Jeff Richardson - SVP and Director, IR Kevin Kabat - President and CEO Chris Marshall - CFO

Mike Mayo - Deutsche Bank Matthew O'Connor - UBS John McDonald - Banc of America Securities Ed Najarian - Merrill Lynch

Good morning. My name is Filis, and I will be yourconference operator today. At this time, I would like to welcome everyone tothe Fifth Third Bancorp Third Quarter 2007 Earnings Conference Call. All lineshave been placed on mute to prevent any background noise. After the speakers'remark, there will be a question-and-answer session. (Operator Instructions).Thank you. Mr. Richardson, you may begin your conference.

Thanks, Filis. Hello everybody and thanks for joining usthis morning. We'll be talking with you this morning about our third quarter2007 results, as well as our outlook for the remainder of 2007. As a result, this call contains certain forward-lookingstatements about Fifth Third Bancorp, pertaining to our financial condition,results of operations, plans and objectives. These statements involve certainrisks and uncertainties. There are a number of factors that could cause resultsto differ materially from historical performance in these statements. FifthThird undertakes no obligation to update these statements after the date ofthis call. Now, I am joined here in the room by Kevin Kabat, ourPresident and CEO, and Chris Marshall, our CFO. During the question-and-answerperiod, please provide your name and that of your firm to the operator. Andwith that, I will turn the call oven to Kevin Kabat. Kevin?

Thanks, Jeff. Good morning and thanks for joining useveryone. I have few comments and then I will turn things over to Chris, whowill review our financial statements, our credit trends and also our outlookfor the rest of 2007. I would like to start off saying that this was a solidquarter for us and we are pleased with the results, particularly given the macroenvironment that we are operating in. We showed strong revenue growth and expenses were wellcontrolled. Fee growth was outstanding and NII growth was also quite good andwe hope we'll continue to benefit from wider, more rational spreads. We doexpect some further deterioration of credit as we manage our way through thecycle. However, we've been able to generate core performance that's allowed usto earn through a higher provision and still grow EPS. That will stand us ingood stead when the cycle turns in the next year or so. Our payments business had another strong quarter, up 16%year-over-year. Last quarter we mentioned the signing of Walgreen's credit cardprocessing business. They were converted to our system during latter part ofthis quarter. U.S. Treasury business isabout half way converted and that will becoming on through the first quarter of2008. Additionally, we just won the rest of the EFT business for our largestfinancial institution client. We continue to feel very good about this businessas we significantly outpaced all of our peers in organic growth and expect tomaintain our strong mid-teens growth rate. Results continue to exceed our expectations in the creditcard business. We really focused our management team and resources from lot ofareas of the bank into this and that demonstrates the power of that focus.Credit card account originations were up 83% and balances were up 57%year-over-year, despite having sold 89 million of non-strategic receivableslast quarter. We have an enormous opportunity here that we've just beganto tap into. We've grown to $1.5 billion in an outstandings even after sellingover 100 million in balances the last 15 months and we think we have $2 billionor $3 billion of runway ahead of us, just in penetrating our own retailcustomer base beyond the current 14% to 15%. As one of our strategic growthinitiatives that we promised to deliver on, we are pleased about the earlysuccess we've had here. In Commercial, C&I growth remains solid at 7% over lastyear, commercial mortgage and construction continued to slow driven by loweractivity in the marketplace. We had another very good quarter in corporatebanking fees and we are really seeing success from the build out of our capitalmarkets capabilities in loan syndications, asset backed products and betterexecution and increased sales in international foreign exchange and interestrate derivatives. Our Investment Advisors business grew 7% year-over-year withcontinued strong results in private banking and continued improving results inbrokerage. The addition of new management and our focus on improving thequality, productivity and number of our brokers is beginning to pay off here. In retail banking, we saw another strong quarter for depositservice charges with double-digit year-over-year growth. Retail DDA productionwas really good in a fairly tough environment, up 6% from a year ago with 7%DDA account growth. In fact, recent industry studies we've seen indicate thatwe are in the top quartile in retail core deposit growth and stake up very wellin key deposit performance categories. In our Consumer Lending business, auto loan production wasstrong with balances up 14% year-over-year. From mortgage, I am sure you arewell aware of the challenges in that sector during the quarter, and as you cansee from our results we are not immune to that. Chris will give you more detailon this in a moment. The home equity balances continueto come down a bit due to our tightening of our underwriting standards over thecourse of the last 12 months. Let me turn to credit.Charge-offs came in at 60 bps for the third quarter, in line with expectations,and up from 55 bps in the second quarter. NPAs were higher than expected withthe majority of the increase coming from Eastern Michigan, Northeastern Ohioand Southern Florida. About $22 million of theincrease in consumer NPAs this quarter came from debt restructuring for ourconsumer borrowers. Like all banks we have seen customers struggle to service theirdebt, particularly in more difficult geographic areas. We are being very proactive in approachingthem to address potential problems before they miss payments or go into foreclosure.It's good for our customers and its good business for us. We do thinkcharge-offs will be up in the fourth quarter and Chris will walk through thisin more detail in just a moment. We feel very good about our denovo activity. During the quarter we added 14 net new branches and remain on trackto add a net 59 branches to our network in 2007. De novo deposit growth remainson track to exceed our target deposit levels. I also like to mention that weare on pace with our acquisitions of R-G Crown Bank, First Charter, and theFirst Horizon branches we purchased in Atlanta. We are still targeting a fourthquarter close for the R-G Crown conversion and first quarter 2008 closed on theFirst Charter and First Horizon branch acquisitions. Finally, let me say that I have been CEO for six months nowand while we were in a very difficult environment, I am excited about lot ofthe actions we are taking as a new management team they are bearing fruit andwe will continue to do so for years to come. We are delivering on ourcommitments. We said we were going to diversify our footprint into fastergrowing areas and over a relatively short period of time we've made hugestrides. We really transformed the demographic profile of Fifth Third. We'll have a third of our branches in growth markets,specifically the Southeast and Chicagoat the end of the first quarter of 2008, as double the proportion of just threeyears ago. Most of that change is been through de novo activity and I am partof the activities here, investing in our future, the analytical and site selectionwork is gone into enabling our success, and the fact that we've been able toabsorb the initial impact in the earnings. Expected population growth and household income growth inour pro forma footprint weighted for deposits is now roughly the nationalaverage, that's the significant improvement and opportunity and we probablysurprised a lot of folks. We told you, we would fix our balance sheet issue last yearand we did. We made commitments to deliver on our growth initiatives, like ourcard initiative and healthcare industry vertical and we are doing that. We'vealso been completely transparent about our opportunities and our problems. Forexample, we've been very clear for a year that we expected home equity to bethe most likely source of higher losses, not only for us but for the industry. The management team, we've been very focused on addressingour issues, particularly as it relates to our credit quality. For example,we've consolidated consumer and home equity underwriting and approval in to tworegional credit centers. We've reduced exceptions to guidelines and eliminatedchannels that were producing home equity loans and poor credit performance. Weare now delivering all Alt-A production under an agency flow arrangement, andwe are proactively addressing problem loans in the making. We can't eliminate the effects of the market and the cycle,I know they have increased, charges-off are in line with our forecast at thebeginning of the year, they were higher than we would liked. Steps we're takingwill take time to cycle through, but we'll produce better results in thefuture. We can expect that as a team, we'll remain focus on executing ourstrategic plan, meeting our commitments and building a stronger institutiongoing forward even as we work through a fairly challenging time. With that I'll turn things over to Chris, to talk aboutthird quarter results and the outlook for the remainder of the year. Chris?

