Good morning. My name is Ashley and I'll be you conference operator today. At this time, I would like to welcome everyone to the Fifth Third Bancorp first quarter 2010 Earnings Call. (Operator Instructions). Mr. Jeff Richardson, you may begin.

Hi everyone and thanks for joining us this morning. We'll be talking with you today about our first quarter 2010 results. This call may contain certain forward-looking statements about Fifth Third Bancorp pertaining to our financial condition, results of operations, plans and objectives. These statements involve certain risks and uncertainties. There are a number of factors that could cause results to differ materially from historical performance in these statements. We've identified a number of these factors in our forward-looking cautionary statement at the end of our earnings release and other materials and we encourage you to review those factors. Fifth Third undertakes no obligation and would not expect to update any such forward-looking statements after the date of this call. I'm joined on the call by several people. Kevin Kabat, our Chairman, President and CEO; Chief Financial Officer, Dan Poston; Chief Risk Officer, Mary Tuuk; Treasurer, Mahesh Sankaran; and Jim Eglseder of Investor Relations. During the question-and-answer period, please provide your name and that of your firm to the operator. With that, I'll turn the call over to Kevin Kabat. Kevin?

Thanks, Jeff. Good morning and thanks for joining us. I’ll make some opening comments and then hand the call over to Mary and Dan for more detailed discussion of our credit and financial performance. Overall results continue to show good progress in both credit trends and continued operating momentum. Credit results were significantly better in the first quarter, following improved results in the fourth quarter as well. On a sequential basis, net charge-offs were $582 million, down $126 million from last quarter. NPAs were down $115 million and loans 90 days past due were down $131 million. Commercial NPL inflows of $405 million fell roughly $200 million on a sequential basis. The consumer inflows of $137 million fell by $15 million, so good positive momentum in all three of the key credit metrics. Our current expectation is for net charge-offs to be down again next quarter by another $100 million or so, with $15 million to $20 million of that coming from consumer and the rest in commercial. Our outlook for the year, generally, is for stable to improving credit results although we may see particular credit metrics bounce around from quarter-to-quarter; let assume the economy continues to cooperate. Our reserve position remained strong at 4.9% of loans and 139% of NPLs. Given the trajectory of delinquency and loss trends, we currently expect loan loss reserves to decline beginning in the second quarter. Obviously, we'll have to evaluate reserves in the context of actual credits trends at the end of the quarter, the modeling of reserves is fairly complex as you know and the results of that exercise is not something that I can really predict as we stand here today. We'd expect the need for reserves to decline over time, provided that loss content in the portfolio continues to…

Thanks, Kevin. As Kevin discussed, overall credit trends were better than expected. I'll get started with charge-offs. Total net charge-offs of $582 million decreased $126 million sequentially, with commercial charge-offs accounting for all of the improvement. First quarter results included $26 million in charge-offs we recorded in moving loans held for sale. While charge-offs remained elevated in Michigan and Florida, losses in Florida were significantly lower than in the fourth quarter and losses in Michigan continue to show signs of stabilization with charge-offs relatively flat versus both, fourth quarter and third quarter level. Commercial net charge-offs were $342 million versus $468 million last quarter, down $126 million. The biggest driver of the decrease was Florida, down $93 million. Commercial charge-offs in Michigan were down $8 million, and rest of the footprint was down $25 million combined. C&I net losses this quarter totaled $161 million, down $22 million with a sequential decline attributable to a broad base of industry segment. Michigan and Florida accounted for 44% of C&I losses during the quarter, while representing 22% of C&I loans. Florida losses were down, sequentially. Commercial mortgage losses of $99 million decreased $43 million from the fourth quarter with Michigan and Florida contributing 53% of losses, although losses were lower in both states. Commercial construction net charge-offs were $78 million, down $57 million from the fourth quarter with Michigan and Florida, both down but still generating 40% of losses. Across the portfolio, homebuilder developer losses totaled $81 million, down $29 million from last quarter. You will recall that we suspended homebuilder originations over two years ago, have already recorded significant charge-offs against that portfolio and worked to reduce our [exposure]. Portfolio balances declined $239 million sequentially to $1.3 billion, which compared with a peak balance of $3.3 billion back in mid-2008. We expect…

