NOTE 8 – 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," to the Company's 2016 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 2017, considering changes in key assumptions and monitoring other events or changes in circumstances occurring since the most recent goodwill impairment analysis performed as of October 1, 2016. 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, 2017.

Changes in the carrying amount of goodwill by reportable segment for the three months ended March 31, 2017 are presented in the following table. There were no material changes in the carrying amount of goodwill by reportable segment for the three months ended March 31, 2016.



(Dollars in millions)	Consumer Banking and Private Wealth Management		Wholesale Banking		Total
Balance, January 1, 2017		$4,262		$2,075		$6,337
Measurement period adjustment related to the acquisition of Pillar	—		1		1
Balance, March 31, 2017		$4,262		$2,076		$6,338

Other Intangible Assets

Changes in the carrying amounts of other intangible assets for the three months ended March 31 are presented in the following table:



(Dollars in millions)	MSRs - Fair Value			Other			Total
Balance, January 1, 2017		$1,572			$85			$1,657
Amortization ¹	—			(5		)	(5		)
Servicing rights originated	96			5			101
Changes in fair value:
Due to changes in inputs and assumptions ²	27			—			27
Other changes in fair value ³	(50		)	—			(50		)
Other ⁴	—			(1		)	(1		)
Balance, March 31, 2017		$1,645			$84			$1,729

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

¹ Does not include expense associated with non-qualified community development investments. See Note 9, "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.

⁴ Represents measurement period adjustment on other intangible assets previously acquired in Pillar acquisition. See Note 2, "Acquisitions/Dispositions," for additional information.

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 three months ended March 31, 2017 and 2016 was $101 million and $87 million, respectively. These amounts are reported in mortgage servicing related income in the Consolidated Statements of Income.

At March 31, 2017 and December 31, 2016, the total UPB of residential mortgage loans serviced was $164.5 billion and $160.2 billion, respectively. Included in these amounts at March 31, 2017 and December 31, 2016 were $135.6 billion and $129.6 billion, 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. No MSRs on residential loans were purchased during the three months ended March 31, 2017. During the three months ended March 31, 2017 and 2016, the Company sold MSRs on residential loans, at a price approximating their fair value, with a UPB of $64 million and $221 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 15, “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 March 31, 2017 and December 31, 2016, 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, 2017			December 31, 2016
Fair value of MSRs		$1,645			$1,572
Prepayment rate assumption (annual)	13		%	9		%
Decline in fair value from 10% adverse change		$57			$50
Decline in fair value from 20% adverse change	109			97
Option adjusted spread (annual)	8		%	8		%
Decline in fair value from 10% adverse change		$76			$63
Decline in fair value from 20% adverse change	144			122
Weighted-average life (in years)	5.3			7.0
Weighted-average coupon	4.0		%	4.0		%

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 14, “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 9, “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, 2017 and 2016 was $1 million and $2 million, respectively, and is reported in other noninterest income in the Consolidated Statements of Income.

At March 31, 2017 and December 31, 2016, the total UPB of consumer indirect loans serviced for third parties was $448 million and $512 million, respectively. No consumer loan servicing rights were purchased or sold during the three months ended March 31, 2017 and 2016.

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 March 31, 2017 and December 31, 2016, the amortized cost of the Company's consumer loan servicing rights was $3 million and $4 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 three months ended March 31, 2017 was $5 million and is reported in commercial real estate related income in the Consolidated Statements of Income. There was no income earned on commercial mortgage servicing rights for the three months ended March 31, 2016.

The Company also earns income from subservicing certain third party commercial mortgages for which the Company does not own servicing rights. Such income earned for the three months ended March 31, 2017 was $4 million and is reported in commercial real estate related income in the Consolidated Statements of Income. There was no income earned from such subservicing arrangements for the three months ended March 31, 2016.

At March 31, 2017 and December 31, 2016, the total UPB of commercial mortgage loans serviced for third parties was $28.7 billion and $27.7 billion, respectively. Included in these amounts at March 31, 2017 and December 31, 2016 were $5.0 billion and $4.8 billion, respectively, of loans serviced for third parties for which the Company owns servicing rights, and $23.7 billion and $22.9 billion, respectively, of loans subserviced for third parties for which the Company does not own servicing rights. No commercial mortgage servicing rights were purchased or sold during the three months ended March 31, 2017 and 2016.

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 based on 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. The amortized cost and the fair value of the Company's commercial mortgage servicing rights were $63 million and $65 million, respectively, at March 31, 2017, and were both $62 million at December 31, 2016. The weighted average amortization period was 7.0 years at both March 31, 2017 and December 31, 2016.