JP Morgan Chase 2008 Annual Report Download - page 61

JPMorgan Chase & Co./ 2008 Annual Report 59
(e) During the second quarter of 2008, the policy for classifying subprime mortgage
and home equity loans as nonperforming was changed to conform to all other
home lending products. Amounts for 2007 have been revised to reflect this change.
Amounts for 2006 have not been revised as the impact was not material.
(f) Loans held-for-sale and loans accounted for at fair value were excluded when calcu-
lating the allowance coverage ratio and the net charge-off rate.
(g) Excludes the impact of purchased credit-impaired loans accounted for under SOP
03-3 that were acquired as part of the Washington Mutual transaction at December
31, 2008. These loans were accounted for at fair value on the acquisition date,
which included the impact of credit losses over the remaining life of the portfolio.
Accordingly, no allowance for loan losses has been recorded for these loans.
Retail Banking
Selected income statement data
Year ended December 31,
(in millions, except ratios) 2008 2007 2006
Noninterest revenue $ 4,951 $ 3,763 $ 3,259
Net interest income 7,659 6,193 5,698
Total net revenue 12,610 9,956 8,957
Provision for credit losses 449 79 114
Noninterest expense 7,232 6,166 5,667
Income before income
tax expense 4,929 3,711 3,176
Net income $ 2,982 $ 2,245 $ 1,922
Overhead ratio 57% 62% 63%
Overhead ratio excluding core
deposit intangibles(a) 54 57 58
(a) Retail Banking uses the overhead ratio (excluding the amortization of core deposit
intangibles (“CDI”)), a non-GAAP financial measure, to evaluate the underlying
expense trends of the business. Including CDI amortization expense in the overhead
ratio calculation results in a higher overhead ratio in the earlier years and a lower
overhead ratio in later years; this method would result in an improving overhead
ratio over time, all things remaining equal. This ratio excludes Retail Banking’s core
deposit intangible amortization expense related to the Bank of New York transac-
tion and the Bank One merger of $394 million, $460 million and $458 million for
the years ended December 31, 2008, 2007 and 2006, respectively.
2008 compared with 2007
Retail Banking net income was $3.0 billion, up $737 million, or
33%, from the prior year. Total net revenue was $12.6 billion, up
$2.7 billion, or 27%, reflecting the impact of the Washington Mutual
transaction, wider deposit spreads, higher deposit-related fees, and
higher deposit balances. The provision for credit losses was $449 mil-
lion, compared with $79 million in the prior year, reflecting an
increase in the allowance for loan losses for Business Banking loans
due to higher estimated losses on the portfolio. Noninterest expense
was $7.2 billion, up $1.1 billion, or 17%, from the prior year, due to
the Washington Mutual transaction and investments in the retail dis-
tribution network.
2007 compared with 2006
Retail Banking net income was $2.2 billion, an increase of $323 mil-
lion, or 17%, from the prior year. Total net revenue was $10.0 bil-
lion, up $1.0 billion, or 11%, benefiting from the following: the Bank
of New York transaction; increased deposit-related fees; and growth
in deposits. These benefits were offset partially by a shift to narrow-
er-spread deposit products. The provision for credit losses was $79
million, compared with $114 million in the prior year. Noninterest
expense was $6.2 billion, up $499 million, or 9%, from the prior
year, driven by the Bank of New York transaction and investments in
the retail distribution network.
Selected metrics
Year ended December 31,
(in billions, except ratios and
where otherwise noted) 2008 2007 2006
Business metrics
Selected ending balances
Business banking origination
volume $5.5 $ 6.9 $ 5.7
End-of-period loans owned 18.4 15.6 14.0
End-of-period deposits
Checking $ 109.2 $ 66.9 $ 67.1
Savings 144.0 96.0 91.5
Time and other 89.1 48.6 43.2
Total end-of-period deposits 342.3 211.5 201.8
Average loans owned $ 16.7 $ 14.9 $ 13.4
Average deposits
Checking $ 77.1 $ 65.8 $ 62.7
Savings 114.3 97.1 89.7
Time and other 53.2 43.8 37.5
Total average deposits 244.6 206.7 189.9
Deposit margin 2.89% 2.72% 2.74%
Average assets $ 26.3 $ 25.0 $ 20.5
Credit data and quality statistics
(in millions, except ratio)
Net charge-offs $ 346 $ 163 $ 114
Net charge-off rate 2.07% 1.09% 0.85%
Nonperforming assets $ 424 $ 294 $ 244
Retail branch business metrics
Year ended december 31, 2008 2007 2006
Investment sales volume
(in millions) $17,640 $18,360 $14,882
Number of:
Branches 5,474 3,152 3,079
ATMs 14,568 9,186 8,506
Personal bankers(a) 15,825 9,650 7,573
Sales specialists(a) 5,661 4,105 3,614
Active online customers
(in thousands) 11,710 5,918 4,909
Checking accounts
(in thousands) 24,499 10,839 9,995
(a) Employees acquired as part of the Bank of New York transaction are included begin-
ning in 2007.
Consumer Lending
Selected income statement data
Year ended December 31,
(in millions, except ratio) 2008 2007 2006
Noninterest revenue $ 4,404 $ 3,016 $ 1,401
Net interest income 6,506 4,333 4,467
Total net revenue 10,910 7,349 5,868
Provision for credit losses 9,456 2,531 447
Noninterest expense 4,845 3,739 3,260
Income (loss) before income
tax expense (3,391) 1,079 2,161
Net income (loss) $ (2,102) $ 680 $ 1,291
Overhead ratio 44% 51% 56%