JP Morgan Chase 2008 Annual Report Download - page 234

Glossary of terms
232 JPMorgan Chase & Co./ 2008 Annual Report
a fully amortizing, interest-only, or minimum payment. The minimum
payment on an option ARM loan is based upon the interest rate
charged during the introductory period. This introductory rate has usu-
ally been significantly below the fully indexed rate. The fully indexed
rate is calculated using an index rate plus a margin. Once the intro-
ductory period ends, the contractual interest rate charged on the loan
increases to the fully indexed rate and adjusts monthly to reflect
movements in the index. The minimum payment is typically insufficient
to cover interest accrued in the prior month, and any unpaid interest
is deferred and added to the principal balance of the loan.
Prime
Prime mortgage loans generally have low default risk and are made
to borrowers with good credit records and a monthly income that is
at least three to four times greater than their monthly housing
expense (mortgage payments plus taxes and other debt payments).
These borrowers provide full documentation and generally have reli-
able payment histories.
Subprime
Subprime loans are designed for customers with one or more high
risk characteristics, including but not limited to: (i) unreliable or poor
payment histories; (ii) high loan-to-value (“LTV”) ratio of greater
than 80% (without borrower-paid mortgage insurance); (iii) high
debt-to-income ratio; (iv) the occupancy type for the loan is other
than the borrower’s primary residence; or (v) a history of delinquen-
cies or late payments on the loan.
MSR risk management revenue: Includes changes in MSR asset
fair value due to inputs or assumptions in model and derivative valu-
ation adjustments.
Material legal proceedings: Refers to certain specific litigation
originally discussed in the section “Legal Proceedings” in the Firm’s
Annual Report on Form 10-K for the year ended December 31, 2002.
Of such legal proceedings, some lawsuits related to Enron and the
IPO allocation allegations remain outstanding as of the date of this
Annual Report, as discussed in Part I, Item 3, legal proceedings in
the Firm’s Annual Report on Form 10-K for the year ended December
31, 2008, to which reference is hereby made; other such legal pro-
ceedings have been resolved.
NA: Data is not applicable or available for the period presented.
Net yield on interest-earning assets: The average rate for inter-
est-earning assets less the average rate paid for all sources of funds.
NM: Not meaningful.
Nonconforming mortgage loans: Mortgage loans that do not
meet the requirements for sale to U.S. government agencies and U.S.
government sponsored enterprises. These requirements include limits
on loan-to-value ratios, loan terms, loan amounts, down payments,
borrower creditworthiness and other requirements.
OPEB: Other postretirement employee benefits.
Overhead ratio: Noninterest expense as a percentage of total
net revenue.
Personal bankers: Retail branch office personnel who acquire,
retain and expand new and existing customer relationships by
assessing customer needs and recommending and selling appropriate
banking products and services.
Portfolio activity: Describes changes to the risk profile of existing
lending-related exposures and their impact on the allowance for
credit losses from changes in customer profiles and inputs used to
estimate the allowances.
Principal transactions: Realized and unrealized gains and losses
from trading activities (including physical commodities inventories
that are accounted for at the lower of cost or fair value) and changes
in fair value associated with financial instruments held by the
Investment Bank for which the SFAS 159 fair value option was elect-
ed. Principal transactions revenue also include private equity gains
and losses.
Purchased credit-impaired loans: Acquired loans deemed to be
credit-impaired under SOP 03-3. SOP 03-3 allows purchasers to
aggregate credit-impaired loans acquired in the same fiscal quarter
into one or more pools, provided that the loans have common risk
characteristics (e.g., FICO score, geographic location). A pool is then
accounted for as a single asset with a single composite interest rate
and an aggregate expectation of cash flows. Wholesale loans were
determined to be credit-impaired if they met the definition of an
impaired loan under SFAS 114 at the acquisition date. Consumer
loans are determined to be purchased credit-impaired based upon
specific risk characteristics of the loan, including product type, loan-
to-value ratios, FICO scores, and past due status.
Receivables from customers: Primarily represents margin loans
to prime and retail brokerage customers which are included in
accrued interest and accounts receivable on the Consolidated
Balance Sheets for the wholesale lines of business.
REMIC: Investment vehicles that hold commercial and residential
mortgages in trust and issues securities representing an undivided
interest in these mortgages. A REMIC, which can be a corporation,
trust, association, or partnership, assembles mortgages into pools
and issues pass-through certificates, multiclass bonds similar to a
collateralized mortgage obligation (“CMO”) or other securities to
investors in the secondary mortgage market.
Reported basis: Financial statements prepared under accounting
principles generally accepted in the United States of America (“U.S.
GAAP”). The reported basis includes the impact of credit card securi-
tizations but excludes the impact of taxable-equivalent adjustments.
Return on common equity less goodwill: Represents net
income applicable to common stock divided by total average com-
mon equity (net of goodwill). The Firm uses return on common equity
less goodwill, a non-GAAP financial measure, to evaluate the operat-
ing performance of the Firm. The Firm also utilizes this measure to
facilitate operating comparisons to other competitors.
Risk layered loans: Loans with multiple high risk elements.