JP Morgan Chase 2013 Annual Report Download - page 122

Management’s discussion and analysis
128 JPMorgan Chase & Co./2013 Annual Report
Nonperforming assets
The following table presents information as of
December 31, 2013 and 2012, about consumer, excluding
credit card, nonperforming assets.
Nonperforming assets(a)
December 31, (in millions) 2013 2012
Nonaccrual loans(b)
Residential real estate $ 6,864 $ 8,460
Other consumer 632 714
Total nonaccrual loans 7,496 9,174
Assets acquired in loan satisfactions
Real estate owned 614 647
Other 41 37
Total assets acquired in loan satisfactions 655 684
Total nonperforming assets $ 8,151 $ 9,858
(a) At December 31, 2013 and 2012, nonperforming assets excluded: (1)
mortgage loans insured by U.S. government agencies of $8.4 billion
and $10.6 billion, respectively, that are 90 or more days past due; (2)
real estate owned insured by U.S. government agencies of $2.0 billion
and $1.6 billion, respectively; and (3) student loans insured by U.S.
government agencies under the FFELP of $428 million and $525
million, respectively, that are 90 or more days past due. These
amounts have been excluded from nonaccrual loans based upon the
government guarantee.
(b) Excludes PCI loans that were acquired as part of the Washington
Mutual transaction, which are accounted for on a pool basis. Since
each pool is accounted for as a single asset with a single composite
interest rate and an aggregate expectation of cash flows, the past-due
status of the pools, or that of individual loans within the pools, is not
meaningful. Because the Firm is recognizing interest income on each
pool of loans, they are all considered to be performing.
Nonaccrual loans: The following table presents changes in
the consumer, excluding credit card, nonaccrual loans for
the years ended December 31, 2013 and 2012.
Nonaccrual loans
Year ended December 31,
(in millions) 2013 2012
Beginning balance $ 9,174 $ 7,411
Additions 6,618 12,605 (b)
Reductions:
Principal payments and other(a) 1,559 1,445
Charge-offs 1,869 2,771
Returned to performing status 3,793 4,738
Foreclosures and other liquidations 1,075 1,888
Total reductions 8,296 10,842
Net additions/(reductions) (1,678) 1,763
Ending balance $ 7,496 $ 9,174
(a) Other reductions includes loan sales.
(b) Included $1.7 billion of Chapter 7 loans at September 30, 2012, and
$1.6 billion as a result of reporting performing junior lien home
equity loans that are subordinate to senior liens that are 90 days or
more past due as nonaccrual loans based on regulatory guidance at
March 31, 2012.
Nonaccrual loans in the residential real estate portfolio
totaled $6.9 billion at December 31, 2013, of which 34%
were greater than 150 days past due, compared with $8.5
billion at December 31, 2012, of which 42% were greater
than 150 days past due. In the aggregate, the unpaid
principal balance of residential real estate loans greater
than 150 days past due was charged down by
approximately 51% and 52% to estimated net realizable
value of the collateral at December 31, 2013 and 2012,
respectively. The elongated foreclosure processing timelines
are expected to continue to result in elevated levels of
nonaccrual loans in the residential real estate portfolios.
At December 31, 2012, the Firm reported, in accordance
with regulatory guidance, $1.7 billion of residential real
estate and auto loans that were discharged under Chapter 7
bankruptcy and not reaffirmed by the borrower (“Chapter 7
loans”) as collateral-dependent nonaccrual TDRs,
regardless of their delinquency status. Pursuant to that
guidance, these Chapter 7 loans were charged off to the net
realizable value of the collateral, resulting in $800 million
of charge-offs for the year ended December 31, 2012. The
Firm expects to recover a significant amount of these losses
over time as principal payments are received. The Firm also
began reporting performing junior liens that are
subordinate to senior liens that are 90 days or more past
due as nonaccrual loans in the first quarter of 2012, based
upon regulatory guidance. Nonaccrual loans included $3.0
billion of loans at December 31, 2012 based upon the
regulatory guidance noted above. The prior year was not
restated for the policy changes.
Real estate owned (“REO”): REO assets are managed for
prompt sale and disposition at the best possible economic
value. REO assets are those individual properties where the
Firm receives the property in satisfaction of a debt (e.g., by
taking legal title or physical possession). The Firm generally
recognizes REO assets at the completion of the foreclosure
process or upon execution of a deed in lieu of foreclosure
with the borrower. REO assets, excluding those insured by
U.S. government agencies, decreased by $33 million from
$647 million at December 31, 2012, to $614 million at
December 31, 2013.
At December 31, 2013 and 2012, the Firm had non-PCI
residential real estate loans, excluding those insured by the
U.S. government agencies, with a carrying value of $2.1
billion and $3.4 billion, respectively; not included in REO,
that were in the process of active or suspended foreclosure.
The Firm also had PCI residential real estate loans that were
in the process of active or suspended foreclosure at
December 31, 2013 and 2012, with an unpaid principal
balance of $4.8 billion and $8.2 billion, respectively.