10-Q
 

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
September 30, 2015
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, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting 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
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 September 30, 2015: 3,681,129,777
 



FORM 10-Q
TABLE OF CONTENTS
Part I - Financial information
Page
Item 1
 
 
86
 
87
 
88
 
89
 
90
 
91
 
175
 
176
 
178
Item 2
 
 
3
 
4
 
5
 
7
 
10
 
12
 
13
 
14
 
17
 
46
 
47
 
63
 
67
 
68
 
69
 
76
 
80
 
81
 
84
 
85
Item 3
185
Item 4
185
Part II - Other information
 
Item 1
185
Item 1A
185
Item 2
185
Item 3
186
Item 4
186
Item 5
186
Item 6
186



2


JPMorgan Chase & Co.
Consolidated financial highlights
(unaudited)
As of or for the period ended, (in millions, except share, ratio, headcount data and where otherwise noted)
 
 
 
 
 
Nine months ended
September 30,
3Q15
2Q15
1Q15
4Q14
3Q14
2015
2014
Selected income statement data
 
 
 
 
 
 
 
Total net revenue
$
22,780

$
23,812

$
24,066

$
22,750

$
24,469

$
70,658

$
72,362

Total noninterest expense
15,368

14,500

14,883

15,409

15,798

44,751

45,865

Pre-provision profit
7,412

9,312

9,183

7,341

8,671

25,907

26,497

Provision for credit losses
682

935

959

840

757

2,576

2,299

Income before income tax expense
6,730

8,377

8,224

6,501

7,914

23,331

24,198

Income tax expense/(benefit)
(74
)
2,087

2,310

1,570

2,349

4,323

7,384

Net income
$
6,804

$
6,290

$
5,914

$
4,931

$
5,565

$
19,008

$
16,814

Earnings per share data
 
 
 
 
 
 
 
Net income: Basic
$
1.70

$
1.56

$
1.46

$
1.20

$
1.37

$
4.72

$
4.13

 Diluted
1.68

1.54

1.45

1.19

1.35

4.68

4.09

Average shares: Basic
3,694.4

3,707.8

3,725.3

3,730.9

3,755.4

3,709.2

3,774.4

 Diluted
3,725.6

3,743.6

3,757.5

3,765.2

3,788.7

3,742.2

3,808.3

Market and per common share data
 
 
 
 
 
 
 
Market capitalization
224,438

250,581

224,818

232,472

225,188

224,438

225,188

Common shares at period-end
3,681.1

3,698.1

3,711.1

3,714.8

3,738.2

3,681.1

3,738.2

Share price(a):
 
 
 
 
 
 
 
High
$
70.61

$
69.82

$
62.96

$
63.49

$
61.85

$
70.61

$
61.85

Low
50.07

59.65

54.27

54.26

54.96

50.07

52.97

Close
60.97

67.76

60.58

62.58

60.24

60.97

60.24

Book value per share
59.67

58.49

57.77

56.98

56.41

59.67

56.41

Tangible book value per share (“TBVPS”)(b)
47.36

46.13

45.45

44.60

44.04

47.36

44.04

Cash dividends declared per share
0.44

0.44

0.40

0.40

0.40

1.28

1.18

Selected ratios and metrics
 
 
 
 
 
 
 
Return on common equity (“ROE”)
12
%
11
%
11
%
9
%
10
%
11
%
10
%
Return on tangible common equity (“ROTCE”)(b)
15

14

14

11

13

14

13

Return on assets (“ROA”)
1.11

1.01

0.94

0.78

0.90

1.02

0.93

Overhead ratio
67

61

62

68

65

63

63

Loans-to-deposits ratio
64

61

56

56

56

64

56

High quality liquid assets (“HQLA”) (in billions)(c)
$
505

$
532

$
614

$
600

$
572

$
505

$
572

Common equity Tier 1 (“CET1”) capital ratio(d)
11.5
%
11.2
%
10.7%

10.2
%
10.2
%
11.5
%
10.2
%
Tier 1 capital ratio(d)
13.3

12.8

12.1

11.6

11.5

13.3

11.5

Total capital ratio(d)
14.9

14.4

13.7

13.1

12.8

14.9

12.8

Tier 1 leverage ratio(d)
8.4

8.0

7.5

7.6

7.6

8.4

7.6

Selected balance sheet data (period-end)
 
 
 
 
 
 
 
Trading assets
$
361,708

$
377,870

$
398,981

$
398,988

$
410,657

$
361,708

$
410,657

Securities(e)
306,660

317,795

331,136

348,004

366,358

306,660

366,358

Loans
809,457

791,247

764,185

757,336

743,257

809,457

743,257

Core loans
698,988

674,767

641,285

628,785

607,617

698,988

607,617

Total assets
2,417,121

2,449,599

2,577,148

2,572,773

2,526,655

2,417,121

2,526,655

Deposits
1,273,106

1,287,332

1,367,887

1,363,427

1,334,534

1,273,106

1,334,534

Long-term debt(f)
292,945

286,693

280,608

276,836

268,721

292,945

268,721

Common stockholders’ equity
219,660

216,287

214,371

211,664

210,876

219,660

210,876

Total stockholders’ equity
245,728

241,205

235,864

231,727

230,939

245,728

230,939

Headcount
235,678

237,459

241,145

241,359

242,388

235,678

242,388

Credit quality metrics
 
 
 
 
 
 
 
Allowance for credit losses
$
14,201

$
14,535

$
14,658

$
14,807

$
15,526

$
14,201

$
15,526

Allowance for loan losses to total retained loans
1.67%

1.78%

1.86%

1.90%

2.02%

1.67
%
2.02
%
Allowance for loan losses to retained loans excluding purchased credit-impaired loans(g)
1.40

1.45

1.52

1.55

1.63

1.40

1.63

Nonperforming assets
$
7,294

$
7,588

$
7,714

$
7,967

$
8,390

$
7,294

$
8,390

Net charge-offs
963

1,007

1,052

1,218

1,114

3,022

3,541

Net charge-off rate
0.49%

0.53%

0.57%

0.65%

0.60%

0.53%

0.65%

Note: Effective January 1, 2015, the Firm adopted new accounting guidance for investments in affordable housing projects that qualify for the low-income housing tax credit. The guidance was required to be applied retrospectively and accordingly, certain prior period amounts have been revised to conform with the current period presentation. For additional information, see Explanation and Reconciliation of the Firm’s Use of Non-GAAP Financial Measures on pages 14–16, as well as Accounting and Reporting Developments on page 84 and Note 1.
(a)
Share prices shown for JPMorgan Chase’s common stock 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 on pages 14–16.
(c)
HQLA represents the amount of assets that qualify for inclusion in the liquidity coverage ratio under the final U.S. rule (“U.S. LCR”) for 3Q15, 2Q15 and 1Q15 as well as the estimated amount as of 4Q14 and 3Q14, prior to the effective date of the final rule. For additional information, see HQLA on page 76.
(d)
Ratios presented are calculated under the transitional rules of the Basel Committee’s most recent capital framework (“Basel III”) and represent the Collins Floor. See Regulatory capital on pages 69–73 for additional information on Basel III.
(e)
Included held-to-maturity (“HTM”) securities of $50.2 billion, $51.6 billion, $49.3 billion, $49.3 billion, and $48.8 billion at September 30, 2015, June 30, 2015, March 31, 2015, December 31, 2014, and September 30, 2014, respectively.
(f)
Included unsecured long-term debt of $215.1 billion, $209.6 billion, $209.5 billion, $207.5 billion, and $204.7 billion at September 30, 2015, June 30, 2015, March 31, 2015, December 31, 2014, and September 30, 2014, respectively.
(g)
Excluded the impact of residential real estate 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 on pages 14–16. For further discussion, see Allowance for credit losses on pages 60–62.

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 third quarter of 2015.
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, 2014, filed with the U.S. Securities and Exchange Commission (“2014 Annual Report” or “2014 Form 10-K”), to which reference is hereby made. See the Glossary of terms on pages 178–181 for definitions of terms 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 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 85 of this Form 10-Q and Part I, Item 1A, Risk Factors, on pages 8–17 of JPMorgan Chase’s 2014 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 $2.4 trillion in assets and $245.7 billion in stockholders’ equity as of September 30, 2015. 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 Corporate & Investment Bank (“CIB”), Commercial Banking (“CB”), and Asset Management (“AM”) segments comprise the Firm’s wholesale businesses. 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 2014 Annual Report.





4


EXECUTIVE OVERVIEW
This executive overview of the MD&A highlights selected information and may 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,
Three months ended September 30,
 
Nine months ended September 30,
(in millions, except per share data and ratios)
2015
 
2014
 
Change
 
2015
 
2014
 
Change
Selected income statement data
 
 
 
 
 
 
 
 
 
 
 
Total net revenue
$
22,780

 
$
24,469

 
(7
)%
 
$
70,658

 
$
72,362

 
(2)%

Total noninterest expense
15,368

 
15,798

 
(3
)
 
44,751

 
45,865

 
(2
)
Pre-provision profit
7,412

 
8,671

 
(15
)
 
25,907

 
26,497

 
(2
)
Provision for credit losses
682

 
757

 
(10
)
 
2,576

 
2,299

 
12

Net income
6,804

 
5,565

 
22

 
19,008

 
16,814

 
13

Diluted earnings per share
$
1.68

 
$
1.35

 
24
 %
 
$
4.68

 
$
4.09

 
14
 %
Return on common equity
12
%
 
10
%
 
 
 
11
%
 
10
%
 
 
Capital ratios(a)
 
 
 
 
 
 
 
 
 
 
 
CET1
11.5

 
10.2

 
 
 
11.5

 
10.2

 
 
Tier 1 capital
13.3

 
11.5

 
 
 
13.3

 
11.5

 
 
(a)
Ratios presented are calculated under the transitional Basel III rules and represent the Collins Floor. See Regulatory capital on pages 69–73 for additional information on Basel III.
Business Overview
JPMorgan Chase reported third-quarter 2015 net income
of $6.8 billion, or $1.68 per share, on net revenue of $22.8 billion. The Firm reported a return on equity of 12%. Excluding tax benefits, legal expense and a net reduction in the allowance for credit losses, the Firm would have earned $5.4 billion in net income, or $1.32 per share. Both of these measures are non-GAAP financial measures. For further discussion, see Explanation and Reconciliation of the Firm’s Use of Non-GAAP Financial Measures on pages 14–16.
Net income increased 22% compared with the third quarter of 2014, despite lower revenue, primarily due to tax benefits. Net revenue was $22.8 billion, down 7% compared with the prior year. Noninterest revenue was $11.9 billion, down 11% compared with the prior year, driven by lower CIB Markets revenue reflecting the impact of business simplification and lower Mortgage Banking revenue. Net interest income was $10.9 billion, down 2% compared with the prior year, reflecting lower investment securities balances and lower trading net interest income, predominantly offset by loan growth.
Noninterest expense was $15.4 billion, down 3% compared with the prior year, driven by lower CIB expense related to compensation and business simplification, partially offset by higher legal expense.
The provision for credit losses was $682 million, down 10% compared with the prior year, due to lower net charge-offs, largely offset by a lower reduction in the allowance for loan losses. In the current quarter, the reduction in the consumer allowance for loan losses was $591 million, reflecting continued improvement in home prices and delinquencies
 
as well as increased granularity in the impairment estimates. This decrease was largely offset by an increase in the allowance for credit losses across the wholesale businesses of $310 million reflecting the impact of select downgrades, including within the Oil & Gas portfolio.
Consumer net charge-offs were $961 million, compared with $1.1 billion in the prior year, resulting in net charge-off rates, excluding purchased credit-impaired (“PCI”) loans, of 0.94% and 1.19%, respectively. The Firm’s allowance for loan losses to period-end loans retained, excluding PCI loans, was 1.40%, compared with 1.63% in the prior year. The Firm’s allowance for loan losses to retained nonaccrual loans, excluding PCI loans, was 161%, compared with 155% in the prior year. The Firm’s nonperforming assets totaled $7.3 billion, down from the prior quarter and prior year levels of $7.6 billion and $8.4 billion, respectively.
The current quarter reflected tax benefits of $2.2 billion due to the resolution of tax audits and the release of deferred taxes from the restructuring of certain non-U.S. entities.
Firmwide core loans increased 15% compared with the prior year and 4% compared with the second quarter of 2015. Within Consumer & Community Banking, Consumer & Business Banking (“CBB”) average deposits were up 9%, Business Banking period-end loans were up 6%, and credit card sales volume was $126.6 billion, up 6% from the prior year. Within CB, period-end loans were up 13% from the prior year and the business reported its eleventh consecutive quarter of single-digit net charge-off rates or net recoveries. AM period-end loans were up 8% over the prior year and 81% of mutual fund AUM ranked in the 1st or 2nd quartiles over the past five years. CIB maintained its


5


#1 ranking for Global Investment Banking fees with an 8.2% fee share for the third quarter of 2015. For a detailed discussion of results by line of business, refer to the Business Segment Results section beginning on page 17.
The Firm maintained its fortress balance sheet and added to its capital, ending the third quarter with a tangible book value per share of $47.36, up 8% over the prior year. The Firm’s estimated Basel III Advanced Fully Phased-In CET1 capital and ratio were $172.4 billion and 11.4%, respectively. The Firm’s fully phased-in supplementary leverage ratio (“SLR”) was 6.4% and JPMorgan Chase Bank, N.A.’s fully phased-in SLR was 6.5%. The Firm was also compliant with the fully phased-in U.S. liquidity coverage ratio (“LCR”) and had $505 billion of high quality liquid assets (“HQLA”) as of September 30, 2015. Tangible book value per share and each of these fully phased-in measures are non-GAAP financial measures and are used by management, bank regulators, investors and analysts to assess and monitor the Firm’s capital position and liquidity. For further discussion of Basel III Advanced Fully Phased-in measures and the SLR under the U.S. final SLR rule, see Regulatory capital on pages 69–73, and for further discussion of LCR and HQLA, see Liquidity Risk Management on pages 76–80.
JPMorgan Chase continued to support consumers, businesses and communities around the globe. The Firm provided credit and raised capital of $1.5 trillion for commercial and consumer clients during the first nine months of 2015. This included providing $462 billion of credit to corporations, $177 billion to consumers, and $16 billion to U.S. small businesses. During the first nine months of 2015, the Firm also raised $763 billion of capital for clients and $55 billion of credit was provided to, and capital was raised for, nonprofit and government entities, including states, municipalities, hospitals and universities.
2015 Business 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 85 of this Form 10-Q and Risk Factors on pages 8–17 of JPMorgan Chase’s 2014 Annual Report. There is no assurance that actual results for the fourth quarter or full year of 2015 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 2015 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.
Management expects core loan growth of approximately 15% in the fourth quarter of 2015. The Firm continues to experience net charge-offs at levels lower than its through-the-cycle expectations. If stable credit quality trends continue, management expects the Firm’s total net charge-offs for the second half of 2015 to be consistent with the first half of 2015. Firmwide adjusted expense for the full year 2015 is expected to be approximately $56.5 billion, excluding firmwide legal expense.
In Mortgage Banking within CCB, management expects noninterest revenue in the fourth quarter of 2015 to decline by approximately $250 million compared with the prior year fourth quarter; the actual results will be market dependent. In Card Services within CCB, management expects the revenue rate in the fourth quarter of 2015 to be approximately 11.75%, driven by the impact of Card partnership renegotiations, which are expected to decrease run-rate noninterest revenue by approximately $200 million per quarter. However, in the fourth quarter of 2015, management expects noninterest revenue to be relatively flat compared with the prior year fourth quarter given the impact of non-core portfolio exits in the year-ago quarter, and expects net interest income to be relatively flat year-over-year as well.
In CIB, Markets revenue in the fourth quarter of 2015 is expected to decline sequentially due to seasonal trends. In Securities Services within CIB, at current market levels, management expects revenue to be below $950 million in the fourth quarter of 2015.
In CB, management expects noninterest expense to be approximately $720 million in the fourth quarter of 2015.
Business events
For a discussion of business events during the nine months ended September 30, 2015, see Note 2.



6


CONSOLIDATED RESULTS OF OPERATIONS
The following section of the MD&A provides a comparative discussion of JPMorgan Chase’s Consolidated Results of Operations on a reported basis for the three and nine months ended September 30, 2015 and 2014. 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 81–83 of this Form 10-Q and pages 161–165 of JPMorgan Chase’s 2014 Annual Report.

Revenue
 
 
 
 
 
 
 
 
 
 
 
 
Three months ended September 30,
 
Nine months ended September 30,
(in millions)
2015

 
2014

 
Change
 
2015

 
2014

 
Change
Investment banking fees
$
1,604

 
$
1,538

 
4
 %
 
$
5,231

 
$
4,709

 
11
 %
Principal transactions
2,367

 
2,966

 
(20
)
 
8,856

 
9,196

 
(4
)
Lending- and deposit-related fees
1,463

 
1,479

 
(1
)
 
4,244

 
4,347

 
(2
)
Asset management, administration and commissions
3,845

 
3,978

 
(3
)
 
11,667

 
11,821

 
(1
)
Securities gains
33

 
6

 
450

 
129

 
48

 
169

Mortgage fees and related income
469

 
903

 
(48
)
 
1,957

 
2,708

 
(28
)
Card income
1,447

 
1,537

 
(6
)
 
4,493

 
4,494

 

Other income(a)
628

 
955

 
(34
)
 
1,796

 
2,467

 
(27
)
Noninterest revenue
11,856

 
13,362

 
(11
)
 
38,373

 
39,790

 
(4
)
Net interest income
10,924

 
11,107

 
(2
)
 
32,285

 
32,572

 
(1
)
Total net revenue
$
22,780

 
$
24,469

 
(7)%

 
$
70,658

 
$
72,362

 
(2)%

(a)
Included operating lease income of $536 million and $433 million for the three months ended September 30, 2015 and 2014, respectively, and $1.5 billion and $1.3 billion for the nine months ended September 30, 2015 and 2014, respectively.
Total net revenue for the three and nine months ended September 30, 2015 was down by 7% and 2%, respectively, compared with the prior year, predominantly driven by lower CIB Fixed Income Markets revenue, including the impact of business simplification, lower Mortgage Banking revenue, and lower private equity gains, predominantly in Corporate. For the three and nine months ended September 30, 2015, these factors were partially offset by higher CIB Equity Markets revenue and higher Firmwide investment banking fees.
Investment banking fees increased from the three and nine months ended September 30, 2014, reflecting higher debt underwriting and advisory fees, partially offset by lower equity underwriting fees. The increase in debt underwriting fees for the three month period reflected higher noninvestment-grade issuance fees; for the nine month period, the increase was primarily driven by a higher share of fees from investment-grade bonds. The increase in advisory fees for both periods was driven by a greater share of fees for completed transactions; for the nine month period, growth in industry-wide fee levels also contributed to the increase. The decrease in equity underwriting fees for both periods was driven by a decline in industry-wide fee levels. Investment banking fee share and industry-wide data are sourced from Dealogic. For additional information on investment banking fees, see CIB segment results on
pages 30–35, CB segment results on pages 36–39 and
Note 6.
Principal transactions revenue decreased in the three and nine months ended September 30, 2015 compared with the prior year, reflecting lower private equity gains in Corporate, driven by lower valuation gains and lower net gains on sales; and lower Fixed Income Markets revenue in CIB, driven by the impact of business simplification, and lower revenue in Securitized Products and Credit, partially
 
offset by strong performance in Currencies & Emerging Markets; and additionally for the first nine months, by strong performance in Rates. The decrease in Fixed Income was partially offset by higher Equity Markets revenue reflecting strong performance across derivatives and cash equities, driven by higher client volumes. For additional information on principal transactions revenue, see CIB and Corporate segment results on pages 30–35 and pages 44–45, respectively, and Note 6.
Asset management, administration and commissions revenue for the three months and nine months ended September 30, 2015, decreased compared with the prior year, largely as a result of lower administration and other fees in CIB. For the nine months ended September 30, 2015, the decrease was partially offset by higher asset management fees on net client inflows into assets under management and higher average market levels in AM
and CCB. For additional information on these fees and commissions, see the segment discussions of CCB
on pages 18–29, AM on pages 40–43, and Note 6.
Mortgage fees and related income decreased compared with the three months ended September 30, 2014, driven by lower mortgage servicing rights (“MSR”) risk management income and lower servicing revenue, partially due to lower average third-party loans serviced. Compared with the nine months ended September 30, 2014, mortgage fees and related income decreased, driven by lower servicing revenue, largely as a result of lower average third-party loans serviced and lower net production revenue, reflecting a lower repurchase benefit. For further information on mortgage fees and related income, see the segment discussion of CCB on pages 18–29 and Note 16.
For additional information on lending- and deposit-related fees, see the segment results for CCB on pages 18–29, CIB


7


on pages 30–35, and CB on pages 36–39; securities gains, see the Corporate segment discussion on pages 44–45 and
Note 11; and card income, see CCB segment results on pages 18–29.
Other income for the three months ended September 30, 2015 decreased compared with the prior year, reflecting the impact of business simplification in CIB; the absence of a nonrecurring gain in Mortgage Banking (“MB”); and the impact of the sale of Retirement Plan Services (“RPS”) business in 2014 and lower gains on seed capital investments in AM. These factors were partially offset by higher operating lease income as a result of growth in auto operating lease assets in CCB. In the nine months ended September 30, 2015, other income decreased from the prior year as a result of the impact of business simplification in CIB; the absence in the current period of a benefit recognized in the second quarter of 2014 from a franchise tax settlement; losses related to the accelerated amortization of cash flow hedges associated with the exit of certain non-operating deposits; and losses on the early redemption of trust preferred securities in the second quarter of 2015 and long-term debt in the first quarter of 2015 in Corporate. The decrease was partially offset by
 
higher operating lease income as a result of growth in auto operating lease assets in CCB.
Net interest income decreased in the three months ended September 30, 2015 compared with the prior year, predominantly reflecting the impact of lower average investment securities balances and lower average trading asset balances and yields, partially offset by higher average loan balances. For the nine months ended September 30, 2015, net interest income decreased from the prior year, predominantly reflecting lower loan yields, lower average investment securities balances, and lower trading asset yields; these factors were partially offset by higher average loan balances, and the impact of lower deposit and long-term debt yields. The Firm’s average interest-earning assets were $2.1 trillion in the three months ended September 30, 2015, and the net interest yield on these assets, on a fully taxable equivalent (“FTE”) basis, was 2.16%, a decrease of 3 basis points from the prior year. For the nine months ended September 30, 2015, the Firm’s average interest-earning assets were $2.1 trillion, and the net interest yield on these assets, on a FTE basis, was 2.11%, a decrease of 8 basis points from the prior year.

Provision for credit losses
 
 
 
 
 
 
 
 
 
 
 
Three months ended September 30,
 
Nine months ended September 30,
(in millions)
2015

 
2014

 
Change
 
2015
 
2014
 
Change
Consumer, excluding credit card
$
(389
)
 
$
99

 
NM

 
$
(345
)
 
$
181

 
NM

Credit card
759

 
798

 
(5
)%
 
2,348

 
2,371

 
(1
)%
Total consumer
370

 
897

 
(59
)%
 
2,003

 
2,552

 
(22
)%
Wholesale
312

 
(140
)
 
NM

 
573

 
(253
)
 
NM

Total provision for credit losses
$
682

 
$
757

 
(10
)%
 
$
2,576

 
$
2,299

 
12
 %
The provision for credit losses in the three months ended September 30, 2015 decreased from the prior year as a result of a decline in the consumer, excluding credit card, provision, due to a larger reduction in the residential real estate portfolio allowance for loan losses, reflecting the continued improvement in home prices and delinquencies as well as increased granularity in the impairment estimates, and lower net charge-offs. The decrease was partially offset by an increase in the wholesale provision, reflecting the impact of select downgrades, including within the Oil & Gas portfolio. For the nine months ended
 
September 30, 2015, the provision for credit losses increased from the prior year as a result of an increase in the wholesale provision, reflecting the impact of the aforementioned downgrades, partially offset by a decline in the consumer provision, reflecting lower net charge-offs. For a more detailed discussion of the credit portfolio
and the allowance for credit losses, see the segment
discussions of CCB on pages 18–29, CIB on pages 30–35,
CB on pages 36–39, and the Allowance for credit losses on pages 60–62.

Noninterest expense
 
 
 
 
 
 
 
 
 
 
 
Three months ended September 30,
 
Nine months ended September 30,
(in millions)
2015

 
2014

 
Change
 
2015
 
2014
 
Change
Compensation expense
$
7,320

 
$
7,831

 
(7
)%
 
$
23,057

 
$
23,300

 
(1
)%
Noncompensation expense:
 
 
 
 
 
 
 
 
 
 
 
Occupancy
965

 
978

 
(1
)
 
2,821

 
2,903

 
(3
)
Technology, communications and equipment
1,546

 
1,465

 
6

 
4,536

 
4,309

 
5

Professional and outside services
1,776

 
1,907

 
(7
)
 
5,178

 
5,625

 
(8
)
Marketing
704

 
610

 
15

 
1,937

 
1,824

 
6

Other expense(a)(b)
3,057

 
3,007

 
2

 
7,222

 
7,904

 
(9
)
Total noncompensation expense
8,048

 
7,967

 
1

 
21,694

 
22,565

 
(4
)
Total noninterest expense
$
15,368

 
$
15,798

 
(3
)%
 
$
44,751

 
$
45,865

 
(2
)%
(a)
Included firmwide legal expense of $1.3 billion and $1.1 billion for the three months ended September 30, 2015 and 2014, respectively, and $2.3 billion and $1.8 billion for the nine months ended September 30, 2015 and 2014, respectively
(b)
Included Federal Deposit Insurance Corporation-related (“FDIC”) expense of $298 million and $250 million for the three months ended September 30, 2015 and 2014, respectively, and $916 million and $809 million for the nine months ended September 30, 2015 and 2014, respectively.

8


Total noninterest expense for the three and nine months ended September 30, 2015 decreased by 3% and 2%, respectively, from the prior year, driven by lower CIB expense related to compensation and business simplification, and lower professional and outside services expense, partially offset by higher legal expense.
Compensation expense decreased compared with the three and nine months ended September 30, 2014, predominantly driven by lower performance-based incentives and the impact of reduced headcount in MB, partially offset by higher postretirement benefit costs and the impact of investments in the businesses, including headcount for controls.
Noncompensation expense in the three months ended September 30 2015 was relatively flat compared with the prior year, reflecting higher legal expense (which is included in other expense), higher depreciation expense,
 
predominantly associated with a higher volume of auto operating lease assets in CCB, and higher marketing expense. These factors were offset by the benefits of lower costs resulting from business simplification in CIB and lower professional and outside services expense, reflecting lower legal services expense and the impact of a reduced number of contractors in the businesses. For the nine months ended September 30, 2015, noncompensation expense decreased from the prior year, reflecting the benefits from business simplification in CIB; lower professional and outside services expense, reflecting lower legal services expense and the impact of a reduced number of contractors in the businesses; and lower amortization of intangibles. These factors were partially offset by higher legal expense, higher depreciation expense, largely associated with a higher volume of auto operating lease assets in CCB, higher marketing expense in CCB, and higher FDIC-related expense. For a further discussion of legal expense, see Note 23.

Income tax expense
 
 
 
 
 
 
 
 
 
(in millions, except rate)
Three months ended September 30,
 
Nine months ended September 30,
2015

 
2014

 
Change
 
2015
 
2014
 
Change
Income before income tax expense
$
6,730

 
$
7,914

 
(15
)%
 
 
$
23,331

 
$
24,198

 
(4
)%
 
Income tax expense/(benefit)
(74
)
 
2,349

 
NM

 
 
4,323

 
7,384

 
(41
)
 
Effective tax rate
(1.1
)%
 
29.7
%
 
 
 
 
18.5
%
 
30.5
%
 


 

The effective tax rate in the three and nine months ended September 30, 2015 decreased compared with the respective prior year periods, predominantly due to the recognition of tax benefits in 2015 of $2.2 billion and $2.7 billion, respectively, which reduced the Firm’s effective tax rate by 32.0% and 11.7%, respectively. The effective tax rate was also affected by the change in mix of income and expense subject to U.S. federal and state and local taxes. The recognition of tax benefits in 2015 resulted from the resolution of various tax audits, as well as the release of U.S. deferred taxes associated with the restructuring of certain non-U.S. entities. For further information see Note 26 of JPMorgan Chase’s 2014 Annual Report, and Note 2 of this Form 10-Q.



9


CONSOLIDATED BALANCE SHEETS ANALYSIS
Consolidated balance sheets overview
JPMorgan Chase’s total assets and total liabilities decreased by 6% and 7%, respectively, compared with December 31, 2014. The following is a discussion of the significant changes.
Selected Consolidated balance sheets data
(in millions)
Sep 30,
2015
 
Dec 31,
2014
Change
Assets
 
 
 
 
Cash and due from banks
$
21,258

 
$
27,831

(24
)%
Deposits with banks
376,196

 
484,477

(22
)
Federal funds sold and securities purchased under resale agreements
218,467

 
215,803

1

Securities borrowed
105,668

 
110,435

(4
)
Trading assets:
 
 
 
 
Debt and equity instruments
293,040

 
320,013

(8
)
Derivative receivables
68,668

 
78,975

(13
)
Securities
306,660

 
348,004

(12
)
Loans
809,457

 
757,336

7

Allowance for loan losses
(13,466
)
 
(14,185
)
(5
)
Loans, net of allowance for loan losses
795,991

 
743,151

7

Accrued interest and accounts receivable
57,926

 
70,079

(17
)
Premises and equipment
14,709

 
15,133

(3
)
Goodwill
47,405

 
47,647

(1
)
Mortgage servicing rights
6,716

 
7,436

(10
)
Other intangible assets
1,036

 
1,192

(13
)
Other assets
103,381

 
102,597

1

Total assets
$
2,417,121

 
$
2,572,773

(6
)
Cash and due from banks and deposits with banks
The Firm’s excess cash was placed with various central banks, predominantly Federal Reserve Banks. The net decrease in cash and due from banks and deposits with banks was driven by lower wholesale non-operating deposits.
Trading assetsdebt and equity instruments
The decrease in trading assets was predominantly due to client-driven market-making activities in CIB, which resulted in lower levels of equity securities. For additional information, refer to Notes 3.
Trading assets and liabilitiesderivative receivables and payables
The decrease in both receivables and payables was predominantly due to client-driven market-making activities in CIB, as a result of market movements, maturities and settlements. For additional information, refer to Derivative contracts on pages 58–59, and Notes 3 and 5.
Securities
The decrease was largely due to paydowns and maturities of non-U.S. residential mortgage-backed securities (“MBS”), U.S. government agency MBS, and non-U.S. government debt securities; the decrease reflected a shift to higher loan balances. For additional information related to securities, refer to the discussion in the Corporate segment on pages 44–45, and Notes 3 and 11.
Loans and allowance for loan losses
The increase in loans reflected higher consumer and wholesale balances. The increase in consumer loans was due to originations and retention of high-quality prime
 
mortgages in Mortgage Banking (“MB”) and AM, partially offset by lower credit card loans due to seasonality and non-core loan portfolio sales. The increase in wholesale loans largely reflected higher commercial real estate originations, particularly in CB.
The decrease in the allowance for loan losses was due to a reduction in the residential real estate portfolio allowance, driven by the continued improvement in home prices and delinquencies, as well as increased granularity in the impairment estimates. The credit card allowance was relatively unchanged. The wholesale allowance increased reflecting the impact of select downgrades, including within the Oil & Gas portfolio. For a more detailed discussion of loans and the allowance for loan losses, refer to Credit Risk Management on pages 47–62, and Notes 3, 4, 13 and 14.
Accrued interest and accounts receivable
The decrease was predominantly due to lower client receivables related to client activity in CIB.
Mortgage servicing rights
For additional information on MSRs, see Note 16.
Other assets
Other assets was relatively flat, as the increase in tax receivables associated with the resolution of certain tax audits and higher auto operating lease assets from growth in business volume was offset by lower private equity investments driven by the sale of a portion of the Private Equity business and other portfolio sales.



10





Selected Consolidated balance sheets data (continued)
 
(in millions)
Sep 30,
2015
 
Dec 31,
2014
Change
Liabilities
 
 
 
 
Deposits
$
1,273,106

 
$
1,363,427

(7
)
Federal funds purchased and securities loaned or sold under repurchase agreements
180,319

 
192,101

(6
)
Commercial paper
19,656

 
66,344

(70
)
Other borrowed funds
27,174

 
30,222

(10
)
Trading liabilities:
 
 
 
 
Debt and equity instruments
84,334

 
81,699

3

Derivative payables
57,140

 
71,116

(20
)
Accounts payable and other liabilities
187,986

 
206,939

(9
)
Beneficial interests issued by consolidated VIEs
48,733

 
52,362

(7
)
Long-term debt
292,945

 
276,836

6

Total liabilities
2,171,393

 
2,341,046

(7
)
Stockholders’ equity
245,728

 
231,727

6

Total liabilities and stockholders’ equity
$
2,417,121

 
$
2,572,773

(6
)%
Deposits
The decrease was attributable to lower wholesale deposits, partially offset by higher consumer deposits. The decrease in wholesale deposits reflected the impact of the Firm’s actions to reduce non-operating deposits, consistent with
its announcement in February 2015, as well as the normalization of deposit levels from year-end seasonal inflows. The increase in consumer deposits reflected a continuing positive growth trend, resulting from strong customer retention based on higher customer satisfaction. For more information on deposits, refer to the CCB, CIB, CB and AM segment discussions on pages 18–29, pages 30–35, pages 36–39, and pages 40–43, respectively; the Liquidity Risk Management discussion on pages 76–80; and Notes 3 and 17.
Federal funds purchased and securities loaned or sold under repurchase agreements
The decrease reflected a decline in secured financing of trading assets-debt and equity instruments. For additional information on the Firm’s Liquidity Risk Management, see pages 76–80.
Commercial paper
The decrease was due to the discontinuation of a cash management product that offered customers the option of sweeping their deposits into commercial paper (“customer sweeps”), and lower issuances in the wholesale markets, consistent with Treasury’s short-term funding plans. For additional information, see Liquidity Risk Management on pages 76–80.
 
Accounts payable and other liabilities
The decrease was due to lower brokerage customer payables related to client activity in CIB.
Beneficial interests issued by consolidated VIEs
For further information on Firm-sponsored variable interest
entities (“VIEs”) and loan securitization trusts, see Off-
Balance Sheet Arrangements on page 12 and Note 15.
Long-term debt
The increase was due to net issuances, consistent with Treasury’s long-term funding plans. For additional information on the Firm’s long-term debt activities, see Liquidity Risk Management on pages 76–80.
Stockholders’ equity
The increase was due to net income and preferred stock issuances, partially offset by the declaration of cash dividends on common and preferred stock, and repurchases of common stock. For additional information on accumulated other comprehensive income/(loss) (“AOCI”), see Note 19; for the Firm’s capital actions, see Capital actions on pages 74–75.


11


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 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 21 of this Form 10-Q and Off–Balance Sheet Arrangements and Contractual Cash Obligations on pages 74–75 and Note 29 of JPMorgan Chase’s 2014 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 15 of this Form 10-Q, and Note 1 and Note 16 of JPMorgan Chase’s 2014 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 September 30, 2015, and December 31, 2014, was $13.0 billion and $12.1 billion, respectively. The aggregate amounts of commercial paper issued by these SPEs and outstanding 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 $6.9 billion and $9.9 billion at September 30, 2015, and December 31, 2014, 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 15.
 
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 15 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 expire without being drawn or a default occurring. As a result, the total contractual amount of these instruments is not, in the Firm’s view, representative of its actual 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 58 and Note 21 (including the table that presents the related amounts by contractual maturity as of September 30, 2015). For a discussion of liabilities associated with loan sales- and securitization-related indemnifications, see Note 21.


12


CONSOLIDATED CASH FLOWS ANALYSIS
For a discussion of the activities affecting the Firm’s cash flows, see Consolidated Balance Sheets Analysis on pages 10–11 of this Form 10-Q and page 76 of JPMorgan Chase’s 2014 Annual Report.
(in millions)
 
Nine months ended September 30,
 
2015
 
2014
Net cash provided by/(used in)
 
 
 
 
Operating activities
 
$
57,299

 
$
7,847

Investing activities
 
79,722

 
(95,630
)
Financing activities
 
(143,513
)
 
74,061

Effect of exchange rate changes on cash
 
(81
)
 
(677
)
Net decrease in cash and due from banks
 
$
(6,573
)
 
$
(14,399
)

Operating activities
Operating assets and liabilities can vary significantly in the normal course of business due to the amount and timing of cash flows, which are affected by client-driven and risk management activities and market conditions. The Firm believes cash flows from operations, available cash balances and its capacity to generate cash through secured and unsecured funding sources are sufficient to meet the Firm’s operating liquidity needs.
Cash provided by operating activities in 2015 resulted from a decrease in trading assets predominantly due to client-driven market-making activities in CIB resulting in lower levels of equity securities, offset by a decrease in accounts payable and other liabilities due to lower brokerage customer payables related to client activity in CIB. Cash used during 2014 resulted from higher trading assets, predominantly debt and equity instruments related to client-driven marketing-making activities in CIB. For both periods, cash was provided by net income after noncash operating adjustments; and higher net proceeds from loan securitizations and sales activities, reflecting lower levels of activity over the prior year.
 
Investing activities
Cash provided by investing activities during 2015 predominantly resulted from a net decrease in deposits with banks which was driven by lower wholesale non-operating deposits, and net proceeds from paydowns, maturities, sales, and purchases of investment securities. Partially offsetting these net inflows was cash used for net originations of consumer and wholesale loans. Cash used in investing activities during 2014 predominantly resulted from increases in deposits with banks, reflecting higher levels of excess funds; increases in wholesale loans due to net originations; and net purchases of investment securities. Partially offsetting these net cash outflows in 2014 was a net decline in securities purchased under resale agreements due to a shift in the deployment of the Firm’s excess cash by Treasury.
Financing activities
Cash used in financing activities in 2015 resulted from lower wholesale deposits partially offset by higher consumer deposits. The decrease in wholesale deposits reflects the impact of the Firm’s commitment to reduce non-operating deposits as announced in February 2015, as well as the normalization of deposit levels from year-end seasonal inflows. The increase in consumer deposits reflected a continuing positive growth trend, resulting from strong customer retention based on higher customer satisfaction. Additionally, in 2015 cash outflows were attributable to lower levels of commercial paper due to a discontinuation of a cash management product that offered customers the option of sweeping their deposits into commercial paper, and lower issuances in the wholesale markets. Offsetting these outflows were net proceeds from long-term borrowings. Cash provided by financing activities in 2014 resulted predominantly from higher consumer and wholesale deposits and an increase in securities loaned or sold under repurchase agreements due to higher financing of the Firm’s trading assets-debt and equity instruments. For both periods, cash was provided by the issuance of preferred stock and 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 10–11, Capital Management on pages 69–75, and Liquidity Risk Management on pages 76–80.



13


EXPLANATION AND RECONCILIATION OF THE FIRM’S USE OF NON-GAAP FINANCIAL MEASURES
The Firm prepares its Consolidated Financial Statements using accounting principles generally accepted in the U.S. (“U.S. GAAP”); these financial statements appear on pages 86–90. 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 the Firm’s results, including the overhead ratio, and the results of the lines of business on a “managed” basis, which is a non-GAAP financial measure. The Firm’s definition of managed basis starts 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 an 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. This non-GAAP financial measure allows management to assess the comparability of revenue 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.
 
Effective January 1, 2015, the Firm adopted new accounting guidance for investments in affordable housing projects that qualify for the low-income housing tax credit, which impacted the CIB. As a result of the adoption of this new guidance, the Firm made an accounting policy election to amortize the initial cost of qualifying investments in proportion to the tax credits and other benefits received, and to present the amortization as a component of income tax expense; previously such amounts were predominantly presented in other income. The guidance was required to be applied retrospectively and, accordingly, certain prior period amounts have been revised to conform with the current period presentation. The adoption of the guidance did not materially change the Firm’s results of operations on a managed basis as the Firm had previously presented and will continue to present the revenue from such investments on an FTE basis for the purposes of managed basis reporting.
Management also uses certain non-GAAP financial measures at the business-segment level, because it believes these other non-GAAP financial measures provide information to investors about the underlying operational performance and trends of the particular business segment and, therefore, facilitate a comparison of the business segment with the performance of its competitors. 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 September 30,
 
2015
 
2014
(in millions, except ratios)
Reported
results
 
Fully taxable-equivalent adjustments(a)
 
Managed
basis
 
Reported
results
 
Fully taxable-equivalent adjustments(a)
 
Managed
basis
Other income
$
628

 
$
477

 
 
$
1,105

 
$
955

 
$
424

 
 
$
1,379

Total noninterest revenue
11,856

 
477

 
 
12,333

 
13,362

 
424

 
 
13,786

Net interest income
10,924

 
278

 
 
11,202

 
11,107

 
253

 
 
11,360

Total net revenue
22,780

 
755

 
 
23,535

 
24,469

 
677

 
 
25,146

Pre-provision profit
7,412

 
755

 
 
8,167

 
8,671

 
677

 
 
9,348

Income before income tax expense
6,730

 
755

 
 
7,485

 
7,914

 
677

 
 
8,591

Income tax expense/(benefit)
$
(74
)
 
$
755

 
 
$
681

 
$
2,349

 
$
677

 
 
$
3,026

Overhead ratio
67
%
 
NM

 
 
65
%
 
65
%
 
NM

 
 
63
%
 
Nine months ended September 30,
 
2015
 
2014
(in millions, except ratios)
Reported
results
 
Fully taxable-equivalent adjustments(a)
 
Managed
basis
 
Reported
results
 
Fully taxable-equivalent adjustments(a)
 
Managed
basis
Other income
$
1,796

 
$
1,405

 
 
$
3,201

 
$
2,467

 
$
1,251

 
 
$
3,718

Total noninterest revenue
38,373

 
1,405

 
 
39,778

 
39,790

 
1,251

 
 
41,041

Net interest income
32,285

 
823

 
 
33,108

 
32,572

 
723

 
 
33,295

Total net revenue
70,658

 
2,228

 
 
72,886

 
72,362

 
1,974

 
 
74,336

Pre-provision profit
25,907

 
2,228

 
 
28,135

 
26,497

 
1,974

 
 
28,471

Income before income tax expense
23,331

 
2,228

 
 
25,559

 
24,198

 
1,974

 
 
26,172

Income tax expense/(benefit)
$
4,323

 
$
2,228

 
 
$
6,551

 
$
7,384

 
$
1,974

 
 
$
9,358

Overhead ratio
63
%
 
NM

 
 
61
%
 
63
%
 
NM

 
 
62
%
(a) Predominantly recognized in CIB and CB business segments and Corporate.

14


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 earnings 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 meaningful to the Firm, as well as investors and analysts, in assessing the Firm’s use of equity. Additionally, certain capital ratios disclosed by the Firm are non-GAAP measures. For additional information on these non-GAAP measures, see Regulatory capital on pages 69–73.

Tangible common equity
Period-end
 
Average
 
 
Three months ended September 30,
 
Nine months ended September 30,
(in millions, except per share and ratio data)
Sep 30,
2015
Dec 31,
2014
 
 
 
2015
2014
 
2015
2014
Common stockholders’ equity
$
219,660

$
211,664

 
$
217,023

$
209,621

 
$
214,389

$
205,888

Less: Goodwill
47,405

47,647

 
47,428

48,081

 
47,468

48,073

Less: Certain identifiable intangible assets
1,036

1,192

 
1,064

1,308

 
1,112

1,423

Add: Deferred tax liabilities(a)
3,105

2,853

 
2,991

2,980

 
2,909

2,959

Tangible common equity
$
174,324

$
165,678

 
$
171,522

$
163,212

 
$
168,718

$
159,351

 
 
 
 
 
 
 
 
 
Return on tangible common equity
NA

NA

 
15
%
13
%
 
14
%
13
%
Tangible book value per share
$
47.36

$
44.60

 
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.
Net interest income excluding markets (formerly core net interest income)
In addition to reviewing net interest income on a managed basis, management also reviews net interest income excluding CIB’s markets-based activities to assess the performance of its lending, investing (including asset-liability management) and deposit-raising activities. The data presented below are non-GAAP financial measures due
 
to the exclusion of CIB’s markets-based net interest income and related assets. Management believes this exclusion provides investors and analysts with another measure by which to analyze the non-market-related business trends of the Firm and provides a comparable measure to other financial institutions that are primarily focused on lending, investing and deposit-raising activities.

Net interest income excluding CIB markets-based activities data
 
Three months ended September 30,
 
Nine months ended September 30,
(in millions, except rates)
2015
2014
 
Change
 
2015
2014
 
Change
Net interest income – managed basis(a)(b)
$
11,202

$
11,360

 
(1
)%
 
$
33,108

$
33,295

 
(1
)%
Less: Markets-based net interest income
1,164

1,542

 
(25
)
 
3,661

4,102

 
(11
)
Net interest income excluding markets(a)
$
10,038

$
9,818

 
2

 
$
29,447

$
29,193

 
1

 
 
 
 
 
 
 
 
 
 
Average interest-earning assets
$
2,056,890

$
2,061,785

 

 
$
2,100,773

$
2,030,665

 
3

Less: Average markets-based interest-earning assets
476,120

513,051

 
(7
)
 
495,460

507,675

 
(2
)
Average interest-earning assets excluding markets
$
1,580,770

$
1,548,734

 
2
 %
 
$
1,605,313

$
1,522,990

 
5
 %
Net interest yield on average interest-earning assets
   – managed basis
2.16
%
2.19
%
 
 
 
2.11
%
2.19
%
 
 
Net interest yield on average markets-based interest-earning assets
0.97

1.19

 
 
 
0.99

1.08

 
 
Net interest yield on average interest-earning assets excluding markets
2.52
%
2.52
%
 
 
 
2.45
%
2.56
%
 
 
(a)
Interest includes the effect of related hedging derivatives. Taxable-equivalent amounts are used where applicable.
(b)
For a reconciliation of net interest income on a reported and managed basis, see reconciliation from the Firm’s reported U.S. GAAP results to managed basis on page 14.

15


Quarterly and year-to-date results
Net interest income excluding CIB’s markets-based activities increased by $220 million and $254 million, respectively, for the three and nine months ended September 30, 2015, when compared with the prior year periods. Results for the three months ended September 30, 2015 reflected higher average loan balances partially offset by the impact of lower average investment securities balances. Results for the nine months ended September 30, 2015 reflected higher average loan balances and the impact of lower deposit and long-term debt yields, partially offset by lower loan yields and lower average investment securities balances. Average interest-earning assets excluding assets related to CIB’s markets-based activities increased by $32 billion to $1.6 trillion and by $82 billion to $1.6 trillion, respectively, for the three and nine months ended September 30, 2015, when compared with the prior year periods; these increases primarily reflected the impact of higher average deposits with banks. The net interest yield excluding CIB’s markets-based activities was flat at 2.52% for the three months ended September 30, 2015 and decreased by 11 basis points to 2.45% for the nine months ended September 30, 2015.
 
Income before income tax expense, net income and earnings per share excluding certain items
Presented below are the Firm’s income before income tax expense, net income and earnings per share excluding certain items. These measures should be viewed in addition to, and not as a substitute for, the Firm’s reported results. Management believes this information helps investors understand the effect of these items on reported results and provides an additional presentation of the Firm’s performance. The table below provides a reconciliation of reported results to these non-GAAP financial measures.
 
Reconciliation of reported to adjusted results
 
 
 
 
 
 
Three months ended
September 30, 2015
(in millions, except per share)
Income before income tax expense
Net income
Earnings per share
 
 
 
Reported results
$
6,730

$
6,804

$
1.68

 
 
 
 
 
 
Adjustments:
 
 
 
 
Firmwide legal expense
1,347

973

0.26

 
Firmwide tax benefits

(2,164
)
(0.57
)
 
Consumer credit reserve releases
(591
)
(366
)
(0.10
)
 
Wholesale credit reserve builds
310

192

0.05

 
Total adjustments
1,066

(1,365
)
(0.36
)
 
Adjusted results
$
7,796

$
5,439

$
1.32




16


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 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, on pages 14–16.
Description of business segment reporting methodology
Results of the business segments are intended to reflect each segment as if it were essentially a stand-alone business. The management reporting process that derives business segment results allocates income and expense using market-based methodologies. The Firm continues to assess the assumptions, methodologies and reporting
 
classifications used for segment reporting, and further refinements may be implemented in future periods.
For a further discussion of those methodologies, see Business Segment Results – Description of business segment reporting methodology on pages 79–80 of JPMorgan Chase’s 2014 Annual Report.
Business segment capital allocation changes
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 to its lines of business and updates the equity allocations to its lines of business as refinements are implemented.  Each business segment is allocated capital by taking into consideration regulatory capital requirements (as estimated under Basel III Advanced Fully Phased-In), economic risk measures and stand-alone peer comparisons. The amount of capital assigned to each business is referred to as equity.  For further information about these capital changes, see Line of business equity on page 74.

Segment Results – Managed basis
The following tables summarize the business segment results for the periods indicated.
Three months ended September 30,
Total net revenue
 
Total noninterest expense
 
Pre-provision profit/(loss)
(in millions)
2015

2014

Change
 
2015

2014

Change
 
2015

2014

Change
Consumer & Community Banking
$
10,879

$
11,367

(4)%

 
$
6,237

$
6,305

(1)%

 
$
4,642

$
5,062

(8)%

Corporate & Investment Bank
8,168

9,105

(10
)
 
6,131

6,035

2

 
2,037

3,070

(34
)
Commercial Banking
1,644

1,703

(3
)
 
719

668

8

 
925

1,035

(11
)
Asset Management
2,894

3,046

(5
)
 
2,109

2,081

1

 
785

965

(19
)
Corporate
(50
)
(75
)
33

 
172

709

(76
)
 
(222
)
(784
)
72

Total
$
23,535

$
25,146

(6)%

 
$
15,368

$
15,798

(3)%

 
$
8,167

$
9,348

(13)%

Three months ended September 30,
Provision for credit losses
 
Net income
 
Return on common equity
(in millions, except ratios)
2015

2014

Change
 
2015

2014

Change
 
2015

2014

Consumer & Community Banking
$
389

$
902

(57
)%
 
$
2,630

$
2,529

4%

 
20
%
19
%
Corporate & Investment Bank
232

(67
)
NM

 
1,464

1,680

(13
)
 
8

10

Commercial Banking
82

(79
)
NM

 
518

671

(23
)
 
14

18

Asset Management
(17
)
9

NM

 
475

590

(19
)
 
20

25

Corporate
(4
)
(8
)
50

 
1,717

95

NM

 
NM
NM
Total
$
682

$
757

(10
)%
 
$
6,804

$
5,565

22%

 
12
%
10
%
Nine months ended September 30,
Total net revenue
 
Total noninterest expense
 
Pre-provision profit/(loss)
(in millions)
2015

2014

Change
 
2015

2014

Change
 
2015

2014

Change
Consumer & Community Banking
$
32,598

$
33,419

(2)%

 
$
18,637

$
19,198

(3
)%
 
$
13,961

$
14,221

(2
)%
Corporate & Investment Bank
26,473

27,212

(3
)
 
16,925

17,697

(4
)
 
9,548

9,515


Commercial Banking
5,125

5,112


 
2,131

2,029

5

 
2,994

3,083

(3
)
Asset Management
9,074

8,828

3

 
6,690

6,218

8

 
2,384

2,610

(9
)
Corporate
(384
)
(235
)
(63
)
 
368

723

(49
)
 
(752
)
(958
)
22

Total
$
72,886

$
74,336

(2)%

 
$
44,751

$
45,865

(2
)%
 
$
28,135

$
28,471

(1
)%
Nine months ended September 30,
Provision for credit losses
 
Net income
 
Return on common equity
(in millions, except ratios)
2015

2014

Change
 
2015

2014

Change
 
2015

2014

Consumer & Community Banking
$
2,021

$
2,570

(21)%

 
$
7,382

$
7,006

5%

 
18
%
18
%
Corporate & Investment Bank
251

(102
)
NM

 
6,342

5,936

7

 
13

12

Commercial Banking
325

(141
)
NM

 
1,641

1,942

(15
)
 
15

18

Asset Management
(13
)
1

NM

 
1,428

1,613

(11
)
 
20

23

Corporate
(8
)
(29
)
72

 
2,215

317

NM

 
NM
NM
Total
$
2,576

$
2,299

12%

 
$
19,008

$
16,814

13%

 
11%

10
%

17



CONSUMER & COMMUNITY BANKING
For a discussion of the business profile of CCB, see pages 81–91 of JPMorgan Chase’s 2014 Annual Report and Line of Business Metrics on page 182.
Selected income statement data
 
 
 
 
 
 
 
 
 
 
 
 
 
Three months ended September 30,
 
Nine months ended September 30,
(in millions, except ratios)
2015

 
2014

 
Change
 
2015
 
2014
 
 
Change
Revenue
 
 
 
 
 
 
 
 
 
 
 
 
Lending- and deposit-related fees
$
836

 
$
804

 
4
 %
 
$
2,320

 
$
2,257

 
 
3
 %
Asset management, administration and commissions
565

 
534

 
6

 
1,648

 
1,558

 
 
6

Mortgage fees and related income
469

 
902

 
(48
)
 
1,955

 
2,706

 
 
(28
)
Card income
1,335

 
1,478

 
(10
)
 
4,165

 
4,312

 
 
(3
)
All other income
524

 
496

 
6

 
1,466

 
1,283

 
 
14

Noninterest revenue
3,729

 
4,214

 
(12
)
 
11,554

 
12,116

 
 
(5
)
Net interest income
7,150

 
7,153

 

 
21,044

 
21,303

 
 
(1
)
Total net revenue
10,879

 
11,367

 
(4
)
 
32,598

 
33,419

 
 
(2
)
 
 
 
 
 
 
 
 
 
 
 
 
 
Provision for credit losses
389

 
902

 
(57
)
 
2,021

 
2,570

 
 
(21
)
 
 
 
 
 
 
 
 
 
 
 
 
 
Noninterest expense
 
 
 
 
 
 
 
 
 
 
 
 
Compensation expense
2,413

 
2,627

 
(8
)
 
7,421

 
8,003

 
 
(7
)
Noncompensation expense
3,824

 
3,678

 
4

 
11,216

 
11,195

 
 

Total noninterest expense
6,237

 
6,305

 
(1
)
 
18,637

 
19,198

 
 
(3
)
Income before income tax expense
4,253

 
4,160

 
2

 
11,940

 
11,651

 
 
2

Income tax expense
1,623

 
1,631

 

 
4,558

 
4,645

 
 
(2
)
Net income
$
2,630

 
$
2,529

 
4
 %
 
$
7,382

 
$
7,006

 
 
5
 %
 
 
 
 
 
 
 
 
 
 
 
 
 
Financial ratios
 
 
 
 
 
 
 
 
 
 
 
 
Return on common equity
20
%
 
19
%
 
 
 
18
%
 
18
%
 
 
 
Overhead ratio
57

 
55

 
 
 
57

 
57

 
 
 
Note: In the discussion and the tables which follow, CCB presents certain financial measures which exclude the impact of PCI loans; these are non-GAAP financial measures. For additional information, see Explanation and Reconciliation of the Firm’s Use of Non-GAAP Financial Measures on pages 14–16.
Quarterly results
Consumer & Community Banking net income was $2.6 billion, an increase of 4% compared with the prior year, driven by lower provision for credit losses, offset by lower net revenue.
Net revenue was $10.9 billion, a decrease of 4% compared with the prior year. Net interest income was $7.2 billion, flat, reflecting spread compression, offset by higher deposit and loan balances, and a reduction in the reserve for uncollectible interest and fees in Credit Card. Noninterest revenue was $3.7 billion, down 12%, predominantly driven by lower mortgage fees and related income.
The provision for credit losses was $389 million, a decrease of 57% compared with the prior year, reflecting a larger reduction in the allowance for loan losses and lower net charge-offs. The current-quarter provision reflected a $575 million reduction in the allowance for loan losses. The prior year included a $200 million reduction in the allowance for loan losses. For more information, including net charge-off amounts and rates, see Consumer Credit Portfolio on pages 48–53.
Noninterest expense was $6.2 billion, a decrease of 1% from the prior year, driven by lower Mortgage Banking and Consumer & Business Banking expense, largely offset by higher Card expense.
 
Year-to-date results
Consumer & Community Banking net income was $7.4 billion, an increase of 5% compared with the prior year, driven by lower noninterest expense and lower provision for credit losses, largely offset by lower net revenue.
Net revenue was $32.6 billion, a decrease of 2% compared with the prior year. Net interest income was $21.0 billion, down 1%, driven by spread compression, predominantly offset by higher deposit and loan balances, and lower reversals of interest and fees due to lower net charge-offs in Credit Card. Noninterest revenue was $11.6 billion, down 5%, driven by lower mortgage fees and related income, partially offset by higher Auto lease income.
The provision for credit losses was $2.0 billion, a decrease of 21% from the prior year, reflecting lower net charge-offs. Both the current- and prior-year provision reflected a $1.0 billion reduction in the allowance for loan losses. For more information, including net charge-off amounts and rates, see Consumer Credit Portfolio on pages 48–53.
Noninterest expense was $18.6 billion, a decrease of 3% from the prior year, driven by lower Mortgage Banking expense.


18



Selected metrics
 
 
 
 
 
 
 
 
 
 
 
 
As of or for the three months
ended September 30,
 
As of or for the nine months
ended September 30,
(in millions, except headcount)
2015
 
2014
 
Change
 
2015
 
2014
 
Change
Selected balance sheet data (period-end)
 
 
 
 
 
 
 
 
 
 
 
Total assets
$
484,253

 
$
448,033

 
8
 %
 
$
484,253

 
$
448,033

 
8
 %
Trading assets – loans(a)
6,633

 
10,750

 
(38
)
 
6,633

 
10,750

 
(38
)
Loans:
 
 
 
 
 
 
 
 
 
 
 
Loans retained
427,958

 
390,709

 
10

 
427,958

 
390,709

 
10

Loans held-for-sale(b)
1,582

 
876

 
81

 
1,582

 
876

 
81

Total loans
429,540

 
391,585

 
10

 
429,540

 
391,585

 
10

Core loans
320,415

 
259,943

 
23

 
320,415

 
259,943

 
23

Deposits
539,182

 
493,249

 
9

 
539,182

 
493,249

 
9

Equity(c)
51,000

 
51,000

 

 
51,000

 
51,000

 

Selected balance sheet data (average)
 
 
 
 
 
 
 
 
 
 
 
Total assets
$
478,914

 
$
447,121

 
7

 
$
465,782

 
$
446,904

 
4

Trading assets – loans(a)
8,468

 
9,346

 
(9
)
 
7,845

 
7,802

 
1

Loans:
 
 
 
 
 
 
 
 
 
 
 
Loans retained
419,741

 
390,129

 
8

 
407,042

 
389,024

 
5

Loans held-for-sale(d)
2,124

 
876

 
142

 
2,399

 
749

 
220

Total loans
421,865

 
391,005

 
8

 
409,441

 
389,773

 
5

Deposits
535,987

 
492,022

 
9

 
525,951

 
483,297

 
9

Equity(c)
51,000

 
51,000

 

 
51,000

 
51,000

 

 
 
 
 
 
 
 
 
 
 
 
 
Headcount
128,601

 
138,686

 
(7
)%
 
128,601

 
138,686

 
(7
)%
(a)
Predominantly consists of prime mortgages originated with the intent to sell that are accounted for at fair value.
(b)
Included period-end credit card loans held-for-sale of $1.3 billion and $395 million at September 30, 2015 and 2014, respectively. These amounts were excluded when calculating delinquency rates and the allowance for loan losses to period-end loans.
(c)
Equity is allocated to the sub-business segments with $5.0 billion and $3.0 billion of capital in 2015 and 2014, respectively, held at the CCB level related to legacy mortgage servicing matters.
(d)
Included average credit card loans held-for-sale of $1.3 billion and $335 million for the three months ended September 30, 2015 and 2014, respectively, and $1.9 billion and $352 million for the nine months ended September 30, 2015 and 2014. These amounts are excluded when calculating the net charge-off rate.

19



Selected metrics
 
 
 
 
 
 
 
 
 
 
 
As of or for the three months
ended September 30,
 
As of or for the nine months
ended September 30,
(in millions, except ratios and where otherwise noted)
2015

 
2014

 
Change
 
2015
 
2014
 
Change
Credit data and quality statistics
 
 
 
 
 
 
 
 
 
 
 
Net charge-offs(a)
$
965

 
$
1,102

 
(12
)%
 
$
3,046

 
$
3,576

 
(15
)%
Nonaccrual loans(b)(c)
5,433

 
6,639

 
(18
)
 
5,433

 
6,639

 
(18
)
Nonperforming assets(b)(c)
5,778

 
7,138

 
(19
)
 
5,778

 
7,138

 
(19
)
Allowance for loan losses(a)
9,211

 
10,993

 
(16
)
 
9,211

 
10,993

 
(16
)
Net charge-off rate(a)
0.91
%
 
1.12
%
 
 
 
1.00
%
 
1.23
%
 
 
Net charge-off rate, excluding PCI loans
1.02

 
1.28

 
 
 
1.12

 
1.41

 
 
Allowance for loan losses to period-end loans retained
2.15

 
2.81

 
 
 
2.15

 
2.81

 
 
Allowance for loan losses to period-end loans retained, excluding PCI loans(d)
1.67

 
2.14

 
 
 
1.67

 
2.14

 
 
Allowance for loan losses to nonaccrual loans retained, excluding credit card(b)(d)
55

 
57

 
 
 
55

 
57

 
 
Nonaccrual loans to total period-end loans, excluding credit card
1.80

 
2.51

 
 
 
1.80

 
2.51

 
 
Nonaccrual loans to total period-end loans, excluding credit card and PCI loans (b)
2.09

 
3.07

 
 
 
2.09

 
3.07

 
 
Business metrics
 
 
 
 
 
 
 
 
 
 
 
Number of:
 
 
 
 
 
 
 
 
 
 
 
Branches
5,471

 
5,613

 
(3
)%
 
5,471

 
5,613

 
(3
)%
ATMs
18,623

 
20,513

 
(9
)
 
18,623

 
20,513

 
(9
)
Active online customers (in thousands) (e)
38,511

 
35,957

 
7

 
38,511

 
35,957

 
7

Active mobile customers (in thousands)
22,232

 
18,351

 
21

 
22,232

 
18,351

 
21

CCB households (in millions)
58.0

 
57.1

 
2

 
58.0

 
57.1

 
2

(a)
Net charge-offs and the net charge-off rates excluded $52 million and $87 million of write-offs in the PCI portfolio for the three months ended September 30, 2015 and 2014, respectively, and $162 million and $196 million of write-offs in the PCI portfolio for the nine months ended September 30, 2015 and 2014, respectively. These write-offs decreased the allowance for loan losses for PCI loans. For further information on PCI write-offs, see Allowance for Credit Losses on pages 60–62.
(b)
Excludes PCI loans. The Firm is recognizing interest income on each pool of PCI loans as they are all performing.
(c)
At September 30, 2015 and 2014, nonperforming assets excluded: (1) mortgage loans insured by U.S. government agencies of $6.6 billion and $7.8 billion, respectively, that are 90 or more days past due; (2) student loans insured by U.S. government agencies under the Federal Family Education Loan Program (“FFELP”) of $289 million and $354 million, respectively, that are 90 or more days past due; (3) real estate owned (“REO”) insured by U.S. government agencies of $327 million and $464 million, respectively. These amounts have been excluded based upon the government guarantee.
(d)
The allowance for loan losses for PCI loans was $2.8 billion and $3.7 billion at September 30, 2015 and 2014, respectively; these amounts were also excluded from the applicable ratios.
(e)
Users of all internet browsers and mobile platforms (mobile smartphone, tablet and SMS) who have logged in within the past 90 days.

20



Consumer & Business Banking

Selected financial statement data
 
 
 
 
 
 
 
 
 
 
 
 
As of or for the three months
ended September 30,
 
As of or for the nine months
ended September 30,
(in millions, except ratios)
2015
 
2014
 
Change
 
2015
 
2014
 
Change
Revenue
 
 
 
 
 
 
 
 
 
 
 
Lending- and deposit-related fees
$
829

 
$
796

 
4
 %
 
$
2,300

 
$
2,234

 
3
 %
Asset management, administration and commissions
546

 
522

 
5

 
1,592

 
1,512

 
5

Card income
440

 
409

 
8

 
1,279

 
1,191

 
7

All other income
135

 
127

 
6

 
392

 
411

 
(5
)
Noninterest revenue
1,950

 
1,854

 
5

 
5,563

 
5,348

 
4

Net interest income
2,605

 
2,807

 
(7
)
 
7,833

 
8,319

 
(6
)
Total net revenue
4,555

 
4,661

 
(2
)
 
13,396

 
13,667

 
(2
)
 
 
 
 
 
 
 
 
 
 
 
 
Provision for credit losses
50

 
75

 
(33
)
 
178

 
217

 
(18
)
 
 
 
 
 
 
 
 
 
 
 
 
Noninterest expense
2,956

 
3,032

 
(3
)
 
8,970

 
9,123

 
(2
)
Income before income tax expense
1,549

 
1,554

 

 
4,248

 
4,327

 
(2
)
Net income
$
954

 
$
927

 
3

 
$
2,613

 
$
2,582

 
1

 
 
 
 
 
 
 
 
 
 
 
 
Return on common equity
32
%
 
33
%
 
 
 
29
%
 
31
%
 
 
Overhead ratio
65

 
65

 
 
 
67

 
67

 
 
Equity (period-end and average)
$
11,500

 
$
11,000

 
5
 %
 
$
11,500

 
$
11,000

 
5
 %
Quarterly results
Consumer & Business Banking net income was $954 million, an increase of 3% compared with the prior year.
Net revenue was $4.6 billion, down 2% compared with the prior year. Net interest income was $2.6 billion, down 7% due to deposit spread compression, largely offset by higher deposit balances. Noninterest revenue was $2.0 billion, up 5%, driven by higher deposit-related fees, higher debit card revenue, reflecting an increase in transaction volume, and higher investment revenue, reflecting an increase in client investment assets.
Noninterest expense was $3.0 billion, a decrease of 3% from the prior year, driven by branch efficiencies.
 
Year-to-date results
Consumer & Business Banking net income was $2.6 billion, an increase of 1% compared with the prior year.
Net revenue was $13.4 billion, down 2% compared with the prior year. Net interest income was $7.8 billion, down 6% due to deposit spread compression, largely offset by higher deposit balances. Noninterest revenue was $5.6 billion, up 4%, driven by higher debit card revenue, reflecting an increase in transaction volume, and higher investment revenue, reflecting an increase in client investment assets.
Noninterest expense was $9.0 billion, a decrease of 2% from the prior year, driven by branch efficiencies, partially offset by higher legal expense.



