UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
Annual report pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934 |
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| For the fiscal year ended | | Commission file |
December 31, 20152016 | | number 1-5805 |
JPMorgan Chase & Co.
(Exact name of registrant as specified in its charter) |
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| Delaware | | 13-2624428 |
(State or other jurisdiction of incorporation or organization) | | (I.R.S. employer identification no.) |
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| 270 Park Avenue, New York, New York | | 10017 |
| (Address of principal executive offices) | | (Zip code) |
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Registrant’s telephone number, including area code: (212) 270-6000
Securities registered pursuant to Section 12(b) of the Act:
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| Title of each class | | Name of each exchange on which registered |
| Common stock | | The New York Stock Exchange |
| | | The London Stock Exchange |
Warrants each to purchase one shareshares of Common Stock | | The New York Stock Exchange |
| Depositary Shares, each representing a one-four hundredth interest in a share of 5.50% Non-Cumulative Preferred Stock, Series O | | The New York Stock Exchange |
| Depositary Shares, each representing a one-four hundredth interest in a share of 5.45% Non-Cumulative Preferred Stock, Series P | | The New York Stock Exchange |
| Depositary Shares, each representing a one-four hundredth interest in a share of 6.70% Non-Cumulative Preferred Stock, Series T | | The New York Stock Exchange |
| Depositary Shares, each representing a one-four hundredth interest in a share of 6.30% Non-Cumulative Preferred Stock, Series W | | The New York Stock Exchange |
| Depositary Shares, each representing a one-four hundredth interest in a share of 6.125% Non-Cumulative Preferred Stock, Series Y | | The New York Stock Exchange |
| Depositary Shares, each representing a one-four hundredth interest in a share of 6.10% Non-Cumulative Preferred Stock, Series AA | | The New York Stock Exchange |
| Depositary Shares, each representing a one-four hundredth interest in a share of 6.15% Non-Cumulative Preferred Stock, Series BB | | The New York Stock Exchange |
| Alerian MLP Index ETNs due May 24, 2024 | | NYSE Arca, Inc. |
| Guarantee of Callable Step-Up Fixed Rate Notes due April 26, 2028 of JPMorgan Chase Financial Company LLC | | The New York Stock Exchange |
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. o Yes x No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. o Yes x No
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. x Yes o No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). x Yes o No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ¨x
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
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x Large accelerated filer | o Accelerated filer | o Non-accelerated filer (Do not check if a smaller reporting company) | o Smaller reporting company |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). o Yes x No
The aggregate market value of JPMorgan Chase & Co. common stock held by non-affiliates as of June 30, 2015: $249,201,931,8772016: $223,144,102,133
Number of shares of common stock outstanding as of January 31, 2016: 3,670,264,8972017: 3,571,963,160
Documents incorporated by reference: Portions of the registrant’s Proxy Statement for the annual meeting of stockholders to be held on May 17, 2016,16, 2017, are incorporated by reference in this Form 10-K in response to Items 10, 11, 12, 13 and 14 of Part III.
Form 10-K Index
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ITEM 1: BUSINESSItem 1. Business.
Overview
JPMorgan Chase & Co., (“JPMorgan Chase” or the “Firm”) a financial holding company incorporated under Delaware law in 1968, is a leading global financial services firm and one of the largest banking institutions in the United States of America (“U.S.”), with operations worldwide; the Firm had $2.42.5 trillion in assets and $247.6$254.2 billion in stockholders’ equity as of December 31, 2015.2016. The Firm is a leader in investment banking, financial services for consumers and small businesses, commercial banking, financial transaction processing and asset management. Under the J.P. Morgan and Chase brands, the Firm serves millions of customers in the U.S. and many of the world’s most prominent corporate, institutional and government clients.
JPMorgan Chase’s principal bank subsidiaries are JPMorgan Chase Bank, National Association (“JPMorgan Chase Bank, N.A.”), a national banking association with U.S. branches in 23 states, and Chase Bank USA, National Association (“Chase Bank USA, N.A.”), a national banking association that is the Firm’s credit card-issuing bank. JPMorgan Chase’s principal nonbank subsidiary is J.P. Morgan Securities LLC (“JPMorgan Securities”), the Firm’s U.S. investment banking firm. The bank and nonbank subsidiaries of JPMorgan Chase operate nationally as well as through overseas branches and subsidiaries, representative offices and subsidiary foreign banks. One of the Firm’s principal operating subsidiaries in the United Kingdom (“U.K.”) is J.P. Morgan Securities plc, a subsidiary of JPMorgan Chase Bank, N.A.
The Firm’s website is www.jpmorganchase.com. JPMorgan Chase makes available free of charge, through its website, annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K pursuant to Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934, as soon as reasonably practicable after it electronically files such material with, or furnishes such material to, the U.S. Securities and Exchange Commission (the “SEC”). The Firm has adopted, and posted on its website, a Code of Conduct for all employees of the Firm and a Code of Ethics for its Chairman and Chief Executive Officer, Chief Financial Officer, ChiefPrincipal Accounting Officer and all other professionals of the Firm worldwide serving in a finance, accounting, tax or investor relations role.
Business segments
JPMorgan Chase’s activities are organized, for management reporting purposes, into four major reportable business segments, as well as a Corporate segment. The Firm’s consumer business is the Consumer & Community Banking (“CCB”) segment. The Firm’s wholesale business segments are Corporate & Investment Bank (“CIB”), Commercial Banking (“CB”), and Asset & Wealth Management (“AM”AWM”) (formerly Asset Management or “AM”).
A description of the Firm’s business segments and the products and services they provide to their respective client bases is provided in the “Business segment results” section
of Management’s discussion and analysis of financial condition and results of operations (“MD&A”), beginning on page 6836 and in Note 33.
Competition
JPMorgan Chase and its subsidiaries and affiliates operate in a highly competitive environment. Competitors include other banks, brokerage firms, investment banking companies, merchant banks, hedge funds, commodity trading companies, private equity firms, insurance companies, mutual fund companies, investment managers, credit card companies, mortgage banking companies, trust companies, securities processing companies, automobile financing companies, leasing companies, e-commerce and other Internet-based companies, financial technology companies, and other companies engaged in providing similar products and services. The Firm’s businesses generally compete on the basis of the quality and variety of the Firm’s products and services, transaction execution, innovation, reputation and price. Competition also varies based on the types of clients, customers, industries and geographies served. With respect to some of its geographies and products, JPMorgan Chase competes globally; with respect to others, the Firm competes on a national or regional basis. The Firm’s ability to compete also depends on its ability to attract and retain professional and other personnel, and on its reputation.
It is likely that competition in the financial services industry will become even more intense as the Firm’s businesses continue to compete with other financial institutions that may have a stronger local presence in certain geographies or that operate under different rules and regulatory regimes than the Firm, or with companies that provide new or innovative products or services that the Firm is unable todoes not provide.
Supervision and regulation
The Firm is subject to regulation under state and federal laws in the U.S., as well as the applicable laws of each of the various jurisdictions outside the U.S. in which the Firm does business.
As a result of regulatory reforms enacted and proposed in the U.S. and abroad, the Firm has been experiencing a period of significant change in regulation which has had and could continue to have significant consequences for how the Firm conducts business. The Firm continues to work diligently in assessing the regulatory changes it is facing, and is devoting substantial resources to comply with all the new regulations, while, at the same time, endeavoring to best meet the needs and expectations of its customers, clients and shareholders. These efforts include the implementation of new policies, procedures and controls, and appropriate adjustments to the Firm’s business and operations, legal entity structure, and capital and liquidity management. The combined effect of numerous rule-makings by multiple governmental agencies and regulators, and the potential conflicts or inconsistencies among such
management. The combined effect of numerous rule-makings by multiple governmental agencies and regulators, and the potential conflicts or inconsistencies among such rules, present challenges and risks to the Firm’s business and operations. Given the current status of the regulatory developments, the Firm cannot currently quantify all of the possible effects on its business and operations of the significant changes that are underway. For more information, see Risk Factors on pages 8–18.21.
Financial holding company:
Consolidated supervision by the Board of Governors of the Federal Reserve System (the “Federal Reserve”). As a bank holding company (“BHC”) and a financial holding company, JPMorgan Chase is subject to comprehensive consolidated supervision, regulation and examination by the Federal Reserve. The Federal Reserve acts as an “umbrella regulator” and certain of JPMorgan Chase’s subsidiaries are regulated directly by additional authorities based on the particular activities of those subsidiaries. For example, JPMorgan Chase’s national bank subsidiaries, such asincluding JPMorgan Chase Bank, N.A., and Chase Bank USA, N.A., are subject to supervision and regulation by the Office of the Comptroller of the Currency (“OCC”) and, with respect to certain matters, by the Federal Reserve and the Federal Deposit Insurance Corporation (the “FDIC”). Certain non-bank subsidiaries, such as the Firm’s U.S. broker-dealers, are subject to supervision and regulation by the SEC, and subsidiaries of the Firm that engage in certain futures-related and swaps-related activities are subject to supervision and regulation by the Commodity Futures Trading Commission (“CFTC”). J.P. Morgan Securities plc, is a U.K. bank licensed within the European Economic Area (the “EEA”) to undertake all banking activity and is regulated by the U.K. Prudential Regulation Authority (the “PRA”), a subsidiary of the Bank of England which has responsibility for prudential regulation of banks and other systemically important institutions, and by the Financial Conduct Authority (“FCA”), which regulates prudential matters for firms that are not so regulated by the PRA and conduct matters for all market participants. The Firm’s other non-U.S. subsidiaries are regulated by the banking and securities regulatory authorities in the countries in which they operate. See Securities and broker-dealer regulation, Investment management regulation and Derivatives regulation below. In addition, the Firm’s consumer activities are subject to supervision and regulation by the Consumer Financial Protection Bureau (“CFPB”) and to regulation under various state statutes which are enforced by the respective state’s Attorney General.
Scope of permissible business activities. The Bank Holding Company Act generally restricts BHCs from engaging in business activities other than the business of banking and certain closely related activities. Financial holding companies generally can engage in a broader range of financial activities than are otherwise permissible for BHCs, including underwriting, dealing and making markets in securities, and making merchant banking investments in non-financial companies. The Federal Reserve has the authority to limit a financial holding company’s ability to conduct activities that would otherwise be permissible activities if the financial
holding company or any of its depositary institution subsidiaries ceases to meet the applicable eligibility requirements (including requirements that the financial holding company and each of its U.S. depository institution subsidiaries maintain their status as “well-capitalized” and “well-managed”). The Federal Reserve may also impose corrective capital and/or managerial requirements on the financial holding company and may, for example, require divestiture of the holding company’s
depository institutions if the deficiencies persist. Federal regulations also provide that if any depository institution controlled by a financial holding company fails to maintain a satisfactory rating under the Community Reinvestment Act, the Federal Reserve must prohibit the financial holding company and its subsidiaries from engaging in any activities other than those permissible for bank holding companies. In addition, a financial holding company must obtain Federal Reserve approval before engaging in certain banking and other financial activities both in the U.S. and internationally, as further described under Regulation of acquisitions below.
Activities restrictions under the Volcker Rule. Section 619 of the Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”) (the “Volcker Rule”) prohibits banking entities, including the Firm, from engaging in certain “proprietary trading” activities, subject to exceptions for underwriting, market-making, risk-mitigating hedging and certain other activities. In addition, the Volcker Rule limits the sponsorship of, and investment in, “covered funds” (as defined by the Volcker Rule) and imposes limits on certain transactions between the Firm and its sponsored funds (see JPMorgan Chase’s subsidiary banks — Restrictions on transactions with affiliates below). The Volcker Rule which became effective in July 2015, requires banking entities to establish comprehensive compliance programs reasonably designed to help ensure and monitor compliance with the restrictions under the Volcker Rule, including, in order to distinguish permissible from impermissible risk-taking activities, the measurement, monitoring and reporting of certain key metrics. Given the uncertainty and complexity of the Volcker Rule’s framework, the full impact of the Volcker Rule will ultimately depend on its ongoing interpretation by the five regulatory agencies responsible for its oversight.
Capital and liquidity requirements. The Federal Reserve establishes capital and leverage requirements for the Firm and evaluates its compliance with such requirements. The OCC establishes similar capital and leverage requirements for the Firm’s national banking subsidiaries. For more information about the applicable requirements relating to risk-based capital and leverage in the U.S. under the most recent capital framework established by the Basel Committee on Banking Supervision (the “Basel Committee”)(“Basel III”), see Capital Risk Management on pages 149–15876–85 and Note 28. Under Basel III, bank holding companies and banks are required to measure their liquidity against two specific liquidity tests: the liquidity coverage ratio (“LCR”) and the net stable funding ratio (“NSFR”). The U.S. banking regulators have approved the final LCR rule (“U.S. LCR”), which became effective on January 1, 2015. AIn April 2016, the U.S. banking regulators issued a proposed U.S. rule for NSFR is expected.NSFR. For additional information on these ratios, see Liquidity Risk Management on pages 159–164. It is likely110–115. On December 19, 2016 the Federal Reserve published final
U.S. LCR public disclosure requirements. Starting with the second quarter of 2017, the Firm will be required to disclose quarterly its consolidated LCR pursuant to the U.S. LCR rule, including the Firm’s average LCR for the quarter and the key quantitative components of the average LCR in a standardized template, along with a qualitative discussion of material drivers of the ratio, changes over time, and causes of such changes. On September 8, 2016 the Federal Reserve published the framework that will apply to the bankingsetting of the countercyclical capital buffer. As of October 24, 2016 the Federal Reserve reaffirmed setting the U.S. countercyclical capital buffer at 0%, and stated that it will review the amount at least annually. Banking supervisors will continue to refineconsider refinements and enhanceenhancements to the Basel III capital framework for financial institutions. The Basel Committee recently finalized revisions to market risk capital for trading books;books and the treatment of interest rate risk in the banking book; other proposals being contemplated by the Basel Committee include revisions to, among others, standardized credit and operational risk capital frameworks, anda recalibration of the leverage ratio, revisions
to the securitization framework.framework, and changes to the definition of defaulted assets. In January 2017, the Basel Committee announced that the review of the proposals to finalize the post-crisis regulatory reforms has been postponed. After a proposal is finalized by the Basel Committee, U.S. banking regulators would then need to propose requirements applicable to U.S. financial institutions. In March 2016, the Federal Reserve Board released a revised proposal to establish single-counterparty credit limits for large U.S. bank holding companies and foreign banking organizations.
Stress tests. The Federal Reserve has adopted supervisory stress tests for large bank holding companies, including JPMorgan Chase, which form part of the Federal Reserve’s annual Comprehensive Capital Analysis and Review (“CCAR”) framework. Under the framework, the Firm must conduct semi-annual company-run stress tests and, in addition, must submit an annual capital plan to the Federal Reserve, taking into account the results of separate stress tests designed by the Firm and the Federal Reserve. In reviewing the Firm’s capital plan, the Federal Reserve considers both quantitative and qualitative factors. Qualitative assessments include, (amongamong other things)things, the comprehensiveness of the plan, the assumptions and analysis underlying the plan, and the extent to which the Firm has satisfied certain supervisory matters related to the Firm’s processes and analyses, including the design and operational effectiveness of the controls governing such processes. Moreover, the Firm is required to receive a notice of non-objection from the Federal Reserve before taking capital actions, such as paying dividends, implementing common equity repurchase programs or redeeming or repurchasing capital instruments. The OCC requires JPMorgan Chase Bank, N.A. to perform separate, similar annual stress tests. The Firm publishes each year the results of its mid-cycle stress tests under the Firm’s internally-developed “severely adverse” scenario and the results of its (and
(and its two primary subsidiary banks’) annual stress tests under the supervisory “severely adverse” scenarios provided by the Federal Reserve and the OCC. Commencing with the 2016 CCAR, theThe Firm will file its 2017 annual CCAR submission will be due on April 5. Results will be published by the Federal Reserve by June 30, with disclosures of results by BHCs, including the Firm, to follow within 15 days. Also commencing in 2016, theThe mid-cycle capital stress test submissions will beare due on October 5 and BHCs, including the Firm, will publish results by November 4. The Federal Reserve has indicated that it is currently evaluating the inclusion of all or part of the global systemically important bank (“GSIB”) surcharge into the 2017 CCAR test and the Firm is currently awaiting further guidance. For additional information on the Firm’s CCAR, see Capital Risk Management on pages 149–158.76–85.
Enhanced prudential standards. The Financial Stability Oversight Council (“FSOC”), among other things, recommends prudential standards and reporting and disclosure requirements to the Federal Reserve for systemically important financial institutions (“SIFIs”), such as JPMorgan Chase. The Federal Reserve has adopted several rules to implement the heightened prudential standards, including final rules relating to risk management and corporate governance of subject BHCs. BHCs with $50 billion or more in total consolidated assets are required to comply with enhanced liquidity and overall risk
management standards, including a buffer of highly liquid assets based on projected funding needs for 30 days, and their boardboards of directors isare required to conduct appropriate oversight of their risk management activities. For information on liquidity measures, see Liquidity Risk Management on pages 159–164.110–115. Several additional proposed rules are still being considered, including rules relating to single-counterparty credit limits and an “early remediation” framework to address financial distress or material management weaknesses.
Risk reporting. In January 2013, the Basel Committee issued new regulations relating to risk aggregation and reporting. Under these regulations, the banking institution’s risk governance framework must encompass risk-data aggregation and reporting, and data aggregation must be highly automated and allow for minimal manual intervention. The regulations also impose higher standards for the accuracy, comprehensiveness, granularity and timely distribution of data reporting, and call for regular supervisory review of the banking institution’s risk aggregation and reporting. These new standards became effective for GSIBs, including the Firm, on January 1, 2016.
Orderly liquidation authority and resolution and recovery. As a BHC with assets of $50 billion or more, the Firm is required to submit annually to the Federal Reserve and the FDIC a plan for resolution under the Bankruptcy Code in the event of material distress or failure (a “resolution plan”). The FDIC also requires each insured depositarydepository institution with $50 billion or more in assets, such as JPMorgan Chase Bank, N.A. and Chase Bank USA, N.A., to provide a resolution plan. For more information about the Firm’s resolution plan, see Risk Factors on pages 8–18.21 as well as Business Overview on pages 37–38 for information regarding the Firm’s 2016 Resolution Submission. In addition, certain financial companies, including JPMorgan Chase and certain of its subsidiaries, can be subjected to resolution under an “orderly liquidation authority.” The U.S. Treasury Secretary, in consultation with the President of the United States, must first make certain extraordinary financial distress and systemic risk determinations, and action must be recommended by the FDIC and the Federal Reserve. Absent such actions, the Firm, as a BHC, would remain subject to resolution under the Bankruptcy Code. In December 2013, the FDIC issued a draft policy statement describing its “single point of entry” strategy for resolution of systemically important financial institutions under the orderly liquidation authority. This strategy seeks to keep operating subsidiaries of the BHC open and impose losses on shareholders and creditors of the holding company in
receivership according to their statutory order of priority. For further information see Risk Factors on pages 8–21.
The Firm has a comprehensive recovery plan detailing the actions it would take to avoid failure by remaining well-capitalized and well-funded in the case of an adverse event. JPMorgan Chase has provided the Federal Reserve with comprehensive confidential supervisory information and analyses about the Firm’s businesses, legal entities and corporate governance and about its crisis management governance, capabilities and available alternatives to raise liquidity and capital in severe market circumstances. The
OCC has published for comment proposed guidelines establishing standards for recovery planning by insured national banks, includingand JPMorgan Chase Bank, N.A. and Chase Bank USA, N.A. have submitted their recovery plans to the OCC. For further information see Risk Factors on pages 8–21. In addition, certain of the Firm’s non-U.S. subsidiaries are subject to resolution and recovery planning requirements in the jurisdictions in which they operate.
Regulators in the U.S. and abroad continue to be focused on developing measures designed to address the possibility or perception that large financial institutions, including the Firm, may be “too big to fail,” and to provide safeguards so that, if a large financial institution does fail, it can be resolved without the use of public funds. Higher capital surcharges on GSIBs,global systemically important banks (“GSIBs”), requirements for certain large bank holding companies to maintain a minimum amount of long-term debt to facilitate orderly resolution of those firms, and the International Swaps and Derivatives Association (“ISDA”) protocol relating to the “close-out” of derivatives transactions during the resolution of a large cross-border financial institution, are examples of initiatives to address “too big to fail.” For further information on the potential impact of the GSIB framework and Total Loss Absorbing Capacity (“TLAC”), see Capital Risk Management on pages 149–15876–85 and Risk Factors on pages 8–18,21, and on the ISDA close-out protocol, see Derivatives regulation below.
Holding company as source of strength for bank subsidiaries. JPMorgan Chase & Co. is required to serve as a source of financial strength for its depository institution subsidiaries and to commit resources to support those subsidiaries. This support may be required by the Federal Reserve at times when the Firm might otherwise determine not to provide it.
Regulation of acquisitions. Acquisitions by bank holding companies and their banks are subject to multiple requirements by the Federal Reserve and the OCC. For example, financial holding companies and bank holding companies are required to obtain the approval of the Federal Reserve before they may acquire more than 5% of the voting shares of an unaffiliated bank. In addition, acquisitions by financial companies are prohibited if, as a result of the acquisition, the total liabilities of the financial company would exceed 10% of the total liabilities of all financial companies. In contrast, because the liabilities of non-U.S. financial companies are calculated differently under this rule, a non-U.S. financial company could hold significantly more than 10% of the U.S. market without exceeding the concentration limit. In addition, for certain acquisitions, the Firm must provide written notice to the Federal Reserve prior to acquiring direct or indirect ownership or control of
any voting shares of any company with over $10 billion in assets that is engaged in activities that are “financial in nature”.nature.”
JPMorgan Chase’s subsidiary banks:
The Firm’s two primary subsidiary banks, JPMorgan Chase Bank, N.A. and Chase Bank USA, N.A., are FDIC-insured national banks regulated by the OCC. As national banks, the activities of JPMorgan Chase Bank, N.A. and Chase Bank USA, N.A. are limited to those specifically authorized under the National Bank Act and related interpretations by the OCC.
FDIC deposit insurance. The FDIC deposit insurance fund provides insurance coverage for certain deposits whichand is funded through assessments on banks, such as JPMorgan Chase Bank, N.A. and Chase Bank USA, N.A. Changes in the methodology used to calculate such assessments, resulting from the enactment of the Dodd-Frank Act, significantly increased the assessments that the Firm’s bank subsidiaries pay annually to the FDIC. In October 2015, theThe FDIC proposedinstituted a new assessment surcharge on insured depository institutions with total consolidated assets greater than $10 billion in order to raise the reserve ratio for the FDIC deposit insurance fund. Future FDIC rule-making could further increase such assessments.
FDIC powers upon a bank insolvency. Upon the insolvency of an insured depository institution, such as JPMorgan Chase Bank, N.A., the FDIC maycould be appointed as the conservator or receiver under the Federal Deposit Insurance Act (“FDIA”). In addition, where a systemically important financial institution, such as JPMorgan Chase & Co., is “in default” or “in danger of default”, the FDIC may be appointed as receiver in order to conduct an orderly liquidation. In both cases, theThe FDIC has broad powers to transfer any assets and liabilities without the approval of the institution’s creditors. For further information on the impact to creditors, see Risk Factors on pages 8–21.
Cross-guarantee. An FDIC-insured depository institution can be held liable for any loss incurred or expected to be incurred by the FDIC if another FDIC-insured institution that is under common control with such institution is in default or is deemed to be “in danger of default” (commonly referred to as “cross-guarantee” liability). An FDIC cross-guarantee claim against a depository institution is generally superior in right of payment to claims of the holding company and its affiliates against such depository institution.
Prompt corrective action and early remediation. The Federal Deposit Insurance Corporation Improvement Act of 1991 requires the relevant federal banking regulator to take “prompt corrective action” with respect to a depository institution if that institution does not meet certain capital adequacy standards. While these regulations apply only to banks, such as JPMorgan Chase Bank, N.A. and Chase Bank USA, N.A., the Federal Reserve is authorized to take appropriate action against the parent BHC, such as JPMorgan Chase & Co., based on the undercapitalized status of any bank subsidiary. In certain instances, the BHC would be required to guarantee the performance of the capital restoration plan for its undercapitalized subsidiary.
OCC Heightened Standards. The OCC has issued final regulations andestablished guidelines establishingsetting forth heightened standards for large banks. The guidelines establish minimum standards for the design and implementation of a risk governance framework for banks. While the bank maycan use certain components of the parent company’s risk governance framework, the framework must ensure that the bank’s risk profile is easily distinguished and separate from the parent for risk management purposes. The bank’s board or risk committee is responsible for approving the
bank’s risk governance framework, providing active oversight of the bank’s risk-taking activities, and holding management accountable for adhering to the risk governance framework.
Restrictions on transactions with affiliates. The bank subsidiaries of JPMorgan Chase (including subsidiaries of those banks) are subject to certain restrictions imposed by federal law on extensions of credit to, investments in stock or securities of, and derivatives, securities lending and certain other transactions with, JPMorgan Chase & Co. and certain other affiliates. These restrictions prevent JPMorgan Chase & Co. and other affiliates from borrowing from such subsidiaries unless the loans are secured in specified amounts and comply with certain other requirements. For more information, see Note 27. In addition, the Volcker Rule imposes a prohibition on such transactions between any JPMorgan Chase entity and covered funds for which a JPMorgan Chase entity serves as the investment manager, investment advisor, commodity trading advisor or sponsor, as well as, subject to a limited exception, any covered fund controlled by such funds.
Dividend restrictions. Federal law imposes limitations on the payment of dividends by national banks, such as JPMorgan Chase Bank, N.A. and Chase Bank USA, N.A. See Note 27 for the amount of dividends that the Firm’s principal bank subsidiaries could pay, at January 1, 2016,2017, to their respective bank holding companies without the approval of their banking regulators.
In addition to the dividend restrictions described above, the OCC and the Federal Reserve have authority to prohibit or limit the payment of dividends of the bank subsidiaries they supervise, if, in the banking regulator’s opinion, payment of a dividend would constitute an unsafe or unsound practice in light of the financial condition of the bank.
Depositor preference. Under federal law, the claims of a receiver of an insured depository institution for administrative expense and the claims of holders of U.S. deposit liabilities (including the FDIC)FDIC and foreign deposits that are payable in the U.S. as well as in a foreign branch) have priority over the claims of other unsecured creditors of the institution, including public noteholders and depositors in non-U.S. offices. As a result, such persons could receive substantially less than the depositors in U.S. offices of the depository institution. The U.K. Prudential Regulation Authority (the “PRA”), a subsidiary of the Bank of England which has responsibility for prudential regulation of banks and other systemically important institutions, has issued a proposal that may require the Firm to either obtain equal treatment for U.K. depositors or “subsidiarize” in the U.K. In September 2013, the FDIC issued a final rule which clarifies that foreign deposits are considered deposits under the FDIA if they are payable in the U.S. as well as in the foreign branch.
CFPB regulation and supervision, and other consumer regulations. JPMorgan Chase and its national bank subsidiaries, including JPMorgan Chase Bank, N.A. and Chase Bank USA, N.A., are subject to supervision and
regulation by the CFPB with respect to federal consumer
protection laws, including laws relating to fair lending and the prohibition of unfair, deceptive or abusive acts or practices in connection with the offer, sale or provision of consumer financial products and services. These laws include the Truth-in-Lending, Equal Credit Opportunity Act (“ECOA”), Fair Credit Reporting, Fair Debt Collection Practice, Electronic Funds Transfer, Credit Card Accountability, Responsibility and Disclosure (“CARD”) and Home Mortgage Disclosure Acts. The CFPB also has authority to impose new disclosure requirements for any consumer financial product or service. The CFPB has issued informal guidance on a variety of topics (such as the collection of consumer debts and credit card marketing practices) and has taken enforcement actions against certain financial institutions. Much of the CFPB’s initial rule-making efforts have addressed mortgage relatedmortgage-related topics, including ability to repay and qualified mortgage standards, mortgage servicing standards, loan originator compensation standards, high-cost mortgage requirements, Home Mortgage Disclosure Act requirements, appraisal and escrow standards and requirements for higher-priced mortgages. The CFPB continues to issue informal guidance on a variety of topics (such as the collection of consumer debts and credit card marketing practices). Other areas of recent focus include sales incentives, pre-authorized electronic funds transfers, “add-on” products, matters involving consumer populations considered vulnerable by the CFPB (such as students), credit reporting, and the furnishing of credit scores to individuals. TheAs part of its regulatory oversight, the CFPB has been focused on automobile dealer discretionary interest rate markups, and on holdingtaken enforcement actions against certain financial institutions, including the Firm and other purchasers of such contracts (“indirect lenders”) responsible under the ECOA for statistical disparities in markups charged by the dealers to borrowers of different races or ethnicities. For information regarding a current investigation relating to indirect lending to automobile dealers, see Note 31.Firm.
Securities and broker-dealer regulation:
The Firm conducts securities underwriting, dealing and brokerage activities in the U.S. through J.P. Morgan Securities LLC and other broker-dealer subsidiaries, all of which are subject to regulations of the SEC, the Financial Industry Regulatory Authority and the New York Stock Exchange, among others. The Firm conducts similar securities activities outside the U.S. subject to local regulatory requirements. In the U.K., those activities are conducted by J.P. Morgan Securities plc which isand are regulated by the PRA and by the Financial Conduct Authority (“FCA”), which regulates prudential matters for firms that are not so regulated by the PRA and conduct matters for all market participants.FCA. Broker-dealers are subject to laws and regulations covering all aspects of the securities business, including sales and trading practices, securities offerings, publication of research reports, use of customer’scustomers’ funds, the financing of clients’ purchases, capital structure, record-keeping and retention, and the conduct of their directors, officers and employees. For information on the net capital of J.P. Morgan Securities LLC, and J.P. Morgan Clearing Corp., and the applicable requirements relating to risk-based capital for J.P. Morgan Securities plc, see Broker-dealer regulatory capital on page 158. Future rule-making under85. In addition, rules adopted by the Department of Labor would impose (among other things) a new standard of care applicable to broker-dealers when dealing with customers. For more information see - Investment management regulation below.
the Dodd-Frank Act and rules proposed by the Department of Labor may impose (among other things) a new standard of care applicable to broker-dealers when dealing with customers.
Investment management regulation:
The Firm’s investmentasset management business isbusinesses are subject to significant investment management regulation in numerous jurisdictions around the world relating to, among other things, the safeguarding of client assets, offerings of funds, marketing activities, transactions among affiliates and management of client funds. Certain of the Firm’s subsidiaries are registered with, and subject to oversight by, the SEC as investment advisers. As such, the Firm’s registered investment advisers are subject to the fiduciary and other obligations imposed under the Investment Advisers Act of 1940 and the rules and regulations promulgated thereunder, as well as various state securities laws. For information regarding investigations and litigation in connection with disclosures to clients related to proprietary products, see Note 31.
The Firm’s asset management business continuesbusinesses continue to be affected by ongoing rule-making. In July 2013, therule-making and implementation of new regulations. The SEC adopted amendments to rules that govern money-market funds, requiring a floating net asset value for institutional prime money-market funds became effective October 14, 2016. As noted above, the Department of Labor has also proposed a rule that would significantly expand the universe of persons viewed as investment fiduciaries to retirement plans and IRAs. In addition, the SEC has issued proposed rulesadopted amendments regarding enhanced liquidity risk management for open-end mutual funds and exchange-traded funds (“ETFs”); restrictions on the use of derivatives by mutual funds, ETFs and closed-end funds; and enhanced reporting for funds and advisors. The Department of Labor (“DOL”) “fiduciary” rule would significantly expand the universe of persons viewed as investment advice fiduciaries to retirement plans and individual retirement accounts (“IRAs”) under the Employee Retirement Income Security Act of 1974, as amended (“ERISA”). Among the most significant impacts of the rule and related prohibited transaction exemptions would be the impact on the fee and compensation practices at financial institutions that offer investment advice to retail retirement clients. The related exemptions would require new client contracts, adherence to “impartial conduct” standards (including a requirement to act in the “best interest” of retirement clients), implementation of policies and procedures, websites and other disclosures to both investors and the DOL. The rule was due to become applicable from April 10, 2017; however following a recent memorandum from the White House directing review of the rule, the DOL announced that it is considering legal options for delaying the rule’s applicability.
Derivatives regulation:
The Firm is subject to comprehensive regulation of its derivatives businesses. The regulations impose capital and margin requirements (including the collecting and posting of variation margin and initial margin in respect of non-centrally cleared derivatives), require central clearing of standardized over-the-counter (“OTC”) derivatives, require that certain standardized over-the-counter swaps be traded on regulated trading venues, and provide for reporting of certain mandated information. In addition, the Dodd-Frank Act requires the registration of “swap dealers” and “major swap participants” with the CFTC and of “security-based swap dealers” and “major security-based swap participants” with the SEC. JPMorgan Chase Bank, N.A., J.P. Morgan
Securities LLC, J.P. Morgan Securities plc and J.P. Morgan Ventures Energy Corporation have registered with the CFTC as swap dealers, and JPMorgan Chase Bank, N.A., J.P. Morgan Securities LLC and J.P. Morgan Securities plc will likelymay be required to register with the SEC as security-based swap dealers. As a result of their registration as swap dealers or security-based swap dealers, these entities will be subject to a new, comprehensive regulatory framework applicable to their swap or security-based swap activities, which includes capital requirements, rules regulating their swap activities, rules requiring the collateralization of uncleared swaps, rules regarding segregation of
counterparty collateral, business conduct and documentation standards, record-keeping and reporting obligations, and anti-fraud and anti-manipulation requirements. Further, some of the rules for derivatives apply extraterritorially to U.S. firms doing business with clients outside of the U.S., as well as to the overseas activities of non-U.S. subsidiaries of the Firm that either deal with U.S. persons or that are guaranteed by U.S. subsidiaries of the Firm; however, the full scope of the extra-territorial impact of the U.S. swaps regulation has not been finalized and therefore remains unclear. The effect of these rules may require banking entities, such as the Firm, to modify the structure of their derivatives businesses and face increased operational and regulatory costs. In the European Union (the “EU”), the implementation of the European Market Infrastructure Regulation (“EMIR”) and the revision of the Markets in Financial Instruments Directive (“MiFID II”) will result in comparable, but not identical, changes to the European regulatory regime for derivatives. The combined effect of the U.S. and EU requirements, and the potential conflicts and inconsistencies between them, present challenges and risks to the structure and operating model of the Firm’s derivatives businesses.
In November 2015, theThe Firm and other financial institutions have agreed to adhere to an updated Resolution Stay Protocol developed by ISDA in response to regulator concerns that the close-out of derivatives and other financial transactions during the resolution of a large cross-border financial institution could impede resolution efforts and potentially destabilize markets. The Resolution Stay Protocol provides for the contractual recognition of cross-border stays under various statutory resolution regimes and a contractual stay on certain cross-default rights.
In the U.S., two subsidiariesone subsidiary of the Firm areis registered as a futures commission merchants,merchant, and other subsidiaries are either registered with the CFTC as commodity pool operators and commodity trading advisors or are exempt from such registration. These CFTC-registered subsidiaries are also members of the National Futures Association.
Data regulation:
The Firm and its subsidiaries are subject to federal, state and international laws and regulations concerning the use and protection of certain customer, employee and other personal and confidential information, including those imposed by the Gramm-Leach-Bliley Act and the Fair Credit Reporting Act, as well as the EU Data Protection Directive.
In addition, there are numerous proposals pending before U.S. and non-U.S. legislative and regulatory bodies regarding privacy and data protection. For example, the European Parliament and the European Council have reached agreement on certain data protection reforms proposed by the European Commission which includes numerous operational requirements, adds a requirement to notify individuals of data breaches and establishes enhanced sanctions for non-compliance, including increased fines.
Reporting Act, as well as the EU Data Protection Directive. In addition, various U.S. regulators, including the Federal Reserve, the OCC and the SEC, have increased their focus on cybersecurity through guidance, examinations and regulations.
In May 2018, the General Data Protection Regulation (“GDPR”) will replace the EU Data Protection Directive, and it will have a significant impact on how businesses can collect and process the personal data of EU individuals. In addition, numerous proposals regarding privacy and data protection are pending before U.S. and non-U.S. legislative and regulatory bodies.
The Bank Secrecy Act and Economic Sanctions:
The Bank Secrecy Act (“BSA”) requires all financial institutions, including banks and securities broker-dealers, to, among other things, establish a risk-based system of internal controls reasonably designed to prevent money laundering and the financing of terrorism. The BSA includes a variety of record-keeping and reporting requirements (such as cash transaction and suspicious activity reporting), as well as due diligence/know your customer documentation requirements. In January 2013, the Firm entered into Consent Orders with its banking regulators relating to the Firm’s Bank Secrecy Act/Anti-Money Laundering policies, procedures and controls; the Firm has taken significant steps to modify and enhance its processes and controls with respect to its Anti-Money Laundering procedures and to remediate the issues identified in the Consent Order. The Firm is also subject to the regulations and economic sanctions programs administered by the U.S. Treasury’s Office of Foreign Assets Control (“OFAC”).
Anti-Corruption:
The Firm is subject to laws and regulations relating to corrupt and illegal payments to government officials and others in the jurisdictions in which it operates, including the U.S. Foreign Corrupt Practices Act and the U.K. Bribery Act. For more information on a current investigationthe Firm’s consent judgment and non-prosecution agreement relating to among other things, the Firm’sreferral hiring of persons referred by government officials and clients,practices, see Note 31.
Compensation practices:
The Firm’s compensation practices are subject to oversight by the Federal Reserve, as well as other agencies. The Federal Reserve has issued guidance jointly with the FDIC and the OCC that is designed to ensure that incentive compensation paid by banking organizations does not encourage imprudent risk-taking that threatens the organizations’ safety and soundness. In addition, under the Dodd-Frank Act, federal regulators, including the Federal Reserve, must issue regulations or guidelines requiring covered financial institutions, including the Firm, to report the structure of all of their incentive-based compensation arrangements and prohibit incentive-based payment arrangements that encourage inappropriate risks by providing compensation that is excessive or that could lead to material financial loss to the institution. Proposed regulations were issued in 2016, and the public comment period has closed. Final regulations have not yet been
published. The Federal Reserve has conducted a review of the incentive compensation policies and practices of a number of large banking institutions, including the Firm. In addition to the Federal Reserve, the Financial Stability Board has established standards covering compensation principles for banks. In Europe, the Fourth Capital Requirements Directive (CRD IV)(“CRD IV”) includes compensation provisions.provisions and the European Banking Authority has instituted guidelines on compensation policies under CRD IV. In the U.K., compensation standards are governed by the Remuneration Code of the PRA and the FCA. The implementation of the Federal Reserve’s and other banking regulators’ guidelines regarding compensation are expected to evolve over the next several years, and may affect the manner in which the Firm structures its compensation programs and practices.
Significant international regulatory initiatives:
In the EU, there is an extensive and complex program of final and proposed regulatory enhancement that reflects, in part, the EU’s commitments to policies of the Group of Twenty Finance Ministers and Central Bank Governors (“G-20”) together with other plans specific to the EU. The EU operates a European Systemic Risk Board whichthat monitors financial stability, together with European Supervisory Agencies whichthat set detailed regulatory rules and encourage supervisory convergence across the 28 Member States. The EU has also created a Single Supervisory Mechanism for the euro-zone, under which the regulation of all banks in that zone will be under the auspices of the European Central Bank, together with a Single Resolution Mechanism and Single Resolution Board, having jurisdiction over bank resolution in the zone. At both globalthe G-20 and EU levels, various proposals are under consideration to address risks associated with global financial institutions. Some of the initiatives adopted include increased capital requirements for certain trading instruments or exposures and compensation limits on certain employees located in affected countries.
InGuided by the G20 policy framework, the EU there is an extensive and complex program of final andnational financial regulators have proposed regulatory enhancement which reflects, in part, the EU’s commitments to policies of the Group of Twenty Finance Ministers and Central Bank Governors (“G-20”) together with other plans specific to the EU. This program includesor adopted several market reforms, including EMIR, which requires, among other things, the central clearing of standardized derivatives; and MiFID II, which gives effect to the G-20 commitment to trading of derivatives through central clearing houses and exchanges and also includes significantly enhanced requirements for pre- and post-trade transparency and a significant reconfiguration of the regulatory supervision of execution venues. Key aspects of EMIR and MiFID II have been finalized, although the implementation date of MiFID II has been delayed to 2018.
The EU is also currently considering or implementing significant revisions to laws covering:covering depositary activities; credit ratingcredit-rating activities; resolution of banks, investment firms and market infrastructures; anti-money-launderinganti-money laundering controls; data security and privacy; corporate governance in financial firms; and implementation in the EU of the Basel III capital and liquidity standards.standards, including the introduction of
Following
an intermediate holding company requirement for foreign banks and the issuanceimplementation of the Report of the High Level Expert Group on Reforming the Structure of thestandard for TLAC.
The EU Banking Sector (the “Liikanen Group”), the EU hasis also considering proposed legislation providing for a proprietary trading ban and mandatory separation of other trading activities within certain banks, whilebanks; various EU Member States have separately enacted similar measures. In the U.K., legislation was adopted that mandates the separation (or “ring-fencing”) of deposit-taking activities from securities trading and other analogous activities within banks, subject to certain exemptions. The legislation includes the supplemental recommendation of the Parliamentary Commission on Banking Standards (the “Tyrie Commission”) that such ring-fences should be “electrified” by the imposition of mandatory forced separation on banking institutions that are deemed to test the limits of the safeguards. Parallel but distinct provisions have been enacted by the French Belgian and German governments. These measures may separately or taken together have significant implications for the Firm’s organizational
structure in Europe, as well as its permitted activities and capital deployment in the EU.
Much of the G20 policy framework has been finalized; however, the Basel Committee is currently reviewing the framework, and proposing recalibrations of certain requirements. As such, the EU is considering or implementing significant revisions to laws covering: bank and investment firm recovery and resolution; bank structure; securities settlement; transparency and disclosure of securities financing transactions; benchmarks; resolution of market infrastructures (central counterparties (“CCPs”)); anti-money laundering controls; data security and privacy; and corporate governance in financial firms; together with new amendments to capital and liquidity standards.
Consistent with the G20 and EU policy frameworks, U.K. regulators are introducinghave adopted a range of policy measures that make significant changes tohave significantly changed the markets and prudential regulatory environment in the U.K. Alongside broaderIn addition to broad recommendations made by the Fair and Effective Markets Review which focused on fixed income currencies and commodities markets, there is a focus by U.K. regulators on raisingare considering measures to raise standards and accountability of individuals, and promotingpromote forward-looking conduct risk identification and mitigation, including by introducing the new Senior Managers and Certification Regimes.
On June 23, 2016, the U.K. voted by referendum to leave the European Union (“Brexit”). The U.K. Government has since announced that it will invoke Article 50 of the Lisbon Treaty and will start the formal exit negotiations by the end of March 2017, giving an expected exit date of the end of March 2019. More recently, the British Prime Minister laid out twelve “negotiation objectives” for Brexit, which confirmed the U.K. will not remain a member of the Single Market, but will pursue a Free Trade Agreement that provides the greatest possible access to the Single Market. Further, the U.K. Government will seek a phased arrangement to ensure the orderly transition of the legal
and regulatory framework for financial services, and promote stability and market confidence. Following a recent ruling by the U.K. Supreme Court, the House of Commons approved legislation on February 8, 2017 that allows the British Prime Minister to invoke Article 50. The legislation must now be approved by the House of Lords before it is signed into law.
Many international banks, including the Firm, operate substantial parts of their European Union businesses from entities based in the U.K. Upon the U.K. leaving the European Union, the regulatory and legal environment that would then exist, and to which the Firm’s U.K. operations would then be subject, will depend on, in certain respects, the nature of the arrangements the U.K. agreed with the European Union and other trading partners. These arrangements cannot be predicted, but currently the Firm does not believe any of the likely identified scenarios would threaten the viability of the Firm’s business units or the Firm’s ability to serve clients across the European Union and in the U.K. However, it is possible that under some scenarios, changes to the Firm’s legal entity structure and operations would be required, which might result in a less efficient operating model across the Firm’s European legal entities.
The Firm is in the process of evaluating plans to ensure its continued ability to operate in the U.K. and the EU beyond the expected exit date.
Item 1A: RISK FACTORS1A. Risk Factors.
The following discussion sets forth the material risk factors that could affect JPMorgan Chase’s financial condition and operations. Readers should not consider any descriptions of such factors to be a complete set of all potential risks that could affect the Firm.
Regulatory Risk
JPMorgan Chase operates within a highly regulated industry, and the Firm’s businesses and results are significantly affected by the laws and regulations to which the Firm is subject.
As a global financial services firm, JPMorgan Chase is subject to extensive and comprehensive regulation under federal and state laws in the U.S. and the laws of the various jurisdictions outside the U.S. in which the Firm does business. The financial services industry has in recent years experienced and continues to experience an unprecedented increase in regulations and supervision, both in the U.S. and globally, and theglobally. The cumulative effect of all of the new and currently proposed legislation and regulations on the Firm’s business, operations and profitability remains uncertain.
The recent legislative and regulatory developments, as well as future legislative or regulatory actions in the U.S. and in the other countries in whichcould require the Firm operates, and any requiredto make further changes to the Firm’s businessits businesses or operations, resulting from such developments and actions,which could result in a significant loss of revenue for the Firm and impose additional compliance and other costs on the Firm or otherwise reduce the Firm’s profitability,profitability. These changes could also: limit the products and services that the Firm offersoffers; reduce the liquidity that the Firm is able to offer its clients or counterparties through its market-making activities; impede the Firm’s ability to pursue business opportunities in which it might otherwise consider engaging,engaging; require the Firm to dispose of or curtail certain businesses,
businesses; affect the value of assets that the Firm holds,holds; require the Firm to increase its prices and therefore reduce demand for its products,products; or otherwise adversely affect the Firm’s businesses. In addition, toTo the extent that legislativethese initiatives have been, or regulatory initiatives arecontinue to be, imposed on a limited subset of financial institutions (based on size, activities, geography or other criteria), the requirements to which the Firm may be subject under such laws and regulations could require the Firm to restructure further its businesses, or further re-price or curtail the products or services that it offers to customers, which could result in the Firm not being able to compete effectively with other institutions that are not impacted in the same way.
Authorities in some non-U.S. jurisdictions in which the Firm has operations have enacted legislation or regulations requiring that certain subsidiaries of the Firm operating in those countries maintain independent capital and liquidity. In addition, some non-U.S. regulators have proposed that large banks which conduct certain businesses in their jurisdictions operate through separate subsidiaries located in those countries. These requirements, and any future laws or regulations that seek to impose restrictions on the way the Firm organizes its business units or increase the capital or liquidity requirements on non-U.S. subsidiaries of the Firm, could hinder the Firm’s ability to efficiently manage its operations, increase its funding and liquidity costs and thereby decrease the Firm’s net income. In addition, there can be significant differences in the ways that similar regulatory initiatives affecting the financial services industry are implemented in the U.S. and in different countries and regions in which JPMorgan Chase does business. For example, recent legislative and regulatory initiatives within the EU, including those relating to the resolution of financial institutions, the establishment by non-EU financial institutions of intermediate holding companies in the EU, the separation of trading activities from core banking services, mandatory on-exchange trading, position limits and reporting rules for derivatives, governance and accountability regimes, conduct of business requirements and restrictions on compensation, and governance and accountability regimes, could require the Firm to make significant modifications to its non-U.S. business, operations and legal entity structure in order to comply with these requirements. These differences in implemented or proposed non-U.S. regulations and initiatives may be inconsistent or may conflict with current or proposed regulations in the U.S., which could subject the Firm to increased compliance and legal costs, as well as higher operational, capital and liquidity costs, all of which could have an adverse effect on the Firm’s business, results of operations and profitability.
Recent political developments in the U.S. and abroad have increased the uncertainty regarding the regulatory environment in which the Firm will operate. Although certain of the proposals being mentioned in the U.S. include the possibility of regulatory reform related to the financial services industry, it is too early to determine the full extent to which these measures will ultimately modify or reduce the regulatory requirements currently imposed on the Firm, and the resulting possible effect on the Firm and its business and operations. In addition, the U.K.’s planned
departure from the EU has engendered significant uncertainty concerning the regulatory framework under which global financial services institutions, including JPMorgan Chase, will need to conduct their business and operations in the EU after the U.K.’s departure.
Expanded regulatory and governmental oversight of JPMorgan Chase’s businesses may continue to increase the Firm’s costs and risks.
The Firm’s businesses and operations are increasingly subject to heightened governmental and regulatory oversight and scrutiny. The Firm has paid significant fines (or has provided significant monetary and other relief) to resolve a number of investigations or enforcement actions by governmental agencies. The Firm continues to devote substantial resources to satisfying the requirements of regulatory consent orders and other settlements to which it is subject, which increases the Firm’s operational and compliance costs.
Certain regulators have taken measures in connection with specific enforcement actions against financial institutions (including the Firm) that require admissions of wrongdoing and compliance with other conditions in connection with settling such matters. Such admissions and conditions can lead to, among other things, greater exposure in civil litigation, harm to reputation, disqualification from providing business to certain clients and in certain jurisdictions, and other direct and indirect adverse effects.
In addition, U.S. government officials have indicated and demonstrated a willingness to bring criminal actions against financial institutions, including the Firm, and have increasingly sought, and obtained, resolutions that include criminal pleas or other admissions of wrongdoing from those institutions, such as the Firm’s agreement in May 2015 to plead guilty to a single violation of federal antitrust law in connection with its settlements with certain government authorities relating to its foreign exchange sales and trading activities and controls related to those activities.activities, and the non-prosecution agreement entered into by a subsidiary of the Firm with the U.S. Department of Justice in November 2016 in connection with settlements to resolve various governmental investigations relating to a former hiring program for candidates referred by clients, potential clients and government officials in the Asia Pacific region. Such resolutions, whether with U.S. or non-U.S. authorities, could have significant collateral consequences for a subject financial institution, including loss of customers and business, or the inability to offer certain products or services, or losing permission to operate certain businesses, for a period of time (absent the
forbearance of, or the granting of waivers by, applicable regulators).
The Firm expects that it and the financial services industry as a whole will continue to be subject to heightened regulatory scrutiny and governmental investigations and enforcement actions and that violations of law will more frequently be met with formal and punitive enforcement action, including the imposition of significant monetary and other sanctions, rather than with informal supervisory action.
In addition, if the Firm fails to meet the requirements of the various governmental settlements to which it is subject, or more
generally, to maintain risk and control procedures and processes that meet the heightened standards established by its regulators and other government agencies, it could be required to enter into further orders and settlements, pay additional fines, penalties or judgments, or accept material regulatory restrictions on its businesses. The extent of the Firm’s exposure to legal and regulatory matters may be unpredictable and could, in some cases, substantially exceed the amount of reserves that the Firm has established for such matters.
Requirements for the orderly resolution of the Firm could require JPMorgan Chase to restructure or reorganize its businesses, and holders of JPMorgan Chase’s debt and equity securities would be at risk of absorbing losses if the Firm were to enter into a resolution.businesses.
Under Title I of the Dodd-Frank Act (“Title I”) and Federal Reserve and FDIC rules, the Firm is required to prepare and submit periodically to the Federal Reserve and the FDIC a detailed plan (the “Resolution Plan”) for the rapid and orderly resolution, without extraordinary government support, of JPMorgan Chase & Co. and certain of its subsidiaries under the U.S. Bankruptcy Code and other applicable insolvency laws in the event of future material financial distress or failure. of the Firm.
In August 2014,April 2016, the Federal Reserve and the FDIC announcedjointly provided firm-specific feedback on the completion2015 Resolution Plans of their reviewseight systemically important domestic banking institutions, and determined that five of these 2015 Resolution Plans, including that of the second round of Title I resolution plans submitted by eleven large, complex banking organizations in 2013, including the Firm. The agencies jointly identified specific shortcomings with the 2013 resolution plans, including the Firm’s 2013 plan. The FDIC’s board of directors determined under Title I that the 2013 resolution plans, including the Firm’s 2013 plan,Firm, were not credible and didor would not facilitate an orderly resolution under the U.S. Bankruptcy Code. The Federal Reserve Board determined thatIn addition to the eleven banking organizations must take immediate actions to improve their resolvability and reflect those improvements in their 2015 plans. The Firm has devoted significant resources to its resolution planning efforts, and believes that in its most recent Title I resolution plan submitted toidentified deficiencies, the Federal Reserve and the FDIC also identified certain shortcomings which were required to be satisfactorily addressed in the Firm’s Resolution Plan due on July 1, 2017. On October 1, 2016, the Firm filed with the Federal Reserve and the FDIC its submission (the “2016 Resolution Submission”) describing how the Firm remediated the identified deficiencies and providing a status report of its actions to address the identified shortcomings.
On December 13, 2016, the Federal Reserve and the FDIC advised the Firm of their determinations that the Firm’s 2016 Resolution Submission adequately remediated the deficiencies in the Firm’s 2015 it has addressed, or has made substantial progress in addressing, each of the shortcomings previouslyResolution Plan identified by the agencies.
However, if On July 1, 2017, the Firm will file with the Federal Reserve and the FDIC its 2017 Resolution Plan which will, among other things, describe how the Firm has remediated the remaining shortcomings identified by the agencies in April 2016. If the Federal Reserve and the FDIC were to jointly determine that the Firm did not remediate the identified shortcomings, or that the Firm’s 2015 plan,2017 Resolution Plan, or any future update of that plan, is not credible, and the Firm is unable to remedy the identified deficiencies in a timely manner, the regulators may jointly impose more stringent capital,
leverage or liquidity requirements on the Firm or restrictions on growth, activities or operations of the Firm, and could, if such deficiencies are not remedied within two years after such a determination, require the Firm to restructure, reorganize or divest businesses, legal entities, operational systems and/or intercompany transactions in ways that could
materially and adversely affect the Firm’s operations and strategy. In addition, in order to developcontinue to maintain a Title I resolution planResolution Plan that the Federal Reserve and FDIC determine is credible, the Firm may need to make certainadditional changes to its legal entity structure and to certain intercompany and external activities, which could result in increased funding or operational costs.
In addition to the Firm’s plan for orderly resolution, the Firm’s resolution plan also recommends to the Federal Reserve and the FDIC its proposed optimal strategy to resolve the Firm under the special resolution procedure provided in Title II of the Dodd-Frank Act (“Title II”). The Firm’s recommendation involves a “single point of entry” recapitalization model in which the FDIC would use its power to create a “bridge entity” for JPMorgan Chase; transfer the systemically important and viable parts of the Firm’s business, principally the stockHolders of JPMorgan Chase & Co.’s main operating subsidiariesChase’s debt and any intercompany claims against such subsidiaries, to the bridge entity; recapitalize those subsidiaries by, among other things, converting some or all of such intercompany claims to capital; and exchange external debt claims againstequity securities will absorb losses if JPMorgan Chase & Co. for equity in the bridge entity. As discussed below, thewere to enter into a resolution.
The Federal Reserve has also proposedissued final rules (the “TLAC rules”) regarding the minimum levels of unsecured external long-term debt and other loss-absorbing capacity that bank holding companies would beare required to have issued and outstanding, as well as guidelines defining the terms of qualifying debt instruments, to ensure that adequate levels of debt are maintained at the holding company level for purposes of recapitalization ofrecapitalizing the bridge entity andFirm’s operating subsidiaries (“eligible LTD”). If JPMorgan Chase & Co. were to enter into a resolution, either in a proceeding under Chapter 11 of the U.S. Bankruptcy Code or in a receivership administered by the FDIC under Title II of the Dodd-Frank Act, holders of eligible LTD and other debt and equity securities of the Firm would be at risk of absorbingwill absorb the losses of JPMorgan Chase & Co. and its affiliates. If
Under the Firm’s Resolution Plan, the Firm’s preferred resolution strategy contemplates that only JPMorgan Chase & Co. commencedwould enter bankruptcy proceedings under Chapter 11 of the U.S. Bankruptcy Code pursuant to a “single point of entry” recapitalization strategy. JPMorgan Chase & Co.’s subsidiaries would be recapitalized as needed so that they could continue normal operations or subsequently be wound down in an orderly manner. As a result, JPMorgan Chase & Co.’s losses and any losses incurred by its subsidiaries would be imposed first on holders of JPMorgan Chase & Co.’s equity securities and thereafter on unsecured creditors, including holders of JPMorgan Chase & Co.’s eligible LTD and shareholdersother debt securities. Claims of holders of those debt securities would have a junior position to the claims of creditors of JPMorgan Chase & Co.’s subsidiaries and to the claims of priority (as determined by statute) and secured creditors of JPMorgan Chase & Co. Accordingly, in a resolution of JPMorgan Chase & Co. under Chapter 11 of the U.S. Bankruptcy Code, holders of eligible LTD and other debt securities of JPMorgan Chase & Co. would realize value only to the extent available to JPMorgan Chase & Co. as a shareholder of JPMorgan Chase Bank, N.A. and its other subsidiaries, and only after the payment to theany claims of priority and secured creditors of such subsidiaries. In addition, even underJPMorgan Chase & Co. have been fully repaid. If JPMorgan Chase & Co. were to enter into a resolution, none of JPMorgan Chase & Co., the Federal Reserve or the FDIC is obligated to follow the Firm’s preferred resolution strategy under its Resolution Plan.
The FDIC has similarly indicated that a single point of entry recapitalization model could be a desirable strategy to resolve a systemically important financial institution, such as JPMorgan Chase & Co., under Title II of the Dodd-Frank Act,Act. Pursuant to that strategy, the FDIC would use its power to create a “bridge entity” for JPMorgan Chase & Co.;
transfer the systemically important and viable parts of its business, principally the stock of JPMorgan Chase & Co.’s main operating subsidiaries and any intercompany claims against such subsidiaries, to the bridge entity; recapitalize those subsidiaries using assets of JPMorgan Chase & Co. that have been transferred to the bridge entity; and exchange external debt claims against JPMorgan Chase & Co. for equity in the bridge entity. Under this Title II resolution strategy, the value of the stock of the bridge entity that would be redistributed to holders of the Firm’s eligible LTD and other debt securities of JPMorgan Chase & Co. may not be sufficient to repay all or part of the principal amount and interest on such debt. Itsecurities. To date, the FDIC has not formally adopted a single point of entry resolution strategy and it is also possible that the application of the Firm’s recommendednot obligated to follow such a strategy in a Title II strategy could result in greater losses to security holdersresolution of JPMorgan Chase & Co. than the losses that would result from a different resolution strategy for the Firm.
Market Risk
JPMorgan Chase’s results of operations have been, and may continue to be, adversely affected by U.S. and global financial market and economic conditions.conditions and political developments.
JPMorgan Chase’s businesses are materially affected by economic and market conditions, including the liquidity of the global financial markets; the level and volatility of debt and equity prices, interest rates, currency and commodities prices (including oil prices) and other market indices; investor, consumer and business sentiment; events that reduce confidence in the financial markets; inflation and unemployment; the availability and cost of capital and credit; the economic effects of natural disasters, health emergencies or pandemics, severe weather conditions, outbreaks of hostilities, terrorism or other geopolitical instabilities; monetary policies and actions taken by the Federal Reserve and other central banks; and the health of the U.S. and global economies. These conditions can
Recent political developments in the U.S. and abroad have increased the uncertainty regarding the economic environment in which the Firm will operate. Although certain of the proposals being considered in the U.S., such as tax reform or increased expenditure on infrastructure projects, could lead to higher levels of U.S. economic activity and more expansive U.S. domestic economic growth, others, such as protectionist trade policies or isolationist foreign policies, could contract economic growth. The uncertainty around the manner and extent to which these economic policies are ultimately enacted could impact market volatility and affect the Firm’s businesses, both directly and through their impact on the businesses and activities of the Firm’s clients and customers. In addition, the effects of various referenda in Europe, including the vote by the U.K. electorate to leave the EU, as well as the uncertainties regarding the outcome of Eurozone presidential elections in 2017, have triggered political and economic uncertainty in the Eurozone. There is no assurance that such uncertainty, and any resultant market volatility, will not adversely affect the Firm’s results of operations.
In the Firm’s underwritingwholesale businesses, market and advisory businesses, the above-mentionedeconomic factors can affect the volume of transactions that the Firm
executes for its clients and customers and, therefore, the revenue that the Firm receives, as well as the willingness of other financial institutions and investors to participate in loan syndications or underwritings managed by the Firm.
The Firm generally maintains market-making positions in the fixed income, currency, commodities, credit and equity markets to facilitate client demand and provide liquidity to clients. The revenue derived from these positions is affected by many factors, including the Firm’s success in effectively hedging its market and other risks; volatility in interest rates and equity, debt and commodities markets; interest rate and credit spreads; and the availability of liquidity in the capital markets, all of which are affected by global economic and market conditions. Certain ofconditions, political events and regulatory restrictions on market-making activities. In addition, the Firm’s market-making positionsbusinesses can expose the Firm to unexpected market, credit and operational risks that could be adversely affected bycause the lackFirm to suffer unexpected losses. Severe declines in asset values, unanticipated credit events, or unforeseen circumstances that may cause previously uncorrelated factors to become correlated (and vice versa) may create losses resulting from risks not having been appropriately taken into account in the development, structuring or pricing of liquidity, which will be influenced by many of these factors, and which could affect the Firm’s ability to realize returns from such activities and adversely affect the Firm’s earnings.a financial instrument.
The Firm may be adversely affected by declining asset values. This is particularly true for businesses that earn fees for managing third-party assets or receive or post collateral. For example, a higher level of U.S. or non-U.S. interest rates or a downturn in financial markets could affect the valuations of the client assets that the Firm manages or holds in custody, which, in turn, could affect the Firm’s revenue.revenue from fees that are based on the amount of assets under management or custody. Macroeconomic or market concerns, as well as legislative and regulatory developments (such as, for example, the recently-adopted SEC rules relating to money-market funds), may also prompt outflows from the Firm’s funds or accounts or cause clients to invest funds in products that generate lower revenue.
Changes in interest rates will affect the level of assets and liabilities held on the Firm’s balance sheet and the revenue that the Firm earns from net interest income. A low interest rate environment may compress net interest margins,
reducing the amounts that the Firm earns on its investment securities portfolio, or reducing the value of its mortgage servicing rights (“MSR”) asset, thereby reducing the Firm’s net interest income and other revenues. Conversely,An increasing or high interest ratesrate environment, while generally increasing the net interest income earned by the Firm, may under certain circumstances also result in increased funding costs, lower levels of commercial and residential loan originations and diminished returns on the investment securities portfolio (to the extent that the Firm is unable to reinvest contemporaneously in higher-yielding assets), thereby adversely affecting the Firm’s revenues and capital levels. Conversely, a low interest rate environment may compress net interest margins, reducing the amounts that the Firm earns on its investment securities portfolio, or reducing the value of its mortgage servicing rights (“MSRs”) asset, thereby reducing the Firm’s net interest income and other revenues.
The Firm’s consumer businesses are particularly affected by U.S. domestic economic conditions, including U.S. interest
rates, the rate of unemployment, housing prices, the level of consumer confidence, changes in consumer spending and the number of personal bankruptcies. If the recent positive trendsSustained low growth in the U.S. economy are not sustained, this could diminish demand for the products and services ofoffered by the Firm’s consumer businesses, or increase the cost to provide such products and services. In addition, adverse economic conditions, such as declines in home prices or persistent high levels of unemployment due to economic dislocations in certain geographies due to high levels of unemployment resulting from declining industrial or industries caused by falling oil and gas pricesmanufacturing activity, or other market or economic factors, could lead to an increase in mortgage, credit card, auto, student and other loan delinquencies and higher net charge-offs, which can reduce the Firm’s earnings. The Firm’s earnings from its consumer businesses could also be adversely affected by changes in government policies that affect consumers, including those relating to medical insurance, immigration, employment status and taxation, as well as governmental policies aimed at the economy more broadly, such as infrastructure spending and global trade, which could result in, among other things, higher inflation or reductions in consumer disposable income.
Widening of credit spreads makes it more expensive for the Firm to borrow on both a secured and unsecured basis, and may adversely affect the credit markets and the Firm’s businesses. Credit spreads widen or narrow not only in response to Firm-specific events and circumstances, but also as a result of general economic and geopolitical events and conditions. Changes in the Firm’s credit spreads will impact, positively or negatively, the Firm’s earnings on certain liabilities that are recorded at fair value.
Sudden and significant volatility in the prices of securities and other assets (including loans and derivatives) may curtail the trading markets for such securities and assets, make it difficult to sell or hedge such securities and assets, adversely affect the Firm’s profitability, capital or liquidity, or increase the Firm’s funding costs. The Federal Reserve has recently observed that market volatility may be exacerbated by regulatory restrictions, as market participants that are subject to the Volcker Rule are likely to decrease their market-making activities, and thereby constrain market liquidity, during periods of market stress. In addition, in a difficult or less liquid market environment, the Firm’s risk management strategies may not be effective because other market participants may be attempting to use the same or similar strategies to deal with the challenging market conditions. In such circumstances, it may be difficult for the Firm to reduce its risk positions due to the activity of such other market participants or widespread market dislocations. Sustained volatility in the financial markets may also negatively affect consumer or investor confidence, which could lead to lower client activity and decreased revenue for the Firm.
Credit Risk
The financial condition of JPMorgan Chase’s customers, clients and counterparties, particularly other financial institutions, could adversely affect the Firm.
The Firm routinely executes transactions with clients and counterparties in the financial services industry, including brokers and dealers, commercial banks, investment banks, mutual and hedge funds, investment managers and other institutional clients.types of financial institutions. Many of these transactions expose the Firm to the credit risk of its counterparties and, in some cases, disputes and litigation in the event of a default by the counterparty or client. Disputes with counterparties may also arise regarding the terms or the settlement procedures of derivative contracts, including with respect to the value of underlying collateral, which could cause the Firm to incur unexpected costs, including transaction, operational, legal and litigation costs, or result in credit losses, all of which may impair the Firm’s ability to manage effectively its credit risk exposure from these products.
The failure of a significant market participant, or concerns about a default by such an institution, could also
lead to significant liquidity problems for, or losses or defaults by, other institutions, which in turn could adversely affect the Firm. In addition, in recent years the perceived interrelationship among financial institutions has also led to claims by other market participants and regulators that the Firm and other financial institutions have allegedly violated anti-trust or anti-competition laws by colluding to manipulate markets, prices or indices, and there is no assurance that such allegations will not arise in the same or similar contexts in the future.
As part of providing clearing services, the Firm is a member of a number of central counterparties (“CCPs”),CCPs, and may be required to pay a portion of the losses incurred by such organizations as a result of the default of other members. As a clearing member, the Firm is also exposed to the risk of non-performance by its clients, which it seeks to mitigate through the maintenance of adequate collateral. In addition, the Firm can be exposed to intra-day credit risk of its clients in connection with providing cash management, clearing, custodial and other transaction services to such clients. If a client for which the Firm provides such services becomes bankrupt or insolvent, the Firm may suffer losses, become involved in disputes and litigation with various parties, including one or more CCPs, or the client’s bankruptcy estate and other creditors, or involved in regulatory investigations. All of such events can increase the Firm’s operational and litigation costs and may result in losses if any collateral received by the Firm is insufficient to cover such losses.
During periods of market stress or illiquidity, the Firm’s credit risk also may be further increased when the Firm cannot realize the fair value of the collateral held by it or when collateral is liquidated at prices that are not sufficient to recover the full amount of the loan, derivative or other exposure due to the Firm. Further, disputes with obligors as toconcerning the valuation of collateral could increase in
times of significant market stress, volatility or illiquidity, and the Firm could suffer losses during such periods if it is unable to realize the fair value of collateral or manage declines in the value of collateral.
Concentration of credit and market risk could increase the potential for significant losses.
JPMorgan Chase has exposure to increased levels of risk when customersclients or counterparties are engaged in similar business activities or activities in the same geographic region, or when they have similar economic features that would cause their ability to meet contractual obligations to be similarly affected by changes in economic conditions. For example, a significant deterioration in the credit quality of one of the Firm’s borrowers or counterparties could lead to concerns about the credit quality of other borrowers or counterparties in similar, related or dependent industries and thereby could exacerbate the Firm’s credit risk exposure and potentially increase its losses, including mark-to-market losses in its trading businesses. Similarly, challenging economic conditions affecting a particular industry or geographic area could lead to concerns about the credit quality of the Firm’s borrowers or counterparties, not only in that particular industry or geography but in
related or dependent industries, wherever located, or about the ability of customers of the Firm’s consumer businesses living in such areas or working in such affected industries or related or dependent industries to meet their obligations to the Firm. As a result,Although the Firm regularly monitors various segments of its exposures to assess potential concentration or contagion risks. Therisks, the Firm’s efforts to diversify or hedge its exposures against concentration risks may not be successful.
In addition, disruptions in the liquidity or transparency of the financial markets may result in the Firm’s inability to sell, syndicate or realize the value of its positions, thereby leading to increased concentrations. The inability to reduce the Firm’s positions may not only increase the market and credit risks associated with such positions, but may also increase the level of risk-weighted assets (“RWA”) on the Firm’s balance sheet, thereby increasing its capital requirements and funding costs, all of which could adversely affect the operations and profitability of the Firm’s businesses.
Liquidity Risk
If JPMorgan Chase does not effectively manage its liquidity, its business could suffer.
JPMorgan Chase’s liquidity is critical to its ability to operate its businesses. Some potential conditions that could impair the Firm’s liquidity include markets that become illiquid or are otherwise experiencing disruption, unforeseen cash or capital requirements (including, among others, commitments that may be triggered to special purpose entities (“SPEs”) or other entities), difficulty in selling or inability to sell assets, default by a CCP or other counterparty, unforeseen outflows of cash or collateral, and lack of market or customer confidence in the Firm or financial markets in general. These conditions may be caused by events over which the Firm has little or no control. The widespread crisis in investor confidence and
resulting liquidity crisis experienced in 2008 and into early 2009 increased the Firm’s cost of funding and limited its access to some of its traditional sources of liquidity (such as securitized debt offerings backed by mortgages, credit card receivables and other assets) during that time, and there is no assurance that these severe conditions could not occur in the future.
If the Firm’s access to stable and low cost sources of funding, such as bank deposits, is reduced, the Firm may need to raise alternative funding which may be more expensive or of limited availability. In addition, the Firm’s cost of funding could be affected by actions that the Firm may take in order to satisfy applicable liquidity coverage ratio and net stable funding ratio requirements, to lower its GSIB systemic risk score, or to satisfy the amount of eligible LTD that the Firm must have outstanding under the final TLAC rules.rules, to address obligations under the Firm’s Resolution Plan or to satisfy regulatory requirements in non-U.S. jurisdictions relating to the pre-positioning of liquidity in subsidiaries that are material legal entities.
JPMorgan Chase is a holding company and depends on the cash flows of its subsidiaries to fund payments of dividends on its equity securities, principal and interest payments on its debt securities and redemptions and repurchases of its outstanding securities.
As a holding company, JPMorgan Chase & Co. reliesis dependent on the earnings of its subsidiaries forto meet its cash flowpayment obligations. Under the arrangements contemplated by the Firm’s Resolution Plan, JPMorgan Chase & Co. has established a new intermediate holding company, JPMorgan Chase Holdings LLC (the “IHC”), and consequently,has contributed to the IHC the stock of substantially all of its direct subsidiaries (other than JPMorgan Chase Bank, N.A.) as well as other assets and intercompany indebtedness owing to it. Under these arrangements, JPMorgan Chase & Co. is obligated to contribute to the IHC substantially all the net proceeds received by it from securities issuances (including, without limitation, issuances of senior and subordinated debt securities and of preferred and common stock). As a result of these arrangements, JPMorgan Chase & Co.’s ability to pay interest on its debt securities and dividends on its equity securities, to redeem or repurchase its outstanding securities and to fulfill its other payment obligations is dependent on it receiving dividends from JPMorgan Chase Bank, N.A. and dividends and extensions of credit from the IHC. JPMorgan Chase Bank, N.A. is subject to restrictions on its dividend distributions, capital adequacy and liquidity coverage requirements, and other regulatory restrictions on its ability to make payments to JPMorgan Chase & Co., and the IHC is prohibited from paying dividends or extending credit to JPMorgan Chase & Co. if certain capital or liquidity “thresholds” are breached or if limits are otherwise imposed by the Firm’s management or Board of Directors. These regulatory restrictions and limitations on the payments that JPMorgan Chase & Co. is permitted to receive from JPMorgan Chase Bank, N.A. and the IHC could reduce or hinder its ability to pay dividends and satisfy its debt and other obligations. These payments by subsidiaries may take the form of dividends, loansobligations, or other payments. Several ofresult in JPMorgan Chase & Co.’s principal subsidiaries are seeking protection under bankruptcy laws at a time earlier than
subject to dividend distribution, capital adequacy or liquidity coverage requirements or other regulatory restrictions on their ability to provide such payments. Limitations inwould have been the payments that JPMorgan Chase & Co. receives from its subsidiaries could reduce its ability to pay dividends and satisfy its debt and other obligations.
Proposed banking regulations relating to liquidity, including U.S. rules relating to total loss-absorbing capacity, could require JPMorgan Chase to issue a substantial amount of new debt, and thereby significantly increase its funding costs.
On October 30, 2015,case absent the Federal Reserve issued proposed rules (the “proposed TLAC rules”) that would require the top-tier holding companies of eight U.S. global systemically important bank holding companies (“U.S. GSIB BHCs”), including JPMorgan Chase & Co., among other things, to maintain minimum amounts of eligible LTD, commencing January 1, 2019. The proposed TLAC rules would disqualify from eligible LTD, among other instruments, senior debt securities that permit acceleration for reasons other than insolvency or payment default, as well as debt securities that are not governed by U.S. law and structured notes. The currently outstanding senior long-term debt of U.S. GSIB BHCs, including JPMorgan Chase & Co., includes structured notes as well as other debt that typically permits acceleration for reasons other than insolvency or payment default and, as a result, noneexistence of such outstanding senior long-term debt or any subsequently issued senior long-term debt with similar terms would qualify as eligible LTD under the proposed TLAC rules. The Federal Reserve has requested comment on whether certain currently outstanding instruments should be allowed to count as eligible LTD “despite containing features that would be prohibited under the proposal.” The steps that the U.S. GSIB BHCs, including JPMorgan Chase & Co., may need to take to come into compliance with the final TLAC rules, including the amount and form of long-term debt that must be refinanced or issued, will depend in substantial part on the ultimate eligibility requirements for senior long-term debt and any grandfathering provisions. To the extent that outstanding senior long-term debt of JPMorgan Chase & Co. is not classified as eligible LTD under the TLAC rule as finally adopted by the Federal Reserve, the Firm could be required to issue a substantial amount of new senior long-term debt which could significantly increase the Firm’s funding costs.thresholds.
Authorities in some non-U.S. jurisdictions in which the Firm has operations have enacted legislation or regulations requiring that certain subsidiaries of the Firm operating in those countries maintain independent capital and liquidity. In addition, some non-U.S. regulators have proposed that large banks which conduct certain businesses in their jurisdictions operate through separate subsidiaries located in those countries. These requirements, and any future laws or regulations that seek to increase capital or liquidity requirements that would be applicable to non-U.S. subsidiaries of the Firm, could hinder the Firm’s ability to efficiently manage its funding and liquidity in a centralized manner.
Reductions in JPMorgan Chase’s credit ratings may adversely affect its liquidity and cost of funding, as well as the value of debt obligations issued by the Firm.
JPMorgan Chase & Co. and certain of its principal subsidiaries are currently rated by credit rating agencies. Rating agencies evaluate both general and firm- and industry-specific factors when determining their credit ratings for a particular financial institution, including economic and geopolitical trends, regulatory developments, future profitability, risk management practices, legal expenses, assumptions surrounding government support, and ratings differentials between bank holding companies and their bank and non-bank subsidiaries. Although the Firm closely monitors and manages, to the extent it is able, factors that could influence its credit ratings, there is no assurance that the Firm’s credit ratings will not be lowered in the future, or that any such downgrade would not occur at times of broader market instability when the Firm’s options for responding to events may be more limited and general investor confidence is low.
Furthermore, a reduction in the Firm’s credit ratings could reduce the Firm’s access to capital markets, materially increase the cost of issuing securities, trigger additional collateral or funding requirements, and decrease the number of investors and counterparties willing or permitted, contractually or otherwise, to do business with or lend to the Firm, thereby curtailing the Firm’s business operations and reducing its profitability. In addition, any such reduction in credit ratings may increase the credit spreads charged by the market for taking credit risk on JPMorgan Chase & Co. and its subsidiaries and, as a result, could adversely affect the value of debt and other obligations that JPMorgan Chase & Co. and its subsidiaries have issued or may issue in the future.
Legal Risk
JPMorgan Chase faces significant legal risks, both from regulatory investigations and proceedings and from private actions brought against the Firm.
JPMorgan Chase is named as a defendant or is otherwise involved in various legal proceedings, including class actions and other litigation or disputes with third parties. Actions currently pending against the Firm may result in judgments, settlements, fines, penalties or other results adverse to the Firm, which could materially and adversely affect the Firm’s business, financial condition or results of operations, or cause serious harm to the Firm’s reputation. As a participant in the financial services industry, it is likely that the Firm will continue to experience a high level of litigation related to its businesses and operations.
In addition, and as noted above, the Firm’s businesses and operations are also subject to heightened regulatory oversight and scrutiny, which may lead to additional regulatory investigations or enforcement actions. Regulators and other government agencies examine the operations of the Firm and its subsidiaries on both a routine- and targeted-exam basis, and there is no assurance
that they will not pursue additional regulatory settlements or other enforcement actions against the Firm in the future.
A violation of law or regulation by another financial institution is likely to give rise to an investigation by regulators and other governmental agencies of the same or similar practices by the Firm. For example, various regulatory and governmental agencies have made inquiries to the Firm about its sales practices with retail customers, including, among other matters, the Firm’s incentive compensation structures related to such practices. In addition, a single event may give rise to numerous and overlapping investigations and proceedings, either by multiple federal and state agencies and officials in the U.S. or, in some instances, regulators and other governmental officials in non-U.S. jurisdictions. These and other initiatives from U.S. and non-U.S. governmental authorities and officials may subject the Firm to further judgments, settlements, fines or penalties, or cause the Firm to be required to restructure its operations and activities or to cease offering certain products or services, all of which could harm the Firm’s reputation or lead to higher operational costs, thereby reducing the Firm’s profitability, or result in collateral consequences as discussed above.
Other Business Risks
Any significant failure by the Firm’s management to anticipate and respond quickly and appropriately to changes in the Firm’s operating environment or trends affecting the financial services industry, to make prudent decisions regarding the Firm’s strategy or to execute on that strategy could adversely affect the Firm’s competitive standing and its earnings and future results of operations.
The Firm operates in many jurisdictions and offers a wide variety of products and services to its clients and customers. The Firm’s strategies concerning the products and services that it will offer, the geographies in which it will operate, the types of clients and customers that it will serve and the counterparties with which it will do business, and the methods and distribution channels by which it will offer its products and services, will all affect the Firm’s competitive standing and its results of operations. If the Firm’s management makes choices about the Firm’s business strategies and goals that later prove to have been incorrect, does not accurately assess the competitive landscape and the industry trends affecting the Firm or does not formulate effective business plans to address the Firm’s near- and longer-term strategic priorities, as well as the changing regulatory and market environments in which the Firm operates both in the U.S. and abroad, the franchise values and growth prospects of the Firm’s businesses will suffer and revenues will decline. The prospects of the Firm will also depend on management’s ability to execute effectively against the Firm’s strategic plans and to manage the Firm’s resources to grow revenues, control expenses and return capital to the Firm’s shareholders. Any significant failure by the Firm’s Board of Directors to exercise appropriate oversight of management’s strategic decisions, or any significant failure by the Firm’s management to develop and execute on the Firm’s strategic plans and business initiatives, or the ineffectual
implementation of business decisions, the failure of the Firm’s products or services or dealings with customers to meet customer expectations, inadequate responses to regulatory requirements, the failure to react quickly to changes in market conditions or structure, or the failure to develop the necessary operational, technology, risk, financial, and managerial resources necessary to grow and manage the Firm and its various businesses could adversely affect the Firm’s competitive standing and negatively affect the Firm’s earnings and future results of operations.
JPMorgan Chase’s operations are subject to risk of loss from unfavorable economic, monetary and political developments in the U.S. and around the world.
JPMorgan Chase’s businesses and earnings are affected by the fiscal and other policies that are adopted by various U.S. and non-U.S. regulatory authorities and agencies. The Federal Reserve regulates the supply of money and credit in the U.S. and its policies determine in large part the cost of funds for lending and investing in the U.S. and the return earned on those loans and investments. Changes in Federal Reserve policies (as well as the fiscal and monetary policies of non-U.S. central banks or regulatory authorities and agencies, such as “pegging” the exchange rate of their currency to the currencies of others) are beyond the Firm’s control and may be difficult to predict, and consequently, unanticipated changes in these policies could have a negative impact on the Firm’s activities and results of operations.
The Firm’s businesses and revenue are also subject to risks inherent in investing and market-making in securities, loans and other obligations of companies worldwide. These risks include, among others, negative effects from slowing growth rates or recessionary economic conditions, or the risk of loss from unfavorable political, legal or other developments, including social or political instability, in the countries or regions in which such companies operate, as well as the other risks and considerations as described further below.
Several of the Firm’s businesses engage in transactions with, or trade in obligations of, U.S. and non-U.S. governmental entities, including national, state, provincial, municipal and local authorities. These activities can expose the Firm to enhanced sovereign, credit-related, operational and reputation risks, including the risks that a governmental entity may default on or restructure its obligations, or may claim that actions taken by government officials were beyond the legal authority of those officials or repudiate transactions authorized by a previous incumbent government, any or all of which could adversely affect the Firm’s financial condition and results of operations.
Further, various countries or regions in which the Firm operates or invests, or in which the Firm may do so in the future, have in the past experienced severe economic disruptions particular to those countries or regions. Low or volatile oil prices, coupled with the slowdown in the
macroeconomic prospects in China, and concerns about economic weaknesses in the Eurozone (including the permanent resolution of the Greek “bailout” program), could continue to undermine investor confidence and affect the operating environment in 2016. In some cases, concerns regarding the fiscal condition of one or more countries can cause a contraction of available credit and reduced activity among trading partners or create market volatility that could lead to “market contagion” affecting other countries in the same region or beyond the
region. In addition, governments in particular countries or regions in which the Firm or its client do business may choose to adopt protectionist economic or trade policies in response to concerns about domestic economic conditions which could lead to diminished cross-border trade and financing activity within that country or region, all of which could negatively affect the Firm’s business and earnings in those jurisdictions.
Political and economic uncertainty can also undermine consumer, business and investor confidence, and thereby contribute to market volatility. For example, uncertainties concerning the timing and terms of the U.K.’s planned departure from the EU could have an adverse effect on global financial markets and may adversely impact global economic conditions more generally. Furthermore, depending on the nature of the arrangements agreed between the U.K. and the EU, including with respect to the ability of financial services companies to engage in business in the EU from legal entities organized in or operating from the U.K., it is possible that under some scenarios, the Firm may need to make changes to its legal entity structure and operations and the locations in which it operates, which might result in a less efficient operating model across the Firm’s European legal entities. Accordingly, it is possible that political or economic disruptionsdevelopments in certain countries, even in countries in which the Firm does not conduct business or have operations or engages in only limited activities, may adversely affect the Firm.
The Firm must comply with economic sanctions and embargo programs administered by OFAC and similar multi-national bodies and governmental agencies outside U.S., including, most recently, sanctions targeted at individuals and companies in Russia. A violation of a sanction or embargo program could subject the Firm, and individual employees, to regulatory enforcement actions as well as significant civil and criminal penalties.
JPMorgan Chase’s operations in emerging markets may be hindered by local political, social and economic factors, and may be subject to additional compliance costs and risks.
Some of the countries in which JPMorgan Chase conducts its businesses have economies or markets that are less developed and more volatile, and may have legal and regulatory regimes that are less established or predictable, than the U.S. and other developed markets in which the Firm currently operates. Some of these countries have in the past experienced severe economic disruptions, including extreme currency fluctuations, high inflation, low or negative growth, or defaults or potential defaults on sovereign debt, among other negative conditions, or have imposed restrictive monetary policies such as currency exchange controls and other laws and restrictions that adversely affect the local and regional business environment. In addition, these countries, as well as certain more developed countries, have recently been more susceptible to unfavorable political, social or economic developments; these developmentdevelopments have in the past resulted in, and may in the future lead to, social unrest,
general strikes and demonstrations, crime and corruption, security and personal safety issues, outbreaks of hostilities, overthrow of incumbent governments, terrorist attacks or other forms of internal discord, all of which can adversely affect the Firm’s operations or investments in such countries. Political, social or economic disruption or dislocation in certain countries or regions in which the Firm conducts its businesses can hinder the growth and profitability of those operations.
Less developed legal and regulatory systems in certain countries can also have adverse consequences on the Firm’s operations in those countries, including, among others, the absence of a statutory or regulatory basis or guidance for engaging in specific types of business or transactions; the promulgation of conflicting or ambiguous laws and regulations or the inconsistent application or interpretation of existing laws and regulations; uncertainty as to the enforceability of contractual obligations; difficulty in competing in economies in which the government controls or protects all or a portion of the local economy or specific businesses, or where graft or corruption may be pervasive; and the threat of arbitrary regulatory investigations, civil litigations or criminal prosecutions.prosecutions, the termination of licenses required to operate in the local market or the suspension of business relationships with governmental bodies.
Revenue from international operations and trading in non-U.S. securities and other obligations may be subject to negative fluctuations as a result of the above considerations, as well as due to governmental actions including monetary policies, expropriation, nationalization, confiscation of assets, price controls, capital controls, exchange controls, and changes in laws and regulations. The impact of these fluctuations could be accentuated as some trading markets are smaller, less liquid and more volatile than larger markets. Also, any of the above-mentioned events or circumstances in one country can affect, and in the past conditions of these types have affected, the Firm’s operations and investments in another country or countries, including the Firm’s operations in the U.S. As a result, any such unfavorable conditions or developments could have an adverse impact on the Firm’s business and results of operations.
Conducting business in countries with less developed legal and regulatory regimes often requires the Firm to devote significant additional resources to understanding, and monitoring changes in, local laws and regulations, as well as structuring its operations to comply with local laws and regulations and implementing and administering related internal policies and procedures. There can be no assurance that the Firm will always be successful in its efforts to conduct its business in compliance with laws and regulations in countries with less predictable legal and regulatory systems or that the Firm will be able to develop effective working relationships with local regulators. In addition, the Firm can also incur higher costs, and face greater compliance risks, in structuring and operating its businesses outside the U.S. to comply with U.S. anti-corruption and anti-money laundering laws and regulations.
JPMorgan Chase relies on the effectiveness and integrity of its processes, operatingoperational systems and employees, and those of third parties, and certain failures of such processes or systems, or errors or misconduct by such employees, could materially and adversely affect the Firm’s operations.
JPMorgan Chase’s businesses are dependent on the Firm’s ability to process, record and monitor an increasingly large number of complex transactions and to do so on a faster and more frequent basis. The Firm’s front- and back-office trading systems similarly rely on their access to, and on the functionality of, the operatingoperational systems maintained by third parties such as clearing and payment systems, central counterparties, securities exchanges and data processing and technology companies. If the Firm’s financial, accounting, trading or other data processing systems, or the operatingoperational systems of third parties on which the Firm’s businesses are dependent, are unable to meet these increasingly demanding standards, or if they fail or have other significant shortcomings, the Firm could be materially and adversely affected. Moreover, as the speed, frequency, volume and complexity of transactions (and the requirements to report such transactions on a real-time basis to clients, regulators and financial intermediaries) increases, the risk of human and/or systems error in connection with such transactions increases, and it becomes
more challenging to maintain the Firm’s operational systems and infrastructure. The Firmeffective functioning of the Firm’s operational systems is similarlyalso dependent on the competence and reliability of its employees. Theemployees, as well as the employees of third parties on whom the Firm relies for technological support, and the Firm could be materially and adversely affected if one or more of its employees causesby a significant operational breakdown or failure either as a result ofcaused by human error or wheremisconduct by an individual purposefully sabotagesemployee of the Firm or fraudulently manipulates the Firm’s operations or systems.a third party. In addition, when the Firm changes processes or introduces new products and services or new connectivity solutions, the Firm may not fully appreciate or identify new operational risks that may arise from such changes. Any of these occurrences could diminish the Firm’s ability to operate one or more of its businesses, or result in potential liability to clients and customers, increased operating expenses, higher litigation costs (including fines and sanctions), damage to reputation, impairment of liquidity, regulatory intervention or weaker competitive standing, any of which could materially and adversely affect the Firm.
Third parties with which the Firm does business, including retailers, data aggregators and other third parties with which the Firm’s customers do business, can also be sources of operational risk to the Firm, particularly where activities of customers or such third parties are beyond the Firm’s security and control systems, such as through the use of the internet, personal smart phones and other mobile devices or services. As the Firm’s interconnectivity with thesecustomers and other third parties increases, the Firm increasingly faces the risk of operational failure with respect to their systems. Security breaches affecting the Firm’s customers, or systems breakdowns or failures, security breaches or employeehuman error or misconduct affecting such other third
parties, may require the Firm to take steps to protect the integrity of its own operational systems or to safeguard confidential information of the Firm or its customers, thereby increasing the Firm’s operational costs and potentially diminishing customer satisfaction. Furthermore, the interconnectivity of multiple financial institutions with central agents, exchanges and clearing houses, and the increased importance of these entities, increases the risk that an operational failure at one institution or entity may cause an industry-wide operational failure that could materially impact the Firm’s ability to conduct business.
The Firm’s businesses are subject to complex and evolving U.S. and non-U.S. laws and regulations governing the privacy and protection of personal information of individuals (including clients, client’s clients, employees of the Firm and its suppliers and other third parties). Ensuring that the Firm’s collection, use, transfer and storage of personal information complies with all applicable laws and regulations, including where the laws of different jurisdictions are in conflict, can increase the Firm’s operating costs, impact the development of new products or services and require significant oversight by management, and may require the Firm to structure its businesses, operations and systems in less efficient ways. Furthermore, the Firm may not be able to ensure that all of its clients, suppliers, counterparties and other third parties have appropriate controls in place to protect the confidentiality of the information exchanged between them and the Firm, particularly where such information is transmitted by
electronic means. If personal, confidential or proprietary information of clients, customers, or clientsemployees or others were to be mishandled or misused (in situations where, for example, such information was erroneously provided to parties who are not permitted to have the information, or where such information was intercepted or otherwise compromised by third parties), the Firm could be exposed to litigation or regulatory sanctions. Concerns regarding the effectiveness of the Firm’s measures to safeguard personal information, or even the perception that such measures are inadequate, could cause the Firm to lose customers or potential customers for its products and services and thereby reduce the Firm’s revenues. Accordingly, any failure or perceived failure by the Firm to comply with applicable privacy or data protection laws and regulations may subject it to inquiries, examinations and investigations that could result in requirements to modify or cease certain operations or practices or in significant liabilities, fines or penalties, and could damage the Firm’s reputation and otherwise adversely affect its businesses.
The Firm may be subject to disruptions of its operatingoperational systems arising from events that are wholly or partially beyond the Firm’s control, which may include, for example, security breaches (as discussed further below); electrical or telecommunications outages; failures of computer servers or other damage to the Firm’s property or assets; natural disasters or severe weather conditions; health emergencies or pandemics; or events arising from local or larger-scale political events, including outbreaks of hostilities or terrorist acts. JPMorgan Chase maintains a global resiliency and crisis management program that is intended to ensure
that the Firm has the ability to recover its critical business functions and supporting assets, including staff, technology and facilities, in the event of a business interruption. While the Firm believes that its current resiliency plans are both sufficient and adequate, there can be no assurance that such plans will fully mitigate all potential business continuity risks to the Firm or its customers and clients. Any failures or disruptions of the Firm’s systems or operations could give rise to losses in service to customers and clients, adversely affect the Firm’s business and results of operations by subjecting the Firm to losses or liability, or require the Firm to expend significant resources to correct the failure or disruption, as well as by exposing the Firm to litigation, regulatory fines or penalties or losses not covered by insurance.
A breach in the security of JPMorgan Chase’s systems, or those of other market participants, could disrupt the Firm’s businesses, result in the disclosure of confidential information, damage itsthe Firm’s reputation and create significant financial and legal exposure for the Firm.
Although JPMorgan Chase devotes significant resources to maintain and regularly updateupgrade its systems and processes that are designed to protect the security of the Firm’s computer systems, software, networks and other technology assets, as well as the confidentiality, integrity and availability of information belonging to the Firm and its customers and clients, there is no assurance that all of the Firm’s security measures will provide absolute security.
JPMorgan Chase and other companies, as well as governmental and political organizations, have reported significant breaches in the security of their websites, networks or other systems, some of which have involved sophisticated and targeted attacks intended to obtain unauthorized access to confidential information, destroy data, disrupt or degrade service, sabotage systems or cause other damage, including through the introduction of computer viruses or malware, cyberattacks and other means. The Firm is regularly targeted by unauthorized parties using malicious code and viruses, and has experienced several significant distributed denial-of-service attacks from technically sophisticated and well-resourced third parties which were intended to disrupt online banking services.
Despite the Firm’sFirm���s efforts to ensure the security and integrity of its systems, it is possible that the Firm may not be able to anticipate, detect or recognize threats to its systems or to implement effective preventive measures against all security breaches of these types inside or outside the Firm, especially because the techniques used change frequently or are not recognized until launched, and because cyberattacks can originate from a wide variety of sources, including third parties outside the Firm such as persons who are associated with external service providers or who are or may be involved in organized crime or linked to terrorist organizations or hostile foreign governments. Thosegovernments, and such third parties may also attemptseek to fraudulently inducegain access to the Firm’s systems either directly or using equipment or security passwords belonging to employees, customers, third-party service providers or other users of the Firm’s systems to disclose sensitive information in order to gain access to the Firm’s data or that of its customers or clients.systems. These risks may increase in the future as the Firm continues to increase its mobile-payment and other internet-based product offerings and
expands its internal usage of web-based products and applications.
Given the breadth of the Firm’s operations, the high volume of transactions that it processes, the large number of customers, counterparties and third-party service providers with which the Firm does business, and the proliferation and increasing sophistication of cyberattacks, a particular cyberattack could occur and persist for an extended period of time before being detected. The extent of a particular cyberattack and the steps that the Firm may need to take to investigate the attack may not be immediately clear, and it may take a significant amount of time before such an investigation could be completed and full and reliable information about the attack is known. During such time the Firm may not necessarily know the extent of the harm or how best to remediate it, and certain errors or actions could be repeated or compounded before they are discovered and remediated, any or all of which could further increase the costs and consequences of a cyberattack.
A successful penetration or circumvention of the security of the Firm’s systems or the systems of another market participant could cause serious negative consequences for the Firm, including significant disruption of the Firm’s operations and those of its clients, customers and counterparties, misappropriation of confidential information of the Firm or that of its clients, customers, counterparties or employees, or damage to computers or systems of the Firm and those of its clients, customers and counterparties, and could result in violations of applicable privacy and other laws, financial loss to the Firm or to its customers, loss of confidence in the Firm’s security measures, customer dissatisfaction, significant litigation exposure and harm to the Firm’s reputation, all of which could have a material adverse effect on the Firm.
Risk Management
JPMorgan Chase’s framework for managing risks and its risk management procedures and practices may not be effective in identifying and mitigating every risk to the Firm, thereby resulting in losses.
JPMorgan Chase’s risk management framework seeks to mitigate risk and loss to the Firm. The Firm has established processes and procedures intended to identify, measure, monitor, report and analyze the types of risk to which the Firm is subject. However, as with any risk management framework, there are inherent limitations to the Firm’s risk management strategies because there may exist, or develop
in the future, risks that the Firm has not appropriately anticipated or identified. In addition, the Firm relies on data to aggregate and assess its various risk exposures, and any deficiencies in the quality or effectiveness of the Firm’s data aggregation and validation procedures could result in ineffective risk management practices or inaccurate risk reporting. Any lapse in the Firm’s risk management framework and governance structure or other inadequacies in the design or implementation of the Firm’s risk management framework, governance, procedures, practices, models or risk reporting systems could, individually or in the aggregate, cause unexpected losses for the Firm, materially and adversely affect the Firm’s
financial condition and results of operations, require significant resources to remediate any risk management deficiency, attract heightened regulatory scrutiny, expose the Firm to regulatory investigations or legal proceedings, subject the Firm to fines, penalties or judgments, harm the Firm’s reputation, or otherwise cause a decline in investor confidence.
The Firm’s products, including loans, leases, lending commitments, derivatives and trading account assets, as well as the investment securities portfolio and cash management and clearing activities, expose the Firm to credit risk. The Firm has exposures arising from its many different products and counterparties, and the credit quality of the Firm’s exposures can have a significant impact on its earnings. The Firm establishes allowances for probable credit losses inherent in its credit exposure, including unfunded lending-related commitments. The Firmexposures, and also employs stress testing and other techniques to determine the capital and liquidity necessary to protect the Firm in the event of adverse economic or market events. These processes are critical to the Firm’s financial results and condition, and require difficult, subjective and complex judgments, including forecasts of how economic conditions might impair the ability of the Firm’s borrowers and counterparties to repay their loans or other obligations. As is the case with any such assessments, there is always the possibility that the Firm will fail to identify the proper factors or that the Firm will fail to accurately estimate the impact of factors that it identifies.
JPMorgan Chase’s market-making businesses may expose the Firm to unexpected market, credit and operational risks that could cause the Firm to suffer unexpected losses. Severe declines in asset values, unanticipated credit events, or unforeseen circumstances that may cause previously uncorrelated factors to become correlated (and vice versa) may create losses resulting from risks not appropriately taken into account in the development, structuring or pricing of a financial instrument such as a derivative.
Certain of the Firm’s trading transactions require the physical settlement by delivery of securities or other obligations that the Firm does not own; if the Firm is unable to obtain such securities or obligations within the required timeframe for delivery, this could cause the Firm to forfeit payments otherwise due to it and could result in settlement delays, which could damage the Firm’s reputation and ability to transact future business. In addition, in situations
where trades are not settled or confirmed on a timely basis, the Firm may be subject to heightened credit and operational risk, and in the event of a default, the Firm may be exposed to market and operational losses. In particular,
In addition, disputes with counterparties may arise regarding the terms or the settlement procedures of derivative contracts, including with respect to the value of underlying collateral, which could cause the Firm to incur unexpected costs, including transaction, operational, legal and litigation costs, or result in credit losses, all of which may impair the Firm’s ability to manage effectively its risk exposure from these products.
In a difficult or less liquid market environment, the Firm’s risk management strategies may not be effective because other market participants may be attempting to use the same or similar strategies to deal with the challenging market conditions. In such circumstances, it may be difficult for the Firm to reduce its risk positions due to the activity of such other market participants or widespread market dislocations.
Many of the Firm’s risk management strategies or techniques have a basis in historical market behavior, and all such strategies and techniques are based to some degree on management’s subjective judgment. For example, many models used by the Firm are based on assumptions regarding correlations among prices of various asset classes or other market indicators. In times of market stress, including difficult or less liquid market environments, or in the event of other unforeseen circumstances, previously uncorrelated indicators may become correlated, or conversely, previously correlated indicators may make unrelated movements. These sudden market movements or unanticipated or unidentified market or economic movements have in some circumstances limited and could again limit the effectiveness of the Firm’s risk management strategies, causing the Firm to incur losses.
Many of the models used by the Firm are subject to review not only by the Firm’s Model Risk function but also by the Firm’s regulators in order that the Firm may utilize such models in connection with the Firm’s calculations of market risk risk-weighted assets (“RWA”),RWA, credit risk RWA and operational risk RWA under the Advanced Approach of Basel III. The Firm may be subject to higher capital charges, which could adversely affect its financial results or limit its ability to expand its businesses, if such models do not receive approval by its regulators.
In addition, the Firm must comply with enhanced standards for the assessment and management of risks associated with vendors and other third parties that provide services to the Firm. These requirements apply to the Firm both under general guidance issued by its banking regulators and, more specifically, under certain of the consent orders to which the Firm has been subject. The Firm has incurred and expects to incur additional costs and expenses in connection with its initiatives to address the risks associated with oversight of its third party relationships. Failure by the Firm to appropriately assess and manage third party relationships, especially those involving significant banking functions, shared services or other critical activities, could
result in potential liability to clients and customers, fines, penalties or judgments imposed by the Firm’s regulators, increased operating expenses and harm to the Firm’s reputation, any of which could materially and adversely affect the Firm.
Other Risks
Actions or inaction by employees of the Firm may cause harm to the Firm’s clients and customers, damage the Firm’s reputation, negatively impact the Firm’s culture and lead to liability and regulatory and other governmental actions against the Firm.
JPMorgan Chase’s employees interact with clients, customers and counterparties every day, and they are expected through their conduct to demonstrate the Firm’s values and exhibit the culture and behaviors that are an integral part of the Firm’s How We Do Business Principles, including the Firm’s commitment to “do first class business in a first class way”. If an employee takes an action (including a failure to act) that does not comply with the Firm’s Code of Conduct, is inconsistent with the Firm’s How We Do Business Principles or that otherwise harms clients, consumers or the market, such as improperly selling and marketing the Firm’s product or services, acting illegally with others to establish market prices, improperly hiring individuals related to “politically exposed persons” or misappropriating Firm property or confidential or proprietary information or technology belonging to the Firm, its customers or third parties, such activities could give rise to litigation, regulatory or other governmental investigations or enforcement actions, and judgments, settlements, fines or penalties, and lead to requirements that the Firm restructure certain of its operations and activities, all of which could harm the Firm’s reputation or result in collateral consequences. Although the Firm endeavors to embed culture and conduct risk management throughout an employee’s life cycle, including recruiting, onboarding, training and development, and performance management, as well as through the Firm’s promotion and compensation processes, employees of the Firm have, from time to time in the past, engaged in improper or illegal conduct resulting in litigation as well as settlements involving consent orders, deferred prosecution agreements and non-prosecution agreements, as well as other civil and criminal settlements with regulators and other governmental entities, and there is no assurance that further inappropriate actions by employees will not occur or
that any such actions will always be deterred or quickly prevented.
The financial services industry is highly competitive, and JPMorgan Chase’s inability to compete successfully may adversely affect its results of operations.
JPMorgan Chase operates in a highly competitive environment, and the Firm expects that competition in the U.S. and global financial services industry will continue to be intense. Competitors of the Firm include other banks and financial institutions, trading, advisory and investment management firms, finance companies and technology companies and other firms that are engaged in providing similar products and services. Technological advances and the growth of e-commerce have made it possible for non-depository institutions to offer products and services that traditionally were banking products, and for financial institutions and other companies to provide electronic and internet-based financial solutions, including electronic securities trading, payment processing and payment processing.online automated algorithmic-based investment advice. New technologies have required and could require the Firm to spend more to modify or adapt its products to attract and retain customers or to match products and services offered by its competitors, including technology companies.
Ongoing or increased competition, on the basis of the quality and variety of products and services offered, transaction execution, innovation, reputation, price or other factors, may put downward pressure on prices and fees for the Firm’s products and services or may cause the Firm to lose market share. In addition, the failure of any of the Firm’s businesses to meet the expectations of clients and customers, whether due to general market conditions or underperformance (relative to competitors or to benchmarks), could impact the Firm’s ability to retain clients and customers or attract new clients and customers, thereby reducing the Firm’s revenues. Increased competition also may require the Firm to make additional capital investments in its businesses, or to extend more of its capital on behalf of its clients in order to remain competitive. The Firm cannot provide assurance that the significant competition in the financial services industry will not materially and adversely affect its future results of operations.
CompetitorsNon-U.S. competitors of the Firm’s non-U.S. wholesale businesses outside the U.S. are typically subject to different, and in some cases, less stringent, legislative and regulatory regimes. The more restrictive laws and regulations applicable to U.S. financial services institutions, such as JPMorgan Chase, can put the Firm at a competitive disadvantage to its non-U.S. competitors, including prohibiting the Firm from engaging in certain transactions, imposing higher capital and liquidity requirements on the Firm, making the Firm’s pricing of certain transactions more expensive for clients or adversely affecting the Firm’s cost structure for providing certain products, all of which can reduce the revenue and profitability of the Firm’s wholesale businesses.
JPMorgan Chase’s ability to attract and retain qualified employees is critical to its success.
JPMorgan Chase’s employees are the Firm’s most important resource, and in many areas of the financial services industry, competition for qualified personnel is intense. The Firm endeavors to attract talented and diverse new employees and retain and motivate its existing employees. There is the potential for changes in immigration policies in multiple jurisdictions around the world, including the U.S., and to the extent that immigration policies were to unduly restrict or otherwise make it more difficult for qualified employees to work in, or transfer among, jurisdictions in which the Firm has operations or conducts its business, the Firm could be adversely affected. The Firm also seeks to retain a pipeline of senior employees with superior talent, augmented from time to time by external hires, to provide continuity of succession for the Firm’s Operating Committee, including the Chief Executive Officer position, and senior positions below the Operating Committee. The Firm regularly reviews candidates for senior management positions to assess whether they currently are ready for a next-level role. In addition, the Firm’s Board of Directors is deeply involved in succession planning, including review of the succession plans for the Chief Executive Officer and the members of the Operating Committee. If for any reason the Firm were unable to continue to attract or retain qualified employees, including successors to the Chief Executive Officer or members of the Operating Committee, the Firm’s performance, including its competitive position, could be materially and adversely affected.
JPMorgan Chase’s financial statements are based in part on estimates and judgments which, if incorrect, could result in unexpected losses in the future.
Under accounting principles generally accepted in the U.S. (“U.S. GAAP”), JPMorgan Chase is required to use estimates and apply judgments in preparing its financial statements, including in determining allowances for credit losses and reserves related to litigation, among other items. Certain of the Firm’s financial instruments, including trading assets and liabilities, instruments in the investment securities portfolio, certain loans, MSRs, structured notes and certain repurchase and resale agreements, among other items, require a determination of their fair value in order to prepare the Firm’s financial statements. Where quoted market prices are not available, the Firm may make fair value determinations based on internally developed models or other means which ultimately rely to some degree on management estimates and judgment. In addition, sudden illiquidity in markets or declines in prices of certain loans and securities may make it more difficult to value certain balance sheet items, which may lead to the possibility that such valuations will be subject to further change or adjustment. If estimates or judgments underlying the Firm’s financial statements are incorrect, the Firm may experience material losses.
Lapses in disclosure controls and procedures or internal control over financial reporting could materially and adversely affect the Firm’s operations, profitability or reputation.
There can be no assurance that the Firm’s disclosure controls and procedures will be effective in every circumstance or that a material weakness or significant deficiency in internal control over financial reporting will not occur. Any such lapses or deficiencies may materially
and adversely affect the Firm’s business and results of operations or financial condition, restrict its ability to access the capital markets, require the Firm to expend significant resources to correct the lapses or deficiencies, expose the Firm to regulatory or legal proceedings, subject it to fines, penalties or judgments, harm the Firm’s reputation, or otherwise cause a decline in investor confidence.
Damage to JPMorgan Chase’s reputation could damage its businesses.
Maintaining trust in JPMorgan Chase is critical to the Firm’s ability to attract and maintain customers, investors and employees. Damage to the Firm’s reputation can therefore cause significant harm to the Firm’s business and prospects. Harm to the Firm’s reputation can arise from numerous sources, including, among others, employee misconduct, security breaches, compliance failures, litigation or regulatory outcomes or governmental investigations. The Firm’s reputation could also be harmed by the failure or perceived failure of an affiliate, joint-venturer or merchant banking portfolio company, or a vendor or other third party with which the Firm does business, to comply with laws or regulations. In addition, a failure or perceived failure to deliver appropriate standards of service and quality, to treat customers and clients fairly, to provide fiduciary products or services in accordance with the appropriate standards, or to handle or use confidential information of customers or clients appropriately or in compliance with applicable data protection and privacy laws and regulations can result in customer dissatisfaction, litigation and heightened regulatory scrutiny, all of which can lead to lost revenue, higher operating costs and harm to the Firm’s reputation. Adversereputation or prospects may be significantly damaged by adverse publicity or negative information posted on social media websites regarding the Firm, whether or not true, that may result in harm tobe posted on social media, non-mainstream news services or other parts of the Firm’s prospects.internet, and this risk can be magnified by the speed and pervasiveness with which information is disseminated through those channels.
Management of potential conflicts of interestsinterest has become increasingly complex as the Firm continues to expand its business activities through more numerous transactions, obligations and interests with and among the Firm’s clients. The failure or perceived failure to adequately address or appropriately disclose conflicts of interest has given rise to litigation and enforcement actionsactions. Likewise, the failure or perceived failure to deliver appropriate standards of service and may do soquality, to treat customers and clients fairly, to provide fiduciary products or services in accordance with the applicable legal and regulatory standards, or to handle or use confidential information of customers or clients appropriately or in compliance with applicable data protection and privacy laws and regulations has given rise to litigation and enforcement actions. In the future, a failure or perceived failure to appropriately address conflicts or fiduciary obligations could result in customer dissatisfaction, litigation and could affect the willingnessheightened regulatory scrutiny and enforcement actions, all of clientswhich can lead to deal with the Firm, as well aslost
revenue and higher operating costs and cause serious harm to the Firm’s reputation.
Actions by the financial services industry generally or by certain members of or individuals in the industry can also affect the Firm’s reputation. For example, the role played by financial services firms during and after the financial crisis, including concerns that consumers have been treated unfairly by financial institutions hasor that a financial institution had acted inappropriately with respect to the methods employed in offering products to customers, have damaged the reputation of the industry as a whole. Should any of these or other events or factors that can undermine the Firm’s reputation occur, there is no assurance that the additional costs and expenses that the Firm may need to incur to address the issues giving rise to the damage to its reputation could not adversely affect the Firm’s earnings and results of operations, or that damage to the Firm’s reputation will not impair the Firm’s ability to retain its existing or attract new customers, investors and employees.
ITEM 1B: UNRESOLVED SEC STAFF COMMENTSItem 1B. Unresolved Staff Comments.
None.
ITEM 2: PROPERTIESItem 2. Properties.
JPMorgan Chase’s headquarters is located in New York City at 270 Park Avenue, a 50-story office building it owns.
The Firm owned or leased facilities in the following locations at December 31, 2015.2016.
|
| | |
December 31, 20152016 (in millions) | Approximate square footage |
| | |
United States(a) | |
| New York City, New York | |
| 270 Park Ave, New York, New York | 1.3 |
|
| All other New York City locations | 9.08.9 |
|
| Total New York City, New York | 10.310.2 |
|
| | |
| Other U.S. locations | |
| Columbus/Westerville, Ohio | 3.7 |
|
| Chicago, Illinois | 3.42.9 |
|
| Wilmington/Newark, Delaware | 2.2 |
|
| Houston, Texas | 2.22.1 |
|
| Dallas/Fort Worth, Texas | 2.0 |
|
| Phoenix/Tempe, Arizona | 1.8 |
|
| Jersey City, New Jersey | 1.61.5 |
|
| All other U.S. locations | 37.135.5 |
|
| Total United States | 64.361.9 |
|
| | |
Europe, the Middle East and Africa (“EMEA”)(b) | |
| 25 Bank Street, London, U.K. | 1.4 |
|
| All other U.K. locations | 3.2 |
|
| All other EMEA locations | 0.90.7 |
|
| Total EMEA | 5.55.3 |
|
| | |
| Asia Pacific, Latin America and Canada | |
| India | 2.32.9 |
|
| All other locations | 3.93.8 |
|
| Total Asia Pacific, Latin America and Canada | 6.26.7 |
|
| Total | 76.073.9 |
|
| |
| (a) | At December 31, 2015,2016, the Firm owned or leased 5,4135,258 retail branches in 23 states. |
| |
(b) | In 2008, JPMorgan Chase acquired a 999-year leasehold interest in land at London’s Canary Wharf. JPMorgan Chase has a building agreement in place through October 30, 2016, to develop the Canary Wharf site for future use. |
The propertiespremises and facilities occupied by JPMorgan Chase are used across all of the Firm’s business segments and for corporate purposes. JPMorgan Chase continues to evaluate its current and projected space requirements and may determine from time to time that certain of its properties (including the premises and facilities noted above) are no longer necessary for its operations. There is no assurance that the Firm will be able to dispose of any such excess properties, premises, and facilities or that it will not incur charges in connection with such dispositions. Such disposition costs may be material to the Firm’s results of operations in a given period. For information on occupancy expense, see the Consolidated Results of Operations on pages 72–74.40–42.
ITEM 3: LEGAL PROCEEDINGSItem 3. Legal Proceedings.
For a description of the Firm’s material legal proceedings, see Note 31.
ITEM 4: MINE SAFETY DISCLOSURESItem 4. Mine Safety Disclosures.
Not applicable.
ITEM 5: MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIESItem 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
Market for registrant’s common equity
The outstanding shares of JPMorgan Chase common stock are listed and traded on the New York Stock Exchange and the London Stock Exchange. For the quarterly high and low prices of and cash dividends declared on JPMorgan Chase’s common stock for the last two years, see the section entitled “Supplementary information – Selected quarterly financial data (unaudited)” on pages 309–310.272–273. For a comparison of the cumulative total return for JPMorgan Chase common stock with the comparable total return of the S&P 500 Index, the KBW Bank Index and the S&P Financial Index over the five-year period ended December 31, 2015,2016, see “Five-year stock performance”,performance,”
on page 67.35.
For information on the common dividend payout ratio, see Capital actions in the Capital Risk Management section of Management’s discussion and analysis on page 157.84. For a discussion of restrictions on dividend payments, see Note 22 and Note 27. AtOn January 31, 2016,2017, there were 200,881196,792 holders of record of JPMorgan Chase common stock. For information regarding securities authorized for issuance under the Firm’s employee stock-based compensation plans, see Part III, Item 12 on page 23.25.
Repurchases under the common equity repurchase program
For information regarding repurchases under the Firm’s common equity repurchase program, see Capital actions in the Capital Risk Management section of Management’s discussion and analysis on page 157.84.
Shares repurchased, on a settlement-date basis, pursuant to the common equity repurchase program during 20152016 were as follows.
| | | Year ended December 31, 2015 | | Total shares of common stock repurchased | | Average price paid per share of common stock(b) | | Aggregate repurchases of common equity (in millions)(b) | | Dollar value of remaining authorized repurchase (in millions)(b) | | |
| Year ended December 31, 2016 | | | Total shares of common stock repurchased | | Average price paid per share of common stock(a) | | Aggregate repurchases of common equity (in millions)(a) | | Dollar value of remaining authorized repurchase (in millions)(a) | |
| First quarter | | 32,531,294 |
| | $ | 58.40 |
| | $ | 1,900 |
| | $ | 1,984 |
| (a) | | 29,153,888 |
| | $ | 58.17 |
| | $ | 1,696 |
| | $ | 2,898 |
| |
Second quarter(a) | | 19,129,714 |
| | 65.32 |
| | 1,249 |
| | 5,180 |
| | | 45,855,464 |
| | 61.93 |
| | 2,840 |
| | 58 |
| (b) |
| Third quarter | | 19,100,389 |
| | 65.30 |
| | 1,248 |
| | 3,932 |
| | | 35,606,864 |
| | 64.46 |
| | 2,295 |
| | 8,305 |
| |
| October | | 9,247,060 |
| | 61.42 |
| | 567 |
| | 3,365 |
| | | 8,801,283 |
| | 67.73 |
| | 596 |
| | 7,709 |
| |
| November | | 4,511,071 |
| | 66.44 |
| | 300 |
| | 3,065 |
| | | 10,475,045 |
| | 73.81 |
| | 773 |
| | 6,936 |
| |
| December | | 5,321,146 |
| | 66.12 |
| | 352 |
| | 2,713 |
| | | 10,518,754 |
| | 83.86 |
| | 882 |
| | 6,054 |
| |
| Fourth quarter | | 19,079,277 |
| | 63.92 |
| | 1,219 |
| | 2,713 |
| | | 29,795,082 |
| | 75.56 |
| | 2,251 |
| | 6,054 |
| |
| Year-to-date | | 89,840,674 |
| | $ | 62.51 |
| | $ | 5,616 |
| | $ | 2,713 |
| (c) | | 140,411,298 |
| | $ | 64.68 |
| | $ | 9,082 |
| | $ | 6,054 |
| (c) |
| |
| (a) | Excludes commissions cost. |
| |
| (b) | The $58 million unused portion under the prior Board authorization was canceled when the $6.4$10.6 billion repurchase program was authorized. Repurchases duringauthorized by the second quarter included $29 million under the prior program. |
| |
(b) | Excludes commissions cost.Board of Directors on June 29, 2016. |
| |
| (c) | Dollar valueRepresents the amount remaining under the $6.4$10.6 billion repurchase program. |
ITEM 6: SELECTED FINANCIAL DATAItem 6. Selected Financial Data.
For five-year selected financial data, see “Five-year summary of consolidated financial highlights (unaudited)” on page 66.34.
ITEM 7: MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONSItem 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Management’s discussion and analysis of financial condition and results of operations, entitled “Management’s discussion and analysis,” appears on pages 68–173.36–138. Such information should be read in conjunction with the Consolidated Financial Statements and Notes thereto, which appear on pages 176–308.141–271.
ITEM 7A: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKItem 7A. Quantitative and Qualitative Disclosures About Market Risk.
For a discussion of the quantitative and qualitative disclosures about market risk, see the Market Risk Management section of Management’s discussion and analysis on pages 133–139.116–123.
ITEM 8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATAItem 8. Financial Statements and Supplementary Data.
The Consolidated Financial Statements, together with the Notes thereto and the report thereon dated February 23, 2016,28, 2017, of PricewaterhouseCoopers LLP, the Firm’s independent registered public accounting firm, appear on pages 175–308.140–271.
Supplementary financial data for each full quarter within the two years ended December 31, 2015,2016, are included on pages 309–310272–273 in the table entitled “Selected quarterly financial data (unaudited).” Also included is a “Glossary of terms’terms and Acronyms’’ on pages 311–315.279-285.
ITEM 9: CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSUREItem 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure.
None.
ITEM 9A: CONTROLS AND PROCEDURESItem 9A. Controls and Procedures.
The internal control framework promulgated by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”), “Internal Control — Integrated Framework” (“COSO 2013”) provides guidance for designing, implementing and conducting internal control and assessing its effectiveness. The Firm used the COSO 2013 framework to assess the effectiveness of the Firm’s internal control over financial reporting as of December 31, 2015.2016. See “Management’s report on internal control over financial reporting” on page 174.139.
As of the end of the period covered by this report, an evaluation was carried out under the supervision and with the participation of the Firm’s management, including its Chairman and Chief Executive Officer and its Chief Financial Officer, of the effectiveness of its disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934). Based on that evaluation, the Chairman and Chief Executive Officer and the Chief Financial Officer concluded that these disclosure controls and procedures were effective. See Exhibits 31.1 and 31.2 for the Certification statements issued by the Chairman and Chief Executive Officer and Chief Financial Officer.
The Firm is committed to maintaining high standards of internal control over financial reporting. Nevertheless, because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. In addition, in a firm as large and complex as JPMorgan Chase, lapses or deficiencies in internal controls may occur from time to time, and there can be no assurance that any such deficiencies will not result in significant deficiencies or material weaknesses in internal control in the future. For further information, see “Management’s report on internal control over financial reporting” on page 174.139. There was no change in the Firm’s internal control over financial reporting (as defined in Rule 13a-15(f) under the Securities Exchange Act of 1934) that occurred during the three months ended December 31,
2015, 2016, that has materially affected, or is reasonably likely to materially affect, the Firm’s internal control over financial reporting.
ITEM 9B: OTHER INFORMATION
Pursuant to Section 219 of the Iran Threat Reduction and Syria Human Rights Act of 2012, which added Section 13(r) to the Securities Exchange Act of 1934, an issuer is required to disclose in its annual or quarterly reports, as applicable, whether it or any of its affiliates knowingly engaged in certain activities, transactions or dealings relating to Iran or with individuals or entities designated pursuant to certain Executive Orders. Disclosure is generally required even where the activities, transactions or dealings were conducted in compliance with applicable law. Except as set forth below, as of the date of this report, the Firm is not aware of any other activity, transaction or dealing by any of its affiliates during the year ended December 31, 2015 that requires disclosure under Section 219.Item 9B. Other Information.
During 2015, JPMorgan Chase Bank, N.A. processed one payment from Iran Airtours on behalf of a U.S. client into such client’s account at JPMorgan Chase Bank, N.A. Iran Airtours is a subsidiary of Iran Air, which, at the time of the payment, was designated pursuant to Executive Order 13382. This transaction was authorized by and conducted pursuant to a license from the Treasury Department’s OFAC. JPMorgan Chase Bank, N.A. charged a fee of U.S. dollar $4.25 for this transaction. JPMorgan Chase Bank, N.A. may in the future engage in similar transactions for its clients to the extent permitted by U.S. law.None.
ITEM 10: DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCEItem 10. Directors, Executive Officers and Corporate Governance.
Executive officers of the registrant
|
| | |
| | Age | |
| Name | (at December 31, 2015)2016) | Positions and offices |
| James Dimon | 5960 | Chairman of the Board, Chief Executive Officer and President. |
| Ashley Bacon | 4647 | Chief Risk Officer since June 2013. He had been Deputy Chief Risk Officer since June 2012, prior to which he had been Global Head of Market Risk for the Investment Bank (now part of Corporate & Investment Bank). |
Stephen M. Cutler(a)
| 54 | Vice Chairman since January 1, 2016, prior to which he had been General Counsel. |
| John L. Donnelly | 5960 | Head of Human Resources. |
| Mary Callahan Erdoes | 4849 | Chief Executive Officer of Asset & Wealth Management. |
Stacey Friedman(a) | 4748 | General Counsel since January 1, 2016, prior to which she was Deputy General Counsel since July 2015 and General Counsel for the Corporate & Investment Bank since August 2012. Prior to joining JPMorgan Chase in 2012, she was a partner at the law firm of Sullivan & Cromwell LLP. |
| Marianne Lake | 4647 | Chief Financial Officer since January 1, 2013, prior to which she had been Chief Financial Officer of Consumer & Community Banking since 2009. |
| Douglas B. Petno | 5051 | Chief Executive Officer of Commercial Banking since January 2012. He had been Chief Operating Officer of Commercial Banking since October 2010, prior to which he had been Global Head of Natural Resources in the Investment Bank (now part of Corporate & Investment Bank). |
| Daniel E. Pinto | 5354 | Chief Executive Officer of the Corporate & Investment Bank since March 2014 and Chief Executive Officer of Europe, the Middle East and Africa since June 2011. He had been Co-Chief Executive Officer of the Corporate & Investment Bank from July 2012 until March 2014, prior to which he had been head or co-head of the Global Fixed Income business from November 2009 until July 2012. |
| Gordon A. Smith | 5758 | Chief Executive Officer of Consumer & Community Banking since December 2012, prior to which he had been Co-Chief Executive Officer since July 2012. He had been Chief Executive Officer of Card Services since 2007 and of the Auto Finance and Student Lending businesses since 2011. |
| Matthew E. Zames | 4546 | Chief Operating Officer since April 2013 and head of Mortgage Banking Capital Markets since January 2012. He had been Co-Chief Operating Officer from July 2012 until April 2013. He had been Chief Investment Officer from May until September 2012, co-head of the Global Fixed Income business from November 2009 until May 2012 and co-head of Mortgage Banking Capital Markets from July 2011 until January 2012, prior to which he had served in a number of senior Investment Banking Fixed Income management roles. |
(a) On January 1, 2016, Ms. Friedman was named General Counsel and appointed to the Operating Committee. At that date, Mr. Cutler became Vice Chairman of JPMorgan Chase and retired from the Operating Committee; he is no longer an executive officer of the registrant.
Unless otherwise noted, during the five fiscal years ended December 31, 2015,2016, all of JPMorgan Chase’s above-named executive officers have continuously held senior-level positions with JPMorgan Chase. There are no family relationships among the foregoing executive officers. Information to be provided in Items 10, 11, 12, 13 and 14 of the Form 10-K and not otherwise included herein is incorporated by reference to the Firm’s definitive proxy statementDefinitive Proxy Statement for its 20162017 Annual Meeting of Stockholders to be held on May 17, 2016,16, 2017, which will be filed with the SEC within 120 days of the end of the Firm’s fiscal year ended December 31, 2015.2016.
ITEM 11: EXECUTIVE COMPENSATIONItem 11. Executive Compensation.
See Item 10.
ITEM 12: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERSItem 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
For security ownership of certain beneficial owners and management, see Item 10.
The following table sets forth the total number of shares available for issuance under JPMorgan Chase’s employee stock-based incentive plans (including shares available for issuance to nonemployeenon-employee directors). The Firm is not authorized to grant stock-based incentive awards to nonemployees,non-employees, other than to nonemployeenon-employee directors.
| | | December 31, 2015 | Number of shares to be issued upon exercise of outstanding options/stock appreciation rights | | Weighted-average exercise price of outstanding options/stock appreciation rights | | Number of shares remaining available for future issuance under stock compensation plans | |
| December 31, 2016 | | Number of shares to be issued upon exercise of outstanding options/stock appreciation rights | | Weighted-average exercise price of outstanding options/stock appreciation rights | | Number of shares remaining available for future issuance under stock compensation plans |
| Plan category | | | | | | | | | | | | |
| Employee stock-based incentive plans approved by shareholders | 43,466,314 |
| | $ | 43.51 |
| | 93,491,401 |
| (a) | 30,267,226 |
| (a) | | $ | 40.65 |
| | 77,691,013 |
| (b) |
| Total | 43,466,314 |
| | $ | 43.51 |
| | 93,491,401 |
| | 30,267,226 |
| | $ | 40.65 |
| | 77,691,013 |
| |
| |
| (a) | Does not include restricted stock units or performance stock units granted under the shareholder-approved Long-Term Incentive Plan (“LTIP”), as amended and restated effective May 19, 2015. For further discussion, see Note 10. |
| |
| (b) | Represents future shares available under the shareholder-approved Long-Term Incentive Plan, as amended and restated effective May 19, 2015.LTIP. |
All future shares will be issued under the shareholder-approved Long-Term Incentive Plan, as amended and restated effective May 19, 2015.LTIP. For further discussion, see Note 10.
ITEM 13: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCEItem 13. Certain Relationships and Related Transactions, and Director Independence.
See Item 10.
ITEM 14: PRINCIPAL ACCOUNTING FEES AND SERVICESItem 14. Principal Accounting Fees and Services.
See Item 10.
ITEM 15: EXHIBITS, FINANCIAL STATEMENT SCHEDULES
Item 15. Exhibits, financial statement schedulesFinancial Statement Schedules.
|
| | |
| 1 | | Financial statements |
| | | The Consolidated Financial Statements, the Notes thereto and the report of the Independent Registered Public Accounting Firm thereon listed in Item 8 are set forth commencing on page 176.140. |
| | | |
| 2 | | Financial statement schedules |
| | | |
| 3 | | Exhibits |
| | | |
| 3.1 | | Restated Certificate of Incorporation of JPMorgan Chase & Co., effective April 5, 2006 (incorporated by reference to Exhibit 3.1 to the Current Report on Form 8-K of JPMorgan Chase & Co. (File No. 1-5805) filed April 7, 2006). |
| | | |
| 3.2 | | Amendment to the Restated Certificate of Incorporation of JPMorgan Chase & Co., effective June 7, 2013 (incorporated by reference to Appendix F to the Proxy Statement on Schedule 14A of JPMorgan Chase & Co. (File No. 1-5805) filed April 10, 2013). |
| | | |
| 3.3 | | Certificate of Designations for Fixed-to-Floating Rate Non-Cumulative Preferred Stock, Series I (incorporated by reference to Exhibit 3.1 to the Current Report on Form 8-K of JPMorgan Chase & Co. (File No. 1-5805) filed April 24, 2008). |
| | | |
| 3.4 | | Certificate of Designations for 5.50% Non-Cumulative Preferred Stock, Series O (incorporated by reference to Exhibit 3.1 to the Current Report on Form 8-K of JPMorgan Chase & Co. (File No. 1-5805) filed August 27, 2012). |
| | | |
| 3.5 | | Certificate of Designations for 5.45% Non-Cumulative Preferred Stock, Series P (incorporated by reference to Exhibit 3.1 to the Current Report on Form 8-K of JPMorgan Chase & Co. (File No. 1-5805) filed February 5, 2013). |
| | |
| 3.6 | | Certificate of Designations for Fixed-to-Floating Rate Non-Cumulative Preferred Stock, Series Q (incorporated by reference to Exhibit 3.1 to the Current Report on Form 8-K of JPMorgan Chase & Co. (File No. 1-5805) filed April 23, 2013). |
| | |
| 3.7 | | Certificate of Designations for Fixed-to-Floating Rate Non-Cumulative Preferred Stock, Series R (incorporated by reference to Exhibit 3.1 to the Current Report on Form 8-K of JPMorgan Chase & Co. (File No. 1-5805) filed July 29, 2013). |
| | |
| | | |
|
| | |
| 3.8 | | Certificate of Designations for Fixed-to-Floating Rate Non-Cumulative Preferred Stock, Series S (incorporated by reference to Exhibit 3.1 to the Current Report on Form 8-K of JPMorgan Chase & Co. (File No. 1-5805) filed January 22, 2014). |
| | | |
| 3.9 | | Certificate of Designations for 6.70% Non-Cumulative Preferred Stock, Series T (incorporated by reference to Exhibit 3.1 to the Current Report on Form 8-K of JPMorgan Chase & Co. (File No. 1-5805) filed January 30, 2014). |
| | | |
| 3.10 | | Certificate of Designations for Fixed-to-Floating Rate Non-Cumulative Preferred Stock, Series U (incorporated by reference to Exhibit 3.1 to the Current Report on Form 8-K of JPMorgan Chase & Co. (File No. 1-5805) filed on March 10, 2014). |
| | | |
| 3.11 | | Certificate of Designations for Fixed-to-Floating Rate Non-Cumulative Preferred Stock, Series V (incorporated by reference to Exhibit 3.1 to the Current Report on Form 8-K of JPMorgan Chase & Co. (File No. 1-5805) filed on June 9, 2014). |
| | | |
| 3.12 | | Certificate of Designations for 6.30% Non-Cumulative Preferred Stock, Series W (incorporated by reference to Exhibit 3.1 to the Current Report on Form 8-K of JPMorgan Chase & Co. (File No. 1-5805) filed on June 23, 2014). |
| | | |
| 3.13 | | Certificate of Designations for Fixed-to-Floating Rate Non-Cumulative Preferred Stock, Series X (incorporated by reference to Exhibit 3.1 to the Current Report on Form 8-K of JPMorgan Chase & Co. (File No. 1-5805) filed on September 23, 2014). |
| 3.14 | | Certificate of Designations for 6.125% Non-Cumulative Preferred Stock, Series Y (incorporated by reference to Exhibit 3.1 to the Current Report on Form 8-K of JPMorgan Chase & Co. (File No. 1-5805) filed February 17, 2015). |
| | | |
| 3.15 | | Certificate of Designations for Fixed-to-Floating Rate Non-Cumulative Preferred Stock, Series Z (incorporated by reference to Exhibit 3.1 to the Current Report on Form 8-K of JPMorgan Chase & Co. (File No. 1-5805) filed April 21, 2015). |
| | | |
| 3.16 | | Certificate of Designations for 6.10% Non-Cumulative Preferred Stock, Series AA (incorporated by reference to Exhibit 3.1 to the Current Report on Form 8-K of JPMorgan Chase & Co. (File No. 1-5805) filed June 4, 2015). |
| | | |
| 3.17 | | Certificate of Designations for 6.15% Non-Cumulative Preferred Stock, Series BB (incorporated by reference to Exhibit 3.1 to the Current Report on Form 8-K of JPMorgan Chase & Co. (File No. 1-5805) filed July 29, 2015). |
| | | |
|
| | |
| 3.18 | | By-laws of JPMorgan Chase & Co., effective January 19, 2016 (incorporated by reference to Exhibit 3.1 to the Current Report on Form 8-K of JPMorgan Chase & Co. (File No. 1-5805) filed January 21, 2016). |
| | | |
4.14.1(a) | | Indenture, dated as of October 21, 2010, between JPMorgan Chase & Co. and Deutsche Bank Trust Company Americas, as Trustee (incorporated by reference to Exhibit 4.1 to the Current Report on Form 8-K of JPMorgan Chase & Co. (File No.1-5805) filed October 21, 2010). |
| | | |
4.24.1(b) | | First Supplemental Indenture, dated as of January 13, 2017, between JPMorgan Chase & Co. and Deutsche Bank Trust Company Americas, as Trustee, to the Indenture, dated as of October 21, 2010 (incorporated by reference to Exhibit 4.1 to the Current Report on Form 8-K of JPMorgan Chase & Co. (File No. 1-5805) filed January 13, 2017). |
| | |
| 4.2(a) | | Subordinated Indenture, dated as of March 14, 2014, between JPMorgan Chase & Co. and U.S. Bank Trust National Association, as Trustee (incorporated by reference to Exhibit 4.1 to the Current Report on Form 8-K of JPMorgan Chase & Co. (File No.1-5805) filed March 14, 2014). |
| | | |
4.34.2(b) | | First Supplemental Indenture, dated as of January 13, 2017, between JPMorgan Chase & Co. and U.S. Bank Trust National Association, as Trustee, to the Subordinated Indenture, dated as of March 14, 2014 (incorporated by reference to Exhibit 4.2 to the Current Report on Form 8-K of JPMorgan Chase & Co. (File No. 1-5805) filed January 13, 2017). |
| | |
| 4.3(a) | | Indenture, dated as of May 25, 2001, between JPMorgan Chase & Co. and Bankers Trust Company (succeeded by Deutsche Bank Trust Company Americas), as Trustee (incorporated by reference to Exhibit 4(a)(1) to the Registration Statement on Form S-3 of JPMorgan Chase & Co. (File No. 333-52826) filed June 13, 2001). |
| | |
| 4.3(b) | | Sixth Supplemental Indenture, dated as of January 13, 2017, between JPMorgan Chase & Co. and Bankers Trust Company (succeeded by Deutsche Bank Trust Company Americas), as Trustee, to the Indenture, dated as of May 25, 2001 (incorporated by reference to Exhibit 4.3 to the Current Report on Form 8-K of JPMorgan Chase & Co. (File No. 1-5805) filed January 13, 2017). |
| | |
| 4.4 | | Indenture, dated as of February 19, 2016, among JPMorgan Chase Financial Company LLC, JPMorgan Chase & Co. and Deutsche Bank Trust Company Americas, as Trustee (incorporated by reference to Exhibit 4(a)(7) to the Registration Statement on Form S-3 of JPMorgan Chase & Co. and JPMorgan Chase Financial Company LLC (File No. 333-209682) filed February 24, 2016). |
| | |
|
| | |
| 4.5 | | Form of Deposit Agreement (incorporated by reference to Exhibit 4.3 to the Registration Statement on Form S-3 of JPMorgan Chase & Co. (File No. 333-191692) filed October 11, 2013). |
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4.54.6 | | Form of Warrant to purchase common stock (incorporated by reference to Exhibit 4.2 to the Form 8-A of JPMorgan Chase & Co. (File No. 1-5805) filed December 11, 2009). |
| | | |
| Other instruments defining the rights of holders of long-term debt securities of JPMorgan Chase & Co. and its subsidiaries are omitted pursuant to Section (b)(4)(iii)(A) of Item 601 of Regulation S-K. JPMorgan Chase & Co. agrees to furnish copies of these instruments to the SEC upon request. |
| | | |
| 10.1 | | Deferred Compensation Plan for Non-Employee Directors of JPMorgan Chase & Co., as amended and restated July 2001 and as of December 31, 2004 (incorporated by reference to Exhibit 10.1 to the Annual Report on Form 10-K of JPMorgan Chase & Co. (File No. 1-5805) for the year ended December 31, 2007).(a) |
| | | |
| 10.2 | | 2005 Deferred Compensation Plan for Non-Employee Directors of JPMorgan Chase & Co., effective as of January 1, 2005 (incorporated by reference to Exhibit 10.2 to the Annual Report on Form 10-K of JPMorgan Chase & Co. (File No. 1-5805) for the year ended December 31, 2007).(a) |
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|
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| 10.3 | | 2005 Deferred Compensation Program of JPMorgan Chase & Co., restated effective as of December 31, 2008 (incorporated by reference to Exhibit 10.4 to the Annual Report on Form 10-K of JPMorgan Chase & Co. (File No. 1-5805) for the year ended December 31, 2008).(a) |
| | | |
| 10.4 | | JPMorgan Chase & Co. Long-Term Incentive Plan as amended and restated effective May 19, 2015 (incorporated by reference to Appendix C of the Schedule 14A of JPMorgan Chase & Co. (File No. 1-5805) filed April 8, 2015).(a) |
| | | |
| 10.5 | | Key Executive Performance Plan of JPMorgan Chase & Co., as amended and restated effective January 1, 2014 (incorporated by reference to Appendix G of the Schedule 14A of JPMorgan Chase & Co. (File No. 1-5805) filed April 10, 2013).(a) |
| | |
| 10.6 | | Excess Retirement Plan of JPMorgan Chase & Co., restated and amended as of December 31, 2008, as amended (incorporated by reference to Exhibit 10.7 to the Annual Report on Form 10-K of JPMorgan Chase & Co. (File No. 1-5805) for the year ended December 31, 2009).(a) |
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| 10.7 | | 1995 Stock Incentive Plan of J.P. Morgan & Co. Incorporated and Affiliated Companies, as amended, dated December 11, 1996 (incorporated by reference to Exhibit 10.8 to the Annual Report on Form 10-K of JPMorgan Chase & Co. (File No. 1-5805) for the year ended December 31, 2008).(a) |
| | | |
| 10.8 | | Executive Retirement Plan of JPMorgan Chase & Co., as amended and restated December 31, 2008 (incorporated by reference to Exhibit 10.9 to the Annual Report on Form 10-K of JPMorgan Chase & Co. (File No. 1-5805) for the year ended December 31, 2008).(a) |
| | | |
| 10.9 | | Bank One Corporation Stock Performance Plan, as amended and restated effective February 20, 2001 (incorporated by reference to Exhibit 10.12 to the Annual Report on Form 10-K of JPMorgan Chase & Co. (File No. 1-5805) for the year ended December 31, 2008).(a) |
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| 10.10 | | Bank One Corporation Supplemental Savings and Investment Plan, as amended and restated effective December 31, 2008 (incorporated by reference to Exhibit 10.13 to the Annual Report on Form 10-K of JPMorgan Chase & Co. (File No. 1-5805) for the year ended December 31, 2008).(a) |
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| 10.11 | | Banc One Corporation Revised and Restated 1995 Stock Incentive Plan, effective April 17, 1995 (incorporated by reference to Exhibit 10.15 to the Annual Report on Form 10-K of JPMorgan Chase & Co. (File No. 1-5805) for the year ended December 31, 2008).(a) |
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|
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| 10.12 | | Form of JPMorgan Chase & Co. Long-Term Incentive Plan Award Agreement of January 22, 2008 stock appreciation rights (incorporated by reference to Exhibit 10.25 to the Annual Report on Form 10-K of JPMorgan Chase & Co. (File No. 1-5805) for the year ended December 31, 2007).(a) |
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| 10.13 | | Form of JPMorgan Chase & Co. Long-Term Incentive Plan Award Agreement of January 22, 2008 stock appreciation rights for James Dimon (incorporated by reference to Exhibit 10.27 to the Annual Report on Form 10-K of JPMorgan Chase & Co. (File No. 1-5805) for the year ended December 31, 2007).(a) |
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| 10.14 | | Form of JPMorgan Chase & Co. Long-Term Incentive Plan Terms and Conditions for stock appreciation rights, dated as of January 20, 2009 (incorporated by reference to Exhibit 10.20 to the Annual Report on Form 10-K of JPMorgan Chase & Co. (File No. 1-5805) for the year ended December 31, 2008).(a) |
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| 10.15 | | Form of JPMorgan Chase & Co. Long-Term Incentive Plan Terms and Conditions for Operating Committee member stock appreciation rights, dated as of January 20, 2009 (incorporated by reference to Exhibit 10.21 to the Annual Report on Form 10-K of JPMorgan Chase & Co. (File No. 1-5805) for the year ended December 31, 2008).(a) |
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|
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| 10.16 | | Form of JPMorgan Chase & Co. Long-Term Incentive Plan Terms and Conditions for Operating Committee member stock appreciation rights, dated as of February 3, 2010 (incorporated by reference to Exhibit 10.23 to the Annual Report on Form 10-K of JPMorgan Chase & Co. (File No. 1-5805) for the year ended December 31, 2009).(a) |
| | | |
| 10.17 | | Forms of JPMorgan Chase & Co. Long-Term Incentive Plan Terms and Conditions for stock appreciation rights and restricted stock units, dated as of January 18, 2012 (incorporated by reference to Exhibit 10.25 to the Annual Report on Form 10-K of JPMorgan Chase & Co. (File No. 1-5805) for the year ended December 31, 2011).(a) |
| | | |
| 10.18 | | Forms of JPMorgan Chase & Co. Long-Term Incentive Plan Terms and Conditions for stock appreciation rights and restricted stock units for Operating Committee members, dated as of January 17, 2013 (incorporated by reference to Exhibit 10.23 to the Annual Report on Form 10-K of JPMorgan Chase & Co. (File No. 1-5805) for the year ended December 31, 2012).(a) |
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| 10.19 | | Form of JPMorgan Chase & Co. Long-Term Incentive Plan Terms and Conditions for restricted stock units for Operating Committee members, dated as of January 22, 2014 (incorporated by reference to Exhibit 10.1 to the Quarterly Report on Form 10-Q of JPMorgan Chase & Co. (File No. 1-5805) for the quarter ended March 31, 2014).(a) |
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| 10.20 | | Forms of JPMorgan Chase & Co. Long-Term Incentive Plan Terms & Conditions for restricted stock units for Operating Committee members (U.S., E.U. and U.K.), dated as of January 20, 2015 (incorporated by reference to Exhibit 10.1 to the Quarterly Report on Form 10-Q of JPMorgan Chase & Co. (File No. 1-5805) for the quarter ended March 31, 2015).(a) |
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| 10.21 | | Form of JPMorgan Chase & Co. Long-Term Incentive Plan Terms and Conditions for restricted stock units for Operating Committee members, dated as of January 19, 2016.2016 (incorporated by reference to Exhibit 10.21 to the Annual Report on Form 10-K of JPMorgan Chase & Co. (File No. 1-5805) for the year ended December 31, 2015).(a)(b) |
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| 10.22 | | Form of JPMorgan Chase & Co. Long-Term Incentive Plan Terms and Conditions for performance share units for Operating Committee members, dated as of January 19, 2016.2016 (incorporated by reference to Exhibit 10.22 to the Annual Report on Form 10-K of JPMorgan Chase & Co. (File No. 1-5805) for the year ended December 31, 2015).(a)(b) |
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|
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| 10.23 | | Form of JPMorgan Chase & Co. Long-Term Incentive Plan Terms and Conditions for performance share units and restricted stock units for Operating Committee members (U.S. and U.K.), dated as of January 17, 2017.(a)(b)
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| 10.24 | | Form of JPMorgan Chase & Co. Terms and Conditions of Fixed Allowance (UK) (incorporated by reference to Exhibit 10.1 to the Quarterly Report on Form 10-Q of JPMorgan Chase & Co. (File No. 1-5805) for the quarter ended June 30, 2014).(a) |
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10.2410.25 | | Form of JPMorgan Chase & Co. Performance-Based Incentive Compensation Plan, effective as of January 1, 2006, as amended (incorporated by reference to Exhibit 10.27 to the Annual Report on Form 10-K of JPMorgan Chase & Co. (File No. 1-5805) for the year ended December 31, 2009).(a) |
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10.2510.26 | | Plea Agreement dated May 20, 2015 between JPMorgan Chase & Co. and the U.S. Department of Justice (incorporated by reference to Exhibit 99.3 to the Current Report on Form 8-K of JPMorgan Chase & Co. (File No. 1-5805) filed May 20, 2015). |
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| 12.1 | | Computation of ratio of earnings to fixed charges.(b) |
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| 12.2 | | Computation of ratio of earnings to fixed charges and preferred stock dividend requirements.(b) |
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| 21 | | List of subsidiaries of JPMorgan Chase & Co.(b) |
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| 22.1 | | Annual Report on Form 11-K of The JPMorgan Chase 401(k) Savings Plan for the year ended December 31, 20152016 (to be filed pursuant to Rule 15d-21 under the Securities Exchange Act of 1934). |
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| 23 | | Consent of independent registered public accounting firm.(b) |
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| 31.1 | | Certification.(b) |
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| 31.2 | | Certification.(b) |
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| 32 | | Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.(c) |
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| 101.INS | | XBRL Instance Document.(b)(d) |
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| 101.SCH | | XBRL Taxonomy Extension Schema Document.(b) |
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| 101.CAL | | XBRL Taxonomy Extension Calculation Linkbase Document.(b) |
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| 101.DEF | | XBRL Taxonomy Extension Definition Linkbase Document.(b) |
| 101.LAB | | XBRL Taxonomy Extension Label Linkbase Document.(b) |
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|
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| 101.PRE | | XBRL Taxonomy Extension Presentation Linkbase Document.(b) |
| |
| (a) | This exhibit is a management contract or compensatory plan or arrangement. |
| |
| (c) | Furnished herewith. This exhibit shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, or otherwise subject to the liability of that Section. Such exhibit shall not be deemed incorporated into any filing under the Securities Act of 1933 or the Securities Exchange Act of 1934. |
| |
| (d) | Pursuant to Rule 405 of Regulation S-T, includes the following financial information included in the Firm’s Annual Report on Form 10-K for the year ended December 31, 2015,2016, formatted in XBRL (eXtensible Business Reporting Language) interactive data files: (i) the Consolidated statements of income for the years ended December 31, 2016, 2015 2014 and 2013,2014, (ii) the Consolidated statements of comprehensive income for the years ended December 31, 2016, 2015 2014 and 2013,2014, (iii) the Consolidated balance sheets as of December 31, 20152016 and 2014,2015, (iv) the Consolidated statements of changes in stockholders’ equity for the years ended December 31, 2016, 2015 2014 and 2013,2014, (v) the Consolidated statements of cash flows for the years ended December 31, 2016, 2015 2014 and 2013,2014, and (vi) the Notes to Consolidated Financial Statements. |
pages 28–6430–32 not used
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| | | | | | |
| Financial: | | | | |
| | | | | | | |
| 66 | | | | Audited financial statements: |
| | | | | | | |
| 67 | | | | 174 | | |
| | | | | | | |
| Management’s discussion and analysis: | | 175 | | |
| | | | | | | |
| 68 | | | | 176 | | |
| | | | | | | |
| 69 | | | | 181 | | |
| | | | | | | |
| 72 | | | | |
| | | | | | | |
| 75 | | | | | | |
| 77 | | | | | | |
| | | | | | | |
| 79 | | | | | | |
| | | | | | | |
| 80 | | | | Supplementary information: |
| | | | | | | |
| 83 | | | | 309 | | |
| | | | | | | |
| 107 | | | | 311 | | |
| | | | | | | |
| 112 | | | | | | |
| | | | | | | |
| 133 | | | | | | |
| | | | | | | |
| 140 | | | | | | |
| | | | | | | |
| 142 | | | | | | |
| | | | | | | |
| 143 | | | | | | |
| | | | | | | |
| 144 | | | | | | |
| | | | | | | |
| 146 | | | | | | |
| | | | | | | |
| 147 | | | | | | |
| | | | | | | |
| 148 | | | | | | |
| | | | | | | |
| 149 | | | | | | |
| | | | | | | |
| 159 | | | | | | |
| | | | | | | |
| 165 | | | | | | |
| | | | | | | |
| 170 | | | | | | |
| | | | | | | |
| 172 | | | | | | |
| | | | | | | |
| 173 | | | | | | |
| | | | | | | |
|
| | | | | | |
| Financial: | | | | |
| | | | | | | |
| 34 | | | | Audited financial statements: |
| | | | | | | |
| 35 | | | | 139 | | |
| | | | | | | |
| Management’s discussion and analysis: | | 140 | | |
| | | | | | | |
| 36 | | | | 141 | | |
| | | | | | | |
| 37 | | | | 146 | | |
| | | | | | | |
| 40 | | | | |
| | | | | | | |
| 43 | | | | | | |
| 45 | | | | | | |
| | | | | | | |
| 47 | | | | | | |
| | | | | | | |
| 48 | | | | Supplementary information: |
| | | | | | | |
| 51 | | | | 272 | | |
| | | | | | | |
| 71 | | | | 274 | | |
| | | | | | | |
| 76 | | | | 279 | | |
| | | | | | | |
| 86 | | | | | | |
| | | | | | | |
| 108 | | | | | | |
| | | | | | | |
| 110 | | | | | | |
| | | | | | | |
| 116 | | | | | | |
| | | | | | | |
| 124 | | | | | | |
| | | | | | | |
| 125 | | | | | | |
| | | | | | | |
| 126 | | | | | | |
| | | | | | | |
| 127 | | | | | | |
| | | | | | | |
| 128 | | | | | | |
| | | | | | | |
| 129 | | | | | | |
| | | | | | | |
| 131 | | | | | | |
| | | | | | | |
| 132 | | | | | | |
| | | | | | | |
| 135 | | | | | | |
| | | | | | | |
| 138 | | | | | | |
| | | | | | | |
|
| | |
JPMorgan Chase & Co./20152016 Annual Report | | 6533 |
FIVE-YEAR SUMMARY OF CONSOLIDATED FINANCIAL HIGHLIGHTS | | (unaudited) As of or for the year ended December 31, | | | | |
| (in millions, except per share, ratio, headcount data and where otherwise noted) | | 2015 | 2014 | 2013 | 2012 | 2011 | | 2016 | 2015 | 2014 | 2013 | 2012 |
| Selected income statement data | | | | |
| Total net revenue | | $ | 93,543 |
| $ | 95,112 |
| $ | 97,367 |
| $ | 97,680 |
| $ | 97,843 |
| | $ | 95,668 |
| $ | 93,543 |
| $ | 95,112 |
| $ | 97,367 |
| $ | 97,680 |
|
| Total noninterest expense | | 59,014 |
| 61,274 |
| 70,467 |
| 64,729 |
| 62,911 |
| | 55,771 |
| 59,014 |
| 61,274 |
| 70,467 |
| 64,729 |
|
| Pre-provision profit | | 34,529 |
| 33,838 |
| 26,900 |
| 32,951 |
| 34,932 |
| | 39,897 |
| 34,529 |
| 33,838 |
| 26,900 |
| 32,951 |
|
| Provision for credit losses | | 3,827 |
| 3,139 |
| 225 |
| 3,385 |
| 7,574 |
| | 5,361 |
| 3,827 |
| 3,139 |
| 225 |
| 3,385 |
|
| Income before income tax expense | | 30,702 |
| 30,699 |
| 26,675 |
| 29,566 |
| 27,358 |
| | 34,536 |
| 30,702 |
| 30,699 |
| 26,675 |
| 29,566 |
|
| Income tax expense | | 6,260 |
| 8,954 |
| 8,789 |
| 8,307 |
| 8,402 |
| | 9,803 |
| 6,260 |
| 8,954 |
| 8,789 |
| 8,307 |
|
| Net income | | $ | 24,442 |
| $ | 21,745 |
| $ | 17,886 |
| $ | 21,259 |
| $ | 18,956 |
| | $ | 24,733 |
| $ | 24,442 |
| $ | 21,745 |
| $ | 17,886 |
| $ | 21,259 |
|
| Earnings per share data | | | | |
| Net income: Basic | | $ | 6.05 |
| $ | 5.33 |
| $ | 4.38 |
| $ | 5.21 |
| $ | 4.50 |
| | $ | 6.24 |
| $ | 6.05 |
| $ | 5.33 |
| $ | 4.38 |
| $ | 5.21 |
|
| Diluted | | 6.00 |
| 5.29 |
| 4.34 |
| 5.19 |
| 4.48 |
| | 6.19 |
| 6.00 |
| 5.29 |
| 4.34 |
| 5.19 |
|
| Average shares: Basic | | 3,700.4 |
| 3,763.5 |
| 3,782.4 |
| 3,809.4 |
| 3,900.4 |
| | 3,618.5 |
| 3,700.4 |
| 3,763.5 |
| 3,782.4 |
| 3,809.4 |
|
| Diluted | | 3,732.8 |
| 3,797.5 |
| 3,814.9 |
| 3,822.2 |
| 3,920.3 |
| | 3,649.8 |
| 3,732.8 |
| 3,797.5 |
| 3,814.9 |
| 3,822.2 |
|
| Market and per common share data | | | | |
| Market capitalization | | $ | 241,899 |
| $ | 232,472 |
| $ | 219,657 |
| $ | 167,260 |
| $ | 125,442 |
| | $ | 307,295 |
| $ | 241,899 |
| $ | 232,472 |
| $ | 219,657 |
| $ | 167,260 |
|
| Common shares at period-end | | 3,663.5 |
| 3,714.8 |
| 3,756.1 |
| 3,804.0 |
| 3,772.7 |
| | 3,561.2 |
| 3,663.5 |
| 3,714.8 |
| 3,756.1 |
| 3,804.0 |
|
Share price(a) | | | |
Share price:(a) | | | |
| High | | $ | 70.61 |
| $ | 63.49 |
| $ | 58.55 |
| $ | 46.49 |
| $ | 48.36 |
| | $ | 87.39 |
| $ | 70.61 |
| $ | 63.49 |
| $ | 58.55 |
| $ | 46.49 |
|
| Low | | 50.07 |
| 52.97 |
| 44.20 |
| 30.83 |
| 27.85 |
| | 52.50 |
| 50.07 |
| 52.97 |
| 44.20 |
| 30.83 |
|
| Close | | 66.03 |
| 62.58 |
| 58.48 |
| 43.97 |
| 33.25 |
| | 86.29 |
| 66.03 |
| 62.58 |
| 58.48 |
| 43.97 |
|
| Book value per share | | 60.46 |
| 56.98 |
| 53.17 |
| 51.19 |
| 46.52 |
| | 64.06 |
| 60.46 |
| 56.98 |
| 53.17 |
| 51.19 |
|
Tangible book value per share (“TBVPS”)(b) | | 48.13 |
| 44.60 |
| 40.72 |
| 38.68 |
| 33.62 |
| | 51.44 |
| 48.13 |
| 44.60 |
| 40.72 |
| 38.68 |
|
| Cash dividends declared per share | | 1.72 |
| 1.58 |
| 1.44 |
| 1.20 |
| 1.00 |
| | 1.88 |
| 1.72 |
| 1.58 |
| 1.44 |
| 1.20 |
|
| Selected ratios and metrics | | | | |
| Return on common equity (“ROE”) | | 11 | % | 10 | % | 9 | % | 11 | % | 11 | % | | 10 | % | 11 | % | 10 | % | 9 | % | 11 | % |
Return on tangible common equity (“ROTCE”)(b) | | 13 |
| 13 |
| 11 |
| 15 |
| 15 |
| | 13 |
| 13 |
| 13 |
| 11 |
| 15 |
|
| Return on assets (“ROA”) | | 0.99 |
| 0.89 |
| 0.75 |
| 0.94 |
| 0.86 |
| | 1.00 |
| 0.99 |
| 0.89 |
| 0.75 |
| 0.94 |
|
| Overhead ratio | | 63 |
| 64 |
| 72 |
| 66 |
| 64 |
| | 58 |
| 63 |
| 64 |
| 72 |
| 66 |
|
| Loans-to-deposits ratio | | 65 |
| 56 |
| 57 |
| 61 |
| 64 |
| | 65 |
| 65 |
| 56 |
| 57 |
| 61 |
|
High quality liquid assets (“HQLA“) (in billions)(c) | | $ | 496 |
| $ | 600 |
| $ | 522 |
| 341 |
| NA |
| |
High quality liquid assets (“HQLA”) (in billions)(c) | | | $ | 524 |
| $ | 496 |
| $ | 600 |
| $ | 522 |
| $ | 341 |
|
Common equity tier 1 (“CET1”) capital ratio(d) | | 11.8 | % | 10.2 | % | 10.7 | % | 11.0 | % | 10.0 | % | | 12.4 | % | 11.8 | % | 10.2 | % | 10.7 | % | 11.0 | % |
Tier 1 capital ratio(d) | | 13.5 |
| 11.6 |
| 11.9 |
| 12.6 |
| 12.3 |
| | 14.1 |
| 13.5 |
| 11.6 |
| 11.9 |
| 12.6 |
|
Total capital ratio(d) | | 15.1 |
| 13.1 |
| 14.3 |
| 15.2 |
| 15.3 |
| | 15.5 |
| 15.1 |
| 13.1 |
| 14.3 |
| 15.2 |
|
Tier 1 leverage ratio(d) | | 8.5 |
| 7.6 |
| 7.1 |
| 7.1 |
| 6.8 |
| | 8.4 |
| 8.5 |
| 7.6 |
| 7.1 |
| 7.1 |
|
| Selected balance sheet data (period-end) | | | | |
| Trading assets | | $ | 343,839 |
| $ | 398,988 |
| $ | 374,664 |
| $ | 450,028 |
| $ | 443,963 |
| | $ | 372,130 |
| $ | 343,839 |
| $ | 398,988 |
| $ | 374,664 |
| $ | 450,028 |
|
| Securities | | 290,827 |
| 348,004 |
| 354,003 |
| 371,152 |
| 364,793 |
| | 289,059 |
| 290,827 |
| 348,004 |
| 354,003 |
| 371,152 |
|
| Loans | | 837,299 |
| 757,336 |
| 738,418 |
| 733,796 |
| 723,720 |
| | 894,765 |
| 837,299 |
| 757,336 |
| 738,418 |
| 733,796 |
|
| Core Loans | | 732,093 |
| 628,785 |
| 583,751 |
| 555,351 |
| 518,095 |
| | 806,152 |
| 732,093 |
| 628,785 |
| 583,751 |
| 555,351 |
|
| Average core loans | | | 769,385 |
| 670,757 |
| 596,823 |
| 563,809 |
| 534,615 |
|
| Total assets | | 2,351,698 |
| 2,572,274 |
| 2,414,879 |
| 2,358,323 |
| 2,264,976 |
| | 2,490,972 |
| 2,351,698 |
| 2,572,274 |
| 2,414,879 |
| 2,358,323 |
|
| Deposits | | 1,279,715 |
| 1,363,427 |
| 1,287,765 |
| 1,193,593 |
| 1,127,806 |
| | 1,375,179 |
| 1,279,715 |
| 1,363,427 |
| 1,287,765 |
| 1,193,593 |
|
Long-term debt(e) | | 288,651 |
| 276,379 |
| 267,446 |
| 248,521 |
| 255,962 |
| | 295,245 |
| 288,651 |
| 276,379 |
| 267,446 |
| 248,521 |
|
| Common stockholders’ equity | | 221,505 |
| 211,664 |
| 199,699 |
| 194,727 |
| 175,514 |
| | 228,122 |
| 221,505 |
| 211,664 |
| 199,699 |
| 194,727 |
|
| Total stockholders’ equity | | 247,573 |
| 231,727 |
| 210,857 |
| 203,785 |
| 183,314 |
| | 254,190 |
| 247,573 |
| 231,727 |
| 210,857 |
| 203,785 |
|
| Headcount | | 234,598 |
| 241,359 |
| 251,196 |
| 258,753 |
| 259,940 |
| | 243,355 |
| 234,598 |
| 241,359 |
| 251,196 |
| 258,753 |
|
| Credit quality metrics | | | | |
| Allowance for credit losses | | $ | 14,341 |
| $ | 14,807 |
| $ | 16,969 |
| $ | 22,604 |
| $ | 28,282 |
| | $ | 14,854 |
| $ | 14,341 |
| $ | 14,807 |
| $ | 16,969 |
| $ | 22,604 |
|
| Allowance for loan losses to total retained loans | | 1.63 | % | 1.90 | % | 2.25 | % | 3.02 | % | 3.84 | % | | 1.55 | % | 1.63 | % | 1.90 | % | 2.25 | % | 3.02 | % |
Allowance for loan losses to retained loans excluding purchased credit-impaired loans(f) | | 1.37 |
| 1.55 |
| 1.80 |
| 2.43 |
| 3.35 |
| | 1.34 |
| 1.37 |
| 1.55 |
| 1.80 |
| 2.43 |
|
| Nonperforming assets | | $ | 7,034 |
| $ | 7,967 |
| $ | 9,706 |
| $ | 11,906 |
| $ | 11,315 |
| | $ | 7,535 |
| $ | 7,034 |
| $ | 7,967 |
| $ | 9,706 |
| $ | 11,906 |
|
| Net charge-offs | | 4,086 |
| 4,759 |
| 5,802 |
| 9,063 |
| 12,237 |
| | 4,692 |
| 4,086 |
| 4,759 |
| 5,802 |
| 9,063 |
|
| Net charge-off rate | | 0.52 | % | 0.65 | % | 0.81 | % | 1.26 | % | 1.78 | % | | 0.54 | % | 0.52 | % | 0.65 | % | 0.81 | % | 1.26 | % |
Note: Effective October 1, 2015, and January 1, 2015, JPMorgan Chase & Co.2016, the Firm adopted new accounting guidance retrospectively, related to (1) the presentationrecognition and measurement of debt issuance costs,debit valuation adjustments (“DVA”) on financial liabilities where the fair value option has been elected, and (2) investments in affordable housing projects that qualifythe accounting for the low-income housing tax credit, respectively.employee stock-based incentive payments. For additional information, see Explanation and Reconciliation of the Firm’s Use of Non-GAAP Financial Measures on pages 80–82 , Accounting and Reporting Developments on page 170 ,pages 135–137 and Note 1.Notes 3, 4 and 25.
| |
| (a) | Share prices shown for JPMorgan Chase’s common stock are from the New York Stock Exchange. |
| |
| (b) | TBVPS and ROTCE are non-GAAP financial measures. For further discussion of these measures, see Explanation and Reconciliation of the Firm’s Use of Non-GAAP Financial Measures and Key Financial Performance Measures on pages 80–82.48–50. |
| |
| (c) | HQLA represents the amount of assets that qualify for inclusion in the liquidity coverage ratio under the final U.S. rule (“U.S. LCR”) for December 31, 2016 and 2015, and the Firm’s estimated amount for December 31, 2014 prior to the effective date of the final rule, and under the Basel III liquidity coverage ratio (“Basel III LCR”) for prior periods. The Firm did not begin estimating HQLA until December 31, 2012. For additional information, see HQLA on page 160.111. |
| |
| (d) | Basel III Transitional rules became effective on January 1, 2014; prior period data is based on Basel I rules. As of December 31, 2014 the ratiosRatios presented are calculated under the Basel III Advanced Transitional Approach. CET1 capital under Basel III replaced Tier 1 common capital under Basel I. Prior to Basel III becomingrules, which became effective on January 1, 2014, Tier 1 commonand for the capital ratios, represent the Collins Floor. Prior to 2014, the ratios were calculated under the Basel I was a non-GAAP financial measure.rules. See Capital Risk Management on pages 149–15876–85 for additional information on Basel III and non-GAAP financial measures of regulatory capital.
III. |
| |
| (e) | Included unsecured long-term debt of $212.6 billion, $211.8 billion, $207.0 billion, $198.9 billion $200.1 billion and $230.5$200.1 billion respectively, as of December 31, of each year presented. |
| |
| (f) | Excluded the impact of residential real estate purchased credit-impaired (“PCI”) loans, a non-GAAP financial measure. For further discussion of these measures, see Explanation and Reconciliation of the Firm’s Use of Non-GAAP Financial Measures and Key Performance Measures on pages 80–82.48–50. For further discussion, see Allowance for credit losses on pages 130–132.105–107. |
|
| | |
6634 | | JPMorgan Chase & Co./20152016 Annual Report |
FIVE-YEAR STOCK PERFORMANCE
The following table and graph compare the five-year cumulative total return for JPMorgan Chase & Co. (“JPMorgan Chase” or the “Firm”) common stock with the cumulative return of the S&P 500 Index, the KBW Bank Index and the S&P Financial Index. The S&P 500 Index is a commonly referenced United States of America (“U.S.”) equity benchmark consisting of leading companies from different economic sectors. The KBW Bank Index seeks to reflect the performance of banks and thrifts that are publicly traded in the U.S. and is composed of 24leading national money center and regional banks and thrifts. The S&P Financial Index is an index of87 financial companies, all of which are components of the S&P 500. The Firm is a component of all three industry indices.
The following table and graph assume simultaneous investments of $100 on December 31, 2010,2011, in JPMorgan Chase common stock and in each of the above indices. The comparison assumes that all dividends are reinvested.
| | December 31, (in dollars) | 2010 | | 2011 | | 2012 | | 2013 | | 2014 | | 2015 | 2011 |
| | 2012 |
| | 2013 |
| | 2014 |
| | 2015 |
| | 2016 |
|
| JPMorgan Chase | $ | 100.00 |
| | $ | 80.03 |
| | $ | 108.98 |
| | $ | 148.98 |
| | $ | 163.71 |
| | $ | 177.40 |
| $ | 100.00 |
| | $ | 136.18 |
| | $ | 186.17 |
| | $ | 204.57 |
| | $ | 221.68 |
| | $ | 298.31 |
|
| KBW Bank Index | 100.00 |
| | 76.82 |
| | 102.19 |
| | 140.77 |
| | 153.96 |
| | 154.71 |
| 100.00 |
| | 133.03 |
| | 183.26 |
| | 200.42 |
| | 201.40 |
| | 258.82 |
|
| S&P Financial Index | 100.00 |
| | 82.94 |
| | 106.78 |
| | 144.79 |
| | 166.76 |
| | 164.15 |
| 100.00 |
| | 128.75 |
| | 174.57 |
| | 201.06 |
| | 197.92 |
| | 242.94 |
|
| S&P 500 Index | 100.00 |
| | 102.11 |
| | 118.44 |
| | 156.78 |
| | 178.22 |
| | 180.67 |
| 100.00 |
| | 115.99 |
| | 153.55 |
| | 174.55 |
| | 176.95 |
| | 198.10 |
|
December 31,
(in dollars)
|
| | |
JPMorgan Chase & Co./20152016 Annual Report | | 6735 |
Management’s discussion and analysis
This section of JPMorgan Chase’s Annual Report for the year ended December 31, 20152016 (“Annual Report”), provides Management’s discussion and analysis of the financial condition and results of operations (“MD&A”) of JPMorgan Chase. See the Glossary of Terms and Acronyms on pages 311–315279-285 for definitions of terms used throughout this Annual Report. The MD&A included in this Annual Report contains statements that are forward-looking within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements are based on the current beliefs and expectations of JPMorgan Chase’s management and are subject to significant risks and uncertainties. These risks and uncertainties could cause the Firm’s actual results to differ materially from those set forth in such forward-looking statements. Certain of such risks and uncertainties are described herein (see Forward-looking Statements on page 173138) and in JPMorgan Chase’s Annual Report on Form 10-K for the year ended December 31, 20152016 (“20152016 Form 10-K”), in Part I, Item 1A: Risk factors; reference is hereby made to both.
JPMorgan Chase & Co., a financial holding company incorporated under Delaware law in 1968, is a leading global financial services firm and one of the largest banking institutions in the United States of America (“U.S.”), with operations worldwide; the Firm had $2.4$2.5 trillion in assets and $247.6$254.2 billion in stockholders’ equity as ofDecember 31, 2015.2016. The Firm is a leader in investment banking, financial services for consumers and small businesses, commercial banking, financial transaction processing and asset management. Under the J.P. Morgan and Chase brands, the Firm serves millions of customers in the U.S. and many of the world’s most prominent corporate, institutional and government clients.
JPMorgan Chase’s principal bank subsidiaries are JPMorgan Chase Bank, National Association (“JPMorgan Chase Bank, N.A.”), a national banking association with U.S. branches in 23 states, and Chase Bank USA, National Association (“Chase Bank USA, N.A.”), a national banking association that is the Firm’s credit card-issuing bank. JPMorgan Chase’s principal nonbank subsidiary is J.P. Morgan Securities LLC (“JPMorgan Securities”), the Firm’s U.S. investment banking firm. The bank and nonbank subsidiaries of JPMorgan Chase operate nationally as well as through overseas branches and subsidiaries, representative offices and subsidiary foreign banks. One of the Firm’s principal operating subsidiaries in the United Kingdom (“U.K.”) is J.P. Morgan Securities plc, a subsidiary of JPMorgan Chase Bank, N.A.
For management reporting purposes, the Firm’s activities are organized into four major reportable business segments, as well as a Corporate segment. The Firm’s consumer business is the Consumer & Community Banking (“CCB”) segment. The Firm’s wholesale business segments are Corporate & Investment Bank (“CIB”), Commercial Banking (“CB”), and Asset & Wealth Management (“AM”AWM”) (formerly Asset Management or “AM”). For a description of the Firm’s business segments, and the products and services they provide to their respective client bases, refer to Business Segment Results on pages 83–106,51–70, and Note 33.
|
| | |
6836 | | JPMorgan Chase & Co./20152016 Annual Report |
This executive overview of the MD&A highlights selected information and may not contain all of the information that is important to readers of this Annual Report. For a complete description of the trends and uncertainties, as well as the risks and critical accounting estimates affecting the Firm and its various lines of business, this Annual Report should be read in its entirety.
| | | Financial performance of JPMorgan Chase | Financial performance of JPMorgan Chase | | | Financial performance of JPMorgan Chase | | |
| Year ended December 31, | | |
| (in millions, except per share data and ratios) | 2015 | | 2014 | | Change | |
Year ended December 31, (in millions, except per share data and ratios) | | |
| 2016 | | 2015 | | Change |
| Selected income statement data | | | | | | | | | | |
| Total net revenue | $ | 93,543 |
| | $ | 95,112 |
| | (2 | )% | $ | 95,668 |
| | $ | 93,543 |
| | 2 | % |
| Total noninterest expense | 59,014 |
| | 61,274 |
| | (4 | ) | 55,771 |
| | 59,014 |
| | (5 | ) |
| Pre-provision profit | 34,529 |
| | 33,838 |
| | 2 |
| 39,897 |
| | 34,529 |
| | 16 |
|
| Provision for credit losses | 3,827 |
| | 3,139 |
| | 22 |
| 5,361 |
| | 3,827 |
| | 40 |
|
| Net income | 24,442 |
| | 21,745 |
| | 12 |
| 24,733 |
| | 24,442 |
| | 1 |
|
| Diluted earnings per share | 6.00 |
| | 5.29 |
| | 13 |
| 6.19 |
| | 6.00 |
| | 3 |
|
| Selected ratios and metrics | | | | | | |
| Return on common equity | 11 | % | | 10 | % | | | 10 | % | | 11 | % | | |
| Return on tangible common equity | | 13 |
| | 13 |
| | |
| Book value per share | | $ | 64.06 |
| | $ | 60.46 |
| | 6 |
|
| Tangible book value per share | | 51.44 |
| | 48.13 |
| | 7 |
|
Capital ratios(a) | | | | | | | | | | |
| CET1 | 11.8 |
| | 10.2 |
| | | 12.4 | % | | 11.8 | % | | |
| Tier 1 capital | 13.5 |
| | 11.6 |
| | | 14.1 |
| | 13.5 |
| | |
| Total capital | | 15.5 |
| | 15.1 |
| | |
| |
| (a) | Ratios presented are calculated under the transitional Basel III Transitional rules and represent the Collins Floor. See Capital Risk Management on pages 149–15876–85 for additional information on Basel III. |
Summary of 2015 Results2016 results
JPMorgan Chase reported record full-year 2015strong results for full year 2016 with net income of $24.4$24.7 billion, and record earningsor $6.19 per share, of $6.00, on net revenue of $93.5$95.7 billion. The Firm reported ROE of 10% and ROTCE of 13%.
Net income increased by $2.7 billion1% compared with net income of $21.7 billion in 2014. ROE for the year was 11%, up from 10% in the prior year.
The increase in net income in 2015 wasyear driven by lower taxesnoninterest expense and lowerhigher net revenue, predominantly offset by higher income tax expense and provision for credit losses.
Total net revenue increased by 2% primarily reflecting higher net interest income across all the Firm’s business segments and higher Markets noninterest expense,revenue in CIB, partially offset by lower net revenue and a higher provision for credit losses. The declinecard income in net revenue was predominantly driven by lower Corporate private equity gains, lower CIB revenue reflecting the impact of business simplification,CCB and lower CCB Mortgage Banking revenue. These decreases were partially offset by a benefit from a legal settlementasset management fees in Corporate and higher operating lease income, predominantly in CCB.AWM.
The decrease in noninterestNoninterest expense was driven by lower CIB expense, reflecting the impact of business simplification, and lower CCB expense as a result of efficiencies, predominantly reflecting declines in headcount-related expense and lower professional fees, partially offset by investments in the business. As a result of these changes, the Firm’s overhead ratio in 2015 was lower$55.8 billion, down 5% compared with the prior year.year, driven by lower legal expense.
The provision for credit losses increased from the prior year as a resultwas $5.4 billion, an increase of $1.5 billion, reflecting an increase in the wholesaletotal consumer provision reflecting the impact of downgrades, includingrelated to additions in the Oil & Gas portfolio. The consumer provision declined, reflecting lowerallowance for loan losses and higher net charge-offs due to continued discipline in credit underwriting, as well as improvement in the economycredit card portfolio, and a lower benefit in the residential real estate portfolio driven by increasing home prices and lower unemployment levels. This was partially offset by a lower reduction in the allowance for
loan losses.losses compared with the prior year. The wholesale provision had a modest increase, largely driven by the impact of downgrades in the Oil & Gas and Natural Gas Pipelines portfolios.
Total firmwideThe total allowance for credit losses in 2015 was $14.3$14.9 billion resulting inat December 31, 2016, and the Firm had a loan loss coverage ratio, of 1.37%, excluding the PCI portfolio, of 1.34%, compared with 1.55%1.37% in the prior year. The Firm’s allowance for loan losses to retained nonaccrual loans, excludingnonperforming assets totaled $7.5 billion, an increase from the PCI portfolio and credit card, was 117% compared with 106% in 2014. Firmwide, net charge-offs were $4.1 billion for the year, down $673 million from 2014. Nonperforming assets at year-end wereprior-year level of $7.0 billion, down $933 million.billion.
The Firm’s results reflected solid underlying performance across its four major reportable business segments, with continued strong lending and consumer deposit growth. Firmwide average core loans increased by 12%15% compared with the prior year.
Within CCB, Consumer & Business Banking average depositscore loans increased 9% over20% from the prior year. The FirmCCB had nearly 23 million active mobile customers at year end, anrecord growth in average deposits, with a 10% increase of 20% overfrom the prior year. Credit card sales volume (excluding Commercial Card) was up 7% for the yearincreased 10%, and merchant processing volume was upincreased 12%. The , from the prior year. CCB had nearly 27 million active mobile customers at year-end 2016, an increase of 16% from the prior year.
CIB maintained its #1 ranking infor Global Investment Banking Fees according to Dealogic.fees with a 8.1% wallet share for the full-year ended December 31, 2016. Within CB, record average loans increased 14% from the prior year as loans in the commercial and industrial client segment increased 9% and loans in the wholesale commercial real estate client segment increased 18%. AWM had record average loans, an increase of 5% over the prior year, and 79% of AWM’s mutual fund assets under management ranked in the 1st or 2nd quartiles over the past 5 years.
For a detailed discussion of results by line of business (“LOB”), refer to the Business Segment Results on
pages 51–52.
The Firm added to its capital, ending the full-year of 2016 with an 11% increase compared witha TBVPS of $51.44, up 7% over the prior year. CBThe Firm’s estimated Basel III Advanced Fully Phased-In CET1 capital and ratio were $182 billion and 12.2%, respectively. The Fully Phased-In supplementary leverage ratio (“SLR”) for the Firm and for JPMorgan Chase Bank, N.A. was 6.5% and 6.6%, respectively, at December 31, 2016. The Firm also was compliant with the Fully Phased-In U.S. LCR and had record gross investment banking revenue$524 billion of $2.2 billion, up 10% fromHQLA as of December 31, 2016. For further discussion of the prior year. AM had positive net long-termLCR and HQLA, see Liquidity Risk Management on pages 110–115.
ROTCE and TBVPS are non-GAAP financial measures. Core loans are considered a key performance measure. Each of the Fully Phased-In capital and leverage measures is considered a key regulatory capital measure. For a further discussion of these measures, see Explanation and Reconciliation of the Firm’s Use of Non-GAAP Financial Measures and Key Performance Measures on pages 48–50, and Capital Risk Management on pages 76–85.
|
| | |
JPMorgan Chase & Co./20152016 Annual Report | | 6937 |
Management’s discussion and analysis
client inflows and continuedJPMorgan Chase continues to deliver strong investment performance with 80% of mutual fund assets under management (“AUM”) ranked in the 1st or 2nd quartiles over the past five years. AM also increased average loan balances by 8% in 2015.
In 2015, the Firm continued to adapt its strategy and financial architecture toward meeting regulatory and capital requirements and the changing banking landscape, while serving its clients and customers, investing in itssupport consumers, businesses and delivering strong returns to its shareholders. Importantly,communities around the Firm exceeded all of its 2015 financial targets including those related to balance sheet optimization and managing its capital, its GSIB surcharge and expense. On capital, the Firm exceeded its capital target of reaching Basel III Fully Phased-In Advanced and Standardized CET1 ratios of approximately 11%, ending the year with estimated Basel III Advanced Fully Phased-in CET1 capital and ratio of $173.2 billion and 11.6%, respectively. The Firm also exceeded its target of reducing its GSIB capital surcharge, ending the year at an estimated 3.5% GSIB surcharge, achieved through a combination of reducing wholesale non-operating deposits, level 3 assets and derivative notionals.
The Firm’s fully phased-in supplementary leverage ratio (“SLR”) was 6.5% and JPMorgan Chase Bank, N.A.’s fully phased-in SLR was 6.6%. The Firm was also compliant with the fully phased-in U.S. liquidity coverage ratio (“LCR”) and had $496 billion of HQLA as of year-end 2015.
The Firm’s tangible book value per share was $48.13, an increase of 8% from the prior year. Total stockholders’ equity was $247.6 billion at December 31, 2015.
Tangible book value per share and each of these Basel III Advanced Fully Phased-In measures are non-GAAP financial measures; they are used by management, bank regulators, investors and analysts to assess and monitor the Firm’s capital position and liquidity. For further discussion of Basel III Advanced Fully Phased-in measures and the SLR under the U.S. final SLR rule, see Capital Management on pages 149–158, and for further discussion of LCR and HQLA, see Liquidity Risk Management on pages 159–164.
globe. The Firm provided credit to and raised capital of $2.0$2.4 trillion for itscommercial and consumer clients during 2015. This included $705the full-year of 2016:
$265 billion of credit to corporations, $233for consumers
$24 billion of credit to consumers, and $22 billion tofor U.S. small businesses. During 2015, the Firm also raised $1.0businesses
$772 billion of credit for corporations
$1.2 trillion of capital raised for clients. Additionally, $68corporate clients and non-U.S. government entities
$90 billion of credit was provided to, and capital was raised for nonprofit and U.S. government entities, including states, municipalities, hospitals and universities.universities
TheOn October 1, 2016, the Firm has substantially completedfiled with the Federal Reserve and the FDIC its business simplification agenda, exiting businesses, products or clientssubmission (the “2016 Resolution Submission”) describing how the Firm remediated certain deficiencies, and providing a status report on its actions to address certain shortcomings, that were non-core, not at scale or not returninghad been identified by the appropriate level of returnFederal Reserve and the FDIC in order to focus on core activities for its core clients and reduce riskApril 2016 when those agencies provided feedback to the Firm. WhileFirm as well as to seven other systemically important domestic banking institutions on their respective 2015 Resolution Plans.
Among the business simplification initiative impacted revenue growth in 2015, it did not havesteps taken by the Firm to address the identified deficiencies and shortcomings were: (i) establishing a meaningful impact onnew subsidiary that has become an “intermediate holding company” and to which JPMorgan Chase & Co. has contributed the stock of substantially all of its direct subsidiaries (other than JPMorgan Chase Bank, N.A.), as well as other assets and intercompany indebtedness owing to JPMorgan Chase & Co.; (ii) increasing the Firm’s profitability. The Firm continuesliquidity reserves and pre-positioning significant amounts of capital and liquidity at the Firm’s “material legal entities” (as defined in the 2016 Resolution Submission); (iii) refining the Firm’s liquidity and capital governance frameworks, including establishing a Firmwide “trigger framework” that identifies key actions and escalations that would need to focus on streamlining, simplifyingbe taken, as well as decisions that would need to be made, at critical points in time if certain defined liquidity and/or capital metrics were to fall below defined thresholds; (iv) establishing clear, actionable legal entity rationalization criteria and centralizing operational functionsrelated governance procedures; and processes(v) improving divestiture readiness, including determining and analyzing divestiture options in order to attain more consistenciesa crisis. On December 13, 2016, the Federal Reserve and efficiencies across the Firm. To that end,FDIC informed the Firm continues to make progress on simplifying its legal entity structure, streamlining its Global Technology function, rationalizing its usethat they had determined that the Firm’s 2016 Resolution Submission adequately remediated the identified deficiencies in the Firm’s 2015 Resolution Plan. For more information, see the Federal Reserve and FDIC websites, and the Firm’s website for the public portion of vendors, and optimizing its real estate location strategy.
the 2016 Resolution Submission. |
| | |
70 | | JPMorgan Chase & Co./2015 Annual Report |
Business outlook
These current expectations are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements are based on the current beliefs and expectations of JPMorgan Chase’s management and are subject to significant risks and uncertainties. These risks and uncertainties could cause the Firm’s actual results to differ materially from those set forth in such forward-looking statements. See Forward-Looking Statements on page 173138 and the Risk Factors section on pages 8–18.21.
Business Outlookoutlook
JPMorgan Chase’s outlook for the full-year 20162017 should be viewed against the backdrop of the global and U.S. economies, financial markets activity, the geopolitical environment, the competitive environment, client activity levels, and regulatory and legislative developments in the U.S. and other countries where the Firm does business. Each of these inter-related factors will affect the performance of the Firm and its lines of business. The Firm expects it will continue to make appropriate adjustments to its businesses and operations in response to ongoing developments in the legal and regulatory, as well as business and economic, environment in which it operates.
In the first quarter of 2016,2017, management expects net interest income and net interest margin to be relatively flat whenincrease modestly compared with the fourth quarter of 2015.2016. During 2016, if there are2017, assuming no changeschange in interest rates since December 31, 2016, management expects net interest income could be approximately $2$3 billion higher than in 2015,2016, reflecting the Federal Reserve’s rate increase in December 20152016 and expected loan growth.
Management expects average core loan growth of approximately 10%-15% in 2016 as well as continued growth in retail deposits which are anticipated to lead to the Firm’s balance sheet growing to approximately $2.45 trillion in 2016.
Management also expects managed noninterest revenue of approximately $50 billion in 2016, a decrease from 2015, primarily driven by lower Card revenue reflecting renegotiated co-brand partnership agreements and lower revenue in Mortgage Banking.2017.
The Firm continues to experience charge-offscharge-off rates at or near historically low levels, lower than its through-the-cycle expectations reflecting favorable credit trends across the consumer and wholesale portfolios, excluding Oil & Gas.portfolios. Management expects total net charge-offs of up to approximately $4.75$5 billion in 2016. Based on2017. In Card, management expects the changesportfolio average net charge-off rate to increase in market expectations2017, but remain below 3.00%, reflecting continued loan growth and the seasoning of newer vintages, with quarterly net-charge offs reflecting normal seasonal trends.
Management believes that the consumer allowance for oil prices since year-end 2015, management believes reserves during the first quarter of 2016credit losses could increase by approximately $500$300 million in 2017, reflecting growth across businesses, offset by reductions in the allowance for the residential real estate portfolio. Excluding the allowance related to the Oil & Gas and by approximately $100 million forNatural Gas Pipelines and Metals & Mining.Mining portfolios, management expects that the wholesale allowance for credit losses could increase modestly in 2017 reflecting growth across businesses. Continued stability in the energy sector could result in a reduction in the allowance for credit losses in future periods. As management continually looks to enhance its credit loss estimation methodologies, the outlook for the allowance for credit losses does not take into consideration any such potential refinements.
|
| | |
| 38 | | JPMorgan Chase & Co./2016 Annual Report |
The Firm continues to take a disciplined approach to managing its expenses, while investing in growth and innovation. The Firm intends to leverage its scale and improve its operating efficiencies, in order to reinvest its expense savings in additional technology and marketing investments and fund other growth initiatives. As a result, Firmwide adjusted expense in 20162017 is expected to be approximately $56$58 billion (excluding Firmwide legal expense).
Additionally, the Firm will continue to adapt its capital assessment framework to review businesses and client relationships against multiple binding constraints, including GSIB and other applicable capital requirements, imposing internal limits on business activities to align or optimize the Firm’s balance sheet and risk-weighted assets (“RWA”) with regulatory requirements in order to ensure that business activities generate appropriate levels of shareholder value.
During 2016, the Firm expects the CET1 capital ratio calculated under the Basel III Standardized Approach to become its binding constraint. As a result of the anticipated growth in the balance sheet, management anticipates that the Firm will have, over time, $1.55 trillion in Standardized risk weighted assets, and is expecting that, over the next several years, its Basel III CET1 capital ratio will be between 11% and 12.5%. In the longer term, management expects to maintain a minimum Basel III CET1 ratio of 11%. It is the Firm’s current intention that the Firm’s capital ratios continue to exceed regulatory minimums as they are fully implemented in 2019 and thereafter. Likewise, the Firm will be evolving its funding framework to ensure it meets the current and proposed more stringent regulatory liquidity rules, including those relating to the availability of adequate Total Loss Absorbing Capacity (“TLAC”).
In Mortgage Banking within CCB, management expects Mortgage noninterest revenue to decline bydecrease approximately $700 million in 2017, driven by margin compression in a smaller mortgage market and continued run-off of the Servicing portfolio, as well as approximately $200 million of MSR gains in 2016 as servicing balances continuewhich are not expected to decline from year-end 2015 levels. Therecur in 2017. Management expects Card net charge-off rateServices noninterest revenue to decrease approximately $600 million in 2017, reflecting the amortization of premiums on strong new product originations and the absence in 2017 of a gain on the sale of Visa Europe interests in 2016, although total Card Services revenue is expected to beincrease due to strong growth in net interest income.
In the first quarter of 2017, management expects CCB expense to increase by approximately 2.5% in 2016.$150 million, compared to the prior quarter.
In CIB, management expects Investment Banking revenue in the first quarter of 20162017 is expected to be approximately 25% lower thanin line with the prior year firstfourth quarter driven by current market conditions inof 2016, dependent on the underwriting businesses. In addition, Marketstiming of the closing of a number of transactions. Treasury Services revenue is expected to datebe approximately $950 million in the first quarter of 2016 is down approximately 20%, when2017. In addition, management currently expects Markets revenue in the first quarter of 2017 to increase modestly compared to a particularly strong period in the prior year and reflecting the current challenging market conditions. Prior year Markets revenue was positively impacted by macroeconomic events, including the Swiss franc decoupling from the Euro. Actual Markets revenuequarter, with results for the first quarter will continuesensitive to be affected by market conditions which can be volatile.in March in light of particularly strong revenue in March 2016. In Securities Services, management expects revenue of approximately $875$900 million in the first quarter of 2016.2017.
In CB, management expects expense of approximately $775 million in the first quarter of 2017.
In AWM, management expects revenue to be approximately $3 billion in the first quarter of 2017.
|
| | |
JPMorgan Chase & Co./20152016 Annual Report | | 7139 |
Management’s discussion and analysis
|
| | | | |
| CONSOLIDATED RESULTS OF OPERATIONS |
The followingThis section of the MD&A provides a comparative discussion of JPMorgan Chase’s Consolidated Results of Operations on a reported basis for the three-year period ended December 31, 2015.2016, unless otherwise specified. Factors that relate primarily to a single business segment are discussed in more detail within that business segment. For a discussion of the Critical Accounting Estimates Used by the Firm that affect the Consolidated Results of Operations, see pages 165–169.132–134.
| | | Revenue | | | | | | | | | | |
| Year ended December 31, | | | | | | |
| (in millions) | 2015 |
| | 2014 |
| | 2013 |
| |
Year ended December 31, (in millions) | | | | | | |
| 2016 |
| | 2015 |
| | 2014 |
|
| Investment banking fees | $ | 6,751 |
| | $ | 6,542 |
| | $ | 6,354 |
| $ | 6,448 |
| | $ | 6,751 |
| | $ | 6,542 |
|
Principal transactions | 10,408 |
| | 10,531 |
| | 10,141 |
| 11,566 |
| | 10,408 |
| | 10,531 |
|
| Lending- and deposit-related fees | 5,694 |
| | 5,801 |
| | 5,945 |
| 5,774 |
| | 5,694 |
| | 5,801 |
|
| Asset management, administration and commissions | 15,509 |
| | 15,931 |
| | 15,106 |
| 14,591 |
| | 15,509 |
| | 15,931 |
|
| Securities gains | 202 |
| | 77 |
| | 667 |
| 141 |
| | 202 |
| | 77 |
|
| Mortgage fees and related income | 2,513 |
| | 3,563 |
| | 5,205 |
| 2,491 |
| | 2,513 |
| | 3,563 |
|
| Card income | 5,924 |
| | 6,020 |
| | 6,022 |
| 4,779 |
| | 5,924 |
| | 6,020 |
|
Other income(a)(b) | 3,032 |
| | 3,013 |
| | 4,608 |
| 3,795 |
| | 3,032 |
| | 3,013 |
|
| Noninterest revenue | 50,033 |
| | 51,478 |
| | 54,048 |
| 49,585 |
| | 50,033 |
| | 51,478 |
|
| Net interest income | 43,510 |
| | 43,634 |
| | 43,319 |
| 46,083 |
| | 43,510 |
| | 43,634 |
|
| Total net revenue | $ | 93,543 |
| | $ | 95,112 |
| | $ | 97,367 |
| $ | 95,668 |
| | $ | 93,543 |
| | $ | 95,112 |
|
| |
| (a) | Effective January 1, 2016, changes in DVA on fair value option elected liabilities previously recorded in principal transactions revenue are recorded in other comprehensive income (“OCI”). For additional information, see the segment results of CIB and Accounting and Reporting Developments on pages 58–62 and page 135, respectively. |
| |
| (b) | Included operating lease income of $2.7 billion, $2.1 billion $1.7 billion and $1.5$1.7 billion for the years ended December 31, 2016, 2015 2014 and 2013,2014, respectively. |
2016 compared with 2015
Total net revenue increased by 2% primarily reflecting higher net interest income across all the Firm’s business segments and higher Markets noninterest revenue in CIB, partially offset by lower card income in CCB and lower asset management fees in AWM.
Investment banking fees decreased predominantly due to lower equity underwriting fees driven by declines in industry-wide fee levels. For additional information on investment banking fees, see CIB segment results on pages 58–62 and Note 7.
Principal transactions revenue increased reflecting broad-based strength across products in CIB’s Fixed Income Markets business. Rates performance was strong, with increased client activity driven by high issuance-based flows, global political developments, and central bank actions. Credit revenue improved driven by higher market-making revenue from the secondary market as clients’ appetite for risk recovered. For additional information, see CIB and Corporate segment results on pages 58–62 and pages 69–70, respectively, and Note 7.
Asset management, administration and commissions revenue decreased reflecting lower asset management fees in AWM driven by a reduction in revenue related to the disposal of assets at the beginning of 2016, the impact of lower average equity market levels and lower performance
fees, as well as due to lower brokerage commissions and other fees in CIB and AWM. For additional information, see the segment discussions of CIB and AWM on pages 58–62 and pages 66–68, respectively, and Note 7.
For information on lending- and deposit-related fees, see the segment results for CCB on pages 53–57, CIB on pages 58–62, and CB on pages 63–65 and Note 7; on securities gains, see the Corporate segment discussion on pages 69–70.
Mortgage fees and related income were relatively flat, as lower mortgage servicing revenue related to lower average third-party loans serviced was predominantly offset by higher MSR risk management results. For further information on mortgage fees and related income, see the segment discussion of CCB on pages 53–57 and Notes 7 and 17.
Card income decreased predominantly driven by higher new account origination costs and the impact of renegotiated co-brand partnership agreements, partially offset by higher card sales volume and other card-related fees. For further information, see CCB segment results on pages 53–57 and Note 7.
Other income increased primarily reflecting:
| |
| ▪ | higher operating lease income from growth in auto operating lease assets in CCB |
| |
| ▪ | a gain on the sale of Visa Europe interests in CCB |
| |
| ▪ | a gain related to the redemption of guaranteed capital debt securities (“trust preferred securities”) |
| |
| ▪ | the absence of losses recognized in 2015 related to the accelerated amortization of cash flow hedges associated with the exit of certain non-operating deposits |
| |
| ▪ | a gain on disposal of an asset in AWM at the beginning of 2016 |
partially offset by
| |
| ▪ | a $514 million benefit recorded in the prior year from a legal settlement in Corporate. |
For further information on other income, see Note 7.
Net interest income increased primarily driven by loan growth across the businesses and the net impact of higher rates, partially offset by lower investment securities balances and higher interest expense on long-term debt. The Firm’s average interest-earning assets were $2.1 trillion in 2016, and the net interest yield on these assets, on a fully taxable equivalent (“FTE”) basis, was 2.25%, an increase of 11 basis points from the prior year.
2015 compared with 2014
Total net revenue for 2015 was down by 2% compared with the prior year,, predominantly driven by lower Corporate private equity gains, lower CIB revenue reflecting the impact of business simplification initiatives, and lower CCB Mortgage Banking revenue. These decreases were partially offset by a benefit from a legal settlement in Corporate, and higher operating lease income, predominantly in CCB.
|
| | |
| 40 | | JPMorgan Chase & Co./2016 Annual Report |
Investment banking fees increased from the prior year, reflecting higher advisory fees, partially offset by lower equity and debt underwriting fees. The increase in advisory fees was driven by a greater share of fees for completed transactions as well as growth in industry-wide fee levels. The decrease in equity underwriting fees resulted from lower industry-wide issuance, and the decrease in debt underwriting fees resulted primarily from lower loan syndication and bond underwriting fees on lower industry-wide fee levels. For additional information on investment banking fees, see CIB segment results on pages 94–98 and Note 7.
Principal transactions revenue decreased from the prior year, reflecting lower private equity gains in Corporate driven by lower valuation gains and lower net gains on sales as the Firm exits this non-core business. The decrease was partially offset by higher client-driven market-making revenue, particularly in foreign exchange, interest rate and
equity-related products in CIB, as well as a gain of approximately $160 million on CCB’s investment in Square, Inc. upon its initial public offering. For additional information, see CIB and Corporate segment results on pages 94–98 and pages 105–106, respectively, and Note 7.
Asset management, administration and commissions revenue decreased compared with the prior year, largely as a result of lower fees in CIB and lower performance fees in AM.AWM. The decrease was partially offset by higher asset management fees as a result of net client inflows into assets under management and the impact of higher average market levels in AMAWM and CCB. For additional information, see the segment discussions of CIB and AM on pages 94–98 and pages 102–104, respectively, and Note 7.
Mortgage fees and related income decreased compared with the prior year, reflecting lower servicing revenue, largely as a result of lower average third-party loans serviced, and lower net production revenue reflecting a lower repurchase benefit. For further information on mortgage fees and related income, see the segment discussion of CCB on pages 85–93 and Notes 7 and 17.
For information on lending- and deposit-related fees, see the segment results for CCB on pages 85–93,53–57, CIB on pages 94–98,58–62, and CB on pages 99–10163–65 and Note 7; on securities gains, see the Corporate segment discussion on pages 105–106;69–70; and card income, see CCB segment results on pages 85–93.53–57.
Other income was relatively flat compared with the prior year, reflecting a $514 million benefit from a legal settlement in Corporate, higher operating lease income as a result of growth in auto operating lease assets in CCB, and the absence of losses related to the exit of non-core portfolios in Card. These increases were offset by the impact of business simplification in CIB; the absence of a benefit recognized in 2014 from a franchise tax settlement; and losses related to the accelerated amortization of cash flow hedges associated with the exit of certain non-operating deposits.
Net interest income was relatively flat compared with the prior year, as lower loan yields, lower investment securities net interest income, and lower trading asset balance and yields were offset by higher average loan balances and lower interest expense on deposits. The Firm’s average interest-earning assets were $2.1 trillion in 2015, and the net interest yield on these assets, on a fully taxable-equivalent (“FTE”)FTE basis, was 2.14%, a decrease of 4 basis points from the prior year.
2014
|
| | | | | | | | | | | |
| Provision for credit losses | | | | |
| Year ended December 31, | | | | | |
| (in millions) | 2016 |
| | 2015 |
| | 2014 |
|
| Consumer, excluding credit card | $ | 467 |
| | $ | (81 | ) | | $ | 419 |
|
| Credit card | 4,042 |
| | 3,122 |
| | 3,079 |
|
| Total consumer | 4,509 |
| | 3,041 |
| | 3,498 |
|
| Wholesale | 852 |
| | 786 |
| | (359 | ) |
| Total provision for credit losses | $ | 5,361 |
| | $ | 3,827 |
| | $ | 3,139 |
|
2016 compared with 20132015
Total net revenueThe provision for 2014 was down by 2% compared withcredit losses reflected an increase in the prior year, predominantly duetotal consumer provision and, to lower mortgage fees and related income and lower other income. The decrease was partially offset by higher asset management, administration and commissions revenue.
Investment banking fees increased compared witha lesser extent, the prior year, due to higher advisory and equity underwriting fees, largely offset by lower debt underwriting fees.wholesale provision. The increase in the total consumer provision was predominantly driven by:
|
| | |
72▪ | | JPMorgan Chase & Co./2015 Annual Reporta $920 million increase related to the credit card portfolio, due to a $600 million addition in the allowance for loan losses, as well as $320 million of higher net charge-offs, driven by loan growth (including growth in newer vintages which, as anticipated, have higher loss rates compared to the overall portfolio), and |
| |
| ▪ | a $470 million lower benefit related to the residential real estate portfolio, as the current year reduction in the allowance for loan losses was lower than the prior year. The reduction in both periods reflected continued improvements in home prices and lower delinquencies. |
The increase in advisory feesthe wholesale provision was largely driven by the combined impact of downgrades in the Oil & Gas and Natural Gas Pipelines portfolios. For a greater share of fees for completed transactions, and growth in industry-wide fees. The increase in equity underwriting fees was driven by higher industry-wide issuance. The decrease in debt underwriting fees was primarily related to lower bond underwriting fees compared with the prior year, and lower loan syndication fees on lower industry-wide fees.
Principal transactions revenue increased as the prior year included a $1.5 billion loss related to the implementationmore detailed discussion of the funding valuation adjustment (“FVA”) framework for over-the-counter (“OTC”) derivatives and structured notes. Private equity gains increased as a result of higher net gains on sales. These increases were partially offset by lower fixed income markets revenue in CIB, primarily driven by credit-related and rates products, as well as the impact of business simplification initiatives.
Lending- and deposit-related fees decreased compared
with the prior year, reflecting the impact of business simplification initiatives and lower trade finance revenue
in CIB.
Asset management, administration and commissions revenue increased compared with the prior year, reflecting higher asset management fees driven by net client inflows and higher market levels in AM and CCB. The increase was offset partially by lower commissions and other fee revenue in CCB as a result of the exit of a non-core product in 2013.
Securities gains decreased compared with the prior year, reflecting lower repositioning activity related to the Firm’s investment securities portfolio.
Mortgage fees and related income decreased compared with the prior year, predominantly due to lower net production revenue driven by lower volumes due to higher mortgage interest rates, and tighter margins. The decline in net production revenue was partially offset by a lower loss on the risk management of mortgage servicing rights (“MSRs”).
Card income was relatively flat compared with the prior year, but included higher net interchange income due to growth in credit and debit card sales volume, offset by higher amortization of new account origination costs.
Other income decreased from the prior year, predominantly from the absence of two significant items recorded in Corporate in 2013: gains of $1.3 billion and $493 million from sales of Visa shares and One Chase Manhattan Plaza, respectively. Lower valuations of seed capital investments in AM and losses related to the exit of non-core portfolios in Card also contributed to the decrease. These items were partially offset by higher auto lease income as a result of growth in auto lease volume, and a benefit from a tax settlement.
Net interest income increased slightly from the prior year, predominantly reflecting higher yields on investment securities, the impact of lower interest expense from lower rates, and higher average loan balances. The increase was partially offset by lower yields on loans due to the run-off of higher-yielding loans and new originations of lower-yielding loans, and lower average interest-earning trading asset balances. The Firm’s average interest-earning assets were $2.0 trillion,portfolio and the net interest yieldallowance for credit losses, see the segment discussions of CCB on these assets,pages 53–57, CIB on a FTE basis, was 2.18%pages 58–62 , a decrease of 5 basis points fromCB on pages 63–65, the prior year.Allowance For Credit Losses on pages 105–107 and Note 15.
|
| | | | | | | | | | | |
| Provision for credit losses | | | | |
| Year ended December 31, | | | | | |
| (in millions) | 2015 |
| | 2014 |
| | 2013 |
|
| Consumer, excluding credit card | $ | (81 | ) | | $ | 419 |
| | $ | (1,871 | ) |
| Credit card | 3,122 |
| | 3,079 |
| | 2,179 |
|
| Total consumer | 3,041 |
| | 3,498 |
| | 308 |
|
| Wholesale | 786 |
| | (359 | ) | | (83 | ) |
| Total provision for credit losses | $ | 3,827 |
| | $ | 3,139 |
| | $ | 225 |
|
2015 compared with 20142014
The provision for credit losses increased from the prior year as a result of an increase in the wholesale provision, largely reflecting the impact of downgrades in the Oil & Gas portfolio. The increase was partially offset by a decrease in the consumer provision, reflecting lower net charge-offs due to continued discipline in credit underwriting, as well as improvement in the economy driven by increasing home prices and lower unemployment levels. The increasedecrease in the consumer provision was partially offset by a lower reduction in the allowance for loan losses. For a more detailed discussion of the credit portfolio and the allowance for credit losses, see the segment discussions of CCB on pages 85–93, CB on pages 99–101, and the Allowance For Credit Losses on pages 130–132.
2014 compared with 2013
The provision for credit losses increased by $2.9 billion from the prior year as result of a lower benefit from reductions in the consumer allowance for loan losses, partially offset by lower net charge-offs. The consumer allowance reduction in 2014 was primarily related to the consumer, excluding credit card, portfolio and reflected the continued improvement in home prices and delinquencies in the residential real estate portfolio. The wholesale provision reflected a continued favorable credit environment.
|
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JPMorgan Chase & Co./20152016 Annual Report | | 7341 |
Management’s discussion and analysis
| | | Noninterest expense | Noninterest expense | | | | | Noninterest expense | | | | |
| Year ended December 31, | | |
| (in millions) | 2015 |
| | 2014 |
| | 2013 |
| 2016 |
| | 2015 |
| | 2014 |
|
| Compensation expense | $ | 29,750 |
| | $ | 30,160 |
| | $ | 30,810 |
| $ | 29,979 |
| | $ | 29,750 |
| | $ | 30,160 |
|
| Noncompensation expense: | | | | | | | | | | |
| Occupancy | 3,768 |
| | 3,909 |
| | 3,693 |
| 3,638 |
| | 3,768 |
| | 3,909 |
|
| Technology, communications and equipment | 6,193 |
| | 5,804 |
| | 5,425 |
| 6,846 |
| | 6,193 |
| | 5,804 |
|
| Professional and outside services | 7,002 |
| | 7,705 |
| | 7,641 |
| 6,655 |
| | 7,002 |
| | 7,705 |
|
| Marketing | 2,708 |
| | 2,550 |
| | 2,500 |
| 2,897 |
| | 2,708 |
| | 2,550 |
|
Other(a)(b) | 9,593 |
| | 11,146 |
| | 20,398 |
| 5,756 |
| | 9,593 |
| | 11,146 |
|
| Total noncompensation expense | 29,264 |
| | 31,114 |
| | 39,657 |
| 25,792 |
| | 29,264 |
| | 31,114 |
|
| Total noninterest expense | $ | 59,014 |
| | $ | 61,274 |
| | $ | 70,467 |
| $ | 55,771 |
| | $ | 59,014 |
| | $ | 61,274 |
|
| |
| (a) | Included legal (benefit)/expense of $3.0 billion$(317) million, $2.93.0 billion and $11.1$2.9 billion for the years ended December 31, 2016, 2015 2014 and 2013,2014, respectively. |
| |
| (b) | Included Federal Deposit Insurance Corporation (“FDIC”)-relatedFDIC-related expense of $1.3 billion, $1.2 billion $1.0 billion and $1.5$1.0 billion for the years ended December 31, 2016, 2015 2014 and 2013,2014, respectively. |
2016 compared with 2015
Total noninterest expense decreased by 5% driven by lower legal expense.
Compensation expense was relatively flat predominantly driven by higher performance-based compensation expense and investments in several businesses, offset by the impact of continued expense reduction initiatives, including lower headcount in certain businesses.
Noncompensation expense decreased as a result of lower legal expense (including lower legal professional services expense), the impact of efficiencies, and reduced non-U.S. tax surcharges. These factors were partially offset by higher depreciation expense from growth in auto operating lease assets and higher investments in marketing. For a further discussion of legal expense, see Note 31.
2015 compared with 2014
Total noninterest expense decreased by 4% from the prior year, as a result of lower CIB expense, predominantly reflecting the impact of business simplification; and lower CCB expense resulting from efficiencies related to declines in headcount-related expense and lower professional fees. These decreases were partially offset by investment in the businesses, including for infrastructure and controls.
Compensation expense decreased compared with the prior year, predominantly driven by lower performance-based incentives and reduced headcount, partially offset by higher postretirement benefit costs and investment in the businesses, including for infrastructure and controls.
Noncompensation expense decreased from the prior year, reflecting benefits from business simplification in CIB; lower professional and outside services expense, reflecting lower legal services expense and a reduced number of contractors in the businesses; lower amortization of intangibles; and the absence of a goodwill impairment in Corporate. These factors were partially offset by higher depreciation expense, largely associated with higher auto operating lease assets in CCB; higher marketing expense in CCB; and higher FDIC-related assessments. Legal expense was relatively flat compared with the prior year. For a further discussion of legal expense, see Note 31.
|
| | | | | | | | | | | |
| Income tax expense | | | | | |
Year ended December 31, (in millions, except rate) | | | | | |
| 2016 | | 2015 | | 2014 |
| Income before income tax expense | $ | 34,536 |
| | $ | 30,702 |
| | $ | 30,699 |
|
| Income tax expense | 9,803 |
| | 6,260 |
| | 8,954 |
|
| Effective tax rate | 28.4 | % | | 20.4 | % | | 29.2 | % |
20142016 compared with 20132015
Total noninterestThe effective tax rate in 2016 was affected by changes in the mix of income and expense decreasedsubject to U.S. federal and state and local taxes, tax benefits related to the utilization of certain deferred tax assets, as well as the adoption of new accounting guidance related to employee stock-based incentive payments. These tax benefits were partially offset by $9.2 billion, or 13%,higher income tax expense from the prior year, as a result oftax audits. The lower other expense (in particular, legal expense) and lower compensation expense.
Compensation expense decreased compared with the prior year,effective tax rate in 2015 was predominantly driven by lower headcount$2.9 billion of tax benefits, which reduced the Firm’s effective tax rate by 9.4 percentage points. The recognition of tax benefits in CCB Mortgage Banking, lower performance-based compensation expense in CIB, and lower postretirement benefit costs. The decrease was partially offset by investments in2015 resulted from the businesses, including headcount for controls.
Noncompensation expense decreased comparedresolution of various tax audits, as well as the release of U.S. deferred taxes associated with the prior year, due to lower other expense, predominantly reflecting lower legal expense. Lower expenserestructuring of certain non-U.S. entities. For additional details on the impact of the new accounting guidance, see Accounting and Reporting Developments on page 135 and for foreclosure-related matters and production and servicing-related expense in CCB Mortgage Banking, lower FDIC-related assessments, and lower amortization due to certain fully amortized intangibles, also contributed to the decline. The decrease was offset partially by investments in the businesses, including for controls, and costs related to business simplification initiatives across the Firm. |
| | | | | | | | | | | |
| Income tax expense | | | | | |
Year ended December 31, (in millions, except rate) | | | | | |
| 2015 | | 2014 | | 2013 |
| Income before income tax expense | $ | 30,702 |
| | $ | 30,699 |
| | $ | 26,675 |
|
| Income tax expense | 6,260 |
| | 8,954 |
| | 8,789 |
|
| Effective tax rate | 20.4 | % | | 29.2 | % | | 32.9 | % |
2015 compared with 2014
The effective tax rate decreased compared with the prior year, predominantly due to the recognition in 2015 of tax benefits of $2.9 billion and other changes in the mix of income and expense subject to U.S. federal, state and local income taxes, partially offset by prior-year tax adjustments. The recognitionSee above for details on the $2.9 billion of tax benefits in 2015 was due to the resolution of various tax audits, as well as the release of U.S. deferred taxes associated with the restructuring of certain non-U.S. entities. For further information seebenefits.
Note 26.
2014 compared with 2013
The decrease in the effective tax rate from the prior year was largely attributable to the effect of the lower level of nondeductible legal-related penalties, partially offset by higher 2014 pretax income in combination with changes in the mix of income and expense subject to U.S. federal, state and local income taxes, and lower tax benefits associated with tax adjustments and the settlement of tax audits.
|
| | |
7442 | | JPMorgan Chase & Co./20152016 Annual Report |
|
| | | | |
| CONSOLIDATED BALANCE SHEETS ANALYSIS |
|
| | | | | | | | |
| Selected Consolidated balance sheets data | |
| December 31, (in millions) | 2015 | 2014 | Change |
| Assets | | | |
| Cash and due from banks | $ | 20,490 |
| $ | 27,831 |
| (26 | )% |
| Deposits with banks | 340,015 |
| 484,477 |
| (30 | ) |
| Federal funds sold and securities purchased under resale agreements | 212,575 |
| 215,803 |
| (1 | ) |
| Securities borrowed | 98,721 |
| 110,435 |
| (11 | ) |
| Trading assets: | | | |
| Debt and equity instruments | 284,162 |
| 320,013 |
| (11 | ) |
| Derivative receivables | 59,677 |
| 78,975 |
| (24 | ) |
| Securities | 290,827 |
| 348,004 |
| (16 | ) |
| Loans | 837,299 |
| 757,336 |
| 11 |
|
| Allowance for loan losses | (13,555 | ) | (14,185 | ) | (4 | ) |
| Loans, net of allowance for loan losses | 823,744 |
| 743,151 |
| 11 |
|
| Accrued interest and accounts receivable | 46,605 |
| 70,079 |
| (33 | ) |
| Premises and equipment | 14,362 |
| 15,133 |
| (5 | ) |
| Goodwill | 47,325 |
| 47,647 |
| (1 | ) |
| Mortgage servicing rights | 6,608 |
| 7,436 |
| (11 | ) |
| Other intangible assets | 1,015 |
| 1,192 |
| (15 | ) |
| Other assets | 105,572 |
| 102,098 |
| 3 |
|
| Total assets | $ | 2,351,698 |
| $ | 2,572,274 |
| (9 | )% |
| | | | |
| Liabilities | | | |
| Deposits | $ | 1,279,715 |
| $ | 1,363,427 |
| (6 | ) |
| Federal funds purchased and securities loaned or sold under repurchase agreements | 152,678 |
| 192,101 |
| (21 | ) |
| Commercial paper | 15,562 |
| 66,344 |
| (77 | ) |
| Other borrowed funds | 21,105 |
| 30,222 |
| (30 | ) |
| Trading liabilities: | | | |
| Debt and equity instruments | 74,107 |
| 81,699 |
| (9 | ) |
| Derivative payables | 52,790 |
| 71,116 |
| (26 | ) |
| Accounts payable and other liabilities | 177,638 |
| 206,939 |
| (14 | ) |
| Beneficial interests issued by consolidated variable interest entities (“VIEs”) | 41,879 |
| 52,320 |
| (20 | ) |
| Long-term debt | 288,651 |
| 276,379 |
| 4 |
|
| Total liabilities | 2,104,125 |
| 2,340,547 |
| (10 | ) |
| Stockholders’ equity | 247,573 |
| 231,727 |
| 7 |
|
| Total liabilities and stockholders’ equity | $ | 2,351,698 |
| $ | 2,572,274 |
| (9 | )% |
The following is a discussion of the significant changes between December 31, 20152016 and 2014.2015.
|
| | | | | | | | | |
| Selected Consolidated balance sheets data | |
| December 31, (in millions) | 2016 | | 2015 | Change |
| Assets | | | | |
| Cash and due from banks | $ | 23,873 |
| | $ | 20,490 |
| 17 | % |
| Deposits with banks | 365,762 |
| | 340,015 |
| 8 |
|
| Federal funds sold and securities purchased under resale agreements | 229,967 |
| | 212,575 |
| 8 |
|
| Securities borrowed | 96,409 |
| | 98,721 |
| (2 | ) |
| Trading assets: | | | | |
| Debt and equity instruments | 308,052 |
| | 284,162 |
| 8 |
|
| Derivative receivables | 64,078 |
| | 59,677 |
| 7 |
|
| Securities | 289,059 |
| | 290,827 |
| (1 | ) |
| Loans | 894,765 |
| | 837,299 |
| 7 |
|
| Allowance for loan losses | (13,776 | ) | | (13,555 | ) | 2 |
|
| Loans, net of allowance for loan losses | 880,989 |
| | 823,744 |
| 7 |
|
| Accrued interest and accounts receivable | 52,330 |
| | 46,605 |
| 12 |
|
| Premises and equipment | 14,131 |
| | 14,362 |
| (2 | ) |
| Goodwill | 47,288 |
| | 47,325 |
| — |
|
| Mortgage servicing rights | 6,096 |
| | 6,608 |
| (8 | ) |
| Other intangible assets | 862 |
| | 1,015 |
| (15 | ) |
| Other assets | 112,076 |
| | 105,572 |
| 6 |
|
| Total assets | $ | 2,490,972 |
| | $ | 2,351,698 |
| 6 | % |
Cash and due from banks and deposits with banks
The increase was primarily driven by deposit growth in excess of loan growth. The Firm’s excess cash is placed with various central banks, predominantly Federal Reserve Banks.
Federal funds sold and securities purchased under resale agreements
The net decrease in cash and due from banks and deposits with banksincrease was primarily due to the Firm’s actions to reduce wholesale non-operating deposits.
Securities borrowed
The decrease was largely driven by a lowerhigher demand for securities to cover short positions related to client-driven market-making activities in CIB.CIB, and the deployment of excess cash by Treasury and Chief Investment Office (“CIO”). For additional information refer to Notes 3 and 13.on the Firm’s Liquidity Risk Management, see pages 110–115.
Trading assets and liabilities–debt and equity instruments
The decreaseincrease in trading assets and liabilities was predominantly related to client-driven market-making activities in CIB, which resultedCIB. The increase in lowertrading assets reflected higher debt and, to a lesser extent, equity instrument inventory levels to facilitate client demand. The increase in trading liabilities reflected higher levels of client-driven short positions in both debt and equity instruments. For additional information, refer to Note 3.
Trading assets and liabilities–derivative receivables and payables
The decreasechange in bothderivative receivables and payables was predominantly driven by declines in interest rate derivatives, commodity derivatives, foreign exchange derivatives and equity derivatives due to market movements, maturities and settlements related to client-driven market-making activities in CIB. The increase in derivative receivables reflected the impact of market movements, which increased foreign exchange receivables, partially offset by reduced commodity derivative receivables. The decrease in derivative payables reflected the impact of market
movements, which reduced commodity payables. For additional information, refer to Derivative contracts on pages 127–129,102–103, and Notes 3 and 6.
Securities
The decrease was largelypredominantly due to net sales, maturities and paydowns and salesduring the year of
non-U.S. residential non-agency mortgage-backed securities non-U.S. government(“MBS”), corporate debt securities and non-U.S. corporate debtasset-backed securities reflecting a shift to loans.(“ABS”), offset by purchases of U.S. Treasuries. For additional information, related to securities, refer to the discussion
in the Corporate segment on pages 105–106, andsee Notes 3
and 12.
Loans and allowance for loan losses
The increase in loans was attributable to andriven by higher consumer and wholesale loans. The increase in consumer loans was due to higher originations and retention of originated high-quality prime mortgages in Mortgage Banking (“MB”)CCB and AM,AWM, and higher originations ofgrowth in credit card and auto loans in CCB, as well as anCCB. The increase in wholesale loans was predominantly driven by increased client activity, notably inoriginations of commercial real estate.estate loans in CB and commercial and industrial loans across multiple industries in CB and CIB.
The decreaseincrease in the allowance for loan losses was attributable to a loweradditions to the wholesale allowance driven by downgrades in the Oil & Gas and Natural Gas Pipelines portfolios. The consumer excluding credit card,allowance was flat from the prior year and reflected reductions in the allowance for loan losses driven by a reduction in the residential real estate portfolio allowance as a result ofreflecting continued improvement in home prices and delinquencies, and increased granularitydue to runoff in the impairment estimates. The wholesalestudent loan portfolio; these factors were offset by additions to the allowance increased, largely reflecting the impact of downgradesloan growth in the Oil & Gas portfolio.credit card portfolio (including newer vintages which, as anticipated, have higher loss rates compared to the overall portfolio), as well as due
|
| | |
| JPMorgan Chase & Co./2016 Annual Report | | 43 |
Management’s discussion and analysis
to loan growth in the auto and business banking loan portfolios. For a more detailed discussion of loans and the allowance for loan losses, refer to Credit Risk Management on pages 112–132,86–107, and Notes 3, 4, 14 and 15.
|
| | |
JPMorgan Chase & Co./2015 Annual Report | | 75 |
Management’s discussion and analysis
Accrued interest and accounts receivable
The decrease was due to lower customerincrease reflected higher receivables from merchants in CCB and higher client receivables related to clientclient-driven activity in CIB, and a reduction in unsettled securities transactions.CIB.
Mortgage servicing rights
For additional information on MSRs, see Note 17.
Other assets
Other assets increased modestly as a result of anThe increase in income tax receivables, largely associated with the resolution of certain tax audits, andreflected higher auto operating lease assets from growth in business volume. These factors were mostly offset by lower private equity investments driven by the sale of a portion of the Private Equity businessvolume in CCB and other portfolio sales.higher cash collateral pledged in CIB.
|
| | | | | | | | | |
| Selected Consolidated balance sheets data | |
| December 31, (in millions) | 2016 | | 2015 | Change |
| Liabilities | | | | |
| Deposits | $ | 1,375,179 |
| | $ | 1,279,715 |
| 7 |
|
| Federal funds purchased and securities loaned or sold under repurchase agreements | 165,666 |
| | 152,678 |
| 9 |
|
| Commercial paper | 11,738 |
| | 15,562 |
| (25 | ) |
| Other borrowed funds | 22,705 |
| | 21,105 |
| 8 |
|
| Trading liabilities: | | | | |
| Debt and equity instruments | 87,428 |
| | 74,107 |
| 18 |
|
| Derivative payables | 49,231 |
| | 52,790 |
| (7 | ) |
| Accounts payable and other liabilities | 190,543 |
| | 177,638 |
| 7 |
|
| Beneficial interests issued by consolidated variable interest entities (“VIEs”) | 39,047 |
| | 41,879 |
| (7 | ) |
| Long-term debt | 295,245 |
| | 288,651 |
| 2 |
|
| Total liabilities | 2,236,782 |
| | 2,104,125 |
| 6 |
|
| Stockholders’ equity | 254,190 |
| | 247,573 |
| 3 |
|
| Total liabilities and stockholders’ equity | $ | 2,490,972 |
| | $ | 2,351,698 |
| 6 | % |
Deposits
The decreaseincrease was attributable to lower wholesale deposits, partially offset by higher consumer and wholesale deposits. The decrease in wholesale depositsconsumer increase reflected continuing strong growth from existing and new customers, and the impact of low attrition rates. The wholesale increase was driven by growth in operating deposits related to client activity in CIB’s Treasury Services business, and inflows in AWM primarily from business growth and the Firm’s actions to reduce non-operating deposits. The increase in consumer deposits reflected continuing positive growth from strong customer retention.impact of new rules governing money market funds. For more information on deposits, refer to the Liquidity Risk Management discussion on pages 159–164;110–115; and Notes 3
and 19.
Federal funds purchased and securities loaned or sold under repurchase agreements
The decreaseincrease was predominantly due to a declinehigher client-driven market-making activities in secured financing of trading assets-debt and equity instruments in CIB and of investment securities in the Chief Investment Office (“CIO”).CIB. For additional information on the Firm’s Liquidity Risk Management, see pages 159–164.110–115.
Commercial paper
The decrease was associated with the discontinuation of a cash management product that offered customers the option of sweeping their deposits into commercial paper (“customer sweeps”), andreflected lower issuancesissuance in the wholesale markets consistent with Treasury’sTreasury and CIO’s short-term funding plans. For additional information, see Liquidity Risk Management on pages 159–164.110–115.
Accounts payable and other liabilities
The decreaseincrease was due to lower brokerage customer payables related to clientlargely driven by higher client-driven activity in CIB.
Beneficial interests issued by consolidated VIEs
The decrease was predominantly due to a reduction in commercial paper issued by conduits to third parties, and to maturities of certain municipal bond vehicles in CIB, as well aspartially offset by net maturities ofnew credit card securitizations. For further information on Firm-sponsored VIEs and loan securitization trusts, see Off-Balance Sheet Arrangements on pages 77–7845–46 and Note 16.
Long-term debt
The increase was due to net issuances,issuance of structured notes driven by client demand in CIB, and other net issuance consistent with Treasury’sTreasury and CIO’s long-term funding plans.plans, including liquidity actions related to the 2016 Resolution Submission. For additional information on the Firm’s long-term debt activities, see Liquidity Risk Management on pages 159–164110–115 and Note 21.
Stockholders’ equity
The increase was due to net income and preferred stock issuances,offset partially offset by the declaration of cash dividends on common and preferred stock, and repurchases of common stock. For additional information on accumulated other comprehensive income/(loss) (“AOCI”),changes in stockholders’ equity, see Note 25; forpage 144, and on the Firm’s capital actions, see Capital Managementactions on page 157 and Notes 22, 23 and 25.84.
|
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7644 | | JPMorgan Chase & Co./20152016 Annual Report |
|
| | | | |
| OFF-BALANCE SHEET ARRANGEMENTS AND CONTRACTUAL CASH OBLIGATIONS |
In the normal course of business, the Firm enters into various contractual obligations that may require future cash payments. Certain obligations are recognized on-balance sheet, while others are off-balance sheet under accounting principles generally accepted in the U.SU.S. (“U.S. GAAP”). The Firm is involved with several types of off–balance sheet arrangements, including through nonconsolidated special-purpose entities (“SPEs”),SPEs, which are a type of VIE, and through lending-related financial instruments (e.g., commitments and guarantees).
Special-purpose entities
The most common type of VIE is an SPE. SPEs are commonly used in securitization transactions in order to isolate certain assets and distribute the cash flows from those assets to investors. SPEs are an important part of the financial markets, including the mortgage- and asset-backed securities and commercial paper markets, as they provide market liquidity by facilitating investors’ access to specific portfolios of assets and risks. SPEs may be organized as trusts, partnerships or corporations and are typically established for a single, discrete purpose. SPEs are not typically operating entities and usually have a limited life and no employees. The basic SPE structure involves a company selling assets to the SPE; the SPE funds the purchase of those assets by issuing securities to investors.
JPMorgan Chase uses SPEs as a source of liquidity for itself and its clients by securitizing financial assets, and by creating investment products for clients. The Firm is involved with SPEs through multi-seller conduits, investor intermediation activities, and loan securitizations. See Note 16 for further information on these types of SPEs.
The Firm holds capital, as deemed appropriate, against all SPE-related transactions and related exposures, such as derivative transactions and lending-related commitments and guarantees.
The Firm has no commitments to issue its own stock to support any SPE transaction, and its policies require that transactions with SPEs be conducted at arm’s length and reflect market pricing. Consistent with this policy, no JPMorgan Chase employee is permitted to invest in SPEs with which the Firm is involved where such investment would violate the Firm’s Code of Conduct. These rules prohibit employees from self-dealing and acting on behalf of the Firm in transactions with which they or their family have any significant financial interest.
Implications of a credit rating downgrade to JPMorgan Chase Bank, N.A.
For certain liquidity commitments to SPEs, JPMorgan Chase Bank, N.A. could be required to provide funding if its short-term credit rating were downgraded below specific levels,
primarily “P-1”, “A-1” and “F1” for Moody’s Investors Service (“Moody’s”), Standard & Poor’s and Fitch,
respectively. These liquidity commitments support the issuance of asset-backed commercial paper by Firm-administered consolidated SPEs. In the event of a short-term credit rating downgrade, JPMorgan Chase Bank, N.A., absent other solutions, would be required to provide funding to the SPE if the commercial paper could not be reissued as it matured. The aggregate amounts of commercial paper outstanding held by third parties as of December 31, 2016 and 2015, and 2014, was $8.7$2.7 billion and $12.1$8.7 billion, respectively. The aggregate amounts of commercial paper issued by these SPEs could increase in future periods should clients of the Firm-administered consolidated SPEs draw down on certain unfunded lending-related commitments. These unfunded lending-related commitments were $5.6$7.4 billion and $9.9$5.6 billion at December 31, 20152016 and 2014,2015, respectively. The Firm could facilitate the refinancing of some of the clients’ assets in order to reduce the funding obligation. For further information, see the discussion of Firm-administered multi-seller conduits in Note 16.
The Firm also acts as liquidity provider for certain municipal bond vehicles. The Firm’s obligation to perform as liquidity provider is conditional and is limited by certain termination events, which include bankruptcy or failure to pay by the municipal bond issuer and any credit enhancement provider, an event of taxability on the municipal bonds or the immediate downgrade of the municipal bond to below investment grade. See Note 16 for additional information.
Off–balance sheet lending-related financial instruments, guarantees, and other commitments
JPMorgan Chase provides lending-related financial instruments (e.g., commitments and guarantees) to meet the financing needs of its customers. The contractual amount of these financial instruments represents the maximum possible credit risk to the Firm should the counterparty draw upon the commitment or the Firm be required to fulfill its obligation under the guarantee, and should the counterparty subsequently fail to perform according to the terms of the contract. Most of these commitments and guarantees are refinanced, extended, cancelled, or expire without being drawn or a default occurring. As a result, the total contractual amount of these instruments is not, in the Firm’s view, representative of its actual future credit exposure or funding requirements. For further discussion of lending-related financial instruments, guarantees and other commitments, and the Firm’s accounting for them, see Lending-related commitments on page 127101 and Note 29. For a discussion of liabilities associated with loan sales and securitization-related indemnifications, see Note 29.
|
| | |
JPMorgan Chase & Co./20152016 Annual Report | | 7745 |
Management’s discussion and analysis
Contractual cash obligations
The accompanying table summarizes, by remaining maturity, JPMorgan Chase’s significant contractual cash obligations at December 31, 20152016. The contractual cash obligations included in the table below reflect the minimum contractual obligation under legally enforceable contracts with terms that are both fixed and determinable. Excluded from the below table are certain liabilities with variable cash flows and/or no obligation to return a stated amount of principal at maturity.
The carrying amount of on-balance sheet obligations on the Consolidated balance sheets may differ from the minimum contractual amount of the obligations reported below. For a discussion of mortgage repurchase liabilities and other obligations, see Note 29.
| | | Contractual cash obligations | Contractual cash obligations | | Contractual cash obligations | |
By remaining maturity at December 31, (in millions) | 2015 | 2014 | 2016 | 2015 |
| 2016 | 2017-2018 | 2019-2020 | After 2020 | Total | Total | 2017 | 2018-2019 | 2020-2021 | After 2021 | Total | Total |
| On-balance sheet obligations | | |
Deposits(a) | $ | 1,262,865 |
| $ | 5,166 |
| $ | 3,553 |
| $ | 4,555 |
| $ | 1,276,139 |
| $ | 1,361,597 |
| $ | 1,356,641 |
| $ | 5,512 |
| $ | 3,542 |
| $ | 3,171 |
| $ | 1,368,866 |
| $ | 1,276,139 |
|
| Federal funds purchased and securities loaned or sold under repurchase agreements | 151,433 |
| 811 |
| 3 |
| 491 |
| 152,738 |
| 192,128 |
| 163,978 |
| 1,307 |
| 2 |
| 379 |
| 165,666 |
| 152,738 |
|
| Commercial paper | 15,562 |
| — |
| — |
| — |
| 15,562 |
| 66,344 |
| 11,738 |
| — |
| — |
| — |
| 11,738 |
| 15,562 |
|
Other borrowed funds(a) | 11,331 |
| — |
| — |
| — |
| 11,331 |
| 15,734 |
| 14,759 |
| — |
| — |
| — |
| 14,759 |
| 11,331 |
|
| Beneficial interests issued by consolidated VIEs | 16,389 |
| 18,480 |
| 3,093 |
| 3,130 |
| 41,092 |
| 50,200 |
| 17,290 |
| 16,240 |
| 2,767 |
| 2,630 |
| 38,927 |
| 41,092 |
|
Long-term debt(a) | 45,972 |
| 82,293 |
| 59,669 |
| 92,272 |
| 280,206 |
| 262,888 |
| 44,380 |
| 78,676 |
| 61,772 |
| 103,487 |
| 288,315 |
| 280,206 |
|
Other(b) | 3,659 |
| 1,201 |
| 1,024 |
| 2,488 |
| 8,372 |
| 8,355 |
| 4,172 |
| 1,328 |
| 984 |
| 2,496 |
| 8,980 |
| 8,372 |
|
| Total on-balance sheet obligations | 1,507,211 |
| 107,951 |
| 67,342 |
| 102,936 |
| 1,785,440 |
| 1,957,246 |
| 1,612,958 |
| 103,063 |
| 69,067 |
| 112,163 |
| 1,897,251 |
| 1,785,440 |
|
| Off-balance sheet obligations | | |
Unsettled reverse repurchase and securities borrowing agreements(c) | 42,482 |
| — |
| — |
| — |
| 42,482 |
| 40,993 |
| 50,722 |
| — |
| — |
| — |
| 50,722 |
| 42,482 |
|
Contractual interest payments(d) | 8,787 |
| 9,461 |
| 6,693 |
| 21,208 |
| 46,149 |
| 48,038 |
| 9,640 |
| 10,317 |
| 7,638 |
| 21,267 |
| 48,862 |
| 46,149 |
|
Operating leases(e) | 1,668 |
| 3,094 |
| 2,388 |
| 4,679 |
| 11,829 |
| 12,441 |
| 1,598 |
| 2,780 |
| 2,036 |
| 3,701 |
| 10,115 |
| 11,829 |
|
Equity investment commitments(f) | 387 |
| — |
| 75 |
| 459 |
| 921 |
| 1,108 |
| 356 |
| 103 |
| 30 |
| 579 |
| 1,068 |
| 921 |
|
| Contractual purchases and capital expenditures | 1,266 |
| 886 |
| 276 |
| 170 |
| 2,598 |
| 2,832 |
| 1,382 |
| 723 |
| 236 |
| 225 |
| 2,566 |
| 2,598 |
|
| Obligations under affinity and co-brand programs | 98 |
| 275 |
| 80 |
| 43 |
| 496 |
| 2,303 |
| |
| Obligations under co-brand programs | | 187 |
| 233 |
| 201 |
| 247 |
| 868 |
| 496 |
|
| Total off-balance sheet obligations | 54,688 |
| 13,716 |
| 9,512 |
| 26,559 |
| 104,475 |
| 107,715 |
| 63,885 |
| 14,156 |
| 10,141 |
| 26,019 |
| 114,201 |
| 104,475 |
|
| Total contractual cash obligations | $ | 1,561,899 |
| $ | 121,667 |
| $ | 76,854 |
| $ | 129,495 |
| $ | 1,889,915 |
| $ | 2,064,961 |
| $ | 1,676,843 |
| $ | 117,219 |
| $ | 79,208 |
| $ | 138,182 |
| $ | 2,011,452 |
| $ | 1,889,915 |
|
| |
| (a) | Excludes structured notes on which the Firm is not obligated to return a stated amount of principal at the maturity of the notes, but is obligated to return an amount based on the performance of the structured notes. |
| |
| (b) | Primarily includes dividends declared on preferred and common stock, deferred annuity contracts, pension and other postretirement employee benefit obligations and insurance liabilities. |
| |
| (c) | For further information, refer to unsettled reverse repurchase and securities borrowing agreements in Note 29. |
| |
| (d) | Includes accrued interest and future contractual interest obligations. Excludes interest related to structured notes for which the Firm’s payment obligation is based on the performance of certain benchmarks. |
| |
| (e) | Includes noncancelable operating leases for premises and equipment used primarily for banking purposes and for energy-related tolling service agreements. Excludes the benefit of noncancelable sublease rentals of $1.91.4 billion and $2.21.9 billion at December 31, 20152016 and 20142015, respectively. See Note 30 for more information on lease commitments. |
| |
| (f) | At December 31, 20152016 and 2014,2015, included unfunded commitments of $50$48 million and $147$50 million, respectively, to third-party private equity funds, and $871 million$1.0 billion and $961$871 million of unfunded commitments, respectively, to other equity investments. |
|
| | |
7846 | | JPMorgan Chase & Co./20152016 Annual Report |
|
| | | | |
| CONSOLIDATED CASH FLOWS ANALYSIS |
| | | (in millions) | | Year ended December 31, | | Year ended December 31, |
| | 2015 | | 2014 | | 2013 | | 2016 | | 2015 | | 2014 |
| Net cash provided by/(used in) | | | | | | | | | | | | |
| Operating activities | | $ | 73,466 |
| | $ | 36,593 |
| | $ | 107,953 |
| | $ | 20,196 |
| | $ | 73,466 |
| | $ | 36,593 |
|
| Investing activities | | 106,980 |
| | (165,636 | ) | | (150,501 | ) | | (114,949 | ) | | 106,980 |
| | (165,636 | ) |
| Financing activities | | (187,511 | ) | | 118,228 |
| | 28,324 |
| | 98,271 |
| | (187,511 | ) | | 118,228 |
|
| Effect of exchange rate changes on cash | | (276 | ) | | (1,125 | ) | | 272 |
| | (135 | ) | | (276 | ) | | (1,125 | ) |
| Net decrease in cash and due from banks | | $ | (7,341 | ) | | $ | (11,940 | ) | | $ | (13,952 | ) | |
| Net increase/(decrease) in cash and due from banks | | | $ | 3,383 |
| | $ | (7,341 | ) | | $ | (11,940 | ) |
Operating activities
JPMorgan Chase’s operating assets and liabilities support the Firm’s lending and capital markets activities, including the origination or purchase of loans initially designated as held-for-sale. Operating assets and liabilities can vary significantly in the normal course of business due to the amount and timing of cash flows, which are affected by client-driven and risk management activities and market conditions. The Firm believes cash flows from operations, available cash balances and its capacity to generate cash through secured and unsecured sources are sufficient to meet the Firm’s operating liquidity needs.
