MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Consumer Lending  Comparison of 2010 with 2009 Comparison of 2009 with 2008 38 Fifth Third Bancorp Average residential mortgage loans and average automobile  loans remained relatively flat compared to 2008. Net charge-offs  as a percent of average loan and leases increased from 223 bp in  2008 to 313 bp in 2009. The increase in salaries, incentives and benefits compared to  2008 was driven by employee costs that were necessary to manage  the increase in residential mortgage originations. The $56 million  increase in other noninterest expense compared to 2008 is  attributed to a $20 million increase in loan processing costs as a  result of increased mortgage originations and $36 million in other  credit related expenses and an increase in FDIC insurance  expenses.  Noninterest income increased $35 million, or six percent, as  the result of an increase in mortgage banking net revenue partially  offset by a decrease in other noninterest income. Mortgage  banking net revenue increased $93 million, or 18%, from 2009  primarily due to an $89 million increase in net servicing revenue.  The increase in net servicing revenue was driven by a $56 million  increase in net valuation adjustments on MSRs and MSR  derivatives and a $24 million increase in servicing fees. Residential  mortgage loans serviced for others at December 31, 2010 and  2009 were $54.2 billion and $48.6 billion, respectively. Other  Provision for loan and lease losses increased $8 million, or  one percent, from 2009. Net charge-offs as a percent of average  loans and leases decreased from 313 bp in 2009 to 309 bp in 2010.  The increase in provision for loan and lease losses from the prior  year was the result of a 23% increase in net charge-offs on  residential mortgage loans primarily due to $123 million in charge- offs taken on $228 million of portfolio loans which were sold  during the third quarter of 2010. Automobile loan net charge-offs  decreased $44 million compared to 2009 as a result of tighter  underwriting standards implemented in 2008, maturation of the  automobile portfolio and higher resale values on automobiles sold  at auction. Home equity net charge-offs decreased $24 million  from 2009 due to run off of brokered home equity loans, the  origination of which were discontinued in 2007.  Mortgage banking net revenue increased $342 million due to  an increase in residential mortgage originations from $11.2 billion  in 2008 to $20.7 billion in 2009 due to lower interest rates and  government incentive programs offered to home buyers as well as  higher sales margins on sold loans. The decrease in other  noninterest income to $101 million in 2009 is attributable to  decreases in securities gains related to mortgage servicing rights  hedging activities. Consumer Lending reported a net loss of $40 million in 2010  compared to net income of $23 million in 2009 due to a decrease  in net interest income and an increase in noninterest expense  partially offset by an increase in noninterest income. Net interest  income decreased $76 million, or 15%, from 2009 primarily due to  a decrease in yields on average interest earning assets, which  includes the impact of a $21 million decrease in the accretion of  discounts on loans associated with the acquisition of First Charter  in 2008, partially offset by a decrease in funding costs during 2010. Net interest income increased $13 million in 2009 primarily  due to a decrease in funding costs driven by low interest rates  throughout 2009 partially offset by a decrease of $17 million on  the accretion of discounts on loans and deposits associated with  the acquisition of First Charter in 2008.  Consumer Lending reported net income of $23 million in 2009  compared to a net loss of $148 million in 2008 primarily due to a  goodwill impairment charge of $215 million taken in 2008. In  addition, increases in net interest income and mortgage banking  net revenue in 2009 more than offset the growth in provision for  loan and lease losses. Average consumer loans were flat compared to 2009 as a  $1.7 billion increase in automobile loans was offset by decreases in  all other consumer loan and lease products. Average residential  mortgage loans decreased $1.3 billion from 2009 due to a decrease  in origination activity during the first half of 2010. Average home  equity loans decreased $144 million from 2009 due to the  previously mentioned run off of brokered home equity loans. The  increase in automobile loans was due to a change in U.S. GAAP  that required the Bancorp to consolidate certain automobile loans  on January 1, 2010 and a strategic focus to increase automobile  lending during 2010 through consistent and competitive pricing,  enhanced customer service with our dealership network and  disciplined sales execution. The automobile loans consolidated  due to the change in U.S. GAAP had an average balance of $920  million during 2010. Average consumer leases decreased $245  million due to run off of consumer leases which were discontinued in the fourth quarter of 2008.  Noninterest expense increased $48 million, or nine percent,  due to increases in salaries, incentives and benefits and other  noninterest expense. Salaries, incentives and benefits increased  $13 million, or seven percent, from 2009 due to the continued  high levels of mortgage loan originations in 2010. Other  noninterest expense increased $35 million, or 11%, from 2009  primarily as a result of a $48 million increase in the representation  and warranty reserve partially offset by a $13 million decrease in  loan and lease expense.  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 and automobile dealers. The following table  contains selected financial data for the Consumer Lending  segment.  noninterest income decreased $58 million, or 57%, primarily due  to decreases in securities gains related to mortgage servicing rights  hedging activities and an increase in bankcard rewards program  costs recognized within fee income. For the years ended December 31 ($ in millions)  2010  2009 2008 Income Statement Data  Net interest income $418  494 481 Provision for loan and lease losses  582  574 441 Noninterest income:  Mortgage banking net revenue  619  526 184 Other noninterest income 43  101 167 Noninterest expense:  Salaries, incentives and benefits  200  187 137 Goodwill impairment  -  - 215 Other noninterest expense  359  324 268 Income (loss) before taxes  (61)  36 (229) Applicable income tax expense  (benefit)  (21)  13 (81) Net income (loss)  ($40)  $23 (148) Average Balance Sheet Data  Residential mortgage loans  $9,384  10,650 10,698 Home equity  851  995 1,142 Automobile loans  9,713  8,024 7,984 Consumer leases 384  629 797 TABLE 16: CONSUMER LENDING 