UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
Quarterly report pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the quarterly period ended | Commission file |
March 31, 2016 | number 1-5805 |
JPMorgan Chase & Co.
(Exact name of registrant as specified in its charter)
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
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 | oNo |
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, 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 | oNo |
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 the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer x | Accelerated filer o |
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Non-accelerated filer (Do not check if a smaller reporting company) o | Smaller reporting company o |
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 |
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Number of shares of common stock outstanding as of March 31, 2016 : 3,656,658,925
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FORM 10-Q
TABLE OF CONTENTS
Part I - Financial information | Page | ||
Item 1 | Consolidated Financial Statements – JPMorgan Chase & Co.: |
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| Consolidated statements of income (unaudited) for the three months ended March 31, 2016 and 2015 | 71 | |
| Consolidated statements of comprehensive income (unaudited) for the three months ended March 31, 2016 and 2015 | 72 | |
| Consolidated balance sheets (unaudited) at March 31, 2016, and December 31, 2015 | 73 | |
| Consolidated statements of changes in stockholders' equity (unaudited) for the three months ended March 31, 2016 and 2015 | 74 | |
| Consolidated statements of cash flows (unaudited) for the three months ended March 31, 2016 and 2015 | 75 | |
| Notes to Consolidated Financial Statements (unaudited) | 76 | |
| Report of Independent Registered Public Accounting Firm | 149 | |
| Consolidated Average Balance Sheets, Interest and Rates (unaudited) for the three months ended March 31, 2016 and 2015 | 150 | |
| Glossary of Terms and Line of Business Metrics | 151 | |
Item 2 | Management's Discussion and Analysis of Financial Condition and Results of Operations: |
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| Consolidated Financial Highlights | 3 | |
| Introduction | 4 | |
| Executive Overview | 5 | |
| Consolidated Results of Operations | 8 | |
| Consolidated Balance Sheets Analysis | 10 | |
| Off-Balance Sheet Arrangements | 12 | |
| Consolidated Cash Flows Analysis | 13 | |
| Explanation and Reconciliation of the Firm's Use of Non-GAAP Financial Measures | 14 | |
| Business Segment Results | 16 | |
| Enterprise-Wide Risk Management | 30 | |
| Credit Risk Management | 31 | |
| Market Risk Management | 48 | |
| Country Risk Management | 52 | |
| Operational Risk Management | 53 | |
| Capital Management | 54 | |
| Liquidity Risk Management | 61 | |
| Supervision and Regulation | 65 | |
| Critical Accounting Estimates Used by the Firm | 66 | |
| Accounting and Reporting Developments | 68 | |
| Forward-Looking Statements | 70 | |
Item 3 | Quantitative and Qualitative Disclosures About Market Risk | 158 | |
Item 4 | Controls and Procedures | 158 | |
Part II - Other information |
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Item 1 | Legal Proceedings | 158 | |
Item 1A | Risk Factors | 158 | |
Item 2 | Unregistered Sales of Equity Securities and Use of Proceeds | 158 | |
Item 3 | Defaults Upon Senior Securities | 159 | |
Item 4 | Mine Safety Disclosure | 159 | |
Item 5 | Other Information | 159 | |
Item 6 | Exhibits | 159 |
2
JPMorgan Chase & Co.
Consolidated financial highlights
(unaudited) As of or for the period ended, (in millions, except share, ratio, headcount data and where otherwise noted) |
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1Q16 | 4Q15 | 3Q15 | 2Q15 | 1Q15 | ||||||||||||
Selected income statement data |
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Total net revenue | $ | 23,239 | | $ | 22,885 | | $ | 22,780 | | $ | 23,812 | | $ | 24,066 | | |
Total noninterest expense | 13,837 | | 14,263 | | 15,368 | | 14,500 | | 14,883 | | ||||||
Pre-provision profit | 9,402 | | 8,622 | | 7,412 | | 9,312 | | 9,183 | | ||||||
Provision for credit losses | 1,824 | | 1,251 | | 682 | | 935 | | 959 | | ||||||
Income before income tax expense | 7,578 | | 7,371 | | 6,730 | | 8,377 | | 8,224 | | ||||||
Income tax expense/(benefit) | 2,058 | | 1,937 | | (74 | ) | 2,087 | | 2,310 | | ||||||
Net income | $ | 5,520 | | $ | 5,434 | | $ | 6,804 | | $ | 6,290 | | $ | 5,914 | | |
Earnings per share data |
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Net income: Basic | $ | 1.36 | | $ | 1.34 | | $ | 1.70 | | $ | 1.56 | | $ | 1.46 | | |
Diluted | 1.35 | | 1.32 | | 1.68 | | 1.54 | | 1.45 | | ||||||
Average shares: Basic | 3,669.9 | | 3,674.2 | | 3,694.4 | | 3,707.8 | | 3,725.3 | | ||||||
Diluted | 3,696.9 | | 3,704.6 | | 3,725.6 | | 3,743.6 | | 3,757.5 | | ||||||
Market and per common share data |
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Market capitalization | 216,547 | | 241,899 | | 224,438 | | 250,581 | | 224,818 | | ||||||
Common shares at period-end | 3,656.7 | | 3,663.5 | | 3,681.1 | | 3,698.1 | | 3,711.1 | | ||||||
Share price (a) : |
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High | $ | 64.13 | | $ | 69.03 | | $ | 70.61 | | $ | 69.82 | | $ | 62.96 | | |
Low | 52.50 | | 58.53 | | 50.07 | | 59.65 | | 54.27 | | ||||||
Close | 59.22 | | 66.03 | | 60.97 | | 67.76 | | 60.58 | | ||||||
Book value per share | 61.28 | | 60.46 | | 59.67 | | 58.49 | | 57.77 | | ||||||
Tangible book value per share ("TBVPS") (b) | 48.96 | | 48.13 | | 47.36 | | 46.13 | | 45.45 | | ||||||
Cash dividends declared per share | 0.44 | | 0.44 | | 0.44 | | 0.44 | | 0.40 | | ||||||
Selected ratios and metrics |
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Return on common equity ("ROE") | 9 | % | 9 | % | 12 | % | 11 | % | 11 | % | ||||||
Return on tangible common equity ("ROTCE") (b) | 12 | | 11 | | 15 | | 14 | | 14 | | ||||||
Return on assets ("ROA") | 0.93 | | 0.90 | | 1.11 | | 1.01 | | 0.94 | | ||||||
Overhead ratio | 60 | | 62 | | 67 | | 61 | | 62 | | ||||||
Loans-to-deposits ratio | 64 | | 65 | | 64 | | 61 | | 56 | | ||||||
High quality liquid assets ("HQLA") (in billions) (c) | $ | 505 | | $ | 496 | | $ | 505 | | $ | 532 | | $ | 614 | | |
Common equity Tier 1 ("CET1") capital ratio (d) | 11.9 | % | 11.8 | % | 11.5% | | 11.2 | % | 10.7 | % | ||||||
Tier 1 capital ratio (d) | 13.5 | | 13.5 | | 13.3 | | 12.8 | | 12.1 | | ||||||
Total capital ratio (d) | 15.1 | | 15.1 | | 14.9 | | 14.4 | | 13.6 | | ||||||
Tier 1 leverage ratio (d) | 8.6 | | 8.5 | | 8.4 | | 8.0 | | 7.5 | | ||||||
Selected balance sheet data (period-end) |
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Trading assets | $ | 366,153 | | $ | 343,839 | | $ | 361,708 | | $ | 377,870 | | $ | 398,981 | | |
Securities | 285,323 | | 290,827 | | 306,660 | | 317,795 | | 331,136 | | ||||||
Loans | 847,313 | | 837,299 | | 809,457 | | 791,247 | | 764,185 | | ||||||
Core loans | 746,196 | | 732,093 | | 698,988 | | 674,767 | | 641,285 | | ||||||
Average Core loans | 737,297 | | 715,282 | | 680,224 | | 654,551 | | 631,955 | | ||||||
Total assets | 2,423,808 | | 2,351,698 | | 2,416,635 | | 2,449,098 | | 2,576,619 | | ||||||
Deposits | 1,321,816 | | 1,279,715 | | 1,273,106 | | 1,287,332 | | 1,367,887 | | ||||||
Long-term debt (e) | 290,754 | | 288,651 | | 292,503 | | 286,240 | | 280,123 | | ||||||
Common stockholders' equity | 224,089 | | 221,505 | | 219,660 | | 216,287 | | 214,371 | | ||||||
Total stockholders' equity | 250,157 | | 247,573 | | 245,728 | | 241,205 | | 235,864 | | ||||||
Headcount | 237,420 | | 234,598 | | 235,678 | | 237,459 | | 241,145 | | ||||||
Credit quality metrics |
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Allowance for credit losses | $ | 15,008 | | $ | 14,341 | | $ | 14,201 | | $ | 14,535 | | $ | 14,658 | | |
Allowance for loan losses to total retained loans | 1.66% | | 1.63% | | 1.67% | | 1.78% | | 1.86% | | ||||||
Allowance for loan losses to retained loans excluding purchased credit-impaired loans (f) | 1.40 | | 1.37 | | 1.40 | | 1.45 | | 1.52 | | ||||||
Nonperforming assets | $ | 8,023 | | $ | 7,034 | | $ | 7,294 | | $ | 7,588 | | $ | 7,714 | | |
Net charge-offs | 1,110 | | 1,064 | | 963 | | 1,007 | | 1,052 | | ||||||
Net charge-off rate | 0.53% | | 0.52% | | 0.49% | | 0.53% | | 0.57% | |
Note: Effective January 1, 2016, the Firm adopted new accounting guidance related to (1) the recognition and measurement of debit valuation adjustments ("DVA") on financial liabilities where the fair value option has been elected, and (2) the accounting for employee stock-based incentive payments. For additional information, see Accounting and Reporting Developments on page 68–69 and Notes 3 , 4 , and 19 .
(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 on pages 14–15 . |
(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 additional information, see HQLA on page 61 . |
(d) | Ratios presented are calculated under the Basel III Transitional capital rules and represent the Collins Floor. See Capital Management on pages 54–60 for additional information on Basel III. |
(e) | Included unsecured long-term debt of $216.1 billion, $211.8 billion, $214.6 billion, $209.1 billion and $209.0 billion at March 31, 2016, December 31, 2015, September 30, 2015, June 30, 2015 and March 31, 2015, respectively. |
(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 on pages 14–15 . For further discussion, see Allowance for credit losses on pages 45–47 . |
3
INTRODUCTION |
The following is management's discussion and analysis ("MD&A") of the financial condition and results of operations of JPMorgan Chase & Co. ("JPMorgan Chase" or the "Firm") for the first quarter of 2016.
This Form 10-Q should be read in conjunction with JPMorgan Chase's Annual Report on Form 10-K for the year ended December 31, 2015 , filed with the U.S. Securities and Exchange Commission (" 2015 Annual Report" or " 2015 Form 10-K"), to which reference is hereby made. See the Glossary of terms on pages 151–157 for definitions of terms used throughout this Form 10-Q.
The MD&A included in this Form 10-Q contains statements that are forward-looking within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are based on the current beliefs and expectations of JPMorgan Chase's management and are subject to significant risks and uncertainties. Actual results may differ from those set forth in the forward-looking statements. For a discussion of certain of those risks and uncertainties and the factors that could cause JPMorgan Chase's actual results to differ materially because of those risks and uncertainties, see Forward-looking Statements on page 70 of this Form 10-Q and Part I, Item 1A, Risk Factors, on pages 8–18 of JPMorgan Chase's 2015 Annual Report.
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 trillion in assets and $250.2 billion in stockholders' equity as of March 31, 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 Management ("AM"). For a description of the Firm's business segments, and the products and services they provide to their respective client bases, refer to Note 33 of JPMorgan Chase's 2015 Annual Report.
4
EXECUTIVE OVERVIEW |
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 Form 10-Q. 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 Form 10-Q should be read in its entirety.
Financial performance of JPMorgan Chase |
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(unaudited) As of or for the period ended, | Three months ended March 31, | |||||||||
(in millions, except per share data and ratios) | 2016 |
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Selected income statement data |
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Total net revenue | $ | 23,239 | |
| $ | 24,066 | |
| (3 | )% |
Total noninterest expense | 13,837 | |
| 14,883 | |
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Pre-provision profit | 9,402 | |
| 9,183 | |
| 2 | | ||
Provision for credit losses | 1,824 | |
| 959 | |
| 90 | | ||
Net income | 5,520 | |
| 5,914 | |
| (7 | ) | ||
Diluted earnings per share | $ | 1.35 | |
| $ | 1.45 | |
| (7 | )% |
Return on common equity | 9 | % |
| 11 | % |
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Capital ratios (a) |
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CET1 | 11.9 | |
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Tier 1 capital | 13.5 | |
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(a) | Ratios presented are calculated under the transitional Basel III rules and represent the Collins Floor. See Capital Management on pages 54–60 for additional information on Basel III. |
Business Overview
JPMorgan Chase reported first-quarter 2016 net income of $5.5 billion, or $1.35 per share, on net revenue of $23.2 billion. The Firm reported a return on equity of 9%.
Net income decreased 7% compared with the first quarter of 2015, reflecting higher provision for credit losses and lower net revenue, largely offset by lower noninterest expense. Total net revenue was $23.2 billion, down 3% compared with the prior year primarily reflecting the impact of the challenging market environment on the results of the CIB and AM. The largest drivers of the declines were lower Fixed Income Markets revenue and lower investment banking fees in CIB, in both cases versus strong performance in the prior year; and lower asset management fees in AM. These factors were partially offset by higher net interest income across the businesses, primarily driven by loan growth and the impact of higher rates on deposits with banks, partially offset by lower investment securities balances.
Noninterest expense was $13.8 billion, down 7% compared with the prior year, driven by lower legal and CIB performance-based compensation expense.
The provision for credit losses was $1.8 billion, compared with $959 million in the prior year, predominantly due to increases in the wholesale allowance for credit losses versus a reduction in the consumer allowance for credit losses in
the prior-year quarter. The current quarter reflected an increase in the wholesale allowance for credit losses of $713 million primarily driven by downgrades, including $529 million in the Oil & Gas and Natural Gas Pipelines portfolios, and $162 million in the Metals & Mining portfolio.
The total allowance for credit losses was $15.0 billion. At the end of the first quarter of 2016, the Firm had a loan loss coverage ratio of 1.40%, excluding the PCI portfolio, compared with 1.52% in the prior-year quarter. The Firm's allowance for loan losses to retained nonaccrual loans, excluding the PCI portfolio and credit card, was 107%, compared with 106% in the prior-year quarter. The Firm's nonperforming assets totaled $8.0 billion, up from the prior quarter and prior year levels of $7.0 billion and $7.7 billion, respectively.
Firmwide average core loans increased 17% compared with the prior-year quarter and 3% compared with the fourth quarter of 2015. Within CCB, average core loans were up 25% over the prior-year quarter. CCB had record growth in average deposits of $50 billion, up 10% over the prior-year quarter. Credit card sales volume was up 8% and merchant processing volume was up 12% from the prior-year quarter. CCB had nearly 24 million active mobile customers in the first quarter of 2016, up 19% over the prior-year quarter.
CIB maintained its #1 ranking for Global Investment Banking fees with an 8.2% fee share for the first quarter of 2016. The business also had the #1 wallet share in North America, Europe, Middle East and Africa, and Latin America in the first quarter of 2016. Within CB, average loans were up 13% from the prior year and the business reported its thirteenth consecutive quarter of single-digit net charge-off rates or net recoveries. AM average loans were up 7% over the prior-year quarter and 80% of mutual fund assets under management ("AUM") ranked in the 1st or 2nd quartiles over the past five years. For a detailed discussion of results by line of business, refer to the Business Segment Results section beginning on page 16 .
The Firm maintained its fortress balance sheet and added to its capital, ending the first quarter of 2016 with a tangible book value per share of $48.96, up 8% over the prior-year quarter. The Firm's estimated Basel III Advanced Fully Phased-In CET1 capital and ratio were $176 billion and 11.7%, respectively. The Firm's Fully Phased-In supplementary leverage ratio ("SLR") was 6.6% and JPMorgan Chase Bank, N.A.'s Fully Phased-In SLR was 6.7% at March 31, 2016. The Firm was also compliant with the Fully Phased-In U.S. liquidity coverage ratio ("LCR") and had $505 billion of HQLA as of March 31, 2016. Tangible book value per share and each of these Fully Phased-In capital and leverage measures are non-GAAP financial measures and 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
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Advanced Fully Phased-In measures and the SLR under the U.S. final SLR rule, see Capital Management on pages 54–60 , and for further discussion of LCR and HQLA, see Liquidity Risk Management on pages 61–65 .
JPMorgan Chase continues to support consumers, businesses and communities around the globe. The Firm provided credit and raised capital of $496 billion for commercial and consumer clients during the first three months of 2016. This included providing $160 billion of credit to corporations, $59 billion to consumers, and $6 billion to U.S. small businesses. During the first three months of 2016, the Firm also raised $251 billion of capital for corporate clients and non-U.S. government entities, and $20 billion of credit was provided to, and capital was raised for, nonprofit and U.S. government entities, including states, municipalities, hospitals and universities.
Regulatory and business developments
In March 2016, the Basel Committee proposed revisions to the operational and credit risk capital frameworks of Basel III and in April 2016, proposed a recalibration of the leverage ratio, changes to the definition of defaulted assets and finalized the treatment of interest rate risk in the banking book. As these proposals are finalized by the Basel Committee, U.S. banking regulators will 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 ("SCCL") for large U.S. bank holding companies and foreign banking organizations. Comments on the proposal are due June 3, 2016. The Firm continues to assess the impacts as the proposed rules are finalized and will make appropriate adjustments to its businesses in response to these and other ongoing developments in regulatory requirements.
On April 6, 2016, the U.S. Department of Labor ("DOL") issued its final "fiduciary" rule. The rule will make many of the investment, rollover and asset management recommendations from broker-dealers, banks and other financial institutions to clients regarding their individual retirement accounts ("IRAs") and other retirement accounts fiduciary "investment advice" under the Employee Retirement Income Security Act of 1974 ("ERISA"), as amended. Among the most significant impacts of the rule and related prohibited transaction exemptions will be the impact on the fee and compensation practices at financial institutions and on certain fee and revenue sharing arrangements among funds, fund sponsors and the financial institutions that offer investment advice to retail retirement clients. The related exemptions may require new client contracts, "impartial conduct" standards (including a requirement to act in the "best interest" of retirement clients) and policies and procedures, websites and other disclosures to both investors and the DOL. The Firm believes it will be able to conform its business practices to meet the requirements of the new rule and exemptions within the prescribed time periods.
On April 13, 2016, the Federal Deposit Insurance Corporation ("FDIC") and the Board of Governors of the Federal Reserve System (the "Federal Reserve") jointly announced determinations and provided firm-specific feedback on the 2015 resolution plans of eight systemically important domestic banking institutions, including the Firm. The FDIC and Federal Reserve jointly determined that the 2015 resolution plan of the Firm, along with the 2015 resolution plans of four other U.S. banking institutions, was not credible or would not facilitate an orderly resolution under the U.S. Bankruptcy Code, as provided under the Dodd-Frank Wall Street Reform and Consumer Protection Act (the "Dodd-Frank Act"), because the plan contained certain deficiencies identified by the two agencies. If the Firm does not adequately remediate the identified deficiencies in its plan by October 1, 2016, the FDIC and the Federal Reserve may impose more stringent prudential requirements on the Firm, including more stringent capital, leverage, or liquidity requirements, as well as restrictions on the growth, activities, or operations of the Firm, or its subsidiaries. The FDIC and the Federal Reserve also identified certain shortcomings in the Firm's 2015 resolution plan which must be satisfactorily addressed in the Firm's resolution plan due on July 1, 2017. The Firm is committed to meeting the regulators' expectations and fully remediating the identified deficiencies and shortcomings within the prescribed deadlines.
Many international banks, including the Firm, operate substantial parts of their European Union business from subsidiaries based in the United Kingdom. On June 23, 2016, the U.K. will conduct a referendum on whether the country should remain part of the European Union. If the U.K. leaves the European Union, the regulatory and legal environment that would exist, and to which the Firm's U.K. operations would be subject, will depend on the nature of the transitional arrangements agreed following the referendum. These arrangements are hard to predict, but currently the Firm does not believe any of the likely identified transitional scenarios would threaten the viability of the Firm's business units in the European Union or in the U.K. However, it is possible that under some scenarios, changes to the Firm's legal entity structure would be required, which might result in a less efficient operating model across the Firm's European legal entities.
6
2016 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 70 of this Form 10-Q and Risk Factors on pages 8–18 of JPMorgan Chase's 2015 Annual Report. There is no assurance that actual results for the second quarter or full year of 2016 will be in line with the outlook set forth below, and the Firm does not undertake to update any of these forward-looking statements to reflect the impact of circumstances or events that arise after the date hereof.
JPMorgan Chase's outlook for the remainder of 2016 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 interrelated 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.
Assuming there are no changes in interest rates during 2016, management expects full-year 2016 net interest income could be over $2 billion higher compared to 2015 levels, reflecting the Federal Reserve's rate increase in December 2015 and anticipated loan growth.
Management also expects managed noninterest revenue of approximately $50 billion in 2016, although actual results will depend on market conditions. The expected decline from 2015 is primarily driven by lower Card revenue reflecting renegotiated co-brand partnership agreements and lower noninterest revenue in Mortgage Banking.
Management expects core loan growth of approximately 10%-15% in 2016 as well as continued growth in retail deposits; these two factors are anticipated to increase the Firm's average balance sheet to approximately $2.45 trillion in 2016.
The Firm continues to experience charge-offs at levels lower than its through-the-cycle expectations reflecting favorable credit trends across the consumer and wholesale portfolios, excluding the Oil & Gas and Metals & Mining portfolios. Management expects total net charge-offs of up to approximately $4.75 billion in 2016, with the increase from 2015 levels driven by loan growth as well as higher charge-offs in the Oil & Gas portfolio.
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 2016 is expected to be approximately $56 billion (excluding Firmwide legal expense).
In Mortgage Banking within CCB, management expects
net charge-offs to be approximately $60 million per quarter in 2016. The Card net charge-off rate is expected to be approximately 2.50% in 2016.
In CIB, management expects Securities Services revenue to be approximately $875 million per quarter for the remainder of 2016, depending on market conditions.
In CB, management expects second quarter 2016 revenue to increase modestly over the prior quarter and noninterest expense to be approximately $725 million. Additionally, management expects pre-provision net revenue to be relatively flat compared with the first quarter of 2016.
In AM, management expects second quarter 2016 revenue to be less than or equal to approximately $3 billion, depending on market conditions.
7
CONSOLIDATED RESULTS OF OPERATIONS |
Revenue |
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| Three months ended March 31, | |||||||||
(in millions) | 2016 | |
| 2015 | |
| Change | |||
Investment banking fees | $ | 1,333 | |
| $ | 1,794 | |
| (26 | )% |
Principal transactions | 2,679 | |
| 3,655 | |
| (27 | ) | ||
Lending- and deposit-related fees | 1,403 | |
| 1,363 | |
| 3 | | ||
Asset management, administration and commissions | 3,624 | |
| 3,807 | |
| (5 | ) | ||
Securities gains | 51 | |
| 52 | |
| (2 | ) | ||
Mortgage fees and related income | 667 | |
| 705 | |
| (5 | ) | ||
Card income | 1,301 | |
| 1,431 | |
| (9 | ) | ||
Other income (a) | 801 | |
| 582 | |
| 38 | | ||
Noninterest revenue | 11,859 | |
| 13,389 | |
| (11 | ) | ||
Net interest income | 11,380 | |
| 10,677 | |
| 7 | | ||
Total net revenue | $ | 23,239 | |
| $ | 24,066 | |
| (3)% | |
(a) | Included operating lease income of $615 million and $469 million for the three months ended March 31, 2016 and 2015 , respectively, |
Total net revenue was down by 3% primarily reflecting the impact of the challenging market environment on the results of CIB and AM. The decline was largely driven by lower Fixed Income Markets revenue and lower investment banking fees in CIB, in both cases versus strong performance in the prior year; and lower asset management fees in AM. These factors were partially offset by higher net interest income across the businesses.
Investment banking fees decreased reflecting lower debt and equity underwriting fees, partially offset by higher advisory fees. The decrease in debt and equity underwriting fees was driven by lower industry-wide fee levels and, for debt underwriting fees, fewer large acquisition finance deals. The increase in advisory fees was driven by a greater share of fees for completed transactions. For additional information on investment banking fees, see CIB segment results on pages 21–24 , CB segment results on pages 25–26 and Note 6 .
Principal transactions revenue decreased predominantly reflecting the challenging market environment, which included significant volatility, global macro uncertainty and widening credit spreads, resulting in lower revenue in CIB. In contrast, the prior year results were driven by robust client activity resulting from macroeconomic events and conditions, including quantitative easing actions of various central banks. For additional information on principal transactions revenue, see CIB and Corporate segment results on pages 21–24 and page 29 , respectively, and
Note 6 .
Asset management, administration and commissions revenue decreased largely reflecting the impact of the challenging market environment. For additional information on these fees and commissions, see the segment discussions of CCB on pages 17–20 , AM on pages 27–28 , and Note 6 .
Mortgage fees and related income decreased due to lower servicing and net production revenue, predominantly offset by higher mortgage servicing rights ("MSR") risk management results. For further information on mortgage fees and related income, see the segment discussion of CCB on pages 17–20 and Note 16 .
For additional information on lending- and deposit-related fees, see the segment results for CCB on pages 17–20 , CIB on pages 21–24 , and CB on pages 25–26 ; and card income, see CCB segment results on pages 17–20 .
Other income increased reflecting a gain on the sale of an asset in AM and higher operating lease income as a result of growth in auto operating leased assets in CCB, and the impact of a loss recorded in the prior year related to the accelerated amortization of cash flow hedges associated with the exit of certain non-operating deposits.
Net interest income increased as a result of loan growth in each of the businesses and higher rates on deposits with banks, partially offset by lower investment securities balances. The Firm's average interest-earning assets and net interest yield, on a fully taxable equivalent ("FTE") basis, were $2.0 trillion and 2.30% (an increase of 23 basis points), respectively.
8
Provision for credit losses |
|
|
|
| ||||||
| Three months ended March 31, | |||||||||
(in millions) | 2016 | |
| 2015 | |
| Change | |||
Consumer, excluding credit card | $ | 221 | |
| $ | 142 | |
| 56 | % |
Credit card | 830 | |
| 789 | |
| 5 | % | ||
Total consumer | 1,051 | |
| 931 | |
| 13 | % | ||
Wholesale | 773 | |
| 28 | |
| NM | | ||
Total provision for credit losses | $ | 1,824 | |
| $ | 959 | |
| 90 | % |
The provision for credit losses increased as a result of additions to the wholesale allowance for credit losses of $713 million, primarily driven by downgrades in the Oil & Gas and Natural Gas Pipelines portfolios ($529 million), and in the Metals & Mining portfolio ($162 million), as well as due to an increase in the consumer provision as the prior year included a 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 17–20 , CIB on pages 21–24 , CB on pages 25–26 , and the Allowance for credit losses on pages 45–47 .