Cash provided by operating activities in 2016, 2015 and 2014 reflected net income after noncash operating adjustments. Additionally, in 2016 cash provided reflected increases in accounts payable and trading liabilities related to client-driven market-making activities in CIB. The increase in trading liabilities reflected higher levels of client-driven short positions in both debt and equity instruments. Cash used in 2016 reflected an increase in trading assets, an increase in accounts receivable from merchants in CCB and higher client receivables related to client-driven activities in CIB; and higher net originations and purchases from loan held-for-sale activities. The increase in trading assets reflected higher debt and, to a lesser extent, equity instrument inventory levels to facilitate client demand. Cash provided in 2015 resulted from a decrease in trading assets, predominantly due to client-driven market-making activities in CIB, resulting in lower levels of debt and equity securities. Additionally, cash was provided byreflected a decrease in accounts receivable due to lower client receivables and higher net proceeds from loan sales activities. This was partially offset by cash used due to a decrease in accounts payable and other liabilities, resulting from lower brokerage customer payables related to client activity in CIB. In 2014, cash provided reflected higher net proceeds from loan securitizations and sales activities when compared with 2013. In 2013 cash provided reflected a decrease in trading assets from client-driven market-making activities in CIB, resulting in lower levels of debt securities, partially offset by net cash used in connection with loans originated or purchased for sale. Cash provided by operating activities for all periods also reflected net income after noncash operating adjustments.activities.
Investing activities
The Firm’s investing activities predominantly include originating loans originated to be held for investment, depositing cash at banks, and investing in the investment securities portfolio and other short-term interest-earning assets. Cash used in investing activities in 2016 resulted from net originations of consumer and wholesale loans. The increase in consumer loans was due to retention of originated high-quality prime
mortgages in CCB and AWM, and growth of credit card and auto loans in CCB. The increase in wholesale loans was predominantly driven by originations of commercial real estate loans in CB and commercial and industrial loans across multiple industries in CB and CIB. Additionally, in 2016, cash outflows reflected an increase in deposits with banks primarily due to growth in deposits in excess of growth in loans; an increase in securities purchased under resale agreements due to higher demand for securities to cover short positions related to client-driven market-making activities in CIB and the deployment of excess cash by Treasury and CIO. Cash provided by investing activities during 2015 predominantly resulted from lower deposits with banks due to the Firm’s actions to reduce wholesale non-operating deposits; and net proceeds from paydowns, maturities, sales and purchases of investment securities. Partially offsetting these net inflows was cash used for net originations of consumer and wholesale loans, a portion of which reflected a shift from investment securities. Cash
used in investing activities during 2014 and 2013 resulted from increases in deposits with banks attributable to higher levels of excess funds; cash was also used for growth in wholesale and consumer loans in 2014, while in 2013 cash used reflected growth only in wholesale loans.2014. Partially offsetting these cash outflows in 2014 and 2013 was a net decline in securities purchased under resale agreements due to a shift in the deployment of the Firm’s excess cash by Treasury and a net decline in consumer loans in 2013 resulting from paydowns and portfolio runoff or liquidation of delinquent loans.CIO. Investing activities in 2014 and 2013 also reflected net proceeds from paydowns, maturities, sales and purchases of investment securities.
Financing activities
The Firm’s financing activities includes cash related toacquiring customer deposits, issuing long-term debt, andas well as preferred and common stock. Cash provided by financing activities in 2016 resulted from higher consumer and wholesale deposits, and an increase in securities loaned or sold under repurchase agreements, predominantly due to higher client-driven market-making activities in CIB. Cash used in financing activities in 2015 resulted from lower wholesale deposits partially offset by higher consumer deposits. Additionally, in 2015 cash outflows were attributable to lower levels of commercial paper due to the discontinuation of a cash management product that offered customers the option of sweeping their deposits into commercial paper; lower commercial paper issuances in the wholesale markets; and a decrease in securities loaned or sold under repurchase agreements due to a decline in secured financings. Cash provided by financing activities in 2014 and 2013 predominantly resulted from higher consumer and wholesale deposits; partially offset in 2013 by a decrease in securities loaned or sold under repurchase agreements, predominantly due to changes in the mix of the Firm’s funding sources.deposits. For all periods, cash was provided by net proceeds from long-term borrowings and issuances of preferred stock;borrowings; and cash was used for repurchases of common stock and cash dividends on common and preferred stock.
* * *
For a further discussion of the activities affecting the Firm’s cash flows, see Consolidated Balance Sheets Analysis on pages 75–76,43–44, Capital Risk Management on pages 149–158,76–85, and Liquidity Risk Management on pages 159–164.110–115.
|
| | |
JPMorgan Chase & Co./20152016 Annual Report | | 7947 |
Management’s discussion and analysis
|
|
| EXPLANATION AND RECONCILIATION OF THE FIRM’S USE OF NON-GAAP FINANCIAL MEASURES AND KEY PERFORMANCE MEASURES |
Non-GAAP financial measures
The Firm prepares its Consolidated Financial Statements using U.S. GAAP; these financial statements appear on pages 176–180.141–145. 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. ThisThese non-GAAP financial measure allowsmeasures allow management to assess the comparability of revenue from year-to-year 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 Firm and 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 Firm or of the particular business segment, as the case may be, and, therefore, facilitate a comparison of the Firm or the business segment with the performance of its relevant competitors. Non- GAAPFor additional information on these non-GAAP measures, see Business Segment Results on pages 51–70.
Additionally, certain credit metrics and ratios disclosed by the Firm exclude PCI loans, and are therefore non-GAAP measures. For additional information on these non-GAAP measures, see Credit Risk Management on pages 86–107.
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 | 2016 | | 2015 | | 2014 |
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 | 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 | $ | 3,795 |
| | $ | 2,265 |
| | $ | 6,060 |
| | $ | 3,032 |
| | $ | 1,980 |
| | $ | 5,012 |
| | $ | 3,013 |
| | $ | 1,788 |
| | $ | 4,801 |
|
| Total noninterest revenue | 50,033 |
| | 1,980 |
| | 52,013 |
| | 51,478 |
| | 1,788 |
| | 53,266 |
| | 54,048 | | 1,660 | | 55,708 | 49,585 |
| | 2,265 |
| | 51,850 |
| | 50,033 |
| | 1,980 |
| | 52,013 |
| | 51,478 |
| | 1,788 |
| | 53,266 |
|
| Net interest income | 43,510 |
| | 1,110 |
| | 44,620 |
| | 43,634 |
| | 985 |
| | 44,619 |
| | 43,319 | | 697 | | 44,016 | 46,083 |
| | 1,209 |
| | 47,292 |
| | 43,510 |
| | 1,110 |
| | 44,620 |
| | 43,634 |
| | 985 |
| | 44,619 |
|
| Total net revenue | 93,543 |
| | 3,090 |
| | 96,633 |
| | 95,112 |
| | 2,773 |
| | 97,885 |
| | 97,367 | | 2,357 | | 99,724 | 95,668 |
| | 3,474 |
| | 99,142 |
| | 93,543 |
| | 3,090 |
| | 96,633 |
| | 95,112 |
| | 2,773 |
| | 97,885 |
|
| Pre-provision profit | 34,529 |
| | 3,090 |
| | 37,619 |
| | 33,838 |
| | 2,773 |
| | 36,611 |
| | 26,900 | | 2,357 | | 29,257 | 39,897 |
| | 3,474 |
| | 43,371 |
| | 34,529 |
| | 3,090 |
| | 37,619 |
| | 33,838 |
| | 2,773 |
| | 36,611 |
|
| Income before income tax expense | 30,702 |
| | 3,090 |
| | 33,792 |
| | 30,699 |
| | 2,773 |
| | 33,472 |
| | 26,675 | | 2,357 | | 29,032 | 34,536 |
| | 3,474 |
| | 38,010 |
| | 30,702 |
| | 3,090 |
| | 33,792 |
| | 30,699 |
| | 2,773 |
| | 33,472 |
|
| Income tax expense | 6,260 |
| | 3,090 |
| | 9,350 |
| | 8,954 |
| | 2,773 |
| | 11,727 |
| | 8,789 | | 2,357 | | 11,146 | 9,803 |
| | 3,474 |
| | 13,277 |
| | 6,260 |
| | 3,090 |
| | 9,350 |
| | 8,954 |
| | 2,773 |
| | 11,727 |
|
| Overhead ratio | 63 | % | | NM |
| | 61 | % | | 64 | % | | NM |
| | 63 | % | | 72% | | NM | | 71% | 58 | % | | NM |
| | 56 | % | | 63 | % | | NM |
| | 61 | % | | 64 | % | | NM |
| | 63 | % |
| |
(a) | Predominantly recognized in CIB and CB business segments and Corporate(a) Predominantly recognized in CIB and CB business segments and Corporate.
|
|
| | |
8048 | | JPMorgan Chase & Co./20152016 Annual Report |
Net interest income excluding CIB’s Markets businesses
In addition to reviewing net interest income on a managed basis, management also reviews net interest income excluding net interest income arising from CIB’s Markets businesses to assess the performance of the Firm’s lending, investing (including asset-liability management) and deposit-raising activities. CIB’s Markets businesses represent both Fixed Income Markets and Equity Markets. The data presented below are non-GAAP financial measures due to the exclusion of net interest income from CIB’s Markets businesses (“CIB Markets”).
Management believes this exclusion provides investors and analysts with another measure by which to analyze the non-markets-related business trends of the Firm and provides a comparable measure to other financial institutions that are primarily focused on lending, investing and deposit-raising activities.
|
| | | | | | | | | |
Year ended December 31, (in millions, except rates) | 2016 | 2015 | 2014 |
Net interest income – managed basis(a)(b) | $ | 47,292 |
| $ | 44,620 |
| $ | 44,619 |
|
Less: CIB Markets net interest income(c) | 6,334 |
| 5,298 |
| 6,032 |
|
Net interest income excluding CIB Markets(a) | $ | 40,958 |
| $ | 39,322 |
| $ | 38,587 |
|
| Average interest-earning assets | $ | 2,101,604 |
| $ | 2,088,242 |
| $ | 2,049,093 |
|
Less: Average CIB Markets interest-earning assets(c) | 520,307 |
| 510,292 |
| 522,989 |
|
| Average interest-earning assets excluding CIB Markets | $ | 1,581,297 |
| $ | 1,577,950 |
| $ | 1,526,104 |
|
| Net interest yield on average interest-earning assets – managed basis | 2.25 | % | 2.14 | % | 2.18 | % |
Net interest yield on average CIB Markets interest-earning assets(c) | 1.22 |
| 1.04 |
| 1.15 |
|
| Net interest yield on average interest-earning assets excluding CIB Markets | 2.59 | % | 2.49 | % | 2.53 | % |
| |
| (a) | Interest includes the effect of related hedges. Taxable-equivalent amounts are used where applicable. |
| |
| (b) | For a reconciliation of net interest income on a reported and managed basis, see reconciliation from the Firm’s reported U.S. GAAP results to managed basis on page 48. |
| |
| (c) | Prior period amounts were revised to align with CIB’s Markets businesses. For further information on CIB’s Markets businesses, see page 61. |
|
| | | | |
| Calculation of certain U.S. GAAP and non-GAAP financial measures |
| Certain U.S. GAAP and non-GAAP financial measures are calculated as follows: |
Book value per share (“BVPS”) Common stockholders’ equity at period-end / Common shares at period-end |
Overhead ratio Total noninterest expense / Total net revenue |
Return on assets (“ROA”) Reported net income / Total average assets |
Return on common equity (“ROE”) Net income* / Average common stockholders’ equity |
Return on tangible common equity (“ROTCE”) Net income* / Average tangible common equity |
Tangible book value per share (“TBVPS”) Tangible common equity at period-end / Common shares at period-end |
| * Represents net income applicable to common equity |
|
| | |
| JPMorgan Chase & Co./2016 Annual Report | | 49 |
Management’s discussion and analysis
Tangible common equity, ROTCE and TBVPS
Tangible common equity (“TCE”), ROTCE and TBVPS are each non-GAAP financial measures. TCE represents the Firm’s common stockholders’ equity (i.e., total stockholders’ equity less preferred stock) less goodwill and identifiable intangible assets (other than MSRs), net of related deferred tax liabilities. ROTCE measures the Firm’s earningsnet income applicable to common equity as a percentage of average TCE. TBVPS represents the Firm’s TCE at period-end divided by common shares at period-end. TCE, ROTCE, and TBVPS are meaningful toutilized by the Firm, as well as investors and analysts, in assessing the Firm’s use of equity.
Additionally, certain credit and capital metrics and ratios disclosed by The following summary table provides a reconciliation from the Firm are non-GAAP measures. For additional information on these non-GAAP measures, see Credit Risk Management on pages 112–132, and Capital Management on pages 149–158.Firm’s common stockholders’ equity to TCE.
| | | Tangible common equity | | | | |
| | Period-end | | Average | Period-end | | Average |
| | Dec 31,
2015 | Dec 31,
2014 | | Year ended December 31, | Dec 31,
2016 | Dec 31,
2015 | | Year ended December 31, |
| (in millions, except per share and ratio data) | | 2015 | 2014 | 2013 | | 2016 | 2015 | 2014 |
| Common stockholders’ equity | $ | 221,505 |
| $ | 211,664 |
| | $ | 215,690 |
| $ | 207,400 |
| $ | 196,409 |
| $ | 228,122 |
| $ | 221,505 |
| | $ | 224,631 |
| $ | 215,690 |
| $ | 207,400 |
|
| Less: Goodwill | 47,325 |
| 47,647 |
| | 47,445 |
| 48,029 |
| 48,102 |
| 47,288 |
| 47,325 |
| | 47,310 |
| 47,445 |
| 48,029 |
|
| Less: Certain identifiable intangible assets | 1,015 |
| 1,192 |
| | 1,092 |
| 1,378 |
| 1,950 |
| 862 |
| 1,015 |
| | 922 |
| 1,092 |
| 1,378 |
|
Add: Deferred tax liabilities(a) | 3,148 |
| 2,853 |
| | 2,964 |
| 2,950 |
| 2,885 |
| 3,230 |
| 3,148 |
| | 3,212 |
| 2,964 |
| 2,950 |
|
| Tangible common equity | $ | 176,313 |
| $ | 165,678 |
| | $ | 170,117 |
| $ | 160,943 |
| $ | 149,242 |
| $ | 183,202 |
| $ | 176,313 |
| | $ | 179,611 |
| $ | 170,117 |
| $ | 160,943 |
|
| | | | | | | |
| Return on tangible common equity | NA |
| NA |
| | 13 | % | 13 | % | 11 | % | NA |
| NA |
| | 13% |
| 13 | % | 13 | % |
| Tangible book value per share | $ | 48.13 |
| $ | 44.60 |
| | NA | NA | N/A | $ | 51.44 |
| $ | 48.13 |
| | NA | NA |
| |
| (a) | Represents deferred tax liabilities related to tax-deductible goodwill and to identifiable intangibles created in nontaxable transactions, which are netted against goodwill and other intangibles when calculating TCE. |
Key performance measures
The Firm’s capital, RWA, and capital and leverage ratios that are presented under Basel III Standardized and Advanced Fully Phased-In rules and the Firm’s, JPMorgan Chase Bank, N.A.’s and Chase Bank USA, N.A.’s SLRs calculated under the Basel III Advanced Fully Phased-In rules are considered key regulatory capital measures. Such measures are used by banking regulators, investors and analysts to assess the Firm’s regulatory capital position and to compare the Firm’s regulatory capital to that of other financial services companies.
For additional information on these measures, see Capital Risk Management on pages 76–85.
Core loans are also considered a key performance measure. Core loans represent loans considered central to the Firm’s ongoing businesses; and exclude loans classified as trading assets, runoff portfolios, discontinued portfolios and portfolios the Firm has an intent to exit. Core loans are utilized by the Firm and its investors and analysts in assessing actual growth in the loan portfolio.
|
| | |
JPMorgan Chase & Co./2015 Annual Report | | 81 |
Management’s discussion and analysis
Net interest income excluding markets-based activities (formerly core net interest income)
In addition to reviewing net interest income on a managed basis, management also reviews net interest income excluding CIB’s markets-based activities to assess the performance of the Firm’s lending, investing (including asset-liability management) and deposit-raising activities. The data presented below are non-GAAP financial measures due to the exclusion of CIB’s markets-based net interest income and related assets. Management believes this exclusion provides investors and analysts with another measure by which to analyze the non-markets-related business trends of the Firm and provides a comparable measure to other financial institutions that are primarily focused on lending, investing and deposit-raising activities.
Net interest income excluding CIB markets-based activities data |
| | | | | | | | | |
Year ended December 31, (in millions, except rates) | 2015 | 2014 | 2013 |
Net interest income – managed basis(a)(b) | $ | 44,620 |
| $ | 44,619 |
| $ | 44,016 |
|
| Less: Markets-based net interest income | 4,813 |
| 5,552 |
| 5,492 |
|
Net interest income excluding markets(a) | $ | 39,807 |
| $ | 39,067 |
| $ | 38,524 |
|
| Average interest-earning assets | $ | 2,088,242 |
| $ | 2,049,093 |
| $ | 1,970,231 |
|
| Less: Average markets-based interest-earning assets | 493,225 |
| 510,261 |
| 504,218 |
|
| Average interest-earning assets excluding markets | $ | 1,595,017 |
| $ | 1,538,832 |
| $ | 1,466,013 |
|
| Net interest yield on average interest-earning assets – managed basis | 2.14 | % | 2.18 | % | 2.23 | % |
| Net interest yield on average markets-based interest-earning assets | 0.97 |
| 1.09 |
| 1.09 |
|
| Net interest yield on average interest-earning assets excluding markets | 2.50 | % | 2.54 | % | 2.63 | % |
| |
(a) | Interest includes the effect of related hedging derivatives. Taxable-equivalent amounts are used where applicable. |
| |
(b) | For a reconciliation of net interest income on a reported and managed basis, see reconciliation from the Firm’s reported U.S. GAAP results to managed basis on page 80. |
2015 compared with 2014
Net interest income excluding CIB’s markets-based activities increased by $740 million in 2015 to $39.8 billion, and average interest-earning assets increased by $56.2 billion to $1.6 trillion. The increase in net interest income in 2015 predominantly reflected higher average loan balances and lower interest expense on deposits. The increase was partially offset by lower loan yields and lower investment securities net interest income. The increase in average interest-earning assets largely reflected the impact of higher average deposits with banks. These changes in net interest income and interest-earning assets resulted in the net interest yield decreasing by 4 basis points to 2.50% for 2015.
2014 compared with 2013
Net interest income excluding CIB’s markets-based activities increased by $543 million in 2014 to $39.1 billion, and average interest-earning assets increased by $72.8 billion to $1.5 trillion. The increase in net interest income in 2014 predominantly reflected higher yields on investment securities, the impact of lower interest expense, and higher average loan balances. The increase was partially offset by lower yields on loans due to the run-off of higher-yielding loans and new originations of lower-yielding loans. The increase in average interest-earning assets largely reflected the impact of higher average balance of deposits with banks. These changes in net interest income and interest-earning assets resulted in the net interest yield decreasing by 9 basis points to 2.54% for 2014.
|
| | |
8250 | | JPMorgan Chase & Co./20152016 Annual Report |
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.& Wealth Management (formerly 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 80–82.48–50.
|
| | | | | | | | | | | | | |
| | JPMorgan Chase |
| | |
| | Consumer Businesses | | Wholesale Businesses |
| | |
| | Consumer & Community Banking | | Corporate & Investment Bank | | Commercial Banking | | Asset & Wealth Management |
| | | | | | | | | | | | | | |
| | Consumer & Business Banking | | Mortgage Banking | | Card, Commerce Solutions & Auto | | Banking | | Markets & Investor Services | | • Middle Market Banking | | • Global InvestmentAsset Management(a) |
| | • Consumer Banking/Chase Wealth Management • Business Banking | • Mortgage Production • Mortgage Servicing • Real Estate Portfolios
| • Card Services – Credit Card – Commerce Solutions • Auto & Student
| • Investment Banking • Treasury Services • Lending | • Fixed Income Markets | • Corporate Client Banking | • Global Wealth Management(b)
|
| | • Equity Markets • Securities Services • Credit Adjustments & Other | • Commercial Term Lending |
| | • Real Estate Banking
|
| |
(a) Formerly Global Investment Management
(b) Formerly Global Wealth Management
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 allocatesincludes the allocation of certain income and expense using market-based methodologies. items described in more detail below. The Firm also assesses the level of capital required for each line of business on at least an annual basis. For further information about line of business capital, see Line of business equity on page 83.
The Firm periodically assesses 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 segment and to transfer the primary interest rate risk and liquidity risk exposures to the Treasury groupand CIO within Corporate. The allocationfunds transfer pricing process is unique to each business segment and considers the interest rate risk, liquidity risk and regulatory requirements of thata business segment as if it were operating independently, and as compared with its stand-alone peers.independently. This process is overseen by
senior management and reviewed by the Firm’s Asset-Liability Committee (“ALCO”).
PreferredDebt expense and preferred stock dividend allocation
As part of itsthe funds transfer pricing process, the Firm allocates substantiallylargely all of the cost of itsthe credit spread component of outstanding unsecured long-term debt and preferred stock dividends is allocated to itsthe reportable business segments, while retaining the balance of the cost is retained in Corporate. ThisThe methodology to allocate the cost of unsecured long-term debt and preferred stock dividend to the business segments is aligned with the Firm’s process to allocate capital. The allocated cost of unsecured long-term debt is included asin a reductionbusiness segment’s net interest income, and net income is reduced by preferred stock dividends to arrive at a business segment’s net income applicable to common equity in order to be consistent with the presentation of firmwide results.equity.
Business segment capital allocation changes
The amount of capital assigned to each business is referred to as common 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. Through the end of 2016, capital was allocated to itsthe lines of business and updates the equity allocations to its lines of business as refinements are implemented. Each business segment is allocated capital by taking into consideration stand-alone peer comparisons, regulatory capital requirements (as estimated underbased on a single measure, Basel III Advanced Fully Phased-In rules)RWA. Effective January 1, 2017, the Firm’s methodology used to allocate capital to the Firm’s business segments was updated. The new methodology incorporates Basel III Standardized Fully Phased-In RWA (as well as Basel III Advanced Fully Phased-In RWA), leverage, the GSIB surcharge, and a simulation of
|
| | |
| JPMorgan Chase & Co./2016 Annual Report | | 51 |
Management’s discussion and analysis
capital in a severe stress environment. The methodology will continue to be weighted towards Basel III Advanced Fully Phased-In RWA because the Firm believes it to be the best proxy for economic risk. The amount ofFirm will consider further changes to its capital assignedallocation methodology as the regulatory framework evolves. In addition, under the new methodology, capital is no longer allocated to each business is referred to as equity. For further information about line of business capital, see Linefor goodwill and other intangibles associated with acquisitions effected by the line of business equity on page 156.business.
Expense allocation
Where business segments use services provided by corporate support units, 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 use of services provided. In contrast, certain other costs related to corporate support
|
| | |
JPMorgan Chase & Co./2015 Annual Report | | 83 |
Management’s discussion and analysis
units, or to certain technology and operations, are not allocated to the business segments and are retained in Corporate. Expense retained in Corporate generally includes parent company costs that would not be incurred if the
segments were stand-alone businesses; adjustments to align corporate support units; and other items not aligned with a particular business segment.
The following provides a comparative discussion of business segment results as of or for the years ended December 31, 2016, 2015 and 2014.
Segment Results – Managed Basis
The following tables summarize the business segment results for the periods indicated.
| | | Year ended December 31, | Total net revenue | | Total noninterest expense | | Pre-provision profit/(loss) | Total net revenue | | Total noninterest expense | | Pre-provision profit/(loss) |
| (in millions) | 2015 |
| 2014 |
| 2013 |
| | 2015 |
| 2014 |
| 2013 |
| | 2015 |
| 2014 |
| 2013 |
| 2016 |
| 2015 |
| 2014 |
| | 2016 |
| 2015 |
| 2014 |
| | 2016 |
| 2015 |
| 2014 |
|
| Consumer & Community Banking | $ | 43,820 |
| $ | 44,368 |
| $ | 46,537 |
| | $ | 24,909 |
| $ | 25,609 |
| $ | 27,842 |
| | $ | 18,911 |
| $ | 18,759 |
| $ | 18,695 |
| $ | 44,915 |
| $ | 43,820 |
| $ | 44,368 |
| | $ | 24,905 |
| $ | 24,909 |
| $ | 25,609 |
| | $ | 20,010 |
| $ | 18,911 |
| $ | 18,759 |
|
| Corporate & Investment Bank | 33,542 |
| 34,595 |
| 34,712 |
| | 21,361 |
| 23,273 |
| 21,744 |
| | 12,181 |
| 11,322 |
| 12,968 |
| 35,216 |
| 33,542 |
| 34,595 |
| | 18,992 |
| 21,361 |
| 23,273 |
| | 16,224 |
| 12,181 |
| 11,322 |
|
| Commercial Banking | 6,885 |
| 6,882 |
| 7,092 |
| | 2,881 |
| 2,695 |
| 2,610 |
| | 4,004 |
| 4,187 |
| 4,482 |
| 7,453 |
| 6,885 |
| 6,882 |
| | 2,934 |
| 2,881 |
| 2,695 |
| | 4,519 |
| 4,004 |
| 4,187 |
|
| Asset Management | 12,119 |
| 12,028 |
| 11,405 |
| | 8,886 |
| 8,538 |
| 8,016 |
| | 3,233 |
| 3,490 |
| 3,389 |
| |
| Asset & Wealth Management | | 12,045 |
| 12,119 |
| 12,028 |
| | 8,478 |
| 8,886 |
| 8,538 |
| | 3,567 |
| 3,233 |
| 3,490 |
|
| Corporate | 267 |
| 12 |
| (22 | ) | | 977 |
| 1,159 |
| 10,255 |
| | (710 | ) | (1,147 | ) | (10,277 | ) | (487 | ) | 267 |
| 12 |
| | 462 |
| 977 |
| 1,159 |
| | (949 | ) | (710 | ) | (1,147 | ) |
| Total | $ | 96,633 |
| $ | 97,885 |
| $ | 99,724 |
| | $ | 59,014 |
| $ | 61,274 |
| $ | 70,467 |
| | $ | 37,619 |
| $ | 36,611 |
| $ | 29,257 |
| $ | 99,142 |
| $ | 96,633 |
| $ | 97,885 |
| | $ | 55,771 |
| $ | 59,014 |
| $ | 61,274 |
| | $ | 43,371 |
| $ | 37,619 |
| $ | 36,611 |
|
| | | Year ended December 31, | Provision for credit losses | | Net income/(loss) | | Return on equity | Provision for credit losses | | Net income/(loss) | | Return on common equity |
| (in millions, except ratios) | 2015 |
| 2014 |
| 2013 |
| | 2015 |
| 2014 |
| 2013 |
| | 2015 |
| 2014 |
| 2013 |
| 2016 |
| 2015 |
| 2014 |
| | 2016 |
| 2015 |
| 2014 |
| | 2016 |
| 2015 |
| 2014 |
|
| Consumer & Community Banking | $ | 3,059 |
| $ | 3,520 |
| $ | 335 |
| | $ | 9,789 |
| $ | 9,185 |
| $ | 11,061 |
| | 18 | % | 18 | % | 23 | % | $ | 4,494 |
| $ | 3,059 |
| $ | 3,520 |
| | $ | 9,714 |
| $ | 9,789 |
| $ | 9,185 |
| | 18 | % | 18 | % | 18 | % |
| Corporate & Investment Bank | 332 |
| (161 | ) | (232 | ) | | 8,090 |
| 6,908 |
| 8,850 |
| | 12 |
| 10 |
| 15 |
| 563 |
| 332 |
| (161 | ) | | 10,815 |
| 8,090 |
| 6,908 |
| | 16 |
| 12 |
| 10 |
|
| Commercial Banking | 442 |
| (189 | ) | 85 |
| | 2,191 |
| 2,635 |
| 2,648 |
| | 15 |
| 18 |
| 19 |
| 282 |
| 442 |
| (189 | ) | | 2,657 |
| 2,191 |
| 2,635 |
| | 16 |
| 15 |
| 18 |
|
| Asset Management | 4 |
| 4 |
| 65 |
| | 1,935 |
| 2,153 |
| 2,083 |
| | 21 |
| 23 |
| 23 |
| |
| Asset & Wealth Management | | 26 |
| 4 |
| 4 |
| | 2,251 |
| 1,935 |
| 2,153 |
| | 24 |
| 21 |
| 23 |
|
| Corporate | (10 | ) | (35 | ) | (28 | ) | | 2,437 |
| 864 |
| (6,756 | ) | | NM |
| NM |
| NM |
| (4 | ) | (10 | ) | (35 | ) | | (704 | ) | 2,437 |
| 864 |
| | NM | NM |
| Total | $ | 3,827 |
| $ | 3,139 |
| $ | 225 |
| | $ | 24,442 |
| $ | 21,745 |
| $ | 17,886 |
| | 11% |
| 10 | % | 9 | % | $ | 5,361 |
| $ | 3,827 |
| $ | 3,139 |
| | $ | 24,733 |
| $ | 24,442 |
| $ | 21,745 |
| | 10% |
| 11 | % | 10 | % |
|
| | |
8452 | | JPMorgan Chase & Co./20152016 Annual Report |
|
| | | | |
| CONSUMER & COMMUNITY BANKING |
|
|
Consumer & Community Banking servesoffers services to consumers and businesses through personal service at bank branches, and through ATMs, online, mobile and telephone banking. CCB is organized into Consumer & Business Banking (including Consumer Banking/Chase Wealth Management and Business Banking), Mortgage Banking (including Mortgage Production, Mortgage Servicing and Real Estate Portfolios) and Card, Commerce Solutions & Auto (“Card”).Auto. 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 consisting of residential mortgages and home equity loans. Card, Commerce Solutions & Auto issues credit cards to consumers and small businesses, offers payment processing services to merchants, originates and providesservices auto loans and leases, and services student loan services.loans. |
|
| | | | | | | | | | | |
| Selected income statement data | | | | |
| Year ended December 31, | |
| (in millions, except ratios) | 2016 | | 2015 | | 2014 |
| Revenue | | | | | |
| Lending- and deposit-related fees | $ | 3,231 |
| | $ | 3,137 |
| | $ | 3,039 |
|
| Asset management, administration and commissions | 2,093 |
| | 2,172 |
| | 2,096 |
|
| Mortgage fees and related income | 2,490 |
| | 2,511 |
| | 3,560 |
|
| Card income | 4,364 |
| | 5,491 |
| | 5,779 |
|
| All other income | 3,077 |
| | 2,281 |
| | 1,463 |
|
| Noninterest revenue | 15,255 |
| | 15,592 |
| | 15,937 |
|
| Net interest income | 29,660 |
| | 28,228 |
| | 28,431 |
|
| Total net revenue | 44,915 |
| | 43,820 |
| | 44,368 |
|
| | | | | | |
| Provision for credit losses | 4,494 |
| | 3,059 |
| | 3,520 |
|
| | | | | | |
| Noninterest expense | | | | | |
| Compensation expense | 9,723 |
| | 9,770 |
| | 10,538 |
|
Noncompensation expense(a) | 15,182 |
| | 15,139 |
| | 15,071 |
|
| Total noninterest expense | 24,905 |
| | 24,909 |
| | 25,609 |
|
| Income before income tax expense | 15,516 |
| | 15,852 |
| | 15,239 |
|
| Income tax expense | 5,802 |
| | 6,063 |
| | 6,054 |
|
| Net income | $ | 9,714 |
| | $ | 9,789 |
| | $ | 9,185 |
|
| | | | | | |
| Revenue by line of business | | | | | |
| Consumer & Business Banking | $ | 18,659 |
| | $ | 17,983 |
| | $ | 18,226 |
|
| Mortgage Banking | 7,361 |
| | 6,817 |
| | 7,826 |
|
| Card, Commerce Solutions & Auto | 18,895 |
| | 19,020 |
| | 18,316 |
|
| | | | | | |
| Mortgage fees and related income details: | | | | | |
| Net production revenue | 853 |
| | 769 |
| | 1,190 |
|
Net mortgage servicing revenue(b) | 1,637 |
| | 1,742 |
| | 2,370 |
|
| Mortgage fees and related income | $ | 2,490 |
| | $ | 2,511 |
| | $ | 3,560 |
|
| | | | | | |
| Financial ratios | | | | | |
| Return on common equity | 18 | % | | 18 | % | | 18 | % |
| Overhead ratio | 55 |
| | 57 |
| | 58 |
|
|
| | | | | | | | | | | |
| Selected income statement data | | | | |
| Year ended December 31, | |
| (in millions, except ratios) | 2015 | | 2014 | | 2013 |
| Revenue | | | | | |
| Lending- and deposit-related fees | $ | 3,137 |
| | $ | 3,039 |
| | $ | 2,983 |
|
| Asset management, administration and commissions | 2,172 |
| | 2,096 |
| | 2,116 |
|
| Mortgage fees and related income | 2,511 |
| | 3,560 |
| | 5,195 |
|
| Card income | 5,491 |
| | 5,779 |
| | 5,785 |
|
| All other income | 2,281 |
| | 1,463 |
| | 1,473 |
|
| Noninterest revenue | 15,592 |
| | 15,937 |
| | 17,552 |
|
| Net interest income | 28,228 |
| | 28,431 |
| | 28,985 |
|
| Total net revenue | 43,820 |
|
| 44,368 |
| | 46,537 |
|
| | | | | | |
| Provision for credit losses | 3,059 |
| | 3,520 |
| | 335 |
|
| | | | | | |
| Noninterest expense | | | | | |
| Compensation expense | 9,770 |
| | 10,538 |
| | 11,686 |
|
| Noncompensation expense | 15,139 |
| | 15,071 |
| | 16,156 |
|
| Total noninterest expense | 24,909 |
| | 25,609 |
| | 27,842 |
|
| Income before income tax expense | 15,852 |
| | 15,239 |
| | 18,360 |
|
| Income tax expense | 6,063 |
| | 6,054 |
| | 7,299 |
|
| Net income | $ | 9,789 |
| | $ | 9,185 |
| | $ | 11,061 |
|
| | | | | | |
| Financial ratios | | | | | |
| Return on common equity | 18 | % | | 18 | % | | 23 | % |
| Overhead ratio | 57 |
| | 58 |
| | 60 |
|
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
| |
| (a) | Included operating lease depreciation expense of $1.9 billion, $1.4 billion and $1.2 billion for the years ended December 31, 2016, 2015 and 2014, respectively. |
| |
| (b) | Included MSR risk management of $217 million, $(117) million and $(28) million for the years ended December 31, 2016, 2015 and 2014, respectively. |
|
| | |
| JPMorgan Chase & Co./2016 Annual Report | | 53 |
Management’s discussion and analysis
2016 compared with 2015
Consumer & Community Banking net income was $9.7 billion, a decrease of 1% compared with the prior year, driven by higher provision for credit losses predominantly offset by higher net revenue.
Net revenue was $44.9 billion, an increase of 2% compared with the prior year. Net interest income was $29.7 billion, up 5%, driven by higher deposit balances and higher loan balances, partially offset by deposit spread compression and an increase in the reserve for uncollectible interest and fees in Credit Card. Noninterest revenue was $15.3 billion, down 2%, driven by higher new account origination costs and the impact of renegotiated co-brand partnership agreements in Credit Card and lower mortgage servicing revenue predominantly as a result of a lower level of third-party loans serviced; these factors were predominantly offset by higher auto lease and card sales volume, higher card- and deposit-related fees, higher MSR risk management results and a gain on the sale of Visa Europe interests. See Note 17 for further information see Explanation and Reconciliationregarding changes in value of the Firm’s UseMSR asset and related hedges, and mortgage fees and related income.
The provision for credit losses was $4.5 billion, an increase of Non-GAAP Financial Measures.47% from the prior year. The increase in the provision was driven by:
| |
| ▪ | a $920 million increase related to the credit card portfolio, due to a $600 million addition in the allowance for loan losses, as well as $320 million of higher net charge-offs, driven by loan growth, including growth in newer vintages which, as anticipated, have higher loss rates compared to the overall portfolio, |
| |
| ▪ | a $450 million lower benefit related to the residential real estate portfolio, as the current year reduction in the allowance for loan losses was lower than the prior year. The reduction in both periods reflected continued improvements in home prices and lower delinquencies and |
| |
| ▪ | a $150 million increase related to the auto and business banking portfolio, due to additions to the allowance for loan losses and higher net charge-offs, reflecting loan growth in the portfolios. |
Noninterest expense of $24.9 billion was flat compared with the prior year, driven by lower legal expense and branch efficiencies offset by higher auto lease depreciation and higher investment in marketing.
2015 compared with 2014
Consumer & Community Banking net income was $9.8 billion, an increase of 7% compared with the prior year, driven by lower noninterest expense and lower provision for credit losses, largelypartially offset by lower net revenue.
Net revenue was $43.8 billion, a decrease of 1% compared with the prior year. Net interest income was $28.2 billion, down 1%, driven by spread compression, predominantly offset by higher deposit andbalances, higher loan balances largely resulting from originations of high-quality mortgage loans that have been retained, and improved credit quality including lower reversals of interest and fees due to lower net charge-offs in Credit Card. Noninterest revenue was $15.6 billion, down 2%, driven by lower mortgage feesservicing revenue largely as a result of lower average third-party loans serviced, lower net mortgage production revenue reflecting a lower repurchase benefit and related income, predominantlythe impact of renegotiated co-brand partnership agreements in Credit Card, largely offset by higher auto lease and card sales volume, and the impact of non-core portfolio exits in Credit Card in the prior year.year, and a gain on the investment in Square, Inc. upon its initial public offering.
The provision for credit losses was $3.1 billion, a decrease of 13% from the prior year, reflecting lower net charge-offs, partially offset by a lower reduction in the allowance for loan losses. The current-year provision reflected a $1.0 billion reduction in the allowance for loan losses compared with a $1.3 billion reductiondue to continued improvement in home prices and lower delinquencies as well as increased granularity in the prior year.
Noninterest expense was $24.9 billion, a decrease of 3% from the prior year, driven by lower Mortgage Banking expense.
2014 compared with 2013
Consumer & Community Banking net income was $9.2 billion, a decrease of 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 5% compared with the prior year. Net interest income was $28.4 billion, down 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 9%, driven by lower mortgage fees and related income.
The provision for credit losses was $3.5 billion, compared with $335 millionimpairment estimates in the prior year.residential real estate portfolio and runoff in the student loan portfolio. The current-yearprior-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.
Noninterest expense was $25.6 billion, a decrease of 8% from the prior year, driven by lower Mortgage Banking expense.
|
| | |
JPMorgan Chase & Co./2015 Annual Report | | 85 |
Management’s discussion and analysis
|
| | | | | | | | | | | |
| Selected metrics | | | | |
| As of or for the year ended December 31, | | | | | |
| (in millions, except headcount) | 2015 | | 2014 | | 2013 |
| Selected balance sheet data (period-end) | | | | | |
| Total assets | $ | 502,652 |
| | $ | 455,634 |
| | $ | 452,929 |
|
Trading assets – loans(a) | 5,953 |
| | 8,423 |
| | 6,832 |
|
| Loans: | | | | | |
| Loans retained | 445,316 |
| | 396,288 |
| | 393,351 |
|
Loans held-for-sale(b) | 542 |
| | 3,416 |
| | 940 |
|
| Total loans | 445,858 |
| | 399,704 |
| | 394,291 |
|
| Core loans | 341,881 |
| | 273,494 |
| | 246,751 |
|
| Deposits | 557,645 |
| | 502,520 |
| | 464,412 |
|
Equity(c) | 51,000 |
| | 51,000 |
| | 46,000 |
|
| Selected balance sheet data (average) | | | | | |
| Total assets | $ | 472,972 |
| | $ | 447,750 |
| | $ | 456,468 |
|
Trading assets – loans(a) | 7,484 |
| | 8,040 |
| | 15,603 |
|
| Loans: | | | | | |
| Loans retained | 414,518 |
| | 389,967 |
| | 392,797 |
|
Loans held-for-sale (d) | 2,062 |
| | 917 |
| | 209 |
|
| Total loans | $ | 416,580 |
| | $ | 390,884 |
| | $ | 393,006 |
|
| Core loans | 301,700 |
| | 253,803 |
| | 234,135 |
|
| Deposits | 530,938 |
| | 486,919 |
| | 453,304 |
|
Equity(c) | 51,000 |
| | 51,000 |
| | 46,000 |
|
| | | | | | |
| Headcount | 127,094 |
| | 137,186 |
| | 151,333 |
|
| |
(a) | Predominantly consists of prime mortgages originated with the intent to sell that are accounted for at fair value. |
| |
(b) | Included period-end credit card loans held-for-sale of $76 million, $3.0 billion and $326 million at December 31, 2015, 2014 and 2013, respectively. These amounts were excluded when calculating delinquency rates and the allowance for loan losses to period-end loans. |
| |
(c) | Equity is allocated to the sub-business segments with $5.0 billion and $3.0 billion of capital in 2015 and 2014, respectively, held at the CCB level related to legacy mortgage servicing matters. |
| |
(d) | Included average credit card loans held-for-sale of $1.6 billion, $509 million and $95 million for the years ended December 31, 2015, 2014 and 2013, respectively. These amounts are excluded when calculating the net charge-off rate. |
|
| | | | | | | | | |
| Selected metrics | | |
| As of or for the year ended December 31, | | | |
| (in millions, except ratios and where otherwise noted) | 2015 | 2014 | 2013 |
| Credit data and quality statistics | | |
Net charge-offs(a) | $ | 4,084 |
| $ | 4,773 |
| $ | 5,826 |
|
Nonaccrual loans(b)(c) | 5,313 |
| 6,401 |
| 7,455 |
|
Nonperforming assets(b)(c) | 5,635 |
| 6,872 |
| 8,109 |
|
Allowance for loan losses(a) | 9,165 |
| 10,404 |
| 12,201 |
|
Net charge-off rate(a) | 0.99 | % | 1.22 | % | 1.48 | % |
Net charge-off rate, excluding PCI loans | 1.10 |
| 1.40 |
| 1.73 |
|
| Allowance for loan losses to period-end loans retained | 2.06 |
| 2.63 |
| 3.10 |
|
Allowance for loan losses to period-end loans retained, excluding PCI loans(d) | 1.59 |
| 2.02 |
| 2.36 |
|
Allowance for loan losses to nonaccrual loans retained, excluding credit card(b)(d) | 57 |
| 58 |
| 57 |
|
Nonaccrual loans to total period-end loans, excluding credit card | 1.69 |
| 2.38 |
| 2.80 |
|
Nonaccrual loans to total period-end loans, excluding credit card and PCI loans(b) | 1.94 |
| 2.88 |
| 3.49 |
|
| Business metrics | | | |
| Number of: | | | |
| Branches | 5,413 |
| 5,602 |
| 5,630 |
|
| ATMs | 17,777 |
| 18,056 |
| 20,290 |
|
Active online customers (in thousands)(e) | 39,242 |
| 36,396 |
| 33,742 |
|
| Active mobile customers (in thousands) | 22,810 |
| 19,084 |
| 15,629 |
|
| CCB households (in millions) | 57.8 |
| 57.2 |
| 56.7 |
|
| |
(a) | Net charge-offs and the net charge-off rates excluded $208 million, $533 million, and $53 million of write-offs in the PCI portfolio for the years ended December 31, 2015, 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 130–132.
| |
(b) | Excludes PCI loans. The Firm is recognizing interest income on each pool of PCI loans as all of the pools are performing. |
| |
(c) | At December 31, 2015, 2014 and 2013, nonperforming assets excluded: (1) mortgage loans insured by U.S. government agencies of $6.3 billion, $7.8 billion and $8.4 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 $290 million, $367 million and $428 million respectively, that are 90 or more days past due; (3) real estate owned (“REO”) insured by U.S. government agencies of $343 million, $462 million and $2.0 billion, respectively. These amounts have been excluded based upon the government guarantee. |
| |
(d) | The allowance for loan losses for PCI loans of $2.7 billion, $3.3 billion and $4.2 billion at December 31, 2015, 2014, and 2013, respectively; these amounts were also excluded from the applicable ratios. |
| |
(e) | Users of all internet browsers and mobile platforms (mobile smartphone, tablet and SMS) who have logged in within the past 90 days. |
|
| | |
86 | | JPMorgan Chase & Co./2015 Annual Report |
Consumer & Business Banking
|
| | | | | | | | | | | |
| Selected income statement data | | | | |
| As of or for the year ended December 31, | |
| (in millions, except ratios) | 2015 | | 2014 | | 2013 |
| Revenue | | | | | |
| Lending- and deposit-related fees | $ | 3,112 |
| | $ | 3,010 |
| | $ | 2,942 |
|
| Asset management, administration and commissions | 2,097 |
| | 2,025 |
| | 1,815 |
|
| Card income | 1,721 |
| | 1,605 |
| | 1,495 |
|
| All other income | 611 |
| | 534 |
| | 492 |
|
| Noninterest revenue | 7,541 |
| | 7,174 |
| | 6,744 |
|
| Net interest income | 10,442 |
| | 11,052 |
| | 10,668 |
|
| Total net revenue | 17,983 |
| | 18,226 |
| | 17,412 |
|
| | | | | | |
| Provision for credit losses | 254 |
| | 305 |
| | 347 |
|
| | | | | | |
| Noninterest expense | 11,916 |
| | 12,149 |
| | 12,162 |
|
| Income before income tax expense | 5,813 |
| | 5,772 |
| | 4,903 |
|
| Net income | $ | 3,581 |
| | $ | 3,443 |
| | $ | 2,943 |
|
| Return on common equity | 30 | % | | 31 | % | | 26 | % |
| Overhead ratio | 66 |
| | 67 |
| | 70 |
|
| Equity (period-end and average) | $ | 11,500 |
| | $ | 11,000 |
| | $ | 11,000 |
|
2015 compared with 2014
Consumer & Business Banking net income was $3.6 billion, an increase of 4% compared with the prior year.
Net revenue was $18.0 billion, down 1% compared with the prior year. Net interest income was $10.4 billion, down 6% due to deposit spread compression, largely offset by higher deposit balances. Noninterest revenue was $7.5 billion, up 5%, driven by higher debit card revenue, reflecting an increase in transaction volume, higher deposit-related fees as a result of an increase in customer accounts and a gain on the sale of a branch.
Noninterest expense was $11.9 billion, a decrease of 2% from the prior year, driven by lower headcount-related expense due to branch efficiencies, partially offset by higher legal expense.
2014 compared with 2013
Consumer & Business Banking net income was $3.4 billion, an increase of 17%, compared with the prior year, due to higher net revenue.
Net revenue was $18.2 billion, up 5% compared with the prior year. Net interest income was $11.1 billion, up 4% compared with the prior year, driven by higher deposit balances, largely offset by deposit spread compression. Noninterest revenue was $7.2 billion, up 6%, driven by higher investment revenue, reflecting an increase in client investment assets, higher debit card revenue, reflecting an increase in transaction volume, and higher deposit-related fees as a result of an increase in customer accounts.
|
| | | | | | | | | | | |
| Selected metrics | | | | |
| As of or for the year ended December 31, | | | | | |
| (in millions, except ratios) | 2015 | | 2014 | | 2013 |
| Business metrics | | | | | |
| Business banking origination volume | $ | 6,775 |
| | $ | 6,599 |
| | $ | 5,148 |
|
| Period-end loans | 22,730 |
| | 21,200 |
| | 19,416 |
|
| Period-end deposits: | | | | | |
| Checking | 246,448 |
| | 213,049 |
| | 187,182 |
|
| Savings | 279,897 |
| | 255,148 |
| | 238,223 |
|
| Time and other | 18,063 |
| | 21,349 |
| | 26,022 |
|
| Total period-end deposits | 544,408 |
| | 489,546 |
| | 451,427 |
|
| Average loans | 21,894 |
| | 20,152 |
| | 18,844 |
|
| Average deposits: | | | | | |
| Checking | 226,713 |
| | 198,996 |
| | 176,005 |
|
| Savings | 269,057 |
| | 249,281 |
| | 229,341 |
|
| Time and other | 19,452 |
| | 24,057 |
| | 29,227 |
|
| Total average deposits | 515,222 |
| | 472,334 |
| | 434,573 |
|
| Deposit margin | 1.90 | % | | 2.21 | % | | 2.32 | % |
| Average assets | $ | 41,457 |
| | $ | 38,298 |
| | $ | 37,174 |
|
| Credit data and quality statistics | | | | |
| Net charge-offs | $ | 253 |
| | $ | 305 |
| | $ | 337 |
|
| Net charge-off rate | 1.16 | % | | 1.51 | % | | 1.79 | % |
| Allowance for loan losses | $ | 703 |
| | $ | 703 |
| | $ | 707 |
|
| Nonperforming assets | 270 |
| | 286 |
| | 391 |
|
| Retail branch business metrics | | | | |
| Net new investment assets | $ | 11,852 |
| | $ | 16,088 |
| | $ | 16,006 |
|
| Client investment assets | 218,551 |
| | 213,459 |
| | 188,840 |
|
| % managed accounts | 41 | % | | 39 | % | | 36 | % |
| Number of: | | | | | |
| Chase Private Client locations | 2,764 |
| | 2,514 |
| | 2,149 |
|
| Personal bankers | 18,041 |
| | 21,039 |
| | 23,588 |
|
| Sales specialists | 3,539 |
| | 3,994 |
| | 5,740 |
|
| Client advisors | 2,931 |
| | 3,090 |
| | 3,044 |
|
| Chase Private Clients | 441,369 |
| | 325,653 |
| | 215,888 |
|
Accounts (in thousands)(a) | 31,342 |
| | 30,481 |
| | 29,437 |
|
| |
(a) | Includes checking accounts and Chase Liquid® cards.
|
|
| | |
JPMorgan Chase & Co./2015 Annual Report | | 87 |
Management’s discussion and analysis
Mortgage Banking
|
| | | | | | | | | | | |
| Selected Financial statement data |
| As of or for the year ended December 31, | | | | | |
| (in millions, except ratios) | 2015 | | 2014 | | 2013 |
| Revenue | | | | | |
Mortgage fees and related income(a) | $ | 2,511 |
| | $ | 3,560 |
| | $ | 5,195 |
|
| All other income | (65 | ) | | 37 |
| | 283 |
|
| Noninterest revenue | 2,446 |
| | 3,597 |
| | 5,478 |
|
| Net interest income | 4,371 |
| | 4,229 |
| | 4,758 |
|
| Total net revenue | 6,817 |
| | 7,826 |
| | 10,236 |
|
| | | | | | |
| Provision for credit losses | (690 | ) | | (217 | ) | | (2,681 | ) |
| | | | | | |
| Noninterest expense | 4,607 |
| | 5,284 |
| | 7,602 |
|
| Income before income tax expense | 2,900 |
| | 2,759 |
| | 5,315 |
|
| Net income | $ | 1,778 |
| | $ | 1,668 |
| | $ | 3,211 |
|
| | | | | | |
| Return on common equity | 10 | % | | 9 | % | | 16 | % |
| Overhead ratio | 68 |
| | 68 |
| | 74 |
|
| Equity (period-end and average) | $ | 16,000 |
| | $ | 18,000 |
| | $ | 19,500 |
|
| |
(a) | For further information on mortgage fees and related income, see Note 17. |
2015 compared with 2014
Mortgage Banking net income was $1.8 billion, an increase of 7% from the prior year, driven by lower noninterest expense and a higher benefit from the provision for credit losses, predominantly offset by lower net revenue.
Net revenue was $6.8 billion, a decrease of 13% compared with the prior year. Net interest income was $4.4 billion, an increase of 3% from the prior year, due to higher loan balances resulting from originations of high-quality loans that have been retained, partially offset by spread compression. Noninterest revenue was $2.4 billion, a decrease of 32% from the prior year. This decrease was driven by lower servicing revenue, largely as a result of lower average third-party loans serviced and lower net production revenue, reflecting a lower repurchase benefit.
The provision for credit losses was a benefit of $690 million, compared to a benefit of $217 million in the prior year, reflecting a larger reduction in the allowance for loan losses and lower net charge-offs. The current-year provision reflected a $600 million reduction in the non credit-impaired allowance for loan losses and a $375 million reduction in the purchased credit-impaired allowance for loan losses; the prior-year provision included a $400 million reduction in the non credit-impaired allowance for loan losses and a $300 million reduction in the purchased credit-impaired allowance for loan losses. These reductions were due to continued improvement in home prices and lower delinquencies in both periods, as well as increased granularity in the impairment estimates in the current year.
Noninterest expense was $4.6 billion, a decrease of 13% from the prior year, reflecting lower headcount-related expense and lower professional fees.
2014 compared with 2013
Mortgage Banking net income was $1.7 billion, a decrease of 48%, from the prior year, driven by a lower benefit from the provision for credit losses and lower net revenue, partially offset by lower noninterest expense.
Net revenue was $7.8 billion, a decrease of 24%, compared with the prior year. Net interest income was $4.2 billion, a decrease of 11%, driven by spread compression and lower loan balances due to portfolio runoff and lower warehouse balances. Noninterest revenue was $3.6 billion, a decrease of 34%, driven by lower net production revenue, largely reflecting lower volumes, lower servicing revenue, largely as a result of lower average third-party loans serviced, and lower revenue from an exited non-core product, largely offset by higher MSR risk management income and lower MSR asset amortization expense as a result of lower MSR asset value. See Note 17 for further information regarding changes in value of the MSR asset and related hedges, and mortgage fees and related income.
The provision for credit losses was a benefit of $217 million, compared to a benefit of $2.7 billion in the prior year, reflecting a smaller reduction in the allowance for loan losses, partially offset by lower net charge-offs. The current-year provision reflected a $400 million reduction in the non credit-impaired allowance for loan losses and $300 million reduction in the purchased credit-impaired allowance for loan losses; the prior-year provision included a $2.3 billion reduction in the non credit-impaired allowance for loan losses and a $1.5 billion reduction in the purchased credit-impaired allowance for loan losses. These reductions were due to continued improvement in home prices and delinquencies.
Noninterest expense was $5.3 billion, a decrease of 30%, from the prior year, reflecting lower headcount-related expense, the absence of non-mortgage-backed securities (“MBS”) related legal expense, lower expense on foreclosure-related matters, and lower FDIC-related expense.
|
| | | | | | | | | | | |
| Supplemental information | | | | |
| For the year ended December 31, | | | | | |
| (in millions) | 2015 | | 2014 | | 2013 |
| Net interest income: | | | | | |
| Mortgage Production and Mortgage Servicing | $ | 575 |
| | $ | 736 |
| | $ | 887 |
|
| Real Estate Portfolios | 3,796 |
| | 3,493 |
| | 3,871 |
|
| Total net interest income | $ | 4,371 |
| | $ | 4,229 |
| | $ | 4,758 |
|
| | | | | | |
| Noninterest expense: | | | | | |
| Mortgage Production | $ | 1,491 |
| | $ | 1,644 |
| | 3,083 |
|
| Mortgage Servicing | 2,041 |
| | 2,267 |
| | 2,966 |
|
| Real Estate Portfolios | 1,075 |
| | 1,373 |
| | 1,553 |
|
| Total noninterest expense | $ | 4,607 |
| | $ | 5,284 |
| | $ | 7,602 |
|
|
| | |
88 | | JPMorgan Chase & Co./2015 Annual Report |
|
| | | | | | | | | | | |
| Selected balance sheet data | | | | |
| As of or for the year ended December 31, | | | | | |
| (in millions) | 2015 | | 2014 | | 2013 |
Trading assets – loans (period-end)(a) | $ | 5,953 |
| | $ | 8,423 |
| | $ | 6,832 |
|
Trading assets – loans (average)(a) | 7,484 |
| | 8,040 |
| | 15,603 |
|
| | | | | | |
| Loans, excluding PCI loans | | | | |
| Period-end loans owned | | | | | |
| Home equity | 43,745 |
| | 50,899 |
| | 57,863 |
|
| Prime mortgage, including option adjustable rate mortgages (“ARMs”) | 134,361 |
| | 80,414 |
| | 65,213 |
|
| Subprime mortgage | 3,732 |
| | 5,083 |
| | 7,104 |
|
| Other | 398 |
| | 477 |
| | 551 |
|
| Total period-end loans owned | 182,236 |
| | 136,873 |
| | 130,731 |
|
| Average loans owned | | | | | |
| Home equity | 47,216 |
| | 54,410 |
| | 62,369 |
|
| Prime mortgage, including option ARMs | 107,723 |
| | 71,491 |
| | 61,597 |
|
| Subprime mortgage | 4,434 |
| | 6,257 |
| | 7,687 |
|
| Other | 436 |
| | 511 |
| | 588 |
|
| Total average loans owned | 159,809 |
| | 132,669 |
| | 132,241 |
|
| | | | | | |
| PCI loans | | | | | |
| Period-end loans owned | | | | | |
| Home equity | 14,989 |
| | 17,095 |
| | 18,927 |
|
| Prime mortgage | 8,893 |
| | 10,220 |
| | 12,038 |
|
| Subprime mortgage | 3,263 |
| | 3,673 |
| | 4,175 |
|
| Option ARMs | 13,853 |
| | 15,708 |
| | 17,915 |
|
| Total period-end loans owned | 40,998 |
| | 46,696 |
| | 53,055 |
|
| Average loans owned | | | | | |
| Home equity | 16,045 |
| | 18,030 |
| | 19,950 |
|
| Prime mortgage | 9,548 |
| | 11,257 |
| | 12,909 |
|
| Subprime mortgage | 3,442 |
| | 3,921 |
| | 4,416 |
|
| Option ARMs | 14,711 |
| | 16,794 |
| | 19,236 |
|
| Total average loans owned | 43,746 |
| | 50,002 |
| | 56,511 |
|
| | | | | | |
| Total Mortgage Banking | | | | | |
| Period-end loans owned | | | | | |
| Home equity | 58,734 |
| | 67,994 |
| | 76,790 |
|
| Prime mortgage, including option ARMs | 157,107 |
| | 106,342 |
| | 95,166 |
|
| Subprime mortgage | 6,995 |
| | 8,756 |
| | 11,279 |
|
| Other | 398 |
| | 477 |
| | 551 |
|
| Total period-end loans owned | 223,234 |
| | 183,569 |
| | 183,786 |
|
| Average loans owned | | | | | |
| Home equity | 63,261 |
| | 72,440 |
| | 82,319 |
|
| Prime mortgage, including option ARMs | 131,982 |
| | 99,542 |
| | 93,742 |
|
| Subprime mortgage | 7,876 |
| | 10,178 |
| | 12,103 |
|
| Other | 436 |
| | 511 |
| | 588 |
|
| Total average loans owned | 203,555 |
| | 182,671 |
| | 188,752 |
|
| |
(a) | Predominantly consists of prime mortgages originated with the intent to sell that are accounted for at fair value. |
|
| | | | | | | | | | | |
| Credit data and quality statistics | | | | |
| As of or for the year ended December 31, | | | | | |
| (in millions, except ratios) | 2015 |
| | 2014 |
| | 2013 |
Net charge-offs/(recoveries), excluding PCI loans(a) | | | | | |
| Home equity | $ | 283 |
| | $ | 473 |
| | $ | 966 |
|
| Prime mortgage, including option ARMs | 48 |
| | 28 |
| | 53 |
|
| Subprime mortgage | (53 | ) | | (27 | ) | | 90 |
|
| Other | 7 |
| | 9 |
| | 10 |
|
| Total net charge-offs/(recoveries), excluding PCI loans | 285 |
| | 483 |
| | 1,119 |
|
| Net charge-off/(recovery) rate, excluding PCI loans | | | | | |
| Home equity | 0.60 | % | | 0.87 | % | | 1.55 | % |
| Prime mortgage, including option ARMs | 0.04 |
| | 0.04 |
| | 0.09 |
|
| Subprime mortgage | (1.22 | ) | | (0.43 | ) | | 1.17 |
|
| Other | 1.61 |
| | 1.76 |
| | 1.70 |
|
| Total net charge-off/(recovery) rate, excluding PCI loans | 0.18 |
| | 0.37 |
| | 0.85 |
|
Net charge-off/(recovery) rate – reported(a) | | | | | |
| Home equity | 0.45 |
| | 0.65 |
| | 1.17 |
|
| Prime mortgage, including option ARMs | 0.04 |
| | 0.03 |
| | 0.06 |
|
| Subprime mortgage | (0.68 | ) | | (0.27 | ) | | 0.74 |
|
| Other | 1.61 |
| | 1.76 |
| | 1.70 |
|
| Total net charge-off/(recovery) rate – reported | 0.14 |
| | 0.27 |
| | 0.59 |
|
| | | | | | |
30+ day delinquency rate, excluding PCI loans(b)(c) | 1.57 |
| | 2.61 |
| | 3.55 |
|
| Allowance for loan losses, excluding PCI loans | $ | 1,588 |
| | $ | 2,188 |
| | $ | 2,588 |
|
Allowance for PCI loans(a) | 2,742 |
| | 3,325 |
| | 4,158 |
|
| Allowance for loan losses | 4,330 |
| | 5,513 |
| | 6,746 |
|
Nonperforming assets(d)(e) | 4,971 |
| | 6,175 |
| | 7,438 |
|
| Allowance for loan losses to period-end loans retained | 1.94 | % | | 3.01 | % | | 3.68 | % |
| Allowance for loan losses to period-end loans retained, excluding PCI loans | 0.87 |
| | 1.60 |
| | 1.99 |
|
| |
(a) | Net charge-offs and the net charge-off rates excluded $208 million, $533 million and $53 million of write-offs in the PCI portfolio for the years ended December 31, 2015, 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 130–132. |
| |
(b) | At December 31, 2015, 2014 and 2013, excluded mortgage loans insured by U.S. government agencies of $8.4 billion $9.7 billion and $9.6 billion, respectively, that are 30 or more days past due. These amounts have been excluded based upon the government guarantee. For further discussion, see Note 14 which summarizes loan delinquency information. |
| |
(c) | The 30+ day delinquency rate for PCI loans was 11.21%, 13.33% and 15.31% at December 31, 2015, 2014 and 2013, respectively. |
| |
(d) | At December 31, 2015, 2014 and 2013, nonperforming assets excluded: (1) mortgage loans insured by U.S. government agencies of $6.3 billion, $7.8 billion and $8.4 billion, respectively, that are 90 or more days past due and (2) REO insured by U.S. government agencies of $343 million, $462 million and $2.0 billion, respectively. These amounts have been excluded based upon the government guarantee. |
| |
(e) | Excludes PCI loans. The Firm is recognizing interest income on each pool of PCI loans as all of the pools are performing. |
|
| | |
JPMorgan Chase & Co./2015 Annual Report | | 89 |
Management’s discussion and analysis
|
| | | | | | | | | | |
| Business metrics | | | | | |
| As of or for the year ended December 31, | | | | | |
| (in billions, except ratios) | 2015 |
| | 2014 |
| | 2013 |
| Mortgage origination volume by channel | | | | | |
| Retail | $ | 36.1 |
| | $ | 29.5 |
| | 77.0 |
|
| Correspondent | 70.3 |
| | 48.5 |
| | 88.5 |
|
Total mortgage origination volume(a) | 106.4 |
| | 78.0 |
| | 165.5 |
|
| | | | | | |
| Total loans serviced (period-end) | 910.1 |
| | 948.8 |
| | 1,017.2 |
|
| Third-party mortgage loans serviced (period-end) | 674.0 |
| | 751.5 |
| | 815.5 |
|
| Third-party mortgage loans serviced (average) | 715.4 |
| | 784.6 |
| | 837.3 |
|
| MSR carrying value (period-end) | 6.6 |
| | 7.4 |
| | 9.6 |
|
| Ratio of MSR carrying value (period-end) to third-party mortgage loans serviced (period-end) | 0.98 | % | | 0.98 | % | | 1.18 | % |
| Ratio of annualized loan servicing-related revenue to third-party mortgage loans serviced (average) | 0.35 |
| | 0.36 |
| | 0.40 |
|
MSR revenue multiple(b) | 2.80 | x | | 2.72 | x | | 2.95x |
|
| |
(a) | Firmwide mortgage origination volume was $115.2 billion, $83.3 billion and $176.4. billion for the years ended December 31, 2015, 2014 and 2013, respectively. |
| |
(b) | Represents the ratio of MSR carrying value (period-end) to third-party mortgage loans serviced (period-end) divided by the ratio of loan servicing-related revenue to third-party mortgage loans serviced (average). |
Mortgage servicing-related matters
The financial crisis resulted in unprecedented levels of delinquencies and defaults of 1–4 family residential real estate loans. Such loans required varying degrees of loss mitigation activities. Foreclosure is usually a last resort, and accordingly, the Firm has made, and continues to make, significant efforts to help borrowers remain in their homes.
The Firm entered into various Consent Orders and settlements with federal and state governmental agencies and private parties related to mortgage servicing, origination, and residential mortgage-backed securities activities. The requirements of these Consent Orders and settlements vary, but in the aggregate, include cash compensatory payments (in addition to fines) and/or “borrower relief,” which may include principal reduction, refinancing, short sale assistance, and other specified types of borrower relief. Other obligations required under certain Consent Orders and settlements, as well as under new regulatory requirements, include enhanced mortgage servicing and foreclosure standards and processes.
On June 11, 2015, the Firm signed the Second Amended Mortgage Banking Consent Order (the “Amended OCC Consent Order”) with the Office of the Comptroller of the Currency (“OCC”), which focused on ten remaining open items from the original mortgage-servicing Consent Order entered into with the OCC in April 2011 and imposed certain business restrictions on the Firm’s mortgage banking activities. The Firm completed its work on those items, and on January 4, 2016, the OCC terminated the Amended OCC Consent Order and lifted the mortgage business restrictions. The Firm remains under the mortgage-servicing Consent Order entered into with the Board of Governors of the Federal Reserve System (“Federal Reserve”) on April 13, 2011, as amended on February 28, 2013 (the “Federal Reserve Consent Order”). The Audit Committee of the Board of Directors will provide governance and oversight of the Federal Reserve Consent Order in 2016.
The Federal Reserve Consent Order and certain other mortgage-related settlements are the subject of ongoing reporting to various regulators and independent overseers. The Firm’s compliance with certain of these settlements is detailed in periodic reports published by the independent overseers. The Firm is committed to fulfilling all of these commitments with appropriate due diligence and oversight.
|
| | |
90 | | JPMorgan Chase & Co./2015 Annual Report |
Card, Commerce Solutions & Auto
|
| | | | | | | | | | | |
| Selected income statement data |
As of or for the year ended December 31, (in millions, except ratios) | 2015 | | 2014 | | 2013 |
| Revenue | | | | | |
| Card income | $ | 3,769 |
| | $ | 4,173 |
| | $ | 4,289 |
|
| All other income | 1,836 |
| | 993 |
| | 1,041 |
|
| Noninterest revenue | 5,605 |
| | 5,166 |
| | 5,330 |
|
| Net interest income | 13,415 |
| | 13,150 |
| | 13,559 |
|
| Total net revenue | 19,020 |
|
| 18,316 |
|
| 18,889 |
|
| | | | | | |
| Provision for credit losses | 3,495 |
| | 3,432 |
| | 2,669 |
|
| | | | | | |
Noninterest expense(a) | 8,386 |
| | 8,176 |
| | 8,078 |
|
| Income before income tax expense | 7,139 |
| | 6,708 |
| | 8,142 |
|
| Net income | $ | 4,430 |
|
| $ | 4,074 |
|
| $ | 4,907 |
|
| | | | | | |
| Return on common equity | 23 | % | | 21 | % | | 31 | % |
| Overhead ratio | 44 |
| | 45 |
| | 43 |
|
| Equity (period-end and average) | $ | 18,500 |
| | $ | 19,000 |
| | $ | 15,500 |
|
Note: Chase Commerce Solutions, formerly known as Merchant Services, includes Chase Paymentech, ChaseNet and Chase Offers businesses.
| |
(a) | Included operating lease depreciation expense of $1.4 billion, $1.2 billion and $972 million for the years ended December 31, 2015, 2014 and 2013, respectively. |
2015 compared with 2014
Card net income was $4.4 billion, an increase of 9% compared with the prior year, driven by higher net revenue, partially offset by higher noninterest expense.
Net revenue was $19.0 billion, an increase of 4% compared with the prior year. Net interest income was $13.4 billion, up 2% from the prior year, driven by higher loan balances and improved credit quality including lower reversals of interest and fees due to lower net charge-offs in Credit Card and a reduction in the reserve for uncollectible interest and fees, partially offset by spread compression. Noninterest revenue was $5.6 billion, up 8% compared with the prior year, driven by higher auto lease and card sales volumes, the impact of non-core portfolio, exits in the prior year and a gain on the investment in Square, Inc. upon its initial public offering, largely offset by the impact of renegotiated co-brand partnership agreements and higher amortization of new account origination costs.
The provision for credit losses was $3.5 billion, an increase of 2% compared with the prior year, reflecting a lower reduction in the allowance for loan losses, predominantly offset by lower net charge-offs. The current-year provision reflected a $51 million reduction in the allowance for loan losses, primarily due to runoff in the student loan portfolio. The prior-year provision included a $554 million reduction in the allowance for loan losses, primarily related to a decrease in the Credit Card asset-specific allowance resulting from increased granularity of the impairment estimates and lower balances related to credit card loans modified in troubled debt restructurings (“TDRs”), runoff in the student loan portfolio and lower estimated losses in auto loans.
Noninterest expense was $8.4 billion, up 3% from the prior year, driven by higher auto lease depreciation and higher marketing expense, partially offset by lower legal expense.
2014 compared with 2013
Card net income was $4.1 billion, a decrease of 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 3% compared with the prior year. Net interest income was $13.2$24.9 billion, a decrease of 3% from the prior year, primarily driven by spread compression in Credit Cardlower headcount-related expense and Auto,lower professional fees, partially offset by higher average loan balances. Noninterest revenue was $5.2 billion, down 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.depreciation.
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 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.
|
| | |
| 54 | | JPMorgan Chase & Co./2016 Annual Report |
|
| | | | | | | | | | | |
| Selected metrics | | | | |
| As of or for the year ended December 31, | | | | | |
| (in millions, except headcount) | 2016 | | 2015 | | 2014 |
| Selected balance sheet data (period-end) | | | | | |
| Total assets | $ | 535,310 |
| | $ | 502,652 |
| | $ | 455,634 |
|
| Loans: | | | | | |
| Consumer & Business Banking | 24,307 |
| | 22,730 |
| | 21,200 |
|
| Home equity | 50,296 |
| | 58,734 |
| | 67,994 |
|
| Residential mortgage and other | 181,196 |
| | 164,500 |
| | 115,575 |
|
| Mortgage Banking | 231,492 |
| | 223,234 |
| | 183,569 |
|
| Credit Card | 141,816 |
| | 131,463 |
| | 131,048 |
|
| Auto | 65,814 |
| | 60,255 |
| | 54,536 |
|
| Student | 7,057 |
| | 8,176 |
| | 9,351 |
|
| Total loans | 470,486 |
| | 445,858 |
| | 399,704 |
|
| Core loans | 382,608 |
| | 341,881 |
| | 273,494 |
|
| Deposits | 618,337 |
| | 557,645 |
| | 502,520 |
|
| Common equity | 51,000 |
| | 51,000 |
| | 51,000 |
|
| Selected balance sheet data (average) | | | | | |
| Total assets | $ | 516,354 |
| | $ | 472,972 |
| | $ | 447,750 |
|
| Loans: | | | | | |
| Consumer & Business Banking | 23,431 |
| | 21,894 |
| | 20,152 |
|
| Home equity | 54,545 |
| | 63,261 |
| | 72,440 |
|
| Residential mortgage and other | 177,010 |
| | 140,294 |
| | 110,231 |
|
| Mortgage Banking | 231,555 |
| | 203,555 |
| | 182,671 |
|
| Credit Card | 131,165 |
| | 125,881 |
| | 125,113 |
|
| Auto | 63,573 |
| | 56,487 |
| | 52,961 |
|
| Student | 7,623 |
| | 8,763 |
| | 9,987 |
|
| Total loans | 457,347 |
| | 416,580 |
| | 390,884 |
|
| Core loans | 361,316 |
| | 301,700 |
| | 253,803 |
|
| Deposits | 586,637 |
| | 530,938 |
| | 486,919 |
|
| Common equity | 51,000 |
| | 51,000 |
| | 51,000 |
|
| | | | | | |
| Headcount | 132,802 |
| | 127,094 |
| | 137,186 |
|
|
| | | | | | | | | |
| Selected metrics | | |
| As of or for the year ended December 31, | | | |
| (in millions, except ratio data) | 2016 | 2015 | 2014 |
| Credit data and quality statistics | | |
Nonaccrual loans(a)(b) | $ | 4,708 |
| $ | 5,313 |
| $ | 6,401 |
|
Net charge-offs(c) | | | |
| Consumer & Business Banking | 257 |
| 253 |
| 305 |
|
| Home equity | 184 |
| 283 |
| 473 |
|
| Residential mortgage and other | 14 |
| 2 |
| 10 |
|
| Mortgage Banking | 198 |
| 285 |
| 483 |
|
| Credit Card | 3,442 |
| 3,122 |
| 3,429 |
|
| Auto | 285 |
| 214 |
| 181 |
|
| Student | 162 |
| 210 |
| 375 |
|
| Total net charge-offs | $ | 4,344 |
| $ | 4,084 |
| $ | 4,773 |
|
| | | | |
Net charge-off rate(c) | | | |
| Consumer & Business Banking | 1.10 | % | 1.16 | % | 1.51 | % |
Home equity(d) | 0.45 |
| 0.60 |
| 0.87 |
|
Residential mortgage and other(d) | 0.01 |
| — |
| 0.01 |
|
Mortgage Banking(d) | 0.10 |
| 0.18 |
| 0.37 |
|
Credit Card(e) | 2.63 |
| 2.51 |
| 2.75 |
|
| Auto | 0.45 |
| 0.38 |
| 0.34 |
|
| Student | 2.13 |
| 2.40 |
| 3.75 |
|
Total net charge-offs rate(d) | 1.04 |
| 1.10 |
| 1.40 |
|
| 30+ day delinquency rate | | | |
Mortgage Banking(f)(g) | 1.23 | % | 1.57 | % | 2.61 | % |
Credit Card(h) | 1.61 |
| 1.43 |
| 1.44 |
|
| Auto | 1.19 |
| 1.35 |
| 1.23 |
|
Student(i) | 1.60 |
| 1.81 |
| 2.35 |
|
| | | | |
90+ day delinquency rate - Credit Card(h) | 0.81 |
| 0.72 |
| 0.70 |
|
| | | | |
| Allowance for loan losses | | | |
| Consumer & Business Banking | $ | 753 |
| $ | 703 |
| $ | 703 |
|
| Mortgage Banking, excluding PCI loans | 1,328 |
| 1,588 |
| 2,188 |
|
Mortgage Banking — PCI loans(c) | 2,311 |
| 2,742 |
| 3,325 |
|
| Credit Card | 4,034 |
| 3,434 |
| 3,439 |
|
| Auto | 474 |
| 399 |
| 350 |
|
| Student | 249 |
| 299 |
| 399 |
|
Total allowance for loan losses(c) | $ | 9,149 |
| $ | 9,165 |
| $ | 10,404 |
|
| |
| (a) | Excludes PCI loans. The Firm is recognizing interest income on each pool of PCI loans as they are all performing. |
| |
| (b) | At December 31, 2016, 2015 and 2014, nonaccrual loans excluded loans 90 or more days past due as follows: (1) mortgage loans insured by U.S. government agencies of $5.0 billion, $6.3 billion and $7.8 billion respectively; and (2) student loans insured by U.S. government agencies under the Federal Family Education Loan Program (“FFELP”) of $263 million, $290 million and $367 million, respectively. These amounts have been excluded based upon the government guarantee. |
| |
| (c) | Net charge-offs and the net charge-off rates for the years ended December 31, 2016, 2015 and 2014, excluded $156 million, $208 million, and $533 million, respectively, of write-offs in the PCI portfolio. These write-offs decreased the allowance for loan losses for PCI loans. For further information on PCI write-offs, see summary of changes in the allowance on page 106. |
|
| | |
JPMorgan Chase & Co./20152016 Annual Report | | 9155 |
Management’s discussion and analysis
|
| | | | | | | | | | | |
| Selected metrics |
As of or for the year ended December 31, (in millions, except ratios and where otherwise noted) | 2015 | | 2014 | | 2013 |
| Selected balance sheet data (period-end) | | | | | |
| Loans: | | | | | |
| Credit Card | $ | 131,463 |
| | $ | 131,048 |
| | $ | 127,791 |
|
| Auto | 60,255 |
| | 54,536 |
| | 52,757 |
|
| Student | 8,176 |
| | 9,351 |
| | 10,541 |
|
| Total loans | $ | 199,894 |
| | $ | 194,935 |
| | $ | 191,089 |
|
| Auto operating lease assets | 9,182 |
| | 6,690 |
| | 5,512 |
|
| Selected balance sheet data (average) | | | | | |
| Total assets | $ | 206,765 |
| | $ | 202,609 |
| | $ | 198,265 |
|
| Loans: | | | | | |
| Credit Card | 125,881 |
| | 125,113 |
| | 123,613 |
|
| Auto | 56,487 |
| | 52,961 |
| | 50,748 |
|
| Student | 8,763 |
| | 9,987 |
| | 11,049 |
|
| Total loans | $ | 191,131 |
| | $ | 188,061 |
| | $ | 185,410 |
|
| Auto operating lease assets | 7,807 |
| | 6,106 |
| | 5,102 |
|
| Business metrics | | | | | |
| Credit Card, excluding Commercial Card | | | | | |
| Sales volume (in billions) | $ | 495.9 |
| | $ | 465.6 |
| | $ | 419.5 |
|
| New accounts opened | 8.7 |
| | 8.8 |
| | 7.3 |
|
| Open accounts | 59.3 |
| | 64.6 |
| | 65.3 |
|
| Accounts with sales activity | 33.8 |
| | 34.0 |
| | 32.3 |
|
| % of accounts acquired online | 67 | % | | 56 | % | | 55 | % |
| Commerce Solutions | | | | | |
| Merchant processing volume (in billions) | $ | 949.3 |
| | $ | 847.9 |
| | $ | 750.1 |
|
| Total transactions (in billions) | 42.0 |
| | 38.1 |
| | 35.6 |
|
| Auto | | | | | |
| Loan and lease origination volume (in billions) | 32.4 |
| | 27.5 |
| | 26.1 |
|
|
|
The following are brief descriptions of selected business metrics within Card, Commerce Solutions & Auto. |
Card Services includes the Credit Card and Commerce Solutions businesses.
|
Commerce Solutions is a business that primarily processes transactions for merchants.
|
Total transactions – Number of transactions and authorizations processed for merchants.
|
Sales volume – Dollar amount of cardmember purchases, net of returns.
|
Open accounts – Cardmember accounts with charging privileges.
|
Accounts with sales activity –represents the number of cardmember accounts with a sales transaction within the past month.
|
Auto origination volume – Dollar amount of auto loans and leases originated.
|
|
| | |
92 | | JPMorgan Chase & Co./2015 Annual Report |
|
| | | | | | | | | | | | |
| Selected metrics |
As of or for the year ended December 31,
(in millions, except ratios) | | 2015 | | 2014 | | 2013 |
| Credit data and quality statistics | | | | | | |
| Net charge-offs: | | | | | | |
| Credit Card | | $ | 3,122 |
| | $ | 3,429 |
| | $ | 3,879 |
|
| Auto | | 214 |
| | 181 |
| | 158 |
|
| Student | | 210 |
| | 375 |
| | 333 |
|
| Total net charge-offs | | $ | 3,546 |
| | $ | 3,985 |
| | $ | 4,370 |
|
| Net charge-off rate: | | | | | | |
Credit Card(a) | | 2.51 | % | | 2.75 | % | | 3.14 | % |
| Auto | | 0.38 |
| | 0.34 |
| | 0.31 |
|
| Student | | 2.40 |
| | 3.75 |
| | 3.01 |
|
| Total net charge-off rate | | 1.87 |
| | 2.12 |
| | 2.36 |
|
| Delinquency rates | | | | | | |
| 30+ day delinquency rate: | | | | | | |
Credit Card(b) | | 1.43 |
| | 1.44 |
| | 1.67 |
|
| Auto | | 1.35 |
| | 1.23 |
| | 1.15 |
|
Student(c) | | 1.81 |
| | 2.35 |
| | 2.56 |
|
| Total 30+ day delinquency rate | | 1.42 |
| | 1.42 |
| | 1.58 |
|
90+ day delinquency rate – Credit Card(b) | | 0.72 |
| | 0.70 |
| | 0.80 |
|
Nonperforming assets(d) | | $ | 394 |
| | $ | 411 |
| | $ | 280 |
|
| Allowance for loan losses: | | | | | | |
| Credit Card | | $ | 3,434 |
| | $ | 3,439 |
| | $ | 3,795 |
|
| Auto & Student | | 698 |
| | 749 |
| | 953 |
|
| Total allowance for loan losses | | $ | 4,132 |
| | $ | 4,188 |
| | $ | 4,748 |
|
| Allowance for loan losses to period-end loans: | | | | | | |
Credit Card(b) | | 2.61 | % | | 2.69 | % | | 2.98 | % |
| Auto & Student | | 1.02 |
| | 1.17 |
| | 1.51 |
|
| Total allowance for loan losses to period-end loans | | 2.07 |
| | 2.18 |
| | 2.49 |
|
| |
(a)(d) | Excludes the impact of PCI loans. For the years ended December 31, 2016, 2015 and 2014, the net charge-off rates including the impact of PCI loans were as follows: (1) home equity of 0.34%, 0.45% and 0.65%, respectively; (2) residential mortgage and other of 0.01%, –% and 0.01%, respectively; (3) Mortgage Banking of 0.09%, 0.14% and 0.27%, respectively; and (4) total CCB of 0.95%, 0.99% and 1.22%, respectively. |
| |
| (e) | Average credit card loans included loans held-for-sale of $84 million, $1.6 billion $509 million and $95$509 million for the years ended December 31, 2016, 2015 2014 and 2013,2014, respectively. These amounts are excluded when calculating the net charge-off rate. |
| |
(b)(f) | Period-end credit card loans included loans held-for-sale of $76 million,$3.0 billion and $326 million atAt December 31, 2016, 2015 and 2014, and 2013, respectively. These amounts were excluded when calculating delinquency rates and the allowance for loan losses to period-end loans. |
| |
(c) | Excluded studentmortgage loans insured by U.S. government agencies under the FFELP of $526 million, $654 million$7.0 billion, $8.4 billion and $737 million at December 31, 2015, 2014 and 2013,$9.7 billion, respectively, that are 30 or more days past due. These amounts have been excluded based upon the government guarantee. |
| |
(d)(g) | Nonperforming assetsExcludes PCI loans. The 30+ day delinquency rate for PCI loans was 9.82%, 11.21% and 13.33% at December 31, 2016, 2015 and 2014, respectively. |
| |
| (h) | Period-end credit card loans included loans held-for-sale of $105 million, $76 million and $3.0 billion at December 31, 2016, 2015 and 2014, respectively. These amounts are excluded when calculating delinquency rates. |
| |
| (i) | Excluded student loans insured by U.S. government agencies under the FFELP of $290$468 million, $367$526 million and $428$654 million at December 31, 2016, 2015 2014 and 2013,2014, respectively, that are 9030 or more days past due. These amounts have been excluded from nonaccrual loans based upon the government guarantee. |
|
| | | | | | | | | | | |
| Card Services supplemental information |
Year ended December 31, (in millions, except ratios) | 2015 | | 2014 | | 2013 |
| Revenue | | | | | |
| Noninterest revenue | $ | 3,673 |
| | $ | 3,593 |
| | $ | 3,977 |
|
| Net interest income | 11,845 |
| | 11,462 |
| | 11,638 |
|
| Total net revenue | 15,518 |
| | 15,055 |
| | 15,615 |
|
| | | | | | |
| Provision for credit losses | 3,122 |
| | 3,079 |
| | 2,179 |
|
| | | | | | |
| Noninterest expense | 6,065 |
| | 6,152 |
| | 6,245 |
|
| Income before income tax expense | 6,331 |
| | 5,824 |
| | 7,191 |
|
| Net income | $ | 3,930 |
| | $ | 3,547 |
| | $ | 4,340 |
|
| | | | | | |
| Percentage of average loans: | | | | | |
| Noninterest revenue | 2.92 | % | | 2.87 | % | | 3.22 | % |
| Net interest income | 9.41 |
| | 9.16 |
| | 9.41 |
|
| Total net revenue | 12.33 |
| | 12.03 |
| | 12.63 |
|
|
| | | | | | | | | | | |
| Selected metrics | | | | |
| As of or for the year ended December 31, | | | | | |
| (in billions, except ratios and where otherwise noted) | 2016 | | 2015 | | 2014 |
| Business Metrics | | | | | |
| CCB households (in millions) | 60.0 |
| | 57.8 |
| | 57.2 |
|
| Number of branches | 5,258 |
| | 5,413 |
| | 5,602 |
|
Active digital customers (in thousands)(a) | 43,836 |
| | 39,242 |
| | 36,396 |
|
Active mobile customers (in thousands)(b) | 26,536 |
| | 22,810 |
| | 19,084 |
|
| Debit and credit card sales volume | $ | 817.9 |
| | $ | 753.8 |
| | $ | 707.0 |
|
| | | | | | |
| Consumer & Business Banking | | | | | |
| Average deposits | $ | 570.8 |
| | $ | 515.2 |
| | $ | 472.3 |
|
| Deposit margin | 1.81 | % | | 1.90 | % | | 2.21 | % |
| Business banking origination volume | $ | 7.3 |
| | $ | 6.8 |
| | $ | 6.6 |
|
| Client investment assets | 234.5 |
| | 218.6 |
| | 213.5 |
|
| | | | | | |
| Mortgage Banking | | | | | |
| Mortgage origination volume by channel | | | | | |
| Retail | $ | 44.3 |
| | $ | 36.1 |
| | $ | 29.5 |
|
| Correspondent | 59.3 |
| | 70.3 |
| | 48.5 |
|
Total mortgage origination volume(c) | $ | 103.6 |
| | $ | 106.4 |
| | $ | 78.0 |
|
Total loans serviced (period-end) | $ | 846.6 |
| | $ | 910.1 |
| | $ | 948.8 |
|
| Third-party mortgage loans serviced (period-end) | 591.5 |
| | 674.0 |
| | 751.5 |
|
MSR carrying value (period-end) | 6.1 |
| | 6.6 |
| | 7.4 |
|
| Ratio of MSR carrying value (period-end) to third-party mortgage loans serviced (period-end) | 1.03 | % | | 0.98 | % | | 0.98 | % |
| | | | | | |
MSR revenue multiple(d) | 2.94 | x | | 2.80 | x | | 2.72 | x |
| | | | | | |
| Credit Card, excluding Commercial Card | | | | | |
| Credit card sales volume | $ | 545.4 |
| | $ | 495.9 |
| | $ | 465.6 |
|
New accounts opened (in millions) | 10.4 |
| | 8.7 |
| | 8.8 |
|
| | | | | | |
| Card Services | | | | | |
| Net revenue rate | 11.29 | % | | 12.33 | % | | 12.03 | % |
| | | | | | |
| Commerce Solutions | | | | | |
| Merchant processing volume | $ | 1,063.4 |
| | $ | 949.3 |
| | $ | 847.9 |
|
| | | | | | |
| Auto | | | | | |
| Loan and lease origination volume | $ | 35.4 |
| | $ | 32.4 |
| | $ | 27.5 |
|
| Average Auto operating lease assets | 11.0 |
| | 7.8 |
| | 6.1 |
|
| |
| (a) | Users of all web and/or mobile platforms who have logged in within the past 90 days. |
| |
| (b) | Users of all mobile platforms who have logged in within the past 90 days. |
| |
| (c) | Firmwide mortgage origination volume was $117.4 billion, $115.2 billion and $83.3 billion for the years ended December 31, 2016, 2015 and 2014, respectively. |
| |
| (d) | Represents the ratio of MSR carrying value (period-end) to third-party mortgage loans serviced (period-end) divided by the ratio of loan servicing-related revenue to third-party mortgage loans serviced (average). |
|
| | |
| 56 | | JPMorgan Chase & Co./2016 Annual Report |
Mortgage servicing-related matters
The Firm has resolved the majority of the consent orders and settlements into which it entered with federal and state governmental agencies and private parties related to mortgage servicing, origination, and residential mortgage-backed securities activities. However, among those obligations, the mortgage servicing-related Consent Order entered into with the Federal Reserve on April 13, 2011, as amended on February 28, 2013, and certain other settlements remain outstanding. The Audit Committee of the Board of Directors provides governance and oversight of the Federal Reserve Consent Order.
The Federal Reserve Consent Order and other obligations under certain mortgage-related settlements are the subject of ongoing reporting to various regulators and independent overseers. The Firm’s compliance with certain of these settlements is detailed in periodic reports published by the independent overseers. The Firm is committed to fulfilling its commitments with appropriate diligence.
|
| | |
JPMorgan Chase & Co./20152016 Annual Report | | 9357 |
Management’s discussion and analysis
|
| | | | |
| CORPORATE & INVESTMENT BANK |
|
|
| The Corporate & Investment Bank, which consists 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. Banking 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. Banking also includes Treasury Services, which provides transaction services, consisting of cash management and liquidity solutions. Markets & Investor Services 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 Securities Services, a leading global custodian which provides custody, fund accounting and administration, and securities lending products principally for asset managers, insurance companies and public and private investment funds. |
| | | Selected income statement data | Selected income statement data | | | Selected income statement data | | |
| Year ended December 31, | | |
| (in millions) | 2015 | | 2014 | | 2013 | 2016 | | 2015 | | 2014 |
| Revenue | | | | | | | | | | |
| Investment banking fees | $ | 6,736 |
| | $ | 6,570 |
| | $ | 6,331 |
| $ | 6,424 |
| | $ | 6,736 |
| | $ | 6,570 |
|
Principal transactions(a) | 9,905 |
| | 8,947 |
| | 9,289 |
| 11,089 |
| | 9,905 |
| | 8,947 |
|
| Lending- and deposit-related fees | 1,573 |
| | 1,742 |
| | 1,884 |
| 1,581 |
| | 1,573 |
| | 1,742 |
|
| Asset management, administration and commissions | 4,467 |
| | 4,687 |
| | 4,713 |
| 4,062 |
| | 4,467 |
| | 4,687 |
|
All other income | 1,012 |
| | 1,474 |
| | 1,519 |
| 1,169 |
| | 1,012 |
| | 1,474 |
|
| Noninterest revenue | 23,693 |
| | 23,420 |
| | 23,736 |
| 24,325 |
| | 23,693 |
| | 23,420 |
|
Net interest income | 9,849 |
| | 11,175 |
| | 10,976 |
| 10,891 |
| | 9,849 |
| | 11,175 |
|
Total net revenue(b) | 33,542 |
| | 34,595 |
| | 34,712 |
| 35,216 |
| | 33,542 |
| | 34,595 |
|
| | | | | | | | | | | |
| Provision for credit losses | 332 |
| | (161 | ) | | (232 | ) | 563 |
| | 332 |
| | (161 | ) |
| | | | | | | | | | | |
| Noninterest expense | | | | | | | | | | |
| Compensation expense | 9,973 |
| | 10,449 |
| | 10,835 |
| 9,546 |
| | 9,973 |
| | 10,449 |
|
| Noncompensation expense | 11,388 |
| | 12,824 |
| | 10,909 |
| 9,446 |
| | 11,388 |
| | 12,824 |
|
| Total noninterest expense | 21,361 |
| | 23,273 |
| | 21,744 |
| 18,992 |
| | 21,361 |
| | 23,273 |
|
| Income before income tax expense | 11,849 |
| | 11,483 |
| | 13,200 |
| 15,661 |
| | 11,849 |
| | 11,483 |
|
| Income tax expense | 3,759 |
| | 4,575 |
| | 4,350 |
| 4,846 |
| | 3,759 |
| | 4,575 |
|
| Net income | $ | 8,090 |
| | $ | 6,908 |
| | $ | 8,850 |
| $ | 10,815 |
| | $ | 8,090 |
| | $ | 6,908 |
|
| |
| (a) | Included FVA and debt valuation adjustment (“DVA”) on OTC derivatives and structured notes, measured at fair value. FVA andDVA gains/(losses) were $687 million and $468 million and $(1.9) billion for the years ended December 31, 2015, 2014 and 2013, respectively.
|
| |
(b) | Included tax-equivalent adjustments, predominantly due to income tax credits related to alternative energy investments; income tax credits and amortization of the cost of investments in affordable housing projects; as well asand tax-exempt income from municipal bond investmentsbonds of $2.0 billion, $1.7 billion $1.6 billion and $1.5$1.6 billion for the years ended December 31, 2016, 2015 2014 and 2013,2014, respectively. |
| | | Selected income statement data | Selected income statement data | | | Selected income statement data | | |
| Year ended December 31, | | |
| (in millions, except ratios) | 2015 | | 2014 | | 2013 | 2016 | | 2015 | | 2014 |
| Financial ratios | | | | | | | | | | |
| Return on common equity | 12 | % | | 10 | % | | 15 | % | 16% |
| | 12 | % | | 10 | % |
| Overhead ratio | 64 |
| | 67 |
| | 63 |
| 54 |
| | 64 |
| | 67 |
|
Compensation expense as percentage of total net revenue | 30 |
| | 30 |
| | 31 |
| 27 |
| | 30 |
| | 30 |
|
| Revenue by business | | | | | | | | | | |
Investment banking(a) | 6,376 |
| | 6,122 |
| | 5,922 |
| |
| Investment Banking | | $ | 5,950 |
| | $ | 6,376 |
| | $ | 6,122 |
|
Treasury Services(b) | 3,631 |
| | 3,728 |
| | 3,693 |
| 3,643 |
| | 3,631 |
| | 3,728 |
|
Lending(b) | 1,461 |
| | 1,547 |
| | 2,147 |
| 1,208 |
| | 1,461 |
| | 1,547 |
|
Total Banking(a) | 11,468 |
| | 11,397 |
| | 11,762 |
| 10,801 |
| | 11,468 |
| | 11,397 |
|
Fixed Income Markets(a) | 12,592 |
| | 14,075 |
| | 15,976 |
| 15,259 |
| | 12,592 |
| | 14,075 |
|
Equity Markets(a) | 5,694 |
| | 5,044 |
| | 4,994 |
| 5,740 |
| | 5,694 |
| | 5,044 |
|
| Securities Services | 3,777 |
| | 4,351 |
| | 4,100 |
| 3,591 |
| | 3,777 |
| | 4,351 |
|
Credit Adjustments & Other(c)(a) | 11 |
| | (272 | ) | | (2,120 | ) | (175 | ) | | 11 |
| | (272 | ) |
Total Markets & Investor Service(a) | 22,074 |
| | 23,198 |
| | 22,950 |
| 24,415 |
| | 22,074 |
| | 23,198 |
|
| Total net revenue | $ | 33,542 |
| | $ | 34,595 |
| | $ | 34,712 |
| $ | 35,216 |
| | $ | 33,542 |
| | $ | 34,595 |
|
| |
| (a) | Effective in 2015, Investment banking revenue (formerly Investment banking fees) incorporates all revenue associated with investment banking activities, and is reported net of investment banking revenue shared with other lines of business; previously such shared revenue had been reported in Fixed Income Markets and Equity Markets. Prior period amounts have been revised to conform with the current period presentation. |
| |
(b) | Effective in 2015, Trade Finance revenue was transferred from Treasury Services to Lending. Prior period amounts have been revised to conform with the current period presentation. |
| |
(c) | ConsistsJanuary 1, 2016, consists primarily of credit valuation adjustments (“CVA”) managed by the credit portfolio group, and FVACredit Portfolio Group, Funding valuation adjustment (“FVA”) and DVA on OTC derivatives and structured notes.derivatives. Results are primarily reported in Principal transactions. Prior periods also include DVA on fair value option elected liabilities. Results are presented net of associated hedging activities and net of CVA and FVA amounts allocated to Fixed Income Markets and Equity Markets.Effective January 1, 2016, changes in DVA on fair value option elected liabilities is recognized in OCI. For additional information, see Accounting and Reporting Developments on page 135 and Notes 3, 4 and 25. |
2016 compared with 2015
Net income was $10.8 billion, up 34% compared with the prior year, driven by lower noninterest expense and higher net revenue, partially offset by a higher provision for credit losses.
Banking revenue was $10.8 billion, down 6% compared with the prior year. Investment banking revenue was $6.0 billion, down 7% from the prior year, largely driven by lower equity underwriting fees. The Firm maintained its #1 ranking for Global Investment Banking fees, according to Dealogic. Equity underwriting fees were $1.2 billion, down 19% driven by lower industry-wide fee levels; however, the Firm improved its market share and maintained its #1 ranking in equity underwriting fees globally as well as in both North America and Europe and its #1 ranking by volumes across all products, according to Dealogic. Advisory fees were $2.1 billion, down 1%; the Firm maintained its #2 ranking for M&A, according to Dealogic. Debt underwriting fees were $3.2 billion; the Firm maintained its #1 ranking globally in fees across high grade, high yield, and loan products, according to Dealogic. Treasury Services revenue was $3.6 billion. Lending revenue was $1.2 billion, down 17% from the prior year, reflecting fair value losses on hedges of accrual loans.
|
| | |
9458 | | JPMorgan Chase & Co./20152016 Annual Report |
Markets & Investor Services revenue was $24.4 billion, up 11% from the prior year. Fixed Income Markets revenue was $15.3 billion, up 21% from the prior year, driven by broad strength across products. Rates performance was strong, with increased client activity driven by high issuance-based flows, global political developments, and central bank actions. Credit and Securitized Products revenue improved driven by higher market-making revenue from the secondary market as clients’ risk appetite recovered, and due to increased financing activity. Equity Markets revenue was $5.7 billion, up 1%, compared to a strong prior-year. Securities Services revenue was $3.6 billion, down 5% from the prior year, largely driven by lower fees and commissions. Credit Adjustments and Other was a loss of $175 million driven by valuation adjustments, compared with an $11 million gain in prior-year, which included funding spread gains on fair value option elected liabilities.
The provision for credit losses was $563 million, compared to $332 million in the prior year, reflecting a higher allowance for credit losses, including the impact of select downgrades within the Oil & Gas portfolio.
Noninterest expense was $19.0 billion, down 11% compared with the prior year, driven by lower legal and compensation expenses.
2015 compared with 2014
Net income was $8.1 billion, up 17% compared with $6.9 billion in the prior year. The increase primarily reflected lower income tax expenses largely reflecting the release in 2015 of U.S. deferred taxes associated with the restructuring of certain non-U.S. entities and lower noninterest expense partially offset by lower net revenue, both driven by business simplification, as well as higher provisions for credit losses.
Banking revenue was $11.5 billion, up 1% versus the prior year. Investment banking revenue was $6.4 billion, up 4% from the prior year, driven by higher advisory fees, partially offset by lower debt and equity underwriting fees. Advisory fees were $2.1 billion, up 31% on a greater share of fees for completed transactions as well as growth in the industry-wide fee levels. The Firm maintained its #2 ranking for M&A, according to Dealogic. Debt underwriting fees were $3.2 billion, down 6%, primarily related to lower bond underwriting and loan syndication fees on lower industry-wide fee levels. The Firm ranked #1 globally in fee share across high grade, high yield and loan products. Equity underwriting fees were $1.4 billion, down 9%, driven by lower industry-wide fee levels. The Firm was #1 in equity underwriting fees in 2015, up from #3 in 2014. Treasury Services revenue was $3.6 billion, down 3% compared with the prior year, primarily driven by lower net interest income. Lending revenue was $1.5 billion, down 6% from the prior year, driven by lower trade finance revenue on lower loan balances.
Markets & Investor Services revenue was $22.1 billion, down 5% from the prior year. Fixed Income Markets revenue was $12.6 billion, down 11% from the prior year, primarily driven by the impact of business simplification as well as lower revenue in credit-related products on an industry-wide slowdown, partially offset by increased revenue in Rates and Currencies & Emerging Markets on higher client activity. The lower Fixed Income revenue also reflected higher interest costs on higher long-term debt. Equity Markets revenue was $5.7 billion, up 13%, primarily driven by higher equity derivatives revenue across all regions. Securities Services revenue was $3.8 billion, down 13% from the prior year, driven by lower fees as well as lower net interest income.
The provision for credit losses was $332 million, compared to a benefit of $161 million in the prior year, reflecting a higher allowance for credit losses, including the impact of select downgrades within the Oil & Gas portfolio.
Noninterest expense was $21.4 billion, down 8% compared with the prior year, driven by the impact of business simplification as well as lower legal and compensation expenses.
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 higher noninterest expense. Net revenue was $34.6 billion, flat compared with the prior year.
Banking revenue was $11.4 billion, down 3% from the prior year. Investment banking revenue was $6.1 billion, up 3% 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 with the prior year. Treasury Services revenue was $3.7 billion, up 1% compared with the prior year, primarily driven by higher net interest income from increased deposits, largely offset by business simplification initiatives. Lending revenue was $1.5 billion, down from $2.1 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 and lower trade finance revenue.
Markets & Investor Services revenue was $23.2 billion, up 1% from the prior year. Fixed Income Markets revenue was $14.1 billion, down 12% 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 $5.0 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 with 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.
|
| | |
JPMorgan Chase & Co./20152016 Annual Report | | 9559 |
Management’s discussion and analysis
| | | Selected metrics | Selected metrics | | | | | Selected metrics | | | | |
As of or for the year ended December 31, (in millions, except headcount) | | |
| 2015 | | 2014 | | 2013 | 2016 | | 2015 | | 2014 |
| Selected balance sheet data (period-end) | | | | | | | | | | |
| Assets | $ | 748,691 |
| | $ | 861,466 |
| | $ | 843,248 |
| $ | 803,511 |
| | $ | 748,691 |
| | $ | 861,466 |
|
| Loans: | | | | | | | | | | |
Loans retained(a) | 106,908 |
| | 96,409 |
| | 95,627 |
| 111,872 |
| | 106,908 |
| | 96,409 |
|
| Loans held-for-sale and loans at fair value | 3,698 |
| | 5,567 |
| | 11,913 |
| 3,781 |
| | 3,698 |
| | 5,567 |
|
| Total loans | 110,606 |
| | 101,976 |
| | 107,540 |
| 115,653 |
| | 110,606 |
| | 101,976 |
|
| Core Loans | 110,084 |
| | 100,772 |
| | 101,376 |
| 115,243 |
| | 110,084 |
| | 100,772 |
|
| Equity | 62,000 |
| | 61,000 |
| | 56,500 |
| |
| Common equity | | 64,000 |
| | 62,000 |
| | 61,000 |
|
| Selected balance sheet data (average) | | | | | | | | | | |
| Assets | $ | 824,208 |
| | $ | 854,712 |
| | $ | 859,071 |
| $ | 815,321 |
| | $ | 824,208 |
| | $ | 854,712 |
|
| Trading assets-debt and equity instruments | 302,514 |
| | 317,535 |
| | 321,585 |
| 300,606 |
| | 302,514 |
| | 317,535 |
|
| Trading assets-derivative receivables | 67,263 |
| | 64,833 |
| | 70,353 |
| 63,387 |
| | 67,263 |
| | 64,833 |
|
| Loans: | | | | | | | | | | |
Loans retained(a) | 98,331 |
| | 95,764 |
| | 104,864 |
| 111,082 |
| | 98,331 |
| | 95,764 |
|
| Loans held-for-sale and loans at fair value | 4,572 |
| | 7,599 |
| | 5,158 |
| 3,812 |
| | 4,572 |
| | 7,599 |
|
| Total loans | 102,903 |
| | 103,363 |
| | 110,022 |
| 114,894 |
| | 102,903 |
| | 103,363 |
|
| Core Loans | 99,231 |
| | 102,604 |
| | 108,199 |
| |
| Equity | 62,000 |
| | 61,000 |
| | 56,500 |
| |
Core Loans(b) | | 114,455 |
| | 102,142 |
| | 99,500 |
|
| Common equity | | 64,000 |
| | 62,000 |
| | 61,000 |
|
| | | | | | | | | | | |
Headcount(b) | 49,067 |
| | 50,965 |
| | 52,082 |
| 48,748 |
| | 49,067 |
| | 50,965 |
|
| |
| (a) | Loans retained includes credit portfolio loans, loans held by consolidated Firm-administered multi-seller conduits, trade finance loans, other held-for-investment loans and overdrafts. |
| |
| (b) | Effective in 2015, certain technology staffPrior period amounts were transferred from CIB to CB; previously-reported headcount has been revised to conform with the current period presentation. As the related expense for these staff is not material, prior period expenses have not been revised. Prior to 2015, compensation expense related to this headcount was recorded in the CIB, with an allocation to CB (reported in noncompensation expense); commencing with 2015, such expense is recorded as compensation expense in CB and accordingly total noninterest expense related to this headcount in both CB and CIB remains unchanged. |
| | | Selected metrics | | | | | | | | | | |
As of or for the year ended December 31, (in millions, except ratios) | | |
| 2015 | | 2014 | | 2013 | 2016 | | 2015 | | 2014 |
| Credit data and quality statistics | | | | | | | | | | |
| Net charge-offs/(recoveries) | $ | (19 | ) | | $ | (12 | ) | | $ | (78 | ) | $ | 168 |
| | $ | (19 | ) | | $ | (12 | ) |
| Nonperforming assets: | | | | | | | | | | |
| Nonaccrual loans: | | | | | | | | | | |
Nonaccrual loans retained(a) | 428 |
| | 110 |
| | 163 |
| 467 |
| | 428 |
| | 110 |
|
Nonaccrual loans held-for-sale and loans at fair value | 10 |
| | 11 |
| | 180 |
| 109 |
| | 10 |
| | 11 |
|
| Total nonaccrual loans | 438 |
| | 121 |
| | 343 |
| 576 |
| | 438 |
| | 121 |
|
| Derivative receivables | 204 |
| | 275 |
| | 415 |
| 223 |
| | 204 |
| | 275 |
|
| Assets acquired in loan satisfactions | 62 |
| | 67 |
| | 80 |
| 79 |
| | 62 |
| | 67 |
|
| Total nonperforming assets | 704 |
| | 463 |
| | 838 |
| 878 |
| | 704 |
| | 463 |
|
| Allowance for credit losses: | | | | | | | | | | |
| Allowance for loan losses | 1,258 |
| | 1,034 |
| | 1,096 |
| 1,420 |
| | 1,258 |
| | 1,034 |
|
| Allowance for lending-related commitments | 569 |
| | 439 |
| | 525 |
| 801 |
| | 569 |
| | 439 |
|
| Total allowance for credit losses | 1,827 |
| | 1,473 |
| | 1,621 |
| 2,221 |
| | 1,827 |
| | 1,473 |
|
| Net charge-off/(recovery) rate | (0.02 | )% | | (0.01 | )% | | 0.07 | % | 0.15 | % | | (0.02 | )% | | (0.01 | )% |
Allowance for loan losses to period-end loans retained | 1.18 |
| | 1.07 |
| | 1.15 |
| 1.27 |
| | 1.18 |
| | 1.07 |
|
Allowance for loan losses to period-end loans retained, excluding trade finance and conduits(b) | 1.88 |
| | 1.82 |
| | 2.02 |
| 1.86 |
| | 1.88 |
| | 1.82 |
|
Allowance for loan losses to nonaccrual loans retained(a) | 294 |
| | 940 |
| | 672 |
| 304 |
| | 294 |
| | 940 |
|
| Nonaccrual loans to total period-end loans | 0.40 |
| | 0.12 |
| | 0.32 |
| 0.50 |
| | 0.40 |
| | 0.12 |
|
| |
| (a) | Allowance for loan losses of $113 million, $177 million $18 million and $51$18 million were held against these nonaccrual loans at December 31, 2016, 2015 2014 and 2013,2014, respectively. |
| |
| (b) | Management uses allowance for loan losses to period-end loans retained, excluding trade finance and conduits, a non-GAAP financial measure, to provide a more meaningful assessment of CIB’s allowance coverage ratio. |
| | | Business metrics | | | | | | |
| Investment banking fees | | | | | | |
| | Year ended December 31, | Year ended December 31, |
| (in millions) | 2015 | | 2014 | | 2013 | 2016 | | 2015 | | 2014 |
| Advisory | $ | 2,133 |
| | $ | 1,627 |
| | $ | 1,315 |
| $ | 2,110 |
| | $ | 2,133 |
| | $ | 1,627 |
|
| Equity underwriting | 1,434 |
| | 1,571 |
| | 1,499 |
| 1,159 |
| | 1,434 |
| | 1,571 |
|
Debt underwriting | 3,169 |
| | 3,372 |
| | 3,517 |
| 3,155 |
| | 3,169 |
| | 3,372 |
|
| Total investment banking fees | $ | 6,736 |
| | $ | 6,570 |
| | $ | 6,331 |
| $ | 6,424 |
| | $ | 6,736 |
| | $ | 6,570 |
|
(a) Includes loans syndication
|
| | |
9660 | | JPMorgan Chase & Co./20152016 Annual Report |
|
| | | | | | | | | | | | | | | | | | | | |
| | League table results – wallet share | | League table results – volumes | | | | | |
| | | 2015 | | 2014 | | 2013 | | | 2015 | | 2014 | | 2013 | |
| | Year ended
December 31, | Fee Share | Rankings | | Fee Share | Rankings | | Fee Share | Rankings | | Year ended December 31, | Market Share | Rankings | | Market Share | Rankings | | Market Share | Rankings | |
| | Based on fees(a) | | | | | | | | | | Based on volume(f) | | | | | | | | | |
| | Debt, equity and equity-related | | | | | | | | | | Debt, equity and equity-related | | | | | | | | | |
| | Global | 7.7% | #1 | | 7.6% | #1 | | 8.3% | #1 | | Global | 6.8% | #1 | | 6.8% | #1 | | 7.3% | #1 | |
| | U.S. | 11.6 | 1 | | 10.7 | 1 | | 11.4 | 1 | | U.S. | 11.3 | 1 | | 11.8 | 1 | | 11.9 | 1 | |
| | Long-term debt(b) | | | | | | | | | | Long-term debt(b) | | | | | | | | | |
| | Global | 8.3 | 1 | | 8.0 | 1 | | 8.2 | 1 | | Global | 6.8 | 1 | | 6.7 | 1 | | 7.2 | 1 | |
| | U.S. | 11.9 | 1 | | 11.7 | 1 | | 11.5 | 2 | | U.S. | 10.8 | 1 | | 11.3 | 1 | | 11.8 | 1 | |
| | Equity and equity-related | | | | | | | | | | Equity and equity-related | | | | | | | | | |
| | Global(c) | 7.0 | 1 | | 7.1 | 3 | | 8.4 | 2 | | Global(c) | 7.2 | 3 | | 7.5 | 3 | | 8.2 | 2 | |
| | U.S. | 11.1 | 1 | | 9.6 | 3 | | 11.2 | 2 | | U.S. | 12.4 | 1 | | 11.0 | 2 | | 12.1 | 2 | |
| | M&A(d) | | | | | | | | | | M&A announced(d) | | | | | | | | | |
| | Global | 8.5 | 2 | | 8.0 | 2 | | 7.5 | 2 | | Global | 30.1 | 3 | | 20.5 | 2 | | 24.1 | 2 | |
| | U.S. | 10.0 | 2 | | 9.7 | 2 | | 8.7 | 2 | | U.S. | 36.7 | 2 | | 25.2 | 3 | | 36.9 | 1 | |
| | Loan syndications | | | | | | | | | | Loan syndications | | | | | | | | | |
| | Global | 7.6 | 1 | | 9.3 | 1 | | 9.9 | 1 | | Global | 10.5 | 1 | | 12.3 | 1 | | 11.6 | 1 | |
| | U.S. | 10.7 | 2 | | 13.1 | 1 | | 13.8 | 1 | | U.S. | 16.8 | #1 | | 19.0 | #1 | | 17.8 | #1 | |
| | Global Investment Banking fees (a)(e) | 7.9% | #1 | | 8.0% | #1 | | 8.5% | #1 | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
(a) Source: Dealogic. Reflects the ranking of revenue wallet and market share. (b) Long-term debt rankings include investment-grade, high-yield, supranationals, sovereigns, agencies, covered bonds, asset-backed securities (“ABS”) and MBS; and exclude money market, short-term debt, and U.S. municipal securities. (c) Global equity and equity-related rankings include rights offerings and Chinese A-Shares. (d) M&A and Announced M&A rankings reflect the removal of any withdrawn transactions. U.S. M&A revenue wallet represents wallet from client parents based in the U.S. U.S. announced M&A volumes represents any U.S. involvement ranking. (e) Global investment banking fees per Dealogic exclude money market, short-term debt and shelf deals. (f) Source: Dealogic. Reflects transaction volume and market share. Global announced M&A is based on transaction value at announcement; because of joint M&A assignments, M&A market share of all participants will add up to more than 100%. All other transaction volume-based rankings are based on proceeds, with full credit to each book manager/equal if joint. | |
|
| | | | | | | | | | | |
| Business metrics | | | | |
As of or for the year ended December 31, (in millions, except where otherwise noted) | 2015 | | 2014 | | 2013 |
Market risk-related revenue – trading loss days(a) | 9 |
| | 9 |
| | 0 |
|
| Assets under custody (“AUC”) by asset class (period-end) in billions: | | | | | |
| Fixed Income | $ | 12,042 |
| | $ | 12,328 |
| | $ | 11,903 |
|
| Equity | 6,194 |
| | 6,524 |
| | 6,913 |
|
Other(b) | 1,707 |
| | 1,697 |
| | 1,669 |
|
| Total AUC | $ | 19,943 |
| | $ | 20,549 |
| | $ | 20,485 |
|
Client deposits and other third party liabilities (average)(c) | $ | 395,297 |
| | $ | 417,369 |
| | $ | 383,667 |
|
| Trade finance loans (period-end) | 19,255 |
| | 25,713 |
| | 30,752 |
|
|
| | | | | | | | |
| League table results – wallet share |
| | 2016 | | 2015 | | 2014 |
Year ended
December 31, | Share | Rank | | Share | Rank | | Share | Rank |
Based on fees(a) | | | | | | | | |
| Debt, equity and equity-related | | | | | | | | |
| Global | 7.2% | #1 | | 7.7% | #1 | | 7.6% | #1 |
| U.S. | 11.9 | 1 | | 11.7 | 1 | | 10.7 | 1 |
Long-term debt(b) | | | | | | | | |
| Global | 6.9 | 1 | | 8.3 | 1 | | 7.9 | 1 |
| U.S. | 11.1 | 2 | | 11.9 | 1 | | 11.7 | 1 |
| Equity and equity-related | | | | | | | | |
Global(c) | 7.6 | 1 | | 7.0 | 1 | | 7.2 | 3 |
| U.S. | 13.4 | 1 | | 11.4 | 1 | | 9.6 | 3 |
M&A(d) | | | | | | | | |
| Global | 8.6 | 2 | | 8.4 | 2 | | 8.0 | 2 |
| U.S. | 10.1 | 2 | | 9.9 | 2 | | 9.7 | 2 |
| Loan syndications | | | | | | | | |
| Global | 9.4 | 1 | | 7.5 | 1 | | 9.3 | 1 |
| U.S. | 11.9 | 2 | | 10.8 | 2 | | 13.0 | 1 |
Global investment banking fees (e) | 8.1% | #1 | | 7.9% | #1 | | 8.0% | #1 |
| |
| (a) | Market risk-relatedSource: Dealogic as of January 3, 2017. Reflects the ranking of revenue is defined aswallet and market share. |
| |
| (b) | Long-term debt rankings include investment-grade, high-yield, supranationals, sovereigns, agencies, covered bonds, ABS and MBS; and exclude money market, short-term debt, and U.S. municipal securities. |
| |
| (c) | Global equity and equity-related ranking includes rights offerings and Chinese A-Shares. |
| |
| (d) | Global M&A reflect the changeremoval of any withdrawn transactions. U.S. M&A revenue wallet represents wallet from client parents based in value of: principal transactions revenue; trading-related net interest income; brokerage commissions, underwritingthe U.S. |
| |
| (e) | Global investment banking fees or other revenue;exclude money market, short-term debt and revenue from syndicated lending facilities that the Firm intends to distribute; gains and losses from DVA and FVA are excluded. Market risk-related revenue–trading lossshelf deals. |
Markets Revenue
The following table summarizes select income statement data for the Markets businesses. Markets includes both Fixed Income Markets and Equity Markets. Markets revenue comprises principal transactions, fees, commissions and other income, as well as net interest income. For a description of the composition of these income statement line items, see Notes 7 and 8.
Principal transactions reflects revenue on financial instruments and commodities transactions that arise from client-driven market making activity. Principal transactions revenue includes amounts recognized upon executing new transactions with market participants, as well as “inventory-related revenue”, which is revenue recognized from gains and losses on derivatives and other instruments that the Firm has been holding in anticipation of, or in response to, client demand, and changes in the fair value of instruments used by the Firm to actively manage the risk exposure arising from such inventory. Principal transactions revenue recognized upon executing new transactions with market participants is driven by many factors including the level of client activity, the bid-offer spread (which is the difference between the price at which a market participant is willing to sell an instrument to the Firm and the price at which another market participant is willing to buy it from the Firm, and vice versa), market liquidity and volatility. These factors are interrelated and sensitive to the same factors that drive inventory-related revenue, which include general market conditions, such as interest rates, foreign exchange rates, credit spreads, and equity and commodity prices, as well as other macroeconomic conditions.
For the periods presented below, the predominant source of principal transactions revenue was the amounts recognized upon executing new transactions.
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | 2016 | | 2015 | | 2014 |
Year ended December 31, (in millions, except where otherwise noted) | Fixed Income Markets | Equity Markets | Total Markets | | Fixed Income Markets | Equity Markets | Total Markets | | Fixed Income Markets | Equity Markets | Total Markets |
| Principal transactions | $ | 8,347 |
| $ | 3,130 |
| $ | 11,477 |
| | $ | 6,899 |
| $ | 3,038 |
| $ | 9,937 |
| | $ | 7,014 |
| $ | 2,362 |
| $ | 9,376 |
|
| Lending- and deposit-related fees | 220 |
| 2 |
| 222 |
| | 194 |
| — |
| 194 |
| | 222 |
| 2 |
| 224 |
|
| Asset management, administration and commissions | 388 |
| 1,551 |
| 1,939 |
| | 383 |
| 1,704 |
| 2,087 |
| | 345 |
| 1,684 |
| 2,029 |
|
| All other income | 1,014 |
| 13 |
| 1,027 |
| | 854 |
| (84 | ) | 770 |
| | 1,399 |
| 59 |
| 1,458 |
|
| Noninterest revenue | 9,969 |
| 4,696 |
| 14,665 |
| | 8,330 |
| 4,658 |
| 12,988 |
| | 8,980 |
| 4,107 |
| 13,087 |
|
| Net interest income | 5,290 |
| 1,044 |
| 6,334 |
| | 4,262 |
| 1,036 |
| 5,298 |
| | 5,095 |
| 937 |
| 6,032 |
|
| Total net revenue | $ | 15,259 |
| $ | 5,740 |
| $ | 20,999 |
| | $ | 12,592 |
| $ | 5,694 |
| $ | 18,286 |
| | $ | 14,075 |
| $ | 5,044 |
| $ | 19,119 |
|
Loss days(a) | | | 0 |
| | | | 2 |
| | | | 0 |
|
| |
| (a) | Loss days represent the number of days for which the CIBMarkets posted losses under this measure.losses. The loss days determined under this measure differ from the loss days that are determined based on the disclosure of market risk-related gains and losses for the Firm in the value-at-risk (“VaR”) back-testing discussion on pages 135–137.118-120. |
|
| | |
| JPMorgan Chase & Co./2016 Annual Report | | 61 |
Management’s discussion and analysis
|
| | | | | | | | | | | |
| Selected metrics | | | | | |
As of or for the year ended December 31, (in millions, except where otherwise noted) | 2016 | | 2015 | | 2014 |
| Assets under custody (“AUC”) by asset class (period-end) (in billions): | | | | | |
| Fixed Income | $ | 12,166 |
| | $ | 12,042 |
| | $ | 12,328 |
|
| Equity | 6,428 |
| | 6,194 |
| | 6,524 |
|
Other(a) | 1,926 |
| | 1,707 |
| | 1,697 |
|
| Total AUC | $ | 20,520 |
| | $ | 19,943 |
| | $ | 20,549 |
|
Client deposits and other third party liabilities (average)(b) | $ | 376,287 |
| | $ | 395,297 |
| | $ | 417,369 |
|
| Trade finance loans (period-end) | 15,923 |
| | 19,255 |
| | 25,713 |
|
| |
(b)(a) | Consists of mutual funds, unit investment trusts, currencies, annuities, insurance contracts, options and other contracts. |
| |
(c)(b) | Client deposits and other third party liabilities pertain to the Treasury Services and Securities Services businesses. |
|
| | |
JPMorgan Chase & Co./2015 Annual Report | | 97 |
Management’s discussion and analysis
| | | International metrics | International metrics | | | | | International metrics | | | | |
| Year ended December 31, | | |
| (in millions) | 2015 | | 2014 | | 2013 | |
| (in millions, except where otherwise noted) | | 2016 | | 2015 | | 2014 |
Total net revenue(a) | | | | | | | | | | |
| Europe/Middle East/Africa | $ | 10,894 |
| | $ | 11,598 |
| | $ | 10,689 |
| $ | 10,786 |
| | $ | 10,894 |
| | $ | 11,598 |
|
| Asia/Pacific | 4,901 |
| | 4,698 |
| | 4,736 |
| 4,915 |
| | 4,901 |
| | 4,698 |
|
| Latin America/Caribbean | 1,096 |
| | 1,179 |
| | 1,340 |
| 1,225 |
| | 1,096 |
| | 1,179 |
|
| Total international net revenue | 16,891 |
| | 17,475 |
| | 16,765 |
| 16,926 |
| | 16,891 |
| | 17,475 |
|
| North America | 16,651 |
| | 17,120 |
| | 17,947 |
| 18,290 |
| | 16,651 |
| | 17,120 |
|
| Total net revenue | $ | 33,542 |
| | $ | 34,595 |
| | $ | 34,712 |
| $ | 35,216 |
| | $ | 33,542 |
| | $ | 34,595 |
|
| | | | | | | | | | | |
Loans (period-end)(a) | | | | | | |
Loans retained (period-end)(a) | | | | | | |
| Europe/Middle East/Africa | $ | 24,622 |
| | $ | 27,155 |
| | $ | 29,392 |
| $ | 26,696 |
| | $ | 24,622 |
| | $ | 27,155 |
|
| Asia/Pacific | 17,108 |
| | 19,992 |
| | 22,151 |
| 14,508 |
| | 17,108 |
| | 19,992 |
|
| Latin America/Caribbean | 8,609 |
| | 8,950 |
| | 8,362 |
| 7,607 |
| | 8,609 |
| | 8,950 |
|
| Total international loans | 50,339 |
| | 56,097 |
| | 59,905 |
| 48,811 |
| | 50,339 |
| | 56,097 |
|
| North America | 56,569 |
| | 40,312 |
| | 35,722 |
| 63,061 |
| | 56,569 |
| | 40,312 |
|
| Total loans | $ | 106,908 |
| | $ | 96,409 |
| | $ | 95,627 |
| |
| Total loans retained | | $ | 111,872 |
| | $ | 106,908 |
| | $ | 96,409 |
|
| | | | | | | | | | | |
Client deposits and other third-party liabilities (average)(a)(b) | | | | | | | | | | |
| Europe/Middle East/Africa | $ | 141,062 |
| | $ | 152,712 |
| | $ | 143,807 |
| $ | 135,979 |
| | $ | 141,062 |
| | $ | 152,712 |
|
| Asia/Pacific | 67,111 |
| | 66,933 |
| | 54,428 |
| 68,110 |
| | 67,111 |
| | 66,933 |
|
| Latin America/Caribbean | 23,070 |
| | 22,360 |
| | 15,301 |
| 22,914 |
| | 23,070 |
| | 22,360 |
|
| Total international | $ | 231,243 |
| | $ | 242,005 |
| | $ | 213,536 |
| $ | 227,003 |
| | $ | 231,243 |
| | $ | 242,005 |
|
| North America | 164,054 |
| | 175,364 |
| | 170,131 |
| 149,284 |
| | 164,054 |
| | 175,364 |
|
| Total client deposits and other third-party liabilities | $ | 395,297 |
| | $ | 417,369 |
| | $ | 383,667 |
| $ | 376,287 |
| | $ | 395,297 |
| | $ | 417,369 |
|
| | | | | | | | | | | |
AUC (period-end) (in billions)(a) | | | | | | | | | | |
| North America | $ | 12,034 |
| | $ | 11,987 |
| | $ | 11,299 |
| $ | 12,290 |
| | $ | 12,034 |
| | $ | 11,987 |
|
| All other regions | 7,909 |
| | 8,562 |
| | 9,186 |
| 8,230 |
| | 7,909 |
| | 8,562 |
|
| Total AUC | $ | 19,943 |
| | $ | 20,549 |
| | $ | 20,485 |
| $ | 20,520 |
| | $ | 19,943 |
| | $ | 20,549 |
|
| |
| (a) | Total net revenue is based predominantly on the domicile of the client or location of the trading desk, as applicable. Loans outstanding (excluding loans held-for-sale and loans at fair value), client deposits and other third-party liabilities, and AUC are based predominantly on the domicile of the client. |
| |
| (b) | Client deposits and other third party liabilities pertain to the Treasury Services and Securities Services businesses. |
|
| | |
9862 | | JPMorgan Chase & Co./20152016 Annual Report |
|
|
Commercial Banking delivers extensive industry knowledge, local expertise and dedicated service to U.S. and U.S. multinational clients, including corporations, municipalities, financial institutions and nonprofit entities with annual revenue generally ranging from $20 million to $2 billion. In addition, CB provides financing to real estate investors and owners. Partnering with the Firm’s other businesses, CB provides comprehensive financial solutions, including lending, treasury services, investment banking and asset management to meet its clients’ domestic and international financial needs. |
| | | Selected income statement data | Selected income statement data | | | | | Selected income statement data | | | | |
Year ended December 31, (in millions) | 2015 | | 2014 | | 2013 | 2016 | | 2015 | | 2014 |
| Revenue | | | | | | | | | | |
| Lending- and deposit-related fees | $ | 944 |
| | $ | 978 |
| | $ | 1,033 |
| $ | 917 |
| | $ | 944 |
| | $ | 978 |
|
| Asset management, administration and commissions | 88 |
| | 92 |
| | 116 |
| 69 |
| | 88 |
| | 92 |
|
All other income(a) | 1,333 |
| | 1,279 |
| | 1,149 |
| 1,334 |
| | 1,333 |
| | 1,279 |
|
| Noninterest revenue | 2,365 |
| | 2,349 |
| | 2,298 |
| 2,320 |
| | 2,365 |
| | 2,349 |
|
| Net interest income | 4,520 |
| | 4,533 |
| | 4,794 |
| 5,133 |
| | 4,520 |
| | 4,533 |
|
Total net revenue(b) | 6,885 |
| | 6,882 |
| | 7,092 |
| 7,453 |
| | 6,885 |
| | 6,882 |
|
| | | | | | | | | | | |
| Provision for credit losses | 442 |
| | (189 | ) | | 85 |
| 282 |
| | 442 |
| | (189 | ) |
| | | | | | | | | | | |
| Noninterest expense | | | | | | | | | | |
| Compensation expense | 1,238 |
| | 1,203 |
| | 1,115 |
| 1,332 |
| | 1,238 |
| | 1,203 |
|
| Noncompensation expense | 1,643 |
| | 1,492 |
| | 1,495 |
| 1,602 |
| | 1,643 |
| | 1,492 |
|
| Total noninterest expense | 2,881 |
| | 2,695 |
| | 2,610 |
| 2,934 |
| | 2,881 |
| | 2,695 |
|
| | | | | | | | | | | |
| Income before income tax expense | 3,562 |
| | 4,376 |
| | 4,397 |
| 4,237 |
| | 3,562 |
| | 4,376 |
|
| Income tax expense | 1,371 |
| | 1,741 |
| | 1,749 |
| 1,580 |
| | 1,371 |
| | 1,741 |
|
| Net income | $ | 2,191 |
| | $ | 2,635 |
| | $ | 2,648 |
| $ | 2,657 |
| | $ | 2,191 |
| | $ | 2,635 |
|
| |
| (a) | Includes revenue from investment banking products and commercial card transactions. |
| |
| (b) | Total net revenue included tax-equivalent adjustments from income tax credits related to equity investments in designated community development entities that provide loans to qualified businesses in low-income communities, as well as tax-exempt income fromrelated to municipal bondfinancing activities of $505 million, $493 million $462 million and $407$462 million for the years ended December 31, 2016, 2015 2014 and 2013,2014, respectively. |
2016 compared with 2015
Net income was $2.7 billion, an increase of 21% compared with the prior year, driven by higher net revenue and a lower provision for credit losses, partially offset by higher noninterest expense.
Net revenue was $7.5 billion, an increase of 8% compared with the prior year. Net interest income was $5.1 billion, an increase of 14% compared with the prior year, driven by higher loan balances and deposit spreads. Noninterest revenue was $2.3 billion, a decrease of 2% compared with the prior year, largely driven by lower lending-and-deposit-related fees and other revenue, partially offset by higher investment banking revenue.
Noninterest expense was $2.9 billion, an increase of 2% compared with the prior year, reflecting increased hiring of bankers and business-related support staff and investments in technology.
The provision for credit losses was $282 million and $442 million for 2016 and 2015, respectively, with both periods driven by downgrades in the Oil & Gas portfolio and select client downgrades in other industries.
2015 compared with 2014
Net income was $2.2 billion, a decrease of 17% compared with the prior year, driven by a higher provision for credit losses and higher noninterest expense.
Net revenue was $6.9 billion, flat compared with the prior year. Net interest income was $4.5 billion, flat compared with the prior year, with interest income from higher loan balances offset by spread compression. Noninterest revenue was $2.4 billion, flat compared with the prior year, with higher investment banking revenue offset by lower lending-related fees.
Noninterest expense was $2.9 billion, an increase of 7% compared with the prior year, reflecting investment in controls.
The provision for credit losses was $442 million, reflecting an increase in the allowance for credit losses for Oil & Gas exposure and select client downgrades in other select downgrades.industries. The prior year was a benefit of $189 million.
2014 compared with 2013
Net income was $2.6 billion, flat compared with the prior year, reflecting lower net revenue and higher noninterest expense, predominantly offset by a lower provision for credit losses.
Net revenue was $6.9 billion, a decrease of 3% compared with the prior year. Net interest income was $4.5 billion, a decrease of 5%, reflecting spread compression, the absence of proceeds received in the prior year from a lending-related workout, and lower purchase discounts recognized on loan repayments, partially offset by higher loan balances. Noninterest revenue was $2.3 billion, up 2%, reflecting higher investment banking revenue, largely offset by business simplification and lower lending fees.
Noninterest expense was $2.7 billion, an increase of 3% from the prior year, largely reflecting investments in controls.
|
| | |
JPMorgan Chase & Co./20152016 Annual Report | | 9963 |
Management’s discussion and analysis
|
| | | | |
| CB product revenue consists of the following: |
Lending includes a variety of financing alternatives, which are primarily provided on a secured basis; collateral includes receivables, inventory, equipment, real estate or other assets. Products include term loans, revolving lines of credit, bridge financing, asset-based structures, leases, and standby letters of credit. |
Treasury services includes revenue from a broad range of products and services that enable CB clients to manage payments and receipts, as well as invest and manage funds. |
Investment banking includes revenue from a range of products providing CB clients with sophisticated capital-raising alternatives, as well as balance sheet and risk management tools through advisory, equity underwriting, and loan syndications. Revenue from Fixed Income and Equity Markets products used by CB clients is also included. Investment banking revenue, gross, represents total revenue related to investment banking products sold to CB clients. |
Other product revenue primarily includes tax-equivalent adjustments generated from Community Development Banking activities and certain income derived from principal transactions. |
|
| | | | |
| CB is divided into four primary client segments: Middle Market Banking, Corporate Client Banking, Commercial Term Lending, and Real Estate Banking. |
Middle Market Banking covers corporate, municipal and nonprofit clients, with annual revenue generally ranging between $20 million and $500 million. |
Corporate Client Banking covers clients with annual revenue generally ranging between $500 million and $2 billion and focuses on clients that have broader investment banking needs. |
Commercial Term Lending primarily provides term financing to real estate investors/owners for multifamily properties as well as office, retail and industrial properties. |
Real Estate Banking provides full-service banking to investors and developers of institutional-grade real estate investment properties. |
Other primarily includes lending and investment-related activities within the Community Development Banking business. |
| | | Selected metrics | | | | | |
| Selected income statement data (continued) | | Selected income statement data (continued) | | |
Year ended December 31, (in millions, except ratios) | 2015 | | 2014 | | 2013 | 2016 | | 2015 | | 2014 |
| Revenue by product | | | | | | | | | | |
Lending(a) | $ | 3,429 |
| | $ | 3,358 |
| | $ | 3,730 |
| $ | 3,795 |
| | $ | 3,429 |
| | $ | 3,358 |
|
Treasury services(a) | 2,581 |
| | 2,681 |
| | 2,649 |
| 2,797 |
| | 2,581 |
| | 2,681 |
|
Investment banking | 730 |
| | 684 |
| | 575 |
| 785 |
| | 730 |
| | 684 |
|
Other(a) | 145 |
| | 159 |
| | 138 |
| |
| Other | | 76 |
| | 145 |
| | 159 |
|
| Total Commercial Banking net revenue | $ | 6,885 |
| | $ | 6,882 |
| | $ | 7,092 |
| $ | 7,453 |
| | $ | 6,885 |
| | $ | 6,882 |
|
| | | | | | | | | | | |
Investment banking revenue, gross | $ | 2,179 |
| | $ | 1,986 |
| | $ | 1,676 |
| $ | 2,286 |
| | $ | 2,179 |
| | $ | 1,986 |
|
| | | | | | | | | | | |
Revenue by client segment | | | | | | | | | | |
Middle Market Banking(b) | $ | 2,742 |
| | $ | 2,791 |
| | $ | 3,015 |
| $ | 2,885 |
| | $ | 2,706 |
| | $ | 2,765 |
|
Corporate Client Banking(b) | 2,012 |
| | 1,982 |
| | 1,911 |
| 2,392 |
| | 2,184 |
| | 2,134 |
|
| Commercial Term Lending | 1,275 |
| | 1,252 |
| | 1,239 |
| 1,408 |
| | 1,275 |
| | 1,252 |
|
| Real Estate Banking | 494 |
| | 495 |
| | 561 |
| 456 |
| | 358 |
| | 369 |
|
| Other | 362 |
| | 362 |
| | 366 |
| 312 |
| | 362 |
| | 362 |
|
| Total Commercial Banking net revenue | $ | 6,885 |
| | $ | 6,882 |
| | $ | 7,092 |
| $ | 7,453 |
| | $ | 6,885 |
| | $ | 6,882 |
|
| | | | | | | | | | | |
| Financial ratios | | | | | | | | | | |
| Return on common equity | 15 | % | | 18 | % | | 19 | % | 16% |
| | 15 | % | | 18 | % |
| Overhead ratio | 42 |
| | 39 |
| | 37 |
| 39 |
| | 42 |
| | 39 |
|
| |
| (a) | Effective in 2015, Commercial Card and Chase Commerce Solutions productIncludes total Firm revenue wasfrom investment banking products sold to CB clients, net of revenue sharing with the CIB. |
| |
| (b) | Represents total Firm revenue from investment banking products sold to CB clients. |
| |
| (c) | Certain clients were transferred from LendingMiddle Market Banking to Corporate Client Banking and Other, respectively,from Real Estate Banking to Treasury Services.Corporate Client Banking during 2016. Prior period client segment amounts were revised to conform with the current period presentation. |
| |
(b) | Effective in 2015, mortgage warehouse lending clients were transferred from Middle Market Banking to Corporate Client Banking. Prior period revenue, period-end loans, and average loans by client segment were revised to conform with the current period presentation. |
|
| | |
10064 | | JPMorgan Chase & Co./20152016 Annual Report |
| | Selected metrics (continued) | | As of or for the year ended December 31, (in millions, except headcount) | 2015 | | 2014 | | 2013 | 2016 | | 2015 | | 2014 |
| Selected balance sheet data (period-end) | | | | | | | | | | |
| Total assets | $ | 200,700 |
| | $ | 195,267 |
| | $ | 190,782 |
| $ | 214,341 |
| | $ | 200,700 |
| | $ | 195,267 |
|
| Loans: | | | | | | | | | | |
| Loans retained | 167,374 |
| | 147,661 |
| | 135,750 |
| 188,261 |
| | 167,374 |
| | 147,661 |
|
| Loans held-for-sale and loans at fair value | 267 |
| | 845 |
| | 1,388 |
| 734 |
| | 267 |
| | 845 |
|
| Total loans | $ | 167,641 |
| | $ | 148,506 |
| | $ | 137,138 |
| $ | 188,995 |
| | $ | 167,641 |
| | $ | 148,506 |
|
| Core loans | 166,939 |
| | 147,392 |
| | 135,583 |
| 188,673 |
| | 166,939 |
| | 147,392 |
|
| Equity | 14,000 |
| | 14,000 |
| | 13,500 |
| |
| Common equity | | 16,000 |
| | 14,000 |
| | 14,000 |
|
| | | | | | | | | | | |
Period-end loans by client segment | | | | | | | | | | |
Middle Market Banking(a) | $ | 51,362 |
| | $ | 51,009 |
| | $ | 50,702 |
| |
Corporate Client Banking(a) | 31,871 |
| | 25,321 |
| | 22,512 |
| |
| Middle Market Banking | | $ | 53,931 |
| | $ | 50,502 |
| | $ | 50,040 |
|
| Corporate Client Banking | | 43,025 |
| | 37,708 |
| | 30,564 |
|
| Commercial Term Lending | 62,860 |
| | 54,038 |
| | 48,925 |
| 71,249 |
| | 62,860 |
| | 54,038 |
|
| Real Estate Banking | 16,211 |
| | 13,298 |
| | 11,024 |
| 14,722 |
| | 11,234 |
| | 9,024 |
|
| Other | 5,337 |
| | 4,840 |
| | 3,975 |
| 6,068 |
| | 5,337 |
| | 4,840 |
|
| Total Commercial Banking loans | $ | 167,641 |
| | $ | 148,506 |
| | $ | 137,138 |
| $ | 188,995 |
| | $ | 167,641 |
| | $ | 148,506 |
|
| | | | | | | | | | | |
| Selected balance sheet data (average) | | | | | | | | | | |
| Total assets | $ | 198,076 |
| | $ | 191,857 |
| | $ | 185,776 |
| $ | 207,532 |
| | $ | 198,076 |
| | $ | 191,857 |
|
| Loans: | | | | | | | | | | |
| Loans retained | 157,389 |
| | 140,982 |
| | 131,100 |
| 178,670 |
| | 157,389 |
| | 140,982 |
|
| Loans held-for-sale and loans at fair value | 492 |
| | 782 |
| | 930 |
| 723 |
| | 492 |
| | 782 |
|
| Total loans | $ | 157,881 |
| | $ | 141,764 |
| | $ | 132,030 |
| $ | 179,393 |
| | $ | 157,881 |
| | $ | 141,764 |
|
| Core loans | 156,975 |
| | 140,390 |
| | 130,141 |
| 178,875 |
| | 156,975 |
| | 140,390 |
|
| Client deposits and other third-party liabilities | 191,529 |
| | 204,017 |
| | 198,356 |
| 174,396 |
| | 191,529 |
| | 204,017 |
|
| Equity | 14,000 |
| | 14,000 |
| | 13,500 |
| |
| Common equity | | 16,000 |
| | 14,000 |
| | 14,000 |
|
| | | | | | | | | | | |
Average loans by client segment | | | | | | | | | | |
Middle Market Banking(a) | $ | 51,303 |
| | $ | 50,939 |
| | $ | 50,236 |
| |
Corporate Client Banking(a) | 29,125 |
| | 23,113 |
| | 22,512 |
| |
| Middle Market Banking | | $ | 52,244 |
| | $ | 50,336 |
| | $ | 50,076 |
|
| Corporate Client Banking | | 41,754 |
| | 34,495 |
| | 27,732 |
|
| Commercial Term Lending | 58,138 |
| | 51,120 |
| | 45,989 |
| 66,700 |
| | 58,138 |
| | 51,120 |
|
| Real Estate Banking | 14,320 |
| | 12,080 |
| | 9,582 |
| 13,063 |
| | 9,917 |
| | 8,324 |
|
| Other | 4,995 |
| | 4,512 |
| | 3,711 |
| 5,632 |
| | 4,995 |
| | 4,512 |
|
| Total Commercial Banking loans | $ | 157,881 |
| | $ | 141,764 |
| | $ | 132,030 |
| $ | 179,393 |
| | $ | 157,881 |
| | $ | 141,764 |
|
| | | | | | | | | | | |
Headcount(b) | 7,845 |
| | 7,426 |
| | 7,016 |
| 8,365 |
| | 7,845 |
| | 7,426 |
|
| |
| (a) | Effective in 2015, mortgage warehouse lendingCertain clients were transferred from Middle Market Banking to Corporate Client Banking.Banking and from Real Estate Banking to Corporate Client Banking during 2016. Prior period revenue, period-end loans, and average loans by client segment amounts were revised to conform with the current period presentation. |
| |
(b) | Effective in 2015, certain technology staff were transferred from CIB to CB; previously-reported headcount has been revised to conform with the current period presentation. As the related expense for these staff is not material, prior period expenses have not been revised. Prior to 2015, compensation expense related to this headcount was recorded in the CIB, with an allocation to CB (reported in noncompensation expense); commencing with 2015, such expense is recorded as compensation expense in CB and accordingly total noninterest expense related to this headcount in both CB and CIB remains unchanged. |
| | | Selected metrics (continued) | Selected metrics (continued) | | | | | Selected metrics (continued) | | | | |
| As of or for the year ended December 31, (in millions, except ratios) | 2015 | | 2014 | | 2013 | 2016 | | 2015 | | 2014 |
| Credit data and quality statistics | | | | | | | | | | |
| Net charge-offs/(recoveries) | $ | 21 |
| | $ | (7 | ) | | $ | 43 |
| $ | 163 |
| | $ | 21 |
| | $ | (7 | ) |
| Nonperforming assets | | | | | | | | | | |
| Nonaccrual loans: | | | | | | | | | | |
Nonaccrual loans retained(a) | 375 |
| | 317 |
| | 471 |
| 1,149 |
| | 375 |
| | 317 |
|
| Nonaccrual loans held-for-sale and loans at fair value | 18 |
| | 14 |
| | 43 |
| — |
| | 18 |
| | 14 |
|
| Total nonaccrual loans | 393 |
| | 331 |
| | 514 |
| 1,149 |
| | 393 |
| | 331 |
|
| | | | | | | | | | | |
| Assets acquired in loan satisfactions | 8 |
| | 10 |
| | 15 |
| 1 |
| | 8 |
| | 10 |
|
| Total nonperforming assets | 401 |
| | 341 |
| | 529 |
| 1,150 |
| | 401 |
| | 341 |
|
| Allowance for credit losses: | | | | | | | | | | |
| Allowance for loan losses | 2,855 |
| | 2,466 |
| | 2,669 |
| 2,925 |
| | 2,855 |
| | 2,466 |
|
| Allowance for lending-related commitments | 198 |
| | 165 |
| | 142 |
| 248 |
| | 198 |
| | 165 |
|
| Total allowance for credit losses | 3,053 |
| | 2,631 |
| | 2,811 |
| 3,173 |
| | 3,053 |
| | 2,631 |
|
| | | | | | | | | | | |
Net charge-off/(recovery) rate(b) | 0.01 | % | | — |
| | 0.03 | % | 0.09 | % | | 0.01 | % | | — |
|
Allowance for loan losses to period-end loans retained | 1.71 |
| | 1.67 |
| | 1.97 |
| 1.55 |
| | 1.71 |
| | 1.67 |
|
Allowance for loan losses to nonaccrual loans retained(a) | 761 |
| | 778 |
| | 567 |
| 255 |
| | 761 |
| | 778 |
|
| Nonaccrual loans to period-end total loans | 0.23 |
| | 0.22 |
| | 0.37 |
| 0.61 |
| | 0.23 |
| | 0.22 |
|
| |
| (a) | An allowance for loan losses of $155 million, $64 million $45 million and $81$45 million was held against nonaccrual loans retained at December 31, 2016, 2015 2014 and 2013,2014, respectively. |
| |
| (b) | Loans held-for-sale and loans at fair value were excluded when calculating the net charge-off/(recovery) rate. |
|
| | |
JPMorgan Chase & Co./20152016 Annual Report | | 10165 |
Management’s discussion and analysis
|
| | | | |
| ASSET & WEALTH MANAGEMENT |
|
|
Asset & Wealth Management, with client assets of $2.4$2.5 trillion, is a global leader in investment and wealth management. AMAWM clients include institutions, high-net-worth individuals and retail investors in many major markets throughout the world. AMAWM offers investment management across most major asset classes including equities, fixed income, alternatives and money market funds. AMAWM also offers multi-asset investment management, providing solutions for a broad range of clients’ investment needs. For Global Wealth Management clients, AMAWM also provides retirement products and services, brokerage and banking services including trusts and estates, loans, mortgages and deposits. The majority of AM’sAWM’s client assets are in actively managed portfolios. |
| | | Selected income statement data | Selected income statement data | | Selected income statement data | |
Year ended December 31, (in millions, except ratios and headcount) | 2015 | 2014 | 2013 | 2016 | 2015 | 2014 |
| Revenue | | |
| Asset management, administration and commissions | $ | 9,175 |
| $ | 9,024 |
| $ | 8,232 |
| $ | 8,414 |
| $ | 9,175 |
| $ | 9,024 |
|
| All other income | 388 |
| 564 |
| 797 |
| 598 |
| 388 |
| 564 |
|
| Noninterest revenue | 9,563 |
| 9,588 |
| 9,029 |
| 9,012 |
| 9,563 |
| 9,588 |
|
| Net interest income | 2,556 |
| 2,440 |
| 2,376 |
| 3,033 |
| 2,556 |
| 2,440 |
|
| Total net revenue | 12,119 |
| 12,028 |
| 11,405 |
| 12,045 |
| 12,119 |
| 12,028 |
|
| | | |
| Provision for credit losses | 4 |
| 4 |
| 65 |
| 26 |
| 4 |
| 4 |
|
| | | |
| Noninterest expense | | |
| Compensation expense | 5,113 |
| 5,082 |
| 4,875 |
| 5,065 |
| 5,113 |
| 5,082 |
|
| Noncompensation expense | 3,773 |
| 3,456 |
| 3,141 |
| 3,413 |
| 3,773 |
| 3,456 |
|
| Total noninterest expense | 8,886 |
| 8,538 |
| 8,016 |
| 8,478 |
| 8,886 |
| 8,538 |
|
| | | |
| Income before income tax expense | 3,229 |
| 3,486 |
| 3,324 |
| 3,541 |
| 3,229 |
| 3,486 |
|
| Income tax expense | 1,294 |
| 1,333 |
| 1,241 |
| 1,290 |
| 1,294 |
| 1,333 |
|
| Net income | $ | 1,935 |
| $ | 2,153 |
| $ | 2,083 |
| $ | 2,251 |
| $ | 1,935 |
| $ | 2,153 |
|
| | | |
| Revenue by line of business | | |
| Global Investment Management | $ | 6,301 |
| $ | 6,327 |
| $ | 5,951 |
| |
| Global Wealth Management | 5,818 |
| 5,701 |
| 5,454 |
| |
| Asset Management | | $ | 5,970 |
| $ | 6,301 |
| $ | 6,327 |
|
| Wealth Management | | 6,075 |
| 5,818 |
| 5,701 |
|
| Total net revenue | $ | 12,119 |
| $ | 12,028 |
| $ | 11,405 |
| $ | 12,045 |
| $ | 12,119 |
| $ | 12,028 |
|
| | | |
| Financial ratios | | |
| Return on common equity | 21 | % | 23 | % | 23 | % | 24 | % | 21 | % | 23 | % |
| Overhead ratio | 73 |
| 71 |
| 70 |
| 70 |
| 73 |
| 71 |
|
| Pretax margin ratio: | | |
| Global Investment Management | 31 |
| 31 |
| 32 |
| |
| Global Wealth Management | 22 |
| 27 |
| 26 |
| |
| Pre-tax margin ratio: | | |
| Asset Management | 27 |
| 29 |
| 29 |
| 31 |
| 31 |
| 31 |
|
| Wealth Management | | 28 |
| 22 |
| 27 |
|
| Asset & Wealth Management | | 29 |
| 27 |
| 29 |
|
| | | |
| Headcount | 20,975 |
| 19,735 |
| 20,048 |
| 21,082 |
| 20,975 |
| 19,735 |
|
| | | |
| Number of client advisors | 2,778 |
| 2,836 | 2,962 |
| 2,504 |
| 2,778 |
| 2,836 |
|
2016 compared with 2015
Net income was $2.3 billion, an increase of 16% compared with the prior year, reflecting lower noninterest expense, partially offset by lower net revenue.
Net revenue was $12.0 billion, a decrease of 1%. Net interest income was $3.0 billion, up 19%, driven by higher deposit and loan spreads and loan growth. Noninterest revenue was $9.0 billion, a decrease of 6%, reflecting the impact of lower average equity market levels, a reduction in revenue related to the disposal of assets at the beginning of 2016, and lower performance fees and placement fees.
Revenue from Asset Management was $6.0 billion, down 5% from the prior year, driven by a reduction in revenue related to the disposal of assets at the beginning of 2016, the impact of lower average equity market levels and lower performance fees. Revenue from Wealth Management was $6.1 billion, up 4% from the prior year, reflecting higher net interest income from higher deposit and loan spreads and continued loan growth, partially offset by the impact of lower average equity market levels and lower placement fees.
Noninterest expense was $8.5 billion, a decrease of 5%, predominantly due to a reduction in expense related to the disposal of assets at the beginning of 2016 and lower legal expense.
2015 compared with 2014
Net income was $1.9 billion, a decrease of 10% compared with the prior year, reflecting higher noninterest expense, partiallypredominantly offset by higher net revenue.
Net revenue was $12.1 billion, an increase of 1%. Net interest income was $2.6 billion, up 5%, driven by higher loan balances and spreads. Noninterest revenue was $9.6 billion, flat from last year, as net client inflows into assets under management and the impact of higher average market levels were predominantly offset by lower performance fees and the sale of Retirement Plan Services (“RPS”) in 2014.
Revenue from Global InvestmentAsset Management was $6.3 billion, flat from the prior year as the sale of RPS in 2014 and lower performance fees were largely offset by net client inflows. Revenue from Global Wealth Management was $5.8 billion, up 2% from the prior year due to higher net interest income from higher loan balances and spreads and net client inflows, partially offset by lower brokerage revenue.
Noninterest expense was $8.9 billion, an increase of 4%, predominantly due to higher legal expense and investment in both infrastructure and controls.
2014 compared with 2013
Net income was $2.2 billion, an increase of 3% from the prior year, reflecting higher net revenue and lower provision for credit losses, predominantly offset by higher noninterest expense.
Net revenue was $12.0 billion, an increase of 5% from the prior year. Noninterest revenue was $9.6 billion, up 6% from the prior year due to net client inflows and the effect of higher market levels, partially offset by lower valuations of seed capital investments. Net interest income was $2.4 billion, up 3% from the prior year due to higher loan and deposit balances, largely offset by spread compression.
Revenue from Global Investment Management was $6.3 billion, up 6% due to net client inflows and the effect of higher market levels, partially offset by lower valuations of seed capital investments. Revenue from Global Wealth Management was $5.7 billion, up 5% from the prior year due to higher net interest income from loan and deposit balances and net client inflows, partially offset by spread compression and lower brokerage revenue.
Noninterest expense was $8.5 billion, an increase of 7% from the prior year as the business continues to invest in both infrastructure and controls.
|
| | |
10266 | | JPMorgan Chase & Co./20152016 Annual Report |
|
| | | | |
AM’sAWM’s lines of business consist of the following: |
Global InvestmentAsset Management provides comprehensive global investment services, including asset management, pension analytics, asset-liability management and active risk-budgeting strategies.
|
Global Wealth Management offers investment advice and wealth management, including investment management, capital markets and risk management, tax and estate planning, banking, lending and specialty-wealth advisory services.
|
|
| | | | |
AM’sAWM’s client segments consist of the following: |
Private Banking clients include high- and ultra-high-net-worth individuals, families, money managers, business owners and small corporations worldwide. |
Institutional clients include both corporate and public institutions, endowments, foundations, nonprofit organizations and governments worldwide. |
Retail clients include financial intermediaries and individual investors. |
|
| | | | |
J.P. Morgan Asset Management has two high-level measures of its overall fund performance. |
• Percentage of mutual fund assets under management in funds rated 4- or 5-star: Mutual fund rating services rank funds based on their risk-adjusted performance over various periods. A 5-star rating is the best rating and represents the top 10% of industry-wide ranked funds. A 4-star rating represents the next 22.5% of industry-wide ranked funds. A 3-star rating represents the next 35% of industry-wide ranked funds. A 2-star rating represents the next 22.5% of industry-wide ranked funds. A 1-star rating is the worst rating and represents the bottom 10% of industry-wide ranked funds. The “overall Morningstar rating” is derived from a weighted average of the performance associated with a fund’s three-, five- and ten-year (if applicable) Morningstar Rating metrics. For U.S. domiciled funds, separate star ratings are given at the individual share class level. The Nomura “star rating” is based on three-year risk-adjusted performance only. Funds with fewer than three years of history are not rated and hence excluded from this analysis. All ratings, the assigned peer categories and the asset values used to derive this analysis are sourced from these fund rating providers mentioned in footnote (a). The data providers re-denominate the asset values into U.S. dollars. This % of AUM is based on star ratings at the share class level for U.S. domiciled funds, and at a “primary share class” level to represent the star rating of all other funds except for Japan where Nomura provides ratings at the fund level. The “primary share class”, as defined by Morningstar, denotes the share class recommended as being the best proxy for the portfolio and in most cases will be the most retail version (based upon annual management charge, minimum investment, currency and other factors). The performance data could have been different if all funds/accounts would have been included. Past performance is not indicative of future results. |
• Percentage of mutual fund assets under management in funds ranked in the 1st or 2nd quartile (one, three and five years): All quartile rankings, the assigned peer categories and the asset values used to derive this analysis are sourced from the fund ranking providers mentioned in footnote (b). Quartile rankings are done on the net-of-fee absolute return of each fund. The data providers re-denominate the asset values into U.S. dollars. This % of AUM is based on fund performance and associated peer rankings at the share class level for U.S. domiciled funds, at a “primary share class” level to represent the quartile ranking of the U.K., Luxembourg and Hong Kong funds and at the fund level for all other funds. The “primary share class”, as defined by Morningstar, denotes the share class recommended as being the best proxy for the portfolio and in most cases will be the most retail version (based upon annual management charge, minimum investment, currency and other factors). Where peer group rankings given for a fund are in more than one “primary share class” territory both rankings are included to reflect local market competitiveness (applies to “Offshore Territories” and “HK SFC Authorized” funds only). The performance data could have been different if all funds/accounts would have been included. Past performance is not indicative of future results. |
| | | Selected metrics | | |
As of or for the year ended December 31, (in millions, except ranking data and ratios) | 2015 | 2014 | 2013 | 2016 | 2015 | 2014 |
% of JPM mutual fund assets rated as 4- or 5-star(a)(b) | 53 | % | 52 | % | 49 | % | 63 | % | 52 | % | 51 | % |
% of JPM mutual fund assets ranked in 1st or 2nd quartile:(b)(c) | | |
| 1 year | 62 |
| 72 |
| 68 |
| 54 |
| 62 |
| 72 |
|
| 3 years | 78 |
| 72 |
| 68 |
| 72 |
| 78 |
| 72 |
|
5 years | 80 |
| 76 |
| 69 |
| 79 |
| 79 |
| 76 |
|
| | | |
| Selected balance sheet data (period-end) | | |
| Total assets | $ | 131,451 |
| $ | 128,701 |
| $ | 122,414 |
| $ | 138,384 |
| $ | 131,451 |
| $ | 128,701 |
|
Loans(c)(d) | 111,007 |
| 104,279 |
| 95,445 |
| 118,039 |
| 111,007 |
| 104,279 |
|
| Core loans | 111,007 |
| 104,279 |
| 95,445 |
| 118,039 |
| 111,007 |
| 104,279 |
|
| Deposits | 146,766 |
| 155,247 |
| 146,183 |
| 161,577 |
| 146,766 |
| 155,247 |
|
| Equity | 9,000 |
| 9,000 |
| 9,000 |
| |
| Common equity | | 9,000 |
| 9,000 |
| 9,000 |
|
| | | |
| Selected balance sheet data (average) | | |
| Total assets | $ | 129,743 |
| $ | 126,440 |
| $ | 113,198 |
| $ | 132,875 |
| $ | 129,743 |
| $ | 126,440 |
|
| Loans | 107,418 |
| 99,805 |
| 86,066 |
| 112,876 |
| 107,418 |
| 99,805 |
|
| Core loans | 107,418 |
| 99,805 |
| 86,066 |
| 112,876 |
| 107,418 |
| 99,805 |
|
| Deposits | 149,525 |
| 150,121 | 139,707 |
| 153,334 |
| 149,525 |
| 150,121 |
|
| Equity | 9,000 |
| 9,000 |
| 9,000 |
| |
| Common equity | | 9,000 |
| 9,000 |
| 9,000 |
|
| | | |
| Credit data and quality statistics | | |
| Net charge-offs | $ | 12 |
| $ | 6 |
| $ | 40 |
| $ | 16 |
| $ | 12 |
| $ | 6 |
|
| Nonaccrual loans | 218 |
| 218 |
| 167 |
| 390 |
| 218 |
| 218 |
|
| Allowance for credit losses: | | |
| Allowance for loan losses | 266 |
| 271 |
| 278 |
| 274 |
| 266 |
| 271 |
|
| Allowance for lending-related commitments | 5 |
| 5 |
| 5 |
| 4 |
| 5 |
| 5 |
|
| Total allowance for credit losses | 271 |
| 276 |
| 283 |
| 278 |
| 271 |
| 276 |
|
| Net charge-off rate | 0.01 | % | 0.01 | % | 0.05 | % | 0.01 | % | 0.01 | % | 0.01 | % |
| Allowance for loan losses to period-end loans | 0.24 |
| 0.26 |
| 0.29 |
| 0.23 |
| 0.24 |
| 0.26 |
|
| Allowance for loan losses to nonaccrual loans | 122 |
| 124 |
| 166 |
| 70 |
| 122 |
| 124 |
|
| Nonaccrual loans to period-end loans | 0.20 |
| 0.21 |
| 0.17 |
| 0.33 |
| 0.20 |
| 0.21 |
|
| |
| (a) | Represents the “overall star rating” derived from Morningstar for the U.S., the U.K., Luxembourg, Hong Kong and Taiwan domiciled funds; and Nomura “star rating” for Japan domiciled funds. Includes only Global InvestmentAsset Management retail open-ended mutual funds that have a rating. Excludes money market funds, Undiscovered Managers Fund, and Brazil and India domiciled funds. |
| |
| (b) | Prior period amounts were revised to conform with current period presentation. |
| |
| (c) | Quartile ranking sourced from: Lipper for the U.S. and Taiwan domiciled funds; Morningstar for the U.K., Luxembourg and Hong Kong domiciled funds; Nomura for Japan domiciled funds and FundDoctor for South Korea domiciled funds. Includes only Global InvestmentAsset Management retail open-ended mutual funds that are ranked by the aforementioned sources. Excludes money market funds, Undiscovered Managers Fund, and Brazil and India domiciled funds. |
| |
(c)(d) | Included $32.8 billion, $26.6 billion $22.1 billion and $18.9$22.1 billion of prime mortgage loans reported in the Consumer, excluding credit card, loan portfolio at December 31, 2016, 2015 2014 and 2013,2014, respectively. |
|
| | |
JPMorgan Chase & Co./20152016 Annual Report | | 10367 |
Management’s discussion and analysis
Client assets
2016 compared with 2015
Client assets were $2.5 trillion, an increase of 4% compared with the prior year. Assets under management were $1.8 trillion, an increase of 3% from the prior year reflecting inflows into both liquidity and long-term products and the effect of higher market levels, partially offset by asset sales at the beginning of 2016.
2015 compared with 2014
Client assets were $2.4 trillion, a decrease of 2% compared with the prior year. Assets under management were $1.7 trillion, a decrease of 1% from the prior year due toreflecting the effect of lower market levels, partially offset by net inflows to long-term products.
2014 compared with 2013
Client assets were $2.4 trillion, an increase of 2% compared with the prior year. Excluding the sale of Retirement Plan Services, client assets were up 8% compared with the prior year. Assets under management were $1.7 trillion, an increase of 9% from the prior year due to net inflows to long-term products and the effect of higher market levels.
| | | Client assets | Client assets | | Client assets | |
December 31, (in billions) | 2015 |
| 2014 |
| 2013 | 2016 | 2015 | 2014 |
| Assets by asset class | | | | |
Liquidity | $ | 464 |
| $ | 461 |
| $ | 451 |
| $ | 436 |
| $ | 430 |
| $ | 425 |
|
Fixed income | 342 |
| 359 |
| 330 |
| 420 |
| 376 |
| 395 |
|
| Equity | 353 |
| 375 |
| 370 |
| 351 |
| 353 |
| 375 |
|
| Multi-asset and alternatives | 564 |
| 549 |
| 447 |
| 564 |
| 564 |
| 549 |
|
| Total assets under management | 1,723 |
| 1,744 |
| 1,598 |
| 1,771 |
| 1,723 |
| 1,744 |
|
Custody/brokerage/ administration/deposits | 627 |
| 643 |
| 745 |
| 682 |
| 627 |
| 643 |
|
| Total client assets | $ | 2,350 |
| $ | 2,387 |
| $ | 2,343 |
| $ | 2,453 |
| $ | 2,350 |
| $ | 2,387 |
|
| | | |
| Memo: | | |
Alternatives client assets(a)(b) | 172 |
| 166 |
| 158 |
| $ | 154 |
| $ | 172 |
| $ | 166 |
|
| | | |
| Assets by client segment | | |
| Private Banking | $ | 437 |
| $ | 428 |
| $ | 361 |
| $ | 435 |
| $ | 437 |
| $ | 428 |
|
| Institutional | 816 |
| 827 |
| 777 |
| 869 |
| 816 |
| 827 |
|
| Retail | 470 |
| 489 |
| 460 |
| 467 |
| 470 |
| 489 |
|
| Total assets under management | $ | 1,723 |
| $ | 1,744 |
| $ | 1,598 |
| $ | 1,771 |
| $ | 1,723 |
| $ | 1,744 |
|
| | | |
| Private Banking | $ | 1,050 |
| $ | 1,057 |
| $ | 977 |
| $ | 1,098 |
| $ | 1,050 |
| $ | 1,057 |
|
| Institutional | 824 |
| 835 |
| 777 |
| 886 |
| 824 |
| 835 |
|
| Retail | 476 |
| 495 |
| 589 |
| 469 |
| 476 |
| 495 |
|
| Total client assets | $ | 2,350 |
| $ | 2,387 |
| $ | 2,343 |
| $ | 2,453 |
| $ | 2,350 |
| $ | 2,387 |
|
| |
| (a) | Prior period amounts were revised to conform with current period presentation. |
| |
| (b) | Represents assets under management, as well as client balances in brokerage accounts. |
| | | Client assets (continued) | | |
Year ended December 31, (in billions) | 2015 | 2014 | 2013 | 2016 | 2015 | 2014 |
| Assets under management rollforward | | |
| Beginning balance | $ | 1,744 |
| $ | 1,598 |
| $ | 1,426 |
| $ | 1,723 |
| $ | 1,744 |
| $ | 1,598 |
|
| Net asset flows: | | |
Liquidity | (1 | ) | 18 |
| (4 | ) | 24 |
| — |
| 14 |
|
Fixed income | (7 | ) | 33 |
| 8 |
| 30 |
| (8 | ) | 37 |
|
| Equity | 1 |
| 5 |
| 34 |
| (29 | ) | 1 |
| 5 |
|
| Multi-asset and alternatives | 22 |
| 42 |
| 48 |
| 22 |
| 22 |
| 42 |
|
| Market/performance/other impacts | (36 | ) | 48 |
| 86 |
| 1 |
| (36 | ) | 48 |
|
| Ending balance, December 31 | $ | 1,723 |
| $ | 1,744 |
| $ | 1,598 |
| $ | 1,771 |
| $ | 1,723 |
| $ | 1,744 |
|
| | | |
| Client assets rollforward | | |
| Beginning balance | $ | 2,387 |
| $ | 2,343 |
| $ | 2,095 |
| $ | 2,350 |
| $ | 2,387 |
| $ | 2,343 |
|
| Net asset flows | 27 |
| 118 |
| 80 |
| 63 |
| 27 |
| 118 |
|
| Market/performance/other impacts | (64 | ) | (74 | ) | 168 |
| 40 |
| (64 | ) | (74 | ) |
| Ending balance, December 31 | $ | 2,350 |
| $ | 2,387 |
| $ | 2,343 |
| $ | 2,453 |
| $ | 2,350 |
| $ | 2,387 |
|
| |
| (a) | Prior period amounts were revised to conform with current period presentation. |
| | International metrics | Year ended December 31, (in billions, except where otherwise noted) | 2015 | 2014 | 2013 | 2016 | 2015 | 2014 |
Total net revenue (in millions)(a) | | |
| Europe/Middle East/Africa | $ | 1,946 |
| $ | 2,080 |
| $ | 1,881 |
| $ | 1,849 |
| $ | 1,946 |
| $ | 2,080 |
|
| Asia/Pacific | 1,130 |
| 1,199 |
| 1,133 |
| 1,077 |
| 1,130 |
| 1,199 |
|
| Latin America/Caribbean | 795 |
| 841 |
| 879 |
| 726 |
| 795 |
| 841 |
|
| Total international net revenue | 3,871 |
| 4,120 |
| 3,893 |
| 3,652 |
| 3,871 |
| 4,120 |
|
| | | |
| North America | 8,248 |
| 7,908 |
| 7,512 |
| 8,393 |
| 8,248 |
| 7,908 |
|
| Total net revenue | $ | 12,119 |
| $ | 12,028 |
| $ | 11,405 |
| $ | 12,045 |
| $ | 12,119 |
| $ | 12,028 |
|
| | | |
| Assets under management | | |
| Europe/Middle East/Africa | $ | 302 |
| $ | 329 |
| $ | 305 |
| $ | 309 |
| $ | 302 |
| $ | 329 |
|
| Asia/Pacific | 123 |
| 126 |
| 132 |
| 123 |
| 123 |
| 126 |
|
| Latin America/Caribbean | 45 |
| 46 |
| 47 |
| 45 |
| 45 |
| 46 |
|
| Total international assets under management | 470 |
| 501 |
| 484 |
| 477 |
| 470 |
| 501 |
|
| | | |
| North America | 1,253 |
| 1,243 |
| 1,114 |
| 1,294 |
| 1,253 |
| 1,243 |
|
| Total assets under management | $ | 1,723 |
| $ | 1,744 |
| $ | 1,598 |
| $ | 1,771 |
| $ | 1,723 |
| $ | 1,744 |
|
| | | |
| Client assets | | |
| Europe/Middle East/Africa | $ | 351 |
| $ | 391 |
| $ | 367 |
| $ | 359 |
| $ | 351 |
| $ | 391 |
|
| Asia/Pacific | 173 |
| 174 |
| 180 |
| 177 |
| 173 |
| 174 |
|
| Latin America/Caribbean | 110 |
| 115 |
| 117 |
| 114 |
| 110 |
| 115 |
|
| Total international client assets | 634 |
| 680 |
| 664 |
| 650 |
| 634 |
| 680 |
|
| | | |
| North America | 1,716 |
| 1,707 |
| 1,679 |
| 1,803 |
| 1,716 |
| 1,707 |
|
| Total client assets | $ | 2,350 |
| $ | 2,387 |
| $ | 2,343 |
| $ | 2,453 |
| $ | 2,350 |
| $ | 2,387 |
|
| |
| (a) | Regional revenue is based on the domicile of the client. |
|
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10468 | | JPMorgan Chase & Co./20152016 Annual Report |
|
|
The Corporate segment consists of Treasury and Chief Investment Office (“CIO”) and Other Corporate, which includes corporate staff units and expense that is centrally managed. Treasury and CIO are predominantly responsible for measuring, monitoring, reporting and managing the Firm’s liquidity, funding and structural interest rate and foreign exchange risks, as well as executing the Firm’s capital plan. The major Other Corporate units include Real Estate, Enterprise Technology, Legal, Compliance, Finance, Human Resources, Internal Audit, Risk Management, Oversight & Control, Corporate Responsibility and various Other Corporate groups. Other centrally managed expense includes the Firm’s occupancy and pension-related expenses that are subject to allocation to the businesses. |
| | | Selected income statement data | Selected income statement data | | | | | Selected income statement data | | | | |
Year ended December 31, (in millions, except headcount) | 2015 |
| | 2014 |
| | 2013 |
| 2016 | | 2015 | | 2014 |
| Revenue | | | | | | | | | | |
| Principal transactions | $ | 41 |
| | $ | 1,197 |
| | $ | 563 |
| $ | 210 |
| | $ | 41 |
| | $ | 1,197 |
|
| Securities gains | 190 |
| | 71 |
| | 666 |
| 140 |
| | 190 |
| | 71 |
|
| All other income | 569 |
| | 704 |
| | 1,864 |
| 588 |
| | 569 |
| | 704 |
|
| Noninterest revenue | 800 |
| | 1,972 |
| | 3,093 |
| 938 |
| | 800 |
| | 1,972 |
|
Net interest income(a) | (533 | ) | | (1,960 | ) | | (3,115 | ) | (1,425 | ) | | (533 | ) | | (1,960 | ) |
Total net revenue | 267 |
| | 12 |
| | (22 | ) | (487 | ) | | 267 |
| | 12 |
|
| | | | | | | | | | | |
| Provision for credit losses | (10 | ) | | (35 | ) | | (28 | ) | (4 | ) | | (10 | ) | | (35 | ) |
| | | | | | | | | | | |
Noninterest expense(b) | 977 |
| | 1,159 |
| | 10,255 |
| 462 |
| | 977 |
| | 1,159 |
|
| Loss before income tax benefit | (700 | ) | | (1,112 | ) | | (10,249 | ) | (945 | ) | | (700 | ) | | (1,112 | ) |
| Income tax benefit | (3,137 | ) | | (1,976 | ) | | (3,493 | ) | (241 | ) | | (3,137 | ) | | (1,976 | ) |
| Net income/(loss) | $ | 2,437 |
| | $ | 864 |
| | $ | (6,756 | ) | $ | (704 | ) | | $ | 2,437 |
| | $ | 864 |
|
| Total net revenue | | | | | | | | | | |
| Treasury and CIO | (493 | ) | | (1,317 | ) | | (2,068 | ) | (787 | ) | | (493 | ) | | (1,317 | ) |
Other Corporate (c) | 760 |
| | 1,329 |
| | 2,046 |
| 300 |
| | 760 |
| | 1,329 |
|
| Total net revenue | $ | 267 |
| | $ | 12 |
| | $ | (22 | ) | $ | (487 | ) | | $ | 267 |
| | $ | 12 |
|
| Net income/(loss) | | | | | | | | | | |
| Treasury and CIO | (235 | ) | | (1,165 | ) | | (1,454 | ) | (715 | ) | | (235 | ) | | (1,165 | ) |
Other Corporate (c) | 2,672 |
| | 2,029 |
| | (5,302 | ) | 11 |
| | 2,672 |
| | 2,029 |
|
| Total net income/(loss) | $ | 2,437 |
| | $ | 864 |
| | $ | (6,756 | ) | $ | (704 | ) | | $ | 2,437 |
| | $ | 864 |
|
| | | | | | | | | | | |
| Selected balance sheet data (period-end) | | | | | | | | | | |
| Total assets (period-end) | $ | 768,204 |
| | $ | 931,206 |
| | $ | 805,506 |
| $ | 799,426 |
| | $ | 768,204 |
| | $ | 931,206 |
|
| Loans | 2,187 |
| | 2,871 |
| | 4,004 |
| 1,592 |
| | 2,187 |
| | 2,871 |
|
Core loans(d)(c) | 2,182 |
| | 2,848 |
| | 3,958 |
| 1,589 |
| | 2,182 |
| | 2,848 |
|
| Headcount | 29,617 |
| | 26,047 |
| | 20,717 |
| 32,358 |
| | 29,617 |
| | 26,047 |
|
| |
| (a) | Included tax-equivalent adjustments, predominantly due to tax-exempt income from municipal bond investments of $885 million, $839 million $730 million and $480$730 million for the years ended December 31, 2016, 2015 2014 and 2013,2014, respectively. |
| |
| (b) | Included legal expenseexpense/(benefit) of $(385) million, $832 million and $821 million and $10.2 billion for the years ended December 31, 2016, 2015 2014 and 2013,2014, respectively. |
| |
| (c) | Effective in 2015, the Firm began including the results of Private Equity in the Other Corporate line within the Corporate segment. Prior period amounts have been revised to conform with the current period presentation. The Corporate segment’s balance sheets and results of operations were not impacted by this reporting change. |
| |
(d) | Average core loans were $1.9 billion, $2.5 billion $3.3 billion and $5.2$3.3 billion for the years ended December 31, 2016, 2015 2014 and 2013,2014, respectively. |
2016 compared with 2015
Net loss was $704 million, compared with net income of $2.4 billion in the prior year.
Net revenue was a loss of $487 million, compared with a gain of $267 million in the prior year. The prior year included a $514 million benefit from a legal settlement.
Net interest income was a loss of $1.4 billion, compared with a loss of $533 million in the prior year. The loss in the current year was primarily driven by higher interest expense on long-term debt and lower investment securities balances during the year, partially offset by higher interest income on deposits with banks and securities purchased under resale agreements as a result of higher rates.
Noninterest expense was $462 million, a decrease of $515 million from the prior year driven by lower legal expense, partially offset by higher compensation expense.
The prior year reflected tax benefits of $2.6 billion predominantly from the resolution of various tax audits.
2015 compared with 2014
Net income was $2.4 billion, compared with net income of $864 million in the prior year.
Net revenue was $267 million, compared with $12 million in the prior year. The current year included a $514 million benefit from a legal settlement. Treasury and CIO included a benefit of approximately $178 million associated with recognizing the unamortized discount on certain debt securities which were called at par and a $173 million pretax loss primarily related to accelerated amortization of cash flow hedges associated with the exit of certain non-operating deposits. Private Equity gains were $1.2 billion lower compared with the prior year, reflecting lower valuation gains and lower net gains on sales as the Firm exits this non-core business.
Noninterest expense was $977 million, a decrease of $182 million from the prior year which had included a $276 million goodwill impairment related to the sale of a portion of the Private Equity business.
The current year reflected tax benefits of $2.6 billion predominantly from the resolution of various tax audits compared with tax benefits of $1.1 billion in the prior year.
2014 compared with 2013
Net income was $864 million, compared to a net loss of $6.8 billion in the prior year.
Net revenue was $12 million compared to a net loss of $22 million in the prior year. Current year net interest income was a loss of $2 billion compared to a loss of $3.1 billion in the prior year, primarily reflecting higher yields on investment securities. Securities gains were $71 million, compared with $659 million in the prior year, reflecting lower repositioning activity of the investment securities portfolio in the current period.
Private Equity gains were $540 million higher compared with the prior year reflecting higher net gains on sales. Prior year net revenue also included gains of $1.3 billion and $493 million on the sales of Visa shares and One Chase Manhattan Plaza, respectively.
Noninterest expense was $1.2 billion, a decrease of $9.1 billion due to a decrease in reserves for litigation and regulatory proceedings in the prior year partially offset by the impact of a $276 million goodwill impairment related to the sale of a portion of the Private Equity business.
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JPMorgan Chase & Co./20152016 Annual Report | | 10569 |
Management’s discussion and analysis
Treasury and CIO overview
Treasury and CIO are predominantly responsible for measuring, monitoring, reporting and managing the Firm’s liquidity, funding and structural interest rate and foreign exchange risks, as well as executing the Firm’s capital plan. The risks managed by Treasury and CIO arise from the activities undertaken by the Firm’s four major reportable business segments to serve their respective client bases, which generate both on- and off-balance sheet assets and liabilities.
Treasury and CIO achieve the Firm’s asset-liability management objectives generally by investing in high-quality securities that are managed for the longer-term as part of the Firm’s investment securities portfolio. Treasury and CIO also use derivatives to meet the Firm’s asset-liability management objectives. For further information on derivatives, see Note 6. The investment securities portfolio primarily consists of U.S. and non-U.S. government securities, agency and nonagency mortgage-backed securities, other asset-backed securities,ABS, corporate debt securities and obligations of U.S. states and municipalities. At December 31, 2015,2016, the investment securities portfolio was $287.8$286.8 billion, and the average credit rating of the securities comprising the portfolio was AA+ (based upon external ratings where available and where not available, based primarily upon internal ratings that correspond to ratings as defined by S&P and Moody’s). During 2016, the Firm transferred commercial mortgage-backed securities and obligations of U.S. states and municipalities with a fair value of $7.5 billion from available-for-sale (“AFS”) to held-to maturity (“HTM”). These securities were transferred at fair value. The transfers reflect the Firm’s intent to hold the securities to maturity in order to reduce the impact of price volatility on accumulated other comprehensive income (“AOCI”).
See Note 12 for further information on the details of the Firm’s investment securities portfolio.
For further information on liquidity and funding risk, see Liquidity Risk Management on pages 159–164.110–115. For information on interest rate, foreign exchange and other risks, Treasury and CIO VaR and the Firm’s earnings-at-risk, see Market Risk Management on pages 133–139.116–123.
|
| | | | | | | | | | | |
| Selected income statement and balance sheet data |
| As of or for the year ended December 31, (in millions) | 2016 | | 2015 | | 2014 |
| Securities gains | $ | 132 |
| | $ | 190 |
| | $ | 71 |
|
Investment securities portfolio (average) (a) | 278,250 |
| | 314,802 |
| | 349,285 |
|
Investment securities portfolio (period–end)(b) | 286,838 |
| | 287,777 |
| | 343,146 |
|
| Mortgage loans (average) | 1,790 |
| | 2,501 |
| | 3,308 |
|
| Mortgage loans (period-end) | 1,513 |
| | 2,136 |
| | 2,834 |
|
|
| | | | | | | | | | | |
| Selected income statement and balance sheet data |
| As of or for the year ended December 31, (in millions) | 2015 |
| | 2014 |
| | 2013 |
|
| Securities gains | $ | 190 |
| | $ | 71 |
| | $ | 659 |
|
Investment securities portfolio (average) (a) | 314,802 |
| | 349,285 |
| | 353,712 |
|
Investment securities portfolio (period–end)(b) | 287,777 |
| | 343,146 |
| | 347,562 |
|
| Mortgage loans (average) | 2,501 |
| | 3,308 |
| | 5,145 |
|
| Mortgage loans (period-end) | 2,136 |
| | 2,834 |
| | 3,779 |
|
| |
| (a) | Average investment securities included held-to-maturityHTM balances of $51.4 billion, $50.0 billion and $47.2 billion for the years ended December 31, 2016, 2015 and 2014, respectively. The held-to-maturity balance for full year 2013 was not material. |
| |
| (b) | Period-end investment securities included held-to-maturityHTM securities of $50.2 billion, $49.1 billion, $49.3 billion $24.0 billion at December 31, 2016, 2015 2014 and 2013,2014, respectively. |
Private equity portfolio information(a)
| | | December 31, (in millions) | 2015 |
| | 2014 |
| | 2013 |
| 2016 | | 2015 | | 2014 |
| Carrying value | $ | 2,103 |
| | $ | 5,866 |
| | $ | 7,868 |
| $ | 1,797 |
| | $ | 2,103 |
| | $ | 5,866 |
|
| Cost | 3,798 |
| | 6,281 |
| | 8,491 |
| 2,649 |
| | 3,798 |
| | 6,281 |
|
| |
| (a) | For more information on the Firm’s methodologies regarding the valuation of the Private Equity portfolio, see Note 3. For information on the sale of a portion of the Private Equity business completed on January 9, 2015, see Note 2. |
2016 compared with 2015
The carrying value of the private equity portfolio at December 31, 2016 was $1.8 billion, down from $2.1 billion at December 31, 2015, driven by portfolio sales.
2015 compared with 2014
The carrying value of the private equity portfolio at
December 31, 2015 was $2.1 billion, down from $5.9
billion at December 31, 2014, driven by the sale of a
portion of the Private Equity business.
2014 compared with 2013
The carrying value of the private equity portfolio at December 31, 2014 was $5.9 billion, down from $7.9 billion at December 31, 2013. The decrease in the portfolio was predominantly driven by sales of investments, partially offset by unrealized gains.business and porfolio sales.
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10670 | | JPMorgan Chase & Co./20152016 Annual Report |
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| | | | |
| ENTERPRISE-WIDE RISK MANAGEMENT |
Risk is an inherent part of JPMorgan Chase’s business activities. When the Firm extends a consumer or wholesaleloan, advises customers on their investment decisions, makes markets in securities, or offers other products or services, the Firm takes on some degree of risk. The Firm’s overall objective is to manage its businesses, and the associated risks, in a manner that balances serving the interests of its clients, customers and investors and protects the safety and soundness of the Firm.
Firmwide Risk Management is overseen and managed on an enterprise-wide basis. The Firm’s approach to risk management covers a broad spectrum of economic and other core risk areas, such as credit, market, liquidity, model, structural interest rate, principal, country, operational, compliance, conduct, legal, capital and reputation risk, with controls and governance established for each area, as appropriate.
The Firm believes that effective risk management requires:
Acceptance of responsibility, including identification and escalation of risk issues, by all individuals within the Firm;
Ownership of risk identification, assessment, data and management within each of the lines of business and corporate functions; and
Firmwide structures for risk governance.
The Firm’s Operating Committee, which consists of the Firm’s Chief Executive Officer (“CEO”), Chief Risk Officer (“CRO”), Chief Operating Officer (“COO”), Chief Financial Officer (“CFO”) and other senior executives, is responsible for developingthe ultimate management escalation point in the Firm, and executingmay refer matters to the Firm’s risk management framework. The framework is intended to provide controls and ongoing managementBoard of key risks inherent in the Firm’s business activities and create a culture of transparency, awareness and personal responsibility through reporting, collaboration, discussion, escalation and sharing of information.Directors. The Operating Committee is responsible and accountable to the Firm’s Board of Directors.
The Firm strives for continual improvement through efforts to enhance controls, ongoing employee training and development, as well as talent retention.retention, and other measures. The Firm follows a disciplined and balanced compensation framework with strong internal governance and independent Board oversight. The impact of risk and control issues are carefully considered in the Firm’s performance evaluation and incentive compensation processes. The Firm is also engaged in a number of activities focused on conduct risk and in regularly evaluating its culture with respect to its business principles.
|
| | |
JPMorgan Chase & Co./20152016 Annual Report | | 10771 |
Management’s discussion and analysis
The following sections outline the key risks that are inherent in the Firm’s business activities.activities:
|
| | | |
| Risk | Definition | Select risk management metrics | Page references |
| I. Economic risks | | |
| (i) Capital risk | The risk that the Firm has an insufficient level and composition of capital to support the Firm’sits business activities and associated risks during both normal economic environments and under stressed conditions. | Risk-based capital ratios; supplementaryratios and leverage ratio;ratios; stress | 149–15876–85 |
Compliance(ii) Consumer Credit risk | The risk of failure to comply with applicable laws, rules,loss arising from the default of a customer. | Total exposure; geographic and regulations.customer concentrations; delinquencies; loss experience; stressed credit performance | Various metrics related to market conduct, Bank Secrecy Act/Anti-Money Laundering (“BSA/AML”), employee compliance, fiduciary, privacy and information risk | 14789–95 |
| (iii) Wholesale Credit risk | The risk of loss arising from the default of a client or counterparty. | Total exposure; industry, geographic and client concentrations; risk ratings; loss experience; stressed credit performance | 96–104 |
| (iv) Country risk | The risk that a sovereign event or action alters the value or terms of contractual obligations of obligors, counterparties and issuers, or adversely affects markets related to a particular country. | Default exposure at 0% recovery; stress; risk ratings; ratings based capital limits | 140–141108–109 |
Credit risk | The risk of loss arising from the default of a customer, client or counterparty. | Total exposure; industry, geographic and customer concentrations; risk ratings; delinquencies; loss experience; stress | 112–132 |
Legal risk | The risk of loss or imposition of damages, fines, penalties or other liability arising from failure to comply with a contractual obligation or to comply with laws or regulations to which the Firm is subject.
| Not applicable | 146 |
| (v) Liquidity risk | The risk that the Firm will be unable to meet its contractual and contingent obligations or that it does not have the appropriate amount, composition and tenor of funding and liquidity to support its assets.
assets and liabilities. | LCR; stress by material legal entity | 159–164110–115 |
| (vi) Market risk | The risk of loss arising from potential adverse changes in the value of the Firm’s assets and liabilities or future results, resulting from changes in market variables such as interest rates, foreign exchange rates, equity prices, commodity prices, implied volatilities or credit spreads.spreads; this includes the structural interest rate and foreign exchange risks managed on a firmwide basis in Treasury and CIO. | VaR,VaR; P&L drawdown; economic stress sensitivitiestesting; sensitivities; earnings-at-risk; and foreign exchange (“FX”) net open position | 133–139116–123 |
| (vii) Principal risk | The risk of an adverse change in the value of privately-held financial assets and instruments, typically representing an ownership or junior capital positions that have unique risks due to their illiquidity or for which there is less observable market or valuation data. | Carrying value, stress | 124 |
| II. Other core risks | | | |
| (i) Compliance risk | The risk of failure to comply with applicable laws, rules, and regulations. | Risk based monitoring and testing for timely compliance with financial obligations
| 125 |
| (ii) Conduct risk | The risk that an employee’s action or inaction causes undue harm to the Firm’s clients, damages market integrity, undermines the Firm’s reputation, or negatively impacts the Firm’s culture. | Relevant risk and control self-assessment results, employee compliance information, code of conduct case information
| 126 |
| (iii) Legal risk | The risk of loss or imposition of damages, fines, penalties or other liability arising from the failure to comply with a contractual obligation or to comply with laws, rules or regulations to which the Firm is subject. | Not applicable | 127 |
| (iv) Model risk | The risk of the potential for adverse consequences from decisions based on incorrect or misused model outputs and reports.outputs. | Model status, model tier | 142128 |
Non-U.S. dollar foreign exchange (“FX”) risk | The risk that changes in foreign exchange rates affect the value of the Firm’s assets or liabilities or future results.
| FX net open position (“NOP”) | 139 |
| (v) Operational risk | The risk of loss resulting from inadequate or failed processes or systems, human factors, or due to external events that are neither marketmarket- nor credit-related.credit-related such as cyber and technology related events. | Firm-specificRisk and control self-assessment results, firm-specific loss experience; industry loss experience; business environment and internal control factors (“BEICF”);factors; key risk indicators; key control indicators; operating metrics | 144–146129–130 |
Principal risk | The risk of an adverse change in the value of privately-held financial assets and instruments, typically representing an ownership or junior capital position that have unique risks due to their illiquidity or for which there is less observable market or valuation data. | Carrying value, stress | 143 |
| (vi) Reputation risk | The risk that an action, transaction, investment or event will reduce trust in the Firm’s integrity or competence by ourits various constituents, including clients, counterparties, investors, regulators, employees and the broader public.
| Not applicable | 148 |
Structural interest rate risk | The risk resulting from the Firm’s traditional banking activities (both on- and off-balance sheet positions) arising from the extension of loans and credit facilities, taking deposits and issuing debt (collectively referred to as “non-trading activities”), and also the impact from the CIO investment securities portfolio and other related CIO and Treasury activities. | Earnings-at-risk | 138-139131 |
Risk appetite and governance
The Firm’s overall tolerance for risk is governed by a “Risk Appetite” framework for measuring and monitoring risk. The framework measures the Firm’s capacity to take risk against stated quantitative tolerances and qualitative factors at each of the line of business (“LOB”) levels, as well as at the Firmwide level. The framework and tolerances are set and approved by the Firm’s CEO, Chief Financial Officer (“CFO”), CRO and Chief Operating Officer (“COO”). LOB-level Risk Appetite parameters and tolerances are set by the respective LOB CEO, CFO and CRO and are approved by the Firm’s CEO, CFO, CRO and COO. Quantitative risk tolerances are expressed in terms of tolerance levels for stressed net income, market risk, credit risk, liquidity risk, structural interest rate risk, operational risk and capital. Risk Appetite results are reported quarterly to the Risk Policy Committee of the Board of Directors (“DRPC”).
The Firm’s CRO is responsible for the overall direction of the Firm’s Risk Management functions and is head of the Risk Management Organization, reporting to the Firm’s CEO and DRPC. The Risk Management Organization operates independently from the revenue-generating businesses, which enables it to provide credible challenge to the businesses. The leadership team of the Risk Management Organization is aligned to the various LOBs and corporate functions as well as across the Firm for firmwide risk categories (e.g. firmwide market risk, firmwide model risk, firmwide reputation risk, etc.) producing a matrix structure with specific subject matter expertise to manage risks both within the businesses and across the Firm.
The Firm places key reliance on each of the LOBs as the first line of defense in risk governance. The LOBs are accountable for identifying and addressing the risks in their
|
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10872 | | JPMorgan Chase & Co./20152016 Annual Report |
Governance and oversight
The Firm’s overall appetite for risk is governed by a “Risk Appetite” framework. The framework and the Firm’s risk appetite are set and approved by the Firm’s CEO, CFO, CRO and COO. LOB-level risk appetite is set by the respective LOB CEO, CFO and CRO and is approved by the Firm’s CEO, CFO, CRO and COO. Quantitative parameters and qualitative factors are used to monitor and measure the Firm’s capacity to take risk against stated risk appetite. Quantitative parameters have been established to assess stressed net income, capital, credit risk, market risk, structural interest rate risk and liquidity risk. Qualitative factors have been established for select risks. Risk Appetite results are reported quarterly to the Board of Directors’ Risk Policy Committee (“DRPC”).
The Firm’s CRO is the head of the Independent Risk Management (“IRM”) function and reports to the CEO and the DRPC. The CEO appoints the CRO to create the Risk Management Framework subject to approval by the DRPC in the form of the Primary Risk Policies. The Chief Compliance Officer (“CCO”), who reports to the CRO, is also responsible for reporting to the Audit Committee for the Global Compliance Program. The Firm’s Global Compliance Program focuses on overseeing compliance with laws, rules and regulations applicable to the Firm’s products and services to clients and counterparties.
The IRM function, comprised of Risk Management and Compliance Organizations, is independent of the businesses. The IRM function sets various standards for the risk management governance framework, including risk policy, identification, measurement, assessment, testing, limit setting (e.g., risk appetite, thresholds, etc.), monitoring and reporting. Various groups within the IRM function are aligned to the LOBs and to corporate functions, regions and core areas of risk such as credit, market, country and liquidity risks, as well as operational, model and reputational risk governance.
The Firm places key reliance on each of its LOBs and other functional areas giving rise to risk. Each LOB or other functional area giving rise to risk is expected to operate its activities within the parameters identified by the IRM function, and within their own management-identified risk and control standards. Because these LOBs and functional areas are accountable for identifying and addressing the risks in their respective businesses and for operating within a sound control environment.
In addition toenvironment, they are considered the Risk Management Organization,“first line of defense” within the Firm’s control environment also includes firmwide functions like Oversight and Control, Compliance and Internal Audit.risk governance framework.
The Firmwide Oversight and Control Group consists of dedicated control officers within each of the lines of business and corporate functions, as well as having a central oversight function. The group is charged with enhancing the Firm’s control environment by looking within and across the lines of business and corporate functions to help identify and remediate control issues. The group enables the Firm to detect control problems more quickly, escalate issues promptly and engage other stakeholders to understand common themes and interdependencies among the various parts of the Firm.
EachAs the “second line of business is accountable for managingdefense”, the IRM function provides oversight and independent challenge, consistent with its compliance risk. The Firm’s Compliance Organization (“Compliance”), which is independent of the lines of
business, works closely with the Operating Committeepolicies and management to provide independent review, monitoring and oversight of business operations with a focus on compliance with the legal and regulatory obligations applicableframework, to the offering of the Firm’s productsrisk-creating LOBs and services to clients and customers.functional areas.
Internal Audit, a function independent of the businesses Compliance and the Risk Management Organization,IRM function, tests and evaluates the Firm’s risk governance and management, as well as its internal control processes. This function, the “third line of defense” in the risk governance framework, brings a systematic and disciplined approach to evaluating and improving the effectiveness of the Firm’s governance, risk management and internal control processes.
Risk governance structure The Internal Audit Function is headed by the General Auditor, who reports to the Audit Committee.
The independent status of the Risk Management OrganizationIRM function is supported by a governance structure that provides for escalation of risk issues up to senior management, andthe Firmwide Risk Committee, or the Board of Directors.
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| JPMorgan Chase & Co./2016 Annual Report | | 73 |
Management’s discussion and analysis
The chart below illustrates the key senior management level committees in the Firm’s risk governance structure. Other committees, forums and forumspaths of escalation are in place that are responsible for management and oversight of risk, although they are not shown in the chart below.
The Board of Directors provides oversight of risk principally through the DRPC, Audit Committee and, with respect to compensation and other management-related matters, the Compensation & Management Development Committee. Each committee of the Board oversees reputation risk issues within its scope of responsibility.
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JPMorgan Chase & Co./2015 Annual Report | | 109 |
Management’s discussion and analysis
The Directors’ Risk Policy Committee of the Board oversees the Firm’s global risk management framework and approves the primary risk-managementrisk management policies of the Firm. The Committee’s responsibilities include oversight of management’s exercise of its responsibility to assess and manage the Firm’s risks, of the Firm, as well asand its capital and liquidity planning and analysis. Breaches in risk appetite, tolerances, liquidity issues that may have a material adverse impact on the Firm and other significant risk-related matters are escalated to the Committee.
The Audit Committee of the Board assists the Board in its oversight of management’s responsibilities to assure that there is an effective system of controls reasonably designed to safeguard the assets and income of the Firm, assure the integrity of the Firm’s financial statements and maintain compliance with the Firm’s ethical standards, policies, plans and procedures, and with laws and regulations. In addition, the Audit Committee assists the Board in its oversight of the Firm’s independent registered public accounting firm’s qualifications, independence and independence. The Independentperformance, and of the performance of the Firm’s Internal Audit Function at the Firm is headed by the General Auditor, who reports to the Audit Committee.function.
The Compensation & Management Development Committee(“CMDC”) assists the Board in its oversight of the Firm’s compensation programs and reviews and approves the Firm’s overall compensation philosophy, incentive compensation pools, and compensation practices consistent with key business objectives and safety and soundness. The Committee reviews Operating Committee members’ performance against their goals, and approves their compensation awards. The Committee also periodically reviews the Firm’s diversity programs and management development and succession planning, and provides oversight of the Firm’s culture and conduct programs.
Among the Firm’s senior management-level committees that are primarily responsible for key risk-related functions are:
The Firmwide Risk Committee (“FRC”) is the Firm’s highest management-level risk committee. It provides oversight of the risks inherent in the Firm’s businesses. The Committee is co-chaired by the Firm’s CEO and CRO. Members of the Committee include the Firm’s COO, CFO, Treasurer & Chief Investment Officer, and General Counsel, as well as LOB CEOs and CROs, and other senior managers from risk and control functions. This Committee serves as an escalation point for risk topics and issues raised by its members, the Line of Business Risk
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| 74 | | JPMorgan Chase & Co./2016 Annual Report |
Committees, Firmwide Control Committee, Firmwide Fiduciary Risk Governance Committee, Firmwide Reputation Risk Governance and regional Risk Committees.Committees, as appropriate. The Committee escalates significant issues to the Board of Directors,DRPC, as appropriate.
The Firmwide Control Committee (“FCC”) isprovides a forum for senior management to review and discuss firmwide operational risks including existing and emerging issues, to monitorand operational risk metrics, and to review operational risk management execution in the execution contextof the Operational Risk Management Framework (“ORMF”). which provides the framework for the governance, assessment, measurement, and monitoring and reporting of operational risk.The FCC is co-chaired by the Chief Control Officer and the Firmwide Risk Executive for Operational Risk Governance. It servesThe committee relies upon the prompt escalation of issues from businesses and functions as an escalation point for the lineprimary owners of the operational risk. Operational risk issues may be escalated by business corporate functions and regional Control Committees and escalates significant issuesor function control committees to the FCC, which may, in turn, escalate to the FRC, as appropriate.
The Firmwide Fiduciary Risk Governance Committee (“FFRGC”) is a forum for risk matters related to the Firm’s fiduciary activities. The Committee oversees the firmwide fiduciary risk governance framework, which supports the consistent identification and escalation of fiduciary risk mattersissues by the relevant lines of business or corporate functions responsible for managingbusiness; establishes policies and best practices to effectuate the Committee’s oversight responsibility; and creates metrics reporting to track fiduciary activities.activity and issue resolution Firmwide. The Committee escalates significant fiduciaryissues to the FRC,the DRPC and any other committee,the Audit Committee, as appropriate.
The Firmwide Reputation Risk Governance Group seeks to promote consistent management of reputation risk across the Firm. Its objectives are to increase visibility of reputation risk governance; promote and maintain a globally consistent governance model for reputation risk across lines of business; promote early self-identification of potential reputation risks to the Firm; and provide thought leadership on cross-line-of-business reputation risk issues. Each line of business has a separate reputation risk governance structure which includes, in most cases, one or more dedicated reputation risk committees.
Line of Business and Regional Risk Committees review the ways in which the particular line of business or the business operating in a particular region could be exposed to adverse outcomes with a focus on identifying, accepting, escalating and/or requiring remediation of matters brought to these committees. These committees may escalate to the FRC, as appropriate.LOB risk committees are co-chaired by the LOB CEO and the LOB CRO. Each LOB risk committee may create sub-committees with requirements for escalation. The regional committees are established similarly, as appropriate, for the region.
LineIn addition, each line of Business, Corporate Functionbusiness and Regionalfunction is required to have a Control CommitteesCommittee. These control committees oversee the control environment in the particular line of their respective business or corporate function or the business operating in a particular region. Theyfunction. As part of that mandate, they are responsible for reviewing the data indicatingwhich indicates the quality and stability of the processes in a business or function, reviewing key operational risk issues and focusing on those processes with shortcomings and overseeing process remediation. These committees escalate to the FCC, as appropriate.
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110 | | JPMorgan Chase & Co./2015 Annual Report |
The Firmwide Asset Liability Committee (“ALCO”), chaired by the Firm’s Treasurer and Chief Investment Officer under the direction of the COO, monitors the Firm’s balance sheet, liquidity risk and structural interest rate risk. ALCO reviews the Firm’s overall structural interest rate risk position,
funding requirements and strategy, and securitization programs (and any required liquidity support by the Firm of such programs). ALCO is responsible for reviewing and approving the Firm’s Funds Transfer Pricing Policy (through which lines of business “transfer” interest rate risk to Treasury)Treasury and CIO) and the Firm’s Intercompany Funding and Liquidity Policy. ALCO is also responsible for reviewing the Firm’s Contingency Funding Plan.
The Firmwide Capital Governance Committee, chaired by the Head of the Regulatory Capital Management Office (under the direction of the Firm’s CFO) is responsible for reviewing the Firm’s Capital Management Policy and the principles underlying capital issuance and distribution.distribution alternativesand decisions. The Committee is also responsible for governing overseesthe capital adequacy assessment process, including the overall design, scenario development and macro assumptions and risk streams, and for ensuringensures that capital stress test programs are designed to adequately capture the idiosyncratic risks acrossspecific to the Firm’s businesses.
The Firmwide Valuation Governance Forum (“VGF”) is composed of senior finance and risk executives and is responsible for overseeing the management of risks arising from valuation activities conducted across the Firm. The VGF is chaired by the firmwide head of the Valuation Control functionGroup (“VCG”) (under the direction of the Firm’s CFO)Controller), and includes sub-forums covering the Corporate & Investment Bank, Consumer & Community Banking, Commercial Banking, Asset & Wealth Management and certain corporate functions, including Treasury and Chief Investment Office.CIO.
In addition, the JPMorgan Chase Bank, N.A. Board of Directors is responsible for the oversight of management of the Bank. The JPMorgan Chase Bank, N.A. Board accomplishes this function acting directly and through the principal standing committees of the Firm’s Board of Directors. Risk oversight on behalf of JPMorgan Chase Bank N.A. is primarily the responsibility of the DRPC and Audit Committee of the Firm’s Board of Directors and, with respect to compensation and other management-related matters, the Compensation & Management Development Committee of the Firm’s Board of Directors.
Risk measurement
The Firm has a broad spectrum of risk management metrics, as appropriate for each risk category (refer to thecategory. For further information on risk management metrics, see table on key risks included on page 108).72. Additionally, the Firm is exposed to certain potential low-probability, but plausible and material, idiosyncratic risks that are not well-captured by its other existing risk analysis and reporting for credit, market, and other risks.metrics. These idiosyncratic risks may arise in a number of ways, such as changes in legislation, an unusual combination of market events, or specific counterparty events. The Firm has a process intended to identify these risks in order to allow the Firm to monitor vulnerabilities that are not adequately covered by its other standard risk measurements.
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JPMorgan Chase & Co./20152016 Annual Report | | 11175 |
Management’s discussion and analysis
Credit risk is the risk of loss arising from the default of a customer, client or counterparty. The Firm provides credit to a variety of customers, ranging from large corporate and institutional clients to individual consumers and small businesses. In its consumer businesses, the Firm is exposed to credit risk primarily through its residential real estate, credit card, auto, business banking and student lending businesses. Originated mortgage loans are retained in the mortgage portfolio, securitized or sold to U.S. government agencies and U.S. government-sponsored enterprises; other types of consumer loans are typically retained on the balance sheet. In its wholesale businesses, the Firm is exposed to credit risk through its underwriting, lending, market-making, and hedging activities with and for clients and counterparties, as well as through its operating services activities (such as cash management and clearing activities), securities financing activities, investment securities portfolio, and cash placed with banks. A portion of the loans originated or acquired by the Firm’s wholesale businesses are generally retained on the balance sheet; the Firm’s syndicated loan business distributes a significant percentage of originations into the market and is an important component of portfolio management.
Credit risk management
Credit risk management is an independent risk management function that identifies and monitors credit risk throughout the Firm and defines credit risk policies and procedures. The credit risk function reports to the Firm’s CRO. The Firm’s credit risk management governance includes the following activities:
Establishing a comprehensive credit risk policy framework
Monitoring and managing credit risk across all portfolio segments, including transaction and exposure approval
Setting industry concentration limits and establishing underwriting guidelines
Assigning and managing credit authorities in connection with the approval of all credit exposure
Managing criticized exposures and delinquent loans
Determining the allowance for credit losses and ensuring appropriate credit risk-based capital management
Risk identification and measurement
The Credit Risk Management function identifies, measures, limits, manages and monitors credit risk across the Firm’s businesses. To measure credit risk, the Firm employs several methodologies for estimating the likelihood of obligor or counterparty default. Methodologies for measuring credit risk vary depending on several factors, including type of asset (e.g., consumer versus wholesale), risk measurement parameters (e.g., delinquency status and borrower’s credit score versus wholesale risk-rating) and risk management and collection processes (e.g., retail collection center versus centrally managed workout groups). Credit risk measurement is based on the
probability of default of an obligor or counterparty, the loss severity given a default event and the exposure at default.
Based on these factors and related market-based inputs, the Firm estimates credit losses for its exposures. Probable credit losses inherent in the consumer and wholesale loan portfolios are reflected in the allowance for loan losses, and probable credit losses inherent in lending-related commitments are reflected in the allowance for lending-related commitments. These losses are estimated using statistical analyses and other factors as described in Note 15. In addition, potential and unexpected credit losses are reflected in the allocation of credit risk capital and represent the potential volatility of actual losses relative to the established allowances for loan losses and lending-related commitments. The analyses for these losses include stress testing considering alternative economic scenarios as described in the Stress testing section below. For further information, see Critical Accounting Estimates used by the Firm on pages 165–169.
The methodologies used to estimate credit losses depend on the characteristics of the credit exposure, as described below.
Scored exposure
The scored portfolio is generally held in CCB and predominantly includes residential real estate loans, credit card loans, certain auto and business banking loans, and student loans. For the scored portfolio, credit loss estimates are based on statistical analysis of credit losses over discrete periods of time. The statistical analysis uses portfolio modeling, credit scoring, and decision-support tools, which consider loan-level factors such as delinquency status, credit scores, collateral values, and other risk factors. Credit loss analyses also consider, as appropriate, uncertainties and other factors, including those related to current macroeconomic and political conditions, the quality of underwriting standards, and other internal and external factors. The factors and analysis are updated on a quarterly basis or more frequently as market conditions dictate.
Risk-rated exposure
Risk-rated portfolios are generally held in CIB, CB and AM, but also include certain business banking and auto dealer loans held in CCB that are risk-rated because they have characteristics similar to commercial loans. For the risk-rated portfolio, credit loss estimates are based on estimates of the probability of default (“PD”) and loss severity given a default. The estimation process begins with risk ratings that are assigned to each loan facility to differentiate risk within the portfolio. These risk ratings are reviewed regularly by Credit Risk Management and revised as needed to reflect the borrower’s current financial position, risk profile and related collateral. The probability of default is the likelihood that a loan will default and not be fully repaid by the borrower. The loss given default (“LGD”) is the estimated loss on the loan that would be realized upon the default of
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112 | | JPMorgan Chase & Co./2015 Annual Report |
the borrower and takes into consideration collateral and structural support for each credit facility. The probability of default is estimated for each borrower, and a loss given default is estimated for each credit facility. The calculations and assumptions are based on historic experience and management judgment and are reviewed regularly.
Stress testing
Stress testing is important in measuring and managing credit risk in the Firm’s credit portfolio. The process assesses the potential impact of alternative economic and business scenarios on estimated credit losses for the Firm. Economic scenarios, and the parameters underlying those scenarios, are defined centrally, are articulated in terms of macroeconomic factors, and applied across the businesses. The stress test results may indicate credit migration, changes in delinquency trends and potential losses in the credit portfolio. In addition to the periodic stress testing processes, management also considers additional stresses outside these scenarios, including industry and country- specific stress scenarios, as necessary. The Firm uses stress testing to inform decisions on setting risk appetite both at a Firm and LOB level, as well as to assess the impact of stress on individual counterparties.
Risk monitoring and management
The Firm has developed policies and practices that are designed to preserve the independence and integrity of the approval and decision-making process of extending credit to ensure credit risks are assessed accurately, approved properly, monitored regularly and managed actively at both the transaction and portfolio levels. The policy framework establishes credit approval authorities, concentration limits, risk-rating methodologies, portfolio review parameters and guidelines for management of distressed exposures. In addition, certain models, assumptions and inputs used in evaluating and monitoring credit risk are independently validated by groups that are separate from the line of businesses.
For consumer credit risk, delinquency and other trends, including any concentrations at the portfolio level, are monitored, as certain of these trends can be modified through changes in underwriting policies and portfolio guidelines. Consumer Risk Management evaluates delinquency and other trends against business expectations, current and forecasted economic conditions, and industry benchmarks. Historical and forecasted trends are incorporated into the modeling of estimated consumer credit losses and are part of the monitoring of the credit risk profile of the portfolio. For further discussion of consumer loans, see Note 14.
Wholesale credit risk is monitored regularly at an aggregate portfolio, industry, and individual client and counterparty level with established concentration limits that are reviewed and revised as deemed appropriate by management, typically on an annual basis. Industry and counterparty limits, as measured in terms of exposure and economic risk appetite, are subject to stress-based loss constraints. In addition, wrong-way risk — the risk that exposure to a counterparty is positively correlated with the impact of a default by the same counterparty, which could cause exposure to increase at the same time as the counterparty’s capacity to meet its obligations is decreasing — is actively monitored as this risk could result in greater exposure at default compared with a transaction with another counterparty that does not have this risk.
Management of the Firm’s wholesale credit risk exposure is accomplished through a number of means, including:
Loan underwriting and credit approval process
Loan syndications and participations
Loan sales and securitizations
Credit derivatives
Master netting agreements
Collateral and other risk-reduction techniques
In addition to Credit Risk Management, Internal Audit performs periodic exams, as well as continuous reviews, where appropriate, of the Firm’s consumer and wholesale portfolios. For risk-rated portfolios, a Credit Review group within Internal Audit is responsible for:
Independently assessing and validating the changing risk grades assigned to exposures; and
Evaluating the effectiveness of business units’ risk ratings, including the accuracy and consistency of risk grades, the timeliness of risk grade changes and the justification of risk grades in credit memoranda.
Risk reporting
To enable monitoring of credit risk and effective decision-making, aggregate credit exposure, credit quality forecasts, concentration levels and risk profile changes are reported regularly to senior members of Credit Risk Management. Detailed portfolio reporting of industry, customer, product and geographic concentrations occurs monthly, and the appropriateness of the allowance for credit losses is reviewed by senior management at least on a quarterly basis. Through the risk reporting and governance structure, credit risk trends and limit exceptions are provided regularly to, and discussed with, risk committees, senior management and the Board of Directors as appropriate.
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JPMorgan Chase & Co./2015 Annual Report | | 113 |
Management’s discussion and analysis
In the following tables, reported loans include loans retained (i.e., held-for-investment); loans held-for-sale (which are carried at the lower of cost or fair value, with valuation changes recorded in noninterest revenue); and certain loans accounted for at fair value. In addition, the Firm records certain loans accounted for at fair value in trading assets. For further information regarding these loans, see Note 3 and Note 4. For additional information on the Firm’s loans and derivative receivables, including the Firm’s accounting policies, see Note 14 and Note 6, respectively. For further information regarding the credit risk inherent in the Firm’s cash placed with banks, investment securities portfolio, and securities financing portfolio, see Note 5, Note 12, and Note 13, respectively.
Effective January 1, 2015, the Firm no longer includes within its disclosure of wholesale lending-related commitments the unused amount of advised uncommitted lines of credit as it is within the Firm’s discretion whether or not to make a loan under these lines, and the Firm’s approval is generally required prior to funding. Prior period amounts have been revised to conform with the current period presentation.
For discussion of the consumer credit environment and consumer loans, see Consumer Credit Portfolio on pages 115–121 and Note 14. For discussion of wholesale credit environment and wholesale loans, see Wholesale Credit Portfolio on pages 122–129 and Note 14.
|
| | | | | | | | | | | | | |
| Total credit portfolio | | | | |
December 31, (in millions) | Credit exposure | | Nonperforming(b)(c) |
| 2015 | 2014 | | 2015 | 2014 |
| Loans retained | $ | 832,792 |
| $ | 747,508 |
| | $ | 6,303 |
| $ | 7,017 |
|
| Loans held-for-sale | 1,646 |
| 7,217 |
| | 101 |
| 95 |
|
| Loans at fair value | 2,861 |
| 2,611 |
| | 25 |
| 21 |
|
| Total loans – reported | 837,299 |
| 757,336 |
| | 6,429 |
| 7,133 |
|
| Derivative receivables | 59,677 |
| 78,975 |
| | 204 |
| 275 |
|
| Receivables from customers and other | 13,497 |
| 29,080 |
| | — |
| — |
|
| Total credit-related assets | 910,473 |
| 865,391 |
| | 6,633 |
| 7,408 |
|
| Assets acquired in loan satisfactions | | | | | |
| Real estate owned | NA |
| NA |
| | 347 |
| 515 |
|
| Other | NA |
| NA |
| | 54 |
| 44 |
|
Total assets acquired in loan satisfactions | NA |
| NA |
| | 401 |
| 559 |
|
| Total assets | 910,473 |
| 865,391 |
| | 7,034 |
| 7,967 |
|
| Lending-related commitments | 940,395 |
| 950,997 |
| | 193 |
| 103 |
|
| Total credit portfolio | $ | 1,850,868 |
| $ | 1,816,388 |
| | $ | 7,227 |
| $ | 8,070 |
|
Credit derivatives used in credit portfolio management activities(a) | $ | (20,681 | ) | $ | (26,703 | ) | | $ | (9 | ) | $ | — |
|
| Liquid securities and other cash collateral held against derivatives | (16,580 | ) | (19,604 | ) | | NA |
| NA |
|
|
| | | | | | | |
Year ended December 31, (in millions, except ratios) | | 2015 | 2014 |
| Net charge-offs | | $ | 4,086 |
| $ | 4,759 |
|
| Average retained loans | | | |
| Loans – reported | | 780,293 |
| 729,876 |
|
Loans – reported, excluding residential real estate PCI loans | | 736,543 |
| 679,869 |
|
| Net charge-off rates | | | |
| Loans – reported | | 0.52 | % | 0.65 | % |
| Loans – reported, excluding PCI | | 0.55 |
| 0.70 |
|
| |
(a) | Represents the net notional amount of protection purchased and sold through credit derivatives used to manage both performing and nonperforming wholesale credit exposures; these derivatives do not qualify for hedge accounting under U.S. GAAP. For additional information, see Credit derivatives on page 129 and Note 6. |
| |
(b) | Excludes PCI loans. The Firm is recognizing interest income on each pool of PCI loans as each of the pools is performing. |
| |
(c) | At December 31, 2015 and 2014, nonperforming assets excluded: (1) mortgage loans insured by U.S. government agencies of $6.3 billion and $7.8 billion, respectively, that are 90 or more days past due; (2) student loans insured by U.S. government agencies under the FFELP of $290 million and $367 million, respectively, that are 90 or more days past due; and (3) REO insured by U.S. government agencies of $343 million and $462 million, respectively. These amounts have been excluded based upon the government guarantee. In addition, the Firm’s policy is generally to exempt credit card loans from being placed on nonaccrual status as permitted by regulatory guidance issued by the Federal Financial Institutions Examination Council (“FFIEC”). |
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114 | | JPMorgan Chase & Co./2015 Annual Report |
|
| | | | |
CONSUMER CREDIT PORTFOLIO |
The Firm’s consumer portfolio consists primarily of residential real estate loans, credit card loans, auto loans, business banking loans, and student loans. The Firm’s focus is on serving the prime segment of the consumer credit market. The credit performance of the consumer portfolio continues to benefit from discipline in credit underwriting as well as improvement in the economy driven by increasing home prices and lower unemployment. Both early-stage
delinquencies (30–89 days delinquent) and late-stage delinquencies (150+ days delinquent) for residential real estate, excluding government guaranteed loans, declined from December 31, 2014 levels. The Credit Card 30+ day delinquency rate and the net charge-off rate remain near historic lows. For further information on consumer loans,
see Note 14.
The following table presents consumer credit-related information with respect to the credit portfolio held by CCB, prime mortgage and home equity loans held by AM, and prime mortgage loans held by Corporate. For further information about the Firm’s nonaccrual and charge-off accounting policies, see Note 14.
|
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Consumer credit portfolio |
As of or for the year ended December 31, (in millions, except ratios) | Credit exposure | | Nonaccrual loans(g)(h) | | Net charge-offs/(recoveries)(i) | | Average annual net charge-off/(recovery) rate(i)(j) |
| 2015 | | 2014 | | 2015 | 2014 | | 2015 | 2014 | | 2015 | 2014 |
| Consumer, excluding credit card | | | | | | | | | | | | |
| Loans, excluding PCI loans and loans held-for-sale | | | | | | | | | | | | |
| Home equity – senior lien | $ | 14,848 |
| | $ | 16,367 |
| | $ | 867 |
| $ | 938 |
| | $ | 69 |
| $ | 82 |
| | 0.43 | % | 0.50 | % |
| Home equity – junior lien | 30,711 |
| | 36,375 |
| | 1,324 |
| 1,590 |
| | 222 |
| 391 |
| | 0.67 |
| 1.03 |
|
| Prime mortgage, including option ARMs | 162,549 |
| | 104,921 |
| | 1,752 |
| 2,190 |
| | 49 |
| 39 |
| | 0.04 |
| 0.04 |
|
| Subprime mortgage | 3,690 |
| | 5,056 |
| | 751 |
| 1,036 |
| | (53 | ) | (27 | ) | | (1.22 | ) | (0.43 | ) |
Auto(a) | 60,255 |
| | 54,536 |
| | 116 |
| 115 |
| | 214 |
| 181 |
| | 0.38 |
| 0.34 |
|
| Business banking | 21,208 |
| | 20,058 |
| | 263 |
| 279 |
| | 253 |
| 305 |
| | 1.23 |
| 1.58 |
|
| Student and other | 10,096 |
| | 10,970 |
| | 242 |
| 270 |
| | 200 |
| 347 |
| | 1.89 |
| 3.07 |
|
| Total loans, excluding PCI loans and loans held-for-sale | 303,357 |
| | 248,283 |
| | 5,315 |
| 6,418 |
| | 954 |
| 1,318 |
| | 0.35 |
| 0.55 |
|
| Loans – PCI | | | | | | | | | | | | |
| Home equity | 14,989 |
| | 17,095 |
| | — |
| NA |
| | — |
| NA |
| | — |
| NA |
|
| Prime mortgage | 8,893 |
| | 10,220 |
| | — |
| NA |
| | — |
| NA |
| | — |
| NA |
|
| Subprime mortgage | 3,263 |
| | 3,673 |
| | — |
| NA |
| | — |
| NA |
| | — |
| NA |
|
Option ARMs(b) | 13,853 |
| | 15,708 |
| | — |
| NA |
| | — |
| NA |
| | — |
| NA |
|
| Total loans – PCI | 40,998 |
| | 46,696 |
| | — |
| NA |
| | — |
| NA |
| | — |
| NA |
|
| Total loans – retained | 344,355 |
| | 294,979 |
| | 5,315 |
| 6,418 |
| | 954 |
| 1,318 |
| | 0.30 |
| 0.46 |
|
| Loans held-for-sale | 466 |
| (f) | 395 |
| (f) | 98 |
| 91 |
| | — |
| — |
| | — |
| — |
|
| Total consumer, excluding credit card loans | 344,821 |
| | 295,374 |
| | 5,413 |
| 6,509 |
| | 954 |
| 1,318 |
| | 0.30 |
| 0.46 |
|
Lending-related commitments(c) | 58,478 |
| | 58,153 |
| | | | | | | | | |
Receivables from customers(d) | 125 |
| | 108 |
| | | | | | | | | |
| Total consumer exposure, excluding credit card | 403,424 |
| | 353,635 |
| | | | | | | | | |
| Credit Card | | | | | | | | | | | | |
Loans retained(e) | 131,387 |
| | 128,027 |
| | — |
| — |
| | 3,122 |
| 3,429 |
| | 2.51 |
| 2.75 |
|
| Loans held-for-sale | 76 |
| | 3,021 |
| | — |
| — |
| | — |
| — |
| | — |
| — |
|
| Total credit card loans | 131,463 |
| | 131,048 |
| | — |
| — |
| | 3,122 |
| 3,429 |
| | 2.51 |
| 2.75 |
|
Lending-related commitments(c) | 515,518 |
| | 525,963 |
| | | | | | | | | |
| Total credit card exposure | 646,981 |
| | 657,011 |
| | | | | | | | | |
| Total consumer credit portfolio | $ | 1,050,405 |
| | $ | 1,010,646 |
| | $ | 5,413 |
| $ | 6,509 |
| | $ | 4,076 |
| $ | 4,747 |
| | 0.92 | % | 1.15 | % |
| Memo: Total consumer credit portfolio, excluding PCI | $ | 1,009,407 |
| | $ | 963,950 |
| | $ | 5,413 |
| $ | 6,509 |
| | $ | 4,076 |
| $ | 4,747 |
| | 1.02 | % | 1.30 | % |
| |
(a) | At December 31, 2015 and 2014, excluded operating lease assets of $9.2 billion and $6.7 billion, respectively. |
| |
(b) | At December 31, 2015 and 2014, approximately 64% and 57% of the PCI option ARMs portfolio has been modified into fixed-rate, fully amortizing loans, respectively. |
| |
(c) | Credit card and home equity lending-related commitments represent the total available lines of credit for these products. The Firm has not experienced, and does not anticipate, that all available lines of credit would be used at the same time. For credit card and home equity commitments (if certain conditions are met), the Firm can reduce or cancel these lines of credit by providing the borrower notice or, in some cases as permitted by law, without notice. |
| |
(d) | Receivables from customers represent margin loans to retail brokerage customers, and are included in Accrued interest and accounts receivable on the Consolidated balance sheets. |
| |
(e) | Includes accrued interest and fees net of an allowance for the uncollectible portion of accrued interest and fee income. |
| |
(f) | Predominantly represents prime mortgage loans held-for-sale. |
|
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JPMorgan Chase & Co./2015 Annual Report | | 115 |
Management’s discussion and analysis
| |
(g) | At December 31, 2015 and 2014, nonaccrual loans excluded: (1) mortgage loans insured by U.S. government agencies of $6.3 billion and $7.8 billion, respectively, that are 90 or more days past due; and (2) student loans insured by U.S. government agencies under the FFELP of $290 million and $367 million, respectively, that are 90 or more days past due. These amounts have been excluded from nonaccrual loans based upon the government guarantee. In addition, credit card loans are generally exempt from being placed on nonaccrual status, as permitted by regulatory guidance. |
| |
(h) | Excludes PCI loans. The Firm is recognizing interest income on each pool of PCI loans as each of the pools is performing. |
| |
(i) | Net charge-offs and net charge-off rates excluded $208 million and $533 million of write-offs of prime mortgages in the PCI portfolio for the years ended December 31, 2015 and 2014. These write-offs decreased the allowance for loan losses for PCI loans. See Allowance for Credit Losses on pages 130–132 for further details. |
| |
(j) | Average consumer loans held-for-sale were $2.1 billion and $917 million, respectively, for the years ended December 31, 2015 and 2014. These amounts were excluded when calculating net charge-off rates. |
Consumer, excluding credit card
Portfolio analysis
Consumer loan balances increased during the year ended December 31, 2015, predominantly due to originations of high-quality prime mortgage loans that have been retained, partially offset by paydowns and the charge-off or liquidation of delinquent loans. Credit performance has continued to improve across most portfolios as the economy strengthened and home prices increased.
PCI loans are excluded from the following discussions of individual loan products and are addressed separately below. For further information about the Firm’s consumer portfolio, including information about delinquencies, loan modifications and other credit quality indicators, see
Note 14.
Home equity: The home equity portfolio declined from December 31, 2014 primarily reflecting loan paydowns and charge-offs. Both early-stage and late-stage delinquencies declined from December 31, 2014. Net charge-offs for both senior and junior lien home equity loans at December 31, 2015, declined when compared with the prior year as a result of improvement in home prices and delinquencies, but charge-offs remain elevated compared with pre-recessionary levels.
At December 31, 2015, approximately 15% of the Firm’s home equity portfolio consists of home equity loans (“HELOANs”) and the remainder consists of home equity lines of credit (“HELOCs”). HELOANs are generally fixed-rate, closed-end, amortizing loans, with terms ranging from 3–30 years. Approximately 60% of the HELOANs are senior lien loans and the remainder are junior lien loans. In general, HELOCs originated by the Firm are revolving loans for a 10-year period, after which time the HELOC recasts into a loan with a 20-year amortization period. At the time of origination, the borrower typically selects one of two minimum payment options that will generally remain in effect during the revolving period: a monthly payment of 1% of the outstanding balance, or interest-only payments based on a variable index (typically Prime). HELOCs originated by Washington Mutual were generally revolving loans for a 10-year period, after which time the HELOC converts to an interest-only loan with a balloon payment at the end of the loan’s term.
The unpaid principal balance of HELOCs outstanding was $41 billion at December 31, 2015. Since January 1, 2014, approximately $8 billion of HELOCs have recast from interest-only to fully amortizing payments; based upon contractual terms, approximately $19 billion is scheduled to recast in the future, consisting of $7 billion in 2016, $6 billion in 2017 and $6 billion in 2018 and beyond. However, of the total $19 billion scheduled to recast in the future, $13 billion is expected to actually recast; and the remaining $6 billion represents loans to borrowers who are expected to pre-pay or loans that are likely to charge-off prior to recast. The Firm has considered this payment recast risk in its allowance for loan losses based upon the estimated amount of payment shock (i.e., the excess of the fully-amortizing payment over the interest-only payment in effect prior to recast) expected to occur at the payment recast date, along with the corresponding estimated probability of default and loss severity assumptions. Certain factors, such as future developments in both unemployment rates and home prices, could have a significant impact on the performance of these loans.
The Firm manages the risk of HELOCs during their revolving period by closing or reducing the undrawn line to the extent permitted by law when borrowers are exhibiting a material deterioration in their credit risk profile. The Firm will continue to evaluate both the near-term and longer-term repricing and recast risks inherent in its HELOC portfolio to ensure that changes in the Firm’s estimate of incurred losses are appropriately considered in the allowance for loan losses and that the Firm’s account management practices are appropriate given the portfolio’s risk profile.
High-risk seconds are junior lien loans where the borrower has a senior lien loan that is either delinquent or has been modified. Such loans are considered to pose a higher risk of default than junior lien loans for which the senior lien loan is neither delinquent nor modified. The Firm estimates the balance of its total exposure to high-risk seconds on a quarterly basis using internal data and loan level credit bureau data (which typically provides the delinquency status of the senior lien loan). The estimated balance of these high-risk seconds may vary from quarter to quarter for reasons such as the movement of related senior lien loans into and out of the 30+ day delinquency bucket.
|
| | |
116 | | JPMorgan Chase & Co./2015 Annual Report |
|
| | | | | | | | | |
| Current high-risk seconds | | | |
| December 31, (in billions) | 2015 | | 2014 |
| Junior liens subordinate to: | | | |
| Modified current senior lien | $ | 0.6 |
| | $ | 0.7 |
|
| Senior lien 30 – 89 days delinquent | 0.4 |
| | 0.5 |
|
Senior lien 90 days or more delinquent(a) | 0.4 |
| | 0.6 |
|
| Total current high-risk seconds | $ | 1.4 |
| | $ | 1.8 |
|
| |
(a) | Junior liens subordinate to senior liens that are 90 days or more past due are classified as nonaccrual loans. At December 31, 2015 and 2014, excluded approximately $25 million and $50 million, respectively, of junior liens that are performing but not current, which were placed on nonaccrual in accordance with the regulatory guidance. |
Of the estimated $1.4 billion of current high-risk junior liens at December 31, 2015, the Firm owns approximately 10% and services approximately 25% of the related senior lien loans to the same borrowers. The increased probability of default associated with these higher-risk junior lien loans was considered in estimating the allowance for loan losses.
Mortgage: Prime mortgages, including option ARMs and loans held-for-sale, increased from December 31, 2014 due to originations of high-quality prime mortgage loans that have been retained partially offset by paydowns, the run-off of option ARM loans and the charge-off or liquidation of delinquent loans. High-quality loan originations for the year ending December 31, 2015 included both jumbo and conforming loans, primarily consisting of fixed interest rate loans. Excluding loans insured by U.S. government agencies, both early-stage and late-stage delinquencies declined from December 31, 2014. Nonaccrual loans decreased from the prior year but remain elevated primarily as a result of loss mitigation activities. Net charge-offs remain low, reflecting continued improvement in home prices and delinquencies.
At December 31, 2015 and 2014, the Firm’s prime mortgage portfolio included $11.1 billion and $12.4 billion, respectively, of mortgage loans insured and/or guaranteed by U.S. government agencies, of which $8.4 billion and $9.7 billion, respectively, were 30 days or more past due (of these past due loans, $6.3 billion and $7.8 billion, respectively, were 90 days or more past due). In 2014, the Firm entered into a settlement regarding loans insured under federal mortgage insurance programs overseen by the Federal Housing Administration (“FHA”), the U.S. Department of Housing and Urban Development (“HUD”), and the U.S. Department of Veterans Affairs (“VA”); the Firm will continue to monitor exposure on future claim payments for government insured loans, but any financial impact related to exposure on future claims is not expected to be significant and was considered in estimating the allowance for loan losses.
At December 31, 2015 and 2014, the Firm’s prime mortgage portfolio included $17.7 billion and $16.3 billion, respectively, of interest-only loans, which represented 11% and 15%, respectively, of the prime mortgage portfolio. These loans have an interest-only payment period generally followed by an adjustable-rate or fixed-rate fully amortizing payment period to maturity and are typically originated as higher-balance loans to higher-income borrowers. To date, losses on this portfolio generally have been consistent with the broader prime mortgage portfolio and the Firm’s expectations. The Firm continues to monitor the risks associated with these loans.
Subprime mortgages continued to decrease due to portfolio runoff. Early-stage and late-stage delinquencies have improved from December 31, 2014. Net charge-offs continued to improve as a result of improvement in home prices and delinquencies.
Auto: Auto loans increased from December 31, 2014, as new originations outpaced paydowns and payoffs. Nonaccrual loans were stable compared with December 31, 2014. Net charge-offs for the year ended December 31, 2015 increased compared with the prior year, as a result of higher loan balances and a moderate increase in loss severity. The auto loan portfolio predominantly consists of prime-quality credits.
Business banking: Business banking loans increased from December 31, 2014 due to an increase in loan originations. Nonaccrual loans declined from December 31, 2014 and net charge-offs for the year ended December 31, 2015 decreased from the prior year due to continued discipline in credit underwriting.
Student and other: Student and other loans decreased from December 31, 2014 due primarily to the run-off of the student loan portfolio as the Firm ceased originations of student loans during the fourth quarter of 2013. Nonaccrual loans and net charge-offs also declined as a result of the run-off of the student loan portfolio.
Purchased credit-impaired loans: PCI loans acquired in the Washington Mutual transaction decreased as the portfolio continues to run off.
As of December 31, 2015, approximately 14% of the option ARM PCI loans were delinquent and approximately 64% of the portfolio has been modified into fixed-rate, fully amortizing loans. Substantially all of the remaining loans are making amortizing payments, although such payments are not necessarily fully amortizing. This latter group of loans is subject to the risk of payment shock due to future payment recast. Default rates generally increase on option ARM loans when payment recast results in a payment increase. The expected increase in default rates is considered in the Firm’s quarterly impairment assessment.
|
| | |
JPMorgan Chase & Co./2015 Annual Report | | 117 |
Management’s discussion and analysis
The following table provides a summary of lifetime principal loss estimates included in either the nonaccretable difference or the allowance for loan losses. |
| | | | | | | | | | | | | | | |
| Summary of lifetime principal loss estimates |
| December 31, (in billions) | Lifetime loss estimates(a) | | LTD liquidation losses(b) |
| | 2015 | | 2014 | | 2015 | | 2014 |
| Home equity | $ | 14.5 |
| | $ | 14.6 |
| | $ | 12.7 |
| | $ | 12.4 |
|
| Prime mortgage | 4.0 |
| | 3.8 |
| | 3.7 |
| | 3.5 |
|
| Subprime mortgage | 3.3 |
| | 3.3 |
| | 3.0 |
| | 2.8 |
|
| Option ARMs | 10.0 |
| | 9.9 |
| | 9.5 |
| | 9.3 |
|
| Total | $ | 31.8 |
| | $ | 31.6 |
| | $ | 28.9 |
| | $ | 28.0 |
|
| |
(a) | Includes the original nonaccretable difference established in purchase accounting of $30.5 billion for principal losses plus additional principal losses recognized subsequent to acquisition through the provision and allowance for loan losses. The remaining nonaccretable difference for principal losses was $1.5 billion and $2.3 billion at December 31, 2015 and 2014, respectively. |
| |
(b) | Life-to-date (“LTD”) liquidation losses represent both realization of loss upon loan resolution and any principal forgiven upon modification. |
For further information on the Firm’s PCI loans, including write-offs, see Note 14.
Geographic composition of residential real estate loans
At December 31, 2015, $123.0 billion, or 61% of total retained residential real estate loan portfolio, excluding mortgage loans insured by U.S. government agencies and PCI loans, were concentrated in California, New York, Illinois, Texas and Florida, compared with $94.3 billion, or 63%, at December 31, 2014. California had the greatest concentration of retained residential loans with 28% at December 31, 2015, compared with 26% at December 31, 2014. The unpaid principal balance of PCI loans concentrated in these five states represented 74% of total PCI loans at both December 31, 2015, and December 31, 2014. For further information on the geographic composition of the Firm’s residential real estate loans, see Note 14.
Current estimated loan-to-values (“LTVs”) of residential real estate loans
The current estimated average LTV ratio for residential real estate loans retained, excluding mortgage loans insured by U.S. government agencies and PCI loans, was 59% at both December 31, 2015 and 2014.
