US Bank 2011 Annual Report Download - page 97

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Changes in fair value of capitalized MSRs for the years ended December 31, are summarized as follows:
(Dollars in Millions) 2011 2010 2009
Balance at beginning of period ............................................................................. $1,837 $1,749 $1,194
Rights purchased ........................................................................................ 35 65 101
Rights capitalized ........................................................................................ 619 639 848
Changes in fair value of MSRs
Due to change in valuation assumptions (a) ........................................................... (586) (249) (15)
Other changes in fair value (b)......................................................................... (386) (367) (379)
Balance at end of period ................................................................................... $1,519 $1,837 $1,749
(a) Principally reflects changes in prepayment speeds, and to a lessor extent, changes in discount rates and escrow earnings assumptions, primarily arising from interest rate changes.
(b) Primarily represents changes due to collection/realization of expected cash flows over time (decay).
The estimated sensitivity to changes in interest rates of the fair value of the MSRs portfolio and the related derivative instruments
as of December 31 follows:
2011 2010
(Dollars in Millions)
Down
50 bps
Down
25 bps
Up
25 bps
Up
50 bps
Down
50 bps
Down
25 bps
Up
25 bps
Up
50 bps
Net fair value ................................ $21 $6 $– $6 $6 $(5) $5 $1
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 government-insured mortgages, conventional
mortgages and Mortgage Revenue Bond Programs ("MRBP").
The servicing portfolios are predominantly comprised of
fixed-rate agency loans with limited adjustable-rate or jumbo
mortgage loans. 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.
A summary of the Company's MSRs and related characteristics by portfolio as of December 31 follows:
2011 2010
(Dollars in Millions) MRBP Government Conventional (b) Total MRBP Government Conventional (b) Total
Servicing portfolio .................. $13,357 $32,567 $145,158 $191,082 $12,646 $28,880 $132,393 $173,919
Fair market value ................... $ 155 $ 290 $ 1,074 $ 1,519 $ 166 $ 342 $ 1,329 $ 1,837
Value (bps) (a) ...................... 116 89 74 79 131 118 100 106
Weighted-average servicing
fees (bps) ........................ 40 36 29 31 40 38 30 32
Multiple (value/servicing fees) ...... 2.90 2.47 2.55 2.55 3.28 3.11 3.33 3.31
Weighted-average note rate ........ 5.50% 5.08% 4.97% 5.03% 5.75% 5.35% 5.27% 5.32%
Age (in years) ....................... 4.2 2.5 2.8 2.8 4.1 2.2 2.7 2.7
Expected prepayment (constant
prepayment rate) ................ 12.9% 21.1% 22.1% 21.3% 12.3% 17.2% 16.2% 16.1%
Expected life (in years) ............. 6.4 4.0 3.8 4.0 6.7 5.1 5.3 5.4
Discount rate ....................... 12.1% 11.3% 10.0% 10.4% 11.9% 11.4% 10.3% 10.6%
(a) Value is calculated as fair market value divided by the servicing portfolio
(b) Represents loans sold to government sponsored enterprises.
NOTE 11 Intangible Assets
Intangible assets consisted of the following:
Estimated
Life (a)
Amortization
Method (b)
Balance
At December 31 (Dollars in Millions) 2011 2010
Goodwill .................................................................. (c) $ 8,927 $ 8,954
Merchant processing contracts ........................................... 10 years/8 years SL/AC 348 421
Core deposit benefits ..................................................... 18 years/5 years SL/AC 232 283
Mortgage servicing rights ................................................. (c) 1,519 1,837
Trust relationships ........................................................ 10 years/6 years SL/AC 166 200
Other identified intangibles ............................................... 9 years/5 years SL/AC 471 472
Total .................................................................... $11,663 $12,167
(a) Estimated life represents the amortization period for assets subject to the straight line method and the weighted average or life of the underlying cash flows 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) Goodwill is evaluated for impairment, but not amortized. Mortgage servicing rights are recorded at fair value, and are not amortized.
U.S. BANCORP 95