Note 5 - Goodwill and Intangible Assets

9 Months Ended

Sep. 30, 2019

Notes to Financial Statements

Goodwill and Intangible Assets Disclosure [Text Block]

(5) Goodwill and Intangible Assets

Goodwill, recorded on the acquisition date of an entity, represents $11.9 million related to the May 1, 2019 KSB acquisition and $682,000 related to the 1996 purchase of a bank in southern Indiana. As provided for under GAAP, management has up to 12 months following the date of acquisition to finalize the fair values of the acquired assets and assumed liabilities. During this measurement period, Bancorp may record subsequent recast adjustments to goodwill for provisional amounts recorded at the acquisition date.

GAAP requires that goodwill and intangible assets with indefinite useful lives not be amortized, but instead be tested for impairment at least annually. Impairment exists when a reporting unit’s carrying value of goodwill exceeds its fair value. Bancorp’s annual goodwill impairment test is conducted as of December 31 of each year or more often as situations dictate. The goodwill balance at September 30, 2019 relates entirely to the Commercial Banking segment of Bancorp. At December 31, 2018, Bancorp’s Commercial Banking reporting unit had positive equity and Bancorp elected to perform a qualitative assessment to determine if it was more-likely-than-not that the fair value of the reporting unit exceeded its carrying value, including goodwill. The qualitative assessment indicated that it was not more-likely-than-not that the carrying value of the reporting unit exceeded its fair value. Therefore, Bancorp did not complete the two-step impairment test as of December 31, 2018.

Changes in the carrying value of goodwill follows:

	Three months ended					Nine months ended
	September 30,					September 30,
(In thousands)	2019			2018		2019			2018
Balance at beginning of period	$	12,826		$	682	$	682		$	682
Goodwill acquired		—			—		12,144			—
Recast adjustments		(233	)		—		(233	)		—
Impairment		—			—		—			—
Balance at end of period	$	12,593		$	682	$	12,593		$	682

The Company recorded core deposit intangible assets of $1.5 million and $2.5 million in association with its May 1, 2019 KSB and 2013 TBOC acquisitions. See the Footnote titled “Acquisition of King Bancorp, Inc.” for further details.

Changes in the net carrying amount of core deposit intangibles follow:

	Three months ended						Nine months ended
	September 30,						September 30,
(In thousands)	2019			2018			2019			2018
Balance at beginning of period	$	2,461		$	1,139		$	1,056		$	1,225
Core deposit intangible acquired		—			—			1,519			—
Amortization		(88	)		(41	)		(202	)		(127	)
Balance at end of period	$	2,373		$	1,098		$	2,373		$	1,098

MSRs, a component of other assets, are initially recognized at fair value when mortgage loans are sold with servicing retained. The MSRs are amortized in proportion to and over the period of estimated net servicing income, considering appropriate prepayment assumptions. MSRs are evaluated quarterly for impairment by comparing carrying value to fair value. Estimated fair values of MSRs at September 30, 2019 and December 31, 2018 were $3 million and $4 million.

Changes in the net carrying amount of MSRs follows:

	Three months ended						Nine months ended
	September 30,						September 30,
(In thousands)	2019			2018			2019			2018
Balance at beginning of period	$	1,168		$	898		$	1,022		$	875
Additions for mortgage loans sold		124			125			338			220
Amortization		(40	)		(40	)		(108	)		(112	)
Balance at end of period	$	1,252		$	983		$	1,252		$	983

Total outstanding principal balances of loans serviced for others were $324 million and $328 million at September 30, 2019, and December 31, 2018.