JP Morgan Chase 2003 Annual Report Download - page 99

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J.P. Morgan Chase & Co. / 2003 Annual Report 97
The follow ing table presents the amortized cost, estimated fair value and average yield at December 31, 2003, of JPM organ Chase’s
AFS and HTM securities by contractual maturity:
Available-for-sale securities Held-to-maturity securities
Maturity schedule of securities Amortized Fair Average Amortized Fair Average
December 31, 2003 (in millions) cost value yield(a) cost value yield(a)
Due in one year or less $4,899 $ 4,900 1.89% $ — $ — — %
Due after one year through five years 9,212 9,175 3.33 — — —
Due after five years through 10 years 7,839 7,815 4.20 2 2 7.32
Due after 10 years(b) 38,472 38,178 4.83 174 184 6.91
Total securities $60,422 $ 60,068 4.28% $ 176 $ 186 6.92%
(a) The average yield is based on amortized cost balances at year-end. Yields are derived by dividing interest income (including the effect of related derivatives on AFS securities and the amortization of
premiums and accretion of discounts) by total amortized cost. Taxable-equivalent yields are used where applicable.
(b) Includes securities with no stated maturity. Substantially all of JPMorgan Chase’s M BSs and CMOs are due in 10 years or more based on contractual maturity. The estimated duration, which reflects
anticipated future prepayments based on a consensus of dealers in the market, is approximately five years for MBSs and CMOs.
Included in the $799 million of unrealized losses on available-
for-sale securities at December 31, 2003 is $46 million of
unrealized losses that have existed for a period greater than
12 months. These losses primarily relate to $1.5 billion of asset-
backed securities held by commercial paper conduits that w ere
consolidated by the Firm in accordance w ith FIN 46 on July 1,
2003. The securities held by the conduits are of high credit
quality, predominantly rated AA or better. Upon adoption of FIN
46, the securities w ere measured at the amounts at w hich such
interests w ould have been carried had the Firm consolidated the
conduits w hen it first met the conditions to be considered the
primary beneficiary; this resulted in an initial transition adjust-
ment to Other comprehensive income as described in Note 14
on page 106. The overall depreciation in fair value is attributable
to the illiquid secondary market for these securities and is con-
sidered temporary, as the Firm has the intent and ability to hold
these investments w ith the expectation that the unrealized mar-
ket value loss w ill be recovered.
In calculating the effective yield for mortgage-backed securities
(“ M BS” ) and collateralized mortgage obligations (“ CM O” ),
JPM organ Chase actively monitors the likelihood of principal
prepayment through its portfolio management function.
M anagement regularly performs simulation testing to determine
the impact that market conditions w ould have on its M BS and
CM O portfolios. M BSs and CM Os that management believes
have high prepayment risk are included in the AFS portfolio
and are reported at fair value.