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)
Reclass of goodwill held for sale		-		(3,553)		(3,553)
Balance at September 30, 2019	$	15,994	$	3,692	$	19,686

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 segment. The Company determined the sale of a portion of this segment would benefit the Company by optimizing the cost structure and freeing up capital and resources to strengthen the Wealth Management and Mortgage segments. The Company determined that it was more likely than not that it would sign this agreement to dispose of a portion of this segment.

The agreement to sell a portion of the Capital Management segment represented an event affecting a specific segment. As a result, the Company proceeded to perform an interim impairment test for the Capital Management segment. As part of the qualitative assessment, it did indicate that it was more likely than not that the carrying value of the Capital Management segment 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 segment, including the existing goodwill, and estimating the fair value of the segment. If the carrying amount of a segment exceeds its fair value, we are required to perform Step 2 of the impairment test.

To estimate the fair value of our segments, 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 segment at the time of testing. During the first half of 2019, the growth in revenue had not been realized at previously forecasted levels for the Capital Management segment. The Company had focused on revenue growth in the more core areas in Wealth Management and Mortgage. Our outlook for the Capital Management segment had declined driven by the lower market penetration and slower growth in assets under management which had negatively impacted our near-term earnings outlook for this segment. The sale would put the team into a group with distribution capabilities and a structure to support them. As such, this had caused a downward revision for our forecast on current and projected cash flows for the Capital Management segment which resulted in a lower fair value.

Therefore, we conducted Step 2 of the goodwill impairment test for the Capital Management segment. Step 2 requires that we allocate the fair value of segment to identifiable assets and liabilities of the segment. 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 during the second quarter of 2019 in the Capital Management segment. As of September 30, 2019, there was $3.7 million of goodwill remaining in the Capital Management segment.

As of September 30, 2019, there was an outstanding agreement with Lido Advisors, LCC for a portion of the Capital Management segment. As such, goodwill was allocated based on the relative fair value for the portion of the segment held for sale, in the amount of $3.6 million, and was reclassified to assets held for sale at the end of the third quarter 2019. As of September 30, 2019, the remaining value of goodwill in the Capital Management segment was $3.7 million. For events occurring after the period which pertain to this transaction see Note 17 – Subsequent Events.