JP Morgan Chase 2009 Annual Report Download - page 119

JPMorgan Chase & Co./2009 Annual Report 117
Auto loans: As of December 31, 2009, auto loans were $46.0
billion, an increase of $3.4 billion from year-end 2008, partially
as a result of new originations in connection with the U.S. gov-
ernment’s “cash for clunkers” program in the third quarter.
Delinquent loans were slightly lower than the prior year. Loss
severities also decreased as a result of higher used-car prices
nationwide. The auto loan portfolio reflects a high concentration
of prime quality credits.
Credit card: JPMorgan Chase analyzes its credit card portfolio
on a managed basis, which includes credit card receivables on the
Consolidated Balance Sheets and those receivables sold to inves-
tors through securitizations. Managed credit card receivables
were $163.4 billion at December 31, 2009, a decrease of $26.9
billion from year-end 2008, reflecting lower charge volume and a
higher level of charge-offs.
The 30-day managed delinquency rate increased to 6.28% at
December 31, 2009, from 4.97% at December 31, 2008, and the
managed credit card net charge-off rate increased to 9.33% in
2009, from 5.01% in 2008. These increases reflect the current
weak economic environment, especially in metropolitan statistical
areas (“MSAs”) experiencing the greatest housing price deprecia-
tion and highest unemployment and to the credit performance of
loans acquired in the Washington Mutual transaction. The allow-
ance for loan losses was increased by $2.0 billion for 2009,
reflecting a provision for loan losses of $2.4 billion, partially offset
by the reclassification of $298 million related to an issuance and
retention of securities from the Chase Issuance Trust. The man-
aged credit card portfolio continues to reflect a well-seasoned,
largely rewards-based portfolio that has good U.S. geographic
diversification.
Managed credit card receivables, excluding the Washington
Mutual portfolio, were $143.8 billion at December 31, 2009,
compared with $162.1 billion at December 31, 2008. The 30-day
managed delinquency rate was 5.52% at December 31, 2009, up
from 4.36% at December 31, 2008; the managed credit card net
charge-off rate, excluding the Washington Mutual portfolio
increased to 8.45% in 2009 from 4.92% in 2008.
Managed credit card receivables of the Washington Mutual
portfolio were $19.7 billion at December 31, 2009, compared
with $28.3 billion at December 31, 2008. Excluding the impact of
the purchase accounting adjustments related to the Washington
Mutual transaction and the consolidation of the Washington
Mutual Master Trust, the Washington Mutual portfolio’s 30-day
managed delinquency rate was 12.72% at December 31, 2009,
compared with 9.14% at December 31, 2008, and the 2009 net
charge-off rate was 18.79%.
All other: All other loans primarily include business banking
loans (which are highly collateralized loans, often with personal
loan guarantees), student loans, and other secured and unse-
cured consumer loans. As of December 31, 2009, other loans,
including loans held-for-sale, were $33.6 billion, down $2.0
billion from year-end 2008, primarily as a result of lower business
banking loans. The 2009 provision for credit losses reflected a net
increase of $580 million to the allowance for loan losses and an
increase in net charge-offs of $826 million related to the business
banking and student loan portfolios, reflecting the impact of the
weak economic environment.
Purchased credit-impaired: Purchased credit-impaired loans
were $81.2 billion at December 31, 2009, compared with $88.8
billion at December 31, 2008. This portfolio represents loans
acquired in the Washington Mutual transaction that were re-
corded at fair value at the time of acquisition. The fair value of
these loans included an estimate of credit losses expected to be
realized over the remaining lives of the loans, and therefore no
allowance for loan losses was recorded for these loans as of the
acquisition date.
The Firm regularly updates the amount of expected loan principal
and interest cash flows to be collected for these loans. Probable
decreases in expected loan principal cash flows trigger the recog-
nition of impairment through the provision for loan losses. Prob-
able and significant increases in expected loan principal cash
flows would first result in the reversal of any allowance for loan
losses. Any remaining increase in the expected principal cash
flows would be recognized prospectively in interest income over
the remaining lives of the underlying loans.
During 2009, management concluded that it was probable that
higher expected principal credit losses for the purchased credit-
impaired prime mortgage and option ARM pools would result in a
decrease in expected cash flows for these pools. As a result, an
allowance for loan losses of $1.1 billion and $491 million, respec-
tively, was established for these pools. The credit performance of
the other pools has generally been consistent with the estimate of
losses at the acquisition date. Accordingly, no impairment for
these other pools has been recognized.