21



Selected metrics
 
 
 
 
 
 
 
 
 
 
 
 
As of or for the three months
ended September 30,
 
As of or for the nine months
ended September 30,
(in millions, except ratios and where otherwise noted)
2015

 
2014

 
Change
 
2015
 
2014
 
Change
Business metrics
 
 
 
 
 
 
 
 
 
 
 
Business banking origination volume
$
1,715

 
$
1,649

 
4%

 
$
5,166

 
$
5,070

 
2
 %
Period-end loans
22,346

 
20,644

 
8

 
22,346

 
20,644

 
8

Period-end deposits:
 
 
 
 
 
 
 
 
 
 
 
Checking
231,968

 
203,839

 
14

 
231,968

 
203,839

 
14

Savings
273,468

 
251,661

 
9

 
273,468

 
251,661

 
9

Time and other
18,547

 
23,304

 
(20
)
 
18,547

 
23,304

 
(20
)
Total period-end deposits
523,983

 
478,804

 
9

 
523,983

 
478,804

 
9

Average loans
22,069

 
20,382

 
8

 
21,709

 
19,923

 
9

Average deposits:
 
 
 
 
 
 
 
 
 
 
 
Checking
229,003

 
201,473

 
14

 
223,753

 
196,194

 
14

Savings
271,526

 
250,845

 
8

 
266,440

 
247,889

 
7

Time and other
18,885

 
23,845

 
(21
)
 
19,843

 
24,712

 
(20
)
Total average deposits
519,414

 
476,163

 
9

 
510,036

 
468,795

 
9

Deposit margin
1.86
%
 
2.20
%
 
 
 
1.92
%
 
2.24
%
 
 
Average assets
$
40,991

 
$
38,089

 
8

 
$
41,348

 
$
38,006

 
9

Credit data and quality statistics
 
 
 
 
 
 
 
 
 
 
Net charge-offs
$
50

 
$
75

 
(33
)
 
$
177

 
$
220

 
(20
)
Net charge-off rate
0.90
%
 
1.46
%
 
 
 
1.09
%
 
1.48
%
 
 
Allowance for loan losses
$
703

 
$
703

 

 
$
703

 
$
703

 

Nonperforming assets
242

 
304

 
(20
)
 
242

 
304

 
(20
)
Retail branch business metrics
 
 
 
 
 
 
 
 
 
 
Net new investment assets
$
2,783

 
$
4,269

 
(35
)
 
$
9,966

 
$
12,834

 
(22
)
Client investment assets
213,263

 
207,790

 
3

 
213,263

 
207,790

 
3

% managed accounts
41
%
 
39
%
 
 
 
41
%
 
39
%
 
 
Number of:
 
 
 
 
 
 
 
 
 
 
 
Chase Private Client locations
2,740

 
2,461

 
11

 
2,740

 
2,461

 
11

Personal bankers
18,554

 
20,965

 
(12
)
 
18,554

 
20,965

 
(12
)
Sales specialists
3,600

 
4,155

 
(13
)
 
3,600

 
4,155

 
(13
)
Client advisors
2,965

 
3,099

 
(4
)
 
2,965

 
3,099

 
(4
)
Chase Private Clients
418,258

 
290,662

 
44

 
418,258

 
290,662

 
44

Accounts (in thousands)(a)
31,277

 
30,424

 
3
 %
 
31,277

 
30,424

 
3
 %
(a)
Includes checking accounts and Chase Liquid® cards.



22


Mortgage Banking
Selected financial statement data
 
 
 
 
 
 
 
 
 
 
 
 
As of or for the three months
ended September 30,
 
As of or for the nine months
ended September 30,
(in millions, except ratios)
2015

 
2014

 
Change
 
2015
 
2014
 
Change
Revenue
 
 
 
 
 
 
 
 
 
 
 
Mortgage fees and related income(a)
$
469

 
$
902

 
(48
)%
 
$
1,955

 
$
2,706

 
(28
)%
All other income
(26
)
 
66

 
NM
 
(42
)
 
46

 
NM
Noninterest revenue
443

 
968

 
(54
)
 
1,913

 
2,752

 
(30
)
Net interest income
1,112

 
1,059

 
5

 
3,224

 
3,199

 
1

Total net revenue
1,555

 
2,027

 
(23
)
 
5,137

 
5,951

 
(14
)
Provision for credit losses
(534
)
 
(19
)
 
NM
 
(749
)
 
(230
)
 
(226
)
Noninterest expense
1,118

 
1,279

 
(13
)
 
3,447

 
3,988

 
(14
)
Income before income tax expense
971

 
767

 
27

 
2,439

 
2,193

 
11

Net income
$
602

 
$
465

 
29

 
$
1,512

 
$
1,330

 
14

 
 
 
 
 
 
 
 
 
 
 
 
Return on common equity
14
%
 
10
%
 
 
 
12
%
 
9
%
 
 
Overhead ratio
72
   
 
63
   
 
 
 
67
   
 
67
   
 
 
Equity (period-end and average)
$
16,000

 
$
18,000

 
(11
)%
 
$
16,000

 
$
18,000

 
(11
)%
(a)
For further information on mortgage fees and related income, see Note 16.
Quarterly results
Mortgage Banking net income was $602 million, an increase of 29% from the prior year, driven by a higher benefit from the provision for credit losses and lower noninterest expense, largely offset by lower net revenue.
Net revenue was $1.6 billion, a decrease of 23% compared with the prior year. Noninterest revenue was $443 million, a decrease of 54% from the prior year. This decrease was driven by lower MSR risk management income, lower servicing revenue, partially due to lower average third-party loans serviced, and the absence of a non-recurring gain from the prior year. See Note 16 for further information regarding changes in value of the MSR asset and related hedges, and mortgage fees and related income.
The provision for credit losses was a benefit of $534 million, compared with a benefit of $19 million in the prior year, reflecting a larger reduction in the allowance for loan losses and lower net charge-offs. The current-quarter provision reflected a $375 million reduction in the purchased credit-impaired allowance for loan losses and a $200 million reduction in the non credit-impaired allowance for loan losses; the prior-year provision included a $100 million reduction in the non credit-impaired allowance for loan losses. These reductions were due to continued improvement in home prices and delinquencies in both periods, as well as increased granularity in the impairment estimates in the current quarter. See Consumer Credit Portfolio on pages 48–53 for the net charge-off amounts and rates.
Noninterest expense was $1.1 billion, a decrease of 13% from the prior year, reflecting lower headcount-related expense and lower professional fees.
 
Year-to-date results
Mortgage Banking net income was $1.5 billion, an increase of 14% from the prior year, driven by lower noninterest expense and a higher benefit from the provision for credit losses, predominantly offset by lower net revenue.
Net revenue was $5.1 billion, a decrease of 14% compared with the prior year. Noninterest revenue was $1.9 billion, a decrease of 30% from the prior year. This decrease was driven by lower servicing revenue, largely as a result of lower average third-party loans serviced and lower net production revenue, reflecting a lower repurchase benefit.
The provision for credit losses was a benefit of $749 million, compared with a benefit of $230 million in the prior year, reflecting a larger reduction in the allowance for loan losses and lower net charge-offs. The current-year provision reflected a $600 million reduction in the non credit-impaired allowance for loan losses and a $375 million reduction in the purchased credit-impaired allowance for loan losses; the prior-year provision included a $300 million reduction in the purchased credit-impaired allowance for loan losses and a $300 million reduction in the non credit-impaired allowance for loan losses. These reductions were due to continued improvement in home prices and delinquencies in both periods, as well as increased granularity in the impairment estimates in the current year. See Consumer Credit Portfolio on pages 48–53 for the net charge-off amounts and rates.
Noninterest expense was $3.4 billion, a decrease of 14% from the prior year, reflecting lower headcount-related expense and lower professional fees.


23


Supplemental information
 
 
 
 
 
 
 
 
 
 
 
 
Three months ended September 30,
 
Nine months ended September 30,
(in millions)
2015
 
2014
 
Change
 
2015
 
2014
 
Change
Net interest income:
 
 
 
 
 
 
 
 
 
 
 
Mortgage Production and Mortgage Servicing
$
147

 
$
204

 
(28
)%
 
$
444

 
$
564

 
(21
)%
Real Estate Portfolios
965

 
855

 
13

 
2,780

 
2,635

 
6

Total net interest income
$
1,112

 
$
1,059

 
5

 
$
3,224

 
$
3,199

 
1

 
 
 
 
 
 
 
 
 
 
 
 
Noninterest expense:
 
 
 
 
 
 
 
 
 
 
 
Mortgage Production
$
374

 
$
381

 
(2
)
 
$
1,155

 
$
1,271

 
(9
)
Mortgage Servicing
453

 
577

 
(21
)
 
1,501

 
1,708

 
(12
)
Real Estate Portfolios
291

 
321

 
(9
)
 
791

 
1,009

 
(22
)
Total noninterest expense
$
1,118

 
$
1,279

 
(13
)%
 
$
3,447

 
$
3,988

 
(14
)%
Selected balance sheet data
 
 
 
 
 
 
 
 
 
 
 
As of or for the three months
ended September 30,
 
As of or for the nine months
ended September 30,
(in millions)
2015
 
2014
 
Change
 
2015
 
2014
 
Change
Trading assets – loans (period-end)(a)
$
6,633

 
$
10,750

 
(38
)%
 
$
6,633

 
$
10,750

 
(38
)%
Trading assets – loans (average)(a)
8,468

 
9,346

 
(9
)
 
7,845

 
7,802

 
1

 
 
 
 
 
 
 
 
 
 
 
 
Loans, excluding PCI loans
 
 
 
 
 
 
 
 
 
Period-end loans owned
 
 
 
 
 
 
 
 
 
 
 
Home equity
45,359

 
52,679

 
(14
)
 
45,359

 
52,679

 
(14
)
Prime mortgage, including option ARMs
122,714

 
74,338

 
65

 
122,714

 
74,338

 
65

Subprime mortgage
3,853

 
5,547

 
(31
)
 
3,853

 
5,547

 
(31
)
Other
417

 
492

 
(15
)
 
417

 
492

 
(15
)
Total period-end loans owned
172,343

 
133,056

 
30

 
172,343

 
133,056

 
30

Average loans owned
 
 
 
 
 
 
 
 
 
 
 
Home equity
46,250

 
53,560

 
(14
)
 
48,121

 
55,288

 
(13
)
Prime mortgage, including option ARMs
114,537

 
72,774

 
57

 
100,091

 
69,410

 
44

Subprime mortgage
4,261

 
5,922

 
(28
)
 
4,652

 
6,558

 
(29
)
Other
426

 
502

 
(15
)
 
446

 
521

 
(14
)
Total average loans owned
165,474

 
132,758

 
25

 
153,310

 
131,777

 
16

 
 
 
 
 
 
 
 
 
 
 
 
PCI loans
 
 
 
 
 
 
 
 
 
 
 
Period-end loans owned
 
 
 
 
 
 
 
 
 
 
 
Home equity
15,490

 
17,572

 
(12
)
 
15,490

 
17,572

 
(12
)
Prime mortgage
9,196

 
10,887

 
(16
)
 
9,196

 
10,887

 
(16
)
Subprime mortgage
3,329

 
3,790

 
(12
)
 
3,329

 
3,790

 
(12
)
Option ARMs
14,221

 
16,238

 
(12
)
 
14,221

 
16,238

 
(12
)
Total period-end loans owned
42,236

 
48,487

 
(13
)
 
42,236

 
48,487

 
(13
)
Average loans owned
 
 
 
 
 
 
 
 
 
 
 
Home equity
15,775

 
17,806

 
(11
)
 
16,321

 
18,270

 
(11
)
Prime mortgage
9,372

 
11,103

 
(16
)
 
9,717

 
11,484

 
(15
)
Subprime mortgage
3,385

 
3,843

 
(12
)
 
3,492

 
3,989

 
(12
)
Option ARMs
14,451

 
16,503

 
(12
)
 
14,943

 
17,084

 
(13
)
Total average loans owned
42,983

 
49,255

 
(13
)
 
44,473

 
50,827

 
(13
)
 
 
 
 
 
 
 
 
 
 
 
 
Total Mortgage Banking
 
 
 
 
 
 
 
 
 
 
 
Period-end loans owned
 
 
 
 
 
 
 
 
 
 
 
Home equity
60,849

 
70,251

 
(13
)
 
60,849

 
70,251

 
(13
)
Prime mortgage, including option ARMs
146,131

 
101,463

 
44

 
146,131

 
101,463

 
44

Subprime mortgage
7,182

 
9,337

 
(23
)
 
7,182

 
9,337

 
(23
)
Other
417

 
492

 
(15
)
 
417

 
492

 
(15
)
Total period-end loans owned
214,579

 
181,543

 
18

 
214,579

 
181,543

 
18

Average loans owned
 
 
 
 
 
 
 
 
 
 
 
Home equity
62,025

 
71,366

 
(13
)
 
64,442

 
73,558

 
(12
)
Prime mortgage, including option ARMs
138,360

 
100,380

 
38

 
124,751

 
97,978

 
27

Subprime mortgage
7,646

 
9,765

 
(22
)
 
8,144

 
10,547

 
(23
)
Other
426

 
502

 
(15
)
 
446

 
521

 
(14
)
Total average loans owned
208,457

 
182,013

 
15%

 
197,783

 
182,604

 
8%

(a)
Predominantly consists of prime mortgages originated with the intent to sell that are accounted for at fair value.

24


Credit data and quality statistics
 
 
 
 
 
 
 
 
 
 
 
 
As of or for the three months
ended September 30,
 
As of or for the nine months
ended September 30,
(in millions, except ratios)
2015

 
2014

 
Change
 
2015

 
2014

 
Change
Net charge-offs/(recoveries), excluding PCI loans(a)
 
 
 
 
 
 
 
 
 
 
 
Home equity
$
82

 
$
95

 
(14
)%
 
$
238

 
$
386

 
(38
)%
Prime mortgage, including option ARMs
9

 
9

 

 
34

 
(6
)
 
NM
Subprime mortgage
(51
)
 
(25
)
 
(104
)
 
(51
)
 
(17
)
 
(200
)
Other
1

 
2

 
(50
)
 
5

 
7

 
(29
)
Total net charge-offs/(recoveries), excluding PCI loans
41

 
81

 
(49
)
 
226

 
370

 
(39
)
Net charge-off/(recovery) rate, excluding PCI loans
 
 
 
 
 
 
 
 
 
 
 
Home equity
0.70
%
 
0.70
%
 
 
 
0.66
%
 
0.93
%
 
 
Prime mortgage, including option ARMs
0.03

 
0.05

 
 
 
0.05

 
(0.01
)
 
 
Subprime mortgage
(5.17
)
 
(1.68
)
 
 
 
(1.51
)
 
(0.35
)
 
 
Other
0.93

 
1.58

 
 
 
1.50

 
1.80

 
 
Total net charge-off/(recovery) rate, excluding PCI loans
0.10

 
0.24

 
 
 
0.20

 
0.38

 
 
Net charge-off/(recovery) rate – reported(a)
 
 
 
 
 
 
 
 
 
 
 
Home equity
0.52

 
0.53

 
 
 
0.49

 
0.70

 
 
Prime mortgage, including option ARMs
0.03

 
0.04

 
 
 
0.04

 
(0.01
)
 
 
Subprime mortgage
(2.77
)
 
(1.02
)
 
 
 
(0.85
)
 
(0.22
)
 
 
Other
0.93

 
1.58

 
 
 
1.50

 
1.80

 
 
Total net charge-off/(recovery) rate – reported
0.08

 
0.18

 
 
 
0.15

 
0.27

 
 
 
 
 
 
 
 
 
 
 
 
 
 
30+ day delinquency rate, excluding PCI loans(b)(c)
1.74

 
2.76

 
 
 
1.74

 
2.76

 
 
Allowance for loan losses, excluding PCI loans
$
1,588

 
$
2,288

 
(31
)
 
$
1,588

 
$
2,288

 
(31
)
Allowance for PCI loans(a)
2,788

 
3,662

 
(24
)
 
2,788

 
3,662

 
(24
)
Allowance for loan losses
4,376

 
5,950

 
(26
)
 
4,376

 
5,950

 
(26
)
Nonperforming assets(d)(e)
5,143

 
6,455

 
(20
)%
 
5,143

 
6,455

 
(20
)%
Allowance for loan losses to period-end loans retained
2.04
%
 
3.29
%
 
 
 
2.04
%
 
3.29
%
 
 
Allowance for loan losses to period-end loans retained, excluding PCI loans
0.92

 
1.73

 
 
 
0.92

 
1.73

 
 
(a)
Net charge-offs and the net charge-off rates excluded $52 million and $87 million of write-offs in the PCI portfolio for the three months ended September 30, 2015 and 2014, respectively, and $162 million and $196 million of write-offs in the PCI portfolio for the nine months ended September 30, 2015 and 2014. These write-offs decreased the allowance for loan losses for PCI loans. For further information on PCI write-offs, see Allowance for Credit Losses on pages 60–62.
(b)
At September 30, 2015 and 2014, excluded mortgage loans insured by U.S. government agencies of $8.5 billion and $9.6 billion, respectively, that are 30 or more days past due. These amounts have been excluded based upon the government guarantee. For further discussion, see Note 13 which summarizes loan delinquency information.
(c)
The 30+ day delinquency rate for PCI loans was 11.29% and 13.69%, at September 30, 2015 and 2014, respectively.
(d)
At September 30, 2015 and 2014, nonperforming assets excluded: (1) mortgage loans insured by U.S. government agencies of $6.6 billion and $7.8 billion, respectively, that are 90 or more days past due and (2) REO insured by U.S. government agencies of $327 million and $464 million, respectively. These amounts have been excluded based upon the government guarantee.
(e)
Excludes PCI loans. The Firm is recognizing interest income on each pool of PCI loans as they are all performing.



25


Business metrics
 
 
 
 
 
 
 
 
 
 
 
 
As of or for the three months
ended September 30
 
As of or for the nine months
ended September 30,
(in billions, except ratios)
2015

 
2014

 
Change
 
2015
 
2014
 
Change
Mortgage origination volume by channel
 
 
 
 
 
 
 
 
 
 
 
Retail
$
9.5

 
$
7.9

 
20
 %
 
$
27.4

 
$
21.8

 
26
 %
Correspondent
20.4

 
13.3

 
53

 
56.5

 
33.2

 
70

Total mortgage origination volume(a)
29.9

 
21.2

 
41

 
83.9

 
55.0

 
53

 
 
 
 
 
 
 
 
 
 
 
 
Total loans serviced (period-end)
929.0

 
963.4

 
(4
)
 
929.0

 
963.4

 
(4
)
Third-party mortgage loans serviced (period-end)
702.6

 
766.3

 
(8
)
 
702.6

 
766.3

 
(8
)
Third-party mortgage loans serviced (average)
713.0

 
776.3

 
(8
)
 
724.6

 
793.3

 
(9
)
MSR carrying value (period-end)
6.7

 
8.2

 
(18)%

 
6.7

 
8.2

 
(18)%

Ratio of MSR carrying value (period-end) to third-party mortgage loans serviced (period-end)
0.95
%
 
1.07
%
 
 
 
0.95
%
 
1.07
%
 
 
Ratio of annualized loan servicing-related revenue to third-party mortgage loans serviced (average)
0.34

 
0.35

 
 
 
0.35

 
0.36

 
 
MSR revenue multiple(b)
2.79
x
 
3.06
x
 
 
 
2.71
x
 
2.97
x
 
 
(a)
Firmwide mortgage origination volume was $32.2 billion and $22.7 billion for the three months ended September 30, 2015, and 2014, respectively, and $90.5 billion and $58.9 billion for the nine months ended September 30, 2015 and 2014, respectively.
(b)
Represents the ratio of MSR carrying value (period-end) to third-party mortgage loans serviced (period-end) divided by the ratio of annualized loan servicing-related revenue to third-party mortgage loans serviced (average).
Mortgage servicing-related matters
The financial crisis resulted in unprecedented levels of delinquencies and defaults of 1–4 family residential real estate loans. Such loans required varying degrees of loss mitigation activities. Foreclosure is usually a last resort, and accordingly, the Firm has made, and continues to make, significant efforts to help borrowers remain in their homes.
The Firm has entered into various Consent Orders and settlements with federal and state governmental agencies and private parties related to mortgage servicing, origination, and residential mortgage-backed securities activities.
The requirements of these Consent Orders and settlements vary, but in the aggregate, include cash compensatory payments (in addition to fines) and/or “borrower relief,” which may include principal reduction, refinancing, short sale assistance, and other specified types of borrower relief. Other obligations required under certain Consent Orders and settlements, as well as under new regulatory requirements, include enhanced mortgage servicing and foreclosure standards and processes.
On June 11, 2015, the Firm signed an Amended Consent Order focused on the subset of ten items that must be resolved to complete the requirements of the Consent Orders with the Office of the Comptroller of the Currency (“OCC”) and Federal Reserve. The Firm has completed its work on those items and is awaiting confirmation by the banking regulators of its satisfactory compliance with the items in the Amended Consent Order. The Amended Consent Order also requires a supervisory non-objection before the Firm may acquire new contracts to perform mortgage servicing rights; outsource or subservice new mortgage servicing activities; offshore new mortgage servicing activities; or appoint senior officers in mortgage servicing.
 
The mortgage servicing Consent Orders and settlements are subject to ongoing oversight by the Mortgage Compliance Committee of the Firm’s Board of Directors. In addition, certain of the Consent Orders and settlements are the subject of ongoing reporting to various regulators and independent overseers. The Firm’s compliance with certain of these settlements is detailed in periodic reports published by the independent overseers. The Firm is committed to fulfilling all of these commitments with appropriate due diligence and oversight.





26


Card, Commerce Solutions & Auto (“Card”)
Selected financial statement data
 
 
 
 
 
 
 
 
 
 
 
 
As of or for the three
months ended September 30,
 
As of or for the nine
months ended September 30,
(in millions, except ratios)
2015

 
2014

 
Change
 
2015
 
2014
 
Change
Revenue
 
 
 
 
 
 
 
 
 
 
 
Card income
$
895

 
$
1,068

 
(16)%

 
$
2,885

 
$
3,120

 
(8
)%
All other income
441

 
324

 
36

 
1,193

 
896

 
33

Noninterest revenue
1,336

 
1,392

 
(4
)
 
4,078

 
4,016

 
2

Net interest income
3,433

 
3,287

 
4

 
9,987

 
9,785

 
2

Total net revenue
4,769

 
4,679

 
2

 
14,065

 
13,801

 
2

 
 
 
 
 
 
 
 
 
 
 
 
Provision for credit losses
873

 
846

 
3

 
2,592

 
2,583

 

 
 
 
 
 
 
 
 
 
 
 
 
Noninterest expense(a)
2,163

 
1,994

 
8

 
6,220

 
6,087

 
2

Income before income tax expense
1,733

 
1,839

 
(6
)
 
5,253

 
5,131

 
2

Net income
$
1,074

 
$
1,137

 
(6
)
 
$
3,257

 
$
3,094

 
5

 
 
 
 
 
 
 
 
 
 
 
 
Return on common equity
22
%
 
23
%
 
 
 
23
%
 
21
%
 
 
Overhead ratio
45

 
43

 
 
 
44

 
44

 
 
Equity (period-end and average)
$
18,500

 
$
19,000

 
(3
)%
 
$
18,500

 
$
19,000

 
(3
)%
Note: Chase Commerce Solutions, formerly known as Merchant Services, includes Chase Paymentech, ChaseNet and Chase Offers businesses.
(a)
Included operating lease depreciation expense of $372 million and $293 million for the three months ended September 30, 2015 and 2014, respectively, and $1.0 billion and $851 million for the nine months ended September 30, 2015 and 2014, respectively.
Quarterly results
Card net income was $1.1 billion, a decrease of 6% compared with the prior year, driven by higher noninterest expense, largely offset by higher net revenue.
Net revenue was $4.8 billion, an increase of 2% compared with the prior year. Net interest income was $3.4 billion, up 4% from the prior year, driven by a reduction in the reserve for uncollectible interest and fees and higher loan balances. Noninterest revenue was $1.3 billion, down 4% compared with the prior year, driven by the impact of renegotiated
co-brand partnership agreements and higher amortization of new account origination costs, predominantly offset by higher auto lease and card sales volumes.
The provision for credit losses was $873 million, compared with $846 million in the prior year, reflecting a smaller reduction in the allowance for loan losses, largely offset by lower net charge-offs. The prior-year provision included a $100 million reduction in the allowance for loan losses in Auto and Student.
Noninterest expense was $2.2 billion, up 8% from the prior year, driven by higher auto lease depreciation and higher marketing expense.

 
Year-to-date results
Card net income was $3.3 billion, an increase of 5% compared with the prior year, driven by higher net revenue, largely offset by higher noninterest expense.
Net revenue was $14.1 billion, an increase of 2% compared with the prior year. Net interest income was $10.0 billion, up 2% from the prior year, driven by higher loan balances and lower reversals of interest and fees due to lower net charge-offs in Credit Card, partially offset by spread compression. Noninterest revenue was $4.1 billion, up 2% compared with the prior year, driven by higher auto lease and card sales volumes, predominantly offset by the impact of renegotiated co-brand partnership agreements and higher amortization of new account origination costs.
The provision for credit losses was $2.6 billion, flat compared with the prior year, reflecting a smaller reduction in the allowance for loan losses, offset by lower net charge-offs. The current-year provision reflected a $51 million reduction in the allowance for loan losses, primarily due to runoff in the student loan portfolio. The prior-year provision included a $403 million reduction in the allowance for loan losses, primarily related to a decrease in the asset-specific allowance resulting from increased granularity of the impairment estimates and lower balances related to credit card loans modified in TDRs, runoff in the student loan portfolio and lower estimated losses in auto loans.
Noninterest expense was $6.2 billion, up 2% from the prior year, driven by higher auto lease depreciation and higher marketing expense, partially offset by lower legal expense.



27


Selected metrics
 
 
 
 
 
 
 
 
 
 
 
 
As of or for the three
months ended September 30,
 
As of or for the nine
months ended September 30,
(in millions, except ratios and where otherwise noted)
2015

 
2014

 
Change
 
2015
 
2014
 
Change
Selected balance sheet data (period-end)
 
 
 
 
 
 
 
 
 
 
 
Loans:
 
 
 
 
 
 
 
 
 
 
 
Credit Card
$
126,979

 
$
126,959

 

 
$
126,979

 
$
126,959

 

Auto
57,174

 
52,778

 
8

 
57,174

 
52,778

 
8

Student
8,462

 
9,661

 
(12
)
 
8,462

 
9,661

 
(12
)
Total loans
$
192,615

 
$
189,398

 
2

 
$
192,615

 
$
189,398

 
2

Auto operating lease assets
8,428

 
6,431

 
31

 
8,428

 
6,431

 
31

Selected balance sheet data (average)
 
 
 
 
 
 
 
 
 
 
 
Total assets
$
206,653

 
$
202,833

 
2

 
$
205,068

 
$
201,775

 
2

Loans:
 
 
 
 
 
 
 
 
 
 
 
Credit Card
126,305

 
126,107

 

 
125,294

 
124,360

 
1

Auto
56,412

 
52,666

 
7

 
55,744

 
52,741

 
6

Student
8,622

 
9,837

 
(12
)
 
8,911

 
10,145

 
(12
)
Total loans
$
191,339

 
$
188,610

 
1

 
$
189,949

 
$
187,246

 
1

Auto operating lease assets
8,073

 
6,269

 
29

 
7,474

 
5,956

 
25

Business metrics
 
 
 
 
 
 
 
 
 
 
 
Credit Card, excluding Commercial Card
 
 
 
 
 
 
 
 
 
 
 
Sales volume (in billions)
$
126.6

 
$
119.5

 
6

 
$
365.1

 
$
342.0

 
7

New accounts opened
2.0

 
2.2

 
(9
)
 
6.2

 
6.4

 
(3
)
Open accounts
62.9

 
65.5

 
(4
)
 
62.9

 
65.5

 
(4
)
Accounts with sales activity
33.0

 
32.1

 
3

 
33.0

 
32.1

 
3

% of accounts acquired online
69
%
 
56
%
 
 
 
65
%
 
54
%
 
 
Commerce Solutions (Chase Paymentech Solutions)
 
 
 
 
 
 
 
 
 
 
 
Merchant processing volume (in billions)
$
235.8

 
$
213.3

 
11
 
$
691.1

 
$
617.7

 
12

Total transactions (in billions)
10.4

 
9.4

 
11
 
30.3

 
27.8

 
9

Auto
 
 
 
 
 
 
 
 
 
 
 
Loan and lease origination volume (in billions)
$
8.1

 
$
6.8

 
19%
 
$
23.2

 
$
20.6

 
13%



28


Selected metrics
 
 
 
 
 
 
 
 
 
 
 
 
As of or for the three
months ended September 30,
 
As of or for the nine
months ended September 30,
(in millions, except ratios)
2015

 
2014

 
Change
 
2015
 
2014
 
Change
Credit data and quality statistics
 
 
 
 
 
 
 
 
 
 
 
Net charge-offs:
 
 
 
 
 
 
 
 
 
 
 
Credit Card
$
759

 
$
798

 
(5)%

 
$
2,348

 
$
2,571

 
(9)%

Auto
57

 
50

 
14
 
140

 
120

 
17

Student
58

 
98

 
(41
)
 
155

 
295

 
(47
)
Total net charge-offs
$
874

 
$
946

 
(8)
 
$
2,643

 
$
2,986

 
(11
)
Net charge-off rate:
 
 
 
 
 
 
 
 
 
 
 
Credit Card(a)
2.41
%
 
2.52
%
 
 
 
2.54
%
 
2.77
%
 
 
Auto
0.40

 
0.38

 
 
 
0.34

 
0.30

 
 
Student
2.67

 
3.95

 
 
 
2.33

 
3.89

 
 
Total net charge-off rate
1.82

 
1.99

 
 
 
1.88

 
2.14

 
 
Delinquency rates
 
 
 
 
 
 
 
 
 
 
 
30+ day delinquency rate:
 
 
 
 
 
 
 
 
 
 
 
Credit Card(b)
1.38

 
1.43

 
 
 
1.38

 
1.43

 
 
Auto
1.06

 
0.97

 
 
 
1.06

 
0.97

 
 
Student(c)
1.99

 
2.43

 
 
 
1.99

 
2.43

 
 
Total 30+ day delinquency rate
1.31

 
1.35

 
 
 
1.31

 
1.35

 
 
90+ day delinquency rate – Credit Card(b)
0.66

 
0.67

 
 
 
0.66

 
0.67

 
 
Nonperforming assets(d)
$
393

 
$
379

 
4

 
$
393

 
$
379

 
4

Allowance for loan losses:
 
 
 
 
 
 
 
 
 
 
 
Credit Card
$
3,434

 
$
3,590

 
(4
)
 
$
3,434

 
$
3,590

 
(4
)
Auto & Student
698

 
750

 
(7
)
 
698

 
750

 
(7
)
Total allowance for loan losses
$
4,132

 
$
4,340

 
(5
)%
 
$
4,132

 
$
4,340

 
(5)%

Allowance for loan losses to period-end loans:
 
 
 
 
 
 
 
 
 
 
 
Credit Card(b)
2.73
%
 
2.84
%
 
 
 
2.73
%
 
2.84
%
 
 
Auto & Student
1.06

 
1.20

 
 
 
1.06

 
1.20

 
 
Total allowance for loan losses to period-end loans
2.16

 
2.30

 
 
 
2.16

 
2.30

 
 
(a)
Average credit card loans included loans held-for-sale of $1.3 billion and $335 million for the three months ended September 30, 2015 and 2014, respectively, and $1.9 billion and $352 million for the nine months ended September 30, 2015 and 2014, respectively. These amounts are excluded when calculating the net charge-off rate.
(b)
Period-end credit card loans included loans held-for-sale of $1.3 billion and $395 million at September 30, 2015 and 2014, respectively. These amounts were excluded when calculating delinquency rates and the allowance for loan losses to period-end loans.
(c)
Excluded student loans insured by U.S. government agencies under the FFELP of $507 million and $640 million at September 30, 2015 and 2014, respectively, that are 30 or more days past due. These amounts have been excluded based upon the government guarantee.
(d)
Nonperforming assets excluded student loans insured by U.S. government agencies under the FFELP of $289 million and $354 million at September 30, 2015 and 2014, respectively, that are 90 or more days past due. These amounts have been excluded from nonaccrual loans based upon the government guarantee.
Card Services supplemental information
 
 
 
 
 
 
 
 
 
 
 
 
Three months ended September 30,
 
Nine months ended September 30,
(in millions, except ratios)
2015

 
2014

 
Change
 
2015
 
2014
 
Change
Revenue
 
 
 
 
 
 
 
 
 
 
 
Noninterest revenue
$
838

 
$
991

 
(15)%

 
$
2,676

 
$
2,857

 
(6
)%
Net interest income
3,051

 
2,876

 
6

 
8,807

 
8,515

 
3

Total net revenue
3,889

 
3,867

 
1

 
11,483

 
11,372

 
1

 
 
 
 
 
 
 
 
 
 
 
 
Provision for credit losses
759

 
798

 
(5
)
 
2,348

 
2,371

 
(1
)
 
 
 
 
 
 
 
 
 
 
 
 
Noninterest expense
1,581

 
1,494

 
6

 
4,521

 
4,584

 
(1
)
Income before income tax expense
1,549

 
1,575

 
(2
)
 
4,614

 
4,417

 
4

Net income
$
961

 
$
979

 
(2)%

 
$
2,861

 
$
2,668

 
7
 %
 
 
 
 
 
 
 
 
 
 
 
 
Percentage of average loans:
 
 
 
 
 
 
 
 
 
 
 
Noninterest revenue
2.63
%
 
3.12
%
 
 
 
2.86
%
 
3.07
%
 
 
Net interest income
9.58

 
9.05

 
 
 
9.40

 
9.15

 
 
Total net revenue
12.22

 
12.17

 
 
 
12.25

 
12.23

 
 


29


CORPORATE & INVESTMENT BANK
For a discussion of the business profile of CIB, see pages 92–96 of JPMorgan Chase’s 2014 Annual Report and Line of Business Metrics on pages 182–183.
Selected income statement data
 
 
 
 
 
 
 
 
 
Three months ended September 30,
 
Nine months ended September 30,
(in millions, except ratios)
2015

 
2014

 
Change
 
2015
 
2014
 
Change
Revenue
 
 
 
 
 
 
 
 
 
 
 
Investment banking fees
$
1,612

 
$
1,542

 
5
 %
 
$
5,198

 
$
4,759

 
9
 %
Principal transactions
2,370

 
2,567

 
(8
)
 
8,509

 
8,235

 
3

Lending- and deposit-related fees
389

 
424

 
(8
)
 
1,186

 
1,317

 
(10
)
Asset management, administration and commissions
1,083

 
1,141

 
(5
)
 
3,418

 
3,506

 
(3
)
All other income
294

 
455

 
(35
)
 
744

 
1,057

 
(30
)
Noninterest revenue
5,748

 
6,129

 
(6
)
 
19,055

 
18,874

 
1

Net interest income
2,420

 
2,976

 
(19
)
 
7,418

 
8,338

 
(11
)
Total net revenue(a)
8,168

 
9,105

 
(10
)
 
26,473

 
27,212

 
(3
)
 
 
 
 
 
 
 
 
 
 
 
 
Provision for credit losses
232

 
(67
)
 
NM

 
251

 
(102
)
 
NM
 
 
 
 
 
 
 
 
 
 
 
 
Noninterest expense
 
 
 
 
 
 
 
 
 
 
 
Compensation expense
2,434

 
2,805

 
(13
)
 
8,113

 
8,432

 
(4
)
Noncompensation expense
3,697

 
3,230

 
14

 
8,812

 
9,265

 
(5
)
Total noninterest expense
6,131

 
6,035

 
2

 
16,925

 
17,697

 
(4
)
Income before income tax expense
1,805

 
3,137

 
(42
)
 
9,297

 
9,617

 
(3
)
Income tax expense
341

 
1,457

 
(77
)
 
2,955

 
3,681

 
(20
)
Net income
$
1,464

 
$
1,680

 
(13
)%
 
$
6,342

 
$
5,936

 
7
 %
Financial ratios
 
 
 
 
 
 
 
 
 
 
 
Return on common equity
8
%
 
10
%
 
 
 
13
%
 
12
%
 
 
Overhead ratio
75

 
66

 
 
 
64

 
65
%
 
 
Compensation expense as a percentage of total net revenue
30

 
31

 
 
 
31

 
31

 
 
(a)
Included tax-equivalent adjustments, predominantly due to income tax credits related to alternative energy investments; income tax credits and amortization of the cost of investments in affordable housing projects; as well as tax-exempt income from municipal bond investments of $417 million and $374 million for the three months ended September 30, 2015 and 2014, respectively, and $1.2 billion and $1.1 billion for the nine months ended September 30, 2015 and 2014, respectively.
Selected income statement data
 
 
 
 
 
 
 
 
 
Three months ended September 30,
 
Nine months ended September 30,
(in millions)
2015
 
2014
 
Change
 
2015
 
2014
 
Change
Revenue by business
 
 
 
 
 
 
 
 
 
 
 
Investment banking revenue(a)
$
1,530

 
$
1,451

 
5
 %
 
$
4,906

 
$
4,472

 
10
 %
Treasury Services(b)
899

 
940

 
(4
)
 
2,730

 
2,791

 
(2
)
Lending(b)
334

 
313

 
7

 
1,071

 
1,189

 
(10
)
Total Banking(a)
2,763

 
2,704

 
2

 
8,707

 
8,452

 
3

Fixed Income Markets(a)
2,933

 
3,787

 
(23
)
 
10,018

 
11,422

 
(12
)
Equity Markets(a)
1,403

 
1,286

 
9

 
4,630

 
3,901

 
19

Securities Services
915

 
1,088

 
(16
)
 
2,844

 
3,257

 
(13
)
Credit Adjustments & Other(c)
154

 
240

 
(36
)
 
274

 
180

 
52

Total Markets & Investor Services(a)
5,405

 
6,401

 
(16
)
 
17,766

 
18,760

 
(5
)
Total net revenue
$
8,168

 
$
9,105

 
(10
)%
 
$
26,473

 
$
27,212

 
(3)%

(a)
Effective in the second quarter of 2015, Investment banking revenue (formerly Investment banking fees) incorporates all revenue associated with investment banking activities, and is reported net of investment banking revenue shared with other lines of business; previously such shared revenue had been reported in Fixed Income Markets and Equity Markets. Prior period amounts have been revised to conform with the current period presentation.
(b)
Effective in the second quarter of 2015, Trade Finance revenue was transferred from Treasury Services to Lending. Prior period amounts have been revised to conform with the current period presentation.
(c)
Consists primarily of credit valuation adjustments (“CVA”) managed by the credit portfolio group, and funding valuation adjustments (“FVA”) and debit valuation adjustments (“DVA”) on OTC derivatives and structured notes. Results are presented net of associated hedging activities and net of CVA and FVA amounts allocated to Fixed Income Markets and Equity Markets.

30


Quarterly results
Net income was $1.5 billion, down 13% compared with $1.7 billion in the prior year, reflecting lower net revenue and a higher provision for credit losses, predominantly offset by lower income tax expense, largely reflecting the release in 2015 of U.S. deferred taxes associated with the restructuring of certain non-U.S. entities.
Banking revenue was $2.8 billion, up 2% from the prior year. Investment banking revenue was up 5% compared with the prior year on higher advisory and debt underwriting fees, largely offset by lower equity underwriting fees. Advisory fees were up 22% driven by a greater share of fees for completed transactions. Debt underwriting fees were up 17% compared with the prior year, reflecting higher noninvestment-grade issuance fees. Equity underwriting fees were down 35% as industry-wide fee levels declined. Treasury Services revenue was $899 million, down 4% compared with the prior year, driven by lower net interest income.
Markets & Investor Services revenue was $5.4 billion, down 16% from the prior year. Fixed Income Markets revenue of $2.9 billion was down 23% from the prior year driven by the impact of business simplification, lower revenue in Commodities and continued weakness in Credit, partially offset by strength in Currencies & Emerging Markets. The lower Fixed Income revenue also reflected higher interest costs on higher long-term debt. Equity Markets revenue of $1.4 billion was up 9% with strong performance across derivatives and cash equities driven by higher client volumes.
The provision for credit losses was $232 million, compared to a benefit of $67 million in the prior year, reflecting a higher allowance for loan losses, including the impact of select downgrades within the Oil & Gas portfolio.
Noninterest expense was $6.1 billion, up 2% from the prior year, driven by higher legal expense, offset by lower compensation expense and the benefit from business simplification.

 
Year-to-date results
Net income was $6.3 billion, up 7% compared with $5.9 billion in the prior year, reflecting lower noninterest expense and lower income tax expense, largely reflecting the release in 2015 of U.S. deferred taxes associated with the restructuring of certain non-U.S. entities, largely offset by lower net revenue and a higher provision for credit losses.
Banking revenue was $8.7 billion, up 3% from the prior year. Investment banking revenue was $4.9 billion, up 10% from the prior year. The increase was primarily driven by higher advisory and debt underwriting fees, partially offset by lower equity underwriting fees. Advisory fees of $1.5 billion were up 27%, driven by a greater share of fees for completed transactions and growth in industry-wide fee levels. Debt underwriting fees were $2.6 billion, up 11%, primarily driven by a higher share of fees for investment-grade bonds. Equity underwriting fees of $1.1 billion were down 10% on lower industry-wide fee levels. Treasury Services revenue was $2.7 billion, down 2% compared with the prior year, primarily driven by lower net interest income. Lending revenue was $1.1 billion, down 10% from the prior year, primarily driven by lower revenue in trade finance and losses on securities received from restructurings.
Markets & Investor Services revenue was $17.8 billion, down 5% compared with the prior year. Fixed Income Markets revenue of $10.0 billion was down 12% from the prior year, primarily driven by the impact of business simplification and weakness in Credit, partially offset by strength in Currencies & Emerging Markets and Rates. The lower Fixed Income revenue also reflected higher interest costs on higher long-term debt. Equity Markets revenue of $4.6 billion was up 19% on higher derivatives and cash equities driven by higher client volumes.
The provision for credit losses was $251 million, compared to a benefit of $102 million in the prior year, reflecting a higher allowance for loan losses, including the impact of select downgrades within the Oil & Gas portfolio.
Noninterest expense was $16.9 billion, down 4% from the prior year, primarily driven by the benefit from business simplification, partially offset by higher legal expense.







31


Selected metrics
 
 
 
 
 
 
 
 
 
 
 
As of or for the three months
ended September 30,
 
As of or for the nine months
ended September 30,
(in millions, except headcount)
2015
 
2014
 
Change
 
2015
 
2014
 
Change
Selected balance sheet data (period-end)
 
 
 
 
 
 
 
 
 
 
 
Assets
$
801,133

 
$
873,971

 
(8
)%
 
$
801,133

 
$
873,971

 
(8
)%
Loans:
 
 
 
 
 
 
 
 
 
 
 
Loans retained(a)
101,420

 
95,608

 
6

 
101,420

 
95,608

 
6

Loans held-for-sale and loans at fair value
3,369

 
6,724

 
(50
)
 
3,369

 
6,724

 
(50
)
Total loans
104,789

 
102,332

 
2

 
104,789

 
102,332

 
2

Core loans
104,270

 
99,653

 
5

 
104,270

 
99,653

 
5

Equity
62,000

 
61,000

 
2

 
62,000

 
61,000

 
2

Selected balance sheet data (average)
 
 
 
 
 
 
 
 
 
 
 
Assets
$
789,975

 
$
853,453

 
(7
)
 
$
833,233

 
$
850,362

 
(2
)
Trading assets-debt and equity instruments
288,828

 
320,380

 
(10
)
 
306,072

 
314,577

 
(3
)
Trading assets-derivative receivables
63,561

 
63,068

 
1

 
69,904

 
62,235

 
12

Loans:
 
 
 
 
 
 
 
 
 
 
 
Loans retained(a)
97,518

 
95,373

 
2

 
97,108

 
95,972

 
1

Loans held-for-sale and loans at fair value
3,827

 
8,018

 
(52
)
 
4,463

 
8,331

 
(46
)
Total loans
101,345

 
103,391

 
(2
)
 
101,571

 
104,303

 
(3
)
Equity
62,000

 
61,000

 
2

 
62,000

 
61,000

 
2

Headcount(b)
49,384

 
51,437

 
(4
)%
 
49,384

 
51,437

 
(4
)%
(a)
Loans retained includes credit portfolio loans, trade finance loans, other held-for-investment loans and overdrafts.
(b)
Effective in the second quarter of 2015, certain technology staff were transferred from CIB to CB; previously-reported headcount has been revised to conform with the current period presentation. As the related expense for these staff is not material, prior period expenses have not been revised. Prior to the second quarter of 2015, compensation expense related to this headcount was recorded in the CIB, with an allocation to CB (reported in noncompensation expense); commencing with the second quarter of 2015, such expense is recorded as compensation expense in CB and accordingly total noninterest expense related to this headcount in both CB and CIB remains unchanged.

32


Selected metrics
 
 
 
 
 
 
 
 
 
 
 
 
As of or for the three months
ended September 30,
 
As of or for the nine months
ended September 30,
(in millions, except ratios and where otherwise noted)
2015
 
2014
 
Change
 
2015
 
2014
 
Change
Credit data and quality statistics
 
 
 
 
 
 
 
 
 
 
 
Net charge-offs/(recoveries)
$
2

 
$
(3
)
 
NM
 
$
(24
)
 
$
(8
)
 
(200
)%
Nonperforming assets:
 
 
 
 
 
 
 
 
 
 
 
Nonaccrual loans:
 
 
 
 
 
 
 
 
 
 
 
Nonaccrual loans retained(a)(b)
464

 
112

 
314

 
464

 
112

 
314

Nonaccrual loans held-for-sale and loans at fair value
12

 
119

 
(90
)
 
12

 
119

 
(90
)
Total nonaccrual loans
476

 
231

 
106

 
476

 
231

 
106

Derivative receivables
235

 
312

 
(25
)
 
235

 
312

 
(25
)
Assets acquired in loan satisfactions
56

 
67

 
(16
)
 
56

 
67

 
(16
)
Total nonperforming assets
767

 
610

 
26

 
767

 
610

 
26

Allowance for credit losses:
 
 
 
 
 
 
 
 
 
 
 
Allowance for loan losses
1,205

 
1,083

 
11

 
1,205

 
1,083

 
11

Allowance for lending-related commitments
547

 
445

 
23

 
547

 
445

 
23

Total allowance for credit losses
1,752

 
1,528

 
15%

 
1,752

 
1,528

 
15%

Net charge-off/(recovery) rate(a)
0.01%

 
(0.01
)%
 
 
 
(0.03)%

 
(0.01
)%
 
 
Allowance for loan losses to period-end loans retained(a)
1.19

 
1.13

 
 
 
1.19

 
1.13

 
 
Allowance for loan losses to period-end loans retained, excluding trade finance and conduits(c)
1.85

 
1.88

 
 
 
1.85

 
1.88

 
 
Allowance for loan losses to nonaccrual loans retained(a)(b)
260

 
967

 
 
 
260

 
967

 
 
Nonaccrual loans to total period-end loans
0.45
%
 
0.23
 %
 
 
 
0.45
 %
 
0.23
 %
 
 
(a)
Loans retained includes credit portfolio loans, trade finance loans, other held-for-investment loans and overdrafts.
(b)
Allowance for loan losses of $160 million and $19 million were held against these nonaccrual loans at September 30, 2015 and 2014, respectively.
(c)
Management uses allowance for loan losses to period-end loans retained, excluding trade finance and conduits, a non-GAAP financial measure, to provide a more meaningful assessment of CIB’s allowance coverage ratio.

33


Business metrics
 
 
 
 
 
 
 
 
 
 
 
 
Three months ended September 30,
 
Nine months ended September 30,
(in millions, except where otherwise noted)
2015
 
2014
 
Change
 
2015
 
2014
 
Change
Advisory
$
503

 
$
413

 
22%

 
$
1,511

 
$
1,193

 
27%

Equity underwriting
269

 
414

 
(35
)
 
1,120

 
1,244

 
(10
)
Debt underwriting
840

 
715

 
17

 
2,567

 
2,322

 
11

Total investment banking fees
$
1,612

 
$
1,542

 
5%

 
$
5,198

 
$
4,759

 
9%


League table results – wallet share
 
 
 
 
 
 
Nine months ended
September 30, 2015
 
Full-year 2014
 

Share
Rank
 

Share
Rank
Based on fees(a)
 
 
 
 
 
 
 
 
Debt, equity and equity-related
 
 
 
 
 
 
 
 
Global
8.0
%
 
#1
 
 
7.6
%
 
#1

U.S.
11.7

 
1
 
 
10.7

 
1

Long-term debt(b)
 
 
 
 
 
 
 
 
Global
8.5

 
1
 
 
8.0

 
1

U.S.
11.9

 
1
 
 
11.6

 
1

Equity and equity-related
 
 
 
 
 
 
 
 
Global(c)
7.4

 
1
 
 
7.1

 
3

U.S.
11.4

 
1
 
 
9.6

 
2

M&A(d)
 
 
 
 
 
 
 
 
Global
8.6

 
2
 
 
8.0

 
2

U.S.
9.8

 
2
 
 
9.7

 
2

Loan syndications
 
 
 
 
 
 
 
 
Global
8.2

 
1
 
 
9.3

 
1

U.S.
11.7

 
1
 
 
13.1

 
1

Global investment banking fees(e)
8.2
%
 
#1
 
 
8.0
%
 
#1

 
League table results – volumes
 
 
 
 
 
 
Nine months ended
September 30, 2015
 
Full-year 2014
 
Share
Rank
 
Share
Rank
Based on volumes(f)
 
 
 
 
 
 
 
 
Debt, equity and equity-related
 
 
 
 
 
 
 
 
Global
7.1
%
 
#1
 
 
6.8
%
 
#1

U.S.
11.8

 
1
 
 
11.8

 
1

Long-term debt(b)
 
 
 
 
 
 
 
 
Global
7.0

 
1
 
 
6.7

 
1

U.S.
11.2

 
1
 
 
11.3

 
1

Equity and
equity-related
 
 
 
 
 
 
 
 
Global(c)
7.4

 
2
 
 
7.5

 
3

U.S.
12.8

 
1
 
 
11.0

 
2

M&A announced(d)
 
 
 
 
 
 
 
 
Global
24.2

 
3
 
 
20.3

 
2

U.S.
30.2

 
3
 
 
25.1

 
3

Loan syndications
 
 
 
 
 
 
 
 
Global
10.9

 
1
 
 
12.3

 
1

U.S.
16.6
%
 
#1
 
 
19.0
%
 
#1


(a)
Source: Dealogic. Reflects the ranking of revenue wallet and market share
(b)
Long-term debt rankings include investment-grade, high-yield, supranationals, sovereigns, agencies, covered bonds, asset-backed securities (“ABS”) and mortgage-backed securities; and exclude money market, short-term debt, and U.S. municipal securities.
(c)
Global equity and equity-related rankings include rights offerings and Chinese A-Shares.
(d)
M&A and Announced M&A rankings reflect the removal of any withdrawn transactions. U.S. M&A revenue wallet represents wallet from client parents based in the U.S. U.S. announced M&A volumes represents any U.S. involvement ranking.
(e)
Global investment banking fees per Dealogic exclude money market, short-term debt and shelf deals.
(f)
Source: Dealogic. Reflects transaction volume and market share. Global announced M&A is based on transaction value at announcement; because of joint M&A assignments, M&A market share of all participants will add up to more than 100%. All other transaction volume-based rankings are based on proceeds, with full credit to each book manager/equal if joint.

Business metrics
 
 
 
 
 
 
 
 
 
 
 
 
As of or for the three months
ended September 30,
 
As of or for the nine months
ended September 30,
(in millions, except where otherwise noted)
2015
 
2014
 
Change
 
2015
 
2014
 
Change
Assets under custody (“AUC”) by asset class (period-end)
(in billions):
 
 
 
 
 
 
 
 
 
 
 
Fixed Income
$
12,190

 
$
12,525

 
(3)%

 
$
12,190

 
$
12,525

 
(3)%

Equity
5,848

 
7,037

 
(17
)
 
5,848

 
7,037

 
(17
)
Other(a)
1,653

 
1,683

 
(2
)
 
1,653

 
1,683

 
(2
)
Total AUC
$
19,691

 
$
21,245

 
(7
)
 
$
19,691

 
$
21,245

 
(7
)
Client deposits and other third party liabilities (average)
$
372,070

 
$
419,576

 
(11
)
 
$
405,576

 
$
411,824

 
(2
)
Trade finance loans (period-end)
21,138

 
27,510

 
(23
)%
 
21,138

 
27,510

 
(23
)%
(a)
Consists of mutual funds, unit investment trusts, currencies, annuities, insurance contracts, options and other contracts.

34


International metrics
 
 
 
 
 
 
 
 
 
 
 
 
As of or for the three months
ended September 30,
 
As of or for the nine months
ended September 30,
(in millions, except where otherwise noted)
2015
 
2014
 
Change
 
2015
 
2014
 
Change
Total net revenue(a)
 
 
 
 
 
 
 
 
 
 
 
Europe/Middle East/Africa
$
2,508

 
$
3,025

 
(17
)%
 
$
8,689

 
$
9,471

 
(8
)%
Asia/Pacific
1,224

 
1,235

 
(1
)
 
3,845

 
3,407

 
13

Latin America/Caribbean
300

 
339

 
(12
)
 
851

 
905

 
(6
)
Total international net revenue
4,032

 
4,599

 
(12
)
 
13,385

 
13,783

 
(3
)
North America
4,136

 
4,506

 
(8
)
 
13,088

 
13,429

 
(3
)
Total net revenue
$
8,168

 
$
9,105

 
(10
)
 
$
26,473

 
$
27,212

 
(3
)
 
 
 
 
 
 
 
 
 
 
 
 
Loans (period-end)(a)
 
 
 
 
 
 
 
 
 
 
 
Europe/Middle East/Africa
$
25,793

 
$
25,742

 

 
$
25,793

 
$
25,742

 

Asia/Pacific
17,453

 
22,960

 
(24
)
 
17,453

 
22,960

 
(24
)
Latin America/Caribbean
8,418

 
9,508

 
(11
)
 
8,418

 
9,508

 
(11
)
Total international loans
51,664

 
58,210

 
(11
)
 
51,664

 
58,210

 
(11
)
North America
49,756

 
37,398

 
33

 
49,756

 
37,398

 
33

Total loans
$
101,420

 
$
95,608

 
6

 
$
101,420

 
$
95,608

 
6

 
 
 
 
 
 
 
 
 
 
 
 
Client deposits and other third-party liabilities (average)(a)
 
 
 
 
 
 
 
 
 
 
 
Europe/Middle East/Africa
$
130,247

 
$
157,436

 
(17
)
 
$
146,155

 
$
150,653

 
(3
)
Asia/Pacific
66,101

 
70,840

 
(7
)
 
67,259

 
65,751

 
2

Latin America/Caribbean
21,462

 
21,438

 

 
22,800

 
22,364

 
2

Total international
$
217,810

 
$
249,714

 
(13
)
 
$
236,214

 
$
238,768

 
(1
)
North America
154,260

 
169,862

 
(9
)
 
169,362

 
173,056

 
(2
)
Total client deposits and other third-party liabilities
$
372,070

 
$
419,576

 
(11
)
 
$
405,576

 
$
411,824

 
(2
)
 
 
 
 
 
 
 
 
 
 
 
 
AUC (period-end)
(in billions)(a)
 
 
 
 
 
 
 
 
 
 
 
North America
$
11,944

 
$
11,690

 
2

 
$
11,944

 
$
11,690

 
2

All other regions
7,747

 
9,555

 
(19
)
 
7,747

 
9,555

 
(19
)
Total AUC
$
19,691

 
$
21,245

 
(7
)%
 
$
19,691

 
$
21,245

 
(7
)%

(a)
Total net revenue is based predominantly on the domicile of the client or location of the trading desk, as applicable. Loans outstanding (excluding loans held-for-sale and loans at fair value), client deposits and other third-party liabilities, and AUC are based predominantly on the domicile of the client.

35


COMMERCIAL BANKING
For a discussion of the business profile of CB, see pages 97–99 of JPMorgan Chase’s 2014 Annual Report and Line of Business Metrics on page 183.
Selected income statement data
 
 
 
 
 
 
 
Three months ended September 30,
 
Nine months ended September 30,
(in millions)
2015
 
2014
 
Change
 
2015
 
2014
 
Change
Revenue
 
 
 
 
 
 
 
 
 
 
 
Lending- and deposit-related fees
$
229

 
$
241

 
(5
)%
 
$
708

 
$
739

 
(4
)%
Asset management, administration and commissions
22

 
21

 
5

 
68

 
70

 
(3
)
All other income(a)
271

 
309

 
(12
)
 
991

 
897

 
10

Noninterest revenue
522

 
571

 
(9
)
 
1,767

 
1,706

 
4

Net interest income
1,122

 
1,132

 
(1
)
 
3,358

 
3,406

 
(1
)
Total net revenue(b)
1,644

 
1,703

 
(3
)
 
5,125

 
5,112

 

Provision for credit losses
82

 
(79
)
 
NM

 
325

 
(141
)
 
NM

Noninterest expense
 
 
 
 
 
 
 
 
 
 
 
Compensation expense
311

 
301

 
3

 
928

 
900

 
3

Noncompensation expense
408

 
367

 
11

 
1,203

 
1,129

 
7

Total noninterest expense
719

 
668

 
8

 
2,131

 
2,029

 
5

Income before income tax expense
843

 
1,114

 
(24
)
 
2,669

 
3,224

 
(17
)
Income tax expense
325

 
443

 
(27
)
 
1,028

 
1,282

 
(20
)
Net income
$
518

 
$
671

 
(23
)%
 
$
1,641

 
$
1,942

 
(15
)%
(a)
Includes revenue from investment banking products and commercial card transactions.
(b)
Total net revenue included tax-equivalent adjustments from income tax credits related to equity investments in designated community development entities that provide loans to qualified businesses in low-income communities, as well as tax-exempt income from municipal bond activity of $116 million and $108 million for the three months ended September 30, 2015 and 2014, respectively, and $344 million and $317 million for the nine months ended September 30, 2015 and 2014, respectively.

Quarterly results
Net income was $518 million, a decrease of 23% compared with the prior year, driven by a higher provision for credit losses, lower net revenue, and higher noninterest expense.
Net revenue was $1.6 billion, a decrease of 3% compared with the prior year. Net interest income was $1.1 billion, or flat compared with the prior year, reflecting yield compression in both loans and deposits, partially offset by higher lending balances. Noninterest revenue was $522 million, down 9% compared with the prior year, driven by lower investment banking revenue.
Noninterest expense was $719 million, up 8% compared with the prior year, driven by higher investment in controls.
The provision for credit losses was $82 million, reflecting a modest increase in the allowance for loan losses for Oil & Gas exposure. The prior year quarter was a benefit of $79 million.
 
Year-to-date results
Net income was $1.6 billion, a decrease of 15% compared with the prior year, driven by a higher provision for credit losses and higher noninterest expense.
Net revenue was $5.1 billion, flat compared with the prior year. Net interest income was $3.4 billion, or flat compared with the prior year, reflecting yield compression, largely offset by higher lending balances. Noninterest revenue was $1.8 billion, up 4% compared with the prior year, driven by higher investment banking revenue.
Noninterest expense was $2.1 billion, up 5% compared with the prior year, driven by higher investment in controls.
The provision for credit losses was $325 million, reflecting an increase in the allowance for loan losses for Oil & Gas exposure and other select downgrades. The prior year was a benefit of $141 million.


36


Selected metrics
 
 
 
 
 
 
 
Three months ended September 30,
 
Nine months ended September 30,
(in millions, except ratios)
2015
 
2014
 
Change
 
2015
 
2014
 
Change
Revenue by product
 
 
 
 
 
 
 
 
 
 
 
Lending(a)
$
850

 
$
828

 
3
 %
 
$
2,542

 
$
2,515

 
1
 %
Treasury services(a)
633

 
670

 
(6
)
 
1,926

 
2,024

 
(5
)
Investment banking
130

 
166

 
(22
)
 
574

 
478

 
20

Other(a)
31

 
39

 
(21
)
 
83

 
95

 
(13
)
Total Commercial Banking net revenue
$
1,644

 
$
1,703

 
(3
)
 
$
5,125

 
$
5,112

 

 
 
 
 
 
 
 
 
 
 
 
 
Investment banking revenue, gross(b)
$
382

 
$
501

 
(24
)
 
$
1,724

 
$
1,429

 
21

 
 
 
 
 
 
 
 
 
 
 
 
Revenue by client segment
 
 
 
 
 
 
 
 
 
 
 
Middle Market Banking(c)
$
675

 
$
686

 
(2
)
 
$
2,040

 
$
2,099

 
(3
)
Corporate Client Banking(c)
446

 
502

 
(11
)
 
1,542

 
1,458

 
6

Commercial Term Lending
318

 
312

 
2

 
944

 
939

 
1

Real Estate Banking
123

 
124

 
(1
)
 
356

 
375

 
(5
)
Other
82

 
79

 
4

 
243

 
241

 
1

Total Commercial Banking net revenue
$
1,644

 
$
1,703

 
(3
)%
 
$
5,125

 
$
5,112

 
 %
 
 
 
 
 
 
 
 
 
 
 
 
Financial ratios
 
 
 
 
 
 
 
 
 
 
 
Return on common equity
14%

 
18
%
 
 
 
15
%
 
18
%
 
 
Overhead ratio
44

 
39

 
 
 
42

 
40

 
 

(a)
Effective in the second quarter of 2015, Commercial Card and Chase Commerce Solutions/Paymentech product revenue was transferred from Lending and Other, respectively, to Treasury Services. Prior period amounts were revised to conform with the current period presentation.
(b)
Represents the total revenue from investment banking products sold to CB clients.
(c)
Effective in the first quarter of 2015, mortgage warehouse lending clients were transferred from Middle Market Banking to Corporate Client Banking. Prior period revenue, period-end loans, and average loans by client segment were revised to conform with the current period presentation.

37


Selected metrics (continued)
 
 
 
As of or for the three months
ended September 30,
 
As of or for the nine months
ended September 30,
(in millions, except headcount)
2015
2014
Change
 
2015
2014
Change
Selected balance sheet data (period-end)
 
 
 
 
 
 
 
Total assets
$
201,157

$
191,563

5
 %
 
$
201,157

$
191,563

5
 %
Loans:
 
 
 
 
 
 
 
Loans retained
162,269

143,490

13

 
162,269

143,490

13

Loans held-for-sale and loans at fair value
213

353

(40
)
 
213

353

(40
)
Total loans
$
162,482

$
143,843

13

 
$
162,482

$
143,843

13

Core loans
161,662

142,548

13

 
161,662

142,548

13

Equity
14,000

14,000


 
14,000

14,000


 
 
 
 
 
 
 
 
Period-end loans by client segment
 
 
 
 
 
 
 
Middle Market Banking(a)
$
51,985

$
50,909

2

 
$
51,985

$
50,909

2

Corporate Client Banking(a)
29,634

23,244

27

 
29,634

23,244

27

Commercial Term Lending
60,684

52,235

16

 
60,684

52,235

16

Real Estate Banking
15,068

12,818

18

 
15,068

12,818

18

Other
5,111

4,637

10

 
5,111

4,637

10

Total Commercial Banking loans
$
162,482

$
143,843

13

 
$
162,482

$
143,843

13

 
 
 
 
 
 
 
 
Selected balance sheet data (average)
 
 
 
 
 
 
 
Total assets
$
197,274

$
190,678

3

 
$
197,319

$
191,922

3

Loans:
 
 
 
 
 
 
 
Loans retained
158,845

142,139

12

 
154,595

139,566

11

Loans held-for-sale and loans at fair value
359

649

(45
)
 
595

889

(33
)
Total loans
$
159,204

$
142,788

11

 
$
155,190

$
140,455

10

Client deposits and other third-party liabilities
180,892

204,654

(12
)
 
195,874

202,532

(3
)
Equity
14,000

14,000


 
14,000

14,000


 
 
 
 
 
 
 
 
Average loans by client segment
 
 
 
 
 
 
 
Middle Market Banking(a)
$
51,373

$
50,955

1

 
$
51,120

$
50,995


Corporate Client Banking(a)
28,964

23,501

23

 
28,209

22,757

24

Commercial Term Lending
59,323

51,567

15

 
56,980

50,479

13

Real Estate Banking
14,487

12,268

18

 
13,901

11,803

18

Other
5,057

4,497

12

 
4,980

4,421

13

Total Commercial Banking loans
$
159,204

$
142,788

11

 
$
155,190

$
140,455

10

 
 
 
 
 
 
 
 
Headcount(b)
7,735

7,413

4
 %
 
7,735

7,413

4
 %
(a)
Effective in the first quarter of 2015, mortgage warehouse lending clients were transferred from Middle Market Banking to Corporate Client Banking. Prior period revenue, period-end loans, and average loans by client segment were revised to conform with the current period presentation.
(b)
Effective in the second quarter of 2015, certain technology staff were transferred from CIB to CB; previously-reported headcount has been revised to conform with the current period presentation. As the related expense for these staff is not material, prior period expenses have not been revised. Prior to the second quarter of 2015, compensation expense related to this headcount was recorded in the CIB, with an allocation to CB (reported in noncompensation expense); commencing with the second quarter of 2015, such expense is recorded as compensation expense in CB and accordingly total noninterest expense related to this headcount in both CB and CIB remains unchanged.

38


Selected metrics (continued)
 
As of or for the three months
ended September 30,
 
As of or for the nine months
ended September 30,
(in millions, except ratios)
2015
2014
Change
 
2015

 
2014

 
Change
Credit data and quality statistics
 
 
 
 
 
 
 
 
 
Net charge-offs/(recoveries)
$
(2
)
$
5

NM
 
$
5

 
$
(35
)
 
NM

Nonperforming assets
 
 
 
 
 
 
 
 
 
Nonaccrual loans:
 
 
 
 
 
 
 
 
 
Nonaccrual loans retained(a)
423

361

17

 
423

 
361

 
17
 %
Nonaccrual loans held-for-sale and loans at fair value
16

14

14

 
16

 
14

 
14

Total nonaccrual loans
439

375

17

 
439

 
375

 
17

Assets acquired in loan satisfactions
4

11

(64
)
 
4

 
11

 
(64
)
Total nonperforming assets
443

386

15

 
443

 
386

 
15

Allowance for credit losses:
 
 
 
 
 
 
 
 
 
Allowance for loan losses
2,782

2,529

10

 
2,782

 
2,529

 
10

Allowance for lending-related commitments
170

178

(4
)
 
170

 
178

 
(4
)
Total allowance for credit losses
2,952

2,707

9
 %
 
2,952

 
2,707

 
9
 %
Net charge-off/(recovery) rate(b)

0.01
%
 
 

 
(0.03
)%
 
 
Allowance for loan losses to period-end loans retained
1.71

1.76

 
 
1.71

 
1.76

 
 
Allowance for loan losses to nonaccrual loans retained(a)
658

701

 
 
658

 
701

 
 
Nonaccrual loans to period-end total loans
0.27

0.26

 
 
0.27

 
0.26

 
 
(a)
Allowance for loan losses of $80 million and $71 million was held against nonaccrual loans retained at September 30, 2015 and 2014, respectively.
(b)
Loans held-for-sale and loans at fair value were excluded when calculating the net charge-off/(recovery) rate.

39


ASSET MANAGEMENT
For a discussion of the business profile of AM, see pages 100–102 of JPMorgan Chase’s 2014 Annual Report and Line of Business Metrics on pages 183–184.
Selected income statement data
(in millions, except ratios and headcount)
Three months ended September 30,
 
Nine months ended September 30,
2015
2014
Change
 
2015

2014

Change
Revenue
 
 
 
 
 
 
 
Asset management, administration and commissions
$
2,237

$
2,263

(1
)%
 
$
6,847

$
6,605

4
 %
All other income
24

159

(85
)
 
342

415

(18
)
Noninterest revenue
2,261

2,422

(7
)
 
7,189

7,020

2

Net interest income
633

624

1

 
1,885

1,808

4

Total net revenue
2,894

3,046

(5
)
 
9,074

8,828

3

 
 
 
 
 
 
 
 
Provision for credit losses
(17
)
9

NM

 
(13
)
1

NM

 
 
 
 
 
 
 
 
Noninterest expense
 
 
 
 
 
 
 
Compensation expense
1,218

1,278

(5
)
 
3,806

3,765

1

Noncompensation expense
891

803

11

 
2,884

2,453

18

Total noninterest expense
2,109

2,081

1

 
6,690

6,218

8

 
 
 
 
 
 
 
 
Income before income tax expense
802

956

(16
)
 
2,397

2,609

(8
)
Income tax expense
327

366

(11
)
 
969

996

(3
)
Net income
$
475

$
590

(19
)
 
$
1,428

$
1,613

(11
)
 
 
 
 
 
 
 
 
Revenue by line of business
 
 
 
 
 
 
 
Global Investment Management
$
1,483

$
1,609

(8
)
 
$
4,686

$
4,587

2

Global Wealth Management
1,411

1,437

(2
)
 
4,388

4,241

3

Total net revenue
$
2,894

$
3,046

(5
)
 
$
9,074

$
8,828

3

 
 
 
 
 
 
 
 
Financial ratios
 
 
 
 
 
 
 
Return on common equity
20
%
25
%
 
 
20
%
23
%
 
Overhead ratio
73

68

 
 
74

70

 
Pretax margin ratio:
 
 
 
 
 
 
 
Global Investment Management
31

35

 
 
29

31

 
Global Wealth Management
24

27

 
 
24

27

 
Asset Management
28

31

 
 
26

30

 
 
 
 
 
 
 
 
 
Headcount
20,651

19,653

5

 
20,651

19,653

5

 
 
 
 
 
 
 
 
Number of client advisors
2,796

2,873

(3
)%
 
2,796

2,873

(3
)%
Quarterly results
Net income was $475 million, a decrease of 19% compared with the prior year, reflecting lower net revenue and higher noninterest expense.
Net revenue was $2.9 billion, an decrease of 5%. Net interest income was $633 million, up 1%, driven by higher loan balances. Noninterest revenue was $2.3 billion, down 7%, reflecting the sale of the Retirement Plan Services (“RPS”) business in 2014, lower market levels driving lower transactional revenue and lower valuations of seed capital investments within All other income.
Noninterest expense was $2.1 billion, an increase of 1%, due to continued investment in both infrastructure and controls.
 
