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Goodwill and Mortgage Servicing Rights
 9 Months Ended
Sep. 30, 2019
Goodwill and Intangible Assets Disclosure [Abstract]  
Goodwill and Mortgage Servicing Rights Goodwill and Mortgage servicing rights
Refer to Note 15 of JPMorgan Chase’s 2018 Form 10-K for a discussion of the accounting policies related to goodwill and mortgage servicing rights.
Goodwill
The following table presents goodwill attributed to the business segments.
(in millions)
September 30,
2019

December 31,
2018

Consumer & Community Banking
$
31,038

$
30,984

Corporate & Investment Bank
6,941

6,770

Commercial Banking
2,982

2,860

Asset & Wealth Management
6,857

6,857

Total goodwill
$
47,818

$
47,471


The following table presents changes in the carrying amount of goodwill.
 
Three months ended September 30,
 
Nine months ended September 30,
(in millions)
2019

 
2018

 
2019

 
2018

Balance at beginning
of period
$
47,477

 
$
47,488

 
$
47,471

 
$
47,507

Changes during the period from:
 
 
 
 
 
 
 
Business combinations(a)
348

 
—

 
348

 
—

Other(b)
(7
)
 
(5
)
 
(1
)
 
(24
)
Balance at September 30,
$
47,818

 
$
47,483

 
$
47,818

 
$
47,483

(a)
For the three and nine months periods ended September 30, 2019, represents goodwill associated with the July 24, 2019 acquisition of InstaMed. This goodwill was allocated to CIB, CB and CCB.
(b)
Primarily relates to foreign currency adjustments.
Goodwill impairment testing
Refer to Impairment testing on pages 252–253 of JPMorgan Chase’s 2018 Form 10-K for a further description of the Firm’s goodwill impairment testing, including the primary method used to estimate the fair value of the reporting units, and the assumptions used in the goodwill impairment test.
The Firm reviewed current economic conditions, estimated market cost of equity, as well as actual and projections of business performance for all its businesses. Based upon such reviews, the Firm concluded that the goodwill allocated to its reporting units was not impaired as of September 30, 2019 or December 31, 2018, nor was goodwill written off due to impairment during the nine months ended September 30, 2019 or 2018.
Declines in business performance, increases in credit losses, increases in capital requirements, as well as deterioration in economic or market conditions, adverse regulatory or legislative changes or increases in the estimated market cost of equity, could cause the estimated fair values of the Firm’s reporting units or their associated goodwill to decline in the future, 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
MSRs 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. Refer to Notes 2 and 15 of JPMorgan Chase’s 2018 Form 10-K for a further description of the MSR asset, interest rate risk management, and the valuation of MSRs.
The following table summarizes MSR activity for the three and nine months ended September 30, 2019 and 2018.
 
As of or for the three months
ended September 30,
As of or for the nine months
ended September 30,
(in millions, except where otherwise noted)
2019

2018

2019

 
2018

Fair value at beginning of period
$
5,093

$
6,241

$
6,130

 
$
6,030

MSR activity:
 
 
 
 
 
Originations of MSRs
390

278

1,146

 
611

Purchase of MSRs
(2
)
13

104

 
159

Disposition of MSRs(a)
(359
)
(2
)
(687
)
 
(401
)
Net additions/(dispositions)
29

289

563

 
369

 
 
 
 
 
 
Changes due to collection/realization of expected cash flows
(256
)
(195
)
(702
)
 
(542
)
 
 
 
 
 
 
Changes in valuation due to inputs and assumptions:
 
 
 
 
 
Changes due to market interest rates and other(b)
(433
)
150

(1,274
)
 
635

Changes in valuation due to other inputs and assumptions:
 
 
 
 
 
Projected cash flows (e.g., cost to service)
17

14

(333
)
(e) 
14

Discount rates
—

—

153

 
24

Prepayment model changes and other(c)
(31
)
(66
)
(118
)
 
(97
)
Total changes in valuation due to other inputs and assumptions
(14
)
(52
)
(298
)
 
(59
)
Total changes in valuation due to inputs and assumptions
(447
)
98

(1,572
)
 
576

Fair value at September 30,
$
4,419

$
6,433

$
4,419

 
$
6,433

 
 
 
 
 
 
Change in unrealized gains/(losses) included in income related to MSRs held at September 30,
$
(447
)
$
98

$
(1,572
)
 
