Goodwill

Goodwill is recorded upon completion of a business combination as the difference between the purchase price and the fair value of the net assets acquired, and can be adjusted up to one year from the acquisition date as more information is obtained about the fair value of assets acquired and liabilities assumed. Subsequent to initial recognition, goodwill is not amortized but is tested for impairment during the fourth quarter of each fiscal year, or more often if events or circumstances, such as adverse changes in the business climate, indicate that there may be an impairment.

The goodwill associated with each business combination is allocated to the related reporting units, which are determined based on how the Firm’s businesses are managed and how they are reviewed. The following table presents goodwill attributed to the business segments.


December 31, (in millions)	2020		2019		2018
Consumer & Community Banking(a)	$	31,311	$	30,133	$	30,084
Corporate & Investment Bank(a)	7,913		7,901		7,721
Commercial Banking	2,985		2,982		2,860
Asset & Wealth Management(a)	7,039		6,807		6,806
Total goodwill	$	49,248	$	47,823	$	47,471

(a)In 2020, goodwill of $959 million was transferred from CCB to CIB and $51 million from AWM to CCB related to business realignments. Prior-period amounts have been revised to conform with the current presentation. Refer to Note 32 for additional information on these realignments.

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


Year ended December 31, (in millions)	2020		2019		2018
Balance at beginning of period	$	47,823	$	47,471	$	47,507
Changes during the period from:
Business combinations(a)	1,412		349		—

Other(b)	13		3		(36)
Balance at December 31,	$	49,248	$	47,823	$	47,471

(a)For 2020, represents estimated goodwill associated with the acquisitions of cxLoyalty in CCB and 55ip in AWM. For 2019, represents goodwill associated with the acquisition of InstaMed. This goodwill was allocated to CIB, CB and CCB.

(b)Primarily relates to foreign currency adjustments.

Goodwill impairment testing

The Firm’s goodwill was not impaired at December 31, 2020, 2019 and 2018.

Effective January 1, 2020, the Firm adopted new accounting guidance related to goodwill impairment testing. The adoption of the guidance requires recognition of an impairment loss when the estimated fair value of a reporting unit falls below its carrying value. It eliminated the requirement that an impairment loss be recognized only if the estimated implied fair value of the goodwill is below its carrying value.

The goodwill impairment test is performed by comparing the current fair value of each reporting unit with its

carrying value. If the fair value is in excess of the carrying value, then the reporting unit’s goodwill is considered not to be impaired. If the fair value is less than the carrying value, then an impairment charge is recognized for the amount by which the reporting unit’s carrying value exceeds its fair value, up to the amount of goodwill allocated to that reporting unit.

The Firm uses the reporting units’ allocated capital plus goodwill and other intangible assets as a proxy for the carrying values of equity for the reporting units in the goodwill impairment testing. Reporting unit equity is determined on a similar basis as the allocation of capital to the LOBs which takes into consideration a variety of factors including capital levels of similarly rated peers and applicable regulatory capital requirements. Proposed LOB capital levels are incorporated into the Firm’s annual budget process, which is reviewed by the Firm’s Board of Directors. Allocated capital is further reviewed periodically and updated as needed.

The primary method the Firm uses to estimate the fair value of its reporting units is the income approach. This approach projects cash flows for the forecast period and uses the perpetuity growth method to calculate terminal values. These cash flows and terminal values are then discounted using an appropriate discount rate. Projections of cash flows are based on the reporting units’ earnings forecasts which are reviewed with senior management of the Firm. The discount rate used for each reporting unit represents an estimate of the cost of equity for that reporting unit and is determined considering the Firm’s overall estimated cost of equity (estimated using the Capital Asset Pricing Model), as adjusted for the risk characteristics specific to each reporting unit (for example, for higher levels of risk or uncertainty associated with the business or management’s forecasts and assumptions). To assess the reasonableness of the discount rates used for each reporting unit, management compares the discount rate to the estimated cost of equity for publicly traded institutions with similar businesses and risk characteristics. In addition, the weighted average cost of equity (aggregating the various reporting units) is compared with the Firm’s overall estimated cost of equity to ensure reasonableness. The valuations derived from the discounted cash flow analysis are then compared with market-based trading and transaction multiples for relevant competitors. Trading and transaction comparables are used as general indicators to assess the overall reasonableness of the estimated fair values, although precise conclusions generally cannot be drawn due to the differences that naturally exist between the Firm’s businesses and competitor institutions.

Management also takes into consideration a comparison between the aggregate fair values of the Firm’s reporting units and JPMorgan Chase’s market capitalization. In evaluating this comparison, management considers several factors, including (i) a control premium that would exist in a market transaction, (ii) factors related to the level of

execution risk that would exist at the Firmwide level that do not exist at the reporting unit level and (iii) short-term market volatility and other factors that do not directly affect the value of individual reporting units.

