	934		4,394
Total loans and leases held for sale	$	1,007	4,415
Portfolio loans and leases:
Commercial and industrial loans(a)	$	57,232	51,659
Commercial mortgage loans	11,020		10,316
Commercial construction loans	5,433		5,241
Commercial leases	2,704		3,052
Total commercial loans and leases	$	76,389	70,268
Residential mortgage loans	$	17,628	16,397
Home equity	4,039		4,084
Indirect secured consumer loans	16,552		16,783
Credit card	1,874		1,766
Other consumer loans	4,998		2,752
Total consumer loans	$	45,091	41,782
Total portfolio loans and leases	$	121,480	112,050

*(a)*Includes $94 million and $1.3 billion as of December 31, 2022 and 2021, respectively, related to the SBA’s Paycheck Protection Program.

Portfolio loans and leases are recorded net of unearned income, which totaled $238 million and $244 million as of December 31, 2022 and 2021, respectively. Additionally, portfolio loans and leases are recorded net of unamortized premiums and discounts, deferred direct loan origination fees and costs and fair value adjustments (associated with acquired loans or loans designated as fair value upon origination) which totaled a net premium of $146 million and $498 million as of December 31, 2022 and 2021, respectively. The amortized cost basis of loans and leases excludes accrued interest receivable of $518 million and $332 million at December 31, 2022 and 2021, respectively, which is presented as a component of other assets in the Consolidated Balance Sheets.

The Bancorp’s FHLB and FRB borrowings are primarily secured by loans. The Bancorp had loans of $15.9 billion and $15.3 billion at December 31, 2022 and 2021, respectively, pledged to the FHLB, and loans of $57.1 billion and $50.9 billion at December 31, 2022 and 2021, respectively, pledged to the FRB.

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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:


	Carrying Value			90 Days Past Due and Still Accruing(a)		Net Charge-Offs (Recoveries)
($ in millions)	2022		2021	2022	2021	2022	2021
Commercial and industrial loans	$	57,305	51,666	11	17	96	60
Commercial mortgage loans	11,020		10,329	—	1	(1)	8
Commercial construction loans	5,433		5,241	—	1	2	—
Commercial leases	2,704		3,053	2	—	4	(1)
Residential mortgage loans	18,562		20,791	7	72	(2)	(4)
Home equity	4,039		4,084	1	1	(2)	(4)
Indirect secured consumer loans	16,552		16,783	—	9	36	14
Credit card	1,874		1,766	18	15	52	70
Other consumer loans	4,998		2,752	1	1	42	31
Total loans and leases	$	122,487	116,465	40	117	227	174
Less: Loans and leases held for sale	1,007		4,415
Total portfolio loans and leases	$	121,480	112,050

*(a)*Excludes government guaranteed residential mortgage loans.

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


($ in millions)(a)	2022		2021
Net investment in direct financing leases:
Lease payment receivable (present value)	$	570	886
Unguaranteed residual assets (present value)	107		147
Net premium on acquired leases	—		1
Net investment in sales-type leases:
Lease payment receivable (present value)	1,704		1,678
Unguaranteed residual assets (present value)	76		55

*(a)*Excludes $247 and $285 of leveraged leases at December 31, 2022 and 2021, respectively.

Interest income recognized in the Consolidated Statements of Income for the years ended December 31, 2022, 2021 and 2020 was $29 million, $42 million and $64 million, respectively, for direct financing leases and $50 million, $42 million and $28 million, respectively, for sales-type leases.

The following table presents undiscounted cash flows for both direct financing and sales-type leases for 2023 through 2027 and thereafter as well as a reconciliation of the undiscounted cash flows to the total lease receivables as follows:


As of December 31, 2022 ($ in millions)	Direct Financing Leases		Sales-Type Leases
2023	$	188	502
2024	148		440
2025	100		376
2026	83		211
2027	44		156
Thereafter	44		155
Total undiscounted cash flows	$	607	1,840
Less: Difference between undiscounted cash flows and discounted cash flows	37		136
Present value of lease payments (recognized as lease receivables)	$	570	1,704

The lease residual value represents the present value of the estimated fair value of the leased equipment at the end of the lease. The Bancorp performs quarterly reviews of residual values associated with its leasing portfolio considering factors such as the subject equipment, structure of the transaction, industry, prior experience with the lessee and other factors that impact the residual value to assess for impairment. The Bancorp maintained an allowance of $15 million at both December 31, 2022 and 2021 to cover the losses that are expected to be incurred over the remaining contractual terms of the related leases, including the potential losses related to the lease residual value. Refer to Note 6 for additional information on credit quality and the ALLL.

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

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

Allowance for Loan and Lease Losses

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


2022 ($ in millions)	Commercial		Residential Mortgage	Consumer	Total
Balance, beginning of period	$	1,102	235	555	1,892
Losses charged off(a)	(131)		(3)	(228)	(362)
Recoveries of losses previously charged off(a)	30		5	100	135
Provision for loan and lease losses	126		8	395	529
Balance, end of period	$	1,127	245	822	2,194

*(a)*The Bancorp recorded $32 in both losses charged-off and recoveries of losses previously charged-off related to customer defaults on point-of-sale consumer loans for which the Bancorp obtained recoveries under third-party credit enhancements.


2021 ($ in millions)	Commercial		Residential Mortgage	Consumer	Total
Balance, beginning of period	$	1,456	294	703	2,453
Losses charged off(a)	(119)		(3)	(222)	(344)
Recoveries of losses previously charged off(a)	52		7	111	170
Benefit from loan and lease losses	(287)		(63)	(37)	(387)
Balance, end of period	$	1,102	235	555	1,892

*(a)*The Bancorp recorded $33 in both losses charged-off and recoveries of losses previously charged-off related to customer defaults on point-of-sale consumer loans for which the Bancorp obtained recoveries under third-party credit enhancements.


2020 ($ in millions)	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 previously charged-off related to customer defaults on point-of-sale consumer loans for which the Bancorp obtained recoveries under third-party credit enhancements.

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


As of December 31, 2022 ($ in millions)	Commercial		Residential Mortgage	Consumer	Total
ALLL:(a)
Individually evaluated	$	30	47	45	122
Collectively evaluated	1,097		198	777	2,072
Total ALLL	$	1,127	245	822	2,194
Portfolio loans and leases:(b)
Individually evaluated	$	531	560	297	1,388
Collectively evaluated	75,858		16,945	27,166	119,969
Total portfolio loans and leases	$	76,389	17,505	27,463	121,357

*(a)*Includes $2 related to commercial leveraged leases at December 31, 2022.

*(b)*Excludes $123 of residential mortgage loans measured at fair value and includes $247 of commercial leveraged leases, net of unearned income, at December 31, 2022.

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As of December 31, 2021 ($ in millions)	Commercial		Residential Mortgage	Consumer	Total
ALLL:(a)
Individually evaluated	$	77	46	41	164
Collectively evaluated	1,025		189	514	1,728
Total ALLL	$	1,102	235	555	1,892
Portfolio loans and leases:(b)
Individually evaluated	$	579	460	313	1,352
Collectively evaluated	69,689		15,783	25,072	110,544
Total portfolio loans and leases	$	70,268	16,243	25,385	111,896

*(a)*Includes $2 related to commercial leveraged leases at December 31, 2021.

*(b)*Excludes $154 of residential mortgage loans measured at fair value and includes $285 of commercial leveraged leases, net of unearned income, at December 31, 2021.

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 tables present the amortized cost basis of the Bancorp’s commercial portfolio segment, by class and vintage, disaggregated by credit risk grade:


As of December 31, 2022 ($ in millions)	Term Loans and Leases by Origination Year							Revolving Loans	Revolving Loans Converted to Term Loans
2022	2021		2020	2019	2018	Prior	Total
Commercial and industrial loans:
Pass	$	3,825	3,098	994	445	269	488	44,521	—	53,640
Special mention	65		24	15	36	10	24	1,221	—	1,395
Substandard	150		77	233	26	7	107	1,597	—	2,197
Doubtful	—		—	—	—	—	—	—	—	—
Total commercial and industrial loans	$	4,040	3,199	1,242	507	286	619	47,339	—	57,232
Commercial mortgage owner-occupied loans:
Pass	$	1,177	826	522	257	160	264	1,624	—	4,830
Special mention	17		15	13	12	13	2	56	—	128
Substandard	51		14	20	73	11	25	106	—	300
Doubtful	—		—	—	—	—	—	—	—	—
Total commercial mortgage owner-occupied loans	$	1,245	855	555	342	184	291	1,786	—	5,258
Commercial mortgage nonowner-occupied loans:
Pass	$	1,127	462	490	397	220	170	2,453	—	5,319
Special mention	1		84	26	—	—	23	88	—	222
Substandard	65		19	18	1	1	17	100	—	221
Doubtful	—		—	—	—	—	—	—	—	—
Total commercial mortgage nonowner-occupied loans	$	1,193	565	534	398	221	210	2,641	—	5,762
Commercial construction loans:
Pass	$	82	31	93	8	35	7	4,684	—	4,940
Special mention	—		—	—	—	—	—	293	—	293
Substandard	53		—	—	—	—	2	145	—	200
Doubtful	—		—	—	—	—	—	—	—	—
Total commercial construction loans	$	135	31	93	8	35	9	5,122	—	5,433
Commercial leases:
Pass	$	584	664	306	192	146	696	—	—	2,588
Special mention	—		4	2	4	7	19	—	—	36
Substandard	1		20	2	4	21	32	—	—	80
Doubtful	—		—	—	—	—	—	—	—	—
Total commercial leases	$	585	688	310	200	174	747	—	—	2,704
Total commercial loans and leases:
Pass	$	6,795	5,081	2,405	1,299	830	1,625	53,282	—	71,317
Special mention	83		127	56	52	30	68	1,658	—	2,074
Substandard	320		130	273	104	40	183	1,948	—	2,998
Doubtful	—		—	—	—	—	—	—	—	—
Total commercial loans and leases	$	7,198	5,338	2,734	1,455	900	1,876	56,888	—	76,389

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As of December 31, 2021 ($ in millions)	Term Loans and Leases by Origination Year							Revolving Loans	Revolving Loans Converted to Term Loans
2021	2020		2019	2018	2017	Prior	Total
Commercial and industrial loans:
Pass	$	4,266	2,291	1,198	552	356	752	39,486	—	48,901
Special mention	37		22	12	29	22	5	665	—	792
Substandard	19		52	36	69	52	115	1,623	—	1,966
Doubtful	—		—	—	—	—	—	—	—	—
Total commercial and industrial loans	$	4,322	2,365	1,246	650	430	872	41,774	—	51,659
Commercial mortgage owner-occupied loans:
Pass	$	1,082	804	471	296	183	331	1,141	—	4,308
Special mention	—		31	46	17	2	40	69	—	205
Substandard	22		38	3	12	3	27	91	—	196
Doubtful	—		—	—	—	—	—	—	—	—
Total commercial mortgage owner-occupied loans	$	1,104	873	520	325	188	398	1,301	—	4,709
Commercial mortgage nonowner-occupied loans:
Pass	$	635	733	595	284	141	302	1,977	—	4,667
Special mention	89		12	11	5	7	9	162	—	295
Substandard	160		78	4	3	9	3	388	—	645
Doubtful	—		—	—	—	—	—	—	—	—
Total commercial mortgage nonowner-occupied loans	$	884	823	610	292	157	314	2,527	—	5,607
Commercial construction loans:
Pass	$	50	69	11	37	—	9	4,488	—	4,664
Special mention	—		39	—	—	—	—	193	—	232
Substandard	17		—	—	—	—	—	328	—	345
Doubtful	—		—	—	—	—	—	—	—	—
Total commercial construction loans	$	67	108	11	37	—	9	5,009	—	5,241
Commercial leases:
Pass	$	1,019	436	284	231	233	776	—	—	2,979
Special mention	4		4	5	9	—	8	—	—	30
Substandard	7		3	8	10	13	2	—	—	43
Doubtful	—		—	—	—	—	—	—	—	—
Total commercial leases	$	1,030	443	297	250	246	786	—	—	3,052
Total commercial loans and leases:
Pass	$	7,052	4,333	2,559	1,400	913	2,170	47,092	—	65,519
Special mention	130		108	74	60	31	62	1,089	—	1,554
Substandard	225		171	51	94	77	147	2,430	—	3,195
Doubtful	—		—	—	—	—	—	—	—	—
Total commercial loans and leases	$	7,407	4,612	2,684	1,554	1,021	2,379	50,611	—	70,268

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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, 2022 ($ in millions)	30-89 Days(a)		90 Days or More(a)	Total Past Due
Commercial loans and leases:
Commercial and industrial loans(b)	$	57,092	98	42	140	57,232	11
Commercial mortgage owner-occupied loans	5,241		14	3	17	5,258	—
Commercial mortgage nonowner-occupied loans	5,756		6	—	6	5,762	—
Commercial construction loans	5,424		7	2	9	5,433	—
Commercial leases	2,698		4	2	6	2,704	2
Total portfolio commercial loans and leases	$	76,211	129	49	178	76,389	13

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

*(b)*Includes loans related to the SBA’s Paycheck Protection Program, of which an immaterial amount were 30-89 days past due and $2 were 90 days or more past due.


	Current Loans and Leases(a)		Past Due			Total Loans and Leases	90 Days Past Due and Still Accruing
As of December 31, 2021 ($ in millions)	30-89 Days(a)		90 Days or More(a)	Total Past Due
Commercial loans and leases:
Commercial and industrial loans(b)	$	51,549	61	49	110	51,659	17
Commercial mortgage owner-occupied loans	4,701		4	4	8	4,709	1
Commercial mortgage nonowner-occupied loans	5,606		—	1	1	5,607	—
Commercial construction loans	5,241		—	—	—	5,241	1
Commercial leases	3,035		16	1	17	3,052	—
Total portfolio commercial loans and leases	$	70,132	81	55	136	70,268	19

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

*(b)*Includes loans related to the SBA’s Paycheck Protection Program, of which $20 were 30-89 days past due and $6 were 90 days or more past due.

Residential Mortgage and Consumer Portfolio Segments

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

The Bancorp considers repayment performance as the best indicator of credit quality for residential mortgage and consumer loans, which includes both the delinquency status and performing versus nonperforming status of the loans. The delinquency status of all residential mortgage and consumer loans and the performing versus nonperforming status are presented in the following tables.

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

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The following tables present the amortized cost basis of the Bancorp’s residential mortgage and consumer portfolio segments, by class and vintage, disaggregated by both age and performing versus nonperforming status:


As of December 31, 2022 ($ in millions)	Term Loans by Origination Year							Revolving Loans	Revolving Loans Converted to Term Loans
2022	2021		2020	2019	2018	Prior	Total
Residential mortgage loans:
Performing:
Current(a)	$	3,195	5,440	2,981	1,051	344	4,336	—	—	17,347
30-89 days past due	4		4	3	1	2	15	—	—	29
90 days or more past due	—		—	1	—	1	5	—	—	7
Total performing	3,199		5,444	2,985	1,052	347	4,356	—	—	17,383
Nonperforming	—		3	4	4	7	104	—	—	122
Total residential mortgage loans(b)	$	3,199	5,447	2,989	1,056	354	4,460	—	—	17,505
Home equity:
Performing:
Current	$	46	3	7	15	17	94	3,741	18	3,941
30-89 days past due	—		—	—	—	—	2	28	—	30
90 days or more past due	—		—	—	—	—	1	—	—	1
Total performing	46		3	7	15	17	97	3,769	18	3,972
Nonperforming	—		—	—	—	—	8	58	1	67
Total home equity	$	46	3	7	15	17	105	3,827	19	4,039
Indirect secured consumer loans:
Performing:
Current	$	6,034	5,875	2,600	1,217	416	239	—	—	16,381
30-89 days past due	34		42	28	22	11	5	—	—	142
90 days or more past due	—		—	—	—	—	—	—	—	—
Total performing	6,068		5,917	2,628	1,239	427	244	—	—	16,523
Nonperforming	4		6	7	6	4	2	—	—	29
Total indirect secured consumer loans	$	6,072	5,923	2,635	1,245	431	246	—	—	16,552
Credit card:
Performing:
Current	$	—	—	—	—	—	—	1,808	—	1,808
30-89 days past due	—		—	—	—	—	—	21	—	21
90 days or more past due	—		—	—	—	—	—	18	—	18
Total performing	—		—	—	—	—	—	1,847	—	1,847
Nonperforming	—		—	—	—	—	—	27	—	27
Total credit card	$	—	—	—	—	—	—	1,874	—	1,874
Other consumer loans:
Performing:
Current	$	2,704	540	355	169	112	146	908	26	4,960
30-89 days past due	14		6	3	2	2	2	3	—	32
90 days or more past due	—		—	—	—	—	—	1	—	1
Total performing	2,718		546	358	171	114	148	912	26	4,993
Nonperforming	2		1	—	—	—	1	1	—	5
Total other consumer loans	$	2,720	547	358	171	114	149	913	26	4,998
Total residential mortgage and consumer loans:
Performing:
Current	$	11,979	11,858	5,943	2,452	889	4,815	6,457	44	44,437
30-89 days past due	52		52	34	25	15	24	52	—	254
90 days or more past due	—		—	1	—	1	6	19	—	27
Total performing	12,031		11,910	5,978	2,477	905	4,845	6,528	44	44,718
Nonperforming	6		10	11	10	11	115	86	1	250
Total residential mortgage and consumer loans(b)	$	12,037	11,920	5,989	2,487	916	4,960	6,614	45	44,968

*(a)*Information includes advances made pursuant to servicing agreements for GNMA mortgage pools whose repayments are insured by the FHA or guaranteed by the VA. As of December 31, 2022, $81 of these loans were 30-89 days past due and $147 were 90 days or more past due. The Bancorp recognized $2 of losses during the year ended December 31, 2022 due to claim denials and curtailments associated with these insured or guaranteed loans.

*(b)*Excludes $123 of residential mortgage loans measured at fair value at December 31, 2022, including $1 of 30-89 days past due loans and $2 of nonperforming loans.

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As of December 31, 2021 ($ in millions)	Term Loans by Origination Year							Revolving Loans	Revolving Loans Converted to Term Loans
2021	2020		2019	2018	2017	Prior	Total
Residential mortgage loans:
Performing:
Current(a)	$	5,886	3,309	1,294	418	954	4,261	—	—	16,122
30-89 days past due	1		1	1	1	1	13	—	—	18
90 days or more past due	—		2	4	3	9	52	—	—	70
Total performing	5,887		3,312	1,299	422	964	4,326	—	—	16,210
Nonperforming	—		—	1	—	2	30	—	—	33
Total residential mortgage loans(b)	$	5,887	3,312	1,300	422	966	4,356	—	—	16,243
Home equity:
Performing:
Current	$	2	6	13	18	2	113	3,815	12	3,981
30-89 days past due	—		—	—	—	—	3	22	—	25
90 days or more past due	—		—	—	—	—	1	—	—	1
Total performing	2		6	13	18	2	117	3,837	12	4,007
Nonperforming	—		—	—	—	—	9	67	1	77
Total home equity	$	2	6	13	18	2	126	3,904	13	4,084
Indirect secured consumer loans:
Performing:
Current	$	8,732	4,206	2,221	902	389	194	—	—	16,644
30-89 days past due	26		24	25	17	8	3	—	—	103
90 days or more past due	2		2	2	2	1	—	—	—	9
Total performing	8,760		4,232	2,248	921	398	197	—	—	16,756
Nonperforming	—		12	5	5	3	2	—	—	27
Total indirect secured consumer loans	$	8,760	4,244	2,253	926	401	199	—	—	16,783
Credit card:
Performing:
Current	$	—	—	—	—	—	—	1,710	—	1,710
30-89 days past due	—		—	—	—	—	—	18	—	18
90 days or more past due	—		—	—	—	—	—	15	—	15
Total performing	—		—	—	—	—	—	1,743	—	1,743
Nonperforming	—		—	—	—	—	—	23	—	23
Total credit card	$	—	—	—	—	—	—	1,766	—	1,766
Other consumer loans:
Performing:
Current	$	692	530	275	174	105	47	913	—	2,736
30-89 days past due	3		2	3	2	1	—	2	1	14
90 days or more past due	—		—	1	—	—	—	—	—	1
Total performing	695		532	279	176	106	47	915	1	2,751
Nonperforming	—		—	—	—	—	—	1	—	1
Total other consumer loans	$	695	532	279	176	106	47	916	1	2,752
Total residential mortgage and consumer loans:
Performing:
Current	$	15,312	8,051	3,803	1,512	1,450	4,615	6,438	12	41,193
30-89 days past due	30		27	29	20	10	19	42	1	178
90 days or more past due	2		4	7	5	10	53	15	—	96
Total performing	15,344		8,082	3,839	1,537	1,470	4,687	6,495	13	41,467
Nonperforming	—		12	6	5	5	41	91	1	161
Total residential mortgage and consumer loans(b)	$	15,344	8,094	3,845	1,542	1,475	4,728	6,586	14	41,628

*(a)*Information includes advances made pursuant to servicing agreements for GNMA mortgage pools whose repayments are insured by the FHA or guaranteed by the VA. As of December 31, 2021, $49 of these loans were 30-89 days past due and $139 were 90 days or more past due. The Bancorp recognized $2 of losses during the year ended December 31, 2021 due to claim denials and curtailments associated with these insured or guaranteed loans.

