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Goodwill and Intangible Assets

3 Months Ended

Mar. 31, 2023

Note 8 Goodwill and Intangible Assets

Goodwill and other intangible assets

In connection with our acquisitions, the Company recorded goodwill of $279.1 million. Goodwill is measured as the excess of the fair value of consideration paid over the fair value of net assets acquired. No goodwill impairment was recorded during the three months ended March 31, 2023 or the year ended December 31, 2022.

The gross carrying amount of other intangible assets and the associated accumulated amortization at March 31, 2023 and December 31, 2022, are presented as follows:


	March 31, 2023						December 31, 2022
	Gross				Net		Gross				Net
	carrying		Accumulated		carrying		carrying		Accumulated		carrying
	amount		amortization		amount		amount		amortization		amount
Core deposit intangible	$	91,566	$	(46,105)	$	45,461	$	91,566	$	(44,775)	$	46,791
Wealth management intangible		1,300		(64)		1,236		1,300		(32)		1,268
Total	$	92,866	$	(46,169)	$	46,697	$	92,866	$	(44,807)	$	48,059

The Company is amortizing the core deposit and wealth management intangibles from acquisitions on a straight line basis over 10 years from the date of the respective acquisitions, which represents the expected useful life of the assets. The Company recognized core deposit and wealth management intangible amortization expense of $1.4 million and $0.3 million during the three months ended March 31, 2023 and 2022, respectively.

The following table shows the estimated future amortization expense during the next five years for other intangible assets as of March 31, 2023:


Years ending December 31,		Amount
For the nine months ending December 31, 2023	$	4,088
For the year ending December 31, 2024		5,451
For the year ending December 31, 2025		5,451
For the year ending December 31, 2026		5,451
For the year ending December 31, 2027		5,451

Servicing Rights

Mortgage servicing rights

Mortgage servicing rights (“MSRs”) represent rights to service loans originated by the Company and sold to government-sponsored enterprises including FHLMC, FNMA, GNMA and FHLB and are included in other assets in the consolidated statements of financial condition. Mortgage loans serviced for others were $0.8 billion and $0.8 billion at March 31, 2023 and 2022, respectively.

Below are the changes in the MSRs for the periods presented:


	For the three months ended March 31,
	2023		2022
Beginning balance	$	9,162	$	5,957
Originations		274		1,679
Recovery		—		6
Amortization		(119)		(206)
Ending balance		9,317		7,436
Fair value of mortgage servicing rights	$	13,321	$	10,834

The fair value of MSRs was determined based upon a discounted cash flow analysis. The cash flow analysis included assumptions for discount rates and prepayment speeds. Discount rates ranged from 10.0% to 10.5%, and the constant prepayment speed ranged from 7.9% to 18.2% for the March 31, 2023 valuation. Discount rates ranged from 9.5% to 10.0%, and the constant prepayment speed ranged from 7.7% to 13.0% for the March 31, 2022 valuation. Included in mortgage banking income in the consolidated statements of operations was servicing income of $0.5 million and $0.5 million for the three months ended March 31, 2023 and 2022, respectively.

MSRs are evaluated and impairment is recognized to the extent fair value is less than the carrying amount. The Company evaluates impairment by stratifying MSRs based on the predominant risk characteristics of the underlying loans, including loan type and loan term. The Company is amortizing the MSRs in proportion to and over the period of the estimated net servicing income of the underlying loans.

The following table shows the estimated future amortization expense during the next five years for the MSRs as of March 31, 2023:


Years ending December 31,		Amount
For the nine months ending December 31, 2023	$	893
For the year ending December 31, 2024		1,077
For the year ending December 31, 2025		941
For the year ending December 31, 2026		821
For the year ending December 31, 2027		717

SBA servicing asset

The SBA servicing asset represents the value associated with servicing small business real estate loans that have been sold to outside investors with servicing retained. The SBA servicing asset is evaluated and impairment is recognized to the extent fair value is less than the carrying amount. The Company evaluates impairment by stratifying the SBA servicing asset based on the predominant risk characteristics of the underlying loans, including loan type and loan term. The Company is amortizing the SBA servicing asset in proportion to and over the period of the estimated net servicing income of the underlying loans. The Company serviced $110.9 million

of SBA loans, as of March 31, 2023. For the three months ended March 31, 2023, the Company recognized SBA servicing asset fee income of $0.4 million.

Below are the changes in the SBA servicing asset for the period presented:


	For the three months ended March 31,
	2023
Beginning balance	$	2,666
Originations		129
Recovery		54
Disposals		(210)
Amortization		(35)
Ending balance		2,604
Fair value of SBA servicing asset	$	2,604

The Company uses assumptions and estimates in determining the fair value of SBA loan servicing rights. These assumptions include prepayment speeds, discount rates, and other assumptions. The assumptions used in the valuation were based on input from buyers, brokers and other qualified personnel, as well as market knowledge. The key assumptions used to determine the fair value of the Company’s SBA loan servicing rights included a weighted average lifetime constant prepayment rate equal to 12.40%, and a weighted average discount rate equal to 13.34%.