JP Morgan Chase 2009 Annual Report Download - page 74

Management’s discussion and analysis
JPMorgan Chase & Co./2009 Annual Report 72
CARD SERVICES
Card Services is one of the nation’s largest credit card
issuers, with more than 145 million credit cards in circu-
lation and over $163 billion in managed loans. Custom-
ers used Chase cards to meet more than $328 billion of
their spending needs in 2009.
Chase continues to innovate, despite a very difficult
business environment, launching new products and
services such as Blueprint, Ultimate Rewards, Chase
Sapphire and Ink from Chase, and earning a market
leadership position in building loyalty and rewards
programs. Through its merchant acquiring business,
Chase Paymentech Solutions, Chase is one of the lead-
ing processors of credit-card payments.
JPMorgan Chase uses the concept of “managed basis” to evaluate
the credit performance of its credit card loans, both loans on the
balance sheet and loans that have been securitized. For further
information, see Explanation and Reconciliation of the Firm’s Use of
Non-GAAP Financial Measures on pages 58–60 of this Annual
Report. Managed results exclude the impact of credit card securiti-
zations 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’s financial results reflects the acquisi-
tion of Washington Mutual’s credit cards operations, 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 151–156 of this Annual
Report for more information concerning these transactions.
Selected income statement data – managed basis
Year ended December 31,
(in millions, except ratios) 2009 2008 2007
Revenue
Credit card income $ 3,612 $ 2,768 $ 2,685
All other income (692) (49) 361
Noninterest revenue 2,920 2,719 3,046
Net interest income 17,384 13,755 12,189
Total net revenue 20,304 16,474 15,235
Provision for credit losses 18,462 10,059 5,711
Noninterest expense
Compensation expense 1,376 1,127 1,021
Noncompensation expense 3,490 3,356 3,173
Amortization of intangibles 515 657 720
Total noninterest expense 5,381 5,140 4,914
Income/(loss) before income tax ex-
pense/(benefit) (3,539) 1,275 4,610
Income tax expense/(benefit) (1,314) 495 1,691
Net income/(loss) $ (2,225) $ 780 $ 2,919
Memo: Net securitization income/(loss) $ (474) $ (183) $ 67
Financial ratios
ROE (15)% 5% 21%
Overhead ratio 27 31 32
2009 compared with 2008
Card Services reported a net loss of $2.2 billion, compared with net
income of $780 million in the prior year. The decrease was driven
by a higher provision for credit losses, partially offset by higher total
net revenue.
End-of-period managed loans were $163.4 billion, a decrease of
$26.9 billion, or 14%, from the prior year, reflecting lower charge
volume and a higher level of charge-offs. Average managed loans
were $172.4 billion, an increase of $9.5 billion, or 6%, from the
prior year, primarily due to the impact of the Washington Mutual
transaction. Excluding the impact of the Washington Mutual trans-
action, end-of-period and average managed loans for 2009 were
$143.8 billion and $148.8 billion, respectively.
Managed total net revenue was $20.3 billion, an increase of $3.8
billion, or 23%, from the prior year. Net interest income was $17.4
billion, up by $3.6 billion, or 26%, from the prior year, driven by
wider loan spreads and the impact of the Washington Mutual
transaction. These benefits were offset partially by higher revenue
reversals associated with higher charge-offs, a decreased level of
fees, lower average managed loan balances, and the impact of
legislative changes. Noninterest revenue was $2.9 billion, an in-
crease of $201 million, or 7%, from the prior year. The increase
was driven by higher merchant servicing revenue related to the
dissolution of the Chase Paymentech Solutions joint venture and
the impact of the Washington Mutual transaction, partially offset by
lower securitization income.
The managed provision for credit losses was $18.5 billion, an
increase of $8.4 billion from the prior year, reflecting a higher level
of charge-offs and an addition of $2.4 billion to the allowance for
loan losses, reflecting continued weakness in the credit environ-
ment. The managed net charge-off rate was 9.33%, up from
5.01% in the prior year. The 30-day managed delinquency rate was
6.28%, up from 4.97% in the prior year. Excluding the impact of
the Washington Mutual transaction, the managed net charge-off
rate was 8.45%, and the 30-day managed delinquency rate was
5.52%.
Noninterest expense was $5.4 billion, an increase of $241 million,
or 5%, from the prior year, due to the dissolution of the Chase
Paymentech Solutions joint venture and the impact of the Washing-
ton Mutual transaction, partially offset by lower marketing expense.
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. End-of-period managed loans
were $190.3 billion, an increase of $33.3 billion, or 21%, from the
prior year. Excluding Washington Mutual, average managed loans
were $155.9 billion and end-of-period managed loans were $162.1