GOODWILL AND INTANGIBLE ASSETS

The following table summarizes the goodwill balance by segment.

Goodwill (dollars in millions)



	Commercial Banking			Consumer Banking			Total
December 31, 2015⁽¹⁾	$	689.0		$	374.2		$	1,063.2
Impairment⁽²⁾	(34.8		)	(319.4		)	(354.2		)
Other activity⁽³⁾	(12.0		)	(11.6		)	(23.6		)
December 31, 2016	642.2			43.2			685.4
Impairment⁽²⁾	(255.6		)	—			(255.6		)
Transfers to Held for Sale	(65.1		)	—			(65.1		)
Foreign exchange translation	5.2			—			5.2
December 31, 2017	$	326.7		$	43.2		$	369.9


⁽¹⁾	In preparing the interim financial statements for the quarter ended June 30, 2016, the Company discovered and corrected an immaterial error impacting the December 31, 2015 goodwill allocation among Consumer Banking and Commercial Banking in the amount of $23.2 million. The reclassification had no impact on the Company's Balance Sheet and Statements of Income or Cash Flows for any period.


⁽²⁾	The impairment charges exclude goodwill impairment recorded upon transfer of assets to held for sale of $4 million and $15 million for the years ended December 31, 2016 and 2015, respectively.


⁽³⁾	Includes measurement period adjustments related to the OneWest transaction, as described below, and foreign exchange translation.

The December 31, 2015 goodwill included amounts from CIT's emergence from bankruptcy in 2009, and its 2014 acquisitions of Capital Direct Group and its subsidiaries ("Direct Capital"), and NACCO, an independent full service railcar lessor in Europe. On January 31, 2014, CIT acquired 100% of the outstanding shares of Paris-based NACCO. The purchase price was approximately $250 million and the acquired assets and liabilities were recorded at their estimated fair values as of the acquisition date, resulting in $77 million of goodwill. On August 1, 2014, CIT Bank acquired 100% of Direct Capital, a U.S. based lender providing equipment financing to small and mid-sized businesses operating across a range of industries. The purchase price was approximately $230 million and the acquired assets and liabilities were recorded at their estimated fair values as of the acquisition date resulting in approximately $170 million of goodwill. In addition, intangible assets of approximately $12 million were recorded relating mainly to the valuation of existing customer relationships and trade names.

On August 3, 2015, CIT acquired 100% of IMB HoldCo LLC, the parent company of OneWest Bank. The purchase price was approximately $3.4 billion and the acquired assets and liabilities were recorded during the third quarter 2016 at their estimated fair value as of the acquisition date resulting in $598 million of goodwill recorded in the third quarter of 2016, which was ultimately adjusted to $642.5 million as a result of measurement period adjustments. The determination of estimated fair values required management to make certain estimates about discount rates, future expected cash flows (that may reflect collateral values), market conditions and other future events that are highly subjective in nature and may require adjustments, which can be updated throughout the year following the acquisition. Subsequent to the acquisition, management continued to review information relating to events or circumstances existing at the acquisition date. This review resulted in adjustments to the acquisition date valuation amounts, which decreased the goodwill balance from $663 million as of December 31, 2015, to $642.5 million as of the end of the measurement period in the third quarter of 2016. Prior to the impairment charge of $319.4 million taken during the fourth quarter of 2016, $362.6 million of the goodwill balance was associated with the Consumer Banking business segment. The remaining goodwill was allocated to the Commercial Finance and Real Estate Finance reporting units in Commercial Banking. Additionally, intangible assets of approximately $165 million were recorded relating mainly to the valuation of core deposit intangibles, trade name and customer relationships, as detailed in the table below.

The table above does not include approximately $136 million of goodwill that was transferred to discontinued operations as a result of the movement of the Commercial Air and Business Air businesses to discontinued operations during 2016. In addition, during the second quarter of 2017, we announced that we reached a definitive agreement to sell NACCO, and therefore transferred the portfolio to held for sale. As a result, approximately $65 million of goodwill within Commercial Banking, including foreign exchange translation adjustments, was transferred to held for sale.

