JP Morgan Chase 2014 Annual Report Download - page 81

JPMorgan Chase & Co./2014 Annual Report 79
BUSINESS SEGMENT RESULTS
The Firm is managed on a line of business basis. There are
four major reportable business segments – Consumer &
Community Banking, Corporate & Investment Bank,
Commercial Banking and Asset Management. In addition,
there is a Corporate segment.
The business segments are determined based on the
products and services provided, or the type of customer
served, and they reflect the manner in which financial
information is currently evaluated by management. Results
of these lines of business are presented on a managed
basis. For a definition of managed basis, see Explanation
and Reconciliation of the Firm’s use of non-GAAP financial
measures, on pages 77–78.
Description of business segment reporting methodology
Results of the business segments are intended to reflect
each segment as if it were essentially a stand-alone
business. The management reporting process that derives
business segment results allocates income and expense
using market-based methodologies. The Firm continues to
assess the assumptions, methodologies and reporting
classifications used for segment reporting, and further
refinements may be implemented in future periods.
Revenue sharing
When business segments join efforts to sell products and
services to the Firm’s clients, the participating business
segments agree to share revenue from those transactions.
The segment results reflect these revenue-sharing
agreements.
Funds transfer pricing
Funds transfer pricing is used to allocate interest income
and expense to each business and transfer the primary
interest rate risk exposures to the Treasury group within
Corporate. The allocation process is unique to each business
segment and considers the interest rate risk, liquidity risk
and regulatory requirements of that segment as if it were
operating independently, and as compared with its stand-
alone peers. This process is overseen by senior
management and reviewed by the Firm’s Asset-Liability
Committee (“ALCO”).
Preferred stock dividend allocation reporting change
As part of its funds transfer pricing process, the Firm
allocates substantially all of the cost of its outstanding
preferred stock to its reportable business segments, while
retaining the balance of the cost in Corporate. Prior to the
fourth quarter of 2014, this cost was allocated to the Firm’s
reportable business segments as interest expense, with an
offset recorded as interest income in Corporate. Effective
with the fourth quarter of 2014, this cost is no longer
included in interest income and interest expense in the
segments, but rather is now included in net income
applicable to common equity to be consistent with the
presentation of firmwide results. As a result of this
reporting change, net interest income and net income in the
reportable business segments increases; however, there
was no impact to the segments’ return on common equity
(“ROE”). The Firm’s net interest income, net income,
Consolidated balance sheets and consolidated results of
operations were not impacted by this reporting change, as
preferred stock dividends have been and continue to be
distributed from retained earnings and, accordingly, were
never reported as a component of the Firm’s consolidated
net interest income or net income. Prior period segment
and core net interest income amounts throughout this
Annual Report have been revised to conform with the
current period presentation.