JP Morgan Chase 2014 Annual Report Download - page 220

Notes to consolidated financial statements
218 JPMorgan Chase & Co./2014 Annual Report
Note 8 – Interest income and Interest expense
Interest income and interest expense are recorded in the
Consolidated statements of income and classified based on
the nature of the underlying asset or liability. Interest
income and interest expense includes the current-period
interest accruals for financial instruments measured at fair
value, except for financial instruments containing
embedded derivatives that would be separately accounted
for in accordance with U.S. GAAP absent the fair value
option election; for those instruments, all changes in fair
value, including any interest elements, are reported in
principal transactions revenue. For financial instruments
that are not measured at fair value, the related interest is
included within interest income or interest expense, as
applicable.
Details of interest income and interest expense were as
follows.
Year ended December 31,
(in millions) 2014 2013 2012
Interest income
Loans $ 32,218 $ 33,489 $ 35,832
Taxable securities 7,617 6,916 7,231
Non-taxable securities(a) 1,423 896 708
Total securities 9,040 7,812 7,939
Trading assets(b) 7,312 8,099 8,929
Federal funds sold and
securities purchased
under resale agreements 1,642 1,940 2,442
Securities borrowed (c) (501) (127) (3)
Deposits with banks 1,157 918 555
Other assets(d) 663 538 259
Total interest income(b) 51,531 52,669 55,953
Interest expense
Interest-bearing deposits 1,633 2,067 2,655
Short-term and other
liabilities(b)(e) 1,450 1,798 1,678
Long-term debt 4,409 5,007 6,062
Beneficial interests issued
by consolidated VIEs 405 478 648
Total interest expense(b) 7,897 9,350 11,043
Net interest income 43,634 43,319 44,910
Provision for credit losses 3,139 225 3,385
Net interest income after
provision for credit
losses $ 40,495 $ 43,094 $ 41,525
(a) Represents securities which are tax exempt for U.S. Federal Income Tax
purposes.
(b) Prior period amounts have been reclassified to conform with the
current period presentation.
(c) Negative interest income for the years ended December 31, 2014,
2013 and 2012, is a result of increased client-driven demand for
certain securities combined with the impact of low interest rates; the
offset of this matched book activity is reflected as lower net interest
expense reported within short-term and other liabilities.
(d) Largely margin loans.
(e) Includes brokerage customer payables.
Note 9 – Pension and other postretirement
employee benefit plans
The Firm’s defined benefit pension plans and its other
postretirement employee benefit (“OPEB”) plans are
accounted for in accordance with U.S. GAAP for retirement
benefits.
Defined benefit pension plans
The Firm has a qualified noncontributory U.S. defined
benefit pension plan that provides benefits to substantially
all U.S. employees. The U.S. plan employs a cash balance
formula in the form of pay and interest credits to determine
the benefits to be provided at retirement, based on years of
service and eligible compensation (generally base pay
capped at $100,000 annually; effective January 1, 2015, in
addition to base pay, eligible compensation will include
certain other types of variable incentive compensation
capped at $100,000 annually). Employees begin to accrue
plan benefits after completing one year of service, and
benefits generally vest after three years of service. The Firm
also offers benefits through defined benefit pension plans
to qualifying employees in certain non-U.S. locations based
on factors such as eligible compensation, age and/or years
of service.
It is the Firm’s policy to fund the pension plans in amounts
sufficient to meet the requirements under applicable laws.
The Firm does not anticipate at this time any contribution to
the U.S. defined benefit pension plan in 2015. The 2015
contributions to the non-U.S. defined benefit pension plans
are expected to be $47 million of which $31 million are
contractually required.
JPMorgan Chase also has a number of defined benefit
pension plans that are not subject to Title IV of the
Employee Retirement Income Security Act. The most
significant of these plans is the Excess Retirement Plan,
pursuant to which certain employees previously earned pay
credits on compensation amounts above the maximum
stipulated by law under a qualified plan; no further pay
credits are allocated under this plan. The Excess Retirement
Plan had an unfunded projected benefit obligation (“PBO”)
in the amount of $257 million and $245 million, at
December 31, 2014 and 2013, respectively.
Defined contribution plans
JPMorgan Chase currently provides two qualified defined
contribution plans in the U.S. and other similar
arrangements in certain non-U.S. locations, all of which are
administered in accordance with applicable local laws and
regulations. The most significant of these plans is The
JPMorgan Chase 401(k) Savings Plan (the “401(k) Savings
Plan”), which covers substantially all U.S. employees.
Employees can contribute to the 401(k) Savings Plan on a
pretax and/or Roth 401(k) after-tax basis. The JPMorgan
Chase Common Stock Fund, which is an investment option
under the 401(k) Savings Plan, is a nonleveraged employee
stock ownership plan.