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Loan Servicing
 12 Months Ended
Dec. 31, 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, as of December 31, 2017 and 2016, is listed below:
December 31
2017

2016
(in thousands)
 
 
 
Mortgage loans sold with servicing retained
$
3,256,548

 
$
1,800,002




The following table summarizes activity relating to mortgage loans sold with servicing retained:
Year Ended December 31
2017
 
2016
 
2015
(in thousands)
 
 
 
 
 
Mortgage loans sold with servicing retained
$
1,769,129

 
$
672,536

 
$
431,617

Pretax gains resulting from above loan sales (1)
21,683

 
12,519

 
10,681

Mortgage servicing fees (1)
7,509

 
3,803

 
3,056

(1) Recorded in mortgage banking operations.
Following is a summary of the MSR activity:
Year Ended December 31
2017
 
2016
 
2015
(in thousands)
 
 
 
 
 
Balance at beginning of period
$
13,521

 
$
8,921

 
$
6,859

Fair value of MSRs acquired
8,553

 
—

 
—

Additions
10,830

 
7,148

 
3,370

Payoffs and curtailments
(1,491
)
 
(780
)
 
(694
)
Amortization
(2,360
)
 
(1,768
)
 
(614
)
Balance at end of period
$
29,053

 
$
13,521

 
$
8,921

Fair value, beginning of period
$
17,546

 
$
11,503

 
$
8,684

Fair value, end of period
32,419

 
17,546

 
11,503



We did not have a valuation allowance for MSRs for any of the periods 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: 
December 31
2017
 
2016
(dollars in thousands)
 
 
 
Weighted average life (months)
80.4

 
79.0

Constant prepayment rate (annualized)
9.9
%
 
9.9
%
Discount rate
9.9
%
 
9.8
%
Effect on fair value due to change in interest rates:
 
 
 
+0.25%
$
1,737

 
$
692

+0.50%
3,220

 
1,288

-0.25%
(1,937
)
 
(789
)
-0.50%
(4,007
)
 
(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, as of December 31, 2017, was as follows:
December 31
2017
(in thousands)
 
SBA loans sold to investors with servicing retained
$
305,977

The following table summarizes activity relating to SBA loans sold with servicing retained:
Year Ended December 31
2017
(in thousands)
 
SBA loans sold with servicing retained
$
53,938

Pretax gains resulting from above loan sales (1)
2,247

SBA servicing fees (1)
2,195

(1) Recorded in non-interest income.
Following is a summary of the activity in SBA servicing assets: 
Year Ended December 31
2017
(in thousands)
 
Balance at beginning of period
$
—

Fair value of servicing rights acquired
5,399

Additions
959

Impairment (charge) / recovery
(281
)
Amortization
(1,019
)
Balance at end of period
$
5,058

Fair value, beginning of period
$
—

Fair value, end of period
5,058


Following is a summary of key assumptions and the sensitivity of the SBA loan servicing rights to changes in these assumptions:
December 31
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)
63.5

 
 
 
 
 
 
 
 
Constant prepayment rate
9.29
%
 
$
(145
)
 
$
(284
)
 
$
—

 
$
—

Discount rate
14.87

 
—

 
—

 
(147
)
 
(286
)

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 $0.3 million valuation allowance for SBA servicing assets as of December 31, 2017.