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Goodwill and Intangible Assets
 12 Months Ended
Dec. 31, 2021
Goodwill and Intangible Assets Disclosure [Abstract]  
Goodwill and Intangible Assets
GOODWILL AND OTHER INTANGIBLE ASSETS
Goodwill
BancShares’ annual impairment test, conducted as of July 31 each year, 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 2021 or 2020.

The following table presents the changes in the carrying amount of goodwill for the years ending December 31, 2021 and 2020:
Year ended December 31
(Dollars in thousands)20212020
Balance at January 1$350,298 $349,398 
Recognized in the Community Financial acquisition— 686 
Measurement period adjustments(1)
— 214 
Other adjustment(2)
(4,234)— 
Balance at December 31$346,064 $350,298 
(1)Adjustments related to Entegra PCD loans and divested deposits as well as the deferred tax assets related to these items.
(2)Immaterial adjustment related to deferred taxes associated with pensions.
Other Intangible Assets
Other intangible assets include mortgage servicing rights (“MSRs”) on loans sold to third parties with servicing retained, core deposit intangibles, which represent the estimated fair value of acquired core deposits and other customer relationships, and other intangible assets acquired, such as other servicing rights and noncompete agreements.
Mortgage Servicing Rights
Our portfolio of residential mortgage loans serviced for third parties was $3.39 billion, $3.31 billion and $3.38 billion as of December 31, 2021, 2020 and 2019, respectively. The majority of these loans were originated by BancShares and sold to third parties on a non-recourse basis with servicing rights retained. At December 31, 2020, a portion of the MSRs were related to originations by Entegra Financial Corp. and its subsidiaries (collectively, “Entegra”) prior to acquisition. These retained servicing rights are recorded as a servicing asset and reported in other intangible assets. The mortgage servicing rights are initially recorded at fair value and then carried at the lower of amortized cost or fair market value. The amortization expense related to mortgage servicing rights is included as a reduction of mortgage income. The weighted average expected life of the mortgage servicing rights established during 2021 is 5.6 years.
The activity of the mortgage servicing asset for the years ended December 31, 2021, 2020 and 2019 is presented in the following table:
(Dollars in thousands)202120202019
Balance at January 1$18,426 $22,963 $21,396 
Servicing rights originated10,556 8,006 6,149 
Servicing rights acquired in Entegra transaction— — 1,873 
Amortization(8,727)(8,400)(6,233)
Valuation allowance decrease (increase)3,102 (4,143)(222)
Balance at December 31$23,357 $18,426 $22,963 
The following table presents the activity in the servicing asset valuation allowance for the years ended December 31, 2021, 2020 and 2019:
(Dollars in thousands)202120202019
Beginning balance$4,365 $222 $— 
Valuation allowance (decrease) increase(3,102)4,143 222 
Ending balance$1,263 $4,365 $222 
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.
Contractually specified mortgage servicing fees, late fees and ancillary fees earned for the years ended December 31, 2021, 2020 and 2019, were $8.6 million, $8.5 million and $7.9 million, respectively, and reported in mortgage income.
Key economic assumptions used to value mortgage servicing rights as of December 31, 2021 and 2020, were as follows:
20212020
Discount rate - conventional fixed loans8.51 %7.92 %
Discount rate - all loans excluding conventional fixed loans9.51 %8.92 %
Weighted average constant prepayment rate15.69 %20.62 %
Weighted average cost to service a loan$87.58 $87.58 
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 prepayment rate is derived from the Public Securities Association Standard Prepayment model, which is compared to actual prepayment rates annually for reasonableness. 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 acquired. They are being amortized on an accelerated basis over their estimated useful lives.
The following information relates to core deposit intangible assets, which are being amortized over their estimated useful lives:
(Dollars in thousands)20212020
Balance at January 1$29,667 $43,386 
Acquired in Community Financial transaction— 536 
Amortization(10,948)(14,255)
Balance at December 31$18,719 $29,667 
The gross amount of core deposit intangible assets and accumulated amortization as of December 31, 2021 and 2020, are:
(Dollars in thousands)20212020
Gross balance$127,842 $127,842 
Accumulated amortization(109,123)(98,175)
Carrying value$18,719 $29,667 
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)
2022$7,743 
20235,129 
20242,659 
20251,374 
2026 and subsequent1,814 
$18,719