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Goodwill and Other Intangible Assets

6 Months Ended

Jun. 30, 2012

Goodwill and Other Intangible Assets [Abstract]

Note 10 Goodwill and Other Intangible Assets

Changes in goodwill by business segment during the first six months of 2012 follow:

Table 101: Changes in Goodwill by Business Segment (a)

				Corporate &		Asset		Residential
		Retail		Institutional		Management		Mortgage
In millions		Banking		Banking		Group		Banking		Other		Total
December 31, 2011		$	5,394	$	2,763	$	69	$	43	$	16	$	8,285
RBC Bank (USA) Acquisition			426		470				2		46		944
Other			(29)		(21)		(5)				(16)		(71)
June 30, 2012		$	5,791	$	3,212	$	64	$	45	$	46	$	9,158
(a)	The Non-Strategic Assets Portfolio business segment does not have any goodwill allocated to it.

Changes in goodwill and other intangible assets during the first six months of 2012 follow:

Table 102: Summary of Changes in Goodwill and Other Intangible Assets

				Customer-		Servicing
In millions		Goodwill		Related		Rights
December 31, 2011		$	8,285	$	742	$	1,117
Additions/adjustments:
	RBC Bank (USA) Acquisition		944		164		16
	Other (a)		(71)
	Mortgage and other loan servicing rights						(57)
	Net impairment charge						(33)
	Amortization				(82)		(63)
June 30, 2012		$	9,158	$	824	$	980
(a)	Primarily related to correction of amount for an acquisition affecting prior periods.

Assets and liabilities of acquired entities are recorded at estimated fair value as of the acquisition date.

The gross carrying amount, accumulated amortization and net carrying amount of other intangible assets by major category consisted of the following:

Table 103: Other Intangible Assets

				June 30		December 31
In millions				2012		2011
Customer-related and other intangibles
	Gross carrying amount			$	1,689	$	1,525
	Accumulated amortization				(865)		(783)
		Net carrying amount		$	824	$	742
Mortgage and other loan servicing rights
	Gross carrying amount			$	1,955	$	2,009
	Valuation allowance				(206)		(197)
	Accumulated amortization				(769)		(695)
		Net carrying amount		$	980	$	1,117
			Total	$	1,804	$	1,859

Our other intangible assets have finite lives and are amortized primarily on a straight-line basis. Core deposit intangibles are amortized on an accelerated basis.

For customer-related and other intangibles, the estimated remaining useful lives range from 1 year to 12 years, with a weighted-average remaining useful life of 9 years.

Amortization expense on existing intangible assets follows:

Table 104: Amortization Expense on Existing Intangible Assets

In millions
Six months ended June 30, 2012	$	145
Six months ended June 30, 2011		161
Remainder of 2012		136
2013		237
2014		209
2015		188
2016		162
2017		132

Changes in commercial mortgage servicing rights follow:

Table 105: Commercial Mortgage Servicing Rights

In millions		2012		2011

Commercial Mortgage Servicing Rights – Net Carrying Amount
January 1		$	468	$	665
Additions (a)			25		80
Net impairment charge			(33)		(75)
Amortization expense			(62)		(78)
	June 30	$	398	$	592

Commercial Mortgage Servicing Rights – Valuation Allowance
January 1		$	(197)	$	(40)
Provision			(44)		(79)
Recoveries			11		4
Other (b)			24
	June 30		(206)		(115)
(a)	Additions for the first six months of 2012 and first six months of 2011 included $18 million and $25 million, respectively, from loans sold with servicing retained. Additions for the first six months of 2012 and first six months of 2011 included $7 million and $55 million, respectively, from purchases of servicing rights from third parties.
(b)	Represents impairment of servicing rights considered to be permanent resulting from MSR valuation changes primarily from market-driven changes in interest rates.

We recognize as an other intangible asset the right to service mortgage loans for others. Commercial MSRs are purchased and originated when loans are sold with servicing retained. Commercial MSRs are initially recorded at fair value. These rights are subsequently accounted for at the lower of amortized cost or fair value, and are substantially amortized in proportion to and over the period of estimated net servicing income of 5 to 10 years.

Commercial MSRs are periodically evaluated for impairment. For purposes of impairment, the commercial MSRs 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 MSRs is estimated by using a discounted cash flow model incorporating unobservable inputs for assumptions as to constant prepayment rates, discount rates and other factors determined based on current market conditions and expectations.

Changes in the residential MSRs follow:

Table 106: Residential Mortgage Servicing Rights

In millions		2012		2011
January 1		$	647	$	1,033
Additions:
	From loans sold with servicing retained		53		70
	RBC Bank (USA) Acquisition		16
	Purchases		48		48
Changes in fair value due to:
	Time and payoffs (a)		(77)		(84)
	Other (b)		(106)		(71)
June 30		$	581	$	996
Unpaid principal balance of loans serviced for others at June 30		$	116,011	$	124,765
(a)	Represents decrease in MSR value due to passage of time, including the impact from both regularly scheduled loan principal payments and loans that
	were paid down or paid off during the period.
(b)	Represents MSR 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. MSRs 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 MSRs with securities and derivative instruments which are expected to increase (or decrease) in value when the value of MSRs declines (or increases).

