Good morning. My name is Darla, and I will be your conference operator today. At this time I would like to welcome everyone to the Fifth Third Bancorp fourth quarter 2007 conference call conference call. (Operator Instructions) Mr. Richardson, you may begin your conference.

Hello, and thanks for joining us this morning. We'll be talking with you today about fourth quarter and 2007 - sorry, fourth quarter 2007 and full year results, as well as our outlook for 2008. As a result, this call contains 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 and these statements. Fifth Third undertakes no obligation to update these statements after the date of the call. I'm joined here in the room by Kevin Kabat, our President and CEO, and Chris Marshall, our CFO. 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, everyone, and thanks for taking the time to join us this morning. I have a few comments, and then I'll turn things over to Chris, who'll review our financial statements, our credit trends, and also our outlook for 2008. This has obviously been a difficult quarter for Fifth Third and for the industry. On most of our key operating metrics we had good results this quarter, but I'd be the first to acknowledge that was overshadowed by what happened on the credit front. Credit deteriorated fairly sharply this quarter, and we saw that reflected in growth in NPAs and losses as well as provision. As you know, we don't hold the kinds of assets that have produced the huge losses some of our peers have seen. However, one of our polices BOLI policies is invested in assets that experienced significant market declines due to widening credit spreads. Chris will talk more about that in a minute. The credit environment remains challenging, and we expect credit conditions and the performance of our portfolio to continue to deteriorate in the near term. As we've discussed with you since the middle of '06, we've been concerned about home equity lending and real estate loans in general, particularly in the Upper Midwest and Florida more recently. We've been actively working to mitigate the impact of these problems, so though it's a tough environment and we expect the near term to present further deterioration in credit metrics, Fifth Third is well positioned. Our tangible capital levels are relatively strong compared to most of our peers, most of the problematic credit areas have been with us for awhile and we've taken action to fix them, and we have a number of strategic initiatives that are positioning us well for the future. This…

Thanks, Kevin, and good morning, everyone. As Kevin said, it was a very tough quarter, clearly one of the worst the industry's ever seen, and our results obviously reflect that tough environment. GAAP earnings of $0.07 per share and operating earnings of $0.49 per share were down from a strong $0.72 last quarter due to the increase in charge-offs and the large provision expense we recorded. Beyond that, our results were solid. Fees were up $27 million sequentially or 4% if you exclude this quarter's BOLI charge and the hedge losses on the auto portfolio of $22 million, which was slightly better than we were expecting. Sequential loan growth continues in the upper mid-single digits on an annualized basis, and core deposit growth in the fourth quarter was also up in that same range. Those numbers exclude the benefit of the R-G Crown transaction. Net interest income, also excluding Crown, was up about 5%, reflecting our loan and deposit growth and a slightly better margin than we were expecting a month or so ago. Now we announced last month, as did virtually all of our peers, that we experienced a rather significant level of deterioration in credit during the quarter. As a result, provision expense increased $145 million from the third quarter, reducing earnings on a linked quarter basis by $0.18. That was driven by charge-off growth of about $60 million, and then provision exceeded charge-offs by about $110 million. By comparison, last quarter we recorded provision in excess of charge-offs of $24 million. The over-provision increased our reserve-to-loan ratio from 108 at the end of the third quarter to 117 at year end. That doesn't include an additional 11 basis points reflected in the credit marks we hold against acquired loan portfolios which are primarily related to Crown. Adding…

(Operator Instructions) Your first question comes from the line of Matthew O'Connor with UBS.

Morning, Matt.

Good morning, Matt.

Can you just give us a little more color on the timing of the charge-offs. You mentioned 1Q would probably be a little bit higher. It sounds like you're assuming a higher first half of the year and then some improvement in the back half of the year?

Well, we are. And unfortunately, Matt, I can't give you quarter by quarter, but we are expecting things to be a little bit higher in the first quarter, and then level off a little bit for the rest of the year.

