FIFTH THIRD BANCORP (FITB) FY 2021 MD&A

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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

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

OVERVIEW

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

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

The Bancorp’s revenues are dependent on both net interest income and noninterest income. For the year ended December 31, 2021, net interest income on an FTE basis and noninterest income provided 61% and 39% of total revenue, respectively. The Bancorp derives the majority of its revenues within the U.S. from customers domiciled in the U.S. Revenue from foreign countries and external customers domiciled in foreign countries was immaterial to the Consolidated Financial Statements for the year ended December 31, 2021. Changes in interest rates, credit quality, economic trends and the capital markets are primary factors that drive the performance of the Bancorp. As discussed later in the Risk Management section of MD&A, risk identification, measurement, monitoring, control and reporting are important to the management of risk and to the financial performance and capital strength of the Bancorp.

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

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

COVID-19 Global Pandemic

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

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

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The Bancorp has provided a variety of relief options for both commercial and consumer customers that were affected by the COVID-19 pandemic, including loan covenant relief, loan maturity extensions, payment deferrals, forbearances and fee waivers. For further information about these programs, refer to the Credit Risk Management subsection of the Risk Management section of MD&A included herein, and also Note 1 of the Notes to Consolidated Financial Statements.

Government Response to the COVID-19 Pandemic

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

The CARES Act

The Coronavirus Aid, Relief and Economic Security (“CARES”) Act was signed into law on March 27, 2020 and has subsequently been amended several times, including by the Consolidated Appropriations Act, 2021. Among other provisions, the CARES Act included funding for the SBA to expand lending, relief from certain U.S. GAAP requirements to allow COVID-19-related loan modifications to not be categorized as TDRs, direct stimulus payments and a range of incentives to encourage deferment, forbearance or modification of consumer credit and mortgage contracts. One of the key CARES Act programs is the Paycheck Protection Program, discussed further below, which temporarily expanded the SBA’s business loan guarantee program.

The CARES Act contained additional protections for homeowners and renters of properties with federally-backed mortgages, including a 60-day moratorium on the initiation of foreclosure proceedings beginning on March 18, 2020 and a 120-day moratorium on initiating eviction proceedings effective March 27, 2020. Borrowers of federally-backed mortgages had the right under the CARES Act to request up to 360 days of forbearance on their mortgage payments if they experienced financial hardship directly or indirectly due to the COVID-19 public health emergency.

The foreclosure moratorium and forbearance provisions of the CARES Act expired in 2020 but the FHA and Federal Housing Finance Agency independently extended these assistance programs. The extended foreclosure moratorium expired in the third quarter of 2021. COVID-19 related forbearance opportunities for new enrollees were set to expire on September 30, 2021, though this has been revised and currently the program has no set end date. The provisions set forth in Section 4013 of the CARES Act related to TDRs expired on January 1, 2022. Future loan modifications will be assessed based on existing TDR evaluation policies as appropriate.

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

FRB Actions

The FRB has taken a range of actions to support the flow of credit to households and businesses, offset forced liquidations and restore liquidity in the financial markets due to the COVID-19 pandemic. For example, on March 15, 2020, the FRB reduced the target range for the federal funds rate to 0 to 0.25% and announced that it would increase its holdings of U.S. Treasury securities and agency mortgage-backed securities and begin purchasing agency commercial mortgage-backed securities. The FRB has also encouraged depository institutions to borrow from the discount window and has lowered the primary credit rate for such borrowings by 150 basis points while extending the term of such loans up to 90 days. Reserve requirement ratios were reduced to zero effective March 26, 2020. During late 2021, the FRB stated that it will begin to reduce some of the monetary stimulus put in place in response to the COVID-19 pandemic, which could include raising the target range for the federal funds rate and reducing the size of its holdings of securities. The FRB has indicated that it has no plans to re-impose reserve requirements but may do so in the future if conditions warrant.

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

Paycheck Protection Program

The Bancorp is a participating lender in the PPP, which is a program administered by the SBA to provide forgivable, guaranteed loans to eligible borrowers that have been affected by the COVID-19 pandemic. As of December 31, 2021, the Bancorp held PPP loans with a carrying amount of $1.3 billion under the program. PPP loans are available to a broader range of entities than ordinary SBA loans, require deferral of principal and interest repayment, and may be forgiven if the borrower demonstrates that the loan proceeds were used for qualified payroll costs and certain other expenses. The PPP was expanded to permit second and third rounds of funding, including for certain borrowers who have already received a PPP loan, subject to certain conditions. The PPP was closed to new originations during the second quarter of 2021.

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American Rescue Plan Act

The American Rescue Plan Act of 2021, which was signed into law on March 11, 2021, provided additional relief for businesses, states, municipalities and individuals by, among other things, allocating additional funds for the PPP, providing a third round of economic impact payments to individuals, extending supplemental federal unemployment benefits and providing advance payments of an expanded child tax credit. The impacts of the stimulus on the Bancorp’s business, results of operations and financial condition are highly uncertain and will depend on future developments, including the scope and duration of the pandemic and its impact on the economy in general.

CFPB Final Rule for COVID-19 Mortgage Servicing

The CFPB issued a final rule, effective August 31, 2021, that amended Regulation X to provide foreclosure protections to borrowers as the federally-backed COVID-19 foreclosure protections expire. The CFPB’s final rule effectively prohibited new foreclosure filings through December 31, 2021, unless certain procedural safeguards were met or an exception applied. Mortgage servicing rules generally prohibit servicers from offering a borrower a loss mitigation option based on the evaluation of an incomplete loss mitigation application; however, the final rule created a new exception that permits servicers to offer certain streamlined loan modifications to borrowers with COVID-19 related hardships based on the evaluation of an incomplete application. The final rule also made temporary changes to certain required servicer communications that borrowers receive regarding their loss mitigation options.

Accelerated Share Repurchase Transactions

The Bancorp entered into and settled a number of accelerated share repurchase transactions during the year ended December 31, 2021. As part of these transactions, the Bancorp entered into forward contracts in which the final number of shares delivered at settlement was based generally on a discount to the average daily volume-weighted average price of the Bancorp’s common stock during the term of these repurchase agreements. Refer to Note 24 of the Notes to Consolidated Financial Statements for additional information on share repurchase activity.

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

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

Senior Notes Offering

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%.

For more information, refer to Note 17 of the Notes to Consolidated Financial Statements.

LIBOR Transition

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

On March 5, 2021, the FCA and ICE Benchmark Administration, Limited announced that the publication of the one-week and two-month USD LIBOR maturities and non-USD LIBOR maturities would cease immediately after December 31, 2021, with the remaining USD LIBOR maturities ceasing immediately after June 30, 2023. In the United States, the Alternative Rates Reference Committee (the “ARRC”), a group of market participants convened in 2014 to help ensure a successful transition away from USD LIBOR, identified SOFR as its preferred alternative rate. SOFR is a measure of the cost of borrowing cash overnight, collateralized by U.S. Treasury securities, and is based on directly observable U.S. Treasury-backed repurchase transactions. The composition and characteristics of SOFR are not the same as those of LIBOR, and SOFR is fundamentally different from LIBOR for two key reasons: (1) SOFR is a secured rate, while LIBOR is an unsecured rate, and (2) SOFR is an overnight rate, while LIBOR is a forward-looking rate that represents interbank funding over different maturities. As a result, there can be no assurance that SOFR, however calculated, will perform the same way as LIBOR would have at any time, including, as a result of changes in interest and yield rates in the market, market volatility, or global or regional economic, financial, political, regulatory, judicial or other events.

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At this time, it is not possible to predict the effect of these changes, any establishment of alternative reference rates or other reforms to LIBOR that may be enacted in the United States, United Kingdom or elsewhere or, whether the COVID-19 pandemic will have further effect on LIBOR transition plans.

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

Although the full impact of LIBOR reforms and actions remains unclear, as of December 31, 2021, the Bancorp has substantially discontinued entering into new LIBOR-based contracts in accordance with regulatory guidance, except for permissible limited use as part of hedging and risk management programs. During the fourth quarter of 2021, the Bancorp expanded its offering of alternative reference rate products, including SOFR. In addition, the Bancorp is continuing its transition of existing LIBOR-based exposures to an appropriate alternative reference rate on or before June 30, 2023. As of December 31, 2021, the Bancorp had substantial exposure to LIBOR-based products throughout several of its lines of business. These exposures included derivative contracts with a total notional value of approximately $110 billion, loans outstanding of approximately $53 billion, preferred stock of approximately $1.4 billion and long-term debt of approximately $535 million. The Bancorp currently estimates that approximately 20% of the existing exposures will mature before June 30, 2023. For the contracts that will not mature prior to June 30, 2023, an additional portion of these contracts is subject to contractual terms specifying alternative reference rates (“fallback provisions”) that would become effective upon cessation of LIBOR’s publication. Existing exposures without fallback provisions are expected to be amended prior to June 30, 2023 to include such terms or transition to an alternative reference rate.

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

Key Performance Indicators

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

The following are some of the key indicators used by management to assess the Bancorp’s business performance, including those which are considered in the Bancorp’s compensation programs:

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

•Return on Average Tangible Common Equity (non-GAAP): Tangible net income available to common shareholders divided by average tangible common equity

•Net Interest Margin (non-GAAP): Net interest income on an FTE basis divided by average interest-earning assets

•Efficiency Ratio (non-GAAP): Noninterest expense divided by the sum of net interest income on an FTE basis and noninterest income

•Earnings Per Share, Diluted: Net income allocated to common shareholders divided by average common shares outstanding after the effect of dilutive stock-based awards

•Nonperforming Portfolio Assets Ratio: Nonperforming portfolio assets divided by portfolio loans and leases and OREO

•Net Charge-off Ratio: Net losses charged-off divided by average portfolio loans and leases

•Return on Average Assets: Net income divided by average assets

•Loan-to-Deposit Ratio: Total loans divided by total deposits

The list of indicators above is intended to summarize some of the most important metrics utilized by management in evaluating the Bancorp’s performance and does not represent an all-inclusive list of all performance measures that may be considered relevant or important to management or investors.