Noninterest expense |
|
|
|
| ||||||
| Three months ended March 31, | |||||||||
(in millions) | 2016 | |
| 2015 | |
| Change | |||
Compensation expense | $ | 7,660 | |
| $ | 8,043 | |
| (5 | )% |
Noncompensation expense: |
|
|
|
|
| |||||
Occupancy | 883 | |
| 933 | |
| (5 | ) | ||
Technology, communications and equipment | 1,618 | |
| 1,491 | |
| 9 | | ||
Professional and outside services | 1,548 | |
| 1,634 | |
| (5 | ) | ||
Marketing | 703 | |
| 591 | |
| 19 | | ||
Other expense (a)(b) | 1,425 | |
| 2,191 | |
| (35 | ) | ||
Total noncompensation expense | 6,177 | |
| 6,840 | |
| (10 | ) | ||
Total noninterest expense | $ | 13,837 | |
| $ | 14,883 | |
| (7 | )% |
(a) | Included firmwide legal expense of $687 million for the three months ended March 31, 2015 ; legal expense for the three months ended March 31, 2016 was not material. |
(b) | Included Federal Deposit Insurance Corporation-related ("FDIC") expense of $269 million and $318 million for the three months ended March 31, 2016 and 2015 , respectively. |
Total noninterest expense decreased by 7% driven by lower legal expense and lower performance-based compensation expense, partially offset by incremental investments and growth in the businesses.
Compensation expense decreased predominantly driven by lower performance-based compensation and lower headcount in certain businesses.
Income tax expense |
|
| |||||||||
(in millions, except rate) | Three months ended March 31, | ||||||||||
2016 | |
| 2015 | |
| Change | |||||
Income before income tax expense | $ | 7,578 | |
| $ | 8,224 | |
| (8 | )% |
|
Income tax expense | 2,058 | |
| 2,310 | |
| (11 | ) |
| ||
Effective tax rate | 27.2 | % |
| 28.1 | % |
|
|
|
The effective tax rate decreased due to the adoption of new accounting guidance related to employee stock-based incentive payments, and the change in mix of income and expense subject to U.S. federal, state and local taxes, partially offset by lower tax benefits from audit settlements. For additional details on the impact of the new accounting guidance, see Accounting and Reporting Developments on page 68–69 .
9
CONSOLIDATED BALANCE SHEETS ANALYSIS |
Consolidated balance sheets overvie w
The following is a discussion of the significant changes between March 31, 2016 , and December 31, 2015 .
Selected Consolidated balance sheets data | |||||||||
(in millions) | Mar 31, |
| Dec 31, | Change | |||||
Assets |
|
|
|
| |||||
Cash and due from banks | $ | 18,212 | |
| $ | 20,490 | | (11 | )% |
Deposits with banks | 360,196 | |
| 340,015 | | 6 | | ||
Federal funds sold and securities purchased under resale agreements | 223,220 | |
| 212,575 | | 5 | | ||
Securities borrowed | 102,937 | |
| 98,721 | | 4 | | ||
Trading assets: |
|
|
|
| |||||
Debt and equity instruments | 295,944 | |
| 284,162 | | 4 | | ||
Derivative receivables | 70,209 | |
| 59,677 | | 18 | | ||
Securities | 285,323 | |
| 290,827 | | (2 | ) | ||
Loans | 847,313 | |
| 837,299 | | 1 | | ||
Allowance for loan losses | (13,994 | ) |
| (13,555 | ) | 3 | | ||
Loans, net of allowance for loan losses | 833,319 | |
| 823,744 | | 1 | | ||
Accrued interest and accounts receivable | 57,649 | |
| 46,605 | | 24 | | ||
Premises and equipment | 14,195 | |
| 14,362 | | (1 | ) | ||
Goodwill | 47,310 | |
| 47,325 | | - | | ||
Mortgage servicing rights | 5,658 | |
| 6,608 | | (14 | ) | ||
Other intangible assets | 940 | |
| 1,015 | | (7 | ) | ||
Other assets | 108,696 | |
| 105,572 | | 3 | | ||
Total assets | $ | 2,423,808 | |
| $ | 2,351,698 | | 3 | |
Cash and due from banks and deposits with banks
The net increase was primarily due to growth in deposits. 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 increase was due to a higher demand for securities to cover short positions related to client-driven market-making activities in CIB. For additional information on the Firm's Liquidity Risk Management, see pages 61–65 .
Trading assets and liabilities – debt and equity instruments
The increase in trading assets and liabilities was predominantly related to client-driven market-making activities in CIB. The increase in trading assets reflected higher debt instruments, partially offset by lower equity instruments. The increase in trading liabilities reflected higher levels of short positions in debt and equity instruments. For additional information, refer to Note 3 .
Trading assets and liabilities – derivative receivables and payables
The increase in derivative receivables and payables was predominantly related to client-driven market-making activities in CIB, which resulted in higher interest rate and foreign exchange derivative receivables and payables, driven by market movements. For additional information, refer to Derivative contracts on page 43 , and Notes 3 and 5 .
Loans and allowance for loan losses
The increase in loans was driven by the wholesale business's strong originations of commercial and industrial, and real estate loans, particularly in CB, and higher retention of originated high-quality mortgages, partially offset by seasonal declines in credit card loans, both in CCB.
The increase in the allowance for loan losses was attributable to additions to the wholesale allowance, reflecting downgrades in the Oil & Gas and Natural Gas Pipelines portfolios, and in the Metals & Mining portfolio. The consumer allowances were relatively unchanged reflecting stable credit quality trends and, for the consumer, excluding credit card, allowance in particular, improved credit quality of the loan portfolio, primarily driven by originations of high-quality mortgages and the run-off of lower-quality legacy portfolios. For a more detailed discussion of loans and the allowance for loan losses, refer to Credit Risk Management on pages 31–47 , and Notes 3 , 4 , 13 and 14 .
Accrued interest and accounts receivable
The increase was driven by higher unsettled securities transactions and higher customer receivables related to client activity in CIB.
Mortgage servicing rights
For additional information on MSRs, see Note 16 .
10
Selected Consolidated balance sheets data (continued) |
| ||||||||
(in millions) | Mar 31, |
| Dec 31, | Change | |||||
Liabilities |
|
|
|
| |||||
Deposits | $ | 1,321,816 | |
| $ | 1,279,715 | | 3 | |
Federal funds purchased and securities loaned or sold under repurchase agreements | 160,999 | |
| 152,678 | | 5 | | ||
Commercial paper | 17,490 | |
| 15,562 | | 12 | | ||
Other borrowed funds | 19,703 | |
| 21,105 | | (7 | ) | ||
Trading liabilities: |
|
|
|
| |||||
Debt and equity instruments | 87,963 | |
| 74,107 | | 19 | | ||
Derivative payables | 59,319 | |
| 52,790 | | 12 | | ||
Accounts payable and other liabilities | 176,934 | |
| 177,638 | | - | | ||
Beneficial interests issued by consolidated variable interest entities ("VIE") | 38,673 | |
| 41,879 | | (8 | ) | ||
Long-term debt | 290,754 | |
| 288,651 | | 1 | | ||
Total liabilities | 2,173,651 | |
| 2,104,125 | | 3 | | ||
Stockholders' equity | 250,157 | |
| 247,573 | | 1 | | ||
Total liabilities and stockholders' equity | $ | 2,423,808 | |
| $ | 2,351,698 | | 3 | % |
Deposits
The increase was attributable to higher consumer and wholesale deposits. Consumer deposits increased reflecting seasonal factors and continued growth from new and existing customers. Wholesale deposits increased reflecting growth in client activity. For more information on deposits, refer to the CCB, CIB, CB and AM segment discussions on pages 17–20 , pages 21–24 , pages 25–26 , and pages 27–28 , respectively; the Liquidity Risk Management discussion on pages 61–65 ; and Notes 3 and 17 .
Stockholders' equity
The increase was due to net income, partially offset by cash dividends on common and preferred stock and repurchases of common stock. For additional information on changes in stockholders' equity, see page 74 , and on the Firm's capital actions, see Capital actions on pages 59–60 .
11
OFF-BALANCE SHEET ARRANGEMENTS |
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.S. ("U.S. GAAP"). The Firm is involved with several types of off–balance sheet arrangements, including through nonconsolidated special-purpose entities ("SPEs"), which are a type of VIE, and through lending-related financial instruments (e.g., commitments and guarantees). For further discussion, see Note 21 of this Form 10-Q and Off–Balance Sheet Arrangements and Contractual Cash Obligations on pages 77–78 and Note 29 of JPMorgan Chase's 2015 Annual Report.
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. 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. For further information on the types of SPEs, see Note 15 of this Form 10-Q, and Note 1 and Note 16 of JPMorgan Chase's 2015 Annual Report.
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 March 31, 2016 , and December 31, 2015 , was $5.3 billion and $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 $8.6 billion and $5.6 billion at March 31, 2016 , and December 31, 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 multiseller conduits in Note 15 .
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 15 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 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 43 and Note 21 (including the table that presents the related amounts by contractual maturity as of March 31, 2016 ). For a discussion of liabilities associated with loan sales- and securitization-related indemnifications, see Note 21 .
12
CONSOLIDATED CASH FLOWS ANALYSIS |
For a discussion of the activities affecting the Firm's cash flows, see Consolidated Balance Sheets Analysis on pages 10–11 of this Form 10-Q and page 75 of JPMorgan Chase's 2015 Annual Report.
(in millions) |
| Three months ended March 31, | ||||||
| 2016 |
| 2015 | |||||
Net cash provided by/(used in) |
|
|
|
| ||||
Operating activities |
| $ | (21,383 | ) |
| $ | 14,879 | |
Investing activities |
| (34,581 | ) |
| (24,150 | ) | ||
Financing activities |
| 53,584 | |
| 4,337 | | ||
Effect of exchange rate changes on cash |
| 102 | |
| (76 | ) | ||
Net decrease in cash and due from banks |
| $ | (2,278 | ) |
| $ | (5,010 | ) |
Operating activities
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 used in operating activities in 2016 resulted from an increase in accrued interest and accounts receivables due to higher unsettled securities transactions, and higher brokerage customer receivables related to client activity in CIB. Additionally, in 2016, cash used reflected an increase in trading assets, which was largely offset by cash provided by trading liabilities, predominantly due to client-driven market-making activities in CIB. In 2016 and 2015, cash was provided by net income after noncash operating adjustments; and higher net proceeds from loan securitizations and sales activities. In 2015, cash proceeds were partially offset by an increase in other assets resulting from higher cash margin balances placed with exchanges and clearing houses.
Investing activities
Cash used in investing activities during 2016 and 2015 resulted from increases in deposits with banks which were placed with various central banks, predominantly Federal Reserve Banks, and cash used for net originations of consumer and wholesale loans. Additionally, in 2016, cash outflows reflected a net increase in securities purchased under resale agreements due to a higher demand for securities to cover short positions related to client-driven market-making activities in CIB. Partially offsetting these cash outflows in both periods were proceeds from net maturities and sales of investment securities.
Financing activities
Cash provided by financing activities in 2016 resulted from higher consumer and wholesale deposits. Consumer deposits increased reflecting seasonal factors and continued growth from new and existing customers. Wholesale deposits increased reflecting growth in client activity. Cash provided by financing activities in 2015 resulted from higher consumer deposits partially offset by lower wholesale deposits and lower commercial paper issuances. In 2015 cash was also provided by net proceeds from long-term borrowings. For both periods, cash was used for repurchases of common stock and 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 10–11 , Capital Management on pages 54–60 , and Liquidity Risk Management on pages 61–65 .
13
EXPLANATION AND RECONCILIATION OF THE FIRM'S USE OF NON-GAAP FINANCIAL MEASURES |
The Firm prepares its Consolidated Financial Statements using U.S. GAAP; these financial statements appear on pages 71–75 . 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. 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. These adjustments have no impact on net income as reported by the Firm as a whole or by the lines of business.
Management also uses certain non-GAAP financial measures at the 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 particular business segment and, therefore, facilitate a comparison of the business segment with the performance of its competitors. Non-GAAP financial measures used by the Firm may not be comparable to similarly named non-GAAP financial measures used by other companies.
| Three months ended March 31, | ||||||||||||||||||||||||
| 2016 |
| 2015 | ||||||||||||||||||||||
(in millions, except ratios) | Reported |
| Fully taxable-equivalent adjustments (a) |
| Managed |
| Reported |
| Fully taxable-equivalent adjustments (a) |
| Managed | ||||||||||||||
Other income | $ | 801 | |
| $ | 551 | |
|
| $ | 1,352 | |
| $ | 582 | |
| $ | 481 | |
|
| $ | 1,063 | |
Total noninterest revenue | 11,859 | |
| 551 | |
|
| 12,410 | |
| 13,389 | |
| 481 | |
|
| 13,870 | | ||||||
Net interest income | 11,380 | |
| 293 | |
|
| 11,673 | |
| 10,677 | |
| 273 | |
|
| 10,950 | | ||||||
Total net revenue | 23,239 | |
| 844 | |
|
| 24,083 | |
| 24,066 | |
| 754 | |
|
| 24,820 | | ||||||
Pre-provision profit | 9,402 | |
| 844 | |
|
| 10,246 | |
| 9,183 | |
| 754 | |
|
| 9,937 | | ||||||
Income before income tax expense | 7,578 | |
| 844 | |
|
| 8,422 | |
| 8,224 | |
| 754 | |
|
| 8,978 | | ||||||
Income tax expense/(benefit) | $ | 2,058 | |
| $ | 844 | |
|
| $ | 2,902 | |
| $ | 2,310 | |
| $ | 754 | |
|
| $ | 3,064 | |
Overhead ratio | 60 | % |
| NM | |
|
| 57 | % |
| 62 | % |
| NM | |
|
| 60 | % |
(a) Predominantly recognized in CIB and CB business segments and Corporate.
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 earnings 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 to the Firm, as well
as investors and analysts, in assessing the Firm's use of equity.
Additionally, certain credit, liquidity and capital metrics and ratios disclosed by the Firm are non-GAAP measures. For additional information on these non-GAAP measures, see Credit Risk Management on pages 31–47 , and Capital Management on pages 54–60 .
Tangible common equity | Period-end |
| Average | ||||||||||
(in millions, except per share and ratio data) | Mar 31, | Dec 31, |
| Three months ended March 31, | |||||||||
| 2016 | 2015 | |||||||||||
Common stockholders' equity | $ | 224,089 | | $ | 221,505 | |
| $ | 221,561 | | $ | 212,352 | |
Less: Goodwill | 47,310 | | 47,325 | |
| 47,332 | | 47,491 | | ||||
Less: Certain identifiable intangible assets | 940 | | 1,015 | |
| 985 | | 1,162 | | ||||
Add: Deferred tax liabilities (a) | 3,205 | | 3,148 | |
| 3,177 | | 2,862 | | ||||
Tangible common equity | $ | 179,044 | | $ | 176,313 | |
| $ | 176,421 | | $ | 166,561 | |
|
|
|
|
|
| ||||||||
Return on tangible common equity | NA | | NA | |
| 12 | % | 14 | % | ||||
Tangible book value per share | $ | 48.96 | | $ | 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. |
14
Net interest income excluding markets-based activities
Net interest income excluding CIB markets-based activities data |
|
|
|
| |||||
| Three months ended March 31, | ||||||||
(in millions, except rates) | 2016 | 2015 |
| Change | |||||
Net interest income – managed basis (a)(b) | $ | 11,673 | | $ | 10,950 | |
| 7 | % |
Less: Markets-based net interest income | 1,378 | | 1,259 | |
| 9 | | ||
Net interest income excluding markets (a) | $ | 10,295 | | $ | 9,691 | |
| 6 | |
|
|
|
|
| |||||
Average interest-earning assets | $ | 2,043,983 | | $ | 2,148,801 | |
| (5 | ) |
Less: Average markets-based interest-earning assets | 487,833 | | 509,714 | |
| (4 | ) | ||
Average interest-earning assets excluding markets | $ | 1,556,150 | | $ | 1,639,087 | |
| (5 | )% |
Net interest yield on average interest-earning assets – managed basis | 2.30 | % | 2.07 | % |
|
| |||
Net interest yield on average markets-based interest-earning assets | 1.14 | | 1.00 | |
|
| |||
Net interest yield on average interest-earning assets excluding markets | 2.66 | % | 2.40 | % |
|
|
(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 14 |
Quarterly results
Net interest income excluding CIB's markets-based activities increased by $604 million for the three months ended March 31, 2016, compared with the prior year as a result of loan growth in each of the businesses and higher rates on deposits with banks, partially offset by lower investment securities balances. Average interest-earning assets excluding assets related to CIB's markets-based activities for the three months ended March 31, 2016, decreased $83 billion to $1.6 trillion; this decrease primarily reflected the impact of lower deposits with banks and lower investment securities balances, partially offset by higher loan balances. The net interest yield excluding CIB's markets-based activities for the three months ended March 31, 2016, increased 26 bps to 2.66%.
15
BUSINESS SEGMENT RESULTS |
The Firm is managed on a line of business basis. There are four major reportable business segments – Consumer & Community Banking, Corporate & Investment Bank, Commercial Banking and Asset Management. In addition, there is a Corporate segment.
The business segments are determined based on the products and services provided, or the type of customer served, and they reflect the manner in which financial information is currently evaluated by management. Results of these lines of business are presented on a managed basis. For a definition of managed basis, see Explanation and Reconciliation of the Firm's use of Non-GAAP Financial Measures, on pages 14–15 .
Description of business segment reporting methodology
Results of the business segments are intended to reflect each segment as if it were a stand-alone business. The management reporting process that derives business segment results allocates income and expense using
market-based methodologies. 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 58 .
The Firm periodically assesses the assumptions, methodologies and reporting classifications used for segment reporting, and further refinements may be implemented in future periods.
For a further discussion of those methodologies, see Business Segment Results – Description of business segment reporting methodology on pages 83–84 of JPMorgan Chase's 2015 Annual Report.
The following discussions of the business segment results are based on a comparison of the three months ended March 31, 2016 versus the corresponding period in the prior year, unless otherwise specified.
Segment Results – Managed basis
The following tables summarize the business segment results for the periods indicated.
Three months ended March 31, | Total net revenue |
| Total noninterest expense |
| Pre-provision profit/(loss) | |||||||||||||||||||||
(in millions) | 2016 | | 2015 | | Change |
| 2016 | | 2015 | | Change |
| 2016 | | 2015 | | Change | |||||||||
Consumer & Community Banking | $ | 11,117 | | $ | 10,704 | | 4% | |
| $ | 6,088 | | $ | 6,190 | | (2)% | |
| $ | 5,029 | | $ | 4,514 | | 11% | |
Corporate & Investment Bank | 8,135 | | 9,582 | | (15 | ) |
| 4,808 | | 5,657 | | (15 | ) |
| 3,327 | | 3,925 | | (15 | ) | ||||||
Commercial Banking | 1,803 | | 1,742 | | 4 | |
| 713 | | 709 | | 1 | |
| 1,090 | | 1,033 | | 6 | | ||||||
Asset Management | 2,972 | | 3,005 | | (1 | ) |
| 2,075 | | 2,175 | | (5 | ) |
| 897 | | 830 | | 8 | | ||||||
Corporate | 56 | | (213 | ) | NM | |
| 153 | | 152 | | 1 | |
| (97 | ) | (365 | ) | 73 | | ||||||
Total | $ | 24,083 | | $ | 24,820 | | (3)% | |
| $ | 13,837 | | $ | 14,883 | | (7)% | |
| $ | 10,246 | | $ | 9,937 | | 3% | |
Three months ended March 31, | Provision for credit losses |
| Net income/(loss) |
| Return on common equity | |||||||||||||||||
(in millions, except ratios) | 2016 | | 2015 | | Change |
| 2016 | | 2015 | | Change |
| 2016 | | 2015 | | ||||||
Consumer & Community Banking | $ | 1,050 | | $ | 930 | | 13 | % |
| $ | 2,490 | | $ | 2,219 | | 12% | |
| 19 | % | 17 | % |
Corporate & Investment Bank | 459 | | (31 | ) | NM | |
| 1,979 | | 2,537 | | (22 | ) |
| 11 | | 16 | | ||||
Commercial Banking | 304 | | 61 | | 398 | |
| 496 | | 598 | | (17 | ) |
| 11 | | 17 | | ||||
Asset Management | 13 | | 4 | | 225 | |
| 587 | | 502 | | 17 | |
| 25 | | 22 | | ||||
Corporate | (2 | ) | (5 | ) | 60 | |
| (32 | ) | 58 | | NM | |
| NM | NM | ||||||
Total | $ | 1,824 | | $ | 959 | | 90 | % |
| $ | 5,520 | | $ | 5,914 | | (7)% | |
| 9% | | 11 | % |
16
CONSUMER & COMMUNITY BANKING |
For a discussion of the business profile of CCB, see pages 85–93 of JPMorgan Chase's 2015 Annual Report and Line of Business Metrics on page 155 .
Selected income statement data |
|
|
|
| ||||||
| As of or for the three months ended March 31, | |||||||||
(in millions, except ratios and headcount) | 2016 | |
| 2015 | |
| Change | |||
Revenue |
|
|
|
|
| |||||
Lending- and deposit-related fees | $ | 769 | |
| $ | 718 | |
| 7 | % |
Asset management, administration and commissions | 530 | |
| 530 | |
| - | | ||
Mortgage fees and related income | 667 | |
| 704 | |
| (5 | ) | ||
Card income | 1,191 | |
| 1,324 | |
| (10 | ) | ||
All other income | 649 | |
| 460 | |
| 41 | | ||
Noninterest revenue | 3,806 | |
| 3,736 | |
| 2 | | ||
Net interest income | 7,311 | |
| 6,968 | |
| 5 | | ||
Total net revenue | 11,117 | |
| 10,704 | |
| 4 | | ||
|
|
|
|
|
| |||||
Provision for credit losses | 1,050 | |
| 930 | |
| 13 | | ||
|
|
|
|
|
| |||||
Noninterest expense |
|
|
|
|
| |||||
Compensation expense | 2,382 | |
| 2,530 | |
| (6 | ) | ||
Noncompensation expense | 3,706 | |
| 3,660 | |
| 1 | | ||
Total noninterest expense (a) | 6,088 | |
| 6,190 | |
| (2 | ) | ||
Income before income tax expense | 3,979 | |
| 3,584 | |
| 11 | | ||
Income tax expense | 1,489 | |
| 1,365 | |
| 9 | | ||
Net income | $ | 2,490 | |
| $ | 2,219 | |
| 12 | |
|
|
|
|
|
| |||||
Revenue by line of business |
|
|
|
|
| |||||
Consumer & Business Banking | $ | 4,550 | |
| $ | 4,358 | |
| 4 | |
Mortgage Banking | 1,876 | |
| 1,749 | |
| 7 | | ||
Card, Commerce Solutions & Auto | 4,691 | |
| 4,597 | |
| 2 | % | ||
Financial ratios |
|
|
|
|
| |||||
Return on common equity | 19 | % |
| 17 | % |
|
| |||
Overhead ratio | 55 | |
| 58 | |
|
|
Note: In the discussion and the tables which follow, CCB presents certain financial measures which exclude the impact of PCI loans; these are non-GAAP financial measures. For additional information, see Explanation and Reconciliation of the Firm's Use of Non-GAAP Financial Measures on pages 14–15 .
(a) | Included operating lease depreciation expense of $432 million and $326 million for the three months ended March 31, 2016 and 2015 , respectively. |
Quarterly results
Consumer & Community Banking net income was $2.5 billion, an increase of 12%, driven by higher net revenue and lower noninterest expense, partially offset by higher provision for credit losses.
Net revenue was $11.1 billion, an increase of 4%. Net interest income was $7.3 billion, up 5%, driven by higher deposit balances and higher loan balances largely resulting from originations of prime mortgage loans that have been retained, partially offset by deposit spread compression. Noninterest revenue was $3.8 billion, up 2%, driven by higher MSR risk management results and higher auto lease and card sales volume, predominantly offset by the impact of renegotiated co-brand partnership agreements in Credit Card and lower mortgage servicing revenue largely as a result of lower third-party loans serviced. See Note 16 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 $1.1 billion, an increase of 13%, driven by a $125 million reduction in the allowance for loan losses in the prior year due to continued improvement in home prices and delinquencies in the residential real estate portfolio and runoff in the student loan portfolio.
Noninterest expense was $6.1 billion, a decrease of 2%, driven by branch efficiencies, lower headcount-related expense and lower legal expense, largely offset by higher auto lease depreciation and higher investment in marketing.
