GOODWILL AND OTHER INTANGIBLE ASSETS

Goodwill

Goodwill was $236.3 million and $150.6 million at December 31, 2018 and 2017, respectively. BancShares annual impairment test, conducted as of July 31^st, or more frequently if events occur or circumstances change that may trigger a decline in the value of the reporting unit or otherwise indicate that a potential impairment exists, resulted in no indication of goodwill impairment. Subsequent to the annual impairment test, there were no events or changes in circumstances that would indicate goodwill should be tested for impairment during the interim period between annual tests. No goodwill impairment was recorded during 2018, 2017 or 2016.

The following table presents the changes in the carrying amount of goodwill for the years ended December 31, 2018 and 2017:



(Dollars in thousands)	2018		2017
Balance at January 1	$	150,601	$	150,601
Acquired in the HomeBancorp acquisition	57,616		—
Acquired in the Capital Commerce acquisition	10,680		—
Acquired in the Palmetto Heritage acquisition	17,450		—
Balance at December 31	$	236,347	$	150,601

Other Intangible Assets

Other intangible assets includes mortgage servicing rights on loans sold to third parties with servicing retained, core deposit intangibles that represent the estimated fair value of acquired core deposits and other customer relationships, and other servicing rights acquired.

Mortgage Servicing Rights

Our portfolio of residential mortgage loans serviced for third parties was $2.95 billion, $2.81 billion and $2.49 billion as of December 31, 2018, 2017 and 2016, respectively. These loans were originated by BancShares and sold to third parties on a non-recourse basis with servicing rights retained. These retained servicing rights are recorded as a servicing asset and reported in other intangible assets on the Consolidated Balance Sheets. The mortgage servicing rights are initially recorded at fair value and then carried at the lower of amortized cost or fair market value.

The activity of the servicing asset for the years ended December 31, 2018, 2017 and 2016 is presented in the following table:



(Dollars in thousands)	2018			2017			2016
Balance at January 1	$	21,945		$	20,415		$	19,351
Servicing rights originated	5,258			7,174			5,931
Amortization	(5,807		)	(5,648		)	(4,958		)
Valuation allowance reversal	—			4			91
Balance at December 31	$	21,396		$	21,945		$	20,415

The amortization expense related to mortgage servicing rights is included as a reduction of mortgage income in the Consolidated Statements of Income.

Contractually specified mortgage servicing fees, late fees, and ancillary fees earned for the years ended December 31, 2018, 2017 and 2016, were $7.5 million, $7.1 million and $5.8 million, respectively, and reported in mortgage income in the Consolidated Statements of Income.

Valuation of mortgage servicing rights is performed using a pooling methodology. Similar loans are pooled together and evaluated on a discounted earnings basis to determine the present value of future earnings. Key economic assumptions used to value mortgage servicing rights as of December 31, 2018 and 2017, were as follows:



	2018			2017
Discount rate - conventional fixed loans	9.69		%	9.41		%
Discount rate - all loans excluding conventional fixed loans	10.69		%	10.41		%
Weighted average constant prepayment rate	9.26		%	10.93		%
Weighted average cost to service a loan	$	72.65		$	64.03

The discount rate is based on the 10-year U.S. Treasury rate plus 700 basis points for conventional fixed loans and 800 basis points for all other loans. The 700 and 800 basis points are used as a risk premium when calculating the discount rate. The repayment rate is derived from the Public Securities Association Standard Prepayment model. The average cost to service a loan is based on the number of loans serviced and the total costs to service the loans.

Core Deposit Intangibles

Core deposit intangibles represent the estimated fair value of core deposits and other customer relationships that were acquired. They are being amortized on an accelerated basis over their estimated useful lives. The estimated useful remaining lives range from 1 year to less than 10 years.

The following information relates to other intangible assets, all customer-related, which are being amortized over their estimated useful lives:



(Dollars in thousands)	2018			2017
Balance at January 1	$	51,151		$	57,625
Acquired in the Harvest Community Bank acquisition	—			850
Acquired in the Guaranty acquisition	—			9,870
Acquired in the HomeBancorp acquisition	9,860			—
Acquired in the Capital Commerce acquisition	2,680			—
Acquired in the Palmetto Heritage acquisition	1,706			—
Amortization	(17,165		)	(17,194		)
Balance at December 31	$	48,232		$	51,151

The gross amount of other intangible assets and accumulated amortization as of December 31, 2018 and 2017, are:



(Dollars in thousands)	2018			2017
Gross balance	$	143,007		$	128,761
Accumulated amortization	(94,775		)	(77,610		)
Carrying value	$	48,232		$	51,151

Based on current estimated useful lives and carrying values, BancShares anticipates amortization expense for core deposit intangibles in subsequent periods will be:



(Dollars in thousands)
2019	$	14,964
2020	11,729
2021	8,706
2022	5,805
2023 and subsequent	7,028

Other Servicing Rights

Other servicing rights were acquired as part of a business combination and relate to the sale of the guaranteed portion of government guaranteed loans with servicing retained. The amount of the other servicing rights were $2.7 million and $0 at December 31, 2018, and 2017, respectively.