Goodwill and Other Intangible Assets

9 Months Ended

Sep. 30, 2012

Goodwill and Intangible Assets Disclosure [Abstract]

NOTE 5 – GOODWILL AND OTHER INTANGIBLE ASSETS

Goodwill

As discussed in Note 14, "Business Segment Reporting," the Company reorganized its management reporting structure in the first quarter of 2012 and, accordingly, its segment reporting structure and goodwill reporting units. Goodwill was reassigned to the new reporting units using a relative fair value allocation. After the allocation, Consumer Banking and Private Wealth Management's goodwill balance was comprised of $3.6 billion and $335 million previously recorded within the Retail Banking and W&IM segments, respectively. Wholesale Banking's goodwill balance was comprised of $1.3 billion, $47 million, $928 million, and $180 million previously recorded within the Retail Banking, W&IM, Diversified Commercial Banking, and CIB segments, respectively.

Goodwill is required to be tested for impairment on an annual basis or as events occur or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount or indicate that it is more likely than not that a goodwill impairment exists when the carrying amount of a reporting unit is zero or negative. The Company's reporting units with goodwill balances as of September 30, 2012 were Consumer Banking and Private Wealth Management, Wholesale Banking, GenSpring, and RidgeWorth Capital Management, both of which are part of the Wholesale Banking reportable segment. The Company performed a goodwill impairment analysis for all its reporting units as of September 30, 2012 and determined for the following reporting units that the fair value is in excess of the respective carrying value by the following percentages:

Consumer Banking and Private Wealth Management 21%

Wholesale Banking 31%

RidgeWorth Capital Management 147%

The fair value of the GenSpring reporting unit, however, was less than its carrying value. As a result, the Company performed the second step of the goodwill impairment evaluation, which involved calculating the implied fair value of the goodwill for the reporting unit. The implied fair value of the goodwill was also less than its carrying value; therefore, the Company calculated the amount of impairment and for the three and nine months ended September 30, 2012, an impairment loss of $7 million was recorded, which was the entire amount of goodwill recorded for the GenSpring reporting unit prior to the impairment evaluation.

The changes in the carrying amount of goodwill by reportable segment for the nine months ended September 30, including the reallocation as noted above, are as follows:



(Dollars in millions)	Retail Banking			Diversified Commercial Banking			CIB			W&IM			Consumer Banking and Private Wealth Management		Wholesale Banking			Total
Balance, January 1, 2012		$4,854			$928			$180			$382			$—		$—			$6,344
Acquisition of assets of FirstAgain, LLC	—			—			—			—			32		—			32
Intersegment transfers	(4,854		)	(928		)	(180		)	(382		)	3,930		2,414			—
Impairment of GenSpring	—			—			—			—			—		(7		)	(7		)
Balance, September 30, 2012		$—			$—			$—			$—			$3,962		$2,407			$6,369

Balance, January 1, 2011		$4,854			$928			$180			$361			$—		$—			$6,323
Contingent consideration	—			—			—			1			—		—			1
Acquisition of certain additional assets of CSI Capital Management	—			—			—			20			—		—			20
Balance, September 30, 2011		$4,854			$928			$180			$382			$—		$—			$6,344

Other Intangible Assets

Changes in the carrying amounts of other intangible assets for the nine months ended September 30 are as follows:



(Dollars in millions)	Core Deposit Intangibles			MSRs - Fair Value			Other			Total
Balance, January 1, 2012		$38			$921			$58			$1,017
Amortization	(17		)	—			(14		)	(31		)
MSRs originated	—			244			—			244
Changes in fair value:
Due to changes in inputs and assumptions ¹	—			(157		)	—			(157		)
Other changes in fair value ²	—			(173		)	—			(173		)
Sale of MSRs	—			(4		)	—			(4		)
Balance, September 30, 2012		$21			$831			$44			$896

Balance, January 1, 2011		$67			$1,439			$65			$1,571
Amortization	(23		)	—			(11		)	(34		)
MSRs originated	—			183			—			183
Changes in fair value:
Due to changes in inputs and assumptions ¹	—			(443		)	—			(443		)
Other changes in fair value ²	—			(139		)	—			(139		)
Sale of MSRs	—			(7		)	—			(7		)
Other	—			—			7			7
Balance, September 30, 2011		$44			$1,033			$61			$1,138

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.

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 three months ended September 30, 2012 and 2011, was $75 million and $91 million, respectively, and $238 million and $277 million for the nine months ended September 30, 2012 and 2011, respectively. These amounts are reported in mortgage servicing related income in the Consolidated Statements of Income.

As of September 30, 2012 and December 31, 2011, the total unpaid principal balance of mortgage loans serviced was $149.7 billion and $157.8 billion, respectively. Included in these amounts were $115.8 billion and $124.1 billion as of September 30, 2012 and December 31, 2011, respectively, of loans serviced for third parties. During the nine months ended September 30, 2012, the Company sold MSRs on residential loans with an unpaid principal balance of $1.7 billion. Because MSRs are reported at fair value, the sale did not have a material impact on mortgage servicing related income.

At the end of each quarter, the Company determines the fair value of the MSRs using a valuation model that calculates the present value of the 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 market based prepayment rates, discount rates, and other assumptions that are compared to various sources of market data including independent third party valuations and industry surveys. Senior management and the valuation committee review all significant assumptions quarterly since many factors can affect the fair value of MSRs. Changes in the valuation model inputs and assumptions are reported 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 as of September 30, 2012 and December 31, 2011, and the sensitivity of the fair values to immediate 10% and 20% adverse changes in those assumptions are shown in the table below. Substantially all of the decrease in fair value during the nine months ended September 30, 2012, was driven by a 7% decline in the principal balance of loans serviced for others and a decrease in prevailing interest rates during the nine months ended September 30, 2012.



(Dollars in millions)	September 30, 2012			December 31, 2011
Fair value of retained MSRs		$831			$921
Prepayment rate assumption (annual)	19		%	20		%
Decline in fair value from 10% adverse change		$49			$52
Decline in fair value from 20% adverse change	92			98
Discount rate (annual)	11		%	11		%
Decline in fair value from 10% adverse change		$31			$33
Decline in fair value from 20% adverse change	60			63
Weighted-average life (in years)	4.3			4.3
Weighted-average coupon	4.9		%	5.2		%

The above sensitivities are hypothetical and should be used with caution. As the amounts indicate, changes in fair value based on variations in assumptions generally cannot be extrapolated because the relationship of the change in assumption to the change in fair value may not be linear. Also, in this table, the effect of a variation in a particular assumption on the fair value of the retained interest is calculated without changing any other assumption. In reality, changes in one factor may result in changes in another, which might magnify or counteract the sensitivities. Additionally, the sensitivities above do not include the effect of hedging activity undertaken by the Company to offset changes in the fair value of MSRs. See Note 10, “Derivative Financial Instruments,” for further information regarding these hedging transactions.

- 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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