Thanks, Mary. As Kevin and Mary have discussed, we are seeing a lot of positive momentum in both our credit trends and our operating trends. For the quarter, we reported a net loss of $10 million and paid preferred dividends of $62 million, which resulted in a loss of $72 million on an available per common share basis. Last quarter, our net loss was $98 million or $160 million (inaudible). The biggest driver for the improvement was clearly lower provision expense, which was down a $186 million on a pre-tax basis. However, there were several other major themes for the quarter. The first was improved net interest income and net interest margin. NII increased by $19 million sequentially and NIM grew 8 basis points to 3.63%. The second one is the decline in fee income, although less than expected, which was down $24 million. There were a number of items in both fourth quarter and first quarter results that affected that and I will talk about those later. Underlying fee trends remained consistent with our expectations and are favorable, although Reg E will create a bit of headwind for fees in a couple of quarters. The third was continued deposit growth. Average core deposits grew by 6% sequentially and 14% on year-over-year basis with strong growth in transaction accounts. Wholesale funding fell by another $2 billion sequentially and $15 billion on a year-over-year basis. Our liquidity position remains very strong. Core deposits continue to fund a 100% of our loan portfolio. And last was lower non-provisioning credit costs. Compared with last quarter, credit costs recognized through fee income and operating expenses were down $11 million and totaled $92 million. Gains on loan sales offset increased mortgage repurchase expense, and we experienced improvement in OREO expense, losses on OREO sales and…

(Operator Instructions). Your first question comes from the line of Kevin St. Pierre with Bernstein.

I was just wondering if you could tell us, I appreciate the discussion of potential impact of Reg E. I was just wondering if you could tell us of the $142 million in service charges on deposit, how much of that was consumer NSF fees?

We never disclose that. About a little less than half of our deposit service fees are consumer and then a good portion of that would be overdraft fees.

I guess coming out a different way. Of the $20 million range per quarter, can you give us a bit more on your assumptions on opt-in how much of those customer NSF fees go away?

The guidance that we gave, Kevin, of those that's our best estimate right now. There's so much still moving about I hesitate to give kind of ratios of opt-in and expectation from that perspective. We'd like to do a little bit more of the work before we release some of those expectations right now, so there's an awful lot going on as you might imagine in terms of the education of our customers and clients and preparation for execution, so I'll be more confident in talking about that in the next 60 to 90 days.

Then on your reserves. Net charge-offs were down. It looks like you're stress testing, your base case range moved down about $200 million or so, reserve to loans now at 4.9%. Seems like everything points to reserve release, and yet you built reserves this quarter. How do you think about this as we move through the year? Should we start seeing matching charge-offs, under provisioning, how do you think about that?

One thing I think it's important to recognize is that stress testing involves estimating future losses based on expected future trends and future events. Whereas the allowance is driven by generally accepted account principles, which is more based on the situation as it exist today without necessarily guessing or predicting what the future will hold, so while I would share your views with respect to what the trends look like going forward, that doesn't necessarily fully make it into the allowance methodologies that we are required to have under generally accepted accounting principles. Those methodologies are generally more backward looking, they are based on historical results, tempered somewhat perhaps by recent trends, but we're not permitted under generally accepted accounting principles to bake into our allowance forecast, a lot of expectations about what future developments might be in the economy or for our customers and portfolio. So as Kevin mentioned in his comments, we do anticipate that reserve levels will tend to come down and that that would likely begin in the second quarter but at this point its difficult to put a dollar range on that. That will depend upon our execution of those methodologies based on what trends actually materializes in the second quarter.

Your next question comes from the line of Craig Siegenthaler with Credit Suisse.

On the restructured loan trends, you are now really starting to see some deceleration here. Should we expect that growth rate to continue to slow? And, also how has the contribution from the Florida residential mortgage portfolio changed within the TDR bucket?