Although home prices continue to recover, the decline in
home prices since 2007 has had a significant impact on the collateral values underlying the Firm’s residential real estate loan portfolio. In general, the delinquency rate for loans with high LTV ratios is greater than the delinquency rate for loans in which the borrower has greater equity in the collateral. While a large portion of the loans with current estimated LTV ratios greater than 100% continue to pay and are current, the continued willingness and ability of these borrowers to pay remains a risk.
|
| | |
118 | | JPMorgan Chase & Co./2015 Annual Report |
The following table presents the current estimated LTV ratios for PCI loans, as well as the ratios of the carrying value of the underlying loans to the current estimated collateral value. Because such loans were initially measured at fair value, the ratios of the carrying value to the current estimated collateral value will be lower than the current estimated LTV ratios, which are based on the unpaid principal balances. The estimated collateral values used to calculate these ratios do not represent actual appraised loan-level collateral values; as such, the resulting ratios are necessarily imprecise and should therefore be viewed as estimates.
|
| | | | | | | | | | | | | | | | | | | | | | | | | |
| LTV ratios and ratios of carrying values to current estimated collateral values – PCI loans | | | | | |
| | | 2015 | | 2014 | |
December 31, (in millions, except ratios) | | Unpaid principal balance | Current estimated LTV ratio(a)(b) | Net carrying value(d) | Ratio of net carrying value to current estimated collateral value(b)(d) | | Unpaid principal balance | Current estimated LTV ratio(a)(b) | Net carrying value(d) | Ratio of net carrying value to current estimated collateral value(b)(d) | |
| Home equity | | $ | 15,342 |
| 73 | % | (c) | $ | 13,281 |
| 68 | % | (e) | $ | 17,740 |
| 78 | % | (c) | $ | 15,337 |
| 73 | % | (e) |
| Prime mortgage | | 8,919 |
| 66 |
| | 7,908 |
| 58 |
| | 10,249 |
| 71 |
| | 9,027 |
| 63 |
| |
| Subprime mortgage | | 4,051 |
| 73 |
| | 3,263 |
| 59 |
| | 4,652 |
| 79 |
| | 3,493 |
| 59 |
| |
| Option ARMs | | 14,353 |
| 64 |
| | 13,804 |
| 62 |
| | 16,496 |
| 69 |
| | 15,514 |
| 65 |
| |
| |
(a) | Represents the aggregate unpaid principal balance of loans divided by the estimated current property value. Current property values are estimated at least quarterly based on home valuation models that utilize nationally recognized home price index valuation estimates; such models incorporate actual data to the extent available and forecasted data where actual data is not available. |
| |
(b) | Effective December 31, 2015, the current estimated LTV ratios and the ratios of net carrying value to current estimated collateral value reflect updates to the nationally recognized home price index valuation estimates incorporated into the Firm’s home valuation models. The prior period ratios have been revised to conform with these updates in the home price index. |
| |
(c) | Represents current estimated combined LTV for junior home equity liens, which considers all available lien positions, as well as unused lines, related to the property. All other products are presented without consideration of subordinate liens on the property. |
| |
(d) | Net carrying value includes the effect of fair value adjustments that were applied to the consumer PCI portfolio at the date of acquisition and is also net of the allowance for loan losses at December 31, 2015 and 2014 of $985 million and $1.2 billion for prime mortgage, $49 million and $194 million for option ARMs, $1.7 billion and $1.8 billion for home equity, respectively, and $180 million for subprime mortgage at December 31, 2014. There was no allowance for loan losses for subprime mortgage at December 31, 2015. |
| |
(e) | The current period ratio has been updated to include the effect of any outstanding senior lien related to a property for which the Firm holds the junior home equity lien. The prior period ratio has been revised to conform with the current presentation. |
The current estimated average LTV ratios were 65% and 78% for California and Florida PCI loans, respectively, at December 31, 2015, compared with 71% and 85%, respectively, at December 31, 2014. Average LTV ratios have declined consistent with recent improvements in home prices as well as a result of loan pay downs. Although home prices have improved, home prices in most areas of California and Florida are still lower than at the peak of the housing market; this continues to negatively affect current estimated average LTV ratios and the ratio of net carrying value to current estimated collateral value for loans in the PCI portfolio. Of the total PCI portfolio, 6% of the loans had a current estimated LTV ratio greater than 100%, and 1% had a current LTV ratio of greater than 125% at December 31, 2015, compared with 10% and 2%, respectively, at December 31, 2014.
While the current estimated collateral value is greater than the net carrying value of PCI loans, the ultimate performance of this portfolio is highly dependent on borrowers’ behavior and ongoing ability and willingness to continue to make payments on homes with negative equity, as well as on the cost of alternative housing.
For further information on current estimated LTVs of residential real estate loans, see Note 14.
Loan modification activities – residential real estate loans
The performance of modified loans generally differs by product type due to differences in both the credit quality and the types of modifications provided. Performance
metrics for modifications to the residential real estate portfolio, excluding PCI loans, that have been seasoned more than six months show weighted-average redefault rates of 20% for senior lien home equity, 22% for junior lien home equity, 17% for prime mortgages including option ARMs, and 29% for subprime mortgages. The cumulative performance metrics for modifications to the PCI residential real estate portfolio that have been seasoned more than six months show weighted average redefault rates of 20% for home equity, 19% for prime mortgages, 16% for option ARMs and 33% for subprime mortgages. The favorable performance of the PCI option ARM modifications is the result of a targeted proactive program which fixed the borrower’s payment to the amount at the point of modification. The cumulative redefault rates reflect the performance of modifications completed under both the U.S. Government’s Home Affordable Modification Program (“HAMP”) and the Firm’s proprietary modification programs (primarily the Firm’s modification program that was modeled after HAMP) from October 1, 2009, through December 31, 2015.
Certain loans that were modified under HAMP and the Firm’s proprietary modification programs have interest rate reset provisions (“step-rate modifications”). Interest rates on these loans generally began to increase in 2014 by 1% per year and will continue to do so, until the rate reaches a specified cap, typically at a prevailing market interest rate for a fixed-rate loan as of the modification date. The
|
| | |
JPMorgan Chase & Co./2015 Annual Report | | 119 |
Management’s discussion and analysis
carrying value of non-PCI loans modified in step-rate modifications was $4 billion at December 31, 2015, with $447 million that experienced the initial interest rate increase in 2015 and $1 billion that is scheduled to experience the initial interest rate increase in each of 2016 and 2017. The unpaid principal balance of PCI loans modified in step-rate modifications was $10 billion at December 31, 2015, with $1 billion that experienced the initial interest rate increase in 2015, and $3 billion and $2 billion scheduled to experience the initial interest rate increase in 2016 and 2017, respectively. The Firm continues to monitor this risk exposure to ensure that it is appropriately considered in the allowance for loan losses.
The following table presents information as of December 31, 2015 and 2014, relating to modified retained residential real estate loans for which concessions have been granted to borrowers experiencing financial difficulty. Modifications of PCI loans continue to be accounted for and reported as PCI loans, and the impact of the modification is incorporated into the Firm’s quarterly assessment of estimated future cash flows. Modifications of consumer loans other than PCI loans are generally accounted for and reported as TDRs. For further information on modifications for the years ended December 31, 2015 and 2014, see Note 14.
|
| | | | | | | | | | | | | |
| Modified residential real estate loans |
| | 2015 | | 2014 |
December 31, (in millions) | Retained loans | Nonaccrual retained loans(d) | | Retained loans | Nonaccrual retained loans(d) |
Modified residential real estate loans, excluding PCI loans(a)(b) | | | | | |
| Home equity – senior lien | $ | 1,048 |
| $ | 581 |
| | $ | 1,101 |
| $ | 628 |
|
| Home equity – junior lien | 1,310 |
| 639 |
| | 1,304 |
| 632 |
|
| Prime mortgage, including option ARMs | 4,826 |
| 1,287 |
| | 6,145 |
| 1,559 |
|
| Subprime mortgage | 1,864 |
| 670 |
| | 2,878 |
| 931 |
|
| Total modified residential real estate loans, excluding PCI loans | $ | 9,048 |
| $ | 3,177 |
| | $ | 11,428 |
| $ | 3,750 |
|
Modified PCI loans(c) | | | | | |
| Home equity | $ | 2,526 |
| NA |
| | $ | 2,580 |
| NA |
|
| Prime mortgage | 5,686 |
| NA |
| | 6,309 |
| NA |
|
| Subprime mortgage | 3,242 |
| NA |
| | 3,647 |
| NA |
|
| Option ARMs | 10,427 |
| NA |
| | 11,711 |
| NA |
|
| Total modified PCI loans | $ | 21,881 |
| NA |
| | $ | 24,247 |
| NA |
|
| |
(a) | Amounts represent the carrying value of modified residential real estate loans. |
| |
(b) | At December 31, 2015 and 2014, $3.8 billion and $4.9 billion, respectively, of loans modified subsequent to repurchase from Ginnie Mae in accordance with the standards of the appropriate government agency (i.e., FHA, VA, RHS) are not included in the table above. When such loans perform subsequent to modification in accordance with Ginnie Mae guidelines, they are generally sold back into Ginnie Mae loan pools. Modified loans that do not re-perform become subject to foreclosure. For additional information about sales of loans in securitization transactions with Ginnie Mae, see Note 16. |
| |
(c) | Amounts represent the unpaid principal balance of modified PCI loans. |
| |
(d) | As of December 31, 2015 and 2014, nonaccrual loans included $2.5 billion and $2.9 billion, respectively, of TDRs for which the borrowers were less than 90 days past due. For additional information about loans modified in a TDR that are on nonaccrual status, see Note 14. |
Nonperforming assets
The following table presents information as of December 31, 2015 and 2014, about consumer, excluding credit card, nonperforming assets.
|
| | | | | | | |
Nonperforming assets(a) | | | |
| December 31, (in millions) | 2015 | | 2014 |
Nonaccrual loans(b) | | | |
| Residential real estate | $ | 4,792 |
| | $ | 5,845 |
|
| Other consumer | 621 |
| | 664 |
|
| Total nonaccrual loans | 5,413 |
| | 6,509 |
|
| Assets acquired in loan satisfactions | | | |
| Real estate owned | 277 |
| | 437 |
|
| Other | 48 |
| | 36 |
|
| Total assets acquired in loan satisfactions | 325 |
| | 473 |
|
| Total nonperforming assets | $ | 5,738 |
| | $ | 6,982 |
|
| |
(a) | At December 31, 2015 and 2014, nonperforming assets excluded: (1) mortgage loans insured by U.S. government agencies of $6.3 billion and $7.8 billion, respectively, that are 90 or more days past due; (2) student loans insured by U.S. government agencies under the FFELP of $290 million and $367 million, respectively, that are 90 or more days past due; and (3) real estate owned insured by U.S. government agencies of $343 million and $462 million, respectively. These amounts have been excluded based upon the government guarantee. |
| |
(b) | Excludes PCI loans that were acquired as part of the Washington Mutual transaction, which are accounted for on a pool basis. Since each pool is accounted for as a single asset with a single composite interest rate and an aggregate expectation of cash flows, the past-due status of the pools, or that of individual loans within the pools, is not meaningful. Because the Firm is recognizing interest income on each pool of loans, each pool is considered to be performing. |
Nonaccrual loans in the residential real estate portfolio totaled $4.8 billion and $5.8 billion at December 31, 2015, and 2014, respectively, of which 31% and 32%, respectively, were greater than 150 days past due. In the aggregate, the unpaid principal balance of residential real estate loans greater than 150 days past due was charged down by approximately 44% and 50% to the estimated net realizable value of the collateral at December 31, 2015 and 2014, respectively.
Active and suspended foreclosure: For information on loans that were in the process of active or suspended foreclosure, see Note 14.
Nonaccrual loans: The following table presents changes in the consumer, excluding credit card, nonaccrual loans for the years ended December 31, 2015 and 2014. |
| | | | | | | |
| Nonaccrual loans | | |
| Year ended December 31, | | | |
| (in millions) | | 2015 | 2014 |
| Beginning balance | | $ | 6,509 |
| $ | 7,496 |
|
| Additions | | 3,662 |
| 4,905 |
|
| Reductions: | | | |
Principal payments and other(a) | | 1,668 |
| 1,859 |
|
| Charge-offs | | 800 |
| 1,306 |
|
| Returned to performing status | | 1,725 |
| 2,083 |
|
| Foreclosures and other liquidations | | 565 |
| 644 |
|
| Total reductions | | 4,758 |
| 5,892 |
|
| Net additions/(reductions) | | (1,096 | ) | (987 | ) |
| Ending balance | | $ | 5,413 |
| $ | 6,509 |
|
| |
(a) | Other reductions includes loan sales. |
|
| | |
120 | | JPMorgan Chase & Co./2015 Annual Report |
Credit Card
Total credit card loans increased from December 31, 2014 due to higher new account originations and increased credit card sales volume partially offset by sales of non-core loans and the transfer of commercial card loans to the CIB. The 30+ day delinquency rate decreased to 1.43% at December 31, 2015, from 1.44% at December 31, 2014. For the years ended December 31, 2015 and 2014, the net charge-off rates were 2.51% and 2.75%, respectively. The Credit Card 30+ day delinquency rate and net charge-off rate remain near historic lows. Charge-offs have improved compared to a year ago due to continued discipline in credit underwriting as well as improvement in the economy driven by lower unemployment. The credit card portfolio continues to reflect a well-seasoned, largely rewards-based portfolio that has good U.S. geographic diversification.
Loans outstanding in the top five states of California, Texas, New York, Florida and Illinois consisted of $57.5 billion in receivables, or 44% of the retained loan portfolio, at December 31, 2015, compared with $54.9 billion, or 43%, at December 31, 2014. The greatest geographic concentration of credit card retained loans is in California, which represented 14% of total retained loans at both December 31, 2015 and 2014, respectively. For further information on the geographic composition of the Firm’s credit card loans, see Note 14.
Modifications of credit card loans
At December 31, 2015 and 2014, the Firm had $1.5 billion and $2.0 billion, respectively, of credit card loans outstanding that have been modified in TDRs. These balances included both credit card loans with modified payment terms and credit card loans that reverted back to their pre-modification payment terms because the cardholder did not comply with the modified payment terms. The decrease in modified credit card loans outstanding from December 31, 2014, was attributable to a reduction in new modifications as well as ongoing payments and charge-offs on previously modified credit card loans.
Consistent with the Firm’s policy, all credit card loans typically remain on accrual status until charged off. However, the Firm establishes an allowance, which is offset against loans and charged to interest income, for the estimated uncollectible portion of accrued interest and fee income.
For additional information about loan modification programs to borrowers, see Note 14.
|
| | |
JPMorgan Chase & Co./2015 Annual Report | | 121 |
Management’s discussion and analysis
|
| | | | |
WHOLESALE CREDIT PORTFOLIO |
The Firm’s wholesale businesses are exposed to credit risk through underwriting, lending, market-making, and hedging activities with and for clients and counterparties, as well as through various operating services such as cash management and clearing activities. A portion of the loans originated or acquired by the Firm’s wholesale businesses is generally retained on the balance sheet. The Firm distributes a significant percentage of the loans it originates into the market as part of its syndicated loan business and to manage portfolio concentrations and credit risk.
The wholesale credit portfolio, excluding Oil & Gas, continued to be generally stable throughout 2015, characterized by low levels of criticized exposure, nonaccrual loans and charge-offs. Growth in loans retained was driven by increased client activity, notably in commercial real estate. Discipline in underwriting across all areas of lending continues to remain a key point of focus. The wholesale portfolio is actively managed, in part by conducting ongoing, in-depth reviews of client credit quality and transaction structure, inclusive of collateral where applicable; and of industry, product and client concentrations.
|
| | | | | | | | | | | | | |
| Wholesale credit portfolio |
| December 31, | Credit exposure | | Nonperforming(c) |
| (in millions) | 2015 | 2014 | | 2015 | 2014 |
| Loans retained | $ | 357,050 |
| $ | 324,502 |
| | $ | 988 |
| $ | 599 |
|
| Loans held-for-sale | 1,104 |
| 3,801 |
| | 3 |
| 4 |
|
| Loans at fair value | 2,861 |
| 2,611 |
| | 25 |
| 21 |
|
| Loans – reported | 361,015 |
| 330,914 |
| | 1,016 |
| 624 |
|
| Derivative receivables | 59,677 |
| 78,975 |
| | 204 |
| 275 |
|
Receivables from customers and other(a) | 13,372 |
| 28,972 |
| | — |
| — |
|
| Total wholesale credit-related assets | 434,064 |
| 438,861 |
| | 1,220 |
| 899 |
|
| Lending-related commitments | 366,399 |
| 366,881 |
| | 193 |
| 103 |
|
| Total wholesale credit exposure | $ | 800,463 |
| $ | 805,742 |
| | $ | 1,413 |
| $ | 1,002 |
|
Credit derivatives used in credit portfolio management activities(b) | $ | (20,681 | ) | $ | (26,703 | ) | | $ | (9 | ) | $ | — |
|
| Liquid securities and other cash collateral held against derivatives | (16,580 | ) | (19,604 | ) | | NA |
| NA |
|
| |
(a) | Receivables from customers and other include $13.3 billion and $28.8 billion of margin loans at December 31, 2015 and 2014, respectively, to prime and retail brokerage customers; these are classified in accrued interest and accounts receivable on the Consolidated balance sheets. |
| |
(b) | Represents the net notional amount of protection purchased and sold through credit derivatives used to manage both performing and nonperforming wholesale credit exposures; these derivatives do not qualify for hedge accounting under U.S. GAAP. For additional information, see Credit derivatives on page 129, and Note 6. |
| |
(c) | Excludes assets acquired in loan satisfactions. |
|
| | |
122 | | JPMorgan Chase & Co./2015 Annual Report |
The following tables present the maturity and ratings profiles of the wholesale credit portfolio as of December 31, 2015 and 2014. The ratings scale is based on the Firm’s internal risk ratings, which generally correspond to the ratings as defined by S&P and Moody’s. For additional information on wholesale loan portfolio risk ratings, see Note 14.
|
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Wholesale credit exposure – maturity and ratings profile | | | | | | | |
| | Maturity profile(e) | | Ratings profile |
| | Due in 1 year or less | Due after 1 year through 5 years | Due after 5 years | Total | | Investment-grade | | Noninvestment-grade | | Total | Total % of IG |
December 31, 2015 (in millions, except ratios) | | AAA/Aaa to BBB-/Baa3 | | BB+/Ba1 & below | |
| Loans retained | $ | 110,348 |
| $ | 155,902 |
| $ | 90,800 |
| $ | 357,050 |
| | $ | 267,736 |
| | $ | 89,314 |
| | $ | 357,050 |
| 75 | % |
| Derivative receivables | | | | 59,677 |
| | | | | | 59,677 |
| |
| Less: Liquid securities and other cash collateral held against derivatives | | | | (16,580 | ) | | | | | | (16,580 | ) | |
| Total derivative receivables, net of all collateral | 11,399 |
| 12,836 |
| 18,862 |
| 43,097 |
| | 34,773 |
| | 8,324 |
| | 43,097 |
| 81 |
|
| Lending-related commitments | 105,514 |
| 251,042 |
| 9,843 |
| 366,399 |
| | 267,922 |
| | 98,477 |
| | 366,399 |
| 73 |
|
| Subtotal | 227,261 |
| 419,780 |
| 119,505 |
| 766,546 |
| | 570,431 |
| | 196,115 |
| | 766,546 |
| 74 |
|
Loans held-for-sale and loans at fair value(a) | | | | 3,965 |
| | | | | | 3,965 |
| |
| Receivables from customers and other | | | | 13,372 |
| | | | | | 13,372 |
| |
| Total exposure – net of liquid securities and other cash collateral held against derivatives | | | | $ | 783,883 |
| | | | | | $ | 783,883 |
| |
Credit derivatives used in credit portfolio management activities by reference entity ratings profile(b)(c)(d) | $ | (808 | ) | $ | (14,427 | ) | $ | (5,446 | ) | $ | (20,681 | ) | | $ | (17,754 | ) | | $ | (2,927 | ) | | $ | (20,681 | ) | 86 | % |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Maturity profile(e) | | Ratings profile |
| | Due in 1 year or less | Due after 1 year through 5 years | Due after 5 years | Total | | Investment-grade | | Noninvestment-grade | | Total | Total % of IG |
December 31, 2014 (in millions, except ratios) | | AAA/Aaa to BBB-/Baa3 | | BB+/Ba1 & below | |
| Loans retained | $ | 112,411 |
| $ | 134,277 |
| $ | 77,814 |
| $ | 324,502 |
| | $ | 241,666 |
| | $ | 82,836 |
| | $ | 324,502 |
| 74 | % |
| Derivative receivables | | | | 78,975 |
| | | | | | 78,975 |
| |
| Less: Liquid securities and other cash collateral held against derivatives | | | | (19,604 | ) | | | | | | (19,604 | ) | |
| Total derivative receivables, net of all collateral | 20,032 |
| 16,130 |
| 23,209 |
| 59,371 |
| | 50,815 |
| (f) | 8,556 |
| (f) | 59,371 |
| 86 |
|
| Lending-related commitments | 94,635 |
| 262,572 |
| 9,674 |
| 366,881 |
| | 284,288 |
| | 82,593 |
| | 366,881 |
| 77 |
|
| Subtotal | 227,078 |
| 412,979 |
| 110,697 |
| 750,754 |
| | 576,769 |
| | 173,985 |
| | 750,754 |
| 77 |
|
Loans held-for-sale and loans at fair value(a) | | | | 6,412 |
| | | | | | 6,412 |
| |
| Receivables from customers and other | | | | 28,972 |
| | | | | | 28,972 |
| |
| Total exposure – net of liquid securities and other cash collateral held against derivatives | | | | $ | 786,138 |
| | | | | | $ | 786,138 |
| |
Credit derivatives used in credit portfolio management activities by reference entity ratings profile(b)(c)(d) | $ | (2,050 | ) | $ | (18,653 | ) | $ | (6,000 | ) | $ | (26,703 | ) | | $ | (23,571 | ) | | $ | (3,132 | ) | | $ | (26,703 | ) | 88 | % |
| |
(a) | Represents loans held-for-sale, primarily related to syndicated loans and loans transferred from the retained portfolio, and loans at fair value. |
| |
(b) | These derivatives do not quality for hedge accounting under U.S. GAAP. |
| |
(c) | The notional amounts are presented on a net basis by underlying reference entity and the ratings profile shown is based on the ratings of the reference entity on which protection has been purchased. |
| |
(d) | Predominantly all of the credit derivatives entered into by the Firm where it has purchased protection, including Credit derivatives used in credit portfolio management activities, are executed with investment grade counterparties. |
| |
(e) | The maturity profile of retained loans, lending-related commitments and derivative receivables is based on remaining contractual maturity. Derivative contracts that are in a receivable position at December 31, 2015, may become a payable prior to maturity based on their cash flow profile or changes in market conditions. |
| |
(f) | Prior period amounts have been revised to conform with current period presentation. |
Wholesale credit exposure – industry exposures
The Firm focuses on the management and diversification of its industry exposures, paying particular attention to industries with actual or potential credit concerns. Exposures deemed criticized align with the U.S. banking regulators’ definition of criticized exposures, which consist
of the special mention, substandard and doubtful categories. The total criticized component of the portfolio, excluding loans held-for-sale and loans at fair value, was $14.6 billion at December 31, 2015, compared with $10.1 billion at December 31, 2014, driven by downgrades within the Oil & Gas portfolio.
|
| | |
JPMorgan Chase & Co./2015 Annual Report | | 123 |
Management’s discussion and analysis
Effective in the fourth quarter 2015, the Firm realigned its wholesale industry divisions in order to better monitor and manage industry concentrations. Included in this realignment is the combination of certain previous stand-alone industries (e.g. Consumer & Retail) as well as the creation of a new industry division, Financial Market Infrastructure, consisting of clearing houses, exchanges and related depositories. In the tables below, the prior period information has been revised to conform with the current period presentation.
Below are summaries of the Firm’s exposures as of December 31, 2015 and 2014. For additional information on industry concentrations, see Note 5.
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
Wholesale credit exposure – industries(a) | | | | | |
| | | Selected metrics |
| | | | | | | 30 days or more past due and accruing
loans | Net charge-offs/ (recoveries) | Credit derivative hedges(e) | Liquid securities and other cash collateral held against derivative
receivables |
| | | | Noninvestment-grade |
| | Credit exposure(d) | Investment- grade | Noncriticized | Criticized performing | Criticized nonperforming |
As of or for the year ended December 31, 2015 (in millions) |
| Real Estate | $ | 116,857 |
| $ | 88,076 |
| $ | 27,087 |
| $ | 1,463 |
| $ | 231 |
| $ | 208 |
| $ | (14 | ) | $ | (54 | ) | $ | (47 | ) |
| Consumer & Retail | 85,460 |
| 53,647 |
| 29,659 |
| 1,947 |
| 207 |
| 18 |
| 13 |
| (288 | ) | (94 | ) |
Technology, Media &
Telecommunications | 57,382 |
| 29,205 |
| 26,925 |
| 1,208 |
| 44 |
| 5 |
| (1 | ) | (806 | ) | (21 | ) |
| Industrials | 54,386 |
| 36,519 |
| 16,663 |
| 1,164 |
| 40 |
| 59 |
| 8 |
| (386 | ) | (39 | ) |
| Healthcare | 46,053 |
| 37,858 |
| 7,755 |
| 394 |
| 46 |
| 129 |
| (7 | ) | (24 | ) | (245 | ) |
| Banks & Finance Cos | 43,398 |
| 35,071 |
| 7,654 |
| 610 |
| 63 |
| 17 |
| (5 | ) | (974 | ) | (5,509 | ) |
| Oil & Gas | 42,077 |
| 24,379 |
| 13,158 |
| 4,263 |
| 277 |
| 22 |
| 13 |
| (530 | ) | (37 | ) |
| Utilities | 30,853 |
| 24,983 |
| 5,655 |
| 168 |
| 47 |
| 3 |
| — |
| (190 | ) | (289 | ) |
State & Municipal Govt(b) | 29,114 |
| 28,307 |
| 745 |
| 7 |
| 55 |
| 55 |
| (8 | ) | (146 | ) | (81 | ) |
| Asset Managers | 23,815 |
| 20,214 |
| 3,570 |
| 31 |
| — |
| 18 |
| — |
| (6 | ) | (4,453 | ) |
| Transportation | 19,227 |
| 13,258 |
| 5,801 |
| 167 |
| 1 |
| 15 |
| 3 |
| (51 | ) | (243 | ) |
| Central Govt | 17,968 |
| 17,871 |
| 97 |
| — |
| — |
| 7 |
| — |
| (9,359 | ) | (2,393 | ) |
| Chemicals & Plastics | 15,232 |
| 10,910 |
| 4,017 |
| 274 |
| 31 |
| 9 |
| — |
| (17 | ) | — |
|
| Metals & Mining | 14,049 |
| 6,522 |
| 6,434 |
| 1,008 |
| 85 |
| 1 |
| — |
| (449 | ) | (4 | ) |
| Automotive | 13,864 |
| 9,182 |
| 4,580 |
| 101 |
| 1 |
| 4 |
| (2 | ) | (487 | ) | (1 | ) |
| Insurance | 11,889 |
| 9,812 |
| 1,958 |
| 26 |
| 93 |
| 23 |
| — |
| (157 | ) | (1,410 | ) |
| Financial Markets Infrastructure | 7,973 |
| 7,304 |
| 669 |
| — |
| — |
| — |
| — |
| — |
| (167 | ) |
| Securities Firms | 4,412 |
| 1,505 |
| 2,907 |
| — |
| — |
| 3 |
| — |
| (102 | ) | (256 | ) |
All other(c) | 149,117 |
| 130,488 |
| 18,095 |
| 370 |
| 164 |
| 1,015 |
| 10 |
| (6,655 | ) | (1,291 | ) |
| Subtotal | 783,126 |
| $ | 585,111 |
| $ | 183,429 |
| $ | 13,201 |
| $ | 1,385 |
| $ | 1,611 |
| $ | 10 |
| $ | (20,681 | ) | $ | (16,580 | ) |
| Loans held-for-sale and loans at fair value | 3,965 |
| | | | | | | | |
| Receivables from customers and interests in purchased receivables | 13,372 |
| | | | | | | | |
| Total | $ | 800,463 |
| | | | | | | | |
|
| | |
124 | | JPMorgan Chase & Co./2015 Annual Report |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | Selected metrics |
| | | | | | | 30 days or more past due and accruing
loans | Net charge-offs/ (recoveries) | Credit derivative hedges(f) | Liquid securities and other cash collateral held against derivative
receivables |
| | | | Noninvestment-grade |
| | Credit exposure(e) | Investment- grade | Noncriticized | Criticized performing | Criticized nonperforming |
As of or for the year ended December 31, 2014 (in millions) |
| Real Estate | $ | 105,975 |
| $ | 78,996 |
| $ | 25,370 |
| $ | 1,356 |
| $ | 253 |
| $ | 309 |
| $ | (9 | ) | $ | (36 | ) | $ | (27 | ) |
| Consumer & Retail | 83,663 |
| 52,872 |
| 28,289 |
| 2,315 |
| 187 |
| 92 |
| 9 |
| (81 | ) | (26 | ) |
Technology, Media &
Telecommunications | 46,655 |
| 29,792 |
| 15,358 |
| 1,446 |
| 59 |
| 25 |
| (5 | ) | (1,107 | ) | (13 | ) |
| Industrials | 47,859 |
| 29,246 |
| 17,483 |
| 1,117 |
| 13 |
| 58 |
| (1 | ) | (338 | ) | (24 | ) |
| Healthcare | 56,516 |
| 48,402 |
| 7,584 |
| 488 |
| 42 |
| 193 |
| 16 |
| (94 | ) | (244 | ) |
| Banks & Finance Cos | 55,098 |
| 45,962 |
| 8,611 |
| 508 |
| 17 |
| 46 |
| (4 | ) | (1,232 | ) | (9,369 | ) |
| Oil & Gas | 43,148 |
| 29,260 |
| 13,831 |
| 56 |
| 1 |
| 15 |
| 2 |
| (144 | ) | (161 | ) |
| Utilities | 27,441 |
| 23,533 |
| 3,653 |
| 255 |
| — |
| 198 |
| (3 | ) | (155 | ) | (193 | ) |
State & Municipal Govt(b) | 31,068 |
| 30,147 |
| 819 |
| 102 |
| — |
| 69 |
| 24 |
| (148 | ) | (130 | ) |
| Asset Managers | 27,488 |
| 24,054 |
| 3,376 |
| 57 |
| 1 |
| 38 |
| (12 | ) | (9 | ) | (4,545 | ) |
| Transportation | 20,619 |
| 13,751 |
| 6,703 |
| 165 |
| — |
| 5 |
| (12 | ) | (42 | ) | (279 | ) |
| Central Govt | 19,881 |
| 19,647 |
| 176 |
| 58 |
| — |
| — |
| — |
| (11,342 | ) | (1,161 | ) |
| Chemicals & Plastics | 12,612 |
| 9,256 |
| 3,327 |
| 29 |
| — |
| 1 |
| (2 | ) | (14 | ) | — |
|
| Metals & Mining | 14,969 |
| 8,304 |
| 6,161 |
| 504 |
| — |
| — |
| 18 |
| (377 | ) | (19 | ) |
| Automotive | 12,754 |
| 8,071 |
| 4,522 |
| 161 |
| — |
| 1 |
| (1 | ) | (140 | ) | — |
|
| Insurance | 13,350 |
| 10,550 |
| 2,558 |
| 80 |
| 162 |
| — |
| — |
| (52 | ) | (2,372 | ) |
| Financial Markets Infrastructure | 11,986 |
| 11,487 |
| 499 |
| — |
| — |
| — |
| — |
| — |
| (4 | ) |
| Securities Firms | 4,801 |
| 2,491 |
| 2,245 |
| 10 |
| 55 |
| 20 |
| 4 |
| (102 | ) | (212 | ) |
All other(c) | 134,475 |
| 118,639 |
| 15,214 |
| 435 |
| 187 |
| 1,231 |
| (12 | ) | (11,290 | ) | (825 | ) |
| Subtotal | $ | 770,358 |
| $ | 594,460 |
| $ | 165,779 |
| $ | 9,142 |
| $ | 977 |
| $ | 2,301 |
| $ | 12 |
| $ | (26,703 | ) | $ | (19,604 | ) |
| Loans held-for-sale and loans at fair value | 6,412 |
| | | | | | | | |
| Receivables from customers and interests in purchased receivables | 28,972 |
| | | | | | | | |
Total(d) | $ | 805,742 |
| | | | | | | | |
| |
(a) | The industry rankings presented in the table as of December 31, 2014, are based on the industry rankings of the corresponding exposures at December 31, 2015, not actual rankings of such exposures at December 31, 2014.
|
| |
(b) | In addition to the credit risk exposure to states and municipal governments (both U.S. and non-U.S.) at December 31, 2015 and 2014, noted above, the Firm held: $7.6 billion and $10.6 billion, respectively, of trading securities; $33.6 billion and $30.1 billion, respectively, of available-for-sale (“AFS”) securities; and $12.8 billion and $10.2 billion, respectively, of held-to-maturity (“HTM”) securities, issued by U.S. state and municipal governments. For further information, see Note 3 and Note 12.
|
| |
(c) | All other includes: individuals; SPEs; holding companies; and private education and civic organizations, representing approximately 54%, 37%, 5% and 4%, respectively, at December 31, 2015, and 55%, 33%, 6% and 6%, respectively, at December 31, 2014. |
| |
(d) | Excludes cash placed with banks of $351.0 billion and $501.5 billion, at December 31, 2015 and 2014, respectively, placed with various central banks, predominantly Federal Reserve Banks. |
| |
(e) | Credit exposure is net of risk participations and excludes the benefit of “Credit derivatives used in credit portfolio management activities” held against derivative receivables or loans and “Liquid securities and other cash collateral held against derivative receivables”. |
| |
(f) | Represents the net notional amounts of protection purchased and sold through credit derivatives used to manage the credit exposures; these derivatives do not qualify for hedge accounting under U.S. GAAP. The All other category includes purchased credit protection on certain credit indices. |
|
| | |
JPMorgan Chase & Co./2015 Annual Report | | 125 |
Management’s discussion and analysis
Presented below is a discussion of certain industries to which the Firm has significant exposure and/or present actual or potential credit concerns. For additional information, refer to the tables on the previous pages.
Real Estate: Exposure to this industry increased by $10.9 billion, or 10%, in 2015 to $116.9 billion. The increase was largely driven by growth in multifamily exposure in Commercial Banking. The credit quality of this industry remained stable as the investment-grade portion of the exposures was 75% for 2015 and 2014. The ratio of nonaccrual retained loans to total retained loans decreased to 0.25% at December 31, 2015 from 0.32% at December 31, 2014. For further information on commercial real estate loans, see Note 14.
Oil & Gas: Exposure to the Oil & Gas industry was approximately 5.3% and 5.4% of the Firm’s total wholesale exposure as of December 31, 2015 and 2014, respectively. Exposure to this industry decreased by $1.1 billion in 2015 to $42.1 billion; of the $42.1 billion, $13.3 billion was drawn at year-end. As of December 31, 2015, approximately $24 billion of the exposure was investment-grade, of which $4 billion was drawn, and approximately $18 billion of the exposure was high yield, of which $9 billion was drawn. As of December 31, 2015, $23.5 billion of the portfolio was concentrated in the Exploration & Production and Oilfield Services sub-sectors, 36% of which exposure was drawn. Exposure to other sub-sectors, including Integrated oil and gas firms, Midstream/Oil Pipeline companies, and Refineries, is predominantly investment-grade. As of December 31, 2015, secured lending, which largely consists of reserve-based lending to the Oil & Gas industry, was $12.3 billion, 44% of which exposure was drawn.
In addition to $42.1 billion in exposure classified as Oil & Gas, the Firm had $4.3 billion in exposure to Natural Gas Pipelines and related Distribution businesses, of which $893 million was drawn at year end and 63% was investment-grade, and $4.1 billion in exposure to commercial real estate in geographies sensitive to the Oil & Gas industry.
The Firm continues to actively monitor and manage its exposure to the Oil & Gas industry in light of market conditions, and is also actively monitoring potential contagion effects on other related or dependent industries.
Metals & Mining: Exposure to the Metals & Mining industry was approximately 1.8% and 1.9% of the Firm’s total wholesale exposure as of December 31, 2015 and 2014, respectively. Exposure to the Metals & Mining industry decreased by $920 million in 2015 to $14.0 billion, of which $4.6 billion was drawn. The portfolio largely consists of exposure in North America, and 59% is concentrated in the Steel and Diversified Mining sub-sectors. Approximately 46% of the exposure in the Metals & Mining portfolio was investment-grade as of December 31, 2015, a decrease from 55% as of December 31, 2014, due to downgrades.
Loans
In the normal course of its wholesale business, the Firm provides loans to a variety of customers, ranging from large corporate and institutional clients to high-net-worth individuals. The Firm actively manages its wholesale credit exposure. One way of managing credit risk is through secondary market sales of loans and lending-related commitments. For further discussion on loans, including information on credit quality indicators and sales of loans, see Note 14.
The following table presents the change in the nonaccrual loan portfolio for the years ended December 31, 2015 and 2014.
|
| | | | | | | |
| Wholesale nonaccrual loan activity | | |
| Year ended December 31, (in millions) | | 2015 | 2014 |
| Beginning balance | | $ | 624 |
| $ | 1,044 |
|
| Additions | | 1,307 |
| 882 |
|
| Reductions: | | |
|
|
| Paydowns and other | | 534 |
| 756 |
|
| Gross charge-offs | | 87 |
| 148 |
|
| Returned to performing status | | 286 |
| 303 |
|
| Sales | | 8 |
| 95 |
|
| Total reductions | | 915 |
| 1,302 |
|
| Net changes | | 392 |
| (420 | ) |
| Ending balance | | $ | 1,016 |
| $ | 624 |
|
The following table presents net charge-offs, which are defined as gross charge-offs less recoveries, for the years ended December 31, 2015 and 2014. The amounts in the table below do not include gains or losses from sales of nonaccrual loans.
|
| | | | | | |
| Wholesale net charge-offs |
Year ended December 31, (in millions, except ratios) | 2015 | 2014 |
| Loans – reported | | |
| Average loans retained | $ | 337,407 |
| $ | 316,060 |
|
| Gross charge-offs | 95 |
| 151 |
|
| Gross recoveries | (85 | ) | (139 | ) |
| Net charge-offs | 10 |
| 12 |
|
| Net charge-off rate | — | % | — | % |
|
| | |
126 | | JPMorgan Chase & Co./2015 Annual Report |
Receivables from customers
Receivables from customers primarily represent margin loans to prime and retail brokerage clients that are collateralized through a pledge of assets maintained in clients’ brokerage accounts which are subject to daily minimum collateral requirements. In the event that the collateral value decreases, a maintenance margin call is made to the client to provide additional collateral into the account. If additional collateral is not provided by the client, the client’s position may be liquidated by the Firm to meet the minimum collateral requirements.
Lending-related commitments
The Firm uses lending-related financial instruments, such as commitments (including revolving credit facilities) and guarantees, to meet the financing needs of its customers. The contractual amounts of these financial instruments represent the maximum possible credit risk should the counterparties draw down on these commitments or the Firm fulfills its obligations under these guarantees, and the counterparties subsequently fail to perform according to the terms of these contracts.
In the Firm’s view, the total contractual amount of these wholesale lending-related commitments is not representative of the Firm’s likely actual future credit exposure or funding requirements. In determining the amount of credit risk exposure the Firm has to wholesale lending-related commitments, which is used as the basis for allocating credit risk capital to these commitments, the Firm has established a “loan-equivalent” amount for each commitment; this amount represents the portion of the unused commitment or other contingent exposure that is expected, based on average portfolio historical experience, to become drawn upon in an event of a default by an obligor. The loan-equivalent amount of the Firm’s lending-related commitments was $212.4 billion and $216.5 billion as of December 31, 2015 and 2014, respectively.
Clearing services
The Firm provides clearing services for clients entering into securities and derivative transactions. Through the provision of these services the Firm is exposed to the risk of non-performance by its clients and may be required to share in losses incurred by central counterparties (“CCPs”). Where possible, the Firm seeks to mitigate its credit risk to its clients through the collection of adequate margin at inception and throughout the life of the transactions and can also cease provision of clearing services if clients do not adhere to their obligations under the clearing agreement. For further discussion of Clearing services, see Note 29.
Derivative contracts
In the normal course of business, the Firm uses derivative instruments predominantly for market-making activities. Derivatives enable customers to manage exposures to fluctuations in interest rates, currencies and other markets. The Firm also uses derivative instruments to manage its own credit and other market risk exposure. The nature of the counterparty and the settlement mechanism of the derivative affect the credit risk to which the Firm is exposed. For OTC derivatives the Firm is exposed to the credit risk of the derivative counterparty. For exchange-traded derivatives (“ETD”), such as futures and options and “cleared” over-the-counter (“OTC-cleared”) derivatives, the Firm is generally exposed to the credit risk of the relevant CCP. Where possible, the Firm seeks to mitigate its credit risk exposures arising from derivative transactions through the use of legally enforceable master netting arrangements and collateral agreements. For further discussion of derivative contracts, counterparties and settlement types, see Note 6.
The following table summarizes the net derivative receivables for the periods presented.
|
| | | | | | |
| Derivative receivables | | |
| December 31, (in millions) | 2015 | 2014 |
| Interest rate | $ | 26,363 |
| $ | 33,725 |
|
| Credit derivatives | 1,423 |
| 1,838 |
|
| Foreign exchange | 17,177 |
| 21,253 |
|
| Equity | 5,529 |
| 8,177 |
|
| Commodity | 9,185 |
| 13,982 |
|
| Total, net of cash collateral | 59,677 |
| 78,975 |
|
| Liquid securities and other cash collateral held against derivative receivables | (16,580 | ) | (19,604 | ) |
| Total, net of all collateral | $ | 43,097 |
| $ | 59,371 |
|
Derivative receivables reported on the Consolidated balance sheets were $59.7 billion and $79.0 billion at December 31, 2015 and 2014, respectively. These amounts represent the fair value of the derivative contracts, after giving effect to legally enforceable master netting agreements and cash collateral held by the Firm. However, in management’s view, the appropriate measure of current credit risk should also take into consideration additional liquid securities (primarily U.S. government and agency securities and other group of seven nations (“G7”) government bonds) and other cash collateral held by the Firm aggregating $16.6 billion and $19.6 billion at December 31, 2015 and 2014, respectively, that may be used as security when the fair value of the client’s exposure is in the Firm’s favor. The decrease in derivative receivables was predominantly driven by declines in interest rate derivatives, commodity derivatives, foreign exchange derivatives and equity derivatives due to market movements, maturities and settlements related to client-driven market-making activities in CIB.
|
| | |
JPMorgan Chase & Co./2015 Annual Report | | 127 |
Management’s discussion and analysis
In addition to the collateral described in the preceding paragraph, the Firm also holds additional collateral (primarily cash; G7 government securities; other liquid government-agency and guaranteed securities; and corporate debt and equity securities) delivered by clients at the initiation of transactions, as well as collateral related to contracts that have a non-daily call frequency and collateral that the Firm has agreed to return but has not yet settled as of the reporting date. Although this collateral does not reduce the balances and is not included in the table above, it is available as security against potential exposure that could arise should the fair value of the client’s derivative transactions move in the Firm’s favor. As of December 31, 2015 and 2014, the Firm held $43.7 billion and $48.6 billion, respectively, of this additional collateral. The derivative receivables fair value, net of all collateral, also does not include other credit enhancements, such as letters of credit. For additional information on the Firm’s use of collateral agreements, see Note 6.
While useful as a current view of credit exposure, the net fair value of the derivative receivables does not capture the potential future variability of that credit exposure. To capture the potential future variability of credit exposure, the Firm calculates, on a client-by-client basis, three measures of potential derivatives-related credit loss: Peak, Derivative Risk Equivalent (“DRE”), and Average exposure (“AVG”). These measures all incorporate netting and collateral benefits, where applicable.
Peak represents a conservative measure of potential exposure to a counterparty calculated in a manner that is broadly equivalent to a 97.5% confidence level. Peak is the primary measure used by the Firm for setting of credit limits for derivative transactions, senior management reporting and derivatives exposure management. DRE exposure is a measure that expresses the risk of derivative exposure on a basis intended to be equivalent to the risk of loan exposures. DRE is a less extreme measure of potential credit loss than Peak and is used for aggregating derivative credit risk exposures with loans and other credit risk.
Finally, AVG is a measure of the expected fair value of the Firm’s derivative receivables at future time periods, including the benefit of collateral. AVG exposure over the total life of the derivative contract is used as the primary metric for pricing purposes and is used to calculate credit capital and the CVA, as further described below. The three year AVG exposure was $32.4 billion and $37.5 billion at December 31, 2015 and 2014, respectively, compared with derivative receivables, net of all collateral, of $43.1 billion and $59.4 billion at December 31, 2015 and 2014, respectively.
The fair value of the Firm’s derivative receivables incorporates an adjustment, the CVA, to reflect the credit quality of counterparties. The CVA is based on the Firm’s AVG to a counterparty and the counterparty’s credit spread in the credit derivatives market. The primary components of changes in CVA are credit spreads, new deal activity or unwinds, and changes in the underlying market environment. The Firm believes that active risk management is essential to controlling the dynamic credit risk in the derivatives portfolio. In addition, the Firm’s risk management process takes into consideration the potential impact of wrong-way risk, which is broadly defined as the potential for increased correlation between the Firm’s exposure to a counterparty (AVG) and the counterparty’s credit quality. Many factors may influence the nature and magnitude of these correlations over time. To the extent that these correlations are identified, the Firm may adjust the CVA associated with that counterparty’s AVG. The Firm risk manages exposure to changes in CVA by entering into credit derivative transactions, as well as interest rate, foreign exchange, equity and commodity derivative transactions.
The accompanying graph shows exposure profiles to the Firm’s current derivatives portfolio over the next 10 years as calculated by the Peak, DRE and AVG metrics. The three measures generally show that exposure will decline after the first year, if no new trades are added to the portfolio.
Exposure profile of derivatives measures
December 31, 2015
(in billions)
|
| | |
128 | | JPMorgan Chase & Co./2015 Annual Report |
The following table summarizes the ratings profile by derivative counterparty of the Firm’s derivative receivables, including credit derivatives, net of other liquid securities collateral, at the dates indicated. The ratings scale is based on the Firm’s internal ratings, which generally correspond to the ratings as defined by S&P and Moody’s.
|
| | | | | | | | | | | |
| Ratings profile of derivative receivables | | | | | |
| Rating equivalent | 2015 | | 2014(a) |
December 31, (in millions, except ratios) | Exposure net of all collateral | % of exposure net of all collateral | | Exposure net of all collateral | % of exposure net of all collateral |
| AAA/Aaa to AA-/Aa3 | $ | 10,371 |
| 24 | % | | $ | 18,713 |
| 32 | % |
| A+/A1 to A-/A3 | 10,595 |
| 25 |
| | 13,508 |
| 23 |
|
| BBB+/Baa1 to BBB-/Baa3 | 13,807 |
| 32 |
| | 18,594 |
| 31 |
|
| BB+/Ba1 to B-/B3 | 7,500 |
| 17 |
| | 7,735 |
| 13 |
|
| CCC+/Caa1 and below | 824 |
| 2 |
| | 821 |
| 1 |
|
| Total | $ | 43,097 |
| 100 | % | | $ | 59,371 |
| 100 | % |
| |
(a) | Prior period amounts have been revised to conform with current period presentation. |
As previously noted, the Firm uses collateral agreements to mitigate counterparty credit risk. The percentage of the Firm’s derivatives transactions subject to collateral agreements — excluding foreign exchange spot trades, which are not typically covered by collateral agreements due to their short maturity — was 87% as of December 31, 2015, largely unchanged compared with 88% as of December 31, 2014.
Credit derivatives
The Firm uses credit derivatives for two primary purposes: first, in its capacity as a market-maker, and second, as an end-user to manage the Firm’s own credit risk associated with various exposures. For a detailed description of credit derivatives, see Credit derivatives in Note 6.
Credit portfolio management activities
Included in the Firm’s end-user activities are credit derivatives used to mitigate the credit risk associated with traditional lending activities (loans and unfunded commitments) and derivatives counterparty exposure in the Firm’s wholesale businesses (collectively, “credit portfolio management” activities). Information on credit portfolio management activities is provided in the table below. For further information on derivatives used in credit portfolio management activities, see Credit derivatives in Note 6.
The Firm also uses credit derivatives as an end-user to manage other exposures, including credit risk arising from certain securities held in the Firm’s market-making businesses. These credit derivatives are not included in credit portfolio management activities; for further information on these credit derivatives as well as credit derivatives used in the Firm’s capacity as a market-maker in credit derivatives, see Credit derivatives in Note 6.
|
| | | | | | | |
| Credit derivatives used in credit portfolio management activities |
| | Notional amount of protection purchased (a) |
| December 31, (in millions) | 2015 | | 2014 |
| Credit derivatives used to manage: | | | |
| Loans and lending-related commitments | $ | 2,289 |
| | $ | 2,047 |
|
| Derivative receivables | 18,392 |
| | 24,656 |
|
| Credit derivatives used in credit portfolio management activities | $ | 20,681 |
| | $ | 26,703 |
|
| |
(a) | Amounts are presented net, considering the Firm’s net protection purchased or sold with respect to each underlying reference entity or index. |
The credit derivatives used in credit portfolio management activities do not qualify for hedge accounting under U.S. GAAP; these derivatives are reported at fair value, with gains and losses recognized in principal transactions revenue. In contrast, the loans and lending-related commitments being risk-managed are accounted for on an accrual basis. This asymmetry in accounting treatment, between loans and lending-related commitments and the credit derivatives used in credit portfolio management activities, causes earnings volatility that is not representative, in the Firm’s view, of the true changes in value of the Firm’s overall credit exposure.
The effectiveness of the Firm’s credit default swap (“CDS”) protection as a hedge of the Firm’s exposures may vary depending on a number of factors, including the named reference entity (i.e., the Firm may experience losses on specific exposures that are different than the named reference entities in the purchased CDS); the contractual terms of the CDS (which may have a defined credit event that does not align with an actual loss realized by the Firm); and the maturity of the Firm’s CDS protection (which in some cases may be shorter than the Firm’s exposures). However, the Firm generally seeks to purchase credit protection with a maturity date that is the same or similar to the maturity date of the exposure for which the protection was purchased, and remaining differences in maturity are actively monitored and managed by the Firm.
|
| | |
JPMorgan Chase & Co./2015 Annual Report | | 129 |
Management’s discussion and analysis
|
| | | | |
ALLOWANCE FOR CREDIT LOSSES |
JPMorgan Chase’s allowance for loan losses covers both the consumer (primarily scored) portfolio and wholesale (risk-rated) portfolio. The allowance represents management’s estimate of probable credit losses inherent in the Firm’s loan portfolio. Management also determines an allowance for wholesale and certain consumer lending-related commitments.
For a further discussion of the components of the allowance for credit losses and related management judgments, see Critical Accounting Estimates Used by the Firm on pages 165–169 and Note 15.
At least quarterly, the allowance for credit losses is reviewed by the Chief Risk Officer, the Chief Financial Officer and the Controller of the Firm, and discussed with the DRPC and Audit Committee of the Firm’s Board of Directors. As of December 31, 2015, JPMorgan Chase deemed the allowance for credit losses to be appropriate and sufficient to absorb probable credit losses inherent in the portfolio.
The consumer, excluding credit card, allowance for loan losses decreased from December 31, 2014, due to a reduction in the residential real estate portfolio allowance, reflecting continued improvement in home prices and delinquencies and increased granularity in the impairment estimates. For additional information about delinquencies and nonaccrual loans in the consumer, excluding credit card, loan portfolio, see Consumer Credit Portfolio on pages 115–121 and Note 14.
The credit card allowance for loan losses was relatively unchanged from December 31, 2014, reflecting stable credit quality trends. For additional information about delinquencies in the credit card loan portfolio, see Consumer Credit Portfolio on pages 115–121 and Note 14.
The wholesale allowance for credit losses increased from December 31, 2014, reflecting the impact of downgrades in the Oil & Gas portfolio. Excluding Oil and Gas, the wholesale portfolio continued to experience generally stable credit quality trends and low charge-off rates.
|
| | |
130 | | JPMorgan Chase & Co./2015 Annual Report |
|
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Summary of changes in the allowance for credit losses | | | | | |
| | 2015 | | 2014 |
| Year ended December 31, | Consumer, excluding credit card | Credit card | Wholesale | Total | | Consumer, excluding credit card | Credit card | Wholesale | Total |
| (in millions, except ratios) |
| Allowance for loan losses | | | | | | | | | |
| Beginning balance at January 1, | $ | 7,050 |
| $ | 3,439 |
| $ | 3,696 |
| $ | 14,185 |
| | $ | 8,456 |
| $ | 3,795 |
| $ | 4,013 |
| $ | 16,264 |
|
| Gross charge-offs | 1,658 |
| 3,488 |
| 95 |
| 5,241 |
| | 2,132 |
| 3,831 |
| 151 |
| 6,114 |
|
| Gross recoveries | (704 | ) | (366 | ) | (85 | ) | (1,155 | ) | | (814 | ) | (402 | ) | (139 | ) | (1,355 | ) |
| Net charge-offs | 954 |
| 3,122 |
| 10 |
| 4,086 |
| | 1,318 |
| 3,429 |
| 12 |
| 4,759 |
|
Write-offs of PCI loans(a) | 208 |
| — |
| — |
| 208 |
| | 533 |
| — |
| — |
| 533 |
|
| Provision for loan losses | (82 | ) | 3,122 |
| 623 |
| 3,663 |
| | 414 |
| 3,079 |
| (269 | ) | 3,224 |
|
| Other | — |
| (5 | ) | 6 |
| 1 |
| | 31 |
| (6 | ) | (36 | ) | (11 | ) |
| Ending balance at December 31, | $ | 5,806 |
| $ | 3,434 |
| $ | 4,315 |
| $ | 13,555 |
| | $ | 7,050 |
| $ | 3,439 |
| $ | 3,696 |
| $ | 14,185 |
|
| Impairment methodology | | | | | | | | | |
Asset-specific(b) | $ | 364 |
| $ | 460 |
| $ | 274 |
| $ | 1,098 |
| | $ | 539 |
| $ | 500 |
| $ | 87 |
| $ | 1,126 |
|
| Formula-based | 2,700 |
| 2,974 |
| 4,041 |
| 9,715 |
| | 3,186 |
| 2,939 |
| 3,609 |
| 9,734 |
|
| PCI | 2,742 |
| — |
| — |
| 2,742 |
| | 3,325 |
| — |
| — |
| 3,325 |
|
| Total allowance for loan losses | $ | 5,806 |
| $ | 3,434 |
| $ | 4,315 |
| $ | 13,555 |
| | $ | 7,050 |
| $ | 3,439 |
| $ | 3,696 |
| $ | 14,185 |
|
| Allowance for lending-related commitments | | | | | | | | | |
| Beginning balance at January 1, | $ | 13 |
| $ | — |
| $ | 609 |
| $ | 622 |
| | $ | 8 |
| $ | — |
| $ | 697 |
| $ | 705 |
|
| Provision for lending-related commitments | 1 |
| — |
| 163 |
| 164 |
| | 5 |
| — |
| (90 | ) | (85 | ) |
| Other | — |
| — |
| — |
| — |
| | — |
| — |
| 2 |
| 2 |
|
| Ending balance at December 31, | $ | 14 |
| $ | — |
| $ | 772 |
| $ | 786 |
| | $ | 13 |
| $ | — |
| $ | 609 |
| $ | 622 |
|
| Impairment methodology | | | | | | | | | |
| Asset-specific | $ | — |
| $ | — |
| $ | 73 |
| $ | 73 |
| | $ | — |
| $ | — |
| $ | 60 |
| $ | 60 |
|
| Formula-based | 14 |
| — |
| 699 |
| 713 |
| | 13 |
| — |
| 549 |
| 562 |
|
Total allowance for lending-related commitments(c) | $ | 14 |
| $ | — |
| $ | 772 |
| $ | 786 |
| | $ | 13 |
| $ | — |
| $ | 609 |
| $ | 622 |
|
| Total allowance for credit losses | $ | 5,820 |
| $ | 3,434 |
| $ | 5,087 |
| $ | 14,341 |
| | $ | 7,063 |
| $ | 3,439 |
| $ | 4,305 |
| $ | 14,807 |
|
| Memo: | | | | | | | | | |
| Retained loans, end of period | $ | 344,355 |
| $ | 131,387 |
| $ | 357,050 |
| $ | 832,792 |
| | $ | 294,979 |
| $ | 128,027 |
| $ | 324,502 |
| $ | 747,508 |
|
| Retained loans, average | 318,612 |
| 124,274 |
| 337,407 |
| 780,293 |
| | 289,212 |
| 124,604 |
| 316,060 |
| 729,876 |
|
| PCI loans, end of period | 40,998 |
| — |
| 4 |
| 41,002 |
| | 46,696 |
| — |
| 4 |
| 46,700 |
|
| Credit ratios | | | | | | | | | |
| Allowance for loan losses to retained loans | 1.69 | % | 2.61 | % | 1.21 | % | 1.63 | % | | 2.39 | % | 2.69 | % | 1.14 | % | 1.90 | % |
Allowance for loan losses to retained nonaccrual loans(d) | 109 |
| NM | 437 |
| 215 |
| | 110 |
| NM | 617 |
| 202 |
|
| Allowance for loan losses to retained nonaccrual loans excluding credit card | 109 |
| NM | 437 |
| 161 |
| | 110 |
| NM | 617 |
| 153 |
|
| Net charge-off rates | 0.30 |
| 2.51 |
| — |
| 0.52 |
| | 0.46 |
| 2.75 |
| — |
| 0.65 |
|
| Credit ratios, excluding residential real estate PCI loans | | | | | | | | | |
Allowance for loan losses to
retained loans | 1.01 |
| 2.61 |
| 1.21 |
| 1.37 |
| | 1.50 |
| 2.69 |
| 1.14 |
| 1.55 |
|
Allowance for loan losses to
retained nonaccrual loans(d) | 58 |
| NM | 437 |
| 172 |
| | 58 |
| NM | 617 |
| 155 |
|
Allowance for loan losses to
retained nonaccrual loans excluding credit card | 58 |
| NM | 437 |
| 117 |
| | 58 |
| NM | 617 |
| 106 |
|
| Net charge-off rates | 0.35 | % | 2.51 | % | — | % | 0.55 | % | | 0.55 | % | 2.75 | % | — | % | 0.70 | % |
| |
Note: | In the table above, the financial measures which exclude the impact of PCI loans are non-GAAP financial measures. For additional information, see Explanation and Reconciliation of the Firm’s Use of Non-GAAP Financial Measures on pages 80–82. |
| |
(a) | Write-offs of PCI loans are recorded against the allowance for loan losses when actual losses for a pool exceed estimated losses that were recorded as purchase accounting adjustments at the time of acquisition. A write-off of a PCI loan is recognized when the underlying loan is removed from a pool (e.g., upon liquidation). During the fourth quarter of 2014, the Firm recorded a $291 million adjustment to reduce the PCI allowance and the recorded investment in the Firm’s PCI loan portfolio, primarily reflecting the cumulative effect of interest forgiveness modifications. This adjustment had no impact to the Firm’s Consolidated statements of income. |
| |
(b) | Includes risk-rated loans that have been placed on nonaccrual status and loans that have been modified in a TDR. The asset-specific credit card allowance for loan losses modified in a TDR is calculated based on the loans’ original contractual interest rates and does not consider any incremental penalty rates. |
| |
(c) | The allowance for lending-related commitments is reported in other liabilities on the Consolidated balance sheets. |
| |
(d) | The Firm’s policy is generally to exempt credit card loans from being placed on nonaccrual status as permitted by regulatory guidance. |
|
| | |
JPMorgan Chase & Co./2015 Annual Report | | 131 |
Management’s discussion and analysis
Provision for credit losses
For the year ended December 31, 2015, the provision for credit losses was $3.8 billion, compared with $3.1 billion for the year ended December 31, 2014.
The total consumer provision for credit losses for the year ended December 31, 2015 reflected lower net charge-offs due to continued discipline in credit underwriting as well as improvement in the economy driven by increasing home prices and lower unemployment, partially offset by a lower reduction in the allowance for loan loss compared with December 31, 2014.
The wholesale provision for credit losses for the year ended December 31, 2015 reflected the impact of downgrades in the Oil & Gas portfolio.
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Year ended December 31, | Provision for loan losses | | Provision for lending-related commitments | | Total provision for credit losses |
| (in millions) | 2015 |
| 2014 |
| 2013 | | 2015 |
| 2014 |
| 2013 |
| | 2015 |
| 2014 |
| 2013 |
|
| Consumer, excluding credit card | $ | (82 | ) | $ | 414 |
| $ | (1,872 | ) | | $ | 1 |
| $ | 5 |
| $ | 1 |
| | $ | (81 | ) | $ | 419 |
| $ | (1,871 | ) |
| Credit card | 3,122 |
| 3,079 |
| 2,179 |
| | — |
| — |
| — |
| | 3,122 |
| 3,079 |
| 2,179 |
|
| Total consumer | 3,040 |
| 3,493 |
| 307 |
| | 1 |
| 5 |
| 1 |
| | 3,041 |
| 3,498 |
| 308 |
|
| Wholesale | 623 |
| (269 | ) | (119 | ) | | 163 |
| (90 | ) | 36 |
| | 786 |
| (359 | ) | (83 | ) |
| Total | $ | 3,663 |
| $ | 3,224 |
| $ | 188 |
| | $ | 164 |
| $ | (85 | ) | $ | 37 |
| | $ | 3,827 |
| $ | 3,139 |
| $ | 225 |
|
|
| | |
132 | | JPMorgan Chase & Co./2015 Annual Report |
Market risk is the potential for adverse changes in the value of the Firm’s assets and liabilities resulting from changes in market variables such as interest rates, foreign exchange rates, equity prices, commodity prices, implied volatilities or credit spreads.
Market risk management
Market Risk management, part of the independent risk management function, is responsible for identifying and monitoring market risks throughout the Firm and defines market risk policies and procedures. The Market Risk function reports to the Firm’s CRO.
Market Risk seeks to control risk, facilitate efficient risk/return decisions, reduce volatility in operating performance and provide transparency into the Firm’s market risk profile for senior management, the Board of Directors and regulators. Market Risk is responsible for the following functions:
Establishment of a market risk policy framework
Independent measurement, monitoring and control of line of business and firmwide market risk
Definition, approval and monitoring of limits
Performance of stress testing and qualitative risk assessments
Risk identification and classification
Each line of business is responsible for the management of the market risks within its units. The independent risk management group responsible for overseeing each line of business is charged with ensuring that all material market risks are appropriately identified, measured, monitored and managed in accordance with the risk policy framework set out by Market Risk.
Risk measurement
Tools used to measure risk
Because no single measure can reflect all aspects of market risk, the Firm uses various metrics, both statistical and nonstatistical, including:
VaR
Economic-value stress testing
Nonstatistical risk measures
Loss advisories
Profit and loss drawdowns
Earnings-at-risk
Risk monitoring and control
Market risk is controlled primarily through a series of limits set in the context of the market environment and business strategy. In setting limits, the Firm takes into consideration factors such as market volatility, product liquidity and accommodation of client business and management experience. The Firm maintains different levels of limits. Corporate level limits include VaR and stress limits. Similarly, line of business limits include VaR and stress limits and may be supplemented by loss advisories, nonstatistical measurements and profit and loss drawdowns. Limits may also be set within the lines of business, as well at the portfolio or legal entity level.
Limits are set by Market Risk and are regularly reviewed and updated as appropriate, with any changes approved by line of business management and Market Risk. Senior management, including the Firm’s CEO and CRO, are responsible for reviewing and approving certain of these risk limits on an ongoing basis. All limits that have not been reviewed within specified time periods by Market Risk are escalated to senior management. The lines of business are responsible for adhering to established limits against which exposures are monitored and reported.
Limit breaches are required to be reported in a timely manner to limit approvers, Market Risk and senior management. In the event of a breach, Market Risk consults with Firm senior management and the line of business senior management to determine the appropriate course of action required to return to compliance, which may include a reduction in risk in order to remedy the breach. Certain Firm or line of business-level limits that have been breached for three business days or longer, or by more than 30%, are escalated to senior management and the Firmwide Risk Committee.
|
| | |
JPMorgan Chase & Co./2015 Annual Report | | 133 |
Management’s discussion and analysis
The following table summarizes by LOB the predominant business activities that give rise to market risk, and the market risk management tools utilized to manage those risks; CB is not presented in the table below as it does not give rise to significant market risk. |
| | | | |
| Risk identification and classification for business activities |
| | | | |
| LOB | Predominant business activities and related market risks | Positions included in Risk Management VaR | Positions included in other risk measures (Not included in Risk Management VaR)
|
| CIB | • Makes markets and services clients across fixed income, foreign exchange, equities and commodities
• Market risk arising from changes in market prices (e.g. rates and credit spreads) resulting in a potential decline in net income
| • Market risk(a) related to:
• Trading assets/liabilities – debt and equity instruments, and derivatives, including hedges of the retained loan portfolio
• Certain securities purchased under resale agreements and securities borrowed
• Certain securities loaned or sold under repurchase agreements
• Structured notes
• Derivative CVA and associated hedges
| • Principal investing activities
• Retained loan portfolio
• Deposits
• DVA and FVA on derivatives and structured notes
|
|
|
|
| | | | |
| CCB | • Originates and services mortgage loans
• Complex, non-linear interest rate and basis risk
• Non-linear risk arises primarily from prepayment options embedded in mortgages and changes in the probability of newly originated mortgage commitments actually closing
• Basis risk results from differences in the relative movements of the rate indices underlying mortgage exposure and other interest rates
| Mortgage Banking
• Mortgage pipeline loans, classified
as derivatives
• Warehouse loans, classified as trading assets – debt instruments
• MSRs
• Hedges of pipeline loans,
warehouse loans and MSRs, classified as derivatives.
• Interest-only securities, classified as trading assets, and related hedges, classified as derivatives
| • Retained loan portfolio
• Deposits
• Principal investing activities
|
| | | | |
| Corporate | • Manages the Firm’s liquidity, funding, structural interest rate and foreign exchange risks arising from activities undertaken by the Firm’s four major reportable business segments | Treasury and CIO
• Primarily derivative positions measured at fair value through earnings, classified as derivatives
| • Principal investing activities
• Investment securities portfolio and related hedges
• Deposits
• Long-term debt and related hedges
|
| | | | |
| AM | • Market risk arising from the Firm’s initial capital investments in products, such as mutual funds, managed by AM | • Initial seed capital investments and related hedges, classified as derivatives | • Capital invested alongside third-party investors, typically in privately distributed collective vehicles managed by AM (i.e., co-investments)
• Retained loan portfolio
• Deposits
|
| |
(a) | Market risk measurement for derivatives generally incorporates the impact of DVA and FVA; market risk measurement for structured notes generally excludes the impact of FVA and DVA. |
|
| | |
134 | | JPMorgan Chase & Co./2015 Annual Report |
Value-at-risk
JPMorgan Chase utilizes VaR, a statistical risk measure, to estimate the potential loss from adverse market moves in a normal market environment. The Firm has a single VaR framework used as a basis for calculating Risk Management VaR and Regulatory VaR.
The framework is employed across the Firm using historical simulation based on data for the previous 12 months. The framework’s approach assumes that historical changes in market values are representative of the distribution of potential outcomes in the immediate future. The Firm believes the use of Risk Management VaR provides a stable measure of VaR that closely aligns to the day-to-day risk management decisions made by the lines of business, and provides the necessary and appropriate information needed to respond to risk events on a daily basis.
Risk Management VaR is calculated assuming a one-day holding period and an expected tail-loss methodology which approximates a 95% confidence level. VaR provides a consistent framework to measure risk profiles and levels of diversification across product types and is used for aggregating risks across businesses and monitoring limits. These VaR results are reported to senior management, the Board of Directors and regulators.
Under the Firm’s Risk Management VaR methodology, assuming current changes in market values are consistent with the historical changes used in the simulation, the Firm would expect to incur VaR “band breaks,” defined as losses greater than that predicted by VaR estimates, not more than five times every 100 trading days. The number of VaR band breaks observed can differ from the statistically expected number of band breaks if the current level of market volatility is materially different from the level of market volatility during the 12 months of historical data used in the VaR calculation.
Underlying the overall VaR model framework are individual VaR models that simulate historical market returns for individual products and/or risk factors. To capture material market risks as part of the Firm’s risk management framework, comprehensive VaR model calculations are performed daily for businesses whose activities give rise to market risk. These VaR models are granular and incorporate numerous risk factors and inputs to simulate daily changes in market values over the historical period; inputs are selected based on the risk profile of each portfolio as sensitivities and historical time series used to generate daily market values may be different across product types or risk management systems. The VaR model results across all portfolios are aggregated at the Firm level.
For certain products, specific risk parameters are not captured in VaR due to the lack of inherent liquidity and availability of appropriate historical data for these products. The Firm uses proxies to estimate the VaR for these and other products when daily time series are not available. It is likely that using an actual price-based time series for these products, if available, would affect the VaR results presented.
In addition, data sources used in VaR models may not be the same as those used for financial statement valuations. In cases where market prices are not observable, or where proxies are used in VaR historical time series, the sources may differ. The daily market data used in VaR models may be different than the independent third-party data collected for VCG price testing in VCG’s monthly valuation process (see Valuation process in Note 3 for further information on the Firm’s valuation process). VaR model calculations require daily data and a consistent source for valuation and therefore it is not practical to use the data collected in the VCG monthly valuation process.
Since VaR is based on historical data, it is an imperfect measure of market risk exposure and potential losses, and it is not used to estimate the impact of stressed market conditions or to manage any impact from potential stress events. In addition, based on their reliance on available historical data, limited time horizons, and other factors, VaR measures are inherently limited in their ability to measure certain risks and to predict losses, particularly those associated with market illiquidity and sudden or severe shifts in market conditions. The Firm therefore considers other measures in addition to VaR, such as stress testing, to capture and manage its market risk positions.
The Firm’s VaR model calculations are periodically evaluated and enhanced in response to changes in the composition of the Firm’s portfolios, changes in market conditions, improvements in the Firm’s modeling techniques and other factors. Such changes may also affect historical comparisons of VaR results. Model changes undergo a review and approval process by the Model Review Group prior to implementation into the operating environment. For further information, see Model risk on page 142.
The Firm calculates separately a daily aggregated VaR in accordance with regulatory rules (“Regulatory VaR”), which is used to derive the Firm’s regulatory VaR-based capital requirements under Basel III. This Regulatory VaR model framework currently assumes a ten business-day holding period and an expected tail loss methodology which approximates a 99% confidence level. Regulatory VaR is applied to “covered” positions as defined by Basel III, which may be different than the positions included in the Firm’s Risk Management VaR. For example, credit derivative hedges of accrual loans are included in the Firm’s Risk Management VaR, while Regulatory VaR excludes these credit derivative hedges. In addition, in contrast to the Firm’s Risk Management VaR, Regulatory VaR currently excludes the diversification benefit for certain VaR models.
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JPMorgan Chase & Co./2015 Annual Report | | 135 |
Management’s discussion and analysis
For additional information on Regulatory VaR and the other components of market risk regulatory capital (e.g. VaR-based measure, stressed VaR-based measure and the respective backtesting) for the Firm, see JPMorgan Chase’s
Basel III Pillar 3 Regulatory Capital Disclosures reports, which are available on the Firm’s website (http://investor.shareholder.com/jpmorganchase/basel.cfm).
The table below shows the results of the Firm’s Risk Management VaR measure using a 95% confidence level.
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Total VaR | | | | | | | | | |
| As of or for the year ended December 31, | 2015 | | 2014 | | At December 31, |
| (in millions) | Avg. | Min | Max | | Avg. | Min | Max | | 2015 | 2014 |
| CIB trading VaR by risk type | | | | | | | | | | | | | | | | | | |
| Fixed income | $ | 42 |
| | $ | 31 |
| | $ | 60 |
| | | $ | 34 |
| | $ | 23 |
| | $ | 45 |
| | | $ | 37 |
| | $ | 34 |
| |
| Foreign exchange | 9 |
| | 6 |
| | 16 |
| | | 8 |
| | 4 |
| | 25 |
| | | 6 |
| | 8 |
| |
| Equities | 18 |
| | 11 |
| | 26 |
| | | 15 |
| | 10 |
| | 23 |
| | | 21 |
| | 22 |
| |
| Commodities and other | 10 |
| | 6 |
| | 14 |
| | | 8 |
| | 5 |
| | 14 |
| | | 10 |
| | 6 |
| |
| Diversification benefit to CIB trading VaR | (35 | ) | (a) | NM |
| (b) | NM |
| (b) | | (30 | ) | (a) | NM |
| (b) | NM |
| (b) | | (28 | ) | (a) | (32 | ) | (a) |
| CIB trading VaR | 44 |
| | 27 |
| | 68 |
| | | 35 |
| | 24 |
| | 49 |
| | | 46 |
| | 38 |
| |
| Credit portfolio VaR | 14 |
| | 10 |
| | 20 |
| | | 13 |
| | 8 |
| | 18 |
| | | 10 |
| | 16 |
| |
| Diversification benefit to CIB VaR | (9 | ) | (a) | NM |
| (b) | NM |
| (b) | | (8 | ) | (a) | NM |
| (b) | NM |
| (b) | | (10 | ) | (a) | (9 | ) | (a) |
| CIB VaR | 49 |
| | 34 |
| | 71 |
| | | 40 |
| | 29 |
| | 56 |
| | | 46 |
| | 45 |
| |
| | | | | | | | | | | | | | | | | | | |
| Mortgage Banking VaR | 4 |
| | 2 |
| | 8 |
| | | 7 |
| | 2 |
| | 28 |
| | | 4 |
| | 3 |
| |
| Treasury and CIO VaR | 4 |
| | 3 |
| | 7 |
| | | 4 |
| | 3 |
| | 6 |
| | | 5 |
| | 4 |
| |
| Asset Management VaR | 3 |
| | 2 |
| | 4 |
| | | 3 |
| | 2 |
| | 4 |
| | | 3 |
| | 2 |
| |
| Diversification benefit to other VaR | (3 | ) | (a) | NM |
| (b) | NM |
| (b) | | (4 | ) | (a) | NM |
| (b) | NM |
| (b) | | (4 | ) | (a) | (3 | ) | (a) |
| Other VaR | 8 |
| | 5 |
| | 12 |
| | | 10 |
| | 5 |
| | 27 |
| | | 8 |
| | 6 |
| |
| Diversification benefit to CIB and other VaR | (10 | ) | (a) | NM |
| (b) | NM |
| (b) | | (7 | ) | (a) | NM |
| (b) | NM |
| (b) | | (9 | ) | (a) | (5 | ) | (a) |
| Total VaR | $ | 47 |
| | $ | 34 |
| | $ | 67 |
| | | $ | 43 |
| | $ | 30 |
| | $ | 70 |
| | | $ | 45 |
| | $ | 46 |
| |
| |
(a) | Average portfolio VaR and period-end portfolio VaR were less than the sum of the VaR of the components described above, which is due to portfolio diversification. The diversification effect reflects the fact that risks are not perfectly correlated. |
| |
(b) | Designated as not meaningful (“NM”), because the minimum and maximum may occur on different days for distinct risk components, and hence it is not meaningful to compute a portfolio-diversification effect. |
As presented in the table above, average Total VaR and average CIB VaR increased during 2015 when compared with 2014. The increase in Total VaR was primarily due to higher volatility in the CIB in the historical one-year look-back period during 2015 versus 2014.
Average CIB trading VaR increased during 2015 primarily due to higher VaR in the Fixed Income and Equities risk factors reflecting a combination of higher market volatility and increased exposure.
Average Mortgage Banking VaR decreased from the prior year. Average Mortgage Banking VaR was elevated late in the second quarter of 2014 due to a change in the MSR hedge position made in advance of an anticipated update to certain MSR model assumptions; when such updates were implemented, the MSR VaR decreased to levels more consistent with prior periods.
The Firm continues to enhance the VaR model calculations and time series inputs related to certain asset-backed products.
The Firm’s average Total VaR diversification benefit was $10 million or 21% of the sum for 2015, compared with $7 million or 16% of the sum for 2014. In general, over the course of the year, VaR exposure can vary significantly as positions change, market volatility fluctuates and diversification benefits change.
VaR back-testing
The Firm evaluates the effectiveness of its VaR methodology by back-testing, which compares the daily Risk Management VaR results with the daily gains and losses recognized on market-risk related revenue.
The Firm’s definition of market risk-related gains and losses is consistent with the definition used by the banking regulators under Basel III. Under this definition market risk-related gains and losses are defined as: gains and losses on the positions included in the Firm’s Risk Management VaR, excluding fees, commissions, certain valuation adjustments (e.g., liquidity and DVA), net interest income, and gains and losses arising from intraday trading.
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136 | | JPMorgan Chase & Co./2015 Annual Report |
The following chart compares the daily market risk-related gains and losses with the Firm’s Risk Management VaR for the year ended December 31, 2015. As the chart presents market risk-related gains and losses related to those positions included in the Firm’s Risk Management VaR, the results in the table below differ from the results of back-testing disclosed in the Market Risk section of the Firm’s
Basel III Pillar 3 Regulatory Capital Disclosures reports, which are based on Regulatory VaR applied to covered positions. The chart shows that for the year ended December 31, 2015, the Firm observed three VaR band breaks and posted Market risk-related gains on 117 of the 260 days in this period.
Other risk measures
Economic-value stress testing
Along with VaR, stress testing is an important tool in measuring and controlling risk. While VaR reflects the risk of loss due to adverse changes in markets using recent historical market behavior as an indicator of losses, stress testing is intended to capture the Firm’s exposure to unlikely but plausible events in abnormal markets. The Firm runs weekly stress tests on market-related risks across the lines of business using multiple scenarios that assume significant changes in risk factors such as credit spreads, equity prices, interest rates, currency rates or commodity prices.
The Firm uses a number of standard scenarios that capture different risk factors across asset classes including geographical factors, specific idiosyncratic factors and extreme tail events. The stress framework calculates multiple magnitudes of potential stress for both market rallies and market sell-offs for each risk factor and combines them in multiple ways to capture different market scenarios. For example, certain scenarios assess the potential loss arising from current exposures held by the Firm due to a broad sell off in bond markets or an extreme widening in corporate credit spreads. The flexibility of the
stress testing framework allows risk managers to construct new, specific scenarios that can be used to form decisions about future possible stress events.
Stress testing complements VaR by allowing risk managers
to shock current market prices to more extreme levels relative to those historically realized, and to stress test the relationships between market prices under extreme scenarios.
Stress-test results, trends and qualitative explanations based on current market risk positions are reported to the respective LOB’s and the Firm’s senior management to allow them to better understand the sensitivity of positions to certain defined events and to enable them to manage their risks with more transparency. In addition, results are reported to the Board of Directors.
Stress scenarios are defined and reviewed by Market Risk, and significant changes are reviewed by the relevant LOB Risk Committees and may be redefined on a periodic basis to reflect current market conditions.
The Firm’s stress testing framework is utilized in calculating results under scenarios mandated by the Federal Reserve’s Comprehensive Capital Analysis and Review (“CCAR”) and
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JPMorgan Chase & Co./2015 Annual Report | | 137 |
Management’s discussion and analysis
Internal Capital Adequacy Assessment Process (“ICAAP”)processes. In addition, the results are incorporated into the quarterly assessment of the Firm’s Risk Appetite Framework and are also presented to the DRPC.
Nonstatistical risk measures
Nonstatistical risk measures include sensitivities to variables used to value positions, such as credit spread sensitivities, interest rate basis point values and market values. These measures provide granular information on the Firm’s market risk exposure. They are aggregated by line of business and by risk type, and are also used for monitoring internal market risk limits.
Loss advisories and profit and loss drawdowns
Loss advisories and profit and loss drawdowns are tools used to highlight trading losses above certain levels of risk tolerance. Profit and loss drawdowns are defined as the decline in net profit and loss since the year-to-date peak revenue level.
Earnings-at-risk
The VaR and stress-test measures described above illustrate the economic sensitivity of the Firm’s Consolidated balance sheets to changes in market variables. The effect of interest rate exposure on the Firm’s reported net income is also important as interest rate risk represents one of the Firm’s significant market risks. Interest rate risk arises not only from trading activities but also from the Firm’s traditional banking activities, which include extension of loans and credit facilities, taking deposits and issuing debt. The Firm evaluates its structural interest rate risk exposure through earnings-at-risk, which measures the extent to which changes in interest rates will affect the Firm’s net interest income and interest rate-sensitive fees. Earnings-at-risk excludes the impact of CIB’s markets-based activities and MSRs, as these sensitivities are captured under VaR.
The CIO, Treasury and Corporate (“CTC”) Risk Committee establishes the Firm’s structural interest rate risk policies and market risk limits, which are subject to approval by the DRPC. The CIO, working in partnership with the lines of business, calculates the Firm’s structural interest rate risk profile and reviews it with senior management including the CTC Risk Committee and the Firm’s ALCO. In addition, oversight of structural interest rate risk is managed through a dedicated risk function reporting to the CTC CRO. This risk function is responsible for providing independent oversight and governance around assumptions and establishing and monitoring limits for structural interest rate risk. The Firm manages structural interest rate risk generally through its investment securities portfolio and interest rate derivatives.
Structural interest rate risk can occur due to a variety of factors, including:
Differences in the timing among the maturity or repricing of assets, liabilities and off-balance sheet instruments
Differences in the amounts of assets, liabilities and off-balance sheet instruments that are repricing at the same time
Differences in the amounts by which short-term and long-term market interest rates change (for example, changes in the slope of the yield curve)
The impact of changes in the maturity of various assets, liabilities or off-balance sheet instruments as interest rates change
The Firm manages interest rate exposure related to its assets and liabilities on a consolidated, firmwide basis. Business units transfer their interest rate risk to Treasury and CIO through a transfer-pricing system, which takes into account the elements of interest rate exposure that can be risk-managed in financial markets. These elements include asset and liability balances and contractual rates of interest, contractual principal payment schedules, expected prepayment experience, interest rate reset dates and maturities, rate indices used for repricing, and any interest rate ceilings or floors for adjustable rate products. All transfer-pricing assumptions are dynamically reviewed.
The Firm generates a net interest income baseline, and then conducts simulations of changes for interest rate-sensitive assets and liabilities denominated in U.S. dollar and other currencies (“non-U.S. dollar” currencies). Earnings-at-risk scenarios estimate the potential change in this net interest income baseline, excluding CIB’s markets-based activities and MSRs, over the following 12 months, utilizing multiple assumptions. These scenarios may consider the impact on exposures as a result of changes in interest rates from baseline rates, as well as pricing sensitivities of deposits, optionality and changes in product mix. The scenarios include forecasted balance sheet changes, as well as modeled prepayment and reinvestment behavior, but do not include assumptions about actions which could be taken by the Firm in response to any such instantaneous rate changes. For example, mortgage prepayment assumptions are based on current interest rates compared with underlying contractual rates, the time since origination, and other factors which are updated periodically based on historical experience. The Firm’s earnings-at-risk scenarios are periodically evaluated and enhanced in response to changes in the composition of the Firm’s balance sheet, changes in market conditions, improvements in the Firm’s simulation and other factors.
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138 | | JPMorgan Chase & Co./2015 Annual Report |
Effective January 1, 2015, the Firm conducts earnings-at-risk simulations for assets and liabilities denominated in U.S. dollars separately from assets and liabilities denominated in non-U.S. dollar currencies in order to enhance the Firm’s ability to monitor structural interest rate risk from non-U.S. dollar exposures.
The Firm’s U.S. dollar sensitivity is presented in the table below. The result of the non-U.S. dollar sensitivity scenarios were not material to the Firm’s earnings-at-risk at December 31, 2015.
|
| | | | | | | | | | | | |
| JPMorgan Chase’s 12-month pretax net interest income sensitivity profiles |
| (Excludes the impact of CIB’s markets-based activities and MSRs) |
| (in billions) | Instantaneous change in rates |
|
| December 31, 2015 | +200 bps | +100 bps | -100 bps | -200 bps |
| U.S. dollar | $ | 5.2 |
|
| $ | 3.1 |
|
| NM | (a) | NM | (a) |
| |
(a) | Downward 100- and 200-basis-points parallel shocks result in a federal funds target rate of zero and negative three- and six-month U.S. Treasury rates. The earnings-at-risk results of such a low probability scenario are not meaningful. |
The Firm’s benefit to rising rates on U.S. dollar assets and liabilities is largely a result of reinvesting at higher yields and assets repricing at a faster pace than deposits. The Firm’s net U.S. dollar sensitivity profile at December 31, 2015 was not materially different than December 31, 2014.
Separately, another U.S. dollar interest rate scenario used by the Firm — involving a steeper yield curve with long-term rates rising by 100 basis points and short-term rates staying at current levels — results in a 12-month pretax benefit to net interest income, excluding CIB’s markets-based activities and MSRs, of approximately $700 million. The increase in net interest income under this scenario reflects the Firm reinvesting at the higher long-term rates, with funding costs remaining unchanged. The result of the comparable non-U.S. dollar scenario was not material to the Firm.
Non-U.S. dollar FX Risk
Non-U.S. dollar FX risk is the risk that changes in foreign exchange rates affect the value of the Firm’s assets or liabilities or future results. The Firm has structural non-U.S. dollar FX exposures arising from capital investments, forecasted expense and revenue, the investment securities portfolio and issuing debt in denominations other than the U.S. dollar. Treasury and CIO, working in partnership with the lines of business, primarily manage these risks on behalf of the Firm. Treasury and CIO may hedge certain of these risks using derivatives within risk limits governed by the CTC Risk Committee.
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JPMorgan Chase & Co./2015 Annual Report | | 139 |
Management’s discussion and analysis
Country risk is the risk that a sovereign event or action alters the value or terms of contractual obligations of obligors, counterparties and issuers or adversely affects markets related to a particular country. The Firm has a comprehensive country risk management framework for assessing country risks, determining risk tolerance, and measuring and monitoring direct country exposures in the Firm. The Country Risk Management group is responsible for developing guidelines and policies for managing country risk in both emerging and developed countries. The Country Risk Management group actively monitors the various portfolios giving rise to country risk to ensure the Firm’s country risk exposures are diversified and that exposure levels are appropriate given the Firm’s strategy and risk tolerance relative to a country.
Country risk organization
The Country Risk Management group, part of the independent risk management function, works in close partnership with other risk functions to identify and monitor country risk within the Firm. The Firmwide Risk Executive for Country Risk reports to the Firm’s CRO.
Country Risk Management is responsible for the following functions:
Developing guidelines and policies consistent with a comprehensive country risk framework
Assigning sovereign ratings and assessing country risks
Measuring and monitoring country risk exposure and stress across the Firm
Managing country limits and reporting trends and limit breaches to senior management
Developing surveillance tools for early identification of potential country risk concerns
Providing country risk scenario analysis
Country risk identification and measurement
The Firm is exposed to country risk through its lending, investing, and market-making activities, whether cross-border or locally funded. Country exposure includes activity with both government and private-sector entities in a country. Under the Firm’s internal country risk management approach, country exposure is reported based on the country where the majority of the assets of the obligor, counterparty, issuer or guarantor are located or where the majority of its revenue is derived, which may be different than the domicile (legal residence) or country of incorporation of the obligor, counterparty, issuer or guarantor. Country exposures are generally measured by considering the Firm’s risk to an immediate default of the counterparty or obligor, with zero recovery. Assumptions are sometimes required in determining the measurement and allocation of country exposure, particularly in the case of certain tranched credit derivatives. Different measurement approaches or assumptions would affect the amount of reported country exposure.
Under the Firm’s internal country risk measurement framework:
Lending exposures are measured at the total committed amount (funded and unfunded), net of the allowance for credit losses and cash and marketable securities collateral received
Securities financing exposures are measured at their receivable balance, net of collateral received
Debt and equity securities are measured at the fair value of all positions, including both long and short positions
Counterparty exposure on derivative receivables is measured at the derivative’s fair value, net of the fair value of the related collateral. Counterparty exposure on derivatives can change significantly because of market movements
Credit derivatives protection purchased and sold is reported based on the underlying reference entity and is measured at the notional amount of protection purchased or sold, net of the fair value of the recognized derivative receivable or payable. Credit derivatives protection purchased and sold in the Firm’s market-making activities is measured on a net basis, as such activities often result in selling and purchasing protection related to the same underlying reference entity; this reflects the manner in which the Firm manages these exposures
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140 | | JPMorgan Chase & Co./2015 Annual Report |
The Firm also has indirect exposures to country risk (for example, related to the collateral received on securities financing receivables or related to client clearing activities). These indirect exposures are managed in the normal course of business through the Firm’s credit, market, and operational risk governance, rather than through Country Risk Management.
The Firm’s internal country risk reporting differs from the reporting provided under the FFIEC bank regulatory requirements. For further information on the FFIEC’s reporting methodology, see Cross-border outstandings on page 327.
Country risk stress testing
The country risk stress framework aims to identify potential losses arising from a country crisis by capturing the impact of large asset price movements in a country based on market shocks combined with counterparty specific assumptions. Country Risk Management periodically defines and runs ad hoc stress scenarios for individual countries in response to specific market events and sector performance concerns.
Country risk monitoring and control
The Country Risk Management group establishes guidelines for sovereign ratings reviews and limit management. Country stress and nominal exposures are measured under a comprehensive country limit framework. Country ratings and limits are actively monitored and reported on a regular basis. Country limit requirements are reviewed and approved by senior management as often as necessary, but at least annually. In addition, the Country Risk Management group uses surveillance tools, such as signaling models and ratings indicators, for early identification of potential country risk concerns.
Country risk reporting
The following table presents the Firm’s top 20 exposures by country (excluding the U.S.) as of December 31, 2015. The selection of countries is based solely on the Firm’s largest total exposures by country, based on the Firm’s internal country risk management approach, and does not represent the Firm’s view of any actual or potentially adverse credit conditions. Country exposures may fluctuate from period to period due to normal client activity and market flows.
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| | | | | | | | | | | | | |
| Top 20 country exposures | | | |
| | December 31, 2015 |
(in billions) | | Lending(a) | Trading and investing(b)(c) | Other(d) | Total exposure |
| United Kingdom | | $ | 23.8 |
| $ | 21.8 |
| $ | 1.1 |
| $ | 46.7 |
|
| Germany | | 13.8 |
| 16.7 |
| 0.2 |
| 30.7 |
|
| France | | 14.2 |
| 11.9 |
| 0.1 |
| 26.2 |
|
| Japan | | 12.9 |
| 7.8 |
| 0.4 |
| 21.1 |
|
| China | | 10.3 |
| 7.2 |
| 1.0 |
| 18.5 |
|
| Canada | | 13.9 |
| 2.9 |
| 0.3 |
| 17.1 |
|
| Australia | | 7.7 |
| 5.9 |
| — |
| 13.6 |
|
| Netherlands | | 5.0 |
| 6.0 |
| 1.4 |
| 12.4 |
|
| India | | 6.1 |
| 5.6 |
| 0.4 |
| 12.1 |
|
| Brazil | | 6.2 |
| 4.9 |
| — |
| 11.1 |
|
| Switzerland | | 6.7 |
| 0.9 |
| 1.9 |
| 9.5 |
|
| Korea | | 4.3 |
| 3.3 |
| 0.1 |
| 7.7 |
|
| Hong Kong | | 2.8 |
| 2.6 |
| 1.4 |
| 6.8 |
|
| Italy | | 2.8 |
| 3.8 |
| 0.2 |
| 6.8 |
|
| Luxembourg | | 6.4 |
| 0.1 |
| — |
| 6.5 |
|
| Spain | | 3.2 |
| 2.1 |
| 0.1 |
| 5.4 |
|
| Singapore | | 2.4 |
| 1.3 |
| 0.7 |
| 4.4 |
|
| Sweden | | 1.7 |
| 2.5 |
| — |
| 4.2 |
|
| Mexico | | 2.9 |
| 1.3 |
| — |
| 4.2 |
|
| Belgium | | 1.7 |
| 2.3 |
| — |
| 4.0 |
|
| |
(a) | Lending includes loans and accrued interest receivable (net of collateral and the allowance for loan losses), deposits with banks, acceptances, other monetary assets, issued letters of credit net of participations, and unused commitments to extend credit. Excludes intra-day and operating exposures, such as from settlement and clearing activities. |
| |
(b) | Includes market-making inventory, AFS securities, counterparty exposure on derivative and securities financings net of collateral and hedging. |
| |
(c) | Includes single reference entity (“single-name”), index and tranched credit derivatives for which one or more of the underlying reference entities is in a country listed in the above table. |
| |
(d) | Includes capital invested in local entities and physical commodity inventory. |
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JPMorgan Chase & Co./2015 Annual Report | | 141 |
Model risk
Model risk is the potential for adverse consequences from decisions based on incorrect or misused model outputs and reports.
The Firm uses models for many purposes including the valuation of positions and the measurement of risk. Valuation models are employed by the Firm to value certain financial instruments for which quoted prices may not be readily available. Valuation models may be employed as inputs into risk measurement models including VaR, regulatory capital, estimation of stress loss and the allowance for credit losses.
Models are owned by various functions within the Firm based on the specific purposes of such models. For example, VaR models and certain regulatory capital models are owned by the line of business-aligned risk management functions. Owners of models are responsible for the development, implementation and testing of their models, as well as referral of models to the Model Risk function for review and approval. Once models have been approved, model owners are responsible for the maintenance of a robust operating environment and must monitor and evaluate the performance of the models on an ongoing basis. Model owners may seek to enhance models in response to changes in the portfolios and in product and market developments, as well as to capture improvements in available modeling techniques and systems capabilities.
The Model Risk review and governance functions review and approve a wide range of models, including risk management, valuation, and regulatory capital models used by the Firm. Independent of the model owners, the Model Risk review and governance functions are part of the Firm’s Model Risk unit, and the Firmwide Model Risk Executive reports to the Firm’s CRO.
Models are tiered based on an internal standard according to their complexity, the exposure associated with the model and the Firm’s reliance on the model. This tiering is subject to the approval of the Model Risk function. A model review conducted by the Model Risk function considers the model’s suitability for the specific uses to which it will be put. The factors considered in reviewing a model include whether the model accurately reflects the characteristics of the product and its significant risks, the selection and reliability of model inputs, consistency with models for similar products, the appropriateness of any model-related adjustments, and sensitivity to input parameters and assumptions that cannot be observed from the market. When reviewing a model, the Model Risk function analyzes and challenges the model methodology and the reasonableness of model assumptions and may perform or require additional testing, including back-testing of model outcomes. Model reviews are approved by the appropriate level of management within the Model Risk function based on the relevant tier of the model.
Under the Firm’s Model Risk Policy, the Model Risk function reviews and approves new models, as well as material changes to existing models, prior to implementation in the operating environment. In certain circumstances, the head of the Model Risk function may grant exceptions to the Firm’s model risk policy to allow a model to be used prior to review or approval. The Model Risk function may also require the owner to take appropriate actions to mitigate the model risk if it is to be used in the interim. These actions will depend on the model and may include, for example, limitation of trading activity.
For a summary of valuations based on models, see Critical Accounting Estimates Used by the Firm and Note 3.
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142 | | JPMorgan Chase & Co./2015 Annual Report |
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PRINCIPAL RISK MANAGEMENT |
Principal investments are predominantly privately-held financial assets and instruments, typically representing an ownership or junior capital position, that have unique risks due to their illiquidity or for which there is less observable market or valuation data. Such investing activities are typically intended to be held over extended investment periods and, accordingly, the Firm has no expectation for short-term gain with respect to these investments. Principal investments cover multiple asset classes and are made either in stand-alone investing businesses or as part of a broader business platform. Asset classes include tax-oriented investments (e.g., affordable housing and alternative energy investments), private equity and various debt investments.
The Firm’s principal investments are managed under various lines of business and are captured within the respective LOB’s financial results. The Firm’s approach to managing principal risk is consistent with the Firm’s general risk governance structure. A Firmwide risk policy framework exists for all principal investing activities. All investments are approved by investment committees that include executives who are independent from the investing businesses. The Firm’s independent control functions are responsible for reviewing the appropriateness of the carrying value of principal investments in accordance with relevant policies. Approved levels for such investments are established for each relevant business in order to manage the overall size of the portfolios. Industry, geographic, and position level concentration limits are in place and are intended to ensure diversification of the portfolios. The Firm also conducts stress testing on these portfolios using specific scenarios that estimate losses based on significant market moves and/or other risk events.
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JPMorgan Chase & Co./2015 Annual Report | | 143 |
Management’s discussion and analysis
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OPERATIONAL RISK MANAGEMENT |
Operational risk is the risk of loss resulting from inadequate or failed processes or systems, human factors or due to external events that are neither market- nor credit-related. Operational risk is inherent in the Firm’s activities and can manifest itself in various ways, including fraudulent acts, business interruptions, inappropriate behavior of employees, failure to comply with applicable laws and regulations or failure of vendors to perform in accordance with their arrangements. These events could result in financial losses, litigation and regulatory fines, as well as other damage to the Firm. The goal is to keep operational risk at appropriate levels, in light of the Firm’s financial strength, the characteristics of its businesses, the markets in which it operates, and the competitive and regulatory environment to which it is subject.
Overview
To monitor and control operational risk, the Firm maintains an Operational Risk Management Framework (“ORMF”) designed to enable the Firm to maintain a sound and well-controlled operational environment. The four main components of the ORMF include: governance, risk identification and assessment, monitoring and reporting, and measurement.
Risk Management is responsible for prescribing the ORMF to the lines of business and corporate functions and for providing independent oversight of its implementation. The lines of business and corporate functions are responsible for implementing the ORMF. The Firmwide Oversight and Control Group (“O&C”), which consists of dedicated control officers within each of the lines of business and corporate functional areas, as well as a central oversight team, is responsible for day to day execution of the ORMF.
Operational risk management framework
The components of the Operational Risk Management Framework are:
Governance
The Firm’s operational risk governance function reports to the Firm’s CRO and is responsible for defining the ORMF and establishing the firmwide operational risk management governance structure, policies and standards. The Firmwide Risk Executive for Operational Risk Governance, a direct report of the CRO, works with the line of business CROs to provide independent oversight of the implementation of the ORMF across the Firm. Operational Risk Officers (“OROs”), who report to the LOB Chief Risk Officers or to the Firmwide Risk Executive for Operational Risk Governance, are independent of the lines of business and corporate functions, and O&C. The OROs provide oversight of the implementation of the ORMF within in each line of business and corporate function.
Line of business, corporate function and regional control committees oversee the operational risk and control environments of their respective businesses, functions or regions. These committees escalate operational risk issues to the FCC, as appropriate. For additional information on the Firmwide Control Committee, see Enterprise Risk Management on pages 107–111.
Risk Identification and Self-Assessment
In order to evaluate and monitor operational risk, the lines of business and corporate functions utilize several processes to identify, assess, mitigate and manage operational risk. Firmwide standards are in place for each of these processes and set the minimum requirements for how they must be applied.
The Firm’s risk and control self-assessment (“RCSA”) process and supporting architecture requires management to identify material inherent operational risks, assess the design and operating effectiveness of relevant controls in place to mitigate such risks, and evaluate residual risk. Action plans are developed for control issues that are identified, and businesses are held accountable for tracking and resolving issues on a timely basis. Risk Management performs an independent challenge of the RCSA program including residual risk results.
The Firm also tracks and monitors operational risk events which are analyzed by the responsible businesses and corporate functions. This enables identification of the root causes of the operational risk events and evaluation of the associated controls.
Furthermore, lines of business and corporate functions establish key risk indicators to manage and monitor operational risk and the control environment. These assist in the early detection and timely escalation of issues or events.
Risk monitoring and reporting
Operational risk management and control reports provide information, including actual operational loss levels, self-assessment results and the status of issue resolution to the lines of business and senior management. In addition, key control indicators and operating metrics are monitored against targets and thresholds. The purpose of these reports is to enable management to maintain operational risk at appropriate levels within each line of business, to escalate issues and to provide consistent data aggregation across the Firm’s businesses and functions.
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144 | | JPMorgan Chase & Co./2015 Annual Report |
Measurement
Two standard forms of operational risk measurement include operational risk capital and operational risk losses under baseline and stressed conditions.
The Firm’s operational risk capital methodology incorporates the four required elements of the Advanced Measurement Approach under the Basel III framework:
Internal losses,
External losses,
Scenario analysis, and
Business environment and internal control factors.
The primary component of the operational risk capital estimate is the result of a statistical model, the Loss Distribution Approach (“LDA”), which simulates the frequency and severity of future operational risk losses based on historical data. The LDA model is used to estimate an aggregate operational risk loss over a one-year time horizon, at a 99.9% confidence level. The LDA model incorporates actual internal operational risk losses in the quarter following the period in which those losses were realized, and the calculation generally continues to reflect such losses even after the issues or business activities giving rise to the losses have been remediated or reduced.
The calculation is supplemented by external loss data as needed, as well as both management’s view of plausible tail risk, which is captured as part of the Scenario Analysis process, and evaluation of key LOB internal control metrics (BEICF). The Firm may further supplement such analysis to incorporate feedback from its bank regulators.
The Firm considers the impact of stressed economic conditions on operational risk losses and a forward looking view of material operational risk events that may occur in a stressed environment. The Firm’s operational risk stress testing framework is utilized in calculating results for the Firm’s CCAR, ICAAP and Risk Appetite processes.
For information related to operational risk RWA, CCAR or ICAAP, see Capital Management section, pages 149–158.
Insurance
One of the ways operational loss may be mitigated is through insurance maintained by the Firm. The Firm purchases insurance to be in compliance with local laws and regulations (e.g., workers compensation), as well as to serve other needs (e.g., property loss and public liability). Insurance may also be required by third parties with whom the Firm does business. The insurance purchased is reviewed and approved by senior management.
Cybersecurity
The Firm devotes significant resources maintaining and regularly updating its systems and processes that are designed to protect the security of the Firm’s computer systems, software, networks and other technology assets against attempts by unauthorized parties to obtain access to confidential information, destroy data, disrupt or degrade service, sabotage systems or cause other damage.
Third parties with which the Firm does business or that facilitate the Firm’s business activities (e.g., vendors, exchanges, clearing houses, central depositories, and financial intermediaries) could also be sources of cybersecurity risk to the Firm, including with respect to breakdowns or failures of their systems, misconduct by the employees of such parties, or cyberattacks which could affect their ability to deliver a product or service to the Firm or result in lost or compromised information of the Firm or its clients. In addition, customers with which or whom the Firm does business can also be sources of cybersecurity risk to the Firm, particularly when their activities and systems are beyond the Firm’s own security and control systems. Customers will generally be responsible for losses incurred due to their own failure to maintain the security of their own systems and processes.
The Firm and several other U.S. financial institutions have experienced significant distributed denial-of-service attacks from technically sophisticated and well-resourced unauthorized parties which are intended to disrupt online banking services. The Firm and its clients are also regularly targeted by unauthorized parties using malicious code and viruses. On September 10, 2014, the Firm disclosed that a cyberattack against the Firm had occurred. The cyberattacks experienced to date have not resulted in any material disruption to the Firm’s operations nor have they had a material adverse effect on the Firm’s results of operations. The Firm’s Board of Directors and the Audit Committee are regularly apprised regarding the cybersecurity policies and practices of the Firm as well as the Firm’s efforts regarding significant cybersecurity events.
Cybersecurity attacks, like the one experienced by the Firm, highlight the need for continued and increased cooperation among businesses and the government, and the Firm continues to work to strengthen its partnerships with the appropriate government and law enforcement agencies and other businesses, including the Firm’s third-party service providers, in order to understand the full spectrum of cybersecurity risks in the environment, enhance defenses and improve resiliency against cybersecurity threats.
The Firm has established, and continues to establish, defenses to mitigate other possible future attacks. To enhance its defense capabilities, the Firm increased cybersecurity spending from approximately $250 million in 2014, to approximately $500 million in 2015, and expects the spending to increase to more than $600 million in 2016. Enhancements include more robust testing, advanced analytics, improved technology coverage, strengthened access management and controls and a program to increase employee awareness about cybersecurity risks and best practices.
Business and technology resiliency
JPMorgan Chase’s global resiliency and crisis management program is intended to ensure that the Firm has the ability to recover its critical business functions and supporting assets (i.e., staff, technology and facilities) in the event of a
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JPMorgan Chase & Co./2015 Annual Report | | 145 |
Management’s discussion and analysis
business interruption, and to remain in compliance with global laws and regulations as they relate to resiliency risk. The program includes corporate governance, awareness and training, as well as strategic and tactical initiatives aimed to ensure that risks are properly identified, assessed, and managed.
The Firm has established comprehensive tracking and reporting of resiliency plans in order to proactively anticipate and manage various potential disruptive circumstances such as severe weather and flooding, technology and communications outages, cyber incidents, mass transit shutdowns and terrorist threats, among others. The resiliency measures utilized by the Firm include backup infrastructure for data centers, a geographically distributed workforce, dedicated recovery facilities, providing technological capabilities to support remote work capacity for displaced staff and accommodation of employees at alternate locations. JPMorgan Chase continues to coordinate its global resiliency program across the Firm and mitigate business continuity risks by reviewing and testing recovery procedures. The strength and proficiency of the Firm’s global resiliency program has played an integral role in maintaining the Firm’s business operations during and quickly after various events in 2015 that have resulted in business interruptions, such as severe winter weather and flooding in the U.S. and various global protest-related activities.
Legal risk is the risk of loss or imposition of damages, fines, penalties or other liability arising from failure to comply with a contractual obligation or to comply with laws or regulations to which the Firm is subject.
Overview
In addition to providing legal services and advice to the Firm, and communicating and helping the lines of business adjust to the legal and regulatory changes they face, including the heightened scrutiny and expectations of the Firm’s regulators, the global Legal function is responsible for working with the businesses and corporate functions to fully understand and assess their adherence to laws and regulations. In particular, Legal assists Oversight & Control, Risk, Finance, Compliance and Internal Audit in their efforts to ensure compliance with all applicable laws and regulations and the Firm’s corporate standards for doing business. The Firm’s lawyers also advise the Firm on potential legal exposures on key litigation and transactional matters, and perform a significant defense and advocacy role by defending the Firm against claims and potential claims and, when needed, pursuing claims against others.
Governance and oversight
The Firm’s General Counsel reports to the CEO and is a member of the Operating Committee, the Firmwide Risk Committee and the Firmwide Control Committee. The General Counsel’s leadership team includes a General Counsel for each line of business, the heads of the Litigation and Corporate & Regulatory practices, as well as the Firm’s Corporate Secretary. Each region (e.g., Latin America, Asia Pacific) has a General Counsel who is responsible for managing legal risk across all lines of business and functions in the region.
Legal works with various committees (including new business initiative and reputation risk committees) and the Firm’s businesses to protect the Firm’s reputation beyond any particular legal requirements. In addition, it advises the Firm’s Conflicts Office which reviews the Firm’s wholesale transactions that may have the potential to create conflicts of interest for the Firm.
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146 | | JPMorgan Chase & Co./2015 Annual Report |
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COMPLIANCE RISK MANAGEMENT |
Compliance risk is the risk of failure to comply with applicable laws, rules, and regulations.
Overview
Each line of business is accountable for managing its compliance risk. The Firm’s Compliance Organization (“Compliance”), which is independent of the lines of business, works closely with the Operating Committee and management to provide independent review, monitoring and oversight of business operations with a focus on compliance with the legal and regulatory obligations applicable to the offering of the Firm’s products and services to clients and customers.
These compliance risks relate to a wide variety of legal and regulatory obligations, depending on the line of business and the jurisdiction, and include those related to products and services, relationships and interactions with clients and customers, and employee activities.
For example, one compliance risk, fiduciary risk, is the failure to exercise the applicable high standard of care, to act in the best interests of clients or to treat clients fairly, as required under applicable law or regulation. Other specific compliance risks include those associated with anti-money laundering compliance, trading activities, market conduct, and complying with the rules and regulations related to the offering of products and services across jurisdictional borders, among others.
Compliance implements various practices designed to identify and mitigate compliance risk by implementing policies, testing and monitoring, training and providing guidance.
In recent years, the Firm has experienced heightened scrutiny by its regulators of its compliance with regulations, and with respect to its controls and operational processes. In certain instances, the Firm has entered into Consent Orders with its regulators requiring the Firm to take certain specified actions to remediate compliance with regulations and improve its controls. The Firm expects that such regulatory scrutiny will continue.
Governance and oversight
Compliance is led by the Firms’ Chief Compliance Officer (“CCO”) who reports directly to the Firm’s COO. The Firm maintains oversight and coordination in its Compliance Risk Management practices globally through the Firm’s CCO, lines of business CCOs and regional CCOs to implement the Compliance program across the lines of business and regions. The Firm’s CCO is a member of the Firmwide Control Committee and the Firmwide Risk Committee. The Firm’s CCO also provides regular updates to the Audit Committee and DRPC. In addition, from time to time, special committees of the Board have been established to oversee the Firm’s compliance with regulatory Consent Orders.
The Firm has in place a Code of Conduct (the “Code”), and each employee is given annual training in respect of the Code and is required annually to affirm his or her compliance with the Code. The Code sets forth the Firm’s core principles and fundamental values, including that no employee should ever sacrifice integrity - or give the impression that he or she has. The Code requires prompt reporting of any known or suspected violation of the Code, any internal Firm policy, or any law or regulation applicable to the Firm’s business. It also requires the reporting of any illegal conduct, or conduct that violates the underlying principles of the Code, by any of the Firm’s employees, customers, suppliers, contract workers, business partners, or agents. Specified employees are specially trained and designated as “code specialists” who act as a resource to employees on Code of Conduct matters. In addition, concerns may be reported anonymously and the Firm prohibits retaliation against employees for the good faith reporting of any actual or suspected violations of the Code. The Code and the associated employee compliance program are focused on the regular assessment of certain key aspects of the Firm’s culture and conduct initiatives.
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JPMorgan Chase & Co./2015 Annual Report | | 147 |
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REPUTATION RISK MANAGEMENT |
Reputation risk is the risk that an action, transaction, investment or event will reduce trust in the Firm’s integrity or competence by our various constituents, including clients, counterparties, investors, regulators, employees and the broader public. Maintaining the Firm’s reputation is the responsibility of each individual employee of the Firm. The Firm’s Reputation Risk Governance policy explicitly vests each employee with the responsibility to consider the reputation of the Firm when engaging in any activity. Since the types of events that could harm the Firm’s reputation are so varied across the Firm’s lines of business, each line of business has a separate reputation risk governance infrastructure in place, which consists of three key elements: clear, documented escalation criteria appropriate to the business; a designated primary discussion forum — in most cases, one or more dedicated reputation risk committees; and a list of designated contacts, to whom questions relating to reputation risk should be referred. Line of business reputation risk governance is overseen by a Firmwide Reputation Risk Governance function, which provides oversight of the governance infrastructure and process to support the consistent identification, escalation, management and reporting of reputation risk issues firmwide.
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148 | | JPMorgan Chase & Co./2015 Annual Report |
Capital risk is the risk the Firm has an insufficient level and composition of capital to support the Firm’sits business activities and associated risks during both normal economic environments and under stressed conditions.
A strong capital position is essential to the Firm’s business strategy and competitive position. Maintaining a strong balance sheet to manage through economic volatility is considered a strategic imperative of the Firm’s Board of Directors, CEO and Operating Committee. The Firm’s balance sheet philosophy focuses on risk-adjusted returns, strong capital and robust liquidity. The Firm’s capital management strategy focuses on maintaining long-term stability which enables the Firmto enable it to build and invest in market-leading businesses, even in a highly stressed environment. Prior to making any decisions on future business activities, senior management considers the implications on the Firm’s capital. In addition to considering the Firm’s earnings outlook, senior management evaluates all sources and uses of capital with a view to preserving the Firm’s capital strength. Maintaining a strong balance sheet to manage through economic volatility is considered a strategic imperative by the Firm’s Board of Directors, CEO and Operating Committee. The Firm’s balance sheet philosophy focuses on risk-adjusted returns, strong capital and reserves, and robust liquidity.
The Firm’s capital management objectives are to hold capital sufficient to:
Cover all material risks underlying the Firm’s business activities;
Maintain “well-capitalized” status for the Firm and meet regulatory capital requirements;its principal bank subsidiaries;
Retain flexibility to take advantage of future investment opportunities;Support risks underlying business activities;
Maintain sufficient capital in order to continue to build and invest in its businesses through the cycle and in stressed environments;
Retain flexibility to take advantage of future investment opportunities;
Serve as a source of strength to its subsidiaries;
Meet capital distribution objectives; and
Distribute excessMaintain sufficient capital resources to shareholders while balancingoperate throughout a resolution period in accordance with the other objectives stated above.Firm’s preferred resolution strategy.
These objectives are achieved through ongoing monitoringthe establishment of minimum capital targets and management of the Firm’s capital position, regular stress testing, and a strong capital governance framework. Capital management is intended to be flexible in order to react to a range of potential events. JPMorgan Chase has firmwideThe Firm’s minimum capital targets are based on the most binding of three pillars: an internal assessment of the Firm’s capital needs; an estimate of required capital under the CCAR and LOB processes for ongoingDodd-Frank Act stress testing requirements; and Basel III Fully Phased-In regulatory minimums. Where necessary, each pillar may include a management-established buffer. The capital governance framework requires regular monitoring of the Firm’s capital positions, stress testing and active management of its capital position.defining escalation protocols, both at the Firm and material legal entity levels.
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| 76 | | JPMorgan Chase & Co./20152016 Annual Report | | 149 |
Management’s discussion and analysis
The following tables present the Firm’s Transitional and Fully Phased-In risk-based and leverage-based capital metrics under both the Basel III Standardized and Advanced approaches.Approaches. The Firm’s Basel III CET1 ratio exceedsratios exceed both the current and Fully Phased-In regulatory minimumminimums as of December 31, 2016 and 2015. For further discussion of these capital metrics and the Standardized and Advanced approaches, refer to Monitoring and management of capital on pages 151–155.78–82.
| | | | Transitional | Fully Phased-In | | Transitional | Fully Phased-In | |
December 31, 2015 (in millions, except ratios) | Standardized | | Advanced | | Minimum capital ratios (c) | | Standardized | | Advanced | | Minimum capital ratios (d) | | |
December 31, 2016 (in millions, except ratios) | | Standardized | | Advanced | | Minimum capital ratios (c) | | Standardized | | Advanced | | Minimum capital ratios (d) | |
| Risk-based capital metrics: | | | | | | | | | | | | | | | | | | | | | | | | |
| CET1 capital | $ | 175,398 |
| | $ | 175,398 |
| | | | $ | 173,189 |
| | $ | 173,189 |
| | | | $ | 182,967 |
| | $ | 182,967 |
| | | | $ | 181,734 |
| | $ | 181,734 |
| | | |
| Tier 1 capital | 200,482 |
| | 200,482 |
| | | | 199,047 |
| | 199,047 |
| | | | 208,112 |
| | 208,112 |
| | | | 207,474 |
| | 207,474 |
| | | |
| Total capital | 234,413 |
| | 224,616 |
| | | | 229,976 |
| | 220,179 |
| | | | 239,553 |
| | 228,592 |
| | | | 237,487 |
| | 226,526 |
| | | |
| Risk-weighted assets | 1,465,262 |
| (b) | 1,485,336 |
| | | | 1,474,870 |
| | 1,495,520 |
| | | | 1,464,981 |
| | 1,476,915 |
| | | | 1,474,665 |
| | 1,487,180 |
| | | |
| CET1 capital ratio | 12.0 | % | | 11.8 | % | | 4.5 | % | | 11.7 | % | | 11.6 | % | | 10.5 | % | | 12.5 | % | | 12.4 | % | | 6.25 | % | | 12.3 | % | | 12.2 | % | | 10.5 | % | |
| Tier 1 capital ratio | 13.7 |
| | 13.5 |
| | 6.0 |
| | 13.5 |
| | 13.3 |
| | 12.0 |
| | 14.2 |
| | 14.1 |
| | 7.75 |
| | 14.1 |
| | 14.0 |
| | 12.0 |
| |
| Total capital ratio | 16.0 |
| | 15.1 |
| | 8.0 |
| | 15.6 |
| | 14.7 |
| | 14.0 |
| | 16.4 |
| | 15.5 |
| | 9.75 |
| | 16.1 |
| | 15.2 |
| | 14.0 |
| |
| Leverage-based capital metrics: | | | | | | | | | | | | | | | | | | | | | | | | |
| Adjusted average assets | 2,361,177 |
| | 2,361,177 |
| | | | 2,360,499 |
| | 2,360,499 |
| | | | 2,484,631 |
| | 2,484,631 |
| | | | 2,485,480 |
| | 2,485,480 |
| | | |
Tier 1 leverage ratio(a) | 8.5 | % | | 8.5 | % | | 4.0 |
| | 8.4 | % | | 8.4 | % | | 4.0 |
| | 8.4 | % | | 8.4 | % | | 4.0 |
| | 8.3 | % | | 8.3 | % | | 4.0 |
| |
| SLR leverage exposure | NA |
| | $ | 3,079,797 |
| | | | NA |
| | $ | 3,079,119 |
| | | | NA |
| | $ | 3,191,990 |
| | | | NA |
| | $ | 3,192,839 |
| | | |
SLR | NA |
| | 6.5 | % | | NA |
| | NA |
| | 6.5 | % | | 5.0 |
| (e) | NA |
| | 6.5 | % | | NA |
| | NA |
| | 6.5 | % | | 5.0 |
| (e) |
| | | | Transitional | Fully Phased-In | | Transitional | Fully Phased-In | |
December 31, 2014 (in millions, except ratios) | Standardized | | Advanced | | Minimum capital ratios (c) | | Standardized | | Advanced | | Minimum capital ratios (d) | | |
December 31, 2015 (in millions, except ratios) | | Standardized | | Advanced | | Minimum capital ratios (c) | | Standardized | | Advanced | | Minimum capital ratios (d) | |
| Risk-based capital metrics: | | | | | | | | | | | | | | | | | | | | | | | | |
| CET1 capital | $ | 164,426 |
| | $ | 164,426 |
| | | | $ | 164,514 |
| | $ | 164,514 |
| | | | $ | 175,398 |
| | $ | 175,398 |
| | | | $ | 173,189 |
| | $ | 173,189 |
| | | |
| Tier 1 capital | 186,263 |
| | 186,263 |
| | | | 184,572 |
| | 184,572 |
| | | | 200,482 |
| | 200,482 |
| | | | 199,047 |
| | 199,047 |
| | | |
| Total capital | 221,117 |
| | 210,576 |
| | | | 216,719 |
| | 206,179 |
| | | | 234,413 |
| | 224,616 |
| | | | 229,976 |
| | 220,179 |
| | | |
| Risk-weighted assets | 1,472,602 |
| (b) | 1,608,240 |
| | | | 1,561,145 |
| | 1,619,287 |
| | | | 1,465,262 |
| | 1,485,336 |
| | | | 1,474,870 |
| | 1,495,520 |
| | | |
| CET1 capital ratio | 11.2 | % | | 10.2 | % | | 4.5 | % | | 10.5 | % | | 10.2 | % | | 9.5 | % | | 12.0 | % | | 11.8 | % | | 4.5 | % | | 11.7 | % | | 11.6 | % | | 10.5 | % | |
| Tier 1 capital ratio | 12.6 |
| | 11.6 |
| | 6.0 |
| | 11.8 |
| | 11.4 |
| | 11.0 |
| | 13.7 |
| | 13.5 |
| | 6.0 |
| | 13.5 |
| | 13.3 |
| | 12.0 |
| |
| Total capital ratio | 15.0 |
| | 13.1 |
| | 8.0 |
| | 13.9 |
| | 12.7 |
| | 13.0 |
| | 16.0 |
| | 15.1 |
| | 8.0 |
| | 15.6 |
| | 14.7 |
| | 14.0 |
| |
| Leverage-based capital metrics: | | | | | | | | | | | | | |
| Leverage based capital metrics: | | | | | | | | | | | | | |
| Adjusted average assets | 2,464,915 |
| | 2,464,915 |
| | | | 2,463,902 |
| | 2,463,902 |
| | | | 2,358,471 |
| | 2,358,471 |
| | | | 2,360,499 |
| | 2,360,499 |
| | | |
Tier 1 leverage ratio(a) | 7.6 | % | | 7.6 | % | | 4.0 |
| | 7.5 | % | | 7.5 | % | | 4.0 |
| | 8.5 | % | | 8.5 | % | | 4.0 |
| | 8.4 | % | | 8.4 | % | | 4.0 |
| |
| SLR leverage exposure | NA |
| | NA |
| | | | NA |
| | $ | 3,320,404 |
| | | | NA |
| | 3,079,797 |
| | | | NA |
| | $ | 3,079,119 |
| | | |
SLR | NA |
| | NA |
| | NA |
| | NA |
| | 5.6 | % | | 5.0 |
| (e) | NA |
| | 6.5 | % | | NA |
| | NA |
| | 6.5 | % | | 5.0 |
| (e) |
Note: As of December 31, 20152016 and 2014,2015, the lower of the Standardized or Advanced capital ratios under each of the transitionalTransitional and fully phased inFully Phased-In approaches in the table above represents the Firm’s Collins Floor, as discussed in Monitoring and management of Capital on page 151.78.
| |
| (a) | The Tier 1 leverage ratio is not a risk-based measure of capital. This ratio is calculated by dividing Tier 1 capital by adjusted average assets. |
| |
| (b) | Effective January 1, 2015, the Basel III Standardized RWAThe SLR leverage ratio is calculated under the Basel III definition of the Standardized approach. Prior periods were based on Basel I (inclusive of Basel 2.5).by dividing Tier 1 capital by SLR leverage exposure. |
| |
| (c) | Represents the transitionalTransitional minimum capital ratios applicable to the Firm under Basel III as of December 31, 20152016 and 2014.2015. At December 31, 2016, the CET1 minimum |
capital ratio includes 0.625% resulting from the phase-in of the Firm’s 2.5% capital conservation buffer and 1.125%, resulting from the phase-in of the Firm’s 4.5%
global systemically important banks (“GSIB”) surcharge.
| |
| (d) | Represents the minimum capital ratios applicable to the Firm on a fully phased-inFully Phased-In Basel III basis. At December 31, 2015,2016, the ratios include the Firm’s estimate of its Fully Phased-In U.S. GSIB surcharge of 3.5%, based on the final U.S. GSIB rule published by the Federal Reserve on July 20, 2015. At December 31, 2014, the ratios included the Firm’s GSIB surcharge of 2.5% which was published in November 2014 by the Financial Stability Board and calculated under the Basel Committee on Banking Supervisions Final GSIB rule.. The minimum capital ratios will be fully phased-in effective January 1, 2019. For additional information on the GSIB surcharge, see page 152.79. |
| |
| (e) | In the case of the SLR, the fully phased-inFully Phased-In minimum ratio is effective beginning January 1, 2018. |
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150 | | JPMorgan Chase & Co./20152016 Annual Report | | 77 |
Management’s discussion and analysis
Strategy and governance
The Firm’s CEO, in conjunction with the Board of Directors, establishes principles and guidelines for capital planning, issuance, usage and distributions, and establishesminimum capital targets for the level and composition of capital in both business-as-usual and highly stressed environments.
The DRPC assesses and approves the capital management and governance processes of the Firm. The Firm’s senior management recognizesAudit Committee is responsible for reviewing and approving the importance of a capital management function that supports strategic decision-making. stress testing end-to-end control framework.
The Capital Governance Committee and the Regulatory Capital Management Office (“RCMO”) are key components in support of this objective.the Firm’s strategic capital decision-making. The Capital Governance Committee is responsible for reviewing the Firm’s Capital Management Policy and the principles underlying capital issuance and distribution alternatives. The Committee is also responsible for governing overseesthe capital adequacy assessment process, including the overall design, scenario development and macro assumptions and risk streams, and ensuringensures that capital stress test programs are designed to adequately capture the idiosyncratic risks acrossspecific to the Firm’s businesses. RCMO, which reports to the Firm’s CFO, is responsible for reviewing, approvingdesigning and monitoring the implementationFirm’s execution of the Firm’sits capital policies and strategies once approved by the Board, as well as reviewing and monitoring the execution of its capital adequacy assessment process. The review assesses the effectiveness of the capital adequacy process, the appropriateness of the risk tolerance levels, and the strength of the control infrastructure. The DRPC oversees the Firm’s capital adequacy process and its components. The Basel Independent Review function (“BIR”), which reports to the RCMO and has direct access to both the DRPC and Capital Governance Committee, conducts independent assessments of the Firm’s regulatory capital framework to ensure compliance with the applicable U.S. Basel rules in support of senior management’s responsibility for assessing and managing capital and for the DRPC’s and senior management’s oversight of the Firm’s capital processes.management in executing that responsibility. For additional discussion on the DRPC, see Enterprise-wide Risk Management on pages 107–111.71–75.
Monitoring and management of capital
In its monitoring and management of capital, the Firm takes into consideration an assessment of economic risk and all regulatory capital requirements to determine the level of capital needed to meet and maintain the objectives discussed above, as well as to support the framework for allocating capital to its business segments. While economic risk is considered prior to making decisions on future business activities, in most cases, the Firm considers risk-based regulatory capital to be a proxy for economic risk capital.
Regulatory capital
The Federal Reserve establishes capital requirements, including well capitalizedwell-capitalized standards, for the consolidated financial holding company. The OCC establishes similar minimum capital requirements for the Firm’s national banks, including JPMorgan Chase Bank, N.A. and Chase Bank USA, N.A.
The U.S. capital requirements generally follow the Capital Accord of the Basel Committee, as amended from time to time. Prior to January 1, 2014, the Firm and its banking subsidiaries were subject to the capital requirements of Basel I and Basel 2.5. Effective January 1, 2014, the Firm became subject to Basel III (which incorporates Basel 2.5).
Basel III overview
Capital rules under Basel III establish minimum capital rules,ratios and overall capital adequacy standards for large and internationally active U.S. bank holding companies and banks, including the Firm and its insured depository institution (“IDI”) subsidiaries, revised, among other things, the definition of capital and introduced a new CET1 capital requirement.subsidiaries. Basel III presents two comprehensive methodologies for calculating RWA,RWA: a general (Standardized)(standardized) approach which replaced Basel I RWA effective January 1, 2015 (“Basel III Standardized”), and an advanced approach which replaced Basel II RWA (“Basel III Advanced”); and sets out minimum capital ratios and overall capital adequacy standards.. Certain of the requirements of Basel III are subject to phase-in periods that began on January 1, 2014 and continue through the end of 2018 (“transitional period”).
The capital adequacy of the Firm and its national bank subsidiaries is evaluated against the Basel III approach (Standardized or Advanced) which results in the lower ratio (the “Collins Floor”), as required by the Collins Amendment of the Dodd-Frank Act.
Basel III establishes capital requirements for calculating credit risk and market risk RWA, and in the case of Basel III Advanced, operational risk RWA. Key differences in the calculation of credit risk RWA between the Standardized and Advanced approaches are that for Basel III Advanced, credit risk RWA is based on risk-sensitive approaches which largely rely on the use of internal credit models and parameters, whereas for Basel III Standardized, credit risk RWA is generally based on supervisory risk-weightings which vary primarily by counterparty type and asset class. Market risk RWA is calculated on a generally consistent basis between Basel III Standardized and Basel III Advanced, both of which incorporate the requirements set forth in Basel 2.5.Advanced. In addition to the RWA calculated under these methodologies, the Firm may supplement such amounts to incorporate management judgment and feedback from its bank regulators.
Basel III also includes a requirement for Advanced Approach banking organizations, including the Firm, to calculate a Supplementary Leverage Ratio (“SLR”).SLR. For additional information on SLR, see
page 155.82.
Basel III Fully Phased-In
Basel III capital rules will become fully phased-in on January 1, 2019, at which point the Firm will continue to calculate its capital ratios under both the Basel III Standardized and Advanced Approaches. While theThe Firm has imposed Basel III Standardized Fully Phased-In RWA limits on its lines of business, the Firm continues to managemanages each of the businesses, (including line of business equity allocations), as well as the corporate functions, primarily on a Basel III Advanced Fully Phased-In basis.
The Firm’s For additional information on the Firm, JPMorgan Chase Bank, N.A. and Chase Bank USA, N.A.’s capital, RWA and capital ratios that are presented under Basel III Standardized and Advanced Fully Phased-In rules and the Firm’s and JPMorgan Chase Bank, N.A.’s and Chase Bank USA, N.A.’s SLRs calculated under the Basel III Advanced Fully Phased-In rules, all of which are non-GAAP financial measures. However, suchconsidered key regulatory capital measures, are used by banking regulators, investorssee Explanation and analysts to assessReconciliation of the Firm’s Use of Non-GAAP Financial Measures and Key Performance Measures on pages 48–50.
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| 78 | | JPMorgan Chase & Co./20152016 Annual Report | | 151 |
Management’s discussion and analysis
Firm’s capital position and to compare the Firm’s capital to that of other financial services companies.
The Firm’s estimates of its Basel III Standardized and Advanced Fully Phased-In capital, RWA and capital ratios and ofSLRs for the Firm’s,Firm, JPMorgan Chase Bank, N.A.’s, and Chase Bank USA, N.A.’s SLRs reflect management’s current understanding of the U.S. Basel III rules are based on the current published U.S. Basel III rules and on the application of such rules to the Firm’s businesses as currently conducted. The actual
impact on the Firm’s capital ratios and SLR as of the
effective date of the rules may differ from the Firm’s current estimates depending on changes the Firm may make to its businesses in the future, further implementation guidance from the regulators, and regulatory approval of certain of the Firm’s internal risk models (or, alternatively, regulatory disapproval of the Firm’s internal risk models that have previously been conditionally approved).
Risk-based capital regulatory minimums
The following chart presents the Basel III minimum CET1 capital ratio during the transitional periods and on a fully phased-in basis under the Basel III rules currently in effect.
At December 31, 2015 and 2014, JPMorgan Chase maintainedThe Basel III Standardized Transitionalrules include minimum capital ratio requirements that are subject to phase-in periods through the end of 2018. The capital adequacy of the Firm and its national bank subsidiaries, both during the transitional period and upon full-phase in, is evaluated against the Basel III Advanced Transitional capital ratiosapproach (Standardized or Advanced) which results for each quarter in excessthe lower ratio as required by the Collins Amendment of the well-capitalized standards established by the Federal Reserve.Dodd-Frank Act (the “Collins Floor”). Additional information regarding the Firm’s capital ratios, as well as the U.S. federal regulatory capital standards to which the Firm is subject, is presented in Note 28. For further information on the Firm’s Basel III measures, see the Firm’s Pillar 3 Regulatory Capital Disclosures reports, which are available on the Firm’s website (http://investor.shareholder.com/jpmorganchase/basel.cfm).
All banking institutions are currently required to have a minimum capital ratio of 4.5% of CET1 capital. Certain banking organizations, including the Firm, will beare required to hold additional amounts of capital to serve as a “capital conservation buffer.”buffer”. The capital conservation buffer is intended to be used to absorb potential losses in times of financial or economic stress. If not maintained, the Firm could be limited in the amount of capital that may be
distributed, including dividends and common equity repurchases. The capital conservation buffer is subject to be phased-in over time, beginninga phase-in period that began January 1, 2016 and continues through January 1, 2019.
the end of 2018.When fully phased-in,As an expansion of the capital conservation buffer, requires an additional 2.5% of CET1 capital, as well asthe Firm is also required to hold additional levels of capital in the form of a GSIB surcharge and the recently implementeda countercyclical capital buffer. On July 20, 2015,
Under the Federal Reserve issued aReserve’s final rule, requiring GSIBs, including the Firm, are required to calculate their GSIB surcharge on an annual basis under two separately prescribed methods, and to beare subject to the higher of the two. The first method (“Method 1”), reflects the GSIB surcharge as prescribed by the Basel rules,Committee’s assessment methodology, and is calculated across five criteria: size, cross-jurisdictional activity, interconnectedness, complexity and substitutability. The second method (“Method 2”), modifies the Method 1 requirements to include a measure of short-term wholesale funding in place of substitutability, and introduces a GSIB score “multiplication factor.” Based upon data as of December 31, 2015, the Firm estimates its fully phased-in GSIB surcharge would be 2% of CET1 capital under Method 1 and 3.5% under Method 2. On July 20, 2015, the date of the last published estimate, the Federal Reserve had estimated the Firm’s GSIB surcharge to be 2.5% under Method 1 and 4.5% under Method 2 as of December 31, 2014.factor”.
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152 | | JPMorgan Chase & Co./20152016 Annual Report | | 79 |
Management’s discussion and analysis
The Firm’s Fully Phased-In GSIB surcharge for 2016 was calculated to be 2.5% under Method 1 and 4.5% under Method 2. Accordingly, the Firm’s minimum capital ratios applicable in 2016 include a GSIB surcharge of 1.125%, resulting from the application of the transition provisions to the 4.5% fully phased-in GSIB surcharge. For 2017, the Firm has calculated its Fully Phased-In GSIB surcharge to be 2.5% under Method 1 and 3.5% under Method 2 resulting in the inclusion of a GSIB surcharge of 1.75% in the Firm’s minimum capital ratios after application of the transition provisions.
The countercyclical capital buffer is a potential expansion of the capital conservation buffer that takes into account the macro financial environment in which large, internationally active banks function. On September 8, 2016 the Federal Reserve published the framework that will apply to the setting of the countercyclical capital buffer. As of December 31, 2015October 24, 2016 the Federal Reserve reaffirmed setting the U.S. countercyclical capital buffer at 0%, and stated that it will review the amount at least annually. The countercyclical capital buffer can be increased if the Federal Reserve, FDIC and OCC determine that credit growth in the economy has become excessive and can be set at up to an additional 2.5% of RWA. On December 21, 2015, the Federal Reserve, in conjunction with the FDIC and OCC, requested public comment, due March 21, 2016, onRWA subject to a proposed policy statement detailing the framework that would be followed in setting the U.S. Basel III countercyclical capital buffer.12-month implementation period.
Based on the Firm’s most recent estimate of its GSIB surcharge and the current countercyclical buffer being set at 0%, the Firm estimates its fully phased-inFully Phased-In CET1 capital requirement, at January 1, 2019, would be 10.5% (reflecting the 4.5% CET1 capital requirement, the Fully Phased-In 2.5% capital conservation buffer would be 6%and the GSIB surcharge of 3.5%).
As well as meeting the capital ratio requirements of Basel III, the Firm must, in order to be “well-capitalized”, maintain a minimum 6% Tier 1 capital and a 10% Total capital requirement. At December 31, 2016 and 2015, JPMorgan Chase maintained Basel III Standardized Transitional and Basel III Advanced Transitional ratios in excess of the well-capitalized standards established by the Federal Reserve.
The Firm continues to believe that over the next several years, it will operate with a Basel III CET1 capital ratio between 11% and 12.5%. It is the Firm’s intention that the Firm’s capital ratios continue to meet regulatory minimums as they are fully implemented in 2019 and thereafter.
Each of the Firm’s IDI subsidiaries must maintain a minimum 5% Tier 1 leverage, 6.5% CET1, 8% Tier 1 andcapital, 10% Total capital standardand 5% Tier 1 leverage requirement to meet the definition of “well-capitalized” under the Prompt Corrective Action (“PCA”) requirements of the FDIC Improvement Act(“Act (“FDICIA”) for IDI subsidiaries. The PCA standards for IDI subsidiaries were effective January 1, 2015.
Capital
A reconciliation of total stockholders’ equity to Basel III Standardized and Advanced Fully Phased-In CET1 capital, Tier 1 capital and Basel III Advanced and Standardized Fully Phased-In Total capital is presented in the table below. Beginning July 21, 2015, the Volcker Rule provisions regarding the prohibitions against proprietary trading and holding ownership interests in or sponsoring “covered funds” became effective. The deduction from Basel III Tier 1 capital associated with the permissible holdings of covered funds acquired after December 31, 2013 was not material as of December 31, 2015.For additional information on the components of regulatory capital, see Note 28.
| | | Capital components | | |
| (in millions) | December 31, 2015 | December 31, 2016 |
| Total stockholders’ equity | $ | 247,573 |
| $ | 254,190 |
|
| Less: Preferred stock | 26,068 |
| 26,068 |
|
| Common stockholders’ equity | 221,505 |
| 228,122 |
|
| Less: | | |
| Goodwill | 47,325 |
| 47,288 |
|
| Other intangible assets | 1,015 |
| 862 |
|
| Add: | | |
Deferred tax liabilities(a) | 3,148 |
| 3,230 |
|
| Less: Other CET1 capital adjustments | 3,124 |
| 1,468 |
|
| Standardized/Advanced CET1 capital | 173,189 |
| 181,734 |
|
| Preferred stock | 26,068 |
| 26,068 |
|
| Less: | | |
Other Tier 1 adjustments | 210 |
| 328 |
|
| Standardized/Advanced Tier 1 capital | $ | 199,047 |
| $ | 207,474 |
|
Long-term debt and other instruments qualifying as
Tier 2 capital | $ | 16,679 |
| $ | 15,253 |
|
| Qualifying allowance for credit losses | 14,341 |
| 14,854 |
|
| Other | (91 | ) | (94 | ) |
| Standardized Fully Phased-In Tier 2 capital | $ | 30,929 |
| $ | 30,013 |
|
| Standardized Fully Phased-in Total capital | $ | 229,976 |
| $ | 237,487 |
|
| Adjustment in qualifying allowance for credit losses for Advanced Tier 2 capital | (9,797 | ) | (10,961 | ) |
| Advanced Fully Phased-In Tier 2 capital | $ | 21,132 |
| $ | 19,052 |
|
| Advanced Fully Phased-In Total capital | $ | 220,179 |
| $ | 226,526 |
|
| |
| (a) | Represents deferred tax liabilities related to tax-deductible goodwill and to identifiable intangibles created in nontaxable transactions, which are netted against goodwill and other intangibles when calculating TCE. |
| |
| (b) | Includes the deduction associated with the permissible holdings of covered funds (as defined by the Volcker Rule) acquired after December 31, 2013. The deduction was not material as of December 31, 2016. |
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| 80 | | JPMorgan Chase & Co./20152016 Annual Report | | 153 |
Management’s discussion and analysis
The following table presents a reconciliation of the Firm’s Basel III Transitional CET1 capital to the Firm’s estimated Basel III Fully Phased-In CET1 capital as of December 31, 2015.2016.
| | | (in millions) | December 31, 2015 | December 31, 2016 |
| Transitional CET1 capital | $ | 175,398 |
| $ | 182,967 |
|
AOCI phase-in(a) | 427 |
| (156 | ) |
CET1 capital deduction phase-in(b) | (2,005 | ) | (695 | ) |
Intangible assets deduction phase-in(c) | (546 | ) | (312 | ) |
Other adjustments to CET1 capital(d) | (85 | ) | (70 | ) |
| Fully Phased-In CET1 capital | $ | 173,189 |
| $ | 181,734 |
|
| |
| (a) | Includes the remaining balance of AOCI related to AFS debt securities and defined benefit pension and other postretirement employee benefit (“OPEB”) plans that will qualify as Basel III CET1 capital upon full phase-in. |
| |
| (b) | Predominantly includes regulatory adjustments related to changes in FVA/DVA, as well as CET1 deductions for defined benefit pension plan assets and deferred tax assets related to net operating loss (“NOL”) and tax credit carryforwards. |
| |
| (c) | Relates to intangible assets, other than goodwill and MSRs, that are required to be deducted from CET1 capital upon full phase-in. |
| |
| (d) | Includes minority interest and the Firm’s investments in its own CET1 capital instruments. |
Capital rollforward
The following table presents the changes in Basel III Fully Phased-In CET1 capital, Tier 1 capital and Tier 2 capital for the year ended December 31, 2015.2016.
| | | Year Ended December 31, (in millions) | 2015 |
| 2016 |
|
| Standardized/Advanced CET1 capital at December 31, 2014 | $ | 164,514 |
| |
| Standardized/Advanced CET1 capital at December 31, 2015 | | $ | 173,189 |
|
| Net income applicable to common equity | 22,927 |
| 23,086 |
|
| Dividends declared on common stock | (6,484 | ) | (6,912 | ) |
| Net purchase of treasury stock | (3,835 | ) | (7,163 | ) |
| Changes in additional paid-in capital | (770 | ) | (873 | ) |
Changes related to AOCI | (2,116 | ) | (1,280 | ) |
| Adjustment related to FVA/DVA | (454 | ) | |
Adjustment related to DVA(a) | | 954 |
|
| Other | (593 | ) | 733 |
|
| Increase in Standardized/Advanced CET1 capital | 8,675 |
| 8,545 |
|
| Standardized/Advanced CET1 capital at December 31, 2015 | $ | 173,189 |
| |
Standardized/Advanced CET1 capital at December 31, 2016 | | $ | 181,734 |
|
| | | |
| Standardized/Advanced Tier 1 capital at December 31, 2014 | $ | 184,572 |
| |
Standardized/Advanced Tier 1 capital at December 31, 2015 | | $ | 199,047 |
|
| Change in CET1 capital | 8,675 |
| 8,545 |
|
| Net issuance of noncumulative perpetual preferred stock | 6,005 |
| — |
|
| Other | (205 | ) | (118 | ) |
| Increase in Standardized/Advanced Tier 1 capital | 14,475 |
| 8,427 |
|
| Standardized/Advanced Tier 1 capital at December 31, 2015 | $ | 199,047 |
| |
Standardized/Advanced Tier 1 capital at December 31, 2016 | | $ | 207,474 |
|
| | | |
| Standardized Tier 2 capital at December 31, 2014 | $ | 32,147 |
| |
| Standardized Tier 2 capital at December 31, 2015 | | $ | 30,929 |
|
| Change in long-term debt and other instruments qualifying as Tier 2 | (748 | ) | (1,426 | ) |
| Change in qualifying allowance for credit losses | (466 | ) | 513 |
|
| Other | (4 | ) | (3 | ) |
| Increase in Standardized Tier 2 capital | (1,218 | ) | (916 | ) |
| Standardized Tier 2 capital at December 31, 2015 | $ | 30,929 |
| |
| Standardized Total capital at December 31, 2015 | $ | 229,976 |
| |
| Advanced Tier 2 capital at December 31, 2014 | $ | 21,607 |
| |
| Standardized Tier 2 capital at December 31, 2016 | | $ | 30,013 |
|
| Standardized Total capital at December 31, 2016 | | $ | 237,487 |
|
| Advanced Tier 2 capital at December 31, 2015 | | $ | 21,132 |
|
| Change in long-term debt and other instruments qualifying as Tier 2 | (748 | ) | (1,426 | ) |
| Change in qualifying allowance for credit losses | 277 |
| (651 | ) |
| Other | (4 | ) | (3 | ) |
| Increase in Advanced Tier 2 capital | (475 | ) | (2,080 | ) |
| Advanced Tier 2 capital at December 31, 2015 | $ | 21,132 |
| |
| Advanced Total capital at December 31, 2015 | $ | 220,179 |
| |
| Advanced Tier 2 capital at December 31, 2016 | | $ | 19,052 |
|
| Advanced Total capital at December 31, 2016 | | $ | 226,526 |
|
| |
| (a) | Effective January 1, 2016, the adjustment reflects the impact of the adoption of DVA through OCI. For further discussion of the accounting change refer to Note 25. |
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154 | | JPMorgan Chase & Co./20152016 Annual Report | | 81 |
Management’s discussion and analysis
RWA rollforward
The following table presents changes in the components of RWA under Basel III Standardized and Advanced Fully Phased-In for the year ended December 31, 2015.2016. The amounts in the rollforward categories are estimates, based on the predominant driver of the change.
| | | | Standardized | | Advanced | Standardized | | Advanced |
Year ended December 31, 2015 (in billions) | Credit risk RWA | Market risk RWA | Total RWA | | Credit risk RWA | Market risk RWA | Operational risk RWA | Total RWA | |
| December 31, 2014 | $ | 1,381 |
| $ | 180 |
| $ | 1,561 |
| | $ | 1,040 |
| $ | 179 |
| $ | 400 |
| $ | 1,619 |
| |
Year ended December 31, 2016 (in billions) | | Credit risk RWA | Market risk RWA | Total RWA | | Credit risk RWA | Market risk RWA | Operational risk RWA | Total RWA |
| December 31, 2015 | | $ | 1,333 |
| $ | 142 |
| $ | 1,475 |
| | $ | 954 |
| $ | 142 |
| $ | 400 |
| $ | 1,496 |
|
Model & data changes(a) | (17 | ) | (15 | ) | (32 | ) | | (38 | ) | (15 | ) | — |
| (53 | ) | — |
| (14 | ) | (14 | ) | | 2 |
| (14 | ) | — |
| (12 | ) |
Portfolio runoff(b) | (13 | ) | (8 | ) | (21 | ) | | (21 | ) | (8 | ) | — |
| (29 | ) | (13 | ) | (2 | ) | (15 | ) | | (15 | ) | (2 | ) | — |
| (17 | ) |
Movement in portfolio levels(c) | (18 | ) | (15 | ) | (33 | ) | | (27 | ) | (14 | ) | — |
| (41 | ) | 27 |
| 2 |
| 29 |
| | 18 |
| 2 |
| — |
| 20 |
|
| Changes in RWA | (48 | ) | (38 | ) | (86 | ) | | (86 | ) | (37 | ) | — |
| (123 | ) | 14 |
| (14 | ) | — |
| | 5 |
| (14 | ) | — |
| (9 | ) |
| December 31, 2015 | $ | 1,333 |
| $ | 142 |
| $ | 1,475 |
| | $ | 954 |
| $ | 142 |
| $ | 400 |
| $ | 1,496 |
| |
| December 31, 2016 | | $ | 1,347 |
| $ | 128 |
| $ | 1,475 |
| | $ | 959 |
| $ | 128 |
| $ | 400 |
| $ | 1,487 |
|
| |
| (a) | Model & data changes refer to movements in levels of RWA as a result of revised methodologies and/or treatment per regulatory guidance (exclusive of rule changes). |
| |
| (b) | Portfolio runoff for credit risk RWA reflects reduced risk from position rolloffs in legacy portfolios in Mortgage Banking (primarily under the Advanced framework) and Broker Dealer Services (primarily under(under both the Standardized and Advanced framework);, and for market risk RWA reflects reduced risk from position rolloffs in legacy portfolios in the wholesale businesses. |
| |
| (c) | Movement in portfolio levels for credit risk RWA refers to changes in book size, composition, credit quality, and market movements; and for market risk RWA refers to changes in position and market movements. |
Supplementary leverage ratio
The SLR is defined as Tier 1 capital under Basel III divided by the Firm’s total leverage exposure. Total leverage exposure is calculated by taking the Firm’s total average on-balance sheet assets, less amounts permitted to be deducted for Tier 1 capital, and adding certain off-balance sheet exposures, such as undrawn commitments and derivatives potential future exposure.
On September 3, 2014, the U.S. banking regulators adopted a final rule for the calculation of the SLR. The U.S. final rule requires public disclosure of the SLR beginning with the first quarter of 2015, and also requires U.S. bank holding companies, including the Firm, are required to have a minimum SLR of 5% and IDI subsidiaries, including JPMorgan Chase Bank, N.A. and Chase Bank USA, N.A., are required to have a minimum SLR of 6%, both beginning January 1, 2018. As of December 31, 2015,2016, the Firm estimates that JPMorgan Chase Bank, N.A.’s and Chase Bank USA, N.A.’s Fully Phased-In SLRs are approximately 6.6% and 8.3%9.6%, respectively.
The following table presents the components of the Firm’s Fully Phased-In SLR a non-GAAP financial measure, as of December 31, 2015.2016.
| | | (in millions, except ratio) | December 31, 2015 | December 31, 2016 |
| Fully Phased-in Tier 1 Capital | $ | 199,047 |
| $ | 207,474 |
|
| Total average assets | 2,408,253 |
| 2,532,457 |
|
| Less: amounts deducted from Tier 1 capital | 47,754 |
| 46,977 |
|
Total adjusted average assets(a) | 2,360,499 |
| 2,485,480 |
|
Off-balance sheet exposures(b) | 718,620 |
| 707,359 |
|
| SLR leverage exposure | $ | 3,079,119 |
| $ | 3,192,839 |
|
| SLR | 6.5 | % | 6.5 | % |
| |
| (a) | Adjusted average assets, for purposes of calculating the SLR, includes total quarterly average assets adjusted for on-balance sheet assets that are subject to deduction from Tier 1 capital, predominantly goodwill and other intangible assets. |
| |
| (b) | Off-balance sheet exposures are calculated as the average of the three month-end spot balances in the reporting quarter. |
|
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| 82 | | JPMorgan Chase & Co./2016 Annual Report |
Line of business equity
The Firm’s framework for allocating capital to its business segments (line of business equity) is based on the following objectives:
Integrate firmwide and line of business capital management activities;
Measure performance consistently across all lines of business; and
Provide comparability with peer firms for each of the lines of business.
Each business segment is allocated capital by taking into consideration stand-alone peer comparisons and regulatory capital requirements (as estimated under Basel III Advanced Fully Phased-In). For 2016, capital was allocated to each business segment for, among other things, goodwill and other intangibles associated with acquisitions effected by the line of business. ROE is measured and internal targets for expected returns are established as key measures of a business segment’s performance.
|
| | | | | | | | | | | | |
| Line of business common equity | | | | |
| | | Yearly average |
Year ended December 31, (in billions) | | 2016 |
| | 2015 |
| | 2014 |
|
| Consumer & Community Banking | | $ | 51.0 |
| | $ | 51.0 |
| | $ | 51.0 |
|
| Corporate & Investment Bank | | 64.0 |
| | 62.0 |
| | 61.0 |
|
| Commercial Banking | | 16.0 |
| | 14.0 |
| | 14.0 |
|
| Asset & Wealth Management | | 9.0 |
| | 9.0 |
| | 9.0 |
|
| Corporate | | 84.6 |
| | 79.7 |
| | 72.4 |
|
| Total common stockholders’ equity | | $ | 224.6 |
| | $ | 215.7 |
| | $ | 207.4 |
|
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. Through the end of 2016, capital was allocated to the lines of business based on a single measure, Basel III Advanced Fully Phased-In RWA. Effective January 1, 2017, the Firm’s methodology used to allocate capital to the Firm’s business segments was updated. The new methodology incorporates Basel III Standardized Fully Phased-In RWA (as well as Basel III Advanced Fully Phased-In RWA), leverage, the GSIB surcharge, and a simulation of capital in a severe stress environment. The methodology will continue to be weighted towards Basel III Advanced Fully Phased-In RWA because the Firm believes it to be the best proxy for economic risk. The Firm will consider further changes to its capital allocation methodology as the regulatory framework evolves. In addition, under the new methodology, capital is no longer allocated to each line of business for goodwill and other intangibles associated with acquisitions effected by the line of business. The Firm will continue to establish internal ROE targets for its business segments, against which they will be measured, as a key performance indicator.
The table below reflects the Firm’s assessed level of capital required for each line of business as of the dates indicated.
|
| | | | | | | | | | | |
| Line of business common equity | | |
| | | | December 31, |
| (in billions) | January 1, 2017 | | 2016 | | 2015 |
| Consumer & Community Banking | $ | 51.0 |
| | $ | 51.0 |
| | $ | 51.0 |
|
| Corporate & Investment Bank | 70.0 |
| | 64.0 |
| | 62.0 |
|
| Commercial Banking | 20.0 |
| | 16.0 |
| | 14.0 |
|
| Asset & Wealth Management | 9.0 |
| | 9.0 |
| | 9.0 |
|
| Corporate | 78.1 |
| | 88.1 |
| | 85.5 |
|
| Total common stockholders’ equity | $ | 228.1 |
| | $ | 228.1 |
| | $ | 221.5 |
|
Planning and stress testing
Comprehensive Capital Analysis and Review
The Federal Reserve requires large bank holding companies, including the Firm, to submit a capital plan on an annual basis. The Federal Reserve uses the CCAR and Dodd-Frank Act stress test processes to ensure that large bank holding companiesBHCs have sufficient capital during periods of economic and financial stress, and have robust, forward-looking capital assessment and planning processes in place that address each bank holding company’s (“BHC”)BHC’s unique risks to enable them to have the ability to absorb losses under certain stress scenarios. Through the CCAR, the Federal Reserve evaluates each BHC’s capital adequacy and internal capital adequacy assessment processes (“ICAAP”), as well as its plans to make capital distributions, such as dividend payments or stock repurchases.
On March 11, 2015,June 29, 2016, the Federal Reserve informed the Firm that it did not object, on either a quantitative or qualitative basis, to the Firm’s 20152016 capital plan. For information on actions taken by the Firm’s Board of Directors following the 20152016 CCAR results, see Capital actions on page 157.
For 2016, the Federal Reserve revised the capital plan cycle for the CCAR process. Under the revised time line, the Firm is required to submit its 2016 capital plan to the Federal Reserve by April 5, 2016. The Federal Reserve has indicated that it expects to respond to the capital plan submissions of bank holding companies by June 30, 2016.84.
The Firm’s CCAR process is integrated into and employs the same methodologies utilized in the Firm’s ICAAP process, as discussed below.
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JPMorgan Chase & Co./2015 Annual Report | | 155 |
Management’s discussion and analysis
Internal Capital Adequacy Assessment Process
Semiannually, the Firm completes the ICAAP, which provides management with a view of the impact of severe and unexpected events on earnings, balance sheet positions, reserves and capital. The Firm’s ICAAP integrates stress testing protocols with capital planning.
The process assesses the potential impact of alternative economic and business scenarios on the Firm’s earnings and capital. Economic scenarios, and the parameters underlying those scenarios, are defined centrally and applied uniformly across the businesses. These scenarios are articulated in terms of macroeconomic factors, which are key drivers of business results; global market shocks, which generate short-term but severe trading losses; and idiosyncratic operational risk events. The scenarios are intended to capture and stress key vulnerabilities and idiosyncratic risks facing the Firm. However, when defining a broad range of scenarios, realized events can always be worse. Accordingly,
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| JPMorgan Chase & Co./2016 Annual Report | | 83 |
Management’s discussion and analysis
management considers additional stresses outside these scenarios, as necessary. ICAAP results are reviewed by management and the Board of Directors.
Line of business equity
The Firm’s framework for allocating capital to its business segments (line of business equity) is based on the following objectives:
Integrate firmwide and line of business capital management activities;
Measure performance consistently across all lines of business; and
Provide comparability with peer firms for each of the lines of business.
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. Capital is also allocated to each line of business for, among other things, goodwill and other intangibles associated with acquisitions effected by the line of business. ROE is measured and internal targets for expected returns are established as key measures of a business segment’s performance.
|
| | | | | | | | | | | | |
| Line of business equity | | Yearly average |
Year ended December 31, (in billions) | | 2015 |
| | 2014 |
| | 2013 |
|
| Consumer & Community Banking | | $ | 51.0 |
| | $ | 51.0 |
| | $ | 46.0 |
|
| Corporate & Investment Bank | | 62.0 |
| | 61.0 |
| | 56.5 |
|
| Commercial Banking | | 14.0 |
| | 14.0 |
| | 13.5 |
|
| Asset Management | | 9.0 |
| | 9.0 |
| | 9.0 |
|
| Corporate | | 79.7 |
| | 72.4 |
| | 71.4 |
|
| Total common stockholders’ equity | | $ | 215.7 |
| | $ | 207.4 |
| | $ | 196.4 |
|
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. The line of business equity allocations are updated as refinements are implemented. The table below reflects the Firm’s assessed level of capital required for each line of business as of the dates indicated.
|
| | | | | | | | | | | |
| Line of business equity | January 1, 2016 | | December 31, |
| (in billions) | | 2015 | | 2014 |
| Consumer & Community Banking | $ | 51.0 |
| | $ | 51.0 |
| | $ | 51.0 |
|
| Corporate & Investment Bank | 64.0 |
| | 62.0 |
| | 61.0 |
|
| Commercial Banking | 16.0 |
| | 14.0 |
| | 14.0 |
|
| Asset Management | 9.0 |
| | 9.0 |
| | 9.0 |
|
| Corporate | 81.5 |
| | 85.5 |
| | 76.7 |
|
| Total common stockholders’ equity | $ | 221.5 |
| | $ | 221.5 |
| | $ | 211.7 |
|
Other capital requirements
Minimum Total Loss Absorbing Capacity
In November 2015, the Financial Stability Board (“FSB”) finalized the TLAC standard for GSIBs, which establishes the criteria for TLAC eligible debt and capital instruments and defines the minimum requirements for amounts of loss absorbing and recapitalization capacity. This amount and type of debt and capital instruments is intended to effectively absorb losses, as necessary, upon the failure of a GSIB, without imposing such losses on taxpayers of the relevant jurisdiction or causing severe systemic disruptions, and thereby ensuring the continuity of the GSIB’s critical functions. The final standard will require GSIBs to meet a common minimum TLAC requirement of 16% of the financial institution’s RWA, effective January 1, 2019, and at least 18% effective January 1, 2022. The minimum TLAC must also be at least 6% of a financial institution’s Basel III leverage ratio denominator, effective January 1, 2019, and at least 6.75% effective January 1, 2022.
On October 30, 2015, the Federal Reserve issued proposed rules that would require the top-tier holding companies of eight U.S. global systemically important bank holding companies, including the Firm, among other things, to maintain minimum levels of eligible TLAC and long-term debt satisfying certain eligibility criteria (“eligible LTD”) commencing January 1, 2019. Under the proposal, these eight U.S GSIBs would be required to maintain minimum TLAC of no less than 18% of the financial institution’s RWA or 9.5% of its leverage exposure (as defined by the rules), plus in the case of the RWA-based measure, a TLAC buffer that is equal to 2.5% of the financial institution’s CET1, any applicable countercyclical buffer and the financial institution’s GSIB surcharge as calculated under method 1. The minimum level of eligible LTD that would be required to be maintained by these eight U.S. GSIBs would be equal to the greater of (A) 6% of the financial institution’s RWA, plus the higher of the method 1 or method 2 GSIB surcharge applicable to the institution and (B) 4.5% of its leverage exposure (as defined by the rules). These proposed TLAC Rules would disqualify from eligible LTD, among other instruments, senior debt securities that permit acceleration for reasons other than insolvency or payment default, as well as structured notes and debt securities not governed by U.S. law. The Firm is currently evaluating the impact of the proposal.
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156 | | JPMorgan Chase & Co./2015 Annual Report |
Capital actions
Dividends
The Firm’s common stock dividend policy reflects JPMorgan Chase’s earnings outlook, desired dividend payout ratio, capital objectives, and alternative investment opportunities.
Following receipt on March 11, 2015, of the Federal Reserve’s non-objection to the Firm’s 2015 capital plan submitted under its CCAR,On May 17, 2016, the Firm announced that its Board of Directors increased the quarterly common stock dividend to $0.44$0.48 per share, effective with the dividend paid on July 31, 2015.2016. The Firm’s dividends are subject to the Board of Directors’ approval at the customary times those dividends are to be declared.
For information regarding dividend restrictions, see Note 22 and Note 27.
The following table shows the common dividend payout ratio based on reported net income.income applicable to common equity.
| | | Year ended December 31, | 2015 |
| | 2014 |
| | 2013 |
| 2016 |
| | 2015 |
| | 2014 |
|
| Common dividend payout ratio | 28 | % | | 29 | % | | 33 | % | 30 | % | | 28 | % | | 29 | % |
Common equity
During the year ended December 31, 2015,2016, warrant holders exercised their right to purchase 12.422.5 million shares of the Firm’s common stock. The Firm issued 4.7from treasury stock 11.1 million shares of its common stock as a result of these exercises. As of December 31, 2015, 47.42016, 24.9 million warrants remained outstanding, compared with 59.847.4 million outstanding as of December 31, 2014.2015.
On March 11,17, 2016, the Firm announced that its Board of Directors had authorized the repurchase of up to an additional $1.9 billion of common equity (common stock and warrants) through June 30, 2016 under its equity repurchase program. This amount is in addition to the $6.4 billion of common equity that was previously authorized for repurchase between April 1, 2015 and June 30, 2016.
Following receipt in conjunction withJune 2016 of the Federal Reserve’s release of its 2015 CCAR results,non-objection to the Firm’s 2016 capital plan, the Firm’s Board of Directors authorized a $6.4the repurchase of up to $10.6 billion of common equity (i.e., common(common stock and warrants) repurchase program. As of December 31, 2015, $2.7 billion (on a settlement-date basis) of authorized repurchase capacity remained under the program. between July 1, 2016 and June 30, 2017.
This authorization includes shares repurchased to offset issuances under the Firm’s equity-based compensation plans.
As of December 31, 2016, $6.1 billion of authorized repurchase capacity remained under the program.
The following table sets forth the Firm’s repurchases of common equity for the years ended December 31, 2016, 2015 2014 and 2013, on a settlement-date basis.2014. There were no warrants repurchased during the years ended December 31, 2016, 2015 2014, and 2013.2014.
| | | Year ended December 31, (in millions) | | 2015 | | 2014 | | 2013 | | 2016 | | 2015 | | 2014 |
| Total number of shares of common stock repurchased | | 89.8 |
| | 82.3 |
| | 96.1 |
| | 140.4 |
| | 89.8 |
| | 82.3 |
|
| Aggregate purchase price of common stock repurchases | | $ | 5,616 |
| | $ | 4,760 |
| | $ | 4,789 |
| | $ | 9,082 |
| | $ | 5,616 |
| | $ | 4,760 |
|
The Firm may, from time to time, enter into written trading plans under Rule 10b5-1 of the Securities Exchange Act of 1934 to facilitate repurchases in accordance with the common equity repurchase program. A Rule 10b5-1 repurchase plan allows the Firm to repurchase its equity during periods when it would not otherwise be repurchasing common equity — for example, during internal trading “blackoutblackout periods.” All purchases under a Rule 10b5-1 plan must be made according to a predefined plan established
when the Firm is not aware of material nonpublic information.
The authorization to repurchase common equity will be utilized at management’s discretion, and the timing of purchases and the exact amount of common equity that may be repurchased is subject to various factors, including market conditions; legal and regulatory considerations affecting the amount and timing of repurchase activity; the Firm’s capital position (taking into account goodwill and intangibles); internal capital generation; and alternative investment opportunities. The repurchase program does not include specific price targets or timetables; may be executed through open market purchases or privately negotiated transactions, or utilize Rule 10b5-1 programs; and may be suspended at any time.
For additional information regarding repurchases of the Firm’s equity securities, see Part II, Item 5: Market for registrant’s common equity, related stockholder mattersRegistrant’s Common Equity, Related Stockholder Matters and issuer purchasesIssuer Purchases of equity securitiesEquity Securities on page 20.22.
Preferred stock
During the year ended December 31, 2015, the Firm issued $6.0 billion of noncumulative preferred stock. Preferred stock dividends declared were $1.5 billion for the year ended December 31, 2015. Assuming all preferred stock issuances were outstanding for the entire year and quarterly dividends were declared on such issuances, preferred stock dividends would have been $1.6 billion for the year ended December 31, 2015.2016. For additional information on the Firm’s preferred stock, see Note 22.
Redemption of outstanding trust preferred securities
On April 2, 2015, theThe Firm redeemed $1.6 billion and $1.5 billion or 100% of the liquidation amount, of JPMorgan Chase Capital XXIX trust preferred securities. On May 8, 2013, the Firm redeemed approximately $5.0 billion, or 100% of the liquidation amount, of the following eight series of trust preferred securities: JPMorgan Chase Capital X, XI, XII, XIV, XVI, XIX, XXIV, and BANK ONE Capital VI. For a further discussion of trust preferred securities see Note 21.in the years ended December 31, 2016 and 2015, respectively.
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| 84 | | JPMorgan Chase & Co./20152016 Annual Report | | 157 |
Other capital requirements
TLAC
On December 15, 2016, the Federal Reserve issued its final TLAC rule which requires the top-tier holding companies of eight U.S. global systemically important bank holding companies, including the Firm, among other things, to maintain minimum levels of external TLAC and analysisexternal long-term debt that satisfies certain eligibility criteria (“eligible LTD”) by January 1, 2019. The minimum external TLAC requirement is the greater of (A) 18% of the financial institution’s RWA plus applicable buffers, including its GSIB surcharge as calculated under Method 1 and (B) 7.5% of its total leverage exposure plus a buffer equal to 2.0%. The required minimum level of eligible long-term debt is equal to the greater of (A) 6% of the financial institution’s RWA, plus its U.S. Method 2 GSIB surcharge and (B) 4.5% of the Firm’s total leverage exposure. The final rule permanently grandfathered all long-term debt issued before December 31, 2016, to the extent these securities would be ineligible only due to containing impermissible acceleration rights or being governed by foreign law. While the Firm may have to raise long-term debt to be in full compliance with the rule, management estimates the net amount to be raised is not material and the timing for raising such funds is manageable.
Broker-dealer regulatory capital
JPMorgan Chase’s principal U.S. broker-dealer subsidiaries aresubsidiary is JPMorgan Securities. Prior to October 1, 2016 the Firm had two principal U.S. broker-dealer subsidiaries. Effective October 1, 2016 JPMorgan Clearing merged with JPMorgan Securities. JPMorgan Securities is the surviving entity in the merger and J.P. Morgan Clearing Corp. (“JPMorgan Clearing”). JPMorgan Clearing is a subsidiary of its name remain unchanged.
JPMorgan Securities and provides clearing and settlement services. JPMorgan Securities and JPMorgan Clearing are eachis subject to Rule 15c3-1 under the Securities Exchange Act of 1934 (the “Net Capital Rule”). JPMorgan Securities and JPMorgan Clearing areis also each registered as futures commission merchants and subject to Rule 1.17 of the Commodity Futures Trading Commission (“CFTC”).CFTC.
JPMorgan Securities and JPMorgan Clearing havehas elected to compute theirits minimum net capital requirements in accordance with the “Alternative Net Capital Requirements” of the Net Capital Rule. At December 31, 2015,2016, JPMorgan Securities’ net capital, as defined by the Net Capital Rule, was $14.2$14.7 billion, exceeding the minimum requirement by $11.9 billion, and JPMorgan Clearing’s net capital was $7.7 billion, exceeding the minimum requirement by $6.2 billion.
In addition to its minimum net capital requirement, JPMorgan Securities is required to hold tentative net capital in excess of $1.0 billion and is also required to notify the Securities and Exchange Commission (“SEC”)SEC in the event that tentative net capital is less than $5.0 billion, in accordance with the market and credit risk standards of Appendix E of the Net Capital Rule. As of December 31, 2015,2016, JPMorgan Securities had tentative net capital in excess of the minimum and notification requirements.
J.P. Morgan Securities plc is a wholly owned subsidiary of JPMorgan Chase Bank, N.A. and is the Firm’s principal operating subsidiary in the U.K. It has authority to engage in banking, investment banking and broker-dealer activities. J.P. Morgan Securities plc is jointly regulated by the U.K. Prudential Regulation Authority (“PRA”)PRA and Financial Conduct Authority (“FCA”). Commencing January 1, 2014,the FCA. J.P. Morgan Securities plc becameis subject to the European Union Capital Requirements Regulation and the U.K. PRA capital rules, under which it has implemented Basel III capital rules.III.
At December 31, 2015,2016, J.P. Morgan Securities plc had estimated total capital of $33.9 billion;$34.5 billion, its estimated CET1 capital ratio was 15.4%13.8% and its estimated Totaltotal capital ratio was 19.6%17.4%. Both capital ratios exceeded the minimum standards of 4.5% and 8.0%, respectively, under the transitional requirements of the European Union’s (“EU”) Basel III Capital Requirements Directive and Regulation, as well as the additional capital requirements specified by the PRA.
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158JPMorgan Chase & Co./2016 Annual Report | | 85 |
Management’s discussion and analysis
Credit risk is the risk of loss arising from the default of a customer, client or counterparty. The Firm provides credit to a variety of customers, ranging from large corporate and institutional clients to individual consumers and small businesses. In its consumer businesses, the Firm is exposed to credit risk primarily through its mortgage banking, credit card, auto, business banking and student lending businesses. Originated mortgage loans are retained in the mortgage portfolio, securitized or sold to U.S. government agencies and U.S. government-sponsored enterprises; other types of consumer loans are typically retained on the balance sheet. In its wholesale businesses, the Firm is exposed to credit risk through its underwriting, lending, market-making, and hedging activities with and for clients and counterparties, as well as through its operating services activities (such as cash management and clearing activities), securities financing activities, investment securities portfolio, and cash placed with banks. A portion of the loans originated or acquired by the Firm’s wholesale businesses are generally retained on the balance sheet; the Firm’s syndicated loan business distributes a significant percentage of originations into the market and is an important component of portfolio management.
Credit risk management
Credit risk management is an independent risk management function that monitors and measures credit risk throughout the Firm and defines credit risk policies and procedures. The credit risk function reports to the Firm’s CRO. The Firm’s credit risk management governance includes the following activities:
Establishing a comprehensive credit risk policy framework
Monitoring and managing credit risk across all portfolio segments, including transaction and exposure approval
Setting industry concentration limits and establishing underwriting guidelines
Assigning and managing credit authorities in connection with the approval of all credit exposure
Managing criticized exposures and delinquent loans
Estimating credit losses and ensuring appropriate credit risk-based capital management
Risk identification and measurement
The Credit Risk Management function measures, limits, manages and monitors credit risk across the Firm’s businesses. To measure credit risk, the Firm employs several methodologies for estimating the likelihood of obligor or counterparty default. Methodologies for measuring credit risk vary depending on several factors, including type of asset (e.g., consumer versus wholesale), risk measurement parameters (e.g., delinquency status and borrower’s credit score versus wholesale risk-rating) and risk management and collection processes (e.g., retail collection center versus centrally managed workout groups). Credit risk measurement is based on the
probability of default of an obligor or counterparty, the loss severity given a default event and the exposure at default.
Based on these factors and related market-based inputs, the Firm estimates credit losses for its exposures. Probable credit losses inherent in the consumer and wholesale held-for-investment loan portfolios are reflected in the allowance for loan losses, and probable credit losses inherent in lending-related commitments are reflected in the allowance for lending-related commitments. These losses are estimated using statistical analyses and other factors as described in Note 15. In addition, potential and unexpected credit losses are reflected in the allocation of credit risk capital and represent the potential volatility of actual losses relative to the established allowances for loan losses and lending-related commitments. The analyses for these losses include stress testing that considers alternative economic scenarios as described in the Stress testing section below. For further information, see Critical Accounting Estimates used by the Firm on pages 132–134.
The methodologies used to estimate credit losses depend on the characteristics of the credit exposure, as described below.
Scored exposure
The scored portfolio is generally held in CCB and predominantly includes residential real estate loans, credit card loans, certain auto and business banking loans, and student loans. For the scored portfolio, credit loss estimates are based on statistical analysis of credit losses over discrete periods of time. The statistical analysis uses portfolio modeling, credit scoring, and decision-support tools, which consider loan-level factors such as delinquency status, credit scores, collateral values, and other risk factors. Credit loss analyses also consider, as appropriate, uncertainties and other factors, including those related to current macroeconomic and political conditions, the quality of underwriting standards, and other internal and external factors. The factors and analysis are updated on a quarterly basis or more frequently as market conditions dictate.
Risk-rated exposure
Risk-rated portfolios are generally held in CIB, CB and AWM, but also include certain business banking and auto dealer loans held in CCB that are risk-rated because they have characteristics similar to commercial loans. For the risk-rated portfolio, credit loss estimates are based on estimates of the probability of default (“PD”) and loss severity given a default. The probability of default is the likelihood that a borrower will default on its obligation; the loss given default (“LGD”) is the estimated loss on the loan that would be realized upon the default and takes into consideration collateral and structural support for each credit facility. The estimation process includes assigning risk ratings to each borrower and credit facility to differentiate risk within the portfolio. These risk ratings are reviewed regularly by Credit Risk Management and revised as needed to reflect the
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| | |
| 86 | | JPMorgan Chase & Co./20152016 Annual Report |
borrower’s current financial position, risk profile and related collateral. The calculations and assumptions are based on both internal and external historical experience and management judgment and are reviewed regularly.
Stress testing
Stress testing is important in measuring and managing credit risk in the Firm’s credit portfolio. The process assesses the potential impact of alternative economic and business scenarios on estimated credit losses for the Firm. Economic scenarios and the underlying parameters are defined centrally, articulated in terms of macroeconomic factors and applied across the businesses. The stress test results may indicate credit migration, changes in delinquency trends and potential losses in the credit portfolio. In addition to the periodic stress testing processes, management also considers additional stresses outside these scenarios, including industry and country- specific stress scenarios, as necessary. The Firm uses stress testing to inform decisions on setting risk appetite both at a Firm and LOB level, as well as to assess the impact of stress on individual counterparties.
Risk monitoring and management
The Firm has developed policies and practices that are designed to preserve the independence and integrity of the approval and decision-making process of extending credit to ensure credit risks are assessed accurately, approved properly, monitored regularly and managed actively at both the transaction and portfolio levels. The policy framework establishes credit approval authorities, concentration limits, risk-rating methodologies, portfolio review parameters and guidelines for management of distressed exposures. In addition, certain models, assumptions and inputs used in evaluating and monitoring credit risk are independently validated by groups that are separate from the line of businesses.
Consumer credit risk is monitored for delinquency and other trends, including any concentrations at the portfolio level, as certain of these trends can be modified through changes in underwriting policies and portfolio guidelines. Consumer Risk Management evaluates delinquency and other trends against business expectations, current and forecasted economic conditions, and industry benchmarks. Historical and forecasted trends are incorporated into the modeling of estimated consumer credit losses and are part of the monitoring of the credit risk profile of the portfolio.
Wholesale credit risk is monitored regularly at an aggregate portfolio, industry, and individual client and counterparty level with established concentration limits that are reviewed and revised as deemed appropriate by management, typically on an annual basis. Industry and counterparty limits, as measured in terms of exposure and economic risk appetite, are subject to stress-based loss constraints. In addition, wrong-way risk — the risk that exposure to a counterparty is positively correlated with the impact of a default by the same counterparty, which could cause exposure to increase at the same time as the counterparty’s capacity to meet its obligations is decreasing — is actively monitored as this risk could result in greater exposure at default compared with a transaction with another counterparty that does not have this risk.
Management of the Firm’s wholesale credit risk exposure is accomplished through a number of means, including:
Loan underwriting and credit approval process
Loan syndications and participations
Loan sales and securitizations
Credit derivatives
Master netting agreements
Collateral and other risk-reduction techniques
In addition to Credit Risk Management, an independent Credit Review function, is responsible for:
Independently validating or changing the risk grades assigned to exposures in the Firm’s wholesale and commercial-oriented retail credit portfolios, and assessing the timeliness of risk grade changes initiated by responsible business units; and
Evaluating the effectiveness of business units’ credit management processes, including the adequacy of credit analyses and risk grading/LGD rationales, proper monitoring and management of credit exposures, and compliance with applicable grading policies and underwriting guidelines.
For further discussion of consumer and wholesale loans, see Note 14.
Risk reporting
To enable monitoring of credit risk and effective decision-making, aggregate credit exposure, credit quality forecasts, concentration levels and risk profile changes are reported regularly to senior members of Credit Risk Management. Detailed portfolio reporting of industry, customer, product and geographic concentrations occurs monthly, and the appropriateness of the allowance for credit losses is reviewed by senior management at least on a quarterly basis. Through the risk reporting and governance structure, credit risk trends and limit exceptions are provided regularly to, and discussed with, risk committees, senior management and the Board of Directors as appropriate.
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| JPMorgan Chase & Co./2016 Annual Report | | 87 |
Management’s discussion and analysis
In the following tables, reported loans include loans retained (i.e., held-for-investment); loans held-for-sale; and certain loans accounted for at fair value. In addition, the Firm records certain loans accounted for at fair value in trading assets. For further information regarding these loans, see Note 3 and Note 4. For additional information on the Firm’s loans, lending-related commitments, and derivative receivables, including the Firm’s accounting policies, see Note 14, Note 29, and Note 6, respectively. For further information regarding the credit risk inherent in the Firm’s cash placed with banks, investment securities portfolio, and securities financing portfolio, see Note 5, Note 12, and Note 13, respectively.
For discussion of the consumer credit environment and consumer loans, see Consumer Credit Portfolio on pages 89–95 and Note 14. For discussion of wholesale credit environment and wholesale loans, see Wholesale Credit Portfolio on pages 96–104 and Note 14.
|
| | | | | | | | | | | | | |
| Total credit portfolio | | | | |
December 31, (in millions) | Credit exposure | | Nonperforming(b)(c) |
| 2016 | 2015 | | 2016 | 2015 |
| Loans retained | $ | 889,907 |
| $ | 832,792 |
| | $ | 6,721 |
| $ | 6,303 |
|
| Loans held-for-sale | 2,628 |
| 1,646 |
| | 162 |
| 101 |
|
| Loans at fair value | 2,230 |
| 2,861 |
| | — |
| 25 |
|
| Total loans – reported | 894,765 |
| 837,299 |
| | 6,883 |
| 6,429 |
|
| Derivative receivables | 64,078 |
| 59,677 |
| | 223 |
| 204 |
|
| Receivables from customers and other | 17,560 |
| 13,497 |
| | — |
| — |
|
| Total credit-related assets | 976,403 |
| 910,473 |
| | 7,106 |
| 6,633 |
|
| Assets acquired in loan satisfactions | | | | | |
| Real estate owned | NA |
| NA |
| | 370 |
| 347 |
|
| Other | NA |
| NA |
| | 59 |
| 54 |
|
Total assets acquired in loan satisfactions | NA |
| NA |
| | 429 |
| 401 |
|
| Total assets | 976,403 |
| 910,473 |
| | 7,535 |
| 7,034 |
|
| Lending-related commitments | 976,702 |
| 940,395 |
| | 506 |
| 193 |
|
| Total credit portfolio | $ | 1,953,105 |
| $ | 1,850,868 |
| | $ | 8,041 |
| $ | 7,227 |
|
Credit derivatives used in credit portfolio management activities(a) | $ | (22,114 | ) | $ | (20,681 | ) | | $ | — |
| $ | (9 | ) |
| Liquid securities and other cash collateral held against derivatives | (22,705 | ) | (16,580 | ) | | NA |
| NA |
|
|
| | | | | | | |
Year ended December 31, (in millions, except ratios) | | 2016 | 2015 |
| Net charge-offs | | $ | 4,692 |
| $ | 4,086 |
|
| Average retained loans | | | |
| Loans – reported | | 861,345 |
| 780,293 |
|
Loans – reported, excluding residential real estate PCI loans | | 822,973 |
| 736,543 |
|
| Net charge-off rates | | | |
| Loans – reported | | 0.54 | % | 0.52 | % |
| Loans – reported, excluding PCI | | 0.57 |
| 0.55 |
|
| |
| (a) | Represents the net notional amount of protection purchased and sold through credit derivatives used to manage both performing and nonperforming wholesale credit exposures; these derivatives do not qualify for hedge accounting under U.S. GAAP. For additional information, see Credit derivatives on pages 103–104 and Note 6. |
| |
| (b) | Excludes PCI loans. The Firm is recognizing interest income on each pool of PCI loans as each of the pools is performing. |
| |
| (c) | At December 31, 2016 and 2015, nonperforming assets excluded: (1) mortgage loans insured by U.S. government agencies of $5.0 billion and $6.3 billion, respectively, that are 90 or more days past due; (2) student loans insured by U.S. government agencies under the FFELP of $263 million and $290 million, respectively, that are 90 or more days past due; and (3) Real estate owned (“REO”) insured by U.S. government agencies of $142 million and $343 million, respectively. These amounts have been excluded based upon the government guarantee. In addition, the Firm’s policy is generally to exempt credit card loans from being placed on nonaccrual status as permitted by regulatory guidance issued by the Federal Financial Institutions Examination Council (“FFIEC”). |
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| 88 | | JPMorgan Chase & Co./2016 Annual Report |
|
| | | | |
| CONSUMER CREDIT PORTFOLIO |
The Firm’s consumer portfolio consists primarily of residential real estate loans, credit card loans, auto loans, business banking loans and student loans, and associated lending-related commitments. The Firm’s focus is on serving primarily the prime segment of the consumer credit market. The credit performance of the consumer portfolio continues to benefit from discipline in credit underwriting as well as improvement in the economy driven by increasing home
prices and lower unemployment. Both early-stage delinquencies (30–89 days delinquent) and late-stage delinquencies (150+ days delinquent) for residential real estate, excluding government guaranteed loans, declined from December 31, 2015 levels. The Credit Card 30+ day delinquency rate and the net charge-off rate increased from the prior year but remain near record lows. For further information on consumer loans, see Note 14.
The following table presents consumer credit-related information with respect to the credit portfolio held by CCB, prime mortgage and home equity loans held by AWM, and prime mortgage loans held by Corporate. For further information about the Firm’s nonaccrual and charge-off accounting policies, see Note 14.
|
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Consumer credit portfolio |
As of or for the year ended December 31, (in millions, except ratios) | Credit exposure | | Nonaccrual loans(h)(i) | | Net charge-offs/(recoveries)(j) | | Average annual net charge-off rate(j)(k) |
| 2016 | | 2015 | | 2016 | 2015 | | 2016 | 2015 | | 2016 | 2015 |
| Consumer, excluding credit card | | | | | | | | | | | | |
| Loans, excluding PCI loans and loans held-for-sale | | | | | | | | | | | | |
| Home equity | $ | 39,063 |
| | $ | 45,559 |
| | $ | 1,845 |
| $ | 2,191 |
| | $ | 189 |
| $ | 291 |
| | 0.45 | % | 0.59 | % |
| Residential mortgage | 192,163 |
| | 166,239 |
| | 2,247 |
| 2,503 |
| | 12 |
| (4 | ) | | 0.01 |
| — |
|
Auto(a) | 65,814 |
| | 60,255 |
| | 214 |
| 116 |
| | 285 |
| 214 |
| | 0.45 |
| 0.38 |
|
Business banking(b) | 22,698 |
| | 21,208 |
| | 286 |
| 263 |
| | 257 |
| 253 |
| | 1.17 |
| 1.23 |
|
| Student and other | 8,989 |
| | 10,096 |
| | 175 |
| 242 |
| | 166 |
| 200 |
| | 1.74 |
| 1.89 |
|
| Total loans, excluding PCI loans and loans held-for-sale | 328,727 |
| | 303,357 |
| | 4,767 |
| 5,315 |
| | 909 |
| 954 |
| | 0.28 |
| 0.35 |
|
| Loans – PCI | | | | | | | | | | | | |
| Home equity | 12,902 |
| | 14,989 |
| | NA |
| NA |
| | NA |
| NA |
| | NA |
| NA |
|
| Prime mortgage | 7,602 |
| | 8,893 |
| | NA |
| NA |
| | NA |
| NA |
| | NA |
| NA |
|
| Subprime mortgage | 2,941 |
| | 3,263 |
| | NA |
| NA |
| | NA |
| NA |
| | NA |
| NA |
|
Option ARMs(c) | 12,234 |
| | 13,853 |
| | NA |
| NA |
| | NA |
| NA |
| | NA |
| NA |
|
| Total loans – PCI | 35,679 |
| | 40,998 |
| | NA |
| NA |
| | NA |
| NA |
| | NA |
| NA |
|
| Total loans – retained | 364,406 |
| | 344,355 |
| | 4,767 |
| 5,315 |
| | 909 |
| 954 |
| | 0.25 |
| 0.30 |
|
| Loans held-for-sale | 238 |
| (g) | 466 |
| (g) | 53 |
| 98 |
| | — |
| — |
| | — |
| — |
|
| Total consumer, excluding credit card loans | 364,644 |
| | 344,821 |
| | 4,820 |
| 5,413 |
| | 909 |
| 954 |
| | 0.25 |
| 0.30 |
|
Lending-related commitments(d) | 54,797 |
| | 58,478 |
| | | | | | | | | |
Receivables from customers(e) | 120 |
| | 125 |
| | | | | | | | | |
| Total consumer exposure, excluding credit card | 419,561 |
| | 403,424 |
| | | | | | | | | |
| Credit Card | | | | | | | | | | | | |
Loans retained(f) | 141,711 |
| | 131,387 |
| | — |
| — |
| | 3,442 |
| 3,122 |
| | 2.63 |
| 2.51 |
|
| Loans held-for-sale | 105 |
| | 76 |
| | — |
| — |
| | — |
| — |
| | — |
| — |
|
| Total credit card loans | 141,816 |
| | 131,463 |
| | — |
| — |
| | 3,442 |
| 3,122 |
| | 2.63 |
| 2.51 |
|
Lending-related commitments(d) | 553,891 |
| | 515,518 |
| | | | | | | | | |
| Total credit card exposure | 695,707 |
| | 646,981 |
| | | | | | | | | |
| Total consumer credit portfolio | $ | 1,115,268 |
| | $ | 1,050,405 |
| | $ | 4,820 |
| $ | 5,413 |
| | $ | 4,351 |
| $ | 4,076 |
| | 0.89 | % | 0.92 | % |
| Memo: Total consumer credit portfolio, excluding PCI | $ | 1,079,589 |
| | $ | 1,009,407 |
| | $ | 4,820 |
| $ | 5,413 |
| | $ | 4,351 |
| $ | 4,076 |
| | 0.96 | % | 1.02 | % |
| |
| (a) | At December 31, 2016 and 2015, excluded operating lease assets of $13.2 billion and $9.2 billion, respectively. |
| |
| (b) | Predominantly includes Business Banking loans as well as deposit overdrafts. |
| |
| (c) | At December 31, 2016 and 2015, approximately 66% and 64%, respectively, of the PCI option adjustable rate mortgages (“ARMs”) portfolio has been modified into fixed-rate, fully amortizing loans. |
| |
| (d) | Credit card and home equity lending-related commitments represent the total available lines of credit for these products. The Firm has not experienced, and does not anticipate, that all available lines of credit would be used at the same time. For credit card and home equity commitments (if certain conditions are met), the Firm can reduce or cancel these lines of credit by providing the borrower notice or, in some cases as permitted by law, without notice. |
| |
| (e) | Receivables from customers represent margin loans to brokerage customers that are collateralized through assets maintained in the clients’ brokerage accounts, as such no allowance is held against these receivables. These receivables are reported within accrued interest and accounts receivable on the Firm’s Consolidated balance sheets. |
| |
| (f) | Includes billed interest and fees net of an allowance for uncollectible interest and fees. |
| |
| (g) | Predominantly represents prime mortgage loans held-for-sale. |
| |
| (h) | At December 31, 2016 and 2015, nonaccrual loans excluded loans 90 or more days past due as follows: (1) mortgage loans insured by U.S. government agencies of $5.0 billion and $6.3 billion, respectively; and (2) student loans insured by U.S. government agencies under the FFELP of $263 million and $290 million, respectively. These amounts have been excluded from nonaccrual loans based upon the government guarantee. In addition, the Firm’s policy is generally to exempt credit card loans from being placed on nonaccrual status, as permitted by regulatory guidance issued by the FFIEC. |
| |
| (i) | Excludes PCI loans. The Firm is recognizing interest income on each pool of PCI loans as they are all performing. |
|
| | |
| JPMorgan Chase & Co./2016 Annual Report | | 89 |
Management’s discussion and analysis
| |
| (j) | Net charge-offs and net charge-off rates excluded write-offs in the PCI portfolio of $156 million and $208 million for the years ended December 31, 2016 and 2015. These write-offs decreased the allowance for loan losses for PCI loans. See Allowance for Credit Losses on pages 105–107 for further details. |
| |
| (k) | Average consumer loans held-for-sale were $496 million and $2.1 billion for the years ended December 31, 2016 and 2015, respectively. These amounts were excluded when calculating net charge-off rates. |
Consumer, excluding credit card
Portfolio analysis
Consumer loan balances increased during the year ended December 31, 2016, predominantly due to originations of high-quality prime mortgage and auto loans that have been retained on the balance sheet, partially offset by paydowns and the charge-off or liquidation of delinquent loans. The credit environment remained favorable as the economy strengthened and home prices increased.
PCI loans are excluded from the following discussions of individual loan products and are addressed separately below. For further information about the Firm’s consumer portfolio, including information about delinquencies, loan modifications and other credit quality indicators, see
Note 14.
Home equity: The home equity portfolio declined from December 31, 2015 primarily reflecting loan paydowns and charge-offs. Both early-stage and late-stage delinquencies declined from December 31, 2015. Nonaccrual loans improved from December 31, 2015 primarily as a result of loss mitigation activities. Net charge-offs for the year ended December 31, 2016, declined when compared with the prior year as a result of improvement in home prices and delinquencies.
At December 31, 2016, approximately 90% of the Firm’s home equity portfolio consists of home equity lines of credit (“HELOCs”) and the remainder consists of home equity loans (“HELOANs”). HELOANs are generally fixed-rate, closed-end, amortizing loans, with terms ranging from 3–30 years. In general, HELOCs originated by the Firm are revolving loans for a 10-year period, after which time the HELOC recasts into a loan with a 20-year amortization period. At the time of origination, the borrower typically selects one of two minimum payment options that will generally remain in effect during the revolving period: a monthly payment of 1% of the outstanding balance, or interest-only payments based on a variable index (typically Prime). HELOCs originated by Washington Mutual were generally revolving loans for a 10-year period, after which time the HELOC converts to an interest-only loan with a balloon payment at the end of the loan’s term.
The carrying value of HELOCs outstanding was $34 billion at December 31, 2016. Of such amounts, approximately:
$13 billion have recast from interest-only to fully amortizing payments or have been modified,
$15 billion are scheduled to recast from interest-only to fully amortizing payments in future periods, and
$6 billion are interest-only balloon HELOCs, which primarily mature after 2030.
The following chart illustrates the payment recast composition of the approximately $21 billion of HELOCs scheduled to recast in the future, based upon their current contractual terms.
HELOCs scheduled to recast
(at December 31, 2016)
The Firm has considered this payment recast risk in its allowance for loan losses based upon the estimated amount of payment shock (i.e., the excess of the fully-amortizing payment over the interest-only payment in effect prior to recast) expected to occur at the payment recast date, along with the corresponding estimated PD and loss severity assumptions. As part of its allowance estimate, the Firm also expects, based on observed activity in recent years, that approximately 30% of the carrying value of HELOCs scheduled to recast will voluntarily prepay prior to or after the recast. The HELOCs that have previously recast to fully amortizing payments generally have higher delinquency rates than the HELOCs within the revolving period, primarily as a result of the payment shock at the time of recast. Certain other factors, such as future developments in both unemployment rates and home prices, could also have a significant impact on the performance of these loans.The Firm manages the risk of HELOCs during their revolving period by closing or reducing the undrawn line to the extent permitted by law when borrowers are exhibiting a material deterioration in their credit risk profile. The Firm will continue to evaluate both the near-term and longer-term recast risks inherent in its HELOC portfolio to ensure that changes in the Firm’s estimate of incurred losses are appropriately considered in the allowance for loan losses and that the Firm’s account management practices are appropriate given the portfolio’s risk profile.
|
| | |
| 90 | | JPMorgan Chase & Co./2016 Annual Report |
Junior lien loans where the borrower has a senior lien loan that is either delinquent or has been modified are considered high-risk seconds. Such loans are considered to pose a higher risk of default than junior lien loans for which the senior lien loan is neither delinquent nor modified. At December 31, 2016, the Firm estimated that the carrying value of its home equity portfolio contained approximately $1.1 billion of current junior lien loans that were considered high risk seconds, compared with $1.4 billion at December 31, 2015. The Firm estimates the balance of its total exposure to high-risk seconds on a quarterly basis using internal data and loan level credit bureau data (which typically provides the delinquency status of the senior lien loan). The Firm considers the increased PD associated with these high-risk seconds in estimating the allowance for loan losses and classifies those loans that are subordinated to a first lien loan that is more than 90 days delinquent as nonaccrual loans. The estimated balance of these high-risk seconds may vary from quarter to quarter for reasons such as the movement of related senior lien loans into and out of the 30+ day delinquency bucket. The Firm continues to monitor the risks associated with these loans. For further information, see Note 14.
Residential mortgage: The residential mortgage portfolio predominantly consists of high-quality prime mortgage loans with a small component (approximately 2%) of the residential mortgage portfolio in subprime mortgage loans. These subprime mortgage loans continue to run-off and are performing in line with expectations. The residential mortgage portfolio, including loans held-for-sale, increased from December 31, 2015 due to retained originations of primarily high-quality fixed rate prime mortgage loans partially offset by paydowns. Both early-stage and late-stage delinquencies showed improvement from December 31, 2015. Nonaccrual loans decreased from the prior year primarily as a result of loss mitigation activities. Net charge-offs for the year ended December 31, 2016 remain low, reflecting continued improvement in home prices and delinquencies.
At December 31, 2016 and 2015, the Firm’s residential mortgage portfolio, including loans held-for-sale, included $9.5 billion and $11.1 billion, respectively, of mortgage loans insured and/or guaranteed by U.S. government agencies, of which $7.0 billion and $8.4 billion, respectively, were 30 days or more past due (of these past due loans, $5.0 billion and $6.3 billion, respectively, were 90 days or more past due). The Firm monitors its exposure to certain potential unrecoverable claim payments related to government insured loans and considers this exposure in estimating the allowance for loan losses.
At December 31, 2016 and 2015, the Firm’s residential mortgage portfolio included $19.1 billion and $17.8 billion, respectively, of interest-only loans. These loans have an interest-only payment period generally followed by an adjustable-rate or fixed-rate fully amortizing payment period to maturity and are typically originated as higher-balance loans to higher-income borrowers. To date, losses on this portfolio generally have been consistent with the broader residential mortgage portfolio and the Firm’s expectations. The Firm continues to monitor the risks associated with these loans.
Auto: Auto loans increased from December 31, 2015, as a result of growth in new originations. Nonaccrual loans increased compared with December 31, 2015, primarily due to downgrades of select auto dealer risk-rated loans. Net charge-offs for the year ended December 31, 2016 increased compared with the prior year, as a result of higher retail auto loan balances and a moderate increase in loss severity. The auto portfolio predominantly consists of prime-quality loans.
Business banking: Business banking loans increased compared with December 31, 2015 as a result of growth in loan originations. Nonaccrual loans at December 31, 2016 and net charge-offs for the year ended December 31, 2016 increased from the prior year as a result of growth in the portfolio.
Student and other: Student and other loans decreased from December 31, 2015 primarily as a result of the run-off of the student loan portfolio as the Firm ceased originations of student loans during the fourth quarter of 2013. Nonaccrual loans and net charge-offs also declined as a result of the run-off of the student loan portfolio.
Purchased credit-impaired loans: PCI loans decreased as the portfolio continues to run off. As of December 31, 2016, approximately 12% of the option ARM PCI loans were delinquent and approximately 66% of the portfolio had been modified into fixed-rate, fully amortizing loans. Substantially all of the remaining loans are making amortizing payments, although such payments are not necessarily fully amortizing. This latter group of loans is subject to the risk of payment shock due to future payment recast. Default rates generally increase on option ARM loans when payment recast results in a payment increase. The expected increase in default rates is considered in the Firm’s quarterly impairment assessment.
|
| | |
| JPMorgan Chase & Co./2016 Annual Report | | 91 |
Management’s discussion and analysis
The following table provides a summary of lifetime principal loss estimates included in either the nonaccretable difference or the allowance for loan losses. |
| | | | | | | | | | | | | | | |
| Summary of PCI loans lifetime principal loss estimates |
| | Lifetime loss estimates(a) | | Life-to-date liquidation losses(b) |
| December 31, (in billions) | 2016 | | 2015 | | 2016 | | 2015 |
| Home equity | $ | 14.4 |
| | $ | 14.5 |
| | $ | 12.8 |
| | $ | 12.7 |
|
| Prime mortgage | 4.0 |
| | 4.0 |
| | 3.7 |
| | 3.7 |
|
| Subprime mortgage | 3.2 |
| | 3.3 |
| | 3.1 |
| | 3.0 |
|
| Option ARMs | 10.0 |
| | 10.0 |
| | 9.7 |
| | 9.5 |
|
| Total | $ | 31.6 |
| | $ | 31.8 |
| | $ | 29.3 |
| | $ | 28.9 |
|
| |
| (a) | Includes the original nonaccretable difference established in purchase accounting of $30.5 billion for principal losses plus additional principal losses recognized subsequent to acquisition through the provision and allowance for loan losses. The remaining nonaccretable difference for principal losses was $1.1 billion and $1.5 billion at December 31, 2016 and 2015, respectively. |
| |
| (b) | Life-to-date liquidation losses represent both realization of loss upon loan resolution and any principal forgiven upon modification. |
For further information on the Firm’s PCI loans, including write-offs, see Note 14.
Geographic composition of residential real estate loans
At December 31, 2016, $139.7 billion, or 63% of total retained residential real estate loan portfolio, excluding mortgage loans insured by U.S. government agencies and PCI loans, were concentrated in California, New York, Illinois, Texas and Florida, compared with $123.0 billion, or 61%, at December 31, 2015. California had the greatest concentration of retained residential loans with 30% at December 31, 2016, compared with 28% at December 31, 2015. The unpaid principal balance of PCI loans concentrated in California represented 55% of total PCI loans at both December 31, 2016 and 2015. The following charts illustrate the percentages of the total retained residential real estate portfolio held in the top 5 states, excluding mortgage loans insured by U.S. government agencies and PCI loans. For further information on the geographic composition of the Firm’s residential real estate loans, see Note 14.
|
| | |
| 92 | | JPMorgan Chase & Co./2016 Annual Report |
Current estimated loan-to-values of residential real estate loans
The current estimated average loan-to-value (“LTV”) ratio for residential real estate loans retained, excluding mortgage loans insured by U.S. government agencies and PCI loans, was 58% at December 31, 2016 compared with 59% at December 31, 2015.
Although the delinquency rate for loans with high LTV ratios is generally greater than the delinquency rate for loans in which the borrower has greater equity in the collateral, the average LTV ratios have declined consistent with improvements in home prices, reducing the number of loans with a current estimated LTV ratio greater than 100%.
The current estimated average LTV ratio for residential real estate PCI loans, based on the unpaid principal balances, was 64% at December 31, 2016, compared with 69% at December 31, 2015. Of the total PCI portfolio, 4% of the loans had a current estimated LTV ratio greater than 100%, and 1% had a current LTV ratio greater than 125% at December 31, 2016, compared with 6% and 1%, respectively, at December 31, 2015.
While the current estimated collateral value is greater than the net carrying value of PCI loans, the ultimate performance of this portfolio is highly dependent on borrowers’ behavior and ongoing ability and willingness to continue to make payments on homes with negative equity, as well as on the cost of alternative housing.
For further information on current estimated LTVs of residential real estate loans, see Note 14.
Loan modification activities – residential real estate loans
The performance of modified loans generally differs by product type due to differences in both the credit quality and the types of modifications provided. Performance metrics for modifications to the residential real estate portfolio, excluding PCI loans, that have been seasoned more than six months show weighted-average redefault rates of 21% for home equity and 22% for residential mortgages. The cumulative performance metrics for modifications to the PCI residential real estate portfolio that have been seasoned more than six months show weighted average redefault rates of 20% for home equity, 19% for prime mortgages, 16% for option ARMs and 32% for subprime mortgages. The cumulative redefault rates reflect the performance of modifications completed under both the U.S. Government’s Home Affordable Modification Program (“HAMP”) and the Firm’s proprietary modification programs (primarily the Firm’s modification program that was modeled after HAMP) from October 1, 2009, through December 31, 2016.
Certain loans that were modified under HAMP and the Firm’s proprietary modification programs have interest rate reset provisions (“step-rate modifications”). Interest rates on these loans generally began to increase commencing in 2014 by 1% per year, and continue to do so, until the rate reaches a specified cap, typically at a prevailing market interest rate for a fixed-rate loan as of the modification date. At December 31, 2016, the carrying value of non-PCI loans and the unpaid principal balance of PCI loans
modified in active step-rate modifications were $3 billion and $9 billion, respectively. The Firm continues to monitor this risk exposure and the impact of these potential interest rate increases is considered in the Firm’s allowance for loan losses.
The following table presents information as of December 31, 2016 and 2015, relating to modified retained residential real estate loans for which concessions have been granted to borrowers experiencing financial difficulty. Modifications of PCI loans continue to be accounted for and reported as PCI loans, and the impact of the modification is incorporated into the Firm’s quarterly assessment of estimated future cash flows. Modifications of consumer loans other than PCI loans are generally accounted for and reported as TDRs. For further information on modifications for the years ended December 31, 2016 and 2015, see Note 14.
|
| | | | | | | | | | | | | |
| Modified residential real estate loans |
| | 2016 | | 2015 |
December 31, (in millions) | Retained loans | Nonaccrual retained loans(d) | | Retained loans | Nonaccrual retained loans(d) |
Modified residential real estate loans, excluding PCI loans(a)(b) | | | | | |
| Home equity | $ | 2,264 |
| $ | 1,116 |
| | $ | 2,358 |
| $ | 1,220 |
|
| Residential mortgage | 6,032 |
| 1,755 |
| | 6,690 |
| 1,957 |
|
| Total modified residential real estate loans, excluding PCI loans | $ | 8,296 |
| $ | 2,871 |
| | $ | 9,048 |
| $ | 3,177 |
|
Modified PCI loans(c) | | | | | |
| Home equity | $ | 2,447 |
| NA |
| | $ | 2,526 |
| NA |
|
| Prime mortgage | 5,052 |
| NA |
| | 5,686 |
| NA |
|
| Subprime mortgage | 2,951 |
| NA |
| | 3,242 |
| NA |
|
| Option ARMs | 9,295 |
| NA |
| | 10,427 |
| NA |
|
| Total modified PCI loans | $ | 19,745 |
| NA |
| | $ | 21,881 |
| NA |
|
| |
| (a) | Amounts represent the carrying value of modified residential real estate loans. |
| |
| (b) | At December 31, 2016 and 2015, $3.4 billion and $3.8 billion, respectively, of loans modified subsequent to repurchase from Ginnie Mae in accordance with the standards of the appropriate government agency (i.e., Federal Housing Administration (“FHA”), U.S. Department of Veterans Affairs (“VA”), Rural Housing Service of the U.S. Department of Agriculture (“RHS”)) are not included in the table above. When such loans perform subsequent to modification in accordance with Ginnie Mae guidelines, they are generally sold back into Ginnie Mae loan pools. Modified loans that do not re-perform become subject to foreclosure. For additional information about sales of loans in securitization transactions with Ginnie Mae, see Note 16. |
| |
| (c) | Amounts represent the unpaid principal balance of modified PCI loans. |
| |
| (d) | As of December 31, 2016 and 2015, nonaccrual loans included $2.3 billion and $2.5 billion, respectively, of TDRs for which the borrowers were less than 90 days past due. For additional information about loans modified in a TDR that are on nonaccrual status, see Note 14. |
|
| | |
| JPMorgan Chase & Co./2016 Annual Report | | 93 |
Management’s discussion and analysis
Nonperforming assets
The following table presents information as of December 31, 2016 and 2015, about consumer, excluding credit card, nonperforming assets.
|
| | | | | | | |
Nonperforming assets(a) | | | |
| December 31, (in millions) | 2016 | | 2015 |
Nonaccrual loans(b) | | | |
| Residential real estate | $ | 4,145 |
| | $ | 4,792 |
|
| Other consumer | 675 |
| | 621 |
|
| Total nonaccrual loans | 4,820 |
| | 5,413 |
|
| Assets acquired in loan satisfactions | | | |
| Real estate owned | 292 |
| | 277 |
|
| Other | 57 |
| | 48 |
|
| Total assets acquired in loan satisfactions | 349 |
| | 325 |
|
| Total nonperforming assets | $ | 5,169 |
| | $ | 5,738 |
|
| |
| (a) | At December 31, 2016 and 2015, nonperforming assets excluded: (1) mortgage loans insured by U.S. government agencies of $5.0 billion and $6.3 billion, respectively, that are 90 or more days past due; (2) student loans insured by U.S. government agencies under the FFELP of $263 million and $290 million, respectively, that are 90 or more days past due; and (3) real estate owned insured by U.S. government agencies of $142 million and $343 million, respectively. These amounts have been excluded based upon the government guarantee. |
| |
| (b) | Excludes PCI loans which are accounted for on a pool basis. Since each pool is accounted for as a single asset with a single composite interest rate and an aggregate expectation of cash flows, the past-due status of the pools, or that of individual loans within the pools, is not meaningful. The Firm is recognizing interest income on each pool of loans as they are all performing. |
Nonaccrual loans in the residential real estate portfolio decreased to $4.1 billion from $4.8 billion at December 31, 2016, and 2015, respectively, of which 29% and 31% were greater than 150 days past due, respectively. In the aggregate, the unpaid principal balance of residential real estate loans greater than 150 days past due was charged down by approximately 43% and 44% to the estimated net realizable value of the collateral at December 31, 2016 and 2015, respectively.
Active and suspended foreclosure: For information on loans that were in the process of active or suspended foreclosure, see Note 14.
Nonaccrual loans: The following table presents changes in the consumer, excluding credit card, nonaccrual loans for the years ended December 31, 2016 and 2015. |
| | | | | | | |
| Nonaccrual loans | | |
| Year ended December 31, | | | |
| (in millions) | | 2016 | 2015 |
| Beginning balance | | $ | 5,413 |
| $ | 6,509 |
|
| Additions | | 3,858 |
| 3,662 |
|
| Reductions: | | | |
Principal payments and other(a) | | 1,437 |
| 1,668 |
|
| Charge-offs | | 843 |
| 800 |
|
| Returned to performing status | | 1,589 |
| 1,725 |
|
| Foreclosures and other liquidations | | 582 |
| 565 |
|
| Total reductions | | 4,451 |
| 4,758 |
|
| Net changes | | (593 | ) | (1,096 | ) |
| Ending balance | | $ | 4,820 |
| $ | 5,413 |
|
| |
| (a) | Other reductions includes loan sales. |
|
| | |
| 94 | | JPMorgan Chase & Co./2016 Annual Report |
Credit card
Total credit card loans increased from December 31, 2015 due to strong new account growth and higher sales volume. The December 31, 2016 30+ day delinquency rate increased to 1.61% from 1.43% at December 31, 2015. For the years ended December 31, 2016 and 2015, the net charge-off rates were 2.63% and 2.51%, respectively. The credit card portfolio continues to reflect a largely well-seasoned, rewards-based portfolio that has good U.S. geographic diversification. New originations continue to grow as a percentage of the total portfolio, in line with the Firm’s credit parameters; these originations have generated higher loss rates, as anticipated, than the more seasoned portion of the portfolio, given the higher mix of near-prime accounts being originated. These near-prime accounts have
net revenue rates and returns on equity that are higher than the portfolio average.
Loans outstanding in the top five states of California, Texas, New York, Florida and Illinois consisted of $62.8 billion in receivables, or 44% of the retained loan portfolio, at December 31, 2016, compared with $57.5 billion, or 44%, at December 31, 2015. The greatest geographic concentration of credit card retained loans is in California, which represented 15% and 14% of total retained loans at December 31, 2016 and 2015, respectively. For further information on the geographic and FICO composition of the Firm’s credit card loans, see Note 14.
Modifications of credit card loans
At December 31, 2016 and 2015, the Firm had $1.2 billion and $1.5 billion, respectively, of credit card loans outstanding that have been modified in TDRs. These balances included both credit card loans with modified payment terms and credit card loans that reverted back to their pre-modification payment terms because the cardholder did not comply with the modified payment terms. The decrease in modified credit card loans outstanding from December 31, 2015, was attributable to a reduction in new modifications as well as ongoing payments and charge-offs on previously modified credit card loans.
Consistent with the Firm’s policy, all credit card loans typically remain on accrual status until charged off. However, the Firm establishes an allowance, which is offset against loans and charged to interest income, for the estimated uncollectible portion of accrued and billed interest and fee income.
For additional information about loan modification programs to borrowers, see Note 14.
|
| | |
| JPMorgan Chase & Co./2016 Annual Report | | 95 |
Management’s discussion and analysis
|
| | | | |
| WHOLESALE CREDIT PORTFOLIO |
The Firm’s wholesale businesses are exposed to credit risk through underwriting, lending, market-making, and hedging activities with and for clients and counterparties, as well as through various operating services such as cash management and clearing activities. A portion of the loans originated or acquired by the Firm’s wholesale businesses is generally retained on the balance sheet. The Firm distributes a significant percentage of the loans it originates into the market as part of its syndicated loan business and to manage portfolio concentrations and credit risk.
The wholesale credit portfolio, excluding the Oil & Gas, Natural Gas Pipelines, and Metals & Mining portfolios, continued to be generally stable for the year ended December 31, 2016, characterized by low levels of criticized exposure, nonaccrual loans and charge-offs. See industry discussion on pages 97–101 for further information. Growth in retained loans was predominantly driven within the commercial real estate portfolio in Commercial Banking, and across multiple commercial and industrial industries in Commercial Banking and the Corporate & Investment Bank. Discipline in underwriting across all areas of lending continues to remain a key point of focus. The wholesale portfolio is actively managed, in part by conducting ongoing, in-depth reviews of client credit quality and transaction structure, inclusive of collateral where applicable; and of industry, product and client concentrations.
|
| | | | | | | | | | | | | |
| Wholesale credit portfolio |
December 31, (in millions) | Credit exposure | | Nonperforming(c) |
| 2016 | 2015 | | 2016 | 2015 |
| Loans retained | $ | 383,790 |
| $ | 357,050 |
| | $ | 1,954 |
| $ | 988 |
|
| Loans held-for-sale | 2,285 |
| 1,104 |
| | 109 |
| 3 |
|
| Loans at fair value | 2,230 |
| 2,861 |
| | — |
| 25 |
|
| Loans – reported | 388,305 |
| 361,015 |
| | 2,063 |
| 1,016 |
|
| Derivative receivables | 64,078 |
| 59,677 |
| | 223 |
| 204 |
|
Receivables from customers and other(a) | 17,440 |
| 13,372 |
| | — |
| — |
|
| Total wholesale credit-related assets | 469,823 |
| 434,064 |
| | 2,286 |
| 1,220 |
|
| Lending-related commitments | 368,014 |
| 366,399 |
| | 506 |
| 193 |
|
| Total wholesale credit exposure | $ | 837,837 |
| $ | 800,463 |
| | $ | 2,792 |
| $ | 1,413 |
|
Credit derivatives used in credit portfolio management activities(b) | $ | (22,114 | ) | $ | (20,681 | ) | | $ | — |
| $ | (9 | ) |
| Liquid securities and other cash collateral held against derivatives | (22,705 | ) | (16,580 | ) | | NA |
| NA |
|
| |
| (a) | Receivables from customers and other include $17.3 billion and $13.3 billion of margin loans at December 31, 2016 and 2015, respectively, to prime brokerage customers; these are classified in accrued interest and accounts receivable on the Consolidated balance sheets. |
| |
| (b) | Represents the net notional amount of protection purchased and sold through credit derivatives used to manage both performing and nonperforming wholesale credit exposures; these derivatives do not qualify for hedge accounting under U.S. GAAP. For additional information, see Credit derivatives on pages 103–104, and Note 6. |
| |
| (c) | Excludes assets acquired in loan satisfactions. |
|
| | |
| 96 | | JPMorgan Chase & Co./2016 Annual Report |
The following tables present the maturity and ratings profiles of the wholesale credit portfolio as of December 31, 2016 and 2015. The ratings scale is based on the Firm’s internal risk ratings, which generally correspond to the ratings defined by S&P and Moody’s. For additional information on wholesale loan portfolio risk ratings, see Note 14.
|
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Wholesale credit exposure – maturity and ratings profile | | | | | | | |
| | Maturity profile(d) | | Ratings profile | | |
| | Due in 1 year or less | Due after 1 year through 5 years | Due after 5 years | Total | | Investment-grade | | Noninvestment-grade | | Total | Total % of IG |
December 31, 2016
(in millions, except ratios) | | AAA/Aaa to BBB-/Baa3 | | BB+/Ba1 & below | |
| Loans retained | $ | 117,238 |
| $ | 167,235 |
| $ | 99,317 |
| $ | 383,790 |
| | $ | 289,923 |
| | $ | 93,867 |
| | $ | 383,790 |
| 76 | % |
| Derivative receivables | | | | 64,078 |
| | | | | | 64,078 |
| |
| Less: Liquid securities and other cash collateral held against derivatives | | | | (22,705 | ) | | | | | | (22,705 | ) | |
| Total derivative receivables, net of all collateral | 14,019 |
| 8,510 |
| 18,844 |
| 41,373 |
| | 33,081 |
| | 8,292 |
| | 41,373 |
| 80 |
|
| Lending-related commitments | 88,399 |
| 271,825 |
| 7,790 |
| 368,014 |
| | 269,820 |
| | 98,194 |
| | 368,014 |
| 73 |
|
| Subtotal | 219,656 |
| 447,570 |
| 125,951 |
| 793,177 |
| | 592,824 |
| | 200,353 |
| | 793,177 |
| 75 |
|
Loans held-for-sale and loans at fair value(a) | | | | 4,515 |
| | | | | | 4,515 |
| |
| Receivables from customers and other | | | | 17,440 |
| | | | | | 17,440 |
| |
| Total exposure – net of liquid securities and other cash collateral held against derivatives | | | | $ | 815,132 |
| | | | | | $ | 815,132 |
| |
Credit derivatives used in credit portfolio management activities(b)(c) | $ | (1,354 | ) | $ | (16,537 | ) | $ | (4,223 | ) | $ | (22,114 | ) | | $ | (18,710 | ) | | $ | (3,404 | ) | | $ | (22,114 | ) | 85 | % |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Maturity profile(d) | | Ratings profile |
| | Due in 1 year or less | Due after 1 year through 5 years | Due after 5 years | Total | | Investment-grade | | Noninvestment-grade | | Total | Total % of IG |
December 31, 2015
(in millions, except ratios) | | AAA/Aaa to BBB-/Baa3 | | BB+/Ba1 & below | |
| Loans retained | $ | 110,348 |
| $ | 155,902 |
| $ | 90,800 |
| $ | 357,050 |
| | $ | 267,736 |
| | $ | 89,314 |
| | $ | 357,050 |
| 75 | % |
| Derivative receivables | | | | 59,677 |
| | | | | | 59,677 |
| |
| Less: Liquid securities and other cash collateral held against derivatives | | | | (16,580 | ) | | | | | | (16,580 | ) | |
| Total derivative receivables, net of all collateral | 11,399 |
| 12,836 |
| 18,862 |
| 43,097 |
| | 34,773 |
| | 8,324 |
| | 43,097 |
| 81 |
|
| Lending-related commitments | 105,514 |
| 251,042 |
| 9,843 |
| 366,399 |
| | 267,922 |
| | 98,477 |
| | 366,399 |
| 73 |
|
| Subtotal | 227,261 |
| 419,780 |
| 119,505 |
| 766,546 |
| | 570,431 |
| | 196,115 |
| | 766,546 |
| 74 |
|
Loans held-for-sale and loans at fair value(a) | | | | 3,965 |
| | | | | | 3,965 |
| |
| Receivables from customers and other | | | | 13,372 |
| | | | | | 13,372 |
| |
| Total exposure – net of liquid securities and other cash collateral held against derivatives | | | | $ | 783,883 |
| | | | | | $ | 783,883 |
| |
Credit derivatives used in credit portfolio management activities (b)(c) | $ | (808 | ) | $ | (14,427 | ) | $ | (5,446 | ) | $ | (20,681 | ) | | $ | (17,754 | ) | | $ | (2,927 | ) | | $ | (20,681 | ) | 86 | % |
| |
| (a) | Represents loans held-for-sale, primarily related to syndicated loans and loans transferred from the retained portfolio, and loans at fair value. |
| |
| (b) | These derivatives do not qualify for hedge accounting under U.S. GAAP. |
| |
| (c) | The notional amounts are presented on a net basis by underlying reference entity and the ratings profile shown is based on the ratings of the reference entity on which protection has been purchased. Predominantly all of the credit derivatives entered into by the Firm where it has purchased protection for credit portfolio management activities are executed with investment-grade counterparties. |
| |
| (d) | The maturity profile of retained loans, lending-related commitments and derivative receivables is based on remaining contractual maturity. Derivative contracts that are in a receivable position at December 31, 2016, may become a payable prior to maturity based on their cash flow profile or changes in market conditions. |
Wholesale credit exposure – industry exposures
The Firm focuses on the management and diversification of its industry exposures, paying particular attention to industries with actual or potential credit concerns. Exposures deemed criticized align with the U.S. banking regulators’ definition of criticized exposures, which consist of the special mention, substandard and doubtful
categories. The total criticized component of the portfolio, excluding loans held-for-sale and loans at fair value, was $19.8 billion at December 31, 2016, compared with $14.6 billion at December 31, 2015, driven by downgrades, including within the Oil & Gas, Natural Gas Pipelines, and Metals & Mining portfolios.
|
| | |
| JPMorgan Chase & Co./2016 Annual Report | | 97 |
Management’s discussion and analysis
Below are summaries of the Firm’s exposures as of December 31, 2016 and 2015. For additional information on industry concentrations, see Note 5.
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
Wholesale credit exposure – industries(a) | | | | | |
| | | Selected metrics |
| | | | | | | 30 days or more past due and accruing
loans | Net charge-offs/ (recoveries) | Credit derivative hedges(f) | Liquid securities and other cash collateral held against derivative
receivables |
| | | | Noninvestment-grade |
| | Credit exposure(e) | Investment- grade | Noncriticized | Criticized performing | Criticized nonperforming |
As of or for the year ended
December 31, 2016
(in millions) |
| Real Estate | $ | 135,041 |
| $ | 104,575 |
| $ | 29,295 |
| $ | 971 |
| $ | 200 |
| $ | 157 |
| $ | (7 | ) | $ | (54 | ) | $ | (27 | ) |
| Consumer & Retail | 85,435 |
| 55,495 |
| 28,146 |
| 1,554 |
| 240 |
| 75 |
| 24 |
| (424 | ) | (69 | ) |
| Technology, Media & Telecommunications | 62,950 |
| 39,756 |
| 21,619 |
| 1,559 |
| 16 |
| 9 |
| 2 |
| (589 | ) | (30 | ) |
| Industrials | 55,449 |
| 36,597 |
| 17,690 |
| 1,026 |
| 136 |
| 128 |
| 3 |
| (434 | ) | (40 | ) |
| Healthcare | 47,866 |
| 37,852 |
| 9,092 |
| 882 |
| 40 |
| 86 |
| 37 |
| (286 | ) | (246 | ) |
| Banks & Finance Cos | 44,614 |
| 35,308 |
| 8,892 |
| 404 |
| 10 |
| 21 |
| (2 | ) | (1,336 | ) | (7,319 | ) |
| Oil & Gas | 40,099 |
| 18,497 |
| 12,138 |
| 8,069 |
| 1,395 |
| 31 |
| 222 |
| (1,532 | ) | (18 | ) |
| Asset Managers | 31,886 |
| 27,378 |
| 4,507 |
| 1 |
| — |
| 14 |
| — |
| — |
| (5,737 | ) |
| Utilities | 29,622 |
| 24,184 |
| 4,960 |
| 392 |
| 86 |
| 8 |
| — |
| (306 | ) | 39 |
|
State & Municipal Govt(b) | 28,263 |
| 27,603 |
| 624 |
| 6 |
| 30 |
| 107 |
| (1 | ) | (130 | ) | 398 |
|
| Central Govt | 20,408 |
| 20,123 |
| 276 |
| 9 |
| — |
| 4 |
| — |
| (11,691 | ) | (4,183 | ) |
| Transportation | 19,029 |
| 12,170 |
| 6,362 |
| 444 |
| 53 |
| 9 |
| 10 |
| (93 | ) | (188 | ) |
| Automotive | 16,635 |
| 9,229 |
| 7,204 |
| 201 |
| 1 |
| 7 |
| — |
| (401 | ) | (14 | ) |
| Chemicals & Plastics | 14,988 |
| 10,365 |
| 4,451 |
| 142 |
| 30 |
| 3 |
| — |
| (35 | ) | (3 | ) |
| Metals & Mining | 13,419 |
| 5,523 |
| 6,744 |
| 1,133 |
| 19 |
| — |
| 36 |
| (621 | ) | (62 | ) |
| Insurance | 13,151 |
| 10,766 |
| 2,252 |
| — |
| 133 |
| 9 |
| — |
| (275 | ) | (2,538 | ) |
| Financial Markets Infrastructure | 8,732 |
| 7,980 |
| 752 |
| — |
| — |
| — |
| — |
| — |
| (390 | ) |
| Securities Firms | 3,867 |
| 1,543 |
| 2,324 |
| — |
| — |
| — |
| — |
| (273 | ) | (491 | ) |
All other(c) | 144,428 |
| 128,456 |
| 15,305 |
| 373 |
| 294 |
| 650 |
| 17 |
| (3,634 | ) | (1,787 | ) |
| Subtotal | $ | 815,882 |
| $ | 613,400 |
| $ | 182,633 |
| $ | 17,166 |
| $ | 2,683 |
| $ | 1,318 |
| $ | 341 |
| $ | (22,114 | ) | $ | (22,705 | ) |
| Loans held-for-sale and loans at fair value | 4,515 |
| | | | | | | | |
| Receivables from customers and other | 17,440 |
| | | | | | | | |
Total(d) | $ | 837,837 |
| | | | | | | | |
|
| | |
| 98 | | JPMorgan Chase & Co./2016 Annual Report |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | Selected metrics |
| | | | | | | 30 days or more past due and accruing
loans | Net charge-offs/ (recoveries) | Credit derivative hedges(f) | Liquid securities and other cash collateral held against derivative
receivables |
| | | | Noninvestment-grade |
| | Credit exposure(e) | Investment- grade | Noncriticized | Criticized performing | Criticized nonperforming |
As of or for the year ended
December 31, 2015
(in millions) |
| Real Estate | $ | 116,857 |
| $ | 88,076 |
| $ | 27,087 |
| $ | 1,463 |
| $ | 231 |
| $ | 208 |
| $ | (14 | ) | $ | (54 | ) | $ | (47 | ) |
| Consumer & Retail | 85,460 |
| 53,647 |
| 29,659 |
| 1,947 |
| 207 |
| 18 |
| 13 |
| (288 | ) | (94 | ) |
| Technology, Media & Telecommunications | 57,382 |
| 29,205 |
| 26,925 |
| 1,208 |
| 44 |
| 5 |
| (1 | ) | (806 | ) | (21 | ) |
| Industrials | 54,386 |
| 36,519 |
| 16,663 |
| 1,164 |
| 40 |
| 59 |
| 8 |
| (386 | ) | (39 | ) |
| Healthcare | 46,053 |
| 37,858 |
| 7,755 |
| 394 |
| 46 |
| 129 |
| (7 | ) | (24 | ) | (245 | ) |
| Banks & Finance Cos | 43,398 |
| 35,071 |
| 7,654 |
| 610 |
| 63 |
| 17 |
| (5 | ) | (974 | ) | (5,509 | ) |
| Oil & Gas | 42,077 |
| 24,379 |
| 13,158 |
| 4,263 |
| 277 |
| 22 |
| 13 |
| (530 | ) | (37 | ) |
| Asset Managers | 23,815 |
| 20,214 |
| 3,570 |
| 31 |
| — |
| 18 |
| — |
| (6 | ) | (4,453 | ) |
| Utilities | 30,853 |
| 24,983 |
| 5,655 |
| 168 |
| 47 |
| 3 |
| — |
| (190 | ) | (289 | ) |
State & Municipal Govt(b) | 29,114 |
| 28,307 |
| 745 |
| 7 |
| 55 |
| 55 |
| (8 | ) | (146 | ) | (81 | ) |
| Central Govt | 17,968 |
| 17,871 |
| 97 |
| — |
| — |
| 7 |
| — |
| (9,359 | ) | (2,393 | ) |
| Transportation | 19,227 |
| 13,258 |
| 5,801 |
| 167 |
| 1 |
| 15 |
| 3 |
| (51 | ) | (243 | ) |
| Automotive | 13,864 |
| 9,182 |
| 4,580 |
| 101 |
| 1 |
| 4 |
| (2 | ) | (487 | ) | (1 | ) |
| Chemicals & Plastics | 15,232 |
| 10,910 |
| 4,017 |
| 274 |
| 31 |
| 9 |
| — |
| (17 | ) | — |
|
| Metals & Mining | 14,049 |
| 6,522 |
| 6,434 |
| 1,008 |
| 85 |
| 1 |
| — |
| (449 | ) | (4 | ) |
| Insurance | 11,889 |
| 9,812 |
| 1,958 |
| 26 |
| 93 |
| 23 |
| — |
| (157 | ) | (1,410 | ) |
| Financial Markets Infrastructure | 7,973 |
| 7,304 |
| 669 |
| — |
| — |
| — |
| — |
| — |
| (167 | ) |
| Securities Firms | 4,412 |
| 1,505 |
| 2,907 |
| — |
| — |
| 3 |
| — |
| (102 | ) | (256 | ) |
All other(c) | 149,117 |
| 130,488 |
| 18,095 |
| 370 |
| 164 |
| 1,015 |
| 10 |
| (6,655 | ) | (1,291 | ) |
| Subtotal | $ | 783,126 |
| $ | 585,111 |
| $ | 183,429 |
| $ | 13,201 |
| $ | 1,385 |
| $ | 1,611 |
| $ | 10 |
| $ | (20,681 | ) | $ | (16,580 | ) |
| Loans held-for-sale and loans at fair value | 3,965 |
| | | | | | | | |
| Receivables from customers and other | 13,372 |
| | | | | | | | |
Total(d) | $ | 800,463 |
| | | | | | | | |
| |
| (a) | The industry rankings presented in the table as of December 31, 2015, are based on the industry rankings of the corresponding exposures at December 31, 2016, not actual rankings of such exposures at December 31, 2015. |
| |
| (b) | In addition to the credit risk exposure to states and municipal governments (both U.S. and non-U.S.) at December 31, 2016 and 2015, noted above, the Firm held: $9.1 billion and $7.6 billion, respectively, of trading securities; $31.6 billion and $33.6 billion, respectively, of AFS securities; and $14.5 billion and $12.8 billion, respectively, of HTM securities, issued by U.S. state and municipal governments. For further information, see Note 3 and Note 12. |
| |
| (c) | All other includes: individuals; SPEs; holding companies; and private education and civic organizations, representing approximately 56%, 36%, 4% and 4%, respectively, at December 31, 2016, and 54%, 37%, 5% and 4%, respectively, at December 31, 2015. |
| |
| (d) | Excludes cash placed with banks of $380.2 billion and$351.0 billion, at December 31, 2016 and 2015, respectively, which is predominantly placed with various central banks, primarily Federal Reserve Banks. |
| |
| (e) | Credit exposure is net of risk participations and excludes the benefit of credit derivatives used in credit portfolio management activities held against derivative receivables or loans and liquid securities and other cash collateral held against derivative receivables. |
| |
| (f) | Represents the net notional amounts of protection purchased and sold through credit derivatives used to manage the credit exposures; these derivatives do not qualify for hedge accounting under U.S. GAAP. The All other category includes purchased credit protection on certain credit indices. |
|
| | |
| JPMorgan Chase & Co./2016 Annual Report | | 99 |
Management’s discussion and analysis
Presented below is a discussion of certain industries to which the Firm has significant exposures and/or which present actual or potential credit concerns.
Real Estate
Exposure to the Real Estate industry was approximately 16.1% and 14.6% of the Firm’s total wholesale exposure as of December 31, 2016 and 2015, respectively. Exposure to this industry increased by $18.2 billion, or 16%, in 2016 to $135.0 billion primarily driven by Commercial Banking. The investment-grade percentage of the portfolio increased to 77% in 2016, up from 75% in 2015. As of December 31,
2016, $106.3 billion of the exposure was drawn, of which 83% was investment-grade, and 83% of the $135.0 billion exposure was secured. As of December 31, 2016, $80.1 billion of the $135.0 billion was multifamily, largely in California; of the $80.1 billion, 82% was investment-grade and 98% was secured. For further information on commercial real estate loans, see Note 14.
Oil & Gas and Natural Gas Pipelines
The following table presents Oil & Gas and Natural Gas Pipeline exposures as of December 31, 2016, and December 31, 2015.
|
| | | | | | | | | | | | | | | | | | |
| | December 31, 2016 | |
| (in millions, except ratios) | Loans and Lending-related Commitments | | Derivative Receivables | | Credit exposure | | % Investment-grade | % Drawn |
Exploration & Production (“E&P”) and Oilfield Services(a) | $ | 20,829 |
| | $ | 1,256 |
| | $ | 22,085 |
| | 26 | % | | 34 | % | |
Other Oil & Gas(b) | 17,392 |
| | 622 |
| | 18,014 |
| | 71 |
| | 30 |
| |
| Total Oil & Gas | 38,221 |
| | 1,878 |
| | 40,099 |
| | 46 |
| | 33 |
| |
Natural Gas Pipelines(c) | 4,253 |
| | 106 |
| | 4,359 |
| | 66 |
| | 30 |
| |
| Total Oil & Gas and Natural Gas Pipelines | $ | 42,474 |
| | $ | 1,984 |
| | $ | 44,458 |
| | 48 |
| | 32 |
| |
| | | | | | | | | | | |
| | December 31, 2015 | |
| (in millions, except ratios) | Loans and Lending-related Commitments | | Derivative Receivables | | Credit exposure | | % Investment-grade | % Drawn |
E&P and Oilfield Services(a) | $ | 23,055 |
| | $ | 400 |
| | $ | 23,455 |
| | 44 | % | | 36 | % | |
Other Oil & Gas(b) | 17,120 |
| | 1,502 |
| | 18,622 |
| | 76 |
| | 27 |
| |
| Total Oil & Gas | 40,175 |
| | 1,902 |
| | 42,077 |
| | 58 |
| | 32 |
| |
Natural Gas Pipelines(c) | 4,093 |
| | 158 |
| | 4,251 |
| | 64 |
| | 21 |
| |
| Total Oil & Gas and Natural Gas Pipelines | $ | 44,268 |
| | $ | 2,060 |
| | $ | 46,328 |
| | 59 |
| | 31 |
| |
(a) Noninvestment-grade exposure to E&P and Oilfield Services is largely secured.
(b) Other Oil & Gas includes Integrated Oil & Gas companies, Midstream/Oil Pipeline companies and refineries.
(c) Natural Gas Pipelines is reported within the Utilities Industry.
Exposure to the Oil & Gas and Natural Gas Pipelines portfolios was approximately 5.3% and 5.8% of the Firm’s total wholesale exposure as of December 31, 2016 and 2015, respectively. Exposure to these industries decreased by $1.9 billion in 2016 to $44.5 billion; of the $44.5 billion, $14.4 billion was drawn at year-end. As of December 31, 2016, approximately $21.4 billion of the exposure was investment-grade, of which approximately $5.3 billion was drawn, and approximately $23.1 billion of the exposure was noninvestment grade, of which approximately $9.0 billion was drawn; 21% of the total exposure to the Oil & Gas and Natural Gas Pipelines industries was criticized. Secured lending, of which approximately half is reserve-based lending to the Exploration & Production sub-sector of the Oil & Gas industry, was $14.3 billion as of December 31, 2016; 44% of the secured lending exposure was drawn. Exposure to commercial real estate, which is reported within the Real Estate industry, in certain areas of Texas, California and Colorado that are deemed sensitive to the Oil & Gas industry, was $4.5 billion as of December 31, 2016. While the overall trends and sentiment have been stabilizing, the Firm continues to actively monitor and manage its exposure to these portfolios.
|
| | |
| 100 | | JPMorgan Chase & Co./2016 Annual Report |
Metals & Mining
Exposure to the Metals & Mining industry was approximately 1.6% and 1.8% of the Firm’s total wholesale exposure as of December 31, 2016 and 2015, respectively. Exposure to the Metals & Mining industry decreased by $630 million in 2016 to $13.4 billion, of which $4.4 billion was drawn. The portfolio largely consisted of exposure in North America, and was concentrated in the Steel and Diversified Mining sub-sectors. Approximately 41% and 46% of the exposure in the Metals & Mining portfolio was investment-grade as of December 31, 2016 and December 31, 2015, respectively. While the overall trends and sentiment have been stabilizing, the Firm continues to actively monitor and manage its exposure to this industry.
Loans
In the normal course of its wholesale business, the Firm provides loans to a variety of customers, ranging from large corporate and institutional clients to high-net-worth individuals. For further discussion on loans, including information on credit quality indicators and sales of loans, see Note 14.
The following table presents the change in the nonaccrual loan portfolio for the years ended December 31, 2016 and 2015. Wholesale nonaccrual loans increased primarily driven by downgrades in the Oil & Gas portfolio.
|
| | | | | | | |
Wholesale nonaccrual loan activity(a) | | |
| Year ended December 31, (in millions) | | 2016 | 2015 |
| Beginning balance | | $ | 1,016 |
| $ | 624 |
|
| Additions | | 2,981 |
| 1,307 |
|
| Reductions: | | | |
| Paydowns and other | | 1,148 |
| 534 |
|
| Gross charge-offs | | 385 |
| 87 |
|
| Returned to performing status | | 242 |
| 286 |
|
| Sales | | 159 |
| 8 |
|
| Total reductions | | 1,934 |
| 915 |
|
| Net changes | | 1,047 |
| 392 |
|
| Ending balance | | $ | 2,063 |
| $ | 1,016 |
|
(a) Loans are placed on nonaccrual status when management believes full payment of principal or interest is not expected, regardless of delinquency status, or when principal or interest have been in default for a period of 90 days or more unless the loan is both well-secured and in the process of collection.
The following table presents net charge-offs/recoveries, which are defined as gross charge-offs less recoveries, for the years ended December 31, 2016 and 2015. The amounts in the table below do not include gains or losses from sales of nonaccrual loans.
|
| | | | | | |
| Wholesale net charge-offs/(recoveries) |
Year ended December 31, (in millions, except ratios) | 2016 | 2015 |
| Loans – reported | | |
| Average loans retained | $ | 371,778 |
| $ | 337,407 |
|
| Gross charge-offs | 398 |
| 95 |
|
| Gross recoveries | (57 | ) | (85 | ) |
| Net charge-offs | 341 |
| 10 |
|
| Net charge-off rate | 0.09 | % | — | % |
Lending-related commitments
The Firm uses lending-related financial instruments, such as commitments (including revolving credit facilities) and guarantees, to meet the financing needs of its customers. The contractual amounts of these financial instruments represent the maximum possible credit risk should the counterparties draw down on these commitments or the Firm fulfill its obligations under these guarantees, and the counterparties subsequently fail to perform according to the terms of these contracts.
In the Firm’s view, the total contractual amount of these wholesale lending-related commitments is not representative of the Firm’s future credit exposure or funding requirements. In determining the amount of credit risk exposure the Firm has to wholesale lending-related commitments, the Firm has estimated a loan-equivalent amount for each commitment. The loan-equivalent amount of the Firm’s lending-related commitments was $204.6 billion and $212.4 billion as of December 31, 2016 and 2015, respectively.
Clearing services
The Firm provides clearing services for clients entering into securities and derivative transactions. Through the provision of these services the Firm is exposed to the risk of non-performance by its clients and may be required to share in losses incurred by central counterparties. Where possible, the Firm seeks to mitigate its credit risk to its clients through the collection of adequate margin at inception and throughout the life of the transactions and can also cease provision of clearing services if clients do not adhere to their obligations under the clearing agreement. For further discussion of clearing services, see Note 29.
|
| | |
| JPMorgan Chase & Co./2016 Annual Report | | 101 |
Management’s discussion and analysis
Derivative contracts
In the normal course of business, the Firm uses derivative instruments predominantly for market-making activities. Derivatives enable customers to manage exposures to fluctuations in interest rates, currencies and other markets. The Firm also uses derivative instruments to manage its own credit and other market risk exposure. The nature of the counterparty and the settlement mechanism of the derivative affect the credit risk to which the Firm is exposed. For OTC derivatives the Firm is exposed to the credit risk of the derivative counterparty. For exchange-traded derivatives (“ETD”), such as futures and options and “cleared” over-the-counter (“OTC-cleared”) derivatives, the Firm is generally exposed to the credit risk of the relevant CCP. Where possible, the Firm seeks to mitigate its credit risk exposures arising from derivative transactions through the use of legally enforceable master netting arrangements and collateral agreements. For further discussion of derivative contracts, counterparties and settlement types, see Note 6.
