XML 24 R11.htm IDEA: XBRL DOCUMENT v3.24.1.u1
Goodwill and Mortgage Servicing Rights
 3 Months Ended
Mar. 31, 2024
Goodwill and Intangible Assets Disclosure [Abstract]  
Goodwill and Mortgage Servicing Rights GOODWILL AND MORTGAGE SERVICING RIGHTS
Goodwill

See Note 5 Goodwill and Mortgage Servicing Rights in our 2023 Form 10-K for more information regarding our goodwill.

Mortgage Servicing Rights
We recognize the right to service mortgage loans for others as an intangible asset when the benefits of servicing are expected to be more than adequate compensation to a servicer for performing the servicing. MSRs are recognized either when purchased or when originated loans are sold with servicing retained. MSRs totaled $3.8 billion at March 31, 2024 and $3.7 billion at December 31, 2023, and consisted of loan servicing contracts for commercial and residential mortgages which are measured at fair value.

We recognize gains (losses) on changes in the fair value of MSRs. MSRs are subject to changes in value from actual or expected prepayment of the underlying loans and defaults, as well as market driven changes in interest rates. We manage this risk by economically hedging the fair value of MSRs with securities, derivative instruments and resale agreements, which are expected to increase (or decrease) in value when the value of MSRs decreases (or increases).

See the Sensitivity Analysis section of this Note 5 for more detail on our fair value measurement of MSRs. See Note 5 Goodwill and Mortgage Servicing Rights and Note 14 Fair Value in our 2023 Form 10-K for more detail on our fair value measurement and our accounting of MSRs.
Changes in the commercial and residential MSRs follow:

Table 52: Mortgage Servicing Rights
 Commercial MSRsResidential MSRs
In millions202420232024 2023
January 1 $1,032 $1,113 $2,654 $2,310 
Additions:
From loans sold with servicing retained3 13 5 5 
Purchases12 8 13 18 
Changes in fair value due to:
Time and payoffs (a)(79)(82)(57)(53)
Other (b)107 9 72 (48)
March 31$1,075 $1,061 $2,687 $2,232 
Related unpaid principal balance of loans serviced at March 31$286,922 $281,179 $206,544 $187,748 
Servicing advances at March 31$537 $470 $149 $137 
(a)Represents decrease in MSR value due to passage of time, including the impact from regularly scheduled loan principal payments, prepayments and loans that were paid off during the period.
(b)Includes MSR value changes resulting from changes in interest rates and other market-driven conditions.

Sensitivity Analysis
The fair value of commercial and residential MSRs and significant inputs to the valuation models as of March 31, 2024 and December 31, 2023 are shown in Tables 53 and 54. The expected and actual rates of mortgage loan prepayments are significant factors driving the fair value. Management uses both internal proprietary models and a third-party model to estimate future commercial mortgage loan prepayments and a third-party model to estimate future residential mortgage loan prepayments. These models have been refined based on current market conditions and management judgment. Future interest rates are another important factor in the valuation of MSRs. Management utilizes market implied forward interest rates to estimate the future direction of mortgage and discount rates. The forward rates utilized are derived from the current yield curve for U.S. dollar interest rate swaps and are consistent with pricing of capital markets instruments. Changes in the shape and slope of the forward curve in future periods may result in volatility in the fair value estimate.

A sensitivity analysis of the hypothetical effect on the fair value of MSRs to adverse changes in key assumptions is presented in Tables 53 and 54. These sensitivities do not include the impact of the related hedging activities. Changes in fair value generally cannot be extrapolated because the relationship of the change in the assumption to the change in fair value may not be linear. Also, the effect of a variation in a particular assumption on the fair value of the MSRs is calculated independently without changing any other assumption. Changes in one factor may result in changes in another (e.g., changes in mortgage interest rates, which drive changes in prepayment rate estimates, could result in changes in the interest rate spread), which could either magnify or counteract the sensitivities.

The following tables set forth the fair value of commercial and residential MSRs and the sensitivity analysis of the hypothetical effect on the fair value of MSRs to immediate adverse changes of 10% and 20% in those assumptions:
Table 53: Commercial Mortgage Servicing Rights – Key Valuation Assumptions
Dollars in millionsMarch 31, 2024December 31, 2023
Fair value$1,075 $1,032 
Weighted-average life (years)3.93.9
Weighted-average constant prepayment rate5.24 %5.51 %
Decline in fair value from 10% adverse change$8 $9 
Decline in fair value from 20% adverse change$16 $17 
Effective discount rate9.94 %9.64 %
Decline in fair value from 10% adverse change$32 $31 
Decline in fair value from 20% adverse change$65 $61 
Table 54: Residential Mortgage Servicing Rights – Key Valuation Assumptions
Dollars in millions
March 31, 2024 December 31, 2023 
Fair value$2,687 $2,654  
Weighted-average life (years)8.18.1 
Weighted-average constant prepayment rate6.29 %6.42 %
Decline in fair value from 10% adverse change$58 $60  
Decline in fair value from 20% adverse change$113 $117  
Weighted-average option adjusted spread766 bps765 bps
Decline in fair value from 10% adverse change$83 $83  
Decline in fair value from 20% adverse change$162 $161  

Fees from mortgage loan servicing, which include contractually specified servicing fees, late fees and ancillary fees were $0.2 billion for both three months ended March 31, 2024 and 2023. We also generate servicing fees from activities provided to others for which we do not have an associated servicing asset. Fees from commercial and residential MSRs are reported within Noninterest income on our Consolidated Income Statement in Residential and commercial mortgage.