JP Morgan Chase 2014 Annual Report Download - page 80

Management’s discussion and analysis
78 JPMorgan Chase & Co./2014 Annual Report
Tangible common equity
Period-end Average
Dec 31,
2014 Dec 31, 2013
Year ended December 31,
(in millions, except per share and ratio data) 2014 2013 2012
Common stockholders’ equity $ 212,002 $ 200,020 $ 207,400 $ 196,409 $ 184,352
Less: Goodwill 47,647 48,081 48,029 48,102 48,176
Less: Certain identifiable intangible assets 1,192 1,618 1,378 1,950 2,833
Add: Deferred tax liabilities(a) 2,853 2,953 2,950 2,885 2,754
Tangible common equity $ 166,016 $ 153,274 $ 160,943 $ 149,242 $ 136,097
Return on tangible common equity NA NA 13% 11% 15%
Tangible book value per share $ 44.69 $ 40.81 NA 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.
Core net interest income
In addition to reviewing net interest income on a managed
basis, management also reviews core net interest income to
assess the performance of its core lending, investing
(including asset-liability management) and deposit-raising
activities. These activities exclude the impact of CIB’s
market-based activities. The core data presented below are
non-GAAP financial measures due to the exclusion of CIB’s
market-based net interest income and related assets.
Management believes this exclusion provides investors and
analysts another measure by which to analyze the non-
market-related business trends of the Firm and provides a
comparable measure to other financial institutions that are
primarily focused on core lending, investing and deposit-
raising activities.
Core net interest income data
Year ended December 31,
(in millions, except rates) 2014 2013 2012
Net interest income - managed
basis(a)(b) $ 44,619 $ 44,016 $ 45,653
Less: Market-based net interest
income(c) 5,552 5,492 6,223
Core net interest income(a)(c) $ 39,067 $ 38,524 $ 39,430
Average interest-earning assets $ 2,049,093 $ 1,970,231 $ 1,842,417
Less: Average market-based
earning assets 510,261 504,218 499,339
Core average interest-earning
assets $ 1,538,832 $ 1,466,013 $1,343,078
Net interest yield on interest-
earning assets - managed basis 2.18% 2.23% 2.48%
Net interest yield on market-based
activities(c) 1.09 1.09 1.25
Core net interest yield
on core average
interest-earning assets(c) 2.54% 2.63% 2.94%
(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 77.
(c) Effective with the fourth quarter of 2014, the Firm changed the methodology it
uses to allocate preferred stock dividends to the lines of business. Prior period
amounts were revised to conform with the current allocation methodology. The
Firm’s Consolidated balance sheets and consolidated results of operations were
not affected by this reporting change. For further discussion please see
Preferred stock dividend allocation reporting change on pages 79–80.
2014 compared with 2013
Core net interest income increased by $543 million in 2014
to $39.1 billion, and core average interest-earning assets
increased by $72.8 billion to $1.5 trillion. The increase in
net interest income in 2014 predominantly reflected higher
yields on investment securities, the impact of lower interest
expense, and higher average loan balances. The increase
was partially offset by lower yields on loans due to the run-
off of higher-yielding loans and new originations of lower-
yielding loans. The increase in average interest-earning
assets largely reflected the impact of higher average
balance of deposits with banks. These changes in net
interest income and interest-earning assets resulted in the
core net interest yield decreasing by 9 basis points to
2.54% for 2014.
2013 compared with 2012
Core net interest income decreased by $906 million in
2013 to $38.5 billion, and core average interest-earning
assets increased by $122.9 billion to $1.5 trillion. The
decline in net interest income in 2013 primarily reflected
the impact of the runoff of higher-yielding loans and
originations of lower-yielding loans. The decrease in net
interest income was partially offset by lower long-term debt
and other funding costs. The increase in average interest-
earning assets reflected the impact of higher deposits with
banks. The core net interest yield decreased by 31 basis
points to 2.63% in 2013, primarily reflecting the impact of
a significant increase in deposits with banks and lower loan
yields, partially offset by the impact of lower long-term debt
yields and deposit rates.