Thanks, Kevin. Good morning everyone. Well I'd agree withKevin that it had been a pretty tough quarter for the industry. Our financialresults were pretty solid and hopefully that is beginning to demonstrate to allof you that while we continue to suffer from the same issues as the rest of theindustry. We also continue to make significant progress in improvingproductivity and the profitability of our businesses. Now, before I get to the details of the financial statementsin our outlook, let me try to say you some trouble digging through our releaseby recapping the major drivers of our EPS. As you've seen earnings per sharewas $0.71, which we feel reasonably good about. Our results were characterizedby strong growth in revenue and pre-tax income before provision, which was up3% sequentially and 9% versus a year ago. Now, growth in provision obviously offset a good bit of thebottom-line benefit, but we continue to show respectable EPS despite that. Sowhile credit costs are masking some of the growth we're experiencing we feelgood about where we are because as Kevin said the credit cycle will turn andwhen it does we will retain the benefit of having raised our earnings capacity. I'm going to discuss each of these items more fully in myremarks later, but in terms of the major items; third quarter resultsincluded a number of offsetting issuesincluding, starting with our fee income. In fee income we had about $0.03 total benefit fromsecurities gains which total about $13 million. We also had $15 million ingains from the sale of FDIC deposit insurance credits. And those gains offsetlosses of almost a $0.01 were $6 million on auto loans held for sale that wewere planning to securitize this quarter. As well as significantly lower ourmortgage banking income. Our mortgage banking income was down $15 million or $0.02for the quarter -- from second quarter. In terms of NII and expense items, wehad a benefit in NII of about $6 million for dividend adjustments related tothe repurchase of our re-preferred securities. Well that benefit offsets the $6million in expenses we incurred in the quarter related to pension settlementexpense, neither of these items are going to reoccur in the fourth quarter. And then in terms of tax items we had a net benefit from avariety of items, which totaled about $8 million after tax and they were theresult of finalization of exams, expiration of Statutes of Limitations andstating context law changes specifically in Illinois, which I mentioned to youlast quarter. Our effective tax-rate ended up at 28% which was right inthe line with our expectations and that's right in line with our full yearoutlook. So net-net we benefited to the tune of about $0.015 to $0.02, largelyin the tax line from the items I just outlined and then provisioned exceedingcharge-offs by $24 million which raised the reserve to loans to 108 from 106while it cost us about $0.03 in the quarter. Now as a reminder in terms of comparing results to priorperiods, second quarter results were $0.69, and they included $16 million ingains on the sale of single product credit card accounts as well as $7 millionin one-time costs associated with our expense reduction initiative. So we netted about a $0.01 of benefit there and then thirdquarter results a year go which were $0.68 included net securities gains of $19million and $11 million charge related to debt termination an $8 millionpension settlement charge and finally $10.5 million in gains on the sale ofbranches and out-of-footprint credit cards. So all-in-all we had about a $0.01in net benefit there as well. Let me move on to the details starting with credit. It wasobviously difficult quarter from a credit standpoint as no getting around that.Charge-offs were 60 basis points for the quarter, which is largely in line withour expectations. Though NPA growth of 34% was higher than we were projectingand we had some upward pressure in the quarter and that market conditions werevery poor for NPA and charge-off loans sales and that obviously raised our NPAsand lowers our recoveries. Now, we continue to evaluate opportunities to sell NPAs atthe right pricing and we'd expect to do so going forward. Additionally, asKevin noted, we did restructure consumer borrowings this quarter and thatincreased NPAs by $22 million. Turning to charge-offs; gross charge-offs were 66 bps forthe quarter, largely in line with the second quarter. However, lower recoveriesresulted in a net charge-off ratio of 60 basis points, which was a 5 basispoints sequential increase and that puts us at 51 basis points year-to-date. Now, consumer charge-offs were $79 million or 93 bps versus68 bps in the second quarter, which was $24 million increase. Lower recoveriesaccounted for 7 basis points of the increase. The largest quarterly increase innet charge-offs occurred in auto lending, which was up about $10 million andthen home equity was also up about $7 million. The increase in auto losses largely reflected the impact ofhigher than normal originations in the latter part of 2005. Those vintages arenow lowering in their peak charge-off period, and we are finding that the 2005vintage, as well as some of the 2006 vintage, are defaulting a little early andtherefore we are seeing a little higher LTV. So, the severity of loss oncollections is a little bit higher than it has been. And then as you probablyknow, the used car auction market is seasonally weak in the third and fourthquarter, so that's also been a factor on our losses. The 2007 vintage, on the other hand, is performing better atthis point in the life cycle than 2005 and 2006. So, in terms of neworiginations, we feel pretty good. In home equity, we are seeing most of the losses coming inthe higher LTV broker products, and I have been talking about that for the pastyears or so, so no surprise there. And of course distressed geographies you are all aware ofcontinue to be a big factor, as an example almost 40% of our year-to-date homeequity charge-offs have been realized in Michigan, which represents just about20% of our home equity outstandings. And then mortgage and credit card losseswere relatively stable throughout the quarter. Our commercial net-charge offs were $36 million and 33 basispoints versus 44 basis points in the second quarter. The 11-point declined wasdriven by 16 basis points drop in gross commercial charge-offs, partiallyoffset by 5 basis points and lower recoveries. Most of the improvement came in lower commercial real estateand the absence of high dollar write-offs. In fact, unlike the past fewquarters, we had no charge-offs recorded this quarter greater than $2 million. Moving on to provision; provision expenses are $139 millionand exceeded net charge-offs by $24 million, which, as I said earlier,increased the allowance ratio to 1.08. We'd