Okay, what specific portfolio is driving the 1Q? I thought there was some seasonality in 4Q that made it higher, just from the auto side.

I'm expecting to see a little bit more in the commercial real estate and commercial mortgage area in the first quarter as well as in home equity.

All right. And then just separately, even though your capital ratios are below some of your targeted levels, you're still above many other banks out there, and I'm just wondering what your appetite now is for opportunistic deals, if there are some out there.

You know, we obviously watch what's going on in the industry, Matt, but we've got a lot on our plate. The environment is very, very tough, and I would say, you know, deals would not be our highest priority right now, but I'm going to let Kevin add to that.

Matt, I just want to echo that. We are very focused now on really kind of concluding some of the integrations that we've got going right now and on the continued strong operating metrics of some of the key elements that I highlighted for you in my comments. So that's where our focus is, and that's what we're really concentrating on right now.

Okay. All right. Thank you.

You bet.

Your next question comes from the line of John McDonald with Banc of America Securities.

Good morning, John.

Hi, guys. Chris, could you give us a little color, just kind of contrast some of the credit quality trends, the difference between what you're seeing in commercial real estate and then what you're seeing in C&I lending?

C&I actually looks pretty solid. We haven't seen, you know, a contagion, if you will, start to hit anywhere in that book, and we remain pretty confident that the book will stay solid throughout the year. And, you know, I guess we've talked over the last couple of quarters about softness in the rest of the commercial portfolio, so if that's what you mean by a comparison or a contrast.

Yeah, yeah. And even in the areas geographically where you're talking about weakness, on the commercial side it's really in commercial real estate?

Oh, absolutely. Yeah.

We've seen that also, John, in terms of tracking NPAs. The C&I portfolio from a sequential basis was literally flat. So again, we see it more in the real estate sector than we do in C&I.

And that's kind of embedded in your outlook, too, for the further deterioration in the first half of '08 is commercial real estate and home equity driven, I assume?

Yeah. I guess in our outlook we do assume some softness in C&I. Now that's not because we've seen any softness ourselves, but we do recognize that the economy is slowing and so we're assuming that there will be some softness at some point during the year. But in terms of, you know, our own metrics, up to now C&I looks pretty solid.

Okay. And then on the capital, did you give a timeframe, Chris, for when you thought you'd get to your target TCE? Did you say by the first half of the year you should get there?

I think the TCE is going to move around during the year because of a few transactions that we've got planned, so I don't want to give you an exact target. But we are - all I can say, John, is we're very focused on the 6.5% target, and we're committed to getting back there.

Okay. Okay, thank you.

Sure.

Thank you.

Your next question come from the line of Michael Mayo with Deutsche Bank.

Good morning, Mike.

Good morning. First question, the Fed cut rates 75 basis points this morning. What's the impact for you guys?

Yeah, we saw that, Mike. We're largely neutral to changes in interest rates, although I would tell you that the cut is very welcome. While we hedge our income for changes in rates and that's what I mean by we're largely neutral, cutting the rates is obviously very welcome by our customers. It's something that we hope is going to pick up overall activity. We've been somewhat hampered this year by our customers sort of hesitating to go forward with things sort of in anticipation of further rate cuts, so we're hopeful - we think what the Fed did this morning was the right thing, and we're hopeful it's going to start to spur some economic activity in our customer base.

Mike, as Chris mentioned earlier, we had seen some of the refi activity. This we hope will only accelerate that. We would anticipate that it will and, again, that'll be beneficial, particularly in terms of the consumer side and some of the stresses that we've experienced and highlighted for you today on that book.

To the extent that some of your borrowing costs have gone up, I mean, do you look to pass on those higher borrowing costs, which means the impact of the Fed moves is somewhat muted?

Our borrowing costs -- let's see, I guess I'd go back and answer it that overall, the Fed cuts are somewhat muted to us in terms of being - overall, our income is not going to be largely affected by the Fed cuts.

