Goodwill and other intangible assets

For a discussion of the accounting policies related to goodwill and other intangible assets, see Note 17 on pages 267–271 of JPMorgan Chase's 2011 Annual Report.



(in millions)	March 31, 2012		December 31, 2011
Goodwill	$	48,208	$	48,188
Mortgage servicing rights	8,039		7,223
Other intangible assets:
Purchased credit card relationships	$	535	$	602
Other credit card-related intangibles	467		488
Core deposit intangibles	533		594
Other intangibles	1,494		1,523
Total other intangible assets	$	3,029	$	3,207

The following table presents goodwill attributed to the business segments.



(in millions)	March 31, 2012		December 31, 2011
Investment Bank	$	5,275	$	5,276
Retail Financial Services	16,484		16,489
Card Services & Auto	14,530		14,507
Commercial Banking	2,863		2,864
Treasury & Securities Services	1,669		1,668
Asset Management	7,010		7,007
Corporate/Private Equity	377		377
Total goodwill	$	48,208	$	48,188

The following table presents changes in the carrying amount of goodwill.



Three months ended March 31, (in millions)	2012		2011
Balance at beginning of period^(a)	$	48,188	$	48,854
Changes during the period from:
Business combinations	10		(5		)
Dispositions	—		—
Other^(b)	10		7
Balance at March 31,^(a)	$	48,208	$	48,856


(a)	Reflects gross goodwill balances as the Firm has not recognized any impairment losses to date.


(b)	Includes foreign currency translation adjustments and other tax-related adjustments.

Goodwill was not impaired at March 31, 2012, or December 31, 2011, nor was any goodwill written off due to impairment during the three months ended March 31, 2012 and 2011.

While no impairment of goodwill was recognized, the Firm’s consumer lending businesses in RFS and Card remain at an elevated risk of goodwill impairment due to their exposure to U.S. consumer credit risk and the effects of economic, regulatory and legislative changes. Declines in business performance, increases in equity capital requirements, or increases in the estimated cost of equity, could cause the estimated fair values of the Firm's reporting units or their associated goodwill to decline, which could result in a material impairment charge to earnings in a future period related to some portion of the associated goodwill.

Mortgage servicing rights

Mortgage servicing rights represent the fair value of expected future cash flows for performing servicing activities for others. The fair value considers estimated future servicing fees and ancillary revenue, offset by estimated costs to service the loans, and generally declines over time as net servicing cash flows are received, effectively amortizing the MSR asset against contractual servicing and ancillary fee income. MSRs are either purchased from third parties or recognized upon sale or securitization of mortgage loans if servicing is retained. For a further description of the MSR asset, interest rate risk management, and the valuation of MSRs, see Note 17 on pages 267–271 of JPMorgan Chase’s 2011 Annual Report and Note 3 on pages 91–100 of this Form 10-Q.

The following table summarizes MSR activity for the three months ended March 31, 2012 and 2011.



Three months March 31, (in millions, except where otherwise noted)	2012			2011
Fair value at beginning of period	$	7,223		$	13,649
MSR activity
Originations of MSRs	572			757
Purchase of MSRs	1			1
Disposition of MSRs	—			—
Changes due to modeled amortization	(353		)	(563		)
Net additions and amortization	220			195
Changes due to market interest rates	644			379
Other changes in valuation due to inputs and assumptions^(a)	(48		)	(1,130		)
Total change in fair value of MSRs^(b)	596			(751		)
Fair value at March 31^(c)	$	8,039		$	13,093
Change in unrealized gains/(losses) included in income related to MSRs held at March 31	$	596		$	(751	)
Contractual service fees, late fees and other ancillary fees included in income	$	1,033		$	1,025
Third-party mortgage loans serviced at March 31 (in billions)	$	892		$	963
Servicer advances at March 31 (in billions)^(d)	$	11.2		$	10.8


(a)	Represents the aggregate impact of changes in model inputs and assumptions such as costs to service, home prices, mortgage spreads, ancillary income, and assumptions used to derive prepayment speeds, as well as changes to the valuation models themselves.


(b)	Includes changes related to commercial real estate of $(2) million and $(2) million for the three months ended March 31, 2012 and 2011, respectively.


(c)	Includes $29 million and $38 million related to commercial real estate at March 31, 2012 and 2011, respectively.

(d)

Represents amounts the Firm pays as the servicer (e.g., scheduled principal and interest to a trust, taxes and insurance), which will generally be reimbursed within a short period of time after the advance from future cash flows from the trust or the underlying loans. The Firm’s credit risk associated with these advances is minimal because reimbursement of the advances is senior to all cash payments to investors. In addition, the Firm maintains the right to stop payment if the collateral is insufficient to cover the advance.

In the first quarter of 2011, the Firm determined that the fair value of the MSR asset had declined, reflecting higher estimated future servicing costs related to enhanced servicing processes, particularly loan modification and foreclosure procedures, including costs to comply with Consent Orders entered into with the banking regulators. The increase in the cost to service assumption contemplated significant and prolonged increases in staffing levels in the core and default servicing functions, and specifically considers the higher cost to service certain high-risk vintages. These higher estimated future costs resulted in a $1.1 billion decrease in the fair value of the MSR asset during the three months ended March 31, 2011.

