Goodwill and Other Intangible Assets

3 Months Ended

Mar. 31, 2016

Goodwill and Intangible Assets Disclosure [Abstract]

NOTE 7 – GOODWILL AND OTHER INTANGIBLE ASSETS

Goodwill

The Company conducts a goodwill impairment test at the reporting unit level at least annually, or more frequently as events occur or circumstances change that would more-likely-than-not reduce the fair value of a reporting unit below its carrying amount. See Note 1, "Significant Accounting Policies," in the Company's 2015 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 2016, considering changes in key assumptions and monitoring other events or changes in circumstances occurring since the most recent goodwill impairment analyses performed as of October 1, 2015. 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. Accordingly, goodwill was not quantitatively tested for impairment during the three months ended March 31, 2016.

There were no changes in the carrying amount of goodwill by reportable segment for the three months ended March 31, 2016 and 2015.

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, 2016		$1,307			$18			$1,325
Amortization ¹	—			(2		)	(2		)
Servicing rights originated	46			—			46
Servicing rights purchased	77			—			77
Changes in fair value:
Due to changes in inputs and assumptions ²	(204		)	—			(204		)
Other changes in fair value ³	(43		)	—			(43		)
Servicing rights sold	(1		)	—			(1		)
Balance, March 31, 2016		$1,182			$16			$1,198

Balance, January 1, 2015		$1,206			$13			$1,219
Amortization ¹	—			(1		)	(1		)
Servicing rights originated	46			—			46
Servicing rights 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		)
Servicing rights sold	(1		)	—			(1		)
Balance, March 31, 2015		$1,181			$12			$1,193

¹ Does not include expense associated with non-qualified community development investments. See Note 8, "Certain Transfers of Financial Assets and Variable Interest Entities," for additional information.

² Primarily reflects changes in option adjusted spreads 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 subject to amortization was immaterial at March 31, 2016.

Servicing Rights

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

Mortgage Servicing Rights

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, 2016 and 2015 was $87 million and $82 million, respectively. These amounts are reported in mortgage servicing related income in the Consolidated Statements of Income.

At March 31, 2016 and December 31, 2015, the total UPB of mortgage loans serviced was $148.9 billion and $148.2 billion, respectively. Included in these amounts were $121.3 billion and $121.0 billion at March 31, 2016 and December 31, 2015, respectively, of loans serviced for third parties. The Company purchased MSRs on residential loans with a UPB of $8.1 billion during the three months ended March 31, 2016; $1.8 billion of which are reflected in the UPB amounts above and the transfer of servicing for the remainder is scheduled for the second quarter of 2016. The Company purchased MSRs on residential loans with a UPB of $6.1 billion during the three months ended March 31, 2015. During the three months ended March 31, 2016 and 2015, the Company sold MSRs on residential loans, at a price approximating their fair value, with a UPB of $221 million and $215 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, 2016 and December 31, 2015, 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, 2016			December 31, 2015
Fair value of MSRs		$1,182			$1,307
Prepayment rate assumption (annual)	13		%	10		%
Decline in fair value from 10% adverse change		$54			$49
Decline in fair value from 20% adverse change	104			94
Option adjusted spread (annual)	8		%	8		%
Decline in fair value from 10% adverse change		$48			$64
Decline in fair value from 20% adverse change	92			123
Weighted-average life (in years)	5.6			6.6
Weighted-average coupon	4.1		%	4.1		%

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.

Consumer Loan Servicing Rights

In June 2015, the Company completed the securitization of $1.0 billion of indirect auto loans, with servicing rights retained, and recognized a $13 million servicing asset at the time of sale. See Note 8, “Certain Transfers of Financial Assets and Variable Interest Entities,” for additional information on the Company's securitization transactions.

Income earned by the Company on its consumer loan servicing rights is derived primarily from contractually specified servicing fees and other ancillary fees. Such income earned for the three months ended March 31, 2016 was $2 million, and is reported in other noninterest income in the Consolidated Statements of Income. There was no income earned on consumer loan servicing rights for the three months ended March 31, 2015.

At March 31, 2016 and December 31, 2015, the total UPB of consumer indirect loans serviced was $729 million and $807 million, respectively, all of which were serviced for third parties. No consumer loan servicing rights were purchased or sold during the three months ended March 31, 2016 and 2015.

Consumer loan servicing rights are accounted for at amortized cost and are monitored for impairment on an ongoing basis. The Company calculates the fair value of consumer servicing rights using a valuation model that calculates the present value of estimated future net servicing income using prepayment projections and other assumptions. Impairment, if any, is recognized when changes in valuation model inputs reflect a fair value for the servicing asset that is below its respective carrying value. At March 31, 2016, both the amortized cost and the fair value of the Company's consumer loan servicing rights were $7 million.

- 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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