*(b)*Excludes $154 of residential mortgage loans measured at fair value at December 31, 2021, including $2 of 30-89 days past due loans and $2 of 90 days or more past due loans.

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Collateral-Dependent Loans and Leases

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

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


($ in millions)	December 31, 2022		December 31, 2021
Commercial loans and leases:
Commercial and industrial loans	$	433	467
Commercial mortgage owner-occupied loans	14		22
Commercial mortgage nonowner-occupied loans	27		31
Commercial construction loans	56		56
Commercial leases	1		3
Total commercial loans and leases	$	531	579
Residential mortgage loans	57		60
Consumer loans:
Home equity	46		58
Indirect secured consumer loans	6		8
Total consumer loans	$	52	66
Total portfolio loans and leases	$	640	705

Nonperforming Assets

Nonperforming assets include nonaccrual loans and leases for which ultimate collectability of the full amount of the principal and/or interest is uncertain; restructured commercial, credit card and consumer loans which do not meet the requirements to be classified as a performing asset; and certain other assets, including OREO and other repossessed property.

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


	December 31, 2022				December 31, 2021
($ in millions)	With an ALLL		No Related ALLL	Total	With an ALLL	No Related ALLL	Total
Commercial loans and leases:
Commercial and industrial loans	$	114	101	215	151	128	279
Commercial mortgage owner-occupied loans	9		7	16	10	13	23
Commercial mortgage nonowner-occupied loans	20		4	24	22	3	25
Commercial construction loans	6		2	8	6	—	6
Commercial leases	—		—	—	3	1	4
Total nonaccrual portfolio commercial loans and leases	$	149	114	263	192	145	337
Residential mortgage loans	81		43	124	14	19	33
Consumer loans:
Home equity	45		22	67	53	24	77
Indirect secured consumer loans	26		3	29	21	6	27
Credit card	27		—	27	23	—	23
Other consumer loans	5		—	5	1	—	1
Total nonaccrual portfolio consumer loans	$	103	25	128	98	30	128
Total nonaccrual portfolio loans and leases(a)(b)	$	333	182	515	304	194	498
OREO and other repossessed property	—		24	24	—	29	29
Total nonperforming portfolio assets(a)(b)	$	333	206	539	304	223	527

*(a)*Excludes an immaterial amount and $15 of nonaccrual loans held for sale as of December 31, 2022 and 2021, respectively.

*(b)*Includes $15 and $26 of nonaccrual government insured commercial loans whose repayments are insured by the SBA as of December 31, 2022 and 2021, respectively, of which $11 are restructured nonaccrual government insured commercial loans as of both December 31, 2022 and 2021.

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The Bancorp recognized an immaterial amount of interest income on nonaccrual loans and leases for both the years ended December 31, 2022 and 2021.

The Bancorp’s amortized cost basis of consumer mortgage loans secured by residential real estate properties for which formal foreclosure proceedings are in process according to local requirements of the applicable jurisdiction was $154 million and $84 million as of December 31, 2022 and 2021, respectively.

Troubled Debt Restructurings

A loan is accounted for as a TDR if the Bancorp, for economic or legal reasons related to the borrower’s financial difficulties, grants a concession to the borrower that it would not otherwise consider. TDRs include concessions granted under reorganization, arrangement or other provisions of the Federal Bankruptcy Act. Within each of the Bancorp’s loan classes, TDRs typically involve either a reduction of the stated interest rate of the loan, an extension of the loan’s maturity date with a stated rate lower than the current market rate for a new loan with similar risk, or in limited circumstances, a reduction of the principal balance of the loan or the loan’s accrued interest. Modifying the terms of a loan may result in an increase or decrease to the ALLL depending upon the terms modified, the method used to measure the ALLL for a loan prior to modification, the extent of collateral, and whether any charge-offs were recorded on the loan before or at the time of modification. Refer to the ALLL section of Note 1 for information on the Bancorp’s ALLL methodology. Upon modification of a loan, the Bancorp measures the expected credit loss as either the difference between the amortized cost of the loan and the fair value of collateral less cost to sell or the difference between the estimated future cash flows expected to be collected on the modified loan, discounted at the original effective yield of the loan, and the carrying value of the loan. The resulting measurement may result in the need for minimal or no allowance regardless of which is used because it is probable that all cash flows will be collected under the modified terms of the loan. In addition, if the stated interest rate was increased in a TDR that is not collateral-dependent, the cash flows on the modified loan, using the pre-modification interest rate as the discount rate, often exceed the amortized cost basis of the loan. Conversely, upon a modification that reduces the stated interest rate on a loan that is not collateral-dependent, the Bancorp recognizes an increase to the ALLL. If a TDR involves a reduction of the principal balance of the loan or the loan’s accrued interest, that amount is charged off to the ALLL. Loans discharged in a Chapter 7 bankruptcy and not reaffirmed by the borrower are treated as nonaccrual collateral-dependent loans with a charge-off recognized to reduce the carrying values of such loans to the fair value of the related collateral less costs to sell.

The Bancorp had commitments to lend additional funds to borrowers whose terms have been modified in a TDR, consisting of line of credit and letter of credit commitments of $130 million and $60 million, respectively, as of December 31, 2022 compared to $121 million and $66 million, respectively, as of December 31, 2021.

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


2022 ($ in millions)	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	89	$	234	3	9
Commercial mortgage owner-occupied loans	12	7		—	—
Commercial mortgage nonowner-occupied loans	7	24		—	—
Commercial construction loans	3	10		(2)	—
Residential mortgage loans	1,073	163		7	—
Consumer loans:
Home equity	231	16		(3)	—
Indirect secured consumer loans	3,394	63		2	—
Credit card	5,282	28		12	—
Total portfolio loans	10,091	$	545	19	9

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

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2021 ($ 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	86	$	150	1	—
Commercial mortgage owner-occupied loans	10	8		—	—
Commercial mortgage nonowner-occupied loans	5	29		—	—
Commercial construction loans	1	34		—	—
Residential mortgage loans	519	93		4	—
Consumer loans:
Home equity	206	10		(3)	—
Indirect secured consumer loans	4,567	96		1	—
Credit card	5,488	30		9	1
Total portfolio loans	10,882	$	450	12	1

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


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.

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

The following tables provide a summary of TDRs that subsequently defaulted during the years ended December 31, 2022, 2021 and 2020 and were within 12 months of the restructuring date:


December 31, 2022 ($ in millions)(a)	Number of Contracts	Amortized Cost
Commercial loans:
Commercial and industrial loans	8	$	—
Commercial mortgage owner-occupied loans	2	—
Commercial mortgage nonowner-occupied loans	1	—
Commercial construction loans	1	2
Residential mortgage loans	247	33
Consumer loans:
Home equity	24	1
Indirect secured consumer loans	157	3
Credit card	356	1
Total portfolio loans	796	$	40

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

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December 31, 2021 ($ in millions)(a)	Number of Contracts	Amortized Cost
Commercial loans:
Commercial and industrial loans	7	$	1
Commercial mortgage owner-occupied loans	3	1
Commercial mortgage nonowner-occupied loans	2	25
Residential mortgage loans	82	10
Consumer loans:
Home equity	28	1
Indirect secured consumer loans	130	2
Credit card	215	1
Total portfolio loans	467	$	41

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


December 31, 2020 ($ in millions)(a)	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.

7. Bank Premises and Equipment

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


($ in millions)	Estimated Useful Life			2022		2021
Equipment	2	-	20 years	$	2,492	2,392
Buildings(a)	1	-	30 years	1,699		1,668
Land and improvements(a)				640		645
Leasehold improvements	1	-	30 years	568		517
Construction in progress(a)				124		84
Bank premises and equipment held for sale:
Land and improvements				17		18
Buildings				7		6
Accumulated depreciation and amortization				(3,360)		(3,210)
Total bank premises and equipment				$	2,187	2,120

*(a)*At December 31, 2022 and 2021, land and improvements, buildings and construction in progress included $27 and $39, respectively, associated with parcels of undeveloped land intended for future branch expansion.

Depreciation and amortization expense related to bank premises and equipment, including amortization of finance lease ROU assets, was $273 million, $270 million and $256 million for the years ended December 31, 2022, 2021 and 2020, respectively.

The Bancorp monitors changing customer preferences associated with the channels it uses for banking transactions to evaluate the efficiency, competitiveness and quality of the customer service experience in its consumer distribution network. As part of this ongoing assessment, the Bancorp may determine that it is no longer fully committed to maintaining full-service banking centers at certain locations. Similarly, the Bancorp may also determine that it is no longer fully committed to building banking centers on certain parcels of land which had previously been held for future branch expansion. The Bancorp closed a total of 43 banking centers throughout its footprint during the year ended December 31, 2022.

The Bancorp performs assessments of the recoverability of long-lived assets when events or changes in circumstances indicate that their carrying values may not be recoverable. Impairment losses associated with such assessments and lower of cost or market adjustments were $9 million, $7 million and $30 million for the years ended December 31, 2022, 2021 and 2020, respectively. The recognized impairment losses were recorded in other noninterest income in the Consolidated Statements of Income.

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8. Operating Lease Equipment

Operating lease equipment was $627 million and $616 million at December 31, 2022 and 2021, respectively, net of accumulated depreciation of $338 million and $304 million at December 31, 2022 and 2021, respectively. The Bancorp recorded lease income of $146 million, $152 million and $156 million relating to lease payments for operating leases in leasing business revenue in the Consolidated Statements of Income for the years ended December 31, 2022, 2021 and 2020, respectively. Depreciation expense related to operating lease equipment was $121 million, $124 million and $126 million for the years ended December 31, 2022, 2021 and 2020, respectively. The Bancorp received payments of $147 million and $155 million related to operating leases during the years ended December 31, 2022 and 2021, respectively.

The Bancorp performs assessments of the recoverability of long-lived assets when events or changes in circumstances indicate that their carrying values may not be recoverable. As a result of these recoverability assessments, the Bancorp recognized $2 million, $25 million and $7 million of impairment losses associated with operating lease assets for the years ended December 31, 2022, 2021 and 2020, respectively. The recognized impairment losses were recorded in leasing business revenue in the Consolidated Statements of Income.

The following table presents future lease payments receivable from operating leases for 2023 through 2027 and thereafter:


As of December 31, 2022 ($ in millions)	Undiscounted Cash Flows
2023	$	139
2024	106
2025	80
2026	51
2027	25
Thereafter	25
Total operating lease payments	$	426

9. Lease Obligations - Lessee

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

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


($ in millions)	Consolidated Balance Sheets Caption	2022		2021
Assets
Operating lease right-of-use assets	Other assets	$	508	427
Finance lease right-of-use assets	Bank premises and equipment	150		145
Total right-of-use assets(a)		$	658	572
Liabilities
Operating lease liabilities	Accrued taxes, interest and expenses	$	599	520
Finance lease liabilities	Long-term debt	156		149
Total lease liabilities		$	755	669

*(a)*Operating and finance lease right-of-use assets are recorded net of accumulated amortization of $255 and $66, respectively, as of December 31, 2022, and $198 and $47, respectively, as of December 31, 2021.

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


($ in millions)	Consolidated Statements of Income Caption	2022		2021	2020
Lease costs:
Amortization of ROU assets	Net occupancy and equipment expense	$	19	18	11
Interest on lease liabilities	Interest on long-term debt	5		4	3
Total finance lease costs		$	24	22	14
Operating lease cost	Net occupancy expense	$	84	80	110
Short-term lease cost	Net occupancy expense	1		2	1
Variable lease cost	Net occupancy expense	28		31	29
Sublease income	Net occupancy expense	(3)		(3)	(3)
Total operating lease costs		$	110	110	137
Total lease costs		$	134	132	151

The Bancorp performs impairment assessments for ROU assets when events or changes in circumstances indicate that their carrying values may not be recoverable. In addition to the lease costs disclosed in the table above, the Bancorp recognized $2 million, $3 million and $8 million of impairment losses and termination charges for the ROU assets related to certain operating leases for the years ended

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December 31, 2022, 2021 and 2020, respectively. The recognized losses were recorded in net occupancy expense in the Consolidated Statements of Income.

The following table presents undiscounted cash flows for both operating leases and finance leases for 2023 through 2027 and thereafter as well as a reconciliation of the undiscounted cash flows to the total lease liabilities:


As of December 31, 2022 ($ in millions)	Operating Leases		Finance Leases	Total
2023	$	90	21	111
2024	85		21	106
2025	78		14	92
2026	68		9	77
2027	61		8	69
Thereafter	350		128	478
Total undiscounted cash flows	$	732	201	933
Less: Difference between undiscounted cash flows and discounted cash flows	133		45	178
Present value of lease liabilities	$	599	156	755

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


	2022		2021
Weighted-average remaining lease term (years):
Operating leases	10.80		8.92
Finance leases	15.31		14.70
Weighted-average discount rate:
Operating leases	3.35	%	2.88
Finance leases	2.94		2.74

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


($ in millions)	2022		2021	2020
Cash paid for amounts included in the measurement of lease liabilities:(a)
Operating cash flows from operating leases	$	90	88	91
Operating cash flows from finance leases	5		4	3
Financing cash flows from finance leases	23		16	11

Gains on sale-leaseback transactions	4		2	3

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

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10. Goodwill

Business combinations entered into by the Bancorp typically result in the recognition of goodwill. Acquisition activity includes acquisitions in the respective period in addition to purchase accounting adjustments related to previous acquisitions. During the third quarter of 2022, the Bancorp reorganized its management reporting structure and now reports on three business segments, which are also reporting units: Commercial Banking, Consumer and Small Business Banking and Wealth and Asset Management. In conjunction with this reorganization, the Bancorp reallocated a portion of its goodwill from Consumer and Small Business Banking to Commercial Banking using a relative fair value approach for the portions of the business which were transferred between reporting units. Refer to Note 31 for additional information.

The Bancorp completed its annual goodwill impairment test as of September 30, 2022 and the estimated fair values of the Commercial Banking, Consumer and Small Business Banking and Wealth and Asset Management reporting units exceeded their carrying values, including goodwill.

Changes in the net carrying amount of goodwill, by reporting unit, for the years ended December 31, 2022 and 2021 were as follows:


($ in millions)	Commercial Banking		Consumer and Small Business Banking	Wealth and Asset Management	General Corporate and Other	Total
Goodwill	$	2,730	2,262	231	—	5,223
Accumulated impairment losses	(750)		(215)	—	—	(965)
Net carrying value as of December 31, 2020	$	1,980	2,047	231	—	4,258
Acquisition activity	—		256	—	—	256

Net carrying value as of December 31, 2021	$	1,980	2,303	231	—	4,514
Acquisition activity	—		440	—	—	440
Reallocation of goodwill	378		(378)	—	—	—
Sale of businesses	(34)		—	(5)	—	(39)
Net carrying value as of December 31, 2022	$	2,324	2,365	226	—	4,915

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11. Intangible Assets

Intangible assets consist of core deposit intangibles, developed technology, customer relationships, and other intangible assets which include trade names, backlog, operating leases and non-compete agreements. Intangible assets are amortized on either a straight-line or an accelerated basis over their estimated useful lives and, based on the type of intangible asset, the amortization expense may be recorded in either leasing business revenue or other noninterest expense in the Consolidated Statements of Income. The increase in the gross carrying amount of intangible assets from the year ended December 31, 2021 reflects acquisition activity during 2022, which included the recognition of $44 million in developed technology, $12 million in customer relationships, $7 million in trade name and $3 million of backlog. These assets will be amortized over their remaining useful life, which was estimated to be 5, 12, 5 and 5 years, respectively, at the time of acquisition.

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


($ in millions)	Gross Carrying Amount		Accumulated Amortization	Net Carrying Amount
As of December 31, 2022
Core deposit intangibles	$	229	(182)	47
Developed technology	106		(17)	89
Customer relationships	30		(7)	23
Other	20		(10)	10
Total intangible assets	$	385	(216)	169
As of December 31, 2021
Core deposit intangibles	$	229	(153)	76
Developed technology	62		(3)	59
Customer relationships	25		(7)	18
Other	15		(12)	3
Total intangible assets	$	331	(175)	156

As of December 31, 2022, all of the Bancorp’s intangible assets were being amortized. Amortization expense recognized on intangible assets was $48 million, $47 million and $55 million for the years ended December 31, 2022, 2021 and 2020, respectively. The Bancorp’s projections of amortization expense shown in the following table are based on existing asset balances as of December 31, 2022. Future amortization expense may vary from these projections.

Estimated amortization expense for the years ending December 31, 2023 through 2027 is as follows:


($ in millions)	Total
2023	$	43
2024	35
2025	28
2026	22
2027	14

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12. Variable Interest Entities

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

Consolidated VIEs

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


($ in millions)	December 31, 2022		December 31, 2021
Assets:
Other short-term investments	$	17	24
Indirect secured consumer loans	141		322
Other consumer loans	44		—
ALLL	(2)		(2)
Other assets	2		2
Total assets	$	202	346
Liabilities:
Other liabilities	$	9	1
Long-term debt	118		263
Total liabilities	$	127	264

As a result of a business acquisition in the second quarter of 2022, the Bancorp acquired interests in a previously completed securitization transaction in which solar loans were transferred to a bankruptcy remote trust which was deemed to be a VIE. Additionally, the Bancorp previously completed a securitization transaction in which the Bancorp transferred certain consumer automobile loans to a bankruptcy remote trust which was deemed to be a VIE. In each of these securitization transactions, the primary purposes of the VIEs were to issue asset-backed securities with varying levels of credit subordination and payment priority, as well as residual interests, and to provide access to liquidity for originated loans. The Bancorp retained residual interests in the VIEs and, therefore, has an obligation to absorb losses and a right to receive benefits from the VIEs that could potentially be significant to the VIEs. In addition, the Bancorp retained servicing rights for the underlying loans and, therefore, holds the power to direct the activities of the VIEs that most significantly impact the economic performance of the VIEs. As a result, the Bancorp concluded that it is the primary beneficiary of the VIEs and has consolidated these VIEs. The assets of the VIEs are restricted to the settlement of the asset-backed securities and other obligations of the VIEs. The third-party holders of the asset-backed notes do not have recourse to the general assets of the Bancorp.

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

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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, 2022 ($ in millions)	Total Assets		Total Liabilities	Maximum Exposure
CDC investments	$	1,856	653	1,856
Private equity investments	186		—	349
Loans provided to VIEs	4,374		—	6,438
Lease pool entities	61		—	61
Solar loan securitizations	10		—	10

December 31, 2021 ($ in millions)	Total Assets		Total Liabilities	Maximum Exposure
CDC investments	$	1,705	580	1,705
Private equity investments	133		—	257
Loans provided to VIEs	3,386		—	4,873
Lease pool entities	68		—	68

CDC investments

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

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

At December 31, 2022 and 2021, the Bancorp’s CDC investments included $1.6 billion and $1.4 billion, respectively, of investments in affordable housing tax credits recognized in other assets in the Consolidated Balance Sheets. The unfunded commitments related to these investments were $643 million and $573 million at December 31, 2022 and 2021, respectively. The unfunded commitments as of December 31, 2022 are expected to be funded from 2023 to 2039.

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


	Consolidated Statements of Income Caption(a)	2022		2021	2020
Proportional amortization	Applicable income tax expense	$	189	163	150
Tax credits and other benefits	Applicable income tax expense	(219)		(193)	(175)

*(a)*The Bancorp did not recognize impairment losses resulting from the forfeiture or ineligibility of tax credits or other circumstances during the years ended December 31, 2022, 2021 and 2020.

Private equity investments

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

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power to direct the activities that most significantly impact the economic performance of the funds. The Bancorp, as a limited partner, does not have substantive participating or substantive kick-out rights over the general partner. Therefore, the Bancorp accounts for its investments in these limited partnerships under the equity method of accounting.

The Bancorp is exposed to losses arising from the negative performance of the underlying investments in the private equity investments. As a limited partner, the Bancorp’s maximum exposure to loss is limited to the carrying amounts of the investments plus unfunded commitments. The carrying amounts of these investments, which are included in other assets in the Consolidated Balance Sheets, are presented in previous tables. Also, at December 31, 2022 and 2021, the Bancorp’s unfunded commitment amounts to the private equity funds were $163 million and $124 million, respectively. As part of previous commitments, the Bancorp made capital contributions to private equity investments of $44 million and $17 million during the years ended December 31, 2022 and 2021, respectively.

Loans provided to VIEs

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

The principal risk to which these entities are exposed is credit risk related to the underlying assets. The Bancorp’s maximum exposure to loss is equal to the carrying amounts of the loans and unfunded commitments to the VIEs. The Bancorp’s outstanding loans to these VIEs are included in commercial loans in Note 5. As of December 31, 2022 and 2021, the Bancorp’s unfunded commitments to these entities were $2.1 billion and $1.5 billion, respectively. The loans and unfunded commitments to these VIEs are included in the Bancorp’s overall analysis of the ALLL and reserve for unfunded commitments, respectively. The Bancorp does not provide any implicit or explicit liquidity guarantees or principal value guarantees to these VIEs.

