2015 financial results
Consumer & Community Banking (CCB) had another strong year in 2015. For the full year, we achieved a return on equity of 18% on net income of $9.8 billion and revenue of $43.8 billion.
All of our CCB businesses performed well. We continued our strategy of delivering an outstanding customer experience and developing stronger relationships with customers. In 2015, we added approximately 600,000 households to Chase; and today, we have consumer relationships with nearly 50% of U.S. households and over 90 million credit, debit and prepaid accounts.
In 2015, we also stepped up our focus on growing engaged customers – people who choose Chase as their primary bank and have a Chase debit or credit card at the top of their wallet. In doing so, we grew our CCB average deposits 9% to more than $530 billion and are #1 in primary bank relationships within our Chase footprint. And we remain the #1 credit card issuer in the United States based on loans outstanding.
When I look back over the last three years, the people in CCB have made remarkable progress. It felt like only a short time ago when we were faced with considerable headwinds – several regulatory actions, inconsistent customer experiences across Chase and an expense base growing faster than revenue. And all this was happening during a period of formidable economic headwinds – an extremely challenged Mortgage Banking market and flat interest rates compressed our net interest income in Consumer Banking.
We worked through that rough economic period by relentlessly focusing on three priorities: 1) strengthening our controls, 2) delivering a great customer experience and 3) reducing expenses. These three priorities have become a core part of our DNA and how we run the business.
We had to make some very tough decisions around simplifying our business, reducing the number of people and prioritizing investments to focus on our strategy. We had to stop doing things we liked and discontinue some products that just weren’t core to how we serve customers. And we are very glad we did. We will not lose our intense focus on those priorities, but with several key milestones behind us, we now can accelerate the pace of innovation at Chase. We are excited about what’s coming in 2016 – new product launches, digital features, technology and innovative marketing investments.
In my nine years at Chase, I’ve never been more optimistic about where we are and where we are headed. In short, I wouldn’t trade our hand for anyone else’s. We have a set of businesses with leadership positions that would be very difficult to replicate. In 2015, Chase was #1 in total U.S. credit and debit payments volume, the #1 wholly owned merchant acquirer, the #2 mortgage originator and servicer, and the #3 bank auto lender. We also grew our deposit volumes at nearly twice the industry growth rate. And we continue to deepen relationships across Chase.
We also continue to lead the industry in digital adoption. Chase.com is the #1 most visited banking portal in the United States, with nearly 40 million active online customers. Our Chase Mobile® app has nearly 23 million active mobile customers, up 20% since 2014, the highest mobile growth rate among large banks.
In short, scale matters. Scale matters to our shareholders because it allows us to use our strong operating leverage to invest and grow in good times and bad. And scale matters to our customers because we can provide them with leading products that meet all of their financial needs at every stage of their lives. But we know customers don’t care about scale unless it’s relevant to them.
Scale does not mean acting like a “big bank.” Today’s customers expect a great customer experience everywhere they do business, and banking is no exception. We have been intensely focused on delivering an outstanding customer experience – customer by customer across every interaction – branches, call centers, chase.com and mobile banking.
We measure customers’ satisfaction in many ways. One key source is J.D. Power, where Chase has made significant progress since 2010. Our Credit Card business now is #3, up from #5 in 2010, and our score jumped 81 points over the same time frame. In addition, Chase has been recognized nationally as having the strongest performance in attracting new customers, satisfying and retaining customers, and winning a larger share of its customers’ total retail banking business by TNS for the third year in a row.
Similarly, our Net Promoter Score (NPS), which tracks how many customers would refer a friend to Chase minus those who would not, has increased across most businesses – most notably in Mortgage Banking originations, where NPS has gone up by 38 points since 2010. Finally, our Chase Mobile app is the #1 rated mobile banking app. However, we will never declare “victory” in providing a great customer experience. There always will be work to do and areas where we aren’t getting it totally right. But we feel extremely proud of the significant progress we’ve made and our upward momentum.