The following table summarizes the net derivative receivables for the periods presented.
|
| | | | | | |
| Derivative receivables | | |
| December 31, (in millions) | 2016 |
| 2015 |
|
| Interest rate | $ | 28,302 |
| $ | 26,363 |
|
| Credit derivatives | 1,294 |
| 1,423 |
|
| Foreign exchange | 23,271 |
| 17,177 |
|
| Equity | 4,939 |
| 5,529 |
|
| Commodity | 6,272 |
| 9,185 |
|
| Total, net of cash collateral | 64,078 |
| 59,677 |
|
Liquid securities and other cash collateral held against derivative receivables(a) | (22,705 | ) | (16,580 | ) |
| Total, net of all collateral | $ | 41,373 |
| $ | 43,097 |
|
| |
| (a) | Includes collateral related to derivative instruments where an appropriate legal opinion has not been either sought or obtained. |
Derivative receivables reported on the Consolidated balance sheets were $64.1 billion and $59.7 billion at December 31, 2016 and 2015, respectively. These amounts represent the fair value of the derivative contracts after giving effect to legally enforceable master netting agreements and cash collateral held by the Firm. However, in management’s view, the appropriate measure of current credit risk should also take into consideration additional liquid securities (primarily U.S. government and agency securities and other group of seven nations (“G7”) government bonds) and other cash collateral held by the Firm aggregating $22.7 billion and $16.6 billion at December 31, 2016 and 2015, respectively, that may be used as security when the fair value of the client’s exposure is in the Firm’s favor. The change in derivative receivables was predominantly related to client-driven market-making activities in CIB. The increase in derivative receivables reflected the impact of market movements, which increased foreign exchange receivables, partially offset by reduced commodity derivative receivables.
In addition to the collateral described in the preceding paragraph, the Firm also holds additional collateral (primarily cash, G7 government securities, other liquid government-agency and guaranteed securities, and corporate debt and equity securities) delivered by clients at the initiation of transactions, as well as collateral related to contracts that have a non-daily call frequency and collateral that the Firm has agreed to return but has not yet settled as of the reporting date. Although this collateral does not reduce the balances and is not included in the table above, it is available as security against potential exposure that could arise should the fair value of the client’s derivative transactions move in the Firm’s favor. The derivative receivables fair value, net of all collateral, also does not include other credit enhancements, such as letters of credit. For additional information on the Firm’s use of collateral agreements, see Note 6.
While useful as a current view of credit exposure, the net fair value of the derivative receivables does not capture the potential future variability of that credit exposure. To capture the potential future variability of credit exposure, the Firm calculates, on a client-by-client basis, three measures of potential derivatives-related credit loss: Peak, Derivative Risk Equivalent (“DRE”), and Average exposure (“AVG”). These measures all incorporate netting and collateral benefits, where applicable.
Peak represents a conservative measure of potential exposure to a counterparty calculated in a manner that is broadly equivalent to a 97.5% confidence level over the life of the transaction. Peak is the primary measure used by the Firm for setting of credit limits for derivative transactions, senior management reporting and derivatives exposure management. DRE exposure is a measure that expresses the risk of derivative exposure on a basis intended to be equivalent to the risk of loan exposures. DRE is a less extreme measure of potential credit loss than Peak and is used for aggregating derivative credit risk exposures with loans and other credit risk.
Finally, AVG is a measure of the expected fair value of the Firm’s derivative receivables at future time periods, including the benefit of collateral. AVG exposure over the total life of the derivative contract is used as the primary metric for pricing purposes and is used to calculate credit capital and the CVA, as further described below. The three year AVG exposure was $31.1 billion and $32.4 billion at December 31, 2016 and 2015, respectively, compared with derivative receivables, net of all collateral, of $41.4 billion and $43.1 billion at December 31, 2016 and 2015, respectively.
The fair value of the Firm’s derivative receivables incorporates an adjustment, the CVA, to reflect the credit quality of counterparties. The CVA is based on the Firm’s AVG to a counterparty and the counterparty’s credit spread in the credit derivatives market. The primary components of changes in CVA are credit spreads, new deal activity or unwinds, and changes in the underlying market environment. The Firm believes that active risk management is essential to controlling the dynamic credit
|
| | |
| 102 | | JPMorgan Chase & Co./2016 Annual Report |
risk in the derivatives portfolio. In addition, the Firm’s risk management process takes into consideration the potential impact of wrong-way risk, which is broadly defined as the potential for increased correlation between the Firm’s exposure to a counterparty (AVG) and the counterparty’s credit quality. Many factors may influence the nature and magnitude of these correlations over time. To the extent that these correlations are identified, the Firm may adjust the CVA associated with that counterparty’s AVG. The Firm risk manages exposure to changes in CVA by entering into credit derivative transactions, as well as interest rate, foreign exchange, equity and commodity derivative transactions.
The accompanying graph shows exposure profiles to the Firm’s current derivatives portfolio over the next 10 years as calculated by the Peak, DRE and AVG metrics. The three measures generally show that exposure will decline after the first year, if no new trades are added to the portfolio.
Exposure profile of derivatives measures
December 31, 2016
(in billions)
The following table summarizes the ratings profile by derivative counterparty of the Firm’s derivative receivables, including credit derivatives, net of all collateral, at the dates indicated. The ratings scale is based on the Firm’s internal ratings, which generally correspond to the ratings as defined by S&P and Moody’s.
|
| | | | | | | | | | | |
| Ratings profile of derivative receivables | | | | | |
| Rating equivalent | 2016 | | 2015(a) |
December 31, (in millions, except ratios) | Exposure net of all collateral | % of exposure net of all collateral | | Exposure net of all collateral | % of exposure net of all collateral |
| AAA/Aaa to AA-/Aa3 | $ | 11,449 |
| 28 | % | | $ | 10,371 |
| 24 | % |
| A+/A1 to A-/A3 | 8,505 |
| 20 |
| | 10,595 |
| 25 |
|
| BBB+/Baa1 to BBB-/Baa3 | 13,127 |
| 32 |
| | 13,807 |
| 32 |
|
| BB+/Ba1 to B-/B3 | 7,308 |
| 18 |
| | 7,500 |
| 17 |
|
| CCC+/Caa1 and below | 984 |
| 2 |
| | 824 |
| 2 |
|
| Total | $ | 41,373 |
| 100 | % | | $ | 43,097 |
| 100 | % |
| |
| (a) | Prior period amounts have been revised to conform with the current period presentation. |
As previously noted, the Firm uses collateral agreements to mitigate counterparty credit risk. The percentage of the Firm’s derivatives transactions subject to collateral agreements — excluding foreign exchange spot trades, which are not typically covered by collateral agreements due to their short maturity — was 90% as of December 31, 2016, largely unchanged compared with 87% as of December 31, 2015.
Credit derivatives
The Firm uses credit derivatives for two primary purposes: first, in its capacity as a market-maker, and second, as an end-user to manage the Firm’s own credit risk associated with various exposures. For a detailed description of credit derivatives, see Credit derivatives in Note 6.
Credit portfolio management activities
Included in the Firm’s end-user activities are credit derivatives used to mitigate the credit risk associated with traditional lending activities (loans and unfunded commitments) and derivatives counterparty exposure in the Firm’s wholesale businesses (collectively, “credit portfolio management” activities). Information on credit portfolio management activities is provided in the table below. For further information on derivatives used in credit portfolio management activities, see Credit derivatives in Note 6.
The Firm also uses credit derivatives as an end-user to manage other exposures, including credit risk arising from certain securities held in the Firm’s market-making businesses. These credit derivatives are not included in credit portfolio management activities; for further information on these credit derivatives as well as credit derivatives used in the Firm’s capacity as a market-maker in credit derivatives, see Credit derivatives in Note 6.
|
| | |
| JPMorgan Chase & Co./2016 Annual Report | | 103 |
Management’s discussion and analysis
|
| | | | | | | |
| Credit derivatives used in credit portfolio management activities |
| | Notional amount of protection purchased (a) |
| December 31, (in millions) | 2016 | 2015 |
| Credit derivatives used to manage: | | | |
| Loans and lending-related commitments | $ | 2,430 |
| | $ | 2,289 |
|
| Derivative receivables | 19,684 |
| | 18,392 |
|
| Credit derivatives used in credit portfolio management activities | $ | 22,114 |
| | $ | 20,681 |
|
| |
| (a) | Amounts are presented net, considering the Firm’s net protection purchased or sold with respect to each underlying reference entity or index. |
The credit derivatives used in credit portfolio management activities do not qualify for hedge accounting under U.S. GAAP; these derivatives are reported at fair value, with gains and losses recognized in principal transactions revenue. In contrast, the loans and lending-related commitments being risk-managed are accounted for on an accrual basis. This asymmetry in accounting treatment,
between loans and lending-related commitments and the credit derivatives used in credit portfolio management activities, causes earnings volatility that is not representative, in the Firm’s view, of the true changes in value of the Firm’s overall credit exposure.
The effectiveness of credit default swaps (“CDS”) as a hedge against the Firm’s exposures may vary depending on a number of factors, including the named reference entity (i.e., the Firm may experience losses on specific exposures that are different than the named reference entities in the purchased CDS); the contractual terms of the CDS (which may have a defined credit event that does not align with an actual loss realized by the Firm); and the maturity of the Firm’s CDS protection (which in some cases may be shorter than the Firm’s exposures). However, the Firm generally seeks to purchase credit protection with a maturity date that is the same or similar to the maturity date of the exposure for which the protection was purchased, and remaining differences in maturity are actively monitored and managed by the Firm.
|
| | |
| 104 | | JPMorgan Chase & Co./2016 Annual Report |
|
| | | | |
| ALLOWANCE FOR CREDIT LOSSES |
JPMorgan Chase’s allowance for loan losses covers both the consumer (primarily scored) portfolio and wholesale (risk-rated) portfolio. The allowance represents management’s estimate of probable credit losses inherent in the Firm’s loan portfolio. Management also determines an allowance for wholesale and certain consumer lending-related commitments.
For a further discussion of the components of the allowance for credit losses and related management judgments, see Critical Accounting Estimates Used by the Firm on pages 132–134 and Note 15.
At least quarterly, the allowance for credit losses is reviewed by the CRO, the CFO and the Controller of the Firm, and discussed with the DRPC and the Audit Committee. As of December 31, 2016, JPMorgan Chase deemed the allowance for credit losses to be appropriate and sufficient to absorb probable credit losses inherent in the portfolio.
The consumer allowance for loan losses remained relatively unchanged from December 31, 2015. Changes to the allowance for loan losses included reductions in the residential real estate portfolio, reflecting continued improvements in home prices and lower delinquencies, as well as runoff in the student loan portfolio. These reductions were offset by increases in the allowance for loan losses reflecting loan growth in the credit card portfolio (including newer vintages which, as anticipated, have higher loss rates compared to the overall portfolio), as well as loan growth in the auto and business banking loan portfolios. For additional information about delinquencies and nonaccrual loans in the consumer, excluding credit card, loan portfolio, see Consumer Credit Portfolio on pages 89–95 and Note 14.
The wholesale allowance for credit losses increased from December 31, 2015, reflecting the impact of downgrades in the Oil & Gas and Natural Gas Pipelines portfolios. For additional information on the wholesale portfolio, see Wholesale Credit Portfolio on pages 96–104 and Note 14.
|
| | |
| JPMorgan Chase & Co./2016 Annual Report | | 105 |
Management’s discussion and analysis
|
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Summary of changes in the allowance for credit losses | | | | | |
| | 2016 | | 2015 |
| Year ended December 31, | Consumer, excluding credit card | Credit card | Wholesale | Total | | Consumer, excluding credit card | Credit card | Wholesale | Total |
| (in millions, except ratios) |
| Allowance for loan losses | | | | | | | | | |
| Beginning balance at January 1, | $ | 5,806 |
| $ | 3,434 |
| $ | 4,315 |
| $ | 13,555 |
| | $ | 7,050 |
| $ | 3,439 |
| $ | 3,696 |
| $ | 14,185 |
|
| Gross charge-offs | 1,500 |
| 3,799 |
| 398 |
| 5,697 |
| | 1,658 |
| 3,488 |
| 95 |
| 5,241 |
|
| Gross recoveries | (591 | ) | (357 | ) | (57 | ) | (1,005 | ) | | (704 | ) | (366 | ) | (85 | ) | (1,155 | ) |
| Net charge-offs | 909 |
| 3,442 |
| 341 |
| 4,692 |
| | 954 |
| 3,122 |
| 10 |
| 4,086 |
|
Write-offs of PCI loans(a) | 156 |
| — |
| — |
| 156 |
| | 208 |
| — |
| — |
| 208 |
|
| Provision for loan losses | 467 |
| 4,042 |
| 571 |
| 5,080 |
| | (82 | ) | 3,122 |
| 623 |
| 3,663 |
|
| Other | (10 | ) | — |
| (1 | ) | (11 | ) | | — |
| (5 | ) | 6 |
| 1 |
|
| Ending balance at December 31, | $ | 5,198 |
| $ | 4,034 |
| $ | 4,544 |
| $ | 13,776 |
| | $ | 5,806 |
| $ | 3,434 |
| $ | 4,315 |
| $ | 13,555 |
|
| Impairment methodology | | | | | | | | | |
Asset-specific(b) | $ | 308 |
| $ | 358 |
| $ | 342 |
| $ | 1,008 |
| | $ | 364 |
| $ | 460 |
| $ | 274 |
| $ | 1,098 |
|
| Formula-based | 2,579 |
| 3,676 |
| 4,202 |
| 10,457 |
| | 2,700 |
| 2,974 |
| 4,041 |
| 9,715 |
|
| PCI | 2,311 |
| — |
| — |
| 2,311 |
| | 2,742 |
| — |
| — |
| 2,742 |
|
| Total allowance for loan losses | $ | 5,198 |
| $ | 4,034 |
| $ | 4,544 |
| $ | 13,776 |
| | $ | 5,806 |
| $ | 3,434 |
| $ | 4,315 |
| $ | 13,555 |
|
| Allowance for lending-related commitments | | | | | | | | | |
| Beginning balance at January 1, | $ | 14 |
| $ | — |
| $ | 772 |
| $ | 786 |
| | $ | 13 |
| $ | — |
| $ | 609 |
| $ | 622 |
|
| Provision for lending-related commitments | — |
| — |
| 281 |
| 281 |
| | 1 |
| — |
| 163 |
| 164 |
|
| Other | 12 |
| — |
| (1 | ) | 11 |
| | — |
| — |
| — |
| — |
|
| Ending balance at December 31, | $ | 26 |
| $ | — |
| $ | 1,052 |
| $ | 1,078 |
| | $ | 14 |
| $ | — |
| $ | 772 |
| $ | 786 |
|
| Impairment methodology | | | | | | | | | |
| Asset-specific | $ | — |
| $ | — |
| $ | 169 |
| $ | 169 |
| | $ | — |
| $ | — |
| $ | 73 |
| $ | 73 |
|
| Formula-based | 26 |
| — |
| 883 |
| 909 |
| | 14 |
| — |
| 699 |
| 713 |
|
Total allowance for lending-related commitments(c) | $ | 26 |
| $ | — |
| $ | 1,052 |
| $ | 1,078 |
| | $ | 14 |
| $ | — |
| $ | 772 |
| $ | 786 |
|
| Total allowance for credit losses | $ | 5,224 |
| $ | 4,034 |
| $ | 5,596 |
| $ | 14,854 |
| | $ | 5,820 |
| $ | 3,434 |
| $ | 5,087 |
| $ | 14,341 |
|
| Memo: | | | | | | | | | |
| Retained loans, end of period | $ | 364,406 |
| $ | 141,711 |
| $ | 383,790 |
| $ | 889,907 |
| | $ | 344,355 |
| $ | 131,387 |
| $ | 357,050 |
| $ | 832,792 |
|
| Retained loans, average | 358,486 |
| 131,081 |
| 371,778 |
| 861,345 |
| | 318,612 |
| 124,274 |
| 337,407 |
| 780,293 |
|
| PCI loans, end of period | 35,679 |
| — |
| 3 |
| 35,682 |
| | 40,998 |
| — |
| 4 |
| 41,002 |
|
| Credit ratios | | | | | | | | | |
| Allowance for loan losses to retained loans | 1.43 | % | 2.85 | % | 1.18 | % | 1.55 | % | | 1.69 | % | 2.61 | % | 1.21 | % | 1.63 | % |
Allowance for loan losses to retained nonaccrual loans(d) | 109 |
| NM | 233 |
| 205 |
| | 109 |
| NM | 437 |
| 215 |
|
| Allowance for loan losses to retained nonaccrual loans excluding credit card | 109 |
| NM | 233 |
| 145 |
| | 109 |
| NM | 437 |
| 161 |
|
| Net charge-off rates | 0.25 |
| 2.63 |
| 0.09 |
| 0.54 |
| | 0.30 |
| 2.51 |
| — |
| 0.52 |
|
| Credit ratios, excluding residential real estate PCI loans | | | | | | | | | |
Allowance for loan losses to
retained loans | 0.88 |
| 2.85 |
| 1.18 |
| 1.34 |
| | 1.01 |
| 2.61 |
| 1.21 |
| 1.37 |
|
Allowance for loan losses to retained nonaccrual loans(d) | 61 |
| NM | 233 |
| 171 |
| | 58 |
| NM | 437 |
| 172 |
|
Allowance for loan losses to retained nonaccrual loans excluding credit card | 61 |
| NM | 233 |
| 111 |
| | 58 |
| NM | 437 |
| 117 |
|
| Net charge-off rates | 0.28 | % | 2.63 | % | 0.09 | % | 0.57 | % | | 0.35 | % | 2.51 | % | — | % | 0.55 | % |
| |
| Note: | In the table above, the financial measures which exclude the impact of PCI loans are non-GAAP financial measures. |
| |
| (a) | Write-offs of PCI loans are recorded against the allowance for loan losses when actual losses for a pool exceed estimated losses that were recorded as purchase accounting adjustments at the time of acquisition. A write-off of a PCI loan is recognized when the underlying loan is removed from a pool (e.g., upon liquidation). |
| |
| (b) | Includes risk-rated loans that have been placed on nonaccrual status and loans that have been modified in a TDR. The asset-specific credit card allowance for loan losses modified in a TDR is calculated based on the loans’ original contractual interest rates and does not consider any incremental penalty rates. |
| |
| (c) | The allowance for lending-related commitments is reported in accounts payable and other liabilities on the Consolidated balance sheets. |
| |
| (d) | The Firm’s policy is generally to exempt credit card loans from being placed on nonaccrual status as permitted by regulatory guidance. |
|
| | |
| 106 | | JPMorgan Chase & Co./2016 Annual Report |
Provision for credit losses
For the year ended December 31, 2016, the provision for credit losses was $5.4 billion, compared with $3.8 billion for the year ended December 31, 2015.
The total consumer provision for credit losses increased for the year ended December 31, 2016 when compared with the prior year. The increase in the provision was driven by:
a $920 million increase related to the credit card portfolio, due to a $600 million addition in the allowance for loan losses, as well as $320 million of higher net charge-offs, driven by loan growth, including growth in newer vintages which, as anticipated, have higher loss rates compared to the overall portfolio,
a $450 million lower benefit related to the residential real estate portfolio, as the current year reduction in the
allowance for loan losses was lower than the prior year. The reduction in both periods reflected continued improvements in home prices and lower delinquencies and
a $150 million increase related to the auto and business banking portfolio, due to additions to the allowance for loan losses and higher net charge-offs, reflecting loan growth in the portfolios.
The wholesale provision for credit losses increased for the year ended December 31, 2016 reflecting the impact of downgrades in the Oil & Gas and Natural Gas Pipelines portfolios.
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Year ended December 31, (in millions) | Provision for loan losses | | Provision for lending-related commitments | | Total provision for credit losses |
| 2016 |
| 2015 |
| 2014 | | 2016 |
| 2015 |
| 2014 |
| | 2016 |
| 2015 |
| 2014 |
|
| Consumer, excluding credit card | $ | 467 |
| $ | (82 | ) | $ | 414 |
| | $ | — |
| $ | 1 |
| $ | 5 |
| | $ | 467 |
| $ | (81 | ) | $ | 419 |
|
| Credit card | 4,042 |
| 3,122 |
| 3,079 |
| | — |
| — |
| — |
| | 4,042 |
| 3,122 |
| 3,079 |
|
| Total consumer | 4,509 |
| 3,040 |
| 3,493 |
| | — |
| 1 |
| 5 |
| | 4,509 |
| 3,041 |
| 3,498 |
|
| Wholesale | 571 |
| 623 |
| (269 | ) | | 281 |
| 163 |
| (90 | ) | | 852 |
| 786 |
| (359 | ) |
| Total | $ | 5,080 |
| $ | 3,663 |
| $ | 3,224 |
| | $ | 281 |
| $ | 164 |
| $ | (85 | ) | | $ | 5,361 |
| $ | 3,827 |
| $ | 3,139 |
|
|
| | |
| JPMorgan Chase & Co./2016 Annual Report | | 107 |
Management’s discussion and analysis
Country risk is the risk that a sovereign event or action alters the value or terms of contractual obligations of obligors, counterparties and issuers or adversely affects markets related to a particular country. The Firm has a comprehensive country risk management framework for assessing country risks, determining risk tolerance, and measuring and monitoring direct country exposures in the Firm. The Country Risk Management group is responsible for developing guidelines and policies for managing country risk in both emerging and developed countries. The Country Risk Management group actively monitors the various portfolios giving rise to country risk to ensure the Firm’s country risk exposures are diversified and that exposure levels are appropriate given the Firm’s strategy and risk tolerance relative to a country.
Country risk organization
The Country Risk Management group, part of the independent risk management function, works in close partnership with other risk functions to assess and monitor country risk within the Firm. The Firmwide Risk Executive for Country Risk reports to the Firm’s CRO.
Country Risk Management is responsible for the following functions:
Developing guidelines and policies consistent with a comprehensive country risk framework
Assigning sovereign ratings and assessing country risks
Measuring and monitoring country risk exposure and stress across the Firm
Managing country limits and reporting trends and limit breaches to senior management
Developing surveillance tools for early identification of potential country risk concerns
Providing country risk scenario analysis
Country risk identification and measurement
The Firm is exposed to country risk through its lending and deposits, investing, and market-making activities, whether cross-border or locally funded. Country exposure includes activity with both government and private-sector entities in a country. Under the Firm’s internal country risk management approach, country exposure is reported based on the country where the majority of the assets of the obligor, counterparty, issuer or guarantor are located or where the majority of its revenue is derived, which may be different than the domicile (legal residence) or country of incorporation of the obligor, counterparty, issuer or guarantor. Country exposures are generally measured by considering the Firm’s risk to an immediate default of the counterparty or obligor, with zero recovery. Assumptions are sometimes required in determining the measurement and allocation of country exposure, particularly in the case of certain tranched credit derivatives. Different measurement approaches or assumptions would affect the amount of reported country exposure.
Under the Firm’s internal country risk measurement framework:
Lending exposures are measured at the total committed amount (funded and unfunded), net of the allowance for credit losses and cash and marketable securities collateral received
Deposits are measured as the cash balances placed with central and commercial banks
Securities financing exposures are measured at their receivable balance, net of collateral received
Debt and equity securities are measured at the fair value of all positions, including both long and short positions
Counterparty exposure on derivative receivables is measured at the derivative’s fair value, net of the fair value of the related collateral. Counterparty exposure on derivatives can change significantly because of market movements
Credit derivatives protection purchased and sold is reported based on the underlying reference entity and is measured at the notional amount of protection purchased or sold, net of the fair value of the recognized derivative receivable or payable. Credit derivatives protection purchased and sold in the Firm’s market-making activities is measured on a net basis, as such activities often result in selling and purchasing protection related to the same underlying reference entity; this reflects the manner in which the Firm manages these exposures
Some activities may create contingent or indirect exposure related to a country (for example, providing clearing services or secondary exposure to collateral on securities financing receivables). These exposures are managed in the normal course of business through the Firm’s credit, market, and operational risk governance, rather than through Country Risk Management.
The Firm’s internal country risk reporting differs from the reporting provided under the FFIEC bank regulatory requirements. For further information on the FFIEC’s reporting methodology, see Cross-border outstandings on page 292.
|
| | |
| 108 | | JPMorgan Chase & Co./2016 Annual Report |
Country risk stress testing
The country risk stress framework aims to estimate losses arising from a country crisis by capturing the impact of large asset price movements in a country based on market shocks combined with counterparty specific assumptions. Country Risk Management periodically defines and runs ad hoc stress scenarios for individual countries in response to specific market events and sector performance concerns.
Country risk monitoring and control
The Country Risk Management group establishes guidelines for sovereign ratings reviews and limit management. Country stress and nominal exposures are measured under a comprehensive country limit framework. Country ratings and limits are actively monitored and reported on a regular basis. Country limit requirements are reviewed and approved by senior management as often as necessary, but at least annually. In addition, the Country Risk Management group uses surveillance tools, such as signaling models and ratings indicators, for early identification of potential country risk concerns.
Country risk reporting
The following table presents the Firm’s top 20 exposures by country (excluding the U.S.) as of December 31, 2016. The selection of countries is based solely on the Firm’s largest total exposures by country, based on the Firm’s internal country risk management approach, and does not represent the Firm’s view of any actual or potentially adverse credit conditions. Country exposures may fluctuate from period to period due to client activity and market flows.
The increase in exposure to Germany, Japan and Luxembourg since December 31, 2015 largely reflects higher Euro and Yen balances, predominantly placed on deposit at the central banks of these countries, driven by changing client positions and prevailing market and liquidity conditions.
|
| | | | | | | | | | | | | |
| Top 20 country exposures | | | |
| | December 31, 2016 |
(in billions) | | Lending and deposits(a) | Trading and investing(b)(c) | Other(d) | Total exposure |
| Germany | | $ | 46.9 |
| $ | 15.2 |
| $ | — |
| $ | 62.1 |
|
| United Kingdom | | 25.0 |
| 15.8 |
| 0.6 |
| 41.4 |
|
| Japan | | 33.9 |
| 4.0 |
| 0.1 |
| 38.0 |
|
| France | | 13.0 |
| 12.0 |
| 0.2 |
| 25.2 |
|
| China | | 9.8 |
| 6.5 |
| 0.8 |
| 17.1 |
|
| Canada | | 10.9 |
| 2.6 |
| 0.1 |
| 13.6 |
|
| Australia | | 6.8 |
| 5.6 |
| — |
| 12.4 |
|
| Netherlands | | 6.3 |
| 3.1 |
| 1.1 |
| 10.5 |
|
| Luxembourg | | 10.0 |
| 0.2 |
| — |
| 10.2 |
|
| Brazil | | 5.0 |
| 5.0 |
| — |
| 10.0 |
|
| Switzerland | | 7.5 |
| 0.6 |
| 1.6 |
| 9.7 |
|
| India | | 3.8 |
| 4.5 |
| 0.4 |
| 8.7 |
|
| Italy | | 3.3 |
| 3.7 |
| — |
| 7.0 |
|
| Korea | | 3.9 |
| 2.3 |
| 0.8 |
| 7.0 |
|
| Hong Kong | | 2.1 |
| 1.4 |
| 1.9 |
| 5.4 |
|
| Singapore | | 2.5 |
| 1.3 |
| 1.2 |
| 5.0 |
|
| Mexico | | 3.1 |
| 1.4 |
| — |
| 4.5 |
|
| Saudi Arabia | | 3.5 |
| 0.8 |
| — |
| 4.3 |
|
| United Arab Emirates | | 3.2 |
| 1.1 |
| — |
| 4.3 |
|
| Ireland | | 1.6 |
| 0.3 |
| 2.3 |
| 4.2 |
|
| |
| (a) | Lending and deposits includes loans and accrued interest receivable (net of collateral and the allowance for loan losses), deposits with banks (including central banks), acceptances, other monetary assets, issued letters of credit net of participations, and unused commitments to extend credit. Excludes intra-day and operating exposures, such as from settlement and clearing activities. |
| |
| (b) | Includes market-making inventory, AFS securities, counterparty exposure on derivative and securities financings net of collateral and hedging. |
| |
| (c) | Includes single reference entity (“single-name”), index and tranched credit derivatives for which one or more of the underlying reference entities is in a country listed in the above table. |
| |
| (d) | Includes capital invested in local entities and physical commodity inventory. |
|
| | |
| JPMorgan Chase & Co./2016 Annual Report | | 109 |
Management’s discussion and analysis
|
| | | | |
| LIQUIDITY RISK MANAGEMENT |
Liquidity risk is the risk that the Firm will be unable to meet its contractual and contingent obligations or that it does not have the appropriate amount, composition and tenor of funding and liquidity to support its assets.assets and liabilities.
Liquidity risk oversight
The Firm has a liquidity risk oversight function whose primary objective is to provide assessment, measurement, monitoring, and control of liquidity risk across the Firm. Liquidity risk oversight is managed through a dedicated firmwide Liquidity Risk Oversight group. The CTCCIO, Treasury and Corporate (“CTC”) CRO, who reports to the CRO, as part of the independent risk management function, has responsibility for firmwide Liquidity Risk Oversight. Liquidity Risk Oversight’s responsibilities include but are
not limited to:
Establishing and monitoring limits, indicators, and thresholds, including liquidity appetite tolerances;
Defining, monitoring, and reporting internal firmwide and material legal entity liquidity stress tests, and monitoring and reporting regulatory defined liquidity stress testing;
Monitoring and reporting liquidity positions, balance sheet variances and funding activities;
Conducting ad hoc analysis to identify potential emerging liquidity risks.
Risk governance and measurement
Specific committees responsible for liquidity governance include firmwide ALCO as well as line of business and regional ALCOs, and the CTC Risk Committee. In addition, the DRPC reviews and recommends to the Board of Directors, for formal approval, the Firm’s liquidity risk tolerances, liquidity strategy, and liquidity policy at least annually. For further discussion of the riskALCO and other risk-related committees, see Enterprise-wide Risk Management on pages 107–111.71–75.
Internal Stress testing
Liquidity stress tests are intended to ensure the Firm has sufficient liquidity for the Firm under a variety of adverse scenarios. Resultsscenarios, including scenarios analyzed as part of the Firm’s resolution and recovery planning. Stress scenarios are produced for JPMorgan Chase & Co. (“Parent Company”) and the Firm’s material legal entities on a regular basis and ad hoc stress tests are therefore consideredperformed, as needed, in the formulationresponse to specific market events or concerns. Liquidity stress tests assume all of the Firm’s contractual obligations are met and take into consideration varying levels of access to unsecured and secured funding planmarkets, estimated non-contractual and assessmentcontingent outflows and potential impediments to the availability and transferability of its liquidity position.between jurisdictions and material legal entities such as regulatory, legal or other restrictions. Liquidity outflow assumptions are modeled across a range of time horizons and contemplate both market and idiosyncratic stress. Standard
Results of stress tests are performed on a regular basis and ad hoc stress tests are performedconsidered in response to specific market events or concerns. Stress scenarios are produced for JPMorgan Chase & Co. (“Parent Company”) and the Firm’s major subsidiaries.
Liquidity stress tests assume allformulation of the Firm’s contractual obligations are metfunding plan and then take into consideration varyingassessment of its liquidity position. The Parent Company acts as a source of funding for the Firm through stock and long-term debt issuances, and the IHC provides funding support to the ongoing operations of the Parent Company and its subsidiaries, as necessary. The Firm maintains liquidity at the Parent Company and the IHC, in addition to liquidity held at the operating subsidiaries, at levels sufficient to comply with liquidity risk tolerances and minimum liquidity requirements, to manage through periods of stress where access to unsecured and securednormal funding markets. Additionally, assumptions with respect to potential non-contractual and contingent outflows are contemplated.sources is disrupted.
Liquidity management
Treasury and CIO is responsible for liquidity management. The primary objectives of effective liquidity management are to ensure that the Firm’s core businesses and material legal entities are able to operate in support of client needs, meet contractual and contingent obligations through normal economic cycles as well as during stress events, and to manage an optimal funding mix, and availability of liquidity sources. The Firm manages liquidity and funding using a centralized, global approach across its entities, taking into consideration both their current liquidity profile and any potential changes over time, in order to optimize liquidity sources and uses.
In the context of the Firm’s liquidity management, Treasury and CIO is responsible for:
Analyzing and understanding the liquidity characteristics of the Firm, lines of business and legal entities’ assets and liabilities, taking into account legal, regulatory, and operational restrictions;
Defining and monitoring firmwide and legal entityentity-specific liquidity strategies, policies, guidelines, and contingency funding plans;
Managing liquidity within approved liquidity risk appetite tolerances and limits;
Setting transfer pricing in accordance with underlying liquidity characteristics of balance sheet assets and liabilities as well as certain off-balance sheet items.
Contingency funding plan
The Firm’s contingency funding plan (“CFP”), which is reviewed by ALCO and approved by the DRPC, is a compilation of procedures and action plans for managing liquidity through stress events. The CFP incorporates the limits and indicators set by the Liquidity Risk Oversight group. These limits and indicators are reviewed regularly to identify the emergence of risks or vulnerabilities in the Firm’s liquidity position. The CFP identifies the alternative contingent liquidity resources available to the Firm in a stress event.
Parent Company and subsidiary funding
The Parent Company acts as a source of funding to its subsidiaries. The Firm’s liquidity management is intended to maintain liquidity at the Parent Company, in addition to funding and liquidity raised at the subsidiary operating level, at levels sufficient to fund the operations of the Parent Company and its subsidiaries for an extended period of time in a stress environment where access to normal funding sources is disrupted. The Parent Company currently holds sufficient liquidity to withstand peak outflows over a one year liquidity stress horizon, assuming no access to wholesale funding markets.
|
| | |
| 110 | | JPMorgan Chase & Co./20152016 Annual Report | | 159 |
Management’s discussion and analysis
LCR and NSFR
The Firm must comply with the U.S. LCR rule which is intendedrequires the Firm to measure the amount of HQLA held by the Firm in relation to estimated net cash outflows within a 30-day period during an acute stress event. The LCR iswas required to be 80%90% at January 1, 2015, increasing by 10% each year until reaching the2016, increased to a minimum of 100% minimum bycommencing January 1, 2017. At December 31, 2015,2016, the Firm was compliant with the fully phased-inFully Phased-In U.S. LCR.
On October 31, 2014,December 19, 2016 the Federal Reserve published final U.S. LCR public disclosure requirements for certain bank holding companies and nonbank financial companies. Starting with the second quarter of 2017, the Firm will be required to disclose quarterly its consolidated LCR pursuant to the U.S. LCR rule, including the Firm’s average LCR for the quarter and the key quantitative components of the average LCR in a standardized template, along with a qualitative discussion of material drivers of the ratio, changes over time, and causes of such changes.
The Basel Committee issued the final standard for the net stable funding ratio (“Basel NSFR”) — which is intended to measure the adequacy of “available” amount of stable funding relative to theand “required” amountamounts of stable funding over a one-year horizon. Basel NSFR will become a minimum standard by January 1, 2018 and requires that this ratio be equal to at least 100% on an ongoing basis. At December 31, 2015,
On April 26, 2016, the U.S. NSFR proposal was released for large banks and bank holding companies and was largely consistent with Basel NSFR. The proposed requirement would apply beginning on January 1, 2018, consistent with the Basel NSFR timeline.
The Firm estimates it was compliant with the proposed U.S. NSFR as of December 31, 2016 based on its current understanding of the final Baselproposed rule. The U.S. banking regulators are expected to issue an NPR that would outline requirements specific to U.S. banks.
HQLA
HQLA is the amount of assets that qualify for inclusion in the U.S. LCR. HQLA primarily consists of cash and certain unencumbered high quality liquid assets as defined in the final rule.
As of December 31, 2015,2016, the Firm’s HQLA was $496$524 billion, compared with $600$496 billion as of December 31, 2014.2015. The decreaseincrease in HQLA was due to lower cash balances largely driven by lower non-operatingprimarily reflects the impact of sales, maturities and paydowns in non-HQLA-eligible securities, as well as deposit balances; however,growth in excess of loan growth. Certain of these actions resulted in increased excess liquidity at JPMorgan Chase Bank, N.A. and Chase Bank USA, N.A. which is excluded from the Firm remains LCR-compliant givenFirm’s HQLA as required under the corresponding reduction in estimated net cash outflows associated with those deposits.U.S. LCR rules. The Firm’s HQLA may fluctuate from period to period primarily due to normal flows from client activity.
The following table presents the Firm’s estimated HQLA included in the U.S. LCR broken out by HQLA-eligible cash and securities as of December 31, 20152016.
| | | (in billions) | December 31, 2015 | | |
December 31, (in billions) | | 2016 |
|
| HQLA | | | |
Eligible cash(a) | | $ | 304 |
| $ | 323 |
|
Eligible securities(b) | | 192 |
| 201 |
|
Total HQLA | | $ | 496 |
| $ | 524 |
|
| |
| (a) | Cash on deposit at central banks. |
| |
| (b) | Predominantly includes U.S. agency mortgage-backed securities,MBS, U.S. Treasuries, and sovereign bonds net of applicable haircuts under U.S. LCR rules. |
| |
| (c) | Excludes excess HQLA at JPMorgan Chase Bank, N.A. and Chase Bank USA, N.A. |
InAs of December 31, 2016, in addition to HQLA as of December 31, 2015,reported above, the Firm hashad approximately $249$262 billion of unencumbered marketable securities, such as equity securities and fixed income debt securities, available to raise liquidity, if required. Furthermore,This includes HQLA-eligible securities included as part of the excess liquidity at JPMorgan Chase Bank, N.A. The Firm also maintains borrowing capacity at various Federal Home Loan Banks (“FHLBs”), the Federal Reserve Bank discount window and various other central banks as a result of collateral pledged by the Firm to such banks. Although available, the Firm does not view the borrowing capacity at the Federal Reserve Bank discount window and the various other central banks as a primary source of liquidity. As of December 31, 2015,2016, the Firm’s remaining borrowing capacity at various FHLBs and the Federal Reserve Bank discount window was approximately $183$221 billion. This remaining borrowing capacity excludes the benefit of securities included above in HQLA or other unencumbered securities that are currently held at the Federal Reserve Bank discount window, but for which the Firm has not drawn liquidity.
Funding
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 ($837.3894.8 billion at December 31, 20152016), is funded with a portion of the Firm’s deposits ($1,279.71,375.2 billion at December 31, 20152016) 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. Securities borrowed or purchased under resale agreements and trading assets-
|
| | |
| JPMorgan Chase & Co./2016 Annual Report | | 111 |
Management’s discussion and analysis
debt and equity instruments are primarily funded by the Firm’s securities loaned or sold under agreements to repurchase, trading liabilities–debt and equity instruments, and a portion of the Firm’s long-term debt and stockholders’ equity. In addition to funding securities borrowed or purchased under resale agreements and trading assets-debt and equity instruments, 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 information relating to Deposits, Short-term funding, and Long-term funding and issuance.
Deposits
The table below summarizes, by line of business, the period-end and average deposit balances as of and for the years ended December 31, 2016 and 2015.
|
| | | | | | | | | | | | | |
| Deposits | | | Year ended December 31, |
| As of or for the year ended December 31, | | | | Average |
| (in millions) | 2016 | 2015 | | 2016 | 2015 |
| Consumer & Community Banking | $ | 618,337 |
| $ | 557,645 |
| | $ | 586,637 |
| $ | 530,938 |
|
| Corporate & Investment Bank | 412,434 |
| 395,228 |
| | 409,680 |
| 414,064 |
|
| Commercial Banking | 179,532 |
| 172,470 |
| | 172,835 |
| 184,132 |
|
| Asset & Wealth Management | 161,577 |
| 146,766 |
| | 153,334 |
| 149,525 |
|
| Corporate | 3,299 |
| 7,606 |
| | 5,482 |
| 17,129 |
|
| Total Firm | $ | 1,375,179 |
| $ | 1,279,715 |
| | $ | 1,327,968 |
| $ | 1,295,788 |
|
|
| | |
160 | | JPMorgan Chase & Co./2015 Annual Report |
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, 2015, the Firm’s loans-to-deposits ratio was 65%, compared with 56% at December 31, 2014.
As of December 31, 2015, total deposits for the Firm were $1,279.7 billion, compared with $1,363.4 billion at December 31, 2014 (61% and 58% of total liabilities at December 31, 2015 and 2014, respectively). The decrease was attributable to lower wholesale non-operating deposits, partially offset by higher consumer deposits. For further information, see Consolidated Balance Sheet Analysis on pages 75–76.
The Firm has typically experienced higher customer deposit inflows at quarter-ends. Therefore, the Firm believes average deposit balances are generally 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, 2015 and 2014.
|
| | | | | | | | | | | | | |
| Deposits | | | Year ended December 31, |
| As of or for the period ended December 31, | | | | Average |
| (in millions) | 2015 | 2014 | | 2015 | 2014 |
| Consumer & Community Banking | $ | 557,645 |
| $ | 502,520 |
| | $ | 530,938 |
| $ | 486,919 |
|
| Corporate & Investment Bank | 395,228 |
| 468,423 |
| | 414,064 |
| 417,517 |
|
| Commercial Banking | 172,470 |
| 213,682 |
| | 184,132 |
| 190,425 |
|
| Asset Management | 146,766 |
| 155,247 |
| | 149,525 |
| 150,121 |
|
| Corporate | 7,606 |
| 23,555 |
| | 17,129 |
| 19,319 |
|
| Total Firm | $ | 1,279,715 |
| $ | 1,363,427 |
| | $ | 1,295,788 |
| $ | 1,264,301 |
|
A significant portion of the Firm’s deposits are consumer deposits, which are considered a stable source of liquidity. Additionally, the majority of the Firm’s wholesale operating deposits are also considered to be stable sources of liquidity because they are generated from customers that maintain operating service relationships with the Firm. Wholesale non-operating deposits, including a portion of balances previously reported as commercial paper sweep liabilities, decreased by approximately $200 billion from
The Firm’s loans-to-deposits ratio was 65% at both December 31, 2014 to2016 and 2015.
As of December 31, 2016, total deposits for the Firm were $1,375.2 billion, compared with $1,279.7 billion at December 31, 2015 (61% of total liabilities at each of December 31, 2016 and 2015). The increase was attributable to higher consumer and wholesale deposits. The increase in consumer deposits reflected continuing strong growth from existing and new customers, and the impact of low attrition rates. The wholesale increase was driven by growth in operating deposits related to client activity in CIB’s Treasury Services business, and inflows in AWM primarily from business growth and the impact of new rules governing money market funds.
The Firm believes average deposit balances are generally more representative of deposit trends. The increase in average deposits for the year ended December 31, 2016 compared with the year ended December 31, 2015, was predominantly driven by an increase in consumer deposits, partially offset by a reduction in wholesale non-operating deposits, driven by the Firm’s actions in 2015 to reduce such deposits. The reduction has not had a significant impact on the Firm’s liquidity position as discussed under LCR and HQLA above. For further discussions of deposit and liability balance trends, see the discussion of the Firm’s business segments results and the Consolidated Balance Sheet Analysis on pages 83–10651–70 and pages 75–76,43–44, respectively.
|
| | |
| 112 | | JPMorgan Chase & Co./20152016 Annual Report | | 161 |
Management’s discussion and analysis
The following table summarizes short-term and long-term funding, excluding deposits, as of December 31, 20152016 and 2014,2015, and average balances for the years ended December 31, 20152016 and 2014.2015. For additional information, see the Consolidated Balance Sheet Analysis on pages 75–7643–44 and Note 21.
| | | Sources of funds (excluding deposits) | 2015 | 2014 | | | | | | |
| As of or for the year ended December 31, | | Average | | | Average | |
| (in millions) | | 2015 | 2014 | 2016 | 2015 | | 2016 | 2015 | |
| Commercial paper: | | | | | | | |
| Wholesale funding | $ | 15,562 |
| $ | 24,052 |
| | $ | 19,340 |
| $ | 19,442 |
| $ | 11,738 |
| $ | 15,562 |
| | $ | 15,001 |
| $ | 19,340 |
| |
| Client cash management | — |
| 42,292 |
| | 18,800 |
| 40,474 |
| — |
| — |
| | — |
| 18,800 |
| (i) |
| Total commercial paper | $ | 15,562 |
| $ | 66,344 |
| | $ | 38,140 |
| $ | 59,916 |
| $ | 11,738 |
| $ | 15,562 |
| | $ | 15,001 |
| $ | 38,140 |
| |
| | | | | | | | |
Obligations of Firm-administered multi-seller conduits(a) | $ | 8,724 |
| $ | 12,047 |
| | $ | 11,961 |
| $ | 10,427 |
| $ | 2,719 |
| $ | 8,724 |
| | $ | 5,153 |
| $ | 11,961 |
| |
| | | | | | | | |
| Other borrowed funds | $ | 21,105 |
| $ | 30,222 |
| | $ | 28,816 |
| $ | 31,721 |
| $ | 22,705 |
| $ | 21,105 |
| | $ | 21,139 |
| $ | 28,816 |
| |
| | | | | | | | |
| Securities loaned or sold under agreements to repurchase: | | | | | | | |
| Securities sold under agreements to repurchase | $ | 129,598 |
| $ | 167,077 |
| | $ | 168,163 |
| $ | 181,186 |
| $ | 149,826 |
| $ | 129,598 |
| | $ | 160,458 |
| $ | 168,163 |
| |
Securities loaned | 18,174 |
| 21,798 |
| | 19,493 |
| 22,586 |
| 12,137 |
| 16,877 |
| | 13,195 |
| 18,633 |
| |
Total securities loaned or sold under agreements to repurchase(d)(e) | $ | 147,772 |
| $ | 188,875 |
| | $ | 187,656 |
| $ | 203,772 |
| $ | 161,963 |
| $ | 146,475 |
| | $ | 173,653 |
| $ | 186,796 |
| |
| | | | | | | | |
| Senior notes | $ | 149,964 |
| $ | 142,169 |
| | $ | 147,498 |
| $ | 139,388 |
| $ | 151,042 |
| $ | 149,964 |
| | $ | 153,768 |
| $ | 147,498 |
| |
| Trust preferred securities | 3,969 |
| 5,435 |
| | 4,341 |
| 5,408 |
| 2,345 |
| 3,969 |
| | 3,724 |
| 4,341 |
| |
| Subordinated debt | 25,027 |
| 29,387 |
| | 27,310 |
| 29,009 |
| 21,940 |
| 25,027 |
| | 24,224 |
| 27,310 |
| |
| Structured notes | 32,813 |
| 30,021 |
| | 31,309 |
| 30,311 |
| 37,292 |
| 32,813 |
| | 35,978 |
| 31,309 |
| |
| Total long-term unsecured funding | $ | 211,773 |
| $ | 207,012 |
| | $ | 210,458 |
| $ | 204,116 |
| $ | 212,619 |
| $ | 211,773 |
| | $ | 217,694 |
| $ | 210,458 |
| |
| | | | | | | | |
Credit card securitization(a) | 27,906 |
| 31,197 |
| | 30,382 |
| 28,892 |
| 31,181 |
| 27,906 |
| | 29,428 |
| 30,382 |
| |
Other securitizations(e) | 1,760 |
| 2,008 |
| | 1,909 |
| 2,734 |
| |
Other securitizations((a)(f) | | 1,527 |
| 1,760 |
| | 1,669 |
| 1,909 |
| |
| FHLB advances | 71,581 |
| 64,994 |
| | 70,150 |
| 60,667 |
| 79,519 |
| 71,581 |
| | 73,260 |
| 70,150 |
| |
Other long-term secured funding(f)(g) | 5,297 |
| 4,373 |
| | 4,332 |
| 5,031 |
| 3,107 |
| 5,297 |
| | 4,619 |
| 4,332 |
| |
| Total long-term secured funding | $ | 106,544 |
| $ | 102,572 |
| | $ | 106,773 |
| $ | 97,324 |
| $ | 115,334 |
| $ | 106,544 |
| | $ | 108,976 |
| $ | 106,773 |
| |
| | | | | | | | |
Preferred stock(g)(h) | $ | 26,068 |
| $ | 20,063 |
| | 24,040 |
| $ | 17,018 |
| $ | 26,068 |
| $ | 26,068 |
| | 26,068 |
| $ | 24,040 |
| |
Common stockholders’ equity(g)(h) | $ | 221,505 |
| $ | 211,664 |
| | 215,690 |
| $ | 207,400 |
| $ | 228,122 |
| $ | 221,505 |
| | 224,631 |
| $ | 215,690 |
| |
| |
| (a) | Included in beneficial interestsinterest issued by consolidated variable interest entities on the Firm’s Consolidated balance sheets. |
| |
| (b) | Prior period amounts have been revised to conform with current period presentation. |
| |
| (c) | Excludes federal funds purchased. |
| |
(c)(d) | ExcludedExcludes long-term structured repurchase agreements of $4.2$1.8 billion and $2.7$4.2 billion as of December 31, 20152016 and 2014,2015, respectively, and average balances of $3.9$2.9 billion and $4.2$3.9 billion for the years ended December 31, 2016 and 2015, and 2014, respectively. |
| |
(d) | Excluded average long-term securities loaned of $24 million as of December 31, 2014. There was no balance for the other periods presented. |
| |
| (e) | Excludes long-term securities loaned of $1.2 billion and $1.3 billion as of December 31, 2016, and December 31, 2015, respectively, and average balances of $1.3 billion and $0.9 billion for the years ended December 31, 2016 and 2015, respectively. |
| |
| (f) | Other securitizations includes securitizations of residential mortgages and student loans. The Firm’s wholesale businesses also securitize loans for client-driven transactions, which are not considered to be a source of funding for the Firm and are not included in the table. |
| |
(f)(g) | Includes long-term structured notes which are secured. |
| |
(g)(h) | For additional information on preferred stock and common stockholders’ equity see Capital Risk Management on pages 149–158,76–85, Consolidated statements of changes in stockholders’ equity, Note 22 and Note 23. |
| |
| (i) | During 2015 the Firm discontinued its commercial paper customer sweep cash management program. |
|
| | |
162 | | JPMorgan Chase & Co./20152016 Annual Report | | 113 |
Management’s discussion and analysis
Short-term funding
During the third quarter of 2015 the Firm completed the discontinuation of its commercial paper customer sweep cash management program. This change has not had a significant impact on the Firm’s liquidity as the majority of these customer funds remain as deposits at 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 and agency MBS, and constitute a significant portion of the federal funds purchased and securities loaned or sold under repurchase agreements on the Consolidated balance sheets. The decrease in the average balance of securities loaned or sold under agreements to repurchase atfor the year ended December 31, 2015,2016, compared with the balance at December 31, 2014 (as well as the average balances for the full year 2015, compared with the prior year) was largely due to a decline inlower secured financing of trading assets-debt and equity instruments in CIB.the CIB related to client-driven market-making activities. 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, including TLAC requirements. Long-term funding objectives include maintaining diversification, maximizing market access and optimizing funding costs, as well as maintaining a certain level of liquidity at the Parent Company.costs. 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 Company to provide maximum flexibility in support of both bank and nonbank subsidiary funding.funding needs. The Parent Company advances substantially all net funding proceeds to the IHC. The IHC does not issue debt to external counterparties. The following table summarizes long-term unsecured issuance and maturities or redemptions for the years ended December 31, 20152016 and 2014.2015. For additional information, see Note 21.
| | | Long-term unsecured funding | | |
Year ended December 31, (in millions) | 2015 | 2014 | 2016 | 2015 |
| Issuance | | |
| Senior notes issued in the U.S. market | $ | 19,212 |
| $ | 16,322 |
| $ | 25,639 |
| $ | 19,212 |
|
| Senior notes issued in non-U.S. markets | 10,188 |
| 11,193 |
| 7,063 |
| 10,188 |
|
| Total senior notes | 29,400 |
| 27,515 |
| 32,702 |
| 29,400 |
|
| Subordinated debt | 3,210 |
| 4,956 |
| 1,093 |
| 3,210 |
|
| Structured notes | 22,165 |
| 19,806 |
| 22,865 |
| 22,165 |
|
| Total long-term unsecured funding – issuance | $ | 54,775 |
| $ | 52,277 |
| $ | 56,660 |
| $ | 54,775 |
|
| | | |
| Maturities/redemptions | | |
| Senior notes | $ | 18,454 |
| $ | 21,169 |
| $ | 29,989 |
| $ | 18,454 |
|
| Trust preferred securities | 1,500 |
| — |
| 1,630 |
| 1,500 |
|
| Subordinated debt | 6,908 |
| 4,487 |
| 3,596 |
| 6,908 |
|
| Structured notes | 18,099 |
| 18,554 |
| 15,925 |
| 18,099 |
|
| Total long-term unsecured funding – maturities/redemptions | $ | 44,961 |
| $ | 44,210 |
| $ | 51,140 |
| $ | 44,961 |
|
The Firm raises secured long-term funding through securitization of consumer credit card loans and advances from the FHLBs.
The following table summarizes the securitization issuance and FHLB advances and their respective maturities or redemption for the years ended December 31, 20152016 and 2014.2015.
| | | Long-term secured funding | Long-term secured funding | | | | Long-term secured funding | | |
Year ended December 31, | Issuance | | Maturities/Redemptions | Issuance | | Maturities/Redemptions |
| (in millions) | 2015 | 2014 | | 2015 | 2014 | 2016 | 2015 | | 2016 | 2015 |
| Credit card securitization | $ | 6,807 |
| $ | 8,327 |
| | $ | 10,130 |
| $ | 3,774 |
| $ | 8,277 |
| $ | 6,807 |
| | $ | 5,025 |
| $ | 10,130 |
|
Other securitizations(a) | — |
| — |
| | 248 |
| 309 |
| — |
| — |
| | 233 |
| 248 |
|
| FHLB advances | 16,550 |
| 15,200 |
| | 9,960 |
| 12,079 |
| 17,150 |
| 16,550 |
| | 9,209 |
| 9,960 |
|
Other long-term secured funding | 1,105 |
| 802 |
| | 383 |
| 3,076 |
| 455 |
| 1,105 |
| | 2,645 |
| 383 |
|
| Total long-term secured funding | $ | 24,462 |
| $ | 24,329 |
| | $ | 20,721 |
| $ | 19,238 |
| $ | 25,882 |
| $ | 24,462 |
| | $ | 17,112 |
| $ | 20,721 |
|
| |
| (a) | Other securitizations includes securitizations of residential mortgages and student loans. |
| |
| (b) | Includes long-term structured notes which are secured. |
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.
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| | |
| 114 | | JPMorgan Chase & Co./20152016 Annual Report | | 163 |
Management’s discussion and analysis
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 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 entitiesSPEs on page 77,45, and credit risk, liquidity risk and credit-related contingent features in
Note 6.6 on page 181.
The credit ratings of the Parent Company and the Firm’s principal bank and nonbank subsidiaries as of December 31, 2015,2016, were as follows.
|
| | | | | | | | | | | |
| | JPMorgan Chase & Co. | | JPMorgan Chase Bank, N.A. Chase Bank USA, N.A. | | J.P. Morgan Securities LLC |
December 31, 20152016 | Long-term issuer | Short-term issuer | Outlook | | Long-term issuer | Short-term issuer | Outlook | | Long-term issuer | Short-term issuer | Outlook |
| Moody’s Investors Service | A3 | P-2 | Stable | | Aa3 | P-1 | Stable | | Aa3(a) | P-1 | Stable |
| Standard & Poor’s | A- | A-2 | Stable | | A+ | A-1 | Stable | | A+ | A-1 | Stable |
| Fitch Ratings | A+ | F1 | Stable | | AA- | F1+ | Stable | | AA- | F1+ | Stable |
| |
| (a) | On February 22, 2017, Moody’s published its updated rating methodologies for securities firms. Subsequently, as a result of this action, J.P. Morgan Securities LLC’s long-term issuer rating was downgraded by one notch from Aa3 to A1. The short-term issuer rating was unchanged and the outlook remained stable. |
Downgrades of the Firm’s long-term ratings by one or two notches could result in an increase in its cost of funds, 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 that 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, 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.
In May 2015, Moody’s published its new bank rating methodology. As part of this action, the Firm’s preferred stock, deposits and bank subordinated debt ratings were upgraded by one notch. Additionally in May 2015, Fitch changed its bank ratings methodology, implementing ratings differentiation between bank holding companies and their bank subsidiaries. This resulted in a one notch upgrade to the issuer ratings, senior debt ratings and long-term deposit ratings of JPMorgan Chase Bank, N.A., and certain other subsidiaries. In December 2015, S&P removed from its ratings for U.S. GSIBs the uplift assumption due to extraordinary government support. As a result, the Firm’s short-term and long-term senior unsecured debt ratings and its subordinated unsecured debt ratings were lowered by one notch.
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.
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164JPMorgan Chase & Co./2016 Annual Report | | 115 |
Management’s discussion and analysis
Market risk is the risk of loss arising from potential adverse changes in the value of the Firm’s assets and liabilities resulting from changes in market variables such as interest rates, foreign exchange rates, equity prices, commodity prices, implied volatilities or credit spreads.
Market Risk Management
Market Risk Management monitors market risks throughout the Firm and defines market risk policies and procedures. The Market Risk Management function reports to the Firm’s CRO.
Market Risk Management seeks to manage risk, facilitate efficient risk/return decisions, reduce volatility in operating performance and provide transparency into the Firm’s market risk profile for senior management, the Board of Directors and regulators. Market Risk Management is responsible for the following functions:
Establishment of a market risk policy framework
Independent measurement, monitoring and control of line of business and firmwide market risk
Definition, approval and monitoring of limits
Performance of stress testing and qualitative risk assessments
Risk measurement
Tools used to measure risk
Because no single measure can reflect all aspects of market risk, the Firm uses various metrics, both statistical and nonstatistical, to assess risk including:
VaR
Economic-value stress testing
Nonstatistical risk measures
Loss advisories
Profit and loss drawdowns
Earnings-at-risk
Other sensitivities
Risk monitoring and control
Market risk exposure is managed primarily through a series of limits set in the context of the market environment and business strategy. In setting limits, the Firm takes into consideration factors such as market volatility, product liquidity and accommodation of client business and management experience. The Firm maintains different levels of limits. Corporate level limits include VaR and stress limits. Similarly, line of business limits include VaR and stress limits and may be supplemented by loss advisories, nonstatistical measurements and profit and loss drawdowns. Limits may also be set within the lines of business, as well at the portfolio or legal entity level.
Market Risk Management sets limits and regularly reviews and updates them as appropriate, with any changes approved by line of business management and Market Risk Management. Senior management, including the Firm’s CEO and CRO, are responsible for reviewing and approving certain of these risk limits on an ongoing basis. All limits that have not been reviewed within specified time periods by Market Risk Management are escalated to senior management. The lines of business are responsible for adhering to established limits against which exposures are monitored and reported.
Limit breaches are required to be reported in a timely manner to limit approvers, Market Risk Management and senior management. In the event of a breach, Market Risk Management consults with Firm senior management and the line of business senior management to determine the appropriate course of action required to return to compliance, which may include a reduction in risk in order to remedy the breach. Certain Firm or line of business-level limits that have been breached for three business days or longer, or by more than 30%, are escalated to senior management and the Firmwide Risk Committee.
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| 116 | | JPMorgan Chase & Co./20152016 Annual Report |
The following table summarizes by line of business the predominant business activities that give rise to market risk, and the primary market risk management tools utilized to manage those risks.
|
| | | | |
| Risk identification and classification by line of business |
| Line of Business | Predominant business activities and related market risks | Positions included in Risk Management VaR | Positions included in earnings-at-risk | Positions included in other sensitivity-based measurements |
| CCB | • Services mortgage loans which give rise to complex, non-linear interest rate and basis risk • Non-linear risk arises primarily from prepayment options embedded in mortgages and changes in the probability of newly originated mortgage commitments actually closing • Basis risk results from differences in the relative movements of the rate indices underlying mortgage exposure and other interest rates • Originates loans and takes deposits | • Mortgage pipeline loans, classified as derivatives • Warehouse loans, classified as trading assets – debt instruments • MSRs • Hedges of pipeline loans, warehouse loans and MSRs, classified as derivatives • Interest-only securities, classified as trading assets - debt instruments, and related hedges, classified as derivatives • Marketable equity investments measured at fair value through earnings | | |
CIB
| • Makes markets and services clients across fixed income, foreign exchange, equities and commodities• Market risk arises from changes in market prices (e.g., rates and credit spreads) resulting in a potential decline in net income | • Trading assets/liabilities – debt and marketable equity instruments, and derivatives, including hedges of the retained loan portfolio • Certain securities purchased, loaned or sold under resale agreements and securities borrowed • Fair value option elected liabilities • Derivative CVA and associated hedges | | • Private-equity investments measured at fair value • Derivatives DVA/FVA and fair value option elected liabilities DVA |
| CB | • Engages in traditional wholesale banking activities which include extensions of loans and credit facilities and taking deposits• Risk arises from changes in interest rates and prepayment risk with potential for adverse impact on net interest income and interest-rate sensitive fees | | | |
| AWM | • Provides initial capital investments in products such as mutual funds, which give rise to market risk arising from changes in market prices in such products | • Debt securities held in advance of distribution to clients, classified as trading assets - debt and equity instruments | | • Initial seed capital investments and related hedges, classified as derivatives• Capital invested alongside third-party investors, typically in privately distributed collective vehicles managed by AWM (i.e., co-investments) |
| Corporate | • Manages the Firm’s liquidity, funding, structural interest rate and foreign exchange risks arising from activities undertaken by the Firm’s four major reportable business segments | • Derivative positions measured at fair value through noninterest revenue in earnings• Marketable equity investments measured at fair value through earnings | • Investment securities portfolio and related interest rate hedges• Long-term debt and related interest rate hedges | • Private equity investments measured at fair value • Foreign exchange exposure related to Firm-issued non-USD long-term debt (“LTD”) and related hedges |
As part of the Firm’s evaluation and periodic enhancement of its market risk measures, during the third quarter of 2016 the Firm refined the scope of positions included in risk management VaR. In particular, certain private equity positions in the CIB, exposure arising from non-U.S. dollar denominated funding activities in Corporate, as well as seed capital investments in AWM were removed from the VaR calculation. Commencing with the third quarter of 2016, exposure arising from these positions is captured using other sensitivity-based measures, such as a 10% decline in market value or a 1 basis point parallel shift in spreads, as appropriate. For more information, see Other sensitivity-based measures at page 123. The Firm believes this refinement to its reported VaR measures more appropriately captures the risk of its market risk sensitive instruments. This change did not impact Regulatory VaR as these positions are not included in the calculation of Regulatory VaR. Regulatory VaR is used to derive the Firm’s regulatory VaR-based capital requirements under Basel III.
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| JPMorgan Chase & Co./2016 Annual Report | | 117 |
Management’s discussion and analysis
Value-at-risk
JPMorgan Chase utilizes VaR, a statistical risk measure, to estimate the potential loss from adverse market moves in a normal market environment. The Firm has a single VaR framework used as a basis for calculating Risk Management VaR and Regulatory VaR.
The framework is employed across the Firm using historical simulation based on data for the previous 12 months. The framework’s approach assumes that historical changes in market values are representative of the distribution of potential outcomes in the immediate future. The Firm believes the use of Risk Management VaR provides a stable measure of VaR that is closely aligned to the day-to-day risk management decisions made by the lines of business, and provides the appropriate information needed to respond to risk events on a daily basis.
The Firm’s Risk Management VaR is calculated assuming a one-day holding period and an expected tail-loss methodology which approximates a 95% confidence level. Risk Management VaR provides a consistent framework to measure risk profiles and levels of diversification across product types and is used for aggregating risks and monitoring limits across businesses. Those VaR results are reported to senior management, the Board of Directors and regulators.
Under the Firm’s Risk Management VaR methodology, assuming current changes in market values are consistent with the historical changes used in the simulation, the Firm would expect to incur VaR “back-testing exceptions,” defined as losses greater than that predicted by VaR estimates, on average five times every 100 trading days. The number of VaR back-testing exceptions observed can differ from the statistically expected number of back-testing exceptions if the current level of market volatility is materially different from the level of market volatility during the 12 months of historical data used in the VaR calculation.
Underlying the overall VaR model framework are individual VaR models that simulate historical market returns for individual products and/or risk factors. To capture material market risks as part of the Firm’s risk management framework, comprehensive VaR model calculations are performed daily for businesses whose activities give rise to market risk. These VaR models are granular and incorporate numerous risk factors and inputs to simulate daily changes in market values over the historical period; inputs are selected based on the risk profile of each portfolio, as sensitivities and historical time series used to generate daily market values may be different across product types or risk management systems. The VaR model results across all portfolios are aggregated at the Firm level.
Since VaR is based on historical data, it is an imperfect measure of market risk exposure and potential losses, and it is not used to estimate the impact of stressed market conditions or to manage any impact from potential stress events. In addition, based on their reliance on available historical data, limited time horizons, and other factors, VaR measures are inherently limited in their ability to measure certain risks and to predict losses, particularly those associated with market illiquidity and sudden or severe shifts in market conditions.
For certain products, specific risk parameters are not captured in VaR due to the lack of inherent liquidity and availability of appropriate historical data. The Firm uses proxies to estimate the VaR for these and other products when daily time series are not available. It is likely that using an actual price-based time series for these products, if available, would affect the VaR results presented. The Firm therefore considers other measures such as stress testing, in addition to VaR, to capture and manage its market risk positions.
The daily market data used in VaR models may be different than the independent third-party data collected for VCG price testing in its monthly valuation process. For example, in cases where market prices are not observable, or where proxies are used in VaR historical time series, the data sources may differ (see Valuation process in Note 3 for further information on the Firm’s valuation process). Because VaR model calculations require daily data and a consistent source for valuation, it may not be practical to use the data collected in the VCG monthly valuation process for VaR model calculations.
The Firm’s VaR model calculations are periodically evaluated and enhanced in response to changes in the composition of the Firm’s portfolios, changes in market conditions, improvements in the Firm’s modeling techniques and measurements, and other factors. Such changes may affect historical comparisons of VaR results. For information regarding model reviews and approvals, see Model Risk Management on page 128.
The Firm calculates separately a daily aggregated VaR in accordance with regulatory rules (“Regulatory VaR”), which is used to derive the Firm’s regulatory VaR-based capital requirements under Basel III. This Regulatory VaR model framework currently assumes a ten business-day holding period and an expected tail loss methodology which approximates a 99% confidence level. Regulatory VaR is applied to “covered” positions as defined by Basel III, which may be different than the positions included in the Firm’s Risk Management VaR. For example, credit derivative hedges of accrual loans are included in the Firm’s Risk Management VaR, while Regulatory VaR excludes these credit derivative hedges. In addition, in contrast to the Firm’s Risk Management VaR, Regulatory VaR currently excludes the diversification benefit for certain VaR models.
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| 118 | | JPMorgan Chase & Co./2016 Annual Report |
For additional information on Regulatory VaR and the other components of market risk regulatory capital for the Firm (e.g. VaR-based measure, stressed VaR-based measure and the respective backtesting), see JPMorgan Chase’s Basel III
Pillar 3 Regulatory Capital Disclosures reports, which are available on the Firm’s website at: (http://investor.shareholder.com/jpmorganchase/basel.cfm).
The table below shows the results of the Firm’s Risk Management VaR measure using a 95% confidence level.
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Total VaR | | | | | | | | | |
| As of or for the year ended December 31, | 2016 | | 2015 | | At December 31, | |
| (in millions) | Avg. | Min | Max | | Avg. | Min | Max | | 2016 |
| | 2015 |
| |
| CIB trading VaR by risk type | | | | | | | | | | | | | | | | | | |
| Fixed income | $ | 45 |
| | $ | 33 |
| | $ | 65 |
| | | $ | 42 |
| | $ | 31 |
| | $ | 60 |
| | | $ | 37 |
| | $ | 37 |
| |
| Foreign exchange | 12 |
| | 7 |
| | 27 |
| | | 9 |
| | 6 |
| | 16 |
| | | 14 |
| | 6 |
| |
| Equities | 13 |
| | 5 |
| | 32 |
| | | 18 |
| | 11 |
| | 26 |
| | | 12 |
| | 21 |
| |
| Commodities and other | 9 |
| | 7 |
| | 11 |
| | | 10 |
| | 6 |
| | 14 |
| | | 9 |
| | 10 |
| |
| Diversification benefit to CIB trading VaR | (36 | ) | (a) | NM |
| (b) | NM |
| (b) | | (35 | ) | (a) | NM |
| (b) | NM |
| (b) | | (38 | ) | (a) | (28 | ) | (a) |
| CIB trading VaR | 43 |
| | 28 |
| | 79 |
| | | 44 |
| | 27 |
| | 68 |
| | | 34 |
| | 46 |
| |
| Credit portfolio VaR | 12 |
| | 10 |
| | 16 |
| | | 14 |
| | 10 |
| | 20 |
| | | 11 |
| | 10 |
| |
| Diversification benefit to CIB VaR | (10 | ) | (a) | NM |
| (b) | NM |
| (b) | | (9 | ) | (a) | NM |
| (b) | NM |
| (b) | | (7 | ) | (a) | (10 | ) | (a) |
| CIB VaR | 45 |
| | 32 |
| | 81 |
| | | 49 |
| | 34 |
| | 71 |
| | | 38 |
| | 46 |
| |
| | | | | | | | | | | | | | | | | | | |
| Consumer & Community Banking VaR | 3 |
| | 1 |
| | 6 |
| | | 4 |
| | 2 |
| | 8 |
| | | 3 |
| | 4 |
| |
| Corporate VaR | 6 |
| | 3 |
| | 13 |
| | | 4 |
| | 3 |
| | 7 |
| | | 3 |
| | 5 |
| |
| Asset & Wealth Management VaR | 2 |
| | — |
| | 4 |
| | | 3 |
| | 2 |
| | 4 |
| | | — |
| | 3 |
| |
| Diversification benefit to other VaR | (3 | ) | (a) | NM |
| (b) | NM |
| (b) | | (3 | ) | (a) | NM |
| (b) | NM |
| (b) | | (2 | ) | (a) | (4 | ) | (a) |
| Other VaR | 8 |
| | 4 |
| | 16 |
| | | 8 |
| | 5 |
| | 12 |
| | | 4 |
| | 8 |
| |
| Diversification benefit to CIB and other VaR | (8 | ) | (a) | NM |
| (b) | NM |
| (b) | | (10 | ) | (a) | NM |
| (b) | NM |
| (b) | | (4 | ) | (a) | (9 | ) | (a) |
| Total VaR | $ | 45 |
| | $ | 33 |
| | $ | 78 |
| | | $ | 47 |
| | $ | 34 |
| | $ | 67 |
| | | $ | 38 |
| | $ | 45 |
| |
| |
| (a) | Average portfolio VaR and period-end portfolio VaR were less than the sum of the VaR of the components described above, which is due to portfolio diversification. The diversification effect reflects the fact that risks are not perfectly correlated. |
| |
| (b) | Designated as NM, because the minimum and maximum may occur on different days for distinct risk components, and hence it is not meaningful to compute a portfolio-diversification effect. |
As discussed on page 117, during the third quarter of 2016 the Firm refined the scope of positions included in Risk Management VaR. In the absence of these refinements, the average VaR, without diversification, for each of the following reported components would have been higher by the following amounts for the full year 2016: CIB Equities VaR by $3 million; CIB trading VaR by $2 million; CIB VaR by $3 million; Corporate VaR by $4 million; AWM VaR by $2 million; Other VaR by $4 million; and Total VaR by $3 million. Additionally, the Total VaR at December 31, 2016 would have been higher by $7 million in the absence of these refinements.
Average Total VaR decreased $2 million for the full year ending December 31, 2016 as compared with the respective prior year period. The reduction in average Total VaR is due to the aforementioned scope changes as well as a lower risk profile in the Equities risk type. This was offset by changes in the risk profiles of the Foreign exchange and Fixed Income risk types. Additionally, average Credit portfolio VaR declined as a result of lower exposures arising from select positions.
The Firm’s average Total VaR diversification benefit was $8 million or 18% of the sum for 2016, compared with $10 million or 21% of the sum for 2015.
The Firm continues to enhance its VaR model calculations and the time series inputs related to certain asset-backed products.
VaR can vary significantly as positions change, market volatility fluctuates, and diversification benefits change.
VaR back-testing
The Firm evaluates the effectiveness of its VaR methodology by back-testing, which compares the daily Risk Management VaR results with the daily gains and losses recognized on market-risk related revenue.
The Firm’s definition of market risk-related gains and losses is consistent with the definition used by the banking regulators under Basel III. Under this definition market risk-related gains and losses are defined as: gains and losses on the positions included in the Firm’s Risk Management VaR, excluding fees, commissions, certain valuation adjustments (e.g., liquidity and DVA), net interest income, and gains and losses arising from intraday trading.
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| JPMorgan Chase & Co./2016 Annual Report | | 119 |
Management’s discussion and analysis
The following chart compares the daily market risk-related gains and losses with the Firm’s Risk Management VaR for the year ended December 31, 2016. As the chart presents market risk-related gains and losses related to those positions included in the Firm’s Risk Management VaR, the results in the table below differ from the results of back-testing disclosed in the Market Risk section of the Firm’s Basel III Pillar 3 Regulatory Capital Disclosures reports, which are based on Regulatory VaR applied to covered positions. The chart shows that for the year ended December 31, 2016 the Firm observed 5 VaR back-testing exceptions and posted Market-risk related gains on 151 of the 260 days in this period.
Daily Market Risk-Related Gains and Losses
vs. Risk Management VaR (1-day, 95% Confidence level)
Year endedDecember 31, 2016
Market Risk-Related Gains and LossesRisk Management VaR |
| | | |
First Quarter 2016 | Second Quarter 2016 | Third Quarter 2016 | Fourth Quarter 2016 |
For the year ended December 31, 2016, there were 5 back-testing exceptions. The two exceptions that occurred towards the end of June 2016, subsequent to the U.K. referendum on membership in the European Union, reflect the elevated market volatility observed across multiple asset classes following the outcome of the vote.
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| 120 | | JPMorgan Chase & Co./2016 Annual Report |
Other risk measures
Economic-value stress testing
Along with VaR, stress testing is an important tool in measuring and controlling risk. While VaR reflects the risk of loss due to adverse changes in markets using recent historical market behavior as an indicator of losses, stress testing is intended to capture the Firm’s exposure to unlikely but plausible events in abnormal markets. The Firm runs weekly stress tests on market-related risks across the lines of business using multiple scenarios that assume significant changes in risk factors such as credit spreads, equity prices, interest rates, currency rates and commodity prices.
The Firm uses a number of standard scenarios that capture different risk factors across asset classes including geographical factors, specific idiosyncratic factors and extreme tail events. The stress framework calculates multiple magnitudes of potential stress for both market rallies and market sell-offs for each risk factor and combines them in multiple ways to capture different market scenarios. For example, certain scenarios assess the potential loss arising from current exposures held by the Firm due to a broad sell off in bond markets or an extreme widening in corporate credit spreads. The flexibility of the stress testing framework allows risk managers to construct new, specific scenarios that can be used to form decisions about future possible stress events.
Stress testing complements VaR by allowing risk managers
to shock current market prices to more extreme levels relative to those historically realized, and to stress test the relationships between market prices under extreme scenarios. Stress scenarios are defined and reviewed by Market Risk Management, and significant changes are reviewed by the relevant LOB Risk Committees and may be redefined on a periodic basis to reflect current market conditions.
Stress-test results, trends and qualitative explanations based on current market risk positions are reported to the respective LOBs and the Firm’s senior management to allow them to better understand the sensitivity of positions to certain defined events and to enable them to manage their risks with more transparency. Results are also reported to the Board of Directors.
The Firm’s stress testing framework is utilized in calculating results under scenarios mandated by the Federal Reserve’s CCAR and ICAAP processes. In addition, the results are incorporated into the quarterly assessment of the Firm’s Risk Appetite Framework and are also presented to the DRPC.
Nonstatistical risk measures
Nonstatistical risk measures include sensitivities to variables used to value positions, such as credit spread sensitivities, interest rate basis point values and market values. These measures provide granular information on the Firm’s market risk exposure. They are aggregated by line of
business and by risk type, and are also used for monitoring internal market risk limits.
Loss advisories and profit and loss drawdowns
Loss advisories and profit and loss drawdowns are tools used to highlight trading losses above certain levels of risk tolerance. Profit and loss drawdowns are defined as the decline in net profit and loss since the year-to-date peak revenue level.
Earnings-at-risk
The VaR and sensitivity measures described above illustrate the economic sensitivity of the Firm’s Consolidated balance sheets to changes in market variables. The effect of interest rate exposure on the Firm’s reported net income is also important as interest rate risk represents one of the Firm’s significant market risks. Interest rate risk arises not only from trading activities but also from the Firm’s traditional banking activities, which include extension of loans and credit facilities, taking deposits and issuing debt. The Firm evaluates its structural interest rate risk exposure through earnings-at-risk, which measures the extent to which changes in interest rates will affect the Firm’s net interest income and certain interest rate-sensitive fees. For a summary by line of business, identifying positions included in earnings-at-risk, see the table on page 117.
The CTC Risk Committee establishes the Firm’s structural interest rate risk policies and market risk limits, which are subject to approval by the DRPC. Treasury and CIO, working in partnership with the lines of business, calculates the Firm’s structural interest rate risk profile and reviews it with senior management including the CTC Risk Committee and the Firm’s ALCO. In addition, oversight of structural interest rate risk is managed through a dedicated risk function reporting to the CTC CRO. This risk function is responsible for providing independent oversight and governance around assumptions and establishing and monitoring limits for structural interest rate risk. The Firm manages structural interest rate risk generally through its investment securities portfolio and interest rate derivatives.
Structural interest rate risk can occur due to a variety of factors, including:
Differences in the timing among the maturity or repricing of assets, liabilities and off-balance sheet instruments
Differences in the amounts of assets, liabilities and off-balance sheet instruments that are repricing at the same time
Differences in the amounts by which short-term and long-term market interest rates change (for example, changes in the slope of the yield curve)
The impact of changes in the maturity of various assets, liabilities or off-balance sheet instruments as interest rates change
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| JPMorgan Chase & Co./2016 Annual Report | | 121 |
Management’s discussion and analysis
The Firm manages interest rate exposure related to its assets and liabilities on a consolidated, firmwide basis. Business units transfer their interest rate risk to Treasury and CIO through a transfer-pricing system, which takes into account the elements of interest rate exposure that can be risk-managed in financial markets. These elements include asset and liability balances and contractual rates of interest, contractual principal payment schedules, expected prepayment experience, interest rate reset dates and maturities, rate indices used for repricing, and any interest rate ceilings or floors for adjustable rate products. All transfer-pricing assumptions are dynamically reviewed.
The Firm generates a baseline for net interest income and certain interest rate sensitive fees, and then conducts simulations of changes for interest rate-sensitive assets and liabilities denominated in U.S. dollar and other currencies (“non-U.S. dollar” currencies). Earnings-at-risk scenarios estimate the potential change in this baseline, over the following 12 months utilizing multiple assumptions. These scenarios consider the impact on exposures as a result of changes in interest rates from baseline rates, as well as pricing sensitivities of deposits, optionality and changes in product mix. The scenarios include forecasted balance sheet changes, as well as modeled prepayment and reinvestment behavior, but do not include assumptions about actions that could be taken by the Firm in response to any such instantaneous rate changes. Mortgage prepayment assumptions are based on scenario interest rates compared with underlying contractual rates, the time since origination, and other factors which are updated periodically based on historical experience. The Firm’s earnings-at-risk scenarios are periodically evaluated and enhanced in response to changes in the composition of the Firm’s balance sheet, changes in market conditions, improvements in the Firm’s simulation and other factors.
The Firm’s U.S. dollar sensitivities are presented in the table below. The non-U.S. dollar sensitivity scenarios are not material to the Firm’s earnings-at-risk at December 31, 2016 and 2015.
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| JPMorgan Chase’s 12-month earnings-at-risk sensitivity profiles |
| U.S. dollar | Instantaneous change in rates |
|
| (in billions) | +200 bps | +100 bps | -100 bps | -200 bps |
| December 31, 2016 | $ | 4.0 |
| | $ | 2.4 |
| | NM | (a) | NM | (a) |
| December 31, 2015 | $ | 5.2 |
| | $ | 3.1 |
| | NM | (a) | NM | (a) |
| |
| (a) | Given the current level of market interest rates, downward parallel 100 and 200 basis point earnings-at-risk scenarios are not considered to be meaningful. |
The Firm’s benefit to rising rates on U.S. dollar assets and liabilities is largely a result of reinvesting at higher yields and assets repricing at a faster pace than deposits.
The Firm���s net U.S. dollar sensitivity to a 200 bps and
100 bps instantaneous increase in rates decreased by approximately $1.2 billion and $700 million, respectively, when compared to December 31, 2015. The primary driver of that decrease was the updating of the Firm’s baseline to reflect higher interest rates. As higher interest rates are reflected in the Firm’s baselines, the magnitude of the sensitivity to further increases in rates would be expected to be less significant. The net change in mix in the Firm’s spot and forecasted balance sheet also contributed to a decrease in the net U.S. dollar sensitivity when compared to December 31, 2015.
Separately, another U.S. dollar interest rate scenario used by the Firm — involving a steeper yield curve with long-term rates rising by 100 basis points and short-term rates staying at current levels — results in a 12-month benefit to net interest income of approximately $800 million. The increase under this scenario reflects the Firm reinvesting at the higher long-term rates, with funding costs remaining unchanged. The result of the comparable non-U.S. dollar scenario was not material to the Firm.
Non-U.S. dollar foreign exchange risk
Non-U.S. dollar FX risk is the risk that changes in foreign exchange rates affect the value of the Firm’s assets or liabilities or future results. The Firm has structural non-U.S. dollar FX exposures arising from capital investments, forecasted expense and revenue, the investment securities portfolio and non-U.S. dollar-denominated debt issuance. Treasury and CIO, working in partnership with the lines of business, primarily manage these risks on behalf of the Firm. Treasury and CIO may hedge certain of these risks using derivatives within risk limits governed by the CTC Risk Committee.
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| 122 | | JPMorgan Chase & Co./2016 Annual Report |
Other sensitivity-based measures
The Firm quantifies the market risk of certain investment and funding activities by assessing the potential impact on net revenue and OCI due to changes in relevant market variables. For additional information on the positions captured in other sensitivity-based measures, please refer to the Risk identification and classification table on page 117.
The table below represents the potential impact to net revenue or OCI for market risk sensitive instruments that are not included in VaR or earnings-at-risk. Where appropriate, instruments used for hedging purposes are reported along with the positions being hedged. The sensitivities disclosed in the table below may not be representative of the actual gain or loss that would have been realized at December 31, 2016, as the movement in market parameters across maturities may vary and are not intended to imply management’s expectation of future deterioration in these sensitivities.
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(in millions) December 31, 2016 | | | | | | |
| Activity | | Description | | Sensitivity measure | Gain/(Loss) |
| | | | | | | |
| Investment Activities | | | | | | |
| Investment management activities | | Consists of seed capital and related hedges; and fund co-investments | | 10% decline in market value | | $ | (166 | ) |
| Other investments | | Consists of private equity and other investments held at fair value | | 10% decline in market value | | $ | (358 | ) |
| | | | | | | |
| Funding Activities | | | | | | |
| Non-USD LTD Cross-currency basis | | Represents the basis risk on derivatives used to hedge the foreign exchange risk on the non-USD LTD | | 1 basis point parallel tightening of cross currency basis | | $ | (7 | ) |
| Non-USD LTD hedges FX exposure | | Primarily represents the foreign exchange revaluation on the fair value of the derivative hedges | | 10% depreciation of currency | | $ | (23 | ) |
| Funding Spread Risk - Derivatives | | Impact of changes in the spread related to derivatives DVA/FVA | | 1 basis point parallel increase in spread | | $ | (4 | ) |
Funding Spread Risk - Fair value option elected liabilities(a) | | Impact of changes in the spread related to fair value option elected liabilities DVA | | 1 basis point parallel increase in spread | | $ | 17 |
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| (a) | Impact recognized through OCI. |
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| JPMorgan Chase & Co./2016 Annual Report | | 123 |
Management’s discussion and analysis
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| PRINCIPAL RISK MANAGEMENT |
Principal investments are predominantly privately-held financial assets and instruments, typically representing ownership or junior capital positions, that have unique risks due to their illiquidity or for which there is less observable market or valuation data. Such positions are typically intended to be held over extended investment periods and, accordingly, the Firm has no expectation for short-term gain with respect to these investments. Principal investments cover multiple asset classes and are made either in stand-alone investing businesses or as part of a broader business platform. Asset classes include tax-oriented investments (e.g., affordable housing and alternative energy investments), private equity and various debt investments. Increasingly, new principal investment activity seeks to enhance or accelerate line of business strategic business initiatives.
The Firm’s principal investments are managed under various lines of business and are reflected within the respective LOBs financial results. The Firm’s approach to managing principal risk is consistent with the Firm’s general risk governance structure. A Firmwide risk policy framework exists for all principal investing activities. All investments are approved by investment committees that include executives who are independent from the investing businesses. The Firm’s independent control functions are responsible for reviewing the appropriateness of the carrying value of principal investments in accordance with relevant policies. Approved levels for such investments are established for each relevant business in order to manage the overall size of the portfolios. Industry, geographic and position level concentration limits are in place and are intended to ensure diversification of the portfolios. The Firm also conducts stress testing on these portfolios using specific scenarios that estimate losses based on significant market moves and/or other risk events.
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| 124 | | JPMorgan Chase & Co./2016 Annual Report |
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| COMPLIANCE RISK MANAGEMENT |
Compliance risk is the risk of failure to comply with applicable laws, rules and regulations.
Overview
Each line of business is accountable for managing its compliance risk. The Firm’s Compliance Organization (“Compliance”), which is independent of the lines of business, works closely with senior management to provide independent review, monitoring and oversight of business operations with a focus on compliance with the legal and regulatory obligations applicable to the offering of the Firm’s products and services to clients and customers.
These compliance risks relate to a wide variety of legal and regulatory obligations, depending on the line of business and the jurisdiction, and include those related to products and services, relationships and interactions with clients and customers, and employee activities. For example, compliance risks include those associated with anti-money laundering compliance, trading activities, market conduct, and complying with the rules and regulations related to the offering of products and services across jurisdictional borders, among others.
Other Functions such as Finance (including Tax), Technology and Human Resources provide oversight of significant regulatory obligations that are specific to their respective areas of responsibility.
Compliance implements various practices designed to identify and mitigate compliance risk by establishing policies, testing, monitoring, training and providing guidance.
In recent years, the Firm has experienced heightened scrutiny by its regulators of its compliance with regulations, and with respect to its controls and operational processes. In certain instances, the Firm has entered into Consent Orders with its regulators requiring the Firm to take certain specified actions to remediate compliance with regulations and improve its controls. The Firm expects that such regulatory scrutiny will continue.
Governance and oversight
Compliance is led by the Firms’ CCO who reports, effective September 2016, to the Firm’s CRO.
The Firm maintains oversight and coordination of its Compliance Risk Management practices through the Firm’s CCO, lines of business CCOs and regional CCOs to implement the Compliance program globally across the lines of business and regions. The Firm’s CCO is a member of the FCC and the FRC. The Firm’s CCO also provides regular updates to the Audit Committee and DRPC. In addition, from time to time, special committees of the Board have been established to oversee the Firm’s compliance with regulatory Consent Orders.
The Firm has in place a Code of Conduct (the “Code”), and each employee is given annual training in respect of the Code and is required annually to affirm his or her compliance with the Code. The Code sets forth the Firm’s core principles and fundamental values, including that no employee should ever sacrifice integrity - or give the impression that he or she has. The Code requires prompt reporting of any known or suspected violation of the Code, any internal Firm policy, or any law or regulation applicable to the Firm’s business. It also requires the reporting of any illegal conduct, or conduct that violates the underlying principles of the Code, by any of the Firm’s employees, customers, suppliers, contract workers, business partners, or agents. Specified employees are specially trained and designated as “code specialists” who act as a resource to employees on Code matters. In addition, concerns may be reported anonymously and the Firm prohibits retaliation against employees for the good faith reporting of any actual or suspected violations of the Code. The Code and the associated employee compliance program are focused on the regular assessment of certain key aspects of the Firm’s culture and conduct initiatives.
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| JPMorgan Chase & Co./2016 Annual Report | | 125 |
Conduct risk is the risk that an employee’s action or inaction causes undue harm to the Firm’s clients and customers, damages market integrity, undermines the Firm’s reputation, or negatively impacts the Firm’s culture.
Overview
Each line of business or function is accountable for identifying and managing its conduct risk to provide appropriate engagement, ownership and sustainability of a culture consistent with the Firm’s How We Do Business Principles (“Principles”). The Principles serve as a guide for how employees are expected to conduct themselves. With the Principles serving as a guide, the Firm’s Code sets out the Firm’s expectations for each employee and provides certain information and the resources to help employees conduct business ethically and in compliance with the law everywhere the Firm operates. For further discussion of the Code, see Compliance Risk Management on page 125.
Governance and oversight
The CMDC is the primary Board-level Committee that oversees the Firm’s culture and conduct programs. The Audit Committee has responsibility to review the program established by management that monitors compliance with the Code. Additionally, the DRPC reviews, at least annually, the Firm’s qualitative factors included in the Risk Appetite Framework, including conduct risk. The DRPC also meets annually with the CMDC to review and discuss aspects of the Firm’s compensation practices.
Conduct risk management is incorporated into various aspects of people management practices throughout the employee life cycle, including recruiting, onboarding, training and development, performance management, promotion and compensation processes. Businesses undertake annual Risk and Control Self-Assessment (“RCSA”) assessments; and, as part of these RCSA reviews, they identify their respective key inherent operational risks (including conduct risks), evaluate the design and effectiveness of their controls, identify control gaps and develop associated action plans. The Firm’s Know Your Employee framework generally addresses how the Firm manages, oversees and responds to workforce conduct related matters that may otherwise expose the Firm to financial, reputational, compliance and other operating risks. The Firm also has a HR Control Forum, the primary purpose of which is to discuss conduct and accountability for more significant risk and control issues and review, when appropriate, employee actions including but not limited to promotion and compensation actions.
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| 126 | | JPMorgan Chase & Co./2016 Annual Report |
Legal risk is the risk of loss or imposition of damages, fines, penalties or other liability arising from the failure to comply with a contractual obligation or to comply with laws, rules or regulations to which the Firm is subject.
Overview
In addition to providing legal services and advice to the Firm, and communicating and helping the lines of business adjust to the legal and regulatory changes they face, including the heightened scrutiny and expectations of the Firm’s regulators, the global Legal function is responsible for working with the businesses and corporate functions to fully understand and assess their adherence to laws, rules and regulations. In particular, Legal assists Oversight & Control, Risk, Finance, Compliance and Internal Audit in their efforts to ensure compliance with all applicable laws and regulations and the Firm’s corporate standards for doing business. The Firm’s lawyers also advise the Firm on potential legal exposures on key litigation and transactional matters, and perform a significant defense and advocacy role by defending the Firm against claims and potential claims and, when needed, pursuing claims against others. In addition, they advise the Firm’s Conflicts Office which reviews the Firm’s wholesale transactions that may have the potential to create conflicts of interest for the Firm.
Governance and oversight
The Firm’s General Counsel reports to the CEO and is a member of the Operating Committee, the Firmwide Risk Committee and the FCC. The General Counsel’s leadership team includes a General Counsel for each line of business, the heads of the Litigation and Corporate & Regulatory practices, as well as the Firm’s Corporate Secretary. Each region (e.g., Latin America, Asia Pacific) has a General Counsel who is responsible for managing legal risk across all lines of business and functions in the region.
Legal works with various committees (including new business initiative and reputation risk committees) and the Firm’s businesses to protect the Firm’s reputation beyond any particular legal requirements.
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| JPMorgan Chase & Co./2016 Annual Report | | 127 |
Model risk is the potential for adverse consequences from decisions based on incorrect or misused model outputs.
The Firm uses models across various businesses and functions. The models are of varying levels of sophistication and are used for many purposes including, for example, the valuation of positions and the measurement of risk, such as assessing regulatory capital requirements, conducting stress testing, and making business decisions.
Model risks are owned by the users of the models within the various businesses and functions in the Firm based on the specific purposes of such models. Users and developers of models are responsible for developing, implementing and testing their models, as well as referring models to the Model Risk function for review and approval. Once models have been approved, model users and developers are responsible for maintaining a robust operating environment, and must monitor and evaluate the performance of the models on an ongoing basis. Model users and developers may seek to enhance models in response to changes in the portfolios and in product and market developments, as well as to capture improvements in available modeling techniques and systems capabilities.
The Model Risk function reviews and approves a wide range of models, including risk management, valuation and regulatory capital models used by the Firm. The Model Risk function is independent of model users and developers. The Firmwide Model Risk Executive reports to the Firm’s CRO.
Models are tiered based on an internal standard according to their complexity, the exposure associated with the model and the Firm’s reliance on the model. This tiering is subject to the approval of the Model Risk function. A model review conducted by the Model Risk function considers the model’s suitability for the specific uses to which it will be put. The factors considered in reviewing a model include whether the model accurately reflects the characteristics of the product and its significant risks, the selection and reliability of model inputs, consistency with models for similar products, the appropriateness of any model-related adjustments, and sensitivity to input parameters and assumptions that cannot be observed from the market. When reviewing a model, the Model Risk function analyzes and challenges the model methodology and the reasonableness of model assumptions and may perform or require additional testing, including back-testing of model outcomes. Model reviews are approved by the appropriate level of management within the Model Risk function based on the relevant model tier.
Under the Firm’s Model Risk Policy, the Model Risk function reviews and approves new models, as well as material changes to existing models, prior to implementation in the operating environment. In certain circumstances, the head of the Model Risk function may grant exceptions to the Firm’s model risk policy to allow a model to be used prior to review or approval. The Model Risk function may also require the user to take appropriate actions to mitigate the model risk if it is to be used in the interim. These actions will depend on the model and may include, for example, limitation of trading activity.
For a summary of valuations based on models, see Critical Accounting Estimates Used by the Firm on pages 132–134 and Note 3.
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| 128 | | JPMorgan Chase & Co./2016 Annual Report |
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| OPERATIONAL RISK MANAGEMENT |
Operational risk is the risk of loss resulting from inadequate or failed processes or systems, human factors or due to external events that are neither market- nor credit-related. Operational risk is inherent in the Firm’s activities and can manifest itself in various ways, including fraudulent acts, business interruptions, inappropriate employee behavior, failure to comply with applicable laws and regulations or failure of vendors to perform in accordance with their arrangements. These events could result in financial losses, litigation and regulatory fines, as well as other damages to the Firm. The goal is to keep operational risk at appropriate levels in light of the Firm’s financial strength, the characteristics of its businesses, and the markets and regulatory environments in which it operates.
Operational Risk Management Framework
To monitor and control operational risk, the Firm has an Operational Risk Management Framework which is designed to enable the Firm to maintain a sound and well-controlled operational environment. The ORMF is comprised of four main components: Governance, Risk Assessment, Measurement, and Monitoring and Reporting.
Governance
The lines of business and corporate functions are responsible for owning and managing their operational risks. The Firmwide Oversight and Control Group, which consists of control officers within each line of business and corporate function, is responsible for the day-to-day execution of the ORMF.
Line of business and corporate function control committees oversee the operational risk and control environments of their respective businesses and functions. These committees escalate operational risk issues to the FCC, as appropriate. For additional information on the FCC, see Enterprise Risk Management on pages 71–75.
The Firmwide Risk Executive for Operational Risk Governance (“ORG”), a direct report to the CRO, is responsible for defining the ORMF and establishing minimum standards for its execution. Operational Risk Officers report to both the line of business CROs and to the Firmwide Risk Executive for ORG, and are independent of the respective businesses or corporate functions they oversee.
The Firm’s Operational Risk Appetite Policy is approved by the DRPC. This policy establishes the Operational Risk Management Framework for the Firm. The assessments of operational risk using this framework are reviewed with the DRPC.
Risk assessment
The Firm utilizes several tools to identify, assess, mitigate and manage its operational risk. One such tool is the RCSA program which is executed by LOBs and corporate functions in accordance with the minimum standards established by ORG. As part of the RCSA program, lines of business and corporate functions identify key operational risks inherent in their activities, evaluate the effectiveness of relevant
controls in place to mitigate identified risks, and define actions to reduce residual risk. Action plans are developed for identified control issues and businesses are held accountable for tracking and resolving issues in a timely manner. Operational Risk Officers independently challenge the execution of the RCSA program and evaluate the appropriateness of the residual risk results.
In addition to the RCSA program, the Firm tracks and monitors events that have or could lead to actual operational risk losses, including litigation-related events. Responsible businesses and corporate functions analyze their losses to evaluate the efficacy of their control environment to assess where controls have failed, and to determine where targeted remediation efforts may be required. ORG provides oversight of these activities and may also perform independent assessments of significant operational risk events and areas of concentrated or emerging risk.
Measurement
In addition to the level of actual operational risk losses, operational risk measurement includes operational risk-based capital and operational risk losses under both baseline and stressed conditions.
The primary component of the operational risk capital estimate is the Loss Distribution Approach (“LDA”) statistical model, which simulates the frequency and severity of future operational risk loss projections based on historical data. The LDA model is used to estimate an aggregate operational risk loss over a one-year time horizon, at a 99.9% confidence level. The LDA model incorporates actual internal operational risk losses in the quarter following the period in which those losses were realized, and the calculation generally continues to reflect such losses even after the issues or business activities giving rise to the losses have been remediated or reduced.
As required under the Basel III capital framework, the Firm’s operational risk-based capital methodology, which uses the Advanced Measurement Approach, incorporates internal and external losses as well as management’s view of tail risk captured through operational risk scenario analysis, and evaluation of key business environment and internal control metrics.
The Firm considers the impact of stressed economic conditions on operational risk losses and develops a forward looking view of material operational risk events that may occur in a stressed environment. The Firm’s operational risk stress testing framework is utilized in calculating results for the Firm’s CCAR and ICAAP processes.
For information related to operational risk RWA, CCAR or ICAAP, see Capital Risk Management section, pages 76–85.
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| JPMorgan Chase & Co./2016 Annual Report | | 129 |
Management’s discussion and analysis
Monitoring and reporting
ORG has established standards for consistent operational risk reporting. The standards also reinforce escalation protocols to senior management and to the Board of Directors. Operational risk reports are produced on a firmwide basis as well as by line of business and corporate function.
Other operational risks
As mentioned previously, operational risk can manifest itself in various ways. Risks such as Compliance risk, Conduct risk, Legal risk and Model risk as well as other operational risks, can lead to losses which are captured through the Firm’s operational risk measurement processes. More information on Compliance risk, Conduct risk, Legal risk and Model risk are discussed on pages 125, 126, 127 and 128, respectively. Details on other select operational risks are provided below.
Cybersecurity risk
The Firm devotes significant resources to protect the security of the Firm’s computer systems, software, networks and other technology assets. The Firm’s security efforts are intended to protect against cybersecurity attacks by unauthorized parties to obtain access to confidential information, destroy data, disrupt or degrade service, sabotage systems or cause other damage. The Firm continues to make significant investments in enhancing its cyber defense capabilities and to strengthen its partnerships with the appropriate government and law enforcement agencies and other businesses in order to understand the full spectrum of cybersecurity risks in the environment, enhance defenses and improve resiliency against cybersecurity threats. Third parties with which the Firm does business or that facilitate the Firm’s business activities (e.g., vendors, exchanges, clearing houses, central depositories, and financial intermediaries) could also be sources of cybersecurity risk to the Firm. Third party cybersecurity incidents such as system breakdowns or failures, misconduct by the employees of such parties, or cyberattacks could affect their ability to deliver a product or service to the Firm or result in lost or compromised information of the Firm or its clients. Clients can also be sources of cybersecurity risk to the Firm, particularly when their activities and systems are beyond the Firm’s own security and control systems. However, where cybersecurity incidents are due to client failure to maintain the security of their own systems and processes, clients will generally be responsible for losses incurred.
To protect the confidentiality, integrity and availability of the Firm’s infrastructure, resources and information, the Firm leverages the ORMF to ensure risks are identified and managed within defined corporate tolerances. The Firm’s Board of Directors and the Audit Committee are regularly briefed on the Firm’s cybersecurity policies and practices as well as its efforts regarding significant cybersecurity events.
Payment fraud risk
Payment fraud risk is the risk of external and internal parties unlawfully obtaining personal benefit at the expense of the Firm. Over the past year, the risk of payment fraud has increased across the industry, with the number of
attempts hitting record highs. The complexities of these attacks along with perpetrators’ strategies continue to evolve. A Payments Control Program has been established that includes Cybersecurity, Operations, Technology, Risk and the lines of business to manage the risk, implement controls and provide client education and awareness training. The program monitors and measures payment fraud activity, evaluates the Firm’s cybersecurity defenses, limits access to sensitive data, and provides training to both employees and clients.
Third-party outsourcing risk
To identify and manage the operational risk inherent in its outsourcing activities, the Firm has a Third-Party Oversight (“TPO”) framework to assist lines of business and corporate functions in selecting, documenting, onboarding, monitoring and managing their supplier relationships. The objective of the TPO framework is to hold third parties to the same high level of operational performance as is expected of the Firm’s internal operations. The Third-Party Oversight group is responsible for Firmwide TPO training, monitoring, reporting and standards.
Business and technology resilience risk
Business disruptions can occur due to forces beyond the Firm’s control such as severe weather, power or telecommunications loss, flooding, transit strikes, terrorist threats or infectious disease. The safety of the Firm’s employees and customers is of the highest priority. The Firm’s global resiliency program is intended to ensure that the Firm has the ability to recover its critical business functions and supporting assets (i.e., staff, technology and facilities) in the event of a business interruption. The program includes corporate governance, awareness and training, as well as strategic and tactical initiatives to identify, assess, and manage business interruption and public safety risks.
The strength and proficiency of the Firm’s global resiliency program has played an integral role in maintaining the Firm’s business operations during and quickly after various events.
Insurance
One of the ways operational loss may be mitigated is through insurance maintained by the Firm. The Firm purchases insurance to be in compliance with local laws and regulations (e.g., workers compensation), as well as to serve other needs (e.g., property loss and public liability). Insurance may also be required by third parties with whom the Firm does business. The insurance purchased is reviewed and approved by senior management.
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| 130 | | JPMorgan Chase & Co./2016 Annual Report |
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| REPUTATION RISK MANAGEMENT |
Reputation risk is the risk that an action, transaction, investment or event will reduce trust in the Firm’s integrity or competence by its various constituents, including clients, counterparties, investors, regulators, employees and the broader public. Maintaining the Firm’s reputation is the responsibility of each individual employee of the Firm. The Firm’s Reputation Risk Governance policy explicitly vests each employee with the responsibility to consider the reputation of the Firm when engaging in any activity. Since the types of events that could harm the Firm’s reputation are so varied across the Firm’s lines of business, each line of business has a separate reputation risk governance
infrastructure in place, which consists of three key elements: clear, documented escalation criteria appropriate to the business; a designated primary discussion forum — in most cases, one or more dedicated reputation risk committees; and a list of designated contacts, to whom questions relating to reputation risk should be referred. Line of business reputation risk governance is overseen by a Firmwide Reputation Risk Governance function which provides oversight of the governance infrastructure and process to support the consistent identification, escalation, management and monitoring of reputation risk issues firmwide.
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| JPMorgan Chase & Co./2016 Annual Report | | 131 |
Management’s discussion and analysis
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| CRITICAL ACCOUNTING ESTIMATES USED BY THE FIRM |
JPMorgan Chase’s accounting policies and use of estimates are integral to understanding its reported results. The Firm’s most complex accounting estimates require management’s judgment to ascertain the appropriate carrying value of assets and liabilities. The Firm has established policies and control procedures intended to ensure that estimation methods, including any judgments made as part of such methods, are well-controlled, independently reviewed and applied consistently from period to period. The methods used and judgments made reflect, among other factors, the nature of the assets or liabilities and the related business and risk management strategies, which may vary across the Firm’s businesses and portfolios. In addition, the policies and procedures are intended to ensure that the process for changing methodologies occurs in an appropriate manner. The Firm believes its estimates for determining the carrying value of its assets and liabilities are appropriate. The following is a brief description of the Firm’s critical accounting estimates involving significant judgments.
Allowance for credit losses
JPMorgan Chase’s allowance for credit losses covers the retained consumer and wholesale loan portfolios, as well as the Firm’s wholesale and certain consumer lending-related commitments. The allowance for loan losses is intended to adjust the carrying value of the Firm’s loan assets to reflect probable credit losses inherent in the loan portfolio as of the balance sheet date. Similarly, the allowance for lending-related commitments is established to cover probable credit losses inherent in the lending-related commitments portfolio as of the balance sheet date.
The allowance for loancredit losses includes a formula-based component, an asset-specific component, a formula-based component, and a component related to PCI loans. The determination of each of these components involves significant judgment on a number of matters, as discussed below.matters. For further discussion of thethese components, areas of judgment and methodologies used in establishing the Firm’s allowance for credit losses, see Note 15.
Asset-specific component
The asset-specific allowance for loan losses for each of the Firm’s portfolio segments is generally measured as the difference between the recorded investment in the impaired loan and the present value of the cash flows expected to be collected, discounted at the loan’s original effective interest rate. Estimating the timing and amounts of future cash flows is highly judgmental as these cash flow projections rely upon estimates such as redefault rates, loss severities, the amounts and timing of prepayments and other factors that are reflective of current and expected future market conditions. These estimates are, in turn, dependent on factors such as the level of future home prices, the duration of current overall economic conditions, and other macroeconomic and portfolio-specific factors. All of these estimates and assumptions require significant management judgment and certain assumptions are highly subjective.
Formula-based component — Consumer loans and lending-related commitments, excluding PCI loans
The formula-based allowance for credit losses for the consumer portfolio, including credit card, is calculated by applying statistical credit loss factors to outstanding principal balances over an estimated loss emergence period to arrive at an estimate of incurred credit losses in the portfolio. The loss emergence period represents the time period between the date at which the loss is estimated to have been incurred and the ultimate realization of that loss (through a charge-off). Estimated loss emergence periods may vary by product and may change over time; management applies judgment in estimating loss emergence periods, using available credit information and trends. In addition, management applies judgment to the statistical loss estimates for each loan portfolio category, using delinquency trends and other risk characteristics to estimate the total incurred credit losses in the portfolio. Management uses additional statistical methods and considers portfolio and collateral valuation trends to review the appropriateness of the primary statistical loss estimate.
The statistical calculation is then adjusted to take into consideration model imprecision, external factors and current economic events that have occurred but that are not yet reflected in the factors used to derive the statistical calculation; these adjustments are accomplished in part by analyzing the historical loss experience for each major product segment. However, it is difficult to predict whether historical loss experience is indicative of future loss levels. Management applies judgment in making this adjustment, taking into account uncertainties associated with current macroeconomic and political conditions, quality of underwriting standards, borrower behavior, the potential impact of payment recasts within the HELOC portfolio, and other relevant internal and external factors affecting the credit quality of the portfolio. In certain instances, the interrelationships between these factors create further uncertainties. For example, the performance of a HELOC that experiences a payment recast may be affected by both the quality of underwriting standards applied in originating the loan and the general economic conditions in effect at the time of the payment recast. For junior lien products, management considers the delinquency and/or modification status of any senior liens in determining the adjustment. The application of different inputs into the statistical calculation, and the assumptions used by management to adjust the statistical calculation, are subject to management judgment, and emphasizing one input or assumption over another, or considering other inputs or assumptions, could affect the estimate of the allowance for loan losses for the consumer credit portfolio.
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JPMorgan Chase & Co./2015 Annual Report | | 165 |
Management’s discussion and analysis
Overall, the allowance for credit losses for the consumer portfolio, including credit card, is sensitive to changes in the economic environment (e.g., unemployment rates), delinquency rates, the realizable value of collateral (e.g., housing prices), FICO scores, borrower behavior and other risk factors. While all of these factors are important determinants of overall allowance levels, changes in the various factors may not occur at the same time or at the same rate, or changes may be directionally inconsistent such that improvement in one factor may offset deterioration in the other. In addition, changes in these factors would not necessarily be consistent across all geographies or product types. Finally, it is difficult to predict the extent to which changes in these factors would ultimately affect the frequency of losses, the severity of losses or both.
PCI loans
In connection with the Washington Mutual transaction, JPMorgan Chase acquired certain PCI loans, which are accounted for as described in Note 14. The allowance for loan losses for the PCI portfolio is based on quarterly estimates of the amount of principal and interest cash flows expected to be collected over the estimated remaining lives of the loans.
These cash flow projections are based on estimates regarding default rates (including redefault rates on modified loans), loss severities, the amounts and timing of prepayments and other factors that are reflective of current and expected future market conditions. These estimates are dependent on assumptions regarding the level of future home price declines, and the duration of current overall economic conditions, among other factors. These estimates and assumptions require significant management judgment and certain assumptions are highly subjective.
Formula-based component — Wholesale loans and lending-related commitments
The Firm’s methodology for determining the allowance for loan losses and the allowance for lending-related commitments involves the early identification of credits that are deteriorating. The formula-based component of the allowance calculation for wholesale loans and lending-related components is the product of an estimated PD and estimated LGD. These factors are determined based on the credit quality and specific attributes of the Firm’s loans and lending-related commitments to each obligor.
The Firm assesses the credit quality of its borrower or counterparty and assigns a risk rating. Risk ratings are assigned at origination or acquisition, and if necessary, adjusted for changes in credit quality over the life of the exposure. In assessing the risk rating of a particular loan or lending-related commitment, among the factors considered are the obligor’s debt capacity and financial flexibility, the level of the obligor’s earnings, the amount and sources for repayment, the level and nature of contingencies, management strength, and the industry and geography in which the obligor operates. These factors are based on an
evaluation of historical and current information and involve subjective assessment and interpretation. Determining risk ratings involves significant judgment; emphasizing one factor over another or considering additional factors could affect the risk rating assigned by the Firm.
PD estimates are based on observable external through-the-cycle data, using credit rating agency default statistics. A LGD estimate is assigned to each loan or lending-related commitment. The estimate represents the amount of economic loss if the obligor were to default. The type of obligor, quality of collateral, and the seniority of the Firm’s lending exposure in the obligor’s capital structure affect LGD. LGD estimates are based on the Firm’s history of actual credit losses over more than one credit cycle. Changes to the time period used for PD and LGD estimates (for example, point-in-time loss versus longer views of the credit cycle) could also affect the allowance for credit losses.
The Firm applies judgment in estimating PD and LGD used in calculating the allowances. Wherever possible, the Firm uses independent, verifiable data or the Firm’s own historical loss experience in its models for estimating the allowances, but differences in characteristics between the Firm’s specific loans or lending-related commitments and those reflected in external and Firm-specific historical data could affect loss estimates. Estimates of PD and LGD are subject to periodic refinement based on any changes to underlying external and Firm-specific historical data. The use of different inputs would change the amount of the allowance for credit losses determined appropriate by the Firm.
Management also applies its judgment to adjust the modeled loss estimates, taking into consideration model imprecision, external factors and economic events that have occurred but are not yet reflected in the loss factors. Historical experience of both LGD and PD are considered when estimating these adjustments. Factors related to concentrated and deteriorating industries also are incorporated where relevant. These estimates are based on management’s view of uncertainties that relate to current macroeconomic and political conditions, quality of underwriting standards and other relevant internal and external factors affecting the credit quality of the current portfolio.
Allowance for credit losses sensitivity
As noted above, theThe Firm’s allowance for credit losses is sensitive to numerous factors, which may differ depending on the portfolio. Changes in economic conditions or in the Firm’s assumptions and estimates could affect its estimate of probable credit losses inherent in the portfolio at the balance sheet date. The Firm uses its best judgment to assess these economic conditions and loss data in estimating the allowance for credit losses and these estimates are subject to periodic refinement based on any changes to underlying external andor Firm-specific historical data. In many cases, theThe use of alternate estimates, (for example, the effect of home prices and unemployment rates
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166 | | JPMorgan Chase & Co./2015 Annual Report |
on consumer delinquency, or the calibration between the Firm’s wholesale loan risk ratings and external credit ratings) or data sources, (for example, external PDadjustments to modeled loss estimates for model imprecision and LGDother factors that incorporate industry-wide information, versus Firm-specific history) would result in a different estimated allowance for credit losses.
To illustrate the potential magnitude of certain alternate judgments, the Firm estimates that changes in the following inputs would have the following effects on the Firm’s modeled credit loss estimates as of December 31, 2015,2016, without consideration of any offsetting or correlated effects of other inputs in the Firm’s allowance for loan losses:
For PCI loans, a combined 5% decline in housing prices and a 1%100 basis point increase in unemployment rates from current levels could imply an increase to modeled credit loss estimates of approximately $700$600 million.
For the residential real estate portfolio, excluding PCI loans, a combined 5% decline in housing prices and a 1%100 basis point increase in unemployment rates from current levels could imply an increase to modeled annual loss estimates of approximately $125 million.
A 50For credit card loans, a 100 basis point deteriorationincrease in forecasted credit card lossunemployment rates from current levels could imply an increase to modeled annualized credit card loanannual loss estimates of approximately $600$900 million.
An increase in PD factors consistent with a one-notch downgrade in the Firm’s internal risk ratings for its entire wholesale loan portfolio could imply an increase in the Firm’s modeled loss estimates of approximately $2.1$2.3 billion.
A 100 basis point increase in estimated LGD for the Firm’s entire wholesale loan portfolio could imply an increase in the Firm’s modeled credit loss estimates of approximately $175 million.
The purpose of these sensitivity analyses is to provide an indication of the isolated impacts of hypothetical alternative assumptions on modeled loss estimates. The changes in the inputs presented above are not intended to imply management’s expectation of future deterioration of those risk factors. In addition, these analyses are not intended to estimate changes in the overall allowance for loan losses, which would also be influenced by the judgment management applies to the modeled loss estimates to reflect the uncertainty and imprecision of these modeled loss estimates based on then-current circumstances and conditions.
It is difficult to estimate how potential changes in specific factors might affect the overall allowance for credit losses because management considers a variety of factors and inputs in estimating the allowance for credit losses. Changes in these factors and inputs may not occur at the same rate and may not be consistent across all geographies or product types, and changes in factors may be directionally inconsistent, such that improvement in one factor may offset deterioration in other factors. In addition,
it is difficult to predict how changes in specific economic conditions or assumptions could affect borrower behavior or other factors considered by management in estimating the allowance for credit losses. Given the process the Firm
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| 132 | | JPMorgan Chase & Co./2016 Annual Report |
follows and the judgments made in evaluating the risk factors related to its loss estimates, management believes that its current estimate of the allowance for credit losses is appropriate.
Fair value of financial instruments, MSRs and commodities inventory
JPMorgan Chase carries a portion of its assets and liabilities at fair value. The majority of such assets and liabilities are measured at fair value on a recurring basis. Certain assets and liabilities are measured at fair value on a nonrecurring basis, including certain mortgage, home equity and other loans, where the carrying value is based on the fair value of the underlying collateral.
Assets measured at fair value
The following table includes the Firm’s assets measured at fair value and the portion of such assets that are classified within level 3 of the valuation hierarchy. For further information, see Note 3.
|
| | | | | | | |
December 31, 2015 (in billions, except ratio data) | Total assets at fair value | Total level 3 assets |
| Trading debt and equity instruments | $ | 284.1 |
| | $ | 11.9 |
|
Derivative receivables(a) | 59.7 |
| | 7.9 |
|
| Trading assets | 343.8 |
| | 19.8 |
|
| AFS securities | 241.8 |
| | 0.8 |
|
| Loans | 2.9 |
| | 1.5 |
|
| MSRs | 6.6 |
| | 6.6 |
|
Private equity investments(b) | 1.9 |
| | 1.7 |
|
| Other | 28.0 |
| | 0.8 |
|
Total assets measured at fair value on a recurring basis | 625.0 |
| | 31.2 |
|
| Total assets measured at fair value on a nonrecurring basis | 1.7 |
| | 1.0 |
|
Total assets measured at fair value | $ | 626.7 |
| | $ | 32.2 |
|
| Total Firm assets | $ | 2,351.7 |
| | |
Level 3 assets as a percentage of total Firm assets(a) | | | 1.4 | % |
Level 3 assets as a percentage of total Firm assets at fair value(a) | | | 5.1 | % |
Note: Effective April 1, 2015, the Firm adopted new accounting guidance for certain investments where the Firm measures fair value using the net asset value per share (or its equivalent) as a practical expedient and has excluded these investments from the fair value hierarchy. For further information, see Note 3. |
| | | | | | | |
December 31, 2016 (in billions, except ratio data) | Total assets at fair value | Total level 3 assets |
| Trading debt and equity instruments | $ | 308.0 |
| | $ | 7.9 |
|
Derivative receivables(a) | 64.1 |
| | 5.8 |
|
| Trading assets | 372.1 |
| | 13.7 |
|
| AFS securities | 238.9 |
| | 0.7 |
|
| Loans | 2.2 |
| | 0.6 |
|
| MSRs | 6.1 |
| | 6.1 |
|
Private equity investments(b) | 1.7 |
| | 1.6 |
|
| Other | 26.4 |
| | 0.5 |
|
Total assets measured at fair value on a recurring basis | 647.4 |
| | 23.2 |
|
| Total assets measured at fair value on a nonrecurring basis | 1.6 |
| | 0.8 |
|
Total assets measured at fair value | $ | 649.0 |
| | $ | 24.0 |
|
| Total Firm assets | $ | 2,491.0 |
| | |
Level 3 assets as a percentage of total Firm assets(a) | | | 1.0 | % |
Level 3 assets as a percentage of total Firm assets at fair value(a) | | | 3.7 | % |
| |
| (a) | For purposes of table above, the derivative receivables total reflects the impact of netting adjustments; however, the $7.9$5.8 billion of derivative receivables classified as level 3 does not reflect the netting adjustment as such netting is not relevant to a presentation based on the transparency of inputs to the valuation of an asset. However, if the Firm were to net such balances withinThe level 3 the reduction in the level 3 derivative receivables balancebalances would be $546 million at December 31, 2015; this is exclusive ofreduced if netting were applied, including the netting benefit associated with cash collateral, which would further reduce the level 3 balances.collateral. |
| |
| (b) | Private equity instruments represent investments within the Corporate line of business.Corporate. |
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JPMorgan Chase & Co./2015 Annual Report | | 167 |
Management’s discussion and analysis
Valuation
Details of the Firm’s processes for determining fair value are set out in Note 3. Estimating fair value requires the application of judgment. The type and level of judgment required is largely dependent on the amount of observable market information available to the Firm. For instruments valued using internally developed models that use significant unobservable inputs and are therefore classified within level 3 of the valuation hierarchy, judgments used to estimate fair value are more significant than those required when estimating the fair value of instruments classified within levels 1 and 2.
In arriving at an estimate of fair value for an instrument within level 3, management must first determine the appropriate model to use. Second, the lack of observability of certain significant inputs requires management to assess all relevant empirical data in deriving valuation inputs including, for example, transaction details, yield curves, interest rates, prepayment rates, default rates, volatilities, correlations, equity or debt prices, valuations of comparable instruments, foreign exchange rates and credit curves. For further discussion of the valuation of level 3 instruments, including unobservable inputs used, see
Note 3.
For instruments classified in levels 2 and 3, management judgment must be applied to assess the appropriate level of valuation adjustments to reflect counterparty credit quality, the Firm’s credit-worthiness,creditworthiness, market funding rates, liquidity considerations, unobservable parameters, and for portfolios that meet specified criteria, the size of the net open risk position. The judgments made are typically affected by the type of product and its specific contractual terms, and the level of liquidity for the product or within the market as a whole. For further discussion of valuation adjustments applied by the Firm see Note 3.
Imprecision in estimating unobservable market inputs or other factors can affect the amount of gain or loss recorded for a particular position. Furthermore, while the Firm believes its valuation methods are appropriate and consistent with those of other market participants, the methods and assumptions used reflect management judgment and may vary across the Firm’s businesses and portfolios.
The Firm uses various methodologies and assumptions in the determination of fair value. The use of methodologies or assumptions different than those used by the Firm could result in a different estimate of fair value at the reporting date. For a detailed discussion of the Firm’s valuation process and hierarchy, and its determination of fair value for individual financial instruments, see Note 3.
Goodwill impairment
Under U.S. GAAP, goodwill must be allocated to reporting units and tested for impairment at least annually. The Firm’s process and methodology used to conduct goodwill impairment testing is described in Note 17.
Management applies significant judgment when estimating the fair value of its reporting units. Estimates of fair value are dependent upon estimates of (a) the future earnings potential of the Firm’s reporting units, including the estimated effects of regulatory and legislative changes, such as the Dodd-Frank Act, (b) long-term growth rates and (c) the relevantestimated market cost of equity. Imprecision in estimating these factors can affect the estimated fair value of the reporting units.
Based upon the updated valuations for all of its reporting units, the Firm concluded that the goodwill allocated to its reporting units was not impaired at December 31, 2015.2016. The fair values of these reporting units exceeded their carrying values by approximately 10% - 180%130% for all
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| JPMorgan Chase & Co./2016 Annual Report | | 133 |
Management’s discussion and analysis
reporting units and did not indicate a significant risk of goodwill impairment based on current projections and valuations.
The goodwill of $101 million remaining as of December 31, 2014 associated with the Private Equity business was disposed of as part of the Private Equity sale completed in January 2015. For further information on the Private Equity sale, see Note 2.
The projections for all of the Firm’s reporting units are consistent with management’s current short-term business outlook assumptions, and in the longer term, incorporate a set of macroeconomic assumptions and the Firm’s best estimates of long-term growth and returns on equity of its businesses. Where possible, the Firm uses third-party and peer data to benchmark its assumptions and estimates.
Declines in business performance, increases in credit losses, increases in equity capital requirements, as well as deterioration in economic or market conditions, adverse estimates of regulatory or legislative changes or increases in the estimated market cost of equity, could cause the estimated fair values of the Firm’s reporting units or their associated goodwill to decline in the future, which could result in a material impairment charge to earnings in a future period related to some portion of the associated goodwill.
For additional information on goodwill, see Note 17.
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168 | | JPMorgan Chase & Co./2015 Annual Report |
Income taxes
JPMorgan Chase is subject to the income tax laws of the various jurisdictions in which it operates, including U.S. federal, state and local, and non-U.S. jurisdictions. These laws are often complex and may be subject to different interpretations. To determine the financial statement impact of accounting for income taxes, including the provision for income tax expense and unrecognized tax benefits, JPMorgan Chase must make assumptions and judgments about how to interpret and apply these complex tax laws to numerous transactions and business events, as well as make judgments regarding the timing of when certain items may affect taxable income in the U.S. and non-U.S. tax jurisdictions.
JPMorgan Chase’s interpretations of tax laws around the world are subject to review and examination by the various taxing authorities in the jurisdictions where the Firm operates, and disputes may occur regarding its view on a tax position. These disputes over interpretations with the various taxing authorities may be settled by audit, administrative appeals or adjudication in the court systems of the tax jurisdictions in which the Firm operates. JPMorgan Chase regularly reviews whether it may be assessed additional income taxes as a result of the resolution of these matters, and the Firm records additional reserves as appropriate. In addition, the Firm may revise its estimate of income taxes due to changes in income tax laws, legal interpretations, and tax planningbusiness strategies. It is possible that revisions in the Firm’s estimate of income taxes may materially affect the Firm’s results of operations in any reporting period.
The Firm’s provision for income taxes is composed of current and deferred taxes. Deferred taxes arise from differences between assets and liabilities measured for financial reporting versus income tax return purposes. Deferred tax assets are recognized if, in management’s judgment, their realizability is determined to be more likely than not. The Firm has also recognized deferred tax assets in connection with certain net operating losses (“NOLs”)NOLs and tax credits. The Firm
performs regular reviews to ascertain whether its deferred tax assets are realizable. These reviews include management’s estimates and assumptions regarding future taxable income, which also incorporates various tax planning strategies, including strategies that may be available to utilize NOLs before they expire. In connection with these reviews, if it is determined that a deferred tax asset is not realizable, a valuation allowance is established. The valuation allowance may be reversed in a subsequent reporting period if the Firm determines that, based on revised estimates of future taxable income or changes in tax planning strategies, it is more likely than not that all or part of the deferred tax asset will become realizable. As of December 31, 2015,2016, management has determined it is more likely than not that the Firm will realize its deferred tax assets, net of the existing valuation allowance.
JPMorgan Chase does not record U.S. federal income taxes on the undistributed earnings of certain non-U.S. subsidiaries, to the extent thatmanagement has determined such earnings have been reinvested abroad for an indefinite period of time. Changes to the income tax rates applicable to these non-U.S. subsidiaries may have a material impact on the effective tax rate in a future period if such changes were to occur.
The Firm adjusts its unrecognized tax benefits as necessary when additional information becomes available. Uncertain tax positions that meet the more-likely-than-not recognition threshold are measured to determine the amount of benefit to recognize. An uncertain tax position is measured at the largest amount of benefit that management believes is more likely than not to be realized upon settlement. It is possible that the reassessment of JPMorgan Chase’s unrecognized tax benefits may have a material impact on its effective income tax rate in the period in which the reassessment occurs.
For additional information on income taxes, see Note 26.
Litigation reserves
For a description of the significant estimates and judgments associated with establishing litigation reserves, see
Note 31.
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| 134 | | JPMorgan Chase & Co./20152016 Annual Report | | 169 |
Management’s discussion and analysis
|
| | | | |
| ACCOUNTING AND REPORTING DEVELOPMENTS |
|
| | | | |
Financial Accounting Standards Board (“FASB”) Standards Adoptedadopted during 20152016 |
| | | | |
Standard | | Summary of guidance | | Effects on financial statements |
Simplifying the presentation of debt issuance costs
| | • Requires that unamortized debt issuance costs be presented as a reduction of the applicable liability rather than as an asset.
• Does not impact the amortization method for these costs.
| | • Adopted October 1, 2015.
• There was no material impact on the Firm’s Consolidated balance sheets, and no impact on the Firm’s Consolidated results of operations.
• For further information, see Note 1.(a)
|
Disclosures for investments in certain entities that calculate net asset value per share (or its equivalent) | | • Removes the requirement to categorize investments measured under the net asset value (“NAV”) practical expedient from the fair value hierarchy.
• Limits disclosures required for investments that are eligible to be measured using the NAV practical expedient to investments for which the entity has elected the practical expedient.
| | • Adopted April 1, 2015.
• The application of this guidance only affected the disclosures related to these investments and had no impact on the Firm’s Consolidated balance sheets or results of operations.
• For further information, see Note 3.(a)
|
Repurchase agreements and similar transactions | | • Amends the accounting for certain secured financing transactions.
• Requires enhanced disclosures with respect to transactions recognized as sales in which exposure to the derecognized assets is retained through a separate agreement with the counterparty.
• Requires enhanced disclosures with respect to the types of financial assets pledged in secured financing transactions and the remaining contractual maturity of the secured financing transactions.
| | • Accounting amendments adopted January 1, 2015.
• Disclosure enhancements adopted April 1, 2015.
• There was no material impact on the Firm’s Consolidated Financial Statements.
• For further information, see Note 6 and Note 13.
|
Reporting discontinued operations and disclosures of disposals of components of an entity | | • Changes the criteria for determining whether a disposition qualifies for discontinued operations presentation.
• Requires enhanced disclosures about discontinued operations and significant dispositions that do not qualify to be presented as discontinued operations.
| | • Adopted January 1, 2015.
• There was no material impact on the Firm’s
Consolidated Financial Statements.
|
Investments in qualified affordable housing projects | | • Applies to accounting for investments in affordable housing projects that qualify for the low-income housing tax credit.
• Replaces the effective yield method and allows companies to make an accounting policy election to amortize the initial cost of its investments in proportion to the tax credits and other benefits received if certain criteria are met, and to present the amortization as a component of income tax expense.
| | • Adopted January 1, 2015.
• For further information, see Note 1.(a)
|
(a) The guidance was required to be applied retrospectively and accordingly, certain prior period amounts have been revised to conform with the current period presentation.
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170 | | JPMorgan Chase & Co./2015 Annual Report |
|
| | | | |
FASB Standards Issued but not yet Adopted |
| | | | | |
| Standard | | Summary of guidance | | Effects on financial statements |
Amendments to the consolidation analysis
Issued February 2015
| | • Eliminates the deferral issued by the FASB in February 2010 of certain VIE-related accounting requirements for certain investment funds, including mutual funds, private equity funds and hedge funds. • Amends the evaluation of fees paid to a decision makerdecision-maker or a service provider, and exempts certain money market funds from consolidation. | | • Required effective dateAdopted January 1, 2016. • Will not have aThere was no material impact on the Firm’s Consolidated Financial Statements. • For further information, see Note 1. |
| Improvements to employee share-based payment accounting | | • Requires that all excess tax benefits and tax deficiencies that pertain to employee stock-based incentive payments be recognized within income tax expense in the Consolidated statements of income, rather than within additional paid-in capital. | | • Adopted January 1, 2016. • There was no material impact on the Firm’s Consolidated Financial Statements. |
Measuring the financial assets and financial liabilities of a consolidated collateralized financing entity Issued August 2014
| | • Provides an alternative for consolidated financing VIEs to elect: (1) to measure their financial assets and liabilities separately under existing U.S. GAAP for fair value measurement with any differences in such fair values reflected in earnings; or (2) to measure both their financial assets and liabilities using the more observable of the fair value of the financial assets or the fair value of the financial liabilities. | | • Adopted January 1, 2016.
• There was no material impact on the Firm’s Consolidated Financial Statements as the Firm has historically measured the financial assets and liabilities using the more observable fair value.
|
| Recognition and measurement of financial assets and financial liabilities – DVA to OCI | | • For financial liabilities where the fair value option has been elected, the portion of the total change in fair value caused by changes in the Firm’s own credit risk (i.e., DVA) is required to be presented separately in OCI. • Requires a cumulative-effect adjustment to retained earnings as of the beginning of the period of adoption. | | • Required effective dateAdopted January 1, 2016. • Will not have aThere was no material impact on the Firm’s Consolidated Financial Statements. • For additional information about the impact of the adoption of the new accounting guidance, see
Notes 3, 4 and 25. |
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| JPMorgan Chase & Co./2016 Annual Report | | 135 |
Management’s discussion and analysis
|
| | | | |
| FASB Standards issued but not yet adopted |
| | | | |
| Standard | | Summary of guidance | | Effects on financial statements |
Revenue recognition – revenue from contracts with customers
Issued May 2014
| | • Requires that revenue from contracts with customers be recognized upon transfer of control of a good or service in the amount of consideration expected to be received. • Changes the accounting for certain contract costs, including whether they may be offset against revenue in the Consolidated statements of income, and requires additional disclosures about revenue and contract costs. • May be adopted using a full retrospective approach or a modified, cumulative effect-typeeffect approach wherein the guidance is applied only to existing contracts as of the date of initial application, and to new contracts transacted after that date. | | • Required effective datedate: January 1, 2018.(a) • Because the guidance does not apply to revenue associated with financial instruments, including loans and securities that are accounted for under other U.S. GAAP, the Firm does not expect the new revenue recognition guidance to have a material impact on the elements of its Consolidated statements of income most closely associated with financial instruments, including Securities Gains, Interest Incomesecurities gains, interest income and Interest Expense.interest expense. • The Firm plans to adopt the revenue recognition guidance in the first quarter of 20182018. The Firm’s implementation efforts include the identification of revenue within the scope of the guidance, as well as the evaluation of revenue contracts and related accounting policies. While the Firm has not yet identified any material changes in the timing of revenue recognition, the Firm’s review is currently evaluatingongoing, and it continues to evaluate the potential impact on the Consolidated Financial statements and its selectionpresentation of transition method.certain contract costs (whether presented gross or offset against noninterest revenue). |
Recognition and measurement of financial assets and financial liabilities
Issued January 2016
| | • Requires that certain equity instruments be measured at fair value, with changes in fair value recognized in earnings. • For financial liabilities where the fair value option has been elected, the portion of the total change in fair value caused by changes in Firm’s own credit risk is required to be presented separately in Other comprehensive income (“OCI”). • Generally requires a cumulative-effectivecumulative-effect adjustment to retained earnings as of the beginning of the reporting period of adoption.
| | • Required effective date: January 1, 2018. • The Firm is currently evaluating the potential impact on the Consolidated Financial Statements. The Firm’s implementation efforts include the identification of securities within the scope of the guidance, the evaluation of the measurement alternative available for equity securities without a readily determinable fair value, and the related impact to accounting policies, presentation, and disclosures. |
Leases
Issued February 2016
| | • Requires lessees to recognize all leases longer than twelve months on the Consolidated balance sheets as lease liabilities with corresponding right-of-use assets. • Requires lessees and lessors to classify most leases using principles similar to existing lease accounting, but eliminates the “bright line” classification tests. • Expands qualitative and quantitative disclosures regarding leasing arrangements. • Requires adoption using a modified cumulative effect approach wherein the guidance is applied to all periods presented. | | • Required effective date: January 1, 2019.(a) • The Firm is currently evaluating the potential impact on the Consolidated Financial Statements by reviewing its existing lease contracts and service contracts that may include embedded leases. The Firm expects to recognize lease liabilities and corresponding right-of-use assets (at their present value) related to predominantly all of the $10 billion of future minimum payments required under operating leases as disclosed in Note 30. However, the population of contracts subject to balance sheet recognition and their initial measurement remains under evaluation. The Firm does not expect material changes to the recognition of operating lease expense in its Consolidated statements of income. |
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| 136 | | JPMorgan Chase & Co./2016 Annual Report |
|
| | | | |
| FASB Standards issued but not yet adopted (continued) |
| | | | |
| Standard | | Summary of guidance | | Effects on financial statements |
Financial instruments - credit losses
Issued June 2016
| | • Replaces existing incurred loss impairment guidance and establishes a single allowance framework for financial assets carried at amortized cost (including HTM securities), which will reflect management’s estimate of credit losses over the full remaining expected life of the financial assets. • Eliminates existing guidance for PCI loans, and requires recognition of an allowance for expected credit losses on financial assets purchased with more than insignificant credit deterioration since origination. • Amends existing impairment guidance for AFS securities to incorporate an allowance, which will allow for reversals of impairment losses in the event that the credit of an issuer improves. • Requires a cumulative-effect adjustment to retained earnings as of the beginning of the reporting period of adoption. | | • Required effective date: January 1, 2020.(b) • The Firm has begun its implementation efforts by establishing a firmwide, cross-discipline governance structure. The Firm is currently identifying key interpretive issues, and is assessing existing credit loss forecasting models and processes against the new guidance to determine what modifications may be required. • The Firm expects that the new guidance will result in an increase in its allowance for credit losses due to several factors, including: 1. The allowance related to the Firm’s loans and commitments will increase to cover credit losses over the full remaining expected life of the portfolio, and will consider expected future changes in macroeconomic conditions2. The nonaccretable difference on PCI loans will be recognized as an allowance, offset by an increase in the carrying value of the related loans3. An allowance will be established for estimated credit losses on HTM securities • The extent of the increase is under evaluation, but will depend upon the nature and characteristics of the Firm’s portfolio at the adoption date, and the macroeconomic conditions and forecasts at that date. |
Classification of certain cash receipts and cash payments in the statement of cash flows Issued August 2016
| | • Provides targeted amendments to the classification of certain cash flows, including treatment of cash payments for settlement of zero-coupon debt instruments and distributions received from equity method investments. • Requires retrospective application to all periods presented. | | • Required effective date: January 1, 2018.(b)(a) • Adoption of the DVA guidance as of January 1, 2016, would result in a reclassification from retained earnings to AOCI, reflecting the cumulative change in value to change in the Firm’s credit spread subsequent to the issuance of each liability. The amount of this reclassification would be immaterial as of January 1, 2016.
• The Firm is currently evaluating the potential impact of the remaining guidance on the Consolidated Financial Statements. |
Treatment of restricted cash on the statement of cash flows
Issued November 2016 | | • Requires inclusion of restricted cash in the cash and cash equivalents balances in the Consolidated statements of cash flows. • Requires additional disclosures to supplement the Consolidated statements of cash flows. • Requires retrospective application to all periods presented.
| | • Required effective date: January 1, 2018.(a) • The Firm is currently evaluating the potential impact on the Consolidated Financial Statements.
|
Definition of a business
Issued January 2017
| | • Narrows the definition of a business and clarifies that, to be considered a business, the fair value of the gross assets acquired (or disposed of) may not be substantially all concentrated in a single identifiable asset or a group of similar assets. • In addition, in order to be considered a business, a set of activities and assets must include, at a minimum, an input and a substantive process that together significantly contribute to the ability to create outputs. | | • Required effective date: January 1, 2018.(a) • No material impact is expected because the guidance is to be applied prospectively, although it is anticipated that after adoption, fewer transactions will be treated as acquisitions or dispositions of a business. |
Goodwill
Issued January 2017
| | • Requires an impairment loss to be recognized when the estimated fair value of a reporting unit falls below its carrying value. • Eliminates the second condition in the current guidance that requires an impairment loss to be recognized only if the estimated implied fair value of the goodwill is below its carrying value. | | • Required effective date: January 1, 2020.(a) • Based on current impairment test results, the Firm does not expect a material effect on the Consolidated Financial Statements. • After adoption, the guidance may result in more frequent goodwill impairment losses due to the removal of the second condition. |
| |
| (a) | Early adoption is permitted. |
| |
| (b) | Early adoption is permitted for the requirement to report changes in fair value due to the Firm’s own credit risk in OCI, and the Firm is planning to early adopt this guidance during 2016.on January 1, 2019. |
|
| | |
JPMorgan Chase & Co./20152016 Annual Report | | 171137 |
Management’s discussion and analysis
|
| | | | |
NONEXCHANGE-TRADED COMMODITY DERIVATIVE CONTRACTS AT FAIR VALUE |
In the normal course of business, JPMorgan Chase trades nonexchange-traded commodity derivative contracts. To determine the fair value of these contracts, the Firm uses various fair value estimation techniques, primarily based on internal models with significant observable market parameters. The Firm’s nonexchange-traded commodity derivative contracts are primarily energy-related.
The following table summarizes the changes in fair value for nonexchange-traded commodity derivative contracts for the year ended December 31, 2015.
|
| | | | | | | |
Year ended December 31, 2015 (in millions) | Asset position | | Liability position |
| Net fair value of contracts outstanding at January 1, 2015 | $ | 9,826 |
| | $ | 13,926 |
|
| Effect of legally enforceable master netting agreements | 14,327 |
| | 13,211 |
|
| Gross fair value of contracts outstanding at January 1, 2015 | 24,153 |
| | 27,137 |
|
| Contracts realized or otherwise settled | (13,419 | ) | | (12,583 | ) |
| Fair value of new contracts | 3,704 |
| | 5,027 |
|
| Changes in fair values attributable to changes in valuation techniques and assumptions | — |
| | — |
|
| Other changes in fair value | 1,428 |
| | (1,300 | ) |
| Gross fair value of contracts outstanding at December 31, 2015 | 15,866 |
| | 18,281 |
|
| Effect of legally enforceable master netting agreements | (6,772 | ) | | (6,256 | ) |
| Net fair value of contracts outstanding at December 31, 2015 | $ | 9,094 |
| | $ | 12,025 |
|
The following table indicates the maturities of nonexchange-traded commodity derivative contracts at December 31, 2015.
|
| | | | | | | |
| December 31, 2015 (in millions) | Asset position | | Liability position |
| Maturity less than 1 year | $ | 8,487 |
| | $ | 9,242 |
|
| Maturity 1–3 years | 5,636 |
| | 6,148 |
|
| Maturity 4–5 years | 1,122 |
| | 1,931 |
|
| Maturity in excess of 5 years | 621 |
| | 960 |
|
| Gross fair value of contracts outstanding at December 31, 2015 | 15,866 |
| | 18,281 |
|
| Effect of legally enforceable master netting agreements | (6,772 | ) | | (6,256 | ) |
| Net fair value of contracts outstanding at December 31, 2015 | $ | 9,094 |
| | $ | 12,025 |
|
|
| | |
172 | | JPMorgan Chase & Co./2015 Annual Report |
|
| | | | |
| FORWARD-LOOKING STATEMENTS |
From time to time, the Firm has made and will make forward-looking statements. These statements can be identified by the fact that they do not relate strictly to historical or current facts. Forward-looking statements often use words such as “anticipate,” “target,” “expect,” “estimate,” “intend,” “plan,” “goal,” “believe,” or other words of similar meaning. Forward-looking statements provide JPMorgan Chase’s current expectations or forecasts of future events, circumstances, results or aspirations. JPMorgan Chase’s disclosures in this Annual Report contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. The Firm also may make forward-looking statements in its other documents filed or furnished with the Securities and Exchange Commission.SEC. In addition, the Firm’s senior management may make forward-looking statements orally to investors, analysts, representatives of the media and others.
All forward-looking statements are, by their nature, subject to risks and uncertainties, many of which are beyond the Firm’s control. JPMorgan Chase’s actual future results may differ materially from those set forth in its forward-looking statements. While there is no assurance that any list of risks and uncertainties or risk factors is complete, below are certain factors which could cause actual results to differ from those in the forward-looking statements:
Local, regional and global business, economic and political conditions and geopolitical events;
Changes in laws and regulatory requirements, including
capital and liquidity requirements affecting the Firm’s businesses, and the ability of the Firm to address those requirements;
Heightened regulatory and governmental oversight and scrutiny of JPMorgan Chase’s business practices, including dealings with retail customers;
Changes in trade, monetary and fiscal policies and laws;
Changes in income tax laws and regulations;
Securities and capital markets behavior, including changes in market liquidity and volatility;
Changes in investor sentiment or consumer spending or savings behavior;
Ability of the Firm to manage effectively its capital and liquidity, including approval of its capital plans by banking regulators;
Changes in credit ratings assigned to the Firm or its subsidiaries;
Damage to the Firm’s reputation;
Ability of the Firm to deal effectively with an economic slowdown or other economic or market disruption;
Technology changes instituted by the Firm, its counterparties or competitors;
The success of the Firm’s business simplification initiatives and the effectiveness of its control agenda;
Ability of the Firm to develop new products and services, and the extent to which products or services previously sold by the Firm (including but not limited to mortgages and asset-backed securities) require the Firm to incur liabilities or absorb losses not contemplated at their initiation or origination;
Ability of the Firm to address enhanced regulatory requirements affecting its businesses;
Acceptance of the Firm’s new and existing products and services by the marketplace and the ability of the Firm to innovate and to increase market share;
Ability of the Firm to attract and retain qualified employees;
Ability of the Firm to control expense;
Competitive pressures;
Changes in the credit quality of the Firm’s customers and counterparties;
Adequacy of the Firm’s risk management framework, disclosure controls and procedures and internal control over financial reporting;
Adverse judicial or regulatory proceedings;
Changes in applicable accounting policies;policies, including the introduction of new accounting standards;
Ability of the Firm to determine accurate values of certain assets and liabilities;
Occurrence of natural or man-made disasters or calamities or conflicts and the Firm’s ability to deal effectively with disruptions caused by the foregoing;
Ability of the Firm to maintain the security of its financial, accounting, technology, data processing and other operatingoperational systems and facilities; and
Ability of the Firm to effectively defend itself against cyberattacks and other attempts by unauthorized parties to access information of the Firm or its customers or to disrupt the Firm’s systems; and
The other risks and uncertainties detailed in Part I, Item 1A: Risk Factors in the Firm’s Annual Report on Form 10-K for the year ended December 31, 2015.2016.
Any forward-looking statements made by or on behalf of the Firm speak only as of the date they are made, and JPMorgan Chase does not undertake to update forward-looking statements to reflect the impact of circumstances or events that arise after the date the forward-looking statements were made. The reader should, however, consult any further disclosures of a forward-looking nature the Firm may make in any subsequent Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, or Current Reports on Form 8-K.
|
| | |
| 138 | | JPMorgan Chase & Co./20152016 Annual Report | | 173 |
Management’s report on internal control over financial reporting
Management of JPMorgan Chase & Co. (“JPMorgan Chase” or the “Firm”) is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is a process designed by, or under the supervision of, the Firm’s principal executive and principal financial officers, or persons performing similar functions, and effected by JPMorgan Chase’s Board of Directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America.
JPMorgan Chase’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records, that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the Firm’s assets; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Firm are being made only in accordance with authorizations of JPMorgan Chase’s management and directors; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Firm’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Management has completed an assessment of the effectiveness of the Firm’s internal control over financial reporting as of December 31, 2015.2016. In making the assessment, management used the “Internal Control — Integrated Framework” (“COSO 2013”) promulgated by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”).
Based upon the assessment performed, management concluded that as of December 31, 2015,2016, JPMorgan Chase’s internal control over financial reporting was effective based upon the COSO 2013 framework. Additionally, based upon management’s assessment, the Firm determined that there were no material weaknesses in its internal control over financial reporting as of December 31, 2015.2016.
The effectiveness of the Firm’s internal control over financial reporting as of December 31, 2015,2016, has been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in their report which appears herein.
James Dimon
Chairman and Chief Executive Officer
Marianne Lake
Executive Vice President and Chief Financial Officer
February 23, 201628, 2017
|
| | |
174 | | JPMorgan Chase & Co./20152016 Annual Report | | 139 |
Report of independent registered public accounting firm
To the Board of Directors and Stockholders of JPMorgan Chase & Co.:
In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of income, comprehensive income, changes in stockholders’ equity and cash flows present fairly, in all material respects, the financial position of JPMorgan Chase & Co. and its subsidiaries (the “Firm”) at December 31, 20152016 and 20142015 and the results of their operations and their cash flows for each of the three years in the period ended December 31, 20152016 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Firm maintained, in all material respects, effective internal control over financial reporting as of December 31, 20152016 based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Firm’s management is responsible for these financial statements, for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying “Management’s report on internal control over financial reporting”. Our responsibility is to express opinions on these financial statements and on the Firm’s internal control over financial reporting based on our integrated audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our audit of internal control over financial reporting included obtaining an understanding of internal
control over financial reporting, assessing the risk that a
material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
February 23, 201628, 2017
|
|
PricewaterhouseCoopers LLP Ÿ 300 Madison Avenue Ÿ New York, NY 10017 |
|
| | |
| 140 | | JPMorgan Chase & Co./2016 Annual Report |
Consolidated statements of income
|
| | | | | | | | | | | |
| Year ended December 31, (in millions, except per share data) | 2016 |
| | 2015 |
| | 2014 |
|
| Revenue | | | | | |
| Investment banking fees | $ | 6,448 |
| | $ | 6,751 |
| | $ | 6,542 |
|
| Principal transactions | 11,566 |
| | 10,408 |
| | 10,531 |
|
| Lending- and deposit-related fees | 5,774 |
| | 5,694 |
| | 5,801 |
|
| Asset management, administration and commissions | 14,591 |
| | 15,509 |
| | 15,931 |
|
| Securities gains | 141 |
| | 202 |
| | 77 |
|
| Mortgage fees and related income | 2,491 |
| | 2,513 |
| | 3,563 |
|
| Card income | 4,779 |
| | 5,924 |
| | 6,020 |
|
| Other income | 3,795 |
| | 3,032 |
| | 3,013 |
|
| Noninterest revenue | 49,585 |
| | 50,033 |
| | 51,478 |
|
| Interest income | 55,901 |
| | 50,973 |
| | 51,531 |
|
| Interest expense | 9,818 |
| | 7,463 |
| | 7,897 |
|
| Net interest income | 46,083 |
| | 43,510 |
| | 43,634 |
|
| Total net revenue | 95,668 |
| | 93,543 |
| | 95,112 |
|
| | | | | | |
| Provision for credit losses | 5,361 |
| | 3,827 |
| | 3,139 |
|
| | | | | | |
| Noninterest expense | | | | | |
| Compensation expense | 29,979 |
| | 29,750 |
| | 30,160 |
|
| Occupancy expense | 3,638 |
| | 3,768 |
| | 3,909 |
|
| Technology, communications and equipment expense | 6,846 |
| | 6,193 |
| | 5,804 |
|
| Professional and outside services | 6,655 |
| | 7,002 |
| | 7,705 |
|
| Marketing | 2,897 |
| | 2,708 |
| | 2,550 |
|
| Other expense | 5,756 |
| | 9,593 |
| | 11,146 |
|
| Total noninterest expense | 55,771 |
| | 59,014 |
| | 61,274 |
|
| Income before income tax expense | 34,536 |
| | 30,702 |
| | 30,699 |
|
| Income tax expense | 9,803 |
| | 6,260 |
| | 8,954 |
|
| Net income | $ | 24,733 |
| | $ | 24,442 |
| | $ | 21,745 |
|
| Net income applicable to common stockholders | $ | 22,583 |
| | $ | 22,406 |
| | $ | 20,077 |
|
| Net income per common share data | | | | | |
| Basic earnings per share | $ | 6.24 |
| | $ | 6.05 |
| | $ | 5.33 |
|
| Diluted earnings per share | 6.19 |
| | 6.00 |
| | 5.29 |
|
| | | | | | |
| Weighted-average basic shares | 3,618.5 |
| | 3,700.4 |
| | 3,763.5 |
|
| Weighted-average diluted shares | 3,649.8 |
| | 3,732.8 |
| | 3,797.5 |
|
| Cash dividends declared per common share | $ | 1.88 |
| | $ | 1.72 |
| | $ | 1.58 |
|
The Notes to Consolidated Financial Statements are an integral part of these statements.
|
| | |
JPMorgan Chase & Co./20152016 Annual Report | | 175141 |
Consolidated statements of comprehensive income
|
| | | | | | | | | | | | |
| Year ended December 31, (in millions, except per share data) | | 2015 |
| | 2014 |
| | 2013 |
|
| Revenue | | | | | | |
| Investment banking fees | | $ | 6,751 |
| | $ | 6,542 |
| | $ | 6,354 |
|
| Principal transactions | | 10,408 |
| | 10,531 |
| | 10,141 |
|
| Lending- and deposit-related fees | | 5,694 |
| | 5,801 |
| | 5,945 |
|
| Asset management, administration and commissions | | 15,509 |
| | 15,931 |
| | 15,106 |
|
Securities gains(a) | | 202 |
| | 77 |
| | 667 |
|
| Mortgage fees and related income | | 2,513 |
| | 3,563 |
| | 5,205 |
|
| Card income | | 5,924 |
| | 6,020 |
| | 6,022 |
|
| Other income | | 3,032 |
| | 3,013 |
| | 4,608 |
|
| Noninterest revenue | | 50,033 |
| | 51,478 |
| | 54,048 |
|
| Interest income | | 50,973 |
| | 51,531 |
| | 52,669 |
|
| Interest expense | | 7,463 |
| | 7,897 |
| | 9,350 |
|
| Net interest income | | 43,510 |
| | 43,634 |
| | 43,319 |
|
| Total net revenue | | 93,543 |
| | 95,112 |
| | 97,367 |
|
| | | | | | | |
| Provision for credit losses | | 3,827 |
| | 3,139 |
| | 225 |
|
| | | | | | | |
| Noninterest expense | | | | | | |
| Compensation expense | | 29,750 |
| | 30,160 |
| | 30,810 |
|
| Occupancy expense | | 3,768 |
| | 3,909 |
| | 3,693 |
|
| Technology, communications and equipment expense | | 6,193 |
| | 5,804 |
| | 5,425 |
|
| Professional and outside services | | 7,002 |
| | 7,705 |
| | 7,641 |
|
| Marketing | | 2,708 |
| | 2,550 |
| | 2,500 |
|
| Other expense | | 9,593 |
| | 11,146 |
| | 20,398 |
|
| Total noninterest expense | | 59,014 |
| | 61,274 |
| | 70,467 |
|
| Income before income tax expense | | 30,702 |
| | 30,699 |
| | 26,675 |
|
| Income tax expense | | 6,260 |
| | 8,954 |
| | 8,789 |
|
| Net income | | $ | 24,442 |
| | $ | 21,745 |
| | $ | 17,886 |
|
| Net income applicable to common stockholders | | $ | 22,406 |
| | $ | 20,077 |
| | $ | 16,557 |
|
| Net income per common share data | | | | | | |
| Basic earnings per share | | $ | 6.05 |
| | $ | 5.33 |
| | $ | 4.38 |
|
| Diluted earnings per share | | 6.00 |
| | 5.29 |
| | 4.34 |
|
| | | | | | | |
| Weighted-average basic shares | | 3,700.4 |
| | 3,763.5 |
| | 3,782.4 |
|
| Weighted-average diluted shares | | 3,732.8 |
| | 3,797.5 |
| | 3,814.9 |
|
| Cash dividends declared per common share | | $ | 1.72 |
| | $ | 1.58 |
| | $ | 1.44 |
|
| |
(a) | The Firm recognized other-than-temporary impairment (“OTTI”) losses of $22 million, $4 million, and $21 million for the years ended December 31, 2015, 2014 and 2013, respectively. |
|
| | | | | | | | | | | | |
| Year ended December 31, (in millions) | | 2016 |
| | 2015 |
| | 2014 |
|
| Net income | | $ | 24,733 |
| | $ | 24,442 |
| | $ | 21,745 |
|
| Other comprehensive income/(loss), after–tax | | | | | | |
| Unrealized gains/(losses) on investment securities | | (1,105 | ) | | (2,144 | ) | | 1,975 |
|
| Translation adjustments, net of hedges | | (2 | ) | | (15 | ) | | (11 | ) |
| Cash flow hedges | | (56 | ) | | 51 |
| | 44 |
|
| Defined benefit pension and OPEB plans | | (28 | ) | | 111 |
| | (1,018 | ) |
| DVA on fair value option elected liabilities | | (330 | ) | | — |
| | — |
|
| Total other comprehensive income/(loss), after–tax | | (1,521 | ) | | (1,997 | ) | | 990 |
|
| Comprehensive income | | $ | 23,212 |
| | $ | 22,445 |
| | $ | 22,735 |
|
The Notes to Consolidated Financial Statements are an integral part of these statements.
|
| | |
176142 | | JPMorgan Chase & Co./20152016 Annual Report |
Consolidated statements of comprehensive income
|
| | | | | | | | | | | | |
| Year ended December 31, (in millions) | | 2015 |
| | 2014 |
| | 2013 |
|
| Net income | | $ | 24,442 |
| | $ | 21,745 |
| | $ | 17,886 |
|
| Other comprehensive income/(loss), after–tax | | | | | | |
| Unrealized gains/(losses) on investment securities | | (2,144 | ) | | 1,975 |
| | (4,070 | ) |
| Translation adjustments, net of hedges | | (15 | ) | | (11 | ) | | (41 | ) |
| Cash flow hedges | | 51 |
| | 44 |
| | (259 | ) |
| Defined benefit pension and OPEB plans | | 111 |
| | (1,018 | ) | | 1,467 |
|
| Total other comprehensive income/(loss), after–tax | | (1,997 | ) | | 990 |
| | (2,903 | ) |
| Comprehensive income | | $ | 22,445 |
| | $ | 22,735 |
| | $ | 14,983 |
|
The Notes to Consolidated Financial Statements are an integral part of these statements.
|
| | |
JPMorgan Chase & Co./2015 Annual Report | | 177 |
Consolidated balance sheets
| | | December 31, (in millions, except share data) | 2015 | | 2014 | 2016 | | 2015 |
| Assets | | | | | | |
| Cash and due from banks | $ | 20,490 |
| | $ | 27,831 |
| $ | 23,873 |
| | $ | 20,490 |
|
| Deposits with banks | 340,015 |
| | 484,477 |
| 365,762 |
| | 340,015 |
|
Federal funds sold and securities purchased under resale agreements (included $23,141 and $28,585 at fair value) | 212,575 |
| | 215,803 |
| |
Securities borrowed (included $395 and $992 at fair value) | 98,721 |
| | 110,435 |
| |
Trading assets (included assets pledged of $115,284 and $125,034) | 343,839 |
| | 398,988 |
| |
Securities (included $241,754 and $298,752 at fair value and assets pledged of $14,883 and $24,912) | 290,827 |
| | 348,004 |
| |
Loans (included $2,861 and $2,611 at fair value) | 837,299 |
| | 757,336 |
| |
Federal funds sold and securities purchased under resale agreements (included $21,506 and $23,141 at fair value) | | 229,967 |
| | 212,575 |
|
Securities borrowed (included $0 and $395 at fair value) | | 96,409 |
| | 98,721 |
|
Trading assets (included assets pledged of $115,847 and $115,284) | | 372,130 |
| | 343,839 |
|
Securities (included $238,891 and $241,754 at fair value and assets pledged of $16,115 and $14,883) | | 289,059 |
| | 290,827 |
|
Loans (included $2,230 and $2,861 at fair value) | | 894,765 |
| | 837,299 |
|
| Allowance for loan losses | (13,555 | ) | | (14,185 | ) | (13,776 | ) | | (13,555 | ) |
| Loans, net of allowance for loan losses | 823,744 |
| | 743,151 |
| 880,989 |
| | 823,744 |
|
| Accrued interest and accounts receivable | 46,605 |
| | 70,079 |
| 52,330 |
| | 46,605 |
|
| Premises and equipment | 14,362 |
| | 15,133 |
| 14,131 |
| | 14,362 |
|
| Goodwill | 47,325 |
| | 47,647 |
| 47,288 |
| | 47,325 |
|
| Mortgage servicing rights | 6,608 |
| | 7,436 |
| 6,096 |
| | 6,608 |
|
| Other intangible assets | 1,015 |
| | 1,192 |
| 862 |
| | 1,015 |
|
Other assets (included $7,604 and $11,909 at fair value and assets pledged of $1,286 and $1,399) | 105,572 |
| | 102,098 |
| |
Other assets (included $7,557 and $7,604 at fair value and assets pledged of $1,603 and $1,286) | | 112,076 |
| | 105,572 |
|
Total assets(a) | $ | 2,351,698 |
| | $ | 2,572,274 |
| $ | 2,490,972 |
| | $ | 2,351,698 |
|
| Liabilities | | | | | | |
Deposits (included $12,516 and $8,807 at fair value) | $ | 1,279,715 |
| | $ | 1,363,427 |
| |
Federal funds purchased and securities loaned or sold under repurchase agreements (included $3,526 and $2,979 at fair value) | 152,678 |
| | 192,101 |
| |
Deposits (included $13,912 and $12,516 at fair value) | | $ | 1,375,179 |
| | $ | 1,279,715 |
|
Federal funds purchased and securities loaned or sold under repurchase agreements (included $687 and $3,526 at fair value) | | 165,666 |
| | 152,678 |
|
| Commercial paper | 15,562 |
| | 66,344 |
| 11,738 |
| | 15,562 |
|
Other borrowed funds (included $9,911 and $14,739 at fair value) | 21,105 |
| | 30,222 |
| |
Other borrowed funds (included $9,105 and $9,911 at fair value) | | 22,705 |
| | 21,105 |
|
| Trading liabilities | 126,897 |
| | 152,815 |
| 136,659 |
| | 126,897 |
|
Accounts payable and other liabilities (included $4,401 and $4,155 at fair value) | 177,638 |
| | 206,939 |
| |
Beneficial interests issued by consolidated variable interest entities (included $787 and $2,162 at fair value) | 41,879 |
| | 52,320 |
| |
Long-term debt (included $33,065 and $30,226 at fair value) | 288,651 |
| | 276,379 |
| |
Accounts payable and other liabilities (included $9,120 and $4,401 at fair value) | | 190,543 |
| | 177,638 |
|
Beneficial interests issued by consolidated VIEs (included $120 and $787 at fair value) | | 39,047 |
| | 41,879 |
|
Long-term debt (included $37,686 and $33,065 at fair value) | | 295,245 |
| | 288,651 |
|
Total liabilities(a) | 2,104,125 |
| | 2,340,547 |
| 2,236,782 |
| | 2,104,125 |
|
| Commitments and contingencies (see Notes 29, 30 and 31) |
|
| |
|
|
|
| |
|
|
| Stockholders’ equity | | | | | | |
Preferred stock ($1 par value; authorized 200,000,000 shares: issued 2,606,750 and 2,006,250 shares) | 26,068 |
| | 20,063 |
| |
Preferred stock ($1 par value; authorized 200,000,000 shares: issued 2,606,750 shares) | | 26,068 |
| | 26,068 |
|
Common stock ($1 par value; authorized 9,000,000,000 shares; issued 4,104,933,895 shares) | 4,105 |
| | 4,105 |
| 4,105 |
| | 4,105 |
|
| Additional paid-in capital | 92,500 |
| | 93,270 |
| 91,627 |
| | 92,500 |
|
| Retained earnings | 146,420 |
| | 129,977 |
| 162,440 |
| | 146,420 |
|
| Accumulated other comprehensive income | 192 |
| | 2,189 |
| (1,175 | ) | | 192 |
|
Shares held in restricted stock units (“RSU”) trust, at cost (472,953 shares) | (21 | ) | | (21 | ) | (21 | ) | | (21 | ) |
Treasury stock, at cost (441,459,392 and 390,144,630 shares) | (21,691 | ) | | (17,856 | ) | |
Treasury stock, at cost (543,744,003 and 441,459,392 shares) | | (28,854 | ) | | (21,691 | ) |
| Total stockholders’ equity | 247,573 |
| | 231,727 |
| 254,190 |
| | 247,573 |
|
| Total liabilities and stockholders’ equity | $ | 2,351,698 |
| | $ | 2,572,274 |
| $ | 2,490,972 |
| | $ | 2,351,698 |
|
| |
| (a) | The following table presents information on assets and liabilities related to VIEs that are consolidated by the Firm at December 31, 20152016 and 20142015. The difference between total VIE assets and liabilities represents the Firm’s interests in those entities, which were eliminated in consolidation. |
| | | December 31, (in millions) | 2015 | | 2014 | 2016 | | 2015 |
| Assets | | | | | | |
| Trading assets | $ | 3,736 |
| | $ | 9,090 |
| $ | 3,185 |
| | $ | 3,736 |
|
| Loans | 75,104 |
| | 68,880 |
| 75,614 |
| | 75,104 |
|
| All other assets | 2,765 |
| | 1,815 |
| 3,321 |
| | 2,765 |
|
| Total assets | $ | 81,605 |
| | $ | 79,785 |
| $ | 82,120 |
| | $ | 81,605 |
|
| Liabilities | | | | | | |
| Beneficial interests issued by consolidated variable interest entities | $ | 41,879 |
| | $ | 52,320 |
| |
| Beneficial interests issued by consolidated VIEs | | $ | 39,047 |
| | $ | 41,879 |
|
| All other liabilities | 809 |
| | 949 |
| 490 |
| | 809 |
|
| Total liabilities | $ | 42,688 |
| | $ | 53,269 |
| $ | 39,537 |
| | $ | 42,688 |
|
The assets of the consolidated VIEs are used to settle the liabilities of those entities. The holders of the beneficial interests do not have recourse to the general credit of JPMorgan Chase. At both December 31, 20152016 and 2014,2015, the Firm provided limited program-wide credit enhancement of $2.4 billion and $2.0 billion, respectively, related to its Firm-administered multi-seller conduits, which are eliminated in consolidation. For further discussion, see Note 16.
The Notes to Consolidated Financial Statements are an integral part of these statements.
|
| | |
178 | | JPMorgan Chase & Co./20152016 Annual Report | | 143 |
Consolidated statements of changes in stockholders’ equity
| | | Year ended December 31, (in millions, except per share data) | | 2015 | | 2014 | | 2013 | | 2016 |
| 2015 | | 2014 |
| Preferred stock | | | | | | | | | | | | |
| Balance at January 1 | | $ | 20,063 |
| | $ | 11,158 |
| | $ | 9,058 |
| | $ | 26,068 |
| | $ | 20,063 |
| | $ | 11,158 |
|
| Issuance of preferred stock | | 6,005 |
| | 8,905 |
| | 3,900 |
| | — |
| | 6,005 |
| | 8,905 |
|
| Redemption of preferred stock | | — |
| | — |
| | (1,800 | ) | |
| Balance at December 31 | | 26,068 |
| | 20,063 |
| | 11,158 |
| | 26,068 |
| | 26,068 |
| | 20,063 |
|
| Common stock | | | | | | | | | | | | |
| Balance at January 1 and December 31 | | 4,105 |
| | 4,105 |
| | 4,105 |
| | 4,105 |
| | 4,105 |
| | 4,105 |
|
| Additional paid-in capital | | | | | | | | | | | | |
| Balance at January 1 | | 93,270 |
| | 93,828 |
| | 94,604 |
| | 92,500 |
| | 93,270 |
| | 93,828 |
|
| Shares issued and commitments to issue common stock for employee stock-based compensation awards, and related tax effects | | (436 | ) | | (508 | ) | | (752 | ) | | (334 | ) | | (436 | ) | | (508 | ) |
| Other | | (334 | ) | | (50 | ) | | (24 | ) | | (539 | ) | | (334 | ) | | (50 | ) |
| Balance at December 31 | | 92,500 |
| | 93,270 |
| | 93,828 |
| | 91,627 |
| | 92,500 |
| | 93,270 |
|
| Retained earnings | | | | | | | | | | | | |
| Balance at January 1 | | 129,977 |
| | 115,435 |
| | 104,223 |
| | 146,420 |
| | 129,977 |
| | 115,435 |
|
| Cumulative effect of change in accounting principle | | — |
| | — |
| | (284 | ) | | (154 | ) | | — |
| | — |
|
| Balance at beginning of year, adjusted | | 129,977 |
|
| 115,435 |
|
| 103,939 |
| |
| Net income | | 24,442 |
| | 21,745 |
| | 17,886 |
| | 24,733 |
| | 24,442 |
| | 21,745 |
|
| Dividends declared: | | | | | | | | | | | | |
| Preferred stock | | (1,515 | ) | | (1,125 | ) | | (805 | ) | | (1,647 | ) | | (1,515 | ) | | (1,125 | ) |
Common stock ($1.72, $1.58 and $1.44 per share for 2015, 2014 and 2013, respectively) | | (6,484 | ) | | (6,078 | ) | | (5,585 | ) | |
Common stock ($1.88, $1.72 and $1.58 per share for 2016, 2015 and 2014, respectively) | | | (6,912 | ) | | (6,484 | ) | | (6,078 | ) |
| Balance at December 31 | | 146,420 |
| | 129,977 |
| | 115,435 |
| | 162,440 |
| | 146,420 |
| | 129,977 |
|
| Accumulated other comprehensive income | | | | | | | | | | | | |
| Balance at January 1 | | 2,189 |
| | 1,199 |
| | 4,102 |
| | 192 |
| | 2,189 |
| | 1,199 |
|
| Cumulative effect of change in accounting principle | | | 154 |
| | — |
| | — |
|
| Other comprehensive income/(loss) | | (1,997 | ) | | 990 |
| | (2,903 | ) | | (1,521 | ) | | (1,997 | ) | | 990 |
|
| Balance at December 31 | | 192 |
| | 2,189 |
| | 1,199 |
| | (1,175 | ) | | 192 |
| | 2,189 |
|
| Shares held in RSU Trust, at cost | | | | | | | | | | | | |
| Balance at January 1 and December 31 | | (21 | ) | | (21 | ) | | (21 | ) | | (21 | ) | | (21 | ) | | (21 | ) |
| Treasury stock, at cost | | | | | | | | | | | | |
| Balance at January 1 | | (17,856 | ) | | (14,847 | ) | | (12,002 | ) | | (21,691 | ) | | (17,856 | ) | | (14,847 | ) |
| Purchase of treasury stock | | (5,616 | ) | | (4,760 | ) | | (4,789 | ) | | (9,082 | ) | | (5,616 | ) | | (4,760 | ) |
| Reissuance from treasury stock | | 1,781 |
| | 1,751 |
| | 1,944 |
| | 1,919 |
| | 1,781 |
| | 1,751 |
|
| Balance at December 31 | | (21,691 | ) | | (17,856 | ) | | (14,847 | ) | | (28,854 | ) | | (21,691 | ) | | (17,856 | ) |
| Total stockholders’ equity | | $ | 247,573 |
| | $ | 231,727 |
| | $ | 210,857 |
| | $ | 254,190 |
| | $ | 247,573 |
| | $ | 231,727 |
|
The Notes to Consolidated Financial Statements are an integral part of these statements.
|
| | |
| 144 | | JPMorgan Chase & Co./20152016 Annual Report | | 179 |
Consolidated statements of cash flows
| | | Year ended December 31, (in millions) | 2015 | | 2014 | | 2013 | 2016 | | 2015 | | 2014 |
| Operating activities | | | | | | | | | | |
| Net income | $ | 24,442 |
| | $ | 21,745 |
| | $ | 17,886 |
| $ | 24,733 |
| | $ | 24,442 |
| | $ | 21,745 |
|
| Adjustments to reconcile net income to net cash provided by/(used in) operating activities: | | | | | | | | | | |
| Provision for credit losses | 3,827 |
| | 3,139 |
| | 225 |
| 5,361 |
| | 3,827 |
| | 3,139 |
|
| Depreciation and amortization | 4,940 |
| | 4,759 |
| | 5,306 |
| 5,478 |
| | 4,940 |
| | 4,759 |
|
| Deferred tax expense | 1,333 |
| | 4,362 |
| | 8,139 |
| 4,651 |
| | 1,333 |
| | 4,362 |
|
| Other | 1,785 |
| | 2,113 |
| | 1,552 |
| 1,799 |
| | 1,785 |
| | 2,113 |
|
| Originations and purchases of loans held-for-sale | (48,109 | ) | | (67,525 | ) | | (75,928 | ) | (61,107 | ) | | (48,109 | ) | | (67,525 | ) |
| Proceeds from sales, securitizations and paydowns of loans held-for-sale | 49,363 |
| | 71,407 |
| | 73,566 |
| 60,196 |
| | 49,363 |
| | 71,407 |
|
| Net change in: | | | | | | | | | | |
| Trading assets | 62,212 |
| | (24,814 | ) | | 89,110 |
| (20,007 | ) | | 62,212 |
| | (24,814 | ) |
| Securities borrowed | 12,165 |
| | 1,020 |
| | 7,562 |
| 2,313 |
| | 12,165 |
| | 1,020 |
|
| Accrued interest and accounts receivable | 22,664 |
| | (3,637 | ) | | (2,340 | ) | (5,815 | ) | | 22,664 |
| | (3,637 | ) |
| Other assets | (3,701 | ) | | (9,166 | ) | | 526 |
| (4,517 | ) | | (3,701 | ) | | (9,166 | ) |
| Trading liabilities | (28,972 | ) | | 26,818 |
| | (9,772 | ) | 5,198 |
| | (28,972 | ) | | 26,818 |
|
| Accounts payable and other liabilities | (23,361 | ) | | 6,058 |
| | (5,750 | ) | 3,740 |
| | (23,361 | ) | | 6,058 |
|
| Other operating adjustments | (5,122 | ) | | 314 |
| | (2,129 | ) | (1,827 | ) | | (5,122 | ) | | 314 |
|
| Net cash provided by operating activities | 73,466 |
| | 36,593 |
| | 107,953 |
| 20,196 |
| | 73,466 |
| | 36,593 |
|
| Investing activities | | | | | | | | | | |
| Net change in: | | | | | | | | | | |
| Deposits with banks | 144,462 |
| | (168,426 | ) | | (194,363 | ) | (25,747 | ) | | 144,462 |
| | (168,426 | ) |
| Federal funds sold and securities purchased under resale agreements | 3,190 |
| | 30,848 |
| | 47,726 |
| (17,468 | ) | | 3,190 |
| | 30,848 |
|
| Held-to-maturity securities: | | | | | | | | | | |
| Proceeds from paydowns and maturities | 6,099 |
| | 4,169 |
| | 189 |
| 6,218 |
| | 6,099 |
| | 4,169 |
|
| Purchases | (6,204 | ) | | (10,345 | ) | | (24,214 | ) | (143 | ) | | (6,204 | ) | | (10,345 | ) |
| Available-for-sale securities: | | | | | | | | | | |
| Proceeds from paydowns and maturities | 76,448 |
| | 90,664 |
| | 89,631 |
| 65,950 |
| | 76,448 |
| | 90,664 |
|
| Proceeds from sales | 40,444 |
| | 38,411 |
| | 73,312 |
| 48,592 |
| | 40,444 |
| | 38,411 |
|
| Purchases | (70,804 | ) | | (121,504 | ) | | (130,266 | ) | (123,959 | ) | | (70,804 | ) | | (121,504 | ) |
| Proceeds from sales and securitizations of loans held-for-investment | 18,604 |
| | 20,115 |
| | 12,033 |
| 15,429 |
| | 18,604 |
| | 20,115 |
|
| Other changes in loans, net | (108,962 | ) | | (51,749 | ) | | (23,721 | ) | (80,996 | ) | | (108,962 | ) | | (51,749 | ) |
| All other investing activities, net | 3,703 |
| | 2,181 |
| | (828 | ) | (2,825 | ) | | 3,703 |
| | 2,181 |
|
| Net cash provided by/(used in) investing activities | 106,980 |
| | (165,636 | ) | | (150,501 | ) | (114,949 | ) | | 106,980 |
| | (165,636 | ) |
| Financing activities | | | | | | | | | | |
| Net change in: | | | | | | | | | | |
| Deposits | (88,678 | ) | | 89,346 |
| | 81,476 |
| 97,336 |
| | (88,678 | ) | | 89,346 |
|
| Federal funds purchased and securities loaned or sold under repurchase agreements | (39,415 | ) | | 10,905 |
| | (58,867 | ) | 13,007 |
| | (39,415 | ) | | 10,905 |
|
| Commercial paper and other borrowed funds | (57,828 | ) | | 9,242 |
| | 2,784 |
| (2,461 | ) | | (57,828 | ) | | 9,242 |
|
| Beneficial interests issued by consolidated variable interest entities | (5,632 | ) | | (834 | ) | | (10,433 | ) | |
| Beneficial interests issued by consolidated VIEs | | (5,707 | ) | | (5,632 | ) | | (834 | ) |
| Proceeds from long-term borrowings | 79,611 |
| | 78,515 |
| | 83,546 |
| 83,070 |
| | 79,611 |
| | 78,515 |
|
| Payments of long-term borrowings | (67,247 | ) | | (65,275 | ) | | (60,497 | ) | (68,949 | ) | | (67,247 | ) | | (65,275 | ) |
| Proceeds from issuance of preferred stock | 5,893 |
| | 8,847 |
| | 3,873 |
| — |
| | 5,893 |
| | 8,847 |
|
| Redemption of preferred stock | — |
| | — |
| | (1,800 | ) | |
| Treasury stock and warrants repurchased | (5,616 | ) | | (4,760 | ) | | (4,789 | ) | (9,082 | ) | | (5,616 | ) | | (4,760 | ) |
| Dividends paid | (7,873 | ) | | (6,990 | ) | | (6,056 | ) | (8,476 | ) | | (7,873 | ) | | (6,990 | ) |
| All other financing activities, net | (726 | ) | | (768 | ) | | (913 | ) | (467 | ) | | (726 | ) | | (768 | ) |
| Net cash provided by/(used in) financing activities | (187,511 | ) | | 118,228 |
| | 28,324 |
| 98,271 |
| | (187,511 | ) | | 118,228 |
|
| Effect of exchange rate changes on cash and due from banks | (276 | ) | | (1,125 | ) | | 272 |
| (135 | ) | | (276 | ) | | (1,125 | ) |
| Net decrease in cash and due from banks | (7,341 | ) | | (11,940 | ) | | (13,952 | ) | |
| Net increase/(decrease) in cash and due from banks | | 3,383 |
| | (7,341 | ) | | (11,940 | ) |
| Cash and due from banks at the beginning of the period | 27,831 |
| | 39,771 |
| | 53,723 |
| 20,490 |
| | 27,831 |
| | 39,771 |
|
| Cash and due from banks at the end of the period | $ | 20,490 |
| | $ | 27,831 |
| | $ | 39,771 |
| $ | 23,873 |
| | $ | 20,490 |
| | $ | 27,831 |
|
| Cash interest paid | $ | 7,220 |
| | $ | 8,194 |
| | $ | 9,573 |
| $ | 9,508 |
| | $ | 7,220 |
| | $ | 8,194 |
|
| Cash income taxes paid, net | 9,423 |
| | 1,392 |
| | 3,502 |
| 2,405 |
| | 9,423 |
| | 1,392 |
|
The Notes to Consolidated Financial Statements are an integral part of these statements.
|
| | |
180 | | JPMorgan Chase & Co./20152016 Annual Report | | 145 |
Notes to consolidated financial statements
Note 1 – Basis of presentation
JPMorgan Chase & Co. (“JPMorgan Chase” or the “Firm”), a financial holding company incorporated under Delaware law in 1968, is a leading global financial services firm and one of the largest banking institutions in the United States of America (“U.S.”), with operations worldwide. The Firm is a leader in investment banking, financial services for consumers and small business, commercial banking, financial transaction processing and asset management. For a discussion of the Firm’s business segments, see Note 33.
The accounting and financial reporting policies of JPMorgan Chase and its subsidiaries conform to accounting principles generally accepted in the U.S. (“U.S. GAAP”).GAAP. Additionally, where applicable, the policies conform to the accounting and reporting guidelines prescribed by regulatory authorities.
Certain amounts reported in prior periods have been reclassified to conform with the current presentation.
Consolidation
The Consolidated Financial Statements include the accounts of JPMorgan Chase and other entities in which the Firm has a controlling financial interest. All material intercompany balances and transactions have been eliminated.
Assets held for clients in an agency or fiduciary capacity by the Firm are not assets of JPMorgan Chase and are not included on the Consolidated balance sheets.
The Firm determines whether it has a controlling financial interest in an entity by first evaluating whether the entity is a voting interest entity or a variable interest entity (“VIE”).entity.
Effective January 1, 2016, the Firm adopted new accounting guidance related to the consolidation of legal entities such as limited partnerships, limited liability corporations, and securitization structures. The guidance eliminated the deferral issued by the FASB in February 2010 of theaccounting guidance for VIEs for certain investment funds, including mutual funds, private equity funds and hedge funds. In addition, the guidance amends the evaluation of fees paid to a decision-maker or a service provider, and exempts certain money market funds from consolidation. Furthermore, asset management funds structured as limited partnerships or certain limited liability companies are now evaluated for consolidation as voting interest entities if the non-managing partners or members have the ability to remove the Firm as the general partner or managing member without cause (i.e., kick-out rights) based on a simple majority vote, or the non-affiliated partners or members have rights to participate in important decisions. Accordingly, the Firm does not consolidate these voting interest entities. However, in the limited cases where the non-managing partners or members do not have substantive kick-out or participating rights, the Firm evaluates the funds as VIEs and consolidates if it is the general partner or managing member and has a potentially significant variable interest. There was no material impact on the Firm’s Consolidated
Financial Statements upon adoption of this accounting guidance.
Voting Interest Entities
Voting interest entities are entities that have sufficient equity and provide the equity investors voting rights that enable them to make significant decisions relating to the entity’s operations. For these types of entities, the Firm’s determination of whether it has a controlling interest is primarily based on the amount of voting equity interests held. Entities in which the Firm has a controlling financial interest, through ownership of the majority of the entities’ voting equity interests, or through other contractual rights that give the Firm control, are consolidated by the Firm.
Investments in companies in which the Firm has significant influence over operating and financing decisions (but does not own a majority of the voting equity interests) are accounted for (i) in accordance with the equity method of accounting (which requires the Firm to recognize its proportionate share of the entity’s net earnings), or (ii) at fair value if the fair value option was elected. These investments are generally included in other assets, with income or loss included in other income.
Certain Firm-sponsored asset management funds are structured as limited partnerships or limited liability companies. For many of these entities, the Firm is the general partner or managing member, but the non-affiliated
partners or members have the ability to remove the Firm as the general partner or managing member without cause (i.e., kick-out rights), based on a simple majority vote, or the non-affiliated partners or members have rights to participate in important decisions. Accordingly, the Firm does not consolidate these funds. In the limited cases where the nonaffiliated partners or members do not have substantive kick-out or participating rights, the Firm consolidates the funds.
The Firm’s investment companies have investments in both publicly-held and privately-held entities, including investments in buyouts, growth equity and venture opportunities. These investments are accounted for under investment company guidelines and accordingly, irrespective of the percentage of equity ownership interests held, are carried on the Consolidated balance sheets at fair value, and are recorded in other assets.
Variable Interest Entities
VIEs are entities that, by design, either (1) lack sufficient equity to permit the entity to finance its activities without additional subordinated financial support from other parties, or (2) have equity investors that do not have the ability to make significant decisions relating to the entity’s operations through voting rights, or do not have the obligation to absorb the expected losses, or do not have the right to receive the residual returns of the entity.
|
| | |
| 146 | | JPMorgan Chase & Co./2016 Annual Report |
The most common type of VIE is a special purpose entity (“SPE”).an SPE. SPEs are commonly used in securitization transactions in order to isolate certain assets and distribute the cash flows from those assets to investors. The basic SPE structure involves a company selling assets to the SPE; the SPE funds the purchase of those assets by issuing securities to investors. The legal documents that govern the transaction specify how the cash earned on the assets must be allocated to the SPE’s investors and other parties that have rights to those cash flows. SPEs are generally structured to insulate investors from claims on the SPE’s assets by creditors of other entities, including the creditors of the seller of the assets.
The primary beneficiary of a VIE (i.e., the party that has a controlling financial interest) is required to consolidate the assets and liabilities of the VIE. The primary beneficiary is the party that has both (1) the power to direct the activities of the VIE that most significantly impact the VIE’s economic performance; and (2) through its interests in the VIE, the obligation to absorb losses or the right to receive benefits from the VIE that could potentially be significant to the VIE.
To assess whether the Firm has the power to direct the activities of a VIE that most significantly impact the VIE’s economic performance, the Firm considers all the facts and circumstances, including its role in establishing the VIE and its ongoing rights and responsibilities. This assessment includes, first, identifying the activities that most significantly impact the VIE’s economic performance; and second, identifying which party, if any, has power over those
|
| | |
JPMorgan Chase & Co./2015 Annual Report | | 181 |
Notes to consolidated financial statements
activities. In general, the parties that make the most significant decisions affecting the VIE (such as asset managers, collateral managers, servicers, or owners of call options or liquidation rights over the VIE’s assets) or have the right to unilaterally remove those decision-makers are deemed to have the power to direct the activities of a VIE.
To assess whether the Firm has the obligation to absorb losses of the VIE or the right to receive benefits from the VIE that could potentially be significant to the VIE, the Firm considers all of its economic interests, including debt and equity investments, servicing fees, and derivatives or other arrangements deemed to be variable interests in the VIE. This assessment requires that the Firm apply judgment in determining whether these interests, in the aggregate, are considered potentially significant to the VIE. Factors considered in assessing significance include: the design of the VIE, including its capitalization structure; subordination of interests; payment priority; relative share of interests held across various classes within the VIE’s capital structure; and the reasons why the interests are held by the Firm.
The Firm performs on-going reassessments of: (1) whether entities previously evaluated under the majority voting-interest framework have become VIEs, based on certain events, and therefore subject to the VIE consolidation framework; and (2) whether changes in the facts and circumstances regarding the Firm’s involvement with a VIE cause the Firm’s consolidation conclusion to change.
In February 2010, the Financial Accounting Standards Board (“FASB”) issued an amendment which deferred the requirements of the accounting guidance for VIEs for certain investment funds, including mutual funds, private equity funds and hedge funds. For the funds to which the deferral applies, the Firm continues to apply other existing authoritative accounting guidance to determine whether such funds should be consolidated.
Use of estimates in the preparation of consolidated financial statements
The preparation of the Consolidated Financial Statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, revenue and expense, and disclosures of contingent assets and liabilities. Actual results could be different from these estimates.
Foreign currency translation
JPMorgan Chase revalues assets, liabilities, revenue and expense denominated in non-U.S. currencies into U.S. dollars using applicable exchange rates.
Gains and losses relating to translating functional currency financial statements for U.S. reporting are included in other comprehensive income/(loss) (“OCI”)OCI within stockholders’ equity. Gains and losses relating to nonfunctional currency transactions, including non-U.S. operations where the functional currency is the U.S. dollar, are reported in the Consolidated statements of income.
Offsetting assets and liabilities
U.S. GAAP permits entities to present derivative receivables and derivative payables with the same counterparty and the related cash collateral receivables and payables on a net basis on the Consolidated balance sheets when a legally enforceable master netting agreement exists. U.S. GAAP also permits securities sold and purchased under repurchase agreements to be presented net when specified conditions are met, including the existence of a legally enforceable master netting agreement. The Firm has elected to net such balances when the specified conditions are met.
The Firm uses master netting agreements to mitigate counterparty credit risk in certain transactions, including derivatives transactions, repurchase and reverse repurchase agreements, and securities borrowed and loaned agreements. A master netting agreement is a single contract with a counterparty that permits multiple transactions governed by that contract to be terminated and settled through a single payment in a single currency in the event of a default (e.g., bankruptcy, failure to make a required payment or securities transfer or deliver collateral or margin when due after expiration of any grace period). Upon the exercise of termination rights by the non-defaulting party (i) all transactions are terminated, (ii) all transactions are valued and the positive value or “in the money” transactions are netted against the negative value or “out of the money” transactions and (iii) the only remaining payment obligation is of one of the parties to pay the netted termination amount. Upon exercise of repurchase agreement and securities loan default rights in general (i) all transactions are terminated and accelerated, (ii) all values of securities or cash held or to be delivered are calculated, and all such sums are netted against each other and (iii) the only remaining payment obligation is of one of the parties to pay the netted termination amount.
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| | |
182 | | JPMorgan Chase & Co./20152016 Annual Report | | 147 |
Notes to consolidated financial statements
Typical master netting agreements for these types of transactions also often contain a collateral/margin agreement that provides for a security interest in, or title transfer of, securities or cash collateral/margin to the party that has the right to demand margin (the “demanding party”). The collateral/margin agreement typically requires a party to transfer collateral/margin to the demanding party with a value equal to the amount of the margin deficit on a net basis across all transactions governed by the master netting agreement, less any threshold. The collateral/margin agreement grants to the demanding party, upon default by the counterparty, the right to set-off any amounts payable by the counterparty against any posted collateral or the cash equivalent of any posted collateral/margin. It also grants to the demanding party the right to liquidate collateral/margin and to apply the proceeds to an amount payable by the counterparty.
For further discussion of the Firm’s derivative instruments, see Note 6. For further discussion of the Firm’s repurchase and reverse repurchase agreements, and securities borrowing and lending agreements, see Note 13.
Simplifying the presentation of debt issuance costs
Effective October 1, 2015, the Firm early adopted new accounting guidance that simplifies the presentation of debt issuance costs, by requiring that unamortized debt issuance costs be presented as a reduction of the applicable liability rather than as an asset. The adoption of this guidance had no material impact on the Firm’s Consolidated balance sheets, and no impact on the Firm’s consolidated results of operations. The guidance was required to be applied retrospectively, and accordingly, certain prior period amounts have been revised to conform with the current period presentation.
Investments in qualified affordable housing projects
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 Corporate & Investment Bank (“CIB”). As a result of the adoption of this new guidance, the Firm made an accounting policy election to amortize the initial cost of its 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 cumulative effect on retained earnings was a reduction of $284 million as of January 1, 2013. The adoption of this accounting guidance resulted in an increase of $907 million and $924 million in other income and income tax expense, respectively, for the year ended December 31, 2014 and $761 million and $798 million, respectively, for the year ended December 2013, which led to an increase of approximately 2% in the effective tax rate for the year ended December 31, 2014 and 2013. The impact on net income and earnings per
share in the periods affected was not material. For further information, see Note 26.
Statements of cash flows
For JPMorgan Chase’s Consolidated statements of cash flows, cash is defined as those amounts included in cash and due from banks.
Significant accounting policies
The following table identifies JPMorgan Chase’s other significant accounting policies and the Note and page where a detailed description of each policy can be found.
|
| | | |
| Fair value measurement | Note 3 | | Page 184149 |
| Fair value option | Note 4 | | Page 203168 |
| Derivative instruments | Note 6 | | Page 208174 |
| Noninterest revenue | Note 7 | | Page 221187 |
| Interest income and interest expense | Note 8 | | Page 223189 |
| Pension and other postretirement employee benefit plans | Note 9 | | Page 223189 |
| Employee stock-based incentives | Note 10 | | Page 231197 |
| Securities | Note 12 | | Page 233199 |
| Securities financing activities | Note 13 | | Page 238205 |
| Loans | Note 14 | | Page 242208 |
| Allowance for credit losses | Note 15 | | Page 262227 |
| Variable interest entities | Note 16 | | Page 266232 |
Goodwill and other intangible assetsMortgage servicing rights | Note 17 | | Page 274240 |
| Premises and equipment | Note 18 | | Page 278244 |
| Long-term debt | Note 21 | | Page 279245 |
| Income taxes | Note 26 | | Page 285250 |
| Off–balance sheet lending-related financial instruments, guarantees and other commitments | Note 29 | | Page 290255 |
| Litigation | Note 31 | | Page 297262 |
Note 2 – Business changes and developments
Private Equity sale
As part of the Firm’s business simplification agenda, the sale of a portion of the Private Equity Business (“Private Equity sale”) was completed on January 9, 2015. Concurrent with the sale, a new independent management company was formed by the former One Equity Partners investment professionals. The new management company provides investment management services to the acquirer of the investments sold in the Private Equity sale and to the Firm for the portion of the private equity investments that were retained by the Firm. The sale of the investments did not have a material impact on the Firm’s Consolidated balance sheets or its results of operations.None
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| 148 | | JPMorgan Chase & Co./20152016 Annual Report | | 183 |
Notes to consolidated financial statements
Note 3 – Fair value measurement
JPMorgan Chase carries a portion of its assets and liabilities at fair value. These assets and liabilities are predominantly carried at fair value on a recurring basis (i.e., assets and liabilities that are measured and reported at fair value on the Firm’s Consolidated balance sheets). Certain assets (e.g., certain mortgage, home equity and other loans where the carrying value is based on the fair value of the underlying collateral), liabilities and unfunded lending-related commitments are measured at fair value on a nonrecurring basis; that is, they are not measured at fair value on an ongoing basis but are subject to fair value adjustments only in certain circumstances (for example, when there is evidence of impairment).
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value is based on quoted market prices or inputs, where available. If listed prices or quotes are not available, fair value is based on models that consider relevant transaction characteristics (such as maturity) and use as inputs observable or unobservable market parameters, including but not limited to yield curves, interest rates, volatilities, equity or debt prices, foreign exchange rates and credit curves. Valuation adjustments may be made to ensure that financial instruments are recorded at fair value, as described below.
The level of precision in estimating unobservable market inputs or other factors can affect the amount of gain or loss recorded for a particular position. Furthermore, while the Firm believes its valuation methods are appropriate and consistent with those of other market participants, the methods and assumptions used reflect management judgment and may vary across the Firm’s businesses and portfolios.
The Firm uses various methodologies and assumptions in the determination of fair value. The use of different methodologies or assumptions by other market participants compared with those used by the Firm could result in a different estimate of fair value at the reporting date.
Valuation process
Risk-taking functions are responsible for providing fair value estimates for assets and liabilities carried on the Consolidated balance sheets at fair value. The Firm’s valuation control function,VCG, which is part of the Firm’s Finance function and independent of the risk-taking functions, is responsible for verifying these estimates and determining any fair value adjustments that may be required to ensure that the Firm’s positions are recorded at fair value. In addition, the firmwide Valuation Governance Forum (“VGF”)The VGF is composed of senior finance and risk executives and is responsible for overseeing the management of risks arising from valuation activities conducted across the Firm. The VGF is chaired by the Firmwide head of the valuation control functionVCG (under the direction of the Firm’s Chief Financial Officer (“CFO”))Controller), and
includes sub-forums covering the Corporate & Investment Bank, Consumer & Community Banking (“CCB”), Commercial Banking, Asset ManagementCIB, CCB, CB, AWM and certain corporate functions including Treasury and Chief Investment Office (“CIO”).CIO.
Price verification process
The valuation control functionVCG verifies fair value estimates provided by the risk-taking functions by leveraging independently derived prices, valuation inputs and other market data, where available. Where independent prices or inputs are not available, the VCG performs additional review is performed by the valuation control function to ensure the reasonableness of the estimates. The additional review may include evaluating the limited market activity including client unwinds, benchmarking of valuation inputs to those used for similar instruments, decomposing the valuation of structured instruments into individual components, comparing expected to actual cash flows, reviewing profit and loss trends, and reviewing trends in collateral valuation. There are also additional levels of management review for more significant or complex positions.
The valuation control functionVCG determines any valuation adjustments that may be required to the estimates provided by the risk-taking functions. No adjustments are applied to the quoted market price for instruments classified within level 1 of the fair value hierarchy (see below for further information on the fair value hierarchy). For other positions, judgment is required to assess the need for valuation adjustments to appropriately reflect liquidity considerations, unobservable parameters, and, for certain portfolios that meet specified criteria, the size of the net open risk position. The determination of such adjustments follows a consistent framework across the Firm:
Liquidity valuation adjustments are considered where an observable external price or valuation parameter exists but is of lower reliability, potentially due to lower market activity. Liquidity valuation adjustments are applied and determined based on current market conditions. Factors that may be considered in determining the liquidity adjustment include analysis of: (1) the estimated bid-offer spread for the instrument being traded; (2) alternative pricing points for similar instruments in active markets; and (3) the range of reasonable values that the price or parameter could take.
The Firmmanages certain portfolios of financial instruments on the basis of net open risk exposure and, as permitted by U.S. GAAP, has elected to estimate the fair value of such portfolios on the basis of a transfer of the entire net open risk position in an orderly transaction. Where this is the case, valuation adjustments may be necessary to reflect the cost of exiting a larger-than-normal market-size net open risk position. Where applied, such adjustments are based on factors that a relevant market participant would consider in the transfer of the net open risk position, including the size of the adverse market move that is likely to occur during the period required to reduce the net open risk position to a normal market-size.
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184 | | JPMorgan Chase & Co./2015 Annual Report |
Unobservable parameter valuation adjustments may be made when positions are valued using prices or input parameters to valuation models that are unobservable due to a lack of market activity or because they cannot
|
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| JPMorgan Chase & Co./2016 Annual Report | | 149 |
Notes to consolidated financial statements
be implied from observable market data. Such prices or parameters must be estimated and are, therefore, subject to management judgment. Unobservable parameter valuation adjustments are applied to reflect the uncertainty inherent in the resulting valuation estimate.
Where appropriate,the Firmalso applies adjustments to its estimates of fair value in order to appropriately reflect counterparty credit quality (CVA),the Firm’sown creditworthiness (DVA) and the impact of funding utilizing(FVA), using a consistent framework acrossthe Firm. For more information on such adjustments see Credit and funding adjustments on page 200164 of this Note.
Valuation model review and approval
If prices or quotes are not available for an instrument or a similar instrument, fair value is generally determined using valuation models that consider relevant transaction data such as maturity and use as inputs market-based or independently sourced parameters. Where this is the case the price verification process described above is applied to the inputs to those models.
The Model Risk function is independent of the model owners. It reviews and approves a wide range of models, including risk management, valuation, and regulatory capital models used by the Firm. The Model Risk reviewfunction is independent of model users and governance functions are part of the Firm’s Model Risk unit, and thedevelopers. The Firmwide Model Risk Executive reports to the Firm’s Chief Risk Officer (“CRO”).CRO. When reviewing a model, the Model Risk function analyzes and challenges the model methodology, and the reasonableness of model assumptions and may perform or require additional testing, including back-testing of model outcomes.
New valuationThe Model Risk function reviews and approves new models, as well as material changes to existing valuation models, are reviewed and approved prior to implementation except where specified conditions are met, includingin the approval of an exception granted byoperating environment. In certain circumstances, the head of the Model Risk function.function may grant exceptions to the Firm’s model risk policy to allow a model to be used prior to review or approval. The Model Risk function performs an annual status assessment that considers developmentsmay also require the user to take appropriate actions to mitigate the model risk if it is to be used in the product or market to determine whether valuation models which have already been reviewed need to be, on a full or partial basis, reviewed and approved again.interim.
Valuation hierarchy
A three-level valuation hierarchy has been established under U.S. GAAP for disclosure of fair value measurements. The valuation hierarchy is based on the transparency of inputs to the valuation of an asset or liability as of the measurement date. The three levels are defined as follows.
Level 1 – inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets.
Level 2 – inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument.
Level 3 – one or more inputs to the valuation methodology are unobservable and significant to the fair value measurement.
A financial instrument’s categorization within the valuation hierarchy is based on the lowest level of input that is significant to the fair value measurement.
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| 150 | | JPMorgan Chase & Co./20152016 Annual Report | | 185 |
Notes to consolidated financial statements
The following table describes the valuation methodologies generally used by the Firm to measure its significant products/instruments at fair value, including the general classification of such instruments pursuant to the valuation hierarchy. |
| | | |
| | Product/instrument | Valuation methodology | Classifications in the valuation hierarchy |
| | Securities financing agreements | Valuations are based on discounted cash flows, which consider: | LevelPredominantly level 2 |
| | • Derivative features: for further information refer to the discussion of derivatives below. |
| | • Market rates for the respective maturity |
| | • Collateral |
| | Loans and lending-related commitments — wholesale | |
| | Trading portfolioLoans carried at fair value (e.g. trading loans and non-trading loans) | Where observable market data is available, valuations are based on: | Level 2 or 3 |
| | | • Observed market prices (circumstances are infrequent) | |
| | • Relevant broker quotes | |
| | | • Observed market prices for similar instruments | |
| | | Where observable market data is unavailable or limited, valuations are based on discounted cash flows, which consider the following: | |
| | | • Credit spreads derived from the cost of credit default swaps (“CDS”);CDS; or benchmark credit curves developed by the Firm, by industry and credit rating | |
| | | • Prepayment speed | |
| | Loans held for investment and associated lending-related commitments | Valuations are based on discounted cash flows, which consider: | Predominantly level 3 |
| | • Credit spreads, derived from the cost of CDS; or benchmark credit curves developed by the Firm, by industry and credit rating |
| | |
| | | • Prepayment speed | |
| | | Lending-related commitments are valued similar to loans and reflect the portion of an unused commitment expected, based on the Firm’s average portfolio historical experience, to become funded prior to an obligor default | |
| | | |
| | | |
| | | For information regarding the valuation of loans measured at collateral value, see Note 14. | |
| | | |
| | Loans — consumer | | |
| | Held for investment consumer loans, excluding credit card | Valuations are based on discounted cash flows, which consider: | Predominantly level 3 |
| | • Expected lifetime creditCredit losses -considering– which consider expected and current default rates, and loss severity |
| | |
| | | | |
| | | | |
| | | | |
| | | For information regarding the valuation of loans measured at collateral value, see Note 14. | |
| | | |
| | Held for investment credit card receivables | Valuations are based on discounted cash flows, which consider: | Level 3 |
| | • Credit costs —- the allowance for loan losses is considered a reasonable proxy for the credit cost |
| | |
| | | • Projected interest income, late-fee revenue and loan repayment rates |
| | | • Discount rates | |
| | | • Servicing costs | |
| | Trading loans — conforming residential mortgage loans expected to be sold | Fair value is based uponon observable prices for mortgage-backed securities with similar collateral and incorporates adjustments to these prices to account for differences between the securities and the value of the underlying loans, which include credit characteristics, portfolio composition, and liquidity. | Predominantly level 2 |
| |
| | |
| | | |
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186 | | JPMorgan Chase & Co./20152016 Annual Report | | 151 |
Notes to consolidated financial statements
|
| | |
| Product/instrument | Valuation methodology, inputs and assumptions | Classifications in the valuation hierarchy |
| Investment and trading securities | Quoted market prices are used where available. | Level 1 |
| | In the absence of quoted market prices, securities are valued based on: | Level 2 or 3 |
| | • Observable market prices for similar securities | |
| | | |
| | | |
| | In addition, the following inputs to discounted cash flows are used for the following products: | |
| | Mortgage- and asset-backed securities specific inputs: | |
| | • Collateral characteristics | |
| | • Deal-specific payment and loss allocations | |
| | • Current market assumptions related to yield, prepayment speed, conditional default rates and loss severity | |
| | Collateralized loan obligations (“CLOs”), specific inputs: | |
| | • Collateral characteristics | |
| | • Deal-specific payment and loss allocations | |
| | • Expected prepayment speed, conditional default rates, loss severity | |
| | | |
| | • Credit rating data | |
| Physical commodities | Valued using observable market prices or data | Predominantly Levellevel 1 and 2 |
| Derivatives | Exchange-traded derivatives that are actively traded and valued using the exchange price. | Level 1 |
| | Derivatives that are valued using models such as the Black-Scholes option pricing model, simulation models, or a combination of models, that use observable or unobservable valuation inputs (e.g., plain vanilla options and interest rate and credit default swaps)CDS). Inputs include: | Level 2 or 3 |
| | |
| |
| | • Contractual terms including the period to maturity | |
| | • Readily observable parameters including interest rates and volatility | |
| | • Credit quality of the counterparty and of the Firm | |
| | | |
| | | |
| | In addition, the following specific inputs are used for the following derivatives that are valued based on models with significant unobservable inputs:inputs are as follows: | |
| | Structured credit derivatives specific inputs include: | |
| | • CDS spreads and recovery rates | |
| | • Credit correlation between the underlying debt instruments (levels are modeled on a transaction basis and calibrated to liquid benchmark tranche indices) | |
| | |
| | |
| | • Actual transactions, where available, are used to regularly recalibrate unobservable parameters | |
| | |
| | Certain long-dated equity option specific inputs include: | |
| | • Long-dated equity volatilities | |
| | Certain interest rate and foreign exchange (“FX”) exotic options specific inputs include: | |
| | • Interest rate correlation | |
| | • Interest rate spread volatility | |
| | • Foreign exchange correlation | |
| | • Correlation between interest rates and foreign exchange rates | |
| | • Parameters describing the evolution of underlying interest rates | |
| | Certain commodity derivatives specific inputs include: | |
| | | |
| | • Forward commodity price | |
| | Additionally, adjustments are made to reflect counterparty credit quality (credit valuation adjustments or “CVA”)(CVA), the Firm’s own creditworthiness (debit valuation adjustments or “DVA”)(DVA), and funding valuation adjustment (“FVA”) to incorporate the impact of funding.funding (FVA). See page 200pages 164-165 of this Note. | |
| | |
| | |
| | |
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| 152 | | JPMorgan Chase & Co./20152016 Annual Report | | 187 |
Notes to consolidated financial statements
|
| | | |
| | Product/instrument | Valuation methodology, inputs and assumptions | Classification in the valuation hierarchy |
| | Mortgage servicing rights (“MSRs”) | See Mortgage servicing rights in Note 17. | Level 3 |
| | |
| | Private equity direct investments | Private equity direct investments | Level 2 or 3 |
| | | Fair value is estimated using all available information and consideringinformation; the range of potential inputs including:include: |
|
| | | • Transaction prices | |
| | | • Trading multiples of comparable public companies | |
| | | • Operating performance of the underlying portfolio company | |
| | | • Additional available inputs relevant to the investment | |
| | • Adjustments as required, since comparable public companies are not identical to the company being valued, and for company-specific issues and lack of liquidity | |
| | | Public investments held in• Additional available inputs relevant to the Private Equity portfolio | Level 1 or 2 |
| | • Valued using observable market prices less adjustments for relevant restrictions, where applicable | |
| investment | |
| | Fund investments (i.e.,(e.g. mutual/collective investment funds, private equity funds, hedge funds, and real estate funds) | Net asset value (“NAV”) | |
| | • NAV is validatedsupported by sufficient level of observable activity (i.e., purchasesthe ability to redeem and sales)purchase at the NAV level. | Level 1 |
| | |
| | • Adjustments to the NAV as required, for restrictions on redemption (e.g., lock uplock-up periods or withdrawal limitations) or where observable activity is limited | Level 2 or 3(a) |
| | | |
| | Beneficial interests issued by consolidated VIEs | Valued using observable market information, where available | Level 2 or 3 |
| | In the absence of observable market information, valuations are based on the fair value of the underlying assets held by the VIE | |
| | Long-term debt, not carried at fair value | Valuations are based on discounted cash flows, which consider: | Predominantly level 2 |
| | • Market rates for respective maturity |
| | | • The Firm’s own creditworthiness (DVA). See page 200 of
this Note.
|
| Structured notes (included in deposits, other borrowed funds and long-term debt) | • Valuations are based on discounted cash flow analyses that consider the embedded derivative and the terms and payment structure of the note. • The embedded derivative features are considered using models such as the Black-Scholes option pricing model, simulation models, or a combination of models that use observable or unobservable valuation inputs, depending on the embedded derivative. The specific inputs used vary according to the nature of the embedded derivative features, as described in the discussion above regarding derivativederivatives valuation. Adjustments are then made to this base valuation to reflect the Firm’s own creditworthiness (DVA) and to incorporate the impact of funding (FVA). See page 200pages 164-165 of this Note. | Level 2 or 3 |
| |
| |
| |
| |
| |
| (a) | Excludes certain investments that are measured at fair value using the net asset value per share (or its equivalent) as a practical expedient. |
|
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188 | | JPMorgan Chase & Co./2015 Annual Report |
The following table presents the asset and liabilities reported at fair value as of December 31, 2015 and 2014, by major product category and fair value hierarchy. |
| | | | | | | | | | | | | | | | | |
Assets and liabilities measured at fair value on a recurring basis
| | | | | |
| | Fair value hierarchy | | | |
| December 31, 2015 (in millions) | Level 1 | Level 2 | | Level 3 | | Derivative netting adjustments | Total fair value |
| Federal funds sold and securities purchased under resale agreements | $ | — |
| $ | 23,141 |
| | $ | — |
| | $ | — |
| $ | 23,141 |
|
| Securities borrowed | — |
| 395 |
| | — |
| | — |
| 395 |
|
| Trading assets: | | | | | | | |
| Debt instruments: | | | | | | | |
| Mortgage-backed securities: | | | | | | | |
U.S. government agencies(a) | 6 |
| 31,815 |
| | 715 |
| | — |
| 32,536 |
|
| Residential – nonagency | — |
| 1,299 |
| | 194 |
| | — |
| 1,493 |
|
| Commercial – nonagency | — |
| 1,080 |
| | 115 |
| | — |
| 1,195 |
|
| Total mortgage-backed securities | 6 |
| 34,194 |
| | 1,024 |
| | — |
| 35,224 |
|
U.S. Treasury and government agencies(a) | 12,036 |
| 6,985 |
| | — |
| | — |
| 19,021 |
|
| Obligations of U.S. states and municipalities | — |
| 6,986 |
| | 651 |
| | — |
| 7,637 |
|
| Certificates of deposit, bankers’ acceptances and commercial paper | — |
| 1,042 |
| | — |
| | — |
| 1,042 |
|
| Non-U.S. government debt securities | 27,974 |
| 25,064 |
| | 74 |
| | — |
| 53,112 |
|
| Corporate debt securities | — |
| 22,807 |
| | 736 |
| | — |
| 23,543 |
|
Loans(b) | — |
| 22,211 |
| | 6,604 |
| | — |
| 28,815 |
|
| Asset-backed securities | — |
| 2,392 |
| | 1,832 |
| | — |
| 4,224 |
|
| Total debt instruments | 40,016 |
| 121,681 |
| | 10,921 |
| | — |
| 172,618 |
|
| Equity securities | 94,059 |
| 606 |
| | 265 |
| | — |
| 94,930 |
|
Physical commodities(c) | 3,593 |
| 1,064 |
| | — |
| | — |
| 4,657 |
|
| Other | — |
| 11,152 |
| | 744 |
| | — |
| 11,896 |
|
Total debt and equity instruments(d) | 137,668 |
| 134,503 |
| | 11,930 |
| | — |
| 284,101 |
|
| Derivative receivables: | | | | | | | |
| Interest rate | 354 |
| 666,491 |
| | 2,766 |
| | (643,248 | ) | 26,363 |
|
| Credit | — |
| 48,850 |
| | 2,618 |
| | (50,045 | ) | 1,423 |
|
| Foreign exchange | 734 |
| 177,525 |
| | 1,616 |
| | (162,698 | ) | 17,177 |
|
| Equity | — |
| 35,150 |
| | 709 |
| | (30,330 | ) | 5,529 |
|
| Commodity | 108 |
| 24,720 |
| | 237 |
| | (15,880 | ) | 9,185 |
|
Total derivative receivables(e) | 1,196 |
| 952,736 |
| | 7,946 |
| | (902,201 | ) | 59,677 |
|
| Total trading assets | 138,864 |
| 1,087,239 |
| | 19,876 |
| | (902,201 | ) | 343,778 |
|
| Available-for-sale securities: | | | | | | | |
| Mortgage-backed securities: | | | | | | | |
U.S. government agencies(a) | — |
| 55,066 |
| | — |
| | — |
| 55,066 |
|
| Residential – nonagency | — |
| 27,618 |
| | 1 |
| | — |
| 27,619 |
|
| Commercial – nonagency | — |
| 22,897 |
| | — |
| | — |
| 22,897 |
|
| Total mortgage-backed securities | — |
| 105,581 |
| | 1 |
| | — |
| 105,582 |
|
U.S. Treasury and government agencies(a) | 10,998 |
| 38 |
| | — |
| | — |
| 11,036 |
|
| Obligations of U.S. states and municipalities | — |
| 33,550 |
| | — |
| | — |
| 33,550 |
|
| Certificates of deposit | — |
| 283 |
| | — |
| | — |
| 283 |
|
| Non-U.S. government debt securities | 23,199 |
| 13,477 |
| | — |
| | — |
| 36,676 |
|
| Corporate debt securities | — |
| 12,436 |
| | — |
| | — |
| 12,436 |
|
| Asset-backed securities: | | | | | | | |
| Collateralized loan obligations | — |
| 30,248 |
| | 759 |
| | — |
| 31,007 |
|
| Other | — |
| 9,033 |
| | 64 |
| | — |
| 9,097 |
|
| Equity securities | 2,087 |
| — |
| | — |
| | — |
| 2,087 |
|
| Total available-for-sale securities | 36,284 |
| 204,646 |
| | 824 |
| | — |
| 241,754 |
|
| Loans | — |
| 1,343 |
| | 1,518 |
| | — |
| 2,861 |
|
| Mortgage servicing rights | — |
| — |
| | 6,608 |
| | — |
| 6,608 |
|
| Other assets: | | | | | | | |
Private equity investments(f) | 102 |
| 101 |
| | 1,657 |
| | — |
| 1,860 |
|
| All other | 3,815 |
| 28 |
| | 744 |
| | — |
| 4,587 |
|
| Total other assets | 3,917 |
| 129 |
| | 2,401 |
| | — |
| 6,447 |
|
| Total assets measured at fair value on a recurring basis | $ | 179,065 |
| $ | 1,316,893 |
| (g) | $ | 31,227 |
| (g) | $ | (902,201 | ) | $ | 624,984 |
|
| Deposits | $ | — |
| $ | 9,566 |
| | $ | 2,950 |
| | $ | — |
| $ | 12,516 |
|
| Federal funds purchased and securities loaned or sold under repurchase agreements | — |
| 3,526 |
| | — |
| | — |
| 3,526 |
|
| Other borrowed funds | — |
| 9,272 |
| | 639 |
| | — |
| 9,911 |
|
| Trading liabilities: | | | | | | |
|
|
Debt and equity instruments(d) | 53,845 |
| 20,199 |
| | 63 |
| | — |
| 74,107 |
|
| Derivative payables: | | | | | | |
|
|
| Interest rate | 216 |
| 633,060 |
| | 1,890 |
| | (624,945 | ) | 10,221 |
|
| Credit | — |
| 48,460 |
| | 2,069 |
| | (48,988 | ) | 1,541 |
|
| Foreign exchange | 669 |
| 187,890 |
| | 2,341 |
| | (171,131 | ) | 19,769 |
|
| Equity | — |
| 36,440 |
| | 2,223 |
| | (29,480 | ) | 9,183 |
|
| Commodity | 52 |
| 26,430 |
| | 1,172 |
| | (15,578 | ) | 12,076 |
|
Total derivative payables(e) | 937 |
| 932,280 |
| | 9,695 |
| | (890,122 | ) | 52,790 |
|
| Total trading liabilities | 54,782 |
| 952,479 |
| | 9,758 |
| | (890,122 | ) | 126,897 |
|
| Accounts payable and other liabilities | 4,382 |
| — |
| | 19 |
| | — |
| 4,401 |
|
| Beneficial interests issued by consolidated VIEs | — |
| 238 |
| | 549 |
| | — |
| 787 |
|
| Long-term debt | — |
| 21,452 |
| | 11,613 |
| | — |
| 33,065 |
|
| Total liabilities measured at fair value on a recurring basis | $ | 59,164 |
| $ | 996,533 |
| | $ | 25,528 |
| | $ | (890,122 | ) | $ | 191,103 |
|
|
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JPMorgan Chase & Co./20152016 Annual Report | | 189153 |
Notes to consolidated financial statements
|
| | | | | | | | | | | | | | | | | | |
| | Fair value hierarchy | | | | |
| December 31, 2014 (in millions) | Level 1 | Level 2 | | Level 3 | | Derivative netting adjustments | | Total fair value |
| Federal funds sold and securities purchased under resale agreements | $ | — |
| $ | 28,585 |
| | $ | — |
| | $ | — |
| | $ | 28,585 |
|
| Securities borrowed | — |
| 992 |
| | — |
| | — |
| | 992 |
|
| Trading assets: | | | | | | | | |
| Debt instruments: | | | | | | | | |
| Mortgage-backed securities: | | | | | | | | |
U.S. government agencies(a) | 14 |
| 31,904 |
| | 922 |
| | — |
| | 32,840 |
|
| Residential – nonagency | — |
| 1,381 |
| | 663 |
| | — |
| | 2,044 |
|
| Commercial – nonagency | — |
| 927 |
| | 306 |
| | — |
| | 1,233 |
|
| Total mortgage-backed securities | 14 |
| 34,212 |
| | 1,891 |
| | — |
| | 36,117 |
|
U.S. Treasury and government agencies(a) | 17,816 |
| 8,460 |
| | — |
| | — |
| | 26,276 |
|
| Obligations of U.S. states and municipalities | — |
| 9,298 |
| | 1,273 |
| | — |
| | 10,571 |
|
| Certificates of deposit, bankers’ acceptances and commercial paper | — |
| 1,429 |
| | — |
| | — |
| | 1,429 |
|
| Non-U.S. government debt securities | 25,854 |
| 27,294 |
| | 302 |
| | — |
| | 53,450 |
|
| Corporate debt securities | — |
| 28,099 |
| | 2,989 |
| | — |
| | 31,088 |
|
Loans(b) | — |
| 23,080 |
| | 13,287 |
| | — |
| | 36,367 |
|
| Asset-backed securities | — |
| 3,088 |
| | 1,264 |
| | — |
| | 4,352 |
|
| Total debt instruments | 43,684 |
| 134,960 |
| | 21,006 |
| | — |
| | 199,650 |
|
| Equity securities | 104,890 |
| 624 |
| | 431 |
| | — |
| | 105,945 |
|
Physical commodities(c) | 2,739 |
| 1,741 |
| | 2 |
| | — |
| | 4,482 |
|
| Other | — |
| 8,762 |
| | 1,050 |
| | — |
| | 9,812 |
|
Total debt and equity instruments(d) | 151,313 |
| 146,087 |
| | 22,489 |
| | — |
| | 319,889 |
|
| Derivative receivables: | | | | | | | | |
| Interest rate | 473 |
| 945,635 |
| (g) | 4,149 |
| | (916,532 | ) | (g) | 33,725 |
|
| Credit | — |
| 73,853 |
| | 2,989 |
| | (75,004 | ) | | 1,838 |
|
| Foreign exchange | 758 |
| 212,153 |
| (g) | 2,276 |
| | (193,934 | ) | (g) | 21,253 |
|
| Equity | — |
| 39,937 |
| (g) | 2,552 |
| | (34,312 | ) | (g) | 8,177 |
|
| Commodity | 247 |
| 42,807 |
| | 599 |
| | (29,671 | ) | | 13,982 |
|
Total derivative receivables(e) | 1,478 |
| 1,314,385 |
| (g) | 12,565 |
| | (1,249,453 | ) | (g) | 78,975 |
|
| Total trading assets | 152,791 |
| 1,460,472 |
| (g) | 35,054 |
| | (1,249,453 | ) | (g) | 398,864 |
|
| Available-for-sale securities: | | | | | | | | |
| Mortgage-backed securities: | | | | | | | | |
U.S. government agencies(a) | — |
| 65,319 |
| | — |
| | — |
| | 65,319 |
|
| Residential – nonagency | — |
| 50,865 |
| | 30 |
| | — |
| | 50,895 |
|
| Commercial – nonagency | — |
| 21,009 |
| | 99 |
| | — |
| | 21,108 |
|
| Total mortgage-backed securities | — |
| 137,193 |
| | 129 |
| | — |
| | 137,322 |
|
U.S. Treasury and government agencies(a) | 13,591 |
| 54 |
| | — |
| | — |
| | 13,645 |
|
| Obligations of U.S. states and municipalities | — |
| 30,068 |
| | — |
| | — |
| | 30,068 |
|
| Certificates of deposit | — |
| 1,103 |
| | — |
| | — |
| | 1,103 |
|
| Non-U.S. government debt securities | 24,074 |
| 28,669 |
| | — |
| | — |
| | 52,743 |
|
| Corporate debt securities | — |
| 18,532 |
| | — |
| | — |
| | 18,532 |
|
| Asset-backed securities: | | | | | | | | |
| Collateralized loan obligations | — |
| 29,402 |
| | 792 |
| | — |
| | 30,194 |
|
| Other | — |
| 12,499 |
| | 116 |
| | — |
| | 12,615 |
|
| Equity securities | 2,530 |
| — |
| | — |
| | — |
| | 2,530 |
|
| Total available-for-sale securities | 40,195 |
| 257,520 |
| | 1,037 |
| | — |
| | 298,752 |
|
| Loans | — |
| 70 |
| | 2,541 |
| | — |
| | 2,611 |
|
| Mortgage servicing rights | — |
| — |
| | 7,436 |
| | — |
| | 7,436 |
|
| Other assets: | | | | | | | | |
Private equity investments(f) | 648 |
| 2,624 |
| | 2,225 |
| | — |
| | 5,497 |
|
| All other | 4,018 |
| 17 |
| | 959 |
| | — |
| | 4,994 |
|
| Total other assets | 4,666 |
| 2,641 |
| | 3,184 |
| | — |
| | 10,491 |
|
| Total assets measured at fair value on a recurring basis | $ | 197,652 |
| $ | 1,750,280 |
| (g) | $ | 49,252 |
| | $ | (1,249,453 | ) | (g) | $ | 747,731 |
|
| Deposits | $ | — |
| $ | 5,948 |
| | $ | 2,859 |
| | $ | — |
| | $ | 8,807 |
|
| Federal funds purchased and securities loaned or sold under repurchase agreements | — |
| 2,979 |
| | — |
| | — |
| | 2,979 |
|
| Other borrowed funds | — |
| 13,286 |
| | 1,453 |
| | — |
| | 14,739 |
|
| Trading liabilities: | | | | | | | | |
Debt and equity instruments(d) | 62,914 |
| 18,713 |
| | 72 |
| | — |
| | 81,699 |
|
| Derivative payables: | | | | | | | | |
| Interest rate | 499 |
| 914,357 |
| (g) | 3,523 |
| | (900,634 | ) | (g) | 17,745 |
|
| Credit | — |
| 73,095 |
| | 2,800 |
| | (74,302 | ) | | 1,593 |
|
| Foreign exchange | 746 |
| 221,066 |
| (g) | 2,802 |
| | (201,644 | ) | (g) | 22,970 |
|
| Equity | — |
| 41,925 |
| (g) | 4,337 |
| | (34,522 | ) | (g) | 11,740 |
|
| Commodity | 141 |
| 44,318 |
| | 1,164 |
| | (28,555 | ) | | 17,068 |
|
Total derivative payables(e) | 1,386 |
| 1,294,761 |
| (g) | 14,626 |
| | (1,239,657 | ) | (g) | 71,116 |
|
| Total trading liabilities | 64,300 |
| 1,313,474 |
| (g) | 14,698 |
| | (1,239,657 | ) | (g) | 152,815 |
|
Accounts payable and other liabilities (g) | 4,129 |
| — |
| | 26 |
| | — |
| | 4,155 |
|
| Beneficial interests issued by consolidated VIEs | — |
| 1,016 |
| | 1,146 |
| | — |
| | 2,162 |
|
| Long-term debt | — |
| 18,349 |
| | 11,877 |
| | — |
| | 30,226 |
|
| Total liabilities measured at fair value on a recurring basis | $ | 68,429 |
| $ | 1,355,052 |
| (g) | $ | 32,059 |
| | $ | (1,239,657 | ) | (g) | $ | 215,883 |
|
Note: Effective April 1, 2015,The following table presents the Firm adopted new accounting guidance for investments in certain entities that calculate net asset value per share (or its equivalent). As a result of the adoption of this new guidance, certain investments that are measuredassets and liabilities reported at fair value using the net asset value per share (or its equivalent) as a practical expedient are not required to be classified in theof December 31, 2016 and 2015, by major product category and fair value hierarchy. At December 31, 2015 and 2014, the fair values of these investments, which include certain hedge funds, private equity funds, real estate and other funds, were $1.2 billion and $1.5 billion, respectively, of which $337 million and $1.2 billion had been previously classified in level 2 and level 3, respectively, at December 31, 2014. Included on the Firm’s balance sheet at December 31, 2015 and 2014, were trading assets of $61 million and $124 million, respectively, and other assets of $1.2 billion and $1.4 billion, respectively. The guidance was required to be applied retrospectively, and accordingly, prior period amounts have been revised to conform with the current period presentation. |
| | | | | | | | | | | | | | | | | |
| Assets and liabilities measured at fair value on a recurring basis | | | | | |
| | Fair value hierarchy | | | |
| December 31, 2016 (in millions) | Level 1 | Level 2 | | Level 3 | | Derivative netting adjustments | Total fair value |
| Federal funds sold and securities purchased under resale agreements | $ | — |
| $ | 21,506 |
| | $ | — |
| | $ | — |
| $ | 21,506 |
|
| Securities borrowed | — |
| — |
| | — |
| | — |
| — |
|
| Trading assets: | | | | | | | |
| Debt instruments: | | | | | | | |
| Mortgage-backed securities: | | | | | | | |
U.S. government agencies(a) | 13 |
| 40,586 |
| | 392 |
| | — |
| 40,991 |
|
| Residential – nonagency | — |
| 1,552 |
| | 83 |
| | — |
| 1,635 |
|
| Commercial – nonagency | — |
| 1,321 |
| | 17 |
| | — |
| 1,338 |
|
| Total mortgage-backed securities | 13 |
| 43,459 |
| | 492 |
| | — |
| 43,964 |
|
U.S. Treasury and government agencies(a) | 19,554 |
| 5,201 |
| | — |
| | — |
| 24,755 |
|
| Obligations of U.S. states and municipalities | — |
| 8,403 |
| | 649 |
| | — |
| 9,052 |
|
| Certificates of deposit, bankers’ acceptances and commercial paper | — |
| 1,649 |
| | — |
| | — |
| 1,649 |
|
| Non-U.S. government debt securities | 28,443 |
| 23,076 |
| | 46 |
| | — |
| 51,565 |
|
| Corporate debt securities | — |
| 22,751 |
| | 576 |
| | — |
| 23,327 |
|
Loans(b) | — |
| 28,965 |
| | 4,837 |
| | — |
| 33,802 |
|
| Asset-backed securities | — |
| 5,250 |
| | 302 |
| | — |
| 5,552 |
|
| Total debt instruments | 48,010 |
| 138,754 |
| | 6,902 |
| | — |
| 193,666 |
|
| Equity securities | 96,759 |
| 281 |
| | 231 |
| | — |
| 97,271 |
|
Physical commodities(c) | 5,341 |
| 1,620 |
| | — |
| | — |
| 6,961 |
|
| Other | — |
| 9,341 |
| | 761 |
| | — |
| 10,102 |
|
Total debt and equity instruments(d) | 150,110 |
| 149,996 |
| | 7,894 |
| | — |
| 308,000 |
|
| Derivative receivables: | | | | | | | |
| Interest rate | 715 |
| 602,747 |
| | 2,501 |
| | (577,661 | ) | 28,302 |
|
| Credit | — |
| 28,256 |
| | 1,389 |
| | (28,351 | ) | 1,294 |
|
| Foreign exchange | 812 |
| 231,743 |
| | 870 |
| | (210,154 | ) | 23,271 |
|
| Equity | — |
| 34,032 |
| | 908 |
| | (30,001 | ) | 4,939 |
|
| Commodity | 158 |
| 18,360 |
| | 125 |
| | (12,371 | ) | 6,272 |
|
Total derivative receivables(e) | 1,685 |
| 915,138 |
| | 5,793 |
| | (858,538 | ) | 64,078 |
|
Total trading assets(f) | 151,795 |
| 1,065,134 |
| | 13,687 |
| | (858,538 | ) | 372,078 |
|
| Available-for-sale securities: | | | | | | | |
| Mortgage-backed securities: | | | | | | | |
U.S. government agencies(a) | — |
| 64,005 |
| | — |
| | — |
| 64,005 |
|
| Residential – nonagency | — |
| 14,442 |
| | 1 |
| | — |
| 14,443 |
|
| Commercial – nonagency | — |
| 9,104 |
| | — |
| | — |
| 9,104 |
|
| Total mortgage-backed securities | — |
| 87,551 |
| | 1 |
| | — |
| 87,552 |
|
U.S. Treasury and government agencies(a) | 44,072 |
| 29 |
| | — |
| | — |
| 44,101 |
|
| Obligations of U.S. states and municipalities | — |
| 31,592 |
| | — |
| | — |
| 31,592 |
|
| Certificates of deposit | — |
| 106 |
| | — |
| | — |
| 106 |
|
| Non-U.S. government debt securities | 22,793 |
| 12,495 |
| | — |
| | — |
| 35,288 |
|
| Corporate debt securities | — |
| 4,958 |
| | — |
| | — |
| 4,958 |
|
| Asset-backed securities: | | | | | | | |
| Collateralized loan obligations | — |
| 26,738 |
| | 663 |
| | — |
| 27,401 |
|
| Other | — |
| 6,967 |
| | — |
| | — |
| 6,967 |
|
| Equity securities | 926 |
| — |
| | — |
| | — |
| 926 |
|
| Total available-for-sale securities | 67,791 |
| 170,436 |
| | 664 |
| | — |
| 238,891 |
|
| Loans | — |
| 1,660 |
| | 570 |
| | — |
| 2,230 |
|
| Mortgage servicing rights | — |
| — |
| | 6,096 |
| | — |
| 6,096 |
|
| Other assets: | | | | | | | |
Private equity investments(g) | 68 |
| — |
| | 1,606 |
| | — |
| 1,674 |
|
| All other | 4,289 |
| — |
| | 617 |
| | — |
| 4,906 |
|
Total other assets(f) | 4,357 |
| — |
| | 2,223 |
| | — |
| 6,580 |
|
| Total assets measured at fair value on a recurring basis | $ | 223,943 |
| $ | 1,258,736 |
| (g) | $ | 23,240 |
| (g) | $ | (858,538 | ) | $ | 647,381 |
|
| Deposits | $ | — |
| $ | 11,795 |
| | $ | 2,117 |
| | $ | — |
| $ | 13,912 |
|
| Federal funds purchased and securities loaned or sold under repurchase agreements | — |
| 687 |
| | — |
| | — |
| 687 |
|
| Other borrowed funds | — |
| 7,971 |
| | 1,134 |
| | — |
| 9,105 |
|
| Trading liabilities: | | | | | | |
|
|
Debt and equity instruments(d) | 68,304 |
| 19,081 |
| | 43 |
| | — |
| 87,428 |
|
| Derivative payables: | | | | | | |
|
|
| Interest rate | 539 |
| 569,001 |
| | 1,238 |
| | (559,963 | ) | 10,815 |
|
| Credit | — |
| 27,375 |
| | 1,291 |
| | (27,255 | ) | 1,411 |
|
| Foreign exchange | 902 |
| 231,815 |
| | 2,254 |
| | (214,463 | ) | 20,508 |
|
| Equity | — |
| 35,202 |
| | 3,160 |
| | (30,222 | ) | 8,140 |
|
| Commodity | 173 |
| 20,079 |
| | 210 |
| | (12,105 | ) | 8,357 |
|
Total derivative payables(e) | 1,614 |
| 883,472 |
| | 8,153 |
| | (844,008 | ) | 49,231 |
|
| Total trading liabilities | 69,918 |
| 902,553 |
| | 8,196 |
| | (844,008 | ) | 136,659 |
|
| Accounts payable and other liabilities | 9,107 |
| — |
| | 13 |
| | — |
| 9,120 |
|
| Beneficial interests issued by consolidated VIEs | — |
| 72 |
| | 48 |
| | — |
| 120 |
|
| Long-term debt | — |
| 23,792 |
| | 13,894 |
| | — |
| 37,686 |
|
| Total liabilities measured at fair value on a recurring basis | $ | 79,025 |
| $ | 946,870 |
| | $ | 25,402 |
| | $ | (844,008 | ) | $ | 207,289 |
|
|
| | |
190154 | | JPMorgan Chase & Co./20152016 Annual Report |
|
| | | | | | | | | | | | | | | | | | |
| | Fair value hierarchy | | | | |
| December 31, 2015 (in millions) | Level 1 | Level 2 | | Level 3 | | Derivative netting adjustments | | Total fair value |
| Federal funds sold and securities purchased under resale agreements | $ | — |
| $ | 23,141 |
| | $ | — |
| | $ | — |
| | $ | 23,141 |
|
| Securities borrowed | — |
| 395 |
| | — |
| | — |
| | 395 |
|
| Trading assets: | | | | | | | | |
| Debt instruments: | | | | | | | | |
| Mortgage-backed securities: | | | | | | | | |
U.S. government agencies(a) | 6 |
| 31,815 |
| | 715 |
| | — |
| | 32,536 |
|
| Residential – nonagency | — |
| 1,299 |
| | 194 |
| | — |
| | 1,493 |
|
| Commercial – nonagency | — |
| 1,080 |
| | 115 |
| | — |
| | 1,195 |
|
| Total mortgage-backed securities | 6 |
| 34,194 |
| | 1,024 |
| | — |
| | 35,224 |
|
U.S. Treasury and government agencies(a) | 12,036 |
| 6,985 |
| | — |
| | — |
| | 19,021 |
|
| Obligations of U.S. states and municipalities | — |
| 6,986 |
| | 651 |
| | — |
| | 7,637 |
|
| Certificates of deposit, bankers’ acceptances and commercial paper | — |
| 1,042 |
| | — |
| | — |
| | 1,042 |
|
| Non-U.S. government debt securities | 27,974 |
| 25,064 |
| | 74 |
| | — |
| | 53,112 |
|
| Corporate debt securities | — |
| 22,807 |
| | 736 |
| | — |
| | 23,543 |
|
Loans(b) | — |
| 22,211 |
| | 6,604 |
| | — |
| | 28,815 |
|
| Asset-backed securities | — |
| 2,392 |
| | 1,832 |
| | — |
| | 4,224 |
|
| Total debt instruments | 40,016 |
| 121,681 |
| | 10,921 |
| | — |
| | 172,618 |
|
| Equity securities | 94,059 |
| 606 |
| | 265 |
| | — |
| | 94,930 |
|
Physical commodities(c) | 3,593 |
| 1,064 |
| | — |
| | — |
| | 4,657 |
|
| Other | — |
| 11,152 |
| | 744 |
| | — |
| | 11,896 |
|
Total debt and equity instruments(d) | 137,668 |
| 134,503 |
| | 11,930 |
| | — |
| | 284,101 |
|
| Derivative receivables: | | | | | | | | |
| Interest rate | 354 |
| 666,491 |
| | 2,766 |
| | (643,248 | ) | | 26,363 |
|
| Credit | — |
| 48,850 |
| | 2,618 |
| | (50,045 | ) | | 1,423 |
|
| Foreign exchange | 734 |
| 177,525 |
| | 1,616 |
| | (162,698 | ) | | 17,177 |
|
| Equity | — |
| 35,150 |
| | 709 |
| | (30,330 | ) | | 5,529 |
|
| Commodity | 108 |
| 24,720 |
| | 237 |
| | (15,880 | ) | | 9,185 |
|
Total derivative receivables(e) | 1,196 |
| 952,736 |
| | 7,946 |
| | (902,201 | ) | | 59,677 |
|
Total trading assets(f) | 138,864 |
| 1,087,239 |
| | 19,876 |
| | (902,201 | ) | | 343,778 |
|
| Available-for-sale securities: | | | | | | | | |
| Mortgage-backed securities: | | | | | | | | |
U.S. government agencies(a) | — |
| 55,066 |
| | — |
| | — |
| | 55,066 |
|
| Residential – nonagency | — |
| 27,618 |
| | 1 |
| | — |
| | 27,619 |
|
| Commercial – nonagency | — |
| 22,897 |
| | — |
| | — |
| | 22,897 |
|
| Total mortgage-backed securities | — |
| 105,581 |
| | 1 |
| | — |
| | 105,582 |
|
U.S. Treasury and government agencies(a) | 10,998 |
| 38 |
| | — |
| | — |
| | 11,036 |
|
| Obligations of U.S. states and municipalities | — |
| 33,550 |
| | — |
| | — |
| | 33,550 |
|
| Certificates of deposit | — |
| 283 |
| | — |
| | — |
| | 283 |
|
| Non-U.S. government debt securities | 23,199 |
| 13,477 |
| | — |
| | — |
| | 36,676 |
|
| Corporate debt securities | — |
| 12,436 |
| | — |
| | — |
| | 12,436 |
|
| Asset-backed securities: | | | | | | | | |
| Collateralized loan obligations | — |
| 30,248 |
| | 759 |
| | — |
| | 31,007 |
|
| Other | — |
| 9,033 |
| | 64 |
| | — |
| | 9,097 |
|
| Equity securities | 2,087 |
| — |
| | — |
| | — |
| | 2,087 |
|
| Total available-for-sale securities | 36,284 |
| 204,646 |
| | 824 |
| | — |
| | 241,754 |
|
| Loans | — |
| 1,343 |
| | 1,518 |
| | — |
| | 2,861 |
|
| Mortgage servicing rights | — |
| — |
| | 6,608 |
| | — |
| | 6,608 |
|
| Other assets: | | | | | | | | |
Private equity investments(g) | 102 |
| 101 |
| | 1,657 |
| | — |
| | 1,860 |
|
| All other | 3,815 |
| 28 |
| | 744 |
| | — |
| | 4,587 |
|
Total other assets(f) | 3,917 |
| 129 |
| | 2,401 |
| | — |
| | 6,447 |
|
| Total assets measured at fair value on a recurring basis | $ | 179,065 |
| $ | 1,316,893 |
| | $ | 31,227 |
| | $ | (902,201 | ) | | $ | 624,984 |
|
| Deposits | $ | — |
| $ | 9,566 |
| | $ | 2,950 |
| | $ | — |
| | $ | 12,516 |
|
| Federal funds purchased and securities loaned or sold under repurchase agreements | — |
| 3,526 |
| | — |
| | — |
| | 3,526 |
|
| Other borrowed funds | — |
| 9,272 |
| | 639 |
| | — |
| | 9,911 |
|
| Trading liabilities: | | | | | | | | |
Debt and equity instruments(d) | 53,845 |
| 20,199 |
| | 63 |
| | — |
| | 74,107 |
|
| Derivative payables: | | | | | | | | |
| Interest rate | 216 |
| 633,060 |
| | 1,890 |
| | (624,945 | ) | | 10,221 |
|
| Credit | — |
| 48,460 |
| | 2,069 |
| | (48,988 | ) | | 1,541 |
|
| Foreign exchange | 669 |
| 187,890 |
| | 2,341 |
| | (171,131 | ) | | 19,769 |
|
| Equity | — |
| 36,440 |
| | 2,223 |
| | (29,480 | ) | | 9,183 |
|
| Commodity | 52 |
| 26,430 |
| | 1,172 |
| | (15,578 | ) | | 12,076 |
|
Total derivative payables(e) | 937 |
| 932,280 |
| | 9,695 |
| | (890,122 | ) | | 52,790 |
|
| Total trading liabilities | 54,782 |
| 952,479 |
| | 9,758 |
| | (890,122 | ) | | 126,897 |
|
| Accounts payable and other liabilities | 4,382 |
| — |
| | 19 |
| | — |
| | 4,401 |
|
| Beneficial interests issued by consolidated VIEs | — |
| 238 |
| | 549 |
| | — |
| | 787 |
|
| Long-term debt | — |
| 21,452 |
| | 11,613 |
| | — |
| | 33,065 |
|
| Total liabilities measured at fair value on a recurring basis | $ | 59,164 |
| $ | 996,533 |
| | $ | 25,528 |
| | $ | (890,122 | ) | | $ | 191,103 |
|
|
| | |
| JPMorgan Chase & Co./2016 Annual Report | | 155 |
Notes to consolidated financial statements
| |
| (a) | At December 31, 20152016 and 20142015, included total U.S. government-sponsored enterprise obligations of $67.080.6 billion and $84.167.0 billion, respectively, which were predominantly mortgage-related. |
| |
| (b) | At December 31, 20152016 and 20142015, included within trading loans were $11.816.5 billion and $17.011.8 billion, respectively, of residential first-lien mortgages, and $4.33.3 billion and $5.84.3 billion, respectively, of commercial first-lien mortgages. Residential mortgage loans include conforming mortgage loans originated with the intent to sell to U.S. government agencies of $5.311.0 billion and $7.75.3 billion, respectively, and reverse mortgages of $2.52.0 billion and $3.42.5 billion, respectively. |
| |
| (c) | Physical commodities inventories are generally accounted for at the lower of cost or market. “Market” is a term defined in U.S. GAAP as not exceeding fair value less costs to sell (“transaction costs”). Transaction costs for the Firm’s physical commodities inventories are either not applicable or immaterial to the value of the inventory. Therefore, market approximates fair value for the Firm’s physical commodities inventories. When fair value hedging has been applied (or when market is below cost), the carrying value of physical commodities approximates fair value, because under fair value hedge accounting, the cost basis is adjusted for changes in fair value. For a further discussion of the Firm’s hedge accounting relationships, see Note 6. To provide consistent fair value disclosure information, all physical commodities inventories have been included in each period presented. |
| |
| (d) | Balances reflect the reduction of securities owned (long positions) by the amount of identical securities sold but not yet purchased (short positions). |
| |
| (e) | As permitted under U.S. GAAP, the Firm has elected to net derivative receivables and derivative payables and the related cash collateral received and paid when a legally enforceable master netting agreement exists. For purposes of the tables above, the Firm does not reduce derivative receivables and derivative payables balances for this netting adjustment, either within or across the levels of the fair value hierarchy, as such netting is not relevant to a presentation based on the transparency of inputs to the valuation of an asset or liability. However, if the Firm were to net such balances withinThe level 3 the reduction in the level 3 derivative receivables and payables balances would be $546 million and $2.5 billion at December 31, 2015 and 2014, respectively; this is exclusive ofreduced if netting were applied, including the netting benefit associated with cash collateral, which would further reduce the level 3 balances. collateral. |
| |
| (f) | Certain investments that are measured at fair value using the net asset value per share (or its equivalent) as a practical expedient are not required to be classified in the fair value hierarchy. At December 31, 2016 and 2015, the fair values of these investments, which include certain hedge funds, private equity funds, real estate and other funds, were $1.0 billion and $1.2 billion, respectively. Included in the balances at December 31, 2016 and 2015, were trading assets of $52 million and $61 million, respectively, and other assets of $1.0 billion and $1.2 billion, respectively. |
| |
| (g) | Private equity instruments represent investments within the Corporate line of business.Corporate. The cost basisportion of the private equity investment portfolio totaledcarried at fair value on a recurring basis had a cost basis of $3.52.5 billion and $6.03.5 billion at December 31, 20152016 and 20142015, respectively. |
| |
(g) | Certain prior period amounts (including the corresponding fair value parenthetical disclosure for accounts payable and other liabilities on the Consolidated balance sheets) were revised to conform with the current period presentation. |
Transfers between levels for instruments carried at
fair value on a recurring basis
For the years ended December 31, 20152016 and 2014,2015, there were no significant transfers between levels 1 and 2.
