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Note 5 - Goodwill and Intangible Assets

9 Months Ended

Sep. 30, 2020

Goodwill and Intangible Assets Disclosure [Text Block]

(5)

Goodwill and Intangible Assets

Goodwill and intangible assets consist of the following:

(in thousands)	September 30, 2020		December 31, 2019

Goodwill	$	12,513	$	12,513
Core deposit intangibles		2,042		2,285
Mortgage servicing rights		2,420		1,372

Goodwill represents $11.8 million related to the May 1, 2019 acquisition and $682,000 related to the 1996 purchase of a bank in southern Indiana. See the footnote titled “Acquisition” for further details. Effective March 31, 2020, management finalized the fair values of the acquired assets and assumed liabilities related to the May 2019 acquisition ahead of the 12 months as allowed by GAAP.

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 September 30 of each year or more often as situations dictate.

At September 30, 2020, Bancorp elected to perform a qualitative assessment to determine if it was more-likely-than-not that the fair value of the Commercial Banking 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.

Changes in the carrying value of goodwill follows:

	Three months ended					Nine months ended
	September 30,					September 30,
(in thousands)	2020		2019			2020		2019
Balance at beginning of period	$	12,513	$	12,826		$	12,513	$	682
Goodwill acquired		—		—			—		12,144
Recast adjustments		—		(233	)		—		(233	)
Impairment		—		—			—		—
Balance at end of period	$	12,513	$	12,593		$	12,513	$	12,593

Bancorp recorded CDI assets of $1.5 million and $2.5 million in association with its May 1, 2019 and 2013 acquisitions. See the footnote titled “Acquisition” for further details.

Changes in the net carrying amount of CDIs follows:

	Three months ended						Nine months ended
	September 30,						September 30,
(in thousands)	2020			2019			2020			2019
Balance at beginning of period	$	2,122		$	2,461		$	2,285		$	1,056
Core deposit intangible acquired		—			—			—			1,519
Amortization		(80	)		(88	)		(243	)		(202	)
Balance at end of period	$	2,042		$	2,373		$	2,042		$	2,373

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. Fair value is based on a valuation model that calculates the PV of estimated net servicing income. The model incorporates assumptions that market participants would use in estimating future net servicing income.

The estimated fair value of MSRs at both September 30, 2020 and December 31, 2019 were $3 million. There was no valuation allowance for MSRs as of September 30, 2020 and December 31, 2019, as fair value exceeded carrying value.

Changes in the net carrying amount of MSRs follows:

	Three months ended						Nine months ended
	September 30,						September 30,
(in thousands)	2020			2019			2020			2019
Balance at beginning of period	$	1,888		$	1,168		$	1,372		$	1,022
Additions for mortgage loans sold		631			124			1,272			338
Amortization		(99	)		(40	)		(224	)		(108	)
Impairment		—			—			—			—

Balance at end of period	$	2,420		$	1,252		$	2,420		$	1,252

Total outstanding principal balances of loans serviced for others were $398 million and $327 million at September 30, 2020 and December 31, 2019, respectively.