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2003 Annual Report 29
The following tables summarize the servicing portfolio by interest rate tranche, the range of prepayment speed assumptions and the
weighted average remaining life of the loans by interest rate tranche used in the determination of the valuation and amortization of mortgage
servicing rights as of December 31, 2003 and 2002:
(Dollars in thousands) December 31, 2003
Prepayment Speed Assumption Weighted
Weighted Average Life
Interest Rate Tranche Unpaid Balance High Low Average (in Years)
0 to 5.50% . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,648,918 15.1% 13.0% 13.3% 7.2
5.51 to 6.00% . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,407,315 20.5 17.7 17.9 5.6
6.01 to 6.50% . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 830,161 28.8 24.9 25.4 3.8
6.51 to 7.00% . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 740,675 35.9 31.0 31.8 2.7
7.01% and higher . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 495,672 39.8 34.4 35.5 2.3
$5,122,741 21.6 18.6 19.0 5.1
(Dollars in thousands) December 31, 2002
Prepayment Speed Assumption Weighted
Weighted Average Life
Interest Rate Tranche Unpaid Balance High Low Average (in Years)
0 to 5.50% . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 387,417 27.4% 9.9% 12.7% 7.4
5.51 to 6.00% . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 734,377 36.4 13.2 16.9 6.0
6.01 to 6.50% . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,183,572 44.8 16.2 20.8 4.8
6.51 to 7.00% . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,944,477 57.8 20.9 26.8 3.5
7.01% and higher . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,326,223 61.3 22.1 28.4 3.1
$5,576,066 48.9 17.7 22.7 4.3
Mortgage banking revenues can be significantly impacted by the
amount of amortization and provision for impairment of mortgage
servicing rights. The valuation of mortgage servicing rights is a critical
accounting estimate for TCF. This estimate is based upon loan types,
note rates and prepayment assumptions. Changes in the mix of
loans, interest rates, defaults or prepayment speeds may have a
material effect on the amortization amount and possible impairment
in valuation. In a declining interest rate environment, prepayment
speed assumptions will increase and result in an acceleration in
the amortization of the mortgage servicing rights as the assumed
underlying portfolio declines and also may result in impairment as
the value of the mortgage servicing rights decline. TCF periodically
evaluates its capitalized mortgage servicing rights for impairment.
During 2003, TCF recorded $21.2 million in provision for impairment
on its capitalized mortgage servicing rights as a result of strong
refinance activity and high prepayments in the servicing portfolio.
In addition, in 2003, TCF recorded $28.5 million of permanent
impairment write-downs on its capitalized mortgage servicing rights.
These permanent impairment write-downs were offset with the
valuation allowance on the capitalized mortgage servicing rights.
A key component in determining the fair value of mortgage servicing
rights is the projected cash flows of the underlying loan portfolio.
TCF uses projected cash flows and related prepayment assumptions
based on management’s best estimates. The range in prepayment
assumptions at December 31, 2003 and 2002 reflects management’s
assumption of higher initial prepayments in early periods that decline
over time and level off to a constant prepayment speed. In light of
the continued decline in interest rates since December 31, 2002, TCF
lowered the weighted-average discount rate used in the determina-
tion of the fair value of mortgage servicing rights at December 31,
2003. See Notes 1 and 10 of Notes to Consolidated Financial
Statements for additional information concerning TCF’s mortgage
servicing rights.