During the year ended December 31, 2016, transfers from level 3 to level 2 included the following:
$1.4 billion of long-term debt driven by an increase in observability and a reduction of the significance in the unobservable inputs for certain structured notes.
During the year ended December 31, 2016, transfers from level 2 to level 3 included the following:
$1.1 billion of gross equity derivative receivables and $1.0 billion of gross equity derivative payables as a result of a decrease in observability and an increase in the significance in unobservable inputs.
$1.0 billion of trading loans driven by a decrease in observability.
During the year ended December 31, 2015, transfers from level 3 to level 2 and from level 2 to level 3 included the following:
$3.1 billion of long-term debt and $1.0 billion of deposits driven by an increase in observability on certain structured notes with embedded interest rate and FX derivatives and a reduction of the significance in the unobservable inputs for certain structured notes with embedded equity derivativesderivatives.
$2.1 billion of gross equity derivatives for both receivables and payables as a result of an increase in observability and a decrease in the significance in unobservable inputs; partially offset by transfers into level 3 resulting in net transfers of approximately $1.2 billion for both receivables and payablespayables.
$2.8 billion of trading loans driven by an increase in observability of certain collateralized financing transactions; and $2.4transactions.
During the year ended December 31, 2015, transfers from level 2 to level 3 included the following:
$2.4 billion of corporate debt driven by a decrease in the significance in the unobservable inputs and an increase in observability for certain structured products
During the year ended December 31, 2014, transfers from level 3 to level 2 included the following:
$4.3 billion and $4.4 billion of gross equity derivative receivables and payables, respectively, due to increased observability of certain equity option valuation inputs
$2.7 billion of trading loans, $2.6 billion of margin loans, $2.3 billion of private equity investments, $2.0 billion of corporate debt, and $1.3 billion of long-term debt, based on increased liquidity and price transparency
Transfers from level 2 into level 3 included $1.1 billion of other borrowed funds, $1.1 billion of trading loans and $1.0 billion of long-term debt, based on a decrease in observability of valuation inputs and price transparency.
During the year ended December 31, 2013, transfers from level 3 to level 2 included the following:
Certain highly rated CLOs, including $27.4 billion held in the Firm’s available-for-sale (“AFS”) securities portfolio and $1.4 billion held in the trading portfolio, based on increased liquidity and price transparency;
$1.3 billion of long-term debt, largely driven by an increase in observability of certain equity structured notes.
Transfers from level 2 to level 3 included $1.4 billion of corporate debt securities in the trading portfolio largely driven by a decrease in observability for certain credit instruments.
All transfers are assumed to occur at the beginning of the quarterly reporting period in which they occur.
|
| | |
| 156 | | JPMorgan Chase & Co./2016 Annual Report |
Level 3 valuations
The Firm has established well-documentedwell-structured processes for determining fair value, including for instruments where fair value is estimated using significant unobservable inputs (level 3). For further information on the Firm’s valuation process and a detailed discussion of the determination of fair value for individual financial instruments, see pages 185–188150–153 of this Note.
Estimating fair value requires the application of judgment. The type and level of judgment required is largely dependent on the amount of observable market information available to the Firm. For instruments valued using internally developed models that use significant unobservable inputs and are therefore classified within level 3 of the fair value hierarchy, judgments used to estimate fair value are more significant than those required when estimating the fair value of instruments classified within levels 1 and 2.
In arriving at an estimate of fair value for an instrument within level 3, management must first determine the appropriate model to use. Second, due to the lack of observability of significant inputs, management must assess all relevant empirical data in deriving valuation inputs including, but not limited to, transaction details, yield
|
| | |
JPMorgan Chase & Co./2015 Annual Report | | 191 |
Notes to consolidated financial statements
curves, interest rates, prepayment speed, default rates, volatilities, correlations, equity or debt prices, valuations of comparable instruments, foreign exchange rates and credit curves.
The following table presents the Firm’s primary level 3 financial instruments, the valuation techniques used to measure the fair value of those financial instruments, the significant unobservable inputs, the range of values for those inputs and, for certain instruments, the weighted averages of such inputs. While the determination to classify an instrument within level 3 is based on the significance of the unobservable inputs to the overall fair value measurement, level 3 financial instruments typically include observable components (that is, components that are actively quoted and can be validated to external sources) in addition to the unobservable components. The level 1 and/or level 2 inputs are not included in the table. In addition, the Firm manages the risk of the observable components of level 3 financial instruments using securities and derivative positions that are classified within levels 1 or 2 of the fair value hierarchy.
The range of values presented in the table is representative of the highest and lowest level input used to value the significant groups of instruments within a product/instrument classification. Where provided, the weighted averages of the input values presented in the table are calculated based on the fair value of the instruments that the input is being used to value.
In the Firm’s view, the input range and the weighted average value do not reflect the degree of input uncertainty or an assessment of the reasonableness of the Firm’s estimates and assumptions. Rather, they reflect the characteristics of the various instruments held by the Firm and the relative distribution of instruments within the range of characteristics. For example, two option contracts may have similar levels of market risk exposure and valuation uncertainty, but may have significantly different implied volatility levels because the option contracts have different underlyings, tenors, or strike prices. The input range and weighted average values will therefore vary from period-to-period and parameter-to-parameter based on the characteristics of the instruments held by the Firm at each balance sheet date.
For the Firm’s derivatives and structured notes positions classified within level 3 at December 31, 2015,2016, interest rate correlation inputs used in estimating fair value were concentrated towards the upper end of the range presented; equitiesequity correlation inputs were concentrated at the lowerupper end of the range; the credit correlation inputs were distributed across the range presented; and the foreign exchange correlation inputs were concentrated at the topupper end of the range presented. In addition, the interest rate volatility inputs and the foreign exchange correlation inputs used in estimating fair value were each concentrated at the upper end ofdistributed across the range presented. Thepresented; equity volatilities arewere concentrated in the lower half end of the range. Therange; and forward commodity prices used in estimating the fair value of commodity derivatives were concentrated withinin the lower endmiddle of the range presented.
|
| | |
192 | | JPMorgan Chase & Co./20152016 Annual Report | | 157 |
Notes to consolidated financial statements
| | Level 3 inputs(a) | Level 3 inputs(a) | | Level 3 inputs(a) | |
| December 31, 2015 (in millions, except for ratios and basis points) | | | | |
| December 31, 2016 (in millions, except for ratios and basis points) | | December 31, 2016 (in millions, except for ratios and basis points) | | | |
| Product/Instrument | Fair value | | Principal valuation technique | Unobservable inputs | Range of input values | Weighted average | Fair value | | Principal valuation technique | Unobservable inputs | Range of input values | Weighted average |
| Residential mortgage-backed securities and loans | $ | 5,212 |
| | Discounted cash flows | Yield | 3% |
| - | 26% | 6% | $ | 2,861 |
| | Discounted cash flows | Yield | 4% |
| - | 18% | 5% |
| | | Prepayment speed | 0% |
| - | 20% | 6% | | | Prepayment speed | 0% |
| - | 20% | 8% |
| | | | Conditional default rate | 0% |
| - | 33% | 2% | | | Conditional default rate | 0% |
| - | 34% | 15% |
| | | | Loss severity | 0% |
| - | 100% | 28% | | | Loss severity | 0% |
| - | 90% | 37% |
Commercial mortgage-backed securities and loans(b) | 2,844 |
| | Discounted cash flows | Yield | 1% |
| - | 25% | 6% | 1,555 |
| | Discounted cash flows | Yield | 1% |
| - | 32% | 8% |
| | | Conditional default rate | 0% |
| - | 91% | 29% | | | Conditional default rate | 0% |
| - | 100% | 69% |
| | | | Loss severity | 40% | 40% | | | Loss severity | 40% | 40% |
Corporate debt securities, obligations of U.S. states and municipalities, and other(c) | 3,277 |
| | Discounted cash flows | Credit spread | 60 bps |
| - | 225 bps | 146 bps | 764 |
| | Discounted cash flows | Credit spread | 40 | bps | - | 375bps | 96bps |
| | | Yield | 1% |
| - | 20% | 5% | | | Yield | 1% |
| - | 17% | 9% |
| 2,740 |
| | Market comparables | Price | $ | — |
| - | td68 | $89 | 3,744 |
| | Market comparables | Price | $ | 0 |
| - | td21 | $91 |
| Net interest rate derivatives | 876 |
| | Option pricing | Interest rate correlation | (52 | )% | - | 99% | | 1,263 |
| | Option pricing | Interest rate correlation | (30)% |
| - | 100% | |
| | | | Interest rate spread volatility | 3% |
| - | 38% | | | | Interest rate spread volatility | 3% |
| - | 38% | |
Net credit derivatives(b)(c) | 549 |
| | Discounted cash flows | Credit correlation | 35% |
| - | 90% | | 98 |
| | Discounted cash flows | Credit correlation | 30% |
| - | 85% | |
| Net foreign exchange derivatives | (725 | ) | | Option pricing | Foreign exchange correlation | 0% |
| - | 60% | | (1,384 | ) | | Option pricing | Foreign exchange correlation | (30)% |
| - | 65% | |
| Net equity derivatives | (1,514 | ) | | Option pricing | Equity volatility | 20% |
| - | 65% | | (2,252 | ) | | Option pricing | Equity volatility | 20% |
| - | 60% | |
| Net commodity derivatives | (935 | ) | | Discounted cash flows | Forward commodity price | $ | 22 |
| - | $46 per barrel | (85 | ) | | Discounted cash flows | Forward commodity price | $ | 46 |
| - | $59 per barrel |
| Collateralized loan obligations | 759 |
| | Discounted cash flows | Credit spread | 354 bps |
| - | 550 bps | 396 bps | 663 |
| | Discounted cash flows | Credit spread | 303bps | - | 475bps | 339bps |
| | | | Prepayment speed | 20% | 20% | | | Prepayment speed | 20% | 20% |
| | | | Conditional default rate | 2% | 2% | | | Conditional default rate | 2% | 2% |
| | | | Loss severity | 40% | 40% | | | Loss severity | 30% | 30% |
| | 180 |
| | Market comparables | Price | $ | — |
| - | $99 | $69 | 158 |
| | Market comparables | Price | $ | 0 |
| - | $111 | $73 |
| Mortgage servicing rights | 6,608 |
| | Discounted cash flows | Refer to Note 17 | | |
| Private equity investments | 1,657 |
| | Market comparables | EBITDA multiple | 7.2x |
| - | 10.4x | 8.5x | |
| 6,096 |
| | Discounted cash flows | Refer to Note 17 | |
| Private equity investments | | | Liquidity adjustment | 0% |
| - | 13% | 8% | 1,606 |
| | Market comparables | EBITDA multiple | 6.4 | x | - | 11.5x | 7.9x |
| 14,707 |
| | Option pricing | Interest rate correlation | (52 | )% | - | 99% | | 16,669 |
| | Option pricing | Interest rate correlation | (30)% |
| - | 100% | |
Long-term debt, other borrowed funds, and deposits(d) | | | Interest rate spread volatility | 3% |
| - | 38% | | | | Interest rate spread volatility | 3% |
| - | 38% | |
| | | Foreign exchange correlation | 0% |
| - | 60% | | | | Foreign exchange correlation | (30)% |
| - | 65% | |
| | | Equity correlation | (50 | )% | - | 80% | | | | Equity correlation | (50)% |
| - | 80% | |
| 495 |
| | Discounted cash flows | Credit correlation | 35% |
| - | 90% | | 476 |
| | Discounted cash flows | Credit correlation | 30% |
| - | 85% | |
Beneficial interests issued by consolidated VIEs(e) | 549 |
| | Discounted cash flows | Yield | 4% |
| - | 28% | 4% | |
| | | | Prepayment Speed | 1% |
| - | 12% | 6% | |
| | | | Conditional default rate | 2% |
| - | 15% | 2% | |
| | | | Loss severity | 30% |
| - | 100% | 31% | |
| |
| (a) | The categories presented in the table have been aggregated based upon the product type, which may differ from their classification on the Consolidated balance sheets. Furthermore, the inputs presented for each valuation technique in the table are, in some cases, not applicable to every instrument valued using the technique as the characteristics of the instruments can differ. |
| |
| (b) | The unobservable inputs and associated input ranges for approximately $349$394 million of credit derivative receivables and $310$226 million of credit derivative payables with underlying commercial mortgage risk have been included in the inputs and ranges provided for commercial mortgage-backed securities and loans. |
| |
| (c) | The unobservable inputs and associated input ranges for approximately $434$362 million of credit derivative receivables and $401$333 million of credit derivative payables with underlying asset-backed securitiesABS risk have been included in the inputs and ranges provided for corporate debt securities, obligations of U.S. states and municipalities and other. |
| |
| (d) | Long-term debt, other borrowed funds and deposits include structured notes issued by the Firm that are predominantly financial instruments containing embedded derivatives. The estimation of the fair value of structured notes is predominantly based onincludes the derivative features embedded within the instruments.instrument. The significant unobservable inputs are broadly consistent with those presented for derivative receivables. |
(e) The parameters are related to residential mortgage-backed securities.
|
| | |
| 158 | | JPMorgan Chase & Co./20152016 Annual Report | | 193 |
Notes to consolidated financial statements
Changes in and ranges of unobservable inputs
The following discussion provides a description of the impact on a fair value measurement of a change in each unobservable input in isolation, and the interrelationship between unobservable inputs, where relevant and significant. The impact of changes in inputs may not be independent, as a change in one unobservable input may give rise to a change in another unobservable input; whereinput. Where relationships do exist between two unobservable inputs, those relationships are discussed below. Relationships may also exist between observable and unobservable inputs (for example, as observable interest rates rise, unobservable prepayment rates decline); such relationships have not been included in the discussion below. In addition, for each of the individual relationships described below, the inverse relationship would also generally apply.
In addition, theThe following discussion also provides a description of attributes of the underlying instruments and external market factors that affect the range of inputs used in the valuation of the Firm’s positions.
Yield – The yield of an asset is the interest rate used to discount future cash flows in a discounted cash flow calculation. An increase in the yield, in isolation, would result in a decrease in a fair value measurement.
Credit spread – The credit spread is the amount of additional annualized return over the market interest rate that a market participant would demand for taking exposure to the credit risk of an instrument. The credit spread for an instrument forms part of the discount rate used in a discounted cash flow calculation. Generally, an increase in the credit spread would result in a decrease in a fair value measurement.
The yield and the credit spread of a particular mortgage-backed security primarily reflect the risk inherent in the instrument. The yield is also impacted by the absolute level of the coupon paid by the instrument (which may not correspond directly to the level of inherent risk). Therefore, the range of yield and credit spreads reflects the range of risk inherent in various instruments owned by the Firm. The risk inherent in mortgage-backed securities is driven by the subordination of the security being valued and the characteristics of the underlying mortgages within the collateralized pool, including borrower FICO scores, loan-to-valueLTV ratios for residential mortgages and the nature of the property and/or any tenants for commercial mortgages. For corporate debt securities, obligations of U.S. states and municipalities and other similar instruments, credit spreads reflect the credit quality of the obligor and the tenor of the obligation.
Prepayment speed – The prepayment speed is a measure of the voluntary unscheduled principal repayments of a prepayable obligation in a collateralized pool. Prepayment speeds generally decline as borrower delinquencies rise. An increase in prepayment speeds, in isolation, would result in a decrease in a fair value measurement of assets valued at a premium to par and an increase in a fair value measurement of assets valued at a discount to par.
Prepayment speeds may vary from collateral pool to collateral pool, and are driven by the type and location of the underlying borrower, and the remaining tenor of the obligation as well as the level and type (e.g., fixed or floating) of interest rate being paid by the borrower. Typically collateral pools with higher borrower credit quality have a higher prepayment rate than those with lower borrower credit quality, all other factors being equal.
Conditional default rate – The conditional default rate is a measure of the reduction in the outstanding collateral balance underlying a collateralized obligation as a result of defaults. While there is typically no direct relationship between conditional default rates and prepayment speeds, collateralized obligations for which the underlying collateral has high prepayment speeds will tend to have lower conditional default rates. An increase in conditional default rates would generally be accompanied by an increase in loss severity and an increase in credit spreads. An increase in the conditional default rate, in isolation, would result in a decrease in a fair value measurement. Conditional default rates reflect the quality of the collateral underlying a securitization and the structure of the securitization itself. Based on the types of securities owned in the Firm’s market-making portfolios, conditional default rates are most typically at the lower end of the range presented.
Loss severity – The loss severity (the inverse concept is the recovery rate) is the expected amount of future realized losses resulting from the ultimate liquidation of a particular loan, expressed as the net amount of loss relative to the outstanding loan balance. An increase in loss severity is generally accompanied by an increase in conditional default rates. An increase in the loss severity, in isolation, would result in a decrease in a fair value measurement.
The loss severity applied in valuing a mortgage-backed security investment depends on factors relating to the underlying mortgages, including the loan-to-valueLTV ratio, the nature of the lender’s lien on the property and other instrument-specific factors.
|
| | |
194 | | JPMorgan Chase & Co./20152016 Annual Report | | 159 |
Notes to consolidated financial statements
Correlation – Correlation is a measure of the relationship between the movements of two variables (e.g., how the change in one variable influences the change in the other). Correlation is a pricing input for a derivative product where the payoff is driven by one or more underlying risks. Correlation inputs are related to the type of derivative (e.g., interest rate, credit, equity and foreign exchange) due to the nature of the underlying risks. When parameters are positively correlated, an increase in one parameter will result in an increase in the other parameter. When parameters are negatively correlated, an increase in one parameter will result in a decrease in the other parameter. An increase in correlation can result in an increase or a decrease in a fair value measurement. Given a short correlation position, an increase in correlation, in isolation, would generally result in a decrease in a fair value measurement. The range of correlation inputs between risks within the same asset class are generally narrower than those between underlying risks across asset classes. In addition, the ranges of credit correlation inputs tend to be narrower than those affecting other asset classes.
The level of correlation used in the valuation of derivatives with multiple underlying risks depends on a number of factors including the nature of those risks. For example, the correlation between two credit risk exposures would be different than that between two interest rate risk exposures. Similarly, the tenor of the transaction may also impact the correlation input, as the relationship between the underlying risks may be different over different time periods. Furthermore, correlation levels are very much dependent on market conditions and could have a relatively wide range of levels within or across asset classes over time, particularly in volatile market conditions.
Volatility – Volatility is a measure of the variability in possible returns for an instrument, parameter or market index given how much the particular instrument, parameter or index changes in value over time. Volatility is a pricing input for options, including equity options, commodity options, and interest rate options. Generally, the higher the volatility of the underlying, the riskier the instrument. Given a long position in an option, an increase in volatility, in isolation, would generally result in an increase in a fair value measurement.
The level of volatility used in the valuation of a particular option-based derivative depends on a number of factors, including the nature of the risk underlying the option (e.g., the volatility of a particular equity security may be significantly different from that of a particular commodity index), the tenor of the derivative as well as the strike price of the option.
EBITDA multiple – EBITDA multiples refer to the input (often derived from the value of a comparable company) that is multiplied by the historic and/or expected earnings before interest, taxes, depreciation and amortization (“EBITDA”) of a company in order to estimate the company’s value. An increase in the EBITDA multiple, in isolation, net of adjustments, would result in an increase in a fair value measurement.
Changes in level 3 recurring fair value measurements
The following tables include a rollforward of the Consolidated balance sheets amounts (including changes in fair value) for financial instruments classified by the Firm within level 3 of the fair value hierarchy for the years ended December 31, 20152016, 20142015 and 20132014. When a determination is made to classify a financial instrument within level 3, the determination is based on the significance of the unobservable parameters to the overall fair value measurement. However, level 3 financial instruments typically include, in addition to the unobservable or level 3 components, observable components (that is, components that are actively quoted and can be validated to external sources); accordingly, the gains and losses in the table below include changes in fair value due in part to observable factors that are part of the valuation methodology. Also, the Firm risk-manages the observable components of level 3 financial instruments using securities and derivative positions that are classified within level 1 or 2 of the fair value hierarchy; as these level 1 and level 2 risk management instruments are not included below, the gains or losses in the following tables do not reflect the effect of the Firm’s risk management activities related to such level 3 instruments.
|
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| 160 | | JPMorgan Chase & Co./2016 Annual Report |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Fair value measurements using significant unobservable inputs | | |
Year ended
December 31, 2016 (in millions) | Fair value at January 1, 2016 | Total realized/unrealized gains/(losses) | | | | | Transfers into and/or out of level 3(i) | Fair value at Dec. 31, 2016 | | Change in unrealized gains/(losses) related to financial instruments held at Dec. 31, 2016 |
Purchases(g) | Sales | | Settlements(h) |
| Assets: | | | | | | | | | | | | |
| Trading assets: | | | | | | | | | | | | |
| Debt instruments: | | | | | | | | | | | | |
| Mortgage-backed securities: | | | | | | | | | | | | |
| U.S. government agencies | $ | 715 |
| $ | (20 | ) | | $ | 135 |
| $ | (295 | ) | | $ | (115 | ) | $ | (28 | ) | $ | 392 |
| | $ | (36 | ) | |
| Residential – nonagency | 194 |
| 4 |
| | 252 |
| (319 | ) | | (20 | ) | (28 | ) | 83 |
| | 5 |
| |
| Commercial – nonagency | 115 |
| (11 | ) | | 69 |
| (29 | ) | | (3 | ) | (124 | ) | 17 |
| | 3 |
| |
| Total mortgage-backed securities | 1,024 |
| (27 | ) | | 456 |
| (643 | ) | | (138 | ) | (180 | ) | 492 |
| | (28 | ) | |
| Obligations of U.S. states and municipalities | 651 |
| 19 |
| | 149 |
| (132 | ) | | (38 | ) | — |
| 649 |
| | — |
| |
| Non-U.S. government debt securities | 74 |
| (4 | ) | | 91 |
| (97 | ) | | (7 | ) | (11 | ) | 46 |
| | (7 | ) | |
| Corporate debt securities | 736 |
| 2 |
| | 445 |
| (359 | ) | | (189 | ) | (59 | ) | 576 |
| | (22 | ) | |
| Loans | 6,604 |
| (343 | ) | | 2,228 |
| (2,598 | ) | | (1,311 | ) | 257 |
| 4,837 |
| | (169 | ) | |
| Asset-backed securities | 1,832 |
| 39 |
| | 655 |
| (712 | ) | | (968 | ) | (544 | ) | 302 |
| | 19 |
| |
| Total debt instruments | 10,921 |
| (314 | ) | | 4,024 |
| (4,541 | ) | | (2,651 | ) | (537 | ) | 6,902 |
| | (207 | ) | |
| Equity securities | 265 |
| — |
| | 90 |
| (108 | ) | | (40 | ) | 24 |
| 231 |
| | 7 |
| |
| Other | 744 |
| 79 |
| | 649 |
| (287 | ) | | (360 | ) | (64 | ) | 761 |
| | 28 |
| |
| Total trading assets – debt and equity instruments | 11,930 |
| (235 | ) | (c) | 4,763 |
| (4,936 | ) | | (3,051 | ) | (577 | ) | 7,894 |
| | (172 | ) | (c) |
Net derivative receivables:(a) | | | | | | | | | | | | |
| Interest rate | 876 |
| 756 |
| | 193 |
| (57 | ) | | (713 | ) | 208 |
| 1,263 |
| | (144 | ) | |
| Credit | 549 |
| (742 | ) | | 10 |
| (2 | ) | | 211 |
| 72 |
| 98 |
| | (622 | ) | |
| Foreign exchange | (725 | ) | 67 |
| | 64 |
| (124 | ) | | (649 | ) | (17 | ) | (1,384 | ) | | (350 | ) | |
| Equity | (1,514 | ) | (145 | ) | | 277 |
| (852 | ) | | 213 |
| (231 | ) | (2,252 | ) | | (86 | ) | |
| Commodity | (935 | ) | 194 |
| | 1 |
| 10 |
| | 645 |
| — |
| (85 | ) | | (36 | ) | |
| Total net derivative receivables | (1,749 | ) | 130 |
| (c) | 545 |
| (1,025 | ) | | (293 | ) | 32 |
| (2,360 | ) | | (1,238 | ) | (c) |
| Available-for-sale securities: | | | | | | | | | | | | |
| Asset-backed securities | 823 |
| 1 |
| | — |
| — |
| | (119 | ) | (42 | ) | 663 |
| | 1 |
| |
| Other | 1 |
| — |
| | — |
| — |
| | — |
| — |
| 1 |
| | — |
| |
| Total available-for-sale securities | 824 |
| 1 |
| (d) | — |
| — |
| | (119 | ) | (42 | ) | 664 |
| | 1 |
| (d) |
| Loans | 1,518 |
| (49 | ) | (c) | 259 |
| (7 | ) | | (838 | ) | (313 | ) | 570 |
| | — |
| (c) |
| Mortgage servicing rights | 6,608 |
| (163 | ) | (e) | 679 |
| (109 | ) | | (919 | ) | — |
| 6,096 |
| | (163 | ) | (e) |
| Other assets: | | | | | | | | | | | | |
| Private equity investments | 1,657 |
| 80 |
| (c) | 457 |
| (485 | ) | | (103 | ) | — |
| 1,606 |
| | 1 |
| (c) |
| All other | 744 |
| 50 |
| (f) | 30 |
| (11 | ) | | (196 | ) | — |
| 617 |
| | 47 |
| (f) |
| | | | | | | | | | | | | |
| | Fair value measurements using significant unobservable inputs | | |
Year ended
December 31, 2016
(in millions) | Fair value at January 1, 2016 | Total realized/unrealized (gains)/losses | | | | | Transfers into and/or out of level 3(i) | Fair value at Dec. 31, 2016 | | Change in unrealized (gains)/losses related to financial instruments held at Dec. 31, 2016 |
Purchases(g) | Sales | Issuances | Settlements(h) |
Liabilities:(b) | | | | | | | | | | | | |
| Deposits | $ | 2,950 |
| $ | (56 | ) | (c) | $ | — |
| $ | — |
| $ | 1,375 |
| $ | (1,283 | ) | $ | (869 | ) | $ | 2,117 |
| | $ | 23 |
| (c) |
| Federal funds purchased and securities loaned or sold under repurchase agreements | — |
| — |
| | — |
| — |
| — |
| (2 | ) | 2 |
| — |
| | — |
| |
| Other borrowed funds | 639 |
| (230 | ) | (c) | — |
| — |
| 1,876 |
| (1,210 | ) | 59 |
| 1,134 |
| | (70 | ) | (c) |
| Trading liabilities – debt and equity instruments | 63 |
| (12 | ) | (c) | (15 | ) | 23 |
| — |
| (22 | ) | 6 |
| 43 |
| | (18 | ) | (c) |
| Accounts payable and other liabilities | 19 |
| — |
| | — |
| — |
| — |
| (6 | ) | — |
| 13 |
| | — |
| |
| Beneficial interests issued by consolidated VIEs | 549 |
| (31 | ) | (c) | — |
| — |
| 143 |
| (613 | ) | — |
| 48 |
| | 6 |
| (c) |
| Long-term debt | 11,613 |
| 216 |
| (c) | — |
| — |
| 8,949 |
| (5,810 | ) | (1,074 | ) | 13,894 |
| | 540 |
| (c) |
|
| | |
JPMorgan Chase & Co./20152016 Annual Report | | 195161 |
Notes to consolidated financial statements
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Fair value measurements using significant unobservable inputs | | |
Year ended
December 31, 2015 (in millions) | Fair value at January 1, 2015 | Total realized/unrealized gains/(losses) | | | | | Transfers into and/or out of level 3(i) | Fair value at Dec. 31, 2015 | | Change in unrealized gains/(losses) related to financial instruments held at Dec. 31, 2015 |
Purchases(g) | Sales | | Settlements(h) |
| Assets: | | | | | | | | | | | | |
| Trading assets: | | | | | | | | | | | | |
| Debt instruments: | | | | | | | | | | | | |
| Mortgage-backed securities: | | | | | | | | | | | | |
| U.S. government agencies | $ | 922 |
| $ | (28 | ) | | $ | 327 |
| $ | (303 | ) | | $ | (132 | ) | $ | (71 | ) | $ | 715 |
| | $ | (27 | ) | |
| Residential – nonagency | 663 |
| 130 |
| | 253 |
| (611 | ) | | (23 | ) | (218 | ) | 194 |
| | 4 |
| |
| Commercial – nonagency | 306 |
| (14 | ) | | 246 |
| (262 | ) | | (22 | ) | (139 | ) | 115 |
| | (5 | ) | |
| Total mortgage-backed securities | 1,891 |
| 88 |
| | 826 |
| (1,176 | ) | | (177 | ) | (428 | ) | 1,024 |
| | (28 | ) | |
| Obligations of U.S. states and municipalities | 1,273 |
| 14 |
| | 352 |
| (133 | ) | | (27 | ) | (828 | ) | 651 |
| | (1 | ) | |
| Non-U.S. government debt securities | 302 |
| 9 |
| | 205 |
| (123 | ) | | (64 | ) | (255 | ) | 74 |
| | (16 | ) | |
| Corporate debt securities | 2,989 |
| (77 | ) | | 1,171 |
| (1,038 | ) | | (125 | ) | (2,184 | ) | 736 |
| | 2 |
| |
| Loans | 13,287 |
| (174 | ) | | 3,532 |
| (4,661 | ) | | (3,112 | ) | (2,268 | ) | 6,604 |
| | (181 | ) | |
| Asset-backed securities | 1,264 |
| (41 | ) | | 1,920 |
| (1,229 | ) | | (35 | ) | (47 | ) | 1,832 |
| | (32 | ) | |
| Total debt instruments | 21,006 |
| (181 | ) | | 8,006 |
| (8,360 | ) | | (3,540 | ) | (6,010 | ) | 10,921 |
| | (256 | ) | |
| Equity securities | 431 |
| 96 |
| | 89 |
| (193 | ) | | (26 | ) | (132 | ) | 265 |
| | 82 |
| |
| Physical commodities | 2 |
| (2 | ) | | — |
| — |
| | — |
| — |
| — |
| | — |
| |
| Other | 1,050 |
| 119 |
| | 1,581 |
| (1,313 | ) | | 192 |
| (885 | ) | 744 |
| | 85 |
| |
| Total trading assets – debt and equity instruments | 22,489 |
| 32 |
| (c) | 9,676 |
| (9,866 | ) | | (3,374 | ) | (7,027 | ) | 11,930 |
| | (89 | ) | (c) |
Net derivative receivables:(a) | | | | | | | | | | | | |
| Interest rate | 626 |
| 962 |
| | 513 |
| (173 | ) | | (732 | ) | (320 | ) | 876 |
| | 263 |
| |
| Credit | 189 |
| 118 |
| | 129 |
| (136 | ) | | 165 |
| 84 |
| 549 |
| | 260 |
| |
| Foreign exchange | (526 | ) | 657 |
| | 19 |
| (149 | ) | | (296 | ) | (430 | ) | (725 | ) | | 49 |
| |
| Equity | (1,785 | ) | 731 |
| | 890 |
| (1,262 | ) | | (158 | ) | 70 |
| (1,514 | ) | | 5 |
| |
| Commodity | (565 | ) | (856 | ) | | 1 |
| (24 | ) | | 512 |
| (3 | ) | (935 | ) | | (41 | ) | |
| Total net derivative receivables | (2,061 | ) | 1,612 |
| (c) | 1,552 |
| (1,744 | ) | | (509 | ) | (599 | ) | (1,749 | ) | | 536 |
| (c) |
| Available-for-sale securities: | | | | | | | | | | | | |
| Asset-backed securities | 908 |
| (32 | ) | | 51 |
| (43 | ) | | (61 | ) | — |
| 823 |
| | (28 | ) | |
| Other | 129 |
| — |
| | — |
| — |
| | (29 | ) | (99 | ) | 1 |
| | — |
| |
| Total available-for-sale securities | 1,037 |
| (32 | ) | (d) | 51 |
| (43 | ) | | (90 | ) | (99 | ) | 824 |
| | (28 | ) | (d) |
| Loans | 2,541 |
| (133 | ) | (c) | 1,290 |
| (92 | ) | | (1,241 | ) | (847 | ) | 1,518 |
| | (32 | ) | (c) |
| Mortgage servicing rights | 7,436 |
| (405 | ) | (e) | 985 |
| (486 | ) | | (922 | ) | — |
| 6,608 |
| | (405 | ) | (e) |
| Other assets: | | | | | | | | | | | | |
| Private equity investments | 2,225 |
| (120 | ) | (c) | 281 |
| (362 | ) | | (187 | ) | (180 | ) | 1,657 |
| | (304 | ) | (c) |
| All other | 959 |
| 91 |
| (f) | 65 |
| (147 | ) | | (224 | ) | — |
| 744 |
| | 15 |
| (f) |
| | | | | | | | | | | | | |
| | Fair value measurements using significant unobservable inputs | | |
Year ended
December 31, 2015
(in millions) | Fair value at January 1, 2015 | Total realized/unrealized (gains)/losses | | | | | Transfers into and/or out of level 3(i) | Fair value at Dec. 31, 2015 | | Change in unrealized (gains)/losses related to financial instruments held at Dec. 31, 2015 |
Purchases(g) | Sales | Issuances | Settlements(h) |
Liabilities:(b) | | | | | | | | | | | | |
| Deposits | $ | 2,859 |
| $ | (39 | ) | (c) | $ | — |
| $ | — |
| $ | 1,993 |
| $ | (850 | ) | $ | (1,013 | ) | $ | 2,950 |
| | $ | (29 | ) | (c) |
| Other borrowed funds | 1,453 |
| (697 | ) | (c) | — |
| — |
| 3,334 |
| (2,963 | ) | (488 | ) | 639 |
| | (57 | ) | (c) |
| Trading liabilities – debt and equity instruments | 72 |
| 15 |
| (c) | (163 | ) | 160 |
| — |
| (17 | ) | (4 | ) | 63 |
| | (4 | ) | (c) |
| Accounts payable and other liabilities | 26 |
| — |
| | — |
| — |
| — |
| (7 | ) | — |
| 19 |
| | — |
| |
| Beneficial interests issued by consolidated VIEs | 1,146 |
| (82 | ) | (c) | — |
| — |
| 286 |
| (574 | ) | (227 | ) | 549 |
| | (63 | ) | (c) |
| Long-term debt | 11,877 |
| (480 | ) | (c) | (58 | ) | — |
| 9,359 |
| (6,299 | ) | (2,786 | ) | 11,613 |
| | 385 |
| (c) |
|
| | |
196162 | | JPMorgan Chase & Co./20152016 Annual Report |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Fair value measurements using significant unobservable inputs | | |
Year ended
December 31, 2014 (in millions) | Fair value at January 1, 2014 | Total realized/unrealized gains/(losses) | | | | | | Transfers into and/or out of level 3(i) | Fair value at Dec. 31, 2014 | Change in unrealized gains/(losses) related to financial instruments held at Dec. 31, 2014 |
Purchases(g) | | Sales | | Settlements(h) |
| Assets: | | | | | | | | | | | | | |
| Trading assets: | | | | | | | | | | | | | |
| Debt instruments: | | | | | | | | | | | | | |
| Mortgage-backed securities: | | | | | | | | | | | | | |
| U.S. government agencies | $ | 1,005 |
| $ | (97 | ) | | $ | 351 |
| | $ | (186 | ) | | $ | (121 | ) | $ | (30 | ) | $ | 922 |
| | $ | (92 | ) | |
| Residential – nonagency | 726 |
| 66 |
| | 827 |
| | (761 | ) | | (41 | ) | (154 | ) | 663 |
| | (15 | ) | |
| Commercial – nonagency | 432 |
| 17 |
| | 980 |
| | (914 | ) | | (60 | ) | (149 | ) | 306 |
| | (12 | ) | |
| Total mortgage-backed securities | 2,163 |
| (14 | ) | | 2,158 |
| | (1,861 | ) | | (222 | ) | (333 | ) | 1,891 |
| | (119 | ) | |
| Obligations of U.S. states and municipalities | 1,382 |
| 90 |
| | 298 |
| | (358 | ) | | (139 | ) | — |
| 1,273 |
| | (27 | ) | |
| Non-U.S. government debt securities | 143 |
| 24 |
| | 719 |
| | (617 | ) | | (3 | ) | 36 |
| 302 |
| | 10 |
| |
| Corporate debt securities | 5,920 |
| 210 |
| | 5,854 |
| | (3,372 | ) | | (4,531 | ) | (1,092 | ) | 2,989 |
| | 379 |
| |
| Loans | 13,455 |
| 387 |
| | 13,551 |
| | (7,917 | ) | | (4,623 | ) | (1,566 | ) | 13,287 |
| | 123 |
| |
| Asset-backed securities | 1,272 |
| 19 |
| | 2,240 |
| | (2,126 | ) | | (283 | ) | 142 |
| 1,264 |
| | (30 | ) | |
| Total debt instruments | 24,335 |
| 716 |
| | 24,820 |
| | (16,251 | ) | | (9,801 | ) | (2,813 | ) | 21,006 |
| | 336 |
| |
| Equity securities | 867 |
| 113 |
| | 248 |
| | (259 | ) | | (286 | ) | (252 | ) | 431 |
| | 46 |
| |
| Physical commodities | 4 |
| (1 | ) | | — |
| | — |
| | (1 | ) | — |
| 2 |
| | — |
| |
| Other | 2,000 |
| 239 |
| | 1,426 |
| | (276 | ) | | (201 | ) | (2,138 | ) | 1,050 |
| | 329 |
| |
| Total trading assets – debt and equity instruments | 27,206 |
| 1,067 |
| (c) | 26,494 |
| | (16,786 | ) | | (10,289 | ) | (5,203 | ) | 22,489 |
| | 711 |
| (c) |
Net derivative receivables:(a) | | | | | | | | | | | | | |
| Interest rate | 2,379 |
| 184 |
| | 198 |
| | (256 | ) | | (1,771 | ) | (108 | ) | 626 |
| | (853 | ) | |
| Credit | 95 |
| (149 | ) | | 272 |
| | (47 | ) | | 92 |
| (74 | ) | 189 |
| | (107 | ) | |
| Foreign exchange | (1,200 | ) | (137 | ) | | 139 |
| | (27 | ) | | 668 |
| 31 |
| (526 | ) | | (62 | ) | |
| Equity | (1,063 | ) | 154 |
| | 2,044 |
| | (2,863 | ) | | 10 |
| (67 | ) | (1,785 | ) | | 583 |
| |
| Commodity | 115 |
| (465 | ) | | 1 |
| | (113 | ) | | (109 | ) | 6 |
| (565 | ) | | (186 | ) | |
| Total net derivative receivables | 326 |
| (413 | ) | (c) | 2,654 |
| | (3,306 | ) | | (1,110 | ) | (212 | ) | (2,061 | ) | | (625 | ) | (c) |
| Available-for-sale securities: | | | | | | | | | | | | | |
| Asset-backed securities | 1,088 |
| (41 | ) | | 275 |
| | (2 | ) | | (101 | ) | (311 | ) | 908 |
| | (40 | ) | |
| Other | 1,234 |
| (19 | ) | | 122 |
| | — |
| | (223 | ) | (985 | ) | 129 |
| | (2 | ) | |
| Total available-for-sale securities | 2,322 |
| (60 | ) | (d) | 397 |
| | (2 | ) | | (324 | ) | (1,296 | ) | 1,037 |
| | (42 | ) | (d) |
| Loans | 1,931 |
| (254 | ) | (c) | 3,258 |
| | (845 | ) | | (1,549 | ) | — |
| 2,541 |
| | (234 | ) | (c) |
| Mortgage servicing rights | 9,614 |
| (1,826 | ) | (e) | 768 |
| | (209 | ) | | (911 | ) | — |
| 7,436 |
| | (1,826 | ) | (e) |
| Other assets: | | | | | | | | | | | | | |
| Private equity investments | 5,816 |
| 400 |
| (c) | 145 |
| | (1,967 | ) | | (197 | ) | (1,972 | ) | 2,225 |
| | 33 |
| (c) |
| All other | 1,382 |
| 83 |
| (f) | 10 |
| | (357 | ) | | (159 | ) | — |
| 959 |
| | 59 |
| (f) |
| | | | | | | | | | | | | | |
| | Fair value measurements using significant unobservable inputs | | |
Year ended
December 31, 2014 (in millions) | Fair value at January 1, 2014 | Total realized/unrealized (gains)/losses | | | | | | Transfers into and/or out of level 3(i) | Fair value at Dec. 31, 2014 | Change in unrealized (gains)/losses related to financial instruments held at Dec. 31, 2014 |
Purchases(g) | | Sales | Issuances | Settlements(h) |
Liabilities:(b) | | | | | | | | | | | | | |
| Deposits | $ | 2,255 |
| $ | 149 |
| (c) | $ | — |
| | $ | — |
| $ | 1,578 |
| $ | (197 | ) | $ | (926 | ) | $ | 2,859 |
| | $ | 130 |
| (c) |
| Other borrowed funds | 2,074 |
| (596 | ) | (c) | — |
| | — |
| 5,377 |
| (6,127 | ) | 725 |
| 1,453 |
| | (415 | ) | (c) |
| Trading liabilities – debt and equity instruments | 113 |
| (5 | ) | (c) | (305 | ) | | 323 |
| — |
| (5 | ) | (49 | ) | 72 |
| | 2 |
| (c) |
| Accounts payable and other liabilities | — |
| 27 |
| (c) | — |
| | — |
| — |
| (1 | ) | — |
| 26 |
| | — |
|
|
| Beneficial interests issued by consolidated VIEs | 1,240 |
| (4 | ) | (c) | — |
| | — |
| 775 |
| (763 | ) | (102 | ) | 1,146 |
| | (22 | ) | (c) |
| Long-term debt | 10,008 |
| (40 | ) | (c) | — |
| | — |
| 7,421 |
| (5,231 | ) | (281 | ) | 11,877 |
| | (9 | ) | (c) |
|
| | |
JPMorgan Chase & Co./2015 Annual Report | | 197 |
Notes to consolidated financial statements
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Fair value measurements using significant unobservable inputs | | |
Year ended
December 31, 2013 (in millions) | Fair value at January 1, 2013 | Total realized/unrealized gains/(losses) | | | | | | | Transfers into and/or out of level 3(i) | Fair value at Dec. 31, 2013 | Change in unrealized gains/(losses) related to financial instruments held at Dec. 31, 2013 |
Purchases(g) | | Sales | | | Settlements(h) |
| Assets: | | | | | | | | | | | | | | |
| Trading assets: | | | | | | | | | | | | | | |
| Debt instruments: | | | | | | | | | | | | | | |
| Mortgage-backed securities: | | | | | | | | | | | | | | |
| U.S. government agencies | $ | 498 |
| $ | 169 |
| | $ | 819 |
| | $ | (381 | ) | | | $ | (100 | ) | $ | — |
| $ | 1,005 |
| | $ | 200 |
| |
| Residential – nonagency | 663 |
| 407 |
| | 780 |
| | (1,028 | ) | | | (91 | ) | (5 | ) | 726 |
| | 205 |
| |
| Commercial – nonagency | 1,207 |
| 114 |
| | 841 |
| | (1,522 | ) | | | (208 | ) | — |
| 432 |
| | (4 | ) | |
| Total mortgage-backed securities | 2,368 |
| 690 |
| | 2,440 |
| | (2,931 | ) | | | (399 | ) | (5 | ) | 2,163 |
| | 401 |
| |
| Obligations of U.S. states and municipalities | 1,436 |
| 71 |
| | 472 |
| | (251 | ) | | | (346 | ) | — |
| 1,382 |
| | 18 |
| |
| Non-U.S. government debt securities | 67 |
| 4 |
| | 1,449 |
| | (1,479 | ) | | | (8 | ) | 110 |
| 143 |
| | (1 | ) | |
| Corporate debt securities | 5,308 |
| 103 |
| | 7,602 |
| | (5,975 | ) | | | (1,882 | ) | 764 |
| 5,920 |
| | 466 |
| |
| Loans | 10,787 |
| 665 |
| | 10,411 |
| | (7,431 | ) | | | (685 | ) | (292 | ) | 13,455 |
| | 315 |
| |
| Asset-backed securities | 3,696 |
| 191 |
| | 1,912 |
| | (2,379 | ) | | | (292 | ) | (1,856 | ) | 1,272 |
| | 105 |
| |
| Total debt instruments | 23,662 |
| 1,724 |
| | 24,286 |
| | (20,446 | ) | | | (3,612 | ) | (1,279 | ) | 24,335 |
| | 1,304 |
| |
| Equity securities | 1,092 |
| (37 | ) | | 328 |
| | (266 | ) | | | (135 | ) | (115 | ) | 867 |
| | 46 |
| |
| Physical commodities | — |
| (4 | ) | | — |
| | (8 | ) | | | — |
| 16 |
| 4 |
| | (4 | ) | |
| Other | 863 |
| 558 |
| | 659 |
| | (95 | ) | | | (120 | ) | 135 |
| 2,000 |
| | 1,074 |
| |
| Total trading assets – debt and equity instruments | 25,617 |
| 2,241 |
| (c) | 25,273 |
| | (20,815 | ) | | | (3,867 | ) | (1,243 | ) | 27,206 |
| | 2,420 |
| (c) |
Net derivative receivables:(a) | | | | | | | | | | | | | | |
| Interest rate | 3,322 |
| 1,358 |
| | 344 |
| | (220 | ) | | | (2,391 | ) | (34 | ) | 2,379 |
| | 107 |
| |
| Credit | 1,873 |
| (1,697 | ) | | 115 |
| | (12 | ) | | | (357 | ) | 173 |
| 95 |
| | (1,449 | ) | |
| Foreign exchange | (1,750 | ) | (101 | ) | | 3 |
| | (4 | ) | | | 683 |
| (31 | ) | (1,200 | ) | | (110 | ) | |
| Equity | (1,806 | ) | 2,528 |
| | 1,305 |
| | (2,111 | ) | | | (1,353 | ) | 374 |
| (1,063 | ) | | 872 |
| |
| Commodity | 254 |
| 816 |
| | 105 |
| | (3 | ) | | | (1,107 | ) | 50 |
| 115 |
| | 410 |
| |
| Total net derivative receivables | 1,893 |
| 2,904 |
| (c) | 1,872 |
| | (2,350 | ) | | | (4,525 | ) | 532 |
| 326 |
| | (170 | ) | (c) |
| Available-for-sale securities: | | | | | | | | | | | | | | |
| Asset-backed securities | 28,024 |
| 4 |
| | 579 |
| | (57 | ) | | | (57 | ) | (27,405 | ) | 1,088 |
| | 4 |
| |
| Other | 892 |
| 26 |
| | 508 |
| | (216 | ) | | | (6 | ) | 30 |
| 1,234 |
| | 25 |
| |
| Total available-for-sale securities | 28,916 |
| 30 |
| (d) | 1,087 |
| | (273 | ) | | | (63 | ) | (27,375 | ) | 2,322 |
| | 29 |
| (d) |
| Loans | 2,282 |
| 81 |
| (c) | 1,065 |
| | (191 | ) | | | (1,306 | ) | — |
| 1,931 |
| | (21 | ) | (c) |
| Mortgage servicing rights | 7,614 |
| 1,612 |
| (e) | 2,215 |
| | (725 | ) | | | (1,102 | ) | — |
| 9,614 |
| | 1,612 |
| (e) |
| Other assets: | | | | | | | | | | | | | | |
| Private equity investments | 5,590 |
| 824 |
| (c) | 537 |
| | (1,080 | ) | | | 140 |
| (195 | ) | 5,816 |
| | 42 |
| (c) |
| All other | 2,122 |
| (17 | ) | (f) | 49 |
| | (427 | ) | | | (345 | ) | — |
| 1,382 |
| | (64 | ) | (f) |
| | | | | | | | | | | | | | | |
| | Fair value measurements using significant unobservable inputs | | |
Year ended
December 31, 2013 (in millions) | Fair value at January 1, 2013 | Total realized/unrealized (gains)/losses | | | | | | | Transfers into and/or out of level 3(i) | Fair value at Dec. 31, 2013 | Change in unrealized (gains)/losses related to financial instruments held at Dec. 31, 2013 |
Purchases(g) | | Sales | | Issuances | Settlements(h) |
Liabilities:(b) | | | | | | | | | | | | | | |
| Deposits | $ | 1,983 |
| $ | (82 | ) | (c) | $ | — |
| | $ | — |
| | $ | 1,248 |
| $ | (222 | ) | $ | (672 | ) | $ | 2,255 |
| | $ | (88 | ) | (c) |
| Other borrowed funds | 1,619 |
| (177 | ) | (c) | — |
| | — |
| | 7,108 |
| (6,845 | ) | 369 |
| 2,074 |
| | 291 |
| (c) |
| Trading liabilities – debt and equity instruments | 205 |
| (83 | ) | (c) | (2,418 | ) | | 2,594 |
| | — |
| (54 | ) | (131 | ) | 113 |
| | (100 | ) | (c) |
| Accounts payable and other liabilities | — |
| — |
| | — |
| | — |
| | — |
| — |
| — |
| — |
| | — |
| |
| Beneficial interests issued by consolidated VIEs | 925 |
| 174 |
| (c) | — |
| | — |
| | 353 |
| (212 | ) | — |
| 1,240 |
| | 167 |
| (c) |
| Long-term debt | 8,476 |
| (435 | ) | (c) | — |
| | — |
| | 6,830 |
| (4,362 | ) | (501 | ) | 10,008 |
| | (85 | ) | (c) |
Note: Effective April 1, 2015, the Firm adopted new accounting guidance for certain investments where the Firm measures fair value using the net asset value per share (or its equivalent) as a practical expedient and excluded such investments from the fair value hierarchy. The guidance was required to be applied retrospectively, and accordingly, prior period amounts have been revised to conform with the current period presentation. For further information, see page 190.
|
| | |
198 | | JPMorgan Chase & Co./2015 Annual Report |
| |
| (a) | All level 3 derivatives are presented on a net basis, irrespective of underlying counterparty. |
| |
| (b) | Level 3 liabilities as a percentage of total Firm liabilities accounted for at fair value (including liabilities measured at fair value on a nonrecurring basis) were 13%12%, 13% and 15% and 18% at December 31, 2016, 2015, 2014 and 2013,2014, respectively. |
|
| | |
| JPMorgan Chase & Co./2016 Annual Report | | 163 |
Notes to consolidated financial statements
| |
| (c) | Predominantly reported in principal transactions revenue, except for changes in fair value for CCB mortgage loans, and lending-related commitments originated with the intent to sell, and mortgage loan purchase commitments, which are reported in mortgage fees and related income. |
| |
| (d) | Realized gains/(losses) on AFS securities, as well as other-than-temporary impairment (“OTTI”) losses that are recorded in earnings, are reported in securities gains. Unrealized gains/(losses) are reported in OCI. Realized gains/(losses) and foreign exchange remeasurementhedge accounting adjustments recorded in income on AFS securities were $(7) million, $(43)zero, $(7) million, and $17$(43) million for the years ended December 31, 2016, 2015, 2014 and 2013,2014, respectively. Unrealized gains/(losses) recorded on AFS securities in OCI were $(25)$1 million,, $(16) $(25) million and $13$(16) million for the years ended December 31, 2016, 2015, 2014 and 2013,2014, respectively. |
| |
| (e) | Changes in fair value for CCB MSRs are reported in mortgage fees and related income. |
| |
| (f) | Predominantly reported in other income. |
| |
| (g) | Loan originations are included in purchases. |
| |
| (h) | Includes financial assets and liabilities that have matured, been partially or fully repaid, impacts of modifications, and deconsolidationsdeconsolidation associated with beneficial interests in VIEs. |
| |
| (i) | All transfers into and/or out of level 3 are assumed to occur at the beginning of the quarterly reporting period in which they occur. |
Level 3 analysis
Consolidated balance sheets changes
Level 3 assets (including assets measured at fair value on a nonrecurring basis) were 1.4%1.0% of total Firm assets at December 31, 2015.2016. The following describes significant changes to level 3 assets since December 31, 2014,2015, for those items measured at fair value on a recurring basis. For further information on changes impacting items measured at fair value on a nonrecurring basis, see Assets and liabilities measured at fair value on a nonrecurring basis on pages 200–201.page 165.
For the year ended December 31, 20152016
Level 3 assets were $31.2$23.2 billion at December 31, 2015,2016, reflecting a decrease of $18.0$8.0 billion from December 31, 2014.2015. This decrease was driven by settlements (including repayments and restructurings) and transfers to Level 2 due to an increase in observability and a decrease in the significance of unobservable inputs. In particular:
$10.64.0 billion decrease in trading assets — debt and equity instruments was predominantly driven by a decrease of $6.7$1.8 billion in trading loans largely due to sales, maturitiessettlements, and a $1.5 billion decrease in asset-backed securities due to settlements and transfers from level 3 to level 2 as a result of an increase in observability of certain valuation inputs and a $2.3 billion decrease in corporate debt securities due to transfers from level 3 to level 2 as a result of an increase inincreased observability of certain valuation inputs
$4.62.1 billion decrease in gross derivative receivables was driven by a $3.9 billion decrease in equity, interest ratecredit and foreign exchange derivative receivables due to market movements and transfers from level 3 to level 2 as a result of an increase inincreased observability of certain valuation inputs
Gains and losses
The following describes significant components of total realized/unrealized gains/(losses) for instruments measured at fair value on a recurring basis for the years ended December 31, 2016, 2015 2014 and 2013.2014. For further information on these instruments, see Changes in level 3 recurring fair value measurements rollforward tables on pages 195–199.160–164.
2016
There were no individually significant movements for the year ended December 31, 2016.
2015
$1.6 billion of net gains in interest rate, foreign exchange and equity derivative receivables largely due to market movements; partially offset by loss inlosses on commodity derivatives due to market movements
$1.3 billion of net gains in liabilities due to market movements
2014
$1.8 billion of losses on MSRs. For further discussion of the change, refer to Note 17
$1.1 billion of net gains on trading assets — debt and equity instruments, largely driven by market movements and client-driven financing transactions
2013
$2.9 billion of net gains on derivatives, largely driven by $2.5 billion of gains on equity derivatives, primarily related to client-driven market-making activity and a rise in equity markets; and $1.4 billion of gains, predominantly on interest rate lock and mortgage loan purchase commitments; partially offset by $1.7 billion of losses on credit derivatives from the impact of tightening reference entity credit spreads
$2.2 billion of net gains on trading assets — debt and equity instruments, largely driven by market making and credit spread tightening in nonagency mortgage-backed securities and trading loans, and the impact of market movements on client-driven financing transactions
$1.6 billion of net gains on MSRs. For further discussion of the change, refer to Note 17
|
| | |
JPMorgan Chase & Co./2015 Annual Report | | 199 |
Notes to consolidated financial statements
Credit and funding adjustments – derivatives
When determining the fair value of an instrument, it may be necessary to record adjustments to the Firm’s estimates of fair value in order to reflect counterparty credit quality, the Firm’s own creditworthiness, and the impact of funding:
CVA is taken to reflect the credit quality of a counterparty in the valuation of derivatives. Derivatives are generally valued using models that use as their basis observable market parameters. These market parameters maygenerally do not consider factors such as counterparty non-performance risk.nonperformance risk, the Firm’s own credit quality, and funding costs. Therefore, anit is generally necessary to make adjustments to the base estimate of fair value to reflect these factors.
CVA represents the adjustment, may berelative to the relevant benchmark interest rate, necessary to reflect the credit quality of each derivative counterparty to arrive at fair value.
nonperformance risk. The Firm estimates derivatives CVA using a scenario analysis to estimate the expected credit exposure across all of the Firm’s positions with each counterparty, and then estimates losses as a result of a counterparty credit event. The key inputs to this methodology are (i) the expected positive exposure to each counterparty based on a simulation that assumes the current population of existing derivatives with each counterparty remains unchanged and considers contractual factors designed to mitigate the Firm’s credit exposure, such as collateral and legal rights of offset; (ii) the probability of a default event occurring for each counterparty, as derived from observed or estimated CDS spreads; and (iii) estimated recovery rates implied by CDS spreads, adjusted to consider the differences in recovery rates as a derivative creditor relative to those reflected in CDS spreads, which generally reflect senior unsecured creditor risk. As such,
DVA represents the Firm estimates derivatives CVAadjustment, relative to the relevant benchmark interest rate.
DVA is takenrate, necessary to reflect the credit quality of the Firm in the valuation of liabilities measured at fair value.Firm. The derivative DVA calculation methodology is generally consistent with the CVA methodology described above and incorporates JPMorgan Chase’s credit spreadsspread as observed through the CDS market to estimate the probability of defaultPD and loss given defaultLGD as a result of a systemic event affecting the Firm. Structured notes DVA is estimated using the current fair value of the structured note as the exposure amount, and is otherwise consistent with the derivative DVA methodology.
FVA is takenrepresents the adjustment to incorporatereflect the impact of funding in the Firm’s valuation estimatesand is recognized where there is evidence that a market participant in the principal market would incorporate it in a transfer of the instrument. For collateralized derivatives, the fair value is estimated by discounting expected future cash flows at the relevant overnight indexed swap (“OIS”) rate given the underlying collateral agreement with the counterparty. ForThe Firm’s FVA framework, applied to uncollateralized (including partially collateralized) over-the-counter (“OTC”)OTC derivatives, and structured notes, effective in 2013, the Firm implemented a FVA framework to incorporate the impact of funding into its
valuation estimates. The Firm’s FVA framework leverages its existing CVA and DVA calculation methodologies, and considers the fact that the Firm’s own credit risk is a significant component of funding costs.
|
| | |
| 164 | | JPMorgan Chase & Co./2016 Annual Report |
The key inputs to FVA are: (i) the expected funding requirements arising from the Firm’s positions with each counterparty and collateral arrangements; (ii) for assets, the estimated market funding cost in the principal market; and (iii) for liabilities, the hypothetical market funding cost for a transfer to a market participant with a similar credit standing as the Firm.
Upon For collateralized derivatives, the implementation offair value is estimated by discounting expected future cash flows at the relevant overnight indexed swap rate given the underlying collateral agreement with the counterparty, and therefore a separate FVA framework in 2013, the Firm recorded a one-time $1.5 billion loss in principal transactions revenue that was recorded in the CIB. While the FVA framework applies to both assets and liabilities, the loss on implementation largely related to uncollateralized derivative receivables given that the impact of the Firm’s own credit risk, which is a significant component of funding costs, was already incorporated in the valuation of liabilities through the application of DVA.not necessary.
The following table provides the impact of credit and funding adjustments on principal transactions revenue in the respective periods, excluding the effect of any associated hedging activities. The DVA and FVA reported below include the impact of the Firm’s own credit quality on the inception value of liabilities as well as the impact of changes in the Firm’s own credit quality over time.
|
| | | | | | | | | | | |
Year ended December 31, (in millions) | 2015 | | 2014 | | 2013 |
| Credit adjustments: | | | | | |
| Derivatives CVA | $ | 620 |
| | $ | (322 | ) | | $ | 1,886 |
|
Derivatives DVA and FVA(a) | 73 |
| | (58 | ) | | (1,152 | ) |
Structured notes DVA and FVA(b) | 754 |
| | 200 |
| | (760 | ) |
| |
(a) | Included derivatives DVA of $(6) million, $(1) million and $(115) million for the years ended December 31, 2015, 2014 and 2013, respectively. |
| |
(b) | Included structured notes DVA of $171 million, $20 million and $(337) million for the years ended December 31, 2015, 2014 and 2013, respectively. |
|
| | | | | | | | | | | |
Year ended December 31,
(in millions) | 2016 | | 2015 | | 2014 |
| Credit adjustments: | | | | | |
| Derivatives CVA | $ | (84 | ) | | $ | 620 |
| | $ | (322 | ) |
| Derivatives DVA and FVA | 7 |
| | 73 |
| | (58 | ) |
|
| | |
200 | | JPMorgan Chase & Co./2015 Annual Report |
Valuation adjustments on fair value option elected liabilities
The valuation of the Firm’s liabilities for which the fair value option has been elected requires consideration of the Firm’s own credit risk. DVA on fair value option elected liabilities is measured using (i) the current fair value of the liability and (ii) changes (subsequent to the issuance of the liability) in the Firm’s probability of default and LGD, which are estimated based on changes in the Firm’s credit spread observed in the bond market. Effective January 1, 2016, the effect of DVA on fair value option elected liabilities is recognized in OCI. See Note 25 for further information.
Assets and liabilities measured at fair value on a nonrecurring basis
At December 31, 20152016 and 2014,2015, assets measured at fair value on a nonrecurring basis were $1.7$1.6 billion and $4.5$1.7 billion, respectively, consisting predominantly of loans that had fair value adjustments for the years endedDecember 31, 20152016 and 2014.2015. AtDecember 31, 2015, $6962016, $735 million and $959$822 million of these assets were classified in levels 2 and 3 of the fair value hierarchy, respectively. At December 31, 2014, $1.3 billion2015, $696 million and $3.2 billion$959 million of these assets were classified in levels 2 and 3 of the fair value hierarchy, respectively. Liabilities measured at fair value on a nonrecurring basis were not significant at December 31, 20152016 and 2014.2015. For the years ended December 31, 2016, 2015 2014 and 2013,2014, there were no significant transfers between levels 1, 2 and 3 related to assets held at the balance sheet date.
Of the $959$822 million in level 3 assets measured at fair value on a nonrecurring basis as of December 31, 2015:2016:
$556462 million related to residential real estate loans carried at the net realizable value of the underlying collateral (i.e., collateral-dependent loans and other loans charged off in accordance with regulatory
guidance). These amounts are classified as level 3, as they are valued using a broker’s price opinion and discounted based upon the Firm’s experience with actual liquidation values. These discounts to the broker price opinions ranged from 4%12% to 59%47%,with a weighted average of 22%25%.
The total change in the recorded value of assets and liabilities for which a fair value adjustment has been included in the Consolidated statements of income for the years endedDecember 31, 2016, 2015 2014 and 2013,2014, related to financial instruments held at those dates, were losses of $172 million, $294 million $992 million and $789$992 million respectively; these reductions were predominantly associated with loans.
For further information about the measurement of impaired collateral-dependent loans, and other loans where the carrying value is based on the fair value of the underlying collateral (e.g., residential mortgage loans charged off in accordance with regulatory guidance), see Note 14.
Additional disclosures about the fair value of financial instruments that are not carried on the Consolidated balance sheets at fair value
U.S. GAAP requires disclosure of the estimated fair value of certain financial instruments, and the methods and significant assumptions used to estimate their fair value. Financial instruments within the scope of these disclosure requirements are included in the following table. However, certain financial instruments and all nonfinancial instruments are excluded from the scope of these disclosure requirements. Accordingly, the fair value disclosures provided in the following table include only a partial estimate of the fair value of JPMorgan Chase’s assets and liabilities. For example, the Firm has developed long-term relationships with its customers through its deposit base and credit card accounts, commonly referred to as core deposit intangibles and credit card relationships. In the opinion of management, these items, in the aggregate, add significant value to JPMorgan Chase, but their fair value is not disclosed in this Note.
Financial instruments for which carrying value approximates fair value
Certain financial instruments that are not carried at fair value on the Consolidated balance sheets are carried at amounts that approximate fair value, due to their short-term nature and generally negligible credit risk. These instruments include cash and due from banks, deposits with banks, federal funds sold, securities purchased under resale agreements and securities borrowed, short-term receivables and accrued interest receivable, commercial paper, federal funds purchased, securities loaned and sold under repurchase agreements, other borrowed funds, accounts payable, and accrued liabilities. In addition, U.S. GAAP requires that the fair value of deposit liabilities with no stated maturity (i.e., demand, savings and certain money market deposits) be equal to their carrying value; recognition of the inherent funding value of these instruments is not permitted.
|
| | |
JPMorgan Chase & Co./20152016 Annual Report | | 201165 |
Notes to consolidated financial statements
The following table presents by fair value hierarchy classification the carrying values and estimated fair values at December 31, 20152016 and 20142015, of financial assets and liabilities, excluding financial instruments whichthat are carried at fair value on a recurring basis.basis, and their classification within the fair value hierarchy. For additional information regarding the financial instruments within the scope of this disclosure, and the methods and significant assumptions used to estimate their fair value, see pages 185–188150–153 of this Note.
| | | | December 31, 2015 | | December 31, 2014 | December 31, 2016 | | December 31, 2015 |
| | | Estimated fair value hierarchy | | | | Estimated fair value hierarchy | | | Estimated fair value hierarchy | | | | Estimated fair value hierarchy | |
| (in billions) | Carrying value | Level 1 | Level 2 | Level 3 | Total estimated fair value | | Carrying value | Level 1 | Level 2 | Level 3 | Total estimated fair value | Carrying value | Level 1 | Level 2 | Level 3 | Total estimated fair value | | Carrying value | Level 1 | Level 2 | Level 3 | Total estimated fair value |
| Financial assets | | | | | | |
| Cash and due from banks | $ | 20.5 |
| $ | 20.5 |
| $ | — |
| $ | — |
| $ | 20.5 |
| | $ | 27.8 |
| $ | 27.8 |
| $ | — |
| $ | — |
| $ | 27.8 |
| $ | 23.9 |
| $ | 23.9 |
| $ | — |
| $ | — |
| $ | 23.9 |
| | $ | 20.5 |
| $ | 20.5 |
| $ | — |
| $ | — |
| $ | 20.5 |
|
| Deposits with banks | 340.0 |
| 335.9 |
| 4.1 |
| — |
| 340.0 |
| | 484.5 |
| 480.4 |
| 4.1 |
| — |
| 484.5 |
| 365.8 |
| 362.0 |
| 3.8 |
| — |
| 365.8 |
| | 340.0 |
| 335.9 |
| 4.1 |
| — |
| 340.0 |
|
| Accrued interest and accounts receivable | 46.6 |
| — |
| 46.4 |
| 0.2 |
| 46.6 |
| | 70.1 |
| — |
| 70.0 |
| 0.1 |
| 70.1 |
| 52.3 |
| — |
| 52.2 |
| 0.1 |
| 52.3 |
| | 46.6 |
| — |
| 46.4 |
| 0.2 |
| 46.6 |
|
| Federal funds sold and securities purchased under resale agreements | 189.5 |
| — |
| 189.5 |
| — |
| 189.5 |
| | 187.2 |
| — |
| 187.2 |
| — |
| 187.2 |
| 208.5 |
| — |
| 208.3 |
| 0.2 |
| 208.5 |
| | 189.5 |
| — |
| 189.5 |
| — |
| 189.5 |
|
| Securities borrowed | 98.3 |
| — |
| 98.3 |
| — |
| 98.3 |
| | 109.4 |
| — |
| 109.4 |
| — |
| 109.4 |
| 96.4 |
| — |
| 96.4 |
| — |
| 96.4 |
| | 98.3 |
| — |
| 98.3 |
| — |
| 98.3 |
|
Securities, held-to-maturity(a) | 49.1 |
| — |
| 50.6 |
| — |
| 50.6 |
| | 49.3 |
| — |
| 51.2 |
| — |
| 51.2 |
| 50.2 |
| — |
| 50.9 |
| — |
| 50.9 |
| | 49.1 |
| — |
| 50.6 |
| — |
| 50.6 |
|
Loans, net of allowance for loan losses(b)(a) | 820.8 |
| — |
| 25.4 |
| 802.7 |
| 828.1 |
| | 740.5 |
| — |
| 21.8 |
| 723.1 |
| 744.9 |
| 878.8 |
| — |
| 24.1 |
| 851.0 |
| 875.1 |
| | 820.8 |
| — |
| 25.4 |
| 802.7 |
| 828.1 |
|
| Other | 66.0 |
| 0.1 |
| 56.3 |
| 14.3 |
| 70.7 |
| | 64.7 |
| — |
| 55.7 |
| 13.3 |
| 69.0 |
| 71.4 |
| 0.1 |
| 60.8 |
| 14.3 |
| 75.2 |
| | 66.0 |
| 0.1 |
| 56.3 |
| 14.3 |
| 70.7 |
|
| Financial liabilities | | | | | | |
| Deposits | $ | 1,267.2 |
| $ | — |
| $ | 1,266.1 |
| $ | 1.2 |
| $ | 1,267.3 |
| | $ | 1,354.6 |
| $ | — |
| $ | 1,353.6 |
| $ | 1.2 |
| $ | 1,354.8 |
| $ | 1,361.3 |
| $ | — |
| $ | 1,361.3 |
| $ | — |
| $ | 1,361.3 |
| | $ | 1,267.2 |
| $ | — |
| $ | 1,266.1 |
| $ | 1.2 |
| $ | 1,267.3 |
|
| Federal funds purchased and securities loaned or sold under repurchase agreements | 149.2 |
| — |
| 149.2 |
| — |
| 149.2 |
| | 189.1 |
| — |
| 189.1 |
| — |
| 189.1 |
| 165.0 |
| — |
| 165.0 |
| — |
| 165.0 |
| | 149.2 |
| — |
| 149.2 |
| — |
| 149.2 |
|
| Commercial paper | 15.6 |
| — |
| 15.6 |
| — |
| 15.6 |
| | 66.3 |
| — |
| 66.3 |
| — |
| 66.3 |
| 11.7 |
| — |
| 11.7 |
| — |
| 11.7 |
| | 15.6 |
| — |
| 15.6 |
| — |
| 15.6 |
|
| Other borrowed funds | 11.2 |
| — |
| 11.2 |
| — |
| 11.2 |
| | 15.5 |
|
|
| 15.5 |
| — |
| 15.5 |
| 13.6 |
| — |
| 13.6 |
| — |
| 13.6 |
| | 11.2 |
| — |
| 11.2 |
| — |
| 11.2 |
|
Accounts payable and other liabilities(c) | 144.6 |
| — |
| 141.7 |
| 2.8 |
| 144.5 |
| | 172.6 |
| — |
| 169.6 |
| 2.9 |
| 172.5 |
| 148.0 |
| — |
| 144.8 |
| 3.4 |
| 148.2 |
| | 144.6 |
| — |
| 141.7 |
| 2.8 |
| 144.5 |
|
Beneficial interests issued by consolidated VIEs(d) | 41.1 |
| — |
| 40.2 |
| 0.9 |
| 41.1 |
| | 50.2 |
| — |
| 48.2 |
| 2.0 |
| 50.2 |
| 38.9 |
| — |
| 38.9 |
| — |
| 38.9 |
| | 41.1 |
| — |
| 40.2 |
| 0.9 |
| 41.1 |
|
Long-term debt and junior subordinated deferrable interest debentures(e) | 255.6 |
| — |
| 257.4 |
| 4.3 |
| 261.7 |
| | 246.2 |
| — |
| 251.2 |
| 3.8 |
| 255.0 |
| 257.5 |
| — |
| 260.0 |
| 2.0 |
| 262.0 |
| | 255.6 |
| — |
| 257.4 |
| 4.3 |
| 261.7 |
|
| |
| (a) | Carrying value reflects unamortized discount or premium. |
| |
(b) | Fair value is typically estimated using a discounted cash flow model that incorporates the characteristics of the underlying loans (including principal, contractual interest rate and contractual fees) and other key inputs, including expected lifetime credit losses, interest rates, prepayment rates, and primary origination or secondary market spreads. For certain loans, the fair value is measured based on the value of the underlying collateral. The difference between the estimated fair value and carrying value of a financial asset or liability is the result of the different methodologies used to determine fair value as compared with carrying value. For example, credit losses are estimated for a financial asset’s remaining life in a fair value calculation but are estimated for a loss emergence period in the allowance for loan loss calculation; future loan income (interest and fees) is incorporated in a fair value calculation but is generally not considered in the allowance for loan losses. For a further discussion of the Firm’s methodologies for estimating the fair value of loans and lending-related commitments, see Valuation hierarchy on pages 185–188150–153. |
| |
(c) | Certain prior period amounts have been revised to conform with the current presentation. |
| |
(d) | Carrying value reflects unamortized issuance costs. |
| |
(e) | Carrying value reflects unamortized premiums and discounts, issuance costs, and other valuation adjustments. |
|
| | |
202166 | | JPMorgan Chase & Co./20152016 Annual Report |
The majority of the Firm’s lending-related commitments are not carried at fair value on a recurring basis on the Consolidated balance sheets, nor are they actively traded. The carrying value of the wholesale allowance for lending-related commitments and the estimated fair value of the Firm’sthese wholesale lending-related commitments were as follows for the periods indicated.
| | | | December 31, 2015 | | December 31, 2014 | December 31, 2016 | | December 31, 2015 |
| | | Estimated fair value hierarchy | | | | Estimated fair value hierarchy | | | Estimated fair value hierarchy | | | | Estimated fair value hierarchy | |
| (in billions) | Carrying value(a) | Level 1 | Level 2 | Level 3 | Total estimated fair value | | Carrying value(a) | Level 1 | Level 2 | Level 3 | Total estimated fair value | Carrying value(a) | Level 1 | Level 2 | Level 3 | Total estimated fair value | | Carrying value(a) | Level 1 | Level 2 | Level 3 | Total estimated fair value |
| Wholesale lending-related commitments | $ | 0.8 |
| $ | — |
| $ | — |
| $ | 3.0 |
| $ | 3.0 |
| | $ | 0.6 |
| $ | — |
| $ | — |
| $ | 1.6 |
| $ | 1.6 |
| $ | 1.1 |
| $ | — |
| $ | — |
| $ | 2.1 |
| $ | 2.1 |
| | $ | 0.8 |
| $ | — |
| $ | — |
| $ | 3.0 |
| $ | 3.0 |
|
| |
| (a) | Excludes the current carrying values of the guarantee liability and the offsetting asset, each of which areis recognized at fair value at the inception of the guarantees. |
The Firm does not estimate the fair value of consumer lending-related commitments. In many cases, the Firm can reduce or cancel these commitments by providing the borrower notice or, in some cases as permitted by law, without notice. For a further discussion of the valuation of lending-related commitments, see page 186151 of this Note.
|
| | |
| JPMorgan Chase & Co./2016 Annual Report | | 167 |
Notes to consolidated financial statements
Note 4 – Fair value option
The fair value option provides an option to elect fair value as an alternative measurement for selected financial assets, financial liabilities, unrecognized firm commitments, and written loan commitments.
The Firm has elected to measure certain instruments at fair value in order to:
Mitigatefor several reasons including to mitigate income statement volatility caused by the differences inbetween the measurement basis of elected instruments (e.g. certain instruments elected were previously accounted for on an accrual basis) whileand the associated risk management arrangements that are accounted for on a fair value basis;basis, as well as to
Eliminate the complexities of applying certain accounting models (e.g., hedge accounting or bifurcation accounting for hybrid instruments); and/or
Betterbetter reflect those instruments that are managed on a fair value basis.
The Firm’s election of fair value includes the following instruments:
Loans purchased or originated as part of securitization warehousing activity, subject to bifurcation accounting, or managed on a fair value basis.
basisCertain securities financing arrangements with an embedded derivative and/or a maturity of greater than one year.year
Owned beneficial interests in securitized financial assets that contain embedded credit derivatives, which would otherwise be required to be separately accounted for as a derivative instrument.
Certain investments that receive tax credits and other equity investments acquired as part of the Washington Mutual transaction.instrument
Structured notes, issued as part of CIB’s client-driven activities. (Structured noteswhich are predominantly financial instruments that contain embedded derivatives.)derivatives, that are issued as part of CIB’s client-driven activities
Certain long-term beneficial interests issued by CIB’s consolidated securitization trusts where the underlying assets are carried at fair value.value
|
| | |
| 168 | | JPMorgan Chase & Co./20152016 Annual Report | | 203 |
Notes to consolidated financial statements
Changes in fair value under the fair value option election
The following table presents the changes in fair value included in the Consolidated statements of income for the years ended December 31, 20152016, 20142015 and 20132014, for items for which the fair value option was elected. The profit and loss information presented below only includes the financial instruments that were elected to be measured at fair value; related risk management instruments, which are required to be measured at fair value, are not included in the table.
| | | | 2015 | | 2014 | | 2013 | 2016 | | 2015 | | 2014 |
| December 31, (in millions) | Principal transactions | All other income | Total changes in fair value recorded | | Principal transactions | All other income | Total changes in fair value recorded | | Principal transactions | All other income | Total changes in fair value recorded | Principal transactions | All other income | Total changes in fair value recorded | | Principal transactions | All other income | Total changes in fair value recorded | | Principal transactions | All other income | Total changes in fair value recorded |
| Federal funds sold and securities purchased under resale agreements | $ | (38 | ) | $ | — |
| | $ | (38 | ) | | $ | (15 | ) | $ | — |
| | $ | (15 | ) | | $ | (454 | ) | $ | — |
| | $ | (454 | ) | $ | (76 | ) | $ | — |
| | $ | (76 | ) | | $ | (38 | ) | $ | — |
| | $ | (38 | ) | | $ | (15 | ) | $ | — |
| | $ | (15 | ) |
| Securities borrowed | (6 | ) | — |
| | (6 | ) | | (10 | ) | — |
| | (10 | ) | | 10 |
| — |
| | 10 |
| 1 |
| — |
| | 1 |
| | (6 | ) | — |
| | (6 | ) | | (10 | ) | — |
| | (10 | ) |
| Trading assets: | | | | | | |
|
| | | |
|
| | | | | | |
|
| | | |
|
|
| Debt and equity instruments, excluding loans | 756 |
| (10 | ) | (d) | 746 |
| | 639 |
| — |
| | 639 |
| | 582 |
| 7 |
| (c) | 589 |
| 120 |
| (1 | ) | (c) | 119 |
| | 756 |
| (10 | ) | (c) | 746 |
| | 639 |
| — |
| | 639 |
|
| Loans reported as trading assets: | | | | | | |
|
| | | |
|
| | | | | | |
|
| | | |
|
|
| Changes in instrument-specific credit risk | 138 |
| 41 |
| (c) | 179 |
| | 885 |
| 29 |
| (c) | 914 |
| | 1,161 |
| 23 |
| (c) | 1,184 |
| 461 |
| 43 |
| (c) | 504 |
| | 138 |
| 41 |
| (c) | 179 |
| | 885 |
| 29 |
| (c) | 914 |
|
| Other changes in fair value | 232 |
| 818 |
| (c) | 1,050 |
| | 352 |
| 1,353 |
| (c) | 1,705 |
| | (133 | ) | 1,833 |
| (c) | 1,700 |
| 79 |
| 684 |
| (c) | 763 |
| | 232 |
| 818 |
| (c) | 1,050 |
| | 352 |
| 1,353 |
| (c) | 1,705 |
|
| Loans: | | | | | | |
|
| | | |
|
| | | | | | |
|
| | | |
|
|
| Changes in instrument-specific credit risk | 35 |
| — |
| | 35 |
| | 40 |
| — |
| | 40 |
| | 36 |
| — |
| | 36 |
| 13 |
| — |
| | 13 |
| | 35 |
| — |
| | 35 |
| | 40 |
| — |
| | 40 |
|
| Other changes in fair value | 4 |
| — |
| | 4 |
| | 34 |
| — |
| | 34 |
| | 17 |
| — |
| | 17 |
| (7 | ) | — |
| | (7 | ) | | 4 |
| — |
| | 4 |
| | 34 |
| — |
| | 34 |
|
| Other assets | 79 |
| (1 | ) | (d) | 78 |
| | 24 |
| 6 |
| (d) | 30 |
| | 32 |
| 86 |
| (d) | 118 |
| 20 |
| 62 |
| (d) | 82 |
| | 79 |
| (1 | ) | (d) | 78 |
| | 24 |
| 6 |
| (d) | 30 |
|
Deposits(a) | 93 |
| — |
| | 93 |
| | (287 | ) | — |
| | (287 | ) | | 260 |
| — |
| | 260 |
| (134 | ) | — |
| | (134 | ) | | 93 |
| — |
| | 93 |
| | (287 | ) | — |
| | (287 | ) |
Federal funds purchased and securities loaned or sold under repurchase agreements | 8 |
| — |
| | 8 |
| | (33 | ) | — |
| | (33 | ) | | 73 |
| — |
| | 73 |
| 19 |
| — |
| | 19 |
| | 8 |
| — |
| | 8 |
| | (33 | ) | — |
| | (33 | ) |
Other borrowed funds(a) | 1,996 |
| — |
| | 1,996 |
| | (891 | ) | — |
| | (891 | ) | | (399 | ) | — |
| | (399 | ) | (236 | ) | — |
| | (236 | ) | | 1,996 |
| — |
| | 1,996 |
| | (891 | ) | — |
| | (891 | ) |
| Trading liabilities | (20 | ) | — |
| | (20 | ) | | (17 | ) | — |
| | (17 | ) | | (46 | ) | — |
| | (46 | ) | 6 |
| — |
| | 6 |
| | (20 | ) | — |
| | (20 | ) | | (17 | ) | — |
| | (17 | ) |
| Beneficial interests issued by consolidated VIEs | 49 |
| — |
| | 49 |
| | (233 | ) | — |
| | (233 | ) | | (278 | ) | — |
| | (278 | ) | 23 |
| — |
| | 23 |
| | 49 |
| — |
| | 49 |
| | (233 | ) | — |
| | (233 | ) |
| Other liabilities | — |
| — |
| | — |
| | (27 | ) | — |
| | (27 | ) | | — |
| — |
| | — |
| — |
| — |
| | — |
| | — |
| — |
| | — |
| | (27 | ) | — |
| | (27 | ) |
| Long-term debt: | | | | | | |
|
| | | |
|
| | | | | | |
|
| | | |
|
|
Changes in instrument-specific credit risk(a) | 300 |
| — |
| | 300 |
| | 101 |
| — |
| | 101 |
| | (271 | ) | — |
| | (271 | ) | |
DVA on fair value option elected liabilities (a) | | — |
| — |
| | — |
| | 300 |
| — |
| | 300 |
| | 101 |
| — |
| | 101 |
|
Other changes in fair value(b) | 1,088 |
| — |
| | 1,088 |
| | (615 | ) | — |
| | (615 | ) | | 1,280 |
| — |
| | 1,280 |
| (773 | ) | — |
| | (773 | ) | | 1,088 |
| — |
| | 1,088 |
| | (615 | ) | — |
| | (615 | ) |
| |
| (a) | Total changes inEffective January 1, 2016, unrealized gains/(losses) due to instrument-specific credit risk (DVA) related to structured notes were $171 million, $20 millionfor liabilities for which the fair value option has been elected is recorded in OCI, while realized gains/(losses) are recorded in principal transactions revenue. DVA for 2015 and $(337) million for2014 was included in principal transactions revenue, and includes the years ended December 31, 2015, 2014 and 2013, respectively. These totals include such changes for structured notes classified within deposits and other borrowed funds,impact of the Firm’s own credit quality on the inception value of liabilities as well as long-term debt.
the impact of changes in the Firm’s own credit quality subsequent to issuance. See Notes 3 and 25 for further information. |
| |
| (b) | StructuredLong-term debt measured at fair value predominantly relates to structured notes are predominantly financial instruments containing embedded derivatives. Where present, the embedded derivative is the primary driver of risk. Although the risk associated with the structured notes is actively managed, the gains/(losses) reported in this table do not include the income statement impact of the risk management instruments used to manage such risk. |
| |
| (c) | Reported in mortgage fees and related income. |
| |
| (d) | Reported in other income. |
|
| | |
204 | | JPMorgan Chase & Co./20152016 Annual Report | | 169 |
Notes to consolidated financial statements
Determination of instrument-specific credit risk for items for which a fair value election was made
The following describes how the gains and losses included in earnings that are attributable to changes in instrument-specific credit risk, were determined.
Loans and lending-related commitments: For floating-rate instruments, all changes in value are attributed to instrument-specific credit risk. For fixed-rate instruments, an allocation of the changes in value for the period is made between those changes in value that are interest rate-related and changes in value that are credit-related. Allocations are generally based on an analysis of borrower-specific credit spread and recovery information, where available, or benchmarking to similar entities or industries.
Long-term debt: Changes in value attributable to instrument-specific credit risk were derived principally from observable changes in the Firm’s credit spread.spread.
Resale and repurchase agreements, securities borrowed agreements and securities lending agreements: Generally, for these types of agreements, there is a requirement that collateral be maintained with a market value equal to or in excess of the principal amount loaned; as a result, there would be no adjustment or an immaterial adjustment for instrument-specific credit risk related to these agreements.
Difference between aggregate fair value and aggregate remaining contractual principal balance outstanding
The following table reflects the difference between the aggregate fair value and the aggregate remaining contractual principal balance outstanding as of December 31, 20152016 and 20142015, for loans, long-term debt and long-term beneficial interests for which the fair value option has been elected.
| | | | 2015 | | 2014 | 2016 | | 2015 |
| December 31, (in millions) | Contractual principal outstanding | | Fair value | Fair value over/(under) contractual principal outstanding | | Contractual principal outstanding | | Fair value | Fair value over/(under) contractual principal outstanding | Contractual principal outstanding | | Fair value | Fair value over/(under) contractual principal outstanding | | Contractual principal outstanding | | Fair value | Fair value over/(under) contractual principal outstanding |
Loans(a) | | | | | | | | | | | | | | |
| Nonaccrual loans | | | | | | | | | | | | | | |
| Loans reported as trading assets | $ | 3,484 |
| | $ | 631 |
| $ | (2,853 | ) | | $ | 3,847 |
| | $ | 905 |
| $ | (2,942 | ) | $ | 3,338 |
| | $ | 748 |
| $ | (2,590 | ) | | $ | 3,484 |
| | $ | 631 |
| $ | (2,853 | ) |
| Loans | 7 |
| | 7 |
| — |
| | 7 |
| | 7 |
| — |
| — |
| | — |
| — |
| | 7 |
| | 7 |
| — |
|
| Subtotal | 3,491 |
| | 638 |
| (2,853 | ) | | 3,854 |
| | 912 |
| (2,942 | ) | 3,338 |
| | 748 |
| (2,590 | ) | | 3,491 |
| | 638 |
| (2,853 | ) |
| All other performing loans | | | | | | | | | | | | | | |
| Loans reported as trading assets | 30,780 |
| | 28,184 |
| (2,596 | ) | | 37,608 |
| | 35,462 |
| (2,146 | ) | 35,477 |
| | 33,054 |
| (2,423 | ) | | 30,780 |
| | 28,184 |
| (2,596 | ) |
| Loans | 2,771 |
| | 2,752 |
| (19 | ) | | 2,397 |
| | 2,389 |
| (8 | ) | 2,259 |
| | 2,228 |
| (31 | ) | | 2,771 |
| | 2,752 |
| (19 | ) |
| Total loans | $ | 37,042 |
| | $ | 31,574 |
| $ | (5,468 | ) | | $ | 43,859 |
| | $ | 38,763 |
| $ | (5,096 | ) | $ | 41,074 |
| | $ | 36,030 |
| $ | (5,044 | ) | | $ | 37,042 |
| | $ | 31,574 |
| $ | (5,468 | ) |
| Long-term debt | | | | | | | | | | | | | | |
| Principal-protected debt | $ | 17,910 |
| (c) | $ | 16,611 |
| $ | (1,299 | ) | | $ | 14,660 |
| (c) | $ | 15,484 |
| $ | 824 |
| $ | 21,602 |
| (c) | $ | 19,195 |
| $ | (2,407 | ) | | $ | 17,910 |
| (c) | $ | 16,611 |
| $ | (1,299 | ) |
Nonprincipal-protected debt(b) | NA |
| | 16,454 |
| NA |
| | NA |
| | 14,742 |
| NA |
| NA |
| | 18,491 |
| NA |
| | NA |
| | 16,454 |
| NA |
|
| Total long-term debt | NA |
| | $ | 33,065 |
| NA |
| | NA |
| | $ | 30,226 |
| NA |
| NA |
| | $ | 37,686 |
| NA |
| | NA |
| | $ | 33,065 |
| NA |
|
| Long-term beneficial interests | | | | | | | | | | | | | | |
| Nonprincipal-protected debt | NA |
| | $ | 787 |
| NA |
| | NA |
| | $ | 2,162 |
| NA |
| NA |
| | $ | 120 |
| NA |
| | NA |
| | $ | 787 |
| NA |
|
| Total long-term beneficial interests | NA |
|
| $ | 787 |
| NA |
| | NA |
| | $ | 2,162 |
| NA |
| NA |
|
| $ | 120 |
| NA |
| | NA |
| | $ | 787 |
| NA |
|
| |
| (a) | There were no performing loans that were ninety days or more past due as of December 31, 20152016 and 20142015, respectively. |
| |
| (b) | Remaining contractual principal is not applicable to nonprincipal-protected notes. Unlike principal-protected structured notes, for which the Firm is obligated to return a stated amount of principal at the maturity of the note, nonprincipal-protected structured notes do not obligate the Firm to return a stated amount of principal at maturity, but to return an amount based on the performance of an underlying variable or derivative feature embedded in the note. However, investors are exposed to the credit risk of the Firm as issuer for both nonprincipal-protected and principal protected notes. |
| |
| (c) | Where the Firm issues principal-protected zero-coupon or discount notes, the balance reflects the contractual principal payment at maturity or, if applicable, the contractual principal payment at the Firm’s next call date. |
At December 31, 20152016 and 20142015, the contractual amount of letters of creditlending-related commitments for which the fair value option was elected was $4.6 billion and $4.5 billion, respectively,for both years, with a corresponding fair value of $(94)(118) million and $(147)(94) million, respectively. For further information regarding off-balance sheet lending-related financial instruments, see Note 29.
|
| | |
| 170 | | JPMorgan Chase & Co./20152016 Annual Report | | 205 |
Notes to consolidated financial statements
Structured note products by balance sheet classification and risk component
The table below presents the fair value of the structured notes issued by the Firm, by balance sheet classification and the primary risk to which the structured notes’ embedded derivative relates.type.
| | | | December 31, 2015 | | December 31, 2014 | December 31, 2016 | | December 31, 2015 |
| (in millions) | Long-term debt | Other borrowed funds | Deposits | Total | | Long-term debt | Other borrowed funds | Deposits | Total | Long-term debt | Other borrowed funds | Deposits | Total | | Long-term debt | Other borrowed funds | Deposits | Total |
| Risk exposure | | | | | | |
| Interest rate | $ | 12,531 |
| $ | 58 |
| $ | 3,340 |
| $ | 15,929 |
| | $ | 10,858 |
| $ | 460 |
| $ | 2,119 |
| $ | 13,437 |
| $ | 16,296 |
| $ | 184 |
| $ | 4,296 |
| $ | 20,776 |
| | $ | 12,531 |
| $ | 58 |
| $ | 3,340 |
| $ | 15,929 |
|
| Credit | 3,195 |
| 547 |
| — |
| 3,742 |
| | 4,023 |
| 450 |
| — |
| 4,473 |
| 3,267 |
| 225 |
| — |
| 3,492 |
| | 3,195 |
| 547 |
| — |
| 3,742 |
|
| Foreign exchange | 1,765 |
| 77 |
| 11 |
| 1,853 |
| | 2,150 |
| 211 |
| 17 |
| 2,378 |
| 2,365 |
| 135 |
| 6 |
| 2,506 |
| | 1,765 |
| 77 |
| 11 |
| 1,853 |
|
| Equity | 14,293 |
| 8,447 |
| 4,993 |
| 27,733 |
| | 12,348 |
| 12,412 |
| 4,415 |
| 29,175 |
| 14,831 |
| 8,234 |
| 5,481 |
| 28,546 |
| | 14,293 |
| 8,447 |
| 4,993 |
| 27,733 |
|
| Commodity | 640 |
| 50 |
| 1,981 |
| 2,671 |
| | 710 |
| 644 |
| 2,012 |
| 3,366 |
| 488 |
| 37 |
| 1,811 |
| 2,336 |
| | 640 |
| 50 |
| 1,981 |
| 2,671 |
|
| Total structured notes | $ | 32,424 |
| $ | 9,179 |
| $ | 10,325 |
| $ | 51,928 |
| | $ | 30,089 |
| $ | 14,177 |
| $ | 8,563 |
| $ | 52,829 |
| $ | 37,247 |
| $ | 8,815 |
| $ | 11,594 |
| $ | 57,656 |
| | $ | 32,424 |
| $ | 9,179 |
| $ | 10,325 |
| $ | 51,928 |
|
|
| | |
206 | | JPMorgan Chase & Co./20152016 Annual Report | | 171 |
Notes to consolidated financial statements
Note 5 – Credit risk concentrations
Concentrations of credit risk arise when a number of customers are engaged in similar business activities or activities in the same geographic region, or when they have similar economic features that would cause their ability to meet contractual obligations to be similarly affected by changes in economic conditions.
JPMorgan Chase regularly monitors various segments of its credit portfolios to assess potential credit risk concentrations and to obtain collateral when deemed necessary. Senior management is significantly involved in the credit approval and review process, and risk levels are adjusted as needed to reflect the Firm’s risk appetite.
In the Firm’s consumer portfolio, concentrations are evaluated primarily by product and by U.S. geographic region, with a key focus on trends and concentrations at the portfolio level, where potential credit risk concentrations can be remedied through changes in underwriting policies
and portfolio guidelines. In the wholesale portfolio, credit risk concentrations are evaluated primarily by industry and monitored regularly on both an aggregate portfolio level and on an individual customer basis. The Firm’s wholesale exposure is managed through loan syndications and participations, loan sales, securitizations, credit derivatives, master netting agreements, and collateral and other risk-reduction techniques. For additional information on loans, see Note 14.
The Firm does not believe that its exposure to any particular loan product (e.g., option adjustable rate mortgages (“ARMs”))ARMs), or industry segment (e.g., commercial real estate), or its exposure to residential real estate loans with high loan-to-valueLTV ratios, results in a significant concentration of credit risk.
Terms of loan products and collateral coverage are included in the Firm’s assessment when extending credit and establishing its allowance for loan losses.
|
| | |
| 172 | | JPMorgan Chase & Co./2016 Annual Report |
The table below presents both on–balance sheet and off–balance sheet consumer and wholesale-related credit exposure by the Firm’s three credit portfolio segments as of December 31, 20152016 and 2014.2015.
| | | | 2015 | | 2014 | 2016 | | 2015 |
| | Credit exposure | On-balance sheet | Off-balance sheet(f) | | Credit exposure | On-balance sheet | Off-balance sheet(f)(g) | Credit exposure | On-balance sheet | Off-balance sheet(g) | | Credit exposure | On-balance sheet | Off-balance sheet(g) |
| December 31, (in millions) | Loans | Derivatives | | Loans | Derivatives | Loans | Derivatives | | Loans | Derivatives |
Total consumer, excluding credit card | $ | 403,424 |
| $ | 344,821 |
| $ | — |
| $ | 58,478 |
| | $ | 353,635 |
| $ | 295,374 |
| $ | — |
| $ | 58,153 |
| |
| Total credit card | 646,981 |
| 131,463 |
| — |
| 515,518 |
| | 657,011 |
| 131,048 |
| — |
| 525,963 |
| |
| Total consumer | 1,050,405 |
| 476,284 |
| — |
| 573,996 |
| | 1,010,646 |
| 426,422 |
| — |
| 584,116 |
| |
Wholesale-related(a) | | | | |
Consumer, excluding credit card | | $ | 419,441 |
| $ | 364,644 |
| $ | — |
| $ | 54,797 |
| | $ | 403,299 |
| $ | 344,821 |
| $ | — |
| $ | 58,478 |
|
Receivables from customers(a) | | 120 |
| — |
| — |
| — |
| | 125 |
| — |
| — |
| — |
|
| Total Consumer, excluding credit card | | 419,561 |
| 364,644 |
| — |
| 54,797 |
| | 403,424 |
| 344,821 |
| — |
| 58,478 |
|
| Credit Card | | 695,707 |
| 141,816 |
| — |
| 553,891 |
| | 646,981 |
| 131,463 |
| — |
| 515,518 |
|
| Total consumer-related | | 1,115,268 |
| 506,460 |
| — |
| 608,688 |
| | 1,050,405 |
| 476,284 |
| — |
| 573,996 |
|
Wholesale-related(b) | | | | |
| Real Estate | 116,857 |
| 92,820 |
| 312 |
| 23,725 |
| | 105,975 |
| 79,113 |
| 327 |
| 26,535 |
| 135,041 |
| 106,315 |
| 222 |
| 28,504 |
| | 116,857 |
| 92,820 |
| 312 |
| 23,725 |
|
| Consumer & Retail | 85,460 |
| 27,175 |
| 1,573 |
| 56,712 |
| | 83,663 |
| 25,094 |
| 1,845 |
| 56,724 |
| 85,435 |
| 29,842 |
| 1,082 |
| 54,511 |
| | 85,460 |
| 27,175 |
| 1,573 |
| 56,712 |
|
| Technology, Media & Telecommunications | 57,382 |
| 11,079 |
| 1,032 |
| 45,271 |
| | 46,655 |
| 11,362 |
| 2,190 |
| 33,103 |
| 62,950 |
| 13,845 |
| 1,227 |
| 47,878 |
| | 57,382 |
| 11,079 |
| 1,032 |
| 45,271 |
|
| Industrials | 54,386 |
| 16,791 |
| 1,428 |
| 36,167 |
| | 47,859 |
| 16,040 |
| 1,303 |
| 30,516 |
| 55,449 |
| 17,150 |
| 1,615 |
| 36,684 |
| | 54,386 |
| 16,791 |
| 1,428 |
| 36,167 |
|
| Healthcare | 46,053 |
| 16,965 |
| 2,751 |
| 26,337 |
| | 56,516 |
| 13,794 |
| 4,542 |
| 38,180 |
| 47,866 |
| 15,120 |
| 2,277 |
| 30,469 |
| | 46,053 |
| 16,965 |
| 2,751 |
| 26,337 |
|
| Banks & Finance Cos | 43,398 |
| 20,401 |
| 10,218 |
| 12,779 |
| | 55,098 |
| 23,367 |
| 15,706 |
| 16,025 |
| 44,614 |
| 19,460 |
| 12,232 |
| 12,922 |
| | 43,398 |
| 20,401 |
| 10,218 |
| 12,779 |
|
| Oil & Gas | 42,077 |
| 13,343 |
| 1,902 |
| 26,832 |
| | 43,148 |
| 15,616 |
| 1,836 |
| 25,696 |
| 40,099 |
| 13,079 |
| 1,878 |
| 25,142 |
| | 42,077 |
| 13,343 |
| 1,902 |
| 26,832 |
|
| Asset Managers | | 31,886 |
| 10,539 |
| 10,819 |
| 10,528 |
| | 23,815 |
| 6,703 |
| 7,733 |
| 9,379 |
|
| Utilities | 30,853 |
| 5,294 |
| 1,689 |
| 23,870 |
| | 27,441 |
| 4,844 |
| 2,272 |
| 20,325 |
| 29,622 |
| 7,183 |
| 883 |
| 21,556 |
| | 30,853 |
| 5,294 |
| 1,689 |
| 23,870 |
|
| State & Municipal Govt | 29,114 |
| 9,626 |
| 3,287 |
| 16,201 |
| | 31,068 |
| 7,593 |
| 4,002 |
| 19,473 |
| |
| Asset Managers | 23,815 |
| 6,703 |
| 7,733 |
| 9,379 |
| | 27,488 |
| 8,043 |
| 9,386 |
| 10,059 |
| |
State & Municipal Govt(c) | | 28,263 |
| 12,416 |
| 2,096 |
| 13,751 |
| | 29,114 |
| 9,626 |
| 3,287 |
| 16,201 |
|
| Central Govt | | 20,408 |
| 3,964 |
| 14,235 |
| 2,209 |
| | 17,968 |
| 2,000 |
| 13,240 |
| 2,728 |
|
| Transportation | 19,227 |
| 9,157 |
| 1,575 |
| 8,495 |
| | 20,619 |
| 10,381 |
| 2,247 |
| 7,991 |
| 19,029 |
| 8,942 |
| 751 |
| 9,336 |
| | 19,227 |
| 9,157 |
| 1,575 |
| 8,495 |
|
| Central Govt | 17,968 |
| 2,000 |
| 13,240 |
| 2,728 |
| | 19,881 |
| 1,103 |
| 15,527 |
| 3,251 |
| |
| Automotive | | 16,635 |
| 4,943 |
| 1,190 |
| 10,502 |
| | 13,864 |
| 4,473 |
| 1,350 |
| 8,041 |
|
| Chemicals & Plastics | 15,232 |
| 4,033 |
| 369 |
| 10,830 |
| | 12,612 |
| 3,087 |
| 410 |
| 9,115 |
| 14,988 |
| 5,287 |
| 271 |
| 9,430 |
| | 15,232 |
| 4,033 |
| 369 |
| 10,830 |
|
| Metals & Mining | 14,049 |
| 4,622 |
| 607 |
| 8,820 |
| | 14,969 |
| 5,628 |
| 589 |
| 8,752 |
| 13,419 |
| 4,350 |
| 439 |
| 8,630 |
| | 14,049 |
| 4,622 |
| 607 |
| 8,820 |
|
| Automotive | 13,864 |
| 4,473 |
| 1,350 |
| 8,041 |
| | 12,754 |
| 3,779 |
| 766 |
| 8,209 |
| |
| Insurance | 11,889 |
| 1,094 |
| 1,992 |
| 8,803 |
| | 13,350 |
| 1,175 |
| 3,474 |
| 8,701 |
| 13,151 |
| 947 |
| 3,382 |
| 8,822 |
| | 11,889 |
| 1,094 |
| 1,992 |
| 8,803 |
|
| Financial Markets Infrastructure | 7,973 |
| 724 |
| 2,602 |
| 4,647 |
| | 11,986 |
| 928 |
| 6,789 |
| 4,269 |
| 8,732 |
| 347 |
| 3,884 |
| 4,501 |
| | 7,973 |
| 724 |
| 2,602 |
| 4,647 |
|
| Securities Firms | 4,412 |
| 861 |
| 1,424 |
| 2,127 |
| | 4,801 |
| 1,025 |
| 1,351 |
| 2,425 |
| 3,867 |
| 794 |
| 1,913 |
| 1,160 |
| | 4,412 |
| 861 |
| 1,424 |
| 2,127 |
|
All other(b) | 149,117 |
| 109,889 |
| 4,593 |
| 34,635 |
| | 134,475 |
| 92,530 |
| 4,413 |
| 37,532 |
| |
All other(d) | | 144,428 |
| 109,267 |
| 3,682 |
| 31,479 |
| | 149,117 |
| 109,889 |
| 4,593 |
| 34,635 |
|
| Subtotal | 783,126 |
| 357,050 |
| 59,677 |
| 366,399 |
| | 770,358 |
| 324,502 |
| 78,975 |
| 366,881 |
| 815,882 |
| 383,790 |
| 64,078 |
| 368,014 |
| | 783,126 |
| 357,050 |
| 59,677 |
| 366,399 |
|
| Loans held-for-sale and loans at fair value | 3,965 |
| 3,965 |
| — |
| — |
| | 6,412 |
| 6,412 |
| — |
| — |
| 4,515 |
| 4,515 |
| — |
| — |
| | 3,965 |
| 3,965 |
| — |
| — |
|
Receivables from customers and other(c) | 13,372 |
| — |
| — |
| — |
| | 28,972 |
| — |
| — |
| — |
| |
Receivables from customers and other(a) | | 17,440 |
| — |
| — |
| — |
| | 13,372 |
| — |
| — |
| — |
|
| Total wholesale-related | 800,463 |
| 361,015 |
| 59,677 |
| 366,399 |
| | 805,742 |
| 330,914 |
| 78,975 |
| 366,881 |
| 837,837 |
| 388,305 |
| 64,078 |
| 368,014 |
| | 800,463 |
| 361,015 |
| 59,677 |
| 366,399 |
|
Total exposure(d)(e) | $ | 1,850,868 |
| $ | 837,299 |
| $ | 59,677 |
| $ | 940,395 |
| | $ | 1,816,388 |
| $ | 757,336 |
| $ | 78,975 |
| $ | 950,997 |
| |
Total exposure(e)(f) | | $ | 1,953,105 |
| $ | 894,765 |
| $ | 64,078 |
| $ | 976,702 |
| | $ | 1,850,868 |
| $ | 837,299 |
| $ | 59,677 |
| $ | 940,395 |
|
| |
| (a) | EffectiveReceivables from customers primarily represent margin loans to brokerage customers that are collateralized through assets maintained in the fourth quarter 2015,clients’ brokerage accounts, as such no allowance is held against these receivables. These receivables are reported within accrued interest and accounts receivable on the Firm realigned its wholesale industry divisions in order to better monitor and manage industry concentrations. Prior period amounts have been revised to conform with current period presentation. For additional information, see Wholesale credit portfolio on pages 122–129.Firm’s Consolidated balance sheets. |
| |
| (b) | The industry rankings presented in the table as of December 31, 2015, are based on the industry rankings of the corresponding exposures at December 31, 2016, not actual rankings of such exposures at December 31, 2015. |
| |
| (c) | In addition to the credit risk exposure to states and municipal governments (both U.S. and non-U.S.) at December 31, 2016 and 2015, noted above, the Firm held: $9.1 billion and 7.6 billion, respectively, of trading securities; $31.6 billion and $33.6 billion, respectively, of AFS securities; and $14.5 billion and $12.8 billion, respectively, of HTM securities, issued by U.S. state and municipal governments. For further information, see Note 3 and Note 12. |
| |
| (d) | All other includes: individuals; SPEs; holding companies; and private education and civic organizations. For more information on exposures to SPEs, see Note 16. |
| |
(c) | Primarily consists of margin loans to prime brokerage customers that are generally over-collateralized through a pledge of assets maintained in clients’ brokerage accounts and are subject to daily minimum collateral requirements. As a result of the Firm’s credit risk mitigation practices, the Firm did not hold any reserves for credit impairment on these receivables. |
| |
(d)(e) | For further information regarding on–balance sheet credit concentrations by major product and/or geography, see Note 6 and Note 14. For information regarding concentrations of off–balance sheet lending-related financial instruments by major product, see Note 29. |
| |
(e)(f) | Excludes cash placed with banks of $351.0$380.2 billion and $501.5$351.0 billion, at December 31, 2016 and 2015, and 2014, respectively, which is predominantly placed with various central banks, predominantlyprimarily Federal Reserve Banks. |
| |
(f) | Represents lending-related financial instruments.Banks |
| |
| (g) | Effective January 1, 2015, the Firm no longer includes within its disclosure of wholesaleRepresents lending-related commitments the unused amount of advised uncommitted lines of credit as it is within the Firm’s discretion whether or not to make a loan under these lines, and the Firm’s approval is generally required prior to funding. Prior period amounts have been revised to conform with the current period presentation.financial instruments. |
|
| | |
JPMorgan Chase & Co./20152016 Annual Report | | 207173 |
Notes to consolidated financial statements
Note 6 – Derivative instruments
Derivative instruments enable end-userscontracts derive their value from underlying asset prices, indices, reference rates, other inputs or a combination of these factors and may expose counterparties to modify or mitigate exposure to credit or market risks. Counterparties to a derivative contract seek to obtain risks and rewards similar to those that could be obtained from purchasingof an underlying asset or selling a related cash instrumentliability without having to initially invest in, own or exchange upfront the full purchaseasset or sales price.liability. JPMorgan Chase makes markets in derivatives for clients and also uses derivatives to hedge or manage its own risk exposures. Predominantly all of the Firm’s derivatives are entered into for market-making or risk management purposes.
Market-making derivatives
The majority of the Firm’s derivatives are entered into for market-making purposes. Clients use derivatives to mitigate or modify interest rate, credit, foreign exchange, equity and commodity risks. The Firm actively manages the risks from its exposure to these derivatives by entering into other derivative transactions or by purchasing or selling other financial instruments that partially or fully offset the exposure from client derivatives. The Firm also seeks to earn a spread between the client derivatives and offsetting positions, and from the remaining open risk positions.
Risk management derivatives
The Firm manages itscertain market and credit risk exposures using various derivative instruments.instruments, including derivatives in hedge accounting relationships and other derivatives that are used to manage risks associated with specified assets and liabilities.
Interest rate contracts are used to minimize fluctuations in earnings that are caused by changes in interest rates. Fixed-rate assets and liabilities appreciate or depreciate in market value as interest rates change. Similarly, interest income and expense increases or decreases as a result of variable-rate assets and liabilities resetting to current market rates, and as a result of the repayment and subsequent origination or issuance of fixed-rate assets and liabilities at current market rates. Gains or losses on the derivative instruments that are related to such assets and liabilities are expected to substantially offset this variability in earnings. The Firm generally uses interest rate swaps, forwards and futures to manage the impact of interest rate fluctuations on earnings.
Foreign currency forward contracts are used to manage the foreign exchange risk associated with certain foreign currency–denominated (i.e., non-U.S. dollar) assets and liabilities and forecasted transactions, as well as the Firm’s net investments in certain non-U.S. subsidiaries or branches whose functional currencies are not the U.S. dollar. As a result of fluctuations in foreign currencies, the U.S. dollar–equivalent values of the foreign currency–denominated assets and liabilities or the forecasted revenues or expenses increase or decrease. Gains or losses on the derivative instruments related to these foreign currency–denominated assets or liabilities, or forecasted transactions, are expected to substantially offset this variability.
Commodities contracts are used to manage the price risk of certain commodities inventories. Gains or losses on these derivative instruments are expected to substantially offset the depreciation or appreciation of the related inventory.
Credit derivatives are used to manage the counterparty credit risk associated with loans and lending-related commitments. Credit derivatives compensate the purchaser when the entity referenced in the contract experiences a credit event, such as bankruptcy or a failure to pay an obligation when due. Credit derivatives primarily consist of credit default swaps.CDS. For a further discussion of credit derivatives, see the discussion in the Credit derivatives section on pages 218–220184–186 of this Note.
For more information about risk management derivatives, see the risk management derivatives gains and losses table on page 218184 of this Note, and the hedge accounting gains and losses tables on pages 216–218182–184 of this Note.
Derivative counterparties and settlement types
The Firm enters into OTC derivatives, which are negotiated and settled bilaterally with the derivative counterparty. The Firm also enters into, as principal, certain exchange-traded derivatives (“ETD”)ETD such as futures and options, and “cleared” over-the-counter (“OTC-cleared”)OTC-cleared derivative contracts with central counterparties (“CCPs”).CCPs. ETD contracts are generally standardized contracts traded on an exchange and cleared by the CCP, which is the Firm’s counterparty from the inception of the transactions. OTC-cleared derivatives are traded on a bilateral basis and then novated to the CCP for clearing.
Derivative Clearing Servicesclearing services
The Firm provides clearing services for clients where the Firm acts as a clearing member with respect to certain derivative exchanges and clearing houses. The Firm does not reflect the clients’ derivative contracts in its Consolidated Financial Statements. For further information on the Firm’s clearing services, see Note 29.
|
| | |
208 | | JPMorgan Chase & Co./2015 Annual Report |
Accounting for derivatives
All free-standing derivatives that the Firm executes for its own account are required to be recorded on the Consolidated balance sheets at fair value.
As permitted under U.S. GAAP, the Firm nets derivative assets and liabilities, and the related cash collateral receivables and payables, when a legally enforceable master netting agreement exists between the Firm and the derivative counterparty. For further discussion of the offsetting of assets and liabilities, see Note 1. The accounting for changes in value of a derivative depends on whether or not the transaction has been designated and qualifies for hedge accounting. Derivatives that are not designated as hedges are reported and measured at fair value through earnings. The tabular disclosures on pages 212–218178–184 of this Note provide additional information on the amount of, and reporting for, derivative assets, liabilities, gains and losses. For further discussion of derivatives embedded in structured notes, see Notes 3 and 4.
|
| | |
| 174 | | JPMorgan Chase & Co./2016 Annual Report |
Derivatives designated as hedges
The Firm applies hedge accounting to certain derivatives executed for risk management purposes – generally interest rate, foreign exchange and commodity derivatives. However, JPMorgan Chase does not seek to apply hedge accounting to all of the derivatives involved in the Firm’s risk management activities. For example, the Firm does not apply hedge accounting to purchased credit default swapsCDS used to manage the credit risk of loans and lending-related commitments, because of the difficulties in qualifying such contracts as hedges. For the same reason, the Firm does not apply hedge accounting to certain interest rate, foreign exchange, and commodity derivatives used for risk management purposes.
To qualify for hedge accounting, a derivative must be highly effective at reducing the risk associated with the exposure being hedged. In addition, for a derivative to be designated as a hedge, the risk management objective and strategy must be documented. Hedge documentation must identify the derivative hedging instrument, the asset or liability or forecasted transaction and type of risk to be hedged, and how the effectiveness of the derivative is assessed prospectively and retrospectively. To assess effectiveness, the Firm uses statistical methods such as regression analysis, as well as nonstatistical methods including dollar-value comparisons of the change in the fair value of the derivative to the change in the fair value or cash flows of the hedged item. The extent to which a derivative has been, and is expected to continue to be, effective at offsetting changes in the fair value or cash flows of the hedged item must be assessed and documented at least quarterly. Any hedge ineffectiveness (i.e., the amount by which the gain or loss on the designated derivative instrument does not exactly offset the change in the hedged item attributable to the hedged risk) must be reported in current-period earnings. If it is determined that a derivative is not highly effective at hedging the designated exposure, hedge accounting is discontinued.
There are three types of hedge accounting designations: fair value hedges, cash flow hedges and net investment hedges. JPMorgan Chase uses fair value hedges primarily to hedge fixed-rate long-term debt, AFS securities and certain commodities inventories. For qualifying fair value hedges, the changes in the fair value of the derivative, and in the value of the hedged item for the risk being hedged, are recognized in earnings. If the hedge relationship is terminated, then the adjustment to the hedged item continues to be reported as part of the basis of the hedged item, and for benchmark interest rate hedges, is amortized to earnings as a yield adjustment. Derivative amounts affecting earnings are recognized consistent with the classification of the hedged item – primarily net interest income and principal transactions revenue.
JPMorgan Chase uses cash flow hedges primarily to hedge the exposure to variability in forecasted cash flows from floating-rate assets and liabilities and foreign currency–denominated revenue and expense. For qualifying cash flow hedges, the effective portion of the change in the fair value of the derivative is recorded in OCI and recognized in the Consolidated statements of income when the hedged cash flows affect earnings. Derivative amounts affecting earnings are recognized consistent with the classification of the hedged item – primarily interest income, interest expense, noninterest revenue and compensation expense. The ineffective portions of cash flow hedges are immediately recognized in earnings. If the hedge relationship is terminated, then the value of the derivative recorded in accumulated other comprehensive income/(loss) (“AOCI”)AOCI is recognized in earnings when the cash flows that were hedged affect earnings. For hedge relationships that are discontinued because a forecasted transaction is not expected to occur according to the original hedge forecast, any related derivative values recorded in AOCI are immediately recognized in earnings.
JPMorgan Chase uses foreign currencynet investment hedges to protect the value of the Firm’s net investments in certain non-U.S. subsidiaries or branches whose functional currencies are not the U.S. dollar. For foreign currency qualifying net investment hedges, changes in the fair value of the derivatives are recorded in the translation adjustments account within AOCI.
|
| | |
JPMorgan Chase & Co./20152016 Annual Report | | 209175 |
Notes to consolidated financial statements
The following table outlines the Firm’s primary uses of derivatives and the related hedge accounting designation or disclosure category. |
| | | | |
| Type of Derivative | Use of Derivative | Designation and disclosure | Affected segment or unit | Page reference |
| Manage specifically identified risk exposures in qualifying hedge accounting relationships: | | | |
| ◦ Interest rate | Hedge fixed rate assets and liabilities | Fair value hedge | Corporate | 216182 |
| ◦ Interest rate | Hedge floating-rate assets and liabilities | Cash flow hedge | Corporate | 217183 |
| Hedge foreign currency-denominated assets and liabilities | Fair value hedge | Corporate | 216182 |
| Hedge forecasted revenue and expense | Cash flow hedge | Corporate | 217183 |
| Hedge the value of the Firm’s investments in non-U.S. subsidiariesdollar functional currency entities | Net investment hedge | Corporate | 218184 |
| Hedge commodity inventory | Fair value hedge | CIB | 216182 |
| Manage specifically identified risk exposures not designated in qualifying hedge accounting relationships: | | | |
| Manage the risk of the mortgage pipeline, warehouse loans and MSRs | Specified risk management | CCB | 218184 |
| Manage the credit risk of wholesale lending exposures | Specified risk management | CIB | 218184 |
| Manage the risk of certain commodities-related contracts and investments | Specified risk management | CIB | 218184 |
foreign exchange | Manage the risk of certain other specified assets and liabilities | Specified risk management | Corporate | 218184 |
| Market-making derivatives and other activities: | | | |
| Market-making and related risk management | Market-making and other | CIB | 218184 |
| Other derivatives | Market-making and other | CIB, Corporate | 218184 |
|
| | |
210176 | | JPMorgan Chase & Co./20152016 Annual Report |
Notional amount of derivative contracts
The following table summarizes the notional amount of derivative contracts outstanding as of December 31, 20152016 and 2014.2015.
| | | | Notional amounts(b) | Notional amounts(b) |
| December 31, (in billions) | 2015 | | 2014 | 2016 | | 2015 |
| Interest rate contracts | | | | | | |
| Swaps | $ | 24,162 |
| | $ | 29,734 |
| $ | 22,000 |
| | $ | 24,162 |
|
| Futures and forwards | 5,167 |
| | 10,189 |
| 5,289 |
| | 5,167 |
|
| Written options | 3,506 |
| | 3,903 |
| 3,091 |
| | 3,506 |
|
| Purchased options | 3,896 |
| | 4,259 |
| 3,482 |
| | 3,896 |
|
| Total interest rate contracts | 36,731 |
| | 48,085 |
| 33,862 |
| | 36,731 |
|
Credit derivatives(a) | 2,900 |
| | 4,249 |
| 2,032 |
| | 2,900 |
|
| Foreign exchange contracts | | | |
| | | |
|
| Cross-currency swaps | 3,199 |
| | 3,346 |
| 3,359 |
| | 3,199 |
|
| Spot, futures and forwards | 5,028 |
| | 4,669 |
| 5,341 |
| | 5,028 |
|
| Written options | 690 |
| | 790 |
| 734 |
| | 690 |
|
| Purchased options | 706 |
| | 780 |
| 721 |
| | 706 |
|
| Total foreign exchange contracts | 9,623 |
| | 9,585 |
| 10,155 |
| | 9,623 |
|
| Equity contracts | | | | | | |
| Swaps | 232 |
| | 206 |
| 258 |
| | 232 |
|
| Futures and forwards | 43 |
| | 50 |
| 59 |
| | 43 |
|
| Written options | 395 |
| | 432 |
| 417 |
| | 395 |
|
| Purchased options | 326 |
| | 375 |
| 345 |
| | 326 |
|
| Total equity contracts | 996 |
| | 1,063 |
| 1,079 |
| | 996 |
|
| Commodity contracts | | | |
| | | |
|
| Swaps | 83 |
| | 126 |
| 102 |
| | 83 |
|
| Spot, futures and forwards | 99 |
| | 193 |
| 130 |
| | 99 |
|
| Written options | 115 |
| | 181 |
| 83 |
| | 115 |
|
| Purchased options | 112 |
| | 180 |
| 94 |
| | 112 |
|
| Total commodity contracts | 409 |
| | 680 |
| 409 |
| | 409 |
|
| Total derivative notional amounts | $ | 50,659 |
| | $ | 63,662 |
| $ | 47,537 |
| | $ | 50,659 |
|
| |
| (a) | For more information on volumes and types of credit derivative contracts, see the Credit derivatives discussion on pages 218–220 of this Note.184–186. |
| |
| (b) | Represents the sum of gross long and gross short third-party notional derivative contracts. |
While the notional amounts disclosed above give an indication of the volume of the Firm’s derivatives activity, the notional amounts significantly exceed, in the Firm’s view, the possible losses that could arise from such transactions. For most derivative transactions, the notional amount is not exchanged; it is used simply as a reference to calculate payments.
|
| | |
JPMorgan Chase & Co./20152016 Annual Report | | 211177 |
Notes to consolidated financial statements
Impact of derivatives on the Consolidated balance sheets
The following table summarizes information on derivative receivables and payables (before and after netting adjustments) that are reflected on the Firm’s Consolidated balance sheets as of December 31, 20152016 and 20142015, by accounting designation (e.g., whether the derivatives were designated in qualifying hedge accounting relationships or not) and contract type.
| | Free-standing derivative receivables and payables(a) | Free-standing derivative receivables and payables(a) | | | | | | | | | Free-standing derivative receivables and payables(a) | | | | | | | | |
| | | Gross derivative receivables | | | | Gross derivative payables | | |
December 31, 2016
(in millions) | | Not designated as hedges | | Designated as hedges | Total derivative receivables | | Net derivative receivables(b) | | Not designated as hedges | | Designated as hedges | Total derivative payables | | Net derivative payables(b) |
| Trading assets and liabilities | | | | | | | | | | | | | | |
| Interest rate | | $ | 601,557 |
| | $ | 4,406 |
| | $ | 605,963 |
| | $ | 28,302 |
| | $ | 567,894 |
| | $ | 2,884 |
| $ | 570,778 |
| | $ | 10,815 |
|
| Credit | | 29,645 |
| | — |
| | 29,645 |
| | 1,294 |
| | 28,666 |
| | — |
| 28,666 |
| | 1,411 |
|
| Foreign exchange | | 232,137 |
| | 1,289 |
| | 233,426 |
| | 23,271 |
| | 233,823 |
| | 1,148 |
| 234,971 |
| | 20,508 |
|
| Equity | | 34,940 |
| | — |
| | 34,940 |
| | 4,939 |
| | 38,362 |
| | — |
| 38,362 |
| | 8,140 |
|
| Commodity | | 18,505 |
| | 137 |
| | 18,642 |
| | 6,272 |
| | 20,283 |
| | 179 |
| 20,462 |
| | 8,357 |
|
| Total fair value of trading assets and liabilities | | $ | 916,784 |
| | $ | 5,832 |
| | $ | 922,616 |
| | $ | 64,078 |
| | $ | 889,028 |
| | $ | 4,211 |
| $ | 893,239 |
| | $ | 49,231 |
|
| | | | | | | | | | | | | | | |
| | Gross derivative receivables | | | | Gross derivative payables | | | Gross derivative receivables | | | | Gross derivative payables | | |
December 31, 2015 (in millions) | Not designated as hedges | | Designated as hedges | Total derivative receivables | | Net derivative receivables(b) | | Not designated as hedges | | Designated as hedges | Total derivative payables | | Net derivative payables(b) | Not designated as hedges | | Designated as hedges | Total derivative receivables | | Net derivative receivables(b) | | Not designated as hedges | | Designated as hedges | Total derivative payables | | Net derivative payables(b) |
| Trading assets and liabilities | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Interest rate | $ | 665,531 |
| | $ | 4,080 |
| | $ | 669,611 |
| | $ | 26,363 |
| | $ | 632,928 |
| | $ | 2,238 |
| $ | 635,166 |
| | $ | 10,221 |
| $ | 665,531 |
| | $ | 4,080 |
| | $ | 669,611 |
| | $ | 26,363 |
| | $ | 632,928 |
| | $ | 2,238 |
| $ | 635,166 |
| | $ | 10,221 |
|
| Credit | 51,468 |
| | — |
| | 51,468 |
| | 1,423 |
| | 50,529 |
| | — |
| 50,529 |
| | 1,541 |
| 51,468 |
| | — |
| | 51,468 |
| | 1,423 |
| | 50,529 |
| | — |
| 50,529 |
| | 1,541 |
|
| Foreign exchange | 179,072 |
| | 803 |
| | 179,875 |
| | 17,177 |
| | 189,397 |
| | 1,503 |
| 190,900 |
| | 19,769 |
| 179,072 |
| | 803 |
| | 179,875 |
| | 17,177 |
| | 189,397 |
| | 1,503 |
| 190,900 |
| | 19,769 |
|
| Equity | 35,859 |
| | — |
| | 35,859 |
| | 5,529 |
| | 38,663 |
| | — |
| 38,663 |
| | 9,183 |
| 35,859 |
| | — |
| | 35,859 |
| | 5,529 |
| | 38,663 |
| | — |
| 38,663 |
| | 9,183 |
|
| Commodity | 23,713 |
| | 1,352 |
| | 25,065 |
| | 9,185 |
| | 27,653 |
| | 1 |
| 27,654 |
| | 12,076 |
| 23,713 |
| | 1,352 |
| | 25,065 |
| | 9,185 |
| | 27,653 |
| | 1 |
| 27,654 |
| | 12,076 |
|
| Total fair value of trading assets and liabilities | $ | 955,643 |
| | $ | 6,235 |
| | $ | 961,878 |
| | $ | 59,677 |
| | $ | 939,170 |
| | $ | 3,742 |
| $ | 942,912 |
| | $ | 52,790 |
| $ | 955,643 |
| | $ | 6,235 |
| | $ | 961,878 |
| | $ | 59,677 |
| | $ | 939,170 |
| | $ | 3,742 |
| $ | 942,912 |
| | $ | 52,790 |
|
| | | | | | | | | | | | | | | |
| | Gross derivative receivables | | | | Gross derivative payables | | | |
December 31, 2014 (in millions) | Not designated as hedges | | Designated as hedges | Total derivative receivables | | Net derivative receivables(b) | | Not designated as hedges | | Designated as hedges | Total derivative payables | | Net derivative payables(b) | |
| Trading assets and liabilities | | | | | | | | | | | | | | |
| Interest rate | $ | 944,885 |
| (c) | $ | 5,372 |
| | $ | 950,257 |
| (c) | $ | 33,725 |
| | $ | 915,368 |
| (c) | $ | 3,011 |
| $ | 918,379 |
| (c) | $ | 17,745 |
| |
| Credit | 76,842 |
| | — |
| | 76,842 |
| | 1,838 |
| | 75,895 |
| | — |
| 75,895 |
| | 1,593 |
| |
| Foreign exchange | 211,537 |
| (c) | 3,650 |
| | 215,187 |
| (c) | 21,253 |
| | 223,988 |
| (c) | 626 |
| 224,614 |
| (c) | 22,970 |
| |
| Equity | 42,489 |
| (c) | — |
| | 42,489 |
| (c) | 8,177 |
| | 46,262 |
| (c) | — |
| 46,262 |
| (c) | 11,740 |
| |
| Commodity | 43,151 |
| | 502 |
| | 43,653 |
| | 13,982 |
| | 45,455 |
| | 168 |
| 45,623 |
| | 17,068 |
| |
| Total fair value of trading assets and liabilities | $ | 1,318,904 |
| (c) | $ | 9,524 |
| | $ | 1,328,428 |
| (c) | $ | 78,975 |
| | $ | 1,306,968 |
| (c) | $ | 3,805 |
| $ | 1,310,773 |
| (c) | $ | 71,116 |
| |
| |
| (a) | Balances exclude structured notes for which the fair value option has been elected. See Note 4 for further information. |
| |
| (b) | As permitted under U.S. GAAP, the Firm has elected to net derivative receivables and derivative payables and the related cash collateral receivables and payables when a legally enforceable master netting agreement exists. |
| |
(c) | The prior period amounts have been revised to conform with the current period presentation. These revisions had no impact on Firm’s Consolidated balance sheets or its results of operations. |
|
| | |
212178 | | JPMorgan Chase & Co./20152016 Annual Report |
Derivatives netting
The following table presents,tables present, as of December 31, 20152016 and 2014, the2015, gross and net derivative receivables and payables by contract and settlement type. Derivative receivables and payables, as well as the related cash collateral from the same counterparty, have been netted on the Consolidated balance sheets against derivative payables and cash collateral payables to the same counterparty with respect to derivative contracts for whichwhere the Firm has obtained an appropriate legal opinion with respect to the master netting agreement. Where such a legal opinion has not been either sought or obtained, the receivablesamounts are not eligible under U.S. GAAP for netting on the Consolidated balance sheets, and those derivative receivables and payables are shown separately in the tabletables below.
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | 2015 | | 2014 |
| December 31, (in millions) | Gross derivative receivables | Amounts netted on the Consolidated balance sheets | Net derivative receivables | | Gross derivative receivables | | Amounts netted on the Consolidated balance sheets | Net derivative receivables |
| U.S. GAAP nettable derivative receivables | | | | | | | | | | |
| Interest rate contracts: | | | | | | | | | | |
| OTC | $ | 417,386 |
| $ | (396,506 | ) | | $ | 20,880 |
| | $ | 542,107 |
| (c) | $ | (514,914 | ) | (c) | $ | 27,193 |
|
| OTC–cleared | 246,750 |
| (246,742 | ) | | 8 |
| | 401,656 |
| | (401,618 | ) | | 38 |
|
Exchange-traded(a) | — |
| — |
| | — |
| | — |
| | — |
| | — |
|
| Total interest rate contracts | 664,136 |
| (643,248 | ) | | 20,888 |
| | 943,763 |
| (c) | (916,532 | ) | (c) | 27,231 |
|
| Credit contracts: | | | | | | | | | | |
| OTC | 44,082 |
| (43,182 | ) | | 900 |
| | 66,636 |
| | (65,720 | ) | | 916 |
|
| OTC–cleared | 6,866 |
| (6,863 | ) | | 3 |
| | 9,320 |
| | (9,284 | ) | | 36 |
|
| Total credit contracts | 50,948 |
| (50,045 | ) | | 903 |
| | 75,956 |
| | (75,004 | ) | | 952 |
|
| Foreign exchange contracts: | | | | | | | | | | |
| OTC | 175,060 |
| (162,377 | ) | | 12,683 |
| | 208,803 |
| (c) | (193,900 | ) | (c) | 14,903 |
|
| OTC–cleared | 323 |
| (321 | ) | | 2 |
| | 36 |
| | (34 | ) | | 2 |
|
Exchange-traded(a) | — |
| — |
| | — |
| | — |
| | — |
| | — |
|
| Total foreign exchange contracts | 175,383 |
| (162,698 | ) | | 12,685 |
| | 208,839 |
| (c) | (193,934 | ) | (c) | 14,905 |
|
| Equity contracts: | | | | | | | | | | |
| OTC | 20,690 |
| (20,439 | ) | | 251 |
| | 23,258 |
| | (22,826 | ) | | 432 |
|
| OTC–cleared | — |
| — |
| | — |
| | — |
| | — |
| | — |
|
Exchange-traded(a) | 12,285 |
| (9,891 | ) | | 2,394 |
| | 13,840 |
| (c) | (11,486 | ) | (c) | 2,354 |
|
| Total equity contracts | 32,975 |
| (30,330 | ) | | 2,645 |
| | 37,098 |
| (c) | (34,312 | ) | (c) | 2,786 |
|
| Commodity contracts: | | | | | | | | | | |
| OTC | 15,001 |
| (6,772 | ) | | 8,229 |
| | 22,555 |
| | (14,327 | ) | | 8,228 |
|
| OTC–cleared | — |
| — |
| | — |
| | — |
| | — |
| | — |
|
Exchange-traded(a) | 9,199 |
| (9,108 | ) | | 91 |
| | 19,500 |
| | (15,344 | ) | | 4,156 |
|
| Total commodity contracts | 24,200 |
| (15,880 | ) | | 8,320 |
| | 42,055 |
| | (29,671 | ) | | 12,384 |
|
| Derivative receivables with appropriate legal opinion | $ | 947,642 |
| $ | (902,201 | ) | (b) | $ | 45,441 |
| | $ | 1,307,711 |
| (c) | $ | (1,249,453 | ) | (b)(c) | $ | 58,258 |
|
| Derivative receivables where an appropriate legal opinion has not been either sought or obtained | 14,236 |
| | | 14,236 |
| | 20,717 |
| | | | 20,717 |
|
| Total derivative receivables recognized on the Consolidated balance sheets | $ | 961,878 |
| | | $ | 59,677 |
| | $ | 1,328,428 |
| (c) | | | $ | 78,975 |
|
| |
(a) | Exchange-traded derivative amounts that relate to futures contracts are settled daily. |
| |
(b) | Included cash collateral netted of $73.7 billion and $74.0 billion at December 31, 2015, and 2014, respectively. |
| |
(c) | The prior period amounts have been revised to conform with the current period presentation. These revisions had no impact on Firm’s Consolidated balance sheets or its results of operations. |
|
| | |
JPMorgan Chase & Co./2015 Annual Report | | 213 |
Notes to consolidated financial statements
The following table presents, as of December 31, 2015 and 2014, the gross and net derivative payables by contract and settlement type. Derivative payables have been netted on the Consolidated balance sheets against derivative receivables and cash collateral receivables from the same counterparty with respect to derivative contracts for which the Firm has obtained an appropriate legal opinion with respect to the master netting agreement. Where such a legal opinion has not been either sought or obtained, the payables are not eligible under U.S. GAAP for netting on the Consolidated balance sheets, and are shown separately in the table below.
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | 2015 | | 2014 |
| December 31, (in millions) | Gross derivative payables | Amounts netted on the Consolidated balance sheets | Net derivative payables | | Gross derivative payables | | Amounts netted on the Consolidated balance sheets | Net derivative payables |
| U.S. GAAP nettable derivative payables | | | | | | | | | | |
| Interest rate contracts: | | | | | | | | | | |
| OTC | $ | 393,709 |
| $ | (384,576 | ) | | $ | 9,133 |
| | $ | 515,904 |
| (c) | $ | (503,384 | ) | (c) | $ | 12,520 |
|
| OTC–cleared | 240,398 |
| (240,369 | ) | | 29 |
| | 398,518 |
| | (397,250 | ) | | 1,268 |
|
Exchange-traded(a) | — |
| — |
| | — |
| | — |
| | — |
| | — |
|
| Total interest rate contracts | 634,107 |
| (624,945 | ) | | 9,162 |
| | 914,422 |
| (c) | (900,634 | ) | (c) | 13,788 |
|
| Credit contracts: | | | | | | | | | | |
| OTC | 44,379 |
| (43,019 | ) | | 1,360 |
| | 65,432 |
| | (64,904 | ) | | 528 |
|
| OTC–cleared | 5,969 |
| (5,969 | ) | | — |
| | 9,398 |
| | (9,398 | ) | | — |
|
| Total credit contracts | 50,348 |
| (48,988 | ) | | 1,360 |
| | 74,830 |
| | (74,302 | ) | | 528 |
|
| Foreign exchange contracts: | | | | | | | | | | |
| OTC | 185,178 |
| (170,830 | ) | | 14,348 |
| | 217,998 |
| (c) | (201,578 | ) | (c) | 16,420 |
|
| OTC–cleared | 301 |
| (301 | ) | | — |
| | 66 |
| | (66 | ) | | — |
|
Exchange-traded(a) | — |
| — |
| | — |
| | — |
| | — |
| | — |
|
| Total foreign exchange contracts | 185,479 |
| (171,131 | ) | | 14,348 |
| | 218,064 |
| (c) | (201,644 | ) | (c) | 16,420 |
|
| Equity contracts: | | | | | | | | | | |
| OTC | 23,458 |
| (19,589 | ) | | 3,869 |
| | 27,908 |
| | (23,036 | ) | | 4,872 |
|
| OTC–cleared | — |
| — |
| | — |
| | — |
| | — |
| | — |
|
Exchange-traded(a) | 10,998 |
| (9,891 | ) | | 1,107 |
| | 12,864 |
| (c) | (11,486 | ) | (c) | 1,378 |
|
| Total equity contracts | 34,456 |
| (29,480 | ) | | 4,976 |
| | 40,772 |
| (c) | (34,522 | ) | (c) | 6,250 |
|
| Commodity contracts: | | | | | | | | | | |
| OTC | 16,953 |
| (6,256 | ) | | 10,697 |
| | 25,129 |
| | (13,211 | ) | | 11,918 |
|
| OTC–cleared | — |
| — |
| | — |
| | — |
| | — |
| | — |
|
Exchange-traded(a) | 9,374 |
| (9,322 | ) | | 52 |
| | 18,486 |
| | (15,344 | ) | | 3,142 |
|
| Total commodity contracts | 26,327 |
| (15,578 | ) | | 10,749 |
| | 43,615 |
| | (28,555 | ) | | 15,060 |
|
| Derivative payables with appropriate legal opinions | $ | 930,717 |
| $ | (890,122 | ) | (b) | $ | 40,595 |
| | $ | 1,291,703 |
| (c) | $ | (1,239,657 | ) | (b)(c) | $ | 52,046 |
|
| Derivative payables where an appropriate legal opinion has not been either sought or obtained | 12,195 |
| | | 12,195 |
| | 19,070 |
| | | | 19,070 |
|
| Total derivative payables recognized on the Consolidated balance sheets | $ | 942,912 |
| | | $ | 52,790 |
| | $ | 1,310,773 |
| (c) | | | $ | 71,116 |
|
| |
(a) | Exchange-traded derivative balances that relate to futures contracts are settled daily. |
| |
(b) | Included cash collateral netted of $61.6 billion and $64.2 billion related to OTC and OTC-cleared derivatives at December 31, 2015, and 2014, respectively. |
| |
(c) | The prior period amounts have been revised to conform with the current period presentation. These revisions had no impact on Firm’s Consolidated balance sheets or its results of operations. |
In addition to the cash collateral received and transferred that is presented on a net basis with net derivative receivables and payables, the Firm receives and transfers additional collateral (financial instruments and cash). These amounts mitigate counterparty credit risk associated with the Firm’s derivative instruments, but are not eligible for net presentation, because (a) the presentation:
collateral that consists of non-cash financial instruments (generally U.S. government and
agency securities and other Group of Seven Nations (“G7”)G7 government bonds), (b) and cash collateral held at third party custodians, which are shown separately as “Collateral not nettable on the Consolidated balance sheets” in the tables below, up to the fair value exposure amount.
the amount of collateral held or transferred that exceeds the fair value exposure at the individual counterparty level, as of the date presented, which is excluded from the tables below; and
collateral held or (c) the collateraltransferred that relates to derivative receivables or payables where an appropriate legal opinion has not been either sought or obtained.obtained with respect to the master netting agreement, which is excluded from the tables below.
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | 2016 | | 2015 |
| December 31, (in millions) | Gross derivative receivables | Amounts netted on the Consolidated balance sheets | Net derivative receivables | | Gross derivative receivables | | Amounts netted on the Consolidated balance sheets | Net derivative receivables |
| U.S. GAAP nettable derivative receivables | | | | | | | | | | |
| Interest rate contracts: | | | | | | | | | | |
| OTC | $ | 365,227 |
| $ | (342,173 | ) | | $ | 23,054 |
| | $ | 417,386 |
| | $ | (396,506 | ) | | $ | 20,880 |
|
| OTC–cleared | 235,399 |
| (235,261 | ) | | 138 |
| | 246,750 |
| | (246,742 | ) | | 8 |
|
Exchange-traded(a) | 241 |
| (227 | ) | | 14 |
| | — |
| | — |
| | — |
|
| Total interest rate contracts | 600,867 |
| (577,661 | ) | | 23,206 |
| | 664,136 |
| | (643,248 | ) | | 20,888 |
|
| Credit contracts: | | | | | | | | | | |
| OTC | 23,130 |
| (22,612 | ) | | 518 |
| | 44,082 |
| | (43,182 | ) | | 900 |
|
| OTC–cleared | 5,746 |
| (5,739 | ) | | 7 |
| | 6,866 |
| | (6,863 | ) | | 3 |
|
| Total credit contracts | 28,876 |
| (28,351 | ) | | 525 |
| | 50,948 |
| | (50,045 | ) | | 903 |
|
| Foreign exchange contracts: | | | | | | | | | | |
| OTC | 226,271 |
| (208,962 | ) | | 17,309 |
| | 175,060 |
| | (162,377 | ) | | 12,683 |
|
| OTC–cleared | 1,238 |
| (1,165 | ) | | 73 |
| | 323 |
| | (321 | ) | | 2 |
|
Exchange-traded(a) | 104 |
| (27 | ) | | 77 |
| | — |
| | — |
| | — |
|
| Total foreign exchange contracts | 227,613 |
| (210,154 | ) | | 17,459 |
| | 175,383 |
| | (162,698 | ) | | 12,685 |
|
| Equity contracts: | | | | | | | | | | |
| OTC | 20,868 |
| (20,570 | ) | | 298 |
| | 20,690 |
| | (20,439 | ) | | 251 |
|
| OTC–cleared | — |
| — |
| | — |
| | — |
| | — |
| | — |
|
Exchange-traded(a) | 11,439 |
| (9,431 | ) | | 2,008 |
| | 12,285 |
| | (9,891 | ) | | 2,394 |
|
| Total equity contracts | 32,307 |
| (30,001 | ) | | 2,306 |
| | 32,975 |
| | (30,330 | ) | | 2,645 |
|
| Commodity contracts: | | | | | | | | | | |
| OTC | 11,571 |
| (5,605 | ) | | 5,966 |
| | 15,001 |
| | (6,772 | ) | | 8,229 |
|
| OTC–cleared | — |
| — |
| | — |
| | — |
| | — |
| | — |
|
Exchange-traded(a) | 6,794 |
| (6,766 | ) | | 28 |
| | 9,199 |
| | (9,108 | ) | | 91 |
|
| Total commodity contracts | 18,365 |
| (12,371 | ) | | 5,994 |
| | 24,200 |
| | (15,880 | ) | | 8,320 |
|
| Derivative receivables with appropriate legal opinions | 908,028 |
| (858,538 | ) | (b) | 49,490 |
| | 947,642 |
| | (902,201 | ) | (b) | 45,441 |
|
| Derivative receivables where an appropriate legal opinion has not been either sought or obtained | 14,588 |
| | | 14,588 |
| | 14,236 |
| | | | 14,236 |
|
| Total derivative receivables recognized on the Consolidated balance sheets | $ | 922,616 |
| | | $ | 64,078 |
| | $ | 961,878 |
| | | | $ | 59,677 |
|
Collateral not nettable on the Consolidated balance sheets(c)(d) | | | | (18,638 | ) | | | | | | (13,543 | ) |
| Net amounts | | | | $ | 45,440 |
| | | | | | $ | 46,134 |
|
|
| | |
214 | | JPMorgan Chase & Co./20152016 Annual Report | | 179 |
The following tables present information regarding certainNotes to consolidated financial instrument collateral received and transferred as of December 31, 2015 and 2014, that is not eligible for net presentation under U.S. GAAP. The collateral included in these tables relates only to the derivative instruments for which appropriate legal opinions have been obtained; excluded are (i) additional collateral that exceeds the fair value exposure and (ii) all collateral related to derivative instruments where an appropriate legal opinion has not been either sought or obtained.statements
|
| | | | | | | | | | | | | | | | | | | | | |
| Derivative receivable collateral | | | | | |
| | 2015 | | 2014 |
| December 31, (in millions) | Net derivative receivables | Collateral not nettable on the Consolidated balance sheets | | Net exposure | | Net derivative receivables | Collateral not nettable on the Consolidated balance sheets | | Net exposure |
| Derivative receivables with appropriate legal opinions | $ | 45,441 |
| $ | (13,543 | ) | (a) | $ | 31,898 |
| | $ | 58,258 |
| $ | (16,194 | ) | (a) | $ | 42,064 |
|
| | Derivative payable collateral(b) | | | | | |
| | 2015 | | 2014 | | 2016 | | 2015 |
| December 31, (in millions) | Net derivative payables | Collateral not nettable on the Consolidated balance sheets | | Net amount(c) | | Net derivative payables | Collateral not nettable on the Consolidated balance sheets | | Net amount(c) | December 31, (in millions) | Gross derivative payables | Amounts netted on the Consolidated balance sheets | Net derivative payables | | Gross derivative payables | | Amounts netted on the Consolidated balance sheets | Net derivative payables |
| U.S. GAAP nettable derivative payables | | U.S. GAAP nettable derivative payables | | | | | | | | | |
| Interest rate contracts: | | Interest rate contracts: | | | | | | | | | |
| OTC | | OTC | $ | 338,502 |
| $ | (329,325 | ) | | $ | 9,177 |
| | $ | 393,709 |
| | $ | (384,576 | ) | | $ | 9,133 |
|
| OTC–cleared | | OTC–cleared | 230,464 |
| (230,463 | ) | | 1 |
| | 240,398 |
| | (240,369 | ) | | 29 |
|
Exchange-traded(a) | | Exchange-traded(a) | 196 |
| (175 | ) | | 21 |
| | — |
| | — |
| | — |
|
| Total interest rate contracts | | Total interest rate contracts | 569,162 |
| (559,963 | ) | | 9,199 |
| | 634,107 |
| | (624,945 | ) | | 9,162 |
|
| Credit contracts: | | Credit contracts: | | | | | | | | | |
| OTC | | OTC | 22,366 |
| (21,614 | ) | | 752 |
| | 44,379 |
| | (43,019 | ) | | 1,360 |
|
| OTC–cleared | | OTC–cleared | 5,641 |
| (5,641 | ) | | — |
| | 5,969 |
| | (5,969 | ) | | — |
|
| Total credit contracts | | Total credit contracts | 28,007 |
| (27,255 | ) | | 752 |
| | 50,348 |
| | (48,988 | ) | | 1,360 |
|
| Foreign exchange contracts: | | Foreign exchange contracts: | | | | | | | | | |
| OTC | | OTC | 228,300 |
| (213,296 | ) | | 15,004 |
| | 185,178 |
| | (170,830 | ) | | 14,348 |
|
| OTC–cleared | | OTC–cleared | 1,158 |
| (1,158 | ) | | — |
| | 301 |
| | (301 | ) | | — |
|
Exchange-traded(a) | | Exchange-traded(a) | 328 |
| (9 | ) | | 319 |
| | — |
| | — |
| | — |
|
| Total foreign exchange contracts | | Total foreign exchange contracts | 229,786 |
| (214,463 | ) | | 15,323 |
| | 185,479 |
| | (171,131 | ) | | 14,348 |
|
| Equity contracts: | | Equity contracts: | | | | | | | | | |
| OTC | | OTC | 24,688 |
| (20,808 | ) | | 3,880 |
| | 23,458 |
| | (19,589 | ) | | 3,869 |
|
| OTC–cleared | | OTC–cleared | — |
| — |
| | — |
| | — |
| | — |
| | — |
|
Exchange-traded(a) | | Exchange-traded(a) | 10,004 |
| (9,414 | ) | | 590 |
| | 10,998 |
| | (9,891 | ) | | 1,107 |
|
| Total equity contracts | | Total equity contracts | 34,692 |
| (30,222 | ) | | 4,470 |
| | 34,456 |
| | (29,480 | ) | | 4,976 |
|
| Commodity contracts: | | Commodity contracts: | | | | | | | | | |
| OTC | | OTC | 12,885 |
| (5,252 | ) | | 7,633 |
| | 16,953 |
| | (6,256 | ) | | 10,697 |
|
| OTC–cleared | | OTC–cleared | — |
| — |
| | — |
| | — |
| | — |
| | — |
|
Exchange-traded(a) | | Exchange-traded(a) | 7,099 |
| (6,853 | ) | | 246 |
| | 9,374 |
| | (9,322 | ) | | 52 |
|
| Total commodity contracts | | Total commodity contracts | 19,984 |
| (12,105 | ) | | 7,879 |
| | 26,327 |
| | (15,578 | ) | | 10,749 |
|
| Derivative payables with appropriate legal opinions | $ | 40,595 |
| $ | (7,957 | ) | (a) | $ | 32,638 |
| | $ | 52,046 |
| $ | (10,505 | ) | (a) | $ | 41,541 |
| Derivative payables with appropriate legal opinions | 881,631 |
| (844,008 | ) | (b) | 37,623 |
| | 930,717 |
| | (890,122 | ) | (b) | 40,595 |
|
| Derivative payables where an appropriate legal opinion has not been either sought or obtained | | Derivative payables where an appropriate legal opinion has not been either sought or obtained | 11,608 |
| | | 11,608 |
| | 12,195 |
| | | | 12,195 |
|
| Total derivative payables recognized on the Consolidated balance sheets | | Total derivative payables recognized on the Consolidated balance sheets | $ | 893,239 |
| | | $ | 49,231 |
| | $ | 942,912 |
| | | | $ | 52,790 |
|
Collateral not nettable on the Consolidated balance sheets(c)(d)(e) | | Collateral not nettable on the Consolidated balance sheets(c)(d)(e) | | | (8,925 | ) | | | | | | (7,957 | ) |
| Net amounts | | Net amounts | | | $ | 40,306 |
| | | | | | $ | 44,833 |
|
| |
| (a) | Exchange-traded derivative balances that relate to futures contracts are settled daily. |
| |
| (b) | Net derivatives receivable included cash collateral netted of $71.9 billion and $73.7 billion at December 31, 2016 and 2015, respectively. Net derivatives payable included cash collateral netted of $57.3 billion and $61.6 billion related to OTC and OTC-cleared derivatives at December 31, 2016 and 2015, respectively. |
| |
| (c) | Excludes all collateral related to derivative instruments where an appropriate legal opinion has not been either sought or obtained. |
| |
| (d) | Represents liquid security collateral as well as cash collateral held at third party custodians.third-party custodians related to derivative instruments where an appropriate legal opinion has been obtained. For some counterparties, the collateral amounts of financial instruments may exceed the derivative receivables and derivative payables balances. Where this is the case, the total amount reported is limited to the net derivative receivables and net derivative payables balances with that counterparty. |
| |
(b)(e) | Derivative payables collateral relates only to OTC and OTC-cleared derivative instruments. Amounts exclude collateral transferred related to exchange-traded derivative instruments. |
|
| | |
(c)180 | Net amount represents exposure of counterparties to the Firm. | JPMorgan Chase & Co./2016 Annual Report |
Liquidity risk and credit-related contingent features
In addition to the specific market risks introduced by each derivative contract type, derivatives expose JPMorgan Chase to credit risk — the risk that derivative counterparties may fail to meet their payment obligations under the derivative contracts and the collateral, if any, held by the Firm proves to be of insufficient value to cover the payment obligation. It is the policy of JPMorgan Chase to actively pursue, where possible, the use of legally enforceable master netting arrangements and collateral agreements to mitigate derivative counterparty credit risk. The amount of derivative receivables reported on the Consolidated balance sheets is the fair value of the derivative contracts after giving effect to legally enforceable master netting agreements and cash collateral held by the Firm.
While derivative receivables expose the Firm to credit risk, derivative payables expose the Firm to liquidity risk, as the derivative contracts typically require the Firm to post cash or securities collateral with counterparties as the fair value
of the contracts moves in the counterparties’ favor or upon specified downgrades in the Firm’s and its subsidiaries’ respective credit ratings. Certain derivative contracts also provide for termination of the contract, generally upon a downgrade of either the Firm or the counterparty, at the fair value of the derivative contracts. The following table shows the aggregate fair value of net derivative payables related to OTC and OTC-cleared derivatives that contain contingent collateral or termination features that may be triggered upon a ratings downgrade, and the associated collateral the Firm has posted in the normal course of business, at December 31, 20152016 and 2014.2015.
|
| | | | | | |
| OTC and OTC-cleared derivative payables containing downgrade triggers |
| December 31, (in millions) | 2016 | 2015 |
| Aggregate fair value of net derivative payables | $ | 21,550 |
| $ | 22,328 |
|
| Collateral posted | 19,383 |
| 18,942 |
|
|
| | | | | | |
| OTC and OTC-cleared derivative payables containing downgrade triggers |
| December 31, (in millions) | 2015 | 2014 |
| Aggregate fair value of net derivative payables | $ | 22,328 |
| $ | 32,303 |
|
| Collateral posted | 18,942 |
| 27,585 |
|
The following table shows the impact of a single-notch and two-notch downgrade of the long-term issuer ratings of JPMorgan Chase & Co. and its subsidiaries, predominantly JPMorgan Chase Bank, National Association (“JPMorgan Chase Bank, N.A.”), at December 31, 20152016 and 2014,2015, related to OTC and OTC-cleared derivative contracts with contingent collateral or termination features that may be triggered upon a ratings downgrade. Derivatives contracts generally require additional collateral to be posted or terminations to be triggered when the predefined threshold rating is breached. A downgrade by a single rating agency that does not result in a rating lower than a preexisting corresponding rating provided by another major rating agency will generally not result in additional collateral (except in certain instances in which additional initial margin may be required upon a ratings downgrade), nor in termination payments requirements. The liquidity impact in the table is calculated based upon a downgrade below the lowest current rating byof the rating agencies referred to in the derivative contract.
|
| | |
JPMorgan Chase & Co./2015 Annual Report | | 215 |
Notes to consolidated financial statements
| | Liquidity impact of downgrade triggers on OTC and OTC-cleared derivatives | | | 2015 | | 2014 | 2016 | | 2015 |
| December 31, (in millions) | Single-notch downgrade | Two-notch downgrade | | Single-notch downgrade | Two-notch downgrade | Single-notch downgrade | Two-notch downgrade | | Single-notch downgrade | Two-notch downgrade |
Amount of additional collateral to be posted upon downgrade(a) | $ | 807 |
| $ | 3,028 |
| | $ | 1,046 |
| $ | 3,331 |
| $ | 560 |
| $ | 2,497 |
| | $ | 807 |
| $ | 3,028 |
|
Amount required to settle contracts with termination triggers upon downgrade(b) | 271 |
| 1,093 |
| | 366 |
| 1,388 |
| 606 |
| 1,049 |
| | 271 |
| 1,093 |
|
| |
| (a) | Includes the additional collateral to be posted for initial margin. |
| |
| (b) | Amounts represent fair values of derivative payables, and do not reflect collateral posted. |
Derivatives executed in contemplation of a sale of the underlying financial asset
In certain instances the Firm enters into transactions in which it transfers financial assets but maintains the economic exposure to the transferred assets by entering into a derivative with the same counterparty in contemplation of the initial transfer. The Firm generally accounts for such transfers as collateralized financing transactions as described in Note 13, but in limited circumstances they may qualify to be accounted for as a sale and a derivative under U.S. GAAP. The amount of such transfers accounted for as a sale where the associated derivative was outstanding at December 31, 20152016 was not material.
|
| | |
| JPMorgan Chase & Co./2016 Annual Report | | 181 |
Notes to consolidated financial statements
Impact of derivatives on the Consolidated statements of income
The following tables provide information related to gains and losses recorded on derivatives based on their hedge accounting
designation or purpose.
Fair value hedge gains and losses
The following tables present derivative instruments, by contract type, used in fair value hedge accounting relationships, as well as pretaxpre-tax gains/(losses) recorded on such derivatives and the related hedged items for the years ended December 31, 20152016, 20142015 and 20132014, respectively. The Firm includes gains/(losses) on the hedging derivative and the related hedged item in the same line item in the Consolidated statements of income.
|
| | | | | | | | | | | | | | | | | | | |
| | Gains/(losses) recorded in income | | Income statement impact due to: |
| Year ended December 31, 2015 (in millions) | Derivatives | Hedged items | Total income statement impact | | Hedge ineffectiveness(d) | Excluded components(e) |
| Contract type | | | | | | | | | |
Interest rate(a) | $ | 38 |
| | $ | 911 |
| | $ | 949 |
| | $ | 3 |
| | $ | 946 |
|
Foreign exchange(b) | 6,030 |
| | (6,006 | ) | | 24 |
| | — |
| | 24 |
|
Commodity(c) | 1,153 |
| | (1,142 | ) | | 11 |
| | (13 | ) | | 24 |
|
| Total | $ | 7,221 |
| | $ | (6,237 | ) | | $ | 984 |
| | $ | (10 | ) | | $ | 994 |
|
| | | | | | | | | | |
| | Gains/(losses) recorded in income | | Income statement impact due to: |
| Year ended December 31, 2014 (in millions) | Derivatives | Hedged items | Total income statement impact | | Hedge ineffectiveness(d) | Excluded components(e) |
| Contract type | | | | | | | | | |
Interest rate(a) | $ | 2,106 |
| | $ | (801 | ) | | $ | 1,305 |
| | $ | 131 |
| | $ | 1,174 |
|
Foreign exchange(b) | 8,279 |
| | (8,532 | ) | | (253 | ) | | — |
| | (253 | ) |
Commodity(c) | 49 |
| | 145 |
| | 194 |
| | 42 |
| | 152 |
|
| Total | $ | 10,434 |
| | $ | (9,188 | ) | | $ | 1,246 |
| | $ | 173 |
| | $ | 1,073 |
|
| | | | | | | | | | |
| | Gains/(losses) recorded in income | | Income statement impact due to: |
| Year ended December 31, 2013 (in millions) | Derivatives | Hedged items | Total income statement impact | | Hedge ineffectiveness(d) | Excluded components(e) |
| Contract type | | | | | | | | | |
Interest rate(a) | $ | (3,469 | ) | | $ | 4,851 |
| | $ | 1,382 |
| | $ | (132 | ) | | $ | 1,514 |
|
Foreign exchange(b) | (1,096 | ) | | 864 |
| | (232 | ) | | — |
| | (232 | ) |
Commodity(c) | 485 |
| | (1,304 | ) | | (819 | ) | | 38 |
| | (857 | ) |
| Total | $ | (4,080 | ) | | $ | 4,411 |
| | $ | 331 |
| | $ | (94 | ) | | $ | 425 |
|
|
| | | | | | | | | | | | | | | | | | | |
| | Gains/(losses) recorded in income | | Income statement impact due to: |
| Year ended December 31, 2016 (in millions) | Derivatives | Hedged items | Total income statement impact | | Hedge ineffectiveness(e) | Excluded components(f) |
| Contract type | | | | | | | | | |
Interest rate(a)(b) | $ | (482 | ) | | $ | 1,338 |
| | $ | 856 |
| | $ | 6 |
| | $ | 850 |
|
Foreign exchange(c) | 2,435 |
| | (2,261 | ) | | 174 |
| | — |
| | 174 |
|
Commodity(d) | (536 | ) | | 586 |
| | 50 |
| | (9 | ) | | 59 |
|
| Total | $ | 1,417 |
| | $ | (337 | ) | | $ | 1,080 |
| | $ | (3 | ) | | $ | 1,083 |
|
| | | | | | | | | | |
| | Gains/(losses) recorded in income | | Income statement impact due to: |
| Year ended December 31, 2015 (in millions) | Derivatives | Hedged items | Total income statement impact | | Hedge ineffectiveness(e) | Excluded components(f) |
| Contract type | | | | | | | | | |
Interest rate(a)(b) | $ | 38 |
| | $ | 911 |
| | $ | 949 |
| | $ | 3 |
| | $ | 946 |
|
Foreign exchange(c) | 6,030 |
| | (6,006 | ) | | 24 |
| | — |
| | 24 |
|
Commodity(d) | 1,153 |
| | (1,142 | ) | | 11 |
| | (13 | ) | | 24 |
|
| Total | $ | 7,221 |
| | $ | (6,237 | ) | | $ | 984 |
| | $ | (10 | ) | | $ | 994 |
|
| | | | | | | | | | |
| | Gains/(losses) recorded in income | | Income statement impact due to: |
| Year ended December 31, 2014 (in millions) | Derivatives | Hedged items | Total income statement impact | | Hedge ineffectiveness(e) | Excluded components(f) |
| Contract type | | | | | | | | | |
Interest rate(a)(b) | $ | 2,106 |
| | $ | (801 | ) | | $ | 1,305 |
| | $ | 131 |
| | $ | 1,174 |
|
Foreign exchange(c) | 8,279 |
| | (8,532 | ) | | (253 | ) | | — |
| | (253 | ) |
Commodity(d) | 49 |
| | 145 |
| | 194 |
| | 42 |
| | 152 |
|
| Total | $ | 10,434 |
| | $ | (9,188 | ) | | $ | 1,246 |
| | $ | 173 |
| | $ | 1,073 |
|
| |
| (a) | Primarily consists of hedges of the benchmark (e.g., London Interbank Offered Rate (“LIBOR”)) interest rate risk of fixed-rate long-term debt and AFS securities. Gains and losses were recorded in net interest income. |
| |
| (b) | Excludes the amortization expense associated with the inception hedge accounting adjustment applied to the hedged item. This expense is recorded in net interest income and substantially offsets the income statement impact of the excluded components. |
| |
| (c) | Primarily consists of hedges of the foreign currency risk of long-term debt and AFS securities for changes in spot foreign currency rates. Gains and losses related to the derivatives and the hedged items, due to changes in foreign currency rates, were recorded primarily in principal transactions revenue and net interest income. |
|
| | |
216 | | JPMorgan Chase & Co./2015 Annual Report |
| |
(c)(d) | Consists of overall fair value hedges of physical commodities inventories that are generally carried at the lower of cost or market (market approximates fair value). Gains and losses were recorded in principal transactions revenue. |
| |
(d)(e) | Hedge ineffectiveness is the amount by which the gain or loss on the designated derivative instrument does not exactly offset the gain or loss on the hedged item attributable to the hedged risk. |
| |
(e)(f) | The assessment of hedge effectiveness excludes certain components of the changes in fair values of the derivatives and hedged items such as forward points on foreign exchange forward contracts and time values. |
|
| | |
| 182 | | JPMorgan Chase & Co./2016 Annual Report |
Cash flow hedge gains and losses
The following tables present derivative instruments, by contract type, used in cash flow hedge accounting relationships, and the pretaxpre-tax gains/(losses) recorded on such derivatives, for the years ended December 31, 20152016, 20142015 and 20132014, respectively. The Firm includes the gain/(loss) on the hedging derivative and the change in cash flows on the hedged item in the same line item in the Consolidated statements of income.
| | | | | Gains/(losses) recorded in income and other comprehensive income/(loss) | | | Gains/(losses) recorded in income and other comprehensive income/(loss) |
Year ended December 31, 2015 (in millions) | Derivatives – effective portion reclassified from AOCI to income | Hedge ineffectiveness recorded directly in income(c) | Total income statement impact | Derivatives – effective portion recorded in OCI | Total change in OCI for period | |
Year ended December 31, 2016 (in millions) | | Derivatives – effective portion reclassified from AOCI to income | Hedge ineffectiveness recorded directly in income(c) | Total income statement impact | Derivatives – effective portion recorded in OCI | | Total change in OCI for period |
| Contract type | | | | | | | | | | | | | | | | | | | | | |
Interest rate(a) | | $ | (99 | ) | | $ | — |
| | $ | (99 | ) | | $ | (44 | ) | | $ | 55 |
| | | $ | (74 | ) | | $ | — |
| | $ | (74 | ) | | $ | (55 | ) | | $ | 19 |
|
Foreign exchange(b) | | (81 | ) | | — |
| | (81 | ) | | (53 | ) | | 28 |
| | | (286 | ) | | — |
| | (286 | ) | | (395 | ) | | (109 | ) |
| Total | | $ | (180 | ) | | $ | — |
| | $ | (180 | ) | | $ | (97 | ) | | $ | 83 |
| | | $ | (360 | ) | | $ | — |
| | $ | (360 | ) | | $ | (450 | ) | | $ | (90 | ) |
| | | | | | Gains/(losses) recorded in income and other comprehensive income/(loss)
|
Year ended December 31, 2015 (in millions) | | Derivatives – effective portion reclassified from AOCI to income | Hedge ineffectiveness recorded directly in income(c) | Total income statement impact | Derivatives – effective portion recorded in OCI | | Total change
in OCI
for period |
| Contract type | | | | | | | | | | | |
Interest rate(a) | | | $ | (99 | ) | | $ | — |
| | $ | (99 | ) | | $ | (44 | ) | | $ | 55 |
|
Foreign exchange(b) | | | (81 | ) | | — |
| | (81 | ) | | (53 | ) | | 28 |
|
| Total | | | $ | (180 | ) | | $ | — |
| | $ | (180 | ) | | $ | (97 | ) | | $ | 83 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Gains/(losses) recorded in income and other comprehensive income/(loss) | | | Gains/(losses) recorded in income and other comprehensive income/(loss) |
Year ended December 31, 2014 (in millions) | Derivatives – effective portion reclassified from AOCI to income | Hedge ineffectiveness recorded directly in income(c) | Total income statement impact | Derivatives – effective portion recorded in OCI | Total change
in OCI
for period | Derivatives – effective portion reclassified from AOCI to income | Hedge ineffectiveness recorded directly in income(c) | Total income statement impact | Derivatives – effective portion recorded in OCI | | Total change
in OCI
for period |
| Contract type | | | | | | | | | | | | | | | | | | | | | |
Interest rate(a) | | $ | (54 | ) | | $ | — |
| | $ | (54 | ) | | $ | 189 |
| | $ | 243 |
| | | $ | (54 | ) | | $ | — |
| | $ | (54 | ) | | $ | 189 |
| | $ | 243 |
|
Foreign exchange(b) | | 78 |
| | — |
| | 78 |
| | (91 | ) | | (169 | ) | | | 78 |
| | — |
| | 78 |
| | (91 | ) | | (169 | ) |
| Total | | $ | 24 |
| | $ | — |
| | $ | 24 |
| | $ | 98 |
| | $ | 74 |
| | | $ | 24 |
| | $ | — |
| | $ | 24 |
| | $ | 98 |
| | $ | 74 |
|
| | | | | | | | | | | | | |
| | | Gains/(losses) recorded in income and other comprehensive income/(loss) | | |
Year ended December 31, 2013 (in millions) | Derivatives – effective portion reclassified from AOCI to income | Hedge ineffectiveness recorded directly in income(c) | Total income statement impact | Derivatives – effective portion recorded in OCI | | Total change
in OCI
for period | | |
| Contract type | | | | | | | | | | | | |
Interest rate(a) | | $ | (108 | ) | | $ | — |
| | $ | (108 | ) | | $ | (565 | ) | | $ | (457 | ) | | |
Foreign exchange(b) | | 7 |
| | — |
| | 7 |
| | 40 |
| | 33 |
| | |
| Total | | $ | (101 | ) | | $ | — |
| | $ | (101 | ) | | $ | (525 | ) | | $ | (424 | ) | | |
| |
| (a) | Primarily consists of benchmark interest rate hedges of LIBOR-indexed floating-rate assets and floating-rate liabilities. Gains and losses were recorded in net interest income, and for the forecasted transactions that the Firm determined during the year ended December 31, 2015, were probable of not occurring, in other income. |
| |
| (b) | Primarily consists of hedges of the foreign currency risk of non-U.S. dollar-denominated revenue and expense. The income statement classification of gains and losses follows the hedged item – primarily noninterest revenue and compensation expense. |
| |
| (c) | Hedge ineffectiveness is the amount by which the cumulative gain or loss on the designated derivative instrument exceeds the present value of the cumulative expected change in cash flows on the hedged item attributable to the hedged risk. |
|
| | |
JPMorgan Chase & Co./2015 Annual Report | | 217 |
NotesThe Firm did not experience any forecasted transactions that failed to consolidated financial statements
occur for the years ended 2016 and 2014. In 2015, the Firm reclassified approximately $150 million of net losses from AOCI to other income because the Firm determined that it was probable that the forecasted interest payment cash flows would not occur as a result of the planned reduction in wholesale non-operating deposits. The Firm did not experience any forecasted transactions that failed to occur for the years ended December 31, 2014 or 2013.
Over the next 12 months, the Firm expects that approximately $95$151 million (after-tax) of net losses recorded in AOCI at December 31, 2015, 2016, related to cash flow hedges will be recognized in income. For terminated cash flow hedges, the maximum length of time over which forecasted transactions are remaining is approximately 7six years. For open cash flow hedges, the maximum length of time over which forecasted transactions are hedged is approximately 2 years.one year. The Firm’s longer-dated forecasted transactions relate to core lending and borrowing activities.
|
| | |
| JPMorgan Chase & Co./2016 Annual Report | | 183 |
Notes to consolidated financial statements
Net investment hedge gains and losses
The following table presents hedging instruments, by contract type, that were used in net investment hedge accounting relationships, and the pretaxpre-tax gains/(losses) recorded on such instruments for the years ended December 31, 20152016, 20142015 and 20132014.
| | | | Gains/(losses) recorded in income and other comprehensive income/(loss) | Gains/(losses) recorded in income and other comprehensive income/(loss) |
| | 2015 | | 2014 | | 2013 | 2016 | | 2015 | | 2014 |
Year ended December 31, (in millions) | Excluded components recorded directly in income(a) | Effective portion recorded in OCI | | Excluded components recorded directly in income(a) | Effective portion recorded in OCI | | Excluded components recorded directly in income(a) | Effective portion recorded in OCI | Excluded components recorded directly in income(a) | Effective portion recorded in OCI | | Excluded components recorded directly in income(a) | Effective portion recorded in OCI | | Excluded components recorded directly in income(a) | Effective portion recorded in OCI |
| Foreign exchange derivatives | $(379) | $1,885 | | $(448) | $1,698 | | $(383) | $773 | $(282) | $262 | | $(379) | $1,885 | | $(448) | $1,698 |
| |
| (a) | Certain components of hedging derivatives are permitted to be excluded from the assessment of hedge effectiveness, such as forward points on foreign exchange forward contracts. Amounts related to excluded components are recorded in other income. The Firm measures the ineffectiveness of net investment hedge accounting relationships based on changes in spot foreign currency rates and, therefore, there was no significant ineffectiveness for net investment hedge accounting relationships during 2016, 2015 2014 and 2013.2014. |
Gains and losses on derivatives used for specified risk management purposes
The following table presents pretaxpre-tax gains/(losses) recorded on a limited number of derivatives, not designated in hedge accounting relationships, that are used to manage risks associated with certain specified assets and liabilities, including certain risks arising from the mortgage pipeline, warehouse loans, MSRs, wholesale lending exposures, AFS securities, foreign currency-denominatedcurrency denominated assets and liabilities, and commodities-related contracts and investments.
| | | | Derivatives gains/(losses) recorded in income | Derivatives gains/(losses) recorded in income |
Year ended December 31, (in millions) | 2015 |
| 2014 |
| 2013 |
| 2016 |
| 2015 |
| 2014 |
|
| Contract type | | |
Interest rate(a) | $ | 853 |
| $ | 2,308 |
| $ | 617 |
| $ | 1,174 |
| $ | 853 |
| $ | 2,308 |
|
Credit(b) | 70 |
| (58 | ) | (142 | ) | (282 | ) | 70 |
| (58 | ) |
Foreign exchange(c) | 25 |
| (7 | ) | 1 |
| 27 |
| 25 |
| (7 | ) |
Commodity(d) | (12 | ) | 156 |
| 178 |
| — |
| (12 | ) | 156 |
|
| Total | $ | 936 |
| $ | 2,399 |
| $ | 654 |
| $ | 919 |
| $ | 936 |
| $ | 2,399 |
|
| |
| (a) | Primarily represents interest rate derivatives used to hedge the interest rate risk inherent in the mortgage pipeline, warehouse loans and MSRs, as well as written commitments to originate warehouse loans. Gains and losses were recorded predominantly in mortgage fees and related income. |
| |
| (b) | Relates to credit derivatives used to mitigate credit risk associated with lending exposures in the Firm’s wholesale businesses. These derivatives do not include credit derivatives used to mitigate counterparty credit risk arising from derivative receivables, which is included in gains and losses on derivatives related to market-making activities and other derivatives. Gains and losses were recorded in principal transactions revenue. |
| |
| (c) | Primarily relates to hedges of thederivatives used to mitigate foreign exchange risk of specified foreign currency-denominated assets and liabilities. Gains and losses were recorded in principal transactions revenue. |
| |
| (d) | Primarily relates to commodity derivatives used to mitigate energy price risk associated with energy-related contracts and investments. Gains and losses were recorded in principal transactions revenue. |
Gains and losses on derivatives related to market-making activities and other derivatives
The Firm makes markets in derivatives in order to meet the needs of customers and uses derivatives to manage certain risks associated with net open risk positions from the Firm’sits market-making activities, including the counterparty credit risk arising from derivative receivables. All derivatives not included in the hedge accounting or specified risk management categories above are included in this category. Gains and losses on these derivatives are primarily recorded in principal transactions revenue. See Note 7 for information on principal transactions revenue.
|
| | |
218 | | JPMorgan Chase & Co./2015 Annual Report |
Credit derivatives
Credit derivatives are financial instruments whose value is derived from the credit risk associated with the debt of a third-party issuer (the reference entity) and which allow one party (the protection purchaser) to transfer that risk to another party (the protection seller). Credit derivatives expose the protection purchaser to the creditworthiness of the protection seller, as the protection seller is required to make payments under the contract when the reference entity experiences a credit event, such as a bankruptcy, a failure to pay its obligation or a restructuring. The seller of credit protection receives a premium for providing protection but has the risk that the underlying instrument referenced in the contract will be subject to a credit event.
The Firm is both a purchaser and seller of protection in the credit derivatives market and uses these derivatives for two primary purposes. First, in its capacity as a market-maker, the Firm actively manages a portfolio of credit derivatives by purchasing and selling credit protection, predominantly on corporate debt obligations, to meet the needs of customers. Second, as an end-user, the Firm uses credit derivatives to manage credit risk associated with lending exposures (loans and unfunded commitments) and derivatives counterparty exposures in the Firm’s wholesale businesses, and to manage the credit risk arising from certain financial instruments in the Firm’s market-making businesses. Following is a summary of various types of credit derivatives.
|
| | |
| 184 | | JPMorgan Chase & Co./2016 Annual Report |
Credit default swaps
Credit derivatives may reference the credit of either a single reference entity (“single-name”) or a broad-based index. The Firm purchases and sells protection on both single- name and index-reference obligations. Single-name CDS and index CDS contracts are either OTC or OTC-cleared derivative contracts. Single-name CDS are used to manage the default risk of a single reference entity, while index CDS contracts are used to manage the credit risk associated with the broader credit markets or credit market segments. Like the S&P 500 and other market indices, a CDS index consists of a portfolio of CDS across many reference entities. New series of CDS indices are periodically established with a new underlying portfolio of reference entities to reflect changes in the credit markets. If one of the reference entities in the index experiences a credit event, then the reference entity that defaulted is removed from the index. CDS can also be referenced against specific portfolios of reference names or against customized exposure levels based on specific client demands: for example, to provide protection against the first $1 million of realized credit losses in a $10 million portfolio of exposure. Such structures are commonly known as tranche CDS.
For both single-name CDS contracts and index CDS contracts, upon the occurrence of a credit event, under the terms of a CDS contract neither party to the CDS contract has recourse to the reference entity. The protection purchaser has recourse to the protection seller for the difference between the face value of the CDS contract and the fair value of the reference obligation at settlement of the credit derivative contract, also known as the recovery value. The protection purchaser does not need to hold the debt instrument of the underlying reference entity in order to receive amounts due under the CDS contract when a credit event occurs.
Credit-related notes
A credit-related note is a funded credit derivative where the issuer of the credit-related note purchases from the note investor credit protection on a reference entity or an index. Under the contract, the investor pays the issuer the par value of the note at the inception of the transaction, and in return, the issuer pays periodic payments to the investor, based on the credit risk of the referenced entity. The issuer also repays the investor the par value of the note at maturity unless the reference entity (or one of the entities that makes up a reference index) experiences a specified credit event. If a credit event occurs, the issuer is not obligated to repay the par value of the note, but rather, the issuer pays the investor the difference between the par value of the note and the fair value of the defaulted reference obligation at the time of settlement. Neither party to the credit-related note has recourse to the defaulting reference entity.
The following tables present a summary of the notional amounts of credit derivatives and credit-related notes the Firm sold and purchased as of December 31, 20152016 and 2014.2015. Upon a credit event, the Firm as a seller of protection would typically pay out only a percentage of the full notional amount of net protection sold, as the amount actually required to be paid on the contracts takes into account the recovery value of the reference obligation at the time of settlement. The Firm manages the credit risk on contracts to sell protection by purchasing protection with identical or similar underlying reference entities. Other purchased protection referenced in the following tables includes credit derivatives bought on related, but not identical, reference positions (including indices, portfolio coverage and other reference points) as well as protection purchased through credit-related notes.
|
| | |
JPMorgan Chase & Co./20152016 Annual Report | | 219185 |
Notes to consolidated financial statements
The Firm does not use notional amounts of credit derivatives as the primary measure of risk management for such derivatives, because the notional amount does not take into account the probability of the occurrence of a credit event, the recovery value of the reference obligation, or related cash instruments and economic hedges, each of which reduces, in the Firm’s view, the risks associated with such derivatives.
Total credit derivatives and credit-related notes
| | | | | Maximum payout/Notional amount |
| | | Protection sold | | Protection purchased with identical underlyings(b) | Net protection (sold)/purchased(c) | Other protection purchased(d) |
December 31, 2016 (in millions) | |
| Credit derivatives | | | | | | |
| Credit default swaps | | $ | (961,003 | ) | | $ | 974,252 |
| | $ | 13,249 |
| $ | 7,935 |
|
Other credit derivatives(a) | | (36,829 | ) | | 31,859 |
| | (4,970 | ) | 19,991 |
|
| Total credit derivatives | | (997,832 | ) | | 1,006,111 |
| | 8,279 |
| 27,926 |
|
| Credit-related notes | | (41 | ) | | — |
| | (41 | ) | 4,505 |
|
| Total | | $ | (997,873 | ) | | $ | 1,006,111 |
| | $ | 8,238 |
| $ | 32,431 |
|
| | | | | | | | | | | | | | | | | | | |
| | Maximum payout/Notional amount | | Maximum payout/Notional amount |
| | Protection sold | | Protection purchased with identical underlyings(b) | Net protection (sold)/purchased(c) | Other protection purchased(d) | | Protection sold | | Protection purchased with identical underlyings(b) | Net protection (sold)/purchased(c) | Other protection purchased(d) |
December 31, 2015 (in millions) | |
| Credit derivatives | | | | | | | | | | | |
| Credit default swaps | $ | (1,386,071 | ) | | $ | 1,402,201 |
| | $ | 16,130 |
| $ | 12,011 |
| | $ | (1,386,071 | ) | | $ | 1,402,201 |
| | $ | 16,130 |
| $ | 12,011 |
|
Other credit derivatives(a) | (42,738 | ) | | 38,158 |
| | (4,580 | ) | 18,792 |
| | (42,738 | ) | | 38,158 |
| | (4,580 | ) | 18,792 |
|
| Total credit derivatives | (1,428,809 | ) | | 1,440,359 |
| | 11,550 |
| 30,803 |
| | (1,428,809 | ) | | 1,440,359 |
| | 11,550 |
| 30,803 |
|
| Credit-related notes | (30 | ) | | — |
| | (30 | ) | 4,715 |
| | (30 | ) | | — |
| | (30 | ) | 4,715 |
|
| Total | $ | (1,428,839 | ) | | $ | 1,440,359 |
| | $ | 11,520 |
| $ | 35,518 |
| | $ | (1,428,839 | ) | | $ | 1,440,359 |
| | $ | 11,520 |
| $ | 35,518 |
|
| | | | | | | | |
| | Maximum payout/Notional amount | | |
| | Protection sold | | Protection purchased with identical underlyings(b) | Net protection (sold)/purchased(c) | Other protection purchased(d) | | |
| December 31, 2014 (in millions) | | |
| Credit derivatives | | | | | | | |
| Credit default swaps | $ | (2,056,982 | ) | | $ | 2,078,096 |
| | $ | 21,114 |
| $ | 18,631 |
| | |
Other credit derivatives(a) | (43,281 | ) | | 32,048 |
| | (11,233 | ) | 19,475 |
| | |
| Total credit derivatives | (2,100,263 | ) | | 2,110,144 |
| | 9,881 |
| 38,106 |
| | |
| Credit-related notes | (40 | ) | | — |
| | (40 | ) | 3,704 |
| | |
| Total | $ | (2,100,303 | ) | | $ | 2,110,144 |
| | $ | 9,841 |
| $ | 41,810 |
| | |
| |
| (a) | Other credit derivatives predominantlylargely consists of credit swap options. |
| |
| (b) | Represents the total notional amount of protection purchased where the underlying reference instrument is identical to the reference instrument on protection sold; the notional amount of protection purchased for each individual identical underlying reference instrument may be greater or lower than the notional amount of protection sold. |
| |
| (c) | Does not take into account the fair value of the reference obligation at the time of settlement, which would generally reduce the amount the seller of protection pays to the buyer of protection in determining settlement value. |
| |
| (d) | Represents protection purchased by the Firm on referenced instruments (single-name, portfolio or index) where the Firm has not sold any protection on the identical reference instrument. |
The following tables summarize the notional amounts by the ratings, and maturity profile, and the total fair value, of credit derivatives and credit-related notes as of December 31, 20152016 and 20142015, where JPMorgan Chase is the seller of protection. The maturity profile is based on the remaining contractual maturity of the credit derivative contracts. The ratings profile is based on the rating of the reference entity on which the credit derivative contract is based. The ratings and maturity profile of credit derivatives and credit-related notes where JPMorgan Chase is the purchaser of protection are comparable to the profile reflected below.
| | Protection sold – credit derivatives and credit-related notes ratings(a)/maturity profile | Protection sold – credit derivatives and credit-related notes ratings(a)/maturity profile | | | | | | Protection sold – credit derivatives and credit-related notes ratings(a)/maturity profile | | | | |
December 31, 2015 (in millions) | <1 year | | 1–5 years | | >5 years | | Total notional amount | | Fair value of receivables(b) | | Fair value of payables(b) | | Net fair value | | |
December 31, 2016 (in millions) | | <1 year | | 1–5 years | | >5 years | | Total notional amount | | Fair value of receivables(b) | | Fair value of payables(b) | | Net fair value |
| Risk rating of reference entity | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Investment-grade | $ | (307,211 | ) | | $ | (699,227 | ) | | $ | (46,970 | ) | | $ | (1,053,408 | ) | | $ | 13,539 |
| | $ | (6,836 | ) | | $ | 6,703 |
| | $ | (273,688 | ) | | $ | (383,586 | ) | | $ | (39,281 | ) | | $ | (696,555 | ) | | $ | 7,841 |
| | $ | (3,055 | ) | | $ | 4,786 |
|
| Noninvestment-grade | (109,195 | ) | | (245,151 | ) | | (21,085 | ) | | (375,431 | ) | | 10,823 |
| | (18,891 | ) | | (8,068 | ) | | (107,955 | ) | | (170,046 | ) | | (23,317 | ) | | (301,318 | ) | | 8,184 |
| | (8,570 | ) | | (386 | ) |
| Total | $ | (416,406 | ) | | $ | (944,378 | ) | | $ | (68,055 | ) | | $ | (1,428,839 | ) | | $ | 24,362 |
| | $ | (25,727 | ) | | $ | (1,365 | ) | | $ | (381,643 | ) | | $ | (553,632 | ) | | $ | (62,598 | ) | | $ | (997,873 | ) | | $ | 16,025 |
| | $ | (11,625 | ) | | $ | 4,400 |
|
| | December 31, 2014 (in millions) | <1 year | | 1–5 years | | >5 years | | Total notional amount | | Fair value of receivables(b) | | Fair value of payables(b) | | Net fair value | | |
December 31, 2015 (in millions) | | <1 year | | 1–5 years | | >5 years | | Total notional amount | | Fair value of receivables(b) | | Fair value of payables(b) | | Net fair value |
| Risk rating of reference entity | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Investment-grade | $ | (323,398 | ) | | $ | (1,118,293 | ) | | $ | (79,486 | ) | | $ | (1,521,177 | ) | | $ | 25,767 |
| | $ | (6,314 | ) | | $ | 19,453 |
| | $ | (307,211 | ) | | $ | (699,227 | ) | | $ | (46,970 | ) | | $ | (1,053,408 | ) | | $ | 13,539 |
| | $ | (6,836 | ) | | $ | 6,703 |
|
| Noninvestment-grade | (157,281 | ) | | (396,798 | ) | | (25,047 | ) | | (579,126 | ) | | 20,677 |
| | (22,455 | ) | | (1,778 | ) | | (109,195 | ) | | (245,151 | ) | | (21,085 | ) | | (375,431 | ) | | 10,823 |
| | (18,891 | ) | | (8,068 | ) |
| Total | $ | (480,679 | ) | | $ | (1,515,091 | ) | | $ | (104,533 | ) | | $ | (2,100,303 | ) | | $ | 46,444 |
| | $ | (28,769 | ) | | $ | 17,675 |
| | $ | (416,406 | ) | | $ | (944,378 | ) | | $ | (68,055 | ) | | $ | (1,428,839 | ) | | $ | 24,362 |
| | $ | (25,727 | ) | | $ | (1,365 | ) |
| |
| (a) | The ratings scale is primarily based on external credit ratings defined by S&P and Moody’s Investors Service (“Moody’s”).Moody’s. |
| |
| (b) | Amounts are shown on a gross basis, before the benefit of legally enforceable master netting agreements and cash collateral received by the Firm. |
|
| | |
220186 | | JPMorgan Chase & Co./20152016 Annual Report |
Note 7 – Noninterest revenue
Investment banking fees
This revenue category includes equity and debt underwriting and advisoryThe following table presents the components of investment banking fees.
|
| | | | | | | | | | | |
Year ended December 31, (in millions) | 2016 | | 2015 | | 2014 |
| Underwriting | | | | | |
| Equity | $ | 1,146 |
| | $ | 1,408 |
| | $ | 1,571 |
|
| Debt | 3,207 |
| | 3,232 |
| | 3,340 |
|
| Total underwriting | 4,353 |
| | 4,640 |
| | 4,911 |
|
| Advisory | 2,095 |
| | 2,111 |
| | 1,631 |
|
| Total investment banking fees | $ | 6,448 |
| | $ | 6,751 |
| | $ | 6,542 |
|
Underwriting fees are recognized as revenue when the Firm has rendered all services to, the issuer and is entitled to collect the fee from, the issuer, as long asand there are no other contingencies associated with the fee. Underwriting fees are net of syndicate expense; the Firm recognizes credit arrangement and syndication fees as revenue after satisfying certain retention, timing and yield criteria. Advisory fees are recognized as revenue when the related services have been performed and the fee has been earned.
The following table presents the components of investment banking fees.
|
| | | | | | | | | | | |
Year ended December 31, (in millions) | 2015 | | 2014 | | 2013 |
| Underwriting | | | | | |
| Equity | $ | 1,408 |
| | $ | 1,571 |
| | $ | 1,499 |
|
| Debt | 3,232 |
| | 3,340 |
| | 3,537 |
|
| Total underwriting | 4,640 |
| | 4,911 |
| | 5,036 |
|
| Advisory | 2,111 |
| | 1,631 |
| | 1,318 |
|
| Total investment banking fees | $ | 6,751 |
| | $ | 6,542 |
| | $ | 6,354 |
|
Principal transactions
Principal transactions revenue is driven by many factors, including the bid-offer spread, which is the difference between the price at which the Firm is willing to buy a financial or other instrument and the price at which the Firm is willing to sell that instrument. It also consists of the realized (as a result of closing out or termination of transactions, or interim cash payments) and unrealized (as a result of changes in valuation) gains and losses on derivativesfinancial and other instruments (including those accounted for under the fair value option) primarily used in client-driven market-making activities and on private equity investments. In connection with its client-driven market-making activities, the Firm transacts in debt and equity instruments, derivatives and commodities (including physical commodities inventories and financial instruments that reference commodities).
Principal transactions revenue also includes certain realized and unrealized gains and losses related to hedge accounting and specified risk-management activities, including: (a) certain derivatives designated in qualifying hedge accounting relationships (primarily fair value hedges of commodity and foreign exchange risk), (b) certain derivatives used for specific risk management purposes, primarily to mitigate credit risk, foreign exchange risk and commodity risk, and (c) other derivatives. For further information on the income statement classification of gains and losses from derivatives activities, see Note 6.
In the financial commodity markets, the Firm transacts in OTC derivatives (e.g., swaps, forwards, options) and exchange-traded derivativesETD that reference a wide range of underlying commodities. In the physical commodity markets, the Firm primarily purchases and sells precious and base metals and may hold other commodities inventories under financing and other arrangements with clients. Prior to the 2014 sale of certain parts of its physical commodity business, the Firm also engaged in the purchase, sale, transport and storage of power, gas, liquefied natural gas, coal, crude oil and refined products.
Physical commodities inventories are generally carried at the lower of cost or market (market approximates fair value) subject to any applicable fair value hedge accounting adjustments, with realized gains and losses and unrealized losses recorded in principal transactions revenue.
The following table presents all realized and unrealized gains and losses recorded in principal transactions revenue. This table excludes interest income and interest expense on trading assets and liabilities, which are an integral part of the overall performance of the Firm’s client-driven market-making activities. See Note 8 for further information on interest income and interest expense. Trading revenue is presented primarily by instrument type. The Firm’s client-driven market-making businesses generally utilize a variety of instrument types in connection with their market-making and related risk-management activities; accordingly, the trading revenue presented in the table below is not representative of the total revenue of any individual line of business.
| | Year ended December 31, (in millions) | 2015 | | 2014 | | 2013 | 2016 | | 2015 | | 2014 |
| Trading revenue by instrument type | | | | | | | | | | |
| Interest rate | $ | 1,933 |
| | $ | 1,362 |
| | $ | 284 |
| $ | 2,325 |
| | $ | 1,933 |
| | $ | 1,362 |
|
| Credit | 1,735 |
| | 1,880 |
| | 2,654 |
| 2,096 |
| | 1,735 |
| | 1,880 |
|
| Foreign exchange | 2,557 |
| | 1,556 |
| | 1,801 |
| 2,827 |
| | 2,557 |
| | 1,556 |
|
| Equity | 2,990 |
| | 2,563 |
| | 2,517 |
| 2,994 |
| | 2,990 |
| | 2,563 |
|
Commodity(a) | 842 |
| | 1,663 |
| | 2,083 |
| 1,067 |
| | 842 |
| | 1,663 |
|
| Total trading revenue | 10,057 |
| | 9,024 |
| | 9,339 |
| 11,309 |
| | 10,057 |
| | 9,024 |
|
Private equity gains(b)(a) | 351 |
| | 1,507 |
| | 802 |
| 257 |
| | 351 |
| | 1,507 |
|
| Principal transactions | $ | 10,408 |
| | $ | 10,531 |
| | $ | 10,141 |
| $ | 11,566 |
| | $ | 10,408 |
| | $ | 10,531 |
|
| |
| (a) | Commodity derivatives are frequently used to manage the Firm’s risk exposure to its physical commodities inventories. For gains/(losses) related to commodity fair value hedges, see Note 6. |
| |
(b) | Includes revenue on private equity investments held in the Private Equity business within Corporate, as well as those held in other business segments. |
Lending- and deposit-related fees
This revenue category includesThe following table presents the components of lending- and deposit-related fees.
|
| | | | | | | | | | | |
| Year ended December 31, (in millions) | 2016 | | 2015 | | 2014 |
| Lending-related fees | $ | 1,114 |
| | $ | 1,148 |
| | $ | 1,307 |
|
| Deposit-related fees | 4,660 |
| | 4,546 |
| | 4,494 |
|
| Total lending- and deposit-related fees | $ | 5,774 |
| | $ | 5,694 |
| | $ | 5,801 |
|
Lending-related fees include fees earned from loan commitments, standby letters of credit, financial guarantees, deposit-relatedand other loan-servicing activities. Deposit-related fees include fees earned in lieu of compensating balances, and fees earned from performing cash management-relatedmanagement activities or transactions, deposit accounts and other loan-servicing activities. Thesedeposit account services. Lending- and deposit-related fees in this revenue category are recognized over the period in which the related service is provided.
Asset management, administration and commissions
This revenue category includes fees from investment management and related services, custody, brokerage services, insurance premiums and commissions, and other products. These fees are recognized over the period in which the related service is provided. Performance-based fees, which are earned based on exceeding certain benchmarks or other performance targets, are accrued and recognized at the end of the performance period in which the target is met. The Firm has contractual arrangements with third parties to provide certain services in connection with its asset management activities. Amounts paid to third-
|
| | |
JPMorgan Chase & Co./20152016 Annual Report | | 221187 |
Notes to consolidated financial statements
party service providers are predominantly expensed, such that assetAsset management, fees are recorded gross of payments made to third parties.administration and commissions
The following table presents Firmwide asset management, administration and commissions.commissions income:
| | Year ended December 31, (in millions) | 2015 | | 2014 | | 2013 | 2016 | | 2015 | | 2014 |
| Asset management fees | | | | | | | | | | |
Investment management fees(a) | $ | 9,403 |
| | $ | 9,169 |
| | $ | 8,044 |
| $ | 8,865 |
| | $ | 9,403 |
| | $ | 9,169 |
|
All other asset management fees(b) | 352 |
| | 477 |
| | 505 |
| 336 |
| | 352 |
| | 477 |
|
| Total asset management fees | 9,755 |
| | 9,646 |
| | 8,549 |
| 9,201 |
| | 9,755 |
| | 9,646 |
|
| | | | | | | | | | | |
Total administration fees(c) | 2,015 |
| | 2,179 |
| | 2,101 |
| 1,915 |
| | 2,015 |
| | 2,179 |
|
| | | | | | | | | | | |
| Commissions and other fees | | | | | | | | | | |
| Brokerage commissions | 2,304 |
| | 2,270 |
| | 2,321 |
| 2,151 |
| | 2,304 |
| | 2,270 |
|
| All other commissions and fees | 1,435 |
| | 1,836 |
| | 2,135 |
| 1,324 |
| | 1,435 |
| | 1,836 |
|
| Total commissions and fees | 3,739 |
| | 4,106 |
| | 4,456 |
| 3,475 |
| | 3,739 |
| | 4,106 |
|
| Total asset management, administration and commissions | $ | 15,509 |
| | $ | 15,931 |
| | $ | 15,106 |
| $ | 14,591 |
| | $ | 15,509 |
| | $ | 15,931 |
|
| |
| (a) | Represents fees earned from managing assets on behalf of the Firm’s clients, including investors in Firm-sponsored funds and owners of separately managed investment accounts. |
| |
| (b) | Represents fees for services that are ancillary to investment management services, such as commissions earned on the sales or distribution of mutual funds to clients. |
| |
| (c) | Predominantly includes fees for custody, securities lending, funds services and securities clearance. |
This revenue category includes fees from investment management and related services, custody and brokerage services, insurance premiums and commissions, and fees from other products and services. These fees are recognized over the period in which the related product or service is provided. Performance-based fees, which are earned based on exceeding certain benchmarks or other performance targets, are accrued and recognized at the end of the performance period in which the target is met. The Firm has contractual arrangements with third parties to provide certain services in connection with its asset management activities. Amounts paid to third-party service providers are predominantly expensed, such that asset management fees are recorded gross of payments made to third parties.
Mortgage fees and related income
This revenue category primarily reflects CCB’s Mortgage Banking production and servicing revenue, including fees and income derived from mortgages originated with the intent to sell; mortgage sales and servicing including losses related to the repurchase of previously sold loans; the impact of risk-management activities associated with the mortgage pipeline, warehouse loans and MSRs; and revenue related to any residual interests held from mortgage securitizations. This revenue category also includes gains and losses on sales and lower of cost or fair value adjustments for mortgage loans held-for-sale, as well as changes in fair value for mortgage loans originated with the intent to sell and measured at fair value under the fair value option. Changes in the fair value of CCB MSRs are reported in mortgage fees and related income. For a further discussion of MSRs, see Note 17. Net interest income from mortgage loans is recorded in interest income. For a further discussion of MSRs, see Note 17.
Card income
This revenue category includes interchange income from credit and debit cards and net fees earned from processing credit card transactions for merchants. Card income is recognized as earned. CostCosts related to rewards programs isare recorded when the rewards are earned by the customer and presented as a reduction to interchange income. Annual fees and direct loan origination costs are deferred and recognized on a straight-line basis over a 12-month period.
Credit card revenue sharing agreements
The Firm has contractual agreements with numerous co-brand partners and affinity organizations (collectively, “partners”), which grant the Firm exclusive rights to market to the customers or members of such partners. These partners endorse the credit card programs and provide their customer andor member lists to the Firm, and they may also conduct marketing activities and provide awards under the various credit card programs. The terms of these agreements generally range from threefive to ten years.
The Firm typically makes incentive payments to the partners based on new account originations, sales volumes and the cost of the partners’ marketing activities and awards. Payments based on new account originations are accounted for as direct loan origination costs. Payments to partners based on sales volumes are deducted from interchange income as the related revenue is earned. Payments based on marketing efforts undertaken by the partners are expensed by the Firm as incurred and reported as noninterest expense.
Other income
Other income on the Firm’s Consolidated statements of income included the following:
| | | Year ended December 31, (in millions) | 2015 | | 2014 | | 2013 | 2016 | | 2015 | | 2014 |
| Operating lease income | $ | 2,081 |
| | $ | 1,699 |
| | $ | 1,472 |
| $ | 2,724 |
| | $ | 2,081 |
| | $ | 1,699 |
|
| Gain from sale of Visa B shares | — |
| | — |
| | 1,310 |
| |
Operating lease income is recognized on a straight–line basis over the lease term.
|
| | |
222188 | | JPMorgan Chase & Co./20152016 Annual Report |
Note 8 – Interest income and Interest expense
Interest income and interest expense are recorded in the Consolidated statements of income and classified based on the nature of the underlying asset or liability.
The following table presents the components of interest income and interest expense:
|
| | | | | | | | | |
Year ended December 31, (in millions) | 2016 | 2015 | 2014 |
| Interest Income | | | |
Loans(a) | $ | 36,634 |
| $ | 33,134 |
| $ | 32,218 |
|
| Taxable securities | 5,538 |
| 6,550 |
| 7,617 |
|
Non taxable securities(b) | 1,766 |
| 1,706 |
| 1,423 |
|
| Total securities | 7,304 |
| 8,256 |
| 9,040 |
|
| Trading assets | 7,292 |
| 6,621 |
| 7,312 |
|
| Federal funds sold and securities purchased under resale agreements | 2,265 |
| 1,592 |
| 1,642 |
|
Securities borrowed(c) | (332 | ) | (532 | ) | (501 | ) |
| Deposits with banks | 1,863 |
| 1,250 |
| 1,157 |
|
Other assets(d) | 875 |
| 652 |
| 663 |
|
| Total interest income | $ | 55,901 |
| $ | 50,973 |
| $ | 51,531 |
|
| Interest expense | | | |
| Interest bearing deposits | $ | 1,356 |
| $ | 1,252 |
| $ | 1,633 |
|
| Federal funds purchased and securities loaned or sold under repurchase agreements | 1,089 |
| 609 |
| 604 |
|
| Commercial paper | 135 |
| 110 |
| 134 |
|
Trading liabilities - debt, short-term and other liabilities(e) | 1,170 |
| 622 |
| 712 |
|
| Long-term debt | 5,564 |
| 4,435 |
| 4,409 |
|
| Beneficial interest issued by consolidated VIEs | 504 |
| 435 |
| 405 |
|
| Total interest expense | $ | 9,818 |
| $ | 7,463 |
| $ | 7,897 |
|
| Net interest income | $ | 46,083 |
| $ | 43,510 |
| $ | 43,634 |
|
| Provision for credit losses | 5,361 |
| 3,827 |
| 3,139 |
|
| Net interest income after provision for credit losses | $ | 40,722 |
| $ | 39,683 |
| $ | 40,495 |
|
| |
| (a) | Includes the amortization of purchase price discounts or premiums, as well as net deferred loan fees or costs. |
| |
| (b) | Represents securities that are tax exempt for U.S. federal income tax purposes. |
| |
| (c) | Securities borrowed’s negative interest income, for the years ended December 31, 2016, 2015 and 2014, is a result of client-driven demand for certain securities combined with the impact of low interest rates; this is matched book activity and the negative interest expense on the corresponding securities loaned is recognized in interest expense. |
| |
| (e) | Includes brokerage customer payables. |
Interest income and interest expense includes the current-period interest accruals for financial instruments measured at fair value, except for derivatives and financial instruments containing embedded derivatives that would be separately accounted for in accordance with U.S. GAAP, absent the fair value option election; for those instruments, all changes in fair value including any interest elements, are reported in principal transactions revenue. For financial instruments that are not measured at fair value, the related interest is included within interest income or interest expense, as applicable.
Details of interest income and interest expense were as follows.
|
| | | | | | | | | |
Year ended December 31, (in millions) | 2015 | 2014 | 2013 |
| Interest Income | | | |
| Loans | $ | 33,134 |
| $ | 32,218 |
| $ | 33,489 |
|
| Taxable securities | 6,550 |
| 7,617 |
| 6,916 |
|
Non taxable securities(a) | 1,706 |
| 1,423 |
| 896 |
|
| Total securities | 8,256 |
| 9,040 |
| 7,812 |
|
| Trading assets | 6,621 |
| 7,312 |
| 8,099 |
|
| Federal funds sold and securities purchased under resale agreements | 1,592 |
| 1,642 |
| 1,940 |
|
Securities borrowed(b) | (532 | ) | (501 | ) | (127 | ) |
| Deposits with banks | 1,250 |
| 1,157 |
| 918 |
|
Other assets(c) | 652 |
| 663 |
| 538 |
|
| Total interest income | $ | 50,973 |
| $ | 51,531 |
| $ | 52,669 |
|
| Interest expense | | | |
| Interest bearing deposits | $ | 1,252 |
| $ | 1,633 |
| $ | 2,067 |
|
| Federal funds purchased and securities loaned or sold under repurchase agreements | 609 |
| 604 |
| 582 |
|
| Commercial paper | 110 |
| 134 |
| 112 |
|
| Trading liabilities - debt, short-term and other liabilities | 622 |
| 712 |
| 1,104 |
|
| Long-term debt | 4,435 |
| 4,409 |
| 5,007 |
|
| Beneficial interest issued by consolidated VIEs | 435 |
| 405 |
| 478 |
|
| Total interest expense | $ | 7,463 |
| $ | 7,897 |
| $ | 9,350 |
|
| Net interest income | $ | 43,510 |
| $ | 43,634 |
| $ | 43,319 |
|
| Provision for credit losses | 3,827 |
| 3,139 |
| 225 |
|
| Net interest income after provision for credit losses | $ | 39,683 |
| $ | 40,495 |
| $ | 43,094 |
|
| |
(a) | Represents securities which are tax exempt for U.S. federal income tax purposes. |
| |
(b) | Negative interest income for the years ended December 31, 2015, 2014 and 2013, is a result of increased client-driven demand for certain securities combined with the impact of low interest rates; this is matched book activity and the negative interest expense on the corresponding securities loaned is recognized in interest expense. |
| |
(d) | Includes brokerage customer payables. |
Note 9 – Pension and other postretirement employee benefit plans
The Firm has various defined benefit pension plans and other postretirement employee benefit (“OPEB”)OPEB plans that provide benefits to its employees. These plans are discussed below.
Defined benefit pension plans
The Firm has a qualified noncontributory U.S. defined benefit pension plan that provides benefits to substantially all U.S. employees. The U.S. plan employs a cash balance formula in the form of pay and interest credits to determine the benefits to be provided at retirement, based on years of service and eligible compensation (generally base salary/regular pay and variable cash incentive compensation capped at $100,000 annually). Employees begin to accrue plan benefits after completing one year of service, and benefits generally vest after three years of service. The Firm also offers benefits through defined benefit pension plans to qualifying employees in certain non-U.S. locations based on factors such as eligible compensation, age and/or years of service.
It is the Firm’s policy to fund the pension plans in amounts sufficient to meet the requirements under applicable laws. The Firm does not anticipate at this time any contribution to the U.S. defined benefit pension plan in 20162017. The 20162017 contributions to the non-U.S. defined benefit pension plans are expected to be $47$44 million of which $31$28 million are contractually required.
JPMorgan Chase also has a number of defined benefit pension plans that are not subject to Title IV of the Employee Retirement Income Security Act. The most significant of these plans is the Excess Retirement Plan, pursuant to which certain employees previously earned pay credits on compensation amounts above the maximum stipulated by law under a qualified plan; no further pay credits are allocated under this plan. The Excess Retirement Plan had an unfunded projected benefit obligation (“PBO”) in the amount of $237$215 million and $257$237 million, at December 31, 20152016 and 20142015, respectively.
Defined contribution plans
JPMorgan Chase currently provides two qualified defined contribution plans in the U.S. and other similar arrangements in certain non-U.S. locations, all of which are administered in accordance with applicable local laws and regulations. The most significant of these plans is the JPMorgan Chase 401(k) Savings Plan (the “401(k) Savings Plan”), which covers substantially all U.S. employees. Employees can contribute to the 401(k) Savings Plan on a pretax and/or Roth 401(k) after-tax basis. The JPMorgan Chase Common Stock Fund, which is an investment option under the 401(k) Savings Plan, is a nonleveraged employee stock ownership plan.
The Firm matches eligible employee contributions up to 5% of eligible compensation (generally base salary/regular pay and variable cash incentive compensation) on an annual basis. Employees begin to receive matching contributions
|
| | |
JPMorgan Chase & Co./20152016 Annual Report | | 223189 |
Notes to consolidated financial statements
Employees begin to receive matching contributions after completing a one-year-of-service requirement. Employees with total annual cash compensation of $250,000 or more are not eligible for matching contributions. Matching contributions vest after three years of service. The 401(k) Savings Plan also permits discretionary profit-sharing contributions by participating companies for certain employees, subject to a specified vesting schedule.
OPEB plans
JPMorgan Chase offers postretirement medical and life insurance benefits to certain retirees and postretirement medical benefits to qualifying U.S. employees. These benefits vary with the length of service and the date of hire and provide for limits on the Firm’s share of covered medical benefits. The medical and life insurance benefits are both contributory. Effective January 1, 2015, there was
a transition of certain Medicare eligible retirees from JPMCJPMorgan Chase group sponsored coverage to Medicare exchanges. As a result of this change, eligible retirees will receive a Healthcare Reimbursement Account amount each year if they enroll through the Medicare exchange. The impact of this change was not material. Postretirement medical benefits also are offered to qualifying United Kingdom (“U.K.”) employees.
JPMorgan Chase’s U.S. OPEB obligation is funded with corporate-owned life insurance (“COLI”) purchased on the lives of eligible employees and retirees. While the Firm owns the COLI policies, COLI proceeds (death benefits, withdrawals and other distributions) may be used only to reimburse the Firm for its net postretirement benefit claim payments and related administrative expense. The U.K. OPEB plan is unfunded.
The following table presents the changes in benefit obligations, plan assets and funded status amounts reported on the Consolidated balance sheets for the Firm’s U.S. and non-U.S. defined benefit pension and OPEB plans.
| | | | Defined benefit pension plans | | | Defined benefit pension plans | | |
| As of or for the year ended December 31, | U.S. | | Non-U.S. | | OPEB plans(d) | U.S. | | Non-U.S. | | OPEB plans(d) |
| (in millions) | 2015 | | 2014 | | 2015 | | 2014 | | 2015 | | 2014 | 2016 | | 2015 | | 2016 | | 2015 | | 2016 | | 2015 |
| Change in benefit obligation | | | | | | | | | | | | | | | | | | | | | | |
| Benefit obligation, beginning of year | $ | (12,536 | ) | | $ | (10,776 | ) | | $ | (3,640 | ) | | $ | (3,433 | ) | | $ | (842 | ) | | $ | (826 | ) | $ | (11,912 | ) | | $ | (12,536 | ) | | $ | (3,347 | ) | | $ | (3,640 | ) | | $ | (744 | ) | | $ | (842 | ) |
| Benefits earned during the year | (340 | ) | | (281 | ) | | (37 | ) | | (33 | ) | | (1 | ) | | — |
| (296 | ) | | (340 | ) | | (36 | ) | | (37 | ) | | — |
| | (1 | ) |
| Interest cost on benefit obligations | (498 | ) | | (534 | ) | | (112 | ) | | (137 | ) | | (31 | ) | | (38 | ) | (530 | ) | | (498 | ) | | (99 | ) | | (112 | ) | | (31 | ) | | (31 | ) |
| Plan amendments | — |
| | (53 | ) | | — |
| | — |
| | — |
| | — |
| |
| Special termination benefits | — |
| | — |
| | (1 | ) | | (1 | ) | | — |
| | — |
| — |
| | — |
| | — |
| | (1 | ) | | — |
| | — |
|
| Curtailments | — |
| | — |
| | — |
| | — |
| | — |
| | (3 | ) | |
| Employee contributions | NA |
| | NA |
| | (7 | ) | | (7 | ) | | (25 | ) | | (62 | ) | NA |
| | NA |
| | (7 | ) | | (7 | ) | | (19 | ) | | (25 | ) |
| Net gain/(loss) | 702 |
| | (1,669 | ) | | 146 |
| | (408 | ) | | 71 |
| | (58 | ) | (203 | ) | | 702 |
| | (540 | ) | | 146 |
| | 4 |
| | 71 |
|
| Benefits paid | 760 |
| | 777 |
| | 120 |
| | 119 |
| | 88 |
| | 145 |
| 725 |
| | 760 |
| | 126 |
| | 120 |
| | 76 |
| | 88 |
|
| Plan settlements | | — |
| | — |
| | 21 |
| | — |
| | — |
| | — |
|
| Expected Medicare Part D subsidy receipts | NA |
| | NA |
| | NA |
| | NA |
| | (6 | ) | | (2 | ) | NA |
| | NA |
| | NA |
| | NA |
| | — |
| | (6 | ) |
| Foreign exchange impact and other | — |
| | — |
| | 184 |
| | 260 |
| | 2 |
| | 2 |
| — |
| | — |
| | 504 |
| | 184 |
| | 6 |
| | 2 |
|
| Benefit obligation, end of year | $ | (11,912 | ) | | $ | (12,536 | ) | | $ | (3,347 | ) | | $ | (3,640 | ) | | $ | (744 | ) | | $ | (842 | ) | $ | (12,216 | ) | | $ | (11,912 | ) | | $ | (3,378 | ) | | $ | (3,347 | ) | | $ | (708 | ) | | $ | (744 | ) |
| Change in plan assets | | | | | | | | | | | | | | | | | | | | | | |
| Fair value of plan assets, beginning of year | $ | 14,623 |
| | $ | 14,354 |
| | $ | 3,718 |
| | $ | 3,532 |
| | $ | 1,903 |
| | $ | 1,757 |
| $ | 14,125 |
| | $ | 14,623 |
| | $ | 3,511 |
| | $ | 3,718 |
| | $ | 1,855 |
| | $ | 1,903 |
|
| Actual return on plan assets | 231 |
| | 1,010 |
| | 52 |
| | 518 |
| | 13 |
| | 159 |
| 838 |
| | 231 |
| | 537 |
| | 52 |
| | 131 |
| | 13 |
|
| Firm contributions | 31 |
| | 36 |
| | 45 |
| | 46 |
| | 2 |
| | 3 |
| 34 |
| | 31 |
| | 52 |
| | 45 |
| | 2 |
| | 2 |
|
| Employee contributions | — |
| | — |
| | 7 |
| | 7 |
| | — |
| | — |
| — |
| | — |
| | 7 |
| | 7 |
| | — |
| | — |
|
| Benefits paid | (760 | ) | | (777 | ) | | (120 | ) | | (119 | ) | | (63 | ) | | (16 | ) | (725 | ) | | (760 | ) | | (126 | ) | | (120 | ) | | (32 | ) | | (63 | ) |
| Plan settlements | | — |
| | — |
| | (21 | ) | | — |
| | — |
| | — |
|
| Foreign exchange impact and other | — |
| | — |
| | (191 | ) | | (266 | ) | | — |
| | — |
| — |
| | — |
| | (529 | ) | | (191 | ) | | — |
| | — |
|
| Fair value of plan assets, end of year | $ | 14,125 |
| | $ | 14,623 |
| (b)(c) | $ | 3,511 |
| | $ | 3,718 |
| | $ | 1,855 |
| | $ | 1,903 |
| $ | 14,272 |
| | $ | 14,125 |
| (b)(c) | $ | 3,431 |
| | $ | 3,511 |
| | $ | 1,956 |
| | $ | 1,855 |
|
Net funded status(a) | $ | 2,213 |
| | $ | 2,087 |
| | $ | 164 |
| | $ | 78 |
| | $ | 1,111 |
| | $ | 1,061 |
| $ | 2,056 |
| | $ | 2,213 |
| | $ | 53 |
| | $ | 164 |
| | $ | 1,248 |
| | $ | 1,111 |
|
| Accumulated benefit obligation, end of year | $ | (11,774 | ) | | $ | (12,375 | ) | | $ | (3,322 | ) | | $ | (3,615 | ) | | NA |
| | NA |
| $ | (12,062 | ) | | $ | (11,774 | ) | | $ | (3,359 | ) | | $ | (3,322 | ) | | NA |
| | NA |
|
| |
| (a) | Represents plans with an aggregate overfunded balance of $4.1$4.0 billion and $3.9$4.1 billion at December 31, 20152016 and 20142015, respectively, and plans with an aggregate underfunded balance of $636$639 million and $708$636 million at December 31, 20152016 and 20142015, respectively. |
| |
| (b) | At December 31, 20152016 and 20142015, approximately $533$390 million and $336$533 million, respectively, of U.S. plan assets included participation rights under participating annuity contracts. |
| |
| (c) | At December 31, 20152016 and 20142015, defined benefit pension plan amounts that were not measured at fair value included $74$130 million and $106$74 million, respectively, of accrued receivables, and $123$224 million and $257$123 million, respectively, of accrued liabilities, for U.S. plans. |
| |
| (d) | Includes an unfunded accumulated postretirement benefit obligation of $32$35 million and $37$32 million at December 31, 20152016 and 20142015, respectively, for the U.K. plan. |
|
| | |
224190 | | JPMorgan Chase & Co./20152016 Annual Report |
Gains and losses
For the Firm’s defined benefit pension plans, fair value is used to determine the expected return on plan assets. Amortization of net gains and losses is included in annual net periodic benefit cost if, as of the beginning of the year, the net gain or loss exceeds 10% of the greater of the PBO or the fair value of the plan assets. Any excess is amortized over the average future service period of defined benefit pension plan participants, which for the U.S. defined benefit pension plan is currently seven years and for the non-U.S. defined benefit pension plans is the period appropriate for the affected plan. In addition, prior service costs are amortized over the average remaining service period of active employees expected to receive benefits under the plan when the prior service cost is first recognized.
The average remaining amortization period for the U.S. defined benefit pension plan for current prior service costs is fourthree years.
For the Firm’s OPEB plans, a calculated value that recognizes changes in fair value over a five-year period is used to determine the expected return on plan assets. This value is referred to as the market related value of assets. Amortization of net gains and losses, adjusted for gains and losses not yet recognized, is included in annual net periodic benefit cost if, as of the beginning of the year, the net gain or loss exceeds 10% of the greater of the accumulated postretirement benefit obligation or the market related value of assets. Any excess net gain or loss is amortized over the average expected lifetime of retired participants, which is currently thirteentwelve years; however, prior service costs resulting from plan changes are amortized over the average years of service remaining to full eligibility age, which is currently two years.
The following table presents pretax pension and OPEB amounts recorded in AOCI.
| | | | Defined benefit pension plans | | | Defined benefit pension plans | | |
| December 31, | U.S. | | Non-U.S. | | OPEB plans | U.S. | | Non-U.S. | | OPEB plans |
| (in millions) | 2015 |
| | 2014 |
| | 2015 |
| | 2014 |
| | 2015 |
| | 2014 |
| 2016 |
| | 2015 |
| | 2016 |
| | 2015 |
| | 2016 |
| | 2015 |
|
| Net gain/(loss) | $ | (3,096 | ) | | $ | (3,346 | ) | | $ | (513 | ) | | $ | (628 | ) | | $ | 109 |
| | $ | 130 |
| $ | (3,116 | ) | | $ | (3,096 | ) | | $ | (551 | ) | | $ | (513 | ) | | $ | 138 |
| | $ | 109 |
|
| Prior service credit/(cost) | 68 |
| | 102 |
| | 9 |
| | 11 |
| | — |
| | — |
| 34 |
| | 68 |
| | 8 |
| | 9 |
| | — |
| | — |
|
| Accumulated other comprehensive income/(loss), pretax, end of year | $ | (3,028 | ) | | $ | (3,244 | ) | | $ | (504 | ) | | $ | (617 | ) | | $ | 109 |
| | $ | 130 |
| $ | (3,082 | ) | | $ | (3,028 | ) | | $ | (543 | ) | | $ | (504 | ) | | $ | 138 |
| | $ | 109 |
|
The following table presents the components of net periodic benefit costs reported in the Consolidated statements of income and other comprehensive income for the Firm’s U.S. and non-U.S. defined benefit pension, defined contribution and OPEB plans.
| | | | Pension plans | | | Pension plans | | |
| | U.S. | | Non-U.S. | | OPEB plans | U.S. | | Non-U.S. | | OPEB plans |
| Year ended December 31, (in millions) | 2015 |
| 2014 |
| 2013 |
| | 2015 |
| | 2014 |
| | 2013 |
| | 2015 |
| 2014 |
| 2013 |
| 2016 |
| 2015 |
| 2014 |
| | 2016 |
| | 2015 |
| | 2014 |
| | 2016 |
| 2015 |
| 2014 |
|
| Components of net periodic benefit cost | | | | | | | | | | | | | | | | | | |
| Benefits earned during the year | $ | 340 |
| $ | 281 |
| $ | 314 |
| | $ | 37 |
| | $ | 33 |
| | $ | 34 |
| | $ | 1 |
| $ | — |
| $ | 1 |
| $ | 296 |
| $ | 340 |
| $ | 281 |
| | $ | 36 |
| | $ | 37 |
| | $ | 33 |
| | $ | — |
| $ | 1 |
| $ | — |
|
| Interest cost on benefit obligations | 498 |
| 534 |
| 447 |
| | 112 |
| | 137 |
| | 125 |
| | 31 |
| 38 |
| 35 |
| 530 |
| 498 |
| 534 |
| | 99 |
| | 112 |
| | 137 |
| | 31 |
| 31 |
| 38 |
|
| Expected return on plan assets | (929 | ) | (985 | ) | (956 | ) | | (150 | ) | | (172 | ) | | (142 | ) | | (106 | ) | (101 | ) | (92 | ) | (891 | ) | (929 | ) | (985 | ) | | (139 | ) | | (150 | ) | | (172 | ) | | (105 | ) | (106 | ) | (101 | ) |
| Amortization: | | | | | | | | | | | | | | | | | | |
| Net (gain)/loss | 247 |
| 25 |
| 271 |
| | 35 |
| | 47 |
| | 49 |
| | — |
| — |
| 1 |
| 235 |
| 247 |
| 25 |
| | 22 |
| | 35 |
| | 47 |
| | — |
| — |
| — |
|
| Prior service cost/(credit) | (34 | ) | (41 | ) | (41 | ) | | (2 | ) | | (2 | ) | | (2 | ) | | — |
| (1 | ) | — |
| (34 | ) | (34 | ) | (41 | ) | | (2 | ) | | (2 | ) | | (2 | ) | | — |
| — |
| (1 | ) |
| Special termination benefits | — |
| — |
| — |
| | 1 |
| | — |
| | — |
| | — |
| — |
| — |
| — |
| — |
| — |
| | — |
| | 1 |
| | — |
| | — |
| — |
| — |
|
| Settlement loss | | — |
| — |
| — |
| | 4 |
| | — |
| | — |
| | — |
| — |
| — |
|
| Net periodic defined benefit cost | 122 |
| (186 | ) | 35 |
| | 33 |
| | 43 |
| | 64 |
| | (74 | ) | (64 | ) | (55 | ) | 136 |
| 122 |
| (186 | ) | | 20 |
| | 33 |
| | 43 |
| | (74 | ) | (74 | ) | (64 | ) |
Other defined benefit pension plans(a) | 14 |
| 14 |
| 15 |
| | 10 |
| | 6 |
| | 14 |
| | NA |
| NA |
| NA |
| 14 |
| 14 |
| 14 |
| | 11 |
| | 10 |
| | 6 |
| | NA |
| NA |
| NA |
|
| Total defined benefit plans | 136 |
| (172 | ) | 50 |
| | 43 |
| | 49 |
| | 78 |
| | (74 | ) | (64 | ) | (55 | ) | 150 |
| 136 |
| (172 | ) | | 31 |
| | 43 |
| | 49 |
| | (74 | ) | (74 | ) | (64 | ) |
| Total defined contribution plans | 449 |
| 438 |
| 447 |
| | 320 |
| | 329 |
| | 321 |
| | NA |
| NA |
| NA |
| 473 |
| 449 |
| 438 |
| | 316 |
| | 320 |
| | 329 |
| | NA |
| NA |
| NA |
|
| Total pension and OPEB cost included in compensation expense | $ | 585 |
| $ | 266 |
| $ | 497 |
| | $ | 363 |
| | $ | 378 |
| | $ | 399 |
| | $ | (74 | ) | $ | (64 | ) | $ | (55 | ) | $ | 623 |
| $ | 585 |
| $ | 266 |
| | $ | 347 |
| | $ | 363 |
| | $ | 378 |
| | $ | (74 | ) | $ | (74 | ) | $ | (64 | ) |
| Changes in plan assets and benefit obligations recognized in other comprehensive income | | | | | | | | | | | | | | | | | | |
| Net (gain)/loss arising during the year | $ | (3 | ) | $ | 1,645 |
| $ | (1,817 | ) | | $ | (47 | ) | | $ | 57 |
| | $ | 19 |
| | $ | 21 |
| $ | (5 | ) | $ | (257 | ) | $ | 255 |
| $ | (3 | ) | $ | 1,645 |
| | $ | 140 |
| | $ | (47 | ) | | $ | 57 |
| | $ | (29 | ) | $ | 21 |
| $ | (5 | ) |
| Prior service credit arising during the year | — |
| 53 |
| — |
| | — |
| | — |
| | — |
| | — |
| — |
| — |
| — |
| — |
| 53 |
| | — |
| | — |
| | — |
| | — |
| — |
| — |
|
| Amortization of net loss | (247 | ) | (25 | ) | (271 | ) | | (35 | ) | | (47 | ) | | (49 | ) | | — |
| — |
| (1 | ) | (235 | ) | (247 | ) | (25 | ) | | (22 | ) | | (35 | ) | | (47 | ) | | — |
| — |
| — |
|
| Amortization of prior service (cost)/credit | 34 |
| 41 |
| 41 |
| | 2 |
| | 2 |
| | 2 |
| | — |
| 1 |
| — |
| 34 |
| 34 |
| 41 |
| | 2 |
| | 2 |
| | 2 |
| | — |
| — |
| 1 |
|
| Settlement loss | | — |
| — |
| — |
| | (4 | ) | | — |
| | — |
| | — |
| — |
| — |
|
| Foreign exchange impact and other | — |
| — |
| — |
| | (33 | ) | (a) | (39 | ) | (a) | 14 |
| (a) | — |
| — |
| — |
| — |
| — |
| — |
| | (77 | ) | (a) | (33 | ) | (a) | (39 | ) | (a) | — |
| — |
| — |
|
| Total recognized in other comprehensive income | $ | (216 | ) | $ | 1,714 |
| $ | (2,047 | ) | | $ | (113 | ) | | $ | (27 | ) | | $ | (14 | ) | | $ | 21 |
| $ | (4 | ) | $ | (258 | ) | $ | 54 |
| $ | (216 | ) | $ | 1,714 |
| | $ | 39 |
| | $ | (113 | ) | | $ | (27 | ) | | $ | (29 | ) | $ | 21 |
| $ | (4 | ) |
| Total recognized in net periodic benefit cost and other comprehensive income | $ | (94 | ) | $ | 1,528 |
| $ | (2,012 | ) | | $ | (80 | ) | | $ | 16 |
| | $ | 50 |
| | $ | (53 | ) | $ | (68 | ) | $ | (313 | ) | $ | 190 |
| $ | (94 | ) | $ | 1,528 |
| | $ | 59 |
| | $ | (80 | ) | | $ | 16 |
| | $ | (103 | ) | $ | (53 | ) | $ | (68 | ) |
| |
| (a) | Includes various defined benefit pension plans which are individually immaterial. |
|
| | |
JPMorgan Chase & Co./20152016 Annual Report | | 225191 |
Notes to consolidated financial statements
The estimated pretax amounts that will be amortized from AOCI into net periodic benefit cost in 20162017 are as follows.
| | | | | Defined benefit pension plans | | OPEB plans | | Defined benefit pension plans | | OPEB plans |
| (in millions) | | U.S. | | Non-U.S. | | U.S. | | Non-U.S. | | U.S. | | Non-U.S. | | U.S. | | Non-U.S. |
| Net loss/(gain) | | $ | 231 |
| | $ | 23 |
| | $ | — |
| | $ | — |
| | $ | 216 |
| | $ | 28 |
| | $ | — |
| | $ | — |
|
| Prior service cost/(credit) | | (34 | ) | | (2 | ) | | — |
| | — |
| | (34 | ) | | (2 | ) | | — |
| | — |
|
| Total | | $ | 197 |
| | $ | 21 |
| | $ | — |
| | $ | — |
| | $ | 182 |
| | $ | 26 |
| | $ | — |
| | $ | — |
|
The following table presents the actual rate of return on plan assets for the U.S. and non-U.S. defined benefit pension and OPEB plans.
| | | | U.S. | | Non-U.S. | U.S. | | Non-U.S. |
| Year ended December 31, | 2015 |
| | 2014 |
| | 2013 |
| | 2015 | | 2014 | | 2013 | 2016 |
| | 2015 |
| | 2014 |
| | 2016 | | 2015 | | 2014 |
| Actual rate of return: | | | | | | | | | | | | | | | | | | | | | | |
| Defined benefit pension plans | 0.88 | % | | 7.29 | % | | 15.95 | % | | (0.48) – 4.92% | | 5.62 – 17.69% | | 3.74 – 23.80% | 6.12 | % | | 0.88 | % | | 7.29 | % | | 1.07 – 20.60% | | (0.48) – 4.92% | | 5.62 – 17.69% |
| OPEB plans | 1.16 |
| | 9.84 |
| | 13.88 |
| | NA | | NA | | NA | 7.29 |
| | 1.16 |
| | 9.84 |
| | NA | | NA | | NA |
Plan assumptions
JPMorgan Chase’s expected long-term rate of return for U.S. defined benefit pension and OPEB plan assets is a blended average of the investment advisor’s projected long-term
(10 years or more)more years) returns for the various asset classes, weighted by the asset allocation. Returns on asset classes are developed using a forward-looking approach and are not strictly based on historical returns. Equity returns are generally developed as the sum of inflation, expected real earnings growth and expected long-term dividend yield. Bond returns are generally developed as the sum of inflation, real bond yield and risk spread (as appropriate), adjusted for the expected effect on returns from changing yields. Other asset-class returns are derived from their relationship to the equity and bond markets. Consideration is also given to current market conditions and the short-term portfolio mix of each plan.
For the U.K. defined benefit pension plans, which represent the most significant of the non-U.S. defined benefit pension plans, procedures similar to those in the U.S. are used to develop the expected long-term rate of return on plan assets, taking into consideration local market conditions and the specific allocation of plan assets. The expected long-term rate of return on U.K. plan assets is an average of projected long-term returns for each asset class. The return on equities has been selected by reference to the yield on long-term U.K. government bonds plus an equity risk premium above the risk-free rate. The expected return on “AA” rated long-term corporate bonds is based on an implied yield for similar bonds.
The discount rate used in determining the benefit obligation under the U.S. defined benefit pension and OPEB plans was provided by ourthe Firm’s actuaries. This rate was selected by reference to the yields on portfolios of bonds with maturity dates and coupons that closely match each of the plan’s projected cash flows; such portfolios are derived from a broad-based universe of high-quality corporate bonds as of the measurement date. In years in which these hypothetical bond portfolios generate excess cash, such excess is assumed to be reinvested at the one-year forward rates
implied by the Citigroup Pension DiscountMercer Yield Curve published as of the measurement date. The discount rate for the U.K. defined benefit pension plan represents a rate of appropriate duration from the analysis of yield curves provided by ourthe Firm’s actuaries.
In 2014, the Society of Actuaries (“SOA”) completed a comprehensive review of mortality experience of uninsured private retirement plans in the U.S. In October 2014, the SOA published new mortality tables and a new mortality improvement scale that reflects improved life expectancies and an expectation that this trend will continue. In 2014, the Firm adopted the SOA’s tables and projection scale, resulting in an estimated increase in PBO of $533 million. In 2015, the SOA updated the projection scale to reflect two additional years of historical data. The Firm has adopted the updated projection scale resulting in an estimated decrease in PBO in 2015 of $112 million.
