FITB 10-Q Quarter ended March 31, 2016

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended March 31, 2016

Commission File Number 001-33653

(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 x 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 Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes x No ¨

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x

There were 767,717,824 shares of the Registrant’s common stock, without par value, outstanding as of April 30, 2016.

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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 Rule 3b-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,” “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 Form 10-K. When considering these forward-looking statements, you should keep in mind these risks and uncertainties, as well as any cautionary statements we may make. Moreover, you should treat these statements as speaking only as of the date they are made and based only on information then actually known to us. There are a number of important factors that could cause future results to differ materially from historical performance and these forward-looking statements. Factors that might cause such a difference include, but are not limited to: (1) general economic or real estate market conditions, either nationally or in the states in which Fifth Third, one or more acquired entities and/or the combined company do business, weaken or are less favorable than expected; (2) deteriorating credit quality; (3) political developments, wars or other hostilities may disrupt or increase volatility in securities markets or other economic conditions; (4) changes in the interest rate environment reduce interest margins; (5) prepayment speeds, loan origination and sale volumes, charge-offs and loan loss provisions; (6) Fifth Third’s ability to maintain required capital levels and adequate sources of funding and liquidity; (7) maintaining capital requirements and adequate sources of funding and liquidity may limit Fifth Third’s operations and potential growth; (8) changes and trends in capital markets; (9) problems encountered by larger or similar financial institutions may adversely affect the banking industry and/or Fifth Third; (10) competitive pressures among depository institutions increase significantly; (11) effects of critical accounting policies and judgments; (12) changes in accounting policies or procedures as may be required by the Financial Accounting Standards Board (FASB) or other regulatory agencies; (13) legislative or regulatory changes or actions, or significant litigation, adversely affect Fifth Third, one or more acquired entities and/or the combined company or the businesses in which Fifth Third, one or more acquired entities and/or the combined company are engaged, including the Dodd-Frank Wall Street Reform and Consumer Protection Act; (14) ability to maintain favorable ratings from rating agencies; (15) fluctuation of Fifth Third’s stock price; (16) ability to attract and retain key personnel; (17) ability to receive dividends from its subsidiaries; (18) potentially dilutive effect of future acquisitions on current shareholders’ ownership of Fifth Third; (19) effects of accounting or financial results of one or more acquired entities; (20) difficulties from Fifth Third’s investment in, relationship with, and nature of the operations of Vantiv, LLC; (21) loss of income from any sale or potential sale of businesses (22) difficulties in separating the operations of any branches or other assets divested; (23) inability to achieve expected benefits from branch consolidations and planned sales within desired timeframes, if at all; (24) ability to secure confidential information and deliver products and services through the use of computer systems and telecommunications networks; and (25) the impact of reputational risk created by these developments on such matters as business generation and retention, funding and liquidity.

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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.

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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.

TABLE 1: Selected Financial Data

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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, 2016, the Bancorp had $142.4 billion in assets and operated 1,241 full-service banking centers, including 95 Bank Mart® locations, open seven days a week, inside select grocery stores, and 2,556 ATMs in eleven 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 Investment Advisors. The Bancorp also has an approximate 18% interest in Vantiv Holding, LLC. The carrying value of the Bancorp’s investment in Vantiv Holding, LLC was $374 million at March 31, 2016.

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 Form 10-K for the year ended December 31, 2015. 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 Form 10-Q. The abbreviations and acronyms identified therein are used throughout this MD&A, as well as the Condensed Consolidated Financial Statements and Notes to the Condensed Consolidated Financial Statements.

Net interest income, net interest margin and the efficiency ratio are presented in MD&A on an FTE basis. The FTE basis adjusts for the tax-favored status of income from certain loans and securities held by the Bancorp that are not taxable for federal income tax purposes. The Bancorp believes this presentation to be the preferred industry measurement of net interest income as it provides a relevant comparison between taxable and non-taxable amounts.

The Bancorp’s revenues are dependent on both net interest income and noninterest income. For the three months ended March 31, 2016, net interest income on an FTE basis and noninterest income provided 59% and 41% of total revenue, respectively. The Bancorp derives the majority of its revenues within the U.S. from customers domiciled in the U.S. Revenue from foreign countries and external customers domiciled in foreign countries was immaterial to the Condensed Consolidated Financial Statements for the three months ended March 31, 2016. 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 due to a weakened economy within the Bancorp’s footprint.

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

Branch Consolidation and Sales Plan

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. On June 16, 2015, the Bancorp’s Board of Directors authorized management to pursue a plan to further develop its distribution strategy, including a plan to consolidate and/or sell certain operating branch locations and certain parcels of undeveloped land that had been acquired by the Bancorp for future branch expansion (the “Branch Consolidation and Sales Plan”). The Bancorp expects to receive approximately $60 million in annual savings from operating expenses upon completion of the Branch Consolidation and Sales Plan. For more information on the Branch Consolidation and Sales Plan, refer to Note 7 of the Notes to Condensed Consolidated Financial Statements.

