Fifth Third Bancorp (FITB) 10-Q 2019 Q1 Quarterly report

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 March 31, 2019

Commission File Number001-33653

(Exact name of Registrant as specified in its charter)

Ohio	31-0854434
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification Number)

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 every Interactive Data File required to be submitted pursuant to Rule 405 of RegulationS-T during the preceding 12 months (or for such shorter period that the registrant was required to submit 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):

Large accelerated filer	☒	Accelerated filer	☐
Non-accelerated filer	☐	Smaller reporting company	☐
		Emerging growth company	☐

If an emerging growth company, indicate by check mark if the Registrant 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  ☒

Securities registered pursuant to Section 12(b) of the Act:

Title of each class:	Trading Symbol(s):	Name of each exchange on which registered:
Common Stock, Without Par Value	FITB	The NASDAQ Stock Market LLC
Depositary Shares Representing a 1/1000th Ownership Interest in a Share of 6.625%Fixed-to-Floating RateNon-Cumulative Perpetual Preferred Stock, Series I	FITBI	The NASDAQ Stock Market LLC

There were 734,386,147 shares of the Registrant’s common stock, without par value, outstanding as of April 30, 2019.

FINANCIAL CONTENTS

Part I. Financial Information
Glossary of Abbreviations and Acronyms	2
Management’s Discussion and Analysis of Financial Condition and Results of Operations (Item 2)
Selected Financial Data	3
Overview	4
Non-GAAP Financial Measures	7
Recent Accounting Standards	9
Critical Accounting Policies	9
Statements of Income Analysis	10
Balance Sheet Analysis	17
Business Segment Review	24
Risk Management—Overview	30
Credit Risk Management	31
Market Risk Management	44
Liquidity Risk Management	48
Operational Risk Management	51
Compliance Risk Management	51
Capital Management	52
Off-Balance Sheet Arrangements	54
Quantitative and Qualitative Disclosures about Market Risk (Item 3)	55
Controls and Procedures (Item 4)	55
Condensed Consolidated Financial Statements and Notes (Item 1)
Balance Sheets (unaudited)	56
Statements of Income (unaudited)	57
Statements of Comprehensive Income (unaudited)	58
Statements of Changes in Equity (unaudited)	59
Statements of Cash Flows (unaudited)	60
Notes to Condensed Consolidated Financial Statements (unaudited)	61
Part II. Other Information
Legal Proceedings (Item 1)	118
Risk Factors (Item 1A)	118
Unregistered Sales of Equity Securities and Use of Proceeds (Item 2)	118
Exhibits (Item 6)	118
Signature	119

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 our most recent Annual Report on Form10-K as updated by our Quarterly Report 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) deteriorating credit quality; (2) loan concentration by location or industry of borrowers or collateral; (3) problems encountered by other financial institutions; (4) inadequate sources of funding or liquidity; (5) unfavorable actions of rating agencies; (6) inability to maintain or grow deposits; (7) limitations on the ability to receive dividends from subsidiaries; (8) cyber-security risks; (9) Fifth Third’s ability to secure confidential information and deliver products and services through the use of computer systems and telecommunications networks; (10) failures by third-party service providers; (11) inability to manage strategic initiatives and/or organizational 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) deposit insurance premiums; (22) assessments for the orderly liquidation fund; (23) replacement of LIBOR; (24) weakness in the national or local economies; (25) global political and economic uncertainty or negative actions; (26) changes in interest rates; (27) changes and trends in capital markets; (28) fluctuation of Fifth Third’s stock price; (29) volatility in mortgage banking revenue; (30) litigation, investigations and enforcement proceedings by governmental authorities; (31) breaches of contractual covenants, representations and warranties; (32) competition and changes in the financial services industry; (33) changing retail distribution strategies, customer preferences and behavior; (34) risks relating to the merger with MB Financial, Inc. and Fifth Third’s ability to realize anticipated benefits of the merger; (35) difficulties in identifying, acquiring or integrating suitable strategic partnerships, investments or acquisitions; (36) potential dilution from future acquisitions; (37) loss of income and/or difficulties encountered in the sale and separation of businesses, investments or other assets; (38) results of investments or acquired entities; (39) changes in accounting standards or interpretation or declines in the value of Fifth Third’s goodwill or other intangible assets; (40) inaccuracies or other failures from the use of models; (41) effects of critical accounting policies and judgments or the use of inaccurate estimates; (42) weather-related events or other natural disasters; and (43) the impact of reputational risk created by these or other developments on such matters as business generation and retention, funding and liquidity.

1

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.

ALCO:Asset Liability Management Committee ALLL:Allowance for Loan and Lease Losses AOCI: Accumulated Other Comprehensive Income (Loss) APR:Annual Percentage Rate ARM: Adjustable Rate Mortgage ASF: Available Stable Funding ASU: Accounting Standards Update ATM:Automated Teller Machine BCBS: Basel Committee on Banking Supervision BHC: Bank Holding Company BOLI: Bank Owned Life Insurance BPO:Broker Price Opinion bps: Basis Points CCAR: Comprehensive Capital Analysis and Review CDC: Fifth Third Community Development Corporation CET1: Common Equity Tier 1 CFPB:United StatesConsumer Financial Protection Bureau C&I:Commercial and Industrial DCF: Discounted Cash Flow DFA:Dodd-Frank Wall Street Reform & Consumer Protection Act DTCC: Depository Trust & Clearing Corporation DTI:Debt-to-Income ERM:Enterprise Risk Management ERMC:Enterprise Risk Management Committee EVE:Economic Value of Equity FASB:Financial Accounting Standards Board FDIC:Federal Deposit Insurance Corporation FHA:Federal Housing Administration FHLB:Federal Home Loan Bank FHLMC:Federal Home Loan Mortgage Corporation FICO: Fair Isaac Corporation (credit rating) FINRA:Financial Industry Regulatory Authority FNMA:Federal National Mortgage Association FOMC:Federal Open Market Committee FRB:Federal Reserve Bank FTE:Fully Taxable Equivalent FTP:Funds Transfer Pricing FTS:Fifth Third Securities GDP: Gross Domestic Product GNMA:Government National Mortgage Association GSE:United StatesGovernment Sponsored Enterprise HQLA:High Quality Liquid Assets IPO:Initial Public Offering IRC:Internal Revenue Code IRLC:Interest Rate Lock Commitment ISDA: International Swaps and Derivatives Association, Inc. LCR: Liquidity Coverage Ratio LIBOR:London Interbank Offered Rate LIHTC:Low-Income Housing Tax Credit LLC:Limited Liability Company LTV:Loan-to-Value MD&A:Management’s Discussion and Analysis of Financial Condition and Results of Operations MSR:Mortgage Servicing Right N/A: Not Applicable NAV:Net Asset Value NII:Net Interest Income NM:Not Meaningful NPR: Notice of Proposed Rulemaking NSFR: Net Stable Funding Ratio OAS:Option-Adjusted Spread OCC:Office of the Comptroller of the Currency OCI:Other Comprehensive Income (Loss) OREO:Other Real Estate Owned OTTI:Other-Than-Temporary Impairment PCA: Prompt Corrective Action PCI: Purchased Credit Impaired RCC:Risk Compliance Committee ROU:Right-of-Use RSF: Required Stable Funding SAR: Stock Appreciation Right SBA: Small Business Administration SCB:Stress Capital Buffer SEC:United States Securities and Exchange Commission SLB: Stress Leverage Buffer TBA:To Be Announced TDR:Troubled Debt Restructuring TILA: Truth in Lending Act U.S.: United States of America U.S. GAAP:United States Generally Accepted Accounting Principles VA:United StatesDepartment of Veteran Affairs VIE:Variable Interest Entity VRDN:Variable Rate Demand Note

2

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 subsidiaries are referred to as Fifth Third Bank and MB Financial Bank, N.A.

TABLE 1: Selected Financial Data
	For the three months ended March 31,					% Change
($ in millions, except for per share data)	2019			2018
Income Statement Data
Net interest income (U.S. GAAP)	$	1,082			996		9
Net interest income (FTE)(a)(b)		1,086			999		9
Noninterest income		1,101			909		21
Total revenue(a)		2,187			1,908		15
Provision for credit losses(c)		90			13		592
Noninterest expense		1,097			1,010		9
Net income attributable to Bancorp		775			701		11
Net income available to common shareholders		760			686		11
Common Share Data
Earnings per share - basic	$	1.14			0.98		16
Earnings per share - diluted		1.12			0.96		17
Cash dividends declared per common share		0.22			0.16		38
Book value per share		24.77			21.44		16
Market value per share		25.22			31.75		(21	)
Financial Ratios
Return on average assets		2.11	%		2.01		5
Return on average common equity		19.6			18.8		4
Return on average tangible common equity(b)		23.9			22.6		6
Dividend payout		19.3			16.3		18
Average total Bancorp shareholders’ equity as a percent of average assets		11.43			11.41		-
Tangible common equity as a percent of tangible assets(b)(i)		8.21			9.03		(9	)
Net interest margin(a)(b)		3.28			3.18		3
Net interest rate spread(a)(b)		2.87			2.88		-
Efficiency(a)(b)		50.2			52.9		(5	)
Credit Quality
Net lossescharged-off	$	77			81		(5	)
Net lossescharged-off as a percent of average portfolio loans and leases		0.32	%		0.36		(11	)
ALLL as a percent of portfolio loans and leases		1.02			1.24		(18	)
Allowance for credit losses as a percent of portfolio loans and leases(d)		1.14			1.40		(19	)
Nonperforming portfolio assets as a percent of portfolio loans and leases and OREO		0.45			0.55		(18	)
Average Balances
Loans and leases, including held for sale	$	98,362			92,869		6
Securities and other short-term investments		36,101			34,677		4
Total Assets		148,968			141,450		5
Transaction deposits(e)		100,647			97,018		4
Core deposits(f)		105,507			100,874		5
Wholesale funding(g)		22,187			20,558		8
Bancorp shareholders’ equity		17,025			16,146		5
Regulatory Capital and Liquidity Ratios
CET1 capital(h)		9.60	%		10.82		(11	)
Tier I risk-based capital(h)		10.67			11.95		(11	)
Total risk-based capital(h)		13.68			15.25		(10	)
Tier I leverage		10.32			10.11		2
Modified LCR		113			113		-

(a) Amounts presented on an FTE basis. The FTE adjustment for the three months endedMarch 31, 2019 and 2018 was$4and $3, respectively.

(b) These arenon-GAAP measures. For further information, refer to theNon-GAAP Financial Measures section of MD&A.

(c) The provision for credit losses is the sum of the provision for loan and lease losses and the provision for (benefit from) the reserve for unfunded commitments.

(d) The allowance for credit losses is the sum of the ALLL and the reserve for unfunded commitments.

(e) Includes demand deposits, interest checking deposits, savings deposits, money market deposits and foreign office deposits.

(f) Includes transaction deposits and other time deposits.

(g) Includes certificates $100,000 and over, other deposits, federal funds purchased, other short-term borrowings and long-term debt.

(h) Under the U.S. banking agencies’ Basel III Final Rule, assets and credit equivalent amounts ofoff-balance sheet exposures are calculated according to the standardized approach for risk-weighted assets. The resulting values are added together resulting in the Bancorp’s total risk-weighted assets.

(i) Excludes unrealized gains and losses.

3

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 March 31, 2019, the Bancorp had $167.9 billion in assets and operated 1,207 full-service banking centers and 2,559 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.

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, 2018. 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 March 31, 2019, net interest income on an FTE basis and noninterest income each provided 50% of total revenue. 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 the three months ended March 31, 2019. 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, technology and communication costs, net occupancy expense, card and processing expense, equipment expense and other noninterest expense.

Acquisition of MB Financial, Inc.

On March 22, 2019, Fifth Third Bancorp completed its acquisition of MB Financial, Inc. in a stock and cash transaction valued at approximately $3.6 billion. MB Financial, Inc. was headquartered in Chicago, Illinois with reported assets of approximately $20 billion and 86 branches as of December 31, 2018 and is the holding company of MB Financial Bank, N.A. Under the terms of the agreement, the Bancorp acquired 100% of the common stock of MB Financial, Inc. In exchange, common shareholders of MB Financial, Inc. received 1.45 shares of Fifth Third Bancorp common stock and $5.54 in cash for each share of MB Financial, Inc. common stock, for a total value per share of $42.49, based on the $25.48 closing price of Fifth Third Bancorp’s common stock on March 21, 2019. Upon closing of the transaction, MB Financial, Inc. became a subsidiary of the Bancorp. However, MB Financial, Inc.’s preferred stock with a fair value of $197 million remains outstanding and is recognized as a noncontrolling interest on the Condensed Consolidated Balance Sheets. Through its ownership of all of the common stock, the Bancorp controls 95% of the voting equity interests in MB Financial, Inc.

The acquisition of MB Financial, Inc. constituted a business combination and was accounted for under the acquisition method of accounting. Accordingly, the assets acquired, liabilities assumed and noncontrolling interest recognized were recorded at their estimated fair values as of the acquisition date. These fair value estimates are considered preliminary as of March 31, 2019 due to the timing of the close of the acquisition. For more information on the acquisition of MB Financial, Inc., refer to Note 3 of the Notes to Condensed Consolidated Financial Statements.

Worldpay Holding, LLC Transactions

On March 18, 2019, the Bancorp exchanged its remaining 10,252,826 Class B Units of Worldpay Holding, LLC for 10,252,826 shares of Class A common stock of Worldpay, Inc., and subsequently sold those shares. As a result of this transaction, the Bancorp recognized a gain of $562 million in other noninterest income during the first quarter of 2019. As a result of the sale, the Bancorp no longer beneficially owns any of Worldpay, Inc.’s equity securities.

4

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

Accelerated Share Repurchase Transaction

During the three months ended March 31, 2019, the Bancorp entered into an accelerated share repurchase transaction. As part of this transaction, the Bancorp entered into a forward contract in which the final number of shares delivered at settlement will be 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 agreement. For more information on the accelerated share repurchase program, refer to Note 18 of the Notes to Condensed Consolidated Financial Statements. For a summary of the Bancorp’s accelerated share repurchase transaction that was entered into during the three months ended March 31, 2019, refer to Table 2.

TABLE 2: Summary of Accelerated Share Repurchase Transaction
Repurchase Date	Amount             ($ in millions)		Shares Repurchased on Repurchase Date		Shares Received from Forward Contract Settlement	Total Shares     Repurchased	Settlement Date
March 27, 2019	$	913		31,779,280	(a)	(a)	(a)

(a) This accelerated share repurchase transaction consists of two supplemental confirmations each with a notional amount of $456.5 million. The settlement of the transaction is expected to occur on or before June 28, 2019.

Senior Notes Offerings

On January 25, 2019, the Bancorp issued and sold $1.5 billion of 3.65% senior fixed-rate notes, with a maturity of five years, due on January 25, 2024. 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 up to, but excluding, the redemption date.

On February 1, 2019, Fifth Third Bank issued and sold, under its bank notes program, $300 million of senior floating-rate notes, with a maturity of three years, due on February 1, 2022. Interest on the floating-rate notes is3-month LIBOR plus 64 bps. These notes will be redeemable by Fifth Third Bank, in whole or in part, on or after the date that is 30 days prior to the maturity date at a redemption price equal to 100% of the principal amount of the notes to be redeemed plus accrued and unpaid interest up to, but excluding, the redemption date.

GS Holdings and GreenSky, Inc. 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 2,525,498 units of the newly formed GreenSky Holdings, LLC (“GS Holdings”), representing a 1.4% interest in GS Holdings. The Bancorp’s units in GS Holdings were exchangeable on aone-to-one basis for Class A common stock or cash.

During the first quarter of 2019, all of the Bancorp’s units in GS Holdings were converted for Class A common stock on aone-to-one basis and the Bancorp sold 85,000 shares for an immaterial gain that was recognized in the Condensed Consolidated Statements of Income. During the second quarter of 2019, the Bancorp sold its remaining shares of Class A common stock for a gain of approximately $1 million that will be recognized in the second quarter of 2019 Condensed Consolidated Statements of Income. As a result of the sale in the second quarter of 2019, the Bancorp no longer beneficially owns any of GreenSky, Inc.’s equity securities.

Earnings Summary

The Bancorp’s net income available to common shareholders for the first quarter of 2019 was $760 million, or $1.12 per diluted share, which was net of $15 million in preferred stock dividends. The Bancorp’s net income available to common shareholders for the first quarter of 2018 was $686 million, or $0.96 per diluted share, which was net of $15 million in preferred stock dividends.

Net interest income on an FTE basis(non-GAAP) was $1.1 billion and $999 million for the three months ended March 31, 2019 and 2018, respectively. Net interest income was positively impacted by increases in yields on average loans and leases of 62 bps for the three months ended March 31, 2019 compared to the three months ended March 31, 2018. Net interest income also benefited from an increase in average commercial and industrial loans of $4.3 billion for the three months ended March 31, 2019 compared to the three months ended March 31, 2018. Additionally, net interest income was positively impacted by the decisions of the FOMC to raise the target range of the federal funds rate 25 bps in March 2018, June 2018, September 2018 and December 2018. These positive impacts were partially offset by increases in the rates paid on average interest-bearing core deposits and average long-term debt for the three months ended March 31, 2019 compared to the three months ended March 31, 2018. Due to the timing of the close of the MB Financial, Inc. acquisition, amortization and accretion of premiums and discounts on acquired loans and deposits had an immaterial impact on net interest income for the three months ended March 31, 2019. Net interest margin on an FTE basis(non-GAAP) was 3.28% for the three months ended March 31, 2019 compared to 3.18% for the three months ended March 31, 2018.

Noninterest income increased $192 million for the three months ended March 31, 2019 compared to the three months ended March 31, 2018 primarily due to increases in other noninterest income and corporate banking revenue. Other noninterest income increased $132 million for the three months ended March 31, 2019 compared to the three months ended March 31, 2018 primarily due to the gain on sale of WorldPay, Inc. shares and a decrease in the loss on the swap associated with the sale of Visa, Inc. Class B shares partially offset by the gain related to Vantiv, Inc.’s acquisition of Worldpay Group plc. recognized during the first quarter of 2018. Corporate banking revenue increased $24 million for the three months ended March 31, 2019 compared to the three months ended March 31, 2018. The increase from the prior year was primarily driven by increases in institutional sales, lease remarketing fees and business lending fees of $9 million, $9 million and $6 million, respectively. These increases were partially offset by a decrease in foreign exchange fees of $2 million.

Noninterest expense increased $87 million for the three months ended March 31, 2019 compared to the three months ended March 31, 2018 primarily due to increases in personnel costs (salaries, wages and incentives plus employee benefits), technology and communications expense and other noninterest expense.

5

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

The increase in noninterest expense included the recognition by the Bancorp of $76 million of merger-related expenses related to the MB Financial, Inc. acquisition for the three months ended March 31, 2019. Personnel costs increased $53 million for the three months ended March 31, 2019 compared to the three months ended March 31, 2018 primarily driven by $35 million of merger-related expenses, the addition of personnel costs from the acquisition of MB Financial, Inc. and higher deferred compensation expense. Technology and communications expense increased $15 million for the three months ended March 31, 2019 compared to the three months ended March 31, 2018 primarily driven by $11 million of merger-related expenses and increased investment in regulatory, compliance and growth initiatives. Other noninterest expense increased $18 million for the three months ended March 31, 2019 compared to the three months ended March 31, 2018 primarily due to the recognition of $30 million of merger-related expenses related to the acquisition of MB Financial, Inc. Those expenses included $20 million in acquisition expenses recorded in other, net, $6 million in professional service fees and $4 million in marketing expense. These increases were partially offset by a decrease in FDIC insurance and other taxes.

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 credit losses was $90 million and $13 million for the three months ended March 31, 2019 and 2018, respectively. Net lossescharged-off as a percent of average portfolio loans and leases were 0.32% during the first quarter of 2019 compared to 0.36% during the first quarter of 2018. At March 31, 2019, nonperforming portfolio assets as a percent of portfolio loans and leases and OREO increased to 0.45% compared to 0.41% at December 31, 2018. 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 March 31, 2019, as calculated under the Basel III standardized approach, the CET1 capital ratio was 9.60%, the Tier I risk-based capital ratio was 10.67%, the Total risk-based capital ratio was 13.68% and the Tier I leverage ratio was 10.32%.

6

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

NON-GAAP FINANCIAL MEASURES

The following arenon-GAAP measures which provide 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 to U.S. GAAP:

TABLE 3:Non-GAAP Financial Measures - Financial Measures and Ratios on an FTE basis
	For the three months ended March 31,
($ in millions)	2019			2018
Net interest income (U.S. GAAP)	$	1,082			996
Add: FTE adjustment		4			3
Net interest income on an FTE basis (1)	$	1,086			999
Net interest income on an FTE basis (annualized) (2)		4,404			4,052
Interest income (U.S. GAAP)	$	1,433			1,206
Add: FTE adjustment		4			3
Interest income on an FTE basis	$	1,437			1,209
Interest income on an FTE basis (annualized) (3)		5,828			4,903
Interest expense (annualized) (4)	$	1,424			852
Noninterest income (5)		1,101			909
Noninterest expense (6)		1,097			1,010
Average interest-earning assets (7)		134,463			127,546
Average interest-bearing liabilities (8)		97,137			87,607
Ratios:
Net interest margin on an FTE basis (2) / (7)		3.28	%		3.18
Net interest rate spread on an FTE basis ((3) / (7)) - ((4) / (8))		2.87			2.88
Efficiency ratio on an FTE basis (6) / ((1) + (5))		50.2			52.9

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.

7

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

The following table reconciles thenon-GAAP financial measure of return on average tangible common equity to U.S. GAAP for the three months ended:

TABLE 4:Non-GAAP Financial Measures - Return on Average Tangible Common Equity
($ in millions)	March 31, 2019			March 31, 2018
Net income available to common shareholders (U.S. GAAP)	$	760			686
Add: Intangible amortization, net of tax		2			1
Tangible net income available to common shareholders	$	762			687
Tangible net income available to common shareholders (annualized) (1)		3,090			2,786
Average Bancorp’s shareholders’ equity (U.S. GAAP)	$	17,025			16,146
Less: Average preferred stock		(1,331	)		(1,331	)
Average goodwill		(2,682	)		(2,455	)
Average intangible assets		(58	)		(27	)
Average tangible common equity (2)	$	12,954			12,333
Return on average tangible common equity (1) / (2)		23.9	%		22.6

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. 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:

TABLE 5:Non-GAAP Financial Measures - Capital Ratios
As of ($ in millions)	March 31, 2019			December 31, 2018
Total Bancorp Shareholders’ Equity (U.S. GAAP)	$	19,647			16,250
Less: Preferred stock		(1,331	)		(1,331	)
Goodwill		(4,321	)		(2,478	)
Intangible assets		(218	)		(40	)
AOCI		(409	)		112
Tangible common equity, excluding unrealized gains / losses (1)		13,368			12,513
Add: Preferred stock		1,331			1,331
Tangible equity (2)	$	14,699			13,844
Total Assets (U.S. GAAP)	$	167,853			146,069
Less: Goodwill		(4,321	)		(2,478	)
Intangible assets		(218	)		(40	)
AOCI, before tax		(518	)		142
Tangible assets, excluding unrealized gains / losses (3)	$	162,796			143,693
Ratios:
Tangible equity as a percentage of tangible assets (2) / (3)		9.03	%		9.63
Tangible common equity as a percentage of tangible assets (1) / (3)		8.21			8.71

8

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

RECENT ACCOUNTING STANDARDS

Note 4 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, 2018. There have been no material changes to the valuation techniques or models during the three months ended March 31, 2019.

9

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.

Table 6 presents the components of net interest income, net interest margin and net interest rate spread for the three months ended March 31, 2019 and 2018, 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 included in other assets.

Net interest income on an FTE basis(non-GAAP) was $1.1 billion and $999 million for the three months ended March 31, 2019 and 2018, respectively. Net interest income was positively impacted by increases in yields on average loans and leases of 62 bps for the three months ended March 31, 2019 compared to the three months ended March 31, 2018. Net interest income also benefited from an increase in average commercial and industrial loans of $4.3 billion for the three months ended March 31, 2019 compared to the three months ended March 31, 2018. Additionally, net interest income was positively impacted by the decisions of the FOMC to raise the target range of the federal funds rate 25 bps in March 2018, June 2018, September 2018 and December 2018. These positive impacts were partially offset by increases in the rates paid on average interest-bearing core deposits and average long-term debt for the three months ended March 31, 2019 compared to the three months ended March 31, 2018. The rates paid on average interest-bearing core deposits and average long-term debt increased 47 bps and 49 bps, respectively, for the three months ended March 31, 2019 compared to the same period in the prior year. Due to the timing of the close of the MB Financial, Inc. acquisition, amortization and accretion of premiums and discounts on acquired loans and deposits had an immaterial impact on net interest income for the three months ended March 31, 2019.

Net interest rate spread on an FTE basis(non-GAAP) was 2.87% during the three months ended March 31, 2019 compared to 2.88% in the same period in 2018. Rates paid on average interest-bearing liabilities increased 49 bps, partially offset by a 48 bps increase in the yields on average interest-earning assets for the three months ended March 31, 2019 compared to the three months ended March 31, 2018.

Net interest margin on an FTE basis(non-GAAP) was 3.28% for the three months ended March 31, 2019 compared to 3.18% for the three months ended March 31, 2018. The increase from the three months ended March 31, 2018 was driven primarily by the increase in net interest income attributable to increases in average interest-earning assets and the yields on interest-earning assets, partially offset by a decrease in average free funding balances. The decrease in average free funding balances was driven by a decrease in average demand deposits of $3.3 billion for the three months ended March 31, 2019 compared to the three months ended March 31, 2018.

Interest income on an FTE basis from loans and leases(non-GAAP) increased $206 million during the three months ended March 31, 2019 compared to the three months ended March 31, 2018 driven by the previously mentioned increase in yields on average loan and leases, as well as increases in the balance of average commercial and industrial loans, average other consumer loans and average commercial mortgage 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 $22 million during the three months ended March 31, 2019 compared to the three months ended March 31, 2018 primarily as a result of increases in average taxable securities and yields on average taxable securities.

Interest expense on core deposits increased $97 million for the three months ended March 31, 2019 compared to the three months ended March 31, 2018 primarily due to an increase in the cost of average interest-bearing core deposits to 99 bps for the three months ended March 31, 2019 from 52 bps for the three months ended March 31, 2018. The increase in the cost of average interest-bearing core deposits was primarily due to an increase in the cost of 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 $44 million for the three months ended March 31, 2019 compared to the three months ended March 31, 2018 primarily due to increases in the rates paid on average long-term debt and average other short-term borrowings, partially offset by a decrease in average other short-term borrowings. 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 months ended March 31, 2019 and 2018, average wholesale funding represented 23% of average interest-bearing liabilities. 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.

10

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

TABLE 6: Condensed Average Balance Sheets and Analysis of Net Interest Income on an FTE Basis
For the three months ended	March 31, 2019									March 31, 2018								Attribution of Change in Net Interest Income(a)
($ in millions)	Average Balance			Revenue/ Cost			Average Yield/ Rate			Average Balance			Revenue/ Cost		Average Yield/ Rate			Volume			Yield/Rate		Total
Assets:
Interest-earning assets:
Loans and leases:(b)
Commercial and industrial loans	$	46,070			530			4.67	%	$	41,799			409		3.96	%	$	44			77		121
Commercial mortgage loans		7,417			88			4.80			6,588			68		4.20			10			10		20
Commercial construction loans		4,838			66			5.55			4,671			53		4.59			2			11		13
Commercial leases		3,555			27			3.08			3,960			27		2.78			(3	)		3		-
Total commercial loans and leases		61,880			711			4.66			57,018			557		3.96			53			101		154
Residential mortgage loans		16,150			147			3.71			16,086			143		3.60			(1	)		5		4
Home equity		6,356			84			5.34			6,889			78		4.62			(6	)		12		6
Indirect secured consumer loans		9,176			86			3.79			9,064			70		3.12			1			15		16
Credit card		2,396			75			12.63			2,224			68		12.36			5			2		7
Other consumer loans		2,404			44			7.49			1,588			25		6.58			15			4		19
Total consumer loans		36,482			436	��		4.85			35,851			384		4.35			14			38		52
Total loans and leases	$	98,362			1,147			4.73	%	$	92,869			941		4.11	%	$	67			139		206
Securities:
Taxable		34,320			281			3.32			33,133			263		3.21			9			9		18
Exempt from income taxes(b)		28			-			4.80			73			-		1.40			-			-		-
Other short-term investments		1,753			9			1.97			1,471			5		1.37			2			2		4
Total interest-earning assets	$	134,463			1,437			4.33	%	$	127,546			1,209		3.85	%	$	78			150		228
Cash and due from banks		2,217									2,175
Other assets		13,391									12,924
Allowance for loan and lease losses		(1,103	)								(1,195	)
Total assets	$	148,968								$	141,450
Liabilities and Equity:
Interest-bearing liabilities:
Interest checking deposits	$	33,697			97			1.18	%	$	28,403			44		0.63	%	$	9			44		53
Savings deposits		13,052			5			0.15			13,546			3		0.07			(1	)		3		2
Money market deposits		23,133			59			1.03			20,750			27		0.53			4			28		32
Foreign office deposits		208			-			0.60			494			-		0.13			-			-		-
Other time deposits		4,860			22			1.80			3,856			12		1.25			4			6		10
Total interest-bearing core deposits		74,950			183			0.99			67,049			86		0.52			16			81		97
Certificates $100,000 and over		3,358			18			2.13			2,284			8		1.49			6			4		10
Other deposits		726			4			2.43			379			1		1.44			2			1		3
Federal funds purchased		2,019			12			2.43			692			2		1.43			7			3		10
Other short-term borrowings		646			6			3.62			2,423			8		1.34			(9	)		7		(2	)
Long-term debt		15,438			128			3.35			14,780			105		2.86			4			19		23
Total interest-bearing liabilities	$	97,137			351			1.46	%	$	87,607			210		0.97	%	$	26			115		141
Demand deposits		30,557									33,825
Other liabilities		4,227									3,852
Total liabilities	$	131,921								$	125,284
Total equity	$	17,047								$	16,166
Total liabilities and equity	$	148,968								$	141,450
Net interest income (FTE)(c)				$	1,086								$	999				$	52			35		87
Net interest margin (FTE)(c)								3.28	%							3.18	%
Net interest rate spread (FTE)(c)								2.87								2.88
Interest-bearing liabilities to interest-earning assets								72.24								68.69

(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) The FTE adjustments included in the above table were$4and $3 for the three months endedMarch 31, 2019 and 2018, respectively.

(c) Net interest income (FTE), net interest margin (FTE) and net interest rate spread (FTE) arenon-GAAP measures. For further information, refer to theNon-GAAP Financial Measures section of MD&A.

Provision for Credit Losses

The Bancorp provides as an expense an amount for probable credit losses within the loan and lease portfolio and the portfolio of unfunded loan commitments and letters of credit that is based on factors previously discussed in the Critical Accounting Policies section of the Bancorp’s Annual Report on Form10-K for the year ended December 31, 2018. The provision is recorded to bring the ALLL and reserve for unfunded commitments to a level deemed appropriate by the Bancorp to cover losses inherent 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 Condensed Consolidated Balance Sheets are referred to as charge-offs. Net charge-offs include current period charge-offs less recoveries on previouslycharged-off loans and leases.

The provision for credit losses was $90 million and $13 million for the three months ended March 31, 2019 and 2018, respectively. The increase in provision expense for the three months ended March 31, 2019 compared to the same period in the prior year was primarily due to the impact of lower commercial criticized assets and overall reserve rates during the three months ended March 31, 2018, combined with an increase in total outstanding loan balances as of March 31, 2019, exclusive of loans and leases acquired in the MB Financial, Inc. acquisition.

11

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

The ALLL increased $12 million from December 31, 2018 to $1.1 billion at March 31, 2019. At March 31, 2019, the ALLL as a percent of portfolio loans and leases decreased to 1.02%, compared to 1.16% at December 31, 2018. This decrease reflects the impact of the MB Financial, Inc. acquisition, which added approximately $13.5 billion in portfolio loans and leases at the acquisition date. Loans acquired by the Bancorp through a purchase business combination are recorded at fair value as of the acquisition date. The Bancorp does not carry over the acquired company’s ALLL, nor does the Bancorp add to its existing ALLL as part of purchase accounting. The reserve for unfunded commitments increased $2 million from December 31, 2018 to $133 million at March 31, 2019. This increase reflects the impact of the MB Financial, Inc. acquisition, which included approximately $1 million in reserves for unfunded commitments at the acquisition date.

Refer to the Credit Risk Management subsection of the Risk Management section of MD&A as well as Note 7 of the Notes to Condensed Consolidated Financial Statements for more detailed information on the provision for credit losses, including an analysis of loan 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, ALLL and reserve for unfunded commitments.

Noninterest Income

Noninterest income increased $192 million for the three months ended March 31, 2019 compared to the three months ended March 31, 2018.

The following table presents the components of noninterest income:

TABLE 7: Components of Noninterest Income
		For the three months ended
		March 31,
($ in millions)		2019	2018		% Change
Service charges on deposits	$	131	137		(4	)
Wealth and asset management revenue		112	113		(1	)
Corporate banking revenue		112	88		27
Card and processing revenue		79	79		-
Mortgage banking net revenue		56	56		-
Other noninterest income		592	460		29
Securities gains (losses), net		16	(11	)	NM
Securities gains (losses), net -non-qualifying hedges on MSRs		3	(13	)	NM
Total noninterest income	$	1,101	909		21

Service charges on deposits

Service charges on deposits decreased $6 million for the three months ended March 31, 2019 compared to the three months ended March 31, 2018 primarily due to decreases of $5 million in commercial deposit fees and $1 million in consumer deposit fees.

Wealth and asset management revenue

Wealth and asset management revenue decreased $1 million for the three months ended March 31, 2019 compared to the three months ended March 31, 2018. The decrease from the prior year included a $2 million decrease in securities and broker income driven by market volatility and a $2 million decrease in institutional fees as a result of restructuring the Bancorp’s investment management business to focus on core client strategies. These decreases were partially offset by a $3 million increase in private client services driven by acquisitions since the quarter ended March 31, 2018. The Bancorp’s trust and registered investment advisory businesses had approximately $394 billion and $363 billion in total assets under care as of March 31, 2019 and 2018, respectively, and managed $44 billion and $37 billion in assets for individuals, corporations andnot-for-profit organizations as of March 31, 2019 and 2018, respectively.

Corporate banking revenue

Corporate banking revenue increased $24 million for the three months ended March 31, 2019 compared to the three months ended March 31, 2018. The increase from the prior year was primarily driven by increases in institutional sales, lease remarketing fees and business lending fees of $9 million, $9 million and $6 million, respectively. These increases were partially offset by a decrease in foreign exchange fees of $2 million.

Mortgage banking net revenue

Mortgage banking net revenue was flat for the three months ended March 31, 2019 compared to the three months ended March 31, 2018.

12

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

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

TABLE 8: Components of Mortgage Banking Net Revenue
	For the three months ended March 31,
($ in millions)	2019			2018
Origination fees and gains on loan sales	$	25			24
Net mortgage servicing revenue:
Gross mortgage servicing fees		55			53
Net valuation adjustments on MSRs and free-standing derivatives purchased to economically hedge MSRs		(24	)		(21	)
Net mortgage servicing revenue		31			32
Total mortgage banking net revenue	$	56			56

Origination fees and gains on loan sales increased $1 million for the three months ended March 31, 2019 compared to the three months ended March 31, 2018 primarily driven by an increase in the positive fair value adjustments on portfolio loans held at fair value due to the interest rate environment. Residential mortgage loan originations remained flat at $1.6 billion for both the three months ended March 31, 2019 and 2018.

Net mortgage servicing revenue decreased $1 million for the three months ended March 31, 2019 compared to the three months ended March 31, 2018 primarily due to an increase in net negative valuation adjustments of $3 million, partially offset by an increase in gross mortgage servicing fees of $2 million. Refer to Table 9 for the components of net valuation adjustments on the MSR portfolio and the impact of thenon-qualifying hedging strategy.

TABLE 9: Components of Net Valuation Adjustments on MSRs
	For the three months ended March 31,
($ in millions)	2019			2018
Changes in fair value and settlement of free-standing derivatives purchased to economically hedge the MSR portfolio	$	60			(49	)
Changes in fair value:
Due to changes in inputs or assumptions		(57	)		57
Other changes in fair value		(27	)		(29	)
Net valuation adjustments on MSRs and free-standing derivatives purchased to economically hedge MSRs	$	(24	)		(21	)

Mortgage rates decreased during the three months ended March 31, 2019 which caused modeled prepayment speeds to rise. The fair value of the MSR portfolio decreased $57 million due to changes to inputs to the valuation model including prepayment speeds and OAS spread assumptions and decreased $27 million due to the passage of time, including the impact of regularly scheduled repayments, paydowns and payoffs during the three months ended March 31, 2019. Mortgage rates increased during the three months ended March 31, 2018 which caused modeled prepayment speeds to slow. The fair value of the MSR portfolio increased $57 million due to changes to inputs to the valuation model including prepayment speeds and OAS spread assumptions and decreased $29 million due to the passage of time, including the impact of regularly scheduled repayments, paydowns and payoffs during the three months ended March 31, 2018.

Further detail on the valuation of MSRs can be found in Note 14 of the Notes to Condensed Consolidated Financial Statements. The Bancorp maintains anon-qualifying hedging strategy to manage a portion of the risk associated with changes in the valuation of the MSR portfolio. Refer to Note 15 of the Notes to Condensed 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 itsnon-qualifying hedging strategy. The Bancorp recognized net gains of $3 million and net losses of $13 million during the three months ended March 31, 2019 and 2018, respectively, recorded in securities gains (losses), net -non-qualifying hedges on MSRs in the Bancorp’s Condensed Consolidated Statements of Income.

The Bancorp’s total residential mortgage loans serviced as of March 31, 2019 and 2018 were $101.3 billion and $77.2 billion, respectively, with $83.9 billion and $61.0 billion, respectively, of residential mortgage loans serviced for others.

13

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

Other noninterest income

The following table presents the components of other noninterest income:

TABLE 10: Components of Other Noninterest Income
	For the three months ended March 31,
($ in millions)		2019		2018
Gain on sale of Worldpay, Inc. shares	$	562		-
Operating lease income		21		23
Cardholder fees		14		14
BOLI income		14		13
Insurance income		6		6
Consumer loan and lease fees		5		5
Banking center income		5		5
Private equity investment income		4		20
Equity method income (loss) from interest in Worldpay Holding, LLC		2		(1	)
Net gains (losses) on loan sales		1		(1	)
Loss on swap associated with the sale of Visa, Inc. Class B Shares		(31	)	(39	)
Net losses on disposition and impairment of bank premises and equipment		(20	)	(8	)
Gain related to Vantiv, Inc.’s acquisition of Worldpay Group plc.		-		414
Other, net		9		9
Total other noninterest income	$	592		460

Other noninterest income increased $132 million for the three months ended March 31, 2019 compared to the three months ended March 31, 2018 primarily due to the gain on sale of WorldPay, Inc. shares and a decrease in the loss on the swap associated with the sale of Visa, Inc. Class B shares partially offset by the gain related to Vantiv, Inc.’s acquisition of Worldpay Group plc. recognized during the first quarter of 2018. Additionally, the increase in other noninterest income was partially offset by a decrease in private equity investment income and an increase in the losses on disposition and impairment of bank premises and equipment.

The Bancorp recognized a $562 million gain related to the sale of WorldPay, Inc. shares during the three months ended March 31, 2019. The Bancorp recognized a $414 million gain related to Vantiv, Inc’s acquisition of WorldPay Group plc. during the three months ended March 31, 2018. For additional information, refer to Note 21 of the Notes to Condensed Consolidated Financial Statements.

The Bancorp recognized a $31 million loss on the swap associated with the sale of Visa, Inc. Class B shares during the three months ended March 31, 2019 compared with a $39 million loss during the three months ended March 31, 2018.

Private equity investment income decreased $16 million for the three months ended March 31, 2019 compared to the same period in the prior year primarily due to the recognition of positive net valuation adjustments on certain private equity investments in the first quarter of 2018. For additional information on the valuation of private equity investments, refer to Note 25 of the Notes to Condensed Consolidated Financial Statements. Net losses on disposition and impairment of bank premises and equipment increased $12 million for the three months ended March 31, 2019 compared to the three months ended 2018. The increase was driven by the impact of impairment charges of $20 million during the three months ended March 31, 2019 compared to $8 million during the three months ended March 31, 2018. For additional information, refer to Note 8 of the Notes to Condensed Consolidated Financial Statements.

Noninterest Expense

Noninterest expense increased $87 million for the three months ended March 31, 2019 compared to the three months ended March 31, 2018 primarily due to increases in personnel costs (salaries, wages and incentives plus employee benefits), technology and communications expense and other noninterest expense. The following table presents the components of noninterest expense:

TABLE 11: Components of Noninterest Expense
	For the three months ended March 31,
($ in millions)		2019		2018	% Change
Salaries, wages and incentives	$	479		447	7
Employee benefits		131		110	19
Technology and communications		83		68	22
Net occupancy expense		75		75	-
Card and processing expense		31		29	7
Equipment expense		30		31	(3	)
Other noninterest expense		268		250	7
Total noninterest expense	$	1,097		1,010	9
Efficiency ratio on an FTE basis(a)		50.2	%	52.9

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

14

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

The Bancorp recognized $76 million of merger-related expenses related to the MB Financial, Inc. acquisition for the three months ended March 31, 2019. The following table provides a summary of merger-related expenses recorded in noninterest expense for the three months ended March 31, 2019:

TABLE 12: Merger-Related Expenses
($ in millions)	Merger-Related     Expense
Salaries, wages and incentives	$	32
Employee benefits		3
Technology and communications		11
Other noninterest expense		30
Total	$	76

Personnel costs increased $53 million for the three months ended March 31, 2019 compared to the three months ended March 31, 2018 primarily driven by $35 million of merger-related expenses, the addition of personnel costs from the acquisition of MB Financial, Inc. and higher deferred compensation expense. Full-time equivalent employees totaled 20,115 at March 31, 2019 compared to 18,344 at March 31, 2018.

Technology and communications expense increased $15 million for the three months ended March 31, 2019 compared to the three months ended March 31, 2018 primarily driven by $11 million of merger-related expenses and increased investment in regulatory, compliance and growth initiatives.