The fair value of residential MSRs is estimated by using a cash flow valuation model which calculates the present value of estimated future net servicing cash flows, taking into consideration actual and expected mortgage loan prepayment rates, discount rates, servicing costs, and other economic factors which are determined based on current market conditions.

The fair value of commercial and residential MSRs and significant inputs to the valuation models as of June 30, 2012 are shown in the tables below. The expected and actual rates of mortgage loan prepayments are significant factors driving the fair value. Management uses internal proprietary models to estimate future commercial mortgage loan prepayments and a third party model to estimate future residential mortgage loan prepayments. These models have been refined based on current market conditions and management judgment. 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. The forward rates utilized are derived from the current yield curve for U.S. dollar interest rate swaps and are consistent with pricing of capital markets instruments. Changes in the shape and slope of the forward curve in future periods may result in volatility in the fair value estimate.

A sensitivity analysis of the hypothetical effect on the fair value of MSRs to adverse changes in key assumptions is presented below. These sensitivities do not include the impact of the related hedging activities. Changes in fair value generally cannot be extrapolated because the relationship of the change in the assumption to the change in fair value may not be linear. Also, the effect of a variation in a particular assumption on the fair value of the MSRs is calculated independently without changing any other assumption. In reality, changes in one factor may result in changes in another (for example, changes in mortgage interest rates, which drive changes in prepayment rate estimates, could result in changes in the interest rate spread), which could either magnify or counteract the sensitivities.

The following tables set forth the fair value of commercial and residential MSRs and the sensitivity analysis of the hypothetical effect on the fair value of MSRs to immediate adverse changes of 10% and 20% in those assumptions:

Table 107: Commercial Mortgage Loan Servicing Assets - Key Valuation Assumptions
	June 30			December 31
Dollars in millions	2012			2011
Fair Value	$	400		$	471
Weighted-average life (years)		5.6			5.9
Weighted-average constant prepayment rate		6.34	%		5.08	%
Decline in fair value from 10% adverse change	$	8		$	6
Decline in fair value from 20% adverse change	$	15		$	11
Effective discount rate		7.92	%		7.92	%
Decline in fair value from 10% adverse change	$	12		$	9
Decline in fair value from 20% adverse change	$	23		$	18

Table 108: Residential Mortgage Loan Servicing Assets - Key Valuation Assumptions
	June 30			December 31
Dollars in millions	2012			2011
Fair value	$	581		$	647
Weighted-average life (years)		3.7			3.6
Weighted-average constant prepayment rate		21.35	%		22.10	%
Decline in fair value from 10% adverse change	$	42		$	44
Decline in fair value from 20% adverse change	$	79		$	84
Weighted-average option adjusted spread		11.46	%		11.77	%
Decline in fair value from 10% adverse change	$	22		$	25
Decline in fair value from 20% adverse change	$	43		$	48

Fees from mortgage and other loan servicing comprised of contractually specified servicing fees, late fees, and ancillary fees follows:

Table 109: Fees from Mortgage and Other Loan Servicing

In millions	2012		2011
Six months ended June 30	$	276	$	318
Three months ended June 30		138		159

We also generate servicing fees from fee-based activities provided to others for which we do not have an associated servicing asset.

Fees from commercial MSRs, residential MSRs and other loan servicing are reported on our Consolidated Income Statement in the line items Corporate services, Residential mortgage, and Consumer services, respectively.

- Definition

The entire disclosure for the aggregate amount of goodwill and a description of intangible assets, which may include (a) for amortizable intangible assets (also referred to as finite-lived intangible assets), the carrying amount, the amount of any significant residual value, and the weighted-average amortization period, (b) for intangible assets not subject to amortization (also referred to as indefinite-lived intangible assets), the carrying amount, and (c) the amount of research and development assets acquired and written off in the period, including the line item in the income statement in which the amounts written off are aggregated, if not readily apparent from the income statement. Also discloses (a) for amortizable intangibles assets in total and by major class, the gross carrying amount and accumulated amortization, the total amortization expense for the period, and the estimated aggregate amortization expense for each of the five succeeding fiscal years, (b) for intangible assets not subject to amortization the carrying amount in total and by major class, and (c) for goodwill, in total and for each reportable segment, the changes in the carrying amount of goodwill during the period (including the aggregate amount of goodwill acquired, the aggregate amount of impairment losses recognized, and the amount of goodwill included in the gain (loss) on disposal of a reporting unit). If any part of goodwill has not been allocated to a reportable segment, discloses the unallocated amount and the reasons for not allocating. For each impairment loss recognized related to an intangible asset (excluding goodwill), discloses: (a) a description of the impaired intangible asset and the facts and circumstances leading to the impairment, (b) the amount of the impairment loss and the method for determining fair value, (c) the caption in the income statement or the statement of activities in which the impairment loss is aggregated, and (d) the segment in which the impaired intangible asset is reported. For each goodwill impairment loss recognized, discloses: (a) a description of the facts and circumstances leading to the impairment, (b) the amount of the impairment loss and the method of determining the fair value of the associated reporting unit, and (c) if a recognized impairment loss is an estimate not finalized and the reasons why the estimate is not final. May also disclose the nature and amount of any significant adjustments made to a previous estimate of an impairment loss.

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