On September 3, 2015, the Bancorp announced the decision to enter into an agreement to sell branch banking locations, retail accounts, certain private banking deposits and related loan relationships in the Pittsburgh MSA to First National Bank of Pennsylvania. On September 30, 2015, the Bancorp announced the decision to enter into an agreement to sell its retail operations, including retail accounts, certain private banking deposits and related loan relationships in the St. Louis MSA to Great Southern Bank. Both transactions are part of the Branch Consolidation and Sales Plan.

On January 29, 2016, the Bancorp closed the previously announced sale in the St. Louis MSA to Great Southern Bank. The sale included loans, premises and equipment and deposits with aggregate carrying amounts of $158 million, $18 million and $228 million, respectively.

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

The Bancorp recorded a gain on the sale of $8 million which was recorded in other noninterest income in the Condensed Consolidated Statements of Income.

Pursuant to the Branch Consolidation and Sales Plan, the Bancorp intended to consolidate and/or sell 60 operating branch locations and to sell an additional 23 parcels of undeveloped land that had been acquired by the Bancorp for future branch expansion as of March 31, 2016.

The sale of the Pittsburgh MSA retail operations to First National Bank of Pennsylvania closed on April 22, 2016. For further information on this transaction, refer to Note 22 of the Notes to Condensed Consolidated Financial Statements.

Accelerated Share Repurchase Transactions

During the three months ended March 31, 2016, the Bancorp entered into or settled accelerated share repurchase transactions. As part of these transactions, the Bancorp entered into forward contracts in which the final number of shares delivered at settlement was based generally on a discount to the average daily volume weighted-average price of the Bancorp’s common stock during the term of the repurchase agreements. For more information on the accelerated share repurchase program, refer to Note 14 of the Notes to Condensed Consolidated Financial Statements. For a summary of the Bancorp’s accelerated share repurchase transactions that were entered into or settled during the three months ended March 31, 2016, refer to Table 2.

TABLE 2: Summary of Accelerated Share Repurchase Transactions

Senior and Subordinated Notes Offerings

On March 15, 2016, the Bank issued and sold $1.5 billion in aggregate principal amount of unsecured bank notes. The bank notes consisted of $750 million of 2.30% senior fixed-rate notes, with a maturity of three years, due on March 15, 2019; and $750 million of 3.85% subordinated fixed-rate notes, with a maturity of ten years, due on March 15, 2026. These bank notes will be redeemable by the 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 plus accrued and unpaid interest up to, but excluding, the redemption date.

Legislative and Regulatory Developments

During the first quarter of 2016, the FDIC issued a final rule implementing a 4.5 bps surcharge on the quarterly FDIC insurance assessments of insured depository institutions with total consolidated assets of $10 billion or more. The surcharge will take effect at the same time the FDIC is required to lower the regular FDIC insurance assessments by approximately 2 bps under a rule adopted by the FDIC in 2011 which is triggered by the DIF reserve ratio reaching 1.15% of insured deposits. The surcharge will take effect on July 1, 2016 if the DIF reserve ratio reaches 1.15% before July 1, 2016; otherwise it will begin the first day of the calendar quarter after the reserve ratio reaches 1.15%. Surcharges will continue through the quarter that the reserve ratio first reaches or exceeds 1.35% of insured deposits, but not later than December 31, 2018. If the reserve ratio does not reach 1.35% by December 31, 2018, the FDIC will impose a shortfall assessment on March 31, 2019, on insured depository institutions with total consolidated assets of $10 billion or more. The FDIC has announced they expect that surcharges will commence in the second half of 2016 and that they should be sufficient to raise the DIF reserve ratio to 1.35% in approximately eight quarters. Fifth Third estimates the announced changes to the FDIC assessments will result in a net increase in its FDIC insurance expense of approximately $24 million on an annual basis.

The FRB launched the 2016 stress testing program and CCAR on January 28, 2016, with submissions of stress test results and capital plans to the FRB due on April 5, 2016, which the Bancorp submitted as required. The FRB expects to release summary results of the 2016 stress testing program and CCAR by June 30, 2016. The results will include supervisory projections of capital ratios, losses and revenue under the supervisory adverse and supervisory severely adverse scenarios. The FRB will also issue an objection or non-objection to each participating institution’s capital plan submitted under CCAR. The FRB’s summary results will also include an overview of methodologies used for supervisory tests. Additionally, as a CCAR institution, the Bancorp will be required to disclose the results of its company-run stress test as required by the DFA, within 15 days of the date the FRB discloses the results of its DFA supervisory tests.