Year-to-date results
Net income was $1.4 billion, a decrease of 11% compared with the prior year, reflecting higher noninterest expense, largely offset by higher net revenue.
Net revenue was $9.1 billion, an increase of 3%. Net interest income was $1.9 billion, up 4%, driven by higher loan balances. Noninterest revenue was $7.2 billion, up 2%, on net client inflows into assets under management and higher average market levels, partially offset by the sale of RPS and lower transactional revenue.
Noninterest expense was $6.7 billion, an increase of 8%, predominantly due to higher legal expense, continued investment in both infrastructure and controls, and the impact of a loss from a held-for-sale asset.


40


Selected metrics
As of or for the three months
ended September 30,
 
As of or for the nine months
ended September 30,
(in millions, except ranking data and ratios)
2015
2014
Change
 
2015

2014

Change
% of JPM mutual fund assets rated as 4- or 5-star(a)
57
%
49
%
 
 
57
%
49
%
 
% of JPM mutual fund assets ranked in 1st or 2nd quartile:(b)
 
 
 
 
 
 
 
1 year
79

54

 
 
79

54

 
3 years
82

69

 
 
82

69

 
5 years
81

71

 
 
81

71

 
 
 
 
 
 
 
 
 
Selected balance sheet data (period-end)
 
 
 
 
 
 
 
Total assets
$
131,412

$
130,296

1
 %
 
$
131,412

$
130,296

1
 %
Loans(c)
110,314

102,411

8

 
110,314

102,411

8

Core loans
110,314

102,411

8

 
110,314

102,411

8

Deposits
140,121

150,268

(7
)
 
140,121

150,268

(7
)
Equity
9,000

9,000


 
9,000

9,000


 
 
 
 
 
 
 
 
Selected balance sheet data (average)
 
 
 
 
 
 
 
Total assets
$
131,100

$
128,477

2

 
$
129,326

$
125,567

3

Loans
108,741

101,427

7

 
106,446

98,615

8

Deposits
141,896

151,240

(6
)
 
150,840

149,480

1

Equity
9,000

9,000


 
9,000

9,000


 
 
 
 
 
 
 
 
Credit data and quality statistics
 
 
 
 
 
 
 
Net charge-offs
$
2

$
11

(82
)
 
$
4

$
3

33

Nonaccrual loans
229

184

24

 
229

184

24

Allowance for credit losses:
 
 
 
 
 
 
 
Allowance for loan losses
258

273

(5
)
 
258

273

(5
)
Allowance for lending-related commitments
4

4


 
4

4


Total allowance for credit losses
262

277

(5
)%
 
262

277

(5
)%
Net charge-off rate
0.01
%
0.04
%
 
 
0.01
%

 
Allowance for loan losses to period-end loans
0.23

0.27

 
 
0.23

0.27

 
Allowance for loan losses to nonaccrual loans
113

148

 
 
113

148

 
Nonaccrual loans to period-end loans
0.21

0.18

 
 
0.21

0.18

 
(a)
Represents the “overall star rating” derived from Morningstar for the U.S., the U.K., Luxembourg, Hong Kong and Taiwan domiciled funds; and Nomura “star rating” for Japan domiciled funds. Includes only Global Investment Management retail open ended mutual funds that have a rating. Excludes money market funds, Undiscovered Managers Fund, and Brazil and India domiciled funds.
(b)
Quartile ranking sourced from: Lipper for the U.S. and Taiwan domiciled funds; Morningstar for the U.K., Luxembourg and Hong Kong domiciled funds; Nomura for Japan domiciled funds and Fund Doctor for South Korea domiciled funds. Includes only Global Investment Management retail open ended mutual funds that are ranked by the aforementioned sources. Excludes money market funds, Undiscovered Managers Fund, and Brazil and India domiciled funds.
(c)
Included $25.4 billion and $21.3 billion of prime mortgage loans reported in the Consumer, excluding credit card, loan portfolio at September 30, 2015 and 2014, respectively. For the same periods, excluded $2.2 billion and $3.0 billion, respectively, of prime mortgage loans reported in the Chief Investment Office (“CIO”) portfolio within the Corporate segment.

41


Client assets
Assets under management were $1.7 trillion, flat compared with the prior year, due to net inflows to long-term and liquidity products offset by the effect of lower market levels.
 
Client assets were $2.3 trillion, down 1% from the prior year.

Client assets
September 30,
(in billions)
2015

2014

Change
Assets by asset class
 
 
 
Liquidity
$
463

$
440

5
 %
Fixed income
351

359

(2
)
Equity
336

372

(10
)
Multi-asset and alternatives
561

540

4

Total assets under management
1,711

1,711


Custody/brokerage/administration/deposits
612

633

(3
)
Total client assets
$
2,323

$
2,344

(1
)
 
 
 
 
Memo:
 
 
 
Alternatives client assets(a)
$
172

$
166

4

 
 
 
 
Assets by client segment
 
 
 
Private Banking
$
438

$
429

2

Institutional
816

799

2

Retail
457

483

(5
)
Total assets under management
$
1,711

$
1,711


 
 
 
 
Private Banking
$
1,037

$
1,052

(1
)
Institutional
823

803

2

Retail
463

489

(5
)
Total client assets
$
2,323

$
2,344

(1
)%
(a)
Represents assets under management, as well as client balances in brokerage accounts.

42


Client assets (continued)
Three months ended
September 30,
 
Nine months ended
September 30,
(in billions)
2015
2014
 
2015

2014

Assets under management rollforward
 
 
 
 
 
Beginning balance
$
1,781

$
1,707

 
$
1,744

$
1,598

Net asset flows:
 
 
 
 
 
Liquidity
(5
)
8

 

(9
)
Fixed income
(5
)
4

 

29

Equity
(5
)

 
(2
)
3

Multi-asset and alternatives
6

12

 
27

38

Market/performance/other impacts
(61
)
(20
)
 
(58
)
52

Ending balance, September 30
$
1,711

$
1,711

 
$
1,711

$
1,711

 
 
 
 
 
 
Client assets rollforward
 
 
 
 
 
Beginning balance
$
2,423

$
2,473

 
$
2,387

$
2,343

Net asset flows
(7
)
35

 
26

71

Market/performance/other impacts
(93
)
(164
)
 
(90
)
(70
)
Ending balance, September 30
$
2,323

$
2,344

 
$
2,323

$
2,344

International metrics
As of or for the three months
ended September 30,
 
As of or for the nine months
ended September 30,
(in billions, except where otherwise noted)
2015
2014
Change
 
2015

2014

Change
Total net revenue
(in millions)(a)
 
 
 
 
 
 
 
Europe/Middle East/Africa
$
473

$
536

(12
)%
 
$
1,468

$
1,549

(5
)%
Asia/Pacific
267

295

(9
)
 
855

857


Latin America/Caribbean
182

209

(13
)
 
590

624

(5
)
Total international net revenue
922

1,040

(11
)
 
2,913

3,030

(4
)
North America
1,972

2,006

(2
)
 
6,161

5,798

6

Total net revenue
$
2,894

$
3,046

(5
)
 
$
9,074

$
8,828

3

 
 
 
 
 
 
 
 
Assets under management
 
 
 
 
 
 
 
Europe/Middle East/Africa
$
292

$
324

(10
)
 
$
292

$
324

(10
)
Asia/Pacific
119

132

(10
)
 
119

132

(10
)
Latin America/Caribbean
44

48

(8
)
 
44

48

(8
)
Total international assets under management
455

504

(10
)
 
455

504

(10
)
North America
1,256

1,207

4

 
1,256

1,207

4

Total assets under management
$
1,711

$
1,711


 
$
1,711

$
1,711


 
 
 
 
 
 
 
 
Client assets
 
 
 
 
 
 
 
Europe/Middle East/Africa
$
341

$
385

(11
)
 
$
341

$
385

(11
)
Asia/Pacific
168

181

(7
)
 
168

181

(7
)
Latin America/Caribbean
108

119

(9
)
 
108

119

(9
)
Total international client assets
617

685

(10
)
 
617

685

(10
)
North America
1,706

1,659

3

 
1,706

1,659

3

Total client assets
$
2,323

$
2,344

(1
)%
 
$
2,323

$
2,344

(1
)%
(a)
Regional revenue is based on the domicile of the client.



43


CORPORATE
For a discussion of Corporate, see pages 103–104 of JPMorgan Chase’s 2014 Annual Report.
Selected income statement data
 
 
 
 
 
 
 
 
 
 
As of or for the three months
ended September 30,
 
As of or for the nine months
ended September 30,
(in millions, except headcount)
2015

2014

 
Change

 
2015

 
2014

 
Change
Revenue
 
 
 
 
 
 
 
 
 
 
Principal transactions
$
(70
)
$
310

 
NM

 
$
97

 
$
688

 
(86
)%
Securities gains
25

6

 
317

 
118

 
43

 
174

All other income
118

134

 
(12
)
 
(2
)
 
594

 
NM
Noninterest revenue
73

450

 
(84
)
 
213

 
1,325

 
(84
)
Net interest income
(123
)
(525
)
 
77

 
(597
)
 
(1,560
)
 
62

Total net revenue(a)
(50
)
(75
)
 
33

 
(384
)
 
(235
)
 
(63
)
 
 
 
 
 
 
 
 
 
 
 
Provision for credit losses
(4
)
(8
)
 
50

 
(8
)
 
(29
)
 
72

 
 
 
 
 
 
 
 
 
 
 
Noninterest expense
 
 
 
 
 
 
 
 
 
 
Compensation expense
944

820

 
15

 
2,789

 
2,200

 
27

Noncompensation expense(b)
960

1,468

 
(35
)
 
2,697

 
3,242

 
(17
)
Subtotal
1,904

2,288

 
(17
)
 
5,486

 
5,442

 
1

Net expense allocated to other businesses
(1,732
)
(1,579
)
 
(10
)
 
(5,118
)
 
(4,719
)
 
(8
)
Total noninterest expense
172

709

 
(76
)
 
368

 
723

 
(49
)
Loss before income tax benefit
(218
)
(776
)
 
72

 
(744
)
 
(929
)
 
20

Income tax benefit
(1,935
)
(871
)
 
(122
)
 
(2,959
)
 
(1,246
)
 
(137
)
Net income
$
1,717

$
95

 
NM

 
$
2,215

 
$
317

 
NM
Total net revenue
 
 
 
 
 
 
 
 
 
 
Treasury and CIO
(89
)
(365
)
 
76

 
(630
)
 
(1,074
)
 
41

Other Corporate(c)
39

290

 
(87
)
 
246

 
839

 
(71
)
Total net revenue
$
(50
)
$
(75
)
 
33

 
$
(384
)
 
$
(235
)
 
(63
)
Net income/(loss)
 
 
 
 
 
 
 
 
 
 
Treasury and CIO
(40
)
(333
)
 
88

 
(373
)
 
(960
)
 
61

Other Corporate(c)
1,757

428

 
311

 
2,588

 
1,277

 
103

Total net income
$
1,717

$
95

 
NM

 
$
2,215

 
$
317

 
NM
 
 
 
 
 
 
 
 
 
 
 
Selected balance sheet data (period-end)
 
 
 
 
 
 
 
 
 
 
Total assets
$
799,166

$
882,792

 
(9
)
 
$
799,166

 
$
882,792

 
(9
)
Loans
2,332

3,086

 
(24
)
 
2,332

 
3,086

 
(24
)
Core loans
2,327

3,062

 
(24
)
 
2,327

 
3,062

 
(24
)
Headcount
29,307

25,199

 
16
 %
 
29,307

 
25,199

 
16%
(a)
Included tax-equivalent adjustments, predominantly due to tax-exempt income from municipal bond investments of $215 million and $190 million for the three months ended September 30, 2015 and 2014, respectively, and $620 million and $534 million for the nine months ended September 30, 2015 and 2014, respectively.
(b)
Included legal expense of $102 million and $512 million for the three months ended September 30, 2015 and 2014, respectively, and $425 million and $737 million for the nine months ended September 30, 2015 and 2014, respectively.
(c)
Effective with the first quarter of 2015, the Firm began including the results of Private Equity in the Other Corporate line within the Corporate segment. Prior period amounts have been revised to conform with the current period presentation. The Corporate segment’s balance sheets and results of operations were not impacted by this reporting change.
Quarterly results
Net Income was $1.7 billion, compared with $95 million in the prior year.
Net revenue was a loss of $50 million in the current year, compared to a loss of $75 million in the prior year. Private Equity gains were $391 million lower compared to the prior year, reflecting lower valuation gains and lower net gains on sales.
 
Noninterest expense was $172 million, a decrease of $537 million from the prior year, primarily driven by lower legal expense.
The current quarter reflected tax benefits of $1.9 billion from the resolution of various tax audits compared with tax benefits of approximately $400 million in the prior year.


44


Year-to-date results
Net Income was $2.2 billion, compared with $317 million in the prior year.
Net revenue was a loss of $384 million, compared to a loss of $235 million in the prior year. Private Equity gains were $698 million lower compared to the prior year, reflecting lower valuation gains and lower net gains on sales. The current year included a $173 million pretax loss in Treasury and CIO primarily related to the accelerated amortization of cash flow hedges associated with the exit of certain non-operating deposits.
Noninterest expense was $368 million, a decrease of $355 million from the prior year, primarily driven by lower legal expense.
The current year reflected tax benefits of $2.4 billion from the resolution of various tax audits compared with tax benefits of approximately $550 million in the prior year.
 
Treasury and CIO overview
For a discussion of Treasury and CIO, see page 104 of the Firm’s 2014 Annual Report.
At September 30, 2015, the total Treasury and CIO investment securities portfolio was $303.1 billion, and the average credit rating of the securities comprising the portfolio was AA+ (based upon external ratings where available and, where not available, based primarily upon internal ratings that correspond to ratings as defined by S&P and Moody’s). See Note 11 for further information on the Firm’s investment securities portfolio.
For further information on liquidity and funding risk, see Liquidity Risk Management on pages 76–80. For information on interest rate, foreign exchange and other risks, Treasury and CIO value-at-risk (“VaR”) and the
Firm’s earnings-at-risk, see Market Risk Management on pages 63–66.

Selected income statement and balance sheet data
 
 
 
 
 
 
 
As of or for the three months
ended September 30,
 
As of or for the nine months
ended September 30,
(in millions)
2015

 
2014

 
Change

 
2015

 
2014

 
Change

Securities gains
$
25

 
$
6

 
317
 %
 
$
118

 
$
43

 
174
 %
Investment securities portfolio (average)(a)
306,370

 
355,577

 
(14
)
 
320,905

 
349,893

 
(8
)
Investment securities portfolio (period-end)(b)
303,057

 
358,516

 
(15
)
 
303,057

 
358,516

 
(15
)
Mortgage loans (average)
2,400

 
3,183

 
(25
)
 
2,595

 
3,424

 
(24
)
Mortgage loans (period-end)
2,293

 
3,048

 
(25
)%
 
2,293

 
3,048

 
(25
)%
(a)
Average investment securities included held-to-maturity balances of $50.7 billion and $48.3 billion for the three months ended September 30, 2015 and 2014, respectively, and $50.2 billion and $46.6 billion for the nine months ended September 30, 2015 and 2014, respectively.
(b)
Period-end investment securities included held-to-maturity balance of $50.2 billion and $48.8 billion at September 30, 2015 and 2014, respectively.
Private equity portfolio information(a)(b)
 
 
(in millions)
September 30, 2015

 
December 31, 2014

 
Change

Carrying value
$
2,192

 
$
5,866

 
(63)%

Cost
3,832

 
6,281

 
(39)%

(a)
For more information on the Firm’s methodologies regarding the valuation of the private equity portfolio, see Note 3 of JPMorgan Chase’s 2014 Annual Report.
(b)
The sale of a portion of the Private Equity business was completed on January 9, 2015.


45


ENTERPRISE-WIDE RISK MANAGEMENT
Risk is an inherent part of JPMorgan Chase’s business activities. When the Firm extends a consumer or wholesale loan, advises customers on their investment decisions, makes markets in securities, or conducts any number of other services or activities, the Firm takes on some degree of risk. The Firm’s overall objective in managing risk is to protect the safety and soundness of the Firm, avoid excessive risk taking, and manage and balance risk in a manner that serves the interest of its clients, customers and shareholders.
The Firm’s approach to risk management covers a broad spectrum of risk areas, such as credit, market, liquidity, model, structural interest rate, principal, country, operational, fiduciary and reputation risk.
The Firm believes that effective risk management requires:
Acceptance of responsibility, including identification and escalation of risk issues, by all individuals within the Firm;
Ownership of risk management within each line of business and corporate function; and
Firmwide structures for risk governance.
 
Firmwide Risk Management is overseen and managed on an enterprise-wide basis. The Firm’s Chief Executive Officer (“CEO”), Chief Financial Officer (“CFO”), Chief Risk Officer (“CRO”) and Chief Operating Officer (“COO”) develop and set the risk management framework and governance structure for the Firm, which is intended to provide comprehensive controls and ongoing management of the major risks inherent in the Firm’s business activities. The Firm’s risk management framework is intended to create a culture of transparency, awareness and personal responsibility through reporting, collaboration, discussion, escalation and sharing of information. The CEO, CFO, CRO and COO are ultimately responsible and accountable to the Firm’s Board of Directors.
The Firm’s risk culture strives for continual improvement through ongoing employee training and development, as well as talent retention. The Firm also approaches its incentive compensation arrangements through an integrated risk, compensation and financial management framework to encourage a culture of risk awareness and personal accountability.

The following provides an index of key risk management disclosures. For further information on these disclosures, refer to the page references noted below in both this Form 10-Q and JPMorgan Chase’s 2014 Annual Report.
Risk disclosure
Form 10-Q page reference
Annual Report page reference
Enterprise-Wide Risk Management
46–80
105–160
Risk governance
 
106–109
Credit Risk Management
47–62
110–130
Credit Portfolio
 
112
Consumer Credit Portfolio
48–53
113–119
Wholesale Credit Portfolio
54–59
120–127
Allowance For Credit Losses
60–62
128–130
Market Risk Management
63–66
131–136
Risk identification and classification
 
132
Value-at-risk
63–65
133–135
Economic-value stress testing
 
135
Earnings-at-risk
66
136
Country Risk Management
67
137–138
Model Risk Management
 
139
Principal Risk Management
 
140
Operational Risk Management
68
141–143
Operational Risk Capital Measurement
 
141–142
Cybersecurity
68
142
Business and Technology resiliency
 
142–143
Legal Risk Management
 
144
Compliance Risk Management
 
144
Fiduciary Risk management
 
145
Reputation Risk Management
 
145
Capital Management
69–75
146–155
Liquidity Risk Management
76–80
156–160
HQLA
76
157
Funding
76–79
157–160
Credit ratings
79–80
160

46


CREDIT RISK MANAGEMENT
Credit risk is the risk of loss arising from the default of a customer, client or counterparty. The Firm provides credit to a variety of customers, ranging from large corporate and institutional clients to individual consumers and small businesses. For a further discussion of the Firm’s Credit Risk Management framework and organization, and the identification, monitoring and management of credit risks, see Credit Risk Management on pages 110–130 of JPMorgan Chase’s 2014 Annual Report.
In the following tables, reported loans include loans retained (i.e., held-for-investment); loans held-for-sale (which are carried at the lower of cost or fair value, with valuation changes recorded in noninterest revenue); and certain loans accounted for at fair value. In addition, the Firm records certain loans accounted for at fair value in trading assets. For further information regarding these loans, see Note 3. For additional information on the Firm’s loans and derivative receivables, including the Firm’s accounting policies, see Note 13 and Note 5, respectively.
For further information regarding the credit risk inherent in the Firm’s investment securities portfolio, see Note 11 of this Form 10-Q, and Notes 11 and 12 of JPMorgan Chase’s 2014 Annual Report; and for information regarding the credit risk inherent in the securities financing portfolio, see Note 12 of this Form 10-Q.
A significant deterioration in the credit quality of one of the Firm’s borrowers or counterparties could lead to concerns about the credit quality of other borrowers or counterparties in similar, related, or dependent industries and thereby could exacerbate the Firm’s credit risk exposure and potentially increase its losses, including mark-to-market losses in its trading businesses. 
Effective January 1, 2015, the Firm no longer includes within its disclosure of wholesale lending-related commitments the unused amount of advised uncommitted lines of credit as it is within the Firm’s discretion whether or not to make a loan under these lines, and the Firm’s approval is generally required prior to funding. Prior period amounts have been revised to conform with the current period presentation.
 
Total credit portfolio
 
 
 
 
 
Credit exposure
 
Nonperforming(b)(c)(d)
(in millions)
Sep 30,
2015
Dec 31,
2014
 
Sep 30,
2015
Dec 31,
2014
Loans retained
$
804,293

$
747,508

 
$
6,616

$
7,017

Loans held-for-sale
2,029

7,217

 
7

95

Loans at fair value
3,135

2,611

 
21

21

Total loans – reported
809,457

757,336

 
6,644

7,133

Derivative receivables
68,668

78,975

 
235

275

Receivables from customers and other
17,016

29,080

 


Total credit-related assets
895,141

865,391

 
6,879

7,408

Assets acquired in loan satisfactions
 
 
 
 
 
Real estate owned
NA

NA

 
367

515

Other
NA

NA

 
48

44

Total assets acquired in loan satisfactions
NA

NA

 
415

559

Total assets
895,141

865,391

 
7,294

7,967

Lending-related commitments
940,786

950,997

 
176

103

Total credit portfolio
$
1,835,927

$
1,816,388

 
$
7,470

$
8,070

Credit portfolio management derivatives notional, net(a)
$
(24,524
)
$
(26,703
)
 
$
(10
)
$

Liquid securities and other cash collateral held against derivatives
(19,699
)
(19,604
)
 
NA

NA

(in millions,
except ratios)
Three months
ended September 30,
 
Nine months
ended September 30,
2015

2014

 
2015
2014
Net charge-offs
$
963

$
1,114

 
$
3,022

$
3,541

Average retained loans
 
 
 
 
 
Loans – reported
787,678

732,288

 
767,952

726,659

Loans – reported, excluding residential real estate PCI loans
744,692

683,028

 
723,475

675,827

Net charge-off rates
 
 
 
 
 
Loans – reported
0.49
%
0.60
%
 
0.53
%
0.65
%
Loans – reported, excluding PCI
0.51

0.65

 
0.56

0.70

(a)
Represents the net notional amount of protection purchased and sold through credit derivatives used to manage both performing and nonperforming wholesale credit exposures; these derivatives do not qualify for hedge accounting under U.S. GAAP. For additional information, see Credit derivatives on page 59 and Note 5.
(b)
Excludes PCI loans. The Firm is recognizing interest income on each pool of PCI loans as they are all performing.
(c)
At September 30, 2015, and December 31, 2014, nonperforming assets excluded: (1) mortgage loans insured by U.S. government agencies of $6.6 billion and $7.8 billion, respectively, that are 90 or more days past due; (2) student loans insured by U.S. government agencies under the FFELP of $289 million and $367 million, respectively, that are 90 or more days past due; and (3) REO insured by U.S. government agencies of $327 million and $462 million, respectively. These amounts have been excluded based upon the government guarantee. In addition, the Firm’s policy is generally to exempt credit card loans from being placed on nonaccrual status as permitted by regulatory guidance issued by the Federal Financial Institutions Examination Council (“FFIEC”).
(d)
At September 30, 2015, and December 31, 2014, total nonaccrual loans represented 0.82% and 0.94%, respectively, of total loans.



47


CONSUMER CREDIT PORTFOLIO
The Firm’s consumer portfolio consists primarily of residential real estate loans, credit card loans, auto loans, business banking loans, and student loans. The Firm’s focus is on serving the prime segment of the consumer credit
 
market. For further information on consumer loans, see Note 13 of this Form 10-Q and Consumer Credit Portfolio on pages 113–119 and Note 14 of JPMorgan Chase’s 2014 Annual Report.


The following table presents consumer credit-related information with respect to the credit portfolio held by CCB, prime mortgage and home equity loans held by AM, and prime mortgage loans held by Corporate.
Consumer credit portfolio
 
 
 
 
 
 
Three months ended September 30,
 
Nine months ended September 30,

(in millions, except ratios)
Credit exposure
 
Nonaccrual
loans(f)(g)
 
Net charge-offs/(recoveries)(h)
 
Average annual net charge-off/(recovery) rate(h)(i)
 
Net charge-offs/(recoveries)(h)
 
Average annual net charge-off/(recovery) rate(h)(i)
Sep 30,
2015
 
Dec 31,
2014
 
Sep 30,
2015
Dec 31,
2014
 
2015
2014
 
2015
2014
 
2015
2014
 
2015
2014
Consumer, excluding
credit card
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Loans, excluding PCI loans and loans held-for-sale
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Home equity – senior lien
$
15,156

 
$
16,367

 
$
883

$
938

 
$
23

$
19

 
0.57
 %
0.47
 %
 
$
58

$
65

 
0.50
 %
0.53
 %
Home equity – junior lien
31,974

 
36,375

 
1,373

1,590

 
60

76

 
0.70

0.80

 
187

321

 
0.77

1.11

Prime mortgage, including option ARMs
150,114

 
104,921

 
1,863

2,190

 
7

13

 
0.02

0.05

 
34

4

 
0.04

0.01

Subprime mortgage
3,853

 
5,056

 
812

1,036

 
(51
)
(25
)
 
(5.17
)
(1.68
)
 
(51
)
(17
)
 
(1.51
)
(0.35
)
Auto(a)
57,174

 
54,536

 
110

115

 
57

50

 
0.40

0.38

 
140

120

 
0.34

0.30

Business banking
20,871

 
20,058

 
236

279

 
50

75

 
0.96

1.53

 
177

220

 
1.16

1.53

Student and other
10,354

 
10,970

 
253

270

 
56

91

 
2.12

3.21

 
147

271

 
1.84

3.18

Total loans, excluding PCI loans and loans held-for-sale
289,496

 
248,283

 
5,530

6,418

 
202

299

 
0.29

0.50

 
692

984

 
0.35

0.55

Loans – PCI
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Home equity
15,490

 
17,095

 
NA

NA

 
NA

NA

 
NA

NA

 
NA

NA

 
NA
NA
Prime mortgage
9,196

 
10,220

 
NA

NA

 
NA

NA

 
NA

NA

 
NA

NA

 
NA
NA
Subprime mortgage
3,329

 
3,673

 
NA

NA

 
NA

NA

 
NA

NA

 
NA

NA

 
NA
NA
Option ARMs
14,221

 
15,708

 
NA

NA

 
NA

NA

 
NA

NA

 
NA

NA

 
NA
NA
Total loans – PCI
42,236

 
46,696

 
NA

NA

 
NA

NA

 
NA

NA

 
NA

NA

 
NA
NA
Total loans – retained
331,732

 
294,979

 
5,530

6,418

 
202

299

 
0.25

0.41

 
692

984

 
0.30

0.46

Loans held-for-sale
237

(e) 
395

(e) 

91

 


 


 


 


Total consumer, excluding credit card loans
331,969

 
295,374

 
5,530

6,509

 
202

299

 
0.25

0.41

 
692

984

 
0.30

0.46

Lending-related commitments(b)
60,005

 
58,153

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Receivables from customers(c)
119

 
108

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total consumer exposure, excluding credit card
392,093

 
353,635

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Credit card
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Loans retained(d)
125,634

 
128,027

 


 
759

798

 
2.41

2.52

 
2,348

2,571

 
2.54

2.77

Loans held-for-sale
1,345

 
3,021

 


 


 


 


 


Total credit card loans
126,979

 
131,048

 


 
759

798

 
2.41

2.52

 
2,348

2,571

 
2.54

2.77

Lending-related commitments(b)
526,433

 
525,963

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total credit card exposure
653,412

 
657,011

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total consumer credit portfolio
$
1,045,505

 
$
1,010,646

 
$
5,530

$
6,509

 
$
961

$
1,097

 
0.85
 %
1.05
 %
 
$
3,040

$
3,555

 
0.93
 %
1.15
 %
Memo: Total consumer credit portfolio,
excluding PCI
$
1,003,269

 
$
963,950

 
$
5,530

$
6,509

 
$
961

$
1,097

 
0.94
 %
1.19
 %
 
$
3,040

$
3,555

 
1.04
 %
1.31
 %
(a)
At September 30, 2015, and December 31, 2014, excluded operating lease assets of $8.4 billion and $6.7 billion, respectively.
(b)
Credit card and home equity lending-related commitments represent the total available lines of credit for these products. The Firm has not experienced, and does not anticipate, that all available lines of credit would be used at the same time. For credit card and home equity commitments (if certain conditions are met), the Firm can reduce or cancel these lines of credit by providing the borrower notice or, in some cases as permitted by law, without notice.
(c)
Receivables from customers represent margin loans to retail brokerage customers, and are included in accrued interest and accounts receivable on the Consolidated balance sheets.
(d)
Includes accrued interest and fees net of an allowance for the uncollectible portion of accrued interest and fee income.
(e)
Predominantly represents prime mortgage loans held-for-sale.

48


(f)
At September 30, 2015, and December 31, 2014, nonaccrual loans excluded: (1) mortgage loans insured by U.S. government agencies of $6.6 billion and $7.8 billion, respectively, that are 90 or more days past due; and (2) student loans insured by U.S. government agencies under the FFELP of $289 million and $367 million, respectively, that are 90 or more days past due. These amounts have been excluded from nonaccrual loans based upon the government guarantee. In addition, credit card loans are generally exempt from being placed on nonaccrual status, as permitted by regulatory guidance.
(g)
Excludes PCI loans. The Firm is recognizing interest income on each pool of PCI loans as they are all performing.
(h)
Net charge-offs and the net charge-off rates excluded write-offs in the PCI portfolio of $52 million and $87 million for the three months ended September 30, 2015 and 2014, respectively, and $162 million and $196 million for the nine months ended September 30, 2015 and 2014, respectively. These write-offs decreased the allowance for loan losses for PCI loans. See Consumer Credit Portfolio on pages 113–119 of JPMorgan Chase’s 2014 Annual Report for further details.
(i)
Average consumer loans held-for-sale were $2.1 billion and $876 million for the three months ended September 30, 2015 and 2014, respectively, and $2.4 billion and $749 million for the nine months ended September 30, 2015 and 2014, respectively. These amounts were excluded when calculating net charge-off rates.
Consumer, excluding credit card
Portfolio analysis
Consumer loan balances increased during the nine months ended September 30, 2015, predominantly due to originations of high-quality prime mortgage loans that have been retained, partially offset by paydowns and the charge-off or liquidation of delinquent loans. Credit performance has continued to improve across most portfolios as the economy strengthened and home prices increased.
PCI loans are excluded from the following discussions of individual loan products and are addressed separately below. For further information about the Firm’s consumer portfolio, including information about delinquencies, loan modifications and other credit quality indicators, see Note 14 of JPMorgan Chase’s 2014 Annual Report.
Home equity: The home equity portfolio declined from 2014 year-end primarily reflecting loan paydowns and charge-offs. Early-stage delinquencies showed improvement from December 31, 2014. Late-stage delinquencies continue to be elevated, although the Firm has seen improvement in the number of loans becoming severely delinquent, this improvement was offset by higher collateral values, which resulted in lower write-downs on these delinquent loans. Net charge-offs for the nine months ended September 30, 2015 for both senior and junior lien home equity loans declined when compared with the same period of the prior year as a result of improvement in home prices and delinquencies, but charge-offs remain elevated compared with pre-recessionary levels.
Approximately 15% of the Firm’s home equity portfolio consists of home equity loans (“HELOANs”) and the remainder consists of home equity lines of credit (“HELOCs”). Approximately 60% of the HELOANs are senior liens and the remainder are junior liens. For further information on the Firm’s home equity portfolio, see Consumer Credit Portfolio on pages 113–119 of JPMorgan Chase’s 2014 Annual Report.
 
The unpaid principal balance of HELOCs outstanding was $42 billion at September 30, 2015. Of this $42 billion, approximately $6 billion has recast since January 1, 2014 from interest-only to fully amortizing payments; based upon contractual terms, approximately $17 billion is scheduled to recast, consisting of $1 billion during the remainder of 2015, $6 billion in 2016, $6 billion in 2017 and $4 billion in 2018 and beyond. However, of the total $17 billion scheduled to recast, $11 billion is expected to actually recast; and the remaining $6 billion represents loans to borrowers who are expected either to pre-pay or charge-off prior to recast. The Firm has considered this payment recast risk in its allowance for loan losses based upon the estimated amount of payment shock (i.e., the excess of the fully-amortizing payment over the interest-only payment in effect prior to recast) expected to occur at the payment recast date, along with the corresponding estimated probability of default and loss severity assumptions. Certain factors, such as future developments in both unemployment rates and home prices, could have a significant impact on the performance of these loans.
The Firm manages the risk of HELOCs during their revolving period by closing or reducing the undrawn line to the extent permitted by law when borrowers are exhibiting a material deterioration in their credit risk profile. The Firm will continue to evaluate both the near-term and longer-term repricing and recast risks inherent in its HELOC portfolio to ensure that changes in the Firm’s estimate of incurred losses are appropriately considered in the allowance for loan losses and that the Firm’s account management practices are appropriate given the portfolio’s risk profile.
High-risk seconds are junior lien loans where the borrower has a senior lien loan that is either delinquent or has been modified. Such loans are considered to pose a higher risk of default than junior lien loans for which the senior lien is neither delinquent nor modified. At September 30, 2015, the Firm estimated that its home equity portfolio contained approximately $1.5 billion of current junior lien loans that were considered high risk seconds, compared with $1.8 billion at December 31, 2014. The Firm estimates the balance of its total exposure to high-risk seconds on a quarterly basis using internal data and loan level credit bureau data (which typically provides the delinquency status of the senior lien). The estimated balance of these high-risk seconds may vary from quarter to quarter for reasons such as the movement of related senior liens into and out of the 30+ day delinquency bucket.


49


Current high-risk seconds
(in billions)
 
September 30,
2015
December 31,
2014
Junior liens subordinate to:
 
 
 
 
 
Modified current senior lien
 
 
$
0.6

 
$
0.7

Senior lien 30 – 89 days delinquent
 
 
0.4

 
0.5

Senior lien 90 days or more delinquent(a)
 
 
0.5

 
0.6

Total current high-risk seconds
 
 
$
1.5

 
$
1.8

(a)
Junior liens subordinate to senior liens that are 90 days or more past due are classified as nonaccrual loans. At September 30, 2015, and December 31, 2014, excluded approximately $30 million and approximately $50 million, respectively, of junior liens that are performing but not current, which were placed on nonaccrual status in accordance with the regulatory guidance.
Of the estimated $1.5 billion of high-risk junior liens at September 30, 2015, the Firm owns approximately 10% and services approximately 20% of the related senior lien loans to the same borrowers. The performance of the Firm’s junior lien loans is generally consistent regardless of whether the Firm owns or services, or does not own or service, the senior lien. The increased probability of default associated with these higher-risk junior lien loans was considered in estimating the allowance for loan losses.
Mortgage: Prime mortgages, including option adjustable-rate mortgages (“ARMs”) and loans held-for-sale, increased from December 31, 2014 as originations of high-quality loans that have been retained were partially offset by paydowns, the runoff of option ARM loans and the charge-off or liquidation of delinquent loans. High-quality originations for the nine months ended September 30, 2015 included both jumbo and conforming loans, primarily consisting of fixed interest rate loans. Excluding loans insured by U.S. government agencies, both early-stage and late-stage delinquencies showed improvement from December 31, 2014. Nonaccrual loans decreased from December 31, 2014, but remain elevated primarily as a result of loss mitigation activities. Net charge-offs for the three and nine months ended September 30, 2015 remain low, reflecting continued improvement in home prices and delinquencies.
At September 30, 2015, and December 31, 2014, the Firm’s prime mortgage portfolio included $11.3 billion and $12.4 billion, respectively, of mortgage loans insured and/or guaranteed by U.S. government agencies, of which $8.5 billion and $9.7 billion, respectively, were 30 days or more past due (of these past due loans, $6.6 billion and $7.8 billion, respectively, were 90 days or more past due). The Firm has entered into a settlement regarding loans insured under federal mortgage insurance programs overseen by the Federal Housing Administration (“FHA”), the U.S. Department of Housing and Urban Development (“HUD”), and the U.S. Department of Veterans Affairs (“VA”); the Firm will continue to monitor exposure on future claim payments for government insured loans, but any financial impact related to exposure on future claims is not expected to be significant and was considered in estimating the
 
allowance for loan losses. For further discussion of the settlement, see Note 31 of JPMorgan Chase’s 2014 Annual Report.
At September 30, 2015, and December 31, 2014, the Firm’s prime mortgage portfolio included $17.3 billion and $16.3 billion, respectively, of interest-only loans, which represented 12% and 15%, respectively, of the prime mortgage portfolio. These loans have an interest-only payment period generally followed by an adjustable-rate or fixed-rate fully amortizing payment period to maturity and are typically originated as higher-balance loans to higher-income borrowers. To date, losses on this portfolio generally have been consistent with the broader prime mortgage portfolio and the Firm’s expectations. The Firm continues to monitor the risks associated with these loans.
Subprime mortgages continued to decrease due to portfolio runoff. Early-stage and late-stage delinquencies have improved from December 31, 2014. Net charge-offs for the three and nine months ended September 30, 2015 have benefited from improvement in home prices and delinquencies compared with the prior year.
Auto: Auto loans increased compared with December 31, 2014 as new originations outpaced paydowns and payoffs. Nonaccrual loans decreased compared with December 31, 2014. Net charge-offs for the three and nine months ended September 30, 2015 increased compared with the same periods of the prior year as a result of higher loan balances and a moderate increase in loss severity. The auto loan portfolio predominantly consists of prime-quality credits.
Business banking: Business banking loans increased compared with December 31, 2014 as new originations outpaced paydowns and payoffs. Nonaccrual loans decreased compared with December 31, 2014. Net charge-offs for the three and nine months ended September 30, 2015 decreased from the same periods of the prior year.
Student and other: Student and other loans decreased from December 31, 2014, due primarily to the runoff of the student loan portfolio. Student nonaccrual loans decreased from December 31, 2014. Net charge-offs for the three and nine months ended September 30, 2015 decreased from the same periods of the prior year.
Purchased credit-impaired loans: PCI loans acquired in the Washington Mutual transaction decreased as the portfolio continues to run off.
As of September 30, 2015, approximately 14% of the option ARM PCI loans were delinquent and approximately 64% of the portfolio has been modified into fixed-rate, fully amortizing loans. Substantially all of the remaining loans are making amortizing payments, although such payments are not necessarily fully amortizing. This latter group of loans is subject to the risk of payment shock due to future payment recast. Default rates generally increase on option ARM loans when payment recast results in a payment increase. The expected increase in default rates is considered in the Firm’s quarterly impairment assessment.


50


The following table provides a summary of lifetime principal loss estimates included in either the nonaccretable difference or the allowance for loan losses.
Summary of PCI loans lifetime principal loss estimates
 
Lifetime loss
 estimates(a)
 
LTD liquidation
 losses(b)
(in billions)
Sep 30,
2015
 
Dec 31,
2014
 
Sep 30,
2015
 
Dec 31,
2014
Home equity
$
14.4

 
$
14.6

 
$
12.7

 
$
12.4

Prime mortgage
4.0

 
3.8

 
3.6

 
3.5

Subprime mortgage
3.3

 
3.3

 
3.0

 
2.8

Option ARMs
10.1

 
9.9

 
9.5

 
9.3

Total
$
31.8

 
$
31.6

 
$
28.8

 
$
28.0

(a)
Includes the original nonaccretable difference established in purchase accounting of $30.5 billion for principal losses plus additional principal losses recognized subsequent to acquisition through the provision and allowance for loan losses. The remaining nonaccretable difference for principal losses was $1.6 billion and $2.3 billion at September 30, 2015, and December 31, 2014, respectively.
(b)
Life-to-date (“LTD”) liquidation losses represent both realization of loss upon loan resolution and any principal forgiven upon modification.
 
Current estimated LTVs of residential real estate loans
The current estimated average loan-to-value (“LTV”) ratio for residential real estate loans retained, excluding mortgage loans insured by U.S. government agencies and PCI loans, was 60% at September 30, 2015, compared with 61% at December 31, 2014.
The following table presents the current estimated LTV ratios for PCI loans, as well as the ratios of the carrying value of the underlying loans to the current estimated collateral value. Because such loans were initially measured at fair value, the ratios of the carrying value to the current estimated collateral value will be lower than the current estimated LTV ratios, which are based on the unpaid principal balances. The estimated collateral values used to calculate these ratios do not represent actual appraised loan-level collateral values; as such, the resulting ratios are necessarily imprecise and should therefore be viewed as estimates.

LTV ratios and ratios of carrying values to current estimated collateral values – PCI loans
 
 
 
 
 
 
September 30, 2015
 
 
December 31, 2014
 
(in millions,
except ratios)
 
Unpaid principal balance
Current estimated
LTV ratio(a)
Net carrying value(c)
Ratio of net
carrying value
to current estimated
collateral value(c)
 
Unpaid principal
balance
Current estimated
LTV ratio(a)
Net carrying value(c)
Ratio of net
carrying value
to current estimated
collateral value(c)
Home equity
 
$
15,867

80
%
(b) 
$
13,782

74
%
(d) 
 
$
17,740

83
%
(b) 
$
15,337

78
%
(d) 
Prime mortgage
 
9,220

72

 
8,165

64

 
 
10,249

76

 
9,027

67

 
Subprime mortgage
 
4,151

77

 
3,329

62

 
 
4,652

82

 
3,493

62

 
Option ARMs
 
14,766

70

 
14,172

67

 
 
16,496

74

 
15,514

70

 
(a)
Represents the aggregate unpaid principal balance of loans divided by the estimated current property value. Current property values are estimated at least quarterly based on home valuation models that utilize nationally recognized home price index valuation estimates; such models incorporate actual data to the extent available and forecasted data where actual data is not available.
(b)
Represents current estimated combined LTV for junior home equity liens, which considers all available lien positions, as well as unused lines, related to the property. All other products are presented without consideration of subordinate liens on the property.
(c)
Net carrying value includes the effect of fair value adjustments that were applied to the consumer PCI portfolio at the date of acquisition and is also net of the allowance for loan losses at September 30, 2015, and December 31, 2014, of $1.0 billion and $1.2 billion for prime mortgage, $49 million and $194 million for option ARMs, $1.7 billion and $1.8 billion for home equity, respectively, and $180 million for subprime mortgage at December 31, 2014. There was no allowance for loan losses for subprime mortgage at September 30, 2015.
(d)
The current period ratio has been updated to include the effect of any outstanding senior lien related to a property for which the Firm holds the junior home equity lien. The prior period ratio has been revised to conform with the current presentation.

The current estimated average LTV ratios were 74% and 81% for California and Florida PCI loans, respectively, at September 30, 2015, compared with 77% and 88%, respectively, at December 31, 2014. Average LTV ratios have declined consistent with recent improvements in home prices. Although home prices have improved, home prices in most areas of California and Florida are still lower than at the peak of the housing market; this continues to negatively affect current estimated average LTV ratios and the ratio of net carrying value to current estimated collateral value for loans in the PCI portfolio.
For further information on current estimated LTVs on residential real estate loans, see Note 13.
 
Geographic composition of residential real estate loans
For information on the geographic composition of the Firm’s residential real estate loans, see Note 13.
Loan modification activities – residential real estate loans
The performance of modified loans generally differs by product type due to differences in both the credit quality and the types of modifications provided. Performance metrics for modifications to the residential real estate portfolio, excluding PCI loans, that have been seasoned more than nine months show weighted-average redefault rates of 19% for senior lien home equity, 22% for junior lien home equity, 17% for prime mortgages including option ARMs, and 29% for subprime mortgages. The cumulative performance metrics for modifications to the PCI residential real estate portfolio that have been seasoned more than nine months show weighted average redefault


51


rates of 20% for home equity, 18% for prime mortgages, 16% for option ARMs and 33% for subprime mortgages. The favorable performance of the PCI option ARM modifications is the result of a targeted proactive program which fixed the borrower’s payment to the amount at the point of modification. The cumulative redefault rates reflect the performance of modifications completed under both the Home Affordable Modification Program (“HAMP”) and the Firm’s proprietary modification programs (primarily the Firm’s modification program that was modeled after HAMP) from October 1, 2009, through September 30, 2015.
Certain loans that were modified under HAMP and the Firm’s proprietary modification programs have interest rate reset provisions (“step-rate modifications”). Interest rates on these loans generally began to increase beginning in 2014 by 1% per year, and continue to do so, until the rate reaches a specified cap, typically at a prevailing market interest rate for a fixed-rate loan as of the modification date. The carrying value of non-PCI loans modified in step-rate modifications was $4 billion at September 30, 2015, with $0.5 billion that have experienced or are scheduled to experience the initial interest rate increase in 2015 and $1 billion that are scheduled to experience the initial rate increase in each of 2016 and 2017. The unpaid principal balance of PCI loans modified in step-rate modifications was $10 billion at September 30, 2015, with $1 billion that have experienced or are scheduled to experience the initial interest rate increase in 2015, and $3 billion and $2 billion scheduled to experience the initial interest rate increase in 2016 and 2017, respectively. The impact of these potential interest rate increases is considered in the Firm’s allowance for loan losses. The Firm continues to monitor this risk exposure to ensure that it is appropriately considered in the allowance for loan losses.
The following table presents information as of September 30, 2015, and December 31, 2014, relating to modified retained residential real estate loans for which concessions have been granted to borrowers experiencing financial difficulty. For further information on modifications for the three and nine months ended September 30, 2015 and 2014, see Note 13.
 
Modified residential real estate loans
 
September 30, 2015
 
December 31, 2014
(in millions)
Retained loans
Non-accrual
retained loans
(d)
 
Retained loans
Non-accrual
retained loans
(d)
Modified residential real estate loans, excluding
   PCI loans(a)(b)
 
 
 
 
 
Home equity – senior lien
$
1,063

$
596

 
$
1,101

$
628

Home equity – junior lien
1,309

641

 
1,304

632

Prime mortgage, including option ARMs
4,973

1,373

 
6,145

1,559

Subprime mortgage
1,928

718

 
2,878

931

Total modified residential real estate loans, excluding PCI loans
$
9,273

$
3,328

 
$
11,428

$
3,750

Modified PCI loans(c)
 
 
 
 
 
Home equity
$
2,562

NA

 
$
2,580

NA

Prime mortgage
5,830

NA

 
6,309

NA

Subprime mortgage
3,303

NA

 
3,647

NA

Option ARMs
10,681

NA

 
11,711

NA

Total modified PCI loans
$
22,376

NA

 
$
24,247

NA

(a)
Amounts represent the carrying value of modified residential real estate loans.
(b)
At September 30, 2015, and December 31, 2014, $4.2 billion and $4.9 billion, respectively, of loans modified subsequent to repurchase from Ginnie Mae in accordance with the standards of the appropriate government agency (i.e., FHA, VA, RHS) are not included in the table above. When such loans perform subsequent to modification in accordance with Ginnie Mae guidelines, they are generally sold back into Ginnie Mae loan pools. Modified loans that do not re-perform become subject to foreclosure. For additional information about sales
of loans in securitization transactions with Ginnie Mae, see Note 15.
(c)
Amounts represent the unpaid principal balance of modified PCI loans.
(d)
As of September 30, 2015, and December 31, 2014, nonaccrual loans included $2.6 billion and $2.9 billion, respectively, of troubled debt restructurings (“TDRs”) for which the borrowers were less than 90 days past due. For additional information about loans modified in a TDR that are on nonaccrual status, see Note 13.
Nonperforming assets
The following table presents information as of September 30, 2015, and December 31, 2014, about consumer, excluding credit card, nonperforming assets.
Nonperforming assets(a)
 
 
 
(in millions)
September 30,
2015
 
December 31,
2014
Nonaccrual loans(b)
 
 
 
Residential real estate
$
4,931

 
$
5,845

Other consumer
599

 
664

Total nonaccrual loans
5,530

 
6,509

Assets acquired in loan satisfactions
 
 
 
Real estate owned
307

 
437

Other
41

 
36

Total assets acquired in loan satisfactions
348

 
473

Total nonperforming assets
$
5,878

 
$
6,982

(a)
At September 30, 2015, and December 31, 2014, nonperforming assets excluded: (1) mortgage loans insured by U.S. government agencies of $6.6 billion and $7.8 billion, respectively, that are 90 or more days past due; (2) student loans insured by U.S. government


52


agencies under the FFELP of $289 million and $367 million, respectively, that are 90 or more days past due; and (3) real estate owned insured by U.S. government agencies of $327 million and $462 million, respectively. These amounts have been excluded based upon the government guarantee.
(b)
Excludes PCI loans that were acquired as part of the Washington Mutual transaction, which are accounted for on a pool basis. Since each pool is accounted for as a single asset with a single composite interest rate and an aggregate expectation of cash flows, the past-due status of the pools, or that of individual loans within the pools, is not meaningful. Because the Firm is recognizing interest income on each pool of loans, they are all considered to be performing.
Nonaccrual loans in the residential real estate portfolio totaled $4.9 billion at September 30, 2015, of which 30% were greater than 150 days past due, compared with nonaccrual residential real estate loans of $5.8 billion at December 31, 2014, of which 32% were greater than 150 days past due. In the aggregate, the unpaid principal balance of residential real estate loans greater than 150 days past due was charged down by approximately 46% and 50% to the estimated net realizable value of the collateral at September 30, 2015, and December 31, 2014, respectively.
Active and suspended foreclosure: For information on loans that were in the process of active or suspended foreclosure, see Note 13.
Nonaccrual loans: The following table presents changes in consumer, excluding credit card, nonaccrual loans for the nine months ended September 30, 2015 and 2014.
Nonaccrual loans
 
 
Nine months ended September 30,
 
 
 
(in millions)
 
2015
2014
Beginning balance
 
$
6,509

$
7,496

Additions
 
2,714

3,811

Reductions:
 
 
 
Principal payments and other(a)
 
1,331

1,378

Charge-offs
 
614

1,061

Returned to performing status
 
1,323

1,691

Foreclosures and other liquidations
 
425

475

Total reductions
 
3,693

4,605

Net additions/(reductions)
 
(979
)
(794
)
Ending balance
 
$
5,530

$
6,702

(a)
Other reductions includes loan sales.

 
Credit Card
Total credit card loans decreased from December 31, 2014 due to seasonality, sales of non-core loans and the transfer of commercial card loans to the CIB. The 30+ day delinquency rate decreased to 1.38% at September 30, 2015, from 1.44% at December 31, 2014, and remains near record lows. For the three months ended September 30, 2015 and 2014, the net charge-off rates were 2.41% and 2.52%, respectively. For the nine months ended September 30, 2015 and 2014, the net charge-off rates were 2.54% and 2.77%, respectively. Charge-offs improved compared with the prior year as a result of lower delinquent loans. The credit card portfolio continues to reflect a well-seasoned, largely rewards-based portfolio that has good U.S. geographic diversification. For information on the geographic composition of the Firm’s credit card loans, see Note 13.
Modifications of credit card loans
At September 30, 2015, and December 31, 2014, the Firm had $1.6 billion and $2.0 billion, respectively, of credit card loans outstanding that have been modified in TDRs. These balances included both credit card loans with modified payment terms and credit card loans that reverted back to their pre-modification payment terms because the cardholder did not comply with the modified payment terms. The decrease in modified credit card loans outstanding from December 31, 2014, was attributable to a reduction in new modifications as well as ongoing payments and charge-offs on previously modified credit card loans.
Consistent with the Firm’s policy, all credit card loans typically remain on accrual status until charged-off. However, the Firm establishes an allowance, which is offset against loans and charged to interest income, for the estimated uncollectible portion of accrued interest and fee income.
For additional information about loan modification programs to borrowers, see Consumer Credit Portfolio
on pages 48–53 and Note 13.


53


WHOLESALE CREDIT PORTFOLIO
The Firm’s wholesale businesses are exposed to credit risk through underwriting, lending and trading activities with and for clients and counterparties, as well as through various operating services such as cash management and clearing activities. A portion of the loans originated or acquired by the Firm’s wholesale businesses is generally retained on the balance sheet. The Firm distributes a significant percentage of the loans it originates into the market as part of its syndicated loan business and to manage portfolio concentrations and credit risk.
As of September 30, 2015, wholesale credit exposure (primarily CIB, CB and AM), excluding select downgrades within the Oil & Gas portfolio, continued to experience a generally favorable credit environment, characterized by stable credit quality trends with low levels of criticized exposure, nonaccrual loans and charge-offs. 
 
Wholesale credit portfolio
 
Credit exposure
 
Nonperforming(c)
(in millions)
Sep 30,
2015
Dec 31,
2014
 
Sep 30,
2015
Dec 31,
2014
Loans retained
$
346,927

$
324,502

 
$
1,086

$
599

Loans held-for-sale
447

3,801

 
7

4

Loans at fair value
3,135

2,611

 
21

21

Loans – reported
350,509

330,914

 
1,114

624

Derivative receivables
68,668

78,975

 
235

275

Receivables from customers and other(a)
16,897

28,972

 


Total wholesale credit-related assets
436,074

438,861

 
1,349

899

Lending-related commitments
354,348

366,881

 
176

103

Total wholesale credit exposure
$
790,422

$
805,742

 
$
1,525

$
1,002

Credit portfolio management derivatives notional, net(b)
$
(24,524
)
$
(26,703
)
 
$
(10
)
$

Liquid securities and other cash collateral held against derivatives
(19,699
)
(19,604
)
 
NA

NA

(a)
Receivables from customers and other include $16.8 billion and $28.8 billion of margin loans at September 30, 2015, and December 31, 2014, respectively, to prime and retail brokerage customers; these are classified in accrued interest and accounts receivable on the Consolidated balance sheets.
(b)
Represents the net notional amount of protection purchased and sold through credit derivatives used to manage both performing and nonperforming wholesale credit exposures; these derivatives do not qualify for hedge accounting under U.S. GAAP. For additional information, see Credit derivatives on page 59, and Note 5.
(c)
Excludes assets acquired in loan satisfactions.


54


The following tables present the maturity and ratings profiles of the wholesale credit portfolio as of September 30, 2015, and December 31, 2014. The ratings scale is based on the Firm’s internal risk ratings, which generally correspond to the ratings as defined by S&P and Moody’s.
Wholesale credit exposure – maturity and ratings profile
 
 
 
 
 
 
 
 
Maturity profile(e)
 
Ratings profile
September 30, 2015
Due in 1 year or less
Due after 1 year through 5 years
Due after 5 years
Total
 
Investment-grade
Noninvestment-grade
Total
Total % of IG
(in millions, except ratios)
 
AAA/Aaa to BBB-/Baa3
BB+/Ba1 & below
Loans retained
$
112,755

$
146,370

$
87,802

$
346,927

 
 
$
261,189

 
$
85,738

$
346,927

75
%
Derivative receivables
 
 
 
68,668

 
 
 
 
 
68,668

 
Less: Liquid securities and other cash collateral held against derivatives
 
 
 
(19,699
)
 
 
 
 
 
(19,699
)
 
Total derivative receivables, net of all collateral
13,754

13,623

21,592

48,969

 
 
42,864

 
6,105

48,969

88

Lending-related commitments
97,229

248,898

8,221

354,348

 
 
262,656

 
91,692

354,348

74

Subtotal
223,738

408,891

117,615

750,244

 
 
566,709

 
183,535

750,244

76

Loans held-for-sale and loans at fair value(a)
 
 
 
3,582

 
 
 
 
 
3,582

 
Receivables from customers and other
 
 
 
16,897

 
 
 
 
 
16,897

 
Total exposure – net of liquid securities and other cash collateral held against derivatives
 
 
 
$
770,723

 
 
 
 
 
$
770,723

 
Credit portfolio management derivatives net notional by reference entity ratings profile(b)(c)(d)
$
(1,308
)
$
(10,419
)
$
(12,797
)
$
(24,524
)
 
 
$
(21,140
)
 
$
(3,384
)
$
(24,524
)
86
%
 
Maturity profile(e)
 
Ratings profile
December 31, 2014
Due in 1 year or less
Due after 1 year through 5 years
Due after 5 years
Total
 
Investment-grade
Noninvestment-grade
Total
Total % of IG
(in millions, except ratios)
 
AAA/Aaa to BBB-/Baa3
BB+/Ba1 & below
Loans retained
$
112,411

$
134,277

$
77,814

$
324,502

 
 
$
241,666

 
$
82,836

$
324,502

74
%
Derivative receivables
 
 
 
78,975

 
 
 
 
 
78,975

 
Less: Liquid securities and other cash collateral held against derivatives
 
 
 
(19,604
)
 
 
 
 
 
(19,604
)
 
Total derivative receivables, net of all collateral
20,032

16,130

23,209

59,371

 
 
52,150

 
7,221

59,371

88

Lending-related commitments
94,635

262,572

9,674

366,881

 
 
284,288

 
82,593

366,881

77

Subtotal
227,078

412,979

110,697

750,754

 
 
578,104

 
172,650

750,754

77

Loans held-for-sale and loans at fair value(a)
 
 
 
6,412

 
 
 
 
 
6,412

 
Receivables from customers and other
 
 
 
28,972

 
 
 
 
 
28,972

 
Total exposure – net of liquid securities and other cash collateral held against derivatives
 
 
 
$
786,138

 
 
 
 
 
$
786,138

 
Credit portfolio management derivatives net notional by reference entity ratings profile(b)(c)(d)
$
(2,050
)
$
(18,653
)
$
(6,000
)
$
(26,703
)
 
 
$
(23,571
)
 
$
(3,132
)
$
(26,703
)
88
%
(a)
Represents loans held-for-sale, primarily related to syndicated loans and loans transferred from the retained portfolio, and loans at fair value.
(b)
These derivatives do not qualify for hedge accounting under U.S. GAAP.
(c)
The notional amounts are presented on a net basis by underlying reference entity and the ratings profile shown is based on the ratings of the reference entity on which protection has been purchased.
(d)
Predominantly all of the credit derivatives entered into by the Firm where it has purchased protection, including Credit portfolio management derivatives, are executed with investment grade counterparties.
(e)
The maturity profile of retained loans, lending-related commitments and derivative receivables is based on the remaining contractual maturity. Derivative contracts that are in a receivable position at September 30, 2015, may become payable prior to maturity based on their cash flow profile or changes in market conditions.

Wholesale credit exposure – selected industry exposures
The Firm focuses on the management and diversification of its industry exposures, paying particular attention to industries with actual or potential credit concerns. Exposures deemed criticized align with the U.S. banking regulators’ definition of criticized exposures, which consist
 
of the special mention, substandard and doubtful categories. The total criticized component of the portfolio, excluding loans held-for-sale and loans at fair value, was $12.3 billion at September 30, 2015, compared with $10.1 billion at December 31, 2014, driven by select downgrades, including within the Oil & Gas portfolio.


55


Below are summaries of the top 25 industry exposures as of September 30, 2015, and December 31, 2014. For additional information on industry concentrations, see Note 5 of JPMorgan Chase’s 2014 Annual Report.
 
 
 
 
 
 
 
 
Selected metrics
 
 
 
 
 
 
 
 
30 days or more past due and accruing
loans
Net charge-offs/
(recoveries)
Credit derivative hedges(e)
Liquid securities
and other cash collateral held against derivative
receivables
 
 
 
 
Noninvestment-grade
As of or for the nine months ended
Credit exposure(d)
Investment- grade
 
Noncriticized
 
Criticized performing
Criticized nonperforming
September 30, 2015
(in millions)
Top 25 industries(a)
 
 
 
 
 
 
 
 
 
 
 
Real Estate
$
111,750

$
82,408

 
$
27,613

 
$
1,472

$
257

$
183

$
(12
)
$
(46
)
$
(64
)
Banks & Finance Cos
53,276

45,081

 
7,367

 
765

63

20

(5
)
(1,007
)
(6,964
)
Healthcare
46,570

38,046

 
8,122

 
354

48

4

(3
)
(24
)
(251
)
Oil & Gas
42,105

27,662

 
11,571

 
2,534

338

15

5

(560
)
(175
)
Consumer Products
35,824

22,606

 
12,673

 
538

7

8

2

(77
)
(22
)
Utilities
34,708

28,607

 
5,941

 
129

31



(209
)
(157
)
State & Municipal Govt(b)
29,283

28,449

 
769

 
7

58

69

(8
)
(147
)
(82
)
Retail & Consumer Services
27,098

18,414

 
8,223

 
390

71

6

9

(140
)
(27
)
Asset Managers
24,693

21,424

 
3,245

 
24


37


(6
)
(4,980
)
Technology
21,230

13,456

 
7,197

 
543

34

8


(159
)
(1
)
Machinery & Equipment Mfg
19,878

12,195

 
7,072

 
575

36

4


(114
)
(28
)
Media
15,446

9,224

 
5,958

 
253

11

3

(1
)
(60
)
(7
)
Transportation
15,075

10,898

 
4,028

 
147

2

3

2

(43
)
(242
)
Telecom Services
14,924

6,463

 
7,960

 
501




(677
)

Metals/Mining
14,566

7,685

 
6,094

 
707

80

6


(396
)
(1
)
Business Services
14,178

8,112

 
5,606

 
408

52

29

(8
)
(11
)
(1
)
Automotive
13,939

8,910

 
4,943

 
85

1


(2
)
(382
)

Central Govt
13,936

13,811

 
114

 
11




(9,830
)
(1,040
)
Chemicals/Plastics
13,275

9,056

 
4,120

 
99


2


(16
)

Insurance
12,715

10,300

 
2,274

 
26

115



(110
)
(1,693
)
Building Materials/Construction
12,609

6,978

 
5,444

 
178

9

6

(1
)
(94
)

Securities Firms & Exchanges
9,529

6,197

 
3,331

 
1




(102
)
(906
)
Agriculture/Paper Mfg
7,844

4,767

 
2,953

 
121

3

3


(11
)
(6
)
Aerospace/Defense
5,946

5,209

 
673

 
64




(129
)

Leisure
5,206

2,396

 
2,254

 
450

106

21

8

(40
)
(24
)
All other(c)
154,340

135,751

 
18,016

 
398

175

1,309

(4
)
(10,134
)
(3,028
)
Subtotal
$
769,943

$
584,105

 
$
173,561

 
$
10,780

$
1,497

$
1,736

$
(18
)
$
(24,524
)
$
(19,699
)
Loans held-for-sale and loans at fair value
3,582

 
 
 
 
 
 
 
 
 
 
Receivables from customers and other
16,897

 
 
 
 
 
 
 
 
 
 
Total
$
790,422

 
 
 
 
 
 
 
 
 
 

56












Selected metrics








30 days or more past due and accruing
loans
Net charge-offs/
(recoveries)
Credit derivative hedges(e)
Liquid securities
and other cash collateral held against derivative
receivables




Noninvestment-grade
As of or for the year ended
Credit
exposure(d)
Investment-
grade

Noncriticized

Criticized performing
Criticized nonperforming
December 31, 2014
(in millions)
Top 25 industries(a)




















Real Estate
$
105,981

$
79,000


$
25,372


$
1,356

$
253

$
309

$
(9
)
$
(36
)
$
(27
)
Banks & Finance Cos
64,248

54,639


9,032


508

69

46

(4
)
(1,232
)
(9,369
)
Healthcare
56,604

48,475


7,599


488

42

193

17

(94
)
(244
)
Oil & Gas
43,184

29,284


13,843


56

1

15

2

(144
)
(161
)
Consumer Products
35,632

24,788


10,184


643

17

21


(20
)
(2
)
Utilities
27,485

23,572


3,658


255


198

(3
)
(155
)
(193
)
State & Municipal Govt(b)
31,145

30,220


823


102


69

24

(148
)
(130
)
Retail & Consumer Services
27,463

17,562


8,900


970

31

56

4

(47
)
(1
)
Asset Managers
27,671

24,221


3,392


57

1

38

(12
)
(9
)
(4,545
)
Technology
19,634

12,835


6,145


634

20

24

(3
)
(225
)

Machinery & Equipment Mfg
19,374

11,360


7,766


248


5

(2
)
(157
)
(19
)
Media
14,109

8,880


4,933


266

30

1

(1
)
(69
)
(6
)
Transportation
15,853

11,061


4,708


84


5

(3
)
(34
)
(107
)
Telecom Services
12,954

8,105


4,293


546

10


(2
)
(813
)
(6
)
Metals/Mining
14,980

8,311


6,165


504



18

(377
)
(19
)
Business Services
15,146

7,696


7,212


223

15

10

5

(9
)

Automotive
12,769

8,081


4,527


161


1

(1
)
(140
)

Central Govt
15,978

15,766


154


58




(11,297
)
(1,071
)
Chemicals/Plastics
12,620

9,263


3,328


29


1

(2
)
(14
)

Insurance
13,417

10,602


2,573


80

162



(52
)
(2,372
)
Building Materials/Construction
12,444

6,047


5,723


668

6

12

2

(104
)

Securities Firms & Exchanges
8,077

5,728


2,337


10

2

20

4

(102
)
(216
)
Agriculture/Paper Mfg
6,457

4,264


2,071


116

6

36

(1
)
(4
)
(4
)
Aerospace/Defense
5,868

4,930


914


24




(71
)

Leisure
5,459

2,845


2,012


478

124

6


(5
)
(23
)
All other(c)
145,806

128,260


16,780


578

188

1,235

(21
)
(11,345
)
(1,089
)
Subtotal
$
770,358

$
595,795


$
164,444


$
9,142

$
977

$
2,301

$
12

$
(26,703
)
$
(19,604
)
Loans held-for-sale and loans at fair value
6,412



















Receivables from customers and other
28,972



















Total
$
805,742



















(a)
The industry rankings presented in the table as of December 31, 2014, are based on the industry rankings of the corresponding exposures at September 30, 2015, not actual rankings of such exposures at December 31, 2014.
(b)
In addition to the credit risk exposure to states and municipal governments (both U.S. and non-U.S.) at September 30, 2015, and December 31, 2014, noted above, the Firm held: $7.1 billion and $10.6 billion, respectively, of trading securities; $32.7 billion and $30.1 billion, respectively, of available-for-sale (“AFS”) securities; and $12.7 billion and $10.2 billion, respectively, of HTM securities, issued by U.S. state and municipal governments. For further information, see Note 3 and Note 11.
(c)
All other includes: individuals, private education and civic organizations; SPEs; and holding companies, representing approximately 57%, 30% and 4%, respectively, at September 30, 2015, and 56%, 30% and 5%, respectively, at December 31, 2014.
(d)
Credit exposure is net of risk participations and excludes the benefit of “Credit portfolio management derivatives net notional” held against derivative receivables or loans and “Liquid securities and other cash collateral held against derivative receivables”.
(e)
Represents the net notional amounts of protection purchased and sold through credit derivatives used to manage the credit exposures; these derivatives do not qualify for hedge accounting under U.S. GAAP. The all other category includes purchased credit protection on certain credit indices.

