JP Morgan Chase 2008 Annual Report Download - page 52

sheet and presents revenue on a fully taxable-equivalent (“FTE”)
basis. These adjustments do not have any impact on net income as
reported by the lines of business 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 SFAS 140 remain on the Consolidated Balance Sheets and that
the earnings on the securitized loans are classified in the same man-
ner as the earnings on retained loans recorded on the Consolidated
Balance Sheets. JPMorgan Chase uses the concept of managed basis
to evaluate the credit performance and overall financial performance
of the entire managed credit card portfolio. Operations are funded
and decisions are made about allocating resources, such as employ-
ees and capital, based upon managed financial information. In addi-
tion, the same underwriting standards and ongoing risk monitoring
The Firm prepares its consolidated financial statements using
accounting principles generally accepted in the United States of
America (“U.S. GAAP”); these financial statements appear on pages
130–133 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 com-
panies’ 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
JPMorgan Chase & Co./ 2008 Annual Report50
Management’s discussion and analysis
EXPLANATION AND RECONCILIATION OF THE FIRM’S USE OF NON-GAAP FINANCIAL MEASURES
The following summary table provides a reconciliation from the Firm’s reported U.S. GAAP results to managed basis.
(Table continues on next page)
2008 2007
Year ended December 31, Fully Fully
(in millions, except Reported tax-equivalent Managed Reported tax-equivalent Managed
per share and ratio data) results Credit card(c) adjustments basis results Credit card(c) adjustments basis
Revenue
Investment banking fees $ 5,526 $ — $ — $ 5,526 $ 6,635 $ — $ — $ 6,635
Principal transactions (10,699) — — (10,699) 9,015 — — 9,015
Lending & deposit-related fees 5,088 — — 5,088 3,938 — — 3,938
Asset management, administration
and commissions 13,943 — — 13,943 14,356 — — 14,356
Securities gains (losses) 1,560 — — 1,560 164 — — 164
Mortgage fees and related income 3,467 — — 3,467 2,118 — — 2,118
Credit card income 7,419 (3,333) — 4,086 6,911 (3,255) — 3,656
Other income 2,169 — 1,329 3,498 1,829 — 683 2,512
Noninterest revenue 28,473 (3,333) 1,329 26,469 44,966 (3,255) 683 42,394
Net interest income 38,779 6,945 579 46,303 26,406 5,635 377 32,418
Total net revenue 67,252 3,612 1,908 72,772 71,372 2,380 1,060 74,812
Provision for credit losses 19,445 3,612 — 23,057 6,864 2,380 — 9,244
Provision for credit losses –
accounting conformity(a) 1,534 — — 1,534 ————
Noninterest expense 43,500 — — 43,500 41,703 — — 41,703
Income from continuing operations
before income tax expense 2,773 — 1,908 4,681 22,805 — 1,060 23,865
Income tax expense (benefit) (926) — 1,908 982 7,440 — 1,060 8,500
Income from continuing operations 3,699 — — 3,699 15,365 — — 15,365
Income from discontinued operations ————————
Income before extraordinary gain 3,699 — — 3,699 15,365 — — 15,365
Extraordinary gain 1,906 — — 1,906 ————
Net income $ 5,605 $ — $ — $ 5,605 $ 15,365 $ — $ — $ 15,365
D iluted earnings
per share(b) $ 0.84 $ — $ — $ 0.84 $ 4.38 $ — $ — $ 4.38
Returnon commonequity(b) 2% —% —% 2% 13% —% —% 13%
Return on common equity less goodwill(b) 4—— 421 — — 21
Return on assets(b) 0.21 NM NM 0.20 1.06 NM NM 1.01
Overhead ratio 65 NM NM 60 58 NM NM 56
Loans–Period-end $ 744,898 $85,571 $ — $ 830,469 $ 519,374 $ 72,701 $ — $ 592,075
Total assets – average 1,791,617 76,904 — 1,868,521 1,455,044 66,780 — 1,521,824
(a) 2008 included an accounting conformity loan loss reserve provision related to the acquisition of Washington Mutual’s banking operations.
(b) Based on income from continuing operations.
(c) Credit card securitizations affect CS. See pages 63–65 of this Annual Report for further information.