Edgar Filing: FIFTH THIRD BANCORP

Quarterly Report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF

THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended September 30, 2008

Commission File Number 001-33653

LOGO

(Exact name of Registrant as specified in its charter)

Ohio

31-0854434

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification Number)

Fifth Third Center

Cincinnati, Ohio 45263

(Address of principal executive offices)

Registrant’s telephone number, including area code: (513) 534-5300

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes x No ¨

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):


Large accelerated filer x				Accelerated filer ¨
Non-accelerated filer ¨				Smaller reporting company ¨

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ¨ No x

There were 577,486,544 shares of the Registrant’s Common Stock, without par value, outstanding as of September 30, 2008.

LOGO

INDEX


Part I. Financial Information
Management’s Discussion and Analysis of Financial Condition and Results of Operations (Item 2)
Selected Financial Data		3
Overview		4
Recent Accounting Standards Critical Accounting Policies Statements of Income Analysis		6 6 10
Business Segment Review		17
Balance Sheet Analysis		23
Quantitative and Qualitative Disclosures about Market Risk (Item 3)
Risk Management – Overview		28
Credit Risk Management		29
Market Risk Management		36
Liquidity Risk Management		38
Capital Management		39
Off-Balance Sheet Arrangements		40
Controls and Procedures (Item 4)		42
Condensed Consolidated Financial Statements and Notes (Item 1)
Balance Sheets (unaudited)		43
Statements of Income (unaudited)		44
Statements of Changes in Shareholders’ Equity (unaudited)		45
Statements of Cash Flows (unaudited)		46
Notes to Condensed Consolidated Financial Statements (unaudited)		47

Part II. Other Information
Legal Proceedings (Item 1)		73
Risk Factors (Item 1A)		73
Unregistered Sales of Equity Securities and Use of Proceeds (Item 2)		73
Exhibits (Item 6)		74
Signatures		75
Certifications

This report may contain forward-looking statements about Fifth Third Bancorp and/or the company as combined acquired entities within the meaning of Sections 27A of the Securities Act of 1933, as amended, and Rule 175 promulgated thereunder, and 21E of the Securities Exchange Act of 1934, as amended, and Rule 3b-6 promulgated thereunder, that involve inherent risks and uncertainties. This report may contain certain forward-looking statements with respect to the financial condition, results of operations, plans, objectives, future performance and business of Fifth Third Bancorp and/or the combined company including statements preceded by, followed by or that include the words or phrases such as “believes,” “expects,” “anticipates,” “plans,” “trend,” “objective,” “continue,” “remain” or similar expressions or future or conditional verbs such as “will,” “would,” “should,” “could,” “might,” “can,” “may” or similar expressions. There are a number of important factors that could cause future results to differ materially from historical performance and these forward-looking statements. Factors that might cause such a difference include, but are not limited to: (1) general economic conditions and weakening in the economy, specifically the real estate market, either national or in the states in which Fifth Third, one or more acquired entities and/or the combined company do business, are less favorable than expected; (2) deteriorating credit quality; (3) political developments, wars or other hostilities may disrupt or increase volatility in securities markets or other economic conditions; (4) changes in the interest rate environment reduce interest margins; (5) prepayment speeds, loan origination and sale volumes, charge-offs and loan loss provisions; (6) Fifth Third’s ability to maintain required capital levels and adequate sources of funding and liquidity; (7) changes and trends in capital markets; (8) competitive pressures among depository institutions increase significantly; (9) effects of critical accounting policies and judgments; (10) changes in accounting policies or procedures as may be required by the Financial Accounting Standards Board (“FASB”) or other regulatory agencies; (11) legislative or regulatory changes or actions, or significant litigation, adversely affect Fifth Third, one or more acquired entities and/or the combined company or the businesses in which Fifth Third, one or more acquired entities and/or the combined company are engaged; (12) ability to maintain favorable ratings from rating agencies; (13) fluctuation of Fifth Third’s stock price; (14) ability to attract and retain key personnel; (15) ability to receive dividends from its subsidiaries; (16) potentially dilutive effect of future acquisitions on current shareholders’ ownership of Fifth Third; (17) effects of accounting or financial results of one or more acquired entities; (18) difficulties in combining the operations of acquired entities; (19) inability to generate the gains on sale and related increase in shareholders’ equity that it anticipates from the sale of certain non-core businesses, (20) loss of income from the sale of certain non-core businesses could have an adverse effect on Fifth Third’s earnings and future growth (21) ability to secure confidential information through the use of computer systems and telecommunications networks; (22) the impact of reputational risk created by these developments on such matters as business generation and retention, funding and liquidity; and (23) the Treasury providing satisfactory definitive documentation for its purchase of senior preferred shares and agreement on final terms and conditions. Additional information concerning factors that could cause actual results to differ materially from those expressed or implied in the forward-looking statements is available in the Bancorp’s Annual Report on Form 10-K for the year ended December 31, 2007, filed with the U.S. Securities and Exchange Commission (“SEC”). Copies of this filing are available at no cost on the SEC’s website at www.sec.gov or on Fifth Third’s website at www.53.com. Fifth Third undertakes no obligation to release revisions to these forward-looking statements or reflect events or circumstances after the date of this report.

Management’s Discussion and Analysis of Financial Condition and Results of Operations (Item 2)

The following is management’s discussion and analysis of certain significant factors that have affected Fifth Third Bancorp’s (“Bancorp” or “Fifth Third”) financial condition, results of operations and cash flows during the periods included in the Condensed Consolidated Financial Statements, which are a part of this filing. Reference to the Bancorp incorporates the parent holding company and all consolidated subsidiaries.

TABLE 1: Selected Financial Data


	For the three months ended September 30,				Percent Change		For the nine months ended September 30,				Percent Change
($ in millions, except per share data)	2008			2007	Percent Change		2008			2007	Percent Change
Income Statement Data
Net interest income (a)	$	1,068		760	41		$	2,638		2,247	17
Noninterest income		717		681	5			2,304		1,958	18
Total revenue (a)		1,785		1,441	24			4,942		4,205	18
Provision for loan and lease losses		941		139	578			2,203		344	541
Noninterest expense		967		853	13			2,543		2,370	7
Net income (loss)		(56	)	325	NM			29		1,059	(97	)
Net income (loss) available to common shareholders		(81	)	325	NM			3		1,059	(100	)

Common Share Data
Earnings (loss) per share, basic	$	(.14	)	.61	NM		$	.01		1.96	(99	)
Earnings (loss) per share, diluted		(.14	)	.61	NM			.01		1.95	(99	)
Cash dividends per common share		.15		.42	(64	)		.74		1.26	(41	)
Book value per share		16.65		17.43	(4	)
Dividend payout ratio		(155.7	)%	68.7	NM			NM		64.1	NM

Financial Ratios
Return on assets		(.19	)%	1.26	NM			.03	%	1.41	(98	)
Return on average common equity		(3.3	)	13.8	NM			—		14.7	(100	)
Average equity as a percent of average assets		9.45		9.13	4			8.83	%	9.56	(8	)
Tangible equity		6.19		7.00	(12	)
Tangible common equity		5.23		6.99	(25	)
Net interest margin (a)		4.24		3.34	27			3.57		3.38	6
Efficiency (a)		54.2		59.2	(8	)		51.4		56.4	(9	)

Credit Quality
Net losses charged off	$	463		115	303		$	1,082		288	276
Net losses charged off as a percent of average loans and leases		2.17	%	.60	262			1.74	%	.51	241
Allowance for loan and lease losses as a percent of loans and leases		2.41		1.08	123
Allowance for credit losses as a percent of loans and leases (b)		2.56		1.19	115
Nonperforming assets as a percent of loans, leases and other assets, including other real estate owned		3.30		.92	255

Average Balances
Loans and leases, including held for sale	$	85,772		78,243	10		$	85,302		77,059	11
Total securities and other short-term investments		14,515		12,169	19			13,494		11,875	14
Total assets		114,784		102,131	12			112,732		100,707	12
Transaction deposits (c)		52,399		50,922	3			53,204		50,657	5
Core deposits (d)		63,179		61,212	3			63,599		61,357	4
Wholesale funding (e)		37,036		28,001	32			35,145		25,875	36
Shareholders’ equity		10,843		9,324	16			9,953		9,628	3

Regulatory Capital Ratios
Tier 1 capital		8.57	%	8.46	1
Total risk-based capital		12.30		10.87	13
Tier 1 leverage		8.77		9.23	(5	)

(a)

Amounts presented on a fully taxable equivalent basis. The taxable equivalent adjustments for the three months ended September 30, 2008 and 2007 are $5 million and $6 million, respectively, and for the nine months ended September 30, 2008 and 2007 are $17 million and $18 million, respectively.

(b)

The allowance for credit losses is the sum of the allowance for loan and lease losses and the reserve for unfunded commitments.

(c)

Includes demand, interest checking, savings, money market and foreign office deposits.

(d)

Includes transaction deposits plus other time deposits.

(e)

Includes certificates $100,000 and over, other foreign office deposits, federal funds purchased, short-term borrowings and long-term debt.

NM:

Not meaningful

Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)

OVERVIEW

This overview of management’s discussion and analysis highlights selected information in the financial results of the Bancorp and may not contain all of the information that is important to you. For a more complete understanding of trends, events, commitments, uncertainties, liquidity, capital resources and critical accounting policies and estimates, you should carefully read this entire document. Each of these items could have an impact on the Bancorp’s financial condition, results of operations and cash flows.

The Bancorp is a diversified financial services company headquartered in Cincinnati, Ohio. At September 30, 2008, the Bancorp had $116.3 billion in assets, operated 18 affiliates with 1,298 full-service Banking Centers including 93 Bank Mart^® locations open seven days a week inside select grocery stores and 2,329 Jeanie^® ATMs in the Midwestern and Southeastern regions of the United States. The Bancorp reports on five business segments: Commercial Banking, Branch Banking, Consumer Lending, Fifth Third Processing Solutions (“FTPS”) and Investment Advisors.

The Bancorp believes that banking is first and foremost a relationship business where the strength of the competition and challenges for growth can vary in every market. Its affiliate operating model provides a competitive advantage by keeping the decisions close to the customer and by emphasizing individual relationships. Through its affiliate operating model, individual managers from the banking center to the executive level are given the opportunity to tailor financial solutions for their customers.

The Bancorp’s revenues are dependent on both net interest income and noninterest income. For the three months ended September 30, 2008, net interest income, on a fully taxable equivalent (“FTE”) basis, and noninterest income provided 60% and 40% of total revenue, respectively. Changes in interest rates, credit quality, economic trends and the capital markets are primary factors that drive the performance of the Bancorp. As discussed later in the Risk Management section, risk identification, measurement, monitoring, control and reporting are important to the management of risk and to the financial performance and capital strength of the Bancorp.

Net interest income is the difference between interest income earned on assets such as loans, leases and securities, and interest expense incurred on liabilities such as deposits, short-term borrowings and long-term debt. Net interest income is affected by the general level of interest rates, the relative level of short-term and long-term interest rates, changes in interest rates and changes in the amount and composition of interest-earning assets and interest-bearing liabilities. Generally, the rates of interest the Bancorp earns on its assets and pays on its liabilities are established for a period of time. The change in market interest rates over time exposes the Bancorp to interest rate risk through potential adverse changes to net interest income and financial position. The Bancorp manages this risk by continually analyzing and adjusting the composition of its assets and liabilities based on their payment streams and interest rates, the timing of their maturities and their sensitivity to changes in market interest rates. Additionally, in the ordinary course of business, the Bancorp enters into certain derivative transactions as part of its overall strategy to manage its interest rate and prepayment risks. The Bancorp is also exposed to the risk of losses on its loan and lease portfolio as a result of changing expected cash flows caused by loan defaults and inadequate collateral due to a weakening economy within the Bancorp’s footprint.

Net interest income, net interest margin, net interest rate spread and the efficiency ratio are presented in Management’s Discussion and Analysis of Financial Condition and Results of Operations on an FTE basis. The FTE basis adjusts for the tax-favored status of income from certain loans and securities held by the Bancorp that are not taxable for federal income tax purposes. The Bancorp believes this presentation to be the preferred industry measurement of net interest income as it provides a relevant comparison between taxable and non-taxable amounts.

Noninterest income is derived primarily from electronic funds transfer (“EFT”) and merchant transaction processing fees, card interchange, fiduciary and investment management fees, corporate banking revenue, service charges on deposits and mortgage banking revenue. Noninterest expense is primarily driven by personnel costs and occupancy expenses, in addition to expenses incurred in the processing of credit and debit card transactions for its customers and merchant and financial institution clients.

Earnings Summary

During the third quarter of 2008, the Bancorp continued to be affected by the economic slowdown and market disruptions. The Bancorp’s net loss was $81 million, or $.14 per diluted share, which included $25 million in preferred stock dividends. Net income was $325 million, or $.61 per diluted share, for the same period last year. Results for both periods reflect a number of significant items.

Items affecting the third quarter of 2008 include:

•

$226 million of net interest income due to the accretion of purchase accounting adjustments related to the second quarter acquisition of First Charter Corporation (“First Charter”);

•

$76 million of noninterest income, offset by $36 million in related litigation expense, from the resolution of a court case related to goodwill created in the 1998 acquisition of CitFed (the “CitFed litigation”);

•

$51 million reduction to noninterest income due to other than temporary impairment charges on Federal National Mortgage Association (“FNMA”) and Federal Home Loan Mortgage Corporation (“FHLMC”) preferred stock;

Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)

•

$27 million reduction to noninterest income to lower the cash surrender value of one of the Bancorp’s Bank Owned Life Insurance (“BOLI”) policies; and

•

$45 million of noninterest expense related to Visa’s pending litigation settlement with Discover.

For comparison purposes, items affecting the third quarter of 2007 include:

•

$16 million of noninterest income from the sale of non-strategic credit card accounts;

•

$15 million of other noninterest income from the sale of FDIC deposit insurance credits; and

•

$78 million of other noninterest expense relating to the Visa settlement with American Express.

Excluding the items above, net income decreased $596 million from the third quarter of 2007, due to an increase of $802 million in the provision for loan and lease losses over the same time period. Overall, trends in net interest income and noninterest income remain positive as net interest income and noninterest income both increased 11% compared to the same quarter in the prior year.

Net interest income (FTE) increased to $1.1 billion, from $760 million in the same period last year. This growth directly reflects the benefit from the accretion of purchase accounting adjustments related to the second quarter acquisition of First Charter totaling $226 million, and was also driven by average earning asset growth of 11%. Net interest margin was 4.24% in the third quarter of 2008, an increase of 90 basis points (“bp”) from the third quarter of 2007.

Noninterest income increased five percent, from $681 million to $717 million, over the same quarter last year. The increase in noninterest income was impacted by growth in mortgage banking revenues of 74% and in service charges on deposits of 13% since the third quarter of 2007. The aforementioned gain of $76 million from the resolution of litigation relating to goodwill offset the FNMA and FHLMC other than temporary impairment charges and reduction to the cash surrender value of one of the Bancorp’s BOLI policies.

Noninterest expense increased $114 million, or 13%, compared to the third quarter of 2007. Noninterest expense in the third quarter of 2008 included the $45 million related to Visa’s pending settlement with Discover mentioned above, and $36 million related to the resolution of the CitFed litigation. Noninterest expense in the third quarter of 2007 included the $78 million related to Visa’s settlement with American Express. The growth in noninterest expense can also be attributed to increases in loan and lease processing costs from higher collection activities costs over the past year along with increased volume-related processing expenses.