Yes, further effect of the restructured loan trends, looking first as a commercial portfolio, you will see that our overall trend was down slightly. Our overall approach continues to be the same, though. We do look for opportunities to restructure when it makes good economic sense for us and that's typically driven by cash flow trends that we think are strong enough in the long term to drive that kind of an economic decision for the bank and also for the borrower. With respect to our restructuring trends on the consumer portfolio, although we have been an active restructurer, if you will, of loans over the last couple of years, we do continue to look at our overall strategy in light of where we are at in the credit cycle today, versus where we were a couple of years ago and we continue to look at a variety of options to again determine what today makes the best economic sense for the bank as well as for the borrower. That would include things like the borrower situation as it relates to a long-term situation as opposed to a short-term situation, where perhaps we have got some additional stress in their life style. We will look at the possibility for extensions to terms. We will look possibility for interest rate concession and in general as we have noted in our credit presentation, we have also seen that our restructuring for the latter vintages has had a higher performance rate at this point in time. So, we will take all of those factors in to account as we continue to evaluate our strategy. And then your second question related to?

Florida residential

To Florida residential? That component of our overall TDR level is declining at this point and I think that’s consistent with the overall credit trends that we have been reporting with respect to the mortgage portfolio as well as the contribution that Florida is making to the mortgage portfolio credit trend.

In sum, Craig I guess the thing that we would indicate to you as, as things begin to stabilize as we have indicated. Obviously we have done an awful lot of the thought running work of finding the best economic clients to work with to really restructure those credits and as it stabilizes, you should see less and less of that happening.

Then, and to follow-up on Kevin’s comments, keep in mind as well that we recognized the issues with Florida real estate very, very early in the cycle. That we were aggressive in dealing with those issues particularly with the most troubles components of the Florida mortgage portfolio. So with the benefit of time, we are seeing a better performance as you would expect because of the aggressiveness of the actions early in the cycle.

Your next question comes from the line of Paul Miller with FBR Capital Markets.

I was wondering, I don’t know if you have done this in the past, but are you giving guidance on where your portfolio is going to end up, and also what do you think your core ROA is going to be once we get through the bulk of these credit losses running through the system?

Paul, we've been asked the question about normalized ROA a number of times in the past, and I think we've generally responded that we think a normalized ROA for us will be something in the 130-plus range. I think if you look at this quarter's results for instance and take a normalized provision level and then just reduce our credit-related expenses, which were about some $90 million in this quarter. If you reduce that by half, you get the numbers that are north of 1% even before considering any other impacts of the cycle continuing to run and the impact of that has on asset generation and the impact that that has on margin or the impact that has on fee income growth, so we're pretty comfortable with that range. Obviously, in the long run, normalized ROA is going to be dependent up on a lot of factors that are difficult for any of us to predict right now relative to regulation and kind of what the normalized environment looks like as we come out of the cycle, but that's our best estimate at this particular point in time.

We've been through so much turmoil in the last couple of years and we've seen a lot of volatility and the amount of reserves banks have their hold over the last like two decades, what do you think coming out of this the regulators are going to be comfortable with on the reserve ratio to your loans? Or is that something that can't be answered at this time?

Well, it certainly is difficult to answer at this time, because I think the regulatory expectations about the reserve are not necessarily subject to any defined methodology or set of rules or guidelines. Clearly on the GAAP basis, we at least have a set of rules, although they are subject to interpretation and there is a lot of judgment involved in it, at least there is a broad set of guidelines that we have to follow. Regulatory expectations tend to flush away somewhat and are more responsive to general economic conditions and what they are trying to accomplish from a safety and soundless perspective. Obviously, regulatory expectations would probably be generally higher going forward at least in the short run than they have been historically, and that’s one element that will have to deal with as we move into the future and perhaps there is a divergence of pressures like we saw at the end of the last cycle where the banking regulators had one view and the SEC and the accountants had another view. That will be a tension that may well develop again and we will just have to see how that tension is resolved in terms of whether any new guidance comes out, either from the regulatory side or from the accounting side that guides us in terms of what our reserves will need to be, as we go forward.

