11.               GOODWILL AND OTHER INTANGIBLES

 

Goodwill and other intangible assets arising from the Company’s acquisitions of SE Financial, FMS Financial Corporation (“FMS”), CLA Agency, Inc. (“CLA”), and Paul Hertel & Company were accounted for in accordance with the accounting guidance in FASB ASC Topic 350 for Intangibles - Goodwill and Other.  The other intangibles are amortizing intangibles, which primarily consist of a core deposit intangible which is amortized over an estimated useful life of ten years.  As of December 31, 2013, the core deposit intangibles net of accumulated amortization totaled $5.4 million.  The remaining balance of other amortizing intangibles includes a customer list intangible amortized over a remaining estimated useful life of 7 years as of December 31, 2013.

 

Goodwill and other indefinite lived intangible assets are not amortized on a recurring basis, but rather are subject to periodic impairment testing. Management reviewed qualitative factors for the Bank in 2013 including financial performance, market changes and general economic conditions and noted there was not a significant change in any of these factors as compared to 2012.  Accordingly, it was determined that it was more likely than not that the fair value of each reporting unit continued to be in excess of its carrying amount as of December 31, 2013.

 

During 2013, management reviewed qualitative factors for the Bank, which represents $112.7 million of our goodwill balance, including financial performance, market changes and general economic conditions and noted there was not a significant change in any of these factors as compared to 2012.  Accordingly, it was determined that it was more likely than not that the fair value of the Banking unit continued to be in excess of its carrying amount as of December 31, 2013.  Additionally during 2013, we assessed the qualitative factors related to Beneficial Insurance Services, LLC, which represents $9.3 million of our goodwill balance and determined that the two-step quantitative goodwill impairment test was warranted. Beneficial Insurance Services, LLC has experienced declining revenues and profitability over the past few years. We performed a two-step quantitative goodwill impairment for Beneficial Insurance Services, LLC based on estimates of the fair value of equity using discounted cash flow analyses as well as guideline company and guideline transaction information. The inputs and assumptions were incorporated in the valuations including projections of future cash flows, discount rates, the fair value of tangible and intangible assets and liabilities, and applicable valuation multiples based on the guideline information. Based on our December 31, 2013  annual impairment assessment of Beneficial Insurance Services, LLC and their current and projected financial results, we believe that the fair value is in excess of the carrying amount.  As a result, management concluded that there was no impairment of goodwill during the year ended December 31, 2013.  Although, we concluded that no impairment of goodwill existed for Beneficial Insurance Services, LLC, any further declines in financial performance for Beneficial Insurance Services, LLC could result in potential goodwill impairment in future periods.

 

During 2012, management reviewed qualitative factors for the Bank including financial performance, market changes and general economic conditions and noted there was not a significant change in any of these factors as compared to 2011.  Accordingly, it was determined that it was more likely than not that the fair value of the Banking unit continued to be in excess of its carrying amount as of December 31, 2012.  Additionally during 2012, the Company assessed the qualitative factors related to Beneficial Insurance Services, LLC and determined that the two-step quantitative goodwill impairment test was warranted based on declining revenues. The Company performed this impairment test which estimates the fair value of equity using discounted cash flow analyses as well as guideline company and guideline transaction information. The inputs and assumptions are incorporated in the valuations including projections of future cash flows, discount rates, the fair value of tangible and intangible assets and liabilities, and applicable valuation multiples based on the guideline information. Based on the Company’s December 31, 2013 annual impairment assessment of Beneficial Insurance Services, LLC, management believes that the fair value is in excess of the carrying amount.  As a result, management concluded that there was no impairment of goodwill as of December 31, 2012.

 

Other intangible assets subject to amortization are evaluated for impairment in accordance with authoritative guidance. An impairment loss will be recognized if the carrying amount of the intangible asset is not recoverable and exceeds fair value. The carrying amount of the intangible is not considered recoverable if it exceeds the sum of the undiscounted cash flows expected to result from the use of the asset.  During 2013, management reviewed qualitative factors that serve as indicators of impairment and concluded that there was no indication of impairment as of December 31, 2013.

 

During 2012, management recorded an impairment charge of $773 thousand related to the insurance agency’s customer list intangible due to the fact that the expected cash flows from the customer list intangible were less than the carrying amount of the customer list intangible.  The impairment charge was determined by the difference between the fair value of the customer list intangible and the carrying amount of the customer list intangible.

 

Goodwill and other intangibles at December 31, 2013 and December 31, 2012 are summarized as follows:

 

(Dollars in thousands)		Goodwill			Core Deposit  Intangible			Customer  Relationships and other
Balance at January 1, 2013		$	121,973		$	6,927		$	2,952
Adjustments:
Amortization		—			(1,503		)	(369		)
Balance at December 31, 2013		$	121,973		$	5,424		$	2,583

 

The following table summarizes amortizing intangible assets at December 31, 2013 and 2012:

 

		2013									2012
(Dollars in thousands)		Gross			Accumulated Amortization			Net			Gross			Accumulated Amortization			Net
Amortizing Intangibles:
Core Deposits		$	23,923		$	(18,499	)	$	5,424		$	23,923		$	(16,996	)	$	6,927
Customer Relationships and Other		10,251			(7,668		)	2,583			10,251			(7,299		)	2,952
Total Amortizing Intangibles		$	34,174		$	(26,167	)	$	8,007		$	34,174		$	(24,295	)	$	9,879

 

Aggregate amortization expense was $1.9 million, $3.4 million and $3.6 million for the years ended December 31, 2013, 2012, and 2011, respectively. Amortization expense for the next five years and thereafter is expected to be as follows:

 

(Dollars in thousands)

 

Year		Expense
2014		1,870
2015		1,868
2016		1,867
2017		1,149
2018		424
2019 and thereafter		829