Goodwill impairment testing

Goodwill 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. Refer to Note 15 of JPMorgan Chase’s 2020 Form 10-K for a further discussion of the Firm’s goodwill impairment testing.

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.

As of September 30, 2021, the Firm reviewed current economic conditions, including the potential impacts of the COVID-19 pandemic on business performance, estimated market cost of equity, as well as actual business results and projections of business performance. The Firm has concluded that goodwill was not impaired as of September 30, 2021, or December 31, 2020, nor was goodwill written off due to impairment during the nine months ended September 30, 2021 or 2020.

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 2020 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, 2021 and 2020.


	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)	2021		2020		2021		2020
Fair value at beginning of period	$	4,549	$	3,080	$	3,276	$	4,699
MSR activity:
Originations of MSRs	429		204		1,252		639
Purchase of MSRs	584		17		1,158		24
Disposition of MSRs(a)	1		(104)		(23)		(177)
Net additions/(dispositions)	1,014		117		2,387		486

Changes due to collection/realization of expected cash flows	(201)		(215)		(570)		(710)

Changes in valuation due to inputs and assumptions:
Changes due to market interest rates and other(b)	133		(59)		469		(1,573)
Changes in valuation due to other inputs and assumptions:
Projected cash flows (e.g., cost to service)	119		(82)		96		(80)
Discount rates	—		199		—		199
Prepayment model changes and other(c)	(263)		(24)		(307)		(5)
Total changes in valuation due to other inputs and assumptions	(144)		93		(211)		114
Total changes in valuation due to inputs and assumptions	(11)		34		258		(1,459)
Fair value at September 30,	$	5,351	$	3,016	$	5,351	$	3,016

Changes in unrealized gains/(losses) included in income related to MSRs held at September 30,	$	(11)	$	34	$	258	$	(1,459)
Contractual service fees, late fees and other ancillary fees included in income	334		333		932		1,026
Third-party mortgage loans serviced at September 30, (in billions)	510		456		510		456
Servicer advances, net of an allowance for uncollectible amounts, at September 30, (in billions)(d)	1.7		1.7		1.7		1.7

(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.

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, 2021 and 2020.


	Three months ended September 30,				Nine months ended September 30,
(in millions)	2021		2020		2021		2020


CCB mortgage fees and related income
Production revenue	$	614	$	765	$	1,888	$	1,826

Net mortgage servicing revenue:
Operating revenue:
Loan servicing revenue	328		381		892		1,063
Changes in MSR asset fair value due to collection/realization of expected cash flows	(201)		(215)		(570)		(710)
Total operating revenue	127		166		322		353
Risk management:
Changes in MSR asset fair value due to market interest rates and other(a)	133		(59)		469		(1,573)
Other changes in MSR asset fair value due to other inputs and assumptions in model(b)	(144)		93		(211)		114
Changes in derivative fair value and other	(134)		111		(621)		1,593
Total risk management	(145)		145		(363)		134
Total net mortgage servicing revenue	(18)		311		(41)		487

Total CCB mortgage fees and related income	596		1,076		1,847		2,313

All other	4		11		8		11
Mortgage fees and related income	$	600	$	1,087	$	1,855	$	2,324

(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, 2021, and December 31, 2020, and outlines hypothetical sensitivities of those fair values to immediate adverse changes in those assumptions, as defined below.


(in millions, except rates)	Sep 30, 2021			Dec 31, 2020
Weighted-average prepayment speed assumption (constant prepayment rate)	10.12		%	14.90		%
Impact on fair value of 10% adverse change	$	(220)		$	(206)
Impact on fair value of 20% adverse change	(423)			(392)
Weighted-average option adjusted spread(a)	6.56		%	7.19		%
Impact on fair value of a 100 basis point adverse change	$	(226)		$	(134)
Impact on fair value of a 200 basis point adverse change	(433)			(258)

(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.