Lease pool entities

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

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

Solar loan securitizations

As a result of a business acquisition in the second quarter of 2022, the Bancorp acquired interests in previously completed securitization transactions in which solar loans were transferred to bankruptcy remote trusts which were deemed to be VIEs. In each of these securitization transactions, the primary purposes of the VIEs were to issue asset-backed securities with varying levels of credit subordination and payment priority, as well as residual interests, and to provide access to liquidity for originated loans. The Bancorp retained certain risk retention interests in the classes of securities issued by the VIEs and retained servicing rights for the underlying loans. The Bancorp’s maximum exposure to loss is equal to the carrying amount of the investments. The Bancorp has determined that it is not the primary beneficiary of the VIEs because it does not have the obligation to absorb the VIEs expected losses or the right to receive the VIEs expected residual returns that could potentially be significant to the VIEs. The risk retention interests held by the Bancorp were included in available-for-sale debt and other securities in the Consolidated Balance Sheets.

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13. 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, 2022, 2021 and 2020. In those sales, the Bancorp obtained servicing responsibilities and provided certain standard representations and warranties; however, the investors have no recourse to the Bancorp’s other assets for failure of debtors to pay when due. The Bancorp receives servicing fees based on a percentage of the outstanding balance. The Bancorp identifies classes of servicing assets based on financial asset type and interest rates.

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


($ in millions)	2022		2021	2020
Residential mortgage loan sales(a)	$	13,307	16,900	11,827

Origination fees and gains on loan sales	91		285	315
Gross mortgage servicing fees	310		247	263

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

Servicing Rights

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

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


($ in millions)	2022		2021
Balance, beginning of period	$	1,121	656
Servicing rights originated	235		223
Servicing rights purchased	213		381
Changes in fair value:
Due to changes in inputs or assumptions(a)	355		142
Other changes in fair value(b)	(178)		(281)
Balance, end of period	$	1,746	1,121

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

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

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

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


($ in millions)	2022		2021	2020
Securities (losses) gains, net - non-qualifying hedges on mortgage servicing rights	$	(2)	(2)	2
Changes in fair value and settlement of free-standing derivatives purchased to economically hedge the MSR portfolio(a)	(363)		(123)	307
MSR fair value adjustment due to changes in inputs or assumptions(a)	355		142	(311)

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

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


	2022				2021
	Weighted- Average Life (in years)	Prepayment Speed (annual)		OAS (bps)	Weighted-Average Life (in years)	Prepayment Speed (annual)		OAS (bps)
Fixed-rate	7.6	9.2	%	753	6.5	10.7	%	693
Adjustable-rate	2.8	29.0		803	2.7	28.8		626

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At December 31, 2022 and 2021, the Bancorp serviced $103.2 billion and $89.2 billion, respectively, of residential mortgage loans for other investors. The value of MSRs that continue to be held by the Bancorp is subject to credit, prepayment and interest rate risks on the sold financial assets. The weighted-average coupon of the MSR portfolio was 3.59% and 3.45% at December 31, 2022 and 2021, respectively

At December 31, 2022, the sensitivity of the current fair value of residual cash flows to immediate 10%, 20% and 50% adverse changes in prepayment speed assumptions and immediate 10% and 20% adverse changes in OAS for servicing rights related to residential mortgage loans are as follows:


($ in millions)(a)	Fair Value		Weighted- Average Life (in years)	Prepayment Speed Assumption						OAS Assumption
	Impact of Adverse Change on Fair Value					OAS (bps)		Impact of Adverse Change on Fair Value
Rate	10%		20%	50%		10%		20%
Fixed-rate	$	1,741	9.1	5.1	%	$	(37)	(71)	(159)	734	$	(51)	(100)
Adjustable-rate	5		5.2	20.3		(1)		(1)	(2)	1,204	—		—

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

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

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14. Derivative Financial Instruments

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

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

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

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

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

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

The Bancorp’s derivative assets include certain contractual features in which the Bancorp requires the counterparties to provide collateral in the form of cash and securities to offset changes in the fair value of the derivatives, including changes in the fair value due to credit risk of the counterparty. As of December 31, 2022 and 2021, the balance of collateral held by the Bancorp for derivative assets was $1.3 billion and $1.1 billion, respectively. For derivative contracts cleared through certain central clearing parties whose rules treat variation margin payments as settlements of the derivative contract, the payments for variation margin of $1.0 billion and $771 million were applied to reduce the respective derivative contracts and were also not included in the total amount of collateral held as of December 31, 2022 and 2021, respectively. The credit component negatively impacting the fair value of derivative assets associated with customer accommodation contracts was $9 million and $20 million as of December 31, 2022 and 2021, respectively.

In measuring the fair value of derivative liabilities, the Bancorp considers its own credit risk, taking into consideration collateral maintenance requirements of certain derivative counterparties and the duration of instruments with counterparties that do not require collateral maintenance. When necessary, the Bancorp posts collateral primarily in the form of cash and securities to offset changes in fair value of the derivatives, including changes in fair value due to the Bancorp’s credit risk. As of December 31, 2022 and 2021, the balance of collateral posted by the Bancorp for derivative liabilities was $913 million and $1.3 billion, respectively. Additionally, $1.0 billion and $570 million of variation margin payments were applied to the respective derivative contracts to reduce the Bancorp’s derivative liabilities as of December 31, 2022 and 2021, respectively, and were also not included in the total amount of collateral posted. Certain of the Bancorp’s derivative liabilities contain credit-risk related contingent features that could result in the requirement to post additional collateral upon the occurrence of specified events. As of December 31, 2022 and 2021, the fair value of the additional collateral that could be required to be posted as a result of the credit-risk related contingent features being triggered was immaterial to the Bancorp’s Consolidated Financial Statements. The posting of collateral has been determined to remove the need for further consideration of credit risk. As a result, the Bancorp determined that the impact of the Bancorp’s credit risk to the valuation of its derivative liabilities was immaterial to the Bancorp’s Consolidated Financial Statements.

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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, 2022 ($ in millions)	Notional Amount		Derivative Assets		Derivative Liabilities
Derivatives Designated as Qualifying Hedging Instruments
Fair value hedges:
Interest rate swaps related to long-term debt	$	5,955	126		195
Total fair value hedges			126		195
Cash flow hedges:
Interest rate floors related to C&I loans	3,000		4		—
Interest rate swaps related to C&I loans	8,000		—		76
Interest rate swaps related to C&I loans - forward starting(c)	11,000		22		—
Interest rate swaps related to commercial mortgage and commercial construction loans	4,000		—		25
Interest rate swaps related to commercial mortgage and commercial construction loans - forward starting(c)	4,000		5		—
Total cash flow hedges			31		101
Total derivatives designated as qualifying hedging instruments			157		296
Derivatives Not Designated as Qualifying Hedging Instruments
Free-standing derivatives - risk management and other business purposes:
Interest rate contracts related to MSR portfolio	2,975		62		17
Forward contracts related to residential mortgage loans held for sale(b)	1,869		9		7
Swap associated with the sale of Visa, Inc. Class B Shares	3,358		—		195
Foreign exchange contracts	156		1		—
Interest-only strips	58		4		—
Interest rate contracts for collateral management	12,000		9		1
Interest rate contracts for LIBOR transition	597		—		—
Total free-standing derivatives - risk management and other business purposes			85		220
Free-standing derivatives - customer accommodation:
Interest rate contracts(a)	83,605		998		1,663
Interest rate lock commitments	216		2		1
Commodity contracts	16,122		1,478		1,350
TBA securities	62		—		—
Foreign exchange contracts	25,322		453		422
Total free-standing derivatives - customer accommodation			2,931		3,436
Total derivatives not designated as qualifying hedging instruments			3,016		3,656
Total			$	3,173	3,952

*(a)*Derivative assets and liabilities are presented net of variation margin of $694 and $37, respectively.

*(b)*Includes forward sale and forward purchase contracts which are utilized to manage market risk on residential mortgage loans held for sale and the related interest rate lock commitments.

*(c)*Forward starting swaps will become effective on various dates between February 2023 and February 2025.

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			Fair Value
December 31, 2021 ($ in millions)	Notional Amount		Derivative Assets		Derivative Liabilities
Derivatives Designated as Qualifying Hedging Instruments
Fair value hedges:
Interest rate swaps related to long-term debt	$	1,955	393		2
Interest rate swaps related to available-for-sale debt and other securities	445		7		—
Total fair value hedges			400		2
Cash flow hedges:
Interest rate floors related to C&I loans	3,000		122		—
Interest rate swaps related to C&I loans	8,000		—		1
Interest rate swaps related to commercial mortgage and commercial construction loans	4,000		—		—
Total cash flow hedges			122		1
Total derivatives designated as qualifying hedging instruments			522		3
Derivatives Not Designated as Qualifying Hedging Instruments
Free-standing derivatives - risk management and other business purposes:
Interest rate contracts related to MSR portfolio	6,260		140		—
Forward contracts related to residential mortgage loans held for sale(b)	1,952		2		2
Swap associated with the sale of Visa, Inc. Class B Shares	3,545		—		214
Foreign exchange contracts	158		—		1
Interest rate contracts for collateral management	12,000		5		4
Interest rate contracts for LIBOR transition	2,372		—		—
Total free-standing derivatives - risk management and other business purposes			147		221
Free-standing derivatives - customer accommodation:
Interest rate contracts(a)	76,061		578		232
Interest rate lock commitments	673		12		—
Commodity contracts	12,376		1,326		1,260
TBA securities	55		—		—
Foreign exchange contracts	23,148		323		297
Total free-standing derivatives - customer accommodation			2,239		1,789
Total derivatives not designated as qualifying hedging instruments			2,386		2,010
Total			$	2,908	2,013

*(a)*Derivative assets and liabilities are presented net of variation margin of $104 and $472, respectively.

*(b)*Includes forward sale and forward purchase contracts which are utilized to manage market risk on residential mortgage loans held for sale and the related interest rate lock commitments.

Fair Value Hedges

The Bancorp may enter into interest rate swaps to convert its fixed-rate funding to floating-rate or to hedge the exposure to changes in fair value of a recognized asset attributable to changes in the benchmark interest rate. Decisions to enter into these interest rate swaps are made primarily through consideration of the asset/liability mix of the Bancorp, the desired asset/liability sensitivity and interest rate levels. As of December 31, 2022, certain interest rate swaps met the criteria required to qualify for the shortcut method of accounting that permits the assumption of perfect offset. For all designated fair value hedges of interest rate risk as of December 31, 2022 that were not accounted for under the shortcut method of accounting, the Bancorp performed an assessment of hedge effectiveness using regression analysis with changes in the fair value of the derivative instrument and changes in the fair value of the hedged asset or liability attributable to the hedged risk recorded in the same income statement line in current period net income.

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The following table reflects the changes in fair value of interest rate contracts, designated as fair value hedges and the changes in fair value of the related hedged items attributable to the risk being hedged, as well as the line items in the Consolidated Statements of Income in which the corresponding gains or losses are recorded:


For the years ended December 31 ($ in millions)	Consolidated Statements of Income Caption	2022		2021	2020
Long-term debt:
Change in fair value of interest rate swaps hedging long-term debt	Interest on long-term debt	$	(460)	(138)	134
Change in fair value of hedged long-term debt attributable to the risk being hedged	Interest on long-term debt	460		138	(133)
Available-for-sale debt and other securities:
Change in fair value of interest rate swaps hedging available-for-sale debt and other securities	Interest on securities	8		7	—
Change in fair value of hedged available-for-sale debt and other securities attributable to the risk being hedged	Interest on securities	(8)		(7)	—

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


($ in millions)	Consolidated Balance Sheets Caption	2022		2021
Long-term debt:
Carrying amount of the hedged items	Long-term debt	$	5,865	2,339
Cumulative amount of fair value hedging adjustments included in the carrying amount of the hedged items	Long-term debt	(64)		396
Available-for-sale debt and other securities:
Carrying amount of the hedged items(a)	Available-for-sale debt and other securities	—		465
Cumulative amount of fair value hedging adjustments included in the carrying amount of the hedged items	Available-for-sale debt and other securities	—		(8)
Cumulative amount of fair value hedging adjustments remaining for hedged items for which hedge accounting has been discontinued	Available-for-sale debt and other securities	(14)		—

*(a)*The carrying amount represents the amortized cost basis of the hedged items (which excludes unrealized gains and losses) plus the fair value hedging adjustments.

Cash Flow Hedges

The Bancorp may enter into interest rate swaps to convert floating-rate assets and liabilities to fixed rates or to hedge certain forecasted transactions for the variability in cash flows attributable to the contractually specified interest rate. The assets or liabilities may be grouped in circumstances where they share the same risk exposure that the Bancorp desires to hedge. The Bancorp may also enter into interest rate caps and floors to limit cash flow variability of floating rate assets and liabilities. As of December 31, 2022, all hedges designated as cash flow hedges were assessed for effectiveness using regression analysis. The entire change in the fair value of the interest rate swap included in the assessment of hedge effectiveness is recorded in AOCI and reclassified from AOCI to current period earnings when the hedged item affects earnings. As of December 31, 2022, the maximum length of time over which the Bancorp is hedging its exposure to the variability in future cash flows is 109 months.

Reclassified gains and losses on interest rate contracts related to commercial and industrial loans are recorded within interest income in the Consolidated Statements of Income. As of December 31, 2022 and 2021, respectively, $498 million of net deferred losses, net of tax, and $353 million of net deferred gains, net of tax, on cash flow hedges were recorded in AOCI in the Consolidated Balance Sheets. As of December 31, 2022, $253 million in net unrealized losses, net of tax, recorded in AOCI are expected to be reclassified into earnings during the next 12 months. This amount could differ from amounts actually recognized due to changes in interest rates, hedge de-designations or the addition of other hedges subsequent to December 31, 2022.

During both the years ended December 31, 2022 and 2021, there were no gains or losses reclassified from AOCI into earnings associated with the discontinuance of cash flow hedges because it was probable that the original forecasted transaction would no longer occur by the end of the originally specified time period or within the additional period of time as defined by U.S. GAAP.

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


For the years ended December 31 ($ in millions)	2022		2021	2020
Amount of pre-tax net (losses) gains recognized in OCI	$	(1,006)	(185)	611
Amount of pre-tax net gains reclassified from OCI into net income	99		293	237

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

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

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

In conjunction with the sale of Visa, Inc. Class B Shares in 2009, the Bancorp entered into a total return swap in which the Bancorp will make or receive payments based on subsequent changes in the conversion rate of the Class B Shares into Class A Shares. This total return swap is accounted for as a free-standing derivative. Refer to Note 28 for further discussion of significant inputs and assumptions used in the valuation of this instrument.

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

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

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


For the years ended December 31 ($ in millions)	Consolidated Statements of Income Caption	2022		2021	2020
Interest rate contracts:
Forward contracts related to residential mortgage loans held for sale	Mortgage banking net revenue	$	3	15	(12)
Interest rate contracts related to MSR portfolio	Mortgage banking net revenue	(363)		(123)	307
Foreign exchange contracts:
Foreign exchange contracts for risk management purposes	Other noninterest income	12		(3)	(3)
Equity contracts:
Swap associated with sale of Visa, Inc. Class B Shares	Other noninterest income	(84)		(86)	(103)

Free-Standing Derivative Instruments – Customer Accommodation

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

The Bancorp enters into risk participation agreements, under which the Bancorp assumes credit exposure relating to certain underlying interest rate derivative contracts. The Bancorp only enters into these risk participation agreements in instances in which the Bancorp has participated in the loan that the underlying interest rate derivative contract was designed to hedge. The Bancorp will make payments under these agreements if a customer defaults on its obligation to perform under the terms of the underlying interest rate derivative contract. As of December 31, 2022 and 2021, the total notional amount of the risk participation agreements was $3.7 billion and $3.8 billion, respectively,

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and the fair value was a liability of $7 million and $8 million, respectively, which is included in other liabilities in the Consolidated Balance Sheets. As of December 31, 2022, the risk participation agreements had a weighted-average remaining life of 3.3 years.

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

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


($ in millions)	2022		2021
Pass	$	3,597	3,733
Special mention	81		13
Substandard	32		34
Total	$	3,710	3,780

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


For the years ended December 31 ($ in millions)	Consolidated Statements of Income Caption	2022		2021	2020
Interest rate contracts:
Interest rate contracts for customers (contract revenue)	Commercial banking revenue	$	48	38	36
Interest rate contracts for customers (credit portion of fair value adjustment)	Other noninterest expense	10		21	(22)
Interest rate lock commitments	Mortgage banking net revenue	16		149	271
Commodity contracts:
Commodity contracts for customers (contract revenue)	Commercial banking revenue	44		23	15
Commodity contracts for customers (credit losses)	Other noninterest expense	—		(1)	(1)
Commodity contracts for customers (credit portion of fair value adjustment)	Other noninterest expense	—		—	(2)
Foreign exchange contracts:
Foreign exchange contracts for customers (contract revenue)	Commercial banking revenue	70		61	55
Foreign exchange contracts for customers (contract revenue)	Other noninterest expense	8		2	(11)
Foreign exchange contracts for customers (credit portion of fair value adjustment)	Other noninterest expense	(3)		—	(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.

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The following table provides 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
			Derivatives		Collateral(b)		Net Amount
As of December 31, 2022
Derivative assets	$	3,171		(1,405)		(887)		879
Derivative liabilities	3,951			(1,405)		(406)		2,140
As of December 31, 2021
Derivative assets	$	2,896		(837)		(548)		1,511
Derivative liabilities	2,013			(837)		(712)		464

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

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

15. Other Assets

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


($ in millions)	2022		2021
Derivative instruments	$	3,173	2,908
Accounts receivable and drafts-in-process	2,579		2,560
Partnership investments	2,153		2,022
Bank owned life insurance	2,056		2,041
Deferred tax assets	1,553		6
Accrued interest and fees receivable	703		465
Operating lease right-of-use assets	508		427
Worldpay, Inc. TRA receivable	183		317
Prepaid expenses	145		139
Income tax receivable	74		237
OREO and other repossessed property	24		29
Other	308		293
Total other assets	$	13,459	11,444

In conjunction with Worldpay, Inc.’s IPO in 2012, the Bancorp entered into two TRAs with Worldpay, Inc. The TRAs provide for payments by Worldpay, Inc. to the Bancorp of 85% of the cash savings actually realized as a result of the increase in tax basis that results from the historical or future purchase of equity in Worldpay Holding, LLC from the Bancorp or from the exchange of equity units in Worldpay Holding, LLC for cash or Class A Stock, as well as any tax benefits attributable to payments made under the TRA.

During the fourth quarter of 2019, the Bancorp entered into an agreement with Fidelity National Information Services, Inc. and Worldpay, Inc. under which Worldpay, Inc. may be obligated to pay up to approximately $366 million to the Bancorp to terminate and settle a portion of the remaining TRA cash flows, totaling an estimated $720 million, upon the exercise of certain call options by Worldpay, Inc. or certain put options by the Bancorp. In 2019, the Bancorp recognized a gain of approximately $345 million in other noninterest income associated with these options. The Worldpay, Inc. TRA receivable associated with this transaction, recorded in other assets in the Consolidated Balance Sheets, was $183 million and $317 million as of December 31, 2022 and 2021, respectively.

Separate from the impact of the TRA settlement agreement discussed above, the Bancorp recognized $46 million, $46 million and $74 million in other noninterest income in the Consolidated Statements of Income associated with the TRA during the years ended December 31, 2022, 2021 and 2020, respectively. The Bancorp expects to receive approximately $33 million of future payments through 2025 under the TRA that are not subject to the call or put options. These remaining cash flows will be recognized in future periods when the related uncertainties are resolved.

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16. Short-Term Borrowings

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

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


	2022				2021
($ in millions)	Amount		Rate		Amount		Rate
As of December 31:
Federal funds purchased	$	180	4.22	%	$	281	0.13	%
Other short-term borrowings	4,838		3.75		980		0.04
Average for the years ended December 31:
Federal funds purchased	$	381	1.69	%	$	333	0.12	%
Other short-term borrowings	4,544		2.39		1,107		0.15
Maximum month-end balance for the years ended December 31:
Federal funds purchased	$	1,312			$	365
Other short-term borrowings	8,606				1,353

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


($ in millions)	2022		2021
FHLB advances	$	4,300	—
Securities sold under repurchase agreements	388		544
Derivative collateral	124		436
Other borrowed money	26		—
Total other short-term borrowings	$	4,838	980

The Bancorp’s securities sold under repurchase agreements are accounted for as secured borrowings and are collateralized by securities included in available-for-sale debt and other securities in the Consolidated Balance Sheets. These securities are subject to changes in market value and, therefore, the Bancorp may increase or decrease the level of securities pledged as collateral based upon these movements in market value. As of both December 31, 2022 and 2021, all securities sold under repurchase agreements were secured by agency residential mortgage-backed securities and the repurchase agreements had an overnight remaining contractual maturity.

