JP Morgan Chase 2010 Annual Report Download - page 93

JPMorgan Chase & Co./2010 Annual Report
93
Securities
Substantially all of the securities portfolio is classified as available-
for-sale (“AFS”) and used primarily to manage the Firm’s exposure
to interest rate movements and to invest cash resulting from excess
funding positions. Securities decreased, largely due to repositioning
of the portfolio in Corporate, in response to changes in the interest
rate environment and to rebalance exposures. The repositioning
reduced U.S. government agency securities and increased non-U.S.
mortgage-backed securities. The adoption of the new accounting
guidance related to VIEs, which resulted in the elimination of
retained AFS securities issued by Firm-sponsored credit card
securitization trusts, also contributed to the decrease. For
information related to securities, refer to the Corporate/Private
Equity segment on pages 89–90, and Note 3 and Note 12 on
pages 170–187 and 214–218, respectively, of this Annual Report.
Loans and allowance for loan losses
The Firm provides loans to a variety of customers, from large
corporate and institutional clients to individual consumers. Loans and
the allowance for loan losses increased as a result of the Firm’s
adoption of accounting guidance related to VIEs at January 1, 2010.
Excluding the impact of the adoption of the new accounting
guidance, loans decreased due to the continued runoff of the
residential real estate loans and credit card balances. The decrease
was partially offset by an increase in wholesale loans, mainly in TSS
and AM.
The allowance for loan losses, excluding the impact of this adoption,
decreased primarily due to a decline in the credit card and wholesale
allowance. The decrease was offset partially by an increase in the
consumer (excluding credit card) allowance.
For a more detailed discussion of the loan portfolio and the
allowance for loan losses, refer to Credit Risk Management on
pages 116–141, and Notes 3, 4, 14 and 15 on pages 170–187,
187–189, 220–238 and 239–243, respectively, of this Annual
Report.
Accrued interest and accounts receivable
This line caption consists of accrued interest receivables from
interest-earning assets; receivables from customers (primarily from
activities related to IB’s Prime Services business); receivables from
brokers, dealers and clearing organizations; and receivables from
failed securities sales. Accrued interest and accounts receivable
increased, reflecting higher customer receivables in IB’s Prime
Services business due to increased client activity. The increase was
offset partially by the elimination of retained securitization interests
upon the adoption of the new accounting guidance that resulted in
the consolidation of Firm-sponsored credit card securitization trusts.
For a more detailed discussion of the adoption, see Note 1 and
Note 16 on pages 164–165 and 244–259, respectively, of this
Annual Report.
Premises and equipment
The Firm’s premises and equipment consist of land, buildings,
leasehold improvements, furniture and fixtures, hardware and
software, and other equipment. The increase in premises and
equipment was primarily due to the purchase of two buildings, one
in New York and one in London; investments in hardware, software
and other equipment also contributed to the increase. The increase
was partially offset by the related depreciation and amortization of
these assets.
Goodwill
Goodwill arises from business combinations and represents the
excess of the purchase price of an acquired entity or business over
the fair values assigned to assets acquired and liabilities assumed.
The increase in goodwill was largely due to the acquisition of RBS
Sempra Commodities’ global oil, global metal, and European power
and gas businesses by IB; and the purchase of a majority interest in
Gávea Investimentos, a leading alternative asset management
company in Brazil, by AM. For additional information on goodwill,
see Note 17 on pages 260–263 of this Annual Report.
Mortgage servicing rights
MSRs represent the fair value of future cash flows for performing
specified mortgage-servicing activities (predominantly related to
residential mortgages) for others. MSRs are either purchased from
third parties or retained upon the sale or securitization of mortgage
loans. Servicing activities include collecting principal, interest and
escrow payments from borrowers; making tax and insurance
payments on behalf of borrowers; monitoring delinquencies and
executing foreclosure proceedings; and accounting for and
remitting principal and interest payments to the related investors of
the mortgage-backed securities. MSRs decreased, predominantly
due to a significant decline in market interest rates during 2010, as
well as from servicing portfolio runoff and dispositions of MSRs.
These decreases were partially offset by increases related to sales in
RFS of originated loans for which servicing rights were retained. For
additional information on MSRs, see Note 3 and Note 17 on pages
170–187 and 260–263, respectively, of this Annual Report
Other intangible assets
Other intangible assets consist of purchased credit card
relationships, other credit card–related intangibles, core deposit
intangibles and other intangibles. The decrease in other intangible
assets was predominately due to amortization, partially offset by an
increase resulting from the aforementioned Gávea Investimentos
transaction. For additional information on other intangible assets,
see Note 17 on pages 260–263 of this Annual Report.
Other assets
Other assets consist of private equity and other investments, cash
collateral pledged, corporate and bank-owned life insurance
policies, assets acquired in loan satisfactions (including real estate
owned) and all other assets. At December 31, 2010, other assets
were relatively flat compared with December 31, 2009.