At December 31, 2015,2016, the Firm increaseddecreased the discount rates used to determine its benefit obligations for the U.S. defined benefit pension and OPEB plans in light of current market interest rates, which will resultincrease expense by approximately $45 million in a decrease in expense of approximately $63 million for 2016.2017. The 20162017 expected long-term rate of return on U.S. defined benefit pension plan assets and U.S. OPEB plan assets are 6.50%6.00% and 5.75%5.00%, respectively. For 2016,2017, the initial health care benefit obligation trend assumption has been set at 5.50%5.00%, andwhile the ultimate health care trend assumption and the year to reach the ultimate rate remainsremain at 5.00% and 2017, respectively, unchanged from 2015.2016. As of December 31, 2015,2016, the interest crediting rate assumption remained at 5.00% and the assumed rate of compensation increase remained at 5.00% and 3.50%, respectively.was reduced to 2.30%.
|
| | |
| 192 | | JPMorgan Chase & Co./2016 Annual Report |
The following tables present the weighted-average annualized actuarial assumptions for the projected and accumulated postretirement benefit obligations, and the components of net periodic benefit costs, for the Firm’s significant U.S. and non-U.S. defined benefit pension and OPEB plans, as of and for the periods indicated.
|
| | |
226 | | JPMorgan Chase & Co./2015 Annual Report |
| | | Weighted-average assumptions used to determine benefit obligations | Weighted-average assumptions used to determine benefit obligations | | | | | | | Weighted-average assumptions used to determine benefit obligations | | | | | | |
| | U.S. | | Non-U.S. | U.S. | | Non-U.S. |
| December 31, | 2015 |
| | 2014 |
| | 2015 |
| | 2014 |
| 2016 |
| | 2015 |
| | 2016 |
| | 2015 |
|
| Discount rate: | | | | | | | | | | | | | | |
| Defined benefit pension plans | 4.50 | % | | 4.00 | % | | 0.80 – 3.70% |
| | 1.00 – 3.60% |
| 4.30 | % | | 4.50 | % | | 0.60 – 2.60% |
| | 0.80 – 3.70% |
|
| OPEB plans | 4.40 |
| | 4.10 |
| | — |
| | — |
| 4.20 |
| | 4.40 |
| | — |
| | — |
|
| Rate of compensation increase | 3.50 |
| | 3.50 |
| | 2.25 – 4.30 |
| | 2.75 – 4.20 |
| 2.30 |
| | 3.50 |
| | 2.25 – 3.00 |
| | 2.25 – 4.30 |
|
| Health care cost trend rate: | | | | | | | | | | | | | | |
| Assumed for next year | 5.50 |
| | 6.00 |
| | — |
| | — |
| 5.00 |
| | 5.50 |
| | — |
| | — |
|
| Ultimate | 5.00 |
| | 5.00 |
| | — |
| | — |
| 5.00 |
| | 5.00 |
| | — |
| | — |
|
| Year when rate will reach ultimate | 2017 | | 2017 | | — |
| | — |
| 2017 | | 2017 | | — |
| | — |
|
| | | Weighted-average assumptions used to determine net periodic benefit costs | Weighted-average assumptions used to determine net periodic benefit costs | | | | | | | Weighted-average assumptions used to determine net periodic benefit costs | | | | | | |
| | U.S. | | Non-U.S. | U.S. | | Non-U.S. |
| Year ended December 31, | 2015 |
| | 2014 |
| | 2013 |
| | 2015 |
| | 2014 |
| | 2013 |
| 2016 |
| | 2015 |
| | 2014 |
| | 2016 |
| | 2015 |
| | 2014 |
|
| Discount rate: | | | | | | | | | | | | | | | | | | | | | | |
| Defined benefit pension plans | 4.00 | % | | 5.00 | % | | 3.90 | % | | 1.00 – 3.60% |
| | 1.10 – 4.40% |
| | 1.40 – 4.40% |
| 4.50 | % | | 4.00 | % | | 5.00 | % | | 0.90 – 3.70% |
| | 1.00 – 3.60% |
| | 1.10 – 4.40% |
|
| OPEB plans | 4.10 |
| | 4.90 |
| | 3.90 |
| | — |
| | — |
| | — |
| 4.40 |
| | 4.10 |
| | 4.90 |
| | — |
| | — |
| | — |
|
| Expected long-term rate of return on plan assets: | | | | | | | |
| | | | | | | | | | | |
| | | | |
| Defined benefit pension plans | 6.50 |
| | 7.00 |
| | 7.50 |
| | 0.90 – 4.80 |
| | 1.20 – 5.30 |
| | 2.40 – 4.90 |
| 6.50 |
| | 6.50 |
| | 7.00 |
| | 0.80 – 4.60 |
| | 0.90 – 4.80 |
| | 1.20 – 5.30 |
|
| OPEB plans | 6.00 |
| | 6.25 |
| | 6.25 |
| | NA |
| | NA |
| | NA |
| 5.75 |
| | 6.00 |
| | 6.25 |
| | NA |
| | NA |
| | NA |
|
| Rate of compensation increase | 3.50 |
| | 3.50 |
| | 4.00 |
| | 2.75 – 4.20 |
| | 2.75 – 4.60 |
| | 2.75 – 4.10 |
| 3.50 |
| | 3.50 |
| | 3.50 |
| | 2.25 – 4.30 |
| | 2.75 – 4.20 |
| | 2.75 – 4.60 |
|
| Health care cost trend rate: | | | | | | | |
| | | | | | | | | | | |
| | | | |
| Assumed for next year | 6.00 |
| | 6.50 |
| | 7.00 |
| | — |
| | — |
| | — |
| 5.50 |
| | 6.00 |
| | 6.50 |
| | — |
| | — |
| | — |
|
| Ultimate | 5.00 |
| | 5.00 |
| | 5.00 |
| | — |
| | — |
| | — |
| 5.00 |
| | 5.00 |
| | 5.00 |
| | — |
| | — |
| | — |
|
| Year when rate will reach ultimate | 2017 | | 2017 | | 2017 | | — |
| | — |
| | — |
| 2017 | | 2017 | | 2017 | | — |
| | — |
| | — |
|
The following table presents the effect of a one-percentage-point change in the assumed health care cost trend rate on JPMorgan Chase’s accumulated postretirement benefit obligation. As of December 31, 2015,2016, there was no material effect on total service and interest cost.
| | Year ended December 31, 2015 (in millions) | 1-Percentage point increase | | 1-Percentage point decrease | |
Year ended December 31, 2016 (in millions) | | 1-Percentage point increase | | 1-Percentage point decrease |
| Effect on accumulated postretirement benefit obligation | $ | 8 |
| | $ | (7 | ) | $ | 8 |
| | $ | (7 | ) |
JPMorgan Chase’s U.S. defined benefit pension and OPEB plan expense is sensitive to the expected long-term rate of return on plan assets and the discount rate. With all other assumptions held constant, a 25-basis point decline in the expected long-term rate of return on U.S. plan assets would result in an aggregate increase of approximately $39$40 million in 20162017 U.S. defined benefit pension and OPEB plan expense. A 25-basis point decline in the discount rate for the U.S. plans would result in an increase in 20162017 U.S. defined benefit pension and OPEB plan expense of approximately an aggregate $31 million and an increase in the related benefit obligations of approximately an aggregate $296$316 million. A 25-basis point decrease in the interest crediting rate for the U.S. defined benefit pension plan would result in a decrease in 20162017 U.S. defined benefit pension expense of approximately $35$36 million and a decrease in the related PBO of approximately $145$160 million. A 25-basis point decline in the discount rates for the non-U.S. plans would result in an increase in the 20162017 non-U.S. defined benefit pension plan expense of approximately $17$12 million.
|
| | |
JPMorgan Chase & Co./20152016 Annual Report | | 227193 |
Notes to consolidated financial statements
Investment strategy and asset allocation
The Firm’s U.S. defined benefit pension plan assets are held in trust and are invested in a well-diversified portfolio of equity and fixed income securities, cash and cash equivalents, and alternative investments (e.g., hedge funds, private equity, real estate and real assets). Non-U.S. defined benefit pension plan assets are held in various trusts and are also invested in well-diversified portfolios of equity, fixed income and other securities. Assets of the Firm’s COLI policies, which are used to partially fund the U.S. OPEB plan, are held in separate accounts of an insurance company and are allocated to investments intended to replicate equity and fixed income indices.
The investment policy for the Firm’s U.S. defined benefit pension plan assets is to optimize the risk-return relationship as appropriate to the needs and goals of the plan using a global portfolio of various asset classes diversified by market segment, economic sector, and issuer. Assets are managed by a combination of internal and external investment managers. Periodically the Firm performs a comprehensive analysis on the U.S. defined benefit pension plan asset allocations, incorporating projected asset and liability data, which focuses on the short- and long-term impact of the asset allocation on cumulative pension expense, economic cost, present value of contributions and funded status. As the U.S. defined benefit pension plan is overfunded, the investment strategy for this plan was adjusted in 2013 to provide for greater liquidity. Currently, approved asset allocation ranges are: U.S. equity 0% to 45%, international equity 0% to 40%, debt securities 0% to 80%, hedge funds 0% to 5%, real estate 0% to 10%, real assets 0% to 10% and private equity 0% to 20%. Asset allocations are not managed to a specific target but seek to shift asset class allocations within these stated ranges. Investment strategies incorporate the economic outlook and the anticipated implications of the macroeconomic environment on the various asset classes
while maintaining an appropriate level of liquidity for the plan. The Firm
regularly reviews the asset allocations and asset managers, as well as other factors that impact the portfolio, which is rebalanced when deemed necessary.
For the U.K. defined benefit pension plans, which represent the most significant of the non-U.S. defined benefit pension plans, the assets are invested to maximize returns subject to an appropriate level of risk relative to the plans’ liabilities. In order toTo reduce the volatility in returns relative to the plans’ liability profiles, the U.K. defined benefit pension plans’ largest asset allocations are to debt securities of appropriate durations. Other assets, mainly equity securities, are then invested for capital appreciation, to provide long-term investment growth. Similar to the U.S. defined benefit pension plan, asset allocations and asset managers for the U.K. plans are reviewed regularly and the portfolios are rebalanced when deemed necessary.
Investments held by the PlansU.S. and non-U.S. defined benefit pension and OPEB plans include financial instruments whichthat are exposed to various risks such as interest rate, market, credit, liquidity and creditcountry risks. Exposure to a concentration of credit risk is mitigated by the broad diversification of both U.S. and non-U.S. investment instruments. Additionally, the investments in each of the common/collective trust funds and registered investment companies are further diversified into various financial instruments. As of December 31, 20152016, assets held by the Firm’s U.S. and non-U.S. defined benefit pension and OPEB plans do not include JPMorgan Chase common stock, except through indirect exposures through investments in third-party stock-index funds. The plans hold investments in funds that are sponsored or managed by affiliates of JPMorgan Chase in the amount of $3.2$3.4 billion and $3.73.2 billion for U.S. plans and $1.2 billion and $1.4$1.2 billion for non-U.S. plans, as of December 31, 20152016 and 20142015, respectively.
The following table presents the weighted-average asset allocation of the fair values of total plan assets at December 31 for the years indicated, as well as the respective approved range/target allocation by asset category, for the Firm’s U.S. and non-U.S. defined benefit pension and OPEB plans.
| | | | Defined benefit pension plans | | | Defined benefit pension plans | | |
| | U.S. | | Non-U.S. | | OPEB plans(c) | U.S. | | Non-U.S. | | OPEB plans(c) |
| | Target | | % of plan assets | | Target | | % of plan assets | | Target | | % of plan assets | Target | | % of plan assets | | Target | | % of plan assets | | Target | | % of plan assets |
| December 31, | Allocation | | 2015 |
| | 2014 |
| | Allocation | | 2015 |
| | 2014 |
| | Allocation | | 2015 |
| | 2014 |
| Allocation | | 2016 |
| | 2015 |
| | Allocation | | 2016 |
| | 2015 |
| | Allocation | | 2016 |
| | 2015 |
|
| Asset category | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Debt securities(a) | 0-80% | | 32 | % | | 31 | % | | 59 | % | | 60 | % | | 61 | % | | 30-70% |
| | 50 | % | | 50 | % | 0-80% | | 35 | % | | 32 | % | | 59 | % | | 60 | % | | 60 | % | | 30-70% |
| | 50 | % | | 50 | % |
| Equity securities | 0-85 | | 48 |
| | 46 |
| | 40 |
| | 38 |
| | 38 |
| | 30-70 |
| | 50 |
| | 50 |
| 0-85 | | 47 |
| | 48 |
| | 40 |
| | 39 |
| | 38 |
| | 30-70 |
| | 50 |
| | 50 |
|
| Real estate | 0-10 | | 4 |
| | 4 |
| | — |
| | 1 |
| | — |
| | — |
| | — |
| | — |
| 0-10 | | 4 |
| | 4 |
| | — |
| | — |
| | 1 |
| | — |
| | — |
| | — |
|
Alternatives(b) | 0-35 | | 16 |
| | 19 |
| | 1 |
| | 1 |
| | 1 |
| | — |
| | — |
| | — |
| 0-35 | | 14 |
| | 16 |
| | 1 |
| | 1 |
| | 1 |
| | — |
| | — |
| | — |
|
| Total | 100% | | 100 | % | | 100 | % | | 100 | % | | 100 | % | | 100 | % | | 100 | % | | 100 | % | | 100 | % | 100% | | 100 | % | | 100 | % | | 100 | % | | 100 | % | | 100 | % | | 100 | % | | 100 | % | | 100 | % |
| |
| (a) | Debt securities primarily include corporate debt, U.S. federal, state, local and non-U.S. government, and mortgage-backed securities. |
| |
| (b) | Alternatives primarily include limited partnerships. |
| |
| (c) | Represents the U.S. OPEB plan only, as the U.K. OPEB plan is unfunded. |
|
| | |
228194 | | JPMorgan Chase & Co./20152016 Annual Report |
Fair value measurement of the plans’ assets and liabilities
For information on fair value measurements, including descriptions of level 1, 2, and 3 of the fair value hierarchy and the valuation methods employed by the Firm, see Note 3.
| | | Pension and OPEB plan assets and liabilities measured at fair value | Pension and OPEB plan assets and liabilities measured at fair value | | | | | | | Pension and OPEB plan assets and liabilities measured at fair value | | | | | | |
| | U.S. defined benefit pension plans | | Non-U.S. defined benefit pension plans(g) | U.S. defined benefit pension plans | | Non-U.S. defined benefit pension plans(h) |
December 31, 2015 (in millions) | Level 1 | | Level 2 | | Level 3 | | Total fair value | | Level 1 | | Level 2 | | Total fair value | |
December 31, 2016 (in millions) | | Level 1 | | Level 2 | | Level 3 | | Total fair value | | Level 1 | | Level 2 | | Total fair value |
| Cash and cash equivalents | $ | 112 |
| | $ | — |
| | $ | — |
| | $ | 112 |
| | $ | 114 |
| | $ | 1 |
| | $ | 115 |
| $ | 74 |
| | $ | — |
| | $ | — |
| | $ | 74 |
| | $ | 122 |
| | $ | 2 |
| | $ | 124 |
|
| Equity securities | 4,826 |
| | 5 |
| | 2 |
| | 4,833 |
| | 1,002 |
| | 157 |
| | 1,159 |
| 5,178 |
| | 12 |
| | 2 |
| | 5,192 |
| | 980 |
| | 154 |
| | 1,134 |
|
Common/collective trust funds(a) | 339 |
| | — |
| | — |
| | 339 |
| | 135 |
| | — |
| | 135 |
| 266 |
| | — |
| | — |
| | 266 |
| | 118 |
| | — |
| | 118 |
|
Limited partnerships(b) | 53 |
| | — |
| | — |
| | 53 |
| | — |
| | — |
| | — |
| 62 |
| | — |
| | — |
| | 62 |
| | — |
| | — |
| | — |
|
Corporate debt securities(c) | — |
| | 1,619 |
| | 2 |
| | 1,621 |
| | — |
| | 758 |
| | 758 |
| — |
| | 1,791 |
| | 4 |
| | 1,795 |
| | — |
| | 715 |
| | 715 |
|
| U.S. federal, state, local and non-U.S. government debt securities | 580 |
| | 108 |
| | — |
| | 688 |
| | 212 |
| | 504 |
| | 716 |
| 926 |
| | 234 |
| | — |
| | 1,160 |
| | 213 |
| | 570 |
| | 783 |
|
| Mortgage-backed securities | — |
| | 67 |
| | 1 |
| | 68 |
| | 2 |
| | 26 |
| | 28 |
| 39 |
| | 65 |
| | — |
| | 104 |
| | 3 |
| | 10 |
| | 13 |
|
| Derivative receivables | — |
| | 104 |
| | — |
| | 104 |
| | — |
| | 209 |
| | 209 |
| — |
| | 24 |
| | — |
| | 24 |
| | — |
| | 219 |
| | 219 |
|
Other(d) | 1,760 |
| | 27 |
| | 534 |
| | 2,321 |
| | 257 |
| | 53 |
| | 310 |
| 1,274 |
| | — |
| | 390 |
| | 1,664 |
| | 223 |
| | 53 |
| | 276 |
|
Total assets measured at fair value | $ | 7,670 |
| | $ | 1,930 |
| | $ | 539 |
| | $ | 10,139 |
| (e) | $ | 1,722 |
| | $ | 1,708 |
| | $ | 3,430 |
| $ | 7,819 |
| | $ | 2,126 |
| | $ | 396 |
| | $ | 10,341 |
| (f) | $ | 1,659 |
| | $ | 1,723 |
| | $ | 3,382 |
|
| Derivative payables | $ | — |
| | $ | (35 | ) | | $ | — |
| | $ | (35 | ) | | $ | — |
| | $ | (153 | ) | | $ | (153 | ) | $ | — |
| | $ | (14 | ) | | $ | — |
| | $ | (14 | ) | | $ | — |
| | $ | (194 | ) | | $ | (194 | ) |
| Total liabilities measured at fair value | $ | — |
| | $ | (35 | ) | | $ | — |
| | $ | (35 | ) | (f) | $ | — |
| | $ | (153 | ) | | $ | (153 | ) | $ | — |
| | $ | (14 | ) | | $ | — |
| | $ | (14 | ) | (g) | $ | — |
| | $ | (194 | ) | | $ | (194 | ) |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | U.S. defined benefit pension plans | | Non-U.S. defined benefit pension plans(g) |
December 31, 2014 (in millions) | Level 1 | | Level 2 | | Level 3 | | Total fair value | | Level 1 | | Level 2 | | Total fair value |
| Cash and cash equivalents | $ | 87 |
| | $ | — |
| | $ | — |
| | $ | 87 |
| | $ | 128 |
| | $ | 1 |
| | $ | 129 |
|
| Equity securities | 5,286 |
| | 20 |
| | 4 |
| | 5,310 |
| | 1,019 |
| | 169 |
| | 1,188 |
|
Common/collective trust funds(a) | 345 |
| | — |
| | — |
| | 345 |
| | 112 |
| | — |
| | 112 |
|
Limited partnerships(b) | 70 |
| | — |
| | — |
| | 70 |
| | — |
| | — |
| | — |
|
Corporate debt securities(c) | — |
| | 1,454 |
| | 9 |
| | 1,463 |
| | — |
| | 724 |
| | 724 |
|
| U.S. federal, state, local and non-U.S. government debt securities | 446 |
| | 161 |
| | — |
| | 607 |
| | 235 |
| | 540 |
| | 775 |
|
| Mortgage-backed securities | 1 |
| | 73 |
| | 1 |
| | 75 |
| | 2 |
| | 77 |
| | 79 |
|
| Derivative receivables | — |
| | 114 |
| | — |
| | 114 |
| | — |
| | 258 |
| | 258 |
|
Other(d) | 2,031 |
| | 27 |
| | 337 |
| | 2,395 |
| | 283 |
| | 58 |
| | 341 |
|
| Total assets measured at fair value | $ | 8,266 |
| | $ | 1,849 |
| | $ | 351 |
| | $ | 10,466 |
| (e) | $ | 1,779 |
| | $ | 1,827 |
| | $ | 3,606 |
|
| Derivative payables | $ | — |
| | $ | (23 | ) | | $ | — |
| | $ | (23 | ) | | $ | — |
| | $ | (139 | ) | | $ | (139 | ) |
| Total liabilities measured at fair value | $ | — |
| | $ | (23 | ) | | $ | — |
| | $ | (23 | ) | (f) | $ | — |
| | $ | (139 | ) | | $ | (139 | ) |
Note: Effective April 1, 2015, the Firm adopted new accounting guidance for certain investments where the Firm measures fair value using the net asset value per share (or its equivalent) as a practical expedient and excluded them from the fair value hierarchy. Accordingly, such investments are not included within these tables. At December 31, 2015 and 2014, the fair values of these investments, which include certain limited partnerships and common/collective trust funds, were $4.1 billion and $4.3 billion, respectively, of U.S. defined benefit pension plan investments, and $234 million and $251 million, respectively, of non-U.S. defined benefit pension plan investments. Of these investments $1.3 billion and $3.0 billion, respectively, of U.S. defined benefit pension plan investments had been previously classified in level 2 and level 3, respectively, and $251 million of non-U.S. defined benefit pension plan investments had been previously classified in level 2 at December 31, 2014. The guidance was required to be applied retrospectively, and accordingly, prior period amounts have been revised to conform with the current period presentation. |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | U.S. defined benefit pension plans | | Non-U.S. defined benefit pension plans(h) |
December 31, 2015 (in millions) | Level 1 | | Level 2 | | Level 3 | | Total fair value | | Level 1 | | Level 2 | | Total fair value |
| Cash and cash equivalents | $ | 112 |
| | $ | — |
| | $ | — |
| | $ | 112 |
| | $ | 114 |
| | $ | 1 |
| | $ | 115 |
|
| Equity securities | 4,826 |
| | 5 |
| | 2 |
| | 4,833 |
| | 1,002 |
| | 157 |
| | 1,159 |
|
Common/collective trust funds(a) | 339 |
| | — |
| | — |
| | 339 |
| | 135 |
| | — |
| | 135 |
|
Limited partnerships(b) | 53 |
| | — |
| | — |
| | 53 |
| | — |
| | — |
| | — |
|
Corporate debt securities(c) | — |
| | 1,619 |
| | 2 |
| | 1,621 |
| | — |
| | 758 |
| | 758 |
|
| U.S. federal, state, local and non-U.S. government debt securities | 580 |
| | 108 |
| | — |
| | 688 |
| | 212 |
| | 504 |
| | 716 |
|
| Mortgage-backed securities | — |
| | 67 |
| | 1 |
| | 68 |
| | 2 |
| | 26 |
| | 28 |
|
| Derivative receivables | — |
| | 104 |
| | — |
| | 104 |
| | — |
| | 209 |
| | 209 |
|
Other(d) | 1,760 |
| | 27 |
| | 534 |
| | 2,321 |
| | 257 |
| | 53 |
| | 310 |
|
Total assets measured at fair value(e) | $ | 7,670 |
| | $ | 1,930 |
| | $ | 539 |
| | $ | 10,139 |
| (f) | $ | 1,722 |
| | $ | 1,708 |
| | $ | 3,430 |
|
| Derivative payables | $ | — |
| | $ | (35 | ) | | $ | — |
| | $ | (35 | ) | | $ | — |
| | $ | (153 | ) | | $ | (153 | ) |
| Total liabilities measured at fair value | $ | — |
| | $ | (35 | ) | | $ | — |
| | $ | (35 | ) | (g) | $ | — |
| | $ | (153 | ) | | $ | (153 | ) |
| |
| (a) | At December 31, 20152016 and 2014,2015, common/collective trust funds primarily included a mix of short-term investment funds, domestic and international equity investments (including index) and real estate funds. |
| |
| (b) | Unfunded commitments to purchase limited partnership investments for the plans were $735 million and $895 million for 2016 and $1.2 billion for 2015, and 2014, respectively. |
| |
| (c) | Corporate debt securities include debt securities of U.S. and non-U.S. corporations. |
| |
| (d) | Other consists primarily of money markets funds, exchange-tradedmarket funds and participating and non-participating annuity contracts. Money markets funds and exchange-tradedmarket funds are primarily classified within level 1 of the fair value hierarchy given they are valued using market observable prices. Participating and non-participating annuity contracts are classified within level 3 of the fair value hierarchy due to a lack of market mechanisms for transferring each policy and surrender restrictions. |
| |
| (e) | Certain investments that are measured at fair value using the net asset value per share (or its equivalent) as a practical expedient are not required to be classified in the fair value hierarchy. At December 31, 2016 and 2015, the fair values of these investments, which include certain limited partnerships and 2014,common/collective trust funds, were $4.0 billion and $4.1 billion, respectively, of U.S. defined benefit pension plan investments, and $243 million and $234 million, respectively, of non-U.S. defined benefit pension plan investments. |
| |
| (f) | At December 31, 2016 and 2015, excluded U.S. defined benefit pension plan receivables for investments sold and dividends and interest receivables of $74$130 million and $106$74 million, respectively. |
| |
(f)(g) | At December 31, 2016 and 2015, and 2014, excluded $106$203 million and $241$106 million, respectively, of U.S. defined benefit pension plan payables for investments purchased; and $17$21 million and $16$17 million, respectively, of other liabilities. |
| |
(g)(h) | There were zero assets or liabilities classified as level 3 for the non-U.S. defined benefit pension plans as of December 31, 20152016 and 2014.2015. |
The Firm’s U.S. OPEB plan was partially funded with COLI policies of $2.0 billion and $1.9 billion at both December 31, 20152016 and 2014,2015, which were classified in level 3 of the valuation hierarchy.
|
| | |
JPMorgan Chase & Co./20152016 Annual Report | | 229195 |
Notes to consolidated financial statements
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| Changes in level 3 fair value measurements using significant unobservable inputs | | | | |
Year ended December 31, 2015 (in millions) | | Fair value, January 1, 2015 | | Actual return on plan assets | | Purchases, sales and settlements, net | | Transfers in and/or out of level 3 | | Fair value, December 31, 2015 |
| Realized gains/(losses) | | Unrealized gains/(losses) |
| U.S. defined benefit pension plans | | | | | | | | | | | | |
| Equities | | $ | 4 |
| | $ | — |
| | $ | (2 | ) | | $ | — |
| | $ | — |
| | $ | 2 |
|
| Corporate debt securities | | 9 |
| | — |
| | — |
| | (7 | ) | | — |
| | 2 |
|
| Mortgage-backed securities | | 1 |
| | — |
| | — |
| | — |
| | — |
| | 1 |
|
| Other | | 337 |
| | — |
| | 197 |
| | — |
| | — |
| | 534 |
|
| Total U.S. defined benefit pension plans | | $ | 351 |
| | $ | — |
| | $ | 195 |
| | $ | (7 | ) | | $ | — |
| | $ | 539 |
|
| OPEB plans | | | | | | | | | | | | |
| COLI | | $ | 1,903 |
| | $ | — |
| | $ | (48 | ) | | $ | — |
| | $ | — |
| | $ | 1,855 |
|
| Total OPEB plans | | $ | 1,903 |
| | $ | — |
| | $ | (48 | ) | | $ | — |
| | $ | — |
| | $ | 1,855 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | |
Year ended December 31, 2014 (in millions) | | Fair value, January 1, 2014 | | Actual return on plan assets | | Purchases, sales and settlements, net | | Transfers in and/or out of level 3 | | Fair value, December 31, 2014 |
| Realized gains/(losses) | | Unrealized gains/(losses) |
| U.S. defined benefit pension plans | | | | | | | | | | | | |
| Equities | | $ | 4 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 4 |
|
| Corporate debt securities | | 7 |
| | (2 | ) | | 2 |
| | 4 |
| | (2 | ) | | 9 |
|
| Mortgage-backed securities | | — |
| | — |
| | — |
| | 1 |
| | — |
| | 1 |
|
| Other | | 430 |
| | — |
| | (93 | ) | | — |
| | — |
| | 337 |
|
| Total U.S. defined benefit pension plans | | $ | 441 |
| | $ | (2 | ) | | $ | (91 | ) | | $ | 5 |
| | $ | (2 | ) | | $ | 351 |
|
| OPEB plans | | | | | | | | | | | | |
| COLI | | $ | 1,749 |
| | $ | — |
| | $ | 154 |
| | $ | — |
| | $ | — |
| | $ | 1,903 |
|
| Total OPEB plans | | $ | 1,749 |
| | $ | — |
| | $ | 154 |
| | $ | — |
| | $ | — |
| | $ | 1,903 |
|
| | Year ended December 31, 2013 (in millions) | | Fair value, January 1, 2013 | | Actual return on plan assets | | Purchases, sales and settlements, net | | Transfers in and/or out of level 3 | | Fair value, December 31, 2013 | |
| Realized gains/(losses) | | Unrealized gains/(losses) | |
| Changes in level 3 fair value measurements using significant unobservable inputs | | Changes in level 3 fair value measurements using significant unobservable inputs | | | | |
Year ended December 31, 2016 (in millions) | | | Fair value, January 1, 2016 | | Actual return on plan assets | | Purchases, sales and settlements, net | | Transfers in and/or out of level 3 | | Fair value, December 31, 2016 |
| Realized gains/(losses) | | Unrealized gains/(losses) |
| U.S. defined benefit pension plans | | | | | | | | | | | | | | | | | | | | | | | | |
| Equities | | $ | 4 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 4 |
| |
| Equity securities | | | $ | 2 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 2 |
|
| Corporate debt securities | | 1 |
| | — |
| | — |
| | — |
| | 6 |
| | 7 |
| | 2 |
| | — |
| | — |
| | 1 |
| | 1 |
| | 4 |
|
| Mortgage-backed securities | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 1 |
| | — |
| | — |
| | (1 | ) | | — |
| | — |
|
| Other | | 420 |
| | — |
| | 10 |
| | — |
| | — |
| | 430 |
| | 534 |
| | — |
| | (157 | ) | | — |
| | 13 |
| | 390 |
|
| Total U.S. defined benefit pension plans | | $ | 425 |
| | $ | — |
| | $ | 10 |
| | $ | — |
| | $ | 6 |
| | $ | 441 |
| | $ | 539 |
| | $ | — |
| | $ | (157 | ) | | $ | — |
| | $ | 14 |
| | $ | 396 |
|
| OPEB plans | | | | | | | | | | | | | | | | | | | | | | | | |
| COLI | | $ | 1,554 |
| | $ | — |
| | $ | 195 |
| | $ | — |
| | $ | — |
| | $ | 1,749 |
| | $ | 1,855 |
| | $ | — |
| | $ | 102 |
| | $ | — |
| | $ | — |
| | $ | 1,957 |
|
| Total OPEB plans | | $ | 1,554 |
| | $ | — |
| | $ | 195 |
| | $ | — |
| | $ | — |
| | $ | 1,749 |
| | $ | 1,855 |
| | $ | — |
| | $ | 102 |
| | $ | — |
| | $ | — |
| | $ | 1,957 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | |
Year ended December 31, 2015 (in millions) | | Fair value, January 1, 2015 | | Actual return on plan assets | | Purchases, sales and settlements, net | | Transfers in and/or out of level 3 | | Fair value, December 31, 2015 |
| Realized gains/(losses) | | Unrealized gains/(losses) |
| U.S. defined benefit pension plans | | | | | | | | | | | | |
| Equity securities | | $ | 4 |
| | $ | — |
| | $ | (2 | ) | | $ | — |
| | $ | — |
| | $ | 2 |
|
| Corporate debt securities | | 9 |
| | — |
| | — |
| | (7 | ) | | — |
| | 2 |
|
| Mortgage-backed securities | | 1 |
| | — |
| | — |
| | — |
| | — |
| | 1 |
|
| Other | | 337 |
| | — |
| | 197 |
| | — |
| | — |
| | 534 |
|
| Total U.S. defined benefit pension plans | | $ | 351 |
| | $ | — |
| | $ | 195 |
| | $ | (7 | ) | | $ | — |
| | $ | 539 |
|
| OPEB plans | | | | | | | | | | | | |
| COLI | | $ | 1,903 |
| | $ | — |
| | $ | (48 | ) | | $ | — |
| | $ | — |
| | $ | 1,855 |
|
| Total OPEB plans | | $ | 1,903 |
| | $ | — |
| | $ | (48 | ) | | $ | — |
| | $ | — |
| | $ | 1,855 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | |
Year ended December 31, 2014 (in millions) | | Fair value, January 1, 2014 | | Actual return on plan assets | | Purchases, sales and settlements, net | | Transfers in and/or out of level 3 | | Fair value, December 31, 2014 |
| Realized gains/(losses) | | Unrealized gains/(losses) |
| U.S. defined benefit pension plans | | | | | | | | | | | | |
| Equity securities | | $ | 4 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 4 |
|
| Corporate debt securities | | 7 |
| | (2 | ) | | 2 |
| | 4 |
| | (2 | ) | | 9 |
|
| Mortgage-backed securities | | — |
| | — |
| | — |
| | 1 |
| | — |
| | 1 |
|
| Other | | 430 |
| | — |
| | (93 | ) | | — |
| | — |
| | 337 |
|
| Total U.S. defined benefit pension plans | | $ | 441 |
| | $ | (2 | ) | | $ | (91 | ) | | $ | 5 |
| | $ | (2 | ) | | $ | 351 |
|
| OPEB plans | | | | | | | | | | | | |
| COLI | | $ | 1,749 |
| | $ | — |
| | $ | 154 |
| | $ | — |
| | $ | — |
| | $ | 1,903 |
|
| Total OPEB plans | | $ | 1,749 |
| | $ | — |
| | $ | 154 |
| | $ | — |
| | $ | — |
| | $ | 1,903 |
|
Estimated future benefit payments
The following table presents benefit payments expected to be paid, which include the effect of expected future service, for the years indicated. The OPEB medical and life insurance payments are net of expected retiree contributions.
| | Year ended December 31, (in millions) | | U.S. defined benefit pension plans | | Non-U.S. defined benefit pension plans | | OPEB before Medicare Part D subsidy | | Medicare Part D subsidy | | U.S. defined benefit pension plans | | Non-U.S. defined benefit pension plans | | OPEB before Medicare Part D subsidy | | Medicare Part D subsidy |
| 2016 | | $ | 762 |
| | $ | 107 |
| | $ | 68 |
| | $ | 1 |
| |
| 2017 | | 798 |
| | 110 |
| | 66 |
| | 1 |
| | $ | 766 |
| | $ | 103 |
| | $ | 68 |
| | $ | 1 |
|
| 2018 | | 927 |
| | 119 |
| | 63 |
| | 1 |
| | 768 |
| | 104 |
| | 65 |
| | 1 |
|
| 2019 | | 966 |
| | 123 |
| | 61 |
| | 1 |
| | 758 |
| | 107 |
| | 63 |
| | 1 |
|
| 2020 | | 1,009 |
| | 129 |
| | 59 |
| | 1 |
| | 765 |
| | 113 |
| | 60 |
| | 1 |
|
| Years 2021–2025 | | 4,409 |
| | 722 |
| | 259 |
| | 4 |
| |
| 2021 | | | 775 |
| | 117 |
| | 58 |
| | 1 |
|
| Years 2022–2026 | | | 3,961 |
| | 646 |
| | 250 |
| | 2 |
|
|
| | |
230196 | | JPMorgan Chase & Co./20152016 Annual Report |
Note 10 – Employee stock-based incentives
Employee stock-based awards
In 20152016, 20142015 and 20132014, JPMorgan Chase granted long-term stock-based awards to certain employees under its Long-Term Incentive Plan,LTIP, as amended and restated effective May 19, 2015 (“LTIP”).2015. Under the terms of the LTIP, as of December 31, 20152016, 9378 million shares of common stock were available for issuance through May 2019. The LTIP is the only active plan under which the Firm is currently granting stock-based incentive awards. In the following discussion, the LTIP, plus prior Firm plans and plans assumed as the result of acquisitions, are referred to collectively as the “LTI Plans,” and such plans constitute the Firm’s stock-based incentive plans.
Restricted stock units (“RSUs”)RSUs are awarded at no cost to the recipient upon their grant. Generally, RSUs are granted annually and vest at a rate of 50% after two years and 50% after three years and are converted into shares of common stock as of the vesting date. In addition, RSUs typically include full-career eligibility provisions, which allow employees to continue to vest upon voluntary termination, subject to post-employment and other restrictions based on age or service-related requirements. All RSUsRSU awards are subject to forfeiture until vested and contain clawback provisions that may result in cancellation under certain specified circumstances. RSUs entitle the recipient to receive cash payments equivalent to any dividends paid on the underlying common stock during the period the RSUs are outstanding and, as such, are considered participating securities as discussed in Note 24.
In January 2016, the Firm’s Board of Directors approved the grant of performance share units (“PSUs”) to members of the Firm’s Operating Committee under the variable compensation program for performance year 2015. PSUs are subject to the Firm’s achievement of specified performance criteria over a three-year period. The number of awards that vest can range from zero to 150% of the grant amount. The awards vest and are converted into shares of common stock in the quarter after the end of the three-year performance period. In addition, dividends are notionally reinvested in the Firm’s common stock and will be delivered only in respect of any earned shares.
Once the PSUs have vested, the shares of common stock that are delivered, after applicable tax withholding, must be held for an additional two-year period, for a total combined vesting and holding period of five years from the grant date.
Under the LTI Plans, stock options and stock appreciation rights (“SARs”) have generally been granted with an exercise price equal to the fair value of JPMorgan Chase’s common stock on the grant date. The Firm periodically grants employee stock options to individual employees. There were no material grants of stock options or SARs
in 2016, 2015 and 2014. Grants of SARs in 2013 become exercisable ratably over five years (i.e., 20% per year) and contain clawback provisions similar to RSUs. The 2013 grants of SARs contain full-career eligibility provisions. SARs generally expire ten years after the grant date.
The Firm separately recognizes compensation expense for each tranche of each award, net of estimated forfeitures, as if it were a separate award with its own vesting date. Generally, for each tranche granted, compensation expense is recognized on a straight-line basis from the grant date until the vesting date of the respective tranche, provided that the employees will not become full-career eligible during the vesting period. For awards with full-career eligibility provisions and awards granted with no future substantive service requirement, the Firm accrues the estimated value of awards expected to be awarded to employees as of the grant date without giving consideration to the impact of post-employment restrictions. For each tranche granted to employees who will become full-career eligible during the vesting period, compensation expense is recognized on a straight-line basis from the grant date until the earlier of the employee’s full-career eligibility date or the vesting date of the respective tranche.
The Firm’s policy for issuing shares upon settlement of employee stock-based incentive awards is to issue either new shares of common stock or treasury shares. During 20152016, 20142015 and 20132014, the Firm settled all of its employee stock-based awards by issuing treasury shares.
In January 2008, the Firm awarded to its Chairman and Chief Executive Officer up to 2 million SARs. The terms of this award are distinct from, and more restrictive than, other equity grants regularly awarded by the Firm. On July 15, 2014, the Compensation & Management Development Committee and Board of Directors determined that all requirements for the vesting of the 2 million SAR awards had been met and thus, the awards became exercisable. The SARs, which will expire in January 2018, have an exercise price of $39.83 (the price of JPMorgan Chase common stock on the date of grant). The expense related to this award was dependent on changes in fair value of the SARs through July 15, 2014 (the date when the vested number of SARs were determined), and the cumulative expense was recognized ratably over the service period, which was initially assumed to be five years but, effective in the first quarter of 2013, had beenwas extended to six and one-half years. The Firm recognized $3 million and $14 millionin compensation expense in 2014 and 2013, respectively, for this award.
|
| | |
JPMorgan Chase & Co./20152016 Annual Report | | 231197 |
Notes to consolidated financial statements
RSUs, PSUs, employee stock options and SARs activity
Compensation expense for RSUs and PSUs is measured based on the number of sharesunits granted multiplied by the stock price at the grant date, and for employee stock options and SARs, is measured at the grant date using the Black-Scholes valuation model. Compensation expense for these awards is recognized in net income as described previously. The following table summarizes JPMorgan Chase’s RSUs, PSUs, employee stock options and SARs activity for 2015.2016. | | | | | RSUs | | Options/SARs | | RSUs/PSUs | | Options/SARs |
| Year ended December 31, 2015 | | Number of shares | Weighted-average grant date fair value | | Number of awards | | Weighted-average exercise price | | Weighted-average remaining contractual life (in years) | Aggregate intrinsic value | |
| Year ended December 31, 2016 | | | Number of units | Weighted-average grant date fair value | | Number of awards | | Weighted-average exercise price | | Weighted-average remaining contractual life (in years) | Aggregate intrinsic value |
| (in thousands, except weighted-average data, and where otherwise stated) | | Number of shares | Weighted-average grant date fair value | | Number of awards | | Weighted-average exercise price | | Weighted-average remaining contractual life (in years) | Aggregate intrinsic value | |
| Outstanding, January 1 | | | | 85,307 |
| $ | 54.60 |
| | 43,466 |
| | $ | 43.51 |
| | | |
| Granted | | 36,096 |
| 56.31 |
| | 107 |
| | 64.41 |
| | | | 36,775 |
| 57.80 |
| | 77 |
| | 72.63 |
| | |
| Exercised or vested | | (47,709 | ) | 41.64 |
| | (14,313 | ) | | 40.44 |
| | | | (37,121 | ) | 52.09 |
| | (12,836 | ) | | 41.55 |
| | |
| Forfeited | | (3,648 | ) | 54.17 |
| | (943 | ) | | 43.04 |
| | | | (3,254 | ) | 56.45 |
| | (240 | ) | | 44.28 |
| | |
| Canceled | | NA |
| NA |
| | (580 | ) | | 278.93 |
| | | | NA |
| NA |
| | (200 | ) | | 612.18 |
| | |
| Outstanding, December 31 | | 85,307 |
| $ | 54.60 |
| | 43,466 |
| | $ | 43.51 |
| | 4.6 | $ | 1,109,411 |
| | 81,707 |
| $ | 57.15 |
| | 30,267 |
| | $ | 40.65 |
| | 3.9 | $ | 1,378,254 |
|
| Exercisable, December 31 | | NA |
| NA |
| | 31,853 |
| | 43.85 |
| | 4.0 | 832,929 |
| | NA |
| NA |
| | 24,815 |
| | 40.08 |
| | 3.6 | 1,144,937 |
|
The total fair value of RSUs that vested during the years ended December 31, 2016, 2015 and 2014, and 2013, was $2.2 billion, $2.8 billion and $3.2 billion, and $2.9 billion, respectively. The weighted-average grant date per share fair value of stock options and SARs granted during the year ended December 31, 2013, was $9.58. The total intrinsic value of options exercised during the years ended December 31, 2016, 2015 and 2014, and 2013, was $338 million, $335 million $539 million and $507$539 million, respectively.
Compensation expense
The Firm recognized the following noncash compensation expense related to its various employee stock-based incentive plans in its Consolidated statements of income.
| | | Year ended December 31, (in millions) | | 2015 |
| | 2014 |
| | 2013 |
| | 2016 |
| | 2015 |
| | 2014 |
|
| Cost of prior grants of RSUs and SARs that are amortized over their applicable vesting periods | | $ | 1,109 |
| | $ | 1,371 |
| | $ | 1,440 |
| |
| Cost of prior grants of RSUs, PSUs and SARs that are amortized over their applicable vesting periods | | | $ | 1,046 |
| | $ | 1,109 |
| | $ | 1,371 |
|
| Accrual of estimated costs of stock-based awards to be granted in future periods including those to full-career eligible employees | | 878 |
| | 819 |
| | 779 |
| | 894 |
| | 878 |
| | 819 |
|
| Total noncash compensation expense related to employee stock-based incentive plans | | $ | 1,987 |
| | $ | 2,190 |
| | $ | 2,219 |
| | $ | 1,940 |
| | $ | 1,987 |
| | $ | 2,190 |
|
At December 31, 2015,2016, approximately $688$700 million (pretax) of compensation expense related to unvested awards had not yet been charged to net income. That cost is expected to be amortized into compensation expense over a weighted-average period of 0.9 years.1.0 year. The Firm does not capitalize any compensation expense related to share-based compensation awards to employees.
Cash flows and tax benefits
Effective January 1, 2016, the Firm adopted new accounting guidance related to employee share-based payments. As a result of the adoption of this new guidance, all excess tax benefits (including tax benefits from dividends or dividend equivalents) on share-based payment awards are recognized within income tax expense in the Consolidated statements of income. In prior years these tax benefits were recorded as increases to additional paid-in capital. Income tax benefits related to stock-based incentive arrangements recognized in the Firm’s Consolidated statements of income for the years ended December 31, 2016, 2015 and 2014, and 2013, were $916 million, $746 million and $854 million, and $865 million, respectively.
The following table sets forth the cash received from the exercise of stock options under all stock-based incentive arrangements, and the actual income tax benefit realized related to tax deductions from the exercise of the stock options.
| | | Year ended December 31, (in millions) | | 2015 |
| | 2014 |
| | 2013 |
| | 2016 |
| | 2015 |
| | 2014 |
|
| Cash received for options exercised | | $ | 20 |
| | $ | 63 |
| | $ | 166 |
| | $ | 26 |
| | $ | 20 |
| | $ | 63 |
|
Tax benefit realized(a) | | 64 |
| | 104 |
| | 42 |
| |
| Tax benefit | | | 70 |
| | 64 |
| | 104 |
|
| |
(a) | The tax benefit realized from dividends or dividend equivalents paid on equity-classified share-based payment awards that are charged to retained earnings are recorded as an increase to additional paid-in capital and included in the pool of excess tax benefits available to absorb tax deficiencies on share-based payment awards. |
Valuation assumptions
The following table presents the assumptions used to value employee stock options and SARs granted during the year ended December 31, 2013, under the Black-Scholes valuation model. There were no material grants of stock options or SARs for the years ended December 31, 2015 and 2014.
|
| | | |
Year ended December 31, | | 2013 |
|
Weighted-average annualized valuation assumptions | | |
Risk-free interest rate | | 1.18 | % |
Expected dividend yield | | 2.66 |
|
Expected common stock price volatility | | 28 |
|
Expected life (in years) | | 6.6 |
The expected dividend yield is determined using forward-looking assumptions. The expected volatility assumption is derived from the implied volatility of JPMorgan Chase’s stock options. The expected life assumption is an estimate of the length of time that an employee might hold an option or SAR before it is exercised or canceled, and the assumption is based on the Firm’s historical experience.
|
| | |
232198 | | JPMorgan Chase & Co./20152016 Annual Report |
Note 11 – Noninterest expense
For details on noninterest expense, see Consolidated statements of income on page 176.141. Included within other expense isare the following:
|
| | | | | | | | | | | |
Year ended December 31, (in millions) | 2015 |
| | 2014 |
| | 2013 |
|
| Legal expense | $ | 2,969 |
| | $ | 2,883 |
| | $ | 11,143 |
|
| Federal Deposit Insurance Corporation-related (“FDIC”) expense | 1,227 |
| | 1,037 |
| | 1,496 |
|
|
| | | | | | | | | | | |
Year ended December 31, (in millions) | 2016 |
| | 2015 |
| | 2014 |
|
| Legal (benefit)/expense | $ | (317 | ) | | $ | 2,969 |
| | $ | 2,883 |
|
| FDIC-related expense | 1,296 |
| | 1,227 |
| | 1,037 |
|
Note 12 – Securities
Securities are classified as trading, AFS or held-to-maturity (“HTM”).HTM. Securities classified as trading assets are discussed in Note 3. Predominantly all of the Firm’s AFS and HTM investment securities (the “investment securities portfolio”) are held by Treasury and CIO in connection with its asset-liability management objectives. At December 31, 2015,2016, the investment securities portfolio consisted of debt securities with an average credit rating of AA+ (based upon external ratings where available, and where not available, based primarily upon internal ratings which correspond to ratings as defined by S&P and Moody’s). AFS securities are carried at fair value on the Consolidated balance sheets. Unrealized gains and losses, after any applicable hedge accounting adjustments, are reported as net increases or decreases to accumulated other comprehensive income/(loss).AOCI. The specific identification method is used to determine realized gains and losses on AFS securities, which are included in securities gains/(losses) on the Consolidated statements of income. HTM debt securities, which management has the intent and ability to hold until maturity, are carried at amortized cost on the Consolidated balance sheets. For both AFS and HTM debt securities, purchase discounts or premiums are generally amortized into interest income over the contractual life of the security.
During 2014,2016, the Firm transferred U.S. government agency mortgage-backed securitiescommercial MBS and obligations of U.S. states and municipalities with a fair value of $19.3$7.5 billion from AFS to HTM. These securities were transferred at fair value, and the transfer was a non-cash transaction.value. AOCI included net pretax unrealized lossesgains of $9$78 million on the securities at the date of transfer. The transfer reflectedtransfers reflect the Firm’s intent to hold the securities to maturity in order to reduce the impact of price volatility on AOCI and certain capital measures under Basel III.AOCI. This transfer was a non-cash transaction.
|
| | |
JPMorgan Chase & Co./20152016 Annual Report | | 233199 |
Notes to consolidated financial statements
The amortized costs and estimated fair values of the investment securities portfolio were as follows for the dates indicated.
| | | | 2015 | | 2014 | 2016 | | 2015 |
| December 31, (in millions) | Amortized cost | Gross unrealized gains | Gross unrealized losses | Fair value | | Amortized cost | Gross unrealized gains | Gross unrealized losses | Fair value | Amortized cost | Gross unrealized gains | Gross unrealized losses | Fair value | | Amortized cost | Gross unrealized gains | Gross unrealized losses | Fair value |
| Available-for-sale debt securities | | | | | | | | | | | | | | |
| Mortgage-backed securities: | | | | | | | | | | | | | | |
U.S. government agencies(a) | $ | 53,689 |
| $ | 1,483 |
| $ | 106 |
| | $ | 55,066 |
| | $ | 63,089 |
| $ | 2,302 |
| $ | 72 |
| | $ | 65,319 |
| $ | 63,367 |
| $ | 1,112 |
| $ | 474 |
| | $ | 64,005 |
| | $ | 53,689 |
| $ | 1,483 |
| $ | 106 |
| | $ | 55,066 |
|
| Residential: | | | | | | | | | | | | | | |
Prime and Alt-A | 7,462 |
| 40 |
| 57 |
| | 7,445 |
| | 5,595 |
| 78 |
| 29 |
| | 5,644 |
| 4,256 |
| 38 |
| 22 |
| | 4,272 |
| | 6,594 |
| 38 |
| 49 |
| | 6,583 |
|
Subprime | 210 |
| 7 |
| — |
| | 217 |
| | 677 |
| 14 |
| — |
| | 691 |
| 3,915 |
| 62 |
| 6 |
| | 3,971 |
| | 1,078 |
| 9 |
| 8 |
| | 1,079 |
|
| Non-U.S. | 19,629 |
| 341 |
| 13 |
| | 19,957 |
| | 43,550 |
| 1,010 |
| — |
| | 44,560 |
| 6,049 |
| 158 |
| 7 |
| | 6,200 |
| | 19,629 |
| 341 |
| 13 |
| | 19,957 |
|
| Commercial | 22,990 |
| 150 |
| 243 |
| | 22,897 |
| | 20,687 |
| 438 |
| 17 |
| | 21,108 |
| 9,002 |
| 122 |
| 20 |
| | 9,104 |
| | 22,990 |
| 150 |
| 243 |
| | 22,897 |
|
| Total mortgage-backed securities | 103,980 |
| 2,021 |
| 419 |
| | 105,582 |
| | 133,598 |
| 3,842 |
| 118 |
| | 137,322 |
| 86,589 |
| 1,492 |
| 529 |
| | 87,552 |
| | 103,980 |
| 2,021 |
| 419 |
| | 105,582 |
|
U.S. Treasury and government agencies(a) | 11,202 |
| — |
| 166 |
| | 11,036 |
| | 13,603 |
| 56 |
| 14 |
| | 13,645 |
| 44,822 |
| 75 |
| 796 |
| | 44,101 |
| | 11,202 |
| — |
| 166 |
| | 11,036 |
|
| Obligations of U.S. states and municipalities | 31,328 |
| 2,245 |
| 23 |
| | 33,550 |
| | 27,841 |
| 2,243 |
| 16 |
| | 30,068 |
| 30,284 |
| 1,492 |
| 184 |
| | 31,592 |
| | 31,328 |
| 2,245 |
| 23 |
| | 33,550 |
|
| Certificates of deposit | 282 |
| 1 |
| — |
| | 283 |
| | 1,103 |
| 1 |
| 1 |
| | 1,103 |
| 106 |
| — |
| — |
| | 106 |
| | 282 |
| 1 |
| — |
| | 283 |
|
| Non-U.S. government debt securities | 35,864 |
| 853 |
| 41 |
| | 36,676 |
| | 51,492 |
| 1,272 |
| 21 |
| | 52,743 |
| 34,497 |
| 836 |
| 45 |
| | 35,288 |
| | 35,864 |
| 853 |
| 41 |
| | 36,676 |
|
| Corporate debt securities | 12,464 |
| 142 |
| 170 |
| | 12,436 |
| | 18,158 |
| 398 |
| 24 |
| | 18,532 |
| 4,916 |
| 64 |
| 22 |
| | 4,958 |
| | 12,464 |
| 142 |
| 170 |
| | 12,436 |
|
| Asset-backed securities: | | | | | | | | | | | | | | |
| Collateralized loan obligations | 31,146 |
| 52 |
| 191 |
| | 31,007 |
| | 30,229 |
| 147 |
| 182 |
| | 30,194 |
| 27,352 |
| 75 |
| 26 |
| | 27,401 |
| | 31,146 |
| 52 |
| 191 |
| | 31,007 |
|
| Other | 9,125 |
| 72 |
| 100 |
| | 9,097 |
| | 12,442 |
| 184 |
| 11 |
| | 12,615 |
| 6,950 |
| 62 |
| 45 |
| | 6,967 |
| | 9,125 |
| 72 |
| 100 |
| | 9,097 |
|
| Total available-for-sale debt securities | 235,391 |
| 5,386 |
| 1,110 |
| | 239,667 |
| | 288,466 |
| 8,143 |
| 387 |
| | 296,222 |
| 235,516 |
| 4,096 |
| 1,647 |
| | 237,965 |
| | 235,391 |
| 5,386 |
| 1,110 |
| | 239,667 |
|
| Available-for-sale equity securities | 2,067 |
| 20 |
| — |
| | 2,087 |
| | 2,513 |
| 17 |
| — |
| | 2,530 |
| 914 |
| 12 |
| — |
| | 926 |
| | 2,067 |
| 20 |
| — |
| | 2,087 |
|
| Total available-for-sale securities | 237,458 |
| 5,406 |
| 1,110 |
| | 241,754 |
| | 290,979 |
| 8,160 |
| 387 |
| | 298,752 |
| 236,430 |
| 4,108 |
| 1,647 |
| | 238,891 |
| | 237,458 |
| 5,406 |
| 1,110 |
| | 241,754 |
|
Total held-to-maturity securities(b) | $ | 49,073 |
| $ | 1,560 |
| $ | 46 |
| | $ | 50,587 |
| | $ | 49,252 |
| $ | 1,902 |
| $ | — |
| | $ | 51,154 |
| |
| Held-to-maturity debt securities | | | | | | | | |
| Mortgage-backed securities | | | | | | | | |
U.S. government agencies(c) | | 29,910 |
| 638 |
| 37 |
| | 30,511 |
| | 36,271 |
| 852 |
| 42 |
| | 37,081 |
|
| Commercial | | 5,783 |
| — |
| 129 |
| | 5,654 |
| | — |
| — |
| — |
| | — |
|
| Total mortgage-backed securities | | 35,693 |
| 638 |
| 166 |
| | 36,165 |
| | 36,271 |
| 852 |
| 42 |
| | 37,081 |
|
| Obligations of U.S. states and municipalities | | 14,475 |
| 374 |
| 125 |
| | 14,724 |
| | 12,802 |
| 708 |
| 4 |
| | 13,506 |
|
| Total held-to-maturity debt securities | | 50,168 |
| 1,012 |
| 291 |
| | 50,889 |
| | 49,073 |
| 1,560 |
| 46 |
| | 50,587 |
|
| Total securities | | $ | 286,598 |
| $ | 5,120 |
| $ | 1,938 |
| | $ | 289,780 |
| | $ | 286,531 |
| $ | 6,966 |
| $ | 1,156 |
| | $ | 292,341 |
|
| |
| (a) | Includes total U.S. government-sponsored enterprise obligations with fair values of $42.3$45.8 billion and $59.3$42.3 billion at December 31, 20152016 and 2014,2015, respectively, which were predominantly mortgage-related. |
| |
| (b) | As of December 31, 2015, consists of mortgage backed securities (“MBS”) issued byPrior period amounts have been revised to conform with current period presentation. |
| |
| (c) | Included total U.S. government-sponsored enterprisesenterprise obligations with an amortized cost of $25.6 billion and $30.8 billion MBS issued by U.S. government agencies with an amortized cost of $5.5 billion and obligations of U.S. states and municipalities with an amortized cost of $12.8 billion. As ofat December 31, 2014, consists of MBS issued by U.S. government-sponsored enterprises with an amortized cost of $35.3 billion, MBS issued by U.S. government agencies with an amortized cost of $3.7 billion2016 and obligations of U.S. states and municipalities with an amortized cost of $10.2 billion.2015, respectively, which were mortgage-related. |
|
| | |
234200 | | JPMorgan Chase & Co./20152016 Annual Report |
Securities impairment
The following tables present the fair value and gross unrealized losses for the investment securities portfolio by aging category at December 31, 20152016 and 2014.2015.
| | | | Securities with gross unrealized losses | Securities with gross unrealized losses |
| | Less than 12 months | | 12 months or more | | Less than 12 months | | 12 months or more | |
| December 31, 2015 (in millions) | Fair value | Gross unrealized losses | | Fair value | Gross unrealized losses | Total fair value | Total gross unrealized losses | |
| December 31, 2016 (in millions) | | Fair value | Gross unrealized losses | | Fair value | Gross unrealized losses | Total fair value | Total gross unrealized losses |
| Available-for-sale debt securities | | | | | | |
| Mortgage-backed securities: | | | | | | |
| U.S. government agencies | $ | 13,002 |
| $ | 95 |
| | $ | 697 |
| $ | 11 |
| $ | 13,699 |
| $ | 106 |
| $ | 29,856 |
| $ | 463 |
| | $ | 506 |
| $ | 11 |
| $ | 30,362 |
| $ | 474 |
|
| Residential: | | | | | | |
| Prime and Alt-A | 5,147 |
| 51 |
| | 238 |
| 6 |
| 5,385 |
| 57 |
| 977 |
| 2 |
| | 1,018 |
| 20 |
| 1,995 |
| 22 |
|
| Subprime | — |
| — |
| | — |
| — |
| — |
| — |
| 396 |
| 4 |
| | 55 |
| 2 |
| 451 |
| 6 |
|
| Non-U.S. | 2,021 |
| 12 |
| | 167 |
| 1 |
| 2,188 |
| 13 |
| — |
| — |
| | 886 |
| 7 |
| 886 |
| 7 |
|
| Commercial | 13,779 |
| 239 |
| | 658 |
| 4 |
| 14,437 |
| 243 |
| 2,328 |
| 17 |
| | 1,078 |
| 3 |
| 3,406 |
| 20 |
|
| Total mortgage-backed securities | 33,949 |
| 397 |
| | 1,760 |
| 22 |
| 35,709 |
| 419 |
| 33,557 |
| 486 |
| | 3,543 |
| 43 |
| 37,100 |
| 529 |
|
| U.S. Treasury and government agencies | 10,998 |
| 166 |
| | — |
| — |
| 10,998 |
| 166 |
| 23,543 |
| 796 |
| | — |
| — |
| 23,543 |
| 796 |
|
| Obligations of U.S. states and municipalities | 1,676 |
| 18 |
| | 205 |
| 5 |
| 1,881 |
| 23 |
| 7,215 |
| 181 |
| | 55 |
| 3 |
| 7,270 |
| 184 |
|
| Certificates of deposit | — |
| — |
| | — |
| — |
| — |
| — |
| — |
| — |
| | — |
| — |
| — |
| — |
|
| Non-U.S. government debt securities | 3,267 |
| 26 |
| | 367 |
| 15 |
| 3,634 |
| 41 |
| 4,436 |
| 36 |
| | 421 |
| 9 |
| 4,857 |
| 45 |
|
| Corporate debt securities | 3,198 |
| 125 |
| | 848 |
| 45 |
| 4,046 |
| 170 |
| 797 |
| 2 |
| | 829 |
| 20 |
| 1,626 |
| 22 |
|
| Asset-backed securities: | | | |
|
| | | |
| Collateralized loan obligations | 15,340 |
| 67 |
| | 10,692 |
| 124 |
| 26,032 |
| 191 |
| 766 |
| 2 |
| | 5,263 |
| 24 |
| 6,029 |
| 26 |
|
| Other | 4,284 |
| 60 |
| | 1,005 |
| 40 |
| 5,289 |
| 100 |
| 739 |
| 6 |
| | 1,992 |
| 39 |
| 2,731 |
| 45 |
|
| Total available-for-sale debt securities | 72,712 |
| 859 |
| | 14,877 |
| 251 |
| 87,589 |
| 1,110 |
| 71,053 |
| 1,509 |
| | 12,103 |
| 138 |
| 83,156 |
| 1,647 |
|
| Available-for-sale equity securities | — |
| — |
| | — |
| — |
| — |
| — |
| — |
| — |
| | — |
| — |
| — |
| — |
|
| Held-to-maturity securities | 3,763 |
| 46 |
| | — |
| — |
| 3,763 |
| 46 |
| | | |
| Mortgage-backed securities | | | | |
| U.S. government securities | | 3,129 |
| 37 |
| | — |
| — |
| 3,129 |
| 37 |
|
| Commercial | | 5,163 |
| 114 |
| | 441 |
| 15 |
| 5,604 |
| 129 |
|
| Total mortgage-backed securities | | 8,292 |
| 151 |
| | 441 |
| 15 |
| 8,733 |
| 166 |
|
| Obligations of U.S. states and municipalities | | 4,702 |
| 125 |
| | — |
| — |
| 4,702 |
| 125 |
|
| Total held-to-maturity securities | | 12,994 |
| 276 |
| | 441 |
| 15 |
| 13,435 |
| 291 |
|
| Total securities with gross unrealized losses | $ | 76,475 |
| $ | 905 |
| | $ | 14,877 |
| $ | 251 |
| $ | 91,352 |
| $ | 1,156 |
| $ | 84,047 |
| $ | 1,785 |
| | $ | 12,544 |
| $ | 153 |
| $ | 96,591 |
| $ | 1,938 |
|
|
| | | | | | | | | | | | | | | | | | | |
| | Securities with gross unrealized losses |
| | Less than 12 months | | 12 months or more | | |
| December 31, 2014 (in millions) | Fair value | Gross unrealized losses | | Fair value | Gross unrealized losses | Total fair value | Total gross unrealized losses |
| Available-for-sale debt securities | | | | | | | |
| Mortgage-backed securities: | | | | | | | |
| U.S. government agencies | $ | 1,118 |
| $ | 5 |
| | $ | 4,989 |
| $ | 67 |
| $ | 6,107 |
| $ | 72 |
|
| Residential: | | | | | | | |
| Prime and Alt-A | 1,840 |
| 10 |
| | 405 |
| 19 |
| 2,245 |
| 29 |
|
| Subprime | — |
| — |
| | — |
| — |
| — |
| — |
|
| Non-U.S. | — |
| — |
| | — |
| — |
| — |
| — |
|
| Commercial | 4,803 |
| 15 |
| | 92 |
| 2 |
| 4,895 |
| 17 |
|
| Total mortgage-backed securities | 7,761 |
| 30 |
| | 5,486 |
| 88 |
| 13,247 |
| 118 |
|
| U.S. Treasury and government agencies | 8,412 |
| 14 |
| | — |
| — |
| 8,412 |
| 14 |
|
| Obligations of U.S. states and municipalities | 1,405 |
| 15 |
| | 130 |
| 1 |
| 1,535 |
| 16 |
|
| Certificates of deposit | 1,050 |
| 1 |
| | — |
| — |
| 1,050 |
| 1 |
|
| Non-U.S. government debt securities | 4,433 |
| 4 |
| | 906 |
| 17 |
| 5,339 |
| 21 |
|
| Corporate debt securities | 2,492 |
| 22 |
| | 80 |
| 2 |
| 2,572 |
| 24 |
|
| Asset-backed securities: | | | | | | | |
| Collateralized loan obligations | 13,909 |
| 76 |
| | 9,012 |
| 106 |
| 22,921 |
| 182 |
|
| Other | 2,258 |
| 11 |
| | — |
| — |
| 2,258 |
| 11 |
|
| Total available-for-sale debt securities | 41,720 |
| 173 |
| | 15,614 |
| 214 |
| 57,334 |
| 387 |
|
| Available-for-sale equity securities | — |
| — |
| | — |
| — |
| — |
| — |
|
| Held-to-maturity securities | — |
| — |
| | — |
| — |
| — |
| — |
|
| Total securities with gross unrealized losses | $ | 41,720 |
| $ | 173 |
| | $ | 15,614 |
| $ | 214 |
| $ | 57,334 |
| $ | 387 |
|
|
| | |
JPMorgan Chase & Co./20152016 Annual Report | | 235201 |
Notes to consolidated financial statements
|
| | | | | | | | | | | | | | | | | | | |
| | Securities with gross unrealized losses |
| | Less than 12 months | | 12 months or more | | |
| December 31, 2015 (in millions) | Fair value | Gross unrealized losses | | Fair value | Gross unrealized losses | Total fair value | Total gross unrealized losses |
| Available-for-sale debt securities | | | | | | | |
| Mortgage-backed securities: | | | | | | | |
| U.S. government agencies | $ | 13,002 |
| $ | 95 |
| | $ | 697 |
| $ | 11 |
| $ | 13,699 |
| $ | 106 |
|
| Residential: | | | | | | | |
Prime and Alt-A(a) | 4,455 |
| 43 |
| | 238 |
| 6 |
| 4,693 |
| 49 |
|
Subprime(a) | 692 |
| 8 |
| | — |
| — |
| 692 |
| 8 |
|
| Non-U.S. | 2,021 |
| 12 |
| | 167 |
| 1 |
| 2,188 |
| 13 |
|
| Commercial | 13,779 |
| 239 |
| | 658 |
| 4 |
| 14,437 |
| 243 |
|
| Total mortgage-backed securities | 33,949 |
| 397 |
| | 1,760 |
| 22 |
| 35,709 |
| 419 |
|
| U.S. Treasury and government agencies | 10,998 |
| 166 |
| | — |
| — |
| 10,998 |
| 166 |
|
| Obligations of U.S. states and municipalities | 1,676 |
| 18 |
| | 205 |
| 5 |
| 1,881 |
| 23 |
|
| Certificates of deposit | — |
| — |
| | — |
| — |
| — |
| — |
|
| Non-U.S. government debt securities | 3,267 |
| 26 |
| | 367 |
| 15 |
| 3,634 |
| 41 |
|
| Corporate debt securities | 3,198 |
| 125 |
| | 848 |
| 45 |
| 4,046 |
| 170 |
|
| Asset-backed securities: | | | | | | | |
| Collateralized loan obligations | 15,340 |
| 67 |
| | 10,692 |
| 124 |
| 26,032 |
| 191 |
|
| Other | 4,284 |
| 60 |
| | 1,005 |
| 40 |
| 5,289 |
| 100 |
|
| Total available-for-sale debt securities | 72,712 |
| 859 |
| | 14,877 |
| 251 |
| 87,589 |
| 1,110 |
|
| Available-for-sale equity securities | — |
| — |
| | — |
| — |
| — |
| — |
|
| Held-to-maturity debt securities | | | | | | | |
| Mortgage-backed securities | | | | | | | |
| U.S. government agencies | 3,294 |
| 42 |
| | — |
| — |
| 3,294 |
| 42 |
|
| Commercial | — |
| — |
| | — |
| — |
| — |
| — |
|
| Total mortgage-backed securities | 3,294 |
| 42 |
| | — |
| — |
| 3,294 |
| 42 |
|
| Obligations of U.S. states and municipalities | 469 |
| 4 |
| | — |
| — |
| 469 |
| 4 |
|
| Total held-to-maturity securities | 3,763 |
| 46 |
| | — |
| — |
| 3,763 |
| 46 |
|
| Total securities with gross unrealized losses | $ | 76,475 |
| $ | 905 |
| | $ | 14,877 |
| $ | 251 |
| $ | 91,352 |
| $ | 1,156 |
|
| |
| (a) | Prior period amounts have been revised to conform with current period presentation. |
|
| | |
| 202 | | JPMorgan Chase & Co./2016 Annual Report |
Gross unrealized losses
The Firm has recognized the unrealized losses on securities it intends to sell. As of December 31, 2015, thesell as OTTI. The Firm does not intend to sell any of the remaining securities with aan unrealized loss position in AOCI as of December 31, 2016, and it is not likely that the Firm will be required to sell these securities before recovery of their amortized cost basis. Except for the securities for which credit losses have been recognized in income, the Firm believes that the securities with an unrealized loss in AOCI are not other-than-temporarily impaired as of December 31, 2015.2016.
Other-than-temporary impairment
AFS debt and equity securities and HTM debt securities in unrealized loss positions are analyzed as part of the Firm’s ongoing assessment of other-than-temporary impairment (“OTTI”).OTTI. For most types of debt securities, the Firm considers a decline in fair value to be other-than-temporary when the Firm does not expect to recover the entire amortized cost basis of the security. For beneficial interests in securitizations that are rated below “AA” at their acquisition, or that can be contractually prepaid or otherwise settled in such a way that the Firm would not recover substantially all of its recorded investment, the Firm considers an impairment to be other than temporaryother-than-temporary when there is an adverse change in expected cash flows. For AFS equity securities, the Firm considers a decline in fair value to be other-than-temporary if it is probable that the Firm will not recover its cost basis.
Potential OTTI is considered using a variety of factors, including the length of time and extent to which the market value has been less than cost; adverse conditions specifically related to the industry, geographic area or financial condition of the issuer or underlying collateral of a security; payment structure of the security; changes to the rating of the security by a rating agency; the volatility of the fair value changes; and the Firm’s intent and ability to hold the security until recovery.
For AFS debt securities, the Firm recognizes OTTI losses in earnings if the Firm has the intent to sell the debt security, or if it is more likely than not that the Firm will be required to sell the debt security before recovery of its amortized cost basis. In these circumstances the impairment loss is equal to the full difference between the amortized cost basis and the fair value of the securities. For debt securities in an unrealized loss position that the Firm has the intent and ability to hold, the expected cash flows to be received from the securities are evaluated to determine if a credit loss exists. In the event of a credit loss, only the amount of impairment associated with the credit loss is recognized in income. Amounts relating to factors other than credit losses are recorded in OCI.
The Firm’s cash flow evaluations take into account the factors noted above and expectations of relevant market and economic data as of the end of the reporting period. For securities issued in a securitization, the Firm estimates cash flows considering underlying loan-level data and structural features of the securitization, such as subordination, excess spread, overcollateralization or other forms of credit enhancement, and compares the losses projected for the underlying collateral (“pool losses”)
against the level of credit enhancement in the securitization structure to determine whether these features are sufficient to absorb the pool losses, or whether a credit loss exists. The Firm also performs other analyses to support its cash flow projections, such as first-loss analyses or stress scenarios.
For equity securities, OTTI losses are recognized in earnings if the Firm intends to sell the security. In other cases the Firm considers the relevant factors noted above, as well as the Firm’s intent and ability to retain its investment for a period of time sufficient to allow for any anticipated recovery in market value, and whether evidence exists to support a realizable value equal to or greater than the cost basis. Any impairment loss on an equity security is equal to the full difference between the cost basis and the fair value of the security.
Securities gains and losses
The following table presents realized gains and losses and OTTI from AFS securities that were recognized in income.
| | Year ended December 31, (in millions) | 2015 |
| | 2014 |
| | 2013 |
| 2016 |
| | 2015 |
| | 2014 |
|
| Realized gains | $ | 351 |
| | $ | 314 |
| | $ | 1,302 |
| $ | 401 |
| | $ | 351 |
| | $ | 314 |
|
| Realized losses | (127 | ) | | (233 | ) | | (614 | ) | (232 | ) | | (127 | ) | | (233 | ) |
| OTTI losses | (22 | ) | | (4 | ) | | (21 | ) | (28 | ) | | (22 | ) | | (4 | ) |
| Net securities gains | 202 |
| | 77 |
| | 667 |
| 141 |
| | 202 |
| | 77 |
|
| | | | | | | | | | | |
| OTTI losses | | | | | | | | | | |
| Credit losses recognized in income | (1 | ) | | (2 | ) | | (1 | ) | (1 | ) | | (1 | ) | | (2 | ) |
Securities the Firm intends to sell(a) | (21 | ) | | (2 | ) | | (20 | ) | (27 | ) | | (21 | ) | | (2 | ) |
| Total OTTI losses recognized in income | $ | (22 | ) | | $ | (4 | ) | | $ | (21 | ) | $ | (28 | ) | | $ | (22 | ) | | $ | (4 | ) |
| |
| (a) | Excludes realized losses on securities sold of $24 million, $5 million $3 million and $12$3 million for the years ended December 31, 2016, 2015 2014 and 2013,2014, respectively that had been previously reported as an OTTI loss due to the intention to sell the securities. |
Changes in the credit loss component of credit-impaired debt securities
The following table presents a rollforward for the years ended December 31, 2015, 2014 and 2013, of thecumulative credit loss component, including any changes therein, of OTTI losses that have been recognized in income related to AFS debt securities thatwas not material as of and during the Firm does not intend to sell.
|
| | | | | | | | | |
| Year ended December 31, (in millions) | 2015 |
| 2014 |
| 2013 |
|
| Balance, beginning of period | $ | 3 |
| $ | 1 |
| $ | 522 |
|
| Additions: | | | |
| Newly credit-impaired securities | 1 |
| 2 |
| 1 |
|
| Losses reclassified from other comprehensive income on previously credit-impaired securities | — |
| — |
| — |
|
| Reductions: | | | |
| Sales and redemptions of credit-impaired securities | — |
| — |
| (522 | ) |
| Balance, end of period | $ | 4 |
| $ | 3 |
| $ | 1 |
|
|
| | |
236 | | JPMorgan Chase & Co./20152016 Annual Report | | 203 |
Notes to consolidated financial statements
Contractual maturities and yields
The following table presents the amortized cost and estimated fair value at December 31, 2015,2016, of JPMorgan Chase’sChase’s investment securities portfolio by contractual maturity.
| | By remaining maturity December 31, 2015 (in millions) | Due in one year or less | Due after one year through five years | Due after five years through 10 years | Due after 10 years(c) | Total | |
By remaining maturity December 31, 2016 (in millions) | | Due in one year or less | Due after one year through five years | Due after five years through 10 years | Due after 10 years(c) | Total |
| Available-for-sale debt securities | | |
Mortgage-backed securities(a) | | |
| Amortized cost | $ | 2,415 |
| $ | 9,728 |
| $ | 6,562 |
| $ | 85,275 |
| $ | 103,980 |
| $ | 2,012 |
| $ | 2,393 |
| $ | 7,574 |
| $ | 74,610 |
| $ | 86,589 |
|
| Fair value | 2,421 |
| 9,886 |
| 6,756 |
| 86,519 |
| 105,582 |
| 2,022 |
| 2,449 |
| 7,756 |
| 75,325 |
| 87,552 |
|
Average yield(b) | 1.48 | % | 1.86 | % | 3.15 | % | 3.08 | % | 2.93 | % | 2.04 | % | 2.36 | % | 3.03 | % | 3.26 | % | 3.19 | % |
U.S. Treasury and government agencies(a) | | |
| Amortized cost | $ | — |
| $ | — |
| $ | 10,069 |
| $ | 1,133 |
| $ | 11,202 |
| $ | 132 |
| $ | 4,573 |
| $ | 38,976 |
| $ | 1,141 |
| $ | 44,822 |
|
| Fair value | — |
| — |
| 9,932 |
| 1,104 |
| 11,036 |
| 132 |
| 4,561 |
| 38,317 |
| 1,091 |
| 44,101 |
|
Average yield(b) | — | % | — | % | 0.31 | % | 0.48 | % | 0.33 | % | 0.42 | % | 0.86 | % | 1.27 | % | 1.13 | % | 1.22 | % |
| Obligations of U.S. states and municipalities | | |
| Amortized cost | $ | 184 |
| $ | 754 |
| $ | 1,520 |
| $ | 28,870 |
| $ | 31,328 |
| $ | 134 |
| $ | 752 |
| $ | 1,096 |
| $ | 28,302 |
| $ | 30,284 |
|
| Fair value | 187 |
| 774 |
| 1,600 |
| 30,989 |
| 33,550 |
| 135 |
| 767 |
| 1,148 |
| 29,542 |
| 31,592 |
|
Average yield(b) | 5.21 | % | 3.50 | % | 5.57 | % | 6.68 | % | 6.54 | % | 5.85 | % | 3.58 | % | 6.29 | % | 6.63 | % | 6.54 | % |
| Certificates of deposit | | |
| Amortized cost | $ | 230 |
| $ | 52 |
| $ | — |
| $ | — |
| $ | 282 |
| $ | 106 |
| $ | — |
| $ | — |
| $ | — |
| $ | 106 |
|
| Fair value | 231 |
| 52 |
| — |
| — |
| 283 |
| 106 |
| — |
| — |
| — |
| 106 |
|
Average yield(b) | 8.66 | % | 3.28 | % | — | % | — | % | 7.68 | % | 1.78 | % | — | % | — | % | — | % | 1.78 | % |
| Non-U.S. government debt securities | | |
| Amortized cost | $ | 6,126 |
| $ | 11,177 |
| $ | 16,575 |
| $ | 1,986 |
| $ | 35,864 |
| $ | 5,831 |
| $ | 14,109 |
| $ | 13,503 |
| $ | 1,054 |
| $ | 34,497 |
|
| Fair value | 6,422 |
| 11,429 |
| 16,747 |
| 2,078 |
| 36,676 |
| 5,838 |
| 14,444 |
| 13,944 |
| 1,062 |
| 35,288 |
|
Average yield(b) | 3.11 | % | 1.84 | % | 1.06 | % | 0.67 | % | 1.63 | % | 2.92 | % | 1.55 | % | 0.93 | % | 0.58 | % | 1.51 | % |
| Corporate debt securities | | |
| Amortized cost | $ | 2,761 |
| $ | 7,175 |
| $ | 2,385 |
| $ | 143 |
| $ | 12,464 |
| $ | 2,059 |
| $ | 1,312 |
| $ | 1,424 |
| $ | 121 |
| $ | 4,916 |
|
| Fair value | 2,776 |
| 7,179 |
| 2,347 |
| 134 |
| 12,436 |
| 2,070 |
| 1,332 |
| 1,433 |
| 123 |
| 4,958 |
|
Average yield(b) | 2.87 | % | 2.32 | % | 3.09 | % | 4.46 | % | 2.61 | % | 2.88 | % | 3.11 | % | 3.24 | % | 3.52 | % | 3.06 | % |
| Asset-backed securities | | |
| Amortized cost | $ | 39 |
| $ | 442 |
| $ | 20,501 |
| $ | 19,289 |
| $ | 40,271 |
| $ | — |
| $ | 444 |
| $ | 21,551 |
| $ | 12,307 |
| $ | 34,302 |
|
| Fair value | 40 |
| 449 |
| 20,421 |
| 19,194 |
| 40,104 |
| — |
| 446 |
| 21,577 |
| 12,345 |
| 34,368 |
|
Average yield(b) | 0.71 | % | 1.72 | % | 1.79 | % | 1.84 | % | 1.81 | % | — | % | 0.49 | % | 2.33 | % | 2.21 | % | 2.26 | % |
| Total available-for-sale debt securities | | |
| Amortized cost | $ | 11,755 |
| $ | 29,328 |
| $ | 57,612 |
| $ | 136,696 |
| $ | 235,391 |
| $ | 10,274 |
| $ | 23,583 |
| $ | 84,124 |
| $ | 117,535 |
| $ | 235,516 |
|
| Fair value | 12,077 |
| 29,769 |
| 57,803 |
| 140,018 |
| 239,667 |
| 10,303 |
| 23,999 |
| 84,175 |
| 119,488 |
| 237,965 |
|
Average yield(b) | 2.85 | % | 2.00 | % | 1.63 | % | 3.61 | % | 2.89 | % | 2.73 | % | 1.63 | % | 1.74 | % | 3.92 | % | 2.86 | % |
| Available-for-sale equity securities | | |
| Amortized cost | $ | — |
| $ | — |
| $ | — |
| $ | 2,067 |
| $ | 2,067 |
| $ | — |
| $ | — |
| $ | — |
| $ | 914 |
| $ | 914 |
|
| Fair value | — |
| — |
| — |
| 2,087 |
| 2,087 |
| — |
| — |
| — |
| 926 |
| 926 |
|
Average yield(b) | — | % | — | % | — | % | 0.30 | % | 0.30 | % | — | % | — | % | — | % | 0.58 | % | 0.58 | % |
| Total available-for-sale securities | | |
| Amortized cost | $ | 11,755 |
| $ | 29,328 |
| $ | 57,612 |
| $ | 138,763 |
| $ | 237,458 |
| $ | 10,274 |
| $ | 23,583 |
| $ | 84,124 |
| $ | 118,449 |
| $ | 236,430 |
|
| Fair value | 12,077 |
| 29,769 |
| 57,803 |
| 142,105 |
| 241,754 |
| 10,303 |
| 23,999 |
| 84,175 |
| 120,414 |
| 238,891 |
|
Average yield(b) | 2.85 | % | 2.00 | % | 1.63 | % | 3.56 | % | 2.87 | % | 2.73 | % | 1.63 | % | 1.74 | % | 3.89 | % | 2.85 | % |
| Held-to-maturity debt securities | | |
Mortgage-backed securities(a) | | |
| Amortized Cost | | $ | — |
| $ | — |
| $ | — |
| $ | 35,693 |
| $ | 35,693 |
|
| Fair value | | — |
| — |
| — |
| 36,165 |
| 36,165 |
|
Average yield(b) | | — | % | — | % | — | % | 3.30 | % | 3.30 | % |
| Obligations of U.S. states and municipalities | | |
| Amortized cost | | $ | — |
| $ | 29 |
| $ | 1,439 |
| $ | 13,007 |
| $ | 14,475 |
|
| Fair value | | — |
| 29 |
| 1,467 |
| 13,228 |
| 14,724 |
|
Average yield(b) | | — | % | 6.61 | % | 5.11 | % | 5.68 | % | 5.63 | % |
| Total held-to-maturity securities | | |
| Amortized cost | $ | 51 |
| $ | — |
| $ | 931 |
| $ | 48,091 |
| $ | 49,073 |
| $ | — |
| $ | 29 |
| $ | 1,439 |
| $ | 48,700 |
| $ | 50,168 |
|
| Fair value | 50 |
| — |
| 976 |
| 49,561 |
| 50,587 |
| — |
| 29 |
| 1,467 |
| 49,393 |
| 50,889 |
|
Average yield(b) | 4.42 | % | — | % | 5.01 | % | 3.98 | % | 4.00 | % | — | % | 6.61 | % | 5.11 | % | 3.94 | % | 3.97 | % |
| |
| (a) | U.S. government-sponsored enterprises were the only issuers whose securities exceeded 10% of JPMorgan Chase’sChase’s total stockholders’ equity at December 31, 2015. 2016. |
| |
| (b) | Average yield is computed using the effective yield of each security owned at the end of the period, weighted based on the amortized cost of each security. The effective yield considers the contractual coupon, amortization of premiums and accretion of discounts, and the effect of related hedging derivatives. Taxable-equivalent amounts are used where applicable. The effective yield excludes unscheduled principal prepayments; and accordingly, actual maturities of securities may differ from their contractual or expected maturities as certain securities may be prepaid. |
|
| | |
| 204 | | JPMorgan Chase & Co./2016 Annual Report |
where applicable. The effective yield excludes unscheduled principal prepayments; and accordingly, actual maturities of securities may differ from their contractual or expected maturities as certain securities may be prepaid.
| |
| (c) | Includes securities with no stated maturity. Substantially all of the Firm’s residential mortgage-backed securitiesMBS and collateralized mortgage obligations are due in 10 years or more, based on contractual maturity. The estimated weighted-average life, which reflects anticipated future prepayments, is approximately fiveseven years for agency residential mortgage-backed securities, twoMBS, three years for agency residential collateralized mortgage obligations and fourthree years for nonagency residential collateralized mortgage obligations. |
|
| | |
JPMorgan Chase & Co./2015 Annual Report | | 237 |
Notes to consolidated financial statements
Note 13 – Securities financing activities
JPMorgan Chase enters into resale agreements, repurchase agreements, securities borrowed transactions and securities loaned transactions (collectively, “securities financing agreements”) primarily to finance the Firm’s inventory positions, acquire securities to cover short positions, accommodate customers’ financing needs, and settle other securities obligations.
Securities financing agreements are treated as collateralized financings on the Firm’s Consolidated balance sheets. Resale and repurchase agreements are generally carried at the amounts at which the securities will be subsequently sold or repurchased. Securities borrowed and securities loaned transactions are generally carried at the amount of cash collateral advanced or received. Where appropriate under applicable accounting guidance, resale and repurchase agreements with the same counterparty are reported on a net basis. For further discussion of the offsetting of assets and liabilities, see Note 1. Fees received and paid in connection with securities financing agreements are recorded in interest income and interest expense on the Consolidated statements of income.
The Firm has elected the fair value option for certain securities financing agreements. For further information regarding the fair value option, see Note 4. The securities financing agreements for which the fair value option has been elected are reported within securities purchased under resale agreements, securities loaned or sold under repurchase agreements, and securities borrowed on the Consolidated balance sheets. Generally, for agreements carried at fair value, current-period interest accruals are recorded within interest income and interest expense, with changes in fair value reported in principal transactions revenue. However, for financial instruments containing embedded derivatives that would be separately accounted for in accordance with accounting guidance for hybrid instruments, all changes in fair value, including any interest elements, are reported in principal transactions revenue.
SecuredSecurities financing transactions expose the Firm to credit and liquidity risk. To manage these risks, the Firm monitors the value of the underlying securities (predominantly high-quality securities collateral, including government-issued debt and agency MBS) that it has received from or provided to its counterparties compared to the value of cash proceeds and exchanged collateral, and either requests additional collateral or returns securities or collateral when appropriate. Margin levels are initially established based upon the counterparty, the type of underlying securities, and the permissible collateral, and are monitored on an ongoing basis.
In resale agreements and securities borrowed transactions, the Firm is exposed to credit risk to the extent that the value of the securities received is less than initial cash principal advanced and any collateral amounts exchanged. In repurchase agreements and securities loaned transactions, credit risk exposure arises to the extent that the value of underlying securities exceeds the value of the initial cash principal advanced, and any collateral amounts exchanged.
Additionally, the Firm typically enters into master netting agreements and other similar arrangements with its counterparties, which provide for the right to liquidate the underlying securities and any collateral amounts exchanged in the event of a counterparty default. It is also the Firm’s policy to take possession, where possible, of the securities underlying resale agreements and securities borrowed transactions. For further information regarding assets pledged and collateral received in securities financing agreements, see Note 30.
As a result of the Firm’s credit risk mitigation practices with respect to resale and securities borrowed agreements as described above, the Firm did not hold any reserves for credit impairment with respect to these agreements as of December 31, 20152016 and 2014.2015.
Certain prior period amounts for securities purchased under resale agreements and securities borrowed, as well as securities sold under repurchase agreements and securities loaned, have been revised to conform with the current period presentation. These revisions had no impact on the Firm’s Consolidated balance sheets or its results of operations.
|
| | |
238 | | JPMorgan Chase & Co./20152016 Annual Report | | 205 |
Notes to consolidated financial statements
The following table presentsbelow summarizes the gross and net amounts of the Firm’s securities financing agreements, as of December 31, 20152016, and 2014, the gross and net securities purchased under resale agreements and securities borrowed. Securities purchased under resale agreements have been presented on the Consolidated balance sheets net of securities sold under repurchase agreements where2015. When the Firm has obtained an appropriate legal opinion with respect to the master netting agreement with a counterparty and where the other relevant netting criteria have been met.under U.S. GAAP are met, the Firm nets, on the Consolidated balance sheets, the balances outstanding under its securities financing agreements with the same counterparty. In addition, the Firm exchanges securities and/or cash collateral with its counterparties; this collateral also reduces, in the Firm’s view, the economic exposure withthe counterparty. Such collateral, along with securities financing balances that do not meet all these relevant netting criteria under U.S. GAAP, is presented as “Amounts not nettable on the Consolidated balance sheets,” and reduces the “Net amounts” presented below, if the Firm has an appropriate legal opinion with respect to the master netting agreement with the counterparty. Where such a legal opinion has not been either sought or obtained, the securities purchased under resale agreementsfinancing balances are not eligible for netting and are shown separatelypresented gross in the table below. Securities borrowed are presented on a gross basis on“Net amounts” below, and related collateral does not reduce the Consolidated balance sheets.amounts presented.
|
| | | | | | | | | | | | | | | | | | | | | |
| | 2015 | | | 2014 | |
| December 31, (in millions) | Gross asset balance | Amounts netted on the Consolidated balance sheets | Net asset balance | | | Gross asset balance | Amounts netted on the Consolidated balance sheets | Net asset balance | |
| Securities purchased under resale agreements | | | | | | | | | |
| Securities purchased under resale agreements with an appropriate legal opinion | $ | 365,805 |
| $ | (156,258 | ) | $ | 209,547 |
| | | $ | 347,142 |
| $ | (142,719 | ) | $ | 204,423 |
| |
| Securities purchased under resale agreements where an appropriate legal opinion has not been either sought or obtained | 2,343 |
| | 2,343 |
| | | 10,598 |
| | 10,598 |
| |
| Total securities purchased under resale agreements | $ | 368,148 |
| $ | (156,258 | ) | $ | 211,890 |
| (a) | | $ | 357,740 |
| $ | (142,719 | ) | $ | 215,021 |
| (a) |
| Securities borrowed | $ | 98,721 |
| NA |
| $ | 98,721 |
| (b)(c) | | $ | 110,435 |
| NA |
| $ | 110,435 |
| (b)(c) |
| |
(a) | At December 31, 2015 and 2014, included securities purchased under resale agreements of $23.1 billion and $28.6 billion, respectively, accounted for at fair value. |
| |
(b) | At December 31, 2015 and 2014, included securities borrowed of $395 million and $992 million, respectively, accounted for at fair value. |
| |
(c) | Included $31.3 billion and $35.3 billion at December 31, 2015 and 2014, respectively, of securities borrowed where an appropriate legal opinion has not been either sought or obtained with respect to the master netting agreement. |
The following table presents information as of December 31, 2015 and 2014, regarding the securities purchased under resale agreements and securities borrowed for which an appropriate legal opinion has been obtained with respect to the master netting agreement. The below table excludes information related to resale agreements and securities borrowed where such a legal opinion has not been either sought or obtained. |
| | | | | | | | | | | | | | | |
| | 2016 |
| December 31, (in millions) | Gross amounts | Amounts netted on the Consolidated balance sheets | Amounts presented on the Consolidated balance sheets(b) | Amounts not nettable on the Consolidated balance sheets(c) | Net amounts(d) |
| Assets | | | | | |
| Securities purchased under resale agreements | $ | 480,735 |
| $ | (250,832 | ) | $ | 229,903 |
| $ | (222,413 | ) | $ | 7,490 |
|
| Securities borrowed | 96,409 |
| — |
| 96,409 |
| (66,822 | ) | 29,587 |
|
| Liabilities | | | | | |
| Securities sold under repurchase agreements | $ | 402,465 |
| $ | (250,832 | ) | $ | 151,633 |
| $ | (133,300 | ) | $ | 18,333 |
|
Securities loaned and other(a) | 22,451 |
| — |
| 22,451 |
| (22,177 | ) | 274 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | 2015 | | 2014 |
| | | | Amounts not nettable on the Consolidated balance sheets(a) | | | | | Amounts not nettable on the Consolidated balance sheets(a) | |
| December 31, (in millions) | Net asset balance | | Financial instruments(b) | Cash collateral | Net exposure | | Net asset balance | | Financial instruments(b) | Cash collateral | Net exposure |
| Securities purchased under resale agreements with an appropriate legal opinion | $ | 209,547 |
| | $ | (206,423 | ) | $ | (351 | ) | $ | 2,773 |
| | $ | 204,423 |
| | $ | (201,375 | ) | $ | (246 | ) | $ | 2,802 |
|
| Securities borrowed | $ | 67,453 |
| | $ | (65,081 | ) | $ | — |
| $ | 2,372 |
| | $ | 75,113 |
| | $ | (72,730 | ) | $ | — |
| $ | 2,383 |
|
| |
(a) | For some counterparties, the sum of the financial instruments and cash collateral not nettable on the Consolidated balance sheets may exceed the net asset balance. Where this is the case the total amounts reported in these two columns are limited to the balance of the net reverse repurchase agreement or securities borrowed asset with that counterparty. As a result a net exposure amount is reported even though the Firm, on an aggregate basis for its securities purchased under resale agreements and securities borrowed, has received securities collateral with a total fair value that is greater than the funds provided to counterparties. |
| |
(b) | Includes financial instrument collateral received, repurchase liabilities and securities loaned liabilities with an appropriate legal opinion with respect to the master netting agreement; these amounts are not presented net on the Consolidated balance sheets because other U.S. GAAP netting criteria are not met. |
|
| | |
JPMorgan Chase & Co./2015 Annual Report | | 239 |
Notes to consolidated financial statements
The following table presents as of December 31, 2015 and 2014, the gross and net securities sold under repurchase agreements and securities loaned. Securities sold under repurchase agreements have been presented on the Consolidated balance sheets net of securities purchased under resale agreements where the Firm has obtained an appropriate legal opinion with respect to the master netting agreement, and where the other relevant criteria have been met. Where such a legal opinion has not been either sought or obtained, the securities sold under repurchase agreements are not eligible for netting and are shown separately in the table below. Securities loaned are presented on a gross basis on the Consolidated balance sheets.
|
| | | | | | | | | | | | | | | | | | | | | |
| | 2015 | | 2014 | |
| December 31, (in millions) | Gross liability balance | Amounts netted on the Consolidated balance sheets | Net liability balance | | Gross liability balance | | Amounts netted on the Consolidated balance sheets | Net liability balance | |
| Securities sold under repurchase agreements | | | | | | | | | |
| Securities sold under repurchase agreements with an appropriate legal opinion | $ | 277,415 |
| $ | (156,258 | ) | $ | 121,157 |
| | $ | 290,529 |
| | $ | (142,719 | ) | $ | 147,810 |
| |
Securities sold under repurchase agreements where an appropriate legal opinion has not been either sought or obtained(a) | 12,629 |
| | 12,629 |
| | 21,996 |
| | | 21,996 |
| |
| Total securities sold under repurchase agreements | $ | 290,044 |
| $ | (156,258 | ) | $ | 133,786 |
| (c) | $ | 312,525 |
| | $ | (142,719 | ) | $ | 169,806 |
| (c) |
Securities loaned(b) | $ | 22,556 |
| NA |
| $ | 22,556 |
| (d)(e) | $ | 25,927 |
| | NA |
| $ | 25,927 |
| (d)(e) |
|
| | | | | | | | | | | | | | | | |
| | 2015 | |
| December 31, (in millions) | Gross amounts | Amounts netted on the Consolidated balance sheets | Amounts presented on the Consolidated balance sheets(b) | Amounts not nettable on the Consolidated balance sheets(c) | Net amounts(d) | |
| Assets | | | | | | |
| Securities purchased under resale agreements | $ | 368,148 |
| $ | (156,258 | ) | $ | 211,890 |
| $ | (207,958 | ) | $ | 3,932 |
| (e) |
| Securities borrowed | 98,721 |
| — |
| 98,721 |
| (65,081 | ) | 33,640 |
| |
| Liabilities | | | | | | |
| Securities sold under repurchase agreements | $ | 290,044 |
| $ | (156,258 | ) | $ | 133,786 |
| $ | (119,332 | ) | $ | 14,454 |
| (e) |
Securities loaned and other(a) | 22,556 |
| — |
| 22,556 |
| (22,245 | ) | 311 |
| |
| |
| (a) | Includes repurchase agreements that are not subject to a master netting agreement but do provide rights to collateral. |
| |
(b) | Included securities-for-securities lending transactions of $4.4$9.1 billion and $4.1$4.4 billion at December 31, 20152016 and 2014,2015, respectively, accounted for at fair value, where the Firm is acting as lender. These amounts are presented within other liabilities in the Consolidated balance sheets. |
| |
(c)(b) | At December 31, 2015 and 2014, includedIncludes securities sold under repurchasefinancing agreements of $3.5 billion and $3.0 billion, respectively, accounted for at fair value. |
| |
(d) | At December 31, 2016 and 2015, included securities purchased under resale agreements of $21.5 billion and $23.1 billion, respectively, and securities sold under agreements to repurchase of $687 million and $3.5 billion, respectively. There were no securities borrowed at December 31, 2016 and $395 million at December 31, 2015. There were no securities loaned accounted for at fair value at December 31, 2015 and 2014, respectively.in either period. |
| |
(e)(c) | Included $45 million and $271 million at December 31, 2015 and 2014, respectively, of securities loaned where an appropriate legal opinion has not been either sought or obtainedIn some cases, collateral exchanged with respect to the master netting agreement. |
The following table presents information as of December 31, 2015 and 2014, regarding the securities sold under repurchase agreements and securities loaned for which an appropriate legal opinion has been obtained with respect to the master netting agreement. The below table excludes information related to repurchase agreements and securities loaned where such a legal opinion has not been either sought or obtained.
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | 2015 | | 2014 |
| | | | Amounts not nettable on the Consolidated balance sheets(a) | | | | | Amounts not nettable on the Consolidated balance sheets(a) | |
| December 31, (in millions) | Net liability balance | | Financial instruments(b) | Cash collateral | Net amount(c) | | Net liability balance | | Financial instruments(b) | | Cash collateral | Net amount(c) |
| Securities sold under repurchase agreements with an appropriate legal opinion | $ | 121,157 |
| | $ | (117,825 | ) | $ | (1,007 | ) | $ | 2,325 |
| | $ | 147,810 |
| | $ | (145,732 | ) | | $ | (497 | ) | $ | 1,581 |
|
| Securities loaned | $ | 22,511 |
| | $ | (22,245 | ) | $ | — |
| $ | 266 |
| | $ | 25,656 |
| | $ | (25,287 | ) | | $ | — |
| $ | 369 |
|
| |
(a) | For some counterparties the sum of the financial instruments and cash collateral not nettable on the Consolidated balance sheets may exceeda counterparty exceeds the net asset or liability balance. Where this isbalance with that counterparty. In such cases, the case the total amounts reported in these two columnsthis column are limited to the balance of the net repurchase agreementrelated asset or securities loaned liability with that counterparty. |
| |
(b)(d) | Includes financial instrumentsecurities financing agreements that provide collateral transferred, reverse repurchase assets and securities borrowed assets withrights, but where an appropriate legal opinion with respect to the master netting agreement; these amounts areagreement has not presented net on the Consolidated balance sheets because other U.S. GAAP netting criteria are not met.been either sought or obtained. At December 31, 2016 and 2015, included $4.8 billion and $2.3 billion, respectively, of securities purchased under resale agreements; $27.1 billion and $31.3 billion, respectively, of securities borrowed; $15.9 billion and $12.6 billion, respectively, of securities sold under agreements to repurchase; and $90 million and $45 million, respectively, of securities loaned and other. |
| |
(c)(e) | Net amount represents exposure of counterpartiesPrior period amounts have been revised to conform with the Firm.current presentation. |
|
| | |
240206 | | JPMorgan Chase & Co./20152016 Annual Report |
Effective April 1,The tables below present as of December 31, 2016 and 2015 the Firm adopted new accounting guidance, which requires enhanced disclosures with respect to the types of financial assets pledged in securedsecurities financing transactionsagreements and the remaining contractual maturity of the securedsecurities financing transactions; the following tables present this information as of December 31, 2015.agreements.
| | | | Gross liability balance | Gross liability balance |
| December 31, 2015 (in millions) | Securities sold under repurchase agreements | Securities loaned | |
| | | 2016 | | 2015 |
| December 31, (in millions) | | Securities sold under repurchase agreements | Securities loaned and other(a) | | Securities sold under repurchase agreements | Securities loaned and other(a) |
| Mortgage-backed securities | $ | 12,790 |
| $ | — |
| $ | 10,546 |
| $ | — |
| | $ | 12,790 |
| $ | — |
|
| U.S. Treasury and government agencies | 154,377 |
| 5 |
| 199,030 |
| — |
| | 154,377 |
| 5 |
|
| Obligations of U.S. states and municipalities | 1,316 |
| — |
| 2,491 |
| — |
| | 1,316 |
| — |
|
| Non-U.S. government debt | 80,162 |
| 4,426 |
| 149,008 |
| 1,279 |
| | 80,162 |
| 4,426 |
|
| Corporate debt securities | 21,286 |
| 78 |
| 18,140 |
| 108 |
| | 21,286 |
| 78 |
|
| Asset-backed securities | 4,394 |
| — |
| 7,721 |
| — |
| | 4,394 |
| — |
|
| Equity securities | 15,719 |
| 18,047 |
| 15,529 |
| 21,064 |
| | 15,719 |
| 18,047 |
|
| Total | $ | 290,044 |
| $ | 22,556 |
| $ | 402,465 |
| $ | 22,451 |
| | $ | 290,044 |
| $ | 22,556 |
|
|
| | | | | | | | | | | | | | | |
| | Remaining contractual maturity of the agreements |
| | Overnight and continuous | | | Greater than 90 days | |
| December 31, 2015 (in millions) | Up to 30 days | 30 – 90 days | Total |
| Total securities sold under repurchase agreements | $ | 114,595 |
| $ | 100,082 |
| $ | 29,955 |
| $ | 45,412 |
| $ | 290,044 |
|
| Total securities loaned | 8,320 |
| 708 |
| 793 |
| 12,735 |
| 22,556 |
|
|
| | | | | | | | | | | | | | | |
| | Remaining contractual maturity of the agreements |
| | Overnight and continuous | | | Greater than 90 days | |
2016 (in millions) | Up to 30 days | 30 – 90 days | Total |
| Total securities sold under repurchase agreements | $ | 140,318 |
| $ | 157,860 |
| $ | 55,621 |
| $ | 48,666 |
| $ | 402,465 |
|
Total securities loaned and other(a) | 13,586 |
| 1,371 |
| 2,877 |
| 4,617 |
| 22,451 |
|
|
| | | | | | | | | | | | | | | |
| | Remaining contractual maturity of the agreements |
| | Overnight and continuous | | | Greater than 90 days | |
| 2015 (in millions) | Up to 30 days | 30 – 90 days | Total |
| Total securities sold under repurchase agreements | $ | 114,595 |
| $ | 100,082 |
| $ | 29,955 |
| $ | 45,412 |
| $ | 290,044 |
|
Total securities loaned and other(a) | 8,320 |
| 708 |
| 793 |
| 12,735 |
| 22,556 |
|
| |
| (a) | Includes securities-for-securities lending transactions of $9.1 billion and $4.4 billion at December 31, 2016 and 2015, respectively, accounted for at fair value, where the Firm is acting as lender. These amounts are presented within other liabilities on the Consolidated balance sheets. |
Transfers not qualifying for sale accounting
At December 31, 20152016 and 2014,2015, the Firm held $7.5$5.9 billion and $13.8$7.5 billion,, respectively, of financial assets for which the rights have been transferred to third parties; however, the transfers did not qualify as a sale in accordance with U.S. GAAP. These transfers have been recognized as collateralized financing transactions. The transferred assets are recorded in trading assets and loans, and the corresponding liabilities are recorded predominantly recorded in other borrowed funds on the Consolidated balance sheets.
|
| | |
JPMorgan Chase & Co./20152016 Annual Report | | 241207 |
Notes to consolidated financial statements
Note 14 – Loans
Loan accounting framework
The accounting for a loan depends on management’s strategy for the loan, and on whether the loan was credit-impaired at the date of acquisition. The Firm accounts for loans based on the following categories:
Originated or purchased loans held-for-investment (i.e., “retained”), other than purchased credit-impaired (“PCI”)PCI loans
Loans held-for-sale
Loans at fair value
PCI loans held-for-investment
The following provides a detailed accounting discussion of these loan categories:
Loans held-for-investment (other than PCI loans)
Originated or purchased loans held-for-investment, other than PCI loans, are measuredrecorded at the principal amount outstanding, net of the following: allowance for loan losses; charge-offs; interest applied to principal (for loans accounted for on the cost recovery method); unamortized discounts and premiums; and net deferred loan fees or costs. Credit card loans also include billed finance charges and fees net of an allowance for uncollectible amounts.
Interest income
Interest income on performing loans held-for-investment, other than PCI loans, is accrued and recognized as interest income at the contractual rate of interest. Purchase price discounts or premiums, as well as net deferred loan fees or costs, are amortized into interest income over the contractual life of the loan to produce a level rate of return.
Nonaccrual loans
Nonaccrual loans are those on which the accrual of interest has been suspended. Loans (other than credit card loans and certain consumer loans insured by U.S. government agencies) are placed on nonaccrual status and considered nonperforming when full payment of principal and interest is in doubt,not expected, regardless of delinquency status, or when principal and interest has been in default for a period of 90 days or more, unless the loan is both well-secured and in the process of collection. A loan is determined to be past due when the minimum payment is not received from the borrower by the contractually specified due date or for certain loans (e.g., residential real estate loans), when a monthly payment is due and unpaid for 30 days or more. Finally, collateral-dependent loans are typically maintained on nonaccrual status.
On the date a loan is placed on nonaccrual status, all interest accrued but not collected is reversed against interest income. In addition, the amortization of deferred amounts is suspended. Interest income on nonaccrual loans may be recognized as cash interest payments are received (i.e., on a cash basis) if the recorded loan balance is deemed fully collectible; however, if there is doubt regarding the ultimate collectibility of the recorded loan balance, all interest cash receipts are applied to reduce the
carrying value of the loan (the cost recovery method). For consumer loans, application of this policy typically results in the Firm recognizing interest income on nonaccrual consumer loans on a cash basis.
A loan may be returned to accrual status when repayment is reasonably assured and there has been demonstrated performance under the terms of the loan or, if applicable, the terms of the restructured loan.
As permitted by regulatory guidance, credit card loans are generally exempt from being placed on nonaccrual status; accordingly, interest and fees related to credit card loans continue to accrue until the loan is charged off or paid in full. However, the Firm separately establishes an allowance, which is offset against loans and charged to interest income, for the estimated uncollectible portion of accrued and billed interest and fee income on credit card loans. The allowance is established with a charge to interest income and is reported as an offset to loans.
Allowance for loan losses
The allowance for loan losses represents the estimated probable credit losses inherent in the held-for-investment loan portfolio at the balance sheet date.date and is recognized on the balance sheet as a contra asset, which brings the recorded investment to the net carrying value. Changes in the allowance for loan losses are recorded in the provision for credit losses on the Firm’s Consolidated statements of income. See Note 15 for further information on the Firm’s accounting policies for the allowance for loan losses.
Charge-offs
Consumer loans, other than risk-rated business banking, risk-rated auto and PCI loans, are generally charged off or charged down to the net realizable value of the underlying collateral (i.e., fair value less costs to sell), with an offset to the allowance for loan losses, upon reaching specified stages of delinquency in accordance with standards established by the Federal Financial Institutions Examination Council (“FFIEC”).FFIEC. Residential real estate loans, non-modified credit card loans and scored business banking loans are generally charged off atno later than 180 days past due. Auto, student and studentmodified credit card loans are charged off no later than 120 days past due, and modified credit card loans are charged off at 120 days past due.
Certain consumer loans will be charged off earlier than the FFIEC charge-off standards in certain circumstances as follows:
A charge-off is recognized when a loan is modified in a troubled debt restructuring (“TDR”) TDR if the loan is determined to be collateral-dependent. A loan is considered to be collateral-dependent when repayment of the loan is expected to be provided solely by the underlying collateral, rather than by cash flows from the borrower’s operations, income or other resources.
Loans to borrowers who have experienced an event (e.g., bankruptcy) that suggests a loss is either known or highly certain are subject to accelerated charge-off standards. Residential real estate and auto loans are charged off when the loan becomes 60 days past due, or sooner if the loan is determined to be collateral-
|
| | |
242 | | JPMorgan Chase & Co./2015 Annual Report |
dependent.collateral-dependent. Credit card, student and scored business banking loans are charged off within 60 days of
|
| | |
| 208 | | JPMorgan Chase & Co./2016 Annual Report |
receiving notification of the bankruptcy filing or other event. Student loans are generally charged off when the loan becomes 60 days past due after receiving notification of a bankruptcy.
Auto loans are written down to net realizable value upon repossession of the automobile and after a redemption period (i.e., the period during which a borrower may cure the loan) has passed.
Other than in certain limited circumstances, the Firm typically does not recognize charge-offs on government-guaranteed loans.
Wholesale loans, risk-rated business banking loans and risk-rated auto loans are charged off when it is highly certain that a loss has been realized, including situations where a loan is determined to be both impaired and collateral-dependent. The determination of whether to recognize a charge-off includes many factors, including the prioritization of the Firm’s claim in bankruptcy, expectations of the workout/restructuring of the loan and valuation of the borrower’s equity or the loan collateral.
When a loan is charged down to the estimated net realizable value, the determination of the fair value of the collateral depends on the type of collateral (e.g., securities, real estate). In cases where the collateral is in the form of liquid securities, the fair value is based on quoted market prices or broker quotes. For illiquid securities or other financial assets, the fair value of the collateral is estimated using a discounted cash flow model.
For residential real estate loans, collateral values are based upon external valuation sources. When it becomes likely that a borrower is either unable or unwilling to pay, the Firm obtains a broker’s price opinion of the home based on an exterior-only valuation (“exterior opinions”), which is then updated at least every six months thereafter. As soon as practicable after the Firm receives the property in satisfaction of a debt (e.g., by taking legal title or physical possession), generally, either through foreclosure or upon the execution of a deed in lieu of foreclosure transaction with the borrower, the Firm obtains an appraisal based on an inspection that includes the interior of the home (“interior appraisals”). Exterior opinions and interior appraisals are discounted based upon the Firm’s experience with actual liquidation values as compared with the estimated values provided by exterior opinions and interior appraisals, considering state- and product-specific factors.
For commercial real estate loans, collateral values are generally based on appraisals from internal and external valuation sources. Collateral values are typically updated every six to twelve months, either by obtaining a new appraisal or by performing an internal analysis, in accordance with the Firm’s policies. The Firm also considers both borrower- and market-specific factors, which may result in obtaining appraisal updates or broker price opinions at more frequent intervals.
Loans held-for-sale
Held-for-sale loans are measured at the lower of cost or fair value, with valuation changes recorded in noninterest revenue. For consumer loans, the valuation is performed on a portfolio basis. For wholesale loans, the valuation is performed on an individual loan basis.
Interest income on loans held-for-sale is accrued and recognized based on the contractual rate of interest.
Loan origination fees or costs and purchase price discounts or premiums are deferred in a contra loan account until the related loan is sold. The deferred fees and discounts or premiums are an adjustment to the basis of the loan and therefore are included in the periodic determination of the lower of cost or fair value adjustments and/or the gain or loss recognized at the time of sale.
Held-for-sale loans are subject to the nonaccrual policies described above.
Because held-for-sale loans are recognized at the lower of cost or fair value, the Firm’s allowance for loan losses and charge-off policies do not apply to these loans.
Loans at fair value
Loans used in a market-making strategy or risk managed on a fair value basis are measured at fair value, with changes in fair value recorded in noninterest revenue.
For theseInterest income on loans is accrued and recognized based on the earned current contractual interest payment is recognized in interest income.rate of interest. Changes in fair value are recognized in noninterest revenue. Loan origination fees are recognized upfront in noninterest revenue. Loan origination costs are recognized in the associated expense category as incurred.
Because these loans are recognized at fair value, the Firm’s allowance for loan losses and charge-off policies do not apply to these loans.
See Note 4 for further information on the Firm’s elections of fair value accounting under the fair value option. See Note 3 and Note 4 for further information on loans carried at fair value and classified as trading assets.
PCI loans
PCI loans held-for-investment are initially measured at fair value. PCI loans have evidence of credit deterioration since the loan’s origination date and therefore it is probable, at acquisition, that all contractually required payments will not be collected. Because PCI loans are initially measured at fair value, which includes an estimate of future credit losses, no allowance for loan losses related to PCI loans is recorded at the acquisition date. See page 255219 of this Note for information on accounting for PCI loans subsequent to their acquisition.
|
| | |
JPMorgan Chase & Co./20152016 Annual Report | | 243209 |
Notes to consolidated financial statements
Loan classification changes
Loans in the held-for-investment portfolio that management decides to sell are transferred to the held-for-sale portfolio at the lower of cost or fair value on the date of transfer. Credit-related losses are charged against the allowance for loan losses; non-credit related losses such as those due to changes in interest rates or foreign currency exchange rates are recognized in noninterest revenue.
In the event that management decides to retain a loan in the held-for-sale portfolio, the loan is transferred to the held-for-investment portfolio at the lower of cost or fair value on the date of transfer. These loans are subsequently assessed for impairment based on the Firm’s allowance methodology. For a further discussion of the methodologies used in establishing the Firm’s allowance for loan losses, see Note 15.
Loan modifications
The Firm seeks to modify certain loans in conjunction with its loss-mitigation activities. Through the modification, JPMorgan Chase grants one or more concessions to a borrower who is experiencing financial difficulty in order to minimize the Firm’s economic loss, avoid foreclosure or repossession of the collateral, and to ultimately maximize payments received by the Firm from the borrower. The concessions granted vary by program and by borrower-specific characteristics, and may include interest rate reductions, term extensions, payment deferrals, principal forgiveness, or the acceptance of equity or other assets in lieu of payments.
Such modifications are accounted for and reported as TDRs. A loan that has been modified in a TDR is generally considered to be impaired until it matures, is repaid, or is otherwise liquidated, regardless of whether the borrower performs under the modified terms. In certain limited cases, the effective interest rate applicable to the modified loan is at or above the current market rate at the time of the restructuring. In such circumstances, and assuming that the loan subsequently performs under its modified terms and the Firm expects to collect all contractual principal and interest cash flows, the loan is disclosed as impaired and as a TDR only during the year of the modification; in subsequent years, the loan is not disclosed as an impaired loan or as a TDR so long as repayment of the restructured loan under its modified terms is reasonably assured.
Loans, except for credit card loans, modified in a TDR are generally placed on nonaccrual status, although in many cases such loans were already on nonaccrual status prior to modification. These loans may be returned to performing status (the accrual of interest is resumed) if the following criteria are met: (a)(i) the borrower has performed under the modified terms for a minimum of six months and/or six payments, and (b)(ii) the Firm has an expectation that repayment of the modified loan is reasonably assured based on, for example, the borrower’s debt capacity and level of future earnings, collateral values, loan-to-value (“LTV”)LTV ratios, and other current market considerations. In certain limited and well-defined circumstances in which the loan is current at the modification date, such loans are not placed on nonaccrual status at the time of modification.
Because loans modified in TDRs are considered to be impaired, these loans are measured for impairment using the Firm’s established asset-specific allowance methodology, which considers the expected re-default rates for the modified loans. A loan modified in a TDR generally remains subject to the asset-specific allowance methodology throughout its remaining life, regardless of whether the loan is performing and has been returned to accrual status and/or the loan has been removed from the impaired loans disclosures (i.e., loans restructured at market rates). For further discussion of the methodology used to estimate the Firm’s asset-specific allowance, see Note 15.
Foreclosed property
The Firm acquires property from borrowers through loan restructurings, workouts, and foreclosures. Property acquired may include real property (e.g., residential real estate, land, and buildings) and commercial and personal property (e.g., automobiles, aircraft, railcars, and ships).
The Firm recognizes foreclosed property upon receiving assets in satisfaction of a loan (e.g., by taking legal title or physical possession). For loans collateralized by real property, the Firm generally recognizes the asset received at foreclosure sale or upon the execution of a deed in lieu of foreclosure transaction with the borrower. Foreclosed assets are reported in other assets on the Consolidated balance sheets and initially recognized at fair value less costs to sell. Each quarter the fair value of the acquired property is reviewed and adjusted, if necessary, to the lower of cost or fair value. Subsequent adjustments to fair value are charged/credited to noninterest revenue. Operating expense, such as real estate taxes and maintenance, are charged to other expense.
|
| | |
244210 | | JPMorgan Chase & Co./20152016 Annual Report |
The Firm’s loan portfolio is divided into three portfolio segments, which are the same segments used by the Firm to determine the allowance for loan losses: Consumer, excluding credit card; Credit card; and Wholesale. Within each portfolio segment the Firm monitors and assesses the credit risk in the following classes of loans, based on the risk characteristics of each loan class:class.
|
| | | | |
Consumer, excluding credit card(a) | | Credit card | | Wholesale(c)(f) |
Residential real estate – excluding PCI • Home equity – senior lien(b) • Home equity – junior lien • PrimeResidential mortgage including
option ARMs
• Subprime mortgage(c)
Other consumer loans • Auto(b)(d) • Business banking(b)(d)(e) • Student and other Residential real estate – PCI • Home equity • Prime mortgage • Subprime mortgage • Option ARMs | | • Credit card loans | | • Commercial and industrial • Real estate • Financial institutions • Government agencies • Other(d)(g) |
| |
| (a) | Includes loans held in CCB, prime mortgage and home equity loans held in AMAWM and prime mortgage loans held in Corporate. |
| |
| (b) | Includes senior and junior lien home equity loans. |
| |
| (c) | Includes prime (including option ARMs) and subprime loans. |
| |
| (d) | Includes certain business banking and auto dealer risk-rated loans that apply the wholesale methodology for determining the allowance for loan losses; these loans are managed by CCB, and therefore, for consistency in presentation, are included with the other consumer loan classes. |
| |
(c)(e) | Predominantly includes Business Banking loans as well as deposit overdrafts. |
| |
| (f) | Includes loans held in CIB, CB, AMAWM and Corporate. Excludes prime mortgage and home equity loans held in AMAWM and prime mortgage loans held in Corporate. Classes are internally defined and may not align with regulatory definitions. |
| |
(d)(g) | Includes loans to: individuals; SPEs; holding companies; and private education and civic organizations. For more information on exposures to SPEs, see Note 16. |
The following tables summarize the Firm’s loan balances by portfolio segment.
| | | December 31, 2016 | | Consumer, excluding credit card | Credit card(a) | Wholesale | Total | |
| (in millions) | | |
| Retained | | | $ | 364,406 |
| | $ | 141,711 |
| | $ | 383,790 |
| | $ | 889,907 |
| (b) |
| Held-for-sale | | | 238 |
| | 105 |
| | 2,285 |
| | 2,628 |
| |
| At fair value | | | — |
| | — |
| | 2,230 |
| | 2,230 |
| |
| Total | | | $ | 364,644 |
| | $ | 141,816 |
| | $ | 388,305 |
| | $ | 894,765 |
| |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2015 | Consumer, excluding credit card | Credit card(a) | Wholesale | Total | | Consumer, excluding credit card | | Credit card(a) | | Wholesale | | Total | |
| (in millions) | | |
| Retained | | $ | 344,355 |
| | $ | 131,387 |
| | $ | 357,050 |
| | $ | 832,792 |
| (b) | | $ | 344,355 |
| | $ | 131,387 |
| | $ | 357,050 |
| | $ | 832,792 |
| (b) |
| Held-for-sale | | 466 |
| | 76 |
| | 1,104 |
| | 1,646 |
| | | 466 |
| | 76 |
| | 1,104 |
| | 1,646 |
| |
| At fair value | | — |
| | — |
| | 2,861 |
| | 2,861 |
| | | — |
| | — |
| | 2,861 |
| | 2,861 |
| |
| Total | | $ | 344,821 |
| | $ | 131,463 |
| | $ | 361,015 |
| | $ | 837,299 |
| | | $ | 344,821 |
| | $ | 131,463 |
| | $ | 361,015 |
| | $ | 837,299 |
| |
| | | | | | | | | | | |
| December 31, 2014 | Consumer, excluding credit card | | Credit card(a) | | Wholesale | | Total | | |
| (in millions) | | |
| Retained | | $ | 294,979 |
| | $ | 128,027 |
| | $ | 324,502 |
| | $ | 747,508 |
| (b) | |
| Held-for-sale | | 395 |
| | 3,021 |
| | 3,801 |
| | 7,217 |
| | |
| At fair value | | — |
| | — |
| | 2,611 |
| | 2,611 |
| | |
| Total | | $ | 295,374 |
| | $ | 131,048 |
| | $ | 330,914 |
| | $ | 757,336 |
| | |
| |
| (a) | Includes billed finance chargesinterest and fees net of an allowance for uncollectible amounts.interest and fees. |
| |
| (b) | Loans (other than PCI loans and those for which the fair value option has been elected) are presented net of unearned income, unamortized discounts and premiums, and net deferred loan costs. These amounts were not material as of December 31, 20152016 and 2014. 2015. |
|
| | |
JPMorgan Chase & Co./20152016 Annual Report | | 245211 |
Notes to consolidated financial statements
The following tables provide information about the carrying value of retained loans purchased, sold and reclassified to held-for-sale during the periods indicated. These tables exclude loans recorded at fair value. The Firm manages its exposure to credit risk on an ongoing basis. Selling loans is one way that the Firm reduces its credit exposures.
|
| | | | | | | | | | | | | | | | | | | | |
| | | | 2016 |
Year ended December 31,
(in millions) | | Consumer, excluding credit card | Credit card | Wholesale | Total |
| Purchases | | | $ | 4,116 |
| (a)(b) | | $ | — |
| | | $ | 1,448 |
| | | $ | 5,564 |
|
| Sales | | | 6,368 |
| | | — |
| | | 8,739 |
| | | 15,107 |
|
| Retained loans reclassified to held-for-sale | | | 321 |
| | | — |
| | | 2,381 |
| | | 2,702 |
|
|
| | | | | | | | | | | | | | | | | | | | |
| | | | 2015 |
Year ended December 31,
(in millions) | | Consumer, excluding credit card | Credit card | Wholesale | Total |
| Purchases | | | $ | 5,279 |
| (a)(b) | | $ | — |
| | | $ | 2,154 |
| | | $ | 7,433 |
|
| Sales | | | 5,099 |
| | | — |
| | | 9,188 |
| | | 14,287 |
|
| Retained loans reclassified to held-for-sale | | | 1,514 |
| | | 79 |
| | | 642 |
| | | 2,235 |
|
|
| | | | | | | | | | | | | | | | | | | | |
| | | | 2014 |
Year ended December 31,
(in millions) | | Consumer, excluding credit card | Credit card | Wholesale | Total |
| Purchases | | | $ | 7,434 |
| (a)(b) | | $ | — |
| | | $ | 885 |
| | | $ | 8,319 |
|
| Sales | | | 6,655 |
| | | — |
| (c) | | 7,381 |
| | | 14,036 |
|
| Retained loans reclassified to held-for-sale | | | 1,190 |
| | | 3,039 |
| | | 581 |
| | | 4,810 |
|
| | | | | | 2013 | | | 2014 |
Year ended December 31,
(in millions) | | Consumer, excluding credit card | Credit card | Wholesale | Total | | Consumer, excluding credit card | Credit card | Wholesale | Total |
| Purchases | | $ | 7,616 |
| (a)(b) | | $ | 328 |
| | $ | 697 |
| | $ | 8,641 |
| | $ | 7,434 |
| (a)(b) | | $ | — |
| | $ | 885 |
| | $ | 8,319 |
|
| Sales | | 4,845 |
| | — |
| | 4,232 |
| | 9,077 |
| | 6,655 |
| | — |
| | 7,381 |
| | 14,036 |
|
| Retained loans reclassified to held-for-sale | | 1,261 |
| | 309 |
| | 5,641 |
| | 7,211 |
| | 1,190 |
| | 3,039 |
| | 581 |
| | 4,810 |
|
| |
| (a) | Purchases predominantly represent the Firm’s voluntary repurchase of certain delinquent loans from loan pools as permitted by Government National Mortgage Association (“Ginnie MaeMae”) guidelines. The Firm typically elects to repurchase these delinquent loans as it continues to service them and/or manage the foreclosure process in accordance with applicable requirements of Ginnie Mae, the Federal Housing Administration (“FHA”), Rural Housing Services (“RHS”)FHA, RHS, and/or the U.S. Department of Veterans Affairs (“VA”).VA. |
| |
| (b) | Excludes purchases of retained loans sourced through the correspondent origination channel and underwritten in accordance with the Firm’s standards. Such purchases were $30.4 billion, $50.3 billion $15.1 billion and $5.7$15.1 billion for the years ended December 31, 2016, 2015 and 2014, and 2013, respectively. |
| |
(c) | Prior period amounts have been revised to conform with current period presentation. |
The following table provides information about gains and losses, including lower of cost or fair value adjustments, on loan sales by portfolio segment.
| | | Year ended December 31, (in millions) | 2015 | 2014 | 2013 | 2016 | 2015 | 2014 |
Net gains/(losses) on sales of loans (including lower of cost or fair value adjustments)(a) | | |
| Consumer, excluding credit card | $ | 305 |
| $ | 341 |
| $ | 313 |
| $ | 231 |
| $ | 305 |
| $ | 341 |
|
| Credit card | 1 |
| (241 | ) | 3 |
| (12 | ) | 1 |
| (241 | ) |
| Wholesale | 34 |
| 101 |
| (76 | ) | 26 |
| 34 |
| 101 |
|
| Total net gains on sales of loans (including lower of cost or fair value adjustments) | $ | 340 |
| $ | 201 |
| $ | 240 |
| $ | 245 |
| $ | 340 |
| $ | 201 |
|
| |
| (a) | Excludes sales related to loans accounted for at fair value. |
|
| | |
246212 | | JPMorgan Chase & Co./20152016 Annual Report |
Consumer, excluding credit card, loan portfolio
Consumer loans, excluding credit card loans, consist primarily of residential mortgages, home equity loans and lines of credit, auto loans, business banking loans, and student and other loans, with a focus on serving the prime consumer credit market. The portfolio also includes home equity loans secured by junior liens, prime mortgage loans with an interest-only payment period, and certain payment-option loans originated by Washington Mutual that may result in negative amortization.
The table below provides information about retained consumer loans, excluding credit card, by class. | | | December 31, (in millions) | 2015 | 2014 | 2016 |
| 2015 |
|
| Residential real estate – excluding PCI | | |
| Home equity: | | |
| Senior lien | $ | 14,848 |
| $ | 16,367 |
| |
| Junior lien | 30,711 |
| 36,375 |
| |
| Mortgages: | | |
| Prime, including option ARMs | 162,549 |
| 104,921 |
| |
| Subprime | 3,690 |
| 5,056 |
| |
| Home equity | | $ | 39,063 |
| $ | 45,559 |
|
| Residential mortgage | | 192,163 |
| 166,239 |
|
| Other consumer loans | | |
| Auto | 60,255 |
| 54,536 |
| 65,814 |
| 60,255 |
|
| Business banking | 21,208 |
| 20,058 |
| 22,698 |
| 21,208 |
|
| Student and other | 10,096 |
| 10,970 |
| 8,989 |
| 10,096 |
|
| Residential real estate – PCI | | |
| Home equity | 14,989 |
| 17,095 |
| 12,902 |
| 14,989 |
|
| Prime mortgage | 8,893 |
| 10,220 |
| 7,602 |
| 8,893 |
|
| Subprime mortgage | 3,263 |
| 3,673 |
| 2,941 |
| 3,263 |
|
| Option ARMs | 13,853 |
| 15,708 |
| 12,234 |
| 13,853 |
|
| Total retained loans | $ | 344,355 |
| $ | 294,979 |
| $ | 364,406 |
| $ | 344,355 |
|
Delinquency rates are a primary credit quality indicator for consumer loans. Loans that are more than 30 days past due provide an early warning of borrowers who may be experiencing financial difficulties and/or who may be unable or unwilling to repay the loan. As the loan continues to age, it becomes more clear that the borrower is likely either unable or unwilling to pay. In the case of residential real estate loans, late-stage delinquencies (greater than 150 days past due) are a strong indicator of loans that will ultimately result in a foreclosure or similar liquidation transaction. In addition to delinquency rates, other credit quality indicators for consumer loans vary based on the class of loan, as follows:
For residential real estate loans, including both non-PCI and PCI portfolios, the current estimated LTV ratio, or the combined LTV ratio in the case of junior lien loans, is an indicator of the potential loss severity in the event of default. Additionally, LTV or combined LTV ratios can provide
insight into a borrower’s continued willingness to pay, as the delinquency rate of high-LTV loans tends to be greater than that for loans where the borrower has equity in the collateral. The geographic distribution of
the loan collateral also provides insight as to the credit quality of the portfolio, as factors such as the regional economy, home price changes and specific events such as natural disasters, will affect credit quality. The borrower’s current or “refreshed” FICO score is a secondary credit-quality indicator for certain loans, as FICO scores are an indication of the borrower’s credit payment history. Thus, a loan to a borrower with a low FICO score (660 or below) is considered to be of higher risk than a loan to a borrower with a high FICO score. Further, a loan to a borrower with a high LTV ratio and a low FICO score is at greater risk of default than a loan to a borrower that has both a high LTV ratio and a high FICO score.
For scored auto, scored business banking and student loans, geographic distribution is an indicator of the credit performance of the portfolio. Similar to residential real estate loans, geographic distribution provides insights into the portfolio performance based on regional economic activity and events.
Risk-rated business banking and auto loans are similar to wholesale loans in that the primary credit quality indicators are the risk rating that is assigned to the loan and whether the loans are considered to be criticized and/or nonaccrual. Risk ratings are reviewed on a regular and ongoing basis by Credit Risk Management and are adjusted as necessary for updated information about borrowers’ ability to fulfill their obligations. For further information about risk-rated wholesale loan credit quality indicators, see pages 259–260224–225 of this Note.
Residential real estate — excluding PCI loans
The following table provides information by class for residential real estate — excluding retained PCI loans in the consumer, excluding credit card, portfolio segment.
The following factors should be considered in analyzing certain credit statistics applicable to the Firm’s residential real estate — excluding PCI loans portfolio: (i) junior lien home equity loans may be fully charged off when the loan becomes 180 days past due, and the value of the collateral does not support the repayment of the loan, resulting in relatively high charge-off rates for this product class; and (ii) the lengthening of loss-mitigation timelines may result in higher delinquency rates for loans carried at the net realizable value of the collateral that remain on the Firm’s Consolidated balance sheets.
|
| | |
JPMorgan Chase & Co./20152016 Annual Report | | 247213 |
Notes to consolidated financial statements
| | | Residential real estate – excluding PCI loans | Residential real estate – excluding PCI loans | | | | | | | | Residential real estate – excluding PCI loans | | | | |
| | Home equity(i) | | Mortgages | | | |
December 31, (in millions, except ratios) | Senior lien | | Junior lien | | Prime, including option ARMs(i) | | Subprime | | Total residential real estate – excluding PCI | Home equity(g) | | Residential mortgage(g) | | Total residential real estate – excluding PCI |
| 2015 | 2014 | | 2015 | 2014 | | 2015 | 2014 | | 2015 | 2014 | | 2015 | 2014 | 2016 | 2015 |
| 2016 | 2015 |
| 2016 | 2015 |
Loan delinquency(a) | | | | | | | | | | | | | | |
| Current | $ | 14,278 |
| $ | 15,730 |
| | $ | 30,021 |
| $ | 35,575 |
| | $ | 153,323 |
| $ | 93,951 |
| | $ | 3,140 |
| $ | 4,296 |
| | $ | 200,762 |
| $ | 149,552 |
| $ | 37,941 |
| $ | 44,299 |
| | $ | 183,819 |
| $ | 156,463 |
| | $ | 221,760 |
| $ | 200,762 |
|
| 30–149 days past due | 238 |
| 275 |
| | 470 |
| 533 |
| | 3,666 |
| 4,091 |
| | 376 |
| 489 |
| | 4,750 |
| 5,388 |
| 646 |
| 708 |
| | 3,824 |
| 4,042 |
| | 4,470 |
| 4,750 |
|
| 150 or more days past due | 332 |
| 362 |
| | 220 |
| 267 |
| | 5,560 |
| 6,879 |
| | 174 |
| 271 |
| | 6,286 |
| 7,779 |
| 476 |
| 552 |
| | 4,520 |
| 5,734 |
| | 4,996 |
| 6,286 |
|
| Total retained loans | $ | 14,848 |
| $ | 16,367 |
| | $ | 30,711 |
| $ | 36,375 |
| | $ | 162,549 |
| $ | 104,921 |
| | $ | 3,690 |
| $ | 5,056 |
| | $ | 211,798 |
| $ | 162,719 |
| $ | 39,063 |
| $ | 45,559 |
| | $ | 192,163 |
| $ | 166,239 |
| | $ | 231,226 |
| $ | 211,798 |
|
% of 30+ days past due to total retained loans(b) | 3.84 | % | 3.89 | % | | 2.25 | % | 2.20 | % | | 0.71 | % | 1.42 | % | | 14.91 | % | 15.03 | % | | 1.40 | % | 2.27 | % | 2.87 | % | 2.77 | % | | 0.75 | % | 1.03 | % | | 1.11 | % | 1.40 | % |
90 or more days past due and government guaranteed(c) | — |
| — |
| | — |
| — |
| | 6,056 |
| 7,544 |
| | — |
| — |
| | 6,056 |
| 7,544 |
| $ | — |
| $ | — |
| | $ | 4,858 |
| $ | 6,056 |
| | $ | 4,858 |
| $ | 6,056 |
|
| Nonaccrual loans | 867 |
| 938 |
| | 1,324 |
| 1,590 |
| | 1,752 |
| 2,190 |
| | 751 |
| 1,036 |
| | 4,694 |
| 5,754 |
| 1,845 |
| 2,191 |
| | 2,247 |
| 2,503 |
| | 4,092 |
| 4,694 |
|
Current estimated LTV ratios(d)(e)(f)(g) | | | | | | | | | | |
Current estimated LTV ratios(d)(e) | | | | | | |
| Greater than 125% and refreshed FICO scores: | | | | | | | | | | | | | | |
| Equal to or greater than 660 | $ | 42 |
| $ | 37 |
| | $ | 123 |
| $ | 252 |
| | $ | 56 |
| $ | 97 |
| | $ | 2 |
| $ | 4 |
| | $ | 223 |
| $ | 390 |
| $ | 70 |
| $ | 165 |
| | $ | 30 |
| $ | 58 |
| | $ | 100 |
| $ | 223 |
|
| Less than 660 | 3 |
| 6 |
| | 29 |
| 65 |
| | 65 |
| 72 |
| | 12 |
| 28 |
| | 109 |
| 171 |
| 15 |
| 32 |
| | 48 |
| 77 |
| | 63 |
| 109 |
|
| 101% to 125% and refreshed FICO scores: | | | | | | | | | | | | | | |
| Equal to or greater than 660 | 50 |
| 83 |
| | 1,294 |
| 2,105 |
| | 249 |
| 478 |
| | 25 |
| 76 |
| | 1,618 |
| 2,742 |
| 668 |
| 1,344 |
| | 135 |
| 274 |
| | 803 |
| 1,618 |
|
| Less than 660 | 23 |
| 40 |
| | 411 |
| 651 |
| | 190 |
| 282 |
| | 101 |
| 207 |
| | 725 |
| 1,180 |
| 221 |
| 434 |
| | 177 |
| 291 |
| | 398 |
| 725 |
|
| 80% to 100% and refreshed FICO scores: | | | | | | | | | | | | | | |
| Equal to or greater than 660 | 311 |
| 466 |
| | 4,226 |
| 5,849 |
| | 3,013 |
| 2,686 |
| | 146 |
| 382 |
| | 7,696 |
| 9,383 |
| 2,961 |
| 4,537 |
| | 4,026 |
| 3,159 |
| | 6,987 |
| 7,696 |
|
| Less than 660 | 142 |
| 206 |
| | 1,267 |
| 1,647 |
| | 597 |
| 838 |
| | 399 |
| 703 |
| | 2,405 |
| 3,394 |
| 945 |
| 1,409 |
| | 718 |
| 996 |
| | 1,663 |
| 2,405 |
|
| Less than 80% and refreshed FICO scores: | | | | | | | | | | | | | | |
| Equal to or greater than 660 | 11,721 |
| 12,588 |
| | 17,927 |
| 19,435 |
| | 140,942 |
| 82,350 |
| | 1,299 |
| 1,624 |
| | 171,889 |
| 115,997 |
| 27,317 |
| 29,648 |
| | 169,579 |
| 142,241 |
| | 196,896 |
| 171,889 |
|
| Less than 660 | 1,942 |
| 2,184 |
| | 2,992 |
| 3,326 |
| | 5,280 |
| 4,872 |
| | 1,517 |
| 1,795 |
| | 11,731 |
| 12,177 |
| 4,380 |
| 4,934 |
| | 6,759 |
| 6,797 |
| | 11,139 |
| 11,731 |
|
| No FICO/LTV available | 614 |
| 757 |
| | 2,442 |
| 3,045 |
| | 1,469 |
| 1,136 |
| | 189 |
| 237 |
| | 4,714 |
| 5,175 |
| 2,486 |
| 3,056 |
| | 1,327 |
| 1,658 |
| | 3,813 |
| 4,714 |
|
| U.S. government-guaranteed | — |
| — |
| | — |
| — |
| | 10,688 |
| 12,110 |
| | — |
| — |
| | 10,688 |
| 12,110 |
| — |
| — |
| | 9,364 |
| 10,688 |
| | 9,364 |
| 10,688 |
|
| Total retained loans | $ | 14,848 |
| $ | 16,367 |
| | $ | 30,711 |
| $ | 36,375 |
| | $ | 162,549 |
| $ | 104,921 |
| | $ | 3,690 |
| $ | 5,056 |
| | $ | 211,798 |
| $ | 162,719 |
| $ | 39,063 |
| $ | 45,559 |
| | $ | 192,163 |
| $ | 166,239 |
| | $ | 231,226 |
| $ | 211,798 |
|
| Geographic region | | | | | | | | | | | | | | |
| California | $ | 2,072 |
| $ | 2,232 |
| | $ | 6,873 |
| $ | 8,144 |
| | $ | 46,745 |
| $ | 28,133 |
| | $ | 518 |
| $ | 718 |
| | $ | 56,208 |
| $ | 39,227 |
| $ | 7,644 |
| $ | 8,945 |
| | $ | 59,785 |
| $ | 47,263 |
| | $ | 67,429 |
| $ | 56,208 |
|
| New York | 2,583 |
| 2,805 |
| | 6,564 |
| 7,685 |
| | 20,941 |
| 16,550 |
| | 521 |
| 677 |
| | 30,609 |
| 27,717 |
| 7,978 |
| 9,147 |
| | 24,813 |
| 21,462 |
| | 32,791 |
| 30,609 |
|
| Illinois | 1,189 |
| 1,306 |
| | 2,231 |
| 2,605 |
| | 11,379 |
| 6,654 |
| | 145 |
| 207 |
| | 14,944 |
| 10,772 |
| 2,947 |
| 3,420 |
| | 13,115 |
| 11,524 |
| | 16,062 |
| 14,944 |
|
| Texas | 1,581 |
| 1,845 |
| | 951 |
| 1,087 |
| | 8,986 |
| 4,935 |
| | 142 |
| 177 |
| | 11,660 |
| 8,044 |
| 2,225 |
| 2,532 |
| | 10,717 |
| 9,128 |
| | 12,942 |
| 11,660 |
|
| Florida | 797 |
| 861 |
| | 1,612 |
| 1,923 |
| | 6,763 |
| 5,106 |
| | 414 |
| 632 |
| | 9,586 |
| 8,522 |
| 2,133 |
| 2,409 |
| | 8,387 |
| 7,177 |
| | 10,520 |
| 9,586 |
|
| New Jersey | 647 |
| 654 |
| | 1,943 |
| 2,233 |
| | 5,395 |
| 3,361 |
| | 172 |
| 227 |
| | 8,157 |
| 6,475 |
| 2,253 |
| 2,590 |
| | 6,371 |
| 5,567 |
| | 8,624 |
| 8,157 |
|
| Colorado | | 677 |
| 807 |
| | 6,304 |
| 5,409 |
| | 6,981 |
| 6,216 |
|
| Washington | 442 |
| 506 |
| | 1,009 |
| 1,216 |
| | 4,097 |
| 2,410 |
| | 79 |
| 109 |
| | 5,627 |
| 4,241 |
| 1,229 |
| 1,451 |
| | 5,443 |
| 4,176 |
| | 6,672 |
| 5,627 |
|
| Massachusetts | | 371 |
| 459 |
| | 5,833 |
| 5,340 |
| | 6,204 |
| 5,799 |
|
| Arizona | 815 |
| 927 |
| | 1,328 |
| 1,595 |
| | 3,081 |
| 1,805 |
| | 74 |
| 112 |
| | 5,298 |
| 4,439 |
| 1,772 |
| 2,143 |
| | 3,577 |
| 3,155 |
| | 5,349 |
| 5,298 |
|
| Michigan | 650 |
| 736 |
| | 700 |
| 848 |
| | 1,866 |
| 1,203 |
| | 79 |
| 121 |
| | 3,295 |
| 2,908 |
| |
| Ohio | 1,014 |
| 1,150 |
| | 638 |
| 778 |
| | 1,166 |
| 615 |
| | 81 |
| 112 |
| | 2,899 |
| 2,655 |
| |
All other(h) | 3,058 |
| 3,345 |
| | 6,862 |
| 8,261 |
| | 52,130 |
| 34,149 |
| | 1,465 |
| 1,964 |
| | 63,515 |
| 47,719 |
| |
All other(f) | | 9,834 |
| 11,656 |
| | 47,818 |
| 46,038 |
| | 57,652 |
| 57,694 |
|
| Total retained loans | $ | 14,848 |
| $ | 16,367 |
| | $ | 30,711 |
| $ | 36,375 |
| | $ | 162,549 |
| $ | 104,921 |
| | $ | 3,690 |
| $ | 5,056 |
| | $ | 211,798 |
| $ | 162,719 |
| $ | 39,063 |
| $ | 45,559 |
| | $ | 192,163 |
| $ | 166,239 |
| | $ | 231,226 |
| $ | 211,798 |
|
| |
| (a) | Individual delinquency classifications include mortgage loans insured by U.S. government agencies as follows: current included $2.6$2.5 billion and $2.6 billion; 30–149 days past due included $3.2$3.1 billion and $3.5$3.2 billion; and 150 or more days past due included $4.9$3.8 billion and $6.0$4.9 billion at December 31, 20152016 and 2014,2015, respectively. |
| |
| (b) | At December 31, 2016 and 2015, and 2014, Prime, including option ARMsresidential mortgage loans excluded mortgage loans insured by U.S. government agencies of $6.9 billion and $8.1 billion, and $9.5 billion, respectively.respectively, that are 30 or more days past due. These amounts have been excluded from nonaccrual loans based upon the government guarantee. |
| |
| (c) | These balances, which are 90 days or more past due, were excluded from nonaccrual loans as the loans are guaranteed by U.S government agencies. Typically the principal balance of the loans is insured and interest is guaranteed at a specified reimbursement rate subject to meeting agreed-upon servicing guidelines. At December 31, 20152016 and 2014,2015, these balances included $3.4$2.2 billion and $4.2$3.4 billion, respectively, of loans that are no longer accruing interest based on the agreed-upon servicing guidelines. For the remaining balance, interest is being accrued at the guaranteed reimbursement rate. There were no loans that were not guaranteed by U.S. government agencies that are 90 or more days past due and still accruing interest at December 31, 20152016 and 2014.2015. |
| |
| (d) | Represents the aggregate unpaid principal balance of loans divided by the estimated current property value. Current property values are estimated, at a minimum, quarterly, based on home valuation models using nationally recognized home price index valuation estimates incorporating actual data to the extent available and forecasted data where actual data is not available. These property values do not represent actual appraised loan level collateral values; as such, the resulting ratios are necessarily imprecise and should be viewed as estimates. Effective December 31, 2015, the currentCurrent estimated LTV ratios reflect updates to the nationally recognized home price index valuation estimates incorporated into the Firm’s home valuation models. The prior period ratios have been revised to conform with these updates in the home price index. |
| |
(e) | Junior lien represents combined LTV whichfor junior lien home equity loans considers all available lien positions, as well as unused lines, related to the property. All other products are presented without consideration of subordinate liens on the property. |
| |
(f)(e) | Refreshed FICO scores represent each borrower’s most recent credit score, which is obtained by the Firm on at least a quarterly basis. |
| |
(g)(f) | The current period current estimated LTV ratios disclosures have been updated to reflect where either the FICO score or estimated property value is unavailable. The prior period amounts have been revised to conform with the current presentation. |
| |
(h) | At December 31, 20152016 and 2014,2015, included mortgage loans insured by U.S. government agencies of $10.7$9.4 billion and $12.1$10.7 billion, respectively. |
| |
(i)(g) | Includes residential real estate loans to private banking clients in AM,AWM, for which the primary credit quality indicators are the borrower’s financial position and LTV. |
|
| | |
248214 | | JPMorgan Chase & Co./20152016 Annual Report |
The following table representrepresents the Firm’s delinquency statistics for junior lien home equity loans and lines as of December 31, 20152016 and 20142015.
| | | | | Total loans | | Total 30+ day delinquency rate | | Total loans | | Total 30+ day delinquency rate |
| December 31, | | 2015 | 2014 | | 2015 | 2014 | |
| (in millions, except ratios) | | |
| December 31, (in millions except ratios) | | | 2016 | 2015 | | 2016 | 2015 |
HELOCs:(a) | | | | | | | | | |
Within the revolving period(b) | | $ | 17,050 |
| 25,252 |
| | 1.57 | % | 1.75 | % | | $ | 10,304 |
| $ | 17,050 |
| | 1.27 | % | 1.57 | % |
| Beyond the revolving period | | 11,252 |
| 7,979 |
| | 3.10 |
| 3.16 |
| | 13,272 |
| 11,252 |
| | 3.05 |
| 3.10 |
|
| HELOANs | | 2,409 |
| 3,144 |
| | 3.03 |
| 3.34 |
| | 1,861 |
| 2,409 |
| | 2.85 |
| 3.03 |
|
| Total | | $ | 30,711 |
| 36,375 |
| | 2.25 | % | 2.20 | % | | $ | 25,437 |
| $ | 30,711 |
| | 2.32 | % | 2.25 | % |
(a) These HELOCs are predominantly revolving loans for a 10-year period, after which time the HELOC converts to a loan with a 20-year amortization period, but also include HELOCs originated by Washington Mutual that allow interest-only payments beyond the revolving period.
(b) The Firm manages the risk of HELOCs during their revolving period by closing or reducing the undrawn line to the extent permitted by law when borrowers are experiencing financial difficulty or when the collateral does not support the loan amount.
Home equity lines of credit (“HELOCs”)HELOCs beyond the revolving period and home equity loans (“HELOANs”)HELOANs have higher delinquency rates than do HELOCs within the revolving period. That is primarily because the fully-amortizing payment that is generally required for those products is higher than the minimum payment options
available for HELOCs within the revolving period. The higher delinquency rates associated with amortizing HELOCs and HELOANs are factored into the loss estimates produced by the Firm’s delinquency roll-rate methodology, which estimates defaults based on the current delinquency status of a portfolio.allowance for loan losses.
Impaired loans
The table below sets forth information about the Firm’s residential real estate impaired loans, excluding PCI loans. These loans are considered to be impaired as they have been modified in a TDR. All impaired loans are evaluated for an asset-specific allowance as described in Note 15.
| | | | Home equity | | Mortgages | | Total residential real estate – excluding PCI | | | | | | | | | | | | | |
December 31, (in millions) | Senior lien | | Junior lien | | Prime, including option ARMs | | Subprime | | Home equity | | Residential mortgage | | Total residential real estate – excluding PCI |
| 2015 | 2014 | | 2015 | 2014 | | 2015 | 2014 | | 2015 | 2014 | | 2015 | 2014 | 2016 | 2015 | | 2016 | 2015 | | 2016 | 2015 |
| Impaired loans | | | | | | | | | | | | | | |
| With an allowance | $ | 557 |
| $ | 552 |
| | $ | 736 |
| $ | 722 |
| | $ | 3,850 |
| $ | 4,949 |
| | $ | 1,393 |
| $ | 2,239 |
| | $ | 6,536 |
| $ | 8,462 |
| $ | 1,266 |
| $ | 1,293 |
| | $ | 4,689 |
| $ | 5,243 |
| | $ | 5,955 |
| $ | 6,536 |
|
Without an allowance(a) | 491 |
| 549 |
| | 574 |
| 582 |
| | 976 |
| 1,196 |
| | 471 |
| 639 |
| | 2,512 |
| 2,966 |
| 998 |
| 1,065 |
| | 1,343 |
| 1,447 |
| | 2,341 |
| 2,512 |
|
Total impaired loans(b)(c) | $ | 1,048 |
| $ | 1,101 |
| | $ | 1,310 |
| $ | 1,304 |
| | $ | 4,826 |
| $ | 6,145 |
| | $ | 1,864 |
| $ | 2,878 |
| | $ | 9,048 |
| $ | 11,428 |
| $ | 2,264 |
| $ | 2,358 |
| | $ | 6,032 |
| $ | 6,690 |
| | $ | 8,296 |
| $ | 9,048 |
|
| Allowance for loan losses related to impaired loans | $ | 53 |
| $ | 84 |
| | $ | 85 |
| $ | 147 |
| | $ | 93 |
| $ | 127 |
| | $ | 15 |
| $ | 64 |
| | $ | 246 |
| $ | 422 |
| $ | 121 |
| $ | 138 |
| | $ | 68 |
| $ | 108 |
| | $ | 189 |
| $ | 246 |
|
Unpaid principal balance of impaired loans(d) | 1,370 |
| 1,451 |
| | 2,590 |
| 2,603 |
| | 6,225 |
| 7,813 |
| | 2,857 |
| 4,200 |
| | 13,042 |
| 16,067 |
| 3,847 |
| 3,960 |
| | 8,285 |
| 9,082 |
| | 12,132 |
| 13,042 |
|
Impaired loans on nonaccrual status(e) | 581 |
| 628 |
| | 639 |
| 632 |
| | 1,287 |
| 1,559 |
| | 670 |
| 931 |
| | 3,177 |
| 3,750 |
| 1,116 |
| 1,220 |
| | 1,755 |
| 1,957 |
| | 2,871 |
| 3,177 |
|
| |
| (a) | Represents collateral-dependent residential mortgagereal estate loans that are charged off to the fair value of the underlying collateral less cost to sell. The Firm reports, in accordance with regulatory guidance, residential real estate loans that have been discharged under Chapter 7 bankruptcy and not reaffirmed by the borrower (“Chapter 7 loans”) as collateral-dependent nonaccrual TDRs, regardless of their delinquency status. At December 31, 2015,2016, Chapter 7 residential real estate loans included approximately 17% of senior lien12% home equity 9%and 16% of junior lien home equity, 18% of prime mortgages, including option ARMs, and 15% of subprimeresidential mortgages that were 30 days or more past due. |
| |
| (b) | At December 31, 2016 and 2015, and 2014, $3.8$3.4 billion and $4.9$3.8 billion, respectively, of loans modified subsequent to repurchase from Government National Mortgage Association (“Ginnie Mae”)Mae in accordance with the standards of the appropriate government agency (i.e., FHA, VA, RHS) are not included in the table above. When such loans perform subsequent to modification in accordance with Ginnie Mae guidelines, they are generally sold back into Ginnie Mae loan pools. Modified loans that do not re-perform become subject to foreclosure. |
| |
| (c) | Predominantly all residential real estate impaired loans, excluding PCI loans, are in the U.S. |
| |
| (d) | Represents the contractual amount of principal owed at December 31, 20152016 and 2014.2015. The unpaid principal balance differs from the impaired loan balances due to various factors including charge-offs, net deferred loan fees or costs;costs, and unamortized discounts or premiums on purchased loans. |
| |
| (e) | As of December 31, 20152016 and 2014,2015, nonaccrual loans included $2.5$2.3 billion and $2.9$2.5 billion, respectively, of TDRs for which the borrowers were less than 90 days past due. For additional information about loans modified in a TDR that are on nonaccrual status refer, to the Loan accounting framework on pages 242–244208–210 of this Note. |
|
| | |
JPMorgan Chase & Co./20152016 Annual Report | | 249215 |
Notes to consolidated financial statements
The following table presents average impaired loans and the related interest income reported by the Firm.
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Year ended December 31, | Average impaired loans | | Interest income on impaired loans(a) | | Interest income on impaired loans on a cash basis(a) |
| (in millions) | 2015 | 2014 | 2013 | | 2015 | 2014 | 2013 | | 2015 | 2014 | 2013 |
| Home equity | | | | | | | | | | | |
| Senior lien | $ | 1,077 |
| $ | 1,122 |
| $ | 1,151 |
| | $ | 51 |
| $ | 55 |
| $ | 59 |
| | $ | 35 |
| $ | 37 |
| $ | 40 |
|
| Junior lien | 1,292 |
| 1,313 |
| 1,297 |
| | 77 |
| 82 |
| 82 |
| | 50 |
| 53 |
| 55 |
|
| Mortgages | | | | | | | | | | | |
| Prime, including option ARMs | 5,397 |
| 6,730 |
| 7,214 |
| | 217 |
| 262 |
| 280 |
| | 46 |
| 54 |
| 59 |
|
| Subprime | 2,300 |
| 3,444 |
| 3,798 |
| | 131 |
| 182 |
| 200 |
| | 41 |
| 51 |
| 55 |
|
| Total residential real estate – excluding PCI | $ | 10,066 |
| $ | 12,609 |
| $ | 13,460 |
| | $ | 476 |
| $ | 581 |
| $ | 621 |
| | $ | 172 |
| $ | 195 |
| $ | 209 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Year ended December 31, | Average impaired loans | | Interest income on impaired loans(a) | | Interest income on impaired loans on a cash basis(a) |
| (in millions) | 2016 | 2015 | 2014 | | 2016 | 2015 | 2014 | | 2016 | 2015 | 2014 |
| Home equity | $ | 2,311 |
| $ | 2,369 |
| $ | 2,435 |
| | $ | 125 |
| $ | 128 |
| $ | 137 |
| | $ | 80 |
| $ | 85 |
| $ | 90 |
|
| Residential mortgage | 6,376 |
| 7,697 |
| 10,174 |
| | 305 |
| 348 |
| 444 |
| | 77 |
| 87 |
| 105 |
|
| Total residential real estate – excluding PCI | $ | 8,687 |
| $ | 10,066 |
| $ | 12,609 |
| | $ | 430 |
| $ | 476 |
| $ | 581 |
| | $ | 157 |
| $ | 172 |
| $ | 195 |
|
| |
| (a) | Generally, interest income on loans modified in TDRs is recognized on a cash basis until such time as the borrower has made a minimum of six payments under the new terms.terms, unless the loan is deemed to be collateral-dependent. |
Loan modifications
Modifications of residential real estate loans, excluding PCI loans, are generally accounted for and reported as TDRs. There were no additional commitments to lend to borrowers whose residential real estate loans, excluding PCI loans, have been modified in TDRs.
The following table presents new TDRs reported by the Firm.
|
| | | | | | | | | |
Year ended December 31,
(in millions) | 2015 | 2014 | 2013 |
| Home equity: | | | |
| Senior lien | $ | 108 |
| $ | 110 |
| $ | 210 |
|
| Junior lien | 293 |
| 211 |
| 388 |
|
| Mortgages: | | | |
| Prime, including option ARMs | 209 |
| 287 |
| 770 |
|
| Subprime | 58 |
| 124 |
| 319 |
|
| Total residential real estate – excluding PCI | $ | 668 |
| $ | 732 |
| $ | 1,687 |
|
|
| | |
250 | | JPMorgan Chase & Co./2015 Annual Report |
|
| | | | | | | | | |
Year ended December 31,
(in millions) | 2016 |
| 2015 |
| 2014 |
|
| Home equity | $ | 385 |
| $ | 401 |
| $ | 321 |
|
| Residential mortgage | 254 |
| 267 |
| 411 |
|
| Total residential real estate – excluding PCI | $ | 639 |
| $ | 668 |
| $ | 732 |
|
Nature and extent of modifications
The U.S. Treasury’s Making Home Affordable (“MHA”) programs, as well as the Firm’s proprietary modification programs, generally provide various concessions to financially troubled borrowers including, but not limited to, interest rate reductions, term or payment extensions and deferral of principal and/or interest payments that would otherwise have been required under the terms of the original agreement.
The following table provides information about how residential real estate loans, excluding PCI loans, were modified under the Firm’s loss mitigation programs described above during the periods presented. This table excludes Chapter 7 loans where the sole concession granted is the discharge of debt.
| | | Year ended Dec. 31, | Home equity | | Mortgages | | Total residential real estate – excluding PCI | |
| Senior lien | | Junior lien | | Prime, including option ARMs | | Subprime | | |
| 2015 | 2014 | 2013 | | 2015 | 2014 | 2013 | | 2015 | 2014 | 2013 | | 2015 | 2014 | 2013 | | 2015 | 2014 | 2013 | |
| Year ended December 31, | | Home equity | | | Residential mortgage | | | Total residential real estate – excluding PCI |
| 2016 | 2015 | 2014 | | 2016 | 2015 | 2014 | | 2016 | 2015 | 2014 |
| Number of loans approved for a trial modification | 1,345 |
| 939 |
| 1,719 |
| | 2,588 |
| 626 |
| 884 |
| | 1,103 |
| 1,052 |
| 2,846 |
| | 1,608 |
| 2,056 |
| 4,233 |
| | 6,644 |
| 4,673 |
| 9,682 |
| 3,760 |
| 3,933 |
| 1,565 |
| | 1,945 |
| 2,711 |
| 3,108 |
| | 5,705 |
| 6,644 |
| 4,673 |
|
| Number of loans permanently modified | 1,096 |
| 1,171 |
| 1,765 |
| | 3,200 |
| 2,813 |
| 5,040 |
| | 1,495 |
| 2,507 |
| 4,356 |
| | 1,650 |
| 3,141 |
| 5,364 |
| | 7,441 |
| 9,632 |
| 16,525 |
| 4,824 |
| 4,296 |
| 3,984 |
| | 3,338 |
| 3,145 |
| 5,648 |
| | 8,162 |
| 7,441 |
| 9,632 |
|
Concession granted:(a) | | | | | | | | | | | | | | |
| Interest rate reduction | 75 | % | 53 | % | 70 | % | | 63 | % | 84 | % | 88 | % | | 72 | % | 43 | % | 73 | % | | 71 | % | 47 | % | 72 | % | | 68 | % | 58 | % | 77 | % | 75 | % | 66 | % | 75 | % | | 76 | % | 71 | % | 45 | % | | 76 | % | 68 | % | 58 | % |
| Term or payment extension | 86 |
| 67 |
| 76 |
| | 90 |
| 83 |
| 80 |
| | 80 |
| 51 |
| 73 |
| | 82 |
| 53 |
| 56 |
| | 86 |
| 63 |
| 70 |
| 83 |
| 89 |
| 78 |
| | 90 |
| 81 |
| 52 |
| | 86 |
| 86 |
| 63 |
|
| Principal and/or interest deferred | 32 |
| 16 |
| 12 |
| | 19 |
| 23 |
| 24 |
| | 34 |
| 19 |
| 30 |
| | 21 |
| 12 |
| 13 |
| | 24 |
| 18 |
| 21 |
| 19 |
| 23 |
| 21 |
| | 16 |
| 27 |
| 15 |
| | 18 |
| 24 |
| 18 |
|
| Principal forgiveness | 4 |
| 36 |
| 38 |
| | 8 |
| 22 |
| 32 |
| | 24 |
| 51 |
| 38 |
| | 31 |
| 53 |
| 48 |
| | 16 |
| 41 |
| 39 |
| 9 |
| 7 |
| 26 |
| | 26 |
| 28 |
| 52 |
| | 16 |
| 16 |
| 41 |
|
Other(b) | — |
| — |
| — |
| | — |
| — |
| — |
| | 9 |
| 10 |
| 23 |
| | 13 |
| 10 |
| 14 |
| | 5 |
| 6 |
| 11 |
| 6 |
| — |
| — |
| | 25 |
| 11 |
| 10 |
| | 14 |
| 5 |
| 6 |
|
| |
| (a) | Represents concessions granted in permanent modifications as a percentage of the number of loans permanently modified. The sum of the percentages exceeds 100% because predominantly all of the modifications include more than one type of concession. A significant portion of trial modifications include interest rate reductions and/or term or payment extensions. |
| |
| (b) | Represents variable interest rate to fixed interest rate modifications. |
|
| | |
| 216 | | JPMorgan Chase & Co./20152016 Annual Report | | 251 |
Notes to consolidated financial statements
Financial effects of modifications and redefaults
The following table provides information about the financial effects of the various concessions granted in modifications of residential real estate loans, excluding PCI, under the Firm’s loss mitigation programs described above and about redefaults of certain loans modified in TDRs for the periods presented. Because the specific types and amounts of concessions offered to borrowers frequently change between the trial modification and the permanent modification, the following table presents only the financial effects of permanent modifications. This table also excludes Chapter 7 loans where the sole concession granted is the discharge of debt.
| | Year ended December 31,
(in millions, except weighted-average data and number of loans) | Home equity | | Mortgages | | Total residential real estate – excluding PCI | | | | | Total residential real estate – excluding PCI |
| Senior lien | | Junior lien | | Prime, including option ARMs | | Subprime | | Home equity | | Residential mortgage | |
| 2015 | 2014 | 2013 | | 2015 | 2014 | 2013 | | 2015 | 2014 | 2013 | | 2015 | 2014 | 2013 | | 2015 | 2014 | 2013 | 2016 | 2015 | 2014 | | 2016 | 2015 | 2014 | | 2016 | 2015 | 2014 |
| Weighted-average interest rate of loans with interest rate reductions – before TDR | 5.69 | % | 6.38 | % | 6.35 | % | | 4.93 | % | 4.81 | % | 5.05 | % | | 5.03 | % | 4.82 | % | 5.28 | % | | 6.67 | % | 7.16 | % | 7.33 | % | | 5.51 | % | 5.61 | % | 5.88 | % | 4.99 | % | 5.20 | % | 5.27 | % | | 5.59 | % | 5.67 | % | 5.74 | % | | 5.36 | % | 5.51 | % | 5.61 | % |
| Weighted-average interest rate of loans with interest rate reductions – after TDR | 2.70 |
| 3.03 |
| 3.23 |
| | 2.17 |
| 2.00 |
| 2.14 |
| | 2.55 |
| 2.69 |
| 2.77 |
| | 3.15 |
| 3.37 |
| 3.52 |
| | 2.64 |
| 2.78 |
| 2.92 |
| 2.34 |
| 2.35 |
| 2.30 |
| | 2.93 |
| 2.79 |
| 2.96 |
| | 2.70 |
| 2.64 |
| 2.78 |
|
| Weighted-average remaining contractual term (in years) of loans with term or payment extensions – before TDR | 17 |
| 17 |
| 19 |
| | 18 |
| 19 |
| 20 |
| | 25 |
| 25 |
| 25 |
| | 24 |
| 24 |
| 24 |
| | 22 |
| 23 |
| 23 |
| 18 |
| 18 |
| 19 |
| | 24 |
| 25 |
| 24 |
| | 22 |
| 22 |
| 23 |
|
| Weighted-average remaining contractual term (in years) of loans with term or payment extensions – after TDR | 32 |
| 30 |
| 31 |
| | 36 |
| 35 |
| 34 |
| | 37 |
| 37 |
| 37 |
| | 36 |
| 36 |
| 35 |
| | 36 |
| 36 |
| 36 |
| 38 |
| 35 |
| 33 |
| | 38 |
| 37 |
| 36 |
| | 38 |
| 36 |
| 36 |
|
| Charge-offs recognized upon permanent modification | $ | 1 |
| $ | 2 |
| $ | 7 |
| | $ | 3 |
| $ | 25 |
| $ | 70 |
| | $ | 9 |
| $ | 9 |
| $ | 16 |
| | $ | 2 |
| $ | 3 |
| $ | 5 |
| | $ | 15 |
| $ | 39 |
| $ | 98 |
| $ | 1 |
| $ | 4 |
| $ | 27 |
| | $ | 4 |
| $ | 11 |
| $ | 12 |
| | $ | 5 |
| $ | 15 |
| $ | 39 |
|
| Principal deferred | 13 |
| 5 |
| 7 |
| | 14 |
| 11 |
| 24 |
| | 41 |
| 39 |
| 129 |
| | 17 |
| 19 |
| 43 |
| | 85 |
| 74 |
| 203 |
| 23 |
| 27 |
| 16 |
| | 30 |
| 58 |
| 58 |
| | 53 |
| 85 |
| 74 |
|
| Principal forgiven | 2 |
| 14 |
| 30 |
| | 4 |
| 21 |
| 51 |
| | 34 |
| 83 |
| 206 |
| | 32 |
| 89 |
| 218 |
| | 72 |
| 207 |
| 505 |
| 7 |
| 6 |
| 35 |
| | 44 |
| 66 |
| 172 |
| | 51 |
| 72 |
| 207 |
|
Balance of loans that redefaulted within one year of permanent modification(a) | $ | 14 |
| $ | 19 |
| $ | 26 |
| | $ | 7 |
| $ | 10 |
| $ | 20 |
| | $ | 75 |
| $ | 121 |
| $ | 164 |
| | $ | 58 |
| $ | 93 |
| $ | 106 |
| | $ | 154 |
| $ | 243 |
| $ | 316 |
| $ | 40 |
| $ | 21 |
| $ | 29 |
| | $ | 98 |
| $ | 133 |
| $ | 214 |
| | $ | 138 |
| $ | 154 |
| $ | 243 |
|
| |
| (a) | Represents loans permanently modified in TDRs that experienced a payment default in the periods presented, and for which the payment default occurred within one year of the modification. The dollar amounts presented represent the balance of such loans at the end of the reporting period in which such loans defaulted. For residential real estate loans modified in TDRs, payment default is deemed to occur when the loan becomes two contractual payments past due. In the event that a modified loan redefaults, it is probable that the loan will ultimately be liquidated through foreclosure or another similar type of liquidation transaction. Redefaults of loans modified within the last 12 months may not be representative of ultimate redefault levels. |
At December 31, 2015,2016, the weighted-average estimated remaining lives of residential real estate loans, excluding PCI loans, permanently modified in TDRs were 9 years for home equity and 10 years for senior lien home equity, 9 years for junior lien home equity, 10 years for prime mortgages, including option ARMs, and 8 years for subprimeresidential mortgage. The estimated remaining lives of these loans reflect estimated prepayments, both voluntary and involuntary (i.e., foreclosures and other forced liquidations).
Active and suspended foreclosure
At December 31, 20152016 and 2014,2015, the Firm had non-PCI residential real estate loans, excluding those insured by U.S. government agencies, with a carrying value of $1.2 billion$932 million and $1.5$1.2 billion, respectively, that were not included in REO, but were in the process of active or suspended foreclosure.
|
| | |
252 | | JPMorgan Chase & Co./20152016 Annual Report | | 217 |
Notes to consolidated financial statements
Other consumer loans
The table below provides information for other consumer retained loan classes, including auto, business banking and student loans.
| | December 31, (in millions, except ratios) | Auto | | Business banking | | Student and other | | Total other consumer | | Auto | | Business banking | | Student and other | | Total other consumer | |
| 2015 | | 2014 | | 2015 | 2014 | | 2015 | | 2014 | | 2015 | | 2014 | | 2016 | | 2015 | | 2016 | | 2015 | | 2016 | | 2015 | | 2016 | | 2015 | |
Loan delinquency(a) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Current | $ | 59,442 |
| | $ | 53,866 |
| | $ | 20,887 |
| $ | 19,710 |
| | $ | 9,405 |
| | $ | 10,080 |
| | $ | 89,734 |
| | $ | 83,656 |
| | $ | 65,029 |
| | $ | 59,442 |
| | $ | 22,312 |
| | $ | 20,887 |
| | $ | 8,397 |
| | $ | 9,405 |
| | $ | 95,738 |
| | $ | 89,734 |
| |
| 30–119 days past due | 804 |
| | 663 |
| | 215 |
| 208 |
| | 445 |
| | 576 |
| | 1,464 |
| | 1,447 |
| | 773 |
| | 804 |
| | 247 |
| | 215 |
| | 374 |
| | 445 |
| | 1,394 |
| | 1,464 |
| |
| 120 or more days past due | 9 |
| | 7 |
| | 106 |
| 140 |
| | 246 |
| | 314 |
| | 361 |
| | 461 |
| | 12 |
| | 9 |
| | 139 |
| | 106 |
| | 218 |
| | 246 |
| | 369 |
| | 361 |
| |
| Total retained loans | $ | 60,255 |
| | $ | 54,536 |
| | $ | 21,208 |
| $ | 20,058 |
| | $ | 10,096 |
| | $ | 10,970 |
| | $ | 91,559 |
| | $ | 85,564 |
| | $ | 65,814 |
| | $ | 60,255 |
| | $ | 22,698 |
| | $ | 21,208 |
| | $ | 8,989 |
| | $ | 10,096 |
| | $ | 97,501 |
| | $ | 91,559 |
| |
| % of 30+ days past due to total retained loans | 1.35 | % | | 1.23 | % | | 1.51 | % | 1.73 | % | | 1.63 | % | (d) | 2.15 | % | (d) | 1.42 | % | (d) | 1.47 | % | (d) | 1.19 | % | | 1.35 | % | | 1.70 | % | | 1.51 | % | | 1.38 | % | (d) | 1.63 | % | (d) | 1.33 | % | (d) | 1.42 | % | (d) |
90 or more days past due and still accruing (b) | $ | — |
| | $ | — |
| | $ | — |
| $ | — |
| | $ | 290 |
| | $ | 367 |
| | $ | 290 |
| | $ | 367 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 263 |
| | $ | 290 |
| | $ | 263 |
| | $ | 290 |
| |
| Nonaccrual loans | 116 |
| | 115 |
| | 263 |
| 279 |
| | 242 |
| | 270 |
| | 621 |
| | 664 |
| | 214 |
| | 116 |
| | 286 |
| | 263 |
| | 175 |
| | 242 |
| | 675 |
| | 621 |
| |
| Geographic region | Geographic region | | | | | | | | | | Geographic region | | | | | | | | | |
| California | $ | 7,186 |
| | $ | 6,294 |
| | $ | 3,530 |
| $ | 3,008 |
| | $ | 1,051 |
| | $ | 1,143 |
| | $ | 11,767 |
| | $ | 10,445 |
| | $ | 7,975 |
| | $ | 7,186 |
| | $ | 4,158 |
| | $ | 3,530 |
| | $ | 935 |
| | $ | 1,051 |
| | $ | 13,068 |
| | $ | 11,767 |
| |
| Texas | | 7,041 |
| | 6,457 |
| | 2,769 |
| | 2,622 |
| | 739 |
| | 839 |
| | 10,549 |
| | 9,918 |
| |
| New York | 3,874 |
| | 3,662 |
| | 3,359 |
| 3,187 |
| | 1,224 |
| | 1,259 |
| | 8,457 |
| | 8,108 |
| | 4,078 |
| | 3,874 |
| | 3,510 |
| | 3,359 |
| | 1,187 |
| | 1,224 |
| | 8,775 |
| | 8,457 |
| |
| Illinois | 3,678 |
| | 3,175 |
| | 1,459 |
| 1,373 |
| | 679 |
| | 729 |
| | 5,816 |
| | 5,277 |
| | 3,984 |
| | 3,678 |
| | 1,627 |
| | 1,459 |
| | 582 |
| | 679 |
| | 6,193 |
| | 5,816 |
| |
| Texas | 6,457 |
| | 5,608 |
| | 2,622 |
| 2,626 |
| | 839 |
| | 868 |
| | 9,918 |
| | 9,102 |
| | |
| Florida | 2,843 |
| | 2,301 |
| | 941 |
| 827 |
| | 516 |
| | 521 |
| | 4,300 |
| | 3,649 |
| | 3,374 |
| | 2,843 |
| | 1,068 |
| | 941 |
| | 475 |
| | 516 |
| | 4,917 |
| | 4,300 |
| |
| New Jersey | 1,998 |
| | 1,945 |
| | 500 |
| 451 |
| | 366 |
| | 378 |
| | 2,864 |
| | 2,774 |
| | |
| Washington | 1,135 |
| | 1,019 |
| | 264 |
| 258 |
| | 212 |
| | 235 |
| | 1,611 |
| | 1,512 |
| | |
| Ohio | | 2,194 |
| | 2,340 |
| | 1,366 |
| | 1,363 |
| | 490 |
| | 559 |
| | 4,050 |
| | 4,262 |
| |
| Arizona | 2,033 |
| | 2,003 |
| | 1,205 |
| 1,083 |
| | 236 |
| | 239 |
| | 3,474 |
| | 3,325 |
| | 2,209 |
| | 2,033 |
| | 1,270 |
| | 1,205 |
| | 202 |
| | 236 |
| | 3,681 |
| | 3,474 |
| |
| Michigan | 1,550 |
| | 1,633 |
| | 1,361 |
| 1,375 |
| | 415 |
| | 466 |
| | 3,326 |
| | 3,474 |
| | 1,567 |
| | 1,550 |
| | 1,308 |
| | 1,361 |
| | 355 |
| | 415 |
| | 3,230 |
| | 3,326 |
| |
| Ohio | 2,340 |
| | 2,157 |
| | 1,363 |
| 1,354 |
| | 559 |
| | 629 |
| | 4,262 |
| | 4,140 |
| | |
| New Jersey | | 2,031 |
| | 1,998 |
| | 546 |
| | 500 |
| | 320 |
| | 366 |
| | 2,897 |
| | 2,864 |
| |
| Louisiana | | 1,814 |
| | 1,713 |
| | 961 |
| | 997 |
| | 120 |
| | 134 |
| | 2,895 |
| | 2,844 |
| |
| All other | 27,161 |
| | 24,739 |
| | 4,604 |
| 4,516 |
| | 3,999 |
| | 4,503 |
| | 35,764 |
| | 33,758 |
| | 29,547 |
| | 26,583 |
| | 4,115 |
| | 3,871 |
| | 3,584 |
| | 4,077 |
| | 37,246 |
| | 34,531 |
| |
| Total retained loans | $ | 60,255 |
| | $ | 54,536 |
| | $ | 21,208 |
| $ | 20,058 |
| | $ | 10,096 |
| | $ | 10,970 |
| | $ | 91,559 |
| | $ | 85,564 |
| | $ | 65,814 |
| | $ | 60,255 |
| | $ | 22,698 |
| | $ | 21,208 |
| | $ | 8,989 |
| | $ | 10,096 |
| | $ | 97,501 |
| | $ | 91,559 |
| |
Loans by risk ratings(c) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Noncriticized | $ | 11,277 |
| | $ | 9,822 |
| | $ | 15,505 |
| $ | 14,619 |
| | NA |
| | NA |
| | $ | 26,782 |
| | $ | 24,441 |
| | $ | 13,899 |
| | $ | 11,277 |
| | $ | 16,858 |
| | $ | 15,505 |
| | NA |
| | NA |
| | $ | 30,757 |
| | $ | 26,782 |
| |
| Criticized performing | 76 |
| | 35 |
| | 815 |
| 708 |
| | NA |
| | NA |
| | 891 |
| | 743 |
| | 201 |
| | 76 |
| | 816 |
| | 815 |
| | NA |
| | NA |
| | 1,017 |
| | 891 |
| |
| Criticized nonaccrual | — |
| | — |
| | 210 |
| 213 |
| | NA |
| | NA |
| | 210 |
| | 213 |
| | 94 |
| | — |
| | 217 |
| | 210 |
| | NA |
| | NA |
| | 311 |
| | 210 |
| |
| |
| (a) | Student loan delinquency classifications included loans insured by U.S. government agencies under the Federal Family Education Loan Program (“FFELP”)FFELP as follows: current included $3.8$3.3 billion and $4.3$3.8 billion; 30-119 days past due included $299$257 million and $364$299 million; and 120 or more days past due included $227$211 million and $290$227 million at December 31, 20152016 and 2014,2015, respectively. |
| |
| (b) | These amounts represent student loans, which are insured by U.S. government agencies under the FFELP. These amounts were accruing as reimbursement of insured amounts is proceeding normally. |
| |
| (c) | For risk-rated business banking and auto loans, the primary credit quality indicator is the risk rating of the loan, including whether the loans are considered to be criticized and/or nonaccrual. |
| |
| (d) | December 31, 20152016 and 2014,2015, excluded loans 30 days or more past due and still accruing, whichthat are insured by U.S. government agencies under the FFELP, of $526$468 million and $654$526 million, respectively. These amounts were excluded as reimbursement of insured amounts is proceeding normally. |
|
| | |
JPMorgan Chase & Co./2015 Annual Report | | 253 |
Notes to consolidated financial statements
Other consumer impaired loans and loan modifications
The following table below sets forth information about the Firm’s other consumer impaired loans, including risk-rated business banking and auto loans that have been placed on nonaccrual status, and loans that have been modified in TDRs.
|
| | | | | | |
| December 31, (in millions) | 2015 | 2014 |
| Impaired loans | | |
| With an allowance | $ | 527 |
| $ | 557 |
|
Without an allowance(a) | 31 |
| 35 |
|
Total impaired loans(b)(c) | $ | 558 |
| $ | 592 |
|
| Allowance for loan losses related to impaired loans | $ | 118 |
| $ | 117 |
|
Unpaid principal balance of impaired loans(d) | 668 |
| 719 |
|
| Impaired loans on nonaccrual status | 449 |
| 456 |
|
|
| | | | | | |
| December 31, (in millions) | 2016 |
| 2015 |
|
| Impaired loans | | |
| With an allowance | $ | 614 |
| $ | 527 |
|
Without an allowance(a) | 30 |
| 31 |
|
Total impaired loans(b)(c) | $ | 644 |
| $ | 558 |
|
| Allowance for loan losses related to impaired loans | $ | 119 |
| $ | 118 |
|
Unpaid principal balance of impaired loans(d) | 753 |
| 668 |
|
| Impaired loans on nonaccrual status | 508 |
| 449 |
|
| |
| (a) | When discounted cash flows, collateral value or market price equals or exceeds the recorded investment in the loan, the loan does not require an allowance. This typically occurs when the impaired loans have been partially charged off and/or there have been interest payments received and applied to the loan balance. |
| |
| (b) | Predominantly all other consumer impaired loans are in the U.S. |
| |
| (c) | Other consumer average impaired loans were $635 million, $566 million $599 million and $648$599 million for the years ended December 31, 2016, 2015 2014 and 2013,2014, respectively. The related interest income on impaired loans, including those on a cash basis, was not material for the years ended December 31, 2016, 2015 2014 and 2013.2014. |
| |
| (d) | Represents the contractual amount of principal owed at December 31, 20152016 and 2014.2015. The unpaid principal balance differs from the impaired loan balances due to various factors, including charge-offs;charge-offs, interest payments received and applied to the principal balance;balance, net deferred loan fees or costs;costs and unamortized discounts or premiums on purchased loans. |
|
| | |
| 218 | | JPMorgan Chase & Co./2016 Annual Report |
Loan modifications
Certain other consumer loan modifications are considered to be TDRs as they provide various concessions to borrowers who are experiencing financial difficulty. All of these TDRs are reported as impaired loans in the table above.
Theabove.The following table provides information about the Firm’s other consumer loans modified in TDRs. New TDRs were not material for the years ended December 31, 20152016 and 2014.2015.
| | | December 31, (in millions) | 2015 | 2014 | 2016 | 2015 |
Loans modified in TDRs(a)(b) | $ | 384 |
| $ | 442 |
| $ | 362 |
| $ | 384 |
|
| TDRs on nonaccrual status | 275 |
| 306 |
| 226 |
| 275 |
|
| |
| (a) | The impact of these modifications was not material to the Firm for the years ended December 31, 20152016 and 2014.2015. |
| |
| (b) | Additional commitments to lend to borrowers whose loans have been modified in TDRs as of December 31, 20152016 and 20142015 were immaterial. |
|
| | |
254 | | JPMorgan Chase & Co./2015 Annual Report |
Purchased credit-impaired loans
PCI loans are initially recorded at fair value at acquisition. PCI loans acquired in the same fiscal quarter may be aggregated into one or more pools, provided that the loans have common risk characteristics. A pool is then accounted for as a single asset with a single composite interest rate and an aggregate expectation of cash flows. With respect to the Washington Mutual transaction, all of the consumer PCI loans were aggregated into pools of loans with common risk characteristics.
On a quarterly basis, the Firm estimates the total cash flows (both principal and interest) expected to be collected over the remaining life of each pool. These estimates incorporate assumptions regarding default rates, loss severities, the amounts and timing of prepayments and other factors that reflect then-current market conditions. Probable decreases in expected cash flows (i.e., increased credit losses) trigger the recognition of impairment, which is then measured as the present value of the expected principal loss plus any related foregoneforgone interest cash flows, discounted at the pool’s effective interest rate. Impairments are recognized through the provision for credit losses and an increase in the allowance for loan losses. Probable and significant increases in expected cash flows (e.g., decreased credit losses, the net benefit of modifications) would first reverse any previously recorded allowance for loan losses with any remaining increases recognized prospectively as a yield adjustment over the remaining estimated lives of the underlying loans. The impacts of (i) prepayments, (ii) changes in variable interest rates, and (iii) any other changes in the timing of expected cash flows are recognized prospectively as adjustments to interest income.
The Firm continues to modify certain PCI loans. The impact of these modifications is incorporated into the Firm’s quarterly assessment of whether a probable and significant change in expected cash flows has occurred, and the loans continue to be accounted for and reported as PCI loans. In evaluating the effect of modifications on expected cash flows, the Firm incorporates the effect of any foregoneforgone interest and also considers the potential for redefault. The Firm develops product-specific probability of default estimates, which are used to compute expected credit losses. In developing these probabilities of default, the Firm
considers the relationship between the credit quality characteristics of the underlying loans and certain assumptions about home prices and unemployment based upon industry-wide data. The Firm also considers its own historical loss experience to-date based on actual redefaulted modified PCI loans.
The excess of cash flows expected to be collected over the carrying value of the underlying loans is referred to as the accretable yield. This amount is not reported on the Firm’s Consolidated balance sheets but is accreted into interest income at a level rate of return over the remaining estimated lives of the underlying pools of loans.
If the timing and/or amounts of expected cash flows on PCI loansloan pools were determined not to be reasonably estimable, no interest would be accreted and the loansloan pools would be reported as nonaccrual loans; however, since the timing and amounts of expected cash flows for the Firm’s PCI consumer loansloan pools are reasonably estimable, interest is being accreted and the loansloan pools are being reported as performing loans.
The liquidation of PCI loans, which may include sales of loans, receipt of payment in full from the borrower, or foreclosure, results in removal of the loans from the underlying PCI pool. When the amount of the liquidation proceeds (e.g., cash, real estate), if any, is less than the unpaid principal balance of the loan, the difference is first applied against the PCI pool’s nonaccretable difference for principal losses (i.e., the lifetime credit loss estimate established as a purchase accounting adjustment at the acquisition date). When the nonaccretable difference for a particular loan pool has been fully depleted, any excess of the unpaid principal balance of the loan over the liquidation proceeds is written off against the PCI pool’s allowance for loan losses. Beginning in 2014, write-offs of PCI loans also include other adjustments, primarily related to interest forgiveness modifications. Because the Firm’s PCI loans are accounted for at a pool level, the Firm does not recognize charge-offs of PCI loans when they reach specified stages of delinquency (i.e., unlike non-PCI consumer loans, these loans are not charged off based on FFIEC standards).
The PCI portfolio affects the Firm’s results of operations primarily through: (i) contribution to net interest margin; (ii) expense related to defaults and servicing resulting from the liquidation of the loans; and (iii) any provision for loan losses. The PCI loans acquired in the Washington Mutual transaction were funded based on the interest rate characteristics of the loans. For example, variable-rate loans were funded with variable-rate liabilities and fixed-rate loans were funded with fixed-rate liabilities with a similar maturity profile. A net spread will be earned on the declining balance of the portfolio, which is estimated as of December 31, 2015,2016, to have a remaining weighted-average life of 98 years.
|
| | |
JPMorgan Chase & Co./20152016 Annual Report | | 255219 |
Notes to consolidated financial statements
Residential real estate – PCI loans
The table below sets forth information about the Firm’s consumer, excluding credit card, PCI loans.
| | December 31, (in millions, except ratios) | Home equity | | Prime mortgage | | Subprime mortgage | | Option ARMs | | Total PCI | Home equity | | Prime mortgage | | Subprime mortgage | | Option ARMs | | Total PCI |
| 2015 | 2014 | | 2015 | 2014 | | 2015 | 2014 | | 2015 | 2014 | | 2015 | 2014 | 2016 | 2015 |
| 2016 | 2015 |
| 2016 | 2015 |
| 2016 | 2015 |
| 2016 | 2015 |
Carrying value(a) | $ | 14,989 |
| $ | 17,095 |
| | $ | 8,893 |
| $ | 10,220 |
| | $ | 3,263 |
| $ | 3,673 |
| | $ | 13,853 |
| $ | 15,708 |
| | $ | 40,998 |
| $ | 46,696 |
| $ | 12,902 |
| $ | 14,989 |
| | $ | 7,602 |
| $ | 8,893 |
| | $ | 2,941 |
| $ | 3,263 |
| | $ | 12,234 |
| $ | 13,853 |
| | $ | 35,679 |
| $ | 40,998 |
|
Related allowance for loan losses(b) | 1,708 |
| 1,758 |
| | 985 |
| 1,193 |
| | — |
| 180 |
| | 49 |
| 194 |
| | 2,742 |
| 3,325 |
| 1,433 |
| 1,708 |
| | 829 |
| 985 |
| | — |
| — |
| | 49 |
| 49 |
| | 2,311 |
| 2,742 |
|
| Loan delinquency (based on unpaid principal balance) | | | | | | | | | | Loan delinquency (based on unpaid principal balance) | | | | | | | | | |
| Current | $ | 14,387 |
| $ | 16,295 |
| | $ | 7,894 |
| $ | 8,912 |
| | $ | 3,232 |
| $ | 3,565 |
| | $ | 12,370 |
| $ | 13,814 |
| | $ | 37,883 |
| $ | 42,586 |
| $ | 12,423 |
| $ | 14,387 |
| | $ | 6,840 |
| $ | 7,894 |
| | $ | 3,005 |
| $ | 3,232 |
| | $ | 11,074 |
| $ | 12,370 |
| | $ | 33,342 |
| $ | 37,883 |
|
| 30–149 days past due | 322 |
| 445 |
| | 424 |
| 500 |
| | 439 |
| 536 |
| | 711 |
| 858 |
| | 1,896 |
| 2,339 |
| 291 |
| 322 |
| | 336 |
| 424 |
| | 361 |
| 439 |
| | 555 |
| 711 |
| | 1,543 |
| 1,896 |
|
| 150 or more days past due | 633 |
| 1,000 |
| | 601 |
| 837 |
| | 380 |
| 551 |
| | 1,272 |
| 1,824 |
| | 2,886 |
| 4,212 |
| 478 |
| 633 |
| | 451 |
| 601 |
| | 240 |
| 380 |
| | 917 |
| 1,272 |
| | 2,086 |
| 2,886 |
|
| Total loans | $ | 15,342 |
| $ | 17,740 |
| | $ | 8,919 |
| $ | 10,249 |
| | $ | 4,051 |
| $ | 4,652 |
| | $ | 14,353 |
| $ | 16,496 |
| | $ | 42,665 |
| $ | 49,137 |
| $ | 13,192 |
| $ | 15,342 |
| | $ | 7,627 |
| $ | 8,919 |
| | $ | 3,606 |
| $ | 4,051 |
| | $ | 12,546 |
| $ | 14,353 |
| | $ | 36,971 |
| $ | 42,665 |
|
| % of 30+ days past due to total loans | 6.22 | % | 8.15 | % | | 11.49 | % | 13.05 | % | | 20.22 | % | 23.37 | % | | 13.82 | % | 16.26 | % | | 11.21 | % | 13.33 | % | 5.83 | % | 6.22 | % | | 10.32 | % | 11.49 | % | | 16.67 | % | 20.22 | % | | 11.73 | % | 13.82 | % | | 9.82 | % | 11.21 | % |
Current estimated LTV ratios (based on unpaid principal balance)(c)(d)(e) | | | | | | | | | | |
| | | | | | | | | | | |
Current estimated LTV ratios (based on unpaid principal balance)(c)(d) | | Current estimated LTV ratios (based on unpaid principal balance)(c)(d) | | | | | | | | |
| Greater than 125% and refreshed FICO scores: | | | | | | | | | | | | | | | | | | |
| Equal to or greater than 660 | $ | 153 |
| $ | 301 |
| | $ | 10 |
| $ | 22 |
| | $ | 10 |
| $ | 22 |
| | $ | 19 |
| $ | 50 |
| | $ | 192 |
| $ | 395 |
| $ | 69 |
| $ | 153 |
| | $ | 6 |
| $ | 10 |
| | $ | 7 |
| $ | 10 |
| | $ | 12 |
| $ | 19 |
| | $ | 94 |
| $ | 192 |
|
| Less than 660 | 80 |
| 159 |
| | 28 |
| 52 |
| | 55 |
| 106 |
| | 36 |
| 84 |
| | 199 |
| 401 |
| 39 |
| 80 |
| | 17 |
| 28 |
| | 31 |
| 55 |
| | 18 |
| 36 |
| | 105 |
| 199 |
|
| 101% to 125% and refreshed FICO scores: | | | | | | | | | | | | | | | | | | |
| Equal to or greater than 660 | 942 |
| 1,448 |
| | 120 |
| 268 |
| | 77 |
| 144 |
| | 166 |
| 330 |
| | 1,305 |
| 2,190 |
| 555 |
| 942 |
| | 52 |
| 120 |
| | 39 |
| 77 |
| | 83 |
| 166 |
| | 729 |
| 1,305 |
|
| Less than 660 | 444 |
| 728 |
| | 152 |
| 284 |
| | 220 |
| 390 |
| | 239 |
| 448 |
| | 1,055 |
| 1,850 |
| 256 |
| 444 |
| | 84 |
| 152 |
| | 135 |
| 220 |
| | 144 |
| 239 |
| | 619 |
| 1,055 |
|
| 80% to 100% and refreshed FICO scores: | | | | | | | | | | | | | | | | | | |
| Equal to or greater than 660 | 2,709 |
| 3,591 |
| | 816 |
| 1,405 |
| | 331 |
| 451 |
| | 977 |
| 1,695 |
| | 4,833 |
| 7,142 |
| 1,860 |
| 2,709 |
| | 442 |
| 816 |
| | 214 |
| 331 |
| | 558 |
| 977 |
| | 3,074 |
| 4,833 |
|
| Less than 660 | 1,136 |
| 1,485 |
| | 614 |
| 969 |
| | 643 |
| 911 |
| | 1,050 |
| 1,610 |
| | 3,443 |
| 4,975 |
| 804 |
| 1,136 |
| | 381 |
| 614 |
| | 439 |
| 643 |
| | 609 |
| 1,050 |
| | 2,233 |
| 3,443 |
|
| Lower than 80% and refreshed FICO scores: | | | | | | | | | | | | | | | | | | |
| Equal to or greater than 660 | 6,724 |
| 6,626 |
| | 4,243 |
| 4,211 |
| | 863 |
| 787 |
| | 7,073 |
| 7,053 |
| | 18,903 |
| 18,677 |
| 6,676 |
| 6,724 |
| | 3,967 |
| 4,243 |
| | 919 |
| 863 |
| | 6,754 |
| 7,073 |
| | 18,316 |
| 18,903 |
|
| Less than 660 | 2,265 |
| 2,308 |
| | 2,438 |
| 2,427 |
| | 1,642 |
| 1,585 |
| | 4,065 |
| 4,291 |
| | 10,410 |
| 10,611 |
| 2,183 |
| 2,265 |
| | 2,287 |
| 2,438 |
| | 1,645 |
| 1,642 |
| | 3,783 |
| 4,065 |
| | 9,898 |
| 10,410 |
|
| No FICO/LTV available | 889 |
| 1,094 |
| | 498 |
| 611 |
| | 210 |
| 256 |
| | 728 |
| 935 |
| | 2,325 |
| 2,896 |
| 750 |
| 889 |
| | 391 |
| 498 |
| | 177 |
| 210 |
| | 585 |
| 728 |
| | 1,903 |
| 2,325 |
|
| Total unpaid principal balance | $ | 15,342 |
| $ | 17,740 |
| | $ | 8,919 |
| $ | 10,249 |
| | $ | 4,051 |
| $ | 4,652 |
| | $ | 14,353 |
| $ | 16,496 |
| | $ | 42,665 |
| $ | 49,137 |
| $ | 13,192 |
| $ | 15,342 |
| | $ | 7,627 |
| $ | 8,919 |
| | $ | 3,606 |
| $ | 4,051 |
| | $ | 12,546 |
| $ | 14,353 |
| | $ | 36,971 |
| $ | 42,665 |
|
| | | | | | | | | | | |
| Geographic region (based on unpaid principal balance) | | | | | | | | | | Geographic region (based on unpaid principal balance) | | | | | | | | | |
| California | $ | 9,205 |
| $ | 10,671 |
| | $ | 5,172 |
| $ | 5,965 |
| | $ | 1,005 |
| $ | 1,138 |
| | $ | 8,108 |
| $ | 9,190 |
| | $ | 23,490 |
| $ | 26,964 |
| $ | 7,899 |
| $ | 9,205 |
| | $ | 4,396 |
| $ | 5,172 |
| | $ | 899 |
| $ | 1,005 |
| | $ | 7,128 |
| $ | 8,108 |
| | $ | 20,322 |
| $ | 23,490 |
|
| Florida | | 1,306 |
| 1,479 |
| | 501 |
| 586 |
| | 332 |
| 373 |
| | 1,026 |
| 1,183 |
| | 3,165 |
| 3,621 |
|
| New York | 788 |
| 876 |
| | 580 |
| 672 |
| | 400 |
| 463 |
| | 813 |
| 933 |
| | 2,581 |
| 2,944 |
| 697 |
| 788 |
| | 515 |
| 580 |
| | 363 |
| 400 |
| | 711 |
| 813 |
| | 2,286 |
| 2,581 |
|
| Washington | | 673 |
| 819 |
| | 167 |
| 194 |
| | 68 |
| 81 |
| | 290 |
| 339 |
| | 1,198 |
| 1,433 |
|
| New Jersey | | 280 |
| 310 |
| | 210 |
| 238 |
| | 125 |
| 139 |
| | 401 |
| 470 |
| | 1,016 |
| 1,157 |
|
| Illinois | 358 |
| 405 |
| | 263 |
| 301 |
| | 196 |
| 229 |
| | 333 |
| 397 |
| | 1,150 |
| 1,332 |
| 314 |
| 358 |
| | 226 |
| 263 |
| | 178 |
| 196 |
| | 282 |
| 333 |
| | 1,000 |
| 1,150 |
|
| Texas | 224 |
| 273 |
| | 94 |
| 92 |
| | 243 |
| 281 |
| | 75 |
| 85 |
| | 636 |
| 731 |
| |
| Florida | 1,479 |
| 1,696 |
| | 586 |
| 689 |
| | 373 |
| 432 |
| | 1,183 |
| 1,440 |
| | 3,621 |
| 4,257 |
| |
| New Jersey | 310 |
| 348 |
| | 238 |
| 279 |
| | 139 |
| 165 |
| | 470 |
| 553 |
| | 1,157 |
| 1,345 |
| |
| Washington | 819 |
| 959 |
| | 194 |
| 225 |
| | 81 |
| 95 |
| | 339 |
| 395 |
| | 1,433 |
| 1,674 |
| |
| Massachusetts | | 94 |
| 112 |
| | 173 |
| 199 |
| | 110 |
| 125 |
| | 346 |
| 398 |
| | 723 |
| 834 |
|
| Maryland | | 64 |
| 73 |
| | 144 |
| 159 |
| | 145 |
| 161 |
| | 267 |
| 297 |
| | 620 |
| 690 |
|
| Arizona | 281 |
| 323 |
| | 143 |
| 167 |
| | 76 |
| 85 |
| | 203 |
| 227 |
| | 703 |
| 802 |
| 241 |
| 281 |
| | 124 |
| 143 |
| | 68 |
| 76 |
| | 181 |
| 203 |
| | 614 |
| 703 |
|
| Michigan | 44 |
| 53 |
| | 141 |
| 166 |
| | 113 |
| 130 |
| | 150 |
| 182 |
| | 448 |
| 531 |
| |
| Ohio | 17 |
| 20 |
| | 45 |
| 48 |
| | 62 |
| 72 |
| | 61 |
| 69 |
| | 185 |
| 209 |
| |
| Virginia | | 77 |
| 88 |
| | 142 |
| 170 |
| | 56 |
| 62 |
| | 314 |
| 354 |
| | 589 |
| 674 |
|
| All other | 1,817 |
| 2,116 |
| | 1,463 |
| 1,645 |
| | 1,363 |
| 1,562 |
| | 2,618 |
| 3,025 |
| | 7,261 |
| 8,348 |
| 1,547 |
| 1,829 |
| | 1,029 |
| 1,215 |
| | 1,262 |
| 1,433 |
| | 1,600 |
| 1,855 |
| | 5,438 |
| 6,332 |
|
| Total unpaid principal balance | $ | 15,342 |
| $ | 17,740 |
| | $ | 8,919 |
| $ | 10,249 |
| | $ | 4,051 |
| $ | 4,652 |
| | $ | 14,353 |
| $ | 16,496 |
| | $ | 42,665 |
| $ | 49,137 |
| $ | 13,192 |
| $ | 15,342 |
| | $ | 7,627 |
| $ | 8,919 |
| | $ | 3,606 |
| $ | 4,051 |
| | $ | 12,546 |
| $ | 14,353 |
| | $ | 36,971 |
| $ | 42,665 |
|
| |
| (a) | Carrying value includes the effect of fair value adjustments that were applied to the consumer PCI portfolio at the date of acquisition. |
| |
| (b) | Management concluded as part of the Firm’s regular assessment of the PCI loan pools that it was probable that higher expected credit losses would result in a decrease in expected cash flows. As a result, an allowance for loan losses for impairment of these pools has been recognized. |
| |
| (c) | Represents the aggregate unpaid principal balance of loans divided by the estimated current property value. Current property values are estimated, at a minimum, quarterly, based on home valuation models using nationally recognized home price index valuation estimates incorporating actual data to the extent available and forecasted data where actual data is not available. These property values do not represent actual appraised loan level collateral values; as such, the resulting ratios are necessarily imprecise and should be viewed as estimates. Current estimated combined LTV for junior lien home equity loans considers all available lien positions, as well as unused lines, related to the property. Effective December 31, 2015, the current estimated LTV ratios reflect updates to the nationally recognized home price index valuation estimates incorporated into the Firm’s home valuation models. The prior period ratios have been revised to conform with these updates in the home price index. |
| |
| (d) | Refreshed FICO scores represent each borrower’s most recent credit score, which is obtained by the Firm on at least a quarterly basis. |
| |
(e) | The current period current estimated LTV ratios disclosures have been updated to reflect where either the FICO score or estimated property value is unavailable. The prior period amounts have been revised to conform with the current presentation. |
|
| | |
256220 | | JPMorgan Chase & Co./20152016 Annual Report |
Approximately 23%24% of the PCI home equity portfolio are senior lien loans; the remaining balance are junior lien HELOANs or HELOCs. The following table sets forth delinquency statistics for PCI junior lien home equity loans and lines of credit based on the unpaid principal balance as of December 31, 20152016 and 20142015.
| | | | | Total loans | | Total 30+ day delinquency rate | | Total loans | | Total 30+ day delinquency rate |
| December 31, | | 2015 | 2014 | | 2015 | 2014 | | 2016 | 2015 | | 2016 | 2015 |
| (in millions, except ratios) | | | | | |
HELOCs:(a) | | | | | | | | |
Within the revolving period(b) | | $ | 5,000 |
| $ | 8,972 |
| | 4.10 | % | 6.42 | % | | $ | 2,126 |
| $ | 5,000 |
| | 3.67 | % | 4.10 | % |
Beyond the revolving period(c) | | 6,252 |
| 4,143 |
| | 4.46 |
| 6.42 |
| | 7,452 |
| 6,252 |
| | 4.03 |
| 4.46 |
|
| HELOANs | | 582 |
| 736 |
| | 5.33 |
| 8.83 |
| | 465 |
| 582 |
| | 5.38 |
| 5.33 |
|
| Total | | $ | 11,834 |
| $ | 13,851 |
| | 4.35 | % | 6.55 | % | | $ | 10,043 |
| $ | 11,834 |
| | 4.01 | % | 4.35 | % |
| |
| (a) | In general, these HELOCs are revolving loans for a 10-year period, after which time the HELOC converts to an interest-only loan with a balloon payment at the end of the loan’s term. |
| |
| (b) | Substantially all undrawn HELOCs within the revolving period have been closed. |
| |
| (c) | Includes loans modified into fixed-ratefixed rate amortizing loans. |
The table below sets forth the accretable yield activity for the Firm’s PCI consumer loans for the years ended December 31, 20152016, 20142015 and 20132014, and represents the Firm’s estimate of gross interest income expected to be earned over the remaining life of the PCI loan portfolios. The table excludes the cost to fund the PCI portfolios, and therefore the accretable yield does not represent net interest income expected to be earned on these portfolios.
| | Year ended December 31,
(in millions, except ratios) | Total PCI | Total PCI |
| 2015 | | 2014 | | 2013 | 2016 | | 2015 | | 2014 |
| Beginning balance | $ | 14,592 |
| | $ | 16,167 |
| | $ | 18,457 |
| $ | 13,491 |
| | $ | 14,592 |
| | $ | 16,167 |
|
| Accretion into interest income | (1,700 | ) | | (1,934 | ) | | (2,201 | ) | (1,555 | ) | | (1,700 | ) | | (1,934 | ) |
| Changes in interest rates on variable-rate loans | 279 |
| | (174 | ) | | (287 | ) | 260 |
| | 279 |
| | (174 | ) |
Other changes in expected cash flows(a) | 230 |
| | 533 |
| | 198 |
| (428 | ) | | 230 |
| | 533 |
|
Reclassification from nonaccretable difference(b) | 90 |
| | — |
| | — |
| — |
| | 90 |
| | — |
|
| Balance at December 31 | $ | 13,491 |
| | $ | 14,592 |
| | $ | 16,167 |
| $ | 11,768 |
| | $ | 13,491 |
| | $ | 14,592 |
|
| Accretable yield percentage | 4.20 | % | | 4.19 | % | | 4.31 | % | 4.35 | % | | 4.20 | % | | 4.19 | % |
| |
| (a) | Other changes in expected cash flows may vary from period to period as the Firm continues to refine its cash flow model, and periodically updates model assumptions. For the years ended December 31, 2015 and December 31, 2014, other changes in expectedfor example cash flows were driven by changes in prepayment assumptions. For the year ended December 31, 2013, other changes in expected cash flows wereto be collected due to refining the expected interest cash flows on HELOCs with balloon payments, partially offset byimpact of modifications and changes in prepayment assumptions. |
| |
| (b) | Reclassifications from the nonaccretable difference in the year ended December 31, 2015 were driven by continued improvement in home prices and delinquencies, as well as increased granularity in the impairment estimates. |
The factors that most significantly affect estimates of gross cash flows expected to be collected, and accordingly the accretable yield balance, include: (i) changes in the benchmark interest rate indices for variable-rate products such as option ARM and home equity loans; and (ii) changes in prepayment assumptions.
Active and suspended foreclosure
At December 31, 20152016 and 2014,2015, the Firm had PCI residential real estate loans with an unpaid principal balance of $2.3$1.7 billion and $3.2$2.3 billion, respectively, that were not included in REO, but were in the process of active or suspended foreclosure.
|
| | |
JPMorgan Chase & Co./20152016 Annual Report | | 257221 |
Notes to consolidated financial statements
Credit card loan portfolio
The credit card portfolio segment includes credit card loans originated and purchased by the Firm. Delinquency rates are the primary credit quality indicator for credit card loans as they provide an early warning that borrowers may be experiencing difficulties (30 days past due); information on those borrowers that have been delinquent for a longer period of time (90 days past due) is also considered. In addition to delinquency rates, the geographic distribution of the loans provides insight as to the credit quality of the portfolio based on the regional economy.
While the borrower’s credit score is another general indicator of credit quality, the Firm does not view credit scores as a primary indicator of credit quality because the borrower’s credit score tends to be a lagging indicator. However, the distribution of such scores provides a general indicator of credit quality trends within the portfolio. Refreshed FICO score information, which is obtained at least quarterly, for a statistically significant random sample of the credit card portfolio is indicated in the table below;following table; FICO is considered to be the industry benchmark for credit scores.
The Firm generally originates new card accounts to prime consumer borrowers. However, certain cardholders’ FICO scores may decrease over time, depending on the performance of the cardholder and changes in credit score technology.
The table below sets forth information about the Firm’s credit card loans. | | As of or for the year ended December 31, (in millions, except ratios) | 2015 | 2014 | 2016 | 2015 |
| Net charge-offs | $ | 3,122 |
| $ | 3,429 |
| $ | 3,442 |
| $ | 3,122 |
|
| % of net charge-offs to retained loans | 2.51 | % | 2.75 | % | 2.63 | % | 2.51 | % |
| Loan delinquency | | |
Current and less than 30 days past due
and still accruing | $ | 129,502 |
| $ | 126,189 |
| $ | 139,434 |
| $ | 129,502 |
|
| 30–89 days past due and still accruing | 941 |
| 943 |
| 1,134 |
| 941 |
|
| 90 or more days past due and still accruing | 944 |
| 895 |
| 1,143 |
| 944 |
|
| Total retained credit card loans | $ | 131,387 |
| $ | 128,027 |
| $ | 141,711 |
| $ | 131,387 |
|
| Loan delinquency ratios | | |
| % of 30+ days past due to total retained loans | 1.43 | % | 1.44 | % | 1.61 | % | 1.43 | % |
| % of 90+ days past due to total retained loans | 0.72 |
| 0.70 |
| 0.81 |
| 0.72 |
|
| Credit card loans by geographic region | | |
| California | $ | 18,802 |
| $ | 17,940 |
| $ | 20,571 |
| $ | 18,802 |
|
| Texas | 11,847 |
| 11,088 |
| 13,220 |
| 11,847 |
|
| New York | 11,360 |
| 10,940 |
| 12,249 |
| 11,360 |
|
| Florida | 7,806 |
| 7,398 |
| 8,585 |
| 7,806 |
|
| Illinois | 7,655 |
| 7,497 |
| 8,189 |
| 7,655 |
|
| New Jersey | 5,879 |
| 5,750 |
| 6,271 |
| 5,879 |
|
| Ohio | 4,700 |
| 4,707 |
| 4,906 |
| 4,700 |
|
| Pennsylvania | 4,533 |
| 4,489 |
| 4,787 |
| 4,533 |
|
| Michigan | 3,562 |
| 3,552 |
| 3,741 |
| 3,562 |
|
| Colorado | 3,399 |
| 3,226 |
| 3,699 |
| 3,399 |
|
| All other | 51,844 |
| 51,440 |
| 55,493 |
| 51,844 |
|
| Total retained credit card loans | $ | 131,387 |
| $ | 128,027 |
| $ | 141,711 |
| $ | 131,387 |
|
Percentage of portfolio based on carrying value with estimated refreshed FICO scores | | |
| Equal to or greater than 660 | 84.4 | % | 85.7 | % | 84.4 | % | 84.4 | % |
| Less than 660 | 15.6 |
| 14.3 |
| 14.2 |
| 13.1 |
|
| No FICO available | | 1.4 |
| 2.5 |
|
| |
| (a) | The current period percentage of portfolio based on carrying value with estimated refreshed FICO scores disclosures have been updated to reflect where the FICO score is unavailable. The prior period amounts have been revised to conform with the current presentation. |
|
| | |
258222 | | JPMorgan Chase & Co./20152016 Annual Report |
Credit card impaired loans and loan modifications
The table below sets forth information about the Firm’s impaired credit card loans. All of these loans are considered to be impaired as they have been modified in TDRs.
| | | December 31, (in millions) | 2015 | 2014 | 2016 |
| 2015 |
|
Impaired credit card loans with an allowance(a)(b) | | |
Credit card loans with modified payment terms(c) | $ | 1,286 |
| $ | 1,775 |
| $ | 1,098 |
| $ | 1,286 |
|
Modified credit card loans that have reverted to pre-modification payment terms(d) | 179 |
| 254 |
| 142 |
| 179 |
|
Total impaired credit card loans(e) | $ | 1,465 |
| $ | 2,029 |
| $ | 1,240 |
| $ | 1,465 |
|
| Allowance for loan losses related to impaired credit card loans | $ | 460 |
| $ | 500 |
| $ | 358 |
| $ | 460 |
|
| |
| (a) | The carrying value and the unpaid principal balance are the same for credit card impaired loans. |
| |
| (b) | There were no impaired loans without an allowance. |
| |
| (c) | Represents credit card loans outstanding to borrowers enrolled in a credit card modification program as of the date presented. |
| |
| (d) | Represents credit card loans that were modified in TDRs but that have subsequently reverted back to the loans’ pre-modification payment terms. At December 31, 2016 and 2015, and 2014, $113$94 million and $159$113 million, respectively, of loans have reverted back to the pre-modification payment terms of the loans due to noncompliance with the terms of the modified loans. The remaining $66$48 million and $95$66 million at December 31, 20152016 and 2014,2015, respectively, of these loans are to borrowers who have successfully completed a short-term modification program. The Firm continues to report these loans as TDRs since the borrowers’ credit lines remain closed. |
| |
| (e) | Predominantly all impaired credit card loans are in the U.S. |
The following table presents average balances of impaired credit card loans and interest income recognized on those loans.
| | Year ended December 31, (in millions) | | 2015 | 2014 | 2013 | | 2016 |
| 2015 |
| 2014 |
|
| Average impaired credit card loans | | $ | 1,710 |
| $ | 2,503 |
| $ | 3,882 |
| | $ | 1,325 |
| $ | 1,710 |
| $ | 2,503 |
|
Interest income on impaired credit card loans | | 82 |
| 123 |
| 198 |
| | 63 |
| 82 |
| 123 |
|
Loan modifications
JPMorgan Chase may offer one of a number of loan modification programs to credit card borrowers who are experiencing financial difficulty. Most of the credit card loans have been modified under long-term programs for borrowers who are experiencing financial difficulties. Modifications under long-term programs involve placing the customer on a fixed payment plan, generally for 60 months. The Firm may also offer short-term programs for borrowers who may be in need of temporary relief; however, none are currently being offered. Modifications under all short- and long-term programs typically include reducing the interest rate on the credit card. Substantially all modifications are considered to be TDRs.
If the cardholder does not comply with the modified payment terms, then the credit card loan agreement reverts back to its pre-modification payment terms. Assuming that the cardholder does not begin to perform in accordance with those payment terms, the loan continues to age and will ultimately be charged-off in accordance with the Firm’s standard charge-off policy. In addition, if a borrower successfully completes a short-term modification program,
then the loan reverts back to its pre-modification payment terms. However, in most cases, the Firm does not reinstate the borrower’s line of credit.
New enrollments in these loan modification programs for the years ended December 31, 2016, 2015 and 2014, and 2013, were $636 million, $638 million and $807 million, and $1.2 billion, respectively.
Financial effects of modifications and redefaults
The following table provides information about the financial effects of the concessions granted on credit card loans modified in TDRs and redefaults for the periods presented.
| | Year ended December 31, (in millions, except weighted-average data) | | 2015 | 2014 | 2013 | | 2016 | 2015 | 2014 |
| Weighted-average interest rate of loans – before TDR | | 15.08 | % | 14.96 | % | 15.37 | % | | 15.56 | % | 15.08 | % | 14.96 | % |
| Weighted-average interest rate of loans – after TDR | | 4.40 |
| 4.40 |
| 4.38 |
| | 4.76 |
| 4.40 |
| 4.40 |
|
Loans that redefaulted within one year of modification(a) | | $ | 85 |
| $ | 119 |
| $ | 167 |
| | $ | 79 |
| $ | 85 |
| $ | 119 |
|
| |
| (a) | Represents loans modified in TDRs that experienced a payment default in the periods presented, and for which the payment default occurred within one year of the modification. The amounts presented represent the balance of such loans as of the end of the quarter in which they defaulted. |
For credit card loans modified in TDRs, payment default is deemed to have occurred when the loans become two payments past due. A substantial portion of these loans is expected to be charged-off in accordance with the Firm’s standard charge-off policy. Based on historical experience, the estimated weighted-average default rate for modified credit card loans modified was expected to be 25.61%28.87%, 27.91%25.61% and 30.72%27.91% as of December 31, 20152016, 20142015 and 20132014, respectively.
|
| | |
| JPMorgan Chase & Co./2016 Annual Report | | 223 |
Notes to consolidated financial statements
Wholesale loan portfolio
Wholesale loans include loans made to a variety of customers, ranging from large corporate and institutional clients to high-net-worth individuals.
The primary credit quality indicator for wholesale loans is the risk rating assigned to each loan. Risk ratings are used to identify the credit quality of loans and differentiate risk within the portfolio. Risk ratings on loans consider the probability of default (“PD”)PD and the loss given default (“LGD”).LGD. The PD is the likelihood that a loan will default and not be fully repaid by the borrower.default. The LGD is the estimated loss on the loan that would be realized upon the default of the borrower and takes into consideration collateral and structural support for each credit facility.
Management considers several factors to determine an appropriate risk rating, including the obligor’s debt capacity and financial flexibility, the level of the obligor’s earnings, the amount and sources for repayment, the level and nature of contingencies, management strength, and the industry and geography in which the obligor operates. The Firm’s definition of criticized aligns with the banking regulatory definition of criticized exposures, which consist of special mention, substandard and doubtful categories. Risk ratings generally represent ratings profiles similar to those defined by S&P and Moody’s. Investment-grade ratings range from “AAA/Aaa” to “BBB-/Baa3.” Noninvestment-grade ratings
|
| | |
JPMorgan Chase & Co./2015 Annual Report | | 259 |
Notes to consolidated financial statements
are classified as noncriticized (“BB+/Ba1 and B-/B3”) and criticized (“CCC+”/“Caa1 and below”), and the criticized portion is further subdivided into performing and nonaccrual loans, representing management’s assessment of the collectibility of principal and interest. Criticized loans have a higher probability of default than noncriticized loans.
Risk ratings are reviewed on a regular and ongoing basis by Credit Risk Management and are adjusted as necessary for updated information affecting the obligor’s ability to fulfill its obligations.
As noted above, the risk rating of a loan considers the industry in which the obligor conducts its operations. As part of the overall credit risk management framework, the Firm focuses on the management and diversification of its industry and client exposures, with particular attention paid to industries with actual or potential credit concern. See Note 5 for further detail on industry concentrations.
|
| | |
| 224 | | JPMorgan Chase & Co./2016 Annual Report |
The table below provides information by class of receivable for the retained loans in the Wholesale portfolio segment.
| | As of or for the year ended December 31, (in millions, except ratios) | Commercial and industrial | | Real estate | | Financial
institutions | | Government agencies | | Other(e) | | Total
retained loans | Commercial and industrial | | Real estate | | Financial
institutions | | Government agencies | | Other(d) | | Total
retained loans |
| 2015 | 2014 | | 2015 | 2014 | | 2015 | 2014 | | 2015 | 2014 | | 2015 | 2014 | | 2015 | 2014 | 2016 | 2015 | | 2016 | 2015 | | 2016 | 2015 | | 2016 | 2015 | | 2016 | 2015 | | 2016 | 2015 |
| Loans by risk ratings | | | | | | | | | | | | | | | | | | | | | | |
| Investment grade | $ | 62,150 |
| $ | 63,069 |
| | $ | 74,330 |
| $ | 61,006 |
| | $ | 21,786 |
| $ | 27,111 |
| | $ | 11,363 |
| $ | 8,393 |
| | $ | 98,107 |
| $ | 82,087 |
| | $ | 267,736 |
| $ | 241,666 |
| $ | 64,949 |
| $ | 62,150 |
| | $ | 88,434 |
| $ | 74,330 |
| | $ | 23,562 |
| $ | 21,786 |
| | $ | 15,935 |
| $ | 11,363 |
| | $ | 97,043 |
| $ | 98,107 |
| | $ | 289,923 |
| $ | 267,736 |
|
Noninvestment grade: | | | | | | | | | | | | | | | | | | | | | | |
| Noncriticized | 45,632 |
| 44,117 |
| | 17,008 |
| 16,541 |
| | 7,667 |
| 7,093 |
| (d) | 256 |
| 300 |
| | 11,390 |
| 10,067 |
| (d) | 81,953 |
| 78,118 |
| 47,149 |
| 45,632 |
| | 16,883 |
| 17,008 |
| | 8,317 |
| 7,667 |
| | 439 |
| 256 |
| | 11,772 |
| 11,390 |
| | 84,560 |
| 81,953 |
|
| Criticized performing | 4,542 |
| 2,251 |
| | 1,251 |
| 1,313 |
| | 320 |
| 316 |
| | 7 |
| 3 |
| | 253 |
| 236 |
| | 6,373 |
| 4,119 |
| 6,161 |
| 4,542 |
| | 798 |
| 1,251 |
| | 200 |
| 320 |
| | 6 |
| 7 |
| | 188 |
| 253 |
| | 7,353 |
| 6,373 |
|
| Criticized nonaccrual | 608 |
| 188 |
| | 231 |
| 253 |
| | 10 |
| 18 |
| | — |
| — |
| | 139 |
| 140 |
| | 988 |
| 599 |
| 1,482 |
| 608 |
| | 200 |
| 231 |
| | 9 |
| 10 |
| | — |
| — |
| | 263 |
| 139 |
| | 1,954 |
| 988 |
|
| Total noninvestment grade | 50,782 |
| 46,556 |
| | 18,490 |
| 18,107 |
| | 7,997 |
| 7,427 |
| (d) | 263 |
| 303 |
| | 11,782 |
| 10,443 |
| (d) | 89,314 |
| 82,836 |
| 54,792 |
| 50,782 |
| | 17,881 |
| 18,490 |
| | 8,526 |
| 7,997 |
| | 445 |
| 263 |
| | 12,223 |
| 11,782 |
| | 93,867 |
| 89,314 |
|
| Total retained loans | $ | 112,932 |
| $ | 109,625 |
| | $ | 92,820 |
| $ | 79,113 |
| | $ | 29,783 |
| $ | 34,538 |
| (d) | $ | 11,626 |
| $ | 8,696 |
| | $ | 109,889 |
| $ | 92,530 |
| (d) | $ | 357,050 |
| $ | 324,502 |
| $ | 119,741 |
| $ | 112,932 |
| | $ | 106,315 |
| $ | 92,820 |
| | $ | 32,088 |
| $ | 29,783 |
| | $ | 16,380 |
| $ | 11,626 |
| | $ | 109,266 |
| $ | 109,889 |
| | $ | 383,790 |
| $ | 357,050 |
|
| % of total criticized to total retained loans | 4.56 | % | 2.22 | % | | 1.60 | % | 1.98 | % | | 1.11 | % | 0.97 |
| % | 0.06 | % | 0.03 | % | | 0.36 | % | 0.41 |
| % | 2.06 | % | 1.45 | % | 6.38 | % | 4.56 | % | | 0.94% |
| 1.60% |
| | 0.65% |
| 1.11% |
| | 0.04% |
| 0.06% |
| | 0.41 | % | 0.36% |
| | 2.43 | % | 2.06 | % |
| % of nonaccrual loans to total retained loans | 0.54 |
| 0.17 |
| | 0.25 |
| 0.32 |
| | 0.03 |
| 0.05 |
| | — |
| — |
| | 0.13 |
| 0.15 |
| | 0.28 |
| 0.18 |
| 1.24 |
| 0.54 |
| | 0.19 |
| 0.25 |
| | 0.03 |
| 0.03 |
| | — |
| — |
| | 0.24 |
| 0.13 |
| | 0.51 |
| 0.28 |
|
Loans by geographic distribution(a) | | | | | | | | | | | | | | | | | | | | | | |
| Total non-U.S. | $ | 30,063 |
| $ | 33,739 |
| | $ | 3,003 |
| $ | 2,099 |
| | $ | 17,166 |
| $ | 20,944 |
| | $ | 1,788 |
| $ | 1,122 |
| | $ | 42,031 |
| $ | 42,961 |
| | $ | 94,051 |
| $ | 100,865 |
| $ | 30,259 |
| $ | 30,063 |
| | $ | 3,292 |
| $ | 3,003 |
| | $ | 14,741 |
| $ | 17,166 |
| | $ | 3,726 |
| $ | 1,788 |
| | $ | 39,496 |
| $ | 42,031 |
| | $ | 91,514 |
| $ | 94,051 |
|
| Total U.S. | 82,869 |
| 75,886 |
| | 89,817 |
| 77,014 |
| | 12,617 |
| 13,594 |
| (d) | 9,838 |
| 7,574 |
| | 67,858 |
| 49,569 |
| (d) | 262,999 |
| 223,637 |
| 89,482 |
| 82,869 |
| | 103,023 |
| 89,817 |
| | 17,347 |
| 12,617 |
| | 12,654 |
| 9,838 |
| | 69,770 |
| 67,858 |
| | 292,276 |
| 262,999 |
|
| Total retained loans | $ | 112,932 |
| $ | 109,625 |
| | $ | 92,820 |
| $ | 79,113 |
| | $ | 29,783 |
| $ | 34,538 |
| (d) | $ | 11,626 |
| $ | 8,696 |
| | $ | 109,889 |
| $ | 92,530 |
| (d) | $ | 357,050 |
| $ | 324,502 |
| $ | 119,741 |
| $ | 112,932 |
| | $ | 106,315 |
| $ | 92,820 |
| | $ | 32,088 |
| $ | 29,783 |
| | $ | 16,380 |
| $ | 11,626 |
| | $ | 109,266 |
| $ | 109,889 |
| | $ | 383,790 |
| $ | 357,050 |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Net charge-offs/(recoveries) | $ | 26 |
| $ | 22 |
| | $ | (14 | ) | $ | (9 | ) | | $ | (5 | ) | $ | (12 | ) | | $ | (8 | ) | $ | 25 |
| | $ | 11 |
| $ | (14 | ) | | $ | 10 |
| $ | 12 |
| $ | 335 |
| $ | 26 |
| | $ | (7 | ) | $ | (14 | ) | | $ | (2 | ) | $ | (5 | ) | | $ | (1 | ) | $ | (8 | ) | | $ | 16 |
| $ | 11 |
| | $ | 341 |
| $ | 10 |
|
% of net charge-offs/(recoveries) to end-of-period retained loans | 0.02 | % | 0.02 | % | | (0.02 | )% | (0.01 | )% | | (0.02 | )% | (0.04 | ) | % | (0.07 | )% | 0.29 | % | | 0.01 | % | (0.02 | ) | % | — | % | — | % | 0.28 | % | 0.02 | % | | (0.01 | )% | (0.02 | )% | | (0.01 | )% | (0.02)% |
| | (0.01 | )% | (0.07 | )% | | 0.01 | % | 0.01% |
| | 0.09 | % | — | % |
| | | | | | | | | | | | | | | | | | | | | | | |
Loan delinquency(b) | | | | | | | | | | | | | | | | | | | | | | |
| Current and less than 30 days past due and still accruing | $ | 112,058 |
| $ | 108,857 |
| | $ | 92,381 |
| $ | 78,552 |
| | $ | 29,713 |
| $ | 34,416 |
| (d) | $ | 11,565 |
| $ | 8,627 |
| | $ | 108,734 |
| $ | 91,160 |
| (d) | $ | 354,451 |
| $ | 321,612 |
| $ | 117,905 |
| $ | 112,058 |
| | $ | 105,958 |
| $ | 92,381 |
| | $ | 32,036 |
| $ | 29,713 |
| | $ | 16,269 |
| $ | 11,565 |
| | $ | 108,350 |
| $ | 108,734 |
| | $ | 380,518 |
| $ | 354,451 |
|
| 30–89 days past due and still accruing | 259 |
| 566 |
| | 193 |
| 275 |
| | 49 |
| 104 |
| | 55 |
| 69 |
| | 988 |
| 1,201 |
| | 1,544 |
| 2,215 |
| 268 |
| 259 |
| | 155 |
| 193 |
| | 22 |
| 49 |
| | 107 |
| 55 |
| | 634 |
| 988 |
| | 1,186 |
| 1,544 |
|
90 or more days past due and still accruing(c) | 7 |
| 14 |
| | 15 |
| 33 |
| | 11 |
| — |
| | 6 |
| — |
| | 28 |
| 29 |
| | 67 |
| 76 |
| 86 |
| 7 |
| | 2 |
| 15 |
| | 21 |
| 11 |
| | 4 |
| 6 |
| | 19 |
| 28 |
| | 132 |
| 67 |
|
| Criticized nonaccrual | 608 |
| 188 |
| | 231 |
| 253 |
| | 10 |
| 18 |
| | — |
| — |
| | 139 |
| 140 |
| | 988 |
| 599 |
| 1,482 |
| 608 |
| | 200 |
| 231 |
| | 9 |
| 10 |
| | — |
| — |
| | 263 |
| 139 |
| | 1,954 |
| 988 |
|
| Total retained loans | $ | 112,932 |
| $ | 109,625 |
| | $ | 92,820 |
| $ | 79,113 |
| | $ | 29,783 |
| $ | 34,538 |
| (d) | $ | 11,626 |
| $ | 8,696 |
| | $ | 109,889 |
| $ | 92,530 |
| (d) | $ | 357,050 |
| $ | 324,502 |
| $ | 119,741 |
| $ | 112,932 |
| | $ | 106,315 |
| $ | 92,820 |
| | $ | 32,088 |
| $ | 29,783 |
| | $ | 16,380 |
| $ | 11,626 |
| | $ | 109,266 |
| $ | 109,889 |
| | $ | 383,790 |
| $ | 357,050 |
|
| |
| (a) | The U.S. and non-U.S. distribution is determined based predominantly on the domicile of the borrower. |
| |
| (b) | The credit quality of wholesale loans is assessed primarily through ongoing review and monitoring of an obligor’s ability to meet contractual obligations rather than relying on the past due status, which is generally a lagging indicator of credit quality. |
| |
| (c) | Represents loans that are considered well-collateralized and therefore still accruing interest. |
| |
| (d) | Effective in the fourth quarter 2015, the Firm realigned its wholesale industry divisions in order to better monitor and manage industry concentrations. Prior period amounts have been revised to conform with current period presentation. For additional information, see Wholesale credit portfolio on pages 122–129. |
| |
(e) | Other includes: individuals; SPEs;includes individuals, SPEs, holding companies;companies, and private education and civic organizations. For more information on exposures to SPEs, see Note 16. |
|
| | |
260 | | JPMorgan Chase & Co./20152016 Annual Report | | 225 |
Notes to consolidated financial statements
The following table presents additional information on the real estate class of loans within the Wholesale portfolio segment for the periods indicated. The real estate classExposure consists primarily consists of secured commercial loans, mainly to borrowers for multi-family and commercial lessor properties.of which multifamily is the largest segment. Multifamily lending specifically finances apartment buildings. Commercial lessors receive financing specifically for real estate leased to retail, officeacquisition, leasing and industrial tenants. Commercial construction and development loans represent financing for the construction of apartments, office and professionalapartment buildings, and malls. Other real estate loans include lodging,includes exposure to real estate investment trusts (“REITs”), single-family, homebuilders. Other commercial lending largely includes financing for acquisition, leasing and otherconstruction, largely for office, retail and industrial real estate.estate, and includes exposure to REITs. Included in real estate loans is $9.2 billion and $7.3 billion as of December 31, 2016 and 2015, respectively, of construction and development exposure consisting of loans originally purposed for construction and development, general purpose loans for builders, as well as loans for land subdivision and pre-development.
| | December 31, (in millions, except ratios) | Multifamily | | Commercial lessors | | Commercial construction and development | | Other | | Total real estate loans | Multifamily | | Other Commercial | | Total real estate loans |
| 2015 | 2014 | | 2015 | 2014 | | 2015 | 2014 | | 2015 | 2014 | | 2015 | 2014 | 2016 | 2015 | | 2016 | 2015 | | 2016 | 2015 |
| Real estate retained loans | $ | 60,290 |
| $ | 51,049 |
| | $ | 20,062 |
| $ | 17,438 |
| | $ | 4,920 |
| $ | 4,264 |
| | $ | 7,548 |
| $ | 6,362 |
| | $ | 92,820 |
| $ | 79,113 |
| $ | 71,978 |
| $ | 64,271 |
| | $ | 34,337 |
| $ | 28,549 |
| | $ | 106,315 |
| $ | 92,820 |
|
| Criticized | 520 |
| 652 |
| | 844 |
| 841 |
| | 43 |
| 42 |
| | 75 |
| 31 |
| | 1,482 |
| 1,566 |
| 539 |
| 562 |
| | 459 |
| 920 |
| | 998 |
| 1,482 |
|
| % of criticized to total real estate retained loans | 0.86 | % | 1.28 | % | | 4.21 | % | 4.82 | % | | 0.87 | % | 0.98 | % | | 0.99 | % | 0.49 | % | | 1.60 | % | 1.98 | % | 0.75 | % | 0.87 | % | | 1.34 | % | 3.22 | % | | 0.94 | % | 1.60 | % |
| Criticized nonaccrual | $ | 85 |
| $ | 126 |
| | $ | 100 |
| $ | 110 |
| | $ | 1 |
| $ | — |
| | $ | 45 |
| $ | 17 |
| | $ | 231 |
| $ | 253 |
| $ | 57 |
| $ | 85 |
| | $ | 143 |
| $ | 146 |
| | $ | 200 |
| $ | 231 |
|
| % of criticized nonaccrual to total real estate retained loans | 0.14 | % | 0.25 | % | | 0.50 | % | 0.63 | % | | 0.02 | % | — | % | | 0.60 | % | 0.27 | % | | 0.25 | % | 0.32 | % | 0.08 | % | 0.13 | % | | 0.42 | % | 0.51 | % | | 0.19 | % | 0.25 | % |
Wholesale impaired loans and loan modifications
Wholesale impaired loans consist of loans that have been placed on nonaccrual status and/or that have been modified in a TDR. All impaired loans are evaluated for an asset-specific allowance as described in Note 15.
The table below sets forth information about the Firm’s wholesale impaired loans.
| | December 31, (in millions) | Commercial and industrial | | Real estate | | Financial institutions | | Government agencies | | Other | | Total retained loans | | Commercial and industrial | | Real estate | | Financial institutions | | Government agencies | | Other | | Total retained loans | |
| 2015 | 2014 | | 2015 | 2014 | | 2015 | 2014 | | 2015 | 2014 | | 2015 | 2014 | | 2015 | | 2014 | | 2016 | 2015 | | 2016 | 2015 | | 2016 | 2015 | | 2016 | 2015 | | 2016 | 2015 | | 2016 | | 2015 | |
| Impaired loans | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| With an allowance | $ | 522 |
| $ | 174 |
| | $ | 148 |
| $ | 193 |
| | $ | 10 |
| $ | 15 |
| | $ | — |
| $ | — |
| | $ | 46 |
| $ | 89 |
| | $ | 726 |
| | $ | 471 |
| | $ | 1,119 |
| $ | 522 |
| | $ | 125 |
| $ | 148 |
| | $ | 9 |
| $ | 10 |
| | $ | — |
| $ | — |
| | $ | 187 |
| $ | 46 |
| | $ | 1,440 |
| | $ | 726 |
| |
Without an allowance(a) | 98 |
| 24 |
| | 106 |
| 87 |
| | — |
| 3 |
| | — |
| — |
| | 94 |
| 52 |
| | 298 |
| | 166 |
| | 414 |
| 98 |
| | 87 |
| 106 |
| | — |
| — |
| | — |
| — |
| | 76 |
| 94 |
| | 577 |
| | 298 |
| |
Total impaired loans | $ | 620 |
| $ | 198 |
| | $ | 254 |
| $ | 280 |
| | $ | 10 |
| $ | 18 |
| | $ | — |
| $ | — |
| | $ | 140 |
| $ | 141 |
| | $ | 1,024 |
| (c) | $ | 637 |
| (c) | $ | 1,533 |
| $ | 620 |
| | $ | 212 |
| $ | 254 |
| | $ | 9 |
| $ | 10 |
| | $ | — |
| $ | — |
| | $ | 263 |
| $ | 140 |
| | $ | 2,017 |
| (c) | $ | 1,024 |
| (c) |
| Allowance for loan losses related to impaired loans | $ | 220 |
| $ | 34 |
| | $ | 27 |
| $ | 36 |
| | $ | 3 |
| $ | 4 |
| | $ | — |
| $ | — |
| | $ | 24 |
| $ | 13 |
| | $ | 274 |
| | $ | 87 |
| | $ | 258 |
| $ | 220 |
| | $ | 18 |
| $ | 27 |
| | $ | 3 |
| $ | 3 |
| | $ | — |
| $ | — |
| | $ | 63 |
| $ | 24 |
| | $ | 342 |
| | $ | 274 |
| |
Unpaid principal balance of impaired loans(b) | 669 |
| 266 |
| | 363 |
| 345 |
| | 13 |
| 22 |
| | — |
| — |
| | 164 |
| 202 |
| | 1,209 |
| | 835 |
| | 1,754 |
| 669 |
| | 295 |
| 363 |
| | 12 |
| 13 |
| | — |
| — |
| | 284 |
| 164 |
| | 2,345 |
| | 1,209 |
| |
| |
| (a) | When the discounted cash flows, collateral value or market price equals or exceeds the recorded investment in the loan, the loan does not require an allowance. This typically occurs when the impaired loans have been partially charged-off and/or there have been interest payments received and applied to the loan balance. |
| |
| (b) | Represents the contractual amount of principal owed at December 31, 20152016 and 2014.2015. The unpaid principal balance differs from the impaired loan balances due to various factors, including charge-offs; interest payments received and applied to the carrying value; net deferred loan fees or costs; and unamortized discount or premiums on purchased loans. |
| |
| (c) | Based upon the domicile of the borrower, largely consists of loans in the U.S. |
The following table presents the Firm’s average impaired loans for the years ended 20152016, 20142015 and 20132014.
| | | Year ended December 31, (in millions) | 2015 | 2014 | 2013 | 2016 | 2015 | 2014 |
| Commercial and industrial | $ | 453 |
| $ | 243 |
| $ | 412 |
| $ | 1,480 |
| $ | 453 |
| $ | 243 |
|
| Real estate | 250 |
| 297 |
| 484 |
| 217 |
| 250 |
| 297 |
|
| Financial institutions | 13 |
| 20 |
| 17 |
| 13 |
| 13 |
| 20 |
|
| Government agencies | — |
| — |
| — |
| — |
| — |
| — |
|
| Other | 129 |
| 155 |
| 211 |
| 213 |
| 129 |
| 155 |
|
Total(a) | $ | 845 |
| $ | 715 |
| $ | 1,124 |
| $ | 1,923 |
| $ | 845 |
| $ | 715 |
|
| |
| (a) | The related interest income on accruing impaired loans and interest income recognized on a cash basis were not material for the years ended December 31, 2016, 2015 2014 and 2013.2014. |
Certain loan modifications are considered to be TDRs as they provide various concessions to borrowers who are experiencing financial difficulty. All TDRs are reported as impaired loans in the tables above. TDRs were not material$733 million and $208 million as of December 31, 20152016 and 2014.2015.
|
| | |
| 226 | | JPMorgan Chase & Co./20152016 Annual Report | | 261 |
Notes to consolidated financial statements
Note 15 – Allowance for credit losses
JPMorgan Chase’sChase’s allowance for loan losses covers the consumer, including credit card, portfolio segments (primarily scored); and wholesale (risk-rated) portfolio, and represents management’s estimate of probable credit losses inherent in the Firm’s retained loan portfolio. The allowance for loan losses includes a formula-based component, an asset-specific component, a formula-based component, and a component related to PCI loans, as described below. Management also estimates an allowance for wholesale and certain consumer lending-related commitments using methodologies similar to those used to estimate the allowance on the underlying loans. During 2015,2016, the Firm did not make any significant changes to the methodologies or policies used to determine its allowance for credit losses; such policies are described in the following paragraphs.
Determining the appropriateness of the allowance is complex and requires judgment by management about the effect of matters that are inherently uncertain. Subsequent evaluations of the loan portfolio, in light of the factors then prevailing, may result in significant changes in the allowances for loan losses and lending-related commitments in future periods. At least quarterly, the allowance for credit losses is reviewed by the CRO, the CFO and the Controller of the Firm and discussed with the DRPC and the Audit Committee. As of December 31, 2016, JPMorgan Chase deemed the allowance for credit losses to be appropriate (i.e., sufficient to absorb probable credit losses inherent in the portfolio).
Formula-based component
The formula-based component is based on a statistical calculation to provide for incurred credit losses in all consumer loans and performing risk-rated loans, except for any loans restructured in TDRs and PCI loans, which are calculated as a part of the asset-specific and PCI components, respectively, and are discussed later in this Note. See Note 14 for more information on TDRs and PCI loans.
Formula-based component - Consumer loans and certain lending-related commitments
The formula-based allowance for credit losses for the consumer portfolio segments is calculated by applying statistical credit loss factors (estimated PD and loss severities) to the recorded investment balances or loan-equivalent amounts of pools of loan exposures with similar risk characteristics over a loss emergence period to arrive at an estimate of incurred credit losses. Estimated loss emergence periods may vary by product and may change over time; management applies judgment in estimating loss emergence periods, using available credit information and trends. In addition, management applies judgment to the statistical loss estimates for each loan portfolio category, using delinquency trends and other risk characteristics to estimate the total incurred credit losses in the portfolio. Management uses additional statistical methods and considers actual portfolio performance, including actual
losses recognized on defaulted loans and collateral valuation trends, to review the appropriateness of the primary statistical loss estimate. The economic impact of potential modifications of residential real estate loans is not included in the statistical calculation because of the uncertainty regarding the type and results of such modifications.
