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 June 30, 2018March 31, 2019

Commission File Number001-33653

(Exact name of Registrant as specified in its charter)

Fifth Third Center

Cincinnati, Ohio 45263

(Address of principal executive offices)

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

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

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

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

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

There were 668,092,149734,386,147 shares of the Registrant’s common stock, without par value, outstanding as of July 31, 2018.April 30, 2019.

FINANCIAL CONTENTS

FORWARD-LOOKING STATEMENTS

This report contains statements that we believe are “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Rule 175 promulgated thereunder, and Section 21E of the Securities Exchange Act of 1934, as amended, and Rule3b-6 promulgated thereunder. These statements relate to our financial condition, results of operations, plans, objectives, future performance or business. They usually can be identified by the use of forward-looking language such as “will likely result,” “may,” “are expected to,” “is anticipated,” “potential,” “estimate,” “forecast,” “projected,” “intends to,” or may include other similar words or phrases such as “believes,” “plans,” “trend,” “objective,” “continue,” “remain,” or similar expressions, or future or conditional verbs such as “will,” “would,” “should,” “could,” “might,” “can,” or similar verbs. You should not place undue reliance on these statements, as they are subject to risks and uncertainties, including but not limited to the risk factors set forth in the Risk Factors section in Item 1A in our most recent Annual Report on Form10-K as updated by our Quarterly ReportsReport on Form10-Q10-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) regulatory objections to Fifth Third’s resolution plan; (22) deposit insurance premiums; (23)(22) assessments for the orderly liquidation fund; (24) changes in(23) replacement of LIBOR; (25)(24) weakness in the national or local economies; (26)(25) global political and economic uncertainty or negative actions; (27)(26) changes in interest rates; (28)(27) changes and trends in capital markets; (29)(28) fluctuation of Fifth Third’s stock price; (30)(29) volatility in mortgage banking revenue; (31)(30) litigation, investigations and enforcement proceedings by governmental authorities; (32)(31) breaches of contractual covenants, representations and warranties; (33)(32) competition and changes in the financial services industry; (34)(33) changing retail distribution strategies, customer preferences and behavior; (35)(34) risks relating to the potential merger with MB Financial, Inc. and Fifth Third’s ability to realize the anticipated benefits of the merger; (36)(35) difficulties in identifying, acquiring or integrating suitable strategic partnerships, investments or acquisitions; (37)(36) potential dilution from future acquisitions; (38)(37) loss of income and/or difficulties encountered in the sale and separation of businesses, investments or other assets; (39)(38) results of Vantiv Holding, LLC, a subsidiary of Worldpay, Inc. or other investments or acquired entities; (40) difficulties from or changes in Fifth Third’s investment in, relationship with, and nature of the operations of Vantiv Holding, LLC, a subsidiary of Worldpay, Inc.; (41)(39) changes in accounting standards or interpretation or declines in the value of Fifth Third’s goodwill or other intangible assets; (42)(40) inaccuracies or other failures from the use of models; (43)(41) effects of critical accounting policies and judgments or the use of inaccurate estimates; (44) weather related(42) weather-related events or other natural disasters; and (45)(43) the impact of reputational risk created by these or other developments on such matters as business generation and retention, funding and liquidity.

Glossary of Abbreviations and Acronyms

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

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

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

TABLE 1: Selected Financial Data    

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

OVERVIEW

Fifth Third Bancorp is a diversified financial services company headquartered in Cincinnati, Ohio. At June 30, 2018,March 31, 2019, the Bancorp had $140.7$167.9 billion in assets and operated 1,1581,207 full-service banking centers and 2,4582,559 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. The Bancorp also has an approximate 3.3% interest in Vantiv Holding, LLC. The carrying value of the Bancorp’s investment in Vantiv Holding, LLC was $426 million at June 30, 2018.

This overview of MD&A highlights selected information in the financial results of the Bancorp and may not contain all of the information that is important to you. For a more complete understanding of trends, events, commitments, uncertainties, liquidity, capital resources and critical accounting policies and estimates, you should carefully read this entire document as well as the Bancorp’s Annual Report on Form10-K for the year ended December 31, 2017.2018. 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 June 30, 2018,March 31, 2019, net interest income on an FTE basis and noninterest income each provided 58% and 42%50% of total revenue, respectively. For the six months ended June 30, 2018, net interest income on an FTE basis and noninterest income provided 55% and 45% of total revenue, respectively.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 both the three and six months ended June 30, 2018.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, net occupancy expense, technology and communication costs, equipmentnet occupancy expense, card and processing expense, equipment expense and other noninterest expense.

Vantiv,Acquisition of MB Financial, Inc.

