JP Morgan Chase 2010 Annual Report Download - page 189

JPMorgan Chase & Co./2010 Annual Report 189
Difference between aggregate fair value and aggregate remaining contractual principal balance outstanding
The following table reflects the difference between the aggregate fair value and the aggregate remaining contractual principal balance outstanding
as of December 31, 2010 and 2009, for loans, long-term debt and long-term beneficial interests for which the fair value option has been elected.
2010 2009
Contractual
principal
outstanding Fair value
Fair value
over/(under)
contractual
principal
outstanding
Contractual
principal
outstanding Fair value
Fair value
over/(under)
contractual
principal
outstanding
December 31, (in millions)
Loans
Performing loans 90 days or more past due
Loans reported as trading assets $ — $ — $ — $ — $ — $ —
Loans — — — — — —
Nonaccrual loans
Loans reported as trading assets 5,246 1,239 (4,007) 7,264 2,207 (5,057
)
Loans 927 132 (795) 1,126 151 (975
)
Subtotal 6,173 1,371 (4,802) 8,390 2,358 (6,032
)
All other performing loans
Loans reported as trading assets 39,490 33,641 (5,849) 35,095 29,341 (5,754
)
Loans 2,496 1,434 (1,062) 2,147 1,000 (1,147
)
Total loans $ 48,159 $ 36,446 $ (11,713) $ 45,632 $ 32,699 $ (12,933
)
Long-term debt
Principal-protected debt $ 20,761
(b)
$ 21,315 $ 554 $ 26,765
(b)
$ 26,378 $ (387 )
Nonprincipal-protected debt
(a)
NA 17,524 NA NA 22,594 NA
Total long-term debt NA $ 38,839 NA NA $ 48,972 NA
Long-term beneficial interests
Principal-protected debt $ 49 $ 49 $ — $ 90 $ 90 $ —
Nonprincipal-protected debt
(a)
NA 1,446 NA NA 1,320 NA
Total long-term beneficial interests NA $ 1,495 NA NA $ 1,410 NA
(a) Remaining contractual principal is not applicable to nonprincipal-protected notes. Unlike principal-protected notes, for which the Firm is obligated to return a stated amount of
principal at the maturity of the note, nonprincipal-protected notes do not obligate the Firm to return a stated amount of principal at maturity, but to return an amount based
on the performance of an underlying variable or derivative feature embedded in the note.
(b) Where the Firm issues principal-protected zero-coupon or discount notes, the balance reflected as the remaining contractual principal is the final principal payment at maturity.
At December 31, 2010 and 2009, the contractual amount of letters of credit for which the fair value option was elected was $3.8 billion and $3.7
billion, respectively, with a corresponding fair value of $6 million at both December 31, 2010 and 2009. For further information regarding off-
balance sheet commitments, see Note 30 on pages 275–280 of this Annual Report.
Note 5 – Credit risk concentrations
Concentrations of credit risk arise when a number of customers are
engaged in similar business activities or activities in the same
geographic region, or when they have similar economic features
that would cause their ability to meet contractual obligations to be
similarly affected by changes in economic conditions.
JPMorgan Chase regularly monitors various segments of its credit
portfolio to assess potential concentration risks and to obtain collat-
eral when deemed necessary. Senior management is significantly
involved in the credit approval and review process, and risk levels are
adjusted as needed to reflect management’s risk tolerance.
In the Firm’s wholesale portfolio, risk concentrations are evaluated
primarily by industry and monitored regularly on both an aggregate
portfolio level and on an individual customer basis. Management of
the Firm’s wholesale exposure is accomplished through loan syndi-
cation and participation, loan sales, securitizations, credit deriva-
tives, use of master netting agreements, and collateral and other
risk-reduction techniques. In the consumer portfolio, concentrations
are evaluated primarily by product and by U.S. geographic region,
with a key focus on trends and concentrations at the portfolio level,
where potential risk concentrations can be remedied through
changes in underwriting policies and portfolio guidelines.
The Firm does not believe that its exposure to any particular loan
product (e.g., option ARMs), industry segment (e.g., commercial
real estate) or its exposure to residential real estate loans with high
loan-to-value ratios results in a significant concentration of credit
risk. Terms of loan products and collateral coverage are included in
the Firm’s assessment when extending credit and establishing its
allowance for loan losses.
For further information regarding on–balance sheet credit concen-
trations by major product and/or geography, see Notes 14 and 15
on pages 220–238 and 239–243, respectively, of this Annual
Report. For information regarding concentrations of off–balance
sheet lending-related financial instruments by major product, see
Note 30 on pages 275–280 of this Annual Report.
Customer receivables representing primarily margin loans to
prime and retail brokerage clients of $32.5 billion and $15.7
billion at December 31, 2010 and 2009, respectively, are included
in the table below. These margin loans are generally over-
collateralized through a pledge of assets maintained in clients’
brokerage accounts and are subject to daily minimum collateral
requirements. In the event that the collateral value decreases, a
maintenance margin call is made to the client to provide addi-
tional collateral into the account. If additional collateral is not