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(a)Amounts presented on an FTE basis. The FTE adjustments were $12, $13 and $17 for the years ended December 31, 2021, 2020 and 2019, respectively.

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

Earnings Summary

The Bancorp’s net income available to common shareholders for the year ended December 31, 2021 was $2.7 billion, or $3.73 per diluted share, which was net of $111 million in preferred stock dividends. The Bancorp’s net income available to common shareholders for the year ended December 31, 2020 was $1.3 billion, or $1.83 per diluted share, which was net of $104 million in preferred stock dividends.

Net interest income on an FTE basis (non-GAAP) was $4.8 billion for the year ended December 31, 2021, a decrease of $13 million compared to the same period in the prior year primarily due to the impact of lower market rates. In addition to market rate impacts on interest-earning assets, net interest income was also negatively impacted by decreases in average commercial and industrial loans, average credit card and average home equity. These negative impacts were partially offset by a decrease in rates paid on average interest-bearing liabilities, primarily driven by decreases in rates paid on average interest checking deposits and average money market deposits. Net interest income also benefited from increases in average residential mortgage loans and average indirect secured consumer loans as well as a decrease in average long-term debt. Interest income recognized from PPP loans also positively impacted net interest income. Net interest margin on an FTE basis (non-GAAP) was 2.59% for the year ended December 31, 2021 compared to 2.78% for the year ended December 31, 2020.

The benefit from credit losses was $377 million for the year ended December 31, 2021 compared to a provision for credit losses of $1.1 billion in the prior year. Provision expense decreased for the year ended December 31, 2021 compared to the prior year primarily due to factors that caused decreases in the ACL during the year ended December 31, 2021, including improved economic forecasts, improved credit quality and changes in product mix. Net losses charged off as a percent of average portfolio loans and leases were 0.16% and 0.42% for the years ended December 31, 2021 and 2020, respectively. At December 31, 2021, nonperforming portfolio assets as a percent of portfolio loans and leases and OREO decreased to 0.47% compared to 0.79% at December 31, 2020. For further discussion on credit quality refer to the Credit Risk Management subsection of the Risk Management section of MD&A as well as Note 6 of the Notes to Consolidated Financial Statements.

Noninterest income increased $288 million for the year ended December 31, 2021 compared to the year ended December 31, 2020 primarily due to increases in other noninterest income, commercial banking revenue, wealth and asset management revenue, card and processing revenue, service charges on deposits and leasing business revenue, partially offset by a decrease in mortgage banking net revenue.

Noninterest expense increased $30 million for the year ended December 31, 2021 compared to the year ended December 31, 2020 primarily due to increases in compensation and benefits expense, other noninterest expense and technology and communications expense, partially offset by decreases in net occupancy expense and card and processing expense.

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

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Capital Summary

The Bancorp calculated its regulatory capital ratios under the Basel III standardized approach to risk-weighting of assets and pursuant to the five-year transition provision option to phase in the effects of CECL on regulatory capital as of December 31, 2021. As of December 31, 2021, the Bancorp’s capital ratios, as defined by the U.S. banking agencies, were:

•CET1 capital ratio: 9.54%;

•Tier 1 risk-based capital ratio: 10.91%;

•Total risk-based capital ratio: 13.42%;

•Leverage ratio: 8.27%

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NON-GAAP FINANCIAL MEASURES

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

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

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

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

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

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

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

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

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RECENT ACCOUNTING STANDARDS

Note 1 of the Notes to Consolidated Financial Statements provides a discussion of the significant new accounting standard applicable to the Bancorp during 2021 and the expected impact of significant accounting standards issued, but not yet required to be adopted.

CRITICAL ACCOUNTING POLICIES

The Bancorp’s Consolidated Financial Statements are prepared in accordance with U.S. GAAP. Certain accounting policies require management to exercise judgment in determining methodologies, economic assumptions and estimates that may materially affect the Bancorp’s financial position, results of operations and cash flows. The Bancorp’s critical accounting policies include the accounting for the ALLL, reserve for unfunded commitments, valuation of servicing rights, fair value measurements, goodwill and legal contingencies. There have been no material changes to the valuation techniques or models described below during the year ended December 31, 2021.

On January 1, 2020, the Bancorp adopted ASU 2016-13 (“Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments”) and its related subsequent amendments, along with ASU 2017-04 (“Intangibles—Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment”). As a result of the adoption of these ASUs, the accounting policies for the ALLL, reserve for unfunded commitments and goodwill were updated as of January 1, 2020, and the related policies that were in effect for periods prior to January 1, 2020 are provided in the Critical Accounting Policies Applicable Prior to January 1, 2020 section below.

ALLL

The Bancorp disaggregates its portfolio loans and leases into portfolio segments for purposes of determining the ALLL. The Bancorp’s portfolio segments include commercial, residential mortgage and consumer. The Bancorp further disaggregates its portfolio segments into classes for purposes of monitoring and assessing credit quality based on certain risk characteristics. For an analysis of the Bancorp’s ALLL by portfolio segment and credit quality information by class, refer to Note 6 of the Notes to Consolidated Financial Statements.

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

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

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

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

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

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

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

Reserve for Unfunded Commitments

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

Valuation of Servicing Rights

When the Bancorp sells loans through either securitizations or individual loan sales in accordance with its investment policies, it often obtains servicing rights. The Bancorp may also purchase servicing rights. The Bancorp has elected to measure all existing classes of its residential mortgage servicing rights at fair value at each reporting date with changes in the fair value of servicing rights reported in earnings in the period in which the changes occur. Servicing rights are valued using internal OAS models. Significant management judgment is necessary to

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identify key economic assumptions used in estimating the fair value of the servicing rights including the prepayment speeds of the underlying loans, the weighted-average life, the OAS and the weighted-average coupon rate, as applicable. The primary risk of material changes to the value of the servicing rights resides in the potential volatility in the economic assumptions used, particularly the prepayment speeds. In order to assist in the assessment of the fair value of servicing rights, the Bancorp obtains external valuations of the servicing rights portfolio from third parties and participates in peer surveys that provide additional confirmation of the reasonableness of key assumptions utilized in the internal OAS model. For additional information on servicing rights, refer to Note 13 of the Notes to Consolidated Financial Statements.

Fair Value Measurements

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

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

The Bancorp’s fair value measurements involve various valuation techniques and models, which involve inputs that are observable, when available. Valuation techniques and parameters used for measuring assets and liabilities are reviewed and validated by the Bancorp on a quarterly basis. Additionally, the Bancorp monitors the fair values of significant assets and liabilities using a variety of methods including the evaluation of pricing runs and exception reports based on certain analytical criteria, comparison to previous trades and overall review and assessments for reasonableness. The level of management judgment necessary to determine fair value varies based upon the methods used in the determination of fair value. Financial instruments that are measured at fair value using quoted prices in active markets (Level 1) require minimal judgment. The valuation of financial instruments when quoted market prices are not available (Levels 2 and 3) may require significant management judgment to assess whether quoted prices for similar instruments exist, the impact of changing market conditions including reducing liquidity in the capital markets and the use of estimates surrounding significant unobservable inputs. Table 6 provides a summary of the fair value of financial instruments carried at fair value on a recurring basis and the amounts of financial instruments valued using Level 3 inputs.

Refer to Note 28 of the Notes to Consolidated Financial Statements for further information on fair value measurements including a description of the valuation methodologies used for significant financial instruments.

Goodwill

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

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

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amount of goodwill allocated to that reporting unit. A recognized impairment loss cannot be reversed in future periods even if the fair value of the reporting unit subsequently recovers.

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

Legal Contingencies

The Bancorp and its subsidiaries are parties to numerous claims and lawsuits as well as threatened or potential actions or claims concerning matters arising from the conduct of its business activities. The outcome of claims or litigation and the timing of ultimate resolution are inherently difficult to predict and significant judgment may be required in the determination of both the probability of loss and whether the amount of the loss is reasonably estimable. The Bancorp’s estimates are subjective and are based on the status of legal and regulatory proceedings, the merit of the Bancorp’s defenses and consultation with internal and external legal counsel. An accrual for a potential litigation loss is established when information related to the loss contingency indicates both that a loss is probable and that the amount of loss can be reasonably estimated. Refer to Note 19 of the Notes to Consolidated Financial Statements for further information regarding the Bancorp’s legal proceedings.

Critical Accounting Policies Applicable Prior to January 1, 2020

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

ALLL

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

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

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

Historical credit loss rates were applied to commercial loans and leases that were not impaired or were impaired, but smaller than the established threshold of $1 million and thus not subject to specific allowance allocations. The loss rates were derived from migration analyses for several portfolio stratifications, which tracked the historical net charge-off experience sustained on loans and leases according to their

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internal risk grade. The risk grading system utilized for allowance analysis purposes encompassed ten categories, which were based on regulatory guidance for credit risk systems.

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

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

Reserve for unfunded commitments

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

Goodwill

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

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

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STATEMENTS OF INCOME ANALYSIS

Net Interest Income

Net interest income is the interest earned on loans and leases (including yield-related fees), securities and other short-term investments less the interest incurred on core deposits (including transaction deposits and CDs $250,000 or less) and wholesale funding (including CDs over $250,000, other deposits, federal funds purchased, other short-term borrowings and long-term debt). The net interest margin is calculated by dividing net interest income by average interest-earning assets. Net interest rate spread is the difference between the average yield earned on interest-earning assets and the average rate paid on interest-bearing liabilities. Net interest margin is typically greater than net interest rate spread due to the interest income earned on those assets that are funded by noninterest-bearing liabilities, or free funding, such as demand deposits or shareholders’ equity.

Tables 7 and 8 present the components of net interest income, net interest margin and net interest rate spread for the years ended December 31, 2021, 2020 and 2019, as well as the relative impact of changes in the average balance sheet and changes in interest rates on net interest income. Nonaccrual loans and leases and loans and leases held for sale have been included in the average loan and lease balances. Average outstanding securities balances are based on amortized cost with any unrealized gains or losses included in average other assets.

