NOTE 9 – 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," for additional information regarding the Company's goodwill accounting policy.

The Company performed goodwill impairment analyses for its Wholesale Banking and Consumer Banking and Private Wealth Management reporting units as of October 1, 2016, October 1, 2015, and September 30, 2015. Based on the results of the impairment analyses, the Company concluded that the fair values of the reporting units exceed their respective carrying values; therefore, there was no goodwill impairment. The Company monitored events and circumstances during the fourth quarter of 2016 and did not observe any factors that would more-likely-than-not reduce the fair value of a reporting unit below its respective carrying value.

There were no material changes in the carrying amount of goodwill by reportable segment for the year ended December 31, 2016, as presented in the following table. There were no changes in the carrying amount of goodwill by reportable segment for the year ended December 31, 2015.



(Dollars in millions)	Consumer Banking and Private Wealth Management		Wholesale Banking		Total
Balance, January 1, 2016		$4,262		$2,075		$6,337
Acquisition of Pillar	—		—		—
Balance, December 31, 2016		$4,262		$2,075		$6,337

Other Intangible Assets

Changes in the carrying amounts of other intangible assets for the years ended December 31 are presented in the following table:



(Dollars in millions)	MSRs - Fair Value			Other			Total
Balance, January 1, 2016		$1,307			$18			$1,325
Amortization ¹	—			(9		)	(9		)
Servicing rights originated	312			—			312
Servicing rights purchased	200			—			200
Servicing rights acquired in Pillar acquisition	—			62			62
Other intangible assets acquired in Pillar acquisition ²	—			14			14
Changes in fair value:
Due to changes in inputs and assumptions ³	(13		)	—			(13		)
Other changes in fair value ⁴	(232		)	—			(232		)
Servicing rights sold	(2		)	—			(2		)
Balance, December 31, 2016		$1,572			$85			$1,657

Balance, January 1, 2015		$1,206			$13			$1,219
Amortization ¹	—			(8		)	(8		)
Servicing rights originated	238			13			251
Servicing rights purchased	109			—			109
Changes in fair value:
Due to changes in inputs and assumptions ³	(32		)	—			(32		)
Other changes in fair value ⁴	(210		)	—			(210		)
Servicing rights sold	(4		)	—			(4		)
Balance, December 31, 2015		$1,307			$18			$1,325

¹ Does not include expense associated with non-qualified community development investments. See Note 10, "Certain Transfers of Financial Assets and Variable Interest Entities," for additional information.

² The majority of these other intangible assets acquired from Pillar relate to indefinite-lived agency licenses. See Note 2, "Acquisitions/Dispositions," for additional information.

³ Primarily reflects changes in option adjusted spreads and prepayment speed assumptions, due to changes in interest rates.

⁴ 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 at December 31, 2016 is presented in the following table:



(Dollars in millions)
2017		$15
2018	12
2019	9
2020	9
2021	7
Thereafter	23
Total ¹		$75

¹ Does not include indefinite-lived intangible assets of $10 million.

Servicing Rights

The Company acquires servicing rights and retains servicing rights for certain of its sales or securitizations of residential mortgage, consumer indirect, and commercial loans. MSRs on residential mortgage loans and servicing rights on commercial and 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.

Residential Mortgage Servicing Rights

Income earned by the Company on its residential MSRs is derived primarily from contractually specified mortgage servicing fees and late fees, net of curtailment costs. Such income earned for the years ended December 31, 2016, 2015, and 2014 was $366 million, $347 million, and $329 million, respectively. These amounts are reported in mortgage servicing related income in the Consolidated Statements of Income.

At December 31, 2016 and 2015, the total UPB of residential mortgage loans serviced was $160.2 billion and $148.2 billion, respectively. Included in these amounts were $129.6 billion and $121.0 billion at December 31, 2016 and 2015, respectively, of loans serviced for third parties. The Company purchased MSRs on residential loans with a UPB of $19.7 billion during the year ended December 31, 2016, $13.8 billion of which are reflected in the UPB amounts above and the transfer of servicing for the majority of the remainder is scheduled for the first quarter of 2017. The Company purchased MSRs on residential loans with a UPB of $10.3 billion during the year ended December 31, 2015. During the years ended December 31, 2016 and 2015, the Company sold MSRs on residential loans, at a price approximating their fair value, with a UPB of $575 million and $803 million, respectively.

The Company measures the fair value of its residential 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 18, “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 residential MSRs at December 31, 2016 and 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)	December 31, 2016			December 31, 2015
Fair value of MSRs		$1,572			$1,307
Prepayment rate assumption (annual)	9		%	10		%
Decline in fair value from 10% adverse change		$50			$49
Decline in fair value from 20% adverse change	97			94
Option adjusted spread (annual)	8		%	8		%
Decline in fair value from 10% adverse change		$63			$64
Decline in fair value from 20% adverse change	122			123
Weighted-average life (in years)	7.0			6.6
Weighted-average coupon	4.0		%	4.1		%

These residential 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 17, “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 10, “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 years ended December 31, 2016 and 2015 was $7 million and $5 million, respectively, 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 year ended December 31, 2014.

At December 31, 2016 and 2015, the total UPB of consumer indirect loans serviced for third parties was $512 million and $807 million, respectively. No consumer loan servicing rights were purchased or sold during the years ended December 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 considering 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 December 31, 2016 and 2015, the amortized cost of the Company's consumer loan servicing rights was $4 million and $9 million, respectively.

Commercial Mortgage Servicing Rights

In December 2016, the Company completed the acquisition of substantially all of the assets of the operating subsidiaries of Pillar, and as a result, the Company recognized a $62 million servicing asset. See Note 2, "Acquisitions/Dispositions," for additional information on the Pillar acquisition.

Income earned by the Company on its commercial mortgage servicing rights is derived primarily from contractually specified servicing fees and other ancillary fees. Such income earned for the year ended December 31, 2016 was immaterial and is reported in other noninterest income in the Consolidated Statements of Income. There was no income earned on commercial mortgage servicing rights for the years ended December 31, 2015 and 2014.

At December 31, 2016, the total UPB of commercial mortgage loans serviced for third parties was $4.8 billion. No commercial mortgage servicing rights were purchased or sold during the years ended December 31, 2016 and 2015 (other than those that were acquired as part of the Pillar acquisition).

Commercial mortgage servicing rights are accounted for at amortized cost and are monitored for impairment on an ongoing basis. The Company calculates the fair value of commercial servicing rights using a third party valuation model that calculates the present value of estimated future net servicing income, considering prepayment projections and other assumptions. Impairment, if any, is recognized when the carrying value of the servicing asset exceeds the fair value at the measurement date. At December 31, 2016, the amortized cost and weighted average amortization period of the Company's commercial mortgage servicing rights were $62 million and 7.0 years, respectively.