GOODWILL, OTHER INTANGIBLE ASSETS AND MORTGAGE SERVICING RIGHTS

9 Months Ended

Sep. 30, 2019

Goodwill and Intangible Assets Disclosure [Abstract]

GOODWILL, OTHER INTANGIBLE ASSETS AND MORTGAGE SERVICING RIGHTS

Goodwill and Other Intangible Assets: At September 30, 2019, intangible assets are comprised of goodwill, CDI, and favorable leasehold intangibles (LHI) acquired in business combinations. Goodwill represents the excess of the purchase consideration paid over the fair value of the assets acquired, net of the fair values of liabilities assumed in a business combination, and is not amortized but is reviewed at least annually for impairment. At December 31, 2018, the Company completed its 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 following table summarizes the changes in the Company’s goodwill and other intangibles for the nine months ended September 30, 2019 and the year ended December 31, 2018 (in thousands):



	Goodwill		CDI			LHI			Total
Balance, December 31, 2017	$	242,659	$	22,378		$	277		$	265,314
Additions through acquisitions⁽¹⁾	96,495		16,368			—			112,863
Amortization	—		(6,047		)	(52		)	(6,099		)
Balance, December 31, 2018	339,154		32,699			225			372,078
Amortization	—		(6,089		)	(8		)	(6,097		)
Adjustments⁽²⁾	—		—			(217		)	(217		)
Balance, September 30, 2019	$	339,154	$	26,610		$	—		$	365,764

⁽¹⁾ The additions to goodwill and CDI in 2018 relate to the acquisition of Skagit.

⁽²⁾ The adjustment to LHI represents a reclassification to the right of use lease asset in connection with the implementation of Lease Topic 842.

The following table presents the estimated amortization expense with respect to CDI for the periods indicated (in thousands):



	Estimated Amortization
Remainder of 2019	$	1,910
2020	6,875
2021	5,805
2022	4,643
2023	3,231
Thereafter	4,146
	$	26,610

Mortgage Servicing Rights: Mortgage servicing rights are reported in other assets. Mortgage servicing rights are initially recorded 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, which is recognized in servicing fee income within mortgage banking operations on the consolidated statement of operations. However, if the fair value is greater than the amortized cost, the amount above the amortized cost is not recognized in the carrying value. During the three and nine months ended September 30, 2019 and 2018, the Company did not record any impairment charges or recoveries against mortgage servicing rights. The unpaid principal balance for loans which mortgage servicing rights have been recorded totaled $2.42 billion and $2.36 billion at September 30, 2019 and December 31, 2018, respectively. Custodial accounts maintained in connection with this servicing totaled $2.6 million and $11.1 million at September 30, 2019 and December 31, 2018, respectively.

An analysis of our mortgage servicing rights for the three and nine months ended September 30, 2019 and 2018 is presented below (in thousands):



	Three Months Ended September 30,						Nine Months Ended September 30,
	2019			2018			2019			2018
Balance, beginning of the period	$	13,998		$	14,521		$	14,638		$	14,738
Additions—amounts capitalized	1,167			952			2,524			2,636
Additions—through purchase	36			47			105			92
Amortization ⁽¹⁾	(1,404		)	(999		)	(3,470		)	(2,945		)
Balance, end of the period ⁽²⁾	$	13,797		$	14,521		$	13,797		$	14,521


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

⁽²⁾

There was no valuation allowance as of September 30, 2019 and 2018.