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LOAN SERVICING
 9 Months Ended
Sep. 30, 2017
Transfers and Servicing [Abstract]  
LOAN SERVICING
LOAN SERVICING
Mortgage Loan Servicing
We retain the servicing rights on certain mortgage loans sold. The unpaid principal balance of mortgage loans serviced for others is listed below:
(in thousands)
September 30, 2017
 
December 31, 2016
Mortgage loans sold with servicing retained
$
3,029,000

 
$
1,800,000


The following table summarizes activity relating to residential mortgage loans sold with servicing retained:
 
Three Months Ended
September 30,
 
Nine Months Ended September 30,
(in thousands)
2017
 
2016
 
2017
 
2016
Residential mortgage loans sold with servicing retained
$
305,752

 
$
201,496

 
$
1,469,352

 
$
444,507

Mortgage servicing fees (1)
1,902

 
982

 
5,512

 
2,746

(1) Recorded in mortgage banking operations.
Following is a summary of the MSR activity:

 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
(in thousands)
2017
 
2016
 
2017
 
2016
Balance at beginning of period
$
24,444

 
$
10,303

 
$
13,521

 
$
8,921

Fair value of MSRs acquired
—

 
—

 
8,553

 
—

Additions
3,500

 
2,144

 
7,530

 
4,739

Payoffs and curtailments
(432
)
 
(247
)
 
(1,012
)
 
(544
)
Amortization
(626
)
 
(424
)
 
(1,706
)
 
(1,340
)
Balance at end of period
$
26,886

 
$
11,776

 
$
26,886

 
$
11,776

Fair value, beginning of period
$
27,173

 
$
11,504

 
$
17,546

 
$
11,503

Fair value, end of period
29,004

 
12,717

 
29,004

 
12,717



We did not have a valuation allowance for MSRs for either period presented in the table above.
The fair value of MSRs is highly sensitive to changes in assumptions and is determined by estimating the present value of the asset’s future cash flows utilizing market-based prepayment rates, discount rates and other assumptions validated through comparison to trade information, industry surveys and with the use of independent third party appraisals. Changes in prepayment speed assumptions have the most significant impact on the fair value of MSRs. Generally, as interest rates decline, mortgage loan prepayments accelerate due to increased refinance activity, which results in a decrease in the fair value of the MSR. Measurement of fair value is limited to the conditions existing and the assumptions utilized as of a particular point in time, and those assumptions may not be appropriate if they are applied at a different time.
Following is a summary of the sensitivity of the fair value of MSRs to changes in key assumptions:
 
(dollars in thousands)
September 30,
2017
 
December 31,
2016
Weighted average life (months)
77.7

 
79.0

Constant prepayment rate (annualized)
10.4
%
 
9.9
%
Discount rate
9.8
%
 
9.8
%
Effect on fair value due to change in interest rates:
 
 
 
+0.25%
$
1,638

 
$
692

+0.50%
3,080

 
1,288

-0.25%
(1,826
)
 
(789
)
-0.50%
(3,724
)
 
(1,680
)

The sensitivity calculations above are hypothetical and should not be considered to be predictive of future performance. Changes in fair value based on adverse changes in assumptions generally cannot be extrapolated because the relationship of the changes in assumptions to fair value may not be linear. Also, in this table, the effects of an adverse variation in a particular assumption on the fair value of the MSRs is calculated without changing any other assumptions, while in reality, changes in one factor may result in changing another, which may magnify or contract the effect of the change.






SBA-Guaranteed Loan Servicing
Beginning in March 2017, as a result of the YDKN acquisition, we retain the servicing rights on SBA-guaranteed loans sold to investors. The standard sale structure under the SBA Secondary Participation Guaranty Agreement provides for us to retain a portion of the cash flow from the interest payment received on the loan, which is commonly known as a servicing spread. The unpaid principal balance of SBA-guaranteed loans serviced for investors was as follows:

(in thousands)
September 30,
2017
SBA loans sold to investors with servicing retained
$
310,000


The following table summarizes activity relating to SBA loans sold with servicing retained:
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
(in thousands)
2017
 
2017
SBA loans sold with servicing retained
$
16,443

 
$
42,172

Pretax gains resulting from above loan sales (1)
964

 
1,780

SBA servicing fees (1)
702

 
1,444


(1) Recorded in non-interest income.
Following is a summary of the activity in SBA servicing assets:
 
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
(in thousands)
2017
 
2017
Balance at beginning of period
$
5,284

 
$
—

Fair value of servicing rights acquired
—

 
5,399

Additions
391

 
655

Impairment (charge) / recovery
(50
)
 
(50
)
Amortization
(342
)
 
(721
)
Balance at end of period
$
5,283

 
$
5,283

Fair value, beginning of period
$
5,299

 
$
—

Fair value, end of period
5,283

 
$
5,283


Following is a summary of key assumptions and the sensitivity of the SBA loan servicing rights to changes in these assumptions at September 30, 2017:
 
September 30, 2017
 
 
 
Decline in fair value due to
(dollars in thousands)
Actual
 
10% adverse change
 
20% adverse change
 
1% adverse change
 
2% adverse change
Weighted-average life (months)
67.3

 
 
 
 
 
 
 
 
Constant prepayment rate (annualized)
8.06
%
 
$
(138
)
 
$
(270
)
 
$
—

 
$
—

Discount rate
13.99

 
—

 
—

 
(162
)
 
(315
)

The fair value of the SBA servicing assets is compared to the amortized basis when certain triggering events occur. If the amortized basis exceeds the fair value, the asset is considered impaired and is written down to fair value through a valuation allowance on the asset and a charge against SBA income. We had a $50,000 valuation allowance for SBA servicing assets as of September 30, 2017.