RISK FACTORS The risks listed here are not the only risks that Fifth Third faces.  Additional risks that are not presently known or that Fifth Third  presently deems to be immaterial could also have a material,  adverse impact on its financial condition, the results of its  operations, or its business.  If the strength of the U.S. economy in general and the strength of  the local economies in which Fifth Third conducts operations  declines or does not improve in a reasonable time frame, this  could result in, among other things, a deterioration in credit  quality or a reduced demand for credit, including a resultant effect  on Fifth Third’s loan portfolio and ALLL and in the receipt of  lower proceeds from the sale of loans and foreclosed properties.  A significant portion of Fifth Third’s residential mortgage and  commercial real estate loan portfolios are comprised of borrowers  in Michigan, Northern Ohio and Florida, which markets have  been particularly adversely affected by job losses, declines in real  estate value, declines in home sale volumes, and declines in new  home building. These factors could result in higher delinquencies,  greater charge-offs and increased losses on the sale of foreclosed  real estate in future periods, which could materially adversely  affect Fifth Third’s financial condition and results of operations.  Fifth Third’s income and cash flows depend to a great extent on  the difference between the interest rates earned on interest- earning assets such as loans and investment securities, and the  interest rates paid on interest-bearing liabilities such as deposits  and borrowings. These rates are highly sensitive to many factors  that are beyond Fifth Third’s control, including general economic  conditions and the policies of various governmental and regulatory agencies (in particular, the FRB). Changes in monetary  policy, including changes in interest rates, will influence the  origination of loans, the prepayment speed of loans, the purchase  of investments, the generation of deposits and the rates received  on loans and investment securities and paid on deposits or other  sources of funding. The impact of these changes may be  magnified if Fifth Third does not effectively manage the relative  sensitivity of its assets and liabilities to changes in market interest  rates. Fluctuations in these areas may adversely affect Fifth Third  and its shareholders.  Fifth Third enters into and maintains trading and investment  positions in the capital markets on its own behalf and manages  investment positions on behalf of its customers. These investment  positions include derivative financial instruments. The revenues  and profits Fifth Third derives from managing proprietary and  customer trading and investment positions are dependent on  market prices. If Fifth Third does not correctly anticipate market  changes and trends, Fifth Third may experience a decline in  investment advisory revenue or investment or trading losses that  may materially affect Fifth Third. Losses on behalf of its  customers could expose Fifth Third to litigation, credit risks or  loss of revenue from those customers. Additionally, substantial  losses in Fifth Third’s trading and investment positions could lead  to a loss with respect to those investments and may adversely  affect cash flows and funding costs.  The Federal Government has intervened in an unprecedented  manner to stimulate economic growth. Some of these activities  have included the following:  • Target fed funds rates which have remained close to  zero percent;  • Mortgage rates that have remained at historical lows in  part due to the Federal Reserve Bank of New York’s  $1.25 trillion mortgage-backed securities purchase program;  • Bank funding that has remained stable through an  increase in FDIC deposit insurance to a covered limit  of $250,000 per account from the previous coverage  limit of $100,000; and  • Housing demand that has been stimulated by homebuyer tax credits. The expiration or rescission of any of these programs may  have an adverse impact on Fifth Third’s operating results by  increasing interest rates, increasing the cost of funding, and  reducing the demand for loan products, including mortgage loans.  The commercial soundness of many financial institutions may be  closely interrelated as a result of credit, trading, clearing or other  relationships between the institutions. As a result, concerns about,  or a default or threatened default by, one institution could lead to  significant market-wide liquidity and credit problems, losses or  defaults by other institutions. This is sometimes referred to as  “systemic risk” and may adversely affect financial intermediaries,  such as clearing agencies, clearing houses, banks, securities firms  and exchanges, with which the Bancorp interacts on a daily basis,  and therefore could adversely affect Fifth Third. Fifth Third’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;  • Fifth Third’s announcements of developments related to  its businesses;  • Operating and stock performance of other companies  deemed to be peers; • Actions by government regulators;  • New technology used or services offered by traditional  and non-traditional competitors; and  • News reports of trends, concerns and other issues  related to the financial services industry.  The price for shares of Fifth Third’s common stock may fluctuate  significantly in the future, and these fluctuations may be unrelated  to Fifth Third’s performance. General market price declines or  market volatility in the future could adversely affect the price for  shares of Fifth Third’s common stock, and the current market  price of such shares may not be indicative of future market prices.  23 Fifth Third Bancorp  RISKS RELATING TO ECONOMIC AND MARKET  CONDITIONS  Weakness in the economy and in the real estate market,  including specific weakness within Fifth Third’s geographic  footprint, has adversely affected Fifth Third and may  continue to adversely affect Fifth Third.  Changes in interest rates could affect FifthThird’s income  and cash flows.  Changes and trends in the capital markets may affect Fifth  Third’s income and cash flows. Problems encountered by financial institutions larger thanor  similar to Fifth Third could adversely affect financial  markets generally and have indirect adverse effects on Fifth  Third. Fifth Third’s stock price is volatile.  The removal or reduction in stimulus activities sponsored by  the Federal Government and its agents may have a negative  impact on Fifth Third’s results and operations.  MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS