GOODWILL, OTHER INTANGIBLE ASSETS AND MORTGAGE SERVICING RIGHTS

Goodwill and Other Intangible Assets: At December 31, 2018, intangible assets are comprised of goodwill, CDI, and LHI acquired in business combinations. Goodwill represents the excess of the total purchase consideration paid over the fair value of the assets acquired, net of the fair values of liabilities assumed, and is not amortized but is reviewed annually for impairment. Banner has identified one reporting unit for purposes of evaluating goodwill for impairment. At December 31, 2018, the Company completed a qualitative assessment of goodwill and concluded that it is more likely than not that the fair value of Banner, the reporting unit, exceeds the carrying value.

CDI represents the value of transaction-related deposits and the value of the customer relationships associated with the deposits. LHI represents the value ascribed to leases assumed in an acquisition in which the lease terms are favorable compared to a market lease at the date of acquisition. The Company amortizes CDI and LHI over their estimated useful lives and reviews them at least annually for events or circumstances that could impair their value. The CDI assets shown in the table below represent the value ascribed to the long-term deposit relationships acquired in various bank acquisitions. These intangible assets are being amortized using an accelerated method over estimated useful lives of three to ten years. The CDI and LHI assets are not estimated to have a significant residual value.

The following table summarizes the changes in the Company’s goodwill, CDI and LHI for the years ended December 31, 2018, 2017 and 2016 (in thousands):



	Goodwill			CDI			LHI			Total
Balance, January 1, 2016	$	247,738		$	36,762		$	710		$	285,210
Amortization	—			(7,061		)	(249		)	(7,310		)
Other changes ⁽¹⁾	(3,155		)	—			—			(3,155		)
Balance, December 31, 2016	244,583			29,701			461			274,745
Amortization	—			(6,247		)	(184		)	(6,431		)
Adjustments to goodwill⁽²⁾	(1,924		)	(1,076		)	—			(3,000		)
Balance, December 31, 2017	242,659			22,378			277			265,314
Additions through acquisition⁽³⁾	96,495			16,368			—			112,863
Amortization	—			(6,047		)	(52		)	(6,099		)
Balance, December 31, 2018	$	339,154		$	32,699		$	225		$	372,078


⁽¹⁾	The adjustments to goodwill in 2016 related to changes in the preliminary goodwill recorded for the Starbuck Bancshares, Inc. acquisition including adjustments to loan discount, deferred taxes and REO valuations.


⁽²⁾	Acquired Goodwill and CDI were adjusted for the sale of the Utah branches in 2017.


⁽³⁾	The additions to goodwill and CDI in 2018 relate to the acquisition of Skagit.

Estimated amortization expense in future years with respect to CDI as of December 31, 2018 (in thousands):



Year ended:	Estimated Amortization
2019	$	7,957
2020	6,888
2021	5,816
2022	4,651
Thereafter	7,387
Net carrying amount	$	32,699

Mortgage servicing rights are reported in other assets. Mortgage servicing rights are initially recognized at fair value and are amortized in proportion to, and over the period of, the estimated future net servicing income of the underlying financial assets. Mortgage servicing rights are subsequently evaluated for impairment based upon the fair value of the rights compared to the amortized cost (remaining unamortized initial fair value). If the fair value is less than the amortized cost, a valuation allowance is created through an impairment charge to servicing fee income. However, if the fair value is greater than the amortized cost, the amount above the amortized cost is not recognized in the carrying value. In 2018, 2017 and 2016, the Company did not record any impairment charges or recoveries against mortgage servicing rights. Unpaid principal balance of loans for which mortgage servicing rights have been recognized totaled $2.36 billion and $2.19 billion at December 31, 2018 and 2017, respectively. Custodial accounts maintained in connection with this servicing totaled $11.1 million and $10.2 million at December 31, 2018 and 2017, respectively.

An analysis of the mortgage servicing rights for the years ended December 31, 2018, 2017 and 2016 is presented below (in thousands):



	Years Ended December 31
	2018			2017			2016
Balance, beginning of the year	$	14,738		$	15,249		$	13,295
Amounts capitalized	3,623			3,361			5,965
Additions through purchase	166			94			—
Amortization ⁽¹⁾	(3,889		)	(3,966		)	(4,011		)
Balance, end of the year ⁽²⁾	$	14,638		$	14,738		$	15,249


⁽¹⁾	Amortization of mortgage servicing rights is recorded as a reduction of loan servicing income and any unamortized balance is fully written off if the loan repays in full.


⁽²⁾	There was no valuation allowance as of December 31, 2018 and 2017.