Goodwill and Other Intangible Assets

12 Months Ended

Dec. 31, 2015

Goodwill and Other Intangible Assets Disclosure [Abstract]

NOTE 8 GOODWILL AND INTANGIBLE ASSETS

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

Goodwill

Changes in goodwill by business segment during 2015 and 2014 follow:

Table 82: Goodwill by Business Segment (a)

				Corporate &		Asset
		Retail		Institutional		Management
In millions		Banking		Banking		Group		Total
December 31, 2013		$	5,795	$	3,215	$	64	$	9,074
Other					29				29
December 31, 2014		$	5,795	$	3,244	$	64	$	9,103
December 31, 2015		$	5,795	$	3,244	$	64	$	9,103
(a)	The Residential Mortgage Banking, BlackRock and Non-Strategic Assets Portfolio business segments did not have any goodwill allocated to them during 2015, 2014, and 2013.

We conduct a goodwill impairment test on our reporting units at least annually, in the fourth quarter, or more frequently if events occur or circumstances have changed significantly from the annual test date. The fair value of our reporting units with goodwill is determined by using discounted cash flow and, when applicable, market comparability methodologies. Based on the results of our analysis, there were no impairment charges related to goodwill in 2015 or 2014.

Mortgage Servicing Rights

We recognize the right to service mortgage loans for others as an intangible asset. MSRs are purchased or originated when loans are sold with servicing retained. MSRs totaled $1.6 billion and $1.4 billion at December 31, 2015 and December 31, 2014, respectively, and consisted of loan servicing contracts for commercial and residential mortgages measured at fair value.

Commercial Mortgage Servicing Rights

As of January 1, 2014, PNC made an irrevocable election to subsequently measure all classes of commercial MSRs at fair value in order to eliminate any potential measurement mismatch between our economic hedges and the commercial MSRs. The impact of the cumulative-effect adjustment to retained earnings was not material, and the valuation allowance associated with the commercial MSRs was reclassified to the gross carrying amount of commercial MSRs. We recognize gains/(losses) on changes in the fair value of commercial MSRs as a result of the election. Commercial MSRs are subject to declines in value from actual or expected prepayment of the underlying loans and defaults as well as market driven changes in interest rates. We manage this risk by economically hedging the fair value of commercial MSRs with securities and derivative instruments which are expected to increase (or decrease) in value when the value of commercial MSRs declines (or increases).

The fair value of commercial MSRs is estimated by using a discounted cash flow model incorporating inputs for assumptions as to constant prepayment rates, discount rates and other factors determined based on current market conditions and expectations.

Changes in the commercial MSRs accounted for at fair value during 2015 and 2014, follow:

Table 83: Commercial Mortgage Servicing Rights Accounted for at Fair Value


In millions			2015		2014
January 1		$	506	$	552
Additions:
	From loans sold with servicing retained		63		53
	Purchases		55		43
Changes in fair value due to:
	Time and payoffs (a)		(89)		(89)
	Other (b)		(9)		(53)
December 31		$	526	$	506
Related unpaid principal balance at December 31		$	145,823	$	143,738
Servicing advances at December 31		$	251	$	299
(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.

Prior to 2014, commercial MSRs were initially recorded at fair value and subsequently accounted for at the lower of amortized cost or fair value. These rights were substantially amortized in proportion to and over the period of estimated net servicing income of 5 to 10 years. Commercial MSRs were periodically evaluated for impairment. For purposes of impairment, the commercial MSRs were stratified based on asset type, which characterized the predominant risk of the underlying financial asset. If the carrying amount of any individual stratum exceeded its fair value, a valuation reserve was established with a corresponding charge to Corporate services on our Consolidated Income Statement.

Changes in commercial MSRs during 2013, prior to the irrevocable fair value election, follow:

Table 84: Commercial Mortgage Servicing Rights Accounted for Under the Amortization Method

In millions		2013
Commercial Mortgage Servicing Rights - Net Carrying Amount
January 1		$	420
Additions (a)			138
Amortization expense			(97)
Change in valuation allowance			88
	December 31	$	549
	Servicing advances at December 31	$	412
Commercial Mortgage Servicing Rights - Valuation Allowance
January 1		$	(176)
Provision			(21)
Recoveries			108
Other			1
	December 31	$	(88)
(a)	Additions for 2013 included $53 million from loans sold with servicing retained and $85 million from purchases of servicing rights from third parties.

