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 2017 Annual Report on Form 10-K for additional information regarding the Company's goodwill accounting policy.

In the first quarter of 2018, the Company performed a qualitative goodwill assessment on its Consumer and Wholesale reporting units, considering changes in key assumptions as well as other events and circumstances occurring since the most recent annual goodwill impairment test performed as of October 1, 2017. The Company concluded, based on the totality of factors observed, that it is not more-likely-than-not that the fair values of its reportable segments are less than their respective carrying values. Accordingly, goodwill was not required to be quantitatively tested for impairment during the three months ended March 31, 2018.

There were no material changes in the carrying amount of goodwill by reportable segment for the three months ended March 31, 2018 and 2017.

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)	Residential MSRs - Fair Value			Commercial Mortgage Servicing Rights and Other			Total
Balance, January 1, 2018		$1,710			$81			$1,791
Amortization ¹	—			(5		)	(5		)
Servicing rights originated	76			4			80
Servicing rights purchased	74			—			74
Changes in fair value:
Due to changes in inputs and assumptions ²	111			—			111
Other changes in fair value ³	(55		)	—			(55		)
Balance, March 31, 2018		$1,916			$80			$1,996

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

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 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 acquired previously in the Pillar acquisition.

The gross carrying value and accumulated amortization of other intangible assets are presented in the following table:



	March 31, 2018							December 31, 2017
(Dollars in millions)	Gross Carrying Value		Accumulated Amortization			Net Carrying Value		Gross Carrying Value		Accumulated Amortization			Net Carrying Value
Amortized other intangible assets ¹:
Commercial mortgage servicing rights		$83		($19	)		$64		$79		($14	)		$65
Other (definite-lived)	17		(13		)	4		32		(28		)	4
Unamortized other intangible assets:
Residential MSRs (carried at fair value)	1,916		—			1,916		1,710		—			1,710
Other (indefinite-lived)	12		—			12		12		—			12
Total other intangible assets		$2,028		($32	)		$1,996		$1,833		($42	)		$1,791

¹ Excludes fully amortized other intangible assets.

Servicing Rights

The Company acquires servicing rights and retains servicing rights for certain of its sales or securitizations of residential mortgages and commercial loans. Servicing rights on residential and commercial mortgages are the only material servicing assets capitalized by the Company and are classified as 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, 2018 and 2017 totaled $107 million and $101 million, respectively. These amounts are reported in Mortgage servicing related income in the Consolidated Statements of Income.

At March 31, 2018 and December 31, 2017, the total UPB of residential mortgage loans serviced was $164.7 billion and $165.5 billion, respectively. Included in these amounts at March 31, 2018 and December 31, 2017 were $135.3 billion and $136.1 billion, respectively, of loans serviced for third parties. The Company purchased MSRs on residential loans with a UPB of $5.9 billion during the three months ended March 31, 2018; however, these loans are not reflected in the UPB amounts above as the transfer of servicing is scheduled for the second quarter of 2018. No MSRs on residential loans were purchased during the three months ended March 31, 2017. During the three months ended March 31, 2018 and 2017, the Company sold MSRs on residential loans, at a price approximating their fair value, with a UPB of $102 million and $64 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. The Consumer Valuation Committee reviews and approves all significant assumption changes at least quarterly, evaluating these inputs compared to various market and empirical data sources. Changes to valuation model inputs are reflected in the periods' results. See Note 16, “Fair Value Election and Measurement,” for further information regarding the Company's residential MSR valuation methodology.

A summary of the key inputs used to estimate the fair value of the Company’s residential MSRs at March 31, 2018 and December 31, 2017, 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, 2018			December 31, 2017
Fair value of residential MSRs		$1,916			$1,710
Prepayment rate assumption (annual)	13		%	13		%
Decline in fair value from 10% adverse change		$89			$85
Decline in fair value from 20% adverse change	169			160
Option adjusted spread (annual)	4		%	4		%
Decline in fair value from 10% adverse change		$53			$47
Decline in fair value from 20% adverse change	101			90
Weighted-average life (in years)	5.6			5.4
Weighted-average coupon	4.0		%	3.9		%

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 15, “Derivative Financial Instruments,” for further information regarding these hedging activities.

Commercial Mortgage Servicing Rights

Income earned by the Company on its commercial mortgage servicing rights is derived primarily from contractually specified servicing fees and other ancillary fees, and is reported in Commercial real estate related income in the Consolidated Statements of Income. Such income earned for the three months ended March 31, 2018 and 2017 totaled $7 million and $5 million, respectively.

The Company also earns income from subservicing certain third party commercial mortgages for which the Company does not record servicing rights, which is reported in Commercial real estate related income in the Consolidated Statements of Income. Such income earned for the three months ended March 31, 2018 and 2017 totaled $3 million and $4 million, respectively.

At March 31, 2018 and December 31, 2017, the total UPB of commercial mortgage loans serviced for third parties was $31.1 billion and $30.1 billion, respectively. Included in these amounts at both March 31, 2018 and December 31, 2017 were $5.8 billion of loans serviced for third parties for which the Company records servicing rights, and $25.3 billion and $24.3 billion, respectively, of loans subserviced for third parties for which the Company does not record servicing rights. No commercial mortgage servicing rights were purchased or sold during the three months ended March 31, 2018 and 2017.

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 of the Company's commercial mortgage servicing rights were $64 million and $65 million at March 31, 2018 and December 31, 2017, respectively.

A summary of the key inputs used to estimate the fair value of the Company’s commercial mortgage servicing rights at March 31, 2018 and December 31, 2017, 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, 2018			December 31, 2017
Fair value of commercial mortgage servicing rights		$76			$75
Discount rate (annual)	12		%	12		%
Decline in fair value from 10% adverse change		$3			$3
Decline in fair value from 20% adverse change	6			6
Prepayment rate assumption (annual)	6		%	7		%
Decline in fair value from 10% adverse change		$1			$1
Decline in fair value from 20% adverse change	2			2
Weighted-average life (in years)	7.2			7.0
Float earnings rate (annual)	1.1		%	1.1		%

As with residential MSRs, these commercial mortgage servicing right sensitivities are hypothetical and should be used with caution.