PNC Bank 2012 Annual Report Download - page 156

In April 2011, the FASB issued ASU 2011-03 Transfers and
Servicing (Topic 860), Reconsideration of Effective Control
for Repurchase Agreements. This ASU removes from the
assessment of effective control (i) the criterion requiring the
transferor to have the ability to repurchase or redeem the
financial assets on substantially the agreed terms, even in the
event of default by the transferee, and (ii) the collateral
maintenance implementation guidance related to that criterion.
Other criteria applicable to the assessment of effective control
have not been changed by this ASU. The adoption of ASU
2011-03 on January 1, 2012 did not have a material effect on
our results of operations or financial position.
N OTE 2A CQUISITION AND D IVESTITURE
A CTIVITY
RBC B ANK (USA) A CQUISITION
On March 2, 2012, PNC acquired 100% of the issued and
outstanding common stock of RBC Bank (USA), the US retail
banking subsidiary of Royal Bank of Canada. As part of the
acquisition, PNC also purchased a credit card portfolio from
RBC Bank (Georgia), National Association. PNC paid $3.6
billion in cash as consideration for the acquisition of both
RBC Bank (USA) and the credit card portfolio. The
transactions added approximately $18.1 billion of deposits and
$14.5 billion of loans to PNC’s Consolidated Balance Sheet.
RBC Bank (USA), based in Raleigh, North Carolina, operated
more than 400 branches in North Carolina, Florida, Alabama,
Georgia, Virginia and South Carolina. The primary reasons for
the acquisition of RBC were to enhance shareholder value, to
improve PNC’s competitive position in the financial services
industry, and to further expand PNC’s existing branch
network in the states where it currently operates as well as
expanding into new markets.
The RBC Bank (USA) transactions noted above were
accounted for using the acquisition method of accounting and,
as such, assets acquired, liabilities assumed and consideration
exchanged were recorded at their estimated fair value on the
acquisition date. All acquired loans were also recorded at fair
value. No allowance for loan losses was carried over and no
allowance was created at acquisition. In connection with the
acquisition, the assets acquired, and the liabilities assumed,
were recorded at fair value on the date of acquisition, as
summarized in the following table:
Table 55: RBC Bank (USA) Purchase Accounting (a) (b)
In millions
Purchase price as of March 2, 2012 $ 3,599
Recognized amounts of identifiable assets acquired
and (liabilities assumed), at fair value (c)
Cash due from banks 305
Trading assets, interest-earning deposits with banks,
and other short-term investments 1,493
Loans held for sale 97
Investment securities 2,349
Net loans 14,512
Other intangible assets 180
Equity investments 35
Other assets 3,383
Deposits (18,094)
Other borrowed funds (1,321)
Other liabilities (290)
Total fair value of identifiable net assets 2,649
Goodwill $ 950
(a) The table above has been updated to reflect certain immaterial adjustments,
including final purchase price settlement.
(b) These amounts include assets and deposits related to Smartstreet, which was sold
effective October 26, 2012.
(c) These items are considered as non-cash activity for the Consolidated Statement of
Cash Flows.
In many cases the determination of estimated fair values
required management to make certain estimates about
discount rates, future expected cash flows, market conditions
and other future events that are highly subjective in nature.
The most significant of these determinations related to the fair
valuation of acquired loans. See Note 6 Purchased Loans for
further discussion of the accounting for purchased impaired
and purchased non-impaired loans, including the
determination of fair value for acquired loans.
The amount of goodwill recorded reflects the increased market
share and related synergies that are expected to result from the
acquisition, and represents the excess purchase price over the
estimated fair value of the net assets acquired by PNC. The
goodwill was assigned primarily to PNC’s Retail Banking and
Corporate & Institutional Banking segments, and is not
deductible for income tax purposes. Other intangible assets
acquired, as of March 2, 2012 consisted of the following:
Table 56: RBC Bank (USA) Intangible Assets
As of March 2, 2012
Intangible Assets (in millions)
Fair
Value
Weighted
Life
Amortization
Method
Residential mortgage servicing
rights $ 16 68 months (a)
Core deposits 164 144 months Accelerated
Total $180
(a) Intangible asset accounted for at fair value.
The PNC Financial Services Group, Inc. – Form 10-K 137