INTANGIBLE ASSETS
GOODWILL
Goodwill allocated to each reportable segment at December 31 is presented as follows:
|
| | | | | | | |
| 2013 | | 2012 |
| (In millions) |
Business Services | $ | 2,552 |
| | $ | 2,552 |
|
Consumer Services | 1,797 |
| | 1,797 |
|
Wealth Management | 467 |
| | 467 |
|
| $ | 4,816 |
| | $ | 4,816 |
|
There were no additions during 2013, 2012 or 2011. There were no impairment losses in either 2013 or 2012. There was $745 million in impairment losses in 2011.
As stated in Note 1, Regions evaluates each reporting unit’s goodwill for impairment on an annual basis in the fourth quarter, or more often if events or circumstances indicate that there may be impairment. Adverse changes in the economic environment, declining operations, or other factors could result in a decline in the implied fair value of goodwill. A goodwill impairment test includes two steps. Step One, used to identify potential impairment, compares the estimated fair value of a reporting unit with its carrying amount, including goodwill. If the estimated fair value of a reporting unit exceeds its carrying amount, goodwill of the reporting unit is considered not impaired. If the carrying amount of a reporting unit exceeds its estimated fair value, the second step of the goodwill impairment test is performed to measure the amount of impairment loss, if any. Step Two of the goodwill impairment test compares the implied estimated fair value of reporting unit goodwill with the carrying amount of that goodwill. If the carrying amount of goodwill for that reporting unit exceeds the implied fair value of that unit’s goodwill, an impairment loss is recognized in an amount equal to that excess.
During the fourth quarter of 2013, Regions assessed the indicators of goodwill impairment for all three reporting units as part of its annual impairment test, as of October 1, 2013, and through the date of the filing of this Annual Report. The indicators assessed included:
| |
• | Recent operating performance, |
| |
• | Changes in market capitalization, |
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• | Regulatory actions and assessments, |
| |
• | Changes in the business climate (including legislation, legal factors, and competition), |
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• | Company-specific factors (including changes in key personnel, asset impairments, and business dispositions), and |
| |
• | Trends in the banking industry. |
The results of the annual test indicated that the estimated fair value of each reporting unit exceeded its carrying amount as of the test date; therefore, the goodwill of each reporting unit is considered not impaired as of the testing date.
Listed in the table below are assumptions used in estimating the fair value of each reporting unit for the December 31, 2013 annual period. The table includes the discount rates used in the income approach, the market multipliers used in the market approaches, and the public company method control premium applied to each reporting unit. These valuation approaches are described further in Note 1.
|
| | | | | | | | |
As of Fourth Quarter 2013 | Business Services | | Consumer Services | | Wealth Management |
Discount rate used in income approach | 12 | % | | 12 | % | | 12 | % |
Public company method market multiplier(1) | 1.2 | x | | 1.2 | x | | 15.4 | x |
Transaction method market multiplier(2) | 1.5 | x | | 1.5 | x | | 25.2 | x |
_________
| |
(1) | For the Business Services and Consumer Services reporting units, these multipliers are applied to tangible book value. For the Wealth Management reporting unit, this multiplier is applied to earnings. In addition to the multipliers, a 30 percent control premium was assumed for the Business Services reporting unit, a 35 percent control premium was assumed for the Consumer Services reporting unit and a 30 percent control premium was assumed for the Wealth Management reporting unit based on current market factors. Because the control premium considers potential revenue synergies and cost savings for similar financial services transactions, reporting units operating in businesses that have greater barriers to entry tend to have greater control premiums. |
| |
(2) | For the Business Services and Consumer Services reporting units, these multipliers are applied to tangible book value. For the Wealth Management reporting unit, this multiplier is applied to earnings. |
|
| | | | | | | | |
As of Fourth Quarter 2012 | Business
Services | | Consumer
Services | | Wealth
Management |
Discount rate used in income approach | 14 | % | | 13 | % | | 13 | % |
Public company method market multiplier(1) | 1.2 | x | | 1.0 | x | | 14.0 | x |
Transaction method market multiplier(2) | 1.3 | x | | 1.3 | x | | 25.2 | x |
_________
| |
(1) | For the Business Services and Consumer Services reporting units, these multipliers are applied to tangible book value. For the Wealth Management reporting unit, this multiplier is applied to earnings. In addition to the multipliers, a 20 percent control premium was assumed for the Business Services reporting unit, a 40 percent control premium was assumed for the Consumer Services reporting unit and a 30 percent control premium was assumed for the Wealth Management reporting unit based on current market factors. Because the control premium considers potential revenue synergies and cost savings for similar financial services transactions, reporting units operating in businesses that have greater barriers to entry tend to have greater control premiums. |
| |
(2) | For the Business Services and Consumer Services reporting units, these multipliers are applied to tangible book value. For the Wealth Management reporting unit, this multiplier is applied to earnings. |
OTHER INTANGIBLES
Other intangibles consist of core deposit intangibles, purchased credit card relationship assets, and customer relationship and employment agreement assets.
A summary of core deposit intangible assets at December 31 is presented as follows:
|
| | | | | | | | |
| | 2013 | | 2012 |
| | (In millions) |
Balance at beginning of year, net | | $ | 176 |
| | $ | 259 |
|
Accumulated amortization, beginning of year | | (835 | ) | | (752 | ) |
Amortization | | (28 | ) | | (83 | ) |
Accumulated amortization, end of year | | (863 | ) | | (835 | ) |
Balance at end of year, net | | $ | 148 |
| | $ | 176 |
|
Regions’ core deposit intangible assets are being amortized to other non-interest expense on an accelerated basis over their expected useful lives.
A summary of Regions’ other intangible assets as of December 31 is presented as follows:
|
| | | | | | | | |
| | 2013 | | 2012 |
| | (In millions) |
Net Book Value | | $ | 147 |
| | $ | 169 |
|
Current Year Amortization | | 26 |
| | 27 |
|
These other intangible assets resulted from purchased credit card relationships, customer relationships and employment agreements related to various acquisitions and are being amortized to other non-interest expense primarily on an accelerated basis over a period ranging from 2 to 15 years.
The aggregate amount of amortization expense for core deposit intangible assets, credit card intangibles, and other intangible assets is estimated as follows:
|
| | | |
| Year Ended December 31 |
| (In millions) |
2014 | $ | 50 |
|
2015 | 45 |
|
2016 | 40 |
|
2017 | 36 |
|
2018 | 30 |
|
Identifiable intangible assets other than goodwill are reviewed at least annually, usually in the fourth quarter, for events or circumstances that could impact the recoverability of the intangible asset. These events could include loss of core deposits, significant losses of credit card accounts and/or balances, increased competition or adverse changes in the economy. To the extent other identifiable intangible assets are deemed unrecoverable, impairment losses are recorded in other non-interest expense to reduce the carrying amount. Regions concluded that no impairment for core deposit intangibles or any other identifiable intangible assets occurred during 2013 or 2012.
