PNC Bank 2006 Annual Report Download - page 105

N OTE 9G OODWILL AND O THER I NTANGIBLE
A SSETS
A summary of the changes in goodwill by business segment
during 2006 follows:
Goodwill
In millions
Dec. 31
2005
Additions/
Adjustments
Dec. 31
2006
Retail Banking $1,471 $(5) $1,466
Corporate & Institutional Banking 935 3 938
BlackRock 190 (160) 30
PFPC 968 968
Other 55 (55)
Total $3,619 $(217) $3,402
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 2006 2005
Customer-related and other intangibles
Gross carrying amount (a) $342 $646
Accumulated amortization (178) (143)
Net carrying amount $164 $503
Mortgage and other loan servicing rights
Gross carrying amount $689 $511
Accumulated amortization (212) (167)
Net carrying amount $477 $344
Total $641 $847
(a) Amounts for 2006 were reduced by $305 million related to the BlackRock
deconsolidation. See Note 2 Acquisitions for additional information regarding our
deconsolidation of BlackRock effective September 29, 2006.
Most of our 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 and certain core
deposit intangibles, on an accelerated basis.
For customer-related intangibles, the estimated remaining
useful lives range from less than one year to 11 years, with a
weighted-average remaining useful life of approximately 5
years. Our mortgage and other loan servicing rights are
amortized primarily over a period of five to 10 years in
proportion to the estimated net servicing income from the
related loans.
The changes in the carrying amount of goodwill and net other
intangible assets during 2006 follows:
Changes in Goodwill and Other Intangibles
In millions Goodwill
Customer-
Related
Servicing
Rights
December 31, 2005 $3,619 $503 $344
Additions/adjustments:
BlackRock (a) (190) (305)
BlackRock stock activity, net (25)
Retail Banking (5) 2
Other 4
Corporate & Institutional Banking 3 1 172
Reduction in accumulated
amortization 2
Amortization (b) (35) (47)
December 31, 2006 $3,402 $164 $477
(a) Reflects our deconsolidation of BlackRock. See also note (a) under the “Other
Intangible Assets” table.
(b) Amount is net of $17 million of accumulated amortization that was eliminated
during the third quarter of 2006 in connection with the deconsolidation of
BlackRock.
Our investment in BlackRock changes when BlackRock
repurchases its shares in the open market or issues shares for
an acquisition or pursuant to its employee compensation plans.
We recognize goodwill when BlackRock repurchases its
shares at an amount greater than book value per share and this
results in an increase in our percentage ownership interest.
We recognized a net reduction to goodwill of approximately
$25 million related to BlackRock stock activity, primarily due
to the decrease in our ownership interest in BlackRock from
approximately 69% to approximately 34% as a result of the
BlackRock/MLIM transaction in 2006. The reduction in
goodwill reduced the gain realized by PNC from the
transaction.
Servicing revenue from both commercial and residential
mortgage servicing assets and liabilities generated
contractually specified servicing fees, net interest income
from servicing portfolio deposit balances and ancillary fees
totaling $139 million for the year ended December 31, 2006.
We also generate servicing revenue from fee-based activities
provided to others.
Amortization expense on intangible assets for 2006, 2005 and
2004 was $99 million, $74 million and $52 million,
respectively. Amortization expense on existing intangible
assets for 2007 through 2011 is estimated to be as follows:
• 2007: $100 million,
• 2008: $91 million,
• 2009: $85 million,
• 2010: $67 million, and
• 2011: $53 million.
We conduct a goodwill impairment test on our reporting units
at least annually or more frequently if any adverse triggering
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