Document

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
June 30, 2017
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.)
 
 
270 Park Avenue, New York, New York
10017
(Address of principal executive offices)
(Zip Code)
 
 
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
o  No

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
o  No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer x
Accelerated filer
o
 
 
 
Non-accelerated filer (Do not check if a smaller reporting company)      o
Smaller reporting company
o
 
 
 
 
Emerging growth company
o
 
 
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. 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
 
Number of shares of common stock outstanding as of June 30, 2017: 3,518,964,410
 


FORM 10-Q
TABLE OF CONTENTS
Page
Item 1.
 
 
 
 
83
 
84
 
85
 
86
 
87
 
88
 
165
 
166
 
168
Item 2.
 
 
3
 
4
 
5
 
7
 
11
 
13
 
14
 
15
 
18
 
41
 
42
 
49
 
66
 
67
 
72
 
77
 
80
 
82
Item 3.
176
Item 4.
176
 
Item 1.
176
Item 1A.
176
Item 2.
176
Item 3.
177
Item 4.
177
Item 5.
177
Item 6.
178

2


JPMorgan Chase & Co.
Consolidated financial highlights
(unaudited)
As of or for the period ended,
(in millions, except per share, ratio, headcount data and where otherwise noted)
 
 
 
 
 
Six months ended
June 30,
2Q17

1Q17

4Q16

3Q16

2Q16

2017

2016

Selected income statement data
 
 
 
 
 
 
 
Total net revenue
$
25,470

$
24,675

$
23,376

$
24,673

$
24,380

$
50,145

$
47,619

Total noninterest expense
14,506

15,019

13,833

14,463

13,638

29,525

27,475

Pre-provision profit
10,964

9,656

9,543

10,210

10,742

20,620

20,144

Provision for credit losses
1,215

1,315

864

1,271

1,402

2,530

3,226

Income before income tax expense
9,749

8,341

8,679

8,939

9,340

18,090

16,918

Income tax expense
2,720

1,893

1,952

2,653

3,140

4,613

5,198

Net income
$
7,029

$
6,448

$
6,727

$
6,286

$
6,200

$
13,477

$
11,720

Earnings per share data
 
 
 
 
 
 
 
Net income:    Basic
$
1.83

$
1.66

$
1.73

$
1.60

$
1.56

$
3.49

$
2.92

 Diluted
1.82

1.65

1.71

1.58

1.55

3.47

2.89

Average shares: Basic
3,574.1

3,601.7

3,611.3

3,637.7

3,675.5

3,587.9

3,693.0

 Diluted
3,599.0

3,630.4

3,646.6

3,669.8

3,706.2

3,614.7

3,721.9

Market and per common share data
 
 
 
 
 
 
 
Market capitalization
321,633

312,078

307,295

238,277

224,449

321,633

224,449

Common shares at period-end
3,519.0

3,552.8

3,561.2

3,578.3

3,612.0

3,519.0

3,612.0

Share price:(a)
 
 
 
 
 
 
 
High
$
92.65

$
93.98

$
87.39

$
67.90

$
66.20

$
93.98

$
66.20

Low
81.64

83.03

66.10

58.76

57.05

81.64

52.50

Close
91.40

87.84

86.29

66.59

62.14

91.40

62.14

Book value per share
66.05

64.68

64.06

63.79

62.67

66.05

62.67

Tangible book value per share (“TBVPS”)(b)
53.29

52.04

51.44

51.23

50.21

53.29

50.21

Cash dividends declared per share
0.50

0.50

0.48

0.48

0.48

1.00

0.92

Selected ratios and metrics
 
 
 
 
 
 
 
Return on common equity (“ROE”)
12
%
11
%
11
%
10
%
10
%
11
%
10
%
Return on tangible common equity (“ROTCE”)(b)
14

13

14

13

13

14

12

Return on assets
1.10

1.03

1.06

1.01

1.02

1.07

0.97

Overhead ratio
57

61

59

59

56

59

58

Loans-to-deposits ratio
63

63

65

65

66

63

66

High quality liquid assets (“HQLA”) (in billions)(c)
$
577

$
528

$
524

$
539

$
516

$
577

$
516

Common equity Tier 1 (“CET1”) capital ratio(d)
12.6%

12.5
%
12.4%

12.0
%
12.0
%
12.6
%
12.0
%
Tier 1 capital ratio(d)
14.4

14.3

14.1

13.6

13.6

14.4

13.6

Total capital ratio(d)
16.0

15.6

15.5

15.1

15.2

16.0

15.2

Tier 1 leverage ratio(d)
8.5

8.4

8.4

8.5

8.5

8.5

8.5

Selected balance sheet data (period-end)
 
 
 
 
 
 
 
Trading assets
$
407,064

$
402,513

$
372,130

$
374,837

$
380,793

$
407,064

$
380,793

Securities
263,458

281,850

289,059

272,401

278,610

263,458

278,610

Loans
908,767

895,974

894,765

888,054

872,804

908,767

872,804

Core loans
834,935

812,119

806,152

795,077

775,813

834,935

775,813

Average core loans
824,583

805,382

799,698

779,383

760,721

815,034

749,009

Total assets
2,563,174

2,546,290

2,490,972

2,521,029

2,466,096

2,563,174

2,466,096

Deposits
1,439,473

1,422,999

1,375,179

1,376,138

1,330,958

1,439,473

1,330,958

Long-term debt(e)
292,973

289,492

295,245

309,418

295,627

292,973

295,627

Common stockholders’ equity
232,415

229,795

228,122

228,263

226,355

232,415

226,355

Total stockholders’ equity
258,483

255,863

254,190

254,331

252,423

258,483

252,423

Headcount
249,257

246,345

243,355

242,315

240,046

249,257

240,046

Credit quality metrics
 
 
 
 
 
 
 
Allowance for credit losses
$
14,480

$
14,490

$
14,854

$
15,304

$
15,187

$
14,480

$
15,187

Allowance for loan losses to total retained loans
1.49%

1.52%

1.55%

1.61%

1.64%

1.49%

1.64%

Allowance for loan losses to retained loans excluding purchased credit-impaired loans(f)
1.28

1.31

1.34

1.37

1.40

1.28

1.40

Nonperforming assets
$
6,432

$
6,826

$
7,535

$
7,779

$
7,757

$
6,432

$
7,757

Net charge-offs(g)
1,204

1,654

1,280

1,121

1,181

2,858

2,291

Net charge-off rate(g)
0.54%

0.76%

0.58%

0.51%

0.56%

0.65%

0.54%

(a)
Share prices 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 and Key Financial Performance Measures on pages 15–17.
(c)
HQLA represents the amount of assets that qualify for inclusion in the liquidity coverage ratio (“LCR”). For additional information, see HQLA on page 67.
(d)
Ratios presented are calculated under the Basel III Transitional capital rules and for the capital ratios represent the lower of the Standardized or Advanced approach as required by the Collins Amendment of the Dodd-Frank Act (the “Collins Floor”). See Capital Risk Management on pages 42–48 for additional information on Basel III and the Collins Floor.
(e)
Included unsecured long-term debt of $221.0 billion, $212.0 billion, $212.6 billion, $226.8 billion and $220.6 billion at June 30, 2017, March 31, 2017, December 31, 2016, September 30, 2016 and June 30, 2016, 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 and Key Performance Measures on pages 15–17. For further discussion, see Allowance for credit losses on pages 63–65.
(g)
Excluding net charge-offs of $467 million related to the student loan portfolio transfer, the net charge-off rates for both the three months ended March 31, 2017 and six months ended June 30, 2017 would have been 0.54%.

