JP Morgan Chase 2015 Annual Report Download - page 269

JPMorgan Chase & Co./2015 Annual Report 259
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) 2015 2014
Impaired credit card loans with an
allowance(a)(b)
Credit card loans with modified payment
terms(c) $ 1,286 $ 1,775
Modified credit card loans that have
reverted to pre-modification payment
terms(d) 179 254
Total impaired credit card loans(e) $ 1,465 $ 2,029
Allowance for loan losses related to
impaired credit card loans $ 460 $ 500
(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, 2015 and 2014, $113 million and $159 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 $66 million and $95 million at December 31, 2015
and 2014, 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.
(e) Predominantly all impaired credit card loans are in the U.S.
The following table presents average balances of impaired
credit card loans and interest income recognized on those
loans.
Year ended December 31,
(in millions) 2015 2014 2013
Average impaired credit card loans $ 1,710 $ 2,503 $ 3,882
Interest income on
impaired credit card loans 82 123 198
Loan modifications
JPMorgan Chase may offer one of a number of loan
modification programs to credit card borrowers who are
experiencing financial difficulty. Most of the credit card
loans have been modified under long-term programs for
borrowers who are experiencing financial difficulties.
Modifications under long-term programs involve placing the
customer on a fixed payment plan, generally for 60 months.
The Firm may also offer short-term programs for borrowers
who may be in need of temporary relief; however, none are
currently being offered. Modifications under all short- and
long-term programs typically include reducing the interest
rate on the credit card. 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.
New enrollments in these loan modification programs for
the years ended December 31, 2015, 2014 and 2013, were
$638 million, $807 million and $1.2 billion, respectively.
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 periods presented.
Year ended December 31,
(in millions, except
weighted-average data) 2015 2014 2013
Weighted-average interest rate
of loans – before TDR 15.08% 14.96% 15.37%
Weighted-average interest rate
of loans – after TDR 4.40 4.40 4.38
Loans that redefaulted within
one year of modification(a) $85$ 119 $ 167
(a) Represents loans modified in TDRs that experienced a payment default in
the periods 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 default rate for credit card
loans modified was expected to be 25.61%, 27.91% and
30.72% as of December 31, 2015, 2014 and 2013,
respectively.
Wholesale loan portfolio
Wholesale loans include loans made to a variety of
customers, ranging from large corporate and institutional
clients to high-net-worth individuals.
The primary credit quality indicator for wholesale loans is
the risk rating assigned each loan. Risk ratings are used to
identify the credit quality of loans and differentiate risk
within the portfolio. Risk ratings on loans consider the
probability of default (“PD”) and the loss given default
(“LGD”). The PD is the likelihood that a loan will default and
not be fully repaid by the borrower. The LGD is the
estimated loss on the loan that would be realized upon the
default of the borrower and takes into consideration
collateral and structural support for each credit facility.
Management considers several factors to determine an
appropriate risk rating, including the obligor’s debt capacity
and financial flexibility, the level of the obligor’s earnings,
the amount and sources for repayment, the level and nature
of contingencies, management strength, and the industry
and geography in which the obligor operates. The Firm’s
definition of criticized aligns with the banking regulatory
definition of criticized exposures, which consist of special
mention, substandard and doubtful categories. Risk ratings
generally represent ratings profiles similar to those defined
by S&P and Moody’s. Investment-grade ratings range from
“AAA/Aaa” to “BBB-/Baa3.” Noninvestment-grade ratings