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17. Long-Term Debt

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


($ in millions)	Maturity			Interest Rate			2022		2021
Parent Company
Senior:
Fixed-rate notes	2022			2.60%			$	—	700
Fixed-rate notes	2022			3.50%			—		500
Fixed-rate notes	2023			1.625%			500		499
Fixed-rate notes	2024			3.65%			1,498		1,496
Fixed-rate notes	2025			2.375%			748		748
Fixed-rate notes	2027			2.55%			747		746
Fixed-rate/floating-rate notes(c)	2027			1.707%			448		496
Fixed-rate notes	2028			3.95%			648		647
Fixed-rate/floating-rate notes(c)	2028			4.055%			381		—
Fixed-rate/floating-rate notes(c)	2028			6.361%			1,012		—
Fixed-rate/floating-rate notes(c)	2030			4.772%			936		—
Fixed-rate/floating-rate notes(c)	2033			4.337%			556		—
Subordinated:(a)
Fixed-rate notes	2024			4.30%			749		749
Fixed-rate notes	2038			8.25%			1,108		1,346
Subsidiaries
Senior:
Floating-rate notes(a)(e)	2022			0.772%			—		300
Fixed-rate notes	2023			1.80%			650		649
Fixed-rate notes	2025			3.95%			723		795
Fixed-rate/floating-rate notes(c)	2025			5.852%			999		—
Fixed-rate notes	2027			2.25%			599		598
Subordinated:(a)
Fixed-rate notes	2026			3.85%			749		748
Fixed-rate notes	2027			4.00%			173		172
Junior subordinated:
Floating-rate debentures(a)(b)	2035			6.189%	-	6.459%	53		54
FHLB advances(d)	2023	-	2047	3.81%			21		44
Notes associated with consolidated VIEs:
Automobile loan securitization, fixed-rate notes	2023	-	2026	2.64%	-	2.69%	75		250
Solar loan securitization, fixed-rate notes	2038			4.05%	‘-	7.00%	39		—
Other	2023	-	2052	Varies			302		284
Total							$	13,714	11,821

(a)In aggregate, $1.9 billion a**nd $2.5 billion qualifies as Tier 2 capital for regulatory capital purposes for the years ended December 31, 2022 and 2021, respectively.

*(b)*These rates reflect the floating rates as of December 31, 2022.

*(c)*This rate reflects the fixed rate in effect as of December 31, 2022.

*(d)*This rate reflects the weighted-average rate as of December 31, 2022.

*(e)*These rates reflect the floating rates as of December 31, 2021.

The Bancorp pays down long-term debt in accordance with contractual terms over maturity periods summarized in the previous table. The aggregate annual maturities of long-term debt obligations (based on final maturity dates) as of December 31, 2022 are presented in the following table:


($ in millions)	Parent Company		Subsidiaries	Total
2023	$	500	669	1,169
2024	2,247		12	2,259
2025	748		1,772	2,520
2026	—		843	843
2027	1,195		789	1,984
Thereafter	4,641		298	4,939
Total	$	9,331	4,383	13,714

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At December 31, 2022, the Bancorp’s long-term borrowings consisted of outstanding principal balances of $13.8 billion, net discounts of $19 million, debt issuance costs of $32 million and reductions for mark-to-market adjustments on its hedged debt of $64 million. At December 31, 2021, the Bancorp’s long-term borrowings consisted of outstanding principal balances of $11.5 billion, net discounts of $16 million, debt issuance costs of $24 million and additions for mark-to-market adjustments on its hedged debt of $396 million. The Bancorp was in compliance with all debt covenants at December 31, 2022 and 2021.

Parent Company Long-Term Borrowings

Senior notes

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

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

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

On May 5, 2020, the Bancorp issued and sold $1.25 billion in aggregate principal amount of senior fixed-rate notes. The notes consisted of $500 million of 1.625% senior fixed-rate notes, with a maturity of three years, due on May 5, 2023; and $750 million of 2.55% senior fixed-rate notes, with a maturity of seven years, due on May 5, 2027. The 1.625% and 2.55% senior fixed-rate notes will be redeemable on or after April 5, 2023 and April 5, 2027, respectively (the respective “Applicable Par Call Date”), in whole or in part, at any time and from time to time, at the Bancorp’s option at a redemption price equal to 100% of the aggregate principal amount of the senior fixed-rate notes being redeemed, plus accrued and unpaid interest thereon, if any, to, but excluding, the redemption date. Additionally, the 1.625% and 2.55% senior fixed-rate notes will be redeemable at the Bancorp’s option, in whole or in part, at any time or from time to time, on or after November 2, 2020, and prior to the notes’ respective Applicable Par Call Date, in each case at a redemption price, plus accrued and unpaid interest thereon, if any, to, but excluding, the redemption date, equal to the greater of: (a) 100% of the aggregate principal amount of the senior fixed-rate notes being redeemed on that redemption date; and (b) the sum of the present values of the remaining scheduled payments of principal and interest on the senior fixed-rate notes being redeemed that would be due if the senior fixed-rate notes to be redeemed matured on their respective Applicable Par Call Date (not including any portion of such payments of interest accrued to the redemption date) discounted to the redemption date on a semi-annual basis (assuming a 360-day year consisting of twelve 30-day months) at the applicable Treasury Rate plus either 25 bps (for the 1.625% senior fixed-rate notes) or 35 bps (for the 2.55% senior fixed-rate notes), as the case may be.

On November 1, 2021, the Bancorp issued and sold $500 million of fixed-rate/floating-rate senior notes which will mature on November 1, 2027. The senior notes bear a fixed rate of interest of 1.707% per annum to, but excluding, November 1, 2026. From, and including, November 1, 2026 until, but excluding, November 1, 2027, the senior notes will have an interest rate of compounded SOFR plus 0.685%. The Bancorp entered into interest rate swaps designated as fair value hedges to convert the fixed-rate period of the notes to a floating rate of one-month LIBOR plus 57 bps, and the Bancorp paid a rate of 4.69% at December 31, 2022. The notes will be redeemable in whole, but not in part, by the Bancorp on November 1, 2026, the date that is one year prior to the maturity date, at a redemption price equal to 100% of the principal amount of the notes, plus accrued and unpaid interest thereon, if any, to, but excluding, the redemption date. In addition, the notes will be redeemable, in whole or in part, by the Bancorp on or after the date that is 30 days prior to the maturity date at a redemption price equal to 100% of the principal amount of the notes being redeemed, plus accrued and unpaid interest thereon, if any, to, but excluding, the redemption date.

On April 25, 2022, the Bancorp issued and sold $1 billion of fixed-rate/floating-rate senior notes. $400 million of the notes will bear interest at a rate of 4.055% per annum to, but excluding, April 25, 2027, followed by an interest rate of compounded SOFR plus 1.355% until maturity on April 25, 2028. The remaining $600 million of the notes will bear interest at a rate of 4.337% per annum to, but excluding, April 25, 2032, followed by an interest rate of compounded SOFR plus 1.660% until maturity on April 25, 2033. The Bancorp entered into interest

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rate swaps designated as fair value hedges to convert the fixed-rate periods of the notes to floating rates of one-month LIBOR plus 1.239% and one-month LIBOR plus 1.543% for the notes due April 25, 2028 and the notes due April 25, 2033, respectively. The Bancorp paid rates on these swaps of 5.63% and 5.93%, respectively, at December 31, 2022. Each tranche of notes is redeemable in whole at par plus accrued and unpaid interest one year prior to its maturity date, or may be wholly or partially redeemed 30 days or 90 days prior to maturity for the 2028 notes and the 2033 notes, respectively.

On July 28, 2022, the Bancorp issued and sold $1 billion of fixed-rate/floating-rate senior notes which will mature on July 28, 2030. The senior notes bear interest at a rate of 4.772% per annum to, but excluding, July 28, 2029. From, and including July 28, 2029 until, but excluding July 28, 2030, the senior notes will bear interest at a rate of compounded SOFR plus 2.127%. The Bancorp entered into interest rate swaps designated as fair value hedges to convert the fixed-rate period of the notes to a floating rate of compounded SOFR plus 2.132%, and the Bancorp paid a rate of 6.43% at December 31, 2022. The senior notes are redeemable in whole at par plus accrued and unpaid interest one year prior to their maturity date, or may be wholly or partially redeemed 60 days prior to maturity.

On October 27, 2022, the Bancorp issued and sold $1 billion of fixed-rate/floating-rate senior notes which will mature on October 27, 2028. The senior notes will bear interest at a rate of 6.361% per annum to, but excluding, October 27, 2027. From, and including October 27, 2027 until, but excluding October 27, 2028, the senior notes will bear interest at a rate of compounded SOFR plus 2.192%. The Bancorp entered into interest rate swaps designated as fair value hedges to convert the fixed-rate period of the notes to a floating rate of compounded SOFR plus 2.193%, and the Bancorp paid a rate of 6.49% at December 31, 2022. The senior notes are redeemable in whole at par plus accrued and unpaid interest one year prior to their maturity date, or may be wholly or partially redeemed on or after 30 days prior to maturity. Additionally, the senior notes are redeemable at the Bancorp’s option, in whole or in part, beginning 180 days after the issue date and prior to October 27, 2027, at the greater of: (a) the aggregate principal amount of the senior notes being redeemed, or (b) the discounted present value of the remaining scheduled payments of principal and interest that would be due if the senior notes being redeemed matured on October 27, 2027.

Subordinated debt

The Bancorp has entered into interest rate swaps to convert part of its subordinated fixed-rate notes due in 2038 to a floating rate. Of the $1.0 billion in 8.25% subordinated fixed-rate notes due in 2038, the Bancorp entered into interest rate swaps designated as fair value hedges to convert $705 million of the notes to a floating rate of three-month LIBOR plus 3.05%, and the Bancorp paid a rate of 7.81% on the hedged portion of these notes at December 31, 2022.

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

Subsidiary Long-Term Borrowings

Senior and subordinated debt

Medium-term senior notes and subordinated bank notes with maturities ranging from one year to 30 years can be issued by the Bancorp’s banking subsidiary. Under the Bancorp’s banking subsidiary’s global bank note program, the Bank’s capacity to issue its senior and subordinated unsecured bank notes is $25.0 billion. As of December 31, 2022, $20.3 billion was available for future issuance under the global bank note program.

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

On July 26, 2018 the Bank issued and sold, under its bank notes program, $750 million of 3.95% senior fixed-rate notes due on July 28, 2025. The Bank entered into interest rate swaps designated as fair value hedges to convert these fixed-rate notes to a floating rate of one-month LIBOR plus 1.04%, and the Bancorp paid a rate of 5.43% at December 31, 2022. These bank notes will be redeemable by the Bank, in whole or in part, on or after the date that is 30 days prior to the maturity date at a redemption price equal to 100% of the principal amount plus accrued and unpaid interest up to, but excluding, the redemption date.

As a result of the MB Financial, Inc. acquisition in March 2019, the Bank assumed $175 million of 4.00% subordinated fixed-rate notes due on December 1, 2027. These bank notes will be redeemable by the Bank, in whole or in part, on any interest payment date on or after December 1, 2022 at a redemption price equal to 100% of the principal amount plus accrued and unpaid interest up to, but excluding, the redemption date. From December 1, 2022 until maturity, the bank notes pay interest quarterly on the first day of March, June, September and December.

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

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$600 million of 2.25% senior fixed-rate notes, with a maturity of seven years, due on February 1, 2027. On or after the date that is 30 days before the maturity date, the 1.80% senior fixed-rate notes will be redeemable, in whole or in part, at any time and from time to time, at the Bank’s option at a redemption price equal to 100% of the aggregate principal amount of the 1.80% senior fixed-rate notes being redeemed, plus accrued and unpaid interest thereon, if any, to, but excluding, the redemption date. The 2.25% senior fixed-rate notes will be redeemable at the Bank’s option, in whole or in part, at any time or from time to time, on or after July 31, 2020, and prior to January 4, 2027 (the “Applicable Par Call Date”), in each case at a redemption price, plus accrued and unpaid interest thereon, if any, to, but excluding, the redemption date, equal to the greater of: (a) 100% of the aggregate principal amount of the 2.25% senior fixed-rate notes being redeemed on that redemption date; and (b) the sum of the present values of the remaining scheduled payments of principal and interest on the 2.25% senior fixed-rate notes being redeemed that would be due if the 2.25% senior fixed-rate notes to be redeemed matured on the Applicable Par Call Date (not including any portion of such payments of interest accrued to the redemption date) discounted to the redemption date on a semiannual basis (assuming a 360-day year consisting of twelve 30-day months) at the applicable Treasury Rate plus the Applicable Spread for the Notes to be redeemed. Additionally, on or after January 4, 2027, the 2.25% senior fixed-rate notes will also be redeemable, in whole or in part, at any time and from time to time, at the Bank’s option at a redemption price equal to 100% of the aggregate principal amount of the 2.25% senior fixed-rate notes being redeemed, plus accrued and unpaid interest thereon, if any, to, but excluding, the redemption date.

On October 27, 2022, under its bank notes program, the Bank issued and sold $1 billion of fixed-rate/floating-rate senior notes which will mature on October 27, 2025. The senior notes will bear interest at a rate of 5.852% per annum to, but excluding, October 27, 2024. From, and including October 27, 2024 until, but excluding October 27, 2025, the senior notes will bear interest at a rate of compounded SOFR plus 1.230%. The Bank entered into interest rate swaps designated as fair value hedges to convert the fixed-rate period of the notes to a floating rate of compounded SOFR plus 1.218%, and the Bank paid a rate of 5.52% at December 31, 2022. The senior notes are redeemable in whole at par plus accrued and unpaid interest one year prior to their maturity date, or may be wholly or partially redeemed on or after 30 days prior to maturity.

Junior subordinated debt

The junior subordinated floating-rate debentures due in 2035 were assumed by the Bancorp’s direct nonbank subsidiary holding company as part of the acquisition of First Charter in June 2008. The obligation was issued to First Charter Capital Trust I and II. The notes of First Charter Capital Trust I and II pay a floating rate at three-month LIBOR plus 1.69% and 1.42%, respectively. The Bancorp’s nonbank subsidiary holding company has fully and unconditionally guaranteed all obligations under the acquired TruPS issued by First Charter Capital Trust I and II.

FHLB advances

At December 31, 2022, FHLB advances have a weighted-average rate of 3.81%, with interest payable monthly. The Bancorp has pledged $18.6 billion of loans and securities to secure its borrowing capacity at the FHLB which is partially utilized to fund $21 million in FHLB advances that are outstanding. The FHLB advances mature as follows: $9 million in 2023, an immaterial amount in 2024, $5 million in 2025, an immaterial amount in 2026, an immaterial amount in 2027, and $7 million thereafter.

Notes associated with consolidated VIEs

As discussed in Note 12, the Bancorp was determined to be the primary beneficiary of various VIEs associated with certain automobile and solar loan securitizations. Third-party holders of this debt do not have recourse to the general assets of the Bancorp. Approximately $114 million of outstanding notes related to these VIEs are included in long-term debt in the Consolidated Balance Sheets as of December 31, 2022.

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18. Commitments, Contingent Liabilities and Guarantees

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

Commitments

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


($ in millions)	2022		2021
Commitments to extend credit	$	83,437	80,641
Letters of credit	2,009		1,953
Forward contracts related to residential mortgage loans held for sale	1,869		1,952
Capital commitments for private equity investments	163		124
Purchase obligations	113		160
Capital expenditures	94		78

Commitments to extend credit

Commitments to extend credit are agreements to lend, typically having fixed expiration dates or other termination clauses that may require payment of a fee. Since many of the commitments to extend credit may expire without being drawn upon, the total commitment amounts do not necessarily represent future cash flow requirements. The Bancorp is exposed to credit risk in the event of nonperformance by the counterparty for the amount of the contract. Fixed-rate commitments are also subject to market risk resulting from fluctuations in interest rates and the Bancorp’s exposure is limited to the replacement value of those commitments. As of December 31, 2022 and 2021, the Bancorp had a reserve for unfunded commitments, including letters of credit, totaling $216 million and $182 million, respectively, included in other liabilities in the Consolidated Balance Sheets. The Bancorp monitors the credit risk associated with commitments to extend credit using the same standard regulatory risk rating systems utilized for its loan and lease portfolio.

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


($ in millions)	2022		2021
Pass	$	81,345	78,298
Special mention	976		1,058
Substandard	1,116		1,285

Total commitments to extend credit	$	83,437	80,641

Letters of credit

Standby and commercial letters of credit are conditional commitments issued to guarantee the performance of a customer to a third party and expire as summarized in the following table as of December 31, 2022:


($ in millions)
Less than 1 year(a)	$	951
1 - 5 years(a)	1,052
Over 5 years	6
Total letters of credit	$	2,009

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

Standby letters of credit accounted for approximately 99% of total letters of credit at both December 31, 2022 and 2021 and are considered guarantees in accordance with U.S. GAAP. Approximately 67% and 71% of the total standby letters of credit were collateralized as of December 31, 2022 and 2021, respectively. In the event of nonperformance by the customers, the Bancorp has rights to the underlying collateral, which can include commercial real estate, physical plant and property, inventory, receivables, cash and marketable securities. The reserve related to these standby letters of credit, which was included in the total reserve for unfunded commitments, was $22 million and $24 million at December 31, 2022 and 2021, respectively. The Bancorp monitors the credit risk associated with letters of credit using the same standard regulatory risk rating systems utilized for its loan and lease portfolio.

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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)	2022		2021
Pass	$	1,827	1,778
Special mention	47		40
Substandard	135		135

Total letters of credit	$	2,009	1,953

At December 31, 2022 and 2021, the Bancorp had outstanding letters of credit that were supporting certain securities issued as VRDNs. The Bancorp facilitates financing for its commercial customers, which consist of companies and municipalities, by marketing the VRDNs to investors. The VRDNs pay interest to holders at a rate of interest that fluctuates based upon market demand. The VRDNs generally have long-term maturity dates, but can be tendered by the holder for purchase at par value upon proper advance notice. When the VRDNs are tendered, a remarketing agent generally finds another investor to purchase the VRDNs to keep the securities outstanding in the market. As of December 31, 2022 and 2021, total VRDNs, of which FTS was the remarketing agent for all, were $423 million and $464 million, respectively. As remarketing agent, FTS is responsible for actively remarketing VRDNs to other investors when they have been tendered. If another investor is not identified, FTS may choose to purchase the VRDNs into inventory at its discretion while it continues to remarket them. If FTS purchases the VRDNs into inventory, it can subsequently tender back the VRDNs to the issuer’s trustee with proper advance notice. The Bancorp issued letters of credit, as a credit enhancement, to $102 million and $118 million of the VRDNs remarketed by FTS at December 31, 2022 and 2021, respectively. These letters of credit are included in the total letters of credit balance provided in the previous tables. The Bancorp held $3 million and $1 million of these VRDNs in its portfolio and classified them as trading debt securities at December 31, 2022 and 2021, respectively.

Forward contracts related to residential mortgage loans held for sale

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

Other commitments

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

Contingent Liabilities

Legal claims

There are legal claims pending against the Bancorp and its subsidiaries that have arisen in the normal course of business. Refer to Note 19 for additional information regarding these proceedings.

Guarantees

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

Residential mortgage loans sold with representation and warranty provisions

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

As of both December 31, 2022 and 2021, the Bancorp maintained reserves related to loans sold with representation and warranty provisions totaling $9 million included in other liabilities in the Consolidated Balance Sheets.

The Bancorp uses the best information available when estimating its mortgage representation and warranty reserve; however, the estimation process is inherently uncertain and imprecise and, accordingly, losses in excess of the amounts reserved as of December 31, 2022 are reasonably possible. The Bancorp currently estimates that it is reasonably possible that it could incur losses related to mortgage representation and warranty provisions in an amount up to approximately $11 million in excess of amounts reserved. This estimate was derived by modifying the key assumptions to reflect management’s judgment regarding reasonably possible adverse changes to those assumptions. The actual repurchase losses could vary significantly from the recorded mortgage representation and warranty reserve or this estimate of reasonably possible losses, depending on the outcome of various factors, including those previously discussed.

During both the years ended December 31, 2022 and 2021, the Bancorp paid an immaterial amount in the form of make-whole payments and repurchased $63 million and $42 million, respectively, in outstanding principal of loans to satisfy investor demands. Total repurchase demand

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requests during the years ended December 31, 2022 and 2021 were $104 million and $64 million, respectively. Total outstanding repurchase demand inventory was $25 million and $18 million at December 31, 2022 and 2021, respectively.

Margin accounts

FTS, an indirect wholly-owned subsidiary of the Bancorp, guarantees the collection of all margin account balances held by its brokerage clearing agent for the benefit of its customers. FTS is responsible for payment to its brokerage clearing agent for any loss, liability, damage, cost or expense incurred as a result of customers failing to comply with margin or margin maintenance calls on all margin accounts. The margin account balances held by the brokerage clearing agent were $14 million and $20 million at December 31, 2022 and 2021, respectively. In the event of customer default, FTS has rights to the underlying collateral provided. Given the existence of the underlying collateral provided and negligible historical credit losses, the Bancorp does not maintain a loss reserve related to the margin accounts.

Long-term borrowing obligations

The Bancorp had certain fully and unconditionally guaranteed long-term borrowing obligations issued by wholly-owned issuing trust entities of $62 million at both December 31, 2022 and 2021.

