Selected income statement data
As of or for the year ended December 31,
(in millions, except ratios) 2014 2013 2012 Revenue
Card income $ 4,173 $ 4,289 $ 4,092
All other income 993 1,041 1,009
Noninterest revenue 5,166 5,330 5,101
Net interest income 13,150 13,559 13,820
Total net revenue 18,316 18,889 18,921
Provision for credit losses 3,432 2,669 3,953
Noninterest expense(a) 8,176 8,078 8,216
Income before income tax
expense 6,708 8,142 6,752
Net income $ 4,074 $ 4,907 $ 4,099
Return on common equity 21% 31% 24%
Overhead ratio 45 43 43
Equity (period-end and
average) $ 19,000 $ 15,500 $ 16,500
(a) Included operating lease depreciation expense of $1.2 billion, $972 million and $817 million for the years ended December 31, 2014, 2013 and 2012, respectively.
2014 compared with 2013
Card net income was $4.1 billion, a decrease of $833 million, or 17%, compared with the prior year,
predominantly driven by higher provision for credit losses and lower net revenue.
Net revenue was $18.3 billion, down $573 million or 3%
compared with the prior year. Net interest income was
$13.2 billion, a decrease of $409 million, or 3%, from the prior year primarily driven by spread compression in Credit Card and Auto, partially offset by higher average loan balances. Noninterest revenue was $5.2 billion, down $164 million, or 3%, from the prior year. The decrease was primarily driven by higher amortization of new account origination costs and the impact of non-core portfolio exits, largely offset by higher auto lease income and net
interchange income from higher sales volume.
The provision for credit losses was $3.4 billion, compared with $2.7 billion in the prior year. The current-year provision reflected lower net charge-offs and a $554 million reduction in the allowance for loan losses. The reduction in the allowance for loan losses was primarily related to a decrease in the asset-specific allowance resulting from increased granularity of the impairment estimates and lower balances related to credit card loans modified in TDRs, runoff in the student loan portfolio, and lower estimated losses in auto loans. The prior-year provision included a $1.7 billion reduction in the allowance for loan losses.
Noninterest expense was $8.2 billion, up $98 million, or 1% from the prior year primarily driven by higher auto lease depreciation expense and higher investment in controls, predominantly offset by lower intangible amortization and lower remediation costs.
2013 compared with 2012
Card net income was $4.9 billion, an increase of $808 million, or 20%, compared with the prior year, driven by lower provision for credit losses.
Net revenue was $18.9 billion, flat compared with the prior year. Net interest income was $13.6 billion, down $261 million, or 2%, from the prior year. The decrease was primarily driven by spread compression in Credit Card and Auto and lower average credit card loan balances, largely offset by the impact of lower revenue reversals associated with lower net charge-offs in Credit Card. Noninterest revenue was $5.3 billion, an increase of $229 million, or 4%, compared with the prior year primarily driven by higher net interchange income, auto lease income and merchant servicing revenue, largely offset by lower revenue from an exited non-core product and a gain on an
investment security recognized in the prior year.
The provision for credit losses was $2.7 billion, compared with $4.0 billion in the prior year. The current-year provision reflected lower net charge-offs and a $1.7 billion reduction in the allowance for loan losses due to lower estimated losses reflecting improved delinquency trends and restructured loan performance. The prior-year
provision included a $1.6 billion reduction in the allowance for loan losses. The Credit Card net charge-off rate was 3.14%, down from 3.95% in the prior year; and the 30+
day delinquency rate was 1.67%, down from 2.10% in the prior year. The Auto net charge-off rate was 0.31%, down from 0.39% in the prior year.
Noninterest expense was $8.1 billion, a decrease of $138 million, or 2%, from the prior year. This decrease was due to one-time expense items recognized in the prior year related to the exit of a non-core product and the write-off of intangible assets associated with a non-strategic
relationship. The reduction in expenses was partially offset by increased auto lease depreciation and payments to customers required by a regulatory Consent Order during 2013.
