JP Morgan Chase 2009 Annual Report Download - page 254

Glossary of terms
JPMorgan Chase & Co./2009 Annual Report
252
Investment-grade: An indication of credit quality based on
JPMorgan Chase’s internal risk assessment system. “Investment
grade” generally represents a risk profile similar to a rating of a
“BBB-”/”Baa3” or better, as defined by independent rating
agencies.
Managed basis: A non-GAAP presentation of financial results
that includes reclassifications related to credit card securitizations
and to present revenue on a fully taxable-equivalent basis. Man-
agement uses this non-GAAP financial measure at the segment
level because it believes this provides information to enable inves-
tors to understand the underlying operational performance and
trends of the particular business segment and facilitates a compari-
son of the business segment with the performance of competitors.
Managed credit card receivables: Refers to credit card receiv-
ables on the Firm’s Consolidated Balance Sheets plus credit card
receivables that have been securitized and removed from the Firm’s
Consolidated Balance Sheets.
Mark-to-market exposure: A measure, at a point in time, of the
value of a derivative or foreign exchange contract in the open
market. When the mark-to-market value is positive, it indicates the
counterparty owes JPMorgan Chase and, therefore, creates a
repayment risk for the Firm. When the mark-to-market value is
negative, JPMorgan Chase owes the counterparty; in this situation,
the Firm does not have repayment risk.
Master netting agreement: An agreement between two coun-
terparties that have multiple derivative contracts with each other
that provides for the net settlement of all contracts through a single
payment, in a single currency, in the event of default on or termina-
tion of any one contract.
Mortgage product types:
Alt-A
Alt-A loans are generally higher in credit quality than subprime
loans but have characteristics that would disqualify the borrower
from a traditional prime loan. Alt-A lending characteristics may
include one or more of the following: (i) limited documentation;
(ii) high combined-loan-to-value (“CLTV”) ratio; (iii) loans se-
cured by non-owner occupied properties; or (iv) debt-to-income
ratio above normal limits. Perhaps the most important character-
istic is limited documentation. A substantial proportion of tradi-
tional Alt-A loans are those where a borrower does not provide
complete documentation of his or her assets or the amount or
source of his or her income.
Option ARMs
The option ARM residential real estate loan product is an adjustable-
rate mortgage loan that provides the borrower with the option each
month to make a fully amortizing, interest-only, or minimum pay-
ment. The minimum payment on an option ARM loan is based on the
interest rate charged during the introductory period. This introductory
rate has usually been significantly below the fully indexed rate. The
fully indexed rate is calculated using an index rate plus a margin.
Once the introductory 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
reliable 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
delinquencies 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
valuation adjustments.
NA: Data is not applicable or available for the period presented.
Net yield on interest-earning assets: The average rate for
interest-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 credit worthiness 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 appropri-
ate 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.