JP Morgan Chase 2005 Annual Report Download - page 118

Notes to consolidated financial statements
JPMorgan Chase & Co.
116 JPMorgan Chase & Co. /2005 Annual Report
The Firm recorded an other-than-temporary impairment of its MSRs of $1 million,
$149 million and $283 million, in 2005, 2004 and 2003, respectively, which
permanently reduced the gross carrying value of the MSRs and the related
valuation allowance. The permanent reduction precludes subsequent reversals.
This write-down had no impact on the results of operations or financial
condition of the Firm.
Purchased credit card relationships and All other intangible assets
During 2005, purchased credit card relationship intangibles decreased by
$603 million as a result of $703 million in amortization expense, partially
offset by the purchase of the Sears Canada credit card business. All other
intangible assets decreased by $894 million in 2005 primarily as a result of
$836 million in amortization expense and the impact of the deconsolidation
of Paymentech. Except for $513 million of indefinite-lived intangibles related
to asset management advisory contracts which are not amortized but instead
are tested for impairment at least annually, the remainder of the Firm’s other
acquired intangible assets are subject to amortization.
Note 16 – Premises and equipment
Premises and equipment, including leasehold improvements, are carried at cost
less accumulated depreciation and amortization. JPMorgan Chase computes
depreciation using the straight-line method over the estimated useful life of an
asset. For leasehold improvements, the Firm uses the straight-line method
computed over the lesser of the remaining term of the leased facility or 10
years. JPMorgan Chase has recorded immaterial asset retirement obligations
related to asbestos remediation under SFAS 143 and FIN 47 in those cases
where it has sufficient information to estimate the obligations’ fair value.
JPMorgan Chase capitalizes certain costs associated with the acquisition or
development of internal-use software under SOP 98-1. Once the software is
ready for its intended use, these costs are amortized on a straight-line basis
over the software’s expected useful life, and reviewed for impairment on an
ongoing basis.
The components of credit card relationships, core deposits and other intangible assets were as follows:
2005 2004
Net Net
Gross Accumulated carrying Gross Accumulated carrying
December 31, (in millions) amount amortization value amount amortization value
Purchased credit card relationships $ 5,325 $ 2,050 $ 3,275 $ 5,225 $ 1,347 $ 3,878
All other intangibles:
Other credit card–related intangibles 183 59 124 295 23 272
Core deposit intangibles 3,797 1,092 2,705 3,797 469 3,328
Other intangibles 2,582 579(a) 2,003 2,528 402(a) 2,126
Amortization expense (in millions)(b) 2005 2004 2003
Purchased credit card relationships $ 703 $ 476 $ 256
Other credit card–related intangibles 36 23 —
Core deposit intangibles 623 330 6
All other intangibles 163 117 32
Total amortization expense $ 1,525 $ 946 $ 294
(a) Includes $14 million and $16 million for 2005 and 2004, respectively, of amortization expense related to servicing assets on securitized automobile loans, which is recorded in Asset management,
administration and commissions.
(b) 2004 results include six months of the combined Firm’s results and six months of heritage JPMorgan Chase results. 2003 reflects the results of heritage JPMorgan Chase only.
Future amortization expense
The following table presents estimated amortization expenses related to credit card relationships, core deposits and All other intangible assets at December 31, 2005:
Other credit
(in millions) Purchased credit card-related Core deposit All other
Year ended December 31, card relationships intangibles intangibles intangible assets Total
2006 $ 688 $ 16 $ 547 $ 163 $ 1,414
2007 620 15 469 145 1,249
2008 515 15 402 132 1,064
2009 372 15 329 123 839
2010 312 13 276 110 711