NOTE 9. GOODWILL AND OTHER INTANGIBLE ASSETS

The following table summarizes the changes in the Company's goodwill and other intangible assets for the years ended December 31, 2008, 2009, 2010, and 2011. Goodwill is reflected by operating segment; all other intangible assets are related to the Community Banking segment.

(in thousands)


	Goodwill
	Community Banking									Wealth Management
	Gross			Accumulated Impairment			Total			Gross		Accumulated Impairment			Total
Balance, December 31, 2008	$	719,336		$	—		$	719,336		$	3,697	$	(982	)	$	2,715
Reductions		(81	)		—			(81	)		—		—			—
Impairment		—			(111,952	)		(111,952	)		—		—			—

Balance, December 31, 2009		719,255			(111,952	)		607,303			3,697		(982	)		2,715
Net additions		45,954			—			45,954			—		—			—
Reductions		(96	)		—			(96	)		—		—			—

Balance, December 31, 2010		765,113			(111,952	)		653,161			3,697		(982	)		2,715
Net additions		247			—			247			—		—			—
Reductions		(44	)		—			(44	)		—		—			—

Balance, December 31, 2011	$	765,316		$	(111,952	)	$	653,364		$	3,697	$	(982	)	$	2,715


	Other Intangible Assets
	Gross			Accumulated Amortization			Net
Balance, December 31, 2008	$	56,213		$	(20,432	)	$	35,781
Impairment		—			(804	)		(804	)
Amortization		—			(5,361	)		(5,361	)

Balance, December 31, 2009		56,213			(26,597	)		29,616
Net additions		7,016			—			7,016
Reductions		(5,150	)		—			(5,150	)
Amortization		—			(5,389	)		(5,389	)

Balance, December 31, 2010		58,079			(31,986	)		26,093
Net additions		—			—			—
Amortization		—			(4,948	)		(4,948	)

Balance, December 31, 2011	$	58,079		$	(36,934	)	$	21,145

Goodwill additions in 2011 relate to purchase accounting adjustments finalized relating to the Rainier acquisition. The 2010 goodwill additions relate to the Rainier and Nevada Security acquisitions and represent the excess of the total purchase price paid over the fair values of the assets acquired, net of the fair values of liabilities assumed. Additional information on the acquisition and purchase price allocation is provided in Note 2. The reductions to goodwill include decreases of $44,000, $96,000, and $81,000 in 2011, 2010, and 2009, respectively, due to the recognition of tax benefits upon exercise of fully vested acquired stock options.

Intangible additions in 2010 relate to the Evergreen, Rainier, and Nevada Security acquisitions and represent core deposits, which includes all deposits except certificates of deposit, and an insurance related customer relationship, which was sold in the second quarter of 2010 for the same value recorded in the purchase price allocation. The values of the core deposit intangible assets were determined by an analysis of the cost differential between the core deposits and alternative funding sources. The value of the insurance related customer relationship was determined based on market indicators. Intangible assets with definite useful lives are amortized to their estimated residual values over their respective estimated useful lives, and are also reviewed for impairment. We amortize other intangible assets on an accelerated or straight-line basis over an estimated ten to fifteen year life. No impairment losses separate from the scheduled amortization have been recognized in the periods presented.

The Company performed a goodwill impairment analysis of the Community Banking operating segment as of June 30, 2009, due to a decline in the Company's market capitalization below book value of equity and continued weakness in the banking industry. The Company engaged an independent valuation consultant to assist us in determining whether and to what extent our goodwill asset was impaired. The results of the Company's and valuation specialist's step one impairment test indicated that the reporting unit's fair value was less than its carrying value, and therefore the Company performed a step two analysis. As part of the second step of the goodwill impairment analysis, we calculated the fair value of the reporting unit's assets and liabilities, as well as its unrecognized identifiable intangible assets, such as the core deposit intangible and trade name. Fair value adjustments to items on the balance sheet primarily related to investment securities held to maturity, loans, other real estate owned, Visa Class B common stock, deferred taxes, deposits, term debt, and junior subordinated debentures carried at amortized cost. The external valuation specialist assisted management to estimate the fair value of our unrecognized identifiable assets, such as the core deposit intangible and trade name.

The most significant fair value adjustment made in this analysis was to adjust the carrying value of the Company's loans receivable portfolio to fair value. The fair value of the Company's loan receivable portfolio at June 30, 2009 was estimated in a manner similar to methodology utilized as part of the December 31, 2008 goodwill impairment evaluation. As part of the December 31, 2008 loan valuation, the loan portfolio was stratified into sixty-eight loan pools that shared common characteristics, namely loan type, payment terms, and whether the loans were performing or non-performing. Each loan pool was discounted at a rate that considers current market interest rates, credit risk, and assumed liquidity premiums required based upon the nature of the underlying pool. Due to the disruption in the financial markets experienced during 2008 and continuing through 2009, the liquidity premium reflects the reduction in demand in the secondary markets for all grades of non-conforming credit, including those that are performing. Liquidity premiums for individual loan categories generally ranged from 4.6% for performing loans to 30% for construction and non-performing loans. At December 31, 2008, the fair value of the overall loan portfolio was calculated to be at a 9% discount relative to its book value. The composition of the loan portfolio at June 30, 2009, including loan type and performance indicators, was substantially similar to the loan portfolio at December 31, 2008. At June 30, 2009, the fair value of the loan portfolio was estimated to be at a 12% discount relative to its carrying value. The additional discount is primarily attributed to the additional liquidity premium required as of the measurement date associated with the Company's concentration of commercial real estate loans.

