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GOODWILL, OTHER INTANGIBLE ASSETS AND MORTGAGE SERVICING RIGHTS
 12 Months Ended
Dec. 31, 2019
Other Intangible Assets and Mortgage Servicing Rights [Abstract]  
OTHER INTANGIBLE ASSETS AND MORTGAGE SERVICING RIGHTS  GOODWILL, OTHER INTANGIBLE ASSETS AND MORTGAGE SERVICING RIGHTS

Goodwill and Other Intangible Assets: At December 31, 2019, intangible assets are comprised of goodwill and CDI 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. Banner has identified one reporting unit for purposes of evaluating goodwill for impairment. At December 31, 2019, 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. For the years ended December 31, 2018 and 2017 intangible assets also included favorable leasehold intangibles (LHI). LHI represented 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. LHI was reclassified to the right of use lease asset in connection with the adoption of Lease Topic 842 on January 1, 2019. The Company amortizes CDI assets 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 years to ten years.  The CDI 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, 2019, 2018 and 2017 (in thousands):
 
Goodwill
 
CDI
 
LHI
 
Total
Balance, January 1, 2017
$
244,583

 
$
29,701

 
$
461

 
$
274,745

Amortization
—

 
(6,247
)
 
(184
)
 
(6,431
)
Adjustments to goodwill(1)
(1,924
)
 
(1,076
)
 
—

 
(3,000
)
Balance, December 31, 2017
242,659

 
22,378

 
277

 
265,314

Additions through acquisition(2)
96,495

 
16,368

 
—

 
112,863

Amortization
—

 
(6,047
)
 
(52
)
 
(6,099
)
Balance, December 31, 2018
339,154

 
32,699

 
225

 
372,078

Additions through acquisition(3)
33,967

 
4,610

 
—

 
38,577

Amortization
—

 
(8,151
)
 
—

 
(8,151
)
Adjustments(4)
—

 
—

 
(225
)
 
(225
)
Balance, December 31, 2019
$
373,121

 
$
29,158

 
$
—

 
$
402,279



(1) 
Acquired Goodwill and CDI were adjusted for the sale of the Utah branches in 2017.
(2) 
The additions to Goodwill and CDI in 2018 relate to the acquisition of Skagit.
(3) 
The additions to Goodwill and CDI in 2019 relate to the acquisition of AltaPacific.
(4)  
The adjustment to LHI represents a reclassification to the right-of-use lease asset in connection with the implementation of Lease Topic 842.


Estimated amortization expense in future years with respect to CDI as of December 31, 2019 (in thousands):
Year ended:
Estimated Amortization
2020
$
7,732

2021
6,571

2022
5,317

2023
3,814

Thereafter
5,724

Net carrying amount
$
29,158



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 2019, 2018 and 2017, 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 $2.48 billion and $2.36 billion at December 31, 2019 and 2018, respectively.  Custodial accounts maintained in connection with this servicing totaled $12.0 million and $11.1 million at December 31, 2019 and 2018, respectively.
 
An analysis of the mortgage servicing rights for the years ended December 31, 2019, 2018 and 2017 is presented below (in thousands):
 
Years Ended December 31
 
2019
 
2018
 
2017
Balance, beginning of the year
$
14,638

 
$
14,738

 
$
15,249

Amounts capitalized
4,392

 
3,623

 
3,361

Additions through purchase
168

 
166

 
94

Amortization (1)
(5,050
)
 
(3,889
)
 
(3,966
)
Balance, end of the year (2)
$
14,148

 
$
14,638

 
$
14,738


(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, 2019 and 2018.