Goodwill and Other Amortizing Intangible Assets

12 Months Ended

Dec. 31, 2017

Goodwill and Other Amortizing Intangible Assets

FASB ASC Topic 350-20, “Intangibles—Goodwill and Other,” requires an annual valuation of the fair value of a reporting unit that has goodwill and a comparison of the fair value to the book value of equity to determine whether the goodwill has been impaired. Goodwill is also required to be tested on an interim basis if an event or circumstance indicates that it is more likely than not that an impairment loss has been incurred. When triggering events or circumstances indicate goodwill testing is required, an assessment of qualitative factors can be completed before performing the two step goodwill impairment test. ASU 2011-8 provides that if an assessment of qualitative factors determines it is more likely than not that the fair value of a reporting unit exceeds its carrying amount, then the two step goodwill impairment test is not required.

We consider First Commonwealth to be one reporting unit. The carrying amount of goodwill as of December 31, 2017 and 2016 was $255.4 million and $186.5 million, respectively. The $68.9 million increase in goodwill during the year ended December 31, 2017 is a result of $70.6 million recognized as a result of the acquisition of DCB Financial in 2017 offset by a $1.6 million decrease related to adjustments to the fair value of assets acquired as part of the branch acquisition in 2016. No impairment charges on goodwill or other intangible assets were incurred in 2017, 2016 or 2015.

We test goodwill for impairment as of November 30th each year and again at any quarter-end if any material events occur during a quarter that may affect goodwill.

An assessment of qualitative factors was completed as of November 30, 2017 and December 31, 2017 and indicated that it is more likely than not that the fair value of First Commonwealth's goodwill exceeds its carrying amount; therefore, the two step goodwill impairment test was not considered necessary. The assessment of qualitative factors considered historical and projected financial performance, macroeconomic factors such as the Company's access to capital, the general business climate and changes in the banking industry as well as market considerations such as geographic expansion, new product offerings and the regulatory environment.

As of December 31, 2017, goodwill was not considered impaired; however, changing economic conditions that may adversely affect our performance, the fair value of our assets and liabilities, or our stock price could result in impairment, which could adversely affect earnings in future periods. Management will continue to monitor events that could impact this conclusion in the future.

FASB ASC Topic 350, “Intangibles—Other,” also requires that an acquired intangible asset be separately recognized if the benefit of the intangible asset is obtained through contractual or other legal rights, or if the asset can be sold, transferred, licensed, rented or exchanged, regardless of the acquirer’s intent to do so.

The following table summarizes other intangible assets:



	Gross Intangible Assets		Accumulated Amortization			Net Intangible Assets
	(dollars in thousands)
December 31, 2017
Customer deposit intangibles	$	19,471	$	(6,071	)	$	13,400
Customer list intangible	$	2,283	$	(751	)	$	1,532
Total other intangible assets	$	21,754	$	(6,822	)	$	14,932

December 31, 2016
Customer deposit intangibles	$	30,471	$	(18,998	)	$	11,473
Customer list intangible	$	984	$	(444	)	$	540
Total other intangible assets	$	31,455	$	(19,442	)	$	12,013

Core deposits are amortized over their expected lives using the present value of the benefit of the core deposits and straight-line methods of amortization. The core deposits have a remaining amortization period of 9.3 years and a weighted average amortization period of approximately 8.9 years. The customer list intangible represents the estimated value of the customer base for an insurance agency acquired in 2014 and the wealth management business acquired as part of the DCB acquisition in 2017. These amounts are amortized over their expected lives using expected cash flows based on retention of the customer base. The customer list intangible has a remaining amortization period of 11.7 years and a weighted average amortization period of 9.9 years. In the table above, the change in the gross customer deposit intangible and customer list intangibles from December 31, 2016 to December 31, 2017 is due to the acquisition of DCB Financial resulting in $4.7 million of core deposit intangibles and $1.3 million of customer list intangibles. In addition, $15.7 million of customer deposit intangibles resulting from an acquisition in 2006 were completely amortized in 2016. In addition to customer deposit intangibles and customer list intangibles, First Commonwealth has $75 thousand in mortgage servicing rights related to the sale of 1-4 family residential mortgages for which we retain servicing. First Commonwealth recognized amortization expense on other intangible assets of $3.1 million, $0.5 million, and $0.6 million for the years ended December 31, 2017, 2016 and 2015, respectively.

The following presents the estimated amortization expense of core deposit and customer list intangibles:



	Core Deposit Intangibles		Customer List Intangible		Total
	(dollars in thousands)
2018	$	2,714	$	318	$	3,032
2019	2,414		271		2,685
2020	2,062		230		2,292
2021	1,768		193		1,961
2022	1,473		159		1,632
Thereafter	2,969		361		3,330
Total	$	13,400	$	1,532	$	14,932

- 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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