Sources of funds
Management believes that the Firm’s unsecured and secured funding capacity is sufficient to meet its on- and off-balance sheet obligations.
The Firm funds its global balance sheet through diverse sources of funding including a stable deposit franchise as well as secured and unsecured funding in the capital markets. The Firm’s loan portfolio (aggregating
approximately $757.3 billion at December 31, 2014), is funded with a portion of the Firm’s deposits (aggregating approximately $1,363.4 billion at December 31, 2014) and through securitizations and, with respect to a portion of the Firm’s real estate-related loans, with secured
borrowings from the FHLBs. Deposits in excess of the amount utilized to fund loans are primarily invested in the Firm’s investment securities portfolio or deployed in cash or other short-term liquid investments based on their interest rate and liquidity risk characteristics. Capital markets secured financing assets and trading assets are primarily funded by the Firm’s capital markets secured financing liabilities, trading liabilities and a portion of the Firm’s long-term debt and stockholders’ equity.
In addition to funding capital markets assets, proceeds from the Firm’s debt and equity issuances are used to fund certain loans, and other financial and non-financial assets, or may be invested in the Firm’s investment securities portfolio. See the discussion below for additional disclosures relating to Deposits, Short-term funding, and Long-term funding and issuance.
Deposits
A key strength of the Firm is its diversified deposit franchise, through each of its lines of business, which provides a stable source of funding and limits reliance on the wholesale funding markets. As of December 31, 2014, the Firm’s loans-to-deposits ratio was 56%, compared with 57% at December 31, 2013.
As of December 31, 2014, total deposits for the Firm were
$1,363.4 billion, compared with $1,287.8 billion at December 31, 2013 (58% of total liabilities at both December 31, 2014 and 2013). The increase was due to growth in both wholesale and consumer deposits. For further information, see Balance Sheet Analysis on pages 72–73.
Management’s discussion and analysis
158 JPMorgan Chase & Co./2014 Annual Report
The Firm typically experiences higher customer deposit inflows at period-ends. Therefore, the Firm believes average deposit balances are more representative of deposit trends. The table below summarizes, by line of business, the period-end and average deposit balances as of and for the years ended December 31, 2014 and 2013.
Deposits Year ended December 31,
As of or for the period ended December 31, Average
(in millions) 2014 2013 2014 2013
Consumer & Community Banking $ 502,520 $ 464,412 $ 486,919 $ 453,304
Corporate & Investment Bank 468,423 446,237 417,517 384,289
Commercial Banking 213,682 206,127 190,425 184,409
Asset Management 155,247 146,183 150,121 139,707
Corporate 23,555 24,806 19,319 27,433
Total Firm $ 1,363,427 $ 1,287,765 $ 1,264,301 $ 1,189,142
A significant portion of the Firm’s deposits are consumer deposits (37% and 36% at December 31, 2014 and 2013, respectively), which are considered particularly stable as they are less sensitive to interest rate changes or market volatility.
Additionally, the majority of the Firm’s institutional deposits are also considered to be stable sources of funding since they are generated from customers that maintain operating service relationships with the Firm. For further discussions of deposit and liability balance trends, see the discussion of the results for the Firm’s business segments and the Balance Sheet Analysis on pages 79–104 and pages 72–73, respectively.
The following table summarizes short-term and long-term funding, excluding deposits, as of December 31, 2014 and 2013, and average balances for the years ended December 31, 2014 and 2013. For additional information, see the Balance Sheet Analysis on pages 72–73 and Note 21.
Sources of funds (excluding deposits)
2014 2013
As of or for the year ended December 31, Average
(in millions) 2014 2013
Commercial paper:
Wholesale funding $ 24,052 $ 17,249 $ 19,442 $ 17,785
Client cash management 42,292 40,599 40,474 35,932
Total commercial paper $ 66,344 $ 57,848 $ 59,916 $ 53,717
Obligations of Firm-administered multi-seller conduits(a) $ 12,047 $ 14,892 $ 10,427 $ 15,504
Other borrowed funds $ 30,222 $ 27,994 $ 31,721 $ 30,449
Securities loaned or sold under agreements to repurchase:
Securities sold under agreements to repurchase $ 167,077 $ 155,808 $ 181,186 $ 207,106
Securities loaned 21,798 19,509 22,586 26,068
Total securities loaned or sold under agreements to repurchase(b)(c)(d) $ 188,875 $ 175,317 $ 203,772 $ 233,174
Total senior notes $ 142,480 $ 135,754 $ 139,707 $ 137,662
Trust preferred securities 5,496 5,445 5,471 7,178
Subordinated debt 29,472 29,578 29,082 27,955
Structured notes 30,021 28,603 30,311 29,517
Total long-term unsecured funding $ 207,469 $ 199,380 $ 204,571 $ 202,312
Credit card securitization $ 31,239 $ 26,580 $ 28,935 $ 27,834
Other securitizations(e) 2,008 3,253 2,734 3,501
FHLB advances 64,994 61,876 60,667 55,487
Other long-term secured funding(f) 4,373 6,633 5,031 6,284
Total long-term secured funding $ 102,614 $ 98,342 $ 97,367 $ 93,106
Preferred stock(g) $ 20,063 $ 11,158 17,018 $ 10,960
Common stockholders’ equity(g) $ 212,002 $ 200,020 207,400 $ 196,409
(a) Included in beneficial interests issued by consolidated variable interest entities on the Firm’s Consolidated balance sheets.
