JP Morgan Chase 2008 Annual Report Download - page 66

Management’s discussion and analysis
64 JPMorgan Chase & Co./ 2008 Annual Report
2007 compared with 2006
Net income of $2.9 billion was down $287 million, or 9%, from the
prior year. Prior-year results benefited from significantly lower net
charge-offs following the change in bankruptcy legislation in the
fourth quarter of 2005. The increase in net charge-offs was offset
partially by higher revenue.
End-of-period managed loans of $157.1 billion increased $4.2 bil-
lion, or 3%, from the prior year. Average managed loans of $149.3
billion increased $8.2 billion, or 6%, from the prior year. The increas-
es in both end-of-period and average managed loans resulted from
organic growth.
Managed total net revenue was $15.2 billion, an increase of $490
million, or 3%, from the prior year. Net interest income was $12.2
billion, up $388 million, or 3%, from the prior year. The increase in
net interest income was driven by a higher level of fees and higher
average loan balances. These benefits were offset partially by nar-
rower loan spreads, the discontinuation of certain billing practices
(including the elimination of certain over-limit fees and the two-cycle
billing method for calculating finance charges beginning in the sec-
ond quarter of 2007) and the effect of higher revenue reversals asso-
ciated with higher charge-offs. Noninterest revenue was $3.0 billion,
an increase of $102 million, or 3%, from the prior year. The increase
reflected a higher level of fee-based revenue and increased net inter-
change income, which benefited from higher charge volume. Charge
volume growth was 4%, reflecting a 9% increase in sales volume,
offset primarily by a lower level of balance transfers, the result of
more targeted marketing efforts.
The managed provision for credit losses was $5.7 billion, an increase
of $1.1 billion, or 24%, from the prior year. The increase was primari-
ly due to a higher level of net charge-offs (the prior year benefited
from the change in bankruptcy legislation in the fourth quarter of
2005) and an increase in the allowance for loan losses, driven by
higher estimated net charge-offs in the portfolio. The managed net
charge-off rate was 3.68%, up from 3.33% in the prior year. The 30-
day managed delinquency rate was 3.48%, up from 3.13% in the
prior year.
Noninterest expense was $4.9 billion, a decrease of $172 million, or
3%, compared with the prior year, primarily due to lower marketing
expense and lower fraud-related expense, partially offset by higher
volume-related expense.
The following are brief descriptions of selected business metrics within Card Services.
•Charge volume – Represents the dollar amount of cardmember purchases, balance transfers and cash advance activity.
•Net accounts opened – Includes originations, purchases and sales.
•Merchant acquiring business – Represents a business that processes bank card transactions for merchants.
–Bank card volume – Represents the dollar amount of transactions processed for merchants.
–Total transactions – Represents the number of transactions and authorizations processed for merchants.