The Firm is actively monitoring significant exposures and/or industries that present actual or potential credit concerns. Exposure to the Oil & Gas industry was approximately 5.3% and 5.4% of the Firm’s total wholesale exposure as of September 30, 2015, and December 31, 2014, respectively. Exposure to the Oil & Gas industry decreased by $1.1 billion during the nine months ended September 30, 2015 to $42.1 billion, of which $13.8
 
billion was drawn. The portfolio largely consisted of exposure in North America, and was concentrated in the Exploration and Production sub-sector. Approximately 66% and 68% of the exposure in the Oil & Gas portfolio was investment-grade as of September 30, 2015 and December 31, 2014, respectively.


57


Exposure to the Metals/Mining industry was approximately 1.8% and 1.9% of the Firm’s total wholesale exposure
as of September 30, 2015, and December 31, 2014, respectively. Exposure to the Metals/Mining industry decreased by $414 million during the nine months ended September 30, 2015 to $14.6 billion, of which $5.2 billion was drawn. The portfolio largely consisted of exposure in North America, and was concentrated in the Steel and Diversified Mining sub-sectors. Approximately 53% and 55% of the exposure in the Metals/Mining portfolio was investment-grade as of September 30, 2015, and December 31, 2014, respectively.
Loans
In the normal course of its wholesale business, the Firm provides loans to a variety of customers, ranging from large corporate and institutional clients to high-net-worth individuals. The Firm actively manages its wholesale credit exposure. One way of managing credit risk is through secondary market sales of loans and lending-related commitments. For further discussion on loans, including information on credit quality indicators and sales of loans, see Note 13.
The following table presents the change in the nonaccrual loan portfolio for the nine months ended September 30, 2015 and 2014.
Wholesale nonaccrual loan activity
 
 
Nine months ended September 30,
 
 
 
(in millions)
 
2015

2014

Beginning balance
 
$
624

$
1,044

Additions
 
1,142

633

Reductions:
 
 
 
Paydowns and other
 
352

557

Gross charge-offs
 
42

106

Returned to performing status
 
253

156

Sales
 
5

66

Total reductions
 
652

885

Net additions/(reductions)
 
490

(252
)
Ending balance
 
$
1,114

$
792

The following table presents net charge-offs/recoveries, which are defined as gross charge-offs less recoveries, for the nine months ended September 30, 2015 and 2014. The amounts in the table below do not include gains or losses from sales of nonaccrual loans.
Wholesale net charge-offs/(recoveries)
(in millions, except ratios)
Three months ended
September 30,
 
Nine months ended
September 30,
2015

2014

 
2015
2014
Loans – reported
 
 
 
 
 
Average loans retained
$
339,172

$
318,207

 
$
333,038

$
314,253

Gross charge-offs
13

29

 
46

106

Gross recoveries
(11
)
(12
)
 
(64
)
(120
)
Net charge-offs/(recoveries)
2

17

 
(18
)
(14
)
Net charge-off/(recovery) rate
%
0.02
%
 
(0.01
)%
(0.01
)%
 
Lending-related commitments
The Firm uses lending-related financial instruments, such as commitments (including revolving credit facilities) and guarantees, to meet the financing needs of its customers. The contractual amounts of these financial instruments represent the maximum possible credit risk should the counterparties draw down on these commitments or the Firm fulfills its obligations under these guarantees, and the counterparties subsequently fail to perform according to the terms of these contracts.
In the Firm’s view, the total contractual amount of these wholesale lending-related commitments is not representative of the Firm’s likely actual future credit exposure or funding requirements. In determining the amount of credit risk exposure the Firm has to wholesale lending-related commitments, which is used as the basis for allocating credit risk capital to these commitments, the Firm has established a “loan-equivalent” amount for each commitment; this amount represents the portion of the unused commitment or other contingent exposure that is expected, based on average portfolio historical experience, to become drawn upon in an event of a default by an obligor. The loan-equivalent amount of the Firm’s wholesale lending-related commitments was $206.7 billion and $216.5 billion as of September 30, 2015, and December 31, 2014, respectively.
Derivative contracts
In the normal course of business, the Firm uses derivative instruments predominantly for market-making activities. Derivatives enable clients to manage exposures to fluctuations in interest rates, currencies and other markets. The Firm also uses derivative instruments to manage its own credit and other market risk exposure. For further discussion of derivative contracts, see Note 5.
The following table summarizes the net derivative receivables for the periods presented.
Derivative receivables
 
 
(in millions)
Derivative receivables
September 30,
2015
December 31,
2014
Interest rate
$
29,116

$
33,725

Credit derivatives
1,724

1,838

Foreign exchange
21,116

21,253

Equity
7,490

8,177

Commodity
9,222

13,982

Total, net of cash collateral
68,668

78,975

Liquid securities and other cash collateral held against derivative receivables
(19,699
)
(19,604
)
Total, net of collateral
$
48,969

$
59,371

Derivative receivables reported on the Consolidated balance sheets were $68.7 billion and $79.0 billion at September 30, 2015, and December 31, 2014, respectively. These amounts represent the fair value of the derivative contracts after giving effect to legally enforceable master netting agreements and cash collateral held by the


58


Firm. However, in management’s view, the appropriate measure of current credit risk should also take into consideration additional liquid securities (primarily U.S. government and agency securities and other G7 government bonds) and other cash collateral held by the Firm aggregating $19.7 billion and $19.6 billion at September 30, 2015, and December 31, 2014, respectively, that may be used as security when the fair value of the client’s exposure is in the Firm’s favor.
In addition to the collateral described in the preceding paragraph, the Firm also holds additional collateral (primarily cash, G7 government securities, other liquid government-agency and guaranteed securities, and corporate debt and equity securities) delivered by clients at
 
the initiation of transactions, as well as collateral related to contracts that have a non-daily call frequency and collateral that the Firm has agreed to return but has not yet settled as of the reporting date. Although this collateral does not reduce the balances and is not included in the table above, it is available as security against potential exposure that could arise should the fair value of the client’s derivative transactions move in the Firm’s favor. As of September 30, 2015, and December 31, 2014, the Firm held $45.4 billion and $48.6 billion, respectively, of this additional collateral. The derivative receivables fair value, net of all collateral, also does not include other credit enhancements, such as letters of credit. For additional information on the Firm’s use of collateral agreements, see Note 5.

The following table summarizes the ratings profile by derivative counterparty of the Firm’s derivative receivables, including credit derivatives, net of other liquid securities collateral, for the dates indicated. The ratings scale is based on the Firm’s internal ratings, which generally correspond to the ratings as defined by S&P and Moody’s.
Ratings profile of derivative receivables
 
 
 
 
 
Rating equivalent
September 30, 2015
 
December 31, 2014

(in millions, except ratios)
Exposure net of collateral
% of exposure net of collateral
 
Exposure net of collateral
% of exposure net of collateral
AAA/Aaa to AA-/Aa3
$
13,395

28
%
 
$
19,202

32
%
A+/A1 to A-/A3
13,345

27

 
13,940

24

BBB+/Baa1 to BBB-/Baa3
16,124

33

 
19,008

32

BB+/Ba1 to B-/B3
5,483

11

 
6,384

11

CCC+/Caa1 and below
622

1

 
837

1

Total
$
48,969

100
%
 
$
59,371

100
%

As previously noted, the Firm uses collateral agreements to mitigate counterparty credit risk. The percentage of the Firm’s derivatives transactions subject to collateral agreements — excluding foreign exchange spot trades, which are not typically covered by collateral agreements due to their short maturity — was 87% and 88% for September 30, 2015, and December 31, 2014, respectively.
Credit derivatives
The Firm uses credit derivatives for two primary purposes: first, in its capacity as a market-maker, and second, as an end-user, to manage the Firm’s own credit risk associated with various exposures. For a detailed description of credit derivatives, see Credit derivatives in Note 5 of this Form
10-Q, and Note 6 of JPMorgan Chase’s 2014 Annual Report.
 
Credit portfolio management activities
Included in the Firm’s end-user activities are credit derivatives used to mitigate the credit risk associated with traditional lending activities (loans and unfunded commitments) and derivatives counterparty exposure in the Firm’s wholesale businesses (collectively, “credit portfolio management” activities). Information on credit portfolio management activities is provided in the table below. For further information on derivatives used in credit portfolio management activities, see Credit derivatives in Note 5 of this Form 10-Q, and Note 6 of JPMorgan Chase’s 2014 Annual Report.
Credit derivatives used in credit portfolio management activities
 
Notional amount of protection
purchased and sold (a)
(in millions)
September 30,
2015
 
December 31,
2014
Credit derivatives used to manage:
 
 
 
Loans and lending-related commitments
$
2,427

 
$
2,047

Derivative receivables
22,097

 
24,656

Total net protection purchased
24,524

 
26,703

Total net protection sold

 

Credit portfolio management derivatives notional, net
$
24,524

 
$
26,703

(a)
Amounts are presented net, considering the Firm’s net protection purchased or sold with respect to each underlying reference entity or index.


59


ALLOWANCE FOR CREDIT LOSSES
JPMorgan Chase’s allowance for loan losses covers both the consumer (primarily scored) portfolio and wholesale (risk-rated) portfolio. The allowance represents management’s estimate of probable credit losses inherent in the Firm’s loan portfolio. Management also determines an allowance for wholesale and certain consumer lending-related commitments.
For a further discussion of the components of the allowance for credit losses and related management judgments, see Critical Accounting Estimates Used by the Firm on pages 81–83 and Note 14 of this Form 10-Q, and Critical Accounting Estimates Used by the Firm on pages 161–165 and Note 15 of JPMorgan Chase’s 2014 Annual Report.
At least quarterly, the allowance for credit losses is reviewed by the Chief Risk Officer, the Chief Financial Officer and the Controller of the Firm, and discussed with the Directors’ Risk Policy Committee and Audit Committee of the Board of Directors of the Firm. As of September 30, 2015, JPMorgan Chase deemed the allowance for credit losses to be appropriate and sufficient to absorb probable credit losses inherent in the portfolio.
 
The consumer, excluding credit card, allowance for loan losses decreased from December 31, 2014, due to a reduction in the residential real estate portfolio allowance, reflecting continued improvement in home prices and delinquencies, as well as increased granularity in the impairment estimates. For additional information about delinquencies and nonaccrual loans in the consumer, excluding credit card, loan portfolio, see Consumer Credit Portfolio on pages 48–53 and Note 13.
The credit card allowance for loan losses was relatively unchanged from December 31, 2014, reflecting stable credit quality trends. For additional information about credit trends in the credit card loan portfolio, see Consumer Credit Portfolio on pages 48–53 and Note 13.
The wholesale allowance for credit losses increased from December 31, 2014, reflecting the impact of select downgrades, including within the Oil & Gas portfolio. Excluding the Oil & Gas portfolio, the credit environment continued to be generally favorable as evidenced by low charge-off rates and stable credit quality trends.


60


Summary of changes in the allowance for credit losses
 
 
 
 
 
 
2015
 
2014
Nine months ended September 30,
Consumer, excluding
credit card
Credit card
Wholesale
Total
 
Consumer, excluding
credit card
Credit card
Wholesale
Total
(in millions, except ratios)
 
Allowance for loan losses
 
 
 
 
 
 
 
 
 
Beginning balance at January 1,
$
7,050

$
3,439

$
3,696

$
14,185

 
$
8,456

$
3,795

$
4,013

$
16,264

Gross charge-offs
1,269

2,626

46

3,941

 
1,613

2,882

106

4,601

Gross recoveries
(577
)
(278
)
(64
)
(919
)
 
(629
)
(311
)
(120
)
(1,060
)
Net charge-offs/(recoveries)
692

2,348

(18
)
3,022

 
984

2,571

(14
)
3,541

Write-offs of PCI loans(a)
162



162

 
196



196

Provision for loan losses
(346
)
2,348

461

2,463

 
180

2,371

(183
)
2,368

Other
(1
)
(5
)
8

2

 
2

(5
)
(3
)
(6
)
Ending balance at September 30,
$
5,849

$
3,434

$
4,183

$
13,466

 
$
7,458

$
3,590

$
3,841

$
14,889

Impairment methodology
 
 
 
 
 
 
 
 
 
Asset-specific(b)
$
359

$
485

$
281

$
1,125

 
$
618

$
500

$
124

$
1,242

Formula-based
2,702

2,949

3,902

9,553

 
3,178

3,090

3,717

9,985

PCI
2,788



2,788

 
3,662



3,662

Total allowance for loan losses
$
5,849

$
3,434

$
4,183

$
13,466

 
$
7,458

$
3,590

$
3,841

$
14,889

Allowance for lending-related commitments
 
 
 
 
 
 
 
 
 
Beginning balance at January 1,
$
13

$

$
609

$
622

 
$
8

$

$
697

$
705

Provision for lending-related commitments
1


112

113

 
1


(70
)
(69
)
Other




 


1

1

Ending balance at September 30,
$
14

$

$
721

$
735

 
$
9

$

$
628

$
637

Impairment methodology
 
 
 
 
 
 
 
 
 
Asset-specific
$

$

$
69

$
69

 
$

$

$
68

$
68

Formula-based
14


652

666

 
9


560

569

Total allowance for lending-related commitments(c)
$
14

$

$
721

$
735

 
$
9

$

$
628

$
637

Total allowance for credit losses
$
5,863

$
3,434

$
4,904

$
14,201

 
$
7,467

$
3,590

$
4,469

$
15,526

Memo:
 
 
 
 
 
 
 
 
 
Retained loans, end of period
$
331,732

$
125,634

$
346,927

$
804,293

 
$
288,379

$
126,564

$
320,361

$
735,304

Retained loans, average
311,527

123,387

333,038

767,952

 
288,398

124,008

314,253

726,659

PCI loans, end of period
42,236


4

42,240

 
48,487


5

48,492

Credit ratios
 
 
 
 
 
 
 
 
 
Allowance for loan losses to retained loans
1.76
%
2.73
%
1.21
 %
1.67
%
 
2.59
%
2.84
%
1.20
 %
2.02
%
Allowance for loan losses to retained nonaccrual loans(d)
106

NM
385

204

 
113

NM
583

206

Allowance for loan losses to retained nonaccrual loans excluding credit card
106

NM
385

152

 
113

NM
583

156

Net charge-off/(recovery) rates
0.30

2.54

(0.01
)
0.53

 
0.46

2.77

(0.01
)
0.65

Credit ratios, excluding residential real estate PCI loans
 
 
 
 
 
 
 
 
 
Allowance for loan losses to retained loans
1.06

2.73

1.21

1.40

 
1.58

2.84

1.20

1.63

Allowance for loan losses to retained nonaccrual loans(d)
55

NM
385

161

 
58

NM
583

155

Allowance for loan losses to retained nonaccrual loans excluding credit card
55

NM
385

109

 
58

NM
583

105

Net charge-off/(recovery) rates
0.35
%
2.54
%
(0.01
)%
0.56
%
 
0.55
%
2.77
%
(0.01
)%
0.70
%
Note: In the table above, the financial measures which exclude the impact of PCI loans are non-GAAP financial measures. For additional information, see Explanation and Reconciliation of the Firm’s Use of Non-GAAP Financial Measures on pages 14–16.
(a)
Write-offs of PCI loans are recorded against the allowance for loan losses when actual losses for a pool exceed estimated losses that were recorded as purchase accounting adjustments at the time of acquisition. A write-off of a PCI loan is recognized when the underlying loan is removed from a pool (e.g., upon liquidation).
(b)
Includes risk-rated loans that have been placed on nonaccrual status and loans that have been modified in a TDR. The asset-specific credit card allowance for loan losses modified in a TDR is calculated based on the loans’ original contractual interest rates and does not consider any incremental penalty rates.
(c)
The allowance for lending-related commitments is reported in other liabilities on the Consolidated balance sheets.
(d)
The Firm’s policy is generally to exempt credit card loans from being placed on nonaccrual status as permitted by regulatory guidance.

61


Provision for credit losses
For the three and nine months ended September 30, 2015, the provision for credit losses was $682 million and $2.6 billion, respectively, compared with $757 million and $2.3 billion, respectively, in the prior year periods.
The total consumer provision for credit losses decreased for the three months ended September 30, 2015, due to a larger reduction in the residential real estate portfolio allowance for loan losses, reflecting the continued improvement in home prices and delinquencies as well as
 
increased granularity in the impairment estimates, and lower net charge-offs. The total consumer provision for credit losses for the nine months ended September 30, 2015 reflected lower net charge-offs in the current year period.
The wholesale provision for credit losses for the three and nine months ended September 30, 2015 reflected the impact of select downgrades, including within the Oil & Gas portfolio.


 
Three months ended September 30,
 
Nine months ended September 30,
 
Provision for loan losses
 
Provision for lending-related commitments
 
Total provision for
credit losses
 
Provision for loan losses
 
Provision for lending-related commitments
 
Total provision for credit losses
(in millions)
2015

2014

 
2015

2014

 
2015

2014

 
2015

2014

 
2015

2014

 
2015

2014

Consumer, excluding credit card
$
(388
)
$
99

 
$
(1
)
$

 
$
(389
)
$
99

 
$
(346
)
$
180

 
$
1

$
1

 
$
(345
)
$
181

Credit card
759

798

 


 
759

798

 
2,348

2,371

 


 
2,348

2,371

Total consumer
371

897

 
(1
)

 
370

897

 
2,002

2,551

 
1

1

 
2,003

2,552

Wholesale
196

(128
)
 
116

(12
)
 
312

(140
)
 
461

(183
)
 
112

(70
)
 
573

(253
)
Total provision for credit losses
$
567

$
769

 
$
115

$
(12
)
 
$
682

$
757

 
$
2,463

$
2,368

 
$
113

$
(69
)
 
$
2,576

$
2,299



62


MARKET RISK MANAGEMENT
Market risk is the potential for adverse changes in the value of the Firm’s assets and liabilities resulting from changes in market variables such as interest rates, foreign exchange rates, equity prices, commodity prices, implied volatilities or credit spreads. For a discussion of the Firm’s market risk management organization, risk identification and classification, tools used to measure risk, and risk monitoring and control, see Market Risk Management on pages 131–136 of JPMorgan Chase’s 2014 Annual Report.
Value-at-risk
JPMorgan Chase utilizes VaR, a statistical risk measure, to estimate the potential loss from adverse market moves in a normal market environment. The Firm has a single overarching VaR model framework used for calculating Risk Management VaR and Regulatory VaR.
Since VaR is based on historical data, it is an imperfect measure of market risk exposure and potential losses, and it is not used to estimate the impact of stressed market conditions or to manage any impact from potential stress events. In addition, based on their reliance on available historical data, limited time horizons, and other factors, VaR measures are inherently limited in their ability to measure certain risks and to predict losses, particularly those associated with market illiquidity and sudden or severe shifts in market conditions. The Firm therefore considers other measures in addition to VaR, such as stress testing, to capture and manage its market risk positions.
In addition, for certain products, specific risk parameters are not captured in VaR due to the lack of inherent liquidity and availability of appropriate historical data. The Firm uses proxies to estimate the VaR for these and other products when daily time series are not available. It is likely that using an actual price-based time series for these products, if available, would affect the VaR results presented.
 
The Firm uses alternative methods to capture and measure those risk parameters that are not otherwise captured in VaR, including economic-value stress testing and nonstatistical measures. For further information, see Market Risk Management on pages 131–136 of the 2014 Annual Report.
The Firm’s VaR model calculations are periodically evaluated and enhanced in response to changes in the composition of the Firm’s portfolios, changes in market conditions, improvements in the Firm’s modeling techniques and other factors. Such changes will also affect historical comparisons of VaR results. Model changes go through a review and approval process by the Model Review Group prior to implementation into the operating environment. For further information, see Model risk on page 139 of the 2014 Annual Report.
The Firm’s Risk Management VaR is calculated assuming a one-day holding period and an expected tail-loss methodology which approximates a 95% confidence level. For risk management purposes, the Firm believes this methodology provides a stable measure of VaR that closely aligns to the day-to-day risk management decisions made by the lines of business and provides the necessary and appropriate information to respond to risk events on a daily basis. Separately, the Firm calculates a daily aggregated VaR in accordance with regulatory rules (“Regulatory VaR”), which is used to derive the Firm’s regulatory VaR-based capital requirements under Basel III. For further information regarding the key differences between Risk Management VaR and Regulatory VaR, see page 133 of the 2014 Annual Report. For additional information on Regulatory VaR and the other components of market risk regulatory capital for the Firm (e.g. VaR-based measure, stressed VaR-based measure and the respective backtesting), see JPMorgan Chase’s Pillar 3 Regulatory Capital Disclosures reports, which are available on the Firm’s website:
(http://investor.shareholder.com/jpmorganchase/basel.cfm).



63


The table below shows the results of the Firm’s Risk Management VaR measure using a 95% confidence level.
Total VaR
Three months ended September 30,
 
 
 
 
 
Nine months ended
September 30,
 
 
2015
 
2014
 
At September 30,
Average
 
(in millions)
 Avg.
Min
Max
 
 Avg.
Min
Max
 
2015
 
2014
 
2015
 
2014
 
CIB trading VaR by risk type
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Fixed income
$
50

 
$
43

 
$
60

 
 
$
28

 
$
23

 
$
32

 
 
$
60

 
$
28

 
$
42

 
$
34

 
Foreign exchange
9

 
6

 
14

 
 
8

 
6

 
13

 
 
12

 
7

 
9

 
8

 
Equities
20

 
14

 
25

 
 
14

 
11

 
19

 
 
22

 
18

 
18

 
14

 
Commodities and other
10

 
8

 
12

 
 
7

 
6

 
9

 
 
10

 
7

 
9

 
9

 
Diversification benefit to CIB trading VaR
(35
)
(a) 
NM

(b) 
NM

(b) 
 
(26
)
(a) 
NM

(b) 
NM

(b) 
 
(36
)
(a) 
(28
)
(a) 
(36
)
(a) 
(30
)
(a) 
CIB trading VaR
54

 
44

 
68

 
 
31

 
24

 
39

 
 
68

 
32

 
42

 
35

 
Credit portfolio VaR
13

 
12

 
14

 
 
10

 
9

 
14

 
 
14

 
14

 
15

 
11

 
Diversification benefit to CIB VaR
(10
)
(a) 
NM

(b) 
NM

(b) 
 
(6
)
(a) 
NM

(b) 
NM

(b) 
 
(11
)
(a) 
(9
)
(a) 
(9
)
(a) 
(6
)
(a) 
CIB VaR
57

 
48

 
71

 
 
35

 
29

 
44

 
 
71

 
37

 
48

 
40

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Mortgage Banking VaR
4

 
2

 
7

 
 
3

 
2

 
5

 
 
3

 
2

 
4

 
9

 
Treasury and CIO VaR
4

 
4

 
5

 
 
4

 
3

 
4

 
 
5

 
4

 
4

 
5

 
Asset Management VaR
3

 
3

 
4

 
 
3

 
2

 
4

 
 
3

 
2

 
3

 
3

 
Diversification benefit to other VaR
(3
)
(a) 
NM

(b) 
NM

(b) 
 
(4
)
(a) 
NM

(b) 
NM

(b) 
 
(3
)
(a) 
(3
)
(a) 
(4
)
(a) 
(6
)
(a) 
Other VaR
8

 
6

 
9

 
 
6

 
5

 
7

 
 
8

 
5

 
7

 
11

 
Diversification benefit to CIB and other VaR
(11
)
(a) 
NM

(b) 
NM

(b) 
 
(5
)
(a) 
NM

(b) 
NM

(b) 
 
(12
)
(a) 
(4
)
(a) 
(8
)
(a) 
(7
)
(a) 
Total VaR
$
54

 
$
45

 
$
67

 
 
$
36

 
$
30

 
$
45

 
 
$
67

 
$
38

 
$
47

 
$
44

 
(a)
Average portfolio VaR and period-end portfolio VaR were less than the sum of the VaR of the components described above, due to portfolio diversification. The diversification effect reflects the fact that the risks were not perfectly correlated.
(b)
Designated as not meaningful (“NM”), because the minimum and maximum may occur on different days for different risk components, and hence it is not meaningful to compute a portfolio-diversification effect.
As presented in the table above, average Total VaR increased for the three months ended September 30, 2015, compared with the prior year period. The increase was primarily due to higher CIB VaR.
Overall, higher volatility in the one year historical look-back time series and a changing risk profile contributed to an increase in CIB average Trading VaR by $23 million, predominantly due to an increase in Fixed Income VaR and, to a lesser extent, the impact from Equities VaR.
The average total VaR for the nine months ended September 30, 2015 increased relative to the prior year. The increase was primarily driven by CIB VaR reflecting the higher market volatility and a changing exposure profile in the current year versus the equivalent period in 2014.
 
The Firm continues to enhance the VaR model calculations and time series inputs related to certain asset-backed products.
The Firm’s average total VaR diversification benefit was $11 million, or 20% of the sum, for the three months ended September 30, 2015 compared with $5 million, or 14% of the sum, for the comparable 2014 period.
VaR exposure can vary significantly as positions change, market volatility fluctuates and diversification benefits change.



64


VaR back-testing
The Firm evaluates the effectiveness of its VaR methodology by back-testing, which compares the daily Risk Management VaR results with the daily gains and losses recognized on market-risk related revenue.
 

The Firm’s definition of market risk-related gains and losses is consistent with the definition used by the banking regulators under Basel III. Under this definition market risk-related gains and losses are defined as: gains and losses on the Firm’s Risk Management positions, excluding fees, commissions, certain valuation adjustments (e.g., liquidity and DVA), net interest income, and gains and losses arising from intraday trading.

The following chart presents the daily market risk-related gains and losses on the Firm’s Risk Management positions for the nine months ended September 30, 2015. As the chart presents market risk-related gains and losses related to those positions included in the Firm’s Risk Management VaR, the results in the table below differ from the results of back-testing disclosed in the Market Risk section of the Firm’s Pillar 3 Regulatory Capital Disclosures reports, which are based on Regulatory VaR applied to covered positions. The chart shows that for the nine months ended September 30, 2015, the Firm observed 3 VaR band breaks and posted market-risk related gains on 100 of the 194 days. The Firm observed 1 VaR band break and posted market-risk related gains on 36 of the 66 days for the three months ended September 30, 2015.




65


Earnings-at-risk
The VaR and stress-test measures described above illustrate the economic sensitivity of the Firm’s Consolidated balance sheets to changes in market variables. The effect of interest rate exposure on the Firm’s reported net income is also important as interest rate risk represents one of the Firm’s significant market risks. Interest rate risk arises not only from trading activities but also from the Firm’s traditional banking activities, which include extension of loans and credit facilities, taking deposits and issuing debt. The Firm evaluates its structural interest rate risk exposure through earnings-at-risk, which measures the extent to which changes in interest rates will affect the Firm’s net interest income and interest rate-sensitive fees. Earnings-at-risk excludes the impact of CIB's markets-based activities and MSRs, as these sensitivities are captured under VaR.
The Firm conducts simulations of changes in structural interest rate-sensitive revenue under a variety of instantaneous interest rate shock scenarios for interest rate-sensitive assets and liabilities denominated in U.S. dollar and other currencies (“non-U.S. dollar” currencies). Earnings-at-risk scenarios estimate the potential change in this revenue, and the corresponding impact to the Firm’s pretax net interest income excluding CIB's markets-based activities and MSRs over the following 12 months utilizing multiple assumptions as described below. These scenarios may consider the impact on exposures as a result of changes in interest rates, as well as pricing sensitivities of deposits, optionality and changes in product mix. The scenarios include forecasted balance sheet changes, as well as modeled prepayment and reinvestment behavior, but do not include assumptions about actions which could be taken by the Firm in response to any such instantaneous rate changes. Mortgage prepayment assumptions are based on current interest rates compared with underlying contractual rates, the time since origination, and other factors which are updated periodically based on historical experience. The Firm’s earnings-at-risk scenarios are periodically evaluated and enhanced in response to changes in the composition of the Firm’s balance sheet, changes in market conditions, improvements in the Firm’s simulation and other factors.
Effective January 1, 2015, the Firm conducts earnings-at-risk simulations for assets and liabilities denominated
in U.S. dollars separately from assets and liabilities denominated in non-U.S. dollar currencies in order to enhance the Firm’s ability to monitor structural interest rate risk from non-U.S. dollar exposures.

 
The Firm’s U.S. dollar sensitivity is presented in the table below. The result of the non-U.S. dollar sensitivity scenario was not material to the Firm’s earnings-at-risk at September 30, 2015.
JPMorgan Chase’s 12-month pretax net interest income sensitivity profiles
(Excludes the impact of CIB’s markets-based activities and MSRs)
(in billions)
Instantaneous change in rates

September 30, 2015
+200bps
+100bps
-100bps
-200bps
U.S. dollar
$
5.0


$
3.0


NM
(a) 
NM
(a) 
(a)
Downward 100- and 200-basis-points parallel shocks result in a federal funds target rate of zero and negative three- and six-month U.S. Treasury rates. The earnings-at-risk results of such a low probability scenario are not meaningful.
The Firm’s benefit to rising rates on U.S. dollar assets and liabilities is largely a result of reinvesting at higher yields and assets re-pricing at a faster pace than deposits.
Separately, another U.S. dollar interest rate scenario used by the Firm — involving a steeper yield curve with long-term rates rising by 100 basis points and short-term rates staying at current levels — results in a 12-month pretax benefit to net interest income excluding CIB's markets-based activities and MSRs of approximately $600 million. The increase in net interest income under this scenario reflects the Firm reinvesting at the higher long-term rates, with funding costs remaining unchanged. The result of the comparable non-U.S. dollar analysis is not material to the Firm.



66


COUNTRY RISK MANAGEMENT
Country risk is the risk that a sovereign event or action alters the value or terms of contractual obligations of obligors, counterparties and issuers or adversely affects markets related to a particular country. The Firm has a comprehensive country risk management framework for assessing country risks, determining risk tolerance, and measuring and monitoring direct country exposures in the Firm. The Country Risk Management group is responsible for developing guidelines and policies for managing country risk in both emerging and developed countries. The Country Risk Management group actively monitors the various portfolios giving rise to country risk to ensure the Firm’s country risk exposures are diversified and that exposure levels are appropriate given the Firm’s strategy and risk tolerance relative to a country.
For a discussion of the Firm’s Country Risk Management organization, and country risk identification, measurement, monitoring and control, see pages 137–138 of JPMorgan Chase’s 2014 Annual Report.

 
The following table presents the Firm’s top 20 exposures by country (excluding the U.S.) as of September 30, 2015. The selection of countries is based solely on the Firm’s largest total exposures by country, based on the Firm’s internal country risk management approach, and does not represent the Firm’s view of any actual or potentially adverse credit conditions. Country exposures may fluctuate from period-to-period due to normal client activity and market flows.
Top 20 country exposures
 
 
 
 
September 30, 2015

(in billions)
 
Lending(a)
Trading and investing(b)(c)
Other(d)
Total exposure
United Kingdom
 
$
24.4

$
24.9

$
1.4

$
50.7

Germany
 
11.0

15.9

0.3

27.2

France
 
11.3

15.3

0.2

26.8

Canada
 
16.2

3.7

0.1

20.0

Japan
 
8.3

8.8

0.4

17.5

China
 
8.2

7.5

0.6

16.3

Netherlands
 
5.1

10.2

1.0

16.3

Brazil
 
6.2

7.8


14.0

Switzerland
 
8.0

2.0

3.1

13.1

Australia
 
6.2

6.8


13.0

India
 
6.3

5.9

0.5

12.7

Korea
 
4.2

3.6

0.1

7.9

Hong Kong
 
2.1

3.1

2.3

7.5

Italy
 
3.4

2.9

0.2

6.5

Spain
 
3.0

2.4

0.2

5.6

Mexico
 
2.8

2.2


5.0

Singapore
 
2.2

1.5

1.1

4.8

Luxembourg
 
4.3

0.3


4.6

Sweden
 
2.0

2.6


4.6

Belgium
 
1.8

2.2


4.0

(a)
Lending includes loans and accrued interest receivable, net of collateral and the allowance for loan losses, deposits with banks, acceptances, other monetary assets, issued letters of credit net of participations, and undrawn commitments to extend credit. Excludes intra-day and operating exposures, such as from settlement and clearing activities.
(b)
Includes market-making inventory, AFS securities, counterparty exposure on derivative and securities financings net of collateral and hedging.
(c)
Includes single-name and index and tranched credit derivatives for which one or more of the underlying reference entities is in a country listed in the above table.
(d)
Includes capital invested in local entities and physical commodity inventory.





67


OPERATIONAL RISK MANAGEMENT
Operational risk is the risk of loss resulting from inadequate or failed processes or systems or due to external events that are neither market nor credit-related. For a discussion of JPMorgan Chase’s Operational Risk Management, see pages 141–143 of JPMorgan Chase’s 2014 Annual report.
Cybersecurity
The Firm devotes significant resources maintaining and regularly updating its systems and processes that are designed to protect the security of the Firm’s computer systems, software, networks and other technology assets against attempts by unauthorized parties to obtain access to confidential information, destroy data, disrupt or degrade service, sabotage systems or cause other damage. Third parties with which the Firm does business or that facilitate the Firm’s business activities (e.g., vendors, exchanges, clearing houses, central depositories, and financial intermediaries) could also be sources of cybersecurity risk to the Firm, including with respect to breakdowns or failures of their systems, misconduct by the employees of such parties, or cyberattacks which could affect their ability to deliver a product or service to the Firm or result in lost or compromised information of the Firm or its clients. In addition, customers with which or whom the Firm does business can also be sources of cybersecurity risk to the Firm, particularly when their activities and systems are beyond the Firm’s own security and control systems. Customers will generally be responsible for losses incurred due to their own failure to maintain the security of their own systems and processes.
 
The Firm and several other U.S. financial institutions have experienced significant distributed denial-of-service attacks from technically sophisticated and well-resourced unauthorized parties which are intended to disrupt online banking services. The Firm and its clients are also regularly targeted by unauthorized parties using malicious code and viruses. On September 10, 2014, the Firm disclosed that a cyberattack against the Firm had occurred, as a result of which certain user contact information and internal JPMorgan Chase information relating to such users had been compromised. No account information for such affected customers — account numbers, passwords, user IDs, dates of birth or Social Security numbers — was compromised during the attack. The Firm is cooperating with government and law enforcement agencies in connection with their continuing investigation of the incident. The cyberattacks experienced to date have not resulted in any material disruption to the Firm’s operations nor have they had a material adverse effect on the Firm’s results of operations. The Firm’s Board of Directors and the Audit Committee are regularly apprised regarding the cybersecurity policies and practices of the Firm as well as the Firm’s efforts regarding significant cybersecurity events.
Cybersecurity attacks, like the one experienced by the Firm, highlight the need for continued and increased cooperation among businesses and the government, and the Firm continues to work to strengthen its partnerships with the appropriate government and law enforcement agencies and other businesses, including the Firm’s third-party service providers, in order to understand the full spectrum of cybersecurity risks in the environment, enhance defenses and improve resiliency against cybersecurity threats.
The Firm has established, and continues to establish, defenses to mitigate other possible future attacks. Compared with 2014, the Firm expects its annual cybersecurity spending to be nearly double in 2015, and to continue to increase in 2016, in order to enhance its defense capabilities. These enhancements include more robust testing, advanced analytics, improved technology coverage, and a program to increase employee awareness about cybersecurity risks and best practices.



68


CAPITAL MANAGEMENT
The following discussion of JPMorgan Chase’s capital management highlights developments since December 31, 2014, and should be read in conjunction with the Capital Management section on pages 146–155 of JPMorgan Chase’s 2014 Annual Report.
A strong capital position is essential to the Firm’s business strategy and competitive position. The Firm’s capital strategy focuses on long-term stability, which enables the
 
Firm to build and invest in market-leading businesses, even in a highly stressed environment.
In its capital management, the Firm uses three primary disciplines, which are further described below:
Regulatory capital
Economic risk capital
Line of business equity

Regulatory capital
The following tables present the Firm’s Transitional and Fully Phased-In risk-based and leverage-based capital metrics under both the Basel III Standardized and Advanced Approaches. For information on well-capitalized standards, see page 71.
 
Transitional
 
Fully Phased-In
September 30, 2015
(in millions, except ratios)
Standardized
 
Advanced
 
Minimum capital ratios (c)
 
Standardized
 
Advanced
 
Minimum capital ratios (d)
 
Risk-based capital metrics:
 
 
 
 
 
 
 
 
 
 
 
 
CET1 capital
$
173,577

 
$
173,577

 
 
 
$
172,430

 
$
172,430

 
 
 
Tier 1 capital
199,222

 
199,222

 
 
 
198,157

 
198,157

 
 
 
Total capital
234,462

 
223,962

 
 
 
230,363

 
219,864

 
 
 
Risk-weighted assets
1,503,370

(b) 
1,502,685

 
 
 
1,513,137

 
1,513,037

 
 
 
CET1 capital ratio
11.5
%
 
11.6
%
 
4.5
%
 
11.4
%
 
11.4
%
 
11.5
%
 
Tier 1 capital ratio
13.3

 
13.3

 
6.0

 
13.1

 
13.1

 
13.0

 
Total capital ratio
15.6

 
14.9

 
8.0

 
15.2

 
14.5

 
15.0

 
Leverage-based capital metrics


 
 
 
 
 
 
 
 
 
 
 
Tier 1 capital
$
199,222

 
$
199,222

 
 
 
$
198,157

 
$
198,157

 
 
 
Adjusted average assets
2,375,809

 
2,375,809

 
 
 
2,375,128

 
2,375,128

 
 
 
Tier 1 leverage ratio(a)
8.4
%
 
8.4
%
 
4.0

 
8.3
%
 
8.3
%
 
4.0

 
SLR leverage exposure
NA

 
$
3,117,125

 
 
 
NA

 
$
3,116,444

 
 
 
SLR
NA

 
6.4
%
 
NA

 
NA

 
6.4
%
 
5.0

(e) 
 
Transitional
 
Fully Phased-In
 
December 31, 2014
(in millions, except ratios)
Standardized
 
Advanced
 
Minimum capital ratios (c)
 
Standardized
 
Advanced
 
Minimum capital ratios (d)
 
Risk-based capital metrics:
 
 
 
 
 
 
 
 
 
 
 
 
CET1 capital
$
164,426

 
$
164,426

 
 
 
$
164,514

 
$
164,514

 
 
 
Tier 1 capital
186,294

 
186,294

 
 
 
184,572

 
184,572

 
 
 
Total capital
221,225

 
210,684

 
 
 
216,796

 
206,256

 
 
 
Risk-weighted assets
1,472,602

(b) 
1,608,240

 
 
 
1,561,145

 
1,619,287

 
 
 
CET1 capital ratio
11.2
%
 
10.2
%
 
4.5
%
 
10.5
%
 
10.2
%
 
9.5
%
 
Tier 1 capital ratio
12.7

 
11.6

 
6.0

 
11.8

 
11.4

 
11.0

 
Total capital ratio
15.0

 
13.1

 
8.0

 
13.9

 
12.7

 
13.0

 
Leverage-based capital metrics
 
 
 
 
 
 
 
 
 
 
 
 
Tier 1 capital
$
186,294

 
$
186,294

 
 
 
$
184,572

 
$
184,572

 
 
 
Adjusted average assets
2,465,414

 
2,465,414

 
 
 
2,464,401

 
2,464,401

 
 
 
Tier 1 leverage ratio(a)
7.6
%
 
7.6
%
 
4.0

 
7.5
%
 
7.5
%
 
4.0

 
SLR leverage exposure
NA

 
NA

 
 
 
NA

 
$
3,320,404

 
 
 
SLR
NA

 
NA

 
NA

 
NA

 
5.6
%
 
5.0

(e) 
Note: As of September 30, 2015, and December 31, 2014, the lower of the Standardized or Advanced capital ratios under the transitional rules in the table above represents the Firm’s Collins Floor, as discussed in Risk-based capital regulatory minimums on page 71. If the fully phased-in Basel III rules were in effect as of September 30, 2015, and December 31, 2014, the lower of the fully phased-in Standardized or Advanced capital ratios in the table above would be the Collins Floor. Also included in the tables are the transitional and fully phased-in regulatory minimums, which as of September 30, 2015, include the impact of the U.S. Global Systemically Important Banks (“G-SIB”) final rule issued on July 20, 2015, as described further below on page 71.
(a)
As the Tier 1 leverage ratio is not a risk-based measure of capital, the ratios are calculated in the same manner under both the Transitional and Fully Phased-In rules.
(b)
Effective January 1, 2015, Basel III Standardized RWA is calculated under the Basel III definition of the Standardized approach. Prior periods were based on Basel I with 2.5.
(c)
Represents the minimum capital ratios for 2015 currently applicable to the Firm under Basel III.
(d)
Represents the minimum capital ratios applicable to the Firm on a fully phased-in Basel III basis, including the final U.S. G-SIB surcharge estimated for the Firm by the Federal Reserve in its publication of the U.S. Final G-SIB Rule on July 20, 2015. These minimums will be fully phased-in effective January 1, 2019. For additional information on the G-SIB surcharge, see page 73.
(e)
In the case of SLR, the fully phased-in minimum ratio is effective beginning January 1, 2018.

69


Basel III overview
Basel III capital rules, for large and internationally active U.S. bank holding companies and banks, including the
Firm and its insured depository institution (“IDI”) subsidiaries, revised, among other things, the definition of capital and introduced a new common equity Tier 1 capital (“CET1 capital”) requirement. Basel III presents two comprehensive methodologies for calculating risk-weighted assets (“RWA”)— a general (Standardized) approach, which replaced Basel I RWA effective January 1, 2015 (“Basel III Standardized”), and an advanced approach, which replaced Basel II RWA (“Basel III Advanced”)— and sets out minimum capital ratios and overall capital adequacy standards. Certain of the requirements of Basel III are subject to phase-in periods that began on January 1, 2014 and continue through the end of 2018 (“transitional period”)
as described below.
Basel III also includes a requirement for Advanced Approach banking organizations, including the Firm, to calculate a supplementary leverage ratio (“SLR”). Certain U.S. bank holding companies, including the Firm, are required to have a minimum SLR of at least 5% and IDI subsidiaries, including JPMorgan Chase Bank, N.A. and Chase Bank USA, N.A., to have a minimum SLR of at least 6%, both beginning January 1, 2018. For additional information on the SLR, see page 73.
Basel III Transitional
Basel III Transitional capital requirements became effective on January 1, 2014, and will become fully phased-in on January 1, 2019. The following table presents a reconciliation of the Firm’s Basel III Transitional CET1 capital to the Firm’s estimated Basel III Fully Phased-In CET1 capital as of September 30, 2015.
(in millions)
September 30, 2015
Transitional CET1 capital
$
173,577

AOCI phase-in(a)
790

CET1 capital deduction phase-in(b)
(1,303
)
Intangibles deduction phase-in(c)
(555
)
Other adjustments to CET1 capital(d)
(79
)
Fully Phased-In CET1 capital
$
172,430

(a)
Includes the remaining balance of AOCI related to AFS debt securities and defined benefit pension and other postretirement employee benefit (“OPEB”) plans that will qualify as Basel III CET1 capital upon full phase-in.
(b)
Predominantly includes regulatory adjustments related to changes in FVA/DVA, as well as CET1 deductions for defined benefit pension plan assets and deferred tax assets related to net operating loss carryforwards.
(c)
Relates to intangible assets, other than goodwill and MSRs, that are required to be deducted from CET1 capital upon full phase-in.
(d)
Includes minority interest and the Firm’s investments in its own CET1 capital instruments.

 
Basel III Fully Phased-In
Basel III capital rules will become fully phased-in on January 1, 2019, at which point the Firm will continue to calculate its capital ratios under both the Basel III Standardized and Advanced Approaches. While the Firm has imposed Basel III Standardized Fully Phased-In RWA limits on its lines of business, the Firm continues to manage each of the businesses (including line of business equity allocations), as well as the corporate functions, primarily on a Basel III Advanced Fully Phased-In basis.
The Firm’s capital, RWA and capital ratios that are presented under Basel III Standardized and Advanced Fully Phased-In rules and the Firm’s and JPMorgan Chase Bank, N.A.’s and Chase Bank USA, N.A.’s SLRs calculated under the Basel III Advanced Fully Phased-In rules are non-GAAP financial measures. However, such measures are used by banking regulators, investors and analysts to assess the Firm’s capital position and to compare the Firm’s capital to that of other financial services companies.
The Firm’s estimates of its Basel III Standardized and Advanced Fully Phased-In capital, RWA and capital ratios and of the Firm’s, JPMorgan Chase Bank, N.A.’s, and Chase Bank USA, N.A.’s SLRs reflect management’s current understanding of the U.S. Basel III rules based on the current published rules and on the application of such rules to the Firm’s businesses as currently conducted. The actual impact on the Firm’s capital ratios and SLR as of the effective date of the rules may differ from the Firm’s current estimates depending on changes the Firm may make to its businesses in the future, further implementation guidance from the regulators, and regulatory approval of certain of the Firm’s internal risk models (or, alternatively, regulatory disapproval of the Firm’s internal risk models that have previously been conditionally approved).


70


Risk-based capital regulatory minimums
As noted above the Basel III rules include minimum capital ratio requirements that are subject to phase-in periods through the end of 2018. The capital adequacy of the Firm and its national bank subsidiaries, both during the transitional period and upon full phase-in, is evaluated against the Basel III approach (Standardized or Advanced) which results, for each quarter, in the lower ratio (the “Collins Floor”), as required by the Collins Amendment of the Dodd-Frank Act.
In addition to the regulatory minimum capital requirements, certain banking organizations, including the Firm, will be required to hold additional amounts of capital to serve as a “capital conservation buffer”. The capital conservation buffer is intended to be used to absorb potential losses in times of financial or economic stress. If not maintained, the Firm could be limited in the amount of capital that may be distributed, including dividends and common equity repurchases.
The capital conservation buffer requires an additional 2.5% of CET1 capital, as well as additional levels of capital in the form of a G-SIB surcharge. On July 20, 2015, the Federal Reserve issued a final rule requiring G-SIBs to calculate their G-SIB surcharge, on an annual basis, under two separately prescribed methods, and to be subject to the higher of the two. The first method reflects the G-SIB surcharge as prescribed by Basel rules, and is calculated across five criteria: size, cross-jurisdictional activity, interconnectedness, complexity and substitutability. The Firm’s G-SIB buffer as calculated under this method is currently estimated to be 2.5%. The second method modifies the requirements to include a measure of short-term wholesale funding in place of substitutability, and introduces a G-SIB score “multiplication factor.” In its July 20, 2015 rule release, the Federal Reserve estimated the Firm’s G-SIB surcharge to be 4.5% of CET1 capital based on its G-SIB score as of December 31, 2014.
Based on the Federal Reserve’s estimates, the Firm’s fully phased-in capital conservation buffer is 7%. The capital conservation buffer will be phased-in beginning January 1, 2016.
 
As well as meeting the minimum capital ratio requirements, inclusive of the capital conservation buffer, the Firm must, in order to be considered well capitalized pursuant to regulations issued by the Federal Reserve, maintain a minimum 10% Total Capital requirement. Each of the Firm's IDI subsidiaries must maintain a minimum 6.5% CET1 standard to meet the definition of “well capitalized” under the Prompt Corrective Action (“PCA”) requirements of the FDICIA for IDI subsidiaries. The PCA standards for IDI subsidiaries were effective January 1, 2015.
 
 
 
 
 
 
Capital
A reconciliation of total stockholders’ equity to Basel III Fully Phased-In CET1 capital, Tier 1 capital and Basel III Advanced and Standardized Fully Phased-In Total capital is presented in the table below. Beginning July 21, 2015, the Volcker Rule provisions regarding the prohibitions against proprietary trading and holding ownership interests in or sponsoring “covered funds” became effective. The deduction from Basel III Tier 1 capital associated with the permissible holdings of covered funds acquired after December 31, 2013 was not material as of September 30, 2015.
For additional information on the components of regulatory capital, see Note 20.
Risk-based capital components
 
(in millions)
September 30, 2015
Total stockholders’ equity
$
245,728

Less: Preferred stock
26,068

Common stockholders’ equity
219,660

Less:
 
Goodwill(a)
44,411

Other intangible assets(a)
925

Other CET1 capital adjustments
1,894

CET1 capital
172,430

Preferred stock
26,068

Less:
 
Other Tier 1 adjustments
341

Tier 1 capital
$
198,157

Long-term debt and other instruments qualifying as
Tier 2 capital
$
18,112

Qualifying allowance for credit losses
14,201

Other
(107
)
Standardized Fully Phased-In Tier 2 capital
$
32,206

Standardized Fully Phased-in Total capital
$
230,363

Adjustment in qualifying allowance for credit losses for Advanced Tier 2 capital
(10,499
)
Advanced Fully Phased-In Tier 2 capital
$
21,707

Advanced Fully Phased-In Total capital
$
219,864

 
 
(a)
Goodwill and other intangible assets are net of any associated deferred tax liabilities.




71


Capital rollforward
The following table presents the changes in Basel III Fully Phased-In CET1 capital, Tier 1 capital and Tier 2 capital for the nine months ended September 30, 2015.
Nine months ended September 30,
(in millions)
2015

Standardized/Advanced CET1 capital at December 31, 2014
$
164,514

Net income applicable to common equity
17,911

Dividends declared on common stock
(4,838
)
Net purchase of treasury stock
(2,685
)
Changes in additional paid-in capital
(954
)
Changes related to AOCI
(1,507
)
Adjustment related to FVA/DVA
(732
)
Other
721

Increase in Standardized/Advanced CET1 capital
7,916

Standardized/Advanced CET1 capital at September 30, 2015
$
172,430

 
 
Standardized/Advanced Tier 1 capital at December 31, 2014
$
184,572

Change in CET1 capital
7,916

Net issuance of noncumulative perpetual preferred stock
6,005

Other
(336
)
Increase in Standardized/Advanced Tier 1 capital
13,585

Standardized/Advanced Tier 1 capital at September 30, 2015
$
198,157

 
 
Standardized Tier 2 capital at December 31, 2014
$
32,224

Change in long-term debt and other instruments qualifying as Tier 2
608

Change in qualifying allowance for credit losses
(606
)
Other
(20
)
Decrease in Standardized Tier 2 capital
(18
)
Standardized Tier 2 capital at September 30, 2015
$
32,206

Standardized Total capital at September 30, 2015
$
230,363

Advanced Tier 2 capital at December 31, 2014
$
21,684

Change in long-term debt and other instruments qualifying as Tier 2
608

Change in qualifying allowance for credit losses
(565
)
Other
(20
)
Increase in Advanced Tier 2 capital
23

Advanced Tier 2 capital at September 30, 2015
$
21,707

Advanced Total capital at September 30, 2015
$
219,864

 
RWA
Key differences in the calculation of credit risk RWA between the Standardized and Advanced approaches are that for Basel III Advanced, credit risk RWA is based on risk-sensitive approaches which largely rely on the use of internal credit models and parameters, whereas for Basel III Standardized, credit risk RWA is generally based on supervisory risk-weightings which vary primarily by counterparty type and asset class. Market risk RWA is calculated on a generally consistent basis between Basel III Standardized and Basel III Advanced. Basel III Advanced also includes a measure of operational risk RWA. In addition to the RWA calculated under these methodologies, the Firm may supplement such amounts to incorporate management judgment and feedback from its banking regulators.



72


RWA rollforward
The following table presents changes in the components of RWA under Basel III Standardized and Advanced Fully Phased-In for the nine months ended September 30, 2015. The amounts in the rollforward categories are estimates, based on the predominant driver of the change.
 
Standardized
 
Advanced
Nine months ended
September 30, 2015
(in billions)
Credit risk RWA
Market risk RWA
Total RWA
 
Credit risk RWA
Market risk RWA
Operational risk
RWA
Total RWA
At December 31, 2014
$
1,381

$
180

$
1,561

 
$
1,040

$
179

$
400

$
1,619

Model & data changes(a)
(10
)
(14
)
(24
)
 
(37
)
(14
)

(51
)
Portfolio runoff(b)
(9
)
(7
)
(16
)
 
(14
)
(7
)

(21
)
Movement in portfolio levels(c)
(3
)
(5
)
(8
)
 
(30
)
(4
)

(34
)
Changes in RWA
(22
)
(26
)
(48
)
 
(81
)
(25
)

(106
)
September 30, 2015
$
1,359

$
154

$
1,513

 
$
959

$
154

$
400

$
1,513

(a)
Model & data changes refer to movements in levels of RWA as a result of revised methodologies and/or treatment per regulatory guidance (exclusive of rule changes).
(b)
Portfolio runoff for credit risk RWA reflects reduced risk from position rolloffs in legacy portfolios in Mortgage Banking (primarily under the Advanced framework) and Broker Dealer Services (primarily under the Standardized framework); and for market risk RWA reflects reduced risk from position rolloffs in legacy portfolios in the wholesale businesses.
(c)
Movement in portfolio levels for credit risk RWA refers to changes in book size, composition, credit quality, and market movements; and for market risk RWA refers to changes in position and market movements.
Additional information regarding the Firm’s capital ratios,
as well as the U.S. federal regulatory capital standards to which the Firm is subject, is presented in Note 20. For further information on the Firm’s Basel III measures, see
the Firm’s Pillar 3 Regulatory Capital Disclosures reports,
which are available on the Firm’s website (http://investor.shareholder.com/jpmorganchase/basel.cfm).
Supplementary leverage ratio
For additional information on the SLR, see Capital Management on pages 146–155 of JPMorgan Chase’s 2014 Annual Report.
The following table presents the components of the Firm’s Fully Phased-In SLR as of September 30, 2015.
(in millions, except ratio)
September 30, 2015
Tier 1 Capital
$
198,157

Total average assets
2,421,708

Less: amounts deducted from Tier 1 capital
46,580

Total adjusted average assets(a)
2,375,128

Off-balance sheet exposures(b)
741,316

SLR leverage exposure
$
3,116,444

SLR
6.4
%
(a)
Adjusted average assets, for purposes of calculating the SLR, includes total quarterly average assets adjusted for on-balance sheet assets that are subject to deduction from Tier 1 capital predominantly comprising disallowed goodwill and other intangible assets.
(b)
Off-balance sheet exposures are calculated as the average of each of the three month’s period-end balances.
 
 
 
 
 
As of September 30, 2015, the Firm estimates that JPMorgan Chase Bank, N.A.’s and Chase Bank USA, N.A.’s Fully Phased-In SLRs are approximately 6.5% and 8.2%, respectively.
Regulatory capital outlook
The Firm expects to continue to accrete capital and believes its current capital levels enable it to retain market access, continue its strategy to invest in and grow its businesses and maintain flexibility to distribute excess capital. The Firm
 
intends to balance return of capital to stockholders with achieving higher capital ratios over time. At September 30, 2015, the Firm's Basel III Standardized and Advanced Fully Phased-In CET1 ratios were the same, and therefore in the next quarter or two, the Firm anticipates either CET1 ratio could become the lower of the two, and thus, the binding constraint. However, the Firm still expects the Basel III Standardized Fully Phased-In CET1 ratio to become its Collins Floor, and therefore its binding constraint at some point during 2016. At September 30, 2015, the Firm had exceeded its 2015 year-end Basel III Fully Phased-In CET1 target of 11%, and anticipates reaching a Basel III Fully Phased-In CET1 ratio of approximately 12% no later than the end of 2018. The Firm intends to manage its capital so that it achieves the required capital levels and composition in line with, or in advance of, the required timetables of current and proposed rules.
The Firm’s capital targets take into consideration the current U.S. Basel III requirements, including the U.S. G-SIB final rule, and other business factors. These targets may be revised in the future; for example, if the Firm’s U.S. G-SIB capital surcharge is determined by its regulators to be lower than 4.5%. Given actions taken in the current year in particular, in reducing non-operating deposits, the Firm estimates its U.S. G-SIB surcharge to be 4% as of September 30, 2015.
Minimum Total Loss Absorbing Capacity (“TLAC”)
In November 2014, the Financial Stability Board issued a proposal requiring minimum TLAC of 16-20% of a financial institution’s RWA and of at least twice its Basel III Tier 1 leverage ratio. The final TLAC proposal is expected to be submitted to the G-20 in advance of the G-20 Summit scheduled for the fourth quarter of 2015. On October 30, 2015, U.S. banking regulators issued an NPR that outlines TLAC requirements specific to G-SIB bank holding companies, including the Firm; the Firm is currently evaluating the impact of the NPR. For additional information on TLAC, see Capital Management on pages 146–155 of JPMorgan Chase’s 2014 Annual Report.


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Economic risk capital
Economic risk capital is another of the disciplines the Firm uses to assess the capital required to support its businesses. Economic risk capital is a measure of the capital needed to cover JPMorgan Chase’s business activities in the event of unexpected losses. The Firm measures economic risk capital using internal risk-assessment methodologies and models based primarily on four risk factors: credit, market, operational and private equity risk, and considers factors, assumptions and inputs that differ from those required to be used for regulatory capital requirements. Accordingly, economic risk capital provides a complementary measure to regulatory capital. As economic risk capital is a separate component of the capital framework for Advanced Approach banking organizations under Basel III, the Firm continues to refine its economic risk capital framework.

Line of business equity
The Firm’s framework for allocating capital to its business segments (line of business equity) is based on the following objectives:
Integrate firmwide and line of business capital management activities;
Measure performance consistently across all lines of business; and
Provide comparability with peer firms for each of the lines of business
Each business segment is allocated capital by taking into consideration regulatory capital requirements (as estimated under Basel III Advanced Fully Phased-In) and economic risk measures and stand-alone peer comparisons. Capital is also allocated to each line of business for, among other things, goodwill and other intangibles associated with acquisitions effected by the line of business. ROE is measured and internal targets for expected returns are established as key measures of a business segment’s performance.
Line of business equity
 

(in billions)
September 30, 2015
 
December 31, 2014
Consumer & Community Banking
$
51.0

 
$
51.0

Corporate & Investment Bank
62.0

 
61.0

Commercial Banking
14.0

 
14.0

Asset Management
9.0

 
9.0

Corporate
83.7

 
76.7

Total common stockholders’ equity
$
219.7

 
$
211.7

Line of business equity
 
Quarterly average
(in billions)
 
3Q15

 
4Q14

 
3Q14

Consumer & Community Banking
 
$
51.0

 
$
51.0

 
$
51.0

Corporate & Investment Bank
 
62.0

 
61.0

 
61.0

Commercial Banking
 
14.0

 
14.0

 
14.0

Asset Management
 
9.0

 
9.0

 
9.0

Corporate
 
81.0

 
76.9

 
74.6

Total common stockholders’ equity
 
$
217.0

 
$
211.9

 
$
209.6

 
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 to its lines of business and updates the equity allocations to its lines of business as refinements are implemented.
Capital actions
Dividends
The Firm’s common stock dividend policy reflects JPMorgan Chase’s earnings outlook, desired dividend payout ratio, capital objectives, and alternative investment opportunities.
The Firm’s current expectation is to continue to target a dividend payout ratio of approximately 30% of normalized earnings over time. Following receipt on March 11, 2015, of the Federal Reserve’s non-objection to the Firm’s 2015 capital plan submitted under its Comprehensive Capital Analysis and Review (“CCAR”), the Firm announced that its Board of Directors had increased the quarterly common stock dividend to $0.44 per share, effective with the dividend paid on July 31, 2015. The Firm’s dividends will be subject to the Board of Directors’ approval at the customary times those dividends are to be declared.
For information regarding dividend restrictions, see Note 22 and Note 27 of JPMorgan Chase’s 2014 Annual Report.
Redemption of outstanding trust preferred securities
On April 2, 2015, the Firm redeemed $1.5 billion, or 100% of the liquidation amount, of JPMorgan Chase Capital XXIX trust preferred securities. For additional information on the Firm’s trust preferred securities, see Note 21 of the 2014 Annual Report.
Preferred stock
During the three and nine months ended September 30, 2015, the Firm issued $1.2 billion and $6.0 billion, respectively, of noncumulative preferred stock. Preferred stock dividends declared were $393 million and $1.1 billion for the three and nine months ended September 30, 2015, respectively. Assuming all preferred stock issuances during the third quarter of 2015 were outstanding for the entire quarter, and dividends were declared on such issuances, preferred stock dividends would have been $412 million for the quarter.
For additional information on the Firm’s preferred stock, see Note 22 of JPMorgan Chase’s 2014 Annual Report.
Common equity
During the nine months ended September 30, 2015, warrant holders exercised their right to purchase 11.5 million shares of the Firm’s common stock. Under the warrants’ net settlement terms, the Firm issued 4.4 million shares of its common stock as a result of these exercises. As of September 30, 2015, 48.3 million warrants remained outstanding, compared with 59.8 million outstanding as of December 31, 2014.
Following receipt on March 11, 2015, of the Federal Reserve’s non-objection to the Firm’s 2015 capital plan submitted under CCAR, the Firm’s Board of Directors authorized the Firm to repurchase up to $6.4 billion of common equity (common stock and warrants) between April 1, 2015, and June 30, 2016. This authorization includes shares repurchased to offset issuances under the Firm’s equity-based compensation plans.


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The following table sets forth the Firm’s repurchases of common equity for the three and nine months ended September 30, 2015 and 2014. The Firm repurchased common equity as permitted by its CCAR capital plans and prior Board authorization. Under the Federal Reserve's current capital plan and stress test rules, the Firm's cumulative net repurchases through the current quarter, cannot exceed the amount reflected in the Firm's 2015 capital plan submitted to the Federal Reserve. There were no warrants repurchased during the three and nine months ended September 30, 2015 and 2014.
 
 
Three months ended
September 30,
 
Nine months ended September 30,
(in millions)
 
2015
2014
 
2015
2014
Total shares of common stock repurchased
 
19.1

25.5

 
70.8

57.0

Aggregate common stock repurchases
 
$
1,248

$
1,489

 
$
4,397

$
3,250

The Firm may, from time to time, enter into written trading plans under Rule 10b5-1 of the Securities Exchange Act of 1934 to facilitate repurchases in accordance with the common equity repurchase program. A Rule 10b5-1 repurchase plan allows the Firm to repurchase its equity during periods when it would not otherwise be repurchasing common equity — for example, during internal trading blackout periods. All purchases under a Rule 10b5-1 plan must be made according to a predefined plan established when the Firm is not aware of material nonpublic information.
The authorization to repurchase common equity will be utilized at management’s discretion, and the timing of purchases and the exact amount of common equity that may be repurchased is subject to various factors, including market conditions; legal and regulatory considerations affecting the amount and timing of repurchase activity; the Firm’s capital position (taking into account goodwill and intangibles); internal capital generation; and alternative investment opportunities. The repurchase program does not include specific price targets or timetables; may be executed through open market purchases or privately negotiated transactions, or utilizing Rule 10b5-1 programs; and may be suspended at any time.
For additional information regarding repurchases of the Firm’s equity securities, see Part II, Item 5: Market for registrant’s common equity, related stockholder matters and issuer purchases of equity securities on pages 18–19 of JPMorgan Chase’s 2014 Form 10-K.

 
Broker-dealer regulatory capital
JPMorgan Chase’s principal U.S. broker-dealer subsidiaries are J.P. Morgan Securities LLC (“JPMorgan Securities”) and J.P. Morgan Clearing Corp. (“JPMorgan Clearing”). JPMorgan Clearing is a subsidiary of JPMorgan Securities and provides clearing and settlement services. JPMorgan Securities and JPMorgan Clearing are each subject to Rule 15c3-1 under the Securities Exchange Act of 1934 (the “Net Capital Rule”). JPMorgan Securities and JPMorgan Clearing are also each registered as futures commission merchants and subject to Rule 1.17 of the Commodity Futures Trading Commission (“CFTC”).
JPMorgan Securities and JPMorgan Clearing have elected to compute their minimum net capital requirements in accordance with the “Alternative Net Capital Requirements” of the Net Capital Rule. At September 30, 2015, JPMorgan Securities’ net capital, as defined by the Net Capital Rule, was $13.2 billion, exceeding the minimum requirement by $10.7 billion, and JPMorgan Clearing’s net capital was $7.5 billion, exceeding the minimum requirement by $5.8 billion.
In addition to its minimum net capital requirement, JPMorgan Securities is required to hold tentative net capital in excess of $1.0 billion and is also required to notify the Securities and Exchange Commission (“SEC”) in the event that tentative net capital is less than $5.0 billion, in accordance with the market and credit risk standards of Appendix E of the Net Capital Rule. As of September 30, 2015, JPMorgan Securities had tentative net capital in excess of the minimum and notification requirements.
J.P. Morgan Securities plc is a wholly-owned subsidiary of JPMorgan Chase Bank, N.A. and is the Firm’s principal operating subsidiary in the U.K. It has authority to engage in banking, investment banking and broker-dealer activities. J.P. Morgan Securities plc is jointly regulated by the U.K. Prudential Regulation Authority (“PRA”) and Financial Conduct Authority (“FCA”). Commencing January 1, 2014, J.P. Morgan Securities plc became subject to the U.K. Basel III capital rules.
At September 30, 2015, J.P. Morgan Securities plc had estimated total capital of $33.9 billion; its estimated CET1 capital ratio was 14.6% and its estimated Total capital ratio was 18.5%. Both capital ratios exceeded the minimum standards of 4.5% and 8.0%, respectively, under the transitional requirements of the European Union’s (“EU”) Basel III Capital Requirements Directive and Regulation, as well as the additional capital requirements specified by the PRA.



75


LIQUIDITY RISK MANAGEMENT
Liquidity risk is the risk that the Firm will be unable to meet its contractual and contingent obligations. Liquidity risk management is intended to ensure that the Firm has the appropriate amount, composition and tenor of funding and liquidity in support of its assets. The following discussion of JPMorgan Chase’s Liquidity Risk Management should be read in conjunction with pages 156–160 of JPMorgan Chase’s 2014 Annual Report.
LCR and NSFR
In December 2010, the Basel Committee introduced two new measures of liquidity risk: the liquidity coverage ratio (“LCR”), which is intended to measure the amount of “high-quality liquid assets” (“HQLA”) held by the Firm in relation to estimated net cash outflows within a 30-day period during an acute stress event; and the net stable funding ratio (“NSFR”) which is intended to measure the “available” amount of stable funding relative to the “required” amount of stable funding over a one-year horizon. The standards require that the LCR be no lower than 100% and the NSFR be greater than 100%.
On September 3, 2014, the U.S. banking regulators approved the final LCR rule (“U.S. LCR”), which became effective on January 1, 2015. Under the final rules, the LCR is required to be 80% at January 1, 2015, increasing by 10% each year until reaching 100% at January 1, 2017. 
At September 30, 2015, the Firm was compliant with the fully phased-in U.S. LCR. The Firm’s LCR may fluctuate from period-to-period due to normal flows from client activity.
On October 31, 2014, the Basel Committee issued the final standard for the NSFR which will become a minimum standard by January 1, 2018. The U.S. banking regulators are expected to issue an NPR that would outline requirements specific to U.S. banks.
HQLA
HQLA is the amount of assets that qualify for inclusion in the U.S. LCR. HQLA primarily consists of cash and certain unencumbered high quality liquid assets as defined in the final rule.
As of September 30, 2015, the Firm’s HQLA was $505 billion, compared with $600 billion as of December 31, 2014. The decrease in HQLA was due to lower cash balances largely driven by lower non-operating deposit balances; however, the Firm remains LCR–compliant given the corresponding reduction in estimated net cash outflows associated with those deposits. HQLA may fluctuate from period-to-period primarily due to normal flows from client activity.
 
The following table presents HQLA included in the U.S. LCR, broken out by HQLA-eligible cash and HQLA-eligible securities as of September 30, 2015.
(in billions)
September 30, 2015
HQLA
 
Eligible cash(a)
$
335

Eligible securities(b)
170

Total HQLA
$
505

(a)
Predominantly cash on deposit at central banks.
(b)
Predominantly includes U.S. agency mortgage-backed securities, U.S. Treasuries, and sovereign bonds net of applicable haircuts under U.S. LCR rules.

