JP Morgan Chase 2013 Annual Report Download - page 133

JPMorgan Chase & Co./2013 Annual Report 139
ALLOWANCE FOR CREDIT LOSSES
JPMorgan Chase’s allowance for loan losses covers the
consumer (primarily scored) portfolio; and wholesale (risk-
rated) portfolio. The allowance represents management’s
estimate of probable credit losses inherent in the Firm’s
loan portfolio. Management also determines an allowance
for wholesale and certain consumer lending-related
commitments.
The allowance for loan losses includes an asset-specific
component, a formula-based component, and a component
related to PCI loans. For a further discussion of the
components of the allowance for credit losses and related
management judgments, see Critical Accounting Estimates
Used by the Firm on pages 174–178 and Note 15 on pages
284–287 of this Annual Report.
At least quarterly, the allowance for credit losses is
reviewed by the Chief Risk Officer, the Chief Financial
Officer and the Controller of the Firm, and discussed with
the Risk Policy and Audit Committees of the Board of
Directors of the Firm. As of December 31, 2013, JPMorgan
Chase deemed the allowance for credit losses to be
appropriate and sufficient to absorb probable credit losses
inherent in the portfolio.
The allowance for credit losses was $17.0 billion at
December 31, 2013, a decrease of $5.6 billion from
$22.6 billion at December 31, 2012. The decrease in the
allowance for loan losses was due to a $5.5 billion
reduction in the consumer portfolio allowance reflecting
lower estimated losses due to the impact of improved home
prices on the residential real estate portfolio and improved
delinquency trends in the residential real estate and credit
card portfolios. However, relatively high unemployment,
uncertainties regarding the ultimate success of loan
modifications, and the risk attributes of certain loans within
the portfolio (e.g., loans with high LTV ratios, junior lien
loans that are subordinate to a delinquent or modified
senior lien, HELOCs with future payment recast) continued
to contribute to uncertainty regarding the performance of
the residential real estate portfolio; these uncertainties
were considered in estimating the allowance for loan losses.
The consumer, excluding credit card, allowance for loan
losses decreased $3.8 billion from December 31, 2012, of
which $2.3 billion was from the real estate portfolio non
credit-impaired allowance and $1.6 billion from the PCI
allowance. The decrease in the allowance was largely due to
the impact of improved home prices as well as improved
delinquency trends. For additional information about
delinquencies and nonaccrual loans in the consumer,
excluding credit card, loan portfolio, see Consumer Credit
Portfolio on pages 120–129 and Note 14 on pages 258–
283 of this Annual Report.
The credit card allowance for loan losses decreased by
$1.7 billion from December 31, 2012. The decrease
included reductions in both the asset-specific and formula-
based allowance. The reduction in the asset-specific
allowance, which relates to loans restructured in TDRs,
largely reflects the changing profile of the TDR portfolio.
The volume of new TDRs, which have higher loss rates due
to expected redefaults, continues to decrease, and the loss
rate on existing TDRs is also decreasing over time as
previously restructured loans continue to perform. The
reduction in the formula-based allowance was primarily
driven by the continuing trend of improving delinquencies
and a reduction in bankruptcies. For additional information
about delinquencies in the credit card loan portfolio, see
Consumer Credit Portfolio on pages 120–129 and Note 14
on pages 258–283 of this Annual Report.
The wholesale allowance was relatively unchanged
reflecting a favorable credit environment and stable credit
quality trends.
The allowance for lending-related commitments for both the
consumer, excluding credit card, and wholesale portfolios,
which is reported in other liabilities, was $705 million and
$668 million at December 31, 2013, and December 31,
2012, respectively.