Visa litigation

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

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

In 2009, the Bancorp completed the sale of Visa, Inc. Class B Shares and entered into a total return swap in which the Bancorp will make or receive payments based on subsequent changes in the conversion rate of the Class B Shares into Class A Shares. The swap terminates on the later of the third anniversary of Visa’s IPO or the date on which the Covered Litigation is settled. Refer to Note 28 for additional information on the valuation of the swap. The counterparty to the swap as a result of its ownership of the Class B Shares will be impacted by dilutive adjustments to the conversion rate of the Class B Shares into Class A Shares caused by any Covered Litigation losses in excess of the litigation escrow account. If actual judgments in, or settlements of, the Covered Litigation significantly exceed current expectations, then additional funding by Visa of the litigation escrow account and the resulting dilution of the Class B Shares could result in a scenario where the Bancorp’s ultimate exposure associated with the Covered Litigation (the “Visa Litigation Exposure”) exceeds the value of the Class B Shares owned by the swap counterparty (the “Class B Value”). In the event the Bancorp concludes that it is probable that the Visa Litigation Exposure exceeds the Class B Value, the Bancorp would record a litigation reserve liability and a corresponding amount of other noninterest expense for the amount of the excess. Any such litigation reserve liability would be separate and distinct from the fair value derivative liability associated with the total return swap.

As of the date of the Bancorp’s sale of the Visa Class B Shares and through December 31, 2022, the Bancorp has concluded that it is not probable that the Visa Litigation Exposure will exceed the Class B value. Based on this determination, upon the sale of Class B Shares, the Bancorp reversed its net Visa litigation reserve liability and recognized a free-standing derivative liability associated with the total return swap. The fair value of the swap liability was $195 million and $214 million at December 31, 2022 and 2021, respectively. Refer to Note 14 and Note 28 for further information.

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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
Q4 2021	250		11
Q2 2022	600		25
Q4 2022	350		(a)

*(a)*The Bancorp made a cash payment of $15 million to the swap counterparty on January 13, 2023 as a result of the Visa escrow funding in the fourth quarter of 2022.

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19. 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 18 and has also entered into judgment and loss sharing agreements with Visa, MasterCard and certain other named defendants. In October 2012, the parties to the litigation entered into a settlement agreement that was initially approved by the trial court but reversed by the U.S. Second Circuit Court of Appeals and remanded to the district court for further proceedings**.** More than 500 of the merchants who requested exclusion from the class filed separate federal lawsuits against Visa, MasterCard and certain other defendants alleging similar antitrust violations. These individual federal lawsuits were transferred to the United States District Court for the Eastern District of New York. While the Bancorp is only named as a defendant in one of the individual federal lawsuits, it may have obligations pursuant to indemnification arrangements and/or the judgment or loss sharing agreements noted above. On September 17, 2018, the defendants in the consolidated class action signed a second settlement agreement (the “Amended Settlement Agreement”) resolving the claims seeking monetary damages by the proposed plaintiffs’ class (the “Plaintiff Damages Class”) and superseding the original settlement agreement entered into in October 2012. The Amended Settlement Agreement included, among other terms, a release from participating class members for liability for claims that accrue no later than five years after the Amended Settlement Agreement becomes final. The Amended Settlement Agreement provided for a total payment by all defendants of approximately $6.24 billion, composed of approximately $5.34 billion held in escrow plus an additional $900 million in new funds. Pursuant to the terms of the Settlement Agreement, $700 million of the additional $900 million has been returned to the defendants due to the level of opt-outs from the class. The Bancorp’s allocated share of the settlement is within existing reserves, including funds maintained in escrow. On December 13, 2019, the Court entered an order granting final approval for the settlement, which is currently pending appeal. The settlement does not resolve the claims of the separate proposed plaintiffs’ class seeking injunctive relief or the claims of merchants who have opted out of the proposed class settlement and are pursuing, or may in the future decide to pursue, private lawsuits. On September 27, 2021, the Court entered an order certifying a class of merchants pursuing claims for injunctive relief. The ultimate outcome in this matter, including the timing of resolution, remains uncertain. Refer to Note 18 for further information.

Klopfenstein v. Fifth Third Bank

On August 3, 2012, William Klopfenstein and Adam McKinney filed a lawsuit against Fifth Third Bank in the United States District Court for the Northern District of Ohio (Klopfenstein et al. v. Fifth Third Bank), alleging that the 120% APR that Fifth Third disclosed on its Early Access program was misleading. Early Access is a deposit-advance program offered to eligible customers with checking accounts. The plaintiffs sought to represent a nationwide class of customers who used the Early Access program and repaid their cash advances within 30 days. On October 31, 2012, the case was transferred to the United States District Court for the Southern District of Ohio. In 2013, four similar putative class action lawsuits were filed against Fifth Third Bank in federal courts throughout the country (Lori and Danielle Laskaris v. Fifth Third Bank, Janet Fyock v. Fifth Third Bank, Jesse McQuillen v. Fifth Third Bank, and Brian Harrison v. Fifth Third Bank). Those four lawsuits were transferred to the Southern District of Ohio and consolidated with the original lawsuit as In re: Fifth Third Early Access Cash Advance Litigation (Case No. 1:12-CV-851). On behalf of a putative class, the plaintiffs sought unspecified monetary and statutory damages, injunctive relief, punitive damages, attorneys’ fees, and pre- and post-judgment interest. On March 30, 2015, the court dismissed all claims alleged in the consolidated lawsuit except a claim under the TILA. On May 28, 2019, the Sixth Circuit Court of Appeals reversed the dismissal of plaintiffs’ breach of contract claim and remanded for further proceedings. The plaintiffs’ claimed damages for the alleged breach of contract claim exceed $440 million, plus prejudgment interest. On March 26, 2021, the trial court granted plaintiffs’ motion for class certification. The court has set a trial date for April 17, 2023.

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

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

Shareholder Litigation

On July 31, 2020, a putative shareholder class action lawsuit captioned Dr. Steven Fox, individually and on behalf of all others similarly situated v. Fifth Third Bancorp, et al., Case No. 2020CH05219 was filed on behalf of former shareholders of MB Financial, Inc. in the Cook County, Illinois Circuit Court. The suit brings claims for violation of Sections 11 and 12(a)(2) of the Securities Act of 1933, alleging that the Bancorp and certain of its officers and directors made material misstatements and omissions regarding an alleged improper cross-selling strategy in filings made in connection with the Bancorp’s merger with MB Financial, Inc. On March 19, 2021, the trial court denied the

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defendants’ motion to dismiss. The parties have reached an agreement in principle to resolve the matter, subject to documentation and court approval. The Bancorp does not expect the settlement to have a material impact on the Bancorp’s Consolidated Financial Statements.

In addition, shareholder derivative lawsuits have been filed seeking monetary damages on behalf of the Bancorp alleging certain claims against various officers and directors relating to an alleged improper cross-selling strategy. Five lawsuits have been consolidated into a single action pending in the U.S. District Court for the Northern District of Illinois captioned In re Fifth Third Bancorp Derivative Litigation, Case No. 1:20-cv-04115. Those cases consist of: (1) Pemberton v. Carmichael, et al., Case No. 20-cv-4115 (filed July 13, 2020); (2) Meyer v. Carmichael, et al., Case No. 20-cv-4244 (filed July 17, 2020); (3) Cox v. Carmichael, et al., Case No. 20-cv-4660 (filed August 7, 2020); (4) Hansen v. Carmichael, et al., Case No. 20-cv-5339 (filed September 10, 2020); and (5) Reese v. Carmichael, et al., Case No. 1:21-cv-01631 (filed November 4, 2020 originally as Case No. 20-cv-866 in the Southern District of Ohio). On March 31, 2022, the district court granted the defendants’ motion to dismiss those cases without prejudice. On April 29, 2022, plaintiffs filed an amended complaint. Also separately pending in the Hamilton County, Ohio Court of Common Pleas is Sandys v. Carmichael, et al., Case No. A2004539 (filed December 28, 2020) and The City of Miami Firefighters’ and Police Officers’ Retirement Trust v. Carmichael, et al., Case No. A2200330 (filed January 27, 2022). On April 18, 2022, the Sandys shareholder voluntarily dismissed the lawsuit without prejudice. The case brought by The City of Miami Firefighters’ and Police Officers’ Retirement Trust is pending.

The Bancorp has also received several shareholder demands under Ohio Rev. Code § 1701.37(c) and lawsuits have been filed arising out of the same. Finally, the Bancorp has received shareholder demands that the Bancorp’s Board of Directors investigate and commence a civil action for failure to detect and/or prevent the alleged illegal cross-selling strategy.

Howards v. Fifth Third Bank

On March 8, 2018, Plaintiff Troy Howards filed a putative class action against Fifth Third Bank in the United States District Court for the Central District of California (Case No. 1:18-CV-869, S.D. OH 2018), alleging that Fifth Third improperly charged certain fees related to insufficient funds, customer overdrafts, and out-of-network ATM use. Venue was subsequently transferred to the United States District Court for the Southern District of Ohio. Plaintiff filed claims for breach of contract, breach of the implied covenant of good faith and fair dealing, for violation of the California Unfair Competition Law (Ca. Bus. & Prof. Code sec. 17200, et seq)., and the California Consumer Legal Remedies Act (Cal. Civ. Code sec. 1750 et seq.). Plaintiff seeks to represent putative nationwide classes and California classes of consumers allegedly charged improper repeated insufficient funds fees, improper overdraft fees, and fees for out-of-network ATM use from the beginning of the applicable statute of limitations to present. Plaintiff seeks damages of restitution and disgorgement in the amount of the allegedly unlawfully charged fees, damages proved at trial together with interest as allowed by applicable law. Fifth Third filed a motion to dismiss all claims. On February 6, 2023, the trial court issued an order dismissing the Plaintiff’s breach of contract claim with respect to out-of-network ATM fees and dismissing the two claims for violations of California consumer protection statutes. The Court denied Fifth Third’s motion to dismiss as it relates to the claims for breach of contract and breach of the implied covenant of good faith and fair dealing for certain customer overdrafts and insufficient funds fees. The case is now set to begin discovery, and no trial date has been set.

Other litigation

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

Governmental Investigations and Proceedings

The Bancorp and/or its affiliates are or may become involved in information-gathering requests, reviews, investigations and proceedings (both formal and informal) by various governmental regulatory agencies and law enforcement authorities, including but not limited to the FRB, OCC, CFPB, SEC, FINRA, U.S. Department of Justice, etc., as well as state and other governmental authorities and self-regulatory bodies regarding their respective businesses. For example, the Bancorp’s broker-dealer and investment advisory subsidiaries are cooperating with an investigation by the SEC regarding compliance with certain record-keeping requirements for business-related electronic communications on unapproved channels. The SEC is conducting similar investigations of record-keeping practices at other financial institutions. Additional matters will likely arise from time to time. Any of these matters may result in material adverse consequences or reputational harm to the Bancorp, its affiliates and/or their respective directors, officers and other personnel, including adverse judgments, findings, settlements, fines, penalties, orders, injunctions or other actions, amendments and/or restatements of the Bancorp’s SEC filings and/or financial statements, as applicable, and/or determinations of material weaknesses in our disclosure controls and procedures. Investigations by regulatory authorities may from time to time result in civil or criminal referrals to law enforcement. Additionally, in some cases, regulatory authorities may take supervisory actions that are considered to be confidential supervisory information which may not be publicly disclosed.

Reasonably Possible Losses in Excess of Accruals

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and material facts may be disputed or unsubstantiated. As a result of these factors, the Bancorp is not always able to provide an estimate of the range of reasonably possible outcomes for each claim. An accrual for a potential litigation loss is established when information related to the loss contingency indicates both that a loss is probable and that the amount of loss can be reasonably estimated. Any such accrual is adjusted from time to time thereafter as appropriate to reflect changes in circumstances. The Bancorp also determines, when possible (due to the uncertainties described above), estimates of reasonably possible losses or ranges of reasonably possible losses, in excess of amounts accrued. Under U.S. GAAP, an event is “reasonably possible” if “the chance of the future event or events occurring is more than remote but less than likely” and an event is “remote” if “the chance of the future event or events occurring is slight.” Thus, references to the upper end of the range of reasonably possible loss for cases in which the Bancorp is able to estimate a range of reasonably possible loss mean the upper end of the range of loss for cases for which the Bancorp believes the risk of loss is more than slight. For matters where the Bancorp is able to estimate such possible losses or ranges of possible losses, the Bancorp currently estimates that it is reasonably possible that it could incur losses related to legal and regulatory proceedings in an aggregate amount up to approximately $150 million in excess of amounts accrued, with it also being reasonably possible that no losses will be incurred in these matters. The estimates included in this amount are based on the Bancorp’s analysis of currently available information, and as new information is obtained the Bancorp may change its estimates.

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

20. Related Party Transactions

The Bancorp maintains written policies and procedures covering related party transactions with principal shareholders, directors and executives of the Bancorp. These procedures cover transactions such as employee-stock purchase loans, personal lines of credit, residential secured loans, overdrafts, letters of credit and increases in indebtedness. Such transactions are subject to the Bancorp’s normal underwriting and approval procedures. Prior to approving a loan to a related party, Compliance Risk Management must review and determine whether the transaction requires approval from or a post notification to the Bancorp’s Board of Directors. At December 31, 2022 and 2021, certain directors, executive officers, principal holders of Bancorp common stock and their related interests were indebted, including undrawn commitments to lend, to the Bancorp’s banking subsidiary.

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


($ in millions)	2022		2021
Commitments to lend, net of participations:
Directors and their affiliated companies	$	183	157
Executive officers	5		7
Total	$	188	164

Outstanding balance on loans, net of participations and undrawn commitments	$	85	115

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

Coforge Business Process Solutions Private Limited

As of December 31, 2022, the Bancorp owns 100% of Fifth Third Mauritius Holdings Limited, which owns 40% of Coforge Business Process Solutions Private Limited (formerly known as SLK Global Solutions Private Limited), and accounts for this investment under the equity method of accounting. During the second quarter of 2021, Coforge Limited acquired a controlling interest in SLK Global Solutions Private Limited. As part of this transaction, the Bancorp sold a 9% interest in SLK Global Solutions Private Limited to Coforge Limited and recognized a gain of $12 million as a result of the transaction. The Bancorp recognized $7 million, $3 million and $5 million in other noninterest income in the Consolidated Statements of Income as part of its equity method investment in Coforge Business Process Solutions Private Limited for the years ended December 31, 2022, 2021 and 2020, respectively. The Bancorp received cash distributions of $9 million, $5 million and $1 million during the years ended December 31, 2022, 2021 and 2020, respectively. The Bancorp’s investment in Coforge Business Process Solutions Private Limited was $17 million and $19 million at December 31, 2022 and 2021, respectively. The Bancorp paid Coforge Business Process Solutions Private Limited $26 million, $21 million and $27 million for their process and software services during the years ended December 31, 2022, 2021 and 2020, respectively, which are included in other noninterest expense in the Consolidated Statements of Income.

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CDC investments

The Bancorp holds equity investments in non-consolidated VIEs related to CDC. The Bancorp had loans outstanding to these VIEs of $10 million and $22 million at December 31, 2022 and 2021, respectively, as well as unfunded commitment balances of $16 million and $36 million at December 31, 2022 and 2021, respectively. The Bancorp also held $73 million and $51 million of deposits for these entities at December 31, 2022 and 2021, respectively. For further information on CDC investments, refer to Note 12.

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21. Income Taxes

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


($ in millions)	2022		2021	2020
Current income tax expense:
U.S. Federal income taxes	$	570	657	463
State and local income taxes	126		102	69
Foreign income taxes	11		2	—
Total current income tax expense	707		761	532
Deferred income tax (benefit) expense:
U.S. Federal income taxes	(31)		(21)	(140)
State and local income taxes	(29)		8	(23)
Foreign income taxes	—		(1)	1
Total deferred income tax benefit	(60)		(14)	(162)
Applicable income tax expense	$	647	747	370

The current U.S. Federal income taxes above include proportional amortization for qualifying LIHTC investments of $189 million, $163 million and $150 million for the years ended December 31, 2022, 2021 and 2020, respectively.

The following is a reconciliation between the statutory U.S. Federal income tax rate and the Bancorp’s effective tax rate for the years ended December 31:


	2022		2021	2020
Statutory tax rate	21.0	%	21.0	21.0
Increase (decrease) resulting from:
State taxes, net of federal benefit	2.5		2.5	2.0
Tax-exempt income	(0.8)		(0.6)	(1.5)
LIHTC investment and other tax benefits	(7.1)		(5.5)	(9.7)
LIHTC investment proportional amortization	6.1		4.6	8.3
Other tax credits	(0.4)		(0.2)	(0.4)
Other, net	(0.3)		(0.6)	0.9
Effective tax rate	21.0	%	21.2	20.6

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

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


($ in millions)	2022		2021	2020
Unrecognized tax benefits at January 1	$	102	100	65
Gross increases for tax positions taken during prior period	3		10	29
Gross decreases for tax positions taken during prior period	(5)		(4)	(3)
Gross increases for tax positions taken during current period	11		11	12
Settlements with taxing authorities	—		—	(1)
Lapse of applicable statute of limitations	(17)		(15)	(2)
Unrecognized tax benefits at December 31(a)	$	94	102	100

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

The Bancorp’s unrecognized tax benefits as of December 31, 2022, 2021 and 2020 primarily related to state income tax exposures from taking tax positions where the Bancorp believes it is likely that, upon examination, a state would take a position contrary to the position taken by the Bancorp.

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

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


($ in millions)	2022		2021
Deferred tax assets:
Other comprehensive income	$	1,595	$	—
Allowance for loan and lease losses	461		397
Deferred compensation	105		106
Reserves for unfunded commitments	45		38
Reserves	34		30
Federal net operating loss carryforwards	31		15
State deferred taxes	20		—
State net operating loss carryforwards	14		3
Other	231		187
Total deferred tax assets	$	2,536	$	776
Deferred tax liabilities:
Lease financing	$	561	$	553
MSRs and related economic hedges	120		116
Goodwill and intangible assets	78		68
Bank premises and equipment	66		65
Investments in joint ventures and partnership interests	61		61
Other comprehensive income	—		367
State deferred taxes	—		6
Other	101		51
Total deferred tax liabilities	$	987	$	1,287
Total net deferred tax asset (liability)	1,549		(511)

At December 31, 2022 and 2021, the Bancorp recorded deferred tax assets of $14 million and $3 million, respectively, related to state net operating loss carryforwards. The deferred tax assets relating to state net operating losses are presented net of specific valuation allowances of $5 million and $4 million at December 31, 2022 and 2021, respectively. If these carryforwards are not utilized, they will expire in varying amounts through 2042.

The Bancorp has determined that a valuation allowance is not needed against the remaining deferred tax assets as of December 31, 2022 or 2021. The Bancorp considered all of the positive and negative evidence available to determine whether it is more likely than not that the deferred tax assets will ultimately be realized and, based upon that evidence, the Bancorp believes it is more likely than not that the deferred tax assets recorded at December 31, 2022 and 2021 will ultimately be realized. The Bancorp reached this conclusion as it is expected that the Bancorp’s remaining deferred tax assets will be realized through the reversal of its existing taxable temporary differences, its projected future taxable income and tax-planning strategies.

The statute of limitations for the Bancorp’s federal income tax returns remains open for tax years 2019 through 2022. On occasion, as various state and local taxing jurisdictions examine the returns of the Bancorp and its subsidiaries, the Bancorp may agree to extend the statute of limitations for a reasonable period of time. Otherwise, the statutes of limitations for state income tax returns remain open only for tax years in accordance with each state’s statutes.

Any interest and penalties incurred in connection with income taxes are recorded as a component of applicable income tax expense in the Consolidated Financial Statements. During the years ended December 31, 2022, 2021 and 2020, the Bancorp recognized $1 million, $1 million and $3 million, respectively, of interest expense in connection with income taxes. At December 31, 2022 and 2021, the Bancorp had accrued interest liabilities, net of the related tax benefits, of $8 million and $7 million, respectively. No material liabilities were recorded for penalties related to income taxes.

Retained earnings at December 31, 2022 and 2021 included $157 million in allocations of earnings for bad debt deductions of former thrift subsidiaries for which no income tax has been provided. Under current tax law, if certain of the Bancorp’s subsidiaries use these bad debt reserves for purposes other than to absorb bad debt losses, they will be subject to federal income tax at the current corporate tax rate.

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22. Retirement and Benefit Plans

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

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


($ in millions)	2022		2021
Fair value of plan assets at January 1	$	152	173
Actual return on assets	(27)		(3)
Contributions	2		1
Settlement	(11)		(12)
Benefits paid	(7)		(7)
Fair value of plan assets at December 31	$	109	152
Projected benefit obligation at January 1	$	176	203
Interest cost	5		4
Settlement	(11)		(12)
Actuarial gain	(43)		(12)
Benefits paid	(7)		(7)
Projected benefit obligation at December 31	$	120	176
Underfunded projected benefit obligation at December 31	$	(11)	(24)
Accumulated benefit obligation at December 31(a)	$	120	176

*(a)*Since the Plan’s benefits are frozen, the rate of compensation increase is no longer an assumption used to calculate the accumulated benefit obligation. Therefore, the accumulated benefit obligation was the same as the projected benefit obligation at both December 31, 2022 and 2021.