Management’s discussion and analysis
90 JPMorgan Chase & Co./2014 Annual Report
Selected metrics
As of or for the year ended December 31, (in millions, except ratios and where otherwise
noted) 2014 2013 2012
Selected balance sheet data (period-end) Loans:
Credit Card $ 131,048 $ 127,791 $ 127,993
Auto 54,536 52,757 49,913
Student 9,351 10,541 11,558
Total loans $ 194,935 $ 191,089 $ 189,464 Selected balance sheet
data (average)
Total assets $ 202,609 $ 198,265 $ 197,661
Loans:
Credit Card 125,113 123,613 125,464
Auto 52,961 50,748 48,413
Student 9,987 11,049 12,507
Total loans $ 188,061 $ 185,410 $ 186,384 Business metrics
Credit Card, excluding Commercial Card
Sales volume (in billions) $ 465.6 $ 419.5 $ 381.1
New accounts opened 8.8 7.3 6.7
Open accounts 64.6 65.3 64.5
Accounts with sales
activity 34.0 32.3 30.6
% of accounts acquired
online 56% 55% 51%
Merchant Services (Chase Paymentech Solutions) Merchant processing
volume (in billions) $ 847.9 $ 750.1 $ 655.2 Total transactions
(in billions) 38.1 35.6 29.5
Auto
Origination volume
(in billions) 27.5 26.1 23.4
The following are brief descriptions of selected business metrics within Card, Merchant Services & Auto.
Card Services includes the Credit Card and Merchant Services businesses.
Merchant Services processes transactions for merchants.
Total transactions – Number of transactions and authorizations processed for merchants.
Commercial Card provides a wide range of payment services to corporate and public sector clients worldwide through the commercial card products. Services include procurement, corporate travel and entertainment, expense management services, and business-to-business payment solutions.
Sales volume – Dollar amount of cardmember purchases, net of returns.
Open accounts – Cardmember accounts with charging privileges.
Auto origination volume – Dollar amount of auto loans and leases originated.
Selected metrics
As of or for the year ended December 31,
(in millions, except ratios) 2014 2013 2012 Credit data and quality
statistics Net charge-offs:
Credit Card $ 3,429 $ 3,879 $ 4,944
Auto(a) 181 158 188
Student 375 333 377
Total net charge-offs $ 3,985 $ 4,370 $ 5,509 Net charge-off rate:
Credit Card(b) 2.75% 3.14% 3.95%
Auto(a) 0.34 0.31 0.39
Student 3.75 3.01 3.01
Total net charge-off rate 2.12 2.36 2.96 Delinquency rates
30+ day delinquency rate:
Credit Card(c) 1.44 1.67 2.10
Auto 1.23 1.15 1.25
Student(d) 2.35 2.56 2.13
Total 30+ day
delinquency rate 1.42 1.58 1.87
90+ day delinquency rate –
Credit Card(c) 0.70 0.80 1.02
Nonperforming assets(e) $ 411 $ 280 $ 265
Allowance for loan losses:
Credit Card $ 3,439 $ 3,795 $ 5,501
Auto & Student 749 953 954
Total allowance for loan
losses $ 4,188 $ 4,748 $ 6,455
Allowance for loan losses to period-end loans:
Credit Card(c) 2.69% 2.98% 4.30%
Auto & Student 1.17 1.51 1.55
Total allowance for loan losses to period-end
loans 2.18 2.49 3.41
(a) Net charge-offs and net charge-off rates for the year ended December 31, 2012, included $53 million of charge-offs of Chapter 7 loans. Excluding these incremental charge-offs, net charge-offs for the year ended December 31, 2012 would have been $135 million, and the net charge-off rate would have been 0.28%.
(b) Average credit card loans included loans held-for-sale of $509 million, $95 million and $433 million for the years ended December 31, 2014, 2013 and 2012, respectively. These amounts are excluded when calculating the net charge-off rate.