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 second quarter of 2017.
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, 2016, filed with the U.S. Securities and Exchange Commission (“2016 Annual Report” or 2016 “Form 10-K”), to which reference is hereby made. See the Glossary of terms and acronyms on pages 168–175 for definitions of terms and acronyms 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 82 of this Form 10-Q and Part I, Item 1A, Risk Factors, on pages 8–21 of JPMorgan Chase’s 2016 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 $2.6 trillion in assets and $258.5 billion in stockholders’ equity as of June 30, 2017. 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 & Wealth Management (“AWM”). 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 2016 Annual Report.




4

EXECUTIVE OVERVIEW
This executive overview of the MD&A highlights selected information and does 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
 
 
 
 
 
 
 
 
(unaudited)
As of or for the period ended,
(in millions, except per share data and ratios)
Three months ended June 30,
 
Six months ended June 30,
2017

 
2016

 
Change

 
2017

 
2016

 
Change

Selected income statement data
 
 
 
 
 
 
 
 
 
 
 
Total net revenue
$
25,470

 
$
24,380

 
4
 %
 
$
50,145

 
$
47,619

 
5%

Total noninterest expense
14,506

 
13,638

 
6

 
29,525

 
27,475

 
7

Pre-provision profit
10,964

 
10,742

 
2

 
20,620

 
20,144

 
2

Provision for credit losses
1,215

 
1,402

 
(13
)
 
2,530

 
3,226

 
(22
)
Net income
7,029

 
6,200

 
13

 
13,477

 
11,720

 
15

Diluted earnings per share
$
1.82

 
$
1.55

 
17

 
$
3.47

 
$
2.89

 
20

Selected ratios and metrics
 
 
 
 
 
 
 
 
 
 
 
Return on common equity
12
%
 
10
%
 
 
 
11
%
 
10
%
 
 
Return on tangible common equity
14

 
13

 
 
 
14

 
12

 
 
Book value per share
$
66.05

 
$
62.67

 
5

 
$
66.05

 
$
62.67

 
5

Tangible book value per share
53.29

 
50.21

 
6

 
53.29

 
50.21

 
6

Capital ratios(a)
 
 
 
 
 
 
 
 
 
 
 
CET1
12.6%

 
12.0
%
 
 
 
12.6
%
 
12.0
%
 
 
Tier 1 capital
14.4

 
13.6

 
 
 
14.4

 
13.6

 
 
Total capital
16.0

 
15.2

 
 
 
16.0

 
15.2

 
 
(a)
Ratios presented are calculated under the Basel III Transitional capital rules and represent the Collins Floor. See Capital Risk Management on pages 42–48 for additional information on Basel III.
Comparisons noted in the sections below are calculated for the second quarter of 2017 versus the prior-year second quarter, unless otherwise specified.
Firmwide overview
JPMorgan Chase reported strong results in the second quarter of 2017 with record net income of $7.0 billion, or $1.82 per share, on net revenue of $25.5 billion. The Firm reported ROE of 12% and ROTCE of 14%.
•
Net income increased 13%, reflecting higher net revenue, lower income tax expense, and lower provision for credit losses, largely offset by higher noninterest expense.
•
Total net revenue increased 4%. Net interest income was $12.2 billion, up 8%, primarily driven by the net impact of higher interest rates and loan growth, partially offset by declines in Markets net interest income. Noninterest revenue was $13.3 billion, up 2%, driven by a legal benefit in Corporate related to a settlement with the Federal Deposit Insurance Corporation (“FDIC”) receivership for Washington Mutual and with Deutsche Bank as trustee to certain Washington Mutual trusts, higher Banking revenue in the CIB, higher auto lease income, and higher revenue in AWM. These increases were predominantly offset by higher Card new account origination costs, lower Mortgage Banking revenue and lower Markets revenue in the CIB.
•
Noninterest expense was $14.5 billion, up 6%, reflecting the absence of a legal benefit recorded in the prior-year quarter, as well as higher auto lease depreciation and FDIC-related expenses.

 
•
The provision for credit losses was $1.2 billion, a decrease from $1.4 billion. This quarter included a net reduction in the allowance for credit losses in the wholesale portfolio of $241 million driven by Oil & Gas, Natural Gas Pipelines and Metals & Mining, offset by a net addition to the allowance for credit losses in the consumer portfolio of $252 million driven by Card.
•
The total allowance for credit losses was $14.5 billion at June 30, 2017, and the Firm had a loan loss coverage ratio, excluding the PCI portfolio, of 1.28%, compared with 1.40%. The Firm’s nonperforming assets totaled $6.4 billion at June 30, 2017, a decrease from $7.8 billion.
•
Firmwide average core loans increased 8%.
Selected capital-related metrics
•
The Firm added to its capital, ending the second quarter of 2017 with a TBVPS of $53.29, up 6%.
•
The Firm’s Basel III Fully Phased-In CET1 capital was $187 billion, and the Standardized and Advanced CET1 ratios were 12.5% and 12.7%, respectively.
•
The Fully Phased-In supplementary leverage ratio (“SLR”) was 6.6% for the Firm and 6.7% for JPMorgan Chase Bank, N.A. at June 30, 2017.