Net interest income on an FTE basis (non-GAAP) was $4.8 billion for the year ended December 31, 2021, a decrease of $13 million compared to the same period in the prior year primarily due to the impact of lower market rates. Monetary policy actions in response to the COVID-19 pandemic, including lowering the target range of the federal funds rate and the FRB’s bond purchase programs, have continued to adversely impact market rates since March of 2020. Yields on total average loans and leases decreased 30 bps from the year ended December 31, 2020 primarily as a result of decreases in yields on average commercial loans and leases and average consumer loans of 21 bps and 50 bps, respectively. The Bancorp has significant portfolios of floating interest rate loans (primarily LIBOR- or Prime-based) that have been impacted by decreases in benchmark interest rates. The Bancorp’s portfolios of fixed interest rate loans also decreased in yield as a result of increased refinance activity and lower yields on new originations due to lower overall market rates. In addition to market rate impacts on interest-earning assets, net interest income was also negatively impacted by decreases in average commercial and industrial loans, average credit card and average home equity of $4.8 billion, $447 million and $1.1 billion, respectively, from the year ended December 31, 2020. These negative impacts were partially offset by a decrease in rates paid on average interest-bearing liabilities, primarily driven by decreases in rates paid on average interest checking deposits and average money market deposits of 21 bps and 25 bps, respectively, from the year ended December 31, 2020. Net interest income also benefited from increases in average residential mortgage loans and average indirect secured consumer loans of $3.5 billion and $2.7 billion, respectively, and a decrease in average long-term debt of $2.9 billion from the year ended December 31, 2020. Interest income recognized from PPP loans also positively impacted net interest income by $189 million for the year ended December 31, 2021 compared to $97 million for the year ended December 31, 2020.

Net interest rate spread on an FTE basis (non-GAAP) was 2.45% during the year ended December 31, 2021 compared to 2.57% during the year ended December 31, 2020. Yields on average interest-earning assets decreased 40 bps partially offset by a 28 bps decrease in rates paid on average interest-bearing liabilities for the year ended December 31, 2021 compared to the year ended December 31, 2020.

Net interest margin on an FTE basis (non-GAAP) was 2.59% for the year ended December 31, 2021 compared to 2.78% for the year ended December 31, 2020. Net interest margin for the year ended December 31, 2021 was negatively impacted by increases in low-yielding reserves held at the FRB reported in other short-term investments, which were primarily driven by increased levels in average demand deposits and average savings deposits for the year ended December 31, 2021 compared to the year ended December 31, 2020. Net interest margin results are expected to increase as excess cash balances begin to normalize with COVID-19 related government relief programs ending and the central bank expected to begin shrinking their balance sheet.

Interest income on an FTE basis (non-GAAP) from loans and leases decreased $349 million from the year ended December 31, 2020 driven by the previously mentioned decreases in yields and changes in the composition of average balances of loans and leases. For more information on the Bancorp’s loan and lease portfolio, refer to the Loans and Leases subsection of the Balance Sheet Analysis section of MD&A. Interest income on an FTE basis (non-GAAP) from investment securities and other short-term investments decreased $13 million from the year ended December 31, 2020 primarily due to a decrease in yields on average taxable securities partially offset by increases in the average balances of securities exempt from income taxes and other short-term investments.

Interest expense on core deposits decreased $238 million from the year ended December 31, 2020 primarily due to a decrease in the cost of average interest-bearing core deposits to 5 bps for the year ended December 31, 2021 from 29 bps for the year ended December 31, 2020. The decrease in the cost of average interest-bearing core deposits was primarily due to decreases in rates paid on average interest checking deposits and average money market deposits. Refer to the Deposits subsection of the Balance Sheet Analysis section of MD&A for additional information on the Bancorp’s deposits.

Interest expense on average wholesale funding decreased $111 million for the year ended December 31, 2021 compared to the year ended December 31, 2020 primarily due to decreases in average balances of long-term debt and CDs over $250,000. Refer to the Borrowings subsection of the Balance Sheet Analysis section of MD&A for additional information on the Bancorp’s borrowings. During the year ended December 31, 2021, average wholesale funding represented 13% of average interest-bearing liabilities compared to 17% for the year ended December 31, 2020. For more information on the Bancorp’s interest rate risk management, including estimated earnings sensitivity to changes in market interest rates, see the Interest Rate and Price Risk Management subsection of the Risk Management section of MD&A.

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(a)The FTE adjustments included in the above table were $12, $13 and $17 for the years ended December 31, 2021, 2020, and 2019, respectively.

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

(c)Fifth Third has elected to record CDs $250,000 or less within core deposits, consistent with minimum FDIC insurance coverage. Fifth Third had previously recorded certificates $100,000 or less as “other time” within core deposits. Prior periods have been adjusted to conform to current period presentation.

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

(b)Fifth Third has elected to record CDs $250,000 or less within core deposits, consistent with minimum FDIC insurance coverage. Fifth Third had previously recorded certificates $100,000 or less as “other time” within core deposits. Prior periods have been adjusted to conform to current period presentation.

Provision for Credit Losses

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

The benefit from credit losses was $377 million for the year ended December 31, 2021 compared to a provision for credit losses of $1.1 billion in the prior year. Provision expense decreased for the year ended December 31, 2021 compared to the prior year primarily due to factors that caused decreases in the ACL during the year ended December 31, 2021, including improved economic forecasts, improved credit quality and changes in product mix. The economic forecasts used to estimate the ACL at December 31, 2021 were generally more favorable than those used at December 31, 2020, reflecting improvements in the macroeconomic environment and diminishing negative impacts from the COVID-19 pandemic. Asset quality improved during the year ended December 31, 2021 when compared to the prior year with lower levels of net charge-offs, commercial criticized assets and consumer delinquencies. Changes in product mix also resulted in a decrease to the ACL during the year ended December 31, 2021, primarily driven by a shift in consumer behavior toward lower-risk products.

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Provision expense was elevated in 2020 as the Bancorp increased its ACL in response to deterioration and uncertainty in the forecasted macroeconomic environment as a result of the impact of the COVID-19 pandemic, continued pressure on energy prices and the resulting impact of these factors on commercial asset quality, which was reflected in increased levels of commercial criticized assets.

The ALLL decreased $561 million from December 31, 2020 to $1.9 billion at December 31, 2021. At December 31, 2021, the ALLL as a percent of portfolio loans and leases decreased to 1.69%, compared to 2.25% at December 31, 2020. The reserve for unfunded commitments increased $10 million from December 31, 2020 to $182 million at December 31, 2021. The ACL as a percent of portfolio loans and leases decreased to 1.85% at December 31, 2021, compared to 2.41% at December 31, 2020.

Refer to the Credit Risk Management subsection of the Risk Management section of MD&A as well as Note 6 of the Notes to Consolidated Financial Statements for more detailed information on the provision for credit losses, including an analysis of loan and lease portfolio composition, nonperforming assets, net charge-offs and other factors considered by the Bancorp in assessing the credit quality of the loan and lease portfolio and determining the level of the ACL.

Noninterest Income

Noninterest income increased $288 million for the year ended December 31, 2021 compared to the year ended December 31, 2020. The following table presents the components of noninterest income:

Commercial banking revenue

Commercial banking revenue increased $109 million for the year ended December 31, 2021 compared to the year ended December 31, 2020 primarily due to increases in loan syndication fees and business lending fees as well as an increase in institutional sales, which was primarily driven by an increase in merger and acquisition advisory revenue.

Service charges on deposits

Service charges on deposits increased $41 million for the year ended December 31, 2021 compared to the year ended December 31, 2020 due primarily to increases in both commercial treasury management fees and consumer deposit fees.

Wealth and asset management revenue

Wealth and asset management revenue increased $66 million for the year ended December 31, 2021 compared to the year ended December 31, 2020 primarily due to increases in private client service fees and broker income, partially offset by a decrease in institutional fees, which was primarily driven by the sale of the Bancorp’s 401(k) recordkeeping business in the fourth quarter of 2020. The Bancorp’s trust and registered investment advisory businesses had approximately $554 billion and $434 billion in total assets under care as of December 31, 2021 and 2020, respectively, and managed $65 billion and $54 billion in assets for individuals, corporations and not-for-profit organizations as of December 31, 2021 and 2020, respectively.

Card and processing revenue

Card and processing revenue increased $50 million for the year ended December 31, 2021 compared to the year ended December 31, 2020 primarily due to an increase in debit and credit card interchange, partially offset by increased reward costs, all of which were driven by an increase in consumer and business card spend volumes.

Leasing business revenue

Leasing business revenue increased $24 million for the year ended December 31, 2021 compared to the year ended December 31, 2020 primarily driven by an increase in lease syndication fees, partially offset by a decrease in lease remarketing fees.

Mortgage banking net revenue

Mortgage banking net revenue decreased $50 million for the year ended December 31, 2021 compared to the year ended December 31, 2020.

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

Origination fees and gains on loan sales decreased $30 million for the year ended December 31, 2021 compared to the year ended December 31, 2020 primarily driven by decreases in gain on sale margins partially offset by gains from sales of forbearance loans that were repurchased from GNMA. Residential mortgage loan originations increased to $19.0 billion for the year ended December 31, 2021 from $15.9 billion for the year ended December 31, 2020.

Net mortgage servicing revenue decreased $20 million for the year ended December 31, 2021 compared to the year ended December 31, 2020 primarily due to a decrease in gross mortgage servicing fees as well as an increase in net negative valuation adjustments. Refer to Table 11 for the components of net valuation adjustments on the MSR portfolio and the impact of the non-qualifying hedging strategy.

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

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

For the years ended December 31, 2021 and 2020, the Bancorp recognized losses of $139 million and $565 million respectively, in mortgage banking net revenue for valuation adjustments on the MSR portfolio. The valuation adjustments on the MSR portfolio included an increase of $142 million and a decrease of $311 million for the years ended December 31, 2021 and 2020, respectively, due to changes in market rates and other inputs in the valuation model, including future prepayment speeds and OAS assumptions. Mortgage rates increased during the year ended December 31, 2021 which caused a reduction in modeled prepayment speeds. Additionally, mortgage swap spreads narrowed during the year ended December 31, 2021 which caused modeled OAS assumptions to decrease. The fair value of the MSR portfolio also decreased $281 million and $254 million as a result of contractual principal payments and actual prepayment activity for the years ended December 31, 2021 and 2020, respectively.

