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 Corporation conducted its most recent annual impairment testing in May 2017, 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 2017 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 have been no events since the May 2017 impairment testing that have changed the Corporation's impairment assessment conclusion. There were no impairment charges recorded in 2017 or the first three months of 2018.

At March 31, 2018, the Corporation had goodwill of $1.2 billion, compared to $976 million at December 31, 2017. Goodwill increased $167 million related to the Bank Mutual acquisition and $10 million related to the acquisition of Diversified Insurance Solutions. 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. During the first quarter of 2018, the Corporation added approximately $58 million of core deposit intangibles as a result of the Bank Mutual acquisition. In addition, the Corporation added approximately $8 million of other intangibles relating to customer relationships associated with the Diversified acquisition. 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, 2018			Year Ended December 31, 2017
	($ in Thousands)
Core deposit intangibles
Gross carrying amount	$	58,100		$	4,385
Accumulated amortization	(968		)	(4,385		)
Net book value	$	57,132		$	—
Additions during the periods	$	58,100		$	—
Amortization during the year	$	968		$	112
Other intangibles
Gross carrying amount	$	42,131		$	34,572
Accumulated amortization	(19,549		)	(18,992		)
Net book value	$	22,582		$	15,580
Additions during the period	$	7,559		$	2,162
Amortization during the year	$	557		$	1,847

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 evaluates its mortgage servicing rights asset for impairment at minimum on a quarterly basis. 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, 2018			Year Ended December 31, 2017
	($ in Thousands)
Mortgage servicing rights
Mortgage servicing rights at beginning of period	$	59,168		$	62,085
Additions from acquisition	8,136			—
Additions	1,737			7,167
Amortization	(2,324		)	(10,084		)
Mortgage servicing rights at end of period	$	66,717		$	59,168
Valuation allowance at beginning of period	(784		)	(609		)
(Additions) recoveries, net	474			(175		)
Valuation allowance at end of period	(310		)	(784		)
Mortgage servicing rights, net	$	66,407		$	58,384
Fair value of mortgage servicing rights	$	81,810		$	64,387
Portfolio of residential mortgage loans serviced for others (“servicing portfolio”)	$	8,507,294		$	7,646,846
Mortgage servicing rights, net to servicing portfolio	0.78		%	0.76		%
Mortgage servicing rights expense ^(a)	$	1,849		$	10,259


(a)	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, 2018. 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 Ended December 31, 2018	$	4,358	$	2,045	$	7,115
2019	5,810		2,428		9,324
2020	5,810		2,311		8,078
2021	5,810		2,287		6,977
2022	5,810		2,263		6,035
2023	5,810		2,244		5,234
Beyond 2023	23,724		9,004		23,954
Total Estimated Amortization Expense	$	57,132	$	22,582	$	66,717