Fifth Third offers qualified deposit customers a deposit advance product if they choose to avail themselves of this product to meet short-term, small-dollar financial needs. Fifth Third’s deposit advance product is designed to fully comply with the applicable federal and state laws and use of this product is subject to strict eligibility requirements and advance restriction guidelines to limit dependency on this product as a borrowing source. The Bancorp’s deposit advance balances are included in other consumer loans and leases in the Loans and Leases subsection of the Balance Sheet Analysis section of MD&A and in Table 6 in the Statements of Income Analysis section of MD&A. On January 17, 2014, given developments in industry practice, Fifth Third announced that it would no longer enroll new customers in its deposit advance product and expected to phase out the service to existing customers by the end of 2014. To avoid a disruption to its existing customers during the extension period while the banking industry awaits further regulatory guidance on the deposit advance product, on November 3, 2014, Fifth Third announced changes to its current deposit advance product for existing customers beginning January 1, 2015, including a lower transaction fee, an extended repayment period and a reduced maximum advance period. The Bancorp is continuing to offer the service to existing deposit advance customers until further regulatory guidance is finalized.

On December 10, 2013, the U.S. banking agencies finalized section 619 of the DFA, known as the Volcker Rule, which became effective April 1, 2014. Though the Final Rule was effective April 1, 2014, the FRB granted the industry an extension of time until July 21, 2015 to conform certain of its activities related to proprietary trading to comply with the Volcker Rule.

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

In addition, the FRB has granted the industry an extension of time until July 21, 2016, and announced its intention to grant a one year extension of the conformance period until July 21, 2017, to conform certain ownership interests in, sponsorship activities of and relationships with private equity or hedge funds as well as holding certain collateralized loan obligations that were in place as of December 31, 2013. It is possible that additional conformance period extensions could be granted either to the entire industry, or, upon request, to requesting banking organizations on a case-by-case basis. The Final Rule prohibits banks and BHCs from engaging in short-term proprietary trading of certain securities, derivatives, commodity futures and options on these instruments for their own account. The Volcker Rule also restricts banks and their affiliated entities from owning, sponsoring or having certain relationships with private equity and hedge funds, as well as holding certain collateralized loan obligations that are deemed to contain ownership interests. Exemptions are provided for certain activities such as underwriting, market making, hedging, trading in certain government obligations and organizing and offering a hedge fund or private equity fund. Fifth Third does not sponsor any private equity or hedge funds that, under the Final Rule, it is prohibited from sponsoring. At March 31, 2016, the Bancorp did not hold collateralized loan obligations. At March 31, 2016, the Bancorp had approximately $183 million in interests and approximately $34 million in binding commitments to invest in private equity funds that are affected by the Volcker Rule. It is expected that over time the Bancorp may need to dispose of these investments, however no formal plan to sell has been approved as of March 31, 2016. As a result of the announced conformance period extension, the Bancorp believes it is likely that these investments will be reduced over time in the ordinary course of events before compliance is required.

On October 10, 2014, the U.S. Banking Agencies published final rules implementing a quantitative liquidity requirement consistent with the LCR standard established by the BCBS for large internationally active banking organizations, generally those with $250 billion or more in total consolidated assets or $10 billion or more in on-balance sheet foreign exposure. In addition, a modified LCR requirement was implemented for BHCs with $50 billion or more in total consolidated assets but that are not internationally active, such as Fifth Third. The Modified LCR became effective January 1, 2016 and requires BHCs to calculate its LCR on a monthly basis. Refer to the Liquidity Risk Management subsection of the Risk Management section of MD&A for further discussion on these ratios.

Earnings Summary

The Bancorp’s net income available to common shareholders for the first quarter of 2016 was $312 million, or $0.40 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 2015 was $346 million, or $0.42 per diluted share, which was net of $15 million in preferred stock dividends. Pre-provision net revenue was $554 million for both the three months ended March 31, 2016 and 2015. Pre-provision net revenue is a non-GAAP measure. For further information, refer to the Non-GAAP Financial Measures section in MD&A.

Net interest income on an FTE basis was $909 million and $852 million for the three months ended March 31, 2016 and 2015, respectively. Net interest income was positively impacted by increases in average taxable securities and average loans and leases of $6.5 billion and $2.4 billion, respectively. Net interest margin on an FTE basis was 2.91% and 2.86% for the three months ended March 31, 2016 and 2015, respectively.

