Goodwill and Core Deposit and Trust Relationship Intangibles

12 Months Ended

Dec. 31, 2013

Goodwill and Core Deposit and Trust Relationship Intangibles [Abstract]

Goodwill and Intangible Assets Disclosure [Text Block]

Goodwill and Other Intangible Assets

In 2012, the Company recorded $6.2 million of goodwill and $2.9 million of core deposit intangible related to the Branch Acquisition.

The changes in goodwill for the years ended December 31, 2013 and 2012 are shown in the table below:



	Banking		Financial Services			Total
December 31, 2011:
Goodwill	$	34,720	$	7,750		$	42,470
Accumulated impairment losses	—		(740		)	(740		)
Reported goodwill	34,720		7,010			41,730
2012 activity	6,182		(276		)	5,906
December 31, 2012:
Goodwill	40,902		7,474			48,376
Accumulated impairment losses	—		(740		)	(740		)
Reported goodwill	40,902		6,734			47,636
2013 activity	—		(2,830		)	(2,830		)
December 31, 2013:
Goodwill	40,902		7,474			48,376
Accumulated impairment losses	—		(3,570		)	(3,570		)
Reported goodwill	$	40,902	$	3,904		$	44,806

The Company performs its annual goodwill impairment assessment as of November 30 and at interim periods if indicators of potential impairment exist. At December 31, 2013, the carrying value of goodwill was $44.8 million, consisting of goodwill of $40.9 million associated with the banking reporting unit and $3.9 million attributable to the financial services reporting unit.

The annual impairment evaluation of goodwill associated with the banking reporting unit did not identify any impairment in 2013. The Company engaged an independent valuation firm to assist with the goodwill impairment assessment for the financial services reporting unit as of November 30, 2013 as qualitative factors suggested that it was more-likely-than-not that the fair value of the reporting unit was less than its carrying amount. These qualitative factors included a decline in the revenue base as the result of (i) a decision to focus on the Company’s core business of managing assets and administering trusts for families and local nonprofit organizations resulting in a lower revenue base by increasing account minimums and transferring smaller relationships to affiliates; and (ii) divesting the employee benefits product line. Also in the fourth quarter of 2013, new information became available resulting in the Company refining its approach of who represents a market participant for the financial services reporting unit and reassessing the valuation implications imposed by the required regulatory capital requirements.

The Company performed the two-step goodwill impairment test in accordance with GAAP. In performing step 1, two separate valuation methodologies were used to determine the fair value of the financial services reporting unit: (i) a discounted cash flow valuation technique (income approach); and (ii) a comparison of the price to revenue and assets under management of comparable market participant transactions (market approach). Both methods indicated the fair value of the financial services reporting unit was less than its carrying value. The step 2 analysis was then performed, and the results indicated the financial services reporting unit goodwill was impaired as the implied fair value of goodwill was less than its carrying value. As a result, the Company recorded a non-cash goodwill impairment charge of $2.8 million related to the financial services reporting unit included within non-interest expense in the consolidated statements of income for the year ended December 31, 2013. The impairment was caused by lower forecasted revenue, an increase in the discount rate, the anticipated market participants and increased regulatory driven operating costs and capital levels required by potential market participants which impacts the valuation metrics.

The fair value of goodwill for the financial services reporting unit as of November 30, 2013 was determined by evenly weighting the income and market approach. The income approach utilized a discounted cash flow method, which is based on the expected future cash flows of the reporting unit. The key assumptions within the discounted cash flow model include projected assets under management and revenue growth, projected margin, and the discount rate. The market approach measures fair value based on what other market participants have paid for assets that can be considered reasonably similar to those being valued. The following table presents the key Level 3 unobservable inputs used within the discounted cash flow model to measure fair value of the financial services reporting unit at November 30, 2013:



Valuation Methodology	Unobservable Input	Input Used
Discounted cash flow	Revenue growth rate	5.0%
	Margin percentage	8.3%
	Discount rate	16.5%
	Fair value weighting	50.0%
Market approach	Fair value weighting	50.0%

The annual impairment evaluation of goodwill did not identify any impairment for 2012. During 2012, the Company exited its employee benefits line resulting in a reduction of financial services reporting unit goodwill of $276,000.

The changes in core deposit intangible and trust relationship intangible assets for the years ended December 31, 2013 and 2012 are shown in the table below:



	Core Deposit Intangible								Trust Relationship Intangible
	Total		Accumulated Amortization			Net			Total		Accumulated Amortization			Net
Balance at December 31, 2011	$	14,444	$	(11,432	)	$	3,012		$	753	$	(301	)	$	452
2012 activity	2,856		(582		)	2,274			—		(75		)	(75		)
Balance at December 31, 2012	17,300		(12,014		)	5,286			753		(376		)	377
2013 activity	—		(1,074		)	(1,074		)	—		(76		)	(76		)
Balance at December 31, 2013	$	17,300	$	(13,088	)	$	4,212		$	753	$	(452	)	$	301

It is estimated that core deposit and trust relationship intangible assets will be fully amortized as of December 31, 2017. The following table reflects the expected amortization schedule for intangible assets at December 31, 2013.



	Core Deposit Intangible		Trust Relationship Intangible
2014	$	1,073	$	75
2015	1,073		75
2016	1,073		75
2017	993		76
Total unamortized intangible	$	4,212	$	301

- Definition

The entire disclosure for the aggregate amount of goodwill and a description of intangible assets, which may include (a) for amortizable intangible assets (also referred to as finite-lived intangible assets), the carrying amount, the amount of any significant residual value, and the weighted-average amortization period, (b) for intangible assets not subject to amortization (also referred to as indefinite-lived intangible assets), the carrying amount, and (c) the amount of research and development assets acquired and written off in the period, including the line item in the income statement in which the amounts written off are aggregated, if not readily apparent from the income statement. Also discloses (a) for amortizable intangibles assets in total and by major class, the gross carrying amount and accumulated amortization, the total amortization expense for the period, and the estimated aggregate amortization expense for each of the five succeeding fiscal years, (b) for intangible assets not subject to amortization the carrying amount in total and by major class, and (c) for goodwill, in total and for each reportable segment, the changes in the carrying amount of goodwill during the period (including the aggregate amount of goodwill acquired, the aggregate amount of impairment losses recognized, and the amount of goodwill included in the gain (loss) on disposal of a reporting unit). If any part of goodwill has not been allocated to a reportable segment, discloses the unallocated amount and the reasons for not allocating. For each impairment loss recognized related to an intangible asset (excluding goodwill), discloses: (a) a description of the impaired intangible asset and the facts and circumstances leading to the impairment, (b) the amount of the impairment loss and the method for determining fair value, (c) the caption in the income statement or the statement of activities in which the impairment loss is aggregated, and (d) the segment in which the impaired intangible asset is reported. For each goodwill impairment loss recognized, discloses: (a) a description of the facts and circumstances leading to the impairment, (b) the amount of the impairment loss and the method of determining the fair value of the associated reporting unit, and (c) if a recognized impairment loss is an estimate not finalized and the reasons why the estimate is not final. May also disclose the nature and amount of any significant adjustments made to a previous estimate of an impairment loss.

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