Good morning. My name is Ginger, and I'll be you conference operator today. At this time, I would like to welcome everyone to the Fifth Third Bancorp Second Quarter 2010 Earnings Call. (Operator Instructions) Mr. Jeff Richardson, Director of Investor Relations, you may begin your conference.

Thanks Ginger, and thanks everyone for joining us this morning. We'll be talking with you today about our second 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 certain number of factors; sorry 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 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 Dan and Mary for more detailed discussion of our financial and credit performance. We've also developed a presentation this quarter to facilitate that discussion, which we hope you find helpful. Obviously, this quarter marks an important turning point for us. Although the first quarter's loss was very small, it's still a loss. For the second quarter, we reported significantly stronger results particularly from the credit standpoint that resulted in a profit of 192 million. It was 130 million or $0.16 per common shareholder. Environment remains challenging, but I'm pleased with the progress we've demonstrated in both credit trends and continued strong operating metrics. We've seen fairly sharp improvements in credit results, which I believe is the result of our aggressive actions earlier in the cycle, and while the phase of that improvement is obviously not sustainable, we do believe that credit should trend favorably as we move forward. Taking a look at the few trends in credit, we saw a very significantly move in charge offs this quarter down 25% or 148 million from last quarter to 434 million. It was better than expected and it is the lowest level of charge offs we have seen since the second quarter of 2008. Charge offs peaked in the third quarter of last year at 756 million, we have seen a reduction of over 40% just three quarters. NPAs were down a 160 million or 5% sequentially and NPLs were down 7%. Delinquent loans 90 days past due were down another 39 million or 9%, so problem loan levels and loss content as both grew solidly in the right direction and this contributed to a reduction in loan loss reserves. Still…

Thanks Kevin. As Kevin discussed we've seen positive trends on both the credit and the operational fronts and I'd like to spend some time discussing our performance in a little more detail. Overall, we're very pleased with the results for the quarter. These results were significantly better than anticipated, offset somewhat by lower than expected net interest income due to weak loan growth and higher than expected cash balances. Turning to the presentation, page 3 just summarizes the quarter for you. So, if you'll turn to slide 4, I will start there. In the second quarter we reported net income of 192 million and paid preferred dividends of 62 million which resulted in 130 million net income on an available per common share basis, which is $0.16 per share. PPNR was 567 million, consistent with strong first quarter levels. The reduction in our net charge-offs and the overall stabilization and improvement of credit trends contributed to a reduction in our loan-loss allowance of 109 million. Let me start with NII which is shown of slide 5. Net interest income on a fully taxable equivalent basis decreased 14 million sequentially to 887 million. Our net interest margin decreased 6 basis points to 3.57%. The decrease in NII was primarily balance sheet driven. Loans during the quarter were lower than we expected, particularly from mid-quarter on. Commercial customers are also holding record levels of cash as the euro-zone crisis and domestic policy uncertainty have led them to adopt or maintain a cautious posture. Long-term investment securities were also lower than expected. We didn't reinvest portfolio cash flows which were elevated by the pickup in prepayments during the quarter, driven by GSE buyouts of delinquent loans out of mortgage backed securities which also resulted in higher premium amortization. These factors led to an…

Thanks Dan. Overall credit results continue to show broad based improvement. I'll get started with charge-offs on slide 12. Total net charge-offs of 434 million decreased 148 million sequentially with commercial charge-offs accounting for 117 million of the improvement. Losses in Florida were significantly lower than in the first quarter and losses in Michigan continue to show stabilization with charge-offs relatively flat versus both first quarter and fourth quarter levels. Commercial net charge-offs for 225 million, down 117 million. Florida and Michigan accounted for 42 million of the decline. C&I net losses this quarter totaled 104 million, down 57 million with a sequential decline attributable to a broad base of industry segments. C&I losses in Michigan and Florida fell 20 million sequentially. Commercial mortgage and commercial construction losses both showed significant improvement this quarter which reflects several factors. First the impact of the suspension of non-owner occupied commercial real estate and home builder lending two or three years ago. Second, we've burned through a lot of our more significant problems by dealing with problem credits aggressively during the cycle. Finally loss severities in general have also improved with greater economic stability and more liquid markets. Commercial mortgage net charge-offs of 78 million decreased 21 million from last quarter. Commercial construction net charge-offs were 43 million, down 35 million. I note that our commercial construction balances are down over 50% since this time two years ago as we have reduced balances and the risk in that portfolio. Across both commercial real estate portfolios Michigan and Florida represented 20 million of the improvement but still produced 52% of losses. Total home builder developer losses were 48 million, down 33 million from last quarter. You will recall that we suspend home builder originations over two years ago have already recorded significant charge-offs against…

