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LOAN SERVICING | 6 Months Ended
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Jun. 30, 2019
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: TABLE 6.1
(in millions) | June 30, 2019 |  | December 31, 2018
Mortgage loans sold with servicing retained | $ | 4,333 |  |  | $ | 3,968 |
The following table summarizes activity relating to mortgage loans sold with servicing retained: TABLE 6.2
| Three Months Ended June 30, |  | Six Months Ended June 30,
(in millions) | 2019 |  | 2018 |  | 2019 |  | 2018
Mortgage loans sold with servicing retained | $ | 406 |  |  | $ | 283 |  |  | $ | 583 |  |  | $ | 520 |
Pretax gains resulting from above loan sales (1) | 9 |  |  | 5 |  |  | 13 |  |  | 9 |
Mortgage servicing fees (1) | 3 |  |  | 2 |  |  | 5 |  |  | 4 |
(1) Recorded in mortgage banking operations on the Consolidated Statements of Income. Following is a summary of the MSR activity: TABLE 6.3
| Three Months Ended June 30, |  | Six Months Ended June 30,
(in millions) | 2019 |  | 2018 |  | 2019 |  | 2018
Balance at beginning of period | $ | 36.4 |  |  | $ | 30.8 |  |  | $ | 36.8 |  |  | $ | 29.1 |
Additions | 4.3 |  |  | 3.3 |  |  | 6.3 |  |  | 6.0 |
Payoffs and curtailments | (0.8 | ) |  | (0.5 | ) |  | (1.3 | ) |  | (0.9 | )
Impairment charge | (1.3 | ) |  | — |  |  | (2.6 | ) |  | — |
Amortization | (0.6 | ) |  | (0.6 | ) |  | (1.2 | ) |  | (1.2 | )
Balance at end of period | $ | 38.0 |  |  | $ | 33.0 |  |  | $ | 38.0 |  |  | $ | 33.0 |
Fair value, beginning of period | $ | 40.3 |  |  | $ | 36.4 |  |  | $ | 41.1 |  |  | $ | 32.4 |
Fair value, end of period | 39.8 |  |  | 38.6 |  |  | 39.8 |  |  | 38.6 |
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 valuations. 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 and as interest rates increase, mortgage loan prepayments decline, which results in an increase 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: TABLE 6.4
(dollars in millions) | June 30, 2019 |  | December 31, 2018
Weighted average life (months) | 77.9 |  |  | 82.2 |
Constant prepayment rate (annualized) | 10.6 | % |  | 10.1 | %
Discount rate | 9.7 | % |  | 9.7 | %
Effect on fair value due to change in interest rates: |  |  |
+0.25% | $ | 2 |  |  | $ | 3 |
+0.50% | 5 |  |  | 5 |
-0.25% | (2 | ) |  | (3 | )
-0.50% | (4 | ) |  | (6 | )
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. We had a $3.1 million valuation allowance for MSRs as of June 30, 2019, with $2.6 million added during the first six months of 2019. SBA-Guaranteed Loan Servicing 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: TABLE 6.5
(in millions) | June 30, 2019 |  | December 31, 2018
SBA loans sold to investors with servicing retained | $ | 258 |  |  | $ | 283 |
The following table summarizes activity relating to SBA loans sold with servicing retained: TABLE 6.6
| Three Months Ended June 30, |  | Six Months Ended June 30,
(in millions) | 2019 |  | 2018 |  | 2019 |  | 2018
SBA loans sold with servicing retained | $ | 7 |  |  | $ | 11 |  |  | $ | 13 |  |  | $ | 24 |
Pretax gains resulting from above loan sales (1) | 1 |  |  | 1 |  |  | 1 |  |  | 2 |
SBA servicing fees (1) | — |  |  | — |  |  | 1 |  |  | 1 |
(1) Recorded in non-interest income. Following is a summary of the activity in SBA servicing rights: TABLE 6.7
| Three Months Ended June 30, |  | Six Months Ended June 30,
(in millions) | 2019 |  | 2018 |  | 2019 |  | 2018
Balance at beginning of period | $ | 4 |  |  | $ | 5 |  |  | $ | 4 |  |  | $ | 5 |
Additions | — |  |  | 1 |  |  | — |  |  | 1 |
Amortization | — |  |  | (1 | ) |  | — |  |  | (1 | )
Balance at end of period | $ | 4 |  |  | $ | 5 |  |  | $ | 4 |  |  | $ | 5 |
Fair value, beginning of period | $ | 4 |  |  | $ | 5 |  |  | $ | 4 |  |  | $ | 5 |
Fair value, end of period | 4 |  |  | 5 |  |  | 4 |  |  | 5 |
Following is a summary of key assumptions and the sensitivity of the SBA servicing rights to changes in these assumptions. The declines in fair values were immaterial in the scenarios presented. TABLE 6.8
| June 30, 2019 |  | December 31, 2018
|  |  | Decline in fair value due to |  |  |  | Decline in fair value due to
(dollars in millions) | Actual |  | 10% adverse change |  | 20% adverse change |  | 1% adverse change |  | 2% adverse change |  | Actual |  | 10% adverse change |  | 20% adverse change |  | 1% adverse change |  | 2% adverse change
Weighted-average life (months) | 48.0 |  |  |  |  |  |  |  |  |  |  | 52.2 |  |  |  |  |  |  |  |  |
Constant prepayment rate (annualized) | 14.4 | % |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | 12.5 | % |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |
Discount rate | 15.1 |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 19.4 |  |  | — |  |  | — |  |  | — |  |  | — |
The fair value of the SBA servicing rights is compared to the amortized basis. 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 $0.7 million valuation allowance for SBA servicing rights as of June 30, 2019.

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- Definition The entire disclosure for a transferor's continuing involvement in financial assets that it has transferred in a securitization or asset-backed financing arrangement, the nature of any restrictions on assets reported by an entity in its statement of financial position that relate to a transferred financial asset (including the carrying amounts of such assets), how servicing assets and servicing liabilities are reported, and (for securitization or asset-backed financing arrangements accounted for as sales) when a transferor has continuing involvement with the transferred financial assets and transfers of financial assets accounted for as secured borrowings, how the transfer of financial assets affects an entity's financial position, financial performance, and cash flows. + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 860 -URI http://asc.fasb.org/topic&trid=2197590 + Details
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