Danny Meyer’s vision to update the classic burger and milk shake stand began in 2001 with a humble hot dog cart built to raise funds for a public park in New York City. In 2009, amidst a turbulent market and an uncertain economy, Meyer needed a partner to help grow Shake Shack, his fine-casual dining concept. Recognizing their team’s passion, track record and management talent, our bankers supported CEO Randy Garutti and the growing company with a loan at a critical time. Marking another important milestone, Shake Shack selected our firm to lead its successful initial public offering on the New York Stock Exchange in January 2015. Today Meyer, Garutti and the entire Shake Shack team are bringing this community-gathering experience to devoted fans across the globe. We are incredibly proud of our client’s success and deeply appreciate the trust and confidence they placed in us.
Building the best commercial bank has one principle at its core: standing by all of our clients, like Shake Shack, and providing unwavering support even in difficult times. While we have addressed significant changes in our industry, we remained focused on our clients and worked hard to bring value to our relationships. This continues to guide our strategy and how we do business, and I’m excited to share our 2015 results and our plans for 2016.
For the year, Commercial Banking (CB) produced strong results, with $6.9 billion of revenue, $2.2 billion of net income and a return on equity of 15%. Loan growth across the business was robust, ending 2015 with record loan balances of $168 billion, up $19 billion from the prior year. Our Middle Market business grew loans for the sixth consecutive year, and our Commercial Real Estate businesses continued to deliver record results.
With our disciplined underwriting and proven credit model, CB’s credit performance remained exceptional in 2015, marking the fourth straight year of net charge-offs less than 10 basis points. While certain areas of the economy are facing challenges, such as the energy and commodities sectors, CB’s overall loan portfolio remains in excellent shape, and we feel very well-positioned as we closely monitor market conditions.
To set the standard in the industry, we continued to enhance our regulatory and control capabilities. While we have more to do, we are quite proud of the tremendous progress we have made in further safeguarding our clients and our business. Our fortress risk and compliance principles serve to guide us every day.
Being a part of JPMorgan Chase gives us unmatched capabilities to serve our clients. No other commercial bank has both our strong client franchise and the ability to offer the number one investment bank, a leading asset management franchise, comprehensive payments solutions and an extensive branch network. Bringing these robust services to all of our clients, as we did with Shake Shack, provides us with unique competitive advantages and the opportunity to build deep, enduring relationships.
Our partnership with the Corporate & Investment Bank (CIB) is a fantastic example of where our broad-based capabilities differentiate us with our clients. With dedicated investment banking (IB) coverage, we’ve deepened our client relationships by providing important strategic advice and capital market access. This successful partnership has consistently delivered record IB revenue for CB clients, growing to $2.2 billion in 2015. Notably, we achieved this even while overall industry IB revenue contracted last year.
Executing our disciplined growth strategy
Across CB, we continue to make great progress in executing our long-term growth strategy. We are building with patience and discipline, hiring great bankers, picking the best clients and selectively expanding our loan portfolios.
Commercial & Industrial
To bring clients deeper sector expertise and to better manage our risk, we’ve expanded our specialized industry model. Today, we have 15 key dedicated industry teams working with more than 9,000 clients and covering 12,000 prospects. Our clients clearly benefit from our sector-specific knowledge and focused coverage. As a result, we’ve seen meaningful gains in market share across these important segments.
2015 marked the sixth year of our Middle Market expansion strategy. Through this effort, we’ve added nearly 2,000 clients, and in 2015, we generated record revenue of $351 million across our expansion markets. In these new regions, we are building organically – banker by banker, client by client – essentially creating a nice-sized bank from scratch, ending 2015 with nearly $11 billion of loans and over $8 billion in deposits. Last year, we opened new offices in Fresno, California; Greenville, South Carolina; Hartford, Connecticut; and Wilmington, Delaware. We expect to further expand our footprint in 2016.
Commercial Real Estate
With continued focus and discipline, we believe we’re building a commercial real estate business that is differentiated from our competitors. Our franchise consists of three well-coordinated businesses: Commercial Term Lending, Real Estate Banking and Community Development Banking. Together, our real estate teams originated $32 billion in loans in 2015, up 28% from the prior year.
