JP Morgan Chase 2010 Annual Report Download - page 140

Management’s discussion and analysis
140 JPMorgan Chase & Co./2010 Annual Report
Summary of changes in the allowance for credit losses
2010
2009
Year ended December 31,
(in millions, except ratios) Wholesale
Consumer,
excluding
credit card Credit Card Total Wholesale
Consumer,
excluding
credit card Credit Card Total
Allowance for loan losses
Beginning balance at January 1,
$
7,145
$
14,785
$
9,672
$
31,602
$ 6,545 $ 8,927 $ 7,692 $ 23,164
Cumulative effect of change in
accounting principles(a) 14 127 7,353 7,494 — — — —
Gross charge-offs
(a)
1,989 8,383 15,410 25,782 3,226 10,421 10,371 24,018
Gross (recoveries)
(a)
(262) (474) (1,373) (2,109) (94) (222) (737) (1,053)
Net charge-offs
(a)
1,727 7,909 14,037 23,673 3,132 10,199 9,634 22,965
Provision for loan losses
(a)
(673) 9,458 8,037 16,822 3,684 16,032 12,019 31,735
Other
(b)
2 10 9 21 48 25 (405) (332)
Ending balance
$
4,761
$
16,471
$
1
1,034
$
32,266
$ 7,145 $ 14,785 $ 9,672 $ 31,602
Impairment methodology
Asset-specific(c)(d)(e) $ 1,574 $ 1,075 $ 4,069 $ 6,718 $ 2,046 $ 896 $ 3,117 $ 6,059
Formula-based
(a)(
e
)
3,187 10,455 6,965 20,607 5,099 12,308 6,555 23,962
PCI
—
4,941
—
4,941
— 1,581 — 1,581
Total allowance for loan losses
$
4,761
$
1
6,
471
$
11,034
$
32,266
$ 7,145 $ 14,785 $ 9,672 $ 31,602
Allowance for lending
-
related
commitments
Beginning balance at January 1, $ 927 $ 12 $ — $ 939 $ 634 $ 25 $ — $ 659
Cumulative effect of change in
accounting principles(a) (18) — — (18) — — — —
Provision for lending
-
related
commitments(a) (177) (6) — (183) 290 (10) — 280
Other
(
21
)
—
—
(
21
)
3 (3) — —
Ending balance
$
711
$
6
$
—
$
717
$ 927 $ 12 $ — $ 939
Impairment methodology
Asset-specific $ 180 $ — $ — $ 180 $ 297 $ — $ — $ 297
Formula-based
531
6
—
537
630 12 — 642
Total allowance for lending
-
related commitments $ 711 $ 6 $ — $ 717 $ 927 $ 12 $ — $ 939
Total allowance for credit losses
$
5,472
$
16,477
$
11,034
$
32,983
$ 8,072 $ 14,797 $ 9,672 $ 32,541
Memo:
Retained loans, end of period
$
222,510
$
327,464
$
135,524
$
685,498
$ 200,077 $ 348,355 $ 78,786 $ 627,218
Retained loans, average
213,609
340,334
144,219
698,162
223,047 362,216 87,029 672,292
Credit ratios
Allowance for loan losses to retained
loans 2.14%
5.03% 8.14% 4.71%
3.57% 4.24
%
12.28% 5.04%
Allowance for loan losses to retained
nonaccrual loans(f) 86 186 NM 225 109 139 NM 184
Al
lowance for loan losses to retained
nonaccrual loans excluding credit
card 86
186 NM 148 109 139 NM 127
Net charge-off rates(g)
0.81 2.32 9.73 3.39 1.40 2.82 11.07 3.42
Credit ratios excluding home
lending PCI loans and loans
held by the WMMT
Allowance for loan losses to retained
loans(h) 2.14 4.53 8.14 4.46 3.57 4.94 12.43 5.51
Allowance for loan losses to retained
nonaccrual loans(f)(h) 86 131 NM 190 109 124 NM 174
Allowance fo
r loan losses to retained
nonaccrual loans excluding credit
card(f)(h) 86 131 NM 114 109 124 NM 118
(a) Effective January 1, 2010, the Firm adopted accounting guidance related to VIEs. Upon the adoption of the guidance, the Firm consolidated its Firm-sponsored credit card
securitization trusts, its Firm-administered multi-seller conduits and certain other consumer loan securitization entities, primarily mortgage-related. As a result $7.4 billion,
$14 million and $127 million, respectively, of allowance for loan losses were recorded on-balance sheet associated with the consolidation of these entities. For further
discussion, see Note 16 on pages 244–259 of this Annual Report.
(b) Other predominantly includes a reclassification in 2009 related to the issuance and retention of securities from the Chase Issuance Trust.
(c) Includes risk-rated loans that have been placed on nonaccrual status and loans that have been modified in a TDR.
(d) The asset-specific consumer (excluding credit card) allowance for loan losses includes TDR reserves of $985 million and $754 million at December 31, 2010 and 2009,
respectively. Prior-period amounts have been reclassified from formula-based to conform with the current period presentation.
(e) At December 31, 2010, the Firm’s allowance for loan losses on credit card loans for which the Firm has modified the terms of the loans for borrowers who are experienc-
ing financial difficulty was reclassified to the asset-specific allowance. Prior periods have been revised to reflect the current presentation.