JP Morgan Chase 2006 Annual Report Download - page 35

(Table continued from previous page)
2004(c)
Reported Credit Tax-equivalent Managed
results card(b) adjustments basis
$ 3,536 $ — $ — $ 3,536
5,148 — — 5,148
2,672 — — 2,672
7,682 — — 7,682
338 — — 338
803 — — 803
4,840 (2,267) — 2,573
826 (86) 317 1,057
25,845 (2,353) 317 23,809
16,527 5,251 6 21,784
42,372 2,898 323 45,593
2,544 2,898 — 5,442
33,972 — — 33,972
5,856 — 323 6,179
1,596 — 323 1,919
4,260 — — 4,260
206 — — 206
$ 4,466 $ — $ — $ 4,466
$ 1.48 $ — $ — $ 1.48
6% —% —% 6%
8— — 8
0.44 NM NM 0.43
80 NM NM 75
$402,114 $ 70,795 — $ 472,909
962,556 51,084 — 1,013,640
JPMorgan Chase & Co. / 2006 Annual Report 33
Calculation of Certain GAAP and Non-GAAP Metrics
The table below reflects the formulas used to calculate both the following
GAAP and non-GAAP measures:
Return on common equity
Net income*/ Average common stockholders’ equity
Return on common equity less goodwill(a)
Net income*/ Average common stockholders’ equity less goodwil l
Return on assets
Reported Net income / Total average assets
Managed Net income / Total average managed assets(b)
(including average securitized credit card receivables)
Overhead ratio
Total noninterest expense / Total net revenue
* Represents Net income applicable to common stock
(a) The Firm uses Return on common equity less goodwill, a non-GAAP financial measure,
to evaluate the operating performance of the Firm and to facilitate comparisons to
competitors.
(b) The Firm uses Return on managed assets, a non-GAAP financial measure, to evaluate
the overall performance of the managed credit card portfolio, including securitized credit
card loans.
managed credit card portfolio. Operations are funded and decisions are made
about allocating resources, such as employees and capital, based upon man-
aged financial information. In addition, the same underwriting standards and
ongoing risk monitoring are used for both loans on the balance sheet and
securitized loans. Although securitizations result in the sale of credit card
receivables to a trust, JPMorgan Chase retains the ongoing customer relation-
ships, 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 balance sheet. 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 balance sheet and the Firm’s
retained interests in securitized loans. For a reconciliation of reported to man-
aged basis of CS results, see Card Services segment results on pages 43–45
of this Annual Report. For information regarding the securitization process,
and loans and residual interests sold and securitized, see Note 14 on pages
114–118 of this Annual Report.
Total net revenue for each of the business segments and the Firm is present-
ed on an FTE basis. Accordingly, revenue from tax-exempt securities and
investments that receive tax credits is presented in the managed results on a
basis comparable to taxable securities and investments. This non-GAAP finan-
cial measure allows management to assess the comparability of revenues aris-
ing from both taxable and tax-exempt sources. The corresponding income tax
impact related to these items is recorded within Income tax expense.
Management also uses certain non-GAAP financial measures at the segment
level because it believes these non-GAAP financial measures provide informa-
tion to investors about the underlying operational performance and trends of
the particular business segment and therefore facilitate a comparison of the
business segment with the performance of its competitors.