Goodwill and Other Intangible Assets

6 Months Ended

Jun. 30, 2020

Goodwill and Intangible Assets Disclosure [Abstract]

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 2020, utilizing a quantitative assessment to compare the fair value of each reporting unit with its carrying amount, including goodwill. An impairment loss is recognized if the carrying amount of a reporting unit exceeds its fair value. Based on the quantitative assessment, management concluded that the estimated fair value exceeded the carrying value (including goodwill) for each reporting unit. Therefore, based on the step one quantitative analysis, no impairment was required. There have been no events since the May 2020 impairment testing that have changed the Corporation's impairment assessment conclusion. There were no impairment charges recorded in 2019 or the first six months of 2020.

At June 30, 2020 and December 31, 2019, the Corporation had goodwill of $1.1 billion and $1.2 billion, respectively. There was an increase of $15 million during the first quarter of 2020 with a subsequent reduction of $2 million due to adjustments that were made to goodwill relating to the First Staunton acquisition, and an $82 million reduction related to the disposition of ABRC.

Other Intangible Assets

The Corporation has other intangible assets that are amortized, consisting of CDIs, other intangibles, and MSRs. Other intangibles decreased $19 million from December 31, 2019, primarily driven by a $17 million decrease due to the disposition of ABRC. For CDIs and other intangibles, changes in the gross carrying amount, accumulated amortization, and net book value were as follows:


($ in Thousands)	Six Months Ended June 30, 2020		Year Ended December 31, 2019
Core deposit intangibles
Gross carrying amount at the beginning of the year	$	80,730	$	58,100
Additions during the period	7,379		22,630
Accumulated amortization	(16,800)		(12,456)
Net book value	$	71,309	$	68,274
Amortization during the year	$	4,344	$	7,130
Other intangibles
Gross carrying amount at the beginning of the year	$	38,970	$	44,887
Additions during the period	200		—
Reductions due to sale	(17,435)		(217)
Accumulated amortization	(20,285)		(24,643)
Net book value	$	1,450	$	20,027
Amortization during the year	$	1,343	$	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 half of 2020, the Corporation recognized temporary impairment of $17 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)	Six Months Ended June 30, 2020			Year Ended December 31, 2019
Mortgage servicing rights
Mortgage servicing rights at beginning of period	$	67,607		$	68,433
Additions from acquisition	1,357			—
Additions	7,812			11,606
Amortization	(10,043)			(12,432)
Mortgage servicing rights at end of period	$	66,734		$	67,607
Valuation allowance at beginning of period	$	(302)		$	(239)
(Additions) recoveries, net	(17,029)			(63)
Valuation allowance at end of period	$	(17,331)		$	(302)
Mortgage servicing rights, net	$	49,403		$	67,306
Fair value of mortgage servicing rights	$	49,423		$	72,532
Portfolio of residential mortgage loans serviced for others (“servicing portfolio”)	$	8,454,204		$	8,488,969
Mortgage servicing rights, net to servicing portfolio	0.58		%	0.79		%
Mortgage servicing rights expense^(a)	$	27,072		$	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 June 30, 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 Intangibles		Other Intangibles		Mortgage Servicing Rights
Six Months Ending December 31, 2020	$	4,405	$	100	$	7,676
2021	8,811		200		14,970
2022	8,811		200		10,982
2023	8,811		200		8,269
2024	8,811		200		6,409
2025	8,811		200		5,082
Beyond 2025	22,849		350		13,346
Total Estimated Amortization Expense	$	71,309	$	1,450	$	66,734