Goodwill, Intangible Assets, and Servicing Assets

6 Months Ended

Jun. 30, 2019

Goodwill and Intangible Assets Disclosure [Abstract]

Goodwill, Intangible Assets, and Servicing Assets

Goodwill represents the excess of the purchase price over the sum of the estimated fair values of the tangible and identifiable intangible assets acquired less the estimated fair value of the liabilities assumed. Goodwill has an indefinite useful life and is evaluated for impairment annually or more frequently if events and circumstances indicate that the asset might be impaired. An impairment loss is recognized to the extent that the carrying amount exceeds the asset’s fair value. At December 31, 2018, the Company assessed the qualitative factors related to intangible assets and goodwill and for the year to determine whether it was more-likely-than-not that the fair value was less than its carrying amount. Based on the analysis of these factors, management determined that it was more-likely-than-not that intangible assets were not impaired and that the fair value of goodwill exceeded the carrying value and that the two-step goodwill impairment test was not needed. Goodwill is not amortized for book purposes and is not tax deductible.

The carrying amount of the Company’s goodwill as of June 30, 2019 and December 31, 2018 was $464.5 million. There was no impairment of goodwill during the three and six months ended June 30, 2019.

Core deposit intangible assets are amortized over their estimated lives, which range from seven to ten years. Amortization expense related to core deposit intangible assets totaled $557 thousand and $615 thousand for the three months ended June 30, 2019 and 2018, respectively. The amortization expense related to core deposit intangible assets totaled $1.1 million and $1.2 million for the six months ended June 30, 2019 and 2018, respectively. The following table provides information regarding the core deposit intangibles at June 30, 2019 and December 31, 2018:



				As of June 30, 2019					As of December 31, 2018
Core Deposit Intangibles Related To:	Amortization Period	Gross Amount		Accumulated Amortization			Carrying Amount		Accumulated Amortization			Carrying Amount
		(Dollars in thousands)
Center Financial acquisition	7 years	$	4,100	$	(4,100	)	$	—	$	(4,100	)	$	—
Pacific International Bank acquisition	7 years	604		(590		)	14		(579		)	25
Foster Bankshares acquisition	10 years	2,763		(2,007		)	756		(1,893		)	870
Wilshire Bancorp acquisition	10 years	18,138		(5,961		)	12,177		(4,972		)	13,166
Total		$	25,605	$	(12,658	)	$	12,947	$	(11,544	)	$	14,061

Servicing assets are recognized when SBA and residential mortgage loans are sold with the servicing retained by the Company and the related income is recorded as a component of gains on sales of loans. Servicing assets are initially recorded at fair value based on the present value of the contractually specified servicing fee, net of servicing costs, over the estimated life of the loan, using a discount rate. The Company’s servicing costs approximates the industry average servicing costs of 40 basis points. All classes of servicing assets are subsequently measured using the amortization method which requires servicing rights to be amortized into noninterest income in proportion to, and over the period of, the estimated future net servicing income of the underlying loans.

Management periodically evaluates servicing assets for impairment based upon the fair value of the rights as compared to the carrying amount. Impairment is determined by stratifying rights into groupings based on loan type. Impairment is recognized through a valuation allowance for an individual grouping, to the extent that fair value is less than the carrying amount. As of June 30, 2019 and December 31, 2018, the Company did not have a valuation allowance on it servicing assets.

The changes in servicing assets for the three and six months ended June 30, 2019 and 2018 were as follows:



	Three Months Ended June 30,						Six Months Ended June 30,
	2019			2018			2019			2018
	(Dollars in thousands)
Balance at beginning of period	$	21,407		$	24,866		$	23,132		$	24,710
Additions through originations of servicing assets	619			1,600			946			3,316
Amortization	(2,029		)	(2,086		)	(4,081		)	(3,646		)
Adjustments	—			670			—			670
Balance at end of period	$	19,997		$	25,050		$	19,997		$	25,050

Loans serviced for others are not reported as assets. The principal balances of loans serviced for other institutions were $1.56 billion as of June 30, 2019 and $1.55 billion as of December 31, 2018.

The Company utilizes the discounted cash flow method to calculate the initial excess servicing assets. The inputs used in evaluating servicing assets for impairment at June 30, 2019 and December 31, 2018 are presented below.



	June 30, 2019	December 31, 2018
SBA Servicing Assets:
Weighted-average discount rate	10.98%	11.23%
Constant prepayment rate	13.40%	11.09%
Mortgage Servicing Assets:
Weighted-average discount rate	9.25%	10.25%
Constant prepayment rate	9.86%	7.13%