UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF

THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended SeptemberJune 30, 20172018

Commission File Number001-33653

(Exact name of Registrant as specified in its charter)

Fifth Third Center

Cincinnati, Ohio 45263

(Address of principal executive offices)

Registrant’s telephone number, including area code:(800) 972-3030

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ☒    No  ☐

Indicate by check mark whether the Registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of RegulationS-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  ☒    No  ☐

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, anon-accelerated filer, a smaller reporting company or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule12b-2 of the Exchange Act. (Check one):

If an emerging growth company, indicate by check mark if the registrantRegistrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.   ☐

Indicate by check mark whether the Registrant is a shell company (as defined in Rule12b-2 of the Exchange Act). Yes  ☐    No  ☒

There were 705,581,268668,092,149 shares of the Registrant’s common stock, without par value, outstanding as of OctoberJuly 31, 2017.2018.

FINANCIAL CONTENTS

FORWARD-LOOKING STATEMENTS

This report contains statements that we believe are “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Rule 175 promulgated thereunder, and Section 21E of the Securities Exchange Act of 1934, as amended, and Rule3b-6 promulgated thereunder. These statements relate to our financial condition, results of operations, plans, objectives, future performance or business. They usually can be identified by the use of forward-looking language such as “will likely result,” “may,” “are expected to,” “is anticipated,” “potential,” “estimate,” “forecast,” “projected,” “intends to,” or may include other similar words or phrases such as “believes,” “plans,” “trend,” “objective,” “continue,” “remain,” or similar expressions, or future or conditional verbs such as “will,” “would,” “should,” “could,” “might,” “can,” or similar verbs. You should not place undue reliance on these statements, as they are subject to risks and uncertainties, including but not limited to the risk factors set forth in the Risk Factors section in Item 1A in our most recent Annual Report on Form10-K.10-K as updated by our Quarterly Reports on Form10-Q . When considering these forward-looking statements, you should keep in mind these risks and uncertainties, as well as any cautionary statements we may make. Moreover, you should treat these statements as speaking only as of the date they are made and based only on information then actually known to us. There are a number of important factors that could cause future results to differ materially from historical performance and these forward-looking statements. Factors that might cause such a difference include, but are not limited to: (1) general economic or real estate market conditions, either nationally or in the states in which Fifth Third, one or more acquired entities and/or the combined company do business, weaken or are less favorable than expected; (2) deteriorating credit quality; (2) loan concentration by location or industry of borrowers or collateral; (3) political developments, wars orproblems encountered by other hostilities may disrupt or increase volatility in securities markets or other economic conditions;financial institutions; (4) changes in the interest rate environment reduce interest margins; (5) prepayment speeds, loan origination and sale volumes, charge-offs and loan loss provisions; (6) Fifth Third’s ability to maintain required capital levels and adequateinadequate sources of funding andor liquidity; (7) maintaining capital requirements and adequate sources(5) unfavorable actions of funding and liquidity may limit Fifth Third’s operations and potential growth; (8) changes and trends in capital markets; (9) problems encountered by larger or similar financial institutions may adversely affect the banking industry and/or Fifth Third; (10) competitive pressures among depository institutions increase significantly; (11) changes in customer preferences or information technology systems; (12) effects of critical accounting policies and judgments; (13) changes in accounting policies or procedures as may be required by the Financial Accounting Standards Board (FASB) or other regulatoryrating agencies; (14) legislative or regulatory changes or actions, or significant litigation, adversely affect Fifth Third, one or more acquired entities and/or the combined company or the businesses in which Fifth Third, one or more acquired entities and/or the combined company are engaged, including the Dodd-Frank Wall Street Reform and Consumer Protection Act; (15) ability(6) inability to maintain favorable ratings from rating agencies; (16) failure of models or risk management systems or controls; (17) fluctuation of Fifth Third’s stock price; (18) ability to attract and retain key personnel; (19)grow deposits; (7) limitations on the ability to receive dividends from its subsidiaries; (20) potentially dilutive effect of future acquisitions on current shareholders’ ownership of Fifth Third; (21) declines in the value of(8) cyber-security risks; (9) Fifth Third’s goodwill or other intangible assets; (22) effects of accounting or financial results of one or more acquired entities; (23) difficulties from Fifth Third’s investment in, relationship with, and nature of the operations of Vantiv Holding, LLC; (24) loss of income from any sale or potential sale of businesses; (25) difficulties in separating the operations of any branches or other assets divested; (26) losses or adverse impacts on the carrying values of branches and long-lived assets in connection with their sales or anticipated sales; (27) inability to achieve expected benefits from branch consolidations and planned sales within desired timeframes, if at all; (28) ability to secure confidential information and deliver products and services through the use of computer systems and telecommunications networks; (29) the negotiation and (if any) implementation(10) failures by Vantiv, Inc.third-party service providers; (11) inability to manage strategic initiatives and/or Worldpay Group plcorganizational changes; (12) inability to implement technology system enhancements; (13) failure of internal controls and other risk management systems; (14) losses related to fraud, theft or violence; (15) inability to attract and retain skilled personnel; (16) adverse impacts of government regulation; (17) governmental or regulatory changes or other actions; (18) failures to meet applicable capital requirements; (19) regulatory objections to Fifth Third’s capital plan; (20) regulation of Fifth Third’s derivatives activities; (21) regulatory objections to Fifth Third’s resolution plan; (22) deposit insurance premiums; (23) assessments for the orderly liquidation fund; (24) changes in LIBOR; (25) weakness in the national or local economies; (26) global political and economic uncertainty or negative actions; (27) changes in interest rates; (28) changes and trends in capital markets; (29) fluctuation of Fifth Third’s stock price; (30) volatility in mortgage banking revenue; (31) litigation, investigations, and enforcement proceedings by governmental authorities; (32) breaches of contractual covenants, representations and warranties; (33) competition and changes in the financial services industry; (34) changing retail distribution strategies, customer preferences and behavior; (35) risks relating to the potential merger with MB Financial, Inc. and Fifth Third’s ability to realize the anticipated benefits of the merger; (36) difficulties in identifying, acquiring or integrating suitable strategic partnerships, investments or acquisitions; (37) potential acquisitiondilution from future acquisitions; (38) loss of income and/or difficulties encountered in the sale and separation of businesses, investments or other assets; (39) results of Vantiv Holding, LLC, a subsidiary of Worldpay, Group plc byInc. or other investments or acquired entities; (40) difficulties from or changes in Fifth Third’s investment in, relationship with, and nature of the operations of Vantiv Holding, LLC, a subsidiary of Worldpay, Inc.; (41) changes in accounting standards or interpretation or declines in the value of Fifth Third’s goodwill or other intangible assets; (42) inaccuracies or other failures from the use of models; (43) effects of critical accounting policies and suchjudgments or the use of inaccurate estimates; (44) weather related events or other actions as Vantiv, Inc.natural disasters; and Worldpay Group plc may take in furtherance thereof; and (30)(45) the impact of reputational risk created by these or other developments on such matters as business generation and retention, funding and liquidity.