Once goodwill has been assigned, it no longer retains its association with a particular event or acquisition, and all of the activities within a reporting unit, whether acquired or internally generated, are available to support the value of goodwill.

In accordance with ASC 350, Intangibles — Goodwill and other, goodwill is assessed for impairment at least annually, or more often if events or circumstances have changed significantly from the annual test date that would indicate a potential reduction in the fair value of the reporting unit below its carrying value. CIT defines its reporting units as Commercial Finance, Real Estate Finance, Equipment Finance, Commercial Services, Rail and Consumer Banking.

The Company performs its annual goodwill impairment test during the fourth quarter of each year or more often if events or circumstances have changed significantly from the annual test date, utilizing data as of September 30 to perform the test.

Accordingly, during the fourth quarter of 2017, the Company performed its annual goodwill impairment test.

As discussed in Note 1 - Business and Summary of Significant Accounting Policies, the Company adopted ASU 2017-04, Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment which requires entities to record an impairment charge based on the excess of a reporting unit's carrying amount over its fair value (the "quantitative impairment test"). Companies can also choose to assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount, before applying the quantitative approach.

For 2017, we performed the quantitative impairment test for all Reporting Units ("RUs"), including Commercial Finance, Commercial Services, Equipment Finance, Rail, Real Estate Finance and Consumer Banking.

Fair Value

Determining the value of the RUs as part of the quantitative impairment test involves significant judgment. The Company used a combination of the Income Approach (i.e. discounted cash flow method) and the Market Approach (i.e. Guideline Public Company ("GPC") and, where applicable, Guideline Merged and Acquired Company ("GMAC") methods) to determine the fair value.

In the application of the Income Approach, the Company determined the fair value of the RUs using a discounted cash flow ("DCF") analysis. The DCF model uses earnings projections and respective capitalization assumptions based on two-year financial plans presented to the Board of Directors. Beyond the initial two-year period, the projections converge toward a constant long-term growth rate of up to 3% based on the projected revenues of the RU, as well as expectations for the development of gross domestic product and inflation, which are captured in the terminal value. Estimating future earnings and capital requirements involves judgment and the consideration of past and current performance and overall macroeconomic and regulatory environments.

The cash flows determined based on the process described above are discounted to their present value. The discount rate (cost of equity) applied is comprised of a risk-free interest rate, an equity risk premium, a size premium and a factor covering the systematic market risk (RU-specific beta) and, where applicable, a company specific risk premium. The values for the factors applied are determined primarily using external sources of information. The RU-specific betas are determined based on a group of peer companies. The discount rates applied to the RUs ranged from 10% to 12.75%.

In our application of the market approach, for the GPC Method, the Company applied market based multiples derived from the stock prices of companies considered by management to be comparable to each of the RUs, to various financial metrics for each of the Reporting Units, as determined applicable to those reporting units, including tangible book or book value, earnings and projected earnings. In addition, the Company applied a 25% control premium based on our review of transactions observable in the market place that we determined were comparable. The control premium is management's estimate of how much a market participant would be willing to pay over the fair market value for control of the business.

With respect to the application of the GMAC method, the Company used actual prices paid in merger and acquisition transactions for similar public and private companies in the banking industry. The multiples were then applied to relevant financial metrics of the RUs.

A weighting is ascribed to each of the results of the Income and Market approaches to determine the concluded fair value of each RU. The weighting is judgmental and is based on the perceived level of appropriateness of the valuation methodology for each specific RU.

Estimating the fair value of reporting units involves the use of estimates and significant judgments that are based on a number of factors including actual operating results. If current conditions change from those expected, it is reasonably possible that the judgments and estimates described above could change in future periods.

Carrying Amount

The carrying amount of the RUs is determined using a capital allocation methodology. The allocation uses the Company's total equity at the date of valuation, which is allocated to each of the Company's businesses, including the RUs, and to the other areas of the Company not included in the RUs. The allocation is informed by internal analysis and the current target regulatory capital of the Company, to determine the allocated capital.

