JP Morgan Chase 2012 Annual Report Download - page 206

Notes to consolidated financial statements
216 JPMorgan Chase & Co./2012 Annual Report
Determination of instrument-specific credit risk for items
for which a fair value election was made
The following describes how the gains and losses included in
earnings during 2012, 2011 and 2010, which were
attributable to changes in instrument-specific credit risk,
were determined.
• Loans and lending-related commitments: For floating-
rate instruments, all changes in value are attributed to
instrument-specific credit risk. For fixed-rate
instruments, an allocation of the changes in value for
the period is made between those changes in value that
are interest rate-related and changes in value that are
credit-related. Allocations are generally based on an
analysis of borrower-specific credit spread and
recovery information, where available, or
benchmarking to similar entities or industries.
• Long-term debt: Changes in value attributable to
instrument-specific credit risk were derived principally
from observable changes in the Firm’s credit spread.
• Resale and repurchase agreements, securities
borrowed agreements and securities lending
agreements: Generally, for these types of agreements,
there is a requirement that collateral be maintained
with a market value equal to or in excess of the
principal amount loaned; as a result, there would be no
adjustment or an immaterial adjustment for
instrument-specific credit risk related to these
agreements.
Difference between aggregate fair value and aggregate remaining contractual principal balance outstanding
The following table reflects the difference between the aggregate fair value and the aggregate remaining contractual principal
balance outstanding as of December 31, 2012 and 2011, for loans, long-term debt and long-term beneficial interests for
which the fair value option has been elected.
2012 2011
December 31, (in millions)
Contractual
principal
outstanding Fair value
Fair value
over/
(under)
contractual
principal
outstanding
Contractual
principal
outstanding Fair value
Fair value
over/
(under)
contractual
principal
outstanding
Loans(a)
Nonaccrual loans
Loans reported as trading assets $ 4,217 $ 960 $ (3,257) $ 4,875 $ 1,141 $ (3,734)
Loans 116 64 (52) 820 56 (764)
Subtotal 4,333 1,024 (3,309) 5,695 1,197 (4,498)
All other performing loans
Loans reported as trading assets 44,084 40,581 (3,503) 37,481 32,657 (4,824)
Loans 2,211 2,099 (112) 2,136 1,601 (535)
Total loans $ 50,628 $ 43,704 $ (6,924) $ 45,312 $ 35,455 $ (9,857)
Long-term debt
Principal-protected debt $ 16,541 (c) $ 16,391 $ (150) $ 19,417 (c) $ 19,890 $ 473
Nonprincipal-protected debt(b) NA 14,397 NA NA 14,830 NA
Total long-term debt NA $ 30,788 NA NA $ 34,720 NA
Long-term beneficial interests
Nonprincipal-protected debt(b) NA $ 1,170 NA NA $ 1,250 NA
Total long-term beneficial interests NA $ 1,170 NA NA $ 1,250 NA
(a) There were no performing loans which were ninety days or more past due as of December 31, 2012 and 2011, respectively.
(b) Remaining contractual principal is not applicable to nonprincipal-protected notes. Unlike principal-protected structured notes, for which the Firm is
obligated to return a stated amount of principal at the maturity of the note, nonprincipal-protected structured notes do not obligate the Firm to return a
stated amount of principal at maturity, but to return an amount based on the performance of an underlying variable or derivative feature embedded in the
note.
(c) Where the Firm issues principal-protected zero-coupon or discount notes, the balance reflected as the remaining contractual principal is the final principal
payment at maturity.
At December 31, 2012 and 2011, the contractual amount of letters of credit for which the fair value option was elected was
$4.5 billion and $3.9 billion, respectively, with a corresponding fair value of $(75) million and $(5) million, respectively. For
further information regarding off-balance sheet lending-related financial instruments, see Note 29 on pages 308–315 of this
Annual Report.