5

ROTCE and TBVPS are considered non-GAAP financial measures. Core loans and each of the Fully Phased-In capital and leverage measures are considered key performance measures. For a further discussion of each of these measures, see Explanation and Reconciliation of the Firm’s Use of Non-GAAP Financial Measures and Key Performance Measures on pages 15–17, and Capital Risk Management on pages 42–48.
Lines of business highlights
Selected business metrics for each of the Firm's four lines of business are presented below for the second quarter of 2017.
CCB
ROE 17%
 
•
Average core loans up 9%; average deposits of $640 billion, up 10%
•
28.4 million active mobile customers, up 14%
•
Credit card sales volume up 15% and merchant processing volume up 12%
CIB
ROE 15%
 
•
Maintained #1 ranking for Global Investment Banking fees with 8.3% wallet share YTD
•
Banking revenue up 17%; Markets revenue down 14%
CB
ROE 17%
 
•
Record revenue and net income of $2.1 billion (up 15%), and $902 million (up 30%), respectively
•
Average loan balances of $198 billion, up 12%
AWM
ROE 27%
 
•
Record net income of $624 million, up 20%; revenue of $3.2 billion, up 9%
•
Average loan balances of $122 billion, up 9%
•
Assets under management (“AUM”) of $1.9 trillion, up 11%; 77% of mutual fund AUM ranked in the 1st or 2nd quartile over 5 years
For a detailed discussion of results by line of business, refer to the Business Segment Results on pages 18–40.
Credit provided and capital raised
JPMorgan Chase continues to support consumers, businesses and communities around the globe. The Firm provided credit and raised capital of $1.2 trillion for wholesale and consumer clients during the first six months of 2017:
•
$131 billion of credit for consumers
•
$11 billion of credit for U.S. small businesses
•
$413 billion of credit for corporations
•
$605 billion of capital raised for corporate clients and non-U.S. government entities
•
$38 billion of credit and capital raised for U.S. government and nonprofit entities, including states, municipalities, hospitals and universities


 
2017 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 82 of this Form 10-Q and Risk Factors on pages 8–21 of JPMorgan Chase’s 2016 Annual Report. There is no assurance that actual results for the full year of 2017 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 2017 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.
Firmwide
•
Management expects 2017 net interest income to increase by approximately $4 billion compared with the prior year, depending on market conditions.
•
The Firm continues to take a disciplined approach to managing its expenses, while investing in growth and innovation. As a result, Firmwide adjusted expense in 2017 is expected to be approximately $58 billion (excluding Firmwide legal expense).
•
The Firm continues to experience charge-off rates at or near historically low levels, reflecting favorable credit conditions across the consumer and wholesale portfolios. Management expects total net charge-offs of approximately $5 billion in 2017, excluding net charge-offs of $467 million related to the write-down of the student loan portfolio in the first quarter of 2017.
•
Management expects average core loan growth of approximately 8% in 2017.
CCB
•
In Card, management expects the portfolio average net charge-off rate to increase in 2017, but remain below 3% for the year, reflecting continued loan growth and the seasoning of newer vintages, with quarterly net charge-off rates reflecting normal seasonal trends.
CIB
•
Management expects Investment Banking fees in the second half of 2017 to be lower compared to a strong prior-year period.

6

CONSOLIDATED RESULTS OF OPERATIONS
This section provides a comparative discussion of JPMorgan Chase’s Consolidated Results of Operations on a reported basis for the three and six months ended June 30, 2017 and 2016, unless otherwise specified. Factors that relate primarily to a single business segment are discussed in more detail within that business segment. For a discussion of the Critical Accounting Estimates Used by the Firm that affect the Consolidated Results of Operations, see pages 77–79 of this Form 10-Q and pages 132–134 of JPMorgan Chase’s 2016 Annual Report.
Revenue
 
 
 
 
 
 
 
 
 
 
 
 
Three months ended June 30,
 
Six months ended June 30,
(in millions)
2017

 
2016

 
Change

 
2017

 
2016

 
Change

Investment banking fees
$
1,810

 
$
1,644

 
10
 %
 
$
3,627

 
$
2,977

 
22
 %
Principal transactions
3,137

 
2,976

 
5

 
6,719

 
5,655

 
19

Lending- and deposit-related fees
1,482

 
1,403

 
6

 
2,930

 
2,806

 
4

Asset management, administration and commissions
3,824

 
3,681

 
4

 
7,501

 
7,305

 
3

Securities gains/(losses)
(34
)
 
21

 
NM
 
(37
)
 
72

 
NM
Mortgage fees and related income
404

 
689

 
(41
)
 
810

 
1,356

 
(40
)
Card income
1,167

 
1,358

 
(14
)
 
2,081

 
2,659

 
(22
)
Other income(a)
1,472

 
1,261

 
17

 
2,242

 
2,062

 
9

Noninterest revenue
13,262

 
13,033

 
2

 
25,873

 
24,892

 
4

Net interest income
12,208

 
11,347

 
8

 
24,272

 
22,727

 
7

Total net revenue
$
25,470

 
$
24,380

 
4%

 
$
50,145

 
$
47,619

 
5%

(a)
Included operating lease income of $873 million and $651 million for the three months ended June 30, 2017 and 2016, respectively and $1.7 billion and $1.3 billion for the six months ended June 30, 2017 and 2016, respectively.
Quarterly results
Investment banking fees increased, with strong performance across products. Higher equity underwriting fees were driven by growth in industry-wide issuance, including a strong IPO market; higher debt underwriting fees were driven by a higher share of fees; and higher advisory fees were driven by a higher level of completed transactions. For additional information, see CIB segment results on pages 25–30 and Note 5.
Principal transactions revenue increased reflecting higher gains on private equity investments held in Corporate, and the absence of fair value losses recorded in the prior year on the investment in Square, Inc. in CCB, partially offset by lower Markets revenue in CIB. For additional information, see CIB, Corporate and CCB segment results on pages 25–30 , page 39 and pages 20–24 , respectively, and Note 5.
Mortgage fees and related income decreased driven by lower mortgage servicing right (“MSR”) risk management results and lower net production revenue on lower margins. For further information on mortgage fees and related income, see CCB segment results on pages 20–24 and
Note 14.
Card income decreased predominantly driven by higher credit card new account origination costs, partially offset
by higher other card-related fees, largely annual fees.
For further information, see CCB segment results on pages 20–24.
 
Other income increased primarily reflecting the following:
•
a legal benefit of $645 million in Corporate related to a settlement with the FDIC receivership for Washington Mutual and with Deutsche Bank as trustee to certain Washington Mutual trusts
•
higher operating lease income reflecting growth in auto operating lease volume in CCB;
the increases were partially offset by
•
the absence of a gain in the prior year on the sale of Visa Europe interests in CCB, and
•
lower other income in CIB.
For further information on other income, see Note 5.
Net interest income increased primarily driven by the net impact of higher rates and loan growth across the businesses, partially offset by the declines in Markets net interest income in CIB driven by a shift in asset mix in Currencies & Emerging Markets and Equity Markets, and an adjustment for capitalized interest on modified loans in Mortgage Banking. The Firm’s average interest-earning assets were $2.2 trillion, and the net interest yield on these assets, on a fully taxable-equivalent (“FTE”) basis, was 2.31%, an increase of 6 basis points from the prior year.

