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Goodwill and Other Intangible Assets
 3 Months Ended
Mar. 31, 2020
Goodwill and Intangible Assets Disclosure [Abstract]  
Goodwill and Other Intangible Assets Goodwill and Other Intangible Assets
Goodwill
Goodwill is not amortized but is instead subject to impairment tests on at least an annual basis, and more frequently if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount.
The Corporation conducted its most recent annual impairment testing in May 2019, utilizing a qualitative assessment. Factors that management considered in this assessment included macroeconomic conditions, industry and market considerations, overall financial performance of the Corporation and each reporting unit (both current and projected), changes in management strategy, and changes in the composition or carrying amount of net assets. In addition, management considered the changes in both the Corporation’s common stock price and in the overall bank common stock index (based on the S&P 400 Regional Bank Sub-Industry Index), as well as the Corporation’s earnings per common share trend over the past year. Based on these assessments, management concluded that it is more likely than not that the estimated fair value exceeded the carrying value (including goodwill) for each reporting unit. Therefore, a step one quantitative analysis was not required. There have been no events since the May 2019 impairment testing that have changed the Corporation's impairment assessment conclusion. A qualitative analysis was performed during the first quarter of 2020 after COVID-19 was declared a national emergency, to determine if a triggering event had occurred. The Corporation determined a triggering event had not occurred, therefore, a step one quantitative analysis was not required during the first quarter of 2020. There were no impairment charges recorded in 2019 or the first three months of 2020.
At both March 31, 2020 and December 31, 2019, the Corporation had goodwill of $1.2 billion, of which $82 million was related to our insurance operations. There was an increase of $15 million during the first quarter of 2020 related to the First Staunton acquisition.
Other Intangible Assets
The Corporation has other intangible assets that are amortized, consisting of CDIs, other intangibles (primarily related to customer relationships acquired in connection with the Corporation’s insurance agency acquisitions), and MSRs. At March 31, 2020, the Corporation had $19 million of other intangibles, compared to $20 million at December 31, 2019, of which $18 million was related to our insurance operations. For CDIs and other intangibles, changes in the gross carrying amount, accumulated amortization, and net book value were as follows:
($ in Thousands)Three Months Ended March 31, 2020Year Ended December 31, 2019
Core deposit intangibles
Gross carrying amount at the beginning of the year$80,730  $58,100  
Additions during the period7,379  22,630  
Accumulated amortization(14,597) (12,456) 
Net book value$73,512  $68,274  
Amortization during the year$2,141  $7,130  
Other intangibles
Gross carrying amount at the beginning of the year $38,970  $44,887  
Additions during the period200  —  
Reductions due to sale(343) (217) 
Accumulated amortization(19,616) (24,643) 
Net book value $19,211  $20,027  
Amortization during the year$673  $2,818  
Mortgage Servicing Rights
The Corporation sells residential mortgage loans in the secondary market and typically retains the right to service the loans sold. MSRs are amortized in proportion to and over the period of estimated net servicing income and assessed for impairment at each reporting date.
The Corporation evaluates its MSRs asset for impairment at minimum on a quarterly basis. Impairment is assessed based on fair value at each reporting date using estimated prepayment speeds of the underlying mortgage loans serviced and stratifications based on the risk characteristics of the underlying loans (predominantly loan type and note interest rate). As mortgage interest
rates fall, prepayment speeds are usually faster and the value of the MSRs asset generally decreases, requiring additional valuation reserve. Conversely, as mortgage interest rates rise, prepayment speeds are usually slower and the value of the MSRs asset generally increases, requiring less valuation reserve. A valuation allowance is established, through a charge to earnings, to the extent the amortized cost of the MSRs exceeds the estimated fair value by stratification. During the first quarter of 2020, the Corporation recognized temporary impairment of $9 million driven by decreasing interest rates. If it is later determined that all or a portion of the temporary impairment no longer exists for a stratification, the valuation is reduced through a recovery to earnings. An other-than-temporary impairment (i.e., recoverability is considered remote when considering interest rates and loan pay off activity) is recognized as a write-down of the MSRs asset and the related valuation allowance (to the extent a valuation allowance is available) and then against earnings. A direct write-down permanently reduces the carrying value of the MSRs asset and valuation allowance, precluding subsequent recoveries. See Note 12 for a discussion of the recourse provisions on sold residential mortgage loans. See Note 13 which further discusses fair value measurement relative to the MSRs asset.
A summary of changes in the balance of the MSRs asset and the MSRs valuation allowance is as follows:
($ in Thousands)Three Months Ended March 31, 2020Year Ended December 31, 2019
Mortgage servicing rights
Mortgage servicing rights at beginning of period$67,607  $68,433  
Additions from acquisition1,357  —  
Additions2,359  11,606  
Amortization(3,635) (12,432) 
Mortgage servicing rights at end of period$67,688  $67,607  
Valuation allowance at beginning of period$(302) $(239) 
(Additions) recoveries, net(9,098) (63) 
Valuation allowance at end of period$(9,399) $(302) 
Mortgage servicing rights, net$58,289  $67,306  
Fair value of mortgage servicing rights$58,311  $72,532  
Portfolio of residential mortgage loans serviced for others (“servicing portfolio”)$8,548,600  $8,488,969  
Mortgage servicing rights, net to servicing portfolio0.68 %0.79 %
Mortgage servicing rights expense(a)
$12,733  $12,494  
(a) Includes the amortization of mortgage servicing rights and additions / recoveries to the valuation allowance of mortgage servicing rights, and is a component of mortgage banking, net on the consolidated statements of income.
The projections of amortization expense are based on existing asset balances, the current interest rate environment, and prepayment speeds as of March 31, 2020. The actual amortization expense the Corporation recognizes in any given period may be significantly different depending upon acquisition or sale activities, changes in interest rates, prepayment speeds, market conditions, regulatory requirements, and events or circumstances that indicate the carrying amount of an asset may not be recoverable. The following table shows the estimated future amortization expense for amortizing intangible assets:
($ in Thousands)Core Deposit IntangiblesOther IntangiblesMortgage Servicing Rights
Nine Months Ending December 31, 2020$6,608  $2,008  $9,609  
20218,811  2,653  13,307  
20228,811  2,629  10,456  
20238,811  2,610  8,279  
20248,811  2,591  6,632  
20258,811  2,302  5,372  
Beyond 202522,849  4,418  14,032  
Total Estimated Amortization Expense$73,512  $19,211  $67,688