JP Morgan Chase 2015 Annual Report Download - page 90

Management’s discussion and analysis
80 JPMorgan Chase & Co./2015 Annual Report
EXPLANATION AND RECONCILIATION OF THE FIRM’S USE OF NON-GAAP FINANCIAL MEASURES
The Firm prepares its Consolidated Financial Statements
using U.S. GAAP; these financial statements appear on
pages 176–180. 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 companies’ U.S. GAAP
financial statements.
In addition to analyzing the Firm’s results on a reported
basis, management reviews the Firm’s results, including the
overhead ratio, and the results of the lines of business, on a
“managed” basis, which are non-GAAP financial measures.
The Firm’s definition of managed basis starts with the
reported U.S. GAAP results and includes certain
reclassifications to present total net revenue for the Firm
(and each of the reportable business segments) on an FTE
basis. Accordingly, revenue from investments that receive
tax credits and tax-exempt securities is presented in the
managed results on a basis comparable to taxable
investments and securities. This non-GAAP financial
measure allows management to assess the comparability of
revenue arising from both taxable and tax-exempt sources.
The corresponding income tax impact related to tax-exempt
items is recorded within income tax expense. These
adjustments have no impact on net income as reported by
the Firm as a whole or by the lines of business.
Effective January 1, 2015, the Firm adopted new
accounting guidance for investments in affordable housing
projects that qualify for the low-income housing tax credit,
which impacted the CIB. As a result of the adoption of this
new guidance, the Firm made an accounting policy election
to amortize the initial cost of qualifying investments in
proportion to the tax credits and other benefits received,
and to present the amortization as a component of income
tax expense; previously such amounts were predominantly
presented in other income. The guidance was required to be
applied retrospectively and, accordingly, certain prior
period amounts have been revised to conform with the
current period presentation. The adoption of the guidance
did not materially change the Firm’s results of operations on
a managed basis as the Firm had previously presented and
will continue to present the revenue from such investments
on an FTE basis in other income for the purposes of
managed basis reporting.
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.
The following summary table provides a reconciliation from the Firm’s reported U.S. GAAP results to managed basis.
2015 2014 2013
Year ended
December 31,
(in millions, except ratios)
Reported
Results
Fully taxable-
equivalent
adjustments(a)
Managed
basis
Reported
Results
Fully taxable-
equivalent
adjustments(a)
Managed
basis
Reported
Results
Fully taxable-
equivalent
adjustments(a)
Managed
basis
Other income $ 3,032 $ 1,980 $ 5,012 $ 3,013 $ 1,788 $ 4,801 $4,608 $1,660 $6,268
Total noninterest revenue 50,033 1,980 52,013 51,478 1,788 53,266 54,048 1,660 55,708
Net interest income 43,510 1,110 44,620 43,634 985 44,619 43,319 697 44,016
Total net revenue 93,543 3,090 96,633 95,112 2,773 97,885 97,367 2,357 99,724
Pre-provision profit 34,529 3,090 37,619 33,838 2,773 36,611 26,900 2,357 29,257
Income before income tax expense 30,702 3,090 33,792 30,699 2,773 33,472 26,675 2,357 29,032
Income tax expense 6,260 3,090 9,350 8,954 2,773 11,727 8,789 2,357 11,146
Overhead ratio 63% NM 61% 64% NM 63% 72% NM 71%
(a) Predominantly recognized in CIB and CB business segments and Corporate