The following table presents the components of other noninterest expense:    

TABLE 13: Components of Other Noninterest Expense
	For the three months ended     March 31,
($ in millions)	2019		2018
Marketing	$	36		32
Loan and lease		27		26
Losses and adjustments		22		17
FDIC insurance and other taxes		20		32
Professional service fees		19		13
Operating lease		18		21
Data processing		16		14
Travel		14		13
Recruitment and education		11		8
Postal and courier		9		9
Donations		3		3
Supplies		3		3
Insurance		3		3
Loss on partnership investments		-		2
Other, net		67		54
Total other noninterest expense	$	268		250

Other noninterest expense increased $18 million for the three months ended March 31, 2019 compared to the three months ended March 31, 2018 primarily due to the recognition of $30 million of merger-related expenses related to the acquisition of MB Financial, Inc. Those expenses included $20 million in acquisition expenses recorded in other, net, $6 million in professional service fees and $4 million in marketing expense. These increases were partially offset by a decrease in FDIC insurance and other taxes.

FDIC insurance and other taxes decreased $12 million for the three months ended March 31, 2019 compared to the three months ended March 31, 2018 primarily due to the elimination of the FDIC surcharge in the fourth quarter of 2018.

Applicable Income Taxes

The following table presents the Bancorp’s income before income taxes, applicable income tax expense and effective tax rate:

TABLE 14: Applicable Income Taxes
	For the three months ended     March 31,
($ in millions)	2019			2018
Income before income taxes	$	996			882
Applicable income tax expense		221			181
Effective tax rate		22.2	%		20.5

Applicable income tax expense for all periods includes the benefit fromtax-exempt income,tax-advantaged investments 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 theLow-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.

15

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

The increase in the effective tax rate for the three months ended March 31, 2019 compared to the same period in the prior year was primarily related to an increase in state income tax expense and a decrease in expectedlow-income housing tax credits and other tax benefits, partially offset by a decrease of proportional amortization of qualifying LIHTC investments.

For stock-based awards, U.S. GAAP requires that the tax consequences for the difference between the expense recognized for financial reporting and the Bancorp’s actual tax deduction for the stock-based awards be recognized through income tax expense in the interim periods in which they occur. The Bancorp cannot predict its stock price or whether and when its employees will exercise stock-based awards in the future. Based on its stock price at March 31, 2019, the Bancorp estimates that it may be necessary to recognize $4 million of additional income tax benefit over the next twelve months related to the settlement of stock-based awards, primarily in the second quarter of 2019. However, the amount of income tax expense or benefit recognized upon settlement may vary significantly from expectations based on the Bancorp’s stock price and the number of SARs exercised by employees.

16

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

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 15 summarizes end of period loans and leases, including loans and leases held for sale, Table 16 summarizes loans acquired in the MB Financial, Inc. acquisition and Table 17 summarizes average total loans and leases, including loans and leases held for sale.

TABLE 15: Components of Total Loans and Leases (including loans and leases held for sale)
	March 31, 2019					December 31, 2018
As of ($ in millions)	Carrying Value		% of Total			Carrying Value		% of Total
Commercial loans and leases:
Commercial and industrial loans	$	51,925		47	%	$	44,407		46	%
Commercial mortgage loans		10,689		10			6,977		7
Commercial construction loans		5,231		5			4,657		5
Commercial leases		3,909		3			3,600		4
Total commercial loans and leases		71,754		65			59,641		62
Consumer loans:
Residential mortgage loans		17,437		16			16,041		17
Home equity		6,435		6			6,402		7
Indirect secured consumer loans(a)		10,031		9			8,976		9
Credit card		2,388		2			2,470		3
Other consumer loans		2,489		2			2,342		2
Total consumer loans		38,780		35			36,231		38
Total loans and leases	$	110,534		100	%	$	95,872		100	%
Total portfolio loans and leases (excluding loans and leases held for sale)	$	109,842				$	95,265

(a) The Bancorp acquired indirect motorcycle, powersports, recreational vehicles and marine loans in the acquisition of MB Financial, Inc. These loans are included in addition to automobile loans in the line item “indirect secured consumer loans”.

Total loans and leases, including loans and leases held for sale, increased $14.7 billion from December 31, 2018. The increase in total loans and leases was primarily driven by the impact of the MB Financial, Inc. acquisition, which added $13.5 billion in total loans and leases upon acquisition. Table 16 summarizes the detail of loans and leases acquired from MB Financial, Inc. on March 22, 2019.

TABLE 16: Loans and Leases Acquired
($ in millions)
Commercial loans and leases:
Commercial and industrial loans	$	6,604
Commercial mortgage loans		3,531
Commercial construction loans		496
Commercial leases		436
Total commercial loans and leases		11,067
Consumer loans:
Residential mortgage loans		1,397
Home equity		174
Indirect secured consumer loans		802
Credit card		19
Other consumer loans		43
Total consumer loans		2,435
Total loans and leases	$	13,502
Total portfolio loans and leases (excluding loans and leases held for sale)	$	13,490

The following discussion excludes the impact of the MB Financial, Inc. acquisition. Commercial loans and leases increased $1.0 billion from December 31, 2018 due to increases in commercial and industrial loans, commercial mortgage loans and commercial construction loans, partially offset by a decrease in commercial leases. Commercial and industrial loans increased $914 million, or two percent, from December 31, 2018 primarily as a result of an increase in loan originations as well as a decrease in payoffs during the three months ended March 31, 2019. Commercial mortgage loans increased $181 million, or three percent, from December 31, 2018 primarily as a result of an increase in loan originations and increases in permanent financing from the Bancorp’s commercial construction loan portfolio. Commercial construction loans increased $78 million, or two percent, from December 31, 2018 primarily as a result of lower payoffs and paydowns as well as increases in draw levels on existing commitments as a result of seasonal trends. Commercial leases decreased $127 million, or four percent, from December 31, 2018 primarily as a result of a planned reduction in indirectnon-relationship based lease originations.

The following discussion excludes the impact of the MB Financial, Inc. acquisition. Consumer loans increased $114 million from December 31, 2018 primarily due to increases in indirect secured consumer loans and other consumer loans, partially offset by decreases in home equity and credit card. Indirect secured consumer loans increased $253 million, or three percent, from December 31, 2018 primarily as a result of loan production exceeding payoffs. Other consumer loans increased $104 million, or four percent, from December 31, 2018 primarily as a result of growth inpoint-of-sale loan originations. Home equity decreased $141 million, or two percent, from December 31, 2018 as payoffs exceeded loan production. Credit card decreased $101 million, or four percent, from December 31, 2018 primarily as a result of decreases in balance-active customers and average balance per active customer, driven by seasonal paydowns inyear-end balances.

17

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

TABLE 17: Components of Average Loans and Leases (including loans and leases held for sale)

	March 31, 2019					March 31, 2018
For the three months ended ($ in millions)	Carrying Value		% of Total			Carrying Value		% of Total
Commercial loans and leases:
Commercial and industrial loans	$	46,070		48	%	$	41,799		45	%
Commercial mortgage loans		7,417		8			6,588		7
Commercial construction loans		4,838		5			4,671		5
Commercial leases		3,555		4			3,960		4
Total commercial loans and leases		61,880		65			57,018		61
Consumer loans:
Residential mortgage loans		16,150		16			16,086		18
Home equity		6,356		6			6,889		7
Indirect secured consumer loans(a)		9,176		9			9,064		10
Credit card		2,396		2			2,224		2
Other consumer loans		2,404		2			1,588		2
Total consumer loans		36,482		35			35,851		39
Total average loans and leases	$	98,362		100	%	$	92,869		100	%
Total average portfolio loans and leases (excluding loans and leases held for sale)	$	97,773				$	92,334

(a) The Bancorp acquired indirect motorcycle, powersports, recreational vehicles and marine loans in the acquisition of MB Financial, Inc. These loans are included in addition to automobile loans in the line item “indirect secured consumer loans”.

Average loans and leases, including loans and leases held for sale, increased $5.5 billion from March 31, 2018 as a result of a $4.9 billion, or nine percent, increase in average commercial loans and leases as well as a $631 million, or two percent, increase in average consumer loans.

Average commercial loans and leases increased from March 31, 2018 due to increases in average commercial and industrial loans, average commercial mortgage loans and average commercial construction loans, partially offset by a decrease in average commercial leases. Average commercial and industrial loans increased $4.3 billion, or 10%, from March 31, 2018 primarily as a result of an increase in loan originations as well as a decrease in payoffs and the impact of the acquisition of MB Financial, Inc. Average commercial mortgage loans increased $829 million, or 13%, from March 31, 2018 primarily as a result of an increase in loan origination activity and the impact of the acquisition of MB Financial, Inc. Average commercial construction loans increased $167 million, or four percent, from March 31, 2018 primarily as a result of an increase in draw levels on existing commitments. Average commercial leases decreased $405 million, or 10%, from March 31, 2018 primarily as a result of a planned reduction in indirectnon-relationship based lease originations.

Average consumer loans increased from March 31, 2018 due to increases in average other consumer loans, average credit card, average indirect secured consumer loans and average residential mortgage loans, partially offset by a decrease in average home equity loans. Average other consumer loans increased $816 million, or 51%, from March 31, 2018 primarily due to growth inpoint-of-sale loan originations. Average credit card increased $172 million, or eight percent, from March 31, 2018 primarily due to increases in balance-active customers and average balance per active customer. Average indirect secured consumer loans increased $112 million, or one percent, from March 31, 2018 primarily due to the acquisition of MB Financial, Inc. Average residential mortgage loans increased $64 million from March 31, 2018 primarily driven by the acquisition of MB Financial, Inc. Average home equity decreased $533 million, or eight percent, from March 31, 2018 as payoffs exceeded loan production.

Investment Securities

The Bancorp uses investment securities as a means of managing interest rate risk, providing collateral for pledging purposes and for liquidity to satisfy regulatory requirements. Total investment securities were $35.8 billion and $33.6 billion at March 31, 2019 and December 31, 2018, respectively. The taxableavailable-for-sale debt and other investment securities portfolio had an effective duration of 4.8 years at March 31, 2019 compared to 5.0 years at December 31, 2018.

Debt securities are classified asavailable-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 asheld-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 March 31, 2019, the Bancorp’s investment portfolio consisted primarily ofAAA-ratedavailable-for-sale debt and other securities. The Bancorp held an immaterial amount in below-investment gradeavailable-for-sale debt and other securities at both March 31, 2019 and December 31, 2018. During both the three months ended March 31, 2019 and 2018 the Bancorp did not recognize any OTTI on itsavailable-for-sale debt and other securities.

18

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

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

TABLE 18: Components of Investment Securities

As of ($ in millions)	March 31, 2019		December 31, 2018
Available-for-sale debt and other securities (amortized cost basis):
U.S. Treasury and federal agency securities	$	796		98
Obligations of states and political subdivisions securities		6		2
Mortgage-backed securities:
Agency residential mortgage-backed securities		15,614		16,403
Agency commercial mortgage-backed securities		12,382		10,770
Non-agency commercial mortgage-backed securities		3,338		3,305
Asset-backed securities and other debt securities		2,067		1,998
Other securities(a)		581		552
Totalavailable-for-sale debt and other securities	$	34,784		33,128
Held-to-maturity securities (amortized cost basis):
Obligations of states and political subdivisions securities	$	16		16
Asset-backed securities and other debt securities		5		2
Totalheld-to-maturity securities	$	21		18
Trading debt securities (fair value):
U.S. Treasury and federal agency securities	$	7		16
Obligations of states and political subdivisions securities		25		35
Agency residential mortgage-backed securities		66		68
Asset-backed securities and other debt securities		227		168
Total trading debt securities	$	325		287
Total equity securities (fair value)	$	426		452

(a) Other securities consist of FHLB, FRB and DTCC restricted stock holdings of$137,$442 and$2, respectively, atMarch 31, 2019 and $184, $366 and $2, respectively, at December 31, 2018, that are carried at cost.

On an amortized cost basis,available-for-sale debt and other securities increased $1.7 billion from December 31, 2018 primarily due to increases in agency commercial mortgage-backed securities and U.S. Treasury and federal agency securities, partially offset by a decrease in agency residential mortgage-backed securities. The increase inavailable-for-sale debt and other securities includes the impact of the MB Financial, Inc. acquisition, which added approximately $832 million ofavailable-for-sale debt and other securities at the acquisition date.

On an amortized cost basis,available-for-sale debt and other securities were 23% and 25% of total interest-earning assets at March 31, 2019 and December 31, 2018, respectively. The estimated weighted-average life of the debt securities in theavailable-for-sale debt and other securities portfolio was 6.1 years at March 31, 2019 compared to 6.5 years at December 31, 2018. In addition, at March 31, 2019, the debt securities in theavailable-for-sale debt and other securities portfolio had a weighted-average yield of 3.27%, compared to 3.25% at December 31, 2018.

Trading debt securities increased $38 million from December 31, 2018 primarily due to an increase in asset-backed securities and other debt securities.

Information presented in Table 19 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. Maturity and yield calculations for the totalavailable-for-sale debt and other securities portfolio exclude other securities that have no stated yield or maturity. Total net unrealized gains on theavailable-for-sale debt and other securities portfolio were $264 million at March 31, 2019 compared to net unrealized losses of $298 million at December 31, 2018. The fair value of investment securities is impacted by interest rates, credit spreads, market volatility and liquidity conditions. The fair value of investment securities generally increases when interest rates decrease or when credit spreads contract.

19

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

TABLE 19: Characteristics ofAvailable-for-Sale Debt and Other Securities
As of March 31, 2019 ($ in millions)	Amortized Cost			Fair Value		Weighted-Average Life (in years)		Weighted-Average Yield
U.S. Treasury and federal agency securities:
Average life of 1 year or less		$	647		648		0.2		2.38	%
Average life 1 – 5 years			149		149		2.7		2.30
Total		$	796		797		0.7		2.37	%
Obligations of states and political subdivisions securities:(a)
Average life of 1 year or less			1		1		0.1		5.85
Average life 1 – 5 years			-		-		2.3		5.90
Average life 5 – 10 years			4		4		5.2		0.82
Average life greater than 10 years			1		1		10.0		2.86
Total		$	6		6		5.0		2.53	%
Agency residential mortgage-backed securities:
Average life 1 – 5 years			7,130		7,203		3.7		3.46
Average life 5 – 10 years			8,229		8,230		6.9		3.18
Average life greater than 10 years			255		256		11.2		3.20
Total		$	15,614		15,689		5.5		3.31	%
Agency commercial mortgage-backed securities:
Average life of 1 year or less			171		169		0.9		2.54
Average life 1 – 5 years			2,998		3,039		3.6		3.09
Average life 5 – 10 years			6,197		6,273		7.5		3.19
Average life greater than 10 years			3,016		3,032		12.2		3.15
Total		$	12,382		12,513		7.6		3.15	%
Non-agency commercial mortgage-backed securities:
Average life of 1 year or less			1		1		0.8		3.85
Average life 1 – 5 years			1,051		1,069		4.3		3.35
Average life 5 – 10 years			2,286		2,305		6.4		3.25
Total		$	3,338		3,375		5.7		3.28	%
Asset-backed securities and other debt securities:
Average life of 1 year or less			14		14		0.5		3.40
Average life 1 – 5 years			1,226		1,248		3.4		4.17
Average life 5 – 10 years			715		713		7.1		3.90
Average life greater than 10 years			112		112		10.2		4.33
Total		$	2,067		2,087		5.0		4.08	%
Other securities			581		581
Totalavailable-for-sale debt and other securities		$	34,784		35,048		6.1		3.27	%

(a) Taxable-equivalent yield adjustments included in the above table are 0.15%, 0.00%, 0.22%, 0.76% and 0.31% for securities with an average life of 1 year or less,1-5 years,5-10 years, greater than 10 years and in total, respectively.

20

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

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 71% and 72% of the Bancorp’s average asset funding base at March 31, 2019 and December 31, 2018, respectively.

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

TABLE 20: Components of Deposits
	March 31, 2019					December 31, 2018
As of ($ in millions)	Balance		% of Total			Balance		% of Total
Demand	$	35,963		29	%	$	32,116		30	%
Interest checking		35,746		29			34,058		31
Savings		14,451		12			12,907		12
Money market		25,942		21			22,597		21
Foreign office		154		-			240		-
Total transaction deposits		112,256		91			101,918		94
Other time		5,539		4			4,490		4
Total core deposits		117,795		95			106,408		98
Certificates $100,000 and over(a)		5,569		5			2,427		2
Other deposits		300		-			-		-
Total deposits	$	123,664		100	%	$	108,835		100	%

(a) Includes$3.2 billionand $1.2 billion of institutional, retail and wholesale certificates $250,000 and over atMarch 31, 2019and December 31, 2018, respectively.

Total deposits increased $14.8 billion, or 14%, from December 31, 2018 primarily due to the MB Financial, Inc. acquisition as the Bancorp assumed commercial and consumer deposit balances of $14.5 billion at acquisition. Table 22 summarizes the detail of deposits assumed as a result of the MB Financial, Inc. acquisition on March 22, 2019.

TABLE 21: Deposits Assumed
($ in millions)
Demand	$	6,010
Interest checking		2,408
Savings		1,175
Money market		2,571
Total transaction deposits		12,164
Other time		546
Total core deposits		12,710
Certificates $100,000 and over		1,779
Total deposits	$	14,489

The following discussion excludes the impact of the MB Financial, Inc. acquisition. Core deposits decreased $1.3 billion, or one percent, from December 31, 2018 primarily as a result of a decrease in transaction deposits. Transaction deposits decreased $1.8 billion, or two percent, from December 31, 2018 primarily due to decreases in demand deposits and interest checking deposits, partially offset by an increase in money market deposits. Demand deposits decreased $2.2 billion, or seven percent, from December 31, 2018 primarily as a result of balance migration into interest checking deposits. Interest checking deposits decreased $720 million, or two percent, from December 31, 2018 primarily as a result of lower balances per commercial customer account partially offset by balance migration from demand deposit accounts. Money market deposits increased $774 million, or three percent, from December 31, 2018 primarily as a result of promotional product offerings, which drove consumer customer acquisition.

Certificates $100,000 and over increased $1.4 billion, or 56%, from December 31, 2018 primarily due to an increase in retail brokered certificates of deposit issued since December 31, 2018 to offset a seasonal decrease in core deposits.

21

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

The following table presents the components of average deposits for the three months ended:

TABLE 22: Components of Average Deposits
	March 31, 2019					March 31, 2018
($ in millions)	Balance		% of Total			Balance		% of Total
Demand	$	30,557		28	%	$	33,825		34	%
Interest checking		33,697		31			28,403		27
Savings		13,052		12			13,546		13
Money market		23,133		21			20,750		20
Foreign office		208		-			494		-
Total transaction deposits		100,647		92			97,018		94
Other time		4,860		4			3,856		4
Total core deposits		105,507		96			100,874		98
Certificates $100,000 and over(a)		3,358		3			2,284		2
Other deposits		726		1			379		-
Total average deposits	$	109,591		100	%	$	103,537		100	%

(a) Includes$2.0 billionand $878 million of average institutional, retail and wholesale certificates $250,000 and over for the three months endedMarch 31, 2019and 2018, respectively.

On an average basis, core deposits increased $4.6 billion, or five percent, from March 31, 2018 primarily due to an increase of $3.6 billion in average transaction deposits and an increase of $1.0 billion in average other time deposits. The increase in average transaction deposits was driven primarily by increases in average interest checking deposits and average money market deposits, partially offset by a decrease in average demand deposits. Average interest checking deposits increased $5.3 billion, or 19%, from March 31, 2018, primarily due to balance migration from demand deposit accounts and an increase in average balances per commercial customer account. Average money market deposits increased $2.4 billion, or 11%, from March 31, 2018 primarily as a result of promotional product offerings, which drove consumer customer acquisition. Average demand deposits decreased $3.3 billion, or 10%, from March 31, 2018 primarily due to commercial customer balance migration into interest checking deposits. Average other time deposits increased from March 31, 2018 primarily as a result of promotional offers.

Average certificates $100,000 and over increased $1.1 billion from March 31, 2018 primarily due to an increase in retail brokered certificates of deposit issued during the first quarter of 2019 to offset a seasonal decrease in core deposits. Average other deposits increased $347 million from March 31, 2018 primarily due to an increase in average Eurodollar trade deposits.

Contractual maturities

The contractual maturities of certificates $100,000 and over as of March 31, 2019 are summarized in the following table:

TABLE 23: Contractual Maturities of Certificates $100,000 and Over
($ in millions)
Next 3 months	$	1,007
3-6 months		1,257
6-12 months		2,013
After 12 months		1,292
Total certificates $100,000 and over	$	5,569

The contractual maturities of other time deposits and certificates $100,000 and over as of March 31, 2019 are summarized in the following table:

TABLE 24: Contractual Maturities of Other Time Deposits and Certificates $100,000 and Over
($ in millions)
Next 12 months	$	7,685
13-24 months		2,664
25-36 months		575
37-48 months		106
49-60 months		39
After 60 months		39
Total other time deposits and certificates $100,000 and over	$	11,108

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. Average total borrowings as a percent of average interest-bearing liabilities were 19% and 20% at March 31, 2019 and December 31, 2018, respectively.

22

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

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

TABLE 25: Components of Borrowings
As of ($ in millions)	March 31, 2019			December 31, 2018
Federal funds purchased		$	2,630		1,925
Other short-term borrowings			1,329		573
Long-term debt			15,483		14,426
Total borrowings		$	19,442		16,924

Total borrowings increased $2.5 billion, or 15%, from December 31, 2018 due to increases in long-term debt, other short-term borrowings and federal funds purchased. Long-term debt increased $1.1 billion from December 31, 2018 primarily driven by the issuance of $1.5 billion of unsecured senior fixed-rate notes, $300 million of unsecured senior floating-rate bank notes and $53 million of fair value adjustments associated with interest rate swaps hedging long-term debt during the three months ended March 31, 2019. The increase in long-term debt since December 31, 2018 also included the impact of $713 million of long-term debt assumed in the MB Financial, Inc. acquisition. These increases were partially offset by the maturities of $750 million of unsecured senior bank notes and $500 million of unsecured senior notes and $92 million of paydowns on long-term debt associated with automobile loan securitizations. For additional information regarding long-term debt issuances, refer to Note 17 of the Notes to Condensed Consolidated Financial Statements. Other short-term borrowings increased $756 million from December 31, 2018 primarily as a result of other short-term borrowings assumed in the MB Financial, Inc. acquisition as well as an increase in FHLB advances. The level of other short-term borrowings can fluctuate significantly from period to period depending on funding needs and which sources 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 Condensed Consolidated Financial Statements. Federal funds purchased increased $705 million from December 31, 2018.

The following table summarizes components of average borrowings for the three months ended:

TABLE 26: Components of Average Borrowings
($ in millions)	March 31, 2019			March 31, 2018
Federal funds purchased		$	2,019		692
Other short-term borrowings			646		2,423
Long-term debt			15,438		14,780
Total average borrowings		$	18,103		17,895

Total average borrowings increased $208 million, or one percent, compared to March 31, 2018, due to increases in average federal funds purchased and average long term debt partially offset by a decrease in average other short-term borrowings. Average federal funds purchased increased $1.3 billion due to a reallocation of other short-term borrowings compared to March 31, 2018. Average long-term debt increased $658 million compared to March 31, 2018. The increase was primarily driven by the issuances of $1.5 billion of unsecured senior fixed-rate notes, $1.3 billion of unsecured senior fixed-rate bank notes and $600 million of unsecured senior floating-rate bank notes since March 31, 2018, partially offset by the maturities of $2 billion in unsecured senior bank notes, $500 million in unsecured senior notes and $500 million of unsecured subordinated bank debt since March 31, 2018. Average other short-term borrowings decreased $1.8 billion compared to March 31, 2018, primarily driven by the decrease in FHLB advances. 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.

23

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

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 26 of the Notes to Condensed 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. The credit rates for several deposit products were reset January 1, 2019 to reflect the current market rates and updated market assumptions. These rates were generally higher than those in place during 2018, thus net interest income for deposit-providing business segments was positively impacted during 2019. FTP charge rates on assets were affected by the prevailing level of interest rates and by the duration and repricing characteristics of the portfolio. As overall market rates increased, the FTP charge increased for asset-generating business segments during 2019.

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 cross-sell opportunities and funding operations by accessing the capital markets as a collective unit.

The following table summarizes net income (loss) by business segment:

TABLE 27: Net Income (Loss) by Business Segment
	For the three months ended
	March 31,
($ in millions)	2019		2018
Income Statement Data
Commercial Banking	$	294		256
Branch Banking		217		134
Consumer Lending		8		(10)
Wealth and Asset Management		26		9
General Corporate and Other		230		312
Net income	$	775		701

24

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

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:

TABLE 28: Commercial Banking
	For the three months ended
	March 31,
($ in millions)	2019		2018
Income Statement Data
Net interest income (FTE)(a)	$	513		422
Provision for (benefit from) credit losses		20		(20)
Noninterest income:
Corporate banking revenue		112		86
Service charges on deposits		66		71
Other noninterest income		49		62
Noninterest expense:
Personnel costs		109		88
Other noninterest expense		247		250
Income before income taxes (FTE)		364		323
Applicable income tax expense(a)(b)		70		67
Net income	$	294		256
Average Balance Sheet Data
Commercial loans and leases, including held for sale	$	58,655		53,953
Demand deposits		14,409		18,131
Interest checking deposits		16,214		10,273
Savings and money market deposits		3,638		4,443
Other time deposits and certificates $100,000 and over		282		611
Foreign office deposits		208		492

(a) Includes FTE adjustments of$4and $3for the three months endedMarch 31, 2019 and 2018, respectively.

(b) Applicable income tax expense for all periods includes the tax benefit fromtax-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 $294 million for the three months ended March 31, 2019 compared to $256 million for the same period in the prior year. The increase was primarily due to increases in net interest income on an FTE basis and noninterest income partially offset by increases in the provision for credit losses and noninterest expense.

Net interest income on an FTE basis increased $91 million for the three months ended March 31, 2019 compared to the same period in the prior year primarily driven by increases in yields on average commercial loans and leases, increases in FTP credits on interest checking deposits and increases in FTP credit rates on demand deposits. These increases were partially offset by increases in FTP charge rates on loans and leases, increases in the rates paid on core deposits and decreases in average demand deposit balances.

Provision for credit losses increased $40 million for the three months ended March 31, 2019 compared to the same period in the prior year primarily due to an increase in criticized asset levels partially offset by a decrease in net charge-offs. Net charge-offs as a percent of average portfolio loans and leases decreased to 8 bps for the three months ended March 31, 2019 compared to 14 bps for the same period in the prior year.

Noninterest income increased $8 million for the three months ended March 31, 2019 compared to the same period in the prior year driven primarily by an increase in corporate banking revenue partially offset by decreases in other noninterest income and service charges on deposits. Corporate banking revenue increased $26 million for the three months ended March 31, 2019 compared to the same period in the prior year primarily driven by increases in institutional sales revenue, lease remarketing fees and business lending fees. Other noninterest income decreased $13 million for the three months ended March 31, 2019 compared to the same period in the prior year driven by a decrease in private equity investment income related to the recognition of positive net valuation adjustments on certain private equity investments in the first quarter of 2018. Service charges on deposits decreased $5 million for the three months ended March 31, 2019 compared to the same period in the prior year primarily driven by a decrease in commercial deposit fees.

Noninterest expense increased $18 million for the three months ended March 31, 2019 compared to the same period in the prior year primarily driven by an increase in personnel costs partially offset by a decrease in other noninterest expense. Personnel costs increased $21 million for the three months ended March 31, 2019 compared to the same period in the prior year primarily due to increases in incentive compensation, base compensation and employee benefits expense. Other noninterest expense decreased $3 million for the three months ended March 31, 2019 compared to the same period in the prior year primarily due to a decrease in FDIC insurance and other taxes.

25

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

Average commercial loans and leases increased $4.7 billion for the three months ended March 31, 2019 compared to the same period in the prior year primarily due to increases in average commercial and industrial loans and average commercial mortgage loans partially offset by a decrease in average commercial leases. Average commercial and industrial loans increased $4.1 billion for the three months ended March 31, 2019 compared to the same period in the prior year primarily as a result of an increase in loan originations as well as a decrease in payoffs and the impact of the acquisition of MB Financial, Inc. Average commercial mortgage loans increased $827 million for the three months ended March 31, 2019 compared to the same period in the prior year primarily as a result of an increase in loan origination activity and the impact of MB Financial, Inc. Average commercial leases decreased $406 million for the three months ended March 31, 2019 compared to the same period in the prior year primarily as a result of a planned reduction in indirectnon-relationship based lease originations.

Average core deposits increased $1.2 billion for the three months ended March 31, 2019 compared to the same period in the prior year. The increase was primarily driven by an increase in average interest checking deposits of $5.9 billion for the three months ended March 31, 2019 compared to the same period in the prior year primarily due to balance migration from demand deposits accounts and an increase in average balances per commercial customer account. This increase was partially offset by decreases in average demand deposits and average savings and money market deposits for the three months ended March 31, 2019 compared to the same period in the prior year. Average demand deposits decreased $3.7 billion for the three months ended March 31, 2019 compared to the same period in the prior year primarily due to commercial customer balance migration into interest checking deposits. Average savings and money market deposits decreased $805 million for the three months ended March 31, 2019 compared to the same period in the prior year primarily due to lower average balances per account.

Branch Banking

Branch Banking provides a full range of deposit and loan products to individuals and small businesses through 1,207 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:

TABLE 29: Branch Banking
	For the three months ended
	March 31,
($ in millions)	2019		2018
Income Statement Data
Net interest income	$	584		466
Provision for credit losses		52		44
Noninterest income:
Service charges on deposits		64		66
Card and processing revenue		63		64
Wealth and asset management revenue		36		37
Other noninterest income		20		17
Noninterest expense:
Personnel costs		143		136
Net occupancy and equipment expense		55		56
Card and processing expense		29		29
Other noninterest expense		213		216
Income before income taxes		275		169
Applicable income tax expense		58		35
Net income	$	217		134
Average Balance Sheet Data
Consumer loans	$	13,205		13,036
Commercial loans		2,027		1,873
Demand deposits		14,563		14,055
Interest checking deposits		9,933		10,315
Savings and money market deposits		30,927		28,427
Other time deposits and certificates $100,000 and over		6,429		5,031

Net income was $217 million for the three months ended March 31, 2019 compared to net income of $134 million for the same period in the prior year. The increase in net income was primarily due to an increase in net interest income partially offset by an increase in the provision for credit losses.

Net interest income increased $118 million for the three months ended March 31, 2019 compared to the same period in the prior year primarily due to an increase in FTP credits on core deposits as well as an increase in interest income on other consumer loans driven by higher average balances. These benefits were partially offset by an increase in the rates paid on savings and money market deposits and other time deposits and an increase in FTP charge rates on loans and leases.

Provision for credit losses increased $8 million for the three months ended March 31, 2019 compared to the same period in the prior year primarily due to an increase in net charge-offs on credit card and other consumer loans. Net charge-offs as a percent of average portfolio loans and leases increased to 139 bps for the three months ended March 31, 2019 compared to 121 bps for the same period in the prior year.

Noninterest expense increased $3 million for the three months ended March 31, 2019 compared to the same period in the prior year primarily due to an increase in personnel costs partially offset by a decrease in other noninterest expense. Personnel costs increased $7 million for the three months ended March 31, 2019 compared to the same period in the prior year primarily due to higher base compensation. Other noninterest expense decreased $3 million primarily driven by a decrease in FDIC insurance and other taxes partially offset by an increase in corporate overhead allocations.

26

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

Average consumer loans increased $169 million for the three months ended March 31, 2019 compared to the same period in the prior year. The increase was driven by an increase in average other consumer loans of $993 million primarily due to growth inpoint-of-sale loan originations. This increase was partially offset by decreases in average home equity loans and average residential mortgage loans of $434 million and $284 million, respectively, for the three months ended March 31, 2019 compared to the same period in the prior year as payoffs exceeded new loan production. Average commercial loans increased $154 million for the three months ended March 31, 2019 compared to the same period in the prior year primarily driven by an increase in average commercial and industrial loans primarily due to core relationship growth.

Average core deposits increased $3.6 billion for the three months ended March 31, 2019 compared to the same period in the prior year primarily driven by growth in average savings and money market deposits and average other time deposits and certificates $100,000 and over. Average savings and money market deposits increased $2.5 billion for the three months ended March 31, 2019 compared to the same period in the prior year primarily as a result of promotional product offerings, which drove consumer customer acquisition. Average other time deposits and certificates $100,000 and over increased $1.4 billion primarily due to an increase in average other time deposits as a result of promotional offers.

Consumer Lending

Consumer Lending includes the Bancorp’s residential mortgage, home equity, automobile, specialty and other indirect lending activities. Direct lending activities include the origination, retention and servicing of residential mortgage and home equity loans or lines of credit, sales and securitizations of those loans, pools of loans or lines of credit and all associated hedging activities. Indirect lending activities include extending loans to consumers through correspondent lenders, automobile dealers, motorcycle dealers, powersport dealers, recreational vehicle dealers and marine dealers.

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

TABLE 30: Consumer Lending
	For the three months ended
	March 31,
($ in millions)	2019		2018
Income Statement Data
Net interest income	$	63		59
Provision for credit losses		13		12
Noninterest income:
Mortgage banking net revenue		55		55
Other noninterest income		6		(9)
Noninterest expense:
Personnel costs		45		50
Other noninterest expense		56		56
Income (loss) before income taxes		10		(13)
Applicable income tax expense (benefit)		2		(3)
Net income (loss)	$	8		(10)
Average Balance Sheet Data
Residential mortgage loans, including held for sale	$	11,896		11,678
Home equity		222		261
Indirect secured consumer loans		8,921		8,702

Net income was $8 million for the three months ended March 31, 2019 compared to a net loss of $10 million for the same period in the prior year. The increase was primarily driven by an increase in noninterest income and a decrease in noninterest expense.

Net interest income increased $4 million for the three months ended March 31, 2019 compared to the same period in the prior year primarily driven by increases in yields on average indirect secured consumer loans and average residential mortgage loans as well as an increase in FTP credit rates on demand deposits. These benefits were partially offset by an increase in FTP charge rates on loans and leases.

Noninterest income increased $15 million for the three months ended March 31, 2019 compared to the same period in the prior year primarily due to an increase in other noninterest income primarily driven by the recognition of a $3 million gain on securities related tonon-qualifying hedges on MSRs in the first quarter of 2019 compared to the recognition of a $13 million loss in the first quarter of 2018.

Noninterest expense decreased $5 million for the three months ended March 31, 2019 compared to the same period in the prior year primarily due to a decrease in personnel costs as a result of decreases in base compensation and employee benefits expense.

Average consumer loans and leases increased $398 million for the three months ended March 31, 2019 compared to the same period in the prior year primarily due to increases in average indirect secured consumer loans and average residential mortgage loans. Average indirect secured consumer loans increased $219 million for the three months ended March 31, 2019 compared to the same period in the prior year primarily driven by new loan production as well as by the impact of the MB Financial, Inc. acquisition. Average residential mortgage loans, including held for sale, increased $218 million for the three months ended March 31, 2019 compared to the same period in the prior year primarily driven by the continued retention of certain agency conforming ARMs and certain other fixed-rate loans as well as by the impact of the MB Financial, Inc. acquisition.

27

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

Wealth and Asset Management

Wealth and Asset Management provides a full range of investment alternatives for individuals, companies andnot-for-profit organizations. Wealth and Asset Management is made up of four main businesses: FTS; Fifth Third Insurance Agency; Fifth Third Private Bank; and Fifth Third Institutional Services. FTS offers full service retail brokerage services to individual clients and broker-dealer services to the institutional marketplace. Fifth Third Insurance Agency assists clients with their financial and risk management needs. Fifth Third Private Bank offers wealth management strategies to high net worth and ultra-high net worth clients through wealth planning, investment management, banking, insurance, trust and estate services. Fifth Third Institutional Services provides advisory services for institutional clients including middle market businesses,non-profits, states and municipalities.

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

TABLE 31: Wealth and Asset Management
	For the three months ended March 31,
($ in millions)	2019		2018
Income Statement Data
Net interest income	$	49		43
Provision for credit losses		-		16
Noninterest income:
Wealth and asset management revenue		108		109
Other noninterest income		6		7
Noninterest expense:
Personnel costs		56		54
Other noninterest expense		74		77
Income before income taxes		33		12
Applicable income tax expense		7		3
Net income	$	26		9
Average Balance Sheet Data
Loans and leases, including held for sale	$	3,405		3,335
Core deposits		9,473		9,649

Net income was $26 million for the three months ended March 31, 2019 compared to net income of $9 million for the same period in the prior year. The increase in net income was primarily due to a decrease in the provision for credit losses and an increase in net interest income.

Net interest income increased $6 million for the three months ended March 31, 2019 compared to the same period in the prior year primarily due to increases in FTP credit rates on interest checking deposits and savings and money market deposits as well as increases in yields on average loans and leases. These positive impacts were partially offset by increases in the rates paid on interest checking deposits as well as an increase in FTP charge rates on loans and leases.

Provision for credit losses decreased $16 million for the three months ended March 31, 2019 compared to the same period in the prior year driven by lower commercial criticized asset levels as well as a decrease in net charge-offs on commercial and industrial loans.

Noninterest income decreased $2 million for the three months ended March 31, 2019 compared to the same period in the prior year primarily driven by a decrease in wealth and asset management revenue as a result of decreases in institutional sales revenue and securities and broker income partially offset by an increase in private client service fees.

Noninterest expense decreased $1 million for the three months ended March 31, 2019 compared to the same period in the prior year driven by a decrease in other noninterest expense partially offset by an increase in personnel costs. Other noninterest expense decreased $3 million for the three months ended March 31, 2019 compared to the same period in the prior year primarily driven by decreases in FDIC insurance and other taxes and corporate overhead allocations. Personnel costs increased $2 million for the three months ended March 31, 2019 compared to the same period in the prior year primarily driven by higher employee benefits expense and base compensation.

Average loans and leases increased $70 million for the three months ended March 31, 2019 compared to the same period in the prior year primarily due to an increase in average residential mortgage loans due to an increase in loan origination activity. This increase was partially offset by a decline in average home equity balances.

Average core deposits decreased $176 million for the three months ended March 31, 2019 compared to the same period in the prior year primarily due to a decrease in average interest checking deposits partially offset by an increase in average savings deposits.

28

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

General Corporate and Other

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

Net interest income decreased $132 million for the three months ended March 31, 2019 compared to the same period in the prior year. The decrease was primarily driven by increases in the FTP credit rates on deposits allocated to the business segments as well as increases in interest expense on long-term debt and federal funds purchased. These negative impacts were partially offset by an increase in the benefit related to the FTP charge rates on loans and leases and an increase in interest income on taxable securities.

Provision for credit losses increased $44 million for the three months ended March 31, 2019 compared to the same period in the prior year primarily due to an increase in total outstanding loan balances, exclusive of loans and leases acquired in the MB Financial, Inc. acquisition, an increase in consumer reserve rates and an increase in the reserve for unfunded commitments. These increases were partially offset by an increase in the allocation of provision expense to the business segments driven by an increase in commercial criticized assets.

Noninterest income increased $171 million for the three months ended March 31, 2019 compared to the same period in the prior year primarily driven by the recognition of a $562 million gain related to the sale of Worldpay, Inc. shares during the three months ended March 31, 2019. The increase was partially offset by the recognition of a $414 million gain related to Vantiv, Inc’s acquisition of Worldpay Group plc. during the three months ended March 31, 2018. Additionally, noninterest income was positively impacted by a decrease in the loss on the swap associated with the sale of Visa, Inc. Class B shares for the three months ended March 31, 2019 compared to the same period in the prior year.

Noninterest expense increased $71 million for the three months ended March 31, 2019 compared to the same period in the prior year. The increase was primarily due to merger-related expenses related to the MB Financial, Inc. acquisition during the three months ended March 31, 2019. Refer to the Noninterest Expense subsection of the Statements of Income Analysis section of MD&A for additional information on the merger-related expenses. The increase in noninterest expense for the three months ended March 31, 2019 compared to the same period in the prior year also included the impact of an increase in losses and adjustments partially offset by an increase in corporate overhead allocations from General Corporate and Other to the other business segments.

29

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

RISK MANAGEMENT – OVERVIEW

Risk management is critical for effectively serving customers’ financial needs while protecting the Bancorp and achieving strategic goals. It is also essential to reducing the volatility of earnings and safeguarding the Bancorp’s brand and reputation. Further, risk management is integral to the Bancorp’s strategic and capital planning processes. It is essential that the Bancorp’s business strategies consistently align to its overall risk appetite and capital considerations. Maintaining risks within the Bancorp’s risk appetite requires that risks are understood by all employees across the enterprise, and appropriate risk mitigants and controls are in place to limit risk to within the risk appetite. To achieve this, the Bancorp implements a framework for managing risk that encompasses business as usual activities and the utilization of a risk process for identifying, assessing, managing, monitoring and reporting risks.

Fifth Third uses a structure consisting of three lines of defense in order to clarify the roles and responsibilities for effective risk management.

The risk taking functions within the lines of business comprise the first line of defense. The first line of defense originates risk through normal business as usual activities; therefore, it is essential that they monitor, assess and manage the risks being taken, implement controls necessary to mitigate those risks and take responsibility for managing their business within the Bancorp’s risk appetite.

Control functions, such as the Risk Management organization, are the second line of defense and are responsible for providing challenge, oversight and governance of activities performed by the first line.

The Audit division is the third line of defense and provides an independent assessment of the Bancorp’s internal control structure and related systems and processes. The Credit Risk Review division provides an independent assessment of credit risk, which includes evaluating the sufficiency of underwriting, documentation and approval processes for consumer and commercial credits, the accuracy of risk grades assigned to commercial credit exposure, nonaccrual status, specific reserves and monitoring for charge-offs.

Fifth Third’s core values and culture provide a foundation for supporting sound risk management practices by setting expectations for appropriate conduct and accountability across the organization.

All employees are expected to conduct themselves in alignment with Fifth Third’s core values and Code of Business Conduct & Ethics, which may be found onwww.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 across the first, second and third lines of defense and is a foundational element of Fifth Third’s culture.

Below are the Bancorp’s core principles of risk management that are used to ensure the Bancorp is operating in a safe and sound manner:

• Understand the risks taken as a necessary part of business; however, the Bancorp ensures risks taken are in alignment with its strategy and risk appetite.