(b) Excludes federal funds purchased.
(c) Excluded long-term structured repurchase agreements of $2.7 billion and $4.6 billion as of December 31, 2014 and 2013, respectively, and average balance of $4.2 billion for the years ended December 31, 2014 and 2013.
JPMorgan Chase & Co./2014 Annual Report 159 (d) Excluded long-term securities loaned of $483 million as of December 31, 2013, and average balance of $24 million and $414 million for the years ended
December 31, 2014 and 2013, respectively. There were no long-term securities loaned as of December 31, 2014.
(e) Other securitizations includes securitizations of residential mortgages and student loans. The Firm’s wholesale businesses also securitize loans for client-driven transactions; those client-client-driven loan securitizations are not considered to be a source of funding for the Firm and are not included in the table.
(f) Includes long-term structured notes which are secured.
(g) For additional information on preferred stock and common stockholders’ equity see Capital Management on pages 146–155, Consolidated statements of changes in stockholders’ equity, Note 22 and Note 23.
Short-term funding
A significant portion of the Firm’s total commercial paper liabilities, approximately 64% as of December 31, 2014, were not sourced from wholesale funding markets, but were originated from deposits that customers choose to sweep into commercial paper liabilities as a cash management program offered to customers of the Firm.
The Firm’s sources of short-term secured funding primarily consist of securities loaned or sold under agreements to repurchase. Securities loaned or sold under agreements to repurchase are secured predominantly by high-quality securities collateral, including government-issued debt, agency debt and agency MBS, and constitute a significant portion of the federal funds purchased and securities loaned or sold under purchase agreements. The amounts of securities loaned or sold under agreements to repurchase at December 31, 2014, increased predominantly due to a change in the mix of the Firm’s funding sources. The decrease in average balances for the year ended
December 31, 2014, compared with December 31, 2013, was predominantly due to less secured financing of the Firm’s investment securities portfolio, and a change in the mix of the Firm’s funding sources. The balances associated with securities loaned or sold under agreements to repurchase fluctuate over time due to customers’
investment and financing activities; the Firm’s demand for financing; the ongoing management of the mix of the Firm’s liabilities, including its secured and unsecured financing (for both the investment securities and market-making portfolios); and other market and portfolio factors.
Long-term funding and issuance
Long-term funding provides additional sources of stable funding and liquidity for the Firm. The Firm’s long-term funding plan is driven by expected client activity, liquidity considerations, and regulatory requirements. Long-term funding objectives include maintaining diversification, maximizing market access and optimizing funding costs, as well as maintaining a certain level of pre-funding at the parent holding company. The Firm evaluates various funding markets, tenors and currencies in creating its optimal long-term funding plan.
The significant majority of the Firm’s long-term unsecured funding is issued by the parent holding company to provide maximum flexibility in support of both bank and nonbank subsidiary funding. The following table summarizes long-term unsecured issuance and maturities or redemptions for the years ended December 31, 2014 and 2013. For additional information, see Note 21.
Long-term unsecured funding Year ended December 31,
(in millions) 2014 2013
Issuance
Senior notes issued in the U.S. market $ 16,373 $ 19,835 Senior notes issued in non-U.S. markets 11,221 8,843
Total senior notes 27,594 28,678
Subordinated debt 4,979 3,232
Structured notes 19,806 16,979
Total long-term unsecured funding –
issuance $ 52,379 $ 48,889
Maturities/redemptions
Total senior notes $ 21,169 $ 18,418
Trust preferred securities — 5,052
Subordinated debt 4,487 2,418
Structured notes 18,554 17,785
Total long-term unsecured funding –
maturities/redemptions $ 44,210 $ 43,673
In addition, from January 1, 2015, through February 24, 2015, the Firm issued $10.1 billion of senior notes.
