GOODWILL

9 Months Ended

Sep. 30, 2020

Goodwill and Intangible Assets Disclosure [Abstract]

NOTE 6 - GOODWILL

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 quantitative assessment of goodwill.

Citizens may elect to bypass the qualitative assessment and perform a quantitative assessment. The quantitative assessment, 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 inclusive of goodwill, applicable goodwill is deemed to be not impaired. If the carrying value of the reporting unit inclusive of goodwill exceeds its fair value, an impairment charge is recorded for the excess. The impairment loss recognized cannot exceed the amount of goodwill assigned to the 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.

In the first quarter of 2020, U.S. economic conditions deteriorated significantly with the spread of the COVID-19 pandemic and associated lockdowns. In response to the crises and the ongoing impacts to the banking industry and markets in which Citizens operates, the Company performed a quantitative goodwill impairment assessment in the third quarter 2020. When calculating the fair value of the Company’s reporting units under the income approach, short and medium-term forecasts incorporated current economic conditions and ongoing impacts of the COVID-19 pandemic, including a federal funds target near zero and near-term elevated ACL, offset by significant monetary and fiscal stimulus. Long-term cash flow projections reflected normalized rate and credit environments, as well as a long-term rate of return for each reporting unit. At the conclusion of the quantitative assessment it was determined that the estimated fair value of the Commercial Banking reporting unit exceeded its carrying amount by approximately 5%, and that of the Consumer Banking reporting unit substantially exceeded its carrying value.

The change in the carrying value of goodwill for the nine months ended September 30, 2020 is presented below:



(in millions)	Consumer Banking		Commercial Banking		Total
Balance at December 31, 2019		$2,258		$4,786		$7,044
Business acquisitions	—		6		6
Balance at September 30, 2020		$2,258		$4,792		$7,050

Accumulated impairment losses related to the Consumer Banking reporting unit totaled $5.9 billion at September 30, 2020 and December 31, 2019. The accumulated impairment losses related to the Commercial Banking reporting unit totaled $50 million at September 30, 2020 and December 31, 2019. No impairment was recorded for the three and nine months ended September 30, 2020 or 2019.