17
Selected metrics |
|
|
|
|
| |||||
| As of or for the three months | |||||||||
(in millions) | 2016 |
| 2015 |
| Change | |||||
Selected balance sheet data (period-end) |
|
|
|
|
| |||||
Total assets | $ | 505,071 | |
| $ | 455,624 | |
| 11 | % |
Loans: |
|
|
|
|
| |||||
Consumer & Business Banking | 22,889 | |
| 21,608 | |
| 6 | | ||
Home equity | 56,627 | |
| 65,705 | |
| (14 | ) | ||
Residential mortgage and other | 172,413 | |
| 125,956 | |
| 37 | | ||
Mortgage Banking | 229,040 | | | 191,661 | |
| 20 | | ||
Credit Card | 126,090 | |
| 123,257 | |
| 2 | | ||
Auto | 62,937 | |
| 55,455 | |
| 13 | | ||
Student | 7,890 | |
| 9,053 | |
| (13 | ) | ||
Total loans | 448,846 | |
| 401,034 | |
| 12 | | ||
Core loans | 348,802 | |
| 280,252 | |
| 24 | | ||
Deposits | 582,026 | |
| 531,027 | |
| 10 | | ||
Equity | 51,000 | |
| 51,000 | |
| - | | ||
Selected balance sheet data (average) |
|
|
|
|
| |||||
Total assets | $ | 503,231 | |
| $ | 454,763 | |
| 11 | |
Loans: |
|
|
|
|
| |||||
Consumer & Business Banking | 22,775 | |
| 21,317 | |
| 7 | | ||
Home equity | 57,717 | |
| 66,854 | |
| (14 | ) | ||
Residential mortgage and other | 168,694 | |
| 120,658 | |
| 40 | | ||
Mortgage Banking | 226,411 | |
| 187,512 | |
| 21 | | ||
Credit Card | 127,299 | |
| 125,025 | |
| 2 | | ||
Auto | 61,252 | |
| 55,005 | |
| 11 | | ||
Student | 8,034 | |
| 9,209 | |
| (13 | ) | ||
Total loans | 445,771 | |
| 398,068 | |
| 12 | | ||
Core loans | 343,705 | |
| 274,578 | |
| 25 | | ||
Deposits | 562,284 | |
| 512,157 | |
| 10 | | ||
Equity | 51,000 | |
| 51,000 | |
| - | | ||
Headcount | 129,925 | |
| 135,908 | |
| (4)% | |
Selected metrics |
|
|
|
| ||||||
| As of or for the three months | |||||||||
(in millions, except ratio data) | 2016 | |
| 2015 | |
| Change | |||
Credit data and quality statistics |
|
|
|
|
| |||||
Nonaccrual loans (a)(b) | $ | 5,117 | |
| $ | 6,143 | |
| (17 | )% |
|
|
|
|
|
| |||||
Net charge-offs (c) |
|
|
|
|
| |||||
Consumer & Business Banking | 56 | |
| 59 | |
| (5 | ) | ||
Home equity | 59 | |
| 87 | |
| (32 | ) | ||
Residential mortgage and other | 1 | |
| 17 | |
| (94 | ) | ||
Mortgage Banking | 60 | |
| 104 | |
| (42 | ) | ||
Credit Card | 830 | |
| 789 | |
| 5 | | ||
Auto | 67 | |
| 51 | |
| 31 | | ||
Student | 37 | |
| 51 | |
| (27 | ) | ||
Total net charge-offs | $ | 1,050 | |
| $ | 1,054 | |
| - | |
|
|
|
|
|
| |||||
Net charge-off rate (c) |
|
|
|
|
| |||||
Consumer & Business Banking | 0.99 | % |
| 1.12 | % |
|
| |||
Home equity (d) | 0.55 | |
| 0.71 | |
|
| |||
Residential mortgage and other (d) | - | |
| 0.08 | |
|
| |||
Mortgage Banking (d) | 0.13 | |
| 0.30 | |
|
| |||
Credit Card (e) | 2.62 | |
| 2.62 | |
|
| |||
Auto | 0.44 | |
| 0.38 | |
|
| |||
Student | 1.85 | |
| 2.25 | |
|
| |||
Total net charge-off rate (d) | 1.04 | |
| 1.22 | |
|
| |||
|
|
|
|
|
| |||||
30+ day delinquency rate |
|
|
|
|
| |||||
Mortgage Banking (f)(g) | 1.41 | % |
| 2.30 | % |
|
| |||
Credit Card (h) | 1.45 | |
| 1.41 | |
|
| |||
Auto | 0.94 | |
| 0.90 | |
|
| |||
Student (i) | 1.41 | |
| 1.77 | |
|
| |||
|
|
|
|
|
| |||||
90+ day delinquency rate - Credit Card (h) | 0.75 | |
| 0.73 | |
|
| |||
|
|
|
|
|
| |||||
Allowance for loan losses |
|
|
|
|
| |||||
Consumer & Business Banking | $ | 703 | |
| $ | 703 | |
| - | |
Mortgage Banking excluding PCI loans | 1,588 | |
| 2,088 | |
| (24 | ) | ||
Mortgage Banking - PCI loans (c) | 2,695 | |
| 3,270 | |
| (18 | ) | ||
Credit Card | 3,434 | |
| 3,434 | |
| - | | ||
Auto | 399 | |
| 350 | |
| 14 | | ||
Student | 299 | |
| 374 | |
| (20 | ) | ||
Total allowance for loan losses (c) | $ | 9,118 | |
| $ | 10,219 | |
| (11)% | |
(a) | Excludes PCI loans. The Firm is recognizing interest income on each pool of PCI loans as they are all performing. |
(b) | At March 31, 2016 and 2015 , nonaccrual loans excluded: (1) mortgage loans insured by U.S. government agencies of $5.7 billion and $7.5 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 $269 million and $346 million, respectively, that are 90 or more days past due. These amounts have been excluded based upon the government guarantee. |
(c) | Net charge-offs and the net charge-off rates for the three months ended March 31, 2016 and 2015 , excluded $47 million and $55 million, respectively, of write-offs in the PCI portfolio. These write-offs decreased the allowance for loan losses for PCI loans. For further |
18
information on PCI write-offs, see summary of changes in the allowances on page 46.
(d) | Excludes the impact of PCI loans. For the three months ended March 31, 2016 and 2015 , the net charge-off rates including the impact of PCI loans were as follows: (1) home equity of 0.41% and 0.53%, respectively; (2) residential mortgage and other of -% and 0.06%, respectively; (3) Mortgage Banking of 0.11% and 0.23%, respectively; and (4) total CCB of 0.95% and 1.08%, respectively. |
(e) | Average credit card loans included loans held-for-sale of $72 million and $2.7 billion for the three months ended March 31, 2016 and 2015 , respectively. These amounts are excluded when calculating the net-charge-off rate. |
(f) | At March 31, 2016 and 2015 , excluded mortgage loans insured by U.S. government agencies of $7.6 billion and $9.2 billion, respectively, that are 30 or more days past due. These amounts have been excluded based upon the government guarantee. |
(g) | Excludes PCI loans. The 30+ day delinquency rate for PCI loans was 10.47% and 12.25% at March 31, 2016 and 2015 , respectively. |
(h) | Period-end credit card loans included loans held-for-sale of $78 million and $2.4 billion at March 31, 2016 and 2015, respectively. These amounts are excluded when calculating delinquency rates. |
(i) | Excluded student loans insured by U.S. government agencies under FFELP of $471 million and $596 million at March 31, 2016 and 2015 , respectively, that are 30 or more days past due. These amounts have been excluded based upon the government guarantee. |
Selected metrics |
|
|
|
| ||||||
| As of or for the three months | |||||||||
(in billions, except ratios and where otherwise noted) | 2016 | |
| 2015 | |
| Change | |||
Business Metrics |
|
|
|
|
| |||||
CCB households (in millions) | 58.5 | |
| 57.4 | |
| 2 | % | ||
Number of branches | 5,385 | |
| 5,570 | |
| (3 | ) | ||
Active digital customers (in thousands) (a) | 42,458 | |
| 37,696 | |
| 13 | | ||
Active mobile customers (in thousands) (b) | 23,821 | |
| 19,962 | |
| 19 | | ||
|
|
|
|
|
| |||||
Consumer & Business Banking |
|
|
|
|
| |||||
Average deposits | $ | 548.4 | |
| $ | 497.6 | |
| 10 | |
Deposit margin | 1.86 | % |
| 1.99 | % |
|
| |||
Business banking origination volume | $ | 1.7 | |
| $ | 1.5 | |
| 10 | |
Client investment assets | 220.0 | |
| 219.2 | |
| - | | ||
|
|
|
|
|
| |||||
Mortgage Banking |
|
|
|
|
| |||||
Mortgage origination volume by channel |
|
|
|
|
| |||||
Retail | $ | 8.7 | |
| $ | 8.1 | |
| 7 | |
Correspondent | 13.7 | |
| 16.6 | |
| (17 | ) | ||
Total mortgage origination volume (c) | $ | 22.4 | |
| $ | 24.7 | |
| (9 | ) |
|
|
|
|
|
| |||||
Total loans serviced (period-end) | $ | 898.7 | |
| $ | 924.3 | |
| (3 | ) |
Third-party mortgage loans serviced (period-end) | 655.4 | |
| 723.5 | |
| (9 | ) | ||
MSR carrying value (period-end) | 5.7 | |
| 6.6 | |
| (14 | ) | ||
Ratio of MSR carrying value (period-end) to third-party mortgage loans serviced (period-end) | 0.87 | % |
| 0.91 | % |
|
| |||
|
|
|
|
|
| |||||
MSR revenue multiple (d) | 2.49 | x |
| 2.53 | x |
|
| |||
|
|
|
|
|
| |||||
Credit Card, excluding Commercial Card |
|
|
|
|
| |||||
Sales volume | $ | 121.7 | |
| $ | 112.8 | |
| 8 | |
New accounts opened (in millions) | 2.3 | |
| 2.1 | |
| 10 | | ||
|
|
|
|
|
| |||||
Card Services |
|
|
|
|
| |||||
Net revenue rate | 11.81 | % |
| 12.19 | % |
|
| |||
|
|
|
|
|
| |||||
Commerce Solutions |
|
|
|
|
| |||||
Merchant processing volume | $ | 247.5 | |
| $ | 221.2 | |
| 12 | |
|
|
|
|
|
| |||||
Auto |
|
|
|
|
| |||||
Loan and lease origination volume | $ | 9.6 | |
| $ | 7.3 | |
| 32 | |
Average Auto operating lease assets | 9.6 | |
| 6.9 | |
| 39% | |
(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 $24.4 billion and $26.6 billion for the three months ended March 31, 2016 and 2015 , respectively. |
(d) | Represents the ratio of MSR carrying value (period-end) to third-party mortgage loans serviced (period-end) divided by the ratio of annualized loan servicing-related revenue to third-party mortgage loans serviced (average). |
19
Mortgage servicing-related matters
The Firm has 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 January 4, 2016, the Office of the Comptroller of the Currency ("OCC") terminated its mortgage servicing-related Consent Order with the Firm, which had been outstanding since April 2011. The Firm remains under the mortgage servicing-related Consent Order entered into with the 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.
20
CORPORATE & INVESTMENT BANK |
For a discussion of the business profile of CIB, see pages 94–98 of JPMorgan Chase's 2015 Annual Report and Line of Business Metrics on page 155 .
Selected income statement data |
|
| ||||||||
| Three months ended March 31, | |||||||||
(in millions, except ratios) | 2016 | |
| 2015 | |
| Change | |||
Revenue |
|
|
|
|
| |||||
Investment banking fees | $ | 1,321 | |
| $ | 1,761 | |
| (25 | )% |
Principal transactions | 2,470 | |
| 3,482 | |
| (29 | ) | ||
Lending- and deposit-related fees | 394 | |
| 397 | |
| (1 | ) | ||
Asset management, administration and commissions | 1,069 | |
| 1,154 | |
| (7 | ) | ||
All other income | 280 | |
| 280 | |
| - | | ||
Noninterest revenue | 5,534 | |
| 7,074 | |
| (22 | ) | ||
Net interest income | 2,601 | |
| 2,508 | |
| 4 | | ||
Total net revenue (a) | 8,135 | |
| 9,582 | |
| (15 | ) | ||
|
|
|
|
|
| |||||
Provision for credit losses | 459 | |
| (31 | ) |
| NM | | ||
|
|
|
|
|
| |||||
Noninterest expense |
|
|
|
|
| |||||
Compensation expense | 2,600 | |
| 3,023 | |
| (14 | ) | ||
Noncompensation expense | 2,208 | |
| 2,634 | |
| (16 | ) | ||
Total noninterest expense | 4,808 | |
| 5,657 | |
| (15 | ) | ||
Income before income tax expense | 2,868 | |
| 3,956 | |
| (28 | ) | ||
Income tax expense | 889 | |
| 1,419 | |
| (37 | ) | ||
Net income | $ | 1,979 | |
| $ | 2,537 | |
| (22 | )% |
Financial ratios |
|
|
|
|
| |||||
Return on common equity | 11 | % |
| 16 | % |
|
| |||
Overhead ratio | 59 | |
| 59 | |
|
| |||
Compensation expense as a percentage of total net revenue | 32 | |
| 32 | |
|
|
(a) | 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 as tax-exempt income from municipal bond investments of $498 million and $432 million for the three months ended March 31, 2016 and 2015, respectively. |
Selected income statement data |
|
| ||||||||
| Three months ended March 31, | |||||||||
(in millions) | 2016 |
| 2015 |
| Change | |||||
Revenue by business |
|
|
|
|
| |||||
Investment Banking | $ | 1,231 | |
| $ | 1,630 | |
| (24 | )% |
Treasury Services | 884 | |
| 930 | |
| (5 | ) | ||
Lending | 302 | |
| 435 | |
| (31 | ) | ||
Total Banking | 2,417 | |
| 2,995 | |
| (19 | ) | ||
Fixed Income Markets | 3,597 | |
| 4,154 | |
| (13 | ) | ||
Equity Markets | 1,576 | |
| 1,651 | |
| (5 | ) | ||
Securities Services | 881 | |
| 934 | |
| (6 | ) | ||
Credit Adjustments & Other (a) | (336 | ) |
| (152 | ) |
| (121 | ) | ||
Total Markets & Investor Services | 5,718 | |
| 6,587 | |
| (13 | ) | ||
Total net revenue | $ | 8,135 | |
| $ | 9,582 | |
| (15 | )% |
(a) | Effective January 1, 2016, consists primarily of credit valuation adjustments ("CVA") managed by the Credit Portfolio Group, funding valuation adjustments ("FVA") and debit valuation adjustments ("DVA") on derivatives. 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 other comprehensive income. For additional information, see Notes 3 , 4 |
and 19 .
Quarterly results
Net income was $2.0 billion, down 22%, reflecting lower net revenue and higher provisions for credit losses, partially offset by lower noninterest expense.
Banking revenue was $2.4 billion, down 19%. Investment banking revenue was $1.2 billion, down 24% on lower debt and equity underwriting fees, partially offset by higher advisory fees. Debt underwriting fees were down 35% driven by declines in industry-wide fee levels and fewer large acquisition financing deals. Equity underwriting fees were down 49% driven by declines in industry-wide fee levels. Advisory fees were up 8% driven by a greater share of fees for completed transactions. Treasury Services revenue was $884 million, down 5%, driven by business simplification. Lending revenue was $302 million, down 31%, reflecting fair value losses on hedges of accrual loans and lower gains on securities received from restructurings.
Markets & Investor Services revenue was $5.7 billion, down 13%. Fixed Income Markets revenue was $3.6 billion, down 13%. The current quarter's performance reflected the challenging market environment, which included significant volatility, global macroeconomic uncertainty and widening credit spreads. In contrast, the prior year results were driven by robust client activity resulting from macroeconomic events and conditions, including quantitative easing actions of various central banks. These factors resulted in lower revenue in the current quarter reflecting an increase in Rates which was more than offset by lower performance across other asset classes. Equity Markets revenue of $1.6 billion was down 5% reflecting
21
weaker results in Americas derivatives, partially offset by strong results in Asia derivatives. Securities Services revenue was $881 million, down 6%. Credit Adjustments & Other was a loss of $336 million on widening credit spreads.
The provision for credit losses was $459 million, compared to a benefit of $31 million in the prior year, primarily reflecting increases in the allowance for credit losses in the Oil & Gas and Metals & Mining portfolios.
Noninterest expense was $4.8 billion, down 15%, primarily driven by lower performance-based compensation and lower legal expense .
Selected metrics |
|
|
|
| ||||||
| As of or for the three months | |||||||||
(in millions, except headcount) | 2016 |
| 2015 |
| Change | |||||
Selected balance sheet data (period-end) |
|
|
|
|
| |||||
Assets | $ | 801,053 | |
| $ | 854,275 | |
| (6 | )% |
Loans: |
|
|
|
|
| |||||
Loans retained (a) | 109,132 | |
| 98,625 | |
| 11 | | ||
Loans held-for-sale and loans at fair value | 2,381 | |
| 3,987 | |
| (40 | ) | ||
Total loans | 111,513 | |
| 102,612 | |
| 9 | | ||
Core loans | 111,050 | |
| 101,537 | |
| 9 | | ||
Equity | 64,000 | |
| 62,000 | |
| 3 | | ||
Selected balance sheet data (average) |
|
|
|
|
| |||||
Assets | $ | 797,548 | |
| $ | 865,327 | |
| (8 | ) |
Trading assets-debt and equity instruments | 285,122 | |
| 312,260 | |
| (9 | ) | ||
Trading assets-derivative receivables | 62,557 | |
| 77,353 | |
| (19 | ) | ||
Loans: |
|
|
|
|
| |||||
Loans retained (a) | 108,712 | |
| 99,113 | |
| 10 | | ||
Loans held-for-sale and loans at fair value | 3,204 | |
| 4,061 | |
| (21 | ) | ||
Total loans | 111,916 | |
| 103,174 | |
| 8 | | ||
Core loans | 111,417 | |
| 102,052 | |
| 9 | | ||
Equity | 64,000 | |
| 62,000 | |
| 3 | | ||
Headcount | 49,067 | |
| 50,634 | |
| (3 | )% |
(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. |
Selected metrics |
|
|
|
|
| |||||
| As of or for the three months | |||||||||
(in millions, except ratios) | 2016 |
| 2015 |
| Change | |||||
Credit data and quality statistics |
|
|
|
|
| |||||
Net charge-offs/(recoveries) | $ | 46 | |
| $ | (11 | ) |
| NM | |
Nonperforming assets: |
|
|
|
|
| |||||
Nonaccrual loans: |
|
|
|
|
| |||||
Nonaccrual loans retained (a) | 650 | |
| 251 | |
| 159% | | ||
Nonaccrual loans held-for-sale and loans at fair value | 7 | |
| 12 | |
| (42 | ) | ||
Total nonaccrual loans | 657 | |
| 263 | |
| 150 | | ||
Derivative receivables | 212 | |
| 249 | |
| (15 | ) | ||
Assets acquired in loan satisfactions | 62 | |
| 63 | |
| (2 | ) | ||
Total nonperforming assets | 931 | |
| 575 | |
| 62 | | ||
Allowance for credit losses: |
|
|
|
|
| |||||
Allowance for loan losses | 1,497 | |
| 1,047 | |
| 43 | | ||
Allowance for lending-related commitments | 744 | |
| 411 | |
| 81 | | ||
Total allowance for credit losses | 2,241 | |
| 1,458 | |
| 54% | | ||
Net charge-off/(recovery) rate | 0.17% | |
| (0.05 | )% |
|
| |||
Allowance for loan losses to period-end loans retained | 1.37 | |
| 1.06 | |
|
| |||
Allowance for loan losses to period-end loans retained, excluding trade finance and conduits (b) | 2.11 | |
| 1.64 | |
|
| |||
Allowance for loan losses to nonaccrual loans retained (a) | 230 | |
| 417 | |
|
| |||
Nonaccrual loans to total period-end loans | 0.59 | % |
| 0.26 | % |
|
|
(a) | Allowance for loan losses of $233 million and $51 million were held against these nonaccrual loans at March 31, 2016 and 2015, 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. |
22
Business metrics |
|
|
|
|
| |||||
| Three months ended March 31, | |||||||||
(in millions) | 2016 |
| 2015 |
| Change | |||||
Advisory | $ | 585 | |
| $ | 542 | |
| 8% | |
Equity underwriting | 205 | |
| 399 | |
| (49 | ) | ||
Debt underwriting | 531 | |
| 820 | |
| (35 | ) | ||
Total investment banking fees | $ | 1,321 | |
| $ | 1,761 | |
| (25)% | |
League table results – wallet share |
|
|
|
|
| |||||||||
| Three months ended |
| Full-year 2015 | |||||||||||
| Share | Rank |
| Share | Rank | |||||||||
Based on fees (a) |
|
|
|
|
|
|
|
| ||||||
Debt, equity and equity-related |
|
|
|
|
|
|
|
| ||||||
Global | 6.7 | % |
| # | 1 | |
|
| 7.7 | % |
| # | 1 | |
U.S. | 12.4 | |
| 1 | |
|
| 11.6 | |
| 1 | | ||
Long-term debt (b) |
|
|
|
|
|
|
|
| ||||||
Global | 6.4 | |
| 2 | |
|
| 8.3 | |
| 1 | | ||
U.S. | 11.3 | |
| 1 | |
|
| 11.9 | |
| 1 | | ||
Equity and equity-related |
|
|
|
|
|
|
|
| ||||||
Global (c) | 7.3 | |
| 1 | |
|
| 7.0 | |
| 1 | | ||
U.S. | 14.7 | |
| 1 | |
|
| 11.2 | |
| 1 | | ||
M&A (d) |
|
|
|
|
|
|
|
| ||||||
Global | 11.3 | |
| 1 | |
|
| 8.5 | |
| 2 | | ||
U.S. | 13.8 | |
| 1 | |
|
| 9.9 | |
| 2 | | ||
Loan syndications |
|
|
|
|
|
|
|
| ||||||
Global | 6.2 | |
| 2 | |
|
| 7.3 | |
| 2 | | ||
U.S. | 8.4 | |
| 2 | |
|
| 10.5 | |
| 2 | | ||
Global investment banking fees (e) | 8.2 | % |
| # | 1 | |
|
| 7.9 | % |
| # | 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 mortgage-backed securities ("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 reflects the removal of any withdrawn transactions. U.S. M&A revenue wallet represents wallet from client parents based in the U.S. |
(e) | Global investment banking fees exclude money market, short-term debt and shelf deals. |
Business metrics |
|
|
|
|
| |||||
| As of or for the three months | |||||||||
(in millions, except where otherwise noted) | 2016 |
| 2015 |
| Change | |||||
Assets under custody ("AUC") by asset class (period-end)(in billions): |
|
|
|
|
| |||||
Fixed Income | $ | 12,422 | |
| $ | 12,256 | |
| 1% | |
Equity | 6,117 | |
| 6,620 | |
| (8 | ) | ||
Other (a) | 1,744 | |
| 1,685 | |
| 4 | | ||
Total AUC | $ | 20,283 | |
| $ | 20,561 | |
| (1 | ) |
Client deposits and other third party liabilities (average) (b) | $ | 358,926 | |
| $ | 444,171 | |
| (19 | ) |
Trade finance loans (period-end) | 18,078 | |
| 22,853 | |
| (21 | )% |
(a) | Consists of mutual funds, unit investment trusts, currencies, annuities, insurance contracts, options and other contracts. |
(b) | Client deposits and other third party liabilities pertain to the Treasury Services and Securities Services businesses. |
23
International metrics |
|
|
|
|
| |||||
| As of or for the three months | |||||||||
(in millions, except where otherwise noted) | 2016 |
| 2015 |
| Change | |||||
Total net revenue (a) |
|
|
|
|
| |||||
Europe/Middle East/Africa | $ | 2,457 | |
| $ | 3,496 | |
| (30 | )% |
Asia/Pacific | 1,302 | |
| 1,263 | |
| 3 | | ||
Latin America/Caribbean | 321 | |
| 331 | |
| (3 | ) | ||
Total international net revenue | 4,080 | |
| 5,090 | |
| (20 | ) | ||
North America | 4,055 | |
| 4,492 | |
| (10 | ) | ||
Total net revenue | $ | 8,135 | |
| $ | 9,582 | |
| (15 | ) |
|
|
|
|
|
| |||||
Loans retained (period-end) (a) |
|
|
|
|
| |||||
Europe/Middle East/Africa | $ | 27,219 | |
| $ | 26,055 | |
| 4 | |
Asia/Pacific | 15,507 | |
| 19,038 | |
| (19 | ) | ||
Latin America/Caribbean | 8,751 | |
| 8,679 | |
| 1 | | ||
Total international loans | 51,477 | |
| 53,772 | |
| (4 | ) | ||
North America | 57,655 | |
| 44,853 | |
| 29 | | ||
Total loans retained | $ | 109,132 | |
| $ | 98,625 | |
| 11 | |
|
|
|
|
|
| |||||
Client deposits and other third-party liabilities (average) (a)(b) |
|
|
|
|
| |||||
Europe/Middle East/Africa | $ | 128,359 | |
| $ | 159,437 | |
| (19 | ) |
Asia/Pacific | 62,715 | |
| 70,917 | |
| (12 | ) | ||
Latin America/Caribbean | 22,265 | |
| 23,442 | |
| (5 | ) | ||
Total international | $ | 213,339 | |
| $ | 253,796 | |
| (16 | ) |
North America | 145,587 | |
| 190,375 | |
| (24 | ) | ||
Total client deposits and other third-party liabilities | $ | 358,926 | |
| $ | 444,171 | |
| (19 | ) |
|
|
|
|
|
| |||||
AUC (period-end) (in billions) (a) |
|
|
|
|
| |||||
North America | $ | 12,264 | |
| $ | 12,202 | |
| 1 | |
All other regions | 8,019 | |
| 8,359 | |
| (4 | ) | ||
Total AUC | $ | 20,283 | |
| $ | 20,561 | |
| (1 | )% |
(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. |
24
COMMERCIAL BANKING |
For a discussion of the business profile of CB, see pages 99–101 of JPMorgan Chase's 2015 Annual Report and Line of Business Metrics on page 156 .
Selected income statement data | ||||||||||
| Three months ended March 31, | |||||||||
(in millions) | 2016 |
| 2015 |
| Change | |||||
Revenue |
|
|
|
|
| |||||
Lending- and deposit-related fees | $ | 232 | |
| $ | 237 | |
| (2 | )% |
Asset management, administration and commissions | 22 | |
| 24 | |
| (8 | ) | ||
All other income (a) | 302 | |
| 375 | |
| (19 | ) | ||
Noninterest revenue | 556 | |
| 636 | |
| (13 | ) | ||
Net interest income | 1,247 | |
| 1,106 | |
| 13 | | ||
Total net revenue (b) | 1,803 | |
| 1,742 | |
| 4 | | ||
|
|
|
|
|
| |||||
Provision for credit losses | 304 | |
| 61 | |
| 398 | | ||
|
|
|
|
|
| |||||
Noninterest expense |
|
|
|
|
| |||||
Compensation expense | 334 | |
| 309 | |
| 8 | | ||
Noncompensation expense | 379 | |
| 400 | |
| (5 | ) | ||
Total noninterest expense | 713 | |
| 709 | |
| 1 | | ||
|
|
|
|
|
| |||||
Income before income tax expense | 786 | |
| 972 | |
| (19 | ) | ||
Income tax expense | 290 | |
| 374 | |
| (22 | ) | ||
Net income | $ | 496 | |
| $ | 598 | |
| (17 | )% |
(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 from municipal bond activity of $120 million and $113 million for the three months ended March 31, 2016 and 2015 , respectively. |
Quarterly results
Net income was $496 million, a decrease of 17%, driven by a higher provision for credit losses, partially offset by higher net revenue.
Net revenue was $1.8 billion, an increase of 4%. Net interest income was $1.2 billion, a 13% increase, driven by higher loan balances and deposit spreads. Noninterest revenue was $556 million, down 13%, driven by lower investment banking revenue compared to a record quarter last year.
The provision for credit losses was $304 million, compared to $61 million in the prior year quarter, reflecting downgrades in the Oil & Gas and Natural Gas Pipeline portfolios.