(c) Period-end credit card loans included loans held-for-sale of $3.0 billion and
$326 million at December 31, 2014 and 2013, respectively. There were no loans held-for-sale at December 31, 2012. These amounts are excluded when calculating delinquency rates and the allowance for loan losses to period-end loans.
(d) Excluded student loans insured by U.S. government agencies under the FFELP of $654 million, $737 million and $894 million at December 31, 2014, 2013 and 2012, respectively, that are 30 or more days past due.
These amounts have been excluded based upon the government guarantee.
(e) Nonperforming assets excluded student loans insured by U.S. government agencies under the FFELP of $367 million, $428 million and $525 million at December 31, 2014, 2013 and 2012, respectively, that are 90 or more days past due. These amounts have been excluded from nonaccrual loans based upon the government guarantee.
JPMorgan Chase & Co./2014 Annual Report 91
Card Services supplemental information
Year ended December 31,
(in millions, except ratios) 2014 2013 2012 Revenue
Noninterest revenue $ 3,593 $ 3,977 $ 3,887
Net interest income 11,462 11,638 11,745
Total net revenue 15,055 15,615 15,632
Provision for credit losses 3,079 2,179 3,444
Noninterest expense 6,152 6,245 6,566
Income before income tax
expense 5,824 7,191 5,622
Net income $ 3,547 $ 4,340 $ 3,426
Percentage of average loans:
Noninterest revenue 2.87% 3.22% 3.10%
Net interest income 9.16 9.41 9.36
Total net revenue 12.03 12.63 12.46
Management’s discussion and analysis
92 JPMorgan Chase & Co./2014 Annual Report
CORPORATE & INVESTMENT BANK
The Corporate & Investment Bank, comprised of Banking and Markets & Investor Services, offers a broad suite of investment banking, market-making, prime brokerage, and treasury and securities products and services to a global client base of corporations, investors, financial institutions, government and municipal entities. Within Banking, the CIB offers a full range of investment banking products and services in all major capital markets, including advising on corporate strategy and structure, capital-raising in equity and debt markets, as well as loan origination and syndication. Also included in Banking is Treasury Services, which includes transaction services,
comprised primarily of cash management and liquidity solutions, and trade finance products. The Markets &
Investor Services segment of the CIB is a global market-maker in cash securities and derivative instruments, and also offers sophisticated risk management solutions, prime brokerage, and research. Markets &
Investor Services also includes the Securities Services business, a leading global custodian which includes custody, fund accounting and administration, and securities lending products sold principally to asset managers, insurance companies and public and private investment funds.
Selected income statement data
Year ended December 31,
(in millions) 2014 2013 2012
Revenue
Investment banking fees $ 6,570 $ 6,331 $ 5,769
Principal transactions(a) 8,947 9,289 9,510
Lending- and deposit-related fees 1,742 1,884 1,948 Asset management,
administration and commissions 4,687 4,713 4,693
All other income 1,512 1,593 1,184
Noninterest revenue 23,458 23,810 23,104
Net interest income 11,175 10,976 11,658
Total net revenue(b) 34,633 34,786 34,762
Provision for credit losses (161) (232) (479)
Noninterest expense
Compensation expense 10,449 10,835 11,313
Noncompensation expense 12,824 10,909 10,537
Total noninterest expense 23,273 21,744 21,850 Income before income tax
expense 11,521 13,274 13,391
Income tax expense 4,596 4,387 4,719
Net income $ 6,925 $ 8,887 $ 8,672
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.
(a) Included FVA (effective 2013) and DVA on OTC derivatives and structured notes, measured at fair value. FVA and DVA gains/(losses) were $468 million and
$(1.9) billion for the years ended December 31, 2014 and 2013, respectively.
DVA losses were ($930) million for the year ended December 31, 2012.
