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Goodwill and Other Intangible Assets

9 Months Ended

Sep. 30, 2020

Goodwill and Intangible Assets Disclosure [Abstract]

4.	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, 2019 concluded that its goodwill was not impaired. The Company concluded there was a triggering event during the first three months of 2020 that required an interim goodwill impairment test. The Company’s interim impairment test as of March 31, 2020 concluded that its goodwill was not impaired. The Company concluded there were no additional events or circumstances during the three months ended September 30, 2020 that indicated it was more likely than not that the fair value of the Company did not exceed the carrying value.

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. Mortgage servicing rights are amortized over the estimated life of the mortgage loan serviced for others. A summary of the other intangible assets that continue to be subject to amortization is as follows:

(Dollars in thousands)	As of September 30, 2020
	Gross carrying amount		Accumulated amortization			Net carrying amount
Core deposit intangible assets	$	2,018	$	(1,810	)	$	208
Lease intangible asset		350		(312	)		38
Mortgage servicing rights		7,811		(4,479	)		3,332
Total other intangible assets	$	10,179	$	(6,601	)	$	3,578

(Dollars in thousands)	As of December 31, 2019
	Gross carrying amount		Accumulated amortization			Net carrying amount
Core deposit intangible assets	$	2,018	$	(1,707	)	$	311
Lease intangible asset		350		(278	)		72
Mortgage servicing rights		6,910		(4,464	)		2,446
Total other intangible assets	$	9,278	$	(6,449	)	$	2,829

The following sets forth estimated amortization expense for core deposit and lease intangible assets for the remainder of 2020 and in successive years ending December 31:

(Dollars in thousands)	Amortization
	expense
Remainder of 2020	$	41
2021		121
2022		58
2023		26
Total	$	246

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,
	2020		2019
FHLMC	$	597,604	$	509,101
FHLB		33,744		40,462
Total	$	631,348	$	549,563

Custodial escrow balances maintained in connection with serviced loans were $9.6 million and $4.7 million at September 30, 2020 and December 31, 2019, respectively. Gross service fee income related to such loans was $391,000 and $334,000 for the three months ended September 30, 2020 and 2019, respectively, and is included in fees and service charges in the consolidated statements of earnings. Gross service fee income related to such loans was $1.1 million and $1.0 million for the nine months ended September 30, 2020 and 2019, respectively.

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

(Dollars in thousands)	Three months ended September 30,						Nine months ended September 30,
	2020			2019			2020			2019
Mortgage servicing rights:
Balance at beginning of period	$	2,806		$	2,372		$	2,446		$	2,495
Additions		946			308			1,915			630
Amortization		(420	)		(278	)		(1,029	)		(723	)
Balance at end of period	$	3,332		$	2,402		$	3,332		$	2,402

The fair value of mortgage servicing rights was $4.1 million and $5.2 million at September 30, 2020 and December 31, 2019, respectively. Fair value at September 30, 2020 was determined using discount rates ranging from 9.00% to 12.00%; prepayment speeds ranging from 6.27% to 27.69%, depending on the stratification of the specific mortgage servicing right; and a weighted average default rate of 1.39%. Fair value at December 31, 2019 was determined using discount rates ranging from 9.00% to 11.00%, prepayment speeds ranging from 6.00% to 23.21%, depending on the stratification of the specific mortgage servicing right, and a weighted average default rate of 1.37%.

The Company had a mortgage repurchase reserve of $235,000 at both September 30, 2020 and December 31, 2019, 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 2020 and 2019. As of September 30, 2020, the Company did not have any outstanding mortgage repurchase requests.