7

For additional information on asset management, administration and commissions income, see the segment discussions of CIB and AWM on pages 25–30 and pages 35–38, respectively, and Note 5; on lending- and deposit-related fees, see the segment results for CCB on pages 20–24, CIB on pages 25–30, and CB on pages 31–34 and Note 5; and on securities gains, see the Corporate segment discussion on page 39.
Year-to-date results
Investment banking fees increased reflecting higher debt and equity underwriting fees. The higher debt underwriting fees were driven by a higher share of fees and an overall increase in industry-wide fee levels; and the higher equity underwriting fees were driven by growth in industry-wide issuance, including a stronger IPO market.
Principal transactions revenue increased primarily as a result of higher client-driven market-making revenue in CIB, reflecting:
•
Higher Fixed Income-related revenue primarily from Securitized Products driven by strong demand in the first quarter
•
Higher Equity-related revenue primarily from corporate derivatives and Prime Services, partially offset by lower revenue in other derivatives related to market-making activities, and
•
Higher Lending-related revenue reflecting lower fair value losses on hedges of accrual loans and higher gains on securities received from restructurings.
Asset management, administration and commissions revenue increased in AWM and CCB reflecting higher market levels.
 
Mortgage fees and related income decreased driven by lower MSR risk management results, lower net production revenue on lower margins, and lower servicing revenue due to lower average third-party loans serviced.
Card income decreased predominantly driven by higher credit card new account origination costs, partially offset
by higher other card-related fees, largely annual fees.
For further information, see CCB segment results on pages 20–24.
Other income increased primarily reflecting the following:
•
a legal benefit of $645 million in Corporate related to a settlement with the FDIC receivership for Washington Mutual and with Deutsche Bank as trustee to certain Washington Mutual trusts
•
higher operating lease income reflecting growth in auto operating lease volume in CCB;
the increases were partially offset by
•
the absence of gains in the prior year on the sale of Visa Europe interests in CCB, as well as on the disposal of assets in AWM, and
•
lower other income in CIB.
Net interest income increased primarily driven by the net impact of higher rates and loan growth across the businesses, partially offset by the declines in Markets net interest income in CIB driven by a shift in asset mix in Currencies & Emerging Markets and Equity Markets.
The Firm’s average interest-earning assets were $2.2 trillion, and the net interest yield on these assets, on a FTE basis, was 2.32%, an increase of 4 basis points from the prior year.
Provision for credit losses
 
 
 
 
 
 
 
 
 
 
 
Three months ended June 30,
 
Six months ended June 30,
(in millions)

2017

 
2016

 
Change

 
2017

 
2016

 
Change

Consumer, excluding credit card
$
12

 
$
95

 
(87)%

 
$
454

 
$
316

 
44
 %
Credit card
1,387

 
1,110

 
25

 
2,380

 
1,940

 
23
 %
Total consumer
1,399

 
1,205

 
16

 
2,834

 
2,256

 
26
 %
Wholesale
(184
)
 
197

 
NM

 
(304
)
 
970

 
NM

Total provision for credit losses
$
1,215

 
$
1,402

 
(13
)%
 
$
2,530

 
$
3,226

 
(22
)%

8

Quarterly results
The provision for credit losses decreased as a result of:
•
a decline in the wholesale provision predominantly due to a $241 million reduction in the allowance for credit losses compared with an addition in the prior year; actions for both periods related to Oil & Gas, Natural Gas Pipelines and Metals & Mining
the decline was partially offset by
•
an increase in the consumer provision primarily driven by $120 million of higher net charge-offs, predominantly in the credit card portfolio, and a $74 million higher addition to the allowance for credit losses, which included current quarter additions in the credit card, business banking and auto portfolios, partially offset by a reduction in the residential real estate portfolio.
For a more detailed discussion of the credit portfolio and the allowance for credit losses, see the segment discussions of CCB on pages 20–24, CIB on pages 25–30, CB on pages 31–34, the Allowance for Credit Losses on pages 63–65 and Note 12.
 
Year-to-date results
The provision for credit losses decreased as a result of:
•
a decline in the wholesale provision predominantly due to a $334 million reduction in the allowance for credit losses compared with an addition in the prior year; actions for both periods related to Oil & Gas, Natural Gas Pipelines and Metals & Mining
the decline was partially offset by
•
an increase in the consumer provision primarily driven by $284 million of higher net charge-offs, predominantly in the credit card portfolio, $218 million related to the transfer of the student loan portfolio to held-for-sale, and a $76 million higher addition to the allowance for credit losses, which included current year additions in the credit card, business banking and auto portfolios, partially offset by a reduction in the residential real estate portfolio.
For a more detailed discussion of the student loan sale, see CCB segment results on pages 20–24.
Noninterest expense
 
 
 
 
 
 
 
 
 
 
 
Three months ended June 30,
 
Six months ended June 30,
(in millions)

2017

 
2016

 
Change

 
2017

 
2016

 
Change
Compensation expense
$
7,706

 
$
7,778

 
(1
)%
 
$
15,907

 
$
15,438

 
3%

Noncompensation expense:
 
 
 
 
 
 
 
 
 
 
 
Occupancy
912

 
899

 
1

 
1,873

 
1,782

 
5

Technology, communications and equipment
1,870

 
1,665

 
12

 
3,698

 
3,283

 
13

Professional and outside services
1,644

 
1,700

 
(3
)
 
3,187

 
3,248

 
(2
)
Marketing
756

 
672

 
13

 
1,469

 
1,375

 
7

Other expense(a)(b)
1,618

 
924

 
75

 
3,391

 
2,349

 
44

Total noncompensation expense
6,800

 
5,860

 
16

 
13,618

 
12,037

 
13

Total noninterest expense
$
14,506

 
$
13,638

 
6
 %
 
$
29,525

 
$
27,475

 
7
 %
(a)
Included Firmwide legal expense of $61 million and $(430) million for the three months ended June 30, 2017 and 2016, respectively and $279 million and $(476) million for the six months ended June 30, 2017 and 2016, respectively.
(b)
Included FDIC-related expense of $376 million and $283 million for the three months ended June 30, 2017 and 2016, respectively and $757 million and $552 million for the six months ended June 30, 2017 and 2016, respectively.
Quarterly results
Compensation expense decreased predominantly driven by lower performance-based compensation expense in CIB, partially offset by investments in headcount, including bankers and support staff in certain businesses.
 
Noncompensation expense increased as a result of:
•
the absence of a legal benefit recorded in the prior year in Corporate
•
higher depreciation expense from growth in auto operating lease volume in CCB
•
higher FDIC-related expense
•
higher marketing expense in CCB, and
•
contributions to the Firm’s Foundation.
For a further discussion of legal expense, see Note 21.