expect to see provision continue toexceed charge-offs in the near future, given our expected loan growth and theexpectation from continued growth in NPAs and criticized assets in the nearterm. Let me mentioned just a few more points on NPAs to make sureI covered everything. Let's see NPA is totaled $706 million or 92 basis pointsof loans, up 22 basis points from last quarter. That totals $178 millionincrease or 34% as I just said. Commercial NPAs were $446 million. We had a $106 millionincrease in NPAs in commercial. Most of the increase came from commercialmortgage and construction, particularly in Eastern Michigan, Northeastern Ohio,and Southern Florida. Home builders and developers accounted for about $50 millionof the total, which is up about $5 million from the second quarter. ConsumerNPAs of $276 million were up $61 million, and they were driven by an increasein residential mortgage and home equity loans primarily in Floridaand Michigan. And as Kevin mentioned, that increase $22 million related toproactively restructuring borrowers debt to better enable and to service theirloans. And we'd expect to do more of that in next few quarters. Now again, credit is problematic, but we've made a lot ofchanges that Kevin said. Since the new team has been in place over the past 12months in terms of identifying areas of potential and developing stress in theportfolio. Tightening terms and guidelines ensure the credit problemsare mitigated and it's going to take a while as you would expect for thesechanges to fully take hold. So you are seeing higher levels of issues currentlythan we'd expect longer term. Based on our analysis of the portfolio and credit conditionsin the fourth quarter, we expect to see NPAs increased by similar amount to thethird and we'd expect charges-offs to be up probably in the 10 basis pointsrange or so. Let's say, let me turn to the balance sheet. Let me startwith loans; loan growth remained solid this quarter, was up 2% sequentially and6% year-over-year. The breaking thing is down a lit bit. Average consumer loansalso grew 2% sequentially and 6% versus the third quarter. C&I loans were up 4% sequentially and 7% compared withlast year. A commercial mortgage loans were up about $90 million and that justreflects perming out of construction loans, which were down by about the sameamount. Other than that, there was very little deal activity going in the CREsector as you would expect. Average consumer loans were up 1% sequentially and 6%year-over-year. As Kevin said, we continue to see strong growth in all ourloans, up 3% sequentially and 14% from last year. And as you know, we plan to do an auto securitization abouta $1 billion in the third quarter, but market conditions made that transactionvery unattractive from a return perspective, so we pushed that out until pricingimproves. Retail credit card balance growth was also very strong, wasup 9% sequentially and 57% year-over-year. Now that would have been 18%sequentially and 75% versus last year, excluding the sale of $89 million ofnon-strategic credit card accounts last quarter. And that's really a prettyremarkable given that our card growth initiative has only been in place sinceJanuary. As Kevin said, originations were up 83% year-over-year. Thattranslates into an increase in monthly card originations from just under 14cards per month per store last year to more than 28 for banking center thisyear, and new sales continue to increase. We were actually at monthly rate of32 cards per store last week and we're confident that Charles Drucker and JohnGrock, our credit card executive are going to have production at best-in-classlevels by year end. Moving on to deposits; average core deposits were down alittle less than a 1% sequentially and up 2% from a year ago. Transactiondeposits excluding CDs were up 3% year-over-year, driven by 5% retail growthand 1% commercial growth. Looking at the key deposit lines, DDA balances were down 2%sequentially and 4% year-over-year. The decline continues to relate to lowercommercial DDA balances, that's consistent with the last few quarters. Commercial accounts have grown. They are up about a 1%, sowe are holding on our customers, they just carrying lower balances. The Retail DDA balances are up 6% from a year ago on 7%account growth offset by about a 2% reduction in average balance. Interest checking balances declined 5% sequentially, and aredown 12% versus year ago, also consistent with the last few quarters. Most ofthe runoff from this product relates to our customers moving balances intosavings and money market products, as we brought our pricing and IBT in linewith the market over the last couple of years. Now as a result of this shift, and also very good managementof CD pricing, savings balances grew 5% sequentially and are up 25% versus ayear ago. And then finally, retail CDs are down 5% year-over-year and5% sequentially, which is right in line with our expectations. We have been very vigilant about our pricing on CDs as wellas our pricing on Pub funds. A law that has caused some balance erosion. Our average weighted rate paid for interest-bearing coredeposits was 3.36% and that's down from 3.42% in the second quarter. So oureveryday great rates pricing strategy is really doing a very good job ofmanaging the trade-off between volume and rates, and still providing the rightvalue for our customers. Let's move onto revenue, starting with NII. NII was up 2%from last quarter and 6% from the same quarter last year. Earning assets wereup about 2% from last quarter, but NIM was down 3 basis points to 3.34%. And our year-to-date NIMs now stands at 3.38, which is rightin line with our full year forecast of 3.35% to 3.40%. Last quarter, we told you we expect that the NIM to be downa few basis points this quarter, due to a full quarter effect of our hybridissuance and our share repurchases. And as I just said, we ended up down 3 bps.Now, of course, a lot change in the quarter. Compared to our forecast, the repurchase of our REITpreferred stock helped the NIM this quarter and the behavior of rates obviouslyhelped the origination Sprint's spreads in wholesale funding costs, but thosebenefits were offset by the impact of higher non-performing loans and thedecision to postpone our auto securitization. But at the end of the day, we ended up right where weexpected to be, but we didn't necessarily get there the way we expected to. I'm going to talk a little bit more about margin and theoutlook, but we'd expect fourth quarter NIM to be fairly stable with where weare right now. Now moving on to non-interest income; fee income growth wasvery strong, driven by payments processing revenue, service charges on depositsand corporate banking revenue. Our payments processing results continued to be exceptional,processing