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Goodwill and Other Intangible Assets
9 Months Ended
Sep. 30, 2023
Goodwill and Other Intangible Assets  
Goodwill and Other Intangible Assets

6) Goodwill and Other Intangible Assets

Goodwill

At September 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’s 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. In the second quarter of 2023, Management determined that a triggering event had occurred as a result of the economic uncertainty and market volatility resulting from the rising interest rate environment and the recent three regional bank failures that resulted in an industry wide 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.  The Company performed a qualitative assessment as of June 30, 2023 and determined that there was no impairment as the fair value exceeded the carrying amount of the Company. The Company continued to monitor events and circumstances in the third quarter of 2023 and determined that, in the absence of deterioration of performance during

the quarter and based on the stability of conditions subsequent to the impairment testing performed in the second quarter of 2023, it was more likely than not that its fair value was greater than its carrying value as of September 30, 2023.

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

September 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:

September 30, 2023

Gross

Carrying

Accumulated

Amount

Amortization

Total

(Dollars in thousands)

Core deposit intangibles

$

25,023

$

(16,091)

$

8,932

Customer relationship and brokered relationship intangibles

1,900

(1,694)

206

Below market leases

110

(19)

91

Total

$

27,033

$

(17,804)

$

9,229

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 September 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

$

555

47

$

(1)

$

601

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

$

8,932

$

206

$

91

$

9,229

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, 2023 and December 31, 2022.