PNC Bank 2010 Annual Report Download - page 152
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Please find page 152 of the 2010 PNC Bank annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.Amortization expense on existing intangible assets, net of
impairment reversal (charge) follows:
Amortization Expense on Existing Intangible Assets (a)
In millions
2008 $210
2009 296
2010 264
Estimated:
2011 256
2012 218
2013 205
2014 197
2015 186
(a) Net of impairment reversal (charge).
Changes in commercial mortgage servicing rights follow:
Commercial Mortgage Servicing Rights
In millions 2010 2009
January 1 $ 921 $ 864
Additions (a) 83 121
Acquisition adjustment 1
Sale of servicing rights (192)
Impairment (charge) reversal (40) 35
Amortization expense (107) (100)
December 31 $ 665 $ 921
(a) Additions for 2010 included $45 million from loans sold with servicing retained and
$38 million from purchases of servicing rights from third parties. Comparable
amounts for 2009 were $92 million and $29 million.
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 accounted for 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 the residential mortgage servicing rights follow:
Residential Mortgage Servicing Rights
In millions 2010 2009
January 1 $ 1,332 $ 1,008
Additions:
From loans sold with servicing retained 95 261
Sales (74)
Changes in fair value due to:
Time and payoffs (a) (185) (264)
Purchase accounting adjustments 17
Other (b) (209) 384
December 31 $ 1,033 $ 1,332
Unpaid principal balance of loans serviced
for others at December 31 $125,806 $146,050
(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. Residential mortgage servicing rights are
accounted for using the fair value method. 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.
The fair value of residential and commercial MSRs and
significant inputs to the valuation model as of December 31,
2010 are shown in the tables below. The expected and actual
rates of mortgage loan prepayments are significant factors
driving the fair value. Management uses a third party model to
estimate future residential mortgage loan prepayments and
internal proprietary models to estimate future commercial
mortgage loan prepayments. These models have been refined
based on historical performance of PNC’s managed portfolio,
as adjusted for current market conditions. Future interest rates
are another important factor in the valuation of MSRs.
Management utilizes market implied forward interest rates to
estimate the future direction of mortgage and discount rates.
Changes in the shape and slope of the forward curve in future
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