The Bancorp maintains a conservative approach to both lending and investing activities as it does not originate subprime loans, does not hold credit default swaps, nor does it hold asset-backed securities backed by subprime loans in its securities portfolio. However, the Bancorp has exposure to the housing markets, which continued to weaken during the third quarter of 2008, particularly in the upper Midwest and Florida. Consequently, the provision for loan and lease losses increased to $941 million for the three months ended September 30, 2008 compared to $139 million during the third quarter of 2007. In addition, net charge-offs as a percent of average loans and leases were 2.17% in the third quarter of 2008 compared to .60% in the third quarter of 2007. At September 30, 2008, nonperforming assets as a percent of loans, leases and other assets, including other real estate owned increased to 3.30% from .92% at September 30, 2007. Refer to the Credit Risk Management section in Management’s Discussion and Analysis for more information on credit quality.

In response to the current economic operating environment and uncertain future trends, the Bancorp continues to strengthen its capital position. During the second quarter of 2008, management raised its capital target to an eight to nine percent Tier 1 capital ratio. The Bancorp’s capital ratios exceed the “well-capitalized” guidelines as defined by the Board of Governors of the Federal Reserve System (“FRB”). As of September 30, 2008, the Tier 1 capital ratio was 8.57%, the Tier 1 leverage ratio was 8.77% and the total risk-based capital ratio was 12.30%. On October 28, 2008, the Bancorp received approval for participation in the U.S. Treasury Capital Purchase Program. As a result, the Bancorp expects to receive approximately $3.45 billion and issue senior preferred stock and warrants under the terms of the program. The Bancorp currently has senior debt ratings of “A1” from Moody’s, “A+” from Standard & Poor’s, “A” from Fitch Ratings and “AAL” from DBRS Ltd., which indicate the Bancorp’s strong capacity to meet financial commitments. * Additional information on credit ratings is as follows:

•

Moody’s A1 rating is considered upper-medium-grade obligations and is the third highest ranking within its overall classification system;

•

Standard & Poor’s A+ rating indicates the obligor’s capacity to meet its financial commitment is STRONG and is the third highest ranking within its overall classification system;

•

Fitch Ratings’ A rating is considered high credit quality and is the third highest ranking within its overall classification system; and

•

DBRS Ltd.’s AAL rating is considered superior credit quality and is the second highest ranking within its overall classification system.

*	As an investor, you should be aware that a security rating is not a recommendation to buy, sell or hold securities, that it may be subject to revision or withdrawal at any time by the assigning rating organization, and that each rating should be evaluated independently of any other rating.

Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)

RECENT ACCOUNTING STANDARDS

Note 2 of the Notes to Condensed Consolidated Financial Statements provides a discussion of the significant new accounting standards adopted by the Bancorp during 2008 and 2007 and the expected impact of significant accounting standards issued but not yet required to be adopted.

CRITICAL ACCOUNTING POLICIES

The Bancorp’s Condensed Consolidated Financial Statements are prepared in accordance with accounting principles generally accepted in the United States of America. Certain accounting policies require management to exercise judgment in determining methodologies, economic assumptions and estimates that may materially affect the value of the Bancorp’s assets or liabilities and results of operations and cash flows. The Bancorp has five critical accounting policies, which include the accounting for allowance for loan and lease losses, reserve for unfunded commitments, income taxes, valuation of servicing rights and fair value measurements.

Allowance for Loan and Lease Losses

The Bancorp maintains an allowance to absorb probable loan and lease losses inherent in the portfolio. The allowance is maintained at a level the Bancorp considers to be adequate and is based on ongoing quarterly assessments and evaluations of the collectibility and historical loss experience of loans and leases. Credit losses are charged and recoveries are credited to the allowance. Provisions for loan and lease losses are based on the Bancorp’s review of the historical credit loss experience and such factors that, in management’s judgment, deserve consideration under existing economic conditions in estimating probable credit losses. In determining the appropriate level of the allowance, the Bancorp estimates losses using a range derived from “base” and “conservative” estimates. The Bancorp’s strategy for credit risk management includes a combination of conservative exposure limits significantly below legal lending limits and conservative underwriting, documentation and collections standards. The strategy also emphasizes diversification on a geographic, industry and customer level, regular credit examinations and quarterly management reviews of large credit exposures and loans experiencing deterioration of credit quality.

Larger commercial loans that exhibit probable or observed credit weakness are subject to individual review. When individual loans are impaired, allowances are allocated based on management’s estimate of the borrower’s ability to repay the loan given the availability of collateral and other sources of cash flow, as well as an evaluation of legal options available to the Bancorp. The review of individual loans includes those loans that are impaired as provided in Statement of Financial Standards (“SFAS”) No. 114, “Accounting by Creditors for Impairment of a Loan.” Any allowances for impaired loans are measured based on the present value of expected future cash flows discounted at the loan’s effective interest rate or the fair value of the underlying collateral. The Bancorp evaluates the collectibility of both principal and interest when assessing the need for a loss accrual. Historical loss rates are applied to commercial loans, which are not impaired and thus not subject to specific allowance allocations. The loss rates are derived from a migration analysis, which tracks the historical net charge-off experience sustained on loans according to their internal risk grade. The risk grading system currently utilized for allowance analysis purposes encompasses ten categories.

Homogenous loans and leases, such as consumer installment and residential mortgage, are not individually risk graded. Rather, standard credit scoring systems and delinquency monitoring are used to assess credit risks. Allowances are established for each pool of loans based on the expected net charge-offs. Loss rates are based on the average net charge-off history by loan category. Historical loss rates for commercial and consumer loans may be adjusted for significant factors that, in management’s judgment, are necessary to reflect losses inherent in the portfolio. Factors that management considers in the analysis include the effects of the national and local economies; trends in the nature and volume of delinquencies, charge-offs and nonaccrual loans; changes in mix; credit score migration comparisons; asset quality trends; risk management and loan administration; changes in the internal lending policies and credit standards; collection practices; and examination results from bank regulatory agencies and the Bancorp’s internal credit examiners.

The Bancorp’s current methodology for determining the allowance for loan and lease losses is based on historical loss rates, current credit grades, specific allocation on impaired commercial credits above specified thresholds and other qualitative adjustments. Allowances on individual loans and historical loss rates are reviewed quarterly and adjusted as necessary based on changing borrower and/or collateral conditions and actual collection and charge-off experience. An unallocated allowance is maintained to recognize the imprecision in estimating and measuring loss when evaluating allowances for individual loans or pools of loans.

Loans acquired by the Bancorp through a purchase business combination are evaluated for credit impairment at acquisition. Reductions to the carrying value of the acquired loans as a result of credit impairment are recorded as an adjustment to goodwill. The Bancorp does not carry over the acquired company’s allowance for loan and lease losses, nor does the Bancorp add to its existing allowance for the acquired loans as part of purchase accounting.

The Bancorp’s determination of the allowance for commercial loans is sensitive to the risk grade it assigns to these loans. In the event that 10% of commercial loans in each risk category would experience a downgrade of one risk category, the allowance for

Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)

commercial loans would increase by approximately $125 million at September 30, 2008. The Bancorp’s determination of the allowance for residential and retail loans is sensitive to changes in estimated loss rates. In the event that estimated loss rates would increase by 10%, the allowance for residential and consumer loans would increase by approximately $71 million at September 30, 2008. As several quantitative and qualitative factors are considered in determining the allowance for loan and lease losses, these sensitivity analyses do not necessarily reflect the nature and extent of future changes in the allowance for loan and lease losses. They are intended to provide insights into the impact of adverse changes in risk grades and estimated loss rates and do not imply any expectation of future deterioration in the risk ratings or loss rates. Given current processes employed by the Bancorp, management believes the risk grades and estimated loss rates currently assigned are appropriate.

The Bancorp’s primary market areas for lending are the Midwestern and Southeastern regions of the United States. When evaluating the adequacy of allowances, consideration is given to these regional geographic concentrations and the closely associated effect changing economic conditions have on the Bancorp’s customers.

In the current year, the Bancorp has not substantively changed any material aspect of its overall approach to determining its allowance for loan and lease losses. There have been no material changes in criteria or estimation techniques as compared to prior periods that impacted the determination of the current period allowance for loan and lease losses.

Reserve for Unfunded Commitments

The reserve for unfunded commitments is maintained at a level believed by management to be sufficient to absorb estimated probable losses related to unfunded credit facilities. The determination of the adequacy of the reserve is based upon an evaluation of the unfunded credit facilities, including an assessment of historical commitment utilization experience, credit risk grading and credit grade migration. Net adjustments to the reserve for unfunded commitments are included in other noninterest expense in the Condensed Consolidated Statements of Income.

Income Taxes

The Bancorp estimates income tax expense based on amounts expected to be owed to the various tax jurisdictions in which the Bancorp conducts business. On a quarterly basis, management assesses the reasonableness of its effective tax rate based upon its current estimate of the amount and components of net income, tax credits and the applicable statutory tax rates expected for the full year. The estimated income tax expense is recorded in the Condensed Consolidated Statements of Income.

Deferred income tax assets and liabilities are determined using the balance sheet method. Under this method, the net deferred tax asset or liability is based on the tax effects of the differences between the book and tax basis of assets and liabilities and recognizes enacted changes in tax rates and laws. Deferred tax assets are recognized to the extent they exist and are subject to a valuation allowance based on management’s judgment that realization is more-likely-than-not. Deferred taxes are reported in accrued taxes, interest and expenses in the Condensed Consolidated Balance Sheets.

Accrued taxes represent the net estimated amount due to taxing jurisdictions and are reported in accrued taxes, interest and expenses in the Condensed Consolidated Balance Sheets. The Bancorp evaluates and assesses the relative risks and appropriate tax treatment of transactions and filing positions after considering statutes, regulations, judicial precedent and other information and maintains tax accruals consistent with its evaluation of these relative risks and merits. Changes to the estimate of accrued taxes occur periodically due to changes in tax rates, interpretations of tax laws, the status of examinations being conducted by taxing authorities and changes to statutory, judicial and regulatory guidance that impact the relative risks of tax positions. These changes, when they occur, can affect deferred taxes and accrued taxes as well as the current period’s income tax expense and can be significant to the operating results of the Bancorp. As described in greater detail in Note 9 of the Notes to Condensed Consolidated Financial Statements, the Internal Revenue Service (“IRS”) is currently challenging the Bancorp’s tax treatment of certain leasing transactions. For additional information on income taxes, see Note 11 of the Notes to Condensed Consolidated Financial Statements.

Valuation of Servicing Rights

When the Bancorp sells loans through either securitizations or individual loan sales in accordance with its investment policies, it often obtains servicing rights. Servicing rights resulting from loan sales are initially recorded at fair value and subsequently amortized in proportion to, and over the period of, estimated net servicing income. Servicing rights are assessed for impairment monthly, based on fair value, with temporary impairment recognized through a valuation allowance and permanent impairment recognized through a write-off of the servicing asset and related valuation allowance. Key economic assumptions used in measuring any potential impairment of the servicing rights include the prepayment speeds of the underlying loans, the weighted-average life, the discount rate, the weighted-average coupon and the weighted-average default rate, as applicable. The primary risk of material changes to the value of the servicing rights resides in the potential volatility in the economic assumptions used, particularly the prepayment speeds.

The Bancorp monitors risk and adjusts its valuation allowance as necessary to adequately reserve for any probable impairment in the servicing portfolio. For purposes of measuring impairment, the servicing rights are stratified into classes based on the financial asset type and interest rates. Fees received for servicing loans owned by investors are based on a percentage of the outstanding monthly principal balance of such loans and are included in noninterest income as loan payments are received. Costs of servicing loans are charged to expense as incurred.

Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)

The change in the fair value of mortgage servicing rights (“MSRs”) at September 30, 2008 due to immediate 10% and 20% adverse changes in the current prepayment assumption would be approximately $30 million and $58 million, respectively, and due to immediate 10% and 20% favorable changes in the current prepayment assumption would be approximately $33 million and $69 million, respectively. The change in the fair value of the MSR portfolio at September 30, 2008 due to immediate 10% and 20% adverse changes in the discount rate assumption would be approximately $26 million and $50 million, respectively, and due to immediate 10% and 20% favorable changes in the discount rate assumption would be approximately $28 million and $58 million, respectively. The sensitivity analysis related to other consumer and commercial servicing rights is not material to the Bancorp’s Condensed Consolidated Financial Statements. These sensitivities are hypothetical and should be used with caution. As the figures indicate, changes in fair value based on a 10% and 20% variation in assumptions typically cannot be extrapolated because the relationship of the change in assumptions to the change in fair value may not be linear. Also, the effect of variation in a particular assumption on the fair value of the interests that continue to be held by the transferor is calculated without changing any other assumption; in reality, changes in one factor may result in changes in another, which might magnify or counteract the sensitivities. Additionally, the effect of the Bancorp’s non-qualifying hedging strategy, which is maintained to lessen the impact of changes in value of the MSR portfolio, is excluded from the above analysis.

Fair Value Measurements

Effective January 1, 2008, the Bancorp adopted SFAS No. 157, “Fair Value Measurements”, which provides a framework for measuring fair value under accounting principles generally accepted in the United States of America. SFAS No. 157 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. SFAS No. 157 addresses the valuation techniques used to measure fair value. These valuation techniques include the market approach, income approach and cost approach. The market approach uses prices or relevant information generated by market transactions involving identical or comparable assets or liabilities. The income approach involves converting future amounts to a single present amount. The measurement is valued based on current market expectations about those future amounts. The cost approach is based on the amount that currently would be required to replace the service capacity of the asset.

SFAS No. 157 establishes a fair value hierarchy, which prioritizes the inputs to valuation techniques used to measure fair value into three broad levels. The fair value hierarchy gives the highest priority to quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). A financial instrument’s categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the instrument’s fair value measurement. The three levels within the fair value hierarchy are described as follows:

Level 1—Quoted prices (unadjusted) in active markets for identical assets or liabilities that the Bancorp has the ability to access at the measurement date.

Level 2—Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. Level 2 inputs include: quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active; inputs other than quoted prices that are observable for the asset or liability; and inputs that are derived principally from or corroborated by observable market data by correlation or other means.

Level 3—Unobservable inputs for the asset or liability for which there is little, if any, market activity at the measurement date. Unobservable inputs reflect the Bancorp’s own assumptions about what market participants would use to price the asset or liability. The inputs are developed based on the best information available in the circumstances, which might include the Bancorp’s own financial data such as internally developed pricing models, discounted cash flow methodologies, as well as instruments for which the fair value determination requires significant management judgment.

The Bancorp measures financial assets and liabilities at fair value in accordance with SFAS No. 157. These measurements involve various valuation techniques and models, which involve inputs that are observable, when available, and include the following significant financial instruments: available-for-sale securities, residential mortgage loans held for sale and certain derivatives. The following is a summary of valuation techniques utilized by the Bancorp for its significant financial assets and liabilities measured at fair value on a recurring basis.

Available-for-sale securities

Where quoted prices are available in an active market, securities are classified within Level 1 of the valuation hierarchy. If quoted market prices are not available, then fair values are estimated using pricing models, quoted prices of securities with similar characteristics, or discounted cash flows and classified within Level 2 of the fair value hierarchy. In certain cases where there is limited activity or less transparency around inputs to the valuation, securities are classified within Level 3 of the valuation hierarchy. A significant portion of the Bancorp’s available-for-sale securities are agency mortgage-backed securities that are fair valued using a market approach and the Bancorp has determined them to be Level 2 in the fair value hierarchy.

Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)

Residential mortgage loans held for sale

For residential mortgage loans held for sale, fair value is estimated based upon mortgage backed securities prices and spreads to those prices or, for certain assets, discounted cash flow models that may incorporate the anticipated portfolio composition, credit spreads of asset-backed securities with similar collateral, and market conditions. Residential mortgage loans held for sale are fair valued using a market approach and the Bancorp has determined them to be Level 2 in the fair value hierarchy.

Derivatives

Exchange-traded derivatives valued using quoted prices are classified within Level 1 of the valuation hierarchy. However, few classes of derivative contracts are listed on an exchange. Derivative positions that are valued utilizing models that use as their basis readily observable market parameters are classified within Level 2 of the valuation hierarchy. Derivatives that are valued based upon models with significant unobservable market parameters are classified within Level 3 of the valuation hierarchy. A majority of the derivatives are fair valued using an income approach and the Bancorp has determined them to be Level 2 in the fair value hierarchy.

Valuation techniques and models utilized for measuring financial assets and liabilities are reviewed and validated by the Bancorp on a quarterly basis. Additionally, the Bancorp monitors the fair values of significant assets and liabilities using a variety of methods including the evaluation of pricing runs and exception reports based on certain analytical criteria, comparison to previous trades, and overall review and assessments for reasonableness.

Other significant areas include purchase price allocations and the analysis of potential impairment of goodwill. No material changes have been made during the nine months ended September 30, 2008 to the valuation techniques or models described previously.

Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)

STATEMENTS OF INCOME ANALYSIS

Net Interest Income

Net interest income is the interest earned on debt securities, loans and leases (including yield-related fees) and other interest-earning assets less the interest paid for core deposits (includes transaction deposits and other time deposits) and wholesale funding (includes certificates $100,000 and over, other foreign office deposits, federal funds purchased, short-term borrowings and long-term debt). The net interest margin is calculated by dividing net interest income by average interest-earning assets. Net interest spread is the difference between the average rate earned on interest-earning assets and the average rate paid on interest-bearing liabilities. Net interest margin is typically greater than net interest rate spread due to the interest income earned on those assets that are funded by non-interest-bearing liabilities, or free funding, such as demand deposits or shareholders’ equity.

Net interest income (FTE) was $1.1 billion for the third quarter of 2008, compared to $760 million earned in the third quarter of 2007 and $744 million in the second quarter of 2008. Net interest income was affected by the amortization and accretion of premiums and discounts on acquired loans and deposits that increased interest income by $226 million during the third quarter of 2008, compared to a decrease of less than $1 million for the third quarter of 2007 and an increase of $39 million during the second quarter of 2008. Additionally, the sequential comparison is affected by the recalculation of cash flows on certain leveraged leases that reduced interest income on commercial leases during the second quarter of 2008 by approximately $130 million. Exclusive of the items above, net interest income increased $83 million compared to the third quarter of 2007 and $8 million compared to the second quarter of 2008. This increase from the third quarter of 2007 resulted from a 10% increase in average loan and lease balances combined with a 33 bp increase in net interest spread. Sequentially, net interest income was modestly higher as increases in earning assets offset higher short-term borrowing costs.

Reported net interest margin was 4.24% in the third quarter of 2008, compared to 3.34% in the third quarter of 2007 and 3.04% in the second quarter of 2008. Net interest margin was affected by the amortization and accretion of premiums and discounts on acquired loans and deposits that increased net interest margin approximately 90 bp in the third quarter of 2008 and 16 bp in the second quarter of 2008. Second quarter 2008 net interest margin was also affected by the recalculation of cash flows on certain leveraged leases, which decreased net interest margin approximately 53 bp. Exclusive of the adjustments above, net interest margin was flat on a year-over-year basis as widening credit spreads were offset by a greater concentration in lower yielding commercial loans. Sequentially, net interest margin modestly decreased as increased loan spreads were offset by higher nonaccrual balances and increased market rates on short-term funding.

Total average interest-earning assets increased 11% from the third quarter of 2007 and increased two percent on a sequential basis. On a year-over-year basis, average total commercial loans increased 20% and the investment portfolio increased 19%, while consumer loans decreased three percent. Commercial mortgage and commercial construction loans increased primarily as a result of acquisitions during the past year. Commercial and industrial loans increased due to the origination for portfolio of investment grade loans that historically were sold to the Bancorp’s off balance sheet commercial paper conduit, coupled with the use of contingent liquidity facilities related to certain off-balance sheet programs that were drawn upon in the third quarter of 2008. Sequentially, increases in loans and leases due to the full quarter effect of the First Charter acquisition, particularly in commercial mortgage, commercial construction and home equity balances, were offset by overall decreases in loan production. Increases in the investment portfolio relate to the Bancorp’s overall balance sheet growth and the purchase of securities as part of the Bancorp’s non-qualifying hedging strategy related to mortgage servicing rights.

Interest income (FTE) from loans and leases increased $3 million compared to the third quarter of 2007 and increased $329 million compared to the second quarter of 2008. Exclusive of the amortization and accretion of premiums and discounts on acquired loans and the leveraged lease adjustment during the second quarter of 2008, interest income (FTE) from loans and leases decreased $216 million, or 16%, compared to the prior year quarter and increased $16 million, or one percent, compared to the sequential quarter. The year-over-year decrease in interest income is a result of the repricing of variable rate loans in a declining rate environment, partially offset by the increase in average loan and lease balances. The sequential increase in interest income is a result of an increase in loans and leases due to the full quarter effect of the First Charter acquisition. At the end of the third quarter of 2008, the Bancorp’s prime rate was 5.00% compared to 7.75% at the end of the third quarter of 2007.

Interest income (FTE) from investment securities and short-term investments increased ten percent compared to the third quarter of 2007 and eight percent compared to the second quarter of 2008. The increase in interest income from investment securities was a result of increases in the average investment portfolio offset by a decrease in the weighted-average yield.

Core deposits increased $2.0 billion, or three percent, compared to the third quarter of last year and decreased modestly compared to the sequential quarter. The cost of interest-bearing core deposits was 1.64% in the third quarter of 2008, which was a decrease of 172 bp from 3.36% in the third quarter of 2007 and a 4 bp increase from the 1.60% paid in the second quarter of 2008. The year over year decrease is a result of the decrease in short-term market interest rates as, over the past year, the federal funds target rate decreased 275 bp to a target of 2.00% at September 30, 2008 compared to 4.75% at September 30, 2007. The sequential increase in core deposit interest expense is a result of the highly competitive deposit rate environment created by the disruption in the credit markets.

Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)

TABLE 2: Consolidated Average Balance Sheets and Analysis of Net Interest Income (FTE)


For the three months ended	September 30, 2008							September 30, 2007							Attribution of Change in Net Interest Income *(a)*
($ in millions)	Average Balance			Revenue/ Cost		Average Yield/ Rate		Average Balance			Revenue/ Cost		Average Yield/ Rate		Volume			Yield/ Rate			Total
Assets
Interest-earning assets:
Loans and leases (b):
Commercial loans	$	28,284		$	389	5.46	%	$	22,345		$	420	7.45	%	$	95		$	(126	)	$	(31	)
Commercial mortgage		13,257			290	8.71			11,117			205	7.31			43			42			85
Commercial construction		6,110			107	6.97			5,499			105	7.55			11			(9	)		2
Commercial leases		3,642			35	3.85			3,700			39	4.23			(1	)		(3	)		(4	)

Subtotal – commercial		51,293			821	6.37			42,661			769	7.15			148			(96	)		52
Residential mortgage loans		10,711			190	7.05			10,396			160	6.12			5			25			30
Home equity		12,534			181	5.76			11,752			226	7.63			14			(59	)		(45	)
Automobile loans		8,303			132	6.32			10,865			174	6.34			(41	)		(1	)		(42	)
Credit card		1,720			43	9.93			1,366			34	10.03			9			—			9
Other consumer loans/leases		1,211			15	4.93			1,203			16	5.29			—			(1	)		(1	)

Subtotal – consumer		34,479			561	6.47			35,582			610	6.80			(13	)		(36	)		(49	)

Total loans and leases		85,772			1,382	6.41			78,243			1,379	6.99			135			(132	)		3
Securities:
Taxable		13,310			161	4.81			11,180			141	5.00			25			(5	)		20
Exempt from income taxes (b)		315			5	7.38			490			9	7.17			(4	)		—			(4	)
Other short-term investments		890			5	2.21			499			6	4.93			3			(4	)		(1	)

Total interest-earning assets		100,287			1,553	6.16			90,412			1,535	6.73			159			(141	)		18
Cash and due from banks		2,468							2,189
Other assets		13,683							10,330
Allowance for loan and lease losses		(1,654	)						(800	)

Total assets	$	114,784						$	102,131


Liabilities
Interest-bearing liabilities:
Interest checking	$	13,843		$	27	0.78	%	$	14,334		$	77	2.14	%	$	(3	)	$	(47	)	$	(50	)
Savings		16,154			53	1.29			15,390			122	3.15			6			(75	)		(69	)
Money market		6,051			25	1.67			6,247			69	4.35			(3	)		(41	)		(44	)
Foreign office deposits		2,126			7	1.37			1,808			20	4.33			3			(16	)		(13	)
Other time deposits		10,780			90	3.31			10,290			119	4.61			6			(35	)		(29	)
Certificates – $100,000 and over		11,623			87	2.97			6,062			78	5.11			51			(42	)		9
Other foreign office deposits		395			2	1.83			1,981			26	5.12			(13	)		(11	)		(24	)
Federal funds purchased		1,013			5	1.78			4,322			56	5.15			(28	)		(23	)		(51	)
Other short-term borrowings		9,613			59	2.46			3,285			37	4.50			45			(23	)		22
Long-term debt		14,392			130	3.63			12,351			171	5.47			24			(65	)		(41	)

Total interest-bearing liabilities		85,990			485	2.25			76,070			775	4.04			88			(378	)		(290	)
Demand deposits		14,225							13,143
Other liabilities		3,721							3,594

Total liabilities		103,936							92,807
Shareholders’ equity		10,848							9,324

Total liabilities and shareholders’ equity	$	114,784						$	102,131

Net interest income				$	1,068						$	760			$	71		$	237		$	308
Net interest margin						4.24	%						3.34	%
Net interest rate spread						3.91							2.69
Interest-bearing liabilities to interest-earning assets						85.74							84.14

(a)

Changes in interest not solely due to volume or yield/rate are allocated in proportion to the absolute dollar amount of change in volume and yield/rate.

(b)

The fully taxable-equivalent adjustments included in the above table are $5 million and $6 million for the three months ended September 30, 2008 and 2007.

Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)

TABLE 3: Consolidated Average Balance Sheets and Analysis of Net Interest Income (FTE)


For the nine months ended	September 30, 2008								September 30, 2007							Attribution of Change in Net Interest Income *(a)*
($ in millions)	Average Balance			Revenue/ Cost			Average Yield/ Rate		Average Balance			Revenue/ Cost		Average Yield/ Rate		Volume			Yield/ Rate			Total
Assets
Interest-earning assets:
Loans and leases (b):
Commercial loans	$	27,821		$	1,143		5.49	%	$	21,619		$	1,207	7.47	%	$	301		$	(365	)	$	(64	)
Commercial mortgage		12,635			664		7.02			10,906			596	7.31			92			(24	)		68
Commercial construction		5,797			262		6.04			5,701			327	7.67			5			(70	)		(65	)
Commercial leases		3,704			(16	)	(.57	)		3,680			118	4.29			1			(135	)		(134	)

Subtotal – commercial		49,957			2,053		5.49			41,906			2,248	7.17			399			(594	)		(195	)
Residential mortgage loans		11,216			539		6.42			10,255			471	6.13			46			22			68
Home equity		12,132			539		5.94			11,902			682	7.66			14			(157	)		(143	)
Automobile loans		9,092			431		6.33			10,551			494	6.26			(69	)		6			(63	)
Credit card		1,694			120		9.46			1,213			98	10.82			35			(13	)		22
Other consumer loans/leases		1,211			46		5.14			1,232			48	5.29			(1	)		(1	)		(2	)

Subtotal – consumer		35,345			1,675		6.33			35,153			1,793	6.82			25			(143	)		(118	)

Total loans and leases		85,302			3,728		5.84			77,059			4,041	7.01			424			(737	)		(313	)
Securities:
Taxable		12,477			459		4.92			11,054			414	5.01			53			(8	)		45
Exempt from income taxes (b)		360			20		7.34			511			28	7.32			(8	)		—			(8	)
Other short-term investments		657			12		2.47			310			12	5.17			9			(9	)		—

Total interest-earning assets		98,796			4,219		5.70			88,934			4,495	6.76			478			(754	)		(276	)
Cash and due from banks		2,354								2,224
Other assets		12,847								10,333
Allowance for loan and lease losses		(1,265	)							(784	)

Total assets	$	112,732							$	100,707


Liabilities
Interest-bearing liabilities:
Interest checking	$	14,357		$	108		1.00	%	$	14,964		$	248	2.22	%	$	(9	)	$	(131	)	$	(140	)
Savings		16,270			173		1.42			14,573			350	3.21			38			(215	)		(177	)
Money market		6,511			101		2.08			6,289			208	4.42			7			(114	)		(107	)
Foreign office deposits		2,246			30		1.79			1,598			52	4.35			16			(38	)		(22	)
Other time deposits		10,395			289		3.72			10,700			369	4.61			(10	)		(70	)		(80	)
Certificates – $100,000 and over		8,545			218		3.40			6,416			247	5.14			68			(97	)		(29	)
Other foreign office deposits		2,394			48		2.69			1,032			40	5.19			34			(26	)		8
Federal funds purchased		3,297			66		2.67			3,462			135	5.24			(6	)		(63	)		(69	)
Other short-term borrowings		6,735			127		2.51			2,689			89	4.41			89			(51	)		38
Long-term debt		14,174			421		3.97			12,276			510	5.55			71			(160	)		(89	)

Total interest-bearing liabilities		84,924			1,581		2.49			73,999			2,248	4.06			298			(965	)		(667	)
Demand deposits		13,820								13,233
Other liabilities		4,033								3,847

Total liabilities		102,777								91,079
Shareholders’ equity		9,955								9,628

Total liabilities and shareholders’ equity	$	112,732							$	100,707

Net interest income				$	2,638							$	2,247			$	180		$	211		$	391
Net interest margin							3.57	%						3.38	%
Net interest rate spread							3.21							2.70
Interest-bearing liabilities to interest-earning assets							85.96							83.21

(a)

Changes in interest not solely due to volume or yield/rate are allocated in proportion to the absolute dollar amount of change in volume and yield/rate.

(b)

The fully taxable-equivalent adjustments included in the above table are $17 million and $18 million for the nine months ended September 30, 2008 and 2007.

Interest expense on wholesale funding decreased 23% compared to the prior year quarter as declining interest rates more than offset a 32% increase in average balances. Interest expense on wholesale funding increased $10 million, or 4%, since the second quarter of 2008 primarily due to increased balances.

Overall, the growth in average loans and leases since the third quarter of 2007 outpaced core deposit growth by $5.6 billion. In the third quarter of 2008, wholesale funding represented 43% of interest-bearing liabilities, up from 37% in the third quarter of 2007.

Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)

The increase in wholesale funding as a percentage of interest-bearing liabilities was the result of the issuance of $2.2 billion of trust preferred securities during 2007, $750 million of senior notes in April 2008 and $400 million of trust preferred securities in May 2008, partially offset by the repurchase of $690 million of mandatorily redeemable securities, which occurred in the fourth quarter of 2007. The Bancorp’s net free funding position modestly increased from the third quarter of 2007 and the second quarter of 2008 as a result of increased demand deposits.

Provision for Loan and Lease Losses

The Bancorp provides as an expense an amount for probable loan and lease losses within the loan and lease portfolio that is based on factors previously discussed in the Critical Accounting Policies section. The provision is recorded to bring the allowance for loan and lease losses to a level deemed appropriate by the Bancorp. Actual credit losses on loans and leases are charged against the allowance for loan and lease losses. The amount of loans actually removed from the Condensed Consolidated Balance Sheets is referred to as charge-offs. Net charge-offs include current period charge-offs less recoveries on previously charged-off loans and leases.

The provision for loan and lease losses increased to $941 million in the third quarter of 2008 compared to $139 million in the same period last year. The primary factors in the increase were the increase in commercial impaired loans, increase in delinquencies, the deterioration in real estate collateral values in certain of the Bancorp’s key lending markets and declines in general economic conditions. As of September 30, 2008, the allowance for loan and lease losses as a percent of loans and leases increased to 2.41% from 1.08% at September 30, 2007.

Refer to the Credit Risk Management section for more detailed information on the provision for loan and lease losses including an analysis of loan portfolio composition, non-performing assets, net charge-offs, and other factors considered by the Bancorp in assessing the credit quality of the loan portfolio and the allowance for loan and lease losses.

Noninterest Income

For the three months ended September 30, 2008, noninterest income increased by $36 million, or five percent, on a year-over-year basis. The components of noninterest income for these periods are as follows:

TABLE 4: Noninterest Income


	For the three months ended September 30,				Percent Change		For the nine months ended September 30,					Percent Change
($ in millions)	2008			2007	Percent Change		2008			2007		Percent Change
Electronic payment processing revenue	$	235		212	11		$	682		$	602	13
Service charges on deposits		172		151	13			478			419	14
Corporate banking revenue		104		91	15			323			261	23
Investment advisory revenue		90		95	(5	)		275			288	(5	)
Mortgage banking net revenue		45		26	74			228			107	113
Other noninterest income		112		93	21			339			267	27
Securities (losses) gains, net		(63	)	13	NM			(45	)		14	NM
Securities gains, net – non-qualifying hedges on mortgage servicing rights		22		—	NM			24			—	NM

Total noninterest income	$	717		681	5		$	2,304			1,958	18

NM: Percentage change is not meaningful.

Electronic payment processing revenue increased $23 million, or 11%, in the third quarter of 2008 compared to the same period last year as the Bancorp continued to realize growth in each of its three main product lines. Merchant processing revenue increased nine percent, to $89 million, compared to the same period in 2007. Financial institutions revenue increased to $82 million, up $5 million or six percent, compared to the third quarter of 2007 due to higher transaction volumes as a result of continued success in attracting financial institution customers. Card issuer interchange increased 19%, to $64 million, compared to the same period in 2007 due to continued growth related to debit and credit card usage and increases in the average dollar amount per debit card transaction. The Bancorp processes over 26.7 billion transactions annually and handles electronic processing for over 160,000 merchant locations worldwide.

Service charges on deposits increased to $172 million, up $21 million, or 13%, in the third quarter of 2008 compared to the same period last year. Commercial deposit revenue increased $13 million, or 21%, compared to the same quarter last year. This increase was primarily impacted by a decrease in earnings credits on compensating balances resulting from the decline in short-term interest rates. Commercial customers receive earnings credits to offset the fees charged for banking services on their deposit accounts such as account maintenance, lockbox, ACH transactions, wire transfers and other ancillary corporate treasury management services. Earnings credits are based on the customer’s average balance in qualifying deposits multiplied by the crediting rate. Qualifying deposits include demand deposits and interest-bearing checking accounts. The Bancorp has a standard crediting rate that is adjusted as necessary based on competitive market conditions and changes in short-term interest rates. Retail deposit revenue increased eight percent, to $97 million, in the third quarter of 2008 compared to the same period last year. The increase in retail service charges was attributable to higher customer activity. Growth in the number of customer deposit account relationships and deposit generation continues to be a primary focus of the Bancorp.

Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)

Corporate banking revenue increased $13 million, or 15%, in the third quarter of 2008 over the same period in 2007. The growth in corporate banking revenue was largely attributable to higher foreign exchange derivative income of $27 million, an increase of $12 million compared to the prior year quarter. Growth also occurred in institutional sales and asset securitization fees, which grew $2 million and $3 million, respectively, compared to the third quarter of 2007. The Bancorp is committed to providing a comprehensive range of financial services to large and middle-market businesses and continues to see opportunities to expand its product offering.

Investment advisory revenue decreased $5 million, or five percent, from the third quarter of 2007. The Bancorp experienced broad-based decreases in several categories within investment advisory revenue. Brokerage fee income, which includes Fifth Third Securities income, decreased 16%, or $4 million, in the third quarter of 2008 as investors continued to migrate balances from stock and bond funds to money markets funds due to market volatility. Mutual fund revenue decreased 6%, to $14 million, in the third quarter of 2008 due to the declining market. Private client services increased 2%, to $36 million, in the third quarter of 2008 as growth was seen in wealth planning services. As of September 30, 2008, the Bancorp had approximately $196 billion in assets under care and managed $30 billion in assets for individuals, corporations and not-for-profit organizations.

Mortgage banking net revenue increased to $45 million in the third quarter of 2008 from $26 million in the same period last year. The components of mortgage banking net revenue for the three and nine months ended September 30, 2008 and 2007 are shown in Table 5.

TABLE 5: Components of Mortgage Banking Net Revenue


	For the three months ended September 30,					For the nine months ended September 30,
($ in millions)	2008			2007		2008			2007
Origination fees and gains on loan sales	$	43		9		$	214		61
Servicing revenue:
Servicing fees		39		37			122		105
Servicing rights amortization		(22	)	(23	)		(86	)	(66	)
Net valuation adjustments on servicing rights and free-standing derivatives entered into to economically hedge MSR		(15	)	3			(22	)	7

Net servicing revenue		2		17			14		46

Mortgage banking net revenue	$	45		26		$	228		107

Mortgage banking net revenue increased compared to the same period last year due to higher sales margins on loans held for sale, higher sales volume of portfolio loans and the impact of the adoption of SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities—Including an amendment of FASB Statement No. 115”, for residential mortgage loans held for sale, offset by lower net valuation adjustments. Mortgage originations decreased 31%, from $3.0 billion to $2.0 billion, in comparison to the same quarter last year as application volumes decreased as a result of market disruptions. The increase in sales margins on loans held for sale and sales volume of portfolio loans contributed $30 million and $6 million, respectively, to the increase in mortgage banking net revenue. The adoption of SFAS No. 159 on January 1, 2008 for residential mortgage loans held for sale also contributed approximately $11 million to the increase in mortgage banking net revenue. Prior to adoption, mortgage loan origination costs were capitalized as part of the carrying amount of the loan and recognized as a reduction of mortgage banking net revenue upon the sale of the loans. Subsequent to the adoption, mortgage loan origination costs are recognized as expense when incurred and included in noninterest expense within the Condensed Consolidated Statements of Income.

Mortgage net servicing revenue decreased $15 million compared to the third quarter of 2007. Net servicing revenue is comprised of gross servicing fees and related amortization as well as valuation adjustments on mortgage servicing rights and mark-to-market adjustments on both settled and outstanding free-standing derivative financial instruments. Temporary impairment on servicing rights, partially offset by gains on derivatives economically hedging the mortgage servicing rights (“MSRs”), resulted in lower mortgage net servicing revenue compared to the third quarter of 2007. The Bancorp’s total residential mortgage loans serviced at September 30, 2008 and 2007 was $50.1 billion and $43.1 billion, respectively, with $39.8 billion and $33.1 billion, respectively, of residential mortgage loans serviced for others.

Servicing rights are deemed temporarily impaired when a borrower’s loan rate is distinctly higher than prevailing rates. Temporary impairment on servicing rights is reversed when the prevailing rates return to a level commensurate with the borrower’s loan rate. Further detail on the valuation of mortgage servicing rights can be found in Note 4 of the Notes to the Condensed Consolidated Financial Statements. The Bancorp maintains a non-qualifying hedging strategy to manage a portion of the risk associated with changes in impairment on the MSR portfolio. The Bancorp recognized a gain from MSR derivatives of $8 million, offset by a temporary impairment of $23 million, resulting in a net loss of $15 million for the three months ended September 30, 2008 related to changes in fair value and settlement of free-standing derivatives purchased to economically hedge the MSR portfolio. See Note 7 of

Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)

the Notes to the Condensed Consolidated Financial Statements for more information on the free-standing derivatives used to hedge the MSR portfolio. Additionally, the Bancorp had net securities gains on non-qualifying hedges on mortgage service rights of $22 million in the third quarter of 2008 that is included in noninterest income within the Condensed Consolidated Statements of Income, but is shown separate from mortgage banking net revenue.

The major components of other noninterest income are as follows:

TABLE 6: Components of Other Noninterest Income


	For the three months ended September 30,					For the nine months ended September 30,
($ in millions)	2008			2007		2008			2007
Litigation settlement	$	76		—		$	76		—
Cardholder fees		15		14			43		40
Consumer loan and lease fees		13		13			39		33
Operating lease income		13		8			34		22
Insurance income		7		8			28		24
Banking center income		7		7			24		20
Gain on redemption of Visa, Inc. ownership interests		—		—			273		—
Gain on sale of FDIC deposit insurance credits		—		15			—		15
Loss on sale of other real estate owned		(12	)	(2	)		(38	)	(6	)
Bank owned life insurance (loss) income		(13	)	17			(136	)	59
Other		6		13			(4	)	60

Total other noninterest income	$	112		93		$	339		267

Other noninterest income increased $19 million in the third quarter of 2008 compared to the same period last year. The increase was primarily due to a $76 million gain related to the satisfactory resolution of the CitFed litigation. This increase was offset by higher losses from the sale of other real estate owned properties and a $27 million charge to lower the current cash surrender value of one of the Bancorp’s BOLI policies.

Net securities losses totaled $63 million in the third quarter of 2008 compared to $13 million of net securities gains during the same period last year. The net securities losses in the current quarter include other than temporary impairment charges of $28 million and $23 million relating to FNMA and FHLMC preferred stock, respectively, along with a $12 million impairment charge on subordinated tranches and residual interests related to previous automobile loan securitizations.

Noninterest Expense

Total noninterest expense increased $114 million, or 13%, in the third quarter of 2008 compared to the same period last year. Noninterest expense in the third quarter of 2008 includes a $45 million charge related to Visa’s pending settlement with Discover, $36 million in legal expenses related to the litigation settlement from a prior acquisition and $31 million of additional operating expenses from acquisitions since the same period in 2007. Noninterest expense in the third quarter of 2007 included $78 million related to Visa’s settlement with American Express. Excluding these items, noninterest expense increased $80 million, or 10%, due to higher personnel costs, increased volume-related processing expenses, increased provision for unfunded commitments and higher loan processing costs resulting from increased collections activities.

The Bancorp continues to focus on efficiency initiatives, as part of its core emphasis on operating leverage and on expense control. The efficiency ratio (noninterest expense divided by the sum of net interest income (FTE) and noninterest income) was 54.2% and 59.2% for the third quarter of 2008 and 2007, respectively. The Bancorp views investments in information technology and banking center expansion as its platform for future growth and increasing expense efficiency.

The major components of noninterest expense are as follows:

TABLE 7: Noninterest Expense


	For the three months ended September 30,			Percent Change	For the nine months ended September 30,			Percent Change
($ in millions)	2008		2007	Percent Change	2008		2007	Percent Change
Salaries, wages and incentives	$	321	310	4	$	1,000	912	10
Employee benefits		72	67	8		216	222	(2	)
Net occupancy expense		77	66	16		222	199	12
Payment processing expense		70	65	8		203	176	16
Technology and communications		47	41	14		142	122	17
Equipment expense		34	30	12		95	90	5
Other noninterest expense		346	274	26		665	649	2

Total noninterest expense	$	967	853	13	$	2,543	2,370	7

Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)

Total personnel costs (salaries, wages and incentives plus employee benefits) increased 4% from September 30, 2007 due primarily to approximately $11 million in mortgage origination costs that prior to the adoption of SFAS No. 159 on January 1, 2008, were included as a component of mortgage banking net revenue. Full time equivalent employees totaled 21,522 as of September 30, 2008 compared to 20,775 as of September 30, 2007.

Net occupancy expenses increased $11 million, or 16%, in the third quarter of 2008 over the same period last year due to the addition of 117 banking centers since September 30, 2007. Growth in the number of banking centers was primarily driven by acquisitions, which added 96 banking centers since the third quarter of 2007. Payment processing expense includes third-party processing expenses, card management fees and other bankcard processing expenses. Payment processing expense increased eight percent compared to the same period last year due to higher network charges of $4 million from increased processing volumes for both the merchant and financial institutions businesses.

The major components of other noninterest expense are as follows:

TABLE 8: Components of Other Noninterest Expense


	For the three months ended September 30,			For the nine months ended September 30,
($ in millions)	2008		2007	2008			2007
Professional services fees	$	50	14	$	78		37
Loan processing		46	29		123		84
Marketing		29	19		74		57
FDIC insurance and other taxes		17	9		47		23
Affordable housing investments		17	13		48		36
Provision for unfunded commitments and letters of credit		17	2		35		3
Intangible asset amortization		17	10		40		31
Travel		14	14		41		40
Postal and courier		14	13		41		38
Operating lease		9	5		23		15
Supplies		8	8		24		22
Recruitment and education		7	10		24		30
Visa litigation settlement (accrual)		45	78		(107	)	78
Other		56	50		174		155

Total other noninterest expense	$	346	274	$	665		649

Total other noninterest expense increased by $72 million from the same quarter last year. The increased professional service fees compared to the same quarter last year resulted from legal expenses of $36 million stemming from the CitFed litigation. FDIC insurance and other taxes were higher due to the depletion of the Bancorp’s prior FDIC insurance premium credits in the third quarter of 2008. Loan processing expense was higher in comparison to the same quarter last year as a result of increased collection activities. In addition, the provision for unfunded commitments increased $15 million compared to the third quarter of 2007 due to higher estimates of inherent losses resulting from deterioration in credit quality.

Applicable Income Taxes

The Bancorp’s income (loss) before income taxes, applicable income tax expense and effective tax rate for each of the periods indicated are as follows:

TABLE 9: Applicable Income Taxes


	For the three months ended September 30,				For the nine months ended September 30,
($ in millions)	2008			2007	2008			2007
Income (loss) before income taxes	$	(128	)	443	$	179		1,473
Applicable income taxes		(72	)	118		150		414
Effective tax rate		56.6	%	26.7		84.0	%	28.1

Applicable income tax expense for all periods includes the benefit from tax-exempt income, tax-advantaged investments and general business tax credits, partially offset by the effect of nondeductible expenses. The effective tax rate for the three months ended September 30, 2008 was primarily impacted by lower projected pre-tax income for 2008. The effective tax rate for the nine months ended September 30, 2008 was primarily impacted by the charge to tax expense of approximately $140 million in the second quarter of 2008 required for interest related to the tax treatment of certain of the Bancorp’s leveraged leases for previous tax years.

Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)

BUSINESS SEGMENT REVIEW

The Bancorp reports on five business segments: Commercial Banking, Branch Banking, Consumer Lending, Processing Solutions and Investment Advisors. Further detailed financial information on each business segment is included in Note 17 of the Notes to Condensed Consolidated Financial Statements.

Results of the Bancorp’s business segments are presented based on its management structure and management accounting practices. The structure and accounting practices are specific to the Bancorp; therefore, the financial results of the Bancorp’s business segments are not necessarily comparable with similar information for other financial institutions. The Bancorp refines its methodologies from time to time as management accounting practices are improved and businesses change. During the fourth quarter of 2007, the Bancorp changed the reporting of Processing Solutions to include certain revenues and expenses related to credit card processing that were previously listed under the Commercial and Branch Banking segments. Revisions to the Bancorp’s methodologies are applied on a retroactive basis.

The Bancorp manages interest rate risk centrally at the corporate level by employing a funds transfer pricing (“FTP”) methodology. This methodology insulates the business segments from interest rate volatility, enabling them to focus on serving customers through loan originations and deposit taking. The FTP system assigns charge rates and credit rates to classes of assets and liabilities, respectively, based on expected duration and the LIBOR swap curve. Matching duration allocates interest income and interest expense to each segment so its resulting net interest income is insulated from interest rate risk. In a rising rate environment, the Bancorp benefits from the widening spread between deposit costs and wholesale funding costs. However, the Bancorp’s FTP system credits this benefit to deposit-providing businesses, such as Branch Banking and Investment Advisors, on a duration-adjusted basis. The net impact of the FTP methodology is captured in General Corporate and Other.

Management made several changes to the FTP methodology in the fourth quarter of 2007 to more appropriately calculate FTP charges and credits to each of the Bancorp’s business segments. Changes to the FTP methodology were applied retroactively and included adding a liquidity premium to loans and deposits to properly reflect the Bancorp’s marginal cost of longer term funding. In addition, an FTP charge on fixed assets was added to the new FTP methodology.

The business segments are charged provision expense based on the actual net charge-offs experienced by the loans owned by each segment. Provision expense attributable to loan growth and changes in factors in the allowance for loan and lease losses are captured in General Corporate and Other. The financial results of the business segments include allocations for shared services and headquarters expenses. Even with these allocations, the financial results are not necessarily indicative of the business segments’ financial condition and results of operations as if they were to exist as independent entities. Additionally, the business segments form synergies by taking advantage of cross-sell opportunities and when funding operations by accessing the capital markets as a collective unit. Net income (loss) by business segment is summarized as follows:

TABLE 10: Business Segment Results


	For the three months ended September 30,					For the nine months ended September 30,
($ in millions)	2008			2007		2008			2007
Commercial Banking	$	155		183		$	404		531
Branch Banking		166		166			454		469
Consumer Lending		6		28			45		111
Processing Solutions		43		39			129		114
Investment Advisors		26		26			83		73
General Corporate and Other		(452	)	(117	)		(1,086	)	(239	)

Net income (loss)		(56	)	325			29		1,059
Dividends on preferred stock		25		—			26		—

Net income (loss) available to common shareholders	$	(81	)	325		$	3		1,059

Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)

Commercial Banking

Commercial Banking offers banking, cash management and financial services to large and middle-market businesses, government and professional customers. In addition to the traditional lending and depository offerings, Commercial Banking products and services include, among others, foreign exchange and international trade finance, derivatives and capital markets services, asset-based lending, real estate finance, public finance, commercial leasing and syndicated finance. The table below contains selected financial data for the Commercial Banking segment.

TABLE 11: Commercial Banking


	For the three months ended September 30,			For the nine months ended September 30,
($ in millions)	2008		2007	2008		2007
Income Statement Data
Net interest income (FTE) (a)	$	502	330	$	1,210	976
Provision for loan and lease losses		235	22		517	71
Noninterest income:
Corporate banking revenue		98	82		301	238
Service charges on deposits		46	37		136	112
Other noninterest income		17	17		42	48
Noninterest expense:
Salaries, incentives and benefits		78	63		230	196
Other noninterest expenses		150	130		436	387

Income before taxes		200	251		506	720
Applicable income taxes (a)		45	68		102	189

Net income	$	155	183	$	404	531

Average Balance Sheet Data
Commercial loans	$	43,829	35,580	$	42,505	34,831
Demand deposits		6,328	5,843		6,066	5,903
Interest checking		4,397	4,055		4,540	4,007
Savings and money market		4,009	4,377		4,389	4,509
Certificates over $100,000 and other time		2,184	1,687		1,932	1,878
Foreign office deposits		1,842	1,531		1,935	1,332

(a)

Includes taxable-equivalent adjustments of $4 million for the three months ended September 30, 2008 and 2007 and $11 million and $10 million for the nine months ended September 30, 2008 and 2007, respectively.

Net income decreased $28 million, or 15%, compared to the third quarter of 2007 as strong growth in net interest income and corporate banking revenue was more than offset by increased provision for loan and lease losses. Net interest income increased $172 million, or 52%, compared to the same period last year. The accretion of purchase accounting adjustments, totaling $154 million, related to the second quarter acquisition of First Charter drove the increase in net interest income with the remainder attributed to the growth in loans, partially funded by an increase in deposits. Average commercial loans and leases were up 23%, to $43.9 billion, over the same quarter last year due to solid loan production across most of the Bancorp’s footprint and the result of acquisitions since the third quarter of 2007. Excluding acquisitions, commercial loans increased approximately 18% compared to the third quarter of 2007. Average core deposits increased five percent due to growth in interest checking and foreign office deposits. The segment is focusing on growing deposits through deeper penetration of its premium customer base. Net charge-offs as a percent of average loans and leases increased to 213 bp from 25 bp in the third quarter of 2007. Net charge-offs increased in comparison to the prior year quarter due to weakening economies and the continuing deterioration of credit within the Bancorp’s footprint, particularly in Michigan and Florida, involving commercial and commercial construction loans. Higher charge-offs were particularly concentrated in homebuilder and developer loans, where these loans accounted for approximately 69% of net charge-offs during the third quarter of 2008.

Noninterest income increased $25 million compared to the same quarter last year due to corporate banking revenue growth of $16 million, or 19%, and an increase in service charges on deposits of $9 million, or 25%. Corporate banking revenue increased as a result of growth in foreign exchange derivative income, which increased $11 million, to $24 million, during the third quarter of 2008. Service charges on deposits increased 25%, to $46 million, compared to the third quarter of 2007. The increase in service charges was a result of higher business service charges (net of discounts) and a reduction in the amount of offsetting earnings credits as short-term rates remain lower than the third quarter of 2007.

Noninterest expense increased $35 million, or 18%, compared to the third quarter of 2007 primarily due to sales incentives increasing 36% to $28 million compared to the third quarter of 2007. Additionally, loan expenses increased $10 million, to $17 million, during the third quarter of 2007 due to increased collection activities.

Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)

Branch Banking

Branch Banking provides a full range of deposit and loan and lease products to individuals and small businesses through 1,298 full-service banking centers. Branch Banking offers depository and loan products, such as checking and savings accounts, home equity loans and lines of credit, credit cards and loans for automobile and other personal financing needs, as well as products designed to meet the specific needs of small businesses, including cash management services. The table below contains selected financial data for the Branch Banking segment.

TABLE 12: Branch Banking


	For the three months ended September 30,			For the nine months ended September 30,
($ in millions)	2008		2007	2008		2007
Income Statement Data
Net interest income	$	442	374	$	1,226	1,081
Provision for loan and lease losses		87	44		226	104
Noninterest income:
Service charges on deposits		124	113		336	304
Electronic payment processing		49	44		141	129
Investment advisory income		20	23		65	69
Other noninterest income		19	23		74	69
Noninterest expense:
Salaries, incentives and benefits		129	119		383	354

Net occupancy and equipment expenses		52	43		149	128
Other noninterest expenses		129	115		383	341
Income before taxes		257	256		701	725
Applicable income taxes		91	90		247	256

Net income	$	166	166	$	454	469

Average Balance Sheet Data
Consumer loans	$	12,738	11,872	$	12,551	11,731
Commercial loans		5,850	5,133		5,559	5,149
Demand deposits		6,205	5,734		5,972	5,760
Interest checking		7,876	8,310		7,986	8,909
Savings and money market		16,239	15,167		16,270	14,316
Certificates over $100,000 and other time		13,256	13,073		12,935	13,626

Net income was flat compared to the third quarter of 2007 as increases in net interest income and service fees were offset by a higher provision for loan and lease losses and increases in salaries and net occupancy expense. Net interest income increased 18% compared to the third quarter of 2007 due to loan growth and the accretion of purchase accounting adjustments, totaling $27 million, related to the second quarter acquisition of First Charter. Average loans and leases increased nine percent compared to the third quarter of 2007 as home equity loans grew nine percent due to acquisitions since the third quarter of 2007. The segment grew credit card balances by $318 million, or 26%, resulting from an increased focus on relationships with its current customers through the cross-selling of credit cards. Average core deposits were up 4% compared to the third quarter of 2007 with growth in savings and money market accounts and CDs offset by a decrease in interest checking deposits. The growth in core deposits was driven by acquisitions since the third quarter of 2007. Net charge-offs as a percent of average loan and leases increased to 187 bp from 103 bp in the third quarter of 2007. Net charge-offs increased in comparison to the prior year quarter as the Bancorp experienced higher charge-offs involving home equity lines of and loans of $19 million reflecting borrower stress and a decrease in home prices within the Bancorp’s footprint. Charge-offs involving credit cards increased $11 million compared to the third quarter of 2007 due to higher card balances and maturing of the portfolio.

Noninterest income increased $9 million compared to the third quarter of 2007 primarily due to an increase in service charges on deposits of $11 million, or nine percent. The increase in deposit fees, including consumer overdraft fees, is attributed to higher customer activity in comparison to the prior year quarter. Noninterest expense increased $33 million, or 12%, compared to the third quarter of 2007 as net occupancy and equipment costs increased 19% as a result of additional banking centers. Since the third quarter of 2007, the Bancorp’s banking centers have increased by 117 to 1,298 as of September 30, 2008, mainly due to acquisitions, which contributed 96 banking centers. Other noninterest expense increased 12%, which can be attributed to higher loan cost associated with collections. The Bancorp continues to position itself for sustained long-term growth through new banking center additions in key markets.

Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)

Consumer Lending

Consumer Lending includes the Bancorp’s mortgage, home equity, automobile and other indirect lending activities. Mortgage and home equity lending activities include the origination, retention and servicing of mortgage and home equity loans or lines of credit, sales and securitizations of those loans or pools of loans or lines of credit and all associated hedging activities. Other indirect lending activities include loans to consumers through mortgage brokers, automobile dealers and federal and private student education loans. The table below contains selected financial data for the Consumer Lending segment.

TABLE 13: Consumer Lending


	For the three months ended September 30,			For the nine months ended September 30,
($ in millions)	2008		2007	2008		2007
Income Statement Data
Net interest income	$	141	97	$	361	298
Provision for loan and lease losses		124	40		305	93
Noninterest income:
Mortgage banking net revenue		44	24		215	99
Other noninterest income		29	22		56	55
Noninterest expense:
Salaries, incentives and benefits		31	17		104	56
Other noninterest expenses		50	43		154	132

Income before taxes		9	43		69	171
Applicable income taxes		3	15		24	60

Net income	$	6	28	$	45	111

Average Balance Sheet Data
Residential mortgage loans	$	10,574	10,026	$	10,869	9,960
Automobile loans		7,376	9,844		8,138	9,565
Home equity		1,114	1,318		1,164	1,347
Consumer leases		815	872		798	952

Net income decreased $22 million, compared to the third quarter of 2007 as the increases in net interest income and mortgage banking net revenue, net of related expenses, were more than offset by growth in provision for loan and lease losses. The accretion of purchase accounting adjustments, totaling $38 million, primarily related to the second quarter acquisition of First Charter drove the growth in net interest income compared to the third quarter of 2007. Average residential mortgage loans increased six percent compared to the prior year quarter due primarily to acquisitions, including R-G Crown Bank (“Crown”) and First Charter. Excluding acquisitions, residential mortgage loans decreased 12% from the same quarter last year. Average automobile loans decreased 25% compared to the same quarter last year due to the securitization of $2.7 billion of automobile loans in the first quarter of 2008. Net charge-offs as a percent of average loan and leases increased from 77 bp in the third quarter of 2007 to 261 bp in the third quarter of 2008. Net charge-offs, primarily in residential mortgage loans, increased in comparison to the prior year quarter due to the continuing deterioration of real estate values within the Bancorp’s footprint, particularly in Florida. The segment continues to focus on managing credit risk through the restructuring of certain residential mortgage loans and careful consideration of underwriting and collection standards. As of September 30, 2008, the Bancorp had restructured approximately $360 million and $170 million of residential mortgage loans and home equity loans, respectively, to mitigate losses due to declining collateral values.

Mortgage originations decreased to $2.0 billion in the third quarter of 2008 from $3.0 billion in the third quarter of 2007 due to lower application volumes resulting from market disruptions. The increase in sales margins on loans held for sale and sales volume of portfolio loans were the primary reasons for increased mortgage banking net revenue compared to the third quarter of 2007. Also contributing to the increase in mortgage banking net revenue in the third quarter of 2008 was the $11 million impact from the adoption of SFAS No. 159, as of January 1, 2008, on residential mortgage loans held for sale. Prior to adoption, mortgage loan origination costs were capitalized as part of the carrying amount of the loan and recognized as a reduction of mortgage banking net revenue upon the sale of the loans. Subsequent to the adoption, mortgage loan origination costs are recognized in earnings when incurred, which primarily drove the increase in salaries and incentives of $14 million in comparison to the same quarter last year.

Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)

Processing Solutions

Fifth Third Processing Solutions provides electronic funds transfer, debit, credit and merchant transaction processing, operates the Jeanie^® ATM network and provides other data processing services to affiliated and unaffiliated customers. The table below contains selected financial data for the Processing Solutions segment.

TABLE 14: Processing Solutions


	For the three months ended September 30,				For the nine months ended September 30,
($ in millions)	2008		2007		2008		2007
Income Statement Data
Net interest income	$	1	(3	)	$	3	(4	)
Provision for loan and lease losses		3	3			11	8
Noninterest income:
Financial institutions processing		90	80			276	239
Merchant processing		89	83			255	224
Card issuer interchange		22	17			62	47
Other noninterest income		12	10			35	30
Noninterest expense:
Salaries, incentives and benefits		20	18			60	55
Payment processing expense		68	63			197	171
Other noninterest expenses		56	43			164	126

Income before taxes		67	60			199	176
Applicable income taxes		24	21			70	62

Net income	$	43	39		$	129	114

Net income increased $4 million, or 11%, compared to the third quarter of 2007 as the segment continues to increase its presence in the electronic payment processing business. The segment continues to realize year-over-year growth in transaction volumes and revenue growth, despite the slowdown in consumer spending, due to the addition and conversion of large national clients over the past year and current initiatives involving merchant pricing and sales. Financial institutions processing revenues increased $10 million, or 12%, driven by higher debit card usage volumes. Merchant processing revenue increased $6 million, or 7%, over the same quarter last year. Growth in card issuer interchange of $5 million, or 30%, can be attributed to organic growth in the Bancorp’s credit card portfolio. The Bancorp continues to see significant opportunities to attract new financial institution customers and retailers within this business segment.