9

Year-to-date results
Compensation expense increased predominantly driven by investments in headcount, including bankers and support staff in certain businesses, as well as higher performance-based compensation expense particularly in AWM.
 
Noncompensation expense increased as a result of:
•
higher legal expense driven by the combined impact of an increase in legal expense in AWM and a lower legal benefit in Corporate
•
higher depreciation expense from growth in auto operating leased assets in CCB
•
higher FDIC-related expense
•
contributions to the Firm’s Foundation, and
•
higher marketing expense in CCB.
Income tax expense
 
 
 
 
 
 
 
 
Three months ended June 30,
 
Six months ended June 30,
(in millions)

2017

 
2016

 
Change

 
2017

 
2016

 
Change
Income before income tax expense
$
9,749

 
$
9,340

 
4
 %
 
$
18,090

 
$
16,918

 
7
 %
Income tax expense
2,720

 
3,140

 
(13
)
 
4,613

 
5,198

 
(11
)
Effective tax rate
27.9
%
 
33.6
%
 
 
 
25.5
%
 
30.7
%
 


Quarterly results
The effective tax rate decreased predominantly due to the release of a valuation allowance and the write-off of certain deferred tax liabilities, as well as due to the change in the mix of income and expenses subject to U.S. federal and state and local taxes.
Year-to-date results
The effective tax rate decreased predominantly due to larger tax benefits resulting from the vesting of employee-based stock awards and the release of a valuation allowance. The tax benefits resulting from employee-based stock awards were related to the appreciation of the Firm’s stock price upon vesting of these awards above their original grant price.

10

CONSOLIDATED BALANCE SHEETS ANALYSIS
Consolidated balance sheets overview
The following is a discussion of the significant changes between June 30, 2017, and December 31, 2016.
Selected Consolidated balance sheets data
(in millions)
Jun 30,
2017

 
Dec 31,
2016

Change

Assets
 
 
 
 
Cash and due from banks
$
21,781

 
$
23,873

(9
)%
Deposits with banks
427,380

 
365,762

17

Federal funds sold and securities purchased under resale agreements
218,570

 
229,967

(5
)
Securities borrowed
90,654

 
96,409

(6
)
Trading assets:
 
 
 
 
Debt and equity instruments
350,558

 
308,052

14

Derivative receivables
56,506

 
64,078

(12
)
Securities
263,458

 
289,059

(9
)
Loans
908,767

 
894,765

2

Allowance for loan losses
(13,363
)
 
(13,776
)
(3
)
Loans, net of allowance for loan losses
895,404

 
880,989

2

Accrued interest and accounts receivable
64,038

 
52,330

22

Premises and equipment
14,206

 
14,131

1

Goodwill
47,300

 
47,288

—

Mortgage servicing rights
5,753

 
6,096

(6
)
Other intangible assets
827

 
862

(4
)
Other assets
106,739

 
112,076

(5
)
Total assets
$
2,563,174

 
$
2,490,972

3
 %
Cash and due from banks and deposits with banks
The net increase was primarily driven by deposit growth and a shift in the deployment of excess cash from securities and securities purchased under resale agreements. The Firm’s excess cash is placed with various central banks, predominantly Federal Reserve Banks.
Federal funds sold and securities purchased under resale agreements decreased primarily due to the shift in the deployment of excess cash to deposits with banks.
For additional information on the Firm’s Liquidity Risk Management, see pages 67–71.
Trading assets and trading liabilities–debt and equity instruments increased predominantly related to client-driven market-making activities in CIB.
•
The increase in trading assets was driven by higher debt and equity instruments in Prime Services reflecting client demand and in Rates reflecting higher levels when compared to lower levels at year-end.
•
The increase in trading liabilities was driven by higher levels of client-driven short positions in debt instruments, partially offset by reductions in equity instruments.
For additional information, refer to Note 2.
Trading assets and trading liabilities–derivative receivables and payables decreased predominantly related to client-driven market-making activities in CIB Markets, reflecting lower foreign exchange and interest rate derivative receivables and payables, driven by maturities and market movements.
 
For additional information, refer to Derivative contracts on pages 61–62, and Notes 2 and 4.
Securities decreased primarily due to sales of U.S. Treasuries and non-U.S. government securities.
Loans increased reflecting the following:
•
higher wholesale loans predominantly driven by originations in CB and higher loans to Private Banking clients in AWM, partially offset by
•
lower consumer loans as a result of the student loan portfolio sale, lower home equity loans, and the seasonal decline in credit card balances, predominantly offset by higher retention of originated high-quality prime mortgages in CCB and AWM.
The allowance for loan losses decreased reflecting the following:
•
a net reduction in the wholesale allowance primarily driven by Oil & Gas, Natural Gas Pipelines and Metals & Mining
•
the consumer allowance remained relatively flat, with the utilization of the allowance in connection with the transfer of the student loan portfolio to held-for-sale, and a reduction in the residential real estate portfolio driven by continued improvement in home prices and delinquencies, predominantly offset by additions to the credit card, business banking and auto portfolios, driven by loan growth as well as higher loss rates in credit card.
For detailed discussion of loans and the allowance for loan losses, refer to Credit Risk Management on pages 49–65, and Notes 2, 3, 11 and 12.

11

Accrued interest and accounts receivable increased reflecting higher client receivables related to client-driven market-making activities in CIB.
 
For information on Securities, see Notes 2 and 9; and MSRs, see Note 14.

Selected Consolidated balance sheets data (continued)
 
(in millions)
Jun 30,
2017

 
Dec 31,
2016

Change

Liabilities
 
 
 
 
Deposits
$
1,439,473

 
$
1,375,179

5
 %
Federal funds purchased and securities loaned or sold under repurchase agreements
165,621

 
165,666

—

Commercial paper
22,207

 
11,738

89

Other borrowed funds
30,936

 
22,705

36

Trading liabilities:
 
 
 
 
Debt and equity instruments
91,628

 
87,428

5

Derivative payables
41,795

 
49,231

(15
)
Accounts payable and other liabilities
189,160

 
190,543

(1
)
Beneficial interests issued by consolidated variable interest entities (“VIEs”)
30,898

 
39,047

(21
)
Long-term debt
292,973

 
295,245

(1
)
Total liabilities
2,304,691

 
2,236,782

3

Stockholders’ equity
258,483

 
254,190

2

Total liabilities and stockholders’ equity
$
2,563,174

 
$
2,490,972

3
 %
Deposits increased due to the following:
•
higher wholesale deposits driven by growth in client activity in CIB’s Securities Services and Treasury Services businesses, partially offset by lower balances in AWM reflecting balance migration into the Firm’s investment-related products, and the impact of seasonality in both CB and AWM.
•
higher consumer deposits reflecting the continuation of strong growth from existing and new customers, and low attrition rates
For more information on deposits, refer to the Liquidity Risk Management discussion on pages 67–71; and Notes 2
and 15.
Federal funds purchased and securities loaned or sold under repurchase agreements were flat reflecting a change in the mix of funding to commercial paper and other borrowed funds offset by on-going client activity in CIB.
 
