Goodwill and Other Amortizing Intangible Assets

12 Months Ended

Dec. 31, 2019

Goodwill and Other Amortizing Intangible Assets

Goodwill and Other Intangible Assets

FASB ASC Topic 350-20, “Intangibles—Goodwill and Other,” requires an annual valuation of the fair value of a reporting unit that has goodwill and a comparison of the fair value to the book value of equity to determine whether the goodwill has been impaired. Goodwill is also required to be tested on an interim basis if an event or circumstance indicates that it is more likely than not that an impairment loss has been incurred. When triggering events or circumstances indicate goodwill testing is required, an assessment of qualitative factors can be completed before performing the two step goodwill impairment test. ASU 2011-8 provides that if an assessment of qualitative factors determines it is more likely than not that the fair value of a reporting unit exceeds its carrying amount, then the two step goodwill impairment test is not required.

We consider First Commonwealth to be one reporting unit. The carrying amount of goodwill as of December 31, 2019 and 2018 was $303.3 million and $274.2 million, respectively. The $29.1 million increase in goodwill during the year ended December 31, 2019 is the result of the acquisition of 14 branches from Santander, completed in third quarter of 2019. No impairment charges on goodwill or other intangible assets were incurred in 2019, 2018 or 2017.

We test goodwill for impairment as of November 30th each year and again at any quarter-end if any material events occur during a quarter that may affect goodwill.

An assessment of qualitative factors was completed as of November 30, 2019 and December 31, 2019 and indicated that it is more likely than not that the fair value of First Commonwealth's goodwill exceeds its carrying amount; therefore, the two step goodwill impairment test was not considered necessary. The assessment of qualitative factors considered historical and projected financial performance, macroeconomic factors such as the Company's access to capital, the general business climate and changes in the banking industry as well as market considerations such as geographic expansion, new product offerings and the regulatory environment.

As of December 31, 2019, goodwill was not considered impaired; however, changing economic conditions that may adversely affect our performance, the fair value of our assets and liabilities, or our stock price could result in impairment, which could adversely affect earnings in future periods. Management will continue to monitor events that could impact this conclusion in the future.

FASB ASC Topic 350, “Intangibles—Other,” also requires that an acquired intangible asset be separately recognized if the benefit of the intangible asset is obtained through contractual or other legal rights, or if the asset can be sold, transferred, licensed, rented or exchanged, regardless of the acquirer’s intent to do so.

The following table summarizes other intangible assets:



	Gross Intangible Assets		Accumulated Amortization			Net Intangible Assets
	(dollars in thousands)
December 31, 2019
Customer deposit intangibles	$	25,843	$	(11,760	)	$	14,083
Customer list intangible	2,283		(1,340		)	943
Total other intangible assets	$	28,126	$	(13,100	)	$	15,026

December 31, 2018
Customer deposit intangibles	$	20,228	$	(8,877	)	$	11,351
Customer list intangible	2,283		(1,069		)	1,214
Total other intangible assets	$	22,511	$	(9,946	)	$	12,565

Core deposits are amortized over their expected lives using the present value of the benefit of the core deposits and straight-line methods of amortization. The core deposits have a remaining amortization period of 9.7 years and a weighted average amortization period of approximately 8.1 years. The customer list intangible represents the estimated value of the customer base for an insurance agency acquired in 2014 and the wealth management business acquired as part of the DCB acquisition in 2017. These amounts are amortized over their expected lives using expected cash flows based on retention of the customer base. The customer list intangible has a remaining amortization period of 9.7 years and a weighted average amortization period of 7.9 years. In the table above, the change in the gross customer deposit intangible and customer list intangibles from December 31, 2018 to December 31, 2019 is due to the Santander acquisition resulting in $5.6 million of core deposit intangibles. First Commonwealth recognized amortization expense on other intangible assets of $3.2 million, $3.1 million, and $3.1 million for the years ended December 31, 2019, 2018 and 2017, respectively.

In addition to customer deposit intangibles and customer list intangibles, First Commonwealth has servicing rights on mortgage loans as well as certain commercial loans totaling $1.3 million and $0.5 million as of December 31, 2019 and 2018, respectively. These servicing rights relate to loans sold to third parties on which the Company retains servicing responsibilities. The Company recognized amortization expense on these servicing assets of $0.2 million and $0.1 million for the years ended December 31, 2019 and 2018, respectively.

The following presents the estimated amortization expense of core deposit and customer list intangibles:



	Core Deposit Intangibles		Customer List Intangible		Total
	(dollars in thousands)
2020	$	3,163	$	230	$	3,393
2021	2,753		193		2,946
2022	2,343		159		2,502
2023	1,933		127		2,060
2024	1,522		97		1,619
Thereafter	2,369		137		2,506
Total	$	14,083	$	943	$	15,026