Unanticipated 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 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.

As permitted by U.S. GAAP, the Firm has elected to account for its MSRs at fair value. The Firm treats its MSRs as a single class of servicing assets based on the availability of market inputs used to measure the fair value of its MSR asset and its treatment of MSRs as one aggregate pool for risk management purposes. The Firm estimates the fair value of MSRs using an option-adjusted spread (“OAS”) model, which projects MSR cash flows over multiple interest rate scenarios in conjunction with the Firm’s prepayment model, and then discounts these cash flows at risk-adjusted rates. The model considers portfolio characteristics, contractually specified servicing fees, prepayment assumptions, delinquency rates, costs to service, late charges and other ancillary revenue, and other economic factors. The Firm compares fair value estimates and assumptions to observable market data where available, and also considers recent market activity and actual portfolio experience.

The fair value of MSRs is sensitive to changes in interest rates, including their effect on prepayment speeds. MSRs typically decrease in value when interest rates decline because declining interest rates tend to increase prepayments and therefore reduce the expected life of the net servicing cash flows that comprise the MSR asset. Conversely, securities (e.g., mortgage-backed securities), and certain derivatives (e.g., those for which the Firm

receives fixed-rate interest payments) increase in value when interest rates decline. JPMorgan Chase uses combinations of derivatives and securities to manage the risk of changes in the fair value of MSRs. The intent is to offset any interest-rate related changes in the fair value of MSRs with changes in the fair value of the related risk management instruments.

The following table summarizes MSR activity for the years ended December 31, 2020, 2019 and 2018.


As of or for the year ended December 31, (in millions, except where otherwise noted)	2020		2019			2018
Fair value at beginning of period	$	4,699	$	6,130		$	6,030
MSR activity:
Originations of MSRs	944		1,384			931
Purchase of MSRs	248		105			315
Disposition of MSRs(a)	(176)		(789)			(636)
Net additions/(Dispositions)	1,016		700			610

Changes due to collection/realization of expected cash flows	(899)		(951)			(740)

Changes in valuation due to inputs and assumptions:
Changes due to market interest rates and other(b)	(1,568)		(893)			300
Changes in valuation due to other inputs and assumptions:
Projected cash flows (e.g., cost to service)	(54)		(333)		(e)	15
Discount rates	199		153			24
Prepayment model changes and other(c)	(117)		(107)			(109)
Total changes in valuation due to other inputs and assumptions	28		(287)			(70)
Total changes in valuation due to inputs and assumptions	(1,540)		(1,180)			230
Fair value at December 31,	$	3,276	$	4,699		$	6,130
Change in unrealized gains/(losses) included in income related to MSRs held at December 31,	$	(1,540)	$	(1,180)		$	230
Contractual service fees, late fees and other ancillary fees included in income	1,325		1,639			1,778
Third-party mortgage loans serviced at December 31, (in billions)	448.0		522.0			521.0
Servicer advances, net of an allowance for uncollectible amounts, at December 31, (in billions)(d)	1.8		2.0			3.0

(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 years ended December 31, 2020, 2019 and 2018.


Year ended December 31, (in millions)	2020		2019		2018
CCB mortgage fees and related income
Net production revenue	$	2,629	$	1,618	$	268

Net mortgage servicing revenue:
Operating revenue:
Loan servicing revenue	1,367		1,533		1,835
Changes in MSR asset fair value due to collection/realization of expected cash flows	(899)		(951)		(740)
Total operating revenue	468		582		1,095
Risk management:
Changes in MSR asset fair value due to market interest rates and other(a)	(1,568)		(893)		300
Other changes in MSR asset fair value due to other inputs and assumptions in model(b)	28		(287)		(70)
Change in derivative fair value and other	1,522		1,015		(341)
Total risk management	(18)		(165)		(111)
Total net mortgage servicing revenue	450		417		984

Total CCB mortgage fees and related income	3,079		2,035		1,252

All other	12		1		2
Mortgage fees and related income	$	3,091	$	2,036	$	1,254

(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 December 31, 2020 and 2019, and outlines the sensitivities of those fair values to immediate adverse changes in those assumptions, as defined below.


December 31, (in millions, except rates)	2020			2019
Weighted-average prepayment speed assumption (constant prepayment rate)	14.90		%	11.67		%
Impact on fair value of 10% adverse change	$	(206)		$	(200)
Impact on fair value of 20% adverse change	(392)			(384)
Weighted-average option adjusted spread(a)	7.19		%	7.93		%
Impact on fair value of 100 basis points adverse change	$	(134)		$	(169)
Impact on fair value of 200 basis points adverse change	(258)			(326)

(a)Includes the impact of operational risk and regulatory capital.

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.