PNC Bank 2009 Annual Report Download - page 134

Retained interests in the credit card securitizations consist of
an interest-only strip, securities issued by the credit card
securitization QSPE, and sellers’ interest. The interest-only
strips are recognized in other assets on the Consolidated
Balance Sheet and totaled approximately $11 million at
December 31, 2009 and $20 million at December 31, 2008.
The asset-backed securities are recognized in investment
securities on the Consolidated Balance Sheet and totaled
approximately $105 million at December 31, 2009 and $25
million at December 31, 2008. These retained interests
represent the maximum exposure to loss associated with our
involvement in these securitizations.
Sellers’ interest, which is recognized in loans on the
Consolidated Balance Sheet, represents our pro-rata undivided
interest in the credit card receivables in the QSPE. At
December 31, 2009 and December 31, 2008, sellers’ interest
totaled $746 million and $315 million, respectively. Our
sellers’ interest ranks equally with the investor’s interest in the
QSPE. In general, the carrying amount of sellers’ interest
varies as the amount of assets in the QSPE fluctuates due to
customer payments, purchases, cash advances, and credit
losses. The carrying amount of sellers’ interest is also affected
by the reduction of the invested or securitized receivables in
the QSPE when a securitization series matures and the
previously securitized receivables are not removed from the
QSPE or re-securitized in a new transaction. Accordingly, the
increase in sellers’ interest at December 31, 2009 was
primarily attributed to the maturity of the 2008-1 and 2008-2
series coupled with no new credit card securitizations
consummated during 2009. We are required to maintain
seller’s interest at a minimum level of 5% of the initial
invested amount in each series to ensure sufficient assets are
available for allocation to the investors’ interests. Sellers’
interest was well above the minimum level at December 31,
2009 and 2008.
In July 2009, NCB as sponsor of the securitization QSPE took
certain actions to address recent declines in the securitization
structure’s excess spread which resulted from the deterioration
in performance of the underlying credit card receivables in the
QSPE. The actions taken were permitted by the transaction
documents and consisted of the issuance of subordinate asset-
backed notes by the QSPE and the implementation of a
“discount option receivable” mechanism for principal
receivable balances added to the QSPE during the revolving
period. The subordinated asset-backed notes issued were
retained by NCB and resulted from the securitization of credit
card receivables with a net carrying value of $78 million.
Accordingly, this transaction was not accounted for as a sale
and resulted in the recognition of securities classified as held
to maturity with an allocated value of $72 million. The fair
value and carrying amount of these securities, which have a
stated interest rate of zero percent, were $55 million and $64
million, respectively, at December 31, 2009. The discount
option receivable mechanism will result in the designation of a
percentage of newly transferred receivables to the QSPE as
finance charge receivables. Subsequently, finance charge
collections will be applied to these newly created discount
option receivables which will in effect increase the excess
spread in the securitization structure. These actions did not
have a significant impact on the Corporation’s results of
operations.
Automobile Loans
During the fourth quarter of 2009, we exercised our clean-up
call option on the outstanding notes of the auto securitization
2005-A series. Accordingly, we recognized approximately $96
million in auto receivables from the securitization QSPE and
PNC no longer has any continuing involvement or exposure in
this transaction.
Jumbo Mortgages
At December 31, 2009, NCB’s jumbo mortgage securitization
series 2008-1 was outstanding. Our continuing involvement in
the securitized mortgage loans consists primarily of servicing
and limited requirements to repurchase transferred loans for
breaches of representations and warranties. As servicer, we
hold a cleanup call repurchase option when the outstanding
principal balances of the transferred loans reach 5% of the
initial outstanding principal balance of the mortgage loans
securitized.
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