Thanks Mary, so just a wrap up, we've accomplished a lot that really shows in this quarters results. PPNR was consistent with strong first quarter results, credit trends and charge offs again improved significantly. We wouldn't be surprised for charge-off and NPA ratios move below those of the top 15 bank medium this quarter. We had a modest reserve release, but we showed earnings growth excluding it, and we moved solidly into profit territory. There may be uncertainties down the horizon, but we are performing relatively well on this side of it. So, with that operator, why don't we open it up for questions? Ginger? Operator?

Good morning. I just wanted to ask you two quick things. First of all on the Reg E impact, can you do, can you in anyway just size the total amount of overdraft revenues that you currently have and the run rate it is in the second quarter?

This is Jeff. We haven't disclosed that previously, so no we can't do that.

And then on the question of NPAs being relatively stable, again is it more of just a mix question to why you've given the improvements in some of the forward-looking trends of why you won't fee the near-term continued improvement on the NPA side?

Yes. We've said in our guidance that we expect them to be relatively stable, and to your point there is a couple of factors that really drive it. One is there is a mix shift overall so a lower affect coming from commercial real estate than what we experienced earlier in the cycle. In addition, loss severities will make a difference in terms of our overall charge-off performance as we go further through the cycle. So, in terms of our overall outlook obviously, NPAs and charge-offs are part of that. There is a number of factors driving that relative to improvement in the cycle, mix shift as well as lower loss severities.

Okay, and my third quick one is just contrary to a lot of other companies have reported mortgage banking was actually down this quarter for you guys versus up at a lot of others, can you just walk us through some of the moving parts there, and what were the incremental pressures if there were any for you guys? Thanks.

I think the overwriting factor with respect to overall mortgage results was the gain if you will that we record it relative to MSR valuation and hedging results in the first quarter. In the first quarter, we had $51 million in net gains on valuation and hedging. We talked at the time of about the fact that that was probably not something that we would replicate in the second quarter, and therefore we guided to a fairly significant decrease in mortgage banking revenue. Overall, I think we talked about something in the $30 million range. It came in the 38. I think our hedging results for the second quarter are more in line with what, with what one would normally expect. We had about $100 million in valuation, negative valuation adjustments on MSRs. Our hedges operated the way one would think they would, and offset virtually all of that. We had about $4 million net MSR hedging valuation item in the fourth quarter. So, I think those -- that was the key driver. The only thing I would point out is that our core mortgage banking activity in terms of gains on sales, we are actually up during the quarter, which is think is probably more consistently. It looks a lot you are referring to in terms of what others performance has been.

Gotcha, all right, thanks a lot.

Thanks.

And your next question from the line of Todd Hagerman from Collins Stewart.

Good morning everybody. Just a couple of quick questions, just first kind of a follow up on the Reg E question. Dan, I am just wondering, I know you guys have been diligently working on a number of new products and so forth in anticipation of some of these changes and I just noticed that again net account growth was pretty good again this quarter and one think just kind of struck me is with the guidance that you have given kind of $20 million kind of run rate if you will. A number of companies kind of narrowed their estimate in terms of the potential impact. I am just wondering if you could just give us a little bit more color in terms of what some of those assumptions might be in kind of little bit more in detail in terms of some of the success you have had in terms of implementing some of those new products and so forth.

Well first of all relative to the impact of Reg E and talking about assumptions and so forth. As Jeff, indicated earlier, we haven't disclosed detail about overdraft charges nor our assumptions in terms of the specifics of assumptions relative to our Reg E impact. I guess I would point out that we have commented today that our prior estimate of $20 million per quarter. Our results are tracking to be inline with the $20 million per quarter impact that we have previously discussed. Relative to development of other sources of revenue and mitigations impacts, we have had success with lot of our new deposit product offerings; we discussed some of those in the call and the script today. On an overall basis I think it is useful to look at overall deposit service charges trends and expectations. For instance in the third quarter we have talked about the impact of electronic overdrafts being down 10 to $15 million yet we expect deposit service charges on an overall basis to be down only 5 million. So, I think in those kinds of expectations you can begin to see the impact of some of the things we have done in terms of the introduction of new products and alternative revenue streams.

