STI 2018 Annual Report

Notes to Consolidated Financial Statements, continued 119 The gross carrying value and accumulated amortization of other intangible assets are presented in the following table: December 31, 2018 December 31, 2017 (Dollars in millions) Gross Carrying Value Accumulated Amortization Net Carrying Value Gross Carrying Value Accumulated Amortization Net Carrying Value Amortized other intangible assets 1 : Commercial mortgage servicing rights $95 ($29) $66 $79 ($14) $65 Other 6 (5) 1 32 (28) 4 Unamortized other intangible assets: Residential MSRs 1,983 — 1,983 1,710 — 1,710 Other 12 — 12 12 — 12 Total other intangible assets $2,096 ($34) $2,062 $1,833 ($42) $1,791 1 Excludes other intangible assets that are indefinite-lived, carried at fair value, or fully amortized. The Company’s estimated future amortization of intangible assets at December 31, 2018 is presented in the following table: (Dollars in millions) 2019 $10 2020 8 2021 7 2022 6 2023 5 Thereafter 31 Total 1 $67 1 Does not include indefinite-lived intangible assets of $12 million. Servicing Rights The Company acquires servicing rights and retains servicing rights for certain of its sales or securitizations of residential mortgages and commercial loans. Servicing rights on residential and commercial mortgages are capitalized by the Company and are classified as Other intangible assets on the Company's Consolidated Balance Sheets. Residential Mortgage Servicing Rights Income earned by the Company on its residential MSRs is derived primarily from contractually specified mortgage servicing fees and late fees, net of curtailment costs, and is presented in the following table. Year Ended December 31 (Dollars in millions) 2018 2017 2016 Income from residential MSRs 1 $437 $403 $366 1 Recognized in Mortgage related income in the Consolidated Statements of Income. The UPB of residential mortgage loans serviced for third parties is presented in the following table: (Dollars in millions) December 31, 2018 December 31, 2017 UPB of loans underlying residential MSRs $140,801 $136,071 The Company purchased MSRs on residential loans with a UPB of $7.0 billion during the year ended December 31, 2018. No MSRs on residential loans were purchased during the year ended December 31, 2017. During both years ended December 31, 2018 and 2017, the Company sold MSRs on residential loans, at a price approximating their fair value, with a UPB of $1.1 billion. The Company measures the fair value of its residential MSRs using a valuation model that calculates the present value of estimated future net servicing income using prepayment projections, spreads, and other assumptions. The Consumer Valuation Committee reviews and approves all significant assumption changes at least annually, drawing upon various market and empirical data sources. Changes to valuation model inputs are reflected in the periods’ results. See Note 20, “Fair Value Election and Measurement,” for further information regarding the Company’s residential MSR valuation methodology. A summary of the significant unobservable inputs used to estimate the fair value of the Company’s residential MSRs and the uncertainty of the fair values in response to 10% and 20% adverse changes in those inputs at the reporting date, are presented in the following table. (Dollars in millions) December 31, 2018 December 31, 2017 Fair value of residential MSRs $1,983 $1,710 Prepayment rate assumption (annual) 13% 13% Decline in fair value from 10% adverse change $96 $85 Decline in fair value from 20% adverse change 183 160 Option adjusted spread (annual) 2% 4% Decline in fair value from 10% adverse change $44 $47 Decline in fair value from 20% adverse change 86 90 Weighted-average life (in years) 5.5 5.4 Weighted-average coupon 4.0% 3.9% Residential MSR uncertainties are hypothetical and should be used with caution. Changes in fair value based on variations in assumptions generally cannot be extrapolated because (i) the relationship of the change in an assumption to the change in fair value may not be linear and (ii) changes in one assumption may result in changes in another, which might magnify or counteract the uncertainties. The uncertainties do not reflect the effect of hedging activity undertaken by the Company to offset changes in the fair value of MSRs. See Note 19, “Derivative Financial Instruments,” for further information regarding these hedging activities.