JP Morgan Chase 2014 Annual Report Download - page 114

Management’s discussion and analysis
112 JPMorgan Chase & Co./2014 Annual Report
CREDIT PORTFOLIO
2014 Credit Risk Overview
In 2014, the consumer credit environment continued to
improve and the wholesale credit environment remained
favorable. Over the course of the year, the Firm continued
to actively manage its underperforming and nonaccrual
loans and reduce such exposures through loan
restructurings, loan sales and workouts. The Firm saw
decreased downgrade, default and charge-off activity and
improved consumer delinquency trends. The Firm increased
its overall lending activity in both wholesale and consumer
businesses. The combination of these factors resulted in an
improvement in the credit quality of the portfolio compared
with 2013 and contributed to the Firm’s reduction in the
allowance for credit losses. For further discussion of the
consumer credit environment and consumer loans, see
Consumer Credit Portfolio on pages 113–119 and Note 14.
For further discussion of wholesale credit environment and
wholesale loans, see Wholesale Credit Portfolio on pages
120–127 and Note 14.
In the following tables, reported loans include loans
retained (i.e., held-for-investment); loans held-for-sale
(which are carried at the lower of cost or fair value, with
valuation changes recorded in noninterest revenue); and
certain loans accounted for at fair value. In addition, the
Firm records certain loans accounted for at fair value in
trading assets. For further information regarding these
loans, see Note 3 and Note 4. For additional information on
the Firm’s loans and derivative receivables, including the
Firm’s accounting policies, see Note 14 and Note 6.
For further information regarding the credit risk inherent in
the Firm’s investment securities portfolio, see Note 12.
Total credit portfolio
December 31,
(in millions)
Credit exposure Nonperforming(b)(c)(d)
2014 2013 2014 2013
Loans retained $ 747,508 $ 724,177 $ 7,017 $ 8,317
Loans held-for-sale 7,217 12,230 95 26
Loans at fair value 2,611 2,011 21 197
Total loans – reported 757,336 738,418 7,133 8,540
Derivative receivables 78,975 65,759 275 415
Receivables from
customers and other 29,080 26,883 ——
Total credit-related
assets 865,391 831,060 7,408 8,955
Assets acquired in loan
satisfactions
Real estate owned NA NA 515 710
Other NA NA 44 41
Total assets acquired in
loan satisfactions NA NA 559 751
Total assets 865,391 831,060 7,967 9,706
Lending-related
commitments 1,056,172 1,031,672 103 206
Total credit portfolio $1,921,563 $1,862,732 $ 8,070 $ 9,912
Credit Portfolio
Management derivatives
notional, net(a) $ (26,703) $ (27,996) $ — $ (5)
Liquid securities and other
cash collateral held
against derivatives (19,604) (14,435) NA NA
Year ended December 31,
(in millions, except ratios) 2014 2013
Net charge-offs $ 4,759 $ 5,802
Average retained loans
Loans – reported 729,876 720,152
Loans – reported, excluding
residential real estate PCI loans 679,869 663,629
Net charge-off rates
Loans – reported 0.65% 0.81%
Loans – reported, excluding PCI 0.70 0.87
(a) Represents the net notional amount of protection purchased and sold through
credit derivatives used to manage both performing and nonperforming wholesale
credit exposures; these derivatives do not qualify for hedge accounting under
U.S. GAAP. For additional information, see Credit derivatives on page 127 and
Note 6.
(b) Excludes PCI loans. The Firm is recognizing interest income on each pool of PCI
loans as they are all performing.
(c) At December 31, 2014 and 2013, nonperforming assets excluded: (1) mortgage
loans insured by U.S. government agencies of $7.8 billion and $8.4 billion,
respectively, that are 90 or more days past due; (2) student loans insured by U.S.
government agencies under the FFELP of $367 million and $428 million,
respectively, that are 90 or more days past due; and (3) real estate owned
(“REO”) insured by U.S. government agencies of $462 million and $2.0 billion,
respectively. These amounts have been excluded based upon the government
guarantee. In addition, the Firm’s policy is generally to exempt credit card loans
from being placed on nonaccrual status as permitted by regulatory guidance
issued by the Federal Financial Institutions Examination Council (“FFIEC”).
(d) At December 31, 2014 and 2013, total nonaccrual loans represented 0.94%
and 1.16%, respectively, of total loans.