Selected metrics | ||||||||||
| Three months ended March 31, | |||||||||
(in millions, except ratios) | 2016 |
| 2015 |
| Change | |||||
Revenue by product |
|
|
|
|
| |||||
Lending | $ | 928 | |
| $ | 825 | |
| 12 | % |
Treasury services | 694 | |
| 647 | |
| 7 | | ||
Investment banking | 155 | |
| 248 | |
| (38 | ) | ||
Other | 26 | |
| 22 | |
| 18 | | ||
Total Commercial Banking net revenue | $ | 1,803 | |
| $ | 1,742 | |
| 4 | |
|
|
|
|
|
| |||||
Investment banking revenue, gross (a) | $ | 483 | |
| $ | 753 | |
| (36 | ) |
|
|
|
|
|
| |||||
Revenue by client segment |
|
|
|
|
| |||||
Middle Market Banking | $ | 717 | |
| $ | 677 | |
| 6 | |
Corporate Client Banking | 501 | |
| 564 | |
| (11 | ) | ||
Commercial Term Lending | 361 | |
| 308 | |
| 17 | | ||
Real Estate Banking | 140 | |
| 116 | |
| 21 | | ||
Other | 84 | |
| 77 | |
| 9 | | ||
Total Commercial Banking net revenue | $ | 1,803 | |
| $ | 1,742 | |
| 4 | % |
|
|
|
|
|
| |||||
Financial ratios |
|
|
|
|
| |||||
Return on common equity | 11% | |
| 17 | % |
|
| |||
Overhead ratio | 40 | |
| 41 | |
|
|
(a) | Represents the total revenue from investment banking products sold to CB clients. |
25
Selected metrics (continued) |
|
| ||||||
| As of or for the three months | |||||||
(in millions, except headcount) | 2016 | 2015 | Change | |||||
Selected balance sheet data (period-end) |
|
|
| |||||
Total assets | $ | 204,602 | | $ | 197,931 | | 3 | % |
Loans: |
|
|
| |||||
Loans retained | 173,583 | | 153,173 | | 13 | | ||
Loans held-for-sale and loans at fair value | 338 | | 507 | | (33 | ) | ||
Total loans | $ | 173,921 | | $ | 153,680 | | 13 | |
Core loans | 173,316 | | 152,659 | | 14 | | ||
Equity | 16,000 | | 14,000 | | 14 | | ||
|
|
|
| |||||
Period-end loans by client segment |
|
|
| |||||
Middle Market Banking | $ | 52,532 | | $ | 51,071 | | 3 | |
Corporate Client Banking | 33,761 | | 28,379 | | 19 | | ||
Commercial Term Lending | 64,292 | | 55,824 | | 15 | | ||
Real Estate Banking | 17,719 | | 13,537 | | 31 | | ||
Other | 5,617 | | 4,869 | | 15 | | ||
Total Commercial Banking loans | $ | 173,921 | | $ | 153,680 | | 13 | |
|
|
|
| |||||
Selected balance sheet data (average) |
|
|
| |||||
Total assets | $ | 202,492 | | $ | 195,927 | | 3 | |
Loans: |
|
|
| |||||
Loans retained | 169,837 | | 149,731 | | 13 | | ||
Loans held-for-sale and loans at fair value | 448 | | 557 | | (20 | ) | ||
Total loans | $ | 170,285 | | $ | 150,288 | | 13 | |
Core loans | 169,626 | | 149,239 | | 14 | | ||
Client deposits and other third-party liabilities | 173,079 | | 210,046 | | (18 | ) | ||
Equity | 16,000 | | 14,000 | | 14 | | ||
|
|
|
| |||||
Headcount | 7,971 | | 7,489 | | 6 | | ||
|
|
|
| |||||
Average loans by client segment |
|
|
| |||||
Middle Market Banking | $ | 51,419 | | $ | 50,538 | | 2 | |
Corporate Client Banking | 32,929 | | 26,653 | | 24 | | ||
Commercial Term Lending | 63,475 | | 54,754 | | 16 | | ||
Real Estate Banking | 17,021 | | 13,472 | | 26 | | ||
Other | 5,441 | | 4,871 | | 12 | | ||
Total Commercial Banking loans | $ | 170,285 | | $ | 150,288 | | 13 | % |
| As of or for the three months | |||||||
(in millions, except ratios) | 2016 | 2015 | Change | |||||
Credit data and quality statistics |
|
|
| |||||
Net charge-offs/(recoveries) | $ | 6 | | $ | 11 | | (45 | )% |
Nonperforming assets |
|
|
| |||||
Nonaccrual loans: |
|
|
| |||||
Nonaccrual loans retained (a) | 1,257 | | 304 | | 313 | | ||
Nonaccrual loans held-for-sale and loans at fair value | - | | 12 | | (100 | ) | ||
Total nonaccrual loans | 1,257 | | 316 | | 298 | | ||
Assets acquired in loan satisfactions | 1 | | 5 | | (80 | ) | ||
Total nonperforming assets | 1,258 | | 321 | | 292 | | ||
Allowance for credit losses: |
|
|
| |||||
Allowance for loan losses | 3,099 | | 2,519 | | 23 | | ||
Allowance for lending-related commitments | 252 | | 162 | | 56 | | ||
Total allowance for credit losses | 3,351 | | 2,681 | | 25 | % | ||
Net charge-off/(recovery) rate (b) | 0.01 | % | 0.03 | % |
| |||
Allowance for loan losses to period-end loans retained | 1.79 | | 1.64 | |
| |||
Allowance for loan losses to nonaccrual loans retained (a) | 247 | | 829 | |
| |||
Nonaccrual loans to period-end total loans | 0.72 | | 0.21 | |
|
(a) | Allowance for loan losses of $278 million and $29 million was held against nonaccrual loans retained at March 31, 2016 and 2015 , respectively. |
(b) | Loans held-for-sale and loans at fair value were excluded when calculating the net charge-off/(recovery) rate. |
26
ASSET MANAGEMENT |
For a discussion of the business profile of AM, see pages 102–104 of JPMorgan Chase's 2015 Annual Report and Line of Business Metrics on pages 156–157 .
Selected income statement data | ||||||||
(in millions, except ratios) | Three months ended March 31, | |||||||
2016 | 2015 | Change | ||||||
Revenue |
|
|
| |||||
Asset management, administration and commissions | $ | 2,016 | | $ | 2,229 | | (10 | )% |
All other income | 229 | | 155 | | 48 | | ||
Noninterest revenue | 2,245 | | 2,384 | | (6 | ) | ||
Net interest income | 727 | | 621 | | 17 | | ||
Total net revenue | 2,972 | | 3,005 | | (1 | ) | ||
|
|
|
| |||||
Provision for credit losses | 13 | | 4 | | 225 | | ||
|
|
|
| |||||
Noninterest expense |
|
|
| |||||
Compensation expense | 1,241 | | 1,289 | | (4 | ) | ||
Noncompensation expense | 834 | | 886 | | (6 | ) | ||
Total noninterest expense | 2,075 | | 2,175 | | (5 | ) | ||
|
|
|
| |||||
Income before income tax expense | 884 | | 826 | | 7 | | ||
Income tax expense | 297 | | 324 | | (8 | ) | ||
Net income | $ | 587 | | $ | 502 | | 17 | |
|
|
|
| |||||
Revenue by line of business |
|
|
| |||||
Global Investment Management | $ | 1,499 | | $ | 1,533 | | (2 | ) |
Global Wealth Management | 1,473 | | 1,472 | | - | | ||
Total net revenue | $ | 2,972 | | $ | 3,005 | | (1 | )% |
|
|
|
| |||||
Financial ratios |
|
|
| |||||
Return on common equity | 25 | % | 22 | % |
| |||
Overhead ratio | 70 | | 72 | |
| |||
Pretax margin ratio: |
|
|
| |||||
Global Investment Management | 33 | | 30 | |
| |||
Global Wealth Management | 26 | | 25 | |
| |||
Asset Management | 30 | | 27 | |
|
Quarterly results
Net income was $587 million, an increase of 17%, reflecting lower noninterest expense partially offset by lower net revenue.
Net revenue was $3.0 billion, a decrease of 1% including a gain on the sale of an asset. Excluding this gain, revenue in the quarter would have been lower by approximately $150 million. Net interest income was $727 million, up 17%, driven by higher deposit spreads and loan growth. Noninterest revenue was $2.2 billion, down 6%, due to the impact of lower markets and lower brokerage revenue.
Noninterest expense was $2.1 billion, a decrease of 5%, primarily driven by lower performance-based compensation.
Selected metrics | As of or for the three months | |||||||
(in millions, except ranking data, headcount and ratios) | 2016 | 2015 | Change | |||||
% of JPM mutual fund assets rated as 4- or 5-star (a) | 50 | % | 56 | % |
| |||
% of JPM mutual fund assets ranked in 1 st or 2 nd quartile: (b) |
|
|
| |||||
1 year | 55 | | 75 | |
| |||
3 years | 75 | | 75 | |
| |||
5 years | 80 | | 79 | |
| |||
|
|
|
| |||||
Selected balance sheet data (period-end) |
|
|
| |||||
Total assets | $ | 131,276 | | $ | 126,233 | | 4 | % |
Loans (c) | 111,050 | | 104,165 | | 7 | | ||
Core loans | 111,050 | | 104,165 | | 7 | | ||
Deposits | 152,908 | | 155,347 | | (2 | ) | ||
Equity | 9,000 | | 9,000 | | - | | ||
|
|
|
| |||||
Selected balance sheet data (average) |
|
|
| |||||
Total assets | $ | 129,790 | | $ | 126,276 | | 3 | |
Loans | 110,497 | | 103,286 | | 7 | | ||
Core loans | 110,497 | | 103,286 | | 7 | | ||
Deposits | 150,616 | | 158,240 | | (5 | ) | ||
Equity | 9,000 | | 9,000 | | - | | ||
|
|
|
| |||||
Headcount | 20,885 | | 20,095 | | 4 | | ||
|
|
|
| |||||
Number of client advisors | 2,750 | | 2,803 | | (2 | ) | ||
|
|
|
| |||||
Credit data and quality statistics |
|
|
| |||||
Net charge-offs | $ | 9 | | $ | 3 | | 200 | |
Nonaccrual loans | 335 | | 175 | | 91 | | ||
Allowance for credit losses: |
|
|
| |||||
Allowance for loan losses | 270 | | 271 | | - | | ||
Allowance for lending-related commitments | 4 | | 5 | | (20 | ) | ||
Total allowance for credit losses | 274 | | 276 | | (1 | )% | ||
Net charge-off rate | 0.03 | % | 0.01 | % |
| |||
Allowance for loan losses to period-end loans | 0.24 | | 0.26 | |
| |||
Allowance for loan losses to nonaccrual loans | 81 | | 155 | |
| |||
Nonaccrual loans to period-end loans | 0.30 | | 0.17 | |
|
(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 Investment Management retail open ended mutual funds that have a rating. Excludes money market funds, Undiscovered Managers Fund, and Brazil and India domiciled funds. |
(b) | 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 Fund Doctor for South Korea domiciled funds. Includes only Global Investment 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) | Included $27.7 billion and $23.0 billion of prime mortgage loans reported in the Consumer, excluding credit card, loan portfolio at March 31, 2016 and 2015 , respectively. |
27
Client assets
Client assets of $2.3 trillion and assets under management of $1.7 trillion were down 3% and 5%, respectively, due to the effect of lower market levels, outflows from liquidity products and the sale of an asset, partially offset by net inflows to long-term products.
Client assets | March 31, | |||||||
(in billions) | 2016 | | 2015 | | Change | |||
Assets by asset class |
|
|
| |||||
Liquidity | $ | 424 | | $ | 454 | | (7 | )% |
Fixed income | 365 | | 359 | | 2 | | ||
Equity | 346 | | 380 | | (9 | ) | ||
Multi-asset and alternatives | 541 | | 566 | | (4 | ) | ||
Total assets under management | 1,676 | | 1,759 | | (5 | ) | ||
Custody/brokerage/administration/deposits | 647 | | 646 | | - | | ||
Total client assets | $ | 2,323 | | $ | 2,405 | | (3 | ) |
|
|
|
| |||||
Memo: |
|
|
| |||||
Alternatives client assets (a) | $ | 151 | | $ | 168 | | (10 | ) |
|
|
|
| |||||
Assets by client segment |
|
|
| |||||
Private Banking | $ | 428 | | $ | 440 | | (3 | ) |
Institutional | 798 | | 825 | | (3 | ) | ||
Retail | 450 | | 494 | | (9 | ) | ||
Total assets under management | $ | 1,676 | | $ | 1,759 | | (5 | ) |
|
|
|
| |||||
Private Banking | $ | 1,057 | | $ | 1,073 | | (1 | ) |
Institutional | 814 | | 833 | | (2 | ) | ||
Retail | 452 | | 499 | | (9 | ) | ||
Total client assets | $ | 2,323 | | $ | 2,405 | | (3 | )% |
(a) | Represents assets under management, as well as client balances in brokerage accounts. |
| Three months ended March 31, | |||||
(in billions) | 2016 | 2015 | ||||
Assets under management rollforward |
|
| ||||
Beginning balance | $ | 1,723 | | $ | 1,744 | |
Net asset flows: |
|
| ||||
Liquidity | (27 | ) | (1 | ) | ||
Fixed income | 11 | | 2 | | ||
Equity | (5 | ) | 4 | | ||
Multi-asset and alternatives | 6 | | 10 | | ||
Market/performance/other impacts | (32 | ) | - | | ||
Ending balance, March 31 | $ | 1,676 | | $ | 1,759 | |
|
|
| ||||
Client assets rollforward |
|
| ||||
Beginning balance | $ | 2,350 | | $ | 2,387 | |
Net asset flows | (7 | ) | 17 | | ||
Market/performance/other impacts | (20 | ) | 1 | | ||
Ending balance, March 31 | $ | 2,323 | | $ | 2,405 | |
International metrics | As of or for the three months | |||||||
(in billions, except where otherwise noted) | 2016 | 2015 | Change | |||||
Total net revenue (in millions) (a) |
|
|
| |||||
Europe/Middle East/Africa | $ | 431 | | $ | 471 | | (8 | )% |
Asia/Pacific | 255 | | 286 | | (11 | ) | ||
Latin America/Caribbean | 172 | | 197 | | (13 | ) | ||
Total international net revenue | 858 | | 954 | | (10 | ) | ||
North America | 2,114 | | 2,051 | | 3 | | ||
Total net revenue | $ | 2,972 | | $ | 3,005 | | (1 | ) |
|
|
|
| |||||
Assets under management |
|
|
| |||||
Europe/Middle East/Africa | $ | 293 | | $ | 324 | | (10 | ) |
Asia/Pacific | 120 | | 129 | | (7 | ) | ||
Latin America/Caribbean | 42 | | 46 | | (9 | ) | ||
Total international assets under management | 455 | | 499 | | (9 | ) | ||
North America | 1,221 | | 1,260 | | (3 | ) | ||
Total assets under management | $ | 1,676 | | $ | 1,759 | | (5 | ) |
|
|
|
| |||||
Client assets |
|
|
| |||||
Europe/Middle East/Africa | $ | 343 | | $ | 373 | | (8 | ) |
Asia/Pacific | 171 | | 179 | | (4 | ) | ||
Latin America/Caribbean | 110 | | 112 | | (2 | ) | ||
Total international client assets | 624 | | 664 | | (6 | ) | ||
North America | 1,699 | | 1,741 | | (2 | ) | ||
Total client assets | $ | 2,323 | | $ | 2,405 | | (3 | )% |
(a) | Regional revenue is based on the domicile of the client. |
28
CORPORATE |
For a discussion of Corporate, see pages 105–106 of JPMorgan Chase's 2015 Annual Report.
Selected income statement data |
|
|
| ||||||
| As of or for the three months | ||||||||
(in millions, except headcount) | 2016 | | 2015 | |
| Change | | ||
Revenue |
|
|
|
| |||||
Principal transactions | $ | 97 | | $ | 100 | |
| (3 | )% |
Securities gains | 51 | | 53 | |
| (4 | ) | ||
All other income/(loss) | 121 | | (113 | ) |
| NM | | ||
Noninterest revenue | 269 | | 40 | |
| NM | | ||
Net interest income | (213 | ) | (253 | ) |
| 16 | | ||
Total net revenue (a) | 56 | | (213 | ) |
| NM | | ||
Provision for credit losses | (2 | ) | (5 | ) |
| 60 | | ||
Noninterest expense (b) | 153 | | 152 | |
| 1 | | ||
Loss before income tax benefit | (95 | ) | (360 | ) |
| 74 | | ||
Income tax benefit | (63 | ) | (418 | ) |
| 85 | | ||
Net income/(loss) | $ | (32 | ) | $ | 58 | |
| NM | |
Total net revenue |
|
|
|
| |||||
Treasury and CIO | (94 | ) | (378 | ) |
| 75 | | ||
Other Corporate | 150 | | 165 | |
| (9 | ) | ||
Total net revenue | $ | 56 | | $ | (213 | ) |
| NM | |
Net income/(loss) |
|
|
|
| |||||
Treasury and CIO | (111 | ) | (221 | ) |
| 50 | | ||
Other Corporate | 79 | | 279 | |
| (72 | ) | ||
Total net income/(loss) | $ | (32 | ) | $ | 58 | |
| NM | |
Selected balance sheet data (period-end) |
|
|
|
| |||||
Total assets | $ | 781,806 | | $ | 942,556 | |
| (17 | ) |
Loans | 1,983 | | 2,694 | |
| (26 | ) | ||
Core loans (c) | 1,978 | | 2,672 | |
| (26 | ) | ||
Headcount | 29,572 | | 27,019 | |
| 9 | % |
(a) | Included tax-equivalent adjustments, predominantly due to tax-exempt income from municipal bond investments of $218 million and $203 million for the three months ended March 31, 2016 and 2015 , respectively. |
(b) | Included legal expense of $305 million for the three months ended March 31, 2015, legal expense for the three months ended March 31, 2016 was not material. |
(c) | Average core loans were $2.1 billion and $2.8 billion for the three months ended March 31, 2016 and 2015 , respectively. |
Quarterly results
Net loss was $32 million, compared with net income of
$58 million in the prior year. Net revenue was a gain of
$56 million in the current year, compared to a loss of
$213 million in the prior year. The prior year included a $173 million pre-tax loss primarily related to the accelerated amortization of cash flow hedges, associated with the exit of certain non-operating deposits. Noninterest expense was $153 million, flat compared to the prior year, as lower legal expense was largely offset by higher compensation and a benefit from a franchise tax settlement received in the prior year.
The current quarter reflected tax benefits of $59 million, compared to tax benefits related to tax adjustments of $177 million in the prior year.
Treasury and CIO overview
For a discussion of Treasury and CIO, see page 106 of the Firm's 2015 Annual Report.
At March 31, 2016 , the average credit rating of the Treasury and CIO investment securities comprising the portfolio in the table below 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). See Note 11 for further information on the Firm's investment securities portfolio.
For further information on liquidity and funding risk, see Liquidity Risk Management on pages 61–65 . For information on interest rate, foreign exchange and other risks, Treasury and CIO value-at-risk ("VaR") and the
Firm's earnings-at-risk, see Market Risk Management on pages 48–51 .
Selected income statement and balance sheet data | ||||||||||
| As of or for the three months | |||||||||
(in millions) | 2016 | |
| 2015 | |
| Change | | ||
Securities gains | $ | 51 | |
| $ | 53 | |
| (4 | )% |
Investment securities portfolio (average) (a) | 283,443 | |
| 333,692 | |
| (15 | ) | ||
Investment securities portfolio (period-end) (b) | 282,424 | |
| 327,859 | |
| (14 | ) | ||
Mortgage loans (average) | 2,005 | |
| 2,790 | |
| (28 | ) | ||
Mortgage loans (period-end) | 1,927 | |
| 2,664 | |
| (28 | ) |
(a) | Average investment securities included held-to-maturity balances of $48.3 billion and $49.3 billion for the three months ended March 31, 2016 and 2015 , respectively. |
(b) | Period-end investment securities included held-to-maturity balance of $47.9 billion and $49.3 billion at March 31, 2016 and 2015 , respectively. |
Private equity portfolio information (a) |
|
| ||||||||
(in millions) | March 31, 2016 | |
| December 31, 2015 | |
| Change | | ||
Carrying value | $ | 2,004 | |
| $ | 2,103 | |
| (5 | )% |
Cost | 3,512 | |
| 3,798 | |
| (8 | ) |
(a) | For more information on the Firm's methodologies regarding the valuation of the private equity portfolio, see Note 3 of JPMorgan Chase's 2015 Annual Report . |
29
ENTERPRISE-WIDE RISK MANAGEMENT |
Risk is an inherent part of JPMorgan Chase's business activities. When the Firm extends a consumer or wholesale loan, 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 risk areas, such as credit, market, liquidity, model, structural interest rate, principal, country, operational, compliance, 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 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") and other senior executives, is responsible for developing and executing the Firm's risk management framework. The framework is intended to provide controls and ongoing management 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. The Operating Committee is responsible and accountable to the Firm's Board of Directors.
The Firm strives for continual improvement through ongoing employee training and development, as well as talent retention. 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.
The following provides an index of key risk management disclosures. For further information on these disclosures, refer to the page references noted below in both this Form 10-Q and JPMorgan Chase's 2015 Annual Report.
Risk disclosure | Form 10-Q page reference | Annual Report page reference |
Enterprise-Wide Risk Management | 30–65 | 107–164 |
Risk governance |
| 108–111 |
Credit Risk Management | 31–47 | 112–132 |
Credit Portfolio |
| 114 |
Consumer Credit Portfolio | 32–37 | 115–121 |
Wholesale Credit Portfolio | 38–44 | 122–129 |
Allowance For Credit Losses | 45–47 | 130–132 |
Market Risk Management | 48–51 | 133–139 |
Risk identification and classification |
| 133 |
Value-at-risk | 48–50 | 135–137 |
Economic-value stress testing |
| 137–138 |
Earnings-at-risk | 51 | 138–139 |
Country Risk Management | 52 | 140–141 |
Model Risk Management |
| 142 |
Principal Risk Management |
| 143 |
Operational Risk Management | 53 | 144–146 |
Operational Risk Capital Measurement |
| 145 |
Cybersecurity | 53 | 145 |
Business and Technology resiliency |
| 145–146 |
Legal Risk Management |
| 146 |
Compliance Risk Management |
| 147 |
Reputation Risk Management |
| 148 |
Capital Management | 54–60 | 149–158 |
Liquidity Risk Management | 61–65 | 159–164 |
HQLA | 61 | 160 |
Funding | 62–64 | 160–163 |
Credit ratings | 64–65 | 164 |
30
CREDIT RISK MANAGEMENT |
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. For a further discussion of the Firm's Credit Risk Management framework and organization, and the identification, monitoring and management of credit risks, see Credit Risk Management on pages 112–132 of JPMorgan Chase's 2015 Annual Report.
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 Notes 3 and 4 . For additional information on the Firm's loans, lending-related commitments and derivative receivables, including the Firm's accounting policies, see Notes 13 , 21 , and 5 , respectively.
For further information regarding the credit risk inherent in the Firm's cash placed with banks, see Wholesale credit exposure – industry exposure on pages 38–44 ; for information regarding the credit risk inherent in the Firm's investment securities portfolio, see Note 11 of this Form 10-Q, and Note 12 of JPMorgan Chase's 2015 Annual Report; and for information regarding the credit risk inherent in the securities financing portfolio, see Note 12 of this Form 10-Q, and Note 13 of JPMorgan Chase's 2015 Annual Report.
Total credit portfolio |
|
|
|
| |||||||||
| Credit exposure |
| Nonperforming (b)(c) | ||||||||||
(in millions) | Mar 31, | Dec 31, |
| Mar 31, | Dec 31, | ||||||||
Loans retained | $ | 844,195 | | $ | 832,792 | |
| $ | 7,367 | | $ | 6,303 | |
Loans held-for-sale | 1,195 | | 1,646 | |
| 61 | | 101 | | ||||
Loans at fair value | 1,923 | | 2,861 | |
| 7 | | 25 | | ||||
Total loans – reported | 847,313 | | 837,299 | |
| 7,435 | | 6,429 | | ||||
Derivative receivables | 70,209 | | 59,677 | |
| 212 | | 204 | | ||||
Receivables from customers and other | 16,294 | | 13,497 | |
| - | | - | | ||||
Total credit-related assets | 933,816 | | 910,473 | |
| 7,647 | | 6,633 | | ||||
Assets acquired in loan satisfactions |
|
|
|
|
| ||||||||
Real estate owned | NA | | NA | |
| 324 | | 347 | | ||||
Other | NA | | NA | |
| 52 | | 54 | | ||||
Total assets acquired in loan satisfactions | NA | | NA | |
| 376 | | 401 | | ||||
Total assets | 933,816 | | 910,473 | |
| 8,023 | | 7,034 | | ||||
Lending-related commitments | 960,434 | | 940,395 | |
| 722 | | 193 | | ||||
Total credit portfolio | $ | 1,894,250 | | $ | 1,850,868 | |
| $ | 8,745 | | $ | 7,227 | |
Credit derivatives used in credit portfolio management activities (a) | $ | (23,849 | ) | $ | (20,681 | ) |
| $ | (40 | ) | $ | (9 | ) |
Liquid securities and other cash collateral held against derivatives | (19,528 | ) | (16,580 | ) |
| NA | | NA | |
(in millions, except ratios) | Three months ended March 31, | |||||
2016 | | 2015 | | |||
Net charge-offs | $ | 1,110 | | $ | 1,052 | |
Average retained loans |
|
| ||||
Loans – reported | 836,449 | | 750,036 | | ||
Loans – reported, excluding residential real estate PCI loans | 796,055 | | 704,072 | | ||
Net charge-off rates |
|
| ||||
Loans – reported | 0.53 | % | 0.57 | % | ||
Loans – reported, excluding PCI | 0.56 | | 0.61 | |
(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 44 and Note 5 . |
(b) | Excludes PCI loans. The Firm is recognizing interest income on each pool of PCI loans as they are all performing. |
(c) | At March 31, 2016 , and December 31, 2015 , nonperforming assets excluded: (1) mortgage loans insured by U.S. government agencies of $5.7 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 $269 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 $360 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"). |
31
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. For further information on consumer loans, see Note 13 of this Form 10-Q and Consumer Credit Portfolio on pages 115–121 and Note 14 of JPMorgan Chase's 2015 Annual Report.
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.