Commercial paper increased due to higher issuance in the wholesale market, reflecting a change in the mix of funding from securities sold under repurchase agreements for CIB Markets activities. For additional information, see Liquidity Risk Management on pages 67–71.
Other borrowed funds increased driven by a change in the mix of funding from securities sold under repurchase agreements in CIB.
Beneficial interests issued by consolidated VIEs decreased due to net maturities of credit card securitizations and the deconsolidation of the student loan securitization entities. For further information on Firm-sponsored VIEs and loan securitization trusts, see Off-Balance Sheet Arrangements on page 14 and Note 19; and for a more detailed discussion of the student loan sale, see CCB segment results on pages 20–24 and Note 23.
For information on the Firm’s long-term debt activities, see Liquidity Risk Management on pages 67–71; on changes in stockholders’ equity, see page 86, and on the Firm’s capital actions, see Capital actions on page 47.

12

CONSOLIDATED CASH FLOWS ANALYSIS
Consolidated cash flows overview
The following is a discussion of cash flow activities during
the six months ended June 30, 2017 and 2016.
(in millions)
 
Six months ended June 30,
 
2017

 
2016

Net cash provided by/(used in)
 
 
 
 
Operating activities
 
$
(13,024
)
 
$
(22,907
)
Investing activities
 
(37,079
)
 
(52,064
)
Financing activities
 
47,911

 
74,159

Effect of exchange rate changes on cash
 
100

 
32

Net decrease in cash and due from banks
 
$
(2,092
)
 
$
(780
)
Operating activities
Cash used in operating activities for the period ending June 30, 2017 resulted from:
Client-driven market-making activities in CIB
•
an increase in trading assets was primarily driven by higher debt and equity instruments in Prime Services reflecting client demand and in Rates reflecting higher levels when compared to lower levels at year-end
•
an increase in accrued interest and accounts receivable due to higher client receivables
Other operating activity
•
higher net originations and purchases of loans held-for-sale predominantly in CIB and CB.
Cash used in operating activities for the period ending June 30, 2016 resulted from:
Client-driven market-making activities in CIB
•
an increase in accrued interest and accounts receivable driven by higher client receivables
•
an increase in trading assets, which was predominantly offset by an increase in trading liabilities.
Investing activities
Cash used in investing activities during 2017 resulted from:
•
an increase in deposits with banks, which were placed with various central banks, predominantly Federal Reserve Banks
•
higher wholesale loans predominantly driven by originations in CB and higher loans to Private Banking clients in AWM, partially offset by lower consumer loans as a result of the student loan portfolio sale, lower home equity loans, and the seasonal decline in credit card balances, predominantly offset by higher retention of originated high-quality prime mortgages in CCB and AWM
Partially offsetting these cash outflows was a decrease in securities and securities purchased under resale agreements due to the shift in the deployment of excess
 
cash to deposits with banks.
Cash used in investing activities during 2016 resulted from:
•
an increase in wholesale loans driven by strong originations of commercial and industrial loans and commercial real estate loans
•
an increase in consumer loans reflecting the retention of originated high-quality prime mortgages and growth in auto loans
•
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 and the deployment of excess cash by Treasury and Chief Investment Office ("CIO").
For both periods, partially offsetting these cash outflows were net proceeds from paydowns, maturities, sales and purchases of investment securities.
Financing activities
Cash provided by financing activities in 2017 resulted from:
•
higher wholesale deposits reflecting growth in client activity, partially offset by seasonal factors
•
higher consumer deposits reflecting the continuation of strong growth from existing and new customers, and low attrition rates
•
an increase in commercial paper due to higher issuance in the wholesale market, reflecting a change in the mix of funding from securities sold under repurchase agreements for CIB Markets activities
•
an increase in other borrowed funds driven by a change in the mix of funding from securities sold under repurchase agreements in CIB
Partially offsetting these inflows were net payments of long-term borrowings.
Cash provided by financing activities in 2016 resulted from:
•
an increase in consumer deposits reflecting the continued growth from new and existing customers, as well as the impact of low attrition rates
•
higher wholesale deposits reflecting growth in client activity in Treasury Services
•
an increase in securities loaned or sold under repurchase agreements due to higher secured financing of investment securities in Treasury and CIO, and higher client-driven market-making activities in CIB
•
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 11–12, Capital Risk Management on pages 42–48, and Liquidity Risk Management on pages 67–71 of this Form 10-Q, and pages 110–115 of JPMorgan Chase’s 2016 Annual Report.



13

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 19 of this Form 10-Q and Off–Balance Sheet Arrangements and Contractual Cash Obligations on pages 45–46 and Note 29 of JPMorgan Chase’s 2016 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 13 of this Form 10-Q, and Note 1 and Note 16 of JPMorgan Chase’s 2016 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 June 30, 2017, and December 31, 2016, was $2.9 billion and $2.7 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 $8.2 billion and $7.4 billion at June 30, 2017, and December 31, 2016, 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 13.
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 13 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 are refinanced, extended, cancelled, or expire without being drawn upon or a default occurring. As a result, the total contractual amount of these instruments is not, in the Firm’s view, representative of its expected 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 61 and Note 19. For a discussion of liabilities associated with loan sales and securitization-related indemnifications, see Note 19.

14

EXPLANATION AND RECONCILIATION OF THE FIRM’S USE OF NON-GAAP FINANCIAL MEASURES AND KEY PERFORMANCE MEASURES
Non-GAAP financial measures
The Firm prepares its Consolidated Financial Statements using U.S. GAAP; these financial statements appear on pages 83–87. 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 Firmwide results, including the overhead ratio, on a “managed” basis; these Firmwide managed basis results are considered non-GAAP financial measures. The Firm also reviews the results of the lines of business on a managed basis. The Firm’s definition of managed basis starts, in each case, 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 a 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. These financial measures allow 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 Firm and business-segment level, because these other non-GAAP financial measures provide information to investors about the underlying operational performance and trends of the Firm or of the particular business segment, as the case may be, and, therefore, facilitate a comparison of the Firm or the business segment with the performance of its relevant competitors. For additional information on these non-GAAP measures, see Business Segment Results on pages 18–40.
Additionally, certain credit metrics and ratios disclosed by the Firm exclude PCI loans, and are therefore non-GAAP measures. For additional information on these non-GAAP measures, see Credit Risk Management on pages 49–65.
Non-GAAP financial measures used by the Firm may not be comparable to similarly named non-GAAP financial measures used by other companies.
The following summary table provides a reconciliation from the Firm’s reported U.S. GAAP results to managed basis.
 
