JP Morgan Chase 2009 Annual Report Download - page 87

JPMorgan Chase & Co./2009 Annual Report
85
Loans and allowance for loan losses
The Firm provides loans to a variety of customers, from large corpo-
rate and institutional clients to individual consumers. Loans decreased
across most lines of business. Although gross new lending volumes
remained at levels consistent with 2008, continued lower customer
demand, repayments and charge-offs in the wholesale and consumer
businesses resulted in lower balances. Lower charge volume on credit
cards and the effect of tighter underwriting and loan qualification
standards, also contributed to the decrease in loans.
The allowance for loan losses increased in both the consumer and
wholesale businesses, as weak economic conditions, housing price
declines and higher unemployment rates continued to drive higher
estimated losses for most of the Firm’s loan portfolios. For a more
detailed discussion of the loan portfolio and the allowance for loan
losses, refer to Credit Risk Management on pages 101–125, and
Notes 3, 4, 13 and 14 on pages 156–173, 173–175, 200–204 and
204–206, respectively, of this Annual Report.
Accrued interest and accounts receivable
Accrued interest and accounts receivable consist of accrued interest
receivables from interest-earning assets; receivables from customers
(primarily from activities related to IB’s Prime Services business);
receivables from brokers, dealers and clearing organizations; and
receivables from failed securities sales. The increase in accrued
interest and accounts receivable primarily reflected higher accounts
receivable associated with maturities of credit card securitizations,
as well as slightly higher failed securities sales.
Other assets
Other assets consist of private equity and other investments, collat-
eral received, corporate and bank-owned life insurance policies,
assets acquired in loan satisfactions (including real estate owned)
and all other assets, including receivables for securities provided as
collateral. The decrease in other assets was primarily due to a
decline to zero in the balance related to the Federal Reserve Bank
of Boston AML Facility. This Facility was ended by the Federal
Reserve Bank of Boston on February 1, 2010.
Goodwill
Goodwill arises from business combinations and represents the excess
of the purchase price of an acquired entity over the fair value amounts
assigned to assets acquired and liabilities assumed. The increase in
goodwill was largely due to final purchase accounting adjustments
related to the Bear Stearns merger, foreign currency translation adjust-
ments related to the Firm’s Canadian credit card operations, and IB’s
acquisition of a commodities business. For additional information on
goodwill, see Note 17 on pages 222–225 of this Annual Report.
Mortgage servicing rights
MSRs represent the fair value of future cash flows for performing
specified mortgage servicing activities (predominantly with respect
to residential mortgages) for others. MSRs are either purchased
from third parties or retained upon sale or securitization of mort-
gage loans. Servicing activities include collecting principal, interest,
and escrow payments from borrowers; making tax and insurance
payments on behalf of borrowers; monitoring delinquencies and
executing foreclosure proceedings; and accounting for and remit-
ting principal and interest payments to the investors of the mort-
gage-backed securities. MSRs increased due to increases in the fair
value of the MSR asset, related primarily to market interest rate and
other changes affecting the Firm’s estimate of future prepayments,
as well as sales in RFS of originated loans for which servicing rights
were retained. These increases were offset partially by servicing
portfolio run-off. For additional information on MSRs, see Note 17
on pages 222–225 of this Annual Report.
Other intangible assets
Other intangible assets consist of purchased credit card relation-
ships, other credit card–related intangibles, core deposit intangibles
and other intangibles. The decrease in other intangible assets
primarily reflected amortization expense, partially offset by foreign
currency translation adjustments related to the Firm’s Canadian
credit card operations. For additional information on other intangi-
ble assets, see Note 17 on pages 222–225 of this Annual Report.
Deposits
Deposits represent a liability to customers, both retail and whole-
sale, related to non-brokerage funds held on their behalf. Deposits
are classified by location (U.S. and non-U.S.), whether they are
interest- or noninterest-bearing, and by type (i.e., demand, money
market, savings, time or negotiable order of withdrawal accounts).
Deposits help provide a stable and consistent source of funding for
the Firm. Wholesale deposits in TSS declined from the elevated
levels at December 31, 2008, reflecting the continued normaliza-
tion of deposit levels following the strong inflows resulting from the
heightened volatility and credit concerns affecting the markets
during the latter part of 2008. Organic growth in deposits in CB
and RFS was offset partially by the maturity of high rate interest-
bearing CDs that were acquired as part of the Washington Mutual
transaction. For more information on deposits, refer to the RFS and
AM segment discussions on pages 66–71 and 79–81, respectively;
the Liquidity Risk Management discussion on pages 96–100; and
Note 19 on page 226 of this Annual Report. For more information
on wholesale liability balances, including deposits, refer to the CB
and TSS segment discussions on pages 75–76 and 77–78, respec-
tively, of this Annual Report.
Federal funds purchased and securities loaned or sold under
repurchase agreements
The Firm uses these instruments as part of its liquidity management
activities and to support the Firm’s trading and risk management
activities. In particular, the Firm uses federal funds purchased and
securities loaned or sold under repurchase agreements as short-
term funding sources and to make securities available to clients for
their short-term liquidity purposes. The increase in securities sold
under repurchase agreements was primarily attributable to favor-
able pricing and the financing of the increase in the AFS securities
portfolio. For additional information on the Firm’s Liquidity Risk
Management, see pages 96–100 of this Annual Report.
Commercial paper and other borrowed funds
The Firm uses commercial paper and other borrowed funds as part of
its liquidity management activities to meet short-term funding needs,
and in connection with a TSS liquidity management product, whereby
excess client funds are transferred into commercial paper overnight
sweep accounts. The decrease in other borrowed funds was predomi-
nantly due to lower advances from Federal Home Loan Banks; the
absence of borrowings from the Federal Reserve under the Term