Goodwill, Intangible Assets, and Servicing Assets

9 Months Ended

Sep. 30, 2022

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, 2021, the Company performed a qualitative assessment to test for impairment and the management has concluded that there was no impairment. 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 September 30, 2022 and December 31, 2021 was $464.5 million. There was no impairment of goodwill recorded during the three and nine months ended September 30, 2022.

Core deposit intangible assets are amortized over their estimated lives or ten years. Amortization expense related to core deposit intangible assets totaled $486 thousand and $1.5 million for the three and nine months ended September 30, 2022, respectively. Amortization expense related to core deposit intangible assets totaled $509 thousand and $1.5 million for the three and nine months ended September 30, 2021, respectively. The following table provides information regarding the core deposit intangibles at September 30, 2022 and December 31, 2021:


				September 30, 2022				December 31, 2021
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	$	(2,627)	$	136	$	(2,504)	$	259
Wilshire Bancorp acquisition	10 years	18,138		(12,062)		6,076		(10,726)		7,412
Total		$	20,901	$	(14,689)	$	6,212	$	(13,230)	$	7,671

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 September 30, 2022 and December 31, 2021, the Company did not have a valuation allowance on its servicing assets.

The changes in servicing assets for the three and nine months ended September 30, 2022 and 2021 were as follows:


	Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
	(Dollars in thousands)
Balance at beginning of period	$	11,215	$	11,566	$	10,418	$	12,692
Additions through originations of servicing assets	1,338		710		4,228		2,039
Amortization	(952)		(1,489)		(3,045)		(3,944)
Balance at end of period	$	11,601	$	10,787	$	11,601	$	10,787

Loans serviced for others are not reported as assets. The principal balances of loans serviced for other institutions were $1.10 billion as of September 30, 2022 and $1.04 billion as of December 31, 2021.

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 September 30, 2022 and December 31, 2021 are presented below.


	September 30, 2022	December 31, 2021
SBA Servicing Assets:
Weighted-average discount rate	9.67%	11.20%
Constant prepayment rate	12.05%	14.64%
Mortgage Servicing Assets:
Weighted-average discount rate	11.88%	8.63%
Constant prepayment rate	9.63%	9.58%