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/Private Equity 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 82–83 of this Annual Report.
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/Private Equity. 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”).
Business segment capital allocation changes
Each business segment is allocated capital by taking into consideration stand-alone peer comparisons, regulatory capital requirements (as estimated under Basel III) and economic risk measures. The amount of capital assigned to each business is referred to as equity. Effective January 1, 2013, the Firm refined the capital allocation framework to align it with the line of business structure described above.
The increase in equity levels for the lines of businesses is largely driven by evolving regulatory requirements and the higher capital targets the Firm has established under the Basel III Advanced Approach. For further information about these capital changes, see Line of business equity on pages 165–166 of this Annual Report.
JPMorgan Chase & Co./2013 Annual Report 85
Expense allocation
Where business segments use services provided by support units within the Firm, or another business segment, the costs of those services are allocated to the respective business segments. The expense is generally allocated based on actual cost and upon usage of the services provided. In contrast, certain other expense related to certain corporate functions, or to certain technology and
operations, are not allocated to the business segments and are retained in Corporate. Retained expense includes:
parent company costs that would not be incurred if the segments were stand-alone businesses; adjustments to align certain corporate staff, technology and operations allocations with market prices; and other items not aligned with a particular business segment.
Segment Results – Managed Basis
The following table summarizes the business segment results for the periods indicated.
Year ended December 31, Total net revenue Total noninterest expense Pre-provision profit/(loss)
(in millions) 2013 2012 2011 2013 2012 2011 2013 2012 2011
Consumer & Community Banking(a) $ 46,026 $ 49,884 $ 45,619 $ 27,842 $ 28,827 $ 27,637 $ 18,184 $ 21,057 $ 17,982
Corporate & Investment Bank 34,225 34,326 33,984 21,744 21,850 21,979 12,481 12,476 12,005
Commercial Banking 6,973 6,825 6,418 2,610 2,389 2,278 4,363 4,436 4,140
Asset Management 11,320 9,946 9,543 8,016 7,104 7,002 3,304 2,842 2,541
Corporate/Private Equity(a) 1,254 (1,091) 4,203 10,255 4,559 4,015 (9,001) (5,650) 188
Total $ 99,798 $ 99,890 $ 99,767 $ 70,467 $ 64,729 $ 62,911 $ 29,331 $ 35,161 $ 36,856
Year ended December 31, Provision for credit losses Net income/(loss) Return on equity
(in millions, except ratios) 2013 2012 2011 2013 2012 2011 2013 2012 2011
Consumer & Community Banking(a) $ 335 $ 3,774 $ 7,620 $ 10,749 $ 10,551 $ 6,105 23% 25% 15%
Corporate & Investment Bank (232) (479) (285) 8,546 8,406 7,993 15 18 17
Commercial Banking 85 41 208 2,575 2,646 2,367 19 28 30
Asset Management 65 86 67 2,031 1,703 1,592 23 24 25
Corporate/Private Equity(a) (28) (37) (36) (5,978) (2,022) 919 NM NM NM
Total $ 225 $ 3,385 $ 7,574 $ 17,923 $ 21,284 $ 18,976 9% 11% 11%
(a) The 2012 and 2011 data for certain income statement line items (predominantly net interest income, compensation and noncompensation expense) were revised to reflect the transfer of certain technology and operations, as well as real estate-related functions and staff, from Corporate/Private Equity to CCB, effective January 1, 2013.
Management’s discussion and analysis
86 JPMorgan Chase & Co./2013 Annual Report
CONSUMER & COMMUNITY BANKING
Consumer & Community Banking (“CCB”) serves consumers and businesses through personal service at bank branches and through ATMs, online, mobile and telephone banking. CCB is organized into Consumer &
Business Banking, Mortgage Banking (including Mortgage Production, Mortgage Servicing and Real Estate Portfolios) and Card, Merchant Services & Auto (“Card”). Consumer & Business Banking offers deposit and investment products and services to consumers, and lending, deposit, and cash management and payment solutions to small businesses. Mortgage Banking includes mortgage origination and servicing activities, as well as portfolios comprised of residential mortgages and home equity loans, including the PCI portfolio acquired in the Washington Mutual
transaction. Card issues credit cards to consumers and small businesses, provides payment services to corporate and public sector clients through its commercial card products, offers payment processing services to merchants, and provides auto and student loan services.