• Provide transparency and escalate risks and issues as necessary.

• Ensure Fifth Third’s products and services are designed, delivered and maintained to provide value and benefit to its customers and to Fifth Third, and that potential opportunities remain aligned to the core customer base.

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

• Act with integrity in all activities.

• Focus on providing operational excellence by providing reliable, accurate and efficient services to meet customers’ needs.

• Maintain a strong financial position to ensure that 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 business in compliance with all applicable laws, rules and regulations, and in alignment with internal policies and procedures.

Fifth Third’s success is dependent on effective risk management and understanding and controlling the risks taken in order to deliver sustainable returns for employees and shareholders. The Bancorp’s goal is to ensure that aggregate risks do not exceed its risk capacity, and that risks taken are supportive of the Bancorp’s portfolio diversification and profitability objectives.

Fifth Third’s Risk Management Framework states its risk appetite and the linkage to strategic and capital planning, defines and sets the tolerance for each of the eight risk types, explains the process used to manage risk across the enterprise and sets forth its risk governance structure.

• The Board of Directors (the “Board”) and executive management define the risk appetite, which is considered in the development of business strategies, and forms the basis for enterprise risk management. The Bancorp’s risk appetite is set annually in alignment with the strategic, capital and financial plans, and is reviewed by the Board on an annual basis.

• The Risk Management Process provides a consistent and integrated approach for managing risks and ensuring appropriate risk mitigants and controls are in place, and risks and issues are appropriately escalated. Five components are utilized for effective risk management; identifying, assessing, managing, monitoring and independent governance reporting of risk.

• The Board and executive management have identified eight risk types for monitoring the overall risk of the Bancorp; Credit Risk, Market Risk, Liquidity Risk, Operational Risk, Regulatory Compliance Risk, Legal Risk, Reputation Risk and Strategic Risk, and have also qualitatively established a risk tolerance, which is defined as the maximum amount of risk the Bancorp is willing to take for each of the eight risk types. These risk types are assessed on an ongoing basis and reported to the Board each quarter, or more frequently, if necessary. In addition, each business and operational function (first line of defense) is accountable for proactively identifying and managing risk using its risk management process. Risk tolerances and risk limits are also established, where appropriate, in order to ensure that business and operational functions across the enterprise are able to monitor and manage risks at a more granular level, while ensuring that aggregate risks across the enterprise do not exceed the overall risk appetite.

30

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

• The Bancorp’s risk governance structure includes management committees operating under delegation from, and providing information directly or indirectly to, the Board. The Bancorp Board delegates certain responsibilities to Boardsub-committees, including the RCC as outlined in each respective Committee Charter, which may be found onwww.53.com. The ERMC, which reports to the RCC, comprises senior management from across the Bancorp and reviews and approves risk management frameworks and policies, oversees the management of all risk types to ensure that aggregated risks remain within the Bancorp’s risk appetite and fosters a risk culture to ensure appropriate escalation and transparency of risks.

• Fifth Third’s risk management framework and programs are being utilized throughout the integration of MB Financial, Inc. to ensure appropriate identification, assessment, management, monitoring and reporting of risks.

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 designed 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 thecharge-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 probable estimated losses inherent 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 take 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 7 of the Notes to Condensed 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 using the CCAR model and for certain portfolios, such as real estate and leveraged lending, the 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:    

TABLE 32: Potential Problem Portfolio Loans and Leases

As of March 31, 2019 ($ in millions)		Carrying Value	Unpaid Principal Balance	Exposure
Commercial and industrial loans	$	949	985	1,214
Commercial mortgage loans		413	470	413
Commercial construction loans		10	11	10
Commercial leases		40	41	40
Total potential problem portfolio loans and leases(a)	$	1,412	1,507	1,677
(a)   Includes $414 million of PCI and $ 224 million ofnon-PCI loans and leases as of March 31, 2019 acquired in the MB Financial, Inc. acquisition.
TABLE 33: Potential Problem Portfolio Loans and Leases
As of December 31, 2018 ($ in millions)		Carrying Value	Unpaid Principal Balance	Exposure
Commercial and industrial loans	$	646	647	854
Commercial mortgage loans		152	152	152
Commercial leases		31	31	31
Total potential problem portfolio loans and leases	$	829	830	1,037

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 risk grading system currently utilized for allowance for credit loss analysis purposes encompasses ten categories. 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 theten-category risk rating system. The Bancorp has completed significant validation and testing of the dual risk rating system as a commercial credit risk management tool. The Bancorp is assessing the necessary modifications to the dual risk rating system outputs to develop a U.S. GAAP compliant ALLL model and will evaluate the use of modified dual risk ratings for purposes of determining the Bancorp’s ALLL as part of the Bancorp’s adoption of ASU2016-13 “Measurement of Credit Losses on Financial Instruments,” which will be effective for the Bancorp on January 1, 2020. Scoring systems, various analytical tools and portfolio performance monitoring are used to assess the credit risk in the Bancorp’s homogenous consumer and small business loan portfolios.

31

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

Overview

U.S. economic conditions remained generally stable during the first quarter of 2019. Overall, manufacturing activity increased, but there was expressed concern about weakening global demand, higher costs due to tariffs and the continued uncertainty surrounding trade. Consumer spending was mixed across the country. Nonfinancial services activity increased at amodest-to-moderate rate as the professional, scientific and technical servicessub-sectors served as catalysts for growth. Even though prices continued to rise at amodest-to-moderate pace, only a few Federal Reserve Districts reported tariffs causing upward price pressures on goods and services.

The advance estimates indicated real GDP increased at an annual rate of 3.2% for first quarter of 2019, reflecting strong consumption, increased net exports of goods and services, as well as elevated nonresidential fixed investments. The FOMC has recently left the federal funds target rate range unchanged between 2.25% to 2.50%, stating that the current target strikes the right balance between strong U.S. economic growth including a continued strong labor market, offset by both low inflation and continued global economic uncertainty.

Although the effects of the fiscal stimulus are fading, the strong labor market should propel consumer spending higher later this year. Consumer credit continued to build on its strong start to 2019. Retail sales have been rather weak since December 2018, and there are several explanations for the weakness over this period, including the partial government shutdown, bad weather and consumers shifting their spending from goods to services. Going forward, retail sales should experience a rebound as economic fundamentals remain strong, most notably a healthy labor market. The National Federation of Independent Business’s small business optimism index notched its second consecutive monthly increase, rising from 101.7 to 101.8, following five straight monthly declines.

Housing starts suffered another setback in February, falling 8.7% from January led by a 17% decline in single family housing starts. Housing permits also fell month-over-month but not by as much as starts, indicating that the choppiness in the housing market should continue for the foreseeable future despite the tailwind of lower mortgage rates.

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 multi-national 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.

The MB Financial, Inc. commercial and industrial portfolio is comprised primarily of small business and middle market commercial loans but also includes specialty lending products, including lease banking, small business leasing and asset-based lending. These products serve distinct client needs and broaden Fifth Third’s lending capabilities. The portfolios have been evaluated for credit quality and will be managed within Fifth Third’s credit risk framework to ensure adherence to risk appetite.

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 anas-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 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 andnon-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 impaired commercial mortgage loans individually evaluated. The Bancorp does not typically aggregate the LTV ratios for commercial mortgage loans less than $1 million. The following table excludes commercial mortgage loan greater than $1 million acquired from MB Financial, Inc.

TABLE 34: Commercial Mortgage Loans Outstanding by LTV, Loans Greater Than $1 Million

As of March 31, 2019 ($ in millions)	LTV > 100%		LTV 80-100%		LTV < 80%
Commercial mortgage owner-occupied loans	$	146		196		2,126
Commercial mortgage nonowner-occupied loans		13		67		2,876
Total	$	159		263		5,002

TABLE 35: Commercial Mortgage Loans Outstanding by LTV, Loans Greater Than $1 Million

As of December 31, 2018 ($ in millions)	LTV > 100%		LTV 80-100%		LTV < 80%
Commercial mortgage owner-occupied loans	$	126		172		2,119
Commercial mortgage nonowner-occupied loans		40		29		2,731
Total	$	166		201		4,850

32

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

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 as of:

TABLE 36: Commercial Loan and Lease Portfolio (excluding loans and leases held for sale)

		March 31, 2019				December 31, 2018
($ in millions)		Outstanding		Exposure	Nonaccrual	Outstanding	Exposure	Nonaccrual
By Industry:
Manufacturing	$	13,114		22,630	76	10,387	19,290	48
Real estate		11,732		16,936	10	8,327	13,055	10
Financial services and insurance		8,071		17,183	-	6,805	13,192	1
Business services		5,252		8,499	21	4,426	7,161	17
Healthcare		5,083		6,967	40	4,343	6,198	36
Wholesale trade		4,479		7,144	19	3,127	5,481	14
Retail trade		3,957		7,624	6	3,726	7,496	6
Accommodation and food		3,656		5,799	46	3,435	5,626	28
Transportation and warehousing		2,975		5,001	23	2,807	4,729	19
Communication and information		2,878		5,181	5	2,923	5,111	-
Construction		2,752		5,070	3	2,498	4,718	4
Mining		2,460		4,305	45	2,427	4,363	38
Entertainment and recreation		1,916		3,328	5	1,798	3,354	1
Other services		1,190		1,614	4	855	1,104	4
Public administration		881		1,114	-	465	669	-
Utilities		862		2,259	-	835	2,531	-
Agribusiness		332		551	10	323	511	2
Individuals		61		138	-	64	130	-
Other		37		38	-	-	-	-
Total	$	71,688		121,381	313	59,571	104,719	228
By Size:
Less than $200,000		1	%	1	4	1	1	5
$200,000 - $1 million		4		3	8	2	2	9
$1 million - $5 million		10		9	18	6	6	18
$5 million - $10 million		8		7	19	6	5	19
$10 million - $25 million		20		17	51	19	16	38
Greater than $25 million		57		63	-	66	70	11
Total		100	%	100	100	100	100	100
By State:
Illinois		13	%	12	9	6	5	8
Ohio		12		12	17	13	14	10
Florida		7		7	12	8	8	21
Michigan		6		6	11	7	6	10
Indiana		4		4	6	4	4	8
Georgia		4		5	8	5	5	11
North Carolina		3		3	-	3	3	-
Tennessee		2		2	-	3	3	-
Kentucky		2		2	1	2	3	2
Other		47		47	36	49	49	30
Total		100	%	100	100	100	100	100

The Bancorp’s nonowner-occupied commercial real estate portfolios have been identified by the Bancorp as loans which it believes represent a higher level of risk compared to the rest of the Bancorp’s commercial loan portfolio due to economic or market conditions within the Bancorp’s key lending areas.

33

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

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

TABLE 37: Nonowner-Occupied Commercial Real Estate (excluding loans held for sale)(a)
As of March 31, 2019 ($ in millions)							For the three months ended March 31, 2019
		Outstanding	Exposure	90 Days Past Due	Nonaccrual		Net Recoveries
By State:
Illinois	$	2,342	2,783	5	-		-
Ohio		1,653	2,021	-	-		(1	)
Florida		983	1,530	-	-		-
Michigan		807	926	-	2		-
North Carolina		644	861	-	-		-
Indiana		577	995	8	-		-
All other states		4,161	6,310	-	1		-
Total	$	11,167	15,426	13	3		(1	)
(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.
TABLE 38: Nonowner-Occupied Commercial Real Estate (excluding loans held for sale)(a)
As of March 31, 2018 ($ in millions)						For the three months ended March 31, 2018
		Outstanding	Exposure	90 Days Past Due	Nonaccrual		Net Charge-Offs
By State:
Illinois	$	806	1,000	-	-		-
Ohio		1,609	2,058	-	1		-
Florida		1,011	1,512	-	-		-
Michigan		573	740	-	-		-
North Carolina		538	793	-	-		-
Indiana		552	800	-	-		-
All other states		2,661	4,447	-	3		1
Total	$	7,750	11,350	-	4		1

(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.

34

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

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 LTV ratios for the consumer portfolio subsequent to origination except as part of thecharge-off process for real estate secured loans. Among consumer portfolios, legacy underwritten residential mortgage and brokered home equity portfolios exhibited the most stress during the past credit crisis. As of March 31, 2019, consumer real estate loans, consisting of residential mortgage loans and home equity loans, originated from 2005 through 2008 represent approximately 11% of the consumer real estate portfolio. These loans accounted for 38% of total consumer real estate secured losses for the three months ended March 31, 2019. Current loss rates in the residential mortgage and home equity portfolios are belowpre-crisis levels. In addition to the consumer real estate portfolio, credit risk management continues to closely monitor the indirect secured consumer portfolio performance, which includes automobile loans. The automobile market has exhibited industry-wide gradual loosening of credit standards such as lower FICOs, longer terms and higher LTVs. The Bancorp has adjusted credit standards focused on improving risk-adjusted returns while maintaining credit risk tolerance. The Bancorp actively manages the automobile portfolio through concentration limits, which mitigate credit risk through limiting the exposure to lower FICO scores, higher advance rates and extended term originations.

Residential mortgage portfolio

The Bancorp manages credit risk in the residential mortgage portfolio through underwriting guidelines that limit exposure to higher LTV ratios 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 $723 million of ARM loans will have rate resets during the next twelve months. Of these resets, 50% are expected to experience an increase in rate, with an average increase of approximately one percent. Underlying characteristics of these borrowers are relatively strong with a weighted average origination DTI of 32% and weighted average origination LTV of 72%.

Certain residential mortgage products have contractual features that may increase credit exposure to the Bancorp in the event of a decline in housing values. These types of mortgage products offered by the Bancorp include loans with high LTV ratios, multiple loans on 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% LTV ratios and no mortgage insurance as loans that represent a higher level of risk.

Portfolio residential mortgage loans from 2010 and later vintages represented 92% of the portfolio as of March 31, 2019 and had a weighted-average LTV of 73% and a weighted-average origination FICO of 760.

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

TABLE 39: Residential Mortgage Portfolio Loans by LTV at Origination
	March 31, 2019				December 31, 2018
($ in millions)	Outstanding		Weighted- Average LTV		Outstanding		Weighted- Average LTV
LTV£ 80%	$	12,641		66.4%	$	11,540		66.7%
LTV > 80%, with mortgage insurance(a)		2,123		95.2		2,010		95.1
LTV > 80%, no mortgage insurance		2,047		93.8		1,954		94.2
Total	$	16,811		73.9%	$	15,504		74.3%

(a) Includes loans with both borrower and lender paid mortgage insurance.

35

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

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

TABLE 40: Residential Mortgage Portfolio Loans, LTV Greater than 80%, No Mortgage Insurance
As of March 31, 2019 ($ in millions)							For the three months ended March 31, 2019
	Outstanding		90 Days     Past Due		Nonaccrual		Net Charge-offs
By State:
Ohio	$	419		3		2		-
Illinois		402		1		1		-
Florida		280		-		1		-
Michigan		226		2		1		-
Indiana		142		1		1		-
North Carolina		89		-		-		-
Kentucky		82		-		1		-
All other states		407		3		3		-
Total	$	2,047		10		10		-
TABLE 41: Residential Mortgage Portfolio Loans, LTV Greater than 80%, No Mortgage Insurance
As of March 31, 2018 ($ in millions)							For the three months ended March 31, 2018
	Outstanding		90 Days     Past Due		Nonaccrual		Net Charge-offs
By State:
Ohio	$	435		3		3		-
Illinois		384		1		3		-
Florida		285		4		4		-
Michigan		222		1		-		-
Indiana		140		1		1		-
North Carolina		87		-		1		-
Kentucky		77		1		-		-
All other states		303		2		1		-
Total	$	1,933		13		13		-

Home equity portfolio

The Bancorp’s home equity portfolio is primarily comprised of home equity lines of credit. Beginning in the first quarter of 2013, the Bancorp’s newly originated home equity lines of credit have a10-year interest-only draw period followed by a20-year amortization period. The home equity line of credit previously offered by the Bancorp was a revolving facility with a20-year term, minimum payments of interest-only and a balloon payment of principal at maturity. Peak maturity years for the balloon home equity lines of credit are 2025 to 2028 and approximately 25% of the balances mature before 2025.

The ALLL provides coverage for probable and estimable losses in the home equity portfolio. The allowance attributable to the portion of the home equity portfolio that has not been restructured in a TDR is determined on a pooled basis with senior lien and junior lien categories segmented in the determination of the probable credit losses in the home equity portfolio. The loss factor for the home equity portfolio is based on the trailing twelve month historical loss rate for each category, as adjusted for certain prescriptive loss rate factors and certain qualitative adjustment factors to reflect risks associated with current conditions and trends. The prescriptive loss rate factors include adjustments for delinquency trends, LTV trends and refreshed FICO score trends. The qualitative factors include 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 and geographic concentrations. The Bancorp considers home price index trends in its footprint and the volatility of collateral valuation trends when determining the collateral value qualitative factor.

The home equity portfolio is managed in two primary groups: loans outstanding with a combined LTV greater than 80% and those loans with an LTV of 80% or less based upon appraisals at origination. For additional information on these loans, refer to Table 43 and Table 44. Of the total $6.4 billion of outstanding home equity loans:

• 89% reside within the Bancorp’s Midwest footprint of Ohio, Michigan, Kentucky, Indiana and Illinois as of March 31, 2019;

• 36% are in senior lien positions and 64% are in junior lien positions at March 31, 2019;

• 80% ofnon-delinquent borrowers, excluding home equity loans acquired from MB Financial, Inc., made at least one payment greater than the minimum payment during the three months ended March 31, 2019; and

• The portfolio, excluding home equity loans acquired from MB Financial, Inc., had an average refreshedFICO score of 745 at March 31, 2019.

The Bancorp actively manages lines of credit and makes adjustments in lending limits when it believes it is necessary based on FICO score deterioration and property devaluation. The Bancorp does not routinely obtain appraisals on performing loans to update LTV ratios after origination. However, the Bancorp monitors the local housing markets by reviewing various home price indices and incorporates the impact of the changing market conditions in its ongoing credit monitoring processes.

36

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

For junior lien home equity loans which become 60 days or more past due, the Bancorp tracks the performance of the senior lien loans in which the Bancorp is the servicer and utilizes consumer credit bureau attributes to monitor the status of the senior lien loans that the Bancorp does not service. If the senior lien loan is found to be 120 days or more past due, the junior lien home equity loan is placed on nonaccrual status unless both loans are well-secured and in the process of collection. Additionally, if the junior lien home equity loan becomes 120 days or more past due and the senior lien loan is also 120 days or more past due, the junior lien home equity loan is assessed forcharge-off. Refer to the Analysis of Nonperforming Assets subsection of the Risk Management section of MD&A for more information.

The following table provides an analysis of home equity portfolio loans outstanding disaggregated based upon refreshed FICO score as of:

TABLE 42: Home Equity Portfolio Loans Outstanding by Refreshed FICO Score
	March 31, 2019					December 31, 2018
($ in millions)	Outstanding		% of Total			Outstanding		% of Total
Senior Liens:
FICO£ 659	$	226		3	%	$	218		4	%
FICO660-719		331		5			318		5
FICO³ 720		1,789		28			1,791		28
Total senior liens		2,346		36			2,327		37
Junior Liens:
FICO£ 659		490		8			469		7
FICO660-719		790		12			769		12
FICO³ 720		2,809		44			2,837		44
Total junior liens		4,089		64			4,075		63
Total	$	6,435		100	%	$	6,402		100	%
The Bancorp believes that home equity portfolio loans with a greater than 80% combined LTV ratio present a higher level of risk. The following table provides an analysis of the home equity portfolio loans outstanding in a senior and junior lien position by LTV at origination as of:
TABLE 43: Home Equity Portfolio Loans Outstanding by LTV at Origination
	March 31, 2019					December 31, 2018
($ in millions)	Outstanding		Weighted- Average LTV			Outstanding		Weighted- Average LTV
Senior Liens:
LTV£ 80%	$	2,033		54.5	%	$	2,022		54.5	%
LTV > 80%		313		89.2			305		88.8
Total senior liens		2,346		59.3			2,327		59.2
Junior Liens:
LTV£ 80%		2,407		66.7			2,367		67.2
LTV > 80%		1,682		90.1			1,708		90.1
Total junior liens		4,089		77.4			4,075		78.0
Total	$	6,435		70.5	%	$	6,402		70.9	%

The following tables provide an analysis of home equity portfolio loans by state with a combined LTV greater than 80%:

TABLE 44: Home Equity Portfolio Loans Outstanding with an LTV Greater than 80%
As of March 31, 2019 ($ in millions)									For the three months ended March 31, 2019
	Outstanding		Exposure		90 Days Past Due		Nonaccrual		Net Charge-offs
By State:
Ohio	$	1,090		2,222		-		9		1
Michigan		284		476		-		5		-
Illinois		208		335		-		4		1
Indiana		126		223		-		2		-
Kentucky		111		217		-		2		-
Florida		57		85		-		2		-
All other states		119		183		-		3		-
Total	$	1,995		3,741		-		27		2

37

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

TABLE 45: Home Equity Portfolio Loans Outstanding with an LTV Greater than 80%
As of March 31, 2018 ($ in millions)									For the three months ended March 31, 2018
	Outstanding		Exposure		90 Days     Past Due		Nonaccrual		Net Charge-offs
By State:
Ohio	$	1,034		1,968		-		8		1
Michigan		339		550		-		5		1
Illinois		219		349		-		4		1
Indiana		148		256		-		3		-
Kentucky		136		250		-		2		-
Florida		66		95		-		2		-
All other states		142		210		-		3		-
Total	$	2,084		3,678		-		27		3

Indirect secured consumer portfolio

The indirect secured consumer portfolio is comprised of $9.2 billion of automobile loans and $806 million of indirect motorcycle, powersports, recreational vehicles and marine loans which were acquired in the MB Financial, Inc. acquisition. For additional information on indirect secured consumer loans, refer to Note 6 of the Notes to Condensed Consolidated Financial Statements.

The Bancorp’s automobile portfolio balances have increased since December 31, 2018 due to an increase in loan origination activity. Additionally, the concentration of lower FICO (£690) origination balances remained within targeted credit risk tolerance during the three months ended March 31, 2019. All concentration and guideline changes are monitored monthly to ensure alignment with original credit performance and return projections.

The following table provides an analysis of automobile portfolio loans outstanding disaggregated based upon FICO score as of:

TABLE 46: Automobile Portfolio Loans Outstanding by FICO Score at Origination
	March 31, 2019(a)					December 31, 2018
($ in millions)	Outstanding		% of Total			Outstanding		% of Total
FICO£ 690	$	1,617		18	%	$	1,604		18	%
FICO > 690		7,607		82			7,372		82
Total	$	9,224		100	%	$	8,976		100	%

(a) Excludes indirect motorcycle, powersports, recreational vehicles and marine loans that were acquired in the acquisition of MB Financial, Inc.

As of March 31, 2019, 43% of the automobile loan portfolio is comprised of loans collateralized by new automobiles. It is a common industry practice to advance on automobile loans an amount in excess of the automobile value due to the inclusion of negative equitytrade-in, maintenance/warranty products, taxes, title and other fees paid at closing. The Bancorp monitors its exposure to these higher risk loans.

The following table provides an analysis of automobile portfolio loans outstanding by LTV at origination as of:

TABLE 47: Automobile Portfolio Loans Outstanding by LTV at Origination
	March 31, 2019(a)					December 31, 2018
($ in millions)	Outstanding		Weighted- Average LTV			Outstanding		Weighted- Average LTV
LTV£ 100%	$	5,766		82.2	%	$	5,591		82.3	%
LTV > 100%		3,458		112.9			3,385		112.9
Total	$	9,224		94.1	%	$	8,976		94.2	%

(a) Excludes indirect motorcycle, powersports, recreational vehicles and marine loans that were acquired in the acquisition of MB Financial, Inc.

The following table provides an analysis of the Bancorp’s automobile portfolio loans with an LTV at origination greater than 100%:

TABLE 48: Automobile Portfolio Loans Outstanding with an LTV Greater than 100%
As of ($ in millions)	Outstanding		90 Days Past Due and Accruing		Nonaccrual		Net Charge-offs for the Three Months Ended
March 31, 2019(a)	$	3,458		6		2		9
March 31, 2018		3,316		5		1		8

(a) Excludes indirect motorcycle, powersports, recreational vehicles and marine loans that were acquired in the acquisition of MB Financial, Inc.

Credit card portfolio

The credit card portfolio consists of predominately prime accounts with 97% of loan balances existing within the Bancorp’s footprint as of both March 31, 2019 and December 31, 2018. At March 31, 2019 and December 31, 2018, 70% and 71%, respectively, of the outstanding balances were originated through branch-based relationships with the remainder coming from direct mail campaigns and online acquisitions.

38

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

The following table provides an analysis of credit card portfolio loans outstanding disaggregated based upon FICO score as of:

TABLE 49: Credit Card Portfolio Loans Outstanding by FICO Score at Origination
	March 31, 2019					December 31, 2018
($ in millions)	Outstanding		% of Total			Outstanding		% of Total
FICO£ 659	$	84		4	%	$	82		3	%
FICO660-719		719		30			711		29
FICO³ 720		1,585		66			1,677		68
Total	$	2,388		100	%	$	2,470		100	%

Other consumer portfolio loans

The other consumer portfolio loans are comprised of secured and unsecured loans originated through the Bancorp’s branch network as well aspoint-of-sale loans originated in connection with third-party financial technology companies. Outstanding balances for other consumer loans increased approximately $147 million, or six percent, from December 31, 2018 primarily due to an increase in originations in connection with third-party financial technology companies. Additionally, the Bancorp has approximately $356 million in unfunded commitments associated with loans originated in connection with third-party financial technology companies as of March 31, 2019. The Bancorp closely monitors the credit performance of thesepoint-of-sale loans which, for the Bancorp, is impacted by the credit loss protection coverage provided by the third-party financial technology companies.

The following table provides an analysis of other consumer portfolio loans outstanding by product type at origination as of:

TABLE 50: Other Consumer Portfolio Loans Outstanding by Product Type at Origination
	March 31, 2019					December 31, 2018
($ in millions)	Outstanding		% of Total			Outstanding		% of Total
Unsecured	$	639		26	%	$	610		26	%
Other secured		534		21			510		22
Point-of-sale		1,316		53			1,222		52
Total	$	2,489		100	%	$	2,342		100	%

Analysis of Nonperforming Assets

Nonperforming assets include nonaccrual loans and leases for which ultimate collectability of the full amount of the principal and/or interest is uncertain; restructured commercial and credit card loans which have not yet met the requirements to be classified as a performing asset; restructured consumer loans which are 90 days past due based on the restructured terms unless the loan is both well-secured and in the process of collection; and certain other assets, including OREO and other repossessed property. A summary of nonperforming assets is included in Table 51. For further information on the Bancorp’s policies related to accounting for delinquent and nonperforming loans and leases, refer to the Nonaccrual Loans and Leases section of Note 1 of the Notes to the Consolidated Financial Statements included in the Bancorp’s Annual Report on Form10-K for the year ended December 31, 2018.

Nonperforming assets were $512 million at March 31, 2019 compared to $411 million at December 31, 2018. At March 31, 2019, $14 million of nonaccrual loans were held for sale, compared to $16 million at December 31, 2018.

Nonperforming portfolio assets as a percent of portfolio loans and leases and OREO were 0.45% as of March 31, 2019 compared to 0.41% as of December 31, 2018. Nonaccrual loans and leases secured by real estate were 30% of nonaccrual loans and leases as of March 31, 2019 compared to 34% as of December 31, 2018.

Portfolio commercial nonaccrual loans and leases were $313 million at March 31, 2019, an increase of $85 million from December 31, 2018. Portfolio consumer nonaccrual loans were $137 million at March 31, 2019, an increase of $17 million from December 31, 2018. Refer to Table 52 for a rollforward of the portfolio nonaccrual loans and leases.

OREO and other repossessed property was $48 million at March 31, 2019, an increase of $1 million from December 31, 2018. The Bancorp recognized $2 million and $3 million in losses on the transfer, sale or write-down in of OREO properties for the three months ended March 31, 2019 and 2018, respectively.

For the three months ended March 31, 2019 and 2018, approximately $7 million and $8 million, respectively, of interest income would have been recognized if the nonaccrual and renegotiated loans and leases on nonaccrual status had been current in accordance with their original terms. Although these values help demonstrate the costs of carrying nonaccrual credits, the Bancorp does not expect to recover the full amount of interest as nonaccrual loans and leases are generally carried below their principal balance.

39

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

TABLE 51: Summary of Nonperforming Assets and Delinquent Loans
As of ($ in millions)	March 31, 2019				December 31, 2018
Nonaccrual portfolio loans and leases:
Commercial and industrial loans		$	112			54
Commercial mortgage loans			24			9
Commercial leases			18			18
Residential mortgage loans(a)			15			10
Home equity			62			56
Indirect secured consumer loans			2			-
Other consumer loans			2			1
Nonaccrual portfolio restructured loans and leases:
Commercial and industrial loans			148			139
Commercial mortgage loans			7			4
Commercial leases			4			4
Residential mortgage loans(a)			10			12
Home equity			18			13
Indirect secured consumer loans			1			1
Credit card			27			27
Total nonaccrual portfolio loans and leases(b)			450			348
OREO and other repossessed property			48			47
Total nonperforming portfolio assets			498			395
Nonaccrual restructured loans held for sale			14			16
Total nonperforming assets		$	512			411
Total portfolio loans and leases 90 days past due and still accruing
Commercial and industrial loans		$	15			4
Commercial mortgage loans			20			2
Residential mortgage loans(a)			48			38
Home equity			1			-
Indirect secured consumer loans			9			12
Credit card			38			37
Other consumer loans			1			-
Total portfolio loans and leases 90 days past due and still accruing(c)		$	132			93
Nonperforming portfolio assets as a percent of portfolio loans and leases and OREO			0.45	%		0.41
ALLL as a percent of nonperforming portfolio assets			224			279

(a) Information for all periods presented excludes advances made pursuant to servicing agreements for GNMA mortgage pools whose repayments are insured by the FHA or guaranteed by the VA. These advances were$262as ofMarch 31, 2019and $195 as of December 31, 2018. The Bancorp recognized losses of an immaterial amountand $2 for the three months endedMarch 31, 2019and 2018, respectively, due to claim denials and curtailments associated with these insured or guaranteed loans.

(b) Includes$11and $6 of nonaccrual government insured commercial loans whose repayments are insured by the SBA atMarch 31, 2019 and December 31, 2018, respectively, of which$6 and $2 were restructured nonaccrual government insured commercial loans atMarch 31, 2019and December 31, 2018, respectively.

(c) Total portfolio loans and leases 90 days past due and still accruing reflect a decrease of $4 million which occurred after the Bancorp’s Form8-K was filed on April 23, 2019.

The following tables provide a rollforward of portfolio nonaccrual loans and leases, by portfolio segment:

TABLE 52: Rollforward of Portfolio Nonaccrual Loans and Leases
For the three months ended March 31, 2019 ($ in millions)	Commercial			Residential Mortgage			Consumer			Total
Balance, beginning of period	$	228			22			98			348
Transfers to nonaccrual status		120			14			46			180
Acquired nonaccrual loans		8			-			-			8
Transfers to accrual status		-			(6	)		(14	)		(20	)
Loan paydowns/payoffs		(21	)		(2	)		(7	)		(30	)
Transfers to OREO		(4	)		(2	)		(1	)		(7	)
Charge-offs		(20	)		(1	)		(10	)		(31	)
Draws/other extensions of credit		2			-			-			2
Balance, end of period	$	313			25			112			450

TABLE 53: Rollforward of Portfolio Nonaccrual Loans and Leases
For the three months ended March 31, 2018 ($ in millions)	Commercial			Residential Mortgage			Consumer			Total
Balance, beginning of period	$	306			30			101			437
Transfers to nonaccrual status		100			10			33			143
Transfers to accrual status		-			(7	)		(14	)		(21	)
Transfers to held for sale		(24	)		-			-			(24	)
Loan paydowns/payoffs		(45	)		(1	)		(8	)		(54	)
Transfers to OREO		(2	)		(4	)		(1	)		(7	)
Charge-offs		(35	)		-			(9	)		(44	)
Draws/other extensions of credit		22			-			-			22
Balance, end of period	$	322			28			102			452

40

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

Troubled Debt Restructurings

If a borrower is experiencing financial difficulty, the Bancorp may consider, in certain circumstances, modifying the terms of their loan to maximize collection of amounts due. Typically, these modifications reduce the loan interest rate, extend the loan term, reduce the accrued interest or in limited circumstances, reduce the principal balance of the loan. These modifications are classified as TDRs.

At the time of modification, the Bancorp maintains certain consumer loan TDRs (including residential mortgage loans, home equity loans, and other consumer loans) on accrual status, provided there is reasonable assurance of repayment and performance according to the modified terms based upon a current, well-documented credit evaluation. Commercial loans modified as part of a TDR are maintained on accrual status provided there is a sustained payment history of six months or greater prior to the modification in accordance with the modified terms and all remaining contractual payments under the modified terms are reasonably assured of collection. TDRs of commercial loans and credit card loans that do not have a sustained payment history of six months or greater in accordance with the modified terms remain on nonaccrual status until asix-month payment history is sustained.

Consumer restructured loans on accrual status totaled $950 million and $961 million at March 31, 2019 and December 31, 2018, respectively. As of March 31, 2019, the percent of restructured residential mortgage loans, home equity loans and credit card loans that were past due 30 days or more from their modified terms were 24%, 13% and 37%, respectively.

The following tables summarize portfolio TDRs by loan type and delinquency status:

TABLE 54: Accruing and Nonaccruing Portfolio TDRs
		Accruing
As of March 31, 2019 ($ in millions)	Current		30-89 Days Past Due		90 Days or More Past Due		Nonaccruing		Total
Commercial loans(b)	$	59		-		-		159		218
Residential mortgage loans(a)		555		47		122		10		734
Home equity		194		10		-		18		222
Indirect secured consumer loans		5		-		-		1		6
Credit card		14		3		-		27		44
Total	$	827		60		122		215		1,224

(a) Information includes advances made pursuant to servicing agreements for GNMA mortgage pools whose repayments are insured by the FHA or guaranteed by the VA. As ofMarch 31, 2019, these advances represented$323 of current loans,$36 of30-89 days past due loans and$101 of 90 days or more past due loans.

(b) Excludes restructured nonaccrual loans held for sale.

TABLE 55: Accruing and Nonaccruing Portfolio TDRs
		Accruing
As of December 31, 2018 ($ in millions)	Current		30-89 Days Past Due		90 Days or More Past Due		Nonaccruing		Total
Commercial loans(b)	$	60		-		-		147		207
Residential mortgage loans(a)		552		52		120		12		736
Home equity		203		12		-		13		228
Indirect secured consumer loans		5		-		-		1		6
Credit card		14		3		-		27		44
Total	$	834		67		120		200		1,221

(a) Information includes advances made pursuant to servicing agreements for GNMA mortgage pools whose repayments are insured by the FHA or guaranteed by the VA. As of December 31, 2018, these advances represented $321 of current loans, $42 of30-89 days past due loans and $101 of 90 days or more past due loans.

(b) Excludes restructured nonaccrual loans held for sale.

Analysis of Net Loan Charge-offs

Net charge-offs were 32 bps and 36 bps of average portfolio loans and leases for the three months ended March 31, 2019 and 2018, respectively. Table 56 provides a summary of credit loss experience and net charge-offs as a percent of average portfolio loans and leases outstanding by loan category.

The ratio of commercial loan and lease net charge-offs as a percent of average portfolio commercial loans and leases decreased to 11 bps during the three months ended March 31, 2019 compared to 21 bps during the three months ended March 31, 2018. The decrease was primarily due to a $10 million decrease in net charge-offs on commercial and industrial loans.

The ratio of consumer loan net charge-offs as a percent of average portfolio consumer loans increased to 68 bps during the three months ended March 31, 2019 compared to 60 bps during the three months ended March 31, 2018. The increase was primarily due to an increase in net charge-offs on credit card of $8 million for the three months ended March 31, 2019 compared to the same period from the prior year.

41

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

TABLE 56: Summary of Credit Loss Experience
	For the three months ended March 31,
($ in millions)	2019			2018
Lossescharged-off:
Commercial and industrial loans	$	(20	)		(33	)
Commercial mortgage loans		-			(2	)
Residential mortgage loans		(2	)		(4	)
Home equity		(6	)		(7	)
Indirect secured consumer loans		(20	)		(17	)
Credit card		(38	)		(28	)
Other consumer loans(a)		(22	)		(12	)
Total lossescharged-off	$	(108	)		(103	)
Recoveries of losses previouslycharged-off:
Commercial and industrial loans	$	2			5
Commercial mortgage loans		1			1
Residential mortgage loans		1			1
Home equity		3			2
Indirect secured consumer loans		7			6
Credit card		5			3
Other consumer loans(a)		12			4
Total recoveries of losses previouslycharged-off	$	31			22
Net lossescharged-off:
Commercial and industrial loans	$	(18	)		(28	)
Commercial mortgage loans		1			(1	)
Residential mortgage loans		(1	)		(3	)
Home equity		(3	)		(5	)
Indirect secured consumer loans		(13	)		(11	)
Credit card		(33	)		(25	)
Other consumer loans		(10	)		(8	)
Total net lossescharged-off	$	(77	)		(81	)
Net lossescharged-off as a percent of average portfolio loans and leases:
Commercial and industrial loans		0.16	%		0.27
Commercial mortgage loans		(0.05	)		0.06
Total commercial loans and leases		0.11	%		0.21
Residential mortgage loans		0.02			0.06
Home equity		0.20			0.26
Indirect secured consumer loans		0.57			0.50
Credit card		5.60			4.65
Other consumer loans		1.76			2.16
Total consumer loans		0.68	%		0.60
Total net lossescharged-off as a percent of average portfolio loans and leases		0.32	%		0.36

(a) For the three months endedMarch 31, 2019, the Bancorp recorded$11in both lossescharged-off and recoveries of lossescharged-off related to customer defaults onpoint-of-sale consumer loans for which the Bancorp obtained recoveries under third-party credit enhancements.

Allowance for Credit Losses

The allowance for credit losses is comprised of the ALLL and the reserve for unfunded commitments. The ALLL provides coverage for probable and estimable losses in the loan and lease portfolio. The Bancorp evaluates the ALLL each quarter to determine its adequacy to cover inherent losses. Several factors are taken into consideration in the determination of the overall ALLL, including an unallocated component. These factors include, but are not limited to, the overall risk profile of the loan and lease portfolios, netcharge-off experience, the extent of impaired loans and leases, the level of nonaccrual loans and leases, the level of 90 days past due loans and leases and the overall level of the ALLL as a percent of portfolio loans and leases. The Bancorp also considers overall asset quality trends, credit administration and portfolio management practices, risk identification practices, credit policy and underwriting practices, overall portfolio growth, portfolio concentrations and current economic conditions that might impact the portfolio. More information on the ALLL can be found in the Critical Accounting Policies section of the Bancorp’s Annual Report on Form10-K for the year ended December 31, 2018.

During the three months ended March 31, 2019, the Bancorp did not substantively change any material aspect of its overall approach in the determination of the ALLL and there have been no material changes in assumptions or estimation techniques as compared to prior periods that impacted the determination of the current period allowance. In addition to the ALLL, the Bancorp maintains a reserve for unfunded commitments recorded in other liabilities in the Condensed Consolidated Balance Sheets. The methodology used to determine the adequacy of this reserve is similar to the Bancorp’s methodology for determining the ALLL. The provision for unfunded commitments is included in the provision for credit losses in the Condensed Consolidated Statements of Income.

The ALLL attributable to the portion of the residential mortgage and consumer loan portfolios that has not been restructured in a TDR is calculated on a pooled basis with the segmentation based on the similarity of credit risk characteristics. Loss factors for consumer loans are developed for each pool based on the trailing twelve month historical loss rate, as adjusted for certain prescriptive loss rate factors and certain qualitative adjustment factors. The prescriptive loss rate factors and qualitative adjustments are designed to reflect risks associated with current conditions and trends which are not believed to be fully reflected in the trailing twelve month historical loss rate.

42

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

For real estate backed consumer loans, the prescriptive loss rate factors include adjustments for delinquency trends, LTV trends, refreshed FICO score trends and product mix, and the qualitative factors include 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 and geographic concentrations. The Bancorp considers home price index trends in its footprint and the volatility of collateral valuation trends when determining the collateral value qualitative factor.

The Bancorp’s determination of the ALLL for commercial loans and leases is sensitive to the risk grades it assigns to these loans and leases. In the event that 10% of commercial loans and leases in each risk category would experience a downgrade of one risk category, the allowance for commercial loans and leases would increase by approximately $209 million at March 31, 2019. In addition, the Bancorp’s determination of the ALLL for residential mortgage loans and consumer loans is sensitive to changes in estimated loss rates. In the event that estimated loss rates would increase by 10%, the ALLL for residential mortgage loans and consumer loans would increase by approximately $35 million at March 31, 2019. As several qualitative and quantitative factors are considered in determining the ALLL, these sensitivity analyses do not necessarily reflect the nature and extent of future changes in the ALLL. They are intended to provide insights into the impact of adverse changes to risk grades and estimated loss rates and do not imply any expectation of future deterioration in the risk ratings or loss rates. Given current processes employed by the Bancorp, management believes the risk grades and estimated loss rates currently assigned are appropriate.

TABLE 57: Changes in Allowance for Credit Losses
	For the three months ended March 31,
($ in millions)	2019			2018
ALLL:
Balance, beginning of period	$	1,103			1,196
Lossescharged-off(a)		(108	)		(103	)
Recoveries of losses previouslycharged-off(a)		31			22
Provision for loan and lease losses		89			23
Balance, end of period	$	1,115			1,138
Reserve for unfunded commitments:
Balance, beginning of period	$	131			161
Reserve for acquired unfunded commitments		1			-
Provision for (benefit from) the reserve for unfunded commitments		1			(10	)
Balance, end of period	$	133			151

(a) For the three months endedMarch 31, 2019, the Bancorp recorded$11in both lossescharged-off and recoveries of lossescharged-off related to customer defaults onpoint-of-sale consumer loans for which the Bancorp obtained recoveries under third-party credit enhancements.

