Note 6 - Goodwill and Intangibles

12 Months Ended

Dec. 31, 2020

Notes to Financial Statements

Goodwill and Intangibles

Note 6. Goodwill and Intangibles

The following table presents the changes in the carrying amount of goodwill for the years ended December 31, 2020, 2019 and 2018:

	2020		2019		2018
	(dollars in thousands)
Balance at the beginning of period	$	74,748	$	77,832	$	28,334
Merger with Springfield Bancshares		—		—		45,975
Acquisition of Bates Companies		—		—		3,766
Acquisition of Guaranty Bank - measurement period adjustment		—		—		(243)
Acquisition of Bates Companies - measurement period adjustment		—		(84)		—
Sale of Bates Companies		(182)		—		—
Goodwill impairment - Bates Companies		(500)		(3,000)		—
Balance at the end of period	$	74,066	$	74,748	$	77,832

The following table presents the goodwill by reportable segment:

	December 31, 2020		December 31, 2019		December 31, 2018
	(dollars in thousands)
Commercial banking:
QCBT	$	3,223	$	3,223	$	3,223
CRBT		14,980		14,980		14,980
CSB		9,888		9,888		9,888
SFCB		45,975		45,975		45,975
Other, Parent Company Only		—		682		3,766
	$	74,066	$	74,748	$	77,832

Note 6. Goodwill and Intangibles (continued)

At November 30, 2020 the Company’s management performed an annual internal assessment at the reporting unit level  and determined no goodwill impairment existed.

Due to the economic impact that COVID-19 has had on the Company, management concluded that factors such as the decline in macroeconomic conditions led to the occurrence of a triggering event during the first quarter of 2020, and therefore an interim impairment test over goodwill was performed as of March 31, 2020.   Based upon the results of the interim goodwill assessment during the first quarter of 2020, the Company concluded that an impairment did not exist on the bank reporting units as of the time of the assessment.  There was no occurrence of a triggering event during the second or third quarter of 2020 and therefore no impairment test over goodwill was needed.

During the first quarter of 2020, the Company incurred goodwill impairment expense of $500 thousand related to the Bates Companies reporting unit.  This was the result of the announcement of a sale of the Bates Companies, as discussed in Note 2.  

As of November 30, 2019, the Company’s management performed an internal assessment of the goodwill for the Bates Companies reporting unit.  With the Bates Companies located in Rockford, Illinois, the Company had intended to achieve synergies and cross-selling opportunities that significantly enhanced the value of the Bates Companies.  With the sale of the assets and liabilities of RB&T, which was the Company’s bank subsidiary located

in Rockford, Illinois, the Company’s valuation analysis determined the value had declined and the goodwill was impaired.  Specifically, the Company determined a goodwill impairment charge of $3 million was required for the Bates Companies.  The Company used a combination of methods to determine the value and related goodwill impairment charge.  The methods included prices of comparable businesses as well as recent discussions with existing wealth management providers in the surrounding Rockford market. 

The following table presents the changes in core deposit intangibles (included in Intangibles on the consolidated balance sheets) during the years ended December 31, 2020, 2019 and 2018:

	2020		2019		2018
	(dollars in thousands)
Balance at the beginning of the period	$	13,466	$	15,595	$	9,079
Merger with Springfield Bancshares		—		—		8,208
Amortization expense		(2,085)		(2,129)		(1,692)
Balance at the end of the period	$	11,381	$	13,466	$	15,595
Gross carrying amount	$	19,255	$	19,255	$	19,255
Accumulated amortization		(7,874)		(5,789)		(3,660)
Net book value	$	11,381	$	13,466	$	15,595

The following table presents the core deposit intangibles by reportable segment:

	December 31, 2020		December 31, 2019		December 31, 2018
	(dollars in thousands)
Commercial Banking:
CRBT	$	2,189	$	2,684	$	3,186
CSB		3,305		3,980		4,675
SFCB		5,887		6,802		7,734
	$	11,381	$	13,466	$	15,595

Note 6. Goodwill and Intangibles (continued)

The following table presents the estimated amortization of the core deposit intangibles:

	Amount
Years ending December 31,	(dollars in thousands)
2021	$	2,032
2022		1,971
2023		1,776
2024		1,623
2025		1,535
Thereafter		2,444
	$	11,381

The following table presents the changes in customer list intangible (included in Intangibles on the Consolidated Balance Sheets) during the years ended December 31, 2020 and 2019:

	2020		2019
	(dollars in thousands)
Balance at the beginning of period	$	1,504	$	1,855
Acquisition of Bates Companies - measurement period adjustment		—		(214)
Sale of Bates Companies		(1,440)		—
Amortization		(64)		(137)
Balance at the end of period		—		1,504

The customer list intangible relates to the Parent Company Only (“All Other”) reportable segment.