Glossary of Abbreviations and Acronyms

Fifth Third Bancorp provides the following list of abbreviations and acronyms as a tool for the reader that are used in Management’s Discussion and Analysis of Financial Condition and Results of Operations, the Condensed Consolidated Financial Statements and the Notes to Condensed Consolidated Financial Statements.

Management’s Discussion and Analysis of Financial Condition and Results of Operations (Item 2)

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 Condensed 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.

TABLE 1:Selected Financial Data

Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)

OVERVIEW

Fifth Third Bancorp is a diversified financial services company headquartered in Cincinnati, Ohio. At SeptemberJune 30, 2017,2018, the Bancorp had $142.3$140.7 billion in assets and operated 1,1551,158 full-service banking centers and 2,4652,458 Fifth Third branded ATMs in ten states throughout the Midwestern and Southeastern regions of the U.S. The Bancorp reports on four business segments: Commercial Banking, Branch Banking, Consumer Lending and Wealth and Asset Management. The Bancorp also has an approximate 8.6%3.3% interest in Vantiv Holding, LLC. The carrying value of the Bancorp’s investment in Vantiv Holding, LLC was $219$426 million at SeptemberJune 30, 2017.2018.

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 as well as the Bancorp’s Annual Report on Form10-K for the year ended December 31, 2016.2017. 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 quarterly report on Form10-Q. The abbreviations and acronyms identified therein are used throughout this MD&A, as well as the Condensed Consolidated Financial Statements and Notes to Condensed 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 thetax-favored status of income from certain loans and securities held by the Bancorp that are not taxable for federal income tax purposes. The Bancorp believes this presentation to be the preferred industry measurement of net interest income as it provides a relevant comparison between taxable andnon-taxable amounts. The FTE basis for presenting net interest income is anon-GAAP measure. For further information, refer to theNon-GAAP Financial Measures section of MD&A.

