JP Morgan Chase 2013 Annual Report Download - page 243

JPMorgan Chase & Co./2013 Annual Report 249
Note 11 – Noninterest expense
The following table presents the components of noninterest
expense.
Year ended December 31,
(in millions) 2013 2012 2011
Compensation expense $ 30,810 $ 30,585 $ 29,037
Noncompensation expense:
Occupancy expense 3,693 3,925 3,895
Technology, communications
and equipment expense 5,425 5,224 4,947
Professional and outside
services 7,641 7,429 7,482
Marketing 2,500 2,577 3,143
Other expense(a)(b) 19,761 14,032 13,559
Amortization of intangibles 637 957 848
Total noncompensation
expense 39,657 34,144 33,874
Total noninterest expense $ 70,467 $ 64,729 $ 62,911
(a) Included firmwide legal expense of $11.1 billion, $5.0 billion and $4.9
billion for the years ended December 31, 2013, 2012 and 2011,
respectively.
(b) Included FDIC-related expense of $1.5 billion, $1.7 billion and $1.5
billion for the years ended December 31, 2013, 2012 and 2011,
respectively.
Note 12 – Securities
Securities are classified as AFS, held-to-maturity (“HTM”) or
trading. Securities classified as trading assets are discussed
in Note 3 on pages 195–215 of this Annual Report.
Predominantly all of the Firm’s AFS and HTM investment
securities (the “investment securities portfolio”) is held by
CIO in connection with its asset-liability management
objectives. At December 31, 2013, the average credit rating
of the debt securities comprising the investment securities
portfolio was AA+ (based upon external ratings where
available, and where not available, based primarily upon
internal ratings which correspond to ratings as defined by
S&P and Moody’s). AFS securities are carried at fair value
on the Consolidated Balance Sheets. Unrealized gains and
losses, after any applicable hedge accounting adjustments,
are reported as net increases or decreases to accumulated
other comprehensive income/(loss). The specific
identification method is used to determine realized gains
and losses on AFS securities, which are included in
securities gains/(losses) on the Consolidated Statements of
Income. HTM debt securities, which management has the
intent and ability to hold until maturity, are carried at
amortized cost on the Consolidated Balance Sheets. For
both AFS and HTM debt securities, purchase discounts or
premiums are amortized into interest income.
Other-than-temporary impairment
AFS debt and equity securities and HTM debt securities in
unrealized loss positions are analyzed as part of the Firm’s
ongoing assessment of other-than-temporary impairment
(“OTTI”). For most types of debt securities, the Firm
considers a decline in fair value to be other-than-temporary
when the Firm does not expect to recover the entire
amortized cost basis of the security. For beneficial interests
in securitizations that are rated below “AA” at their
acquisition, or that can be contractually prepaid or
otherwise settled in such a way that the Firm would not
recover substantially all of its recorded investment, the Firm
considers an OTTI to have occurred when there is an
adverse change in expected cash flows. For AFS equity
securities, the Firm considers a decline in fair value to be
other-than-temporary if it is probable that the Firm will not
recover its amortized cost basis.
Potential OTTI is considered using a variety of factors,
including the length of time and extent to which the market
value has been less than cost; adverse conditions
specifically related to the industry, geographic area or
financial condition of the issuer or underlying collateral of a
security; payment structure of the security; changes to the
rating of the security by a rating agency; the volatility of the
fair value changes; and the Firm’s intent and ability to hold
the security until recovery.
For AFS debt securities, the Firm recognizes OTTI losses in
earnings if the Firm has the intent to sell the debt security,
or if it is more likely than not that the Firm will be required
to sell the debt security before recovery of its amortized
cost basis. In these circumstances the impairment loss is
equal to the full difference between the amortized cost
basis and the fair value of the securities. For debt securities
in an unrealized loss position, including AFS securities the
Firm has the intent and ability to hold, the expected cash
flows to be received from the securities are evaluated to
determine if a credit loss exists. In the event of a credit loss,
only the amount of impairment associated with the credit
loss is recognized in income. Amounts relating to factors
other than credit losses are recorded in OCI.
The Firm’s cash flow evaluations take into account the
factors noted above and expectations of relevant market
and economic data as of the end of the reporting period.
For securities issued in a securitization, the Firm estimates
cash flows considering underlying loan-level data and
structural features of the securitization, such as
subordination, excess spread, overcollateralization or other
forms of credit enhancement, and compares the losses
projected for the underlying collateral (“pool losses”)
against the level of credit enhancement in the securitization
structure to determine whether these features are sufficient
to absorb the pool losses, or whether a credit loss exists.
The Firm also performs other analyses to support its cash
flow projections, such as first-loss analyses or stress
scenarios.
For equity securities, OTTI losses are recognized in earnings
if the Firm intends to sell the security. In other cases the
Firm considers the relevant factors noted above, as well as
the Firm’s intent and ability to retain its investment for a
period of time sufficient to allow for any anticipated
recovery in market value, and whether evidence exists to
support a realizable value equal to or greater than the
carrying value. Any impairment loss on an equity security is
equal to the full difference between the amortized cost
basis and the fair value of the security.