Noninterest income increased $7 million for the three months ended March 31, 2016 compared to the three months ended March 31, 2015 primarily due to an increase in corporate banking revenue partially offset by a decrease in other noninterest income. Corporate banking revenue increased $39 million for the three months ended March 31, 2016 compared to the three months ended March 31, 2015 primarily driven by the impact of a $30 million impairment charge related to operating lease equipment that was recognized in the first quarter of 2015 as well as an increase in syndication fees partially offset by decreases in foreign exchange fees and letter of credit fees. Other noninterest income decreased $27 million in the first quarter of 2016 compared to the first quarter of 2015. The decrease included a positive valuation adjustment on the stock warrant associated with Vantiv Holding, LLC of $47 million for the three months ended March 31, 2016 compared to a positive valuation adjustment of $70 million for the three months ended March 31, 2015. Additionally, gain on loan sales decreased $42 million for the three months ended March 31, 2016 compared to the three months ended March 31, 2015 primarily due to a $37 million gain on the sale of residential mortgage loans classified as TDRs during the three months ended March 31, 2015. The Bancorp recognized a $1 million positive valuation adjustment related to the Visa total return swap for the three months ended March 31, 2016 compared to a negative valuation adjustment of $17 million for the three months ended March 31, 2015. The three months ended March 31, 2016 also included the impact of a $8 million gain on the sale of certain branches in the St. Louis MSA as part of the previously announced Branch Consolidation and Sales Plan.

Noninterest expense increased $63 million for the three months ended March 31, 2016 compared to the three months ended March 31, 2015 primarily due to increases in personnel costs and other noninterest expense. Personnel costs increased $35 million for the three months ended March 31, 2016 compared to the three months ended March 31, 2015 primarily driven by a $14 million increase in retirement costs related to the voluntary early retirement program as well as increases in base and variable compensation. Other noninterest expense increased $31 million for the three months ended March 31, 2016 compared to the three months ended March 31, 2015 primarily due to increases in FDIC insurance and other taxes, the provision for the reserve for unfunded commitments and losses and adjustments partially offset by a decrease in donations expense.

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

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

Credit Summary

The provision for loan and lease losses was $119 million and $69 million for the three months ended March 31, 2016 and 2015, respectively. Net losses charged-off as a percent of average portfolio loans and leases were 0.42% during the first quarter of 2016 compared to 0.41% during the first quarter of 2015. At March 31, 2016, nonperforming portfolio assets as a percent of portfolio loans and leases and OREO increased to 0.88% compared to 0.70% at December 31, 2015. 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, 2016, as calculated under the Basel III transition provisions, the CET1 capital ratio was 9.81%, the Tier I risk-based capital ratio was 10.91%, the Total risk-based capital ratio was 14.66% and the Tier I leverage ratio was 9.57%.

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

NON-GAAP FINANCIAL MEASURES

The following are non-GAAP measures which are important to the reader of the Condensed Consolidated Financial Statements but should be supplemental to primary U.S. GAAP measures.

Pre-provision net revenue is net interest income plus noninterest income minus noninterest expense. The Bancorp believes this measure is important because it provides a ready view of the Bancorp’s pre-tax earnings before the impact of provision expense.

The following table reconciles the non-GAAP financial measure of pre-provision net revenue to U.S. GAAP for the three months ended:

TABLE 3: Non-GAAP Financial Measures - Pre-Provision Net Revenue

The Bancorp believes return on average tangible common equity is an important measure for comparative purposes with other financial institutions, but is not defined under U.S. GAAP, and therefore is considered a non-GAAP financial measure.

The following table reconciles the non-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

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

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

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

TABLE 5: Non-GAAP Financial Measures - Capital Ratios

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

RECENT ACCOUNTING STANDARDS

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

CRITICAL ACCOUNTING POLICIES

The 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 Form 10-K for the year ended December 31, 2015. No material changes were made to the valuation techniques or models during the three months ended March 31, 2016.

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

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, 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, 2016 and 2015, 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 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 on available-for-sale securities included in other assets.

Net interest income on an FTE basis was $909 million and $852 million for the first quarters of 2016 and 2015, respectively. Net interest income was positively impacted by increases in average taxable securities and average loans and leases of $6.5 billion and $2.4 billion, respectively, as well as the decision of the Federal Open Market Committee in December 2015 to raise the target range of the federal funds rate 25 bps. The net interest rate spread increased to 2.70% in the first quarter of 2016 from 2.68% in the same period in 2015 due to a 6 bps increase in yields on average interest-earnings assets partially offset by a 4 bps increase in the rates paid on average interest-bearing liabilities for the three months ended March 31, 2016 compared to the three months ended March 31, 2015.