Digital is a core part of our customer experience. We know digitally centric customers are happier with Chase and stay with us longer. Since 2012, nearly 100 million transactions that used to be done in branches are increasingly migrating to faster and easier digital channels. Of the 3.7 million new checking accounts we acquired in 2015, almost 60% of these were for millennial customers, who often choose Chase because of our digital capabilities. While millennials clearly are a digital-first generation, research shows that approximately 60% of all consumers rate mobile banking as an important or extremely important factor when switching banks. In fact, for new customers of Consumer Banking, 65% actively use mobile banking after six months, up from 53% in 2014.
Today’s ATMs have come a long way since they were first installed in 1969 – they now are another important digital option for customers. Nearly 90% of transactions that historically were performed in branches by a teller soon will be possible at our new ATMs. That’s a huge convenience for our customers who want to self-serve – we have nearly 18,000 ATMs around the country. Digital also is a significantly less expensive way to serve customers – it costs us about half as much to serve a digitally centric customer than all other primary relationships. As an example, the cost to deposit a check with a teller is about 65 cents, whereas a check deposited with mobile QuickDepositSM costs pennies. And in 2016, our customers will be able to withdraw cash using a PIN from their phone rather than a debit card.
We’ve also made it easier than ever for customers who prefer electronic statements to receive them. Customers now can easily access their statements online on their desktops, on their phones or other mobile devices at their convenience. Today, more than 60% of new checking accounts are paperless within 30 days of opening an account, up dramatically from roughly 25% two years ago. Many customers prefer the convenience, and it’s a more efficient option for the bank. Sending a customer an electronic statement costs about a penny vs. approximately 50 cents for a paper one. Even more important, we save a lot of trees in the process.
Credit — the best of times
We are experiencing one of the most benign credit environments we have ever seen. While low interest rates have been a headwind for Consumer Banking, low credit losses have been a significant tailwind. Net charge-off rates are very low across CCB at 0.99%. We know it won’t last forever. We have seen these cycles turn quickly, and we won’t forget the hard-fought lessons of 2008. We are very focused on maintaining our highly disciplined approach to credit and running a high-quality lending business that should have relative stability throughout the economic cycle.
Nowhere has this been more true than in our Mortgage Banking business. We’ve evolved into a higher quality, less volatile business with fewer products. We continue to improve the quality of our servicing portfolio both by managing down our defaulted units and increasing the quality of our new originations. We’ve also continued to simplify by eliminating complex products that few of our customers were using. And we are seeing results. Our net charge-off rates in Mortgage Banking are down from a high of 4.31% in 2009. And approximately 90% of our Mortgage Banking losses from 2008 to 2015 were from products we no longer offer today.
In Auto, we’ve seen certain competitors get more aggressive in lending to customers with riskier credit, but we’ve maintained our discipline by focusing on customers with high credit scores and responsible loan-to-value ratios.
Our disciplined strategy may result in lower revenue growth in the short term compared with some of our competitors, but we believe our approach builds a more stable business for the long term. We want to establish sustainable credit for our customers in good times and bad and ensure that our company and our shareholders are protected from a bubble mentality that may come back to haunt us later.
Along with credit discipline, we have been very disciplined with expenses. Since 2012, we’ve made significant progress in reducing our noninterest expense by nearly $4 billion. We did this by making tough decisions across the firm to cut structural expenses.
However, it’s important to distinguish what expenses need to be cut and which investments can generate value for our customers and future revenue for our shareholders. There are two key areas where we have been steadfast in funding: technology and marketing. We’ve invested to upgrade our systems, making them more automated and easier to use for customers and employees. And we know continued investment in marketing provides proven returns.
For example, a $100 million investment in Credit Card marketing typically generates on average ~400,000 new accounts, ~$3 billion in annual customer spend and ~$600 million in outstanding balances. And the same investment in Consumer Banking marketing will generate on average ~300,000 new households and ~$2.6 billion in deposits. These investments not only drive revenue and deposits but represent new households that we can deepen relationships with over time. That said, if the market turns or we see a change in how these investments perform, we can pull them back quickly.
