JP Morgan Chase 2006 Annual Report Download - page 142

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JPMorgan Chase & Co.
140 JPMorgan Chase & Co. / 2006 Annual Report
Segment results and reconciliation(a) (table continued on next page)
Year ended December 31,(b) Investment Bank Retail Financial Services(e) Card Services(f) Commercial Banking
(in millions, except ratios) 2006 2005 2004 2006 2005 2004 2006 2005 2004 2006 2005 2004
Noninterest revenue $ 17,778 $ 13,010 $ 9,337 $ 4,660 $ 4,625 $ 3,077 $ 2,944 $ 3,563 $ 2,371 $ 1,073 $ 986 $ 685
Net interest income 499 1,603 3,296 10,165 10,205 7,714 11,801 11,803 8,374 2,727 2,502 1,593
Total net revenue 18,277 14,613 12,633 14,825 14,830 10,791 14,745 15,366 10,745 3,800 3,488 2,278
Provision for credit losses 191 (838) (640) 561 724 449 4,598 7,346 4,851 160 73 41
Credit reimbursement
(to)/from TSS(c) 121 154 90 ——— ——— ———
Noninterest expense(d) 12,304 9,749 8,709 8,927 8,585 6,825 5,086 4,999 3,883 1,979 1,856 1,326
Income (loss) from
continuing operations
before income tax expense 5,903 5,856 4,654 5,337 5,521 3,517 5,061 3,021 2,011 1,661 1,559 911
Income tax expense (benefit) 2,229 2,183 1,698 2,124 2,094 1,318 1,855 1,114 737 651 608 350
Income (loss) from
continuing operations 3,674 3,673 2,956 3,213 3,427 2,199 3,206 1,907 1,274 1,010 951 561
Income (loss) from
discontinued operations — — — ——— ——— ———
Net income (loss) $ 3,674 $ 3,673 $ 2,956 $ 3,213 $ 3,427 $ 2,199 $ 3,206 $ 1,907 $ 1,274 $ 1,010 $ 951 $ 561
Average equity $ 20,753 $ 20,000 $ 17,290 $ 14,629 $ 13,383 $ 9,092 $ 14,100 $ 11,800 $ 7,608 $ 5,702 $ 3,400 $ 2,093
Average assets 647,569 599,761 474,436 231,566 226,368 185,928 148,153 141,933 94,741 57,754 52,358 32,547
Return on average equity 18% 18% 17% 22% 26% 24% 23% 16% 17% 18% 28% 27%
Overhead ratio 67 67 69 60 58 63 34 33 36 52 53 58
(a) In addition to analyzing the Firm’s results on a reported basis, management reviews the Firm’s lines’ of business results on a “managed basis,” which is a non-GAAP financial measure. The Firm’s defi-
nition of managed basis starts with the reported U.S. GAAP results and includes certain reclassifications that do not have any impact on Net income as reported by the lines of business or by the Firm
as a whole.
(b) 2004 results include six months of the combined Firm’s results and six months of heritage JPMorgan Chase results.
(c) TSS reimburses the IB for credit portfolio exposures the IB manages on behalf of clients the segments share. At the time of the Merger, the reimbursement methodology was revised to be based upon pretax
earnings, net of the cost of capital related to those exposures. Prior to the Merger, the credit reimbursement was based upon pretax earnings, plus the allocated capital associated with the shared clients.
(d) Includes Merger costs which are reported in the Corporate segment. Merger costs attributed to the business segments for 2006, 2005 and 2004 were as follows:
Year ended December 31, (in millions) 2006 2005 2004(b)
Investment Bank $2 $32 $74
Retail Financial Services 24 133 201
Card Services 29 222 79
Commercial Banking 1323
Treasury & Securities Services 117 95 68
Asset Management 23 60 31
Corporate 109 177 889
(e) Effective January 1, 2006, RFS was reorganized into three businesses: Regional Banking, Mortgage Banking and Auto Finance.
(f) Managed results for CS exclude the impact of credit card securitizations on Total net revenue, Provision for credit losses and Average assets, as JPMorgan Chase treats the sold receivables as if they
were still on the balance sheet in evaluating credit performance and the overall performance of CS’ entire managed credit card portfolio as operations are funded, and decisions are made about allo-
cating resources such as employees and capital, based upon managed information. These adjustments are eliminated in Reconciling items to arrive at the Firm’s reported U.S. GAAP results. The related
securitization adjustments were as follows:
Year ended December 31, (in millions) 2006 2005 2004(b)
Noninterest revenue $ (3,509) $ (2,718) $ (2,353)
Net interest income 5,719 6,494 5,251
Provision for credit losses 2,210 3,776 2,898
Average assets 65,266 67,180 51,084
Segment results
The following table provides a summary of the Firm’s segment results for
2006, 2005 and 2004 on a managed basis. The impact of credit card securiti-
zations and tax-equivalent adjustments have been included in Reconciling
items so that the total Firm results are on a reported basis. The first six
months of 2004 reflect heritage JPMorgan Chase–only results and have been
restated to reflect the current business segment organization and reporting
classifications.