SunTrust 2003 Annual Report Download - page 73

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Annual Report 2003 SunTrust Banks, Inc. 71
NOTE 12
MORTGAGE SERVICING RIGHTS
The following is an analysis of capitalized mortgage servicing rights included in intangible assets in the Consolidated Balance Sheets:
(Dollars in thousands) 2003 2002
Balance at beginning of year $383,918 $351,200
Amortization1(324,221) (244,625)
Servicing rights originated 384,198 277,343
Lighthouse acquisition 5,398 —
Balance at end of year $449,293 $383,918
1Includes $158.9 and $97.2 million for the years ended December 31, 2003 and 2002, respectively, on loans that have paid-in-full and loans that have been foreclosed.
No valuation allowances were required at December 31, 2003, 2002 and 2001 for the Company’s mortgage servicing rights.
The Company retained the servicing rights for all of its securitized single-family mortgages. Key economic assumptions used to
measure total mortgage servicing rights at December 31, 2003 were as follows:
2003
Payment rate 15.6% annual
Weighted-average life 6.2 years
Discount rate 9.7%
Weighted-average coupon 6.0%
At December 31, 2003, key economic assumptions and the sensitivity of the current fair value on retained servicing rights to
immediate 10% and 20% adverse changes in those assumptions follow:
(Dollars in millions)
Fair value of retained servicing rights $560.6
Weighted-average life (in years) 6.2
Prepayment rate (annual rate) 15.6%
Decline in fair value of 10% adverse change $31.4
Decline in fair value of 20% adverse change 59.9
Residual cash flows discount rate (annual rate) 9.7%
Decline in fair value of 10% adverse change $17.2
Decline in fair value of 20% adverse change 33.4
These sensitivities are hypothetical and should be used with
caution. As the figures indicate, changes in fair value based on a
10% variation 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, the effect of a varia-
tion in a particular assumption on the fair value of the retained
servicing right is calculated without changing any other assump-
tion; in reality, changes in one factor may result in changes in
another (for example, increases in market interest rates may
result in lower prepayments and increased credit losses), which
might magnify or counteract the sensitivities.
At December 31, 2003, $275 million of unused borrow-
ings under unsecured lines of credit from non-affiliated banks
were available to the Parent Company to support outstanding
commercial paper and provide for general liquidity needs.
The average balances of short-term borrowings for the years
ended December 31, 2003 and 2002 were $2.2 and $0.9 bil-
lion, respectively, while the maximum amounts outstanding at
any month-end during the years ended December 31, 2003
and 2002 were $4.2 and $1.6 billion, respectively.