JPMORGAN CHASE & CO
For the period ended Dec 31, 2023. Filed Feb 16, 2024.
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FY2023 · Filed Feb 16, 2024
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Allowance for credit losses
The Firm’s allowance for credit losses represents management's estimate of expected credit losses over the remaining expected life of the Firm's financial assets measured at amortized cost and certain off-balance sheet lending-related commitments. The Firm’s allowance for credit losses generally consists of:
the allowance for loan losses, which covers the Firm’s retained loan portfolios (scored and risk-rated) and is presented separately on the Consolidated balance sheets,
the allowance for lending-related commitments, which is reflected in accounts payable and other liabilities on the Consolidated balance sheets, and
the allowance for credit losses on investment securities, which is reflected in investment securities on the Consolidated balance sheets.
Discussion of changes in the allowance
The allowance for credit losses as of December 31, 2023 was $24.8 billion, reflecting a net addition of $3.1 billion from December 31, 2022.
$1.3 billion inconsumer, predominantly driven by CCB, comprised of $1.4 billion in Card Services, partially offset by a net reduction of $200 million in Home Lending. The net addition in Card Services was driven by loan growth, including an increase in revolving balances, partially offset by reduced borrower uncertainty. The net reduction in Home Lending was driven by improvements in the outlook for home prices, and
$675 million inwholesale, driven by net downgrade activity, the net effect of changes in the Firm’s weighted average macroeconomic outlook, including deterioration in the outlook for commercial real estate in CB, and an addition for certain accounts receivable in CIB, partially offset by the impact of changes in the loan and lending-related commitment portfolios.
The changes in the Firm's weighted average macroeconomic outlook also included updates to the central scenario in the third quarter of 2023 to reflect a lower forecasted unemployment rate consistent with a higher growth rate in GDP, and the impact of the additional weight placed on the adverse scenarios in the first quarter of 2023, reflecting elevated recession risks due to high inflation and tightening financial conditions.
The allowance for credit losses also reflected a reduction of$587 million as a result of the adoption of changes to the TDR accounting guidance on January 1, 2023. Refer to Note 1 for further information.
The Firm's allowance for credit losses is estimated using a weighted average of five internally developed macroeconomic scenarios. The adverse scenarios incorporate more punitive macroeconomic factors than the central case assumptions provided in the table below, resulting in a weighted average U.S. unemployment rate peaking at 5.5% in the fourth quarter of 2024, and a weighted average U.S. real GDP level that is 1.5% lower than the central case at the end of the second quarter of 2025.
The following table presents the Firm’s central case assumptions for the periods presented:
| Central case assumptions at December 31, 2023 | |||
|---|---|---|---|
| 2Q24 | 4Q24 | 2Q25 | |
| U.S. unemployment rate(a) | 4.1% | 4.4% | 4.1% |
| YoY growth in U.S. real GDP(b) | 1.8% | 0.7% | 1.0% |
| Central case assumptions at December 31, 2022 | |||
|---|---|---|---|
| 2Q23 | 4Q23 | 2Q24 | |
| U.S. unemployment rate(a) | 3.8% | 4.3% | 5.0% |
| YoY growth in U.S. real GDP(b) | 1.5% | 0.4% | —% |
(a)Reflects quarterly average of forecasted U.S. unemployment rate.
(b)The year over year growth in U.S. real GDP in the forecast horizon of the central scenario is calculated as the percentage change in U.S. real GDP levels from the prior year.
Subsequent changes to this forecast and related estimates
will be reflected in the provision for credit losses in future
periods.
Refer to Critical Accounting Estimates Used by the Firm onpages 155–158 for further information on the allowance for credit losses and related management judgments.
Refer to Consumer Credit Portfolio on pages 114–119, Wholesale Credit Portfolio onpages 120–130 for additional information on the consumer and wholesale credit portfolios.