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


($ in millions)	2022		2021	2020
Components of net periodic benefit cost:
Interest cost	$	5	4	6
Expected return on assets	(4)		(4)	(4)
Amortization of net actuarial loss	3		6	6
Settlement	3		3	3
Net periodic benefit cost	$	7	9	11
Other changes in plan assets and benefit obligations recognized in other comprehensive income:
Net actuarial (gain) loss	$	(11)	(5)	12
Amortization of net actuarial loss	(3)		(6)	(6)
Settlement	(3)		(3)	(3)
Total recognized in other comprehensive income	(17)		(14)	3
Total recognized in net periodic benefit cost and other comprehensive income	$	(10)	(5)	14

Fair Value Measurements of Plan Assets

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


	Fair Value Measurements Using(a)
2022 ($ in millions)	Level 1		Level 2	Level 3	Total Fair Value
Cash equivalents	$	8	—	—	8

Debt securities:
U.S. Treasury and federal agencies securities	54		3	—	57


Asset-backed securities and other debt securities(b)	—		44	—	44
Total debt securities	$	54	47	—	101
Total Plan assets	$	62	47	—	109

*(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)
2021 ($ in millions)	Level 1		Level 2	Level 3	Total Fair Value
Cash equivalents	$	5	—	—	5
Mutual and exchange-traded funds	51		—	—	51
Debt securities:
U.S. Treasury and federal agencies securities	54		5	—	59
Mortgage-backed securities:
Non-agency commercial mortgage-backed securities	—		1	—	1
Asset-backed securities and other debt securities(b)	—		36	—	36
Total debt securities	$	54	42	—	96
Total Plan assets	$	110	42	—	152

*(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 which primarily utilize quoted prices of securities with similar characteristics. Examples of such instruments, which are classified within Level 2 of the valuation hierarchy, include federal agencies securities, non-agency commercial mortgage-backed securities and asset-backed securities and other debt securities.

Plan Assumptions

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

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


	2022		2021	2020
For measuring benefit obligations at year end:
Discount rate	5.37	%	2.85	2.26
For measuring net periodic benefit cost:
Discount rate	3.69		2.26	3.05
Expected return on plan assets	3.91		2.43	2.64

Lowering both the expected rate of return on the plan assets and the discount rate by 0.25% would have increased the 2022 pension expense by approximately $1 million.

Based on the actuarial assumptions, the Bancorp expects to contribute $2 million to the Plan in 2023. Estimated pension benefit payments are $14 million for 2023, $13 million for 2024, $13 million for 2025, $12 million for 2026 and $12 million for 2027. The total estimated payments for the years 2028 through 2032 is $47 million.

Investment Policies and Strategies

The Bancorp’s policy for the investment of Plan assets is to employ investment strategies that achieve a range of weighted-average target asset allocations relating to equity securities, fixed-income securities (including U.S. Treasury and federal agencies securities, mortgage-

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backed securities, asset-backed securities, corporate bonds and municipal bonds), alternative strategies (including traditional mutual funds, precious metals and commodities) and cash.

The following table provides the Bancorp’s targeted and actual weighted-average asset allocations by asset category, with mutual and exchange-traded funds incorporated according to their underlying investments, for the years ended December 31:


	Targeted Range	2022		2021
Equity securities	0-55 %	—		—
Fixed-income securities	50-100	92		96
Alternative strategies	0-5	—		—
Cash or cash equivalents	0-100	8		4
Total		100	%	100

Plan Management’s objective is to achieve and maintain a fully-funded status of the qualified defined benefit plan while also minimizing the risk of excess assets. As a result, the portfolio assets of the qualified defined benefit plan will continue to increase the weighting of long duration fixed income, or liability matching assets, as the funded status increases. There were no significant concentrations of risk associated with the investments of the Plan at December 31, 2022.

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

Fifth Third Bank, National Association, as Trustee, is expected to manage Plan assets in a manner consistent with the Plan agreement and other regulatory, federal and state laws. The Fifth Third Bank Pension, 401(k) and Medical Plan Committee (the “Committee”) is the plan administrator. The Trustee is required to provide to the Committee monthly and quarterly reports covering a list of Plan assets, portfolio performance, transactions and asset allocation. The Trustee is also required to keep the Committee apprised of any material changes in the Trustee’s outlook and recommended investment policy. There were no fees paid by the Plan for investment management, accounting or administrative services provided by the Trustee for the years ended December 31, 2022, 2021 and 2020.

Other Information on Retirement and Benefit Plans

The Bancorp has a qualified defined contribution savings plan that allows participants to make voluntary 401(k) contributions on a pre-tax or Roth basis, subject to statutory limitations. Expenses recognized for matching contributions to the Bancorp’s qualified defined contribution savings plan were $111 million, $108 million and $105 million for the years ended December 31, 2022, 2021 and 2020, respectively. The Bancorp did not make profit sharing contributions during the years ended December 31, 2022, 2021 and 2020. In addition, the Bancorp has a non-qualified defined contribution plan that allows certain employees to make voluntary contributions into a deferred compensation plan. Expenses recognized by the Bancorp for its non-qualified defined contribution plan were $7 million, $5 million and $5 million for the years ended December 31, 2022, 2021 and 2020, respectively.

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23. Accumulated Other Comprehensive Income

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


	Total OCI				Total AOCI
2022 ($ in millions)	Pre-tax Activity		Tax Effect	Net Activity	Beginning Balance	Net Activity	Ending Balance
Unrealized holding losses on available-for-sale debt securities arising during the year	$	(7,194)	1,716	(5,478)
Reclassification adjustment for net gains on available-for-sale debt securities included in net income	(2)		—	(2)
Net unrealized losses on available-for-sale debt securities	(7,196)		1,716	(5,480)	891	(5,480)	(4,589)

Unrealized holding losses on cash flow hedge derivatives arising during the year	(1,006)		232	(774)
Reclassification adjustment for net gains on cash flow hedge derivatives included in net income	(99)		22	(77)
Net unrealized losses on cash flow hedge derivatives	(1,105)		254	(851)	353	(851)	(498)

Net actuarial gain arising during the year	11		(2)	9
Reclassification of amounts to net periodic benefit costs	6		(1)	5
Defined benefit pension plans, net	17		(3)	14	(33)	14	(19)

Other	—		—	—	(4)	—	(4)
Total	$	(8,284)	1,967	(6,317)	1,207	(6,317)	(5,110)


	Total OCI				Total AOCI
2021 ($ in millions)	Pre-tax Activity		Tax Effect	Net Activity	Beginning Balance	Net Activity	Ending Balance
Unrealized holding losses on available-for-sale debt securities arising during the year	$	(1,366)	323	(1,043)
Reclassification adjustment for net losses on available-for-sale debt securities included in net income	4		(1)	3
Net unrealized gains on available-for-sale debt securities	(1,362)		322	(1,040)	1,931	(1,040)	891

Unrealized holding losses on cash flow hedge derivatives arising during the year	(185)		43	(142)
Reclassification adjustment for net gains on cash flow hedge derivatives included in net income	(293)		70	(223)
Net unrealized gains on cash flow hedge derivatives	(478)		113	(365)	718	(365)	353

Net actuarial gain arising during the year	5		(1)	4
Reclassification of amounts to net periodic benefit costs	9		(2)	7
Defined benefit pension plans, net	14		(3)	11	(44)	11	(33)

Other	—		—	—	(4)	—	(4)
Total	$	(1,826)	432	(1,394)	2,601	(1,394)	1,207

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	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

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


($ in millions)	Consolidated Statements of Income Caption	2022		2021	2020
Net unrealized (losses) gains on available-for-sale debt securities:(b)
Net gains (losses) included in net income	Securities (losses) gains, net	$	2	(4)	45
	Income before income taxes	2		(4)	45
	Applicable income tax expense	—		1	(11)
	Net income	2		(3)	34
Net unrealized (losses) gains on cash flow hedge derivatives:(b)
Interest rate contracts related to C&I, commercial mortgage and commercial construction loans	Interest and fees on loans and leases	99		293	237
	Income before income taxes	99		293	237
	Applicable income tax expense	(22)		(70)	(50)
	Net income	77		223	187
Net periodic benefit costs:(b)
Amortization of net actuarial loss	Compensation and benefits(a)	(3)		(6)	(6)
Settlements	Compensation and benefits(a)	(3)		(3)	(3)
	Income before income taxes	(6)		(9)	(9)
	Applicable income tax expense	1		2	2
	Net income	(5)		(7)	(7)
Total reclassifications for the period	Net income	$	74	213	214

*(a)*This AOCI component is included in the computation of net periodic benefit cost. Refer to Note 22 for information on the computation of net periodic benefit cost.

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

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24. Common, Preferred and Treasury Stock

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


	Common Stock			Preferred Stock			Treasury Stock
($ in millions, except share data)	Value		Shares	Value		Shares	Value		Shares
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
Shares acquired for treasury	—		—	—		—	(1,393)		35,652,079
Impact of stock transactions under stock compensation plans, net	—		—	—		—	44		(5,621,878)
Other	—		—	—		—	1		(47,540)
December 31, 2021	$	2,051	923,892,581	$	2,116	278,000	$	(7,024)	241,114,917
Shares acquired for treasury	—		—	—		—	(100)		3,079,462
Impact of stock transactions under stock compensation plans, net	—		—	—		—	21		(3,687,834)
Other	—		—	—		—	—		156
December 31, 2022	$	2,051	923,892,581	$	2,116	278,000	$	(7,103)	240,506,701

Preferred Stock—Series L

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

Preferred Stock—Series K

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

Preferred Stock—Class B, Series A

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

Preferred Stock—Series J

On June 5, 2014, the Bancorp issued, in a registered public offering, 300,000 depositary shares, representing 12,000 shares of 4.90% fixed to floating-rate non-cumulative Series J perpetual preferred stock, for net proceeds of $297 million. Each preferred share has a $25,000 liquidation preference. The preferred stock accrued dividends, on a non-cumulative semi-annual basis, at an annual rate of 4.90% through but excluding September 30, 2019, at which time it converted to a quarterly floating-rate dividend of three-month LIBOR plus 3.129%. Subject to any required regulatory approval, the Bancorp may redeem the Series J preferred shares at its option, in whole or in part, at any time on or

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after September 30, 2019, or any time prior following a regulatory capital event. The Series J preferred shares are not convertible into Bancorp common shares or any other securities.

Preferred Stock—Series I

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

Preferred Stock—Series H

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

Treasury Stock

In June of 2019, the Board of Directors authorized the Bancorp to repurchase up to 100 million common shares in the open market or in privately negotiated transactions and to utilize any derivative or similar instrument to effect share repurchase transactions.

Under this authorization, the Bancorp entered into and settled a number of accelerated share repurchase transactions during the years ended December 31, 2022 and 2021. As part of these transactions, the Bancorp entered into forward contracts in which the final number of shares delivered at settlement was based generally on a discount to the average daily volume-weighted average price of the Bancorp’s common stock during the term of these repurchase agreements. The accelerated share repurchases were treated as two separate transactions: (i) the repurchase of treasury shares on the repurchase date and (ii) a forward contract indexed to the Bancorp’s common stock.

The following table presents a summary of the Bancorp’s accelerated share repurchase transactions that were entered into and settled during the years ended December 31, 2022 and 2021:


Repurchase Date	Amount ($ in millions)		Shares Repurchased on Repurchase Date	Shares Received from Forward Contract Settlement	Total Shares Repurchased	Final Settlement Date
January 26, 2021	$	180	4,951,456	366,939	5,318,395	March 31, 2021
April 23, 2021	347		7,894,807	675,295	8,570,102	June 11, 2021
July 27, 2021(a)	550		13,065,958	1,413,211	14,479,169	September 29, 2021
October 29, 2021	316		6,211,841	1,072,572	7,284,413	December 2, 2021
December 8, 2022	100		2,636,476	442,986	3,079,462	December 19, 2022

*(a)*This accelerated share repurchase transaction consisted of two supplemental confirmations each with a notional amount of $275 million.

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25. Stock-Based Compensation

Stock-based awards are eligible for issuance under the Bancorp’s Incentive Compensation Plan to executives, directors and key employees of the Bancorp and its subsidiaries. The 2021 Incentive Compensation Plan was approved by shareholders on April 13, 2021 and authorized the issuance of up to 50 million shares as equity compensation. The plan authorizes the issuance of SARs, RSAs, RSUs, stock options, performance share or unit awards, dividend or dividend equivalent rights and stock awards. As of December 31, 2022, there were 36.8 million shares available for future issuance. Based on total stock-based awards outstanding (including SARs, RSUs, stock options and PSAs) and shares remaining for future grants under the 2021 Incentive Compensation Plan, the potential dilution to which the Bancorp’s common shareholders are exposed due to the potential that stock-based compensation will be awarded to executives, directors or key employees of the Bancorp and its subsidiaries is 8%. SARs, RSUs, stock options and PSAs outstanding represent 3% of the Bancorp’s issued shares at December 31, 2022.

All of the Bancorp’s stock-based awards are to be settled with stock. The Bancorp has historically used treasury stock to settle stock-based awards, when available. SARs, issued at fair value based on the closing price of the Bancorp’s common stock on the date of grant, have terms up to ten years and vest and typically become exercisable ratably over a three year period of continued employment. The Bancorp does not grant discounted SARs or stock options, re-price previously granted SARs or stock options or grant reload stock options. RSUs are typically released after three or four years or ratably over three or four years of continued employment and receive dividend equivalents. Dividend equivalents are accrued and paid in cash when the underlying shares are distributed, except for certain RSUs which have the rights to receive dividend equivalents paid in cash at each dividend payment date. For PSAs that are eligible to receive dividend equivalents, the accrued cash dividends are adjusted by the payout percentage achieved on the underlying awards. Stock options were previously issued at fair value based on the closing price of the Bancorp’s common stock on the date of grant, had up to ten year terms and vested and became fully exercisable ratably over a three or four-year period of continued employment. PSAs have three-year cliff vesting terms with performance conditions as defined by the plan. All of the Bancorp’s executive stock-based awards contain an annual performance hurdle of 2% return on tangible common equity. If this threshold is not met in any one of the three years during the performance period, one-third of PSAs are forfeited. Additionally, if this threshold is not met, all SARs and RSUs that would vest in the next year may also be forfeited at the discretion of the Human Capital and Compensation Committee of the Board of Directors. The Bancorp met this threshold as of December 31, 2022.

Stock-based compensation expense was $165 million, $120 million and $123 million for the years ended December 31, 2022, 2021 and 2020, respectively, and is included in compensation and benefits expense in the Consolidated Statements of Income. The total related income tax benefit recognized was $34 million, $25 million and $26 million for the years ended December 31, 2022, 2021 and 2020, respectively.

Stock Appreciation Rights

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

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


	2022		2021	2020
Expected life (in years)	7		7	7
Expected volatility	31	%	29	24
Expected dividend yield	3.4		3.2	3.2
Risk-free interest rate	2.7		0.9	1.5

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

The grant-date fair value of SARs is measured using the Black-Scholes option-pricing model. The weighted-average grant-date fair value of SARs granted was $12.76, $7.84 and $6.82 per share for the years ended December 31, 2022, 2021 and 2020, respectively. The total grant-date fair value of SARs that vested during the years ended December 31, 2022, 2021 and 2020 was $2 million, $8 million and $15 million, respectively.

At December 31, 2022, there was $2 million of stock-based compensation expense related to outstanding SARs not yet recognized. The expense is expected to be recognized over an estimated remaining weighted-average period at December 31, 2022 of 1.8 years.

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The following table summarizes SARs activity for the years ended December 31:


	2022			2021			2020
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	11,185	$	20.47	19,258	$	18.83	21,449	$	18.38
Granted	304	46.96		322	33.53		365	29.64
Exercised	(2,358)	17.05		(8,367)	17.20		(2,420)	16.10
Forfeited or expired	(19)	30.43		(28)	23.01		(136)	25.50
Outstanding at December 31	9,112	$	22.22	11,185	$	20.47	19,258	$	18.83
Exercisable at December 31	8,487	$	20.97	10,515	$	19.80	17,979	$	18.19

The following table summarizes outstanding and exercisable SARs by grant price per share at December 31, 2022.


	Outstanding SARs				Exercisable SARs
SARs (in thousands, except per share data)	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	4,845	$	17.56	2.2	4,845	$	17.56	2.2
$20.01-$30.00	3,449	24.95		3.5	3,335	24.78		3.3
$30.01-$40.00	568	33.41		7.2	307	33.28		6.1
Over $40.00	250	49.51		9.1	—	—		—
All SARs	9,112	$	22.22	3.2	8,487	$	20.97	2.8

Restricted Stock Units

The total grant-date fair value of RSUs that were released during the years ended December 31, 2022, 2021 and 2020 was $110 million, $99 million and $107 million, respectively. At December 31, 2022, there was $183 million of stock-based compensation expense related to outstanding RSUs not yet recognized. The expense is expected to be recognized over an estimated remaining weighted-average period at December 31, 2022 of 2.4 years.

The following table summarizes RSUs activity for the years ended December 31:


	2022			2021			2020
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	9,487	$	30.67	9,466	$	28.38	10,006	$	27.30
Granted	4,682	47.11		4,186	34.25		4,177	28.75
Released	(3,608)	30.54		(3,432)	28.87		(4,076)	26.19
Forfeited	(655)	37.12		(733)	29.80		(641)	27.70
Outstanding at December 31	9,906	$	38.04	9,487	$	30.67	9,466	$	28.38

The following table summarizes outstanding RSUs by grant-date fair value per unit at December 31, 2022.


	Outstanding RSUs
RSUs (in thousands)	Units	Weighted-Average Remaining Contractual Life (in years)
Under $25.00	431	0.2
$25.01-$30.00	2,249	0.4
$30.01-$35.00	2,471	1.2
$35.01-$40.00	1,021	1.3
$40.01-$45.00	165	1.9
$45.01 and over	3,569	1.6
All RSUs	9,906	1.1

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Stock Options

There were no stock options granted during the years ended December 31, 2022, 2021 and 2020. The Bancorp generally utilizes the Black-Scholes option pricing model to measure the fair value of stock option grants.

The total intrinsic value of stock options exercised was $2 million, $7 million and $3 million for the years ended December 31, 2022, 2021 and 2020, respectively. Cash received from stock options exercised was $1 million, $6 million and $5 million for the years ended December 31, 2022, 2021 and 2020, respectively. The tax benefit realized from exercised stock options was immaterial for the year ended December 31, 2022 and $1 million for both the years ended December 31, 2021 and 2020. An immaterial amount of stock options vested during the years ended December 31, 2022, 2021 and 2020. As of December 31, 2022, the aggregate intrinsic value of both outstanding stock options and exercisable stock options was $3 million.

The following table summarizes stock options activity for the years ended December 31:


	2022			2021			2020
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	409	$	21.51	793	$	20.81	1,381	$	20.15
Exercised	(97)	21.06		(384)	20.06		(440)	17.48
Forfeited or expired	—	—		—	—		(148)	23.99
Outstanding at December 31	312	$	21.65	409	$	21.51	793	$	20.81
Exercisable at December 31	312	$	21.65	386	$	21.31	725	$	20.34

The following table summarizes outstanding and exercisable stock options by exercise price per share at December 31, 2022.


	Outstanding Stock Options				Exercisable Stock Options
Stock Options (in thousands, except per share data)	Number of Options	Weighted-Exercise Price Per Share		Weighted-Average Remaining Contractual Life (in years)	Number of Options	Weighted-Exercise Price Per Share		Weighted-Average Remaining Contractual Life (in years)
Under $10.00	2	$	8.98	3.6	2	$	8.98	3.6
$10.01-$20.00	172	18.40		2.2	172	18.40		2.2
$20.01-$30.00	138	25.86		3.0	138	25.86		3.0
All stock options	312	$	21.65	2.6	312	$	21.65	2.6

Other Stock-Based Compensation

PSAs are payable contingent upon the Bancorp achieving certain predefined performance targets over a three-year measurement period. Depending on performance, between zero and 1.2 million shares may be released to settle the PSAs outstanding at December 31, 2022 once the applicable performance periods are completed. Awards granted during the years ended December 31, 2022, 2021 and 2020 will be entirely settled in stock. The performance targets are based on the Bancorp’s performance relative to a defined peer group. PSAs use a performance-based metric based on return on tangible common equity in relation to peers. During the years ended December 31, 2022, 2021 and 2020, approximately 288 thousand, 251 thousand and 280 thousand PSAs, respectively, were granted by the Bancorp. These awards were granted at a weighted-average grant-date fair value of $47.03, $33.53 and $29.64 per unit during the years ended December 31, 2022, 2021 and 2020, respectively.

The Bancorp sponsors an employee stock purchase plan that allows qualifying employees to purchase shares of the Bancorp’s common stock with a 15% match. During the years ended December 31, 2022, 2021 and 2020, there were approximately 520 thousand, 470 thousand and 884 thousand shares, respectively, purchased by participants and the Bancorp recognized stock-based compensation expense of $2 million in each of the respective years. As of December 31, 2022, there were approximately 2.7 million shares available for future issuance, which represents the remaining shares of Fifth Third common stock under the Bancorp’s 1993 Stock Purchase Plan, as amended and restated, including an additional 1.5 million shares approved by shareholders on March 28, 2007 and an additional 12 million shares approved by shareholders on April 21, 2009.