In addition to HQLA, as of September 30, 2015, the Firm has approximately $243 billion of unencumbered marketable securities, such as equity securities and fixed income debt securities, available to raise liquidity, if required. Furthermore, the Firm maintains borrowing capacity at various Federal Home Loan Banks (“FHLBs”), the Federal Reserve Bank discount window and various other central banks as a result of collateral pledged by the Firm to such banks. Although available, the Firm does not view the borrowing capacity at the Federal Reserve Bank discount window and the various other central banks as a primary source of liquidity. As of September 30, 2015, the Firm’s remaining borrowing capacity at various FHLBs and the Federal Reserve Bank discount window was approximately $174 billion. This remaining borrowing capacity excludes the benefit of securities included above in HQLA or other unencumbered securities currently held at the Federal Reserve Bank discount window for which the Firm has not drawn liquidity.
Funding
Sources of funds
Management believes that the Firm’s unsecured and secured funding capacity is sufficient to meet its on- and off-balance sheet obligations.
The Firm funds its global balance sheet through diverse sources of funding including a stable deposit franchise as well as secured and unsecured funding in the capital markets. The Firm’s loan portfolio (aggregating approximately $809.5 billion at September 30, 2015), is funded with a portion of the Firm’s deposits (aggregating approximately $1,273.1 billion at September 30, 2015), and through securitizations and, with respect to a portion of the Firm’s real estate-related loans, with secured borrowings from the FHLBs. Deposits in excess of the amount utilized to fund loans are primarily invested in the Firm’s investment securities portfolio or deployed in cash or other short-term liquid investments based on their interest rate and liquidity risk characteristics. Securities borrowed or purchased under resale agreements and trading assets- debt and equity instruments are primarily funded by the Firm’s securities loaned or sold under agreements to


76


repurchase, trading liabilities–debt and equity instruments and a portion of the Firm’s long-term debt and stockholders’ equity. In addition to funding securities borrowed or purchased under resale agreements and trading assets-debt and equity instruments, proceeds from the Firm’s debt and equity issuances are used to fund certain loans and other financial and non-financial assets, or may be invested in the Firm’s investment securities portfolio. See the discussion below for additional information relating to Deposits, Short-term funding, and Long-term funding and issuance.
 
Deposits
A key strength of the Firm is its diversified deposit franchise, through each of its lines of business, which provides a stable source of funding and limits reliance on the wholesale funding markets. As of September 30, 2015, the Firm’s loans-to-deposits ratio was 64%, compared with 56% at December 31, 2014.
As of September 30, 2015, total deposits for the Firm were $1,273.1 billion, compared with $1,363.4 billion at December 31, 2014 (59% and 58% of total liabilities at September 30, 2015, and December 31, 2014, respectively). The decrease was attributable to lower wholesale non-operating deposits, partially offset by higher consumer deposits. For further information, see Balance Sheet Analysis on pages 10–11.

The Firm has typically experienced higher customer deposit inflows at period-ends. Therefore, the Firm believes average deposit balances are more representative of deposit trends. The table below summarizes, by line of business, deposit balances as of September 30, 2015, and December 31, 2014, respectively, as well as average deposits for the three and nine months ended September 30, 2015 and 2014, respectively.
 
September 30, 2015
December 31, 2014
 
Three months ended
September 30,
 
Nine months ended
September 30,
Deposits
 
Average
 
Average
(in millions)
 
2015
2014
 
2015
2014
Consumer & Community Banking
$
539,182

$
502,520

 
$
535,987

$
492,022

 
$
525,951

$
483,297

Corporate & Investment Bank
400,476

468,423

 
400,690

419,720

 
419,562

411,189

Commercial Banking
178,266

213,682

 
176,619

191,555

 
186,625

188,913

Asset Management
140,121

155,247

 
141,896

151,240

 
150,840

149,480

Corporate
15,061

23,555

 
15,769

15,138

 
18,988

19,865

Total Firm
$
1,273,106

$
1,363,427

 
$
1,270,961

$
1,269,675

 
$
1,301,966

$
1,252,744

A significant portion of the Firm’s deposits are consumer deposits (42% and 37% at September 30, 2015, and December 31, 2014, respectively), which are considered a stable source of liquidity. Additionally, the majority of the Firm’s wholesale operating deposits are also considered to be stable sources of liquidity because they are generated from customers that maintain operating service relationships with the Firm. Wholesale non-operating deposits, including a portion of balances previously reported as commercial paper sweep liabilities, have decreased by over $150 billion from December 31, 2014 to September 30, 2015, predominantly driven by the Firm’s actions to reduce such deposits, consistent with its commitment to do so, as announced in February 2015. The reduction has not had a significant impact on the Firm’s liquidity position. For further discussions of deposit and liability balance trends, see the discussion of the results for the Firm’s business segments and the Balance Sheet Analysis on pages 17–45 and pages 10–11, respectively.

77


The following table summarizes short-term and long-term funding, excluding deposits, as September 30, 2015, and December 31, 2014, and average balances for the three and nine months ended September 30, 2015 and 2014, respectively. For additional information, see the Balance Sheet Analysis on pages 10–11 and Note 12.
 
September 30, 2015
December 31, 2014
 
Three months ended
September 30,
 
Nine months ended
September 30,
Sources of funds (excluding deposits)
 
Average
 
Average
(in millions)
 
2015
2014
 
2015
2014
Commercial paper:
 
 
 
 
 
 
 
 
Wholesale funding
$
19,656

$
24,052

 
$
19,580

$
18,289

 
$
19,808

$
18,622

Client cash management

42,292

 
6,587

41,070

 
25,135

40,648

Total commercial paper
$
19,656

$
66,344

 
$
26,167

$
59,359

 
$
44,943

$
59,270

 
 
 
 
 
 
 
 
 
Obligations of Firm-administered multi-seller conduits(a)
$
12,967

$
12,047

 
$
13,275

$
8,981

 
$
12,237

$
11,068

Other borrowed funds
$
27,174

$
30,222

 
$
28,466

$
33,154

 
$
30,516

$
31,782

 
 
 
 
 
 
 
 
 
Securities loaned or sold under agreements to repurchase:
 
 
 
 
 
 
 
 
Securities sold under agreements to repurchase
$
160,400

$
167,077

 
$
165,099

$
190,886

 
$
171,280

$
182,690

Securities loaned
14,909

21,798

 
17,897

19,983

 
20,353

22,109

Total securities loaned or sold under agreements to repurchase(b)(c)(d)
$
175,309

$
188,875

 
$
182,996

$
210,869

 
$
191,633

$
204,799

 
 
 
 
 
 
 
 
 
Total senior notes
$
151,323

$
142,480

 
$
149,287

$
139,509

 
$
146,900

$
138,984

Trust preferred securities
3,996

5,496

 
3,988

5,476

 
4,500

5,467

Subordinated debt
28,705

29,472

 
27,064

29,230

 
27,906

29,228

Structured notes
31,054

30,021

 
31,159

30,837

 
30,916

30,067

Total long-term unsecured funding
$
215,078

$
207,469

 
$
211,498

$
205,052

 
$
210,222

$
203,746

 
 
 
 
 
 
 
 
 
Credit card securitization(a)
$
30,094

$
31,239

 
$
30,826

$
28,814

 
$
31,151

$
28,587

Other securitizations(e)
1,817

2,008

 
1,878

2,489

 
1,941

2,958

FHLB advances
73,535

64,994

 
73,006

57,598

 
69,132

60,016

Other long-term secured funding(f)
4,332

4,373

 
4,354

3,989

 
4,308

5,307

Total long-term secured funding
$
109,778

$
102,614

 
$
110,064

$
92,890

 
$
106,532

$
96,868

 
 
 
 
 
 
 
 
 
Preferred stock(g)
$
26,068

$
20,063

 
$
25,718

$
18,602

 
$
23,357

$
15,992

Common stockholders’ equity(g)
$
219,660

$
211,664

 
$
217,023

$
209,621

 
$
214,389

$
205,888

(a)
Included in beneficial interests issued by consolidated variable interest entities on the Firm’s Consolidated balance sheets.
(b)
Excludes federal funds purchased.
(c)
Excluded long-term structured repurchase agreements of $4.0 billion and $2.7 billion as of September 30, 2015, and December 31, 2014, respectively, and average balance of $3.9 billion and $2.6 billion for the three months ended September 30, 2015 and 2014, respectively, and $3.5 billion and $3.8 billion for the nine months ended September 30, 2015 and 2014, respectively.
(d)
Excluded average long-term securities loaned of $32 million for the nine months ended September 30, 2014. There was no balance for the other periods presented.
(e)
Other securitizations includes securitizations of residential mortgages and student loans. The Firm’s wholesale businesses also securitize loans for client-driven transactions; those client-driven loan securitizations are not considered to be a source of funding for the Firm and are not included in the table.
(f)
Includes long-term structured notes which are secured.
(g)
For additional information on preferred stock and common stockholders’ equity see Capital Management on pages 69–75 and the Consolidated statements of changes in stockholders’ equity on page 89; and Note 22 and Note 23 of JPMorgan Chase’s 2014 Annual Report.

Short-term funding
During the third quarter 2015 the Firm completed the discontinuation of its commercial paper customer sweep cash management program. This change has not had a significant impact on the Firm’s liquidity as the majority of these customer funds remain as deposits at the Firm.
 
The Firm’s sources of short-term secured funding primarily consist of securities loaned or sold under agreements to repurchase. Securities loaned or sold under agreements to repurchase are secured predominantly by high-quality securities collateral, including government-issued debt and agency MBS, and constitute a significant portion of the federal funds purchased and securities loaned or sold under repurchase agreements on the Consolidated balance sheets. The decrease in securities loaned or sold under agreements to repurchase at September 30, 2015, compared with the balance at December 31, 2014 (as well as the average balances for the three and nine months ended September 30, 2015, compared with the prior year periods) was predominantly attributable to a decline in secured financing of trading assets-debt and equity instruments. The balances


78


associated with securities loaned or sold under agreements to repurchase fluctuate over time due to customers’ investment and financing activities; the Firm’s demand for financing; the ongoing management of the mix of the Firm’s liabilities, including its secured and unsecured financing (for both the investment securities and market-making portfolios); and other market and portfolio factors.
Long-term funding and issuance
Long-term funding provides additional sources of stable funding and liquidity for the Firm. The Firm’s long-term funding plan is driven by expected client activity, liquidity considerations, and regulatory requirements. Long-term funding objectives include maintaining diversification, maximizing market access and optimizing funding costs, as well as maintaining a certain level of pre-funding at the parent holding company. The Firm evaluates various funding markets, tenors and currencies in creating its optimal long-term funding plan.
The significant majority of the Firm’s long-term unsecured funding is issued by the parent holding company to provide maximum flexibility in support of both bank and nonbank subsidiary funding. The following table summarizes long-term unsecured issuance and maturities or redemptions for the three and nine months ended September 30, 2015 and 2014. For additional information, see Note 21 of JPMorgan Chase’s 2014 Annual Report.
 
Long-term unsecured funding
Three months ended
September 30,
 
Nine months ended
September 30,
(in millions)
2015
2014
 
2015
2014
Issuance
 
 
 
 
 
Senior notes issued in the U.S. market
$
2,651

$

 
$
16,281

$
13,478

Senior notes issued in non-U.S. markets
1,268

1,953

 
8,574

7,419

Total senior notes
3,919

1,953

 
24,855

20,897

Subordinated debt
1,494

2,984

 
3,232

2,984

Structured notes
5,514

5,255

 
18,123

15,560

Total long-term unsecured funding – issuance
$
10,927

$
10,192

 
$
46,210

$
39,441

 
 
 
 
 
 
Maturities/redemptions
 
 
 
 
 
Total senior notes
$
1,370

$
4

 
$
14,089

$
17,404

Trust preferred securities


 
1,500


Subordinated debt
573

2,000

 
3,605

2,600

Structured notes
4,040

4,506

 
14,364

13,356

Total long-term unsecured funding – maturities/redemptions
$
5,983

$
6,510

 
$
33,558

$
33,360

In addition, from October 1, 2015, through November 2, 2015, the Firm issued $4.7 billion of senior notes.
The Firm raises secured long-term funding through securitization of consumer credit card loans and advances from the FHLBs. It may also in the future raise long-term funding through securitization of residential mortgages and auto loans, which would increase funding and investor diversity.

The following table summarizes the securitization issuance and FHLB advances and their respective maturities or redemptions for the three and nine months ended September 30, 2015 and 2014, respectively.
 
Three months ended
September 30,
 
Nine months ended
September 30,
Long-term secured funding
Issuance
 
Maturities/Redemptions
 
Issuance
 
Maturities/Redemptions
(in millions)
2015
2014
 
2015
2014
 
2015
2014
 
2015
2014
Credit card securitization
$
700

$
500

 
$
1,850

$

 
$
6,826

$
6,050

 
$
7,980

$
3,774

Other securitizations(a)


 
63

61

 


 
191

246

FHLB advances
4,000

5,750

 
3,003

6,135

 
16,550

6,750

 
8,006

8,625

Other long-term secured funding
$
31

$
131

 
$
141

$
62

 
$
294

$
464

 
$
350

$
3,058

Total long-term secured funding
$
4,731

$
6,381

 
$
5,057

$
6,258

 
$
23,670

$
13,264

 
$
16,527

$
15,703

(a)
Other securitizations includes securitizations of residential mortgages and student loans.

The Firm’s wholesale businesses also securitize loans for client-driven transactions; those client-driven loan securitizations are not considered to be a source of funding for the Firm and are not included in the table above. For further description of the client-driven loan securitizations, see Note 16 of JPMorgan Chase’s 2014 Annual Report.

 
Credit ratings
The cost and availability of financing are influenced by credit ratings. Reductions in these ratings could have an adverse effect on the Firm’s access to liquidity sources, increase the cost of funds, trigger additional collateral or funding requirements and decrease the number of investors and counterparties willing to lend to the Firm.


79


Additionally, the Firm’s funding requirements for VIEs and other third party commitments may be adversely affected by a decline in credit ratings. For additional information on the impact of a credit ratings downgrade on the funding
 
requirements for VIEs, and on derivatives and collateral agreements, see Special-purpose entities on page 12, and Credit risk, liquidity risk and credit-related contingent features in Note 5.

The credit ratings of the parent holding company and the Firm’s principal bank and nonbank subsidiaries as of September 30, 2015, were as follows.
 
JPMorgan Chase & Co.
 
JPMorgan Chase Bank, N.A.
Chase Bank USA, N.A.
 
J.P. Morgan Securities LLC
September 30, 2015
Long-term issuer
Short-term issuer
Outlook
 
Long-term issuer
Short-term issuer
Outlook
 
Long-term issuer
Short-term issuer
Outlook
Moody’s
A3
P-2
Stable
 
Aa3
P-1
Stable
 
Aa3
P-1
Stable
Standard & Poor’s
A
A-1
Negative
 
A+
A-1
Stable
 
A+
A-1
Stable
Fitch Ratings
A+
F1
Stable
 
AA-
F1+
Stable
 
AA-
F1+
Stable
Downgrades of the Firm’s long-term ratings by one or two notches could result in a downgrade of the Firm’s short-term ratings. If this were to occur, the Firm believes its cost of funds could increase and access to certain funding markets could be reduced as noted above. The nature and magnitude of the impact of ratings downgrades depends on numerous contractual and behavioral factors (which the Firm believes are incorporated in its liquidity risk and stress testing metrics). The Firm believes that it maintains sufficient liquidity to withstand a potential decrease in funding capacity due to ratings downgrades.
JPMorgan Chase’s unsecured debt does not contain requirements that would call for an acceleration of payments, maturities or changes in the structure of the existing debt, provide any limitations on future borrowings or require additional collateral, based on unfavorable changes in the Firm’s credit ratings, financial ratios, earnings, or stock price.
Critical factors in maintaining high credit ratings include a stable and diverse earnings stream, strong capital ratios, strong credit quality and risk management controls, diverse funding sources, and disciplined liquidity monitoring procedures. Rating agencies continue to evaluate economic
 
and geopolitical trends, regulatory developments, rating uplift assumptions surrounding government support, future profitability, risk management practices, and litigation matters, as well as their broader ratings methodologies. Changes in any of these factors could lead to changes in the Firm’s credit ratings.
In May 2015, Moody’s published its new bank rating methodology. As part of this action, the Firm’s preferred stock, deposits and bank subordinated debt ratings were upgraded by one notch. Additionally in May 2015, Fitch changed its bank ratings methodology, implementing ratings differentiation between bank holding companies and their bank subsidiaries. This resulted in a one notch upgrade to the issuer ratings, senior debt ratings and long-term deposit ratings of JPMorgan Chase Bank, N.A., and certain other subsidiaries. In addition, S&P is considering a proposed change to its rating criteria related to additional loss absorbing capacity.
Although the Firm closely monitors and endeavors to manage, to the extent it is able, factors influencing its credit ratings, there is no assurance that its credit ratings will not be changed in the future.




SUPERVISION AND REGULATION
For further information on Supervision and Regulation, see the Supervision and regulation section on pages 1–7 of JPMorgan Chase’s 2014 Form 10-K.
For more information about the applicable requirements relating to risk-based capital and leverage in the U.S.
under Basel III, see Regulatory capital on pages 69–73 and Note 20.
Under Basel III, bank holding companies and banks are required to measure their liquidity against two specific liquidity tests: the LCR and the NSFR. For additional information on these ratios, see Liquidity Risk Management on pages 76–80.
For additional information on the Firm’s CCAR, see Regulatory capital on pages 69–73.
 
For further information on the potential impact of the
G-SIB framework and TLAC, see Regulatory capital on pages 69–73.
For information on the net capital of J.P. Morgan Securities LLC and J.P. Morgan Clearing Corp., and the applicable requirements relating to risk-based capital for J.P. Morgan Securities plc, see Regulatory capital on pages 69–73.
Dividends
At September 30, 2015, JPMorgan Chase estimated that its banking subsidiaries could pay, in the aggregate, approximately $40 billion in dividends to their respective bank holding companies without the prior approval of their relevant banking regulators.


80


CRITICAL ACCOUNTING ESTIMATES USED BY THE FIRM
JPMorgan Chase’s accounting policies and use of estimates are integral to understanding its reported results. The Firm’s most complex accounting estimates require management’s judgment to ascertain the appropriate carrying value of assets and liabilities. The Firm has established policies and control procedures intended to ensure that estimation methods, including any judgments made as part of such methods, are well-controlled, independently reviewed and applied consistently from period to period. The methods used and judgments made reflect, among other factors, the nature of the assets or liabilities and the related business and risk management strategies, which may vary across the Firm’s businesses and portfolios. In addition, the policies and procedures are intended to ensure that the process for changing methodologies occurs in an appropriate manner. The Firm believes its estimates for determining the carrying value of its assets and liabilities are appropriate. The following is a brief description of the Firm’s critical accounting estimates involving significant judgments.
Allowance for credit losses
JPMorgan Chase’s allowance for credit losses covers the retained consumer and wholesale loan portfolios, as well as the Firm’s wholesale and certain consumer lending-related commitments. The allowance for loan losses is intended to adjust the carrying value of the Firm’s loan assets to reflect probable credit losses inherent in the loan portfolio as of the balance sheet date. Similarly, the allowance for lending-related commitments is established to cover probable credit losses inherent in the lending-related commitments portfolio as of the balance sheet date. For further discussion of the methodologies used in establishing the Firm’s allowance for credit losses, see Allowance for credit losses on pages 128–130 and Note 15 of JPMorgan Chase’s 2014 Annual Report; for amounts recorded as of September 30, 2015 and 2014, see Allowance for credit losses on pages 60–62 and Note 14 of this Form 10-Q.
As noted in the discussion on pages 161–163 of JPMorgan Chase’s 2014 Annual Report, the Firm’s allowance for credit losses is sensitive to numerous factors, which may differ depending on the portfolio. Changes in economic conditions or in the Firm’s assumptions and estimates could affect its estimate of probable credit losses inherent in the portfolio at the balance sheet date. The Firm uses its best judgment to assess these economic conditions and loss data in estimating the allowance for loan losses and these estimates are subject to periodic refinement based on any changes to underlying external and Firm-specific historical data. In many cases, the use of alternate estimates (for example, the effect of home prices and unemployment rates on consumer delinquency, or the calibration between the Firm’s wholesale loan risk ratings and external credit ratings) or data sources (for example, external probability of default (“PD”) and loss given default (“LGD”) factors that incorporate industry-wide information, versus Firm-specific
 
history) would result in a different estimated allowance for loan loss. To illustrate the potential magnitude of certain alternate judgments, the Firm estimates that changes in the following inputs would have the following effects on the Firm’s modeled loss estimates as of September 30, 2015, without consideration of any offsetting or correlated effects of other inputs in the Firm’s allowance for loan losses:
For PCI loans, a combined 5% decline in housing prices and a 1% increase in unemployment from current levels could imply an increase to modeled credit loss estimates of approximately $800 million.
For the residential real estate portfolio, excluding PCI loans, a combined 5% decline in housing prices and a 1% increase in unemployment from current levels could imply an increase to modeled annual loss estimates of approximately $175 million.
A 50 basis point deterioration in forecasted credit card loss rates could imply an increase to modeled annualized credit card loan loss estimates of approximately $600 million.
An increase in PD factors consistent with a one-notch downgrade in the Firm’s internal risk ratings for its entire wholesale loan portfolio could imply an increase in the Firm’s modeled loss estimates of approximately $2.0 billion.
A 100 basis point increase in estimated LGD for the Firm’s entire wholesale loan portfolio could imply an increase in the Firm’s modeled loss estimates of approximately $150 million.
The purpose of these sensitivity analyses is to provide an indication of the isolated impacts of hypothetical alternative assumptions on modeled loss estimates. The changes in the inputs presented above are not intended to imply management’s expectation of future deterioration of those risk factors. In addition, these analyses are not intended to estimate changes in the overall allowance for loan losses, which would also be influenced by the judgment management applies to the modeled loss estimates to reflect the uncertainty and imprecision of these modeled loss estimates based on then current circumstances and conditions.
It is difficult to estimate how potential changes in specific factors might affect the overall allowance for credit losses because management considers a variety of factors and inputs in estimating the allowance for credit losses. Changes in these factors and inputs may not occur at the same rate and may not be consistent across all geographies or product types, and changes in factors may be directionally inconsistent, such that improvement in one factor may offset deterioration in other factors. In addition, it is difficult to predict how changes in specific economic conditions or assumptions could affect borrower behavior or other factors considered by management in estimating


81


the allowance for credit losses. Given the process the Firm follows and the judgments made in evaluating the risk factors related to its loans and credit card loss estimates, management believes that its current estimate of the allowance for credit loss is appropriate.
Fair value of financial instruments, MSRs and commodities inventory
Assets measured at fair value
The following table includes the Firm’s assets measured at fair value and the portion of such assets that are classified within level 3 of the valuation hierarchy. For further information, see Note 3.
September 30, 2015
(in billions, except ratio data)
Total assets at fair value
 
Total level 3 assets
Trading debt and equity instruments
$
292.9

 
 
$
13.1

Derivative receivables
68.7

 
 
8.9

Trading assets
361.6

 
 
22.0

AFS securities
256.5

 
 
0.8

Loans
3.1

 
 
2.9

MSRs
6.7

 
 
6.7

Private equity investments(a)
1.9

 
 
1.7

Other
32.4

 
 
0.8

Total assets measured at fair value on a recurring basis
662.2

 
 
34.9

Total assets measured at fair value on a nonrecurring basis
2.3

 
 
0.9

Total assets measured at fair value
$
664.5

 
 
$
35.8

Total Firm assets
$
2,417.1

 
 
 
Level 3 assets as a percentage of total Firm assets
 
 
 
1.5
%
Level 3 assets as a percentage of total Firm assets at fair value
 
 
 
5.4
%
Note: Effective April 1, 2015, the Firm adopted new accounting guidance for certain investments where the Firm measures fair value using the net asset value per share (or its equivalent) as a practical expedient and excluded them from the fair value hierarchy. Accordingly, such investments are not included within this table. For further information, see Note 3.
(a)
Private equity instruments represent investments within Corporate.
Valuation
Estimating fair value requires the application of judgment. The type and level of judgment required is largely dependent on the amount of observable market information available to the Firm. For instruments valued using internally developed models that use significant unobservable inputs and are therefore classified within level 3 of the valuation hierarchy, judgments used to estimate fair value are more significant than those required when estimating the fair value of instruments classified within levels 1 and 2.
In arriving at an estimate of fair value for an instrument within level 3, management must first determine the appropriate model to use. Second, the lack of observability of certain significant inputs requires management to assess all relevant empirical data in deriving valuation inputs — including, for example, transaction details, yield curves, interest rates, prepayment rates, default rates, volatilities, correlations, equity or debt prices, valuations of comparable instruments, foreign exchange rates and
 
credit curves. For further discussion of the valuation of level 3 instruments, including unobservable inputs used, see Note 3.
For instruments classified in levels 2 and 3, management judgment must be applied to assess the appropriate level of valuation adjustments to reflect counterparty credit quality, the Firm’s credit-worthiness, market funding rates, liquidity considerations, unobservable parameters, and for portfolios that meet specified criteria, the size of the net open risk position. The judgments made are typically affected by the type of product and its specific contractual terms, and the level of liquidity for the product or within the market as a whole. For further discussion of valuation adjustments applied by the Firm, see Note 3.
Imprecision in estimating unobservable market inputs or other factors can affect the amount of gain or loss recorded for a particular position. Furthermore, while the Firm believes its valuation methods are appropriate and consistent with those of other market participants, the methods and assumptions used reflect management judgment and may vary across the Firm’s businesses and portfolios.
The Firm uses various methodologies and assumptions in the determination of fair value. The use of methodologies or assumptions different than those used by the Firm could result in a different estimate of fair value at the reporting date. For a detailed discussion of the Firm’s valuation process and hierarchy, and its determination of fair value for individual financial instruments, see Note 3.
Goodwill impairment
Management applies significant judgment when testing goodwill for impairment. For a description of the significant valuation judgments associated with goodwill impairment, see Goodwill impairment on page 164 of JPMorgan Chase’s 2014 Annual Report.
The goodwill of $101 million remaining as of December 31, 2014 associated with the Private Equity business was disposed of as part of the Private Equity sale completed in January 2015. For further information on the Private Equity sale, see Note 2.
During the three months ended September 30, 2015, the Firm updated the discounted cash flow valuation of its Mortgage Banking business. As of September 30, 2015, the estimated fair value of the Firm’s Mortgage Banking business exceeds its carrying value by less than 5%, and accordingly, the associated goodwill of approximately $2 billion was determined to not be impaired as of September 30, 2015, although it remains at an elevated risk for goodwill impairment.
For its other businesses, the Firm reviewed current conditions (including the estimated effects of regulatory and legislative changes and current estimated market cost of equity) and prior projections of business performance.
Based on the updated valuation of its Mortgage Banking business and reviews of its other businesses, the Firm concluded that the goodwill allocated to its reporting units was not impaired at September 30, 2015.


82


Deterioration in economic or market conditions, increased estimates of the effects of recent regulatory or legislative changes, or additional regulatory or legislative changes may result in declines in projected business performance beyond management’s current expectations. For example, in the Firm’s Mortgage Banking business, such declines could result from increases in primary mortgage interest rates, lower mortgage origination volume, or from deterioration in economic conditions, including decreases in home prices, that result in increased credit losses. Declines in business performance, increases in equity capital requirements, or increases in the estimated cost of equity could cause the estimated fair values of the Firm’s reporting units or their associated goodwill to decline in the future, which could result in a material impairment charge to earnings in a future period related to some portion of the associated goodwill.
For additional information on goodwill, see Note 16.
Income taxes
For a description of the significant assumptions, judgments and interpretations associated with the accounting for income taxes, see Income taxes on pages 164–165 of JPMorgan Chase’s 2014 Annual Report.
Litigation reserves
For a description of the significant estimates and judgments associated with establishing litigation reserves, see Note 23 of this Form 10-Q, and Note 31 of JPMorgan Chase’s 2014 Annual Report.



83


ACCOUNTING AND REPORTING DEVELOPMENTS
Disclosures for investments in certain entities that calculate net asset value per share (or its equivalent)
In May 2015, the Financial Accounting Standards Board (“FASB”) issued guidance to address diversity in practice related to how certain investments measured at net asset value (“NAV”) are reported within the financial statement footnotes. The new guidance removes the requirement to categorize investments measured under the current NAV practical expedient within the fair value hierarchy for all investments. The amendments also remove the requirement to make certain disclosures for all investments that are eligible to be measured at fair value using the NAV practical expedient. Rather, those disclosures are limited to investments for which the entity has elected to measure the fair value using that practical expedient. The Firm adopted the new guidance effective April 1, 2015. The guidance was required to be applied retrospectively, and accordingly, certain prior period amounts have been revised to conform with the current period presentation. The application of this guidance only affected the disclosures related to these investments and had no impact on the Firm’s Consolidated balance sheets or results of operations. For further information, see Note 3.
Simplifying presentation of debt issuance costs
In April 2015, the FASB issued guidance that simplifies the presentation of debt issuance costs. The new guidance requires that unamortized debt issuance costs be presented as a reduction of the debt liability rather than as an asset. The guidance does not impact the amortization method for these costs. The guidance will be effective in the first quarter of 2016 with early adoption permitted. Adoption of the new guidance will have no impact on the Firm’s net income but is expected to reduce other assets and long-term debt by an immaterial amount.
Amendments to the consolidation analysis
In February 2015, the FASB issued guidance regarding consolidation of legal entities such as limited partnerships, limited liability corporations, and securitization structures. The guidance eliminates the deferral issued by the FASB in February 2010 of the accounting guidance for VIEs for certain investment funds, including mutual funds, private equity funds and hedge funds. In addition, the guidance amends the evaluation of fees paid to a decision maker or a service provider, and exempts certain money market funds from consolidation. The guidance will be effective in the first quarter of 2016. The adoption of this guidance is not expected to have a material impact on the Firm’s Consolidated Financial Statements.
Measuring the financial assets and financial liabilities of
a consolidated collateralized financing entity
In August 2014, the FASB issued guidance to address diversity in the accounting for differences in the measurement of the fair values of financial assets and liabilities of consolidated financing VIEs. The new guidance provides an alternative for consolidated financing VIEs to elect: (1) to measure their financial assets and liabilities separately under existing U.S. GAAP for fair value measurement with any differences in such fair values reflected in earnings; or (2) to measure both their financial assets and liabilities using the more observable of the fair value of the financial assets or the fair value of the financial liabilities. The guidance will be effective in the first quarter of 2016, with early adoption permitted. The adoption
 
of this guidance is not expected to have a material impact on the Firm’s Consolidated Financial Statements.
Repurchase agreements and similar transactions
In June 2014, the FASB issued guidance that amends the accounting for certain secured financing transactions, and requires enhanced disclosures with respect to transactions recognized as sales in which exposure to the derecognized asset is retained through a separate agreement with the counterparty. The Firm adopted the new accounting guidance effective January 1, 2015. The application of this guidance did not have a material impact on the Firm’s Consolidated Financial Statements. For further information, see Note 5.
In addition, the guidance requires enhanced disclosures with respect to the types of financial assets pledged in secured financing transactions and the remaining contractual maturity of the secured financing transactions. The Firm adopted the new disclosure guidance effective April 1, 2015. For further information, see Note 12.
Revenue recognition – revenue from contracts with customers
In May 2014, the FASB issued revenue recognition guidance that is intended to create greater consistency with respect to how and when revenue from contracts with customers is shown in the statements of income. The guidance requires that revenue from contracts with customers be recognized upon delivery of a good or service based on the amount of consideration expected to be received, and requires additional disclosures about revenue. The guidance will be effective in the first quarter of 2018 with early adoption permitted as early as the first quarter of 2017. The Firm is currently evaluating the potential impact on the Consolidated Financial Statements.
Reporting discontinued operations and disclosures of disposals of components of an entity
In April 2014, the FASB issued guidance regarding the reporting of discontinued operations. The guidance changes the criteria for determining whether a disposition qualifies for discontinued operations presentation. It also requires enhanced disclosures about discontinued operations and significant dispositions that do not qualify to be presented as discontinued operations. The Firm adopted the new guidance effective January 1, 2015. The application of this guidance had no material impact on the Firm’s Consolidated Financial Statements.
Investments in qualified affordable housing projects
In January 2014, the FASB issued guidance regarding the accounting for investments in affordable housing projects that qualify for the low-income housing tax credit. The guidance replaces the effective yield method and allows companies to make an accounting policy election to amortize the initial cost of its investments in proportion to the tax credits and other benefits received if certain criteria are met, and to present the amortization as a component of income tax expense.
The Firm adopted the new accounting guidance effective January 1, 2015. The guidance was required to be applied retrospectively and accordingly, certain prior period amounts have been revised to conform with the current period presentation. For additional information about the impact of the adoption of the new accounting guidance on January 1, 2015, see Note 1.


84


FORWARD-LOOKING STATEMENTS
From time to time, the Firm has made and will make forward-looking statements. These statements can be identified by the fact that they do not relate strictly to historical or current facts. Forward-looking statements often use words such as “anticipate,” “target,” “expect,” “estimate,” “intend,” “plan,” “goal,” “believe,” or other words of similar meaning. Forward-looking statements provide JPMorgan Chase’s current expectations or forecasts of future events, circumstances, results or aspirations. JPMorgan Chase’s disclosures in this Form 10-Q contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. The Firm also may make forward-looking statements in its other documents filed or furnished with the Securities and Exchange Commission. In addition, the Firm’s senior management may make forward-looking statements orally to investors, analysts, representatives of the media and others.
All forward-looking statements are, by their nature, subject to risks and uncertainties, many of which are beyond the Firm’s control. JPMorgan Chase’s actual future results may differ materially from those set forth in its forward-looking statements. While there is no assurance that any list of risks and uncertainties or risk factors is complete, below are certain factors which could cause actual results to differ from those in the forward-looking statements:
Local, regional and international business, economic and political conditions and geopolitical events;
Changes in laws and regulatory requirements, including capital requirements;
Changes in trade, monetary and fiscal policies and laws;
Securities and capital markets behavior, including changes in market liquidity and volatility;
Changes in investor sentiment or consumer spending or savings behavior;
Ability of the Firm to manage effectively its capital and liquidity, including approval of its capital plans by banking regulators;
Changes in credit ratings assigned to the Firm or its subsidiaries;
Damage to the Firm’s reputation;
Ability of the Firm to deal effectively with an economic slowdown or other economic or market disruption;
Technology changes instituted by the Firm, its counterparties or competitors;
The success of the Firm’s business simplification initiatives and the effectiveness of its control agenda;
Ability of the Firm to develop new products and services, and the extent to which products or services previously
 
sold by the Firm (including but not limited to mortgages and asset-backed securities) require the Firm to incur liabilities or absorb losses not contemplated at their initiation or origination;
Ability of the Firm to address enhanced regulatory requirements affecting its businesses;
Acceptance of the Firm’s new and existing products and services by the marketplace and the ability of the Firm to increase market share;
Ability of the Firm to attract and retain qualified employees;
Ability of the Firm to control expense;
Competitive pressures;
Changes in the credit quality of the Firm’s customers and counterparties;
Adequacy of the Firm’s risk management framework, disclosure controls and procedures and internal control over financial reporting;
Adverse judicial or regulatory proceedings;
Changes in applicable accounting policies;
Ability of the Firm to determine accurate values of certain assets and liabilities;
Occurrence of natural or man-made disasters or calamities or conflicts and the Firm’s ability to deal effectively with disruptions caused by the foregoing;
Ability of the Firm to maintain the security and integrity of its financial, accounting, technology, data processing and other operating systems and facilities;
Ability of the Firm to effectively defend itself against cyberattacks and other attempts by unauthorized parties to access the Firm’s information or disrupt its systems; and
The other risks and uncertainties detailed in Part I, Item 1A: Risk Factors in the Firm’s Annual Report on Form 10-K for the year ended December 31, 2014.
Any forward-looking statements made by or on behalf of the Firm speak only as of the date they are made, and JPMorgan Chase does not undertake to update forward-looking statements to reflect the impact of circumstances or events that arise after the date the forward-looking statements were made. The reader should, however, consult any further disclosures of a forward-looking nature the Firm may make in any subsequent Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, or Current Reports on Form 8-K.




85


JPMorgan Chase & Co.
Consolidated statements of income (unaudited)
 
 
Three months ended
September 30,
 
Nine months ended
September 30,
(in millions, except per share data)
 
2015
 
2014
 
2015
 
2014
Revenue
 
 
 
 
 
 
 
 
Investment banking fees
 
$
1,604

 
$
1,538

 
$
5,231

 
$
4,709

Principal transactions
 
2,367

 
2,966

 
8,856

 
9,196

Lending- and deposit-related fees
 
1,463

 
1,479

 
4,244

 
4,347

Asset management, administration and commissions
 
3,845

 
3,978

 
11,667

 
11,821

Securities gains(a)
 
33

 
6

 
129

 
48

Mortgage fees and related income
 
469

 
903

 
1,957

 
2,708

Card income
 
1,447

 
1,537

 
4,493

 
4,494

Other income
 
628

 
955

 
1,796

 
2,467

Noninterest revenue
 
11,856

 
13,362

 
38,373

 
39,790

Interest income
 
12,739

 
12,926

 
37,818

 
38,580

Interest expense
 
1,815

 
1,819

 
5,533

 
6,008

Net interest income
 
10,924

 
11,107

 
32,285

 
32,572

Total net revenue
 
22,780

 
24,469

 
70,658

 
72,362

 
 
 
 
 
 
 
 
 
Provision for credit losses
 
682

 
757

 
2,576

 
2,299

 
 
 
 
 
 
 
 
 
Noninterest expense
 
 
 
 
 
 
 
 
Compensation expense
 
7,320

 
7,831

 
23,057

 
23,300

Occupancy expense
 
965

 
978

 
2,821

 
2,903

Technology, communications and equipment expense
 
1,546

 
1,465

 
4,536

 
4,309

Professional and outside services
 
1,776

 
1,907

 
5,178

 
5,625

Marketing
 
704

 
610

 
1,937

 
1,824

Other expense
 
3,057

 
3,007

 
7,222

 
7,904

Total noninterest expense
 
15,368

 
15,798

 
44,751

 
45,865

Income before income tax expense/(benefit)
 
6,730

 
7,914

 
23,331

 
24,198

Income tax expense/(benefit)
 
(74
)
 
2,349

 
4,323

 
7,384

Net income
 
$
6,804

 
$
5,565

 
$
19,008

 
$
16,814

Net income applicable to common stockholders
 
$
6,270

 
$
5,128

 
$
17,498

 
$
15,588

Net income per common share data
 
 
 
 
 
 
 
 
Basic earnings per share
 
$
1.70

 
$
1.37

 
$
4.72

 
$
4.13

Diluted earnings per share
 
1.68

 
1.35

 
4.68

 
4.09

 
 
 
 
 
 
 
 
 
Weighted-average basic shares
 
3,694.4

 
3,755.4

 
3,709.2

 
3,774.4

Weighted-average diluted shares
 
3,725.6

 
3,788.7

 
3,742.2

 
3,808.3

Cash dividends declared per common share
 
$
0.44

 
$
0.40

 
$
1.28

 
$
1.18

(a)
The Firm recognized other-than-temporary impairment (“OTTI”) losses of $12 million and $2 million for the three months ended September 30, 2015 and 2014, respectively, and $14 million and $2 million for the nine months ended September 30, 2015 and 2014, respectively.
The Notes to Consolidated Financial Statements (unaudited) are an integral part of these statements.

 
 
 
 
 


86


JPMorgan Chase & Co.
Consolidated statements of comprehensive income (unaudited)
 
 
Three months ended
September 30,
 
Nine months ended
September 30,
(in millions)
 
2015
 
2014
 
2015
 
2014
Net income
 
$
6,804

 
$
5,565

 
$
19,008

 
$
16,814

Other comprehensive income, after–tax
 
 
 
 
 
 
 
 
Unrealized gains/(losses) on investment securities
 
(291
)
 
(141
)
 
(1,621
)
 
1,928

Translation adjustments, net of hedges
 
(5
)
 
3

 
(12
)
 
13

Cash flow hedges
 
(106
)
 
(58
)
 
51

 
69

Defined benefit pension and OPEB plans
 
51

 
24

 
144

 
57

Total other comprehensive income, after–tax
 
(351
)
 
(172
)
 
(1,438
)
 
2,067

Comprehensive income
 
$
6,453

 
$
5,393

 
$
17,570

 
$
18,881

The Notes to Consolidated Financial Statements (unaudited) are an integral part of these statements.



87


JPMorgan Chase & Co.
Consolidated balance sheets (unaudited)
(in millions, except share data)
Sep 30, 2015
 
Dec 31, 2014
Assets
 
 
 
Cash and due from banks
$
21,258

 
$
27,831

Deposits with banks
376,196

 
484,477

Federal funds sold and securities purchased under resale agreements (included $27,433 and $28,585 at fair value)
218,467

 
215,803

Securities borrowed (included $405 and $992 at fair value)
105,668

 
110,435

Trading assets (included assets pledged of $110,160 and $125,034)
361,708

 
398,988

Securities (included $256,491 and $298,752 at fair value and assets pledged of $23,432 and $24,912)
306,660

 
348,004

Loans (included $3,135 and $2,611 at fair value)
809,457

 
757,336

Allowance for loan losses
(13,466
)
 
(14,185
)
Loans, net of allowance for loan losses
795,991

 
743,151

Accrued interest and accounts receivable
57,926

 
70,079

Premises and equipment
14,709

 
15,133

Goodwill
47,405

 
47,647

Mortgage servicing rights
6,716

 
7,436

Other intangible assets
1,036

 
1,192

Other assets (included $7,700 and $11,909 at fair value and assets pledged of $1,176 and $1,399)
103,381

 
102,597

Total assets(a)
$
2,417,121

 
$
2,572,773

Liabilities
 
 
 
Deposits (included $11,062 and $8,807 at fair value)
$
1,273,106

 
$
1,363,427

Federal funds purchased and securities loaned or sold under repurchase agreements (included $3,565 and $2,979 at fair value)
180,319

 
192,101

Commercial paper
19,656

 
66,344

Other borrowed funds (included $9,665 and $14,739 at fair value)
27,174

 
30,222

Trading liabilities
141,474

 
152,815

Accounts payable and other liabilities (included $5,850 and $4,155 at fair value)
187,986

 
206,939

Beneficial interests issued by consolidated variable interest entities (included $1,199 and $2,162 at fair value)
48,733

 
52,362

Long-term debt (included $31,160 and $30,226 at fair value)
292,945

 
276,836

Total liabilities(a)
2,171,393

 
2,341,046

Commitments and contingencies (see Notes 21 and 23)


 


Stockholders’ equity
 
 
 
Preferred stock ($1 par value; authorized 200,000,000 shares; issued 2,606,750 and 2,006,250 shares)
26,068

 
20,063

Common stock ($1 par value; authorized 9,000,000,000 shares; issued 4,104,933,895 shares)
4,105

 
4,105

Additional paid-in capital
92,316

 
93,270

Retained earnings
143,050

 
129,977

Accumulated other comprehensive income
751

 
2,189

Shares held in RSU Trust, at cost (472,953 shares)
(21
)
 
(21
)
Treasury stock, at cost (423,804,118 and 390,144,630 shares)
(20,541
)
 
(17,856
)
Total stockholders’ equity
245,728

 
231,727

Total liabilities and stockholders’ equity
$
2,417,121

 
$
2,572,773

(a)
The following table presents information on assets and liabilities related to VIEs that are consolidated by the Firm at September 30, 2015, and December 31, 2014. The difference between total VIE assets and liabilities represents the Firm’s interests in those entities, which were eliminated in consolidation.
(in millions)
Sep 30, 2015
 
Dec 31, 2014
Assets
 
 
 
Trading assets
$
4,237

 
$
9,090

Loans
69,119

 
68,880

All other assets
2,109

 
1,815

Total assets
$
75,465

 
$
79,785

Liabilities
 
 
 
Beneficial interests issued by consolidated variable interest entities
$
48,733

 
$
52,362

All other liabilities
821

 
949

Total liabilities
$
49,554

 
$
53,311

The assets of the consolidated VIEs are used to settle the liabilities of those entities. The holders of the beneficial interests do not have recourse to the general credit of JPMorgan Chase. At both September 30, 2015, and December 31, 2014, the Firm provided limited program-wide credit enhancement of $2.0 billion related to its Firm-administered multi-seller conduits, which are eliminated in consolidation. For further discussion, see Note 15.
The Notes to Consolidated Financial Statements (unaudited) are an integral part of these statements.

88


JPMorgan Chase & Co.
Consolidated statements of changes in stockholders’ equity (unaudited)
 
 
Nine months ended September 30,
(in millions, except per share data)
 
2015
 
2014
Preferred stock
 
 
 
 
Balance at January 1
 
$
20,063

 
$
11,158

Issuance of preferred stock
 
6,005

 
8,905

Balance at September 30
 
26,068

 
20,063

Common stock
 
 
 
 
Balance at January 1 and September 30
 
4,105

 
4,105

Additional paid-in capital
 
 
 
 
Balance at January 1
 
93,270

 
93,828

Shares issued and commitments to issue common stock for employee stock-based compensation awards, and related tax effects
 
(635
)
 
(719
)
Other
 
(319
)
 
(49
)
Balance at September 30
 
92,316

 
93,060

Retained earnings
 
 
 
 
Balance at January 1
 
129,977

 
115,756

Cumulative effect of change in accounting principle
 

 
(321
)
Balance at beginning of year, adjusted
 
129,977

 
115,435

Net income
 
19,008

 
16,814

Dividends declared:
 
 
 
 
Preferred stock
 
(1,097
)
 
(799
)
Common stock ($1.28 and $1.18 per share)
 
(4,838
)
 
(4,554
)
Balance at September 30
 
143,050

 
126,896

Accumulated other comprehensive income
 
 
 
 
Balance at January 1
 
2,189

 
1,199

Other comprehensive income
 
(1,438
)
 
2,067

Balance at September 30
 
751

 
3,266

Shares held in RSU Trust, at cost
 
 
 
 
Balance at January 1 and September 30
 
(21
)
 
(21
)
Treasury stock, at cost
 
 
 
 
Balance at January 1
 
(17,856
)
 
(14,847
)
Purchase of treasury stock
 
(4,397
)
 
(3,250
)
Reissuance from treasury stock
 
1,712

 
1,667

Balance at September 30
 
(20,541
)
 
(16,430
)
Total stockholders equity
 
$
245,728

 
$
230,939

The Notes to Consolidated Financial Statements (unaudited) are an integral part of these statements.



89


JPMorgan Chase & Co.
Consolidated statements of cash flows (unaudited)
 
Nine months ended September 30,
(in millions)
2015
 
2014
Operating activities
 
 
 
Net income
$
19,008

 
$
16,814

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Provision for credit losses
2,576

 
2,299

Depreciation and amortization
3,667

 
3,573

Deferred tax expense/(benefit)
(530
)
 
1,894

Investment securities gains
(129
)
 
(48
)
Stock-based compensation
1,539

 
1,681

Originations and purchases of loans held-for-sale
(36,188
)
 
(48,334
)
Proceeds from sales, securitizations and paydowns of loans held-for-sale
39,332

 
53,250

Net change in:
 
 
 
Trading assets
44,473

 
(30,542
)
Securities borrowed
4,828

 
(7,416
)
Accrued interest and accounts receivable
11,416

 
(7,793
)
Other assets
(6,229
)
 
9,842

Trading liabilities
(6,625
)
 
2,624

Accounts payable and other liabilities
(13,420
)
 
9,341

Other operating adjustments
(6,419
)
 
662

Net cash provided by operating activities
57,299

 
7,847

Investing activities
 
 
 
Net change in:
 
 
 
Deposits with banks
108,281

 
(98,261
)
Federal funds sold and securities purchased under resale agreements
(2,626
)
 
32,272

Held-to-maturity securities:
 
 
 
Proceeds from paydowns and maturities
4,790

 
2,947

Purchases
(5,930
)
 
(8,634
)
Available-for-sale securities:
 
 
 
Proceeds from paydowns and maturities
58,281

 
67,261

Proceeds from sales
29,303

 
21,054

Purchases
(54,034
)
 
(96,776
)
Proceeds from sales and securitizations of loans held-for-investment
14,634

 
14,592

Other changes in loans, net
(75,891
)
 
(30,070
)
Net cash provided by/(used in) business acquisitions or dispositions
1,255

 
24

All other investing activities, net
1,659

 
(39
)
Net cash provided by/(used in) investing activities
79,722

 
(95,630
)
Financing activities
 
 
 
Net change in:
 
 
 
Deposits
(96,466
)
 
52,046

Federal funds purchased and securities loaned or sold under repurchase agreements
(11,789
)
 
17,564

Commercial paper and other borrowed funds
(47,615
)
 
4,367

Beneficial interests issued by consolidated variable interest entities
(1,374
)
 
(4,515
)
Proceeds from long-term borrowings
70,243

 
54,263

Payments of long-term borrowings
(51,382
)
 
(49,493
)
Excess tax benefits related to stock-based compensation
310

 
387

Proceeds from issuance of preferred stock
5,893

 
8,848

Treasury stock purchased
(4,397
)
 
(3,250
)
Dividends paid
(5,678
)
 
(5,078
)
All other financing activities, net
(1,258
)
 
(1,078
)
Net cash (used in)/provided by financing activities
(143,513
)
 
74,061

Effect of exchange rate changes on cash and due from banks
(81
)
 
(677
)
Net decrease in cash and due from banks
(6,573
)
 
(14,399
)
Cash and due from banks at the beginning of the period
27,831

 
39,771

Cash and due from banks at the end of the period
$
21,258

 
$
25,372

Cash interest paid
$
5,624

 
$
6,008

Cash income taxes paid, net
6,871

 
453


The Notes to Consolidated Financial Statements (unaudited) are an integral part of these statements.

90


See Glossary of Terms for definitions of terms used throughout the Notes to Consolidated Financial Statements.


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
Note 1 – Basis of presentation
JPMorgan Chase & Co. (“JPMorgan Chase” or the “Firm”), 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 is a leader in investment banking, financial services for consumers and small businesses, commercial banking, financial transaction processing and asset management. For a discussion of the Firm’s business segments, see Note 24.
The accounting and financial reporting policies of JPMorgan Chase and its subsidiaries conform to accounting principles generally accepted in the U.S. (“U.S. GAAP”). Additionally, where applicable, the policies conform to the accounting and reporting guidelines prescribed by regulatory authorities.
The unaudited Consolidated Financial Statements prepared in conformity with U.S. GAAP require management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expense, and the disclosures of contingent assets and liabilities. Actual results could be different from these estimates. In the opinion of management, all normal, recurring adjustments have been included for a fair statement of this interim financial information.
These unaudited Consolidated Financial Statements should be read in conjunction with the audited Consolidated Financial Statements, and related notes thereto, included in JPMorgan Chase’s Annual Report on Form 10-K for the year ended December 31, 2014, as filed with the U.S. Securities and Exchange Commission (the “2014 Annual Report”).
Certain amounts reported in prior periods have been reclassified to conform with the current presentation.
Investments in qualified affordable housing projects
Effective January 1, 2015, the Firm adopted new accounting guidance for investments in affordable housing projects that qualify for the low-income housing tax credit, which impacted the Corporate & Investment Bank (“CIB”). As a result of the adoption of this new guidance, the Firm made an accounting policy election to amortize the initial cost of its qualifying investments in proportion to the tax credits and other benefits received, and to present the amortization as a component of income tax expense; previously such amounts were predominantly presented in other income. The guidance was required to be applied retrospectively and accordingly, certain prior period
 
amounts have been revised to conform with the current period presentation. The cumulative effect on retained earnings was a reduction of $321 million as of January 1, 2014. The adoption of this accounting guidance resulted in an increase of $223 million and $230 million in other income and income tax expense, respectively, for the three months ended September 30, 2014, and $669 million and $686 million, respectively, for the nine months ended September 30, 2014, which led to an increase of approximately 2% in the effective tax rate for both the three and nine months ended September 30, 2014. The impact on net income and earnings per share in the periods affected was not material.
The Firm recognized $398 million and $394 million of tax credits and other tax benefits associated with these investments within Income tax expense for the three months ended September 30, 2015 and 2014, respectively, and $1.2 billion for both the nine months ended September 30, 2015 and 2014. The amount of amortization of such investments reported in income tax expense under the current period presentation was $274 million and $268 million, for the three months ended September 30, 2015 and 2014, respectively, and $829 million and $799 million for the nine months ended September 30, 2015 and 2014, respectively.
The carrying value of investments in affordable housing projects was $7.3 billion at both September 30, 2015 and December 31, 2014. These investments are reported in other assets on the Firm’s Consolidated balance sheets. The amount of commitments related to these investments was $1.9 billion and $1.8 billion at September 30, 2015, and December 31, 2014, respectively. These commitments are reported in accounts payable and other liabilities on the Firm’s Consolidated balance sheets.
Offsetting assets and liabilities
U.S. GAAP permits entities to present derivative receivables and derivative payables with the same counterparty and the related cash collateral receivables and payables on a net basis on the balance sheet when a legally enforceable master netting agreement exists. U.S. GAAP also permits securities sold and purchased under repurchase agreements to be presented net when specified conditions are met, including the existence of a legally enforceable master netting agreement. The Firm has elected to net such balances when the specified conditions are met. For further information on offsetting assets and liabilities, see Note 1 of JPMorgan Chase’s 2014 Annual Report.



91


Note 2 – Business changes and developments
Private Equity sale
As part of the Firm’s business simplification, the sale of a portion of the Private Equity business (“Private Equity sale”) was completed on January 9, 2015.
Income tax expense
The Firm’s effective tax rate was (1.1)% and 18.5% in the three and nine months ended September 30, 2015, respectively, and 29.7% and 30.5% in the respective 2014 periods. The effective tax rate in the 2015 periods includes the recognition of tax benefits of $2.2 billion and $2.7 billion, respectively, which reduced the Firm’s effective tax rate by 32.0% and 11.7%, respectively. The recognition of tax benefits in 2015 resulted from the resolution of various tax audits by a number of taxing authorities, most notably the Internal Revenue Service, New York State, and the State of California (which reduced the Firm’s gross unrecognized tax benefits), as well as the release of U.S. deferred taxes associated with the restructuring of certain non-U.S. entities. Based upon the resolution of such audits, the gross balance of the Firm’s unrecognized tax benefits has decreased by approximately $2 billion for the nine months ended September 30, 2015. For further information, see Note 26 of JPMorgan Chase’s 2014 Annual Report.
Trust preferred securities redemption
On April 2, 2015 the Firm redeemed $1.5 billion of trust preferred capital securities. For further information on the Firm’s trust preferred securities, see Note 21 of JPMorgan Chase’s 2014 Annual Report.
Preferred stock issuances
During the three and nine months ended September 30, 2015, the Firm issued $1.2 billion and $6.0 billion respectively, of noncumulative preferred stock. For further information on the Firm’s preferred stock, see Note 22 of JPMorgan Chase’s 2014 Annual Report.
Increase in common stock dividend
The Board of Directors increased the Firm’s quarterly
common stock dividend from $0.40 per share to $0.44 per
share, effective with the dividend paid on July 31, 2015, to stockholders of record at the close of business on July 6, 2015.

 
Note 3 – Fair value measurement
For a discussion of the Firm’s valuation methodologies for assets, liabilities and lending-related commitments measured at fair value and the fair value hierarchy, see Note 3 of JPMorgan Chase’s 2014 Annual Report.


92


The following table presents the asset and liabilities reported at fair value as of September 30, 2015, and December 31, 2014, by major product category and fair value hierarchy.
Assets and liabilities measured at fair value on a recurring basis
 
 
 
 
 
 
 
Fair value hierarchy
 
Derivative netting adjustments
 
September 30, 2015 (in millions)
Level 1
Level 2
 
Level 3
 
Total fair value
Federal funds sold and securities purchased under resale agreements
$

$
27,433

 
$

 
$

$
27,433

Securities borrowed

405

 

 

405

Trading assets:
 
 
 
 
 
 
 
Debt instruments:
 
 
 
 
 
 
 
Mortgage-backed securities:
 
 
 
 
 
 
 
U.S. government agencies(a)
5

35,038

 
786

 

35,829

Residential – nonagency

1,505

 
119

 

1,624

Commercial – nonagency

1,047

 
29

 

1,076

Total mortgage-backed securities
5

37,590

 
934

 

38,529

U.S. Treasury and government agencies(a)
22,451

7,308

 

 

29,759

Obligations of U.S. states and municipalities

6,543

 
572

 

7,115

Certificates of deposit, bankers’ acceptances and commercial paper

525

 

 

525

Non-U.S. government debt securities
28,349

28,394

 
86

 

56,829

Corporate debt securities

25,411

 
837

 

26,248

Loans(b)

25,809

 
8,014

 

33,823

Asset-backed securities

2,549

 
1,806

 

4,355

Total debt instruments
50,805

134,129

 
12,249

 

197,183

Equity securities
79,946

390

 
335

 

80,671

Physical commodities(c)
2,845

1,140

 

 

3,985

Other

10,625

 
495

 

11,120

Total debt and equity instruments(d)
133,596

146,284

 
13,079

 

292,959

Derivative receivables:
 
 
 
 
 
 
 
Interest rate
657

735,468

 
2,826

 
(709,835
)
29,116

Credit

51,967

 
2,442

 
(52,685
)
1,724

Foreign exchange
777

183,986

 
1,786

 
(165,433
)
21,116

Equity

45,246

 
1,481

 
(39,237
)
7,490

Commodity
218

27,899

 
343

 
(19,238
)
9,222

Total derivative receivables(e)
1,652

1,044,566

 
8,878

 
(986,428
)
68,668

Total trading assets
135,248

1,190,850

 
21,957

 
(986,428
)
361,627

Available-for-sale securities:
 
 
 
 
 
 
 
Mortgage-backed securities:
 
 
 
 
 
 
 
U.S. government agencies(a)

54,578

 

 

54,578

Residential – nonagency

36,600

 
5

 

36,605

Commercial – nonagency

22,893

 

 

22,893

Total mortgage-backed securities

114,071

 
5

 

114,076

U.S. Treasury and government agencies(a)
11,305

42

 

 

11,347

Obligations of U.S. states and municipalities

32,709

 

 

32,709

Certificates of deposit

418

 

 

418

Non-U.S. government debt securities
23,628

15,492

 

 

39,120

Corporate debt securities

14,781

 

 

14,781

Asset-backed securities:
 
 
 
 
 
 
 
Collateralized loan obligations

30,549

 
755

 

31,304

Other

10,056

 
75

 

10,131

Equity securities
2,605


 

 

2,605

Total available-for-sale securities
37,538

218,118

 
835

 

256,491

Loans

260

 
2,875

 

3,135

Mortgage servicing rights (“MSRs”)


 
6,716

 

6,716

Other assets:
 
 
 
 
 
 
 
Private equity investments(f)
148

64

 
1,700

 

1,912

All other
3,616

29

 
819

 

4,464

Total other assets
3,764

93

 
2,519

 

6,376

Total assets measured at fair value on a recurring basis
$
176,550

$
1,437,159

 
$
34,902

 
$
(986,428
)
$
662,183

Deposits
$

$
7,685

 
$
3,377

 
$

$
11,062

Federal funds purchased and securities loaned or sold under repurchase agreements

3,565

 

 

3,565

Other borrowed funds

8,897

 
768

 

9,665

Trading liabilities:
 
 
 
 
 
 


Debt and equity instruments(d)
64,715

19,552

 
67

 

84,334

Derivative payables:
 
 
 
 
 
 


Interest rate
629

699,215

 
1,995

 
(691,114
)
10,725

Credit

51,181

 
1,930

 
(51,465
)
1,646

Foreign exchange
876

199,256

 
2,321

 
(180,409
)
22,044

Equity

44,544

 
3,005

 
(38,543
)
9,006

Commodity
132

30,865

 
1,563

 
(18,841
)
13,719

Total derivative payables(e)
1,637

1,025,061

 
10,814

 
(980,372
)
57,140

Total trading liabilities
66,352

1,044,613

 
10,881

 
(980,372
)
141,474

Accounts payable and other liabilities
5,829


 
21

 

5,850

Beneficial interests issued by consolidated variable interest entities ("VIEs")

181

 
1,018

 

1,199

Long-term debt

20,304

 
10,856

 

31,160

Total liabilities measured at fair value on a recurring basis
$
72,181

$
1,085,245

 
$
26,921

 
$
(980,372
)
$
203,975



93



Fair value hierarchy

Derivative netting adjustments
 

December 31, 2014 (in millions)
Level 1
Level 2

Level 3

 
Total fair value
Federal funds sold and securities purchased under resale agreements
$

$
28,585


$


$

 
$
28,585

Securities borrowed

992





 
992

Trading assets:
 
 

 

 
 
 
Debt instruments:
 
 

 

 
 
 
Mortgage-backed securities:
 
 

 

 
 
 
U.S. government agencies(a)
14

31,904


922



 
32,840

Residential – nonagency

1,381


663



 
2,044

Commercial – nonagency

927


306



 
1,233

Total mortgage-backed securities
14

34,212


1,891



 
36,117

U.S. Treasury and government agencies(a)
17,816

8,460





 
26,276

Obligations of U.S. states and municipalities

9,298


1,273



 
10,571

Certificates of deposit, bankers’ acceptances and commercial paper

1,429





 
1,429

Non-U.S. government debt securities
25,854

27,294


302



 
53,450

Corporate debt securities

28,099


2,989



 
31,088

Loans(b)

23,080


13,287



 
36,367

Asset-backed securities

3,088


1,264



 
4,352

Total debt instruments
43,684

134,960


21,006



 
199,650

Equity securities
104,890

624


431



 
105,945

Physical commodities(c)
2,739

1,741


2



 
4,482

Other

8,762


1,050



 
9,812

Total debt and equity instruments(d)
151,313

146,087


22,489



 
319,889

Derivative receivables:
 








 


Interest rate
473

945,635


4,149


(916,532
)
 
33,725

Credit

73,853


2,989


(75,004
)
 
1,838

Foreign exchange
758

212,153


2,276


(193,934
)
 
21,253

Equity

39,937


2,552


(34,312
)
 
8,177

Commodity
247

42,807


599


(29,671
)
 
13,982

Total derivative receivables(e)
1,478

1,314,385


12,565


(1,249,453
)
 
78,975

Total trading assets
152,791

1,460,472


35,054


(1,249,453
)
 
398,864

Available-for-sale securities:
 








 


Mortgage-backed securities:
 








 


U.S. government agencies(a)

65,319





 
65,319

Residential – nonagency

50,865


30



 
50,895

Commercial – nonagency

21,009


99



 
21,108

Total mortgage-backed securities

137,193


129



 
137,322

U.S. Treasury and government agencies(a)
13,591

54





 
13,645

Obligations of U.S. states and municipalities

30,068





 
30,068

Certificates of deposit

1,103





 
1,103

Non-U.S. government debt securities
24,074

28,669





 
52,743

Corporate debt securities

18,532





 
18,532

Asset-backed securities:
 








 


Collateralized loan obligations

29,402


792



 
30,194

Other

12,499


116



 
12,615

Equity securities
2,530






 
2,530

Total available-for-sale securities
40,195

257,520


1,037



 
298,752

Loans

70


2,541



 
2,611

Mortgage servicing rights



7,436



 
7,436

Other assets:
 







 
 
Private equity investments(f)
648

2,624


2,225



 
5,497

All other
4,018

17


959



 
4,994

Total other assets
4,666

2,641


3,184



 
10,491

Total assets measured at fair value on a recurring basis
$
197,652

$
1,750,280


$
49,252


$
(1,249,453
)
 
$
747,731

Deposits
$

$
5,948


$
2,859


$

 
$
8,807

Federal funds purchased and securities loaned or sold under repurchase agreements

2,979





 
2,979

Other borrowed funds

13,286


1,453



 
14,739

Trading liabilities:
 
 

 



 


Debt and equity instruments(d)
62,914

18,713


72



 
81,699

Derivative payables:
 
 





 
 
Interest rate
499

914,357


3,523


(900,634
)
 
17,745

Credit

73,095


2,800


(74,302
)
 
1,593

Foreign exchange
746

221,066


2,802


(201,644
)
 
22,970

Equity

41,925


4,337


(34,522
)
 
11,740

Commodity
141

44,318


1,164


(28,555
)
 
17,068

Total derivative payables(e)
1,386

1,294,761


14,626


(1,239,657
)
 
71,116

Total trading liabilities
64,300

1,313,474


14,698


(1,239,657
)
 
152,815

Accounts payable and other liabilities(g)
4,129



26



 
4,155

Beneficial interests issued by consolidated VIEs

1,016


1,146



 
2,162

Long-term debt

18,349


11,877



 
30,226

Total liabilities measured at fair value on a recurring basis
$
68,429

$
1,355,052


$
32,059


$
(1,239,657
)
 
$
215,883

Note: Effective April 1, 2015, the Firm adopted new accounting guidance for investments in certain entities that calculate net asset value per share (or its equivalent). As a result of the adoption of this new guidance, certain investments that are measured at fair value using the net asset value per share (or its equivalent) as a practical expedient are not required to be classified in the fair value hierarchy. At September 30, 2015, and December 31, 2014, the fair values of these investments, which include certain hedge funds, private equity funds, real estate and other funds, were $1.4 billion and $1.5 billion, respectively, of which $337 million and $1.2 billion had been previously classified in level 2 and level 3, respectively, at December 31, 2014. Included in the balances at September 30, 2015, and December 31, 2014, were trading assets of $81 million and $124 million, respectively, and other assets of $1.3 billion and $1.4 billion, respectively. The guidance was required to be applied retrospectively, and accordingly, prior period amounts have been revised to conform with the current period presentation.