Certain inherent but unconfirmed losses are probable within the loan and lease portfolio. The Bancorp’s current methodology for determining the level of losses is based on historical loss rates, current credit grades, specific allocation on impaired commercial credits above specified thresholds and restructured loans and other qualitative adjustments. Due to the heavy reliance on realized historical losses and the credit grade rating process, the model-derived estimate of the ALLL tends to slightly lag behind the deterioration in the portfolio in a stable or deteriorating credit environment, and tends not to be as responsive when improved conditions have presented themselves. Given these model limitations, the qualitative adjustment factors may be incremental or decremental to the quantitative model results.

An unallocated component of the ALLL is maintained to recognize the imprecision in estimating and measuring loss. The unallocated allowance as a percent of total portfolio loans and leases was 0.10% and 0.12% at March 31, 2019 and December 31, 2018, respectively. The unallocated allowance was 10% of the total allowance at both March 31, 2019 and December 31, 2018.

As shown in Table 58, the ALLL as a percent of portfolio loans and leases was 1.02% and 1.16% at March 31, 2019 and December 31, 2018, respectively. This decrease reflects the impact of the MB Financial, Inc. acquisition, which added approximately $13.5 billion in portfolio loans and leases at the acquisition date. Loans acquired by the Bancorp through a purchase business combination are recorded at fair value as of the acquisition date. The Bancorp does not carry over the acquired company’s ALLL, nor does the Bancorp add to its existing ALLL as part of purchase accounting. The ALLL was $1.1 billion at both March 31, 2019 and December 31, 2018.

43

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

TABLE 58: Attribution of Allowance for Loan and Lease Losses to Portfolio Loans and Leases
As of ($ in millions)	March 31, 2019				December 31, 2018
Attributed ALLL:
Commercial and industrial loans		$	517			515
Commercial mortgage loans			83			80
Commercial construction loans			34			32
Commercial leases			20			18
Residential mortgage loans			79			81
Home equity			39			36
Indirect secured consumer loans			48			42
Credit card			150			156
Other consumer loans			33			33
Unallocated			112			110
Total ALLL		$	1,115			1,103
Portfolio loans and leases:
Commercial and industrial loans		$	51,862			44,340
Commercial mortgage loans			10,686			6,974
Commercial construction loans			5,231			4,657
Commercial leases			3,909			3,600
Residential mortgage loans			16,811			15,504
Home equity			6,435			6,402
Indirect secured consumer loans			10,031			8,976
Credit card			2,388			2,470
Other consumer loans			2,489			2,342
Total portfolio loans and leases		$	109,842			95,265
Attributed ALLL as a percent of respective portfolio loans and leases:
Commercial and industrial loans			1.00	%		1.16
Commercial mortgage loans			0.78			1.15
Commercial construction loans			0.65			0.69
Commercial leases			0.51			0.50
Residential mortgage loans			0.47			0.52
Home equity			0.61			0.56
Indirect secured consumer loans			0.48			0.47
Credit card			6.28			6.32
Other consumer loans			1.33			1.41
Unallocated (as a percent of total portfolio loans and leases)			0.10			0.12
Total ALLL as a percent of total portfolio loans and leases			1.02	%		1.16

MARKET RISK MANAGEMENT

Market risk is theday-to-day potential for the value of a financial instrument to increase or decrease due to movements in market factors. The Bancorp’s market risk includes risks resulting from movements in interest rates, foreign exchange rates, equity prices and commodity prices. Interest rate risk, a component of market risk, primarily impacts the Bancorp’s NII and interest sensitive fee income categories through changes in interest income on earning assets and cost of interest-bearing liabilities, and through fee items that are related to interest sensitive activities such as mortgage origination and servicing income. Management considers interest rate risk a prominent market risk in terms of its potential impact on earnings. Interest rate risk may occur for any one or more of the following reasons:

• Assets and liabilities mature or reprice at different times;

• Short-term and long-term market interest rates change by different amounts; or

• The expected maturities of various assets or liabilities shorten or lengthen as interest rates change.

In addition to the direct impact of interest rate changes on NII, interest rates can impact earnings through their effect on loan and deposit demand, credit losses, mortgage originations, the value of servicing rights and other sources of the Bancorp’s earnings. Stability of the Bancorp’s net income is largely dependent upon the effective management of interest rate risk. Management continually reviews the Bancorp’s balance sheet composition and earnings flows and models the interest rate risk, and possible actions to manage this risk, given numerous possible future interest rate scenarios. A series of Policy Limits and Key Risk Indicators are employed to ensure that this risk is managed within the Bancorp’s risk tolerance.

Interest Rate Risk Management Oversight

The Bancorp’s ALCO, which includes senior management representatives and is accountable to the ERMC, monitors and manages interest rate risk within Board-approved policy limits. In addition to the risk management activities of ALCO, the Bancorp has a Market Risk Management function as part of ERM that provides independent oversight of market risk activities.

Net Interest Income Sensitivity

The Bancorp employs a variety of measurement techniques to identify and manage its interest rate risk, including the use of an NII simulation model to analyze the sensitivity of NII to changes in interest rates. The model is based on contractual and estimated cash flows and repricing characteristics for all of the Bancorp’s assets, liabilities andoff-balance sheet exposures and incorporates market-based assumptions regarding the effect of changing interest rates on the prepayment rates of certain assets and attrition rates of certain liabilities. The model also includes senior management’s projections of the future volume and pricing of each of the product lines offered by the Bancorp as well as other pertinent assumptions. Actual results may differ from simulated results due to timing, magnitude and frequency of interest rate changes, deviations from projected assumptions, as well as from changes in market conditions and management strategies.

44

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

As of March 31, 2019, the Bancorp’s interest rate risk exposure is governed by a risk framework that utilizes the change in NII over12-month and24-month horizons assuming a 200 bps parallel ramped increase and a 150 bps parallel ramped decrease in interest rates. Additionally, the Bancorp routinely analyzes various potential and extreme scenarios including ramps, shocks and twists to assess where risks to net interest income persist or develop as changes in the balance sheet and market rates evolve.

In order to recognize the risk of noninterest-bearing demand deposit balancerun-off in a rising interest rate environment, the Bancorp’s NII sensitivity modeling assumes that approximately $750 million of additional demand deposit balancesrun-off over 24 months above what is included in senior management’s baseline projections for each 100 bps increase in short-term market interest rates. Similarly, the Bancorp’s NII sensitivity modeling incorporates approximately $750 million of incremental growth in noninterest-bearing deposit balances over 24 months above senior management’s baseline projections for each 100 bps decrease in short-term market interest rates. The incremental balancerun-off and growth are modeled to flow into and out of funding products that reprice in conjunction with market rate changes.

Another important deposit modeling assumption is the amount by which interest-bearing deposit rates will increase or decrease when market interest rates increase or decrease. This deposit repricing sensitivity is known as the beta, and it represents the expected amount by which Bancorp deposit rates will change for a given change in short-term market rates. The Bancorp’s NII sensitivity modeling assumes a weighted-average rising rate interest-bearing deposit beta of 70% at March 31, 2019, which is approximately 10 to 20 percentage points higher than the average beta that the Bancorp experienced in the last FRB tightening cycle from June 2004 to June 2006 and higher than the average beta experienced in the current tightening cycle to date. The Bancorp’s NII sensitivity modeling assumes a weighted-average falling rate interest-bearing deposit beta of 43% at March 31, 2019. In addition, the modeling assumes there is no lag between the timing of changes in market rates and the timing of deposit repricing despite such timing lags having occurred for each rate move thus far in the current tightening cycle. The Bancorp is using the same assumptions for interest-bearing deposit betas and floors for modeling NII at risk exposures of the combined entity, inclusive of the deposit balances acquired from MB Financial, Inc.

The Bancorp continually evaluates the sensitivity of its interest rate risk measures to these important deposit modeling assumptions. The Bancorp also regularly monitors the sensitivity of other important modeling assumptions, such as loan and security prepayments and early withdrawals on fixed-rate customer liabilities.

The following table shows the Bancorp’s estimated NII sensitivity profile and ALCO policy limits as of:

TABLE 59: Estimated NII Sensitivity Profile and ALCO Policy Limits
	March 31, 2019												March 31, 2018
	% Change in NII (FTE)						ALCO Policy Limits						% Change in NII (FTE)						ALCO Policy Limits
Change in Interest Rates (bps)	12 Months			13-24 Months			12 Months			13-24 Months			12 Months			13-24 Months			12 Months			13-24 Months
+ 200 Ramp over 12 months		0.92	%		3.99			(4.00	)		(6.00	)		2.43			7.62			(4.00	)		(6.00	)
+ 100 Ramp over 12 months		0.56			2.42			N/A			N/A			1.44			4.33			N/A			N/A
-75 Ramp over 10 months		N/A			N/A			N/A			N/A			(4.74	)		(9.23	)		(8.00	)		(12.00	)
-100 Ramp over 12 months		(2.89	)		(7.31	)		N/A			N/A			N/A			N/A			N/A			N/A
-150 Ramp over 12 months		(4.42	)		(11.84	)		(8.00	)		(12.00	)		N/A			N/A			N/A			N/A

At March 31, 2019, the Bancorp’s NII sensitivity is near neutral in year one and would benefit in year two under the parallel rate ramp increases. The Bancorp’s NII would decline in both year one and year two under the parallel 150 bps ramp decrease in interest rates. The NII sensitivity profile is attributable to the combination of floating-rate assets, including the predominantly floating-rate commercial loan portfolio, and certain intermediate-term fixed-rate liabilities. As the FOMC has increased its target range for the federal funds rate, the sensitivity to declining rates has increased, which is a reflection of the balance sheet mix previously described. Reductions in the yield of the commercial loan portfolio would be expected to be only partially offset by a decline in the cost of interest-bearing deposits in this scenario. The changes in the estimated NII sensitivity profile as of March 31, 2019 compared to March 31, 2018 were primarily attributable to an increase in outstanding taxable securities balances, migration from noninterest-bearing deposits to interest-bearing deposits, a net increase in outstanding receive-fixed swaps against floating-rate commercial loans and the addition of forward starting floors againstone-month LIBOR. These items were partially offset by the acquisition of asset sensitive MB Financial, Inc. and increased short-term fixed-rate term wholesale funding.

Tables 60 and 61 provide the Bancorp’s estimated NII profile at March 31, 2019 with changes to certain deposit balances and deposit repricing sensitivity (betas) assumptions.

45

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

The following table includes the Bancorp’s estimated NII sensitivity profile at March 31, 2019 with an immediate $1 billion decrease and an immediate $1 billion increase in demand deposit balances:

TABLE 60: Estimated NII Sensitivity Profile at March 31, 2019 with a $1 Billion Change in Demand Deposit Assumption

	% Change in NII (FTE)
	Immediate $1 Billion Balance Decrease				Immediate $1 Billion Balance Increase
Change in Interest Rates (bps)	12 Months		13-24 Months		12 Months		13-24 Months
+200 Ramp over 12 months	0.72	%	3.61		1.12		4.38
+100 Ramp over 12 months	0.46		2.23		0.66		2.61
-100 Ramp over 12 months	(2.99	)	(7.50	)	(2.79	)	(7.11	)
-150 Ramp over 12 months	(4.56	)	(12.13	)	(4.27	)	(11.56	)

The following table includes the Bancorp’s estimated NII sensitivity profile at March 31, 2019 with a 25% increase and a 25% decrease to the corresponding deposit beta assumptions as of March 31, 2019. For example, the resulting weighted-average interest-bearing rising rate deposit betas included in this analysis were approximately 88% and 53%, respectively, as of March 31, 2019:

TABLE 61: Estimated NII Sensitivity Profile at March 31, 2019 with Deposit Beta Assumptions Changes

	% Change in NII (FTE)
	Betas 25% Higher				Betas 25% Lower
Change in Interest Rates (bps)	12 Months		13-24 Months		12 Months		13-24 Months
+200 Ramp over 12 months	(1.92	)%	(1.44	)	3.76		9.43
+100 Ramp over 12 months	(0.86	)	(0.28	)	1.98		5.11
-100 Ramp over 12 months	(2.05	)	(5.72	)	(3.74	)	(8.91	)
-150 Ramp over 12 months	(3.20	)	(9.72	)	(5.67	)	(14.16	)

Economic Value of Equity Sensitivity

The Bancorp also uses EVE as a measurement tool in managing interest rate risk. Whereas the NII sensitivity analysis highlights the impact on forecasted NII on an FTE basis(non-GAAP) over one and two year time horizons, EVE is apoint-in-time analysis of the economic sensitivity of current positions that incorporates all cash flows over their estimated remaining lives. The EVE of the balance sheet is defined as the discounted present value of all asset and net derivative cash flows less the discounted value of all liability cash flows. Due to this longer horizon, the sensitivity of EVE to changes in the level of interest rates is a measure of longer-term interest rate risk. EVE values only the current balance sheet and does not incorporate the balance growth assumptions used in the NII sensitivity analysis. As with the NII simulation model, assumptions about the timing and variability of existing balance sheet cash flows are critical in the EVE analysis. Particularly important are assumptions driving loan and security prepayments and the expected balance attrition and pricing of transaction deposits.

The following table shows the Bancorp’s estimated EVE sensitivity profile as of:

TABLE 62: Estimated EVE Sensitivity Profile

	March 31, 2019				March 31, 2018
Change in Interest Rates (bps)	% Change in EVE		ALCO Policy Limit		% Change in EVE		ALCO Policy Limit
+200 Shock	(4.95	)%	(12.00	)	(4.47	)	(12.00	)
+100 Shock	(1.73	)	N/A		(1.89	)	N/A
-100 Shock	(2.34	)	N/A		(1.27	)	N/A
-200 Shock	(8.75	)	(12.00	)	N/A		N/A

The EVE sensitivity to the +200 bps rising-rate scenario is moderately negative at March 31, 2019 and slightly negative to a 100 bps decline in market rates. The changes in the estimated EVE sensitivity profile from March 31, 2018 were primarily related to the acquisition of MB Financial, Inc., the addition of receive-fixed swaps against floating-rate commercial loans and a decrease in long-term market interest rates. To a lesser degree, increases in outstanding taxable securities balances and migration from noninterest-bearing deposits to interest-bearing deposits with higher attrition assumptions were partially offset by netrun-off of the fixed-rate commercial lease and residential mortgage portfolios and overall deposit growth. The higher sensitivity to a-200 bps shock is primarily due to the current market rates and corresponding convexity profiles of mortgage based assets and deposits.

While an instantaneous shift in interest rates is used in this analysis to provide an estimate of exposure, the Bancorp believes that a gradual shift in interest rates would have a much more modest impact. Since EVE measures the discounted present value of cash flows over the estimated lives of instruments, the change in EVE does not directly correlate to the degree that earnings would be impacted over a shorter time horizon (e.g., the current fiscal year). Further, EVE does not take into account factors such as future balance sheet growth, changes in product mix, changes in yield curve relationships and changing product spreads that could mitigate or exacerbate the impact of changes in interest rates. The NII simulations and EVE analyses do not necessarily include certain actions that management may undertake to manage risk in response to actual changes in interest rates.

46

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

The Bancorp regularly evaluates its exposures to a static balance sheet forecast, LIBOR, Prime Rate and other basis risks, yield curve twist risks and embedded options risks. In addition, the impacts on NII on an FTE basis and EVE of extreme changes in interest rates are modeled, wherein the Bancorp employs the use of yield curve shocks and environment-specific scenarios.

Use of Derivatives to Manage Interest Rate Risk

An integral component of the Bancorp’s interest rate risk management strategy is its use of derivative instruments to minimize significant fluctuations in earnings caused by changes in market interest rates. Examples of derivative instruments that the Bancorp may use as part of its interest rate risk management strategy include interest rate swaps, interest rate floors, interest rate caps, forward contracts, forward starting interest rate swaps, options, swaptions and TBA securities.     

As part of its overall risk management strategy relative to its residential mortgage banking activities, the Bancorp enters into forward contracts accounted for as free-standing derivatives to economically hedge IRLCs that are also considered free-standing derivatives. Additionally, the Bancorp economically hedges its exposure to residential mortgage loans held for sale through the use of forward contracts and mortgage options.

The Bancorp also enters into derivative contracts with major financial institutions to economically hedge market risks assumed in interest rate derivative contracts with commercial customers. Generally, these contracts have similar terms in order to protect the Bancorp from market volatility. Credit risk arises from the possible inability of counterparties to meet the terms of their contracts, which the Bancorp minimizes through collateral arrangements, approvals, limits and monitoring procedures. The Bancorp has risk limits and internal controls in place to help ensure excessive risk is not being taken in providing this service to customers. These controls include an independent determination of interest rate volatility and credit equivalent exposure on these contracts and counterparty credit approvals performed by independent risk management. For further information including the notional amount and fair values of these derivatives, refer to Note 15 of the Notes to Condensed Consolidated Financial Statements.

Portfolio Loans and Leases and Interest Rate Risk

Although the Bancorp’s portfolio loans and leases contain both fixed and floating/adjustable-rate products, the rates of interest earned by the Bancorp on the outstanding balances are generally established for a period of time. The interest rate sensitivity of loans and leases is directly related to the length of time the rate earned is established.

The following table summarizes the carrying value of the Bancorp’s portfolio loans and leases expected cash flows, excluding interest receivable, as of March 31, 2019:

TABLE 63: Portfolio Loans and Leases Expected Cash Flows

($ in millions)		Less than 1 year	1-5 years	Over 5 years	Total
Commercial and industrial loans	$	30,246	20,900	716	51,862
Commercial mortgage loans		3,962	5,888	836	10,686
Commercial construction loans		2,759	2,385	87	5,231
Commercial leases		920	1,786	1,203	3,909
Total commercial loans and leases		37,887	30,959	2,842	71,688
Residential mortgage loans		3,197	7,399	6,215	16,811
Home equity		1,697	3,337	1,401	6,435
Indirect secured consumer loans		3,977	5,533	521	10,031
Credit card		488	1,900	-	2,388
Other consumer loans		1,283	1,036	170	2,489
Total consumer loans		10,642	19,205	8,307	38,154
Total portfolio loans and leases	$	48,529	50,164	11,149	109,842

Additionally, the following table displays a summary of expected cash flows, excluding interest receivable, occurring after one year for both fixed and floating/adjustable-rate loans and leases as of March 31, 2019:

TABLE 64: Portfolio Loans and Leases Expected Cash Flows Occurring After 1 Year

		Interest Rate
($ in millions)		Fixed	Floating or Adjustable
Commercial and industrial loans	$	3,662	17,954
Commercial mortgage loans		1,707	5,017
Commercial construction loans		27	2,445
Commercial leases		2,989	-
Total commercial loans and leases		8,385	25,416
Residential mortgage loans		9,736	3,878
Home equity		498	4,240
Indirect secured consumer loans		6,029	25
Credit card		482	1,418
Other consumer loans		914	292
Total consumer loans		17,659	9,853
Total portfolio loans and leases	$	26,044	35,269

47

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

Residential Mortgage Servicing Rights and Interest Rate Risk

The fair value of the residential MSR portfolio was $1.1 billion and $938 million at March 31, 2019 and December 31, 2018, respectively. The portfolio of servicing rights included $263 million of servicing rights acquired in the acquisition of MB Financial, Inc. on March 22, 2019. The value of servicing rights can fluctuate sharply depending on changes in interest rates and other factors. Generally, as interest rates decline and loans are prepaid to take advantage of refinancing, the total value of existing servicing rights declines because no further servicing fees are collected on repaid loans. The Bancorp maintains anon-qualifying hedging strategy relative to its mortgage banking activity in order to manage a portion of the risk associated with changes in the value of its MSR portfolio as a result of changing interest rates.

Mortgage rates decreased during the three months ended March 31, 2019 which caused modeled prepayment speeds to rise. The fair value of the MSR portfolio decreased $57 million due to changes to inputs to the valuation model including prepayment speeds and OAS spread assumptions and decreased $27 million due to the passage of time, including the impact of regularly scheduled repayments, paydowns and payoffs during the three months ended March 31, 2019. Mortgage rates increased during the three months ended March 31, 2018 which caused modeled prepayment speeds to slow. The fair value of the MSR portfolio increased $57 million due to changes to inputs to the valuation model including prepayment speeds and OAS spread assumptions and decreased $29 million due to the passage of time, including the impact of regularly scheduled repayments, paydowns and payoffs during the three months ended March 31, 2018.

The Bancorp recognized net gains of $63 million on itsnon-qualifying hedging strategy for the three months ended March 31, 2019 compared to net losses of $62 million for the three months ended March 31, 2018. These amounts include net gains on securities related to the Bancorp’snon-qualifying hedging strategy which were $3 million during the three months ended March 31, 2019 and net losses of $13 million during the three months ended March 31, 2018. The Bancorp may adjust its hedging strategy to reflect its assessment of the composition of its MSR portfolio, the cost of hedging and the anticipated effectiveness of the hedges given the economic environment. Refer to Note 14 of the Notes to Condensed Consolidated Financial Statements for further discussion on servicing rights and the instruments used to hedge interest rate risk on MSRs.

Foreign Currency Risk

The Bancorp may enter into foreign exchange derivative contracts to economically hedge certain foreign denominated loans. The derivatives are classified as free-standing instruments with the revaluation gain or loss being recorded in other noninterest income in the Condensed Consolidated Statements of Income. The balance of the Bancorp’s foreign denominated loans at March 31, 2019 and December 31, 2018 was $915 million and $948 million, respectively. The Bancorp also enters into foreign exchange contracts for the benefit of commercial customers to hedge their exposure to foreign currency fluctuations. Similar to the hedging of interest rate risk from interest rate derivative contracts, the Bancorp also enters into foreign exchange contracts with major financial institutions to economically hedge a substantial portion of the exposure from client driven foreign exchange activity. The Bancorp has risk limits and internal controls in place to help ensure excessive risk is not being taken in providing this service to customers. These controls include an independent determination of currency volatility and credit equivalent exposure on these contracts, counterparty credit approvals and country limits performed by independent risk management.

Commodity Risk

The Bancorp also enters into commodity contracts for the benefit of commercial customers to hedge their exposure to commodity price fluctuations. Similar to the hedging of foreign exchange and interest rate risk from interest rate derivative contracts, the Bancorp also enters into commodity contracts with major financial institutions to economically hedge a substantial portion of the exposure from client driven commodity activity. The Bancorp may also offset this risk with exchange-traded commodity contracts. The Bancorp has risk limits and internal controls in place to help ensure excessive risk is not taken in providing this service to customers. These controls include an independent determination of commodity volatility and credit equivalent exposure on these contracts and counterparty credit approvals performed by independent risk management.

LIQUIDITY RISK MANAGEMENT

The goal of liquidity management is to provide adequate funds to meet changes in loan and lease demand, unexpected levels of deposit withdrawals and other contractual obligations. Mitigating liquidity risk is accomplished by maintaining liquid assets in the form of cash and investment securities, maintaining sufficient unused borrowing capacity in the debt markets and delivering consistent growth in core deposits. A summary of certain obligations and commitments to make future payments under contracts is included in Note 19 of the Notes to Condensed Consolidated Financial Statements.

The Bancorp’s Treasury department manages funding and liquidity based onpoint-in-time metrics as well as forward-looking projections, which incorporate different sources and uses of funds under base and stress scenarios. Liquidity risk is monitored and managed by the Treasury department, and a series of Policy Limits and Key Risk Indicators are established to ensure risks are managed within the Bancorp’s risk tolerance. The Bancorp maintains a contingency funding plan that provides for liquidity stress testing, which assesses the liquidity needs under varying market conditions, time horizons, asset growth rates and other events. The contingency plan provides for ongoing monitoring of unused borrowing capacity and available sources of contingent liquidity to prepare for unexpected liquidity needs and to cover unanticipated events that could affect liquidity. The contingency plan also outlines the Bancorp’s response to various levels of liquidity stress and actions that should be taken during various scenarios.

Liquidity risk is monitored and managed for both Fifth Third Bancorp and its subsidiaries. The Bancorp receives substantially all of its revenue from dividends from its subsidiaries, primarily Fifth Third Bank. Subsidiary dividends are supplemented with term debt to enable the Bancorp to maintain sufficient liquidity to meet its cash obligations, including debt service and scheduled maturities, common and preferred dividends, unfunded commitments to subsidiaries and other planned capital actions in the form of share repurchases. Liquidity resources are more limited at the Bancorp, making its liquidity position more susceptible to market disruptions. Bancorp liquidity is assessed using a cash coverage horizon, ensuring the entity maintains sufficient liquidity to withstand a period of sustained market disruption while meeting its anticipated obligations over an extended stressed horizon.

48

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

Liquidity Risk Management Oversight

The Bancorp’s ALCO, which includes senior management representatives and is accountable to the ERMC, monitors and manages liquidity and funding risk within Board-approved policy limits. In addition to the risk management activities of ALCO, the Bancorp has a Market Risk Management function as part of ERM that provides independent oversight of liquidity risk management.

Sources of Funds

The Bancorp’s primary sources of funds relate to cash flows from loan and lease repayments, payments from securities related to sales and maturities, the sale or securitization of loans and leases and funds generated by core deposits, in addition to the use of public and private debt offerings.

Table 63 of the Market Risk Management subsection of the Risk Management section of MD&A illustrates the expected maturities from loan and lease repayments. Of the $35.0 billion of securities in the Bancorp’savailable-for-sale debt and other securities portfolio at March 31, 2019, $4.7 billion in principal and interest is expected to be received in the next 12 months and an additional $3.4 billion is expected to be received in the next 13 to 24 months. For further information on the Bancorp’s securities portfolio, refer to the Investment Securities subsection of the Balance Sheet Analysis section of MD&A.

Asset-driven liquidity is provided by the Bancorp’s ability to sell or securitize loans and leases. In order to reduce the exposure to interest rate fluctuations and to manage liquidity, the Bancorp has developed securitization and sale procedures for several types of interest-sensitive assets. A majority of the long-term, fixed-rate single-family residential mortgage loans underwritten according to FHLMC or FNMA guidelines are sold for cash upon origination. Additional assets such as certain other residential mortgage loans, certain commercial loans, home equity loans, automobile loans and other consumer loans are also capable of being securitized or sold. For the three months ended March 31, 2019 and 2018, the Bancorp sold or securitized loans totaling $1.2 billion and $1.0 billion, respectively. For further information on the transfer of financial assets, refer to Note 14 of the Notes to Condensed Consolidated Financial Statements.

Core deposits have historically provided the Bancorp with a sizeable source of relatively stable andlow-cost funds. The Bancorp’s average core deposits and average shareholders’ equity funded 82% and 83% of its average total assets for the three months ended March 31, 2019 and 2018, respectively. In addition to core deposit funding, the Bancorp also accesses a variety of other short-term and long-term funding sources, which include the use of the FHLB system. Certificates $100,000 and over and deposits in the Bancorp’s foreign branch located in the Cayman Islands are wholesale funding tools utilized to fund asset growth. Management does not rely on any one source of liquidity and manages availability in response to changing balance sheet needs.

As of March 31, 2019, $5.8 billion of debt or other securities were available for issuance under the current Bancorp’s Board of Directors’ authorizations and the Bancorp is authorized to file any necessary registration statements with the SEC to permit ready access to the public securities markets; however, access to these markets may depend on market conditions. During the three months ended March 31, 2019, the Bancorp issued and sold $1.5 billion of 3.65% senior fixed-rate notes.

Fifth Third Bank’s global bank note program has a borrowing capacity of $25 billion, of which $17.4 billion is available for issuance as of March 31, 2019. During the three months ended March 31, 2019, Fifth Third Bank issued and sold $300 million of senior floating-rate bank notes. Additionally, at March 31, 2019, Fifth Third Bank and MB Financial Bank, N.A. had approximately $44.9 billion and $5.6 billion, respectively, of borrowing capacity available through secured borrowing sources including the FHLB and FRB.

Liquidity Coverage Ratio and Net Stable Funding Ratio

The Bancorp is subject to the Modified LCR requirement, which stipulates that BHCs with at least $50 billion but less than $250 billion in total consolidated assets that are not internationally active, such as the Bancorp, maintain HQLA equal to their calculated net cash outflows over a 30calendar-day stress period multiplied by a factor of 0.7. The Bancorp’s Modified LCR was 113% at March 31, 2019.

On June 1, 2016, the U.S. banking agencies published a notice of proposed rulemaking to implement a modified NSFR for certain bank holding companies with at least $50 billion but less than $250 billion in total consolidated assets and with less than $10 billion inon-balance sheet foreign exposures, including the Bancorp. Generally consistent with the BCBS’ framework, under the proposed rule banking organizations would be required to hold an amount of ASF over aone-year time horizon that equals or exceeds the institution’s amount of RSF, with the ASF representing the numerator and the RSF representing the denominator of the NSFR. Banking organizations subject to the modified NSFR would multiply the RSF amount by 70%, such that the RSF amount required for these institutions would be equivalent to 70% of the RSF amount that would be required pursuant to the full NSFR generally applicable to institutions with at least $250 billion in total consolidated assets or $10 billion or more inon-balance sheet foreign exposures under the proposed rule. The comment period for this proposal ended on August 5, 2016.

On October 31, 2018, the Board of Governors of the FRB released a series of regulatory proposals to implement the Economic Growth, Regulatory Relief, and Consumer Protection Act (“Reform Act”). Among the proposals, the Board of Governors, joined by the Department of Treasury, Office of the Comptroller of the Currency and the Federal Deposit Insurance Corporation proposed to remove the application of the LCR regulations and the NSFR from certain BHCs that qualify under the proposal as “Category IV” institutions, primarily those BHCs with consolidated assets between $100 billion and $250 billion, including Fifth Third Bancorp.

The NPRs public comment period ended January 22, 2019 and could be further amended by the FRB and other financial regulators prior to adoption. As such, the ultimate impacts of the NPRs to Fifth Third Bancorp, Fifth Third Bank and their respective subsidiaries and activities will be subject to the final form of these NPRs and additional rulemakings issued. Fifth Third cannot predict future changes in the applicable laws, regulations and regulatory agency policies, yet such changes may have a material effect on its business, financial condition or results of operations.

49

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

Credit Ratings

The cost and availability of financing to the Bancorp and Bank are impacted by its credit ratings. A downgrade to the Bancorp’s or Bank’s credit ratings could affect its ability to access the credit markets and increase its borrowing costs, thereby adversely impacting the Bancorp’s or Bank’s financial condition and liquidity. Key factors in maintaining high credit ratings include a stable and diverse earnings stream, strong credit quality, strong capital ratios and diverse funding sources, in addition to disciplined liquidity monitoring procedures.

The Bancorp’s and Bank’s credit ratings are summarized in Table 65. The ratings reflect the ratings agency’s view on the Bancorp’s and Bank’s capacity to meet financial commitments.*

*As an investor, you should be aware that a security rating is not a recommendation to buy, sell or hold securities, that it may be subject to revision or withdrawal at any time by the assigning rating organization and that each rating should be evaluated independently of any other rating. Additional information on the credit rating ranking within the overall classification system is located on the website of each credit rating agency.

TABLE 65: Agency Ratings

As of May 10, 2019	Moody’s	Standard and Poor’s	Fitch	DBRS
Fifth Third Bancorp:
Short-term borrowings	No rating	A-2	F1	R-1L
Senior debt	Baa1	BBB+	A-	A
Subordinated debt	Baa1	BBB	BBB+	AL
Fifth Third Bank:
Short-term borrowings	P-2	A-2	F1	R-1M
Short-term deposit	P-1	No rating	F1	No rating
Long-term deposit	Aa3	A-	A	AH
Senior debt	A3	A-	A-	AH
Subordinated debt	Baa1	BBB+	BBB+	A
Rating Agency Outlook for Fifth Third Bancorp and Fifth Third Bank:	Stable	Stable	Stable	Stable

50

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

OPERATIONAL RISK MANAGEMENT

Operational risk is the risk of loss resulting from inadequate or failed processes or systems or due to external events that are neither market nor credit-related. Operational risk is inherent in the Bancorp’s activities and can manifest itself in various ways including fraudulent acts, business interruptions, inappropriate behavior of employees, unintentional failure to comply with applicable laws and regulations, cyber-security incidents and privacy breaches or failure of vendors to perform in accordance with their arrangements. These events could result in financial losses, litigation and regulatory fines, as well as other damage to the Bancorp. The Bancorp’s risk management goal is to keep operational risk at appropriate levels consistent with the Bancorp’s risk appetite, financial strength, the characteristics of its businesses, the markets in which it operates and the competitive and regulatory environment to which it is subject.

To control, monitor and govern operational risk, the Bancorp maintains an overall Risk Management Framework which comprises governance oversight, risk assessment, capital measurement, monitoring and reporting as well as a formal three lines of defense approach. ERM is responsible for prescribing the framework to the lines of business and corporate functions and providing independent oversight of its implementation (second line of defense). Business Controls groups are in place in each of the lines of business to ensure consistent implementation and execution of managingday-to-day operational risk (first line of defense).

The Bancorp’s risk management framework consists of five integrated components, including identifying, assessing, managing, monitoring and independent governance reporting of risk. The corporate Operational Risk Management function within Enterprise Risk is responsible for developing and overseeing the implementation of the Bancorp’s approach to managing operational risk. This includes providing governance, awareness and training, tools, guidance and oversight to support implementation of key risk programs and systems as they relate to operational risk management, such as risk and control self-assessments, new product/initiative risk reviews, key risk indicators, Vendor Risk Management, cyber security risk management and review of operational losses. The function is also responsible for developing reports that support the proactive management of operational risk across the enterprise. The lines of business and corporate functions are responsible for managing the operational risks associated with their areas in accordance with the risk management framework. The framework is intended to enable the Bancorp to function with a sound and well-controlled operational environment. These processes support the Bancorp’s goals to minimize future operational losses and strengthen the Bancorp’s performance by maintaining sufficient capital to absorb operational losses that are incurred.

The Bancorp also maintains a robust information security program to support the management of cyber security risk within the organization with a focus on prevention, detection and recovery processes. Fifth Third utilizes a wide array of techniques to secure its operations and proprietary information such as Board-approved policies and programs, network monitoring and testing, access controls and dedicated security personnel. Fifth Third has adopted the National Institute of Standards and Technology Cyber Security Framework for the management and deployment of cyber security controls and is an active participant in the financial sector information sharing organization structure, known as the Financial Services Information Sharing and Analysis Center. To ensure resiliency of key Bancorp functions, Fifth Third also employs redundancy protocols that include a robust business continuity function that works to mitigate any potential impacts to Fifth Third customers and its systems.

Fifth Third also focuses on the reporting and escalation of operational control issues to senior management and the Board of Directors. The Operational Risk Committee is the key committee that oversees and supports Fifth Third in the management of operational risk across the enterprise. The Operational Risk Committee reports to the ERMC, which reports to the Risk and Compliance Joint Committee of the Board of Directors of Fifth Third Bancorp and Fifth Third Bank.

Fifth Third’s operational risk management and information security programs have been actively engaged to evaluate and oversee MB Financial, Inc.’s products and processes throughout the integration to ensure risks are understood, well managed and in alignment with the Bancorp’s risk appetite.

COMPLIANCE RISK MANAGEMENT

Regulatory compliance risk is defined as the risk of legal or regulatory sanctions, financial loss or damage to reputation as a result of noncompliance with (i) applicable laws, regulations, rules and other regulatory requirements (including but not limited to the risk of consumers experiencing economic loss or other legal harm as a result of noncompliance with consumer protection laws, regulations and requirements); (ii) internal policies and procedures, standards of best practice or codes of conduct; and (iii) principles of integrity and fair dealing applicable to Fifth Third’s activities and functions. Fifth Third focuses on managing regulatory compliance risk in accordance with the Bancorp’s integrated risk management framework, which ensures consistent processes for identifying, assessing, managing, monitoring and reporting risks. The Bancorp’s risk management goal is to keep compliance risk at appropriate levels consistent with the Bancorp’s risk appetite.

To mitigate compliance risk, Compliance Risk Management provides independent oversight to ensure consistency and sufficiency in the execution of the program, and ensures that lines of business, regions and support functions are adequately identifying, assessing and monitoring compliance risks and adopting proper mitigation strategies. The lines of business and enterprise functions are responsible for managing the compliance risks associated with their areas. Additionally, the Chief Compliance Officer is responsible for establishing and overseeing the Compliance Risk Management program which implements key compliance processes, including but not limited to, executive- and board-level governance and reporting routines, compliance-related policies, risk assessments, key risk indicators, issues tracking, regulatory compliance testing and monitoring and privacy. The Chief Compliance Officer also partners with the Financial Crimes Division to oversee anti-money laundering processes and partners with the Community and Economic Development team to oversee the Bancorp’s compliance with the Community Reinvestment Act.

Fifth Third also focuses on the reporting and escalation of compliance issues to senior management and the Board of Directors. The Management Compliance Committee, which is chaired by the Chief Compliance Officer, is the key committee that oversees and supports Fifth Third in the management of compliance risk across the enterprise. The Management Compliance Committee oversees Fifth Third-wide compliance issues, industry best practices, legislative developments, regulatory concerns and other leading indicators of compliance risk. The Management Compliance Committee reports to the ERMC, which reports to the Risk and Compliance Joint Committee of the Board of Directors of Fifth Third Bancorp and Fifth Third Bank.

51

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

Fifth Third’s compliance risk management and anti-money laundering programs have been actively engaged to evaluate and oversee MB Financial, Inc.’s products and processes throughout the integration to ensure risks are understood, well managed and in alignment with the Bancorp’s risk appetite.

CAPITAL MANAGEMENT

Management regularly reviews the Bancorp’s capital levels to help ensure it is appropriately positioned under various operating environments. The Bancorp has established a Capital Committee which is responsible for making capital plan recommendations to management. These recommendations are reviewed by the ERMC and the annual capital plan is approved by the Board of Directors. The Capital Committee is responsible for execution and oversight of the capital actions of the capital plan.

Regulatory Capital Ratios

The Basel III Final Rule sets minimum regulatory capital ratios as well as defines the measure of “well-capitalized”.

TABLE 66: Prescribed Capital Ratios

	Minimum			Well-Capitalized
CET1 capital		4.50	%		6.50
Tier I risk-based capital		6.00			8.00
Total risk-based capital		8.00			10.00
Tier I leverage		4.00			5.00

The Bancorp is subject to a capital conservation buffer of 2.5%, in addition to the minimum capital ratios, in order to avoid limitations on certain capital distributions and discretionary bonus payments to executive officers. The capital conservation buffer wasphased-in over a three-year period beginning on January 1, 2016 at 0.625%, increasing by an additional 0.625% each year, cumulating on January 1, 2019 at the fullyphased-in rate of 2.5%. The Bancorp exceeded these “well-capitalized” and “capital conservation buffer” ratios for all periods presented.

In April 2018, the federal banking regulators proposed transitional arrangements to permit banking organizations to phase in theday-one impact of the adoption of ASU2016-13, referred to as the current expected credit loss model, on regulatory capital over a period of three years. For additional information on ASU2016-13, refer to Note 4 of the Notes to Condensed Consolidated Financial Statements. The Bancorp is evaluating the impact of this proposal.

In April 2018, the FRB proposed to introduce stress buffer requirements. Under the proposal, a SCB would replace the 2.5% capital conservation buffer. The SCB would reflect stressed losses in the supervisory severely adverse scenario of the FRB’s CCAR stress tests plus four quarters of planned common stock dividends, subject to a floor of 2.5%. The proposal would also introduce a SLB requirement, analogous to the SCB, that would apply to the Tier I leverage ratio. In addition, the proposal would require BHCs to reduce their planned capital distributions if those distributions would not be consistent with the applicable capital buffer constraints based on the BHCs’ own baseline scenario projections. The proposal is applicable for BHCs with $50 billion or more in total consolidated assets, including the Bancorp. Under the proposal, a BHC’s first SCB and SLB requirements would become effective on October 1, 2019. The Bancorp is evaluating the impact of this proposal.

The following table summarizes the Bancorp’s capital ratios as of:

TABLE 67: Capital Ratios

($ in millions)		March 31, 2019			December 31, 2018
Average total Bancorp shareholders’ equity as a percent of average assets			11.43	%		11.23
Tangible equity as a percent of tangible assets(a)			9.03			9.63
Tangible common equity as a percent of tangible assets(a)(c)			8.21			8.71
		Basel III(b)
CET1 capital	$		13,430			12,534
Tier I capital			14,923			13,864
Total regulatory capital			19,127			17,723
Risk-weighted assets			139,844			122,432
Regulatory capital ratios:
CET1 capital			9.60	%		10.24
Tier I risk-based capital			10.67			11.32
Total risk-based capital			13.68			14.48
Tier I leverage			10.32			9.72

(a) These arenon-GAAP measures. For further information, refer to theNon-GAAP Financial Measures section of MD&A.

(b) Under the U.S. banking agencies’ Basel III Final Rule, assets and credit equivalent amounts ofoff-balance sheet exposures are calculated according to the standardized approach for risk-weighted assets. The resulting values are added together resulting in the Bancorp’s total risk-weighted assets.

(c) Excludes unrealized gains and losses.

52

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

Stress Tests and CCAR

In 2011 the FRB adopted the capital plan rule, which requires BHCs with consolidated assets of $50 billion or more to submit annual capital plans to the FRB for review. Under the rule, these capital plans must include detailed descriptions of the following: the BHC’s internal processes for assessing capital adequacy; the policies governing capital actions such as common stock issuances, dividends and share repurchases; and all planned capital actions over a nine-quarter planning horizon. Further, each BHC must also report to the FRB the results of stress tests conducted by the BHC under a number of scenarios that assess the sources and uses of capital under baseline and stressed economic scenarios.

During the first quarter of 2019, the FRB provided relief from certain regulatory requirements related to supervisory stress testing andcompany-run stress testing for the 2019 stress test cycle, including disclosure requirements. As a result, the Bancorp is not required to submit a capital plan or participate in CCAR 2019. The requirement for the Bancorp to submit an annual capital plan to the FRB has been extended until April 5, 2020. However, the Bancorp remains subject to the requirement to develop and maintain a capital plan, and the Board of Directors of the Bancorp must review and approve the capital plan. The FRB further clarified that relief from the 2019 stress test cycle should not be construed as relief from any regulatory capital requirements and that the Bancorp will be subject to the full CCAR 2020 stress test requirements.

Dividend Policy and Stock Repurchase Program

The Bancorp’s common stock dividend policy and stock repurchase program reflect its earnings outlook, desired payout ratios, the need to maintain adequate capital levels, the ability of its subsidiaries to pay dividends, the need to comply with safe and sound banking practices as well as meet regulatory requirements and expectations. The Bancorp declared dividends per common share of $0.22 and $0.16 for the three months ended March 31, 2019 and 2018, respectively. As contemplated by the 2018 CCAR, the Bancorp entered into a $913 million accelerated share repurchase transaction during the three months ended March 31, 2019. Refer to Note 18 of the Notes to Condensed Consolidated Financial Statements for additional information on the accelerated share repurchases.

