Goodwill and Other Intangible Assets

9 Months Ended

Sep. 30, 2019

Goodwill and Intangible Assets Disclosure [Abstract]

Goodwill

Goodwill is not amortized but is instead 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 2019, 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 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 2019 impairment testing that have changed the Corporation's impairment assessment conclusion. There were no impairment charges recorded in 2018 or the first nine months of 2019.

At both September 30, 2019 and December 31, 2018, the Corporation had goodwill of $1.2 billion. There was an increase of $7 million during the second quarter of 2019 related to the Huntington branch acquisition, and an adjustment of approximately $210,000 in the third quarter of 2019 driven by an update that decreased the fair value of furniture acquired.

Other Intangible Assets

The Corporation has other intangible assets that are amortized, consisting of CDI, other intangibles (primarily related to customer relationships acquired in connection with the Corporation’s insurance agency acquisitions), and MSR. For CDI and other intangibles, changes in the gross carrying amount, accumulated amortization, and net book value were as follows:



($ in Thousands)	Nine Months Ended September 30, 2019			Year Ended December 31, 2018
Core deposit intangibles
Gross carrying amount	$	80,730		$	58,100
Accumulated amortization	(10,438		)	(5,326		)
Net book value	$	70,292		$	52,774
Additions during the period	$	22,630		$	58,100
Amortization during the year	$	5,112		$	5,326
Other intangibles
Gross carrying amount	$	44,887		$	44,931
Reductions due to sale	(140		)	(43		)
Accumulated amortization	(23,950		)	(21,825		)
Net book value	$	20,797		$	23,062
Additions during the period	$	—		$	10,359
Amortization during the year	$	2,125		$	2,833

Mortgage Servicing Rights

The Corporation sells residential mortgage loans in the secondary market and typically retains the right to service the loans sold. MSR 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 MSR 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 MSR asset generally decreases, requiring additional valuation reserve. Conversely, as mortgage interest rates rise, prepayment speeds are usually slower and the value of the MSR 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 MSR 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 MSR 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 MSR asset.

A summary of changes in the balance of the MSR asset and the MSR valuation allowance is as follows:



($ in Thousands)	Nine Months Ended September 30, 2019			Year Ended December 31, 2018
Mortgage servicing rights
Mortgage servicing rights at beginning of period	$	68,433		$	59,168
Additions from acquisition	—			8,136
Additions	8,900			10,722
Amortization	(8,749		)	(9,594		)
Mortgage servicing rights at end of period	$	68,584		$	68,433
Valuation allowance at beginning of period	$	(239	)	$	(784	)
(Additions) recoveries, net	(177		)	545
Valuation allowance at end of period	$	(416	)	$	(239	)
Mortgage servicing rights, net	$	68,168		$	68,193
Fair value of mortgage servicing rights	$	70,241		$	81,012
Portfolio of residential mortgage loans serviced for others (“servicing portfolio”)	$	8,688,012		$	8,600,983
Mortgage servicing rights, net to servicing portfolio	0.78		%	0.79		%
Mortgage servicing rights expense^(a)	$	8,926		$	9,049

(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 projections of amortization expense are based on existing asset balances, the current interest rate environment, and prepayment speeds as of September 30, 2019. 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. The following table shows the estimated future amortization expense for amortizing intangible assets:



($ in Thousands)	Core Deposit Intangibles		Other Intangibles		Mortgage Servicing Rights
Three Months Ending December 31, 2019	$	2,018	$	693	$	3,234
2020	8,073		2,690		12,262
2021	8,073		2,666		10,074
2022	8,073		2,642		8,259
2023	8,073		2,623		6,777
2024	8,073		2,603		5,574
Beyond 2024	27,909		6,879		22,403
Total Estimated Amortization Expense	$	70,292	$	20,797	$	68,584