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26. Other Noninterest Income and Other Noninterest Expense

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


($ in millions)	2022		2021	2020
Other noninterest income:
Private equity investment income	$	70	81	75
BOLI income	64		61	63
Cardholder fees	54		50	44
Income from the TRA associated with Worldpay, Inc.	46		46	74
Banking center income	24		23	20
Equity method investment income	22		30	12
Consumer loan fees	19		17	20
Gains on contract sales	3		62	2
Loss on swap associated with the sale of Visa, Inc. Class B Shares	(84)		(86)	(103)
Other, net	47		48	4
Total other noninterest income	$	265	332	211
Other noninterest expense:
Loan and lease	$	167	217	162
FDIC insurance and other taxes	132		114	118
Losses and adjustments	91		69	100
Data processing	82		79	75
Travel	60		34	27
Professional service fees	54		63	49
Intangible amortization	47		44	48
Postal and courier	40		37	36
Other, net	295		294	306
Total other noninterest expense	$	968	951	921

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27. Earnings Per Share

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


	2022				2021			2020
($ 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	$	2,330			2,659			1,323
Less: Income allocated to participating securities	2				7			6
Net income allocated to common shareholders	$	2,328	689	3.38	2,652	702	3.78	1,317	715	1.84
Earnings Per Diluted Share:
Net income available to common shareholders	$	2,330			2,659			1,323
Effect of dilutive securities:
Stock-based awards	—		6		—	9		—	5
Net income available to common shareholders plus assumed conversions	2,330				2,659			1,323
Less: Income allocated to participating securities	2				7			6
Net income allocated to common shareholders plus assumed conversions	$	2,328	695	3.35	2,652	711	3.73	1,317	720	1.83

Shares are excluded from the computation of earnings per diluted share when their inclusion has an anti-dilutive effect on earnings per share. The diluted earnings per share computation for the years ended December 31, 2022, 2021 and 2020 excludes 3 million, an immaterial amount and 7 million shares, respectively, of stock-based awards because their inclusion would have been anti-dilutive.

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28. 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, 2022 ($ 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	$	2,495	—	—	2,495
Obligations of states and political subdivisions securities	—		18	—	18
Mortgage-backed securities:
Agency residential mortgage-backed securities	—		11,237	—	11,237
Agency commercial mortgage-backed securities	—		26,322	—	26,322
Non-agency commercial mortgage-backed securities	—		4,715	—	4,715
Asset-backed securities and other debt securities	—		5,842	—	5,842
Available-for-sale debt and other securities(a)	2,495		48,134	—	50,629
Trading debt securities:
U.S. Treasury and federal agencies securities	23		22	—	45
Obligations of states and political subdivisions securities	—		14	—	14
Agency residential mortgage-backed securities	—		8	—	8
Asset-backed securities and other debt securities	—		347	—	347
Trading debt securities	23		391	—	414
Equity securities	306		11	—	317
Residential mortgage loans held for sale	—		600	—	600
Residential mortgage loans(b)	—		—	123	123
Servicing rights	—		—	1,746	1,746
Derivative assets:
Interest rate contracts	12		1,222	7	1,241
Foreign exchange contracts	—		454	—	454
Commodity contracts	56		1,422	—	1,478
Derivative assets(c)	68		3,098	7	3,173
Total assets	$	2,892	52,234	1,876	57,002
Liabilities:
Derivative liabilities:
Interest rate contracts	$	7	1,970	8	1,985
Foreign exchange contracts	—		422	—	422
Equity contracts	—		—	195	195
Commodity contracts	92		1,258	—	1,350
Derivative liabilities(d)	99		3,650	203	3,952
Short positions:
U.S. Treasury and federal agencies securities	66		—	—	66
Asset-backed securities and other debt securities	—		112	—	112
Short positions(d)	66		112	—	178
Total liabilities	$	165	3,762	203	4,130

*(a)*Excludes FHLB, FRB and DTCC restricted stock holdings totaling $381, $491 and $2, respectively, at December 31, 2022.

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

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

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

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	Fair Value Measurements Using
December 31, 2021 ($ 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	$	86	—	—	86
Obligations of states and political subdivisions securities	—		18	—	18
Mortgage-backed securities:
Agency residential mortgage-backed securities	—		8,782	—	8,782
Agency commercial mortgage-backed securities	—		18,951	—	18,951
Non-agency commercial mortgage-backed securities	—		4,479	—	4,479
Asset-backed securities and other debt securities	—		5,275	—	5,275
Available-for-sale debt and other securities(a)	86		37,505	—	37,591
Trading debt securities:
U.S. Treasury and federal agencies securities	72		12	—	84
Obligations of states and political subdivisions securities	—		32	—	32
Agency residential mortgage-backed securities	—		105	—	105
Asset-backed securities and other debt securities	—		291	—	291
Trading debt securities	72		440	—	512
Equity securities	365		11	—	376
Residential mortgage loans held for sale	—		1,023	—	1,023
Residential mortgage loans(b)	—		—	154	154
Servicing rights	—		—	1,121	1,121
Derivative assets:
Interest rate contracts	2		1,245	12	1,259
Foreign exchange contracts	—		323	—	323
Commodity contracts	26		1,300	—	1,326
Derivative assets(c)	28		2,868	12	2,908
Total assets	$	551	41,847	1,287	43,685
Liabilities:
Derivative liabilities:
Interest rate contracts	$	2	231	8	241
Foreign exchange contracts	—		298	—	298
Equity contracts	—		—	214	214
Commodity contracts	285		975	—	1,260
Derivative liabilities(d)	287		1,504	222	2,013
Short positions:
U.S. Treasury and federal agencies securities	96		—	—	96
Asset-backed securities and other debt securities	—		201	—	201
Short positions(d)	96		201	—	297
Total liabilities	$	383	1,705	222	2,310

*(a)*Excludes FHLB, FRB and DTCC restricted stock holdings totaling $30, $486 and $3, respectively, at December 31, 2021.

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

*(c)*Included in other assets in the 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 which primarily utilize quoted prices of securities with similar characteristics. Level 2 securities may include federal agencies securities, obligations of states and political subdivisions securities, agency residential mortgage-backed securities, agency and non-agency commercial mortgage-backed securities, asset-backed securities and other debt securities and equity securities. These securities are generally valued using a market approach based on observable prices of securities with similar characteristics.

Residential mortgage loans held for sale

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

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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

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

Servicing rights

MSRs do not trade in an active, open market with readily observable prices. While sales of MSRs do occur, the precise terms and conditions typically are not readily available. Accordingly, the Bancorp estimates the fair value of MSRs using internal OAS models with certain unobservable inputs, primarily prepayment speed assumptions, OAS and weighted-average lives, resulting in a classification within Level 3 of the valuation hierarchy. Refer to Note 13 for further information on the assumptions used in the valuation of the Bancorp’s MSRs.

Derivatives

Exchange-traded derivatives valued using quoted prices and certain over-the-counter derivatives valued using active bids are classified within Level 1 of the valuation hierarchy. Most of the Bancorp’s derivative contracts are valued using DCF or other models that incorporate current market interest rates, credit spreads assigned to the derivative counterparties and other market parameters and, therefore, are classified within Level 2 of the valuation hierarchy. Such derivatives include basic and structured interest rate, foreign exchange and commodity swaps and options. Derivatives that are valued based upon models with significant unobservable market parameters are classified within Level 3 of the valuation hierarchy. As of December 31, 2022 and 2021, derivatives classified as Level 3, which are valued using models containing unobservable inputs, consisted primarily of a total return swap associated with the Bancorp’s sale of Visa, Inc. Class B Shares as well as IRLCs, which utilize internally generated loan closing rate assumptions as a significant unobservable input in the valuation process.

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

An increase in the loss estimate or a delay in the resolution of the Covered Litigation would result in an increase in the fair value of the derivative liability; conversely, a decrease in the loss estimate or an acceleration of the resolution of the Covered Litigation would result in a decrease in the fair value of the derivative liability. Refer to Note 18 for additional information on the Covered Litigation.

The net asset fair value of the Bancorp’s IRLCs at December 31, 2022 was $1 million. Immediate decreases in current interest rates of 25 bps and 50 bps would result in increases in the fair value of the IRLCs of approximately $2 million and $3 million, respectively. Immediate increases of current interest rates of 25 bps and 50 bps would result in decreases in the fair value of the IRLCs of approximately $2 million and $4 million, respectively. Immediate changes in the assumed loan closing rates, either adverse or favorable, of 10% and 20% would result in changes in the fair value of IRLCs of approximately an immaterial amount. These sensitivities are hypothetical and should be used with caution, as changes in fair value based on a variation in assumptions typically cannot be extrapolated because the relationship of the change in assumptions to the change in fair value may not be linear.

Short positions

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

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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, 2022 ($ in millions)	Residential Mortgage Loans		Servicing Rights	Interest Rate Derivatives, Net(a)	Equity Derivatives	Total Fair Value
Balance, beginning of period	$	154	1,121	4	(214)	1,065
Total gains (losses) (realized/unrealized):(b)
Included in earnings	(18)		177	22	(84)	97
Purchases/originations	—		448	1	—	449
Settlements	(23)		—	(28)	103	52
Transfers into Level 3(c)	10		—	—	—	10
Balance, end of period	$	123	1,746	(1)	(195)	1,673
The amount of total gains (losses) for the period included in earnings attributable to the change in unrealized gains or losses relating to instruments still held at December 31, 2022	$	(18)	311	6	(84)	215

*(a)*Net interest rate derivatives include derivative assets and liabilities of $7 and $8, respectively, as of December 31, 2022.

*(b)*There were no unrealized gains or losses for the period included in other comprehensive income for instruments still held at December 31, 2022.

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


	Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
For the year ended December 31, 2021 ($ in millions)	Residential Mortgage Loans		Servicing Rights	Interest Rate Derivatives, Net(a)	Equity Derivatives	Total Fair Value
Balance, beginning of period	$	161	656	53	(201)	669
Total (losses) gains (realized/unrealized):(b)
Included in earnings	(2)		(139)	153	(86)	(74)
Purchases/originations	—		604	(3)	—	601
Settlements	(54)		—	(199)	73	(180)
Transfers into Level 3(c)	49		—	—	—	49
Balance, end of period	$	154	1,121	4	(214)	1,065
The amount of total gains (losses) for the period included in earnings attributable to the change in unrealized gains or losses relating to instruments still held at December 31, 2021	$	(2)	78	15	(86)	5

*(a)*Net interest rate derivatives include derivative assets and liabilities of $12 and $8, respectively, as of December 31, 2021.

*(b)*There were no unrealized gains or losses for the period included in other comprehensive income for instruments still held at December 31, 2021.

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


	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):(b)
Included in earnings	3		(565)	272	(103)	(393)
Purchases/originations	—		228	4	—	232
Settlements	(74)		—	(233)	65	(242)
Transfers into Level 3(c)	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	$	3	(227)	58	(103)	(269)

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

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

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

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The total gains and losses included in earnings for assets and liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) were recorded in the Consolidated Statements of Income for the years ended December 31, 2022, 2021 and 2020 as follows:


($ in millions)	2022		2021	2020
Mortgage banking net revenue	$	177	9	(291)
Commercial banking revenue	4		3	2
Other noninterest income	(84)		(86)	(104)
Total gains (losses)	$	97	(74)	(393)

The total gains and losses included in earnings attributable to changes in unrealized gains and losses related to Level 3 assets and liabilities still held at December 31, 2022, 2021 and 2020 were recorded in the Consolidated Statements of Income as follows:


($ in millions)	2022		2021	2020
Mortgage banking net revenue	$	295	88	(167)
Commercial banking revenue	4		3	2
Other noninterest income	(84)		(86)	(104)
Total gains (losses)	$	215	5	(269)

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


As of December 31, 2022 ($ in millions)
Financial Instrument	Fair Value		Valuation Technique	Significant Unobservable Inputs	Range of Inputs			Weighted-Average
Residential mortgage loans	$	123	Loss rate model	Interest rate risk factor	(24.1)	-	2.4%		(12.3)	%	(a)
				Credit risk factor	—	-	22.9%		0.5	%	(a)
								(Fixed)	5.1	%	(b)
Servicing rights	1,746		DCF	Prepayment speed	—	-	100.0%	(Adjustable)	20.3	%	(b)
								(Fixed)	734		(b)
				OAS (bps)	542	-	1,513	(Adjustable)	1,204		(b)
IRLCs, net	1		DCF	Loan closing rates	34.7	-	97.5%		86.6	%	(c)
Swap associated with the sale of Visa, Inc. Class B Shares	(195)		DCF	Timing of the resolution of the Covered Litigation	Q1 2024	-	Q1 2027		Q2 2025		(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, 2021 ($ in millions)
Financial Instrument	Fair Value		Valuation Technique	Significant Unobservable Inputs	Range of Inputs			Weighted-Average
Residential mortgage loans	$	154	Loss rate model	Interest rate risk factor	(8.5)	-	8.8%		0.4	%	(a)
				Credit risk factor	—	-	28.5%		0.3	%	(a)
								(Fixed)	10.7	%	(b)
Servicing rights	1,121		DCF	Prepayment speed	—	-	100.0%	(Adjustable)	20.6	%	(b)
								(Fixed)	686		(b)
				OAS (bps)	479	-	1,587	(Adjustable)	1,087		(b)
IRLCs, net	12		DCF	Loan closing rates	8.9	-	97.2%		80.9	%	(c)
Swap associated with the sale of Visa, Inc. Class B Shares	(214)		DCF	Timing of the resolution of the Covered Litigation	Q1 2023	-	Q2 2025		Q1 2024		(d)

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

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

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

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

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.

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The following tables provide the fair value hierarchy and carrying amount of all assets that were held as of December 31, 2022 and 2021, and for which a nonrecurring fair value adjustment was recorded during the years ended December 31, 2022 and 2021, and the related gains and losses from fair value adjustments on assets sold during the period as well as assets still held as of the end of the period.


	Fair Value Measurements Using					Total (Losses) Gains
As of December 31, 2022 ($ in millions)	Level 1		Level 2	Level 3	Total	For the year ended December 31, 2022
Commercial loans held for sale	$	—	—	40	40	(1)
Commercial loans and leases	—		—	162	162	(83)
Consumer and residential mortgage loans	—		—	109	109	1
OREO	—		—	3	3	—
Bank premises and equipment	—		—	19	19	(9)
Operating lease equipment	—		—	1	1	(2)
Private equity investments	—		9	1	10	(8)
Total	$	—	9	335	344	(102)

	Fair Value Measurements Using					Total (Losses) Gains
As of December 31, 2021 ($ in millions)	Level 1		Level 2	Level 3	Total	For the year ended December 31, 2021
Commercial loans held for sale	$	—	—	2	2	2
Commercial loans and leases	—		—	236	236	(29)
Consumer and residential mortgage loans	—		—	125	125	(1)
OREO	—		—	7	7	(6)
Bank premises and equipment	—		—	11	11	(6)
Operating lease equipment	—		—	13	13	(21)
Private equity investments	—		1	14	15	38
Total	$	—	1	408	409	(23)

The following tables present information as of December 31, 2022 and 2021 about significant unobservable inputs related to the Bancorp’s material categories of Level 3 financial assets and liabilities measured on a nonrecurring basis:


As of December 31, 2022 ($ in millions)
Financial Instrument	Fair Value		Valuation Technique	Significant Unobservable Inputs	Ranges of Inputs	Weighted-Average
Commercial loans held for sale	$	40	Comparable company analysis	Market comparable transactions	NM	NM
Commercial loans and leases	162		Appraised value	Collateral value	NM	NM
Consumer and residential mortgage loans	109		Appraised value	Collateral value	NM	NM
OREO	3		Appraised value	Appraised value	NM	NM
Bank premises and equipment	19		Appraised value	Appraised value	NM	NM
Operating lease equipment	1		Appraised value	Appraised value	NM	NM
Private equity investments	1		Comparable company analysis	Market comparable transactions	NM	NM

As of December 31, 2021 ($ in millions)
Financial Instrument	Fair Value		Valuation Technique	Significant Unobservable Inputs	Ranges of Inputs	Weighted-Average
Commercial loans held for sale	$	2	Comparable company analysis	Market comparable transactions	NM	NM
Commercial loans and leases	236		Appraised value	Collateral value	NM	NM
Consumer and residential mortgage loans	125		Appraised value	Collateral value	NM	NM
OREO	7		Appraised value	Appraised value	NM	NM
Bank premises and equipment	11		Appraised value	Appraised value	NM	NM
Operating lease equipment	13		Appraised value	Appraised value	NM	NM
Private equity investments	14		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 years ended December 31, 2022 and 2021, resulting in a negative fair value adjustment of $1 million and a positive fair value adjustment of $1 million during the years ended December 31, 2022 and 2021, respectively. These valuations were based on quoted prices for similar assets in active markets (Level 2 of the valuation hierarchy), appraisals of the underlying collateral or by applying unobservable inputs such as an estimated market discount to the unpaid principal balance of the loans or the appraised values of the assets (Level 3 of the valuation hierarchy). The Bancorp recognized losses on the sale of

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certain commercial loans held for sale of an immaterial amount and gains of $1 million during the years ended December 31, 2022 and 2021, respectively.

Portfolio loans and leases

During the years ended December 31, 2022 and 2021, the Bancorp recorded nonrecurring adjustments to certain collateral-dependent portfolio loans and leases. When a loan is collateral-dependent, the fair value of the loan is generally based on the fair value less cost to sell of the underlying collateral supporting the loan and therefore these loans were classified within Level 3 of the valuation hierarchy. In cases where the amortized cost basis of the loan or lease exceeds the estimated net realizable value of the collateral, then an ALLL is recognized, or a charge-off once the remaining amount is considered uncollectible.

OREO

During the years ended December 31, 2022 and 2021, the Bancorp recorded nonrecurring adjustments to certain commercial and residential real estate properties and branch-related real estate no longer intended to be used for banking purposes classified as OREO and measured at the lower of carrying amount or fair value. These nonrecurring losses were primarily due to declines in real estate values of the properties recorded in OREO. For the years ended December 31, 2022 and 2021, these losses include an immaterial amount and $5 million in losses, respectively, recorded as charge-offs on new OREO properties transferred from loans during the respective periods and an immaterial amount recorded as positive fair value adjustments and $1 million recorded as negative fair value adjustments for properties subsequent to their transfer into OREO, respectively. The fair value amounts are generally based on appraisals of the property values, resulting in a classification within Level 3 of the valuation hierarchy. In cases where the carrying amount exceeds the fair value, less costs to sell, an impairment loss is recognized. The previous tables reflect the fair value measurements of the properties before deducting the estimated costs to sell.

Bank premises and equipment

The Bancorp performs assessments of the recoverability of long-lived assets when events or changes in circumstances indicate that their carrying values may not be recoverable. These properties were written down to their lower of cost or market values. At least annually thereafter, the Bancorp will review these properties for market fluctuations. The fair value amounts were generally based on appraisals of the property values, resulting in a classification within Level 3 of the valuation hierarchy. For further information on bank premises and equipment, refer to Note 7.

Operating lease equipment

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

Private equity investments

The Bancorp accounts for its private equity investments using the measurement alternative to fair value, except for those accounted for under the equity method of accounting. Under the measurement alternative, the Bancorp carries each investment at its cost basis minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for identical or similar investments of the same issuer. The Bancorp recognized gains of $4 million and $41 million during the years ended December 31, 2022 and 2021, respectively, resulting from observable price changes. The carrying value of the Bancorp’s private equity investments still held as of December 31, 2022 includes a cumulative $40 million of positive adjustments as a result of observable price changes since January 1, 2018. Because these adjustments are based on observable transactions in inactive markets, they are classified in Level 2 of the fair value hierarchy.

For private equity investments which are accounted for using the measurement alternative to fair value, the Bancorp qualitatively evaluates each investment quarterly to determine if impairment may exist. If necessary, the Bancorp then measures impairment by estimating the value of its investment and comparing that to the investment’s carrying value, whether or not the Bancorp considers the impairment to be temporary. These valuations are typically developed using a DCF method, but other methods may be used if more appropriate for the circumstances. These valuations are based on unobservable inputs and therefore are classified in Level 3 of the fair value hierarchy. The Bancorp recognized impairments of $12 million and $3 million during the years ended December 31, 2022 and 2021, respectively. The carrying value of the Bancorp’s private equity investments still held as of December 31, 2022 includes a cumulative $34 million of impairment charges recognized since adoption of the measurement alternative to fair value on January 1, 2018.

Fair Value Option

The Bancorp elected to measure certain residential mortgage loans held for sale under the fair value option as allowed under U.S. GAAP. Electing to measure residential mortgage loans held for sale at fair value reduces certain timing differences and better matches changes in the value of these assets with changes in the value of derivatives used as economic hedges for these assets. Management’s intent to sell residential mortgage loans classified as held for sale may change over time due to such factors as changes in the overall liquidity in markets

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or changes in characteristics specific to certain loans held for sale. Consequently, these loans may be reclassified to loans held for investment and maintained in the Bancorp’s loan portfolio. In such cases, the loans will continue to be measured at fair value.

