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.
Management’s discussion and analysis
80 JPMorgan Chase & Co./2014 Annual Report
The following chart depicts how preferred stock dividends were allocated to the business segments before and after the aforementioned methodology change.
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 Advanced Fully Phased-In) and economic risk measures. The amount of capital assigned to each business is referred to as equity.
On at least an annual basis, the Firm assesses the level of capital required for each line of business as well as the assumptions and methodologies used to allocate capital to its lines of business and updates the equity allocations to its lines of business as refinements are implemented. For further information about these capital changes, see Line of business equity on page 153.
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(a)
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) 2014 2013 2012 2014 2013 2012 2014 2013 2012
Consumer & Community Banking $ 44,368 $ 46,537 $ 50,278 $ 25,609 $ 27,842 $ 28,827 $ 18,759 $ 18,695 $ 21,451
Corporate & Investment Bank 34,633 34,786 34,762 23,273 21,744 21,850 11,360 13,042 12,912
Commercial Banking 6,882 7,092 6,912 2,695 2,610 2,389 4,187 4,482 4,523
Asset Management 12,028 11,405 10,010 8,538 8,016 7,104 3,490 3,389 2,906
Corporate 12 (22) (2,072) 1,159 10,255 4,559 (1,147) (10,277) (6,631)
Total $ 97,923 $ 99,798 $ 99,890 $ 61,274 $ 70,467 $ 64,729 $ 36,649 $ 29,331 $ 35,161
Year ended December 31, Provision for credit losses Net income/(loss) Return on equity
(in millions, except ratios) 2014 2013 2012 2014 2013 2012 2014 2013 2012
Consumer & Community Banking $ 3,520 $ 335 $ 3,774 $ 9,185 $ 11,061 $ 10,791 18% 23% 25%
Corporate & Investment Bank (161) (232) (479) 6,925 8,887 8,672 10 15 18
Commercial Banking (189) 85 41 2,635 2,648 2,699 18 19 28
Asset Management 4 65 86 2,153 2,083 1,742 23 23 24
Corporate (35) (28) (37) 864 (6,756) (2,620) NM NM NM
Total $ 3,139 $ 225 $ 3,385 $ 21,762 $ 17,923 $ 21,284 10% 9% 11%
(a) Effective with the fourth quarter of 2014, the Firm changed the methodology it uses to allocate preferred stock dividends to the lines of business. Prior period amounts for net revenue, pre-provision profit/(loss) and net income/(loss) for each of the business segments were revised to conform with the current allocation methodology. The Firm’s Consolidated balance sheets and consolidated results of operations were not affected by this reporting change. For further discussion please see Preferred stock dividend allocation reporting change in Business Segment Results on pages 79–80.
JPMorgan Chase & Co./2014 Annual Report 81
CONSUMER & COMMUNITY BANKING
Consumer & Community Banking 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
Year ended December 31,
(in millions, except ratios) 2014 2013 2012
Revenue
Lending- and deposit-related fees $ 3,039 $ 2,983 $ 3,121 Asset management,
administration and commissions 2,096 2,116 2,093 Mortgage fees and related
income 3,560 5,195 8,680
Card income 5,779 5,785 5,446
All other income 1,463 1,473 1,473
Noninterest revenue 15,937 17,552 20,813
Net interest income 28,431 28,985 29,465
Total net revenue 44,368 46,537 50,278
Provision for credit losses 3,520 335 3,774
Noninterest expense
Compensation expense 10,538 11,686 11,632
Noncompensation expense 15,071 16,156 17,195
Total noninterest expense 25,609 27,842 28,827 Income before income tax
expense 15,239 18,360 17,677
Income tax expense 6,054 7,299 6,886
Net income $ 9,185 $ 11,061 $ 10,791
Financial ratios
Return on common equity 18% 23% 25%
Overhead ratio 58 60 57
Note: As discussed on pages 79–80, effective with the fourth quarter of 2014 the Firm changed its methodology for allocating the cost of preferred stock to its reportable business segments. Prior periods have been revised to conform with the current period presentation.
Note: In the discussion and the tables which follow, CCB presents certain financial measures which exclude the impact of PCI loans; these are non-GAAP financial measures. For additional information, see Explanation and Reconciliation of the Firm’s Use of Non-GAAP Financial Measures.
2014 compared with 2013
Consumer & Community Banking net income was $9.2 billion, a decrease of $1.9 billion, or 17%, compared with the prior year, due to higher provision for credit losses and lower net revenue, partially offset by lower noninterest expense.
Net revenue was $44.4 billion, a decrease of $2.2 billion, or 5%, compared with the prior year. Net interest income was
$28.4 billion, down $554 million, or 2%, driven by spread compression and lower mortgage warehouse balances, largely offset by higher deposit balances in Consumer &
Business Banking and higher loan balances in Credit Card.
Noninterest revenue was $16.0 billion, a decrease of $1.6 billion, or 9%, driven by lower mortgage fees and related income.
