JP Morgan Chase 2010 Annual Report Download - page 141

JPMorgan Chase & Co./2010 Annual Report 141
(f) The Firm’s policy is generally to exempt credit card loans from being placed on nonaccrual status as permitted by regulatory guidance. Under the guidance issued by the
FFIEC, credit card loans are charged off by the end of the month in which the account becomes 180 days past due or within 60 days from receiving notification about a
specified event (e.g., bankruptcy of the borrower), whichever is earlier.
(g) Charge-offs are not recorded on PCI loans until actual losses exceed estimated losses recorded as purchase accounting adjustments at the time of acquisition.
(h) Excludes the impact of PCI loans acquired as part of the Washington Mutual transaction. The allowance for loan losses on PCI loans was $4.9 billion and $1.6 billion as
of December 31, 2010 and 2009, respectively.
The following table presents a credit ratio excluding: home lending
PCI loans acquired in the Washington Mutual transaction; and credit
card loans held by the Washington Mutual Master Trust which were
consolidated onto the Firm’s balance sheet at fair value during the
second quarter of 2009. The PCI loans were accounted for at fair
value on the acquisition date, which incorporated management’s
estimate, as of that date, of credit losses over the remaining life of
the portfolio. Accordingly, no allowance for loan losses was recorded
for these loans as of the acquisition date. Subsequent evaluations of
estimated credit deterioration in this portfolio resulted in the re-
cording of an allowance for loan losses of $4.9 billion and $1.6
billion at December 31, 2010 and 2009, respectively. For more
information on home lending PCI loans, see pages 132–134 of this
Annual Report. For more information on the consolidation of assets
from the Washington Mutual Master Trust, see Note 16 on pages
244–259 of this Annual Report.
The calculation of the allowance for loan losses to total retained loans, excluding PCI loans and loans held by the WMMT, is presented below.
December 31, (in millions, except ratios)
2010
2009
Allowance for loan losses
$
32,266
$ 31,602
Less: Allowance for PCI loans
4,941
1,581
Adjusted allowance for loan losses
$
27,325
$ 30,021
Total loans retained $ 685,498 $ 627,218
Less: Firmwide PCI loans
72,8
07
81,380
Loans held by the WMMT
—
1,002
Adjusted loans
$
612,6
91
$ 544,836
Allowance for loan losses to ending loans excluding PCI loans and loans held by the WMMT
4.46
%
5.51 %
Provision for credit losses
The provision for credit losses was $16.6 billion for the year ended
December 31, 2010, down by $21.8 billion, or 57%, from the prior-
year provision. The total consumer provision (excluding credit card)
for credit losses was $9.5 billion, reflecting an addition to the allow-
ance for loan losses of $1.6 billion (primarily related to the increase in
allowance for the PCI portfolio of $3.4 billion), partially offset by a
$1.8 billion reduction in allowance predominantly for non-credit-
impaired residential real estate loans. The prior year provision was
$16.0 billion reflecting additions of $5.8 billion predominantly for the
home equity and mortgage portfolios, including $1.6 billion for the
PCI portfolio. The total credit card provision for credit losses was $8.0
billion, primarily reflecting a reduction in the allowance for credit
losses of $6.0 billion as a result of improved delinquency trends and
reduced net charge-offs. The prior year managed provision was $18.5
billion reflecting additions to the allowance of $2.4 billion. The
wholesale provision for credit losses was a benefit of $850 million,
compared with expense of $4.0 billion, reflecting a reduction in the
allowance for credit losses predominantly as a result of continued
improvement in the credit quality of the commercial and industrial
portfolio, reduced net charge-offs and repayments.
Year ended December 31, Provision for loan losses
Provision for
lending-related commitments Total provision for credit losses
(in millions)
2010
2009 2008
2010
2009 2008
2010
2009 2008
Wholesale
$
(673)
$ 3,684 $ 3,536
$
(177)
$ 290 $ (209)
$
(850)
$ 3,974 $ 3,327
Consumer, excluding credit card
(a)
9,458 16,032 10,659 (6) (10) (49)
9,
452 16,022 10,610
Credit card– reported
(a)(b)
8,037 12,019 7,042 — — — 8,037 12,019 7,042
Total pr
ovision for credit
losses – reported 16,822 31,735 21,237 (183) 280 (258) 16,639 32,015 20,979
Credit card – securitized
(
b
)(
c
)
NA 6,443 3,612 NA — — NA 6,443 3,612
Total provision for credit
losses – managed $16,822 $ 38,178 $ 24,849 $ (183) $ 280 $ (258) $16,639 $ 38,458 $ 24,591
(a) Includes adjustments to the provision for credit losses recognized in the Corporate/Private Equity segment related to the Washington Mutual transaction in 2008.
(b) Effective January 1, 2010, the Firm adopted accounting guidance related to VIEs. As a result of the consolidation of the credit card securitization trusts, reported and
managed basis relating to credit card securitizations are equivalent for periods beginning after January 1, 2010. For further discussion regarding the Firm’s application
and the impact of the new guidance, see Explanation and Reconciliation of the Firm’s Use of Non-GAAP Financial Measures on pages 64–65 of this Annual Report.
(c) Loans securitized are defined as loans that were sold to unconsolidated securitization trusts and were not included in reported loans. For further discussion of credit
card securitizations, see Note 16 on pages 244–259 of this Annual Report.