Okay. First Charter, what's going on with that right now, since you need to pay more stock. Do you still want to do that deal, or what are your options to get out of it, even if you wanted to?

Well, we don't want to get out of it. First Charter was a very attractive strategic acquisition for us, and while we obviously are not pleased with our stock price, we'll see where that, you know, the stock is when we eventually close. In terms of where it is, we're awaiting Fed approval. We had originally hoped to have that approval in the first quarter of 2006 and that, just with the passage of time, clearly does not look like it's going to happen. And so we're hopeful that we'll get that approval sometime in the second quarter. But we still view First Charter as a very attractive acquisition.

And the FDIC insurance costs, you said, were going higher this year?

Yes.

Remind me what's going on there.

There's a proposal to increase insurance rates, and I'll be honest with you, I can't remember the exact timing of when that occurs and I know there's a proposal to delay it. But right now, there is a scheduled increase in deposit rates that should affect everybody, you know, all banks.

It's scheduled, Mike, in the second half of the year right now unless something changes.

You're already factoring that into your expense guidance for the year?

Yes.

Okay, so you consider this pretty much a done deal?

Well, if it - right now, it's scheduled to occur. If the proposal to extend it goes through, then we will obviously have an improvement by that amount in our expenses.

And then last question, on problem loans, you said 81 basis points core charge-offs in the fourth quarter. In your guidance, it's just kind of for the low 90s, low to mid-90s. Is that being conservative enough?

Mike, we obviously feel that it's, you know, a balanced view and that, you know, I'm not sure it's conservative enough or aggressive enough. It's what we expect it to be. You know, the increase is, again, expected to be a little bit higher in the first quarter of 2006, and then we expect things to level out a little bit.

And you said on the commercial side it's really just commercial mortgage. Is it really just homebuilders or is it, you know, expanding more broadly?

No, it's -- I do think it's broader. It's housing related and anything related to housing, which is pretty consistent with what we've been seeing for the last couple of quarters. In terms of homebuilders, charge-offs actually in the quarter were quite low. We do expect that to pick up a little bit as we get into the year.

All right. Thank you.

Thank you, Mike.

Your next question comes from the line of K.C. Ambrecht with Millennium

Good morning, K.C.

Good morning. Thanks very much for taking my questions. I'm looking through the press release; I don't see it. Can you just kind of walk -- I have a couple questions. First, could you walk us through your Florida and Michigan exposures by some of the more problem, like the size of the problem, parts of the book, like the HELOCs, the LTVs and the appraisals, and what are the migration trends for those states?

Let's see. Would you mind, K.C., just going back and saying that one more time?

Sure. So I was looking for a little bit more detailed exposure, particularly on the Florida and Michigan, because you cite that as like 50% increase of your problems.

In terms of exposure?

Like, for example, could you go through your HELOC book and what are the LTVs? What's the size of the book? What are the appraisals? When were they last appraised? What's the migration trend?

K.C., I'm not sure I can reel through all that on the call. We've got that data here and we can go through that, but I'm not going to be able to pull all of those numbers together instantaneously.

Okay. I think that'd be a good - okay. How big is your Florida book, just in general? How many of the loans are in Florida?

$8.3 billion.

$8.3 billion?

Yep.

And of the amount, how much of the loans were acquired through deals in the last four years?

I mean, most of it.

Yeah.

Most of it, right, in the thrifts you bought?

Well, no. The Florida National -- I'm sorry, the FNB deal and the Crown deal, Crown being about a little over 2 and FNB, $4 billion maybe?

Okay. Do you have a general LTV on Florida?

Probably because the portfolio includes everything, I don't know that an LTV would mean anything.

Okay. Okay. I mean, additional exposure of that might be good to kind of get out there because, you know, just saying that Florida's melting down.

In the Qs, K.C., we disclose our portfolio by state, and then in the release we talk about the effect that Florida and Michigan are having on virtually all of our portfolios.

Okay. What about the capital? I mean, do you expect any more buyback now, that 6.07%?