(b) Included tax-equivalent adjustments, predominantly due to income tax credits related to affordable housing and alternative energy investments, as well as tax-exempt income from municipal bond investments, of $2.5 billion, $2.3 billion and $2.0 billion for the years ended December 31, 2014, 2013 and 2012, respectively.
Selected income statement data
Year ended December 31,
(in millions, except ratios) 2014 2013 2012 Financial ratios
Return on common equity(a) 10% 15% 18%
Overhead ratio(b) 67 63 63
Compensation expense as percentage of total net
revenue(c) 30 31 33
Revenue by business
Advisory $ 1,627 $ 1,315 $ 1,491
Equity underwriting 1,571 1,499 1,026
Debt underwriting 3,372 3,517 3,252
Total investment banking fees 6,570 6,331 5,769
Treasury Services 4,145 4,171 4,249
Lending 1,130 1,669 1,389
Total Banking 11,845 12,171 11,407
Fixed Income Markets(d) 13,848 15,832 15,701
Equity Markets 4,861 4,803 4,448
Securities Services 4,351 4,100 4,000
Credit Adjustments & Other(e) (272) (2,120) (794) Total Markets & Investor
Services 22,788 22,615 23,355
Total net revenue $ 34,633 $ 34,786 $ 34,762 (a) Return on equity excluding FVA (effective 2013) and DVA, a non-GAAP financial
measure, was 17% and 19% for the years ended December 31, 2013 and 2012, respectively.
(b) Overhead ratio excluding FVA (effective 2013) and DVA, a non-GAAP financial measure, was 59% and 61% for the years ended December 31, 2013 and 2012, respectively.
(c) Compensation expense as a percentage of total net revenue excluding FVA (effective 2013) and DVA, a non-GAAP financial measure, was 30% and 32% for the years ended December 31, 2013 and 2012, respectively.
(d) Includes results of the synthetic credit portfolio that was transferred from the CIO effective July 2, 2012.
(e) Consists primarily of credit valuation adjustments (“CVA”) managed by the credit portfolio group, and FVA (effective 2013) and DVA on OTC derivatives and structured notes. Results are presented net of associated hedging activities and net of CVA and FVA amounts allocated to Fixed Income Markets and Equity Markets.
Prior to January 1, 2014, CIB provided several non-GAAP financial measures excluding the impact of implementing the FVA framework (effective 2013) and DVA on: net revenue, net income, compensation ratio, overhead ratio, and return on equity. Beginning in the first quarter 2014, the Firm did not exclude FVA and DVA from its assessment of business performance; however, the Firm continues to present these non-GAAP measures for the periods prior to January 1, 2014, as they reflected how management assessed the underlying business performance of the CIB in those prior periods. In addition, the ratio for the allowance for loan losses to end-of-period loans, also a non-GAAP financial measure, is
JPMorgan Chase & Co./2014 Annual Report 93
calculated excluding the impact of consolidated Firm-administered multi-seller conduits and trade finance, to provide a more meaningful assessment of CIB’s allowance coverage ratio. These measures are used by management to assess the underlying performance of the business and for comparability with peers.
2014 compared with 2013
Net income was $6.9 billion, down 22% compared with
$8.9 billion in the prior year. These results primarily reflected lower revenue as well as higher noninterest expense. Net revenue was $34.6 billion, flat compared with the prior year.
Banking revenue was $11.8 billion, down 3% from the prior year. Investment banking fees were $6.6 billion, up 4%
from the prior year. The increase was driven by higher advisory and equity underwriting fees, partially offset by lower debt underwriting fees. Advisory fees were $1.6 billion up 24% on stronger share of fees for completed transactions as well as growth in the industry-wide fee levels, according to Dealogic. Equity underwriting fees were
$1.6 billion up 5%, driven by higher industry wide issuance.
Debt underwriting fees were $3.4 billion, down 4%, primarily related to lower loan syndication fees on lower industry-wide fee levels and lower bond underwriting fees.