The Bancorp’s revenues are dependent on both net interest income and noninterest income. For the three months ended SeptemberJune 30, 2017,2018, net interest income on an FTE basis and noninterest income provided 38%58% and 62%42% of total revenue, respectively. For the ninesix months ended SeptemberJune 30, 2017,2018, net interest income on an FTE basis and noninterest income provided 52%55% and 48%45% 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 Condensed Consolidated Financial Statements for both the three and ninesix months ended SeptemberJune 30, 2017.2018. Changes in interest rates, credit quality, economic trends and the capital markets are primary factors that drive the performance of the Bancorp. As discussed later in the Risk Management section of MD&A, risk identification, measurement, monitoring, control and reporting are important to the management of risk and to the financial performance and capital strength of the Bancorp.

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

Noninterest income is derived from service charges on deposits, wealth and asset management revenue, corporate banking revenue, card and processing revenue, mortgage banking net revenue, net securities gains or losses and other noninterest income. Noninterest expense includes personnel costs, net occupancy expense, technology and communication costs, equipment expense, card and processing expense, equipment expense and other noninterest expense.

Vantiv, Inc. Share Sale

On August 7, 2017, Fifth Third Bancorp and Fifth Third Bank entered into a transaction agreement with Vantiv, Inc. and Vantiv Holding, LLC under which Fifth Third Bank agreed to exercise its right to exchange 19.79 million of its Class B Units in Vantiv Holding, LLC for 19.79 million shares of Vantiv, Inc.’s Class A Common Stock andTransactions

On January 16, 2018, Vantiv, Inc. agreed to repurchasecompleted its previously announced acquisition of Worldpay Group plc. with the newly issued shares of Class A Common Stock upon issue directly from Fifth Third Bank at a price of $64.04 per share, the closing share price of the Class A Common Stock on the New York Stock Exchange on August 4, 2017.

resulting combined company named Worldpay, Inc. As a result of these transactions,this transaction, the Bancorp recognized a gain of approximately $1.0 billion$414 million in other noninterest income during the thirdfirst quarter of 2017. Following2018 associated with the share repurchase,dilution in its ownership interest in Vantiv Holding, LLC from approximately 8.6% to approximately 4.9%.

On June 27, 2018, the Bancorp beneficially owns approximately 8.6%completed the sale of 5 million shares of Class A common stock of Worldpay, Inc., formerly Vantiv, Holding, LLC’s equity through its ownership of approximately 15.25 millionInc. The Bancorp had previously received these Class A shares in exchange for Class B Units of Vantiv Holding, LLC. The Bancorp recognized a gain of $205 million related to the sale. As a result of the sale, the Bancorp beneficially owns approximately 3.3% of Worldpay’s equity through its ownership of approximately 10.3 million Class B Units. The Bancorp’s remaining interest in Vantiv Holding, LLC of $426 million continues to accountbe accounted for this investment under theas an equity method investment given the nature of Vantiv Holding, LLC’s structure as a limited liability company and contractual arrangements between Vantiv Holding, LLC and the Bancorp. For more information, refer

GS Holdings Transactions

In May 2018, GreenSky, Inc. launched an IPO and issued 38 million shares of Class A common stock for a valuation of $23 per share. In connection with this IPO, the Bancorp’s investment in GreenSky, LLC, which was comprised of 252,550 membership units, was converted to Note 192,525,498 units of the Notes tonewly formed GreenSky Holdings, LLC (“GS Holdings”), representing a 1.4% interest in GS Holdings. The Bancorp’s units in GS Holdings are exchangeable on aone-to-one basis for Class A common stock or cash after the initial180-daylock-up period expires.

Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)

At the time of the IPO, the Bancorp recognized a $16 million gain on its investment in GreenSky, LLC, which was included in other noninterest income in the Condensed Consolidated Financial Statements.Statements of Income for the three and six months ended June 30, 2018. At June 30, 2018, the investment in GS Holdings was $53 million, which was included in equity securities in the Condensed Consolidated Balance Sheets.

Accelerated Share Repurchase Transactions

During the ninesix months ended SeptemberJune 30, 2017,2018, the Bancorp entered into or settled accelerated share repurchase transactions. 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 the repurchase agreements.

Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)

For more information on the accelerated share repurchase program, refer to Note 1614 of the Notes to Condensed Consolidated Financial Statements. For a summary of the Bancorp’s accelerated share repurchase transactions that were entered into or settled during the ninesix months ended SeptemberJune 30, 2017,2018, refer to Table 2.

