Goodwill and Other Intangible Assets

9 Months Ended

Sep. 30, 2016

Goodwill and Intangible Assets Disclosure [Abstract]

Goodwill and Intangible Assets Disclosure [Text Block]

Goodwill and Other Intangible Assets

The Company tests goodwill for impairment annually or more frequently if circumstances warrant. The Company’s annual step one impairment test as of December 31, 2015 concluded that its goodwill was not impaired. The Company concluded there were no triggering events during the first nine months of 2016 that required an interim goodwill impairment test.

Lease intangible assets are amortized over the life of the lease. Core deposit intangible assets are amortized over the estimated useful life of ten years on an accelerated basis. A summary of the other intangible assets that continue to be subject to amortization is as follows:

(Dollars in thousands)	As of September 30, 2016
	Gross carrying		Accumulated		Valuation		Net carrying
	amount		amortization		allowance		amount
Core deposit intangible assets	$	2,067	$	(1,071)	$	-	$	996
Lease intangible asset		350		(132)		-		218
Mortgage servicing rights		5,655		(2,827)		-		2,828
Total other intangible assets	$	8,072	$	(4,030)	$	-	$	4,042

(Dollars in thousands)	As of December 31, 2015
	Gross carrying		Accumulated		Valuation		Net carrying
	amount		amortization		allowance		amount
Core deposit intangible assets	$	2,067	$	(855)	$	-	$	1,212
Lease intangible asset		350		(98)		-		252
Mortgage servicing rights		5,322		(2,482)		-		2,840
Total other intangible assets	$	7,739	$	(3,435)	$	-	$	4,304

The following sets forth estimated amortization expense for core deposit and lease intangible assets for the remainder of 2016 and in successive years ending December 31:

(Dollars in thousands)	Amortization
	expense
Remainder of 2016	$	77
2017		289
2018		252
2019		214
2020		177
Thereafter		205
Total	$	1,214

Mortgage loans serviced for others are not reported as assets. The following table provides information on the principal balances of mortgage loans serviced for others:

(Dollars in thousands)	September 30,		December 31,
	2016		2015
FHLMC	$	473,896	$	444,714
FHLB		12,055		14,039

Custodial escrow balances maintained in connection with serviced loans were $7.2 million and $3.5 million at September 30, 2016 and December 31, 2015, respectively. Gross service fee income related to such loans was $308,000 and $285,000 for the three months ended September 30, 2016 and 2015, respectively, and is included in fees and service charges in the consolidated statements of earnings. Gross service fee income related to such loans was $912,000 and $808,000 for the nine months ended September 30, 2016 and 2015, respectively.

Activity for mortgage servicing rights and the related valuation allowance follows:

(Dollars in thousands)	Three months ended September 30,				Nine months ended September 30,
	2016		2015		2016		2015
Mortgage servicing rights:
Balance at beginning of period	$	2,851	$	2,729	$	2,840	$	2,477
Additions		268		328		780		1,038
Amortization		(291)		(233)		(792)		(691)
Balance at end of period	$	2,828	$	2,824	$	2,828	$	2,824

The fair value of mortgage servicing rights was $4.1 million and $4.6 million at September 30, 2016 and December 31, 2015, respectively. Fair value at September 30, 2016 was determined using discount rates ranging from 9.50% to 9.51%; prepayment speeds ranging from 5.50% to 15.09%, depending on the stratification of the specific mortgage servicing right; and a weighted average default rate of 2.20%. Fair value at December 31, 2015 was determined using discount rates ranging from 9.50% to 10.00%; prepayment speeds ranging from 5.15% to 33.78%, depending on the stratification of the specific mortgage servicing right; and a weighted average default rate of 2.25%.

The Company had a mortgage repurchase reserve of $361,000 and $351,000 at September 30, 2016 and December 31, 2015, respectively, which represents the Company’s best estimate of probable losses that the Company will incur related to the repurchase of one-to-four family residential real estate loans previously sold or to reimburse investors for credit losses incurred on loans previously sold where a breach of the contractual representations and warranties occurred. The Company did not incur any losses charged against the reserve or make any provisions to the reserve during the first nine months of 2016 and 2015. The Company had no losses or recoveries during the three months ended September 30, 2016 and recovered $10,000 of losses against the mortgage repurchase reserve during the nine months ended September 30, 2016. As of September 30, 2016, the Company did not have any outstanding mortgage repurchase requests.

- Definition

The entire disclosure for the aggregate amount of goodwill and a description of intangible assets, which may include (a) for amortizable intangible assets (also referred to as finite-lived intangible assets), the carrying amount, the amount of any significant residual value, and the weighted-average amortization period, (b) for intangible assets not subject to amortization (also referred to as indefinite-lived intangible assets), the carrying amount, and (c) the amount of research and development assets acquired and written off in the period, including the line item in the income statement in which the amounts written off are aggregated, if not readily apparent from the income statement. Also discloses (a) for amortizable intangibles assets in total and by major class, the gross carrying amount and accumulated amortization, the total amortization expense for the period, and the estimated aggregate amortization expense for each of the five succeeding fiscal years, (b) for intangible assets not subject to amortization the carrying amount in total and by major class, and (c) for goodwill, in total and for each reportable segment, the changes in the carrying amount of goodwill during the period (including the aggregate amount of goodwill acquired, the aggregate amount of impairment losses recognized, and the amount of goodwill included in the gain (loss) on disposal of a reporting unit). If any part of goodwill has not been allocated to a reportable segment, discloses the unallocated amount and the reasons for not allocating. For each impairment loss recognized related to an intangible asset (excluding goodwill), discloses: (a) a description of the impaired intangible asset and the facts and circumstances leading to the impairment, (b) the amount of the impairment loss and the method for determining fair value, (c) the caption in the income statement or the statement of activities in which the impairment loss is aggregated, and (d) the segment in which the impaired intangible asset is reported. For each goodwill impairment loss recognized, discloses: (a) a description of the facts and circumstances leading to the impairment, (b) the amount of the impairment loss and the method of determining the fair value of the associated reporting unit, and (c) if a recognized impairment loss is an estimate not finalized and the reasons why the estimate is not final. May also disclose the nature and amount of any significant adjustments made to a previous estimate of an impairment loss.

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