JP Morgan Chase 2005 Annual Report Download - page 108

Notes to consolidated financial statements
JPMorgan Chase & Co.
106 JPMorgan Chase & Co. /2005 Annual Report
December 31, (in millions) 2005 2004
Securities purchased under resale agreements $ 129,570 $ 94,076
Securities borrowed 74,604 47,428
Securities sold under repurchase agreements $ 103,052 $105,912
Securities loaned 14,072 6,435
JPMorgan Chase pledges certain financial instruments the Firm owns to
collateralize repurchase agreements and other securities financings. Pledged
securities that can be sold or repledged by the secured party are identified as
financial instruments owned (pledged to various parties) on the Consolidated
balance sheets.
At December 31, 2005, the Firm had received securities as collateral that can
be repledged, delivered or otherwise used with a fair value of approximately
$331 billion. This collateral was generally obtained under resale or securities
borrowing agreements. Of these securities, approximately $320 billion were
repledged, delivered or otherwise used, generally as collateral under repurchase
agreements, securities lending agreements or to cover short sales.
Note 11 – Loans
Loans are reported at the principal amount outstanding, net of the Allowance
for loan losses, unearned income and any net deferred loan fees. Loans held
for sale are carried at the lower of cost or fair value, with valuation changes
recorded in noninterest revenue. Loans are classified as “trading” where
positions are bought and sold to make profits from short-term movements
in price. Loans held for trading purposes are included in Trading assets and
are carried at fair value, with gains and losses included in Trading revenue.
Interest income is recognized using the interest method, or on a basis
approximating a level rate of return over the term of the loan.
Nonaccrual loans are those on which the accrual of interest is discontinued.
Loans (other than certain consumer loans discussed below) are placed on
nonaccrual status immediately if, in the opinion of management, full payment
of principal or interest is in doubt, or when principal or interest is 90 days or
more past due and collateral, if any, is insufficient to cover principal and interest.
Interest accrued but not collected at the date a loan is placed on nonaccrual
status is reversed against Interest income. In addition, the amortization of
net deferred loan fees is suspended. Interest income on nonaccrual loans is
recognized only to the extent it is received in cash. However, where there is
doubt regarding the ultimate collectibility of loan principal, all cash thereafter
received is applied to reduce the carrying value of such loans. Loans are
restored to accrual status only when interest and principal payments are
brought current and future payments are reasonably assured.
Consumer loans are generally charged to the Allowance for loan losses upon
reaching specified stages of delinquency, in accordance with the Federal
Financial Institutions Examination Council (“FFIEC”) policy. For example, credit
card loans are charged off by the end of the month in which the account
becomes 180 days past due or within 60 days from receiving notification of
the filing of bankruptcy, whichever is earlier. Residential mortgage products
are generally charged off to net realizable value at 180 days past due. Other
consumer products are generally charged off (to net realizable value if collat-
eralized) at 120 days past due. Accrued interest on residential mortgage
products, and automobile and education financings and certain other consumer
loans are accounted for in accordance with the nonaccrual loan policy discussed
in the preceding paragraph. Interest and fees related to credit card loans
continue to accrue until the loan is charged off or paid. Accrued interest on
all other consumer loans is generally reversed against interest income when
the loan is charged off. A collateralized loan is considered an in-substance
foreclosure and is reclassified to assets acquired in loan satisfactions, within
Other assets, only when JPMorgan Chase has taken physical possession of the
collateral, but regardless of whether formal foreclosure proceedings have
taken place.
The composition of the loan portfolio at each of the dates indicated was as
follows:
December 31, (in millions) 2005 2004
U.S. wholesale loans:
Commercial and industrial $ 70,233 $ 61,033
Real estate 13,612 13,038
Financial institutions 11,100 14,195
Lease financing receivables 2,621 3,098
Other 14,499 8,504
Total U.S. wholesale loans 112,065 99,868
Non-U.S. wholesale loans:
Commercial and industrial 27,452 25,120
Real estate 1,475 1,747
Financial institutions 7,975 7,280
Lease financing receivables 1,144 1,052
Total non-U.S. wholesale loans 38,046 35,199
Total wholesale loans:(a)
Commercial and industrial 97,685 86,153
Real estate(b) 15,087 14,785
Financial institutions 19,075 21,475
Lease financing receivables 3,765 4,150
Other 14,499 8,504
Total wholesale loans 150,111 135,067
Total consumer loans:(c)
Consumer real estate
Home finance – home equity & other 76,727 67,837
Home finance – mortgage 56,726 56,816
Total Home finance 133,453 124,653
Auto & education finance 49,047 62,712
Consumer & small business and other 14,799 15,107
Credit card receivables(d) 71,738 64,575
Total consumer loans 269,037 267,047
Total loans(e)(f)(g) $ 419,148 $ 402,114
(a) Includes Investment Bank, Commercial Banking,Treasury & Securities Services and Asset &
Wealth Management.
(b) Represents credits extended for real estate–related purposes to borrowers who are primarily
in the real estate development or investment businesses and for which the primary repayment
is from the sale, lease, management, operations or refinancing of the property.
(c) Includes Retail Financial Services and Card Services.
(d) Includes billed finance charges and fees net of an allowance for uncollectible amounts.
(e) Loans are presented net of unearned income of $3.0 billion and $4.1 billion at December
31, 2005 and 2004, respectively.
(f) Includes loans held for sale (primarily related to securitization and syndication activities) of
$34.2 billion and $24.5 billion at December 31, 2005 and 2004, respectively.
(g) Amounts are presented gross of the Allowance for loan losses.