Further detail on the valuation of MSRs can be found in Note 13 of the Notes to Consolidated Financial Statements. The Bancorp maintains a non-qualifying hedging strategy to manage a portion of the risk associated with changes in the valuation of the MSR portfolio. Refer to Note 14 of the Notes to Consolidated Financial Statements for more information on the free-standing derivatives used to economically hedge the MSR portfolio.

In addition to the derivative positions used to economically hedge the MSR portfolio, the Bancorp acquires various securities as a component of its non-qualifying hedging strategy. The Bancorp recognized net losses of $2 million and net gains of $2 million during the years ended December 31, 2021 and 2020, respectively, recorded in securities (losses) gains, net - non-qualifying hedges on mortgage servicing rights in the Bancorp’s Consolidated Statements of Income.

The Bancorp’s total residential mortgage loans serviced at December 31, 2021 and 2020 were $106.8 billion and $86.6 billion, respectively, with $89.2 billion and $68.8 billion, respectively, of residential mortgage loans serviced for others.

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Other noninterest income

The following table presents the components of other noninterest income:

Other noninterest income increased $121 million for the year ended December 31, 2021 compared to the year ended December 31, 2020 primarily due to the recognition of gains on contract sales, a decrease in net losses on disposition and impairment of bank premises and equipment, an increase in equity method investment income and a decrease in losses recognized on the swap associated with the sale of Visa, Inc. Class B shares. These increases were partially offset by decreases in income from the TRA associated with Worldpay, Inc. and insurance income.

Gains on contract sales for the year ended December 31, 2021 primarily included the recognition of a $60 million gain on the sale of the Bancorp’s HSA deposit portfolio, which was completed in the third quarter of 2021. Net losses on disposition and impairment of bank premises and equipment decreased $27 million for the year ended December 31, 2021 compared to the year ended December 31, 2020 primarily driven by the impact of lower impairment charges during the year ended December 31, 2021 compared to the year ended December 31, 2020. For additional information, refer to Note 7 of the Notes to Consolidated Financial Statements. Equity method investment income increased $18 million for the year ended December 31, 2021 compared to the year ended December 31, 2020 primarily due to gains and proportional earnings recognized on certain equity method investments. The Bancorp recognized negative valuation adjustments of $86 million related to the Visa total return swap during the year ended December 31, 2021 compared to negative valuation adjustments of $103 million during the year ended December 31, 2020. For additional information on the valuation of the swap associated with the sale of Visa, Inc. Class B Shares, refer to Note 28 of the Notes to Consolidated Financial Statements. Income from the TRA associated with Worldpay Inc. was $46 million for the year ended December 31, 2021 compared to $74 million for the year ended December 31, 2020. For additional information, refer to Note 15 of the Notes to Consolidated Financial Statements. Insurance income decreased $13 million for the year ended December 31, 2021 compared to the prior year primarily driven by the sale of the Bancorp’s property and casualty insurance business in the fourth quarter of 2020.

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Noninterest Expense

Noninterest expense increased $30 million for the year ended December 31, 2021 compared to the year ended December 31, 2020 primarily due to increases in compensation and benefits expense, other noninterest expense and technology and communications expense, partially offset by decreases in net occupancy expense and card and processing expense.

The following table presents the components of noninterest expense:

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

Compensation and benefits expense increased $36 million for the year ended December 31, 2021 compared to the year ended December 31, 2020 primarily due to an increase in performance-based compensation as well as an increase in medical expenses, partially offset by a decrease in base compensation due to a decline in full-time equivalent employees. Full-time equivalent employees totaled 19,112 at December 31, 2021 compared to 19,872 at December 31, 2020. Technology and communications expense increased $26 million for the year ended December 31, 2021 compared to the year ended December 31, 2020 primarily driven by increased investment in strategic initiatives and technology.

Net occupancy expense decreased $38 million for the year ended December 31, 2021 compared to the year ended December 31, 2020 primarily due to a reduction of leased square footage. Card and processing expense decreased $32 million for the year ended December 31, 2021 compared to the year ended December 31, 2020 primarily due to contract renegotiations with a third-party vendor.

The following table presents the components of other noninterest expense:

Other noninterest expense increased $30 million for the year ended December 31, 2021 compared to the year ended December 31, 2020 primarily due to increases in loan and lease expense and professional service fees, partially offset by a decrease in losses and adjustments.

Loan and lease expense increased $55 million for the year ended December 31, 2021 compared to the year ended December 31, 2020 primarily due to an increase in loan servicing expenses associated with the Bancorp’s purchases of certain government-guaranteed residential mortgage loans in forbearance programs. Professional service fees increased $14 million for the year ended December 31, 2021 compared to the year ended December 31, 2020 primarily driven by increases in consulting fees and legal fees. Losses and adjustments decreased $31 million for the year ended December 31, 2021 compared to the year ended December 31, 2020 primarily due to a decline in credit valuation adjustments on derivatives associated with customer accommodation contracts, partially offset by an increase in legal settlements.

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Applicable Income Taxes

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

The effective tax rates for the years ended December 31, 2021 and 2020 were primarily impacted by $193 million and $175 million, respectively, of low-income housing tax credits and other tax benefits and $23 million and $27 million, respectively, of tax benefits from tax exempt income and were partially offset by $163 million and $150 million, respectively, of proportional amortization related to qualifying LIHTC investments. The increase in the effective tax rate from the year ended December 31, 2020 was attributable to an increase in state income taxes.

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

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BUSINESS SEGMENT REVIEW

The Bancorp reports on four business segments: Commercial Banking, Branch Banking, Consumer Lending and Wealth and Asset Management. Additional information on each business segment is included in Note 31 of the Notes to Consolidated Financial Statements. Results of the Bancorp’s business segments are presented based on its management structure and management accounting practices. The structure and accounting practices are specific to the Bancorp; therefore, the financial results of the Bancorp’s business segments are not necessarily comparable with similar information for other financial institutions. The Bancorp refines its methodologies from time to time as management’s accounting practices and businesses change.

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

The Bancorp adjusts the FTP charge and credit rates as dictated by changes in interest rates for various interest-earning assets and interest-bearing liabilities and by the review of behavioral assumptions, such as prepayment rates on interest-earning assets and the estimated durations for indeterminate-lived deposits. Key assumptions, including the credit rates provided for deposit accounts, are reviewed annually. Credit rates for deposit products and charge rates for loan products may be reset more frequently in response to changes in market conditions. In general, the charge rates on assets have declined since December 31, 2020 as they were affected by the prevailing level of interest rates and by the duration and repricing characteristics of the portfolio. The credit rates for deposit products also modestly declined due to lower interest rates and modified assumptions. Thus, net interest income for asset-generating business segments improved while deposit-providing business segments were negatively impacted during the year ended December 31, 2021.

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

The following table summarizes net income by business segment:

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Commercial Banking

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

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

(a)Includes FTE adjustments of $8, $13 and $17 for the years ended December 31, 2021, 2020 and 2019, respectively.

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

Net income was $1.5 billion for the year ended December 31, 2021 compared to net income of $387 million for the year ended December 31, 2020. The increase in net income was primarily driven by a decrease in provision for credit losses as well as an increase in noninterest income and a decrease in noninterest expense, partially offset by a decrease in net interest income on an FTE basis.

Net interest income on an FTE basis decreased $410 million from the year ended December 31, 2020 primarily driven by decreases in yields on and average balances of commercial loans and leases as well as decreases in FTP credit rates on interest checking deposits, demand deposits and savings and money market deposits. These negative impacts were partially offset by decreases in FTP charge rates on loans and leases as well as decreases in rates paid on and average balances of interest checking deposits and savings and money market deposits.

The benefit from credit losses was $583 million for the year ended December 31, 2021 compared to a provision for credit losses of $1.1 billion for the year ended December 31, 2020. The decrease for the year ended December 31, 2021 was primarily driven by a decrease in commercial criticized asset levels as well as decreases in net charge-offs on commercial loans and leases. Net charge-offs as a percent of average portfolio loans and leases decreased to 7 bps for the year ended December 31, 2021 compared to 35 bps for the year ended December 31, 2020.

Noninterest income increased $146 million from the year ended December 31, 2020 driven by increases in commercial banking revenue, leasing business revenue and service charges on deposits. Commercial banking revenue increased $102 million from the year ended December 31, 2020 primarily due to increases in loan syndication fees, business lending fees and institutional sales partially offset by a decrease in bridge fees. Leasing business revenue increased $24 million from the year ended December 31, 2020 primarily due to an increase in lease syndication fees partially offset by a decrease in lease remarketing fees. Service charges on deposits increased $20 million from the year ended December 31, 2020 primarily due to an increase in commercial deposit fees primarily due to growth in volume-based service revenues, with continued benefit from lower earnings credit rates.

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Noninterest expense decreased $66 million from the year ended December 31, 2020 primarily driven by a decrease in other noninterest expense partially offset by an increase in compensation and benefits. Other noninterest expense decreased $92 million from the year ended December 31, 2020 primarily as a result of decreases in allocated expenses related to cash management services and a decline in credit valuation adjustments on derivatives associated with customer accommodation contracts. Compensation and benefits increased $29 million from the year ended December 31, 2020 primarily as a result of increases in incentive compensation and employee benefits expense driven by strong performance in fees related to business growth and expansion initiatives during the year ended December 31, 2021.

Average commercial loans and leases decreased $6.1 billion from the year ended December 31, 2020 primarily due to decreases in average commercial and industrial loans and average commercial mortgage loans partially offset by an increase in average commercial construction loans. Average commercial and industrial loans decreased from the year ended December 31, 2020 primarily driven by elevated revolving line of credit utilization during the year ended December 31, 2020 as well as paydowns in excess of loan originations. Average commercial mortgage loans decreased from the year ended December 31, 2020 as payoffs exceeded loan originations. Average commercial construction loans increased from the year ended December 31, 2020 as draws on existing commitments exceeded payoffs.