Fair value changes recognized in earnings for residential mortgage loans held at December 31, 2022 and 2021 for which the fair value option was elected, as well as the changes in fair value of the underlying IRLCs, included losses of $10 million and gains of $28 million, respectively. These losses and gains are reported in mortgage banking net revenue in the Consolidated Statements of Income.

Valuation adjustments related to instrument-specific credit risk for residential mortgage loans measured at fair value negatively impacted the fair value of those loans by $1 million and an immaterial amount at December 31, 2022 and 2021, respectively. Interest on loans measured at fair value is accrued as it is earned using the effective interest method and is reported as interest income in the Consolidated Statements of Income.

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


($ in millions)	Aggregate Fair Value		Aggregate Unpaid Principal Balance	Difference
December 31, 2022
Residential mortgage loans measured at fair value	$	723	733	(10)
Past due loans of 30-89 days	1		1	—

Nonaccrual loans	2		2	—
December 31, 2021
Residential mortgage loans measured at fair value	$	1,177	1,149	28
Past due loans of 90 days or more	3		3	—

The Bancorp may invest in certain hybrid financial instruments with embedded derivatives that are not clearly and closely related to the host contracts. The Bancorp elected to measure the entire instrument at fair value with changes in fair value recognized in earnings. The Bancorp did not hold these investments as of December 31, 2022 and the carrying value of these investments was $89 million as of December 31, 2021 and the investments were classified as trading debt securities in the Consolidated Balance Sheets. Fair value changes recognized in earnings included gains of $11 million and losses of $3 million for the years ended December 31, 2022 and 2021, respectively, reported in securities (losses) gains, net in the Consolidated Statements of Income.

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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, 2022 ($ in millions)	Amount		Level 1	Level 2	Level 3	Fair Value
Financial assets:
Cash and due from banks	$	3,466	3,466	—	—	3,466
Other short-term investments	8,351		8,351	—	—	8,351
Other securities	874		—	874	—	874
Held-to-maturity securities	5		—	—	5	5
Loans and leases held for sale	407		—	—	414	414
Portfolio loans and leases:
Commercial loans and leases	75,262		—	—	75,104	75,104
Consumer and residential mortgage loans	43,901		—	—	42,193	42,193
Total portfolio loans and leases, net	$	119,163	—	—	117,297	117,297
Financial liabilities:
Deposits	$	163,690	—	163,634	—	163,634
Federal funds purchased	180		180	—	—	180
Other short-term borrowings	4,838		—	4,829	—	4,829
Long-term debt	13,778		13,218	411	—	13,629

	Net Carrying		Fair Value Measurements Using			Total
As of December 31, 2021 ($ in millions)	Amount		Level 1	Level 2	Level 3	Fair Value
Financial assets:
Cash and due from banks	$	2,994	2,994	—	—	2,994
Other short-term investments	34,572		34,572	—	—	34,572
Other securities	519		—	519	—	519
Held-to-maturity securities	8		—	—	8	8
Loans and leases held for sale	3,392		—	—	3,405	3,405
Portfolio loans and leases:
Commercial loans and leases	69,166		—	—	69,924	69,924
Consumer and residential mortgage loans	40,838		—	—	41,632	41,632
Total portfolio loans and leases, net	$	110,004	—	—	111,556	111,556
Financial liabilities:
Deposits	$	169,324	—	169,316	—	169,316
Federal funds purchased	281		281	—	—	281
Other short-term borrowings	980		—	980	—	980
Long-term debt	11,425		12,091	387	—	12,478

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29. Regulatory Capital Requirements and Capital Ratios

The Board of Governors of the Federal Reserve System issued capital adequacy guidelines pursuant to which it assesses the adequacy of capital in examining and supervising a BHC. These guidelines include quantitative measures that assign risk weightings to assets and off-balance sheet items, define and set minimum regulatory capital requirements as well as the measure of “well-capitalized” status. Additionally, the U.S. banking agencies issued similar guidelines for minimum regulatory capital requirements and “well-capitalized” measurements for banking subsidiaries.

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


	Minimum		Well-Capitalized
CET1 capital:
Fifth Third Bancorp	4.50	%	N/A
Fifth Third Bank, National Association	4.50		6.50
Tier 1 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
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 is subject to the stress capital buffer requirement and must maintain capital ratios above its buffered minimum (regulatory minimum plus stress capital buffer) in order to avoid certain limitations on capital distributions and discretionary bonuses to executive officers. The FRB uses the supervisory stress test to determine the Bancorp’s stress capital buffer, subject to a floor of 2.5%. The Bancorp’s stress capital buffer requirement has been 2.5% since the introduction of this framework and was most recently affirmed as part of the FRB’s 2022 supervisory stress test with an effective date of October 1, 2022. The Bancorp’s capital ratios have exceeded the stress capital buffer requirement for all periods presented.

The Bancorp and its banking subsidiary, Fifth Third Bank, National Association, had CET1 capital, Tier 1 risk-based capital, Total risk-based capital and Leverage ratios above the “well-capitalized” levels at both December 31, 2022 and 2021. To continue to qualify for financial holding company status pursuant to the Gramm-Leach-Bliley Act of 1999, the Bancorp’s banking subsidiary must, among other things, maintain “well-capitalized” capital ratios.

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


	2022				2021
($ in millions)	Amount		Ratio		Amount		Ratio
CET1 capital:
Fifth Third Bancorp	$	15,670	9.28	%	$	14,781	9.54	%
Fifth Third Bank, National Association	18,952		11.31		16,723		10.90
Tier 1 risk-based capital:
Fifth Third Bancorp	17,786		10.53		16,897		10.91
Fifth Third Bank, National Association	18,952		11.31		16,723		10.90
Total risk-based capital:
Fifth Third Bancorp	21,606		12.79		20,789		13.42
Fifth Third Bank, National Association	21,463		12.81		18,917		12.33
Leverage:(a)
Fifth Third Bancorp	17,786		8.56		16,897		8.27
Fifth Third Bank, National Association	18,952		9.23		16,723		8.29

*(a)*Quarterly average assets are a component of the Leverage ratio and for this purpose do not include goodwill and any other intangible assets and other investments that the U.S. banking agencies determine should be deducted from Tier 1 capital.

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30. Parent Company Financial Statements


Condensed Statements of Income (Parent Company Only)
For the years ended December 31 ($ in millions)	2022		2021	2020
Income
Dividends from consolidated nonbank subsidiaries(a)	$	165	3,040	1,285
Securities (losses) gains, net	(9)		1	1
Interest	11		11	17
Total income	167		3,052	1,303
Expenses
Interest	311		250	266
Other	19		30	26
Total expenses	330		280	292
(Loss) Income Before Income Taxes and Equity in Undistributed Earnings of Subsidiaries	(163)		2,772	1,011
Applicable income tax benefit	(76)		(62)	(65)
(Loss) Income Before Equity in Undistributed Earnings of Subsidiaries	(87)		2,834	1,076
Equity in undistributed earnings	2,533		(64)	351
Net Income Attributable to Bancorp	$	2,446	2,770	1,427
Other Comprehensive Income	—		—	—
Comprehensive Income Attributable to Bancorp	$	2,446	2,770	1,427

*(a)*Includes dividends paid by the Bancorp’s indirect banking subsidiary to the Bancorp’s direct nonbank subsidiary holding company of $3.0 billion and $1.3 billion for the years ended December 31, 2021 and 2020, respectively. The Bancorp’s indirect banking subsidiary did not pay dividends during the year ended December 31, 2022.


Condensed Balance Sheets (Parent Company Only)
As of December 31 ($ in millions)	2022		2021
Assets
Cash	$	120	122
Other short-term investments	5,667		6,234
Available-for-sale debt and other securities	1,000		—
Equity securities	34		49
Loans to nonbank subsidiaries	60		192
Investment in nonbank subsidiaries	20,256		23,877
Goodwill	80		80
Other assets	326		431
Total Assets	$	27,543	30,985
Liabilities
Other short-term borrowings	$	121	361
Accrued expenses and other liabilities	764		487
Long-term debt (external)	9,331		7,927
Total Liabilities	$	10,216	8,775
Equity
Common stock	$	2,051	2,051
Preferred stock	2,116		2,116
Capital surplus	3,684		3,624
Retained earnings	21,689		20,236
Accumulated other comprehensive (loss) income	(5,110)		1,207
Treasury stock	(7,103)		(7,024)
Total Equity	17,327		22,210
Total Liabilities and Equity	$	27,543	30,985

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Condensed Statements of Cash Flows (Parent Company Only)
For the years ended December 31 ($ in millions)	2022		2021	2020
Operating Activities
Net income	$	2,446	2,770	1,427
Adjustments to reconcile net income to net cash provided by operating activities:
Amortization and accretion	7		7	7
(Benefit from) provision for deferred income taxes	(3)		(1)	—
Securities losses (gains), net	9		(1)	(1)
Equity in undistributed earnings	(2,533)		64	(351)
Net change in:
Equity securities	6		1	—
Other assets	(115)		(40)	(1)
Accrued expenses and other liabilities	45		(80)	—
Net Cash (Used in) Provided by Operating Activities	(138)		2,720	1,081
Investing Activities
Purchase of securities issued by subsidiary	(1,000)		—	—
Net change in:
Other short-term investments	567		(656)	(855)
Loans to nonbank subsidiaries	132		158	94
Net Cash Used in Investing Activities	(301)		(498)	(761)
Financing Activities
Net change in other short-term borrowings	(240)		(89)	91
Proceeds from issuance of long-term debt	2,986		498	1,243
Repayment of long-term debt	(1,200)		(250)	(1,100)
Dividends paid on common and preferred stock	(927)		(897)	(858)
Repurchase of treasury stock and related forward contract	(100)		(1,393)	—
Issuance of preferred stock	—		—	346
Other, net	(82)		(89)	(40)
Net Cash Provided by (Used in) Financing Activities	437		(2,220)	(318)
(Decrease) Increase in Cash	(2)		2	2
Cash at Beginning of Period	122		120	118
Cash at End of Period	$	120	122	120

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31. Business Segments

Results of the Bancorp’s business segments are presented based on its management structure and management accounting practices. The structure and accounting practices are specific to the Bancorp; therefore, the financial results of the Bancorp’s business segments are not necessarily comparable with similar information for other financial institutions. The Bancorp refines its methodologies from time to time as management’s accounting practices and businesses change.

During the third quarter of 2022, the Bancorp reorganized its management reporting structure and now reports on three business segments: Commercial Banking, Consumer and Small Business Banking and Wealth and Asset Management. This reorganization primarily involved merging the Bancorp’s previously reported Branch Banking and Consumer Lending segments and the transfer of certain portions of the newly combined segment to the Commercial Banking segment. These portions primarily included the loans, deposits and other services provided to relationship manager assigned lower middle-market business customers, along with the income and expenses associated with those customers. Prior period results have been adjusted to conform to the new segment presentation.

The Bancorp manages interest rate risk centrally at the corporate level. By employing an FTP methodology, the business segments are insulated from most benchmark interest rate volatility, enabling them to focus on serving customers through the origination of loans and acceptance of deposits. The FTP methodology assigns charge and credit rates to classes of assets and liabilities, respectively, based on the estimated amount and timing of the cash flows for each transaction. Assigning the FTP rate based on matching the duration of cash flows allocates interest income and interest expense to each business segment so its resulting net interest income is insulated from future changes in benchmark interest rates. The Bancorp’s FTP methodology also allocates the contribution to net interest income of the asset-generating and deposit-providing businesses on a duration-adjusted basis to better attribute the driver of the performance. As the asset and liability durations are not perfectly matched, the residual impact of the FTP methodology is captured in General Corporate and Other. The charge and credit rates are determined using the FTP rate curve, which is based on an estimate of Fifth Third’s marginal borrowing cost in the wholesale funding markets. The FTP curve is constructed using the U.S. swap curve, brokered CD pricing and unsecured debt pricing. The Bancorp’s FTP methodology was not adjusted during the years ended December 31, 2022, 2021 and 2020.

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

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

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

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

Consumer and Small Business Banking provides a full range of deposit and loan products to individuals and small businesses through a network of full-service banking centers and relationships with indirect and correspondent loan originators in addition to providing products designed to meet the specific needs of small businesses, including cash management services. Consumer and Small Business Banking includes the Bancorp’s residential mortgage, home equity loans and lines of credit, credit cards, automobile and other indirect lending and other consumer lending activities. Residential mortgage activities include the origination, retention and servicing of residential mortgage loans, sales and securitizations of those loans and all associated hedging activities. Indirect lending activities include extending loans to consumers through automobile dealers, motorcycle dealers, powersport dealers, recreational vehicle dealers and marine dealers. Other consumer lending activities include home improvement and solar energy installation loans originated through a network of contractors and installers.

Wealth and Asset Management provides a full range of wealth management services for individuals, companies and not-for-profit organizations. Wealth and Asset Management is made up of three main businesses: FTS, an indirect wholly-owned subsidiary of the Bancorp; Fifth Third Private Bank; and Fifth Third Institutional Services. FTS offers full service retail brokerage services to individual clients and broker-dealer services to the institutional marketplace. Fifth Third Private Bank offers wealth management strategies to high net worth and ultra-high net worth clients through wealth planning, investment management, banking, insurance, trust and estate services. Fifth Third

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Institutional Services provides advisory services for institutional clients including middle market businesses, non-profits, states and municipalities.

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


2022 ($ in millions)	Commercial Banking			Consumer and Small Business Banking	Wealth and Asset Management	General Corporate and Other		Eliminations		Total
Net interest income	$	2,542		3,131	262	(326)		—		5,609
Provision for credit losses	33			139	—	391		—		563
Net interest income after provision for credit losses	2,509			2,992	262	(717)		—		5,046
Noninterest income:
Service charges on deposits	372			216	1	—		—		589
Wealth and asset management revenue	3			204	540	—		(177)	(a)	570
Commercial banking revenue	563			3	1	(2)		—		565
Card and processing revenue	87			308	2	12		—		409
Leasing business revenue	237		(c)	—	—	—		—		237
Mortgage banking net revenue	—			214	1	—		—		215
Other noninterest income(b)	111			110	—	44		—		265
Securities losses, net	(33)			—	—	(49)		—		(82)
Securities losses, net -non-qualifying hedges on MSRs	—			(2)	—	—		—		(2)
Total noninterest income	1,340			1,053	545	5		(177)		2,766
Noninterest expense:
Compensation and benefits	639			828	218	869		—		2,554
Technology and communications	11			22	1	382		—		416
Net occupancy expense(d)	40			196	13	58		—		307
Equipment expense	27			38	—	80		—		145
Leasing business expense	131			—	—	—		—		131
Marketing expense	5			58	1	54		—		118
Card and processing expense	11			72	1	(4)		—		80
Other noninterest expense	959			1,175	322	(1,311)		(177)		968
Total noninterest expense	1,823			2,389	556	128		(177)		4,719
Income (loss) before income taxes	2,026			1,656	251	(840)		—		3,093
Applicable income tax expense (benefit)	377			347	53	(130)		—		647
Net income (loss)	1,649			1,309	198	(710)		—		2,446
Total goodwill	$	2,324		2,365	226	—		—		4,915
Total assets	$	83,535		83,697	14,253	25,967	(e)	—		207,452

*(a)*Revenue sharing agreements between Wealth and Asset Management and Consumer and Small Business Banking are eliminated in the Consolidated Statements of Income.

*(b)*Includes impairment charges of $6 recorded in Consumer and Small Business Banking and $3 recorded in General Corporate and Other for bank premises and equipment. For more information, refer to Note 7 and Note 28.

*(c)*Includes impairment charges of $2 f**or operating lease equipment. For more information, refer to Note 8 and Note 28.

*(d)*Includes impairment losses and termination charges of $2 for ROU assets related to certain operating leases. For more information, refer to Note 9.

*(e)*Includes bank premises and equipment of $24 classified as held for sale. For more information, refer to Note 7.

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2021 ($ in millions)	Commercial Banking			Consumer and Small Business Banking	Wealth and Asset Management	General Corporate and Other		Eliminations		Total
Net interest income	$	1,596		1,685	88	1,401		—		4,770
(Benefit from) provision for credit losses	(597)			120	(1)	101		—		(377)
Net interest income after (benefit from) provision for credit losses	2,193			1,565	89	1,300		—		5,147
Noninterest income:
Service charges on deposits	385			214	1	—		—		600
Wealth and asset management revenue	2			206	558	—		(180)	(a)	586
Commercial banking revenue	633			2	2	—		—		637
Card and processing revenue	78			312	2	10		—		402
Leasing business revenue	300		(c)	—	—	—		—		300
Mortgage banking net revenue	—			267	3	—		—		270
Other noninterest income(b)	91			108	4	129		—		332
Securities (losses) gains, net	8			—	—	(15)		—		(7)
Securities losses, net -non-qualifying hedges on MSRs	—			(2)	—	—		—		(2)
Total noninterest income	1,497			1,107	570	124		(180)		3,118
Noninterest expense:
Compensation and benefits	644			833	205	944		—		2,626
Technology and communications	17			16	1	354		—		388
Net occupancy expense(d)	37			197	15	63		—		312
Equipment expense	26			38	—	74		—		138
Leasing business expense	137			—	—	—		—		137
Marketing expense	7			41	2	57		—		107
Card and processing expense	7			85	1	(4)		—		89
Other noninterest expense	898			1,185	316	(1,268)		(180)		951
Total noninterest expense	1,773			2,395	540	220		(180)		4,748
Income before income taxes	1,917			277	119	1,204		—		3,517
Applicable income tax expense	363			57	25	302		—		747
Net income	1,554			220	94	902		—		2,770
Total goodwill	$	1,980		2,303	231	—		—		4,514
Total assets	$	75,387		85,455	13,836	36,438	(e)	—		211,116

*(a)*Revenue sharing agreements between Wealth and Asset Management and Consumer and Small Business Banking are eliminated in the Consolidated Statements of Income.

*(b)*Includes impairment charges of $6 recorded in Consumer and Small Business Banking and $1 recorded in General Corporate and Other for bank premises and equipment. For more information, refer to Note 7 and Note 28.

*(c)*Includes impairment charges of $25 for operating lease equipment. For more information, refer to Note 8 and Note 28.

*(d)*Includes impairment losses and termination charges of $3 for ROU assets related to certain operating leases. For more information, refer to Note 9.

*(e)*Includes bank premises and equipment of $24 classified as held for sale. For more information, refer to Note 7.

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2020 ($ in millions)	Commercial Banking			Consumer and Small Business Banking	Wealth and Asset Management	General Corporate and Other		Eliminations		Total
Net interest income	$	2,009		1,942	139	692		—		4,782
Provision for (benefit from) credit losses	1,086			229	3	(221)		—		1,097
Net interest income after provision for (benefit from) credit losses	923			1,713	136	913		—		3,685
Noninterest income:
Service charges on deposits	358			200	1	—		—		559
Wealth and asset management revenue	3			172	498	—		(153)	(a)	520
Commercial banking revenue	527			2	2	(3)		—		528
Card and processing revenue	68			269	2	13		—		352
Leasing business revenue	276		(c)	—	—	—		—		276
Mortgage banking net revenue	—			315	5	—		—		320
Other noninterest income(b)	101			78	18	14		—		211
Securities gains, net	—			—	—	62		—		62
Securities gains, net -non-qualifying hedges on MSRs	—			2	—	—		—		2
Total noninterest income	1,333			1,038	526	86		(153)		2,830
Noninterest expense:
Compensation and benefits	606			821	218	945		—		2,590
Technology and communications	13			12	1	336		—		362
Net occupancy expense(d)	32			185	12	121		—		350
Equipment expense	27			41	1	61		—		130
Leasing business expense	140			—	—	—		—		140
Marketing expense	9			34	2	59		—		104
Card and processing expense	7			116	1	(3)		—		121
Other noninterest expense	975			1,090	298	(1,289)		(153)		921
Total noninterest expense	1,809			2,299	533	230		(153)		4,718
Income before income taxes	447			452	129	769		—		1,797
Applicable income tax expense	49			95	27	199		—		370
Net income	398			357	102	570		—		1,427
Total goodwill	$	1,980		2,047	231	—		—		4,258
Total assets	$	71,801		77,169	12,466	43,244	(e)	—		204,680

*(a)*Revenue sharing agreements between Wealth and Asset Management and Consumer and Small Business Banking are eliminated in the Consolidated Statements of Income.

*(b)*Includes impairment charges of $15 recorded in Consumer and Small Business Banking and $15 recorded in General Corporate and Other for bank premises and equipment. For more information, refer to Note 7.

*(c)*Includes impairment charges of $7 for operating lease equipment. For more information, refer to Note 8.

*(d)*Includes impairment losses and termination charges of $8 for ROU assets related to certain operating leases. For more information, refer to Note 9.

*(e)*Includes bank premises and equipment of $35 classified as held for sale. For more information, refer to Note 7.

32. Subsequent Event

On January 20, 2023, the Bancorp entered into an accelerated share repurchase transaction with a counterparty pursuant to which the Bancorp paid $200 million on January 24, 2023 to repurchase shares of its outstanding common stock. The Bancorp is repurchasing the shares of its common stock as part of its Board-approved 100 million share repurchase program previously announced on June 18, 2019. The Bancorp expects the settlement of the transaction to occur on or before March 30, 2023.

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