The Firm raises secured long-term funding through securitization of consumer credit card loans and advances from the FHLBs. It may also in the future raise long-term funding through securitization of residential mortgages, auto loans and student loans, which will increase funding and investor diversity.
The following table summarizes the securitization issuance and FHLB advances and their respective maturities or redemption for the years ended December 31, 2014 and 2013.
Long-term secured funding Year ended
December 31, Issuance Maturities/Redemptions
(in millions) 2014 2013 2014 2013
Credit card
securitization $ 8,350 $ 8,434 $ 3,774 $ 11,853
Other securitizations(a) — — 309 427
FHLB advances 15,200 23,650 12,079 3,815
Other long-term
secured funding $ 802 $ 751 $ 3,076 $ 159
Total long-term
secured funding $ 24,352 $ 32,835 $ 19,238 $ 16,254 (a) Other securitizations includes securitizations of residential mortgages
and student loans.
Management’s discussion and analysis
160 JPMorgan Chase & Co./2014 Annual Report
The Firm’s wholesale businesses also securitize loans for client-driven transactions; those client-driven loan
securitizations are not considered to be a source of funding for the Firm and are not included in the table above. For further description of the client-driven loan securitizations, see Note 16.
Credit ratings
The cost and availability of financing are influenced by credit ratings. Reductions in these ratings could have an adverse effect on the Firm’s access to liquidity sources, increase the cost of funds, trigger additional collateral or
funding requirements and decrease the number of investors and counterparties willing to lend to the Firm. Additionally, the Firm’s funding requirements for VIEs and other third party commitments may be adversely affected by a decline in credit ratings. For additional information on the impact of a credit ratings downgrade on the funding requirements for VIEs, and on derivatives and collateral agreements, see Special-purpose entities on page 74, and Credit risk, liquidity risk and credit-related contingent features in Note 6.
The credit ratings of the parent holding company and the Firm’s principal bank and nonbank subsidiaries as of December 31, 2014, were as follows.
JPMorgan Chase & Co.
JPMorgan Chase Bank, N.A.
Chase Bank USA, N.A. J.P. Morgan Securities LLC December 31, 2014
Long-term issuer
Short-term
issuer Outlook
Long-term issuer
Short-term
issuer Outlook
Long-term issuer
Short-term
issuer Outlook
Moody’s Investor Services A3 P-2 Stable Aa3 P-1 Stable Aa3 P-1 Stable
Standard & Poor’s A A-1 Negative A+ A-1 Stable A+ A-1 Stable
Fitch Ratings A+ F1 Stable A+ F1 Stable A+ F1 Stable
Downgrades of the Firm’s long-term ratings by one or two notches could result in a downgrade of the Firm’s short-term ratings. If this were to occur, the Firm believes its cost of funds could increase and access to certain funding markets could be reduced as noted above. The nature and magnitude of the impact of ratings downgrades depends on numerous contractual and behavioral factors (which the Firm believes are incorporated in its liquidity risk and stress testing metrics). The Firm believes it maintains sufficient liquidity to withstand a potential decrease in funding capacity due to ratings downgrades.
JPMorgan Chase’s unsecured debt does not contain requirements that would call for an acceleration of payments, maturities or changes in the structure of the existing debt, provide any limitations on future borrowings or require additional collateral, based on unfavorable changes in the Firm’s credit ratings, financial ratios, earnings, or stock price.
Critical factors in maintaining high credit ratings include a stable and diverse earnings stream, strong capital ratios, strong credit quality and risk management controls, diverse funding sources, and disciplined liquidity monitoring procedures. Rating agencies continue to evaluate economic and geopolitical trends, regulatory developments, rating uplift assumptions surrounding government support, future profitability, risk management practices, and litigation matters, as well as their broader ratings methodologies.
Changes in any of these factors could lead to changes in the Firm’s credit ratings.
On September 18, 2014, S&P revised its ratings
methodology for hybrid capital securities issued by financial institutions, and on September 29, 2014, the ratings of the Firm’s hybrid capital securities (including trust preferred securities and preferred stock) were lowered by 1 notch from BBB to BBB-, reflecting the new methodology.
Furthermore, S&P has announced a Request for Comment on a proposed change to rating criteria related to additional loss absorbing capacity. In addition, Moody’s and Fitch are in the process of reviewing their ratings methodologies:
Moody’s has announced a Request for Comment on the revision to its Bank Rating Methodology and Fitch has announced a review of the ratings differential that it applies between bank holding companies and their bank
subsidiaries.
Although the Firm closely monitors and endeavors to manage, to the extent it is able, factors influencing its credit ratings, there is no assurance that its credit ratings will not be changed in the future.
JPMorgan Chase & Co./2014 Annual Report 161