The statistical calculation is then adjusted to take into consideration model imprecision, external factors and current economic events that have occurred but that are not yet reflected in the factors used to derive the statistical calculation; these adjustments are accomplished in part by analyzing the historical loss experience for each major product segment. However, it is difficult to predict whether historical loss experience is indicative of future loss levels. Management applies judgment in making this adjustment, taking into account uncertainties associated with current macroeconomic and political conditions, quality of underwriting standards, borrower behavior, the potential impact of payment recasts within the HELOC portfolio, and other relevant internal and external factors affecting the credit quality of the portfolio. In certain instances, the interrelationships between these factors create further uncertainties. For example, the performance of a HELOC that experiences a payment recast may be affected by both the quality of underwriting standards applied in originating the loan and the general economic conditions in effect at the time of the payment recast. For junior lien products, management considers the delinquency and/or modification status of any senior liens in determining the adjustment. The application of different inputs into the statistical calculation, and the assumptions used by management to adjust the statistical calculation, are subject to management judgment, and emphasizing one input or assumption over another, or considering other inputs or assumptions, could affect the estimate of the allowance for credit losses for the consumer credit portfolio.
Overall, the allowance for credit losses for the consumer portfolio, including credit card, is sensitive to changes in the economic environment (e.g., unemployment rates), delinquency rates, the realizable value of collateral (e.g., housing prices), FICO scores, borrower behavior and other risk factors. While all of these factors are important determinants of overall allowance levels, changes in the various factors may not occur at the same time or at the same rate, or changes may be directionally inconsistent such that improvement in one factor may offset deterioration in the other. In addition, changes in these factors would not necessarily be consistent across all geographies or product types. Finally, it is difficult to predict the extent to which changes in these factors would ultimately affect the frequency of losses, the severity of losses or both.
|
| | |
| JPMorgan Chase & Co./2016 Annual Report | | 227 |
Notes to consolidated financial statements
Formula-based component - Wholesale loans and lending-related commitments
The Firm’s methodology for determining the allowance for loan losses and the allowance for lending-related commitments involves the early identification of credits that are deteriorating. The formula-based component of the allowance for wholesale loans and lending-related commitments is calculated by applying statistical credit loss factors (estimated PD and LGD) to the recorded investment balances or loan-equivalent amount over a loss emergence period to arrive at an estimate of incurred credit losses.
The Firm assesses the credit quality of its borrower or counterparty and assigns a risk rating. Risk ratings are assigned at origination or acquisition, and if necessary, adjusted for changes in credit quality over the life of the exposure. In assessing the risk rating of a particular loan or lending-related commitment, among the factors considered are the obligor’s debt capacity and financial flexibility, the level of the obligor’s earnings, the amount and sources for repayment, the level and nature of contingencies, management strength, and the industry and geography in which the obligor operates. These factors are based on an evaluation of historical and current information and involve subjective assessment and interpretation. Determining risk ratings involves significant judgment; emphasizing one factor over another or considering additional factors could affect the risk rating assigned by the Firm.
PD estimates are based on observable external through-the-cycle data, using credit rating agency default statistics.
An LGD estimate is assigned to each loan or lending-related commitment. The estimate represents the amount of economic loss if the obligor were to default. The type of obligor, quality of collateral, and the seniority of the Firm’s lending exposure in the obligor’s capital structure affect LGD. LGD estimates are based on the Firm’s history of actual credit losses over more than one credit cycle. Changes to the time period used for PD and LGD estimates (for example, point-in-time loss versus longer-term views of the credit cycle) could also affect the allowance for credit losses.
The Firm applies judgment in estimating PD, LGD, loss emergence period and loan-equivalent amounts used in calculating the allowance for credit losses. Wherever possible, the Firm uses independent, verifiable data or the Firm’s own historical loss experience in its models for estimating the allowances, but differences in characteristics between the Firm’s specific loans or lending-related commitments and those reflected in external and Firm-specific historical data could affect loss estimates. Estimates of PD, LGD, loss emergence period and loan-equivalent used are subject to periodic refinement based on any changes to underlying external or Firm-specific historical data. The use of different inputs, estimates or methodologies could change the amount of the allowance for credit losses determined appropriate by the Firm.
In addition to the modeled loss estimates applied to wholesale loans and lending-related commitments, management applies its judgment to adjust the modeled loss estimates for wholesale loans,taking into consideration model imprecision, external factors and economic events that have occurred but are not yet reflected in the loss factors. Historical experience of both LGD and PD are considered when estimating these adjustments. Factors related to concentrated and deteriorating industries also are incorporated where relevant. These estimates are based on management’s view of uncertainties that relate to current macroeconomic, quality of underwriting standards and other relevant internal and external factors affecting the credit quality of the current portfolio.
Asset-specific component
The asset-specific component of the allowance relates to loans considered to be impaired, which includes loans that have been modified in TDRs as well as risk-rated loans that have been placed on nonaccrual status. To determine the asset-specific component of the allowance, larger loans are evaluated individually, while smaller loans are evaluated as pools using historical loss experience for the respective class of assets. Scored loans (i.e., consumer loans) are pooled by product type, while risk-rated loans (primarily wholesale loans) are segmented by risk rating.
The Firm generally measures the asset-specific allowance as the difference between the recorded investment in the loan and the present value of the cash flows expected to be collected, discounted at the loan’s original effective interest rate. Subsequent changes in impairment are reported as an adjustment to the provisionallowance for loan losses. In certain cases, the asset-specific allowance is determined using an observable market price, and the allowance is measured as the difference between the recorded investment in the loan and the loan’s fair value. Impaired collateral-dependent loans are charged down to the fair value of collateral less costs to sell and therefore may notsell. For any of these impaired loans, the amount of the asset-specific allowance required to be subject to an asset-specific reserve as are other impaired loans.recorded, if any, is dependent upon the recorded investment in the loan (including prior charge-offs), expected cash flows and/or fair value of assets. See Note14 for more information about charge-offs and collateral-dependent loans.
The asset-specific component of the allowance for impaired loans that have been modified in TDRs incorporates the effects of foregoneforgone interest, if any, in the present value calculation and also incorporates the effect of the modification on the loan’s expected cash flows, which considers the potential for redefault. For residential real estate loans modified in TDRs, the Firm develops product-specific probability of default estimates, which are applied at a loan level to compute expected losses. In developing these probabilities of default, the Firm considers the relationship between the credit quality characteristics of the underlying loans and certain assumptions about home prices and unemployment, based upon industry-wide data. The Firm also considers its own historical loss experience to date based on actual redefaulted modified loans. For credit
|
| | |
| 228 | | JPMorgan Chase & Co./2016 Annual Report |
card loans modified in TDRs, expected losses incorporate projected redefaults based on the Firm’s historical experience by type of modification program. For wholesale loans modified in TDRs, expected losses incorporate redefaults based on management’s expectation of the borrower’s ability to repay under the modified terms.
Estimating the timing and amounts of future cash flows is highly judgmental as these cash flow projections rely upon estimates such as loss severities, asset valuations, default rates (including redefault rates on modified loans), the amounts and timing of interest or principal payments (including any expected prepayments) or other factors that are reflective of current and expected market conditions. These estimates are, in turn, dependent on factors such as the duration of current overall economic conditions, industry-, portfolio-, or borrower-specific factors, the expected outcome of insolvency proceedings as well as, in certain circumstances, other economic factors, including the level of future home prices. All of these estimates and assumptions require significant management judgment and certain assumptions are highly subjective.
PCI loans
In connection with the Washington Mutual transaction, JPMorgan Chase acquired certain PCI loans, which are accounted for as described in Note 14. The formula-based componentallowance for loan losses for the PCI portfolio is based on a statistical calculationquarterly estimates of the amount of principal and interest cash flows expected to provide for incurred credit losses in performing risk-rated loans and all consumer loans, except for any loans restructured in TDRs and PCI loans. See Note 14 for more information on PCIbe collected over the estimated remaining lives of the loans.
For scored loans,These cash flow projections are based on estimates regarding default rates (including redefault rates on modified loans), loss severities, the statistical calculation is performed on poolsamounts and timing of loans with similar risk characteristics (e.g., product type) and generally computed by applying loss factors to outstanding principal balances over an estimated loss emergence period. The loss emergence period represents the time period between the date at which the loss is estimated to have been incurred and the ultimate realization of that loss (through a charge-off). Estimated loss emergence periods may vary by product and may change over time; management applies judgment in estimating loss emergence periods, using available credit information and trends.
|
| | |
262 | | JPMorgan Chase & Co./2015 Annual Report |
Loss factors are statistically derived and sensitive to changes in delinquency status, credit scores, collateral valuesprepayments and other risk factors. The Firm uses a numberfactors that are reflective of different forecasting models to estimate both the PDcurrent and the loss severity, including delinquency roll rate models and credit loss severity models. In developing PD and loss severity assumptions, the Firm also considers known and anticipated changes in the economic environment, including changes in home prices, unemployment rates and other risk indicators.
A nationally recognized home price index measure is used to estimate both the PD and the loss severity on residential real estate loans at the metropolitan statistical areas (“MSA”) level. Loss severityexpected future market conditions. These estimates are regularly validated by comparison to actual losses recognizeddependent on defaulted loans, market-specific real estate appraisals and property sales activity. The economic impact of potential modifications of residential real estate loans is not included in the statistical calculation because of the uncertaintyassumptions regarding the type and results of such modifications.
For risk-rated loans, the statistical calculation is the product of an estimated PD and an estimated LGD. These factors are determined based on the credit quality and specific attributes of the Firm’s loans and lending-related commitments to each obligor. In assessing the risk rating of a particular loan, among the factors considered are the obligor’s debt capacity and financial flexibility, the level of the obligor’s earnings, the amount and sources for repayment, the level and nature of contingencies, management strength,future home prices, and the industryduration of current overall economic conditions, among other factors. These estimates and geography in which the obligor operates. These factorsassumptions require significant management judgment and certain assumptions are based on an evaluation of historical and current information, and involve subjective assessment and interpretation. Emphasizing one factor over another or considering additional factors could impact the risk rating assigned by the Firm. PD estimates are based on observable external through-the-cycle data, using credit-rating agency default statistics. LGD estimates are based on the Firm’s history of actual credit losses over more than one credit cycle. Estimates of PD and LGD are subject to periodic refinement based on changes to underlying external and Firm-specific historical data.
Management applies judgment within an established framework to adjust the results of applying the statistical calculation described above. The determination of the appropriate adjustment is based on management’s view of loss events that have occurred but that are not yet reflected in the loss factors and that relate to current macroeconomic and political conditions, the quality of underwriting standards and other relevant internal and external factors affecting the credit quality of the portfolio. For the scored loan portfolios, adjustments to the statistical calculation are made in part by analyzing the historical loss experience for each major product segment. Factors related to unemployment, home prices, borrower behavior and lien position, the estimated effects of the mortgage foreclosure-related settlement with federal and state officials and uncertainties regarding the ultimate success of loan modifications are incorporated into the calculation, as appropriate. For junior lien products, management considers the delinquency and/or modification status of any senior liens in determining the adjustment. In addition, for the risk-rated portfolios, any adjustments made to the statistical calculation take into consideration model imprecision, deteriorating conditions within an industry, product or portfolio type, geographic location, credit concentration, and current economic events that have occurred but that are not yet reflected in the factors used to derive the statistical calculation.
Management establishes an asset-specific allowance for lending-related commitments that are considered impaired and computes a formula-based allowance for performing consumer and wholesale lending-related commitments. These are computed using a methodology similar to that used for the wholesale loan portfolio, modified for expected maturities and probabilities of drawdown.
Determining the appropriateness of the allowance is complex and requires judgment by management about the effect of matters that are inherently uncertain. Subsequent evaluations of the loan portfolio, in light of the factors then prevailing, may result in significant changes in the allowances for loan losses and lending-related commitments in future periods. At least quarterly, the allowance for credit losses is reviewed by the Chief Risk Officer, the Chief Financial Officer and the Controller of the Firm and discussed with the Risk Policy and Audit Committees of the Board of Directors of the Firm. As of December 31, 2015, JPMorgan Chase deemed the allowance for credit losses to be appropriate (i.e., sufficient to absorb probable credit losses inherent in the portfolio).highly subjective.
|
| | |
JPMorgan Chase & Co./20152016 Annual Report | | 263229 |
Notes to consolidated financial statements
Allowance for credit losses and related information
The table below summarizes information about the allowances for loan losses, and lending-relating commitments, and includes a breakdown of loans and lending-related commitments by impairment methodology.
| | | | 2015 | 2016 |
Year ended December 31, (in millions) | Consumer, excluding credit card |
| | Credit card | | Wholesale | | Total | Consumer, excluding credit card | | Credit card | | Wholesale | | Total |
| Allowance for loan losses | | | | | | | | | | | | | | |
| Beginning balance at January 1, | $ | 7,050 |
| | $ | 3,439 |
| | $ | 3,696 |
| | $ | 14,185 |
| $ | 5,806 |
| | $ | 3,434 |
| | $ | 4,315 |
| | $ | 13,555 |
|
| Gross charge-offs | 1,658 |
|
| 3,488 |
| | 95 |
| | 5,241 |
| 1,500 |
|
| 3,799 |
| | 398 |
| | 5,697 |
|
| Gross recoveries | (704 | ) | | (366 | ) | | (85 | ) | | (1,155 | ) | (591 | ) | | (357 | ) | | (57 | ) | | (1,005 | ) |
| Net charge-offs/(recoveries) | 954 |
|
| 3,122 |
| | 10 |
| | 4,086 |
| 909 |
|
| 3,442 |
| | 341 |
| | 4,692 |
|
Write-offs of PCI loans(a) | 208 |
| | — |
| | — |
| | 208 |
| 156 |
| | — |
| | — |
| | 156 |
|
| Provision for loan losses | (82 | ) | | 3,122 |
| | 623 |
| | 3,663 |
| 467 |
| | 4,042 |
| | 571 |
| | 5,080 |
|
| Other | — |
|
| (5 | ) | | 6 |
| | 1 |
| (10 | ) |
| — |
| | (1 | ) | | (11 | ) |
| Ending balance at December 31, | $ | 5,806 |
| | $ | 3,434 |
| | $ | 4,315 |
| | $ | 13,555 |
| $ | 5,198 |
| | $ | 4,034 |
| | $ | 4,544 |
| | $ | 13,776 |
|
| | | | | | | | | | | | | | | |
| Allowance for loan losses by impairment methodology | | | | | | | | | | | | | | |
Asset-specific(b) | $ | 364 |
| | $ | 460 |
| (c) | $ | 274 |
| | $ | 1,098 |
| $ | 308 |
| | $ | 358 |
| (c) | $ | 342 |
| | $ | 1,008 |
|
| Formula-based | 2,700 |
| | 2,974 |
| | 4,041 |
| | 9,715 |
| 2,579 |
| | 3,676 |
| | 4,202 |
| | 10,457 |
|
| PCI | 2,742 |
| | — |
| | — |
| | 2,742 |
| 2,311 |
| | — |
| | — |
| | 2,311 |
|
| Total allowance for loan losses | $ | 5,806 |
| | $ | 3,434 |
| | $ | 4,315 |
| | $ | 13,555 |
| $ | 5,198 |
| | $ | 4,034 |
| | $ | 4,544 |
| | $ | 13,776 |
|
| | | | | | | | | | | | | | | |
| Loans by impairment methodology | | | | | | | | | | | | | | |
| Asset-specific | $ | 9,606 |
| | $ | 1,465 |
| | $ | 1,024 |
| | $ | 12,095 |
| $ | 8,940 |
| | $ | 1,240 |
| | $ | 2,017 |
| | $ | 12,197 |
|
| Formula-based | 293,751 |
| | 129,922 |
| | 356,022 |
| | 779,695 |
| 319,787 |
| | 140,471 |
| | 381,770 |
| | 842,028 |
|
| PCI | 40,998 |
| | — |
| | 4 |
| | 41,002 |
| 35,679 |
| | — |
| | 3 |
| | 35,682 |
|
| Total retained loans | $ | 344,355 |
| | $ | 131,387 |
| | $ | 357,050 |
| | $ | 832,792 |
| $ | 364,406 |
| | $ | 141,711 |
| | $ | 383,790 |
| | $ | 889,907 |
|
| | | | | | | | | | | | | | | |
| Impaired collateral-dependent loans | | | | | | | | | | | | | | |
| Net charge-offs | $ | 104 |
|
| $ | — |
| | $ | 16 |
| | $ | 120 |
| $ | 98 |
|
| $ | — |
| | $ | 7 |
| | $ | 105 |
|
| Loans measured at fair value of collateral less cost to sell | 2,566 |
| | — |
| | 283 |
| | 2,849 |
| 2,391 |
| | — |
| | 300 |
| | 2,691 |
|
| | | | | | | | | | | | | | | |
| Allowance for lending-related commitments | | | | | | | | | | | | | | |
| Beginning balance at January 1, | $ | 13 |
| | $ | — |
| | $ | 609 |
| | $ | 622 |
| $ | 14 |
| | $ | — |
| | $ | 772 |
| | $ | 786 |
|
| Provision for lending-related commitments | 1 |
| | — |
| | 163 |
| | 164 |
| — |
| | — |
| | 281 |
| | 281 |
|
| Other | — |
| | — |
| | — |
| | — |
| 12 |
| | — |
| | (1 | ) | | 11 |
|
| Ending balance at December 31, | $ | 14 |
| | $ | — |
| | $ | 772 |
| | $ | 786 |
| $ | 26 |
| | $ | — |
| | $ | 1,052 |
| | $ | 1,078 |
|
| | | | | | | | | | | | | | | |
| Allowance for lending-related commitments by impairment methodology | | | | | | | | | | | | | | |
| Asset-specific | $ | — |
| | $ | — |
| | $ | 73 |
| | $ | 73 |
| $ | — |
| | $ | — |
| | $ | 169 |
| | $ | 169 |
|
| Formula-based | 14 |
| | — |
| | 699 |
| | 713 |
| 26 |
| | — |
| | 883 |
| | 909 |
|
| Total allowance for lending-related commitments | $ | 14 |
| | $ | — |
| | $ | 772 |
| | $ | 786 |
| $ | 26 |
| | $ | — |
| | $ | 1,052 |
| | $ | 1,078 |
|
| | | | | | | | | | | | | | | |
| Lending-related commitments by impairment methodology | | | | | | | | | | | | | | |
| Asset-specific | $ | — |
| | $ | — |
| | $ | 193 |
| | $ | 193 |
| $ | — |
| | $ | — |
| | $ | 506 |
| | $ | 506 |
|
| Formula-based | 58,478 |
| | 515,518 |
| | 366,206 |
| | 940,202 |
| 54,797 |
| | 553,891 |
| | 367,508 |
| | 976,196 |
|
| Total lending-related commitments | $ | 58,478 |
| | $ | 515,518 |
| | $ | 366,399 |
| | $ | 940,395 |
| $ | 54,797 |
| | $ | 553,891 |
| | $ | 368,014 |
| | $ | 976,702 |
|
| |
| (a) | Write-offs of PCI loans are recorded against the allowance for loan losses when actual losses for a pool exceed estimated losses that were recorded as purchase accounting adjustments at the time of acquisition. A write-off of a PCI loan is recognized when the underlying loan is removed from a pool (e.g., upon liquidation). During the fourth quarter of 2014, the Firm recorded a $291 million adjustment to reduce the PCI allowance and the recorded investment in the Firm’s PCI loan portfolio, primarily reflecting the cumulative effect of interest forgiveness modifications. This adjustment had no impact to the Firm’s Consolidated statements of income. |
| |
| (b) | Includes risk-rated loans that have been placed on nonaccrual status and loans that have been modified in a TDR. |
| |
| (c) | The asset-specific credit card allowance for loan losses is related to loans that have been modified in a TDR; such allowance is calculated based on the loans’ original contractual interest rates and does not consider any incremental penalty rates. |
| |
| (d) | Effective January 1, 2015, the Firm no longer includes within its disclosure of wholesale lending-related commitments the unused amount of advised uncommitted lines of credit as it is within the Firm’s discretion whether or not to make a loan under these lines, and the Firm’s approval is generally required prior to funding. Prior period amounts have been revised to conform with the current period presentation. |
|
| | |
264230 | | JPMorgan Chase & Co./20152016 Annual Report |
| | | (table continued from previous page) | (table continued from previous page) | | | | | | | | | | | (table continued from previous page) | | | | | | | | | | |
| 2014 | | 2013 | |
| 2015 | | 2015 | | 2014 |
Consumer, excluding credit card | Consumer, excluding credit card |
| | Credit card | | Wholesale | | Total | | Consumer, excluding credit card |
| | Credit card | | Wholesale | | Total | Consumer, excluding credit card | | Credit card | | Wholesale | | Total | | Consumer, excluding credit card | | Credit card | | Wholesale | | Total |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| $ | 8,456 |
| | $ | 3,795 |
| | $ | 4,013 |
| | $ | 16,264 |
| | $ | 12,292 |
| | $ | 5,501 |
| | $ | 4,143 |
| | $ | 21,936 |
| 7,050 |
| | $ | 3,439 |
| | $ | 3,696 |
| | $ | 14,185 |
| | $ | 8,456 |
| | $ | 3,795 |
| | $ | 4,013 |
| | $ | 16,264 |
|
| 2,132 |
| | 3,831 |
| | 151 |
| | 6,114 |
| | 2,754 |
| | 4,472 |
| | 241 |
| | 7,467 |
| |
| (814 | ) | | (402 | ) | | (139 | ) | | (1,355 | ) | | (847 | ) | | (593 | ) | | (225 | ) | | (1,665 | ) | |
| 1,318 |
| | 3,429 |
| | 12 |
| | 4,759 |
| | 1,907 |
| | 3,879 |
| | 16 |
| | 5,802 |
| |
| 533 |
| | — |
| | — |
| | 533 |
| | 53 |
| | — |
| | — |
| | 53 |
| |
| 414 |
| | 3,079 |
| | (269 | ) | | 3,224 |
| | (1,872 | ) | | 2,179 |
| | (119 | ) | | 188 |
| |
| 31 |
| | (6 | ) | | (36 | ) | | (11 | ) | | (4 | ) | | (6 | ) | | 5 |
| | (5 | ) | |
| $ | 7,050 |
| | $ | 3,439 |
| | $ | 3,696 |
| | $ | 14,185 |
| | $ | 8,456 |
| | $ | 3,795 |
| | $ | 4,013 |
| | $ | 16,264 |
| |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| $ | 539 |
| | $ | 500 |
| (c) | $ | 87 |
| | $ | 1,126 |
| | $ | 601 |
| | $ | 971 |
| (c) | $ | 181 |
| | $ | 1,753 |
| |
| 3,186 |
| | 2,939 |
| | 3,609 |
| | 9,734 |
| | 3,697 |
| | 2,824 |
| | 3,832 |
| | 10,353 |
| |
| 3,325 |
| | — |
| | — |
| | 3,325 |
| | 4,158 |
| | — |
| | — |
| | 4,158 |
| |
| $ | 7,050 |
| | $ | 3,439 |
| | $ | 3,696 |
| | $ | 14,185 |
| | $ | 8,456 |
| | $ | 3,795 |
| | $ | 4,013 |
| | $ | 16,264 |
| |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| $ | 12,020 |
| | $ | 2,029 |
| | $ | 637 |
| | $ | 14,686 |
| | $ | 13,785 |
| | $ | 3,115 |
| | $ | 845 |
| | $ | 17,745 |
| |
| 236,263 |
| | 125,998 |
| | 323,861 |
| | 686,122 |
| | 221,609 |
| | 124,350 |
| | 307,412 |
| | 653,371 |
| |
| 46,696 |
| | — |
| | 4 |
| | 46,700 |
| | 53,055 |
| | — |
| | 6 |
| | 53,061 |
| |
| $ | 294,979 |
| | $ | 128,027 |
| | $ | 324,502 |
| | $ | 747,508 |
| | $ | 288,449 |
| | $ | 127,465 |
| | $ | 308,263 |
| | $ | 724,177 |
| |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| $ | 133 |
| | $ | — |
| | $ | 21 |
| | $ | 154 |
| | $ | 235 |
| | $ | — |
| | $ | 37 |
| | $ | 272 |
| |
| 3,025 |
| | — |
| | 326 |
| | 3,351 |
| | 3,105 |
| | — |
| | 362 |
| | 3,467 |
| |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| $ | 8 |
| | $ | — |
| | $ | 697 |
| | $ | 705 |
| | $ | 7 |
| | $ | — |
| | $ | 661 |
| | $ | 668 |
| |
| 5 |
| | — |
| | (90 | ) | | (85 | ) | | 1 |
| | — |
| | 36 |
| | 37 |
| |
| 1,658 | | 1,658 |
| | 3,488 |
| | 95 |
| | 5,241 |
| | 2,132 |
| | 3,831 |
| | 151 |
| | 6,114 |
|
| (704 | | (704 | ) | | (366 | ) | | (85 | ) | | (1,155 | ) | | (814 | ) | | (402 | ) | | (139 | ) | | (1,355 | ) |
| 954 | | 954 |
| | 3,122 |
| | 10 |
| | 4,086 |
| | 1,318 |
| | 3,429 |
| | 12 |
| | 4,759 |
|
| 208 | | 208 |
| | — |
| | — |
| | 208 |
| | 533 |
| | — |
| | — |
| | 533 |
|
| (82 | | (82 | ) | | 3,122 |
| | 623 |
| | 3,663 |
| | 414 |
| | 3,079 |
| | (269 | ) | | 3,224 |
|
| — | — |
| | — |
| | 2 |
| | 2 |
| | — |
| | — |
| | — |
| | — |
| — |
| | (5 | ) | | 6 |
| | 1 |
| | 31 |
| | (6 | ) | | (36 | ) | | (11 | ) |
| $ | 13 |
| | $ | — |
| | $ | 609 |
| | $ | 622 |
| | $ | 8 |
| | $ | — |
| | $ | 697 |
| | $ | 705 |
| 5,806 |
| | $ | 3,434 |
| | $ | 4,315 |
| | $ | 13,555 |
| | $ | 7,050 |
| | $ | 3,439 |
| | $ | 3,696 |
| | $ | 14,185 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| $ | — |
| | $ | — |
| | $ | 60 |
| | $ | 60 |
| | $ | — |
| | $ | — |
| | $ | 60 |
| | $ | 60 |
| 364 |
| | $ | 460 |
| (c) | $ | 274 |
| | $ | 1,098 |
| | $ | 539 |
| | $ | 500 |
| (c) | $ | 87 |
| | $ | 1,126 |
|
| 13 |
| | — |
| | 549 |
| | 562 |
| | 8 |
| | — |
| | 637 |
| | 645 |
| |
| 2,700 | | 2,700 |
| | 2,974 |
| | 4,041 |
| | 9,715 |
| | 3,186 |
| | 2,939 |
| | 3,609 |
| | 9,734 |
|
| 2,742 | | 2,742 |
| | — |
| | — |
| | 2,742 |
| | 3,325 |
| | — |
| | — |
| | 3,325 |
|
| $ | 13 |
| | $ | — |
| | $ | 609 |
| | $ | 622 |
| | $ | 8 |
| | $ | — |
| | $ | 697 |
| | $ | 705 |
| 5,806 |
| | $ | 3,434 |
| | $ | 4,315 |
| | $ | 13,555 |
| | $ | 7,050 |
| | $ | 3,439 |
| | $ | 3,696 |
| | $ | 14,185 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| $ | — |
| | $ | — |
| | $ | 103 |
| | $ | 103 |
| | $ | — |
| | $ | — |
| | $ | 206 |
| | $ | 206 |
| 9,606 |
| | $ | 1,465 |
| | $ | 1,024 |
| | $ | 12,095 |
| | $ | 12,020 |
| | $ | 2,029 |
| | $ | 637 |
| | $ | 14,686 |
|
| 58,153 |
| | 525,963 |
| | 366,778 |
| (d) | 950,894 |
| | 56,057 |
| | 529,383 |
| | 344,032 |
| (d) | 929,472 |
| |
| 293,751 | | 293,751 |
| | 129,922 |
| | 356,022 |
| | 779,695 |
| | 236,263 |
| | 125,998 |
| | 323,861 |
| | 686,122 |
|
| 40,998 | | 40,998 |
| | — |
| | 4 |
| | 41,002 |
| | 46,696 |
| | — |
| | 4 |
| | 46,700 |
|
| $ | 58,153 |
| | $ | 525,963 |
| | $ | 366,881 |
| | $ | 950,997 |
| | $ | 56,057 |
| | $ | 529,383 |
| | $ | 344,238 |
| | $ | 929,678 |
| 344,355 |
| | $ | 131,387 |
| | $ | 357,050 |
| | $ | 832,792 |
| | $ | 294,979 |
| | $ | 128,027 |
| | $ | 324,502 |
| | $ | 747,508 |
|
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| $ | | 104 |
| | $ | — |
| | $ | 16 |
| | $ | 120 |
| | $ | 133 |
| | $ | — |
| | $ | 21 |
| | $ | 154 |
|
| 2,566 | | 2,566 |
| | — |
| | 283 |
| | 2,849 |
| | 3,025 |
| | — |
| | 326 |
| | 3,351 |
|
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| $ | | 13 |
| | $ | — |
| | $ | 609 |
| | $ | 622 |
| | $ | 8 |
| | $ | — |
| | $ | 697 |
| | $ | 705 |
|
| 1 | | 1 |
| | — |
| | 163 |
| | 164 |
| | 5 |
| | — |
| | (90 | ) | | (85 | ) |
| — | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 2 |
| | 2 |
|
| $ | | 14 |
| | $ | — |
| | $ | 772 |
| | $ | 786 |
| | $ | 13 |
| | $ | — |
| | $ | 609 |
| | $ | 622 |
|
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| $ | | — |
| | $ | — |
| | $ | 73 |
| | $ | 73 |
| | $ | — |
| | $ | — |
| | $ | 60 |
| | $ | 60 |
|
| 14 | | 14 |
| | — |
| | 699 |
| | 713 |
| | 13 |
| | — |
| | 549 |
| | 562 |
|
| $ | | 14 |
| | $ | — |
| | $ | 772 |
| | $ | 786 |
| | $ | 13 |
| | $ | — |
| | $ | 609 |
| | $ | 622 |
|
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| $ | | — |
| | $ | — |
| | $ | 193 |
| | $ | 193 |
| | $ | — |
| | $ | — |
| | $ | 103 |
| | $ | 103 |
|
| 58,478 | | 58,478 |
| | 515,518 |
| | 366,206 |
| (d) | 940,202 |
| | 58,153 |
| | 525,963 |
| | 366,778 |
| (d) | 950,894 |
|
| $ | | 58,478 |
| | $ | 515,518 |
| | $ | 366,399 |
| | $ | 940,395 |
| | $ | 58,153 |
| | $ | 525,963 |
| | $ | 366,881 |
| | $ | 950,997 |
|
|
| | |
JPMorgan Chase & Co./20152016 Annual Report | | 265231 |
Notes to consolidated financial statements
Note 16 – Variable interest entities
For a further description of JPMorgan Chase’s accounting policies regarding consolidation of VIEs, see Note 1.
The following table summarizes the most significant types of Firm-sponsored VIEs by business segment. The Firm considers a “sponsored” VIE to include any entity where: (1) JPMorgan Chase is the primary beneficiary of the structure; (2) the VIE is used by JPMorgan Chase to securitize Firm assets; (3) the VIE issues financial instruments with the JPMorgan Chase name; or (4) the entity is a JPMorgan Chase–administered asset-backed commercial paper conduit.
|
| | | |
Line-of-BusinessLine of Business | Transaction Type | Activity | Annual Report page references |
| CCB | Credit card securitization trusts | Securitization of both originated and purchased credit card receivables | 266232 |
| Mortgage securitization trusts | Servicing and securitization of both originated and purchased residential mortgages | 267–269233–235 |
| CIB | Mortgage and other securitization trusts | Securitization of both originated and purchased residential and commercial mortgages and student loans | 267–269233–235 |
| Multi-seller conduits Investor intermediation activities: | Assist clients in accessing the financial markets in a cost-efficient manner and structures transactions to meet investor needs | 269–271235–237 |
| Municipal bond vehicles | | 269–270235–236 |
The Firm’s other business segments are also involved with VIEs, but to a lesser extent, as follows:
Asset & Wealth Management: AMAWM sponsors and manages certain funds that are deemed VIEs. As asset manager of the funds, AMAWM earns a fee based on assets managed; the fee varies with each fund’s investment objective and is competitively priced. For fund entities that qualify as VIEs, AM’sAWM’s interests are, in certain cases, considered to be significant variable interests that result in consolidation of the financial results of these entities.
Commercial Banking: CB makes investments in and provides lending to community development entities that may meet the definition of a VIE. In addition, CB provides financing and lending-related services to certain client-sponsored VIEs. In general, CB does not control the activities of these entities and does not consolidate these entities.
Corporate: The Private Equity business, within Corporate is involved with entities that may meet the definition of VIEs. However, the Firm’s Private Equity business isVIEs; however these entities are generally subject to specialized investment company accounting, which does not require the consolidation of investments, including VIEs.
The Firm also invests in and provides financing and other services to VIEs sponsored by third parties, as described on page 271237 of this Note.
Significant Firm-sponsored variable interest entities
Credit card securitizations
The Card business securitizes both originated and purchased credit card loans, primarily through the Chase Issuance Trust (the “Trust”). The Firm’s continuing involvement in credit card securitizations includes servicing the receivables, retaining an undivided seller’s interest in the receivables, retaining certain senior and subordinated securities and maintaining escrow accounts.
The Firm is considered to be the primary beneficiary of these Firm-sponsored credit card securitization trusts based on the Firm’s ability to direct the activities of these VIEs through its servicing responsibilities and other duties, including making decisions as to the receivables that are transferred into those trusts and as to any related modifications and workouts. Additionally, the nature and extent of the Firm’s other continuing involvement with the trusts, as indicated above, obligates the Firm to absorb losses and gives the Firm the right to receive certain benefits from these VIEs that could potentially be significant.
The underlying securitized credit card receivables and other assets of the securitization trusts are available only for payment of the beneficial interests issued by the securitization trusts; they are not available to pay the Firm’s other obligations or the claims of the Firm’s other creditors.
The agreements with the credit card securitization trusts require the Firm to maintain a minimum undivided interest in the credit card trusts (which is generally 4%(generally 5%). As of December 31, 20152016 and 2014,2015, the Firm held undivided interests in Firm-sponsored credit card securitization trusts of $13.6$8.9 billion and $10.9$13.6 billion, respectively. The Firm maintained an average undivided interest in principal receivables owned by those trusts of approximately 16% and 22% for both the years ended December 31, 20152016 and 2014.2015. As of December 31, 2015 and 2014, the Firm also retained $0 million and $40 million of senior securities, and as of both December 31, 2016 and 2015, the Firm did not retain any senior securities and 2014, retained $5.3 billion of subordinated securities in certain of its credit card securitization trusts. The Firm’s undivided interests in the credit card trusts and securities retained are eliminated in consolidation.
|
| | |
266232 | | JPMorgan Chase & Co./20152016 Annual Report |
Firm-sponsored mortgage and other securitization trusts
The Firm securitizes (or has securitized) originated and purchased residential mortgages, commercial mortgages and other consumer loans (including student loans) primarily in its CCB and CIB businesses. Depending on the
particular transaction, as well as the respective business involved, the Firm may act as the servicer of the loans and/or retain certain beneficial interests in the securitization trusts.
The following table presents the total unpaid principal amount of assets held in Firm-sponsored private-label securitization entities, including those in which the Firm has continuing involvement, and those that are consolidated by the Firm. Continuing involvement includes servicing the loans;loans, holding senior interests or subordinated interests;interests, recourse or guarantee arrangements;arrangements, and derivative transactions. In certain instances, the Firm’s only continuing involvement is servicing the loans. See Securitization activity on page 272238 of this Note for further information regarding the Firm’s cash flows with and interests retained in nonconsolidated VIEs, and pages 272–273238-239 of this Note for information on the Firm’s loan sales to U.S. government agencies.
| | | | Principal amount outstanding | | JPMorgan Chase interest in securitized assets in nonconsolidated VIEs(c)(d)(e) | Principal amount outstanding | | JPMorgan Chase interest in securitized assets in nonconsolidated VIEs(c)(d)(e) |
December 31, 2015 (a) (in billions) | Total assets held by securitization VIEs | Assets held in consolidated securitization VIEs | Assets held in nonconsolidated securitization VIEs with continuing involvement | | Trading assets | AFS securities | Total interests held by JPMorgan Chase | |
December 31, 2016 (in millions) | | Total assets held by securitization VIEs | Assets held in consolidated securitization VIEs | Assets held in nonconsolidated securitization VIEs with continuing involvement | | Trading assets | AFS securities | Total interests held by JPMorgan Chase |
Securitization-related | | | |
|
|
|
|
|
|
|
|
|
|
|
|
|
| Residential mortgage: | | | |
|
|
|
|
|
|
|
|
|
|
|
|
|
| Prime/Alt-A and option ARMs | $ | 85.7 |
| $ | 1.4 |
| $ | 66.7 |
| | $ | 0.4 |
| $ | 1.6 |
| $ | 2.0 |
| $ | 76,789 |
| $ | 4,209 |
| $ | 57,543 |
|
| $ | 226 |
| $ | 1,334 |
| $ | 1,560 |
|
| Subprime | 24.4 |
| 0.1 |
| 22.6 |
| | 0.1 |
| — |
| 0.1 |
| 21,542 |
| — |
| 19,903 |
|
| 76 |
| — |
| 76 |
|
Commercial and other(b) | 123.5 |
| 0.1 |
| 80.3 |
| | 0.4 |
| 3.5 |
| 3.9 |
| 101,265 |
| 107 |
| 71,464 |
|
| 509 |
| 2,064 |
| 2,573 |
|
| Total | $ | 233.6 |
| $ | 1.6 |
| $ | 169.6 |
| | $ | 0.9 |
| $ | 5.1 |
| $ | 6.0 |
| $ | 199,596 |
| $ | 4,316 |
| $ | 148,910 |
|
| $ | 811 |
| $ | 3,398 |
| $ | 4,209 |
|
| | | | Principal amount outstanding | | JPMorgan Chase interest in securitized assets in nonconsolidated VIEs(c)(d)(e) | Principal amount outstanding |
| JPMorgan Chase interest in securitized assets in nonconsolidated VIEs(c)(d)(e) |
December 31, 2014(a) (in billions) | Total assets held by securitization VIEs | Assets held in consolidated securitization VIEs | Assets held in nonconsolidated securitization VIEs with continuing involvement | | Trading assets | AFS securities | Total interests held by JPMorgan Chase | |
December 31, 2015 (in millions) | | Total assets held by securitization VIEs | Assets
held in consolidated securitization VIEs | Assets held in nonconsolidated securitization VIEs with continuing involvement |
| Trading assets | AFS securities | Total interests held by JPMorgan Chase |
Securitization-related | | | |
|
|
|
|
|
|
|
|
|
|
|
|
|
| Residential mortgage: | | | |
|
|
|
|
|
|
|
|
|
|
|
|
|
| Prime/Alt-A and option ARMs | $ | 96.3 |
| $ | 2.7 |
| $ | 78.3 |
| | $ | 0.5 |
| $ | 0.7 |
| $ | 1.2 |
| $ | 85,687 |
| $ | 1,400 |
| $ | 66,708 |
|
| $ | 394 |
| $ | 1,619 |
| $ | 2,013 |
|
| Subprime | 28.4 |
| 0.8 |
| 25.7 |
| | 0.1 |
| — |
| 0.1 |
| 24,389 |
| 64 |
| 22,549 |
|
| 109 |
| — |
| 109 |
|
Commercial and other(b) | 129.6 |
| 0.2 |
| 94.4 |
| | 0.4 |
| 3.5 |
| 3.9 |
| 123,474 |
| 107 |
| 80,319 |
|
| 447 |
| 3,451 |
| 3,898 |
|
| Total | $ | 254.3 |
| $ | 3.7 |
| $ | 198.4 |
| | $ | 1.0 |
| $ | 4.2 |
| $ | 5.2 |
| $ | 233,550 |
| $ | 1,571 |
| $ | 169,576 |
|
| $ | 950 |
| $ | 5,070 |
| $ | 6,020 |
|
| |
| (a) | Excludes U.S. government agency securitizations.securitizations and re-securitizations, which are not Firm-sponsored. See pages 272–273238-239 of this Note for information on the Firm’s loan sales to U.S. government agencies. |
| |
| (b) | Consists of securities backed by commercial loans (predominantly real estate) and non-mortgage-related consumer receivables purchased from third parties. The Firm generally does not retain a residual interest in its sponsored commercial mortgage securitization transactions. |
| |
| (c) | The table above excludesExcludes the following: retained servicing (see Note 17 for a discussion of MSRs); securities retained from loan sales to U.S. government agencies; interest rate and foreign exchange derivatives primarily used to manage interest rate and foreign exchange risks of securitization entities (See Note 6 for further information on derivatives); senior and subordinated securities of $180 million and $49 million, respectively, at December 31, 2016, and $163 million and $73 million, respectively, at December 31, 2015, and $136 million and $34 million, respectively, at December 31, 2014, which the Firm purchased in connection with CIB’s secondary market-making activities.
|
| |
| (d) | Includes interests held in re-securitization transactions. |
| |
| (e) | As of December 31, 20152016 and 20142015, 76%61% and 77%76%, respectively, of the Firm’s retained securitization interests, which are carried at fair value, were risk-rated “A” or better, on an S&P-equivalent basis. The retained interests in prime residential mortgages consisted of $1.91.5 billion and $1.11.9 billion of investment-grade and $9377 million and $18593 million of noninvestment-grade retained interests at December 31, 20152016 and 2014,2015, respectively. The retained interests in commercial and other securitizations trusts consisted of $3.72.4 billion and $3.7 billion of investment-grade and $198210 million and $194198 million of noninvestment-grade retained interests at December 31, 20152016 and 20142015, respectively. |
|
| | |
JPMorgan Chase & Co./20152016 Annual Report | | 267233 |
Notes to consolidated financial statements
Residential mortgage
The Firm securitizes residential mortgage loans originated by CCB, as well as residential mortgage loans purchased from third parties by either CCB or CIB. CCB generally retains servicing for all residential mortgage loans it originated or purchased, by CCB, and for certain mortgage loans purchased by CIB. For securitizations holdingof loans serviced by CCB, the Firm has the power to direct the significant activities of the VIE because it is responsible for decisions related to loan modifications and workouts. CCB may also retain an interest upon securitization.
In addition, CIB engages in underwriting and trading activities involving securities issued by Firm-sponsored securitization trusts. As a result, CIB at times retains senior and/or subordinated interests (including residual interests) in residential mortgage securitizations at the time of securitization, and/or reacquires positions in the secondary market in the normal course of business. In certain instances, as a result of the positions retained or reacquired by CIB or held by CCB, when considered together with the servicing arrangements entered into by CCB, the Firm is deemed to be the primary beneficiary of certain securitization trusts. See the table on page 271237 of this Note for more information on consolidated residential mortgage securitizations.
The Firm does not consolidate a residential mortgage securitization (Firm-sponsored or third-party-sponsored) when it is not the servicer (and therefore does not have the power to direct the most significant activities of the trust) or does not hold a beneficial interest in the trust that could potentially be significant to the trust. At December 31, 20152016 and 2014,2015, the Firm did not consolidate the assets of certain Firm-sponsored residential mortgage securitization VIEs, in which the Firm had continuing involvement, primarily due to the fact that the Firm did not hold an interest in these trusts that could potentially be significant to the trusts. See the table on page 271237 of this Note for more information on the consolidated residential mortgage securitizations, and the table on the previous page of this Note for further information on interests held in nonconsolidated residential mortgage securitizations.
Commercial mortgages and other consumer securitizations
CIB originates and securitizes commercial mortgage loans, and engages in underwriting and trading activities involving the securities issued by securitization trusts. CIB may retain unsold senior and/or subordinated interests in commercial mortgage securitizations at the time of securitization but, generally, the Firm does not service commercial loan securitizations. For commercial mortgage securitizations the power to direct the significant activities of the VIE generally is held by the servicer or investors in a specified class of securities (“controlling class”). The Firm generally does not retain an interest in the controlling class in its sponsored commercial mortgage securitization transactions. See the table on page 271237 of this Note for more information on the consolidated commercial mortgage securitizations, and the table on the previous
page of this Note for further information on interests held in nonconsolidated securitizations.
The Firm retains servicing responsibilities for certain student loan securitizations. The Firm has the power to direct the activities of these VIEs through these servicing responsibilities. See the table on page 271237 of this Note for more information on the consolidated student loan securitizations, and the table on the previous page of this Note for further information on interests held in nonconsolidated securitizations.
Re-securitizations
The Firm engages in certain re-securitization transactions in which debt securities are transferred to a VIE in exchange for new beneficial interests. These transfers occur in connection with both agency (Federal National Mortgage Association (“Fannie Mae”), Federal Home Loan Mortgage CompanyCorporation (“Freddie Mac”) and Government National Mortgage Association (“Ginnie Mae)Mae”)) and nonagency (private-label) sponsored VIEs, which may be backed by either residential or commercial mortgages. The Firm’s consolidation analysis is largely dependent on the Firm’s role and interest in the re-securitization trusts. During the years ended December 31, 2016, 2015 2014 and 2013,2014, the Firm transferred $11.2 billion, $21.9 billion $22.7 billion and $25.3$22.7 billion, respectively, of securities to agency VIEs, and $647 million, $777 million and $1.1 billion, and $55 million, respectively, of securities to private-label VIEs.
Most re-securitizations with which the Firm is involved are client-driven transactions in which a specific client or group of clients is seeking a specific return or risk profile. For these transactions, the Firm has concluded that the decision-making power of the entity is shared between the Firm and its clients, considering the joint effort and decisions in establishing the re-securitization trust and its assets, as well as the significant economic interest the client holds in the re-securitization trust; therefore the Firm does not consolidate the re-securitization VIE.
In more limited circumstances, the Firm creates a nonagency re-securitization trust independently and not in conjunction with specific clients. In these circumstances, the Firm is deemed to have the unilateral ability to direct the most significant activities of the re-securitization trust because of the decisions made during the establishment and design of the trust; therefore, the Firm consolidates the re-securitization VIE if the Firm holds an interest that could potentially be significant.
Additionally, the Firm may invest in beneficial interests of third-party re-securitizations and generally purchases these interests in the secondary market. In these circumstances, the Firm does not have the unilateral ability to direct the most significant activities of the re-securitization trust, either because it was not involved in the initial design of the trust, or the Firm is involved with an independent third-party sponsor and demonstrates shared power over the creation of the trust; therefore, the Firm does not consolidate the re-securitization VIE.
|
| | |
268234 | | JPMorgan Chase & Co./20152016 Annual Report |
As of December 31, 20152016 and 2014,2015, total assets (including the notional amount of interest-only securities) of nonconsolidated Firm-sponsored private-label re-securitization entities in which the Firm has continuing involvement were $2.2 billion$875 million and $2.9$2.2 billion, respectively. At December 31, 20152016 and 2014,2015, the Firm held $4.6$2.0 billion and $2.4$4.6 billion, respectively, of interests in nonconsolidated agency re-securitization entities. The Firm’s exposure to non-consolidated private-label re-securitization entities as of December 31, 20152016 and 20142015 was not material. As of December 31, 20152016 and 2014,2015, the Firm did not consolidate any agency re-securitizations. As of December 31, 20152016 and 2014,2015, the Firm consolidated an insignificant amount of assets and liabilities of Firm-sponsored private-label re-securitizations.
Multi-seller conduits
Multi-seller conduit entities are separate bankruptcy remote entities that provide secured financing, collateralized by pools of receivables and other financial assets, to customers of the Firm. The conduits fund their financing facilities through the issuance of highly rated commercial paper. The primary source of repayment of the commercial paper is the cash flows from the pools of assets. In most instances, the assets are structured with deal-specific credit enhancements provided to the conduits by the customers (i.e., sellers) or other third parties. Deal-specific credit enhancements are generally structured to cover a multiple of historical losses expected on the pool of assets, and are typically in the form of overcollateralization provided by the seller. The deal-specific credit enhancements mitigate the Firm’s potential losses on its agreements with the conduits.
To ensure timely repayment of the commercial paper, and to provide the conduits with funding to provide financing to customers in the event that the conduits do not obtain funding in the commercial paper market, each asset pool financed by the conduits has a minimum 100% deal-specific liquidity facility associated with it provided by JPMorgan Chase Bank, N.A. JPMorgan Chase Bank, N.A. also provides the multi-seller conduit vehicles with uncommitted program-wide liquidity facilities and program-wide credit enhancement in the form of standby letters of credit. The amount of program-wide credit enhancement required is based upon commercial paper issuance and approximates 10% of the outstanding balance.balance of commercial paper.
The Firm consolidates its Firm-administered multi-seller conduits, as the Firm has both the power to direct the significant activities of the conduits and a potentially significant economic interest in the conduits. As administrative agent and in its role in structuring transactions, the Firm makes decisions regarding asset types and credit quality, and manages the commercial paper funding needs of the conduits. The Firm’s interests that could potentially be significant to the VIEs include the fees received as administrative agent and liquidity and program-wide credit enhancement provider, as well as the potential exposure created by the liquidity and credit
enhancement facilities provided to the conduits. See page 271237 of this Note for further information on consolidated VIE assets and liabilities.
In the normal course of business, JPMorgan Chase makes markets in and invests in commercial paper issued by the Firm-administered multi-seller conduits. The Firm held $15.7$21.2 billion and $5.7$15.7 billion of the commercial paper issued by the Firm-administered multi-seller conduits at December 31, 20152016 and 20142015, respectively. The Firm’s investments reflect the Firm’s funding needs and capacity and were not driven by market illiquidity. The Firm is not obligated under any agreement to purchase the commercial paper issued by the Firm-administered multi-seller conduits.
Deal-specific liquidity facilities, program-wide liquidity and credit enhancement provided by the Firm have been eliminated in consolidation. The Firm or the Firm-administered multi-seller conduits provide lending-related commitments to certain clients of the Firm-administered multi-seller conduits. The unfunded portion of these commitments waswere $5.67.4 billion and $9.9$5.6 billion at December 31, 20152016 and 20142015, respectively, and are reported as off-balance sheet lending-related commitments. For more information on off-balance sheet lending-related commitments, see Note 29.
VIEs associated with investor intermediation activities
As a financial intermediary, the Firm creates certain types of VIEs and also structures transactions with these VIEs, typically using derivatives, to meet investor needs. The Firm may also provide liquidity and other support. The risks inherent in the derivative instruments or liquidity commitments are managed similarly to other credit, market or liquidity risks to which the Firm is exposed. The principal types of VIEs for which the Firm is engaged in on behalf of clients are municipal bond vehicles.
Municipal bond vehicles
Municipal bond vehicles or tender option bond (“TOB”) trusts allow investors to finance their municipal bond investments at short-term rates. In a typical TOB transaction, the trust purchases highly rated municipal bond(s) of a single issuer and funds the purchase by issuing two types of securities: (1) puttable floating-rate certificates (“Floaters”) and (2) inverse floating-rate residual interests (“Residuals”). The Floaters are typically purchased by money market funds or other short-term investors and may be tendered, with requisite notice, to the TOB trust. The Residuals are retained by the investor seeking to finance its municipal bond investment. TOB transactions where the Residual is held by a third party investor are typically known as Customer TOB trusts, and Non-Customer TOB trusts are transactions where the Residual is retained by the Firm. The Firm serves as sponsor for all Non-Customer TOB transactions and certain Customer TOB transactions established prior to 2014. The Firm may provide various services to a TOB trust, including remarketing agent, liquidity or tender option provider, and/or sponsor.
|
| | |
JPMorgan Chase & Co./20152016 Annual Report | | 269235 |
Notes to consolidated financial statements
J.P. Morgan Securities LLC may serve as a remarketing agent on the Floaters for TOB trusts. The remarketing agent is responsible for establishing the periodic variable rate on the Floaters, conducting the initial placement and remarketing tendered Floaters. The remarketing agent may, but is not obligated to, make markets in Floaters. At December 31, 20152016 and 2014,2015, the Firm held an insignificant amount of these Floaters on its Consolidated balance sheets and did not hold any significant amounts during 2016 and 2015.
JPMorgan Chase Bank, N.A. or J.P. Morgan Securities LLC often serves as the sole liquidity or tender option provider for the TOB trusts. The liquidity provider’s obligation to perform is conditional and is limited by certain events (“Termination Events”), which include bankruptcy or failure to pay by the municipal bond issuer or credit enhancement provider, an event of taxability on the municipal bonds or the immediate downgrade of the municipal bond to below investment grade. In addition, the liquidity provider’s exposure is typically further limited by the high credit quality of the underlying municipal bonds, the excess collateralization in the vehicle, or, in certain transactions, the reimbursement agreements with the Residual holders.
Holders of the Floaters may “put,” or tender, their Floaters to the TOB trust. If the remarketing agent cannot successfully remarket the Floaters to another investor, the liquidity provider either provides a loan to the TOB trust for the TOB trust’s purchase of the Floaters, or it directly purchases the tendered Floaters. In certain Customer TOB transactions, the Firm, as liquidity provider, has entered into a reimbursement agreement with the Residual holder. In those transactions, upon the termination of the vehicle, if the proceeds from the sale of the underlying municipal bonds are not sufficient to repay amounts owed to the Firm, as liquidity or tender option provider, the Firm has recourse to the third party Residual holders for any shortfall. Residual holders with reimbursement agreements are required to post collateral with the Firm to support such reimbursement obligations should the market value of the underlying municipal bonds decline. The Firm does not have any intent to protect Residual holders from potential losses on any of the underlying municipal bonds.
TOB trusts are considered to be variable interest entities. The Firm consolidates Non-Customer TOB trusts because as the Residual holder, the Firm has the right to make decisions that significantly impact the economic performance of the municipal bond vehicle, and haveit has the right to receive benefits and bear losses that could potentially be significant to the municipal bond vehicle. The Firm does not consolidate Customer TOB trusts, since the Firm does not have the power to make decisions that significantly impact the economic performance of the municipal bond vehicle. Certain non-consolidated Customer TOB trusts are sponsored by a third party, and not the Firm. See page 271237 of this Note for further information on consolidated municipal bond vehicles.
The Firm’s exposure to nonconsolidated municipal bond VIEs at December 31, 20152016 and 20142015, including the ratings profile of the VIEs’ assets, was as follows.
| | December 31, (in billions) | Fair value of assets held by VIEs | Liquidity facilities | Excess(a) | Maximum exposure | |
December 31,
(in millions) | | Fair value of assets held by VIEs | Liquidity facilities | Excess/(deficit)(a) | Maximum exposure |
| Nonconsolidated municipal bond vehicles | | |
| 2016 | | $ | 1,096 |
| $ | 662 |
| $ | 434 |
| $ | 662 |
|
| 2015 | $ | 6.9 |
| $ | 3.8 |
| $ | 3.1 |
| $ | 3.8 |
| 6,937 |
| 3,794 |
| 3,143 |
| 3,794 |
|
| 2014 | 11.5 |
| 6.3 |
| 5.2 |
| 6.3 |
| |
|
| | | | | | | | | | | | | | | | | | | | |
| | Ratings profile of VIE assets(b) | Fair value of assets held by VIEs | Wt. avg. expected life of assets (years) |
| | Investment-grade | | Noninvestment- grade |
December 31, (in billions, except where otherwise noted) | AAA to AAA- | AA+ to AA- | A+ to A- | BBB+ to BBB- | | BB+ and below |
| 2015 | $ | 1.7 |
| $ | 4.6 |
| $ | 0.5 |
| $ | — |
| | $ | 0.1 |
| $ | 6.9 |
| 4.0 |
| 2014 | 2.7 |
| 8.4 |
| 0.4 |
| — |
| | — |
| $ | 11.5 |
| 4.9 |
|
| | | | | | | | | | | | | | | | | | | | |
| | Ratings profile of VIE assets(b) | Fair value of assets held by VIEs | Wt. avg. expected life of assets (years) |
| | Investment-grade | | |
December 31,
(in millions, except where otherwise noted) | AAA to AAA- | AA+ to AA- | A+ to A- | BBB+ to BBB- | | Unrated(c) |
| 2016 | $ | 264 |
| $ | 700 |
| $ | 43 |
| $ | 24 |
| | $ | 65 |
| $ | 1,096 |
| 1.6 |
| 2015 | 1,743 |
| 4,631 |
| 448 |
| 24 |
| | 91 |
| $ | 6,937 |
| 4.0 |
| |
| (a) | Represents the excessexcess/(deficit) of the fair values of municipal bond assets available to repay the liquidity facilities, if drawn. |
| |
| (b) | The ratings scale is presented on an S&P-equivalent basis. |
| |
| (c) | These security positions have been defeased by the municipality and no longer carry credit ratings, but are backed by high-quality assets such as U.S. treasuries and cash. |
|
| | |
270236 | | JPMorgan Chase & Co./20152016 Annual Report |
VIEs sponsored by third parties
The Firm enters into transactions with VIEs structured by other parties. These include, for example, acting as a derivative counterparty, liquidity provider, investor, underwriter, placement agent, remarketing agent, trustee or custodian. These transactions are conducted at arm’s-length, and individual credit decisions are based on the analysis of the specific VIE, taking into consideration the
quality of the underlying assets. Where the Firm does not have the power to direct the activities of the VIE that most significantly impact the VIE’s economic performance, or a variable interest that could potentially be significant, the Firm records and reports these positions on its Consolidated balance sheets similarly toin the waysame manner it would record and report positions in respect of any other third-party transaction.
Consolidated VIE assets and liabilities
The following table presents information on assets and liabilities related to VIEs consolidated by the Firm as of December 31, 20152016 and 2014.2015.
| | | | Assets | | Liabilities | Assets | | Liabilities |
December 31, 2015 (in billions)(a) | Trading assets | Loans | Other(c) | Total
assets(d) | | Beneficial interests in
VIE assets(e) | Other(f) | Total
liabilities | |
| VIE program type | | | | |
| December 31, 2016 (in millions) | | Trading assets | Loans | Other(c) | Total
assets(d) | | Beneficial interests in
VIE assets(e) | Other(f) | Total
liabilities |
VIE program type(a) | | | | |
| Firm-sponsored credit card trusts | $ | — |
| $ | 47.4 |
| $ | 0.7 |
| $ | 48.1 |
| | $ | 27.9 |
| $ | — |
| $ | 27.9 |
| $ | — |
| $ | 45,919 |
| $ | 790 |
| $ | 46,709 |
| | $ | 31,181 |
| $ | 18 |
| $ | 31,199 |
|
| Firm-administered multi-seller conduits | — |
| 24.4 |
| — |
| 24.4 |
| | 8.7 |
| — |
| 8.7 |
| — |
| 23,760 |
| 43 |
| 23,803 |
| | 2,719 |
| 33 |
| 2,752 |
|
| Municipal bond vehicles | 2.7 |
| — |
| — |
| 2.7 |
| | 2.6 |
| — |
| 2.6 |
| 2,897 |
| — |
| 8 |
| 2,905 |
| | 2,969 |
| 2 |
| 2,971 |
|
Mortgage securitization entities(b) | 0.8 |
| 1.4 |
| — |
| 2.2 |
| | 0.8 |
| 0.7 |
| 1.5 |
| 143 |
| 4,246 |
| 103 |
| 4,492 |
| | 468 |
| 313 |
| 781 |
|
| Student loan securitization entities | — |
| 1.9 |
| 0.1 |
| 2.0 |
| | 1.8 |
| — |
| 1.8 |
| — |
| 1,689 |
| 59 |
| 1,748 |
| | 1,527 |
| 4 |
| 1,531 |
|
| Other | 0.2 |
| — |
| 2.0 |
| 2.2 |
| | 0.1 |
| 0.1 |
| 0.2 |
| 145 |
| — |
| 2,318 |
| 2,463 |
| | 183 |
| 120 |
| 303 |
|
| Total | $ | 3.7 |
| $ | 75.1 |
| $ | 2.8 |
| $ | 81.6 |
| | $ | 41.9 |
| $ | 0.8 |
| $ | 42.7 |
| $ | 3,185 |
| $ | 75,614 |
| $ | 3,321 |
| $ | 82,120 |
| | $ | 39,047 |
| $ | 490 |
| $ | 39,537 |
|
| | | | | | | |
| | Assets | | Liabilities | Assets | | Liabilities |
December 31, 2014 (in billions)(a) | Trading assets | Loans | Other(c) | Total
assets(d) | | Beneficial interests in
VIE assets(e) | Other(f) | Total
liabilities | |
| VIE program type | | | | |
| December 31, 2015 (in millions) | | Trading assets | Loans | Other(c) | Total
assets(d) | | Beneficial interests in
VIE assets(e) | Other(f) | Total
liabilities |
VIE program type(a) | | | | |
| Firm-sponsored credit card trusts | $ | — |
| $ | 48.3 |
| $ | 0.7 |
| $ | 49.0 |
| | $ | 31.2 |
| $ | — |
| $ | 31.2 |
| $ | — |
| $ | 47,358 |
| $ | 718 |
| $ | 48,076 |
| | $ | 27,906 |
| $ | 15 |
| $ | 27,921 |
|
| Firm-administered multi-seller conduits | — |
| 17.7 |
| 0.1 |
| 17.8 |
| | 12.0 |
| — |
| 12.0 |
| — |
| 24,388 |
| 37 |
| 24,425 |
| | 8,724 |
| 19 |
| 8,743 |
|
| Municipal bond vehicles | 5.3 |
| — |
| — |
| 5.3 |
| | 4.9 |
| — |
| 4.9 |
| 2,686 |
| — |
| 5 |
| 2,691 |
| | 2,597 |
| 1 |
| 2,598 |
|
Mortgage securitization entities(b) | 3.3 |
| 0.7 |
| — |
| 4.0 |
| | 2.1 |
| 0.8 |
| 2.9 |
| 840 |
| 1,433 |
| 27 |
| 2,300 |
| | 777 |
| 643 |
| 1,420 |
|
| Student loan securitization entities | 0.2 |
| 2.2 |
| — |
| 2.4 |
| | 2.1 |
| — |
| 2.1 |
| — |
| 1,925 |
| 62 |
| 1,987 |
| | 1,760 |
| 5 |
| 1,765 |
|
| Other | 0.3 |
| — |
| 1.0 |
| 1.3 |
| | — |
| 0.2 |
| 0.2 |
| 210 |
| — |
| 1,916 |
| 2,126 |
| | 115 |
| 126 |
| 241 |
|
| Total | $ | 9.1 |
| $ | 68.9 |
| $ | 1.8 |
| $ | 79.8 |
| | $ | 52.3 |
| $ | 1.0 |
| $ | 53.3 |
| $ | 3,736 |
| $ | 75,104 |
| $ | 2,765 |
| $ | 81,605 |
| | $ | 41,879 |
| $ | 809 |
| $ | 42,688 |
|
| |
| (a) | Excludes intercompany transactions, which wereare eliminated in consolidation. |
| |
| (b) | Includes residential and commercial mortgage securitizations as well as re-securitizations. |
| |
| (c) | Includes assets classified as cash, AFS securities, and other assets withinon the Consolidated balance sheets. |
| |
| (d) | The assets of the consolidated VIEs included in the program types above are used to settle the liabilities of those entities. The difference between total assets and total liabilities recognized for consolidated VIEs represents the Firm’s interest in the consolidated VIEs for each program type. |
| |
| (e) | The interest-bearing beneficial interest liabilities issued by consolidated VIEs are classified in the line item on the Consolidated balance sheets titled, “Beneficial interests issued by consolidated variable interest entities.” The holders of these beneficial interests do not have recourse to the general credit of JPMorgan Chase. Included in beneficial interests in VIE assets are long-term beneficial interests of $30.6$33.4 billion and $35.4$30.6 billion at December 31, 20152016 and 2014,2015, respectively. The maturities of the long-term beneficial interests as of December 31, 2015,2016, were as follows: $5.1$11.6 billion under one year, $21.6$19.1 billion between one and five years, and $3.9$2.7 billion over five years, all respectively.years. |
| |
| (f) | Includes liabilities classified as accounts payable and other liabilities inon the Consolidated balance sheets. |
|
| | |
JPMorgan Chase & Co./20152016 Annual Report | | 271237 |
Notes to consolidated financial statements
Loan securitizations
The Firm has securitized and sold a variety of loans, including residential mortgage, credit card, student and commercial (primarily related to real estate) loans, as well as debt securities. The purposes of these securitization transactions were to satisfy investor demand and to generate liquidity for the Firm.
For loan securitizations in which the Firm is not required to consolidate the trust, the Firm records the transfer of the loan receivable to the trust as a sale when all of the following accounting criteria for a sale are met: (1) the transferred financial assets are legally isolated from the Firm’s creditors; (2) the transferee or beneficial interest
holder can pledge or exchange the transferred financial assets; and (3) the Firm does not maintain effective control over the transferred financial assets (e.g., the Firm cannot repurchase the transferred assets before their maturity and it does not have the ability to unilaterally cause the holder to return the transferred assets).
For loan securitizations accounted for as a sale, the Firm recognizes a gain or loss based on the difference between the value of proceeds received (including cash, beneficial interests, or servicing assets received) and the carrying value of the assets sold. Gains and losses on securitizations are reported in noninterest revenue.
Securitization activity
The following table provides information related to the Firm’s securitization activities for the years ended December 31, 20152016, 20142015 and 20132014, related to assets held in JPMorgan Chase-sponsoredFirm-sponsored securitization entities that were not consolidated by the Firm, and where sale accounting was achieved based on the accounting rules in effect at the time of the securitization. | | | | 2015 | | 2014 | | 2013 | 2016 | | 2015 | | 2014 |
Year ended December 31, (in millions, except rates)(a) | Residential mortgage(d)(e) | Commercial and other(e)(f) | | Residential mortgage(d)(e) | Commercial and other(e)(f) | | Residential mortgage(d)(e) | Commercial and other(e)(f) | | Residential mortgage(c)(d) | Commercial and other(d)(e) | | Residential mortgage(c)(d) | Commercial and other(d)(e) | | Residential mortgage(c)(d) | Commercial and other(d)(e) | |
| Principal securitized | $ | 3,008 |
| $ | 11,933 |
| | $ | 2,558 |
| $ | 11,911 |
| | $ | 1,404 |
| $ | 11,318 |
| | $ | 1,817 |
| $ | 8,964 |
| | $ | 3,008 |
| $ | 11,933 |
| | $ | 2,558 |
| $ | 11,911 |
| |
All cash flows during the period: | | | | | | | | | | | | |
Proceeds from new securitizations(b) | $ | 3,022 |
| $ | 12,011 |
| | $ | 2,569 |
| $ | 12,079 |
| | $ | 1,410 |
| $ | 11,507 |
| | |
| Proceeds received from loan sales as cash | | $ | — |
| $ | — |
| | $ | — |
| $ | — |
| | $ | — |
| $ | 568 |
| |
| Proceeds received from loan sales as securities | | | | | | | |
| Level 2 | | 1,831 |
| 9,092 |
| | 2,963 |
| 11,968 |
| | 2,384 |
| 11,381 |
| |
| Level 3 | | — |
| 2 |
| | 59 |
| 43 |
| | 185 |
| 130 |
| |
| Total proceeds received from loan sales | | $ | 1,831 |
| $ | 9,094 |
| | $ | 3,022 |
| $ | 12,011 |
| | $ | 2,569 |
| $ | 12,079 |
| |
| Servicing fees collected | 528 |
| 3 |
| | 557 |
| 4 |
| | 576 |
| 5 |
| | 477 |
| 3 |
| | 528 |
| 3 |
| | 557 |
| 4 |
| |
Purchases of previously transferred financial assets (or the underlying collateral)(c) | 3 |
| — |
| | 121 |
| — |
| | 294 |
| — |
| | |
Purchases of previously transferred financial assets (or the underlying collateral)(b) | | 37 |
| — |
| | 3 |
| — |
| | 121 |
| — |
| |
| Cash flows received on interests | 407 |
| 597 |
| | 179 |
| 578 |
| | 156 |
| 325 |
| | 482 |
| 1,441 |
| | 407 |
| 597 |
| | 179 |
| 578 |
| |
| |
| (a) | Excludes re-securitization transactions. |
| |
| (b) | Proceeds from residential mortgage securitizations were received in the form of securities. During 2015, $3.0 billion of residential mortgage securitizations were received as securities and classified in level 2, and $59 million were classified in level 3 of the fair value hierarchy. During 2014, $2.4 billion of residential mortgage securitizations were received as securities and classified in level 2, and $185 million were classified in level 3 of the fair value hierarchy. During 2013, $1.4 billion of residential mortgage securitizations were received as securities and classified in level 2. Proceeds from commercial mortgage securitizations were received as securities and cash. During 2015, $12.0 billion of proceeds from commercial mortgage securitizations were received as securities and classified in level 2, and $43 million of proceeds were classified in level 3 of the fair value hierarchy; and zero of proceeds from commercial mortgage securitizations were received as cash. During 2014, $11.4 billion of proceeds from commercial mortgage securitizations were received as securities and classified in level 2, and $130 million of proceeds were classified in level 3 of the fair value hierarchy: and $568 million of proceeds from commercial mortgage securitizations were received as cash. During 2013, $11.3 billion of commercial mortgage securitizations were classified in level 2 of the fair value hierarchy, and $207 million of proceeds from commercial mortgage securitizations were received as cash.
|
| |
(c) | Includes cash paid by the Firm to reacquire assets from off–balance sheet, nonconsolidated entities – for example, loan repurchases due to representation and warranties and servicer clean-up“clean-up” calls. |
| |
(d)(c) | Includes prime, prime/Alt-A, subprime, and option ARMs. Excludes certain loan securitization transactions entered into with Ginnie Mae, Fannie Mae and Freddie Mac. |
| |
(e)(d) | Key assumptions used to measure residential mortgage retained interests originated during the year included weighted-average life (in years) of 4.5, 4.2 5.9 and 3.95.9 for the years ended December 31, 2016, 2015 2014 and 2013,2014, respectively, and weighted-average discount rate of 2.9%4.2%, 3.4%2.9% and 2.5%3.4% for the years ended December 31, 2016, 2015 2014 and 2013,2014, respectively. Key assumptions used to measure commercial and other retained interests originated during the year included weighted-average life (in years) of 6.2, 6.56.2 and 8.36.5 for the years ended December 31, 2016, 2015 2014, and 2013,2014, respectively, and weighted-average discount rate of 4.1%5.8%, 4.8%4.1% and 3.2%4.8% for the years ended December 31, 2016, 2015 2014 and 2013,2014, respectively. |
| |
(f)(e) | Includes commercial mortgage and student loan securitizations. |
Loans and excess MSRs sold to U.S. government-sponsored enterprises, (“U.S. GSEs”), loans in securitization transactions pursuant to Ginnie Mae guidelines, and other third-party-sponsored securitization entities
In addition to the amounts reported in the securitization activity tables above, the Firm, in the normal course of business, sells originated and purchased mortgage loans and certain originated excess MSRs on a nonrecourse basis, predominantly to U.S. GSEs.government sponsored enterprises (“U.S. GSEs”). These loans and excess MSRs
are sold primarily for the purpose of securitization by the U.S. GSEs, who provide certain guarantee provisions (e.g., credit enhancement of the loans). The Firm also sells loans into securitization transactions pursuant to Ginnie Mae
guidelines; these loans are typically insured or guaranteed by another U.S. government agency. The Firm does not consolidate the securitization vehicles underlying these transactions as it is not the primary beneficiary. For a limited number of loan sales, the Firm is obligated to share a portion of the credit risk associated with the sold loans
|
| | |
272 | | JPMorgan Chase & Co./2015 Annual Report |
with the purchaser. See Note 29 for additional information about the Firm’s loan sales- and securitization-related indemnifications.
See Note 17 for additional information about the impact of the Firm’s sale of certain excess MSRs.
|
| | |
| 238 | | JPMorgan Chase & Co./2016 Annual Report |
The following table summarizes the activities related to loans sold to the U.S. GSEs, loans in securitization transactions pursuant to Ginnie Mae guidelines, and other third-party-sponsored securitization entities.
| | Year ended December 31, (in millions) | 2015 | 2014 | 2013 | 2016 | 2015 | 2014 |
| Carrying value of loans sold | $ | 42,161 |
| $ | 55,802 |
| $ | 166,028 |
| $ | 52,869 |
| $ | 42,161 |
| $ | 55,802 |
|
| Proceeds received from loan sales as cash | $ | 313 |
| $ | 260 |
| $ | 782 |
| $ | 592 |
| $ | 313 |
| $ | 260 |
|
Proceeds from loans sales as securities(a) | 41,615 |
| 55,117 |
| 163,373 |
| 51,852 |
| 41,615 |
| 55,117 |
|
Total proceeds received from loan sales(b) | $ | 41,928 |
| $ | 55,377 |
| $ | 164,155 |
| $ | 52,444 |
| $ | 41,928 |
| $ | 55,377 |
|
Gains on loan sales(c)(d) | $ | 299 |
| $ | 316 |
| $ | 302 |
| $ | 222 |
| $ | 299 |
| $ | 316 |
|
| |
| (a) | Predominantly includes securities from U.S. GSEs and Ginnie Mae that are generally sold shortly after receipt. |
| |
| (b) | Excludes the value of MSRs retained upon the sale of loans. |
| |
| (c) | Gains on loan sales include the value of MSRs. |
| |
(c)(d) | The carrying value of the loans accounted for at fair value approximated the proceeds received upon loan sale. |
Options to repurchase delinquent loans
In addition to the Firm’s obligation to repurchase certain loans due to material breaches of representations and warranties as discussed in Note 29, the Firm also has the option to repurchase delinquent loans that it services for Ginnie Mae loan pools, as well as for other U.S. government agencies under certain arrangements. The Firm typically elects to repurchase delinquent loans from Ginnie Mae loan pools as it continues to service them and/or manage the foreclosure process in accordance with the applicable requirements, and such loans continue to be insured or guaranteed. When the Firm’s repurchase option becomes exercisable, such loans must be reported on the Consolidated balance sheets as a loan with a corresponding liability. As of December 31, 20152016 and 20142015, the Firm had recorded on its Consolidated balance sheets $11.19.6 billion and $12.4$11.1 billion, respectively, of loans that either had been repurchased or for which the Firm had an option to repurchase. Predominantly all of these amounts relate to loans that have been repurchased from Ginnie Mae loan pools. Additionally, at December 31, 2016 and 2015, the Firm had real estate owned of $142 million and $343 million, respectively, and certain foreclosed government-guaranteed residential mortgage loans included in accrued interest and accounts receivable of $1.0 billion and $1.1 billion, respectively, resulting from voluntary repurchases of loans was $343 million and $464 million as of December 31, 2015 and 2014, respectively.loans. Substantially all of these loans and real estate owned are insured or guaranteed by U.S. government agencies. For additional information, refer to Note 14.
Loan delinquencies and liquidation losses
The table below includes information about components of nonconsolidated securitized financial assets held in Firm-sponsored private-label securitization entities, in which the Firm has continuing involvement, and delinquencies as of December 31, 20152016 and 20142015.
| | | | Securitized assets | | 90 days past due | | Liquidation losses | Securitized assets | | 90 days past due | | Liquidation losses |
| As of or for the year ended December 31, (in millions) | 2015 | 2014 | | 2015 | 2014 | | 2015 | 2014 | 2016 | 2015 | | 2016 | 2015 | | 2016 | 2015 |
Securitized loans(a) | | | | | | | | | | |
| Residential mortgage: | | | | | | | | | | |
| Prime/ Alt-A & option ARMs | $ | 66,708 |
| $ | 78,294 |
| | $ | 8,325 |
| $ | 11,363 |
| | $ | 1,946 |
| $ | 2,166 |
| $ | 57,543 |
| $ | 66,708 |
| | $ | 6,169 |
| $ | 8,325 |
| | $ | 1,160 |
| $ | 1,946 |
|
| Subprime | 22,549 |
| 25,659 |
| | 5,448 |
| 6,473 |
| | 1,431 |
| 1,931 |
| 19,903 |
| 22,549 |
| | 4,186 |
| 5,448 |
| | 1,087 |
| 1,431 |
|
| Commercial and other | 80,319 |
| 94,438 |
| | 1,808 |
| 1,522 |
| | 375 |
| 1,267 |
| 71,464 |
| 80,319 |
| | 1,755 |
| 1,808 |
| | 643 |
| 375 |
|
Total loans securitized(b) | $ | 169,576 |
| $ | 198,391 |
| | $ | 15,581 |
| $ | 19,358 |
| | $ | 3,752 |
| $ | 5,364 |
| $ | 148,910 |
| $ | 169,576 |
| | $ | 12,110 |
| $ | 15,581 |
| | $ | 2,890 |
| $ | 3,752 |
|
| |
| (a) | Total assets held in securitization-related SPEs were $233.6$199.6 billion and $254.3$233.6 billion, respectively, at December 31, 20152016 and 20142015. The $169.6148.9 billion and $198.4169.6 billion, respectively, of loans securitized at December 31, 20152016 and 20142015, excludes: $62.446.4 billion and $52.262.4 billion, respectively, of securitized loans in which the Firm has no continuing involvement, and $1.6$4.3 billion and $3.7$1.6 billion, respectively, of loan securitizations consolidated on the Firm’s Consolidated balance sheets at December 31, 20152016 and 20142015. |
| |
(b) | Includes securitized loans that were previously recorded at fair value and classified as trading assets. |
|
| | |
JPMorgan Chase & Co./20152016 Annual Report | | 273239 |
Notes to consolidated financial statements
Note 17 – Goodwill and other intangible assetsMortgage servicing rights
Goodwill
Goodwill is recorded upon completion of a business combination as the difference between the purchase price and the fair value of the net assets acquired. Subsequent to initial recognition, goodwill is not amortized but is tested for impairment during the fourth quarter of each fiscal year, or more often if events or circumstances, such as adverse changes in the business climate, indicate there may be impairment.
The goodwill associated with each business combination is allocated to the related reporting units, which are determined based on how the Firm’s businesses are managed and how they are reviewed by the Firm’s Operating Committee. The following table presents goodwill attributed to the business segments.
| | | December 31, (in millions) | 2015 | 2014 | 2013 | 2016 | 2015 | 2014 |
| Consumer & Community Banking | $ | 30,769 |
| $ | 30,941 |
| $ | 30,985 |
| $ | 30,797 |
| $ | 30,769 |
| $ | 30,941 |
|
| Corporate & Investment Bank | 6,772 |
| 6,780 |
| 6,888 |
| 6,772 |
| 6,772 |
| 6,780 |
|
| Commercial Banking | 2,861 |
| 2,861 |
| 2,862 |
| 2,861 |
| 2,861 |
| 2,861 |
|
| Asset Management | 6,923 |
| 6,964 |
| 6,969 |
| |
| Asset & Wealth Management | | 6,858 |
| 6,923 |
| 6,964 |
|
| Corporate | — |
| 101 |
| 377 |
| — |
| — |
| 101 |
|
| Total goodwill | $ | 47,325 |
| $ | 47,647 |
| $ | 48,081 |
| $ | 47,288 |
| $ | 47,325 |
| $ | 47,647 |
|
The following table presents changes in the carrying amount of goodwill.
| | Year ended December 31, (in millions) | 2015 | | 2014 | | 2013 | 2016 | | 2015 | | 2014 |
| Balance at beginning of period | $ | 47,647 |
| | $ | 48,081 |
| | $ | 48,175 |
| $ | 47,325 |
| | $ | 47,647 |
| | $ | 48,081 |
|
| Changes during the period from: | | | | | | | | | | |
| Business combinations | 28 |
| | 43 |
| | 64 |
| — |
| | 28 |
| | 43 |
|
Dispositions | (160 | ) | (b) | (80 | ) | | (5 | ) | (72 | ) | | (160 | ) | | (80 | ) |
Other(a)(b) | (190 | ) | | (397 | ) | | (153 | ) | 35 |
| | (190 | ) | | (397 | ) |
| Balance at December 31, | $ | 47,325 |
| | $ | 47,647 |
| | $ | 48,081 |
| $ | 47,288 |
| | $ | 47,325 |
| | $ | 47,647 |
|
| |
| (a) | Includes foreign currency translation adjustments, other tax-related adjustments, and, during 2014,For 2016, represents AWM goodwill, impairment associated with the Firm’s Private Equity businesswhich was disposed of $276 million. |
| |
(b) | Includesas part of AWM sales completed in March 2016. For 2015 includes $101 million of Private Equity goodwill, which was disposed of as part of the Private Equity sale completed in January 2015. |
| |
| (b) | Includes foreign currency translation adjustments, other tax-related adjustments, and, for 2014, goodwill impairment associated with the Firm’s Private Equity business of $276 million. |
Impairment testing
The Firm’s goodwill was not impaired at December 31, 2016 and 2015. Further, except for the goodwill related to its heritage Private Equity business of $276 million, the Firm’s goodwill was not impaired at December 31, 2014. $276 million of goodwill was written off during 2014 related to the goodwill impairment associated with the Firm’s Private Equity business. No goodwill was written off due to impairment during 2013.
The goodwill impairment test is performed in two steps. In the first step, the current fair value of each reporting unit is compared with its carrying value, including goodwill. If the fair value is in excess of the carrying value (including goodwill), then the reporting unit’s goodwill is considered not to be impaired. If the fair value is less than the carrying value (including goodwill), then a second step is performed. In the second step, the implied current fair value of the
reporting unit’s goodwill is determined by comparing the fair value of the reporting unit (as determined in step one) to the fair value of the net assets of the reporting unit, as if the reporting unit were being acquired in a business combination. The resulting implied current fair value of goodwill is then compared with the carrying value of the reporting unit’s goodwill. If the carrying value of the goodwill exceeds its implied current fair value, then an impairment charge is recognized for the excess. If the carrying value of goodwill is less than its implied current fair value, then no goodwill impairment is recognized.
The Firm uses the reporting units’ allocated equity plus goodwill capital as a proxy for the carrying amounts of equity for the reporting units in the goodwill impairment testing. Reporting unit equity is determined on a similar basis as the allocation of equity to the Firm’s lines of business, which takes into consideration the capital the business segment would require if it were operating independently, incorporating sufficient capital to address regulatory capital requirements (including Basel III), economic risk measures and capital levels for similarly rated peers. Proposed line of business equity levels are incorporated into the Firm’s annual budget process, which is reviewed by the Firm’s Board of Directors. Allocated equity is further reviewed on a periodic basis and updated as needed.
|
| | |
| 240 | | JPMorgan Chase & Co./2016 Annual Report |
The primary method the Firm uses to estimate the fair value of its reporting units is the income approach. The models projectThis approach projects cash flows for the forecast period and useuses the perpetuity growth method to calculate terminal values. These cash flows and terminal values are then discounted using an appropriate discount rate. Projections of cash flows are based on the reporting units’ earnings forecasts, which include the estimated effects of regulatory and legislative changes, (including, but not limited to the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”)), and which are reviewed with the senior management of the Firm. The discount rate used for each reporting unit represents an estimate of the cost of equity for that reporting unit and is determined considering the Firm’s overall estimated cost of equity (estimated using the Capital Asset Pricing Model), as adjusted for the risk characteristics specific to each reporting unit (for example, for higher levels of risk or uncertainty associated with the business or management’s forecasts and assumptions). To assess the reasonableness of the discount rates used for each reporting unit management compares the discount rate to the estimated cost of equity for publicly traded institutions with similar businesses and risk characteristics. In addition, the weighted average cost of equity (aggregating the various reporting units) is compared with the Firms’ overall estimated cost of equity to ensure reasonableness.
The valuations derived from the discounted cash flow modelsanalysis are then compared with market-based trading and transaction multiples for relevant competitors. Trading and transaction comparables are used as general indicators to
|
| | |
274 | | JPMorgan Chase & Co./2015 Annual Report |
assess the general reasonableness of the estimated fair values, although precise conclusions generally cannot be drawn due to the differences that naturally exist between the Firm’s businesses and competitor institutions. Management also takes into consideration a comparison between the aggregate fair valuevalues of the Firm’s reporting units and JPMorgan Chase’s market capitalization. In evaluating this comparison, management considers several factors, including (a)(i) a control premium that would exist in a market transaction, (b)(ii) factors related to the level of execution risk that would exist at the firmwide level that do not exist at the reporting unit level and (c)(iii) short-term market volatility and other factors that do not directly affect the value of individual reporting units.
Declines in business performance, increases in credit losses, increases in equity capital requirements, as well as deterioration in economic or market conditions, adverse estimates of adverse regulatory or legislative changes or increases in the estimated market cost of equity, could cause the estimated fair values of the Firm’s reporting units or their associated goodwill to decline in the future, which could result in a material impairment charge to earnings in a future period related to some portion of the associated goodwill.
Mortgage servicing rights
Mortgage servicing rightsMSRs represent the fair value of expected future cash flows for performing servicing activities for others. The fair value considers estimated future servicing fees and ancillary revenue, offset by estimated costs to service the loans, and generally declines over time as net servicing cash flows are received, effectively amortizing the MSR asset against contractual servicing and ancillary fee income. MSRs are either purchased from third parties or recognized upon sale or securitization of mortgage loans if servicing is retained.
As permitted by U.S. GAAP, the Firm has elected to account for its MSRs at fair value. The Firm treats its MSRs as a single class of servicing assets based on the availability of market inputs used to measure the fair value of its MSR asset and its treatment of MSRs as one aggregate pool for risk management purposes. The Firm estimates the fair value of MSRs using an option-adjusted spread (“OAS”) model, which projects MSR cash flows over multiple interest rate scenarios in conjunction with the Firm’s prepayment model, and then discounts these cash flows at risk-adjusted rates. The model considers portfolio characteristics, contractually specified servicing fees, prepayment assumptions, delinquency rates, costs to service, late charges and other ancillary revenue, and other economic factors. The Firm compares fair value estimates and assumptions to observable market data where available, and also considers recent market activity and actual portfolio experience.
|
| | |
JPMorgan Chase & Co./20152016 Annual Report | | 275241 |
Notes to consolidated financial statements
The fair value of MSRs is sensitive to changes in interest rates, including their effect on prepayment speeds. MSRs typically decrease in value when interest rates decline because declining interest rates tend to increase prepayments and therefore reduce the expected life of the net servicing cash flows that consist ofcomprise the MSR asset. Conversely, securities (e.g., mortgage-backed securities), principal-only certificates and certain derivatives (i.e.,
those for which the Firm receives fixed-rate interest payments) increase in value when interest rates decline. JPMorgan Chase uses combinations of derivatives and securities to manage the risk of changes in the fair value of MSRs. The intent is to offset any interest-rate related changes in the fair value of MSRs with changes in the fair value of the related risk management instruments.
The following table summarizes MSR activity for the years ended December 31, 20152016, 20142015 and 20132014. | | | As of or for the year ended December 31, (in millions, except where otherwise noted) | 2015 |
| | 2014 |
| | 2013 |
| 2016 |
| | 2015 |
| | 2014 |
| |
| Fair value at beginning of period | $ | 7,436 |
| | $ | 9,614 |
| | $ | 7,614 |
| $ | 6,608 |
| | $ | 7,436 |
| | $ | 9,614 |
| |
| MSR activity: | | | | | | | | | | | |
| Originations of MSRs | 550 |
| | 757 |
| | 2,214 |
| 679 |
| | 550 |
| | 757 |
| |
| Purchase of MSRs | 435 |
| | 11 |
| | 1 |
| — |
| | 435 |
| | 11 |
| |
Disposition of MSRs(a) | (486 | ) | | (209 | ) | | (725 | ) | (109 | ) | | (486 | ) | | (209 | ) | |
| Net additions | 499 |
| | 559 |
| | 1,490 |
| 570 |
| | 499 |
| | 559 |
| |
| | | | | | | | | | | | |
| Changes due to collection/realization of expected cash flows | (922 | ) | | (911 | ) | | (1,102 | ) | (919 | ) | | (922 | ) | | (911 | ) | |
| | | | | | | | | | | | |
| Changes in valuation due to inputs and assumptions: | | | | | | | | | | | |
Changes due to market interest rates and other(b) | (160 | ) | | (1,608 | ) | | 2,122 |
| (72 | ) | | (160 | ) | | (1,608 | ) | |
| Changes in valuation due to other inputs and assumptions: | | | | | | | | | | | |
| Projected cash flows (e.g., cost to service) | (112 | ) | | 133 |
| | 109 |
| (35 | ) | | (112 | ) | | 133 |
| |
| Discount rates | (10 | ) | | (459 | ) | (e) | (78 | ) | 7 |
| | (10 | ) | | (459 | ) | (e) |
Prepayment model changes and other(c) | (123 | ) | | 108 |
| | (541 | ) | (63 | ) | | (123 | ) | | 108 |
| |
| Total changes in valuation due to other inputs and assumptions | (245 | ) | | (218 | ) | | (510 | ) | (91 | ) | | (245 | ) | | (218 | ) | |
| Total changes in valuation due to inputs and assumptions | $ | (405 | ) | | $ | (1,826 | ) | | $ | 1,612 |
| (163 | ) | | (405 | ) | | (1,826 | ) | |
| Fair value at December 31, | $ | 6,608 |
| | $ | 7,436 |
| | $ | 9,614 |
| $ | 6,096 |
| | $ | 6,608 |
| | $ | 7,436 |
| |
Change in unrealized gains/(losses) included in income related to MSRs
held at December 31, | $ | (405 | ) | | $ | (1,826 | ) | | $ | 1,612 |
| $ | (163 | ) | | $ | (405 | ) | | $ | (1,826 | ) | |
| Contractual service fees, late fees and other ancillary fees included in income | $ | 2,533 |
| | $ | 2,884 |
| | $ | 3,309 |
| 2,124 |
| | 2,533 |
| | 2,884 |
| |
| Third-party mortgage loans serviced at December 31, (in billions) | $ | 677 |
| | $ | 756 |
| | $ | 822 |
| 593.3 |
| | 677.0 |
| | 756.1 |
| |
Servicer advances, net of an allowance for uncollectible amounts, at December 31, (in billions)(d) | $ | 6.5 |
| | $ | 8.5 |
| | $ | 9.6 |
| 4.7 |
| | 6.5 |
| | 8.5 |
| |
| |
| (a) | For 2014 and 2013, predominantly representsIncludes excess MSRs transferred to agency-sponsored trusts in exchange for stripped mortgage backed securities (“SMBS”). In each transaction, a portion of the SMBS was acquired by third parties at the transaction date; the Firm acquired and has retained the remaining balance of those SMBS as trading securities. Also includes sales of MSRs. |
| |
| (b) | Represents both the impact of changes in estimated future prepayments due to changes in market interest rates, and the difference between actual and expected prepayments. |
| |
| (c) | Represents changes in prepayments other than those attributable to changes in market interest rates. |
| |
| (d) | Represents amounts the Firm pays as the servicer (e.g., scheduled principal and interest, taxes and insurance), which will generally be reimbursed within a short period of time after the advance from future cash flows from the trust or the underlying loans. The Firm’s credit risk associated with these servicer advances is minimal because reimbursement of the advances is typically senior to all cash payments to investors. In addition, the Firm maintains the right to stop payment to investors if the collateral is insufficient to cover the advance. However, certain of these servicer advances may not be recoverable if they were not made in accordance with applicable rules and agreements. |
| |
| (e) | For the year ending December 31, 2014, the negative impact was primarily related to higher capital allocated to the Mortgage Servicing business, which, in turn, resulted in an increase in the OAS. The resulting OAS assumption was consistent with capital and return requirements the Firm believed a market participant would consider, taking into account factors such as the operating risk environment and regulatory and economic capital requirements. |
|
| | |
276242 | | JPMorgan Chase & Co./20152016 Annual Report |
The following table presents the components of mortgage fees and related income (including the impact of MSR risk management activities) for the years ended December 31, 2016, 2015 2014 and 2013.2014.
| | Year ended December 31, (in millions) | 2015 | | 2014 | | 2013 | 2016 | | 2015 | | 2014 |
| CCB mortgage fees and related income | | | | | | | | | | |
| Net production revenue | $ | 769 |
| | $ | 1,190 |
| | $ | 3,004 |
| $ | 853 |
| | $ | 769 |
| | $ | 1,190 |
|
| | | | | | | | | | | |
| Net mortgage servicing revenue: | | | | | |
| | | | | |
|
| Operating revenue: | | | | | |
| | | | | |
|
| Loan servicing revenue | 2,776 |
| | 3,303 |
| | 3,552 |
| 2,336 |
| | 2,776 |
| | 3,303 |
|
| Changes in MSR asset fair value due to collection/realization of expected cash flows | (917 | ) | | (905 | ) | | (1,094 | ) | (916 | ) | | (917 | ) | | (905 | ) |
| Total operating revenue | 1,859 |
| | 2,398 |
| | 2,458 |
| 1,420 |
| | 1,859 |
| | 2,398 |
|
| Risk management: | | | | | |
| | | | | |
|
Changes in MSR asset fair value due to market interest rates and other(a) | (160 | ) | | (1,606 | ) | | 2,119 |
| (72 | ) | | (160 | ) | | (1,606 | ) |
Other changes in MSR asset fair value due to other inputs and assumptions in model(b) | (245 | ) | | (218 | ) | | (511 | ) | (91 | ) | | (245 | ) | | (218 | ) |
| Change in derivative fair value and other | 288 |
| | 1,796 |
| | (1,875 | ) | 380 |
| | 288 |
| | 1,796 |
|
| Total risk management | (117 | ) | | (28 | ) | | (267 | ) | 217 |
| | (117 | ) | | (28 | ) |
| Total net mortgage servicing revenue | 1,742 |
| | 2,370 |
| | 2,191 |
| 1,637 |
| | 1,742 |
| | 2,370 |
|
| | | | | | | | | | | |
| Total CCB mortgage fees and related income | 2,511 |
| | 3,560 |
| | 5,195 |
| 2,490 |
| | 2,511 |
| | 3,560 |
|
| | | | | | | | | | | |
| All other | 2 |
| | 3 |
| | 10 |
| 1 |
| | 2 |
| | 3 |
|
| Mortgage fees and related income | $ | 2,513 |
| | $ | 3,563 |
| | $ | 5,205 |
| $ | 2,491 |
| | $ | 2,513 |
| | $ | 3,563 |
|
| |
| (a) | Represents both the impact of changes in estimated future prepayments due to changes in market interest rates, and the difference between actual and expected prepayments. |
| |
| (b) | Represents the aggregate impact of changes in model inputs and assumptions such as projected cash flows (e.g., cost to service), discount rates and changes in prepayments other than those attributable to changes in market interest rates (e.g., changes in prepayments due to changes in home prices). |
The table below outlines the key economic assumptions used to determine the fair value of the Firm’s MSRs at December 31, 20152016 and 2014,2015, and outlines the sensitivities of those fair values to immediate adverse changes in those assumptions, as defined below.
| | December 31, (in millions, except rates) | 2015 | | 2014 | 2016 | | 2015 |
| Weighted-average prepayment speed assumption (“CPR”) | 9.81 | % | | 9.80 | % | 9.41 | % | | 9.81 | % |
| Impact on fair value of 10% adverse change | $ | (275 | ) | | $ | (337 | ) | $ | (231 | ) | | $ | (275 | ) |
| Impact on fair value of 20% adverse change | (529 | ) | | (652 | ) | (445 | ) | | (529 | ) |
| Weighted-average option adjusted spread | 9.02 | % | | 9.43 | % | 8.55 | % | | 9.54 | % |
| Impact on fair value of 100 basis points adverse change | $ | (258 | ) | | $ | (300 | ) | $ | (248 | ) | | $ | (258 | ) |
| Impact on fair value of 200 basis points adverse change | (498 | ) | | (578 | ) | (477 | ) | | (498 | ) |
CPR: Constant prepayment rate.
The sensitivity analysis in the preceding table is hypothetical and should be used with caution. Changes in fair value based on variation in assumptions generally cannot be easily extrapolated, because the relationship of the change in the assumptions to the change in fair value are often highly interrelated and may not be linear. In this table, the effect that a change in a particular assumption may have on the fair value is calculated without changing any other assumption. In reality, changes in one factor may result in changes in another, which would either magnify or counteract the impact of the initial change.
|
| | |
JPMorgan Chase & Co./20152016 Annual Report | | 277243 |
Notes to consolidated financial statements
Note 18 – Premises and equipment
Premises and equipment, including leasehold improvements, are carried at cost less accumulated depreciation and amortization. JPMorgan Chase computes depreciation using the straight-line method over the estimated useful life of an asset. For leasehold improvements, the Firm uses the straight-line method computed over the lesser of the remaining term of the leased facility or the estimated useful life of the leased asset.
JPMorgan Chase capitalizes certain costs associated with the acquisition or development of internal-use software. Once the software is ready for its intended use, these costs are amortized on a straight-line basis over the software’s expected useful life and reviewed for impairment on an ongoing basis.
Note 19 – Deposits
At December 31, 20152016 and 2014,2015, noninterest-bearing and interest-bearing deposits were as follows.
|
| | | | | | | |
| December 31, (in millions) | 2015 |
| | 2014 |
|
| U.S. offices | | | |
| Noninterest-bearing | $ | 392,721 |
| | $ | 437,558 |
|
| Interest-bearing | | | |
Demand(a) | 84,088 |
| | 90,319 |
|
Savings(b) | 486,043 |
| | 466,730 |
|
Time (included $10,916 and $7,501 at fair value)(c) | 92,873 |
| | 86,301 |
|
| Total interest-bearing deposits | 663,004 |
| | 643,350 |
|
| Total deposits in U.S. offices | 1,055,725 |
| | 1,080,908 |
|
| Non-U.S. offices | | | |
| Noninterest-bearing | 18,921 |
| | 19,078 |
|
| Interest-bearing | | | |
| Demand | 154,773 |
| | 217,011 |
|
| Savings | 2,157 |
| | 2,673 |
|
Time (included $1,600 and $1,306 at fair value)(c) | 48,139 |
| | 43,757 |
|
| Total interest-bearing deposits | 205,069 |
| | 263,441 |
|
| Total deposits in non-U.S. offices | 223,990 |
| | 282,519 |
|
| Total deposits | $ | 1,279,715 |
| | $ | 1,363,427 |
|
|
| | | | | | | | |
| December 31, (in millions) | 2016 |
|
| 2015 |
| |
| U.S. offices | | | | |
| Noninterest-bearing | $ | 400,831 |
| | $ | 392,721 |
| |
Interest-bearing (included $12,245 and $10,916 at fair value)(a) | 737,949 |
| | 663,004 |
| |
| Total deposits in U.S. offices | 1,138,780 |
| | 1,055,725 |
| |
| Non-U.S. offices | | | | |
| Noninterest-bearing | 14,764 |
| | 14,489 |
| (b) |
Interest-bearing (included $1,667 and $1,600 at fair value)(a) | 221,635 |
| | 209,501 |
| (b) |
| Total deposits in non-U.S. offices | 236,399 |
| | 223,990 |
| |
| Total deposits | $ | 1,375,179 |
| | $ | 1,279,715 |
| |
| |
| (a) | Includes Negotiable Order of Withdrawal (“NOW”) accounts, and certain trust accounts. |
| |
(b) | Includes Money Market Deposit Accounts (“MMDAs”). |
| |
(c) | Includes structured notes classified as deposits for which the fair value option has been elected. For further discussion, see Note 4. |
| |
| (b) | Prior periods have been revised to conform with current period presentation. |
At December 31, 20152016 and 2014,2015, time deposits in denominations of $250,000 or more were as follows.
| | | December 31, (in millions) | | 2015 |
| | 2014 |
| |
| 2016 |
|
| 2015 |
|
| U.S. offices | | $ | 64,519 |
| | $ | 56,983 |
| |
| $ | 26,180 |
|
| $ | 64,519 |
|
| Non-U.S. offices | | 48,091 |
| | 43,719 |
| |
| 55,249 |
|
| 48,091 |
|
| Total | | $ | 112,610 |
| | $ | 100,702 |
| |
| $ | 81,429 |
|
| $ | 112,610 |
|
At December 31, 2015,2016, the maturities of interest-bearing time deposits were as follows.
|
| | | | | | | | | | | | |
| December 31, 2015 | | |
| | |
| | |
|
| (in millions) | | U.S. | | Non-U.S. | | Total |
| 2016 | | 78,246 |
| | 47,791 |
| | 126,037 |
|
| 2017 | | 2,940 |
| | 145 |
| | 3,085 |
|
| 2018 | | 2,172 |
| | 39 |
| | 2,211 |
|
| 2019 | | 1,564 |
| | 47 |
| | 1,611 |
|
| 2020 | | 1,615 |
| | 117 |
| | 1,732 |
|
| After 5 years | | 6,336 |
| | — |
| | 6,336 |
|
| Total | | $ | 92,873 |
| | $ | 48,139 |
| | $ | 141,012 |
|
|
| | | | | | | | | | | | |
December 31, 2016 (in millions) | | |
| | |
| | |
|
| | U.S. | | Non-U.S. |
| | Total |
|
| 2017 | | $ | 31,531 |
| | $ | 54,846 |
| | $ | 86,377 |
|
| 2018 | | 4,433 |
| | 176 |
| | 4,609 |
|
| 2019 | | 2,066 |
| | 68 |
| | 2,134 |
|
| 2020 | | 2,005 |
| | 39 |
| | 2,044 |
|
| 2021 | | 3,988 |
| | 188 |
| | 4,176 |
|
| After 5 years | | 3,889 |
| | — |
| | 3,889 |
|
| Total | | $ | 47,912 |
| | $ | 55,317 |
| | $ | 103,229 |
|
|
| | |
278 | | JPMorgan Chase & Co./2015 Annual Report |
Note 20 – Accounts payable and other liabilities
Accounts payable and other liabilities consist of brokerage payables, which includes payables to customers; payables to brokers,customers, dealers and clearing organizations;organizations, and payables from security purchases that did not settle; income taxes payables; accrued expense, including interest-bearing liabilities; and all other liabilities, including litigation reserves and obligations to return securities received as collateral.
The following table details the components of accounts payable and other liabilities.
| | | December 31, (in millions) | | 2015 |
| | 2014 |
| | 2016 |
| | 2015 |
|
Brokerage payables(a) | | $ | 107,632 |
| | $ | 134,467 |
| | $ | 109,842 |
| | $ | 107,632 |
|
| Accounts payable and other liabilities | | 70,006 |
| | 72,472 |
| | 80,701 |
| | 70,006 |
|
| Total | | $ | 177,638 |
| | $ | 206,939 |
| | $ | 190,543 |
| | $ | 177,638 |
|
|
| | |
(a)244 | Includes payables to customers, brokers, dealers and clearing organizations, and payables from security purchases that did not settle. | JPMorgan Chase & Co./2016 Annual Report |
Note 21 – Long-term debt
JPMorgan Chase issues long-term debt denominated in various currencies, although predominantly U.S. dollars, with both fixed and variable interest rates. Included in senior and subordinated debt below are various equity-linked or other indexed instruments, which the Firm has elected to measure at fair value. Changes in fair value are recorded in principal transactions revenue in the Consolidated statements of income. The following table is a summary of long-term debt carrying values (including unamortized premiums and discounts, issuance costs, valuation adjustments and fair value adjustments, where applicable) by remaining contractual maturity as of December 31, 2015.2016. | | By remaining maturity at December 31, | | 2015 | | 2014 | |
| (in millions, except rates) | | Under 1 year |
| | 1-5 years |
| | After 5 years |
| | Total | | Total | |
By remaining maturity at December 31, (in millions, except rates) | | | 2016 | | 2015 |
| | Under 1 year |
| | 1-5 years |
| | After 5 years |
| | Total | | Total |
| Parent company | | | | | | | | | | | | | | | | | | | | |
| Senior debt: | Fixed rate | $ | 12,014 |
| | $ | 54,200 |
| | $ | 51,544 |
| | $ | 117,758 |
| | $ | 108,529 |
| Fixed rate | $ | 12,109 |
| | $ | 57,938 |
| | $ | 58,920 |
| | $ | 128,967 |
| | $ | 117,758 |
|
| | Variable rate | 15,158 |
| | 23,254 |
| | 5,766 |
| | 44,178 |
| | 42,201 |
| Variable rate | 11,870 |
| | 15,497 |
| | 7,399 |
| | 34,766 |
| | 44,178 |
|
| | Interest rates(a) | 0.16-7.00% | | 0.24-7.25% | | 0.31-6.40% |
| | 0.16-7.25% |
| | 0.18-7.25% |
| Interest rates(a) | 0.09-6.40% | | 0.17-7.25% | | 0.45-6.40% | | 0.09-7.25% | | 0.16-7.25% |
| Subordinated debt: | Fixed rate | $ | — |
| | $ | 2,292 |
| | $ | 13,958 |
| | $ | 16,250 |
| | $ | 16,645 |
| Fixed rate | $ | 2,096 |
| | $ | 152 |
| | $ | 14,563 |
| | $ | 16,811 |
| | $ | 16,250 |
|
| | Variable rate | — |
| | 1,038 |
| | 9 |
| | 1,047 |
| | 3,452 |
| Variable rate | 864 |
| | 372 |
| | 9 |
| | 1,245 |
| | 1,047 |
|
| | Interest rates(a) | — | % | | 1.06-8.53% | | 3.38-8.00% |
| | 1.06-8.53% |
| | 0.48-8.53% | Interest rates(a) | 0.82-6.13% | | 1.93-8.53% | | 3.38-8.00% | | 0.82-8.53% | | 1.06-8.53% |
|
| | Subtotal | $ | 27,172 |
| | $ | 80,784 |
| | $ | 71,277 |
| | $ | 179,233 |
| | $ | 170,827 |
| Subtotal | $ | 26,939 |
| | $ | 73,959 |
| | $ | 80,891 |
| | $ | 181,789 |
| | $ | 179,233 |
|
| Subsidiaries | | | | | | | | | | | | | | | | | | | | |
| Federal Home Loan Banks (“FHLB”) advances: | Fixed rate | $ | 5 |
| | $ | 30 |
| | $ | 156 |
| | $ | 191 |
| | $ | 2,204 |
| |
| Federal Home Loan Banks advances: | | Fixed rate | $ | 5 |
| | $ | 31 |
| | $ | 143 |
| | $ | 179 |
| | $ | 191 |
|
| | Variable rate | 9,700 |
| | 56,690 |
| | 5,000 |
| | 71,390 |
| | 62,790 |
| Variable rate | 11,340 |
| | 57,000 |
| | 11,000 |
| | 79,340 |
| | 71,390 |
|
| | Interest rates(a) | 0.37-0.65% | | 0.17-0.72% | | 0.50-0.70% |
| | 0.17-0.72% | | 0.11-2.04% |
| Interest rates(a) | 0.84-1.01% | | 0.83-1.21% | | 0.41-0.67% | | 0.41-1.21% | | 0.17-0.72% |
|
| Senior debt: | Fixed rate | $ | 631 |
| | $ | 1,288 |
| | $ | 3,631 |
| | $ | 5,550 |
| | $ | 5,751 |
| Fixed rate | $ | 339 |
| | $ | 3,100 |
| | $ | 4,890 |
| | $ | 8,329 |
| | $ | 5,550 |
|
| | Variable rate | 10,493 |
| | 7,456 |
| | 2,639 |
| | 20,588 |
| | 20,082 |
| Variable rate | 4,520 |
| | 11,860 |
| | 2,999 |
| | 19,379 |
| | 20,588 |
|
| | Interest rates(a) | 0.47-1.00% | | 0.53-4.61% | | 1.30-7.28% |
| | 0.47-7.28% |
| | 0.26-8.00% | Interest rates(a) | 1.29-1.49% | | 0.00-7.50% | | 1.30-7.50% |
| | 0.00-7.50% | | 0.47-7.28% |
|
| Subordinated debt: | Fixed rate | $ | 1,472 |
| | $ | 3,647 |
| | $ | 1,461 |
| | $ | 6,580 |
| | $ | 6,928 |
| Fixed rate | $ | 3,562 |
| | $ | — |
| | $ | 322 |
| | $ | 3,884 |
| | $ | 6,580 |
|
| | Variable rate | 1,150 |
| | — |
| | — |
| | 1,150 |
| | 2,362 |
| Variable rate | — |
| | — |
| | — |
| | — |
| | 1,150 |
|
| | Interest rates(a) | 0.83-5.88% | | 6.00 | % | | 4.38-8.25% |
| | 0.83-8.25% |
| | 0.57-8.25% |
| Interest rates(a) | 6.00 | % | | — | % | | 8.25% | | 6.00-8.25% | | 0.83-8.25% |
|
| | Subtotal | $ | 23,451 |
| | $ | 69,111 |
| | $ | 12,887 |
| | $ | 105,449 |
| | $ | 100,117 |
| Subtotal | $ | 19,766 |
| | $ | 71,991 |
| | $ | 19,354 |
| | $ | 111,111 |
| | $ | 105,449 |
|
| Junior subordinated debt: | Fixed rate | $ | — |
| | $ | — |
| | $ | 717 |
| | $ | 717 |
| | $ | 2,185 |
| Fixed rate | $ | — |
| | $ | — |
| | $ | 706 |
| | $ | 706 |
| | $ | 717 |
|
| | Variable rate | — |
| | — |
| | 3,252 |
| | 3,252 |
| | 3,250 |
| Variable rate | — |
| | — |
| | 1,639 |
| | 1,639 |
| | 3,252 |
|
| | Interest rates(a) | — | % | | — | % | | 0.83-8.75% |
| | 0.83-8.75% |
| | 0.73-8.75% |
| Interest rates(a) | — | % | | — | % | | 1.39-8.75% | | 1.39-8.75% | | 0.83-8.75% |
|
| | Subtotal | $ | — |
| | $ | — |
| | $ | 3,969 |
| | $ | 3,969 |
| | $ | 5,435 |
| Subtotal | $ | — |
| | $ | — |
| | $ | 2,345 |
| | $ | 2,345 |
| | $ | 3,969 |
|
Total long-term debt(b)(c)(d) | | $ | 50,623 |
| | $ | 149,895 |
| | $ | 88,133 |
| | $ | 288,651 |
| (f)(g) | $ | 276,379 |
| | $ | 46,705 |
| | $ | 145,950 |
| | $ | 102,590 |
| | $ | 295,245 |
| (f)(g) | $ | 288,651 |
|
| Long-term beneficial interests: | | | | | | | | | | | | | | | | | | | | |
| | Fixed rate | $ | 1,674 |
| | $ | 10,931 |
| | $ | 1,594 |
| | $ | 14,199 |
| | $ | 13,949 |
| |
| Long-term beneficial interests: | | Fixed rate | $ | 5,164 |
| | $ | 12,766 |
| | $ | 748 |
| | $ | 18,678 |
| | $ | 14,199 |
|
| Variable rate | 3,393 |
| | 10,642 |
| | 2,323 |
| | 16,358 |
| | 21,418 |
| Variable rate | 6,438 |
| | 6,281 |
| | 1,962 |
| | 14,681 |
| | 16,358 |
|
| | Interest rates | 0.45-5.16% | | 0.37-5.23% | | 0.00-15.94% |
| | 0.00-15.94% | | 0.05-15.93% | Interest rates | 0.74-5.23% | | 0.98-7.87% | | 0.39-5.94% | | 0.39-7.87% | | 0.00-15.94% |
Total long-term beneficial interests(e) | | $ | 5,067 |
| | $ | 21,573 |
| | $ | 3,917 |
| | $ | 30,557 |
| | $ | 35,367 |
| | $ | 11,602 |
| | $ | 19,047 |
| | $ | 2,710 |
| | $ | 33,359 |
| | $ | 30,557 |
|
| |
| (a) | The interest rates shown are the range of contractual rates in effect at year-end,December 31, 2016 and 2015, respectively, including non-U.S. dollar fixed- and variable-rate issuances, which excludes the effects of the associated derivative instruments used in hedge accounting relationships, if applicable. The use of these derivative instruments modifies the Firm’s exposure to the contractual interest rates disclosed in the table above. Including the effects of the hedge accounting derivatives, the range of modified rates in effect at December 31, 2015,2016, for total long-term debt was (0.19)(0.18)% to 8.88%, versus the contractual range of 0.16%0.00% to 8.75% presented in the table above. The interest rate ranges shown exclude structured notes accounted for at fair value. |
| |
| (b) | Included long-term debt of $76.6$82.2 billion and $69.2$76.6 billion secured by assets totaling $171.6$205.6 billion and $156.7$171.6 billion at December 31, 20152016 and 2014,2015, respectively. The amount of long-term debt secured by assets does not include amounts related to hybrid instruments. |
|
| | |
JPMorgan Chase & Co./2015 Annual Report | | 279 |
Notes to consolidated financial statements
| |
| (c) | Included $33.1$37.7 billion and $30.2$33.1 billion of long-term debt accounted for at fair value at December 31, 20152016 and 2014,2015, respectively. |
| |
| (d) | Included $5.5$7.5 billion and $2.9$5.5 billion of outstanding zero-coupon notes at December 31, 20152016 and 2014,2015, respectively. The aggregate principal amount of these notes at their respective maturities is $16.2$25.1 billion and $7.5$16.2 billion, respectively. The aggregate principal amount reflects the contractual principal payment at maturity, which may exceed the contractual principal payment at the Firm’s next call date, if applicable. |
| |
| (e) | Included on the Consolidated balance sheets in beneficial interests issued by consolidated VIEs. Also included $787$120 million and $2.2 billion$787 million accounted for at fair value at December 31, 20152016 and 2014,2015, respectively. Excluded short-term commercial paper and other short-term beneficial interests of $11.3$5.7 billion and $17.0$11.3 billion at December 31, 20152016 and 2014,2015, respectively. |
| |
| (f) | At December 31, 2015,2016, long-term debt in the aggregate of $39.1$81.8 billion was redeemable at the option of JPMorgan Chase, in whole or in part, prior to maturity, based on the terms specified in the respective instruments. |
| |
| (g) | The aggregate carrying values of debt that matures in each of the five years subsequent to 20152016 is $50.6 billion in 2016, $49.5$46.7 billion in 2017, $39.2$49.4 billion in 2018, $30.4$32.2 billion in 2019, and $30.7$33.8 billion in 2020.2020 and $30.6 billion in 2021. |
|
| | |
| JPMorgan Chase & Co./2016 Annual Report | | 245 |
Notes to consolidated financial statements
The weighted-average contractual interest rates for total long-term debt excluding structured notes accounted for at fair value were 2.34%2.49% and 2.42%2.34% as of December 31, 20152016 and 2014,2015, respectively. In order to modify exposure to interest rate and currency exchange rate movements, JPMorgan Chase utilizes derivative instruments, primarily interest rate and cross-currency interest rate swaps, in conjunction with some of its debt issues. The use of these instruments modifies the Firm’s interest expense on the associated debt. The modified weighted-average interest rates for total long-term debt, including the effects of related derivative instruments, were 1.64%2.01% and 1.50%1.64% as of December 31, 20152016 and 2014,2015, respectively.
JPMorgan Chase & Co. has guaranteed certain long-term debt of its subsidiaries, including both long-term debt and structured notes. These guarantees rank on parity with the Firm’s other unsecured and unsubordinated indebtedness. The amount of such guaranteed long-term debt and structured notes was $152$3.9 billion and $152 million and $352 million at December 31, 20152016 and 2014,2015, respectively.
The Firm’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.
Junior subordinated deferrable interest debentures held by trusts that issued guaranteed capital debt securities
At December 31, 2015,2016, the Firm had outstanding eight wholly owned wholly-owned Delaware statutory business trusts (“issuer trusts”) that had issued trust preferred securities.
The junior subordinated deferrable interest debentures issued by the Firm to the issuer trusts, totaling $2.3 billion and $4.0 billion and $5.4 billion at December 31, 20152016 and 2014,2015, respectively, were reflected on the Firm’s Consolidated balance sheets in long-term debt, and in the table on the preceding page under the caption “Junior subordinated debt.” The Firm also records the common capital securities issued by the issuer trusts in other assets in its Consolidated balance sheets at December 31, 20152016 and 2014.2015. Beginning in 2014, the debentures issued to the issuer trusts by the Firm, less the common capital securities of the issuer trusts, began being phased out from inclusion as Tier 1 capital under Basel III.III and they were fully phased out as of December 31, 2016. As of December 31, 2015, and 2014, $992 million and $2.7 billion of these debentures qualified as Tier 1 capital, whilecapital. As of December 31, 2016 and 2015, $1.4 billion and $3.0 billion, and $2.7 billionrespectively, qualified as Tier 2 capital.
The Firm redeemed $1.6 billion and $1.5 billion of trust preferred securities in the years ended December 31, 2016 and 2015, respectively.
|
| | |
280246 | | JPMorgan Chase & Co./20152016 Annual Report |
The following is a summary of the outstanding trust preferred securities, including unamortized original issue discount, issued by each trust, and the junior subordinated deferrable interest debenture issued to each trust, as of December 31, 2015. |
| | | | | | | | | | | | | | | | | | |
December 31, 2015 (in millions) | | Amount of trust preferred securities issued by trust(a) | | Principal amount of debenture issued to trust(b) | | Issue date | | Stated maturity of trust preferred securities and debentures | | Earliest redemption date | | Interest rate of trust preferred securities and debentures | | Interest payment/distribution dates |
| BANK ONE Capital III | | $ | 474 |
| | $ | 717 |
| | 2000 | | 2030 | | Any time | | 8.75% | | Semiannually |
| Chase Capital II | | 483 |
| | 496 |
| | 1997 | | 2027 | | Any time | | LIBOR + 0.50% | | Quarterly |
| Chase Capital III | | 296 |
| | 304 |
| | 1997 | | 2027 | | Any time | | LIBOR + 0.55% | | Quarterly |
| Chase Capital VI | | 242 |
| | 248 |
| | 1998 | | 2028 | | Any time | | LIBOR + 0.625% | | Quarterly |
| First Chicago NBD Capital I | | 249 |
| | 256 |
| | 1997 | | 2027 | | Any time | | LIBOR + 0.55% | | Quarterly |
| J.P. Morgan Chase Capital XIII | | 466 |
| | 477 |
| | 2004 | | 2034 | | Any time | | LIBOR + 0.95% | | Quarterly |
| JPMorgan Chase Capital XXI | | 836 |
| | 832 |
| | 2007 | | 2037 | | Any time | | LIBOR + 0.95% | | Quarterly |
| JPMorgan Chase Capital XXIII | | 644 |
| | 639 |
| | 2007 | | 2047 | | Any time | | LIBOR + 1.00% | | Quarterly |
| Total | | $ | 3,690 |
| | $ | 3,969 |
| | | | | | | | | | |
| |
(a) | Represents the amount of trust preferred securities issued to the public by each trust, including unamortized original-issue discount. |
| |
(b) | Represents the principal amount of JPMorgan Chase debentures issued to each trust, including unamortized original-issue discount. The principal amount of debentures issued to the trusts includes the impact of hedging and purchase accounting fair value adjustments that were recorded on the Firm’s Consolidated Financial Statements. |
On April 2, 2015, the Firm redeemed $1.5 billion, or 100% of the liquidation amount, of the guaranteed capital debt securities (“trust preferred securities”) of JPMorgan Chase Capital XXIX trust preferred securities. On May 8, 2013, the Firm redeemed approximately $5.0 billion, or 100% of the liquidation amount, of the following eight series of trust preferred securities: JPMorgan Chase Capital X, XI, XII, XIV, XVI, XIX and XXIV, and BANK ONE Capital VI. Other income for the year ended December 31, 2013, reflected a modest loss related to the redemption of trust preferred securities.
|
| | |
JPMorgan Chase & Co./2015 Annual Report | | 281 |
Notes to consolidated financial statements
Note 22 – Preferred stock
At December 31, 20152016 and 20142015, JPMorgan Chase was authorized to issue 200 million shares of preferred stock, in one or more series, with a par value of $1 per share.
In the event of a liquidation or dissolution of the Firm, JPMorgan Chase’s preferred stock then outstanding takes precedence over the Firm’s common stock forwith respect to the payment of dividends and the distribution of assets.
The following is a summary of JPMorgan Chase’s non-cumulative preferred stock outstanding as of December 31, 20152016 and 2014.2015.
|
| | | | | | | | | | | | | | | | | | | | |
| | | Shares at December 31,(a) | | Carrying value
(in millions)
at December 31, | | Issue date | Contractual rate
in effect at
December 31,
2015 | Earliest redemption date | Date at which dividend rate becomes floating | Floating annual
rate of
three-month LIBOR plus: |
| |
| |
| | 2015 | 2014 | 2015 | 2014 |
| | Fixed-rate: | | | | | | | | | | | | |
| | Series O | 125,750 |
| 125,750 |
| | $ | 1,258 |
| $ | 1,258 |
| | 8/27/2012 | 5.500 | % | 9/1/2017 | NA | NA | |
| | Series P | 90,000 |
| 90,000 |
| | 900 |
| 900 |
| | 2/5/2013 | 5.450 |
| 3/1/2018 | NA | NA | |
| | Series T | 92,500 |
| 92,500 |
| | 925 |
| 925 |
| | 1/30/2014 | 6.700 |
| 3/1/2019 | NA | NA | |
| | Series W | 88,000 |
| 88,000 |
| | 880 |
| 880 |
| | 6/23/2014 | 6.300 |
| 9/1/2019 | NA | NA | |
| | Series Y | 143,000 |
| — |
| | 1,430 |
| — |
| | 2/12/2015 | 6.125 |
| 3/1/2020 | NA | NA | |
| | Series AA | 142,500 |
| — |
| | 1,425 |
| — |
| | 6/4/2015 | 6.100 |
| 9/1/2020 | NA | NA | |
| | Series BB | 115,000 |
| — |
| | 1,150 |
| — |
| | 7/29/2015 | 6.150 |
| 9/1/2020 | NA | NA | |
| | | | | | | | | | | | | | |
| | Fixed-to-floating-rate: | | | | | | | | | | | | |
| | Series I | 600,000 |
| 600,000 |
| | 6,000 |
| 6,000 |
| | 4/23/2008 | 7.900 | % | 4/30/2018 | 4/30/2018 | LIBOR + 3.47 | % |
| | Series Q | 150,000 |
| 150,000 |
| | 1,500 |
| 1,500 |
| | 4/23/2013 | 5.150 |
| 5/1/2023 | 5/1/2023 | LIBOR + 3.25 | |
| | Series R | 150,000 |
| 150,000 |
| | 1,500 |
| 1,500 |
| | 7/29/2013 | 6.000 |
| 8/1/2023 | 8/1/2023 | LIBOR + 3.30 | |
| | Series S | 200,000 |
| 200,000 |
| | 2,000 |
| 2,000 |
| | 1/22/2014 | 6.750 |
| 2/1/2024 | 2/1/2024 | LIBOR + 3.78 | |
| | Series U | 100,000 |
| 100,000 |
| | 1,000 |
| 1,000 |
| | 3/10/2014 | 6.125 |
| 4/30/2024 | 4/30/2024 | LIBOR + 3.33 | |
| | Series V | 250,000 |
| 250,000 |
| | 2,500 |
| 2,500 |
| | 6/9/2014 | 5.000 |
| 7/1/2019 | 7/1/2019 | LIBOR + 3.32 | |
| | Series X | 160,000 |
| 160,000 |
| | 1,600 |
| 1,600 |
| | 9/23/2014 | 6.100 |
| 10/1/2024 | 10/1/2024 | LIBOR + 3.33 | |
| | Series Z | 200,000 |
| — |
| | 2,000 |
| — |
| | 4/21/2015 | 5.300 |
| 5/1/2020 | 5/1/2020 | LIBOR + 3.80 | |
| | Total preferred stock | 2,606,750 |
| 2,006,250 |
| | $ | 26,068 |
| $ | 20,063 |
| | | | | | | |
|
| | | | | | | | | | | | | | | |
| | | Shares at December 31, 2016 and 2015(a) | Carrying value at December 31, 2016 and 2015 (in millions) | Issue date | Contractual rate
in effect at
December 31, 2016 | Earliest redemption date | Date at which dividend rate becomes floating | Floating annual
rate of
three-month LIBOR plus: |
| |
| |
| | Fixed-rate: | | | | | | | | | | |
| | Series O | 125,750 |
| | $ | 1,258 |
| | 8/27/2012 | 5.500 | % | | 9/1/2017 | NA | NA |
| | Series P | 90,000 |
| | 900 |
| | 2/5/2013 | 5.450 |
| | 3/1/2018 | NA | NA |
| | Series T | 92,500 |
| | 925 |
| | 1/30/2014 | 6.700 |
| | 3/1/2019 | NA | NA |
| | Series W | 88,000 |
| | 880 |
| | 6/23/2014 | 6.300 |
| | 9/1/2019 | NA | NA |
| | Series Y | 143,000 |
| | 1,430 |
| | 2/12/2015 | 6.125 |
| | 3/1/2020 | NA | NA |
| | Series AA | 142,500 |
| | 1,425 |
| | 6/4/2015 | 6.100 |
| | 9/1/2020 | NA | NA |
| | Series BB | 115,000 |
| | 1,150 |
| | 7/29/2015 | 6.150 |
| | 9/1/2020 | NA | NA |
| | | | | | | | | | | | |
| | Fixed-to-floating-rate: | | | | | | | | | | |
| | Series I | 600,000 |
| | 6,000 |
| | 4/23/2008 | 7.900 | % | | 4/30/2018 | 4/30/2018 | LIBOR + 3.47% |
| | Series Q | 150,000 |
| | 1,500 |
| | 4/23/2013 | 5.150 |
| | 5/1/2023 | 5/1/2023 | LIBOR + 3.25 |
| | Series R | 150,000 |
| | 1,500 |
| | 7/29/2013 | 6.000 |
| | 8/1/2023 | 8/1/2023 | LIBOR + 3.30 |
| | Series S | 200,000 |
| | 2,000 |
| | 1/22/2014 | 6.750 |
| | 2/1/2024 | 2/1/2024 | LIBOR + 3.78 |
| | Series U | 100,000 |
| | 1,000 |
| | 3/10/2014 | 6.125 |
| | 4/30/2024 | 4/30/2024 | LIBOR + 3.33 |
| | Series V | 250,000 |
| | 2,500 |
| | 6/9/2014 | 5.000 |
| | 7/1/2019 | 7/1/2019 | LIBOR + 3.32 |
| | Series X | 160,000 |
| | 1,600 |
| | 9/23/2014 | 6.100 |
| | 10/1/2024 | 10/1/2024 | LIBOR + 3.33 |
| | Series Z | 200,000 |
| | 2,000 |
| | 4/21/2015 | 5.300 |
| | 5/1/2020 | 5/1/2020 | LIBOR + 3.80 |
| | Total preferred stock | 2,606,750 |
| | $ | 26,068 |
| | | | | | | |
| |
| (a) | Represented by depositary shares. |
Each series of preferred stock has a liquidation value and redemption price per share of $10,000, plus any accrued but unpaid dividends.
Dividends on fixed-rate preferred stock are payable quarterly. Dividends on fixed-to-floating-rate preferred stock are payable semiannually while at a fixed rate, and will become payable quarterly after converting to a floating rate.
On September 1, 2013, the Firm redeemed all of the outstanding shares of its 8.625% Non-Cumulative Preferred Stock, Series J at their stated redemption value.
Redemption rights
Each series of the Firm’s preferred stock may be redeemed on any dividend payment date on or after the earliest redemption date for that series. All outstanding preferred stock series except Series I may also be redeemed following a “capital treatment event”, as described in the terms of each series. Any redemption of the Firm’s preferred stock is subject to non-objection from the Board of Governors of the Federal Reserve System (the “Federal Reserve”).
Note 23 – Common stock
At December 31, 20152016 and 20142015, JPMorgan Chase was authorized to issue 9.0 billion shares of common stock with a par value of $1 per share.
Common shares issued (newly issued or distributed from treasury) by JPMorgan Chase during the years ended December 31, 20152016, 20142015 and 20132014 were as follows.
| | Year ended December 31, (in millions) | 2015 |
| 2014 |
| 2013 |
| 2016 |
| 2015 |
| 2014 |
|
| Total issued – balance at January 1 and December 31 | 4,104.9 |
| 4,104.9 |
| 4,104.9 |
| |
| Total issued – balance at January 1 | | 4,104.9 |
| 4,104.9 |
| 4,104.9 |
|
| Treasury – balance at January 1 | (390.1 | ) | (348.8 | ) | (300.9 | ) | (441.4 | ) | (390.1 | ) | (348.8 | ) |
| Purchase of treasury stock | (89.8 | ) | (82.3 | ) | (96.1 | ) | (140.4 | ) | (89.8 | ) | (82.3 | ) |
| Issued from treasury: | | |
| Employee benefits and compensation plans | 32.8 |
| 39.8 |
| 47.1 |
| 26.0 |
| 32.8 |
| 39.8 |
|
| Issuance of shares for warrant exercise | 4.7 |
| — |
| — |
| |
| Warrant exercise | | 11.1 |
| 4.7 |
| — |
|
| Employee stock purchase plans | 1.0 |
| 1.2 |
| 1.1 |
| 1.0 |
| 1.0 |
| 1.2 |
|
| Total issued from treasury | 38.5 |
| 41.0 |
| 48.2 |
| 38.1 |
| 38.5 |
| 41.0 |
|
| Total treasury – balance at December 31 | (441.4 | ) | (390.1 | ) | (348.8 | ) | (543.7 | ) | (441.4 | ) | (390.1 | ) |
| Outstanding at December 31 | 3,663.5 |
| 3,714.8 |
| 3,756.1 |
| 3,561.2 |
| 3,663.5 |
| 3,714.8 |
|
|
| | |
282 | | JPMorgan Chase & Co./20152016 Annual Report | | 247 |
Notes to consolidated financial statements
At December 31, 2016, 2015, 2014, and 2013,2014, respectively, the Firm had 47.424.9 million, 59.847.4 million and 59.8 million warrants outstanding to purchase shares of common stock (the “Warrants”). The Warrants are currently traded on the New York Stock Exchange, and they are exercisable, in whole or in part, at any time and from time to time until October 28, 2018. The original warrant exercise price was $42.42 per share. The number of shares issuable upon the exercise of each warrant and the warrant exercise price is subject to adjustment upon the occurrence of certain events, including, but not limited to, the extent to which regular quarterly cash dividends exceed $0.38 per share. As a result of the Firm’s quarterly common stock dividend exceeding $0.38 per share commencing with the second quarter of 2014, the exercise price of the Warrants has been adjusted each subsequent quarter, and was $42.284 asquarter. As of December 31, 2015. There has been no change in2016 the exercise price was $42.073 and the Warrant share number of shares issuable upon exercise.was 1.01.
On March 11, 2015,June 29, 2016, in conjunction with the Federal Reserve’s release of its 2015 Comprehensive Capital Analysis and Review (“CCAR”)2016 CCAR results, the Firm’s Board of Directors has authorized a $6.4$10.6 billion common equity (i.e., common stock and warrants) repurchase program. As of December 31, 2015, $2.72016, $6.1 billion (on a settlement-date basis) of authorized repurchase capacity remained under the program. This authorization includes shares repurchased to offset issuances under the Firm’s equity-based compensation plans.
The following table sets forth the Firm’s repurchases of common equity for the years ended December 31, 2016, 2015 2014 and 2013,2014, on a settlement-date basis. There were no warrants repurchased during the years ended December 31, 2016, 2015 2014 and 2013.2014.
| | | Year ended December 31, (in millions) | | 2015 |
| | 2014 |
| | 2013 |
| | 2016 |
| | 2015 |
| | 2014 |
|
| Total number of shares of common stock repurchased | | 89.8 |
| | 82.3 |
| | 96.1 |
| | 140.4 |
| | 89.8 |
| | 82.3 |
|
| Aggregate purchase price of common stock repurchases | | $ | 5,616 |
| | $ | 4,760 |
| | $ | 4,789 |
| | $ | 9,082 |
| | $ | 5,616 |
| | $ | 4,760 |
|
The Firm may, from time to time, enter into written trading plans under Rule 10b5-1 of the Securities Exchange Act of 1934 to facilitate repurchases in accordance with the common equity repurchase program. A Rule 10b5-1 repurchase plan allows the Firm to repurchase its equity during periods when it would not otherwise be repurchasing common equity — for example, during internal trading “blackout periods.” All purchases under a Rule 10b5-1 plan must be made according to a predefined plan established when the Firm is not aware of material nonpublic information. For additional information regarding repurchases of the Firm’s equity securities, see Part II,
Item 5: Market for registrant’s common equity, related stockholder matters and issuer purchases of equity securities, on page 2022.
As of December 31, 2015,2016, approximately 195154 million unissued shares of common stock were reserved for issuance under various employee incentive, compensation, option and stock purchase plans, director compensation plans, and the Warrants, as discussed above.Warrants.
Note 24 – Earnings per share
Earnings per share (“EPS”) is calculated under the two-class method under which all earnings (distributed and undistributed) are allocated to each class of common stock and participating securities based on their respective rights to receive dividends. JPMorgan Chase grants restricted stock and RSUs to certain employees under its stock-based compensation programs, which entitle recipients to receive nonforfeitable dividends during the vesting period on a basis equivalent to the dividends paid to holders of common stock; these unvested awards meet the definition of participating securities. Options issued under employee benefit plans that have an antidilutive effect are excluded from the computation of diluted EPS.
The following table presents the calculation of basic and diluted EPS for the years ended December 31, 20152016, 20142015 and 20132014.
| | Year ended December 31, (in millions, except per share amounts) | 2015 | 2014 | 2013 | 2016 | 2015 | 2014 |
| Basic earnings per share | | |
| Net income | $ | 24,442 |
| $ | 21,745 |
| $ | 17,886 |
| $ | 24,733 |
| $ | 24,442 |
| $ | 21,745 |
|
| Less: Preferred stock dividends | 1,515 |
| 1,125 |
| 805 |
| 1,647 |
| 1,515 |
| 1,125 |
|
| Net income applicable to common equity | 22,927 |
| 20,620 |
| 17,081 |
| 23,086 |
| 22,927 |
| 20,620 |
|
| Less: Dividends and undistributed earnings allocated to participating securities | 521 |
| 543 |
| 524 |
| 503 |
| 521 |
| 543 |
|
| Net income applicable to common stockholders | $ | 22,406 |
| $ | 20,077 |
| $ | 16,557 |
| $ | 22,583 |
| $ | 22,406 |
| $ | 20,077 |
|
| | | |
| Total weighted-average basic shares outstanding | 3,700.4 |
| 3,763.5 |
| 3,782.4 |
| 3,618.5 |
| 3,700.4 |
| 3,763.5 |
|
| Net income per share | $ | 6.05 |
| $ | 5.33 |
| $ | 4.38 |
| $ | 6.24 |
| $ | 6.05 |
| $ | 5.33 |
|
| | | |
| Diluted earnings per share | | |
| Net income applicable to common stockholders | $ | 22,406 |
| $ | 20,077 |
| $ | 16,557 |
| $ | 22,583 |
| $ | 22,406 |
| $ | 20,077 |
|
| | | |
| Total weighted-average basic shares outstanding | 3,700.4 |
| 3,763.5 |
| 3,782.4 |
| 3,618.5 |
| 3,700.4 |
| 3,763.5 |
|
Add: Employee stock options, SARs and warrants(a) | 32.4 |
| 34.0 |
| 32.5 |
| |
Add: Employee stock options, SARs, warrants and PSUs(a) | | 31.3 |
| 32.4 |
| 34.0 |
|
Total weighted-average diluted shares outstanding(b) | 3,732.8 |
| 3,797.5 |
| 3,814.9 |
| 3,649.8 |
| 3,732.8 |
| 3,797.5 |
|
| Net income per share | $ | 6.00 |
| $ | 5.29 |
| $ | 4.34 |
| $ | 6.19 |
| $ | 6.00 |
| $ | 5.29 |
|
| |
| (a) | Excluded from the computation of diluted EPS (due to the antidilutive effect) were certain options issued under employee benefit plans. The aggregate number of shares issuable upon the exercise of such options was not material for the years ended December 31, 2016 and 2015 and were 1 million for the year ended December 31, 2015, and 1 million and 6 million for the years ended December 31, 2014 and 2013, respectively. 2014. |
| |
| (b) | Participating securities were included in the calculation of diluted EPS using the two-class method, as this computation was more dilutive than the calculation using the treasury stock method. |
|
| | |
| 248 | | JPMorgan Chase & Co./20152016 Annual Report | | 283 |
Notes to consolidated financial statements
Note 25 – Accumulated other comprehensive income/(loss)
AOCI includes the after-tax change in unrealized gains and losses on investment securities, foreign currency translation adjustments (including the impact of related derivatives), cash flow hedging activities, and net loss and prior service costs/(credit) related to the Firm’s defined benefit pension and OPEB plans.
Effective January 1, 2016, the Firm adopted new accounting guidance related to the recognition and measurement of financial liabilities where the fair value option has been elected. This guidance requires the portion of the total change in fair value caused by changes in the Firm’s own credit risk (“DVA”) to be presented separately in OCI; previously these amounts were recognized in net income. The guidance was required to be applied as of the beginning of the fiscal year of adoption by means of a cumulative effect adjustment to the Consolidated balance sheets, which resulted in a reclassification from retained earnings to AOCI.
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Year ended December 31, | Unrealized gains/(losses) on investment securities(a) | | Translation adjustments, net of hedges | | Cash flow hedges | | Defined benefit pension and OPEB plans | | Accumulated other comprehensive income/(loss) |
| (in millions) |
| Balance at December 31, 2012 | | $ | 6,868 |
|
| | | $ | (95 | ) | | | | $ | 120 |
| | | | $ | (2,791 | ) | | | | $ | 4,102 |
| |
| Net change | | (4,070 | ) | | | | (41 | ) | | | | (259 | ) | | | | 1,467 |
| | | | (2,903 | ) | |
| Balance at December 31, 2013 | | $ | 2,798 |
| | | | $ | (136 | ) | | | | $ | (139 | ) | | | | $ | (1,324 | ) | | | | $ | 1,199 |
| |
| Net change | | 1,975 |
| | | | (11 | ) | | | | 44 |
| | | | (1,018 | ) | | | | 990 |
| |
| Balance at December 31, 2014 | | $ | 4,773 |
| | | | $ | (147 | ) | | | | $ | (95 | ) | | | | $ | (2,342 | ) | | | | $ | 2,189 |
| |
| Net change | | (2,144 | ) | | | | (15 | ) | | | | 51 |
| | | | 111 |
| | | | (1,997 | ) | |
| Balance at December 31, 2015 | | $ | 2,629 |
| | | | $ | (162 | ) | | | | $ | (44 | ) | | | | $ | (2,231 | ) | | | | $ | 192 |
| |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Year ended December 31, (in millions) | Unrealized gains/(losses) on investment securities(a) | | Translation adjustments, net of hedges | | Cash flow hedges | | Defined benefit pension and OPEB plans | DVA on fair value option elected liabilities | Accumulated other comprehensive income/(loss) |
| |
| | Balance at December 31, 2013 | | $ | 2,798 |
|
| | | $ | (136 | ) | | | | $ | (139 | ) | | | | $ | (1,324 | ) | | | NA | | | | $ | 1,199 |
|
| | Net change | | 1,975 |
| | | | (11 | ) | | | | 44 |
| | | | (1,018 | ) | | | NA | | | | 990 |
|
| | Balance at December 31, 2014 | | $ | 4,773 |
| | | | $ | (147 | ) | | | | $ | (95 | ) | | | | $ | (2,342 | ) | | | NA | | | | $ | 2,189 |
|
| | Net change | | (2,144 | ) | | | | (15 | ) | | | | 51 |
| | | | 111 |
| | | NA | | | | (1,997 | ) |
| | Balance at December 31, 2015 | | $ | 2,629 |
| | | | $ | (162 | ) | | | | $ | (44 | ) | | | | $ | (2,231 | ) | | | NA | | | | $ | 192 |
|
| | Cumulative effect of change in accounting principle | | — |
| | | | — |
| | | | — |
| | | | — |
| | | 154 | | | | 154 |
|
| | Net change | | (1,105 | ) | | | | (2 | ) | | | | (56 | ) | | | | (28 | ) | | | (330 | ) | | | (1,521 | ) |
| | Balance at December 31, 2016 | | $ | 1,524 |
| | | | $ | (164 | ) | | | | $ | (100 | ) | | | | $ | (2,259 | ) | | | (176 | ) | | | $ | (1,175 | ) |
| |
| (a) | Represents the after-tax difference between the fair value and amortized cost of securities accounted for as AFS, including as of the date of transfer during 2014, $9 million of net unrealized losses related to AFS securities that were transferred to HTM. Subsequent to transfer, includes any net unamortized unrealized gains and losses related to theAFS securities transferred securities.to HTM. |
The following table presents the before-pre-tax and after-tax changes in the components of other comprehensive income/(loss).OCI. | | | | 2015 | | 2014 | | 2013 | 2016 | | 2015 | | 2014 |
| Year ended December 31, (in millions) | Pretax | | Tax effect | | After-tax | | Pretax | | Tax effect | | After-tax | | Pretax | | Tax effect | | After-tax | Pre-tax | | Tax effect | | After-tax | | Pre-tax | | Tax effect | | After-tax | | Pre-tax | | Tax effect | | After-tax |
| Unrealized gains/(losses) on investment securities: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Net unrealized gains/(losses) arising during the period | $ | (3,315 | ) | | $ | 1,297 |
| | $ | (2,018 | ) | | $ | 3,193 |
| | $ | (1,170 | ) | | $ | 2,023 |
| | $ | (5,987 | ) | | $ | 2,323 |
| | $ | (3,664 | ) | $ | (1,628 | ) | | $ | 611 |
| | $ | (1,017 | ) | | $ | (3,315 | ) | | $ | 1,297 |
| | $ | (2,018 | ) | | $ | 3,193 |
| | $ | (1,170 | ) | | $ | 2,023 |
|
Reclassification adjustment for realized (gains)/losses included in net income(a) | (202 | ) | | 76 |
| | (126 | ) | | (77 | ) | | 29 |
| | (48 | ) | | (667 | ) | | 261 |
| | (406 | ) | (141 | ) | | 53 |
| | (88 | ) | | (202 | ) | | 76 |
| | (126 | ) | | (77 | ) | | 29 |
| | (48 | ) |
| Net change | (3,517 | ) | | 1,373 |
| | (2,144 | ) | | 3,116 |
| | (1,141 | ) | | 1,975 |
| | (6,654 | ) | | 2,584 |
| | (4,070 | ) | (1,769 | ) | | 664 |
| | (1,105 | ) | | (3,517 | ) | | 1,373 |
| | (2,144 | ) | | 3,116 |
| | (1,141 | ) | | 1,975 |
|
| Translation adjustments: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Translation(b) | (1,876 | ) | | 682 |
| | (1,194 | ) | | (1,638 | ) | | 588 |
| | (1,050 | ) | | (807 | ) | | 295 |
| | (512 | ) | (261 | ) | | 99 |
| | (162 | ) | | (1,876 | ) | | 682 |
| | (1,194 | ) | | (1,638 | ) | | 588 |
| | (1,050 | ) |
Hedges(b) | 1,885 |
| | (706 | ) | | 1,179 |
| | 1,698 |
| | (659 | ) | | 1,039 |
| | 773 |
| | (302 | ) | | 471 |
| 262 |
| | (102 | ) | | 160 |
| | 1,885 |
| | (706 | ) | | 1,179 |
| | 1,698 |
| | (659 | ) | | 1,039 |
|
| Net change | 9 |
| | (24 | ) | | (15 | ) | | 60 |
| | (71 | ) | | (11 | ) | | (34 | ) | | (7 | ) | | (41 | ) | 1 |
| | (3 | ) | | (2 | ) | | 9 |
| | (24 | ) | | (15 | ) | | 60 |
| | (71 | ) | | (11 | ) |
| Cash flow hedges: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Net unrealized gains/(losses) arising during the period | (97 | ) | | 35 |
| | (62 | ) | | 98 |
| | (39 | ) | | 59 |
| | (525 | ) | | 206 |
| | (319 | ) | (450 | ) | | 168 |
| | (282 | ) | | (97 | ) | | 35 |
| | (62 | ) | | 98 |
| | (39 | ) | | 59 |
|
Reclassification adjustment for realized (gains)/losses included in net income(e)(d) | 180 |
| | (67 | ) | | 113 |
| | (24 | ) | | 9 |
| | (15 | ) | | 101 |
| | (41 | ) | | 60 |
| 360 |
| | (134 | ) | | 226 |
| | 180 |
| | (67 | ) | | 113 |
| | (24 | ) | | 9 |
| | (15 | ) |
| Net change | 83 |
| | (32 | ) | | 51 |
| | 74 |
| | (30 | ) | | 44 |
| | (424 | ) | | 165 |
| | (259 | ) | (90 | ) | | 34 |
| | (56 | ) | | 83 |
| | (32 | ) | | 51 |
| | 74 |
| | (30 | ) | | 44 |
|
| Defined benefit pension and OPEB plans: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Prior service credits arising during the period | — |
| | — |
| | — |
| | (53 | ) | | 21 |
| | (32 | ) | | — |
| | — |
| | — |
| — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (53 | ) | | 21 |
| | (32 | ) |
| Net gains/(losses) arising during the period | 29 |
| | (47 | ) | | (18 | ) | | (1,697 | ) | | 688 |
| | (1,009 | ) | | 2,055 |
| | (750 | ) | | 1,305 |
| (366 | ) | | 145 |
| | (221 | ) | | 29 |
| | (47 | ) | | (18 | ) | | (1,697 | ) | | 688 |
| | (1,009 | ) |
Reclassification adjustments included in net income(d): | | | | | | | | | | | | | | | | | | |
Reclassification adjustments included in net income(e): | | | | | | | | | | | | | | | | | | |
| Amortization of net loss | 282 |
| | (106 | ) | | 176 |
| | 72 |
| | (29 | ) | | 43 |
| | 321 |
| | (124 | ) | | 197 |
| 257 |
| | (97 | ) | | 160 |
| | 282 |
| | (106 | ) | | 176 |
| | 72 |
| | (29 | ) | | 43 |
|
| Prior service costs/(credits) | (36 | ) | | 14 |
| | (22 | ) | | (44 | ) | | 17 |
| | (27 | ) | | (43 | ) | | 17 |
| | (26 | ) | (36 | ) | | 14 |
| | (22 | ) | | (36 | ) | | 14 |
| | (22 | ) | | (44 | ) | | 17 |
| | (27 | ) |
| Settlement loss/(gain) | | 4 |
| | (1 | ) | | 3 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
| Foreign exchange and other | 33 |
| | (58 | ) | | (25 | ) | | 39 |
| | (32 | ) | | 7 |
| | (14 | ) | | 5 |
| | (9 | ) | 77 |
| | (25 | ) | | 52 |
| | 33 |
| | (58 | ) | | (25 | ) | | 39 |
| | (32 | ) | | 7 |
|
| Net change | 308 |
| | (197 | ) | | 111 |
| | (1,683 | ) | | 665 |
| | (1,018 | ) | | 2,319 |
| | (852 | ) | | 1,467 |
| (64 | ) | | 36 |
| | (28 | ) | | 308 |
| | (197 | ) | | 111 |
| | (1,683 | ) | | 665 |
| | (1,018 | ) |
| DVA on fair value option elected liabilities, net change: | | $ | (529 | ) | | $ | 199 |
| | $ | (330 | ) | | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
|
| Total other comprehensive income/(loss) | $ | (3,117 | ) | | $ | 1,120 |
| | $ | (1,997 | ) | | $ | 1,567 |
| | $ | (577 | ) | | $ | 990 |
| | $ | (4,793 | ) | | $ | 1,890 |
| | $ | (2,903 | ) | $ | (2,451 | ) | | $ | 930 |
| | $ | (1,521 | ) | | $ | (3,117 | ) | | $ | 1,120 |
| | $ | (1,997 | ) | | $ | 1,567 |
| | $ | (577 | ) | | $ | 990 |
|
| |
| (a) | The pretaxpre-tax amount is reported in securities gains in the Consolidated statements of income. |
| |
| (b) | Reclassifications of pretaxpre-tax realized gains/(losses) on translation adjustments and related hedges are reported in other income/expense in the Consolidated statements of income. The amounts were not material for the periods presented. |
| |
| (c) | The pretaxpre-tax amounts are predominantly recorded in net interest income in the Consolidated statements of income. |
| |
| (d) | The pretax amount is reported in compensation expense in the Consolidated statements of income. |
| |
(e) | In 2015, the Firm reclassified approximately $150 million of net losses from AOCI to other income because the Firm determined that it is probable that the forecasted interest payment cash flows will not occur. For additional information, see Note 6. |
| |
| (e) | The pre-tax amount is reported in compensation expense in the Consolidated statements of income. |
|
| | |
284 | | JPMorgan Chase & Co./20152016 Annual Report | | 249 |
Notes to consolidated financial statements
Note 26 – Income taxes
JPMorgan Chase and its eligible subsidiaries file a consolidated U.S. federal income tax return. JPMorgan Chase uses the asset and liability method to provide income taxes on all transactions recorded in the Consolidated Financial Statements. This method requires that income taxes reflect the expected future tax consequences of temporary differences between the carrying amounts of assets or liabilities for book and tax purposes. Accordingly, a deferred tax asset or liability for each temporary difference is determined based on the tax rates that the Firm expects to be in effect when the underlying items of income and expense are realized. JPMorgan Chase’s expense for income taxes includes the current and deferred portions of that expense. A valuation allowance is established to reduce deferred tax assets to the amount the Firm expects to realize.
Due to the inherent complexities arising from the nature of the Firm’s businesses, and from conducting business and being taxed in a substantial number of jurisdictions, significant judgments and estimates are required to be made. Agreement of tax liabilities between JPMorgan Chase and the many tax jurisdictions in which the Firm files tax returns may not be finalized for several years. Thus, the Firm’s final tax-related assets and liabilities may ultimately be different from those currently reported.
Effective tax rate and expense
A reconciliation of the applicable statutory U.S. income tax rate to the effective tax rate for each of the years ended December 31, 2016, 2015 2014 and 2013,2014, is presented in the following table.
| | | Effective tax rate | | | | | | | | | | | | |
| Year ended December 31, | | 2015 |
| | 2014 |
| | 2013 |
| | 2016 |
| | 2015 |
| | 2014 |
|
| Statutory U.S. federal tax rate | | 35.0 | % | | 35.0 | % | | 35.0 | % | | 35.0 | % | | 35.0 | % | | 35.0 | % |
| Increase/(decrease) in tax rate resulting from: | | | | | | | | | | | | |
| U.S. state and local income taxes, net of U.S. federal income tax benefit | | 1.5 |
| | 2.7 |
| | 2.2 |
| | 2.4 |
| | 1.5 |
| | 2.7 |
|
| Tax-exempt income | | (3.3 | ) | | (3.1 | ) | | (3.0 | ) | | (3.1 | ) | | (3.3 | ) | | (3.1 | ) |
Non-U.S. subsidiary earnings(a) | | (3.9 | ) | | (2.0 | ) | | (4.8 | ) | | (1.7 | ) | | (3.9 | ) | | (2.0 | ) |
| Business tax credits | | (3.7 | ) | | (3.3 | ) | | (3.4 | ) | | (3.9 | ) | | (3.7 | ) | | (3.3 | ) |
| Nondeductible legal expense | | 0.8 |
| | 2.3 |
| | 7.8 |
| | 0.3 |
| | 0.8 |
| | 2.3 |
|
| Tax audit resolutions | | (5.7 | ) | | (1.4 | ) | | (0.6 | ) | | — |
| | (5.7 | ) | | (1.4 | ) |
| Other, net | | (0.3 | ) | | (1.0 | ) | | (0.3 | ) | | (0.6 | ) | | (0.3 | ) | | (1.0 | ) |
| Effective tax rate | | 20.4 | % | | 29.2 | % | | 32.9 | % | | 28.4 | % | | 20.4 | % | | 29.2 | % |
| |
| (a) | Predominantly includes earnings of U.K. subsidiaries that are deemed to be reinvested indefinitely. |
The components of income tax expense/(benefit) included in the Consolidated statements of income were as follows for each of the years ended December 31, 2016, 2015, 2014, and 2013.2014.
| | Income tax expense/(benefit) | Year ended December 31, (in millions) | | 2015 |
| | 2014 |
| | 2013 |
| | 2016 |
| | 2015 |
| | 2014 |
|
| Current income tax expense/(benefit) | | | | | | | | | | | | |
| U.S. federal | | $ | 3,160 |
| | $ | 2,382 |
| | $ | (654 | ) | | $ | 2,488 |
| | $ | 3,160 |
| | $ | 2,382 |
|
| Non-U.S. | | 1,220 |
| | 1,353 |
| | 1,308 |
| | 1,760 |
| | 1,220 |
| | 1,353 |
|
| U.S. state and local | | 547 |
| | 857 |
| | (4 | ) | | 904 |
| | 547 |
| | 857 |
|
| Total current income tax expense/(benefit) | | 4,927 |
| | 4,592 |
| | 650 |
| | 5,152 |
| | 4,927 |
| | 4,592 |
|
| Deferred income tax expense/(benefit) | | | | | | | | | | | | |
| U.S. federal | | 1,213 |
| | 3,890 |
| | 7,216 |
| | 4,364 |
| | 1,213 |
| | 3,890 |
|
| Non-U.S. | | (95 | ) | | 71 |
| | 10 |
| | (73 | ) | | (95 | ) | | 71 |
|
| U.S. state and local | | 215 |
| | 401 |
| | 913 |
| | 360 |
| | 215 |
| | 401 |
|
Total deferred income tax expense/(benefit) | | 1,333 |
| | 4,362 |
| | 8,139 |
| | 4,651 |
| | 1,333 |
| | 4,362 |
|
| Total income tax expense | | $ | 6,260 |
| | $ | 8,954 |
| | $ | 8,789 |
| | $ | 9,803 |
| | $ | 6,260 |
| | $ | 8,954 |
|
Total income tax expense includes $55 million, $2.4 billion $451 million and $531$451 million of tax benefits recorded in 2016, 2015, 2014, and 2013,2014, respectively, as a result of tax audit resolutions. In 2013, the relationship between current and deferred income tax expense was largely driven by the reversal of significant deferred tax assets as well as prior-year tax adjustments and audit resolutions.
Tax effect of items recorded in stockholders’ equity
The preceding table does not reflect the tax effect of certain items that are recorded each period directly in stockholders’ equity and certain tax benefits associated with the Firm’s employee stock-based compensation plans.equity. The tax effect of all items recorded directly to stockholders’ equity resulted in aan increase of $925 million in 2016, an increase of $1.5 billion in 2015, and a decrease of $140 million in 2014, and an increase2014. Effective January 1, 2016, the Firm adopted new accounting guidance related to employee share-based payments. As a result of $2.1 billionthe adoption of this new guidance, all excess tax benefits (including tax benefits from dividends or dividend equivalents) on share-based payment awards are recognized within income tax expense in 2013.the Consolidated statements of income. In prior years these tax benefits were recorded as increases to additional paid-in capital.
Results from Non-U.S. earnings
The following table presents the U.S. and non-U.S. components of income before income tax expense for the years ended December 31, 2016, 2015 2014 and 2013.2014.
| | Year ended December 31, (in millions) | | 2015 |
| | 2014 |
| | 2013 |
| | 2016 |
| | 2015 |
| | 2014 |
|
| U.S. | | $ | 23,191 |
| | $ | 23,422 |
| | $ | 17,990 |
| | $ | 26,651 |
| | $ | 23,191 |
| | $ | 23,422 |
|
Non-U.S.(a) | | 7,511 |
| | 7,277 |
| | 8,685 |
| | 7,885 |
| | 7,511 |
| | 7,277 |
|
| Income before income tax expense | | $ | 30,702 |
| | $ | 30,699 |
| | $ | 26,675 |
| | $ | 34,536 |
| | $ | 30,702 |
| | $ | 30,699 |
|
| |
| (a) | For purposes of this table, non-U.S. income is defined as income generated from operations located outside the U.S. |
U.S. federal income taxes have not been provided on the undistributed earnings of certain non-U.S. subsidiaries, to the extent that such earnings have been reinvested abroad for an indefinite period of time. Based on JPMorgan Chase’s
|
| | |
| 250 | | JPMorgan Chase & Co./2016 Annual Report |
ongoing review of the business requirements and capital needs of its non-U.S. subsidiaries, combined with the formation of specific strategies and steps taken to fulfill
|
| | |
JPMorgan Chase & Co./2015 Annual Report | | 285 |
these requirements and needs, the Firm has determined that the undistributed earnings of certain of its subsidiaries would be indefinitely reinvested to fund current and future growth of the related businesses. As management does not intend to use the earnings of these subsidiaries as a source of funding for its U.S. operations, such earnings will not be distributed to the U.S. in the foreseeable future. For 2015,2016, pretax earnings of $3.5$3.8 billion were generated and will be indefinitely reinvested in these subsidiaries. At December 31, 2015,2016, the cumulative amount of undistributed pretax earnings in these subsidiaries were $34.6$38.4 billion. If the Firm were to record a deferred tax liability associated with these undistributed earnings, the amount would be $8.2$8.8 billion at December 31, 2015.2016.
These undistributed earnings are related to subsidiaries located predominantly in the U.K. where the 2015 statutory2016 tax rate was 20.25%28%.
Affordable housing tax credits
The Firm recognized $1.6$1.7 billion, $1.6 billion and $1.5$1.6 billion of tax credits and other tax benefits associated with investments in affordable housing projects within income tax expense for the years 2016, 2015 2014 and 2013,2014, respectively. The amount of amortization of such investments reported in income tax expense under the current period presentation during these years was $1.1$1.2 billion, $1.1 billion and $989 million,$1.1 billion, respectively. The carrying value of these investments, which are reported in other assets on the Firm’s Consolidated balance sheets, was $7.7$8.8 billion and $7.3$7.7 billion at December 31, 20152016 and 2014,2015, respectively. The amount of commitments related to these investments, which are reported in accounts payable and other liabilities on the Firm’s Consolidated balance sheets, was $2.0$2.8 billion and $1.8$2.0 billion at December 31, 2016 and 2015, and 2014, respectively.
Deferred taxes
Deferred income tax expense/(benefit) results from differences between assets and liabilities measured for financial reporting purposes versus income tax return purposes. Deferred tax assets are recognized if, in management’s judgment, their realizability is determined to be more likely than not. If a deferred tax asset is determined to be unrealizable, a valuation allowance is established. The significant components of deferred tax assets and liabilities are reflected in the following table as of December 31, 20152016 and 2014.2015.
| | | December 31, (in millions) | | 2015 |
| | 2014 |
| | 2016 |
| | 2015 |
|
| Deferred tax assets | | | | | | | | |
| Allowance for loan losses | | $ | 5,343 |
| | $ | 5,756 |
| | $ | 5,534 |
| | $ | 5,343 |
|
| Employee benefits | | 2,972 |
| | 3,378 |
| | 2,911 |
| | 2,972 |
|
| Accrued expenses and other | | 7,299 |
| | 8,637 |
| | 6,831 |
| | 7,299 |
|
| Non-U.S. operations | | 5,365 |
| | 5,106 |
| | 5,368 |
| | 5,365 |
|
| Tax attribute carryforwards | | 2,602 |
| | 570 |
| | 2,155 |
| | 2,602 |
|
| Gross deferred tax assets | | 23,581 |
| | 23,447 |
| | 22,799 |
| | 23,581 |
|
| Valuation allowance | | (735 | ) | | (820 | ) | | (785 | ) | | (735 | ) |
| Deferred tax assets, net of valuation allowance | | $ | 22,846 |
| | $ | 22,627 |
| | $ | 22,014 |
| | $ | 22,846 |
|
| Deferred tax liabilities | | | | | | | | |
| Depreciation and amortization | | $ | 3,167 |
| | $ | 3,073 |
| | $ | 3,294 |
| | $ | 3,167 |
|
| Mortgage servicing rights, net of hedges | | 4,968 |
| | 5,533 |
| | 4,807 |
| | 4,968 |
|
| Leasing transactions | | 3,042 |
| | 2,495 |
| | 4,053 |
| | 3,042 |
|
| Non-U.S. operations | | 4,285 |
| | 4,444 |
| | 4,572 |
| | 4,285 |
|
| Other, net | | 4,419 |
| | 5,392 |
| | 5,493 |
| | 4,419 |
|
| Gross deferred tax liabilities | | 19,881 |
| | 20,937 |
| | 22,219 |
| | 19,881 |
|
| Net deferred tax assets | | $ | 2,965 |
| | $ | 1,690 |
| |
| Net deferred tax (liabilities)/assets | | | $ | (205 | ) | | $ | 2,965 |
|
JPMorgan Chase has recorded deferred tax assets of $2.6$2.2 billion at December 31, 2015,2016, in connection with U.S. federal state and local, and non-U.S. net operating loss (“NOL”)NOL carryforwards and foreign tax credit carryforwards. At December 31, 2015,2016, total U.S. federal NOL carryforwards were approximately $5.2$3.8 billion state and local NOL carryforwards were $509 million, and non-U.S. NOL carryforwards were $288$142 million. If not utilized, the U.S. federal NOLsNOL carryforwards will expire between 2025 and 20342036 and the state and local and non-U.S. NOL carryforwards will expire between 2016 andin 2017. Non-U.S.Foreign tax credit carryforwards were $704$776 million and will expire by 2023.between 2022 and 2026.
The valuation allowance at December 31, 2015,2016, was due to losses associated with non-U.S. subsidiaries.
|
| | |
286 | | JPMorgan Chase & Co./20152016 Annual Report | | 251 |
Notes to consolidated financial statements
Unrecognized tax benefits
At December 31, 2016, 2015 2014 and 2013,2014, JPMorgan Chase’s unrecognized tax benefits, excluding related interest expense and penalties, were $3.5 billion, $4.9$3.5 billion and $5.5$4.9 billion, respectively, of which $2.6 billion, $2.1 billion $3.5 billion and $3.7$3.5 billion, respectively, if recognized, would reduce the annual effective tax rate. Included in the amount of unrecognized tax benefits are certain items that would not affect the effective tax rate if they were recognized in the Consolidated statements of income. These unrecognized items include the tax effect of certain temporary differences, the portion of gross state and local unrecognized tax benefits that would be offset by the benefit from associated U.S. federal income tax deductions, and the portion of gross non-U.S. unrecognized tax benefits that would have offsets in other jurisdictions. JPMorgan Chase is presently under audit by a number of taxing authorities, most notably by the Internal Revenue Service as summarized in the Tax examination status table below. As JPMorgan Chase is presently under audit by a number of taxing authorities, it is reasonably possible that over the next 12 months the resolution of these examinations may increase or decrease the gross balance of unrecognized tax benefits by as much as approximately $800 million. Upon settlement of an audit, the change in the unrecognized tax benefit balance would result from payment or income statement recognition.
The following table presents a reconciliation of the beginning and ending amount of unrecognized tax benefits for the years ended December 31, 2016, 2015 2014 and 2013.2014.
| | Year ended December 31, (in millions) | | 2015 |
| | 2014 |
| | 2013 |
| | 2016 |
| | 2015 |
| | 2014 |
|
| Balance at January 1, | | $ | 4,911 |
| | $ | 5,535 |
| | $ | 7,158 |
| | $ | 3,497 |
| | $ | 4,911 |
| | $ | 5,535 |
|
| Increases based on tax positions related to the current period | | 408 |
| | 810 |
| | 542 |
| | 262 |
| | 408 |
| | 810 |
|
| Increases based on tax positions related to prior periods | | 1,028 |
| | 477 |
| | 88 |
| | 583 |
| | 1,028 |
| | 477 |
|
| Decreases based on tax positions related to prior periods | | (2,646 | ) | | (1,902 | ) | | (2,200 | ) | | (785 | ) | | (2,646 | ) | | (1,902 | ) |
| Decreases related to cash settlements with taxing authorities | | (204 | ) | | (9 | ) | | (53 | ) | | (56 | ) | | (204 | ) | | (9 | ) |
| Decreases related to a lapse of applicable statute of limitations | | | (51 | ) | | — |
| | — |
|
| Balance at December 31, | | $ | 3,497 |
| | $ | 4,911 |
| | $ | 5,535 |
| | $ | 3,450 |
| | $ | 3,497 |
| | $ | 4,911 |
|
After-tax interest expense/(benefit) and penalties related to income tax liabilities recognized in income tax expense were $86 million, $(156) million and $17 million in 2016, 2015 and $(184) million in 2015, 2014, and 2013, respectively.
At December 31, 20152016 and 2014,2015, in addition to the liability for unrecognized tax benefits, the Firm had accrued $578$687 million and $1.2 billion,$578 million, respectively, for income tax-related interest and penalties.
Tax examination status
JPMorgan Chase is continually under examination by the Internal Revenue Service, by taxing authorities throughout the world, and by many statesstate and local jurisdictions throughout the U.S. The following table summarizes the status of significant income tax examinations of JPMorgan Chase and its consolidated subsidiaries as of December 31, 2015.2016.
|
| | | | |
December 31, 20152016 | | Periods under examination | | Status |
| JPMorgan Chase – U.S. | | 2003 – 2005 | | Field examination completed; atAt Appellate level |
| JPMorgan Chase – U.S. | | 2006 – 2010 | | Field examination completed, JPMorgan Chase filedof amended returns and intends to appealreturns; certain matters at Appellate level |
| JPMorgan Chase – U.S. | | 2011 – 2013 | | Field Examination |
| JPMorgan Chase – New York State | | 2008 – 2011 | | Field Examination |
| JPMorgan Chase – New York City | | 2008 – 2011 | | Field Examination |
| JPMorgan Chase – California | | 2011 – 2012 | | Field Examination |
| JPMorgan Chase – U.K. | | 2006 – 20122014 | | Field examination of certain select entities |
|
| | |
| 252 | | JPMorgan Chase & Co./20152016 Annual Report | | 287 |
Notes to consolidated financial statements
Note 27 – Restrictions on cash and
intercompany funds transfers
The business of JPMorgan Chase Bank, National Association (“JPMorgan Chase Bank, N.A.”) is subject to examination and regulation by the Office of the Comptroller of the Currency.OCC. The Bank is a member of the U.S. Federal Reserve System, and its deposits in the U.S. are insured by the FDIC.FDIC, subject to applicable limits.
The Federal Reserve requires depository institutions to maintain cash reserves with a Federal Reserve Bank. The average required amount of reserve balances deposited by the Firm’s bank subsidiaries with various Federal Reserve Banks was approximately $19.3 billion and $14.4 billion in 2016 and $10.6 billion in 2015, and 2014, respectively.
Restrictions imposed by U.S. federal law prohibit JPMorgan Chase & Co. (“Parent Company”) and certain of its affiliates from borrowing from banking subsidiaries unless the loans are secured in specified amounts. Such secured loans provided by any banking subsidiary to the Parent Company or to any particular affiliate, together with certain other transactions with such affiliate, (collectively referred to as “covered transactions”), are generally limited to 10% of the banking subsidiary’s total capital, as determined by the risk-based capital guidelines; the aggregate amount of covered transactions between any banking subsidiary and all of its affiliates is limited to 20% of the banking subsidiary’s total capital.
ThePrior to the establishment of the IHC in the fourth quarter of 2016, the principal sources of JPMorgan Chase’sthe Parent Company’s income (on a parent company-only basis) arewere dividends and interest from the various bank and non-bank subsidiaries of the Firm; the principal source of the Parent Company’s income, commencing with the fourth quarter, will be dividends from the IHC and JPMorgan Chase Bank, N.A., and the other banking and nonbankingtwo principal subsidiaries of JPMorgan Chase.the Parent Company. In addition to dividend restrictions set forth in statutes and regulations, the Federal Reserve, the Office of the Comptroller of the Currency (“OCC”)OCC and the FDIC have authority under the Financial Institutions Supervisory Act to prohibit or to limit the payment of dividends by the banking organizations they supervise, including JPMorgan Chase and its subsidiaries that are banks or bank holding companies, if, in the banking regulator’s opinion, payment of a dividend would constitute an unsafe or unsound practice in light of the financial condition of the banking organization.
At January 1, 2016,2017, JPMorgan Chase’s banking subsidiaries could pay, in the aggregate, approximately $25$20 billion in dividends to their respective bank holding companies without the prior approval of their relevant banking regulators. The capacity to pay dividends in 20162017 will be supplemented by the banking subsidiaries’ earnings during the year.
In compliance with rules and regulations established by U.S. and non-U.S. regulators, as of December 31, 20152016 and 2014,2015, cash in the amount of $12.6$13.4 billion and $16.8$13.2 billion, respectively, were segregated in special bank accounts for the benefit of securities and futures brokerage customers. Also, as of December 31, 20152016 and 2014,2015, the Firm had receivables within other assets of $16.2$16.1 billion
and $14.9$15.6 billion, respectively, consisting of cash deposited with clearing organizations for the benefit of customers. Securities with a fair value of $20.0$19.3 billion and $10.1$20.0 billion, respectively, were also restricted in relation to customer activity. In addition, as of December 31, 20152016 and 2014,2015, the Firm had other restricted cash of $3.7$3.6 billion and $3.3$3.1 billion, respectively, primarily representing cash reserves held at non-U.S. central banks and held for other general purposes. Prior period amounts for segregated cash, receivables within other assets, and other restricted cash have been revised to conform with the current period presentation.
Note 28 – Regulatory capital
The Federal Reserve establishes capital requirements, including well-capitalized standards, for the consolidated financial holding company. The OCC establishes similar minimum capital requirements and standards for the Firm’s national banks, including JPMorgan Chase Bank, N.A. and Chase Bank USA, N.A.
Capital rules under Basel III establish minimum capital rules,ratios and overall capital adequacy standards for large and internationally active U.S. bank holding companies and banks, including the Firm and its insured depository institution (“IDI”) subsidiaries, revised, among other things, the definition of capital and introduced a new common equity tier 1 capital (“CET1 capital”) requirement.IDI subsidiaries. Basel III presents two comprehensive methodologies for calculating risk-weighted assets (“RWA”),RWA: a general (Standardized)(standardized) approach which replaced Basel I RWA effective January 1, 2015 (“Basel III Standardized”) and an advanced approach which replaced Basel II RWA (“Basel III Advanced”); and sets out minimum capital ratios and overall capital adequacy standards.. Certain of the requirements of Basel III are subject to phase-in periods that began on January 1, 2014 and continue through the end of 2018 (“transitional period”).
There are three categories of risk-based capital under the Basel III Transitional rules: CET1 capital, as well as Tier 1 capital and Tier 2 capital. CET1 capital predominantly includes common stockholders’ equity (including capital for AOCI related to debt and equity securities classified as AFS as well as for defined benefitdefined-benefit pension and OPEB plans), less certain deductions for goodwill, MSRs and deferred tax assets that arise from NOL and tax credit carryforwards. Tier 1 capital predominantly consists of CET1 capital as well as perpetual preferred stock. Tier 2 capital includes long-term debt qualifying as Tier 2 and qualifying allowance for credit losses. Total capital is Tier 1 capital plus Tier 2 capital.
|
| | |
288 | | JPMorgan Chase & Co./20152016 Annual Report | | 253 |
Notes to consolidated financial statements
The following tables present the regulatory capital, assets and risk-based capital ratios for JPMorgan Chase and its significant national bank subsidiaries under both Basel III Standardized Transitional and Basel III Advanced Transitional at December 31, 20152016 and 2014. 2015.
| | | | JPMorgan Chase & Co.(f) | JPMorgan Chase & Co. |
| | Basel III Standardized Transitional | | Basel III Advanced Transitional | Basel III Standardized Transitional | | Basel III Advanced Transitional |
(in millions, except ratios) | Dec 31,
2015 | | Dec 31,
2014 | | Dec 31,
2015 | | Dec 31,
2014 | Dec 31,
2016 | | Dec 31,
2015 | | Dec 31,
2016 | | Dec 31,
2015 |
| Regulatory capital | |
| | | | |
| | |
| |
| | | | |
| | |
|
| CET1 capital | $ | 175,398 |
| | $ | 164,426 |
| | $ | 175,398 |
| | $ | 164,426 |
| $ | 182,967 |
| | $ | 175,398 |
| | $ | 182,967 |
| | $ | 175,398 |
|
Tier 1 capital(a) | 200,482 |
| | 186,263 |
| | 200,482 |
| | 186,263 |
| 208,112 |
| | 200,482 |
| | 208,112 |
| | 200,482 |
|
| Total capital | 234,413 |
| | 221,117 |
| | 224,616 |
| | 210,576 |
| 239,553 |
| | 234,413 |
| | 228,592 |
| | 224,616 |
|
| | | | | | | | | | | | | | | |
| Assets | |
| | |
| | |
| | |
| |
| | |
| | |
| | |
|
Risk-weighted(b) | 1,465,262 |
| | 1,472,602 |
| | 1,485,336 |
| | 1,608,240 |
| 1,464,981 |
| | 1,465,262 |
| | 1,476,915 |
| | 1,485,336 |
|
Adjusted average(c)(b) | 2,361,177 |
| | 2,464,915 |
| | 2,361,177 |
| | 2,464,915 |
| 2,484,631 |
| | 2,358,471 |
| | 2,484,631 |
| | 2,358,471 |
|
| | | | | | | | | | | | | | | |
Capital ratios(d)(c) | |
| | |
| | |
| | |
| |
| | |
| | |
| | |
|
| CET1 | 12.0 | % | | 11.2 | % | | 11.8 | % | | 10.2 | % | 12.5 | % | | 12.0 | % | | 12.4 | % | | 11.8 | % |
Tier 1(a) | 13.7 |
| | 12.6 |
| | 13.5 |
| | 11.6 |
| 14.2 |
| | 13.7 |
| | 14.1 |
| | 13.5 |
|
| Total | 16.0 |
| | 15.0 |
| | 15.1 |
| | 13.1 |
| 16.4 |
| | 16.0 |
| | 15.5 |
| | 15.1 |
|
Tier 1 leverage(e)(d) | 8.5 |
| | 7.6 |
| | 8.5 |
| | 7.6 |
| 8.4 |
| | 8.5 |
| | 8.4 |
| | 8.5 |
|
| | | | JPMorgan Chase Bank, N.A.(f) | JPMorgan Chase Bank, N.A. |
| | Basel III Standardized Transitional | | Basel III Advanced Transitional | Basel III Standardized Transitional | | Basel III Advanced Transitional |
(in millions, except ratios) | Dec 31,
2015 | | Dec 31,
2014 | | Dec 31,
2015 | | Dec 31,
2014 | Dec 31,
2016 | | Dec 31,
2015 | | Dec 31,
2016 | | Dec 31,
2015 |
| Regulatory capital | |
| | | | |
| | |
| |
| | | | |
| | |
|
| CET1 capital | $ | 168,857 |
| | $ | 156,567 |
| | $ | 168,857 |
| | $ | 156,567 |
| $ | 179,319 |
| | $ | 168,857 |
| | $ | 179,319 |
| | $ | 168,857 |
|
Tier 1 capital(a) | 169,222 |
| | 156,891 |
| | 169,222 |
| | 156,891 |
| 179,341 |
| | 169,222 |
| | 179,341 |
| | 169,222 |
|
| Total capital | 183,262 |
| | 173,322 |
| | 176,423 |
| | 166,326 |
| 191,662 |
| | 183,262 |
| | 184,637 |
| | 176,423 |
|
| |
|
| | | | | | |
|
| | | | | | |
| Assets | |
| | | | |
| | |
| |
| | | | |
| | |
|
Risk-weighted(b) | 1,264,056 |
| | 1,230,358 |
| | 1,249,607 |
| | 1,330,175 |
| 1,293,203 |
| | 1,264,056 |
| | 1,262,613 |
| | 1,249,607 |
|
Adjusted average(c)(b) | 1,913,448 |
| | 1,968,131 |
| | 1,913,448 |
| | 1,968,131 |
| 2,088,851 |
| | 1,910,934 |
| | 2,088,851 |
| | 1,910,934 |
|
| |
|
| | | | | | |
|
| | | | | | |
Capital ratios(d)(c) | |
| | | | |
| | |
| |
| | | | |
| | |
|
| CET1 | 13.4 | % | | 12.7 | % | | 13.5 | % | | 11.8 | % | 13.9 | % | | 13.4 | % | | 14.2 | % | | 13.5 | % |
Tier 1(a) | 13.4 |
| | 12.8 |
| | 13.5 |
| | 11.8 |
| 13.9 |
| | 13.4 |
| | 14.2 |
| | 13.5 |
|
| Total | 14.5 |
| | 14.1 |
| | 14.1 |
| | 12.5 |
| 14.8 |
| | 14.5 |
| | 14.6 |
| | 14.1 |
|
Tier 1 leverage(e)(d) | 8.8 |
| | 8.0 |
| | 8.8 |
| | 8.0 |
| 8.6 |
| | 8.9 |
| | 8.6 |
| | 8.9 |
|
| | | | Chase Bank USA, N.A.(f) | Chase Bank USA, N.A. |
| | Basel III Standardized Transitional | | Basel III Advanced Transitional | Basel III Standardized Transitional | | Basel III Advanced Transitional |
(in millions, except ratios) | Dec 31,
2015 | | Dec 31,
2014 | | Dec 31,
2015 | | Dec 31,
2014 | Dec 31,
2016 | | Dec 31,
2015 | | Dec 31,
2016 | | Dec 31,
2015 |
| Regulatory capital | | | | | | | | | | | | | | |
| CET1 capital | $ | 15,419 |
| | $ | 14,556 |
| | $ | 15,419 |
| | $ | 14,556 |
| $ | 16,784 |
| | $ | 15,419 |
| | $ | 16,784 |
| | $ | 15,419 |
|
Tier 1 capital(a) | 15,419 |
| | 14,556 |
| | 15,419 |
| | 14,556 |
| 16,784 |
| | 15,419 |
| | 16,784 |
| | 15,419 |
|
| Total capital | 21,418 |
| | 20,517 |
| | 20,069 |
| | 19,206 |
| 22,862 |
| | 21,418 |
| | 21,434 |
| | 20,069 |
|
| | | | | | | | | | | | | | | |
| Assets | | | | | | | | | | | | | | |
Risk-weighted(b) | 105,807 |
| | 103,468 |
| | 181,775 |
| | 157,565 |
| 112,297 |
| | 105,807 |
| | 186,378 |
| | 181,775 |
|
Adjusted average(c)(b) | 134,152 |
| | 128,111 |
| | 134,152 |
| | 128,111 |
| 120,304 |
| | 134,152 |
| | 120,304 |
| | 134,152 |
|
| | | | | | | | | | | | | | | |
Capital ratios(d)(c) | | | | | | | | | | | | | | |
| CET1 | 14.6 | % | | 14.1 | % | | 8.5 | % | | 9.2 | % | 14.9 | % | | 14.6 | % | | 9.0 | % | | 8.5 | % |
Tier 1(a) | 14.6 |
| | 14.1 |
| | 8.5 |
| | 9.2 |
| 14.9 |
| | 14.6 |
| | 9.0 |
| | 8.5 |
|
| Total | 20.2 |
| | 19.8 |
| | 11.0 |
| | 12.2 |
| 20.4 |
| | 20.2 |
| | 11.5 |
| | 11.0 |
|
Tier 1 leverage(e)(d) | 11.5 |
| | 11.4 |
| | 11.5 |
| | 11.4 |
| 14.0 |
| | 11.5 |
| | 14.0 |
| | 11.5 |
|
| |
| (a) | AtIncludes the deduction associated with the permissible holdings of covered funds (as defined by the Volcker Rule) acquired after December 31, 2015, trust preferred securities included in Basel III Tier 1 capital were $992 million and $420 million for JPMorgan Chase and JPMorgan Chase Bank, N.A., respectively. At2013. The deduction was not material as of December 31, 2015 Chase Bank USA, N.A. had no trust preferred securities.2016. |
| |
| (b) | Effective January 1, 2015, the Basel III Standardized RWA is calculated under the Basel III definition of the Standardized approach. Prior periods were based on Basel I (inclusive of Basel 2.5). |
| |
(c) | Adjusted average assets, for purposes of calculating the Tier 1 leverage ratio, includes total quarterly average assets adjusted for unrealized gains/(losses) on AFS securities, less deductions for goodwill and other intangible assets, defined benefit pension plan assets, and deferred tax assets related to net operating lossNOL and tax credit carryforwards. |
| |
(d)(c) | For each of the risk-based capital ratios, the capital adequacy of the Firm and its national bank subsidiaries are evaluated against the Basel III approach, Standardized or Advanced, resulting in the lower ratio (the “Collins Floor”), as required by the Collins Amendment of the Dodd-Frank Act. |
| |
(e)(d) | The Tier 1 leverage ratio is not a risk-based measure of capital. This ratio is calculated by dividing Tier 1 capital by adjusted average assets. |
| |
(f) | Asset and capital amounts for JPMorgan Chase’s banking subsidiaries reflect intercompany transactions; whereas the respective amounts for JPMorgan Chase reflect the elimination of intercompany transactions. |
| |
| Note: | Rating agencies allow measures of capital to be adjusted upward for deferred tax liabilities, which have resulted from both non-taxable business combinations and from tax-deductible goodwill. The Firm had deferred tax liabilities resulting from non-taxable business combinations of $105$83 million and $130$105 million at December 31, 2015,2016, and 2014,2015, respectively; and deferred tax liabilities resulting from tax-deductible goodwill of $3.0$3.1 billion and $2.7$3.0 billion at December 31, 2015,2016, and 2014,2015, respectively. |
|
| | |
JPMorgan Chase & Co./2015 Annual Report | | 289 |
Notes to consolidated financial statements
Under the risk-based capital guidelines of the Federal Reserve, JPMorgan Chase is required to maintain minimum ratios of CET1, Tier 1 and Total capital to risk-weighted assets,RWA, as well as a minimum leverage ratiosratio (which areis defined as Tier 1 capital divided by adjusted quarterly average assets). Failure to meet these minimum requirements could cause the Federal Reserve to take action. BankNational bank subsidiaries also are subject to these capital requirements by their respective primary regulators. regulators.
|
| | |
| 254 | | JPMorgan Chase & Co./2016 Annual Report |
The following table presents the minimum ratios to which the Firm and its national bank subsidiaries are subject as of December 31, 2015.2016.
| | | | Minimum capital ratios(a) | | Well-capitalized ratios | Minimum capital ratios | Well-capitalized ratios |
| | | BHC(b) | | IDI(c) | BHC(a) | IDI(b) | BHC(c) | | IDI(d) |
| Capital ratios | | | | | | | | | |
| CET1 | 4.5 | % | | — | % | | 6.5 | % | 6.25 | % | 5.125 | % | — | % | | 6.5 | % |
| Tier 1 | 6.0 |
| | 6.0 |
| | 8.0 |
| 7.75 |
| 6.625 |
| 6.0 |
| | 8.0 |
|
| Total | 8.0 |
| | 10.0 |
| | 10.0 |
| 9.75 |
| 8.625 |
| 10.0 |
| | 10.0 |
|
| Tier 1 leverage | 4.0 |
| | — |
| | 5.0 |
| 4.0 |
| 4.0 |
| — |
| | 5.0 |
|
Note: The ratios presented in the table above are as defined by the regulations issued by the Federal Reserve, OCC and FDIC and to which the Firm and its national bank subsidiaries are subject.
| |
| (a) | As defined byRepresents the regulations issued by the Federal Reserve, OCC and FDIC andtransitional minimum capital ratios applicable to which the Firm under Basel III at December 31, 2016. Commencing in the first quarter of 2016, the CET1 minimum capital ratio includes 0.625% resulting from the phase in of the Firm’s 2.5% capital conservation buffer, and its national bank subsidiaries are subject.1.125% resulting from the phase in of the Firm’s 4.5% GSIB surcharge. |
| |
| (b) | Represents requirements for JPMorgan Chase’s banking subsidiaries. The CET1 minimum capital ratio includes 0.625% resulting from the phase in of the 2.5% capital conservation buffer that is applicable to the banking subsidiaries. The banking subsidiaries are not subject to the GSIB surcharge. |
| |
| (c) | Represents requirements for bank holding companies pursuant to regulations issued by the Federal Reserve. |
| |
(c)(d) | Represents requirements for bank subsidiaries pursuant to regulations issued under the FDIC Improvement Act. |
As of December 31, 20152016 and 2014,2015, JPMorgan Chase and all of its banking subsidiaries were well-capitalized and met all capital requirements to which each was subject.
Note 29 – Off–balance sheet lending-related
financial instruments, guarantees, and other commitments
JPMorgan Chase provides lending-related financial instruments (e.g., commitments and guarantees) to meet the financing needs of its customers. The contractual amount of these financial instruments represents the maximum possible credit risk to the Firm should the counterparty draw upon the commitment or the Firm be required to fulfill its obligation under the guarantee, and should the counterparty subsequently fail to perform according to the terms of the contract. Most of these commitments and guarantees are refinanced, extended, cancelled, or expire without being drawn or a default occurring. As a result, the total contractual amount of these instruments is not, in the Firm’s view, representative of its actual future credit exposure or funding requirements.
To provide for probable credit losses inherent in wholesale and certain consumer lending-commitments, an allowance for credit losses on lending-related commitments is maintained. See Note 15 for further information regarding the allowance for credit losses on lending-related commitments. The following table summarizes the contractual amounts and carrying values of off-balance sheet lending-related financial instruments, guarantees and other commitments at December 31, 20152016 and 2014.2015. The amounts in the table below for credit card and home equity lending-related commitments represent the total available credit for these products. The Firm has not experienced, and does not anticipate, that all available lines of credit for these products will be utilized at the same time. The Firm can reduce or cancel credit card lines of credit by providing the borrower notice or, in some cases as permitted by law, without notice. In addition, the Firm typically closes credit card lines when the borrower is 60 days or more past due. The Firm may reduce or close home equity lines of creditHELOCs when there are significant decreases in the value of the underlying property, or when there has been a demonstrable decline in the creditworthiness of the borrower.
|
| | |
290 | | JPMorgan Chase & Co./20152016 Annual Report | | 255 |
Notes to consolidated financial statements
| | | Off–balance sheet lending-related financial instruments, guarantees and other commitments | Off–balance sheet lending-related financial instruments, guarantees and other commitments | | Off–balance sheet lending-related financial instruments, guarantees and other commitments | |
| | Contractual amount | | Carrying value(j) | Contractual amount | | Carrying value(g) |
| | 2015 | | 2014 | | 2015 | 2014 | 2016 | | 2015 | | 2016 | 2015 |
By remaining maturity at December 31, (in millions) | Expires in 1 year or less | Expires after
1 year through
3 years | Expires after
3 years through
5 years | Expires after 5 years | Total | | Total | | | Expires in 1 year or less | Expires after
1 year through
3 years | Expires after
3 years through
5 years | Expires after 5 years | Total | | Total | | |
| Lending-related | | | | | | | | | | |
| Consumer, excluding credit card: | | | | | | | | | | |
| Home equity – senior lien | $ | 1,546 |
| $ | 3,817 |
| $ | 726 |
| $ | 4,743 |
| $ | 10,832 |
| | $ | 11,807 |
| | $ | — |
| $ | — |
| |
| Home equity – junior lien | 2,375 |
| 4,354 |
| 657 |
| 4,538 |
| 11,924 |
| | 14,859 |
| | — |
| — |
| |
Prime mortgage(a) | 12,992 |
| — |
| — |
| — |
| 12,992 |
| | 8,579 |
| | — |
| — |
| |
| Subprime mortgage | — |
| — |
| — |
| — |
| — |
| | — |
| | — |
| — |
| |
| Home equity | | $ | 4,247 |
| $ | 3,578 |
| $ | 1,035 |
| $ | 12,854 |
| $ | 21,714 |
| | $ | 22,756 |
| | $ | 12 |
| $ | — |
|
Residential mortgage(a) | | 11,745 |
| — |
| — |
| — |
| 11,745 |
| | 12,992 |
| | — |
| — |
|
| Auto | 8,907 |
| 1,160 |
| 80 |
| 90 |
| 10,237 |
| | 10,462 |
| | 2 |
| 2 |
| 7,807 |
| 461 |
| 173 |
| 27 |
| 8,468 |
| | 10,237 |
| | 2 |
| 2 |
|
| Business banking | 11,085 |
| 699 |
| 92 |
| 475 |
| 12,351 |
| | 11,894 |
| | 12 |
| 11 |
| 11,485 |
| 673 |
| 122 |
| 453 |
| 12,733 |
| | 12,351 |
| | 12 |
| 12 |
|
| Student and other | 4 |
| 3 |
| — |
| 135 |
| 142 |
| | 552 |
| | — |
| — |
| 107 |
| 1 |
| — |
| 29 |
| 137 |
| | 142 |
| | — |
| — |
|
| Total consumer, excluding credit card | 36,909 |
| 10,033 |
| 1,555 |
| 9,981 |
| 58,478 |
| | 58,153 |
| | 14 |
| 13 |
| 35,391 |
| 4,713 |
| 1,330 |
| 13,363 |
| 54,797 |
| | 58,478 |
| | 26 |
| 14 |
|
| Credit card | 515,518 |
| — |
| — |
| — |
| 515,518 |
| | 525,963 |
| | — |
| — |
| 553,891 |
| — |
| — |
| — |
| 553,891 |
| | 515,518 |
| | — |
| — |
|
Total consumer(b) | 552,427 |
| 10,033 |
| 1,555 |
| 9,981 |
| 573,996 |
| | 584,116 |
| | 14 |
| 13 |
| 589,282 |
| 4,713 |
| 1,330 |
| 13,363 |
| 608,688 |
| | 573,996 |
| | 26 |
| 14 |
|
| Wholesale: | | | | | | | | | | |
Other unfunded commitments to extend credit(c)(d)(e) | 85,861 |
| 89,925 |
| 140,640 |
| 6,899 |
| 323,325 |
| | 318,278 |
| | 649 |
| 491 |
| |
Standby letters of credit and other financial guarantees(c)(d)(e) | 16,083 |
| 14,287 |
| 5,819 |
| 2,944 |
| 39,133 |
| | 44,272 |
| | 548 |
| 671 |
| |
Other unfunded commitments to extend credit(c) | | 69,307 |
| 116,716 |
| 135,663 |
| 6,811 |
| 328,497 |
| | 323,325 |
| | 905 |
| 649 |
|
Standby letters of credit and other financial guarantees(c) | | 15,738 |
| 12,654 |
| 6,577 |
| 978 |
| 35,947 |
| | 39,133 |
| | 586 |
| 548 |
|
Other letters of credit(c) | 3,570 |
| 304 |
| 67 |
| — |
| 3,941 |
| | 4,331 |
| | 2 |
| 1 |
| 3,354 |
| 86 |
| 129 |
| 1 |
| 3,570 |
| | 3,941 |
| | 2 |
| 2 |
|
Total wholesale(f)(g) | 105,514 |
| 104,516 |
| 146,526 |
| 9,843 |
| 366,399 |
| | 366,881 |
| | 1,199 |
| 1,163 |
| |
Total wholesale(d) | | 88,399 |
| 129,456 |
| 142,369 |
| 7,790 |
| 368,014 |
| | 366,399 |
| | 1,493 |
| 1,199 |
|
| Total lending-related | $ | 657,941 |
| $ | 114,549 |
| $ | 148,081 |
| $ | 19,824 |
| $ | 940,395 |
| | $ | 950,997 |
| | $ | 1,213 |
| $ | 1,176 |
| $ | 677,681 |
| $ | 134,169 |
| $ | 143,699 |
| $ | 21,153 |
| $ | 976,702 |
| | $ | 940,395 |
| | $ | 1,519 |
| $ | 1,213 |
|
| Other guarantees and commitments | | | | | | | | | | |
Securities lending indemnification agreements and guarantees(h) | $ | 183,329 |
| $ | — |
| $ | — |
| $ | — |
| $ | 183,329 |
| | $ | 171,059 |
| | $ | — |
| $ | — |
| |
Securities lending indemnification agreements and guarantees(e) | | $ | 137,209 |
| $ | — |
| $ | — |
| $ | — |
| $ | 137,209 |
| | $ | 183,329 |
| | $ | — |
| $ | — |
|
| Derivatives qualifying as guarantees | 3,194 |
| 285 |
| 11,160 |
| 39,145 |
| 53,784 |
| | 53,589 |
| | 222 |
| 80 |
| 1,061 |
| 450 |
| 10,930 |
| 39,525 |
| 51,966 |
| | 53,784 |
| | 80 |
| 222 |
|
| Unsettled reverse repurchase and securities borrowing agreements | 42,482 |
| — |
| — |
| — |
| 42,482 |
| | 40,993 |
| | — |
| — |
| 50,722 |
| — |
| — |
| — |
| 50,722 |
| | 42,482 |
| | — |
| — |
|
| Unsettled repurchase and securities lending agreements | 21,798 |
| — |
| — |
| — |
| 21,798 |
| | 42,578 |
| | — |
| — |
| 26,948 |
| — |
| — |
| — |
| 26,948 |
| | 21,798 |
| | — |
| — |
|
| Loan sale and securitization-related indemnifications: |
|
|
|
|
|
|
|
|
|
| | | |
|
|
|
|
|
|
|
|
|
|
| | | |
|
| Mortgage repurchase liability | NA |
| NA |
| NA |
| NA |
| NA |
| | NA |
| | 148 |
| 275 |
| NA |
| NA |
| NA |
| NA |
| NA |
| | NA |
| | 133 |
| 148 |
|
| Loans sold with recourse | NA |
| NA |
| NA |
| NA |
| 4,274 |
| | 6,063 |
| | 82 |
| 102 |
| NA |
| NA |
| NA |
| NA |
| 2,730 |
| | 4,274 |
| | 64 |
| 82 |
|
Other guarantees and commitments(i) | 369 |
| 2,603 |
| 1,075 |
| 1,533 |
| 5,580 |
| | 5,720 |
| | (94 | ) | (121 | ) | |
Other guarantees and commitments(f) | | 383 |
| 2,662 |
| 1,017 |
| 1,653 |
| 5,715 |
| | 5,580 |
| | (118 | ) | (94 | ) |
| |
| (a) | Includes certain commitments to purchase loans from correspondents. |
| |
| (b) | Predominantly all consumer lending-related commitments are in the U.S. |
| |
| (c) | At December 31, 2016 and 2015, and 2014, reflectsreflected the contractual amount net of risk participations totaling $385$328 million and $243$385 million, respectively, for other unfunded commitments to extend credit; $11.2$11.1 billion and $13.0$11.2 billion, respectively, for standby letters of credit and other financial guarantees; and $341$265 million and $469$341 million, respectively, for other letters of credit. In regulatory filings with the Federal Reserve these commitments are shown gross of risk participations. |
| |
| (d) | At December 31, 20152016 and 2014, included credit enhancements and bond and commercial paper liquidity commitments to U.S. states and municipalities, hospitals and other nonprofit entities of $12.3 billion and $14.8 billion, respectively, within other unfunded commitments to extend credit; and $9.6 billion and $13.3 billion, respectively, within standby letters of credit and other financial guarantees. Other unfunded commitments to extend credit also include liquidity facilities to nonconsolidated municipal bond VIEs; see Note 16. |
| |
(e) | Effective in 2015, commitments to issue standby letters of credit, including those that could be issued under multipurpose facilities, are presented as other unfunded commitments to extend credit. Previously, such commitments were presented as standby letters of credit and other financial guarantees. At December 31, 2014, these commitments were $45.6 billion. Prior period amounts have been revised to conform with current period presentation. |
| |
(f) | At December 31, 2015 and 2014, the U.S. portion of the contractual amount of total wholesale lending-related commitments was 77%79% and 73%77%, respectively. |
| |
(g) | Effective January 1, 2015, the Firm no longer includes within its disclosure of wholesale lending-related commitments the unused amount of advised uncommitted lines of credit as it is within the Firm’s discretion whether or not to make a loan under these lines, and the Firm’s approval is generally required prior to funding. Prior period amounts have been revised to conform with the current period presentation. |
| |
(h)(e) | At December 31, 20152016 and 2014,2015, collateral held by the Firm in support of securities lending indemnification agreements was $190.6$143.2 billion and $177.1$190.6 billion, respectively. Securities lending collateral consist of primarily cash and securities issued by governments that are members of the Organisation for Economic Co-operation and Development (“OECD”) and U.S. government agencies. |
| |
(i)(f) | At December 31, 20152016 and 2014,2015, included unfunded commitments of $50$48 million and $147$50 million, respectively, to third-party private equity funds; and $871 million$1.0 billion and $961$871 million, respectively, to other equity investments. These commitments included $73$34 million and $150$73 million, respectively, related to investments that are generally fair valued at net asset value as discussed in Note 3. In addition, at December 31, 20152016 and 2014,2015, included letters of credit hedged by derivative transactions and managed on a market risk basis of $4.6 billion and $4.5$4.6 billion, respectively. |
| |
(j)(g) | For lending-related products, the carrying value represents the allowance for lending-related commitments and the guarantee liability; for derivative-related products, the carrying value represents the fair value. |
|
| | |
| 256 | | JPMorgan Chase & Co./20152016 Annual Report | | 291 |
Notes to consolidated financial statements
Other unfunded commitments to extend credit
Other unfunded commitments to extend credit generally consist of commitments for working capital and general corporate purposes, extensions of credit to support commercial paper facilities and bond financings in the event that those obligations cannot be remarketed to new investors, as well as committed liquidity facilities to clearing organizations. The Firm also issues commitments under multipurpose facilities which could be drawn upon in several forms, including the issuance of a standby letter of credit.
Also included in other unfunded commitments to extend credit are commitments to noninvestment-grade counterparties in connection with leveraged finance activities, which were $32.1 billion and $23.4 billion at December 31, 2015 and 2014, respectively. For further information, see Note 3 and Note 4.
The Firm acts as a settlement and custody bank in the U.S. tri-party repurchase transaction market. In its role as settlement and custody bank, the Firm is exposed to the intra-day credit risk of its cash borrower clients, usually broker-dealers. This exposure arises under secured clearance advance facilities that the Firm extends to its clients (i.e. cash borrowers); these facilities contractually limit the Firm’s intra-day credit risk to the facility amount
and must be repaid by the end of the day. As of December 31, 20152016 and 2014,2015, the secured clearance advance facility maximum outstanding commitment amount was $2.4 billion and $2.9 billion, and $12.6 billion, respectively.
Guarantees
U.S. GAAP requires that a guarantor recognize, at the inception of a guarantee, a liability in an amount equal to the fair value of the obligation undertaken in issuing the guarantee. U.S. GAAP defines a guarantee as a contract that contingently requires the guarantor to pay a guaranteed party based upon: (a) changes in an underlying asset, liability or equity security of the guaranteed party; or (b) a third party’s failure to perform under a specified agreement. The Firm considers the following off–balance sheet lending-related arrangements to be guarantees under U.S. GAAP: standby letters of credit and other financial guarantees, securities lending indemnifications, certain indemnification agreements included within third-party contractual arrangements and certain derivative contracts.
As required by U.S. GAAP, the Firm initially records guarantees at the inception date fair value of the obligation
assumed (e.g., the amount of consideration received or the net present value of the premium receivable). For certain types of guarantees, the Firm records this fair value amount in other liabilities with an offsetting entry recorded in cash (for premiums received), or other assets (for premiums receivable). Any premium receivable recorded in other assets is reduced as cash is received under the contract, and the fair value of the liability recorded at inception is amortized into income as lending and deposit-related fees over the life of the guarantee contract. For indemnifications provided in sales agreements, a portion of the sale proceeds is allocated to the guarantee, which adjusts the gain or loss that would otherwise result from the transaction. For these indemnifications, the initial liability is amortized to income as the Firm’s risk is reduced (i.e., over time or when the indemnification expires). Any contingent liability that exists as a result of issuing the guarantee or indemnification is recognized when it becomes probable and reasonably estimable. The contingent portion of the liability is not recognized if the estimated amount is less than the carrying amount of the liability recognized at inception (adjusted for any amortization). The recorded amounts of the liabilities related to guarantees and indemnifications at December 31, 20152016 and 2014,2015, excluding the allowance for credit losses on lending-related commitments, are discussed below.
Standby letters of credit and other financial guarantees
Standby letters of credit (“SBLC”) and other financial guarantees are conditional lending commitments issued by the Firm to guarantee the performance of a customer to a third party under certain arrangements, such as commercial paper facilities, bond financings, acquisition financings, trade and similar transactions. The carrying values of standby and other letters of credit were $550$588 million and $672$550 million at December 31, 20152016 and 2014,2015, respectively, which were classified in accounts payable and other liabilities on the Consolidated balance sheets; these carrying values included $123$147 million and $118$123 million, respectively, for the allowance for lending-related commitments, and $427$441 million and $554$427 million, respectively, for the guarantee liability and corresponding asset.
The following table summarizes the types of facilities under which standby letters of credit and other letters of credit arrangements are outstanding by the ratings profiles of the Firm’s customers, as of December 31, 20152016 and 2014.2015.
Standby letters of credit, other financial guarantees and other letters of credit
| | | | 2015 | | 2014 | 2016 | | 2015 |
December 31, (in millions) | Standby letters of
credit and other financial guarantees(b) | | Other letters of credit | | Standby letters of
credit and other financial guarantees(b) | | Other letters of credit | Standby letters of credit and other financial guarantees | | Other letters of credit | | Standby letters of credit and other financial guarantees | | Other letters of credit |
Investment-grade(a) | $ | 31,751 |
| | $ | 3,290 |
| | $ | 37,709 |
| | $ | 3,476 |
| | $ | 28,245 |
| | $ | 2,781 |
| | $ | 31,751 |
| | $ | 3,290 |
|
Noninvestment-grade(a) | 7,382 |
| | 651 |
| | 6,563 |
| | 855 |
| | 7,702 |
| | 789 |
| | 7,382 |
| | 651 |
|
| Total contractual amount | $ | 39,133 |
| | $ | 3,941 |
| | $ | 44,272 |
| | $ | 4,331 |
| | $ | 35,947 |
| | $ | 3,570 |
| | $ | 39,133 |
| | $ | 3,941 |
|
| Allowance for lending-related commitments | $ | 121 |
| | $ | 2 |
| | $ | 117 |
| | $ | 1 |
| | $ | 145 |
| | $ | 2 |
| | $ | 121 |
| | $ | 2 |
|
| Guarantee liability | | | 441 |
| | — |
| | | 427 |
| | | — |
|
| Total carrying value | | | $ | 586 |
| | $ | 2 |
| | $ | 548 |
| | $ | 2 |
|
| Commitments with collateral | 18,825 |
| | 996 |
| | 20,750 |
| | 1,509 |
| | $ | 19,346 |
| | $ | 940 |
| | $ | 18,825 |
| | $ | 996 |
|
| |
| (a) | The ratings scale is based on the Firm’s internal ratings, which generally correspond to ratings as defined by S&P and Moody’s. |
| |
(b) | Effective in 2015, commitments to issue standby letters of credit, including those that could be issued under multipurpose facilities, are presented as other unfunded commitments to extend credit. Previously, such commitments were presented as standby letters of credit and other financial guarantees. At December 31, 2014, these commitments were $45.6 billion. Prior period amounts have been revised to conform with current period presentation. |
|
| | |
292 | | JPMorgan Chase & Co./20152016 Annual Report | | 257 |
Notes to consolidated financial statements
Securities lending indemnifications
Through the Firm’s securities lending program, customers’ securities, via custodial and non-custodial arrangements, may be lent to third parties. As part of this program, the Firm provides an indemnification in the lending agreements which protects the lender against the failure of the borrower to return the lent securities. To minimize its liability under these indemnification agreements, the Firm obtains cash or other highly liquid collateral with a market value exceeding 100% of the value of the securities on loan from the borrower. Collateral is marked to market daily to help assure that collateralization is adequate. Additional collateral is called from the borrower if a shortfall exists, or collateral may be released to the borrower in the event of overcollateralization. If a borrower defaults, the Firm would use the collateral held to purchase replacement securities in the market or to credit the lending customer with the cash equivalent thereof.
Derivatives qualifying as guarantees
In addition to the contracts described above, theThe Firm transacts certain derivative contracts that have the characteristics of a guarantee under U.S. GAAP. These contracts include written put options that require the Firm to purchase assets upon exercise by the option holder at a specified price by a specified date in the future. The Firm may enter into written put option contracts in order to meet client needs, or for other trading purposes. The terms of written put options are typically five years or less. Derivatives deemed to be guarantees also include contracts such as stable value derivatives that require the Firm to make a payment of the difference between the market value and the book value of a counterparty’s reference portfolio of assets in the event that market value is less than book value and certain other conditions have been met. Stable value derivatives, commonly referred to as “stable value wraps”,wraps,” are transacted in order to allow investors to realize investment returns with less volatility than an unprotected portfolio and are typically longer-term or may have no stated maturity, but allow the Firm to elect to terminate the contract under certain conditions.
Derivatives deemed to be guarantees are recorded on the Consolidated balance sheets at fair value in trading assets and trading liabilities. The total notional value of the derivatives that the Firm deems to be guarantees was $53.8$52.0 billion and $53.6$53.8 billion at December 31, 20152016 and 2014,2015, respectively. The notional amount generally represents the Firm’s maximum exposure to derivatives qualifying as guarantees. However, exposure to certain stable value contracts is contractually limited to a substantially lower percentage of the notional amount; the notional amount on these stable value contracts was $28.4$28.7 billion and $27.5$28.4 billion at December 31, 20152016 and 2014,2015, respectively, and the maximum exposure to loss was $3.0 billion and $2.9 billion at both December 31, 20152016 and 2014, respectively.2015. The fair values of the contracts reflect the probability of whether the Firm will be required to perform under the contract. The fair value ofrelated to derivatives that the Firm deems to be guarantees were derivative payables of $236$96 million and $102$236 million and derivative receivables of $14$16 million and $22$14 million at December 31, 2016 and 2015, and
2014, respectively. The Firm reduces exposures to these contracts by entering
into offsetting transactions, or by entering into contracts that hedge the market risk related to the derivative guarantees.
In addition to derivative contracts that meet the characteristics of a guarantee, the Firm is both a purchaser and seller of credit protection in the credit derivatives market. For a further discussion of credit derivatives, see Note 6.
Unsettled reverse repurchase and securities borrowing agreements, and unsettled repurchase and securities lending agreements
In the normal course of business, the Firm enters into reverse repurchase agreements and securities borrowing agreements, which are secured financing agreements. Such agreements settle at a future date. At settlement, these commitments result in the Firm advancing cash to and receiving securities collateral from the counterparty. The Firm also enters into repurchase agreements and securities lending agreements. At settlement, these commitments result in the Firm receiving cash from and providing securities collateral to the counterparty. These agreements generally do not meet the definition of a derivative, and therefore, are not recorded on the Consolidated balance sheets until settlement date. These agreements predominantly consist of agreements with regular-way settlement periods. For a further discussion of securities purchased under resale agreements and securities borrowed, and securities sold under repurchase agreements and securities loaned, see Note 13.
Loan sales- and securitization-related indemnifications
Mortgage repurchase liability
In connection with the Firm’s mortgage loan sale and securitization activities with U.S. GSEs, as described in Note 16, the Firm has made representations and warranties that the loans sold meet certain requirements. Therequirements that may require the Firm has been, and may be, required to repurchase mortgage loans and/or indemnify U.S. GSEs (e.g.,the loan purchaser. Further, although the Firm’s securitizations are predominantly nonrecourse, the Firm does provide recourse servicing in certain limited cases where it agrees to share credit risk with “make-whole” payments to reimburse U.S. GSEs for their realized losses on liquidated loans).the owner of the mortgage loans. To the extent that repurchase demands that are received relate to loans that the Firm purchased from third parties that remain viable, the Firm typically will have the right to seek a recovery of related repurchase losses from the third party. Generally, the maximum amount of future payments the Firm would be required to make for breaches of these representations and warranties would be equal to the unpaid principal balance of such loans that are deemed to have defects that were sold to purchasers (including securitization-related SPEs) plus, in certain circumstances, accrued interest on such loans and certain expense. The carrying values of the repurchase liabilities were $148 million and $275 million at December 31, 2015 and 2014, respectively.
Private label securitizations
The liability related to repurchase demands associated with private label securitizations is separately evaluated by the Firm in establishing its litigation reserves.
For additional information regarding litigation, see Note 31.
|
| | |
| 258 | | JPMorgan Chase & Co./20152016 Annual Report | | 293 |
Notes to consolidated financial statements
On November 15, 2013, the Firm announced that it had reached a $4.5 billion agreement with 21 major institutional investors to make a binding offer to the trustees of 330 residential mortgage-backed securities trusts issued by J.P.Morgan, Chase, and Bear Stearns (“RMBS Trust Settlement”) to resolve all representation and warranty claims, as well as all servicing claims, on all trusts issued by J.P. Morgan, Chase, and Bear Stearns between 2005 and 2008. For further information see Note 31.
In addition, from 2005 to 2008, Washington Mutual made certain loan level representations and warranties in connection with approximately $165 billionof residential mortgage loans that were originally sold or deposited into private-label securitizations by Washington Mutual. Of the$165 billion, approximately$81 billionhas been repaid. In addition, approximately $50 billion of the principal amount of such loans has liquidated with an average loss severity of 59%. Accordingly, the remaining outstanding principal balance of these loans as of December 31, 2015, was approximately $33 billion, of which $6 billion was 60 days or more past due. The Firm believes that any repurchase obligations related to these loans remain with the FDIC receivership.
For additional information regarding litigation, see Note 31.
Loans sold with recourse
The Firm provides servicing for mortgages and certain commercial lending products on both a recourse and nonrecourse basis. In nonrecourse servicing, the principal credit risk to the Firm is the cost of temporary servicing advances of funds (i.e., normal servicing advances). In recourse servicing, the servicer agrees to share credit risk with the owner of the mortgage loans, such as Fannie Mae or Freddie Mac or a private investor, insurer or guarantor. Losses on recourse servicing predominantly occur when foreclosure sales proceeds of the property underlying a defaulted loan are less than the sum of the outstanding principal balance, plus accrued interest on the loan and the cost of holding and disposing of the underlying property. The Firm’s securitizations are predominantly nonrecourse, thereby effectively transferring the risk of future credit losses to the purchaser of the mortgage-backed securities issued by the trust. At December 31, 20152016 and 2014,2015, the unpaid principal balance of loans sold with recourse totaled $4.3$2.7 billion and $6.1$4.3 billion, respectively. The carrying value of the related liability that the Firm has recorded, which is representative of the Firm’s view of the likelihood it will have to perform under its recourse obligations, was $82$64 million and $102$82 million at December 31, 20152016 and 2014,2015, respectively.
Other off-balance sheet arrangements
Indemnification agreements – general
In connection with issuing securities to investors, the Firm may enter into contractual arrangements with third parties that require the Firm to make a payment to them in the event of a change in tax law or an adverse interpretation of tax law. In certain cases, the contract also may include a termination clause, which would allow the Firm to settle the contract at its fair value in lieu of making a payment under the indemnification clause. The Firm may also enter into
indemnification clauses in connection with the licensing of software to clients (“software licensees”) or when it sells a business or assets to a third party (“third-party purchasers”), pursuant to which it indemnifies software licensees for claims of liability or damages that may occur subsequent to the licensing of the software, or third-party purchasers for losses they may incur due to actions taken by the Firm prior to the sale of the business or assets. It is difficult to estimate the Firm’s maximum exposure under these indemnification arrangements, since this would require an assessment of future changes in tax law and future claims that may be made against the Firm that have not yet occurred. However, based on historical experience, management expects the risk of loss to be remote.
Card charge-backs
Commerce Solutions, Card’s merchant services business, is a global leader in payment processing and merchant acquiring.
Under the rules of Visa USA, Inc., and MasterCard International, JPMorgan Chase Bank, N.A., is primarily liable for the amount of each processed card sales transaction that is the subject of a dispute between a cardmember and a merchant. If a dispute is resolved in the cardmember’s favor, Commerce Solutions will (through the cardmember’s
issuing bank) credit or refund the amount to the cardmember and will charge back the transaction to the merchant. If Commerce Solutions is unable to collect the amount from the merchant, Commerce Solutions will bear the loss for the amount credited or refunded to the cardmember. Commerce Solutions mitigates this risk by withholding future settlements, retaining cash reserve accounts or by obtaining other security. However, in the unlikely event that: (1) a merchant ceases operations and is unable to deliver products, services or a refund; (2) Commerce Solutions does not have sufficient collateral from the merchant to provide customer refunds; and (3) Commerce Solutions does not have sufficient financial resources to provide customer refunds, JPMorgan Chase Bank, N.A., would recognize the loss.
Commerce Solutions incurred aggregate losses of $85 million, $12 million, and $10 million and $14 million on $1,063.4 billion, $949.3 billion, $847.9 billion, and $750.1$847.9 billion of aggregate volume processed for the years ended December 31, 2016, 2015 2014 and 2013,2014, respectively. Incurred losses from merchant charge-backs are charged to other expense, with the offset recorded in a valuation allowance against accrued interest and accounts receivable on the Consolidated balance sheets. The carrying value of the valuation allowance was $20$45 million and $4$20 million at December 31, 20152016 and 2014,2015, respectively, which the Firm believes, based on historical experience and the collateral held by Commerce Solutions of $136$125 million and $174$136 million at December 31, 20152016 and 2014,2015, respectively, is representative of the payment or performance risk to the Firm related to charge-backs.
|
| | |
294 | | JPMorgan Chase & Co./2015 Annual Report |
Clearing Services – Client Credit Risk
The Firm provides clearing services for clients by entering into securities purchases and sales and derivative transactions with CCPs, including ETDs such as futures and options, as well as OTC-cleared derivative contracts. As a clearing member, the Firm stands behind the performance of its clients, collects cash and securities collateral (margin) as well as any settlement amounts due from or to clients, and remits them to the relevant CCP or client in whole or part. There are two types of margin. Variationmargin: variation margin is posted on a daily basis based on the value of clients’ derivative contracts. Initialcontracts and initial margin is posted at inception of a derivative contract, generally on the basis of the potential changes in the variation margin requirement for the contract.
As clearing member, the Firm is exposed to the risk of nonperformance by its clients, but is not liable to clients for the performance of the CCPs. Where possible, the Firm seeks to mitigate its risk to the client through the collection of appropriate amounts of margin at inception and throughout the life of the transactions. The Firm can also cease providing clearing services if clients do not adhere to their obligations under the clearing agreement. In the event of non-performancenonperformance by a client, the Firm would close out the client’s positions and access available margin. The CCP would utilize any margin it holds to make itself whole, with any remaining shortfalls required to be paid by the Firm as a clearing member.
|
| | |
| JPMorgan Chase & Co./2016 Annual Report | | 259 |
Notes to consolidated financial statements
The Firm reflects its exposure to nonperformance risk of the client through the recognition of margin payables or receivables to clients and CCPs, but does not reflectCCPs; the clients’ underlying securities or derivative contracts on itsare not reflected in the Firm’s Consolidated Financial Statements.
It is difficult to estimate the Firm’s maximum possible exposure through its role as a clearing member, as this would require an assessment of transactions that clients may execute in the future. However, based upon historical experience, and the credit risk mitigants available to the Firm, management believes it is unlikely that the Firm will have to make any material payments under these arrangements and the risk of loss is expected to be remote.
For information on the derivatives that the Firm executes for its own account and records in its Consolidated Financial Statements, see Note 6.
Exchange & Clearing House Memberships
The Firm is a member of several securities and derivative exchanges and clearing houses, both in the U.S. and other countries, and it provides clearing services. Membership in some of these organizations requires the Firm to pay a pro rata share of the losses incurred by the organization as a result of the default of another member. Such obligations vary with different organizations. These obligations may be limited to members who dealt with the defaulting member or to the amount (or a multiple of the amount) of the Firm’s contribution to the guarantee fund maintained by a clearing house or exchange as part of the resources available to cover any losses in the event of a member default. Alternatively, these obligations may beinclude a full pro-ratapro rata share
of the residual losses after applying the guarantee fund. Additionally, certain clearing houses require the Firm as a member to pay a pro rata share of losses resultingthat may result from the clearing house’s investment of guarantee fund contributions and initial margin, unrelated to and independent of the default of another member. Generally a payment would only be required should such losses exceed the resources of the clearing house or exchange that are contractually required to absorb the losses in the first instance. It is difficult to estimate the Firm’s maximum possible exposure under these membership agreements, since this would require an assessment of future claims that may be made against the Firm that have not yet occurred. However, based on historical experience, management expects the risk of loss to be remote.
Guarantees of subsidiaries
In the normal course of business, JPMorgan Chase & Co. (“Parent Company”) may provide counterparties with guarantees of certain of the trading and other obligations of its subsidiaries on a contract-by-contract basis, as negotiated with the Firm’s counterparties. The obligations of the subsidiaries are included on the Firm’s Consolidated balance sheets or are reflected as off-balance sheet commitments; therefore, the Parent Company has not recognized a separate liability for these guarantees. The Firm believes that the occurrence of any event that would trigger payments by the Parent Company under these guarantees is remote.
The Parent Company has guaranteed certain long-term debt and structured notes of its subsidiaries, including both long-term debt and structured notes. These guarantees are not included in the table on page 291 of this Note. For additional information, see Note 21.
JPMorgan Chase Financial Company LLC (“JPMFC”), a direct, 100%-owned finance subsidiary of the Parent Company, was formed on September 30, 2015, for the purpose of issuing debt and other securities in offerings to investors. Anysubsidiary. All securities issued by JPMFC will beare fully and unconditionally guaranteed by the Parent Company, and theseCompany. These guarantees, willwhich rank on a parity with the Firm’s unsecured and unsubordinated indebtedness. Asindebtedness, are not included in the table on page 256 of December 31, 2015, no securities had been issued by JPMFC.this Note. For additional information, see Note 21.
|
| | |
| 260 | | JPMorgan Chase & Co./20152016 Annual Report | | 295 |
Notes to consolidated financial statements
Note 30 – Commitments, pledged assets and
collateral
Lease commitments
At December 31, 20152016, JPMorgan Chase and its subsidiaries were obligated under a number of noncancelable operating leases for premises and equipment used primarily for banking purposes, and for energy-related tolling service agreements. Certain leases contain renewal options or escalation clauses providing for increased rental payments based on maintenance, utility and tax increases, or they require the Firm to perform restoration work on leased premises. No lease agreement imposes restrictions on the Firm’s ability to pay dividends, engage in debt or equity financing transactions or enter into further lease agreements.
The following table presents required future minimum rental payments under operating leases with noncancelable lease terms that expire after December 31, 20152016.
| | | Year ended December 31, (in millions) | | |
| 2016 | $ | 1,668 |
| |
| 2017 | 1,647 |
| $ | 1,598 |
|
| 2018 | 1,447 |
| 1,479 |
|
| 2019 | 1,263 |
| 1,301 |
|
| 2020 | 1,125 |
| 1,151 |
|
| After 2020 | 4,679 |
| |
| 2021 | | 885 |
|
| After 2021 | | 3,701 |
|
| Total minimum payments required | 11,829 |
| 10,115 |
|
| Less: Sublease rentals under noncancelable subleases | (1,889 | ) | (1,379 | ) |
| Net minimum payment required | $ | 9,940 |
| $ | 8,736 |
|
Total rental expense was as follows.
| | | Year ended December 31, | | | | | | | |
| (in millions) | | 2015 | | 2014 | | 2013 | |
Year ended December 31, (in millions) | | | | | | | |
| | 2016 | | 2015 | | 2014 |
| Gross rental expense | | $ | 2,015 |
| | $ | 2,255 |
| | $ | 2,187 |
| | $ | 1,860 |
| | $ | 2,015 |
| | $ | 2,255 |
|
| Sublease rental income | | (411 | ) | | (383 | ) | | (341 | ) | | (241 | ) | | (411 | ) | | (383 | ) |
| Net rental expense | | $ | 1,604 |
| | $ | 1,872 |
| | $ | 1,846 |
| | $ | 1,619 |
| | $ | 1,604 |
| | $ | 1,872 |
|
Pledged assets
The Firm may pledge financial assets that it owns to maintain potential borrowing capacity with central banks and for other purposes, including to secure borrowings and public deposits, and to collateralize repurchase and other securities financing agreements.agreements, and to cover customer short sales. Certain of these pledged assets may be sold or repledged or otherwise used by the secured parties and are identified as financial instruments owned (pledged to various parties) on the Consolidated balance sheets. At December 31, 20152016 and 20142015, the Firm had pledged assets of $385.6$441.9 billion and $324.5$385.6 billion, respectively, at Federal Reserve Banksbanks and FHLBs. In addition, as of December 31, 20152016 and 2014,2015, the Firm had pledged $50.753.5 billion and $60.150.7 billion, respectively, of financial assets that may not be sold or repledged or otherwise used by the secured parties. Total assets pledged do not include assets of consolidated VIEs; these assets are used to settle the liabilities of those entities. See Note 16 for additional information on assets and liabilities of consolidated VIEs. For additional information on the Firm’s securities financing activities and long-term debt, see Note 13 and Note 21, respectively. The significant components of the Firm’s pledged assets were as follows.
| | | December 31, (in billions) | | 2015 | | 2014 | | 2016 | | 2015 |
| Securities | | $ | 124.3 |
| | $ | 118.7 |
| | $ | 101.1 |
| | $ | 124.3 |
|
| Loans | | 298.6 |
| | 248.2 |
| | 374.9 |
| | 298.6 |
|
| Trading assets and other | | 144.9 |
| | 169.0 |
| | 153.0 |
| | 144.9 |
|
| Total assets pledged | | $ | 567.8 |
| | $ | 535.9 |
| | $ | 629.0 |
| | $ | 567.8 |
|
Collateral
At December 31, 20152016 and 20142015, the Firm had accepted financial assets as collateral that it could sell or repledge, deliver or otherwise use with a fair value of approximately $748.5914.1 billion and $761.7748.5 billion, respectively. This collateral was generally obtained under resale agreements, securities borrowing agreements, customer margin loans and derivative agreements. Of the collateral received, approximately $580.9746.6 billion and $596.8580.9 billion, respectively, were sold, repledged, delivered or repledged,otherwise used. Collateral was generally as collateralused under repurchase agreements, securities lending agreements or to cover customer short sales and to collateralize deposits and derivative agreements.
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296 | | JPMorgan Chase & Co./20152016 Annual Report | | 261 |
Notes to consolidated financial statements
Note 31 – Litigation
Contingencies
As of December 31, 2015,2016, the Firm and its subsidiaries and affiliates are defendants or putative defendants in numerous legal proceedings, including private, civil litigations and regulatory/government investigations. The litigations range from individual actions involving a single plaintiff to class action lawsuits with potentially millions of class members. Investigations involve both formal and informal proceedings, by both governmental agencies and self-regulatory organizations. These legal proceedings are at varying stages of adjudication, arbitration or investigation, and involve each of the Firm’s lines of business and geographies and a wide variety of claims (including common law tort and contract claims and statutory antitrust, securities and consumer protection claims), some of which present novel legal theories.
The Firm believes the estimate of the aggregate range of reasonably possible losses, in excess of reserves established, for its legal proceedings is from $0 to approximately $3.6$3.0 billion at December 31, 2015.2016. This estimated aggregate range of reasonably possible losses iswas based upon currently available information for those proceedings in which the Firm believes that an estimate of reasonably possible loss can be made. For certain matters, the Firm does not believe that such an estimate can be made.made, as of that date. The Firm’s estimate of the aggregate range of reasonably possible losses involves significant judgment, given the number, variety and varying stages of the proceedings (including the fact that many are in preliminary stages), the existence in many such proceedings of multiple defendants (including the Firm) whose share of liability has yet to be determined, the numerous yet-unresolved issues in many of the proceedings (including issues regarding class certification and the scope of many of the claims) and the attendant uncertainty of the various potential outcomes of such proceedings, particularly proceedingsincluding where the Firm has made assumptions concerning future rulings by the court or other adjudicator, or about the behavior or incentives of adverse parties or regulatory authorities, and those assumptions prove to be incorrect. In addition, the outcome of a particular proceeding may be a result which the Firm did not take into account in its estimate because the Firm had deemed the likelihood of that could result from government investigations.outcome to be remote. Accordingly, the Firm’s estimate of the aggregate range of reasonably possible losses will change from time to time, and actual losses may vary significantly.
Set forth below are descriptions of the Firm’s material legal proceedings.
Auto Dealer Regulatory Matter. The U.S. Department of Justice (“DOJ”) is investigating potential statistical disparities in markups charged to borrowers of different races and ethnicities by automobile dealers on loans originated by those dealers and purchased by the Firm.
CIO Litigation. The Firm has been sued in a consolidated shareholder class action, and in a consolidated putative class action brought under the Employee Retirement Income Security Act (“ERISA”) and seven shareholder derivative actions brought in Delaware state court and in New York federal and state courts, relating to 2012 losses in the synthetic credit portfolio formerly managed by the Firm’s Chief Investment Office (“CIO”). A settlement of the
shareholder class action, under which the Firm will paypaid $150 million,
has been preliminarily approved byreceived full and final approval from the court.Court. The putative ERISA class action has been dismissed,dismissed. That dismissal was affirmed by the appellate court, and a request by the plaintiffs have filed a notice of appeal. Six offor rehearing by the seven shareholder derivative actions have been dismissed.
Credit Default Swaps Investigations and Litigation. In July 2013, the European Commission (the “EC”) filed a Statement of Objections against the Firm (including various subsidiaries) and other industry members in connection with its ongoing investigation into the credit default swaps (“CDS”) marketplace. The EC asserted that between 2006 and 2009, a number of investment banks acted collectively through the International Swaps and Derivatives Association (“ISDA”) and Markit Group Limited (“Markit”) to foreclose exchanges from the potential market for exchange-traded credit derivatives. In December 2015, the EC announced the closure of its investigation as to the Firm and other investment banks.
Separately, the Firm and other defendants have entered separate agreements to settle a consolidated putative class action filed in the United States District Court for the Southern District of New York on behalf of purchasers and sellers of CDS. The complaint in this action had alleged that the defendant investment banks and dealers, including the Firm, as well as Markit and/or ISDA, collectively prevented new entrants into the market for exchange-traded CDS products. These settlements are subject to Court approval.
Custody Assets Investigation. The U.K. Financial Conduct Authority (“FCA”) has closed its previously-reported investigation concerning compliance by JPMorgan Chase Bank, N.A., London branch and J.P. Morgan Europe Limited with the FCA’s rules regarding the provision of custody services relating to the administration of client assets.full appellate court was denied.
Foreign Exchange Investigations and Litigation. The Firm previously reported settlements with certain government authorities relating to its foreign exchange (“FX”) sales and trading activities and controls related to those activities. FX-related investigations and inquiries by other, non-U.S. government authorities, including competition authorities, remainare ongoing, and the Firm is cooperating with those matters. In May 2015, the Firm pleaded guilty to a single violation of federal antitrust law, and in January 2017, the Firm was sentenced, with judgment entered shortly thereafter. The Department of Labor granted the Firm a temporary one-year waiver, which was effective upon entry of judgment, to allow the Firm and its affiliates to continue to qualify for the Qualified Professional Asset Manager exemption under ERISA. The Firm’s application for a lengthier exemption is pending. Separately, in February 2017 the South Africa Competition Commission announced that it had referred its FX investigation of the Firm and other banks to the South Africa Competition Tribunal to commence civil proceedings.
The Firm is also one of a number of foreign exchange dealers defending a class action filed in the United States District Court for the Southern District of New York by U.S.-based plaintiffs, principally alleging violations of federal antitrust laws based on an alleged conspiracy to manipulate foreign exchange rates (the “U.S. class action”). In January 2015, the Firm entered into a settlement agreement in the U.S. class action. Following this settlement, a number of additional putative class actions were filed seeking damages for persons who transacted FX futures and options on futures (the “exchanged-based actions”), consumers who purchased foreign currencies at allegedly inflated rates (the “consumer actions”action”), and participants or beneficiaries of qualified ERISA plans (the “ERISA actions”), and purported indirect purchasers of FX instruments (the “indirect purchaser action”). In July 2015,Since then, the plaintiffs in the U.S. class action filed an amended complaint, and the Court consolidated the exchange-based
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Notes to consolidated financial statements
actions into the U.S. class action. The Firm has entered into a revised settlement agreement to resolve the consolidated U.S. class action, including the exchange-based actions, and that agreement is subject tohas been preliminarily approved by the Court. The District Court approval.has dismissed one of the ERISA actions, and the plaintiffs have filed an appeal. The consumer actionsaction, a second ERISA action and ERISA actionsthe indirect purchaser action remain pending.pending in the District Court.
In September 2015, two class actions were filed in Canada against the Firm as well as a number of other FX dealers, principally for alleged violations of the Canadian Competition Act based on an alleged conspiracy to fix the prices of currency purchased in the FX market. The first action was filed in the province of Ontario, and seeks to represent all persons in Canada who transacted any FX
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| 262 | | JPMorgan Chase & Co./2016 Annual Report |
instrument. The second action was filed in the province of Quebec, and seeks authorization to represent only those persons in Quebec who engaged in FX transactions. In late 2016, the Firm settled the Canadian class actions; those settlements are subject to Court approval.
General Motors Litigation. JPMorgan Chase Bank, N.A. participated in, and was the Administrative Agent on behalf of a syndicate of lenders on, a $1.5 billion syndicated Term Loan facility (“Term Loan”) for General Motors Corporation (“GM”). In July 2009, in connection with the GM bankruptcy proceedings, the Official Committee of Unsecured Creditors of Motors Liquidation Company (“Creditors Committee”) filed a lawsuit against JPMorgan Chase Bank, N.A., in its individual capacity and as Administrative Agent for other lenders on the Term Loan, seeking to hold the underlying lien invalid based on the filing of a UCC-3 termination statement relating to the Term Loan. In March 2013, the Bankruptcy Court granted JPMorgan Chase Bank, N.A.’s motion for summary judgment and dismissed the Creditors Committee’s complaint on the grounds that JPMorgan Chase Bank, N.A. did not authorize the filing of the UCC-3 termination statement at issue. The Creditors Committee appealed the Bankruptcy Court’s dismissal of its claim toJanuary 2015, following several court proceedings, the United States Court of Appeals for the Second Circuit. In January 2015, the Court of AppealsCircuit reversed the Bankruptcy Court’s dismissal of the Creditors Committee’s claim and remanded the case to the Bankruptcy Court with instructions to enter partial summary judgment for the Creditors Committee as to the termination statement. The proceedings in the Bankruptcy Court continue with respect to, among other things, additional defenses asserted by JPMorgan Chase Bank, N.A. and the value of additional collateral on the Term Loan that was unaffected by the filing of the termination statement at issue. In addition, certain Term Loan lenders filed cross-claims against JPMorgan Chase Bank, N.A. in the Bankruptcy Court seeking indemnification and asserting various claims.
Interchange Litigation. A group of merchants and retail associations filed a series of class action complaints alleging that Visa and MasterCard, as well as certain banks, conspired to set the price of credit and debit card interchange fees, enacted respective rules in violation of antitrust laws, and engaged in tying/bundling and exclusive dealing. The parties have entered into an agreement to settle the cases for a cash payment of $6.1 billion to the class plaintiffs (of which the Firm’s share is approximately 20%) and an amount equal to ten basis points of credit card interchange for a period of eight months to be
measured from a date within 60 days of the end of the opt-out period. The agreement also providesprovided for modifications to each credit card network’s rules, including those that prohibit surcharging credit card transactions. In December 2013, the District Court issued a decision grantinggranted final approval of the settlement.
A number of merchants appealed and oral argument was heldto the United States Court of Appeals for the Second Circuit, which, in September 2015. Certain merchants and trade associations have also filed a motion withJune 2016, vacated the District Court seeking to set asideCourt’s certification of the class action and reversed the approval of the class settlement onsettlement. The case has been remanded to the basis of alleged improper communications between one of MasterCard’s former outside counselDistrict Court for further proceedings consistent with the appellate decision. Both the plaintiffs and one of plaintiffs’ outside counsel. That motion remains pending. Certain merchants that opted outthe defendants have filed petitions seeking review by the U.S. Supreme Court of the class settlementSecond Circuit’s decision.
In addition, certain merchants have filed individual actions against Visa and MasterCard, as well as against the Firm and other banks. Defendants’ motion to dismissbanks, and those actions was denied in July 2014.are proceeding.
Investment Management Litigation. The Firm is defending two pending cases that are being coordinated for pre-trial and trial purposes, alleging that investment portfolios managed by J.P. Morgan Investment Management (“JPMIM”) were inappropriately invested in securities backed by residential real estate collateral. Plaintiffs Assured Guaranty (U.K.) and Ambac Assurance UK Limited claim that JPMIM is liable for total losses of more than $1 billion in market value of these securities. Discovery has been completed. In January 2016, plaintiffs filed a joint partial motion for summary judgment in the coordinated actions. In February 2017, the Court ruled in plaintiffs’ favor as to the interpretation of an applicable statutory provision and the rejection of a certain defense, but otherwise preserved for trial the determination of whether JPMIM breached the governing contract and is liable for plaintiffs’ claimed losses under the standard of gross negligence. The trial is scheduled to begin in March 2017.
Lehman Brothers Bankruptcy Proceedings. In May 2010,January 2016, JPMorgan Chase Bank, N.A. and Lehman Brothers Holdings Inc. (“LBHI”) and its Official Committee of Unsecured Creditors (the “Committee”) filed a complaint (and later an amended complaint) against JPMorgan Chase Bank, N.A. in the United States Bankruptcy Court for the Southern District of New York that asserted both federal bankruptcy law and state common law claims, and sought, among other relief, to recover $7.9 billion in collateral (after deducting $700 million of returned collateral) that was transferred to JPMorgan Chase Bank, N.A. in the weeks preceding LBHI’s bankruptcy. The amended complaint also sought unspecified damages on the grounds that JPMorgan Chase Bank, N.A.’s collateral requests hastened LBHI’s bankruptcy. The Bankruptcy Court dismissed the claims in the amended complaint that sought to void the allegedly constructively fraudulent and preferential transfers made to the Firm during September 2008, but did not dismiss the other claims, including claims for duress and fraud. The Firm filed counterclaims against LBHI, including alleging that LBHI fraudulently induced the Firm to make large extensions of credit against inappropriate collateral in connection with the Firm’s role as the clearing bank for Lehman Brothers Inc. (“LBI”), LBHI’s broker-dealer subsidiary. These extensions of credit left the Firm with more than $25 billion in claims against the estate of LBI, which was repaid principally through collateral posted by LBHI and LBI. In September 2015, the District Court, to which the case had been transferred from the Bankruptcy Court, granted summary judgment in favor
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298 | | JPMorgan Chase & Co./2015 Annual Report |
of JPMorgan Chase Bank, N.A. on most of the claims against it that the Bankruptcy Court had not previously dismissed, including the claims for duress and fraud. The District Court also denied LBHI’s motion for summary judgment on certain of its claims and for dismissal of the Firm’s counterclaims. The claims that remained following the District Court’s ruling challenged the propriety of the Firm’s post-petition payment, from collateral posted by LBHI, of approximately $1.9 billion of derivatives, repo and securities lending claims.
In the Bankruptcy Court proceedings, LBHI and several of itsLBHI’s subsidiaries that had been Chapter 11 debtors had filed a separate complaint and objection to derivatives claims asserted by the Firm alleging that the amount of the derivatives claims had been overstated and challenging certain set-offs taken by JPMorgan Chase entities to recover on the claims. In January 2015, LBHI filed claims objections with respect to guaranty claims asserted by the Firm arising from close-outs of derivatives transactions with LBI and one of its affiliates, and a claim objection with respect to derivatives close-out claims acquired by the Firm in the Washington Mutual transaction.