| Allowance for credit losses and related information | ||||||||
|---|---|---|---|---|---|---|---|---|
| 2023 | 2022 | |||||||
| Year ended December 31, | Consumer, excluding credit card | Credit card | Wholesale | Total | Consumer, excluding credit card | Credit card | Wholesale | Total |
| (in millions, except ratios) | ||||||||
| Allowance for loan losses | ||||||||
| Beginning balance at January 1, | $2,040 | $11,200 | $6,486 | $19,726 | $1,765 | $10,250 | $4,371 | $16,386 |
| Cumulative effect of a change in accounting principle(a) | (489) | (100) | 2 | (587) | NA | NA | NA | NA |
| Gross charge-offs | 1,151 | 5,491 | 1,011 | 7,653 | 812 | 3,192 | 322 | 4,326 |
| Gross recoveries collected | (519) | (793) | (132) | (1,444) | (543) | (789) | (141) | (1,473) |
| Net charge-offs | 632 | 4,698 | 879 | 6,209 | 269 | 2,403 | 181 | 2,853 |
| Provision for loan losses | 936 | 6,048 | 2,484 | 9,468 | 543 | 3,353 | 2,293 | 6,189 |
| Other | 1 | — | 21 | 22 | 1 | — | 3 | 4 |
| Ending balance at December 31, | $1,856 | $12,450 | $8,114 | $22,420 | $2,040 | $11,200 | $6,486 | $19,726 |
| Allowance for lending-related commitments | ||||||||
| Beginning balance at January 1, | $76 | $— | $2,306 | $2,382 | $113 | $— | $2,148 | $2,261 |
| Provision for lending-related commitments | (1) | — | (407) | (408) | (37) | — | 157 | 120 |
| Other | — | — | — | — | — | — | 1 | 1 |
| Ending balance at December 31, | $75 | $— | $1,899 | $1,974 | $76 | $— | $2,306 | $2,382 |
| Impairment methodology | ||||||||
| Asset-specific(b) | $(876) | $— | $392 | $(484) | $(624) | $223 | $467 | $66 |
| Portfolio-based | 2,732 | 12,450 | 7,722 | 22,904 | 2,664 | 10,977 | 6,019 | 19,660 |
| Total allowance for loan losses | $1,856 | $12,450 | $8,114 | $22,420 | $2,040 | $11,200 | $6,486 | $19,726 |
| Impairment methodology | ||||||||
| Asset-specific | $— | $— | $89 | $89 | $— | $— | $90 | $90 |
| Portfolio-based | 75 | — | 1,810 | 1,885 | 76 | — | 2,216 | 2,292 |
| Total allowance for lending-related commitments | $75 | $— | $1,899 | $1,974 | $76 | $— | $2,306 | $2,382 |
| Total allowance for investment securities | NA | NA | NA | $128 | NA | NA | NA | $96 |
| Total allowance for credit losses(c)(d) | $1,931 | $12,450 | $10,013 | $24,522 | $2,116 | $11,200 | $8,792 | $22,204 |
| Memo: | ||||||||
| Retained loans, end of period | $397,275 | $211,123 | $672,472 | $1,280,870 | $300,753 | $185,175 | $603,670 | $1,089,598 |
| Retained loans, average | 364,061 | 191,412 | 646,875 | 1,202,348 | 299,409 | 163,335 | 582,021 | 1,044,765 |
| Credit ratios | ||||||||
| Allowance for loan losses to retained loans | 0.47% | 5.90% | 1.21% | 1.75% | 0.68% | 6.05% | 1.07% | 1.81% |
| Allowance for loan losses to retained nonaccrual loans(e) | 51 | NA | 346 | 374 | 53 | NM | 330 | 338 |
| Allowance for loan losses to retained nonaccrual loans excluding credit card | 51 | NA | 346 | 166 | 53 | NM | 330 | 146 |
| Net charge-off rates | 0.17 | 2.45 | 0.14 | 0.52 | 0.09 | 1.47 | 0.03 | 0.27 |
(a)Represents the impact to the allowance for loan losses upon the adoption of changes to the TDR accounting guidance on January 1, 2023. Refer to Note 1 for further information.
(b)Includes collateral-dependent loans, including those for which foreclosure is deemed probable, and nonaccrual risk-rated loans for all periods presented. Prior periods also include non collateral-dependent TDRs or reasonably expected TDRs and modified PCD loans.
(c)At December 31, 2023 and 2022, in addition to the allowance for credit losses in the table above, the Firm also had an allowance for credit losses of $243 million and $21 million, respectively, associated with certain accounts receivable in CIB.
(d)As of December 31, 2023, included the allowance for credit losses associated with First Republic.
(e)The Firm’s policy is generally to exempt credit card loans from being placed on nonaccrual status as permitted by regulatory guidance.