Three months ended June 30,
 
2017
 
2016
(in millions, except ratios)
Reported
results
 
Fully taxable-equivalent adjustments(a)
 
Managed
basis
 
Reported
results
 
Fully taxable-equivalent adjustments(a)
 
Managed
basis
Other income
$
1,472

 
$
596

 
 
$
2,068

 
$
1,261

 
$
529

 
 
$
1,790

Total noninterest revenue
13,262

 
596

 
 
13,858

 
13,033

 
529

 
 
13,562

Net interest income
12,208

 
339

 
 
12,547

 
11,347

 
305

 
 
11,652

Total net revenue
25,470

 
935

 
 
26,405

 
24,380

 
834

 
 
25,214

Pre-provision profit
10,964

 
935

 
 
11,899

 
10,742

 
834

 
 
11,576

Income before income tax expense
9,749

 
935

 
 
10,684

 
9,340

 
834

 
 
10,174

Income tax expense
$
2,720

 
$
935

 
 
$
3,655

 
$
3,140

 
$
834

 
 
$
3,974

Overhead ratio
57
%
 
NM

 
 
55
%
 
56
%
 
NM

 
 
54
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Six months ended June 30,
 
2017
 
2016
(in millions, except ratios)
Reported
results
 
Fully taxable-equivalent adjustments(a)
 
Managed
basis
 
Reported
results
 
Fully taxable-equivalent adjustments(a)
 
Managed
basis
Other income
$
2,242

 
$
1,178

 
 
$
3,420

 
$
2,062

 
$
1,080

 
 
$
3,142

Total noninterest revenue
25,873

 
1,178

 
 
27,051

 
24,892

 
1,080

 
 
25,972

Net interest income
24,272

 
668

 
 
24,940

 
22,727

 
598

 
 
23,325

Total net revenue
50,145

 
1,846

 
 
51,991

 
47,619

 
1,678

 
 
49,297

Pre-provision profit
20,620

 
1,846

 
 
22,466

 
20,144

 
1,678

 
 
21,822

Income before income tax expense
18,090

 
1,846

 
 
19,936

 
16,918

 
1,678

 
 
18,596

Income tax expense
$
4,613

 
$
1,846

 
 
$
6,459

 
$
5,198

 
$
1,678

 
 
$
6,876

Overhead ratio
59
%
 
NM

 
 
57
%
 
58
%
 
NM

 
 
56
%
(a) Predominantly recognized in CIB and CB business segments and Corporate.

15

Net interest income excluding CIB’s Markets businesses
In addition to reviewing net interest income on a managed basis, management also reviews net interest income excluding net interest income arising from CIB’s Markets businesses to assess the performance of the Firm’s lending, investing (including asset-liability management) and deposit-raising activities. This net interest income is referred to as non-markets related net interest income. CIB’s Markets businesses represent both Fixed Income Markets and Equity Markets. Management believes that disclosure of non-markets related net interest income
 
provides investors and analysts with another measure by which to analyze the non-markets-related business trends of the Firm and provides a comparable measure to other financial institutions that are primarily focused on lending, investing and deposit-raising activities.
The data presented below are non-GAAP financial measures due to the exclusion of markets related net interest income arising from CIB.

(in millions, except rates)
Three months ended June 30,
 
Six months ended June 30,
2017

2016

 
Change

 
2017
2016
 
Change
Net interest income – managed basis(a)(b)
$
12,547

$
11,652

 
8
 %
 
$
24,940

$
23,325

 
7
 %
Less: CIB Markets net interest income(c)
1,075

1,579

 
(32
)
 
2,439

3,078

 
(21
)
Net interest income excluding CIB Markets(a)
$
11,472

$
10,073

 
14

 
$
22,501

$
20,247

 
11

 
 
 
 
 
 
 
 
 
 
Average interest-earning assets
$
2,177,109

$
2,079,525

 
5

 
$
2,169,055

$
2,061,754

 
5

Less: Average CIB Markets interest-earning assets(c)
537,263

522,321

 
3

 
530,051

519,054

 
2

Average interest-earning assets excluding CIB Markets
$
1,639,846

$
1,557,204

 
5
 %
 
$
1,639,004

$
1,542,700

 
6
 %
Net interest yield on average interest-earning assets – managed basis
2.31%

2.25
%
 
 
 
2.32
%
2.28
%
 
 
Net interest yield on average CIB Markets interest-earning assets(c)
0.80

1.22

 
 
 
0.93

1.19

 
 
Net interest yield on average interest-earning assets excluding
CIB Markets
2.81%

2.60
%
 
 
 
2.77
%
2.64
%
 
 
(a)
Interest includes the effect of related hedges. 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 15.
(c)
The prior period amounts were revised to align with CIB’s Markets businesses. For further information on CIB’s Markets businesses, see page 29.

16

Tangible common equity, ROTCE and TBVPS
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 net income
 
applicable to common equity 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 utilized by the Firm, as well as investors and analysts, in assessing the Firm’s use of equity.
The following summary table provides a reconciliation from the Firm’s common stockholders’ equity to TCE.
 
Period-end
 
Average
(in millions, except per share and ratio data)
Jun 30,
2017

Dec 31,
2016

 
Three months ended June 30,
 
Six months ended June 30,
 
2017

2016

 
2017

2016

Common stockholders’ equity
$
232,415

$
228,122

 
$
230,200

$
224,429

 
$
228,959

$
222,995

Less: Goodwill
47,300

47,288

 
47,290

47,309

 
47,292

47,320

Less: Certain identifiable intangible assets
827

862

 
838

928

 
845

957

Add: Deferred tax liabilities(a)
3,252

3,230

 
3,239

3,213

 
3,234

3,195

Tangible common equity
$
187,540

$
183,202

 
$
185,311

$
179,405

 
$
184,056

$
177,913

 
 
 
 
 
 
 
 
 
Return on tangible common equity
NA

NA

 
14
%
13
%
 
14
%
12
%
Tangible book value per share
$
53.29

$
51.44

 
NA
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.
Key performance measures
The Firm considers the following to be key regulatory capital measures:
▪
Capital, risk-weighted assets (“RWA”), and capital and leverage ratios presented under Basel III Standardized and Advanced Fully Phased-In rules and
▪
SLR calculated under Basel III Advanced Fully Phased-In rules.
The Firm, as well as banking regulators, investors and analysts use these measures to assess the Firm’s regulatory capital position and to compare the Firm’s regulatory capital to that of other financial services companies.
For additional information on these measures, see Capital Risk Management on pages 42–48.
 