The following table summarizes the monthly share repurchase activity for the three months ended March 31, 2019:

TABLE 68: Share Repurchases

Period	Total Number  of Shares Purchased(a)		Average Price     Paid Per Share		Total Number of Shares Purchased as Part of  Publicly Announced Plans  or Programs		Maximum Number of Shares that May Yet be Purchased Under the Plans or Programs
January 1, 2019 - January 31, 2019		324,109	$	26.87		-		60,564,282
February 1, 2019 - February 28, 2019		630,825		27.01		-		60,564,282
March 1, 2019 - March 31, 2019		31,895,458		24.49		31,779,280		28,785,002
Total		32,850,392	$	24.57		31,779,280		28,785,002

(a) Includes 1,071,112 shares repurchased during the first quarter of 2019 in connection with various employee compensation plans. These purchases do not count against the maximum number of shares that may yet be purchased under the Board of Directors’ authorization.

53

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

OFF-BALANCE SHEET ARRANGEMENTS

In the ordinary course of business, the Bancorp enters into financial transactions that are consideredoff-balance sheet arrangements as they involve varying elements of market, credit and liquidity risk in excess of the amounts recognized in the Bancorp’s Condensed Consolidated Balance Sheets. The Bancorp’soff-balance sheet arrangements include commitments, guarantees, contingent liabilities and transactions withnon-consolidated VIEs. A brief discussion of these transactions is as follows:

Commitments

The Bancorp has certain commitments to make future payments under contracts, including commitments to extend credit, letters of credit, forward contracts related to residential mortgage loans held for sale, purchase obligations, capital commitments for private equity investments and capital expenditures. Refer to Note 19 of the Notes to Condensed Consolidated Financial Statements for additional information on commitments.

Guarantees and Contingent Liabilities

The Bancorp has performance obligations upon the occurrence of certain events provided in certain contractual arrangements, including residential mortgage loans sold with representation and warranty provisions or credit recourse. Refer to Note 19 of the Notes to Condensed Consolidated Financial Statements for additional information on guarantees and contingent liabilities.

Transactions withNon-consolidated VIEs

The Bancorp engages in a variety of activities that involve VIEs, which are legal entities that lack sufficient equity to finance their activities, or the equity investors of the entities as a group lack any of the characteristics of a controlling interest. The investments in those entities in which the Bancorp was determined not to be the primary beneficiary but holds a variable interest in the entity are accounted for under the equity method of accounting or other accounting standards as appropriate and not consolidated. Refer to Note 13 of the Notes to Condensed Consolidated Financial Statements for additional information onnon-consolidated VIEs.

54

Quantitative and Qualitative Disclosure about Market Risk (Item 3)

Information presented in the Market Risk Management section of Management’s Discussion and Analysis of Financial Condition and Results of Operations is incorporated herein by reference.

Controls and Procedures (Item 4)

The Bancorp conducted an evaluation, under the supervision and with the participation of the Bancorp’s management, including the Bancorp’s Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Bancorp’s disclosure controls and procedures (as defined inRules 13a-15(e) and15d-15(e) under the Securities Exchange Act of 1934). Based on the foregoing, as of the end of the period covered by this report, the Bancorp’s Chief Executive Officer and Chief Financial Officer concluded that the Bancorp’s disclosure controls and procedures were effective, in all material respects, to ensure that information required to be disclosed in the reports the Bancorp files and submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported as and when required and information is accumulated and communicated to the Bancorp’s management, including its Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

Effective March 22, 2019, a wholly-owned subsidiary of the Bancorp merged with and into MB Financial, Inc. with MB Financial, Inc. surviving the merger as a subsidiary of the Bancorp. The Bancorp is in the process of integrating the acquired operations into its overall financial reporting process and has extended its oversight and monitoring processes that support internal control over financial reporting to include the acquired operations. The Bancorp’s management also conducted an evaluation of internal control over financial reporting to determine whether any changes occurred during the period covered by this report that have materially affected, or are reasonably likely to materially affect, the Bancorp’s internal control over financial reporting. Based on this evaluation, other than as noted above, there has been no such change during the period covered by this report.

55

Fifth Third Bancorp and Subsidiaries

Condensed Consolidated Financial Statements and Notes (Item 1)

CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited)

		As of
($ in millions, except share data)		March 31,             2019			December 31,     2018
Assets
Cash and due from banks	$		2,749			2,681
Other short-term investments(a)			3,556			1,825
Available-for-sale debt and other securities(b)			35,048			32,830
Held-to-maturity securities(c)			21			18
Trading debt securities			325			287
Equity securities			426			452
Loans and leases held for sale(d)			692			607
Portfolio loans and leases(a)(e)			109,842			95,265
Allowance for loan and lease losses(a)			(1,115	)		(1,103	)
Portfolio loans and leases, net			108,727			94,162
Bank premises and equipment(f)			2,092			1,861
Operating lease equipment			908			518
Goodwill			4,321			2,478
Intangible assets			218			40
Servicing rights			1,141			938
Other assets(a)			7,629			7,372
Total Assets	$		167,853			146,069
Liabilities
Deposits:
Noninterest-bearing deposits	$		35,963			32,116
Interest-bearing deposits			87,701			76,719
Total deposits			123,664			108,835
Federal funds purchased			2,630			1,925
Other short-term borrowings			1,329			573
Accrued taxes, interest and expenses			2,242			1,562
Other liabilities(a)			2,661			2,498
Long-term debt(a)			15,483			14,426
Total Liabilities	$		148,009			129,819
Equity
Common stock(g)	$		2,051			2,051
Preferred stock(h)			1,331			1,331
Capital surplus			3,444			2,873
Retained earnings			17,184			16,578
Accumulated other comprehensive income (loss)			409			(112	)
Treasury stock(g)			(4,772	)		(6,471	)
Total Bancorp shareholders’ equity	$		19,647			16,250
Noncontrolling interests			197	(i)		-
Total Equity			19,844			16,250
Total Liabilities and Equity	$		167,853			146,069

(a) Includes$39and $40 of other short-term investments,$573and $668 of portfolio loans and leases,$(3) and $(4) of ALLL,$3and $5 of other assets,$1 and $1 of other liabilities, and$510and $606 of long-term debt from consolidated VIEs that are included in their respective captions above atMarch 31, 2019and December 31, 2018, respectively. For further information refer to Note 13.

(b) Amortized cost of$34,784and $33,128 atMarch 31, 2019and December 31, 2018, respectively.

(c) Fair value of$21and $18atMarch 31, 2019and December 31, 2018, respectively.

(d) Includes$626and $537 of residential mortgage loans held for sale measured at fair value and$22and $7 of commercial loans held for sale measured at fair value atMarch 31, 2019and December 31, 2018, respectively.

(e) Includes$190and $179of residential mortgage loans measured at fair value atMarch 31, 2019and December 31, 2018, respectively.

(f) Includes$78and $42 of bank premises and equipment held for sale atMarch 31, 2019 and December 31, 2018, respectively.

(g) Common shares: Stated value $2.22 per share; authorized 2,000,000,000; outstanding at March 31, 2019 – 739,406,088(excludes 184,486,493treasury shares), December 31, 2018 – 646,630,857 (excludes 277,261,724 treasury shares).

(h) 446,000 shares of undesignated no par value preferred stock are authorized and unissued atMarch 31, 2019andDecember 31, 2018;fixed-to-floating ratenon-cumulative Series H perpetual preferred stock with a $25,000 liquidation preference:24,000authorized shares,issued and outstanding atMarch 31, 2019 and December 31, 2018;fixed-to-floating ratenon-cumulative Series I perpetual preferred stock with a $25,000 liquidation preference;18,000authorized shares, issued and outstanding atMarch 31, 2019 and December 31, 2018; andfixed-to-floating ratenon-cumulative Series J perpetual preferred stock with a $25,000 liquidation preference:12,000authorized shares,issued and outstanding atMarch 31, 2019and December 31, 2018.

(i) Includes$197 of Series C, 6% perpetualnon-cumulative preferred stock issued and outstanding by the Bancorp’s subsidiary, MB Financial, Inc.

Refer to the Notes to Condensed Consolidated Financial Statements.

56

Fifth Third Bancorp and Subsidiaries

Condensed Consolidated Financial Statements and Notes (continued)

CONDENSED CONSOLIDATED STATEMENTS OF INCOME (unaudited)

		For the three months ended     March 31,
($ in millions, except share data)		2019		2018
Interest Income
Interest and fees on loans and leases	$		1,143		938
Interest on securities			281		263
Interest on other short-term investments			9		5
Total interest income			1,433		1,206
Interest Expense
Interest on deposits			205		95
Interest on federal funds purchased			12		2
Interest on other short-term borrowings			6		8
Interest on long-term debt			128		105
Total interest expense			351		210
Net Interest Income			1,082		996
Provision for credit losses			90		13
Net Interest Income After Provision for Credit Losses			992		983
Noninterest Income
Service charges on deposits			131		137
Wealth and asset management revenue			112		113
Corporate banking revenue			112		88
Card and processing revenue			79		79
Mortgage banking net revenue			56		56
Other noninterest income			592		460
Securities gains (losses), net			16		(11	)
Securities gains (losses), net -non-qualifying hedges on mortgage servicing rights			3		(13	)
Total noninterest income			1,101		909
Noninterest Expense
Salaries, wages and incentives			479		447
Employee benefits			131		110
Technology and communications			83		68
Net occupancy expense			75		75
Card and processing expense			31		29
Equipment expense			30		31
Other noninterest expense			268		250
Total noninterest expense			1,097		1,010
Income Before Income Taxes			996		882
Applicable income tax expense			221		181
Net Income			775		701
Less: Net income attributable to noncontrolling interests			-		-
Net Income Attributable to Bancorp			775		701
Dividends on preferred stock			15		15
Net Income Available to Common Shareholders	$		760		686
Earnings per share - basic	$		1.14		0.98
Earnings per share - diluted	$		1.12		0.96
Average common shares outstanding - basic			661,057,120		689,820,295
Average common shares outstanding - diluted			670,685,025		704,100,936

Refer to the Notes to Condensed Consolidated Financial Statements.

57

Fifth Third Bancorp and Subsidiaries

Condensed Consolidated Financial Statements and Notes (continued)

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (unaudited)

		For the three months ended March 31,
($ in millions)		2019		2018
Net Income	$		775		701
Other Comprehensive Income (Loss), Net of Tax:
Unrealized gains (losses) onavailable-for-sale debt securities:
Unrealized holding gains (losses) arising during period			430		(460	)
Reclassification adjustment for net losses included in net income			1		7
Unrealized gains (losses) on cash flow hedge derivatives:
Unrealized holding gains (losses) arising during period			87		(7	)
Reclassification adjustment for net losses (gains) included in net income			2		(1	)
Defined benefit pension plans, net:
Reclassification of amounts to net periodic benefit costs			1		1
Other comprehensive income (loss), net of tax			521		(460	)
Comprehensive Income			1,296		241
Less: Comprehensive income attributable to noncontrolling interests			-		-
Comprehensive Income Attributable to Bancorp	$		1,296		241

Refer to the Notes to Condensed Consolidated Financial Statements.

58

Fifth Third Bancorp and Subsidiaries

Condensed Consolidated Financial Statements and Notes (continued)

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (unaudited)

		Bancorp Shareholders’ Equity
($ in millions, except per share data)		Common Stock		Preferred Stock		Capital Surplus			Retained Earnings			Accumulated Other Comprehensive Income (Loss)			Treasury Stock			Total Bancorp Shareholders’ Equity			Non- Controlling Interests		Total Equity
Balance at December 31, 2017	$		2,051		1,331		2,790			14,957			73			(5,002	)		16,200			20		16,220
Impact of cumulative effect of change in accounting principles										6			(2	)					4					4
Balance at January 1, 2018	$		2,051		1,331		2,790			14,963			71			(5,002	)		16,204			20		16,224
Net income										701									701					701
Other comprehensive loss, net of tax													(460	)					(460	)				(460	)
Cash dividends declared:
Common stock(a)										(110	)								(110	)				(110	)
Preferred stock(b)										(15	)								(15	)				(15	)
Shares acquired for treasury							41									(359	)		(318	)				(318	)
Impact of stock transactions under stock compensation plans, net							(3	)								17			14					14
Balance at March 31, 2018	$		2,051		1,331		2,828			15,539			(389	)		(5,344	)		16,016			20		16,036
Balance at December 31, 2018	$		2,051		1,331		2,873			16,578			(112	)		(6,471	)		16,250			-		16,250
Impact of cumulative effect of change in accounting principle(c)										10									10					10
Balance at January 1, 2019	$		2,051		1,331		2,873			16,588			(112	)		(6,471	)		16,260			-		16,260
Net income										775									775					775
Other comprehensive income, net of tax													521						521					521
Cash dividends declared:
Common stock(a)										(165	)								(165	)				(165	)
Preferred stock(b)										(15	)								(15	)				(15	)
Shares acquired for treasury							(135	)								(778	)		(913	)				(913	)
Impact of stock transactions under stock compensation plans, net							(5	)								30			25					25
Impact of MB Financial, Inc. acquisition							712									2,447			3,159			197		3,356
Other							(1	)		1									-					-
Balance at March 31, 2019	$		2,051		1,331		3,444			17,184			409			(4,772	)		19,647			197		19,844

(a) Dividends declared per common share were$0.22 and $0.16 for the three months endedMarch 31, 2019 and 2018, respectively.

(b) For both the three months endedMarch 31, 2019 and 2018, dividends were$414.06 per preferred share for Perpetual Preferred Stock, Series I and$612.50 per preferred share for Perpetual Preferred Stock, Series J.

(c) Related to the adoption of ASU2016-02 as of January 1, 2019. Refer to Note 4 for additional information.

Refer to the Notes to Condensed Consolidated Financial Statements.

59

Fifth Third Bancorp and Subsidiaries

Condensed Consolidated Financial Statements and Notes (continued)

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)

		For the three months ended March 31,
($ in millions)		2019			2018
Operating Activities
Net income	$		775			701
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for credit losses			90			13
Depreciation, amortization and accretion			89			93
Stock-based compensation expense			54			45
(Benefit from) provision for deferred income taxes			(67	)		24
Securities (gains) losses, net			(16	)		12
Securities (gains) losses, net -non-qualifying hedges on mortgage servicing rights			(3	)		13
MSR fair value adjustment			84			(28	)
Net gains on sales of loans and fair value adjustments on loans held for sale			(21	)		(16	)
Net losses on disposition and impairment of bank premises and equipment			20			8
Net losses on disposition and impairment of operating lease equipment			-			2
Gain related to Vantiv, Inc.’s acquisition of Worldpay Group plc.			-			(414	)
Gain on sale of Worldpay, Inc. shares			(562	)		-
Proceeds from sales of loans held for sale			1,217			1,055
Cash received under operating leases			22			-
Loans originated or purchased for sale, net of repayments			(1,302	)		(1,293	)
Dividends representing return on equity investments			3			3
Net change in:
Trading and equity securities			60			(74	)
Other assets			252			250
Accrued taxes, interest and expenses			(123	)		(198	)
Other liabilities			(38	)		69
Net Cash Provided by Operating Activities			534			265
Investing Activities
Proceeds from sales:
Available-for-sale debt and other securities			2,719			7,345
Loans and leases			52			57
Bank premises and equipment			2			18
Proceeds from repayments / maturities:
Available-for-sale debt and other securities			439			543
Purchases:
Available-for-sale debt and other securities			(3,644	)		(8,605	)
Bank premises and equipment			(57	)		(48	)
MSRs			-			(24	)
Proceeds from settlement of BOLI			3			3
Proceeds from sales and dividends representing return of equity investments			998			11
Net cash received (paid) on acquisitions			1,210			(20	)
Net change in:
Federal funds sold			35			-
Other short-term investments			(1,678	)		1,006
Loans and leases			(1,196	)		(122	)
Operating lease equipment			(4	)		(1	)
Net Cash (Used in) Provided by Investing Activities			(1,121	)		163
Financing Activities
Net change in:
Deposits			339			2,299
Federal funds purchased			705			4
Other short-term borrowings			408			(2,677	)
Dividends paid on common stock			(143	)		(112	)
Dividends paid on preferred stock			-			(23	)
Proceeds from issuance of long-term debt			1,790			645
Repayment of long-term debt			(1,504	)		(686	)
Repurchase of treasury stock and related forward contract			(913	)		(318	)
Other			(27	)		(36	)
Net Cash Provided by (Used in) Financing Activities			655			(904	)
Increase (Decrease) in Cash and Due from Banks			68			(476	)
Cash and Due from Banks at Beginning of Period			2,681			2,514
Cash and Due from Banks at End of Period	$		2,749			2,038

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

60

Fifth Third Bancorp and Subsidiaries

Notes to Condensed Consolidated Financial Statements (unaudited)

1. Basis of Presentation

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

In the opinion of management, the unaudited Condensed Consolidated Financial Statements include all adjustments, which consist of normal recurring accruals, necessary to present fairly the results for the periods presented. In accordance with U.S. GAAP and the rules and regulations of the SEC for interim financial information, these statements do not include certain information and footnote disclosures required for complete annual financial statements and it is suggested that these Condensed Consolidated Financial Statements be read in conjunction with the Bancorp’s Annual Report on Form10-K. The results of operations, comprehensive income, cash flows and changes in equity for the three months ended March 31, 2019 and 2018 are not necessarily indicative of the results to be expected for the full year. Financial information as of December 31, 2018 has been derived from the Bancorp’s Annual Report on Form10-K.

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. Certain prior period data has been reclassified to conform to current period presentation. Specifically, Fifth Third reclassified the provision for the reserve for unfunded commitments from other noninterest expense to the provision for credit losses.

2. Supplemental Cash Flow Information

Cash payments related to interest and income taxes in addition tonon-cash investing and financing activities are presented in the following table for the three months ended March 31:

($ in millions)	2019		2018
Cash Payments:
Interest	$	379		247
Income taxes		14		19
Transfers:
Portfolio loans to loans held for sale		38		64
Loans held for sale to portfolio loans		15		34
Portfolio loans to OREO		8		12
Supplemental Disclosures:
Additions toright-of-use assets under operating leases		4		-
Right-of-use assets recognized at adoption of ASU 2016-02		509		-

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Fifth Third Bancorp and Subsidiaries

Notes to Condensed Consolidated Financial Statements (unaudited)

3. Business Combination

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

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

The acquisition of MB Financial, Inc. constituted a business combination and was accounted for under the acquisition method of accounting. Accordingly, the assets acquired, liabilities assumed and noncontrolling interest recognized were recorded at their estimated fair values as of the acquisition date. These fair value estimates are considered preliminary as of March 31, 2019 due to the timing of the close of the acquisition. Additionally, these fair value estimates, including loans and leases, intangible assets, deposits and goodwill, are subject to change for up to one year after the acquisition date as additional information becomes available.

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

($ in millions)
Consideration paid
Cash payments			$	469
Fair value of common stock issued				3,121
Stock-based awards				38
Dividend receivable from MB Financial, Inc.				(20	)
Total consideration paid			$	3,608
Fair value of noncontrolling interest in acquiree			$	197
Net Identifiable Assets Acquired, at Fair Value:
Assets
Cash and due from banks	$	1,679
Federal funds sold		35
Other short-term investments		53
Available-for-sale debt and other securities		832
Held-to-maturity securities		4
Equity securities		51
Loans and leases held for sale		12
Portfolio loans and leases		13,490
Bank premises and equipment		254
Operating lease equipment		403
Intangible assets		183
Servicing rights		263
Other assets		697
Total assets acquired	$	17,956
Liabilities
Deposits	$	14,489
Other short-term borrowings		348
Accrued taxes, interest and expenses		264
Other liabilities		180
Long-term debt		713
Total liabilities assumed	$	15,994
Net identifiable assets acquired				1,962
Goodwill			$	1,843

In connection with the acquisition, the Bancorp recognized approximately $1.8 billion of goodwill, of which $15 million relates to15-year tax deductible goodwill from MB Financial, Inc.’s prior acquisitions. See Note 11 for further information on goodwill recognized and Note 12 for further information on intangible assets acquired in the acquisition of MB Financial, Inc.

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

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Fifth Third Bancorp and Subsidiaries

Notes to Condensed Consolidated Financial Statements (unaudited)

Cash and due from banks and other short-term investments

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

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

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

Loans and leases held for sale and portfolio loans and leases

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

Bank premises and equipment

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

Operating lease equipment

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

Intangible assets

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

Servicing rights

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

Other assets

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

Deposits

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

Long-term debt

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

Merger-Related Expenses

Direct merger-related expenses related to the acquisition of MB Financial, Inc. were expensed as incurred by the Bancorp and amounted to $76 million for the three months ended March 31, 2019.

The following table provides a summary of merger-related expenses recorded in noninterest expense for the three months ended March 31, 2019:

($ in millions)	Merger-Related Expense
Salaries, wages and incentives	$	32
Employee benefits		3
Technology and communications		11
Other noninterest expense		30
Total	$	76

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Fifth Third Bancorp and Subsidiaries

Notes to Condensed Consolidated Financial Statements (unaudited)

Pro Forma Information

Revenue and earnings related to MB Financial, Inc.’s operations included in Fifth Third Bancorp’s Condensed Consolidated Statement of Income from the acquisition date through March 31, 2019, were $16 million of net interest income, $12 million of noninterest income and $13 million of net income attributable to common shareholders, which excludes certain merger-related charges incurred by the Bancorp as part of the acquisition of MB Financial, Inc.

The following table presents unaudited pro forma information as if the acquisition of MB Financial, Inc. had occurred on January 1, 2018. This pro forma information combines the historical condensed consolidated results of operations of Fifth Third Bancorp and MB Financial, Inc. after giving effect to certain adjustments, including purchase accounting fair value adjustments, amortization of intangibles, stock-based compensation expense and acquisition costs, as well as the related income tax effects of those adjustments. The pro forma results also reflect reclassification adjustments to noninterest income and noninterest expense to conform MB Financial, Inc.’s presentation of operating lease income and the related depreciation expense with the Bancorp’s presentation. Direct costs associated with the acquisition are included in pro forma earnings as of January 1, 2018.

The pro forma information does not necessarily reflect the results of operations that would have occurred had Fifth Third Bancorp acquired MB Financial, Inc. on January 1, 2018. Furthermore, cost savings and other business synergies related to the acquisition are also not reflected in the unaudited pro forma amounts for the three months ended March 31, 2019 and 2018.

	Unaudited Pro Forma Information For the three months ended March 31,
($ in millions)	2019		2018
Net interest income	$	1,242		1,181
Noninterest income		1,205		1,006
Net income attributable to common shareholders		891		655

Acquired Loans and Leases

Purchased loans are evaluated for evidence of credit deterioration at acquisition and recorded at their initial fair value. Generally, the fair value discount or premium on acquired loans and leases is amortized over the contractual life of the loan as an adjustment to yield. For loans acquired with evidence of credit impairment (PCI loans), the Bancorp determined at the acquisition date the excess of the loan’s contractually required payments over all cash flows expected to be collected as an amount that should not be accreted into interest income (nonaccretable difference). The remaining amount representing the difference in the expected cash flows of acquired loans and the initial investment in the acquired loans is accreted into interest income over the remaining life of the loan or pool of loans (accretable yield). This method of accounting for loans acquired with credit impairment does not apply to loans carried at fair value, residential mortgage loans held for sale and loans under revolving credit agreements. Refer to Note 1 of the Notes to Consolidated Financial Statements included in the Bancorp’s Annual Report on Form10-K for the year ended December 31, 2018 for additional information on the accounting for PCI loans. The Bancorp has elected to account for loans acquired from MB Financial, Inc., which were not considered impaired but exhibited evidence of credit deterioration since origination, in the same manner as PCI loans.

The following table reflects the contractually required payments receivable, cash flows expected to be collected and estimated fair value of loans identified as PCI loans on the acquisition date of MB Financial, Inc. These fair value estimates are considered preliminary as of March 31, 2019 due to the timing of the close of the acquisition.

($ in millions)		March 22, 2019
Contractually required payments including interest	$	1,164
Less: Nonaccretable difference		109
Cash flows expected to be collected		1,055
Less: Accretable yield		232
Fair value of loans acquired	$	823

For the period from March 22, 2019 to March 31, 2019, accretion of the accretable yield and reclassifications to or from the nonaccretable difference were not material to the Bancorp.

At the MB Financial, Inc. acquisition date, contractual balances on the purchasednon-PCI loans and leases totaled $12.9 billion, with a corresponding fair value of $12.7 billion.

Bank Merger and Conversion

As of March 31, 2019, MB Financial, Inc. is the holding company of MB Financial Bank, N.A. and a subsidiary of Fifth Third Bancorp. For further information on a subsequent event related to the bank merger and conversion, refer to Note 27.

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Fifth Third Bancorp and Subsidiaries

Notes to Condensed Consolidated Financial Statements (unaudited)

4. Accounting and Reporting Developments

Standards Adopted in 2019

The Bancorp adopted the following new accounting standards effective January 1, 2019:

ASU2016-02 – Leases (Topic 842)

In February 2016, the FASB issued ASU2016-02 which establishes a new accounting model for leases. The amended guidance requires lessees to record lease liabilities on the lessees’ balance sheets along with correspondingright-of-use assets for all leases with terms longer than 12 months. Leases are classified as either finance or operating, with classification affecting the pattern of expense recognition in the lessee’s statements of income. From a lessor perspective, the accounting model is largely unchanged, except that the amended guidance includes certain targeted improvements to align, where necessary, lessor accounting with the lessee accounting model and the revenue recognition guidance in ASC Topic 606. The amendments also modify disclosure requirements for an entity’s lease arrangements. Subsequent to the issuance of ASU2016-02, the FASB has issued additional guidance to clarify certain implementation issues and provide transition relief in certain circumstances including ASUs2018-01 (Land Easement Practical Expedient, issued in January 2018),2018-10 (Codification Improvements, issued in July 2018),2018-11 (Targeted Improvements, also issued in July 2018),2018-20 (Narrow-Scope Improvements for Lessors, issued in December 2018) and2019-01 (Codification Improvements, issued in March 2019). These subsequent amendments do not change the core principles in the original ASU, but do provide an additional optional transition method which is to initially apply the amended guidance at the adoption date and record a cumulative-effect adjustment to opening retained earnings without retrospective application to prior comparative periods. Entities not electing to use this optional transition method must apply the amended guidance on a modified retrospective basis to all periods presented.

The Bancorp adopted the amended guidance on January 1, 2019, using the optional transition method. The Bancorp initially applied the new standard by recognizing a cumulative-effect adjustment to the opening balance of retained earnings on the adoption date without restating the prior comparative periods. As part of the adoption, the Bancorp has elected certain accounting policies as allowed under the ASU. The Bancorp elected the practical expedients package provided within the new standard, which among other things, permitted the Bancorp not to reassess the lease classification of existing leases. The Bancorp also elected not to use hindsight in evaluating the lease term. Additionally, the Bancorp elected to not recognize ROU assets and lease liabilities for leases with an initial term of 12 months or less on the Condensed Consolidated Balance Sheets and elected a practical expedient, by class of underlying asset, to not separate nonlease components from the associated lease component and instead, to account for them as a single lease component. Upon adoption on January 1, 2019, the Bancorp recognized additional ROU assets and lease liabilities of $509 million related to its operating lease commitments based on the present value of unpaid lease payments as of the date of adoption and also recorded a cumulative-effect adjustment to retained earnings of $10 million for the remaining deferred gains on sale-leaseback transactions that occurred prior to January 1, 2019. From a lessor perspective, adoption of the amended guidance did not have a material impact on the Bancorp’s Condensed Consolidated Financial Statements at transition. The required disclosures are included in Note 6, Note 9 and Note 10.

ASU2017-08 – Receivables—Nonrefundable Fees and Other Costs (Subtopic310-20): Premium Amortization on Purchased Callable Debt Securities

In March 2017, the FASB issued ASU2017-08 which shortens the amortization period for certain callable debt securities held at a premium. Specifically, the amendments require the premium to be amortized to the earliest call date. The amendments do not require an accounting change for securities held at a discount; the discount continues to be amortized to maturity. The Bancorp adopted the amended guidance on January 1, 2019 on a modified retrospective basis. The adoption did not have a material impact on the Condensed Consolidated Financial Statements.

Standards Issued but Not Yet Adopted

The following accounting standards were issued but not yet adopted by the Bancorp as of March 31, 2019:

ASU2016-13 – Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments

In June 2016, the FASB issued ASU2016-13 which establishes a new approach to estimate credit losses on certain types of financial instruments. The new approach changes the impairment model for most financial assets, and will require the use of an “expected credit loss” model for financial instruments measured at amortized cost and certain other instruments. This model applies to trade and other receivables, loans, debt securities, net investments in leases, andoff-balance sheet credit exposures (such as loan commitments, standby letters of credit, and financial guarantees not accounted for as insurance). This model requires entities to estimate the lifetime expected credit loss on such instruments and record an allowance that represents the portion of the amortized cost basis that the entity does not expect to collect. This allowance is deducted from the financial asset’s amortized cost basis to present the net amount expected to be collected. The new expected credit loss model will also apply to purchased financial assets with credit deterioration, superseding current accounting guidance for such assets. The amended guidance also amends the impairment model foravailable-for-sale debt securities, requiring entities to determine whether all or a portion of the unrealized loss on such securities is a credit loss, and also eliminating the option for management to consider the length of time a security has been in an unrealized loss position as a factor in concluding whether or not a credit loss exists. The amended model states that an entity will recognize an allowance for credit losses onavailable-for-sale debt securities as a contra account to the amortized cost basis, instead of a direct reduction of the amortized cost basis of the investment, as under current guidance. As a result, entities will recognize improvements to estimated credit losses onavailable-for-sale debt securities immediately in earnings as opposed to in interest income over time. There are also additional disclosure requirements included in this guidance. The amended guidance is effective for the Bancorp on January 1, 2020. Early adoption is permitted as of January 1, 2019, but the Bancorp currently expects to adopt on the mandatory effective date. The amended guidance is to be applied on a modified retrospective basis with the cumulative effect of initially applying the amendments recognized in retained earnings at the date of initial application. However, certain provisions of the guidance are only required to be applied on a prospective basis.

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Fifth Third Bancorp and Subsidiaries

Notes to Condensed Consolidated Financial Statements (unaudited)

The Bancorp’s implementation process includes data sourcing and validation, loss model development, development of governance processes over economic forecasting, development of a qualitative framework, evaluation of technical accounting topics, updates to allowance policies and methodology documentation, development of reporting processes and related internal controls, and overall operational readiness for adoption of the amended guidance, which will continue throughout 2019, including parallel runs for CECL alongside the Bancorp’s current allowance process. The Bancorp is in the process of developing, validating, and implementing models used to estimate credit losses under CECL and expects to complete the validation process for its loan models during 2019.

The Bancorp provides updates to senior leadership, the Audit Committee and the Risk and Compliance Committee of the Board of Directors. These communications provide an update on the status of the implementation project plan and any identified risks.

While the Bancorp is currently in the process of evaluating the impact of the amended guidance on its Condensed Consolidated Financial Statements, it currently expects the ALLL to increase upon adoption given that the allowance will be required to cover the full remaining expected life of the portfolio upon adoption, rather than the incurred loss model under current U.S. GAAP. The extent of this increase is still being evaluated and will depend on economic conditions, economic forecasts and the composition and credit quality of the Bancorp’s loan and lease portfolio at the time of adoption.

In November 2018, the FASB issued ASU2018-19 which made minor clarifications to the pending guidance in ASU2016-13. The FASB has also established a Transition Resource Group for Credit Losses to evaluate implementation issues arising from the amended guidance and make recommendations to the FASB on which issues may warrant the issuance of additional clarifying guidance. The Bancorp continues to monitor the issues discussed by the Transition Resource Group and the recommended amendments proposed to the FASB as part of its implementation analysis.

ASU2017-04 – Intangibles—Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment

In January 2017, the FASB issued ASU2017-04 which simplifies the test for goodwill impairment by removing the second step, which measures the amount of impairment loss, if any. Instead, the amended guidance states that an entity should recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value, except that the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. This would apply to all reporting units, including those with zero or negative carrying amounts of net assets. The amended guidance is effective for the Bancorp on January 1, 2020, with early adoption permitted, and is to be applied prospectively to all goodwill impairment tests performed after the adoption date.

ASU2018-13 – Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement

In August 2018, the FASB issued ASU2018-13 which modifies the disclosure requirements for fair value measurements. The amendments remove the requirements to disclose the amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy, the policy for timing of transfers between levels and the valuation processes for Level 3 fair value measurements. The amendments also add new disclosure requirements regarding unrealized gains and losses from recurring Level 3 fair value measurements and the significant unobservable inputs used to develop Level 3 fair value measurements. The amended guidance is effective for the Bancorp on January 1, 2020 with early adoption permitted. Certain of the amendments are to be applied prospectively while others are to be applied retrospectively. Also, early adoption of the removed and modified disclosure requirements is permitted before adoption of the newly added requirements. The Bancorp is in the process of evaluating the impact of the amended guidance on its Condensed Consolidated Financial Statements.

ASU2018-15 – Intangibles—Goodwill andOther—Internal-Use Software (Subtopic350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract

In August 2018, the FASB issued ASU2018-15 which provides guidance on the accounting for implementation, setup, and other upfront costs incurred by customers in cloud computing arrangements that are accounted for as service contracts. The amendments require that implementation costs be evaluated for capitalization using the framework applicable to costs incurred to develop or obtaininternal-use software. Those capitalized costs are to be expensed over the term of the cloud computing arrangement and presented in the same financial statement line items as the service contract and its associated fees. The amended guidance is effective for the Bancorp on January 1, 2020, with early adoption permitted, and may be applied either retrospectively or prospectively. The Bancorp is in the process of evaluating the impact of the amended guidance on its Condensed Consolidated Financial Statements.

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Notes to Condensed Consolidated Financial Statements (unaudited)

5. Investment Securities

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

March 31, 2019 ($ in millions)	Amortized Cost		Unrealized Gains		Unrealized Losses			Fair Value
Available-for-sale debt and other securities:
U.S. Treasury and federal agency securities	$	796		1		-			797
Obligations of states and political subdivisions securities		6		-		-			6
Mortgage-backed securities:
Agency residential mortgage-backed securities		15,614		177		(102	)		15,689
Agency commercial mortgage-backed securities		12,382		181		(50	)		12,513
Non-agency commercial mortgage-backed securities		3,338		43		(6	)		3,375
Asset-backed securities and other debt securities		2,067		32		(12	)		2,087
Other securities(a)		581		-		-			581
Totalavailable-for-sale debt and other securities	$	34,784		434		(170	)		35,048
Held-to-maturity securities:
Obligations of states and political subdivisions securities	$	16		-		-			16
Asset-backed securities and other debt securities		5		-		-			5
Totalheld-to-maturity securities	$	21		-		-			21

(a) Other securities consist of FHLB, FRB and DTCC restricted stock holdings of$137,$442 and$2, respectively, atMarch 31, 2019, that are carried at cost.

December 31, 2018 ($ in millions)	Amortized Cost		Unrealized Gains		Unrealized Losses			Fair Value
Available-for-sale debt and other securities:
U.S. Treasury and federal agency securities	$	98		-		(1	)		97
Obligations of states and political subdivisions securities		2		-		-			2
Mortgage-backed securities:
Agency residential mortgage-backed securities		16,403		86		(242	)		16,247
Agency commercial mortgage-backed securities		10,770		44		(164	)		10,650
Non-agency commercial mortgage-backed securities		3,305		9		(47	)		3,267
Asset-backed securities and other debt securities		1,998		27		(10	)		2,015
Other securities(a)		552		-		-			552
Totalavailable-for-sale debt and other securities	$	33,128		166		(464	)		32,830
Held-to-maturity securities:
Obligations of states and political subdivisions securities	$	16		-		-			16
Asset-backed securities and other debt securities		2		-		-			2
Totalheld-to-maturity securities	$	18		-		-			18

(a) Other securities consist of FHLB, FRB and DTCC restricted stock holdings of $184, $366 and $2, respectively, at December 31, 2018, that are carried at cost.

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

($ in millions)	March 31, 2019		December 31, 2018
Trading debt securities	$	325		287
Equity securities		426		452

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

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Fifth Third Bancorp and Subsidiaries

Notes to Condensed Consolidated Financial Statements (unaudited)

The following table presents securities gains (losses) recognized in the Condensed Consolidated Statements of Income:

		For the three months ended March 31,
($ in millions)		2019		2018
Available-for-sale debt and other securities:
Realized gains	$	13		35
Realized losses		(14	)	(43	)
OTTI		-		-
Net realized losses onavailable-for sale debt and other securities	$	(1	)	(8	)
Total trading debt securities gains (losses)	$	3		(13	)
Total equity securities gains (losses)(a)	$	17		(3	)
Total gains (losses) recognized in income fromavailable-for-sale debt and other securities, trading debt securities and equity securities(b)	$	19		(24	)

(a) Includes a net unrealized gain of$19 and a net unrealized loss of $2 for the three months endedMarch 31, 2019 and 2018, respectively.

(b) Excludes an insignificant amount of securities gains (losses) included in corporate banking revenue and wealth and asset management revenue in the Condensed Consolidated Statements of Income related to securities held by FTS to facilitate the timely execution of customer transactions.

At March 31, 2019 and December 31, 2018, investment securities with a fair value of $7.1 billion and $7.0 billion, respectively, were pledged to secure borrowings, public deposits, trust funds, derivative contracts and for other purposes as required or permitted by law.

The expected maturity distribution of the Bancorp’s mortgage-backed securities and the contractual maturity distribution of the remainder of the Bancorp’savailable-for-sale debt and other securities andheld-to-maturity investment securities as of March 31, 2019 are shown in the following table:

		Available-for-Sale Debt and  Other		Held-to-Maturity
($ in millions)		Amortized Cost	Fair Value	Amortized Cost	Fair Value
Debt securities:(a)
Less than 1 year	$	821	819	-	-
1-5 years		11,521	11,655	16	16
5-10 years		17,148	17,253	-	-
Over 10 years		4,713	4,740	5	5
Other securities		581	581	-	-
Total	$	34,784	35,048	21	21

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

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

	Less than 12 months					12 months or more					Total
			Unrealized					Unrealized					Unrealized
($ in millions)	Fair Value		Losses			Fair Value		Losses			Fair Value		Losses
March 31, 2019
U.S. Treasury and federal agency securities	$	-		-			74		-			74		-
Obligations of states and political subdivisions		3		-			-		-			3		-
Agency residential mortgage-backed securities		539		(1	)		5,737		(101	)		6,276		(102	)
Agency commercial mortgage-backed securities		358		(2	)		2,992		(48	)		3,350		(50	)
Non-agency commercial mortgage-backed securities		-		-			685		(6	)		685		(6	)
Asset-backed securities and other debt securities		435		(7	)		191		(5	)		626		(12	)
Total	$	1,335		(10	)		9,679		(160	)		11,014		(170	)
December 31, 2018
U.S. Treasury and federal agency securities	$	-		-			97		(1	)		97		(1	)
Agency residential mortgage-backed securities		3,235		(21	)		7,892		(221	)		11,127		(242	)
Agency commercial mortgage-backed securities		2,022		(37	)		5,260		(127	)		7,282		(164	)
Non-agency commercial mortgage-backed securities		884		(6	)		1,621		(41	)		2,505		(47	)
Asset-backed securities and other debt securities		314		(6	)		241		(4	)		555		(10	)
Total	$	6,455		(70	)		15,111		(394	)		21,566		(464	)

At both March 31, 2019 and December 31, 2018, an immaterial amount of unrealized losses in theavailable-for-sale debt and other securities portfolio were represented bynon-rated securities.

68

Fifth Third Bancorp and Subsidiaries

Notes to Condensed Consolidated Financial Statements (unaudited)

6. Loans and Leases

The Bancorp diversifies its loan and lease portfolio by offering a variety of loan and lease products with various payment terms and rate structures. The Bancorp’s commercial loan and lease portfolio consists of lending to various industry types. Management periodically reviews the performance of its loan and lease products to evaluate whether they are performing within acceptable interest rate and credit risk levels and changes are made to underwriting policies and procedures as needed. The Bancorp acquired indirect motorcycle, powersport, recreational vehicle and marine loans in the acquisition of MB Financial, Inc. These loans are included in addition to automobile loans in the line item “indirect secured consumer loans”. The Bancorp maintains an allowance to absorb loan and lease losses inherent in the portfolio. For further information on credit quality and the ALLL, refer to Note 7.

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

	March 31,		December 31,
($ in millions)	2019		2018
Loans and leases held for sale:
Commercial and industrial loans	$	63		67
Commercial mortgage loans		3		3
Residential mortgage loans		626		537
Total loans and leases held for sale	$	692		607
Portfolio loans and leases:
Commercial and industrial loans	$	51,862		44,340
Commercial mortgage loans		10,686		6,974
Commercial construction loans		5,231		4,657
Commercial leases		3,909		3,600
Total commercial loans and leases	$	71,688		59,571
Residential mortgage loans	$	16,811		15,504
Home equity		6,435		6,402
Indirect secured consumer loans		10,031		8,976
Credit card		2,388		2,470
Other consumer loans		2,489		2,342
Total consumer loans	$	38,154		35,694
Total portfolio loans and leases	$	109,842		95,265

Portfolio loans and leases are recorded net of unearned income, which totaled $491 million as of March 31, 2019 and $479 million as of December 31, 2018. Additionally, portfolio loans and leases are recorded net of unamortized premiums and discounts, deferred direct loan origination fees and costs and fair value adjustments (associated with acquired loans or loans designated as fair value upon origination) which totaled a net discount of $130 million and a net premium of $296 million as of March 31, 2019 and December 31, 2018, respectively.

The Bancorp’s FHLB and FRB advances are generally secured by loans. The Bancorp had loans of $16.8 billion and $13.1 billion at March 31, 2019 and December 31, 2018, respectively, pledged at the FHLB, and loans of $42.4 billion and $42.6 billion at March 31, 2019 and December 31, 2018, respectively, pledged at the FRB.