Paul, the only thing that I would, it is highly unlikely that there will be 4.9%.

Yeah, I figured that, but the thing is GAAP won the argument before the crisis, and now it appears the regulators will win the argument after the crisis. Do you think GAAP will really put up a fight relative to the regulators on this? Stop, but you don't have to answer it. Thanks a lot, guys.

I suspect there will be some discussion whether it will evaluate the level of a fight or not, I don’t know. Perhaps not.

Your next question comes from the line of Brian Foran with Goldman Sachs.

I guess just to clarify your loan comments, so that the guidance is flat in the second quarter with modest growth in the back half of the year.

True.

Yes.

I guess over the past six quarters it’s been pretty tough for the whole industry. What tangible signs are you seeing that give you comfort that 2Q will be the inflection point? Are you seeing utilization rates pick up by month? Or what are you seeing that gives you comfort putting that guidance out there?

Brian, it's the absence of decline as opposed to growth at this point. So, the stabilization is an important movement. As Dan mentioned in his commentary, this is the first quarter in four that we have not seen utilization rates decline. That’s encouraging to us from that perspective. The only other thing I can point to is really as we talk with clients and as I go across the footprint there are growing consensus and growing comments made by our clients in terms of a comfort about where we are and beginning to look at reinvestment or application of their capital in to growth in their businesses. And so, again if all things continue moving on the path that I think that we are on, as we try to lay out, I think that gives us confidence that the second half certainly will be better than the first half.

Your next question comes from the line of Bob Patten with Morgan Keegan.

I don't want to revisit the issue on the NSF, and I realize you guys are getting as much data as you can, but that's a lot of the banks have been making different comments or maybe comments along the lines that it is something they got to really start to focus on, because it's a pretty good margin business. So my thought is, if you can get something periodic that will be helpful to the group? Also, just comment on the liquidity in the loan sale market, please?

We've seen pretty good liquidity again this quarter. Again, we continue to evaluate that on a sale-by-sale basis to make sure that our pricing is consistent with the economic objectives that we have, but as you saw in our results this quarter we did see some improvement in liquidity which helped us move some additional assets off.

Any sense on accelerating that strategy over the next couple of quarters to get the balance sheet, maybe, in line?

As liquidity improves, Bob, we'd certainly want to be in a position to take advantage of that, and so if that happens and it's economic to us, yes, you could see us consolidate that.

Kevin, last question since throughout the late February, any update on your thoughts around TARP or profitability?

Nothing has changed in our perspective, Bob, from our comments late in the fourth quarter, early part of this quarter. So, really no updates from that standpoint. The other thing, Bob, I just would want to comment on. Obviously, we've spent an awful lot of time and continue to spend a lot of time in terms of retail profitability, we'll have a lot to say at the appropriate time. So there's been a lot of really good work and good positioning from our standpoint as you know we were one of the early ones really addressing that relative to our product offerings and relative to the change from that standpoint. So we will have more to be able to articulate in the coming months.

Thanks, Kevin.

Hi, Bob, one follow up on your question about Reg E. We have done a lot of analytical work to come up with that estimate of, as Dan said, $20 million a quarter of full run rate.

Yes.

I don’t know that we are going to have an updated view on that. We could but I don't know why we would until we actually begin to re-implement it and customers begin to react. So we will update you when we change our estimate but I don’t know that we will have objective data to change that estimate until we actually see it happening.

No, I understand that, Jeff. But I think we will try to go just back into the numbers. If you start with the $300 million or so and consume one half of that as OD. You try to back in the numbers where you guys are getting 20 on a quarterly run rate. That’s all we are asking and so at some point, we can clarify that.

Okay.

I would also remind you, we are more commercially oriented. So we have a more proportionally commercial customer base than a lot of our peers and that’s something that’s been on our mind as well.

At this time, we have reached the allotted time for questions. Speakers, do you have any closing remarks?

No. I just appreciate your attention. Thanks everybody, and we will talk to you next quarter.

This concludes today's conference call. You may now disconnect.