JP Morgan Chase 2010 Annual Report Download - page 65

JPMorgan Chase & Co./2010 Annual Report
65
Sheets, and that the earnings on the securitized loans were classified
in the same manner as the earnings on retained loans recorded on
the Consolidated Balance Sheets. JPMorgan Chase had used this
managed-basis information to evaluate the credit performance and
overall financial performance of the entire managed credit card
portfolio. Operations were funded and decisions were made about
allocating resources, such as employees and capital, based on
managed financial information. In addition, the same underwriting
standards and ongoing risk monitoring are used for both loans on the
Consolidated Balance Sheets and securitized loans. Although
securitizations result in the sale of credit card receivables to a trust,
JPMorgan Chase retains the ongoing customer relationships, as the
customers may continue to use their credit cards; accordingly, the
customer’s credit performance affects both the securitized loans and
the loans retained on the Consolidated Balance Sheets. JPMorgan
Chase believed that this managed-basis information was useful to
investors, as it enabled them to understand both the credit risks
associated with the loans reported on the Consolidated Balance
Sheets and the Firm’s retained interests in securitized loans. For a
reconciliation of 2009 and 2008 reported to managed basis results
for CS, see CS segment results on pages 79–81 of this Annual
Report. For information regarding the securitization process, and
loans and residual interests sold and securitized, see Note 16 on
pages 244–259 of this Annual Report.
Tangible common equity (“TCE”) represents common stockholders’
equity (i.e., total stockholders’ equity less preferred stock) less
identifiable intangible assets (other than mortgage servicing rights
(“MSRs”)) and goodwill, net of related deferred tax liabilities.
ROTCE, a non-GAAP financial ratio, measures the Firm’s earnings
as a percentage of TCE and is, in management’s view, a
meaningful measure to assess the Firm’s use of equity.
Management also uses certain non-GAAP financial measures at the
business-segment level, because it believes these other non-GAAP
financial measures provide information 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. Non-
GAAP financial measures used by the Firm may not be comparable
to similarly named non-GAAP financial measures used by other
companies.
(Table continued from previous page)
2008
Reported Credit
Fully tax
-
equivalent
Managed
results card
(
c
)
adjustments
basis
$ 5,526 $ — $ — $ 5,526
(10,699) — — (10,699)
5,088 — — 5,088
13,943 — — 13,943
1,560 — — 1,560
3,467 — — 3,467
7,419 (3,333) — 4,086
2,169 — 1,329 3,498
28,473 (3,333) 1,329 26,469
38,779 6,945 579 46,303
67,252 3,612 1,908 72,772
43,500 — — 43,500
23,752 3,612 1,908 29,272
19,445 3,612 — 23,057
1,534 — — 1,534
2,773 — 1,908 4,681
(926) — 1,908 982
3,699 — — 3,699
1,906 — — 1,906
$ 5,605 $ — $ — $ 5,605
$ 0.81 $ — $ — $ 0.81
0.21% NM NM 0.20%
65 NM NM 60
$ 744,898 $ 85,571 $ — $ 830,469
1,791,617 76,904 — 1,868,521
Calculation of certain U.S. GAAP and non-GAAP metrics
The table below reflects the formulas used to calculate both the
following U.S. GAAP and non-GAAP measures.
Return on common equity
Net income* / Average common stockholders’ equity
Return on tangible common equity(d)
Net income* / Average tangible common equity
Return on assets
Reported net income / Total average assets
Managed net income / Total average managed assets(e)
(including average securitized credit card receivables)
Overhead ratio
Total noninterest expense / Total net revenue
* Represents net income applicable to common equity
(d) The Firm uses ROTCE, a non-GAAP financial measure, to evaluate its
use of equity and to facilitate comparisons with competitors.
Refer to the following page for the calculation of average tangible
common equity.
(e) 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.