JP Morgan Chase 2006 Annual Report Download - page 42

MANAGEMENT’S DISCUSSION AND ANALYSIS
JPMorgan Chase & Co.
40 JPMorgan Chase & Co. / 2006 Annual Report
to rising short-term interest rates and a flat yield curve, which contributed to
accelerated home equity loan payoffs. The Provision for credit losses increased
by $273 million, primarily the result of the $230 million special provision relat-
ed to Hurricane Katrina, a prior-year $87 million benefit associated with the
Firm’s exit of the manufactured home loan business and the Merger. These
increases were offset partially by the impact of lower net charge-offs and
improved credit trends. Noninterest expense of $6.7 billion was up by $1.7 bil-
lion as a result of the Merger, the continued investment in branch distribution
and sales, and a $40 million charge related to the dissolution of a student loan
joint venture, partially offset by merger savings and operating efficiencies.
Selected metrics
Year ended December 31,
(in millions, except ratios and
where otherwise noted) 2006 2005 2004(h)
Business metrics (in billions)
Selected ending balances
Home equity origination volume $ 51.9 $ 54.1 $ 41.8
End-of-period loans owned
Home equity 85.7 73.9 67.6
Mortgage 30.1 44.6 41.4
Business banking 14.1 12.8 12.5
Education 10.3 3.0 3.8
Other loans(a) 2.7 2.6 3.6
Total end of period loans 142.9 136.9 128.9
End-of-period deposits
Checking 68.7 64.9 60.8
Savings 92.4 87.7 86.9
Time and other 43.3 29.7 24.2
Total end-of-period deposits 204.4 182.3 171.9
Average loans owned
Home equity 78.3 69.9 42.9
Mortgage 45.1 45.4 40.6
Business banking 13.2 12.6 7.3
Education 8.3 2.8 2.1
Other loans(a) 2.6 3.1 6.5
Total average loans(b) 147.5 133.8 99.4
Average deposits
Checking 62.8 61.7 43.7
Savings 89.9 87.5 66.5
Time and other 37.5 26.1 16.6
Total average deposits 190.2 175.3 126.8
Average assets 160.8 150.8 110.9
Average equity 10.5 9.1 5.0
Credit data and quality statistics
30+ day delinquency rate(c)(d) 2.02% 1.68% 1.47%
Net charge-offs
Home equity $ 143 $ 141 $ 79
Mortgage 56 25 19
Business banking 91 101 77
Other loans 48 28 552
Total net charge-offs 338 295 727
Net charge-off rate
Home equity 0.18% 0.20% 0.18%
Mortgage 0.12 0.06 0.05
Business banking 0.69 0.80 1.05
Other loans 0.59 0.93 8.49
Total net charge-off rate(b) 0.23 0.23 0.75
Nonperforming assets(e)(f)(g) $ 1,725 $ 1,282 $ 1,145
(a) Includes commercial loans derived from community development activities and, prior to
July 1, 2006, insurance policy loans.
(b) Average loans include loans held-for-sale of $2.8 billion, $2.9 billion and $3.1 billion for
the years ended December 31, 2006, 2005 and 2004, respectively. These amounts are not
included in the net charge-off rate.
(c) Excludes delinquencies related to loans eligible for repurchase as well as loans repurchased
from Governmental National Mortgage Association (“GNMA”) pools that are insured by
government agencies of $1.0 billion, $0.9 billion, and $0.9 billion at December 31, 2006,
2005 and 2004, respectively. These amounts are excluded as reimbursement is proceeding
normally.
(d) Excludes loans that are 30 days past due and still accruing, which are insured by govern-
ment agencies under the Federal Family Education Loan Program of $0.5 billion at
December 31, 2006. The education loans past due 30 days were insignificant at December
31, 2005 and 2004. These amounts are excluded as reimbursement is proceeding normally.
(e) Excludes nonperforming assets related to loans eligible for repurchase as well as loans
repurchased from GNMA pools that are insured by government agencies of $1.2 billion,
$1.1 billion, and $1.5 billion at December 31, 2006, 2005, and 2004, respectively. These
amounts are excluded as reimbursement is proceeding normally.
(f) Excludes loans that are 90 days past due and still accruing, which are insured by govern-
ment agencies under the Federal Family Education Loan Program of $0.2 billion at
December 31, 2006. The Education loans past due 90 days were insignificant at December
31, 2005 and 2004. These amounts are excluded as reimbursement is proceeding normally.
(g) Includes nonperforming loans held-for-sale related to mortgage banking activities of $11
million, $27 million, and $13 million at December 31, 2006, 2005 and 2004, respectively.
(h) 2004 results include six months of the combined Firm’s results and six months heritage
JPMorgan Chase results.
Retail branch business metrics
Year ended December 31,
(in millions, except
where otherwise noted) 2006 2005 2004(c)
Investment sales volume $ 14,882 $11,144 $ 7,324
Number of:
Branches 3,079 2,641 2,508
ATMs 8,506 7,312 6,650
Personal bankers(a) 7,573 7,067 5,750
Sales specialists(a) 3,614 3,214 2,638
Active online customers (in thousands)(b) 5,715 4,231 3,359
Checking accounts (in thousands) 9,995 8,793 8,124
(a) Excludes employees acquired as part of The Bank of New York transaction. Mapping of the
existing Bank of New York acquired base is expected to be completed over the next year.
(b) Includes Mortgage Banking and Auto Finance online customers.
(c) 2004 results include six months of the combined Firm’s results and six months heritage
JPMorgan Chase results.
The following is a brief description of selected terms used by
Regional Banking.
• Personal bankers – Retail branch office personnel who acquire,
retain and expand new and existing customer relationships by assess-
ing customer needs and recommending and selling appropriate bank-
ing products and services.
• Sales specialists – Retail branch product-specific experts who are
licensed or specifically trained to assist in the sale of investments,
mortgages, home equity lines and loans, and products tailored to
small businesses.