PNC Bank 2009 Annual Report Download - page 132

For customer-related intangibles, the estimated remaining
useful lives range from less than one year to 11 years, with a
weighted-average remaining useful life of approximately 10
years.
Amortization expense on intangible assets, net of impairment
reversal (charge), for 2009, 2008, and 2007 was $296 million,
$210 million and $159 million, respectively. Amortization
expense related to the discontinued operations of GIS was $17
million in 2009, $18 million in 2008, and $14 million in 2007.
Amortization expense on existing intangible assets for 2010
through 2014 is estimated to be as follows:
• 2010: $292 million,
• 2011: $245 million,
• 2012: $251 million,
• 2013: $231 million, and
• 2014: $208 million.
Changes in commercial mortgage servicing rights follow:
Commercial Mortgage Servicing Rights
In millions 2009 2008
January 1 $ 864 $694
Additions 121 303
Acquisition adjustment 1(3)
Impairment reversal (charge) 35 (35)
Amortization expense (100) (95)
Net carrying amount at December 31 $ 921 $864
We recognize as an other intangible asset the right to service
mortgage loans for others. Commercial mortgage servicing
rights are purchased in the open market and originated when
loans are sold with servicing retained. Commercial mortgage
servicing rights are initially recorded at fair value. These
rights are subsequently measured using the amortization
method. Accordingly, the commercial mortgage servicing
rights are substantially amortized in proportion to and over the
period of estimated net servicing income over a period of 5 to
10 years.
Commercial mortgage servicing rights are periodically
evaluated for impairment. For purposes of impairment, the
commercial mortgage servicing rights are stratified based on
asset type, which characterizes the predominant risk of the
underlying financial asset. If the carrying amount of any
individual stratum exceeds its fair value, a valuation reserve is
established with a corresponding charge to Corporate services
on our Consolidated Income Statement.
The fair value of commercial mortgage servicing rights is
estimated by using an internal valuation model. The model
calculates the present value of estimated future net servicing
cash flows considering estimates on servicing revenue and
costs, discount rates and prepayment speeds.
Changes in residential mortgage servicing rights follow:
Residential Mortgage Servicing Rights
In millions 2009 2008
January 1 $ 1,008 $4
Additions:
From loans sold with
servicing retained 261
Acquisitions 1,006
Sales (74)
Changes in fair value due to:
Time and payoffs (a) (264)
Purchase accounting adjustments 17
Other (b) 384 (2)
December 31 $ 1,332 $ 1,008
Unpaid principal balance of loans serviced
for others at December 31 $146,050 $173,658
(a) Represents decrease in mortgage servicing rights value due to passage of time,
including the impact from both regularly scheduled loan principal payments and
loans that paid down or paid off during the period.
(b) Represents mortgage servicing rights value changes resulting primarily from
market-driven changes in interest rates.
We recognize mortgage servicing right assets on residential
real estate loans when we retain the obligation to service these
loans upon sale and the servicing fee is more than adequate
compensation. Mortgage servicing rights are subject to
declines in value principally from actual or expected
prepayment of the underlying loans and defaults. We manage
this risk by economically hedging the fair value of mortgage
servicing rights with securities and derivative instruments
which are expected to increase in value when the value of
mortgage servicing rights declines.
The fair value of residential mortgage servicing rights is
estimated by using third party software with internal valuation
assumptions. The software calculates the present value of
estimated future net servicing cash flows considering
estimates on servicing revenue and costs, discount rates,
prepayment speeds and future mortgage rates.
Revenue from mortgage and other loan servicing generated
contractually specified servicing fees, late fees, and ancillary
fees totaling $682 million for 2009, $148 million for 2008 and
$145 million for 2007. We also generate servicing revenue
from fee-based activities provided to others. Revenue from
commercial mortgage servicing rights, residential mortgage
servicing rights and other loan servicing are reported on our
Consolidated Income Statement in the line items Corporate
services, Residential mortgage, and Consumer services,
respectively.
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