Okay, that is helpful and then just secondly if I could just add Kevin maybe a little bit more perspective in terms of kind of the Mid-West economy. One thing I have noticed is that the manufacturing data regionally has been encouraging over the last couple of months. And I am just wondering if you could give a little bit more detail as you kind of tie that together with some of the positive comments whether that's on the stabilization rates on the C&I side holding steady or the dramatic drop in kind of the inflows on the C&I side. Just trying to get a better perspective of what kind of the underlying activity you are seeing particularly as it relates to kind of your traditional commercial customers and how that maybe a function of what's happening there in the Mid-West.

Todd, I think from our perspective and we try to capture relative to tonality which is difficult thing as you might imagine in this environment but what we still are seeing particularly in the segment that you talked about which is the manufacturing segment has been holding up very, very strong. Our manufactures feel good about how they are positioned and are seeing some slight growth in terms of their wares and so they're well positioned, their balance sheets are strong. But we did see a pause particularly more toward the middle of the quarter as things got a little more elevated relative to Europe and credit issues here. So people really have stepped back from that standpoint but they are in very sound position. We think that when there is a bit of confidence that bleeds in that they're going to be well positioned to be able to take advantage of that we'll be there to help them. And from our standpoint, while we are seeing still the effects of some of that deleveraging going on, we think we're expanding our core base. We're getting some good clients on board. Our core production has been good. I think it will show up in a couple of different ways that I think it will begin to contribute to us in terms of overall growth going forward and so we feel well positioned from that standpoint as does the marketplace. So that's kind of the trends we're seeing. That's kind of the feelings that we're getting as we talk to our clients and prospects and we try to put that in but that just makes for a very difficult time to predict what to do talk about, how soon we're going to see some of the benefits to us. Unidentified Analyst That's helpful. Thank you.

And your next question is from the line of Paul Miller from FBR Capital.

Can you talk a little bit about your, going forward we got low rates, we got low treasury rates on how you're viewing balance sheet growth and the trade off between that and your securities portfolio? I know, a lot of people are repositioning their balance sheet and selling some of their securities but just how do you view what's going on in the world and how to deal with it going forward on your balance sheet?

Yeah, as we mentioned earlier we had or we did during the second quarter defer some of the reinvestment of cash flows off the portfolio and that was largely because of some of the things that you just alluded to in terms of some of the risks that are in this environment. As we look at it, I think we focus primarily on making sure that we are appropriately managing our interest rate risk. We've talked in the past about maintaining an overall approximately neutral position from an interest rate risk perspective. That continues to be our objective and I think that continues to be how we are positioned. That likely cost us somewhat in the short run in terms of current earnings but I think it positions us better for the future and I think while we would expect that we would resume investment of portfolio cash flows in the third quarter, we may well even invest some of the deferred cash flow from earlier quarters. That will be done with the overall objective in mind of maintaining a neutral position from an interest rate risk perspective.

And the other issue is your credit quality. I think a lot of people have seen credit quality stabilize here and a lot of people are guiding us including you guys to a more stable or decline in, an improvement in credit quality going forward. But we're seeing some bad macro data which is spooking some investors out there and what type of, where would the economy have to really hick up? In other words, would unemployment rate would have to really jump to 11, 12% for you to start seeing deterioration in credit quality. Again I don't think it’s going there but I think there is too much bad news out there. I don't think investors are really looking at what would have to happen for credit quality to start to take another dive.

I think a couple of factors are going to enter in there for that question. One is we've been very active in working through the portfolio for a long time now. We were aggressive on this already starting a number of years ago which included at that point a very forward looking view on what would the economic trends play out to be in the next couple of years and what actions could we take in advance to that. And that kind of stress testing approach that we already started a couple of years ago, we've continued to expand upon. In fact in today's deck, we have another page, which shows you the impact of some of our most recent stress testing, it's something that is a continual part of our process, so that we can take into account not only unemployment trends, but also other trends relative to property prices as well as GDP. So, I think your question is a good one in terms of unemployment and what kind of impact could that have. Certainly, that is a possibility, but we feel that we are able to manage through that in a pretty good way because of all of this activities and strategies and approaches that we put in place, starting a couple of years ago, and how we continue to work through the issues in a relative loan book.