As the industry moves through the real estate cycle, we believe we can continue to grow our portfolio safely by adding high-quality clients in large, established markets. In the next three years, there will be over $1 trillion of commercial real estate maturities that will drive future originations. We see real opportunities to capture additional market share in targeted geographic areas while maintaining our credit and pricing discipline.
A real source of pride across our company is our Community Development Banking (CDB) business. In 2015, the CDB team financed nearly 100 projects that created more than 10,000 units of affordable housing. One in particular, the Alice Griffith Community, located on Candlestick Point in San Francisco, started its fourth phase of construction that will bring much needed affordable housing and amenities to the area. The effort not only replaces a troubled public housing complex but also creates new affordable units that will be linked with services, schools and access to jobs.
Investing in our future
While our business model is proven, we are in no way standing still. We are driving our business forward through investments in technology and innovation. We see real opportunity to enhance our business processes, improve our customer experience, and increase the speed and security of our clients’ transactions.
One exciting example is the work we’re doing alongside Consumer & Community Banking to upgrade our digital and online platforms. Our enhanced capabilities will expand functionality and allow clients to execute transactions more quickly and easily. In addition, we recently partnered with the CIB to launch a new corporate QuickPay capability, which will help our clients migrate business-to-business payments from expensive paper checks to simple email transactions.
Lastly, with expanded data and analytical capabilities, we are focusing on transforming information into intelligence and insights to help us manage risk and shape product development. We’ve also been developing analytical tools to help our bankers better identify and target new clients in markets across the United States.
Our business takes great pride in the outstanding clients we serve, and we are grateful every day for the confidence they place in us. I want to thank our extremely talented team for making that confidence possible and building true partnerships with our clients. Our success depends on our people, and your Commercial Banking team shows unwavering dedication to the clients and communities they serve.
Looking forward, I’m incredibly optimistic about the future of Commercial Banking. We are maintaining our long-term focus and making the right strategic investments to build upon our enduring business. I’m confident our team will seize the opportunities in front of us and continue to deliver for our clients and shareholders.
CEO, Commercial Banking
2015 Highlights and Accomplishments
- Delivered revenue of $6.9 billion
- Grew end-of-period loans 13%; 22 consecutive quarters of loan growth
- Generated return on equity of 15% on $14 billion of allocated capital
- Continued superior credit quality — net charge-off ratio of 0.01%
- #1 U.S. multifamily lender footnote 1
- #1 Customer Satisfaction, CFO Magazine Commercial Banking Survey, 2015
- Top 3 in overall Middle Market, large Middle Market and Asset Based Lending bookrunner footnote 2
- Recognized in 2015 by Greenwich Associates as a Best Brand for Middle Market Banking overall and in loans or lines of credit, cash management, trade finance and investment banking
Business segment highlights
- Middle Market Banking — Added more than 600 new clients
- Corporate Client Banking — Record gross investment banking revenue footnote 3
- Commercial Term Lending — Record originations of over $19 billion
- Real Estate Banking — Completed its best year ever with record originations over $11 billion
- Community Development Banking — Originated over $1 billion in new construction loans, building more than 10,000 units of affordable housing in over 70 cities
- Commercial Banking clients accounted for 36% of total North American investment banking fees footnote 4
- Over $120 billion in assets under management from Commercial Banking clients, generating more than $445 million in Investment Management revenue
- $469 million in Card Services revenue footnote 3
- $2.6 billion in Treasury Services revenue
Progress in key growth areas
- Middle Market expansion — Record revenue of $351 million; 46% CAGR footnote 5 since 2010
- Investment banking — Record gross revenue of $2.2 billion; 10% CAGR footnote 5 since 2010
- International banking — Revenue footnote 6 of $288 million; 16% CAGR footnote 5 since 2010
- SNL Financial based on Federal Deposit Insurance Corporation data as of 3Q 2015
- Thomson Reuters as of year-end 2015
- Investment banking and Card Services revenue represents gross revenue generated by CB clients
- Calculated based on gross domestic investment banking revenue for syndicated and leveraged finance, M&A, equity underwriting and bond underwriting
- Compound annual growth rate
- Overseas revenue from U.S. multinational clients