Goodwill, Intangible Assets, and Servicing Assets

6 Months Ended

Jun. 30, 2023

Goodwill and Intangible Assets Disclosure [Abstract]

Goodwill, Intangible Assets, and Servicing Assets

The carrying amount of the Company’s goodwill at June 30, 2023, and December 31, 2022, was $464.5 million. There was no impairment of goodwill recorded during the three and six months ended June 30, 2023.

Goodwill and other intangible assets generated from business combinations and deemed to have indefinite lives are not subject to amortization and instead are tested for impairment annually at the reporting unit level unless a triggering event occurs thereby requiring an updated assessment. 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. Impairment exists when the carrying value of the goodwill exceeds the fair value of the reporting unit.

In March 2023, the impact to banks triggered by the closure of well-known regional banks caused a significant decline in bank stock prices, including the Company’s stock price. These triggering events warranted the Company to perform an interim goodwill assessment as of June 30, 2023. Management estimated the fair value of the Company using the income approach based on the discounted free cash flows of the Company’ income projections and taking into consideration future economic forecasts available. Based on this quantitative assessment, the management has concluded that the goodwill was not impaired at June 30, 2023.

Amortization expense related to core deposit intangible assets totaled $448 thousand and $896 thousand for the three and six months ended June 30, 2023, respectively. Amortization expense related to core deposit intangible assets totaled $486 thousand and $973 thousand for the three and six months ended June 30, 2022, respectively. The following table provides information regarding the core deposit intangibles at June 30, 2023 and December 31, 2022:


				June 30, 2023				December 31, 2022
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	$	(2,716)	$	47	$	(2,668)	$	95
Wilshire Bancorp acquisition	10 years	18,138		(13,355)		4,783		(12,507)		5,631
Total		$	20,901	$	(16,071)	$	4,830	$	(15,175)	$	5,726

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. At June 30, 2023 and December 31, 2022, the Company did not have a valuation allowance on its servicing assets.

The changes in servicing assets for the three and six months ended June 30, 2023 and 2022, were as follows:


	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022
	(Dollars in thousands)
Balance at beginning of period	$	11,628	$	10,874	$	11,628	$	10,418
Additions through originations of servicing assets	884		1,427		1,849		2,890
Amortization	(980)		(1,086)		(1,945)		(2,093)
Balance at end of period	$	11,532	$	11,215	$	11,532	$	11,215

Loans serviced for others are not reported as assets. The principal balances of loans serviced for other institutions were $1.11 billion at June 30, 2023, and $1.10 billion at December 31, 2022.

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, 2023 and December 31, 2022, are presented below.


	June 30, 2023	December 31, 2022
SBA Servicing Assets:
Weighted-average discount rate	10.46%	8.76%
Constant prepayment rate	12.13%	12.09%
Mortgage Servicing Assets:
Weighted-average discount rate	11.63%	11.38%
Constant prepayment rate	9.51%	9.61%