94


(a)
At September 30, 2015, and December 31, 2014, included total U.S. government-sponsored enterprise obligations of $67.5 billion and $84.1 billion, respectively, which were predominantly mortgage-related.
(b)
At September 30, 2015, and December 31, 2014, included within trading loans were $13.1 billion and $17.0 billion, respectively, of residential first-lien mortgages, and $5.2 billion and $5.8 billion, respectively, of commercial first-lien mortgages. Residential mortgage loans include conforming mortgage loans originated with the intent to sell to U.S. government agencies of $6.0 billion and $7.7 billion, respectively, and reverse mortgages of $2.7 billion and $3.4 billion, respectively.
(c)
Physical commodities inventories are generally accounted for at the lower of cost or market. “Market” is a term defined in U.S. GAAP as not exceeding fair value less costs to sell (“transaction costs”). Transaction costs for the Firm’s physical commodities inventories are either not applicable or immaterial to the value of the inventory. Therefore, market approximates fair value for the Firm’s physical commodities inventories. When fair value hedging has been applied (or when market is below cost), the carrying value of physical commodities approximates fair value, because under fair value hedge accounting, the cost basis is adjusted for changes in fair value. For a further discussion of the Firm’s hedge accounting relationships, see Note 5. To provide consistent fair value disclosure information, all physical commodities inventories have been included in each period presented.
(d)
Balances reflect the reduction of securities owned (long positions) by the amount of identical securities sold but not yet purchased (short positions).
(e)
As permitted under U.S. GAAP, the Firm has elected to net derivative receivables and derivative payables and the related cash collateral received and paid when a legally enforceable master netting agreement exists. For purposes of the tables above, the Firm does not reduce derivative receivables and derivative payables balances for this netting adjustment, either within or across the levels of the fair value hierarchy, as such netting is not relevant to a presentation based on the transparency of inputs to the valuation of an asset or liability. However, if the Firm were to net such balances within level 3, the reduction in the level 3 derivative receivables and payables balances would be $1.8 billion and $2.5 billion at September 30, 2015, and December 31, 2014, respectively; this is exclusive of the netting benefit associated with cash collateral, which would further reduce the level 3 balances.
(f)
Private equity instruments represent investments within the Corporate line of business. The cost basis of the private equity investment portfolio totaled $3.6 billion and $6.0 billion at September 30, 2015, and December 31, 2014, respectively.
(g)
Certain prior period amounts (including the corresponding fair value parenthetical disclosure for accounts payable and other liabilities on the Consolidated balance sheets) were revised to conform with the current period presentation.
Transfers between levels for instruments carried at fair value on a recurring basis
For the three and nine months ended September 30, 2015 and the three months ended September 30, 2014, there were no individually significant transfers between levels 1 and 2, or from level 2 into level 3.
During the three months ended September 30, 2015, transfers from level 3 into level 2 included $2.4 billion of long-term debt driven by an increase in observability on certain structured notes with embedded interest rate and FX derivatives and a reduction of the significance in the unobservable inputs for certain structured notes with embedded equity derivatives; further, $1.1 billion of interest rate derivative receivables was transferred from level 3 to level 2 as a result of an increase in observability.
In addition, during the nine months ended September 30, 2015 transfers from level 3 into level 2 included $2.3 billion of trading loans driven by an increase in observability of certain collateralized financing transactions; $2.2 billion of corporate debt driven by a reduction of the significance in the unobservable inputs and an increase in observability for certain structured products.
During the nine months ended September 30, 2014, transfers from level 3 into level 2 included $3.4 billion and $3.1 billion of equity derivative receivables and payables, respectively, due to increased observability of certain equity option valuation inputs; and $1.1 billion of corporate debt, $1.1 billion of long-term debt and $1.0 billion of trading loans based on increased liquidity and price transparency. Transfers from level 2 into level 3 included $1.1 billion of other borrowed funds based on a decrease in observability of valuation inputs and price transparency.
All transfers are assumed to occur at the beginning of the quarterly reporting period in which they occur.
Level 3 valuations
For further information on the Firm’s valuation process and a detailed discussion of the determination of fair value for individual financial instruments, see Note 3 of JPMorgan Chase’s 2014 Annual Report.
The following table presents the Firm’s primary level 3 financial instruments, the valuation techniques used to measure the fair value of those financial instruments, the significant unobservable inputs, the range of values for those inputs and, for certain instruments, the weighted averages of such inputs. While the determination to classify an instrument within level 3 is based on the significance of the
 
unobservable inputs to the overall fair value measurement, level 3 financial instruments typically include observable components (that is, components that are actively quoted and can be validated to external sources) in addition to the unobservable components. The level 1 and/or level 2 inputs are not included in the table. In addition, the Firm manages the risk of the observable components of level 3 financial instruments using securities and derivative positions that are classified within levels 1 or 2 of the fair value hierarchy.
The range of values presented in the table is representative of the highest and lowest level input used to value the significant groups of instruments within a product/instrument classification. Where provided, the weighted averages of the input values presented in the table are calculated based on the fair value of the instruments that the input is being used to value.
In the Firm’s view, the input range and the weighted average value do not reflect the degree of input uncertainty or an assessment of the reasonableness of the Firm’s estimates and assumptions. Rather, they reflect the characteristics of the various instruments held by the Firm and the relative distribution of instruments within the range of characteristics. For example, two option contracts may have similar levels of market risk exposure and valuation uncertainty, but may have significantly different implied volatility levels because the option contracts have different underlyings, tenors, or strike prices. The input range and weighted average values will therefore vary from period to period and parameter-to-parameter based on the characteristics of the instruments held by the Firm at each balance sheet date.
For the Firm’s derivatives and structured notes positions classified within level 3 at September 30, 2015, interest rate correlation inputs used in estimating fair value were concentrated towards the upper end of the range presented, equities correlation inputs were concentrated at the low end of the range, while the credit correlation inputs were distributed across the range presented and the foreign exchange correlation inputs were concentrated at the top end of the range presented. In addition, the interest rate volatility inputs used in estimating fair value were concentrated at the upper end of the range presented. The equity volatilities are concentrated at the lower half end of the range. The forward commodity prices used in estimating the fair value of commodity derivatives were concentrated within the lower end of the range presented.


95


Level 3 inputs(a)
 
September 30, 2015 (in millions, except for ratios and basis points)
 
 
 
 
 
Product/Instrument
Fair value
 
Principal valuation technique
Unobservable inputs
Range of input values
Weighted average
Residential mortgage-backed securities and loans
$
5,653

 
Discounted cash flows
Yield
4
 %
26%
6
%
 
 
 
Prepayment speed
0
 %
20%
7
%
 
 
 
 
Conditional default rate
0
 %
11%
2
%
 
 
 
 
Loss severity
0
 %
100%
37
%
Commercial mortgage-backed securities and loans(b)
3,970

 
Discounted cash flows
Yield
0
 %
25%
3
%
 
 
 
Conditional default rate
0
 %
91%
21
%
 
 
 
 
Loss severity
0
 %
 
40%
29
%
Corporate debt securities, obligations of U.S. states and municipalities, and other(c)
3,556

 
Discounted cash flows
Credit spread
60 bps

270 bps
254bps

 
 
 
Yield
1
 %
22%
5
%
3,513

 
Market comparables
Price
$

$139
$
94

Net interest rate derivatives
831

 
Option pricing
Interest rate correlation
(49
)%
99%
 
 
 
 
 
Interest rate spread volatility
4
 %
30%
 
Net credit derivatives(b)(c)
512

 
Discounted cash flows
Credit correlation
35
 %
90%
 
Net foreign exchange derivatives
(535
)
 
Option pricing
Foreign exchange correlation
0
 %
60%
 
Net equity derivatives
(1,524
)
 
Option pricing
Equity volatility
20
 %
65%
 
Net commodity derivatives
(1,220
)
 
Discounted cash flows
Forward commodity price
$
33

$54 per barrel
Collateralized loan obligations
755

 
Discounted cash flows
Credit spread
350 bps

525 bps
390 bps
 
 
 
 
Prepayment speed
20
%
20
%
 
 
 
 
Conditional default rate
2
%
2
%
 
 
 
 
Loss severity
40
%
40
%
 
160

 
Market comparables
Price
$

$100
$
76

Mortgage servicing rights (“MSRs”)
6,716

 
Discounted cash flows
Refer to Note 16
 
Private equity investments
1,700

 
Market comparables
EBITDA multiple
6.4x

9.9x
8.7x

 
 
 
Liquidity adjustment
0
 %
15%
6
%
Long-term debt, other borrowed funds, and deposits(d)
14,495

 
Option pricing
Interest rate correlation
(49
)%
99%
 
 
 
 
Interest rate spread volatility
4
 %
30%
 
 
 
 
Foreign exchange correlation
0
 %
60%
 
 
 
 
Equity correlation
(50
)%
80%
 
 
506

 
Discounted cash flows
Credit correlation
35
 %
90%
 
Beneficial interests issued by consolidated VIEs(e)
1,018

 
Discounted Cash Flows
Yield
4
 %
28%
4
%
 
 
 
 
Prepayment Speed
1
 %
12%
8
%
 
 
 
 
Conditional default rate
2
 %
15%
2
%
 
 
 
 
Loss severity
40
 %
100%
48
%
(a)
The categories presented in the table have been aggregated based upon the product type, which may differ from their classification on the Consolidated balance sheets.
(b)
The unobservable inputs and associated input ranges for approximately $394 million of credit derivative receivables and $355 million of credit derivative payables with underlying commercial mortgage risk have been included in the inputs and ranges provided for commercial mortgage-backed securities (“MBS”) and loans.
(c)
The unobservable inputs and associated input ranges for approximately $491 million of credit derivative receivables and $453 million of credit derivative payables with underlying asset-backed securities (“ABS”) risk have been included in the inputs and ranges provided for corporate debt securities, obligations of U.S. states and municipalities and other.
(d)
Long-term debt, other borrowed funds and deposits include structured notes issued by the Firm that are predominantly financial instruments containing embedded derivatives. The estimation of the fair value of structured notes is predominantly based on the derivative features embedded within the instruments. The significant unobservable inputs are broadly consistent with those presented for derivative receivables.
(e)
The parameters are related to residential mortgage-backed securities.
Changes in and ranges of unobservable inputs
For a discussion of the impact on fair value of changes in unobservable inputs and the relationships between unobservable inputs as well as a description of attributes of the underlying instruments and external market factors that affect the range of inputs used in the valuation of the Firm’s positions see Note 3 of JPMorgan Chase’s 2014 Annual Report.
Changes in level 3 recurring fair value measurements
The following tables include a rollforward of the Consolidated balance sheets amounts (including changes in fair value) for financial instruments classified by the Firm within level 3 of the fair value hierarchy for the three and nine months ended September 30, 2015 and 2014. When a determination is made to classify a financial instrument within level 3, the determination is based on the
 
significance of the unobservable parameters to the overall fair value measurement. However, level 3 financial instruments typically include, in addition to the unobservable or level 3 components, observable components (that is, components that are actively quoted and can be validated to external sources); accordingly, the gains and losses in the table below include changes in fair value due in part to observable factors that are part of the valuation methodology. Also, the Firm risk-manages the observable components of level 3 financial instruments using securities and derivative positions that are classified within level 1 or 2 of the fair value hierarchy; as these level 1 and level 2 risk management instruments are not included below, the gains or losses in the following tables do not reflect the effect of the Firm’s risk management activities related to such level 3 instruments.


96


 
Fair value measurements using significant unobservable inputs
 
 
Three months ended
September 30, 2015
(in millions)
Fair value at
July 1, 2015
Total realized/unrealized gains/(losses)
 
 
 
 
Transfers into and/or out of level 3(h)
Fair value at
September 30, 2015
Change in unrealized gains/(losses) related
to financial instruments held at September 30, 2015
Purchases(g)
Sales
 
Settlements
Assets:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Trading assets:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Debt instruments:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Mortgage-backed securities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
U.S. government agencies
$
901

 
$
(81
)
 
$
68

$
(21
)
 
$
(28
)
$
(53
)
 
$
786

 
$
(79
)
 
Residential – nonagency
123

 
64

 
25

(95
)
 
(9
)
11

 
119

 
8

 
Commercial – nonagency
138

 
(3
)
 
5

(15
)
 
(8
)
(88
)
 
29

 
(4
)
 
Total mortgage-backed securities
1,162

 
(20
)
 
98

(131
)
 
(45
)
(130
)
 
934

 
(75
)
 
Obligations of U.S. states and municipalities
1,247

 
(7
)
 
90

(23
)
 

(735
)
 
572

 
(8
)
 
Non-U.S. government debt securities
208

 
11

 
18

(7
)
 
(1
)
(143
)
 
86

 
18

 
Corporate debt securities
943

 
(21
)
 
123

(100
)
 
(84
)
(24
)
 
837

 
(6
)
 
Loans
9,563

 
(73
)
 
945

(672
)
 
(1,494
)
(255
)
 
8,014

 
(104
)
 
Asset-backed securities
1,539

 
(15
)
 
485

(207
)
 
(10
)
14

 
1,806

 
(14
)
 
Total debt instruments
14,662

 
(125
)
 
1,759

(1,140
)
 
(1,634
)
(1,273
)
 
12,249

 
(189
)
 
Equity securities
310

 
9

 
26

(15
)
 
(2
)
7

 
335

 
9

 
Other
969

 
(23
)
 
460

(263
)
 
(89
)
(559
)
 
495

 
(15
)
 
Total trading assets – debt and equity instruments
15,941

 
(139
)
(c) 
2,245

(1,418
)
 
(1,725
)
(1,825
)
 
13,079

 
(195
)
(c) 
Net derivative receivables:(a)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest rate
859

 
244

 
9

(6
)
 
(147
)
(128
)
 
831

 
77

 
Credit
432

 
7

 
6

(1
)
 
48

20

 
512

 
13

 
Foreign exchange
405

 
(254
)
 
1

(135
)
 
(154
)
(398
)
 
(535
)
 
(222
)
 
Equity
(1,848
)
 
348

 
196

(187
)
 
172

(205
)
 
(1,524
)
 
277

 
Commodity
(594
)
 
(553
)
 

(2
)
 
(100
)
29

 
(1,220
)
 
(231
)
 
Total net derivative receivables
(746
)
 
(208
)
(c) 
212

(331
)
 
(181
)
(682
)
 
(1,936
)
 
(86
)
(c) 
Available-for-sale securities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Asset-backed securities
862

 
(27
)
 


 
(5
)

 
830

 
(26
)
 
Other
13

 

 


 
(8
)

 
5

 

 
Total available-for-sale securities
875

 
(27
)
(d) 


 
(13
)

 
835

 
(26
)
(d) 
Loans
2,295

 
9

(c) 
869


 
(298
)

 
2,875

 
9

(c) 
Mortgage servicing rights
7,571

 
(765
)
(e) 
143


 
(233
)

 
6,716

 
(765
)
(e) 
Other assets:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Private equity investments
1,987

 
(32
)
(c) 
70

(267
)
 
(58
)

 
1,700

 
(32
)
(c) 
All other
839

 
80

(f) 


 
(100
)

 
819

 
82

(f) 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Fair value measurements using significant unobservable inputs
 
 
Three months ended
September 30, 2015
(in millions)
Fair value at
July 1, 2015
Total realized/unrealized (gains)/losses
 
 
 
 
Transfers into and/or out of level 3(h)
Fair value at
September 30, 2015
Change in unrealized (gains)/losses related
to financial instruments held at September 30, 2015
Purchases
Sales
Issuances
Settlements
Liabilities:(b)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Deposits
$
3,528

 
$
42

(c) 
$

$

$
327

$
(280
)
$
(240
)
 
$
3,377

 
$
54

(c) 
Other borrowed funds
1,261

 
(402
)
(c) 

28

575

(431
)
(263
)
 
768

 
(317
)
(c) 
Trading liabilities – debt and equity instruments
72

 
8

(c) 
(10
)
2


(6
)
1

 
67

 
7

(c) 
Accounts payable and other liabilities
23

 

 



(2
)

 
21

 

 
Beneficial interests issued by consolidated VIEs
1,140

 
(35
)
(c) 
(59
)


(28
)

 
1,018

 
(36
)
(c) 
Long-term debt
12,589

 
(420
)
(c) 
(11
)

2,057

(1,048
)
(2,311
)
 
10,856

 
(392
)
(c) 

97


 
Fair value measurements using significant unobservable inputs
 
 
Three months ended
September 30, 2014
(in millions)
Fair value at July 1, 2014
Total realized/unrealized gains/(losses)





 
Transfers into and/or out of level 3(h)
Fair value at
September 30, 2014
Change in unrealized gains/(losses) related
to financial instruments held at September 30, 2014
Purchases(g)

Sales

Settlements
 
Assets:














 









Trading assets:














 









Debt instruments:














 









Mortgage-backed securities:














 









U.S. government agencies
$
1,125

$
(18
)

$
2


$
(12
)


$
(31
)
 
$
(8
)

$
1,058


$
(18
)

Residential – nonagency
543

(13
)

224


(120
)


(5
)
 
(38
)

591


(22
)

Commercial – nonagency
327

(2
)

251


(323
)


(6
)
 
16


263


(6
)

Total mortgage-backed securities
1,995

(33
)

477


(455
)


(42
)
 
(30
)

1,912


(46
)

Obligations of U.S. states and municipalities
1,079

158


1


(49
)



 


1,189


156


Non-U.S. government debt securities
128

7


88


(20
)


(1
)
 
(67
)

135


6


Corporate debt securities
4,793

(88
)

1,280


(776
)


(72
)
 
(75
)

5,062


168


Loans
13,521

(179
)

4,563


(1,476
)


(1,349
)
 
251


15,331


(184
)

Asset-backed securities
1,216

(21
)

564


(477
)


(88
)
 
26


1,220


(27
)

Total debt instruments
22,732

(156
)

6,973


(3,253
)


(1,552
)
 
105


24,849


73


Equity securities
691

22


140


(12
)


(42
)
 
35


834


19


Physical commodities
3

(1
)







 


2




Other
2,341

(53
)

480


(66
)


(17
)
 


2,685


(53
)

Total trading assets – debt and equity instruments
25,767

(188
)
(c) 
7,593


(3,331
)


(1,611
)
 
140


28,370


39

(c) 
Net derivative receivables:(a)
 
 

 

 


 
 
 

 

 

Interest rate
1,533

(46
)

31


(61
)


(232
)
 
(15
)

1,210


(133
)

Credit
134

89


23


(4
)


19

 
(2
)

259


112


Foreign exchange
(1,194
)
176


43


(3
)


51

 
(4
)

(931
)

194


Equity
(2,206
)
(201
)

699


(791
)

(4
)
 
82


(2,421
)

(164
)

Commodity
(122
)
178







(80
)
 
10


(14
)

448


Total net derivative receivables
(1,855
)
196

(c) 
796


(859
)

(246
)
 
71


(1,897
)

457

(c) 
Available-for-sale securities:
 
 

 

 


 
 
 

 

 

Asset-backed securities
1,322

(25
)

50





(39
)
 


1,308


(24
)

Other
514

(18
)






(133
)
 


363


(2
)

Total available-for-sale securities
1,836

(43
)
(d) 
50





(172
)
 


1,671


(26
)
(d) 
Loans
4,227

(240
)
(c) 
233


(89
)


(589
)
 


3,542


(241
)
(c) 
Mortgage servicing rights
8,347

(57
)
(e) 
151


11



(216
)
 


8,236


(57
)
(e) 
Other assets:
 
 

 

 


 
 
 

 

 

Private equity investments
4,630

147

(c) 
4


(458
)


18

 


4,341


346

(c) 
All other
1,199

12

(f) 
2





(38
)
 


1,175


12

(f) 














 









Fair value measurements using significant unobservable inputs


Three months ended
September 30, 2014
(in millions)
Fair value at July 1, 2014
Total realized/unrealized (gains)/losses





 
Transfers into and/or out of level 3(h)
Fair value at
September 30, 2014
Change in unrealized (gains)/losses related
to financial instruments held at September 30, 2014
Purchases

Sales
Issuances
Settlements
 
Liabilities:(b)













 








Deposits
$
2,838

$
(52
)
(c) 
$


$

$
452

$
(44
)
 
$
(359
)

$
2,835


$
(52
)
(c) 
Other borrowed funds
1,538

(45
)
(c) 



1,575

(1,494
)
 
418


1,992


(41
)
(c) 
Trading liabilities – debt and equity instruments
80

(12
)
(c) 
(36
)

22


9

 
(9
)

54


(12
)
(c) 
Accounts payable and other liabilities
45


(f) 




(5
)
 


40



(f) 
Beneficial interests issued by consolidated VIEs
1,062

(42
)
(c) 



653

(24
)
 


1,649


(44
)
(c) 
Long-term debt
11,746

(382
)
(c) 



2,175

(1,583
)
 
4


11,960


(266
)
(c) 

98


 
Fair value measurements using significant unobservable inputs
 
 
Nine months ended
September 30, 2015
(in millions)
Fair value at January 1, 2015
 
Total realized/unrealized gains/(losses)
 
 
 
 
Transfers into and/or out of level 3(h)
Fair value at
September 30, 2015
Change in unrealized gains/(losses) related
to financial instruments held at September 30, 2015
Purchases(g)
Sales
 
Settlements
Assets:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Trading assets:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Debt instruments:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Mortgage-backed securities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
U.S. government agencies
$
922

 
$
(43
)
 
$
250

$
(186
)
 
$
(102
)
$
(55
)
 
$
786

 
$
(41
)
 
Residential – nonagency
663

 
108

 
202

(558
)
 
(19
)
(277
)
 
119

 
7

 
Commercial – nonagency
306

 
(12
)
 
185

(215
)
 
(22
)
(213
)
 
29

 
(5
)
 
Total mortgage-backed securities
1,891

 
53

 
637

(959
)
 
(143
)
(545
)
 
934

 
(39
)
 
Obligations of U.S. states and municipalities
1,273

 
6

 
281

(133
)
 
(27
)
(828
)
 
572

 
(7
)
 
Non-U.S. government debt securities
302

 
20

 
173

(119
)
 
(43
)
(247
)
 
86

 
16

 
Corporate debt securities
2,989

 
(71
)
 
944

(909
)
 
(119
)
(1,997
)
 
837

 
(2
)
 
Loans
13,287

 
(64
)
 
2,841

(3,821
)
 
(2,313
)
(1,916
)
 
8,014

 
(254
)
 
Asset-backed securities
1,264

 
(31
)
 
1,781

(1,099
)
 
(4
)
(105
)
 
1,806

 
(19
)
 
Total debt instruments
21,006

 
(87
)
 
6,657

(7,040
)
 
(2,649
)
(5,638
)
 
12,249

 
(305
)
 
Equity securities
431

 
55

 
76

(138
)
 
(19
)
(70
)
 
335

 
58

 
Other
1,052

 
65

 
1,571

(1,298
)
 
(305
)
(590
)
 
495

 
(25
)
 
Total trading assets – debt and equity instruments
22,489

 
33

(c) 
8,304

(8,476
)


(2,973
)
(6,298
)
 
13,079

 
(272
)
(c) 
Net derivative receivables:(a)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest rate
626

 
737

 
451

(164
)
 
(500
)
(319
)
 
831

 
310

 
Credit
189

 
101

 
16

(5
)
 
174

37

 
512

 
237

 
Foreign exchange
(526
)
 
691

 
14

(146
)
 
(140
)
(428
)
 
(535
)
 
222

 
Equity
(1,785
)
 
673

 
620

(859
)
 
(90
)
(83
)
 
(1,524
)
 
414

 
Commodity
(565
)
 
(464
)
 

(2
)
 
(151
)
(38
)
 
(1,220
)
 
(154
)
 
Total net derivative receivables
(2,061
)
 
1,738

(c) 
1,101

(1,176
)
 
(707
)
(831
)
 
(1,936
)
 
1,029

(c) 
Available-for-sale securities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Asset-backed securities
908

 
(34
)
 
49

(43
)
 
(50
)

 
830

 
(28
)
 
Other
129

 

 


 
(25
)
(99
)
 
5

 

 
Total available-for-sale securities
1,037

 
(34
)
(d) 
49

(43
)
 
(75
)
(99
)
 
835

 
(28
)
(d) 
Loans
2,541

 
(111
)
(c) 
1,286

(83
)
 
(758
)

 
2,875

 
(108
)
(c) 
Mortgage servicing rights
7,436

 
(550
)
(e) 
882

(375
)
 
(677
)

 
6,716

 
(550
)
(e) 
Other assets:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Private equity investments
2,225

(i) 
15

(c) 
77

(294
)
 
(174
)
(149
)
 
1,700

 

(c) 
All other
959

(i) 
90

(f) 
65

(143
)
 
(152
)

 
819

 
66

(f) 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Fair value measurements using significant unobservable inputs
 
 
Nine months ended
September 30, 2015
(in millions)
Fair value at January 1, 2015
 
Total realized/unrealized (gains)/losses
 
 
 
 
Transfers into and/or out of level 3(h)
Fair value at
September 30, 2015
Change in unrealized (gains)/losses related
to financial instruments held at September 30, 2015
Purchases
Sales
Issuances
Settlements
Liabilities:(b)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Deposits
$
2,859

 
$
(22
)
(c) 
$

$

$
1,775

$
(425
)
$
(810
)
 
$
3,377

 
$
49

(c) 
Other borrowed funds
1,453

 
(525
)
(c) 
45

28

2,897

(2,573
)
(557
)
 
768

 
(424
)
(c) 
Trading liabilities – debt and equity instruments
72

 
13

(c) 
(141
)
149


(20
)
(6
)
 
67

 
7

(c) 
Accounts payable and other liabilities
26

 

(c) 



(5
)

 
21

 

(c) 
Beneficial interests issued by consolidated VIEs
1,146

 
(52
)
(c) 
(75
)

286

(287
)

 
1,018

 
(49
)
(c) 
Long-term debt
11,877

 
(617
)
(c) 
(11
)
(12
)
7,440

(5,193
)
(2,628
)
 
10,856

 
(583
)
(c) 

99


 
Fair value measurements using significant unobservable inputs
 
 
Nine months ended
September 30, 2014
(in millions)
Fair value at January 1, 2014
Total realized/unrealized gains/(losses)
 
 
 
 
 
 
Transfers into and/or out of level 3(h)
Fair value at
September 30, 2014
Change in unrealized gains/(losses) related
to financial instruments held at September 30, 2014
Purchases(g)
 
Sales
 
Settlements
 
Assets:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Trading assets:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Debt instruments:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Mortgage-backed securities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
U.S. government agencies
$
1,005

$
12

 
$
345

 
$
(186
)
 
$
(91
)
 
$
(27
)
 
$
1,058

 
$
16

 
Residential – nonagency
726

78

 
597

 
(634
)
 
(29
)
 
(147
)
 
591

 
5

 
Commercial – nonagency
432

26

 
832

 
(804
)
 
(54
)
 
(169
)
 
263

 
(5
)
 
Total mortgage-backed securities
2,163

116

 
1,774

 
(1,624
)
 
(174
)
 
(343
)
 
1,912

 
16

 
Obligations of U.S. states and municipalities
1,382

145

 
1

 
(339
)
 

 

 
1,189

 
14

 
Non-U.S. government debt securities
143

26

 
523

 
(539
)
 
(3
)
 
(15
)
 
135

 
9

 
Corporate debt securities
5,920

280

 
3,640

 
(2,791
)
 
(1,736
)
 
(251
)
 
5,062

 
458

 
Loans
13,455

512

 
9,850

 
(4,378
)
 
(4,067
)
 
(41
)
 
15,331

 
297

 
Asset-backed securities
1,272

49

 
1,921

 
(1,809
)
 
(259
)
 
46

 
1,220

 
(19
)
 
Total debt instruments
24,335

1,128

 
17,709

 
(11,480
)
 
(6,239
)
 
(604
)
 
24,849

 
775

 
Equity securities
867

122

 
225

 
(87
)
 
(72
)
 
(221
)
 
834

 
92

 
Physical commodities
4

(1
)
 

 

 
(1
)
 

 
2

 
(1
)
 
Other
2,000

116

 
1,190

 
(244
)
 
(112
)
 
(265
)
 
2,685

 
122

 
Total trading assets – debt and equity instruments
27,206

1,365

(c) 
19,124

 
(11,811
)
 
(6,424
)
 
(1,090
)
 
28,370

 
988

(c) 
Net derivative receivables:(a)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest rate
2,379

(20
)
 
129

 
(167
)
 
(997
)
 
(114
)
 
1,210

 
(643
)
 
Credit
95

(150
)
 
245

 
(25
)
 
146

 
(52
)
 
259

 
(74
)
 
Foreign exchange
(1,200
)
(166
)
 
137

 
(22
)
 
306

 
14

 
(931
)
 
(389
)
 
Equity
(1,063
)
(273
)
 
1,557

 
(2,371
)
 
47

 
(318
)
 
(2,421
)
 
239

 
Commodity
115

6

 
1

 

 
(93
)
 
(43
)
 
(14
)
 
(126
)
 
Total net derivative receivables
326

(603
)
(c) 
2,069

 
(2,585
)
 
(591
)
 
(513
)
 
(1,897
)
 
(993
)
(c) 
Available-for-sale securities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Asset-backed securities
1,088

(36
)
 
275

 
(2
)
 
(80
)
 
63

 
1,308

 
(36
)
 
Other
1,234

(20
)
 
122

 

 
(201
)
 
(772
)
 
363

 
(3
)
 
Total available-for-sale securities
2,322

(56
)
(d) 
397

 
(2
)
 
(281
)
 
(709
)
 
1,671

 
(39
)
(d) 
Loans
1,931

(168
)
(c) 
3,313

 
(231
)
 
(1,303
)
 

 
3,542

 
(208
)
(c) 
Mortgage servicing rights
9,614

(1,028
)
(e) 
527

 
(175
)
 
(702
)
 

 
8,236

 
(1,028
)
(e) 
Other assets:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Private equity investments
5,817

387

(c) 
107

 
(1,946
)
 
(290
)
 
266

 
4,341

 
249

(c) 
All other
1,382

9

(f) 
8

 
(130
)
 
(94
)
 

 
1,175

 
10

(f) 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Fair value measurements using significant unobservable inputs
 
 
Nine months ended
September 30, 2014
(in millions)
Fair value at January 1, 2014
Total realized/unrealized (gains)/losses
 
 
 
 
 
 
Transfers into and/or out of level 3(h)
Fair value at
September 30, 2014
Change in unrealized (gains)/
losses related
to financial
instruments held
at September 30, 2014
Purchases
 
Sales
Issuances
Settlements
 
Liabilities:(b)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Deposits
$
2,255

$
59

(c) 
$

 
$

$
1,261

$
(110
)
 
$
(630
)
 
$
2,835

 
$
61

(c) 
Other borrowed funds
2,074

(138
)
(c) 

 

4,251

(4,981
)
 
786

 
1,992

 
51

(c) 
Trading liabilities – debt and equity instruments
113

(16
)
(c) 
(298
)
 
301


1

 
(47
)
 
54

 
(6
)
(c) 
Accounts payable and other liabilities
25

27

(f) 

 


(12
)
 

 
40

 

(f) 
Beneficial interests issued by consolidated VIEs
1,240

59

(c) 

 

735

(283
)
 
(102
)
 
1,649

 
45

(c) 
Long-term debt
10,008

157

(c) 

 

5,919

(3,962
)
 
(162
)
 
11,960

 
231

(c) 
Note: Effective April 1, 2015, the Firm adopted new accounting guidance for certain investments where the Firm measures fair value using the net asset value per share (or its equivalent) as a practical expedient and excluded them from the fair value hierarchy. Accordingly, such investments are not included within these tables. The guidance was required to be applied retrospectively, and accordingly, prior period amounts have been revised to conform with the current period presentation. For further information, see page 94.

100


(a)
All level 3 derivatives are presented on a net basis, irrespective of the underlying counterparty.
(b)
Level 3 liabilities as a percentage of total Firm liabilities accounted for at fair value (including liabilities measured at fair value on a nonrecurring basis) was 13% at September 30, 2015 and 15% at December 31, 2014.
(c)
Predominantly reported in principal transactions revenue, except for changes in fair value for Consumer & Community Banking mortgage loans, lending-related commitments originated with the intent to sell, and mortgage loan purchase commitments, which are reported in mortgage fees and related income.
(d)
Realized gains/(losses) on available-for-sale (“AFS”) securities, as well as other-than-temporary impairment losses that are recorded in earnings, are reported in securities gains. Unrealized gains/(losses) are reported in OCI. Realized gains/(losses) and foreign exchange hedge accounting adjustments recorded in income on AFS securities were zero and $(30) million for the three months ended September 30, 2015 and 2014 and $(7) million and $(43) million for the nine months ended September 30, 2015 and 2014, respectively. Unrealized gains/(losses) recorded on AFS securities in OCI were $(27) million and $(12) million for the three months ended September 30, 2015 and 2014 and $(27) million and $(13) million for the nine months ended September 30, 2015 and 2014 respectively.
(e)
Changes in fair value for CCB mortgage servicing rights are reported in mortgage fees and related income.
(f)
Predominantly reported in other income.
(g)
Loan originations are included in purchases.
(h)
All transfers into and/or out of level 3 are assumed to occur at the beginning of the quarterly reporting period in which they occur.
(i)
The prior period amounts have been revised. The revision had no impact on the Firm’s Consolidated balance sheets or its results of operations.
Level 3 analysis
Consolidated balance sheets changes
Level 3 assets (including assets measured at fair value on a nonrecurring basis) were 1.5% of total Firm assets at September 30, 2015. The following describes significant changes to level 3 assets since December 31, 2014, for those items measured at fair value on a recurring basis. For further information on changes impacting items measured at fair value on a nonrecurring basis, see Assets and liabilities measured at fair value on a nonrecurring basis on page 102.
Three months ended September 30, 2015
Level 3 assets were $34.9 billion at September 30, 2015, reflecting a decrease of $5.8 billion from June 30, 2015, largely due to the following:
$2.9 billion decrease in trading assets, debt and equity Instruments driven by the decrease in trading loans primarily due to maturities and transfers from level 3 to level 2 as a result of an increase in observability of certain valuation inputs; additionally, a decrease in the obligations of U.S. states and municipalities securities predominantly driven by transfers from level 3 to level 2 as a result of an increase in observability of certain valuation inputs.
$2.3 billion decrease in derivative receivables due to decreases in interest rate and foreign exchange derivatives driven by transfers from level 3 to level 2 as a result of an increase in transparency of certain valuation inputs and market movements.
Nine months ended September 30, 2015
Level 3 assets decreased by $14.4 billion from December 31, 2014, largely due to the following:
$9.4 billion decrease in trading assets, debt and equity instruments predominantly driven by a decrease in trading loans due to sales, maturities and transfers from level 3 to level 2 as a result of increase in observability of certain valuation inputs, and a decrease in corporate debt securities due to transfers from level 3 to level 2 as a result of a reduction of the significance in the unobservable inputs.
 
$3.7 billion decrease in derivative receivables predominantly driven by a decrease in interest rate and equity derivatives due to transfers from level 3 to level 2 as a result of increase in observability of certain valuation inputs and market movements, and a decrease in credit derivatives due to maturities and settlements.
Gains and losses
The following describes significant components of total realized/unrealized gains/(losses) for instruments measured at fair value on a recurring basis for the periods indicated. For further information on these instruments, see Changes in level 3 recurring fair value measurements rollforward tables on pages 97–101.
Three months ended September 30, 2015
$1.1 billion of net loss on assets of which $765 million was on mortgage servicing rights. For more information, see Note 16.
$807 million of net loss on liabilities none of which were individually significant.
Three months ended September 30, 2014
$173 million of net losses and $533 million of gains on assets and liabilities, respectively, none of which were individually significant.
Nine months ended September 30, 2015
$1.7 billion gain in derivative receivables due to gains in interest rate, foreign exchange and equity derivatives driven by market movements, partially offset by loss from sales of commodity derivatives.
$1.2 billion loss in liabilities due to loss in other borrowed funds and long-term debt due to market movements, partially offset by gains from the sale of long term debt.
Nine months ended September 30, 2014
$1.0 billion of losses on MSRs. For further discussion of the change, refer to Note 16.



101


Credit & funding adjustments
The following table provides the credit and funding adjustments, excluding the effect of any associated hedging activities, reflected within the Consolidated balance sheets as of the dates indicated.
(in millions)
Sep 30, 2015
 
Dec 31, 2014
Derivative receivables balance(a)
$
68,668

 
$
78,975

Derivative payables balance(a)
57,140

 
71,116

Derivatives CVA(b)
(2,279
)
 
(2,674
)
Derivatives DVA and FVA(b)(c)
(437
)
 
(380
)
Structured notes balance(a)(d)
51,887

 
53,772

Structured notes DVA and FVA(b)(e)
2,355

 
1,152

(a)
Balances are presented net of applicable credit valuation adjustments (“CVA”) and debit valuation adjustments (“DVA”)/funding valuation adjustments (“FVA”).
(b)
Positive CVA and DVA/FVA represent amounts that increased receivable balances or decreased payable balances; negative CVA and DVA/FVA represent amounts that decreased receivable balances or increased payable balances.
(c)
At September 30, 2015, and December 31, 2014, included derivatives DVA of $822 million and $714 million, respectively.
(d)
Structured notes are predominantly financial instruments containing embedded derivatives that are measured at fair value based on the Firm’s election under the fair value option. At September 30, 2015, and December 31, 2014, included $1.7 billion and $943 million, respectively, of financial instruments with no embedded derivative for which the fair value option has also been elected. For further information on these elections, see Note 4.
(e)
At September 30, 2015, and December 31, 2014, included structured notes DVA of $1.9 billion and $1.4 billion, respectively.
The following table provides the impact of credit and funding adjustments on principal transactions revenue in the respective periods, excluding the effect of any associated hedging activities.
 
Three months ended
September 30,
 
Nine months
ended
September 30,
(in millions)
2015
 
2014
 
2015
 
2014
Credit adjustments:
 
 
 
 
 
 
 
Derivatives CVA
$
(127
)
 
$
(57
)
 
$
395

 
$
196

Derivatives DVA and FVA(a)
(121
)
 
144

 
(58
)
 
(17
)
Structured notes DVA and FVA(b)
552

 
161

 
1,203

 
340

(a)
Included derivatives DVA of $51 million and $68 million for the three months ended September 30, 2015 and 2014, respectively, and $108 million and $(27) million for the nine months ended September 30, 2015 and 2014, respectively.
(b)
Included structured notes DVA of $169 million and $190 million for the three months ended September 30, 2015 and 2014, respectively, and $492 million and $209 million for the nine months ended September 30, 2015 and 2014, respectively.
 
Assets and liabilities measured at fair value on a nonrecurring basis
At September 30, 2015 and 2014, assets measured at fair value on a nonrecurring basis were $2.3 billion and $2.6 billion, respectively, which predominantly consisted of loans that had fair value adjustments in the first nine months of both 2015 and 2014. At September 30, 2015, $1.5 billion and $867 million of these loans were classified in levels 2 and 3 of the fair value hierarchy, respectively. At September 30, 2014, $102 million and $2.5 billion of these loans were classified in levels 2 and 3 of the fair value hierarchy, respectively. Liabilities measured at fair value on a nonrecurring basis were not significant at September 30, 2015 and 2014. During the three and nine months ended September 30, 2015, $1.3 billion of level 3 nonrecurring assets related to consumer credit card loans were transferred to level 2 due to increased observability. For the three and nine months ended September 30, 2014 there were no significant transfers between levels 1, 2 and 3.
Of the $867 million of level 3 assets measured at fair value on a nonrecurring basis as of September 30, 2015:
$528 million related to residential real estate loans measured at the net realizable value of the underlying collateral (i.e., collateral-dependent loans and other loans charged off in accordance with regulatory guidance). These amounts are classified as level 3 as they are valued using a broker’s price opinion and discounted based upon the Firm’s experience with actual liquidation values. These discounts to the broker price opinions ranged from 5% to 59%, with a weighted average of 21%.
The total change in the recorded value of assets and liabilities for which a fair value adjustment has been included in the Consolidated statements of income for the three months ended September 30, 2015 and 2014, related to financial instruments held at those dates, was a reduction of $66 million and $280 million, respectively, and for the nine months ended September 30, 2015 and 2014, was a reduction of $170 million and $709 million, respectively.
For information about the measurement of impaired collateral-dependent loans, and other loans where the carrying value is based on the fair value of the underlying collateral (e.g., residential mortgage loans charged off in accordance with regulatory guidance), see Note 14 of JPMorgan Chase’s 2014 Annual Report.


102


Additional disclosures about the fair value of financial instruments that are not carried on the Consolidated balance sheets at fair value
The following table presents the carrying values and estimated fair values at September 30, 2015, and December 31, 2014, of financial assets and liabilities, excluding financial instruments which are carried at fair value on a recurring basis, and information is provided on their classification within the fair value hierarchy. For additional information regarding the financial instruments within the scope of this disclosure, and the methods and significant assumptions used to estimate their fair value, see Note 3 of JPMorgan Chase’s 2014 Annual Report.
 
September 30, 2015
 
December 31, 2014
 
 
Estimated fair value hierarchy
 
 
 
Estimated fair value hierarchy
 
(in billions)
Carrying
value
Level 1
Level 2
Level 3
Total estimated
fair value
 
Carrying
value
Level 1
Level 2
Level 3
Total estimated
fair value
Financial assets
 
 
 
 
 
 
 
 
 
 
 
Cash and due from banks
$
21.3

$
21.3

$

$

$
21.3

 
$
27.8

$
27.8

$

$

$
27.8

Deposits with banks
376.2

372.0

4.2


376.2

 
484.5

480.4

4.1


484.5

Accrued interest and accounts receivable
57.9


57.7

0.2

57.9

 
70.1


70.0

0.1

70.1

Federal funds sold and securities purchased under resale agreements
191.1


191.1


191.1

 
187.2


187.2


187.2

Securities borrowed
105.3


105.3


105.3

 
109.4


109.4


109.4

Securities, held-to-maturity(a)
50.2


51.8


51.8

 
49.3


51.2


51.2

Loans, net of allowance for loan losses(b)
792.9


20.7

776.9

797.6

 
740.5


21.8

723.1

744.9

Other
66.7

0.1

57.7

13.5

71.3

 
64.7


55.7

13.3

69.0

Financial liabilities
 
 
 
 
 
 
 
 
 
 
 
Deposits
$
1,262.0

$

$
1,261.0

$
1.2

$
1,262.2

 
$
1,354.6

$

$
1,353.6

$
1.2

$
1,354.8

Federal funds purchased and securities loaned or sold under repurchase agreements
176.7


176.7


176.7

 
189.1


189.1


189.1

Commercial paper
19.7


19.7


19.7

 
66.3


66.3


66.3

Other borrowed funds
17.5


17.5


17.5

 
15.5



15.5


15.5

Accounts payable and other liabilities(c)
152.2


149.5

2.5

152.0

 
172.6


169.6

2.9

172.5

Beneficial interests issued by consolidated VIEs
47.5


45.7

1.8

47.5

 
50.2


48.2

2.0

50.2

Long-term debt and junior subordinated deferrable interest debentures(d)
261.7


263.8

4.0

267.8

 
246.6


251.6

3.8

255.4

(a)
Carrying value includes unamortized discount or premium.
(b)
Fair value is typically estimated using a discounted cash flow model that incorporates the characteristics of the underlying loans (including principal, contractual interest rate and contractual fees) and other key inputs, including expected lifetime credit losses, interest rates, prepayment rates, and primary origination or secondary market spreads. For certain loans, the fair value is measured based on the value of the underlying collateral. The difference between the estimated fair value and carrying value of a financial asset or liability is the result of the different methodologies used to determine fair value as compared with carrying value. For example, credit losses are estimated for a financial asset’s remaining life in a fair value calculation but are estimated for a loss emergence period in the allowance for loan loss calculation; future loan income (interest and fees) is incorporated in a fair value calculation but is generally not considered in the allowance for loan losses. For a further discussion of the Firm’s methodologies for estimating the fair value of loans and lending-related commitments, see Valuation hierarchy on pages 181–184 of JPMorgan Chase’s 2014 Annual Report.
(c)
Certain prior period amounts have been revised to conform with the current presentation.
(d)
Carrying value includes unamortized original issue discount and other valuation adjustments.

103


The majority of the Firm’s lending-related commitments are not carried at fair value on a recurring basis on the Consolidated balance sheets, nor are they actively traded. The carrying value and estimated fair value of the Firm’s wholesale lending-related commitments were as follows for the periods indicated.
 
September 30, 2015
 
December 31, 2014
 
 
Estimated fair value hierarchy
 
 
 
Estimated fair value hierarchy
 
(in billions)
Carrying value(a)
Level 1
Level 2
Level 3
Total estimated fair value
 
Carrying value(a)
Level 1
Level 2
Level 3
Total estimated fair value
Wholesale lending-related commitments
$
0.7

$

$

$
2.6

$
2.6

 
$
0.6

$

$

$
1.6

$
1.6

(a)
Represents the allowance for wholesale lending-related commitments. Excludes the current carrying values of the guarantee liability and the offsetting asset, each of which are recognized at fair value at the inception of guarantees.
The Firm does not estimate the fair value of consumer lending-related commitments. In many cases, the Firm can reduce or cancel these commitments by providing the borrower notice or, in some cases as permitted by law, without notice. For a further discussion of the valuation of lending-related commitments, see page 182 of JPMorgan Chase’s 2014 Annual Report.
Note 4 – Fair value option
For a discussion of the primary financial instruments for which the fair value option was previously elected, including the basis for those elections and the determination of instrument-specific credit risk, where relevant, see Note 4 of JPMorgan Chase’s 2014 Annual Report.
Changes in fair value under the fair value option election
The following table presents the changes in fair value included in the Consolidated statements of income for the three and nine months ended September 30, 2015 and 2014, for items for which the fair value option was elected. The profit and loss information presented below only includes the financial instruments that were elected to be measured at fair value; related risk management instruments, which are required to be measured at fair value, are not included in the table.
 
Three months ended September 30,
 
 
2015
 
2014
 
(in millions)
Principal transactions
 
All other income
Total changes in fair
value recorded
 
Principal transactions
 
All other income
Total changes in fair value recorded
Federal funds sold and securities purchased under resale agreements
$
63

 
$

 
$
63

 
 
$
(114
)
 
$

 
$
(114
)
 
Securities borrowed
(1
)
 

 
(1
)
 
 
(3
)
 

 
(3
)
 
Trading assets:
 
 
 
 
 
 
 
 
 
 
 
 
 
Debt and equity instruments, excluding loans
(144
)
 

 
(144
)
 
 
20

 
1

(c) 
21

 
Loans reported as trading assets:
 
 
 
 
 
 
 
 
 
 
 
 
 
Changes in instrument-specific credit risk
12

 
5

(c) 
17

 
 
140

 
10

(c) 
150

 
Other changes in fair value
94

 
277

(c) 
371

 
 
98

 
249

(c) 
347

 
Loans:
 
 
 
 
 
 
 
 
 
 
 
 
 
Changes in instrument-specific credit risk
31

 

 
31

 
 
3

 

 
3

 
Other changes in fair value
2

 

 
2

 
 
(2
)
 

 
(2
)
 
Other assets
54

 

 
54

 
 
6

 
21

(d) 
27

 
Deposits(a)
(112
)
 

 
(112
)
 
 
117

 

 
117

 
Federal funds purchased and securities loaned or sold under repurchase agreements
(14
)
 

 
(14
)
 
 
15

 

 
15

 
Other borrowed funds(a)
2,015

 

 
2,015

 
 
(56
)
 

 
(56
)
 
Trading liabilities
(6
)
 

 
(6
)
 
 
(2
)
 

 
(2
)
 
Beneficial interests issued by consolidated VIEs
29

 

 
29

 
 
(54
)
 

 
(54
)
 
Other liabilities

 

 

 
 

 

 

 
Long-term debt:
 
 
 
 
 
 
 
 
 
 
 
 
 
Changes in instrument-specific credit risk(a)
299

 

 
299

 
 
162

 

 
162

 
Other changes in fair value(b)
1,116

 

 
1,116

 
 
170

 

 
170

 



104


 
Nine months ended September 30,
 
2015
 
2014
(in millions)
Principal transactions
All other income
Total changes in fair value recorded
 
Principal transactions
All other income
Total changes in fair value recorded
Federal funds sold and securities purchased under resale agreements
$
37

$

 
$
37

 
$
(58
)
$

 
$
(58
)
Securities borrowed
(5
)

 
(5
)
 
(8
)

 
(8
)
Trading assets:
 
 
 
 
 
 
 
 
 
Debt and equity instruments, excluding loans
375

1

(c) 
376

 
495

2

(c) 
497

Loans reported as trading assets:
 
 
 
 
 
 
 
 
 
Changes in instrument-specific credit risk
223

18

(c) 
241

 
894

22

(c) 
916

Other changes in fair value
206

657

(c) 
863

 
200

941

(c) 
1,141

Loans:
 
 
 
 
 
 
 
 
 
Changes in instrument-specific credit risk
32


 
32

 
31


 
31

Other changes in fair value
2


 
2

 
29


 
29

Other assets
116

9

(d) 
125

 
18

(121
)
(d) 
(103
)
Deposits(a)
(75
)

 
(75
)
 
(94
)

 
(94
)
Federal funds purchased and securities loaned or sold under repurchase agreements
(5
)

 
(5
)
 
(19
)

 
(19
)
Other borrowed funds(a)
2,121


 
2,121

 
(1,227
)

 
(1,227
)
Trading liabilities
(20
)

 
(20
)
 
(11
)

 
(11
)
Beneficial interests issued by consolidated VIEs
73


 
73

 
(191
)

 
(191
)
Other liabilities


 

 
(27
)

 
(27
)
Long-term debt:
 
 
 
 
 
 
 
 
 
Changes in instrument-specific credit risk(a)
624


 
624

 
167


 
167

Other changes in fair value(b)
1,466


 
1,466

 
(621
)

 
(621
)
(a)
Total changes in instrument-specific credit risk (DVA) related to structured notes were $169 million and $190 million for the three months ended September 30, 2015 and 2014, respectively, and $492 million and $209 million for the nine months ended September 30, 2015 and 2014, respectively. These totals include such changes for structured notes classified within deposits and other borrowed funds, as well as long-term debt.
(b)
Structured notes are predominantly financial instruments containing embedded derivatives. Where present, the embedded derivative is the primary driver of risk. Although the risk associated with the structured notes is actively managed, the gains/(losses) reported in this table do not include the income statement impact of the risk management instruments used to manage such risk.
(c)
Reported in mortgage fees and related income.
(d)
Reported in other income.

105


Difference between aggregate fair value and aggregate remaining contractual principal balance outstanding
The following table reflects the difference between the aggregate fair value and the aggregate remaining contractual principal balance outstanding as of September 30, 2015, and December 31, 2014, for loans, long-term debt and long-term beneficial interests for which the fair value option has been elected.
 
September 30, 2015
 
December 31, 2014
(in millions)
Contractual principal outstanding
 
Fair value
Fair value over/(under) contractual principal outstanding
 
Contractual principal outstanding
 
Fair value
Fair value over/(under) contractual principal outstanding
Loans(a)
 
 
 
 
 
 
 
 
 
Nonaccrual loans
 
 
 
 
 
 
 
 
 
Loans reported as trading assets
$
4,048

 
$
1,067

$
(2,981
)
 
$
3,847

 
$
905

$
(2,942
)
Loans
7

 
7


 
7

 
7


Subtotal
4,055

 
1,074

(2,981
)
 
3,854

 
912

(2,942
)
All other performing loans
 
 
 
 
 
 
 
 
 
Loans reported as trading assets
34,765

 
32,756

(2,009
)
 
37,608

 
35,462

(2,146
)
Loans
2,988

 
2,967

(21
)
 
2,397

 
2,389

(8
)
Total loans
$
41,808

 
$
36,797

$
(5,011
)
 
$
43,859

 
$
38,763

$
(5,096
)
Long-term debt
 
 
 
 
 
 
 
 
 
Principal-protected debt
$
16,753

(c) 
$
15,520

$
(1,233
)
 
$
14,660

(c) 
$
15,484

$
824

Nonprincipal-protected debt(b)
NA

 
15,640

NA

 
NA

 
14,742

NA

Total long-term debt
NA

 
$
31,160

NA

 
NA

 
$
30,226

NA

Long-term beneficial interests
 
 
 
 
 
 
 
 
 
Nonprincipal-protected debt(b)
NA

 
$
1,199

NA

 
NA

 
$
2,162

NA

Total long-term beneficial interests
NA

 
$
1,199

NA

 
NA

 
$
2,162

NA

(a)
There were no performing loans that were ninety days or more past due as of September 30, 2015, and December 31, 2014, respectively.
(b)
Remaining contractual principal is not applicable to nonprincipal-protected notes. Unlike principal-protected structured notes, for which the Firm is obligated to return a stated amount of principal at the maturity of the note, nonprincipal-protected structured notes do not obligate the Firm to return a stated amount of principal at maturity, but to return an amount based on the performance of an underlying variable or derivative feature embedded in the note. However, investors are exposed to the credit risk of the Firm as issuer for both nonprincipal-protected and principal protected notes.
(c)
Where the Firm issues principal-protected zero-coupon or discount notes, the balance reflects the contractual principal payment at maturity or, if applicable, the contractual principal payment at the Firm’s next call date.
At September 30, 2015, and December 31, 2014, the contractual amount of letters of credit for which the fair value option was elected was $4.4 billion and $4.5 billion, respectively, with a corresponding fair value of $(101) million and $(147) million, respectively. For further information regarding off-balance sheet lending-related financial instruments, see Note 29 of JPMorgan Chase’s 2014 Annual Report, and Note 21 of this Form 10-Q.
Structured note products by balance sheet classification and risk component
The table below presents the fair value of the structured notes issued by the Firm, by balance sheet classification and the primary risk to which the structured notes’ embedded derivative relates.
 
September 30, 2015
 
December 31, 2014
(in millions)
Long-term debt
Other borrowed funds
Deposits
Total
 
Long-term debt
Other borrowed funds
Deposits
Total
Risk exposure
 
 
 
 
 
 
 
 
 
Interest rate
$
11,506

$
50

$
3,762

$
15,318

 
$
10,858

$
460

$
2,119

$
13,437

Credit
3,256

95


3,351

 
4,023

450


4,473

Foreign exchange
1,853

150

11

2,014

 
2,150

211

17

2,378

Equity
13,086

8,523

5,074

26,683

 
12,348

12,412

4,415

29,175

Commodity
833

81

1,955

2,869

 
710

644

2,012

3,366

Total structured notes
$
30,534

$
8,899

$
10,802

$
50,235

 
$
30,089

$
14,177

$
8,563

$
52,829


106


Note 5 – Derivative instruments
JPMorgan Chase makes markets in derivatives for customers and also uses derivatives to hedge or manage its own risk exposures. For a further discussion of the Firm’s use of and accounting policies regarding derivative instruments, see Note 6 of JPMorgan Chase’s 2014 Annual Report.
The Firm’s disclosures are based on the accounting treatment and purpose of these derivatives. A limited number of the Firm’s derivatives are designated in hedge
 
accounting relationships and are disclosed according to the type of hedge (fair value hedge, cash flow hedge, or net investment hedge). Derivatives not designated in hedge accounting relationships include certain derivatives that are used to manage certain risks associated with specified assets or liabilities (“specified risk management” positions) as well as derivatives used in the Firm’s market-making businesses or for other purposes.


The following table outlines the Firm’s primary uses of derivatives and the related hedge accounting designation or disclosure category.
Type of Derivative
Use of Derivative
Designation and disclosure
Affected
segment or unit
10-Q page reference
Manage specifically identified risk exposures in qualifying hedge accounting relationships:
 
 
 
◦ Interest rate
Hedge fixed rate assets and liabilities
Fair value hedge
Corporate
113114
◦ Interest rate
Hedge floating-rate assets and liabilities
Cash flow hedge
Corporate
114115
 Foreign exchange
Hedge foreign currency-denominated assets and liabilities
Fair value hedge
Corporate
113114

 Foreign exchange
Hedge forecasted revenue and expense
Cash flow hedge
Corporate
114115

 Foreign exchange
Hedge the value of the Firm’s investments in non-U.S. subsidiaries
Net investment hedge
Corporate
116
 Commodity
Hedge commodity inventory
Fair value hedge
CIB
113114

Manage specifically identified risk exposures not designated in qualifying hedge accounting relationships:
 
 
 
 Interest rate
Manage the risk of the mortgage pipeline, warehouse loans and MSRs
Specified risk management
CCB
116
 Credit
Manage the credit risk of wholesale lending exposures
Specified risk management
CIB
116
 Commodity
Manage the risk of certain commodities-related contracts and investments
Specified risk management
CIB
116
 Interest rate and foreign exchange
Manage the risk of certain other specified assets and liabilities
Specified risk management
Corporate
116
Market-making derivatives and other activities:
 
 
 
 Various
Market-making and related risk management
Market-making and other
CIB
116
 Various
Other derivatives
Market-making and other
CIB, Corporate
116

107


Notional amount of derivative contracts
The following table summarizes the notional amount of derivative contracts outstanding as of September 30, 2015, and December 31, 2014.
 
Notional amounts(b)
(in billions)
September 30, 2015
December 31, 2014
Interest rate contracts
 
 
Swaps
$
24,058

$
29,734

Futures and forwards
5,377

10,189

Written options
3,689

3,903

Purchased options
4,170

4,259

Total interest rate contracts
37,294

48,085

Credit derivatives(a)
3,503

4,249

Foreign exchange contracts
 
 
Cross-currency swaps
3,052

3,346

Spot, futures and forwards
4,976

4,669

Written options
759

790

Purchased options
740

780

Total foreign exchange contracts
9,527

9,585

Equity contracts
 
 
Swaps
227

206

Futures and forwards
45

50

Written options
457

432

Purchased options
388

375

Total equity contracts
1,117

1,063

Commodity contracts
 
 
Swaps
103

126

Spot, futures and forwards
132

193

Written options
172

181

Purchased options
170

180

Total commodity contracts
577

680

Total derivative notional amounts
$
52,018

$
63,662

(a)
For more information on volumes and types of credit derivative contracts, see the Credit derivatives discussion on pages 117–118 of this Note.
(b)
Represents the sum of gross long and gross short third-party notional derivative contracts.
While the notional amounts disclosed above give an indication of the volume of the Firm’s derivatives activity, the notional amounts significantly exceed, in the Firm’s view, the possible losses that could arise from such transactions. For most derivative transactions, the notional amount is not exchanged; it is used simply as a reference to calculate payments.


108


Impact of derivatives on the Consolidated Balance Sheets
The following table summarizes information on derivative receivables and payables (before and after netting adjustments) that are reflected on the Firm’s Consolidated balance sheets as of September 30, 2015, and December 31, 2014, by accounting designation (e.g., whether the derivatives were designated in qualifying hedge accounting relationships or not) and contract type.
Free-standing derivative receivables and payables(a)
 
 
 
 
 
 
 
 
 
 
Gross derivative receivables
 
 
 
Gross derivative payables
 
 
September 30, 2015
(in millions)
Not designated as hedges
 
Designated as hedges
Total derivative receivables
 
Net derivative receivables(b)
 
Not designated as hedges
 
Designated
as hedges
Total derivative payables
 
Net derivative payables(b)
Trading assets and liabilities
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest rate
$
733,909

 
$
5,042

$
738,951

 
$
29,116

 
$
699,048

 
$
2,791

$
701,839

 
$
10,725

Credit
54,409

 

54,409

 
1,724

 
53,111

 

53,111

 
1,646

Foreign exchange
185,015

 
1,534

186,549

 
21,116

 
201,298

 
1,155

202,453

 
22,044

Equity
46,727

 

46,727

 
7,490

 
47,549

 

47,549

 
9,006

Commodity
27,452

 
1,008

28,460

 
9,222

 
32,542

 
18

32,560

 
13,719

Total fair value of trading assets and liabilities
$
1,047,512

 
$
7,584

$
1,055,096

 
$
68,668

 
$
1,033,548

 
$
3,964

$
1,037,512

 
$
57,140

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Gross derivative receivables
 
 
 
Gross derivative payables
 
 
December 31, 2014
(in millions)
Not designated as hedges
 
Designated as hedges
Total derivative receivables
 
Net derivative receivables(b)
 
Not designated as hedges
 
Designated
as hedges
Total derivative payables
 
Net derivative payables(b)
Trading assets and liabilities
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest rate
$
944,885

 
$
5,372

$
950,257

 
$
33,725

 
$
915,368

 
$
3,011

$
918,379

 
$
17,745

Credit
76,842

 

76,842

 
1,838

 
75,895

 

75,895

 
1,593

Foreign exchange
211,537

 
3,650

215,187

 
21,253

 
223,988

 
626

224,614

 
22,970

Equity
42,489

 

42,489

 
8,177

 
46,262

 

46,262

 
11,740

Commodity
43,151

 
502

43,653

 
13,982

 
45,455

 
168

45,623

 
17,068

Total fair value of trading assets and liabilities
$
1,318,904

 
$
9,524

$
1,328,428

 
$
78,975

 
$
1,306,968

 
$
3,805

$
1,310,773

 
$
71,116

(a)
Balances exclude structured notes for which the fair value option has been elected. See Note 4 for further information.
(b)
As permitted under U.S. GAAP, the Firm has elected to net derivative receivables and derivative payables and the related cash collateral receivables and payables when a legally enforceable master netting agreement exists.


109


The following table presents, as of September 30, 2015, and December 31, 2014, the gross and net derivative receivables by contract and settlement type. Derivative receivables have been netted on the Consolidated balance sheets against derivative payables and cash collateral payables to the same counterparty with respect to derivative contracts for which the Firm has obtained an appropriate legal opinion with respect to the master netting agreement. Where such a legal opinion has not been either sought or obtained, the receivables are not eligible under U.S. GAAP for netting on the Consolidated balance sheets, and are shown separately in the table below.
 
September 30, 2015
 
December 31, 2014
(in millions)
Gross derivative receivables
Amounts netted on the Consolidated balance sheets
Net derivative receivables
 
Gross derivative receivables
 
Amounts netted
on the Consolidated balance sheets
Net derivative receivables
U.S. GAAP nettable derivative receivables
 
 
 
 
 
 
 
 
 
 
Interest rate contracts:
 
 
 
 
 
 
 
 
 
 
OTC
$
455,022

$
(432,456
)
 
$
22,566

 
$
542,107

 
$
(514,914
)
 
$
27,193

OTC–cleared
277,403

(277,379
)
 
24

 
401,656

 
(401,618
)
 
38

Exchange-traded(a)


 

 

 

 

Total interest rate contracts
732,425

(709,835
)
 
22,590

 
943,763

 
(916,532
)
 
27,231

Credit contracts:
 
 
 
 
 
 
 
 
 
 
OTC
44,739

(44,680
)
 
59

 
66,636

 
(65,720
)
 
916

OTC–cleared
8,020

(8,005
)
 
15

 
9,320

 
(9,284
)
 
36

Total credit contracts
52,759

(52,685
)
 
74

 
75,956

 
(75,004
)
 
952

Foreign exchange contracts:
 
 
 
 
 
 
 
 
 
 
OTC
181,104

(165,157
)
 
15,947

 
208,803

 
(193,900
)
 
14,903

OTC–cleared
276

(276
)
 

 
36

 
(34
)
 
2

Exchange-traded(a)


 

 

 

 

Total foreign exchange contracts
181,380

(165,433
)
 
15,947

 
208,839

 
(193,934
)
 
14,905

Equity contracts:
 
 
 
 
 
 
 
 
 
 
OTC
26,509

(25,732
)
 
777

 
23,258

 
(22,826
)
 
432

OTC–cleared


 

 

 

 

Exchange-traded(a)
17,579

(13,505
)
 
4,074

 
13,840

 
(11,486
)
 
2,354

Total equity contracts
44,088

(39,237
)
 
4,851

 
37,098

 
(34,312
)
 
2,786

Commodity contracts:
 
 
 
 
 
 
 
 
 
 
OTC
14,610

(6,644
)
 
7,966

 
22,555

 
(14,327
)
 
8,228

OTC–cleared


 

 

 

 

Exchange-traded(a)
12,844

(12,594
)
 
250

 
19,500

 
(15,344
)
 
4,156

Total commodity contracts
27,454

(19,238
)
 
8,216

 
42,055

 
(29,671
)
 
12,384

Derivative receivables with appropriate legal opinion
$
1,038,106

$
(986,428
)
(b) 
$
51,678

 
$
1,307,711

 
$
(1,249,453
)
(b) 
$
58,258

Derivative receivables where an appropriate legal opinion has not been either sought or obtained
16,990

 
 
16,990

 
20,717

 
 
 
20,717

Total derivative receivables recognized on the Consolidated balance sheets
$
1,055,096

 
 
$
68,668

 
$
1,328,428

 
 
 
$
78,975

(a)
Exchange-traded derivative amounts that relate to futures contracts are settled daily.
(b)
Included cash collateral netted of $74.3 billion and $74.0 billion at September 30, 2015, and December 31, 2014, respectively.

110


The following table presents, as of September 30, 2015, and December 31, 2014, the gross and net derivative payables by contract and settlement type. Derivative payables have been netted on the Consolidated balance sheets against derivative receivables and cash collateral receivables from the same counterparty with respect to derivative contracts for which the Firm has obtained an appropriate legal opinion with respect to the master netting agreement. Where such a legal opinion has not been either sought or obtained, the payables are not eligible under U.S. GAAP for netting on the Consolidated balance sheets, and are shown separately in the table below.
 
September 30, 2015
 
December 31, 2014
(in millions)
Gross derivative payables
Amounts netted on the Consolidated balance sheets
Net derivative payables
 
Gross derivative payables
 
Amounts netted
on the Consolidated balance sheets
Net derivative payables
U.S. GAAP nettable derivative payables
 
 
 
 
 
 
 
 
 
 
Interest rate contracts:
 
 
 
 
 
 
 
 
 
 
OTC
$
431,744

$
(422,367
)
 
$
9,377

 
$
515,904

 
$
(503,384
)
 
$
12,520

OTC–cleared
268,798

(268,747
)
 
51

 
398,518

 
(397,250
)
 
1,268

Exchange-traded(a)


 

 

 

 

Total interest rate contracts
700,542

(691,114
)
 
9,428

 
914,422

 
(900,634
)
 
13,788

Credit contracts:
 
 
 
 
 
 
 
 
 
 
OTC
45,435

(44,220
)
 
1,215

 
65,432

 
(64,904
)
 
528

OTC–cleared
7,245

(7,245
)
 

 
9,398

 
(9,398
)
 

Total credit contracts
52,680

(51,465
)
 
1,215

 
74,830

 
(74,302
)
 
528

Foreign exchange contracts:
 
 
 
 
 
 
 
 
 
 
OTC
196,762

(180,048
)
 
16,714

 
217,998

 
(201,578
)
 
16,420

OTC–cleared
362

(361
)
 
1

 
66

 
(66
)
 

Exchange-traded(a)


 

 

 

 

Total foreign exchange contracts
197,124

(180,409
)
 
16,715

 
218,064

 
(201,644
)
 
16,420

Equity contracts:
 
 
 
 
 
 
 
 
 
 
OTC
28,605

(25,038
)
 
3,567

 
27,908

 
(23,036
)
 
4,872

OTC–cleared


 

 

 

 

Exchange-traded(a)
15,065

(13,505
)
 
1,560

 
12,864

 
(11,486
)
 
1,378

Total equity contracts
43,670

(38,543
)
 
5,127

 
40,772

 
(34,522
)
 
6,250

Commodity contracts:
 
 
 
 
 
 
 
 
 
 
OTC
17,490

(6,247
)
 
11,243

 
25,129

 
(13,211
)
 
11,918

OTC–cleared


 

 

 

 

Exchange-traded(a)
12,655

(12,594
)
 
61

 
18,486

 
(15,344
)
 
3,142

Total commodity contracts
30,145

(18,841
)
 
11,304

 
43,615

 
(28,555
)
 
15,060

Derivative payables with appropriate legal opinions
$
1,024,161

$
(980,372
)
(b) 
$
43,789

 
$
1,291,703

 
$
(1,239,657
)
(b) 
$
52,046

Derivative payables where an appropriate legal opinion has not been either sought or obtained
13,351

 
 
13,351

 
19,070

 
 
 
19,070

Total derivative payables recognized on the Consolidated balance sheets
$
1,037,512

 
 
$
57,140

 
$
1,310,773

 
 
 
$
71,116

(a)
Exchange-traded derivative balances that relate to futures contracts are settled daily.
(b)
Included cash collateral netted of $68.2 billion and $64.2 billion related to OTC and OTC-cleared derivatives at September 30, 2015, and December 31, 2014, respectively.

111


In addition to the cash collateral received and transferred that is presented on a net basis with net derivative receivables and payables, the Firm receives and transfers additional collateral (financial instruments and cash). These amounts mitigate counterparty credit risk associated with the Firm’s derivative instruments but are not eligible for net presentation, because (a) the collateral consists of non-cash
 
financial instruments (generally U.S. government and agency securities and other G7 government bonds), (b) the amount of collateral held or transferred exceeds the fair value exposure, at the individual counterparty level, as of the date presented, or (c) the collateral relates to derivative receivables or payables where an appropriate legal opinion has not been either sought or obtained.


The following tables present information regarding certain financial instrument collateral received and transferred as of September 30, 2015, and December 31, 2014, that is not eligible for net presentation under U.S. GAAP. The collateral included in these tables relates only to the derivative instruments for which appropriate legal opinions have been obtained; excluded are (i) additional collateral that exceeds the fair value exposure and (ii) all collateral related to derivative instruments where an appropriate legal opinion has not been either sought or obtained.
Derivative receivables collateral
 
 
 
 
 
 
September 30, 2015
 
December 31, 2014
(in millions)
Net derivative receivables
Collateral not nettable on the Consolidated balance sheets
 
Net exposure
 
Net derivative receivables
Collateral not nettable on the Consolidated balance sheets
 
Net exposure
Derivative receivables with appropriate legal opinions
$
51,678

$
(15,706
)
(a) 
$
35,972

 
$
58,258

$
(16,194
)
(a) 
$
42,064

Derivative payables collateral(b)
 
 
 
 
 
 
September 30, 2015
 
December 31, 2014
(in millions)
Net derivative payables
Collateral not nettable on the Consolidated balance sheets
 
Net amount(c)
 
Net derivative payables
Collateral not nettable on the Consolidated balance sheets
 
Net amount(c)
Derivative payables with appropriate legal opinions
$
43,789

$
(8,424
)
(a) 
$
35,365

 
$
52,046

$
(10,505
)
(a) 
$
41,541

(a)
Represents liquid security collateral as well as cash collateral held at third party custodians. For some counterparties, the collateral amounts of financial instruments may exceed the derivative receivables and derivative payables balances. Where this is the case, the total amount reported is limited to the net derivative receivables and net derivative payables balances with that counterparty.
(b)
Derivative payables collateral relates only to OTC and OTC-cleared derivative instruments. Amounts exclude collateral transferred related to exchange-traded derivative instruments.
(c)
Net amount represents exposure of counterparties to the Firm.
Liquidity risk and credit-related contingent features
For a more detailed discussion of liquidity risk and credit-related contingent features related to the Firm’s derivative contracts, see Note 6 of JPMorgan Chase’s 2014 Annual Report.
 
