JP Morgan Chase 2014 Annual Report Download - page 276

Notes to consolidated financial statements
274 JPMorgan Chase & Co./2014 Annual Report
The following table presents the components of mortgage
fees and related income (including the impact of MSR risk
management activities) for the years ended December 31,
2014, 2013 and 2012.
Year ended December 31,
(in millions) 2014 2013 2012
CCB mortgage fees and related
income
Net production revenue:
Production revenue $ 732 $ 2,673 $5,783
Repurchase (losses)/benefits 458 331 (272)
Net production revenue 1,190 3,004 5,511
Net mortgage servicing revenue
Operating revenue:
Loan servicing revenue 3,303 3,552 3,772
Changes in MSR asset fair value
due to collection/realization of
expected cash flows (905) (1,094) (1,222)
Total operating revenue 2,398 2,458 2,550
Risk management:
Changes in MSR asset fair value
due to market interest rates and
other(a) (1,606) 2,119 (587)
Other changes in MSR asset fair
value due to other inputs and
assumptions in model(b) (218) (511) (46)
Change in derivative fair value and
other 1,796 (1,875) 1,252
Total risk management (28) (267) 619
Total CCB net mortgage servicing
revenue 2,370 2,191 3,169
All other 310 7
Mortgage fees and related income $3,563 $ 5,205 $8,687
(a) Represents both the impact of changes in estimated future
prepayments due to changes in market interest rates, and the
difference between actual and expected prepayments.
(b) Represents the aggregate impact of changes in model inputs and
assumptions such as projected cash flows (e.g., cost to service),
discount rates and changes in prepayments other than those
attributable to changes in market interest rates (e.g., changes in
prepayments due to changes in home prices). For the year ended
December 31, 2013, the decrease was driven by changes in the inputs
and assumptions used to derive prepayment speeds, primarily
increases in home prices.
The table below outlines the key economic assumptions
used to determine the fair value of the Firm’s MSRs at
December 31, 2014 and 2013, and outlines the
sensitivities of those fair values to immediate adverse
changes in those assumptions, as defined below.
December 31,
(in millions, except rates) 2014 2013
Weighted-average prepayment speed
assumption (“CPR”) 9.80% 8.07%
Impact on fair value of 10% adverse
change $ (337) $ (362)
Impact on fair value of 20% adverse
change (652) (705)
Weighted-average option adjusted spread 9.43% 7.77%
Impact on fair value of 100 basis points
adverse change $ (300) $ (389)
Impact on fair value of 200 basis points
adverse change (578) (750)
CPR: Constant prepayment rate.
The sensitivity analysis in the preceding table is
hypothetical and should be used with caution. Changes in
fair value based on variation in assumptions generally
cannot be easily extrapolated, because the relationship of
the change in the assumptions to the change in fair value
are often highly interrelated and may not be linear. In this
table, the effect that a change in a particular assumption
may have on the fair value is calculated without changing
any other assumption. In reality, changes in one factor may
result in changes in another, which would either magnify or
counteract the impact of the initial change.
Other intangible assets
Other intangible assets are recorded at their fair value upon
completion of a business combination or certain other
transactions, and generally represent the value of customer
relationships or arrangements. Subsequently, the Firm’s
intangible assets with finite lives, including core deposit
intangibles, purchased credit card relationships, and other
intangible assets, are amortized over their useful lives in a
manner that best reflects the economic benefits of the
intangible asset. The $426 million decrease in other
intangible assets during 2014 was predominantly due to
$380 million in amortization.