JP Morgan Chase 2003 Annual Report Download - page 64

M anagement’s discussion and analysis
J.P. M organ Chase & Co.
62 J.P. Morgan Chase & Co. / 2003 Annual Report
of $4.6 billion, or 31% , from 2002. These loans and lines are
secured by first and second mortgages. The risks are similar to
those of first mortgages; how ever, loss severity can increase
w hen the Firm is in a second-lien position. As of December 31,
2003, 88% of home equity loans and lines of credit w ere
secured by second liens. Borrow ers w ith home equity lines of
credit are approved for a line of credit for up to 10 years. The
Firm has a future funding liability in situations w here the borrow er
does not make use of the line of credit immediately but has
the right to draw dow n the commitment at any time. As of
December 31, 2003, outstandings under home equity lines w ere
$16.6 billion and unused commitments w ere $23.4 billion
(included in the $28.8 billion of 1–4 family residential mortgage
lending-related commitments). The business actively manages
the unused portion of these commitments and freezes a commit-
ment when the borrow er becomes delinquent. These accounts
are then subject to proactive default management, w ith the
objective of minimizing potential losses.
The Firm analyzes its credit card portfolio on a managed basis,
w hich includes credit card receivables on the Consolidated bal-
ance sheet and those that have been securitized. Credit card cus-
tomers are initially approved for a specific revolving credit line.
For open accounts (those in good standing and able to transact),
the difference betw een the approved line and the balance out-
standing in the customer’s account is referred to as “ open-to-
buy.” The Firm is exposed to changes in the customer’s credit
standing and therefore must calculate the aggregate size of this
unused exposure and manage the potential credit risk. The size
of the credit line and resulting open-to-buy balance is adjusted
by the Firm based on the borrow er’s payment and general credit
performance. M anaged credit card receivables increased by
$1.3 billion, or 2% , during 2003. The managed net charge-off
rate of 5.87% w as unchanged from 2002.
Automobile financings grew by 15% to approximately $38.7 bil-
lion, while the net charge-off rate improved from 0.57% in
2002 to 0.45% in 2003.
The follow ing chart presents the geographical concentration of the U.S. consumer loans by region for the years ended December 31,
2003 and 2002.
The follow ing table presents the geographical concentration of consumer loans by product for the years ended December 31, 2003
and 2002.
U.S. managed consumer loans by region
West 7%
Midwest 14%
Texas 7%
Southwest 3%
California 19%
Southeast 16%
Northeast 18% (b)
New York 16%
(a) Based on U.S. 1–4 family residential mortgage, managed credit card and automobile financing loans.
West 7%
Midwest 14%
Texas 8%
Southwest 4%
California 17%
Southeast 17%
Northeast 17%(b)
New York 16%
2003 2002
(a)
(b) Excludes New York.
Consumer loans by geographic region(a)
1–4 family residential Managed credit Automobile
mortgages card loans financings
As of December 31, (in millions) 2003 2002 2003 2002 2003 2002
New York City $14,624 $12,026 $3,058 $3,007 $2,904 $2,801
New York (excluding New York City) 1,863 2,452 3,045 3,002 1,013 936
Remaining Northeast 11,474 10,053 8,971 8,817 8,308 7,206
Total Northeast 27,961 24,531 15,074 14,826 12,225 10,943
Southeast 10,343 9,531 9,922 9,589 5,827 5,467
Midwest 5,349 4,834 9,976 9,654 7,862 5,839
Texas 3,776 3,978 4,535 4,336 3,780 3,877
Southwest (excluding Texas) 1,551 1,661 2,482 2,399 1,384 1,181
California 19,786 14,501 6,177 6,229 5,486 4,748
West (excluding California) 4,946 4,964 3,483 3,366 2,131 1,560
Non-U.S. —12 ————
Total $73,712 $64,012 $51,649 $50,399 $38,695 $33,615
(a) This table excludes other consumer loans of $7.2 billion and $7.5 billion at December 31, 2003 and 2002, respectively.