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Fifth Third Bank, National Association -- Moody's affirms Fifth Third's ratings (long-term senior unsecured Baa1), outlook remains stable

Rating Action: Moody's affirms Fifth Third's ratings (long-term senior unsecured Baa1), outlook remains stable

Global Credit Research - 25 Jan 2021

New York, January 25, 2021 -- Moody's Investors Service (Moody's) has affirmed the long-term debt and deposit ratings, and assessments of Fifth Third Bancorp (Fifth Third, long-term senior unsecured debt Baa1) and its subsidiaries, as well as the baseline credit assessment (BCA) of its bank subsidiary, Fifth Third Bank, National Association (Fifth Third Bank, long-term deposits Aa3, long-term senior unsecured A3, BCA a3). The ratings outlooks are stable. A complete list of affected ratings and entities can be found at the end of this press release.

The ratings affirmation resulted from Moody's unchanged assessment of the bank's credit fundamentals, as expressed by its a3 BCA, which is in line with the median for rated US banks.

RATINGS RATIONALE

The affirmation of the BCA and ratings reflects Fifth Third's robust funding and liquidity profile and diversified, conservatively underwritten loan portfolio. Fifth Third's operates a diverse regional banking franchise, which it has been expanding geographically. Moody's expects its profitability to improve relative to 2020 despite the environmental pressures of low interest rates. Its capitalization, though sound, is the weakest aspect of its financial profile.

Fifth Third's core deposits more than fully fund its loan portfolio, which limits its need for confidence-sensitive market funding resulting in limited refinancing risk. In 2020, it had exceptionally robust deposit growth, which has increased its holdings of liquid assets. The rating agency expects some reversal of these trends as market conditions normalize, but Fifth Third's funding and liquidity profile are likely to remain a credit strength as it was before the coronavirus pandemic started.

Fifth Third's asset quality is supported by its conservative underwriting and the sector and geographic diversification of its loan portfolio. Its loan mix was approximately two-thirds commercial and one-third consumer loans as of 31 December 2020. In its commercial portfolio, it has avoided significant concentrations. Its reported exposure to commercial sectors more vulnerable to the economic effects of the coronavirus is moderate at about 10% of total loans as of 31 December 2020. Its consumer loans include indirect consumer loans, primarily, automobile, which account for 12% of total loans, as at the same reporting date. Fifth Third focuses on the prime segment and the majority of borrower FICOs are in excess of 720. Like peers, Fifth Third's problem loans remain low and are expected to rise. Fifth Third's allowance for loan losses of 2.4% of loans as of 31 December 2020, which does not include the unamortized loan discount related to its 2019 acquisition of MB Financial, Inc., was above the median of its large bank peers, providing strong coverage.

The rating agency views capital as the weakest aspect of Fifth Third's financial profile, but its capitalization is similar to that of its large bank peers. Fifth Third reported a common equity tier 1 ratio of 10.34% as of 31 December 2020, which is above its 9.5% target. As of 30 September 2020, its Moody's tangible common equity (TCE)/risk-weighted asset ratio was 9.60%. Moody's rating incorporates the expectation that over the long-term Fifth Third's TCE ratio will decline, but remain close to 9%.

Moody's expects Fifth Third's profitability growth to be pressured by the low interest rate environment and limited loan growth, offset by lower provision expense compared to 2020. Fifth Third's pre-provision earnings benefit from diversity, with approximately 37% of net revenue from noninterest income. Its net interest margin fell in 2020, but should show more stability in future periods aided by lower deposit costs, shifts in its balance sheet, and its interest rate hedges. Additionally, Fifth Third expects its 2021 noninterest expense to be around 1% lower than 2020, inclusive of technology investments, as a result of several changes implemented in 2020.

Fifth Third Bank's long-term deposits and senior unsecured debt are rated Aa3 and A3, respectively, based on the a3 BCA and the application of Moody's advanced loss given failure (LGF) analysis based on its expected liability structure. Fifth Third typically has a larger proportion of unsecured long-term debt in its liability structure relative to most other regional US banks, resulting in Moody's view of lower potential loss severity for bank-level senior debt and deposits, which is reflected in wider notching relative to the BCA compared to most US regional banks. Fifth Third's cash balance as of 30 September 2020 was approximately $30 billion higher than is typical, which would result in different notching for its bank-level senior debt and deposit ratings. However, Moody's considers this a temporary change that will reverse over time.

FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS

Fifth Third's standalone BCA could be upgraded if the bank were to strengthen its capitalization or enhance its funding and liquidity profile. A higher BCA would likely lead to a ratings upgrade.

Meaningful deterioration in Fifth Third's funding and liquidity profile or asset quality metrics relative to US peers or a build-up of concentration risks could result in negative ratings pressure.

The long-term deposit and senior unsecured debt ratings of Fifth Third Bank, National Association could be downgraded if Moody's views that the company will maintain a lower proportion of unsecured debt on the company's balance sheet, thereby providing a lower degree of protection for its creditors.

Affirmations:

..Issuer: Fifth Third Bancorp

....LT Issuer Rating, Affirmed Baa1, Stable

....Pref. Stock Non-cumulative, Affirmed Baa3(hyb)

....Senior Unsecured Regular Bond/Debenture, Affirmed Baa1, Stable

....Subordinate Regular Bond/Debenture, Affirmed Baa1

....Pref. Shelf Non-cumulative, Affirmed (P)Baa3

....Senior Unsecured Shelf, Affirmed (P)Baa1

....Subordinate Shelf, Affirmed (P)Baa1

..Issuer: Fifth Third Bank, National Association

....Adjusted Baseline Credit Assessment, Affirmed a3

....Baseline Credit Assessment, Affirmed a3

....Senior Unsecured Bank Note Program, Affirmed (P)A3

....Subordinate Bank Note Program, Affirmed (P)Baa1

....ST Bank Note Program, Affirmed (P)P-2/P-2

....LT Deposit Note/CD Program, Affirmed (P)Aa3

....LT Counterparty Risk Assessment, Affirmed A2(cr)

....ST Counterparty Risk Assessment, Affirmed P-1(cr)

....LT Counterparty Risk Rating (Local Currency), Affirmed A3

....ST Counterparty Risk Rating (Local Currency), Affirmed P-2

....LT Counterparty Risk Rating (Foreign Currency), Affirmed A3

....ST Counterparty Risk Rating (Foreign Currency), Affirmed P-2

....LT Issuer Rating, Affirmed A3, Stable

....Senior Unsecured Regular Bond/Debenture, Affirmed A3, Stable

....Subordinate Regular Bond/Debenture, Affirmed Baa1

....LT Bank Deposits, Affirmed Aa3, Stable

....ST Bank Deposits, Affirmed P-1

..Issuer: MB Financial Bank, N.A.

....Subordinate Regular Bond/Debenture, Affirmed Baa1

Outlook Actions: ..Issuer: Fifth Third Bancorp ....Outlook, Remains Stable

..Issuer: Fifth Third Bank, National Association

....Outlook, Remains Stable

The principal methodology used in these ratings was Banks Methodology published in November 2019 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1147865. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

REGULATORY DISCLOSURES

For further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody's Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.

For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

The ratings have been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.

These ratings are solicited. Please refer to Moody's Policy for Designating and Assigning Unsolicited Credit Ratings available on its website www.moodys.com.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1243406.

The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the EU and is endorsed by Moody's Deutschland GmbH, An der Welle 5, Frankfurt am Main 60322, Germany, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.

The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the UK and is endorsed by Moody's Investors Service Limited, One Canada Square, Canary Wharf, London E14 5FA under the law applicable to credit rating agencies in the UK. Further information on the UK endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

Rita Sahu, CFA VP - Senior Credit Officer Financial Institutions Group Moody's Investors Service, Inc. 250 Greenwich Street New York, NY 10007 U.S.A. JOURNALISTS: 1 212 553 0376 Client Service: 1 212 553 1653 M. Celina Vansetti-Hutchins MD - Banking Financial Institutions Group JOURNALISTS: 1 212 553 0376 Client Service: 1 212 553 1653 Releasing Office: Moody's Investors Service, Inc. 250 Greenwich Street New York, NY 10007 U.S.A. JOURNALISTS: 1 212 553 0376 Client Service: 1 212 553 1653

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