SunTrust 2014 Annual Report Download - page 132

Notes to Consolidated Financial Statements, continued
109
Other Intangible Assets
Changes in the carrying amounts of other intangible assets for the years ended December 31 are as follows:
(Dollars in millions) Core Deposit
Intangibles MSRs - Fair Value Other Total
Balance, January 1, 2014 $4 $1,300 $30 $1,334
Amortization (4) — (8) (12)
MSRs originated — 178 — 178
MSRs purchased — 130 — 130
Changes in fair value:
Due to changes in inputs and assumptions 1— (234) — (234)
Other changes in fair value 2— (167) — (167)
Sale of MSRs — (1) — (1)
Sale of RidgeWorth — — (9) (9)
Balance, December 31, 2014 $— $1,206 $13 $1,219
Balance, January 1, 2013 $17 $899 $40 $956
Amortization (13) — (10) (23)
MSRs originated — 352 — 352
Changes in fair value:
Due to changes in inputs and assumptions 1— 302 — 302
Other changes in fair value 2— (252) — (252)
Sale of MSRs — (1) — (1)
Balance, December 31, 2013 $4 $1,300 $30 $1,334
1 Primarily reflects changes in discount rates and prepayment speed assumptions, due to changes in interest rates.
2 Represents changes due to the collection of expected cash flows, net of accretion, due to the passage of time.
The Company's estimated future amortization expense for
intangible assets subject to amortization is immaterial, based on
existing asset balances at December 31, 2014.
Mortgage Servicing Rights
The Company retains MSRs from certain of its sales or
securitizations of residential mortgage loans. MSRs on
residential mortgage loans are the only servicing assets
capitalized by the Company and are classified within intangible
assets on the Company's Consolidated Balance Sheets.
Income earned by the Company on its MSRs is derived
primarily from contractually specified mortgage servicing fees
and late fees, net of curtailment costs. Such income earned for
the years ended December 31, 2014, 2013, and 2012 was $329
million, $317 million, and $333 million, respectively. These
amounts are reported in mortgage servicing related income in
the Consolidated Statements of Income.
At December 31, 2014 and 2013, the total UPB of mortgage
loans serviced was $142.1 billion and $136.7 billion,
respectively. Included in these amounts were $115.5 billion and
$106.8 billion at December 31, 2014 and 2013, respectively, of
loans serviced for third parties. During the years ended December
31, 2014 and 2013, the Company sold MSRs, at a price
approximating their fair value, on residential loans with a UPB
of $878 million and $2.8 billion, respectively. The Company
purchased MSRs on residential loans with a UPB of $10.9 billion
during the year ended December 31, 2014. No MSRs were
purchased during the year ended December 31, 2013.
The Company determines the fair value of the MSRs using
a valuation model that calculates the present value of estimated
future net servicing income. The model incorporates a number
of assumptions as MSRs do not trade in an active and open
market with readily observable prices. The Company determines
fair value using prepayment projections, spreads, and other
assumptions that are compared to various sources of market data
including independent third party valuations and industry
surveys. Senior management and the STM Valuation Committee
review all significant assumptions at least quarterly, since many
factors can affect the fair value of MSRs. Changes to the
valuation model inputs and assumptions are reflected in the
periods' results.
A summary of the key characteristics, inputs, and economic
assumptions used to estimate the fair value of the Company’s
MSRs at December 31, 2014 and 2013, and the sensitivity of the
fair values to immediate 10% and 20% adverse changes in those
assumptions, are shown in the following table.
(Dollars in millions) December 31,
2014 December 31,
2013
Fair value of retained MSRs $1,206 $1,300
Prepayment rate assumption (annual) 11% 8%
Decline in fair value from 10%
adverse change $46 $38
Decline in fair value from 20%
adverse change 88 74
Option adjusted spread/discount rate
(annual) 110% 12%
Decline in fair value from 10%
adverse change $55 $66
Decline in fair value from 20%
adverse change 105 126
Weighted-average life (in years) 6.4 7.7
Weighted-average coupon 4.2% 4.4%
1 Option adjusted spread was a key assumption used to estimate the fair value of the
Company's MSRs at December 31, 2014. At December 31, 2013, a discount rate was used.