JP Morgan Chase 2006 Annual Report Download - page 34

(Table continues on next page)
Year ended December 31, 2006 2005
(in millions, except Reported Credit Tax-equivalent Managed Reported Credit Tax-equivalent Managed
per share and ratio data) results card(b) adjustments basis results card(b) adjustments basis
Revenue
Investment banking fees $ 5,520 $ — $ — $ 5,520 $ 4,088 $ — $ — $ 4,088
Principal transactions 10,346 — — 10,346 7,669 — — 7,669
Lending & deposit related fees 3,468 — — 3,468 3,389 — — 3,389
Asset management, administration and
commissions 11,725 — — 11,725 9,891 — — 9,891
Securities gains (losses) (543) — — (543) (1,336) — — (1,336)
Mortgage fees and related income 591 — — 591 1,054 — — 1,054
Credit card income 6,913 (3,509) — 3,404 6,754 (2,718) — 4,036
Other income 2,175 — 676 2,851 2,684 — 571 3,255
Noninterest revenue 40,195 (3,509) 676 37,362 34,193 (2,718) 571 32,046
Net interest income 21,242 5,719 228 27,189 19,555 6,494 269 26,318
Total net revenue 61,437 2,210 904 64,551 53,748 3,776 840 58,364
Provision for credit losses 3,270 2,210 — 5,480 3,483 3,776 — 7,259
Noninterest expense 38,281 — — 38,281 38,426 — — 38,426
Income from continuing operations
before income tax expense 19,886 — 904 20,790 11,839 — 840 12,679
Income tax expense 6,237 — 904 7,141 3,585 — 840 4,425
Income from continuing operations 13,649 — — 13,649 8,254 — — 8,254
Income from discontinued operations 795 — — 795 229 — — 229
Net income $ 14,444 $ — $ — $ 14,444 $ 8,483 $ — $ — $ 8,483
Income from continuing operations
– diluted earnings per share $ 3.82 $ — $ — $ 3.82 $ 2.32 $ — $ — $ 2.32
Return on common equity(a) 12% —% —% 12% 8% —% —% 8%
Return on common equity less goodwill(a) 20 — — 20 13 — — 13
Return on assets(a) 1.04 NM NM 1.00 0.70 NM NM 0.67
Overhead ratio 62 NM NM 59 71 NM NM 66
Loans–Period-end $ 483,127 $ 66,950 $ — $ 550,077 $ 419,148 $ 70,527 — $ 489,675
Total assets – average 1,313,794 65,266 — 1,379,060 1,185,066 67,180 — 1,252,246
(a) Based on Income from continuing operations.
(b) The impact of credit card securitizations affects CS. See pages 43–45 of this Annual Report for further information.
(c) 2004 results include six months of the combined Firm’s results and six months of heritage JPMorgan Chase results.
MANAGEMENT’S DISCUSSION AND ANALYSIS
JPMorgan Chase & Co.
32 JPMorgan Chase & Co. / 2006 Annual Report
The following summary table provides a reconciliation from the Firm’s reported U.S. GAAP results to managed basis:
The Firm prepares its Consolidated financial statements using accounting
principles generally accepted in the United States of America (“U.S. GAAP”);
these financial statements appear on pages 90–93 of this Annual Report. That
presentation, which is referred to as “reported basis,” provides the reader with
an understanding of the Firm’s results that can be tracked consistently from
year to year and enables a comparison of the Firm’s performance with other
companies’ U.S. GAAP financial statements.
Effective January 1, 2006, JPMorgan Chase’s presentation of “operating earn-
ings,” which excluded merger costs and material litigation reserve charges
and recoveries from reported results, was eliminated. These items had been
excluded previously from operating results because they were deemed nonre-
curring; they are included now in the Corporate segment’s results. In addition,
trading-related net interest income no longer is reclassified from Net interest
income to Principal transactions.
In addition to analyzing the Firm’s results on a reported basis, management
reviews the Firm’s and the lines’ of business results on a “managed” basis,
which is a non-GAAP financial measure. The Firm’s definition of managed
basis starts with the reported U.S. GAAP results and includes certain reclassifi-
cations that assumes credit card loans securitized by CS remain on the bal-
ance sheet and presents revenue on a fully taxable-equivalent (“FTE”) basis.
These adjustments do not have any impact on Net income as reported by the
lines of business or by the Firm as a whole.
The presentation of CS results on a managed basis assumes that credit card
loans that have been securitized and sold in accordance with SFAS 140 still
remain on the balance sheet and that the earnings on the securitized loans
are classified in the same manner as the earnings on retained loans recorded
on the balance sheet. JPMorgan Chase uses the concept of managed basis to
evaluate the credit performance and overall financial performance of the entire
EXPLANATION AND RECONCILIATION OF THE FIRM’S USE OF NON-GAAP FINANCIAL MEASURES