This decrease was partially offset by an increase in fair value due to the effects of higher market interest rate (which tend to decrease prepayments and therefore extend the expected life of the net servicing cash flows that comprise the MSR asset).

The following table presents the components of mortgage fees and related income (including the impact of MSR risk management activities) for the three months ended March 31, 2012 and 2011.



Three months ended March 31, (in millions)	2012			2011
RFS mortgage fees and related income
Net production revenue:
Production revenue	$	1,432		$	679
Repurchase losses	(302		)	(420		)
Net production revenue	1,130			259
Net mortgage servicing revenue
Operating revenue:
Loan servicing revenue	1,039			1,052
Changes in MSR asset fair value due to modeled amortization	(351		)	(563		)
Total operating revenue	688			489
Risk management:
Changes in MSR asset fair value due to market interest rates	644			379
Other changes in MSR asset fair value due to inputs or assumptions in model^(a)	(48		)	(1,130		)
Derivative valuation adjustments and other	(406		)	(486		)
Total risk management	190			(1,237		)
Total RFS net mortgage servicing revenue	878			(748		)
All other	2			2
Mortgage fees and related income	$	2,010		$	(487	)


(a)	Represents the aggregate impact of changes in model inputs and assumptions such as costs to service, home prices, mortgage spreads, ancillary income, and assumptions used to derive prepayment speeds, as well as changes to the valuation models themselves.

The table below outlines the key economic assumptions used to determine the fair value of the Firm’s MSRs at March 31, 2012, and December 31, 2011; and it outlines the sensitivities of those fair values to immediate adverse changes in those assumptions, as defined below.



(in millions, except rates)	March 31, 2012			December 31, 2011
Weighted-average prepayment speed assumption (“CPR”)	14.32		%	18.07		%
Impact on fair value of 10% adverse change	$	(581	)	$	(585	)
Impact on fair value of 20% adverse change	(1,114		)	(1,118		)
Weighted-average option adjusted spread	7.72		%	7.83		%
Impact on fair value of 100 basis points adverse change	$	(320	)	$	(269	)
Impact on fair value of 200 basis points adverse change	(616		)	(518		)

CPR: Constant prepayment rate.

The sensitivity analysis in the preceding table is hypothetical and should be used with caution. Changes in fair value based on variation in assumptions generally cannot be easily extrapolated, because the relationship of the change in the assumptions to the change in fair value are often highly inter-related and may not be linear. In this table, the effect that a change in a particular assumption may have on the fair value is calculated without changing any other assumption. In reality, changes in one factor may result in changes in another, which would either magnify or counteract the impact of the initial change.

Other intangible assets

The $178 million decrease in other intangible assets during the three months ended March 31, 2012, was predominantly due to $193 million in amortization.

The components of credit card relationships, core deposits and other intangible assets were as follows.



	March 31, 2012
(in millions)	Gross amount^(a)		Accumulated amortization^(a)		Net carrying value
Purchased credit card relationships	$	3,775	$	3,240	$	535
Other credit card-related intangibles	850		383		467
Core deposit intangibles	4,133		3,600		533
Other intangibles^(b)	2,418		924		1,494



	December 31, 2011
(in millions)	Gross amount		Accumulated amortization		Net carrying value
Purchased credit card relationships	$	3,826	$	3,224	$	602
Other credit card-related intangibles	844		356		488
Core deposit intangibles	4,133		3,539		594
Other intangibles^(b)	2,467		944		1,523


(a)	The decrease in the gross amount and accumulated amortization from December 31, 2011, was due to the removal of fully amortized assets.


(b)	Includes intangible assets of approximately $600 million consisting primarily of asset management advisory contracts, which were determined to have an indefinite life and are not amortized.

Amortization expense

The following table presents amortization expense related to credit card relationships, core deposits and other intangible assets.



	Three months ended March 31,
(in millions)	2012		2011
Purchased credit card relationships	$	69	$	80
Other credit card-related intangibles	27		26
Core deposit intangibles	61		72
Other intangibles	36		39
Total amortization expense	$	193	$	217

Future amortization expense

The following table presents estimated future amortization expense related to credit card relationships, core deposits and other intangible assets.



For the year (in millions)	Purchased credit card relationships		Other credit card-related intangibles		Core deposit intangibles		Other intangibles		Total
2012^(a)	$	253	$	108	$	240	$	147	$	748
2013	213		105		195		140		653
2014	109		103		102		122		436
2015	23		95		26		103		247
2016	4		34		14		96		148


(a)	Includes $69 million, $27 million, $61 million, and $36 million of amortization expense related to purchased credit card relationships, other credit card related intangibles, core deposit intangibles and other intangibles, respectively, recognized during the three months ended March 31, 2012.