Payments is another significant area of opportunity. We’re unique in the market because we are a complete payments system with an unmatched combination of scale and reach. Chase customers make approximately 36 million credit and debit card payments every day on more than 90 million credit, debit and prepaid card accounts. Our Commerce Solutions business processed almost $1 trillion of payments volume in 2015 alone. And our ChaseNetSM proprietary closed-loop network allows us to complete the entire payments transaction between cardholder and merchant. With that combination, we’ve built a world-class payments franchise, and it’s become a significant differentiator for us.
Last fall, we announced Chase PaySM, our proprietary digital payment solution that will connect merchants and consumers through a simple, secure payment experience. It will address both the merchant experience and consumer-to-business payments.
We also are participating in other consumer-to-business payments options, including Apple PayTM and Samsung PayTM, to give our customers choices in their payments – and to encourage them to make their Chase card their first choice. In addition, we issued more than 80 million chip-enabled credit and debit cards to keep payments safe and secure.
Over the past year, we announced or renewed several significant partnerships. In our Credit Card business, we renewed three key co-brand partners – Amazon, United Airlines and Southwest Airlines. All have been longtime partners, and our customers continue to highly value these cards.
The economics on most partner relationships in the industry are compressing, but they still are significant revenue generators for us and are a strong component of our growth. Cobrand new account volumes increased almost 40% from 2012 to 2015. In Auto Finance, we renewed a core partnership with Mazda North American Operations, the U.S. sales arm for Mazda vehicles, where we have been its finance partner since 2008. We also began a multi-year relationship with Enterprise Car Sales to finance consumers purchasing rental-fleet vehicles, as well as other vehicles, from more than 130 U.S.-based locations around the country.
Build, partner or buy
Competition is changing. We not only have to compete with the large and formidable competitors we always have but also with new market entrants both big and small. Large technology companies, like Apple and Google, are getting into the payments space, and every day, new companies are emerging to compete with subsegments of our businesses. Many of these disruptors are tapping into an exceptional experience or user interface that customers like. Across industries, whether retail, transportation or banking, companies have excelled at removing customer pain points with simple experiences. The experience itself has created loyalty.
Our strategy is to take that customer insight to heart and strive to create simple, largely digital experiences. Last year alone, we introduced several innovations. We were one of the first U.S. banks to introduce touch ID log-in for customers using the Chase Mobile app on their iPhone. We posted credit score information online for our Slate® customers and created a mobile app for our popular Chase Freedom® rewards card. We began to move customers to a new chase.com site, which is easier and faster for customers to use, and we started using a digital token instead of a customer’s account number to more securely authorize transactions..
In addition, we explored partnerships and have found that many of these new companies are excited to work with us. Often there is a great fit for both sides – we can quickly apply their technology to benefit our customers, and these companies strengthen and grow from working with Chase. As an example, we announced a collaboration with an online business lender to help us create a new small business solution for quick access to working capital. This new, entirely digital offering, Chase Business Quick CapitalSM, will provide real-time approvals for small dollar loans. Once approved, our business customers will get next-day – or, in many cases, same-day – funding to run and grow their businesses. We’ll still apply our same strong credit standards but will give our customers a disruptively easy experience and working capital product they have been asking for.
We always are evaluating other potential partners, and where it makes sense to collaborate, white label or directly acquire, we will do so if we think it gives our customers a better experience and makes Chase stronger for the future. We can’t get complacent for a minute, but with our loyal customer base of nearly 58 million households and the ability to invest, partner and innovate, we will be very hard to truly disrupt.
Across CCB, we feel very well positioned for the future. The CCB leadership team and I are so proud to serve our customers and shareholders and to lead this exceptional business. Thank you for your investment in our company.
CEO, Consumer & Community Banking
2015 Highlights and Accomplishments
- Consumer relationships with almost half of U.S. households
- #1 in primary bank relationships in our Chase footprint
- Deposit volume growing at nearly twice the industry rate
- #1 most visited banking portal in the U.S. — chase.com
- #1 rated mobile banking app
- #1 credit card issuer in the U.S. based on loans outstanding
- #1 U.S. co-brand credit card issuer
- #1 in total U.S. credit and debit payments volume
- #1 wholly owned merchant acquirer
- #2 mortgage originator and servicer
- #3 bank auto lender