US Bank 2008 Annual Report Download - page 87

The fair value of MSRs and their 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, 2008, was as follows:
(Dollars in Millions) MRBP Government Conventional Total
Servicing portfolio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $12,561 $14,746 $93,032 $120,339
Fair value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 223 $ 166 $ 805 $ 1,194
Value (bps) (a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 178 113 87 99
Weighted-average servicing fees (bps) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40 40 32 34
Multiple (value/servicing fees) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.45 2.83 2.72 2.91
Weighted-average note rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.94% 6.23% 6.01% 6.03%
Age(inyears)............................................... 3.2 2.6 2.8 2.8
Expected life (in years) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.3 3.6 3.5 3.9
Discount rate. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11.5% 11.3% 10.3% 10.5%
(a) Calculated as fair value divided by the unpaid principal balance of the loans serviced, expressed in hundredths.
Note 11 INTANGIBLE ASSETS
Intangible assets consisted of the following:
December 31 (Dollars in Millions)
Estimated
Life (a)
Amortization
Method (b) 2008 2007
Balance
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 8,571 $ 7,647
Merchant processing contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 years/8 years SL/AC 564 704
Core deposit benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 years/6 years SL/AC 376 154
Mortgage servicing rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (c) 1,194 1,462
Trust relationships . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 years/7 years SL/AC 277 346
Other identified intangibles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 years/5 years SL/AC 423 377
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $11,405 $10,690
(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) 2008 2007 2006
Merchant processing contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $136 $154 $149
Core deposit benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67 68 65
Trust relationships . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68 76 71
Other identified intangibles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84 78 70
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $355 $376 $355
The estimated amortization expense for the next five years is as follows:
(Dollars in Millions)
2009 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $353
2010 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 289
2011 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 234
2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 188
2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 157
U.S. BANCORP 85