Goodwill, Intangible Assets, and Servicing Assets

3 Months Ended

Mar. 31, 2021

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, 2020, the Company performed a Step 1 fair value assessment and determined that goodwill was not impaired as the estimated fair value of the Company exceeded the book value. As the Company operates as single business unit, goodwill impairment was assessed based on the Company as a whole. Goodwill is not amortized for book purposes and is not tax deductible.

The carrying amount of the Company’s goodwill as of March 31, 2021 and December 31, 2020 was $464.5 million. There was no impairment of goodwill recorded during the three months ended March 31, 2021.

Core deposit intangible assets are amortized over their estimated lives or ten years. Amortization expense related to core deposit intangible assets totaled $509 thousand and $531 thousand for the three months ended March 31, 2021 and 2020, respectively. The following table provides information regarding the core deposit intangibles at March 31, 2021 and December 31, 2020:


				As of March 31, 2021				As of December 31, 2020
Core Deposit Intangibles Related To:	Amortization Period	Gross Amount		Accumulated Amortization		Carrying Amount		Accumulated Amortization		Carrying Amount
		(Dollars in thousands)
Foster Bankshares acquisition	10 years	$	2,763	$	(2,368)	$	395	$	(2,322)	$	441
Wilshire Bancorp acquisition	10 years	18,138		(9,335)		8,803		(8,871)		9,267
Total		$	20,901	$	(11,703)	$	9,198	$	(11,193)	$	9,708

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 March 31, 2021 and December 31, 2020, the Company did not have a valuation allowance on it servicing assets.

The changes in servicing assets for the three months ended March 31, 2021 and 2020 were as follows:


	Three Months Ended March 31,
		2021		2020
		(Dollars in thousands)
Balance at beginning of period		$	12,692	$	16,417
Additions through originations of servicing assets		592		377
Amortization		(1,200)		(1,947)

Balance at end of period		$	12,084	$	14,847

Loans serviced for others are not reported as assets. The principal balances of loans serviced for other institutions were $1.21 billion as of March 31, 2021 and $1.23 billion as of December 31, 2020.

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 March 31, 2021 and December 31, 2020 are presented below.


	March 31, 2021	December 31, 2020
SBA Servicing Assets:
Weighted-average discount rate	10.74%	9.93%
Constant prepayment rate	14.39%	14.40%
Mortgage Servicing Assets:
Weighted-average discount rate	8.75%	8.26%
Constant prepayment rate	8.74%	8.63%