NOTE 4 – GOODWILL

Changes in the carrying amount of goodwill were as follows:


	Wealth		Capital
	Management		Management		Consolidated
Balance at December 31, 2018	$	15,994	$	8,817	$	24,811
Impairment		-		(1,572)		(1,572)
Balance at June 30, 2019	$	15,994	$	7,245	$	23,239

Goodwill is tested annually for impairment on October 31 or earlier upon the occurrence of certain events. During the second quarter of 2019, the Company received an unsolicited offer to purchase its Los Angeles-based fixed income team, a portion of the Capital Management reporting unit. The Company determined the sale of a portion of this reporting unit would benefit the Company by optimizing the cost structure and freeing up capital and resources to strengthen the Wealth Management and Mortgage reporting units. At June 30, 2019, the Company determined that it was more likely than not that it would sign this agreement to dispose of a portion of this reporting unit.

Although the agreement to sell a portion of the Capital Management reporting unit did not meet the held for sale criteria at June 30, 2019, it did represent an event affecting a specific reporting unit and the Company proceeded to perform an interim impairment test for Capital Management reporting unit. As part of the qualitative assessment, it did indicate that it was more likely than not that the carrying value of the Capital Management reporting unit exceeded its fair value. Therefore, the Company proceeded to Step 1 of the interim goodwill impairment test.

Step 1 of the goodwill impairment analysis includes the determination of the carrying value of the reporting unit, including the existing goodwill, and estimating the fair value of the reporting unit. If the carrying amount of a reporting unit exceeds its fair value, we are required to perform Step 2 of the impairment test. As such, the Company elected to perform a valuation of the Capital Management reporting unit at June 30, 2019.

To estimate the fair value of our reporting units, an independent valuation specialist assisted us and we used an income approach, specifically a discounted cash flow methodology, and a market approach. The discounted cash flow methodology includes assumptions for forecasted revenues, growth rates, discount rates, and market multiples, which all require significant judgment and estimates by management and are inherently uncertain. The fair value did not exceed the carrying value of the Capital Management reporting unit as of June 30, 2019. During the first half of 2019, the growth in revenue has not been realized at previously forecasted levels for the Capital Management reporting unit. The Company has focused on revenue growth in the more core areas in Wealth Management and Mortgage. Our outlook for the Capital Management reporting unit has declined driven by the lower market penetration and slower growth in assets under management which has negatively impacted our near-term earnings outlook for this reporting unit. The sale would put the team into a group with distribution capabilities and a structure to support them. As such, this has caused a downward revision for our forecast on current and projected cash flows for the Capital Management reporting unit which resulted in a lower fair value for the six months ended June 30, 2019.

Therefore, we conducted Step 2 of the goodwill impairment test for the Capital Management reporting unit. Step 2 requires that we allocate the fair value of the reporting unit to identifiable assets and liabilities of the reporting unit. Any residual fair value after this allocation is compared to the goodwill balance and any excess goodwill is charged to expense. As a result of our two step evaluation, we recorded a goodwill impairment loss of $1.6 million for the three months ended June 30, 2019 in the Capital Management reporting unit. After the impairment charge, there was $7.2 million of goodwill remaining in the Capital Management reporting unit.