Goodwill and Other Intangible Assets

Goodwill: Goodwill is not amortized but, instead, is subject to impairment tests on at least an annual basis, and more frequently if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount. The impairment testing process is conducted by assigning net assets and goodwill to each reporting unit. An initial qualitative evaluation is made to assess the likelihood of impairment and determine whether further quantitative testing to calculate the fair value is necessary. When the qualitative evaluation indicates that impairment is more likely than not, quantitative testing is required whereby the fair value of each reporting unit is calculated and compared to the recorded book value, “step one.” If the calculated fair value of the reporting unit exceeds its carrying value, goodwill is not considered impaired and “step two” is not considered necessary. If the carrying value of a reporting unit exceeds its calculated fair value, the impairment test continues (“step two”) by comparing the carrying value of the reporting unit’s goodwill to the implied fair value of goodwill. The implied fair value is computed by adjusting all assets and liabilities of the reporting unit to current fair value with the offset adjustment to goodwill. The adjusted goodwill balance is the implied fair value of the goodwill. An impairment charge is recognized if the carrying value of goodwill exceeds the implied fair value of goodwill.

The Corporation conducted its most recent annual impairment testing in May 2015, utilizing a qualitative assessment. Factors that management considered in this assessment included macroeconomic conditions, industry and market considerations, overall financial performance of the Corporation and each reporting unit (both current and projected), changes in management strategy, and changes in the composition or carrying amount of net assets. In addition, management considered the changes in both the Corporation’s common stock price and in the overall bank common stock index (based on the S&P 400 Regional Bank Sub-Industry Index), as well as the Corporation’s earnings per common share trend over the past year. Based on these assessments, management concluded that the 2015 annual qualitative impairment assessment indicated that it is more likely than not that the estimated fair value exceeded the carrying value (including goodwill) for each reporting unit. Therefore, a step one quantitative analysis was not required. There were no events since the May 2015 impairment testing that have changed the Corporation's impairment assessment conclusion. There were no impairment charges recorded in 2015 or the first three months of 2016.

At March 31, 2016, the Corporation had goodwill of $972 million, compared to $969 million at December 31, 2015. Goodwill increased by approximately $3 million during the first quarter of 2016 as a result of two small insurance acquisitions. See Note 2 for additional information on the Corporation's acquisitions.

Other Intangible Assets: The Corporation has other intangible assets that are amortized, consisting of core deposit intangibles, other intangibles (primarily related to customer relationships acquired in connection with the Corporation’s insurance agency acquisitions), and mortgage servicing rights. Core deposit intangibles of approximately $15 million were fully amortized in 2015 and have been removed from both the gross carrying amount and the accumulated amortization for 2016. Other intangibles increased by approximately $1 million during the first quarter of 2016 for the customer relationships associated with two small insurance acquisitions. See Note 2 for additional information on the Corporation's acquisitions. For core deposit intangibles and other intangibles, changes in the gross carrying amount, accumulated amortization, and net book value were as follows.



	Three Months Ended March 31, 2016			Year Ended December 31, 2015
	($ in Thousands)
Core deposit intangibles:
Gross carrying amount	$	4,385		$	19,545
Accumulated amortization	(4,062		)	(19,152		)
Net book value	$	323		$	393
Amortization during the year	$	70		$	1,404
Other intangibles:
Gross carrying amount	$	32,410		$	31,398
Accumulated amortization	(15,767		)	(15,333		)
Net book value	$	16,643		$	16,065
Additions during the period	$	1,012		$	12,115
Amortization during the year	$	434		$	1,690

The Corporation sells residential mortgage loans in the secondary market and typically retains the right to service the loans sold. Mortgage servicing rights are amortized in proportion to and over the period of estimated net servicing income, and assessed for impairment at each reporting date.

The Corporation periodically evaluates its mortgage servicing rights asset for impairment. Impairment is assessed based on fair value at each reporting date using estimated prepayment speeds of the underlying mortgage loans serviced and stratifications based on the risk characteristics of the underlying loans (predominantly loan type and note interest rate). As mortgage interest rates fall, prepayment speeds are usually faster and the value of the mortgage servicing rights asset generally decreases, requiring additional valuation reserve. Conversely, as mortgage interest rates rise, prepayment speeds are usually slower and the value of the mortgage servicing rights asset generally increases, requiring less valuation reserve. A valuation allowance is established, through a charge to earnings, to the extent the amortized cost of the mortgage servicing rights exceeds the estimated fair value by stratification. If it is later determined that all or a portion of the temporary impairment no longer exists for a stratification, the valuation is reduced through a recovery to earnings. An other-than-temporary impairment (i.e., recoverability is considered remote when considering interest rates and loan pay off activity) is recognized as a write-down of the mortgage servicing rights asset and the related valuation allowance (to the extent a valuation allowance is available) and then against earnings. A direct write-down permanently reduces the carrying value of the mortgage servicing rights asset and valuation allowance, precluding subsequent recoveries. See Note 12 for a discussion of the recourse provisions on sold residential mortgage loans. See Note 13 which further discusses fair value measurement relative to the mortgage servicing rights asset.

A summary of changes in the balance of the mortgage servicing rights asset and the mortgage servicing rights valuation allowance was as follows.



	Three Months Ended March 31, 2016			Year Ended December 31, 2015
	($ in Thousands)
Mortgage servicing rights
Mortgage servicing rights at beginning of period	$	62,150		$	61,379
Additions	1,856			12,372
Amortization	(2,874		)	(11,601		)
Mortgage servicing rights at end of period	$	61,132		$	62,150
Valuation allowance at beginning of period	(809		)	(1,234		)
(Additions) recoveries, net	(909		)	425
Valuation allowance at end of period	(1,718		)	(809		)
Mortgage servicing rights, net	$	59,414		$	61,341
Fair value of mortgage servicing rights	$	61,410		$	70,686
Portfolio of residential mortgage loans serviced for others (“servicing portfolio”)	$	7,876,888		$	7,915,224
Mortgage servicing rights, net to servicing portfolio	0.75		%	0.77		%
Mortgage servicing rights expense (1)	$	3,783		$	11,176


(1)	Includes the amortization of mortgage servicing rights and additions / recoveries to the valuation allowance of mortgage servicing rights, and is a component of mortgage banking, net in the consolidated statements of income.

The following table shows the estimated future amortization expense for amortizing intangible assets. The projections of amortization expense are based on existing asset balances, the current interest rate environment, and prepayment speeds as of March 31, 2016. The actual amortization expense the Corporation recognizes in any given period may be significantly different depending upon acquisition or sale activities, changes in interest rates, prepayment speeds, market conditions, regulatory requirements, and events or circumstances that indicate the carrying amount of an asset may not be recoverable.



Estimated Amortization Expense	Core Deposit Intangibles		Other Intangibles		Mortgage Servicing Rights
	($ in Thousands)
Nine months ending December 31, 2016	$	211	$	1,378	$	8,850
2017	112		1,786		9,674
2018	—		1,756		7,761
2019	—		1,457		6,313
2020	—		1,340		5,169
2021	—		1,316		4,265
Beyond 2021	—		7,610		19,100
Total Estimated Amortization Expense	$	323	$	16,643	$	61,132