JP Morgan Chase 2010 Annual Report Download - page 298

Supplementary information
JPMorgan Chase & Co./2010 Annual Report
298
As of or for the year ended December 31,
(in millions, except ratio data) 2010 2009 2008(d)
2007 2006
Credit quality metrics
Allowance for credit losses
$
32,983
$ 32,541 $ 23,823 $ 10,084 $ 7,803
Allowance for loan losses to total retained loans
4.71%
5.04% 3.18% 1.88% 1.70%
Allowance for loan losses to retained loans, excluding PCI loans(i) 4.46 5.51 3.62 1.88 1.70
Nonperforming assets
$
16,557
$ 19,741 $ 12,714 $ 3,933 $ 2,341
Net charge-offs
23,673
22,965 9,835 4,538 3,042
Net charge-off rate
3.39%
3.42% 1.73% 1.00% 0.73%
Wholesale net charge-off/(recovery) rate
0.81
1.40 0.18 0.04 (0.01)
Consumer net charge-off rate
4.53
4.41 2.71 1.61 1.17
(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) Results for 2008 included an accounting conformity loan loss reserve provision related to the acquisition of Washington Mutual Bank’s banking operations.
(c) On October 1, 2006, JPMorgan Chase & Co. completed the exchange of selected corporate trust businesses for the consumer, business-banking and middle-market banking
businesses of The Bank of New York Company Inc. The results of operations of these corporate trust businesses were reported as discontinued operations.
(d) 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 Bear Stearns, and Bear Stearns became a wholly-owned subsidiary of JPMorgan Chase. The Washington Mutual acquisition 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 on these transactions, see Note 2 on pages 166–170 of this Annual Report.
(e) The calculation of 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 TARP preferred capital in the second quarter of 2009. Excluding this reduction, the adjusted return on equity (“ROE”) and return on tangible common equity
(“ROTCE”) were 7% and 11%, respectively, for 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.
(f) 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.
(g) 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 securitiza-
tion 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 capital
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.
(h) 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.
(i) 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.