fees were up 4% sequentially and 16% versus a year ago. As Kevinmentioned, we are substantially outpacing all of the large processing companiesin organic growth, and we have an incredible strong competitive position inthis business. And we see nothing on horizon that would cause us to change ourmid-teens growth expectation in the foreseeable future and that's particularlytrue given the disruption in the competitive marketplace. Now looking at the payments business in a little moredetail; revenue from the merchant segment was up 8% sequentially and 23% from ayear ago, which is really fantastic. Financial institutions revenue was up 2%sequentially and 7% from a year ago. And finally, a card related revenue wasflat sequentially from a seasonally strong quarter for debit card usage and up15% from a year ago. Now as we have mentioned in the past, we believe our segmentreporting makes it difficult for you to determine the real contribution fromour processing business. And so, we are really focused on adjusting ourreporting and I hope that we will have that done in time for our 10-Q. I thinkit's really important that you all get a better look at FTPS as though it was astandalone business and so we hardly work on that. Now switching to deposit service charges; we had anotherstrong quarter, up 6% sequentially and 13% from a year ago. Consumer servicecharges drove the increase growing -- they are up 11% sequentially and 19%year-over-year. This increase reflects the higher levels of customer activityas well as an increase in a numbers of consumer DDA accounts, which, as I justmentioned, are up 7% from the third quarter last year. Commercial service charges grew much more modestly at 1%sequentially and were up 5% year-over-year. Investment and advisory revenuedecreased 3% sequentially, largely due to seasonality in the brokerage andprivate banking areas so it's related to business, that's typically driven bysecond quarter tax planning. Private banking revenue was up 3% sequentially and 10%year-over-year. NHS reflects continued strong performance across the businessas well as some nice new customer additions. Retail brokerage fees were seasonally down 9% sequentiallybut up 7% versus last year, reflect increased broker productivity as well assuccess we are having in terms of broker hiring during the last few quarters. Corporate banking revenue was up 3% sequentially and 15%year-over-year. Now Bruce Lee and our affiliate teams deserve a lot of creditfor the consistent strong growth we've seen across the business, particularlyin syndications, asset backed, customer derivatives activitiesas well as improving letter of credit fees. Now, this is still an undersizedbusiness for us. As Kevin mentioned, we are seeing real results from ourinvestments and upgrading the talent here and this still remains a greatopportunity for future growth. Our mortgage banking revenue was $26 million for thequarter, down from $41 million in the second quarter. Now, this was a verydisappointing quarter for us in mortgage, and we missed our forecast by a verywide margin. The good news is that we didn't have any huge write-downs.We don't have a whole lot of capital market exposure given our business model.But, execution of profitable transactions was especially difficult thisquarter. We've got new leadership in our mortgage business, and they are veryfocused on identifying opportunities to earn our way through these conditions,because we think it's going to remain tight for the next few quarters. The decline in mortgage revenue was largely due tosignificantly lower gain on sale margins, which as you know was caused bywidening credit spreads in the mortgage market. And I am hopeful that gain onsale margins will start to return to more normal levels in the fourth quarter,but that hasn't happen yet, and so it's a pretty mature to start to count onthat. As we note in the release, originations were down modestlyfrom the second quarter, but they were still fairly strong. A big driver of thedrop in originations is our elimination of a number of products and channels,as Kevin mentioned. We shutdown our national brokered home equity originationchannel due to the poor performance of that channel. And we're also or we alsohave eliminated all of our Alt-A production except that which were able to deliverunder agency or forward flow agreements. During the quarter, we also incurred $3 million inmark-to-market losses stemming from the transfer of $470 million of jumbomortgages and $110 million of Alt-A mortgages that were held for sale, and wemoved those loans to the portfolio. Now, we have been originating jumbos forsale, but we'll be holding them in the portfolio going forward if they meet allof our criteria for portfolio and product and they're really one of the bestrelationship products. So, that's the right decision for us. The loans we moved during the quarter had a weighted averagecycle of 740 and an LTV of 72%. In Alt-A, as we've told you, we've moved veryaggressively to try to stay ahead in changing market conditions. We wanted todevelop this product without risk of holding it. Now, one of our hand full of banks that in the last quarterhas been able to arrange for future Alt-A production to be delivered withinflow sale agreements and so we feel good about that and we don't think youshould expect any future warehouse risk from this product. Of the $110 millionof loans we moved to the portfolio had a weighted average cycle of 700 and LTVof 72%. All right, other non-interest income decreased 3%sequentially, and was up 6% year-over-year. As I said earlier, in thisquarter's result we had a $15 million gain on the sale of FDIC depositinsurance credits, partially offset by a $6 million loss on auto loans thatwere held for securitization. The last quarter results included the $16 milliongain on the sale of the credit card accounts. And third quarter of 2006 resultsincluded gains on the sale of branches and card accounts, which I mentioned waskind of $10.5 million. Moving on to expenses, we had another quarter of wellmanaged expenses. Our reported expense growth was 2% sequentially, driven byhigher payments processing activity and 6% growth compared to last year, alsodue to higher payment processing activity, as well as higher de novo relatedexpenses and technology investments. Now, excluding payments processingexpense, growth was flat sequentially and up 4% year-over-year. Compensation expense, salaries, incentives and benefits of$377 million was flat sequentially and up 4% year-over-year. Benefits included$6 million of pension settlement expense this quarter compared to $8 millionlast year. Now, this tends to hit us in the third quarter each year and wewould expect to see similar smaller number in the third quarter next year. Second quarter salaries