Allocation of allowance for loan losses
The table below presents a breakdown of the allowance for loan losses by loan class. Refer to Note 12 for further information on loan classes.
| 2023 | 2022 | |||
|---|---|---|---|---|
| December 31,(in millions, except ratios) | Allowance for loan losses | Percent of retained loans to total retained loans | Allowance for loan losses | Percent of retained loans to total retained loans |
| Residential real estate | $817 | 25% | $1,070 | 22% |
| Auto and other | 1,039 | 6 | 970 | 6 |
| Consumer, excluding credit card | 1,856 | 31 | 2,040 | 28 |
| Credit card | 12,450 | 16 | 11,200 | 17 |
| Total consumer | 14,306 | 47 | 13,240 | 45 |
| Secured by real estate | 2,997 | 13 | 1,782 | 12 |
| Commercial and industrial | 3,519 | 13 | 3,507 | 15 |
| Other | 1,598 | 27 | 1,197 | 28 |
| Total wholesale | 8,114 | 53 | 6,486 | 55 |
| Total(a) | $22,420 | 100% | $19,726 | 100% |
(a) As of December 31, 2023, included the allowance for loan losses associated with First Republic.
INVESTMENT PORTFOLIO RISK MANAGEMENT
Investment portfolio risk is the risk associated with the loss of principal or a reduction in expected returns on investments arising from the investment securities portfolio or from principal investments. The investment securities portfolio is predominantly held by Treasury and CIO in connection with the Firm's balance sheet and asset-liability management objectives. Principal investments are predominantly privately-held financial instruments and are managed in the LOBs and Corporate. Investments are typically intended to be held over extended periods and, accordingly, the Firm has no expectation for short-term realized gains with respect to these investments.
Investment securities risk
Investment securities risk includes the exposure associated with a default in the payment of principal and interest. This risk is mitigated given that the investment securities portfolio held by Treasury and CIO predominantly consists of high-quality securities. At December 31, 2023, the Treasury and CIO investment securities portfolio, net of the allowance for credit losses, was $569.2 billion, and the average credit rating of the securities comprising the portfolio was AA+ (based upon external ratings where available, and where not available, based primarily upon internal risk ratings). Refer to Corporate segment results on pages 84–85 and Note 10 for further information on the investment securities portfolio and internal risk ratings. Refer to Liquidity Risk Management on pages 102–109 for further information on related liquidity risk. Refer to Market Risk Management on pages 135–143 for further information on the market risk inherent in the portfolio.
Investment securities risks are governed by the Firm’s Risk Appetite framework, and reviewed at the CTC Risk Committee with regular updates provided to the Board Risk Committee.
The Firm’s independent control functions are responsible for reviewing the appropriateness of the carrying value of investment securities in accordance with relevant policies. Approved levels for investment securities are established for each risk category, including capital and credit risks.
Principal investment risk
Principal investments are typically privately-held financial instruments representing ownership interests or other forms of junior capital. In general, principal investments include tax-oriented investments and investments made to enhance or accelerate the Firm’s business strategies and exclude those that are consolidated on the Firm's balance sheets. These investments are made by dedicated investing businesses or as part of a broader business strategy. The Firm’s principal investments are managed by the LOBs and Corporate and are reflected within their respective financial results. The Firm’s investments will continue to evolve based on market circumstances and in line with its strategic initiatives, including the Firm’s environmental and social goals.
The table below presents the aggregate carrying values of the principal investment portfolios as of December 31, 2023 and 2022.
| (in billions) | December 31, 2023 | December 31, 2022 |
|---|---|---|
| Tax-oriented investments, primarily in alternative energy and affordable housing(a) | $28.8 | $26.2 |
| Private equity, various debt and equity instruments, and real assets | 10.5 | 10.8 |
| Total carrying value | $39.3 | $37.0 |
(a)As of December 31, 2023, included approximately $1.0 billion in tax-oriented investments in CIB associated with First Republic.
The Firm’s approach to managing principal investment risk is consistent with the Firm’s risk governance structure. The Firm has established a Firmwide risk policy framework for all principal investing activities that includes approval by executives who are independent from the investing businesses, as appropriate.
The Firm’s independent control functions are responsible for reviewing the appropriateness of the carrying value of investments in accordance with relevant policies. As part of the risk governance structure, approved levels for investments are established and monitored for each relevant business or segment in order to manage the overall size of the portfolios. The Firm also conducts stress testing on these portfolios using specific scenarios that estimate losses based on significant market moves and/or other risk events.
The text of this filing, as the company filed it with the SEC, without its images or exhibits. This is not investment advice.