The Firm also ranked #1 globally in fees and volumes share across high grade, high yield and loan products. The Firm maintained its #2 ranking for M&A, and improved share of fees both globally and in the U.S. compared to the prior year. Treasury Services revenue was $4.1 billion, down 1%
compared with the prior year, primarily driven by lower trade finance revenue as well as the impact of business simplification initiatives, largely offset by higher net interest income from increased deposits. Lending revenue was $1.1 billion, down from $1.7 billion in the prior year, driven by losses, compared with gains in the prior periods, on securities received from restructured loans, as well as lower net interest income.
Markets & Investor Services revenue was $22.8 billion, up 1% from the prior year. Fixed Income Markets revenue was
$13.8 billion down 13% from the prior year driven by lower revenues in Fixed Income primarily from credit-related and rates products as well as the impact of business
simplification. Equity Markets revenue was $4.9 billion up 1% as higher prime services revenue was partially offset by lower equity derivatives revenue. Securities Services revenue was $4.4 billion, up 6% from the prior year, primarily driven by higher net interest income on increased deposits and higher fees and commissions. Credit
Adjustments & Other revenue was a loss of $272 million driven by net CVA losses partially offset by gains, net of hedges, related to FVA/DVA. The prior year was a loss of
$2.1 billion (including the FVA implementation loss of $1.5 billion and DVA losses of $452 million).
Noninterest expense was $23.3 billion, up 7% compared to the prior year as a result of higher legal expense and investment in controls. This was partially offset by lower performance-based compensation expense as well as the impact of business simplification, including the sale or liquidation of a significant part of the physical commodities
business. The compensation expense to net revenue ratio was 30%.
Return on equity was 10% on $61.0 billion of average allocated capital.
2013 compared with 2012
Net income was $8.9 billion, up 2% compared with the prior year.
Net revenue was $34.8 billion, flat compared with the prior year. Net revenue in 2013 included a $1.5 billion loss as a result of implementing a FVA framework for OTC derivatives and structured notes. The FVA framework incorporates the impact of funding into the Firm’s valuation estimates for OTC derivatives and structured notes and reflects an industry migration towards incorporating the market cost of unsecured funding in the valuation of such instruments. The loss recorded in 2013 was a one-time adjustment arising on implementation of the new FVA framework.
Net revenue in 2013 also included a $452 million loss from DVA on structured notes and derivative liabilities, compared with a loss of $930 million in the prior year. Excluding the impact of FVA and DVA, net revenue was $36.7 billion and net income was $10.1 billion, compared with $35.7 billion and $9.2 billion, respectively in the prior year.
Banking revenue was $12.2 billion, compared with $11.4 billion in the prior year. Investment banking fees were $6.3 billion, up 10% from the prior year, driven by higher equity underwriting fees of $1.5 billion (up 46%) and record debt underwriting fees of $3.5 billion (up 8%), partially offset by lower advisory fees of $1.3 billion (down 12%). Equity underwriting results were driven by higher industry-wide issuance and an increase in share of fees compared with the prior year, according to Dealogic. Industry-wide loan syndication volumes and fees increased as the low-rate environment continued to fuel refinancing activity. The Firm also ranked #1 in industry-wide fee shares across high grade, high yield and loan products. Advisory fees were lower compared with the prior year as industry-wide completed M&A industry-wide fee levels declined 13%. The Firm maintained its #2 ranking and improved share for both announced and completed volumes during the year.
Treasury Services revenue was $4.2 billion, down 2%
compared with the prior year, primarily reflecting lower trade finance spreads, partially offset by higher net interest income on higher deposit balances. Lending revenue was
$1.7 billion, up from $1.4 billion, in the prior year reflecting net interest income on retained loans, fees on lending-related commitments, and gains on securities received from restructured loans.