Payment processing expense increased seven percent from the third quarter of 2007 due to higher network charges, increasing 10% to $48 million, resulting from increased transaction volumes. Financial institution transactions and merchant transactions processed both increased in comparison to the third quarter of 2007. Other noninterest expense increased due to higher technology and communications expense.

Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)

Investment Advisors

Investment Advisors provides a full range of investment alternatives for individuals, companies and not-for-profit organizations. The Bancorp’s primary services include investments, trust, asset management, retirement plans and custody. Fifth Third Securities, Inc., (“FTS”) an indirect wholly-owned subsidiary of the Bancorp, offers full service retail brokerage services to individual clients and broker dealer services to the institutional marketplace. Fifth Third Asset Management, Inc., an indirect wholly-owned subsidiary of the Bancorp, provides asset management services and also advises the Bancorp’s proprietary family of mutual funds. The table below contains selected financial data for the Investment Advisors segment.

TABLE 15: Investment Advisors


	For the three months ended September 30,			For the nine months ended September 30,
($ in millions)	2008		2007	2008		2007
Income Statement Data
Net interest income	$	46	39	$	137	113
Provision for loan and lease losses		12	5		21	10
Noninterest income:
Investment advisory income		89	96		276	291
Other noninterest income		7	6		22	17
Noninterest expense:
Salaries, incentives and benefits		38	41		120	125
Other noninterest expenses		52	55		165	173

Income before taxes		40	40		129	113
Applicable income taxes		14	14		46	40

Net income	$	26	26	$	83	73

Average Balance Sheet Data
Loans	$	3,599	3,229	$	3,548	3,168
Core deposits		4,308	4,918		4,751	4,969

Net income was flat compared to the third quarter of 2007 as higher net interest income was offset by lower investment advisory income. The segment grew loans and benefited from an overall decrease in interest rates to increase net interest income $7 million, or 18%, as spreads widened due to decreases in funding costs. Investment advisors realized average loan growth of 11% and a decrease in average core deposits of 12% compared to the third quarter of 2007. Core deposits decreased due to a 21% decline in interest checking balances.

Noninterest income decreased $6 million, or six percent, compared to the third quarter of 2007, as investment advisory income decreased eight percent, to $89 million. Mutual fund fees decreased as a result of the decline in the equity markets since the third quarter of 2007. In addition, the decrease in broker income was driven by clients moving to lower fee, cash based products from equity products due to extreme market volatility and a decline in transaction based revenues. Noninterest expense decreased $6 million compared to the prior year quarter as the segment continues to focus on expense control. As of September 30, 2008, the Bancorp had $196 billion in assets under care and $30 billion in managed assets, modestly lower than the previous year quarter.

General Corporate and Other

General Corporate and Other includes the unallocated portion of the investment securities portfolio, securities gains/losses, certain non-core deposit funding, unassigned equity, provision expense in excess of net charge-offs, the payment of preferred stock dividends and certain support activities and other items not attributed to the business segments.

The results of General Corporate and Other were primarily impacted by the significant increase in the provision for loan and lease losses, which increased from $25 million in the third quarter of 2007 to $480 million in the third quarter of 2008. The results also included $45 million related to Visa’s pending litigation settlement with Discover, a net benefit of $40 million from the resolution of the CitFed litigation, the other than temporary impairment of FNMA and FHLMC preferred stock of $51 million and the charge related to a reduction in the current cash surrender value of one of the Bancorp’s BOLI policies of $27 million.

Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)

BALANCE SHEET ANALYSIS

Loans and Leases

The following tables summarize the end of period and average total loans and leases, including loans held for sale. The Bancorp classifies its loans and leases based upon the primary purpose of the loan.

TABLE 16: Components of Total Loans and Leases (includes held for sale)


	September 30, 2008			December 31, 2007			September 30, 2007
($ in millions)	Balance		% of Total	Balance		% of Total	Balance		% of Total
Commercial:
Commercial loans	$	29,424	34	$	26,079	31	$	23,317	29
Commercial mortgage loans		13,355	16		11,967	14		11,178	14
Commercial construction loans		6,002	7		5,561	6		5,463	7
Commercial leases		3,642	4		3,737	5		3,710	5

Subtotal – commercial		52,423	61		47,344	56		43,668	55

Consumer:
Residential mortgage loans		10,292	12		11,433	14		9,945	13
Home equity		12,599	14		11,874	14		11,737	15
Automobile loans		8,306	10		11,183	13		11,043	14
Credit card		1,688	2		1,591	2		1,460	2
Other consumer loans and leases		1,190	1		1,157	1		1,162	1

Subtotal – consumer		34,075	39		37,238	44		35,347	45

Total loans and leases	$	86,498	100	$	84,582	100	$	79,015	100

Total loans and leases increased $7.5 billion, or 10%, over the third quarter of 2007. The growth in total loans and leases was due to acquisitions since the third quarter of 2007, the use of contingent liquidity facilities related to certain off-balance sheet programs and increased loan production across the Bancorp’s footprint.

Total commercial loans and leases increased $8.8 billion, or 20%, compared to September 30, 2007. The increase was primarily due to strong growth in commercial loans of 26% compared to the third quarter of 2007 resulting from increased loan production, acquisitions since the third quarter of 2007 and an additional $1.5 billion from the use of contingent liquidity facilities related to certain off-balance sheet programs that were drawn upon in the third quarter of 2008. Included within the contingent liquidity facilities were approximately $335 million in draws on outstanding letters of credit that were supporting certain securities issued as variable rate demand notes (“VRDNs”). Draws on these outstanding letters of credit have continued in October with outstanding draws of approximately $909 million as of October 31, 2008. For further information on these arrangements, see the Off-Balance Sheet Arrangements section and Note 8 of the Notes to Condensed Consolidated Financial Statements. Commercial mortgage loans increased 19% over the third quarter of 2007, which included the impact of acquisitions since the third quarter of 2007 of $1.1 billion. The overall mix of commercial loans and leases is relatively consistent with prior periods.

Total consumer loans and leases decreased $1.3 billion, or four percent, compared to the third quarter of 2007, as a result of the decrease in automobile loans partially offset by credit card and home equity loan growth. Credit card loans increased to $1.7 billion, an increase of 16% over the third quarter of 2007, due to continued success in cross-selling credit cards to its existing retail customer base. Home equity loans increased $862 million, primarily due to acquisitions since the third quarter of 2007. Residential mortgage loans were $10.3 billion at September 30, 2008, an increase of four percent over the third quarter of 2007, with growth driven by approximately $1.5 billion of loans from acquisitions. Automobile loans decreased by approximately $2.7 billion, or 25%, due largely to automobile loan securitizations during the first quarter of 2008.

Average total commercial loans and leases increased $8.6 billion, or 20%, compared to the third quarter of 2007. The increase in average total commercial loans and leases was primarily driven by growth in commercial loans and commercial mortgage loans, which increased 27% and 19%, respectively, over the third quarter of 2007. Commercial construction loans increased 11% compared to the same quarter last year. The growth in commercial mortgage loans and commercial construction loans included the impact of acquisitions since the third quarter of 2007 of $1.0 billion and $588 million, respectively. Growth in overall average commercial loans and leases was realized in the majority of the Bancorp’s markets, including 15% growth in Chicago and approximately $1.5 billion of loans in North Carolina from acquisitions.

Average total consumer loans and leases decreased $1.1 billion, or three percent, compared to the third quarter of 2007 as a result of a decrease in automobile loans of 24% largely due to the aforementioned automobile securitizations that occurred in the first quarter. The decline was partially offset by growth in credit card balances of $354 million, or 26%, and home equity loans of $783 million, or seven percent. Acquisitions since the third quarter of 2007 impacted the change in residential mortgage loans and home equity loans by $1.7 billion and $627 million, respectively. The Bancorp experienced a decrease in average consumer loans and leases in a majority of its markets.

Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)

TABLE 17: Components of Average Total Loans and Leases (includes held for sale)


	September 30, 2008			December 31, 2007			September 30, 2007
($ in millions)	Balance		% of Total	Balance		% of Total	Balance		% of Total
Commercial:
Commercial loans	$	28,284	33	$	24,526	30	$	22,345	29
Commercial mortgage loans		13,257	16		11,588	14		11,117	14
Commercial construction loans		6,110	7		5,544	7		5,499	7
Commercial leases		3,643	4		3,692	4		3,700	5

Subtotal – commercial		51,294	60		45,350	55		42,661	55

Consumer:
Residential mortgage loans		10,711	12		11,181	14		10,396	13
Home equity		12,534	15		11,843	15		11,752	15
Automobile loans		8,303	10		11,158	13		10,865	14
Credit card		1,720	2		1,461	2		1,366	2
Other consumer loans and leases		1,210	1		1,179	1		1,204	1

Subtotal – consumer		34,478	40		36,822	45		35,583	45

Total average loans and leases	$	85,772	100	$	82,172	100	$	78,244	100

Total portfolio loans and leases (excludes held for sale)	$	84,695		$	78,174		$	76,295

Investment Securities

The Bancorp uses investment securities as a means of managing interest rate risk, providing liquidity support and providing collateral for pledging purposes. As of September 30, 2008, total investment securities were $14.5 billion compared to $11.3 billion at September 30, 2007. Securities are classified as available-for-sale when, in management’s judgment, they may be sold in response to, or in anticipation of, changes in market conditions. The Bancorp’s management has evaluated the securities in an unrealized loss position in the available-for-sale portfolio on the basis of both the duration of the decline in value of the security and the severity of that decline, and maintains the intent and ability to hold these securities to the earlier of the recovery of the losses or maturity.

At September 30, 2008, the Bancorp’s investment portfolio primarily consisted of AAA-rated agency mortgage-backed securities. The investment portfolio includes FHLMC preferred stock and FNMA preferred securities with a remaining carrying value of $4 million after recognizing other than temporary impairment charges of $64 million during the second and third quarters of 2008. The Bancorp did not hold asset-backed securities backed by subprime loans in its investment portfolio at September 30, 2008. Additionally, there were no material securities below investment grade as of September 30, 2008.

TABLE 18: Components of Investment Securities (amortized cost basis)


($ in millions)	September 30, 2008		December 31, 2007	September 30, 2007
Available-for-sale and other:
U.S. Treasury and Government agencies	$	187	3	3
U.S. Government sponsored agencies		329	160	500
Obligations of states and political subdivisions		357	490	538
Agency mortgage-backed securities		9,773	8,738	8,290
Other bonds, notes and debentures		1,552	385	705
Other securities		1,051	1,045	971

Total available-for-sale and other securities	$	13,249	10,821	11,007

Held-to-maturity:
Obligations of states and political subdivisions	$	355	351	344
Other bonds, notes and debentures		5	4	2

Total held-to-maturity	$	360	355	346

On an amortized cost basis, at the end of the third quarter of 2008, available-for-sale securities increased $2.2 billion since September 30, 2007. At September 30, 2008 and 2007, available-for-sale securities were 13% and 12%, respectively, of interest-earning assets. Increases in the available-for-sale securities portfolio relate to the Bancorp’s overall balance sheet growth and the purchase of securities as a part of the Bancorp’s non-qualifying hedging strategy related to mortgage servicing rights. The estimated weighted-average life of the debt securities in the available-for-sale portfolio was 6.0 years at September 30, 2008 compared to 5.7 years at September 30, 2007. At September 30, 2008, the fixed-rate securities within the available-for-sale securities portfolio had a weighted-average yield of 5.26% compared to 5.51% at September 30, 2007.

Trading securities increased from $171 million and $241 million as of December 31, 2007 and June 30, 2008, respectively, to $915 million as of September 30, 2008. The increase was driven by a residential mortgage loan securitization in the third quarter of 2008 in which the Bancorp continued to hold the underlying securities of $359 million. Additionally, as of September 30, 2008, the Bancorp

Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)

held $366 million of VRDNs in its trading securities portfolio. These securities were purchased from the market, through FTS, who was also the remarketing agent. The overall position in VRDNs has continued to increase and was $1.6 billion as of October 31, 2008. For more information on the Bancorp’s obligations in remarketing variable rate demand notes, see Note 8 in the Notes to Condensed Consolidated Financial Statements.

Information presented in Table 19 is on a weighted-average life basis, anticipating future prepayments. Yield information is presented on an FTE basis and is computed using historical cost balances. Maturity and yield calculations for the total available-for-sale portfolio exclude equity securities that have no stated yield or maturity.

TABLE 19: Characteristics of Available-for-Sale and Other Securities


As of September 30, 2008 ($ in millions)	Amortized Cost		Fair Value		Weighted- Average Life (in years)	Weighted- Average Yield
U.S. Treasury and Government agencies:
Average life of one year or less	$	41	$	41	1.0	2.14	%
Average life 1 – 5 years		144		145	1.8	2.12
Average life 5 – 10 years		—		—	—	—
Average life greater than 10 years		2		2	11.5	2.85

Total		187		188	1.7	2.14
U.S. Government sponsored agencies:
Average life of one year or less		60		61	0.5	4.84
Average life 1 – 5 years		269		269	2.1	3.51
Average life 5 – 10 years		—		—	—	—
Average life greater than 10 years		—		—	—	—

Total		329		330	1.8	3.75
Obligations of states and political subdivisions (a):
Average life of one year or less		189		190	0.3	7.36
Average life 1 – 5 years		105		107	2.2	7.16	(b)
Average life 5 – 10 years		63		63	6.6	7.66	(b)
Average life greater than 10 years		—		—	—	—

Total		357		360	2.0	7.30
Agency mortgage-backed securities:
Average life of one year or less		2		2	0.8	4.78
Average life 1 – 5 years		1,863		1,873	3.7	4.89
Average life 5 – 10 years		7,851		7,839	7.6	5.26
Average life greater than 10 years		57		57	10.0	5.70

Total		9,773		9,771	6.9	5.19
Other bonds, notes and debentures (c):
Average life of one year or less		1,048		1,047	0.1	5.38
Average life 1 – 5 years		282		274	3.6	6.69
Average life 5 – 10 years		65		50	8.2	6.78
Average life greater than 10 years		157		114	17.1	7.53

Total		1,552		1,485	2.7	5.89
Other securities (d)		1,051		1,043

Total available-for-sale and other securities	$	13,249	$	13,177	6.0	5.26	%

(a)

Taxable-equivalent yield adjustments included in the above table are 2.48%, 2.40%, 2.58%, 1.26% and 2.45% for securities with an average life of one year or less, 1-5 years, 5-10 years, greater than 10 years and in total, respectively.

(b)

Weighted-average yield excludes $1 million and $52 million of securities with an average life of 1-5 years and 5-10 years, respectively, related to qualified zone academy bonds whose yields are realized through income tax credits. The weighted-average effective yield of these instruments is 6.77%.

(c)

Other bonds, notes, and debentures consist of commercial paper, non-agency mortgage backed securities, certain other asset backed securities (primarily automobile and commercial loan backed securities) and corporate bond securities.

(d)

Other securities consist of Federal Home Loan Bank (“FHLB”) and Federal Reserve Bank restricted stock holdings that are carried at par, FHLMC and FNMA preferred stock holdings, certain mutual fund holdings and equity security holdings.

Interest rate spreads in mortgage products contracted during the third quarter, reversing the considerable widening that took place during the second quarter of 2008, resulting in a net unrealized loss on agency mortgage-backed securities of $2 million as of September 30, 2008. In addition, credit spreads on corporate bonds increased, resulting in an increase in unrealized losses on other bonds, notes and debentures of $67 million as of September 30, 2008. Total net unrealized losses on the available-for-sale securities portfolio was $72 million at September 30, 2008 compared to an unrealized loss of $144 million at December 31, 2007 and a $230 million unrealized loss at September 30, 2007.

Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)

Deposits

Deposit balances represent an important source of funding and revenue growth opportunity. The Bancorp is continuing to focus on core deposit growth in its retail and commercial franchises by expanding its retail franchise through acquisitions and its de novo strategy and enhancing its product offerings. At September 30, 2008, core deposits represented 54% of the Bancorp’s asset funding base, compared to 59% at September 30, 2007.

Included in core deposits are foreign office deposits, which are Eurodollar sweep accounts for the Bancorp’s commercial customers. These accounts bear interest at rates slightly higher than money market accounts, but the Bancorp does not have to pay FDIC insurance nor hold collateral. The remaining foreign office balances are brokered deposits and the Bancorp uses these, as well as certificates of deposit $100,000 and over, as a method to fund earning asset growth.

TABLE 20: Deposits


	September 30, 2008			December 31, 2007			September 30, 2007
($ in millions)	Balance		% of Total	Balance		% of Total	Balance		% of Total
Demand	$	14,241	18	$	14,404	19	$	13,174	19
Interest checking		13,251	17		15,254	20		14,294	21
Savings		15,955	21		15,635	21		15,599	22
Money market		5,352	7		6,521	9		6,163	9
Foreign office		1,999	3		2,572	4		2,014	3

Transaction deposits		50,798	66		54,386	73		51,244	74
Other time		11,778	15		11,440	15		10,267	15

Core deposits		62,576	81		65,826	88		61,511	89
Certificates - $100,000 and over		13,173	17		6,738	9		5,973	8
Other foreign office		1,711	2		2,881	3		1,898	3

Total deposits	$	77,460	100	$	75,445	100	$	69,382	100

Core deposits increased two percent compared to the third quarter of 2007 due to acquisitions during the past year. Exclusive of acquisitions, core deposits decreased three percent as five percent growth in demand deposits was more than offset by a five percent decrease in interest-bearing core deposits as a result of increased competitor pricing on time deposits. A majority of the increase in deposit pricing was the result of illiquidity in the marketplace that provided other financial institutions limited access to alternative funding sources. The Bancorp increased its rates at the end of the third quarter to approximate competitor rates and realized stabilization in its interest-bearing core deposit products. The Bancorp is committed to its Everyday Great Rates strategy that places each customer in the best deposit product for his/her rate and service need.

Certificates $100,000 and over at September 30, 2008 increased compared to December 31, 2007 and September 30, 2007 primarily due to actions taken by the Bancorp as a liquidity management strategy, which involved extending the average duration of wholesale borrowings to reduce exposure to high levels of market volatility.

TABLE 21: Average Deposits


	September 30, 2008			December 31, 2007			September 30, 2007
($ in millions)	Balance		% of Total	Balance		% of Total	Balance		% of Total
Demand	$	14,225	19	$	13,345	19	$	13,143	19
Interest checking		13,843	18		14,394	20		14,334	20
Savings		16,154	22		15,616	22		15,390	22
Money market		6,051	8		6,363	9		6,247	9
Foreign office		2,126	3		2,249	3		1,808	3

Transaction deposits		52,399	70		51,967	73		50,922	73
Other time		10,780	14		11,011	15		10,290	15

Core deposits		63,179	84		62,978	88		61,212	88
Certificates - $100,000 and over		11,623	15		6,613	9		6,062	9
Other foreign office		395	1		2,464	3		1,981	3

Total deposits	$	75,197	100	$	72,055	100	$	69,255	100

On an average basis, core deposits increased three percent primarily due to acquisitions that occurred since the third quarter of 2007. Exclusive of acquisitions, average core deposits decreased two percent as increases in demand deposits due to decreased earnings credit rates was more than offset by the decrease in interest-bearing core deposit products.

Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)

Borrowings

Total short-term borrowings were $11.3 billion at September 30, 2008 compared to $8.9 billion at September 30, 2007. As of both September 30, 2008 and September 30, 2007, total borrowings as a percentage of interest-bearing liabilities were 28%, as the Bancorp continues to explore additional alternatives regarding the level and cost of various other sources of funding.

TABLE 22: Borrowings


($ in millions)	September 30, 2008		December 31, 2007	September 30, 2007
Federal funds purchased	$	2,521	4,427	$	5,130
Other short-term borrowings		8,791	4,747		3,796
Long-term debt		12,947	12,857		12,498

Total borrowings	$	24,259	22,031	$	21,424

Total borrowings increased $2.8 billion, or 13%, over the third quarter of 2007, as growth in loans and declines in core deposits dictated a larger amount of funding needed from borrowings. The increase in other short-term borrowings of $5.0 billion, partially offset by a decrease in federal funds purchased of $2.6 billion, was utilized to meet these funding needs. Current economic conditions and market illiquidity were the primary drivers of this mix shift in the past year, causing a decrease in the availability of federal funds. Growth in other short-term borrowings occurred primarily through FHLB advances and Term Auction Facility funds.

Long-term debt at September 30, 2008 was consistent with December 31, 2007 as debt issuances during the first and second quarters of 2008 were offset by $2.1 billion of long-term bank notes maturing during the third quarter of 2008. In February 2008, the Bancorp issued $1.0 billion of 8.25% subordinated notes, a portion of which were subsequently hedged to floating, with a maturity date of March 1, 2038. In April 2008, the Bancorp issued $750 million of 6.25% senior notes with a maturity date of May 1, 2013. The notes are not subject to redemption at the Bancorp’s option at any time prior to maturity. Additionally, in May 2008, a deconsolidated trust issued $400 million of Tier 1-qualifying trust preferred securities and invested these proceeds in junior subordinated notes issued by the Bancorp. The notes mature on May 15, 2068 and bear a fixed rate of 8.875% until May 15, 2058. After May 15, 2058, the notes bear interest at a variable rate of three-month LIBOR plus 5.00%. The Bancorp has subsequently entered into hedges related to these notes.

Information on the average rates paid on borrowings is located in the Statements of Income Analysis. In addition, refer to the Liquidity Risk Management section for a discussion on the role of borrowings in the Bancorp’s liquidity management.

Quantitative and Qualitative Disclosures About Market Risk (Item 3)

RISK MANAGEMENT – OVERVIEW

Managing risk is an essential component of successfully operating a financial services company. The Bancorp’s risk management function is responsible for the identification, measurement, monitoring, control and reporting of risk and mitigation of those risks that are inconsistent with the Bancorp’s risk profile. The Enterprise Risk Management division (“ERM”), led by the Bancorp’s Chief Risk Officer, ensures consistency in the Bancorp’s approach to managing and monitoring risk within the structure of the Bancorp’s affiliate operating model. In addition, the Internal Audit division provides an independent assessment of the Bancorp’s internal control structure and related systems and processes. The risks faced by the Bancorp include, but are not limited to, credit, market, liquidity, operational and regulatory compliance. ERM includes the following key functions:

•

Risk Policy—ensures consistency in the approach to risk management as the Bancorp’s clearinghouse for credit, market and operational risk policies, procedures and guidelines;

•

Credit Risk Review—responsible for evaluating the sufficiency of underwriting, documentation and approval processes for consumer and commercial credits, counter-party credit risk, the accuracy of risk grades assigned to commercial credit exposure, and appropriate accounting for charge-offs, non-accrual status and specific reserves and reports directly to the Risk and Compliance Committee of the Board of Directors;

•

Consumer Credit Risk Management—responsible for credit risk management in consumer lending, including oversight of underwriting and credit administration processes as well as analytics and reporting functions;

•

Capital Markets Risk Management—responsible for establishing and monitoring proprietary trading limits, monitoring liquidity and interest rate risk and utilizing value at risk and earnings at risk models;

•

Compliance Risk Management—responsible for oversight of compliance with all banking regulations;

•

Operational Risk Management—responsible for enterprise operational risk programs such as risk self-assessments, new products review, the key risk indicator program, and root cause analysis and corrective action plans relating to identified operational losses;

•

Bank Protection—responsible for fraud prevention and detection, and investigations and recovery;

•

Insurance Risk Management—responsible for all property, casualty and liability insurance policies including the claims administration process for the Bancorp;

•

Investment Advisors Risk Management—responsible for trust compliance, fiduciary risk, trading risk and credit risk in the Investment Advisors line of business; and

•

Risk Strategies and Reporting—responsible for quantitative analytics and Board of Directors and senior management reporting on credit, market and operational risk metrics.

Designated risk managers have been assigned to all business lines. Affiliate risk management is handled by regional risk managers who are responsible for multiple affiliates and who report to ERM.

Risk management oversight and governance is provided by the Risk and Compliance Committee of the Board of Directors and through multiple management committees whose membership includes a broad cross-section of line of business, affiliate and support representatives. The Risk and Compliance Committee of the Board of Directors consists of five outside directors and has the responsibility for the oversight of credit, market, operational, regulatory compliance and strategic risk management activities for the Bancorp, as well as for the Bancorp’s overall aggregate risk profile. The Risk and Compliance Committee of the Board of Directors has approved the formation of key management governance committees that are responsible for evaluating risks and controls. These committees include the Market Risk Committee, the Corporate Credit Committee, the Credit Policy Committee, the Operational Risk Committee and the Executive Asset Liability Committee. There are also new products and initiatives processes applicable to every line of business to ensure an appropriate standard readiness assessment is performed before launching a new product or initiative. Significant risk policies approved by the management governance committees are also reviewed and approved by the Risk and Compliance Committee of the Board of Directors.

Quantitative and Qualitative Disclosures About Market Risk (continued)

CREDIT RISK MANAGEMENT

The objective of the Bancorp’s credit risk management strategy is to quantify and manage credit risk on an aggregate portfolio basis, as well as to limit the risk of loss resulting from an individual customer default. The Bancorp’s credit risk management strategy is based on three core principles: conservatism, diversification and monitoring. The Bancorp believes that effective credit risk management begins with conservative lending practices. These practices include conservative exposure and counterparty limits and conservative underwriting, documentation and collection standards. The Bancorp’s credit risk management strategy also emphasizes diversification on a geographic, industry and customer level as well as regular credit examinations and monthly management reviews of large credit exposures and credits experiencing deterioration of credit quality. Lending officers with the authority to extend credit are delegated specific authority amounts, the utilization of which is closely monitored. Underwriting activities are centralized, while ERM manages the policy and the authority delegation process directly. The Credit Risk Review function, within ERM, provides objective assessments of the quality of underwriting and documentation, the accuracy of risk grades and the charge-off, nonaccrual and reserve analysis process. The Bancorp’s credit review process and overall assessment of required allowances is based on quarterly assessments of the probable estimated losses inherent in the loan and lease portfolio. The Bancorp uses these assessments to promptly identify potential problem loans or leases within the portfolio, maintain an adequate reserve and take any necessary charge-offs. In addition to the individual review of larger commercial loans that exhibit probable or observed credit weaknesses, the commercial credit review process includes the use of two risk grading systems. The risk grading system currently utilized for reserve analysis purposes encompasses ten categories. The Bancorp also maintains a dual risk rating system that provides for thirteen probabilities of default grade categories and an additional six grade categories for estimating actual losses given an event of default. The probability of default and loss given default evaluations are not separated in the ten-grade risk rating system. The Bancorp is in the process of completing significant validation and testing of the dual risk rating system prior to its implementation for reserve analysis purposes. The dual risk rating system is expected to be consistent with Basel II expectations and allows for more precision in the analysis of commercial credit risk. Scoring systems, various analytical tools and delinquency monitoring are used to assess the credit risk in the Bancorp’s homogenous consumer loan portfolios.

Commercial Portfolio

The Bancorp’s credit risk management strategy includes minimizing concentrations of risk through diversification. Table 23 provides breakouts of the total commercial loan and lease portfolio, including held for sale, by major industry classification (as defined by the North American Industry Classification System), by loan size and by state, illustrating the diversity and granularity of the Bancorp’s portfolio. Table 24 provides further information on the location of commercial real estate and construction industry loans and leases.

At September 30, 2008, homebuilder exposure represents the most significant weakness in the commercial portfolio. As of September 30, 2008, the Bancorp had homebuilder exposure of $4.3 billion and outstanding loans of $3.1 billion with $702 million in nonaccrual loans. As of September 30, 2008, approximately 41% of the outstanding loans to homebuilders are located in the states of Michigan and Florida and represent approximately 59% of the nonaccrual loans. As of December 31, 2007, the Bancorp had homebuilder exposure of $4.4 billion, outstanding loans of $2.9 billion with $176 million in nonaccrual loans. The increase in homebuilder balances during 2008 is primarily attributable to the acquisition of First Charter.

Quantitative and Qualitative Disclosures About Market Risk (continued)

TABLE 23: Commercial Loan and Lease Portfolio (a)


	2008					2007
As of September 30 ($ in millions)	Outstanding			Exposure	Nonaccrual	Outstanding	Exposure	Nonaccrual
By industry:
Real estate	$	12,728		15,669	636	11,003	13,708	97
Manufacturing		7,602		14,502	113	5,856	12,546	25
Construction		5,656		8,575	748	5,293	8,631	133
Retail trade		3,878		7,193	113	3,982	7,170	23
Financial services and insurance		3,512		7,991	29	1,695	5,915	6
Healthcare		3,013		4,974	17	2,113	3,725	13
Business services		2,760		5,172	36	2,048	3,947	22
Transportation and warehousing		2,754		3,255	33	2,368	2,888	18
Wholesale trade		2,611		4,635	18	2,048	3,888	32
Other services		1,159		1,672	19	1,015	1,452	14
Individuals		1,153		1,505	45	1,163	1,505	15
Accommodation and food		1,137		1,582	63	919	1,357	14
Communication and information		937		1,546	10	760	1,360	1
Mining		788		1,278	18	478	858	5
Public administration		740		959	—	751	965	—
Entertainment and recreation		734		992	23	590	857	5
Agribusiness		639		814	8	622	816	—
Utilities		483		1,228	—	332	1,141	2
Other		139		318	4	632	1,572	6

Total	$	52,423		83,860	1,933	43,668	74,301	431

By loan size:
Less than $200,000		3	%	2	4	4	3	11
$200,000 to $1 million		12		9	15	15	11	27
$1 million to $5 million		26		22	38	29	24	41
$5 million to $10 million		14		13	21	16	15	16
$10 million to $25 million		23		24	20	22	24	5
Greater than $25 million		22		30	2	14	23	—

Total		100	%	100	100	100	100	100

By state:
Ohio		25	%	29	12	25	29	26
Michigan		18		17	32	21	19	34
Florida		10		8	26	10	8	9
Illinois		9		9	5	10	10	11
Indiana		7		7	7	9	8	11
Kentucky		5		5	5	6	6	4
North Carolina		3		3	2	—	—	—
Tennessee		3		2	3	3	3	2
All other states		20		20	8	16	17	3

Total		100	%	100	100	100	100	100

(a)

Outstanding reflects total commercial customer loan and lease balances, including held for sale and net of unearned income, and exposure reflects total commercial customer lending commitments.