expense included $6 million ofseverance and again that was related to the expense initiative reduction weannounced at the end of the first quarter. Otherwise incentives on strong feegrowth and merit increase drove the year-over-year increase. Our payments processing expense was 9% sequentially and 25%year-over-year. This expense line is being driven by 22% growth in transactionvolumes. As we mentioned last quarter, growth in this line will be a couple ofpercentage points higher this quarter and in fourth quarter due to theconversion of national merchants, as well as the effect of makeshift and themerchant business is our largest one and continues to grow the fastest of thethree segments and it also has the highest efficiency ratio of the three. I just note here that other expense in the third quarter '06included the $11 million charge of early termination of debt. Right, in terms of capital, our tangible equity ratio was688, down four basis points, but still very strong. As we told you we expectthe PCE ratio to be about 6.5 at year end, in line with our target due to theimpact of R-G Crown which will reduce the PCE ratio by about 40 basis points. Regulatory ratios were up about 40 basis points sequentiallyand that reflects the retail hybrid issuance that we did in August. As we notedlast month, the repurchase of our REIT preferred stock will reduce fourthquarter regulatory capital ratios by about 65 bps, however we would expect todo further capital securities issuance in the coming quarter to further bolsterthose capital ratios. Okay. Let me turn to the full year outlook, and you'll findthat on page 9 at the earnings release. And as we've told you in that past weare going to update this each quarter, and again we've highlighted the lineitems where we've made an adjustment to the July outlook to save you some time. I do want to point out that these expectations are excludedin the acquisition of R-G Crown, which we've planned to close sometime in thequarter. With three quarters in the book though, at this point I would soundfairly confident in our ability to meet these expectations, and while therehave been a couple of adjustments, I don't think there is any significantchange overall. Starting with NII, our NII growth outlook remains unchangedand its still on the mid single-digits and this reflects the couple of things.Our share repurchase activities and debt issuance, as you would know I havebeen replacing free funding with debt and that's lowering NII, obviously thoughthe offset there is in EPS. Our commercial loan growth is still expected to be fairlysluggish given the uncertainty in the overall economy and specifically in Midwest part of our footprint. C&I growth remainsgood, but we see very little CRE demand and in this environment we continue tofeel very strongly that slower growth is a better option for us right now and Ithink you would agree with that. Consumer growth has been solid inthe 6% range and that feels relatively sustainable. In terms of core depositgrowth we expect it to be in line with expectations. Retail core deposits heldup pretty well, but we still haven't seen any strengthening in commercial side,and so I don't want to just start to bet on those result at this points. But,we are hopeful we will start to see that turn. Turning to net interest margin,in July I told you that we expected the third quarter margin to be down a fewbasis points and it ended up down 3, as I said. And for the year we stillexpect the margin to be in the 3.35% to 3.40% range and that's been ourforecast all the year. Fourth quarter should be stable. However, the additionof R-G Crown is going to reduce the number about 3 bps, given the compositionof their balance sheet. So, we'd expect to be around 3.34%, 3.35% for fullyear, including Crown. Let's see turning to non-interestincome, again no change to the fee outlook. The payments business continues todo very well and we remain very, very confident with our mid-teens growthexpectation there. We expect the deposit service charge in corporate bankingrevenue growth to be consistent with the third quarter results. So, we feelvery good about that. Now, while we expect at the mortgage business where weare down somewhat from the lows of the third quarter, we still see a lot ofuncertainty there. Although, we would expect the originations to be consistentwith where they were in the third quarter. You'll see an increase in our outlook for expense growth tothe mid to high single-digits. As I said earlier, if revenue expectationsdeveloped as planned we thought that expense growth would likely to be in the7% range. Our revenue growth is continued to be good and was very good thisquarter. Our merchant processing revenue growth, in particular, has beenexceptional, though, that business has an average efficiency ratio over 70% andthat's big driver pushing us into the high end of our range. Now with Crown, wewill probably end up at about 8% for the year. I remind you that about half of our expense growth is inprocessing in de novo expense. Underlying expense growth -- we'd expect -- weforecasted to be in the 3.5% to 4% range and I still feel very good with thatexpectation. We've raised our net charge-off outlook from the low 50s tothe mid-50s to reflect third quarter results and fourth quarter expectations.Now that's more in line with our expectation at the beginning of the year, butit's a little bit higher than we told you last quarter. As I mentioned, weexpect fourth quarter charges-offs to be upwards in the 70 basis points range. As I've already noted, we still expect NPAs anddelinquencies to continue to trend upwards a little bit. Our effective tax rate outlook remains between 28% and 29%for the full year, probably towards the high end of that range for the fourthquarter. And then one final thing, we'd expect R-G Crown to produce about apenny of dilution in the fourth quarter and an additional penny in one-timecharges in the quarter. Okay. To wrap things up, I know the results have some noisein them, but we feel pretty good about our underlying businesses, especially inlight of the difficulties that we experienced in the third quarter. There is a lot going on and it's a very, very toughenvironment as you all know. But our 21,000 employees, we really feel are doingan incredible job in terms of implementing a lot of very, very positive changehere in Fifth Third while at the same time building on our strength. From my perspective, morale is as high as it's been, and itcontinues to grow. Everyone is very focused on executing their strategic plans.And we've got a lot of confidence in them and we are very committed deliveringvalue to U.S.shareholders. So with that, I'd like to thank you for your attention thismorning and we'd be happy to answer any questions you have.

