Company: FITBI
Filing Date: 2025-02-24
Form Type: 10-K
Source: 0000035527-25-000079
Chunk: 487

Company: FIFTH THIRD BANCORP
Filing Date: 2025-02-24
Form: 10-K
Item: Item 7
Chunk 487
---
orp’s hedging strategy:

TABLE 10:  Components of Net Valuation Adjustments on MSRsFor the years ended December 31 ($ in millions)202420232022Changes in fair value and settlement of free-standing derivatives purchased to economically hedge the MSR portfolio$(88)(43)(363)Changes in fair value:Due to changes in inputs or assumptions(a)74 43 355 Other changes in fair value(b)(151)(148)(178)Net valuation adjustments on MSRs and free-standing derivatives purchased to economically hedge MSRs$(165)(148)(186)

(a)Primarily reflects changes in prepayment speed and OAS assumptions which are updated based on market interest rates.

(b)Primarily reflects changes due to realized cash flows and the passage of time.

For the years ended December 31, 2024 and 2023, the Bancorp recognized losses of $77 million and $105 million, respectively, in mortgage banking net revenue for valuation adjustments on the MSR portfolio. The valuation adjustments on the MSR portfolio included increases of $74 million and $43 million for the years ended December 31, 2024 and 2023, respectively, due to changes in market rates and other inputs in the valuation model, including future prepayment speeds and OAS assumptions. Mortgage rates decreased during the year ended December 31, 2024 which caused an increase in prepayment speeds. The fair value of the MSR portfolio also decreased $151 million and $148 million as a result of contractual principal payments and actual prepayment activity for the years ended December 31, 2024 and 2023, respectively.

Further detail on the valuation of MSRs can be found in Note 13 of the Notes to Consolidated Financial Statements. The Bancorp maintains a non-qualifying hedging strategy to manage a portion of the risk associated with changes in the valuation of the MSR portfolio. Refer to Note 14 of the Notes to Consolidated Financial Statements for more information on the free-standing derivatives used to economically hedge the MSR portfolio. In addition to the derivative positions used to economically hedge the MSR portfolio, the Bancorp acquires various securities as a component of its non-qualifying hedging strategy. Net gains and losses on these securities were immaterial during both the years ended December 31, 2024 and 2023 and were a net loss of $2 million during the year ended December 31, 2022.

The Bancorp’s total residential mortgage loans serviced at December 31,