Goodwill and Other Intangible Assets

9 Months Ended

Sep. 30, 2020

Goodwill and Other Intangible Assets

Goodwill and Other Intangible Assets

7) Goodwill and Other Intangible Assets

Goodwill

At September 30, 2020, the carrying value of goodwill was $167,631,000, which included $13,044,000 of goodwill related to its acquisition of Bay View Funding, $32,619,000 from its acquisition of Focus Business Bank (“Bank”), $13,819,000 from its acquisition of Tri-Valley, $24,271,000 from its acquisition of United American and $83,878,000 from Presidio.

Goodwill impairment exists when a reporting unit’s carrying value exceeds its fair value, which is determined through a qualitative assessment whether it is more likely than not that the fair value of equity of the reporting unit exceeds the carrying value (“Step Zero”). If the qualitative assessment indicates it is more likely than not that the fair value of equity of a reporting unit is less than book value, then a quantitative two-step impairment test is required. Step 1 includes the determination of the carrying value of the Company’s reporting units, including the existing goodwill and intangible assets, and estimating the fair value of each reporting unit.

We performed our required annual goodwill impairment test as of November 30, 2019 and there was no impairment. During the first nine months of 2020 bank stocks in general as well as our market capitalization have declined as a result of events surrounding the current COVID-19 pandemic outbreak. As a result, we completed a qualitative goodwill impairment test as of September 30, 2020. This qualitative analysis included a review of our earnings, asset quality trends, capital levels and the economic conditions of our markets. Based on this qualitative analysis we do not believe this decline is indicative of a permanent deterioration of the fundamental value of our Company. As such we do not believe that it is more likely than not a goodwill impairment exists at September 30, 2020.

Other Intangible Assets

The Company’s intangible assets are summarized as follows for the periods indicated:

	September 30, 2020
	Gross
	Carrying		Accumulated
	Amount		Amortization		Total
	(Dollars in thousands)
Core deposit intangibles	$	25,023	$	(8,300)	$	16,723
Customer relationship and brokered relationship intangibles		1,900		(1,124)		776
Below market leases		770		(641)		129
Total	$	27,693	$	(10,065)	$	17,628

	December 31, 2019
	Gross
	Carrying		Accumulated
	Amount		Amortization		Total
	(Dollars in thousands)
Core deposit intangibles	$	25,023	$	(5,846)	$	19,177
Customer relationship and brokered relationship intangibles		1,900		(981)		919
Below market leases		770		(451)		319
Total	$	27,693	$	(7,278)	$	20,415

Estimated amortization expense for the remainder of 2020, the next five years, and thereafter is as follows:

					United		United								Bay View Funding
	Presidio		Presidio		American		American		Tri-Valley		Tri-Valley		Focus		Customer &
	Core		Above		Core		Below		Core		Below		Core		Brokered		Total
	Deposit		Market		Deposit		Market		Deposit		Market		Deposit		Relationship		Amortization
Year	Intangible		Lease		Intangible		Lease		Intangible		Lease		Intangible		Intangible		Expense
						(Dollars in thousands)
2020	$	456		(4)	$	166	$	43	$	52	$	4	$	181	$	47	$	945
2021		1,447		(20)		602		—		184		18		596		190		3,017
2022		1,225		(20)		553		—		167		18		502		190		2,635
2023		1,118		(20)		521		—		158		18		420		190		2,405
2024		1,026		(14)		499		—		152		18		346		159		2,186
2025		970		—		478		—		145		18		200		—		1,811
Thereafter		3,211		—		1,042		—		306		70		—		—		4,629
	$	9,453	$	(78)	$	3,861	$	43	$	1,164	$	164	$	2,245	$	776	$	17,628

Impairment testing of the intangible assets is performed at the individual asset level. Impairment exists if the carrying amount of the asset is not recoverable and exceeds its fair value at the date of the impairment test. For intangible assets, estimates of expected future cash flows (cash inflows less cash outflows) that are directly associated with an intangible asset are used to determine the fair value of that asset. Management makes certain estimates and assumptions in determining the expected future cash flows from core deposit and customer relationship intangibles including account attrition, expected lives, discount rates, interest rates, servicing costs and other factors. Significant changes in these estimates and assumptions could adversely impact the valuation of these intangible assets. If an impairment loss exists, the carrying amount of the intangible asset is adjusted to a new cost basis. The new cost basis is then amortized over the remaining useful life of the asset. Based on its assessment, management concluded that there was no impairment of intangible assets at September 30, 2020 and December 31, 2019.