Goodwill and Intangible Assets

6 Months Ended

Jun. 30, 2020

Goodwill and Intangible Assets Disclosure [Abstract]

GOODWILL AND INTANGIBLE ASSETS

Goodwill: The Company has acquired three banks, Lotus Bank in March 2015, Bank of Michigan in March 2016, and Ann Arbor State Bank in January 2020, which resulted in the recognition of goodwill of $4.6 million, $4.8 million, and $26.2 million, respectively. Total goodwill was $35.6 million at June 30, 2020 and $9.4 million at December 31, 2019.

Goodwill is not amortized but is evaluated annually for impairment and on an interim basis if events or changes in circumstances indicate that goodwill might be impaired. Impairment exists when the carrying value of goodwill exceeds its fair value. The Company's most recent annual goodwill impairment review as of October 1, 2019 did not indicate that an impairment existed. However, in accordance with ASC 350, the Company reviewed the requirements of interim impairment testing based on the current economic conditions resulting from the COVID-19 pandemic.

In evaluating whether it is more likely than not that the fair value of the Bank’s operations was less than the carrying amount, the Company assessed the relevant events and circumstances such as the ones noted in ASC 350-20-35-3c. Despite the Bank’s market capitalization declining from December 2019 to June 2020 as a result of the COVID-19 pandemic, the Bank’s financial performance has remained positive. This is evidenced by the strong financial indicators for the Bank, solid credit quality ratios, as well as the strong capital position of the Bank. In addition, second quarter revenue reflected significant and continuing growth in our residential mortgage banking business, as well as net SBA fees related to Payroll Protection Program ("PPP") loans funded during second quarter of 2020. In assessing the totality of the events and circumstances, management determined that it is more likely than not that the fair value of the Bank’s operations, from a qualitative perspective, exceeds the book value. As such, we do not believe goodwill was impaired as of June 30, 2020, and the two-step impairment test was deemed unnecessary.

Acquired Intangible Assets: The Company has recorded core deposit intangibles ("CDIs") associated with each of its acquisitions. CDIs are amortized on an accelerated basis over their estimated useful lives.

The table below presents the Company's net carrying amount of CDIs:


(Dollars in thousands)	June 30, 2020		December 31, 2019
Gross carrying amount	$	5,708	$	2,045
Accumulated amortization	(2,129)		(1,744)
Net Intangible	$	3,579	$	301

Amortization expense for the CDIs was $192 thousand and $36 thousand for the three months ended June 30, 2020 and 2019, and $385 thousand and $88 thousand for the six months ended June 30, 2020 and 2019, respectively.

Mortgage Servicing Rights ("MSRs"): The Company has recorded MSRs for loans that are sold with servicing retained. MSRs are carried at the lower of the initial capitalized amount, net of accumulated amortization or estimated fair value. MSRs are amortized in proportion to and over the period of estimated net servicing income. The Company serviced residential mortgage loans for others with unpaid principal balances of approximately $122.0 million and $9.0 million as of June 30, 2020 and December 31, 2019, respectively.

Changes in our mortgage servicing rights were as follows for the three and six months ended June 30, 2020 . The Company had no mortgage servicing rights for the three and six months ended June 30, 2019:


	For the three months ended June 30,		For the six months ended June 30,
(Dollars in thousands)	2020		2020
Mortgage servicing rights:
Balance, beginning of period	$	213	$	76
Originated servicing	1,035		1,177
Amortization	(35)		(40)
Balance, end of period	1,213		1,213






Fair value:
At beginning of period	$	196	$	87
At end of period	1,256		1,256