Net interest margin on an FTE basis was 2.91% for the three months ended March 31, 2016 compared to 2.86% for the three months ended March 31, 2015. The increase from March 31, 2015 was driven primarily by the previously mentioned increase in the net interest rate spread coupled with increases in average free funding balances partially offset by a $5.0 billion increase in average interest-earning assets. The increase in average free funding balances was driven by increases in average demand deposits and average shareholders’ equity of $1.4 billion and $548 million, respectively, for the three months ended March 31, 2016 compared to the three months ended March 31, 2015.

Interest income on an FTE basis from loans and leases increased $27 million compared to the first quarter of 2015 primarily due to an increase of $2.4 billion in average loans and leases driven primarily by increases in average commercial and industrial loans, average commercial construction loans and average residential mortgage loans. Yields on average loans and leases were flat for the three months ended March 31, 2016 compared to the three months ended March 31, 2015 as the decrease in yields on average consumer loans and leases, primarily due to decreases in yields on average residential mortgage loans and average other consumer loans and leases, was offset by an increase in yields on average commercial loans and leases, driven primarily by an increase in yields on average commercial and industrial 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 $42 million compared to the three months ended March 31, 2015 primarily as a result of the aforementioned increase in average taxable securities.

Interest expense on core deposits decreased $2 million for the three months ended March 31, 2016 compared to the three months ended March 31, 2015 primarily due to a decline in the cost of average interest-bearing core deposits to 25 bps for the three months ended March 31, 2016 from 26 bps for the three months ended March 31, 2015. The decrease was primarily due to a decrease in the cost of average money market deposits partially offset by an increase in the cost of average interest checking 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 $14 million for the three months ended March 31, 2016 compared to the three months ended March 31, 2015 primarily due to increases of 28 bps and 19 bps in the rates paid on average other short-term borrowings and average long-term debt, respectively, coupled with an increase in average long-term debt of $535 million. Refer to the Borrowings subsection of the Balance Sheet Analysis section of MD&A for additional information on the Bancorp’s borrowings. During the three months ended March 31, 2016 and 2015, respectively, average wholesale funding represented 26% and 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.

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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

Provision for Loan and Lease Losses

The Bancorp provides as an expense an amount for probable loan and lease losses within the loan and lease portfolio that is based on factors previously discussed in the Critical Accounting Policies section of the Bancorp’s Annual Report on Form 10-K for the year ended December 31, 2015. The provision is recorded to bring the ALLL to a level deemed appropriate by the Bancorp to cover losses inherent in the portfolio. 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 previously charged-off loans and leases.

The provision for loan and lease losses was $119 million and $69 million for the three months ended March 31, 2016 and 2015, respectively. The increase in provision expense for the three months ended March 31, 2016 compared to the same period in the prior year was primarily due to prolonged softness in commodity prices, slow global economic growth and appreciation in the US dollar. The ALLL increased $23 million from December 31, 2015 to $1.3 billion at March 31, 2016. At March 31, 2016, the ALLL as a percent of portfolio loans and leases increased to 1.38%, compared to 1.37% at December 31, 2015.

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

Refer to the Credit Risk Management subsection of the Risk Management section of MD&A as well as Note 6 of the Notes to Condensed Consolidated Financial Statements for more detailed information on the provision for loan and lease 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 and the ALLL.

Noninterest Income

Noninterest income increased $7 million for the three months ended March 31, 2016 compared to the three months ended March 31, 2015.

The components of noninterest income are as follows:

TABLE 7: Components of Noninterest Income

Service charges on deposits

Service charges on deposits increased $2 million for the three months ended March 31, 2016 compared to the three months ended March 31, 2015 primarily due to a $3 million increase in commercial deposit fees driven by new customer acquisition. This increase was partially offset by a $1 million decrease in consumer deposit fees primarily driven by a decrease in consumer checking fees.

Investment advisory revenue

Investment advisory revenue decreased $6 million for the three months ended March 31, 2016 compared to the three months ended March 31, 2015 primarily due to a $4 million decrease in transactional securities and brokerage fees driven by lower sales and trading volume and a $2 million decrease in private client service fees due to a decrease in personal asset management fees. The Bancorp had approximately $303 billion and $308 billion in total assets under care as of March 31, 2016 and 2015, respectively, and managed $26 billion and $27 billion in assets, respectively, for individuals, corporations and not-for-profit organizations as of March 31, 2016 and 2015.

Corporate banking revenue

Corporate banking revenue increased $39 million for the three months ended March 31, 2016 compared to the three months ended March 31, 2015. The increase from the prior year was primarily the result of increases in lease remarketing fees and syndication fees partially offset by decreases in foreign exchange fees and letter of credit fees. The increase in lease remarketing fees included the impact of a $30 million impairment charge related to operating lease equipment that was recognized during the first quarter of 2015. Syndication fees increased $8 million for the three months ended March 31, 2016 compared to the three months ended March 31, 2015 as a result of increased activity in the market.

