JP Morgan Chase 2005 Annual Report Download - page 75

Download and view the complete annual report

Please find page 75 of the 2005 JP Morgan Chase annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 144

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93
  • 94
  • 95
  • 96
  • 97
  • 98
  • 99
  • 100
  • 101
  • 102
  • 103
  • 104
  • 105
  • 106
  • 107
  • 108
  • 109
  • 110
  • 111
  • 112
  • 113
  • 114
  • 115
  • 116
  • 117
  • 118
  • 119
  • 120
  • 121
  • 122
  • 123
  • 124
  • 125
  • 126
  • 127
  • 128
  • 129
  • 130
  • 131
  • 132
  • 133
  • 134
  • 135
  • 136
  • 137
  • 138
  • 139
  • 140
  • 141
  • 142
  • 143
  • 144

JPMorgan Chase & Co. /2005 Annual Report 73
Summary of changes in the allowance for credit losses
For the year ended December 31, 2005 2004(e)
(in millions) Wholesale Consumer Total Wholesale Consumer Total
Loans:
Beginning balance at January 1, $ 3,098 $ 4,222 $ 7,320 $ 2,204 $ 2,319 $ 4,523
Addition resulting
from the Merger, July 1, 2004 ———1,788 1,335 3,123
Gross charge-offs (255) (4,614) (4,869) (543) (3,262) (3,805)
Gross recoveries 332 718 1,050 357 349 706
Net (charge-offs) recoveries 77 (3,896) (3,819) (186) (2,913) (3,099)
Provision for loan losses:
Provision excluding accounting policy conformity (716) 4,291 3,575(c) (605) 2,403 1,798
Accounting policy conformity ———(103) 1,188(f) 1,085
Total Provision for loan losses (716) 4,291 3,575 (708) 3,591 2,883
Other (6) 20 14 — (110) (110)(g)
Ending balance $ 2,453(a) $ 4,637(b) $ 7,090 $ 3,098(a) $ 4,222(b) $ 7,320
Components:
Asset specific $ 203 $ —$ 203 $ 469 $ — $ 469
Statistical component 1,629 3,422 5,051 1,639 3,169 4,808
Adjustment to statistical component 621 1,215 1,836 990 1,053 2,043
Total Allowance for loan losses $ 2,453 $ 4,637 $ 7,090 $ 3,098 $ 4,222 $ 7,320
Lending-related commitments:
Beginning balance at January 1, $ 480 $ 12 $ 492 $ 320 $ 4 $ 324
Addition resulting
from the Merger, July 1, 2004 ———499 9 508
Provision for lending-related commitments:
Provision excluding accounting policy conformity (95) 3 (92) (111) (1) (112)
Accounting policy conformity ———(227) — (227)
Total Provision for lending-related commitments (95) 3 (92) (338) (1) (339)
Other ———(1) — (1)
Ending balance $ 385 $ 15 $ 400(d) $ 480 $ 12 $ 492(h)
(a) The wholesale allowance for loan losses to total wholesale loans was 1.85% and 2.41%, excluding wholesale HFS loans of $17.6 billion and $6.4 billion at December 31, 2005 and 2004, respectively.
(b) The consumer allowance for loan losses to total consumer loans was 1.84% and 1.70%, excluding consumer HFS loans of $16.6 billion and $18.0 billion at December 31, 2005 and 2004, respectively.
(c) 2005 includes a special provision related to Hurricane Katrina allocated as follows: Retail Financial Services $250 million, Card Services $100 million, Commercial Banking $35 million,Asset &
Wealth Management $3 million and Corporate $12 million.
(d) Includes $60 million of asset-specific and $340 million of formula-based allowance at December 31, 2005. The formula-based allowance for lending-related commitments is based upon statistical
calculation. There is no adjustment to the statistical calculation for lending-related commitments.
(e) Includes six months of the combined Firm’s results and six months of heritage JPMorgan Chase results.
(f) Reflects an increase of $1.4 billion as a result of the decertification of heritage Bank One seller’s interest in credit card securitizations, partially offset by a $254 million decrease in the allowance to
conform methodologies in 2004.
(g) Primarily represents the transfer of the allowance for accrued interest and fees on reported and securitized credit card loans.
(h) Includes $130 million of asset-specific and $362 million of formula-based allowance at December 31, 2004. The formula-based allowance for lending-related commitments is based upon a statistical
calculation. There is no adjustment to the statistical calculation for lending-related commitments.
Allowance for credit losses
JPMorgan Chase’s allowance for credit losses is intended to cover probable
credit losses, including losses where the asset is not specifically identified or
the size of the loss has not been fully determined. At least quarterly, the
allowance for credit losses is reviewed by the Chief Risk Officer of the Firm,
the Risk Policy Committee, a subgroup of the Operating Committee, and the
Audit Committee of the Board of Directors of the Firm. The allowance is
reviewed relative to the risk profile of the Firm’s credit portfolio and current
economic conditions and is adjusted if, in management’s judgment, changes
are warranted. The allowance includes an asset-specific component and a
formula-based component, the latter of which consists of a statistical calculation
and adjustments to the statistical calculation. For further discussion of the
components of the Allowance for credit losses, see Critical accounting estimates
used by the Firm on page 81 and Note 12 on pages 107–108 of this Annual
Report. At December 31, 2005, management deemed the allowance for credit
losses to be sufficient to absorb losses that are inherent in the portfolio,
including losses that are not specifically identified or for which the size of the
loss has not yet been fully determined.