JP Morgan Chase 2009 Annual Report Download - page 60

Management’s discussion and analysis
JPMorgan Chase & Co./2009 Annual Report 58
EXPLANATION AND RECONCILIATION OF THE FIRM’S USE OF NON-GAAP FINANCIAL MEASURES
The Firm prepares its consolidated financial statements using ac-
counting principles generally accepted in the United States of America
(“U.S. GAAP”); these financial statements appear on pages 146–149
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 compa-
nies’ U.S. GAAP financial statements.
In addition to analyzing the Firm’s results on a reported basis, man-
agement reviews the Firm’s results and the results of the lines of
business 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 reclassifications that
assume credit card loans securitized by CS remain on the balance
sheets, and presents revenue on a FTE basis. These adjustments do
not have any impact on net income as reported by the lines of busi-
ness 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 U.S. GAAP remain on the Consolidated Balance Sheets, and that
the earnings on the securitized loans are classified in the same
manner as the earnings on retained loans recorded on the Consoli-
dated Balance Sheets. JPMorgan Chase uses the concept of man-
aged basis to evaluate the credit performance and overall financial
performance of the entire managed credit card portfolio. Opera-
tions are funded and decisions are made about allocating re-
sources, such as employees and capital, based on managed
financial information. In addition, the same underwriting standards
and ongoing risk monitoring are used for both loans on the Con-
solidated Balance Sheets and securitized loans. Although securitiza-
tions result in the sale of credit card receivables to a trust,
JPMorgan Chase retains the ongoing customer relationships, as the
customers may continue to use their credit cards; accordingly, the
customer’s credit performance will affect both the securitized loans
and the loans retained on the Consolidated Balance Sheets.
JPMorgan Chase believes managed basis information is useful to
investors, enabling them to understand both the credit risks
associated with the loans reported on the Consolidated Balance
Sheets and the Firm’s retained interests in securitized loans. For a
reconciliation of reported to managed basis results for CS, see CS
segment results on pages 72–74 of this Annual Report. For
information regarding the securitization process, and loans and
residual interests sold and securitized, see Note 15 on pages
206–213 of this Annual Report.
The following summary table provides a reconciliation from the Firm’s reported U.S. GAAP results to managed basis.
(Table continues on next page)
2009
2008
Year ended December 31, Reported Credit
Fully tax-
equivalent Managed Reported Credit
Fully tax-
equivalent Managed
(in millions, except per share and ratio data) results card (d) adjustments basis results card (d) adjustments basis
Revenue
Investment banking fees $ 7,087 $ — $ — $ 7,087 $ 5,526 $ — $ — $ 5,526
Principal transactions 9,796 — — 9,796 (10,699) — — (10,699
)
Lending- and deposit-related fees 7,045 — — 7,045 5,088 — — 5,088
Asset management, administration
and commissions 12,540 — — 12,540 13,943 — — 13,943
Securities gains 1,110 — — 1,110 1,560 — — 1,560
Mortgage fees and related income 3,678 — — 3,678 3,467 — — 3,467
Credit card income 7,110 (1,494) — 5,616 7,419 (3,333) — 4,086
Other income 916 — 1,440 2,356 2,169 — 1,329 3,498
Noninterest revenue 49,282 (1,494) 1,440 49,228 28,473 (3,333) 1,329 26,469
Net interest income 51,152 7,937 330 59,419 38,779 6,945 579 46,303
Total net revenue 100,434 6,443 1,770 108,647 67,252 3,612 1,908 72,772
Noninterest expense 52,352 — — 52,352 43,500 — — 43,500
Pre-provision profit 48,082 6,443 1,770 56,295 23,752 3,612 1,908 29,272
Provision for credit losses 32,015 6,443 — 38,458 19,445 3,612 — 23,057
Provision for credit losses – accounting
conformity(a) — — — — 1,534 — — 1,534
Income before income tax expense/
(benefit) and extraordinary gain 16,067 — 1,770 17,837 2,773 — 1,908 4,681
Income tax expense/(benefit) 4,415 — 1,770 6,185 (926) — 1,908 982
Income before extraordinary gain 11,652 — — 11,652 3,699 — — 3,699
Extraordinary gain 76 — — 76 1,906 — — 1,906
Net income $ 11,728 $ — $ — $ 11,728 $ 5,605 $ — $ — $ 5,605
Diluted earnings per share(b)(c) $ 2.24 $ — $ — $ 2.24 $ 0.81 $ — $ — $ 0.81
Return on assets(c) 0.58% NM NM 0.55% 0.21% NM NM 0.20 %
Overhead ratio 52 NM NM 48 65 NM NM 60
Loans – period-end $ 633,458 $ 84,626 $ — $ 718,084 $ 744,898 $ 85,571 $ — $ 830,469
Total assets – average 2,024,201 82,233 — 2,106,434 1,791,617 76,904 — 1,868,521
(a) 2008 included an accounting conformity loan loss reserve provision related to the acquisition of Washington Mutual’s banking operations.
(b) Effective January 1, 2009, the Firm implemented new FASB guidance for participating securities. Accordingly, prior-period amounts have been revised. For further
discussion of the guidance, see Note 25 on page 232 of this Annual Report.
(c) Based on income before extraordinary gain.
(d) See pages 72–74 of this Annual Report for a discussion of the effect of credit card securitizations on CS.