Card and processing revenue

Card and processing revenue increased $8 million for the three months ended March 31, 2016 compared to the three months ended March 31, 2015 primarily driven by an increase in the number of actively used cards and an increase in customer spend volume.

Mortgage banking net revenue

Mortgage banking net revenue decreased $8 million for the three months ended March 31, 2016 compared to the three months ended March 31, 2015.

The components of mortgage banking net revenue are as follows:

TABLE 8: Components of Mortgage Banking Net Revenue

Origination fees and gains on loan sales decreased $2 million for the three months ended March 31, 2016 compared to the three months ended March 31, 2015 primarily due to a $44 million or 2% decrease in residential mortgage loan originations.

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

Net mortgage servicing revenue is comprised of gross servicing fees and related MSR amortization as well as valuation adjustments on MSRs and mark-to-market adjustments on both settled and outstanding free-standing derivative financial instruments used to economically hedge the MSR portfolio. Net mortgage servicing revenue decreased $6 million for the three months ended March 31, 2016 compared to the three months ended March 31, 2015 primarily due to decreases in gross mortgage servicing fees and net valuation adjustments of $7 million and $6 million, respectively, partially offset by a decrease in servicing rights amortization of $7 million.

The following table presents the components of net valuation adjustments on the MSR portfolio and the impact of the non-qualifying hedging strategy:

TABLE 9: Components of Net Valuation Adjustments on MSRs

Mortgage rates decreased during both the three months ended March 31, 2016 and 2015 which caused modeled prepayment speeds to increase which led to temporary impairment on servicing rights during both the three months ended March 31, 2016 and 2015.

Servicing rights are deemed impaired when a borrower’s loan rate is distinctly higher than prevailing rates. Impairment on servicing rights is reversed when the prevailing rates return to a level commensurate with the borrower’s loan rate. Further detail on the valuation of MSRs can be found in Note 10 of the Notes to Condensed Consolidated Financial Statements. The Bancorp maintains a non-qualifying hedging strategy to manage a portion of the risk associated with changes in the valuation on the MSR portfolio. Refer to Note 11 of the Notes to Condensed Consolidated Financial Statements for more information on the free-standing derivatives used to economically hedge the MSR portfolio.

The Bancorp’s total residential mortgage loans serviced as of March 31, 2016 and 2015 were $72.3 billion and $77.4 billion, respectively, with $57.8 billion and $64.2 billion, respectively, of residential mortgage loans serviced for others.

Other noninterest income

The following table presents the components of other noninterest income:

TABLE 10: Components of Other Noninterest Income

Other noninterest income decreased $27 million in the first quarter of 2016 compared to the first quarter of 2015. The decrease included a positive valuation adjustment on the stock warrant associated with Vantiv Holding, LLC of $47 million for the three months ended March 31, 2016 compared to a positive valuation adjustment of $70 million for the three months ended March 31, 2015. The fair value of the stock warrant is calculated using the Black-Scholes option-pricing model, which utilizes several key inputs (Vantiv, Inc. stock price, strike price of the warrant and several unobservable inputs). The positive valuation adjustments for the three months ended March 31, 2016 and 2015 were primarily due to increases of 14% and 11%, respectively, in Vantiv, Inc.’s share price from December 31, 2015 to March 31, 2016 and from December 31, 2014 to March 31, 2015. The decrease in the positive valuation adjustment in the first quarter of 2016 compared to the prior year period included the impact of the sale and exercise of a portion of the warrant during the fourth quarter of 2015. Additionally, gain on loan sales decreased $42 million for the three months ended March 31, 2016 compared to the three months ended March 31, 2015 primarily due to a $37 million gain on the sale of residential mortgage loans classified as TDRs during the three months ended March 31, 2015.

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

The Bancorp recognized a $1 million positive valuation adjustment related to the Visa total return swap for the three months ended March 31, 2016 compared to a negative valuation adjustment of $17 million for the three months ended March 31, 2015. For additional information on the valuation of the warrant associated with the sale of Vantiv Holding, LLC and the valuation of the swap associated with the sale of Visa, Inc. Class B shares, refer to Note 20 of the Notes to Condensed Consolidated Financial Statements. The three months ended March 31, 2016 also included the impact of a $8 million gain on the sale of its retail operations, including retail accounts, certain private banking deposits and related loan relationships in the St. Louis MSA to Great Southern Bank as part of the previously announced Branch Consolidation and Sales Plan. Equity method earnings from the Bancorp’s interest in Vantiv Holding, LLC increased $4 million for the three months ended March 31, 2016 compared to the three months ended March 31, 2015 primarily due to an increase in net income of Vantiv Holding, LLC. This increase was partially offset by a reduction in the Bancorp’s interest in Vantiv Holding, LLC from 23% in the first quarter of 2015 to 18% in the first quarter of 2016.

