Goodwill and Other Intangible Assets

3 Months Ended

Mar. 31, 2015

Goodwill and Intangible Assets Disclosure [Abstract]

NOTE 7 – GOODWILL AND OTHER INTANGIBLE ASSETS

Goodwill

The Company evaluates goodwill for impairment each year as of September 30, or as events occur or circumstances change that would more-likely-than-not reduce the fair value of a reporting unit below its carrying amount.

The fair value of a reporting unit is determined by using discounted cash flow analyses and, when applicable, guideline company information. The carrying value of a reporting unit is determined using an equity allocation methodology that allocates the total equity of the Company to each of its reporting units considering both regulatory risk-based capital and tangible equity relative to tangible assets. See Note 1, "Significant Accounting Policies" in the 2014 Annual Report on Form 10-K for additional information regarding the Company's goodwill accounting policy.

The Company performed a qualitative goodwill assessment in the first quarter of 2015, considering changes in key assumptions and monitoring other events or changes in circumstances occurring since the most recent goodwill impairment analysis performed as of December 31, 2014. The Company concluded, based on the totality of factors observed, that it is not more likely than not that the fair values of its reporting units are less than their respective carrying values and accordingly, goodwill was not quantitatively tested for impairment during the three months ended March 31, 2015.

There were no material changes in the carrying amount of goodwill by reportable segment for the three months ended March 31, 2015 and 2014.

Other Intangible Assets

Changes in the carrying amounts of other intangible assets for the three months ended March 31 are as follows:



(Dollars in millions)	MSRs - Fair Value			Other			Total
Balance, January 1, 2015		$1,206			$13			$1,219
Amortization ¹	—			(1		)	(1		)
MSRs originated	46			—			46
MSRs purchased	56			—			56
Changes in fair value:
Due to changes in inputs and assumptions ²	(78		)	—			(78		)
Other changes in fair value ³	(48		)	—			(48		)
Sale of MSRs	(1		)	—			(1		)
Balance, March 31, 2015		$1,181			$12			$1,193

Balance, January 1, 2014		$1,300			$34			$1,334
Amortization ¹	—			(3		)	(3		)
MSRs originated	32			—			32
Changes in fair value:
Due to changes in inputs and assumptions ²	(46		)	—			(46		)
Other changes in fair value ³	(35		)	—			(35		)
Balance, March 31, 2014		$1,251			$31			$1,282

¹ Amortization of tax credits for non-qualified community development investments totaled $6 million reflected in amortization expense and $3 million reflected in other noninterest expense in the Company's Consolidated Statements of Income for the three months ended March 31, 2015 and 2014, respectively. See Note 8, "Certain Transfers of Financial Assets and Variable Interest Entities," for additional information.

² Primarily reflects changes in discount rates and prepayment speed assumptions, due to changes in interest rates.

³ Represents changes due to the collection of expected cash flows, net of accretion, due to the passage of time.

The Company's estimated future amortization of intangible assets is immaterial, based on amortizing asset balances at March 31, 2015.

Mortgage Servicing Rights

The Company retains servicing rights for certain of its sales or securitizations of residential mortgage loans. MSRs on residential mortgage loans are the only servicing assets capitalized by the Company and are classified within intangible assets on the Company's Consolidated Balance Sheets.

Income earned by the Company on its MSRs is derived primarily from contractually specified mortgage servicing fees and late fees, net of curtailment costs. Such income earned for the three months ended March 31, 2015 and 2014 was $82 million and $79 million, respectively. These amounts are reported in mortgage servicing related income in the Consolidated Statements of Income.