69

Fifth Third Bancorp and Subsidiaries

Notes to Condensed Consolidated Financial Statements (unaudited)

The following table presents a summary of the total loans and leases owned by the Bancorp as of:

	Carrying Value				90 Days Past Due and Still Accruing
	March 31,		December 31,		March 31,			December 31,
($ in millions)	2019		2018		2019			2018
Commercial and industrial loans	$	51,925		44,407		15			4
Commercial mortgage loans		10,689		6,977		20			2
Commercial construction loans		5,231		4,657		-			-
Commercial leases		3,909		3,600		-			-
Residential mortgage loans		17,437		16,041		48			38
Home equity		6,435		6,402		1			-
Indirect secured consumer loans		10,031		8,976		9			12
Credit card		2,388		2,470		38			37
Other consumer loans		2,489		2,342		1			-
Total loans and leases	$	110,534		95,872		132	(a)		93
Less: Loans and leases held for sale	$	692		607
Total portfolio loans and leases	$	109,842		95,265

(a) Total portfolio loans and leases 90 days past due and still accruing reflect a decrease of $4 million which occurred after the Bancorp’s Form8-K was filed on April 23, 2019.

The following table presents a summary of net charge-offs (recoveries) for the three months ended March 31:

($ in millions)		2019		2018
Commercial and industrial loans	$	18		28
Commercial mortgage loans		(1	)	1
Residential mortgage loans		1		3
Home equity		3		5
Indirect secured consumer loans		13		11
Credit card		33		25
Other consumer loans		10		8
Total net charge-offs	$	77		81

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

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

($ in millions)	March 31, 2019(a)
Net investment in direct financing leases:
Lease payment receivable (present value)	$	2,992
Unguaranteed residual assets (present value)		261
Net discount on acquired leases		(12	)
Deferred selling profits		-
Net investment in sales-type leases:
Lease payment receivable (present value)		94
Unguaranteed residual assets (present value)		4
Net discount on acquired leases		(1	)

(a) Excludes $571 of leveraged leases at March 31, 2019.

The following table presents the components of the commercial lease financing portfolio as of:

($ in millions)	December 31, 2018
Rentals receivable, net of principal and interest on nonrecourse debt	$	3,256
Estimated residual value of leased assets		804
Initial direct cost, net of amortization		19
Gross investment in commercial lease financing		4,079
Unearned income		(479	)
Net investment in commercial lease financing	$	3,600

Interest income recognized in the Condensed Consolidated Statements of Income for the three months ended March 31, 2019 was $22 million for direct financing leases and immaterial for sale-type leases.

70

Fifth Third Bancorp and Subsidiaries

Notes to Condensed Consolidated Financial Statements (unaudited)

The following table presents undiscounted cash flows for both direct financing and sales-type leases for the remainder of 2019 through 2024 and thereafter as well as a reconciliation of the undiscounted cash flows to the total lease receivables as follows:

As of March 31, 2019 ($ in millions)	Direct Financing Leases		Sales-Type Leases
Remainder of 2019	$	732		18
2020		749		17
2021		541		17
2022		441		16
2023		278		18
2024		192		12
Thereafter		271		8
Total undiscounted cash flows	$	3,204		106
Less: Difference between undiscounted cash flows and discounted cash flows		212		12
Present value of lease payments (recognized as lease receivables)	$	2,992		94

The lease residual value represents the present value of the estimated fair value of the leased equipment at the end of the lease. The Bancorp performs quarterly reviews of residual values associated with its leasing portfolio considering factors such as the subject equipment, structure of the transaction, industry, prior experience with lessee and other factors that impact the residual value to assess for impairment. At March 31, 2019, the Bancorp maintained an allowance of $20 million to cover the inherent losses, including the potential losses related to the residual value, in the net investment in leases. Please refer to Note 7 for additional information on credit quality and the allowance for loan and lease losses.

At December 31, 2018, the Bancorp maintained an allowance of $18 million to cover the losses related to the minimum lease payments. Any declines in residual value that were deemed to be other-than-temporary were recognized as a loss and included as a component of corporate banking revenue in the Condensed Consolidated Statements of Income.

71

Fifth Third Bancorp and Subsidiaries

Notes to Condensed Consolidated Financial Statements (unaudited)

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

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

Allowance for Loan and Lease Losses

The following tables summarize transactions in the ALLL by portfolio segment:

For the three months ended March 31, 2019 ($ in millions)	Commercial			Residential Mortgage			Consumer			Unallocated		Total
Balance, beginning of period	$	645			81			267			110		1,103
Lossescharged-off(a)		(20	)		(2	)		(86	)		-		(108	)
Recoveries of losses previouslycharged-off(a)		3			1			27			-		31
Provision for (benefit from) loan and lease losses		26			(1	)		62			2		89
Balance, end of period	$	654			79			270			112		1,115

(a) For the three months endedMarch 31, 2019, the Bancorp recorded$11 in both lossescharged-off and recoveries of lossescharged-off related to customer defaults onpoint-of-sale consumer loans for which the Bancorp obtained recoveries under third-party credit enhancements.

For the three months ended March 31, 2018 ($ in millions)	Commercial			Residential Mortgage			Consumer			Unallocated			Total
Balance, beginning of period	$	753			89			234			120			1,196
Lossescharged-off		(35	)		(4	)		(64	)		-			(103	)
Recoveries of losses previouslycharged-off		6			1			15			-			22
Provision for (benefit from) loan and lease losses		(11	)		3			37			(6	)		23
Balance, end of period	$	713			89			222			114			1,138

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

As of March 31, 2019 ($ in millions)	Commercial		Residential Mortgage		Consumer		Unallocated		Total
ALLL:(a)
Individually evaluated for impairment	$	62		60		38		-		160
Collectively evaluated for impairment		592		19		232		-		843
Unallocated		-		-		-		112		112
Total ALLL	$	654		79		270		112		1,115
Portfolio loans and leases:(b)
Individually evaluated for impairment	$	346		734		272		-		1,352
Collectively evaluated for impairment		70,659		15,768		21,050		-		107,477
Purchased credit impaired		683		119		21		-		823
Total portfolio loans and leases	$	71,688		16,621		21,343		-		109,652

(a) Includes$1 related to leveraged leases atMarch 31, 2019.

(b) Excludes$190of residential mortgage loans measured at fair value and includes$571 of leveraged leases, net of unearned income atMarch 31, 2019.

As of December 31, 2018 ($ in millions)	Commercial		Residential Mortgage		Consumer		Unallocated		Total
ALLL:(a)
Individually evaluated for impairment	$	42		61		38		-		141
Collectively evaluated for impairment		603		20		229		-		852
Unallocated		-		-		-		110		110
Total ALLL	$	645		81		267		110		1,103
Portfolio loans and leases:(b)
Individually evaluated for impairment	$	277		736		278		-		1,291
Collectively evaluated for impairment		59,294		14,589		19,912		-		93,795
Total portfolio loans and leases	$	59,571		15,325		20,190		-		95,086

(a) Includes $1 related to leveraged leases at December 31, 2018.

(b) Excludes $179 of residential mortgage loans measured at fair value and includes $624 of leveraged leases, net of unearned income at December 31, 2018.

CREDIT RISK PROFILE

Commercial Portfolio Segment

For purposes of analyzing historical loss rates used in the determination of the ALLL and monitoring the credit quality and risk characteristics of its commercial portfolio segment, the Bancorp disaggregates the segment into the following classes: commercial and industrial, commercial mortgage owner-occupied, commercial mortgage nonowner-occupied, commercial construction and commercial leases.

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

72

Fifth Third Bancorp and Subsidiaries

Notes to Condensed Consolidated Financial Statements (unaudited)

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

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

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

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

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

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

As of March 31, 2019 ($ in millions)	Pass		Special Mention		Substandard		Doubtful		Total
Commercial and industrial loans	$	49,621		995		1,209		37		51,862
Commercial mortgage owner-occupied loans		4,133		71		208		-		4,412
Commercial mortgage nonowner-occupied loans		5,924		102		248		-		6,274
Commercial construction loans		5,186		36		9		-		5,231
Commercial leases		3,809		38		62		-		3,909
Total commercial loans and leases	$	68,673		1,242		1,736		37		71,688

As of December 31, 2018 ($ in millions)	Pass		Special Mention		Substandard		Doubtful		Total
Commercial and industrial loans	$	42,695		779		853		13		44,340
Commercial mortgage owner-occupied loans		3,122		23		139		-		3,284
Commercial mortgage nonowner-occupied loans		3,632		27		31		-		3,690
Commercial construction loans		4,657		-		-		-		4,657
Commercial leases		3,475		72		53		-		3,600
Total commercial loans and leases	$	57,581		901		1,076		13		59,571

Residential Mortgage and Consumer Portfolio Segments

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

The Bancorp considers repayment performance as the best indicator of credit quality for residential mortgage and consumer loans, which includes both the delinquency status and performing versus nonperforming status of the loans. The delinquency status of all residential mortgage and consumer loans is presented by class in the age analysis section while the performing versus nonperforming status is presented in the following table. Refer to the nonaccrual loans and leases section of Note 1 of the Notes to Consolidated Financial Statements included in the Bancorp’s Annual Report on Form10-K for the year ended December 31, 2018 for additional delinquency and nonperforming information.

73

Fifth Third Bancorp and Subsidiaries

Notes to Condensed Consolidated Financial Statements (unaudited)

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

	March 31, 2019				December 31, 2018
($ in millions)	Performing		Nonperforming		Performing		Nonperforming
Residential mortgage loans(a)	$	16,596		25		15,303		22
Home equity		6,355		80		6,332		70
Indirect secured consumer loans		10,028		3		8,975		1
Credit card		2,361		27		2,444		26
Other consumer loans		2,487		2		2,341		1
Total residential mortgage and consumer loans(a)	$	37,827		137		35,395		120

(a) Excludes$190and $179 of residential mortgage loans measured at fair value atMarch 31, 2019 and December 31, 2018, respectively.

Age Analysis of Past Due Loans and Leases

The following tables summarize the Bancorp’s recorded investment in portfolio loans and leases, by age and class:

	Current Loans and Leases(b)(c)		Past Due								90 Days Past Due and Still Accruing
			30-89 Days(c)		90 Days or More(c)		Total Past Due		Total Loans and Leases
As of March 31, 2019 ($ in millions)
Commercial loans and leases:
Commercial and industrial loans	$	51,737		53		72		125		51,862		15
Commercial mortgage owner-occupied loans		4,384		16		12		28		4,412		8
Commercial mortgage nonowner-occupied loans		6,256		3		15		18		6,274		12
Commercial construction loans		5,230		1		-		1		5,231		-
Commercial leases		3,904		5		-		5		3,909		-
Residential mortgage loans(a)		16,512		36		73		109		16,621		48
Consumer loans:
Home equity		6,300		78		57		135		6,435		1
Indirect secured consumer loans		9,907		110		14		124		10,031		9
Credit card		2,301		44		43		87		2,388		38
Other consumer loans		2,468		18		3		21		2,489		1
Total portfolio loans and leases(a)	$	108,999		364		289		653		109,652		132	(d)

(a) Excludes$190 of residential mortgage loans measured at fair value atMarch 31, 2019.

(b) Information includes advances made pursuant to servicing agreements for GNMA mortgage pools whose repayments are insured by the FHA or guaranteed by the VA. As ofMarch 31, 2019,$97of these loans were30-89 days past due and$262 were 90 days or more past due. The Bancorp recognized an immaterial amount of lossesduring the three months endedMarch 31, 2019 due to claim denials and curtailments associated with these insured or guaranteed loans.

(c) Includes accrual and nonaccrual loans and leases.

(d) Total portfolio loans and leases 90 days past due and still accruing reflect a decrease of $4 million which occurred after the Bancorp’s Form8-K was filed on April 23, 2019.

	Current Loans and Leases(b)(c)		Past Due								90 Days Past Due and Still Accruing
			30-89 Days(c)		90 Days or More(c)		Total Past Due		Total Loans and Leases
As of December 31, 2018 ($ in millions)
Commercial loans and leases:
Commercial and industrial loans	$	44,213		32		95		127		44,340		4
Commercial mortgage owner-occupied loans		3,277		1		6		7		3,284		2
Commercial mortgage nonowner-occupied loans		3,688		1		1		2		3,690		-
Commercial construction loans		4,657		-		-		-		4,657		-
Commercial leases		3,597		1		2		3		3,600		-
Residential mortgage loans(a)		15,227		37		61		98		15,325		38
Consumer loans:
Home equity		6,280		71		51		122		6,402		-
Indirect secured consumer loans		8,844		119		13		132		8,976		12
Credit card		2,381		47		42		89		2,470		37
Other consumer loans		2,323		17		2		19		2,342		-
Total portfolio loans and leases(a)	$	94,487		326		273		599		95,086		93

(a) Excludes $179 of residential mortgage loans measured at fair value at December 31, 2018.

(b) Information includes advances made pursuant to servicing agreements for GNMA mortgage pools whose repayments are insured by the FHA or guaranteed by the VA. As of December 31, 2018, $90 of these loans were30-89 days past due and $195 were 90 days or more past due. The Bancorp recognized $2 of losses during the three months ended March 31, 2018, respectively, due to claim denials and curtailments associated with these insured or guaranteed loans.

(c) Includes accrual and nonaccrual loans and leases.

74

Fifth Third Bancorp and Subsidiaries

Notes to Condensed Consolidated Financial Statements (unaudited)

Impaired Portfolio Loans and Leases

Larger commercial loans and leases included within aggregate borrower relationship balances exceeding $1 million that exhibit probable or observed credit weaknesses are subject to individual review for impairment. The Bancorp also performs an individual review on loans and leases that are restructured in a TDR. The Bancorp considers the current value of collateral, credit quality of any guarantees, the loan structure and other factors when evaluating whether an individual loan or lease is impaired. Other factors may include the geography and industry 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. Smaller-balance homogenous loans or leases that are collectively evaluated for impairment are not included in the following tables.

The following tables summarize the Bancorp’s impaired portfolio loans and leases, by class, that were subject to individual review, which includes all portfolio loans and leases restructured in a TDR:

As of March 31, 2019 ($ in millions)	Unpaid Principal Balance		Recorded Investment			ALLL
With a related ALLL:
Commercial loans and leases:
Commercial and industrial loans	$	246		206			53
Commercial mortgage owner-occupied loans		9		9			1
Commercial mortgage nonowner-occupied loans		2		1			-
Commercial leases		25		24			8
Restructured residential mortgage loans		457		454			60
Restructured consumer loans:
Home equity		144		143			23
Indirect secured consumer loans		5		5			1
Credit card		46		44			14
Total impaired portfolio loans and leases with a related ALLL	$	934		886			160
With no related ALLL:
Commercial loans:
Commercial and industrial loans	$	84		77			-
Commercial mortgage owner-occupied loans		18		18			-
Commercial mortgage nonowner-occupied loans		11		11			-
Restructured residential mortgage loans		297		280			-
Restructured consumer loans:
Home equity		80		79			-
Indirect secured consumer loans		2		1			-
Total impaired portfolio loans with no related ALLL	$	492		466			-
Total impaired portfolio loans and leases	$	1,426		1,352	(a)		160

(a) Includes$59,$724 and$226, respectively, of commercial, residential mortgage and consumer portfolio TDRs on accrual status and$159,$10 and$46, respectively, of commercial, residential mortgage and consumer portfolio TDRs on nonaccrual status atMarch 31, 2019.

75

Fifth Third Bancorp and Subsidiaries

Notes to Condensed Consolidated Financial Statements (unaudited)

As of December 31, 2018 ($ in millions)	Unpaid Principal Balance		Recorded Investment			ALLL
With a related ALLL:
Commercial loans and leases:
Commercial and industrial loans	$	156		107			34
Commercial mortgage owner-occupied loans		2		2			1
Commercial mortgage nonowner-occupied loans		2		1			-
Commercial leases		23		22			7
Restructured residential mortgage loans		465		462			61
Restructured consumer loans:
Home equity		146		145			22
Indirect secured consumer loans		5		4			1
Credit card		47		44			15
Total impaired portfolio loans and leases with a related ALLL	$	846		787			141
With no related ALLL:
Commercial loans:
Commercial and industrial loans	$	137		125			-
Commercial mortgage owner-occupied loans		9		9			-
Commercial mortgage nonowner-occupied loans		11		11			-
Restructured residential mortgage loans		292		274			-
Restructured consumer loans:
Home equity		85		83			-
Indirect secured consumer loans		2		2			-
Total impaired portfolio loans with no related ALLL	$	536		504			-
Total impaired portfolio loans and leases	$	1,382		1,291	(a)		141

(a) Includes $60, $724 and $237, respectively, of commercial, residential mortgage and consumer portfolio TDRs on accrual status and $147, $12 and $41, respectively, of commercial, residential mortgage and consumer portfolio TDRs on nonaccrual status at December 31, 2018.

76

Fifth Third Bancorp and Subsidiaries

Notes to Condensed Consolidated Financial Statements (unaudited)

The following table summarizes the Bancorp’s average impaired portfolio loans and leases, by class, and interest income, by class:

	For the three months ended March 31, 2019				For the three months ended March 31, 2018
($ in millions)	Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
Commercial loans and leases:
Commercial and industrial loans	$	258		2		497		5
Commercial mortgage owner-occupied loans		19		-		22		-
Commercial mortgage nonowner-occupied loans		13		-		34		-
Commercial leases		23		1		6		-
Restructured residential mortgage loans		734		7		665		6
Restructured consumer loans:
Home equity		224		3		258		3
Indirect secured consumer loans		6		-		9		-
Credit card		44		1		48		1
Total average impaired portfolio loans and leases	$	1,321		14		1,539		15

Nonperforming Assets

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

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

($ in millions)		March 31, 2019	December 31, 2018
Commercial loans and leases:
Commercial and industrial loans	$	260	193
Commercial mortgage owner-occupied loans		28	11
Commercial mortgage nonowner-occupied loans		3	2
Commercial leases		22	22
Total nonaccrual portfolio commercial loans and leases		313	228
Residential mortgage loans		25	22
Consumer loans:
Home equity		80	69
Indirect secured consumer loans		3	1
Credit card		27	27
Other consumer loans		2	1
Total nonaccrual portfolio consumer loans		112	98
Total nonaccrual portfolio loans and leases(a)(b)	$	450	348
OREO and other repossessed property		48	47
Total nonperforming portfolio assets(a)(b)	$	498	395

(a) Excludes$14and $16 of nonaccrual loans held for sale atMarch 31, 2019 and December 31, 2018, respectively.

(b) Includes$11and $6of nonaccrual government insured commercial loans whose repayments are insured by the SBA atMarch 31, 2019 and December 31, 2018, respectively, of which$6 and $2 are restructured nonaccrual government insured commercial loans atMarch 31, 2019and December 31, 2018, respectively.

The Bancorp’s recorded investment of consumer mortgage loans secured by residential real estate properties for which formal foreclosure proceedings are in process according to local requirements of the applicable jurisdiction was $214 million and $153 million as of March 31, 2019 and December 31, 2018, respectively.

Troubled Debt Restructurings

If a borrower is experiencing financial difficulty, the Bancorp may consider, in certain circumstances, modifying the terms of their loan to maximize collection of amounts due. Within each of the Bancorp’s loan classes, TDRs typically involve either a reduction of the stated interest rate of the loan, an extension of the loan’s maturity date with a stated rate lower than the current market rate for a new loan with similar risk or, in limited circumstances, a reduction of the principal balance of the loan or the loan’s accrued interest. Modifying the terms of a loan may result in an increase or decrease to the ALLL depending upon the terms modified, the method used to measure the ALLL for a loan prior to modification and whether any charge-offs were recorded on the loan before or at the time of modification. Refer to the ALLL section of Note 1 of the Notes to Consolidated Financial Statements included in the Bancorp’s Annual Report on Form10-K for the year ended December 31, 2018 for information on the Bancorp’s ALLL methodology. Upon modification of a loan, the Bancorp measures the related impairment as the difference between the estimated future cash flows expected to be collected on the modified loan, discounted at the original effective yield of the loan, and the carrying value of the loan. The resulting measurement may result in the need for minimal or no allowance because it is probable that all cash flows will be collected under the modified terms of the loan. In addition, if the stated interest rate was increased in a TDR, the cash flows on the modified loan, using thepre-modification interest rate as the discount rate, often exceed the recorded investment of the loan. Conversely, upon a modification that reduces the stated interest rate on a loan, the Bancorp recognizes an impairment loss as an increase to the ALLL. If a TDR involves a reduction of the principal balance of the loan or the loan’s accrued interest, that amount is charged off to the ALLL.

77

Fifth Third Bancorp and Subsidiaries

Notes to Condensed Consolidated Financial Statements (unaudited)

The Bancorp had commitments to lend additional funds to borrowers whose terms have been modified in a TDR, consisting of line of credit and letter of credit commitments of $29 million and $66 million, respectively, as of March 31, 2019 compared with $24 million and $67 million, respectively, as of December 31, 2018.

The following tables provide a summary of loans and leases, by class, modified in a TDR by the Bancorp during the three months ended:

March 31, 2019 ($ in millions)(a)	Number of Loans Modified in a TDR During the Period(b)		Recorded Investment in Loans Modified in a TDR During the Period		(Decrease) Increase to ALLL Upon Modification			Charge-offs Recognized Upon Modification
Commercial loans:
Commercial and industrial loans		13		$                    34		(5	)		-
Commercial mortgage owner-occupied loans		3		4		-			-
Residential mortgage loans		136		18		-			-
Consumer loans:
Home equity		21		1		-			-
Indirect secured consumer loans		29		-		-			-
Credit card		1,409		8		2			1
Total portfolio loans		1,611		$                    65		(3	)		1

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

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

March 31, 2018 ($ in millions)(a)	Number of Loans Modified in a TDR During the Period(b)		Recorded Investment in Loans Modified in a TDR During the Period		Increase to ALLL Upon Modification		Charge-offs Recognized Upon Modification
Commercial loans:
Commercial and industrial loans		12		$                      72		13		-
Commercial mortgage owner-occupied loans		2		-		-		-
Residential mortgage loans		247		33		1		-
Consumer loans:
Home equity		25		2		-		-
Indirect secured consumer loans		20		-		-		-
Credit card		1,965		10		2		-
Total portfolio loans		2,271		$                    117		16		-

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

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

The Bancorp considers TDRs that become 90 days or more past due under the modified terms as subsequently defaulted. For commercial loans not subject to individual review for impairment, loss rates that are applied for purposes of determining the ALLL include historical losses associated with subsequent defaults on loans previously modified in a TDR. For consumer loans, the Bancorp performs a qualitative assessment of the adequacy of the consumer ALLL by comparing the consumer ALLL to forecasted consumer losses over the projected loss emergence period (the forecasted losses include the impact of subsequent defaults of consumer TDRs). When a residential mortgage, home equity, indirect secured consumer loan or other consumer loan that has been modified in a TDR subsequently defaults, the present value of expected cash flows used in the measurement of the potential impairment loss is generally limited to the expected net proceeds from the sale of the loan’s underlying collateral and any resulting impairment loss is reflected as acharge-off or an increase in ALLL. The Bancorp recognizes an ALLL for the entire balance of the credit card loans modified in a TDR that subsequently default.

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

March 31, 2019 ($ in millions)(a)	Number of Contracts		Recorded Investment
Commercial loans:
Commercial and industrial loans		2	$	16
Residential mortgage loans		76		12
Consumer loans:
Home equity		4		-
Credit card		283		2
Total portfolio loans		365	$	30

(a) Excludes all loans and leases held for sale and loans acquired with deteriorated credit quality.

78

Fifth Third Bancorp and Subsidiaries

Notes to Condensed Consolidated Financial Statements (unaudited)

March 31, 2018 ($ in millions)(a)	Number of Contracts		Recorded Investment
Commercial loans:
Commercial and industrial loans		1	$	1
Commercial mortgage owner-occupied loans		2		-
Residential mortgage loans		48		7
Consumer loans:
Home equity		2		-
Credit card		242		1
Total portfolio loans		295	$	9

(a) Excludes all loans and leases held for sale and loans acquired with deteriorated credit quality.

79

Fifth Third Bancorp and Subsidiaries

Notes to Condensed Consolidated Financial Statements (unaudited)

8. Bank Premises and Equipment

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

($ in millions)	March 31, 2019		December 31, 2018
Land and improvements(a)	$	660		586
Buildings(a)		1,590		1,547
Equipment		2,053		1,987
Leasehold improvements		422		403
Construction in progress(a)		98		81
Bank premises and equipment held for sale:
Land and improvements		47		25
Buildings		27		14
Equipment		4		3
Accumulated depreciation and amortization		(2,809)		(2,785	)
Total bank premises and equipment	$	2,092		1,861

(a) AtMarch 31, 2019 and December 31, 2018, land and improvements, buildings and construction in progress included$57 and $55, respectively, associated with parcels of undeveloped land intended for future branch expansion.

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

During the second quarter of 2018, the Bancorp adopted a plan to close approximately 100 to 125 branches over the next three years (the “2018 Branch Optimization Plan”). As of March 31, 2019, the Bancorp has closed 31 branches under the 2018 Branch Optimization Plan. During the first quarter of 2019 the Bancorp identified an additional 21 branches that will be closed in the second half of 2019. As part of the adoption of the 2018 Branch Optimization Plan, the Bancorp has also elected to sell 21 parcels of land which had previously been held for future branch expansion.

As a result of the MB Financial, Inc. acquisition as of March 31, 2019, the Bancorp has identified 46 branches in the Chicago market that are expected to be closed in the second half of 2019. These 46 branches, which are not part of the 2018 Branch Optimization Plan, are in addition to the branch in the Chicago market that the Bancorp closed in November 2018. These 46 branches include 9 branches with a fair value, less cost to sell, of $10 million that were acquired from MB Financial, Inc. and classified as held for sale by the Bancorp at March 31, 2019. In addition to the identified branches, the Bancorp has identified 10 othernon-branch locations with a fair value, less cost to sell, of $11 million that were acquired from MB Financial, Inc. and classified as held for sale by the Bancorp at March 31, 2019.

The Bancorp performs assessments of the recoverability of long-lived assets when events or changes in circumstances indicate that their carrying values may not be recoverable. Impairment losses associated with such assessments and lower of cost or market adjustments were $20 million and $8 million for the three months ended March 31, 2019 and 2018, respectively. The first quarter of 2019 impairment charge included $14 million associated with Fifth Third branches in the Chicago market that have been assessed for impairment as a result of the MB Financial, Inc. acquisition and $3 million associated with the additional 21 branches identified for closure during the first quarter of 2019 under the 2018 Branch Optimization Plan. The recognized impairment losses were recorded in other noninterest income in the Condensed Consolidated Statements of Income.

80

Fifth Third Bancorp and Subsidiaries

Notes to Condensed Consolidated Financial Statements (unaudited)

9. Operating Lease Equipment

Operating lease equipment was $908 million and $518 million at March 31, 2019 and December 31, 2018, respectively. Lease income relating to lease payments for operating leases was $21 million and $23 million for the three months ended March 31, 2019 and 2018, respectively.

The Bancorp performs assessments of the recoverability of long-lived assets when events or changes in circumstances indicate that their carrying values may not be recoverable. As a result of these recoverability assessments, the Bancorp did not recognize impairment losses associated with operating lease assets for the three months ended March 31, 2019 and recognized $2 million of impairment losses for the three months ended March 31, 2018. The recognized impairment losses were recorded in corporate banking revenue in the Condensed Consolidated Statements of Income.

The following table presents undiscounted future lease payments for operating leases for the remainder of 2019 through 2024 and thereafter:

As of March 31, 2019 ($ in millions)	Undiscounted Cash Flows
Remainder of 2019	$	139
2020		140
2021		109
2022		81
2023		60
2024		37
Thereafter		68
Total operating lease payments	$	634

81

Fifth Third Bancorp and Subsidiaries

Notes to Condensed Consolidated Financial Statements (unaudited)

10. Lease Obligations - Lessee

The Bancorp leases certain banking centers, ATM sites, land for owned buildings and equipment. Substantially all of the Bancorp’s leases include options to renew and the exercise of lease renewal options is at the Bancorp’s discretion. At the lease commencement date, the Bancorp assesses whether it is reasonably certain to exercise the renewal option by considering all economic factors relevant to the contract. If the Bancorp is reasonably certain to exercise the option, the renewal period is included in the lease term in measuring theright-of-use asset and lease liability at the commencement of the lease.

The Bancorp’s lease agreements typically do not contain any residual value guarantees or any material restrictive covenants. The Bancorp has elected not to recognize leases with an initial term of 12 months or less (“short-term leases”) on the Condensed Consolidated Balance Sheets.

The Bancorp recognizes lease costs associated with operating leases in the Condensed Consolidated Statements of Income on a straight-line basis over the remaining lease term unless there is another systematic and rational basis that better reflects how the benefits of the underlying asset are consumed over the lease term. Variable lease payments associated with operating leases are recognized in the period in which the obligation for those payments is incurred.

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

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

($ in millions)	Condensed Consolidated Balance Sheets Caption	March 31, 2019
Assets
Operating leaseright-of-use assets	Other assets	$	475
Finance leaseright-of-use assets	Bank premises and equipment		17
Totalright-of-use assets(a)		$	492
Liabilities
Operating lease liabilities	Accrued taxes, interest and expenses	$	545
Finance lease liabilities	Long-term debt		17
Total lease liabilities		$	562

(a) Finance and operating leaseright-of-use assets are recorded net of accumulated amortization of $18 and $22 as of March 31, 2019, respectively.

The following table presents the components of lease costs for the three months ended:

($ in millions)	Condensed Consolidated Statements of Income Caption	March 31, 2019
Lease costs
Amortization ofright-of-use assets	Net occupancy and equipment expense	$	1
Interest on lease liabilities	Interest on long-term debt		-
Total finance lease costs		$	1
Operating lease cost	Net occupancy expense	$	22
Short-term lease cost	Net occupancy expense		-
Variable lease cost	Net occupancy expense		8
Sublease income	Net occupancy expense		(1	)
Total operating lease costs		$	29
Total lease costs		$	30

The following table presents undiscounted cash flows for both operating leases and finance leases for the remainder of 2019 through 2024 and thereafter as well as a reconciliation of the undiscounted cash flows to the total lease liabilities as follows:

As of March 31, 2019 ($ in millions)	Operating Leases			Finance Leases			Total
Remainder of 2019	$	75			4			79
2020		88			5			93
2021		75			4			79
2022		67			4			71
2023		59			-			59
2024		51			-			51
Thereafter		225			2			227
Total undiscounted cash flows	$	640			19			659
Less: Difference between undiscounted cash flows and discounted cash flows		(95	)		(2	)		(97	)
Present value of lease liabilities	$	545			17			562

82

Fifth Third Bancorp and Subsidiaries

Notes to Condensed Consolidated Financial Statements (unaudited)

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

	March 31, 2019
Weighted-average remaining lease term (years)
Operating leases		9.09
Finance leases		4.59
Weighted-average discount rate
Operating leases		3.28	%
Finance leases		5.83

The following table presents information related to lease transactions for the three months ended:

($ in millions)	March 31, 2019
Cash paid for amounts included in the measurement of lease liabilities(a)
Operating cash flows from operating leases	$	21
Operating cash flows from finance leases		-
Financing cash flows from finance leases		1
(Gains) and losses on sale and leaseback transactions, net		-

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

83

Fifth Third Bancorp and Subsidiaries

Notes to Condensed Consolidated Financial Statements (unaudited)

11. Goodwill

Business combinations entered into by the Bancorp typically result in the recognition of goodwill. Acquisition activity includes acquisitions in the respective period in addition to purchase accounting adjustments related to previous acquisitions. On March 22, 2019 the Bancorp completed its acquisition of MB Financial, Inc. In connection with the acquisition, the Bancorp recorded $1.8 billion of goodwill. Due to the timing of the acquisition, the Bancorp is in the process of completing its analysis of the allocation of the goodwill across its four business segments, therefore goodwill is presented as part of General Corporate and Other as of March 31, 2019.

Changes in the net carrying amount of goodwill, by reporting unit, for the three months ended March 31, 2019 and the year ended December 31, 2018 were as follows:

($ in millions)	Commercial Banking			Branch Banking		Consumer Lending			Wealth and Asset Management		General Corporate and Other		Total
Goodwill	$	1,363			1,655		215			177		-		3,410
Accumulated impairment losses		(750	)		-		(215	)		-		-		(965	)
Net carrying value as of December 31, 2017	$	613			1,655		-			177		-		2,445
Acquisition activity		17			-		-			16		-		33
Net carrying value as of December 31, 2018	$	630			1,655		-			193		-		2,478
Acquisition activity		-			-		-			-		1,843		1,843
Net carrying value as of March 31, 2019	$	630			1,655		-			193		1,843		4,321

12. Intangible Assets

Intangible assets consist of core deposit intangibles, customer relationships,non-compete agreements, trade names and books of business. Intangible assets are amortized on either a straight-line or an accelerated basis over their estimated useful lives.

On March 22, 2019, the Bancorp completed its acquisition of MB Financial, Inc. In connection with the acquisition, the Bancorp recorded a $183 million core deposit intangible asset with a weighted-average amortization period of 6.8 years. The fair value of the core deposit intangible is preliminary and subject to change as additional information becomes available. Due to the timing of the acquisition, the Bancorp is in the process of identifying and valuing other intangible assets acquired in the MB Financial, Inc. transaction.

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

($ in millions)	Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount
As of March 31, 2019
Core deposit intangibles	$	216		(31	)		185
Customer relationships		31		(3	)		28
Non-compete agreements		13		(11	)		2
Other		5		(2	)		3
Total intangible assets	$	265		(47	)		218
As of December 31, 2018
Core deposit intangibles	$	34		(30	)		4
Customer relationships		32		(3	)		29
Non-compete agreements		14		(11	)		3
Other		7		(3	)		4
Total intangible assets	$	87		(47	)		40

As of March 31, 2019, all of the Bancorp’s intangible assets were being amortized. Amortization expense recognized on intangible assets was $3 million and $1 million for the three months ended March 31, 2019 and 2018, respectively. The Bancorp’s projections of amortization expense shown in the following table is based on existing balances as of March 31, 2019. Future amortization expense may vary from these projections.

Estimated amortization expense for the remainder of 2019 through 2023 is as follows:

($ in millions)	Total
Remainder of 2019	$	42
2020		47
2021		39
2022		30
2023		22

84

Fifth Third Bancorp and Subsidiaries

Notes to Condensed Consolidated Financial Statements (unaudited)

13. Variable Interest Entities

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

Consolidated VIEs

The following tables provide a summary of the classifications of consolidated VIE assets, liabilities and noncontrolling interests included in the Condensed Consolidated Balance Sheets for automobile loan securitizations as of:

($ in millions)	March 31, 2019			December 31, 2018
Assets:
Other short-term investments	$	39			40
Indirect secured consumer loans		573			668
ALLL		(3	)		(4	)
Other assets		3			5
Total assets	$	612			709
Liabilities:
Other liabilities	$	1			1
Long-term debt		510			606
Total liabilities	$	511			607

Automobile loan securitizations

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

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

For further information on a subsequent event related to automobile loan securitizations, refer to Note 27.

Non-consolidated VIEs

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

March 31, 2019 ($ in millions)	Total Assets		Total Liabilities		Maximum Exposure
CDC investments	$	1,202		386		1,202
Private equity investments		86		-		165
Loans provided to VIEs		2,335		-		3,672
Lease pool entities		67		-		67
December 31, 2018 ($ in millions)		Total Assets		Total Liabilities		Maximum Exposure
CDC investments	$	1,198		376		1,198
Private equity investments		41		-		73
Loans provided to VIEs		2,331		-		3,617

85

Fifth Third Bancorp and Subsidiaries

Notes to Condensed Consolidated Financial Statements (unaudited)

CDC investments

CDC, a wholly-owned indirect subsidiary of the Bancorp, was created to invest in projects to create affordable housing, revitalize business and residential areas and preserve historic landmarks. CDC generallyco-invests with other unrelated companies and/or individuals and typically makes investments in a separate legal entity that owns the property under development. The entities are usually formed as limited partnerships and LLCs and CDC typically invests as a limited partner/investor member in the form of equity contributions. As a limited partner/investor member, the Bancorp has no substantive kick-out or substantive participating rights over the managing member. The economic performance of the VIEs is driven by the performance of their underlying investment projects as well as the VIEs’ ability to operate in compliance with the rules and regulations necessary for the qualification of tax credits generated by equity investments. The Bancorp has determined that it is not the primary beneficiary of these VIEs because it lacks the power to direct the activities that most significantly impact the economic performance of the underlying project or the VIEs’ ability to operate in compliance with the rules and regulations necessary for the qualification of tax credits generated by equity investments. This power is held by the managing members who exercise full and exclusive control of the operations of the VIEs. For information regarding the Bancorp’s accounting for these investments, refer to Note 1 of the Notes to Consolidated Financial Statements included in the Bancorp’s Annual Report on Form10-K for the year ended December 31, 2018.

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

At both March 31, 2019 and December 31, 2018, the Bancorp’s CDC investments included $1.1 billion of investments in affordable housing tax credits recognized in other assets in the Condensed Consolidated Balance Sheets. The unfunded commitments related to these investments were $384 million and $374 million at March 31, 2019 and December 31, 2018, respectively. The unfunded commitments as of March 31, 2019 are expected to be funded from 2019 to 2034.

The Bancorp has accounted for all of its qualifying LIHTC investments using the proportional amortization method of accounting. The following table summarizes the impact to the Condensed Consolidated Statements of Income relating to investments in qualified affordable housing investments:

	Condensed Consolidated	For the three months ended March 31,
($ in millions)	Statements of Income Caption(a)	2019			2018
Proportional amortization	Applicable income tax expense	$	37			41
Tax credits and other benefits	Applicable income tax expense		(44	)		(52	)

(a) The Bancorp did not recognize impairment losses resulting from the forfeiture or ineligibility of tax credits or other circumstances during both the three months endedMarch 31, 2019 and 2018.

Private equity investments

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

The Bancorp is exposed to losses arising from the negative performance of the underlying investments in the private equity investments. As a limited partner, the Bancorp’s maximum exposure to loss is limited to the carrying amounts of the investments plus unfunded commitments. The carrying amounts of these investments, which are included in other assets in the Condensed Consolidated Balance Sheets, are included in the previous tables. Also, at March 31, 2019 and December 31, 2018, the unfunded commitment amounts to the funds were $79 million and $32 million, respectively. As part of previous commitments, the Bancorp made capital contributions to private equity investments of $1 million and $3 million during the three months ended March 31, 2019 and 2018, respectively. The Bancorp recognized zero and $4 million of OTTI associated with certain nonconforming investments affected by the Volcker Rule during the three months ended March 31, 2019 and 2018, respectively. Refer to Note 25 for further information.

Loans provided to VIEs

The Bancorp has provided funding to certain unconsolidated VIEs sponsored by third parties. These VIEs are generally established to finance certain consumer and small business loans originated by third parties. The entities are primarily funded through the issuance of a loan from the Bancorp or a syndication through which the Bancorp is involved.

86

Fifth Third Bancorp and Subsidiaries

Notes to Condensed Consolidated Financial Statements (unaudited)

The sponsor/administrator of the entities is responsible for servicing the underlying assets in the VIEs. Because the sponsor/administrator, not the Bancorp, holds the servicing responsibilities, which include the establishment and employment of default mitigation policies and procedures, the Bancorp does not hold the power to direct the activities that most significantly impact the economic performance of the entity and, therefore, is not the primary beneficiary.

The principal risk to which these entities are exposed is credit risk related to the underlying assets. The Bancorp’s maximum exposure to loss is equal to the carrying amounts of the loans and unfunded commitments to the VIEs. The Bancorp’s outstanding loans to these VIEs are included in commercial loans in Note 6. As of both March 31, 2019 and December 31, 2018, the Bancorp’s unfunded commitments to these entities were $1.3 billion. The loans and unfunded commitments to these VIEs are included in the Bancorp’s overall analysis of the ALLL and reserve for unfunded commitments, respectively. The Bancorp does not provide any implicit or explicit liquidity guarantees or principal value guarantees to these VIEs.

Lease pool entities

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

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

87

Fifth Third Bancorp and Subsidiaries

Notes to Condensed Consolidated Financial Statements (unaudited)

14. Sales of Receivables and Servicing Rights

Residential Mortgage Loan Sales

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

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

		For the three months ended
		March 31,
($ in millions)		2019	2018
Residential mortgage loan sales(a)	$	1,162	1,000
Origination fees and gains on loan sales		25	24
Gross mortgage servicing fees		55	53

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

Servicing Rights

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

The following table presents changes in the servicing rights related to residential mortgage loans for the three months ended March 31:

($ in millions)		2019	2018
Balance, beginning of period	$	938	858
Servicing rights originated - residential mortgage loans		24	16
Servicing rights acquired - residential mortgage loans		-	24
Servicing rights obtained in acquisition - residential mortgage loans		263	-
Changes in fair value:
Due to changes in inputs or assumptions(a)		(57)	57
Other changes in fair value(b)		(27)	(29)
Balance, end of period	$	1,141	926

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

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

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

The following table presents activity related to valuations of the MSR portfolio and the impact of thenon-qualifying hedging strategy:

		For the three months ended
		March 31,
($ in millions)			2019		2018
Securities gains (losses), net -non-qualifying hedges on MSRs	$		3		(13)
Changes in fair value and settlement of free-standing derivatives purchased to economically hedge the MSR portfolio(a)			60		(49)
MSR fair value adjustment(a)			(84	)	28

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

The key economic assumptions used in measuring the interests in residential mortgage loans that continued to be held by the Bancorp at the date of sale, securitization or purchase resulting from transactions completed during the three months ended March 31, 2019 and 2018 were as follows:

		March 31, 2019			March 31, 2018
	Rate	Weighted-Average Life (in years)	Prepayment Speed (annual)	OAS Spread (bps)	Weighted-Average Life (in years)	Prepayment Speed (annual)	OAS Spread (bps)
Residential mortgage loans:
Servicing rights	Fixed	5.5	13.5  %	490	7.0	9.1  %	549
Servicing rights	Adjustable	-	-	-	2.6	30.0	637

88

Fifth Third Bancorp and Subsidiaries

Notes to Condensed Consolidated Financial Statements (unaudited)

Based on historical credit experience, expected credit losses for residential mortgage loan servicing rights have been deemed immaterial, as the Bancorp sold the majority of the underlying loans without recourse. At March 31, 2019 and December 31, 2018, the Bancorp serviced $83.9 billion and $63.2 billion, respectively, of residential mortgage loans for other investors. The value of MSRs that continue to be held by the Bancorp is subject to credit, prepayment and interest rate risks on the sold financial assets.

