Goodwill and Intangible Assets

12 Months Ended

Dec. 31, 2015

Goodwill and Intangible Assets Disclosure [Abstract]

GOODWILL AND INTANGIBLE ASSETS

Goodwill

Goodwill was $139.8 million at December 31, 2015 and 2014, with no impairment recorded during 2015, 2014 and 2013. The following table presents the changes in the carrying amount of goodwill.



(Dollars in thousands)	2015		2014
Balance at January 1	$	139,773	$	102,625
Acquired in the 1st Financial merger	—		32,915
Acquired in the Bancorporation merger	—		4,233
Balance at December 31	$	139,773	$	139,773

GAAP requires that goodwill be tested each year to determine if goodwill is impaired. The goodwill impairment test requires a two-step method to evaluate and calculate impairment. The first step requires estimation of the reporting unit’s fair value. If the fair value exceeds the carrying value, no further testing is required. If the carrying value exceeds the fair value, a second step is performed to determine whether an impairment charge must be recorded and, if so, the amount of such charge.

BancShares performs annual impairment tests as of July 31 each year. After the first step for 2015 and 2014, no further analysis was required as there was no indication of impairment.

Mortgage Servicing Rights

Our portfolio of residential mortgage loans serviced for third parties was $2.15 billion and $1.95 billion as of December 31, 2015 and 2014, respectively. These loans were originated by BancShares and sold to third parties on a non-recourse basis with servicing rights retained. These retained servicing rights are recorded as a servicing asset on the Consolidated Balance Sheets and are initially recorded at fair value.

The activity of the servicing asset for the years ended December 31, 2015 and 2014 is presented in the following table:



(Dollars in thousands)	2015			2014
Balance at January 1	$	16,688		$	16
Servicing rights originated	5,910			727
Amortization	(4,002		)	(919		)
Servicing rights acquired in the 1st Financial merger	—			148
Servicing rights acquired in the Bancorporation merger	—			17,566
Valuation allowance reversal (provision)	755			(850		)
Balance at December 31	$	19,351		$	16,688

The following table presents the activity in the servicing asset valuation allowance for the years ended December 31, 2015 and 2014:



(Dollars in thousands)	2015			2014
Balance at January 1	$	850		$	—
Valuation allowance (reversal) provision	(755		)	850
Balance at December 31	$	95		$	850

During 2014, BancShares acquired the rights to service mortgage loans that had previously been sold by Bancorporation and also recorded a mortgage servicing asset from the 1st Financial merger. The acquired assets were recorded at fair value and amortized over the remaining estimated servicing lives, which were estimated to be 5.5 years and 3 months for the Bancorporation and 1st Financial mergers, respectively, as of the acquisition date.

As of December 31, 2015 and 2014, the carrying value BancShares' mortgage servicing rights was $19.4 million and $16.7 million, respectively. Contractually specified mortgage servicing fees, late fees, and ancillary fees earned for the years ended December 31, 2015, 2014 and 2013 were $5.4 million, $611 thousand, and $327 thousand respectively, and are included in mortgage income in the Consolidated Statements of Income.

The amortization expense related to mortgage servicing rights, included as a reduction of mortgage income in the Consolidated Statements of Income, was $4.0 million, $919 thousand, and $205 thousand for the years ended December 31, 2015, 2014 and 2013, respectively. Mortgage income included an impairment reversal of $755 thousand for the year ended December 31, 2015 and an impairment of $850 thousand for the year ended December 31, 2014. There was no net valuation allowance impairment recorded for the year ended December 31, 2013.

Valuation of mortgage servicing rights is performed using a pooling methodology. Similar loans are pooled together and evaluated on a discounted earnings basis to determine the present value of future earnings. Key economic assumptions used to value mortgage servicing rights as of December 31, 2015 and 2014 were as follows:



	2015			2014
Discount rate - conventional fixed loans	9.31		%	7.20		%
Discount rate - all loans excluding conventional fixed loans	10.31		%	9.20		%
Weighted average constant prepayment rate	11.01		%	14.25		%
Weighted average cost to service a loan	$	56.61		$	56.02

Other Intangible Assets

The following information relates to other intangible assets, all customer-related, which are being amortized over their estimated useful lives:



(dollars in thousands)	2015			2014
Balance at January 1	$	89,922		$	1,247
Acquired in CCBT merger	690			—
Acquired in the 1st Financial merger	—			3,780
Acquired in the Bancorporation merger	—			91,850
Removal due to branch sale	(85		)	—
Amortization	(18,892		)	(6,955		)
Balance at December 31	$	71,635		$	89,922

Core deposit intangibles comprise the majority of the other intangible assets as of December 31, 2015 and 2014. During 2015, BancShares recognized $690 thousand in core deposit intangibles related to the CCBT merger. Core deposit intangibles of $85 thousand were written off in 2015 as it related to previously acquired deposits that were sold in connection with the sale of a branch in December 2015. During 2014, BancShares recognized $91.9 million and $3.8 million in core deposit intangibles related to the Bancorporation and 1st Financial mergers, respectively. Intangible assets generated by acquisitions, which represent the estimated fair value of core deposits and other customer relationships that were acquired, are being amortized on an accelerated basis over their estimated useful lives. The estimated useful remaining lives range from 2 years to less than 9 years.

The gross amount of other intangible assets and accumulated amortization as of December 31, 2015 and 2014, are:



(dollars in thousands)	2015			2014
Gross balance	$	115,201		$	114,596
Accumulated amortization	(43,566		)	(24,674		)
Carrying value	$	71,635		$	89,922

Based on current estimated useful lives and carrying values, BancShares anticipates amortization expense for intangible assets in subsequent periods will be:



(dollars in thousands)
2016	$	16,440
2017	14,075
2018	11,710
2019	9,457
2020	7,492

- Definition

The entire disclosure for the aggregate amount of goodwill and a description of intangible assets, which may include (a) for amortizable intangible assets (also referred to as finite-lived intangible assets), the carrying amount, the amount of any significant residual value, and the weighted-average amortization period, (b) for intangible assets not subject to amortization (also referred to as indefinite-lived intangible assets), the carrying amount, and (c) the amount of research and development assets acquired and written off in the period, including the line item in the income statement in which the amounts written off are aggregated, if not readily apparent from the income statement. Also discloses (a) for amortizable intangibles assets in total and by major class, the gross carrying amount and accumulated amortization, the total amortization expense for the period, and the estimated aggregate amortization expense for each of the five succeeding fiscal years, (b) for intangible assets not subject to amortization the carrying amount in total and by major class, and (c) for goodwill, in total and for each reportable segment, the changes in the carrying amount of goodwill during the period (including the aggregate amount of goodwill acquired, the aggregate amount of impairment losses recognized, and the amount of goodwill included in the gain (loss) on disposal of a reporting unit). If any part of goodwill has not been allocated to a reportable segment, discloses the unallocated amount and the reasons for not allocating. For each impairment loss recognized related to an intangible asset (excluding goodwill), discloses: (a) a description of the impaired intangible asset and the facts and circumstances leading to the impairment, (b) the amount of the impairment loss and the method for determining fair value, (c) the caption in the income statement or the statement of activities in which the impairment loss is aggregated, and (d) the segment in which the impaired intangible asset is reported. For each goodwill impairment loss recognized, discloses: (a) a description of the facts and circumstances leading to the impairment, (b) the amount of the impairment loss and the method of determining the fair value of the associated reporting unit, and (c) if a recognized impairment loss is an estimate not finalized and the reasons why the estimate is not final. May also disclose the nature and amount of any significant adjustments made to a previous estimate of an impairment loss.

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