And Paul, we -- the thing that we feel right now, again, it's just by visiting the markets. So, it's not out of one of the surveys, or out of specific data information, but we would tend to agree with you. We don't see a huge risk for a severe back fall if you will, or double dip, whatever you want to call it. So, we're seeing kind of stable and steady as she goes out there, without a major change from that standpoint, just a lot of cautiousness relative to the current environment. And we think that's more of an impact today than what's actually occurring in the market place so.

Okay. Thanks a lot, gentlemen.

Thanks Paul.

And your next question is from the line of Nancy Bush from NAB Research LLC.

Kevin, I have a question for you, once again, related to the Midwest, and I take it that things are improving there. But one of the characteristics of the Midwest in previous cycle, it's been that when things start to improve, deposit pricing and the credit pricing get more competitive there than almost anywhere out in the nation. Can you just speak to whether you're seeing that kind of pricing competition yet on other deposits or loans, and what your expectations are as things continue to improve? NAB Research LLC: Kevin, I have a question for you, once again, related to the Midwest, and I take it that things are improving there. But one of the characteristics of the Midwest in previous cycle, it's been that when things start to improve, deposit pricing and the credit pricing get more competitive there than almost anywhere out in the nation. Can you just speak to whether you're seeing that kind of pricing competition yet on other deposits or loans, and what your expectations are as things continue to improve?

Yeah, Nancy, you're exactly right, and we have been anticipating that. We have not actually seen that. Now, I would bifurcate those comments in two ways. We have not seen that at all relative to deposit pricing. As you can imagine, banks are fairly flush in liquid, and so we're not seeing a lot of competition or paying up from that standpoint. On the asset side, by and large, still good discipline we see out there, and still good asset class spreads and yields across the Board. Obviously, though we're seeing now some of the better credits, sharping harder, and so we would expect a little bit more competition from that standpoint. And so, we're just seeing -- we're just beginning to see that now, Nancy. It hasn't been prevalent. You could see in our yields, even on sequential basis, we haven't seen major change, only down a point. So, we are watching that. But, so far so good, but I think I don't want to be naive as we kind of continue on in the improvement, and the progress in terms of the economic recovery that we fully expect to go toe-to-toe in terms of the better clients and the better customers.

Okay. And then one follow-up financial question, US Bancorp, a couple of days ago, put forward some numbers for increased FDIC expense based on the new base and the new pricing; do you guys have any kind of similar numbers? NAB Research LLC: Okay. And then one follow-up financial question, US Bancorp, a couple of days ago, put forward some numbers for increased FDIC expense based on the new base and the new pricing; do you guys have any kind of similar numbers?

Nancy, I think from an assessment base standpoint, I think I can speak to that. The increase in our assessment base would be from about 80 billion to roughly 97 billion which is a little over 20% increase. So, if you make an assumption of no-adjustment in the assessment rates, that would implied about a 20% increase in FDIC costs. I think it remains to be seen at what level those rates will be established but I think that probably gives you the information you need.

And I think I would add, I think you asked me, actually said that would be the assessment, if the assessment rates stay the same. There's no information in the bill that suggest but that's what they will do and obviously if they do leave the assessment rate alone that may lead to an increase of revenue to FDIC and we don't know whether that's what they're trying to do either.

Okay, great. Thank you very much. NAB Research LLC: Okay, great. Thank you very much.

And your next question is from the line of Brian Foran from Goldman Sachs.

Good morning, good morning. On debit interchange, I know it's too early to tell and you gave a lot of helpful dimensions but just to follow-up to make sure if I am thinking about it right, first in the last 12 months debit interchange data, should we use that as a base or do we have to account for some kind of underlying growth rate maybe 10% or so and then second I know you're not giving a point estimate and with good reason there is no regulation yet but when you kind of think about the B of A guidance that was put out there and I compared that to your comment. Is it fair to interpret that you know maybe you're a little bit more optimistic that it will come down to that kind of extent? And then third, how should we think about your signature versus TIN mix, can you remind me why you are overweight signature relative to the industry and is that a risk factor given higher interchange rates?

