JP Morgan Chase 2012 Annual Report Download - page 260

Notes to consolidated financial statements
270 JPMorgan Chase & Co./2012 Annual Report
Credit card impaired loans and loan modifications
The table below sets forth information about the Firm’s
impaired credit card loans. All of these loans are considered
to be impaired as they have been modified in TDRs.
December 31, (in millions) 2012 2011
Impaired credit card loans with an
allowance(a)(b)
Credit card loans with modified payment
terms(c) $ 4,189 $ 6,075
Modified credit card loans that have reverted
to pre-modification payment terms(d) 573 1,139
Total impaired credit card loans $ 4,762 $ 7,214
Allowance for loan losses related to impaired
credit card loans $ 1,681 $ 2,727
(a) The carrying value and the unpaid principal balance are the same for
credit card impaired loans.
(b) There were no impaired loans without an allowance.
(c) Represents credit card loans outstanding to borrowers enrolled in a
credit card modification program as of the date presented.
(d) Represents credit card loans that were modified in TDRs but that
have subsequently reverted back to the loans’ pre-modification
payment terms. At December 31, 2012 and 2011, $341 million and
$762 million, respectively, of loans have reverted back to the pre-
modification payment terms of the loans due to noncompliance with
the terms of the modified loans. The remaining $232 million and
$377 million at December 31, 2012 and 2011, respectively, of these
loans are to borrowers who have successfully completed a short-term
modification program. The Firm continues to report these loans as
TDRs since the borrowers’ credit lines remain closed.
The following table presents average balances of impaired
credit card loans and interest income recognized on those
loans.
Year ended December 31,
(in millions) 2012 2011 2010
Average impaired credit card loans $ 5,893 $ 8,499 $10,730
Interest income on
impaired credit card loans 308 463 605
Loan modifications
JPMorgan Chase may offer one of a number of loan
modification programs to credit card borrowers who are
experiencing financial difficulty. The Firm has short-term
programs for borrowers who may be in need of temporary
relief, and long-term programs for borrowers who are
experiencing more fundamental financial difficulties. Most
of the credit card loans have been modified under long-term
programs. Modifications under long-term programs involve
placing the customer on a fixed payment plan, generally for
60 months. Modifications under all short- and long-term
programs typically include reducing the interest rate on the
credit card. Certain borrowers enrolled in a short-term
modification program may be given the option to re-enroll
in a long-term program. Substantially all modifications are
considered to be TDRs. If the cardholder does not comply
with the modified payment terms, then the credit card loan
agreement reverts back to its pre-modification payment
terms. Assuming that the cardholder does not begin to
perform in accordance with those payment terms, the loan
continues to age and will ultimately be charged-off in
accordance with the Firm’s standard charge-off policy. In
addition, if a borrower successfully completes a short-term
modification program, then the loan reverts back to its pre-
modification payment terms. However, in most cases, the
Firm does not reinstate the borrower’s line of credit.
The following table provides information regarding the
nature and extent of modifications of credit card loans for
the periods presented.
Year ended December 31, New enrollments
(in millions) 2012 2011
Short-term programs $ 47 $ 167
Long-term programs 1,607 2,523
Total new enrollments $ 1,654 $ 2,690
Financial effects of modifications and redefaults
The following table provides information about the financial
effects of the concessions granted on credit card loans
modified in TDRs and redefaults for the period presented.
Year ended December 31,
(in millions, except
weighted-average data) 2012 2011
Weighted-average interest rate of loans
– before TDR 15.67% 16.05%
Weighted-average interest rate of loans
– after TDR 5.19 5.28
Loans that redefaulted within one year
of modification(a) $ 309 $ 687
(a) Represents loans modified in TDRs that experienced a payment
default in the period presented, and for which the payment default
occurred within one year of the modification. The amounts presented
represent the balance of such loans as of the end of the quarter in
which they defaulted.
For credit card loans modified in TDRs, payment default is
deemed to have occurred when the loans become two
payments past due. A substantial portion of these loans is
expected to be charged-off in accordance with the Firm’s
standard charge-off policy. Based on historical experience,
the estimated weighted-average expected default rate for
modified credit card loans was 38.23% at December 31,
2012, and 35.47% at December 31, 2011.