Selected income statement data(a)
Year ended December 31,
(in millions, except ratios) 2013 2012 2011
Revenue
Lending- and deposit-related fees $ 2,983 $ 3,121 $ 3,219 Asset management,
administration and commissions 2,116 2,093 2,046 Mortgage fees and related income 5,195 8,680 2,714
Card income 5,785 5,446 6,152
All other income 1,473 1,473 1,183
Noninterest revenue 17,552 20,813 15,314
Net interest income 28,474 29,071 30,305
Total net revenue 46,026 49,884 45,619
Provision for credit losses 335 3,774 7,620
Noninterest expense
Compensation expense 11,686 11,632 10,329
Noncompensation expense 15,740 16,420 16,669
Amortization of intangibles 416 775 639
Total noninterest expense 27,842 28,827 27,637 Income before income tax
expense 17,849 17,283 10,362
Income tax expense 7,100 6,732 4,257
Net income $ 10,749 $10,551 $ 6,105
Financial ratios
Return on common equity 23% 25% 15%
Overhead ratio 60 58 61
(a) The 2012 and 2011 data for certain income statement line items (predominantly net interest income, compensation and noncompensation expense) were revised to reflect the transfer of certain technology and operations, as well as real estate-related functions and staff, from Corporate/
Private Equity to CCB, effective January 1, 2013.
2013 compared with 2012
Consumer & Community Banking net income was $10.7 billion, an increase of $198 million, or 2%, compared with the prior year, due to lower provision for credit losses and lower noninterest expense, predominantly offset by lower net revenue.
Net revenue was $46.0 billion, a decrease of $3.9 billion, or 8%, compared with the prior year. Net interest income was
$28.5 billion, down $597 million, or 2%, driven by lower deposit margins, lower loan balances due to net portfolio runoff and spread compression in Credit Card, largely offset by higher deposit balances. Noninterest revenue was $17.6 billion, a decrease of $3.3 billion, or 16%, driven by lower mortgage fees and related income, partially offset by higher card income.
The provision for credit losses was $335 million, compared with $3.8 billion in the prior year. The current-year
provision reflected a $5.5 billion reduction in the allowance for loan losses and total net charge-offs of $5.8 billion. The prior-year provision reflected a $5.5 billion reduction in the allowance for loan losses and total net charge-offs of $9.3 billion, including $800 million of incremental charge-offs related to regulatory guidance. For more information, including net charge-off amounts and rates, see Consumer Credit Portfolio on pages 120–129 of this Annual Report.
Noninterest expense was $27.8 billion, a decrease of $985 million, or 3%, from the prior year, driven by lower
mortgage servicing expense, partially offset by investments in Chase Private Client expansion, higher non-MBS related legal expense in Mortgage Production, higher auto lease depreciation, and costs related to the control agenda.
2012 compared with 2011
Consumer & Community Banking net income was $10.6 billion, up 73% when compared with the prior year. The increase was driven by higher net revenue and lower provision for credit losses, partially offset by higher noninterest expense.
Net revenue was $49.9 billion, up $4.3 billion, or 9%, compared with the prior year. Net interest income was
$29.1 billion, down $1.2 billion, or 4%, driven by lower deposit margins and lower loan balances due to portfolio runoff, largely offset by higher deposit balances.
Noninterest revenue was $20.8 billion, up $5.5 billion, or 36%, driven by higher mortgage fees and related income, partially offset by lower debit card revenue, reflecting the impact of the Durbin Amendment.
The provision for credit losses was $3.8 billion compared with $7.6 billion in the prior year. The current-year
provision reflected a $5.5 billion reduction in the allowance for loan losses due to improved delinquency trends and reduced estimated losses in the real estate and credit card loan portfolios. Current-year total net charge-offs were $9.3 billion, including $800 million of incremental charge-offs
JPMorgan Chase & Co./2013 Annual Report 87
related to regulatory guidance. Excluding these charge-offs, net charge-offs during the year would have been $8.5 billion compared with $11.8 billion in the prior year. For more information, including net charge-off amounts and rates, see Consumer Credit Portfolio on pages 120–129 of this Annual Report.
Noninterest expense was $28.8 billion, an increase of $1.2 billion, or 4%, compared with the prior year, driven by higher production expense reflecting higher volumes, and investments in sales force, partially offset by lower costs related to mortgage-related matters and lower marketing expense in Card.
Selected metrics
As of or for the year ended December 31,
(in millions, except
headcount) 2013 2012 2011
Selected balance sheet data (period-end)(a)
Total assets $ 452,929 $ 467,282 $ 486,697
Loans:
Loans retained 393,351 402,963 425,581
Loans held-for-sale and
loans at fair value(b) 7,772 18,801 12,796
Total loans 401,123 421,764 438,377
Deposits 464,412 438,517 397,868
Equity 46,000 43,000 41,000
Selected balance sheet data (average)(a)
Total assets 456,468 467,641 491,035
Loans:
Loans retained 392,797 408,559 429,975
Loans held-for-sale and
loans at fair value(b) 15,812 18,006 17,187
Total loans 408,609 426,565 447,162
Deposits 453,304 413,948 382,702
Equity 46,000 43,000 41,000
Headcount(a) 151,333 164,391 166,053
(a) The 2012 and 2011 data for certain balance sheet line items (predominantly total assets) as well as headcount were revised to reflect the transfer of certain technology and operations, as well as real estate-related functions and staff, from Corporate/Private Equity to CCB, effective January 1, 2013.