On March 22, 2019, Fifth Third Bancorp completed its acquisition of MB Financial, Inc. in a stock and Vantivcash 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 January 16, 2018, Vantiv, Inc. completedMarch 18, 2019, the Bancorp exchanged its previously announced acquisitionremaining 10,252,826 Class B Units of Worldpay Group plc. with the resulting combined company namedHolding, 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 $414$562 million in other noninterest income during the first quarter of 2018 associated with the dilution in its ownership interest in Vantiv Holding, LLC from approximately 8.6% to approximately 4.9%.

On June 27, 2018, the Bancorp completed the sale of 5 million shares of Class A common stock of Worldpay, Inc., formerly Vantiv, Inc. The Bancorp had previously received these Class A shares in exchange for Class B Units of Vantiv Holding, LLC. The Bancorp recognized a gain of $205 million related to the sale.2019. As a result of the sale, the Bancorp no longer beneficially owns approximately 3.3%any of Worldpay’sWorldpay, Inc.’s equity through its ownershipsecurities.

Management’s Discussion and Analysis of approximately 10.3 million Class B Units. TheFinancial 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 remaining interestcommon 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.

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 Vantiv Holding, LLCwhole 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 $426 million continuesthe principal amount of the notes to be accounted for as an equity method investment givenredeemed plus accrued and unpaid interest up to, but excluding, the natureredemption date.

On February 1, 2019, Fifth Third Bank issued and sold, under its bank notes program, $300 million of Vantiv Holding, LLC’s structure assenior floating-rate notes, with a limited liability companymaturity 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 contractual arrangements between Vantiv Holding, LLC andunpaid interest up to, but excluding, the Bancorp.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 arewere exchangeable on aone-to-one basis for Class A common stock or cash aftercash.

During the initial180-daylock-up period expires.

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 $102$53 million for the sixthree months ended June 30, 2018March 31, 2019 compared to the same period in the prior yearthree months ended March 31, 2018 primarily driven by an increase in base$35 million of merger-related expenses, the addition of personnel costs from the acquisition of MB Financial, Inc. and higher deferred compensation variable compensation, long-term incentive compensation and severance costs.expense. Technology and communications expense increased $19$15 million for the sixthree months ended June 30, 2018March 31, 2019 compared to the same period in the prior yearthree months ended March 31, 2018 primarily driven primarily by $11 million of merger-related expenses and increased investment in regulatory, compliance and growth initiatives. Other noninterest expense increased $17$18 million for the sixthree months ended June 30, 2018March 31, 2019 compared to the same period in the prior yearthree 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 in the impairment on affordable housing investments, marketing expense and donations expense,were partially offset by an increasea decrease in the benefit for the reserve for unfunded commitments.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 loan and leasecredit losses was $33$90 million and $56$13 million for the three and six months ended June 30,March 31, 2019 and 2018, respectively, compared to $52 million and $126 million for the comparable periods in 2017.respectively. Net lossescharged-off as a percent of average portfolio loans and leases increased to 0.41%were 0.32% during the three months ended June 30, 2018first quarter of 2019 compared to 0.28%0.36% during the same period in the prior year and increased to 0.38% for the six months ended June 30, 2018 compared to 0.34% for the same period in the prior year.first quarter of 2018. At June 30, 2018,March 31, 2019, nonperforming portfolio assets as a percent of portfolio loans and leases and OREO decreasedincreased to 0.52%0.45% compared to 0.53%0.41% at December 31, 2017.2018. 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 June 30, 2018,March 31, 2019, as calculated under the Basel III standardized approach, the CET1 capital ratio was 10.91%9.60%, the Tier I risk-based capital ratio was 12.02%10.67%, the Total risk-based capital ratio was 15.21%13.68% and the Tier I leverage ratio was 10.24%10.32%.

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

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.

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:GAAP for the three months ended:

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

The Bancorp considers various measures when evaluating capital utilization and adequacy, including the tangible equity ratio and tangible common equity ratio, in addition to capital ratios defined by the U.S. banking agencies. These calculations are intended to complement the capital ratios defined by the U.S. banking agencies for both absolute and comparative purposes. Because U.S. GAAP does not include capital ratio measures, the Bancorp believes there are no comparable U.S. GAAP financial measures to these ratios. These ratios are not formally defined by U.S. GAAP or codified in the federal banking regulations and, therefore, are considered to benon-GAAP financial measures. The Bancorp encourages readers to consider its Condensed Consolidated Financial Statements in their entirety and not to rely on any single financial measure.

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

RECENT ACCOUNTING STANDARDS

Note 34 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, 2017.2018. There have been no material changes to the valuation techniques or models during the sixthree months ended June 30, 2018.March 31, 2019.

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.

