PNC Bank 2002 Annual Report Download - page 92

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90
A summary of the changes in goodwill by business during
2002 follows:
Goodwill
January 1 Goodwill Adjust- Dec. 31
In millions 2002 Acquired ments 2002
Regional Community
Banking $438 $438
Corporate Banking 39 39
PNC Real Estate Finance 298 $4 302
PNC Business Credit 23 $277 (2) 298
PNC Advisors 151 1 152
BlackRock 175 175
PFPC 912 (3) 909
Total $2,036 $277 $2,313
The gross carrying amount, accumulated amortization and net
carrying amount of other intangible assets by major category
consisted of the following:
Other Intangible Assets
December 31 - in millions 2002 2001
Customer-related intangibles
Gross carrying amount $199 $185
Accumulated amortization (67) (47)
Net carrying amount $132 $138
Mortgage and other loan
servicing rights
Gross carrying amount $313 $286
Accumulated amortization (112) (87)
Net carrying amount $201 $199
Total $333 $337
The majority of the Corporation's other intangible assets have
finite lives and are amortized primarily on a straight-line basis or,
in the case of mortgage and other loan servicing rights, on an
accelerated basis. For customer-related intangibles, the estimated
remaining useful lives range from one to fifteen years, with a
weighted-average remaining useful life of approximately seven
years. The Corporation's mortgage and other loan servicing
rights are amortized primarily over a period of seven to ten years
using the net present value of the cash flows received from
servicing the related loans.
The changes in the carrying amount of goodwill and net
other intangible assets during 2002 follows:
Changes in Goodwill and Other Intangibles
In millions Goodwill
Customer-
Related
Servicing
Rights
Balance at December 31, 2001 $2,036 $138 $199
Additions/adjustments 277 14 27
Amortization (20) (25)
Balance at December 31, 2002 $2,313 $132 $201
In conjunction with the 2002 NBOC acquisition, PNC
Business Credit recorded a customer-based intangible of $12.4
million that will be amortized over seven years. Goodwill
recorded in connection with the NBOC acquisition was
approximately $277 million.
Amortization expense on intangible assets for 2002 was
approximately $45 million. Amortization expense on existing
intangible assets for 2003, 2004, 2005, 2006 and 2007 is
estimated to be $44 million, $43 million, $39 million, $36
million and $34 million, respectively.
The following table sets forth reported and pro forma net
income and basic and diluted earnings per share as if the
nonamortization provisions of SFAS No. 142 had been
applied in the previous periods.
Pro Forma Effects
Y
ear ended December 31
In millions, except per share data 2002 2001 2000
Reported net income $1,184 $377 $1,279
Goodwill amortization,
net of taxes 93 93
Pro forma net income $1,184 $470 $1,372
Basic earnings per share
Reported, from net income $4.18 $1.27 $4.35
Goodwill amortization,
net of taxes .33 .32
Pro forma basic earnings
p
er share
$
4.18
$
1.60
$
4.67
Diluted earnings per share
Reported, from net income $4.15 $1.26 $4.31
Goodwill amortization,
net of taxes .32 .32
Pro forma diluted earnings
p
er share $4.15
$
1.58
$
4.63
NOTE 15 SECURITIZATIONS
During 2002, PNC sold commercial mortgage loans totaling
$239 million and other loans totaling $38 million in secondary
market securitizations. These securitization transactions
resulted in pretax gains of $4 million and $2 million,
respectively, for the year ended December 31, 2002.
During 2001, the Corporation sold residential mortgage
loans, commercial mortgage loans and other loans totaling
$1.0 billion, $374 million, and $82 million, respectively, in
secondary market securitization transactions. These
securitization transactions resulted in pretax gains of $9.6
million, $1 million, and $2 million, respectively, for the year
ended December 31, 2001.
In addition to the sale of loans discussed above, in March
2001 PNC securitized $3.8 billion of residential mortgage
loans by selling the loans into a trust with PNC retaining 99%,
or $3.7 billion, of the certificates. PNC also securitized $175
million of commercial mortgage loans by selling the loans into
a trust with PNC retaining 99%, or $173 million, of the
certificates. In each case, the 1% interest in the trust was
purchased by a publicly-traded entity managed by a subsidiary
of PNC. A substantial portion of the entity’s purchase price
was financed by PNC. The reclassification of these loans to