Consumer credit portfolio |
|
|
|
|
|
| Three months ended March 31, | |||||||||||||||||||
(in millions, except ratios) | Credit exposure |
| Nonaccrual loans (h)(i) |
| Net charge-offs (j) |
| Average annual net charge-off rate (j)(k) | |||||||||||||||||||
Mar 31, |
| Dec 31, |
| Mar 31, | Dec 31, |
| 2016 | 2015 |
| 2016 | 2015 | |||||||||||||||
Consumer, excluding credit card |
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||
Loans, excluding PCI loans and loans held-for-sale |
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||
Home equity | $ | 43,932 | |
| $ | 45,559 | |
| $ | 2,153 | | 2,191 | |
| $ | 59 | | 91 | |
| 0.53 | % | 0.71 | % | ||
Residential mortgage | 176,106 | |
| 166,239 | |
| 2,423 | | 2,503 | |
| - | | 15 | |
| - | | 0.05 | | ||||||
Auto (a) | 62,937 | |
| 60,255 | |
| 102 | | 116 | |
| 67 | | 51 | |
| 0.44 | | 0.38 | | ||||||
Business banking (b) | 21,370 | |
| 21,208 | |
| 290 | | 263 | |
| 56 | | 59 | |
| 1.06 | | 1.19 | | ||||||
Student and other | 9,783 | |
| 10,096 | |
| 196 | | 242 | |
| 38 | | 48 | |
| 1.54 | | 1.79 | | ||||||
Total loans, excluding PCI loans and loans held-for-sale | 314,128 | |
| 303,357 | |
| 5,164 | | 5,315 | |
| 220 | | 264 | |
| 0.29 | | 0.42 | | ||||||
Loans – PCI |
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||
Home equity | 14,522 | |
| 14,989 | |
| NA | | NA | |
| NA | | NA | |
| NA | | NA | | ||||||
Prime mortgage | 8,594 | |
| 8,893 | |
| NA | | NA | |
| NA | | NA | |
| NA | | NA | | ||||||
Subprime mortgage | 3,174 | |
| 3,263 | |
| NA | | NA | |
| NA | | NA | |
| NA | | NA | | ||||||
Option ARMs (c) | 13,453 | |
| 13,853 | |
| NA | | NA | |
| NA | | NA | |
| NA | | NA | | ||||||
Total loans – PCI | 39,743 | |
| 40,998 | |
| NA | | NA | |
| NA | | NA | |
| NA | | NA | | ||||||
Total loans – retained | 353,871 | |
| 344,355 | |
| 5,164 | | 5,315 | |
| 220 | | 264 | |
| 0.25 | | 0.36 | | ||||||
Loans held-for-sale | 321 | | (g) | 466 | | (g) | 61 | | 98 | |
| - | | - | |
| - | | - | | ||||||
Total consumer, excluding credit card loans | 354,192 | |
| 344,821 | |
| 5,225 | | 5,413 | |
| 220 | | 264 | |
| 0.25 | | 0.36 | | ||||||
Lending-related commitments (d) | 60,744 | |
| 58,478 | |
|
|
|
|
|
|
|
|
| ||||||||||||
Receivables from customers (e) | 127 | |
| 125 | |
|
|
|
|
|
|
|
|
| ||||||||||||
Total consumer exposure, excluding credit card | 415,063 | |
| 403,424 | |
|
|
|
|
|
|
|
|
| ||||||||||||
Credit card |
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||
Loans retained (f) | 126,012 | |
| 131,387 | |
| - | | - | |
| 830 | | 789 | |
| 2.62 | | 2.62 | | ||||||
Loans held-for-sale | 78 | |
| 76 | |
| - | | - | |
| - | | - | |
| - | | - | | ||||||
Total credit card loans | 126,090 | |
| 131,463 | |
| - | | - | |
| 830 | | 789 | |
| 2.62 | | 2.62 | | ||||||
Lending-related commitments (d) | 532,224 | |
| 515,518 | |
|
|
|
|
|
|
|
|
| ||||||||||||
Total credit card exposure | 658,314 | |
| 646,981 | |
|
|
|
|
|
|
|
|
| ||||||||||||
Total consumer credit portfolio | $ | 1,073,377 | |
| $ | 1,050,405 | |
| $ | 5,225 | | $ | 5,413 | |
| $ | 1,050 | | $ | 1,053 | |
| 0.89 | % | 1.01 | % |
Memo: Total consumer credit portfolio, excluding PCI | $ | 1,033,634 | |
| $ | 1,009,407 | |
| $ | 5,225 | | $ | 5,413 | |
| $ | 1,050 | | $ | 1,053 | |
| 0.97 | % | 1.14 | % |
(a) | At March 31, 2016 , and December 31, 2015 , excluded operating lease assets of $10.0 billion and $9.2 billion , respectively. |
(b) | Predominantly includes Business Banking loans as well as deposit overdrafts. |
(c) | At March 31, 2016 , and December 31, 2015 , approximately 65% and 64% of the PCI option adjustable rate mortgage ("ARMs") portfolio has been modified into fixed-rate, fully amortizing loans, respectively. |
(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 retail brokerage customers, and are included in accrued interest and accounts receivable on the Consolidated balance sheets. |
(f) | Includes accrued interest and fees net of an allowance for the uncollectible portion of accrued interest and fee income. |
(g) | Predominantly represents prime mortgage loans held-for-sale. |
(h) | At March 31, 2016 , and December 31, 2015 , nonaccrual loans excluded: (1) mortgage loans insured by U.S. government agencies of $5.7 billion and $6.3 billion , respectively, that are 90 or more days past due; and (2) student loans insured by U.S. government agencies under the FFELP of $269 million and $290 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. |
(i) | Excludes PCI loans. The Firm is recognizing interest income on each pool of PCI loans as they are all performing. |
(j) | Net charge-offs and the net charge-off rates excluded write-offs in the PCI portfolio of $47 million and $55 million for the three months ended March 31, 2016 and 2015 , respectively. These write-offs decreased the allowance for loan losses for PCI loans. See Allowance for Credit Losses on pages 45–47 for further details. |
(k) | Average consumer loans held-for-sale were $425 million and $3.0 billion for the three months ended March 31, 2016 and 2015 , respectively. These amounts were excluded when calculating net charge-off rates. |
32
Consumer, excluding credit card
Portfolio analysis
Consumer loan balances increased during the three months ended March 31, 2016 , 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 13 .
Home equity: The home equity portfolio declined from the 2015 year-end primarily reflecting loan paydowns and charge-offs. Both early-stage and late-stage delinquencies showed improvement from December 31, 2015 . Nonaccrual loans decreased from December 31, 2015 primarily as a result of loss mitigation activities. Net charge-offs for the three months ended March 31, 2016 , declined when compared with the same period of the prior year as a result of improvement in home prices and delinquencies.
At March 31, 2016 , approximately 85% of the Firm's home equity portfolio consists of home equity lines of credit ("HELOCs") and the remainder consists of home equity loans ("HELOANs"). For further information on the Firm's home equity portfolio, see Note 13 of this Form 10-Q and Consumer Credit Portfolio on pages 115–121 of JPMorgan Chase's 2015 Annual Report.
The unpaid principal balance of HELOCs outstanding was $40 billion at March 31, 2016 . Of such amounts, approximately:
• | $12 billion have recast from interest-only to fully amortizing payments or have been modified, |
• | $20 billion are scheduled to recast from interest-only to fully amortizing payments in future periods, and |
• | $8 billion are interest-only balloon HELOCs, which primarily mature after 2030. |
The following chart illustrates the payment recast composition of the approximately $ 28 billion of HELOCs scheduled to recast in the future, based upon the contractual terms.
HELOCs scheduled to recast
(at March 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 probability of default and loss severity assumptions. As part of its allowance estimate, the Firm also expects that certain of the HELOCs scheduled to recast will voluntarily pre-pay prior to or after the recast event. Based on observed activity in recent years, the Firm expects approximately 25% of such HELOCs to voluntarily pre-pay. 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.
33
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 is neither delinquent nor modified. At March 31, 2016 , the Firm estimated that its home equity portfolio contained approximately $1.3 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). The Firm considers the increased probability of default associated with these high-risk seconds in estimating the allowance for loan losses and classifies these loans 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 liens 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 13.
Residential mortgage: The residential mortgage portfolio predominantly consists of prime-quality credits with a small component of 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 prior experience. The residential mortgage portfolio, including loans held-for-sale, increased from December 31, 2015 due to retained originations of high-quality prime mortgage loans partially offset by paydowns and the charge-off or liquidation of delinquent loans. Originations for the three months ended March 31, 2016 were primarily prime-quality fixed interest rate loans, and included both jumbo and conforming loans. Both early-stage and late-stage delinquencies showed improvement from December 31, 2015 . Nonaccrual loans decreased from December 31, 2015 primarily as a result of loss mitigation activities. Net charge-offs for the three months ended March 31, 2016 remain low, reflecting continued improvement in home prices and delinquencies.
At March 31, 2016 , and December 31, 2015 , the Firm's residential mortgage portfolio included $10.8 billion and $11.1 billion , respectively, of mortgage loans insured and/or guaranteed by U.S. government agencies, of which $7.6 billion and $8.4 billion , respectively, were 30 days or more past due (of these past due loans, $5.7 billion and $6.3 billion , respectively, were 90 days or more past due). The Firm monitors its exposure to any potential unrecoverable claim payments for government insured loans and considers this exposure in estimating the allowance for loan losses, where appropriate. The financial impact related to exposure for future claims of government guaranteed loans is not expected to be significant.
At March 31, 2016 , and December 31, 2015 , the Firm's residential mortgage portfolio included $17.9 billion and $17.7 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 prime mortgage portfolio and the Firm's expectations. The Firm continues to monitor the risks associated with these loans.
Auto: Auto loans increased compared with December 31, 2015 , as new originations outpaced paydowns and payoffs. Nonaccrual loans decreased compared with December 31, 2015 . Net charge-offs for the three months ended March 31, 2016 increased compared with the same period of 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 compared with December 31, 2015 due to growth in loan originations. Nonaccrual loans increased compared with December 31, 2015 . Net charge-offs for the three months ended March 31, 2016 decreased from prior year due to continued discipline in credit underwriting.
Student and other: Student and other loans decreased from December 31, 2015 , 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 the student loan portfolio.
34
Purchased credit-impaired loans: PCI loans decreased as the portfolio continues to run off.
As of March 31, 2016 , approximately 13% of the option ARM PCI loans were delinquent and approximately 65% 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.
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) |
| LTD liquidation losses (b) | ||||||||||||
(in billions) | Mar 31, |
| Dec 31, |
| Mar 31, |
| Dec 31, | ||||||||
Home equity | $ | 14.6 | |
| $ | 14.5 | |
| $ | 12.7 | |
| $ | 12.7 | |
Prime mortgage | 4.0 | |
| 4.0 | |
| 3.7 | |
| 3.7 | | ||||
Subprime mortgage | 3.2 | |
| 3.3 | |
| 3.0 | |
| 3.0 | | ||||
Option ARMs | 10.1 | |
| 10.0 | |
| 9.6 | |
| 9.5 | | ||||
Total | $ | 31.9 | |
| $ | 31.8 | |
| $ | 29.0 | |
| $ | 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 $1.4 billion and $1.5 billion at March 31, 2016 , and December 31, 2015 , respectively. |
(b) | Life-to-date ("LTD") liquidation losses represent both realization of loss upon loan resolution and any principal forgiven upon modification. |
Current estimated LTVs 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 March 31, 2016 , compared with 59% at December 31, 2015 . The current estimated average LTV ratio for residential real estate PCI loans, based on the unpaid principal balances, was 67% at March 31, 2016 , compared with 69% at December 31, 2015 .
Average LTV ratios have declined consistent with recent improvements in home prices. For further information on current estimated LTVs on residential real estate loans, see Note 13 .
Geographic composition of residential real estate loans
For information on the geographic composition of the Firm's residential real estate loans, see Note 13 .
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. 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), as measured through cumulative redefault rates, was not materially different from December 31, 2015. For further information on the Firm's cumulative redefault rates see Consumer Credit Portfolio on pages 115-121 of JPMorgan Chase's 2015 Annual Report.
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 beginning 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. The carrying value of non-PCI loans modified in step-rate modifications was $4 billion at March 31, 2016 . The unpaid principal balance of PCI loans modified in step-rate modifications was $10 billion at March 31, 2016 . 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.
35
The following table presents information as of March 31, 2016 , and December 31, 2015 , relating to modified retained residential real estate loans for which concessions have been granted to borrowers experiencing financial difficulty. For further information on modifications for the three months ended March 31, 2016 and 2015 , see
Note 13 .
Modified residential real estate loans | |||||||||||||
| March 31, 2016 |
| December 31, 2015 | ||||||||||
(in millions) | Retained loans | Non-accrual |
| Retained loans | Non-accrual | ||||||||
Modified residential real estate loans, excluding PCI loans (a)(b) |
|
|
|
|
| ||||||||
Home equity | $ | 2,362 | | 1,211 | |
| $ | 2,358 | | 1,220 | | ||
Residential mortgage | 6,530 | | 1,883 | |
| 6,690 | | 1,957 | | ||||
Total modified residential real estate loans, excluding PCI loans | $ | 8,892 | | $ | 3,094 | |
| $ | 9,048 | | $ | 3,177 | |
Modified PCI loans (c) |
|
|
|
|
| ||||||||
Home equity | $ | 2,523 | | NA | |
| $ | 2,526 | | NA | | ||
Prime mortgage | 5,546 | | NA | |
| 5,686 | | NA | | ||||
Subprime mortgage | 3,156 | | NA | |
| 3,242 | | NA | | ||||
Option ARMs | 10,164 | | NA | |
| 10,427 | | NA | | ||||
Total modified PCI loans | $ | 21,389 | | NA | |
| $ | 21,881 | | NA | |
(a) | Amounts represent the carrying value of modified residential real estate loans. |
(b) | At both March 31, 2016 , and December 31, 2015 , $3.8 billion 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 15 .
(c) | Amounts represent the unpaid principal balance of modified PCI loans. |
(d) | As of both March 31, 2016 , and December 31, 2015 , nonaccrual loans included $2.5 billion of troubled debt restructurings ("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 13 . |
Nonperforming assets
The following table presents information as of March 31, 2016 , and December 31, 2015 , about consumer, excluding credit card, nonperforming assets.
Nonperforming assets (a) |
|
|
| ||||
(in millions) | March 31, |
| December 31, | ||||
Nonaccrual loans (b) |
|
|
| ||||
Residential real estate | $ | 4,637 | |
| $ | 4,792 | |
Other consumer | 588 | |
| 621 | | ||
Total nonaccrual loans | 5,225 | |
| 5,413 | | ||
Assets acquired in loan satisfactions |
|
|
| ||||
Real estate owned | 260 | |
| 277 | | ||
Other | 47 | |
| 48 | | ||
Total assets acquired in loan satisfactions | 307 | |
| 325 | | ||
Total nonperforming assets | $ | 5,532 | |
| $ | 5,738 | |
(a) | At March 31, 2016 , and December 31, 2015 , nonperforming assets excluded: (1) mortgage loans insured by U.S. government agencies of $5.7 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 $269 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 $360 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. Because the Firm is recognizing interest income on each pool of loans, they are all considered to be performing. |
36
Nonaccrual loans in the residential real estate portfolio decreased to $4.6 billion at March 31, 2016 from $4.8 billion at December 31, 2015 , of which 30% 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 March 31, 2016 , and December 31, 2015 , respectively.
Active and suspended foreclosure: For information on loans that were in the process of active or suspended foreclosure, see Note 13 .
Nonaccrual loans: The following table presents changes in consumer, excluding credit card, nonaccrual loans for the three months ended March 31, 2016 and 2015 .
Nonaccrual loans |
|
| |||||
Three months ended March 31, |
|
|
| ||||
(in millions) |
| 2016 | 2015 | ||||
Beginning balance |
| $ | 5,413 | | $ | 6,509 | |
Additions |
| 903 | | 980 | | ||
Reductions: |
|
| | | |||
Principal payments and other (a) |
| 342 | | 442 | | ||
Charge-offs |
| 195 | | 211 | | ||
Returned to performing status |
| 442 | | 450 | | ||
Foreclosures and other liquidations |
| 112 | | 145 | | ||
Total reductions |
| 1,091 | | 1,248 | | ||
Net additions/(reductions) |
| (188 | ) | (268 | ) | ||
Ending balance |
| $ | 5,225 | | $ | 6,241 | |
(a) | Other reductions includes loan sales. |
Credit Card
Total credit card loans decreased from December 31, 2015 due to seasonality. The March 31, 2016 30+ day delinquency rate increased to 1.45% from 1.43% at December 31, 2015 , but remains near record lows. For both the three months ended March 31, 2016 and 2015 , the net charge-off rate was 2.62% . The credit card portfolio continues to reflect a well-seasoned, largely rewards-based portfolio that has good U.S. geographic diversification. For information on the geographic composition of the Firm's credit card loans, see Note 13 .
Modifications of credit card loans
At March 31, 2016 , and December 31, 2015 , the Firm had $1.4 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 interest and fee income.
For additional information about loan modification
programs to borrowers, see Note 13 .
37
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 and Natural Gas Pipelines portfolios, and Metals & Mining portfolio, continued to be generally stable for the three months ended March 31, 2016, characterized by low levels of criticized exposure, nonaccrual loans and charge-offs. See industry discussion on pages 40–42 for further information. 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 | |||||||||||||
| Credit exposure |
| Nonperforming (c) | ||||||||||
(in millions) | Mar 31, | Dec 31, |
| Mar 31, | Dec 31, | ||||||||
Loans retained | $ | 364,312 | | $ | 357,050 | |
| $ | 2,203 | | $ | 988 | |
Loans held-for-sale | 796 | | 1,104 | |
| - | | 3 | | ||||
Loans at fair value | 1,923 | | 2,861 | |
| 7 | | 25 | | ||||
Loans – reported | 367,031 | | 361,015 | |
| 2,210 | | 1,016 | | ||||
Derivative receivables | 70,209 | | 59,677 | |
| 212 | | 204 | | ||||
Receivables from customers and other (a) | 16,167 | | 13,372 | |
| - | | - | | ||||
Total wholesale credit-related assets | 453,407 | | 434,064 | |
| 2,422 | | 1,220 | | ||||
Lending-related commitments | 367,466 | | 366,399 | |
| 722 | | 193 | | ||||
Total wholesale credit exposure | $ | 820,873 | | $ | 800,463 | |
| $ | 3,144 | | $ | 1,413 | |
Credit derivatives used in credit portfolio management activities (b) | $ | (23,849 | ) | $ | (20,681 | ) |
| $ | (40 | ) | $ | (9 | ) |
Liquid securities and other cash collateral held against derivatives | (19,528 | ) | (16,580 | ) |
| NA | | NA | |
(a) | Receivables from customers and other include $16.1 billion and $13.3 billion of margin loans at March 31, 2016 , and December 31, 2015 , 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 44 , and Note 5 . |
(c) | Excludes assets acquired in loan satisfactions. |
38
The following tables present the maturity and ratings profiles of the wholesale credit portfolio as of March 31, 2016 , and December 31, 2015 . 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 of JPMorgan Chase's 2015 Annual Report.
Wholesale credit exposure – maturity and ratings profile |
|
|
|
|
|
| |||||||||||||||||||
| Maturity profile (e) |
| Ratings profile | ||||||||||||||||||||||
March 31, 2016 | 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 | |||||||||||||||
(in millions, except ratios) |
| AAA/Aaa to BBB-/Baa3 |
| BB+/Ba1 & below | |||||||||||||||||||||
Loans retained | $ | 112,671 | | $ | 159,501 | | $ | 92,140 | | $ | 364,312 | |
| $ | 269,693 | |
| $ | 94,619 | | $ | 364,312 | | 74 | % |
Derivative receivables |
|
|
| 70,209 | |
|
|
|
| 70,209 | |
| |||||||||||||
Less: Liquid securities and other cash collateral held against derivatives |
|
|
| (19,528 | ) |
|
|
|
| (19,528 | ) |
| |||||||||||||
Total derivative receivables, net of all collateral | 13,961 | | 12,228 | | 24,492 | | 50,681 | |
| 41,944 | |
| 8,737 | | 50,681 | | 83 | | |||||||
Lending-related commitments | 104,953 | | 251,818 | | 10,695 | | 367,466 | |
| 270,600 | |
| 96,866 | | 367,466 | | 74 | | |||||||
Subtotal | 231,585 | | 423,547 | | 127,327 | | 782,459 | |
| 582,237 | |
| 200,222 | | 782,459 | | 74 | | |||||||
Loans held-for-sale and loans at fair value (a) |
|
|
| 2,719 | |
|
|
|
| 2,719 | |
| |||||||||||||
Receivables from customers and other |
|
|
| 16,167 | |
|
|
|
| 16,167 | |
| |||||||||||||
Total exposure – net of liquid securities and other cash collateral held against derivatives |
|
|
| $ | 801,345 | |
|
|
|
| $ | 801,345 | |
| |||||||||||
Credit derivatives used in credit portfolio management activities by reference entity ratings profile (b)(c)(d) | $ | (2,411 | ) | $ | (11,515 | ) | $ | (9,923 | ) | $ | (23,849 | ) |
| $ | (20,252 | ) |
| $ | (3,597 | ) | $ | (23,849 | ) | 85 | % |
| Maturity profile (e) |
| Ratings profile | ||||||||||||||||||||||
December 31, 2015 | 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 | |||||||||||||||
(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 | % |
(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. |
(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 the remaining contractual maturity. Derivative contracts that are in a receivable position at March 31, 2016 , may become 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 $21.2 billion at March 31, 2016 , compared with $14.6 billion at December 31, 2015 , driven by downgrades, including within the Oil & Gas and Natural Gas Pipelines portfolios, and in the Metals & Mining portfolio.
39
Below are summaries of the Firm's exposures as of March 31, 2016 , and December 31, 2015 . For additional information on industry concentrations, see Note 5 of JPMorgan Chase's 2015 Annual Report.
Wholesale credit exposure – industries (a) |
|
|
|
|
| Selected metrics | |||||||||||||||||||||||
|
|
|
|
|
|
|
| 30 days or more past due and accruing | Net charge-offs/ | Credit derivative hedges (f) | Liquid securities | ||||||||||||||||||
|
|
|
| Noninvestment-grade | |||||||||||||||||||||||||
As of or for the three months ended | Credit exposure (e) | Investment- grade |
| Noncriticized |
| Criticized performing | Criticized nonperforming | ||||||||||||||||||||||
March 31, 2016 | |||||||||||||||||||||||||||||
(in millions) | |||||||||||||||||||||||||||||
Real Estate | $ | 120,545 | | $ | 91,291 | |
| $ | 27,650 | |
| $ | 1,351 | | $ | 253 | | $ | 168 | | $ | (2 | ) | $ | (145 | ) | $ | (114 | ) |
Consumer & Retail | 84,131 | | 53,216 | |
| 28,489 | |
| 2,200 | | 226 | | 57 | | 8 | | (767 | ) | (36 | ) | |||||||||
Technology, Media & | 59,516 | | 30,346 | |
| 27,860 | |
| 1,304 | | 6 | | 10 | | 2 | | (961 | ) | (55 | ) | |||||||||
Industrials | 55,028 | | 36,647 | |
| 17,130 | |
| 1,162 | | 89 | | 54 | | - | | (797 | ) | (19 | ) | |||||||||
Healthcare | 46,658 | | 38,903 | |
| 7,165 | |
| 543 | | 47 | | 190 | | (1 | ) | (265 | ) | (320 | ) | |||||||||
Banks & Finance Cos | 42,811 | | 34,858 | |
| 7,316 | |
| 627 | | 10 | | 13 | | (1 | ) | (1,332 | ) | (6,347 | ) | |||||||||
Oil & Gas | 40,724 | | 19,146 | |
| 11,836 | |
| 8,033 | | 1,709 | | 3 | | 46 | | (874 | ) | (24 | ) | |||||||||
Utilities | 35,954 | | 29,580 | |
| 5,834 | |
| 401 | | 139 | | - | | - | | (278 | ) | (272 | ) | |||||||||
State & Municipal Govt (b) | 29,374 | | 28,609 | |
| 696 | |
| 6 | | 63 | | 1 | | - | | (147 | ) | (124 | ) | |||||||||
Asset Managers | 26,018 | | 22,102 | |
| 3,895 | |
| 21 | | - | | 8 | | - | | (5 | ) | (4,860 | ) | |||||||||
Central Govt | 22,938 | | 22,570 | |
| 343 | |
| 24 | | 1 | | 2 | | - | | (10,209 | ) | (3,335 | ) | |||||||||
Transportation | 18,697 | | 12,964 | |
| 5,534 | |
| 199 | | - | | 44 | | - | | (137 | ) | (248 | ) | |||||||||
Chemicals/Plastics | 15,992 | | 11,903 | |
| 3,841 | |
| 217 | | 31 | | - | | - | | (125 | ) | - | | |||||||||
Automotive | 14,245 | | 9,199 | |
| 4,831 | |
| 214 | | 1 | | 19 | | - | | (502 | ) | (1 | ) | |||||||||
Metals & Mining | 13,648 | | 5,025 | |
| 6,924 | |
| 1,477 | | 222 | | 4 | | 1 | | (473 | ) | (3 | ) | |||||||||
Insurance | 12,203 | | 10,408 | |
| 1,627 | |
| 62 | | 106 | | 35 | | - | | (306 | ) | (1,554 | ) | |||||||||
Financial Markets Infrastructure | 8,909 | | 7,965 | |
| 944 | |
| - | | - | | - | | - | | - | | (172 | ) | |||||||||
Securities Firms | 4,730 | | 1,517 | |
| 3,201 | |
| 12 | | - | | - | | - | | (118 | ) | (566 | ) | |||||||||
All other (c) | 149,866 | | 132,993 | |
| 16,460 | |
| 179 | | 234 | | 1,096 | | 7 | | (6,408 | ) | (1,478 | ) | |||||||||
Subtotal | $ | 801,987 | | $ | 599,242 | |
| $ | 181,576 | |
| $ | 18,032 | | $ | 3,137 | | $ | 1,704 | | $ | 60 | | $ | (23,849 | ) | $ | (19,528 | ) |
Loans held-for-sale and loans at fair value | 2,719 | |
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Receivables from customers and interests in purchased receivables | 16,167 | |
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Total (d) | $ | 820,873 | |
|
|
|
|
|
|
|
|
|
|
40
| | | | | | | | Selected metrics | |||||||||||||||||||||
| | | | | | | | 30 days or more past due and accruing | Net | Credit derivative hedges (f) | Liquid securities | ||||||||||||||||||
| | | | Noninvestment-grade | |||||||||||||||||||||||||
As of or for the year ended | Credit | Investment- grade | | Noncriticized | | Criticized performing | Criticized nonperforming | ||||||||||||||||||||||
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 & | 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 | ) | |||||||||
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 | ) | |||||||||
Chemicals/Plastics | 15,232 | | 10,910 | | | 4,017 | | | 274 | | 31 | | 9 | | - | | (17 | ) | - | | |||||||||
Automotive | 13,864 | | 9,182 | | | 4,580 | | | 101 | | 1 | | 4 | | (2 | ) | (487 | ) | (1 | ) | |||||||||
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 interests in purchased receivables | 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 March 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 March 31, 2016 , and December 31, 2015 , noted above, the Firm held: $8.1 billion and $ 7.6 billion , respectively, of trading securities; $33.4 billion and $33.6 billion , respectively, of available-for-sale ("AFS") securities; and $12.8 billion of held-to-maturity ("HTM") securities, issued by U.S. state and municipal governments. For further information, see Note 5 and Note 11 . |
(c) | All other includes: individuals; SPEs; holding companies; and private education and civic organizations, representing approximately 53%, 37%, 6% and 4%, respectively, at March 31, 2016 , and 54%, 37%, 5% and 4% respectively, at December 31, 2015 .. |
(d) | Excludes cash placed with banks of $369.1 billion and $351.0 billion, at March 31, 2016 , and December 31, 2015 , 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. |
41
Presented below is a discussion of certain industries to which the Firm has significant exposures and which present actual or potential credit concerns.
