JP Morgan Chase 2008 Annual Report Download - page 111

JPMorgan Chase & Co./ 2008 Annual Report 109
Summary of changes in the allowance for credit losses
Year ended December 31, 2008 2007
(in millions) Wholesale Consumer Total Wholesale Consumer Total
Loans:
Beginning balance at January 1, $ 3,154 $ 6,080 $ 9,234 $ 2,711 $ 4,568 $ 7,279
Cumulative effect of change in
accounting principles(a) ——— (56) — (56)
Beginning balance at January 1, adjusted 3,154 6,080 9,234 2,655 4,568 7,223
Gross charge-offs 521 10,243 10,764 185 5,182 5,367
Gross recoveries (119) (810) (929) (113) (716) (829)
Net charge-offs 402 9,433 9,835 72 4,466 4,538
Provision for loan losses:
Provision excluding accounting conformity 2,895 16,765 19,660 598 5,940 6,538
Accounting conformity(b) 641 936 1,577 ———
Total provision for loan losses 3,536 17,701 21,237 598 5,940 6,538
Acquired allowance resulting from Washington Mutual
transaction 229 2,306 2,535 ———
Other 28(c) (35)(c) (7) (27)(i) 38(i) 11
Ending balance at December 31 $ 6,545 $16,619 $23,164 $ 3,154 $ 6,080 $ 9,234
Components:
Asset-specific $ 712 $ 74 $ 786 $ 108 $ 80 $ 188
Formula-based 5,833 16,545 22,378 3,046 6,000 9,046
Total allowance for loan losses $ 6,545 $16,619 $23,164 $ 3,154 $ 6,080 $ 9,234
Lending-related commitments:
Beginning balance at January 1, $ 835 $ 15 $ 850 $ 499 $ 25 $ 524
Provision for lending-related commitments
Provision excluding accounting conformity (214) (1) (215) 336 (10) 326
Accounting conformity(b) 5 (48) (43) ———
Total provision for lending-related commitments (209) (49) (258) 336 (10) 326
Acquired allowance resulting from Washington Mutual
transaction —6666 ———
Other 8(c) (7)(c) 1———
Ending balance at December 31 $ 634 $ 25 $ 659 $ 835 $ 15 $ 850
Components:
Asset-specific $29 $ — $ 29 $28 $— $ 28
Formula-based 605 25 630 807 15 822
Total allowance for
lending-related commitments $ 634 $ 25 $ 659 $ 835 $ 15 $ 850
Total allowance for credit losses $ 7,179 $16,644 $23,823 $ 3,989 $ 6,095 $10,084
Allowance for loan losses to loans 2.64%(d) 3.46%(e)(h) 3.18%(d)(e)(h) 1.67%(d) 2.01%(e) 1.88%(d)(e)
Allowance for loan losses to loans excluding
purchased credit-impaired loans 2.64(d) 4.24(e) 3.62(d)(e) 1.67(d) 2.01(e) 1.88(d)(e)
Net charge-off rates 0.18(f) 2.71(g)(h) 1.73(f)(g)(h) 0.04(f) 1.61(g) 1.00(f)(g)
Net charge-off rates excluding purchased
credit-impaired loans 0.18(f) 2.90(g) 1.81(f)(g) 0.04(f) 1.61(g) 1.00(f)(g)
(a) Reflects the effect of the adoption of SFAS 159 at January 1, 2007. For a further discussion of SFAS 159, see Note 5 on pages 156–158 of this Annual Report.
(b) Related to the Washington Mutual transaction in 2008.
(c) Primarily related to the transfer of loans and lending-related commitments from RFS to CB during the first quarter of 2008.
(d) Wholesale loans held-for-sale and loans at fair value were $14.0 billion and $23.6 billion at December 31, 2008 and 2007, respectively.These amounts were excluded when calculat-
ing the allowance coverage ratios.
(e) Consumer loans held-for-sale were $2.0 billion and $4.0 billion at December 31, 2008 and 2007, respectively. These amounts were excluded when calculating the allowance coverage ratios.
(f) Average wholesale loans held-for-sale and loans at fair value were $18.9 billion and $18.6 billion for the years ended December 31, 2008 and 2007, respectively. These amounts
were excluded when calculating the net charge-off rates.
(g) Average consumer (excluding card) loans held-for-sale and loans at fair value were $2.8 billion and $10.6 billion for the years ended December 31, 2008 and 2007, respectively.
These amounts were excluded when calculating the net charge-off rates.
(h) Includes $88.8 billion of home lending credit-impaired loans acquired in the Washington Mutual transaction and accounted for under SOP 03-3 at December 31, 2008. These loans
were accounted for at fair value on the acquisition date, which reflected expected cash flows (including credit losses) over the remaining life of the portfolio. No allowance for loan
losses has been recorded for these loans as of December 31, 2008.
(i) Partially related to the transfer of allowance between wholesale and consumer in conjunction with prime mortgages transferred to the Corporate/Private Equity sector.