JP Morgan Chase 2010 Annual Report Download - page 292

Notes to consolidated financial statements
JPMorgan Chase & Co./2010 Annual Report
292
Segment results
The following table provides a summary of the Firm’s segment results for 2010, 2009 and 2008 on a managed basis. Prior to the January 1, 2010,
adoption of the accounting guidance related to VIEs, the impact of credit card securitization adjustments had been included in reconciling items so
that the total Firm results are on a reported basis. Finally, total net revenue (noninterest revenue and net interest income) for each of the segments
is presented on a tax-equivalent basis. Accordingly, revenue from tax-exempt securities and investments that receive tax credits are presented in
the managed results on a basis comparable to taxable securities and investments. This approach allows management to assess the comparability
of revenue arising from both taxable and tax-exempt sources. The corresponding income tax impact related to these items is recorded within
income tax expense/(benefit).
Segment results and reconciliation(a) (table continued on next page)
Year ended December 31,
Investment
Bank
Retail Financial
Services
Card
Services(f)
Commercial
Banking
(in millions, except ratios) 2010 2009 2008 2010 2009 2008 2010 2009 2008 2010 2009 2008
Noninterest revenue $ 18,253 $ 18,522 $ 2,051 $ 12,228 $ 12,200 $ 9,355 $ 3,277 $ 2,920 $ 2,719 $ 2,200 $ 1,817 $ 1,481
Net interest income 7,964 9,587 10,284 19,528 20,492 14,165 13,886 17,384 13,755 3,840 3,903 3,296
Total net revenue 26,217 28,109 12,335 31,756 32,692 23,520 17,163 20,304 16,474 6,040 5,720 4,777
Provision for credit losses (1,200) 2,279 2,015 9,452 15,940 9,905 8,037 18,462 10,059 297 1,454 464
Credit reimbursement
(to)/from TSS(b) — — — — — — — — — — — —
Noninterest expense
(c)
17,265 15,401 13,844 17,864 16,748 12,077 5,797 5,381 5,140 2,199 2,176 1,946
Income/(loss) before
income tax expense/
(benefit) and
extraordinary gain 10,152 10,429 (3,524) 4,440 4 1,538 3,329 (3,539) 1,275 3,544 2,090 2,367
Income tax expense/(benefit)
3,513 3,530 (2,349) 1,914 (93) 658 1,255 (1,314) 495 1,460 819 928
Income/(loss) before
extraordinary gain 6,639 6,899 (1,175) 2,526 97 880 2,074 (2,225) 780 2,084 1,271 1,439
Extraordinary gain
(d)
— — — — — — — — — — — —
Net income/(loss) $ 6,639 $ 6,899 $ (1,175) $ 2,526 $ 97 $ 880 $ 2,074 $ (2,225) $ 780 $ 2,084 $ 1,271 $ 1,439
Average common equity $ 40,000 $ 33,000 $ 26,098 $ 28,000 $ 25,000 $ 19,011 $ 15,000 $ 15,000 $ 14,326 $ 8,000 $ 8,000 $ 7,251
Average assets 731,801 699,039 832,729 381,337 407,497 304,442 145,750 192,749 173,711 133,654 135,408 114,299
Return on average equity
(
e
)
17% 21% (5)% 9% —% 5% 14% (15)% 5% 26% 16% 20 %
Overhead ratio 66 55 112 56 51 51 34 27 31 36 38 41
(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 finan-
cial measure. The Firm’s definition 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) TSS was charged a credit reimbursement related to certain exposures managed within IB credit portfolio on behalf of clients shared with TSS. IB recognizes this credit
reimbursement in its credit portfolio business in all other income.
(c) Includes merger costs, which are reported in the Corporate/Private Equity segment. There were no merger costs in 2010. Merger costs attributed to the business
segments for 2009 and 2008 were as follows.
Year ended December 31, (in millions)
200
9
200
8
Investment Bank
$
27
$
183
Retail Financial Services
228
90
Card Services
40
20
Commercial Banking
6
4
Treasury & Securities Servic
es
11
—
Asset Manag
e
ment
6
3
Corporate/Private Equity
163
132
(d) On September 25, 2008, JPMorgan Chase acquired the banking operations of Washington Mutual from the FDIC for $1.9 billion. The fair value of the net assets
acquired exceeded the purchase price, which resulted in negative goodwill. In accordance with U.S. GAAP for business combinations, nonfinancial assets that are not
held-for-sale, such as premises and equipment and other intangibles, acquired in the Washington Mutual transaction were written down against that negative goodwill.
The negative goodwill that remained after writing down nonfinancial assets was recognized as an extraordinary gain.
(e) Ratio is based on income/(loss) before extraordinary gain for 2009 and 2008.
(f) Effective January 1, 2010, the Firm adopted accounting guidance related to VIEs. Prior to the adoption of the new guidance, managed results for credit card excluded
the impact of credit card securitizations on total net revenue, provision for credit losses and average assets, as JPMorgan Chase treated the sold receivables as if they
were still on the balance sheet in evaluating the credit performance of the entire managed credit card portfolio, as operations are funded, and decisions are made about
allocating resources, such as employees and capital, based on managed information. These adjustments are eliminated in reconciling items to arrive at the Firm’s re-
ported U.S. GAAP results. The related securitization adjustments were as follows.
Year ended December 31, (i
n millions)
2010
2009
2008
Noninterest revenue
NA
$
(1,494)
$ (3,333
)
Net interest income
NA
7,937
6,945
Provision for credit losses
NA
6,443
3,612
Average assets
NA
82,233
76,904
(g) Included a $1.5 billion charge to conform Washington Mutual’s credit loss reserve to JPMorgan Chase’s allowance methodology.