GOODWILL AND INTANGIBLE ASSETS

12 Months Ended

Dec. 31, 2020

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 31st 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 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 2020, U.S. economic conditions deteriorated significantly due to the COVID-19 pandemic and associated lockdowns. For the year ended December 31, 2020, Citizens performed a quantitative analysis to determine whether the fair value of either of its reporting units was less than the respective reporting unit’s carrying value. 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. As a result of this quantitative assessment, the Company determined that there was no impairment to the carrying value of the Company's goodwill as of December 31, 2020.

On March 4, 2020, the Company expanded its capital markets and financial advisory position through the acquisition of Trinity Capital, a Los Angeles-based advisory firm that delivers a range of financial services to commercial clients, which resulted in an increase to goodwill of $6 million. Changes in the carrying value of goodwill for the years ended December 31, 2020 and 2019 are presented below.


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

Balance at December 31, 2020	$2,258	$4,792	$7,050

Accumulated impairment losses related to the Consumer Banking reporting unit totaled $5.9 billion at December 31, 2020 and 2019. The accumulated impairment losses related to the Commercial Banking reporting unit totaled $50 million at December 31, 2020 and 2019. No impairment was recorded for the years ended December 31, 2020, 2019 and 2018.

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.


		December 31, 2020			December 31, 2019
(in millions)	Amortizable Lives (years)	Gross	Accumulated Amortization	Net	Gross	Accumulated Amortization	Net
Acquired technology	7	$21	$7	$14	$21	$4	$17
Acquired relationships	5 - 15	38	10	28	37	5	32
Naming Rights	10	11	2	9	11	1	10
Other	2 - 7	13	6	7	13	4	9
Total		$83	$25	$58	$82	$14	$68

As of December 31, 2020, all of the Company’s intangible assets were being amortized. Amortization expense recognized on intangible assets was $11 million, $11 million and $3 million for the year ended December 31, 2020, 2019, and 2018, respectively. The Company’s projection of amortization expense is based on balances as of December 31, 2020, 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
2021			$10
2022			9
2023			9
2024			8
2025			7