Average deposits increased $3.5 billion from the year ended December 31, 2020 primarily due to an increase in average demand deposits, partially offset by decreases in average interest checking deposits and average savings and money market deposits. Average demand deposits increased $8.7 billion from the year ended December 31, 2020 primarily as a result of commercial customers maintaining increased levels of liquidity driven by the amount of fiscal and monetary stimulus, as well as growth in the number of accounts and migration of balances from interest checking deposits. Average interest checking deposits decreased $4.5 billion from the year ended December 31, 2020 primarily as a result of the aforementioned balance migration into demand deposits and lower average balances per commercial customer account. Average savings and money market deposits decreased $601 million from the year ended December 31, 2020 primarily as a result of a decline in average balances per commercial customer account.

Branch Banking

Branch Banking provides a full range of deposit and loan products to individuals and small businesses through 1,117 full-service banking centers. Branch Banking offers depository and loan products, such as checking and savings accounts, home equity loans and lines of credit, credit cards and loans for automobiles and other personal financing needs, as well as products designed to meet the specific needs of small businesses, including cash management services.

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

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Net income was $114 million for the year ended December 31, 2021 compared to net income of $251 million for the year ended December 31, 2020. The decrease was primarily driven by a decrease in net interest income, partially offset by an increase in noninterest income and a decrease in provision for credit losses.

Net interest income decreased $446 million from the year ended December 31, 2020 primarily due to decreases in FTP credit rates on deposits, decreases in average balances of credit card and home equity and decreases in yields on average home equity and average other consumer loans. These negative impacts were partially offset by decreases in the rates paid on average interest-bearing deposits and a decrease in FTP charge rates on loans and leases.

Provision for credit losses decreased $134 million from the year ended December 31, 2020 primarily due to decreases in net charge-offs on credit card, other consumer loans, commercial and industrial loans and home equity as well as a decrease in commercial criticized asset levels for the year ended December 31, 2021. Net charge-offs as a percent of average portfolio loans and leases decreased to 83 bps for the year ended December 31, 2021 compared to 135 bps for the year ended December 31, 2020.

Noninterest income increased $142 million from the year ended December 31, 2020 primarily driven by increases in card and processing revenue, other noninterest income, wealth and asset management revenue and service charges on deposits. Card and processing revenue increased $46 million from the year ended December 31, 2020 primarily as a result of an increase in consumer customer spend volume, partially offset by increased reward costs. Other noninterest income increased $41 million from the year ended December 31, 2020 primarily driven by decreases in net losses on disposition and impairment of bank premises and equipment as well as increases in cardholder fees and banking center income. Wealth and asset management revenue increased $34 million from the year ended December 31, 2020 primarily due to increases in broker income and private client service fees. Service charges on deposits increased $21 million from the year ended December 31, 2020 driven by increases in both commercial deposit fees and consumer deposit fees.

Noninterest expense increased $5 million from the year ended December 31, 2020 primarily due to increases in other noninterest expense and net occupancy and equipment expense, partially offset by a decrease in card and processing expense. Other noninterest expense increased $26 million from the year ended December 31, 2020 primarily due to increases in losses and adjustments, loan and lease expense and marketing expense. These increases were partially offset by decreases in allocated expenses primarily related to cash management services. Net occupancy and equipment expense increased $12 million from the year ended December 31, 2020 primarily due to increases in allocated occupancy costs. Card and processing expense decreased $30 million from the year ended December 31, 2020 primarily driven by contract renegotiations with a third-party vendor.

Average consumer loans decreased $899 million from the year ended December 31, 2020 primarily driven by a decrease in average home equity as payoffs exceeded loan originations, as well as a decrease in average credit card primarily driven by the cumulative impacts from the COVID-19 pandemic, including accelerated paydown activity due to the amount of fiscal stimulus programs and lower consumer demand for credit. These decreases were partially offset by an increase in average residential mortgage loans primarily as a result of an increase in loan originations. Average commercial loans increased $782 million from the year ended December 31, 2020 primarily driven by increases in average commercial mortgage loans and average commercial and industrial loans.

Average deposits increased $12.7 billion from the year ended December 31, 2020 primarily driven by increases in average demand deposits, average savings and money market deposits and average interest checking deposits, partially offset by a decrease in average CDs. Average demand deposits increased $6.2 billion, average savings and money market deposits increased $5.3 billion and average interest checking deposits increased $3.2 billion from the year ended December 31, 2020 primarily as a result of higher balances per customer account due to the amount of fiscal stimulus, uncertainty regarding the COVID-19 pandemic as well as decreased consumer outflows. Average CDs decreased $2.1 billion from the year ended December 31, 2020 primarily due to lower offering rates on certificates.

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Consumer Lending

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

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

Net income was $141 million for the year ended December 31, 2021 compared to net income of $117 million for the year ended December 31, 2020. The increase was primarily driven by an increase in net interest income and a decrease in provision for credit losses, partially offset by an increase in noninterest expense and a decrease in noninterest income.

Net interest income increased $181 million from the year ended December 31, 2020 primarily driven by a decrease in FTP charge rates on loans and leases and increases in the average balances of residential mortgage loans and indirect secured consumer loans. These increases were partially offset by decreases in yields on average indirect secured consumer loans and average residential mortgage loans.

Provision for credit losses decreased $25 million from the year ended December 31, 2020 primarily driven by decreases in net charge-offs on indirect secured consumer loans and residential mortgage loans. Net charge-offs as a percent of average portfolio loans and leases decreased to 4 bps for the year ended December 31, 2021 compared to 14 bps for the year ended December 31, 2020.

Noninterest income decreased $55 million from the year ended December 31, 2020 primarily driven by decreases in mortgage banking net revenue and other noninterest income. Refer to the Noninterest Income subsection of the Statements of Income Analysis section of MD&A for additional information on the fluctuations in mortgage banking net revenue. Other noninterest income decreased $5 million from the year ended December 31, 2020 primarily as a result of net losses recognized on securities related to non-qualifying hedges on MSRs for the year ended December 31, 2021 compared to net gains recognized during the year ended December 31, 2020.

Noninterest expense increased $121 million from the year ended December 31, 2020 due to increases in other noninterest expense and compensation and benefits. Other noninterest expense increased $97 million from the year ended December 31, 2020 primarily driven by increases in loan and lease expense driven by an increase in loan servicing expenses associated with the Bancorp’s purchases of certain government-guaranteed residential mortgage loans in forbearance programs and corporate overhead allocations. Compensation and benefits increased $24 million from the year ended December 31, 2020 primarily due to increases in base compensation and incentive compensation resulting from the increased mortgage origination activity for the year ended December 31, 2021.

Average consumer loans increased $5.5 billion from the year ended December 31, 2020 primarily due to increases in average residential mortgage loans and average indirect secured consumer loans. Average residential mortgage loans increased $2.8 billion from the year ended December 31, 2020 primarily due to an increase in residential mortgage loans held for sale as the Bancorp purchased government-guaranteed loans in forbearance programs, partially offset by higher runoff in residential mortgage portfolio loans due to payoffs exceeding loan originations. Average indirect secured consumer loans increased $2.8 billion from the year ended December 31, 2020 primarily driven by higher demand and other favorable market conditions, which contributed to increased loan production.

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Wealth and Asset Management

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

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

Net income was $94 million for the year ended December 31, 2021 compared to net income of $102 million for the year ended December 31, 2020. The decrease in net income was primarily driven by a decrease in net interest income and an increase in noninterest expense partially offset by an increase in noninterest income and a decrease in provision for credit losses.

Net interest income decreased $51 million from the year ended December 31, 2020 primarily driven by decreases in FTP credit rates on deposits as well as decreases in yields on average loans and leases. These negative impacts were partially offset by decreases in rates paid on average interest-bearing deposits as well as decreases in FTP charge rates on loans and leases.

The benefit from credit losses was $1 million for the year ended December 31, 2021 compared to a provision for credit losses of $3 million for the year ended December 31, 2020. The decrease was primarily driven by a decrease in net charge-offs on residential mortgage loans.

Noninterest income increased $44 million from the year ended December 31, 2020 due to an increase in wealth and asset management revenue partially offset by a decrease in other noninterest income. Wealth and asset management revenue increased $60 million from the year ended December 31, 2020 primarily as a result of increases in private client service fees and broker income partially offset by a decrease in institutional fees. Other noninterest income decreased $16 million from the year ended December 31, 2020 primarily due to a decrease in insurance income driven by the sale of the Bancorp’s property and casualty insurance business in the fourth quarter of 2020.

Noninterest expense increased $7 million from the year ended December 31, 2020 due to an increase in other noninterest expense partially offset by a decrease in compensation and benefits. Other noninterest expense increased $20 million from the year ended December 31, 2020 primarily due to increases in expenses associated with intercompany revenue sharing agreements. Compensation and benefits decreased $13 million from the year ended December 31, 2020 primarily as a result of a decrease in base compensation which included a decline due to the sale of the Bancorp’s property and casualty insurance business in the fourth quarter of 2020.

Average loans and leases increased $193 million from the year ended December 31, 2020 primarily driven by increases in average other consumer loans and average residential mortgage loans as a result of higher loan production, partially offset by a decrease in average home equity.

Average deposits increased $395 million from the year ended December 31, 2020 primarily driven by increases in average savings and money market deposits, average interest checking deposits and average demand deposits as a result of higher average balances per customer account due to the amount of fiscal stimulus, uncertainty regarding the COVID-19 pandemic and decreased consumer spending.

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General Corporate and Other

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

Net interest income on an FTE basis increased $709 million from the year ended December 31, 2020 primarily driven by decreases in FTP credit rates on deposits allocated to the business segments, an increase in interest income on loans and leases and decreases in interest expense on long-term debt and deposits. These positive impacts were partially offset by a decrease in the benefit related to FTP charge rates on loans and leases allocated to the business segments and a decrease in interest income on investment securities.

The provision for credit losses was $101 million for the year ended December 31, 2021 compared to a benefit from credit losses of $221 million for the year ended December 31, 2020. The increase for the year ended December 31, 2021 was primarily driven by an increase in the benefits provided to the business segments associated with the decline in the level of commercial criticized assets owned by the business segments.

