Goodwill and Other Intangible Assets

6 Months Ended

Jun. 30, 2023

Goodwill and Other Intangible Assets

Goodwill and Other Intangible Assets

6) Goodwill and Other Intangible Assets

Goodwill

At June 30, 2023, 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, $13,819,000 from its acquisition of Tri-Valley Bank, $24,271,000 from its acquisition of United American Bank and $83,878,000 from its acquisition of Presidio Bank.

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 impairment test is required. The quantitative assessment identifies if a reporting unit fair value is less than its carrying value. If it is, then the Company will recognize goodwill impairment equal to the difference between the carrying amount of the reporting unit and its fair value, not to exceed the carrying amount of goodwill.

The Company's policy is to test goodwill for impairment annually as of November 30, or on an interim basis if an event triggering impairment assessment may have occurred. During the six month period ended June 30, 2023, the economic uncertainty and market volatility resulting from the rising interest rate environment and the recent banking crisis resulted in a decrease in the Company's stock price and market capitalization and a revision of the earnings outlook for the remainder of 2023. Management believed such decreases were a triggering event requiring an interim goodwill impairment analysis.

The Company performed a qualitative impairment assessment as of June 30, 2023 to determine whether it was more likely than not that the fair value of its reporting units are less than their carrying amounts. The analysis included

analyzing qualitative factors applicable to the Company, the historical and expected financial performance of the Company, and valuation metrics of publicly traded companies comparable to the Company’s only reporting unit. As of June 30, 2023, the Company does not believe that these events or circumstances have significantly altered the long-term financial performance of the Company. Accordingly, it was determined that it is more likely than not that the fair value of the Company exceeds its carrying value as of June 30, 2023.

Management continues to monitor economic conditions for applicable changes. As the decrease in the Company's stock prices was one of the drivers of the triggering event requiring an interim goodwill impairment analysis, the rebound in the Company's stock price in June and July 2023 supports management's conclusion that it is more likely than not that the fair value of the Company exceeds its carrying value as of June 30, 2023. However, future events could cause the Company to conclude that the Company’s goodwill has become impaired, which would result in recording an impairment loss. Any resulting impairment loss could have a material adverse impact on the Company’s financial condition and results of operations. Management will continue evaluating the economic conditions at future reporting periods for applicable changes.

The following table summarizes the carrying amount of goodwill by segment for the periods indicated:

	June 30,		December 31,
	2023		2022
	(Dollars in thousands)
Banking	$	154,587	$	154,587
Factoring		13,044		13,044
Total Goodwill	$	167,631	$	167,631

Other Intangible Assets

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

	June 30, 2023
	Gross
	Carrying		Accumulated
	Amount		Amortization		Total
	(Dollars in thousands)
Core deposit intangibles	$	25,023	$	(15,538)	$	9,485
Customer relationship and brokered relationship intangibles		1,900		(1,646)		254
Below market leases		110		(19)		91
Total	$	27,033	$	(17,203)	$	9,830

	December 31, 2022
	Gross
	Carrying		Accumulated
	Amount		Amortization		Total
	(Dollars in thousands)
Core deposit intangibles	$	25,023	$	(14,429)	$	10,594
Customer relationship and brokered relationship intangibles		1,900		(1,551)		349
Below market leases		110		(20)		90
Total	$	27,033	$	(16,000)	$	11,033

As of June 30, 2023, the estimated amortization expense for future periods is as follows:

				Customer &	Below/
	Core			Brokered	(Above)		Total
	Deposit			Relationship	Market		Amortization
Year	Intangible			Intangible	Lease		Expense
		(Dollars in thousands)
2023 remaining	$	1,108		95	$	(1)	$	1,202
2024		2,023		159		5		2,187
2025		1,795		—		18		1,813
2026		1,512		—		18		1,530
2027		1,438		—		18		1,456
2028		999		—		18		1,017
2029		610		—		15		625
	$	9,485	$	254	$	91	$	9,830

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 June 30, 2023 and December 31, 2022.