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Goodwill and Mortgage Servicing Rights | 12 Months Ended
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Dec. 31, 2023
Goodwill and Intangible Assets Disclosure [Abstract] |
Goodwill and Mortgage Servicing Rights | GOODWILL AND M ORTGAGE S ERVICING R IGHTS Assets and liabilities of acquired entities are recorded at estimated fair value as of the acquisition date. Goodwill Allocations of Goodwill by business segment at December 31, 2023, 2022 and 2021 follow: Table 54: Goodwill by Business Segment
In millions | Retail Banking | Corporate & Institutional Banking | Asset Management Group | Total
Balance as of December 31, 2023 | $ | 6,473 |  | $ | 4,270 |  | $ | 189 |  | $ | 10,932 |
Other |  | (55) |  |  | (55) |
Balance as of December 31, 2022 | $ | 6,473 |  | $ | 4,325 |  | $ | 189 |  | $ | 10,987 |
Other |  | 71 |  |  | 71 |
Balance as of December 31, 2021 | $ | 6,473 |  | $ | 4,254 |  | $ | 189 |  | $ | 10,916 |
We review goodwill in each of our reporting units for impairment at least annually, in the fourth quarter, or more frequently if events occur or circumstances have changed significantly from the annual test date. Based on the results of our analysis, there were no impairment charges related to goodwill in 2023, 2022 or 2021. See Note 1 Accounting Policies for additional information regarding the goodwill impairment test. Mortgage Servicing Rights We recognize the right to service mortgage loans for others as an intangible asset when the benefits of servicing are expected to be more than adequate compensation to a servicer for performing the servicing. MSRs are recognized either when purchased or when originated loans are sold with servicing retained. MSRs totaled $3.7 billion at December 31, 2023 and $3.4 billion at December 31, 2022, and consisted of loan servicing contracts for commercial and residential mortgages measured at fair value. Commercial Mortgage Servicing Rights We recognize gains (losses) on changes in the fair value of commercial MSRs. Commercial MSRs are subject to changes in value from actual or expected prepayment of the underlying loans and defaults as well as market driven changes in interest rates. We manage this risk by economically hedging the fair value of commercial MSRs with securities, derivative instruments and resale agreements which are expected to increase (or decrease) in value when the value of commercial MSRs decreases (or increases). The fair value of commercial MSRs is estimated by using a discounted cash flow model incorporating inputs for assumptions as to constant prepayment rates, discount rates and other factors determined based on current market conditions and expectations. Changes in the commercial MSRs follow: Table 55: Commercial Mortgage Servicing Rights
In millions | 2023 |  | 2022 |  | 2021 |
January 1 | $ | 1,113 |  |  | $ | 740 |  |  | $ | 569 |  |
Additions: |  |  |  |  |  |
From loans sold with servicing retained | 50 |  |  | 62 |  |  | 87 |  |
Purchases | 44 |  |  | 46 |  |  | 41 |  |
Changes in fair value due to: |  |  |  |  |  |
Time and payoffs (a) | (332) |  |  | (208) |  |  | (119) |  |
Other (b) | 157 |  |  | 473 |  |  | 162 |  |
December 31 | $ | 1,032 |  |  | $ | 1,113 |  |  | $ | 740 |  |
Related unpaid principal balance at December 31 | $ | 288,042 |  |  | $ | 281,277 |  |  | $ | 272,556 |  |
Servicing advances at December 31 | $ | 561 |  |  | $ | 421 |  |  | $ | 463 |  |
(a)Represents decrease in MSR value due to passage of time, including the impact from regularly scheduled loan principal payments, prepayments and loans that were paid off during the period. (b)Includes MSR value changes resulting from changes in interest rates and other market-driven conditions. Residential Mortgage Servicing Rights We recognize gains (losses) on changes in the fair value of residential MSRs. Residential MSRs are subject to changes in value from actual or expected prepayment of the underlying loans and defaults as well as market driven changes in interest rates. We manage this risk by economically hedging the fair value of residential MSRs with securities and derivative instruments that are expected to increase (or decrease) in value when the value of residential MSRs decreases (or increases). The fair value of residential MSRs is estimated by using a discounted cash flow valuation model that calculates the present value of estimated future net servicing cash flows, taking into consideration actual and expected mortgage loan prepayment rates, discount rates, servicing costs, and other factors that are determined based on current market conditions. Changes in the residential MSRs follow: Table 56: Residential Mortgage Servicing Rights
In millions | 2023 |  | 2022 |  | 2021 |
January 1 | $ | 2,310 |  |  | $ | 1,078 |  |  | $ | 673 |  |
Additions: |  |  |  |  |  |