TABLE 24: Outstanding Commercial Real Estate and Construction Loans by State


As of September 30 ($ in millions)	2008		2007
Michigan	$	4,547	4,595
Ohio		4,369	4,088
Florida		2,853	2,591
Illinois		1,427	1,378
Indiana		1,210	1,302
North Carolina		827	14
Kentucky		815	785
Tennessee		483	476
All other states		1,853	1,067

Total	$	18,384	16,296

Quantitative and Qualitative Disclosures About Market Risk (continued)

Residential Mortgage Portfolio

The Bancorp manages credit risk in the mortgage portfolio through conservative underwriting and documentation standards and geographic and product diversification. The Bancorp may also package and sell loans in the portfolio without recourse or may purchase mortgage insurance for the loans sold in order to mitigate credit risk.

Certain mortgage products have contractual features that may increase the risk of loss to the Bancorp in the event of a decline in housing prices. These types of mortgage products offered by the Bancorp include loans with high loan-to-value (“LTV”) ratios, multiple loans on the same collateral that when combined result in a high LTV (“80/20”) and interest-only loans. Table 25 shows the Bancorp’s originations of these products for the three and nine months ended September 30, 2008 and 2007. The Bancorp does not originate mortgage loans that permit customers to defer principal payments or make payments that are less than the accruing interest.

TABLE 25: Residential Mortgage Originations


	2008				2007
($ in millions)	Amount		Percent of total		Amount		Percent of total
For the three months ended September 30:
Greater than 80% LTV with no mortgage insurance	$	4	—	%	$	45	2	%
Interest-only		98	5			438	16
80/20 loans		1	—			66	2

For the nine months ended September 30:
Greater than 80% LTV with no mortgage insurance		14	—			243	3
Interest-only		721	8			1,496	17
Greater than 80% LTV and interest-only		2	—			19	—
80/20 loans		36	—			177	2
80/20 loans and interest-only		—	—			44	1

Table 26 provides the amount of these loans as a percent of the residential mortgage loans in the Bancorp’s portfolio and the delinquency rates of these loan products as of September 30, 2008 and 2007. Reset of rates on adjustable rate mortgages are not expected to have a material impact on credit cost as two-thirds of adjustable rate mortgages have an LTV less than 80%. Geographically, the Bancorp’s residential mortgage portfolio is dominated by three states with Florida, Ohio and Michigan representing 30%, 24% and 14% of the portfolio, respectively.

TABLE 26: Residential Mortgage Outstandings


	2008						2007
As of September 30 ($ in millions)	Amount		Percent of total		Delinquency Ratio		Amount		Percent of total		Delinquency Ratio
Greater than 80% LTV with no mortgage insurance	$	2,060	22	%	9.72	%	$	1,855	21	%	6.89	%
Interest-only		1,686	18		2.83			1,567	18		1.44
Greater than 80% LTV and interest-only		424	5		7.51			514	6		3.68
80/20 loans		1	—		—			—	—		—

The Bancorp previously originated certain non-conforming residential mortgage loans known as “Alt-A” loans. Borrower qualifications were comparable to other conforming residential mortgage products. As of September 30, 2008, the Bancorp held $118 million of Alt-A mortgage loans in its portfolio with approximately $13 million in nonaccrual.

The Bancorp previously sold certain mortgage products in the secondary market with recourse. The outstanding balances and delinquency rates for those loans sold with recourse as of September 30, 2008 and 2007 were $1.4 billion and 4.98%, and $1.6 billion and 2.36%, respectively. The Bancorp maintained an estimated credit loss reserve of approximately $13 million and $18 million relating to these residential mortgage loans sold at September 30, 2008 and 2007, respectively.

Home Equity Portfolio

The home equity portfolio is characterized by 73% of outstanding balances within the Bancorp’s Midwest footprint of Ohio, Michigan, Kentucky, Indiana and Illinois. The portfolio has an average FICO score of 735 as of September 30, 2008, comparable with 734 at September 30, 2007. Further detail on location and origination LTV ratios is included in Table 27.

Quantitative and Qualitative Disclosures About Market Risk (continued)

TABLE 27: Home Equity Outstandings


	2008					2007
As of September 30 ($ in millions)	LTV less than 80%		LTV greater than 80%	Delinquency Ratio		LTV less than 80%		LTV greater than 80%	Delinquency Ratio
Ohio	$	1,922	2,011	1.45	%	$	1,876	2,057	1.44	%
Michigan		1,415	1,279	2.31			1,411	1,305	2.02
Indiana		619	604	2.11			635	648	1.91
Illinois		763	567	1.84			614	545	1.53
Kentucky		520	566	1.65			502	599	1.47
Florida		665	293	3.34			446	246	2.19
All other states		424	951	2.81			166	687	2.83

Total	$	6,328	6,271	2.05	%	$	5,650	6,087	1.78	%

As of September 30, 2008 the home equity portfolio contains $2.4 billion, or 19%, of brokered home equity balances primarily located in the Midwest. The Bancorp stopped origination of this product in 2007.

Analysis of Nonperforming Assets

A summary of nonperforming assets is included in Table 28. Nonperforming assets include: (i) nonaccrual loans and leases for which ultimate collectibility of the full amount of the principal and/or interest is uncertain; (ii) restructured consumer loans which have not yet met the requirements to be classified as a performing asset; and (iii) other assets, including other real estate owned and repossessed equipment. Loans are placed on nonaccrual status when the principal or interest is past due 90 days or more (unless the loan is both well secured and in process of collection) and payment of the full principal and/or interest under the contractual terms of the loan is not expected. Additionally, loans are placed on nonaccrual status upon deterioration of the financial condition of the borrower or upon the restructuring of the loan. When a loan is placed on nonaccrual status, the accrual of interest, amortization of loan premium, accretion of loan discount and amortization or accretion of deferred net loan fees or costs are discontinued and previously accrued but unpaid interest is reversed. Commercial loans on nonaccrual status are reviewed for impairment at least quarterly. If the principal or a portion of principal is deemed a loss, the loss amount is charged off to the allowance for loan and lease losses.

Total nonperforming assets were $2.8 billion at September 30, 2008, compared to $1.1 billion at December 31, 2007 and $706 million at September 30, 2007. Nonperforming assets as a percentage of total loans, leases and other assets, including other real estate owned, as of September 30, 2008 was 3.30% compared to 1.32% as of December 31, 2007 and .92% as of September 30, 2007. The composition of nonaccrual credits continues to be concentrated in real estate as 82% of nonaccrual credits were secured by real estate as of September 30, 2008 compared to approximately 84% as of December 31, 2007 and approximately 74% as of September 30, 2007.

Commercial nonaccrual credits increased from $431 million at September 30, 2007 and $672 million at December 31, 2007 to $1.9 billion as of September 30, 2008. Sequentially, commercial nonaccrual credits increased $447 million, or 30%. The majority of the increase was driven by the real estate and construction industries in the states of Florida and Michigan. These states combined represent 57% of total commercial nonaccrual credits as of September 30, 2008. As shown in Table 23, the real estate and construction industries contributed to approximately three-fourths of the year-over-year increase in nonaccrual credits. Of the $1.4 billion of real estate and construction nonaccrual credits, $702 million is related to homebuilders or developers. During 2008, due to the deterioration in real estate prices in Michigan and Florida, the Bancorp has charged off $239 million against the loans that make up homebuilder and developer nonaccrual credits and, as of September 30, 2008, has provided an additional $142 million in reserves held against these loans. For additional information on credit reserves, see the discussion on allowance for credit losses later in this section.

Consumer nonaccrual credits increased from $138 million as of September 30, 2007 and $221 million as of December 31, 2007 to $673 million as of September 30, 2008. Sequentially, consumer nonaccrual credits increased $171 million, or 34%. The increase in consumer nonperforming assets is primarily attributable to declines in the housing markets in the Michigan and Florida markets and the restructuring of certain high risk loans. Michigan and Florida accounted for 52% of the increase in consumer nonperforming assets and, as of September 30, 2008, represented 58% of total consumer nonperforming assets. The Bancorp has devoted significant attention to loss mitigation activities and has proactively restructured certain loans. Consumer restructured loans are recorded as nonaccrual credits until there is a sustained period of payment by the borrower, generally a minimum of six months of payments in accordance with the loans’ modified terms. Consumer restructured loans contributed approximately $427 million to nonaccrual loans as of September 30, 2008 compared to $22 million in restructured loans as of September 30, 2007.

Quantitative and Qualitative Disclosures About Market Risk (continued)

TABLE 28: Summary of Nonperforming Assets and Delinquent Loans


($ in millions)	September 30, 2008			December 31, 2007	September 30, 2007
Nonperforming loans and leases:
Commercial loans	$	550		175	175
Commercial mortgage loans		724		243	146
Commercial construction loans		636		249	105
Commercial leases		23		5	5
Residential mortgage loans		216		92	68
Home equity		27		45	45
Automobile loans		3		3	3
Other consumer loans and leases		—		1	—
Restructured loans and leases:
Residential mortgage loans		258		29	6
Home equity		142		46	16
Automobile loans		7		—	—
Credit card		20		5	—

Total nonaccrual loans and leases		2,606		893	569
Repossessed personal property		24		21	19
Other real estate owned		198		150	118

Total nonperforming assets	$	2,828		1,064	706

Commercial loans	$	109		44	45
Commercial mortgage loans		157		73	41
Commercial construction loans		84		67	54
Commercial leases		3		4	3
Residential mortgage loans (a)		185		186	116
Home equity		72		72	64
Automobile loans		16		13	24
Credit card		44		31	12
Other consumer loans and leases		1		1	1

Total 90 days past due loans and leases	$	671		491	360

Nonperforming assets as a percent of total loans, leases and other assets, including other real estate owned		3.30	%	1.32	.92
Allowance for loan and lease losses as a percent of total nonperforming assets		73		88	117

(a)

Information for all periods presented excludes advances made pursuant to servicing agreements to Government National Mortgage Association (“GNMA”) mortgage pools whose repayments are insured by the Federal Housing Administration or guaranteed by the Department of Veterans Affairs. As of September 30, 2008, December 31, 2007 and September 30, 2007, these advances were $32 million, $25 million and $19 million, respectively.

Analysis of Net Charge-offs

Net charge-offs as a percent of average loans and leases were 217 bp for the third quarter of 2008, compared to 89 bp for the fourth quarter of 2007 and 60 bp for the third quarter of 2007. Table 29 provides a summary of credit loss experience and net charge-offs as a percentage of average loans and leases outstanding by loan category.

The ratio of commercial loan net charge-offs to average commercial loans outstanding increased to 207 bp in the third quarter of 2008 compared to 66 bp in the fourth quarter of 2007 and 33 bp in the third quarter of 2007, as homebuilders, developers and related suppliers were affected by the downturn in the real estate markets. Charge-offs for the third quarter of 2008 included $163 million, or 61%, related to homebuilders and developers.

The ratio of consumer loan net charge-offs to average consumer loans outstanding increased to 233 bp in the third quarter of 2008 compared to 118 bp in the fourth quarter of 2007 and 93 bp in the third quarter of 2007. Residential mortgage charge-offs increased to $77 million in the third quarter of 2008 compared to $18 million in the fourth quarter of 2007 and $9 million in the third quarter of 2007, reflecting increased foreclosure rates in the Bancorp’s key lending markets coupled with an increase in severity of loss on mortgage loans. Florida, Michigan and Ohio continue to rank among the top states in total mortgage foreclosures. These foreclosures not only added to the volume of charge-offs, but also hampered the Bancorp’s ability to recover the value of the homes collateralizing the mortgages as they contributed to declining home prices. Florida affiliates continue to experience the most stress and accounted for over half of the residential mortgage charge-offs in the third quarter. While Michigan residential mortgage charge-offs remain elevated above historical norms, there was no increase in charge-offs in the third quarter of 2008 compared to the first and second quarters of 2008. Home equity charge-offs increased to $55 million and 177 bp of average loans, primarily due to increases in the Michigan and Florida affiliates and among those products originated through a broker channel. Brokered home equity loans represented 54% of home equity charge-offs during the third quarter of 2008 despite representing 19% of home equity lines and loans as of September 30, 2008. Management responded to the performance of the brokered home equity portfolio by reducing originations

Quantitative and Qualitative Disclosures About Market Risk (continued)

in 2007 of this product by 64% compared to 2006 and, at the end of 2007, eliminating this channel of origination. Management actively manages lines of credits and makes reductions in lending limits when it believes it is necessary based on FICO score deterioration and property devaluation. The ratio of automobile loan net charge-offs to average automobile loans was 151 bp for the third quarter of 2008, an increase of 60 bp compared to the third quarter 2007 displaying an expected increase due to a shift in the portfolio to a higher percentage of used automobiles and an increase in loss severity due to increased market depreciation of used automobiles. The net charge-off ratio on credit card balances increased compared to the same quarter last year as the Bancorp increased originations of card balances throughout the past year. The credit characteristics of the credit card portfolio have been maintained during the origination of new cards, including the weighted average FICO and average line outstanding, however, the Bancorp does expect the charge-off ratio to increase as the portfolio matures. The Bancorp employs a risk-adjusted pricing methodology to help ensure adequate compensation is received for those products that have higher credit costs.

TABLE 29: Summary of Credit Loss Experience


	For the three months ended September 30,					For the nine months ended September 30,
($ in millions)	2008			2007		2008			2007
Losses charged off:
Commercial loans	$	(89	)	(24	)	$	(237	)	(71	)
Commercial mortgage loans		(94	)	(8	)		(150	)	(30	)
Commercial construction loans		(88	)	(5	)		(209	)	(17	)
Commercial leases		—		—			—		(1	)
Residential mortgage loans		(77	)	(9	)		(175	)	(25	)
Home equity		(58	)	(29	)		(157	)	(70	)
Automobile loans		(40	)	(32	)		(118	)	(80	)
Credit card		(25	)	(14	)		(69	)	(37	)
Other consumer loans and leases		(10	)	(6	)		(24	)	(20	)

Total losses		(481	)	(127	)		(1,139	)	(351	)
Recoveries of losses previously charged off:
Commercial loans		4		1			9		10
Commercial mortgage loans		—		—			2		1
Commercial construction loans		—		—			—		—
Commercial leases		—		—			—		1
Residential mortgage loans		—		—			—		—
Home equity		3		2			6		6
Automobile loans		8		7			27		25
Credit card		1		1			5		6
Other consumer loans and leases		2		1			8		14

Total recoveries		18		12			57		63
Net losses charged off:
Commercial loans		(85	)	(23	)		(228	)	(61	)
Commercial mortgage loans		(94	)	(8	)		(148	)	(29	)
Commercial construction loans		(88	)	(5	)		(209	)	(17	)
Commercial leases		—		—			—		—
Residential mortgage loans		(77	)	(9	)		(175	)	(25	)
Home equity		(55	)	(27	)		(151	)	(64	)
Automobile loans		(32	)	(25	)		(91	)	(55	)
Credit card		(24	)	(13	)		(64	)	(31	)
Other consumer loans and leases		(8	)	(5	)		(16	)	(6	)

Total net losses charged off	$	(463	)	(115	)	$	(1,082	)	(288	)

Net charge-offs as a percent of average loans and leases (excluding held for sale):
Commercial loans		1.19	%	.41			1.11	%	.38
Commercial mortgage loans		2.82		.26			1.56		.36
Commercial construction loans		5.71		.35			4.81		.40
Commercial leases		(.03	)	(.01	)		(.02	)	.01

Total commercial loans		2.07		.33			1.57		.35

Residential mortgage loans		3.16		.41			2.33		.39
Home equity		1.77		.94			1.66		.72
Automobile loans		1.51		.91			1.41		.70
Credit card		5.45		3.59			5.06		3.40
Other consumer loans and leases		2.84		1.99			1.99		.49

Total consumer loans		2.33		.93			1.98		.72

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents