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Goodwill and Other Intangible Assets
 9 Months Ended
Sep. 30, 2020
Goodwill and Intangible Assets Disclosure [Abstract]  
Goodwill and Other Intangible Assets Goodwill and Other Intangible Assets
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 2020, utilizing a quantitative assessment of goodwill impairment which included determining the estimated fair value of each reporting unit, utilizing an equally weighted combination of discounted cash flow and market-based approaches, and comparing that fair value to each reporting unit’s carrying amount (including goodwill). An impairment loss is recognized if the carrying amount of a reporting unit exceeds its fair value. Based on the quantitative assessment, management concluded that the estimated fair value exceeded the carrying value (including goodwill) for each reporting unit. Therefore, based on the step one quantitative analysis, no impairment was required. There have been no events since the May 2020 impairment testing that have changed the Corporation's impairment assessment conclusion. There were no impairment charges recorded in 2019 or the first nine months of 2020.
Each of the valuation techniques employed by the Company requires significant assumptions. Depending upon the specific approach, assumptions are made regarding the economic environment, expected net interest margins, growth rates, discount rates for cash flows, asset quality metrics, control premiums, and price-to-forward earnings multiples. Changes to any one of these assumptions could result in significantly different results. A sustained decline in the Company’s expected future cash flows or estimated growth rates, or a prolonged decline in the price of the Company’s common stock due to further deterioration in the economic environment, may necessitate additional interim testing, which could result in an impairment charge to goodwill in future reporting periods.
At September 30, 2020 and December 31, 2019, the Corporation had goodwill of $1.1 billion and $1.2 billion, respectively. There was an increase of $13 million relating to the First Staunton acquisition, and an $82 million reduction related to the disposition of ABRC.
Other Intangible Assets
The Corporation has other intangible assets that are amortized, consisting of CDIs, other intangibles, and MSRs. Other intangibles decreased $19 million from December 31, 2019, primarily driven by a $17 million decrease due to the disposition of ABRC. For CDIs and other intangibles, changes in the gross carrying amount, accumulated amortization, and net book value were as follows:
($ in Thousands)Nine Months Ended September 30, 2020Year Ended December 31, 2019
Core deposit intangibles
Gross carrying amount at the beginning of the year$80,730 $58,100 
Additions during the period7,379 22,630 
Accumulated amortization(19,003)(12,456)
Net book value$69,107 $68,274 
Amortization during the year$6,547 $7,130 
Other intangibles
Gross carrying amount at the beginning of the year $38,970 $44,887 
Additions during the period200 — 
Reductions due to sale(17,435)(217)
Accumulated amortization(20,335)(24,643)
Net book value $1,400 $20,027 
Amortization during the year$1,393 $2,818 
Mortgage Servicing Rights
The Corporation sells residential mortgage loans in the secondary market and typically retains the right to service the loans sold. MSRs 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 MSRs 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 MSRs asset generally decreases, requiring additional valuation reserve. Conversely, as mortgage interest rates rise, prepayment speeds are usually slower and the value of the MSRs 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 MSRs exceeds the estimated fair value by stratification. During the first nine months of 2020, the Corporation recognized temporary impairment of $18 million driven by decreasing interest rates. If it is later determined that all or a portion of the temporary impairment no longer exists for a stratification, the valuation is reduced through a recovery to earnings. An other-than-temporary impairment (i.e., recoverability is considered remote when considering interest rates and loan pay off activity) is recognized as a write-down of the MSRs asset and the related valuation allowance (to the extent a valuation allowance is available) and then against earnings. A direct write-down permanently reduces the carrying value of the MSRs asset and valuation allowance, precluding subsequent recoveries. See Note 12 for a discussion of the recourse provisions on sold residential mortgage loans. See Note 13 which further discusses fair value measurement relative to the MSRs asset.
A summary of changes in the balance of the MSRs asset and the MSRs valuation allowance is as follows:
($ in Thousands)Nine Months Ended September 30, 2020Year Ended December 31, 2019
Mortgage servicing rights
Mortgage servicing rights at beginning of period$67,607 $68,433 
Additions from acquisition1,357 — 
Additions11,495 11,606 
Amortization(16,416)(12,432)
Mortgage servicing rights at end of period$64,043 $67,607 
Valuation allowance at beginning of period$(302)$(239)
(Additions) recoveries, net(18,481)(63)
Valuation allowance at end of period$(18,782)$(302)
Mortgage servicing rights, net$45,261 $67,306 
Fair value of mortgage servicing rights$45,303 $72,532 
Portfolio of residential mortgage loans serviced for others (“servicing portfolio”)$8,218,839 $8,488,969 
Mortgage servicing rights, net to servicing portfolio0.55 %0.79 %
Mortgage servicing rights expense(a)
$34,897 $12,494 
(a) Includes the amortization of mortgage servicing rights and additions / recoveries to the valuation allowance of mortgage servicing rights, and is a component of mortgage banking, net on the consolidated statements of income.
The projections of amortization expense are based on existing asset balances, the current interest rate environment, and prepayment speeds as of September 30, 2020. The actual amortization expense the Corporation recognizes in any given period may be significantly different depending upon acquisition or sale activities, changes in interest rates, prepayment speeds, market conditions, regulatory requirements, and events or circumstances that indicate the carrying amount of an asset may not be recoverable. The following table shows the estimated future amortization expense for amortizing intangible assets:
($ in Thousands)Core Deposit IntangiblesOther IntangiblesMortgage Servicing Rights
Three Months Ending December 31, 2020$2,203 $50 $4,245 
20218,811 200 15,333 
20228,811 200 10,935 
20238,811 200 8,030 
20248,811 200 6,095 
20258,811 200 4,764 
Beyond 202522,849 350 14,640 
Total Estimated Amortization Expense$69,107 $1,400 $64,043