Noninterest Expense

Noninterest expense increased $63 million for the three months ended March 31, 2016 compared to the three months ended March 31, 2015 primarily due to increases in personnel costs (salaries, wages and incentives plus employee benefits) and other noninterest expense.

The major components of noninterest expense are as follows:

TABLE 11: Components of Noninterest Expense

Personnel costs increased $35 million for the three months ended March 31, 2016 compared to the three months ended March 31, 2015 primarily driven by a $14 million increase in retirement costs related to the voluntary early retirement program as well as increases in base and variable compensation. Full-time equivalent employees totaled 18,200 at March 31, 2016 compared to 18,471 at March 31, 2015.

The following table presents the components of other noninterest expense:

TABLE 12: Components of Other Noninterest Expense

Other noninterest expense increased $31 million for the three months ended March 31, 2016 compared to the three months ended March 31, 2015 primarily due to increases in FDIC insurance and other taxes, the provision for the reserve for unfunded commitments and losses and adjustments partially offset by a decrease in donations expense.

FDIC insurance and other taxes increased $18 million for the three months ended March 31, 2016 compared to the three months ended March 31, 2015 primarily due to a settlement of a tax liability related to prior years during the first quarter of 2015 and an increase in the FDIC insurance assessment rate due to changes in the Bancorp’s asset mix as well as an increase in the assessment base. The provision for the reserve for unfunded commitments increased $11 million for the three months ended March 31, 2016 compared to the three months ended March 31, 2015 primarily due to an increase in estimated loss rates related to unfunded commitments. Losses and adjustments increased $9 million for the three months ended March 31, 2016 compared to the three months ended March 31, 2015 primarily due to the impact of legal settlements in the first quarter of 2015. Donations expense decreased $5 million for the three months ended March 31, 2016 compared to the three months ended March 31, 2015 primarily due to a $4 million contribution to the Fifth Third Foundation in the first quarter of 2015.

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

The Bancorp continues to focus on efficiency initiatives as part of its core emphasis on operating leverage and expense control. The efficiency ratio (noninterest expense divided by the sum of net interest income (FTE) and noninterest income) was 63.8% for the three months ended March 31, 2016 compared to 62.3% for the three months ended March 31, 2015.

Applicable Income Taxes

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

TABLE 13: Applicable Income Taxes

Applicable income tax expense for all periods includes the benefit from tax-exempt income, tax-advantaged investments, and tax credits, partially offset by the effect of certain nondeductible expenses. The tax credits are associated with the Low-Income Housing Tax Credit program established under Section 42 of the IRC, the New Markets Tax Credit program established under Section 45D of the IRC, the Rehabilitation Investment Tax Credit program established under Section 47 of the IRC, and the Qualified Zone Academy Bond program established under Section 1397E of the IRC.

As required under U.S. GAAP, the Bancorp established a deferred tax asset for stock-based awards granted to its employees and directors. When the actual tax deduction for these stock-based awards is less than the expense previously recognized for financial reporting or when the awards expire unexercised and where the Bancorp has not accumulated an excess tax benefit for previously exercised or released stock-based awards, the Bancorp is required to recognize a non-cash charge to income tax expense upon the write-off of the deferred tax asset previously established for these stock-based awards. As the Bancorp had an accumulated excess tax benefit at March 31, 2016 and March 31, 2015, the Bancorp was not required to recognize a non-cash charge to income tax expense related to stock-based awards for the three months ended March 31, 2016 and 2015.

Based on the Bancorp’s stock price at March 31, 2016 and the amount of the Bancorp’s accumulated excess tax benefit through the quarter ended March 31, 2016, the Bancorp believes it is likely that it will exhaust its accumulated excess tax benefit in the second quarter of 2016 and will therefore be required to recognize a non-cash charge to income tax expense of approximately $4 million over the next 12 months, primarily in the second quarter of 2016. However, the Bancorp cannot predict its stock price or whether its employees will exercise other stock-based awards with lower exercise prices in the future. Therefore, it is possible the Bancorp may be required to recognize a non-cash charge to income tax expense in the future.

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

Loans and Leases

The Bancorp classifies its commercial loans and leases based upon primary purpose and consumer loans and leases based upon product or collateral. Table 14 summarizes end of period loans and leases, including loans held for sale and Table 15 summarizes average total loans and leases, including loans held for sale.

TABLE 14: Components of Loans and Leases (including held for sale)

Loans and leases, including loans held for sale, increased $923 million, or 1%, from December 31, 2015. The increase from December 31, 2015 was the result of a $1.5 billion, or 3%, increase in commercial loans and leases, partially offset by a $566 million, or 2%, decrease in consumer loans and leases.