Markets and Investor Services revenue was $22.6 billion compared to $23.4 billion in the prior year. Combined Fixed Income and Equity Markets revenue was $20.6 billion, up from $20.1 billion the prior year. Fixed Income Markets revenue was $15.8 billion slightly higher reflecting
consistently strong client revenue and lower losses from the synthetic credit portfolio, which was partially offset by lower rates-related revenue given an uncertain rate outlook and low spread environment. Equities Markets revenue was
Management’s discussion and analysis
94 JPMorgan Chase & Co./2014 Annual Report
$4.8 billion up 8% compared with the prior year driven by higher revenue in derivatives and cash equities products and Prime Services primarily on higher balances. Securities Services revenue was $4.1 billion compared with $4.0 billion in the prior year on higher custody and fund services revenue primarily driven by higher assets under custody of
$20.5 trillion. Credit Adjustments & Other was a loss of
$2.1 billion predominantly driven by FVA (effective 2013) and DVA.
The provision for credit losses was a benefit of $232 million, compared with a benefit of $479 million in the prior year. The 2013 benefit reflected lower recoveries as compared with 2012 as the prior year benefited from the restructuring of certain nonperforming loans. Net
recoveries were $78 million, compared with $284 million in the prior year reflecting a continued favorable credit environment with stable credit quality trends.
Nonperforming loans were down 57% from the prior year.
Noninterest expense was $21.7 billion slightly down compared with the prior year, driven by lower compensation expense, offset by higher noncompensation expense related to higher litigation expense as compared with the prior year. The compensation ratio, excluding the impact of DVA and FVA (effective 2013), was 30% and 32% for 2013 and 2012, respectively.
Return on equity was 15% on $56.5 billion of average allocated capital and 17% excluding FVA (effective 2013) and DVA.
Selected metrics
As of or for the year ended December 31,
(in millions, except headcount) 2014 2013 2012 Selected balance sheet data
(period-end)
Assets $ 861,819 $ 843,577 $ 876,107
Loans:
Loans retained(a) 96,409 95,627 109,501
Loans held-for-sale and
loans at fair value 5,567 11,913 5,749
Total loans 101,976 107,540 115,250
Equity 61,000 56,500 47,500
Selected balance sheet data (average)
Assets $ 854,712 $ 859,071 $ 854,670
Trading assets-debt and equity
instruments 317,535 321,585 312,944
Trading assets-derivative
receivables 64,833 70,353 74,874
Loans:
Loans retained(a) 95,764 104,864 110,100
Loans held-for-sale and
loans at fair value 7,599 5,158 3,502
Total loans 103,363 110,022 113,602
Equity 61,000 56,500 47,500
Headcount 51,129 52,250 52,022
(a) Loans retained includes credit portfolio loans, trade finance loans, other held-for-investment loans and overdrafts.
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/
(recoveries) $ (12) $ (78) $ (284)
Nonperforming assets:
Nonaccrual loans:
Nonaccrual loans
retained(a)(b) 110 163 535
Nonaccrual loans held-for-sale and loans at
fair value 11 180 254
Total nonaccrual loans 121 343 789
Derivative receivables 275 415 239
Assets acquired in loan
satisfactions 67 80 64
Total nonperforming
assets 463 838 1,092
Allowance for credit losses:
Allowance for loan
losses 1,034 1,096 1,300
Allowance for
lending-related commitments 439 525 473
Total allowance for credit
losses 1,473 1,621 1,773
Net charge-off/(recovery)
rate(a) (0.01)% (0.07)% (0.26)%
Allowance for loan losses to period-end loans
retained(a) 1.07 1.15 1.19
Allowance for loan losses to period-end loans retained, excluding trade finance
and conduits 1.82 2.02 2.52
Allowance for loan losses to nonaccrual loans
retained(a)(b) 940 672 243
Nonaccrual loans to total
period-end loans 0.12 0.32 0.68
(a) Loans retained includes credit portfolio loans, trade finance loans, other held-for-investment loans and overdrafts.
(b) Allowance for loan losses of $18 million, $51 million and $153 million were held against these nonaccrual loans at December 31, 2014, 2013 and 2012, respectively.