JP Morgan Chase 2015 Annual Report Download - page 215

JPMorgan Chase & Co./2015 Annual Report 205
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 that are 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, 2015 and 2014, for loans, long-term debt and long-term beneficial interests for
which the fair value option has been elected.
2015 2014
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 $ 3,484 $ 631 $ (2,853) $ 3,847 $ 905 $ (2,942)
Loans 77—77—
Subtotal 3,491 638 (2,853) 3,854 912 (2,942)
All other performing loans
Loans reported as trading assets 30,780 28,184 (2,596) 37,608 35,462 (2,146)
Loans 2,771 2,752 (19) 2,397 2,389 (8)
Total loans $ 37,042 $ 31,574 $ (5,468) $ 43,859 $ 38,763 $ (5,096)
Long-term debt
Principal-protected debt $ 17,910 (c) $ 16,611 $ (1,299) $ 14,660 (c) $ 15,484 $ 824
Nonprincipal-protected debt(b) NA 16,454 NA NA 14,742 NA
Total long-term debt NA $ 33,065 NA NA $ 30,226 NA
Long-term beneficial interests
Nonprincipal-protected debt NA $ 787 NA NA $ 2,162 NA
Total long-term beneficial interests NA $ 787 NA NA $ 2,162 NA
(a) There were no performing loans that were ninety days or more past due as of December 31, 2015 and 2014, 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. However, investors are exposed to the credit risk of the Firm as issuer for both nonprincipal-protected and principal protected notes.
(c) Where the Firm issues principal-protected zero-coupon or discount notes, the balance reflects the contractual principal payment at maturity or, if
applicable, the contractual principal payment at the Firm’s next call date.
At December 31, 2015 and 2014, the contractual amount of letters of credit for which the fair value option was elected was
$4.6 billion and $4.5 billion, respectively, with a corresponding fair value of $(94) million and $(147) million, respectively. For
further information regarding off-balance sheet lending-related financial instruments, see Note 29.