Yes, Brian, on and overall basis, as you indicated, hopefully we have provided information that is useful. Relatively to what some others have discussed, as we look at the rules and try to anticipate what the future might hold, certainly we're not of the belief that we're going to lose 80-90-100% of our debit interchange revenue. On the other hand, we do anticipate that there will be a significant impact to this. I think it's just too early to tell what that impact will be because we don't know what will be considered costs, what an appropriate return over and above those costs will be baked into the rates that are set ultimately. And I think there's going to be lots of opportunity to mitigate whatever that impact is once we how the rules are set and what the kind of what the challenge that's laid out in front of us. So, on an overall basis, we would anticipate that it will be far less significant than what some others may have been estimating. So I think there may have been second part to your question I didn't answer but.

Yes, the only other thing Brian, just to add to your question, you talked about signature versus PIN, there's really nothing, maybe geography is really dominant factor from that perspective but there's really nothing to read into our mix from that standpoint.

Thanks and then…

The other thing I think you asked was last 12 months. I think last 12 months, I was about a 185 million give-or-take in terms of growth I think, taking our most recent quarter and annualizing it's probably closer to 200 million rather than the 185, so you’re right in that range.

And then as I think about offsets in the mitigation, I know again it will be early, but should we think more about fees on and I am talking Reg E and debit together now since the offsets are going to be so overlapping, I mean if the fees on checking accounts, are we headed for a branch rationalization cycle, is it annual fees on the cards, is it migrating people to different products or is it just, we kind of have to test everything. I guess ultimately what I'm asking is there are there opportunities to offset this stuff on the revenue side by charging consumers in other ways or is the consumer so ingrained with the free products that you have to really have go through a cost rationalization exercise if we are going to mitigate it?

Brain, again it's really early on this, but our orientation I think would be one that I think there is going to be a lot of different levers to pull relative to this particular issue and that in fact the industry and ourselves, specifically have already begun changing out, kind of a old orientation of free to value added services. We've talked a lot about that since what we did and began literally about this time last year and we will just continue on that. It's been successful for us thus far, our customers, prospects and new product production has been outstanding and it continues to be, so I think we've kind of -- as we will going forward, continue to find the right combination of services, value creation, additional product offerings as well as some pricing opportunities that all will be contributory toward that mitigation strategy as we go forward. So, I think we have demonstrated to ourselves at least that our value added opportunities that we can migrate from where we've been to where we are going, and that maybe what your reading into our optimism about how we view the challenges ahead of us.

This is Jeff, I guess I will just add that, debit is the most efficient form of payment there is, credit cards involve credit risk and floats and that's got to be priced into interchange, checks involve float and credit risk to get those cleared. In debit, we guarantee payment to merchants and debit is cheaper than credit and that's all going to be recognized when studies are done and if we end up shifting towards credit cards because credit risk is being taken that's -- we'll adapt to all that.

That's all very helpful, thank you.

And your next question comes from the line of Betsy Graseck from Morgan Stanley.

Hi thanks, a couple of questions, one follow-up. Does it matter, that percentage to which your debit is signature versus PIN?

In the legislation, it doesn't, there is no reference to signature versus PIN.

Because you are more of signature, is that right?

Right. That's right.

Okay, and then separately on loan sales, could you just give us a sense as to how you do your portfolios that are up for loan sales, I'm thinking about distressed loan sales, I know there was little bit of what you did in the quarter and I'm wondering if that's a kind of a core part of your go forward strategy?

Yes, Betsy, we continue to evaluate loan sale opportunity, and we do that on a very active basis. We did not engage in any large scale asset disposition transaction this quarter. What we did was more just along the ordinary course of business looking for more individual and selective opportunities that made economic sense for us. And we will continue to evaluate all strategies as we continue forward in the cycle. I'll tell you that we do continue to see some signs of improved pricing, and in demand for properties which you would expect to see I think at this point in the cycle given some of the cash that's on the sidelines and some of the excess liquidity. So, we'll continue to work through that strategy.

Okay. No incremental rate of change expected in the coming quarters though?

We've got nothing anticipated at this point, again we're going to be opportunistic as it arrives.

Obviously, you have a significant amount of reserves, so you probably march pretty effectively. It might -- I'm wondering if you had positioned like that in order to try to sell a little bit more aggressively, but I suppose the answer it no.

We'd always like to tell you but after we did it Betsy.

Yeah. I hear you. Thank you.

Thank you.

Thank you.

Thanks.

Ladies and gentlemen, thank you for participating in today's conference call. This does conclude today's conference call. You may now disconnect.