TABLE 2: Summary of Accelerated Share Repurchase Transactions

Senior Notes Offering

On June 15, 2017,March 14, 2018, the Bancorp issued and sold $700$650 million of 2.60%3.95% senior fixed-rate notes, with a maturity of fiveten years, due on June 15, 2022.March 14, 2028. These notes will be redeemable by the Bancorp, in whole or in part, on or after the date that is 30 days prior to the maturity date at a redemption price equal to 100% of the principal amount of the notes to be redeemed plus accrued and unpaid interest thereon to, but excluding, the redemption date.

On June 5, 2018, the Bancorp issued and sold $250 million of senior floating-rate notes, with a maturity of three years, due on June 4, 2021. Interest on the floating-rate notes is3-month LIBOR plus 47 bps. These notes will be redeemable, in whole or in part, on or after the date that is 30 days prior to the maturity date at a redemption price equal to 100% of the principal amount of the notes to be redeemed plus accrued and unpaid interest thereon to, but excluding, the redemption date.

Automobile Loan Securitization2018 Branch Optimization Plan

Customer interactions and service and sales activity in Branch Banking continue to evolve with changing demographics and technology applications. Customers are increasingly utilizing digital tools to interact with their financial institutions in conducting their transactions while still utilizing physical branches for consultations and new product and service initiation. During the past three years, these developments and other business strategies led to a net decrease of 141 in the number of retail branches, or 11% of the Bancorp’s total branch count, through consolidations and sales.

The Bancorp continues to evaluate its retail network distribution in light of changes in customer behavior while developing new analytical tools that provide enhanced capabilities to optimize the profitability and growth potential of branches. In a securitization transaction that occurred in September of 2017,slower growth mature markets these developments enable the Bancorp transferred $1.1 billionto achieve efficiencies through well-executed branch consolidations without materially impacting deposit flows and/or revenue growth while maintaining the service quality standards. While continuing to evaluate such actions, the Bancorp is also focused on achieving higher retail household and deposit growth in aggregate automobile loansother parts of its footprint – mainly in markets that exhibit faster economic growth and where the Bancorp has significant opportunities to a bankruptcy remote trust which subsequently issued approximately $1.0 billioncapture higher market share. To that extent, based on the strategic business evaluation that was performed during the second quarter of asset-backed notes, of which approximately $261 million2018, over the next2-3 years, as part of the asset-backed notes were retained by2018 Branch Optimization Plan, the Bancorp resultingplans to close between100-125 branches in approximately $750more mature markets and open between100-125 new branches in higher growth markets where the Bancorp already has a strong and high performing retail branch presence. With the existing local presence and familiarity with the customer demographics, and with newly developed analytical tools, the Bancorp expects to achieve higher growth rates as a result of these actions.

As of June 30, 2018, the Bancorp had identified 29 specific branches for closure under the 2018 Branch Optimization Plan with these closures expected to be completed prior to December 31, 2018. The Bancorp expects to identify the remaining branches to be closed under the 2018 Branch Optimization Plan over the next 12 to 18 months. Additionally, the Bancorp has elected to sell 21 parcels of land which had previously been held for future branch expansion.

The adoption of the 2018 Branch Optimization Plan during the second quarter of 2018 required the Bancorp to perform assessments of the recoverability of the long-lived assets for which the Bancorp believes that it is more likely than not that the assets will be disposed of significantly before the end of their previously estimated useful lives. As a result, during the second quarter of 2018 the Bancorp recognized impairment losses of $33 million associated with these lower of outstanding notes includedcost or market adjustments in long-term debtother noninterest income in the Condensed Consolidated Balance Sheets. Additionally, as discussed in Note 11,Statements of Income. For further information about the bankruptcy remote trust was deemed to be a VIE and the Bancorp, as the primary beneficiary, consolidated the VIE. The third-party holders of the asset-backed notes do not have recourse to the general assets of the Bancorp. For additional information on this automobile loan securitization,2018 Branch Optimization plan, refer to Note 11 and Note 157 of the Notes to Condensed Consolidated Financial Statements.

Earnings Summary

The Bancorp’s net income available to common shareholders for the thirdsecond quarter of 20172018 was $999$563 million, or $1.35$0.80 per diluted share, which was net of $15$23 million in preferred stock dividends. The Bancorp’s net income available to common shareholders for the thirdsecond quarter of 20162017 was $501$344 million, or $0.65$0.45 per diluted share, which was net of $15$23 million in preferred stock dividends. The Bancorp’s net income available to common shareholders for the ninesix months ended SeptemberJune 30, 20172018 was $1.6$1.3 billion, or $2.16$1.77 per diluted share, which was net of $52$38 million in preferred stock dividends. For the ninesix months ended SeptemberJune 30, 2016,2017, the Bancorp’s net income available to common shareholders was $1.1 billion,$634 million, or $1.44$0.83 per diluted share, which was net of $52$38 million in preferred stock dividends.

Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)

Net interest income on an FTE basis(non-GAAP) was $977 million$1.0 billion and $2.9$2.0 billion for the three and ninesix months ended SeptemberJune 30, 2017,2018, respectively, an increase of $64$79 million and $131$139 million compared to the same periods in the prior year. For both the three and nine months ended September 30, 2017, netNet interest income was positively impacted by increases in yields on average loans and leases and increases in average taxable securities for the three and decreasessix months ended June 30, 2018 compared to the same periods in average long-term debt.the prior year. Additionally, net interest income was positively impacted by the decisions of the Federal Open Market Committee in December 2016, March 2017 and June 2017FOMC to raise the target range of the federal funds rate 25 bps in December 2017, March 2018 and a favorable consumer loan mix shift.June 2018. These positive impacts were partially offset by decreases in average loans and leases and increases in the rates paid on average other short-term borrowings,interest-bearing core deposits and average long-term debt and average interest-bearing core deposits duringfor both the three and ninesix months ended SeptemberJune 30, 2017.2018 compared to the same periods in the prior year. Net interest margin on an FTE basis(non-GAAP) was 3.07%3.21% and 3.03%3.19% for the three and ninesix months ended SeptemberJune 30, 2017,2018, respectively compared to 2.88%3.01% for both periods in the prior year.

Noninterest income increased $721$179 million for the three months ended SeptemberJune 30, 20172018 compared to the same period in the prior year primarily due to an increaseincreases in other noninterest income partially offset by a decrease inand corporate banking revenue. Other noninterest income increased $740$165 million during the three months ended SeptemberJune 30, 20172018 compared to the three months ended SeptemberJune 30, 20162017 primarily due to the gain on sale of Vantiv,Worldpay, Inc. shares, a decreasepartially offset by an increase in the net losses on disposition and impairment of bank premises and equipment and a reduction in the equity method income from the Bancorp’s interest in Vantiv Holding, LLC. Corporate banking revenue increased $19 million for the three months ended June 30, 2018 compared to the same period in the prior year primarily due to increases in institutional sales revenue, contract revenue from commercial customer derivatives and foreign exchange fees, partially offset by a decrease in letter of credit fees.

Noninterest income increased $565 million for the six months ended June 30, 2018 compared to the six months ended June 30, 2017 primarily due to increases in other noninterest income and corporate banking revenue. Other noninterest income increased $548 million during the six months ended June 30, 2018 compared to the same period in the prior year primarily due to the gain related to Vantiv, Inc’s acquisition of Worldpay Group plc. that was recognized in the first quarter of 2018 and the aforementioned gain on sale of Worldpay, Inc. shares, partially offset by an increase in private equity investment income. These benefits were partially offset by the impactnet losses on disposition and impairment of income from the TRA transactions associated with Vantiv, Inc. during the third quarter of 2016, as well asbank premises and equipment, an increase in the loss on the swap associated with the sale of Visa, Inc. Class B sharesShares and a decreasereduction in the equity method income from the Bancorp’s interest in Vantiv Holding, LLC during the three months ended September 30, 2017.LLC. Corporate banking revenue decreased $10increased $33 million forduring the threesix months ended SeptemberJune 30, 20172018 compared to the same period in the prior year primarily due to a decreaseincreases in lease remarketing fees.

Noninterest income increased $573 million for the nine months ended September 30, 2017 compared to the nine months ended September 30, 2016 primarily due to an increase in other noninterest income,fees, institutional sales revenue, contract revenue from commercial customer derivatives and foreign exchange fees, partially offset by decreases in corporate banking revenue and mortgage banking net revenue. Other noninterest income increased $685 million during the nine months ended September 30, 2017 compared to the same period in the prior year primarily due to the gain on sale of Vantiv, Inc. shares, an increase in private equity investment income and a decrease in the net losses on disposition and impairment of bank premises and equipment. These benefits were partially offset by the impact of certain transactions that occurred during the nine months ended September 30, 2016 which included the impact of income from the TRA transactions associated with Vantiv, Inc., positive valuation adjustments on the warrant associated with Vantiv Holding, LLC and the gains on the sale of certain retail branch operations. The nine months ended September 30, 2017 also included a reduction in equity method income from the Bancorp’s interest in Vantiv Holding, LLC and an increase in the loss on the swap associated with the sale of Visa, Inc. Class B Shares. Corporate banking revenue decreased $54 million during the nine months ended September 30, 2017 compared to the same period in the prior year primarily due to decreases in lease remarketing fees, foreign exchangebusiness lending fees and letter of credit fees. Mortgage banking net revenue decreased $49 million during the nine months ended September 30, 2017 compared to the same period in the prior year primarily driven by a decrease in origination fees and gains on loan sales.

Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)

Noninterest expense increased $2$80 million for the three months ended SeptemberJune 30, 20172018 compared to the same period in the prior year primarily due to increases in personnel costs partially offset by a decrease in other noninterestand technology and communications expense. Personnel costs increased $6$66 million for the three months ended SeptemberJune 30, 20172018 compared to the same period in the prior year driven by an increase in base compensation, primarily due to personnel additions in information technology. Other noninterestvariable compensation, long-term incentive compensation and severance costs. Technology and communications expense decreased $8increased $10 million for the three months ended SeptemberJune 30, 20172018 compared to the same period in the prior year driven primarily by increased investment in regulatory, compliance and growth initiatives.

Noninterest expense increased $140 million for the six months ended June 30, 2018 compared to the same period in the prior year primarily due to the benefit from the reserve for unfunded commitmentsincreases personnel costs, technology and a decrease in donationscommunications expense and loan and lease expense, partially offset by increases in losses and adjustments and marketingother noninterest expense.

Noninterest expense decreased $24 Personnel costs increased $102 million for the ninesix months ended SeptemberJune 30, 20172018 compared to the same period in the prior year driven by an increase in base compensation, variable compensation, long-term incentive compensation and severance costs. Technology and communications expense increased $19 million for the six months ended June 30, 2018 compared to the same period in the prior year driven primarily by increased investment in regulatory, compliance and growth initiatives. Other noninterest expense increased $17 million for the six months ended June 30, 2018 compared to the same period in the prior year primarily due to decreasesincreases in other noninterest expense, card and processingthe impairment on affordable housing investments, marketing expense and net occupancydonations expense, partially offset by an increase in personnel costs. Other noninterest expense decreased $28 million for the nine months ended September 30, 2017 compared to the same period in the prior year primarily due to the benefit fromfor the reserve for unfunded commitments and decreases in impairment on affordable housing investments, loan and lease expense, donations expense, and losses and adjustments, partially offset by increases in professional service fees and marketing expense. Card and processing expense decreased $6 million for the nine months ended September 30, 2017 compared to the same period in the prior year primarily due to the impact of renegotiated service contracts. Net occupancy expense decreased $5 million for the nine months ended September 30, 2017 compared to the same period in the prior year due to lower rent expense driven by a reduction in the number of full-service banking centers and ATM locations. These items were partially offset by an increase in personnel costs of $17 million for the nine months ended September 30, 2017 compared to the same period in the prior year driven by increases in long-term incentive compensation, base compensation and medical and FICA expenses, partially offset by a decrease in severance costs related to the Bancorp’s voluntary early retirement program in 2016.commitments.

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

Credit Summary

The provision for loan and lease losses was $67$33 million and $193$56 million for the three and ninesix months ended SeptemberJune 30, 2017,2018, respectively, compared to $80$52 million and $289$126 million for the comparable periods in 2016.2017. Net lossescharged-off as a percent of average portfolio loans and leases decreasedincreased to 0.29%0.41% during the three months ended SeptemberJune 30, 20172018 compared to 0.45%0.28% during the same period in the prior year and decreasedincreased to 0.32%0.38% for the ninesix months ended SeptemberJune 30, 20172018 compared to 0.41%0.34% for the same period in the prior year. At SeptemberJune 30, 2017,2018, nonperforming portfolio assets as a percent of portfolio loans and leases and OREO decreased to 0.60%0.52% compared to 0.80%0.53% at December 31, 2016.2017. For further discussion on credit quality refer to the Credit Risk Management subsection of the Risk Management section of MD&A.

Capital Summary

The Bancorp’s capital ratios exceed the “well-capitalized” guidelines as defined by the PCA requirements of the U.S. banking agencies. As of SeptemberJune 30, 2017,2018, as calculated under the Basel III transition provisions,standardized approach, the CET1 capital ratio was 10.59%10.91%, the Tier I risk-based capital ratio was 11.72%12.02%, the Total risk-based capital ratio was 15.16%15.21% and the Tier I leverage ratio was 9.97%10.24%.

Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)

NON-GAAP FINANCIAL MEASURES

The following arenon-GAAP measures which are importantprovide useful insight to the reader of the Condensed 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 thetax-favored status of income from certain loans and securities held by the Bancorp that are not taxable for federal income tax purposes. The Bancorp believes this presentation to be the preferred industry measurement of net interest income as it provides a relevant comparison between taxable andnon-taxable amounts.

The following table reconciles thenon-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 on an FTE basis to U.S. GAAP:

TABLE 3:Non-GAAP Financial Measures - Net Interest Income, Net Interest MarginFinancial Measures and Efficiency RatioRatios on an FTE Basisbasis

The following table reconciles thenon-GAAP financial measure of income before income taxes on an FTE basis to U.S. GAAP:

TABLE 4:Non-GAAP Financial Measure - Income Before Income Taxes on an FTE Basis    

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 anon-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 thenon-GAAP financial measure of return on average tangible common equity to U.S. GAAP:

TABLE 5:4:Non-GAAP Financial Measures - Return on Average Tangible Common Equity

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

Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)

Additionally, the Bancorp became subject to the Basel III Final Rule on January 1, 2015 which defined various regulatory capital ratios including the CET1 ratio. The CET1 capital ratio has transition provisions that will be phased out over time. The Bancorp is presenting the CET1 capital ratio on a fullyphased-in basis for comparative purposes with other organizations. The Bancorp considers the fullyphased-in CET1 ratio anon-GAAP measure since it is not the CET1 ratio in effect for the periods presented. Since analysts and the U.S. banking agencies may assess the Bancorp’s capital adequacy using these ratios, the Bancorp believes they are useful to provide investors the ability to assess its capital adequacy on the same basis. The Bancorp encourages readers to consider its Condensed Consolidated Financial Statements in their entirety and not to rely on any single financial measure.

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

Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)

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

TABLE 5:Non-GAAP Financial Measures - Capital Ratios

Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)

RECENT ACCOUNTING STANDARDS

Note 3 of the Notes to Condensed Consolidated Financial Statements provides a discussion of the significant new accounting standards applicable to the Bancorp and the expected impact of significant accounting standards issued, but not yet required to be adopted.

CRITICAL ACCOUNTING POLICIES

The Bancorp’s Condensed 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, income taxes, valuation of servicing rights, fair value measurements, goodwill and legal contingencies. These accounting policies are discussed in detail in the Critical Accounting Policies section of the Bancorp’s Annual Report on Form10-K for the year ended December 31, 2016. Effective January 1, 2017, the Bancorp elected to adopt the fair value method of measuring all existing classes of its residential mortgage servicing rights as described below. Previously, the Bancorp had measured its servicing rights subsequent to initial recognition using the amortization method.2017. There have been no other material changes to the valuation techniques or models during the ninesix months ended SeptemberJune 30, 2017.2018.

Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)

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

Tables 76 and 87 present the components of net interest income, net interest margin and net interest rate spread for the three and ninesix months ended SeptemberJune 30, 20172018 and 2016,2017, as well as the relative impact of changes in the 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 onavailable-for-sale and other securities included in other assets.

Net interest income on an FTE basis(non-GAAP) was $977 million$1.0 billion and $2.9$2.0 billion for the three and ninesix months ended SeptemberJune 30, 2017,2018, respectively, an increase of $64$79 million and $131$139 million compared to the same periods in the prior year. Net interest income was positively impacted by an increase in yields on average loans and leases of 4256 bps and 3149 bps for the three and ninesix months ended SeptemberJune 30, 2017, respectively. Net interest income also benefited from2018, respectively and increases in average taxable securities of $2.5$1.3 billion and $2.3 billion for both the three and ninesix months ended SeptemberJune 30, 2017, respectively, and decreases in average long-term debt of $2.6 billion and $1.9 billion for the three and nine months ended September 30, 2017, respectively,2018 compared to the same periods in the prior year. Additionally, net interest income was positively impacted by the decisions of the Federal Open Market Committee in December 2016, March 2017 and June 2017FOMC to raise the target range of the federal funds rate 25 bps in December 2017, March 2018 and a favorable consumer loan mix shift.June 2018. These positive impacts were partially offset by decreases in average loans and leases and increases in the rates paid on average other short-term borrowings,interest-bearing core deposits and average long-term debt and average interest-bearing core deposits for both the three and ninesix months ended SeptemberJune 30, 2017 compared to the same periods in the prior year. Average loans and leases decreased $1.8 billion and $1.7 billion for the three and nine months ended September 30, 2017, respectively, compared to the same periods in the prior year. The rates paid on average other short-term borrowings increased 79 bps and 56 bps, respectively, for the three and nine months ended September 30, 2017 compared to the same periods in the prior year. The rates paid on average long-term debt increased 42 bps for both the three and nine months ended September 30, 20172018 compared to the same periods in the prior year. The rates paid on average interest-bearing core deposits increased 1331 bps and 925 bps, respectively, for the three and ninesix months ended SeptemberJune 30, 20172018 compared to the same periods in the prior year. The rates paid on average long-term debt increased 35 bps and 27 bps for the three and six months ended June 30, 2018, respectively, compared to the same periods in the prior year.

