US Bank 2007 Annual Report Download - page 87

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The fair value of MSRs and its sensitivity to changes in
interest rates is influenced by the mix of the servicing
portfolio and characteristics of each segment of the
portfolio. The Company’s servicing portfolio consists of the
distinct portfolios of Mortgage Revenue Bond Programs
(“MRBP”), government-insured mortgages and conventional
mortgages. The MRBP division specializes in servicing loans
made under state and local housing authority programs.
These programs provide mortgages to low-income and
moderate-income borrowers and are generally government-
insured programs with a favorable rate subsidy, down
payment and/or closing cost assistance. Mortgage loans
originated as part of government agency and state loans
programs tend to experience slower prepayment rates and
better cash flows than conventional mortgage loans. The
servicing portfolios are predominantly comprised of fixed-
rate agency loans (FNMA, FHLMC, GNMA, FHLB and
various housing agencies) with limited adjustable-rate or
jumbo mortgage loans.
A summary of the Company’s MSRs and related characteristics by portfolio as of December 31, 2007, was as follows:
(Dollars in Millions) MRBP Government Conventional Total
Servicing portfolio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $10,926 $10,171 $75,917 $97,014
Fair market value. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 231 $ 166 $ 1,065 $ 1,462
Value (bps) *. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 211 163 140 151
Weighted-average servicing fees (bps) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40 41 32 34
Multiple (value/servicing fees) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.28 3.98 4.38 4.44
Weighted-average note rate. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.92% 6.27% 5.99% 6.01%
Age(inyears)................................................ 2.9 3.1 2.7 2.8
Expected life (in years) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9.0 6.2 6.3 6.6
Discount rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11.1% 10.9% 10.0% 10.2%
* Value is calculated as fair market value divided by the servicing portfolio.
Note 10 INTANGIBLE ASSETS
Intangible assets consisted of the following:
December 31 (Dollars in Millions)
Estimated
Life (a)
Amortization
Method (b) 2007 2006
Balance
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 7,647 $ 7,538
Merchant processing contracts . . . . . . . . . . . . . . . . . . . . . . . . .... 9years/8 years SL/AC 704 797
Core deposit benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .... 11years/5 years SL/AC 154 212
Mortgage servicing rights (c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,462 1,427
Trust relationships. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .... 15years/7 years SL/AC 346 431
Other identified intangibles . . . . . . . . . . . . . . . . . . . . . . . . . . . .... 8years/5 years SL/AC 377 360
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $10,690 $10,765
(a) Estimated life represents the amortization period for assets subject to the straight line method and the weighted average amortization period for intangibles subject to accelerated methods. If
more than one amortization method is used for a category, the estimated life for each method is calculated and reported separately.
(b) Amortization methods: SL = straight line method
AC = accelerated methods generally based on cash flows
(c) Mortgage servicing rights are recorded at fair value, and are not amortized.
Aggregate amortization expense consisted of the following:
Year Ended December 31 (Dollars in Millions) 2007 2006 2005
Merchant processing contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $154 $149 $138
Core deposit benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68 65 74
Mortgage servicing rights (a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . – – 144
Trust relationships . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76 71 47
Other identified intangibles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78 70 55
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $376 $355 $458
(a) Effective January 1, 2006, mortgage servicing rights are recorded at fair value and are no longer amortized. The year ended December 31, 2005, includes mortgage servicing rights
reparation of $53 million.
U.S. BANCORP 85