Other significant fair value adjustments utilized in this goodwill impairment analysis included the value of the core deposit intangible asset which was calculated as 0.53% of core deposits, and includes all deposits except certificates of deposit. The carrying value of other real estate owned was discounted by 25%, representing a liquidity adjustment given the current market conditions. The fair value of our trade name, which represents the competitive advantage associated with our brand recognition and ability to attract and retain relationships, was estimated to be $19.3 million. The fair value of our junior subordinated debentures carried at amortized cost was determined in a manner and utilized inputs, primarily the credit risk adjusted spread, consistent with our methodology for determining the fair value of junior subordinated debentures recorded at fair value.

Based on the results of the step two analysis, the Company determined that the implied fair value of the goodwill was less than its carrying amount on the Company's balance sheet, and as a result, recognized a goodwill impairment loss of $112.0 million in the second quarter of 2009. This write-down of goodwill was a non-cash charge that did not affect the Company's or the Bank's liquidity or operations. In addition, because goodwill is excluded in the calculation of regulatory capital, the Company's "well-capitalized" capital ratios were not affected by this charge.

The Company conducted its annual evaluation of goodwill for impairment at both December 31, 2011 and 2010, respectively. At both dates, in the first step of the goodwill impairment test, the Company determined that the fair value of the Community Banking reporting unit exceeded its carrying amount. This determination is consistent with the events occurring after the Company recognized the $112.0 million impairment of goodwill in the second quarter of 2009. First, the market capitalization and estimated fair value of the Company increased significantly subsequent to the recognition of the impairment charge, as the fair value of the Company's stock increased 60% from June 30, 2009 to December 31, 2011. Secondly, the Company's successful public common stock offerings in the third quarter of 2009 and first quarter of 2010 diluted the carrying value of the reporting unit's book equity on a per share basis, against which the fair value of the reporting unit is measured. The significant assumptions and methodology utilized to test for goodwill impairment as of December 31, 2011 were consistent with those used at December 31, 2010.

If the Company's common stock price should significantly decline or continues to trade below book value per common share, or should general economic conditions deteriorate further or remain depressed for a prolonged period of time, particularly in the financial industry, the Company may be required to recognize additional impairment of all, or some portion of, its goodwill. It is possible that changes in circumstances, existing at the measurement date or at other times in the future, or changes in the numerous estimates associated with management's judgments, assumptions and estimates made in assessing the fair value of our goodwill, such as valuation multiples, discount rates, or projected earnings, could result in an impairment charge in future periods. Additional impairment charges, if any, may be material to the Company's results of operations and financial position. However, any potential future impairment charge will have no effect on the Company's or the Bank's cash balances, liquidity, or regulatory capital ratios.

The inputs management utilizes to estimate the fair value of a reporting unit in step one of the goodwill impairment test, and estimating the fair values of the underlying assets and liabilities of a reporting unit in the second step of the goodwill impairment test, require management to make significant judgments, assumptions and estimates where observable market may not readily exist. Such inputs include, but are not limited to, trading multiples from comparable transactions, control premiums, the value that may arise from synergies and other benefits that would accrue from control over an entity, and the appropriate rates to discount projected cash flows. Additionally, there may be limited current market inputs to value certain assets or liabilities, particularly loans and junior subordinated debentures. These valuation inputs are considered to be Level 3 inputs.

Management will continue to monitor the relationship of the Company's market capitalization to both its book value and tangible book value, which management attributes to both financial services industry-wide and Company specific factors, and to evaluate the carrying value of goodwill and other intangible assets.

The Company evaluated the Wealth Management reporting segment's goodwill for impairment as of December 31, 2011. The first step of the goodwill impairment test indicated that the reporting unit's fair value exceeded its carrying value, therefore, no additional impairment was recognized.

In 2009, the Company recognized an $804,000 impairment related to the merchant servicing portfolio as a result of a decrease in the actual and expected future cash flows related to the income stream. Additional information on intangible assets related to acquisitions is provided in Note 2.

The table below presents the forecasted amortization expense for intangible assets acquired in all mergers:

(in thousands)


Year	Expected Amortization
2012	$	4,795
2013		4,623
2014		4,403
2015		4,182
2016		2,433
Thereafter		709

	$	21,145