The following table shows the aggregate fair value of net derivative payables related to OTC and OTC-cleared derivatives that contain contingent collateral or termination features that may be triggered upon a ratings downgrade, and the associated collateral the Firm has posted in the normal course of business, at September 30, 2015, and December 31, 2014.
OTC and OTC-cleared derivative payables containing downgrade triggers
(in millions)
September 30, 2015
December 31, 2014
Aggregate fair value of net derivative payables
$
24,822

$
32,303

Collateral posted
22,858

27,585



112


The following table shows the impact of a single-notch and two-notch downgrade of the long-term issuer ratings of JPMorgan Chase & Co. and its subsidiaries, predominantly JPMorgan Chase Bank, National Association (“JPMorgan Chase Bank, N.A.”), at September 30, 2015 and December 31, 2014, related to OTC and OTC-cleared derivative contracts with contingent collateral or termination features that may be triggered upon a ratings downgrade. Derivatives contracts generally require additional collateral to be posted or terminations to be triggered when the predefined threshold rating is breached. A downgrade by a single rating agency that does not result in a rating lower than a preexisting corresponding rating provided by another major rating agency will generally not result in additional collateral, except in certain instances in which additional initial margin may be required upon a ratings downgrade, or in termination payments requirements. The liquidity impact in the table is calculated based upon a downgrade below the lowest current rating of the rating agencies referred to in the derivative contract.
Liquidity impact of downgrade triggers on OTC and
OTC-cleared derivatives
 
 
 
 
 
 
September 30, 2015
 
December 31, 2014
(in millions)
Single-notch downgrade
Two-notch downgrade
 
Single-notch downgrade
Two-notch downgrade
Amount of additional collateral to be posted upon downgrade(a)
$
895

$
3,164

 
$
1,046

$
3,331

Amount required to settle contracts with termination triggers upon downgrade(b)
287

1,141

 
366

1,388

(a)
Includes the additional collateral to be posted for initial margin.
(b)
Amounts represent fair values of derivative payables, and do not reflect collateral posted.
Derivatives executed in contemplation of a sale of the underlying financial asset
In certain instances the Firm enters into transactions where it transfers financial assets but maintains the economic exposure to the transferred assets by entering into a derivative with the same counterparty in contemplation of the initial transfer. The Firm generally accounts for such transfers as collateralized financing transactions as described in Note 12, but in limited circumstances they may qualify to be accounted for as a sale and a derivative under U.S. GAAP. The amount of such transfers accounted for as a sale where the associated derivative was outstanding at September 30, 2015 was not material.
Impact of derivatives on the Consolidated statements of income
The following tables provide information related to gains and losses recorded on derivatives based on their hedge accounting designation or purpose.
Fair value hedge gains and losses

The following tables present derivative instruments, by contract type, used in fair value hedge accounting relationships, as well as pretax gains/(losses) recorded on such derivatives and the related hedged items for the three and nine months ended September 30, 2015 and 2014, respectively.
 
Gains/(losses) recorded in income
 
Income statement impact due to:
Three months ended September 30, 2015 (in millions)
Derivatives
Hedged items
Total income statement impact
 
Hedge ineffectiveness(d)
Excluded components(e)
Contract type
 
 
 
 
 
 
Interest rate(a)
$
1,298

$
(1,071
)
$
227

 
$
8

$
219

Foreign exchange(b)
1,012

(998
)
14

 

14

Commodity(c)
303

(271
)
32

 
(3
)
35

Total
$
2,613

$
(2,340
)
$
273

 
$
5

$
268

 
 
 
 
 
 
 
 
Gains/(losses) recorded in income
 
Income statement impact due to:
Three months ended September 30, 2014 (in millions)
Derivatives

Hedged items

Total income statement impact
 
Hedge ineffectiveness(d)
Excluded components(e)
Contract type
 
 
 
 
 
 
Interest rate(a)
$
(286
)
$
651

$
365

 
$
27

$
338

Foreign exchange(b)
6,008

(6,052
)
(44
)
 

(44
)
Commodity(c)
284

(236
)
48

 
10

38

Total
$
6,006

$
(5,637
)
$
369

 
$
37

$
332


113


 
Gains/(losses) recorded in income
 
Income statement impact due to:
Nine months ended September 30, 2015 (in millions)
Derivatives
Hedged items
Total income statement impact
 
Hedge ineffectiveness(d)
Excluded components(e)
Contract type
 
 
 
 
 
 
Interest rate(a)
$
363

$
390

$
753

 
$
6

$
747

Foreign exchange(b)
5,369

(5,360
)
9

 

9

Commodity(c)
867

(874
)
(7
)
 
(14
)
7

Total
$
6,599

$
(5,844
)
$
755

 
$
(8
)
$
763

 
 
 
 
 
 
 
 
Gains/(losses) recorded in income
 
Income statement impact due to:
Nine months ended September 30, 2014 (in millions)
Derivatives

Hedged items

Total income statement impact
 
Hedge ineffectiveness(d)
Excluded components(e)
Contract type
 
 
 
 
 
 
Interest rate(a)
$
1,035

$
(17
)
$
1,018

 
$
99

$
919

Foreign exchange(b)
5,222

(5,421
)
(199
)
 

(199
)
Commodity(c)
(97
)
278

181

 
38

143

Total
$
6,160

$
(5,160
)
$
1,000

 
$
137

$
863

(a)
Primarily consists of hedges of the benchmark (e.g., London Interbank Offered Rate (“LIBOR”)) interest rate risk of fixed-rate long-term debt and AFS securities. Gains and losses were recorded in net interest income.
(b)
Primarily consists of hedges of the foreign currency risk of long-term debt and AFS securities for changes in spot foreign currency rates. Gains and losses related to the derivatives and the hedged items, due to changes in foreign currency rates, were recorded in principal transactions revenue and net interest income.
(c)
Consists of overall fair value hedges of physical commodities inventories that are generally carried at the lower of cost or market (market approximates fair value). Gains and losses were recorded in principal transactions revenue.
(d)
Hedge ineffectiveness is the amount by which the gain or loss on the designated derivative instrument does not exactly offset the gain or loss on the hedged item attributable to the hedged risk.
(e)
The assessment of hedge effectiveness excludes certain components of the changes in fair values of the derivatives and hedged items such as forward points on foreign exchange forward contracts and time values.

Cash flow hedge gains and losses

The following tables present derivative instruments, by contract type, used in cash flow hedge accounting relationships, and the pretax gains/(losses) recorded on such derivatives, for the three and nine months ended September 30, 2015 and 2014, respectively.
 
Gains/(losses) recorded in income and other comprehensive income/(loss)
Three months ended September 30, 2015 (in millions)
Derivatives – effective portion reclassified from AOCI to income
Hedge ineffectiveness recorded directly in income(c)
Total income statement impact
Derivatives – effective portion recorded in OCI
Total change
in OCI
for period
Contract type
 
 
 
 
 
Interest rate(a)
$
14

$

$
14

$
(70
)
$
(84
)
Foreign exchange(b)
(19
)

(19
)
(105
)
(86
)
Total
$
(5
)
$

$
(5
)
$
(175
)
$
(170
)

 
Gains/(losses) recorded in income and other comprehensive income/(loss)
Three months ended September 30, 2014 (in millions)
Derivatives – effective portion reclassified from AOCI to income
Hedge ineffectiveness recorded directly in income(c)
Total income statement impact
Derivatives – effective portion recorded in OCI
Total change
in OCI
for period
Contract type
 
 
 
 
 
Interest rate(a)
$
(12
)
$

$
(12
)
$
26

$
38

Foreign exchange(b)
43


43

(92
)
(135
)
Total
$
31

$

$
31

$
(66
)
$
(97
)

114


 
Gains/(losses) recorded in income and other comprehensive income/(loss)
Nine months ended September 30, 2015 (in millions)
Derivatives – effective portion reclassified from AOCI to income
Hedge ineffectiveness recorded directly in income(c)
Total income statement impact
Derivatives – effective portion recorded in OCI
Total change
in OCI
for period
Contract type
 
 
 
 
 
Interest rate(a)
$
(113
)
$

$
(113
)
$
(90
)
$
23

Foreign exchange(b)
(74
)

(74
)
(14
)
60

Total
$
(187
)
$

$
(187
)
$
(104
)
$
83


 
Gains/(losses) recorded in income and other comprehensive income/(loss)
Nine months ended September 30, 2014 (in millions)
Derivatives – effective portion reclassified from AOCI to income
Hedge ineffectiveness recorded directly in income(c)
Total income statement impact
Derivatives – effective portion recorded in OCI
Total change
in OCI
for period
Contract type
 
 
 
 
 
Interest rate(a)
$
(48
)
$

$
(48
)
$
160

$
208

Foreign exchange(b)
81


81

(11
)
(92
)
Total
$
33

$

$
33

$
149

$
116

(a)
Primarily consists of benchmark interest rate hedges of LIBOR-indexed floating-rate assets and floating-rate liabilities. Gains and losses were recorded in net interest income, and for forecasted transactions that the Firm determined during the nine months ended September 30, 2015, were probable of not occurring, in other income.
(b)
Primarily consists of hedges of the foreign currency risk of non-U.S. dollar-denominated revenue and expense. The income statement classification of gains and losses follows the hedged item – primarily noninterest revenue and compensation expense.
(c)
Hedge ineffectiveness is the amount by which the cumulative gain or loss on the designated derivative instrument exceeds the present value of the cumulative expected change in cash flows on the hedged item attributable to the hedged risk.
In the first quarter of 2015, the Firm reclassified approximately $150 million of net losses from accumulated other comprehensive income (“AOCI”) to other income because the Firm determined that it was probable that the forecasted interest payment cash flows would not occur as a result of the planned reduction in wholesale non-operating deposits. The Firm did not experience any forecasted transactions that failed to occur for the three months ended September 30, 2015 and 2014, and nine months ended September 30, 2014.
 
Over the next 12 months, the Firm expects that $11 million (after-tax) of net gains recorded in AOCI at September 30, 2015, related to cash flow hedges will be recognized in income. For terminated cash flow hedges, the maximum length of time over which forecasted transactions are remaining is approximately 8 years. For open cash flow hedges, the maximum length of time over which forecasted transactions are hedged is approximately 2 years. The Firm’s longer-dated forecasted transactions relate to core lending and borrowing activities.


115


Net investment hedge gains and losses
The following table presents hedging instruments, by contract type, that were used in net investment hedge accounting relationships, and the pretax gains/(losses) recorded on such instruments for the three and nine months ended September 30, 2015 and 2014.
 
Gains/(losses) recorded in income and
other comprehensive income/(loss)
 
2015
 
2014
Three months ended September 30, (in millions)
Excluded components recorded directly
in income(a)
Effective portion recorded in OCI
 
Excluded components
recorded directly
in income(a)
Effective portion recorded in OCI
Foreign exchange derivatives
 
$
(103
)
 
$
908

 
 
$
(114
)
 
$
1,185

 
Gains/(losses) recorded in income and
other comprehensive income/(loss)
 
2015
 
2014
Nine months ended September 30, (in millions)
Excluded components recorded directly
in income(a)
Effective portion recorded in OCI
 
Excluded components
recorded directly
in income(a)
Effective portion recorded in OCI
Foreign exchange derivatives
 
$
(292
)
 
$
1,651

 
 
$
(341
)
 
$
823

(a)
Certain components of hedging derivatives are permitted to be excluded from the assessment of hedge effectiveness, such as forward points on foreign exchange forward contracts. Amounts related to excluded components are recorded in other income. The Firm measures the ineffectiveness of net investment hedge accounting relationships based on changes in spot foreign currency rates, and therefore there was no significant ineffectiveness for net investment hedge accounting relationships during the three and nine months ended September 30, 2015 and 2014.
Gains and losses on derivatives used for specified risk management purposes
The following table presents pretax gains/(losses) recorded on a limited number of derivatives, not designated in hedge accounting relationships, that are used to manage risks associated with certain specified assets and liabilities, including certain risks arising from the mortgage pipeline, warehouse loans, MSRs, wholesale lending exposures, AFS securities, foreign currency-denominated liabilities, and commodities-related contracts and investments.
 
Derivatives gains/(losses)
recorded in income
 
Three months ended
September 30,
 
Nine months ended
September 30,
(in millions)
2015
2014
 
2015
2014
Contract type
 
 
 
 
 
Interest rate(a)
$
665

$
321

 
$
785

$
1,428

Credit(b)
76

1

 
52

(40
)
Foreign exchange(c)
26

(2
)
 
21

(5
)
Commodity(d)

16

 
(13
)
178

Total
$
767

$
336

 
$
845

$
1,561

(a)
Primarily represents interest rate derivatives used to hedge the interest rate risk inherent in the mortgage pipeline, warehouse loans and MSRs, as well as written commitments to originate warehouse loans. Gains and losses were recorded predominantly in mortgage fees and related income.
(b)
Relates to credit derivatives used to mitigate credit risk associated with lending exposures in the Firm’s wholesale businesses. These derivatives do not include credit derivatives used to mitigate counterparty credit risk arising from derivative receivables, which is included in gains and losses on derivatives related to market-making activities and other derivatives. Gains and losses were recorded in principal transactions revenue.
(c)
Primarily relates to hedges of the foreign exchange risk of specified foreign currency-denominated assets and liabilities. Gains and losses were recorded in principal transactions revenue.
(d)
Primarily relates to commodity derivatives used to mitigate energy price risk associated with energy-related contracts and investments. Gains and losses were recorded in principal transactions revenue.

 
Gains and losses on derivatives related to market-making activities and other derivatives
The Firm makes markets in derivatives in order to meet the needs of customers and uses derivatives to manage certain risks associated with net open risk positions from the Firm’s market-making activities, including the counterparty credit risk arising from derivative receivables. All derivatives not included in the hedge accounting or specified risk management categories above are included in this category. Gains and losses on these derivatives are primarily recorded in principal transactions revenue. See Note 6 for information on principal transactions revenue.


116


Credit derivatives
For a more detailed discussion of credit derivatives, see Note 6 of JPMorgan Chase’s 2014 Annual Report. The Firm does not use notional amounts of credit derivatives as the primary measure of risk management for such derivatives, because the notional amount does not take into account the probability of the occurrence of a credit event, the recovery value of the reference obligation, or related cash instruments and economic hedges, each of which reduces, in the Firm’s view, the risks associated with such derivatives.
Total credit derivatives and credit-related notes
 
Maximum payout/Notional amount
September 30, 2015 (in millions)
Protection sold
Protection
purchased with
identical underlyings(b)
Net protection (sold)/purchased(c)
 
Other protection purchased(d)
Credit derivatives
 
 
 
 
 
 
Credit default swaps
$
(1,683,730
)
 
$
1,699,718

$
15,988

 
$
14,572

Other credit derivatives(a)
(44,493
)
 
41,960

(2,533
)
 
18,217

Total credit derivatives
(1,728,223
)
 
1,741,678

13,455

 
32,789

Credit-related notes
(22
)
 

(22
)
 
4,357

Total
$
(1,728,245
)
 
$
1,741,678

$
13,433

 
$
37,146

 
 
 
 
 
 
 
 
Maximum payout/Notional amount
December 31, 2014 (in millions)
Protection sold
Protection
purchased with
identical underlyings(b)
Net protection (sold)/purchased(c)
 
Other protection purchased(d)
Credit derivatives
 
 
 
 
 
 
Credit default swaps
$
(2,056,982
)
 
$
2,078,096

$
21,114

 
$
18,631

Other credit derivatives(a)
(43,281
)
 
32,048

(11,233
)
 
19,475

Total credit derivatives
(2,100,263
)
 
2,110,144

9,881

 
38,106

Credit-related notes
(40
)
 

(40
)
 
3,704

Total
$
(2,100,303
)
 
$
2,110,144

$
9,841

 
$
41,810

(a)
Other credit derivatives predominantly consists of credit swap options.
(b)
Represents the total notional amount of protection purchased where the underlying reference instrument is identical to the reference instrument on protection sold; the notional amount of protection purchased for each individual identical underlying reference instrument may be greater or lower than the notional amount of protection sold.
(c)
Does not take into account the fair value of the reference obligation at the time of settlement, which would generally reduce the amount the seller of protection pays to the buyer of protection in determining settlement value.
(d)
Represents protection purchased by the Firm on referenced instruments (single-name, portfolio or index) where the Firm has not sold any protection on the identical reference instrument.

117


The following tables summarize the notional amounts by the ratings and maturity profile, and the total fair value, of credit derivatives and credit-related notes as of September 30, 2015, and December 31, 2014, where JPMorgan Chase is the seller of protection. The maturity profile is based on the remaining contractual maturity of the credit derivative contracts. The ratings profile is based on the rating of the reference entity on which the credit derivative contract is based. The ratings and maturity profile of credit derivatives and credit-related notes where JPMorgan Chase is the purchaser of protection are comparable to the profile reflected below.
Protection sold – credit derivatives and credit-related notes ratings(a)/maturity profile
 
 
 
September 30, 2015
(in millions)
<1 year
 
1–5 years
 
>5 years
 
Total
notional amount
 
Fair value of receivables(b)
 
Fair
value of payables(b)
 
Net fair value
Risk rating of reference entity
 
 
 
 
 
 
 
 
 
 
 
 
 
Investment-grade
$
(278,173
)
 
$
(881,329
)
 
$
(101,523
)
 
$
(1,261,025
)
 
$
15,057

 
$
(6,870
)
 
$
8,187

Noninvestment-grade
(119,287
)
 
(307,953
)
 
(39,980
)
 
(467,220
)
 
13,259

 
(17,838
)
 
(4,579
)
Total
$
(397,460
)
 
$
(1,189,282
)
 
$
(141,503
)
 
$
(1,728,245
)
 
$
28,316

 
$
(24,708
)
 
$
3,608

December 31, 2014
(in millions)
<1 year
 
1–5 years
 
>5 years
 
Total
notional amount
 
Fair value of receivables(b)
 
Fair
value of payables(b)
 
Net fair value
Risk rating of reference entity
 
 
 
 
 
 
 
 
 
 
 
 
 
Investment-grade
$
(323,398
)
 
$
(1,118,293
)
 
$
(79,486
)
 
$
(1,521,177
)
 
$
25,767

 
$
(6,314
)
 
$
19,453

Noninvestment-grade
(157,281
)
 
(396,798
)
 
(25,047
)
 
(579,126
)
 
20,677

 
(22,455
)
 
(1,778
)
Total
$
(480,679
)
 
$
(1,515,091
)
 
$
(104,533
)
 
$
(2,100,303
)
 
$
46,444

 
$
(28,769
)
 
$
17,675

(a)
The ratings scale is primarily based on external credit ratings defined by S&P and Moody’s Investors Service ("Moody's").
(b)
Amounts are shown on a gross basis, before the benefit of legally enforceable master netting agreements and cash collateral received by the Firm.


118


Note 6 – Noninterest revenue
For a discussion of the components of and accounting policies for the Firm’s noninterest revenue, see Note 7 of JPMorgan Chase’s 2014 Annual Report.
The following table presents the components of investment banking fees.
 
Three months ended September 30,
 
Nine months ended
September 30,
(in millions)
2015
 
2014
 
2015
 
2014
Underwriting
 
 
 
 
 
 
 
Equity
$
257

 
$
414

 
$
1,108

 
$
1,244

Debt
855

 
710

 
2,621

 
2,269

Total underwriting
1,112

 
1,124

 
3,729

 
3,513

Advisory
492

 
414

 
1,502

 
1,196

Total investment banking fees
$
1,604

 
$
1,538

 
$
5,231

 
$
4,709

The following table presents all realized and unrealized gains and losses recorded in principal transactions revenue. This table excludes interest income and interest expense on trading assets and liabilities, which are an integral part of the overall performance of the Firm’s client-driven market-making activities. See Note 7 for further information on interest income and interest expense. Trading revenue is presented primarily by instrument type. The Firm’s client-driven market-making businesses generally utilize a variety of instrument types in connection with their market-making and related risk-management activities; accordingly, the trading revenue presented in the table below is not representative of the total revenue of any individual line of business.
 
Three months ended September 30,
 
Nine months ended
September 30,
(in millions)
2015
 
2014
 
2015
 
2014
Trading revenue by instrument type
 
 
 
 
 
 
 
Interest rate
$
530

 
$
655

 
$
1,836

 
$
1,636

Credit
438

 
556

 
1,477

 
1,685

Foreign exchange
607

 
381

 
2,014

 
1,249

Equity
637

 
638

 
2,593

 
2,202

Commodity(a)
156

 
411

 
745

 
1,446

Total trading revenue
2,368

 
2,641

 
8,665

 
8,218

Private equity gains(b)
(1
)
 
325

 
191

 
978

Principal transactions
$
2,367

 
$
2,966

 
$
8,856

 
$
9,196

(a)
Commodity derivatives are frequently used to manage the Firm’s risk exposure to its physical commodities inventories. For gains/(losses) related to commodity fair value hedges, see Note 5.
(b)
Includes revenue on private equity investments held in the Private Equity business within Corporate, as well as those held in other business segments.
 
The following table presents the components of firmwide asset management, administration and commissions.
 
Three months ended September 30,
 
Nine months ended
September 30,
(in millions)
2015
 
2014
 
2015
 
2014
Asset management fees
 
 
 
 
 
 
 
Investment management fees(a)
$
2,327

 
$
2,311

 
$
7,017

 
$
6,667

All other asset management fees(b)
92

 
120

 
290

 
374

Total asset management fees
2,419

 
2,431

 
7,307

 
7,041

 
 
 
 
 
 
 
 
Total administration fees(c)
486

 
536

 
1,520

 
1,627

 
 
 
 
 
 
 
 
Commission and other fees
 
 
 
 
 
 
 
Brokerage commissions
575

 
567

 
1,761

 
1,766

All other commissions and fees
365

 
444

 
1,079

 
1,387

Total commissions and fees
940

 
1,011

 
2,840

 
3,153

Total asset management, administration and commissions
$
3,845

 
$
3,978

 
$
11,667

 
$
11,821

(a)
Represents fees earned from managing assets on behalf of the Firm’s clients, including investors in Firm-sponsored funds and owners of separately managed investment accounts.
(b)
Represents fees for services that are ancillary to investment management services, such as commissions earned on the sales or distribution of mutual funds to clients.
(c)
Predominantly includes fees for custody, securities lending, funds services and securities clearance.
Other income
Other income on the Firm’s Consolidated statements of income included the following:
 
Three months ended
September 30,
 
Nine months ended
September 30,
(in millions)
2015
 
2014
 
2015
 
2014
Operating lease income
$
536

 
$
433

 
$
1,509

 
$
1,252



119


Note 7 – Interest income and Interest expense
For a description of JPMorgan Chase’s accounting policies regarding interest income and interest expense, see Note 8 of JPMorgan Chase’s 2014 Annual Report.
Details of interest income and interest expense were as follows.
 
Three months ended
September 30,
 
Nine months ended
September 30,
(in millions)
2015
 
2014
 
2015
 
2014
Interest income
 
 
 
 
 
 
 
Loans
$
8,433

 
$
8,060

 
$
24,459

 
$
24,138

Taxable securities
1,553

 
1,903

 
4,885

 
5,743

Nontaxable securities(a) 
439

 
387

 
1,260

 
1,041

Total securities
1,992

 
2,290

 
6,145

 
6,784

Trading assets
1,538

 
1,855

 
5,008

 
5,453

Federal funds sold and securities purchased under resale agreements
431

 
400

 
1,167

 
1,234

Securities borrowed(b) 
(118
)
 
(150
)
 
(397
)
 
(369
)
Deposits with banks
291

 
300

 
944

 
835

Other assets(c)
172

 
171

 
492

 
505

Total interest income
12,739

 
12,926

 
37,818

 
38,580

Interest expense
 
 
 
 
 
 
 
Interest-bearing deposits
293

 
399

 
965

 
1,242

Short-term and other liabilities(d)
315

 
238

 
991

 
1,121

Long-term debt
1,092

 
1,084

 
3,254

 
3,337

Beneficial interests issued by consolidated VIEs
115

 
98

 
323

 
308

Total interest expense
1,815

 
1,819

 
5,533

 
6,008

Net interest income
10,924

 
11,107

 
32,285

 
32,572

Provision for credit losses
682

 
757

 
2,576

 
2,299

Net interest income after provision for credit losses
$
10,242

 
$
10,350

 
$
29,709

 
$
30,273

(a)
Represents securities which are tax-exempt for U.S. federal income tax purposes.
(b)
Negative interest income for the three and nine months ended September 30, 2015 and 2014, is a result of increased client-driven demand for certain securities combined with the impact of low interest rates. This is matched book activity and the negative interest expense on the corresponding securities loaned is recognized in interest expense and reported within short-term and other liabilities.
(c)
Largely margin loans.
(d)
Includes brokerage customer payables.


120


Note 8 – Pension and other postretirement employee benefit plans
For a discussion of JPMorgan Chase’s pension and other postretirement employee benefit (“OPEB”) plans, see Note 9 of JPMorgan Chase’s 2014 Annual Report.
The following table presents the components of net periodic benefit costs reported in the Consolidated Statements of Income for the Firm’s U.S. and non-U.S. defined benefit pension, defined contribution and OPEB plans.
 
Pension plans
 
 
 
 
U.S.
 
Non-U.S.
 
OPEB plans
Three months ended September 30, (in millions)
2015
2014
 
2015
2014
 
2015
2014
Components of net periodic benefit cost
 
 
 
 
 
 
 
 
Benefits earned during the period
$
85

$
70

 
$
9

$
8

 
$

$

Interest cost on benefit obligations
125

133

 
28

34

 
8

9

Expected return on plan assets
(232
)
(247
)
 
(38
)
(42
)
 
(27
)
(25
)
Amortization:
 
 
 
 
 
 
 
 
Net (gain)/loss
62

6

 
9

12

 


Prior service cost/(credit)
(9
)
(9
)
 

(1
)
 


Net periodic defined benefit cost
31

(47
)
 
8

11

 
(19
)
(16
)
Other defined benefit pension plans(a)
3

3

 
2

2

 
NA

NA

Total defined benefit plans
34

(44
)
 
10

13

 
(19
)
(16
)
Total defined contribution plans
119

115

 
85

87

 
NA

NA

Total pension and OPEB cost included in compensation expense
$
153

$
71

 
$
95

$
100

 
$
(19
)
$
(16
)
 
 
 
 
 
 
 
 
 
 
Pension plans
 
 
 
 
U.S.
 
Non-U.S.
 
OPEB plans
Nine months ended September 30, (in millions)
2015
2014
 
2015
2014
 
2015
2014
Components of net periodic benefit cost
 
 
 
 
 
 
 
 
Benefits earned during the period
$
255

$
210

 
$
28

$
25

 
$

$

Interest cost on benefit obligations
375

401

 
84

104

 
24

27

Expected return on plan assets
(697
)
(739
)
 
(113
)
(131
)
 
(80
)
(75
)
Amortization:
 
 
 
 
 
 
 
 

Net (gain)/loss
185

19

 
27

36

 


Prior service cost/(credit)
(26
)
(31
)
 
(1
)
(1
)
 


Net periodic defined benefit cost
92

(140
)
 
25

33

 
(56
)
(48
)
Other defined benefit pension plans(a)
10

10

 
7

5

 
NA

NA

Total defined benefit plans
102

(130
)
 
32

38

 
(56
)
(48
)
Total defined contribution plans
323

333

 
254

254

 
NA

NA

Total pension and OPEB cost included in compensation expense
$
425

$
203

 
$
286

$
292

 
$
(56
)
$
(48
)
(a)
Includes various defined benefit pension plans which are individually immaterial.
The fair values of plan assets for the U.S. defined benefit pension and OPEB plans and for the material non-U.S. defined benefit pension plans were $15.9 billion and $3.5 billion, as of September 30, 2015, and $16.5 billion and $3.7 billion respectively, as of December 31, 2014. See Note 19 for further information on unrecognized amounts (i.e., net loss and prior service costs/(credit)) reflected in AOCI for the three months periods ended September 30, 2015 and 2014.
 
The Firm does not anticipate any contribution to the U.S. defined benefit pension plan in 2015 at this time. For 2015, the cost associated with funding benefits under the Firm’s U.S. non-qualified defined benefit pension plans is expected to total $33 million. The 2015 contributions to the non-U.S. defined benefit pension and OPEB plans are expected to be $47 million and $2 million, respectively.


121


Note 9 – Employee stock-based incentives
For a discussion of the accounting policies and other information relating to employee stock-based incentives, see Note 10 of JPMorgan Chase’s 2014 Annual Report.
The Firm recognized the following noncash compensation expense related to its various employee stock-based incentive plans in its Consolidated Statements of Income.
 
Three months ended
September 30,
 
Nine months
ended
September 30,
(in millions)
2015
 
2014
 
2015
 
2014
Cost of prior grants of restricted stock units (“RSUs”) and stock appreciation rights (“SARs”) that are amortized over their applicable vesting periods
$
269

 
$
326

 
$
856

 
$
1,071

Accrual of estimated costs of stock awards to be granted in future periods including those to full-career eligible employees
195

 
213

 
683

 
610

Total noncash compensation expense related to employee stock-based incentive plans
$
464

 
$
539

 
$
1,539

 
$
1,681

In the first quarter of 2015, in connection with its annual incentive grant for the 2014 performance year, the Firm granted 34 million RSUs with a weighted-average grant date fair value of $55.91 per RSU.


 
Note 10 – Noninterest expense
For details on Noninterest expense, see Consolidated statements of income on page 86. Included within other expense is the following:
 
Three months ended September 30,
 
Nine months ended September 30,
(in millions)
2015
 
2014
 
2015
 
2014
Firmwide legal expense
$
1,347

 
$
1,062

 
$
2,325

 
$
1,769

Federal Deposit Insurance Corporation-related (“FDIC”) expense
298

 
250

 
916

 
809




122


Note 11 – Securities
Securities are classified as trading, AFS or held-to-maturity (“HTM”). Securities classified as trading assets are discussed in Note 3. Predominantly all of the Firm’s AFS and HTM investment securities (the “investment securities portfolio”) are held by the Chief Investment Office (“CIO”) in connection with the Firm's asset-liability management objectives. At September 30, 2015, the average credit
 
rating of the debt securities comprising the investment securities portfolio was AA+ (based upon external ratings where available, and where not available, based primarily upon internal ratings which correspond to ratings as defined by S&P and Moody’s). For additional information regarding the investment securities portfolio, see Note 12 of JPMorgan Chase’s 2014 Annual Report.


The amortized costs and estimated fair values of the investment securities portfolio were as follows for the dates indicated.
 
September 30, 2015
 
December 31, 2014
(in millions)
Amortized cost
Gross unrealized gains
Gross unrealized losses
Fair value
 
Amortized cost
Gross unrealized gains
Gross unrealized losses
Fair value
Available-for-sale debt securities
 
 
 
 
 
 
 
 
 
 
 
Mortgage-backed securities:
 
 
 
 
 
 
 
 
 
 
 
U.S. government agencies(a) 
$
52,800

$
1,811

$
33

 
$
54,578

 
$
63,089

$
2,302

$
72

 
$
65,319

Residential:
 
 
 
 
 
 
 
 
 
 
 
Prime and Alt-A
6,811

66

19

 
6,858

 
5,595

78

29

 
5,644

Subprime
301

8


 
309

 
677

14


 
691

Non-U.S.
28,841

606

9

 
29,438

 
43,550

1,010


 
44,560

Commercial
22,763

287

157

 
22,893

 
20,687

438

17

 
21,108

Total mortgage-backed securities
111,516

2,778

218

 
114,076

 
133,598

3,842

118

 
137,322

U.S. Treasury and government agencies(a)
11,482

1

136

 
11,347

 
13,603

56

14

 
13,645

Obligations of U.S. states and municipalities
30,923

1,872

86

 
32,709

 
27,841

2,243

16

 
30,068

Certificates of deposit
415

3


 
418

 
1,103

1

1

 
1,103

Non-U.S. government debt securities
38,197

960

37

 
39,120

 
51,492

1,272

21

 
52,743

Corporate debt securities
14,747

185

151

 
14,781

 
18,158

398

24

 
18,532

Asset-backed securities:
 
 
 
 
 
 
 
 
 
 
 
Collateralized loan obligations
31,381

69

146

 
31,304

 
30,229

147

182

 
30,194

Other
10,114

94

77

 
10,131

 
12,442

184

11

 
12,615

Total available-for-sale debt securities
248,775

5,962

851

 
253,886

 
288,466

8,143

387

 
296,222

Available-for-sale equity securities
2,587

18


 
2,605

 
2,513

17


 
2,530

Total available-for-sale securities
$
251,362

$
5,980

$
851

 
$
256,491

 
$
290,979

$
8,160

$
387

 
$
298,752

Total held-to-maturity securities(b)
$
50,169

$
1,724

$
48

 
$
51,845

 
$
49,252

$
1,902

$

 
$
51,154

(a)
Included total U.S. government-sponsored enterprise obligations with fair values of $41.6 billion and $59.3 billion at September 30, 2015, and December 31, 2014, respectively.
(b)
As of September 30, 2015, consists of MBS issued by U. S. government-sponsored enterprises with an amortized cost of $31.9 billion, MBS issued by U.S. government agencies with an amortized cost of $5.6 billion and obligations of U.S. states and municipalities with an amortized cost of $12.7 billion. As of December 31, 2014, consists of MBS issued by U.S. government-sponsored enterprises with an amortized cost of $35.3 billion, MBS issued by U.S. government agencies with an amortized cost of $3.7 billion and obligations of U.S. states and municipalities with an amortized cost of $10.2 billion.

123


Securities impairment
The following tables present the fair value and gross unrealized losses for investment securities by aging category at September 30, 2015, and December 31, 2014.
 
Securities with gross unrealized losses
 
Less than 12 months
 
12 months or more
 
 
September 30, 2015 (in millions)
Fair value
Gross unrealized losses
 
Fair value
Gross unrealized losses
Total fair value
Total gross unrealized losses
Available-for-sale debt securities
 
 
 
 
 
 
 
Mortgage-backed securities:
 
 
 
 
 
 
 
U.S. government agencies
$
4,797

$
19

 
$
717

$
14

$
5,514

$
33

Residential:
 
 
 
 
 
 
 
Prime and Alt-A
2,294

14

 
251

5

2,545

19

Subprime


 




Non-U.S.
1,477

9

 


1,477

9

Commercial
10,256

155

 
269

2

10,525

157

Total mortgage-backed securities
18,824

197

 
1,237

21

20,061

218

U.S. Treasury and government agencies
11,205

136

 


11,205

136

Obligations of U.S. states and municipalities
4,681

79

 
218

7

4,899

86

Certificates of deposit


 




Non-U.S. government debt securities
2,941

30

 
205

7

3,146

37

Corporate debt securities
4,107

142

 
634

9

4,741

151

Asset-backed securities:
 
 
 
 
 
 
 
Collateralized loan obligations
11,843

44

 
10,414

102

22,257

146

Other
4,800

77

 


4,800

77

Total available-for-sale debt securities
58,401

705

 
12,708

146

71,109

851

Available-for-sale equity securities


 




Held-to-maturity securities
4,824

48

 


4,824

48

Total securities with gross unrealized losses
$
63,225

$
753

 
$
12,708

$
146

$
75,933

$
899

 
Securities with gross unrealized losses
 
Less than 12 months
 
12 months or more
 
 
December 31, 2014 (in millions)
Fair value
Gross unrealized losses
 
Fair value
Gross unrealized losses
Total fair value
Total gross unrealized losses
Available-for-sale debt securities
 
 
 
 
 
 
 
Mortgage-backed securities:
 
 
 
 
 
 
 
U.S. government agencies
$
1,118

$
5

 
$
4,989

$
67

$
6,107

$
72

Residential:
 
 
 
 
 
 
 
Prime and Alt-A
1,840

10

 
405

19

2,245

29

Subprime


 




Non-U.S.


 




Commercial
4,803

15

 
92

2

4,895

17

Total mortgage-backed securities
7,761

30

 
5,486

88

13,247

118

U.S. Treasury and government agencies
8,412

14

 


8,412

14

Obligations of U.S. states and municipalities
1,405

15

 
130

1

1,535

16

Certificates of deposit
1,050

1

 


1,050

1

Non-U.S. government debt securities
4,433

4

 
906

17

5,339

21

Corporate debt securities
2,492

22

 
80

2

2,572

24

Asset-backed securities:
 
 
 
 
 
 
 
Collateralized loan obligations
13,909

76

 
9,012

106

22,921

182

Other
2,258

11

 


2,258

11

Total available-for-sale debt securities
41,720

173

 
15,614

214

57,334

387

Available-for-sale equity securities


 




Held-to-maturity securities


 




Total securities with gross unrealized losses
$
41,720

$
173

 
$
15,614

$
214

$
57,334

$
387


124


Gross unrealized losses
The Firm has recognized the unrealized losses on securities it intends to sell. As of September 30, 2015, the Firm does not intend to sell any securities with a loss position in AOCI, and it is not likely that the Firm will be required to sell these securities before recovery of their amortized cost basis. Except for the securities for which credit losses have been recognized in income, the Firm believes that the securities with an unrealized loss in AOCI are not other-than-temporarily impaired as of September 30, 2015.
Securities gains and losses
The following table presents realized gains and losses and other-than-temporary impairment losses (“OTTI”) from AFS securities that were recognized in income.
 
Three months
ended
September 30,
 
Nine months
ended September 30,
(in millions)
2015
2014
 
2015

2014

Realized gains
$
65

$
41

 
$
250

$
265

Realized losses
(20
)
(33
)
 
(107
)
(215
)
OTTI losses
(12
)
(2
)
 
(14
)
(2
)
Net securities gains
$
33

$
6

 
$
129

$
48

 
 
 
 
 
 
OTTI losses
 
 
 
 
 
Credit-related losses recognized in income
$

$

 
$
(1
)
$

Securities the Firm intends to sell
(12
)
(2
)
 
(13
)
(2
)
Total OTTI losses recognized in income
$
(12
)
$
(2
)
 
$
(14
)
$
(2
)

Changes in the credit loss component of credit-impaired debt securities
The following table presents a rollforward for the three and nine months ended September 30, 2015 and 2014, of the credit loss component of OTTI losses that have been recognized in income related to AFS debt securities that the Firm does not intend to sell.
 
Three months
ended
September 30,
 
Nine months
ended
September 30,
(in millions)
2015

2014

 
2015

2014

Balance, beginning of period
$
4

$
1

 
$
3

$
1

Additions:
 
 
 




Newly credit-impaired securities


 
1


Balance, end of period
$
4

$
1

 
$
4

$
1




125


Contractual maturities and yields
The following table presents the amortized cost and estimated fair value at September 30, 2015, of JPMorgan Chase’s investment securities portfolio by contractual maturity.
By remaining maturity
September 30, 2015
(in millions)
Due in one
year or less
Due after one year through five years
Due after five years through 10 years
Due after
10 years(c)
Total
Available-for-sale debt securities
 
 
 
 
 
Mortgage-backed securities(a)
 
 
 
 
 
Amortized cost
$
2,333

$
10,991

$
6,054

$
92,138

$
111,516

Fair value
2,344

11,184

6,263

94,285

114,076

Average yield(b)
1.40
%
1.76
%
3.23
%
2.95
%
2.81
%
U.S. Treasury and government agencies
 
 
 
 
 
Amortized cost
$
100

$

$
10,228

$
1,154

$
11,482

Fair value
100


10,121

1,126

11,347

Average yield(b)
0.13
%
%
0.22
%
0.43
%
0.24
%
Obligations of U.S. states and municipalities
 
 
 
 
 
Amortized cost
$
139

$
765

$
1,440

$
28,579

$
30,923

Fair value
142

788

1,513

30,266

32,709

Average yield(b)
6.55
%
3.39
%
5.43
%
6.68
%
6.54
%
Certificates of deposit
 
 
 
 
 
Amortized cost
$
364

$
51

$

$

$
415

Fair value
365

53



418

Average yield(b)
5.69
%
3.28
%
%
%
5.39
%
Non-U.S. government debt securities
 
 
 
 
 
Amortized cost
$
7,243

$
11,485

$
17,299

$
2,170

$
38,197

Fair value
7,479

11,750

17,607

2,284

39,120

Average yield(b)
3.28
%
1.75
%
1.05
%
0.72
%
1.64
%
Corporate debt securities
 
 
 
 
 
Amortized cost
$
3,486

$
8,243

$
2,875

$
143

$
14,747

Fair value
3,510

8,287

2,846

138

14,781

Average yield(b)
2.18
%
2.29
%
2.77
%
4.46
%
2.38
%
Asset-backed securities
 
 
 
 
 
Amortized cost
$
513

$
473

$
20,162

$
20,347

$
41,495

Fair value
514

476

20,139

20,306

41,435

Average yield(b)
0.95
%
1.19
%
1.76
%
1.79
%
1.76
%
Total available-for-sale debt securities
 
 
 
 
 
Amortized cost
$
14,178

$
32,008

$
58,058

$
144,531

$
248,775

Fair value
14,454

32,538

58,489

148,405

253,886

Average yield(b)
2.69
%
1.93
%
1.57
%
3.47
%
2.78
%
Available-for-sale equity securities
 
 
 
 
 
Amortized cost
$

$

$

$
2,587

$
2,587

Fair value



2,605

2,605

Average yield(b)
%
%
%
0.02
%
0.02
%
Total available-for-sale securities
 
 
 
 
 
Amortized cost
$
14,178

$
32,008

$
58,058

$
147,118

$
251,362

Fair value
14,454

32,538

58,489

151,010

256,491

Average yield(b)
2.69
%
1.93
%
1.57
%
3.41
%
2.75
%
Total held-to-maturity securities
 
 
 
 
 
Amortized cost
$
52

$

$
901

$
49,216

$
50,169

Fair value
52


942

50,851

51,845

Average yield(b)
4.41%

%
4.98
%
3.97
%
3.99%

(a)
U.S. government-sponsored enterprises were the only issuers whose securities exceeded 10% of JPMorgan Chase’s total stockholders’ equity at September 30, 2015.
(b)
Average yield is computed using the effective yield of each security owned at the end of the period, weighted based on the amortized cost of each security. The effective yield considers the contractual coupon, amortization of premiums and accretion of discounts, and the effect of related hedging derivatives. Taxable-equivalent amounts are used where applicable. The effective yield excludes unscheduled principal prepayments, and accordingly, actual maturities of securities may differ from their contractual or expected maturities as certain securities may be prepaid.
(c)
Includes securities with no stated maturity. Substantially all of the Firm’s residential mortgage-backed securities and collateralized mortgage obligations are due in ten years or more, based on contractual maturity. The estimated weighted-average life, which reflects anticipated future prepayments, is approximately six years for agency residential mortgage-backed securities, two years for agency residential collateralized mortgage obligations and three years for U.S. nonagency residential collateralized mortgage obligations.


126


Note 12 – Securities financing activities
JPMorgan Chase enters into resale agreements, repurchase agreements, securities borrowed transactions and securities loaned transactions (collectively, “securities financing agreements”) primarily to finance the Firm’s inventory positions, acquire securities to cover short positions, accommodate customers’ financing needs, and settle other securities obligations.
Securities financing agreements are treated as collateralized financings on the Firm’s Consolidated balance sheets. Resale and repurchase agreements are generally carried at the amounts at which the securities will be subsequently sold or repurchased. Securities borrowed and securities loaned transactions are generally carried at the amount of cash collateral advanced or received. Where appropriate under applicable accounting guidance, resale and repurchase agreements with the same counterparty are reported on a net basis. For further discussion of the offsetting of assets and liabilities, see Note 1. Fees received and paid in connection with securities financing agreements are recorded in interest income and interest expense on the Consolidated statements of income.
The Firm has elected the fair value option for certain securities financing agreements. For further information regarding the fair value option, see Note 4. The securities financing agreements for which the fair value option has been elected are reported within securities purchased under resale agreements; securities loaned or sold under repurchase agreements; and securities borrowed on the Consolidated balance sheets. Generally, for agreements carried at fair value, current-period interest accruals are recorded within interest income and interest expense, with changes in fair value reported in principal transactions
 
revenue. However, for financial instruments containing embedded derivatives that would be separately accounted for in accordance with accounting guidance for hybrid instruments, all changes in fair value, including any interest elements, are reported in principal transactions revenue.
Secured financing transactions expose the Firm to credit and liquidity risk. To manage these risks, the Firm monitors the value of the underlying securities (predominantly high-quality securities collateral, including government-issued debt and agency MBS) that it has received from or provided to its counterparties compared to the value of cash proceeds and exchanged collateral and either requests additional collateral or returns securities or collateral when appropriate. Margin levels are initially established based upon the counterparty, the type of underlying securities, and the permissible collateral, and are monitored on an ongoing basis.
In resale agreements and securities borrowed transactions, the Firm is exposed to credit risk to the extent the value of the securities received is less than initial cash proceeds and any collateral amounts exchanged. In repurchase agreements and securities loaned transactions, credit risk exposure arises to the extent that the value of underlying securities exceeds the value of the initial cash proceeds and, any collateral amounts exchanged.
Additionally, the Firm typically enters into master netting agreements and other similar arrangements with its counterparties, which provide for the right to liquidate the underlying securities and any collateral amounts exchanged in the event of a counterparty default. It is also the Firm’s policy to take possession, where possible, of the securities underlying resale agreements and securities borrowed transactions.

The following table presents as of September 30, 2015, and December 31, 2014, the gross and net securities purchased under resale agreements and securities borrowed. Securities purchased under resale agreements have been presented on the Consolidated balance sheets net of securities sold under repurchase agreements where the Firm has obtained an appropriate legal opinion with respect to the master netting agreement, and where the other relevant criteria have been met. Where such a legal opinion has not been either sought or obtained, the securities purchased under resale agreements are not eligible for netting and are shown separately in the table below. Securities borrowed are presented on a gross basis on the Consolidated balance sheets.
 
September 30, 2015
 
 
December 31, 2014
 
(in millions)
Gross asset balance
 
Amounts netted on the Consolidated balance sheets
 
Net asset balance
 
 
Gross asset balance
 
Amounts netted on the Consolidated balance sheets
 
Net asset balance
 
Securities purchased under resale agreements
 
 
 
 
 
 
 
 
 
 
 
 
 
Securities purchased under resale agreements with an appropriate legal opinion
$
375,841

 
$
(161,197
)
 
$
214,644

 
 
$
347,142

 
$
(142,719
)
 
$
204,423

 
Securities purchased under resale agreements where an appropriate legal opinion has not been either sought or obtained
2,710

 
 
 
2,710

 
 
10,598

 
 
 
10,598

 
Total securities purchased under resale agreements
$
378,551

 
$
(161,197
)
 
$
217,354

(a) 
 
$
357,740

 
$
(142,719
)
 
$
215,021

(a) 
Securities borrowed
$
105,668

 
NA

 
$
105,668

(b)(c) 
 
$
110,435

 
NA

 
$
110,435

(b)(c) 
(a)
At September 30, 2015, and December 31, 2014, included securities purchased under resale agreements of $27.4 billion and $28.6 billion, respectively, accounted for at fair value.
(b)
At September 30, 2015, and December 31, 2014, included securities borrowed of $405 million and $992 million, respectively, accounted for at fair value.
(c)
Included $21.5 billion and $27.7 billion at September 30, 2015, and December 31, 2014, respectively, of securities borrowed where an appropriate legal opinion has not been either sought or obtained with respect to the master netting agreement.

127


The following table presents information as of September 30, 2015, and December 31, 2014, regarding the securities purchased under resale agreements and securities borrowed for which an appropriate legal opinion has been obtained with respect to the master netting agreement. The table below excludes information related to resale agreements and securities borrowed where such a legal opinion has not been either sought or obtained.
 
September 30, 2015
 
December 31, 2014
 
 
 
Amounts not nettable
on the Consolidated balance sheets(a)
 
 
 
 
Amounts not nettable
on the Consolidated
balance sheets(a)
 
 
(in millions)
Net asset balance
 
Financial instruments(b)
Cash collateral
Net exposure
 
Net asset balance
 
Financial instruments(b)
 
Cash collateral
 
Net exposure
Securities purchased under resale agreements with an appropriate legal opinion
$
214,644

 
$
(211,255
)
$
(518
)
$
2,871

 
$
204,423

 
$
(201,375
)
 
$
(246
)
 
$
2,802

Securities borrowed
$
84,157

 
$
(81,413
)
$

$
2,744

 
$
82,748

 
$
(80,338
)
 
$

 
$
2,410

(a)
For some counterparties, the sum of the financial instruments and cash collateral not nettable on the Consolidated balance sheets may exceed the net asset balance. Where this is the case the total amounts reported in these two columns are limited to the balance of the net reverse repurchase agreement or securities borrowed asset with that counterparty. As a result a net exposure amount is reported even though the Firm, on an aggregate basis for its securities purchased under resale agreements and securities borrowed, has received securities collateral with a total fair value that is greater than the funds provided to counterparties.
(b)
Includes financial instrument collateral received, repurchase liabilities and securities loaned liabilities with an appropriate legal opinion with respect to the master netting agreement; these amounts are not presented net on the Consolidated balance sheets because other U.S. GAAP netting criteria are not met.
The following table presents as of September 30, 2015, and December 31, 2014, the gross and net securities sold under repurchase agreements and securities loaned. Securities sold under repurchase agreements have been presented on the Consolidated balance sheets net of securities purchased under resale agreements where the Firm has obtained an appropriate legal opinion with respect to the master netting agreement, and where the other relevant criteria have been met. Where such a legal opinion has not been either sought or obtained, the securities sold under repurchase agreements are not eligible for netting and are shown separately in the table below. Securities loaned are presented on a gross basis on the Consolidated balance sheets.
 
September 30, 2015
 
 
December 31, 2014
 
(in millions)
Gross liability balance
Amounts netted
on the Consolidated balance sheets
Net liability balance
 
 
Gross liability balance
 
Amounts netted
on the Consolidated balance sheets
 
Net liability balance
 
Securities sold under repurchase agreements
 
 
 
 
 
 
 
 
 
 
 
Securities sold under repurchase agreements with an appropriate legal opinion
$
311,565

$
(161,197
)
$
150,368

 
 
$
290,529

 
$
(142,719
)
 
$
147,810

 
Securities sold under repurchase agreements where an appropriate legal opinion has not been either sought or obtained(a)
14,070

 
14,070

 
 
21,996

 
 
 
21,996

 
Total securities sold under repurchase agreements
$
325,635

$
(161,197
)
$
164,438

(c) 
 
$
312,525

 
$
(142,719
)
 
$
169,806

(c) 
Securities loaned(b)
$
20,738

NA

$
20,738

(d)(e) 
 
$
25,927

 
NA

 
$
25,927

(d)(e) 
(a)
Includes repurchase agreements that are not subject to a master netting agreement but do provide rights to collateral.
(b)
Included securities-for-securities lending transactions of $5.8 billion and $4.1 billion at September 30, 2015, and December 31, 2014, respectively, accounted for at fair value, where the Firm is acting as lender. These amounts are presented within other liabilities in the Consolidated balance sheets.
(c)
At September 30, 2015, and December 31, 2014, included securities sold under repurchase agreements of $3.6 billion and $3.0 billion, respectively, accounted for at fair value.
(d)
There were no securities loaned accounted for at fair value as of September 30, 2015, and December 31, 2014.
(e)
Included $41 million and $271 million at September 30, 2015, and December 31, 2014, respectively, of securities loaned where an appropriate legal opinion has not been either sought or obtained with respect to the master netting agreement.

128


The following table presents information as of September 30, 2015, and December 31, 2014, regarding the securities sold under repurchase agreements and securities loaned for which an appropriate legal opinion has been obtained with respect to the master netting agreement. The table below excludes information related to repurchase agreements and securities loaned where such a legal opinion has not been either sought or obtained.
 
September 30, 2015
 
December 31, 2014
 
 
 
Amounts not nettable
on the Consolidated balance sheets(a)
 
 
 
 
Amounts not nettable
on the Consolidated
balance sheets(a)
 
 
(in millions)
Net liability balance
 
Financial instruments(b)
Cash collateral
Net amount(c)
 
Net liability balance
 
Financial instruments(b)
 
Cash collateral
 
Net amount(c)
Securities sold under repurchase agreements with an appropriate legal opinion
$
150,368

 
$
(146,749
)
$
(442
)
$
3,177

 
$
147,810

 
$
(145,732
)
 
$
(497
)
 
$
1,581

Securities loaned
$
20,697

 
$
(20,553
)
$

$
144

 
$
25,656

 
$
(25,287
)
 
$

 
$
369

(a)
For some counterparties the sum of the financial instruments and cash collateral not nettable on the Consolidated balance sheets may exceed the net liability balance. Where this is the case the total amounts reported in these two columns are limited to the balance of the net repurchase agreement or securities loaned liability with that counterparty.
(b)
Includes financial instrument collateral transferred, reverse repurchase assets and securities borrowed assets with an appropriate legal opinion with respect to the master netting agreement; these amounts are not presented net on the Consolidated balance sheets because other U.S. GAAP netting criteria are not met.
(c)
Net amount represents exposure of counterparties to the Firm.

Effective April 1, 2015, the Firm adopted new accounting guidance, which requires enhanced disclosures with respect to the types of financial assets pledged in secured financing transactions and the remaining contractual maturity of the secured financing transactions; the following tables present this information as of September 30, 2015.
 
Gross liability balance
September 30, 2015 (in millions)
Securities sold under repurchase agreements
Securities loaned
Mortgage-backed securities
$
22,060

$

U.S. Treasury and government agencies
166,522

223

Obligations of U.S. states and municipalities
1,718


Non-U.S. government debt
89,573

621

Corporate debt securities
19,580

110

Asset-backed securities
5,238


Equity securities
20,944

19,784

Total
$
325,635

$
20,738

 
Remaining contractual maturity of the agreements
 
Overnight and continuous
 
 
Greater than
90 days
 
September 30, 2015 (in millions)
Up to 30 days
30 – 90 days
Total
Total securities sold under repurchase agreements
$
117,879

$
124,711

$
27,052

$
55,993

$
325,635

Total securities loaned
9,463

649

319

10,307

20,738

Transfers not qualifying for sale accounting
At September 30, 2015, and December 31, 2014, the Firm held $11.2 billion and $13.8 billion, respectively, of financial assets for which the rights have been transferred to third parties; however, the transfers did not qualify as a sale in accordance with U.S. GAAP. These transfers have been recognized as collateralized financing transactions. The transferred assets are recorded in trading assets and loans, and the corresponding liabilities are recorded predominantly in other borrowed funds on the Consolidated balance sheets.

129


Note 13 – Loans
Loan accounting framework
The accounting for a loan depends on management’s strategy for the loan, and on whether the loan was credit-impaired at the date of acquisition. The Firm accounts for loans based on the following categories:
Originated or purchased loans held-for-investment (i.e., “retained”), other than purchased credit-impaired (“PCI”) loans
Loans held-for-sale
Loans at fair value
PCI loans held-for-investment
 
For a detailed discussion of loans, including accounting policies, see Note 14 of JPMorgan Chase’s 2014 Annual Report. See Note 4 of this Form 10-Q for further information on the Firm’s elections of fair value accounting under the fair value option. See Note 3 of this Form 10-Q for further information on loans carried at fair value and classified as trading assets.


Loan portfolio
The Firm’s loan portfolio is divided into three portfolio segments, which are the same segments used by the Firm to determine the allowance for loan losses: Consumer, excluding credit card; Credit card; and Wholesale. Within each portfolio segment, the Firm monitors and assesses the credit risk in the following classes of loans, based on the risk characteristics of each loan class:
Consumer, excluding
credit card(a)
 
Credit card
 
Wholesale(c)
Residential real estate – excluding PCI
• Home equity – senior lien
• Home equity – junior lien
• Prime mortgage, including
   option ARMs
• Subprime mortgage
Other consumer loans
• Auto(b)
• Business banking(b)
• Student and other
Residential real estate – PCI
• Home equity
• Prime mortgage
• Subprime mortgage
• Option ARMs
 
• Credit card loans
 
• Commercial and industrial
• Real estate
• Financial institutions
• Government agencies
• Other(d)
(a)
Includes loans held in CCB, prime mortgage and home equity loans held in AM and prime mortgage loans held in Corporate.
(b)
Includes certain business banking and auto dealer risk-rated loans that apply the wholesale methodology for determining the allowance for loan losses; these loans are managed by CCB, and therefore, for consistency in presentation, are included with the other consumer loan classes.
(c)
Includes loans held in CIB, CB, AM and Corporate. Excludes prime mortgage and home equity loans held in AM and prime mortgage loans held in Corporate. Classes are internally defined and may not align with regulatory definitions.
(d)
Other primarily includes loans to SPEs and loans to private banking clients. See Note 1 of JPMorgan Chase’s 2014 Annual Report for additional information on special-purpose entities (“SPEs”).

130


The following tables summarize the Firm’s loan balances by portfolio segment.
September 30, 2015
Consumer, excluding credit card
Credit card(a)
Wholesale
Total
 
(in millions)
 
Retained
$
331,732

$
125,634

$
346,927

$
804,293

(b) 
Held-for-sale
237

1,345

447

2,029

 
At fair value


3,135

3,135

 
Total
$
331,969

$
126,979

$
350,509

$
809,457

 
 
 
 
 
 
 
December 31, 2014
Consumer, excluding credit card
Credit card(a)
Wholesale
Total
 
(in millions)
 
Retained
$
294,979

$
128,027

$
324,502

$
747,508

(b) 
Held-for-sale
395

3,021

3,801

7,217

 
At fair value


2,611

2,611

 
Total
$
295,374

$
131,048

$
330,914

$
757,336

 
(a)
Includes billed finance charges and fees net of an allowance for uncollectible amounts.
(b)
Loans (other than PCI loans and those for which the fair value option has been elected) are presented net of unearned income, unamortized discounts and premiums, and net deferred loan costs of $628 million and $1.3 billion at September 30, 2015, and December 31, 2014, respectively.
The following tables provide information about the carrying value of retained loans purchased, sold and reclassified to held-for-sale during the periods indicated. These tables exclude loans recorded at fair value. The Firm manages its exposure to credit risk on an ongoing basis. Selling loans is one way that the Firm reduces its credit exposures.
 
 
2015
 
2014
Three months ended September 30, (in millions)
 
Consumer, excluding credit card
 
Credit card
Wholesale
Total
 
Consumer, excluding credit card
 
Credit card
Wholesale
Total
Purchases
 
$
1,196

(a)(b) 
$

$
1,199

$
2,395

 
$
1,945

(a)(b) 
$

$
312

$
2,257

Sales
 
1,130

 

1,856

2,986

 
1,573

 
272

1,814

3,659

Retained loans reclassified to held-for-sale
 

 
79

20

99

 
232

 
186

50

468

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2015
 
2014
Nine months ended September 30, (in millions)
 
Consumer, excluding credit card
 
Credit card
Wholesale
Total
 
Consumer, excluding credit card
 
Credit card
Wholesale
Total
Purchases
 
$
3,918

(a)(b) 
$

$
1,894

$
5,812

 
$
5,694

(a)(b) 
$

$
589

$
6,283

Sales
 
4,073

 
1,269

7,381

12,723

 
3,816

 
272

6,493

10,581

Retained loans reclassified to held-for-sale
 
1,272

 
79

455

1,806

 
1,034

 
401

559

1,994

(a)
Purchases predominantly represent the Firm’s voluntary repurchase of certain delinquent loans from loan pools as permitted by Ginnie Mae guidelines. The Firm typically elects to repurchase these delinquent loans as it continues to service them and/or manage the foreclosure process in accordance with applicable requirements of Ginnie Mae, the Federal Housing Administration (“FHA”), Rural Housing Services (“RHS”) and/or the U.S. Department of Veterans Affairs (“VA”).
(b)
Excluded retained loans purchased from correspondents that were originated in accordance with the Firm’s underwriting standards. Such purchases were $14.4 billion and $4.1 billion for the three months ended September 30, 2015 and 2014, respectively, and $39.8 billion and $8.2 billion for the nine months ended September 30, 2015 and 2014, respectively.
The following table provides information about gains and losses, including lower of cost or fair value adjustments, on loan sales by portfolio segment.

Three months ended
September 30,
 
Nine months ended
September 30,
(in millions)
2015
2014
 
2015
2014
Net gains/(losses) on sales of loans (including lower of cost or fair value adjustments)(a)
 
 
 
 
 
Consumer, excluding credit card
$
62

$
97

 
$
239

$
223

Credit card
13

(9
)
 
22

(9
)
Wholesale
33

26

 
32

53

Total net gains/(losses) on sales of loans (including lower of cost or fair value adjustments)
$
108

$
114

 
$
293

$
267

(a)
Excludes sales related to loans accounted for at fair value.



131


Consumer, excluding credit card loan portfolio
Consumer loans, excluding credit card loans, consist primarily of residential mortgages, home equity loans and lines of credit, auto loans, business banking loans, and student and other loans, with a focus on serving the prime consumer credit market. The portfolio also includes home equity loans secured by junior liens, prime mortgage loans with an interest-only payment period, and certain payment-option loans originated by Washington Mutual that may result in negative amortization.

 
The table below provides information about retained consumer loans, excluding credit card, by class.
(in millions)
September 30,
2015
December 31,
2014
Residential real estate –
  excluding PCI
 
 
Home equity:
 
 
Senior lien
$
15,156

$
16,367

Junior lien
31,974

36,375

Mortgages:
 
 
Prime, including option ARMs
150,114

104,921

Subprime
3,853

5,056

Other consumer loans
 
 
Auto
57,174

54,536

Business banking
20,871

20,058

Student and other
10,354

10,970

Residential real estate – PCI
 
 
Home equity
15,490

17,095

Prime mortgage
9,196

10,220

Subprime mortgage
3,329

3,673

Option ARMs
14,221

15,708

Total retained loans
$
331,732

$
294,979

For further information on consumer credit quality indicators, see Note 14 of JPMorgan Chase’s 2014 Annual Report.


132


Residential real estate – excluding PCI loans
The following table provides information by class for residential real estate – excluding retained PCI loans in the consumer, excluding credit card, portfolio segment.
Residential real estate – excluding PCI loans
 
 
 
 
 
 
 
 
 
Home equity
 
Mortgages
 
 
 
(in millions, except ratios)
Senior lien
 
Junior lien
 
Prime, including
option ARMs
 
Subprime
 
Total residential real estate – excluding PCI
Sep 30,
2015
Dec 31,
2014
 
Sep 30,
2015
Dec 31,
2014
 
Sep 30,
2015
Dec 31,
2014
 
Sep 30,
2015
Dec 31,
2014
 
Sep 30,
2015
Dec 31,
2014
Loan delinquency(a)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Current
$
14,571

$
15,730

 
$
31,289

$
35,575

 
$
140,579

$
93,951

 
$
3,244

$
4,296

 
$
189,683

$
149,552

30–149 days past due
248

275

 
447

533

 
3,513

4,091

 
396

489

 
4,604

5,388

150 or more days past due
337

362

 
238

267

 
6,022

6,879

 
213

271

 
6,810

7,779

Total retained loans
$
15,156

$
16,367

 
$
31,974

$
36,375

 
$
150,114

$
104,921

 
$
3,853

$
5,056

 
$
201,097

$
162,719

% of 30+ days past due to
  total retained loans(b)
3.86
%
3.89
%
 
2.14
%
2.20
%
 
0.83
%
1.42
%
 
15.81
%
15.03
%
 
1.55
%
2.27
%
90 or more days past due and
  government guaranteed(c)
$

$

 
$

$

 
$
6,405

$
7,544

 
$

$

 
$
6,405

$
7,544

Nonaccrual loans
883

938

 
1,373

1,590

 
1,863

2,190

 
812

1,036

 
4,931

5,754

Current estimated LTV ratios(d)(e)(f)
 


 
 


 
 


 
 


 
 


Greater than 125% and refreshed
  FICO scores:
 


 
 


 
 


 
 


 
 


Equal to or greater than 660
$
15

$
21

 
$
252

$
467

 
$
62

$
120

 
$
3

$
10

 
$
332

$
618

Less than 660
7

10

 
69

138

 
62

103

 
20

51

 
158

302

101% to 125% and refreshed
  FICO scores:
 


 
 


 
 


 
 


 
 


Equal to or greater than 660
87

134

 
2,124

3,149

 
434

648

 
36

118

 
2,681

4,049

Less than 660
50

69

 
607

923

 
267

340

 
139

298

 
1,063

1,630

80% to 100% and refreshed FICO scores:
 


 
 


 
 


 
 


 
 


Equal to or greater than 660
450

633

 
5,014

6,481

 
3,497

3,863

 
178

432

 
9,139

11,409

Less than 660
172

226

 
1,422

1,780

 
852

1,026

 
468

770

 
2,914

3,802

Less than 80% and refreshed FICO scores:
 


 
 


 
 


 
 


 
 


Equal to or greater than 660
12,331

13,048

 
19,242

20,030

 
128,678

81,805

 
1,406

1,586

 
161,657

116,469

Less than 660
2,044

2,226

 
3,244

3,407

 
5,214

4,906

 
1,603

1,791

 
12,105

12,330

U.S. government-guaranteed


 


 
11,048

12,110

 


 
11,048

12,110

Total retained loans
$
15,156

$
16,367

 
$
31,974

$
36,375

 
$
150,114

$
104,921

 
$
3,853

$
5,056

 
$
201,097

$
162,719

Geographic region
 
 
 
 
 
 
 
 
 
 
 
 
 
 
California
$
2,090

$
2,232

 
$
7,123

$
8,144

 
$
42,588

$
28,133

 
$
541

$
718

 
$
52,342

$
39,227

New York
2,591

2,805

 
6,819

7,685

 
19,695

16,550

 
539

677

 
29,644

27,717

Illinois
1,219

1,306

 
2,321

2,605

 
10,588

6,654

 
151

207

 
14,279

10,772

Texas
1,624

1,845

 
977

1,087

 
8,143

4,935

 
148

177

 
10,892

8,044

Florida
828

861

 
1,688

1,923

 
6,388

5,106

 
432

632

 
9,336

8,522

New Jersey
652

654

 
2,009

2,233

 
4,930

3,361

 
178

227

 
7,769

6,475

Washington
455

506

 
1,056

1,216

 
3,662

2,410

 
84

109

 
5,257

4,241

Arizona
843

927

 
1,396

1,595

 
2,800

1,805

 
77

112

 
5,116

4,439

Michigan
683

736

 
734

848

 
1,718

1,203

 
84

121

 
3,219

2,908

Ohio
1,053

1,150

 
670

778

 
1,061

615

 
85

112

 
2,869

2,655

All other(g)
3,118

3,345

 
7,181

8,261

 
48,541

34,149

 
1,534

1,964

 
60,374

47,719

Total retained loans
$
15,156

$
16,367

 
$
31,974

$
36,375

 
$
150,114

$
104,921

 
$
3,853

$
5,056

 
$
201,097

$
162,719

(a)
Individual delinquency classifications include mortgage loans insured by U.S. government agencies as follows: current included $2.7 billion and $2.6 billion; 30149 days past due included $3.0 billion and $3.5 billion; and 150 or more days past due included $5.3 billion and $6.0 billion at September 30, 2015, and December 31, 2014, respectively.
(b)
At September 30, 2015, and December 31, 2014, Prime, including option ARMs loans excluded mortgage loans insured by U.S. government agencies of $8.3 billion and $9.5 billion, respectively. These amounts have been excluded from nonaccrual loans based upon the government guarantee.
(c)
These balances, which are 90 days or more past due, were excluded from nonaccrual loans as the loans are guaranteed by U.S government agencies. Typically, the principal balance of the loans is insured and interest is guaranteed at a specified reimbursement rate subject to meeting agreed-upon servicing guidelines. At September 30, 2015, and December 31, 2014, these balances included $3.8 billion and $4.2 billion, respectively, of loans that are no longer accruing interest based on the agreed-upon servicing guidelines. For the remaining balance, interest is being accrued at the guaranteed reimbursement rate. There were no loans not guaranteed by U.S. government agencies that are 90 or more days past due and still accruing at September 30, 2015, and December 31, 2014.
(d)
Represents the aggregate unpaid principal balance of loans divided by the estimated current property value. Current property values are estimated, at a minimum, quarterly, based on home valuation models using nationally recognized home price index valuation estimates incorporating actual data to the extent available and forecasted data where actual data is not available. These property values do not represent actual appraised loan level collateral values; as such, the resulting ratios are necessarily imprecise and should be viewed as estimates.
(e)
Junior lien represents combined loan-to-value (“LTV”), which considers all available lien positions, as well as unused lines, related to the property. All other products are presented without consideration of subordinate liens on the property.
(f)
Refreshed FICO scores represent each borrower’s most recent credit score, which is obtained by the Firm on at least a quarterly basis.
(g)
At September 30, 2015, and December 31, 2014, included mortgage loans insured by U.S. government agencies of $11.0 billion and $12.1 billion, respectively.