Net interest rate spread on an FTE basis(non-GAAP)was 2.79% and 2.77%2.86% during both the three and ninesix months ended SeptemberJune 30, 2017, respectively,2018 compared to 2.66%2.75% and 2.68%2.77% in the same periods in the prior year. Yields on average interest-earning assets increased 2844 bps and 2138 bps for the three and ninesix months ended SeptemberJune 30, 2017,2018, respectively, partially offset by a 1533 bps and 1229 bps increase in rates paid on average interest-bearing liabilities for the three and ninesix months ended SeptemberJune 30, 2017,2018, respectively, compared to the same periods in the prior year.

Net interest margin on an FTE basis(non-GAAP) was 3.07%3.21% and 3.03%3.19% for the three and ninesix months ended SeptemberJune 30, 2017,2018, respectively, compared to 2.88%3.01% for both the three and ninesix months ended SeptemberJune 30, 2016.2017. The increase for both periods was driven primarily by the previously mentioned increases in the net interest rate spread partially offset by a decreasedecreases in average free funding balances. The decreasedecreases in average free funding balances for both periods waswere driven by a decrease in average demand deposits of $1.1$2.1 billion and $729 million$1.7 billion for the three and ninesix months ended SeptemberJune 30, 2017,2018, respectively, compared to the same periods in the prior year.

Interest income on an FTE basis from loans and leases(non-GAAP) increased $83$136 million and $166$232 million for the three and ninesix months ended SeptemberJune 30, 2017,2018, respectively, compared to the same periods in the prior year. The increase for both periods was driven byincreases were primarily due to the previously mentionedaforementioned increases in yields on average loans and leases, partially offset by decreasesas well as increases in the volume of average loans and leases. Average loans and leases decreased for both periods primarily due to decreases in average commercial and industrial loans and average automobile loans partially offset by an increase in average residential mortgageother consumer loans. 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 from investment securities and other short-term investments increased $13$25 million and $37$45 million for the three and ninesix months ended SeptemberJune 30, 2017,2018, respectively, compared to the same periods in the prior year primarily as a result of the aforementioned increases in average taxable securities.

Interest expense on core deposits increased $20$56 million and $45$91 million for the three and ninesix months ended SeptemberJune 30, 2017,2018, respectively, compared to the same periods in the prior year. TheseThe increases were primarily due to increases in the cost of average interest-bearing core deposits to 3965 bps and 3558 bps for the three and ninesix months ended SeptemberJune 30, 2017,2018, respectively, from 2634 bps and 33 bps for both the three and ninesix months ended SeptemberJune 30, 2016.2017, respectively. The increaseincreases in the cost of average interest-bearing core deposits for both periods waswere primarily due to increases in the cost ofrates 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 increased $12$26 million and $27$47 million for the three and ninesix months ended SeptemberJune 30, 2017,2018, respectively, compared to the same periods in the prior year primarily due to the previously mentionedaforementioned increases in the rates paid on average other short-term borrowings and average long-term debt partially offset by the aforementioned decreasescoupled with increases in average long-term debt. Refer to the Borrowings subsection of the Balance Sheet Analysis section of MD&A for additional information on the Bancorp’s borrowings. During both the three and ninesix months ended SeptemberJune 30, 2017,2018, average wholesale funding represented 25% and 24%23% of average interest-bearing liabilities respectively, compared to 26%24% and 23% during both the three and ninesix months ended SeptemberJune 30, 2016.

Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)

2017, respectively. For more information on the Bancorp’s interest rate risk management, including estimated earnings sensitivity to changes in market interest rates, see the Market Risk Management subsection of the Risk Management section of MD&A.

Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)