BBVA Acquisition |  |  |  |  | 35 |
From loans sold with servicing retained | 23 |  |  | 57 |  |  | 87 |  |
Purchases | 444 |  |  | 897 |  |  | 411 |  |
Changes in fair value due to: |  |  |  |  |  |
Time and payoffs (a) | (237) |  |  | (231) |  |  | (320) |  |
Other (b) | 115 |  |  | 509 |  |  | 192 |  |
Sale | (1) |  |  |  |  |  |
December 31 | $ | 2,654 |  |  | $ | 2,310 |  |  | $ | 1,078 |  |
Unpaid principal balance of loans serviced for others at December 31 | $ | 209,158 |  |  | $ | 189,831 |  |  | $ | 132,953 |  |
Servicing advances at December 31 | $ | 172 |  |  | $ | 165 |  |  | $ | 176 |  |
(a)Represents decrease in MSR value due to passage of time, including the impact from regularly scheduled loan principal payments, prepayments and loans that were paid off during the period. (b)Includes MSR value changes resulting from changes in interest rates and other market-driven conditions. Sensitivity Analysis The fair value of commercial and residential MSRs and significant inputs to the valuation models as of December 31, 2023 and December 31, 2022 are shown in Tables 57 and 58. The expected and actual rates of mortgage loan prepayments are significant factors driving the fair value. Management uses both internal proprietary models and a third-party model to estimate future commercial mortgage loan prepayments and a third-party model to estimate future residential mortgage loan prepayments. These models have been refined based on current market conditions and management judgment. Future interest rates are another important factor in the valuation of MSRs. Management utilizes market implied forward interest rates to estimate the future direction of mortgage and discount rates. The forward rates utilized are derived from the current yield curve for U.S. dollar interest rate swaps and are consistent with pricing of capital markets instruments. Changes in the shape and slope of the forward curve in future periods may result in volatility in the fair value estimate. A sensitivity analysis of the hypothetical effect on the fair value of MSRs to adverse changes in key assumptions is presented in Tables 57 and 58. These sensitivities do not include the impact of the related hedging activities. Changes in fair value generally cannot be extrapolated because the relationship of the change in the assumption to the change in fair value may not be linear. Also, the effect of a variation in a particular assumption on the fair value of the MSRs is calculated independently without changing any other assumption. In reality, changes in one factor may result in changes in another (e.g., changes in mortgage interest rates, which drive changes in prepayment rate estimates, could result in changes in the interest rate spread), which could either magnify or counteract the sensitivities. The following tables set forth the fair value of commercial and residential MSRs and the sensitivity analysis of the hypothetical effect on the fair value of MSRs to immediate adverse changes of 10% and 20% in those assumptions: Table 57: Commercial Mortgage Servicing Rights – Key Valuation Assumptions
Dollars in millions | December 31, 2023 |  | December 31, 2022 |
Fair value | $ | 1,032 |  | $ | 1,113 |
Weighted-average life (years) | 3.9 |  | 4.0 |
Weighted-average constant prepayment rate | 5.51 |  | % | 4.28 | %
Decline in fair value from 10% adverse change | $ | 9 |  | $ | 8 |
Decline in fair value from 20% adverse change | $ | 17 |  | $ | 15 |
Effective discount rate | 9.64 |  | % | 9.77 | %
Decline in fair value from 10% adverse change | $ | 31 |  | $ | 34 |
Decline in fair value from 20% adverse change | $ | 61 |  | $ | 68 |
Table 58: Residential Mortgage Servicing Rights – Key Valuation Assumptions
Dollars in millions | December 31, 2023 |  | December 31, 2022 |
Fair value | $ | 2,654 |  |  | $ | 2,310 |  |
Weighted-average life (years) | 8.1 |  | 8.0 |
Weighted-average constant prepayment rate | 6.42 |  | % | 6.72 |  | %
Decline in fair value from 10% adverse change | $ | 60 |  |  | $ | 55 |  |
Decline in fair value from 20% adverse change | $ | 117 |  |  | $ | 107 |  |
Weighted-average option adjusted spread | 765 | bps | 766 |  | bps
Decline in fair value from 10% adverse change | $ | 83 |  |  | $ | 69 |  |
Decline in fair value from 20% adverse change | $ | 161 |  |  | $ | 134 |  |
Fees from mortgage loan servicing, which include contractually specified servicing fees, late fees and ancillary fees were $0.7 billion, $0.6 billion and $0.5 billion for 2023, 2022 and 2021, respectively. We also generate servicing fees from fee-based activities provided to others for which we do not have an associated servicing asset. Fees from commercial and residential MSRs are reported within Noninterest income on our Consolidated Income Statement in Residential and commercial mortgage.

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