JP Morgan Chase 2009 Annual Report Download - page 196

Notes to consolidated financial statements
JPMorgan Chase & Co./2009 Annual Report 194
The following table presents the assumptions used to value em-
ployee stock options and SARs granted during the years ended
December 31, 2009, 2008 and 2007, under the Black-Scholes
valuation model.
Valuation assumptions
Year ended December 31, 2009 2008 2007
Weighted-average annualized
valuation assumptions
Risk-free interest rate 2.33%
3.90% 4.78 %
Expected dividend yield(a) 3.40 3.57 3.18
Expected common stock price volatility 56 34 33
Expected life (in years) 6.6 6.8 6.8
(a) In 2009, the expected dividend yield was determined using historical
dividend yields.
The expected volatility assumption is derived from the implied
volatility of JPMorgan Chase’s publicly traded stock options. The
expected life assumption is an estimate of the length of time
that an employee might hold an option or SAR before it is exer-
cised or canceled, and the assumption is based on the Firm’s
historic experience.
Note 10 – Noninterest expense
The following table presents the components of noninterest expense.
Year ended December 31, (in millions) 2009 2008 2007
Compensation expense $ 26,928 $ 22,746 $ 22,689
Noncompensation expense:
Occupancy expense 3,666 3,038 2,608
Technology, communications and equipment expense 4,624 4,315 3,779
Professional and outside services 6,232 6,053 5,140
Marketing 1,777 1,913 2,070
Other expense(a)(b) 7,594 3,740 3,814
Amortization of intangibles 1,050 1,263 1,394
Total noncompensation expense 24,943 20,322 18,805
Merger costs 481 432 209
Total noninterest expense $ 52,352 $ 43,500 $ 41,703
(a) Includes a $675 million FDIC special assessment in 2009.
(b) Included foreclosed property expense of $1.4 billion, $213 million and $56 million for 2009, 2008 and 2007, respectively. For additional information regarding fore-
closed property, see Note 13 on pages 200–204 of this Annual Report.
Merger costs
Costs associated with the Bear Stearns merger and the Washington Mutual transaction in 2008, the 2004 merger with Bank One Corporation
and The Bank of New York, Inc. (“The Bank of New York”) transaction in 2006 are reflected in the merger costs caption of the Consolidated
Statements of Income. For a further discussion of the Bear Stearns merger and the Washington Mutual transaction, see Note 2 on pages 151–
156 of this Annual Report. A summary of merger-related costs is shown in the following table.
2009 2008
Year ended December 31, (in millions)
Bear
Stearns
Washington
Mutual Total
Bear
Stearns
Washington
Mutual Total
2007
(b)
Expense category
Compensation $ (9) $ 256 $ 247 $ 181 $ 113 $ 294 $
(19
)
Occupancy (3) 15 12 42 — 42
17
Technology and communications and other 38 184 222 85 11 96
188
The Bank of New York transaction — — — — — —
23
Total(a) $ 26 $ 455 $ 481 $ 308 $ 124 $ 432 $
209
(a) With the exception of occupancy- and technology-related write-offs, all of the costs in the table required the expenditure of cash.
(b) The 2007 activity reflects the 2004 merger with Bank One Corporation and the transaction with The Bank of New York.
The table below shows changes in the merger reserve balance related to costs associated with the above transactions.
2009 2008
Year ended December 31, (in millions)
Bear
Stearns
Washington
Mutual Total
Bear
Stearns
Washington
Mutual Total 2007(a)
Merger reserve balance, beginning of period $ 327 $ 441 $ 768 $ — $ — $ — $ 155
Recorded as merger costs 26 455 481 308 124 432 186
Recorded as goodwill (5) — (5) 1,112 435 1,547 (60)
Utilization of merger reserve (316) (839) (1,155) (1,093) (118) (1,211)
(281)
Merger reserve balance, end of period $ 32 $ 57 $ 89 $ 327 $ 441 $ 768 $ —(b)
(a) The 2007 activity reflects the 2004 merger with Bank One Corporation.
(b) Excludes $10 million at December 31, 2007, related to the Bank of New York transaction.