(b) Predominantly consists of prime mortgages originated with the intent to sell that are accounted for at fair value and classified as trading assets on the
Consolidated Balance Sheets.
Selected metrics
As of or for the year ended December 31,
(in millions, except ratios and
where otherwise noted) 2013 2012 2011
Credit data and quality statistics
Net charge-offs(a)(b) $ 5,826 $ 9,280 $ 11,815 Nonaccrual loans:
Nonaccrual loans retained 7,455 9,114 7,354 Nonaccrual loans held-for-sale
and loans at fair value 40 39 103
Total nonaccrual loans(c)(d)(e)(f) 7,495 9,153 7,457 Nonperforming assets(c)(d)(e)(f) 8,149 9,830 8,292 Allowance for loan losses(a) 12,201 17,752 23,256
Net charge-off rate(b)(g) 1.48% 2.27% 2.75%
Net charge-off rate,excluding PCI
loans(a)(b)(g) 1.73 2.68 3.27
Allowance for loan losses to
period-end loans retained 3.10 4.41 5.46
Allowance for loan losses to period-end loans retained,
excluding PCI loans(h) 2.36 3.51 4.87
Allowance for loan losses to nonaccrual loans retained,
excluding credit card(c)(f)(h) 57 72 143
Nonaccrual loans to total period-end loans, excluding
credit card(f) 2.74 3.12 2.44
Nonaccrual loans to total period-end loans, excluding credit card
and PCI loans(c)(f) 3.40 3.91 3.10
Business metrics Number of:
Branches 5,630 5,614 5,508
ATMs 19,211 18,699 17,235
Active online customers (in
thousands) 33,742 31,114 29,749
Active mobile customers (in
thousands) 15,629 12,359 8,203
(a) Net charge-offs and net charge-off rates for the year ended December 31, 2013 excluded $53 million of write-offs in the PCI portfolio. These write-offs decreased the allowance for loan losses for PCI loans. For further information, see Consumer Credit Portfolio on pages 120–129 of this Annual Report.
(b) Net charge-offs and net charge-off rates for the year ended December 31, 2012, included $800 million of charge-offs, recorded in accordance with regulatory guidance on certain loans discharged under Chapter 7 bankruptcy and not reaffirmed by the borrower (“Chapter 7 loans”) to be charged off to the net realizable value of the collateral and to be considered nonaccrual, regardless of their delinquency status.
Excluding these charges-offs, net charge-offs for the year ended December 31, 2012, would have been $8.5 billion and excluding these charge-offs and PCI loans, the net charge-off rate for the year ended December 31, 2012, would have been 2.45%. For further information, see Consumer Credit Portfolio on pages 120–129 of this Annual Report.
(c) Excludes PCI loans. The Firm is recognizing interest income on each pool of PCI loans as they are all performing.
(d) Certain mortgages originated with the intent to sell are classified as trading assets on the Consolidated Balance Sheets.
(e) At December 31, 2013, 2012 and 2011, nonperforming assets excluded: (1) mortgage loans insured by U.S. government agencies of $8.4 billion, $10.6 billion, and $11.5 billion, respectively, that are 90 or more days past due; (2) real estate owned insured by U.S. government agencies of $2.0 billion, $1.6 billion, and $954 million, respectively; and (3) student loans insured by U.S. government agencies under the Federal Family Education Loan Program (“FFELP”) of $428 million, $525 million, and
$551 million, respectively, that are 90 or more days past due. These amounts have been excluded from nonaccrual loans based upon the government guarantee.
(f) Nonaccrual loans included $3.0 billion of loans at December 31, 2012, based upon regulatory guidance. For further information, see Consumer Credit Portfolio on pages 120–129 of this Annual Report.
(g) Loans held-for-sale and loans accounted for at fair value were excluded when calculating the net charge-off rate.
(h) An allowance for loan losses of $4.2 billion at December 31, 2013, and $5.7 billion at December 31, 2012 and 2011 was recorded for PCI loans; these amounts were also excluded from the applicable ratios.
Management’s discussion and analysis
88 JPMorgan Chase & Co./2013 Annual Report