Core loans are also considered a key performance measure. Core loans represent loans considered central to the Firm’s ongoing businesses; and exclude loans classified as trading assets, runoff portfolios, discontinued portfolios and portfolios the Firm has an intent to exit. Core loans is a measure utilized by the Firm and its investors and analysts in assessing actual growth in the loan portfolio.

17

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 & Wealth 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 and Key Performance Measures on pages 15–17.
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. For further information about line of business capital, see Line of business equity
on page 46.
The Firm periodically assesses the assumptions, methodologies and reporting classifications used for segment reporting, and further refinements may be implemented in future periods.
 
Business segment capital allocation changes
The amount of capital assigned to each business is referred to as equity. On at least an annual basis, the Firm assesses the level of capital required for each line of business as well as the assumptions and methodologies used to allocate capital. Through the end of 2016, capital was allocated to the lines of business based on a single measure, Basel III Advanced Fully Phased-In RWA. Effective January 1, 2017, the Firm’s methodology used to allocate capital to the business segments was updated. Under the new methodology, capital is no longer allocated to each line of business for goodwill and other intangibles associated with acquisitions effected by the line of business. In addition, the new methodology incorporates Basel III Standardized Fully Phased-In RWA (as well as Basel III Advanced Fully Phased-In RWA), leverage, the global systemically important banks (“GSIB”) surcharge, and a simulation of capital in a severe stress environment. The methodology will continue to be weighted towards Basel III Advanced Fully Phased-In RWA because the Firm believes it to be the best proxy for economic risk.
For a further discussion of those methodologies, see Business Segment Results – Description of business segment reporting methodology on pages 51–52 of JPMorgan Chase’s 2016 Annual Report.

18

The following discussions of the business segment results are based on a comparison of the three and six months ended June 30, 2017 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 June 30,
Total net revenue
 
Total noninterest expense
 
Pre-provision profit/(loss)
(in millions)
2017

2016

Change

 
2017

2016

Change

 
2017

2016

Change

Consumer & Community Banking
$
11,412

$
11,451

—

 
$
6,500

$
6,004

8%

 
$
4,912

$
5,447

(10)%

Corporate & Investment Bank
8,889

9,165

(3
)
 
4,841

5,078

(5
)
 
4,048

4,087

(1
)
Commercial Banking
2,088

1,817

15

 
790

731

8

 
1,298

1,086

20

Asset & Wealth Management
3,212

2,939

9

 
2,192

2,098

4

 
1,020

841

21

Corporate
804

(158
)
NM

 
183

(273
)
NM
 
621

115

440

Total
$
26,405

$
25,214

5%

 
$
14,506

$
13,638

6%

 
$
11,899

$
11,576

3%

Three months ended June 30,
Provision for credit losses
 
 
Net income/(loss)
 
Return on equity
(in millions, except ratios)
2017

2016

Change

 
2017

2016

Change

 
2017

2016

Consumer & Community Banking
$
1,394

$
1,201

16

 
$
2,223

$
2,656

(16)%

 
17
%
20
%
Corporate & Investment Bank
(53
)
235

NM

 
2,710

2,493

9

 
15

15

Commercial Banking
(130
)
(25
)
(420
)
 
902

696

30

 
17

16

Asset & Wealth Management
4

(8
)
NM

 
624

521

20

 
27

22

Corporate
—

(1
)
100%

 
570

(166
)
NM

 
NM
NM
Total
$
1,215

$
1,402

(13)%

 
$
7,029

$
6,200

13%

 
12%

10
%
Six months ended June 30,
Total net revenue
 
Total noninterest expense
 
Pre-provision profit/(loss)
(in millions)
2017

2016

Change

 
2017

2016

Change
 
2017

2016

Change

Consumer & Community Banking
$
22,382

$
22,568

(1)%

 
$
12,895

$
12,092

7%
 
$
9,487

$
10,476

(9)%

Corporate & Investment Bank
18,425

17,300

7

 
9,962

9,886

1
 
8,463

7,414

14

Commercial Banking
4,106

3,620

13

 
1,615

1,444

12
 
2,491

2,176

14

Asset & Wealth Management
6,299

5,911

7

 
4,772

4,173

14
 
1,527

1,738

(12
)
Corporate
779

(102
)
NM

 
281

(120
)
NM
 
498

18

NM
Total
$
51,991

$
49,297

5%

 
$
29,525

$
27,475

7%
 
$
22,466

$
21,822

3%

Six months ended June 30,
Provision for credit losses
 
Net income/(loss)
 
Return on equity
(in millions, except ratios)
2017

2016

Change

 
2017

2016

Change

 
2017

2016

Consumer & Community Banking
$
2,824

$
2,251

25%

 
$
4,211

$
5,146

(18)%

 
16
%
19
%
Corporate & Investment Bank
(149
)
694

NM

 
5,951

4,472

33

 
16

13

Commercial Banking
(167
)
279

NM

 
1,701

1,192

43

 
16

14

Asset & Wealth Management
22

5

340

 
1,009

1,108

(9
)
 
22

24

Corporate
—

(3
)
100

 
605

(198
)
NM

 
NM
NM
Total
$
2,530

$
3,226

(22)%

 
$
13,477

$
11,720

15%

 
11%

10
%


19


CONSUMER & COMMUNITY BANKING
For a discussion of the business profile of CCB, see pages 53–57 of JPMorgan Chase’s 2016 Annual Report and Line of Business Metrics on page 173.
Selected income statement data
 
 
 
 
 
 
 
 
 
 
 
Three months ended June 30,
 
Six months ended June 30,
(in millions, except ratios)
2017

 
2016

 
Change

 
2017

 
2016

 
Change

Revenue
 
 
 
 
 
 
 
 
 
 
 
Lending- and deposit-related fees
$
850

 
$
780

 
9
 %
 
$
1,662

 
$
1,549

 
7
 %
Asset management, administration and commissions
562

 
535

 
5

 
1,101

 
1,065

 
3

Mortgage fees and related income
401

 
689

 
(42
)
 
807

 
1,356

 
(40
)
Card income
1,061

 
1,253

 
(15
)
 
1,878

 
2,444

 
(23
)
All other income
810

 
881

 
(8
)
 
1,553

 
1,530

 
2

Noninterest revenue
3,684

 
4,138

 
(11
)
 
7,001

 
7,944

 
(12
)
Net interest income
7,728

 
7,313

 
6

 
15,381

 
14,624

 
5

Total net revenue
11,412

 
11,451

 
—

 
22,382

 
22,568

 
(1
)
 
 
 
 
 
 
 
 
 
 
 
 
Provision for credit losses
1,394

 
1,201

 
16

 
2,824

 
2,251

 
25
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