GOODWILL AND INTANGIBLE ASSETS

12 Months Ended

Dec. 31, 2019

Goodwill and Intangible Assets Disclosure [Abstract]

NOTE 9 - GOODWILL AND INTANGIBLE ASSETS

Goodwill is the purchase premium associated with the acquisition of a business and is assigned to the Company’s reporting units at the acquisition date. A reporting unit is a business operating segment or a component of a business operating segment. Citizens has identified and assigned goodwill to two reporting units - Consumer Banking and Commercial Banking - based upon reviews of the structure of the Company’s executive team and supporting functions, resource allocations and financial reporting processes. Once goodwill has been assigned to reporting units, it no longer retains its association with a particular acquisition, and all of the activities within a reporting unit, whether acquired or organically grown, are available to support the value of the goodwill.

Goodwill is not amortized, but is subject to annual impairment tests. Citizens reviews goodwill for impairment annually as of October 31^st and in interim periods when events or changes indicate the carrying value of one or more reporting units may not be recoverable. The Company has the option of performing a qualitative assessment of goodwill to determine whether it is more likely than not that the fair value of each reporting unit is less than the carrying value. If it is more likely than not that the fair value exceeds the carrying value, then no further testing is necessary; otherwise, Citizens must perform a two-step quantitative assessment of goodwill.

Citizens may elect to bypass the qualitative assessment and perform a two-step quantitative assessment. The first step, used to identify potential impairment, involves comparing each reporting unit’s fair value to its carrying value, including goodwill. If the fair value of a reporting unit exceeds its carrying value, applicable goodwill is deemed to be not impaired. If the carrying value exceeds fair value, there is an indication of impairment and the second step is performed to measure the amount of impairment.

The second step involves calculating an implied fair value of goodwill for each reporting unit for which the first step indicated impairment. The implied fair value of goodwill is determined in the same manner as the amount of goodwill recognized in a business combination, which is the excess of the fair value of the reporting unit, as determined in the first step, over the aggregate fair values of the individual assets, liabilities and identifiable intangible. If the implied fair value of goodwill exceeds the carrying value of goodwill assigned to the reporting unit, there is no impairment. If the carrying value of goodwill assigned to a reporting unit exceeds the implied fair value of the goodwill, an impairment charge is recorded for the excess. An impairment loss that is recognized cannot

exceed the amount of goodwill assigned to a reporting unit, and the loss establishes a new basis in the goodwill. Subsequent reversal of goodwill impairment losses is not permitted.

Under the quantitative impairment assessment, the fair values of the Company’s reporting units are determined using a combination of income and market-based approaches. Citizens relies on the income approach (discounted cash flow method) for determining fair value. Market and transaction approaches are used as benchmarks only to corroborate the value determined by the discounted cash flow method. Citizens relies on several assumptions when estimating the fair value of its reporting units using the discounted cash flow method. These assumptions include the discount rate, as well as projected loan loss, income tax and capital retention rates.

Discount rates are estimated based on the Capital Asset Pricing Model, which considers the risk-free interest rate, market risk premium, beta, and size premium adjustments specific to a particular reporting unit. The discount rates are also calibrated on the assessment of the risks related to the projected cash flows of each reporting unit. Cash flow projections include estimates for projected loan loss, income tax and capital retention rates. Multi-year financial forecasts are developed for each reporting unit by considering several key business drivers such as new business initiatives, customer retention standards, market share changes, anticipated loan and deposit growth, forward interest rates, historical performance, and industry and economic trends, among other considerations. The long-term growth rate used in determining the terminal value of each reporting unit is estimated based on management’s assessment of the minimum expected terminal growth rate of each reporting unit, as well as broader economic considerations such as GDP and inflation.

Citizens bases its fair value estimates on assumptions it believes to be representative of assumptions that a market participant would use in valuing the reporting unit but that are unpredictable and inherently uncertain, including estimates of future growth rates and operating margins and assumptions about the overall economic climate and the competitive environment for its reporting units. There can be no assurances that future estimates and assumptions made for purposes of goodwill testing will prove accurate predictions of the future. If the assumptions regarding business plans, competitive environments or anticipated growth rates are not achieved, Citizens may be required to record goodwill impairment charges in future periods.

For the year ended December 31, 2019, Citizens elected to perform a qualitative analysis to determine whether it was more likely than not that the fair value of either of its reporting units was less than the respective reporting unit’s carrying value. As a result of this qualitative assessment, the Company determined that it was not necessary to perform a quantitative impairment test and concluded that there was no impairment to the carrying value of the Company's goodwill.

The Company acquired Clarfeld in January 2019 and Bowstring in March 2019, which resulted in increases to goodwill of $83 million and $35 million, respectively. Changes in the carrying value of goodwill for the years ended December 31, 2019 and 2018 are presented below:



(in millions)	Consumer Banking			Commercial Banking		Total
Balance at December 31, 2017		$2,136			$4,751		$6,887
Business acquisition	59			—		59
Adjustments ⁽¹⁾	(23		)	—		(23		)
Balance at December 31, 2018		$2,172			$4,751		$6,923
Business acquisitions	83			35		118
Adjustments	3			—		3
Balance at December 31, 2019		$2,258			$4,786		$7,044

⁽¹⁾Adjustments to goodwill are the result of an update to the purchase price allocation for the FAMC acquisition, given higher value attributed to purchased net assets.

Accumulated impairment losses related to the Consumer Banking reporting unit totaled $5.9 billion at December 31, 2019 and 2018. The accumulated impairment losses related to the Commercial Banking reporting unit totaled $50 million at December 31, 2019 and 2018. No impairment was recorded for the years ended December 31, 2019, 2018 and 2017.

Other Intangibles

Other intangible assets are recognized separately from goodwill if the asset arises as a result of contractual rights or if the asset is capable of being separated and sold, transferred or exchanged. Intangible assets are recorded in other assets on the Consolidated Balance Sheets. Intangible assets are amortized on a straight-line basis and subject to an annual impairment evaluation. Amortization expense is recorded in other expenses in our Consolidated Statements of Operations.

A summary of the carrying value of intangible assets is presented below. Included in the carrying value at December 31, 2019 was $19 million and $5 million in other intangibles related to the Clarfeld and Bowstring acquisitions, respectively. Additionally, included in the carrying value at December 31, 2019 was $18 million related to the March 2019 purchase of naming rights for a theater in Boston, Massachusetts, and a sponsorship and promotion arrangement.



		December 31, 2019						December 31, 2018
(in millions)	Amortizable Lives (years)	Gross		Accumulated Amortization		Net		Gross		Accumulated Amortization		Net
Acquired technology	7		$21		$4		$17		$20		$1		$19
Acquired relationships	5 - 15	37		5		32		11		1		10
Naming Rights	10	11		1		10		—		—		—
Other	2 - 7	13		4		9		3		1		2
Total			$82		$14		$68		$34		$3		$31

As of December 31, 2019, all of the Company’s intangible assets were being amortized. Amortization expense recognized on intangible assets was $11 million and $3 million for the year ended December 31, 2019 and 2018, respectively. There was no amortization expense recognized on intangible assets for the year ended December 31, 2017. The Company’s projection of amortization expense is based on balances as of December 31, 2019, and future amortization expense may vary from these projections.

Estimated intangible asset amortization expense for the next five years is as follows:



(in millions)	Total
2020		$11
2021	10
2022	9
2023	9
2024	8