Commercial loans and leases increased from December 31, 2015 primarily due to increases in commercial and industrial loans and commercial construction loans partially offset by a decrease in commercial mortgage loans. Commercial and industrial loans increased $1.3 billion, or 3%, from December 31, 2015 primarily as a result of increases in new loan origination activity and line utilization. Commercial construction loans increased $214 million, or 7%, from December 31, 2015 primarily as a result of an increase in new loan origination activity resulting from an increase in demand and targeted marketing efforts. Commercial mortgage loans decreased $117 million, or 2%, from December 31, 2015 primarily due to a decline in new loan origination activity driven by increased competition and an increase in paydowns.

Consumer loans and leases decreased from December 31, 2015 primarily due to decreases in automobile loans, home equity and credit card, partially offset by an increase in residential mortgage loans. Automobile loans decreased $368 million, or 3%, from December 31, 2015 and home equity decreased $205 million, or 2%, from December 31, 2015 as payoffs exceeded new loan production. Credit card decreased $125 million, or 5%, from December 31, 2015 primarily due to seasonal trends from the paydown of year-end balances which were higher due to holiday spending. Residential mortgage loans increased $139 million, or 1%, from December 31, 2015 primarily due to the continued retention of certain conforming ARMs and certain other fixed-rate loans originated during the three months ended March 31, 2016.

TABLE 15: Components of Average Loans and Leases (including held for sale)

Average loans and leases, including loans held for sale, increased $2.4 billion, or 3%, from March 31, 2015. The increase from March 31, 2015 was the result of a $2.6 billion, or 5%, increase in average commercial loans, partially offset by a $164 million decrease in average consumer loans and leases.

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

Average commercial loans and leases increased from March 31, 2015 primarily due to increases in average commercial and industrial loans and average commercial construction loans partially offset by a decrease in average commercial mortgage loans. Average commercial and industrial loans increased $1.7 billion, or 4%, from March 31, 2015 primarily as a result of increases in new loan origination activity and line utilization. Average commercial construction loans increased $1.1 billion, or 50%, from March 31, 2015 primarily as a result of an increase in new loan origination activity resulting from an increase in demand and targeted marketing efforts. Average commercial mortgage loans decreased $340 million, or 5%, from March 31, 2015 primarily due to a decline in new loan origination activity driven by increased competition and an increase in paydowns.

Average consumer loans and leases decreased from March 31, 2015 primarily due to decreases in average automobile and average home equity, partially offset by increases in average residential mortgage loans and average other consumer loans and leases. Average automobile loans decreased $648 million, or 5%, from March 31, 2015 and average home equity decreased $561 million, or 6%, from March 31, 2015 as payoffs exceeded new loan production. Average residential mortgage loans increased $890 million, or 7%, from March 31, 2015 primarily driven by the continued retention of certain conforming ARMs and certain other fixed-rate loans. Average other consumer loans and leases increased $199 million, or 43%, from March 31, 2015 primarily as a result of an increase in new loan origination activity.

Investment Securities

The Bancorp uses investment securities as a means of managing interest rate risk, providing liquidity support and providing collateral for pledging purposes. Total investment securities were $30.4 billion and $29.5 billion at March 31, 2016 and December 31, 2015, respectively. The taxable investment securities portfolio had an effective duration of 4.8 years at March 31, 2016 compared to 5.1 years at December 31, 2015.

Securities are classified as trading when bought and held principally for the purpose of selling them in the near term. Securities are classified as available-for-sale when, in management’s judgment, they may be sold in response to, or in anticipation of, changes in market conditions. Securities that management has the intent and ability to hold to maturity are classified as held-to-maturity and reported at amortized cost.

At March 31, 2016, the Bancorp’s investment portfolio consisted primarily of AAA-rated available-for-sale securities. Securities classified as below investment grade were immaterial as of March 31, 2016 and December 31, 2015. The Bancorp’s management has evaluated the securities in an unrealized loss position in the available-for-sale and held-to-maturity portfolios for OTTI. The Bancorp recognized $2 million and $1 million of OTTI on its available-for sale and other debt securities, included in securities gains, net, in the Condensed Consolidated Statements of Income during the three months ended March 31, 2016 and 2015, respectively. The Bancorp recognized $1 million of OTTI on its available-for-sale equity securities, included in securities gains, net, in the Condensed Consolidated Statements of Income during the three months ended March 31, 2016. The Bancorp did not recognize OTTI on its held-to-maturity debt securities during the three months ended March 31, 2016. The Bancorp did not recognize OTTI on any of its available-for-sale equity securities or its held-to-maturity debt securities during the three months ended March 31, 2015.

TABLE 16: Components of Investment Securities