JP Morgan Chase 2010 Annual Report Download - page 222

Notes to consolidated financial statements
222 JPMorgan Chase & Co./2010 Annual Report
Because TDRs are considered to be impaired, these loans are
evaluated for an asset-specific allowance, which considers the
expected re-default rates for the modified loans and is deter-
mined based on the same methodology used to estimate the
Firm’s asset-specific allowance component regardless of whether
the loan is performing and has been returned to accrual status.
For further discussion of the methodology used to estimate the
Firm’s asset-specific allowance, see Note 15 on pages 239–243
of this Annual Report.
Foreclosed property
The Firm acquires property from borrowers through loan restructur-
ings, workouts, and foreclosures. Property acquired may include
real property (e.g., residential real estate, land, buildings, and
fixtures) and commercial and personal property (e.g., aircraft,
railcars, and ships).
At the time JPMorgan Chase takes physical possession, the
property is recorded in other assets on the Consolidated Balance
Sheets at fair value less estimated costs to sell. Each quarter the
fair value of the acquired property is reviewed and adjusted, if
necessary. Subsequent changes to fair value are charged/credited
to noninterest revenue. Operating expense, such as real estate
taxes and maintenance, are charged to other expense.
Loan Portfolio
The Firm’s loan portfolio is divided into three portfolio segments, which are the same segments used by the Firm to determine the allowance
for loan losses: Wholesale; Consumer, excluding credit card; and Credit Card. Within each portfolio segment, the Firm monitors and assesses the
credit risk in the following classes of loans, based on the risk characteristics of each loan class:
Wholesale(a) Consumer, excluding
credit card(b) Credit Card
• Commercial and industrial
• Real estate
• Financial institutions
• Government agencies
• Other
Residential real estate – excluding PCI
• Home equity – senior lien
• Home equity – junior lien
• Prime mortgage, including option
ARMs
• Subprime mortgage
Other consumer loans
• Auto(c)
• Business banking(c)
• Student and other
Residential real estate – PCI
• Home equity
• Prime mortgage
• Subprime mortgage
• Option ARMs
• Chase, excluding accounts origi-
nated by Washington Mutual
• Accounts originated by Washington
Mutual
(a) Includes loans reported in Investment Bank, Commercial Banking, Treasury & Securities Services, Asset Management and Corporate/Private Equity
segments.
(b) Includes RFS and residential real estate loans reported in the Corporate/Private Equity segment.
(c) Includes risk-rated loans that apply the Firm’s wholesale methodology for determining the allowance for loan losses; these loans are managed
by RFS, and therefore for consistency in presentation, are included with the other consumer loan classes.