$
576

Contractual service fees, late fees and other ancillary fees included in income
397

428

1,254

 
1,339

Third-party mortgage loans serviced at September 30, (in billions)
537

528

537

 
528

Servicer advances, net of an allowance for uncollectible amounts, at September 30, (in billions)(d)
2.0

3.1

2.0

 
3.1

(a)
Includes excess MSRs transferred to agency-sponsored trusts in exchange for stripped mortgage backed securities (“SMBS”). In each transaction, a portion of the SMBS was acquired by third parties at the transaction date; the Firm acquired the remaining balance of those SMBS as trading securities.
(b)
Represents both the impact of changes in estimated future prepayments due to changes in market interest rates, and the difference between actual and expected prepayments.
(c)
Represents changes in prepayments other than those attributable to changes in market interest rates.
(d)
Represents amounts the Firm pays as the servicer (e.g., scheduled principal and interest, 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 servicer advances is minimal because reimbursement of the advances is typically senior to all cash payments to investors. In addition, the Firm maintains the right to stop payment to investors if the collateral is insufficient to cover the advance. However, certain of these servicer advances may not be recoverable if they were not made in accordance with applicable rules and agreements.
(e)
The decrease in projected cash flows was largely related to default servicing assumption updates.
The following table presents the components of mortgage fees and related income (including the impact of MSR risk management activities) for the three and nine months ended September 30, 2019 and 2018.
 
 
Three months ended September 30,
 
Nine months ended September 30,
(in millions)
 
2019

 
2018

 
2019

 
2018

CCB mortgage fees and related income
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net production revenue
 
$
738

 
$
108

 
$
1,291

 
$
296

 
 
 
 
 
 
 
 
 
Net mortgage servicing revenue:
 
 
 
 
 
 
 
 
Operating revenue:
 
 
 
 
 
 
 
 
Loan servicing revenue
 
351

 
435

 
1,172

 
1,389

Changes in MSR asset fair value due to collection/realization of expected cash flows
 
(256
)
 
(195
)
 
(702
)
 
(542
)
Total operating revenue
 
95

 
240

 
470

 
847

Risk management:
 
 
 
 
 
 
 
 
Changes in MSR asset fair value due to market interest rates and other(a)
 
(433
)
 
150

 
(1,274
)
 
636

Other changes in MSR asset fair value due to other inputs and assumptions
in model(b)
 
(14
)
 
(52
)
 
(298
)
 
(59
)
Change in derivative fair value and other
 
500

 
(186
)
 
1,372

 
(671
)
Total risk management
 
53

 
(88
)
 
(200
)
 
(94
)
Total net mortgage servicing revenue
 
148

 
152

 
270

 
753

 
 
 
 
 
 
 
 
 
Total CCB mortgage fees and related income
 
886

 
260

 
1,561

 
1,049

 
 
 
 
 
 
 
 
 
All other
 
1

 
2

 
1

 
2

Mortgage fees and related income
 
$
887

 
$
262

 
$
1,562

 
$
1,051

(a)
Represents both the impact of changes in estimated future prepayments due to changes in market interest rates, and the difference between actual and expected prepayments.
(b)
Represents the aggregate impact of changes in model inputs and assumptions such as projected cash flows (e.g., cost to service), discount rates and changes in prepayments other than those attributable to changes in market interest rates (e.g., changes in prepayments due to changes in home prices).
The table below outlines the key economic assumptions used to determine the fair value of the Firm’s MSRs at September 30, 2019, and December 31, 2018, and outlines hypothetical sensitivities of those fair values to immediate adverse changes in those assumptions, as defined below.
(in millions, except rates)
Sep 30,
2019

 
Dec 31,
2018

Weighted-average prepayment speed assumption (constant prepayment rate)
13.81
%
 
8.78
%
Impact on fair value of 10% adverse change
$
(206
)
 
$
(205
)
Impact on fair value of 20% adverse change
(393
)
 
(397
)
Weighted-average option adjusted spread(a)(b)
8.26
%
 
7.87
%
Impact on fair value of a 100 basis point adverse change
$
(150
)
 
$
(235
)
Impact on fair value of a 200 basis point adverse change
(289
)
 
(452
)

(a)
Includes the impact of operational risk and regulatory capital.
(b)
The prior period amount has been revised to conform with the current period presentation.
Changes in fair value based on variations 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 interrelated 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.