JP Morgan Chase 2012 Annual Report Download - page 86

Management’s discussion and analysis
96 JPMorgan Chase & Co./2012 Annual Report
COMMERCIAL BANKING
Commercial Banking delivers extensive industry
knowledge, local expertise and dedicated service to U.S.
and U.S. multinational clients, including corporations,
municipalities, financial institutions and non-profit
entities with annual revenue generally ranging from
$20 million to $2 billion. CB provides financing to real
estate investors and owners. Partnering with the Firm’s
other businesses, CB provides comprehensive financial
solutions, including lending, treasury services,
investment banking and asset management to meet its
clients’ domestic and international financial needs.
Selected income statement data
Year ended December 31,
(in millions, except ratios) 2012 2011 2010
Revenue
Lending- and deposit-related fees $ 1,072 $ 1,081 $ 1,099
Asset management, administration
and commissions 130 136 144
All other income(a) 1,081 978 957
Noninterest revenue 2,283 2,195 2,200
Net interest income 4,542 4,223 3,840
Total net revenue(b) 6,825 6,418 6,040
Provision for credit losses 41 208 297
Noninterest expense
Compensation expense(c) 1,014 936 863
Noncompensation expense(c) 1,348 1,311 1,301
Amortization of intangibles 27 31 35
Total noninterest expense 2,389 2,278 2,199
Income before income tax expense 4,395 3,932 3,544
Income tax expense 1,749 1,565 1,460
Net income $ 2,646 $ 2,367 $ 2,084
Revenue by product
Lending(d) $ 3,675 $ 3,455 $ 2,749
Treasury services(d) 2,428 2,270 2,632
Investment banking 545 498 466
Other 177 195 193
Total Commercial Banking revenue $ 6,825 $ 6,418 $ 6,040
Investment banking revenue, gross $ 1,597 $ 1,421 $ 1,335
Revenue by client segment
Middle Market Banking $ 3,334 $ 3,145 $ 3,060
Commercial Term Lending 1,194 1,168 1,023
Corporate Client Banking 1,456 1,261 1,154
Real Estate Banking 438 416 460
Other 403 428 343
Total Commercial Banking revenue $ 6,825 $ 6,418 $ 6,040
Financial ratios
Return on common equity 28% 30% 26%
Overhead ratio 35 35 36
(a) CB client revenue from investment banking products and commercial
card transactions is included in all other income.
(b) Included tax-equivalent adjustments, predominantly due to income tax
credits related to equity investments in designated community
development entities that provide loans to qualified businesses in low-
income communities, as well as tax-exempt income from municipal
bond activity, of $381 million, $345 million, and $238 million for the
years ended December 31, 2012, 2011 and 2010, respectively.
(c) Effective July 1, 2012, certain Treasury Services product sales staff
supporting CB were transferred from CIB to CB. As a result,
compensation expense for these sales staff is now reflected in CB’s
compensation expense rather than as an allocation from CIB in
noncompensation expense. CB’s and CIB’s previously reported
headcount, compensation expense and noncompensation expense
have been revised to reflect this transfer.
(d) Effective January 1, 2011, product revenue from commercial card and
standby letters of credit transactions was included in lending. For the
years ended December 31, 2012 and 2011, the impact of the change
was $434 million and $438 million, respectively. For the year ended
December 31, 2010, it was reported in treasury services.
CB revenue comprises the following:
Lending includes a variety of financing alternatives, which
are predominantly provided on a basis secured by
receivables, inventory, equipment, real estate or other
assets. Products include term loans, revolving lines of credit,
bridge financing, asset-based structures, leases, commercial
card products and standby letters of credit.
Treasury services includes revenue from a broad range of
products and services that enable CB clients to manage
payments and receipts, as well as invest and manage funds.
Investment banking includes revenue from a range of
products providing CB clients with sophisticated capital-
raising alternatives, as well as balance sheet and risk
management tools through advisory, equity underwriting,
and loan syndications. Revenue from Fixed income and
Equity market products available to CB clients is also
included. Investment banking revenue, gross, represents
total revenue related to investment banking products sold to
CB clients.
Other product revenue primarily includes tax-equivalent
adjustments generated from Community Development
Banking activity and certain income derived from principal
transactions.
Commercial Banking is divided into four primary client
segments for management reporting purposes: Middle
Market Banking, Commercial Term Lending, Corporate
Client Banking, and Real Estate Banking.
Middle Market Banking covers corporate, municipal,
financial institution and non-profit clients, with annual
revenue generally ranging between $20 million and $500
million.
Commercial Term Lending primarily provides term financing
to real estate investors/owners for multifamily properties as
well as financing office, retail and industrial properties.
Corporate Client Banking covers clients with annual revenue
generally ranging between $500 million and $2 billion and
focuses on clients that have broader investment banking
needs.
Real Estate Banking provides full-service banking to
investors and developers of institutional-grade real estate
properties.
Other primarily includes lending and investment activity
within the Community Development Banking and Chase
Capital businesses.