At March 31, 2015 and December 31, 2014, the total UPB of mortgage loans serviced was $141.8 billion and $142.1 billion, respectively. Included in these amounts were $115.2 billion and $115.5 billion at March 31, 2015 and December 31, 2014, respectively, of loans serviced for third parties. Additionally, the Company purchased MSRs on residential loans with a UPB of $6.1 billion during the three months ended March 31, 2015; however, only $1.2 billion of these loans are reflected in the UPB amounts above as the transfer of servicing for the remainder is scheduled for the second quarter of 2015. No MSRs were purchased during the three months ended March 31, 2014. During the three months ended March 31, 2015 and 2014, the Company sold MSRs, at a price approximating their fair value, on residential loans with a UPB of $215 million and $289 million, respectively.

The Company calculates the fair value of MSRs using a valuation model that calculates the present value of estimated future net servicing income using prepayment projections, spreads, and other assumptions. Senior management and the STM Valuation Committee review all significant assumptions at least quarterly, comparing these inputs to various sources of market data. Changes to valuation model inputs are reflected in the periods' results. See Note 14, “Fair Value Election and Measurement,” for further information regarding the Company's MSR valuation methodology.

A summary of the key inputs used to estimate the fair value of the Company’s MSRs at March 31, 2015 and December 31, 2014, and the sensitivity of the fair values to immediate 10% and 20% adverse changes in those inputs, are presented in the following table.



(Dollars in millions)	March 31, 2015			December 31, 2014
Fair value of retained MSRs		$1,181			$1,206
Prepayment rate assumption (annual)	11		%	11		%
Decline in fair value from 10% adverse change		$46			$46
Decline in fair value from 20% adverse change	89			88
Option adjusted spread (annual)	9		%	10		%
Decline in fair value from 10% adverse change		$51			$55
Decline in fair value from 20% adverse change	98			105
Weighted-average life (in years)	6.1			6.4
Weighted-average coupon	4.2		%	4.2		%

These MSR sensitivities are hypothetical and should be used with caution. Changes in fair value based on variations in assumptions generally cannot be extrapolated because (i) the relationship of the change in an assumption to the change in fair value may not be linear and (ii) changes in one assumption may result in changes in another, which might magnify or counteract the sensitivities. The sensitivities do not reflect the effect of hedging activity undertaken by the Company to offset changes in the fair value of MSRs. See Note 13, “Derivative Financial Instruments,” for further information regarding these hedging activities.

- Definition

The entire disclosure for the aggregate amount of goodwill and a description of intangible assets, which may include (a) for amortizable intangible assets (also referred to as finite-lived intangible assets), the carrying amount, the amount of any significant residual value, and the weighted-average amortization period, (b) for intangible assets not subject to amortization (also referred to as indefinite-lived intangible assets), the carrying amount, and (c) the amount of research and development assets acquired and written off in the period, including the line item in the income statement in which the amounts written off are aggregated, if not readily apparent from the income statement. Also discloses (a) for amortizable intangibles assets in total and by major class, the gross carrying amount and accumulated amortization, the total amortization expense for the period, and the estimated aggregate amortization expense for each of the five succeeding fiscal years, (b) for intangible assets not subject to amortization the carrying amount in total and by major class, and (c) for goodwill, in total and for each reportable segment, the changes in the carrying amount of goodwill during the period (including the aggregate amount of goodwill acquired, the aggregate amount of impairment losses recognized, and the amount of goodwill included in the gain (loss) on disposal of a reporting unit). If any part of goodwill has not been allocated to a reportable segment, discloses the unallocated amount and the reasons for not allocating. For each impairment loss recognized related to an intangible asset (excluding goodwill), discloses: (a) a description of the impaired intangible asset and the facts and circumstances leading to the impairment, (b) the amount of the impairment loss and the method for determining fair value, (c) the caption in the income statement or the statement of activities in which the impairment loss is aggregated, and (d) the segment in which the impaired intangible asset is reported. For each goodwill impairment loss recognized, discloses: (a) a description of the facts and circumstances leading to the impairment, (b) the amount of the impairment loss and the method of determining the fair value of the associated reporting unit, and (c) if a recognized impairment loss is an estimate not finalized and the reasons why the estimate is not final. May also disclose the nature and amount of any significant adjustments made to a previous estimate of an impairment loss.

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