At March 31, 2019, the sensitivity of the current fair value of residual cash flows to immediate 10%, 20% and 50% adverse changes in prepayment speed assumptions and immediate 10% and 20% adverse changes in OAS spread are as follows:

						Prepayment												OAS
						Speed Assumption												Spread Assumption
																		OAS Spread			Impact of
				Weighted-						Impact of Adverse Change											Adverse Change
		Fair		Average Life						on Fair Value											on Fair Value
($ in millions)(a)	Rate	Value		(in years)		Rate				10%		20%			50%			(bps)			10%			20%
Residential mortgage loans:
Servicing rights	Fixed	$	1,128		5.9		11.2	%	$		(42)		(81	)		(184	)		538	$		(22	)		(43	)
Servicing rights	Adjustable		13		3.5		23.1				(1)		(2	)		(4	)		884			-			(1	)

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

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

89

Fifth Third Bancorp and Subsidiaries

Notes to Condensed Consolidated Financial Statements (unaudited)

15. Derivative Financial Instruments

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

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

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

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

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

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

The Bancorp’s derivative assets include certain contractual features in which the Bancorp requires the counterparties to provide collateral in the form of cash and securities to offset changes in the fair value of the derivatives, including changes in the fair value due to credit risk of the counterparty. As of March 31, 2019 and December 31, 2018, the balance of collateral held by the Bancorp for derivative assets was $524 million and $481 million, respectively. For derivative contracts cleared through certain central clearing parties who have modified their rules to treat variation margin payments as settlement of the derivative contract, the payments for variation margin of $345 million and $249 million were applied to reduce the respective derivative contracts and were also not included in the total amount of collateral held as of March 31, 2019 and December 31, 2018, respectively. As of March 31, 2019 and December 31, 2018, the credit component negatively impacting the fair value of derivative assets associated with customer accommodation contracts was $10 million and $3 million, respectively.

In measuring the fair value of derivative liabilities, the Bancorp considers its own credit risk, taking into consideration collateral maintenance requirements of certain derivative counterparties and the duration of instruments with counterparties that do not require collateral maintenance. When necessary, the Bancorp posts collateral primarily in the form of cash and securities to offset changes in fair value of the derivatives, including changes in fair value due to the Bancorp’s credit risk. As of March 31, 2019 and December 31, 2018, the balance of collateral posted by the Bancorp for derivative liabilities was $779 million and $551 million, respectively. Additionally, as of March 31, 2019 and December 31, 2018, $33 million and $23 million, respectively, of variation margin payments were applied to the respective derivative contracts to reduce the Bancorp’s derivative liabilities and were also not included in the total amount of collateral posted. Certain of the Bancorp’s derivative liabilities contain credit risk related contingent features that could result in the requirement to post additional collateral upon the occurrence of specified events. As of March 31, 2019 and December 31, 2018, the fair value of the additional collateral that could be required to be posted as a result of the credit-risk related contingent features being triggered was immaterial to the Bancorp’s Condensed Consolidated Financial Statements.The posting of collateral has been determined to remove the need for further consideration of credit-risk. As a result, the Bancorp determined that the impact of the Bancorp’s credit risk to the valuation of its derivative liabilities was immaterial to the Bancorp’s Condensed Consolidated Financial Statements.

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

90

Fifth Third Bancorp and Subsidiaries

Notes to Condensed Consolidated Financial Statements (unaudited)

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

				Fair Value
	Notional			Derivative		Derivative
March 31, 2019 ($ in millions)	Amount			Assets		Liabilities
Derivatives Designated as Qualifying Hedging Instruments:
Fair value hedges:
Interest rate swaps related to long-term debt	$	3,455			308		3
Total fair value hedges					308		3
Cash flow hedges:
Interest rate floors related to C&I loans		3,000			71		-
Interest rate swaps related to C&I loans		8,000			20		48
Total cash flow hedges					91		48
Total derivatives designated as qualifying hedging instruments					399		51
Derivatives Not Designated as Qualifying Hedging Instruments:
Free-standing derivatives - risk management and other business purposes:
Interest rate contracts related to MSR portfolio		11,755			81		15
Forward contracts related to residential mortgage loans held for sale		1,009			-		8
Swap associated with the sale of Visa, Inc. Class B Shares		2,573			-		143
Foreign exchange contracts		167			1		-
Forward contracts related to FHLB advances		4			-		-
Total free-standing derivatives - risk management and other business purposes					82		166
Free-standing derivatives - customer accommodation:
Interest rate contracts		63,445			357		367
Interest rate lock commitments		555			11		-
Commodity contracts		6,862			190		170
TBA securities		24			-		-
Foreign exchange contracts		14,069			138		126
Total free-standing derivatives - customer accommodation					696		663
Total derivatives not designated as qualifying hedging instruments					778		829
Total			$		1,177		880
				Fair Value
	Notional			Derivative		Derivative
December 31, 2018 ($ in millions)	Amount			Assets		Liabilities
Derivatives Designated as Qualifying Hedging Instruments:
Fair value hedges:
Interest rate swaps related to long-term debt	$	3,455			262		2
Total fair value hedges					262		2
Cash flow hedges:
Interest rate floors related to C&I loans		3,000			69		-
Interest rate swaps related to C&I loans		8,000			15		27
Total cash flow hedges					84		27
Total derivatives designated as qualifying hedging instruments					346		29
Derivatives Not Designated as Qualifying Hedging Instruments:
Free-standing derivatives - risk management and other business purposes:
Interest rate contracts related to MSR portfolio		10,045			40		14
Forward contracts related to residential mortgage loans held for sale		926			-		8
Swap associated with the sale of Visa, Inc. Class B Shares		2,174			-		125
Foreign exchange contracts		133			4		-
Total free-standing derivatives - risk management and other business purposes					44		147
Free-standing derivatives - customer accommodation:
Interest rate contracts		55,012			262		278
Interest rate lock commitments		407			7		-
Commodity contracts		6,511			307		278
TBA securities		18			-		-
Foreign exchange contracts		13,205			148		142
Total free-standing derivatives - customer accommodation					724		698
Total derivatives not designated as qualifying hedging instruments					768		845
Total			$		1,114		874

91

Fifth Third Bancorp and Subsidiaries

Notes to Condensed Consolidated Financial Statements (unaudited)

Fair Value Hedges

The Bancorp may enter into interest rate swaps to convert its fixed-rate funding to floating-rate. Decisions to convert fixed-rate funding to floating are made primarily through consideration of the asset/liability mix of the Bancorp, the desired asset/liability sensitivity and interest rate levels. As of March 31, 2019, certain interest rate swaps met the criteria required to qualify for the shortcut method of accounting that permits the assumption of perfect offset. For all designated fair value hedges of interest rate risk as of March 31, 2019, that were not accounted for under the shortcut method of accounting, the Bancorp performed an assessment of hedge effectiveness using regression analysis with changes in the fair value of the derivative instrument and changes in the fair value of the hedged asset or liability attributable to the hedged risk recorded in the same income statement line in current period net income.

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

	Condensed Consolidated		For the three months
	Statements of		ended March 31,
($ in millions)	Income Caption		2019			2018
Change in fair value of interest rate swaps hedging long-term debt	Interest on long-term debt	$		54			(63)
Change in fair value of hedged long-term debt attributable to the risk being hedged	Interest on long-term debt			(53	)		64

The following amounts were recorded in the Condensed Consolidated Balance Sheets related to cumulative basis adjustments for fair value hedges as of:
	Condensed Consolidated
($ in millions)	Balance Sheets Caption		March 31, 2019
Carrying amount of the hedged items	Long-term debt	$	4,044
Cumulative amount of fair value hedging adjustments included in the carrying amount of the hedged items	Long-term debt		(307)

Cash Flow Hedges

The Bancorp may enter into interest rate swaps to convert floating-rate assets and liabilities to fixed rates or to hedge certain forecasted transactions for the variability in cash flows attributable to the contractually specified interest rate. The assets or liabilities may be grouped in circumstances where they share the same risk exposure that the Bancorp desires to hedge. The Bancorp may also enter into interest rate caps and floors to limit cash flow variability of floating-rate assets and liabilities. As of March 31, 2019, all hedges designated as cash flow hedges were assessed for effectiveness using either regression analysis (quantitative approach) or a qualitative approach. The entire change in the fair value of the interest rate swap included in the assessment of hedge effectiveness is recorded in AOCI and reclassified from AOCI to current period earnings when the hedged item affects earnings. As of March 31, 2019, the maximum length of time over which the Bancorp is hedging its exposure to the variability in future cash flows is 69 months.

Reclassified gains and losses on interest rate contracts related to commercial and industrial loans are recorded within interest income in the Condensed Consolidated Statements of Income. As of March 31, 2019 and December 31, 2018, $249 million and $160 million, respectively, of net deferred gains, net of tax, on cash flow hedges were recorded in AOCI in the Condensed Consolidated Balance Sheets. As of March 31, 2019, $12 million in net unrealized losses, net of tax, recorded in AOCI are expected to be reclassified into earnings during the next 12 months. This amount could differ from amounts actually recognized due to changes in interest rates, hedgede-designations, and the addition of other hedges subsequent to March 31, 2019.

During the three months ended March 31, 2019 and 2018, there were no gains or losses reclassified from AOCI into earnings associated with the discontinuance of cash flow hedges because it was probable that the original forecasted transaction would no longer occur by the end of the originally specified time period or within the additional period of time as defined by U.S. GAAP.

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

		For the three months ended
		March 31,
($ in millions)		2019			2018
Amount ofpre-tax net gains (losses) recognized in OCI	$		110			(9)
Amount ofpre-tax net (losses) gains reclassified from OCI into net income			(2	)		1

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

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

92

Fifth Third Bancorp and Subsidiaries

Notes to Condensed Consolidated Financial Statements (unaudited)

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

In conjunction with the sale of Visa, Inc. Class B Shares in 2009, the Bancorp entered into a total return swap in which the Bancorp will make or receive payments based on subsequent changes in the conversion rate of the Class B Shares into Class A Shares. This total return swap is accounted for as a free-standing derivative. Refer to Note 25 for further discussion of significant inputs and assumptions used in the valuation of this instrument.

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

	Condensed Consolidated		For the three months
	Statements of		ended March 31,
($ in millions)	Income Caption		2019			2018
Interest rate contracts:
Forward contracts related to residential mortgage loans held for sale	Mortgage banking net revenue	$		-			-
Interest rate contracts related to MSR portfolio	Mortgage banking net revenue			60			(49)
Foreign exchange contracts:
Foreign exchange contracts for risk management purposes	Other noninterest income			(2	)		2
Equity contracts:
Swap associated with sale of Visa, Inc. Class B Shares	Other noninterest income			(31	)		(39)

Free-Standing Derivative Instruments – Customer Accommodation

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

The Bancorp enters into risk participation agreements, under which the Bancorp assumes credit exposure relating to certain underlying interest rate derivative contracts. The Bancorp only enters into these risk participation agreements in instances in which the Bancorp has participated in the loan that the underlying interest rate derivative contract was designed to hedge. The Bancorp will make payments under these agreements if a customer defaults on its obligation to perform under the terms of the underlying interest rate derivative contract. As of March 31, 2019 and December 31, 2018, the total notional amount of the risk participation agreements was $4.8 billion and $4.0 billion, respectively, and the fair value was a liability of $9 million and $8 million at March 31, 2019 and December 31, 2018, respectively, which is included in other liabilities in the Condensed Consolidated Balance Sheets. As of March 31, 2019, the risk participation agreements had a weighted-average remaining life of 3.4 years.

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

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

	March 31,		December 31,
($ in millions)	2019		2018
Pass	$	4,700		3,919
Special mention		105		79
Substandard		4		4
Total	$	4,809		4,002

93

Fifth Third Bancorp and Subsidiaries

Notes to Condensed Consolidated Financial Statements (unaudited)

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

			For the three months
	Condensed Consolidated		ended March 31,
($ in millions)	Statements of Income Caption		2019		2018
Interest rate contracts:
Interest rate contracts for customers (contract revenue)	Corporate banking revenue	$		6		7
Interest rate contracts for customers (credit portion of fair value adjustment)	Other noninterest expense			(7)		-
Interest rate lock commitments	Mortgage banking net revenue			24		13
Commodity contracts:
Commodity contracts for customers (contract revenue)	Corporate banking revenue			1		2
Commodity contracts for customers (credit portion of fair value adjustment)	Other noninterest expense			-		-
Foreign exchange contracts:
Foreign exchange contracts for customers (contract revenue)	Corporate banking revenue			12		14
Foreign exchange contracts for customers (contract revenue)	Other noninterest income			4		(2)
Foreign exchange contracts for customers (credit portion of fair value adjustment)	Other noninterest expense			-		1

Offsetting Derivative Financial Instruments

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

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

The following tables provide a summary of offsetting derivative financial instruments:
	Gross Amount		Gross Amounts Not Offset in the
	Recognized in the		Condensed Consolidated Balance Sheets
	Condensed Consolidated
As of March 31, 2019 ($ in millions)	Balance Sheets(a)		Derivatives			Collateral(b)			Net Amount
Assets:
Derivatives	$	1,166		(430	)		(352	)		384
Total assets		1,166		(430	)		(352	)		384
Liabilities:
Derivatives		880		(430	)		(246	)		204
Total liabilities	$	880		(430	)		(246	)		204

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

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

	Gross Amount		Gross Amounts Not Offset in the
	Recognized in the		Condensed Consolidated Balance Sheets
	Condensed Consolidated
As of December 31, 2018 ($ in millions)	Balance Sheets(a)		Derivatives			Collateral(b)			Net Amount
Assets:
Derivatives	$	1,107		(410	)		(348	)		349
Total assets		1,107		(410	)		(348	)		349
Liabilities:
Derivatives		874		(410	)		(123	)		341
Total liabilities	$	874		(410	)		(123	)		341

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

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

94

Fifth Third Bancorp and Subsidiaries

Notes to Condensed Consolidated Financial Statements (unaudited)

16. Other Short-Term Borrowings

Borrowings with original maturities of one year or less are classified as short-term. The following table presents a summary of the Bancorp’s other short-term borrowings as of:

	March 31,		December 31,
($ in millions)	2019		2018
Securities sold under repurchase agreements	$	671		302
FHLB advances		300		-
Derivative collateral		282		271
Other		76		-
Total other short-term borrowings	$	1,329		573

The Bancorp’s securities sold under repurchase agreements are accounted for as secured borrowings and are collateralized by securities included inavailable-for-sale debt and other securities in the Condensed Consolidated Balance Sheets. These securities are subject to changes in market value and, therefore, the Bancorp may increase or decrease the level of securities pledged as collateral based upon these movements in market value. As of both March 31, 2019 and December 31, 2018, all securities sold under repurchase agreements were secured by agency residential mortgage-backed securities and the repurchase agreements have an overnight remaining contractual maturity.

17. Long-Term Debt

On January 25, 2019, the Bancorp issued and sold $1.5 billion of 3.65% senior fixed-rate notes, with a maturity of five years, due on January 25, 2024. 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 up to, but excluding, the redemption date.

On February 1, 2019, Fifth Third Bank issued and sold, under its bank notes program, $300 million of senior floating-rate notes, with a maturity of three years, due on February 1, 2022. Interest on the floating-rate notes is3-month LIBOR plus 64 bps. These notes will be redeemable by Fifth Third Bank, in whole or in part, on or after the date that is 30 days prior to the maturity date at a redemption price equal to 100% of the principal amount of the notes to be redeemed plus accrued and unpaid interest up to, but excluding, the redemption date.

18. Capital Actions

Accelerated Share Repurchase Transaction

During the three months ended March 31, 2019, the Bancorp entered into an accelerated share repurchase transaction. As part of this transaction, the Bancorp entered into a forward contract in which the final number of shares delivered at settlement will be 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 agreement. The accelerated share repurchase was treated as two separate transactions, (i) the acquisition of treasury shares on the repurchase date and (ii) a forward contract indexed to the Bancorp’s common stock.

The following table presents a summary of the Bancorp’s accelerated share repurchase transaction which was entered into during the three months ended March 31, 2019:

Repurchase Date	Amount ($ in millions)		Shares Repurchased on Repurchase Date		Shares Received from Forward Contract Settlement		Total Shares Repurchased		Settlement Date
March 27, 2019	$	913		31,779,280		(a)		(a)	(a)

(a) This accelerated share repurchase transaction consists of two supplemental confirmations each with a notional amount of $456.5 million. The settlement of the transaction is expected to occur on or before June 28, 2019.

For further information on a subsequent event related to capital actions, refer to Note 27.

95

Fifth Third Bancorp and Subsidiaries

Notes to Condensed Consolidated Financial Statements (unaudited)

19. Commitments, Contingent Liabilities and Guarantees

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

Commitments

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

	March 31,		December 31,
($ in millions)	2019		2018
Commitments to extend credit	$	75,434		70,415
Letters of credit		2,196		2,041
Forward contracts related to residential mortgage loans held for sale		1,009		926
Purchase obligations		122		126
Capital commitments for private equity investments		79		32
Capital expenditures		46		45

Commitments to extend credit

Commitments to extend credit are agreements to lend, typically having fixed expiration dates or other termination clauses that may require payment of a fee. Since many of the commitments to extend credit may expire without being drawn upon, the total commitment amounts do not necessarily represent future cash flow requirements. The Bancorp is exposed to credit risk in the event of nonperformance by the counterparty for the amount of the contract. Fixed-rate commitments are also subject to market risk resulting from fluctuations in interest rates and the Bancorp’s exposure is limited to the replacement value of those commitments. As of March 31, 2019 and December 31, 2018, the Bancorp had a reserve for unfunded commitments, including letters of credit, totaling $133 million and $131 million, respectively, included in other liabilities in the Condensed Consolidated Balance Sheets. The Bancorp monitors the credit risk associated with commitments to extend credit using the same standard regulatory risk rating system utilized for its loan and lease portfolio.

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

	March 31,		December 31,
($ in millions)	2019		2018
Pass	$	74,705		69,928
Special mention		421		271
Substandard		308		216
Total commitments to extend credit	$	75,434		70,415

Letters of credit

Standby and commercial letters of credit are conditional commitments issued to guarantee the performance of a customer to a third party and expire as summarized in the following table as of March 31, 2019:

($ in millions)
Less than 1 year(a)	$	1,247
1 - 5 years(a)		947
Over 5 years		2
Total letters of credit	$	2,196

(a) Includes $20 and $5 issued on behalf of commercial customers to facilitate trade payments in U.S. dollars and foreign currencies which expire less than 1 year and between 1 - 5 years, respectively.

Standby letters of credit accounted for approximately 99% of total letters of credit at both March 31, 2019 and December 31, 2018, and are considered guarantees in accordance with U.S. GAAP. Approximately 62% and 60% of the total standby letters of credit were collateralized as of March 31, 2019 and December 31, 2018, respectively. In the event of nonperformance by the customers, the Bancorp has rights to the underlying collateral, which can include commercial real estate, physical plant and property, inventory, receivables, cash and marketable securities. The reserve related to these standby letters of credit, which was included in the total reserve for unfunded commitments, was $24 million and $17 million at March 31, 2019 and December 31, 2018, respectively. The Bancorp monitors the credit risk associated with letters of credit using the same standard regulatory risk rating system utilized for its loan and lease portfolio.

96

Fifth Third Bancorp and Subsidiaries

Notes to Condensed Consolidated Financial Statements (unaudited)

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

	March 31,		December 31,
($ in millions)	2019		2018
Pass	$	2,045		1,905
Special mention		30		10
Substandard		121		126
Total letters of credit	$	2,196		2,041

At March 31, 2019 and December 31, 2018, the Bancorp had outstanding letters of credit that were supporting certain securities issued as VRDNs. The Bancorp facilitates financing for its commercial customers, which consist of companies and municipalities, by marketing the VRDNs to investors. The VRDNs pay interest to holders at a rate of interest that fluctuates based upon market demand. The VRDNs generally have long-term maturity dates, but can be tendered by the holder for purchase at par value upon proper advance notice. When the VRDNs are tendered, a remarketing agent generally finds another investor to purchase the VRDNs to keep the securities outstanding in the market. As of March 31, 2019 and December 31, 2018, total VRDNs in which the Bancorp was the remarketing agent or were supported by a Bancorp letter of credit were $447 million and $487 million, respectively, of which FTS acted as the remarketing agent to issuers on $441 million and $481 million, respectively. As remarketing agent, FTS is responsible for actively remarketing VRDNs to other investors when they have been tendered. If another investor is not identified, FTS may choose to purchase the VRDNs into inventory at its discretion while it continues to remarket them. If FTS purchases the VRDNs into inventory, it can subsequently tender back the VRDNs to the issuer’s trustee with proper advance notice. The Bancorp issued letters of credit, as a credit enhancement, to $248 million and $256 million of the VRDNs remarketed by FTS, in addition to $6 million in VRDNs remarketed by third parties at both March 31, 2019 and December 31, 2018. These letters of credit are included in the total letters of credit balance provided in the previous table. The Bancorp held $1 million and $9 million of these VRDNs in its portfolio and classified them as trading securities at March 31, 2019 and December 31, 2018, respectively.

Forward contracts related to residential mortgage loans held for sale

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

Other commitments

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

Contingent Liabilities

Legal claims

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

Guarantees

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

Residential mortgage loans sold with representation and warranty provisions

Conforming residential mortgage loans sold to unrelated third parties are generally sold with representation and warranty provisions. A contractual liability arises only in the event of a breach of these representations and warranties and, in general, only when a loss results from the breach. The Bancorp may be required to repurchase any previously sold loan, indemnify or make whole the investor or insurer for which the representation or warranty of the Bancorp proves to be inaccurate, incomplete or misleading. For more information on how the Bancorp establishes the residential mortgage repurchase reserve, refer to Note 1 of the Notes to Consolidated Financial Statements included in the Bancorp’s Annual Report on Form10-K for the year ended December 31, 2018.

As of March 31, 2019 and December 31, 2018, the Bancorp maintained reserves related to loans sold with representation and warranty provisions totaling $8 million and $6 million, respectively, included in other liabilities in the Condensed Consolidated Balance Sheets.

The Bancorp uses the best information available when estimating its mortgage representation and warranty reserve; however, the estimation process is inherently uncertain and imprecise and, accordingly, losses in excess of the amounts reserved as of March 31, 2019 are reasonably possible. The Bancorp currently estimates that it is reasonably possible that it could incur losses related to mortgage representation and warranty provisions in an amount up to approximately $11 million in excess of amounts reserved. This estimate was derived by modifying the key assumptions to reflect management’s judgment regarding reasonably possible adverse changes to those assumptions. The actual repurchase losses could vary significantly from the recorded mortgage representation and warranty reserve or this estimate of reasonably possible losses, depending on the outcome of various factors, including those previously discussed.

For both the three months ended March 31, 2019 and 2018, the Bancorp paid an immaterial amount in the form of make whole payments and repurchased $9 million and $2 million, respectively, in outstanding principal of loans to satisfy investor demands. Total repurchase demand requests during the three months ended March 31, 2019 and 2018 were $18 million and $5 million, respectively. Total outstanding repurchase demand inventory was $6 million and $1 million at March 31, 2019 and December 31, 2018, respectively.

97

Fifth Third Bancorp and Subsidiaries

Notes to Condensed Consolidated Financial Statements (unaudited)

The following table summarizes activity in the reserve for representation and warranty provisions:

	For the three months ended March 31,
($ in millions)	2019		2018
Balance, beginning of period	$	6		9
Net additions (reductions) to the reserve		2		(1)
Balance, end of period	$	8		8

The following tables provide a rollforward of unresolved claims by claimant type for the three months ended:

	GSE						Private Label
March 31, 2019 ($ in millions)	Units			Dollars			Units			Dollars
Balance, beginning of period		9		$	1			1		$            -
New demands		95			18			-		-
Resolved demands		(71	)		(13	)		(1	)	-
Balance, end of period		33		$	6			-		$            -
	GSE						Private Label
March 31, 2018 ($ in millions)	Units			Dollars			Units			Dollars
Balance, beginning of period		6		$	1			1		$            -
New demands		30			5			-		-
Resolved demands		(22	)		(4	)		-		-
Balance, end of period		14		$	2			1		$            -

Residential mortgage loans sold with credit recourse

The Bancorp sold certain residential mortgage loans in the secondary market with credit recourse. In the event of any customer default, pursuant to the credit recourse provided, the Bancorp is required to reimburse the third party. The maximum amount of credit risk in the event of nonperformance by the underlying borrowers is equivalent to the total outstanding balance. In the event of nonperformance, the Bancorp has rights to the underlying collateral value securing the loan. The outstanding balances on these loans sold with credit recourse were $260 million and $272 million at March 31, 2019 and December 31, 2018, respectively, and the delinquency rates were 2.0% and 2.2% at March 31, 2019 and December 31, 2018, respectively. The Bancorp maintained an estimated credit loss reserve on these loans sold with credit recourse of $4 million and $5 million at March 31, 2019 and December 31, 2018, respectively, recorded in other liabilities in the Condensed Consolidated Balance Sheets. To determine the credit loss reserve, the Bancorp used an approach that is consistent with its overall approach in estimating credit losses for various categories of residential mortgage loans held in its loan portfolio.

Margin accounts

FTS, an indirect wholly-owned subsidiary of the Bancorp, guarantees the collection of all margin account balances held by its brokerage clearing agent for the benefit of its customers. FTS is responsible for payment to its brokerage clearing agent for any loss, liability, damage, cost or expense incurred as a result of customers failing to comply with margin or margin maintenance calls on all margin accounts. The margin account balances held by the brokerage clearing agent were $13 million at both March 31, 2019 and December 31, 2018. In the event of any customer default, FTS has rights to the underlying collateral provided. Given the existence of the underlying collateral provided and negligible historical credit losses, the Bancorp does not maintain a loss reserve related to the margin accounts.

Long-term borrowing obligations

The Bancorp had certain fully and unconditionally guaranteed long-term borrowing obligations issued by wholly-owned issuing trust entities of $183 million and $62 million at March 31, 2019 and December 31, 2018, respectively.

Visa litigation

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

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

98

Fifth Third Bancorp and Subsidiaries

Notes to Condensed Consolidated Financial Statements (unaudited)

In 2009, the Bancorp completed the sale of Visa, Inc. Class B Shares and entered into a total return swap in which the Bancorp will make or receive payments based on subsequent changes in the conversion rate of the Class B Shares into Class A Shares. The swap terminates on the later of the third anniversary of Visa’s IPO or the date on which the Covered Litigation is settled. Refer to Note 25 for additional information on the valuation of the swap. The counterparty to the swap as a result of its ownership of the Class B Shares will be impacted by dilutive adjustments to the conversion rate of the Class B Shares into Class A Shares caused by any Covered Litigation losses in excess of the litigation escrow account. If actual judgments in, or settlements of, the Covered Litigation significantly exceed current expectations, then additional funding by Visa of the litigation escrow account and the resulting dilution of the Class B Shares could result in a scenario where the Bancorp’s ultimate exposure associated with the Covered Litigation (the “Visa Litigation Exposure”) exceeds the value of the Class B Shares owned by the swap counterparty (the “Class B Value”). In the event the Bancorp concludes that it is probable that the Visa Litigation Exposure exceeds the Class B Value, the Bancorp would record a litigation reserve liability and a corresponding amount of other noninterest expense for the amount of the excess. Any such litigation reserve liability would be separate and distinct from the fair value derivative liability associated with the total return swap.

As of the date of the Bancorp’s sale of the Visa Class B Shares and through March 31, 2019, the Bancorp has concluded that it is not probable that the Visa Litigation Exposure will exceed the Class B value. Based on this determination, upon the sale of Class B Shares, the Bancorp reversed its net Visa litigation reserve liability and recognized a free-standing derivative liability associated with the total return swap. The fair value of the swap liability was $143 million at March 31, 2019 and $125 million at December 31, 2018. Refer to Note 15 and Note 25 for further information.

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

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

99

Fifth Third Bancorp and Subsidiaries

Notes to Condensed Consolidated Financial Statements (unaudited)

20. Legal and Regulatory Proceedings

Litigation

Visa/MasterCard Merchant Interchange Litigation

In April 2006, the Bancorp was added as a defendant in a consolidated antitrust class action lawsuit originally filed against Visa®, MasterCard® and several other major financial institutions in the United States District Court for the Eastern District of New York (In re: Payment Card Interchange Fee and Merchant Discount Antitrust Litigation, Case No.05-MD-1720). The plaintiffs, merchants operating commercial businesses throughout the U.S. and trade associations, claimed that the interchange fees charged by card-issuing banks were unreasonable and sought injunctive relief and unspecified damages. In addition to being a named defendant, the Bancorp is currently also subject to a possible indemnification obligation of Visa as discussed in Note 19 and has also entered into judgment and loss sharing agreements with Visa, MasterCard and certain other named defendants. In October 2012, the parties to the litigation entered into a settlement agreement. On January 14, 2014, the trial court entered a final order approving the class settlement. A number of merchants filed appeals from that approval. The U.S. Court of Appeals for the Second Circuit held a hearing on those appeals and on June 30, 2016, reversed the district court’s approval of the class settlement, remanding the case to the district court for further proceedings. On March 27, 2017, the Supreme Court of the United States denied a petition for writ of certiorari seeking to review the Second Circuit’s decision. Pursuant to the terms of the overturned settlement agreement, the Bancorp had previously paid $46 million into a class settlement escrow account. Approximately 8,000 merchants requested exclusion from the class settlement, and therefore, pursuant to the terms of the overturned settlement agreement, approximately 25% of the funds paid into the class settlement escrow account had been already returned to the control of the defendants. The remaining approximately 75% of the settlement funds paid by the Bancorp are currently maintained in the escrow account. More than 500 of the merchants who requested exclusion from the class filed separate federal lawsuits against Visa, MasterCard and certain other defendants alleging similar antitrust violations. These individual federal lawsuits were transferred to the United States District Court for the Eastern District of New York. While the Bancorp is only named as a defendant in one of the individual federal lawsuits, it may have obligations pursuant to indemnification arrangements and/or the judgment or loss sharing agreements noted above. On June 5, 2018, the defendants in the consolidated class action reached an agreement to settle in principle with the proposed plaintiffs’ class seeking monetary damages (the “Plaintiff Damages Class”). On September 17, 2018, those parties signed a settlement agreement (the “Amended Settlement Agreement”) superseding the original settlement agreement entered into in October 2012. The Amended Settlement Agreement included, among other terms, a release from participating class members for liability for claims that accrue no later than five years after the Amended Settlement Agreement becomes final. The Amended Settlement Agreement provided for a total payment by all defendants of $6.24 billion, composed of approximately $5.3 billion held in escrow and an additional $900 million. The Bancorp’s allocated share of the putative settlement is within existing reserves. If more than 15% of class members (by payment volume) opt out of the class, up to $700 million of the settlement payment may be returned to the defendants. On September 18, 2018, the Plaintiff Damages Class filed a Motion for Preliminary Approval of the Amended Settlement Agreement. On January 24, 2019, the Court issued an order preliminarily approving the settlement. A hearing on final approval of the settlement is scheduled for November 7, 2019. This settlement does not resolve the claims of the separate proposed plaintiffs’ class seeking injunctive relief or the claims of merchants who are pursuing separate lawsuits. The ultimate outcome in this matter, including the timing of resolution, therefore remains uncertain. Refer to Note 19 for further information.

Klopfenstein v. Fifth Third Bank

On August 3, 2012, William Klopfenstein and Adam McKinney filed a lawsuit against Fifth Third Bank in the United States District Court for the Northern District of Ohio (Klopfenstein et al. v. Fifth Third Bank), alleging that the 120% APR that Fifth Third disclosed on its Early Access program was misleading. Early Access is a deposit-advance program offered to eligible customers with checking accounts. The plaintiffs sought to represent a nationwide class of customers who used the Early Access program and repaid their cash advances within 30 days. On October 31, 2012, the case was transferred to the United States District Court for the Southern District of Ohio. In 2013, four similar putative class actions were filed against Fifth Third Bank in federal courts throughout the country (Lori and Danielle Laskaris v. Fifth Third Bank, Janet Fyock v. Fifth Third Bank, Jesse McQuillen v. Fifth Third Bank, and Brian Harrison v. Fifth Third Bank). Those four lawsuits were transferred to the Southern District of Ohio and consolidated with the original lawsuit as In re: Fifth Third Early Access Cash Advance Litigation (Case No.1:12-CV-00851). On behalf of a putative class, the plaintiffs sought unspecified monetary and statutory damages, injunctive relief, punitive damages, attorney’s fees, andpre- and post-judgment interest. On March 30, 2015, the court dismissed all claims alleged in the consolidated lawsuit except a claim under the TILA. On January 10, 2018, plaintiffs filed a motion to hear the immediate appeal of the dismissal of their breach of contract claim. On March 28, 2018, the court granted plaintiffs’ motion and stayed the TILA claim pending that appeal. On April 26, 2018, plaintiffs filed their notice of appeal for the breach of contract claim with the U.S. Court of Appeals for the Sixth Circuit. Oral argument on plaintiffs’ appeal was held on January 29, 2019.

Helton v. Fifth Third Bank

On August 31, 2015, trust beneficiaries filed an action against Fifth Third Bank, as trustee, in the Probate Court for Hamilton County, Ohio (Helen Clarke Helton, et al. v. Fifth Third Bank, Case No. 2015003814). The plaintiffs alleged breach of the duty to diversify, breach of the duty of impartiality, breach of trust/fiduciary duty, and unjust enrichment, based on Fifth Third’s alleged failure to diversify assets held in two trusts for the plaintiffs’ benefit. The lawsuit sought over $800 million in alleged damages, attorney’s fees, removal of Fifth Third as trustee, and injunctive relief. Fifth Third denied all liability. On April 20, 2018, the Court denied plaintiffs’ motion for summary judgment and granted summary judgment to Fifth Third, dismissing the case in its entirety. The plaintiffs filed a notice of appeal on May 5, 2018. The appeal is pending.

100

Fifth Third Bancorp and Subsidiaries

Notes to Condensed Consolidated Financial Statements (unaudited)

Upsher-Smith Laboratories, Inc. v. Fifth Third Bank

On February 12, 2016, Upsher-Smith Laboratories, Inc. (“Upsher-Smith”) filed suit against Fifth Third Bank in the Fourth Judicial District, Hennepin County, Minnesota, alleging that Fifth Third improperly implemented foreign exchange transactions requested by plaintiff’s authorized employee who allegedly was the victim of fraud by a third party. Plaintiff asserted claims for breach of contract and the implied covenant of good faith and fair dealing and for alleged failure to comply with Article4A-202 of the Uniform Commercial Code (the “UCC claim”), with losses allegedly totaling almost $40 million, plus interest. Fifth Third denied all liability in this matter. On March 3, 2016, Fifth Third removed the case to the United States District Court for the District of Minnesota (Upsher-Smith Laboratories Inc. v. Fifth Third Bank, Case No.16-cv-00556). On March 22, 2019, the Court granted summary judgment to Fifth Third on Upsher-Smith’s claims for breach of contract and the implied covenant of good faith and fair dealing, but denied summary judgment on the UCC claim. The case is currently scheduled to be ready for trial on May 20, 2019.

Other litigation

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

Governmental Investigations and Proceedings

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

Reasonably Possible Losses in Excess of Accruals

The Bancorp and its subsidiaries are parties to numerous claims and lawsuits as well as threatened or potential actions or claims concerning matters arising from the conduct of its business activities. The outcome of claims or litigation and the timing of ultimate resolution are inherently difficult to predict. The following factors, among others, contribute to this lack of predictability: claims often include significant legal uncertainties, damages alleged by plaintiffs are often unspecified or overstated, discovery may not have started or may not be complete and material facts may be disputed or unsubstantiated. As a result of these factors, the Bancorp is not always able to provide an estimate of the range of reasonably possible outcomes for each claim. An accrual for a potential litigation loss is established when information related to the loss contingency indicates both that a loss is probable and that the amount of loss can be reasonably estimated. Any such accrual is adjusted from time to time thereafter as appropriate to reflect changes in circumstances. The Bancorp also determines, when possible (due to the uncertainties described above), estimates of reasonably possible losses or ranges of reasonably possible losses, in excess of amounts accrued. Under U.S. GAAP, an event is “reasonably possible” if “the chance of the future event or events occurring is more than remote but less than likely” and an event is “remote” if “the chance of the future event or events occurring is slight.” Thus, references to the upper end of the range of reasonably possible loss for cases in which the Bancorp is able to estimate a range of reasonably possible loss mean the upper end of the range of loss for cases for which the Bancorp believes the risk of loss is more than slight. For matters where the Bancorp is able to estimate such possible losses or ranges of possible losses, the Bancorp currently estimates that it is reasonably possible that it could incur losses related to legal and regulatory proceedings in an aggregate amount up to approximately $54 million in excess of amounts accrued, with it also being reasonably possible that no losses will be incurred in these matters. The estimates included in this amount are based on the Bancorp’s analysis of currently available information, and as new information is obtained the Bancorp may change its estimates.

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

101

Fifth Third Bancorp and Subsidiaries

Notes to Condensed Consolidated Financial Statements (unaudited)

21. Related Party Transactions

On March 18, 2019, the Bancorp exchanged its remaining 10,252,826 Class B Units of Worldpay Holding, LLC for 10,252,826 shares of Class A common stock of Worldpay, Inc., and subsequently sold those shares. As a result of this transaction, the Bancorp recognized a gain of $562 million in other noninterest income during the first quarter of 2019. As a result of the sale, the Bancorp no longer beneficially owns any of Worldpay, Inc.’s equity securities.

22. Income Taxes

The applicable income tax expense was $221 million and $181 million for the three months ended March 31, 2019 and 2018, respectively. The effective tax rates for the three months ended March 31, 2019 and 2018 were 22.2% and 20.5%, respectively. The increase in the effective tax rate for the three months ended March 31, 2019 compared to the same period in the prior year was primarily related to an increase in state income tax expense and a decrease in expectedlow-income housing tax credits and other tax benefits, partially offset by a decrease of proportional amortization of qualifying LIHTC investments.

While it is reasonably possible that the amount of the unrecognized tax benefits with respect to certain of the Bancorp’s uncertain tax positions could increase or decrease during the next 12 months, the Bancorp believes it is unlikely that its unrecognized tax benefits will change by a material amount during the next 12 months.

102

Fifth Third Bancorp and Subsidiaries

Notes to Condensed Consolidated Financial Statements (unaudited)

23. Accumulated Other Comprehensive Income

The tables below present the activity of the components of OCI and AOCI for the three months ended:

		Total OCI								Total AOCI
		Pretax			Tax			Net		Beginning			Net			Ending
March 31, 2019 ($ in millions)		Activity			Effect			Activity		Balance			Activity			Balance
Unrealized holding gains onavailable-for-sale debt securities arising during period	$		561			(131	)		430
Reclassification adjustment for net losses onavailable-for-sale debt securities included in net income			1			-			1
Net unrealized gains onavailable-for-sale debt securities			562			(131	)		431		(227	)		431			204
Unrealized holding gains on cash flow hedge derivatives arising during period			110			(23	)		87
Reclassification adjustment for net losses on cash flow hedge derivatives included in net income			2			-			2
Net unrealized gains on cash flow hedge derivatives			112			(23	)		89		160			89			249
Reclassification of amounts to net periodic benefit costs			1			-			1
Defined benefit pension plans, net			1			-			1		(45	)		1			(44)
Total	$		675			(154	)		521		(112	)		521			409
		Total OCI								Total AOCI
		Pretax			Tax			Net		Beginning			Net			Ending
March 31, 2018 ($ in millions)		Activity			Effect			Activity		Balance			Activity			Balance
Unrealized holding losses onavailable-for-sale debt securities arising during period	$		(594	)		134			(460)
Reclassification adjustment for net losses onavailable-for-sale debt securities included in net income			9			(2	)		7
Net unrealized losses onavailable-for-sale debt securities			(585	)		132			(453)		135			(453	)		(318)
Unrealized holding losses on cash flow hedge derivatives arising during period			(9	)		2			(7)
Reclassification adjustment for net gains on cash flow hedge derivatives included in net income			(1	)		-			(1)
Net unrealized losses on cash flow hedge derivatives			(10	)		2			(8)		(11	)		(8	)		(19)
Reclassification of amounts to net periodic benefit costs			1			-			1
Defined benefit pension plans, net			1			-			1		(53	)		1			(52)
Total	$		(594	)		134			(460)		71			(460	)		(389)

103

Fifth Third Bancorp and Subsidiaries

Notes to Condensed Consolidated Financial Statements (unaudited)

The table below presents reclassifications out of AOCI:    

	Consolidated Statements of Income Caption		For the three months ended March 31,
($ in millions)				2019		2018
Net unrealized gains (losses) onavailable-for-sale debt securities:(b)
Net losses included in net income	Securities gains (losses), net	$		(1	)	(9)
	Income before income taxes			(1	)	(9)
	Applicable income tax expense			-		2
	Net income			(1	)	(7)
Net unrealized gains (losses) on cash flow hedge derivatives:(b)
Interest rate contracts related to C&I loans	Interest and fees on loans and leases			(2	)	1
	Income before income taxes			(2	)	1
	Applicable income tax expense			-		-
	Net income			(2	)	1
Net periodic benefit costs:(b)
Amortization of net actuarial loss	Employee benefits expense(a)			(1	)	(1)
	Income before income taxes			(1	)	(1)
	Applicable income tax expense			-		-
	Net income			(1	)	(1)
Total reclassifications for the period	Net income	$		(4	)	(7)

(a) This AOCI component is included in the computation of net periodic benefit cost. Refer to Note 20 of the Notes to Consolidated Financial Statements included in the Bancorp’s Annual Report on Form10-K for the year ended December 31, 2018 for further information.

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

104

Fifth Third Bancorp and Subsidiaries

Notes to Condensed Consolidated Financial Statements (unaudited)

24. Earnings Per Share

The following table provides the calculation of earnings per share and the reconciliation of earnings per share and earnings per diluted share:

		2019				2018
For the three months ended March 31,				Average	Per Share			Average	Per Share
(in millions, except per share data)			Income	Shares	Amount		Income	Shares	Amount
Earnings Per Share:
Net income available to common shareholders	$		760				686
Less: Income allocated to participating securities			8				8
Net income allocated to common shareholders	$		752	661	1.14		678	690	0.98
Earnings Per Diluted Share:
Net income available to common shareholders	$		760				686
Effect of dilutive securities:
Stock-based awards			-	10			-	14
Net income available to common shareholders plus assumed conversions			760				686
Less: Income allocated to participating securities			8				8
Net income allocated to common shareholders plus assumed conversions	$		752	671	1.12		678	704	0.96

Shares are excluded from the computation of earnings per diluted share when their inclusion has an anti-dilutive effect on earnings per share. The diluted earnings per share computation for the three months ended March 31, 2019 and 2018 excludes 3 million and 2 million, respectively, of SARs and an immaterial amount of stock options because their inclusion would have been anti-dilutive.