The provision for credit losses was $3.5 billion, compared with $335 million in the prior year. The current-year provision reflected a $1.3 billion reduction in the allowance for loan losses and total net charge-offs of $4.8 billion. The prior-year provision reflected a $5.5 billion reduction in the allowance for loan losses and total net charge-offs of $5.8 billion. For more information, including net charge-off amounts and rates, see Consumer Credit Portfolio.
Noninterest expense was $25.6 billion, a decrease of $2.2 billion, or 8%, from the prior year, driven by lower Mortgage Banking expense.
2013 compared with 2012
Consumer & Community Banking net income was $11.1 billion, an increase of $270 million, or 3%, 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 $46.5 billion, a decrease of $3.7 billion, or 7%, compared with the prior year. Net interest income was
$29.0 billion, down $480 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 113–119.
Management’s discussion and analysis
82 JPMorgan Chase & Co./2014 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.
Selected metrics
As of or for the year ended December 31,
(in millions, except
headcount) 2014 2013 2012
Selected balance sheet data (period-end)
Total assets $ 455,634 $ 452,929 $ 467,282
Trading assets - loans(a) 8,423 6,832 18,801 Loans:
Loans retained 396,288 393,351 402,963
Loans held-for-sale 3,416 940 —
Total loans 399,704 394,291 402,963
Deposits 502,520 464,412 438,517
Equity(b) 51,000 46,000 43,000
Selected balance sheet data (average)
Total assets $ 447,750 $ 456,468 $ 467,641
Trading assets - loans(a) 8,040 15,603 17,573 Loans:
Loans retained 389,967 392,797 408,559
Loans held-for-sale 917 209 433
Total loans $ 390,884 $ 393,006 $ 408,992
Deposits 486,919 453,304 413,948
Equity(b) 51,000 46,000 43,000
Headcount 137,186 151,333 164,391
(a) Predominantly consists of prime mortgages originated with the intent to sell that are accounted for at fair value.
(b) 2014 includes $3.0 billion of capital held at the CCB level related to legacy mortgage servicing matters.
Selected metrics
As of or for the year ended December 31,
(in millions, except ratios and
where otherwise noted) 2014 2013 2012
Credit data and quality statistics
Net charge-offs(a)(b) $ 4,773 $ 5,826 $ 9,280
Nonaccrual loans(c)(d) 6,401 7,455 9,114
Nonperforming assets(c)(d)(e) 6,872 8,109 9,791 Allowance for loan losses(a) 10,404 12,201 17,752
Net charge-off rate(a)(b) 1.22% 1.48% 2.27%
Net charge-off rate,excluding PCI
loans(b) 1.40 1.73 2.68
Allowance for loan losses to
period-end loans retained 2.63 3.10 4.41
Allowance for loan losses to period-end loans retained,
excluding PCI loans(f) 2.02 2.36 3.51
Allowance for loan losses to nonaccrual loans retained,
excluding credit card(c)(f) 58 57 72
Nonaccrual loans to total period-end loans, excluding
credit card(e) 2.38 2.80 3.31
Nonaccrual loans to total period-end loans, excluding credit card
and PCI loans(c)(e) 2.88 3.49 4.23
Business metrics Number of:
Branches 5,602 5,630 5,614
ATMs(g) 18,056 20,290 19,062
Active online customers (in
thousands) 36,396 33,742 31,114
Active mobile customers (in
thousands) 19,084 15,629 12,359
(a) Net charge-offs and the net charge-off rates excluded $533 million and $53 million of write-offs in the PCI portfolio for the years ended December 31, 2014 and 2013, respectively. These write-offs decreased the allowance for loan losses for PCI loans. For further information on PCI write-offs, see Allowance for Credit Losses on pages 128–130.
(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%.
(c) Excludes PCI loans. The Firm is recognizing interest income on each pool of PCI loans as they are all performing.
(d) At December 31, 2014, 2013 and 2012, nonperforming assets excluded: (1) mortgage loans insured by U.S. government agencies of $7.8 billion, $8.4 billion and $10.6 billion, respectively, that are 90 or more days past due; (2) student loans insured by U.S. government agencies under the Federal Family Education Loan Program (“FFELP”) of $367 million, $428 million and $525 million respectively, that are 90 or more days past due; (3) real estate owned (“REO”) insured by U.S. government agencies of $462 million, $2.0 billion and $1.6 billion, respectively. These amounts have been excluded based upon the government guarantee.
(e) Prior periods were revised to conform with the current presentation.
(f) The allowance for loan losses for PCI loans of $3.3 billion, $4.2 billion and $5.7 billion at December 31, 2014, December 31, 2013, and December 31, 2012, respectively; these amounts were also excluded from the applicable ratios.
(g) Includes eATMs, formerly Express Banking Kiosks (“EBK”). Prior periods were revised to conform with the current presentation.
JPMorgan Chase & Co./2014 Annual Report 83