JP Morgan Chase 2010 Annual Report Download - page 83

JPMorgan Chase & Co./2010 Annual Report
83
The provision for credit losses was $297 million, compared with
$1.5 billion in the prior year. The decline was mainly due to
stabilization in the credit quality of the loan portfolio and
refinements to credit loss estimates. Net charge-offs were $909
million (0.94% net charge-off rate), compared with $1.1 billion
(1.02% net charge-off rate) in the prior year. The allowance for
loan losses to period-end loans retained was 2.61%, down from
3.12% in the prior year. Nonaccrual loans were $2.0 billion, a
decrease of $801 million, or 29%, from the prior year.
Noninterest expense was $2.2 billion, an increase of $23 million, or
1%, compared with the prior year reflecting higher headcount-
related expense partially offset by lower volume-related expense.
2009 compared with 2008
The following discussion of CB’s results reflects the September 25,
2008 acquisition of the commercial banking operations of
Washington Mutual from the FDIC. The Washington Mutual
transaction added approximately $44.5 billion in loans to the
Commercial Term Lending, Real Estate Banking, and Other client
segments in Commercial Banking.
Net income was $1.3 billion, a decrease of $168 million, or 12%,
from the prior year, as higher provision for credit losses and
noninterest expense was partially offset by higher net revenue,
reflecting the impact of the Washington Mutual transaction.
Record net revenue of $5.7 billion increased $943 million, or 20%,
from the prior year. Net interest income of $3.9 billion increased
$607 million, or 18%, driven by the impact of the Washington
Mutual transaction. Noninterest revenue was $1.8 billion, an
increase of $336 million, or 23%, from the prior year, reflecting
higher lending- and deposit-related fees and higher investment
banking fees and other income.
On a client segment basis, revenue from Middle Market Banking
was $3.1 billion, an increase of $116 million, or 4%, from the prior
year due to higher liability balances, a shift to higher-spread liability
products, wider loan spreads, higher lending- and deposit-related
fees, and higher other income, partially offset by a narrowing of
spreads on liability products and reduced loan balances. Revenue
from Commercial Term Lending (a new client segment acquired in
the Washington Mutual transaction encompassing multi-family and
commercial mortgage loans) was $875 million, an increase of $632
million. Mid-Corporate Banking revenue was $1.1 billion, an
increase of $181 million, or 20%, driven by higher investment
banking fees, increased loan spreads, and higher lending- and
deposit-related fees. Real Estate Banking revenue was $461
million, an increase of $48 million, or 12%, due to the impact of
the Washington Mutual transaction.
The provision for credit losses was $1.5 billion, compared with
$464 million in the prior year, reflecting continued weakness in the
credit environment, predominantly in real estate-related segments.
Net charge-offs were $1.1 billion (1.02% net charge-off rate),
compared with $288 million (0.35% net charge-off rate) in the prior
year. The allowance for loan losses to end-of-period loans retained
was 3.12%, up from 2.45% in the prior year. Nonperforming loans
were $2.8 billion, an increase of $1.8 billion from the prior year.
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.
Selected metrics
Year
ended December 31, (in millions
,
except headcount and ratio data
)
2010
2009
2008
Selected balance sheet data
(
period
-
end
):
Loans:
Loans retained
$
97,900
$
97,108
$
115,130
Loans held
-
for
-
sale and loans at fair
value
1,018
324
295
Total loans
$
98,918
$
97,432
$
115,425
Equity
8,000
8,000
8,000
Selected balance sheet data
(
average
):
Total assets
$
133,654
$
135,408
$
114,299
Loans:
Loans retained
$
96,584
$
106,421
$
81,931
Loans held
-
for
-
sale and loans at fair
value
422
317
406
Total loans
$
97,006
$
106,738
$
82,337
Liability balances
(a)
138,862
113,152
103,121
Equity
8,000
8,000
7,251
Average loans by
client segment
:
Middle Market Banking
$
35,059
$
37,459
$
42,193
Commercial Term Len
d
ing
(b)
36,978
36,806
9,310
Mid
-
Corporate Banking
11,926
15,951
16,297
Real Estate Banking
(b)
9,344
12,066
9,008
Other
(b)
(
c
)
3,699 4,456 5,529
Total Commercial Banking loans
$
97,006
$
106,738
$
82,337
Headcount 4,881 4,151 5,206
Credit data and quality stati
s
tics:
Net charge
-
offs
$
909
$
1,089
$
288
Nonaccrual
loans:
Nonaccrual
loans r
e
tained
(
d
)
1,964
2,764
1,026
Nonaccrual
loans held
-
for
-
sale
and loans held at fair value
36
37
—
Total
nonaccrual
loans
2,000
2,801
1,026
Assets acquired in loan satisfactions
19
7
188
116
Total n
onperforming assets
2,197
2,989
1,142
Allowance for credit losses:
Allowance for loan losses
2,552
3,025
2,826
Allowance for lending
-
related
commitments
209
349
206
Total allowance for credit losses
2,761
3,374
3,032
Net charge
-
off rate
0.94%
1.02%
0.35
%
Allowance for loan losses to period
-
end
loans r
e
tained
2.61
3.12
2.45
Allowance for loan losses to average
loans r
e
tained
2.64
2.84
3.04
(e)
Allowance for loan losses
to
nonaccrual
loans r
e
tained
130
109
275
Nonaccrual
loans to total period
-
end
loans
2.02
2.87
0.8
9
Nonaccrual
loans to total ave
r
age
loans
2.06
2.62
1.10
(e)
(a) Liability balances include deposits, as well as deposits that are swept to on–
balance sheet liabilities (e.g., commercial paper, federal funds purchased, time
deposits and securities loaned or sold under repurchase agreements) as part of
customer cash management programs.
(b) 2008 results reflect the partial year impact of the Washington Mutual
transaction.
(c) Other primarily includes lending activity within the Community Development
Banking and Chase Capital segments.
(d) Allowance for loan losses of $340 million, $581 million and $208 million were
held against nonaccrual loans retained for the periods ended December 31,
2010, 2009, and 2008, respectively.
(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
transaction occurred on July 1, 2008. Excluding this adjustment, the unadjusted
allowance for loan losses to average loans retained and nonaccrual loans to
total average loans ratios would have been 3.45% and 1.25%, respectively, for
the period ended December 31, 2008.