GOODWILL, OTHER INTANGIBLE ASSETS AND MORTGAGE SERVICING RIGHTS

3 Months Ended

Mar. 31, 2020

Goodwill and Intangible Assets Disclosure [Abstract]

GOODWILL, OTHER INTANGIBLE ASSETS AND MORTGAGE SERVICING RIGHTS

Goodwill and Other Intangible Assets: At March 31, 2020, 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 March 31, 2020, 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. If adverse economic conditions or the recent decrease in our stock price and market capitalization as a result of the COVID-19 pandemic were to be deemed sustained in the future rather than temporary, it may significantly affect the fair value of our goodwill and may trigger impairment charges.

CDI represents the value of transaction-related deposits and the value of the customer relationships associated with the deposits. At December 31, 2018 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 following table summarizes the changes in the Company’s goodwill and other intangibles for the three months ended March 31, 2020 and the year ended December 31, 2019 (in thousands):



	Goodwill		CDI			LHI			Total
Balance, December 31, 2018	$	339,154	$	32,699		$	225		$	372,078
Additions through acquisitions⁽¹⁾	33,967		4,610			—			38,577
Amortization	—		(8,151		)	—			(8,151		)
Adjustments⁽²⁾	—		—			(225		)	(225		)
Balance, December 31, 2019	373,121		29,158			—			402,279
Amortization	—		(2,001		)	—			(2,001		)
Balance, March 31, 2020	$	373,121	$	27,157		$	—		$	400,278

⁽¹⁾ The additions to Goodwill and CDI in 2019 relate to the acquisition of AltaPacific.

⁽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 as of March 31, 2020 for the periods indicated (in thousands):



	Estimated Amortization
Remainder of 2020	$	5,730
2021	6,571
2022	5,317
2023	3,814
2024	2,659
Thereafter	3,066
	$	27,157

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 months ended March 31, 2020 and 2019, 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 $2.53 billion and $2.48 billion at March 31, 2020 and December 31, 2019, respectively. Custodial accounts maintained in connection with this servicing totaled $3.4 million and $12.0 million at March 31, 2020 and December 31, 2019, respectively.

An analysis of our mortgage servicing rights for the three months ended March 31, 2020 and 2019 is presented below (in thousands):



	Three Months Ended March 31,
	2020			2019
Balance, beginning of the period	$	14,148		$	14,638
Additions—amounts capitalized	1,420			672
Additions—through purchase	63			47
Amortization ⁽¹⁾	(1,354		)	(940		)
Balance, end of the period ⁽²⁾	$	14,277		$	14,417


⁽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 March 31, 2020 and 2019.