JP Morgan Chase 2005 Annual Report Download - page 97

JPMorgan Chase & Co. /2005 Annual Report 95
Note 4 – Other noninterest revenue
Investment banking fees
This revenue category includes advisory and equity and debt underwriting fees.
Advisory fees are recognized as revenue when related services are performed.
Underwriting fees are recognized as revenue when the Firm has rendered all
services to the issuer and is entitled to collect the fee from the issuer, as long
as there are no other contingencies associated with the fee (e.g., the fee is
not contingent upon the customer obtaining financing). Underwriting fees are
net of syndicate expenses. In addition, the Firm recognizes credit arrangement
and syndication fees as revenue after satisfying certain retention, timing and
yield criteria.
The following table presents the components of Investment banking fees:
Year ended December 31, (in millions)(a) 2005 2004 2003
Underwriting:
Equity $ 864 $ 780 $ 699
Debt 1,969 1,859 1,549
Total Underwriting 2,833 2,639 2,248
Advisory 1,255 898 642
Total $ 4,088 $ 3,537 $ 2,890
(a) 2004 results include six months of the combined Firm’s results and six months of heritage
JPMorgan Chase results. 2003 reflects the results of heritage JPMorgan Chase only.
Lending & deposit related fees
This revenue category includes fees from loan commitments, standby letters
of credit, financial guarantees, deposit-related fees in lieu of compensating
balances, cash management-related activities or transactions, deposit
accounts, and other loan servicing activities. These fees are recognized over
the period in which the related service is provided.
Asset management, administration and commissions
This revenue category includes fees from investment management and related
services, custody and institutional trust services, brokerage services, insurance
premiums and commissions and other products. These fees are recognized
over the period in which the related service is provided.
Mortgage fees and related income
This revenue category includes fees and income derived from mortgage origi-
nation, sales and servicing, and includes the effect of risk management activities
associated with the mortgage pipeline, warehouse and the mortgage servicing
rights (“MSRs”) asset (excluding gains and losses on the sale of Available-for-
sale (“AFS”) securities). Origination fees and gains or losses on loan sales are
recognized in income upon sale. Mortgage servicing fees are recognized over
the period the related service is provided, net of amortization. Valuation
changes in the mortgage pipeline, warehouse, MSR asset and corresponding
risk management instruments are generally adjusted through earnings as
these changes occur. Net interest income and securities gains and losses on
AFS securities used in mortgage-related risk management activities are not
included in Mortgage fees and related income. For a further discussion of
MSRs, see Note 15 on pages 114–116 of this Annual Report.
Credit card income
This revenue category includes interchange income from credit and debit cards,
annual fees, and servicing fees earned in connection with securitization activities.
Volume-related payments to partners and expenses for rewards programs are
also recorded within Credit card income. Fee revenues are recognized as
earned, except for annual fees, which are recognized over a 12-month period.
Expenses related to rewards programs are recorded when earned by the customer.
Credit card revenue sharing agreements
The Firm has contractual agreements with numerous affinity organizations
and co-brand partners, which grant to the Firm exclusive rights to market to
their members or customers. These organizations and partners provide to the
Firm their endorsement of the credit card programs, mailing lists, and may
also conduct marketing activities and provide awards under the various credit
card programs. The terms of these agreements generally range from 3 to 10
years. The economic incentives the Firm pays to the endorsing organizations
and partners typically include payments based upon new accounts, activation,
charge volumes, and the cost of their marketing activities and awards.
The Firm recognizes the portion of payments based upon new accounts to
the affinity organizations and co-brand partners, as deferred loan origination
costs. The Firm defers these costs and amortizes them over 12 months.
Payments based upon charge volumes and considered by the Firm as revenue
sharing with the affinity organizations and co-brand partners are deducted
from Credit card income as the related revenue is earned. The Firm expenses
payments based upon marketing efforts performed by the endorsing
organization or partner to activate a new account as incurred. These costs
are recorded within Noninterest expense.
Note 5 – Interest income and interest expense
Details of Interest income and Interest expense were as follows:
Year ended December 31, (in millions)(a) 2005 2004 2003
Interest income
Loans $ 26,062 $ 16,771 $ 11,812
Securities 3,129 3,377 3,542
Trading assets 9,117 7,527 6,592
Federal funds sold and securities
purchased under resale agreements 4,125 1,627 1,497
Securities borrowed 1,154 463 323
Deposits with banks 680 539 214
Interests in purchased receivables 933 291 64
Total interest income 45,200 30,595 24,044
Interest expense
Interest-bearing deposits 10,295 4,630 3,604
Short-term and other liabilities 9,542 6,260 5,871
Long-term debt 4,160 2,466 1,498
Beneficial interests issued by
consolidated VIEs 1,372 478 106
Total interest expense 25,369 13,834 11,079
Net interest income 19,831 16,761 12,965
Provision for credit losses 3,483 2,544 1,540
Net interest income after provision
for credit losses $ 16,348 $ 14,217 $ 11,425
(a) 2004 results include six months of the combined Firm’s results and six months of heritage
JPMorgan Chase results. 2003 reflects the results of heritage JPMorgan Chase only.