Residential Mortgage Servicing Rights

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. Residential MSRs are subject to declines in value from actual or expected prepayment of the underlying loans and defaults as well as market driven changes in interest rates. We manage this risk by economically hedging the fair value of residential MSRs with securities and derivative instruments which are expected to increase (or decrease) in value when the value of residential MSRs declines (or increases).

The fair value of residential MSRs is estimated by using a discounted 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.

Changes in the residential MSRs follow:

Table 85: Residential Mortgage Servicing Rights

In millions		2015		2014		2013
January 1		$	845	$	1,087	$	650
Additions:
	From loans sold with servicing retained		78		85		158
	Purchases		316		45		110
Sales							(4)
Changes in fair value due to:
	Time and payoffs (a)		(178)		(134)		(193)
	Other (b)		2		(238)		366
December 31		$	1,063	$	845	$	1,087
Unpaid principal balance of loans serviced for others at December 31		$	123,466	$	108,010	$	113,994
Servicing advances at December 31		$	411	$	501	$	571
(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.

Sensitivity Analysis

The fair value of commercial and residential MSRs and significant inputs to the valuation models as of December 31, 2015 are shown in the tables below. The expected and actual rates of mortgage loan prepayments are significant factors driving the fair value. Management uses both internal proprietary models and a third-party model 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 86: Commercial Mortgage Loan Servicing Rights - Key Valuation Assumptions
		December 31			December 31
Dollars in millions		2015			2014
Fair value		$	526		$	506
Weighted-average life (years)			4.7			4.7
Weighted-average constant prepayment rate			5.71	%		8.03	%
	Decline in fair value from 10% adverse change	$	10		$	10
	Decline in fair value from 20% adverse change	$	19		$	19
Effective discount rate			7.49	%		6.59	%
	Decline in fair value from 10% adverse change	$	14		$	13
	Decline in fair value from 20% adverse change	$	29		$	26

Table 87: Residential Mortgage Loan Servicing Rights - Key Valuation Assumptions
		December 31			December 31
Dollars in millions		2015			2014
Fair value		$	1,063		$	845
Weighted-average life (years)			6.3			6.1
Weighted-average constant prepayment rate			10.61	%		11.16	%
	Decline in fair value from 10% adverse change	$	44		$	36
	Decline in fair value from 20% adverse change	$	85		$	69
Weighted-average option adjusted spread			8.93	%		10.36	%
	Decline in fair value from 10% adverse change	$	34		$	31
	Decline in fair value from 20% adverse change	$	67		$	61

Fees from mortgage loan servicing, which includes contractually specified servicing fees, late fees and ancillary fees, follows:

Table 88: Fees from Mortgage Loan Servicing

In millions	2015		2014		2013
Fees from mortgage loan servicing	$	510	$	503	$	544

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 and residential MSRs are reported on our Consolidated Income Statement in the line items Corporate services and Residential mortgage, respectively.

Other Intangible Assets

Other intangible assets consist primarily of core deposit intangibles, customer lists and non-compete agreements. Core deposit intangibles are amortized on an accelerated basis, whereas the remaining other intangible assets are amortized on a straight-line basis. The estimated remaining useful lives of our other intangible assets range from 1 year to 9 years, with a weighted-average remaining useful life of 6 years.

Other intangible assets were as follows at December 31, 2015 and December 31, 2014:

Table 89: Other Intangible Assets

		December 31		December 31
In millions		2015		2014
Gross carrying amount		$	1,499	$	1,502
Accumulated amortization			(1,120)		(1,009)
	Net carrying amount	$	379	$	493


Changes in other intangible assets during 2015 and 2014 follow:

Table 90: Summary of Changes in Other Intangible Assets

In millions
December 31, 2013	$	580
Additions		41
Amortization		(128)
December 31, 2014	$	493
Amortization		(114)
December 31, 2015	$	379

Amortization expense on existing other intangible assets for 2015, 2014 and 2013, as well as estimated future amortization expense for the next five fiscal years, follows:

Table 91: Amortization Expense on Existing Intangible Assets

In millions
2013 (a)		$	243
2014			128
2015			114
2016			97
2017			83
2018			72
2019			61
2020			37
(a)	Amounts include amortization expense related to commercial MSRs. As of January 1, 2014, PNC made an irrevocable election to measure commercial MSRs at fair value, and, accordingly, amortization expense for commercial MSRs is no longer recorded.

- 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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