JP Morgan Chase 2009 Annual Report Download - page 78

Management’s discussion and analysis
JPMorgan Chase & Co./2009 Annual Report 76
Noninterest expense was $2.2 billion, an increase of $230 million,
or 12%, from the prior year, due to the impact of the Washington
Mutual transaction and higher FDIC insurance premiums.
2008 compared with 2007
Net income was $1.4 billion, an increase of $305 million, or 27%,
from the prior year, due to growth in total net revenue including
the impact of the Washington Mutual transaction, partially offset by
a higher provision for credit losses.
Record total net revenue of $4.8 billion increased $674 million, or
16%. Net interest income of $3.3 billion increased $456 million, or
16%, driven by double-digit growth in liability and loan balances
and the impact of the Washington Mutual transaction, partially
offset by spread compression in the liability and loan portfolios.
Noninterest revenue was $1.5 billion, up $218 million, or 17%,
due to higher deposit- and lending-related fees.
On a client-segment basis, Middle Market Banking revenue was
$2.9 billion, an increase of $250 million, or 9%, from the prior year
due predominantly to higher deposit-related fees and growth in
liability and loan balances. Revenue from Commercial Term Lending,
a new client segment acquired in the Washington Mutual transaction,
was $243 million. Mid-Corporate Banking revenue was $921 million,
an increase of $106 million, or 13%, reflecting higher loan balances,
investment banking revenue and deposit-related fees. Real Estate
Banking revenue of $413 million decreased $8 million, or 2%.
Provision for credit losses was $464 million, an increase of $185
million, or 66%, compared with the prior year, reflecting a weakening
credit environment and loan growth. Net charge-offs were $288
million (0.35% net charge-off rate), compared with $44 million
(0.07% net charge-off rate) in the prior year, predominantly related
to an increase in real estate charge-offs. The allowance for loan
losses increased by $1.1 billion, which primarily reflected the impact
of the Washington Mutual transaction. Nonperforming assets were
$1.1 billion, an increase of $1.0 billion compared with the prior year,
predominantly reflecting the Washington Mutual transaction and
higher real estate–related balances.
Noninterest expense was $1.9 billion, a decrease of $12 million, or 1%,
from the prior year, due to lower performance-based incentive compen-
sation and volume-based charges from service providers, predominantly
offset by the impact of the Washington Mutual transaction.
Selected metrics
Year ended December 31,
(in millions) 2009
2008 2007
Selected balance sheet data
(period-end):
Loans:
Loans retained $ 97,108 $ 115,130 $ 64,835
Loans held-for-sale and
loans at fair value 324
295 1,366
Total loans $ 97,432
$ 115,425 $ 66,201
Equity 8,000 8,000
6,700
Selected metrics
Year ended December 31,
(in millions, except headcount and
ratio data) 2009 2008 2007
Selected balance sheet data
(average):
Total assets $ 135,408 $ 114,299 $
87,140
Loans:
Loans retained 106,421 81,931 60,231
Loans held-for-sale and
loans at fair value 317 406
863
Total loans $ 106,738 $ 82,337 $
61,094
Liability balances(a) 113,152 103,121 87,726
Equity $ 8,000 $ 7,251 $
6,502
Average loans by business:
Middle Market Banking $ 37,459 $ 42,193 $
37,333
Commercial Term Lending(b) 36,806 9,310 —
Mid-Corporate Banking 15,951 16,297 12,481
Real Estate Banking(b) 12,066 9,008
7,116
Other(b) 4,456 5,529
4,164
Total Commercial Banking loans $ 106,738 $ 82,337 $
61,094
Headcount 4,151 5,206 4,125
Credit data and quality statistics:
Net charge-offs $ 1,089 $ 288 $
44
Nonperforming loans:
Nonperforming loans retained(c) 2,764 1,026 146
Nonperforming loans held-for-
sale and loans held at fair value 37 — —
Total nonperforming loans 2,801 1,026 146
Nonperforming assets 2,989 1,142 148
Allowance for credit losses:
Allowance for loan losses(d) 3,025 2,826
1,695
Allowance for lending-related
commitments 349 206
236
Total allowance for credit losses 3,374 3,032
1,931
Net charge-off rate 1.02% 0.35% 0.07%
Allowance for loan losses to period-
end
loans retained 3.12 2.45 2.61
Allowance for loan losses to average
loans retained 2.84 3.04(e)
2.81
Allowance for loan losses
to nonperforming loans retained 109 275 1,161
Nonperforming loans to total period-
end loans 2.87 0.89 0.22
Nonperforming loans to total average
loans 2.62 1.10(e)
0.24
(a) Liability balances include deposits and deposits swept to on–balance sheet
liabilities such as commercial paper, federal funds purchased and securities loaned
or sold under repurchase agreements.
(b) Results for 2009 and 2008 include loans acquired in the Washington Mutual
transaction.
(c) Allowance for loan losses of $581 million, $208 million and $32 million were held
against nonperforming loans retained for the periods ended December 31, 2009,
2008, and 2007, respectively.
(d) Beginning in 2008, the allowance for loan losses included an amount related to
loans acquired in the Washington Mutual transaction and the Bear Stearns
merger.
(e) Average loans in the calculation of this ratio were adjusted to include $44.5
billion of loans acquired in the Washington Mutual transaction as if the transac-
tion occurred on July 1, 2008. Excluding this adjustment, the unadjusted allow-
ance for loan losses to average loans retained and nonperforming loans to total
average loans ratios would have been 3.45% and 1.25%, respectively, for the
period ended December 31, 2008.