Oil & Gas and Natural Gas Pipelines
The following table presents Oil & Gas and Natural Gas Pipeline exposures as of March 31, 2016, and December 31, 2015.
| March 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) | $ | 22,436 | |
| $ | 414 | |
| $ | 22,850 | |
| 27 | % |
| 41 | % |
|
Other Oil & Gas (b) | 16,892 | |
| 982 | |
| 17,874 | |
| 73 | |
| 27 | |
| |||
Total Oil & Gas | 39,328 | |
| 1,396 | |
| 40,724 | |
| 47 | |
| 35 | |
| |||
Natural Gas Pipelines (c) | 6,952 | |
| 191 | |
| 7,143 | |
| 73 | |
| 17 | |
| |||
Total Oil & Gas and Natural Gas Pipelines | $ | 46,280 | |
| $ | 1,587 | |
| $ | 47,867 | |
| 51 | |
| 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 industries was approximately 5.8% of the Firm's total wholesale exposure as of March 31, 2016 and December 31, 2015. Exposure to these industries increased by $1.5 billion during the three months ended March 31, 2016 to $47.9 billion; of the $47.9 billion, $15.3 billion was drawn. As of March 31, 2016, approximately $24.4 billion of the exposure was investment grade, of which $4.6 billion was drawn, and approximately $23.5 billion of the exposure was noninvestment grade, of which $10.7 billion was drawn; 21% of the 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 $14.2 billion as of March 31, 2016; 45% 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 approximately $4 billion as of March 31, 2016. 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 and geographies.
Metals & Mining : Exposure to the Metals & Mining industry was approximately 1.7% and 1.8% of the Firm's total wholesale exposure as of March 31, 2016, and December 31, 2015, respectively. Exposure to the Metals & Mining industry decreased by $401 million during the three months ended March 31, 2016 to $13.6 billion, of which $4.9 billion was drawn. The portfolio largely consisted of exposure in North America, and was concentrated in the Steel and Diversified Mining sub-sectors. Approximately 37% and 46% of the exposure in the Metals & Mining portfolio was investment-grade as of March 31, 2016 , and December 31, 2015 , respectively.
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 13 .
The following table presents the change in the nonaccrual loan portfolio for the three months ended March 31, 2016 and 2015 .
Wholesale nonaccrual loan activity (a) | |||||||
Three months ended March 31, |
|
|
| ||||
(in millions) |
| 2016 | | 2015 | | ||
Beginning balance |
| $ | 1,016 | | $ | 624 | |
Additions |
| 1,412 | | 418 | | ||
Reductions: |
|
|
| ||||
Paydowns and other |
| 104 | | 162 | | ||
Gross charge-offs |
| 69 | | 28 | | ||
Returned to performing status |
| 21 | | 132 | | ||
Sales |
| 24 | | - | | ||
Total reductions |
| 218 | | 322 | | ||
Net changes |
| 1,194 | | 96 | | ||
Ending balance |
| $ | 2,210 | | $ | 720 | |
(a) | Loans are placed on nonaccrual status when management believes full payment of principal and interest is not expected, regardless of delinquency status, or when principal and 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. |
42
The following table presents net charge-offs/recoveries, which are defined as gross charge-offs less recoveries, for the three months ended March 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) | ||||||
(in millions, except ratios) | Three months ended | |||||
2016 | | 2015 | | |||
Loans – reported |
|
| ||||
Average loans retained | $ | 360,306 | | $ | 327,895 | |
Gross charge-offs | 69 | | 29 | | ||
Gross recoveries | (9 | ) | (30 | ) | ||
Net charge-offs/(recoveries) | 60 | | (1 | ) | ||
Net charge-off/(recovery) rate | 0.07 | % | - | % |
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 wholesale lending-related commitments was $215.7 billion and $212.4 billion as of March 31, 2016 , and December 31, 2015 , respectively.
Derivative contracts
In the normal course of business, the Firm uses derivative instruments predominantly for market-making activities. Derivatives enable clients 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. For further discussion of derivative contracts, see Note 5 .
The following table summarizes the net derivative receivables for the periods presented.
Derivative receivables |
|
| ||||
(in millions) | Derivative receivables | |||||
March 31, | December 31, | |||||
Interest rate | $ | 35,610 | | $ | 26,363 | |
Credit derivatives | 1,094 | | 1,423 | | ||
Foreign exchange | 18,932 | | 17,177 | | ||
Equity | 6,265 | | 5,529 | | ||
Commodity | 8,308 | | 9,185 | | ||
Total, net of cash collateral | 70,209 | | 59,677 | | ||
Liquid securities and other cash collateral held against derivative receivables (a) | (19,528 | ) | (16,580 | ) | ||
Total, net of collateral | $ | 50,681 | | $ | 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 $70.2 billion and $59.7 billion at March 31, 2016 , and December 31, 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 $19.5 billion and $16.6 billion at March 31, 2016 , and December 31, 2015 , respectively, that may be used as security when the fair value of the client's exposure is in the Firm's favor. The increase in derivative receivables was predominantly related to client-driven market-making activities in CIB, which resulted in higher interest rate and foreign exchange derivative receivables, driven by market movements.
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 5 .
43
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 | March 31, 2016 |
| December 31, 2015 | ||||||||
(in millions, except ratios) | Exposure net of collateral | % of exposure net of collateral |
| Exposure net of collateral | % of exposure net of collateral | ||||||
AAA/Aaa to AA-/Aa3 | $ | 13,312 | | 26 | % |
| $ | 10,371 | | 24 | % |
A+/A1 to A-/A3 | 12,137 | | 24 | |
| 10,595 | | 25 | | ||
BBB+/Baa1 to BBB-/Baa3 | 16,495 | | 33 | |
| 13,807 | | 32 | | ||
BB+/Ba1 to B-/B3 | 7,987 | | 16 | |
| 7,500 | | 17 | | ||
CCC+/Caa1 and below | 750 | | 1 | |
| 824 | | 2 | | ||
Total | $ | 50,681 | | 100 | % |
| $ | 43,097 | | 100 | % |
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% for both March 31, 2016 , and December 31, 2015 , respectively.
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 5 of this Form
10-Q, and Note 6 of JPMorgan Chase's 2015 Annual Report.
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 5 of this Form 10-Q , and Note 6 of JPMorgan Chase's 2015 Annual Report.
Credit derivatives used in credit portfolio management activities | |||||||
| Notional amount of protection purchased and sold (a) | ||||||
(in millions) | March 31, 2016 |
| December 31, | ||||
Credit derivatives used to manage: |
|
|
| ||||
Loans and lending-related commitments | $ | 2,388 | |
| $ | 2,289 | |
Derivative receivables | 21,461 | |
| 18,392 | | ||
Credit portfolio management derivatives notional, net | $ | 23,849 | |
| $ | 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. |
44
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 66–67 and Note 14 of this Form 10-Q, and Critical Accounting Estimates Used by the Firm on pages 165–169 and Note 15 of JPMorgan Chase's 2015 Annual Report.
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 Board of Directors' Risk Policy Committee ("DRPC") and the Audit Committee of the Board of Directors. As of March 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 was relatively unchanged from December 31, 2015 , reflecting stable credit quality trends and for the consumer, excluding credit card allowance, improved credit quality of the loan portfolio, primarily driven by originations of high-quality mortgages and the run-off of lower-quality legacy portfolios. For additional information about delinquencies and nonaccrual loans in the consumer, excluding credit card, loan portfolio, see Consumer Credit Portfolio on pages 32–37 and Note 13 .
The wholesale allowance for credit losses increased from December 31, 2015 , primarily driven by downgrades in the Oil & Gas and Natural Gas Pipelines portfolios, and in the Metals & Mining portfolio. Excluding these portfolios, the wholesale portfolio continued to experience generally stable credit quality trends and low charge-off rates.
45
Summary of changes in the allowance for credit losses |
|
|
|
|
| ||||||||||||||||||||
| 2016 |
| 2015 | ||||||||||||||||||||||
Three months ended March 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 | 365 | | 923 | | 69 | | 1,357 | |
| 440 | | 883 | | 29 | | 1,352 | | ||||||||
Gross recoveries | (145 | ) | (93 | ) | (9 | ) | (247 | ) |
| (176 | ) | (94 | ) | (30 | ) | (300 | ) | ||||||||
Net charge-offs/(recoveries) | 220 | | 830 | | 60 | | 1,110 | |
| 264 | | 789 | | (1 | ) | 1,052 | | ||||||||
Write-offs of PCI loans (a) | 47 | | - | | - | | 47 | |
| 55 | | - | | - | | 55 | | ||||||||
Provision for loan losses | 221 | | 830 | | 545 | | 1,596 | |
| 141 | | 789 | | 58 | | 988 | | ||||||||
Other | - | | - | | - | | - | |
| - | | (5 | ) | 4 | | (1 | ) | ||||||||
Ending balance at March 31, | $ | 5,760 | | $ | 3,434 | | $ | 4,800 | | $ | 13,994 | |
| $ | 6,872 | | $ | 3,434 | | $ | 3,759 | | $ | 14,065 | |
Impairment methodology |
|
|
|
|
|
|
|
|
| ||||||||||||||||
Asset-specific (b) | $ | 371 | | $ | 427 | | $ | 565 | | $ | 1,363 | |
| $ | 537 | | $ | 458 | | $ | 115 | | $ | 1,110 | |
Formula-based | 2,694 | | 3,007 | | 4,235 | | 9,936 | |
| 3,065 | | 2,976 | | 3,644 | | 9,685 | | ||||||||
PCI | 2,695 | | - | | - | | 2,695 | |
| 3,270 | | - | | - | | 3,270 | | ||||||||
Total allowance for loan losses | $ | 5,760 | | $ | 3,434 | | $ | 4,800 | | $ | 13,994 | |
| $ | 6,872 | | $ | 3,434 | | $ | 3,759 | | $ | 14,065 | |
Allowance for lending-related commitments |
|
|
|
|
|
|
|
|
| ||||||||||||||||
Beginning balance at January 1, | $ | 14 | | $ | - | | $ | 772 | | $ | 786 | |
| $ | 13 | | $ | - | | $ | 609 | | $ | 622 | |
Provision for lending-related commitments | - | | - | | 228 | | 228 | |
| 1 | | - | | (30 | ) | (29 | ) | ||||||||
Ending balance at March 31, | $ | 14 | | $ | - | | $ | 1,000 | | $ | 1,014 | |
| $ | 14 | | $ | - | | $ | 579 | | $ | 593 | |
Impairment methodology |
|
|
|
|
|
|
|
|
| ||||||||||||||||
Asset-specific | $ | - | | $ | - | | $ | 192 | | $ | 192 | |
| $ | - | | $ | - | | $ | 55 | | $ | 55 | |
Formula-based | 14 | | - | | 808 | | 822 | |
| 14 | | - | | 524 | | 538 | | ||||||||
Total allowance for lending-related commitments (c) | $ | 14 | | $ | - | | $ | 1,000 | | $ | 1,014 | |
| $ | 14 | | $ | - | | $ | 579 | | $ | 593 | |
Total allowance for credit losses | $ | 5,774 | | $ | 3,434 | | $ | 5,800 | | $ | 15,008 | |
| $ | 6,886 | | $ | 3,434 | | $ | 4,338 | | $ | 14,658 | |
Memo: |
|
|
|
|
|
|
|
|
| ||||||||||||||||
Retained loans, end of period | $ | 353,871 | | $ | 126,012 | | $ | 364,312 | | $ | 844,195 | |
| $ | 304,917 | | $ | 120,835 | | $ | 331,219 | | $ | 756,971 | |
Retained loans, average | 348,916 | | 127,227 | | 360,306 | | 836,449 | |
| 299,789 | | 122,352 | | 327,895 | | 750,036 | | ||||||||
PCI loans, end of period | 39,743 | | - | | 4 | | 39,747 | |
| 45,356 | | - | | 4 | | 45,360 | | ||||||||
Credit ratios |
|
|
|
|
|
|
|
|
| ||||||||||||||||
Allowance for loan losses to retained loans | 1.63 | % | 2.73 | % | 1.32 | % | 1.66 | % |
| 2.25 | % | 2.84 | % | 1.13 | % | 1.86 | % | ||||||||
Allowance for loan losses to retained nonaccrual loans (d) | 112 | | NM | 218 | | 190 | |
| 110 | | NM | 540 | | 203 | | ||||||||||
Allowance for loan losses to retained nonaccrual loans excluding credit card | 112 | | NM | 218 | | 143 | |
| 110 | | NM | 540 | | 154 | | ||||||||||
Net charge-off/(recovery) rates | 0.25 | | 2.62 | | 0.07 | | 0.53 | |
| 0.36 | | 2.62 | | - | | 0.57 | | ||||||||
Credit ratios, excluding residential real estate PCI loans |
|
|
|
|
|
|
|
|
| ||||||||||||||||
Allowance for loan losses to retained loans | 0.98 | | 2.73 | | 1.32 | | 1.40 | |
| 1.39 | | 2.84 | | 1.13 | | 1.52 | | ||||||||
Allowance for loan losses to retained nonaccrual loans (d) | 59 | | NM | 218 | | 153 | |
| 58 | | NM | 540 | | 156 | | ||||||||||
Allowance for loan losses to retained nonaccrual loans excluding credit card | 59 | | NM | 218 | | 107 | |
| 58 | | NM | 540 | | 106 | | ||||||||||
Net charge-off/(recovery) rates | 0.29 | % | 2.62 | % | 0.07 | % | 0.56 | % |
| 0.42 | % | 2.62 | % | - | % | 0.61 | % |
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 14–15 .
(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. |
46
Provision for credit losses
For the three months ended March 31, 2016 , the provision for credit losses was $1.8 billion compared with $959 million in the prior year.
The total consumer provision for credit losses for the three months ended March 31, 2016 increased when compared with the prior year, as the prior year included a reduction in the allowance for loan losses.
The wholesale provision for credit losses for the three months ended March 31, 2016 increased from the prior year reflecting the impact of downgrades in the Oil & Gas and Natural Gas Pipelines portfolios, and in the Metals & Mining portfolio.
| Three months ended March 31, | |||||||||||||||||||
| Provision for loan losses |
| Provision for lending-related commitments |
| Total provision for credit losses | |||||||||||||||
(in millions) | 2016 | | 2015 | |
| 2016 | | 2015 | |
| 2016 | | 2015 | | ||||||
Consumer, excluding credit card | $ | 221 | | $ | 141 | |
| $ | - | | $ | 1 | |
| $ | 221 | | $ | 142 | |
Credit card | 830 | | 789 | |
| - | | - | |
| 830 | | 789 | | ||||||
Total consumer | 1,051 | | 930 | |
| - | | 1 | |
| 1,051 | | 931 | | ||||||
Wholesale | 545 | | 58 | |
| 228 | | (30 | ) |
| 773 | | 28 | | ||||||
Total | $ | 1,596 | | $ | 988 | |
| $ | 228 | | $ | (29 | ) |
| $ | 1,824 | | $ | 959 | |
47
MARKET RISK MANAGEMENT |
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. For a discussion of the Firm's market risk management organization, risk identification and classification, tools used to measure risk, and risk monitoring and control, see Market Risk Management on pages 133–139 of JPMorgan Chase's 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.
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.
In addition, 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 uses alternative methods to capture and measure those risk parameters that are not otherwise captured in VaR, including economic-value stress testing and nonstatistical measures. For further information, see Market Risk Management on pages 133–139 of the 2015 Annual Report.
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. For information regarding model reviews and approvals, see Model Risk Management on page 142 of the 2015 Annual Report.
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. For risk management purposes, the Firm believes this methodology 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 to respond to risk events on a daily basis. 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. For further information regarding the key differences between Risk Management VaR and Regulatory VaR, see page 135 of the 2015 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 Pillar 3 Regulatory Capital Disclosures reports, which are available on the Firm's website at:
(http://investor.shareholder.com/jpmorganchase/basel.cfm).
48
The table below shows the results of the Firm's Risk Management VaR measure using a 95% confidence level.
Total VaR | Three months ended March 31, |
|
|
|
|
| ||||||||||||||||||||||||||||
| 2016 |
| 2015 |
| At March 31, |
| ||||||||||||||||||||||||||||
(in millions) | Avg. | Min | Max |
| Avg. | Min | Max |
| 2016 |
| 2015 |
| ||||||||||||||||||||||
CIB trading VaR by risk type |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Fixed income | $ | 46 | |
| $ | 36 | |
| $ | 64 | |
|
| $ | 35 | |
| $ | 31 | |
| $ | 42 | |
|
| $ | 41 | |
| $ | 40 | |
|
Foreign exchange | 9 | |
| 7 | |
| 14 | |
|
| 9 | |
| 7 | |
| 12 | |
|
| 10 | |
| 9 | |
| ||||||||
Equities | 22 | |
| 14 | |
| 32 | |
|
| 18 | |
| 14 | |
| 23 | |
|
| 15 | |
| 19 | |
| ||||||||
Commodities and other | 9 | |
| 8 | |
| 11 | |
|
| 8 | |
| 6 | |
| 10 | |
|
| 9 | |
| 10 | |
| ||||||||
Diversification benefit to CIB trading VaR | (32 | ) | (a) | NM | | (b) | NM | | (b) |
| (36 | ) | (a) | NM | | (b) | NM | | (b) |
| (35 | ) | (a) | (42 | ) | (a) | ||||||||
CIB trading VaR | 54 | |
| 39 | |
| 79 | |
|
| 34 | |
| 27 | |
| 44 | |
|
| 40 | |
| 36 | |
| ||||||||
Credit portfolio VaR | 12 | |
| 10 | |
| 14 | |
|
| 18 | |
| 17 | |
| 19 | |
|
| 12 | |
| 19 | |
| ||||||||
Diversification benefit to CIB VaR | (11 | ) | (a) | NM | | (b) | NM | | (b) |
| (9 | ) | (a) | NM | | (b) | NM | | (b) |
| (12 | ) | (a) | (9 | ) | (a) | ||||||||
CIB VaR | 55 | |
| 39 | |
| 81 | |
|
| 43 | |
| 34 | |
| 53 | |
|
| 40 | |
| 46 | |
| ||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Mortgage Banking VaR | 4 | |
| 3 | |
| 6 | |
|
| 4 | |
| 2 | |
| 5 | |
|
| 5 | |
| 4 | |
| ||||||||
Treasury and CIO VaR | 7 | |
| 5 | |
| 8 | |
|
| 3 | |
| 3 | |
| 4 | |
|
| 8 | |
| 4 | |
| ||||||||
Asset Management VaR | 3 | |
| 3 | |
| 4 | |
|
| 3 | |
| 2 | |
| 3 | |
|
| 4 | |
| 3 | |
| ||||||||
Diversification benefit to other VaR | (4 | ) | (a) | NM | | (b) | NM | | (b) |
| (4 | ) | (a) | NM | | (b) | NM | | (b) |
| (6 | ) | (a) | (4 | ) | (a) | ||||||||
Other VaR | 10 | |
| 8 | |
| 11 | |
|
| 6 | |
| 5 | |
| 7 | |
|
| 11 | |
| 7 | |
| ||||||||
Diversification benefit to CIB and other VaR | (11 | ) | (a) | NM | | (b) | NM | | (b) |
| (6 | ) | (a) | NM | | (b) | NM | | (b) |
| (11 | ) | (a) | (7 | ) | (a) | ||||||||
Total VaR | $ | 54 | |
| $ | 40 | |
| $ | 78 | |
|
| $ | 43 | |
| $ | 34 | |
| $ | 54 | |
|
| $ | 40 | |
| $ | 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 the risks are not perfectly correlated. |
(b) | Designated as not meaningful ("NM"), because the minimum and maximum may occur on different days for different risk components, and hence it is not meaningful to compute a portfolio-diversification effect. |
As presented in the table above, average Total VaR increased for the three months ended March 31, 2016 as compared with the prior year period. The increase in the average Total VaR, which peaked during February, was primarily due to higher market volatility, reflected in the historical one-year look-back period, coupled with increased exposures in Fixed Income and Equities within CIB trading VaR. This increase was partially offset by a decrease in Credit Portfolio VaR due to reduced exposures relating to certain idiosyncratic positions.
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 $11 million , or 20% of the sum, for the three months ended March 31, 2016 compared with $6 million , or 14% of the sum, for the comparable 2015 period.
VaR exposure can vary significantly as positions change, market volatility fluctuates and diversification benefits change.
49
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.
The following chart compares the daily market risk-related gains and losses with the Firm's Risk Management VaR for the three months ended March 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 the Firm observed one VaR band break and posted Market-risk related gains on 39 of the 64 days in this period.
Daily Market Risk-Related Gains and Losses
vs. Risk Management VaR (1-day, 95% Confidence level)
Three months ended March 31, 2016
|
|

January | February | March |
50
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 Firm generates a net interest income baseline, and then
conducts simulations of changes for interest rate-sensitive
assets and liabilities denominated in U.S. dollars 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 the 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. 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.
The Firm's U.S. dollar sensitivity is presented in the table below. The result of the non-U.S. dollar sensitivity scenario was not material to the Firm's earnings-at-risk at March 31, 2016 .
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 | | ||||||||||
March 31, 2016 | +200bps | +100bps | -100bps | -200bps | ||||||||
U.S. dollar | $ | 5.1 | | | $ | 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 re-pricing at a faster pace than deposits. The Firm's U.S. dollar sensitivity profile at March 31, 2016 was not materially different than at 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 pretax benefit to net interest income excluding CIB's markets-based activities and MSRs of approximately $800 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 analysis was not material to the Firm.
51
COUNTRY RISK MANAGEMENT |
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.
For a discussion of the Firm's Country Risk Management organization, and country risk identification, measurement, monitoring and control, see pages 140–141 of JPMorgan Chase's 2015 Annual Report.
The following table presents the Firm's top 20 exposures by country (excluding the U.S.) as of March 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 normal client activity and market flows.
Top 20 country exposures |
|
| |||||||||||
|
| March 31, 2016 | |||||||||||
(in billions) |
| Lending (a) | Trading and investing (b)(c) | Other (d) | Total exposure | ||||||||
United Kingdom |
| $ | 28.9 | | $ | 20.7 | | $ | 0.8 | | $ | 50.4 | |
Japan |
| 24.5 | | 5.4 | | 0.1 | | 30.0 | | ||||
Germany |
| 12.7 | | 15.7 | | 0.3 | | 28.7 | | ||||
France |
| 14.9 | | 13.1 | | 0.1 | | 28.1 | | ||||
Canada |
| 13.6 | | 4.3 | | 0.1 | | 18.0 | | ||||
China |
| 7.4 | | 6.0 | | 1.0 | | 14.4 | | ||||
Switzerland |
| 8.1 | | - | | 5.7 | | 13.8 | | ||||
Australia |
| 8.1 | | 5.6 | | - | | 13.7 | | ||||
India |
| 5.3 | | 5.7 | | 0.3 | | 11.3 | | ||||
Netherlands |
| 5.0 | | 3.9 | | 1.4 | | 10.3 | | ||||
Brazil |
| 5.1 | | 4.9 | | - | | 10.0 | | ||||
Italy |
| 4.2 | | 4.2 | | - | | 8.4 | | ||||
Korea |
| 4.5 | | 2.7 | | 0.7 | | 7.9 | | ||||
Hong Kong |
| 1.8 | | 2.4 | | 3.5 | | 7.7 | | ||||
Luxembourg |
| 6.6 | | 0.2 | | - | | 6.8 | | ||||
Singapore |
| 2.5 | | 1.3 | | 1.6 | | 5.4 | | ||||
Spain |
| 3.3 | | 0.8 | | 0.2 | | 4.3 | | ||||
Sweden |
| 1.8 | | 1.7 | | - | | 3.5 | | ||||
Austria |
| 0.6 | | 2.8 | | - | | 3.4 | | ||||
Mexico |
| 2.9 | | 0.3 | | 0.2 | | 3.4 | |
(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. |
52
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. For a discussion of JPMorgan Chase's Operational Risk Management, see pages 144–146 of JPMorgan Chase's 2015 Annual Report.
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 increasingly sophisticated attempts from well-resourced unauthorized parties to extract information and/or disrupt banking services. The Firm and its clients are also regularly targeted by unauthorized parties using malicious code and viruses. 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 threats 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 possible future attacks. To enhance its defense capabilities, the Firm has significantly increased its cybersecurity spending over time. The Firm spent approximately $500 million in 2015 and expects to spend more than $600 million in 2016 on these efforts. Planned enhancements include a focus on access controls, vulnerability reduction, early event detection, critical system resiliency and recovery, and third-party risk management.
53
CAPITAL MANAGEMENT |
Capital risk is the risk the Firm has an insufficient level and composition of capital to support the Firm's business activities and associated risks during both normal economic environments and under stressed conditions. For a discussion on the Firm's Capital Management see pages 149–158 of JPMorgan Chase's 2015 Annual Report.
