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Servicing Rights
 12 Months Ended
Dec. 31, 2018
Transfers and Servicing [Abstract]  
Servicing Rights
Servicing Rights

Servicing Rights for SBA/USDA Loans
United accounts for servicing rights for SBA/USDA loans at fair value. Changes in the balances of servicing assets and servicing liabilities are as follows for the years indicated (in thousands):
 
2018
 
2017
 
2016
Servicing rights for SBA/USDA loans, beginning of period
$
7,740

 
$
5,752

 
$
3,712

Additions:
 
 
 
 
 
Acquired servicing rights(1)
(354
)
 
419

 
—

Originated servicing rights capitalized upon sale of loans
2,573

 
2,737

 
2,723

Subtractions:
 
 
 
 
 
Disposals
(810
)
 
(621
)
 
(393
)
Changes in fair value:
 
 
 
 
 
Due to change in inputs or assumptions used in the valuation model
(1,639
)
 
(547
)
 
(290
)
Servicing rights for SBA/USDA loans, end of period
$
7,510

 
$
7,740

 
$
5,752

 (1) Includes measurement period adjustments further discussed in Note 3.

The portfolio of SBA/USDA loans serviced for others, which is not included in the accompanying balance sheets, was $386 million and $314 million, respectively, at December 31, 2018 and 2017. The amount of contractually specified servicing fees earned by United on these servicing rights during the years ended December 31, 2018, 2017 and 2016 was $3.44 million, $2.60 million and $1.64 million, respectively. Servicing fees and changes in fair value were included in interest revenue in the consolidated statements of income.
 
A summary of the key characteristics, inputs, and economic assumptions used to estimate the fair value of the servicing asset for SBA/USDA loans and the sensitivity of the fair values to immediate adverse changes in those assumptions are shown in the table below as of the dates indicated (in thousands):
 
 
December 31,
 
 
 
2018
 
2017
 
 
Fair value of retained servicing assets
$
7,510

 
$
7,740

 
 
Prepayment rate assumption
12.07
%
 
8.31
%
 
 
10% adverse change
$
(267
)
 
$
(236
)
 
 
20% adverse change
$
(515
)
 
$
(460
)
 
 
Discount rate
14.5
%
 
12.5
%
 
 
100 bps adverse change
$
(196
)
 
$
(262
)
 
 
200 bps adverse change
$
(381
)
 
$
(507
)
 
 
Weighted-average life (years)
5.0

 
6.3

 
 
Weighted-average gross margin
1.94
%
 
1.85
%
 

 
The above sensitivities are hypothetical and changes in fair value based on variations in assumptions generally cannot be extrapolated because the relationship of the change in assumption to the change in fair value may not be linear. Also, in this table, the effect of a variation in a particular assumption is calculated without changing any other assumption. In reality, changes in one factor may result in changes in another, which might magnify or counteract the sensitivities.
 
Residential Mortgage Servicing Rights
Effective January 1, 2017, United elected to carry residential mortgage servicing rights at fair value. For the year ended December 31, 2016, United accounted for residential mortgage servicing rights using the amortization method. The following table summarizes the changes in residential mortgage servicing rights for the years indicated (in thousands).
 
 
Fair value
 
Amortized cost
 
2018
 
2017
 
2016
Residential mortgage servicing rights, beginning of period
$
8,262

 
$
4,372

 
$
3,370

Additions:
 
 
 
 
 
Originated servicing rights capitalized upon sale of loans
4,587

 
3,602

 
2,124

Subtractions:
 
 
 
 
 
Disposals
(537
)
 
(328
)
 
—

Amortization
 
 


 
(1,117
)
Impairment
—

 
—

 
(5
)
Changes in fair value:
 
 
 
 
 
Initial election to carry at fair value on January 1, 2017
—

 
698

 
—

Due to change in inputs or assumptions used in the valuation
(435
)
 
(82
)
 
—

Residential mortgage servicing rights, end of period
$
11,877

 
$
8,262

 
$
4,372


 
At December 31, 2016 the estimated fair value of residential mortgage servicing rights was $5.17 million. The following table summarizes the activity in the valuation allowance for impairment of the residential mortgage servicing rights portfolio for the years indicated (in thousands).
 
 
2016
 
 
Valuation allowance, beginning of period
$
10

 
 
Additions charged to operations, net
5

 
 
Valuation allowance, end of period
$
15

 

 
The portfolio of residential mortgage loans serviced for others, which is not included in the consolidated balance sheets, was $1.21 billion and $847 million, respectively, at December 31, 2018 and 2017. The amount of contractually specified servicing fees earned by United on these servicing rights during the year ended December 31, 2018, 2017 and 2016 was $2.37 million, $1.72 million and $1.03 million, respectively, which was included in interest revenue in the consolidated statements of income. In 2018 and 2017, the change in the fair value of mortgage servicing rights was included in mortgage loan and related fee income on the consolidated statements of income. In 2016, impairment and amortization of servicing rights were included in mortgage loan and other related fee income in the consolidated statements of income.
 
A summary of the key characteristics, inputs, and economic assumptions used to estimate the fair value of the servicing asset for residential mortgage loans and the sensitivity of the fair values to immediate adverse changes in those assumptions are shown in the table below as of the dates indicated (in thousands):
 
 
December 31,
 
 
 
2018
 
2017
 
 
Fair value of retained servicing assets
$
11,877

 
$
8,262

 
 
Prepayment rate assumption
10.6
%
 
9.5
%
 
 
10% adverse change
$
(466
)
 
$
(303
)
 
 
20% adverse change
$
(898
)
 
$
(587
)
 
 
Discount rate
10.0
%
 
10.0
%
 
 
100 bps adverse change
$
(448
)
 
$
(317
)
 
 
200 bps adverse change
$
(863
)
 
$
(610
)
 

 
The above sensitivities are hypothetical and changes in fair value based on variations in assumptions generally cannot be extrapolated because the relationship of the change in assumption to the change in fair value may not be linear. Also, in this table, the effect of a variation in a particular assumption is calculated without changing any other assumption. In reality, changes in one factor may result in changes in another, which might magnify or counteract the sensitivities.