Based on the quantitative analysis, as described above, the Company concluded that the carrying amount of the Equipment Finance and Commercial Services RUs exceeded their estimated fair value and thus the Company recorded an impairment of the Equipment Finance and Commercial Services RUs of $247.0 million and $8.6 million, respectively, representing the full amount of goodwill assigned to the RUs.

As described above, approximately $170 million of Equipment Finance's goodwill was recorded in August of 2014 as a result of the Direct Capital acquisition. Equipment Finance's remaining goodwill balance of approximately $80 million was attributed to the RU at the time of emergence from bankruptcy in 2009. The impairment charge in 2017 was primarily the result of forecasted margin compression on new business due to a limited ability to fully pass on interest rate increases to our higher yielding customers, a shift in volume to lower yielding, lower risk businesses that are not yet at scale, and lower than expected end-of-lease activity.

Goodwill for Commercial Services of approximately $43 million was attributed at the time of emergence from bankruptcy in 2009. During 2016, the Company recorded goodwill impairment of $34.8 million for the RU as the fundamentals of the factoring business had come under increasing pressure from a challenging retail environment and tighter pricing on factoring commissions. The remaining goodwill of $8.6 million was impaired during the fourth quarter of 2017.

Intangible Assets

The following table presents the gross carrying value and accumulated amortization for intangible assets, excluding fully amortized intangible assets.

Intangible Assets (dollars in millions)



	December 31, 2017							December 31, 2016
	Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount
Core deposit intangibles	$	126.3	$	(43.6	)	$	82.7	$	126.3	$	(25.4	)	$	100.9
Trade names	24.7		(7.7		)	17.0		27.4		(6.1		)	21.3
Customer relationships	23.9		(10.6		)	13.3		23.9		(7.1		)	16.8
Other	7.4		(7.4		)	—		9.7		(8.0		)	1.7
Total intangible assets	$	182.3	$	(69.3	)	$	113.0	$	187.3	$	(46.6	)	$	140.7

The following table presents the changes in intangible assets:

Intangible Assets Rollforward (dollars in millions)



	Customer Relationships			Core Deposit Intangibles			Trade Names			Other			Total
December 31, 2015	$	20.7		$	118.8		$	24.4		$	2.2		$	166.1
Additions	—			—			—			1.8			1.8
Amortization⁽¹⁾	(3.9		)	(17.9		)	(3.1		)	(2.3		)	(27.2		)
December 31, 2016	16.8			100.9			21.3			1.7			140.7
Amortization⁽¹⁾	(3.5		)	(18.2		)	(2.8		)	(0.8		)	(25.3		)
Other⁽²⁾	—			—			(1.5		)	(0.9		)	(2.4		)
December 31, 2017	$	13.3		$	82.7		$	17.0		$	—		$	113.0


⁽¹⁾	Includes amortization recorded in operating expenses and operating lease rental income.


⁽²⁾	Includes adjustments as a result of the transfer of NACCO to held for sale.

The intangible asset balances primarily reflect the intangibles recognized as a result of the OneWest Bank Transaction. The largest component is related to the valuation of core deposits. Core deposit intangibles ("CDIs") represent future benefits arising from non-contractual customer relationships (e.g., account relationships with the depositors) acquired from the purchase of demand deposit accounts, including interest and non-interest bearing checking accounts, money market and savings accounts. The Company's CDI has a finite life and is amortized on a straight line basis over the estimated useful life, with a remaining life of five years. Amortization expense for the intangible assets is primarily recorded in operating expenses.

Intangible assets prior to the OneWest Transaction included the operating lease rental intangible assets comprised of amounts related to net favorable (above current market rates) operating leases. The intangible assets also include approximately $6.1 million, net, related to the valuation of existing customer relationships and trade names recorded in conjunction with the acquisition of Direct Capital in 2014.

Accumulated amortization totaled $69.3 million at December 31, 2017. Projected amortization for the years ended December 31, 2018 through December 31, 2022, is approximately $23.8 million, $23.2 million, $22.8 million, $22.0 million, and $13.4 million, respectively.