PNC Bank 2008 Annual Report Download - page 120

N OTE 9G OODWILL AND O THER I NTANGIBLE
A SSETS
A summary of the changes in goodwill by business segment
during 2008 follows:
Goodwill
In millions
Dec. 31
2007
Additions/
Adjustments
Dec. 31
2008
Retail Banking $5,628 $354 $5,982
Corporate & Institutional
Banking 1,491 118 1,609
Global Investment Servicing 1,229 4 1,233
BlackRock 57 (13) 44
Total $8,405 $463 $8,868
Assets and liabilities of acquired entities are recorded at
estimated fair value as of the acquisition date and are subject
to refinement as information relative to the fair values at that
date becomes available. Revisions would likely result in
subsequent adjustments to goodwill. The goodwill and other
intangible assets related to Sterling are reported in the Retail
Banking and Corporate & Institutional Banking business
segments.
At December 31, 2008, no goodwill was recognized in
connection with the National City acquisition as the fair value
of net assets acquired exceeded the purchase price. The
allocation of the purchase price may be modified through
2009 as more information, such as appraisals, contracts,
reviews of legal documentation, and selected key borrower
data, is obtained about the fair value of assets acquired and
liabilities assumed and may result in goodwill.
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 2008 (a) 2007
Customer-related and other intangibles
Gross carrying amount $1,291 $ 708
Accumulated amortization (361) (263)
Net carrying amount $ 930 $ 445
Mortgage and other loan servicing rights
Gross carrying amount $2,286 $1,001
Impairment charge (35)
Accumulated amortization (361) (300)
Net carrying amount $1,890 $ 701
Total $2,820 $1,146
(a) Amounts at December 31, 2008 include National City.
Our acquisition of National City resulted in the addition of
$569 million of core deposit and other relationship intangibles
at December 31, 2008. Core deposits include noninterest and
interest-bearing demand accounts, savings and money market
accounts. In addition, mortgage servicing rights increased $1.2
billion primarily related to the National City acquisition. The
intangibles were valued utilizing a discounted cash flows
model.
While certain of our other intangible assets have finite lives
and are amortized primarily on a straight-line basis,
commercial mortgage and other loan servicing rights and
certain core deposit intangibles are amortized on an
accelerated basis. Residential mortgage servicing rights are
carried at fair value and not amortized.
For customer-related intangibles, the estimated remaining
useful lives range from less than one year to 14 years, with a
weighted-average remaining useful life of approximately 10
years. Our commercial mortgage and other loan servicing
rights are amortized primarily over a period of 2 to 13 years in
proportion to the estimated net servicing cash flows from the
related loans.
We recognize as an other intangible asset the right to service
mortgage loans for others. Commercial mortgage servicing
rights are purchased in the open market and originated when
loans are sold with servicing retained. Commercial mortgage
servicing rights are initially recorded at fair value. These
rights are subsequently measured using the amortization
method. Accordingly, the commercial mortgage servicing
rights are amortized in proportion to and over the period of
estimated net servicing income.
Residential mortgage servicing rights of $1 billion were
recognized in connection with the acquisition of National
City. We have elected to subsequently measure residential
mortgage servicing rights at fair value consistent with how we
manage the risk of these assets.
Amortizable commercial mortgage servicing rights are
periodically evaluated for impairment. For purposes of
impairment, the commercial mortgage servicing rights are
stratified based on asset type, which characterizes the
predominant risk of the underlying financial asset. If the
carrying amount of any individual stratum exceeds its fair
value, a valuation reserve is established with a corresponding
charge to Corporate Services on our Consolidated Income
Statement.
The fair value of commercial and residential mortgage
servicing rights is estimated by using an internal valuation
model. The model calculates the present value of estimated
future net servicing cash flows considering estimates on
servicing revenue and costs, discount rates and prepayment
speeds.
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