(Operator Instructions) Your first question comes from theline of Mike Mayo with Deutsche Bank.

Good morning, Mike. Mike Mayo - DeutscheBank: Good morning.

Good morning, Mike. Mike Mayo - DeutscheBank: First, just on kind of your vision here, I mean youhighlighted that your footprint is kind of one-third in growth market and yousaid that was doubled what it was, not that long ago. Where do you want to takethat fraction and how do you define growth market?

Yeah, Mike, we have defined the growth markets reallyrelation to the demographic and population growth, exceeding the rest of thefootprint and exceeding national averages. So that's kind of a roughapproximation of how we define it. Our expectation and our orientation is really kind ofgetting a mix to more of a 50-50 split, if you will, a growth rate, if youwill. That's what we would expect to try and drive to through our growth andthrough the opportunities that we see before us, and probably not in the twodistant future, in a relatively short term. The progress that we've made in the last two to three years,we think we can continue that same type of expected progress. And as wementioned as well, most of that has been through our de novo expansion and wealso believe that strategically, we've said that up to continue to be able toinvest in those high growth markets again through organic expansion and the denovo strategy very well. So hope that helps in terms of some of ourperspective. Mike Mayo - DeutscheBank: And in addition to the Southeast and Chicago, any other growth markets that are onyour radar screen?

Obviously, we do spill and look into the Mid-Atlanticarenas, but again we are going to be opportunistic as it evolves over the nextfew years. But there is a lot of work to be done in terms of where our platformis today, and we feel good about the positioning that we have the companyreally ready to take on so. Mike Mayo - DeutscheBank: And so additional acquisitions possibly?

Yeah, as I mentioned, obviously, Mike, it's a challengingenvironment out there. Pricing hasn't changed a heck of a lot from thatperspective, but I think if you look at it overall, the combination of what we'vedone organically, specifically through the de novo strategy been very effectiveapproach for us. And so while we are open to that, we'll consider that andwill continue to be opportunistic in that route. We have a good organicplatform to drive off of that growth as well. So that's what you could expectus to continue to execute on. Mike Mayo - DeutscheBank: And then one unrelated question over to credit quality. SoNPAs were up one-third and they should go up another one-third in the fourthquarter. Now, I guess your NPAs loans are kind of a above peer average at leastwhat I'm looking at, and I guess it will go up higher still. And Fifth Thirdhas a long history of having a good credit culture. How are you thinking aboutcredit quality today versus history? And also if you can just give a little more detail on theauto loans, you said some of the severe losses worse than you expected, and atthe same time, you are kind of growing it 14% year-over-year?

