Goodwill and Other Intangible Assets

6 Months Ended

Jun. 30, 2024

Goodwill and Other Intangible Assets

Goodwill and Other Intangible Assets

6) Goodwill and Other Intangible Assets

Goodwill

At June 30, 2024, the carrying value of goodwill was $167,631,000, which included $13,044,000 of goodwill related to the acquisition of Bay View Funding, the Bank’s factoring subsidiary, $32,619,000 from the acquisition of Focus Business Bank, $13,819,000 from the acquisition of Tri-Valley Bank, $24,271,000 from the acquisition of United American Bank and $83,878,000 from its acquisition of Presidio Bank.

ASC 350-20 outlines the methodology used to determine if goodwill has been impaired and to measure any loss resulting from an impairment. Goodwill impairment exists when a reporting unit’s carrying value exceeds its fair value, which is determined through a qualitative assessment whether it is more likely than not that the fair value of equity of the reporting unit exceeds the carrying value. If the qualitative assessment indicates it is more likely than not that the fair value of equity of a reporting unit is less than book value, then a quantitative impairment test is required. The quantitative assessment identifies if a reporting unit’s fair value is less than its carrying value. If it is, then the Company will recognize goodwill impairment equal to the difference between the carrying amount of the reporting unit and its fair value, not to exceed the carrying amount of goodwill.

The Company's policy is to test goodwill for impairment annually as of November 30, or on an interim basis if an event triggering impairment assessment may have occurred. Potential impairment indicators considered include the condition of the economy and banking industry; government intervention and regulatory updates; the impact of recent events to financial performance and cost factors of the reporting units; performance of the Company’s stock and other relevant events. The Company completed its annual goodwill impairment analysis as of November 30, 2023 with the assistance of an independent valuation firm. The goodwill related to the acquisition of Bay View Funding was tested separately for impairment under this analysis. The qualitative assessment indicated that it was more likely than not that the fair value of the reporting units exceeded the carrying value. No events or circumstances since the November 30, 2023 annual impairment test were noted that would indicate it was more likely than not a goodwill impairment exists.

The following table summarizes the carrying amount of goodwill by segment for the periods indicated:

	June 30,		December 31,
	2024		2023
	(Dollars in thousands)
Banking	$	154,587	$	154,587
Factoring		13,044		13,044
Total Goodwill	$	167,631	$	167,631

Other Intangible Assets

The Company’s intangible assets are summarized as follows for the periods indicated:

	June 30, 2024
	Gross
	Carrying		Accumulated
	Amount		Amortization		Total
	(Dollars in thousands)
Core deposit intangibles	$	25,023		(17,658)	$	7,365
Customer relationship and brokered relationship intangibles		1,900		(1,836)		64
Below market leases		110		(18)		92
Total	$	27,033	$	(19,512)	$	7,521

	December 31, 2023
	Gross
	Carrying		Accumulated
	Amount		Amortization		Total
	(Dollars in thousands)
Core deposit intangibles	$	25,023		(16,646)	$	8,377
Customer relationship and brokered relationship intangibles		1,900		(1,741)		159
Below market leases		110		(19)		91
Total	$	27,033	$	(18,406)	$	8,627

As of June 30, 2024, the estimated amortization expense for future periods is as follows:

				Customer &	Below/
	Core			Brokered	(Above)		Total
	Deposit			Relationship	Market		Amortization
Year	Intangible			Intangible	Lease		Expense
		(Dollars in thousands)
2024 remaining	$	1,011	$	64	$	6	$	1,081
2025		1,795		—		18		1,813
2026		1,512		—		18		1,530
2027		1,438		—		18		1,456
2028		999		—		18		1,017
2029		610		—		14		624
	$	7,365	$	64	$	92	$	7,521

Impairment testing of the intangible assets is performed at the individual asset level. Impairment exists if the carrying amount of the asset is not recoverable and exceeds its fair value at the date of the impairment test. For intangible assets, estimates of expected future cash flows (cash inflows less cash outflows) that are directly associated with an intangible asset are used to determine the fair value of that asset. Management makes certain estimates and assumptions in determining the expected future cash flows from core deposit and customer relationship intangibles including account attrition, expected lives, discount rates, interest rates, servicing costs and other factors. Significant changes in these estimates and assumptions could adversely impact the valuation of these intangible assets. If an impairment loss exists, the carrying amount of the intangible asset is adjusted to a new cost basis. The new cost basis is then amortized over the remaining useful life of the asset. Based on its assessment, management concluded that there was no impairment of intangible assets at June 30, 2024 and December 31, 2023.