The diluted earnings per share computation for the three months ended March 31, 2019 excludes the impact of the forward contract related to the March 27, 2019 accelerated share repurchase transaction. Based upon the average daily volume weighted-average price of the Bancorp’s common stock during the first quarter of 2019, the counterparty to the transaction would have been required to deliver additional shares for the settlement of the forward contract as of March 31, 2019, and thus the impact of the forward contract related to the accelerated share repurchase transaction would have been anti-dilutive to earnings per share.

105

Fifth Third Bancorp and Subsidiaries

Notes to Condensed Consolidated Financial Statements (unaudited)

25. 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. U.S. GAAP also 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 more information regarding the fair value hierarchy, refer to Note 1 of the Notes to Consolidated Financial Statements included in the Bancorp’s Annual Report on Form10-K for the year ended December 31, 2018.

Assets and Liabilities Measured at Fair Value on a Recurring Basis

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

		Fair Value Measurements Using
March 31, 2019 ($ in millions)		Level 1(c)		Level 2(c)		Level 3		Total Fair Value
Assets:
Available-for-sale debt and other securities:
U.S. Treasury and federal agency securities	$		797		-		-		797
Obligations of states and political subdivisions securities			-		6		-		6
Mortgage-backed securities:
Agency residential mortgage-backed securities			-		15,689		-		15,689
Agency commercial mortgage-backed securities			-		12,513		-		12,513
Non-agency commercial mortgage-backed securities			-		3,375		-		3,375
Asset-backed securities and other debt securities			-		2,087		-		2,087
Available-for-sale debt and other securities(a)			797		33,670		-		34,467
Trading debt securities:
U.S. Treasury and federal agency securities			1		6		-		7
Obligations of states and political subdivisions securities			-		25		-		25
Agency residential mortgage-backed securities			-		66		-		66
Asset-backed securities and other debt securities			-		227		-		227
Trading debt securities			1		324		-		325
Equity securities			418		8		-		426
Residential mortgage loans held for sale			-		626		-		626
Residential mortgage loans(b)			-		-		190		190
Commercial loans held for sale			-		22		-		22
MSRs			-		-		1,141		1,141
Derivative assets:
Interest rate contracts			-		837		11		848
Foreign exchange contracts			-		139		-		139
Commodity contracts			25		165		-		190
Derivative assets(d)			25		1,141		11		1,177
Total assets	$		1,241		35,791		1,342		38,374
Liabilities:
Derivative liabilities:
Interest rate contracts	$		7		425		9		441
Foreign exchange contracts			-		126		-		126
Equity contracts			-		-		143		143
Commodity contracts			20		150		-		170
Derivative liabilities(e)			27		701		152		880
Short positions(e)			55		53		-		108
Total liabilities	$		82		754		152		988

(a) Excludes FHLB, FRB and DTCC restricted stock holdings totaling$137,$442 and$2, respectively, atMarch 31, 2019.

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

(c) During the three months endedMarch 31, 2019, no assets or liabilities were transferred between Level 1 and Level 2.

(d) Included in other assets in the Condensed Consolidated Balance Sheets.

(e) Included in other liabilities in the Condensed Consolidated Balance Sheets.

106

Fifth Third Bancorp and Subsidiaries

Notes to Condensed Consolidated Financial Statements (unaudited)

	Fair Value Measurements Using
December 31, 2018 ($ in millions)	Level 1(c)		Level 2(c)		Level 3		Total Fair Value
Assets:
Available-for-sale debt and other securities:
U.S. Treasury and federal agency securities	$	97		-		-		97
Obligations of states and political subdivisions securities		-		2		-		2
Mortgage-backed securities:
Agency residential mortgage-backed securities		-		16,247		-		16,247
Agency commercial mortgage-backed securities		-		10,650		-		10,650
Non-agency commercial mortgage-backed securities		-		3,267		-		3,267
Asset-backed securities and other debt securities		-		2,015		-		2,015
Available-for-sale debt and other securities(a)		97		32,181		-		32,278
Trading debt securities:
U.S. Treasury and federal agency securities		-		16		-		16
Obligations of states and political subdivisions securities		-		35		-		35
Agency residential mortgage-backed securities		-		68		-		68
Asset-backed securities and other debt securities		-		168		-		168
Trading debt securities		-		287		-		287
Equity securities		452		-		-		452
Residential mortgage loans held for sale		-		537		-		537
Residential mortgage loans(b)		-		-		179		179
Commercial loans held for sale		-		7		-		7
MSRs		-		-		938		938
Derivative assets:
Interest rate contracts		-		648		7		655
Foreign exchange contracts		-		152		-		152
Commodity contracts		93		214		-		307
Derivative assets(d)		93		1,014		7		1,114
Total assets	$	642		34,026		1,124		35,792
Liabilities:
Derivative liabilities:
Interest rate contracts	$	8		313		8		329
Foreign exchange contracts		-		142		-		142
Equity contracts		-		-		125		125
Commodity contracts		19		259		-		278
Derivative liabilities(e)		27		714		133		874
Short positions(e)		110		28		-		138
Total liabilities	$	137		742		133		1,012

(a) Excludes FHLB, FRB and DTCC restricted stock holdings totaling $184, $366 and $2, respectively, at December 31, 2018.

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

(c) During the year ended December 31, 2018, no assets or liabilities were transferred between Level 1 and Level 2.

(d) Included in other assets in the Condensed Consolidated Balance Sheets.

(e) Included in other liabilities in the Condensed Consolidated Balance Sheets.

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

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

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

Residential mortgage loans held for sale

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

Residential mortgage loans

Residential mortgage loans held for sale that are reclassified to held for investment are transferred from Level 2 to Level 3 of the fair value hierarchy. It is the Bancorp’s policy to value any transfers between levels of the fair value hierarchy based on end of period fair values. For residential mortgage loans for which the fair value election has been made, and that are reclassified from held for sale to held for investment, the fair value estimation is based on mortgage-backed securities prices, interest rate risk and an internally developed credit component.

107

Fifth Third Bancorp and Subsidiaries

Notes to Condensed Consolidated Financial Statements (unaudited)

Therefore, these loans are classified within Level 3 of the valuation hierarchy. An adverse change in the loss rate or severity assumption would result in a decrease in fair value of the related loan. The Secondary Marketing department, which reports to the Bancorp’s Head of the Consumer Bank, in conjunction with the Consumer Credit Risk department, which reports to the Bancorp’s Chief Risk Officer, are responsible for determining the valuation methodology for residential mortgage loans held for investment. The Secondary Marketing department reviews loss severity assumptions quarterly to determine if adjustments are necessary based on decreases in observable housing market data. This group also reviews trades in comparable benchmark securities and adjusts the values of loans as necessary. Consumer Credit Risk is responsible for the credit component of the fair value which is based on internally developed loss rate models that take into account historical loss rates and loss severities based on underlying collateral values.

Commercial loans held for sale

For commercial loans held for sale for which the fair value election has been made, fair value is estimated based upon quoted prices of identical or similar assets in an active market, which are reviewed and approved by the Market Risk department, which reports to the Bancorp’s Chief Risk Officer. These loans are generally valued using a market approach based on observable prices and are classified within Level 2 of the valuation hierarchy.

MSRs

MSRs do not trade in an active, open market with readily observable prices. While sales of MSRs do occur, the precise terms and conditions typically are not readily available. Accordingly, the Bancorp estimates the fair value of MSRs using internal OAS models with certain unobservable inputs, primarily prepayment speed assumptions, OAS and weighted-average lives, resulting in a classification within Level 3 of the valuation hierarchy. Refer to Note 14 for further information on the assumptions used in the valuation of the Bancorp’s MSRs. The Secondary Marketing department and Treasury department are responsible for determining the valuation methodology for MSRs. Representatives from Secondary Marketing, Treasury, Accounting and Risk Management are responsible for reviewing key assumptions used in the internal OAS model. Two external valuations of the MSR portfolio are obtained from third parties quarterly that use valuation models in order to assess the reasonableness of the internal OAS model. Additionally, the Bancorp participates in peer surveys that provide additional confirmation of the reasonableness of key assumptions utilized in the MSR valuation process and the resulting MSR prices.

Derivatives

Exchange-traded derivatives valued using quoted prices and certainover-the-counter derivatives valued using active bids are classified within Level 1 of the valuation hierarchy. Most of the Bancorp’s derivative contracts are valued using DCF or other models that incorporate current market interest rates, credit spreads assigned to the derivative counterparties and other market parameters and, therefore, are classified within Level 2 of the valuation hierarchy. Such derivatives include basic and structured interest rate, foreign exchange and commodity swaps and options. Derivatives that are valued based upon models with significant unobservable market parameters are classified within Level 3 of the valuation hierarchy. At March 31, 2019 and December 31, 2018, derivatives classified as Level 3, which are valued using models containing unobservable inputs, consisted primarily of a total return swap associated with the Bancorp’s sale of Visa, Inc. Class B Shares. Level 3 derivatives also include IRLCs, which utilize internally generated loan closing rate assumptions as a significant unobservable input in the valuation process.

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

An increase in the loss estimate or a delay in the resolution of the Covered Litigation would result in an increase in the fair value of the derivative liability; conversely, a decrease in the loss estimate or an acceleration of the resolution of the Covered Litigation would result in a decrease in the fair value of the derivative liability. The Accounting and Treasury departments, both of which report to the Bancorp’s Chief Financial Officer, determined the valuation methodology for the total return swap. Accounting and Treasury review the changes in fair value on a quarterly basis for reasonableness based on Visa stock price changes, litigation contingencies and escrow funding.

The net asset fair value of the IRLCs at March 31, 2019 was $11 million. Immediate decreases in current interest rates of 25 bps and 50 bps would result in increases in the fair value of the IRLCs of approximately $4 million and $7 million, respectively. Immediate increases of current interest rates of 25 bps and 50 bps would result in decreases in the fair value of the IRLCs of approximately $4 million and $10 million, respectively. The decrease in fair value of IRLCs due to immediate 10% and 20% adverse changes in the assumed loan closing rates would be approximately $1 million and $2 million, respectively, and the increase in fair value due to immediate 10% and 20% favorable changes in the assumed loan closing rates would be approximately $1 million and $2 million, respectively. These sensitivities are hypothetical and should be used with caution, as changes in fair value based on a variation in assumptions typically cannot be extrapolated because the relationship of the change in assumptions to the change in fair value may not be linear.

The Consumer Line of Business Finance department, which reports to the Bancorp’s Chief Financial Officer, and the aforementioned Secondary Marketing department are responsible for determining the valuation methodology for IRLCs. Secondary Marketing, in conjunction with a third party valuation provider, periodically review loan closing rate assumptions and recent loan sales to determine if adjustments are needed for current market conditions not reflected in historical data.

108

Fifth Third Bancorp and Subsidiaries

Notes to Condensed Consolidated Financial Statements (unaudited)

Short positions

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

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

		Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
		Residential				Interest Rate
		Mortgage				Derivatives,		Equity		Total
For the three months ended March 31, 2019 ($ in millions)		Loans		MSRs		Net(a)		Derivatives		Fair Value
Balance, beginning of period	$		179		938		(1)		(125)		991
Total (losses) gains (realized/unrealized):
Included in earnings			-		(84)		24		(31)		(91	)
Purchases/originations/acquisitions			-		287		(1)		-		286
Settlements			(4)		-		(20)		13		(11	)
Transfers into Level 3(b)			15		-		-		-		15
Balance, end of period	$		190		1,141		2		(143)		1,190
The amount of total (losses) gains for the period included in earnings attributable to the change in unrealized gains or losses relating to instruments still held at March 31, 2019(c)	$		-		(69)		11		(31)		(89	)

(a) Net interest rate derivatives include derivative assets and liabilities of$11and$9, respectively, as ofMarch 31, 2019.

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

(c) Includes interest income and expense.

		Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
		Residential				Interest Rate
		Mortgage				Derivatives,		Equity		Total
For the three months ended March 31, 2018 ($ in millions)		Loans		MSRs		Net(a)		Derivatives		Fair Value
Balance, beginning of period	$		137		858		3		(137)		861
Total gains (losses) (realized/unrealized):
Included in earnings			(2)		28		14		(39)		1
Purchases/originations			-		40		(2)		-		38
Settlements			(135)		-		(11)		11		(135	)
Transfers into Level 3(b)			136		-		-		-		136
Balance, end of period	$		136		926		4		(165)		901
The amount of total (losses) gains for the period included in earnings attributable to the change in unrealized gains or losses relating to instruments still held at March 31, 2018(c)	$		(2)		28		11		(39)		(2	)

(a) Net interest rate derivatives include derivative assets and liabilities of $11 and $7, respectively, as of March 31, 2018.

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

(c) Includes interest income and expense.

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

		For the three months ended
		March 31,
($ in millions)		2019			2018
Mortgage banking net revenue	$		(60	)		39
Corporate banking revenue			-			1
Other noninterest income			(31	)		(39)
Total (losses) gains	$		(91	)		1

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

		For the three months ended
		March 31,
($ in millions)		2019			2018
Mortgage banking net revenue	$		(58	)		36
Corporate banking revenue			-			1
Other noninterest income			(31	)		(39)
Total losses	$		(89	)		(2)

109

Fifth Third Bancorp and Subsidiaries

Notes to Condensed Consolidated Financial Statements (unaudited)

The following tables present information as of March 31, 2019 and 2018 about significant unobservable inputs related to the Bancorp’s material categories of Level 3 financial assets and liabilities measured at fair value on a recurring basis:

As of March 31, 2019 ($ in millions)

Financial Instrument		Fair Value	Valuation Technique	Significant Unobservable                     Inputs	Ranges of Inputs	Weighted-Average
Residential mortgage loans	$	190	Loss rate model	Interest rate risk factor	(13.4) - 19.4%	0.6%
				Credit risk factor	0 - 39.9%	0.5%
MSRs		1,141	DCF	Prepayment speed	0-100.0%	(Fixed) 11.2% (Adjustable) 23.1%
				OAS spread (bps)	447-1,513	(Fixed) 538 (Adjustable) 884
IRLCs, net		11	DCF	Loan closing rates	7.3 - 96.6%	78.9%
Swap associated with the sale of Visa, Inc.		(143)	DCF	Timing of the resolution	3/31/2021 -	1/6/2022
Class B Shares				of the Covered Litigation	11/30/2023

As of March 31, 2018 ($ in millions)
Financial Instrument		Fair Value	Valuation Technique	Significant Unobservable                     Inputs	Ranges of Inputs	Weighted-Average
Residential mortgage loans	$	136	Loss rate model	Interest rate risk factor	(12.6) - 14.1%	1.3%
				Credit risk factor	0 - 46.2%	1.5%
MSRs		926	DCF	Prepayment speed	0.5-98.1%	(Fixed) 10.0% (Adjustable) 24.6%
				OAS spread (bps)	446-1,515	(Fixed) 548 (Adjustable) 797
IRLCs, net		11	DCF	Loan closing rates	9.5- 102.7%	76.6%
Swap associated with the sale of Visa, Inc.		(165)	DCF	Timing of the resolution	2/28/2021 -	9/8/2021
Class B Shares				of the Covered Litigation	12/31/2023

Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis

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

The following tables provide the fair value hierarchy and carrying amount of all assets that were held as of March 31, 2019 and 2018, and for which a nonrecurring fair value adjustment was recorded during the three months ended March 31, 2019 and 2018, and the related gains and losses from fair value adjustments on assets sold during the period as well as assets still held as of the end of the period. The following tables exclude the fair values of assets acquired and liabilities assumed in the acquisition of MB Financial, Inc. on March 22, 2019. Refer to Note 3 for additional information on the acquisition of MB Financial, Inc.

		Fair Value Measurements Using								Total (Losses) Gains
										For the three months
As of March 31, 2019 ($ in millions)		Level 1		Level 2		Level 3		Total		ended March 31, 2019
Commercial and industrial loans	$		-		-		109		109		(20	)
Commercial mortgage loans			-		-		9		9		-
Commercial leases			-		-		13		13		(1	)
OREO			-		-		12		12		(2	)
Bank premises and equipment			-		-		22		22		(20	)
Private equity investments			-		1		7		8		2
Total	$		-		1		172		173		(41	)
		Fair Value Measurements Using								Total (Losses) Gains
										For the three months
As of March 31, 2018 ($ in millions)		Level 1		Level 2		Level 3		Total		ended March 31, 2018
Commercial loans held for sale	$		-		-		5		5		(1	)
Commercial and industrial loans			-		-		277		277		(44	)
Commercial mortgage loans			-		-		4		4		6
Commercial leases			-		-		2		2		(2	)
OREO			-		-		17		17		(3	)
Bank premises and equipment			-		-		4		4		(8	)
Operating lease equipment			-		-		12		12		(2	)
Private equity investments			-		50		33		83		19
Total	$		-		50		354		404		(35	)

110

Fifth Third Bancorp and Subsidiaries

Notes to Condensed Consolidated Financial Statements (unaudited)

The following tables present information as of March 31, 2019 and 2018 about significant unobservable inputs related to the Bancorp’s material categories of Level 3 financial assets and liabilities measured on a nonrecurring basis:

As of March 31, 2019 ($ in millions)
Financial Instrument		Fair Value	Valuation Technique	Significant Unobservable Inputs	Ranges of Inputs	Weighted-Average
Commercial and industrial loans	$	109	Appraised value	Collateral value	NM	NM
Commercial mortgage loans		9	Appraised value	Collateral value	NM	NM
Commercial leases		13	Appraised value	Collateral value	NM	NM
OREO		12	Appraised value	Appraised value	NM	NM
Bank premises and equipment		22	Appraised value	Appraised value	NM	NM
Private equity investments		7	Comparable company analysis	Market comparable transactions	NM	NM
As of March 31, 2018 ($ in millions)
Financial Instrument		Fair Value	Valuation Technique	Significant Unobservable Inputs	Ranges of Inputs	Weighted-Average
Commercial loans held for sale	$	5	Appraised value	Appraised value	NM	NM
				Costs to sell	NM	10.0%
Commercial and industrial loans		277	Appraised value	Collateral value	NM	NM
Commercial mortgage loans		4	Appraised value	Collateral value	NM	NM
Commercial leases		2	Appraised value	Collateral value	NM	NM
OREO		17	Appraised value	Appraised value	NM	NM
Bank premises and equipment		4	Appraised value	Appraised value	NM	NM
Operating lease equipment		12	Appraised value	Appraised value	NM	NM
Private equity investments		29	Liquidity discount applied	Liquidity discount	0-43.0%	10.5%
			to fund’s NAV
		4	Comparable company analysis	Market comparable transactions	NM	NM

Portfolio commercial loans and leases

During the three months ended March 31, 2019 and 2018, the Bancorp recorded nonrecurring impairment adjustments to certain commercial and industrial loans, commercial mortgage loans and commercial leases held for investment. Larger commercial loans included within aggregate borrower relationship balances exceeding $1 million that exhibit probable or observed credit weaknesses are subject to individual review for impairment. The Bancorp considers the current value of collateral, credit quality of any guarantees, the guarantor’s liquidity and willingness to cooperate, the loan structure and other factors when evaluating whether an individual loan is impaired. When the loan is collateral dependent, the fair value of the loan is generally based on the fair value of the underlying collateral supporting the loan and therefore these loans were classified within Level 3 of the valuation hierarchy. In cases where the carrying value exceeds the fair value, an impairment loss is recognized. The fair values and recognized impairment losses are reflected in the previous tables. Commercial Credit Risk, which reports to the Bancorp’s Chief Risk Officer, is responsible for preparing and reviewing the fair value estimates for commercial loans held for investment.

OREO

During both the three months ended March 31, 2019 and 2018, the Bancorp recorded nonrecurring adjustments to certain commercial and residential real estate properties classified as OREO and measured at the lower of carrying amount or fair value. These nonrecurring losses were primarily due to declines in real estate values of the properties recorded in OREO. These losses include $1 million in losses, recorded as charge-offs on new OREO properties transferred from loans during the both the three months ended March 31, 2019 and 2018. These losses also included $1 million and $2 million in losses for the three months ended March 31, 2019 and 2018, respectively, recorded as negative fair value adjustments on OREO in other noninterest expense in the Condensed Consolidated Statements of Income subsequent to their transfer from loans. As discussed in the following paragraphs, the fair value amounts are generally based on appraisals of the property values, resulting in a classification within Level 3 of the valuation hierarchy. In cases where the carrying amount exceeds the fair value, less costs to sell, an impairment loss is recognized. The previous tables reflect the fair value measurements of the properties before deducting the estimated costs to sell.

The Real Estate Valuation department is solely responsible for managing the appraisal process and evaluating the appraisals for commercial properties transferred to OREO. All appraisals on commercial OREO properties are updated on at least an annual basis.

The Real Estate Valuation department reviews the BPO data and internal market information to determine the initialcharge-off on residential real estate loans transferred to OREO. Once the foreclosure process is completed, the Bancorp performs an interior inspection to update the initial fair value of the property. These properties are reviewed at least every 30 days after the initial interior inspections are completed. The Asset Manager receives a monthly status report for each property, which includes the number of showings, recently sold properties, current comparable listings and overall market conditions.

111

Fifth Third Bancorp and Subsidiaries

Notes to Condensed Consolidated Financial Statements (unaudited)

Bank premises and equipment

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

Operating lease equipment

During the three months ended March 31, 2018, the Bancorp recorded nonrecurring impairment adjustments to certain operating lease equipment. When evaluating whether an individual asset is impaired, the Bancorp considers the current fair value of the asset, the changes in overall market demand for the asset and the rate of change in advancements associated with technological improvements that impact the demand for the specific asset under review. As part of this ongoing assessment, the Bancorp determined that the carrying values of certain operating lease equipment were not recoverable and as a result, the Bancorp recorded an impairment loss equal to the amount by which the carrying value of the assets exceeded the fair value. The fair value amounts were generally based on appraised values of the assets, resulting in a classification within Level 3 of the valuation hierarchy. The Commercial Leasing department, which reports to the Bancorp’s Chief Operating Officer, is responsible for preparing and reviewing the fair value estimates for operating lease equipment.

Private equity investments

The Bancorp accounts for its private equity investments, except for those accounted for under the equity method of accounting, at each investment’s cost basis minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for identical or similar investments of the same issuer. The Bancorp recognized gains of $5 million and $35 million resulting from observable price changes during the three months ended March 31, 2019 and 2018, respectively. The carrying value of the Bancorp’s private equity investments still held as of March 31, 2019 includes a cumulative $53 million of positive adjustments as a result of observable price changes since January 1, 2018. Because these adjustments are based on observable transactions in inactive markets, they are classified in Level 2 of the fair value hierarchy.

For private equity investments which are accounted for using the measurement alternative to fair value, the Bancorp qualitatively evaluates each investment quarterly to determine if impairment may exist. If necessary, the Bancorp then measures impairment by estimating the value of its investment and comparing that to the investment’s carrying value, whether or not the Bancorp considers the impairment to be temporary. These valuations are typically developed using a DCF method, but other methods may be used if more appropriate for the circumstances. These valuations are based on unobservable inputs and therefore are classified in Level 3 of the fair value hierarchy. The Bancorp recognized impairment of $3 million and $10 million for the three months ended March 31, 2019 and 2018, respectively. The carrying value of the Bancorp’s private equity investments still held as of March 31, 2019 includes a cumulative $15 million of impairment charges recognized since adoption of the measurement alternative to fair value on January 1, 2018.

The Bancorp did not recognize any OTTI and recognized $6 million of OTTI primarily associated with certain nonconforming investments affected by the Volcker Rule during the three months ended March 31, 2019 and 2018, respectively. The Bancorp performed nonrecurring fair value measurements on a fund by fund basis to determine whether OTTI existed. The Bancorp estimated the fair value of the funds by applying an estimated market discount to the reported NAV of the fund or through a DCF analysis. Because the length of time until the investment will become redeemable is generally not certain, these funds were classified within Level 3 of the valuation hierarchy. An adverse change in the reported NAVs or estimated market discounts, where applicable, would result in a decrease in the fair value estimate. In cases where the carrying value exceeds the fair value, an impairment loss is recognized. The Bancorp’s Private Equity department, which reports to the Head of Payments, Strategy and Digital Solutions, in conjunction with Accounting, is responsible for preparing and reviewing the fair value estimates.

Fair Value Option

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

Fair value changes recognized in earnings for residential mortgage loans held at March 31, 2019 and 2018 for which the fair value option was elected, as well as the changes in fair value of the underlying IRLCs, included gains of $23 million and $12 million, respectively. These gains are reported in mortgage banking net revenue in the Condensed Consolidated Statements of Income. Fair value changes recognized in earnings for commercial loans held at March 31, 2019 and 2018 for which the fair value option was elected included losses of an immaterial amount and gains of an immaterial amount, respectively. These gains are reported in corporate banking revenue in the Condensed Consolidated Statements of Income.

Valuation adjustments related to instrument-specific credit risk for residential mortgage loans measured at fair value negatively impacted the fair value of those loans by $1 million at both March 31, 2019 and December 31, 2018. Valuation adjustments related to instrument-specific credit risk for commercial loans measured at fair value had an immaterial impact on the fair value of those loans at both March 31, 2019 and December 31, 2018. Interest on loans measured at fair value is accrued as it is earned using the effective interest method and is reported as interest income in the Condensed Consolidated Statements of Income.

112

Fifth Third Bancorp and Subsidiaries

Notes to Condensed Consolidated Financial Statements (unaudited)

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

	Aggregate		Aggregate Unpaid
March 31, 2019 ($ in millions)	Fair Value		Principal Balance		Difference
Residential mortgage loans measured at fair value	$	816		793		23
Past due loans of 90 days or more		2		2		-
Nonaccrual loans		1		1		-
Commercial loans measured at fair value		22		22		-
December 31, 2018
Residential mortgage loans measured at fair value	$	716		696		20
Past due loans of 90 days or more		2		2		-
Nonaccrual loans		2		2		-
Commercial loans measured at fair value		7		7		-

Fair Value of Certain Financial Instruments

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

	Net Carrying			Fair Value Measurements Using						Total
As of March 31, 2019 ($ in millions)	Amount			Level 1		Level 2		Level 3		Fair Value
Financial assets:
Cash and due from banks	$	2,749			2,749		-		-		2,749
Other short-term investments		3,556			3,556		-		-		3,556
Other securities		581			-		581		-		581
Held-to-maturity securities		21			-		-		21		21
Loans and leases held for sale		44			-		-		44		44
Portfolio loans and leases:
Commercial and industrial loans		51,345			-		-		52,138		52,138
Commercial mortgage loans		10,603			-		-		10,587		10,587
Commercial construction loans		5,197			-		-		5,263		5,263
Commercial leases		3,889			-		-		3,559		3,559
Residential mortgage loans		16,542			-		-		17,219		17,219
Home equity		6,396			-		-		6,722		6,722
Indirect secured consumer loans		9,983			-		-		9,871		9,871
Credit card		2,238			-		-		2,668		2,668
Other consumer loans		2,456			-		-		2,610		2,610
Unallocated ALLL		(112	)		-		-		-		-
Total portfolio loans and leases, net	$	108,537			-		-		110,637		110,637
Financial liabilities:
Deposits	$	123,664			-		123,627		-		123,627
Federal funds purchased		2,630			2,630		-		-		2,630
Other short-term borrowings		1,329			-		1,329		-		1,329
Long-term debt		15,483			15,229		816		-		16,045

113

Fifth Third Bancorp and Subsidiaries

Notes to Condensed Consolidated Financial Statements (unaudited)

	Net Carrying			Fair Value Measurements Using						Total
As of December 31, 2018 ($ in millions)	Amount			Level 1		Level 2		Level 3		Fair Value
Financial assets:
Cash and due from banks	$	2,681			2,681		-		-		2,681
Other short-term investments		1,825			1,825		-		-		1,825
Other securities		552			-		552		-		552
Held-to-maturity securities		18			-		-		18		18
Loans and leases held for sale		63			-		-		63		63
Portfolio loans and leases:
Commercial and industrial loans		43,825			-		-		44,668		44,668
Commercial mortgage loans		6,894			-		-		6,851		6,851
Commercial construction loans		4,625			-		-		4,688		4,688
Commercial leases		3,582			-		-		3,180		3,180
Residential mortgage loans		15,244			-		-		15,688		15,688
Home equity		6,366			-		-		6,719		6,719
Indirect secured consumer loans		8,934			-		-		8,717		8,717
Credit card		2,314			-		-		2,759		2,759
Other consumer loans		2,309			-		-		2,428		2,428
Unallocated ALLL		(110	)		-		-		-		-
Total portfolio loans and leases, net	$	93,983			-		-		95,698		95,698
Financial liabilities:
Deposits	$	108,835			-		108,782		-		108,782
Federal funds purchased		1,925			1,925		-		-		1,925
Other short-term borrowings		573			-		573		-		573
Long-term debt		14,426			14,287		445		-		14,732

114

Fifth Third Bancorp and Subsidiaries

Notes to Condensed Consolidated Financial Statements (unaudited)

26. Business Segments

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

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

The Bancorp adjusts the FTP charge and credit rates as dictated by changes in interest rates for various interest-earning assets and interest-bearing liabilities and by the review of behavioral assumptions, such as prepayment rates on interest-earning assets and the estimated durations for indeterminate-lived deposits. Key assumptions, including the credit rates provided for deposit accounts, are reviewed annually. Credit rates for deposit products and charge rates for loan products may be reset more frequently in response to changes in market conditions. The credit rates for several deposit products were reset January 1,2019 to reflect the current market rates and updated market assumptions. These rates were generally higher than those in place during 2018, thus net interest income for deposit-providing business segments was positively impacted during 2019. FTP charge rates on assets were affected by the prevailing level of interest rates and by the duration and repricing characteristics of the portfolio. As overall market rates increased, the FTP charge increased for asset-generating business segments during 2019.

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 cross-sell opportunities and funding operations by accessing the capital markets as a collective unit.

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

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

Branch Banking provides a full range of deposit and loan and lease products to individuals and small businesses through 1,207 full-service banking centers. Branch Banking offers depository and loan products, such as checking and savings accounts, home equity loans and lines of credit, credit cards and loans for automobiles and other personal financing needs, as well as products designed to meet the specific needs of small businesses, including cash management services.

Consumer Lendingincludes the Bancorp’s residential mortgage, home equity, automobile, specialty and other indirect lending activities. Direct lending activities include the origination, retention and servicing of residential mortgage and home equity loans or lines of credit, sales and securitizations of those loans, pools of loans or lines of credit and all associated hedging activities. Indirect lending activities include extending loans to consumers through correspondent lenders, automobile dealers, motorcycle dealers, powersport dealers, recreational vehicle dealers and marine dealers.

Wealth and Asset Management provides a full range of investment alternatives for individuals, companies andnot-for-profit organizations. Wealth and Asset Management is made up of four main businesses: FTS, an indirect wholly-owned subsidiary of the Bancorp; Fifth Third Insurance Agency; Fifth Third Private Bank; and Fifth Third Institutional Services. FTS offers full service retail brokerage services to individual clients and broker-dealer services to the institutional marketplace. Fifth Third Insurance Agency assists clients with their financial and risk management needs. Fifth Third Private Bank offers wealth management strategies to high net worth and ultra-high net worth clients through wealth planning, investment management, banking, insurance, trust and estate services. Fifth Third Institutional Services provides advisory services for institutional clients including middle market businesses,non-profits, states and municipalities.

115

Fifth Third Bancorp and Subsidiaries

Notes to Condensed Consolidated Financial Statements (unaudited)

The following tables present the results of operations and assets by business segment for the three months ended:

							Wealth		General
	Commercial		Branch		Consumer		and Asset		Corporate
March 31, 2019 ($ in millions)	Banking		Banking		Lending		Management		and Other			Eliminations			Total
Net interest income	$	509		584		63		49		(123	)		-			1,082
Provision for credit losses		20		52		13		-		5			-			90
Net interest income after provision for credit losses		489		532		50		49		(128	)		-			992
Noninterest income:
Service charges on deposits		66		64		-		-		1			-			131
Wealth and asset management revenue		1		36		-		108		-			(33)(a)			112
Corporate banking revenue		112		1		-		-		(1	)		-			112
Card and processing revenue		15		63		-		1		-			-			79
Mortgage banking net revenue		-		1		55		-		-			-			56
Other noninterest income(b)		33		18		3		5		533			-			592
Securities gains, net		-		-		-		-		16			-			16
Securities gains, net -non-qualifying hedges on MSRs		-		-		3		-		-			-			3
Total noninterest income		227		183		61		114		549			(33	)		1,101
Noninterest expense:
Salaries, wages and incentives		87		114		35		45		198			-			479
Employee benefits		22		29		10		11		59			-			131
Technology and communications		2		1		2		-		78			-			83
Net occupancy expense		7		43		2		3		20			-			75
Card and processing expense		2		29		-		-		-			-			31
Equipment expense		6		12		-		-		12			-			30
Other noninterest expense		230		212		52		71		(264	)		(33	)		268
Total noninterest expense		356		440		101		130		103			(33	)		1,097
Income before income taxes		360		275		10		33		318			-			996
Applicable income tax expense		66		58		2		7		88			-			221
Net income		294		217		8		26		230			-			775
Total goodwill	$	630		1,655		-		193		1,843	(d)		-			4,321
Total assets	$	74,377		69,599		24,662		9,916		(10,701)	(c)		-			167,853

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

(b) Includes impairment charges of$20 for branches and land. For more information refer to Note 8 and Note 25.

(c) Includes bank premises and equipment of$78 classified as held for sale. For more information refer to Note 8.

(d) Due to the timing of the MB Financial, Inc. acquisition, the Bancorp is in the process of completing its analysis of the allocation of the goodwill across its four business segments, therefore goodwill is presented as part of General Corporate and Other as ofMarch 31, 2019.

									Wealth		General
	Commercial			Branch		Consumer			and Asset		Corporate
March 31, 2018 ($ in millions)	Banking			Banking		Lending			Management		and Other			Eliminations			Total
Net interest income	$	419			466		59			43		9			-			996
Provision for (benefit from) credit losses		(20	)		44		12			16		(39	)		-			13
Net interest income after provision for credit losses		439			422		47			27		48			-			983
Noninterest income:
Service charges on deposits		71			66		-			-		-			-			137
Wealth and asset management revenue		1			37		-			109		-			(34)(a)			113
Corporate banking revenue		86	(c)		1		-			1		-			-			88
Card and processing revenue		14			64		-			1		-			-			79
Mortgage banking net revenue		-			1		55			-		-			-			56
Other noninterest income(b)		49			15		4			5		387			-			460
Securities losses, net		(2	)		-		-			-		(9	)		-			(11	)
Securities losses, net -non-qualifying hedges on MSRs		-			-		(13	)		-		-			-			(13	)
Total noninterest income		219			184		46			116		378			(34	)		909
Noninterest expense:
Salaries, wages and incentives		70			110		39			44		184			-			447
Employee benefits		18			26		11			10		45			-			110
Technology and communications		2			1		1			-		64			-			68
Net occupancy expense		7			43		3			3		19			-			75
Card and processing expense		1			29		-			-		(1	)		-			29
Equipment expense		5			13		-			-		13			-			31
Other noninterest expense		235			215		52			74		(292	)		(34	)		250
Total noninterest expense		338			437		106			131		32			(34	)		1,010
Income (loss) before income taxes		320			169		(13	)		12		394			-			882
Applicable income tax expense (benefit)		64			35		(3	)		3		82			-			181
Net income (loss)		256			134		(10	)		9		312			-			701
Total goodwill	$	630			1,655		-			177		-			-			2,462
Total assets	$	58,712			60,197		22,384			10,611		(10,521)(d)			-			141,383

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

(b) Includes impairment charges of $8 for branches and land. For more information refer to Note 8 and Note 25.

(c) Includes impairment charges of $2 for operating lease equipment. For more information refer to Note 9.

(d) Includes bank premises and equipment of $20 classified as held for sale. For more information refer to Note 8.

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Fifth Third Bancorp and Subsidiaries

Notes to Condensed Consolidated Financial Statements (unaudited)

27. Subsequent Events

On April 25, 2019, the Bancorp entered into an accelerated share repurchase transaction with a counterparty pursuant to which the Bancorp paid $200 million on April 29, 2019 to repurchase shares of its outstanding common stock. The Bancorp is repurchasing the shares of its common stock as part of its Board-approved 100 million share repurchase program previously announced on February 27, 2018. The Bancorp expects the settlement of the transaction to occur on or before June 28, 2019.

In a securitization transaction that occurred in May of 2019, the Bancorp transferred $1.4 billion in aggregate automobile loans to a bankruptcy remote trust which was deemed to be a VIE. The Bancorp retained residual interests in the VIE and retained servicing rights for the underlying loans. As a result, the Bancorp concluded that it is the primary beneficiary and, therefore, will consolidate the VIE in the second quarter of 2019 Form10-Q. The third-party holders of the asset-backed notes do not have recourse to the general assets of the Bancorp.

On May 3, 2019 MB Financial Bank, N.A., merged with and into Fifth Third Bank, with Fifth Third Bank as the surviving entity and included all systems and client conversion in connection with the bank merger. Fifth Third Bank is a subsidiary of Fifth Third Bancorp.

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PART II. OTHER INFORMATION

Legal Proceedings (Item 1)

Refer to Note 20 of the Notes to Condensed Consolidated Financial Statements in Part I, Item 1 for information regarding legal proceedings.

Risk Factors (Item 1A)

The following is a change to the risk factors as previously disclosed in the Registrant’s Annual Report on Form10-K for the year ended December 31, 2018:

Societal responses to climate change could adversely affect Fifth Third’s business and performance, including indirectly through impacts on Fifth Third’s customers.

Concerns over the long-term impacts of climate change have led and will continue to lead to governmental efforts around the world to mitigate those impacts. Consumers and businesses also may change their behavior on their own as a result of these concerns. Fifth Third and its customers will need to respond to new laws and regulations as well as consumer and business preferences resulting from climate change concerns. Fifth Third and its customers may face cost increases, asset value reductions, operating process changes, and the like. The impact on Fifth Third’s customers will likely vary depending on their specific attributes, including reliance on or role in carbon intensive activities. Fifth Third could experience a drop in demand for Fifth Third’s products and services, particularly in certain sectors. In addition, Fifth Third could face reductions in creditworthiness on the part of some customers or in the value of assets securing loans. Fifth Third’s efforts to take these risks into account in making lending and other decisions, including by increasing business relationships with climate-friendly companies, may not be effective in protecting Fifth Third from the negative impact of new laws and regulations or changes in consumer or business behavior.

Unregistered Sales of Equity Securities and Use of Proceeds (Item 2)

Refer to the “Capital Management” section within Management’s Discussion and Analysis in Part I, Item 2 for information regarding purchases and sales of equity securities by the Bancorp during the first quarter of 2019.

Defaults Upon Senior Securities (Item 3)

None.

Mine Safety Disclosures (Item 4)

Not applicable.

Other Information (Item 5)

None.

Exhibits (Item 6)

3.1 Amended Articles of Incorporation of Fifth Third Bancorp, as amended. Incorporated by reference to Exhibit 3.1 to the Registrant’s Quarterly Report on Form10-Q for the fiscal quarter ended June 30, 2014.

3.2 Amendment to Amended Articles of Incorporation of Fifth Third Bancorp, as amended.

3.3 Code of Regulations of Fifth Third Bancorp as Amended as of September 15, 2014. Incorporated by reference to Exhibit 3.2 to the Registrant’s Annual Report on Form10-K for the fiscal year ended December 31, 2015.

4.1 Certain instruments defining the rights of holders of long-term debt securities of the Registrant and its subsidiaries are omitted pursuant to Item 601(b)(4)(iii) of RegulationS-K. The Registrant hereby undertakes to furnish to the SEC, upon request, copies of any such instruments.

4.2 Charter of MB Financial, Inc., as amended. Incorporated by reference to Exhibit 4.1 to the Post-Effective Amendment No. One on FormS-8 to MB Financial, Inc.’s FormS-4 Registration Statement filed on August 26, 2016 (RegistrationNo. 333-208966).

4.3 Articles Supplementary to the Charter of MB Financial, Inc. for MB Financial, Inc.’s 6.00%Non-Cumulative Perpetual Preferred Stock, Series C. Incorporated by reference to Exhibit 3.1 to MB Financial, Inc.’s Current Report on Form8-K filed on November 21, 2017.

4.4 By-laws of MB Financial, Inc., as amended. Incorporated by reference to Exhibit 3.1 to MB Financial, Inc.’s Current Report on Form8-K filed on March 2, 2015.

10.1 Master Confirmation, as supplemented by two Supplemental Confirmations, for accelerated share repurchase transaction dated March 11, 2019 between Fifth Third Bancorp and JPMorgan Chase Bank, National Association, London Branch.*

31(i) Certification Pursuant to Section  302 of the Sarbanes-Oxley Act of 2002 by Chief Executive Officer.

31(ii) Certification Pursuant to Section  302 of the Sarbanes-Oxley Act of 2002 by Chief Financial Officer.

32(i) Certification Pursuant to 18 U.S.C. Section  1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 by Chief Executive Officer.

32(ii) Certification Pursuant to 18 U.S.C. Section  1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 by Chief Financial Officer.

101 Interactive data files pursuant to Rule 405 of RegulationS-T: (i) the Condensed Consolidated Balance Sheets, (ii) the Condensed Consolidated Statements of Income, (iii) the Condensed Consolidated Statements of Comprehensive Income, (iv) the Condensed Consolidated Statements of Changes in Equity, (v) the Condensed Consolidated Statements of Cash Flows, and (vi) the Notes to Condensed Consolidated Financial Statements tagged as blocks of text and in detail.

* Selected portions of this exhibit have been omitted in accordance with Item 601(b)(10) of RegulationS-K.

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Signature

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	Fifth Third Bancorp
	Registrant
Date: May 10, 2019
	/s/ Tayfun Tuzun
	Tayfun Tuzun
	Executive Vice President and
	Chief Financial Officer
	(Duly Authorized Officer & Principal Financial Officer)

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