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 by the Firm's Board of Directors, CEO and Operating Committee. The Firm's capital management strategy focuses on maintaining long-term stability to enable the Firm to build and invest in market-
leading businesses, even in a highly stressed environment. The Firm executes its capital management strategy through the establishment of minimum capital targets and a strong capital governance framework. The Firm's minimum capital targets are set based on the most binding of three pillars: an internal assessment of the Firm's capital needs; an estimation of required capital under the Comprehensive Capital Analysis and Review ("CCAR") and Dodd-Frank Act stress testing ("DFAST") requirements; and current regulatory minimums. The capital governance framework includes regular monitoring of the Firm's capital positions, stress testing and defining escalation protocols, both at the Firm and line of business level.
| Transitional |
| Fully Phased-In | |||||||||||||||||||
March 31, 2016 (in millions, except ratios) | Standardized |
| Advanced |
| Minimum capital ratios (b) |
| Standardized |
| Advanced |
| Minimum capital ratios (c) |
| ||||||||||
Risk-based capital metrics: |
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
CET1 capital | $ | 177,531 | |
| $ | 177,531 | |
|
|
| $ | 176,452 | |
| $ | 176,452 | |
|
|
| ||
Tier 1 capital | 202,399 | |
| 202,399 | |
|
|
| 202,345 | |
| 202,345 | |
|
|
| ||||||
Total capital | 236,954 | |
| 226,190 | |
|
|
| 234,499 | |
| 223,735 | |
|
|
| ||||||
Risk-weighted assets | 1,470,741 | |
| 1,497,870 | |
|
|
| 1,479,492 | |
| 1,507,146 | |
|
|
| ||||||
CET1 capital ratio | 12.1 | % |
| 11.9 | % |
| 6.25 | % |
| 11.9 | % |
| 11.7 | % |
| 10.5 | % |
| ||||
Tier 1 capital ratio | 13.8 | |
| 13.5 | |
| 7.75 | |
| 13.7 | |
| 13.4 | |
| 12.0 | |
| ||||
Total capital ratio | 16.1 | |
| 15.1 | |
| 9.75 | |
| 15.8 | |
| 14.8 | |
| 14.0 | |
| ||||
Leverage-based capital metrics | | |
|
|
|
|
|
|
|
|
|
|
| |||||||||
Adjusted average assets | 2,345,926 | |
| 2,345,926 | |
|
|
| 2,347,342 | |
| 2,347,342 | |
|
|
| ||||||
Tier 1 leverage ratio (a) | 8.6 | % |
| 8.6 | % |
| 4.0 | |
| 8.6 | % |
| 8.6 | % |
| 4.0 | |
| ||||
SLR leverage exposure | NA |
| $ | 3,047,558 | |
|
|
| NA |
| $ | 3,048,974 | |
|
|
| ||||||
SLR | NA |
| 6.6 | % |
| NA |
| NA |
| 6.6 | % |
| 5.0 | | (d) |
| Transitional |
| Fully Phased-In |
| ||||||||||||||||||
December 31, 2015 (in millions, except ratios) | Standardized |
| Advanced |
| Minimum capital ratios (b) |
| Standardized |
| Advanced |
| Minimum capital ratios (c) |
| ||||||||||
Risk-based capital metrics: |
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
CET1 capital | $ | 175,398 | |
| $ | 175,398 | |
|
|
| $ | 173,189 | |
| $ | 173,189 | |
|
|
| ||
Tier 1 capital | 200,482 | |
| 200,482 | |
|
|
| 199,047 | |
| 199,047 | |
|
|
| ||||||
Total capital | 234,413 | |
| 224,616 | |
|
|
| 229,976 | |
| 220,179 | |
|
|
| ||||||
Risk-weighted assets | 1,465,262 | |
| 1,485,336 | |
|
|
| 1,474,870 | |
| 1,495,520 | |
|
|
| ||||||
CET1 capital ratio | 12.0 | % |
| 11.8 | % |
| 4.5 | % |
| 11.7 | % |
| 11.6 | % |
| 10.5 | % |
| ||||
Tier 1 capital ratio | 13.7 | |
| 13.5 | |
| 6.0 | |
| 13.5 | |
| 13.3 | |
| 12.0 | |
| ||||
Total capital ratio | 16.0 | |
| 15.1 | |
| 8.0 | |
| 15.6 | |
| 14.7 | |
| 14.0 | |
| ||||
Leverage-based capital metrics |
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
Adjusted average assets | 2,361,177 | |
| 2,361,177 | |
|
|
| 2,360,499 | |
| 2,360,499 | |
|
|
| ||||||
Tier 1 leverage ratio (a) | 8.5 | % |
| 8.5 | % |
| 4.0 | |
| 8.4 | % |
| 8.4 | % |
| 4.0 | |
| ||||
SLR leverage exposure | NA |
| $ | 3,079,797 | |
|
|
| NA |
| $ | 3,079,119 | |
|
|
| ||||||
SLR | NA |
| 6.5 | |
| NA |
| NA |
| 6.5 | % |
| 5.0 | | (d) |
Note: As of March 31, 2016, and December 31, 2015, the lower of the Standardized or Advanced capital ratios under each of the Transitional and Fully Phased-In approaches in the table above represents the Firm's Collins Floor.
(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) | Represents the transitional minimum capital ratios applicable to the Firm under Basel III as of March 31, 2016, and December 31, 2015. At March 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 estimated 4.5% GSIB surcharge, as of December 31, 2014 published by the Federal Reserve on July 20, 2015. |
(c) | Represents the minimum capital ratios applicable to the Firm on a fully phased-in Basel III basis. At March 31, 2016, and December 31, 2015, 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. The minimum capital ratios will be fully phased-in effective January 1, 2019. For additional information on the GSIB surcharge, see page 56. |
(d) | In the case of the SLR, the fully phased-in minimum ratio is effective beginning January 1, 2018. |
54
Basel III overview
Basel III capital rules, 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. Basel III presents two comprehensive methodologies for calculating risk-weighted assets ("RWA"). A general (Standardized) approach ("Basel III Standardized"), and an advanced approach ("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. 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 SLR. For additional information on SLR, see
page 58.
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 the Firm has imposed Basel III Standardized Fully Phased-In RWA limits on its lines of business, the Firm continues to manage 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 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 are non-GAAP financial measures. However, such measures are used by banking regulators, investors and analysts to assess the 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 of the Firm's, 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 based on the current published 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
As noted above, the Basel III rules 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 approach (Standardized or Advanced) which results, for each quarter, in the lower ratio, the Collins Floor.
Certain banking organizations, including the Firm, will be required to hold additional amounts of capital to serve as a "capital conservation 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 to be phased-in over time, beginning January 1, 2016 through January 1, 2019.
55
In addition to the 4.5% CET1 capital requirement, when fully phased-in, the Firm will be required to hold a 2.5% capital conservation buffer as well as additional levels of capital in the form of a GSIB surcharge and any countercyclical capital buffer requirement. On July 20, 2015, the Federal Reserve issued a final rule requiring GSIBs to calculate their GSIB surcharge, on an annual basis, under two separately prescribed methods, and to be subject to the higher of the two. The first method ("Method 1") reflects the GSIB surcharge as prescribed by Basel rules, and is calculated across five criteria: size, cross-jurisdictional activity, interconnectedness, complexity and substitutability. The second method ("Method 2") modifies the requirements to include a measure of short-term wholesale funding in place of substitutability, and introduces a GSIB score "multiplication factor."
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. Accordingly, the Firm's minimum capital ratios applicable in 2016 include 1.125%, resulting from the phase-in of the 4.5% GSIB surcharge estimated at the date. Based upon data as of December 31, 2015, the Firm estimates its fully phased-in GSIB surcharge would be 2.5% of CET1 capital under Method 1 and 3.5% under Method 2. The reduction in the estimated GSIB surcharge to 3.5% is expected to be phased into the Firm's minimum CET1 capital ratio commencing January 1, 2017.
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. As of December 31, 2015 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.
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-in CET1capital requirement would be 10.5% inclusive of a GSIB surcharge of 3.5% and a capital conservation buffer of 2.5%.
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 and 10% Total capital requirement. Each of the Firm's IDI subsidiaries must maintain a minimum 5% Tier 1 leverage, 6.5% CET1, 8% Tier 1 and 10% Total capital requirement to meet the definition of "well-capitalized" under the Prompt Corrective Action ("PCA") requirements of the FDIC Improvement Act("FDICIA") for IDI subsidiaries. The PCA standards for IDI subsidiaries were effective January 1, 2015.
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Capital
A reconciliation of total stockholders' equity to Basel III 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.
For additional information on the components of regulatory capital, see Note 20 .
Capital components |
| ||
(in millions) | March 31, 2016 | ||
Total stockholders' equity | $ | 250,157 | |
Less: Preferred stock | 26,068 | | |
Common stockholders' equity | 224,089 | | |
Less: |
| ||
Goodwill | 47,310 | | |
Other intangible assets | 940 | | |
Add: |
| ||
Deferred tax liabilities (a) | 3,205 | | |
Less: Other CET1 capital adjustments (b) | 2,592 | | |
Standardized/Advanced CET1 capital | 176,452 | | |
Preferred stock | 26,068 | | |
Less: |
| ||
Other Tier 1 adjustments | 175 | | |
Standardized/Advanced Tier 1 capital | $ | 202,345 | |
Long-term debt and other instruments qualifying as | $ | 17,232 | |
Qualifying allowance for credit losses | 15,008 | | |
Other | (86 | ) | |
Standardized Fully Phased-In Tier 2 capital | $ | 32,154 | |
Standardized Fully Phased-in Total capital | $ | 234,499 | |
Adjustment in qualifying allowance for credit losses for Advanced Tier 2 capital | (10,764 | ) | |
Advanced Fully Phased-In Tier 2 capital | $ | 21,390 | |
Advanced Fully Phased-In Total capital | $ | 223,735 | |
|
|
(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 March 31, 2016. |
56
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 March 31, 2016 .
(in millions) | March 31, 2016 | ||
Transitional CET1 capital | $ | 177,531 | |
AOCI phase-in (a) | 462 | | |
CET1 capital deduction phase-in (b) | (1,138 | ) | |
Intangibles deduction phase-in (c) | (336 | ) | |
Other adjustments to CET1 capital (d) | (67 | ) | |
Fully Phased-In CET1 capital | $ | 176,452 | |
(a) | Includes the remaining balance of accumulated other comprehensive income ("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 DVA, as well as CET1 deductions for defined benefit pension plan assets and deferred tax assets related to net operating loss 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 three months ended March 31, 2016 .
Three months ended March 31, (in millions) | 2016 | | |
Standardized/Advanced CET1 capital at December 31, 2015 | $ | 173,189 | |
Net income applicable to common equity | 5,108 | | |
Dividends declared on common stock | (1,644 | ) | |
Net purchase of treasury stock | (598 | ) | |
Changes in additional paid-in capital | (718 | ) | |
Changes related to AOCI | (435 | ) | |
Adjustment related to DVA (a) | 487 | | |
Other | 1,063 | | |
Increase in Standardized/Advanced CET1 capital | 3,263 | | |
Standardized/Advanced CET1 capital at March 31, 2016 | $ | 176,452 | |
|
| ||
Standardized/Advanced Tier 1 capital at December 31, 2015 | $ | 199,047 | |
Change in CET1 capital | 3,263 | | |
Net issuance of noncumulative perpetual preferred stock | - | | |
Other | 35 | | |
Increase in Standardized/Advanced Tier 1 capital | 3,298 | | |
Standardized/Advanced Tier 1 capital at March 31, 2016 | $ | 202,345 | |
|
| ||
Standardized Tier 2 capital at December 31, 2015 | $ | 30,929 | |
Change in long-term debt and other instruments qualifying as Tier 2 | 553 | | |
Change in qualifying allowance for credit losses | 666 | | |
Other | 6 | | |
Decrease in Standardized Tier 2 capital | 1,225 | | |
Standardized Tier 2 capital at March 31, 2016 | $ | 32,154 | |
Standardized Total capital at March 31, 2016 | $ | 234,499 | |
Advanced Tier 2 capital at December 31, 2015 | $ | 21,132 | |
Change in long-term debt and other instruments qualifying as Tier 2 | 553 | | |
Change in qualifying allowance for credit losses | (300 | ) | |
Other | 5 | | |
Increase in Advanced Tier 2 capital | 258 | | |
Advanced Tier 2 capital at March 31, 2016 | $ | 21,390 | |
Advanced Total capital at March 31, 2016 | $ | 223,735 | |
(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 19 . |
57
RWA rollforward
The following table presents changes in the components of RWA under Basel III Standardized and Advanced Fully Phased-In for the three months ended March 31, 2016 . The amounts in the rollforward categories are estimates, based on the predominant driver of the change.
| Standardized |
| Advanced | |||||||||||||||||||
Three months ended March 31, 2016 (in billions) | Credit risk RWA | Market risk RWA | Total RWA |
| Credit risk RWA | Market risk RWA | Operational risk RWA | Total RWA | ||||||||||||||
At December 31, 2015 | $ | 1,333 | | $ | 142 | | $ | 1,475 | |
| $ | 954 | | $ | 142 | | $ | 400 | | $ | 1,496 | |
Model & data changes (a) | 2 | | (11 | ) | (9 | ) |
| 4 | | (11 | ) | - | | (7 | ) | |||||||
Portfolio runoff (b) | (4 | ) | (2 | ) | (6 | ) |
| (3 | ) | (2 | ) | - | | (5 | ) | |||||||
Movement in portfolio levels (c) | 12 | | 7 | | 19 | |
| 17 | | 6 | | - | | 23 | | |||||||
Changes in RWA | 10 | | (6 | ) | 4 | |
| 18 | | (7 | ) | - | | 11 | | |||||||
March 31, 2016 | $ | 1,343 | | $ | 136 | | $ | 1,479 | |
| $ | 972 | | $ | 135 | | $ | 400 | | $ | 1,507 | |
(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 primarily reflects reduced risk from position rolloffs in legacy portfolios in Mortgage Banking (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
For additional information on the SLR, see Capital Management on pages 149–158 of JPMorgan Chase's 2015 Annual Report.
The following table presents the components of the Firm's Fully Phased-In SLR as of March 31, 2016 .
(in millions, except ratio) | March 31, 2016 | ||
Tier 1 Capital | $ | 202,345 | |
Total average assets | 2,394,921 | | |
Less: amounts deducted from Tier 1 capital | 47,579 | | |
Total adjusted average assets (a) | 2,347,342 | | |
Off-balance sheet exposures (b) | 701,632 | | |
SLR leverage exposure | $ | 3,048,974 | |
SLR | 6.6 | % |
(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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As of March 31, 2016 , the Firm estimates that JPMorgan Chase Bank, N.A.'s and Chase Bank USA, N.A.'s Fully Phased-In SLRs are approximately 6.7% and 8.5% , respectively.
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 |
| ||||||
(in billions) | March 31, 2016 |
| December 31, 2015 | ||||
Consumer & Community Banking | $ | 51.0 | |
| $ | 51.0 | |
Corporate & Investment Bank | 64.0 | |
| 62.0 | | ||
Commercial Banking | 16.0 | |
| 14.0 | | ||
Asset Management | 9.0 | |
| 9.0 | | ||
Corporate | 84.1 | |
| 85.5 | | ||
Total common stockholders' equity | $ | 224.1 | |
| $ | 221.5 | |
Line of business equity |
| Quarterly average | ||||||||||
(in billions) |
| 1Q16 | |
| 4Q15 | |
| 1Q15 | | |||
Consumer & Community Banking |
| $ | 51.0 | |
| $ | 51.0 | |
| $ | 51.0 | |
Corporate & Investment Bank |
| 64.0 | |
| 62.0 | |
| 62.0 | | |||
Commercial Banking |
| 16.0 | |
| 14.0 | |
| 14.0 | | |||
Asset Management |
| 9.0 | |
| 9.0 | |
| 9.0 | | |||
Corporate |
| 81.6 | |
| 83.5 | |
| 76.4 | | |||
Total common stockholders' equity |
| $ | 221.6 | |
| $ | 219.5 | |
| $ | 212.4 | |
58
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. Through the CCAR, the Federal Reserve evaluates each bank holding company ("BHC's") capital adequacy and internal capital adequacy assessment processes, as well as its plans to make capital distributions, such as dividend payments or stock repurchases.
On March 11, 2015, the Federal Reserve informed the Firm that it did not object, on either a quantitative or qualitative basis, to the Firm's 2015 capital plan.
On April 5, 2016, the Firm submitted its 2016 Capital plan to the Federal Reserve under the Federal Reserve's 2016 CCAR process. The Federal Reserve has indicated that it expects to respond to the capital plan submissions of bank holding companies by June 30, 2016.
Other capital requirements
Minimum Total Loss Absorbing Capacity ("TLAC")
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 beginning January 1, 2019.
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. 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.
For additional information on TLAC, see Capital Management on page 156 of JPMorgan Chase's 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 CCAR the Firm announced that its Board of Directors had increased the quarterly common stock dividend to $0.44 per share, effective with the dividend paid on July 31, 2015. The Firm's dividends will be subject to the Board of Directors' approval at the customary times those dividends are to be declared.
Common equity
On March 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 current 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. As of March 31, 2016, the dollar value remaining under the program was $2.9 billion . 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 three months ended March 31, 2016 and 2015 . There were no warrants repurchased during the three months ended March 31, 2016 and 2015 .
|
| Three months ended March 31, | |||||
(in millions) |
| 2016 | 2015 | ||||
Total shares of common stock repurchased |
| 29.2 | | 32.5 | | ||
Aggregate common stock repurchases |
| $ | 1,696 | | $ | 1,900 | |
There were 47.4 million warrants outstanding at both March 31, 2016 and December 31, 2015.
59
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.
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 utilizing 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 matters and issuer purchases of equity securities on page 20 of JPMorgan Chase 's 2015 Form 10-K.
Preferred Stock
Preferred stock dividends declared were $412 million for three months ended March 31, 2016.
For additional information on the Firm's preferred stock, see Note 22 of JPMorgan Chase's 2015 Annual Report.
Broker-dealer regulatory capital
JPMorgan Chase's principal U.S. broker-dealer subsidiaries are JPMorgan Securities and J.P. Morgan Clearing Corp. ("JPMorgan Clearing"). JPMorgan Clearing is a subsidiary of JPMorgan Securities and provides clearing and settlement services. JPMorgan Securities and JPMorgan Clearing are each subject to Rule 15c3-1 under the Securities Exchange Act of 1934 (the "Net Capital Rule"). JPMorgan Securities and JPMorgan Clearing are also each registered as futures commission merchants and subject to Rule 1.17 of the Commodity Futures Trading Commission ("CFTC").
JPMorgan Securities and JPMorgan Clearing have elected to compute their minimum net capital requirements in accordance with the "Alternative Net Capital Requirements" of the Net Capital Rule. At March 31, 2016 , JPMorgan Securities' net capital, as defined by the Net Capital Rule, was $12.9 billion, exceeding the minimum requirement by $10.3 billion, and JPMorgan Clearing's net capital was $7.2 billion, exceeding the minimum requirement by $5.6 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") 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 March 31, 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") and Financial Conduct Authority ("FCA"). J.P. Morgan Securities plc is subject to the European Union Capital Requirements Regulation and U.K. PRA capital rules, which implement Basel III.
At March 31, 2016 , J.P. Morgan Securities plc had estimated total capital of $33.4 billion; its estimated CET1 capital ratio was 13.5% and its estimated Total capital ratio was 17.2%. 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.
60
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. The following discussion of JPMorgan Chase's Liquidity Risk Management should be read in conjunction with pages 159–164 of JPMorgan Chase's 2015 Annual Report.
LCR and NSFR
The U.S. LCR rule requires 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 was required to be 90% at January 1, 2016, increasing to a minimum of 100% on January 1, 2017 onward. At March 31, 2016, the Firm was compliant with the fully phased-in U.S. LCR.
The Basel Committee final standard for the net stable funding ratio ("Basel NSFR") is intended to measure the "available" amount 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.
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. Comments on the proposed rule are due by August 5, 2016.
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.
On April 1, 2016, the Federal Reserve published a final rule permitting investment-grade, U.S. general obligation state and municipal securities that meet certain criteria to be included in HQLA for purposes of the U.S. LCR rule, subject to certain limits. The final rule is effective beginning July 1, 2016, and is not expected to have a material effect on the Firm's HQLA or LCR.
As of March 31, 2016 , the Firm's HQLA was $505 billion , compared with $496 billion as of December 31, 2015. The increase in HQLA was due to higher cash balances largely driven by higher deposit balances. HQLA may fluctuate from period to period primarily due to normal flows from client activity.
The following table presents HQLA included in the LCR, broken out by HQLA-eligible cash and securities as of March 31, 2016 .
(in billions) | March 31, 2016 | ||
HQLA |
| ||
Eligible cash (a) | $ | 318 | |
Eligible securities (b) | 187 | | |
Total HQLA | $ | 505 | |
(a) | Cash on deposit at central banks. |
(b) | Predominantly includes U.S. agency mortgage-backed securities, U.S. Treasuries, and sovereign bonds net of applicable haircuts under U.S. LCR rules. |
In addition to HQLA, as of March 31, 2016 , the Firm has approximately $261 billion of unencumbered marketable securities, such as equity securities and fixed income debt securities, available to raise liquidity, if required. Furthermore, the Firm 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 March 31, 2016 , the Firm's remaining borrowing capacity at various FHLBs and the Federal Reserve Bank discount window was approximately $189 billion. This remaining borrowing capacity excludes the benefit of securities included above in HQLA or other unencumbered securities currently held at the Federal Reserve Bank discount window for which the Firm has not drawn liquidity.
61
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 ( $847.3 billion at March 31, 2016 ), is funded with a portion of the Firm's deposits ( $1,321.8 billion at March 31, 2016 ), 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- 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 deposit balances as of March 31, 2016 , and December 31, 2015, and the average deposit balances for the three months ended March 31, 2016 and 2015 , respectively.
| March 31, 2016 | December 31, 2015 |
| Three months ended | |||||||||
Deposits |
| Average | |||||||||||
(in millions) |
| 2016 | 2015 | ||||||||||
Consumer & Community Banking | $ | 582,026 | | $ | 557,645 | |
| $ | 562,284 | | $ | 512,157 | |
Corporate & Investment Bank | 408,783 | | 395,228 | |
| 392,622 | | 445,631 | | ||||
Commercial Banking | 172,846 | | 172,470 | |
| 171,121 | | 197,405 | | ||||
Asset Management | 152,908 | | 146,766 | |
| 150,616 | | 158,240 | | ||||
Corporate | 5,253 | | 7,606 | |
| 6,625 | | 23,080 | | ||||
Total Firm | $ | 1,321,816 | | $ | 1,279,715 | |
| $ | 1,283,268 | | $ | 1,336,513 | |
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. 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 relatively stable sources of liquidity because they are generated from customers that maintain operating service relationships with the Firm.
As of March 31, 2016 , the Firm's loans-to-deposits ratio was 64% , compared with 65% at December 31, 2015.
Total deposits for the Firm were $1,321.8 billion as of March 31, 2016 , compared with $1,279.7 billion at December 31, 2015 ( 61% and 61% of total liabilities at March 31, 2016 , and December 31, 2015, respectively). The increase was attributable to higher consumer and wholesale deposits. Consumer deposits increased reflecting seasonal factors and continued growth from new and existing customers. Wholesale deposits increased reflecting growth in client activity.
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 decrease in the average deposits for the three months ended March 31, 2016, compared with the three months ended March 31, 2015, reflected the Firm's actions in 2015 to reduce non-operating deposits, partially offset by an increase in consumer deposits. For further discussions of deposit and liability balance trends, see the discussion of the Firm's Business Segment Results and the Consolidated Balance Sheets Analysis on pages 16–29 and pages 10–11 , respectively.
62
The following table summarizes short-term and long-term funding, excluding deposits, as of March 31, 2016 , and December 31, 2015, and average balances for the three months ended March 31, 2016 and 2015, respectively. For additional information, see the Consolidated Balance Sheets Analysis on pages 10–11 and Note 12 .
| March 31, 2016 | December 31, 2015 |
| Three months ended |
| |||||||||
Sources of funds (excluding deposits) |
| Average |
| |||||||||||
(in millions) |
| 2016 | 2015 |
| ||||||||||
Commercial paper: |
|
|
|
|
|
| ||||||||
Wholesale funding | $ | 17,490 | | $ | 15,562 | |
| $ | 17,537 | | $ | 21,723 | |
|
Client cash management | - | | - | |
| - | | 38,290 | | (g) | ||||
Total commercial paper | $ | 17,490 | | $ | 15,562 | |
| $ | 17,537 | | $ | 60,013 | |
|
|
|
|
|
|
|
| ||||||||
Obligations of Firm-administered multi-seller conduits (a) | $ | 5,250 | | $ | 8,724 | |
| $ | 6,501 | | $ | 11,472 | |
|
Other borrowed funds | $ | 19,703 | | $ | 21,105 | |
| $ | 20,231 | | $ | 31,443 | |
|
|
|
|
|
|
|
| ||||||||
Securities loaned or sold under agreements to repurchase: |
|
|
|
|
|
| ||||||||
Securities sold under agreements to repurchase | $ | 142,241 | | $ | 129,598 | |
| $ | 149,700 | | $ | 174,077 | |
|
Securities loaned | 13,603 | | 18,174 | |
| 16,351 | | 22,597 | |
| ||||
Total securities loaned or sold under agreements to repurchase (b)(c) | $ | 155,844 | | $ | 147,772 | |
| $ | 166,051 | | $ | 196,674 | |
|
|
|
|
|
|
|
| ||||||||
Senior notes | $ | 151,388 | | $ | 149,964 | |
| $ | 149,069 | | $ | 144,977 | |
|
Trust preferred securities | 3,970 | | 3,969 | |
| 3,971 | | 5,449 | |
| ||||
Subordinated debt | 25,621 | | 25,027 | |
| 25,365 | | 29,207 | |
| ||||
Structured notes | 35,098 | | 32,813 | |
| 33,552 | | 30,419 | |
| ||||
Total long-term unsecured funding | $ | 216,077 | | $ | 211,773 | |
| $ | 211,957 | | $ | 210,052 | |
|
|
|
|
|
|
|
| ||||||||
Credit card securitization (a) | $ | 27,486 | | $ | 27,906 | |
| $ | 27,697 | | $ | 30,559 | |
|
Other securitizations (d) | 1,702 | | 1,760 | |
| 1,757 | | 2,006 | |
| ||||
FHLB advances | 69,529 | | 71,581 | |
| 71,241 | | 64,465 | |
| ||||
Other long-term secured funding (e) | 5,148 | | 5,297 | |
| 4,962 | | 4,323 | |
| ||||
Total long-term secured funding | $ | 103,865 | | $ | 106,544 | |
| $ | 105,657 | | $ | 101,353 | |
|
|
|
|
|
|
|
| ||||||||
Preferred stock (f) | $ | 26,068 | | $ | 26,068 | |
| $ | 26,068 | | $ | 20,825 | |
|
Common stockholders' equity (f) | $ | 224,089 | | $ | 221,505 | |
| $ | 221,561 | | $ | 212,352 | |
|
(a) | Included in beneficial interests issued by consolidated variable interest entities on the Firm's Consolidated balance sheets. |
(b) | Excludes federal funds purchased. |
(c) | Excluded long-term structured repurchase agreements of $4.3 billion and $4.2 billion as of March 31, 2016 , and December 31, 2015, respectively, and average balances of $4.4 billion and $3.0 billion for the three months ended March 31, 2016 and 2015, respectively. |
(d) | Other securitizations includes securitizations of 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. |
(e) | Includes long-term structured notes which are secured. |
(f) | For additional information on preferred stock and common stockholders' equity see Capital Management on pages 54–60 and the Consolidated statements of changes in stockholders' equity on page 74 ; and Note 22 and Note 23 of JPMorgan Chase's 2015 Annual Report. |
(g) | During the third quarter of 2015 the Firm completed the discontinuation of its commercial paper customer sweep cash management program. |
Short-term funding
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 for the three months ended March 31, 2016, compared with March 31, 2015,
was largely due to lower secured financing of trading assets-debt and equity instruments in 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.
63
Long-term funding and issuance
Long-term funding provides additional sources of stable funding and liquidity for the Firm. The Firm's long-term funding plan is driven by expected client activity, liquidity considerations, and regulatory requirements. Long-term funding objectives include maintaining diversification, maximizing market access and optimizing funding costs, as well as maintaining a certain level of liquidity at JPMorgan Chase & Co. (the "Parent Company"). The Firm evaluates various funding markets, tenors and currencies in creating its optimal long-term funding plan.
