JP Morgan Chase 2010 Annual Report Download - page 296

Supplementary information
JPMorgan Chase & Co./2010 Annual Report
296
As of or for the period ended
2010
2009
(in millions, except ratio data)
4th quarte
r
3rd quarter
2nd quarter
1st quarter
4th quarter
3rd quarter
2nd quarter
1st quarter
Credit quality metrics
Allowance for credit losses
$
32,983
$
35,034
$
36,748
$
39,126
$ 32,541 $ 31,454 $ 29,818 $ 28,019
Allowance for loan losse
s to total r
e
tained
loans 4.71% 4.97% 5.15% 5.40% 5.04% 4.74% 4.33% 3.95%
Allowance for loan losses to retained loans
excluding purchased credit-impaired loans(g) 4.46 5.12 5.34 5.64 5.51 5.28 5.01 4.53
Nonperforming assets
$
16,557
$
17,656
$
18,156
$
19,019
$ 19,741 $ 20,362 $ 17,517 $ 14,654
Net charge-offs
5,104
4,945
5,714
7,910
6,177 6,373 6,019 4,396
Net charge-off rate
2.95%
2.84%
3.28%
4.46%
3.85% 3.84% 3.52% 2.51%
Wholesale net charge-off rate
0.
49
0.49
0.44
1.84
2.31 1.93 1.19 0.32
Consumer net charge-off rate
(h)
4.12 3.90 4.49 5.56 4.60 4.79 4.69 3.61
(a) Pre-provision profit is total net revenue less noninterest expense. The Firm believes that this financial measure is useful in assessing the ability of a lending institution to
generate income in excess of its provision for credit losses.
(b) On September 25, 2008, JPMorgan Chase acquired the banking operations of Washington Mutual. On May 30, 2008, a wholly-owned subsidiary of JPMorgan Chase merged
with and into The Bear Stearns Companies, Inc. (“Bear Stearns”), and Bear Stearns became a wholly-owned subsidiary of JPMorgan Chase. The Washington Mutual acquisi-
tion resulted in negative goodwill, and accordingly, the Firm recorded an extraordinary gain. A preliminary gain of $1.9 billion was recognized at December 31, 2008. The
final total extraordinary gain that resulted from the Washington Mutual transaction was $2.0 billion. For additional information of these transactions, see Note 2 on pages
166–170 of this Annual Report.
(c) The calculation of second-quarter 2009 earnings per share and net income applicable to common equity includes a one-time, noncash reduction of $1.1 billion, or $0.27 per
share, resulting from repayment of U.S. Troubled Asset Relief Program (“TARP”) preferred capital. Excluding this reduction, the adjusted return on common equity (“ROE”)
and Return on tangible common equity (“ROTCE”) were 6% and 10%, respectively, for second-quarter 2009. The Firm views the adjusted ROE and ROTCE, both non-GAAP
financial measures, as meaningful because they enable the comparability to prior periods. For further discussion, see “Explanation and reconciliation of the Firm’s use of non-
GAAP financial measures” on pages 64–66 of this Annual Report.
(d) Share prices shown for JPMorgan Chase’s common stock are from the New York Stock Exchange. JPMorgan Chase’s common stock is also listed and traded on the London
Stock Exchange and the Tokyo Stock Exchange.
(e) Effective January 1, 2010, the Firm adopted new guidance that amended the accounting for the transfer of financial assets and the consolidation of VIEs. Upon adoption of
the new guidance, the Firm consolidated its Firm-sponsored credit card securitization trusts, Firm-administered multi-seller conduits and certain other consumer loan securiti-
zation entities, primarily mortgage-related, adding $87.7 billion and $92.2 billion of assets and liabilities, respectively, and decreasing stockholders’ equity and the Tier 1 capi-
tal ratio by $4.5 billion and 34 basis points, respectively. The reduction to stockholders’ equity was driven by the establishment of an allowance for loan losses of $7.5 billion
(pretax) primarily related to receivables held in credit card securitization trusts that were consolidated at the adoption date.
(f) The Firm uses Tier 1 common along with the other capital measures to assess and monitor its capital position. The Tier 1 common ratio is Tier 1 common divided by risk-
weighted assets. For further discussion, see Regulatory capital on pages 102–104 of this Annual Report.
(g) Excludes the impact of home lending PCI loans and loans held by the Washington Mutual Master Trust. For further discussion, see Allowance for credit losses on pages 139–
141 of this Annual Report.
(h) The fourth quarter of 2010 includes an aggregate adjustment of $632 million to increase net charge-offs related to the estimated net realizable value of the collateral underly-
ing delinquent residential home loans. Because these losses were previously recognized in the provision and allowance for loan losses, this adjustment had no impact on the
Firm’s net income.