Noninterest income increased $38 million from the year ended December 31, 2020 primarily driven by the recognition of a gain on the sale of the Bancorp’s HSA deposit portfolio in the third quarter of 2021, an increase in private equity investment income, a decrease in the loss on the swap associated with the sale of Visa, Inc. Class B shares and a decrease in net losses on disposition and impairment of bank premises and equipment. These impacts were partially offset by the recognition of securities losses of $15 million for the year ended December 31, 2021 compared to securities gains of $62 million for the year ended December 31, 2020.

Noninterest expense decreased $10 million from the year ended December 31, 2020 primarily driven by a decrease in net occupancy expense, partially offset by a decrease in corporate overhead allocations from General Corporate and Other to the other business segments and increases in technology and communications expense and equipment expense.

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BALANCE SHEET ANALYSIS

Loans and Leases

The Bancorp classifies its commercial loans and leases based upon primary purpose and consumer loans based upon product or collateral. Table 21 summarizes end of period loans and leases, including loans and leases held for sale and Table 22 summarizes average total loans and leases, including average loans and leases held for sale.

(a)Includes $1.3 billion and $4.8 billion as of December 31, 2021 and 2020, respectively, related to the SBA’s Paycheck Protection Program.

(b)Includes $39, as of December 31, 2020, of residential mortgage loans previously sold to GNMA for which the Bancorp was deemed to have regained effective control over under ASC Topic 860, but did not exercise its option to repurchase. Refer to Note 16 of the Notes to Consolidated Financial Statements for further information.

Total loans and leases, including loans and leases held for sale, increased $2.9 billion, or 3%, from December 31, 2020. The increase from December 31, 2020 was the result of increases of $1.9 billion, or 4%, in consumer loans and $1.0 billion, or 1%, in commercial loans and leases.

Commercial loans and leases increased $1.0 billion from December 31, 2020 due to increases in commercial and industrial loans and commercial leases, partially offset by decreases in commercial construction loans and commercial mortgage loans. Commercial and industrial loans increased $1.8 billion, or 4%, from December 31, 2020 primarily as a result of strong production and increased revolving line of credit utilization, partially offset by PPP loan forgiveness and paydowns. Commercial leases increased $99 million, or 3%, from December 31, 2020 primarily as a result of an increase in lease originations. Commercial construction loans decreased $574 million, or 10%, from December 31, 2020 as payoffs exceeded draws on existing commitments and loan originations. Commercial mortgage loans decreased $280 million, or 3%, from December 31, 2020 as payoffs exceeded loan originations.

Consumer loans increased $1.9 billion from December 31, 2020 due to increases in indirect secured consumer loans and residential mortgage loans, partially offset by decreases in home equity, other consumer loans and credit card. Indirect secured consumer loans increased $3.1 billion, or 23%, from December 31, 2020 primarily driven by higher demand and other favorable market conditions, which contributed to increased loan production. Residential mortgage loans increased $398 million, or 2%, from December 31, 2020 primarily due to increases in residential mortgage loans held for sale as the Bancorp purchased government-guaranteed loans in forbearance programs. Home equity decreased $1.1 billion, or 21%, from December 31, 2020 as payoffs exceeded loan originations. Other consumer loans decreased $262 million, or 9%, from December 31, 2020 primarily as a result of payoffs exceeding loan originations. Credit card decreased $241 million, or 12%, from December 31, 2020 primarily due to the cumulative impacts from the COVID-19 pandemic, including accelerated paydown activity driven by the amount of fiscal stimulus programs and lower consumer demand for credit.

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Average loans and leases, including average loans and leases held for sale, decreased $294 million from December 31, 2020 as the result of a $5.1 billion, or 7%, decrease in average commercial loans and leases, partially offset by a $4.8 billion, or 12%, increase in average consumer loans.

Average commercial loans and leases decreased $5.1 billion from December 31, 2020 due to decreases in average commercial and industrial loans and average commercial mortgage loans, partially offset by increases in average commercial construction loans and average commercial leases. Average commercial and industrial loans decreased $4.8 billion, or 9%, from December 31, 2020 primarily driven by elevated revolving line of credit utilization during the year ended December 31, 2020 as well as paydowns in excess of loan originations. Average commercial mortgage loans decreased $615 million, or 6%, from December 31, 2020 as payoffs exceeded loan originations. Average commercial construction loans increased $274 million, or 5%, from December 31, 2020 as draws on existing commitments exceeded payoffs. Average commercial leases increased $92 million, or 3%, from December 31, 2020 primarily as a result of an increase in lease originations.

Average consumer loans increased $4.8 billion from December 31, 2020 due to increases in average residential mortgage loans, average indirect secured consumer loans and average other consumer loans, partially offset by decreases in average home equity and average credit card. Average residential mortgage loans increased $3.5 billion, or 20%, from December 31, 2020 primarily due to increases in residential mortgage loans held for sale as the Bancorp purchased government-guaranteed loans in forbearance programs. Average indirect secured consumer loans increased $2.7 billion, or 22%, from December 31, 2020 primarily driven by higher demand and other favorable market conditions, which contributed to increased loan production. Average other consumer loans increased $131 million, or 5%, from December 31, 2020 primarily as a result of purchases of portfolios of point-of-sale loans. Average home equity decreased $1.1 billion, or 20%, from December 31, 2020 as payoffs exceeded loan originations. Average credit card decreased $447 million, or 20%, from December 31, 2020 primarily due to the cumulative impacts from the COVID-19 pandemic, including accelerated paydown activity driven by the amount of fiscal stimulus programs and lower consumer demand for credit.

Investment Securities

The Bancorp uses investment securities as a means of managing interest rate risk, providing collateral for pledging purposes and for liquidity risk management. Total investment securities were $39.0 billion and $38.4 billion at December 31, 2021 and 2020, respectively. The taxable available-for-sale debt and other investment securities portfolio had an effective duration of 4.8 at December 31, 2021 compared to 4.4 at December 31, 2020.

Debt securities are classified as available-for-sale when, in management’s judgment, they may be sold in response to, or in anticipation of, changes in market conditions. Securities that management has the intent and ability to hold to maturity are classified as held-to-maturity and reported at amortized cost. Debt securities are classified as trading when bought and held principally for the purpose of selling them in the near term. At December 31, 2021, the Bancorp’s investment portfolio consisted primarily of AAA-rated available-for-sale debt and other securities. The Bancorp held an immaterial amount of below-investment grade available-for-sale debt and other securities at both December 31, 2021 and 2020.

During the year ended December 31, 2021, the Bancorp recognized $19 million of impairment losses on available-for-sale debt and other securities, included in securities (losses) gains, net, in the Consolidated Statements of Income. These losses related to certain securities in unrealized loss positions that the Bancorp intended to sell prior to recovery of their amortized cost bases. The Bancorp did not consider these losses to be credit-related.

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At both December 31, 2021 and 2020, the Bancorp completed its evaluation of the available-for-sale debt and other securities in an unrealized loss position and did not recognize an allowance for credit losses. The Bancorp did not recognize provision expense for the years ended December 31, 2021 and 2020 related to available-for-sale debt and other securities in an unrealized loss position.

Prior to adoption of ASU 2016-13 on January 1, 2020, investment securities were evaluated for OTTI with any identified OTTI recognized as a charge to income and a direct reduction of the amortized cost basis of the securities. During the year ended December 31, 2019, the Bancorp recognized $1 million of OTTI on its available-for-sale debt and other securities, included in securities (losses) gains, net, in the Consolidated Statement of Income.

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

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

On an amortized cost basis, available-for-sale debt and other securities increased $2.0 billion from December 31, 2020 primarily due to increases in asset-backed securities and other debt securities and agency commercial mortgage-backed securities, partially offset by a decrease in agency residential mortgage-backed securities.

On an amortized cost basis, available-for-sale debt and other securities were 20% and 19% of total interest-earning assets at December 31, 2021 and 2020, respectively. The estimated weighted-average life of the debt securities in the available-for-sale debt and other securities portfolio was 6.6 years and 5.7 years at December 31, 2021 and 2020, respectively. In addition, at December 31, 2021 and 2020 the debt securities in the available-for-sale debt and other securities portfolio had a weighted-average yield of 2.77% and 3.05%, respectively.

Information presented in Table 24 is on a weighted-average life basis, anticipating future prepayments. Yield information is presented on an FTE basis and is computed using amortized cost balances and reflects the impact of prepayments. Maturity and yield calculations for the total available-for-sale debt and other securities portfolio exclude other securities that have no stated yield or maturity. Total net unrealized gains on the available-for-sale debt and other securities portfolio were $1.2 billion at December 31, 2021 compared to $2.5 billion at December 31, 2020. The fair value of investment securities is impacted by interest rates, credit spreads, market volatility and liquidity conditions. The fair value of the Bancorp’s investment securities portfolio generally increases when interest rates decrease or when credit spreads contract.

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(a)Taxable-equivalent yield adjustments included in the above table are 0.09% and 0.03% for securities with an average life greater than 10 years and in total, respectively.

Other Short-Term Investments

Other short-term investments primarily include overnight interest-earning investments, including reserves held at the FRB. The Bancorp uses other short-term investments as part of its liquidity risk management tools. Other short-term investments were $34.6 billion and $33.4 billion at December 31, 2021 and 2020, respectively. The increase of $1.2 billion from December 31, 2020 was primarily attributable to core deposit growth, which was partially offset by loan growth and paydowns of long-term debt during the year ended December 31, 2021.

Deposits

The Bancorp’s deposit balances represent an important source of funding and revenue growth opportunity. The Bancorp continues to focus on core deposit growth in its retail and commercial franchises by improving customer satisfaction, building full relationships and offering competitive rates. Average core deposits represented 79% and 75% of the Bancorp’s average asset funding base for the years ended December 31, 2021 and 2020, respectively.

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

(a)Fifth Third has elected to record CDs $250,000 or less within core deposits, consistent with minimum FDIC insurance coverage. Fifth Third had previously recorded certificates $100,000 or less as “other time” within core deposits. Prior periods have been adjusted to conform to current period presentation.