The significant majority of the Firm's long-term unsecured funding is issued by the Parent Company to provide maximum flexibility in support of both bank and nonbank subsidiary funding. The following table summarizes long-term unsecured issuance and maturities or redemptions for the three months ended March 31, 2016 and 2015 . For additional information, see Note 21 of JPMorgan Chase 's 2015 Annual Report .
Long-term unsecured funding | Three months ended March 31, | |||||
(in millions) | 2016 | 2015 | ||||
Issuance |
|
| ||||
Senior notes issued in the U.S. market | $ | 7,219 | | $ | 9,852 | |
Senior notes issued in non-U.S. markets | - | | 4,225 | | ||
Total senior notes | 7,219 | | 14,077 | | ||
Structured notes | 8,333 | | 6,913 | | ||
Total long-term unsecured funding – issuance | $ | 15,552 | | $ | 20,990 | |
|
|
| ||||
Maturities/redemptions |
|
| ||||
Senior notes | $ | 9,811 | | $ | 9,195 | |
Subordinated debt | 2 | | 806 | | ||
Structured notes | 4,104 | | 5,820 | | ||
Total long-term unsecured funding – maturities/redemptions | $ | 13,917 | | $ | 15,821 | |
In addition, from April 1, 2016, through April 29, 2016 , the Firm issued $1.7 billion of senior notes.
The Firm raises secured long-term funding through securitization of consumer credit card loans and advances from the FHLBs.
| Three months ended | ||||||||||||
Long-term secured funding | Issuance |
| Maturities/Redemptions | ||||||||||
(in millions) | 2016 | 2015 |
| 2016 | 2015 | ||||||||
Credit card securitization | $ | - | | $ | 2,476 | |
| $ | 425 | | $ | 2,345 | |
Other securitizations (a) | - | | - | |
| 58 | | 65 | | ||||
FHLB advances | - | | 4,700 | |
| 2,051 | | 3,001 | | ||||
Other long-term secured funding (b) | 90 | | 124 | |
| 43 | | 118 | | ||||
Total long-term secured funding | $ | 90 | | $ | 7,300 | |
| $ | 2,577 | | $ | 5,529 | |
(a) | Other securitizations includes securitizations of 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 of JPMorgan Chase's 2015 Annual Report.
Credit ratings
The cost and availability of financing are influenced by credit ratings. Reductions in these ratings could have an adverse effect on the Firm's access to liquidity sources, increase the cost of funds, trigger additional collateral or funding requirements and decrease the number of investors and counterparties willing to lend to the Firm.
Additionally, the Firm's funding requirements for VIEs and other third party commitments may be adversely affected by a decline in credit ratings. For additional information on the impact of a credit ratings downgrade on the funding requirements for VIEs, and on derivatives and collateral agreements, see Special-purpose entities on page 12 , and credit risk, liquidity risk and credit-related contingent features in Note 5 .
64
The credit ratings of the Parent Company and the Firm's principal bank and nonbank subsidiaries as of March 31, 2016 , were as follows.
| JPMorgan Chase & Co. |
| JPMorgan Chase Bank, N.A. Chase Bank USA, N.A. |
| J.P. Morgan Securities LLC | ||||||
March 31, 2016 | Long-term issuer | Short-term issuer | Outlook |
| Long-term issuer | Short-term issuer | Outlook |
| Long-term issuer | Short-term issuer | Outlook |
Moody's | A3 | P-2 | Stable |
| Aa3 | P-1 | Stable |
| Aa3 | 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 |
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.
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.
SUPERVISION AND REGULATION |
For further information on Supervision and Regulation, see the Supervision and regulation section on pages 1–8 of JPMorgan Chase's 2015 Form 10-K.
For more information about the applicable requirements relating to risk-based capital and leverage in the U.S. under Basel III, see Capital Management on pages 54–60 and
Note 20 .
Under Basel III, bank holding companies and banks are required to measure their liquidity against two specific liquidity tests: the LCR and the NSFR. For additional information on these ratios, see Liquidity Risk Management on pages 61–65 .
For additional information on the Firm's CCAR, see Capital Management on pages 54–60 .
For further information on the current and potential impact of the Basel III framework, including GSIB requirements, and TLAC, see Capital Management on pages 54–60 .
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 Capital Management on pages 54–60 .
Dividends
At March 31, 2016 , JPMorgan Chase estimated that its banking subsidiaries could pay, in the aggregate, approximately $26 billion in dividends to their respective bank holding companies without the prior approval of their relevant banking regulators.
65
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. For further discussion of the methodologies used in establishing the Firm's allowance for credit losses and the significant judgments involved, see Allowance for credit losses on pages 130–132 , 165-167 and Note 15 of JPMorgan Chase's 2015 Annual Report; for amounts recorded as of March 31, 2016 and 2015 , see Allowance for credit losses on pages 45–47 and Note 14 of this Form 10-Q.
As noted in the discussion on pages 165–167 of JPMorgan Chase's 2015 Annual Report, the 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 and Firm-specific historical data. In many cases, the use of alternate estimates (for example, the effect of home prices and unemployment rates on consumer delinquency, or the calibration between the Firm's wholesale loan risk ratings and external credit ratings) or data sources (for example, external probability of default ("PD") and loss given default ("LGD") 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 loss estimates as of March 31, 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% increase in unemployment rates from current levels could imply an increase to modeled credit loss estimates of approximately $700 million . |
• | For the residential real estate portfolio, excluding PCI loans, a combined 5% decline in housing prices and a 1% increase in unemployment rates from current levels could imply an increase to modeled annual loss estimates of approximately $150 million . |
• | A 50 basis point deterioration in forecasted credit card loss rates could imply an increase to modeled annualized credit card loan loss estimates of approximately $650 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 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 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 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.
66
Fair value of financial instruments, MSRs and commodities inventory
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 .
March 31, 2016 (in billions, except ratio data) | Total assets at fair value |
| Total level 3 assets | |||||
Trading debt and equity instruments | $ | 295.9 | |
|
| $ | 11.3 | |
Derivative receivables (a) | 70.2 | |
|
| 7.3 | | ||
Trading assets | 366.1 | |
|
| 18.6 | | ||
AFS securities | 237.4 | |
|
| 0.8 | | ||
Loans | 1.9 | |
|
| 1.0 | | ||
MSRs | 5.7 | |
|
| 5.7 | | ||
Private equity investments (b) | 1.8 | |
|
| 1.6 | | ||
Other | 28.9 | |
|
| 0.8 | | ||
Total assets measured at fair value on a recurring basis | 641.8 | |
|
| 28.5 | | ||
Total assets measured at fair value on a nonrecurring basis | 0.6 | |
|
| 0.3 | | ||
Total assets measured at fair value | $ | 642.4 | |
|
| $ | 28.8 | |
Total Firm assets | $ | 2,423.8 | |
|
|
| ||
Level 3 assets as a percentage of total Firm assets (a) |
|
|
| 1.2 | % | |||
Level 3 assets as a percentage of total Firm assets at fair value (a) |
|
|
| 4.5 | % |
(a) | For purposes of table above, the derivative receivables total reflects the impact of netting adjustments; however, the $7.3 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 within level 3, the reduction in the level 3 derivative receivables balance would be $2.7 billion at March 31, 2016; this is exclusive of the netting benefit associated with cash collateral, which would further reduce the level 3 balances. |
(b) | Private equity instruments represent investments within Corporate. |
Valuation
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, 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
Management applies significant judgment when testing goodwill for impairment. For a description of the significant valuation judgments associated with goodwill impairment, see Goodwill impairment on page 168 of JPMorgan Chase's 2015 Annual Report.
For the three months ended March 31, 2016 , the Firm reviewed current conditions (including the estimated effects of regulatory and legislative changes and current estimated market cost of equity) and prior projections of business performance for all its businesses. Based upon such reviews, the Firm concluded that the goodwill allocated to its reporting units was not impaired as of March 31, 2016 .
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 the impact of regulatory or legislative changes or increases in the estimated 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 16 .
Income taxes
For a description of the significant assumptions, judgments and interpretations associated with the accounting for income taxes, see Income taxes on page 169 of JPMorgan Chase's 2015 Annual Report.
Litigation reserves
For a description of the significant estimates and judgments associated with establishing litigation reserves, see Note 23 of this Form 10-Q, and Note 31 of JPMorgan Chase's 2015 Annual Report.
67
ACCOUNTING AND REPORTING DEVELOPMENTS |
Financial Accounting Standards Board ("FASB " ) Standards Adopted since January 1, 2016 | ||||
|
|
|
|
|
Standard |
| Summary of guidance |
| Effects on financial statements |
Amendments to the consolidation analysis |
| • Eliminates the deferral issued by the FASB in February 2010 of 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-maker or a service provider, and exempts certain money market funds from consolidation. |
| • Adopted January 1, 2016. • There 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 |
| • 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 other comprehensive income ("OCI"). • Requires a cumulative-effect adjustment to retained earnings as of the beginning of the period of adoption. |
| • Adopted January 1, 2016. • There 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 |
68
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 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-type 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 date: 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 statements of income most closely associated with financial instruments, including securities gains, interest income and interest expense. • The Firm plans to adopt the revenue recognition guidance in the first quarter of 2018 and is currently evaluating the potential impact on the Consolidated Financial Statements and its selection of transition method. |
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. • Generally requires a cumulative-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. |
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. • Requires lessees and lessors to expand qualitative and quantitative disclosures regarding their leasing arrangements. |
| • Required effective date: January 1, 2019. (a) • The Firm is currently evaluating the potential impact on the Consolidated Financial Statements. |
(a) | Early adoption is permitted. |
69
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 Form 10-Q 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. 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; |
• | Changes in trade, monetary and fiscal policies and laws; |
• | 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 changing 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; |
• | 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 and integrity of its financial, accounting, technology, data processing and other operating systems and facilities; |
• | Ability of the Firm to effectively defend itself against cyberattacks and other attempts by unauthorized parties to access the Firm's information or disrupt its 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.
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.
70
JPMorgan Chase & Co.
Consolidated statements of income (unaudited)
|
| Three months ended March 31, | ||||||
(in millions, except per share data) |
| 2016 |
| 2015 | ||||
Revenue |
|
|
|
| ||||
Investment banking fees |
| $ | 1,333 | |
| $ | 1,794 | |
Principal transactions |
| 2,679 | |
| 3,655 | | ||
Lending- and deposit-related fees |
| 1,403 | |
| 1,363 | | ||
Asset management, administration and commissions |
| 3,624 | |
| 3,807 | | ||
Securities gains (a) |
| 51 | |
| 52 | | ||
Mortgage fees and related income |
| 667 | |
| 705 | | ||
Card income |
| 1,301 | |
| 1,431 | | ||
Other income |
| 801 | |
| 582 | | ||
Noninterest revenue |
| 11,859 | |
| 13,389 | | ||
Interest income |
| 13,552 | |
| 12,565 | | ||
Interest expense |
| 2,172 | |
| 1,888 | | ||
Net interest income |
| 11,380 | |
| 10,677 | | ||
Total net revenue |
| 23,239 | |
| 24,066 | | ||
|
|
|
|
| ||||
Provision for credit losses |
| 1,824 | |
| 959 | | ||
|
|
|
|
| ||||
Noninterest expense |
|
|
|
| ||||
Compensation expense |
| 7,660 | |
| 8,043 | | ||
Occupancy expense |
| 883 | |
| 933 | | ||
Technology, communications and equipment expense |
| 1,618 | |
| 1,491 | | ||
Professional and outside services |
| 1,548 | |
| 1,634 | | ||
Marketing |
| 703 | |
| 591 | | ||
Other expense |
| 1,425 | |
| 2,191 | | ||
Total noninterest expense |
| 13,837 | |
| 14,883 | | ||
Income before income tax expense |
| 7,578 | |
| 8,224 | | ||
Income tax expense |
| 2,058 | |
| 2,310 | | ||
Net income |
| $ | 5,520 | |
| $ | 5,914 | |
Net income applicable to common stockholders |
| $ | 4,991 | |
| $ | 5,452 | |
Net income per common share data |
|
|
|
| ||||
Basic earnings per share |
| $ | 1.36 | |
| $ | 1.46 | |
Diluted earnings per share |
| 1.35 | |
| 1.45 | | ||
|
|
|
|
| ||||
Weighted-average basic shares |
| 3,669.9 | |
| 3,725.3 | | ||
Weighted-average diluted shares |
| 3,696.9 | |
| 3,757.5 | | ||
Cash dividends declared per common share |
| $ | 0.44 | |
| $ | 0.40 | |
(a) | The Firm recognized other-than-temporary impairment ("OTTI") losses of $11 million and $1 million for the three months ended March 31, 2016 and 2015, respectively. |
The Notes to Consolidated Financial Statements (unaudited) are an integral part of these statements.
|
|
|
|
|
71
JPMorgan Chase & Co.
Consolidated statements of comprehensive income (unaudited)
|
| Three months ended March 31, | ||||||
(in millions) |
| 2016 |
| 2015 | ||||
Net income |
| $ | 5,520 | |
| $ | 5,914 | |
Other comprehensive income, after–tax |
|
|
|
| ||||
Unrealized gains on investment securities |
| 425 | |
| 89 | | ||
Translation adjustments, net of hedges |
| (2 | ) |
| (10 | ) | ||
Cash flow hedges |
| (70 | ) |
| 77 | | ||
Defined benefit pension and OPEB plans |
| 25 | |
| 85 | | ||
Debit valuation adjustment ("DVA") on fair value option elected liabilities |
| 58 | |
| NA | | ||
Total other comprehensive income, after–tax |
| 436 | |
| 241 | | ||
Comprehensive income |
| $ | 5,956 | |
| $ | 6,155 | |
The Notes to Consolidated Financial Statements (unaudited) are an integral part of these statements.
72
JPMorgan Chase & Co.
Consolidated balance sheets (unaudited)
(in millions, except share data) | Mar 31, 2016 |
| Dec 31, 2015 | ||||
Assets |
|
|
| ||||
Cash and due from banks | $ | 18,212 | |
| $ | 20,490 | |
Deposits with banks | 360,196 | |
| 340,015 | | ||
Federal funds sold and securities purchased under resale agreements (included $24,122 and $23,141 at fair value) | 223,220 | |
| 212,575 | | ||
Securities borrowed (included zero and $395 at fair value) | 102,937 | |
| 98,721 | | ||
Trading assets (included assets pledged of $109,152 and $115,284) | 366,153 | |
| 343,839 | | ||
Securities (included $237,391 and $241,754 at fair value and assets pledged of $20,028 and $14,883) | 285,323 | |
| 290,827 | | ||
Loans (included $1,923 and $2,861 at fair value) | 847,313 | |
| 837,299 | | ||
Allowance for loan losses | (13,994 | ) |
| (13,555 | ) | ||
Loans, net of allowance for loan losses | 833,319 | |
| 823,744 | | ||
Accrued interest and accounts receivable | 57,649 | |
| 46,605 | | ||
Premises and equipment | 14,195 | |
| 14,362 | | ||
Goodwill | 47,310 | |
| 47,325 | | ||
Mortgage servicing rights | 5,658 | |
| 6,608 | | ||
Other intangible assets | 940 | |
| 1,015 | | ||
Other assets (included $7,520 and $7,604 at fair value and assets pledged of $1,329 and $1,286) | 108,696 | |
| 105,572 | | ||
Total assets (a) | $ | 2,423,808 | |
| $ | 2,351,698 | |
Liabilities |
|
|
| ||||
Deposits (included $12,019 and $12,516 at fair value) | $ | 1,321,816 | |
| $ | 1,279,715 | |
Federal funds purchased and securities loaned or sold under repurchase agreements (included $3,429 and $3,526 at fair value) | 160,999 | |
| 152,678 | | ||
Commercial paper | 17,490 | |
| 15,562 | | ||
Other borrowed funds (included $9,635 and $9,911 at fair value) | 19,703 | |
| 21,105 | | ||
Trading liabilities | 147,282 | |
| 126,897 | | ||
Accounts payable and other liabilities (included $4,599 and $4,401 at fair value) | 176,934 | |
| 177,638 | | ||
Beneficial interests issued by consolidated variable interest entities (included $670 and $787 at fair value) | 38,673 | |
| 41,879 | | ||
Long-term debt (included $35,215 and $33,065 at fair value) | 290,754 | |
| 288,651 | | ||
Total liabilities (a) | 2,173,651 | |
| 2,104,125 | | ||
Commitments and contingencies (see Notes 21 and 23) | | |
| | | ||
Stockholders' equity |
|
|
| ||||
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 | | ||
Additional paid-in capital | 91,782 | |
| 92,500 | | ||
Retained earnings | 149,730 | |
| 146,420 | | ||
Accumulated other comprehensive income | 782 | |
| 192 | | ||
Shares held in RSU Trust, at cost ( 472,953 shares) | (21 | ) |
| (21 | ) | ||
Treasury stock, at cost ( 448,274,970 and 441,459,392 shares) | (22,289 | ) |
| (21,691 | ) | ||
Total stockholders' equity | 250,157 | |
| 247,573 | | ||
Total liabilities and stockholders' equity | $ | 2,423,808 | |
| $ | 2,351,698 | |
(a) | The following table presents information on assets and liabilities related to variable interest entities ("VIEs") that are consolidated by the Firm at March 31, 2016 , and December 31, 2015 . The difference between total VIE assets and liabilities represents the Firm's interests in those entities, which were eliminated in consolidation. |
(in millions) | Mar 31, 2016 |
| Dec 31, 2015 | ||||
Assets |
|
|
| ||||
Trading assets | $ | 4,834 | |
| $ | 3,736 | |
Loans | 66,680 | |
| 75,104 | | ||
All other assets | 3,523 | |
| 2,765 | | ||
Total assets | $ | 75,037 | |
| $ | 81,605 | |
Liabilities |
|
|
| ||||
Beneficial interests issued by consolidated VIEs | $ | 38,673 | |
| $ | 41,879 | |
All other liabilities | 789 | |
| 809 | | ||
Total liabilities | $ | 39,462 | |
| $ | 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 March 31, 2016 , and December 31, 2015 , the Firm provided limited program-wide credit enhancement of $2.0 billion related to its Firm-administered multi-seller conduits, which are eliminated in consolidation. For further discussion, see Note 15 .
The Notes to Consolidated Financial Statements (unaudited) are an integral part of these statements.
73
JPMorgan Chase & Co.
Consolidated statements of changes in stockholders' equity (unaudited)
|
| Three months ended March 31, | ||||||
(in millions, except per share data) |
| 2016 |
| 2015 | ||||
Preferred stock |
|
|
|
| ||||
Balance at January 1 |
| $ | 26,068 | |
| $ | 20,063 | |
Issuance of preferred stock |
| - | |
| 1,430 | | ||
Balance at March 31 |
| 26,068 | |
| 21,493 | | ||
Common stock |
|
|
|
| ||||
Balance at January 1 and March 31 |
| 4,105 | |
| 4,105 | | ||
Additional paid-in capital |
|
|
|
| ||||
Balance at January 1 |
| 92,500 | |
| 93,270 | | ||
Shares issued and commitments to issue common stock for employee stock-based compensation awards, and related tax effects |
| (732 | ) |
| (987 | ) | ||
Other |
| 14 | |
| (38 | ) | ||
Balance at March 31 |
| 91,782 | |
| 92,245 | | ||
Retained earnings |
|
|
|
| ||||
Balance at January 1 |
| 146,420 | |
| 129,977 | | ||
Cumulative effect of change in accounting principle |
| (154 | ) |
| - | | ||
Net income |
| 5,520 | |
| 5,914 | | ||
Dividends declared: |
|
|
|
| ||||
Preferred stock |
| (412 | ) |
| (324 | ) | ||
Common stock ( $0.44 and $0.40 per share) |
| (1,644 | ) |
| (1,519 | ) | ||
Balance at March 31 |
| 149,730 | |
| 134,048 | | ||
Accumulated other comprehensive income |
|
|
|
| ||||
Balance at January 1 |
| 192 | |
| 2,189 | | ||
Cumulative effect of change in accounting principle |
| 154 | |
| - | | ||
Other comprehensive income |
| 436 | |
| 241 | | ||
Balance at March 31 |
| 782 | |
| 2,430 | | ||
Shares held in RSU Trust, at cost |
|
|
|
| ||||
Balance at January 1 and March 31 |
| (21 | ) |
| (21 | ) | ||
Treasury stock, at cost |
|
|
|
| ||||
Balance at January 1 |
| (21,691 | ) |
| (17,856 | ) | ||
Purchase of treasury stock |
| (1,696 | ) |
| (1,900 | ) | ||
Reissuance from treasury stock |
| 1,098 | |
| 1,320 | | ||
Balance at March 31 |
| (22,289 | ) |
| (18,436 | ) | ||
Total stockholders ' equity |
| $ | 250,157 | |
| $ | 235,864 | |
The Notes to Consolidated Financial Statements (unaudited) are an integral part of these statements.
74
JPMorgan Chase & Co.
| Three months ended March 31, | ||||||
(in millions) | 2016 |
| 2015 | ||||
Operating activities |
|
|
| ||||
Net income | $ | 5,520 | |
| $ | 5,914 | |
Adjustments to reconcile net income to net cash provided by operating activities: |
|
|
| ||||
Provision for credit losses | 1,824 | |
| 959 | | ||
Depreciation and amortization | 1,289 | |
| 1,181 | | ||
Deferred tax expense/(benefit) | 906 | |
| 33 | | ||
Other | 468 | |
| 513 | | ||
Originations and purchases of loans held-for-sale | (7,457 | ) |
| (8,856 | ) | ||
Proceeds from sales, securitizations and paydowns of loans held-for-sale | 7,818 | |
| 10,646 | | ||
Net change in: |
|
|
| ||||
Trading assets | (32,979 | ) |
| 5,450 | | ||
Securities borrowed | (4,826 | ) |
| 2,057 | | ||
Accrued interest and accounts receivable | (11,115 | ) |
| (27 | ) | ||
Other assets | (7,464 | ) |
| (10,199 | ) | ||
Trading liabilities | 24,919 | |
| 17,349 | | ||
Accounts payable and other liabilities | 124 | |
| (6,482 | ) | ||
Other operating adjustments | (410 | ) |
| (3,659 | ) | ||
Net cash provided by/(used in) operating activities | (21,383 | ) |
| 14,879 | | ||
Investing activities |
|
|
| ||||
Net change in: |
|
|
| ||||
Deposits with banks | (20,181 | ) |
| (21,906 | ) | ||
Federal funds sold and securities purchased under resale agreements | (10,577 | ) |
| (3,468 | ) | ||
Held-to-maturity securities: |
|
|
| ||||
Proceeds from paydowns and maturities | 1,218 | |
| 1,379 | | ||
Purchases | (134 | ) |
| (1,459 | ) | ||
Available-for-sale securities: |
|
|
| ||||
Proceeds from paydowns and maturities | 15,845 | |
| 25,221 | | ||
Proceeds from sales | 11,676 | |
| 6,909 | | ||
Purchases | (19,525 | ) |
| (21,663 | ) | ||
Proceeds from sales and securitizations of loans held-for-investment | 2,860 | |
| 4,661 | | ||
Other changes in loans, net | (15,925 | ) |
| (15,768 | ) | ||
All other investing activities, net | 162 | |
| 1,944 | | ||
Net cash used in investing activities | (34,581 | ) |
| (24,150 | ) | ||
Financing activities |
|
|
| ||||
Net change in: |
|
|
| ||||
Deposits | 51,978 | |
| 8,967 | | ||
Federal funds purchased and securities loaned or sold under repurchase agreements | 8,304 | |
| 4,468 | | ||
Commercial paper and other borrowed funds | 807 | |
| (11,885 | ) | ||
Beneficial interests issued by consolidated variable interest entities | (2,744 | ) |
| (510 | ) | ||
Proceeds from long-term borrowings | 15,718 | |
| 28,395 | | ||
Payments of long-term borrowings | (16,560 | ) |
| (22,183 | ) | ||
Proceeds from issuance of preferred stock | - | |
| 1,392 | | ||
Treasury stock purchased | (1,696 | ) |
| (1,900 | ) | ||
Dividends paid | (1,946 | ) |
| (1,770 | ) | ||
All other financing activities, net | (277 | ) |
| (637 | ) | ||
Net cash provided by financing activities | 53,584 | |
| 4,337 | | ||
Effect of exchange rate changes on cash and due from banks | 102 | |
| (76 | ) | ||
Net decrease in cash and due from banks | (2,278 | ) |
| (5,010 | ) | ||
Cash and due from banks at the beginning of the period | 20,490 | |
| 27,831 | | ||
Cash and due from banks at the end of the period | $ | 18,212 | |
| $ | 22,821 | |
Cash interest paid | $ | 2,129 | |
| $ | 1,601 | |
Cash income taxes paid, net | 447 | |
| 608 | |
The Notes to Consolidated Financial Statements (unaudited) are an integral part of these statements.
75
See Glossary of Terms for definitions of terms used throughout the Notes to Consolidated Financial Statements. |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
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 businesses, commercial banking, financial transaction processing and asset management. For a discussion of the Firm's business segments, see Note 24 .
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"). Additionally, where applicable, the policies conform to the accounting and reporting guidelines prescribed by regulatory authorities.
The unaudited Consolidated Financial Statements prepared in conformity with U.S. GAAP require management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expense, and the disclosures of contingent assets and liabilities. Actual results could be different from these estimates. In the opinion of management, all normal, recurring adjustments have been included for a fair statement of this interim financial information.
These unaudited Consolidated Financial Statements should be read in conjunction with the audited Consolidated Financial Statements, and related notes thereto, included in JPMorgan Chase 's Annual Report on Form 10-K for the year ended December 31, 2015 , as filed with the U.S. Securities and Exchange Commission (the "2015 Annual Report").
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 VIE.
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 Financial Accounting
Standards Board ("FASB") in February 2010 of the accounting 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. 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.
For a further description of JPMorgan Chase's accounting policies regarding consolidation, see Notes 1 and 16 of JPMorgan Chase's 2015 Annual Report.
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. For further information on offsetting assets and liabilities, see Note 1 of JPMorgan Chase 's 2015 Annual Report.
76
Note
2
– Business changes
There were no material business changes during the first quarter of 2016.
Note
3
– Fair value measurement
For a discussion of the Firm's valuation methodologies for assets, liabilities and lending-related commitments measured at fair value and the fair value hierarchy, see Note 3 of JPMorgan Chase's 2015 Annual Report.
77
Assets and liabilities measured at fair value on a recurring basis |
|
|
|
|
|
| |||||||||||
| Fair value hierarchy |
| Derivative netting adjustments |
| |||||||||||||
March 31, 2016 (in millions) | Level 1 | Level 2 |
| Level 3 |
| Total fair value | |||||||||||
Federal funds sold and securities purchased under resale agreements |