No, we don't expect buybacks currently.

Okay. And then any updates on First Charter? Why's it - I'm sorry if you've answered this. I've been on a few calls. Why is it taking so long to close this?

We just did answer that. I don't know if it's taking long or not. It's taking longer than we had hoped, but we are awaiting Fed approval and, beyond that, there's not really a whole lot we can say.

Why is the Fed being held up?

I'm not sure the Fed's being held up, K.C., it's just the Fed is going through its normal process and, you know, we really can't comment on it beyond that.

Okay. And then one last question on the LTVs, just going back into Florida, maybe if you could just talk about your HELOC book in general. What percent of your HELOC book was brokered?

Our brokered HELOC is about 25% - 20%, 25% of the overall book.

Of the overall?

There's about $11 billion in the book. About 2 of it came through what you would normally considered brokered sales, and $1 billion came through the HEA business, or $1 billion - maybe $1.2 billion or $1.3 billion. So about $3 billion in total out of the $11 billion.

Okay. All right. Thanks very much.

Thank you, K.C.

Your next question comes from the line of Don Jones with Credit Suisse.

Good morning.

Looking at your capital ratios, it looks like the total capital ratio is getting a little bit close to the well-capitalized thresholds. Do you have any contingency plans for if something happens between now and the end of the first quarter, you know, something unforeseen of course that would drop that below the 10% limit? And given that idea, it looks as though you guys are fairly filled up on tier-1 type of securities, so are there other types of things you might consider issuing?

The answer to that is yes. I'm not going to go into the individual things we have planned, but we clearly don't have any plan to go below 10%. As I tried to do or point out, we expect the total capital ratio issued to be resolved very, very quickly.

Okay. And then more broadly on the asset quality, the non-performing assets within the book, it looks as though the commercial mortgage and commercial construction was the source of major decline in the NPAs - or bump up in the nominal NPAs. I know you've already characterized this in some broad strokes. Is that mostly Michigan and Florida, and again, mostly related to the homebuilders and whatnot?

Not homebuilders necessarily, but housing or real estate in general. And yes, you're correct. It's largely concentrated in Michigan and Florida.

What would you say your outlook is? I mean, how do you anticipate dealing with that in a way that won't further impair capital or hopefully earnings? Is there a way to sell or just ride it out? What happens with something of that size that's already coming under that much pressure?

Well, let's see. Our outlook takes into account the stressful feeling there and expects some further deterioration, specifically in those geographies and in those business segments. In terms of what we're going to do, you know, there's a number of things that we're doing, including aggressive workouts. We do expect some level of NPA sales. But all that's included in our outlook, and our outlook for capital does include the expectation that there will be some deterioration in credit during the year.

Okay. Okay, thank you very much.

Thank you. Operator?

At this time, there are no further questions.

All right, let me wrap things up, and thanks for joining us for the call this morning. Again, while it was a difficult quarter, we do feel good about the developments within the operations of the company and core results. But bottom line results are disappointing given the impact of the credit trends this quarter. We've got a strong management team acting to implement sound strategies against a very tough environment, and we're continuing to focus on executing the basics that distinguish outstanding companies and drive value. On a weekly basis, I can tell you that we're scorecarding all of our affiliates and lines of business on loan and deposit growth, fee growth and efficiency, and we're performing well on these metrics. We intend to be at the head of the class in every category, and that includes credit as well. We're able to see the improvements we've made show up in core performance. The credit actions - shutting down business lines, restricting credit, raising standards - takes longer to show up in current results, but it is happening. So remember, we're a prime underwriter in every credit class, with a very strong customer base. Our geography is not cooperating on the credit side, but those geographies will stabilize. And the steps that we're taking across the company will increase the future earnings base and produce better credit results when this cycle turns, which it will. So thanks for joining us today. We appreciate your continued interest in Fifth Third.

This concludes today's Fifth Third Bancorp fourth quarter 2007 earnings conference call. You may now disconnect.