Core deposits increased $11.3 billion, or 7%, from December 31, 2020, driven by an increase in transaction deposits, partially offset by a decrease in CDs $250,000 or less. Transaction deposits increased $12.5 billion, or 8%, from December 31, 2020 primarily due to increases in demand deposits, savings deposits and interest checking deposits, partially offset by a decrease in money market deposits. Demand deposits increased $7.4 billion, or 13%, from December 31, 2020 primarily as a result of customers maintaining increased levels of liquidity driven by the amount of fiscal and monetary stimulus, as well as growth in the number of accounts and migration of balances from interest checking deposits during the year ended December 31, 2021. Savings deposits increased $4.0 billion, or 22%, from December 31, 2020 primarily as a result of higher balances per customer account due to the amount of fiscal stimulus as well as decreased consumer outflows. Interest checking deposits increased $1.6 billion, or 3%, from December 31, 2020 primarily as a result of higher balances per consumer customer account due to the amount of fiscal stimulus as well as decreased consumer outflows, partially offset by lower balances per commercial customer account as well as the aforementioned balance migration into demand deposits. Money market deposits decreased $387 million, or 1%, from December 31, 2020 primarily as a result of lower balances per commercial customer account, partially offset by higher balances per consumer customer account due to the amount of fiscal stimulus and decreased consumer outflows. CDs $250,000 or less decreased $1.3 billion, or 34%, from December 31, 2020 primarily due to lower offering rates.

CDs over $250,000 decreased $1.0 billion, or 79%, from December 31, 2020 primarily due to maturities which were not replaced with new issuances given current market conditions and liquidity levels.

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

(a)Fifth Third has elected to record CDs $250,000 or less within core deposits, consistent with minimum FDIC insurance coverage. Fifth Third had previously recorded certificates $100,000 or less as “other time” within core deposits. Prior periods have been adjusted to conform to current period presentation.

On an average basis, core deposits increased $16.7 billion, or 11%, from December 31, 2020 due to an increase of $18.7 billion, or 13%, in average transaction deposits, partially offset by a decrease of $2.0 billion, or 39%, in average CDs $250,000 or less. The increase in average transaction deposits was primarily driven by increases in average demand deposits, average savings deposits and average money market deposits, partially offset by a decrease in average interest checking deposits. Average demand deposits increased $14.9 billion, or 32%, from December 31, 2020 primarily as a result of customers maintaining increased levels of liquidity driven by the amount of fiscal and monetary stimulus, as well as growth in the number of accounts and migration of balances from interest checking deposits. Average savings deposits increased $4.1 billion, or 25%, from December 31, 2020 primarily as a result of higher average balances per customer account due to the

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amount of fiscal stimulus as well as decreased consumer outflows. Average money market deposits increased $752 million, or 3%, from December 31, 2020 primarily as a result of higher average balances per consumer customer account due to the amount of fiscal stimulus and decreased consumer outflows. Average interest checking deposits decreased $1.0 billion, or 2%, from December 31, 2020 primarily as a result of the aforementioned balance migration into demand deposits and lower average balances per commercial customer account, partially offset by higher average balances per consumer customer account due to the previously mentioned impacts of fiscal stimulus. Average CDs $250,000 or less decreased $2.0 billion, or 39%, primarily due to lower offering rates.

Average CDs over $250,000 decreased $1.7 billion, or 76%, from December 31, 2020 primarily due to maturities which were not replaced with new issuances given current market conditions and liquidity levels.

Contractual maturities

The contractual maturities of CDs as of December 31, 2021 are summarized in the following table:

(a)Includes CDs $250,000 or less and CDs over $250,000.

Deposit insurance

The FDIC generally provides a standard amount of insurance of $250,000 per depositor, per insured bank, for each account ownership category defined by the FDIC. Depositors may qualify for coverage of accounts over $250,000 if they have funds in different ownership categories and all FDIC requirements are met. All deposits that an account holder has in the same ownership category at the same bank are added together and insured up to the standard insurance amount. As of December 31, 2021, approximately $80.2 billion of the Bancorp’s domestic deposits were uninsured, including $468 million of time deposits. Where information is not readily available to determine the amount of insured deposits, the amount of uninsured deposits is estimated, consistent with the methodologies and assumptions utilized in providing information to the Bank’s regulators.

Borrowings

The Bancorp accesses a variety of short-term and long-term funding sources. Borrowings with original maturities of one year or less are classified as short-term and include federal funds purchased and other short-term borrowings. Total average borrowings as a percent of average interest-bearing liabilities were 13% at December 31, 2021 compared to 15% at December 31, 2020.

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

Total borrowings decreased $3.4 billion, or 21%, from December 31, 2020 primarily due to decreases in long-term debt and other short-term borrowings. Long-term debt decreased $3.2 billion from December 31, 2020 primarily driven by the early redemptions under the par call options of $3.2 billion of notes and $374 million of paydowns on long-term debt associated with automobile loan securitizations during the year ended December 31, 2021. These increases were partially offset by the issuance of $500 million of senior fixed-rate/floating-rate notes in November of 2021. For additional information regarding the long-term debt issuances, refer to Note 17 of the Notes to Consolidated Financial Statements. Other short-term borrowings decreased $212 million from December 31, 2020 primarily due to decreased short-term funding needs resulting from core deposit growth. The level of other short-term borrowings can fluctuate significantly from period to period depending on funding needs and the sources that are used to satisfy those needs. For further information on the components of other short-term borrowings, refer to Note 16 of the Notes to Consolidated Financial Statements.

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The following table summarizes the components of average borrowings:

Total average borrowings decreased $3.5 billion, or 20%, compared to December 31, 2020 primarily due to decreases in average long-term debt and average other short-term borrowings. Average long-term debt decreased $2.9 billion compared to December 31, 2020 primarily driven by the early redemptions under the par call options of $3.2 billion of notes and $374 million of paydowns on long-term debt associated with automobile loan securitizations during the year ended December 31, 2021. These increases were partially offset by the issuance of $500 million of senior fixed-rate/floating-rate notes in November of 2021. Average other short-term borrowings decreased $602 million compared to December 31, 2020 primarily due to decreased short-term funding needs resulting from core deposit growth as well as the Bancorp exercising repurchase options on certain loans previously sold to GNMA for which an obligation had been recognized under ASC Topic 860. Information on the average rates paid on borrowings is discussed in the Net Interest Income subsection of the Statements of Income Analysis section of MD&A. In addition, refer to the Liquidity Risk Management subsection of the Risk Management section of MD&A for a discussion on the role of borrowings in the Bancorp’s liquidity management.

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RISK MANAGEMENT – OVERVIEW

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

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

•The Bancorp ensures transparency and escalation of risk through defined risk policies and a governance structure that includes the RCC, ERMC and other management-level risk committees and councils.

•The Bancorp establishes a risk appetite in alignment with its strategic, financial and capital plans. The Bancorp’s risk appetite is defined using quantitative metrics and qualitative measures to ensure prudent risk taking and drive balanced decision making. The Bancorp’s goal is to ensure that aggregate residual risks do not exceed the Bancorp’s risk appetite, and that risks taken are supportive of the Bancorp’s portfolio diversification and profitability objectives. The Board and executive management approve the risk appetite, which is considered in the development of business strategies and forms the basis for enterprise risk management.

•The core principles that define the Bancorp’s risk appetite are as follows:

◦Act with integrity in all activities.

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

◦Avoid risks that cannot be understood, managed or monitored.

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

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

◦Only offer products or services that are appropriate or suitable for the Bancorp’s customers.

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

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

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

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

•Fifth Third’s core values and culture provide the foundation for sound risk management practices by establishing expectations for appropriate conduct and accountability across the organization. All employees are expected to conduct themselves in alignment with Fifth Third’s Code of Business Conduct and Ethics, which may be found on www.53.com, while carrying out their responsibilities. Fifth Third’s Corporate Responsibility and Reputation Committee provides oversight of business conduct policies, programs and strategies, and monitors reporting of potential misconduct, trends or themes across the enterprise. Prudent risk management is a responsibility that is expected from all employees and is a foundational element of Fifth Third’s culture.

•The Bancorp manages eight defined risk types to a prescribed appetite. The risk types are credit risk, liquidity risk, interest rate risk, price risk, legal and regulatory compliance risk, operational risk, reputation risk and strategic risk.

•The Bancorp identifies and monitors existing and potential risks that may impact the company’s risk profile, including emerging risks that create uncertainties and/or would have broad implications if materialized (e.g. global pandemics, climate change, etc.). Enhanced monitoring and action plans are implemented as necessary to proactively mitigate risk.

•Fifth Third’s Risk Management Process provides a consistent and integrated approach for managing risks. The five components of the Risk Management Process are: identify, assess, manage, monitor and report. The Bancorp has also established processes and programs to manage and report concentration risks, to ensure robust talent, performance and compensation management, and to aggregate risks across the enterprise.

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

•The first line of defense is comprised of front-line units (and enterprise-wide functions that support front-line units) that create risk or are involved in risk-taking activities and are accountable for managing risk. These groups are the Bancorp’s primary risk takers and are responsible for implementing effective internal controls and maintaining processes for identifying, assessing, and managing the risks associated with their activities consistent with established risk appetite and limits.

•The second line of defense, or Independent Risk Management, consists of Risk Management, Compliance and Credit Risk Review. The second line is responsible for developing frameworks and policies to govern risk-taking activities, overseeing risk-taking of the organization, advising on controlling that risk and providing input on key risk decisions. Risk Management complements the front line’s management of risk-taking activities through its monitoring and reporting responsibilities, including adherence to the risk appetite. Additionally, Risk Management is responsible for identifying, assessing, managing, monitoring and reporting on aggregate risks enterprise-wide.

•The third line of defense is Internal Audit, which provides oversight of the first and second lines of defense, and independent assurance to the Board on the effectiveness of governance, risk management and internal controls.