In January 2016, the parties reached an agreement, approved by the Bankruptcy Court, under whichresolving several disputes between the Firm will pay $1.42 billion to settle all of the claims, counterclaims and claims objections, including all appeal rights, except for the claims specified in the following paragraph. One pro se objector is seeking to appeal the settlement.
parties. The January 2016 settlement did not resolve the following remaining matters: In the Bankruptcy Court proceedings, LBHI and theits Official Committee of Unsecured Creditors filed an objection to the claims asserted by JPMorgan Chase Bank, N.A. against LBHI with respect to clearing advances made to LBI,Lehman Brothers Inc., principally on the grounds that the Firm had not conducted the sale of the securities collateral held for its claims in a commercially reasonable manner. In January 2015, LBHI also brought two claims objections relating to securities lending claims and a group of other smaller claims. Discovery with respectIn January 2017, the Firm entered into an agreement to settle all of these objections is ongoing.remaining claims, and this settlement has been approved by the Bankruptcy Court.
LIBOR and Other Benchmark Rate Investigations and Litigation. JPMorgan Chase has received subpoenas and requests for documents and, in some cases, interviews, from federal and state agencies and entities, including the DOJ,U.S. Department of Justice (“DOJ”), the U.S. Commodity Futures Trading Commission (“CFTC”), the U.S. Securities and Exchange Commission (“SEC”) and various state attorneys general, as well as the EC,European Commission (“EC”), the FCA,U.K. Financial Conduct Authority (“FCA”), the Canadian Competition Bureau, the Swiss Competition Commission (“ComCo”) and other regulatory authorities and banking associations around the world relating primarily to the process by which interest rates were submitted to the British Bankers Association (“BBA”) in connection with the setting of the BBA’s London Interbank Offered Rate (“LIBOR”) for various currencies, principally in 2007 and 2008. Some of the inquiries also relate to similar processes by which information on rates is submitted to the European
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| JPMorgan Chase & Co./2016 Annual Report | | 263 |
Notes to consolidated financial statements
Banking Federation (“EBF”) in connection with the setting of the EBF’s Euro Interbank Offered Rates (“EURIBOR”) and to the Japanese Bankers’ Association for the setting of Tokyo Interbank Offered Rates (“TIBOR”), as well as processes for the setting of U.S. dollar ISDAFIX rates and other reference rates in various parts of the world during similar time periods. The Firm is responding to and continuing to cooperate with these inquiries. As previously reported, the Firm has resolved EC inquiries relating to Yen LIBOR and Swiss Franc LIBOR. In May 2014, the EC issued a Statement of Objections outlining its case againstDecember 2016, the Firm (and others) asresolved ComCo inquiries relating to these same rates. ComCo’s investigation relating to EURIBOR, to which the Firm and other banks are subject, continues. In December 2016, the EC issued a decision against the Firm and other banks finding an infringement of European antitrust rules relating to EURIBOR. The Firm has filed a responsean appeal with the European General Court. In June 2016, the DOJ informed the Firm that the DOJ had closed its inquiry into LIBOR and made oral representations.other benchmark rates with respect to the Firm without taking action. Other inquiries have been discontinued without any action against JPMorgan Chase, including by the SEC, FCA and the Canadian Competition Bureau.
In addition, the Firm has been named as a defendant along with other banks in a series of individual and putative class actions filed in various United States District Courts,Courts. These actions have been filed, or consolidated for pre-trial purposes, in whichthe United States District Court for the Southern District of New York. In these actions, plaintiffs make varying allegations that in various periods, starting in 2000 or later, defendants either individually or collectively manipulated the U.S. dollar LIBOR, Yen LIBOR, Swiss franc LIBOR, Euroyen TIBOR, EURIBOR, Singapore Interbank Offered Rate (“SIBOR”), Singapore Swap Offer Rate (“SOR”) and/or EURIBOR ratesthe Bank Bill Swap Reference Rate (“BBSW”) by submitting rates that were artificially low or high. Plaintiffs allege that they transacted in loans, derivatives or other financial instruments whose values are affected by changes in U.S. dollar LIBOR, Yen LIBOR, Swiss franc LIBOR, Euroyen TIBOR, EURIBOR, SIBOR, SOR or EURIBORBBSW and assert a variety of claims including antitrust claims seeking treble damages. These matters are in various stages of litigation.
TheIn the U.S. dollar LIBOR-related putative class actions, and most U.S. dollar LIBOR-related individual actions were consolidated for pre-trial purposes in the United States District Court for the Southern District of New York. The Court dismissed certain claims, including the antitrust claims, and permitted other claims under the Commodity Exchange Act and common law to proceed. Certain plaintiffs appealed the dismissal of the antitrust claims, andIn May 2016, the United States Court of Appeals for the Second Circuit dismissedvacated the appeal for lack of jurisdiction. In January 2015, the United States Supreme Court reversed the decisiondismissal of the Court of Appeals, holding that plaintiffs have the jurisdictional right to appeal,antitrust claims and remanded the case to the District Court to consider, among other things, whether the plaintiffs have standing to assert antitrust claims. In July 2016, JPMorgan Chase and other defendants again moved in the District Court to dismiss the antitrust claims, and in December 2016, the District Court granted in part and denied in part defendants’ motion, finding that certain plaintiffs lacked standing to assert antitrust claims. Separately, in October 2016, JPMorgan Chase and other defendants filed a petition to the U.S. Supreme Court seeking review of Appeals for further proceedings. The Courtthe Second Circuit’s decision that vacated
the dismissal of Appeals heard oral argument on remand in November 2015.plaintiffs’ antitrust claims. That petition was denied.
The Firm is one of the defendants in a number of putative class actions alleging that defendant banks and ICAP conspired to manipulate the U.S. dollar ISDAFIX rates. Plaintiffs primarily assert claims under the federal antitrust laws and CommoditiesCommodity Exchange Act. In April 2016, the Firm settled the ISDAFIX litigation, along with certain other banks. Those settlements have been preliminarily approved by the Court.
Madoff Litigation. Various subsidiaries of the Firm, including J.P. Morgan Securities plc, have been named as defendants in lawsuits filed in Bankruptcy Court in New York arising out of the liquidation proceedings of Fairfield Sentry Limited and Fairfield Sigma Limited, so-called Madoff feeder funds.
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Notes to consolidated financial statements
These actions seek to recover payments made by the funds to defendants totaling approximately $155 million. All but two of these actions have been dismissed.
In addition, a putative class action was brought by investors in certain feeder funds against JPMorgan Chase in the United States District Court for the Southern District of New York, as was a motion by separate potential class plaintiffs to add claims against the Firm and certain subsidiaries to an already pending putative class action in the same court. The allegations in these complaints largely track those previously raised -- and resolved as to the Firm -- by the court-appointed trustee for Bernard L. Madoff Investment Securities LLC. The District Court dismissed these complaints and the United States Court of Appeals for the Second Circuit affirmed the District Court’s decision. The United States Supreme Court denied plaintiffs’ petition for a writ of certiorari in March 2015. Plaintiffs subsequently served a motion in the Court of Appeals seeking to have the Court reconsider its prior decision in light of another recent appellate decision. That motion was denied in June 2015.
The Firm is a defendant in five other Madoff-related individual investor actions pending in New York state court. The allegations in all of these actions are essentially identical, and involve claims against the Firm for, among other things, aiding and abetting breach of fiduciary duty, conversion and unjust enrichment. In August 2014, the Court dismissed all claims against the Firm. In January 2016, the Appellate Court affirmed the dismissal.
A putative class action was filed in the United States District Court for the District of New Jersey by investors who were net winners (i.e., Madoff customers who had taken more money out of their accounts than had been invested) in Madoff’s Ponzi scheme and were not included in a prior class action settlement. These plaintiffs allege violations of the federal securities law, as well as other state and federal and state racketeering statutes and multiple common law and statutory claims including breach of trust, aiding and abetting embezzlement, unjust enrichment, conversion and commercial bad faith.claims. A similar action was filed in the United States District Court for the Middle District of Florida, although it was not styled as a class action, and included claims pursuant to Florida statutes. The Firm moved to transfer both the Florida and New Jersey actions to the United States District Court for the Southern District of New York. The Florida court denied the transfer motion, but subsequently granted the Firm’s motion to dismiss the case, and in September 2015. PlaintiffsAugust 2016, the United States Court of Appeals for the Eleventh Circuit affirmed the dismissal. The plaintiffs have filed a noticepetition for writ of appeal, which is pending.certiorari with the United States Supreme Court. In addition, the same plaintiffs have re-filed their dismissed state claims in Florida state court.court, where the Firm’s motion to dismiss is pending. The New Jersey court granted thea transfer motion to the United States District Court for the Southern District of New York, which granted the Firm’s motion to dismiss, and the Firm has moved to dismiss the case pending in New York.
Three shareholder derivative actionsplaintiffs have also been filed in New York federal and state court against the Firm, as nominal defendant, and certainan appeal of its current and former Board members, alleging breach of fiduciary duty in
connection with the Firm’s relationship with Bernard Madoff and the alleged failure to maintain effective internal controls to detect fraudulent transactions. The actions seek declaratory relief and damages. All three actions have been dismissed. The plaintiff in one action did not appeal, the dismissal has been affirmed on appeal in another action, and one appeal remains pending.that dismissal.
Mortgage-Backed Securities and Repurchase Litigation and Related Regulatory Investigations. The Firm and affiliates (together, “JPMC”), Bear Stearns and affiliates (together, “Bear Stearns”) and certain Washington Mutual affiliates (together, “Washington Mutual”) have been named as defendants in a number of cases in their various roles in offerings of mortgage-backed securities (“MBS”). These cases include actions by individual MBS purchasers and actions by monoline insurance companies that guaranteed payments of principal and interest for particular tranches of MBS offerings. Following the settlements referred to below, there are currently pending and tolledthe remaining civil cases include one investor claims involving MBS with an original principal balance of approximately $4.2 billion, of which $2.6 billion involves JPMC,action, one action by a monoline insurer relating to Bear Stearns or Washington Mutual as issuer and $1.6 billion involves JPMC, Bear Stearns or Washington MutualStearns’ role solely as underwriter.underwriter, and actions for repurchase of mortgage loans. The Firm and certain of its current and former officers and Board members have also been sued in shareholder derivative actions relating to the Firm’s MBS activities, and trustees have asserted or have threatened to assert claims that loans in securitization trusts should be repurchased.
Issuer Litigation – Class Actions. JPMC has fully resolved all pending putative class actions on behalf of purchasers of MBS.one action remains pending.
Issuer Litigation – Individual Purchaser Actions. TheWith the exception of one remaining action, the Firm is defendinghas settled all of the individual actions brought against JPMC, Bear Stearns and Washington Mutual as MBS issuers (and, in some cases, also as underwriters of their own MBS offerings). The Firm has settled a number of these actions. Several actions remain pending in federal and state courts across the U.S. and are in various stages of litigation.
Monoline Insurer Litigation. The Firm has settled two pending actions relating to a monoline insurer’s guarantees of principal and interest on certain classes of 11 different Bear Stearns MBS offerings. This settlement fully resolves all pending actions by monoline insurers against the Firm relating to RMBS issued and/or sponsored by the Firm.
Underwriter Actions. In actions against theThe Firm involving offerings where the Firm was solely an underwriter of other issuers’ MBS offerings, the Firm has contractual rights to indemnification from the issuers. However, those indemnity rights may prove effectively unenforceable in various situations, such as where the issuers are now defunct. Currently there is defending one suchremaining action pending against the Firmby a monoline insurer relating to a single offering ofBear Stearns’ role solely as underwriter for another issuer.issuer’s MBS offering. The issuer is defunct.
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| 264 | | JPMorgan Chase & Co./2016 Annual Report |
Repurchase Litigation. The Firm is defending a number of actions brought by trustees, securities administrators and/or
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300 | | JPMorgan Chase & Co./2015 Annual Report |
master servicers of various MBS trusts on behalf of purchasers of securities issued by those trusts. These cases generally allege breaches of various representations and warranties regarding securitized loans and seek repurchase of those loans or equivalent monetary relief, as well as indemnification of attorneys’ fees and costs and other remedies. The Firm has reached a settlement with Deutsche Bank National Trust Company, acting as trustee for various MBS trusts, has filed such a suit against JPMorgan Chase Bank, N.A. and the Federal Deposit Insurance Corporation (the “FDIC”) in connection with the litigation related to a significant number of MBS issued by Washington Mutual; that case is described in the Washington Mutual Litigations section below. Other repurchase actions, each specific to one or more MBS transactions issued by JPMC and/or Bear Stearns, are in various stages of litigation.
In addition, the Firm and a group of 21 institutional MBS investors made a binding offer to the trustees of MBS issued by JPMC and Bear Stearns providing for the payment of $4.5 billion and the implementation of certain servicing changes by JPMC, to resolve all repurchase and servicing claims that have been asserted or could have been asserted with respect to 330 MBS trusts created between 2005 and 2008. The offer does not resolve claims relating to Washington Mutual MBS. The trustees (or separate and successor trustees) for this group of 330 trusts have accepted the settlement for 319 trusts in whole or in part and excluded from the settlement 16 trusts in whole or in part. The trustees’ acceptance is subject to a judicialhas received final approval proceeding initiated by the trustees and pending in New York state court. The judicial approval hearing was held in January 2016, and the parties are awaiting a decision. An investor in some of the trusts for which the settlement has been accepted has intervened in the judicial approval proceeding to challenge the trustees’ allocation of the settlement among the trusts. Separately, in October 2015, JPMC reached agreements to resolve repurchase and servicing claims for four trusts among the 16 that were previously excluded from the trustee settlement. In December 2015, the court approved the trustees’ decision to accept these separate settlements. The trustees are seeking to obtain certain remaining approvals necessary to effectuate these settlements.court.
Additional actions have been filed against third-party trustees that relate to loan repurchase and servicing claims involving trusts sponsored by JPMC, Bear Stearns and Washington Mutual.
The Firm has entered into agreements with a number of MBS trustees or entities that purchased MBS that toll applicable statute of limitations periods with respect to their claims, and has settled, and in the future may settle, tolled claims. There is no assurance that the Firm will not be named as a defendant in additional MBS-related litigation.
Derivative Actions. ShareholderA shareholder derivative actions relating to the Firm’s MBS activities have been filedaction against the Firm, as nominal defendant, and certain of its current and former officers and members of its Board of Directors relating to the Firm’s MBS activities is pending in New York state court and California federal court. Two ofDefendants have filed a motion to dismiss the New York actions have been dismissed, one of which is on appeal. A consolidated action in California federal court has been dismissed without prejudice for lack of personal jurisdiction and plaintiffs are pursuing discovery relating to jurisdiction.action.
Government Enforcement Investigations and Litigation. The Firm is responding to an ongoing investigation being conducted by the DOJ’s Criminal Division and two United States Attorney’s Offices relating to MBS offerings securitized and sold by the Firm and its subsidiaries. The Firm has also received subpoenas and informal requests for information from state authorities concerning the issuance and underwriting of MBS-related matters. The Firm continues to respond to these MBS-related regulatory inquiries.
In addition, the Firm continues to cooperate with investigations by the DOJ, including the United States Attorney’s Office for the District of Connecticut, and by the SEC Division of Enforcement and the Office of the Special Inspector General for the Troubled Asset Relief Program, all of which relate to, among other matters, communications with counterparties in connection with certain secondary market trading in residential and commercial MBS.
The Firm has entered into agreements with a number of entities that purchased MBS that toll applicable limitations periods with respect to their claims, and has settled, and in the future may settle, tolled claims. There is no assurance that the Firm will not be named as a defendant in additional MBS-related litigation.
Mortgage-Related Investigations and Litigation. One shareholder derivative action has been filed inIn January 2017, a Consent Judgment was entered by the United States District Court for the Southern District of New York Supreme Court against the Firm’s Board of Directors alleging that the Board failed to exercise adequate oversight as to wrongful conduct
resolving allegations by the Firm regarding mortgage servicing. In December 2014, the court granted defendants’ motion to dismiss the complaint and in January 2016, the dismissal was affirmed on appeal.
The Civil Division of the United States Attorney’s Office for the Southern District of New York is conducting an investigation concerningthat the Firm’s compliance withFirm violated the Fair Housing Act and Equal Credit Opportunity Act by giving pricing discretion to independent mortgage brokers in connection with its mortgagewholesale lending practices.distribution channel which, according to the government’s model, may have charged higher fees and interest rates to African-American and Hispanic borrowers than non-Hispanic White borrowers during the period between 2006 and 2009. The Firm denied liability but agreed to pay a total of approximately $55 million to resolve this matter. In addition, three municipalities have commenced litigation against the Firm alleging violations of an unfair competition law or the Fair Housing Act. The municipalities seek, among other things, civil penalties for the unfair competition claim, and, for the Fair Housing Act claims, damages resulting from lost tax revenue and increased municipal costs associated with foreclosed properties. Two of theThe municipal actions are stayed and a motionpending an appeal by the City of Los Angeles to dismiss is pending in the remaining action.
In March 2015, JPMorgan Chase Bank, N.A entered into a settlement agreement with the Executive Office for United States Bankruptcy Trustees and the United States Trustee Program (collectively,Court of Appeals for the “Bankruptcy Trustee”) to resolve issues relating to mortgage payment change notices and escrow statements in bankruptcy proceedings. In January 2016,Ninth Circuit, as well as the OCC determined that,United States Supreme Court’s review of decisions of the United States Court of Appeals for the Eleventh Circuit which held, among other things, that the mortgage payment change notices issues that wereCity of Miami has standing under the subject of the settlement with the Bankruptcy Trustee violated the 2011 mortgage servicing-related consent order
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JPMorgan Chase & Co./2015 Annual Report | | 301 |
NotesFair Housing Act to consolidated financial statements
entered into by JPMorgan Chase Bank, N.A. and the OCC (as amended in 2013 and 2015), and assessed a $48 million civil money penalty. The OCC concurrently terminated that consent order.pursue similar claims against other banks.
Municipal Derivatives Litigation. Several civil actions were commenced in New York and Alabama courts against the Firm relating to certain Jefferson County, Alabama (the “County”) warrant underwritings and swap transactions. The claims in the civil actions generally alleged that the Firm made payments to certain third parties in exchange for being chosen to underwrite more than $3 billion in warrants issued by the County and to act as the counterparty for certain swaps executed by the County. The County filed for bankruptcy in November 2011. In June 2013, the County filed a Chapter 9 Plan of Adjustment, as amended (the “Plan of Adjustment”), which provided that all the above-described actions against the Firm would be released and dismissed with prejudice. In November 2013, the Bankruptcy Court confirmed the Plan of Adjustment, and in December 2013, certain sewer rate payers filed an appeal challenging the confirmation of the Plan of Adjustment. All conditions to the Plan of Adjustment’s effectiveness, including the dismissal of the actions against the Firm, were satisfied or waived and the transactions contemplated by the Plan of Adjustment occurred in December 2013. Accordingly, all the above-described actions against the Firm have been dismissed pursuant to the terms of the Plan of Adjustment. The appeal of the Bankruptcy Court’s order confirming the Plan of Adjustment remains pending.
Petters Bankruptcy and Related Matters. JPMorgan Chase and certain of its affiliates, including One Equity Partners (“OEP”), have been named as defendants in several actions filed in connection with the receivership and bankruptcy proceedings pertaining to Thomas J. Petters and certain affiliated entities (collectively, “Petters”) and the Polaroid
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| JPMorgan Chase & Co./2016 Annual Report | | 265 |
Notes to consolidated financial statements
Corporation. The principal actions against JPMorgan Chase and its affiliates have been brought by a court-appointed receiver for Petters and the trustees in bankruptcy proceedings for three Petters entities. These actions generally seek to avoid certain putative transfers in connection with (i) the 2005 acquisition by Petters of Polaroid, which at the time was majority-owned by OEP; (ii) two credit facilities that JPMorgan Chase and other financial institutions entered into with Polaroid; and (iii) a credit line and investment accounts held by Petters. The actions collectively seek recovery of approximately $450 million. Defendants have movedIn January 2017, the Court denied the defendants’ motion to dismiss the complaints in the actionsan amended complaint filed by the Petters bankruptcy trustees.plaintiffs.
Proprietary Products Investigations and Litigation. In December 2015, JPMorgan Chase Bank, N.A. and J.P. Morgan Securities LLC agreed to a settlement with the SEC, and JPMorgan Chase Bank, N.A. agreed to a settlement with the CFTC, regarding disclosures to clients concerning conflicts associated with the Firm’s sale and use of proprietary products, such as J.P. Morgan mutual funds, in the Firm’s CCB and AWM wealth management businesses, and the U.S.
Private Bank’s disclosures concerning the use of hedge funds that pay placement agent fees to JPMorgan Chase broker-dealer affiliates. As part of the settlements, JPMorgan Chase Bank, N.A. and J.P. Morgan Securities LLC paid penalties, disgorgement and interest totaling approximately $307 million. The Firm settled with an additional government authority in July 2016, and continues to cooperate with inquiries from other government authorities concerning disclosure of conflicts associated with the Firm’s sale and use of proprietary products. A putative class action, which was filed in the United States District Court for the Northern District of Illinois on behalf of financial advisory clients from 2007 to the present whose funds were invested in proprietary funds and who were charged investment management fees, was dismissed by the Court. Plaintiffs’ appeal of theThe dismissal is pending.has been affirmed on appeal.
Referral Hiring Practices Investigations. Various regulators are investigating, among other things,In November 2016, the Firm’s complianceFirm entered into settlements with DOJ, the Foreign Corrupt Practices ActSEC and other laws with respectthe Board of Governors of the Federal Reserve System (the “Federal Reserve”) to the Firm’sresolve those agencies’ respective investigations relating to a former hiring practices related toprogram for candidates referred by clients, potential clients and government officials and its engagement of consultants in the Asia Pacific region. TheOther related investigations are ongoing, and the Firm is respondingcontinues to and cooperatingcooperate with these investigations.
Washington Mutual Litigations. Proceedings related to Washington Mutual’s failure are pending before the United States District Court for the District of Columbia and include a lawsuit brought by Deutsche Bank National Trust Company, initially against the FDIC and amended to include JPMorgan Chase Bank, N.A. as a defendant, asserting an estimated $6 billion to $10 billion in damages based upon alleged breaches of certain representations and warranties given by certain Washington Mutual affiliates in connection with mortgage securitization agreements. The case includes assertions that JPMorgan Chase Bank, N.A. may have assumed liabilities for the alleged breaches of representations and warranties in the mortgage securitization agreements. In June 2015, the court ruled in
favor of JPMorgan Chase Bank, N.A. on the question of whether the Firm or the FDIC bears responsibility for Washington Mutual Bank’s repurchase obligations, holding that JPMorgan Chase Bank, N.A. assumed only those liabilities that were reflected on Washington Mutual Bank’s financial accounting records as of September 25, 2008, and only up to the amount of the book value reflected therein. The FDIC is appealinghas appealed that ruling and the case has otherwise been stayed pending the outcome of that appeal.
Certain holders of Washington Mutual Bank debt filed an action against JPMorgan Chase which alleged that by acquiring substantially all of the assets of Washington Mutual Bank from the FDIC, JPMorgan Chase Bank, N.A. caused Washington Mutual Bank to default on its bond obligations. JPMorgan Chase and the FDIC moved to dismiss this action and the District Court dismissed the case except as to the plaintiffs’ claim that JPMorgan Chase tortiously interfered with the plaintiffs’ bond contracts with Washington Mutual Bank prior to its closure. The action has
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302 | | JPMorgan Chase & Co./2015 Annual Report |
been stayed pending a decision on JPMorgan Chase’s motion to dismiss the plaintiffs’ remaining claim.ruling.
JPMorgan Chase has also filed complaints in the United States District Court for the District of Columbia against the FDIC, in its corporate capacity as well as in its capacity as receiver for Washington Mutual Bank, asserting multiple claims for indemnification under the terms of the Purchase & Assumption Agreement between JPMorgan Chase Bank, N.A. and the FDIC relating to JPMorgan Chase’sChase Bank, N.A.’s purchase of mostsubstantially all of the assets and certain liabilities of Washington Mutual Bank.Bank (the “Purchase & Assumption Agreement”).
The Firm, Deutsche Bank National Trust Company and the FDIC have signed a settlement agreement to resolve (i) pending litigation brought by Deutsche Bank National Trust Company against the FDIC and JPMorgan Chase Bank, N.A., as defendants, relating to alleged breaches of certain representations and warranties given by certain Washington Mutual affiliates in connection with mortgage securitization agreements and (ii) JPMorgan Chase Bank, N.A.’s outstanding indemnification claims pursuant to the terms of the Purchase & Assumption Agreement. The settlement is subject to certain judicial approval procedures, and both matters are stayed pending approval of the settlement.
Wendel. Since 2012, the French criminal authorities have been investigating a series of transactions entered into by senior managers of Wendel Investissement (“Wendel”) during the period from 2004 through 2007 to restructure their shareholdings in Wendel. JPMorgan Chase Bank, N.A., Paris branch provided financing for the transactions to a number of managers of Wendel in 2007. In April 2015,JPMorgan Chase has cooperated with the investigation. The investigating judges issued an ordonnance de renvoi on November 30, 2016, referring JPMorgan Chase Bank, N.A. was notified thatto the authorities were formally investigatingFrench tribunal correctionnel for alleged complicity in tax fraud. No date for trial has been set by the rolecourt. The Firm has been successful in legal challenges made to the Court of its Paris branch in the transactions, including alleged criminal tax abuse. JPMorgan Chase is respondingCassation, France’s highest court, which have been referred back to and cooperating withremain pending before the investigation.Paris Court of Appeal. In addition, civil proceedings have been commenced against JPMorgan Chase Bank, N.A. by a number of the managers. The claims are separate, involve different allegations and are at various stages of proceedings.
* * *
In addition to the various legal proceedings discussed above, JPMorgan Chase and its subsidiaries are named as defendants or are otherwise involved in a substantial number of other legal proceedings and inquiries.proceedings. The Firm believes it has meritorious defenses to the claims asserted against it in its currently outstanding legal proceedings and inquiries, and it intends to
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| 266 | | JPMorgan Chase & Co./2016 Annual Report |
defend itself vigorously in all such matters. Additional legal proceedings and inquiries may be initiated from time to time in the future.
The Firm has established reserves for several hundred of its currently outstanding legal proceedings. In accordance with the provisions of U.S. GAAP for contingencies, the Firm accrues for a litigation-related liability when it is probable that such a liability has been incurred and the amount of the loss can be reasonably estimated. The Firm evaluates its outstanding legal proceedings each quarter to assess its litigation reserves, and makes adjustments in such reserves, upwards or downward, as appropriate, based on management’s best judgment after consultation with counsel. During the years ended December 31, 2016, 2015 and 2014, the Firm’s legal expense was a benefit of $(317) million and 2013, the Firm incurred legalan expense of $3.0 billion $2.9 billion and $11.1$2.9 billion, respectively. There is no assurance that the Firm’s litigation reserves will not need to be adjusted in the future.
In view of the inherent difficulty of predicting the outcome of legal proceedings, particularly where the claimants seek very large or indeterminate damages, or where the matters present novel legal theories, involve a large number of parties or are in early stages of discovery, the Firm cannot state with confidence what will be the eventual outcomes of the currently pending matters, the timing of their ultimate resolution or the eventual losses, fines, penalties or impact related to those matters. JPMorgan Chase believes, based upon its current knowledge, after consultation with counsel and after taking into account its current litigation reserves, that the legal proceedings currently pending against it should not have a material adverse effect on the Firm’s consolidated financial condition. The Firm notes, however, that in light of the uncertainties involved in such proceedings, there is no assurance that the ultimate resolution of these matters will not significantly exceed the reserves it has currently accrued; asaccrued or that a matter will not have material reputational consequences. As a result, the outcome of a particular matter may be material to JPMorgan Chase’s operating results for a particular period, depending on, among other factors, the size of the loss or liability imposed and the level of JPMorgan Chase’s income for that period.
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JPMorgan Chase & Co./20152016 Annual Report | | 303267 |
Notes to consolidated financial statements
Note 32 – International operations
The following table presents income statement- and balance sheet-related information for JPMorgan Chase by major international geographic area. The Firm defines international activities for purposes of this footnote presentation as business transactions that involve clients residing outside of the U.S., and the information presented below is based predominantly on the domicile of the client, the location from which the client relationship is managed, or the location of the trading desk. However, many of the Firm’s U.S. operations serve international businesses.
As the Firm’s operations are highly integrated, estimates and subjective assumptions have been made to apportion revenue and expense between U.S. and international operations. These estimates and assumptions are consistent with the allocations used for the Firm’s segment reporting as set forth in Note 33.
The Firm’s long-lived assets for the periods presented are not considered by management to be significant in relation to total assets. The majority of the Firm’s long-lived assets are located in the U.S.
| | | As of or for the year ended December 31, (in millions) | | Revenue(b) | | Expense(c) | | Income before income tax expense | | Net income | | Total assets |
| | | Revenue(b) | | Expense(c) | | Income before income tax expense | | Net income | | Total assets |
| |
| 2016 | | | | | | | | | | | | |
| Europe/Middle East and Africa | | | $ | 13,842 |
| | $ | 8,550 |
| | $ | 5,292 |
| | $ | 3,783 |
| | $ | 394,134 |
| (d) |
| Asia and Pacific | | | 6,112 |
| | 4,213 |
| | 1,899 |
| | 1,212 |
| | 156,946 |
| |
| Latin America and the Caribbean | | | 1,959 |
| | 1,632 |
| | 327 |
| | 208 |
| | 42,971 |
| |
| Total international | | | 21,913 |
| | 14,395 |
| | 7,518 |
| | 5,203 |
| | 594,051 |
| |
North America(a) | | | 73,755 |
| | 46,737 |
| | 27,018 |
| | 19,530 |
| | 1,896,921 |
| |
| Total | | | $ | 95,668 |
| | $ | 61,132 |
| | $ | 34,536 |
| | $ | 24,733 |
| | $ | 2,490,972 |
| |
| 2015 | | | | | | | | | | | | | | | | | | | | | | |
| Europe/Middle East and Africa | | $ | 14,206 |
| | $ | 8,871 |
| | $ | 5,335 |
| | $ | 4,158 |
| | $ | 347,647 |
| (d) | | $ | 14,206 |
| | $ | 8,871 |
| | $ | 5,335 |
| | $ | 4,158 |
| | $ | 347,647 |
| (d) |
| Asia and Pacific | | 6,151 |
| | 4,241 |
| | 1,910 |
| | 1,285 |
| | 138,747 |
| | | 6,151 |
| | 4,241 |
| | 1,910 |
| | 1,285 |
| | 138,747 |
| |
| Latin America and the Caribbean | | 1,923 |
| | 1,508 |
| | 415 |
| | 253 |
| | 48,185 |
| | | 1,923 |
| | 1,508 |
| | 415 |
| | 253 |
| | 48,185 |
| |
| Total international | | 22,280 |
| | 14,620 |
| | 7,660 |
| | 5,696 |
| | 534,579 |
| | | 22,280 |
| | 14,620 |
| | 7,660 |
| | 5,696 |
| | 534,579 |
| |
North America(a) | | 71,263 |
| | 48,221 |
| | 23,042 |
| | 18,746 |
| | 1,817,119 |
| | | 71,263 |
| | 48,221 |
| | 23,042 |
| | 18,746 |
| | 1,817,119 |
| |
| Total | | $ | 93,543 |
| | $ | 62,841 |
| | $ | 30,702 |
| | $ | 24,442 |
| | $ | 2,351,698 |
| | | $ | 93,543 |
| | $ | 62,841 |
| | $ | 30,702 |
| | $ | 24,442 |
| | $ | 2,351,698 |
| |
| 2014 | | | | | | | | | | | | | | | | | | | | | | |
| Europe/Middle East and Africa | | $ | 16,013 |
| | $ | 10,123 |
| | $ | 5,890 |
| | $ | 3,935 |
| | $ | 481,328 |
| (d) | | $ | 16,013 |
| | $ | 10,123 |
| | $ | 5,890 |
| | $ | 3,935 |
| | $ | 481,328 |
| (d) |
| Asia and Pacific | | 6,083 |
| | 4,478 |
| | 1,605 |
| | 1,051 |
| | 147,357 |
| | | 6,083 |
| | 4,478 |
| | 1,605 |
| | 1,051 |
| | 147,357 |
| |
| Latin America and the Caribbean | | 2,047 |
| | 1,626 |
| | 421 |
| | 269 |
| | 44,567 |
| | | 2,047 |
| | 1,626 |
| | 421 |
| | 269 |
| | 44,567 |
| |
| Total international | | 24,143 |
| | 16,227 |
| | 7,916 |
| | 5,255 |
| | 673,252 |
| | | 24,143 |
| | 16,227 |
| | 7,916 |
| | 5,255 |
| | 673,252 |
| |
North America(a) | | 70,969 |
| | 48,186 |
| | 22,783 |
| | 16,490 |
| | 1,899,022 |
| | | 70,969 |
| | 48,186 |
| | 22,783 |
| | 16,490 |
| | 1,899,022 |
| |
| Total | | $ | 95,112 |
| | $ | 64,413 |
| | $ | 30,699 |
| | $ | 21,745 |
| | $ | 2,572,274 |
| | | $ | 95,112 |
| | $ | 64,413 |
| | $ | 30,699 |
| | $ | 21,745 |
| | $ | 2,572,274 |
| |
| 2013 | | | | | | | | | | | | |
| Europe/Middle East and Africa | | $ | 15,585 |
| | $ | 9,069 |
| | $ | 6,516 |
| | $ | 4,842 |
| | $ | 514,747 |
| (d) | |
| Asia and Pacific | | 6,168 |
| | 4,248 |
| | 1,920 |
| | 1,254 |
| | 145,999 |
| | |
| Latin America and the Caribbean | | 2,251 |
| | 1,626 |
| | 625 |
| | 381 |
| | 41,473 |
| | |
| Total international | | 24,004 |
| | 14,943 |
| | 9,061 |
| | 6,477 |
| | 702,219 |
| | |
North America(a) | | 73,363 |
| | 55,749 |
| | 17,614 |
| | 11,409 |
| | 1,712,660 |
| | |
| Total | | $ | 97,367 |
| | $ | 70,692 |
| | $ | 26,675 |
| | $ | 17,886 |
| | $ | 2,414,879 |
| | |
| |
| (a) | Substantially reflects the U.S. |
| |
| (b) | Revenue is composed of net interest income and noninterest revenue. |
| |
| (c) | Expense is composed of noninterest expense and the provision for credit losses. |
| |
| (d) | Total assets for the U.K. were approximately $310 billion, $306 billion, $434 billion, and $451$434 billion at December 31, 2016, 2015 2014 and 2013,2014, respectively. |
|
| | |
304268 | | JPMorgan Chase & Co./20152016 Annual Report |
Note 33 – Business segments
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 & Wealth 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 80–82. For a further discussion concerning JPMorgan Chase’s business segments, see Business Segment Results on pages 83–84.results of this footnote.
The following is a description of each of the Firm’s business segments, and the products and services they provide to their respective client bases.
Consumer & Community Banking
Consumer & Community Banking (“CCB”) servesCCB offers services to consumers and businesses through personal service at bank branches, and through ATMs, online, mobile and telephone banking. CCB is organized into Consumer & Business Banking (including Consumer Banking/Chase Wealth Management and Business Banking), Mortgage Banking (including Mortgage Production, Mortgage Servicing and Real Estate Portfolios) and Card, Commerce Solutions & Auto (“Card”).Auto. 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 consisting of residential mortgages and home equity loans. Card, Commerce Solutions & Auto issues credit cards to consumers and small businesses, offers payment processing services to merchants, originates and providesservices auto loans and leases, and services student loan services.loans.
Corporate & Investment Bank
The Corporate & Investment Bank (“CIB”),CIB, which consists 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. Banking 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. Banking also includes Treasury Services, which provides transaction services, consisting of cash management and liquidity solutions. Markets & Investor Services is a global market-makermarket-
maker in cash securities and derivative instruments, and also offers sophisticated risk management solutions, prime brokerage, and research. Markets & Investor Services also includes Securities Services, a leading global custodian whichthat provides custody, fund accounting and administration, and
securities lending products principally for asset managers, insurance companies and public and private investment funds.
Commercial Banking
Commercial Banking (“CB”)CB delivers extensive industry knowledge, local expertise and dedicated service to U.S. and U.S. multinational clients, including corporations, municipalities, financial institutions and nonprofit entities with annual revenue generally ranging from $20 million to $2 billion. In addition, CB provides financing to real estate investors and owners. Partnering with the Firm’s other businesses, CB provides comprehensive financial solutions, including lending, treasury services, investment banking and asset management to meet its clients’ domestic and international financial needs.
Asset & Wealth Management
Asset Management (“AM”),AWM, with client assets of $2.4$2.5 trillion, is a global leader in investment and wealth management. AMAWM clients include institutions, high-net-worth individuals and retail investors in many major markets throughout the world. AMAWM offers investment management across most major asset classes including equities, fixed income, alternatives and money market funds. AMAWM also offers multi-asset investment management, providing solutions for a broad range of clients’ investment needs. For Global Wealth Management clients, AMAWM also provides retirement products and services, brokerage and banking services, including trusts and estates, loans, mortgages and deposits. The majority of AM’sAWM’s client assets are in actively managed portfolios.
Corporate
The Corporate segment consists of Treasury and Chief Investment Office (“CIO”)CIO and Other Corporate, which includes corporate staff units and expense that is centrally managed. Treasury and CIO are predominantly responsible for measuring, monitoring, reporting and managing the Firm’s liquidity, funding and structural interest rate and foreign exchange risks, as well as executing the Firm’s capital plan. The major Other Corporate units include Real Estate, Enterprise Technology, Legal, Compliance, Finance, Human Resources, Internal Audit, Risk Management, Oversight & Control, Corporate Responsibility and various Other Corporate groups. Other centrally managed expense includes the Firm’s occupancy and pension-related expenses that are subject to allocation to the businesses.
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JPMorgan Chase & Co./20152016 Annual Report | | 305269 |
Notes to consolidated financial statements
Segment results
The following tables provide a summary of the Firm’s segment results as of or for the years ended December 31, 2016, 2015 2014 and 20132014 on a managed basis. TotalThe Firm’s definition of managed basis starts with the reported U.S. GAAP results and includes certain reclassifications to present total net revenue (noninterest revenue and net interest income) for each of the reportable business segments is presented on a fully taxable-equivalent (“FTE”)FTE basis. Accordingly, revenue from
investments that receivereceiving 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 from year-to-year arising from both taxable and tax-exempt sources. The corresponding income tax impact related to tax-exempt items is recorded within income tax expense/(benefit).
Preferred stock dividend allocation
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. This cost is included as a reduction to net income applicable to common equity to be consistent with the presentation of firmwide results.
Business segment capital allocation changes
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. 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 rules) and economic risk. The amount of capital assigned to each business is referred to as equity.
Segment results and reconciliation
| | As of or for the year ended December 31, (in millions, except ratios) | Consumer & Community Banking | | Corporate & Investment Bank | | Commercial Banking | | Consumer & Community Banking | | Corporate & Investment Bank | | Commercial Banking | | Asset & Wealth Management |
| 2015 | 2014 | 2013 | | 2015 | 2014 | 2013 | | 2015 | 2014 | 2013 | | 2016 | 2015 | 2014 | | 2016 | 2015 | 2014 | | 2016 | 2015 | 2014 | | 2016 | 2015 | 2014 |
| Noninterest revenue | $ | 15,592 |
| $ | 15,937 |
| $ | 17,552 |
| | $ | 23,693 |
| $ | 23,420 |
| $ | 23,736 |
| | $ | 2,365 |
| $ | 2,349 |
| $ | 2,298 |
| | $ | 15,255 |
| $ | 15,592 |
| $ | 15,937 |
| | $ | 24,325 |
| $ | 23,693 |
| $ | 23,420 |
| | $ | 2,320 |
| $ | 2,365 |
| $ | 2,349 |
| | $ | 9,012 |
| $ | 9,563 |
| $ | 9,588 |
|
| Net interest income | 28,228 |
| 28,431 |
| 28,985 |
| | 9,849 |
| 11,175 |
| 10,976 |
| | 4,520 |
| 4,533 |
| 4,794 |
| | 29,660 |
| 28,228 |
| 28,431 |
| | 10,891 |
| 9,849 |
| 11,175 |
| | 5,133 |
| 4,520 |
| 4,533 |
| | 3,033 |
| 2,556 |
| 2,440 |
|
| Total net revenue | 43,820 |
| 44,368 |
| 46,537 |
| | 33,542 |
| 34,595 |
| 34,712 |
| | 6,885 |
| 6,882 |
| 7,092 |
| | 44,915 |
| 43,820 |
| 44,368 |
| | 35,216 |
| 33,542 |
| 34,595 |
| | 7,453 |
| 6,885 |
| 6,882 |
| | 12,045 |
| 12,119 |
| 12,028 |
|
| Provision for credit losses | 3,059 |
| 3,520 |
| 335 |
| | 332 |
| (161 | ) | (232 | ) | | 442 |
| (189 | ) | 85 |
| | 4,494 |
| 3,059 |
| 3,520 |
| | 563 |
| 332 |
| (161 | ) | | 282 |
| 442 |
| (189 | ) | | 26 |
| 4 |
| 4 |
|
| Noninterest expense | 24,909 |
| 25,609 |
| 27,842 |
| | 21,361 |
| 23,273 |
| 21,744 |
| | 2,881 |
| 2,695 |
| 2,610 |
| | 24,905 |
| 24,909 |
| 25,609 |
| | 18,992 |
| 21,361 |
| 23,273 |
| | 2,934 |
| 2,881 |
| 2,695 |
| | 8,478 |
| 8,886 |
| 8,538 |
|
| Income/(loss) before income tax expense/(benefit) | 15,852 |
| 15,239 |
| 18,360 |
| | 11,849 |
| 11,483 |
| 13,200 |
| | 3,562 |
| 4,376 |
| 4,397 |
| | 15,516 |
| 15,852 |
| 15,239 |
| | 15,661 |
| 11,849 |
| 11,483 |
| | 4,237 |
| 3,562 |
| 4,376 |
| | 3,541 |
| 3,229 |
| 3,486 |
|
| Income tax expense/(benefit) | 6,063 |
| 6,054 |
| 7,299 |
| | 3,759 |
| 4,575 |
| 4,350 |
| | 1,371 |
| 1,741 |
| 1,749 |
| | 5,802 |
| 6,063 |
| 6,054 |
| | 4,846 |
| 3,759 |
| 4,575 |
| | 1,580 |
| 1,371 |
| 1,741 |
| | 1,290 |
| 1,294 |
| 1,333 |
|
| Net income/(loss) | $ | 9,789 |
| $ | 9,185 |
| $ | 11,061 |
| | $ | 8,090 |
| $ | 6,908 |
| $ | 8,850 |
| | $ | 2,191 |
| $ | 2,635 |
| $ | 2,648 |
| | $ | 9,714 |
| $ | 9,789 |
| $ | 9,185 |
| | $ | 10,815 |
| $ | 8,090 |
| $ | 6,908 |
| | $ | 2,657 |
| $ | 2,191 |
| $ | 2,635 |
| | $ | 2,251 |
| $ | 1,935 |
| $ | 2,153 |
|
| Average common equity | $ | 51,000 |
| $ | 51,000 |
| $ | 46,000 |
| | $ | 62,000 |
| $ | 61,000 |
| $ | 56,500 |
| | $ | 14,000 |
| $ | 14,000 |
| $ | 13,500 |
| | $ | 51,000 |
| $ | 51,000 |
| $ | 51,000 |
| | $ | 64,000 |
| $ | 62,000 |
| $ | 61,000 |
| | $ | 16,000 |
| $ | 14,000 |
| $ | 14,000 |
| | $ | 9,000 |
| $ | 9,000 |
| $ | 9,000 |
|
| Total assets | 502,652 |
| 455,634 |
| 452,929 |
| | 748,691 |
| 861,466 |
| 843,248 |
| | 200,700 |
| 195,267 |
| 190,782 |
| | 535,310 |
| 502,652 |
| 455,634 |
| | 803,511 |
| 748,691 |
| 861,466 |
| | 214,341 |
| 200,700 |
| 195,267 |
| | 138,384 |
| 131,451 |
| 128,701 |
|
| Return on common equity | 18 | % | 18 | % | 23 | % | | 12 | % | 10 | % | 15 | % | | 15 | % | 18 | % | 19 | % | | 18 | % | 18 | % | 18 | % | | 16 | % | 12 | % | 10 | % | | 16 | % | 15 | % | 18 | % | | 24 | % | 21 | % | 23 | % |
| Overhead ratio | 57 |
| 58 |
| 60 |
| | 64 |
| 67 |
| 63 |
| | 42 |
| 39 |
| 37 |
| | 55 |
| 57 |
| 58 |
| | 54 |
| 64 |
| 67 |
| | 39 |
| 42 |
| 39 |
| | 70 |
| 73 |
| 71 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (table continued from above) | | | | | | | | | |
As of or for the year ended December 31, (in millions, except ratios) | | Corporate | | Reconciling Items(a) | | Total |
| | 2016 | 2015 | 2014 | | 2016 | 2015 | 2014 | | 2016 | 2015 | 2014 |
| Noninterest revenue | | $ | 938 |
| $ | 800 |
| $ | 1,972 |
| | $ | (2,265 | ) | $ | (1,980 | ) | $ | (1,788 | ) | | $ | 49,585 |
| $ | 50,033 |
| $ | 51,478 |
|
| Net interest income | | (1,425 | ) | (533 | ) | (1,960 | ) | | (1,209 | ) | (1,110 | ) | (985 | ) | | 46,083 |
| 43,510 |
| 43,634 |
|
| Total net revenue | | (487 | ) | 267 |
| 12 |
| | (3,474 | ) | (3,090 | ) | (2,773 | ) | | 95,668 |
| 93,543 |
| 95,112 |
|
| Provision for credit losses | | (4 | ) | (10 | ) | (35 | ) | | — |
| — |
| — |
| | 5,361 |
| 3,827 |
| 3,139 |
|
| Noninterest expense | | 462 |
| 977 |
| 1,159 |
| | — |
| — |
| — |
| | 55,771 |
| 59,014 |
| 61,274 |
|
Income/(loss) before income tax expense/(benefit) | | (945 | ) | (700 | ) | (1,112 | ) | | (3,474 | ) | (3,090 | ) | (2,773 | ) | | 34,536 |
| 30,702 |
| 30,699 |
|
| Income tax expense/(benefit) | | (241 | ) | (3,137 | ) | (1,976 | ) | | (3,474 | ) | (3,090 | ) | (2,773 | ) | | 9,803 |
| 6,260 |
| 8,954 |
|
| Net income/(loss) | | $ | (704 | ) | $ | 2,437 |
| $ | 864 |
| | $ | — |
| $ | — |
| $ | — |
| | $ | 24,733 |
| $ | 24,442 |
| $ | 21,745 |
|
| Average common equity | | $ | 84,631 |
| $ | 79,690 |
| $ | 72,400 |
| | $ | — |
| $ | — |
| $ | — |
| | $ | 224,631 |
| $ | 215,690 |
| $ | 207,400 |
|
| Total assets | | 799,426 |
| 768,204 |
| 931,206 |
| | NA |
| NA |
| NA |
| | 2,490,972 |
| 2,351,698 |
| 2,572,274 |
|
| Return on common equity | | NM |
| NM |
| NM |
| | NM |
| NM |
| NM |
| | 10 | % | 11 | % | 10 | % |
| Overhead ratio | | NM |
| NM |
| NM |
| | NM |
| NM |
| NM |
| | 58 |
| 63 |
| 64 |
|
| |
| (a) | Segment managed results reflect revenue on a FTE basis with the corresponding income tax impact recorded within income tax expense/(benefit). These adjustments are eliminated in reconciling items to arrive at the Firm’s reported U.S. GAAP results. |
|
| | |
306270 | | JPMorgan Chase & Co./20152016 Annual Report |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (table continued from previous page) | | | | | | | | | |
| Asset Management | | Corporate | | Reconciling Items(a) | | Total |
| 2015 | 2014 | 2013 | | 2015 | 2014 | 2013 | | 2015 | 2014 | 2013 | | 2015 | 2014 | 2013 |
| $ | 9,563 |
| $ | 9,588 |
| $ | 9,029 |
| | $ | 800 |
| $ | 1,972 |
| $ | 3,093 |
| | $ | (1,980 | ) | $ | (1,788 | ) | $ | (1,660 | ) | | $ | 50,033 |
| $ | 51,478 |
| $ | 54,048 |
|
| 2,556 |
| 2,440 |
| 2,376 |
| | (533 | ) | (1,960 | ) | (3,115 | ) | | (1,110 | ) | (985 | ) | (697 | ) | | 43,510 |
| 43,634 |
| 43,319 |
|
| 12,119 |
| 12,028 |
| 11,405 |
| | 267 |
| 12 |
| (22 | ) | | (3,090 | ) | (2,773 | ) | (2,357 | ) | | 93,543 |
| 95,112 |
| 97,367 |
|
| 4 |
| 4 |
| 65 |
| | (10 | ) | (35 | ) | (28 | ) | | — |
| — |
| — |
| | 3,827 |
| 3,139 |
| 225 |
|
| 8,886 |
| 8,538 |
| 8,016 |
| | 977 |
| 1,159 |
| 10,255 |
| | — |
| — |
| — |
| | 59,014 |
| 61,274 |
| 70,467 |
|
| 3,229 |
| 3,486 |
| 3,324 |
| | (700 | ) | (1,112 | ) | (10,249 | ) | | (3,090 | ) | (2,773 | ) | (2,357 | ) | | 30,702 |
| 30,699 |
| 26,675 |
|
| 1,294 |
| 1,333 |
| 1,241 |
| | (3,137 | ) | (1,976 | ) | (3,493 | ) | | (3,090 | ) | (2,773 | ) | (2,357 | ) | | 6,260 |
| 8,954 |
| 8,789 |
|
| $ | 1,935 |
| $ | 2,153 |
| $ | 2,083 |
| | $ | 2,437 |
| $ | 864 |
| $ | (6,756 | ) | | $ | — |
| $ | — |
| $ | — |
| | $ | 24,442 |
| $ | 21,745 |
| $ | 17,886 |
|
| $ | 9,000 |
| $ | 9,000 |
| $ | 9,000 |
| | $ | 79,690 |
| $ | 72,400 |
| $ | 71,409 |
| | $ | — |
| $ | — |
| $ | — |
| | $ | 215,690 |
| $ | 207,400 |
| $ | 196,409 |
|
| 131,451 |
| 128,701 |
| 122,414 |
| | 768,204 |
| 931,206 |
| 805,506 |
| | NA |
| NA |
| NA |
| | 2,351,698 |
| 2,572,274 |
| 2,414,879 |
|
| 21 | % | 23 | % | 23 | % | | NM |
| NM |
| NM |
| | NM |
| NM |
| NM |
| | 11 | % | 10 | % | 9 | % |
| 73 |
| 71 |
| 70 |
| | NM |
| NM |
| NM |
| | NM |
| NM |
| NM |
| | 63 |
| 64 |
| 72 |
|
|
| | |
JPMorgan Chase & Co./2015 Annual Report | | 307 |
Notes to consolidated financial statements
Note 34 – Parent companyCompany
The following tables present Parent Company-only financial statements.
|
| | | | | | | | | | | | |
| Parent company – Statements of income and comprehensive income |
Year ended December 31, (in millions) | | 2015 |
| | 2014 |
| | 2013 |
|
| Income | | | | | | |
| Dividends from subsidiaries and affiliates: | | | | | | |
| Bank and bank holding company | | $ | 10,653 |
| | $ | — |
| | $ | 1,175 |
|
Nonbank(a) | | 8,172 |
| | 14,716 |
| | 876 |
|
| Interest income from subsidiaries | | 443 |
| | 378 |
| | 757 |
|
| Other interest income | | 234 |
| | 284 |
| | 303 |
|
Other income from subsidiaries, primarily fees: | | | | | | |
| Bank and bank holding company | | 1,438 |
| | 779 |
| | 318 |
|
| Nonbank | | (2,945 | ) | | 52 |
| | 2,065 |
|
| Other income/(loss) | | 3,316 |
| | 508 |
| | (1,380 | ) |
| Total income | | 21,311 |
| | 16,717 |
| | 4,114 |
|
| Expense | | | | | | |
Interest expense to subsidiaries and affiliates(a) | | 98 |
| | 169 |
| | 309 |
|
| Other interest expense | | 3,720 |
| | 3,645 |
| | 4,031 |
|
| Other noninterest expense | | 2,611 |
| | 827 |
| | 9,597 |
|
| Total expense | | 6,429 |
| | 4,641 |
| | 13,937 |
|
| Income (loss) before income tax benefit and undistributed net income of subsidiaries | | 14,882 |
| | 12,076 |
| | (9,823 | ) |
| Income tax benefit | | 1,640 |
| | 1,430 |
| | 4,301 |
|
| Equity in undistributed net income of subsidiaries | | 7,920 |
| | 8,239 |
| | 23,408 |
|
| Net income | | $ | 24,442 |
| | $ | 21,745 |
| | $ | 17,886 |
|
| Other comprehensive income, net | | (1,997 | ) | | 990 |
| | (2,903 | ) |
| Comprehensive income | | $ | 22,445 |
| | $ | 22,735 |
| | $ | 14,983 |
|
|
| | | | | | | | |
| Parent company – Balance sheets | | | | |
| December 31, (in millions) | | 2015 |
| | 2014 |
|
| Assets | | | | |
| Cash and due from banks | | $ | 74 |
| | $ | 211 |
|
| Deposits with banking subsidiaries | | 65,799 |
| | 95,884 |
|
| Trading assets | | 13,830 |
| | 18,222 |
|
| Available-for-sale securities | | 3,154 |
| | 3,321 |
|
| Loans | | 1,887 |
| | 2,260 |
|
| Advances to, and receivables from, subsidiaries: | | | | |
| Bank and bank holding company | | 32,454 |
| | 33,810 |
|
| Nonbank | | 58,674 |
| | 52,626 |
|
| Investments (at equity) in subsidiaries and affiliates: | | | | |
| Bank and bank holding company | | 225,613 |
| | 215,732 |
|
Nonbank(a) | | 34,205 |
| | 41,173 |
|
| Other assets | | 18,088 |
| | 18,200 |
|
| Total assets | | $ | 453,778 |
| | $ | 481,439 |
|
| Liabilities and stockholders’ equity | | | | |
Borrowings from, and payables to, subsidiaries and affiliates(a) | | $ | 11,310 |
| | $ | 17,381 |
|
| Other borrowed funds, primarily commercial paper | | 3,722 |
| | 49,586 |
|
| Other liabilities | | 11,940 |
| | 11,918 |
|
Long-term debt(b)(c) | | 179,233 |
| | 170,827 |
|
Total liabilities(c) | | 206,205 |
| | 249,712 |
|
| Total stockholders’ equity | | 247,573 |
| | 231,727 |
|
| Total liabilities and stockholders’ equity | | $ | 453,778 |
| | $ | 481,439 |
|
|
| | | | | | | | | | | | |
Statements of income and comprehensive income(a) |
Year ended December 31, (in millions) | | 2016 |
| | 2015 |
| | 2014 |
|
| Income | | | | | | |
| Dividends from subsidiaries and affiliates: | | | | | | |
| Bank and bank holding company | | $ | 10,000 |
| | $ | 10,653 |
| | $ | — |
|
Nonbank(b) | | 3,873 |
| | 8,172 |
| | 14,716 |
|
| Interest income from subsidiaries | | 794 |
| | 443 |
| | 378 |
|
| Other interest income | | 207 |
| | 234 |
| | 284 |
|
| Other income from subsidiaries, primarily fees: | | | | | | |
| Bank and bank holding company | | 852 |
| | 1,438 |
| | 779 |
|
| Nonbank | | 1,165 |
| | (1,402 | ) | | 52 |
|
| Other income | | (846 | ) | | 1,773 |
| | 508 |
|
| Total income | | 16,045 |
| | 21,311 |
| | 16,717 |
|
| Expense | | | | | | |
Interest expense to subsidiaries and affiliates(b) | | 105 |
| | 98 |
| | 169 |
|
| Other interest expense | | 4,413 |
| | 3,720 |
| | 3,645 |
|
| Noninterest expense | | 1,643 |
| | 2,611 |
| | 827 |
|
| Total expense | | 6,161 |
| | 6,429 |
| | 4,641 |
|
| Income before income tax benefit and undistributed net income of subsidiaries | | 9,884 |
| | 14,882 |
| | 12,076 |
|
| Income tax benefit | | 876 |
| | 1,640 |
| | 1,430 |
|
| Equity in undistributed net income of subsidiaries | | 13,973 |
| | 7,920 |
| | 8,239 |
|
| Net income | | $ | 24,733 |
| | $ | 24,442 |
| | $ | 21,745 |
|
| Other comprehensive income, net | | (1,521 | ) | | (1,997 | ) | | 990 |
|
| Comprehensive income | | $ | 23,212 |
| | $ | 22,445 |
| | $ | 22,735 |
|
|
| | | | | | | | |
Balance sheets(a) | | | | |
| December 31, (in millions) | | 2016 |
| | 2015 |
|
| Assets | | | | |
| Cash and due from banks | | $ | 113 |
| | $ | 74 |
|
| Deposits with banking subsidiaries | | 5,450 |
| | 65,799 |
|
| Trading assets | | 10,326 |
| | 13,830 |
|
| Available-for-sale securities | | 2,694 |
| | 3,154 |
|
| Loans | | 77 |
| | 1,887 |
|
| Advances to, and receivables from, subsidiaries: | | | | |
| Bank and bank holding company | | 524 |
| | 32,454 |
|
| Nonbank | | 46 |
| | 58,674 |
|
| Investments (at equity) in subsidiaries and affiliates: | | | | |
| Bank and bank holding company | | 422,028 |
| | 225,613 |
|
Nonbank(b) | | 13,103 |
| | 34,205 |
|
| Other assets | | 10,257 |
| | 18,088 |
|
| Total assets | | $ | 464,618 |
| | $ | 453,778 |
|
| Liabilities and stockholders’ equity | | | | |
Borrowings from, and payables to, subsidiaries and affiliates(b) | | $ | 13,584 |
| | $ | 11,310 |
|
| Other borrowed funds | | 3,831 |
| | 3,722 |
|
| Other liabilities | | 11,224 |
| | 11,940 |
|
Long-term debt(c)(d) | | 181,789 |
| | 179,233 |
|
Total liabilities(d) | | 210,428 |
| | 206,205 |
|
| Total stockholders’ equity | | 254,190 |
| | 247,573 |
|
| Total liabilities and stockholders’ equity | | $ | 464,618 |
| | $ | 453,778 |
|
| | | Parent company – Statements of cash flows | | | |
Statements of cash flows(a) | | Statements of cash flows(a) | | |
Year ended December 31, (in millions) | | 2015 |
| | 2014 |
| | 2013 |
| | 2016 |
| | 2015 |
| | 2014 |
|
| Operating activities | | | | | | | | | | | | |
| Net income | | $ | 24,442 |
| | $ | 21,745 |
| | $ | 17,886 |
| | $ | 24,733 |
| | $ | 24,442 |
| | $ | 21,745 |
|
Less: Net income of subsidiaries and affiliates(a)(b) | | 26,745 |
| | 22,972 |
| | 25,496 |
| | 27,846 |
| | 26,745 |
| | 22,972 |
|
| Parent company net loss | | (2,303 | ) | | (1,227 | ) | | (7,610 | ) | | (3,113 | ) | | (2,303 | ) | | (1,227 | ) |
Cash dividends from subsidiaries and affiliates(a)(b) | | 17,023 |
| | 14,714 |
| | 1,917 |
| | 13,873 |
| | 17,023 |
| | 14,714 |
|
| Other operating adjustments | | 2,483 |
| | (1,681 | ) | | 3,217 |
| | (18,166 | ) | | 2,483 |
| | (1,681 | ) |
| Net cash provided by/(used in) operating activities | | 17,203 |
| | 11,806 |
| | (2,476 | ) | |
| Net cash provided by operating activities | | | (7,406 | ) | | 17,203 |
| | 11,806 |
|
| Investing activities | | | | | | | | | | | | |
| Net change in: | | | | | | | | | | | | |
| Deposits with banking subsidiaries | | 30,085 |
| | (31,040 | ) | | 10,679 |
| | 60,349 |
| | 30,085 |
| | (31,040 | ) |
| Available-for-sale securities: | | | | | | | | | | | | |
| Proceeds from paydowns and maturities | | 120 |
| | 12,076 |
| | 61 |
| | 353 |
| | 120 |
| | 12,076 |
|
| Purchases | | — |
| | — |
| | (12,009 | ) | |
| Other changes in loans, net | | 321 |
| | (319 | ) | | (713 | ) | | 1,793 |
| | 321 |
| | (319 | ) |
| Advances to and investments in subsidiaries and affiliates, net | | (81 | ) | | 3,306 |
| | 14,469 |
| | (51,967 | ) | | (81 | ) | | 3,306 |
|
| All other investing activities, net | | 153 |
| | 32 |
| | 22 |
| | 114 |
| | 153 |
| | 32 |
|
| Net cash provided by/(used in) investing activities | | 30,598 |
| | (15,945 | ) | | 12,509 |
| | 10,642 |
| | 30,598 |
| | (15,945 | ) |
| Financing activities | | | | | | | | | | | | |
| Net change in: | | | | | | | | | | | | |
Borrowings from subsidiaries and affiliates(a) | | (4,062 | ) | | 4,454 |
| | (2,715 | ) | |
Borrowings from subsidiaries and affiliates(b) | | | 2,957 |
| | (4,062 | ) | | 4,454 |
|
| Other borrowed funds | | (47,483 | ) | | (5,778 | ) | | (7,297 | ) | | 109 |
| | (47,483 | ) | | (5,778 | ) |
| Proceeds from the issuance of long-term debt | | 42,121 |
| | 40,284 |
| | 31,303 |
| | 41,498 |
| | 42,121 |
| | 40,284 |
|
| Payments of long-term debt | | (30,077 | ) | | (31,050 | ) | | (21,510 | ) | | (29,298 | ) | | (30,077 | ) | | (31,050 | ) |
| Proceeds from issuance of preferred stock | | 5,893 |
| | 8,847 |
| | 3,873 |
| | — |
| | 5,893 |
| | 8,847 |
|
| Redemption of preferred stock | | — |
| | — |
| | (1,800 | ) | |
| Treasury stock and warrants repurchased | | (5,616 | ) | | (4,760 | ) | | (4,789 | ) | | (9,082 | ) | | (5,616 | ) | | (4,760 | ) |
| Dividends paid | | (7,873 | ) | | (6,990 | ) | | (6,056 | ) | | (8,476 | ) | | (7,873 | ) | | (6,990 | ) |
| All other financing activities, net | | (840 | ) | | (921 | ) | | (994 | ) | | (905 | ) | | (840 | ) | | (921 | ) |
| Net cash provided by/(used in) financing activities | | (47,937 | ) | | 4,086 |
| | (9,985 | ) | | (3,197 | ) | | (47,937 | ) | | 4,086 |
|
| Net increase/(decrease) in cash and due from banks | | (137 | ) | | (53 | ) | | 48 |
| | 39 |
| | (137 | ) | | (53 | ) |
| Cash and due from banks at the beginning of the year, primarily with bank subsidiaries | | 211 |
| | 264 |
| | 216 |
| |
| Cash and due from banks at the end of the year, primarily with bank subsidiaries | | $ | 74 |
| | $ | 211 |
| | $ | 264 |
| |
| Cash and due from banks at the beginning of the year | | | 74 |
| | 211 |
| | 264 |
|
| Cash and due from banks at the end of the year | | | $ | 113 |
| | $ | 74 |
| | $ | 211 |
|
| Cash interest paid | | $ | 3,873 |
| | $ | 3,921 |
| | $ | 4,409 |
| | $ | 4,550 |
| | $ | 3,873 |
| | $ | 3,921 |
|
| Cash income taxes paid, net | | 8,251 |
| | 200 |
| | 2,390 |
| | 1,053 |
| | 8,251 |
| | 200 |
|
| |
| (a) | On September 1, 2016, in connection with the Firm’s 2016 Resolution Submission, the Parent Company established the IHC, and during the fourth quarter of 2016 contributed substantially all of its direct subsidiaries, other than JPMorgan Chase Bank, N.A. (totaling $55.4 billion), as well as most of its other assets (totaling $160.5 billion) and intercompany indebtedness to the IHC. Total noncash assets contributed were $62.3 billion. |
| |
| (b) | Affiliates include trusts that issued guaranteed capital debt securities (“issuer trusts”). The Parent received dividends of $2 million, $2 million and $5 million from the issuer trusts in 2015, 2014 and 2013, respectively. For further discussion on these issuer trusts, see Note 21. |
| |
(b)(c) | At December 31, 2015,2016, long-term debt that contractually matures in 20162017 through 20202021 totaled $27.2$26.9 billion, $26.0$21.2 billion, $21.1$13.0 billion, $11.5$21.9 billion and $22.2$17.9 billion, respectively. |
| |
(c)(d) | For information regarding the Parent’sParent Company’s guarantees of its subsidiaries’ obligations, see Notes 21 and 29. |
|
| | |
308 | | JPMorgan Chase & Co./2015 Annual Report |
Supplementary information
Selected quarterly financial data (unaudited)
|
| | | | | | | | | | | | | | | | | | | | | | | | | |
| (Table continued on next page) | | | | | | | | | |
| As of or for the period ended | 2015 | | 2014 |
| (in millions, except per share, ratio, headcount data and where otherwise noted) | 4th quarter | 3rd quarter | 2nd quarter | 1st quarter | | 4th quarter | 3rd quarter | 2nd quarter | 1st quarter |
| Selected income statement data | | | | | | | | | |
| Total net revenue | $ | 22,885 |
| $ | 22,780 |
| $ | 23,812 |
| $ | 24,066 |
| | $ | 22,750 |
| $ | 24,469 |
| $ | 24,678 |
| $ | 23,215 |
|
| Total noninterest expense | 14,263 |
| 15,368 |
| 14,500 |
| 14,883 |
| | 15,409 |
| 15,798 |
| 15,431 |
| 14,636 |
|
| Pre-provision profit | 8,622 |
| 7,412 |
| 9,312 |
| 9,183 |
| | 7,341 |
| 8,671 |
| 9,247 |
| 8,579 |
|
| Provision for credit losses | 1,251 |
| 682 |
| 935 |
| 959 |
| | 840 |
| 757 |
| 692 |
| 850 |
|
| Income before income tax expense | 7,371 |
| 6,730 |
| 8,377 |
| 8,224 |
| | 6,501 |
| 7,914 |
| 8,555 |
| 7,729 |
|
| Income tax expense | 1,937 |
| (74 | ) | 2,087 |
| 2,310 |
| | 1,570 |
| 2,349 |
| 2,575 |
| 2,460 |
|
| Net income | $ | 5,434 |
| $ | 6,804 |
| $ | 6,290 |
| $ | 5,914 |
| | $ | 4,931 |
| $ | 5,565 |
| $ | 5,980 |
| $ | 5,269 |
|
| Per common share data | | | | | | | | | |
| Net income: Basic | $ | 1.34 |
| $ | 1.70 |
| $ | 1.56 |
| $ | 1.46 |
| | $ | 1.20 |
| $ | 1.37 |
| $ | 1.47 |
| $ | 1.29 |
|
| Diluted | 1.32 |
| 1.68 |
| 1.54 |
| 1.45 |
| | 1.19 |
| 1.35 |
| 1.46 |
| 1.28 |
|
| Average shares: Basic | 3,674.2 |
| 3,694.4 |
| 3,707.8 |
| 3,725.3 |
| | 3,730.9 |
| 3,755.4 |
| 3,780.6 |
| 3,787.2 |
|
| Diluted | 3,704.6 |
| 3,725.6 |
| 3,743.6 |
| 3,757.5 |
| | 3,765.2 |
| 3,788.7 |
| 3,812.5 |
| 3,823.6 |
|
| Market and per common share data | | | | | | | | | |
| Market capitalization | $ | 241,899 |
| $ | 224,438 |
| $ | 250,581 |
| $ | 224,818 |
| | $ | 232,472 |
| $ | 225,188 |
| $ | 216,725 |
| $ | 229,770 |
|
| Common shares at period-end | 3,663.5 |
| 3,681.1 |
| 3,698.1 |
| 3,711.1 |
| | 3,714.8 |
| 3,738.2 |
| 3,761.3 |
| 3,784.7 |
|
Share price(a): | | | | | | | | | |
| High | $ | 69.03 |
| $ | 70.61 |
| $ | 69.82 |
| $ | 62.96 |
| | $ | 63.49 |
| $ | 61.85 |
| $ | 61.29 |
| $ | 61.48 |
|
| Low | 58.53 |
| 50.07 |
| 59.65 |
| 54.27 |
| | 54.26 |
| 54.96 |
| 52.97 |
| 54.20 |
|
| Close | 66.03 |
| 60.97 |
| 67.76 |
| 60.58 |
| | 62.58 |
| 60.24 |
| 57.62 |
| 60.71 |
|
| Book value per share | 60.46 |
| 59.67 |
| 58.49 |
| 57.77 |
| | 56.98 |
| 56.41 |
| 55.44 |
| 53.97 |
|
Tangible book value per share (“TBVPS”)(b) | 48.13 |
| 47.36 |
| 46.13 |
| 45.45 |
| | 44.60 |
| 44.04 |
| 43.08 |
| 41.65 |
|
| Cash dividends declared per share | 0.44 |
| 0.44 |
| 0.44 |
| 0.40 |
| | 0.40 |
| 0.40 |
| 0.40 |
| 0.38 |
|
| Selected ratios and metrics | | | | | | | | | |
| Return on common equity (“ROE”) | 9 | % | 12 | % | 11 | % | 11 | % | | 9 | % | 10 | % | 11 | % | 10 | % |
Return on tangible common equity (“ROTCE”)(b) | 11 |
| 15 |
| 14 |
| 14 |
| | 11 |
| 13 |
| 14 |
| 13 |
|
| Return on assets (“ROA”) | 0.90 |
| 1.11 |
| 1.01 |
| 0.94 |
| | 0.78 |
| 0.90 |
| 0.99 |
| 0.89 |
|
| Overhead ratio | 62 |
| 67 |
| 61 |
| 62 |
| | 68 |
| 65 |
| 63 |
| 63 |
|
| Loans-to-deposits ratio | 65 |
| 64 |
| 61 |
| 56 |
| | 56 |
| 56 |
| 57 |
| 57 |
|
HQLA (in billions)(c) | $ | 496 |
| $ | 505 |
| $ | 532 |
| $ | 614 |
| | $ | 600 |
| $ | 572 |
| $ | 576 |
| $ | 538 |
|
CET1 capital ratio(d) | 11.8 | % | 11.5 | % | 11.2 | % | 10.7 | % | | 10.2 | % | 10.2 | % | 9.8 | % | 10.9 | % |
Tier 1 capital ratio(d) | 13.5 |
| 13.3 |
| 12.8 |
| 12.1 |
| | 11.6 |
| 11.5 |
| 11.0 |
| 12.0 |
|
Total capital ratio(d) | 15.1 |
| 14.9 |
| 14.4 |
| 13.6 |
| | 13.1 |
| 12.8 |
| 12.5 |
| 14.5 |
|
| Tier 1 leverage ratio | 8.5 |
| 8.4 |
| 8.0 |
| 7.5 |
| | 7.6 |
| 7.6 |
| 7.6 |
| 7.3 |
|
| Selected balance sheet data (period-end) | | | | | | | | | |
| Trading assets | $ | 343,839 |
| $ | 361,708 |
| $ | 377,870 |
| $ | 398,981 |
| | $ | 398,988 |
| $ | 410,657 |
| $ | 392,543 |
| $ | 375,204 |
|
| Securities | 290,827 |
| 306,660 |
| 317,795 |
| 331,136 |
| | 348,004 |
| 366,358 |
| 361,918 |
| 351,850 |
|
| Loans | 837,299 |
| 809,457 |
| 791,247 |
| 764,185 |
| | 757,336 |
| 743,257 |
| 746,983 |
| 730,971 |
|
| Core Loans | 732,093 |
| 698,988 |
| 674,767 |
| 641,285 |
| | 628,785 |
| 607,617 |
| 603,440 |
| 582,206 |
|
| Total assets | 2,351,698 |
| 2,416,635 |
| 2,449,098 |
| 2,576,619 |
| | 2,572,274 |
| 2,526,158 |
| 2,519,494 |
| 2,476,152 |
|
| Deposits | 1,279,715 |
| 1,273,106 |
| 1,287,332 |
| 1,367,887 |
| | 1,363,427 |
| 1,334,534 |
| 1,319,751 |
| 1,282,705 |
|
Long-term debt(e) | 288,651 |
| 292,503 |
| 286,240 |
| 280,123 |
| | 276,379 |
| 268,265 |
| 269,472 |
| 274,053 |
|
| Common stockholders’ equity | 221,505 |
| 219,660 |
| 216,287 |
| 214,371 |
| | 211,664 |
| 210,876 |
| 208,520 |
| 204,246 |
|
| Total stockholders’ equity | 247,573 |
| 245,728 |
| 241,205 |
| 235,864 |
| | 231,727 |
| 230,939 |
| 226,983 |
| 219,329 |
|
| Headcount | 234,598 |
| 235,678 |
| 237,459 |
| 241,145 |
| | 241,359 |
| 242,388 |
| 245,192 |
| 246,994 |
|
|
| | |
JPMorgan Chase & Co./20152016 Annual Report | | 309271 |
Supplementary information
Selected quarterly financial data (unaudited)
|
| | | | | | | | | | | | | | | | | | | | | | | | | |
| (Table continued on next page) | | | | | | | | | |
| As of or for the period ended | 2016 | | 2015 |
| (in millions, except per share, ratio, headcount data and where otherwise noted) | 4th quarter | 3rd quarter | 2nd quarter | 1st quarter | | 4th quarter | 3rd quarter | 2nd quarter | 1st quarter |
| Selected income statement data | | | | | | | | | |
| Total net revenue | $ | 23,376 |
| $ | 24,673 |
| $ | 24,380 |
| $ | 23,239 |
| | $ | 22,885 |
| $ | 22,780 |
| $ | 23,812 |
| $ | 24,066 |
|
| Total noninterest expense | 13,833 |
| 14,463 |
| 13,638 |
| 13,837 |
| | 14,263 |
| 15,368 |
| 14,500 |
| 14,883 |
|
| Pre-provision profit | 9,543 |
| 10,210 |
| 10,742 |
| 9,402 |
| | 8,622 |
| 7,412 |
| 9,312 |
| 9,183 |
|
| Provision for credit losses | 864 |
| 1,271 |
| 1,402 |
| 1,824 |
| | 1,251 |
| 682 |
| 935 |
| 959 |
|
| Income before income tax expense | 8,679 |
| 8,939 |
| 9,340 |
| 7,578 |
| | 7,371 |
| 6,730 |
| 8,377 |
| 8,224 |
|
| Income tax expense | 1,952 |
| 2,653 |
| 3,140 |
| 2,058 |
| | 1,937 |
| (74 | ) | 2,087 |
| 2,310 |
|
| Net income | $ | 6,727 |
| $ | 6,286 |
| $ | 6,200 |
| $ | 5,520 |
| | $ | 5,434 |
| $ | 6,804 |
| $ | 6,290 |
| $ | 5,914 |
|
| Per common share data | | | | | | | | | |
| Net income: Basic | $ | 1.73 |
| $ | 1.60 |
| $ | 1.56 |
| $ | 1.36 |
| | $ | 1.34 |
| $ | 1.70 |
| $ | 1.56 |
| $ | 1.46 |
|
| Diluted | 1.71 |
| 1.58 |
| 1.55 |
| 1.35 |
| | 1.32 |
| 1.68 |
| 1.54 |
| 1.45 |
|
| Average shares: Basic | 3,570.7 |
| 3,597.4 |
| 3,635.8 |
| 3,669.9 |
| | 3,674.2 |
| 3,694.4 |
| 3,707.8 |
| 3,725.3 |
|
| Diluted | 3,606.0 |
| 3,629.6 |
| 3,666.5 |
| 3,696.9 |
| | 3,704.6 |
| 3,725.6 |
| 3,743.6 |
| 3,757.5 |
|
| Market and per common share data | | | | | | | | | |
| Market capitalization | $ | 307,295 |
| $ | 238,277 |
| $ | 224,449 |
| $ | 216,547 |
| | $ | 241,899 |
| $ | 224,438 |
| $ | 250,581 |
| $ | 224,818 |
|
| Common shares at period-end | 3,561.2 |
| 3,578.3 |
| 3,612.0 |
| 3,656.7 |
| | 3,663.5 |
| 3,681.1 |
| 3,698.1 |
| 3,711.1 |
|
Share price:(a) | | | | | | | | | |
| High | $ | 87.39 |
| $ | 67.90 |
| $ | 66.20 |
| $ | 64.13 |
| | $ | 69.03 |
| $ | 70.61 |
| $ | 69.82 |
| $ | 62.96 |
|
| Low | 66.10 |
| 58.76 |
| 57.05 |
| 52.50 |
| | 58.53 |
| 50.07 |
| 59.65 |
| 54.27 |
|
| Close | 86.29 |
| 66.59 |
| 62.14 |
| 59.22 |
| | 66.03 |
| 60.97 |
| 67.76 |
| 60.58 |
|
| Book value per share | 64.06 |
| 63.79 |
| 62.67 |
| 61.28 |
| | 60.46 |
| 59.67 |
| 58.49 |
| 57.77 |
|
Tangible book value per share (“TBVPS”)(b) | 51.44 |
| 51.23 |
| 50.21 |
| 48.96 |
| | 48.13 |
| 47.36 |
| 46.13 |
| 45.45 |
|
| Cash dividends declared per share | 0.48 |
| 0.48 |
| 0.48 |
| 0.44 |
| | 0.44 |
| 0.44 |
| 0.44 |
| 0.40 |
|
| Selected ratios and metrics | | | | | | | | | |
| Return on common equity (“ROE”) | 11 | % | 10 | % | 10 | % | 9 | % | | 9 | % | 12 | % | 11 | % | 11 | % |
Return on tangible common equity (“ROTCE”)(b) | 14 |
| 13 |
| 13 |
| 12 |
| | 11 |
| 15 |
| 14 |
| 14 |
|
| Return on assets (“ROA”) | 1.06 |
| 1.01 |
| 1.02 |
| 0.93 |
| | 0.90 |
| 1.11 |
| 1.01 |
| 0.94 |
|
| Overhead ratio | 59 |
| 59 |
| 56 |
| 60 |
| | 62 |
| 67 |
| 61 |
| 62 |
|
| Loans-to-deposits ratio | 65 |
| 65 |
| 66 |
| 64 |
| | 65 |
| 64 |
| 61 |
| 56 |
|
HQLA (in billions)(c) | $ | 524 |
| $ | 539 |
| $ | 516 |
| $ | 505 |
| | $ | 496 |
| $ | 505 |
| $ | 532 |
| $ | 614 |
|
CET1 capital ratio(d) | 12.4 | % | 12.0 | % | 12.0 | % | 11.9 | % | | 11.8 | % | 11.5 | % | 11.2 | % | 10.7 | % |
Tier 1 capital ratio(d) | 14.1 |
| 13.6 |
| 13.6 |
| 13.5 |
| | 13.5 |
| 13.3 |
| 12.8 |
| 12.1 |
|
Total capital ratio(d) | 15.5 |
| 15.1 |
| 15.2 |
| 15.1 |
| | 15.1 |
| 14.9 |
| 14.4 |
| 13.6 |
|
| Tier 1 leverage ratio | 8.4 |
| 8.5 |
| 8.5 |
| 8.6 |
| | 8.5 |
| 8.4 |
| 8.0 |
| 7.5 |
|
| Selected balance sheet data (period-end) | | | | | | | | | |
| Trading assets | $ | 372,130 |
| $ | 374,837 |
| $ | 380,793 |
| $ | 366,153 |
| | $ | 343,839 |
| $ | 361,708 |
| $ | 377,870 |
| $ | 398,981 |
|
| Securities | 289,059 |
| 272,401 |
| 278,610 |
| 285,323 |
| | 290,827 |
| 306,660 |
| 317,795 |
| 331,136 |
|
| Loans | 894,765 |
| 888,054 |
| 872,804 |
| 847,313 |
| | 837,299 |
| 809,457 |
| 791,247 |
| 764,185 |
|
| Core loans | 806,152 |
| 795,077 |
| 775,813 |
| 746,196 |
| | 732,093 |
| 698,988 |
| 674,767 |
| 641,285 |
|
| Average core loans | 799,698 |
| 779,383 |
| 760,721 |
| 737,297 |
| | 715,282 |
| 680,224 |
| 654,551 |
| 631,955 |
|
| Total assets | 2,490,972 |
| 2,521,029 |
| 2,466,096 |
| 2,423,808 |
| | 2,351,698 |
| 2,416,635 |
| 2,449,098 |
| 2,576,619 |
|
| Deposits | 1,375,179 |
| 1,376,138 |
| 1,330,958 |
| 1,321,816 |
| | 1,279,715 |
| 1,273,106 |
| 1,287,332 |
| 1,367,887 |
|
Long-term debt(e) | 295,245 |
| 309,418 |
| 295,627 |
| 290,754 |
| | 288,651 |
| 292,503 |
| 286,240 |
| 280,123 |
|
| Common stockholders’ equity | 228,122 |
| 228,263 |
| 226,355 |
| 224,089 |
| | 221,505 |
| 219,660 |
| 216,287 |
| 214,371 |
|
| Total stockholders’ equity | 254,190 |
| 254,331 |
| 252,423 |
| 250,157 |
| | 247,573 |
| 245,728 |
| 241,205 |
| 235,864 |
|
| Headcount | 243,355 |
| 242,315 |
| 240,046 |
| 237,420 |
| | 234,598 |
| 235,678 |
| 237,459 |
| 241,145 |
|
|
| | |
| 272 | | JPMorgan Chase & Co./2016 Annual Report |
Supplementary information
| | | (Table continued from previous page) | | | | | | |
| As of or for the period ended | 2015 | | 2014 | 2016 | | 2015 |
| (in millions, except ratio data) | 4th quarter | 3rd quarter | 2nd quarter | 1st quarter | | 4th quarter | 3rd quarter | 2nd quarter | 1st quarter | 4th quarter | 3rd quarter | 2nd quarter | 1st quarter | | 4th quarter | 3rd quarter | 2nd quarter | 1st quarter |
| Credit quality metrics | | | | | | |
| Allowance for credit losses | $ | 14,341 |
| $ | 14,201 |
| $ | 14,535 |
| $ | 14,658 |
| | $ | 14,807 |
| $ | 15,526 |
| $ | 15,974 |
| $ | 16,485 |
| $ | 14,854 |
| $ | 15,304 |
| $ | 15,187 |
| $ | 15,008 |
| | $ | 14,341 |
| $ | 14,201 |
| $ | 14,535 |
| $ | 14,658 |
|
| Allowance for loan losses to total retained loans | 1.63 | % | 1.67 | % | 1.78 | % | 1.86 | % | | 1.90 | % | 2.02 | % | 2.08 | % | 2.20 | % | 1.55 | % | 1.61 | % | 1.64 | % | 1.66 | % | | 1.63 | % | 1.67 | % | 1.78 | % | 1.86 | % |
Allowance for loan losses to retained loans excluding purchased credit-impaired loans(f) | 1.37 |
| 1.40 |
| 1.45 |
| 1.52 |
| | 1.55 |
| 1.63 |
| 1.69 |
| 1.75 |
| 1.34 |
| 1.37 |
| 1.40 |
| 1.40 |
| | 1.37 |
| 1.40 |
| 1.45 |
| 1.52 |
|
| Nonperforming assets | $ | 7,034 |
| $ | 7,294 |
| $ | 7,588 |
| $ | 7,714 |
| | $ | 7,967 |
| $ | 8,390 |
| $ | 9,017 |
| $ | 9,473 |
| $ | 7,535 |
| $ | 7,779 |
| $ | 7,757 |
| $ | 8,023 |
| | $ | 7,034 |
| $ | 7,294 |
| $ | 7,588 |
| $ | 7,714 |
|
| Net charge-offs | 1,064 |
| 963 |
| 1,007 |
| 1,052 |
| | 1,218 |
| 1,114 |
| 1,158 |
| 1,269 |
| 1,280 |
| 1,121 |
| 1,181 |
| 1,110 |
| | 1,064 |
| 963 |
| 1,007 |
| 1,052 |
|
| Net charge-off rate | 0.52 | % | 0.49 | % | 0.53 | % | 0.57 | % | | 0.65 | % | 0.60 | % | 0.64 | % | 0.71 | % | 0.58 | % | 0.51 | % | 0.56 | % | 0.53 | % | | 0.52 | % | 0.49 | % | 0.53 | % | 0.57 | % |
Note: Effective October 1, 2015, and January 1, 2015, JPMorgan Chase & Co. (“JPMorgan Chase” or2016, the “Firm”)Firm adopted new accounting guidance retrospectively, related to (1) the presentationrecognition and measurement of debt issuance costs,DVA on financial liabilities where the fair value option has been elected, and (2) investments in affordable housing projects that qualifythe accounting for the low-income housing tax credit, respectively.employee stock-based incentive payments. For additional information, see Explanation and Reconciliation of the Firm’s Use of Non-GAAP Financial Measures on pages 80–82 , Accounting and Reporting Developments on page 170,pages 135–137 and Note 1.Notes 3, 4, and 25.
| |
| (a) | Share prices shown for JPMorgan Chase’s common stock are from the New York Stock Exchange. |
| |
| (b) | TBVPS and ROTCE are non-GAAP financial measures. For further discussion of these measures, see Explanation and Reconciliation of the Firm’s Use of Non-GAAP Financial Measures and Key Financial Performance Measures on pages 80–82.48–50. |
| |
| (c) | HQLA represents the amount of assets that qualify for inclusion in the liquidity coverage ratio under the final U.S. rule (“U.S. LCR”) for 4Q15, 3Q15, 2Q15 and 1Q15 and the estimated amounts for 4Q14 and 3Q14 prior to the effective date of the final rule and under the Basel III liquidity coverage ratio (“Basel III LCR”) for 2Q14 and 1Q14.. For additional information, see HQLA on page 160.111. |
| |
| (d) | As of December 31, 2015, September 30, 2015, June 30, 2015, March 31, 2015, December 31, 2014, September 30, 2014, and June 30, 2014, the ratiosRatios presented are calculated under the U.S. Basel III transitional rules. As of March 31, 2015Transitional rules and for the ratio presented is calculated under Basel III Standardized Transitional rules. All periods showncapital ratios represent the Collins Floor. See Capital Risk Management on pages 149–15876–85 for additional information on Basel III and non-GAAP financial measures of regulatory capital.III. |
| |
| (e) | Included unsecured long-term debt of $212.6 billion, $226.8 billion, $220.6 billion, $216.1 billion, $211.8 billion, $214.6 billion, $209.1 billion, $209.0 billion $207.0 billion, $204.2 billion, $205.1 billion and $205.6 respectively, for the periods presented. |
| |
| (f) | Excludes the impact of residential real estate PCI loans, a non-GAAP financial measure. For further discussion of these measures, see Explanation and Reconciliation of the Firm’s Use of Non-GAAP Financial Measures and Key Performance Measures on pages 80–82.48–50. For further discussion, see Allowance for credit losses on pages 130–132.105–107. |
|
| | |
310JPMorgan Chase & Co./2016 Annual Report | | 273 |
Distribution of assets, liabilities and stockholders’ equity; interest rates and interest differentials
Consolidated average balance sheet, interest and rates
Provided below is a summary of JPMorgan Chase’s consolidated average balances, interest rates and interest differentials on a taxable-equivalent basis for the years 2014 through 2016. Income computed on a taxable-equivalent basis is the income reported in the Consolidated
statements of income, adjusted to present interest income and average rates earned on assets exempt from income taxes (primarily federal taxes) on a basis comparable with other taxable investments. The incremental tax rate used for calculating the taxable-equivalent adjustment was approximately 38% in 2016, 2015 and 2014.
|
| | | | | | | | | | | |
| (Table continued on next page) | | | | | | |
| | 2016 |
Year ended December 31, (Taxable-equivalent interest and rates; in millions, except rates) | Average balance | | Interest(e) | | Average rate |
| Assets | | | | | | |
| Deposits with banks | $ | 392,160 |
| | $ | 1,863 |
| | 0.48 | % | |
| Federal funds sold and securities purchased under resale agreements | 205,368 |
| | 2,265 |
| | 1.10 |
| |
| Securities borrowed | 102,964 |
| | (332 | ) | (f) | (0.32 | ) | |
| Trading assets | 215,565 |
| | 7,373 |
| | 3.42 |
| |
| Taxable securities | 235,211 |
| | 5,538 |
| | 2.35 |
| |
Non-taxable securities(a) | 44,176 |
| | 2,662 |
| | 6.03 |
| |
| Total securities | 279,387 |
| | 8,200 |
| | 2.94 |
| (h) |
| Loans | 866,378 |
| | 36,866 |
| (g) | 4.26 |
| |
Other assets(b) | 39,782 |
| | 875 |
| | 2.20 |
| |
| Total interest-earning assets | 2,101,604 |
| | 57,110 |
| | 2.72 |
| |
| Allowance for loan losses | (13,965 | ) | | | | | |
| Cash and due from banks | 18,660 |
| | | | | |
| Trading assets – equity instruments | 95,528 |
| | | | | |
| Trading assets – derivative receivables | 70,897 |
| | | | | |
| Goodwill | 47,310 |
| | | | | |
| Mortgage servicing rights | 5,520 |
| | | | | |
| Other intangible assets: | | | | | | |
| Purchased credit card relationships | 17 |
| | | | | |
| Other intangibles | 905 |
| | | | | |
| Other assets | 135,143 |
| | | | | |
| Total assets | $ | 2,461,619 |
| | | | | |
| Liabilities | | | | | | |
| Interest-bearing deposits | $ | 925,270 |
| | $ | 1,356 |
| | 0.15 | % | |
| Federal funds purchased and securities loaned or sold under repurchase agreements | 178,720 |
| | 1,089 |
| | 0.61 |
| |
| Commercial paper | 15,001 |
| | 135 |
| | 0.90 |
| |
Trading liabilities – debt, short-term and other liabilities(c) | 198,904 |
| | 1,170 |
| | 0.59 |
| |
| Beneficial interests issued by consolidated VIEs | 40,180 |
| | 504 |
| | 1.25 |
| |
| Long-term debt | 295,573 |
| | 5,564 |
| | 1.88 |
| |
| Total interest-bearing liabilities | 1,653,648 |
| | 9,818 |
| | 0.59 |
| |
| Noninterest-bearing deposits | 402,698 |
| | | | | |
| Trading liabilities – equity instruments | 20,737 |
| | | | | |
| Trading liabilities – derivative payables | 55,927 |
| | | | | |
| All other liabilities, including the allowance for lending-related commitments | 77,910 |
| | | | | |
| Total liabilities | 2,210,920 |
| | | | | |
| Stockholders’ equity | | | | | | |
| Preferred stock | 26,068 |
| | | | | |
| Common stockholders’ equity | 224,631 |
| | | | | |
| Total stockholders’ equity | 250,699 |
| (d) | | | | |
| Total liabilities and stockholders’ equity | $ | 2,461,619 |
| | | | | |
| Interest rate spread | | | | | 2.13 | % | |
| Net interest income and net yield on interest-earning assets | | | $ | 47,292 |
| | 2.25 |
| |
| |
| (a) | Represents securities that are tax exempt for U.S. Federal income tax purposes. |
| |
| (b) | Includes margin loans. |
| |
| (c) | Includes brokerage customer payables. |
| |
| (d) | The ratio of average stockholders’ equity to average assets was 10.2% for 2016, 9.7% for 2015, and 9.2% for 2014. The return on average stockholders’ equity, based on net income, was 9.9% for 2016, 10.2% for 2015, and 9.7% for 2014. |
| |
| (e) | Interest includes the effect of related hedging derivatives. Taxable-equivalent amounts are used where applicable. |
| |
| (f) | Securities borrowed’s negative interest income and yield, for the years ended December 31, 2016, 2015 and 2014, are a result of client-driven demand for certain securities combined with the impact of low interest rates; the offset of this stock borrow activity is reflected as lower net interest expense reported within short-term and other liabilities. |
| |
| (g) | Fees and commissions on loans included in loan interest amounted to $808 million in 2016, $936 million in 2015, and $1.1 billion in 2014. |
| |
| (h) | The annualized rate for securities based on amortized cost was 2.99% in 2016, 2.94% in 2015, and 2.82% in 2014, and does not give effect to changes in fair value that are reflected in AOCI. |
| |
| (i) | Reflects a benefit from the favorable market environments for dollar-roll financings. |
|
| | |
| 274 | | JPMorgan Chase & Co./20152016 Annual Report |
Within the Consolidated average balance sheets, interest and rates summary, the principal amounts of nonaccrual loans have been included in the average loan balances used to determine the average interest rate earned on loans. For additional information on nonaccrual loans, including interest accrued, see Note 14.
|
| | | | | | | | | | | | | | | | | | | | | | |
| (Table continued from previous page) | | | | | | | | | | |
| 2015 | | 2014 | |
Average balance | | Interest(e) | | Average rate | | Average balance | | Interest(e) | | Average rate | |
| | | | | | | | | | | | | |
| $ | 427,963 |
| | $ | 1,250 |
| | 0.29 | % | | | $ | 358,072 |
| | $ | 1,157 |
| | 0.32 | % | |
| 206,637 |
| | 1,592 |
| | 0.77 |
| | | 230,489 |
| | 1,642 |
| | 0.71 |
| |
| 105,273 |
| | (532 | ) | (f) | (0.50 | ) | | | 116,540 |
| | (501 | ) | (f) | (0.43 | ) | |
| 206,385 |
| | 6,694 |
| | 3.24 |
| | | 210,609 |
| | 7,386 |
| | 3.51 |
| |
| 273,730 |
| | 6,550 |
| | 2.39 |
| | | 318,970 |
| | 7,617 |
| | 2.39 |
| |
| 42,125 |
| | 2,556 |
| | 6.07 |
| | | 34,359 |
| | 2,158 |
| | 6.28 |
| |
| 315,855 |
| | 9,106 |
| | 2.88 |
| (h) | | 353,329 |
| | 9,775 |
| | 2.77 |
| (h) |
| 787,318 |
| | 33,321 |
| (g) | 4.23 |
| | | 739,175 |
| | 32,394 |
| (g) | 4.38 |
| |
| 38,811 |
| | 652 |
| | 1.68 |
| | | 40,879 |
| | 663 |
| | 1.62 |
| |
| 2,088,242 |
| | 52,083 |
| | 2.49 |
| | | 2,049,093 |
| | 52,516 |
| | 2.56 |
| |
| (13,885 | ) | | | | | | | (15,418 | ) | | | | | |
| 22,042 |
| | | | | | | 25,650 |
| | | | | |
| 105,489 |
| | | | | | | 116,650 |
| | | | | |
| 73,290 |
| | | | | | | 67,123 |
| | | | | |
| 47,445 |
| | | | | | | 48,029 |
| | | | | |
| 6,902 |
| | | | | | | 8,387 |
| | | | | |
| | | | | | | | | | | | | |
| 25 |
| | | | | | | 62 |
| | | | | |
| 1,067 |
| | | | | | | 1,316 |
| | | | | |
| 138,792 |
| | | | | | | 146,343 |
| | | | | |
| $ | 2,469,409 |
| | | | | | | $ | 2,447,235 |
| | | | | |
| | | | | | | | | | | | | |
| $ | 876,840 |
| | $ | 1,252 |
| | 0.14 | % | | | $ | 872,893 |
| | $ | 1,633 |
| | 0.19 | % | |
| 192,510 |
| | 609 |
| | 0.32 |
| | | 208,560 |
| | 604 |
| (i) | 0.29 |
| (i) |
| 38,140 |
| | 110 |
| | 0.29 |
| | | 59,916 |
| | 134 |
| | 0.22 |
| |
| 207,810 |
| | 622 |
| | 0.30 |
| | | 220,137 |
| | 712 |
| | 0.32 |
| |
| 49,200 |
| | 435 |
| | 0.88 |
| | | 47,974 |
| | 405 |
| | 0.84 |
| |
| 284,940 |
| | 4,435 |
| | 1.56 |
| | | 269,814 |
| | 4,409 |
| | 1.63 |
| |
| 1,649,440 |
| | 7,463 |
| | 0.45 |
| | | 1,679,294 |
| | 7,897 |
| | 0.47 |
| |
| 418,948 |
| | | | | | | 391,408 |
| | | | | |
| 17,282 |
| | | | | | | 16,246 |
| | | | | |
| 64,716 |
| | | | | | | 54,758 |
| | | | | |
| 79,293 |
| | | | | | | 81,111 |
| | | | | |
| 2,229,679 |
| | | | | | | 2,222,817 |
| | | | | |
| | | | | | | | | | | | | |
| 24,040 |
| | | | | | | 17,018 |
| | | | | |
| 215,690 |
| | | | | | | 207,400 |
| | | | | |
| 239,730 |
| (d) | | | | | | 224,418 |
| (d) | | | | |
| $ | 2,469,409 |
| | | | | | | $ | 2,447,235 |
| | | | | |
| | | | | 2.04 | % | | | | | | | 2.09 | % | |
| | | $ | 44,620 |
| | 2.14 |
| | | | | $ | 44,619 |
| | 2.18 |
| |
|
| | |
| JPMorgan Chase & Co./2016 Annual Report | | 275 |
Interest rates and interest differential analysis of net interest income – U.S. and non-U.S.
Presented below is a summary of interest rates and interest differentials segregated between U.S. and non-U.S. operations for the years 2014 through 2016. The segregation of U.S. and non-U.S. components is based on
the location of the office recording the transaction. Intercompany funding generally consists of dollar-denominated deposits originated in various locations that are centrally managed by Treasury and CIO.
|
| | | | | | | | | |
| (Table continued on next page) | | | | |
| | 2016 |
Year ended December 31, (Taxable-equivalent interest and rates; in millions, except rates) | Average balance | Interest | | Average rate |
| Interest-earning assets | | | | |
| Deposits with banks: | | | | |
| U.S. | $ | 328,831 |
| $ | 1,708 |
| | 0.52 | % |
| Non-U.S. | 63,329 |
| 155 |
| | 0.25 |
|
| Federal funds sold and securities purchased under resale agreements: | | | | |
| U.S. | 112,902 |
| 1,166 |
| | 1.03 |
|
| Non-U.S. | 92,466 |
| 1,099 |
| | 1.19 |
|
| Securities borrowed: | | | | |
| U.S. | 73,297 |
| (341 | ) | (c) | (0.46 | ) |
| Non-U.S. | 29,667 |
| 9 |
| | 0.03 |
|
| Trading assets – debt instruments: | | | | |
| U.S. | 116,211 |
| 3,825 |
| | 3.29 |
|
| Non-U.S. | 99,354 |
| 3,548 |
| | 3.57 |
|
| Securities: | | | | |
| U.S. | 216,726 |
| 6,971 |
| | 3.22 |
|
| Non-U.S. | 62,661 |
| 1,229 |
| | 1.97 |
|
| Loans: | | | | |
| U.S. | 788,213 |
| 35,110 |
| | 4.45 |
|
| Non-U.S. | 78,165 |
| 1,756 |
| | 2.25 |
|
| Other assets, predominantly U.S. | 39,782 |
| 875 |
| | 2.20 |
|
| Total interest-earning assets | 2,101,604 |
| 57,110 |
| | 2.72 |
|
| Interest-bearing liabilities | | | | |
| Interest-bearing deposits: | | | | |
| U.S. | 703,738 |
| 1,029 |
| | 0.15 |
|
| Non-U.S. | 221,532 |
| 327 |
| | 0.15 |
|
| Federal funds purchased and securities loaned or sold under repurchase agreements: | | | | |
| U.S. | 121,945 |
| 773 |
| | 0.63 |
|
| Non-U.S. | 56,775 |
| 316 |
| | 0.56 |
|
Trading liabilities – debt, short-term and other liabilities:(a) | | | | |
| U.S. | 133,788 |
| 86 |
| (c) | 0.06 |
|
| Non-U.S. | 80,117 |
| 1,219 |
| | 1.52 |
|
| Beneficial interests issued by consolidated VIEs, predominantly U.S. | 40,180 |
| 504 |
| | 1.25 |
|
| Long-term debt: | | | | |
| U.S. | 283,169 |
| 5,533 |
| | 1.95 |
|
| Non-U.S. | 12,404 |
| 31 |
| | 0.25 |
|
| Intercompany funding: | | | | |
| U.S. | (20,405 | ) | 10 |
| | — |
|
| Non-U.S. | 20,405 |
| (10 | ) | | — |
|
| Total interest-bearing liabilities | 1,653,648 |
| 9,818 |
| | 0.59 |
|
Noninterest-bearing liabilities(b) | 447,956 |
| | | |
| Total investable funds | $ | 2,101,604 |
| $ | 9,818 |
| | 0.47 | % |
| Net interest income and net yield: | | $ | 47,292 |
| | 2.25 | % |
| U.S. | | 40,705 |
| | 2.49 |
|
| Non-U.S. | | 6,587 |
| | 1.42 |
|
| Percentage of total assets and liabilities attributable to non-U.S. operations: | | | | |
| Assets | | | | 23.1 |
|
| Liabilities | | | | 20.7 |
|
| |
| (a) | Includes commercial paper. |
| |
| (b) | Represents the amount of noninterest-bearing liabilities funding interest-earning assets. |
| |
| (c) | Securities borrowed’s negative interest income and yield, for the years ended December 31, 2016, 2015 and 2014, are a result of client-driven demand for certain securities combined with the impact of low interest rates; the offset of this stock borrow activity is reflected as lower net interest expense reported within trading liabilities – debt, short-term and other liabilities. |
| |
| (d) | Reflects a benefit from the favorable market environments for dollar-roll financings. |
|
| | |
| 276 | | JPMorgan Chase & Co./2016 Annual Report |
For further information, see the “Net interest income” discussion in Consolidated Results of Operations on pages 40–42.
|
| | | | | | | | | | | | | | | | | | | | |
| (Table continued from previous page) | | | | | | | | |
| 2015 | | 2014 | |
| Average balance | Interest | | Average rate | | | Average balance | Interest | | Average rate | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| $ | 388,833 |
| $ | 1,021 |
| | 0.26 | % | | | $ | 328,145 |
| $ | 825 |
| | 0.25 | % | |
| 39,130 |
| 229 |
| | 0.59 |
| | | 29,927 |
| 332 |
| | 1.11 |
| |
| | | | | | | | | | | |
| 118,945 |
| 900 |
| | 0.76 |
| | | 125,812 |
| 719 |
| | 0.57 |
| |
| 87,692 |
| 692 |
| | 0.79 |
| | | 104,677 |
| 923 |
| | 0.88 |
| |
| | | | | | | | | | | |
| 78,815 |
| (562 | ) | (c) | (0.71 | ) | | | 77,228 |
| (573 | ) | (c) | (0.74 | ) | |
| 26,458 |
| 30 |
| | 0.11 |
| | | 39,312 |
| 72 |
| | 0.18 |
| |
| |
| | | | | | | | | | |
| 106,465 |
| 3,572 |
| | 3.35 |
| | | 109,678 |
| 4,045 |
| | 3.69 |
| |
| 99,920 |
| 3,122 |
| | 3.12 |
| | | 100,931 |
| 3,341 |
| | 3.31 |
| |
| | | | | | | | | | | |
| 200,240 |
| 6,676 |
| | 3.33 |
| | | 193,856 |
| 6,586 |
| | 3.40 |
| |
| 115,615 |
| 2,430 |
| | 2.10 |
| | | 159,473 |
| 3,189 |
| | 2.00 |
| |
| | | | | | | | | | | |
| 699,664 |
| 31,468 |
| | 4.50 |
| | | 635,846 |
| 30,165 |
| | 4.74 |
| |
| 87,654 |
| 1,853 |
| | 2.11 |
| | | 103,329 |
| 2,229 |
| | 2.16 |
| |
| 38,811 |
| 652 |
| | 1.68 |
| | | 40,879 |
| 663 |
| | 1.62 |
| |
| 2,088,242 |
| 52,083 |
| | 2.49 |
| | | 2,049,093 |
| 52,516 |
| | 2.56 |
| |
| |
| | | | | | | | | | |
| |
| | | | | | | | | | |
| 638,756 |
| 761 |
| | 0.12 |
| | | 620,708 |
| 813 |
| | 0.13 |
| |
| 238,084 |
| 491 |
| | 0.21 |
| | | 252,185 |
| 820 |
| | 0.33 |
| |
| | | | | | | | | | | |
| 140,609 |
| 366 |
| | 0.26 |
| | | 146,025 |
| 130 |
| (d) | 0.09 |
| (d) |
| 51,901 |
| 243 |
| | 0.47 |
| | | 62,535 |
| 474 |
| | 0.76 |
| |
| |
| | | | | | | | | | |
| 166,838 |
| (394 | ) | (c) | (0.24 | ) | | | 194,771 |
| (284 | ) | (c) | (0.15 | ) | |
| 79,112 |
| 1,126 |
| | 1.42 |
| | | 85,282 |
| 1,130 |
| | 1.33 |
| |
| 49,200 |
| 435 |
| | 0.88 |
| | | 47,974 |
| 405 |
| | 0.84 |
| |
| | | | | | | | | | | |
| 273,033 |
| 4,386 |
| | 1.61 |
| | | 256,726 |
| 4,366 |
| | 1.70 |
| |
| 11,907 |
| 49 |
| | 0.41 |
| | | 13,088 |
| 43 |
| | 0.33 |
| |
| |
| | | | | | | | | | |
| (50,517 | ) | 7 |
| | — |
| | | (122,467 | ) | (176 | ) | | — |
| |
| 50,517 |
| (7 | ) | | — |
| | | 122,467 |
| 176 |
| | — |
| |
| 1,649,440 |
| 7,463 |
| | 0.45 |
| | | 1,679,294 |
| 7,897 |
| | 0.47 |
| |
| 438,802 |
| | | | | | 369,799 |
| | | | |
| $ | 2,088,242 |
| $ | 7,463 |
| | 0.36 | % | | | $ | 2,049,093 |
| $ | 7,897 |
| | 0.39 | % | |
| | $ | 44,620 |
| | 2.14 | % | | | | $ | 44,619 |
| | 2.18 | % | |
| | 38,033 |
| | 2.34 |
| | | | 37,018 |
| | 2.46 |
| |
| | 6,587 |
| | 1.42 |
| | | | 7,601 |
| | 1.39 |
| |
| | | | | | | | | | | |
| | | | 24.7 |
| | | | | | 28.9 |
| |
| | | | 21.1 |
| | | | | | 22.6 |
| |
|
| | |
| JPMorgan Chase & Co./2016 Annual Report | | 277 |
Changes in net interest income, volume and rate analysis
The table below presents an analysis of the effect on net interest income from volume and rate changes for the periods 2016 versus 2015 and 2015 versus 2014. In this analysis, when the change cannot be isolated to either volume or rate, it has been allocated to volume. |
| | | | | | | | | | | | | | | | | | | | | | | |
| | 2016 versus 2015 | | 2015 versus 2014 |
| | Increase/(decrease) due to change in: | | | | Increase/(decrease) due to change in: | | |
Year ended December 31, (On a taxable-equivalent basis; in millions) | Volume | | Rate | | Net change | | Volume | | Rate | | Net change |
| Interest-earning assets | | | | | | | | | | | |
| Deposits with banks: | | | | | | | | | | | |
| U.S. | $ | (324 | ) | | $ | 1,011 |
| | $ | 687 |
| | $ | 163 |
| | $ | 33 |
| | $ | 196 |
|
| Non-U.S. | 59 |
| | (133 | ) | | (74 | ) | | 53 |
| | (156 | ) | | (103 | ) |
| Federal funds sold and securities purchased under resale agreements: | | | | | | | | |
| | |
| U.S. | (55 | ) | | 321 |
| | 266 |
| | (58 | ) | | 239 |
| | 181 |
|
| Non-U.S. | 56 |
| | 351 |
| | 407 |
| | (137 | ) | | (94 | ) | | (231 | ) |
| Securities borrowed: | | | | | | | | |
| | |
| U.S. | 24 |
| | 197 |
| | 221 |
| | (12 | ) | | 23 |
| | 11 |
|
| Non-U.S. | — |
| | (21 | ) | | (21 | ) | | (14 | ) | | (28 | ) | | (42 | ) |
| Trading assets – debt instruments: | | | | | | | | |
| | |
| U.S. | 317 |
| | (64 | ) | | 253 |
| | (100 | ) | | (373 | ) | | (473 | ) |
| Non-U.S. | (24 | ) | | 450 |
| | 426 |
| | (27 | ) | | (192 | ) | | (219 | ) |
| Securities: | | | | | | | | | | | |
| U.S. | 515 |
| | (220 | ) | | 295 |
| | 226 |
| | (136 | ) | | 90 |
|
| Non-U.S. | (1,051 | ) | | (150 | ) | | (1,201 | ) | | (918 | ) | | 159 |
| | (759 | ) |
| Loans: | | | | | | | | |
| | |
| U.S. | 3,992 |
| | (350 | ) | | 3,642 |
| | 2,829 |
| | (1,526 | ) | | 1,303 |
|
| Non-U.S. | (220 | ) | | 123 |
| | (97 | ) | | (324 | ) | | (52 | ) | | (376 | ) |
| Other assets, predominantly U.S. | 21 |
| | 202 |
| | 223 |
| | (36 | ) | | 25 |
| | (11 | ) |
| Change in interest income | 3,310 |
| | 1,717 |
| | 5,027 |
| | 1,645 |
| | (2,078 | ) | | (433 | ) |
| Interest-bearing liabilities | | | | | | | | | | | |
| Interest-bearing deposits: | | | | | | | | | | | |
| U.S. | 76 |
| | 192 |
| | 268 |
| | 10 |
| | (62 | ) | | (52 | ) |
| Non-U.S. | (21 | ) | | (143 | ) | | (164 | ) | | (26 | ) | | (303 | ) | | (329 | ) |
| Federal funds purchased and securities loaned or sold under repurchase agreements: | | | | | | |
| |
| | |
| U.S. | (113 | ) | | 520 |
| | 407 |
| | (12 | ) | | 248 |
| | 236 |
|
| Non-U.S. | 26 |
| | 47 |
| | 73 |
| | (50 | ) | | (181 | ) | | (231 | ) |
Trading liabilities – debt, short-term and other liabilities: (a) | | | | | | | | |
| | |
| U.S. | (24 | ) | | 504 |
| | 480 |
| | 66 |
| | (176 | ) | | (110 | ) |
| Non-U.S. | 14 |
| | 79 |
| | 93 |
| | (81 | ) | | 77 |
| | (4 | ) |
| Beneficial interests issued by consolidated VIEs, predominantly U.S. | (113 | ) | | 182 |
| | 69 |
| | 11 |
| | 19 |
| | 30 |
|
| Long-term debt: | | | | | | |
|
| |
|
| |
|
|
| U.S. | 219 |
| | 928 |
| | 1,147 |
| | 251 |
| | (231 | ) | | 20 |
|
| Non-U.S. | 1 |
| | (19 | ) | | (18 | ) | | (4 | ) | | 10 |
| | 6 |
|
| Intercompany funding: | | | | | | | | | | | |
| U.S. | (17 | ) | | 20 |
| | 3 |
| | (1 | ) | | 184 |
| | 183 |
|
| Non-U.S. | 17 |
| | (20 | ) | | (3 | ) | | 1 |
| | (184 | ) | | (183 | ) |
| Change in interest expense | 65 |
| | 2,290 |
| | 2,355 |
| | 165 |
| | (599 | ) | | (434 | ) |
| Change in net interest income | $ | 3,245 |
| | $ | (573 | ) | | $ | 2,672 |
| | $ | 1,480 |
| | $ | (1,479 | ) | | $ | 1 |
|
| |
| (a) | Includes commercial paper. |
|
| | |
| 278 | | JPMorgan Chase & Co./2016 Annual Report |
Glossary of Terms and Acronyms
2016 Annual Report or 2016 Form 10-K: Annual report on Form 10-K for year ended December 31, 2016, filed with the U.S. Securities and Exchange Commission.
ABS: Asset-backed securities
Active foreclosures: Loans referred to foreclosure where formal foreclosure proceedings are ongoing. Includes both judicial and non-judicial states.
AFS: Available-for-sale
ALCO: Asset Liability Committee
Allowance for loan losses to total loans: Represents period-end allowance for loan losses divided by retained loans.
Alternative assets: The following types of assets constitute alternative investments – hedge funds, currency, real estate, private equity and other investment funds designed to focus on nontraditional strategies.
AWM: Asset & Wealth Management
AOCI: Accumulated other comprehensive income/(loss)
ARM: Adjustable rate mortgage(s)
AUC: Assets under management:custody
AUM: “Assets under management”: Represent assets actively managed by AMAWM on behalf of its Private Banking, Institutional and Retail clients. Includes “Committed capital not Called,” on which AMAWM earns fees.
Auto loan and lease origination volume: Dollar amount of auto loans and leases originated.
Beneficial interests issued by consolidated VIEs: Represents the interest of third-party holders of debt, equity securities, or other obligations, issued by VIEs that JPMorgan Chase consolidates.
Benefit obligation: Refers to the projected benefit obligation for pension plans and the accumulated postretirement benefit obligation for OPEB plans.
Central counterparty (“CCP”):BHC: A CCPBank holding company
Card Services includes the Credit Card and Commerce Solutions businesses.
CB: Commercial Banking
CBB: Consumer & Business Banking
CCAR: Comprehensive Capital Analysis and Review
CCB: Consumer & Community Banking
CCO: Chief Compliance Officer
CCP: “Central counterparty” is a clearing house that interposes itself between counterparties to contracts traded in one or more financial markets, becoming the buyer to every seller and the seller to every buyer and thereby ensuring the future performance of open contracts. A CCP becomes counterparty to trades with market participants
through novation, an open offer system, or another legally binding arrangement.
Chase LiquidCDS: SM cards: Refers to a prepaid, reloadable card product.Credit default swaps
Client advisors:CEO: Chief Executive Officer
CET1 Capital: Common Equity Tier 1 Capital
CFTC: Commodity Futures Trading Commission
CFO: Chief Financial Officer
Chase Bank USA, N.A.: Chase Bank USA, National Association
CIB: Corporate & Investment product specialists, including private client advisors, financial advisors, financial advisor associates, senior financial advisors, independent financial advisors and financial advisor associate trainees, who advise clients on investment options, including annuities, mutual funds, stock trading services, etc., sold by the Firm or by third-party vendors through retail branches, Chase Private Client locations and other channels.Bank
CIO: Chief Investment Office
Client assets: Represent assets under management as well as custody, brokerage, administration and deposit accounts.
Client deposits and other third partythird-party liabilities: Deposits, as well as deposits that are swept to on-balance sheet liabilities (e.g., commercial paper, federal funds purchased and securities loaned or sold under repurchase agreements) as part of client cash management programs. During the third quarter 2015 the Firm completed the discontinuation of its commercial paper customer sweep cash management program.
Client investment managed accounts:CLO: Assets actively managedCollateralized loan obligations
CLTV: Combined loan-to-value
Collateral-dependent: A loan is considered to be collateral-dependent when repayment of the loan is expected to be provided solely by Chase Wealth Management on behalf of clients. The percentage of managed accounts is calculatedthe underlying collateral, rather than by dividing managed account assets by total client investment assets.cash flows from the borrower’s operations, income or other resources.
Commerce Solutions isa business that primarily processes transactions for merchants.
Commercial CardCard: 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.
COO: Chief Operating Officer
Core loans: LoansRepresents loans considered central to the Firm’s ongoing businesses; core loans exclude loans classified as trading assets, runoff portfolios, discontinued portfolios and portfolios the Firm has an intent to exit.
Credit cycle: A period of time over which credit quality improves, deteriorates and then improves again (or vice versa). The duration of a credit cycle can vary from a couple of years to several years.
Credit derivatives: Financial instruments whose value is derived from the credit risk associated with the debt of a third partythird-party issuer (the reference entity) which allow one party (the protection purchaser) to transfer that risk to
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another party (the protection seller). Upon the occurrence of a credit event by the reference entity, which may include, among other events, the bankruptcy or failure to pay its obligations, or certain restructurings of the debt of the reference entity, neither party has recourse to the reference entity. The protection purchaser has recourse to the protection seller for the difference between the face value of the CDS contract and the fair value at the time of settling the credit derivative contract. The determination as to whether a credit event has occurred is generally made by the relevant International Swaps and Derivatives Association (“ISDA”) Determinations Committee.
Criticized: Criticized loans, lending-related commitments and derivative receivables that are classified as special mention, substandard and doubtful categories for regulatory purposes and are generally consistent with a rating of CCC+/Caa1 and below, as defined by S&P and Moody’s.
CRO: Chief Risk Officer
CTC: CIO, Treasury and Corporate
CVA: Credit valuation adjustments
Debit and credit card sales volume: Dollar amount of card member purchases, net of returns.
Deposit margin/deposit spread: Represents net interest income expressed as a percentage of average deposits.
Distributed denial-of-service attack: The use of a large number of remote computer systems to electronically send a high volume of traffic to a target website to create a service outage at the target. This is a form of cyberattack.
Exchange-tradedDFAST: Dodd-Frank Act Stress Test
Dodd-Frank Act: Wall Street Reform and Consumer Protection Act
DOJ: U.S. Department of Justice
DOL: U.S.Department of Labor
DRPC: Directors’ Risk Policy Committee
DVA: Debit valuation adjustment
E&P: Exploration & Production
EC: European Commission
Eligible LTD: Long-term debt satisfying certain eligibility criteria
Embedded derivatives:are implicit or explicit terms or features of a financial instrument that affect some or all of the cash flows or the value of the instrument in a manner similar to a derivative. An instrument containing such terms or features is referred to as a “hybrid.” The component of the hybrid that is the non-derivative instrument is referred to as the “host.” For example, callable debt is a hybrid instrument that contains a plain vanilla debt instrument (i.e., the host) and an embedded option that allows the issuer to redeem the debt issue at a specified date for a
specified amount (i.e., the embedded derivative). However, a floating rate instrument is not a hybrid composed of a fixed-rate instrument and an interest rate swap.
ERISA: Employee Retirement Income Security Act of 1974
EPS: Earnings per share
ETD: “Exchange-traded derivatives”: Derivative contracts that are executed on an exchange and settled via a central clearing house.
EU: European Union
Fannie Mae: Federal National Mortgage Association
FASB: Financial Accounting Standards Board
FCA: Financial Conduct Authority
FCC: Firmwide Control Committee
FDIA: Federal Depository Insurance Act
FDIC: Federal Deposit Insurance Corporation
Federal Reserve: The Board of the Governors of the Federal Reserve System
Fee share: Proportion of fee revenue based on estimates of investment banking fees generated across the industry from investment banking transactions in M&A, equity and debt underwriting, and loan syndications. Source: Dealogic, a third partythird-party provider of investment banking fee competitive analysis and volume-based league tables for the above noted industry products.
FFELP: Federal Family Education Loan Program
FFIEC: Federal Financial Institutions Examination Council
FHA: Federal Housing Administration
FHLB: Federal Home Loan Bank
FICO score: A measure of consumer credit risk provided by credit bureaus, typically produced from statistical models by Fair Isaac Corporation utilizing data collected by the credit bureaus.
Firm: JPMorgan Chase & Co.
Forward points: Represents the interest rate differential between two currencies, which is either added to or subtracted from the current exchange rate (i.e., “spot rate”) to determine the forward exchange rate.
FRC: Firmwide Risk Committee
Free standing derivatives: a derivative contract entered into either separate and apart from any of the Firms other financial instruments or equity transactions. Or, in conjunction with some other transaction and is legally detachable and separately exercisable.
FSB: Financial Stability Board
FTE: Fully taxable equivalent
FVA: Funding valuation adjustment
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Glossary of Terms and Acronyms
FX: Foreign exchange
G7: Group of Seven (“G7”) nations: Countries in the G7 are Canada, France, Germany, Italy, Japan, the U.K. and the U.S.
G7 government bonds: Bonds issued by the government of one of the G7 nations.
Ginnie Mae:Government National Mortgage Association
GSE: Fannie Mae and Freddie Mac
GSIB: Global systemically important banks
HAMP: Home affordable modification program
Headcount-related expense: Includes salary and benefits (excluding performance-based incentives), and other noncompensation costs related to employees.
HELOAN: Home equity loan
HELOC: Home equity line of credit
Home equity – senior lien: Represents loans and commitments where JPMorgan Chase holds the first security interest on the property.
Home equity – junior lien: Represents loans and commitments where JPMorgan Chase holds a security interest that is subordinate in rank to other liens.
Households: A household is a collection of individuals or entities aggregated together by name, address, tax identifier and phone. Reported on a one-month lag.
HQLA: High quality liquid assets
HTM: Held-to-maturity
ICAAP: Internal capital adequacy assessment process
IDI: Insured depository institutions
IHC: JPMorgan Chase Holdings LLC, an intermediate holding company
Impaired loan: Impaired loans are loans measured at amortized cost, for which it is probable that the Firm will be unable to collect all amounts due, including principal and interest, according to the contractual terms of the agreement. Impaired loans include the following:
All wholesale nonaccrual loans
All TDRs (both wholesale and consumer), including ones that have returned to accrual status
Interchange income: A fee paid to a credit card issuer in the clearing and settlement of a sales or cash advance transaction.
Investment-grade: An indication of credit quality based on JPMorgan Chase’s internal risk assessment system. “Investment grade” generally represents a risk profile similar to a rating of a “BBB-”/“Baa3” or better, as defined by independent rating agencies.
ISDA: International Swaps and Derivatives Association
JPMorgan Chase: JPMorgan Chase & Co.
JPMorgan Chase Bank, N.A.: JPMorgan Chase Bank, National Association
JPMorgan Clearing: J.P. Morgan Clearing Corp.
JPMorgan Securities: J.P. Morgan Securities LLC
Loan-equivalent: Represents the portion of the unused commitment or other contingent exposure that is expected, based on average portfolio historical experience, to become drawn prior to an event of a default by an obligor.
LCR: Liquidity coverage ratio
LDA: Loss Distribution Approach
LGD: Loss given default
LIBOR: London Interbank Offered Rate
LLC: Limited Liability Company.Company
Loan-to-value (“LTV”) ratio:LOB: Line of business
Loss emergence period: Represents the time period between the date at which the loss is estimated to have been incurred and the realization of that loss.
LTIP: Long-term incentive plan
LTV: “Loan-to-value”: For residential real estate loans, the relationship, expressed as a percentage, between the principal amount of a loan and the appraised value of the collateral (i.e., residential real estate) securing the loan.
Origination date LTV ratio
The LTV ratio at the origination date of the loan. Origination date LTV ratios are calculated based on the actual appraised values of collateral (i.e., loan-level data) at the origination date.
Current estimated LTV ratio
An estimate of the LTV as of a certain date. The current estimated LTV ratios are calculated using estimated collateral values derived from a nationally recognized home price index measured at the metropolitan statistical area (“MSA”) level. These MSA-level home price indices consist of actual data to the extent available and forecasted data where actual data is not available. As a result, the estimated collateral values used to calculate these ratios do not represent actual appraised loan-level collateral values; as such, the resulting LTV ratios are necessarily imprecise and should therefore be viewed as estimates.
Combined LTV ratio
The LTV ratio considering all available lien positions, as well as unused lines, related to the property. Combined LTV ratios are used for junior lien home equity products.
Managed basis: A non-GAAP presentation of financial results that includes reclassifications to present revenue on a fully taxable-equivalent basis. Management uses this non- GAAP financial measure at the segment level, because it
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believes this provides information to enable investors to understand the underlying operational performance and trends of the particular business segment and facilitates a comparison of the business segment with the performance of competitors.
Master netting agreement: An agreement between two counterparties who have multiple contracts with each other that provides for the net settlement of all contracts, as well as cash collateral, through a single payment, in a single currency, in the event of default on or termination of any one contract.
MBS: Mortgage-backed securities
MD&A: Management’s discussion and analysis
MMDA: Money Market Deposit Accounts
Moody’s: Moody’s Investor Services
Mortgage origination channels:
Retail – Borrowers who buy or refinance a home through direct contact with a mortgage banker employed by the Firm using a branch office, the Internet or by phone. Borrowers are frequently referred to a mortgage banker by a banker in a Chase branch, real estate brokers, home builders or other third parties.
Correspondent – Banks, thrifts, other mortgage banks and other financial institutions that sell closed loans to the Firm.
Mortgage product types:
Alt-A
Alt-A loans are generally higher in credit quality than subprime loans but have characteristics that would disqualify the borrower from a traditional prime loan. Alt-A lending characteristics may include one or more of the following: (i) limited documentation; (ii) a high combined loan-to-value (“CLTV”)CLTV ratio; (iii) loans secured by non-owner occupied properties; or (iv) a debt-to-income ratio above normal limits. A substantial proportion of the Firm’s Alt-A loans are those where a borrower does not provide complete documentation of his or her assets or the amount or source of his or her income.
Option ARMs
The option ARM real estate loan product is an adjustable-rate mortgage loan that provides the borrower with the option each month to make a fully amortizing, interest-only or minimum payment. The minimum payment on an option ARM loan is based on the interest rate charged during the introductory period. This introductory rate is usually significantly below the fully indexed rate. The fully indexed rate is calculated using an index rate plus a margin. Once the introductory period ends, the contractual interest rate charged on the loan increases to the fully indexed rate and adjusts monthly to reflect movements in the index. The minimum payment is typically insufficient to cover interest accrued in the prior month, and any unpaid interest is
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deferred and added to the principal balance of the loan.
Option ARM loans are subject to payment recast, which converts the loan to a variable-rate fully amortizing loan upon meeting specified loan balance and anniversary date triggers.
Prime
Prime mortgage loans are made to borrowers with good credit records who meet specific underwriting requirements, including prescriptive requirements related to income and overall debt levels. New prime mortgage borrowers provide full documentation and generally have reliable payment histories.
Subprime
Subprime loans are loans that, prior to mid-2008, were offered to certain customers with one or more high risk characteristics, including but not limited to: (i) unreliable or poor payment histories; (ii) a high LTV ratio of greater than 80% (without borrower-paid mortgage insurance); (iii) a high debt-to-income ratio; (iv) an occupancy type for the loan is other than the borrower’s primary residence; or (v) a history of delinquencies or late payments on the loan.
MSA: Metropolitan statistical areas
MSR: Mortgage servicing rights
Multi-asset: Any fund or account that allocates assets under management to more than one asset class.
N/A:NA: Data is not applicable or available for the period presented.
NAV: Net Asset Value
Net Capital Rule: Rule 15c3-1 under the Securities Exchange Act of 1934.
Net charge-off/(recovery) rate: Represents net charge-offs/(recoveries) (annualized) divided by average retained loans for the reporting period.
Net production revenue: Includes net gains or losses on originations and sales of mortgage loans, other production-related fees and losses related to the repurchase of previously-sold loans.
Net mortgage servicing revenue includes the following components:
Operating revenue predominantly represents the return on Mortgage Servicing’s MSR asset and includes:
– Actual gross income earned from servicing third-party mortgage loans, such as contractually specified servicing fees and ancillary income; and
– The change in the fair value of the MSR asset due to the collection or realization of expected cash flows.
Risk management represents the components of
Mortgage Servicing’s MSR asset that are subject to ongoing risk management activities, together with derivatives and other instruments used in those risk management activities.
Net production revenue: Includes net gains or losses on originations and sales of mortgage loans, other production-related fees and losses related to the repurchase of previously sold loans.
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Glossary of Terms and Acronyms
Net revenue rate: Represents Card Services net revenue (annualized) expressed as a percentage of average loans for the period.
Net yield on interest-earning assets: The average rate for interest-earning assets less the average rate paid for all sources of funds.
NM: Not meaningful.meaningful
NOL: Net operating loss
Nonaccrual loans: Loans for which interest income is not recognized on an accrual basis. Loans (other than credit card loans and certain consumer loans insured by U.S. government agencies) are placed on nonaccrual status when full payment of principal and interest is not expected, regardless of delinquency status, or when principal and interest hashave been in default for a period of 90 days or more unless the loan is both well-secured and in the process of collection. Collateral-dependent loans are typically maintained on nonaccrual status.
Nonperforming assets: Nonperforming assets include nonaccrual loans, nonperforming derivatives and certain assets acquired in loan satisfaction, predominantly real estate owned and other commercial and personal property.
NOW: Negotiable Order of Withdrawal
NSFR: Net stable funding ratio
OAS: Option-adjusted spread
OCC: Office of the Comptroller of the Currency
OCI: Other comprehensive income/(loss)
OEP: One Equity Partners
OIS: Overnight index swap
OPEB: Other postretirement employee benefit
ORMF: Operational Risk Management Framework
OTTI: Other-than-temporary impairment
Over-the-counter (“OTC”) derivatives: Derivative contracts that are negotiated, executed and settled bilaterally between two derivative counterparties, where one or both counterparties is a derivatives dealer.
Over-the-counter cleared (“OTC-cleared”) derivatives: Derivative contracts that are negotiated and executed bilaterally, but subsequently settled via a central clearing house, such that each derivative counterparty is only exposed to the default of that clearing house.
Overhead ratio: Noninterest expense as a percentage of total net revenue.
Parent Company: JPMorgan Chase & Co.
Participating securities: Represents unvested stock-based compensation awards containing nonforfeitable rights to dividends or dividend equivalents (collectively, “dividends”),
which are included in the earnings per share calculation using the two-class method. JPMorgan Chase grants restricted stock and RSUs to certain employees under its stock-based compensation programs, which entitle the recipients to receive nonforfeitable dividends during the vesting period on a basis equivalent to the dividends paid to holders of common stock. These unvested awards meet the definition of participating securities. Under the two-class method, all earnings (distributed and undistributed) are allocated to each class of common stock and participating securities, based on their respective rights to receive dividends.
Personal bankers:PCA: Retail branch office personnel who acquire, retainPrompt corrective action
PCI: “Purchased credit-impaired” loans represents loans that were acquired in the Washington Mutual transaction and expand newdeemed to be credit-impaired on the acquisition date in accordance with the guidance of the FASB. The guidance allows purchasers to aggregate credit-impaired loans acquired in the same fiscal quarter into one or more pools, provided that the loans have common risk characteristics(e.g., product type, LTV ratios, FICO scores, past due status, geographic location). A pool is then accounted for as a single asset with a single composite interest rate and existing customer relationships by assessing customer needs and recommending and selling appropriate banking products and services.an aggregate expectation of cash flows.
PD: Probability of default |
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PRA: Prudential Regulatory Authority
Pre-provision profit/(loss): Represents total net revenue less noninterest expense. The Firm believes that this financial measure is useful in assessing the ability of a lending institution to generate income in excess of its provision for credit losses.
Pretax margin: Represents income before income tax expense divided by total net revenue, which is, in management’s view, a comprehensive measure of pretax performance derived by measuring earnings after all costs are taken into consideration. It is one basis upon which management evaluates the performance of AMAWM against the performance of their respective competitors.
Principal transactions revenue: Principal transactions revenue includesis driven by many factors, including the bid-offer spread, which is the difference between the price at which the Firm is willing to buy a financial or other instrument and the price at which the Firm is willing to sell that instrument. It also consists of realized (as a result of closing out or termination of transactions, or interim cash payments) and unrealized (as a result of changes in valuation) gains and losses recorded on financial and other instruments (including those accounted for under the fair value option) primarily used in client-driven market-making activities and on private equity investments. In connection with its client-driven market-making activities, the Firm transacts in debt and equity instruments, derivatives otherand commodities (including physical commodities inventories and financial instruments private equity investments, and physical commodities used in market making and client-driven activities. In addition, that reference commodities).
Principal transactions revenue also includes certain realized
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Glossary of Terms and Acronyms
and unrealized gains and losses related to hedge accounting and specified risk managementrisk-management activities, including: (a) certain derivatives designated in qualifying hedge accounting relationships (primarily fair value hedges of commodity and foreign exchange risk), (b) certain derivatives used for specifiedspecific risk management purposes, primarily to mitigate credit risk, foreign exchange risk and commodity risk, and (c) other derivatives.
Purchased credit-impaired (“PCI”) loans: PSU(s):Represents loans that were acquired in the Washington Mutual transaction Performance share units
RCSA: Risk and deemed to be credit-impaired on the acquisition date in accordance with the guidance of the Financial Accounting Standards Board (“FASB”). The guidance allows purchasers to aggregate credit-impaired loans acquired in the same fiscal quarter into one or more pools, provided that the loans have common risk characteristics (e.g., product type, LTV ratios, FICO scores, past due status, geographic location). A pool is then accounted for as a single asset with a single composite interest rate and an aggregate expectation of cash flows.Control Self-Assessment
Real assets: Real assets include investments in productive assets such as agriculture, energy rights, mining and timber properties and exclude raw land to be developed for real estate purposes.
RealREIT: “Real estate investment trust (“REIT”)trust”: A special purpose investment vehicle that provides investors with the ability to participate directly in the ownership or financing of real-estate related assets by pooling their capital to purchase and manage income property (i.e., equity REIT) and/or mortgage loans (i.e., mortgage REIT). REITs can be publicly-or privately-heldpublicly or privately held and they also qualify for certain favorable tax considerations.
Receivables from customers: Primarily represents margin loans to prime and retail brokerage customers whichthat are includedcollateralized through assets maintained in the clients’ brokerage accounts, as such no allowance is held against these receivables. These receivables are reported within accrued interest and accounts receivable on the Firm’s Consolidated balance sheets.
Regulatory VaR: Daily aggregated VaR calculated in accordance with regulatory rules.
REO: Real estate owned
Reported basis: Financial statements prepared under U.S. GAAP, which excludes the impact of taxable-equivalent adjustments.
Retained loans: Loans that are held-for-investment (i.e., excludes loans held-for-sale and loans at fair value).
Revenue wallet: Proportion of fee revenue based on estimates of investment banking fees generated across the industry (i.e., the revenue wallet) from investment banking transactions in M&A, equity and debt underwriting, and loan syndications. Source: Dealogic, a third partythird-party provider of investment banking competitive analysis and volume-based league tables for the above noted industry products.
Risk-weightedRHS: Rural Housing Service of the U.S. Department of Agriculture
ROA: Return on assets (“RWA”)
ROE: Return on equity
ROTCE: Return on tangible common equity
RSU(s): Restricted stock units
RWA: “Risk-weighted assets”: Basel III establishes two comprehensive methodologies for calculating RWA (a Standardized approach and an Advanced approach) which include capital requirements for credit risk, market risk, and in the case of Basel III Advanced, also operational risk. Key differences in the calculation of credit risk RWA between the Standardized and Advanced approaches are that for Basel III Advanced, credit risk RWA is based on risk-sensitive approaches which largely rely on the use of internal credit models and parameters, whereas for Basel III Standardized, credit risk RWA is generally based on supervisory risk-weightings which vary primarily by counterparty type and asset class. Market risk RWA is calculated on a generally consistent basis between Basel III Standardized and Basel III Advanced, both of which incorporate the requirements set forth in Basel 2.5.
Sales specialists:S&P: Retail branch officeStandard and field personnel, including relationship managersPoor’s 500 Index
SAR(s): Stock appreciation rights
SCCL: single-counterparty credit limits
SEC: Securities and loan officers, who specialize in marketing and sales of various business banking products (i.e., business loans, letters of credit, deposit accounts, Commerce Solutions, etc.) and mortgage products to existing and new clients.Exchange Commission
Seed capital: Initial JPMorgan capital invested in products, such as mutual funds, with the intention of ensuring the fund is of sufficient size to represent a viable offering to clients, enabling pricing of its shares, and allowing the manager to develop a track record. After these goals are achieved, the intent is to remove the Firm’s capital from the investment.
Short sale: A short sale is a sale of real estate in which proceeds from selling the underlying property are less than the amount owed the Firm under the terms of the related mortgage, and the related lien is released upon receipt of such proceeds.
Single-name: Single reference-entities
SLR: Supplementary leverage ratio
SMBS: Stripped mortgage-backed securities
SOA: Society of Actuaries
SPEs: Special purpose entities
Structural interest rate risk: Represents interest rate risk of the non-trading assets and liabilities of the Firm.
Structured notes: Structured notes are predominantly financial instruments containing embedded derivatives. Where present, the embedded derivative is the primary driver of risk.
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Suspended foreclosures: Loans referred to foreclosure where formal foreclosure proceedings have started but are currently on hold, which could be due to bankruptcy or loss mitigation. Includes both judicial and non-judicial states.
Taxable-equivalent basis: In presenting managed results, the total net revenue for each of the business segments and the Firm is presented on a tax-equivalent 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; the
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Glossary of Terms and Acronyms
corresponding income tax impact related to tax-exempt items is recorded within income tax expense.
TBVPS: Tangible book value per share
TCE: Tangible common equity
TDR:“Troubled debt restructuring (“TDR”):restructuring” A TDR is deemed to occur when the Firm modifies the original terms of a loan agreement by granting a concession to a borrower that is experiencing financial difficulty.
TLAC: Total Loss Absorbing Capacity
U.K.: United Kingdom
Unaudited: Financial statements and information that have not been subjected to auditing procedures sufficient to permit an independent certified public accountant to express an opinion.
U.S.: United States of America
U.S. GAAP: Accounting principles generally accepted in the U.S.
U.S. government-sponsored enterprises (“U.S. GSEs”) and U.S. GSE obligations: In the U.S., GSEs are quasi-governmental, privately-heldprivately held entities established by Congress to improve the flow of credit to specific sectors of the economy and provide certain essential services to the public. U.S. GSEs include Fannie Mae and Freddie Mac, but do not include Ginnie Mae, which is directly owned by the U.S. Department of Housing and Urban Development. U.S. GSE obligations are not explicitly guaranteed as to the timely payment of principal and interest by the full faith and credit of the U.S. government.
U.S. LCR: Liquidity coverage ratio under the final U.S. rule.
U.S. Treasury: U.S. Department of the Treasury.Treasury
Value-at-risk (“VaR”):VA: AU.S. Department of Veterans Affairs
VaR: “Value-at-risk” is a measure of the dollar amount of potential loss from adverse market moves in an ordinary market environment.
VCG: Valuation Control Group
VGF: Valuation Governance Forum
VIEs: Variable interest entities
Warehouse loans: Consist of prime mortgages originated with the intent to sell that are accounted for at fair value and classified as trading assets.
Washington Mutual transaction: On September 25, 2008, JPMorgan Chase acquired certain of the assets of the banking operations of Washington Mutual Bank (“Washington Mutual”) from the FDIC.
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Distribution of assets, liabilities and stockholders’ equity; interest rates and interest differentials
Consolidated average balance sheet, interest and rates
Provided below is a summary of JPMorgan Chase’s consolidated average balances, interest rates and interest differentials on a taxable-equivalent basis for the years 2013 through 2015. Income computed on a taxable-equivalent basis is the income reported in the Consolidated statements of income, adjusted to present interest income
and average rates earned on assets exempt from income taxes (primarily federal taxes) on a basis comparable with other taxable investments. The incremental tax rate used for calculating the taxable-equivalent adjustment was approximately 38% in 2015, 2014 and 2013. A substantial portion of JPMorgan Chase’s securities are taxable.
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| (Table continued on next page) | 2015 |
Year ended December 31, (Taxable-equivalent interest and rates; in millions, except rates) | Average balance | | Interest(e) | | Average rate |
| Assets | | | | | | |
| Deposits with banks | $ | 427,963 |
| | $ | 1,250 |
| | 0.29 | % | |
| Federal funds sold and securities purchased under resale agreements | 206,637 |
| | 1,592 |
| | 0.77 |
| |
| Securities borrowed | 105,273 |
| | (532 | ) | (f) | (0.50 | ) | |
| Trading assets | 206,385 |
| | 6,694 |
| | 3.24 |
| |
| Taxable securities | 273,730 |
| | 6,550 |
| | 2.39 |
| |
Non-taxable securities(a) | 42,125 |
| | 2,556 |
| | 6.07 |
| |
| Total securities | 315,855 |
| | 9,106 |
| | 2.88 |
| (h) |
| Loans | 787,318 |
| | 33,321 |
| (g) | 4.23 |
| |
Other assets(b) | 38,811 |
| | 652 |
| | 1.68 |
| |
| Total interest-earning assets | 2,088,242 |
| | 52,083 |
| | 2.49 |
| |
| Allowance for loan losses | (13,885 | ) | | | | | |
| Cash and due from banks | 22,042 |
| | | | | |
| Trading assets – equity instruments | 105,489 |
| | | | | |
| Trading assets – derivative receivables | 73,290 |
| | | | | |
| Goodwill | 47,445 |
| | | | | |
| Mortgage servicing rights | 6,902 |
| | | | | |
| Other intangible assets: | | | | | | |
| Purchased credit card relationships | 25 |
| | | | | |
| Other intangibles | 1,067 |
| | | | | |
| Other assets | 138,792 |
| | | | | |
| Total assets | $ | 2,469,409 |
| | | | | |
| Liabilities | | | | | | |
| Interest-bearing deposits | $ | 872,572 |
| | $ | 1,252 |
| | 0.14 | % | |
| Federal funds purchased and securities loaned or sold under repurchase agreements | 192,510 |
| | 609 |
| | 0.32 |
| |
| Commercial paper | 38,140 |
| | 110 |
| | 0.29 |
| |
Trading liabilities – debt, short-term and other liabilities(c) | 207,810 |
| | 622 |
| | 0.30 |
| |
| Beneficial interests issued by consolidated variable interest entities (“VIEs”) | 49,200 |
| | 435 |
| | 0.88 |
| |
| Long-term debt | 284,940 |
| | 4,435 |
| | 1.56 |
| |
| Total interest-bearing liabilities | 1,645,172 |
| | 7,463 |
| | 0.45 |
| |
| Noninterest-bearing deposits | 423,216 |
| | | | | |
| Trading liabilities – equity instruments | 17,282 |
| | | | | |
| Trading liabilities – derivative payables | 64,716 |
| | | | | |
| All other liabilities, including the allowance for lending-related commitments | 79,293 |
| | | | | |
| Total liabilities | 2,229,679 |
| | | | | |
| Stockholders’ equity | | | | | | |
| Preferred stock | 24,040 |
| | | | | |
| Common stockholders’ equity | 215,690 |
| | | | | |
| Total stockholders’ equity | 239,730 |
| (d) | | | | |
| Total liabilities and stockholders’ equity | $ | 2,469,409 |
| | | | | |
| Interest rate spread | | | | | 2.04 | % | |
| Net interest income and net yield on interest-earning assets | | | $ | 44,620 |
| | 2.14 |
| |
| |
(a) | Represents securities which are tax exempt for U.S. Federal Income Tax purposes. |
| |
(b) | Includes margin loans. |
| |
(c) | Includes brokerage customer payables. |
| |
(d) | The ratio of average stockholders’ equity to average assets was 9.7% for 2015, 9.2% for 2014, and 8.7% for 2013. The return on average stockholders’ equity, based on net income, was 10.2% for 2015, 9.7% for 2014, and 8.6% for 2013. |
| |
(e) | Interest includes the effect of related hedging derivatives. Taxable-equivalent amounts are used where applicable. |
| |
(f) | Negative interest income and yield for the years ended December 31, 2015, 2014 and 2013, is the result of increased client-driven demand for certain securities combined with the impact of low interest rates; the offset of this stock borrow activity is reflected as lower net interest expense reported within short-term and other liabilities. |
| |
(g) | Fees and commissions on loans included in loan interest amounted to $936 million in 2015, $1.1 billion in 2014, and $1.3 billion in 2013. |
| |
(h) | The annualized rate for securities based on amortized cost was 2.94% in 2015, 2.82% in 2014, and 2.37% in 2013, and does not give effect to changes in fair value that are reflected in accumulated other comprehensive income/(loss). |
| |
(i) | Reflects a benefit from the favorable market environments for dollar-roll financings. |
Within the Consolidated average balance sheets, interest and rates summary, the principal amounts of nonaccrual loans have been included in the average loan balances used to determine the average interest rate earned on loans. For additional information on nonaccrual loans, including interest accrued, see Note 14.
|
| | | | | | | | | | | | | | | | | | | | | | |
| (Table continued from previous page) | | | | | | | | | | |
| 2014 | | 2013 | |
Average balance | | Interest(e) | | Average rate | | Average balance | | Interest(e) | | Average rate | |
| | | | | | | | | | | | | |
| $ | 358,072 |
| | $ | 1,157 |
| | 0.32 | % | | | $ | 268,968 |
| | $ | 918 |
| | 0.34 | % | |
| 230,489 |
| | 1,642 |
| | 0.71 |
| | | 231,567 |
| | 1,940 |
| | 0.84 |
| |
| 116,540 |
| | (501 | ) | (f) | (0.43 | ) | | | 118,300 |
| | (127 | ) | (f) | (0.11 | ) | |
| 210,609 |
| | 7,386 |
| | 3.51 |
| | | 227,769 |
| | 8,191 |
| | 3.60 |
| |
| 318,970 |
| | 7,617 |
| | 2.39 |
| | | 333,285 |
| | 6,916 |
| | 2.07 |
| |
| 34,359 |
| | 2,158 |
| | 6.28 |
| | | 23,558 |
| | 1,369 |
| | 5.81 |
| |
| 353,329 |
| | 9,775 |
| | 2.77 |
| (h) | | 356,843 |
| | 8,285 |
| | 2.32 |
| (h) |
| 739,175 |
| | 32,394 |
| (g) | 4.38 |
| | | 726,450 |
| | 33,621 |
| (g) | 4.63 |
| |
| 40,879 |
| | 663 |
| | 1.62 |
| | | 40,334 |
| | 538 |
| | 1.33 |
| |
| 2,049,093 |
| | 52,516 |
| | 2.56 |
| | | 1,970,231 |
| | 53,366 |
| | 2.71 |
| |
| (15,418 | ) | | | | | | | (19,819 | ) | | | | | |
| 25,650 |
| | | | | | | 35,919 |
| | | | | |
| 116,650 |
| | | | | | | 112,680 |
| | | | | |
| 67,123 |
| | | | | | | 72,629 |
| | | | | |
| 48,029 |
| | | | | | | 48,102 |
| | | | | |
| 8,387 |
| | | | | | | 8,840 |
| | | | | |
| | | | | | | | | | | | | |
| 62 |
| | | | | | | 214 |
| | | | | |
| 1,316 |
| | | | | | | 1,736 |
| | | | | |
| 146,343 |
| | | | | | | 149,058 |
| | | | | |
| $ | 2,447,235 |
| | | | | | | $ | 2,379,590 |
| | | | | |
| | | | | | | | | | | | | |
| $ | 868,838 |
| | $ | 1,633 |
| | 0.19 | % | | | $ | 822,781 |
| | $ | 2,067 |
| | 0.25 | % | |
| 208,560 |
| | 604 |
| (i) | 0.29 |
| (i) | | 238,551 |
| | 582 |
| (i) | 0.24 |
| (i) |
| 59,916 |
| | 134 |
| | 0.22 |
| | | 53,717 |
| | 112 |
| | 0.21 |
| |
| 220,137 |
| | 712 |
| | 0.32 |
| | | 202,894 |
| | 1,104 |
| | 0.54 |
| |
| 47,974 |
| | 405 |
| | 0.84 |
| | | 54,798 |
| | 478 |
| | 0.87 |
| |
| 269,814 |
| | 4,409 |
| | 1.63 |
| | | 263,603 |
| | 5,007 |
| | 1.90 |
| |
| 1,675,239 |
| | 7,897 |
| | 0.47 |
| | | 1,636,344 |
| | 9,350 |
| | 0.57 |
| |
| 395,463 |
| | | | | | | 366,361 |
| | | | | |
| 16,246 |
| | | | | | | 14,218 |
| | | | | |
| 54,758 |
| | | | | | | 64,553 |
| | | | | |
| 81,111 |
| | | | | | | 90,745 |
| | | | | |
| 2,222,817 |
| | | | | | | 2,172,221 |
| | | | | |
| | | | | | | | | | | | | |
| 17,018 |
| | | | | | | 10,960 |
| | | | | |
| 207,400 |
| | | | | | | 196,409 |
| | | | | |
| 224,418 |
| (d) | | | | | | 207,369 |
| (d) | | | | |
| $ | 2,447,235 |
| | | | | | | $ | 2,379,590 |
| | | | | |
| | | | | 2.09 | % | | | | | | | 2.14 | % | |
| | | $ | 44,619 |
| | 2.18 |
| | | | | $ | 44,016 |
| | 2.23 |
| |
Interest rates and interest differential analysis of net interest income – U.S. and non-U.S.
Presented below is a summary of interest rates and interest differentials segregated between U.S. and non-U.S. operations for the years 2013 through 2015. The segregation of U.S. and non-U.S. components is based on
the location of the office recording the transaction. Intracompany funding generally consists of dollar-denominated deposits originated in various locations that are centrally managed by JPMorgan Chase’s Treasury unit.
|
| | | | | | | | | | |
| (Table continued on next page) | | | | | |
| | 2015 |
Year ended December 31, (Taxable-equivalent interest and rates; in millions, except rates) | Average balance | Interest | | Average rate |
| Interest-earning assets | | | | | |
| Deposits with banks: | | | | | |
| U.S. | $ | 388,833 |
| $ | 1,021 |
| | 0.26 | % | |
| Non-U.S. | 39,130 |
| 229 |
| | 0.59 |
| |
| Federal funds sold and securities purchased under resale agreements: | | | | | |
| U.S. | 118,945 |
| 900 |
| | 0.76 |
| |
| Non-U.S. | 87,692 |
| 692 |
| | 0.79 |
| |
| Securities borrowed: | | | | | |
| U.S. | 78,815 |
| (562 | ) | (b) | (0.71 | ) | |
| Non-U.S. | 26,458 |
| 30 |
| | 0.11 |
| |
| Trading assets – debt instruments: | | | | | |
| U.S. | 106,465 |
| 3,572 |
| | 3.35 |
| |
| Non-U.S. | 99,920 |
| 3,122 |
| | 3.12 |
| |
| Securities: | | | | | |
| U.S. | 200,240 |
| 6,676 |
| | 3.33 |
| |
| Non-U.S. | 115,615 |
| 2,430 |
| | 2.10 |
| |
| Loans: | | | | | |
| U.S. | 699,664 |
| 31,468 |
| | 4.50 |
| |
| Non-U.S. | 87,654 |
| 1,853 |
| | 2.11 |
| |
| Other assets, predominantly U.S. | 38,811 |
| 652 |
| | 1.68 |
| |
| Total interest-earning assets | 2,088,242 |
| 52,083 |
| | 2.49 |
| |
| Interest-bearing liabilities | | | | | |
| Interest-bearing deposits: | | | | | |
| U.S. | 638,756 |
| 761 |
| | 0.12 |
| |
| Non-U.S. | 233,816 |
| 491 |
| | 0.21 |
| |
| Federal funds purchased and securities loaned or sold under repurchase agreements: | | | | | |
| U.S. | 140,609 |
| 366 |
| | 0.26 |
| |
| Non-U.S. | 51,901 |
| 243 |
| | 0.47 |
| |
| Trading liabilities – debt, short-term and other liabilities: | | | | | |
| U.S. | 166,838 |
| (394 | ) | (b) | (0.24 | ) | |
| Non-U.S. | 79,112 |
| 1,126 |
| | 1.42 |
| |
| Beneficial interests issued by consolidated VIEs, predominantly U.S. | 49,200 |
| 435 |
| | 0.88 |
| |
| Long-term debt: | | | | | |
| U.S. | 273,033 |
| 4,386 |
| | 1.61 |
| |
| Non-U.S. | 11,907 |
| 49 |
| | 0.41 |
| |
| Intracompany funding: | | | | | |
| U.S. | (50,517 | ) | 7 |
| | — |
| |
| Non-U.S. | 50,517 |
| (7 | ) | | — |
| |
| Total interest-bearing liabilities | 1,645,172 |
| 7,463 |
| | 0.45 |
| |
Noninterest-bearing liabilities(a) | 443,070 |
| | | | |
| Total investable funds | $ | 2,088,242 |
| $ | 7,463 |
| | 0.36 | % | |
| Net interest income and net yield: | | $ | 44,620 |
| | 2.14 | % | |
| U.S. | | 38,033 |
| | 2.34 |
| |
| Non-U.S. | | 6,587 |
| | 1.42 |
| |
| Percentage of total assets and liabilities attributable to non-U.S. operations: | | | | | |
| Assets | | | | 24.7 |
| |
| Liabilities | | | | 21.1 |
| |
| |
(a) | Represents the amount of noninterest-bearing liabilities funding interest-earning assets. |
| |
(b) | Negative interest income and yield, for the years ended December 31, 2015, 2014 and 2013 is a result of increased client-driven demand for certain securities combined with the impact of low interest rates; the offset of this stock borrow activity is reflected as lower net interest expense reported within trading liabilities – debt, short-term and other liabilities. |
| |
(c) | Reflects a benefit from the favorable market environments for dollar-roll financings. |
For further information, see the “Net interest income” discussion in Consolidated Results of Operations on pages 72–74.
|
| | | | | | | | | | | | | | | | | | | | |
| (Table continued from previous page) | | | | | | | | |
| | | | | | | |
| 2014 | | 2013 | |
| Average balance | Interest | | Average rate | | | Average balance | Interest | | Average rate | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| $ | 328,145 |
| $ | 825 |
| | 0.25 | % | | | $ | 233,850 |
| $ | 572 |
| | 0.24 | % | |
| 29,927 |
| 332 |
| | 1.11 |
| | | 35,118 |
| 346 |
| | 0.99 |
| |
| | | | | | | | | | | |
| 125,812 |
| 719 |
| | 0.57 |
| | | 129,600 |
| 793 |
| | 0.61 |
| |
| 104,677 |
| 923 |
| | 0.88 |
| | | 101,967 |
| 1,147 |
| | 1.13 |
| |
| | | | | | | | | | | |
| 77,228 |
| (573 | ) | (b) | (0.74 | ) | | | 69,377 |
| (376 | ) | (b) | (0.54 | ) | |
| 39,312 |
| 72 |
| | 0.18 |
| | | 48,923 |
| 249 |
| | 0.51 |
| |
| |
| | | | | | | | | | |
| 109,678 |
| 4,045 |
| | 3.69 |
| | | 120,985 |
| 4,301 |
| | 3.56 |
| |
| 100,931 |
| 3,341 |
| | 3.31 |
| | | 106,784 |
| 3,890 |
| | 3.64 |
| |
| | | | | | | | | | | |
| 193,856 |
| 6,586 |
| | 3.40 |
| | | 170,473 |
| 4,795 |
| | 2.81 |
| |
| 159,473 |
| 3,189 |
| | 2.00 |
| | | 186,370 |
| 3,490 |
| | 1.87 |
| |
| | | | | | | | | | | |
| 635,846 |
| 30,165 |
| | 4.74 |
| | | 617,043 |
| 31,235 |
| | 5.06 |
| |
| 103,329 |
| 2,229 |
| | 2.16 |
| | | 109,407 |
| 2,386 |
| | 2.18 |
| |
| 40,879 |
| 663 |
| | 1.62 |
| | | 40,334 |
| 538 |
| | 1.33 |
| |
| 2,049,093 |
| 52,516 |
| | 2.56 |
| | | 1,970,231 |
| 53,366 |
| | 2.71 |
| |
| |
| | | | | | | | | | |
| |
| | | | | | | | | | |
| 620,708 |
| 813 |
| | 0.13 |
| | | 582,282 |
| 1,067 |
| | 0.18 |
| |
| 248,130 |
| 820 |
| | 0.33 |
| | | 240,499 |
| 1,000 |
| | 0.42 |
| |
| | | | | | | | | | | |
| 146,025 |
| 130 |
| (c) | 0.09 |
| (c) | | 161,256 |
| 103 |
| (c) | 0.06 |
| (c) |
| 62,535 |
| 474 |
| | 0.76 |
| | | 77,295 |
| 479 |
| | 0.62 |
| |
| |
| | | | | | | | | | |
| 194,771 |
| (284 | ) | (b) | (0.15 | ) | | | 176,870 |
| 5 |
| (b) | — |
| |
| 85,282 |
| 1,130 |
| | 1.33 |
| | | 79,741 |
| 1,211 |
| | 1.52 |
| |
| 47,974 |
| 405 |
| | 0.84 |
| | | 54,798 |
| 478 |
| | 0.87 |
| |
| | | | | | | | | | | |
| 256,726 |
| 4,366 |
| | 1.70 |
| | | 250,477 |
| 4,949 |
| | 1.98 |
| |
| 13,088 |
| 43 |
| | 0.33 |
| | | 13,126 |
| 58 |
| | 0.45 |
| |
| |
| | | | | | | | | | |
| (122,467 | ) | (176 | ) | | — |
| | | (181,109 | ) | (339 | ) | | — |
| |
| 122,467 |
| 176 |
| | — |
| | | 181,109 |
| 339 |
| | — |
| |
| 1,675,239 |
| 7,897 |
| | 0.47 |
| | | 1,636,344 |
| 9,350 |
| | 0.57 |
| |
| 373,854 |
| | | | | | 333,887 |
| | | | |
| $ | 2,049,093 |
| $ | 7,897 |
| | 0.39 | % | | | $ | 1,970,231 |
| $ | 9,350 |
| | 0.47 | % | |
| | 44,619 |
| | 2.18 | % | | | | 44,016 |
| | 2.23 | % | |
| | 37,018 |
| | 2.46 |
| | | | 35,492 |
| | 2.59 |
| |
| | 7,601 |
| | 1.39 |
| | | | 8,524 |
| | 1.42 |
| |
| | | | | | | | | | | |
| | | | 28.9 |
| | | | | | 32.6 |
| |
| | | | 22.6 |
| | | | | | 23.5 |
| |
Changes in net interest income, volume and rate analysis
The table below presents an analysis of the effect on net interest income of volume and rate changes for the periods 2015 versus 2014 and 2014 versus 2013. In this analysis, when the change cannot be isolated to either volume or rate, it has been allocated to volume. |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | 2015 versus 2014 | | 2014 versus 2013 | |
| | Increase/(decrease) due to change in: | | | | Increase/(decrease) due to change in: | | |
Year ended December 31, (On a taxable-equivalent basis: in millions) | Volume | | Rate | | Net change | | Volume | | Rate | | Net change | |
| Interest-earning assets | | | | | | | | | | | | |
| Deposits with banks: | | | | | | | | | | | | |
| U.S. | $ | 163 |
| | $ | 33 |
| | $ | 196 |
| | $ | 230 |
| | $ | 23 |
| | $ | 253 |
| |
| Non-U.S. | 53 |
| | (156 | ) | | (103 | ) | | (56 | ) | | 42 |
| | (14 | ) | |
| Federal funds sold and securities purchased under resale agreements: | | | | | | | | |
| | | |
| U.S. | (58 | ) | | 239 |
| | 181 |
| | (22 | ) | | (52 | ) | | (74 | ) | |
| Non-U.S. | (137 | ) | | (94 | ) | | (231 | ) | | 31 |
| | (255 | ) | | (224 | ) | |
| Securities borrowed: | | | | | | | | |
| | | |
| U.S. | (12 | ) | | 23 |
| | 11 |
| | (58 | ) | | (139 | ) | | (197 | ) | |
| Non-U.S. | (14 | ) | | (28 | ) | | (42 | ) | | (16 | ) | | (161 | ) | | (177 | ) | |
| Trading assets – debt instruments: | | | | | | | | |
| | | |
| U.S. | (100 | ) | | (373 | ) | | (473 | ) | | (413 | ) | | 157 |
| | (256 | ) | |
| Non-U.S. | (27 | ) | | (192 | ) | | (219 | ) | | (197 | ) | | (352 | ) | | (549 | ) | |
| Securities: | | | | | | | | | | | | |
| U.S. | 226 |
| | (136 | ) | | 90 |
| | 785 |
| | 1,006 |
| | 1,791 |
| |
| Non-U.S. | (918 | ) | | 159 |
| | (759 | ) | | (543 | ) | | 242 |
| | (301 | ) | |
| Loans: | | | | | | | | |
| | | |
| U.S. | 2,829 |
| | (1,526 | ) | | 1,303 |
| | 905 |
| | (1,975 | ) | | (1,070 | ) | |
| Non-U.S. | (324 | ) | | (52 | ) | | (376 | ) | | (135 | ) | | (22 | ) | | (157 | ) | |
| Other assets, predominantly U.S. | (36 | ) | | 25 |
| | (11 | ) | | 8 |
| | 117 |
| | 125 |
| |
| Change in interest income | 1,645 |
| | (2,078 | ) | | (433 | ) | | 519 |
| | (1,369 | ) | | (850 | ) | |
| Interest-bearing liabilities | | | | | | | | | | | | |
| Interest-bearing deposits: | | | | | | | | | | | | |
| U.S. | 10 |
| | (62 | ) | | (52 | ) | | 37 |
| | (291 | ) | | (254 | ) | |
| Non-U.S. | (31 | ) | | (298 | ) | | (329 | ) | | 36 |
| | (216 | ) | | (180 | ) | |
| Federal funds purchased and securities loaned or sold under repurchase agreements: | | | | | | |
| |
| | | |
| U.S. | (12 | ) | | 248 |
| | 236 |
| | (21 | ) | | 48 |
| | 27 |
| |
| Non-U.S. | (50 | ) | | (181 | ) | | (231 | ) | | (113 | ) | | 108 |
| | (5 | ) | |
| Trading liabilities – debt, short-term and other liabilities | | | | | | | | |
| | | |
| U.S. | 66 |
| | (176 | ) | | (110 | ) | | (27 | ) | | (262 | ) | | (289 | ) | |
| Non-U.S. | (81 | ) | | 77 |
| | (4 | ) | | 71 |
| | (152 | ) | | (81 | ) | |
| Beneficial interests issued by consolidated VIEs, predominantly U.S. | 11 |
| | 19 |
| | 30 |
| | (57 | ) | | (16 | ) | | (73 | ) | |
| Long-term debt: | | | | | | |
|
| |
|
| |
|
| |
| U.S. | 251 |
| | (231 | ) | | 20 |
| | 118 |
| | (701 | ) | | (583 | ) | |
| Non-U.S. | (4 | ) | | 10 |
| | 6 |
| | 1 |
| | (16 | ) | | (15 | ) | |
| Intercompany funding: | | | | | | | | | | | | |
| U.S. | (1 | ) | | 184 |
| | 183 |
| | 72 |
| | 91 |
| | 163 |
| |
| Non-U.S. | 1 |
| | (184 | ) | | (183 | ) | | (72 | ) | | (91 | ) | | (163 | ) | |
| Change in interest expense | 160 |
| | (594 | ) | | (434 | ) | | 45 |
| | (1,498 | ) | | (1,453 | ) | |
| Change in net interest income | $ | 1,485 |
| | $ | (1,484 | ) | | $ | 1 |
| | $ | 474 |
| | $ | 129 |
| | $ | 603 |
| |
For information regarding the securities portfolio as of December 31, 20152016 and 20142015, and for the years ended December 31, 20152016 and 20142015, see Note 12. For the available–for–sale securities portfolio, at December 31, 20132014, the fair value and amortized cost of U.S. Treasury and government agency obligations was $99.2$79.0 billion and $97.7$76.7 billion, respectively; the fair value and amortized cost of all other available–for–sale securities was $230.8$219.8 billion and $227.7$214.3 billion, respectively; and the total fair value and amortized cost of the total available–for–sale securities portfolio was $330.0$298.8 billion and $325.4$291.0 billion, respectively.
At December 31, 20132014, the fair value and amortized cost of U.S. Treasury and government agency obligations in the held-to-maturity securities portfolio was $22.8$40.3 billion and $23.1$39.0 billion, respectively; the fair value and amortized cost of all other held-to-maturityHTM securities was $920 million;$10.8 billion and $10.2 billion, respectively; and the total fair value and amortized cost of the total held-to-maturity securities portfolio was $23.7$51.2 billion and $24.0$49.3 billion, respectively.
The table below presents loans by portfolio segment and loan class that are presented in Credit Risk Management on page 114,88, pages 115–12189–95 and page 122,96, and in Note 14, at the periods indicated.
| | | December 31, (in millions) | 2015 | 2014 | 2013 | 2012 | 2011 | 2016 | 2015 | 2014 | 2013 | 2012 |
| U.S. consumer, excluding credit card loans | | |
| Home equity | $ | 60,548 |
| $ | 69,837 |
| $ | 76,790 |
| $ | 88,356 |
| $ | 100,497 |
| $ | 51,965 |
| $ | 60,548 |
| $ | 69,837 |
| $ | 76,790 |
| $ | 88,356 |
|
| Mortgage | 192,714 |
| 139,973 |
| 129,008 |
| 123,277 |
| 128,709 |
| |
| Residential mortgage | | 215,178 |
| 192,714 |
| 139,973 |
| 129,008 |
| 123,277 |
|
| Auto | 60,255 |
| 54,536 |
| 52,757 |
| 49,913 |
| 47,426 |
| 65,814 |
| 60,255 |
| 54,536 |
| 52,757 |
| 49,913 |
|
| Other | 31,304 |
| 31,028 |
| 30,508 |
| 31,074 |
| 31,795 |
| 31,687 |
| 31,304 |
| 31,028 |
| 30,508 |
| 31,074 |
|
| Total U.S. consumer, excluding credit card loans | 344,821 |
| 295,374 |
| 289,063 |
| 292,620 |
| 308,427 |
| 364,644 |
| 344,821 |
| 295,374 |
| 289,063 |
| 292,620 |
|
| Credit card Loans | | |
| U.S. credit card loans | 131,132 |
| 129,067 |
| 125,308 |
| 125,277 |
| 129,587 |
| 141,447 |
| 131,132 |
| 129,067 |
| 125,308 |
| 125,277 |
|
| Non-U.S. credit card loans | 331 |
| 1,981 |
| 2,483 |
| 2,716 |
| 2,690 |
| 369 |
| 331 |
| 1,981 |
| 2,483 |
| 2,716 |
|
| Total credit card loans | 131,463 |
| 131,048 |
| 127,791 |
| 127,993 |
| 132,277 |
| 141,816 |
| 131,463 |
| 131,048 |
| 127,791 |
| 127,993 |
|
| Total consumer loans | 476,284 |
| 426,422 |
| 416,854 |
| 420,613 |
| 440,704 |
| 506,460 |
| 476,284 |
| 426,422 |
| 416,854 |
| 420,613 |
|
| U.S. wholesale loans | | |
| Commercial and industrial | 83,739 |
| 78,664 |
| 79,436 |
| 77,900 |
| 65,958 |
| 90,542 |
| 83,739 |
| 78,664 |
| 79,436 |
| 77,900 |
|
| Real estate | 90,836 |
| 77,022 |
| 67,815 |
| 59,369 |
| 53,230 |
| 104,791 |
| 90,836 |
| 77,022 |
| 67,815 |
| 59,369 |
|
| Financial institutions | 12,708 |
| 13,743 |
| 11,087 |
| 10,708 |
| 8,489 |
| 17,416 |
| 12,708 |
| 13,743 |
| 11,087 |
| 10,708 |
|
| Government agencies | 9,838 |
| 7,574 |
| 8,316 |
| 7,962 |
| 7,236 |
| 12,655 |
| 9,838 |
| 7,574 |
| 8,316 |
| 7,962 |
|
| Other | 67,925 |
| 49,838 |
| 48,158 |
| 50,948 |
| 52,126 |
| 69,774 |
| 67,925 |
| 49,838 |
| 48,158 |
| 50,948 |
|
| Total U.S. wholesale loans | 265,046 |
| 226,841 |
| 214,812 |
| 206,887 |
| 187,039 |
| 295,178 |
| 265,046 |
| 226,841 |
| 214,812 |
| 206,887 |
|
| Non-U.S. wholesale loans | | |
| Commercial and industrial | 30,385 |
| 34,782 |
| 36,447 |
| 36,674 |
| 31,108 |
| 31,035 |
| 30,385 |
| 34,782 |
| 36,447 |
| 36,674 |
|
| Real estate | 4,577 |
| 2,224 |
| 1,621 |
| 1,757 |
| 1,748 |
| 3,964 |
| 4,577 |
| 2,224 |
| 1,621 |
| 1,757 |
|
| Financial institutions | 17,188 |
| 21,099 |
| 22,813 |
| 26,564 |
| 30,262 |
| 14,791 |
| 17,188 |
| 21,099 |
| 22,813 |
| 26,564 |
|
| Government agencies | 1,788 |
| 1,122 |
| 2,146 |
| 1,586 |
| 583 |
| 3,726 |
| 1,788 |
| 1,122 |
| 2,146 |
| 1,586 |
|
| Other | 42,031 |
| 44,846 |
| 43,725 |
| 39,715 |
| 32,276 |
| 39,611 |
| 42,031 |
| 44,846 |
| 43,725 |
| 39,715 |
|
| Total non-U.S. wholesale loans | 95,969 |
| 104,073 |
| 106,752 |
| 106,296 |
| 95,977 |
| 93,127 |
| 95,969 |
| 104,073 |
| 106,752 |
| 106,296 |
|
| Total wholesale loans | | |
| Commercial and industrial | 114,124 |
| 113,446 |
| 115,883 |
| 114,574 |
| 97,066 |
| 121,577 |
| 114,124 |
| 113,446 |
| 115,883 |
| 114,574 |
|
| Real estate | 95,413 |
| 79,246 |
| 69,436 |
| 61,126 |
| 54,978 |
| 108,755 |
| 95,413 |
| 79,246 |
| 69,436 |
| 61,126 |
|
| Financial institutions | 29,896 |
| 34,842 |
| 33,900 |
| 37,272 |
| 38,751 |
| 32,207 |
| 29,896 |
| 34,842 |
| 33,900 |
| 37,272 |
|
| Government agencies | 11,626 |
| 8,696 |
| 10,462 |
| 9,548 |
| 7,819 |
| 16,381 |
| 11,626 |
| 8,696 |
| 10,462 |
| 9,548 |
|
| Other | 109,956 |
| 94,684 |
| 91,883 |
| 90,663 |
| 84,402 |
| 109,385 |
| 109,956 |
| 94,684 |
| 91,883 |
| 90,663 |
|
| Total wholesale loans | 361,015 |
| 330,914 |
| 321,564 |
| 313,183 |
| 283,016 |
| 388,305 |
| 361,015 |
| 330,914 |
| 321,564 |
| 313,183 |
|
Total loans(a) | $ | 837,299 |
| $ | 757,336 |
| $ | 738,418 |
| $ | 733,796 |
| $ | 723,720 |
| $ | 894,765 |
| $ | 837,299 |
| $ | 757,336 |
| $ | 738,418 |
| $ | 733,796 |
|
| Memo: | | |
| Loans held-for-sale | $ | 1,646 |
| $ | 7,217 |
| $ | 12,230 |
| $ | 4,406 |
| $ | 2,626 |
| $ | 2,628 |
| $ | 1,646 |
| $ | 7,217 |
| $ | 12,230 |
| $ | 4,406 |
|
| Loans at fair value | 2,861 |
| 2,611 |
| 2,011 |
| 2,555 |
| 2,097 |
| 2,230 |
| 2,861 |
| 2,611 |
| 2,011 |
| 2,555 |
|
| Total loans held-for-sale and loans at fair value | $ | 4,507 |
| $ | 9,828 |
| $ | 14,241 |
| $ | 6,961 |
| $ | 4,723 |
| $ | 4,858 |
| $ | 4,507 |
| $ | 9,828 |
| $ | 14,241 |
| $ | 6,961 |
|
| |
| (a) | Loans (other than purchased credit-impaired loans and those for which the fair value option have been elected) are presented net of unearned income, unamortized discounts and premiums, and net deferred loan costs. These amounts were not material as of December 31, 2016, 2015, 2014, 2013 2012 and 2011.2012. |
Maturities and sensitivity to changes in interest rates
The table below sets forth, at December 31, 20152016, wholesale loan maturity and distribution between fixed and floating interest rates based on the stated terms of the loan agreements. The table below also presents loans by loan class that are presented in Wholesale credit portfolio on pages 122–12996–104 and Note 14. The table does not include the impact of derivative instruments.
| | | December 31, 2015 (in millions) | Within 1 year (a) | 1-5 years | After 5 years | Total | |
| December 31, 2016 (in millions) | | Within 1 year (a) | 1-5 years | After 5 years | Total |
| U.S. | | |
| Commercial and industrial | $ | 13,641 |
| $ | 57,210 |
| $ | 12,888 |
| $ | 83,739 |
| $ | 16,774 |
| $ | 63,264 |
| $ | 10,504 |
| $ | 90,542 |
|
| Real estate | 7,173 |
| 19,823 |
| 63,840 |
| 90,836 |
| 9,909 |
| 20,684 |
| 74,198 |
| 104,791 |
|
| Financial institutions | 8,093 |
| 4,044 |
| 571 |
| 12,708 |
| 10,718 |
| 6,131 |
| 567 |
| 17,416 |
|
| Government agencies | 1,040 |
| 3,140 |
| 5,658 |
| 9,838 |
| 1,864 |
| 4,430 |
| 6,361 |
| 12,655 |
|
| Other | 24,196 |
| 41,795 |
| 1,934 |
| 67,925 |
| 24,423 |
| 42,070 |
| 3,281 |
| 69,774 |
|
| Total U.S. | 54,143 |
| 126,012 |
| 84,891 |
| 265,046 |
| 63,688 |
| 136,579 |
| 94,911 |
| 295,178 |
|
| Non-U.S. | | |
| Commercial and industrial | 9,061 |
| 15,913 |
| 5,411 |
| 30,385 |
| 9,761 |
| 17,495 |
| 3,779 |
| 31,035 |
|
| Real estate | 1,895 |
| 2,626 |
| 56 |
| 4,577 |
| 1,083 |
| 2,873 |
| 8 |
| 3,964 |
|
| Financial institutions | 13,114 |
| 4,072 |
| 2 |
| 17,188 |
| 10,406 |
| 4,347 |
| 38 |
| 14,791 |
|
| Government agencies | 803 |
| 252 |
| 733 |
| 1,788 |
| 946 |
| 2,003 |
| 777 |
| 3,726 |
|
| Other | 32,901 |
| 8,532 |
| 598 |
| 42,031 |
| 32,359 |
| 6,522 |
| 730 |
| 39,611 |
|
| Total non-U.S. | 57,774 |
| 31,395 |
| 6,800 |
| 95,969 |
| 54,555 |
| 33,240 |
| 5,332 |
| 93,127 |
|
| Total wholesale loans | $ | 111,917 |
| $ | 157,407 |
| $ | 91,691 |
| $ | 361,015 |
| $ | 118,243 |
| $ | 169,819 |
| $ | 100,243 |
| $ | 388,305 |
|
| Loans at fixed interest rates | | $ | 8,982 |
| $ | 62,274 |
| | | $ | 10,565 |
| $ | 74,972 |
| |
| Loans at variable interest rates | | 148,425 |
| 29,417 |
| | | 159,254 |
| 25,271 |
| |
| Total wholesale loans | | $ | 157,407 |
| $ | 91,691 |
| | | $ | 169,819 |
| $ | 100,243 |
| |
| |
| (a) | Includes demand loans and overdrafts. |
Risk elements
The following tables set forth nonperforming assets, contractually past-due assets, and accruing restructured loans by portfolio segment and loan class that are presented in Credit Risk Management on page 11488, pages 115–11689–90 and page 12296, at the periods indicated.
| | | December 31, (in millions) | 2015 | 2014 | 2013 | 2012 | 2011 | 2016 | 2015 | 2014 | 2013 | 2012 |
| Nonperforming assets | | |
| U.S. nonaccrual loans: | | |
| Consumer, excluding credit card loans | $ | 5,413 |
| $ | 6,509 |
| $ | 7,496 |
| $ | 9,174 |
| $ | 7,411 |
| $ | 4,820 |
| $ | 5,413 |
| $ | 6,509 |
| $ | 7,496 |
| $ | 9,174 |
|
| Credit card loans | — |
| — |
| — |
| 1 |
| 1 |
| — |
| — |
| — |
| — |
| 1 |
|
| Total U.S. nonaccrual consumer loans | 5,413 |
| 6,509 |
| 7,496 |
| 9,175 |
| 7,412 |
| 4,820 |
| 5,413 |
| 6,509 |
| 7,496 |
| 9,175 |
|
| Wholesale: | | |
| Commercial and industrial | 315 |
| 184 |
| 317 |
| 702 |
| 936 |
| 1,145 |
| 315 |
| 184 |
| 317 |
| 702 |
|
| Real estate | 175 |
| 237 |
| 338 |
| 520 |
| 886 |
| 148 |
| 175 |
| 237 |
| 338 |
| 520 |
|
| Financial institutions | 4 |
| 12 |
| 19 |
| 60 |
| 76 |
| 4 |
| 4 |
| 12 |
| 19 |
| 60 |
|
| Government agencies | — |
| — |
| 1 |
| — |
| — |
| — |
| — |
| — |
| 1 |
| — |
|
| Other | 86 |
| 59 |
| 97 |
| 153 |
| 234 |
| 198 |
| 86 |
| 59 |
| 97 |
| 153 |
|
| Total U.S. wholesale nonaccrual loans | 580 |
| 492 |
| 772 |
| 1,435 |
| 2,132 |
| 1,495 |
| 580 |
| 492 |
| 772 |
| 1,435 |
|
| Total U.S. nonaccrual loans | 5,993 |
| 7,001 |
| 8,268 |
| 10,610 |
| 9,544 |
| 6,315 |
| 5,993 |
| 7,001 |
| 8,268 |
| 10,610 |
|
| Non-U.S. nonaccrual loans: | | |
| Consumer, excluding credit card loans | — |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
|
| Credit card loans | — |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
|
| Total non-U.S. nonaccrual consumer loans | — |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
|
| Wholesale: | | |
| Commercial and industrial | 314 |
| 21 |
| 116 |
| 131 |
| 79 |
| 446 |
| 314 |
| 21 |
| 116 |
| 131 |
|
| Real estate | 63 |
| 23 |
| 88 |
| 89 |
| — |
| 52 |
| 63 |
| 23 |
| 88 |
| 89 |
|
| Financial institutions | 6 |
| 7 |
| 8 |
| — |
| — |
| 5 |
| 6 |
| 7 |
| 8 |
| — |
|
| Government agencies | — |
| — |
| — |
| 5 |
| 16 |
| — |
| — |
| — |
| — |
| 5 |
|
| Other | 53 |
| 81 |
| 60 |
| 57 |
| 354 |
| 65 |
| 53 |
| 81 |
| 60 |
| 57 |
|
| Total non-U.S. wholesale nonaccrual loans | 436 |
| 132 |
| 272 |
| 282 |
| 449 |
| 568 |
| 436 |
| 132 |
| 272 |
| 282 |
|
| Total non-U.S. nonaccrual loans | 436 |
| 132 |
| 272 |
| 282 |
| 449 |
| 568 |
| 436 |
| 132 |
| 272 |
| 282 |
|
| Total nonaccrual loans | 6,429 |
| 7,133 |
| 8,540 |
| 10,892 |
| 9,993 |
| 6,883 |
| 6,429 |
| 7,133 |
| 8,540 |
| 10,892 |
|
| Derivative receivables | 204 |
| 275 |
| 415 |
| 239 |
| 297 |
| 223 |
| 204 |
| 275 |
| 415 |
| 239 |
|
| Assets acquired in loan satisfactions | 401 |
| 559 |
| 751 |
| 775 |
| 1,025 |
| 429 |
| 401 |
| 559 |
| 751 |
| 775 |
|
| Nonperforming assets | $ | 7,034 |
| $ | 7,967 |
| $ | 9,706 |
| $ | 11,906 |
| $ | 11,315 |
| $ | 7,535 |
| $ | 7,034 |
| $ | 7,967 |
| $ | 9,706 |
| $ | 11,906 |
|
| Memo: | | |
| Loans held-for-sale | $ | 101 |
| $ | 95 |
| $ | 26 |
| $ | 18 |
| $ | 110 |
| $ | 162 |
| $ | 101 |
| $ | 95 |
| $ | 26 |
| $ | 18 |
|
| Loans at fair value | 25 |
| 21 |
| 197 |
| 265 |
| 73 |
| — |
| 25 |
| 21 |
| 197 |
| 265 |
|
| Total loans held-for-sale and loans at fair value | $ | 126 |
| $ | 116 |
| $ | 223 |
| $ | 283 |
| $ | 183 |
| $ | 162 |
| $ | 126 |
| $ | 116 |
| $ | 223 |
| $ | 283 |
|
| | | December 31, (in millions) | 2015 | 2014 | 2013 | 2012 | 2011 | 2016 | 2015 | 2014 | 2013 | 2012 |
Contractually past-due loans(a) | | |
| U.S. loans: | | |
| Consumer, excluding credit card loans | $ | 290 |
| $ | 367 |
| $ | 428 |
| $ | 525 |
| $ | 551 |
| |
Consumer, excluding credit card loans(b) | | $ | — |
| $ | — |
| $ | — |
| $ | — |
| $ | — |
|
| Credit card loans | 944 |
| 893 |
| 997 |
| 1,268 |
| 1,867 |
| 1,143 |
| 944 |
| 893 |
| 997 |
| 1,268 |
|
| Total U.S. consumer loans | 1,234 |
| 1,260 |
| 1,425 |
| 1,793 |
| 2,418 |
| 1,143 |
| 944 |
| 893 |
| 997 |
| 1,268 |
|
| Wholesale: | | |
| Commercial and industrial | 6 |
| 14 |
| 14 |
| 19 |
| — |
| 86 |
| 6 |
| 14 |
| 14 |
| 19 |
|
| Real estate | 15 |
| 33 |
| 14 |
| 69 |
| 84 |
| 2 |
| 15 |
| 33 |
| 14 |
| 69 |
|
| Financial institutions | 1 |
| — |
| — |
| 6 |
| 2 |
| 12 |
| 1 |
| — |
| — |
| 6 |
|
| Government agencies | 6 |
| — |
| — |
| — |
| — |
| 4 |
| 6 |
| — |
| — |
| — |
|
| Other | 28 |
| 26 |
| 16 |
| 30 |
| 6 |
| 19 |
| 28 |
| 26 |
| 16 |
| 30 |
|
| Total U.S. wholesale loans | 56 |
| 73 |
| 44 |
| 124 |
| 92 |
| 123 |
| 56 |
| 73 |
| 44 |
| 124 |
|
| Total U.S. loans | 1,290 |
| 1,333 |
| 1,469 |
| 1,917 |
| 2,510 |
| 1,266 |
| 1,000 |
| 966 |
| 1,041 |
| 1,392 |
|
| Non-U.S. loans: | | |
| Consumer, excluding credit card loans | — |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
|
| Credit card loans | — |
| 2 |
| 25 |
| 34 |
| 36 |
| 2 |
| — |
| 2 |
| 25 |
| 34 |
|
| Total non-U.S. consumer loans | — |
| 2 |
| 25 |
| 34 |
| 36 |
| 2 |
| — |
| 2 |
| 25 |
| 34 |
|
| Wholesale: | | |
| Commercial and industrial | 1 |
| — |
| — |
| — |
| — |
| — |
| 1 |
| — |
| — |
| — |
|
| Real estate | — |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
|
| Financial institutions | 10 |
| — |
| 6 |
| — |
| — |
| 9 |
| 10 |
| — |
| 6 |
| — |
|
| Government agencies | — |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
|
| Other | — |
| 3 |
| — |
| 14 |
| 8 |
| — |
| — |
| 3 |
| — |
| 14 |
|
| Total non-U.S. wholesale loans | 11 |
| 3 |
| 6 |
| 14 |
| 8 |
| 9 |
| 11 |
| 3 |
| 6 |
| 14 |
|
| Total non-U.S. loans | 11 |
| 5 |
| 31 |
| 48 |
| 44 |
| 11 |
| 11 |
| 5 |
| 31 |
| 48 |
|
| Total contractually past due loans | $ | 1,301 |
| $ | 1,338 |
| $ | 1,500 |
| $ | 1,965 |
| $ | 2,554 |
| $ | 1,277 |
| $ | 1,011 |
| $ | 971 |
| $ | 1,072 |
| $ | 1,440 |
|
| |
| (a) | Represents accruing loans past-due 90 days or more as to principal and interest, which are not characterized as nonaccrual loans. Excludes PCI loans which are accounted for on a pool basis. Since each pool is accounted for as a single asset with a single composite interest rate and an aggregate expectation of cash flows, the past-due status of the pools, or that of individual loans within the pools, is not meaningful. The Firm is recognizing interest income on each pool of loans as they are all performing. |
| |
| (b) | At December 31, 2016, 2015, 2014, 2013 and 2012, excluded loans 90 or more days past due and still accruing as follows: (1) mortgage loans insured by U.S. government agencies of $2.7 billion, $2.8 billion, $3.4 billion, $3.2 billion and $3.8 billion, respectively; and (2) student loans insured by U.S. government agencies under the FFELP of $263 million, $290 million, $367 million, $428 million and $525 million, respectively. These amounts have been excluded from the nonaccrual loans based upon the government guarantee. Prior period amounts have been revised to conform with current period presentation. |
| | | December 31, (in millions) | 2015 | 2014 | 2013 | 2012 | 2011 | 2016 | 2015 | 2014 | 2013 | 2012 |
Accruing restructured loans(a) | | |
| U.S.: | | |
| Consumer, excluding credit card loans | $ | 5,980 |
| $ | 7,814 |
| $ | 9,173 |
| $ | 9,033 |
| $ | 7,310 |
| $ | 5,561 |
| $ | 5,980 |
| $ | 7,814 |
| $ | 9,173 |
| $ | 9,033 |
|
Credit card loans(b) | 1,465 |
| 2,029 |
| 3,115 |
| 4,762 |
| 7,214 |
| 1,240 |
| 1,465 |
| 2,029 |
| 3,115 |
| 4,762 |
|
| Total U.S. consumer loans | 7,445 |
| 9,843 |
| 12,288 |
| 13,795 |
| 14,524 |
| 6,801 |
| 7,445 |
| 9,843 |
| 12,288 |
| 13,795 |
|
| Wholesale: | | |
| Commercial and industrial | 12 |
| 10 |
| — |
| 29 |
| 68 |
| 35 |
| 12 |
| 10 |
| — |
| 29 |
|
| Real estate | 28 |
| 31 |
| 27 |
| 7 |
| 48 |
| 14 |
| 28 |
| 31 |
| 27 |
| 7 |
|
| Financial institutions | — |
| — |
| — |
| — |
| 2 |
| — |
| — |
| — |
| — |
| — |
|
| Other | — |
| 1 |
| 3 |
| — |
| 6 |
| — |
| — |
| 1 |
| 3 |
| — |
|
| Total U.S. wholesale loans | 40 |
| 42 |
| 30 |
| 36 |
| 124 |
| 49 |
| 40 |
| 42 |
| 30 |
| 36 |
|
| Total U.S. | 7,485 |
| 9,885 |
| 12,318 |
| 13,831 |
| 14,648 |
| 6,850 |
| 7,485 |
| 9,885 |
| 12,318 |
| 13,831 |
|
| Non-U.S.: | | |
| Consumer, excluding credit card loans | — |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
|
Credit card loans(b) | — |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
|
| Total non-U.S. consumer loans | — |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
|
| Wholesale: | | |
| Commercial and industrial | — |
| — |
| — |
| 24 |
| 48 |
| 17 |
| — |
| — |
| — |
| 24 |
|
| Real estate | — |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
|
| Other | — |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
|
| Total non-U.S. wholesale loans | — |
| — |
| — |
| 24 |
| 48 |
| 17 |
| — |
| — |
| — |
| 24 |
|
| Total non-U.S. | — |
| — |
| — |
| 24 |
| 48 |
| 17 |
| — |
| — |
| — |
| 24 |
|
| Total accruing restructured notes | $ | 7,485 |
| $ | 9,885 |
| $ | 12,318 |
| $ | 13,855 |
| $ | 14,696 |
| $ | 6,867 |
| $ | 7,485 |
| $ | 9,885 |
| $ | 12,318 |
| $ | 13,855 |
|
| |
| (a) | Represents performing loans modified in troubled debt restructuringsTDRs in which an economic concession was granted by the Firm and the borrower has demonstrated its ability to repay the loans according to the terms of the restructuring. As defined in U.S. GAAP, concessions include the reduction of interest rates or the deferral of interest or principal payments, resulting from deterioration in the borrowers’ financial condition. Excludes nonaccrual assets and contractually past-due assets, which are included in the sections above. |
| |
| (b) | Includes credit card loans that have been modified in a troubled debt restructuring.TDR. |
For a discussion of nonaccrual loans, past-due loan accounting policies, and accruing restructured loans see Credit Risk Management on pages 112–13286–107, and Note 14.
Impact of nonaccrual loans and accruing restructured loans on interest income
The negative impact on interest income from nonaccrual loans represents the difference between the amount of interest income that would have been recorded on such nonaccrual loans according to their original contractual terms had they been performing and the amount of interest that actually was recognized on a cash basis. The negative impact on interest income from accruing restructured loans represents the difference between the amount of interest income that would have been recorded on such loans according to their original contractual terms and the amount of interest that actually was recognized under the modified terms. The following table sets forth this data for the years specified. The change in foregoneforgone interest income from 20132014 through 20152016 was primarily driven by the change in the levels of nonaccrual loans.
| | | Year ended December 31, (in millions) | 2015 | 2014 | 2013 | 2016 | 2015 | 2014 |
| Nonaccrual loans | | |
| U.S.: | | |
| Consumer, excluding credit card: | | |
| Gross amount of interest that would have been recorded at the original terms | $ | 513 |
| $ | 563 |
| $ | 719 |
| $ | 464 |
| $ | 513 |
| $ | 563 |
|
| Interest that was recognized in income | (225 | ) | (268 | ) | (298 | ) | (207 | ) | (225 | ) | (268 | ) |
| Total U.S. consumer, excluding credit card | 288 |
| 295 |
| 421 |
| 257 |
| 288 |
| 295 |
|
| Credit card: | | |
| Gross amount of interest that would have been recorded at the original terms | — |
| — |
| — |
| — |
| — |
| — |
|
| Interest that was recognized in income | — |
| — |
| — |
| — |
| — |
| — |
|
| Total U.S. credit card | — |
| — |
| — |
| — |
| — |
| — |
|
| Total U.S. consumer | 288 |
| 295 |
| 421 |
| 257 |
| 288 |
| 295 |
|
| Wholesale: | | |
| Gross amount of interest that would have been recorded at the original terms | 24 |
| 28 |
| 29 |
| 56 |
| 24 |
| 28 |
|
| Interest that was recognized in income | (10 | ) | (9 | ) | (9 | ) | (5 | ) | (10 | ) | (9 | ) |
| Total U.S. wholesale | 14 |
| 19 |
| 20 |
| 51 |
| 14 |
| 19 |
|
Negative impact — U.S. | 302 |
| 314 |
| 441 |
| 308 |
| 302 |
| 314 |
|
| Non-U.S.: | | |
| Consumer, excluding credit card: | | |
| Gross amount of interest that would have been recorded at the original terms | — |
| — |
| — |
| — |
| — |
| — |
|
| Interest that was recognized in income | — |
| — |
| — |
| — |
| — |
| — |
|
| Total non-U.S. consumer, excluding credit card | — |
| — |
| — |
| — |
| — |
| — |
|
| Credit card: | | |
| Gross amount of interest that would have been recorded at the original terms | — |
| — |
| — |
| — |
| — |
| — |
|
| Interest that was recognized in income | — |
| — |
| — |
| — |
| — |
| — |
|
| Total non-U.S. credit card | — |
| — |
| — |
| — |
| — |
| — |
|
| Total non-U.S. consumer | — |
| — |
| — |
| — |
| — |
| — |
|
Wholesale: | | |
| Gross amount of interest that would have been recorded at the original terms | 13 |
| 7 |
| 36 |
| 25 |
| 13 |
| 7 |
|
| Interest that was recognized in income | (6 | ) | — |
| — |
| (2 | ) | (6 | ) | — |
|
| Total non-U.S. wholesale | 7 |
| 7 |
| 36 |
| 23 |
| 7 |
| 7 |
|
Negative impact — non-U.S. | 7 |
| 7 |
| 36 |
| 23 |
| 7 |
| 7 |
|
| Total negative impact on interest income | $ | 309 |
| $ | 321 |
| $ | 477 |
| $ | 331 |
| $ | 309 |
| $ | 321 |
|
|
| | | | | | | | | |
| Year ended December 31, (in millions) | 2016 | 2015 | 2014 |
| Accruing restructured loans | | | |
| U.S.: | | | |
| Consumer, excluding credit card: | | | |
| Gross amount of interest that would have been recorded at the original terms | $ | 451 |
| $ | 485 |
| $ | 629 |
|
| Interest that was recognized in income | (256 | ) | (286 | ) | (339 | ) |
| Total U.S. consumer, excluding credit card | 195 |
| 199 |
| 290 |
|
| Credit card: | | | |
| Gross amount of interest that would have been recorded at the original terms | 207 |
| 260 |
| 377 |
|
| Interest that was recognized in income | (63 | ) | (82 | ) | (123 | ) |
| Total U.S. credit card | 144 |
| 178 |
| 254 |
|
| Total U.S. consumer | 339 |
| 377 |
| 544 |
|
| Wholesale: | | | |
| Gross amount of interest that would have been recorded at the original terms | 2 |
| 2 |
| — |
|
| Interest that was recognized in income | (2 | ) | (2 | ) | — |
|
| Total U.S. wholesale | — |
| — |
| — |
|
| Negative impact — U.S. | 339 |
| 377 |
| 544 |
|
| Non-U.S.: | | | |
| Consumer, excluding credit card: | | | |
| Gross amount of interest that would have been recorded at the original terms | — |
| — |
| — |
|
| Interest that was recognized in income | — |
| — |
| — |
|
| Total non-U.S. consumer, excluding credit card | — |
| — |
| — |
|
| Credit card: | | | |
| Gross amount of interest that would have been recorded at the original terms | — |
| — |
| — |
|
| Interest that was recognized in income | — |
| — |
| — |
|
| Total non-U.S. credit card | — |
| — |
| — |
|
| Total non-U.S. consumer | — |
| — |
| — |
|
| Wholesale: | | | |
| Gross amount of interest that would have been recorded at the original terms | — |
| — |
| — |
|
| Interest that was recognized in income | — |
| — |
| — |
|
| Total non-U.S. wholesale | — |
| — |
| — |
|
| Negative impact — non-U.S. | — |
| — |
| — |
|
| Total negative impact on interest income | $ | 339 |
| $ | 377 |
| $ | 544 |
|
|
| | | | | | | | | |
| Year ended December 31, (in millions) | 2015 | 2014 | 2013 |
| Accruing restructured loans | | | |
| U.S.: | | | |
| Consumer, excluding credit card: | | | |
| Gross amount of interest that would have been recorded at the original terms | $ | 485 |
| $ | 629 |
| $ | 758 |
|
| Interest that was recognized in income | (286 | ) | (339 | ) | (395 | ) |
| Total U.S. consumer, excluding credit card | 199 |
| 290 |
| 363 |
|
| Credit card: | | | |
| Gross amount of interest that would have been recorded at the original terms | 260 |
| 377 |
| 602 |
|
| Interest that was recognized in income | (82 | ) | (123 | ) | (198 | ) |
| Total U.S. credit card | 178 |
| 254 |
| 404 |
|
| Total U.S. consumer | 377 |
| 544 |
| 767 |
|
| Wholesale: | | | |
| Gross amount of interest that would have been recorded at the original terms | 2 |
| — |
| 1 |
|
| Interest that was recognized in income | (2 | ) | — |
| (1 | ) |
| Total U.S. wholesale | — |
| — |
| — |
|
| Negative impact — U.S. | 377 |
| 544 |
| 767 |
|
| Non-U.S.: | | | |
| Consumer, excluding credit card: | | | |
| Gross amount of interest that would have been recorded at the original terms | — |
| — |
| — |
|
| Interest that was recognized in income | — |
| — |
| — |
|
| Total non-U.S. consumer, excluding credit card | — |
| — |
| — |
|
| Credit card: | | | |
| Gross amount of interest that would have been recorded at the original terms | — |
| — |
| — |
|
| Interest that was recognized in income | — |
| — |
| — |
|
| Total non-U.S. credit card | — |
| — |
| — |
|
| Total non-U.S. consumer | — |
| — |
| — |
|
| Wholesale: | | | |
| Gross amount of interest that would have been recorded at the original terms | — |
| — |
| — |
|
| Interest that was recognized in income | — |
| — |
| — |
|
| Total non-U.S. wholesale | — |
| — |
| — |
|
| Negative impact — non-U.S. | — |
| — |
| — |
|
| Total negative impact on interest income | $ | 377 |
| $ | 544 |
| $ | 767 |
|
Cross-border outstandings
Cross-border disclosure is based on the Federal Financial Institutions Examination Council’s (“FFIEC”)FFIEC guidelines governing the determination of cross-border risk.
The reporting of country exposure under the FFIEC bank regulatory requirements provides information on the distribution, by country and sector, of claims on, and liabilities to, foreign residents held by U.S. banks and bank holding companies and is used by the regulatory agencies to determine the presence of credit and related risks,
including transfer and country risk. Country location under the FFIEC bank regulatory reporting is based on where the entity or counterparty is legally established.
JPMorgan Chase’s total cross-border exposure tends to fluctuate greatly, and the amount of exposure at year-end tends to be a function of timing rather than representing a consistent trend. For a further discussion of JPMorgan Chase’s country risk exposure, see Country Risk Management on pages 140–141108–109.
The following table lists all countries in which JPMorgan Chase’s cross-border outstandings exceed 0.75% of consolidated assets as of the dates specified.
| | Cross-border outstandings exceeding 0.75% of total assets(a) | | (in millions) | December 31, | Governments | Banks | Other(b) | Net local country assets | Total cross-border outstandings(c) | Commitments(d) | Total exposure | December 31, | Governments | Banks | Other(a) | Net local country assets | Total cross-border outstandings(b) | Commitments(c) | Total exposure |
| Cayman Islands | 2015 | $ | — |
| $ | 153 |
| $ | 76,160 |
| $ | 35 |
| $ | 76,348 |
| $ | 12,708 |
| $ | 89,056 |
| 2016 | $ | 18 |
| $ | 107 |
| $ | 74,810 |
| $ | 84 |
| $ | 75,019 |
| $ | 10,708 |
| $ | 85,727 |
|
| | 2014 | 2 |
| 199 |
| 73,708 |
| 115 |
| 74,024 |
| 25,886 |
| 99,910 |
| |
| | 2013 | 9 |
| 232 |
| 70,006 |
| — |
| 70,247 |
| 21,928 |
| 92,175 |
| |
| France | 2015 | $ | 9,139 |
| $ | 5,780 |
| $ | 21,199 |
| $ | 2,890 |
| $ | 39,008 |
| $ | 127,159 |
| $ | 166,167 |
| |
| | 2014 | 13,544 |
| 8,670 |
| 23,254 |
| 2,222 |
| 47,690 |
| 188,703 |
| 236,393 |
| 2015 | — |
| 153 |
| 76,160 |
| 35 |
| 76,348 |
| 12,708 |
| 89,056 |
|
| | 2013 | 10,512 |
| 12,448 |
| 38,415 |
| 2,486 |
| 63,861 |
| 235,173 |
| 299,034 |
| 2014 | 2 |
| 199 |
| 73,708 |
| 115 |
| 74,024 |
| 25,886 |
| 99,910 |
|
| Japan | 2015 | $ | 367 |
| $ | 12,556 |
| $ | 3,972 |
| $ | 29,348 |
| $ | 46,243 |
| $ | 47,069 |
| $ | 93,312 |
| 2016 | $ | 865 |
| $ | 16,522 |
| $ | 5,209 |
| $ | 48,505 |
| $ | 71,101 |
| $ | 52,448 |
| $ | 123,549 |
|
| | 2014 | 522 |
| 11,211 |
| 3,922 |
| 24,257 |
| 39,912 |
| 67,480 |
| 107,392 |
| 2015 | 367 |
| 12,556 |
| 3,972 |
| 29,348 |
| 46,243 |
| 47,069 |
| 93,312 |
|
| | 2013 | 957 |
| 16,286 |
| 12,972 |
| 30,811 |
| 61,026 |
| 60,310 |
| 121,336 |
| 2014 | 522 |
| 11,211 |
| 3,922 |
| 24,257 |
| 39,912 |
| 67,480 |
| 107,392 |
|
| Germany | 2015 | $ | 19,817 |
| $ | 2,028 |
| $ | 8,455 |
| $ | — |
| $ | 30,300 |
| $ | 106,104 |
| $ | 136,404 |
| 2016 | $ | 22,332 |
| $ | 2,118 |
| $ | 14,310 |
| $ | 25,269 |
| $ | 64,029 |
| $ | 71,981 |
| $ | 136,010 |
|
| | 2014 | 22,772 |
| 4,524 |
| 8,522 |
| — |
| 35,818 |
| 173,121 |
| 208,939 |
| 2015 | 19,817 |
| 2,028 |
| 8,455 |
| — |
| 30,300 |
| 106,104 |
| 136,404 |
|
| | 2013 | 25,514 |
| 4,078 |
| 7,057 |
| — |
| 36,649 |
| 214,375 |
| 251,024 |
| 2014 | 22,772 |
| 4,524 |
| 8,522 |
| — |
| 35,818 |
| 173,121 |
| 208,939 |
|
| Netherlands | 2015 | $ | 1,717 |
| $ | 1,688 |
| $ | 10,736 |
| $ | — |
| $ | 14,141 |
| $ | 52,029 |
| $ | 66,170 |
| |
| France | | 2016 | $ | 10,871 |
| $ | 4,076 |
| $ | 26,195 |
| $ | 3,723 |
| $ | 44,865 |
| $ | 88,256 |
| $ | 133,121 |
|
| | 2014 | 1,551 |
| 3,157 |
| 24,792 |
| — |
| 29,500 |
| 86,039 |
| 115,539 |
| 2015 | 9,139 |
| 5,780 |
| 21,199 |
| 2,890 |
| 39,008 |
| 127,159 |
| 166,167 |
|
| | 2013 | 1,024 |
| 4,349 |
| 32,765 |
| — |
| 38,138 |
| 97,797 |
| 135,935 |
| 2014 | 13,544 |
| 8,670 |
| 23,254 |
| 2,222 |
| 47,690 |
| 188,703 |
| 236,393 |
|
| Italy | 2015 | $ | 12,313 |
| $ | 3,618 |
| $ | 6,331 |
| $ | 732 |
| $ | 22,994 |
| $ | 89,712 |
| $ | 112,706 |
| 2016 | $ | 12,290 |
| $ | 4,760 |
| $ | 4,487 |
| $ | 848 |
| $ | 22,385 |
| $ | 62,382 |
| $ | 84,767 |
|
| | 2014 | 14,297 |
| 5,293 |
| 5,221 |
| 550 |
| 25,361 |
| 128,269 |
| 153,630 |
| 2015 | 12,313 |
| 3,618 |
| 6,331 |
| 732 |
| 22,994 |
| 89,712 |
| 112,706 |
|
| | 2013 | 10,302 |
| 4,440 |
| 5,643 |
| 1,524 |
| 21,909 |
| 135,711 |
| 157,620 |
| 2014 | 14,297 |
| 5,293 |
| 5,221 |
| 550 |
| 25,361 |
| 128,269 |
| 153,630 |
|
| Ireland | 2015 | $ | 67 |
| $ | 952 |
| $ | 12,436 |
| $ | — |
| $ | 13,455 |
| $ | 8,024 |
| $ | 21,479 |
| 2016 | $ | 148 |
| $ | 664 |
| $ | 18,916 |
| $ | — |
| $ | 19,728 |
| $ | 5,469 |
| $ | 25,197 |
|
| | 2014 | 131 |
| 4,007 |
| 13,613 |
| — |
| 17,751 |
| 12,734 |
| 30,485 |
| 2015 | 67 |
| 952 |
| 12,436 |
| — |
| 13,455 |
| 8,024 |
| 21,479 |
|
| | 2013 | 99 |
| 4,175 |
| 13,878 |
| — |
| 18,152 |
| 11,709 |
| 29,861 |
| 2014 | 131 |
| 4,007 |
| 13,613 |
| — |
| 17,751 |
| 12,734 |
| 30,485 |
|
| Spain | 2015 | $ | 2,385 |
| $ | 4,704 |
| $ | 4,629 |
| $ | 887 |
| $ | 12,605 |
| $ | 45,838 |
| $ | 58,443 |
| |
| Netherlands | | 2016 | $ | 1,333 |
| $ | 479 |
| $ | 8,816 |
| $ | — |
| $ | 10,628 |
| $ | 35,045 |
| $ | 45,673 |
|
| | 2014 | 1,887 |
| 6,290 |
| 4,458 |
| 79 |
| 12,714 |
| 71,501 |
| 84,215 |
| 2015 | 1,717 |
| 1,688 |
| 10,736 |
| — |
| 14,141 |
| 52,029 |
| 66,170 |
|
| | 2013 | 2,549 |
| 9,332 |
| 9,543 |
| 217 |
| 21,641 |
| 80,137 |
| 101,778 |
| 2014 | 1,551 |
| 3,157 |
| 24,792 |
| — |
| 29,500 |
| 86,039 |
| 115,539 |
|
| |
| (a) | Prior periods were revised to conform with the current presentation. |
| |
(b) | Consists primarily of commercial and industrial. |
| |
(c)(b) | Outstandings include loans and accrued interest receivable, interest-bearing deposits with banks, acceptances, resale agreements, other monetary assets, cross-border trading debt and equity instruments, fair value of foreign exchange and derivative contracts, and local country assets, net of local country liabilities. The amounts associated with foreign exchange and derivative contracts are presented after taking into account the impact of legally enforceable master netting agreements. |
| |
(d)(c) | Commitments include outstanding letters of credit, undrawn commitments to extend credit, and the gross notional value of credit derivatives where JPMorgan Chase is a protection seller. |
Summary of loan and lending-related commitments loss experience
The tables below summarize the changes in the allowance for loan losses and the allowance for lending-related commitments during the periods indicated. For a further discussion, see Allowance for credit losses on pages 130–132105–107, and Note 15. | | | Allowance for loan losses | | |
| Year ended December 31, (in millions) | 2015 | 2014 | 2013 | 2012 | 2011 | 2016 | 2015 | 2014 | 2013 | 2012 |
| Balance at beginning of year | $ | 14,185 |
| $ | 16,264 |
| $ | 21,936 |
| $ | 27,609 |
| $ | 32,266 |
| $ | 13,555 |
| $ | 14,185 |
| $ | 16,264 |
| $ | 21,936 |
| $ | 27,609 |
|
| U.S. charge-offs | | |
| U.S. consumer, excluding credit card | 1,658 |
| 2,132 |
| 2,754 |
| 4,805 |
| 5,419 |
| 1,500 |
| 1,658 |
| 2,132 |
| 2,754 |
| 4,805 |
|
| U.S. credit card | 3,475 |
| 3,682 |
| 4,358 |
| 5,624 |
| 8,017 |
| 3,799 |
| 3,475 |
| 3,682 |
| 4,358 |
| 5,624 |
|
| Total U.S. consumer charge-offs | 5,133 |
| 5,814 |
| 7,112 |
| 10,429 |
| 13,436 |
| 5,299 |
| 5,133 |
| 5,814 |
| 7,112 |
| 10,429 |
|
| U.S. wholesale: | | |
| Commercial and industrial | 63 |
| 44 |
| 150 |
| 131 |
| 197 |
| 229 |
| 63 |
| 44 |
| 150 |
| 131 |
|
| Real estate | 6 |
| 14 |
| 51 |
| 114 |
| 221 |
| 7 |
| 6 |
| 14 |
| 51 |
| 114 |
|
| Financial institutions | 5 |
| 14 |
| 1 |
| 8 |
| 102 |
| — |
| 5 |
| 14 |
| 1 |
| 8 |
|
| Government agencies | — |
| 25 |
| 1 |
| — |
| — |
| — |
| — |
| 25 |
| 1 |
| — |
|
| Other | 6 |
| 22 |
| 9 |
| 56 |
| 149 |
| 24 |
| 6 |
| 22 |
| 9 |
| 56 |
|
| Total U.S. wholesale charge-offs | 80 |
| 119 |
| 212 |
| 309 |
| 669 |
| 260 |
| 80 |
| 119 |
| 212 |
| 309 |
|
| Total U.S. charge-offs | 5,213 |
| 5,933 |
| 7,324 |
| 10,738 |
| 14,105 |
| 5,559 |
| 5,213 |
| 5,933 |
| 7,324 |
| 10,738 |
|
| Non-U.S. charge-offs | | |
| Non-U.S. consumer, excluding credit card | — |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
|
| Non-U.S. credit card | 13 |
| 149 |
| 114 |
| 131 |
| 151 |
| — |
| 13 |
| 149 |
| 114 |
| 131 |
|
| Total non-U.S. consumer charge-offs | 13 |
| 149 |
| 114 |
| 131 |
| 151 |
| — |
| 13 |
| 149 |
| 114 |
| 131 |
|
| Non-U.S. wholesale: | | |
| Commercial and industrial | 5 |
| 27 |
| 5 |
| 8 |
| 1 |
| 134 |
| 5 |
| 27 |
| 5 |
| 8 |
|
| Real estate | — |
| 4 |
| 11 |
| 6 |
| 142 |
| 1 |
| — |
| 4 |
| 11 |
| 6 |
|
| Financial institutions | — |
| — |
| — |
| — |
| 6 |
| 1 |
| — |
| — |
| — |
| — |
|
| Government agencies | — |
| — |
| — |
| 4 |
| — |
| — |
| — |
| — |
| — |
| 4 |
|
| Other | 10 |
| 1 |
| 13 |
| 19 |
| 98 |
| 2 |
| 10 |
| 1 |
| 13 |
| 19 |
|
| Total non-U.S. wholesale charge-offs | 15 |
| 32 |
| 29 |
| 37 |
| 247 |
| 138 |
| 15 |
| 32 |
| 29 |
| 37 |
|
| Total non-U.S. charge-offs | 28 |
| 181 |
| 143 |
| 168 |
| 398 |
| 138 |
| 28 |
| 181 |
| 143 |
| 168 |
|
| Total charge-offs | 5,241 |
| 6,114 |
| 7,467 |
| 10,906 |
| 14,503 |
| 5,697 |
| 5,241 |
| 6,114 |
| 7,467 |
| 10,906 |
|
| U.S. recoveries | | |
| U.S. consumer, excluding credit card | (704 | ) | (814 | ) | (847 | ) | (508 | ) | (547 | ) | (591 | ) | (704 | ) | (814 | ) | (847 | ) | (508 | ) |
| U.S. credit card | (364 | ) | (383 | ) | (568 | ) | (782 | ) | (1,211 | ) | (357 | ) | (364 | ) | (383 | ) | (568 | ) | (782 | ) |
| Total U.S. consumer recoveries | (1,068 | ) | (1,197 | ) | (1,415 | ) | (1,290 | ) | (1,758 | ) | (948 | ) | (1,068 | ) | (1,197 | ) | (1,415 | ) | (1,290 | ) |
| U.S. wholesale: | | |
| Commercial and industrial | (32 | ) | (49 | ) | (27 | ) | (335 | ) | (60 | ) | (10 | ) | (32 | ) | (49 | ) | (27 | ) | (335 | ) |
| Real estate | (20 | ) | (27 | ) | (56 | ) | (64 | ) | (93 | ) | (15 | ) | (20 | ) | (27 | ) | (56 | ) | (64 | ) |
| Financial institutions | (8 | ) | (12 | ) | (90 | ) | (37 | ) | (207 | ) | (3 | ) | (8 | ) | (12 | ) | (90 | ) | (37 | ) |
| Government agencies | (8 | ) | — |
| — |
| (2 | ) | — |
| (1 | ) | (8 | ) | — |
| — |
| (2 | ) |
| Other | (3 | ) | (36 | ) | (6 | ) | (21 | ) | (36 | ) | (3 | ) | (3 | ) | (36 | ) | (6 | ) | (21 | ) |
| Total U.S. wholesale recoveries | (71 | ) | (124 | ) | (179 | ) | (459 | ) | (396 | ) | (32 | ) | (71 | ) | (124 | ) | (179 | ) | (459 | ) |
| Total U.S. recoveries | (1,139 | ) | (1,321 | ) | (1,594 | ) | (1,749 | ) | (2,154 | ) | (980 | ) | (1,139 | ) | (1,321 | ) | (1,594 | ) | (1,749 | ) |
| Non-U.S. recoveries | | |
| Non-U.S. consumer, excluding credit card | — |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
|
| Non-U.S. credit card | (2 | ) | (19 | ) | (25 | ) | (29 | ) | (32 | ) | — |
| (2 | ) | (19 | ) | (25 | ) | (29 | ) |
| Total non-U.S. consumer recoveries | (2 | ) | (19 | ) | (25 | ) | (29 | ) | (32 | ) | — |
| (2 | ) | (19 | ) | (25 | ) | (29 | ) |
| Non-U.S. wholesale: | | |
| Commercial and industrial | (10 | ) | — |
| (29 | ) | (16 | ) | (14 | ) | (18 | ) | (10 | ) | — |
| (29 | ) | (16 | ) |
| Real estate | — |
| — |
| — |
| (2 | ) | (14 | ) | — |
| — |
| — |
| — |
| (2 | ) |
| Financial institutions | (2 | ) | (14 | ) | (10 | ) | (7 | ) | (38 | ) | — |
| (2 | ) | (14 | ) | (10 | ) | (7 | ) |
| Government agencies | — |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
|
| Other | (2 | ) | (1 | ) | (7 | ) | (40 | ) | (14 | ) | (7 | ) | (2 | ) | (1 | ) | (7 | ) | (40 | ) |
| Total non-U.S. wholesale recoveries | (14 | ) | (15 | ) | (46 | ) | (65 | ) | (80 | ) | (25 | ) | (14 | ) | (15 | ) | (46 | ) | (65 | ) |
| Total non-U.S. recoveries | (16 | ) | (34 | ) | (71 | ) | (94 | ) | (112 | ) | (25 | ) | (16 | ) | (34 | ) | (71 | ) | (94 | ) |
| Total recoveries | (1,155 | ) | (1,355 | ) | (1,665 | ) | (1,843 | ) | (2,266 | ) | (1,005 | ) | (1,155 | ) | (1,355 | ) | (1,665 | ) | (1,843 | ) |
| Net charge-offs | 4,086 |
| 4,759 |
| 5,802 |
| 9,063 |
| 12,237 |
| 4,692 |
| 4,086 |
| 4,759 |
| 5,802 |
| 9,063 |
|
Write-offs of purchased credit-impaired (“PCI”) loans(a) | 208 |
| 533 |
| 53 |
| — |
| — |
| |
Write-offs of PCI loans(a) | | 156 |
| 208 |
| 533 |
| 53 |
| — |
|
| Provision for loan losses | 3,663 |
| 3,224 |
| 188 |
| 3,387 |
| 7,612 |
| 5,080 |
| 3,663 |
| 3,224 |
| 188 |
| 3,387 |
|
| Other | 1 |
| (11 | ) | (5 | ) | 3 |
| (32 | ) | (11 | ) | 1 |
| (11 | ) | (5 | ) | 3 |
|
| Balance at year-end | $ | 13,555 |
| $ | 14,185 |
| $ | 16,264 |
| $ | 21,936 |
| $ | 27,609 |
| $ | 13,776 |
| $ | 13,555 |
| $ | 14,185 |
| $ | 16,264 |
| $ | 21,936 |
|
| |
| (a) | Write-offs of PCI loans are recorded against the allowance for loan losses when actual losses for a pool exceed estimated losses that were recorded as purchase accounting adjustments at the time of acquisition. A write-off of a PCI loan is recognized when the underlying loan is removed from a pool (e.g., upon liquidation). During the fourth quarter of 2014, the Firm recorded a $291 million adjustment to reduce the PCI allowance and the recorded investment in the Firm’s PCI loan portfolio, primarily reflecting the cumulative effect of interest forgiveness modifications. This adjustment had no impact to the Firm’s Consolidated statements of income. |
Summary of loan and lending-related commitments loss experience
Allowance for lending-related commitments
| | | Year ended December 31, (in millions) | 2015 | 2014 | 2013 | 2012 | 2011 | 2016 | 2015 | 2014 | 2013 | 2012 |
| Balance at beginning of year | $ | 622 |
| $ | 705 |
| $ | 668 |
| $ | 673 |
| $ | 717 |
| $ | 786 |
| $ | 622 |
| $ | 705 |
| $ | 668 |
| $ | 673 |
|
| Provision for lending-related commitments | 164 |
| (85 | ) | 37 |
| (2 | ) | (38 | ) | 281 |
| 164 |
| (85 | ) | 37 |
| (2 | ) |
| Net charge-offs | — |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
|
| Other | — |
| 2 |
| — |
| (3 | ) | (6 | ) | 11 |
| — |
| 2 |
| — |
| (3 | ) |
| Balance at year-end | $ | 786 |
| $ | 622 |
| $ | 705 |
| $ | 668 |
| $ | 673 |
| $ | 1,078 |
| $ | 786 |
| $ | 622 |
| $ | 705 |
| $ | 668 |
|
| | | Loan loss analysis | | |
As of or for the year ended December 31, (in millions, except ratios) | 2015 | 2014 | 2013 | 2012 | 2011 | 2016 | 2015 | 2014 | 2013 | 2012 |
| Balances | | |
| Loans – average | $ | 787,318 |
| $ | 739,175 |
| $ | 726,450 |
| $ | 722,384 |
| $ | 693,523 |
| $ | 866,378 |
| $ | 787,318 |
| $ | 739,175 |
| $ | 726,450 |
| $ | 722,384 |
|
| Loans – year-end | 837,299 |
| 757,336 |
| 738,418 |
| 733,796 |
| 723,720 |
| 894,765 |
| 837,299 |
| 757,336 |
| 738,418 |
| 733,796 |
|
Net charge-offs(a) | 4,086 |
| 4,759 |
| 5,802 |
| 9,063 |
| 12,237 |
| 4,692 |
| 4,086 |
| 4,759 |
| 5,802 |
| 9,063 |
|
| Allowance for loan losses: | | |
| U.S. | $ | 12,704 |
| $ | 13,472 |
| $ | 15,382 |
| $ | 20,946 |
| $ | 26,621 |
| $ | 12,738 |
| $ | 12,704 |
| $ | 13,472 |
| $ | 15,382 |
| $ | 20,946 |
|
| Non-U.S. | 851 |
| 713 |
| 882 |
| 990 |
| 988 |
| 1,038 |
| 851 |
| 713 |
| 882 |
| 990 |
|
| Total allowance for loan losses | $ | 13,555 |
| $ | 14,185 |
| $ | 16,264 |
| $ | 21,936 |
| $ | 27,609 |
| $ | 13,776 |
| $ | 13,555 |
| $ | 14,185 |
| $ | 16,264 |
| $ | 21,936 |
|
| Nonaccrual loans | $ | 6,429 |
| $ | 7,133 |
| $ | 8,540 |
| $ | 10,892 |
| $ | 9,993 |
| $ | 6,883 |
| $ | 6,429 |
| $ | 7,133 |
| $ | 8,540 |
| $ | 10,892 |
|
| Ratios | | |
| Net charge-offs to: | | |
| Loans retained – average | 0.52 | % | 0.65 | % | 0.81 | % | 1.26 | % | 1.78 | % | 0.54 | % | 0.52 | % | 0.65 | % | 0.81 | % | 1.26 | % |
| Allowance for loan losses | 30.14 |
| 33.55 |
| 35.67 |
| 41.32 |
| 44.32 |
| 34.06 |
| 30.14 |
| 33.55 |
| 35.67 |
| 41.32 |
|
| Allowance for loan losses to: | | |
Loans retained – year-end(b) | 1.63 |
| 1.90 |
| 2.25 |
| 3.02 |
| 3.84 |
| 1.55 |
| 1.63 |
| 1.90 |
| 2.25 |
| 3.02 |
|
| Nonaccrual loans retained | 215 |
| 202 |
| 196 |
| 207 |
| 281 |
| 205 |
| 215 |
| 202 |
| 196 |
| 207 |
|
| |
| (a) | There were no net charge-offs/(recoveries) on lending-related commitments in 2016, 2015, 2014, 2013, or 2012 or 2011. |
| |
| (b) | The allowance for loan losses as a percentage of retained loans declined from 20112012 to 20152016, due to an improvement in credit quality of the consumer and wholesale credit portfolios. For a more detailed discussion of the 20132014 through 20152016 provision for credit losses, see Provision for credit losses on page 132107. |
Deposits
The following table provides a summary of the average balances and average interest rates of JPMorgan Chase’s various deposits for the years indicated.
| | | Year ended December 31, | Average balances | | Average interest rates | Average balances | | Average interest rates |
| (in millions, except interest rates) | 2015 |
| | 2014 |
| | 2013 |
| | 2015 |
| | 2014 |
| | 2013 |
| 2016 | | 2015 | | 2014 | | 2016 | | 2015 | | 2014 |
| U.S. offices | | | | | | | | | | | | | | | | | | | | | | |
| Noninterest-bearing | $ | 403,143 |
| | $ | 376,947 |
| | $ | 346,765 |
| | — | % | | — | % | | — | % | $ | 386,528 |
| | $ | 403,143 |
| | $ | 376,947 |
| | — | % | | — | % | | — | % |
| Interest-bearing | | | | | | | | | | | | | | | | | | | | | | |
| Demand | 78,516 |
| | 75,553 |
| | 63,045 |
| | 0.11 |
| | 0.10 |
| | 0.09 |
| 128,102 |
| | 78,516 |
| | 75,553 |
| | 0.18 |
| | 0.11 |
| | 0.10 |
|
| Savings | 475,142 |
| | 459,186 |
| | 429,289 |
| | 0.07 |
| | 0.10 |
| | 0.13 |
| 515,982 |
| | 475,142 |
| | 459,186 |
| | 0.09 |
| | 0.07 |
| | 0.10 |
|
| Time | 85,098 |
| | 86,007 |
| | 89,948 |
| | 0.38 |
| | 0.35 |
| | 0.51 |
| 59,710 |
| | 85,098 |
| | 86,007 |
| | 0.59 |
| | 0.38 |
| | 0.35 |
|
| Total interest-bearing deposits | 638,756 |
| | 620,746 |
| | 582,282 |
| | 0.12 |
| | 0.13 |
| | 0.18 |
| 703,794 |
| | 638,756 |
| | 620,746 |
| | 0.15 |
| | 0.12 |
| | 0.13 |
|
| Total deposits in U.S. offices | 1,041,899 |
| | 997,693 |
| | 929,047 |
| | 0.07 |
| | 0.08 |
| | 0.11 |
| 1,090,322 |
| | 1,041,899 |
| | 997,693 |
| | 0.09 |
| | 0.07 |
| | 0.08 |
|
| Non-U.S. offices | | | | | | | | | | | | | | | | | | | | | | |
| Noninterest-bearing | 20,073 |
| | 18,516 |
| | 19,596 |
| | — |
| | — |
| | — |
| 16,170 |
| | 15,805 |
| | 14,461 |
| | — |
| | — |
| | — |
|
| Interest-bearing | | | | | | | | | | | | | | | | | | | | | | |
| Demand | 185,331 |
| | 208,364 |
| | 196,300 |
| | 0.13 |
| | 0.22 |
| | 0.22 |
| |
| Savings | 2,418 |
| | 2,179 |
| | 1,374 |
| | 0.11 |
| | 0.13 |
| | 0.11 |
| |
Demand(a) | | 167,760 |
| | 192,017 |
| | 214,598 |
| | 0.07 |
| | 0.13 |
| | 0.21 |
|
Savings(a) | | — |
| | — |
| | — |
| | NM | | NM | | NM |
| Time | 46,067 |
| | 37,549 |
| | 42,825 |
| | 0.54 |
| | 0.97 |
| | 1.32 |
| 53,716 |
| | 46,067 |
| | 37,549 |
| | 0.39 |
| | 0.54 |
| | 0.97 |
|
| Total interest-bearing deposits | 233,816 |
| | 248,092 |
| | 240,499 |
| | 0.21 |
| | 0.33 |
| | 0.42 |
| 221,476 |
| | 238,084 |
| | 252,147 |
| | 0.15 |
| | 0.21 |
| | 0.33 |
|
| Total deposits in non-U.S. offices | 253,889 |
| | 266,608 |
| | 260,095 |
| | 0.19 |
| | 0.31 |
| | 0.38 |
| 237,646 |
| | 253,889 |
| | 266,608 |
| | 0.14 |
| | 0.19 |
| | 0.31 |
|
| Total deposits | $ | 1,295,788 |
| | $ | 1,264,301 |
| | $ | 1,189,142 |
| | 0.10 | % | | 0.13 | % | | 0.17 | % | $ | 1,327,968 |
| | $ | 1,295,788 |
| | $ | 1,264,301 |
| | 0.10 | % | | 0.10 | % | | 0.13 | % |
(a) Prior periods have been revised to conform with current period presentation.
At December 31, 2015,2016, other U.S. time deposits in denominations of $100,000 or more totaled $58.4$11.8 billion, substantially all of which mature in three months or less. In addition, the table below presents the maturities for U.S. time certificates of deposit in denominations of $100,000 or more.
| | By remaining maturity at December 31, 2015 (in millions) | Three months or less | | Over three months but within six months | | Over six months but within 12 months | | Over 12 months | | Total | |
By remaining maturity at December 31, 2016 (in millions) | | Three months or less | | Over three months but within six months | | Over six months but within 12 months | | Over 12 months | | Total |
| U.S. time certificates of deposit ($100,000 or more) | $ | 7,520 |
| | $ | 1,537 |
| | $ | 1,770 |
| | $ | 1,745 |
| | $ | 12,572 |
| $ | 4,607 |
| | $ | 4,482 |
| | $ | 2,691 |
| | $ | 5,966 |
| | $ | 17,746 |
|
Short-term and other borrowed funds
The following table provides a summary of JPMorgan Chase’s short-term and other borrowed funds for the years indicated.
| | | As of or for the year ended December 31, (in millions, except rates) | 2015 | | 2014 | | 2013 | 2016 | | 2015 | | 2014 |
| Federal funds purchased and securities loaned or sold under repurchase agreements: | | | | | | | | | | |
| Balance at year-end | $ | 152,678 |
| | $ | 192,101 |
| | $ | 181,163 |
| $ | 165,666 |
| | $ | 152,678 |
| | $ | 192,101 |
|
| Average daily balance during the year | 192,510 |
| | 208,560 |
| | 238,551 |
| 178,720 |
| | 192,510 |
| | 208,560 |
|
| Maximum month-end balance | 212,112 |
| | 228,162 |
| | 272,718 |
| 207,211 |
| | 212,112 |
| | 228,162 |
|
| Weighted-average rate at December 31 | 0.39 | % | | 0.27 | % | | 0.31 | % | 0.50 | % | | 0.39 | % | | 0.27 | % |
| Weighted-average rate during the year | 0.32 |
| | 0.29 |
| | 0.24 |
| 0.61 |
| | 0.32 |
| | 0.29 |
|
| | | | | | | | | | | |
| Commercial paper: | | | | | | | | | | |
| Balance at year-end | $ | 15,562 |
| | $ | 66,344 |
| | $ | 57,848 |
| $ | 11,738 |
| | $ | 15,562 |
| | $ | 66,344 |
|
| Average daily balance during the year | 38,140 |
| | 59,916 |
| | 53,717 |
| 15,001 |
| | 38,140 |
| | 59,916 |
|
| Maximum month-end balance | 64,012 |
| | 66,344 |
| | 58,835 |
| 19,083 |
| | 64,012 |
| | 66,344 |
|
| Weighted-average rate at December 31 | 0.55 | % | | 0.22 | % | | 0.22 | % | 1.13 | % | | 0.55 | % | | 0.22 | % |
| Weighted-average rate during the year | 0.29 |
| | 0.22 |
| | 0.21 |
| 0.90 |
| | 0.29 |
| | 0.22 |
|
| | | | | | | | | | | |
Other borrowed funds:(a) | | | | | | | | | | |
| Balance at year-end | $ | 80,126 |
| | $ | 96,455 |
| | $ | 92,774 |
| $ | 89,154 |
| | $ | 80,126 |
| | $ | 96,455 |
|
| Average daily balance during the year | 93,001 |
| | 100,189 |
| | 93,937 |
| 93,252 |
| | 93,001 |
| | 100,189 |
|
| Maximum month-end balance | 99,226 |
| | 107,950 |
| | 103,526 |
| 102,310 |
| | 99,226 |
| | 107,950 |
|
| Weighted-average rate at December 31 | 1.89 | % | | 1.73 | % | | 2.49 | % | 1.79 | % | | 1.89 | % | | 1.73 | % |
| Weighted-average rate during the year | 1.84 |
| | 1.89 |
| | 2.27 |
| 1.93 |
| | 1.84 |
| | 1.89 |
|
| | | | | | | | | | | |
Short-term beneficial interests:(b) | | | | | | | | | | |
| Commercial paper and other borrowed funds: | | | | | | | | | | |
| Balance at year-end | $ | 11,322 |
| | $ | 16,953 |
| | $ | 17,786 |
| $ | 5,688 |
| | $ | 11,322 |
| | $ | 16,953 |
|
| Average daily balance during the year | 15,608 |
| | 14,073 |
| | 22,245 |
| 8,296 |
| | 15,608 |
| | 14,073 |
|
| Maximum month-end balance | 17,137 |
| | 17,026 |
| | 28,559 |
| 10,494 |
| | 17,137 |
| | 17,026 |
|
| Weighted-average rate at December 31 | 0.41 | % | | 0.23 | % | | 0.29 | % | 0.83 | % | | 0.41 | % | | 0.23 | % |
| Weighted-average rate during the year | 0.32 |
| | 0.30 |
| | 0.26 |
| 0.67 |
| | 0.32 |
| | 0.30 |
|
| |
| (a) | Includes interest-bearing securities sold but not yet purchased. |
| |
| (b) | Included on the Consolidated balance sheets in beneficial interests issued by consolidated variable interest entities.VIEs. |
Federal funds purchased represent overnight funds. Securities loaned or sold under repurchase agreements generally mature between one day and three months. Commercial paper generally is issued in amounts not less than $100,000, and with maturities of 270 days or less. Other borrowed funds consist of demand notes, term federal funds purchased, and various other borrowings that generally have maturities of one year or less.
|
| | | | |
| NONEXCHANGE-TRADED COMMODITY DERIVATIVE CONTRACTS AT FAIR VALUE |
In the normal course of business, JPMorgan Chase trades nonexchange-traded commodity derivative contracts. To determine the fair value of these contracts, the Firm uses various fair value estimation techniques, primarily based on internal models with significant observable market parameters. The Firm’s nonexchange-traded commodity derivative contracts are primarily energy-related.
The following table summarizes the changes in fair value for nonexchange-traded commodity derivative contracts for the year ended December 31, 2016.
|
| | | | | | | |
Year ended December 31, 2016 (in millions) | Asset position | | Liability position |
| Net fair value of contracts outstanding at January 1, 2016 | $ | 9,094 |
| | $ | 12,025 |
|
| Effect of legally enforceable master netting agreements | 6,772 |
| | 6,256 |
|
| Gross fair value of contracts outstanding at January 1, 2016 | 15,866 |
| | 18,281 |
|
| Contracts realized or otherwise settled | (7,678 | ) | | (7,921 | ) |
| Fair value of new contracts | 4,571 |
| | 4,312 |
|
| Changes in fair values attributable to changes in valuation techniques and assumptions | — |
| | — |
|
| Other changes in fair value | (911 | ) | | (1,309 | ) |
| Gross fair value of contracts outstanding at December 31, 2016 | 11,848 |
| | 13,363 |
|
| Effect of legally enforceable master netting agreements | (5,605 | ) | | (5,252 | ) |
| Net fair value of contracts outstanding at December 31, 2016 | $ | 6,243 |
| | $ | 8,111 |
|
The following table indicates the maturities of nonexchange-traded commodity derivative contracts at December 31, 2016.
|
| | | | | | | |
| December 31, 2016 (in millions) | Asset position | | Liability position |
| Maturity less than 1 year | $ | 4,569 |
| | $ | 4,812 |
|
| Maturity 1–3 years | 2,626 |
| | 2,451 |
|
| Maturity 4–5 years | 569 |
| | 748 |
|
| Maturity in excess of 5 years | 4,084 |
| | 5,352 |
|
| Gross fair value of contracts outstanding at December 31, 2016 | 11,848 |
| | 13,363 |
|
| Effect of legally enforceable master netting agreements | (5,605 | ) | | (5,252 | ) |
| Net fair value of contracts outstanding at December 31, 2016 | $ | 6,243 |
| | $ | 8,111 |
|
Signatures
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on behalf of the undersigned, thereunto duly authorized.
|
| |
| | JPMorgan Chase & Co. (Registrant) |
| | By: /s/ JAMES DIMON |
| | (James Dimon Chairman and Chief Executive Officer) |
| | February 23, 201628, 2017 |
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacity and on the date indicated. JPMorgan Chase & Co. does not exercise the power of attorney to sign on behalf of any Director.
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| | | | |
| | | Capacity | | Date |
| /s/ JAMES DIMON | | Director, Chairman and Chief Executive Officer (Principal Executive Officer) | | |
| (James Dimon) | | | |
| | | | | |
| /s/ LINDA B. BAMMANN | | Director | | |
| (Linda B. Bammann) | | | | |
| | | | | |
| /s/ JAMES A. BELL | | Director | | |
| (James A. Bell) | | | | |
| | | | | |
| /s/ CRANDALL C. BOWLES | | Director | | |
| (Crandall C. Bowles) | | | | |
| | | | | |
| /s/ STEPHEN B. BURKE | | Director | | |
| (Stephen B. Burke) | | | | |
| | | | | |
| /s/ TODD A. COMBS | | Director | | |
| (Todd A. Combs) | | | | |
| | | | |
| /s/ JAMES S. CROWN | | Director | | February 23, 201628, 2017 |
| (James S. Crown) | | | | |
| | | | | |
| /s/ TIMOTHY P. FLYNN | | Director | | |
| (Timothy P. Flynn) | | | | |
| | | | | |
| /s/ LABAN P. JACKSON, JR. | | Director | | |
| (Laban P. Jackson, Jr.) | | | | |
| | | | | |
| /s/ MICHAEL A. NEAL | | Director | | |
| (Michael A. Neal) | | | | |
| | | | | |
| /s/ LEE R. RAYMOND | | Director | | |
| (Lee R. Raymond) | | | | |
| | | | | |
| /s/ WILLIAM C. WELDON | | Director | | |
| (William C. Weldon) | | | | |
| | | | | |
| /s/ MARIANNE LAKE | | Executive Vice President and Chief Financial Officer (Principal Financial Officer) | | |
| (Marianne Lake) | | | |
| | | | | |
/s/ MARK W. O’DONOVANNICOLE GILES | | Managing Director and Corporate Controller (Principal Accounting Officer) | | |
(Mark W. O’Donovan)Nicole Giles) | | | |
