JP Morgan Chase 2008 Annual Report Download - page 65

JPMorgan Chase & Co./ 2008 Annual Report 63
CARD SERVICES
JPMorgan Chase uses the concept of “managed basis” to evaluate
the credit performance of its credit card loans, both loans on the bal-
ance sheet and loans that have been securitized. For further informa-
tion, see Explanation and reconciliation of the Firm’s use of non-
GAAP financial measures on pages 50–51 of this Annual Report.
Managed results exclude the impact of credit card securitizations on
total net revenue, the provision for credit losses, net charge-offs and
loan receivables. Securitization does not change reported net income;
however, it does affect the classification of items on the Consolidated
Statements of Income and Consolidated Balance Sheets.
The following discussion of CS’ financial results reflects the acquisi-
tion of Washington Mutual’s credit card operations, including $28.3
billion of managed credit card loans, as a result of the Washington
Mutual transaction on September 25, 2008, and the dissolution of
the Chase Paymentech Solutions joint venture on November 1, 2008.
See Note 2 on pages 135–140 of this Annual Report for more infor-
mation concerning these transactions.
Selected income statement data – managed basis
Year ended December 31,
(in millions, except ratios) 2008 2007 2006
Revenue
Credit card income $ 2,768 $ 2,685 $ 2,587
All other income (49) 361 357
Noninterest revenue 2,719 3,046 2,944
Net interest income 13,755 12,189 11,801
Total net revenue 16,474 15,235 14,745
Provision for credit losses 10,059 5,711 4,598
Noninterest expense
Compensation expense 1,127 1,021 1,003
Noncompensation expense 3,356 3,173 3,344
Amortization of intangibles 657 720 739
Total noninterest expense 5,140 4,914 5,086
Income before income tax
expense 1,275 4,610 5,061
Income tax expense 495 1,691 1,855
Net income $ 780 $ 2,919 $ 3,206
Memo: Net securitization
gains (amortization) $ (183) $67 $82
Financial ratios
ROE 5% 21% 23%
Overhead ratio 31 32 34
2008 compared with 2007
Net income was $780 million, a decline of $2.1 billion, or 73%, from
the prior year. The decrease was driven by a higher provision for
credit losses, partially offset by higher total net revenue.
Average managed loans were $162.9 billion, an increase of $13.5
billion, or 9%, from the prior year. Excluding Washington Mutual,
average managed loans were $155.9 billion. End-of-period managed
loans were $190.3 billion, an increase of $33.3 billion, or 21%, from
the prior year. Excluding Washington Mutual, end-of-period managed
loans were $162.1 billion. The increases in both average managed
loans and end-of-period managed loans were predominantly due to
the impact of the Washington Mutual transaction and organic portfo-
lio growth.
Managed total net revenue was $16.5 billion, an increase of $1.2
billion, or 8%, from the prior year. Net interest income was $13.8
billion, up $1.6 billion, or 13%, from the prior year, driven by the
Washington Mutual transaction, higher average managed loan bal-
ances, and wider loan spreads. These benefits were offset partially by
the effect of higher revenue reversals associated with higher charge-
offs. Noninterest revenue was $2.7 billion, a decrease of $327 mil-
lion, or 11%, from the prior year, driven by increased rewards
expense, lower securitization income driven by higher credit losses,
and higher volume-driven payments to partners; these were largely
offset by increased interchange income, benefiting from a 4%
increase in charge volume, as well as the impact of the Washington
Mutual transaction.
The managed provision for credit losses was $10.1 billion, an
increase of $4.3 billion, or 76%, from the prior year, due to an
increase of $1.7 billion in the allowance for loan losses and a higher
level of charge-offs. The managed net charge-off rate increased to
5.01%, up from 3.68% in the prior year. The 30-day managed delin-
quency rate was 4.97%, up from 3.48% in the prior year. Excluding
Washington Mutual, the managed net charge-off rate was 4.92%
and the 30-day delinquency rate was 4.36%.
Noninterest expense was $5.1 billion, an increase of $226 million, or
5%, from the prior year, predominantly due to the impact of the
Washington Mutual transaction.
Chase Card Services is one of the nation’s largest card
issuers with more than 168 million credit cards in circu-
lation and more than $190 billion in managed loans.
Customers used Chase cards to meet more than $368
billion worth of their spending needs in 2008. Chase has
a market leadership position in building loyalty and
rewards programs with many of the world’s most
respected brands and through its proprietary products,
which include the Chase Freedom program.
Through its merchant acquiring business, Chase
Paymentech Solutions, Chase is one of the leading
processors of MasterCard and Visa payments.