JP Morgan Chase 2008 Annual Report Download - page 178

Notes to consolidated financial statements
176 JPMorgan Chase & Co./ 2008 Annual Report
products, if collateralized, are generally charged off to net realizable
value at 120 days past due. Accrued interest on residential mortgage
products, automobile financings, student loans and certain other con-
sumer loans are accounted for in accordance with the nonaccrual
loan policy discussed in the preceding paragraph. Interest and fees
related to credit card loans continue to accrue until the loan is
charged off or paid in full. Accrued interest on all other consumer
loans is generally reversed against interest income when the loan is
charged off. A collateralized loan is reclassified to assets acquired in
loan satisfactions, within other assets, only when JPMorgan Chase
has taken physical possession of the collateral, regardless of whether
formal foreclosure proceedings have taken place.
For purchased credit-impaired loans, the excess of the loan’s cash
flows expected to be collected over the initial fair value (i.e., the acc-
retable yield) is accreted into interest income at a level rate of return
over the term of the loan, provided that the timing and amount of
future cash flows is reasonably estimable. On a periodic basis, the
Firm updates the amount of cash flows expected to be collected for
these loans, incorporating assumptions regarding default rates, loss
severities, the amounts and timing of prepayments and other factors
that are reflective of current market conditions. Probable and signifi-
cant increases in cash flows previously expected to be collected
would first be used to reverse any related valuation allowance; any
remaining increases are recognized prospectively as interest income.
Probable decreases in expected cash flows after the acquisition date,
excluding decreases related to repricings of variable rate loans, are
recognized through the allowance for loan losses. Disposals of loans,
which may include sales of loans, receipt of payments in full by the
borrower, or foreclosure, result in removal of the loan from the SOP
03-3 portfolio.
With respect to purchased credit-impaired loans, when the timing
and/or amounts of expected cash flows on such loans are not rea-
sonably estimable, no interest is accreted and the loan is reported as
a nonperforming loan; otherwise, if the timing and amounts of
expected cash flows for purchased credit-impaired loans are reason-
ably estimable, then interest is accreted and the loans are reported
as performing loans.
The composition of the Firm’s aggregate loan portfolio at each of
the dates indicated was as follows.
December 31, (in millions) 2008 2007
U.S. wholesale loans:
Commercial and industrial $ 68,709 $ 55,655
Real estate 64,214 16,748
Financial institutions 20,615 14,757
Government agencies 5,918 5,770
Other 22,330 25,883
Loans held-for-sale and at fair value 4,990 14,440
Total U.S. wholesale loans 186,776 133,253
Non-U.S. wholesale loans:
Commercial and industrial 27,941 27,659
Real estate 2,667 3,527
Financial institutions 16,381 16,740
Government agencies 603 720
Other 18,711 21,968
Loans held-for-sale and at fair value 8,965 9,209
Total non-U.S. wholesale loans 75,268 79,823
Total wholesale loans:(a)(b)
Commercial and industrial 96,650 83,314
Real estate(c) 66,881 20,275
Financial institutions 36,996 31,497
Government agencies 6,521 6,490
Other 41,041 47,851
Loans held-for-sale and at fair value(d) 13,955 23,649
Total wholesale loans 262,044 213,076
Total consumer loans:(e)
Home equity 114,335 94,832
Prime mortgage 72,266 39,988
Subprime mortgage 15,330 15,473
Option ARMs 9,018 —
Auto loans 42,603 42,350
Credit card(f) 104,746 84,352
Other 33,715 25,314
Loans held-for-sale(g) 2,028 3,989
Total consumer loans – excluding
purchased credit-impaired 394,041 306,298
Consumer loans – purchased credit-impaired 88,813 NA
Total consumer loans 482,854 306,298
Total loans(b)(h) $ 744,898 $ 519,374
(a) Includes Investment Bank, Commercial Banking,Treasury & Securities Services and Asset
Management.
(b) Includes purchased credit-impaired loans of $224 million at December 31, 2008,
acquired in the Washington Mutual transaction.
(c) Represents credits extended for real estate-related purposes to borrowers who are
primarily in the real estate development or investment businesses and which the
repayment is predominantly from the sale, lease, management, operations or refi-
nancing of the property.
(d) Includes loans for commercial & industrial, real estate, financial institutions and other of
$11.0 billion, $428 million, $1.5 billion and $995 million at December 31, 2008, respec-
tively, and $19.6 billion, $548 million, $862 million and $2.7 billion at December 31,
2007 respectively.
(e) Includes Retail Financial Services, Card Services and the Corporate/Private Equity
segment.
(f) Includes billed finance charges and fees net of an allowance for uncollectible amounts.
(g) Includes loans for prime mortgage and other (largely student loans) of $206 million and
$1.8 billion at December 31, 2008, respectively, and $570 million and $3.4 billion at
December 31, 2007, respectively.
(h) Loans (other than purchased loans and those for which the SFAS 159 fair value option
has been elected) are presented net of unearned income and net deferred loan fees of
$694 million and $1.0 billion at December 31, 2008 and 2007, respectively.