JP Morgan Chase 2008 Annual Report Download - page 60

Management’s discussion and analysis
58 JPMorgan Chase & Co./ 2008 Annual Report
Selected metrics
Year ended December 31,
(in millions, except headcount
and ratios) 2008 2007 2006
Selected balance sheet data –
period-end
Assets $419,831 $256,351 $237,887
Loans:
Loans retained 368,786 211,324 180,760
Loans held-for-sale and loans
at fair value(a) 9,996 16,541 32,744
Total loans 378,782 227,865 213,504
Deposits 360,451 221,129 214,081
Equity 25,000 16,000 16,000
Selected balance sheet data
(average)
Assets $304,442 $241,112 $231,566
Loans:
Loans retained 257,083 191,645 187,753
Loans held-for-sale and loans
at fair value(a) 17,056 22,587 16,129
Total loans 274,139 214,232 203,882
Deposits 258,362 218,062 201,127
Equity 19,011 16,000 14,629
Headcount 102,007 69,465 65,570
Credit data and quality
statistics
Net charge-offs $ 4,877 $ 1,350 $ 576
Nonperforming loans(b)(c)(d)(e) 6,784 2,828 1,677
Nonperforming assets(b)(c)(d)(e) 9,077 3,378 1,902
Allowance for loan losses 8,918 2,668 1,392
Net charge-off rate(f) 1.90% 0.70% 0.31%
Net charge-off rate excluding
credit-impaired loans(f)(g)
2.08 0.70 0.31
Allowance for loan losses to
ending loans(f)
2.42 1.26 0.77
Allowance for loan losses to ending
loans excluding purchased
credit-impaired loans(f)(g)
3.19 1.26 0.77
Allowance for loan losses to
nonperforming loans(f) 136 97 89
Nonperforming loans to total loans 1.79 1.24 0.79
(a) Loans included prime mortgage loans originated with the intent to sell, which, for
new originations on or after January 1, 2007, were accounted for at fair value under
SFAS 159. These loans, classified as trading assets on the Consolidated Balance
Sheets, totaled $8.0 billion and $12.6 billion at December 31, 2008 and 2007,
respectively. Average loans included prime mortgage loans, classified as trading
assets on the Consolidated Balance Sheets, of $14.2 billion and $11.9 billion for the
years ended December 31, 2008 and 2007, respectively.
(b) Excludes purchased credit-impaired loans accounted for under SOP 03-3 that were
acquired as part of the Washington Mutual transaction. These loans were accounted
for on a pool basis and the pools are considered to be performing under SOP 03-3.
(c) Nonperforming loans and assets included loans held-for-sale and loans accounted
for at fair value of $236 million, $69 million and $116 million at December 31,
2008, 2007 and 2006, respectively. Certain of these loans are classified as trading
assets on the Consolidated Balance Sheets.
(d) Nonperforming loans and assets excluded (1) loans eligible for repurchase as well
as loans repurchased from Government National Mortgage Association (“GNMA”)
pools that are insured by U.S. government agencies of $3.3 billion, $1.5 billion and
$1.2 billion at December 31, 2008, 2007 and 2006, respectively, and (2) student
loans that are 90 days past due and still accruing, which are insured by U.S. govern-
ment agencies under the Federal Family Education Loan Program of $437 million,
$417 million and $387 million at December 31, 2008, 2007 and 2006, respectively.
These amounts were excluded, as reimbursement is proceeding normally.
Total noninterest expense was $12.1 billion, an increase of $2.2 bil-
lion, or 22%, from the prior year, reflecting the impact of the
Washington Mutual transaction, higher mortgage reinsurance losses,
higher mortgage servicing expense and investments in the retail dis-
tribution network.
2007 compared with 2006
Net income was $2.9 billion, a decrease of $288 million, or 9%,
from the prior year, as a decline in Consumer Lending was offset par-
tially by improved results in Retail Banking.
Total net revenue was $17.3 billion, an increase of $2.5 billion, or
17%, from the prior year. Net interest income was $10.5 billion, up
$361 million, or 4%, due to the Bank of New York transaction, wider
loan spreads and higher deposit balances. These benefits were offset
partially by the sale of the insurance business and a shift to narrow-
er–spread deposit products. Noninterest revenue was $6.8 billion, up
$2.1 billion, benefiting from positive MSR risk management results;
an increase in deposit-related fees; and the absence of a prior-year
$233 million loss related to $13.3 billion of mortgage loans trans-
ferred to held-for-sale. Noninterest revenue also benefited from the
classification of certain mortgage loan origination costs as expense
(loan origination costs previously netted against revenue commenced
being recorded as an expense in the first quarter of 2007 due to the
adoption of SFAS 159).
The provision for credit losses was $2.6 billion, compared with $561
million in the prior year. The current year provision includes a net
increase of $1.0 billion in the allowance for loan losses related to
home equity loans as continued weak housing prices have resulted
in an increase in estimated losses for high loan-to-value loans. Home
equity net charge-offs were $564 million (0.62% net charge-off
rate), compared with $143 million (0.18% net charge-off rate) in the
prior year. In addition, the current-year provision includes a $166 mil-
lion increase in the allowance for loan losses related to subprime
mortgage loans, reflecting an increase in estimated losses and
growth in the portfolio. Subprime mortgage net charge-offs were
$157 million (1.55% net charge-off rate), compared with $47 million
(0.34% net charge-off rate) in the prior year.
Total noninterest expense was $9.9 billion, an increase of $978 mil-
lion, or 11%, from the prior year due to the Bank of New York trans-
action; the classification of certain loan origination costs as expense
due to the adoption of SFAS 159; investments in the retail distribu-
tion network; and higher mortgage production and servicing
expense. These increases were offset partially by the sale of the
insurance business.