PNC Bank 2008 Annual Report Download - page 121

Changes in the commercial mortgage servicing rights were as
follows:
Commercial Mortgage Servicing Rights
In millions 2008 2007
Balance at January 1 $694 $471
Additions (a) 300 310
Amortization expense (95) (87)
Balance at December 31 899 694
Impairment charge (35)
Net carrying amount at December 31 $864 $694
(a) Includes $210 million in 2008 as part of the National City acquisition.
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 $171 million in 2008, $192 million in 2007 and $139
million in 2006. We also generate servicing revenue from
fee-based activities provided to others.
Amortization expense on intangible assets for 2008, 2007 and
2006 was $228 million, $173 million and $99 million,
respectively. The 2008 amortization expense includes a $35
million impairment charge for certain mortgage servicing
rights due to the effect of lower interest rates. Amortization
expense on existing intangible assets for 2009 through 2013 is
estimated to be as follows:
• 2009: $297 million,
• 2010: $232 million,
• 2011: $227 million,
• 2012: $206 million, and
• 2013: $180 million.
The changes in the carrying amount of goodwill and net other
intangible assets during 2008 follows:
Changes in Goodwill and Other Intangibles
In millions Goodwill
Customer-
Related
Servicing
Rights
Balance at December 31, 2007 $8,405 $445 $ 701
Additions/adjustments:
National City acquisition 569 1,228
Sterling acquisition 593 21 4
Hilliard Lyons divestiture (140)
Harris Williams contingent
consideration 44
Other acquisitions (21) (3)
Mortgage and other loan servicing
rights 90
BlackRock (13)
Other (7)
Impairment charge (35)
Amortization (98) (95)
Balance at December 31, 2008 $8,868 $930 $1,890
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 adjust goodwill when BlackRock repurchases its shares at
an amount greater (or less) than book value per share and this
results in an increase (or decrease) in our percentage
ownership interest.
We conduct a goodwill impairment test on our reporting units
at least annually or more frequently if any adverse triggering
events occur. Based on the results of our analysis, there were
no impairment charges related to goodwill recognized in 2008,
2007 or 2006. The fair value of our reporting units is
determined by using discounted cash flow and market
comparability methodologies.
N
OTE 10 S ECURITIZATION A CTIVITY
We contributed commercial mortgage loans to securitizations
with servicing retained of $.4 billion in 2008 and $2.2 billion
in 2007 for cash in loan sales transactions. All loan amounts
are derecognized from our Consolidated Balance Sheet at the
time of transfer. Mortgage servicing rights continue to be held
by us as transferor.
These transactions resulted in a pretax net loss including
valuation adjustments of $22 million in 2008 and a pretax net
gain including valuation adjustments of $20 million in 2007.
We continue to perform servicing and recognized servicing
assets of $3 million in 2008 and $14 million in 2007 at the
time of sale.
In securitizations, loans are typically transferred to a
qualifying special purpose entity (“QSPE”) that is
demonstrably distinct from the transferor to transfer the risks
from our Consolidated Balance Sheet. A QSPE is a
bankruptcy-remote trust allowed to perform only certain
passive activities. In addition, these entities are self-
liquidating and typically structured as Real Estate Mortgage
Investment Conduits (“REMICs”) for tax purposes. The
QSPEs are generally financed by issuing certificates for
various levels of senior and subordinated tranches. QSPEs are
exempt from consolidation under the provisions of FIN 46R.
These sale and servicing transactions are structured without
recourse to us. Our exposure is limited to standard
representations and warranties as seller of the loans and
responsibilities as servicer of the QSPE’s assets. In certain
circumstances as a servicer for these entities, we advance
principal and interest payments to the securitization trust. We
have a risk of loss if the borrower does not ultimately make
the principal and interest payment. However, the advance is
senior secured above the highest rated tranche in the
securitization.
Also, in certain situations, we are named as special servicing
asset manager. The overall objective of the special servicer is
to restore the defaulted loan to performing status or to develop
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