Mike, this is Chris. Let see, the first, the long terms NPAgrowth, I can't give you an exact number, but I think 34% is what we saw thisquarter. I think that was -- if you look at it in two pieces, the biggest pieceobviously credit deterioration is probably about 25% and 9% to 10% was due tothe troubled debt restructuring and the lack of an NPA sale. I can't tell you what we are going to do in the fourthquarter, but I would expect that not having an NPA sale is going to be unusualfor us. We would love to do those each quarter. So that would offset some ofthe NPA growth and then the trouble debt restructuring. While it's a little tooearly to tell how those credits are going to perform once they arerestructured. I put those in a slightly different category. So I might look atthe underlying NPA growth as a little bit lower than the 34%, more than 25%range. In terms of autos, I think the bigger while there was anincrease in severity of loss just given the earlier charge-offs in the '05vintages and I think you'd see some of that occurring in some of ourcompetitors across the country for some reason. There is higher charge-offs inthat vintage. Mike Mayo - DeutscheBank: Why you think that is, I guess the quick question is theconsumer problems in mortgage going over to other areas and now we have auto toadd to that list or not?

It's a good question, but it's one I really couldn't giveyou a great answer on yet, but somewhat very focused on trying to figure outexactly what happened in 2005 that we drive that. By comparison if it was justas borrow for consumer, you'd expect that the 2007 vintage would continue todeteriorate even at this point in its maturity, and in fact the opposite ishappened is performed a little bit better. And then when we look at other consumer lending, like creditcard, we said balances were up, but, in fact, we don't see any stressing oncredit card at all. In fact that's performing very, very well. So, I am not sure if there was change in standards orsomething else in 2005. We are very focused on trying to figure out why that'soccurring. The bigger issue in the quarter is due to seasonality and the marketis always very weak in the third quarter and it's been even weaker this quarterbecause of the influx of inventory. So, I think that's the bigger driver. So if you look at the2007, vintage is performing well. The growth is we feel good about the stuff weare originating right now. Mike Mayo - DeutscheBank: How long does it for an auto loan usually to go back, I mean'07?

They begin charging off, I mean you see the charge-offs evenat very well levels from the time you write the loans, so you see 90 days out.Loans are already starting to be delinquent and starting to fail. We don't see that as badly in this new vintage as we did in'05 and '06 toward a lower level.

Your questions are very good question and you are right onthe right point, it's just -- I would not assume that just because '05 and '06are poor vintages, that that's going to continue through this year. Mike Mayo - DeutscheBank: All right. Thank you.

Thanks Mike.

Your next question comes from the line of Matthew O'Connorwith UBS. Matthew O'Connor -UBS: Hi, Kevin and Chris.

Good morning Matt.

Good morning, Matt. Matthew O'Connor -UBS: Chris, when we met in September, you had mentioned that ifmortgage spreads remained wide, which they have, you might add some securitiesin the fourth quarter. Are you buying securities, and if so, what types?

Well, if they remain wide up mortgages, the mortgage poolshave actually come down little bit. Securities are probably now where we wouldwant them to be before we stated to add. If we saw our spreads, maybe, widenedby about another 30, 40 basis points than I think they would at or about thepoint where we would to start to add things. Right now, the returns will stillbe a little tight for us. Matthew O'Connor -UBS: Okay. And is it dependent on your view on what the Fedscould do, so if you thought the feds was going to cut one or two more times,you would look to add now or is it risk premium?

No. Exactly, is it that, that the outlook for the Fed gets alittle clear than things would look a little more advertising. Matthew O'Connor -UBS: Okay. And just separately you've talked about securitizingor selling some lower spreads out that's the thing from the auto book in thepast, obviously this I think I had done in 3Q. What are the plans going forwardthere as you think about '08 and what you intend to do to free that capital?

Well. First of all, it's not a tremendous amount of capital,and I am not sure we have this specific use for that capital other than stayingat our 6.5% target given the three purchases we are going have to make. So,this first securitization is already factored into completing thosetransactions and still staying at 6.5%. Long-term and that is opposed to the next quarter or two, weare going to build out an auto securitization platform. We're very committed tothat. We think that's the right way to run the business and so we will do that.In the short-term, though, the timing of the transaction is going to beentirely dependent on market pricing. Matthew O'Connor -UBS: And over time would you like to bring down your autoexposure relative to all of loans?

Yes. Matthew O'Connor -UBS: Do you have any target in mind?

Yes. I'd said, while we don't talk a whole lot about of thespecific target, we would start it maybe half the size of what the book istoday. Matthew O'Connor -UBS: Okay. And then just lastly, I am sorry if I missed it, butwhat percentage of your home equity is brokered?

Hang on, let's see. I am going to say it's about -- I don'thave the exact number, but it's about somewhere between 20% in the quarter,maybe low 20s. Matthew O'Connor -UBS: Okay. Thanks very much.

Thanks Matt.

Your next question comes from the line of John McDonald withBanc of America Securities. John McDonald - Bancof AmericaSecurities: Hi, good morning guys.

Good morning, John.

Good morning, John. John McDonald - Bancof AmericaSecurities: Chris, I was wondering if you could give us a little bit ofcolor on kind of what the drivers are of the level of the reserve build. Iguess with NPAs and charge-off ratio going up, why don't we see a growth in theratio of reserved loans?

