JP Morgan Chase 2015 Annual Report Download - page 246

Notes to consolidated financial statements
236 JPMorgan Chase & Co./2015 Annual Report
Gross unrealized losses
The Firm has recognized the unrealized losses on securities
it intends to sell. As of December 31, 2015, the Firm does
not intend to sell any securities with a loss position in AOCI,
and it is not likely that the Firm will be required to sell these
securities before recovery of their amortized cost basis.
Except for the securities for which credit losses have been
recognized in income, the Firm believes that the securities
with an unrealized loss in AOCI are not other-than-
temporarily impaired as of December 31, 2015.
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 impairment to be other than temporary 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 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 that 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 cost
basis. Any impairment loss on an equity security is equal to
the full difference between the cost basis and the fair value
of the security.
Securities gains and losses
The following table presents realized gains and losses and
OTTI from AFS securities that were recognized in income.
Year ended December 31,
(in millions) 2015 2014 2013
Realized gains $ 351 $ 314 $ 1,302
Realized losses (127) (233) (614)
OTTI losses (22) (4) (21)
Net securities gains 202 77 667
OTTI losses
Credit losses recognized in income (1) (2) (1)
Securities the Firm intends to sell(a) (21) (2) (20)
Total OTTI losses recognized in
income $ (22) $ (4) $ (21)
(a) Excludes realized losses on securities sold of $5 million, $3 million and $12
million for the years ended December 31, 2015, 2014 and 2013,
respectively that had been previously reported as an OTTI loss due to the
intention to sell the securities.
Changes in the credit loss component of credit-impaired
debt securities
The following table presents a rollforward for the years
ended December 31, 2015, 2014 and 2013, of the credit
loss component of OTTI losses that have been recognized in
income, related to AFS debt securities that the Firm does
not intend to sell.
Year ended December 31, (in millions) 2015 2014 2013
Balance, beginning of period $3$ 1 $ 522
Additions:
Newly credit-impaired securities 121
Losses reclassified from other
comprehensive income on previously
credit-impaired securities ———
Reductions:
Sales and redemptions of credit-
impaired securities —— (522)
Balance, end of period $ 4 $3$1