Fifth Third Bank 2005 Annual Report Download - page 29

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Fifth Third Bancorp 27
that may materially affect the Bancorp and its shareholders. Losses
on behalf of its customers could expose the Bancorp to credit risks
or could lead to the loss of revenue from those customers.
Additionally, substantial losses in the Bancorp’s trading and
investment positions could lead to a loss of relative liquidity with
respect to those positions and may adversely affect cash flows and
funding costs.
Changes in accounting standards could impact reported
earnings.
The accounting standard setters, including the FASB, SEC and
other regulatory bodies, periodically change the financial
accounting and reporting standards that govern the preparation of
the Bancorp’s consolidated financial statements. These changes
can be hard to predict and can materially impact how it records and
reports its financial condition and results of operations. In some
cases, the Bancorp could be required to apply a new or revised
standard retroactively, resulting in the restatement of prior period
financial statements.
The preparation of Fifth Third’s financial statements requires
the use of estimates that may vary from actual results.
The preparation of consolidated financial statements in conformity
with accounting principles generally accepted in the United States
of America requires management to make significant estimates that
affect the financial statements. Two of the Bancorp’s most critical
estimates are the level of the allowance for credit losses and the
valuation of mortgage servicing rights. Due to the inherent nature
of these estimates, the Bancorp cannot provide absolute assurance
that it will not significantly increase the allowance for credit losses
and/or sustain credit losses that are significantly higher than the
provided allowance, nor that it will not recognize a significant
provision for impairment of its mortgage servicing rights. For
more information on the sensitivity of these estimates, refer to the
Critical Accounting Policies section.
Fifth Third’s stock price is volatile.
The Bancorp’s stock price has been volatile in the past, and several
factors could cause the price to fluctuate substantially in the future.
These factors include:
• Actual or anticipated variations in earnings
• Changes in analysts’ recommendations or projections
• The Bancorp’s announcements of developments related to its
businesses
• Operating and stock performance of other companies deemed to
be peers
• New technology used or services offered by traditional and non-
traditional competitors
• News reports of trends, concerns and other issues related to the
financial services industry
The Bancorp’s stock price may fluctuate significantly in the future,
and these fluctuations may be unrelated to the Bancorp’s
performance. General market price declines or market volatility in
the future could adversely affect the price of its common stock,
and the current market price may not be indicative of future
market prices.
Any future acquisitions will dilute current shareholders’
ownership of Fifth Third and may cause Fifth Third to
become more susceptible to adverse economic events.
Future business acquisitions could be material to the Bancorp and
it may issue additional shares of common stock to pay for those
acquisitions, which would dilute current shareholders’ ownership
interest. Acquisitions also could require the Bancorp to use
substantial cash or other liquid assets or to incur debt. In those
events, it could become more susceptible to economic downturns
and competitive pressures.
Difficulties in combining the operations of acquired entities
with Fifth Third’s own operations may prevent Fifth Third
from achieving the expected benefits from its acquisitions.
The Bancorp may not be able to achieve fully the strategic
objectives and operating efficiencies in an acquisition. Inherent
uncertainties exist in integrating the operations of an acquired
entity. In addition, the markets and industries in which the Bancorp
and its potential acquisition targets operate are highly competitive.
The Bancorp may lose customers or the customers of acquired
entities as a result of an acquisition. Fifth Third also may lose key
personnel, either from the acquired entity or from itself, as a result
of an acquisition. These factors could contribute to Fifth Third not
achieving the expected benefits from its acquisitions within desired
time frames, if at all.