Well, I would give you a general answer to that John. Imean, there is not a linear relationship, as you know, between NPAs andreserves. It really has to do with the expected loss from those loans that aremoving into NPA status. And in our case the vast majority of them arecommercial loans and our loss expectation on those loans are all factored intothe calculation. In fact, we not only look at what our loss experience hasbeen, over the last couple of quarter we've really tightened that up to makesure we are looking at what our loss experience has been in the immediatelyproceeding quarter as opposed to looking over the average of a year or two. So,I think we're looking very accurately at credit-by-credit or pool-by-poolwhat's flowing into NPA or what deteriorates have been and what the expectedlosses are and that's how the allowance is built. John McDonald - Bancof AmericaSecurities: Okay. I guess I just figured with the charge-offs forecastgoing up, is this for everyone, you would see more in terms of reserve building.But, are you just saying it's a bottoms up and that's what [fits out].

Yes. It is very much a bottoms up. John McDonald - Bancof AmericaSecurities: And just to clarify one of your other answers, did you saythat the NPA sale market has gotten a little better from virtually staying downover the summer?

I really don't know. You really can't tell until you put aportfolio out to market what pricing is. It turned out that when we waited justhappened to be the way it happened, and so we put a portfolio out it was at theend of the quarter. We expected to sell it and I think everybody in a broadercame to market in the same week and so pricing was poor and we pulled it. Ithink pricing could have improved by now, maybe it hasn't, I don't know. But,we have to hold those loans, we will hold them, if we can sell them at theright price, we will. But, we are not going to give them away. John McDonald - Bancof AmericaSecurities: Okay. Thanks, Chris.

Terrific, John.

Your next question comes from the line of Ed Najarian with MerrillLynch. Ed Najarian - MerrillLynch: Hello. Good morning.

Good morning, Ed.

Good morning, Ed. Ed Najarian - MerrillLynch: First question has to do with credit quality and withrespect to commercial mortgage loans and commercial construction loans. We sawthat that was one of the biggest drivers of the increase in NPAs this quarter.Yet when we look at the charge-off ratios, commercials mortgage loanscharge-offs 26 basis points down from 56 basis points in the second quarter andcommercial, construction 35 basis points down from 48. So, it would have appear like potentially you are deferringsome of the loss recognition of I these NPAs and commercial mortgages andcommercial construction? Can you just speak to the very low charge-off ratiosthat you recorded this quarter in those two categories?

Well, I guess I could talk to it, but Ed, I guess I respondinitially, you can't differ loss recognition and we are certainly not in anywaydoing that. So if you specifically, if you want me to reconcile theamount of NPA inflow to the charge-off ratio, I don't think I can do that rightat this moment. I'm gladly trying to get you some more data off-line. But Ithink the loss recognition we had in the quarter is accurate and our charge-offratios in the rest of our lines had moved around quite a bit and I don't thinkyou can try to reconcile them one to one. Ed Najarian - MerrillLynch: But I guess when we should think about it is that a lot ofthe migration to NPA that we saw this quarter was not written down materially.Would that be correct, because if it would have been, we would have seen higherloss ratios in those categories?

The one thing I would say is had we done a charge-off sale,which we expect to, we would have seen higher charge-off, I mean I'm sorry inNPA sale. We expected to do NPA sale of about $60 million and that was the salethat didn't happen. If I had to guess, the loss might have been 10% of that.And so we would have seen higher losses to a tune of $10 million on that stuff thatwe would have sold. The rest of the step that flowed in, I couldn't reconcilewhat that would have done to charge-offs in the quarter. Ed Najarian - MerrillLynch: Okay. And then secondarily you've spoken a lot about the denovo branch expansion in a way. I think you talked previously about opening 50branches in Chicagonext year and then some other de novo expansion in some other markets. Couldyou just put some color on how you expect that to impact the growth in youroperating expenses outside of sort of the typical growth and the corefranchise?

Yeah, well, I'll give you some top level numbers. As Kevinsaid, we are going to bring on 59 stores this year. Next year, our currentplanning would say, we bring on about 80, so about 20 additional stores. In terms of the numbers, there won't be 15 in Chicago. They're probablybe about 50% of those stores in Floridaand Southeast now. There is probably going to be 20 or so in Chicago and then20 stores are probably be spread through out other parts of franchise like Tennessee and otherareas. So, there is probably a couple cents of dilution, maybe an extra pennyfrom the extra 20 stores may be $0.02. Ed Najarian - MerrillLynch: So, I mean could you give us a sense of those 80 stores,what kind of operating cost that entails opening those 80 stores on ayear-over-year basis, or on a percentage basis, how much (inaudible)?

On a percentage basis, well, I am telling you that assumingthat we have already got roughly 60 stores opening this year. So that's in ourrun rate. We will have about 20 more next year and that will cost us about$0.02 in incremental dilution next year from the expense drag from bringingthose stores on. Ed Najarian - MerrillLynch: Okay. And then last question in terms of the First Charteracquisition, do you have the percentage of their loan portfolio, there is anyconstruction or residential and commercial construction on land developmentlending?

We do have, but I don't have it with me yet. But I wouldgladly ask them to follow up with you after the call. Ed Najarian - MerrillLynch: Okay. Thank you.

Sure. One more.

Operator?

Your next question comes from the line of [Andy Walker withNew Age Capital].

Good morning Andy. Is Andy still with us?

Andy Walker your line is open.

Any other questions?

At this time sir, there are no further questions.

Hi, let me just close it down, then thanking everybody forjoining us. As we've said at the beginning of the call, there are lot of reallypositive developments and a very tough quarter for the industry andparticularly in terms of the credit challenges before us. But we feel thatreally good about the improvements we are making in the business are going tostay with us. So, we thanks for your attention and we'll talk to you nextquarter.

This concludes today's Fifth Third Bancorp third quarter2007 earnings conference call. You may now disconnect.