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CREDIT RISK MANAGEMENT

The objective of the Bancorp’s credit risk management strategy is to quantify and manage credit risk on an aggregate portfolio basis, as well as to limit the risk of loss resulting from the failure of a borrower or counterparty to honor its financial or contractual obligations to the Bancorp. The Bancorp’s credit risk management strategy is based on three core principles: conservatism, diversification and monitoring. The Bancorp believes that effective credit risk management begins with conservative lending practices which are described below. These practices include the use of intentional risk-based limits for single name exposures and counterparty selection criteria designed to reduce or eliminate exposure to borrowers who have higher than average default risk and defined weaknesses in financial performance. The Bancorp carefully designs and monitors underwriting, documentation and collection standards. The Bancorp’s credit risk management strategy also emphasizes diversification on a geographic, industry and customer level as well as ongoing portfolio monitoring and timely management reviews of large credit exposures and credits experiencing deterioration of credit quality. Credit officers with the authority to extend credit are delegated specific authority amounts, the utilization of which is closely monitored. Underwriting activities are centrally managed, and ERM manages the policy and the authority delegation process directly. The Credit Risk Review function provides independent and objective assessments of the quality of underwriting and documentation, the accuracy of risk grades and the charge-off, nonaccrual and reserve analysis process. The Bancorp’s credit review process and overall assessment of the adequacy of the allowance for credit losses is based on quarterly assessments of the estimated losses expected in the loan and lease portfolio. The Bancorp uses these assessments to promptly identify potential problem loans or leases within the portfolio, maintain an adequate allowance for credit losses and record any necessary charge-offs. The Bancorp defines potential problem loans and leases as those rated substandard that do not meet the definition of a nonaccrual loan or a restructured loan. Refer to Note 6 of the Notes to Consolidated Financial Statements for further information on the Bancorp’s credit grade categories, which are derived from standard regulatory rating definitions. In addition, stress testing is performed on various commercial and consumer portfolios utilizing various models. For certain portfolios, such as real estate and leveraged lending, stress testing is performed by Credit department personnel at the individual loan level during credit underwriting.

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

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

The Bancorp utilizes internally developed models to estimate expected credit losses for portfolio loans and leases. For loans and leases that are collectively evaluated, the Bancorp utilizes these models to forecast expected credit losses over a reasonable and supportable forecast period based on the probability of a loan or lease defaulting, the expected balance at the estimated date of default and the expected loss percentage given a default. Refer to Note 1 of the Notes to Consolidated Financial Statements for additional information about the Bancorp’s processes for developing these models, estimating credit losses for periods beyond the reasonable and supportable forecast period and for estimating credit losses for individually evaluated loans.

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

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

Overview

Although the rise of Omicron and other variants of COVID-19 may present some downside risk to the economic outlook, the underlying fundamentals of the economy continue to strengthen as consumers and businesses return to more normal levels of activity. The consensus outlook expects strong economic growth in 2022 as the benefits from the extraordinary fiscal and monetary policy to fight COVID-19 continue to support strong consumer and business spending. Meanwhile, an easing of supply chain constraints is expected to alleviate some inflationary pressures and allow the Federal Reserve to tighten monetary policy at a measured pace.

Consumer demand remained robust throughout 2021 as stimulative fiscal policies, along with a strong job market and record high asset prices, helped retail sales rise 19.3% compared to 2020. Although the pace of retail sales is expected to slow from 2021, the tightness of the labor market, along with the availability of credit, is expected to continue supporting strong consumer spending in 2022.

With the economy gaining momentum, the unemployment rate declined to 3.9% as of December 2021, down from 5.9% in June 2021, and average hourly earnings increased 4.7% year-over-year. Labor supply constraints are more binding than anticipated, slowing job growth and boosting wages along with inflation. Robust demand, combined with labor shortages and supply chain constraints, is leading to more persistent inflationary pressures throughout the economy.

Monetary policy remained highly accommodative throughout 2021 with the federal funds rate at the zero lower bound and the Federal Reserve continuing its asset purchase program. With unemployment and wages continuing to improve and inflationary trends becoming more persistent, Federal Reserve officials pivoted to a tighter monetary policy in December. In addition to the potential for aggressive rate hikes, FOMC officials indicated a plan for reducing the balance sheet would be announced during 2022. Although FOMC members are concerned about the persistence of inflationary pressures in the economy, Federal Reserve officials continue to expect the factors causing the elevated inflation readings to ease in 2022 as supply chain constraints and labor markets improve.

COVID-19 Hardship Relief Programs

In response to the COVID-19 pandemic, the Bancorp began providing financial hardship relief in March 2020 to borrowers that were negatively impacted by the pandemic and its related economic impacts. For retail borrowers, these relief programs included three-month payment deferrals for non-real estate secured and unsecured portfolios, six-month payment deferrals for home equity loans and lines of credit and six-month forbearances for residential mortgages. The Bancorp also temporarily waived fees for certain products and services, suspended initiating any new repossession actions on vehicles and suspended all residential foreclosure activity. The fee waiver, repossession suspension and payment deferral programs for non-real estate secured and unsecured and home equity loans and lines of credit were discontinued early in the third quarter of 2020. However, new programs to assist consumer customers have been offered in response to the uniqueness of the economic environment. These primarily include a short-term hardship program which allows for a reduced payment amount for six months with full payments resuming thereafter or placement into a loan modification program that could include permanent rate reductions or maturity extensions. In most cases, these offers were not classified as TDRs if qualified for the TDR relief provisions provided by the CARES Act. The provisions set forth in Section 4013 of the CARES Act related to TDRs expired on January 1, 2022. Future loan modifications will be assessed based on existing TDR evaluation policies as appropriate. For further discussion on COVID-19 hardship relief programs and the Bancorp’s policies related to accounting for restructured loans, see Note 1 of the Notes to Consolidated Financial Statements. As of December 31, 2021, substantially all of these borrowers have resumed making payments except for certain residential mortgage loans which continue to be in forbearance.

The Bancorp currently plans to continue to offer a forbearance program for its residential mortgage borrowers in alignment with the forbearances offered for federally-backed mortgage loans under the provisions of the CARES Act and GSE servicing guidance. Under the provisions of the CARES Act, borrowers with federally-backed residential mortgage loans were able to request a six-month forbearance with

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an option to extend the forbearance period for an additional period of up to six months. The GSEs have also permitted certain forbearances to be extended for an additional six months for a total of up to 18 months. Additionally, the Bancorp will continue to follow the specific GSE guidance for other non-forbearance COVID-19 pandemic relief programs when servicing its residential mortgage portfolio.

The Bancorp offered a variety of relief options to its commercial borrowers that had been impacted by the COVID-19 pandemic. While these offers were individually negotiated and tailored to each borrower’s specific facts and circumstances, the most commonly offered relief measures included temporary covenant waivers and/or deferrals of principal and/or interest payments for up to 90 days. After the deferral program, a customer had the option to resume normal payments, enter into a formal loan modification program or restructure the loan arrangement. These relief options were discontinued in 2021.

The following table provides a summary of residential mortgage and consumer portfolio loans as of December 31, 2021, by class, that have received payment deferrals or forbearances as part of the Bancorp’s COVID-19 pandemic hardship relief programs:

(a)Includes loans that are still in the initial payment relief period and loans that have requested additional relief.

(b)Excludes $490 of loans previously sold to GNMA that the Bancorp had the option to repurchase as a result of forbearance, all of which were repurchased and are classified as held for sale.

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

(d)Indirect secured consumer loans which are still in an active relief period as of December 31, 2021 are required to make payments but at a reduced amount from original contractual terms.

As of December 31, 2021, $1.0 billion of the Bancorp’s residential mortgage portfolio loans had been enrolled in a COVID-19 forbearance program (either active or completed). These loans had a weighted-average FICO score of approximately 687 and a weighted-average origination LTV of approximately 81%. Approximately 75% of these borrowers made at least one payment since entering forbearance and 82% of balances are reported as current as of December 31, 2021. The Bancorp had $63 million of these loans in an active relief period as of December 31, 2021 and these loans had a weighted-average FICO score of approximately 632 and a weighted-average origination LTV of approximately 84%. Approximately one third of borrowers in an active forbearance period have made at least one payment since entering forbearance and approximately 62% of the residential mortgage loans still in an active relief period have completed the initial six-month forbearance period and have requested an extended forbearance.

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Commercial Portfolio

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

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

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

The following table presents industries impacted the most severely within the Bancorp’s commercial and industrial and commercial real estate loan portfolios as of December 31, 2021:

(a)Excludes loans related to the SBA’s Paycheck Protection Program.

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

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

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

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

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exceeding $1 million are reviewed quarterly to assess the appropriateness of the value ascribed in the assessment of charge-offs and specific reserves.

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

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

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

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

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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

Consumer Portfolio

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

The Bancorp’s consumer portfolio is materially comprised of five categories of loans: residential mortgage loans, home equity, indirect secured consumer loans, credit card and other consumer loans. The Bancorp has identified certain credit characteristics within these five categories of loans which it believes represent a higher level of risk compared to the rest of the consumer loan portfolio. The Bancorp does not update LTVs for the consumer portfolio subsequent to origination except as part of the charge-off process for real estate secured loans. The Bancorp actively manages the consumer portfolio through concentration limits, which mitigate credit risk through limiting the exposure to lower FICO scores, higher LTVs and specific geographic concentration risks.

The Bancorp enhanced its credit underwriting guidelines across the entire consumer portfolio in response to the economic stress created by the COVID-19 pandemic. The current set of credit guidelines have generally returned to pre-pandemic levels as the Bancorp continues to ensure that underwriting standards reflect forward-looking outlooks on both risks and market opportunities, support strategic objectives, provide value to consumers and ensure adherence to risk appetite. These guidelines will be monitored and adjusted as deemed appropriate in response to the prevailing economic conditions while remaining within the Bancorp’s risk tolerance limits.

Residential mortgage portfolio

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

The Bancorp does not originate residential mortgage loans that permit customers to defer principal payments or make payments that are less than the accruing interest. The Bancorp originates both fixed-rate and ARM loans. Within the ARM portfolio, approximately $520 million of ARM loans will have rate resets during the next twelve months. Of these resets, 75% are expected to experience an increase in rate, with an average increase of approximately 0.25%. Underlying characteristics of these borrowers are relatively strong with a weighted-average origination DTI of 36% and weighted-average origination LTV of 74%.

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

The Bancorp continues to work with borrowers that are experiencing financial difficulties by utilizing GSE-defined loss mitigation programs which include modifications, payment deferrals and forbearance programs. Additionally, the Bancorp follows GSE guidance related to foreclosure activities which have resumed since October 2021.

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

(a)Includes loans with either borrower or lender paid mortgage insurance.

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