TablesTable 6 and 7 presentpresents the components of net interest income, net interest margin and net interest rate spread for the three and six months ended June 30,March 31, 2019 and 2018, and 2017, as well as the relative impact of changes in the balance sheet and changes in interest rates on net interest income. Nonaccrual loans and leases and loans and leases held for sale have been included in the average loan and lease balances. Average outstanding securities balances are based on amortized cost with any unrealized gains or losses included in other assets.

Net interest income on an FTE basis(non-GAAP) was $1.0$1.1 billion and $2.0 billion$999 million for the three and six months ended June 30,March 31, 2019 and 2018, respectively, an increase of $79 million and $139 million compared to the same periods in the prior year.respectively. Net interest income was positively impacted by an increaseincreases in yields on average loans and leases of 56 bps and 4962 bps for the three and six months ended June 30, 2018, respectively and increases in average taxable securities of $1.3 billion for both the three and six months ended June 30, 2018March 31, 2019 compared to the same periodsthree 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 prior year.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 December 2017, March 2018, June 2018, September 2018 and JuneDecember 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 both the three and six months ended June 30, 2018March 31, 2019 compared to the same periods in the prior year.three months ended March 31, 2018. The rates paid on average interest-bearing core deposits and average long-term debt increased 3147 bps and 2549 bps, respectively, for the three and six months ended June 30, 2018March 31, 2019 compared to the same periodsperiod in the prior year. The rates paidDue to the timing of the close of the MB Financial, Inc. acquisition, amortization and accretion of premiums and discounts on average long-term debt increased 35 bpsacquired loans and 27 bpsdeposits had an immaterial impact on net interest income for the three and six months ended June 30, 2018, respectively, compared to the same periods in the prior year.March 31, 2019.

Net interest rate spread on an FTE basis(non-GAAP) was 2.86%2.87% during both the three and six months ended June 30, 2018March 31, 2019 compared to 2.75% and 2.77%2.88% in the same periodsperiod in the prior year. Yields on average interest-earning assets increased 44 bps and 38 bps for the three and six months ended June 30, 2018, respectively, partially offset by a 33 bps and 29 bps increase in rates2018. 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 and six months ended June 30, 2018, respectively,March 31, 2019 compared to the same periods in the prior year.three months ended March 31, 2018.

Net interest margin on an FTE basis(non-GAAP) was 3.21% and 3.19%3.28% for the three and six months ended June 30, 2018, respectively,March 31, 2019 compared to 3.01%3.18% for both the three and six months ended June 30, 2017.March 31, 2018. The increase for both periodsfrom the three months ended March 31, 2018 was driven primarily by the previously mentionedincrease in net interest income attributable to increases in average interest-earning assets and the net interest rate spreadyields on interest-earning assets, partially offset by decreasesa decrease in average free funding balances. The decreasesdecrease in average free funding balances for both periods werewas driven by a decrease in average demand deposits of $2.1 billion and $1.7$3.3 billion for the three and six months ended June 30, 2018, respectively,March 31, 2019 compared to the same periods in the prior year.three months ended March 31, 2018.

Interest income on an FTE basis from loans and leases(non-GAAP) increased $136$206 million and $232 million forduring the three and six months ended June 30, 2018, respectively,March 31, 2019 compared to the same periods inthree months ended March 31, 2018 driven by the prior year. The increases were primarily due to the aforementioned increasespreviously mentioned increase in yields on average loansloan and leases, as well as increases in the volumebalance 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 $25$22 million and $45 million forduring the three and six months ended June 30, 2018, respectively,March 31, 2019 compared to the same periods in the prior yearthree months ended March 31, 2018 primarily as a result of the aforementioned increases in average taxable securities and yields on average taxable securities.

Interest expense on core deposits increased $56 million and $91$97 million for the three and six months ended June 30, 2018, respectively,March 31, 2019 compared to the same periods in the prior year. The increases werethree months ended March 31, 2018 primarily due to increasesan increase in the cost of average interest-bearing core deposits to 65 bps and 5899 bps for the three and six months ended June 30, 2018, respectively,March 31, 2019 from 34 bps and 3352 bps for the three and six months ended June 30, 2017, respectively.March 31, 2018. The increasesincrease in the cost of average interest-bearing core deposits for both periods werewas primarily due to increasesan increase in the rates paid oncost 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 $26 million and $47$44 million for the three and six months ended June 30, 2018, respectively,March 31, 2019 compared to the same periods in the prior yearthree months ended March 31, 2018 primarily due to the aforementioned increases in the rates paid on average long-term debt coupled with increasesand average other short-term borrowings, partially offset by a decrease in average long-term debt.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 and six months ended June 30,March 31, 2019 and 2018, average wholesale funding represented 23% of average interest-bearing liabilities compared to 24% and 23% during the three and six months ended June 30, 2017, respectively.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.

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