Fifth Third Bancorp (FITB)

How it makes money

Most revenue is the spread between what the bank earns on loans and investments and what it pays on deposits and other funding — net interest income, which moves with the level and shape of interest rates and with loan and deposit volumes. The rest is fee income: account and card fees, wealth-management fees, commercial banking and capital-markets fees. Because a bank operates with far more borrowed money than equity, small swings in interest rates or credit losses can have an outsized effect on profit.

Moving a checking account, a mortgage or a company's cash-management relationship to another bank is enough hassle that customers tend to stay put once set up. That inertia is common to every bank, though, so it gives Fifth Third an edge over losing customers to inaction rather than a structural advantage over its regional competitors.

Loan demand, credit quality and net interest income all move with the broader economy and with interest-rate policy: lending slows and loan losses rise in a downturn, while net interest income can compress or expand depending on where rates are set relative to the bank's own funding costs.

Key risks

• Interest-rate sensitivity — Net interest income depends on the spread between what the bank earns on loans and investments and what it pays on deposits and borrowings. Rate changes that move faster on one side of the balance sheet than the other compress margins.
• Credit losses in a downturn — A weaker economy increases the chance that commercial and consumer borrowers fail to repay loans, requiring the bank to set aside more for credit losses and directly reducing profit.
• Regional economic concentration — Most lending and deposit activity is concentrated in the Midwest and Southeast United States, so a downturn specific to that region would affect Fifth Third more than a bank with a more national footprint.