133


The following table represents the Firm’s delinquency statistics for junior lien home equity loans and lines as of September 30, 2015, and December 31, 2014.
 
 
Total loans
 
Total 30+ day delinquency rate
(in millions, except ratios)
 
Sep 30,
2015
Dec 31,
2014
 
Sep 30,
2015
Dec 31,
2014
 
 
HELOCs:(a)
 
 
 
 
 
 
Within the revolving period(b)
 
$
18,883

$
25,252

 
1.57
%
1.75
%
Beyond the revolving period
 
10,509

7,979

 
3.03

3.16

HELOANs
 
2,582

3,144

 
2.75

3.34

Total
 
$
31,974

$
36,375

 
2.14
%
2.20
%
(a)
These HELOCs are predominantly revolving loans for a 10-year period, after which time the HELOC converts to a loan with a 20-year amortization period, but also include HELOCs originated by Washington Mutual that allow interest-only payments beyond the revolving period.
(b)
The Firm manages the risk of HELOCs during their revolving period by closing or reducing the undrawn line to the extent permitted by law when borrowers are experiencing financial difficulty or when the collateral does not support the loan amount.
 
Home equity lines of credit (“HELOCs”) beyond the revolving period and home equity loans (“HELOANs”) have higher delinquency rates than do HELOCs within the revolving period. That is primarily because the fully-amortizing payment that is generally required for those products is higher than the minimum payment options available for HELOCs within the revolving period. The higher delinquency rates associated with amortizing HELOCs and HELOANs are factored into the loss estimates produced by the Firm’s delinquency roll-rate methodology, which estimates defaults based on the current delinquency status of a portfolio.


Impaired loans
The table below sets forth information about the Firm’s residential real estate impaired loans, excluding PCI loans. These loans are considered to be impaired as they have been modified in a troubled debt restructuring (“TDR”). All impaired loans are evaluated for an asset-specific allowance as described in Note 15 of JPMorgan Chase’s 2014 Annual Report.
 
Home equity
 
Mortgages
 
Total residential
 real estate
– excluding PCI

(in millions)
Senior lien
 
Junior lien
 
Prime, including
option ARMs
 
Subprime
 
Sep 30,
2015
Dec 31,
2014
 
Sep 30,
2015
Dec 31,
2014
 
Sep 30,
2015
Dec 31,
2014
 
Sep 30,
2015
Dec 31,
2014
 
Sep 30,
2015
Dec 31,
2014
Impaired loans
 
 
 
 
 
 
 
 
 
 
 
 
 
 
With an allowance
$
561

$
552

 
$
726

$
722

 
$
3,954

$
4,949

 
$
1,437

$
2,239

 
$
6,678

$
8,462

Without an allowance(a)
502

549

 
583

582

 
1,019

1,196

 
491

639

 
2,595

2,966

Total impaired loans(b)(c)
$
1,063

$
1,101

 
$
1,309

$
1,304

 
$
4,973

$
6,145

 
$
1,928

$
2,878

 
$
9,273

$
11,428

Allowance for loan losses related to impaired loans
$
53

$
84

 
$
86

$
147

 
$
93

$
127

 
$
15

$
64

 
$
247

$
422

Unpaid principal balance of impaired loans(d)
1,395

1,451

 
2,611

2,603

 
6,429

7,813

 
2,968

4,200

 
13,403

16,067

Impaired loans on nonaccrual status(e)
596

628

 
641

632

 
1,373

1,559

 
718

931

 
3,328

3,750

(a)
Represents collateral-dependent residential mortgage loans that are charged off to the fair value of the underlying collateral less cost to sell. The Firm reports, in accordance with regulatory guidance, residential real estate loans that have been discharged under Chapter 7 bankruptcy and not reaffirmed by the borrower (“Chapter 7 loans”) as collateral-dependent nonaccrual TDRs, regardless of their delinquency status. At September 30, 2015, Chapter 7 residential real estate loans included approximately 18% of senior lien home equity, 10% of junior lien home equity, 19% of prime mortgages, including option ARMs, and 14% of subprime mortgages that were 30 days or more past due.
(b)
At September 30, 2015, and December 31, 2014, $4.2 billion and $4.9 billion, respectively, of loans modified subsequent to repurchase from Government National Mortgage Association (“Ginnie Mae”) in accordance with the standards of the appropriate government agency (i.e., FHA, VA, RHS) are not included in the table above. When such loans perform subsequent to modification in accordance with Ginnie Mae guidelines, they are generally sold back into Ginnie Mae loan pools. Modified loans that do not re-perform become subject to foreclosure.
(c)
Predominantly all residential real estate impaired loans, excluding PCI loans, are in the U.S.
(d)
Represents the contractual amount of principal owed at September 30, 2015, and December 31, 2014. The unpaid principal balance differs from the impaired loan balances due to various factors, including charge-offs, net deferred loan fees or costs; and unamortized discounts or premiums on purchased loans.
(e)
As of September 30, 2015, and December 31, 2014, nonaccrual loans included $2.6 billion and $2.9 billion, respectively, of TDRs for which the borrowers were less than 90 days past due. For additional information about loans modified in a TDR that are on nonaccrual status refer to the Loan accounting framework in Note 14 of JPMorgan Chase’s 2014 Annual Report.

134


The following tables present average impaired loans and the related interest income reported by the Firm.
Three months ended September 30,
Average impaired loans
 
Interest income on
impaired loans(a)
 
Interest income on impaired
loans on a cash basis(a)
(in millions)
2015
2014
 
2015
2014
 
2015
2014
Home equity
 
 
 
 
 
 
 
 
Senior lien
$
1,072

$
1,115

 
$
13

$
14

 
$
8

$
9

Junior lien
1,279

1,310

 
19

20

 
12

13

Mortgages
 
 
 
 
 
 
 
 
Prime, including option ARMs
5,038

6,657

 
52

65

 
12

14

Subprime
1,942

3,411

 
30

45

 
10

13

Total residential real estate – excluding PCI
$
9,331

$
12,493

 
$
114

$
144

 
$
42

$
49

 
 
 
 
 
 
 
 
 
Nine months ended September 30,
Average impaired loans
 
Interest income on
impaired loans
(a)
 
Interest income on impaired
loans on a cash basis
(a)
(in millions)
2015
2014
 
2015
2014
 
2015
2014
Home equity
 
 
 
 
 
 
 
 
Senior lien
$
1,084

$
1,128

 
$
39

$
42

 
$
26

$
28

Junior lien
1,287

1,316

 
59

61

 
38

40

Mortgages
 
 
 
 
 
 
 
 
Prime, including option ARMs
5,562

6,811

 
166

199

 
36

41

Subprime
2,434

3,551

 
102

141

 
32

39

Total residential real estate – excluding PCI
$
10,367

$
12,806

 
$
366

$
443

 
$
132

$
148

(a)
Generally, interest income on loans modified in TDRs is recognized on a cash basis until such time as the borrower has made a minimum of six payments under the new terms.

Loan modifications
The Firm is required to provide borrower relief under the terms of certain Consent Orders and settlements entered into by the Firm related to its mortgage servicing, originations and residential mortgage-backed securities activities. This borrower relief includes reductions of principal and forbearance.
Modifications of residential real estate loans, excluding PCI loans, are generally accounted for and reported as TDRs. There were no additional commitments to lend to borrowers whose residential real estate loans, excluding PCI loans, have been modified in TDRs.
 
The following table presents new TDRs reported by the Firm.
 
Three months ended September 30,
 
Nine months ended September 30,
(in millions)
2015
2014
 
2015
2014
Home equity:
 
 
 
 
 
Senior lien
$
29

$
27

 
$
87

$
74

Junior lien
110

53

 
199

157

Mortgages:
 
 
 
 
 
Prime, including option ARMs
49

89

 
170

208

Subprime
13

29

 
47

82

Total residential real estate – excluding PCI
$
201

$
198

 
$
503

$
521



135


Nature and extent of modifications
The U.S. Treasury's Making Home Affordable (“MHA”) programs, as well as the Firm’s proprietary modification programs, generally provide various concessions to financially troubled borrowers including, but not limited to, interest rate reductions, term or payment extensions and deferral of principal and/or interest payments that would otherwise have been required under the terms of the original agreement.
The following tables provide information about how residential real estate loans, excluding PCI loans, were modified under the Firm’s loss mitigation programs during the periods presented. These tables exclude Chapter 7 loans where the sole concession granted is the discharge of debt.
Three months ended September 30,
Home equity
 
Mortgages
 
Total residential
real estate -
excluding PCI
Senior lien
 
Junior lien
 
Prime, including option ARMs
 
Subprime
 
2015
2014
 
2015
2014
 
2015
2014
 
2015
2014
 
2015
2014
Number of loans approved for a trial modification
333

232

 
1,502

164

 
283

274

 
381

502

 
2,499

1,172

Number of loans permanently modified
273

333

 
680

581

 
414

1,267

 
391

1,420

 
1,758

3,601

Concession granted:(a)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest rate reduction
77
%
43
%
 
68
%
84
%
 
76
%
23
%
 
70
%
26
%
 
72
%
36
%
Term or payment extension
90

53

 
87

84

 
77

18

 
82

29

 
84

36

Principal and/or interest deferred
34

10

 
21

22

 
28

7

 
17

6

 
24

9

Principal forgiveness
3

50

 
5

20

 
25

73

 
34

72

 
15

62

Other(b)


 


 
10

4

 
15

7

 
6

4

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Nine months ended September 30,
Home equity
 
Mortgages
 
Total residential
real estate -
excluding PCI
Senior lien
 
Junior lien
 
Prime, including option ARMs
 
Subprime
 
2015
2014
 
2015
2014
 
2015
2014
 
2015
2014
 
2015
2014
Number of loans approved for a trial modification
983

651

 
1,749

505

 
822

790

 
1,170

1,530

 
4,724

3,476

Number of loans permanently modified
849

854

 
1,830

2,238

 
1,122

2,184

 
1,275

2,680

 
5,076

7,956

Concession granted:(a)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest rate reduction
75
%
56
%
 
73
%
85
%
 
72
%
40
%
 
70
%
43
%
 
73
%
56
%
Term or payment extension
85

71

 
87

83

 
82

46

 
80

49

 
84

60

Principal and/or interest deferred
32

12

 
24

22

 
33

17

 
21

11

 
26

16

Principal forgiveness
5

38

 
4

26

 
25

54

 
32

57

 
16

45

Other(b)


 


 
9

9

 
12

9

 
5

6

(a)
Represents concessions granted in permanent modifications as a percentage of the number of loans permanently modified. The sum of the percentages exceeds 100% because predominantly all of the modifications include more than one type of concession. A significant portion of trial modifications include interest rate reductions and/or term or payment extensions.
(b)
Represents variable interest rate to fixed interest rate modifications.

136


Financial effects of modifications and redefaults
The following tables provide information about the financial effects of the various concessions granted in modifications of residential real estate loans, excluding PCI, under the Firm’s loss mitigation programs and about redefaults of certain loans modified in TDRs for the periods presented. Because the specific types and amounts of concessions offered to borrowers frequently change between the trial modification and the permanent modification, the following tables present only the financial effects of permanent modifications. These tables also exclude Chapter 7 loans where the sole concession granted is the discharge of debt.
Three months ended September 30,
(in millions, except weighted-average
data and number of loans)
Home equity
 
Mortgages
 
Total residential real estate – excluding PCI
Senior lien
 
Junior lien
 
Prime, including option ARMs
 
Subprime
 
2015
2014
 
2015
2014
 
2015
2014
 
2015
2014
 
2015
2014
Weighted-average interest rate of loans with interest rate reductions – before TDR
5.55
%
6.05
%
 
4.96
%
4.81
%
 
5.07
%
4.16
%
 
6.82
%
6.97
%
 
5.57
%
5.14
%
Weighted-average interest rate of loans with interest rate reductions – after TDR
2.61

3.13

 
2.15

2.07

 
2.61

2.77

 
3.11

3.45

 
2.65

2.87

Weighted-average remaining contractual term (in years) of loans with term or payment extensions – before TDR
17

18

 
17

19

 
25

25

 
24

22

 
22

22

Weighted-average remaining contractual term (in years) of loans with term or payment extensions – after TDR
33

31

 
34

35

 
36

37

 
37

35

 
36

35

Charge-offs recognized upon permanent modification
$
1

$
1

 
$

$
2

 
$
4

$
1

 
$

$
1

 
$
5

$
5

Principal deferred
3

1

 
4

2

 
9

8

 
4

4

 
20

15

Principal forgiven

6

 

3

 
10

51

 
9

49

 
19

109

Balance of loans that redefaulted within one year of permanent modification(a)
$
4

$
5

 
$
1

$
3

 
$
23

$
35

 
$
15

$
32

 
$
43

$
75

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Nine months ended September 30,
(in millions, except weighted-average
data and number of loans)
Home equity
 
Mortgages
 
Total residential real estate – excluding PCI
Senior lien
 
Junior lien
 
Prime, including option ARMs
 
Subprime
 
2015
2014
 
2015
2014
 
2015
2014
 
2015
2014
 
2015
2014
Weighted-average interest rate of loans with interest rate reductions – before TDR
5.82
%
6.45
%
 
4.85
%
4.83
%
 
5.08
%
4.81
%
 
6.73
%
7.29
%
 
5.57
%
5.63
%
Weighted-average interest rate of loans with interest rate reductions – after TDR
2.74

3.03

 
2.20

1.95

 
2.50

2.70

 
3.17

3.44

 
2.65

2.79

Weighted-average remaining contractual term (in years) of loans with term or payment extensions – before TDR
17

18

 
18

19

 
25

25

 
24

24

 
22

23

Weighted-average remaining contractual term (in years) of loans with term or payment extensions – after TDR
32

30

 
34

35

 
37

37

 
36

36

 
36

36

Charge-offs recognized upon permanent modification
$
1

$
2

 
$
2

$
24

 
$
7

$
5

 
$
2

$
2

 
$
12

$
33

Principal deferred
10

3

 
10

8

 
31

31

 
14

15

 
65

57

Principal forgiven
2

12

 

20

 
26

76

 
26

81

 
54

189

Balance of loans that redefaulted within one year of permanent modification(a)
$
10

$
14

 
$
4

$
8

 
$
58

$
97

 
$
44

$
72

 
$
116

$
191

(a)
Represents loans permanently modified in TDRs that experienced a payment default in the periods presented, and for which the payment default occurred within one year of the modification. The dollar amounts presented represent the balance of such loans at the end of the reporting period in which such loans defaulted. For residential real estate loans modified in TDRs, payment default is deemed to occur when the loan becomes two contractual payments past due. In the event that a modified loan redefaults, it is probable that the loan will ultimately be liquidated through foreclosure or another similar type of liquidation transaction. Redefaults of loans modified within the last 12 months may not be representative of ultimate redefault levels.

At September 30, 2015, the weighted-average estimated remaining lives of residential real estate loans, excluding PCI loans, permanently modified in TDRs were 10 years for senior lien home equity, 9 years for junior lien home equity, 10 years for prime mortgages, including option ARMs, and 8 years for subprime mortgages. The estimated remaining lives of these loans reflect estimated prepayments, both voluntary and involuntary (i.e., foreclosures and other forced liquidations).
 
Active and suspended foreclosure
At September 30, 2015, and December 31, 2014, the Firm had non-PCI residential real estate loans, excluding those insured by U.S. government agencies, with a carrying value of $1.2 billion and $1.5 billion, respectively, that were not included in REO, but were in the process of active or suspended foreclosure.


137


Other consumer loans
The table below provides information for other consumer retained loan classes, including auto, business banking and student loans.
(in millions, except ratios)
Auto
 
Business banking
 
Student and other
 
Total other consumer
 
Sep 30,
2015
 
Dec 31,
2014
 
Sep 30,
2015
Dec 31,
2014
 
Sep 30,
2015
 
Dec 31,
2014
 
Sep 30,
2015
 
Dec 31,
2014
 
Loan delinquency(a)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Current
$
56,566

 
$
53,866

 
$
20,583

$
19,710

 
$
9,636

 
$
10,080

 
$
86,785

 
$
83,656

 
30–119 days past due
600

 
663

 
185

208

 
469

 
576

 
1,254

 
1,447

 
120 or more days past due
8

 
7

 
103

140

 
249

 
314

 
360

 
461

 
Total retained loans
$
57,174

 
$
54,536

 
$
20,871

$
20,058

 
$
10,354

 
$
10,970

 
$
88,399

 
$
85,564

 
% of 30+ days past due to total retained loans
1.06
%
 
1.23
%
 
1.38
%
1.73
%
 
2.04
%
(d) 
2.15
%
(d) 
1.25
%
(d) 
1.47
%
(d) 
90 or more days past due and still accruing (b)
$

 
$

 
$

$

 
$
289

 
$
367

 
$
289

 
$
367

 
Nonaccrual loans
110

 
115

 
236

279

 
253

 
270

 
599

 
664

 
Geographic region
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
California
$
6,836

 
$
6,294

 
$
3,368

$
3,008

 
$
1,093

 
$
1,143

 
$
11,297

 
$
10,445

 
New York
3,730

 
3,662

 
3,251

3,187

 
1,230

 
1,259

 
8,211

 
8,108

 
Illinois
3,424

 
3,175

 
1,401

1,373

 
697

 
729

 
5,522

 
5,277

 
Texas
6,042

 
5,608

 
2,604

2,626

 
845

 
868

 
9,491

 
9,102

 
Florida
2,607

 
2,301

 
930

827

 
525

 
521

 
4,062

 
3,649

 
New Jersey
1,972

 
1,945

 
504

451

 
384

 
378

 
2,860

 
2,774

 
Washington
1,098

 
1,019

 
269

258

 
215

 
235

 
1,582

 
1,512

 
Arizona
1,923

 
2,003

 
1,185

1,083

 
236

 
239

 
3,344

 
3,325

 
Michigan
1,533

 
1,633

 
1,366

1,375

 
430

 
466

 
3,329

 
3,474

 
Ohio
2,284

 
2,157

 
1,366

1,354

 
578

 
629

 
4,228

 
4,140

 
All other
25,725

 
24,739

 
4,627

4,516

 
4,121

 
4,503

 
34,473

 
33,758

 
Total retained loans
$
57,174

 
$
54,536

 
$
20,871

$
20,058

 
$
10,354

 
$
10,970

 
$
88,399

 
$
85,564

 
Loans by risk ratings(c)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Noncriticized
$
10,079

 
$
9,822

 
$
15,224

$
14,619

 
NA
 
NA
 
$
25,303

 
$
24,441

 
Criticized performing
85

 
35

 
802

708

 
NA
 
NA
 
887

 
743

 
Criticized nonaccrual

 

 
183

213

 
NA
 
NA
 
183

 
213

 
(a)
Individual delinquency classifications included loans insured by U.S. government agencies under the Federal Family Education Loan Program (“FFELP”)
as follows: current included $4.0 billion and $4.3 billion; 30-119 days past due included $279 million and $364 million; and 120 or more days past due included $228 million and $290 million at September 30, 2015, and December 31, 2014, respectively.
(b)
These amounts represent student loans, which are insured by U.S. government agencies under the FFELP. These amounts were accruing as reimbursement of insured amounts is proceeding normally.
(c)
For risk-rated business banking and auto loans, the primary credit quality indicator is the risk rating of the loan, including whether the loans are considered to be criticized and/or nonaccrual.
(d)
September 30, 2015, and December 31, 2014, excluded loans 30 days or more past due and still accruing, which are insured by U.S. government agencies under the FFELP, of $507 million and $654 million, respectively. These amounts were excluded as reimbursement of insured amounts is proceeding normally.

138


Other consumer impaired loans and loan
modifications
The table below sets forth information about the Firm’s other consumer impaired loans, including risk-rated business banking and auto loans that have been placed on nonaccrual status, and loans that have been modified in TDRs.
(in millions)
September 30,
2015
December 31,
2014
Impaired loans
 
 
With an allowance
$
512

$
557

Without an allowance(a)
32

35

Total impaired loans(b)(c)
$
544

$
592

Allowance for loan losses related to
  impaired loans
$
112

$
117

Unpaid principal balance of impaired loans(d)
657

719

Impaired loans on nonaccrual status
430

456

(a)
When discounted cash flows, collateral value or market price equals or exceeds the recorded investment in the loan, the loan does not require an allowance. This typically occurs when the impaired loans have been partially charged off and/or there have been interest payments received and applied to the loan balance.
(b)
Predominantly all other consumer impaired loans are in the U.S.
(c)
Other consumer average impaired loans were $543 million and $603 million for the three months ended September 30, 2015 and 2014, respectively, and $565 million and $701 million for the nine months ended September 30, 2015 and 2014, respectively. The related interest income on impaired loans, including those on a cash basis, was not material for the three and nine months ended September 30, 2015 and 2014.
(d)
Represents the contractual amount of principal owed at September 30, 2015, and December 31, 2014. The unpaid principal balance differs from the impaired loan balances due to various factors, including charge-offs; interest payments received and applied to the principal balance; net deferred loan fees or costs; and unamortized discounts or premiums on purchased loans.
 
Loan modifications
Certain other consumer loan modifications are considered to be TDRs as they provide various concessions to borrowers who are experiencing financial difficulty. All of these TDRs are reported as impaired loans in the table above. See Note 14 of JPMorgan Chase’s 2014 Annual Report for further information on other consumer loans modified in TDRs.
The following table provides information about the Firm’s other consumer loans modified in TDRs. New TDRs were not material for the three and nine months ended September 30, 2015 and 2014.
(in millions)
September 30,
2015
December 31,
2014
Loans modified in TDRs(a)(b)
$
398

$
442

TDRs on nonaccrual status
284

306

(a)
The impact of these modifications was not material to the Firm for the three and nine months ended September 30, 2015 and 2014.
(b)
Additional commitments to lend to borrowers whose loans have been modified in TDRs as of September 30, 2015, and December 31, 2014, were immaterial.


139


Purchased credit-impaired loans
For a detailed discussion of PCI loans, including the related accounting policies, see Note 14 of JPMorgan Chase’s 2014 Annual Report.
Residential real estate – PCI loans
The table below sets forth information about the Firm’s consumer, excluding credit card, PCI loans.

(in millions, except ratios)
Home equity
 
Prime mortgage
 
Subprime mortgage
 
Option ARMs
 
Total PCI
Sep 30,
2015
Dec 31,
2014
 
Sep 30,
2015
Dec 31,
2014
 
Sep 30,
2015
Dec 31,
2014
 
Sep 30,
2015
Dec 31,
2014
 
Sep 30,
2015
Dec 31,
2014
Carrying value(a)
$
15,490

$
17,095

 
$
9,196

$
10,220

 
$
3,329

$
3,673

 
$
14,221

$
15,708

 
$
42,236

$
46,696

Related allowance for loan losses(b)
1,708

1,758

 
1,031

1,193

 

180

 
49

194

 
2,788

3,325

Loan delinquency (based on unpaid principal balance)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Current
$
14,840

$
16,295

 
$
8,159

$
8,912

 
$
3,305

$
3,565

 
$
12,733

$
13,814

 
$
39,037

$
42,586

30–149 days past due
317

445

 
423

500

 
465

536

 
705

858

 
1,910

2,339

150 or more days past due
710

1,000

 
638

837

 
381

551

 
1,328

1,824

 
3,057

4,212

Total loans
$
15,867

$
17,740

 
$
9,220

$
10,249

 
$
4,151

$
4,652

 
$
14,766

$
16,496

 
$
44,004

$
49,137

% of 30+ days past due to total loans
6.47
%
8.15
%
 
11.51
%
13.05
%
 
20.38
%
23.37
%
 
13.77
%
16.26
%
 
11.29
%
13.33
%
Current estimated LTV ratios (based on unpaid principal balance)(c)(d)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Greater than 125% and refreshed FICO scores:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Equal to or greater than 660
$
298

$
513

 
$
19

$
45

 
$
22

$
34

 
$
48

$
89

 
$
387

$
681

Less than 660
159

273

 
50

97

 
88

160

 
70

150

 
367

680

101% to 125% and refreshed FICO scores:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Equal to or greater than 660
1,676

2,245

 
269

456

 
127

215

 
338

575

 
2,410

3,491

Less than 660
774

1,073

 
259

402

 
318

509

 
499

771

 
1,850

2,755

80% to 100% and refreshed FICO scores:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Equal to or greater than 660
3,668

4,171

 
1,579

2,154

 
405

519

 
1,815

2,418

 
7,467

9,262

Less than 660
1,443

1,647

 
973

1,316

 
788

1,006

 
1,491

1,996

 
4,695

5,965

Lower than 80% and refreshed FICO scores:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Equal to or greater than 660
5,878

5,824

 
3,859

3,663

 
827

719

 
6,674

6,593

 
17,238

16,799

Less than 660
1,971

1,994

 
2,212

2,116

 
1,576

1,490

 
3,831

3,904

 
9,590

9,504

Total unpaid principal balance
$
15,867

$
17,740

 
$
9,220

$
10,249

 
$
4,151

$
4,652

 
$
14,766

$
16,496

 
$
44,004

$
49,137

Geographic region (based on unpaid principal balance)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
California
$
9,521

$
10,671

 
$
5,349

$
5,965

 
$
1,036

$
1,138

 
$
8,328

$
9,190

 
$
24,234

$
26,964

New York
809

876

 
594

672

 
405

463

 
834

933

 
2,642

2,944

Illinois
371

405

 
272

301

 
201

229

 
343

397

 
1,187

1,332

Texas
235

273

 
97

92

 
248

281

 
77

85

 
657

731

Florida
1,533

1,696

 
611

689

 
381

432

 
1,231

1,440

 
3,756

4,257

New Jersey
319

348

 
243

279

 
142

165

 
483

553

 
1,187

1,345

Washington
850

959

 
199

225

 
84

95

 
348

395

 
1,481

1,674

Arizona
289

323

 
150

167

 
79

85

 
210

227

 
728

802

Michigan
46

53

 
148

166

 
116

130

 
159

182

 
469

531

Ohio
18

20

 
46

48

 
64

72

 
62

69

 
190

209

All other
1,876

2,116

 
1,511

1,645

 
1,395

1,562

 
2,691

3,025

 
7,473

8,348

Total unpaid principal balance
$
15,867

$
17,740

 
$
9,220

$
10,249

 
$
4,151

$
4,652

 
$
14,766

$
16,496

 
$
44,004

$
49,137

(a)
Carrying value includes the effect of fair value adjustments that were applied to the consumer PCI portfolio at the date of acquisition.
(b)
Management concluded as part of the Firm’s regular assessment of the PCI loan pools that it was probable that higher expected credit losses would result in a decrease in expected cash flows. As a result, an allowance for loan losses for impairment of these pools has been recognized.
(c)
Represents the aggregate unpaid principal balance of loans divided by the estimated current property value. Current property values are estimated, at a minimum, quarterly, based on home valuation models using nationally recognized home price index valuation estimates incorporating actual data to the extent available and forecasted data where actual data is not available. These property values do not represent actual appraised loan level collateral values; as such, the resulting ratios are necessarily imprecise and should be viewed as estimates. Current estimated combined LTV for junior lien home equity loans considers all available lien positions, as well as unused lines, related to the property.
(d)
Refreshed FICO scores represent each borrower’s most recent credit score, which is obtained by the Firm on at least a quarterly basis.

140


Approximately 20% of the PCI home equity portfolio are senior lien loans; the remaining balance are junior lien HELOANs or HELOCs. The following tables set forth delinquency statistics for PCI junior lien home equity loans and lines of credit based on the unpaid principal balance as of September 30, 2015, and December 31, 2014.
 
 
Total loans
 
Total 30+ day delinquency rate
(in millions, except ratios)
 
Sep 30,
2015
Dec 31,
2014
 
Sep 30,
2015
Dec 31,
2014
 
 
HELOCs:(a)
 
 
 
 
 
 
Within the revolving period(b)
 
$
5,888

$
8,972

 
4.26
%
6.42
%
Beyond the revolving period(c)
 
5,770

4,143

 
4.75

6.42

HELOANs
 
611

736

 
5.56

8.83

Total
 
$
12,269

$
13,851

 
4.56
%
6.55
%
(a)
In general, these HELOCs are revolving loans for a 10-year period, after which time the HELOC converts to an interest-only loan with a balloon payment at the end of the loan’s term.
(b)
Substantially all undrawn HELOCs within the revolving period have been closed.
(c)
Includes loans modified into fixed rate amortizing loans.
 
The table below sets forth the accretable yield activity for the Firm’s PCI consumer loans for the three and nine months ended September 30, 2015 and 2014, and represents the Firm’s estimate of gross interest income expected to be earned over the remaining life of the PCI loan portfolios. The table excludes the cost to fund the PCI portfolios, and therefore the accretable yield does not represent net interest income expected to be earned on these portfolios.
 
Total PCI
(in millions, except ratios)
Three months ended September 30,
 
Nine months ended September 30,
2015
2014
 
2015
2014
Beginning balance
$
13,741

$
15,275

 
$
14,592

$
16,167

Accretion into interest income
(424
)
(471
)
 
(1,290
)
(1,480
)
Changes in interest rates on variable-rate loans
3

(75
)
 
21

(141
)
Other changes in expected cash flows(a)
511

242

 
508

425

Reclassification from nonaccretable difference(b)
90


 
90

$

Balance at September 30
$
13,921

$
14,971

 
$
13,921

$
14,971

Accretable yield percentage
4.22
%
4.10
%
 
4.18
%
4.22
%
(a)
Other changes in expected cash flows may vary from period to period as the Firm continues to refine its cash flow model and periodically updates model assumptions. For the three and nine months ended September 30, 2015 and 2014, other changes in expected cash flows were driven by changes in prepayment assumptions.
(b)
Reclassifications from nonaccretable difference in the three and nine months ended September 30, 2015 were driven by continued improvement in home prices and delinquencies, as well as increased granularity in the impairment estimates.

The factors that most significantly affect estimates of gross cash flows expected to be collected, and accordingly the accretable yield balance, include: (i) changes in the benchmark interest rate indices for variable-rate products such as option adjustable-rate mortgage (“ARM”) and home equity loans; and (ii) changes in prepayment assumptions.

Active and suspended foreclosure
At September 30, 2015, and December 31, 2014, the Firm had PCI residential real estate loans with an unpaid principal balance of $2.4 billion and $3.2 billion, respectively, that were not included in REO, but were in the process of active or suspended foreclosure.



141


Credit card loan portfolio
The table below sets forth information about the Firm’s credit card loans.
(in millions, except ratios)
September 30,
2015
December 31,
2014
Loan delinquency
 
 
Current and less than 30 days
  past due and still accruing
$
123,901

$
126,189

30–89 days past due and still accruing
908

943

90 or more days past due and still accruing
825

895

Nonaccrual loans


Total retained credit card loans
$
125,634

$
128,027

Loan delinquency ratios
 
 
% of 30+ days past due to total retained loans
1.38
%
1.44
%
% of 90+ days past due to total retained loans
0.66

0.70

Credit card loans by geographic region
 
 
California
$
17,830

$
17,940

Texas
11,270

11,088

New York
10,965

10,940

Illinois
7,389

7,497

Florida
7,375

7,398

New Jersey
5,668

5,750

Ohio
4,504

4,707

Pennsylvania
4,324

4,489

Michigan
3,448

3,552

Virginia
3,068

3,263

All other
49,793

51,403

Total retained credit card loans
$
125,634

$
128,027

Percentage of portfolio based on carrying value with estimated refreshed FICO scores
 
 
Equal to or greater than 660
85.1
%
85.7
%
Less than 660
14.9

14.3

Credit card impaired loans and loan modifications
For a detailed discussion of impaired credit card loans, including credit card loan modifications, see Note 14 of JPMorgan Chase’s 2014 Annual Report.
The table below sets forth information about the Firm’s impaired credit card loans. All of these loans are considered to be impaired as they have been modified in TDRs.
(in millions)
September 30,
2015
December 31,
2014
Impaired credit card loans with an allowance(a)(b)
 
 
Credit card loans with modified payment terms(c)
$
1,370

$
1,775

Modified credit card loans that have reverted to pre-modification payment terms(d)
193

254

Total impaired credit card loans(e)
$
1,563

$
2,029

Allowance for loan losses related to impaired credit card loans
$
485

$
500

(a)
The carrying value and the unpaid principal balance are the same for credit card impaired loans.
(b)
There were no impaired loans without an allowance.
(c)
Represents credit card loans outstanding to borrowers enrolled in a credit card modification program as of the date presented.
(d)
Represents credit card loans that were modified in TDRs but that have subsequently reverted back to the loans’ pre-modification payment terms.
 
At September 30, 2015, and December 31, 2014, $122 million and $159 million, respectively, of loans have reverted back to the pre-modification payment terms of the loans due to noncompliance with the terms of the modified loans. The remaining $71 million and $95 million at September 30, 2015, and December 31, 2014, respectively, of these loans are to borrowers who have successfully completed a short-term modification program. The Firm continues to report these loans as TDRs since the borrowers’ credit lines remain closed.
(e)
Predominantly all impaired credit card loans are in the U.S.
The following table presents average balances of impaired credit card loans and interest income recognized on those loans.
 
Three months ended
September 30,
 
Nine months ended
September 30,
(in millions)
2015
2014
 
2015
2014
Average impaired
credit card loans
$
1,620

$
2,342

 
$
1,775

$
2,630

Interest income on
impaired credit card loans
20

29

 
64

97

Loan modifications
The Firm may modify loans to credit card borrowers who are experiencing financial difficulty. Most of these loans have been modified under programs that involve placing the customer on a fixed payment plan with a reduced interest rate, generally for 60 months. All of these credit card loan modifications are considered to be TDRs. New enrollments in these loan modification programs were $154 million and $196 million, for the three months ended September 30, 2015 and 2014, respectively, and $483 million and $622 million for the nine months ended September 30, 2015 and 2014, respectively. For additional information about credit card loan modifications, see Note 14 of JPMorgan Chase’s 2014 Annual Report.
Financial effects of modifications and redefaults
The following table provides information about the financial effects of the concessions granted on credit card loans modified in TDRs and redefaults for the periods presented.
(in millions, except
weighted-average data)
Three months ended
September 30,
 
Nine months ended
September 30,
2015
2014
 
2015
2014
Weighted-average interest rate of loans – before TDR
15.09
%
14.96
%
 
15.13
%
15.01
%
Weighted-average interest rate of loans – after TDR
4.35

4.40

 
4.30

4.37

Loans that redefaulted within one year of modification(a)
$
23

$
29

 
$
65

$
92

(a)
Represents loans modified in TDRs that experienced a payment default in the periods presented, and for which the payment default occurred within one year of the modification. The amounts presented represent the balance of such loans as of the end of the quarter in which they defaulted.
For credit card loans modified in TDRs, payment default is deemed to have occurred when the loans become two payments past due. A substantial portion of these loans is expected to be charged-off in accordance with the Firm’s standard charge-off policy. Based on historical experience, the estimated weighted-average default rate for credit card loans modified was expected to be 26.04%and 27.91% as of September 30, 2015, and December 31, 2014, respectively.


142


Wholesale loan portfolio
Wholesale loans include loans made to a variety of customers, ranging from large corporate and institutional clients to high-net-worth individuals. The primary credit quality indicator for wholesale loans is the risk rating
 
assigned each loan. For further information on these risk ratings, see Note 14 and Note 15 of JPMorgan Chase’s 2014 Annual Report.


The table below provides information by class of receivable for the retained loans in the Wholesale portfolio segment.
 
Commercial
 and industrial
 
Real estate
 
Financial
institutions
 
Government agencies
 
Other(d)
 
Total
retained loans
(in millions,
 except ratios)
Sep 30,
2015
Dec 31,
2014
 
Sep 30,
2015
Dec 31,
2014
 
Sep 30,
2015
Dec 31,
2014
 
Sep 30,
2015
Dec 31,
2014
 
Sep 30,
2015
Dec 31,
2014
 
Sep 30,
2015
Dec 31,
2014
Loans by risk ratings
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Investment-grade
$
64,719

$
63,069

 
$
71,068

$
61,006

 
$
22,805

$
27,111

 
$
10,843

$
8,393

 
$
91,754

$
82,087

 
$
261,189

$
241,666

Noninvestment-grade:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Noncriticized
45,012

44,117

 
16,795

16,541

 
6,048

7,085

 
256

300

 
11,402

10,075

 
79,513

78,118

Criticized performing
3,304

2,251

 
1,361

1,313

 
296

316

 
7

3

 
171

236

 
5,139

4,119

Criticized nonaccrual
672

188

 
257

253

 
11

18

 


 
146

140

 
1,086

599

Total noninvestment-
  grade
48,988

46,556

 
18,413

18,107

 
6,355

7,419

 
263

303

 
11,719

10,451

 
85,738

82,836

Total retained loans
$
113,707

$
109,625

 
$
89,481

$
79,113

 
$
29,160

$
34,530

 
$
11,106

$
8,696

 
$
103,473

$
92,538

 
$
346,927

$
324,502

% of total criticized to
total retained loans
3.50
%
2.22
%
 
1.81
%
1.98
%
 
1.05
%
0.97
%
 
0.06
%
0.03
%
 
0.31
%
0.41
%
 
1.79
%
1.45
%
% of nonaccrual loans
to total retained loans
0.59

0.17

 
0.29

0.32

 
0.04

0.05

 


 
0.14

0.15

 
0.31

0.18

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Loans by geographic
  distribution(a)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total non-U.S.
$
30,734

$
33,739

 
$
2,671

$
2,099

 
$
18,019

$
20,944

 
$
1,666

$
1,122

 
$
43,454

$
42,961

 
$
96,544

$
100,865

Total U.S.
82,973

75,886

 
86,810

77,014

 
11,141

13,586

 
9,440

7,574

 
60,019

49,577

 
250,383

223,637

Total retained loans
$
113,707

$
109,625

 
$
89,481

$
79,113

 
$
29,160

$
34,530

 
$
11,106

$
8,696

 
$
103,473

$
92,538

 
$
346,927

$
324,502

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Loan delinquency(b)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Current and less than
30 days past due and
still accruing
$
112,916

$
108,857

 
$
89,041

$
78,552

 
$
29,092

$
34,408

 
$
11,038

$
8,627

 
$
102,018

$
91,168

 
$
344,105

$
321,612

30–89 days past due
and still accruing
118

566

 
167

275

 
47

104

 
68

69

 
1,212

1,201

 
1,612

2,215

90 or more days
past due and
still accruing(c)
1

14

 
16

33

 
10


 


 
97

29

 
124

76

Criticized nonaccrual
672

188

 
257

253

 
11

18

 


 
146

140

 
1,086

599

Total retained loans
$
113,707

$
109,625

 
$
89,481

$
79,113

 
$
29,160

$
34,530

 
$
11,106

$
8,696

 
$
103,473

$
92,538

 
$
346,927

$
324,502

(a)
The U.S. and non-U.S. distribution is determined based predominantly on the domicile of the borrower.
(b)
The credit quality of wholesale loans is assessed primarily through ongoing review and monitoring of an obligor’s ability to meet contractual obligations rather than relying on the past due status, which is generally a lagging indicator of credit quality. For a discussion of more significant risk factors, see Note 14 of JPMorgan Chase’s 2014 Annual Report.
(c)
Represents loans that are considered well-collateralized and therefore still accruing interest.
(d)
Other primarily includes loans to SPEs and loans to private banking clients. See Note 1 of JPMorgan Chase’s 2014 Annual Report for additional information on SPEs.
The following table presents additional information on the real estate class of loans within the Wholesale portfolio segment for the periods indicated. For further information on real estate loans, see Note 14 of JPMorgan Chase’s 2014 Annual Report.

(in millions, except ratios)
Multifamily
 
Commercial lessors
 
Commercial construction and development
 
Other
 
Total real estate loans
Sep 30,
2015
Dec 31,
2014
 
Sep 30,
2015
Dec 31,
2014
 
Sep 30,
2015
Dec 31,
2014
 
Sep 30,
2015
Dec 31,
2014
 
Sep 30,
2015
Dec 31,
2014
Real estate retained loans
$
58,139

$
51,049

 
$
19,045

$
17,438

 
$
4,832

$
4,264

 
$
7,465

$
6,362

 
$
89,481

$
79,113

Criticized exposure
515

652

 
978

841

 
40

42

 
85

31

 
1,618

1,566

% of criticized exposure to
total real estate retained loans
0.89
%
1.28
%
 
5.14
%
4.82
%
 
0.83
%
0.98
%
 
1.14
%
0.49
%
 
1.81
%
1.98
%
Criticized nonaccrual
$
114

$
126

 
$
100

$
110

 
$

$

 
$
43

$
17

 
$
257

$
253

% of criticized nonaccrual to
total real estate retained loans
0.20
%
0.25
%
 
0.53
%
0.63
%
 
%
%
 
0.58
%
0.27
%
 
0.29
%
0.32
%

143


Wholesale impaired loans and loan modifications
Wholesale impaired loans consist of loans that have been placed on nonaccrual status and/or that have been modified in a TDR. All impaired loans are evaluated for an asset-specific allowance as described in Note 15 of JPMorgan Chase’s 2014 Annual Report.
The table below sets forth information about the Firm’s wholesale impaired loans.

(in millions)
Commercial
and industrial
 
Real estate
 
Financial
institutions
 
Government
 agencies
 
Other
 
Total
retained loans
 
Sep 30,
2015
Dec 31,
2014
 
Sep 30,
2015
Dec 31,
2014
 
Sep 30,
2015
Dec 31,
2014
 
Sep 30,
2015
Dec 31,
2014
 
Sep 30,
2015
Dec 31,
2014
 
Sep 30,
2015
 
Dec 31,
2014
 
Impaired loans
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
With an allowance
$
578

$
174

 
$
167

$
193

 
$
10

$
15

 
$

$

 
$
86

$
89

 
$
841

 
$
471

 
Without an allowance(a)
94

24

 
124

87

 
1

3

 


 
61

52

 
280

 
166

 
Total impaired loans
$
672

$
198

 
$
291

$
280

 
$
11

$
18

 
$

$

 
$
147

$
141

 
$
1,121

(c) 
$
637

(c) 
Allowance for loan losses related to impaired loans
$
216

$
34

 
$
20

$
36

 
$
2

$
4

 
$

$

 
$
43

$
13

 
$
281

 
$
87

 
Unpaid principal balance of impaired loans(b)
721

266

 
356

345

 
14

22

 


 
151

202

 
1,242

 
835

 
(a)
When the discounted cash flows, collateral value or market price equals or exceeds the recorded investment in the loan, the loan does not require an allowance. This typically occurs when the impaired loans have been partially charged-off and/or there have been interest payments received and applied to the loan balance.
(b)
Represents the contractual amount of principal owed at September 30, 2015, and December 31, 2014. The unpaid principal balance differs from the impaired loan balances due to various factors, including charge-offs; interest payments received and applied to the carrying value; net deferred loan fees or costs; and unamortized discount or premiums on purchased loans.
(c)
Based upon the domicile of the borrower, predominantly all wholesale impaired loans are in the U.S.
The following table presents the Firm’s average impaired loans for the periods indicated.
 
Three months ended September 30,
 
Nine months ended September 30,
(in millions)
2015
2014
 
2015
2014
Commercial and industrial
$
559

$
245

 
$
388

$
262

Real estate
261

287

 
257

316

Financial institutions
12

17

 
14

19

Government agencies


 
1


Other
122

162

 
114

163

Total(a)
$
954

$
711

 
$
774

$
760

(a)
The related interest income on accruing impaired loans and interest income recognized on a cash basis were not material for the three and nine months ended September 30, 2015 and 2014.
 
Certain loan modifications are considered to be TDRs as they provide various concessions to borrowers who are experiencing financial difficulty. All TDRs are reported as impaired loans in the tables above. TDRs were not material as of September 30, 2015 and 2014.



144


Note 14 – Allowance for credit losses
For detailed discussion of the allowance for credit losses and the related accounting policies, see Note 15 of JPMorgan Chase’s 2014 Annual Report.
Allowance for credit losses and loans and lending-related commitments by impairment methodology
The table below summarizes information about the allowance for loan losses, loans by impairment methodology, the allowance for lending-related commitments and lending-related commitments by impairment methodology.
 
2015
 
2014
Nine months ended September 30 (in millions)
Consumer, excluding credit card
Credit card
 
Wholesale
Total
 
Consumer, excluding credit card
Credit card
 
Wholesale
Total
Allowance for loan losses
 
 
 
 
 
 
 
 
 
 
 
Beginning balance at January 1,
$
7,050

$
3,439

 
$
3,696

$
14,185

 
8,456

$
3,795

 
$
4,013

$
16,264

Gross charge-offs
1,269

2,626

 
46

3,941

 
1,613

2,882

 
106

4,601

Gross recoveries
(577
)
(278
)
 
(64
)
(919
)
 
(629
)
(311
)
 
(120
)
(1,060
)
Net charge-offs/(recoveries)
692

2,348

 
(18
)
3,022

 
984

2,571

 
(14
)
3,541

Write-offs of PCI loans(a)
162


 

162

 
196


 

196

Provision for loan losses
(346
)
2,348

 
461

2,463

 
180

2,371

 
(183
)
2,368

Other
(1
)
(5
)
 
8

2

 
2

(5
)
 
(3
)
(6
)
Ending balance at September 30,
$
5,849

$
3,434

 
$
4,183

$
13,466

 
$
7,458

$
3,590

 
$
3,841

$
14,889

 
 
 
 
 
 
 
 
 
 
 
 
Allowance for loan losses by impairment methodology
 
 
 
 
 
 
 
 
 
 
 
Asset-specific(b)
$
359

$
485

(c) 
$
281

$
1,125

 
$
618

$
500

(c) 
$
124

$
1,242

Formula-based
2,702

2,949

 
3,902

9,553

 
3,178

3,090

 
3,717

9,985

PCI
2,788


 

2,788

 
3,662


 

3,662

Total allowance for loan losses
$
5,849

$
3,434

 
$
4,183

$
13,466

 
$
7,458

$
3,590

 
$
3,841

$
14,889

 
 
 
 
 
 
 
 
 
 
 
 
Loans by impairment methodology
 
 
 
 
 
 
 
 
 
 
 
Asset-specific
$
9,817

$
1,563

 
$
1,121

$
12,501

 
$
12,779

$
2,227

 
$
664

$
15,670

Formula-based
279,679

124,071

 
345,802

749,552

 
227,113

124,337

 
319,692

671,142

PCI
42,236


 
4

42,240

 
48,487


 
5

48,492

Total retained loans
$
331,732

$
125,634

 
$
346,927

$
804,293

 
$
288,379

$
126,564

 
$
320,361

$
735,304

 
 
 
 
 
 
 
 
 
 
 
 
Impaired collateral-dependent loans
 
 
 
 
 
 
 
 
 
 
 
Net charge-offs
$
84

$

 
$
2

$
86

 
$
105

$

 
$
8

$
113

Loans measured at fair value of collateral less cost to sell
2,653


 
325

2,978

 
3,138


 
315

3,453

 
 
 
 
 
 
 
 
 
 
 
 
Allowance for lending-related commitments
 
 
 
 
 
 
 
 
 
 
 
Beginning balance at January 1,
$
13

$

 
$
609

$
622

 
$
8

$

 
$
697

$
705

Provision for lending-related commitments
1


 
112

113

 
1


 
(70
)
(69
)
Other


 


 


 
1

1

Ending balance at September 30,
$
14

$

 
$
721

$
735

 
$
9

$

 
$
628

$
637

 
 
 
 
 
 
 
 
 
 
 
 
Allowance for lending-related commitments by impairment methodology
 
 
 
 
 
 
 
 
 
 
 
Asset-specific
$

$

 
$
69

$
69

 
$

$

 
$
68

$
68

Formula-based
14


 
652

666

 
9


 
560

569

Total allowance for lending-related commitments
$
14

$

 
$
721

$
735

 
$
9

$

 
$
628

$
637

 
 
 
 
 
 
 
 
 
 
 
 
Lending-related commitments by impairment methodology
 
 
 
 
 
 
 
 
 
 
 
Asset-specific
$

$

 
$
176

$
176

 
$

$

 
$
134

$
134

Formula-based
60,005

526,433

 
354,172

940,610

 
54,912

531,301

 
470,857

1,057,070

Total lending-related commitments
$
60,005

$
526,433

 
$
354,348

$
940,786

 
$
54,912

$
531,301

 
$
470,991

$
1,057,204

(a)
Write-offs of PCI loans are recorded against the allowance for loan losses when actual losses for a pool exceed estimated losses that were recorded as purchase accounting adjustments at the time of acquisition. A write-off of a PCI loan is recognized when the underlying loan is removed from a pool (e.g., upon liquidation).
(b)
Includes risk-rated loans that have been placed on nonaccrual status and loans that have been modified in a TDR.
(c)
The asset-specific credit card allowance for loan losses is related to loans that have been modified in a TDR; such allowance is calculated based on the loans’ original contractual interest rates and does not consider any incremental penalty rates.

145


Note 15 – Variable interest entities
For a further description of JPMorgan Chase’s accounting policies regarding consolidation of variable interest entities (“VIEs”), see Note 1 of JPMorgan Chase’s 2014 Annual Report.
The following table summarizes the most significant types of Firm-sponsored VIEs by business segment.
Line-of-Business
Transaction Type
Activity
Form 10-Q page reference
CCB
Credit card securitization trusts
Securitization of both originated and purchased credit card receivables
146
 
Mortgage securitization trusts
Servicing and securitization of both originated and purchased residential mortgages
146148
CIB
Mortgage and other securitization trusts
Securitization of both originated and purchased residential and commercial mortgages, and student loans
146148

 
Multi-seller conduits
Investor intermediation activities:
Assist clients in accessing the financial markets in a cost-efficient manner and structures transactions to meet investor needs
148
 
Municipal bond vehicles
 
148149

 
Credit-related note and asset swap vehicles
 
149
The Firm also invests in and provides financing and other services to VIEs sponsored by third parties, as described on page 149
of this Note.
Significant Firm-sponsored variable interest entities
Credit card securitizations
For a more detailed discussion of JPMorgan Chase’s involvement with credit card securitizations, see Note 16 of JPMorgan Chase’s 2014 Annual Report.
As a result of the Firm’s continuing involvement, the Firm is considered to be the primary beneficiary of its Firm-sponsored credit card securitization trusts. This includes the Firm’s primary card securitization trust, Chase Issuance Trust. See the table on page 150 of this Note for further information on consolidated VIE assets and liabilities.
 
Firm-sponsored mortgage and other securitization trusts
The Firm securitizes (or has securitized) originated and purchased residential mortgages, commercial mortgages and other consumer loans (including student loans) primarily in its CCB and CIB businesses. Depending on the particular transaction, as well as the respective business involved, the Firm may act as the servicer of the loans and/or retain certain beneficial interest in the securitization trusts.
For a detailed discussion of the Firm’s involvement with Firm-sponsored mortgage and other securitization trusts, as well as the accounting treatment relating to such trusts, see Note 16 of JPMorgan Chase’s 2014 Annual Report.


146


The following table presents the total unpaid principal amount of assets held in Firm-sponsored private-label securitization entities, including those in which the Firm has continuing involvement, and those that are consolidated by the Firm. Continuing involvement includes servicing the loans; holding senior interests or subordinated interests; recourse or guarantee arrangements; and derivative transactions. In certain instances, the Firm’s only continuing involvement is servicing the loans. See Securitization activity on page 151 of this Note for further information regarding the Firm’s cash flows with and interests retained in nonconsolidated VIEs, and page 151 of this Note for information on the Firm’s loan sales to U.S. government agencies.
 
Principal amount outstanding
 
JPMorgan Chase interest in securitized assets in nonconsolidated VIEs(c)(d)(e)
September 30, 2015(a) (in billions)
Total assets held by securitization VIEs
Assets
held in consolidated securitization VIEs
Assets held in nonconsolidated securitization VIEs with continuing involvement
 
Trading assets
AFS securities
Total interests held by JPMorgan
Chase
Securitization-related
 
 
 
 
 
 
 
Residential mortgage:
 
 
 
 
 
 
 
Prime/Alt-A and Option ARMs
$
88.7

$
1.5

$
73.8

 
$
0.5

$
1.7

$
2.2

Subprime
25.2

0.1

23.3

 
0.1


0.1

Commercial and other(b)
125.6

0.2

87.3

 
0.5

3.6

4.1

Total
$
239.5

$
1.8

$
184.4

 
$
1.1

$
5.3

$
6.4

 
Principal amount outstanding
 
JPMorgan Chase interest in securitized assets in nonconsolidated VIEs(c)(d)(e)
December 31, 2014(a) (in billions)
Total assets held by securitization VIEs
Assets
held in consolidated securitization VIEs
Assets held in nonconsolidated securitization VIEs with continuing involvement
 
Trading assets
AFS securities
Total interests held by
JPMorgan
Chase
Securitization-related
 
 
 
 
 
 
 
Residential mortgage:
 
 
 
 
 
 
 
Prime/Alt-A and Option ARMs
$
96.3

$
2.7

$
78.3

 
$
0.5

$
0.7

$
1.2

Subprime
28.4

0.8

25.7

 
0.1


0.1

Commercial and other(b)
129.6

0.2

94.4

 
0.4

3.5

3.9

Total
$
254.3

$
3.7

$
198.4

 
$
1.0

$
4.2

$
5.2

(a)
Excludes U.S. government agency securitizations. See page 151 of this Note for information on the Firm’s loan sales to U.S. government agencies.
(b)
Consists of securities backed by commercial loans (predominantly real estate) and non-mortgage-related consumer receivables purchased from third parties. The Firm generally does not retain a residual interest in its sponsored commercial mortgage securitization transactions.
(c)
The table above excludes the following: retained servicing (see Note 16 for a discussion of MSRs); securities retained from loan sales to U.S. government agencies; interest rate and foreign exchange derivatives primarily used to manage interest rate and foreign exchange risks of securitization entities (See Note 5 for further information on derivatives); senior and subordinated securities of $132 million and $64 million, respectively, at September 30, 2015, and $136 million and $34 million, respectively, at December 31, 2014, which the Firm purchased in connection with CIB’s secondary market-making activities.
(d)
Includes interests held in re-securitization transactions.
(e)
As of September 30, 2015, and December 31, 2014, 76% and 77%, respectively, of the Firm’s retained securitization interests, which are carried at fair value, were risk-rated “A” or better, on an S&P-equivalent basis. The retained interests in prime residential mortgages consisted of $2.1 billion and $1.1 billion of investment-grade and $115 million and $185 million of noninvestment-grade retained interests at September 30, 2015, and December 31, 2014, respectively. The retained interests in commercial and other securitizations trusts consisted of $3.8 billion and $3.7 billion of investment-grade and $239 million and $194 million of noninvestment-grade retained interests at September 30, 2015, and December 31, 2014, respectively.

147


Residential mortgages
For a more detailed description of the Firm’s involvement with residential mortgage securitizations, see Note 16 of JPMorgan Chase’s 2014 Annual Report.
At September 30, 2015, and December 31, 2014, the Firm did not consolidate the assets of certain Firm-sponsored residential mortgage securitization VIEs, in which the Firm had continuing involvement, primarily due to the fact that the Firm did not hold an interest in these trusts that could potentially be significant to the trusts. See the table on page 150 of this Note for more information on the consolidated residential mortgage securitizations, and the table on the previous page of this Note for further information on interests held in nonconsolidated residential mortgage securitizations.
Commercial mortgages and other consumer securitizations
CIB originates and securitizes commercial mortgage loans, and engages in underwriting and trading activities involving the securities issued by securitization trusts. For a more detailed description of the Firm’s involvement with commercial mortgage and other consumer securitizations, see Note 16 of JPMorgan Chase’s 2014 Annual Report. See the table on page 150 of this Note for more information on the consolidated commercial mortgage securitizations, and the table on the previous page of this Note for more information on interests held in nonconsolidated securitizations.
Re-securitizations
For a more detailed description of JPMorgan Chase’s
participation in re-securitization transactions, see Note 16 of JPMorgan Chase’s 2014 Annual Report.
During the three months ended September 30, 2015 and 2014, the Firm transferred $6.6 billion and $7.5 billion respectively of securities to agency VIEs, and $50 million and $237 million, respectively, of securities to private-label VIEs.
During the nine months ended September 30, 2015 and 2014, the Firm transferred $16.8 billion and $20.8 billion respectively of securities to agency VIEs, and $777 million and $670 million, respectively, of securities to private-label VIEs.
As of September 30, 2015, and December 31, 2014, the Firm did not consolidate any agency re-securitizations. As of September 30, 2015, and December 31, 2014, the Firm consolidated $48 million and $77 million, respectively, of assets, and $9 million and $21 million, respectively, of liabilities of private-label re-securitizations. See the table on page 150 of this Note for more information on consolidated re-securitization transactions.
 
As of September 30, 2015, and December 31, 2014, total assets (including the notional amount of interest-only securities) of nonconsolidated Firm-sponsored private-label re-securitization entities in which the Firm has continuing involvement were $2.2 billion and $2.9 billion, respectively. At September 30, 2015, and December 31, 2014, the Firm held approximately $1.8 billion and $2.4 billion, respectively, of interests in nonconsolidated agency re-securitization entities, and $2 million and $36 million, respectively, of senior and subordinated interests in nonconsolidated private-label re-securitization entities. See the table on page 151 of this Note for further information on interests held in nonconsolidated securitizations.
Multi-seller conduits
For a more detailed description of JPMorgan Chase’s principal involvement with Firm-administered multi-seller conduits, see Note 16 of JPMorgan Chase’s 2014 Annual Report.
In the normal course of business, JPMorgan Chase makes markets in and invests in commercial paper, including commercial paper issued by the Firm-administered multi-seller conduits. The Firm held $6.1 billion and $5.7 billion of the commercial paper issued by the Firm-administered multi-seller conduits at September 30, 2015, and December 31, 2014, respectively, which was eliminated in consolidation. The Firm’s investments reflect the Firm’s funding needs and capacity and were not driven by market illiquidity. The Firm is not obligated under any agreement to purchase the commercial paper issued by the Firm-administered multi-seller conduits.
Deal-specific liquidity facilities, program-wide liquidity and credit enhancement provided by the Firm to the multi-seller conduits have been eliminated in consolidation. Unfunded lending-related commitments made to clients of the Firm-administered multi-seller conduits were $6.9 billion and $9.9 billion at September 30, 2015, and December 31, 2014, and are reported as off-balance sheet lending-related commitments. For more information on off-balance sheet lending-related commitments, see Note 21.
VIEs associated with investor intermediation activities
Municipal bond vehicles
For a more detailed description of JPMorgan Chase’s principal involvement with municipal bond vehicles, see Note 16 of JPMorgan Chase’s 2014 Annual Report.


148


The Firm’s exposure to nonconsolidated municipal bond VIEs at September 30, 2015, and December 31, 2014, including the ratings profile of the VIEs’ assets, was as follows.
(in billions)(a)
Fair value of assets held by VIEs
Liquidity facilities
Excess/(deficit)(b)
Maximum exposure
Nonconsolidated municipal bond vehicles
 
 
 
 
September 30, 2015
$
11.6

$
6.5

$
5.1

$
6.5

December 31, 2014
11.5

6.3

5.2

6.3


 
Ratings profile of VIE assets(c)
Fair value of assets held by VIEs
Wt. avg. expected life of assets (years)
 
Investment-grade
 
Noninvestment- grade
(in billions, except where otherwise noted)(a)
AAA to AAA-
AA+ to AA-
A+ to A-
BBB+ to BBB-
 
BB+ and below
September 30, 2015
2.7

8.2

0.7


 

11.6

4.7
December 31, 2014
2.7

8.4

0.4


 

11.5

4.9
(a)
Includes municipal bond VIEs sponsored by third parties, but where the Firm provides the liquidity facility and serves as the remarketing agent.
(b)
Represents the excess/(deficit) of the fair values of municipal bond assets available to repay the liquidity facilities, if drawn.
(c)
The ratings scale is presented on an S&P-equivalent basis.

Credit-related note and asset swap vehicles
For a more detailed description of JPMorgan Chase’s principal involvement with credit-related note and asset swap vehicles, see Note 16 of JPMorgan Chase’s 2014 Annual Report.
 
VIEs sponsored by third parties
The Firm enters into transactions with VIEs sponsored by other parties. These include, for example, acting as a derivative counterparty, liquidity provider, investor, underwriter, placement agent, trustee or custodian. These transactions are conducted at arm’s-length, and individual credit decisions are based on the analysis of the specific VIE, taking into consideration the quality of the underlying assets. Where the Firm does not have the power to direct the activities of the VIE that most significantly impact the VIE’s economic performance, or a variable interest that could potentially be significant, the Firm records and reports these positions on its Consolidated balance sheets similarly to the way it would record and report positions in respect of any other third-party transaction.


149


Consolidated VIE assets and liabilities
The following table presents information on assets and liabilities related to VIEs consolidated by the Firm as of September 30, 2015, and December 31, 2014.
 
Assets
 
Liabilities
September 30, 2015 (in billions)(a)
Trading assets
Loans
Other(c) 
Total
assets(d)
 
Beneficial interests in
VIE assets(e)
Other(f)
Total
liabilities
VIE program type
 
 
 
 
 
 
 
 
Firm-sponsored credit card trusts
$

$
46.7

$
0.7

$
47.4

 
$
30.1

$

$
30.1

Firm-administered multi-seller conduits

19.0


19.0

 
13.0


13.0

Municipal bond vehicles
2.7



2.7

 
2.6


2.6

Mortgage securitization entities(b)
1.2

1.4


2.6

 
0.9

0.7

1.6

Student loan securitization entities
0.1

2.0

0.1

2.2

 
1.9


1.9

Other
0.2


1.3

1.5

 
0.2

0.1

0.3

Total
$
4.2

$
69.1

$
2.1

$
75.4

 
$
48.7

$
0.8

$
49.5

 
 
 
 
 
 
 
 
 
 
Assets
 
Liabilities
December 31, 2014 (in billions)(a)
Trading assets
Loans
Other(c) 
Total
assets(d)
 
Beneficial interests in
VIE assets(e)
Other(f)
Total
liabilities
VIE program type
 
 
 
 
 
 
 
 
Firm-sponsored credit card trusts
$

$
48.3

$
0.7

$
49.0

 
$
31.2

$

$
31.2

Firm-administered multi-seller conduits

17.7

0.1

17.8

 
12.0


12.0

Municipal bond vehicles
5.3



5.3

 
4.9


4.9

Mortgage securitization entities(b)
3.3

0.7


4.0

 
2.1

0.8

2.9

Student loan securitization entities
0.2

2.2


2.4

 
2.1


2.1

Other
0.3


1.0

1.3

 
0.1

0.1

0.2

Total
$
9.1

$
68.9

$
1.8

$
79.8

 
$
52.4

$
0.9

$
53.3

(a)
Excludes intercompany transactions which were eliminated in consolidation.
(b)
Includes residential and commercial mortgage securitizations as well as re-securitizations.
(c)
Includes assets classified as cash, AFS securities, and other assets within the Consolidated balance sheets.
(d)
The assets of the consolidated VIEs included in the program types above are used to settle the liabilities of those entities. The difference between total assets and total liabilities recognized for consolidated VIEs represents the Firm’s interest in the consolidated VIEs for each program type.
(e)
The interest-bearing beneficial interest liabilities issued by consolidated VIEs are classified in the line item on the Consolidated balance sheets titled, “Beneficial interests issued by consolidated variable interest entities.” The holders of these beneficial interests do not have recourse to the general credit of JPMorgan Chase. Included in beneficial interests in VIE assets are long-term beneficial interests of $33.2 billion and $35.4 billion at September 30, 2015, and December 31, 2014, respectively. The maturities of the long-term beneficial interests as of September 30, 2015, were as follows: $5.0 billion under one year, $23.8 billion between one and five years, and $4.4 billion over five years.
(f)
Includes liabilities classified as accounts payable and other liabilities in the Consolidated balance sheets.
Loan securitizations
The Firm securitizes (or has securitized) a variety of loans, including residential mortgage, credit card, student and commercial (primarily related to real estate) loans. For a
 
further description of the Firm’s accounting policies regarding securitizations, see Note 16 of JPMorgan Chase’s 2014 Annual Report.


150


Securitization activity
The following table provides information related to the Firm’s securitization activities for the three and nine months ended September 30, 2015 and 2014, related to assets held in JPMorgan Chase-sponsored securitization entities that were not consolidated by the Firm, and where sale accounting was achieved based on the accounting rules in effect at the time of the securitization.
 
Three months ended September 30,
 
Nine months ended September 30,
 
2015
 
2014
 
2015
 
2014
(in millions)(a)
Residential mortgage(d)
Commercial and other(e)
 
Residential mortgage(d)
Commercial and other(e)
 
Residential mortgage(d)
Commercial and other(e)
 
Residential mortgage(d)
Commercial and other(e)
Principal securitized
$
971

$
2,982

 
$
484

$
3,101

 
$
2,663

$
9,033

 
$
1,144

$
7,740

All cash flows during the period:
 
 
 
 
 
 
 
 
 
 
 
Proceeds from new securitizations(b)
$
972

$
2,995

 
$
484

$
3,141

 
$
2,674

$
9,053

 
$
1,147

$
7,849

Servicing fees collected
129


 
142

1

 
409

2

 
418

3

Purchases of previously transferred financial assets (or the underlying collateral)(c)
1


 
52


 
2


 
119


Cash flows received on interests
122

172

 
43

56

 
308

379

 
128

515

(a)
Excludes re-securitization transactions.
(b)
For the three and nine months ended September 30, 2015, $913 million and $2.6 billion, respectively, of proceeds from residential mortgage securitizations were received as securities classified in level 2 and $59 million of proceeds classified as level 3 of the fair value hierarchy. For the three and nine months ended September 30, 2015, $3.0 billion and $9.0 billion, respectively, of proceeds from commercial mortgage securitizations were received as securities classified in level 2 and $5 million and $43 million, respectively, of proceeds classified as level 3 of the fair value hierarchy. For the three and nine months ended September 30, 2014, $484 million and $1.1 billion of proceeds from residential mortgage securitizations were received as securities classified in level 2 and zero and $21 million of proceeds classified as level 3 of the fair value hierarchy, respectively. For the three and nine months ended September 30, 2014, $3.1 billion and $7.4 billion, respectively, of proceeds from commercial mortgage securitizations were received as securities classified in level 2 and zero and $130 million of proceeds classified as level 3 of the fair value hierarchy, and zero and $280 million of proceeds from commercial mortgage securitization were received as cash. All loans transferred into securitization vehicles during the three and nine months ended September 30, 2015 and 2014, were classified as trading assets; changes in fair value were recorded in principal transactions revenue, and there were no significant gains or losses associated with the securitization activity.
(c)
Includes cash paid by the Firm to reacquire assets from off–balance sheet, nonconsolidated entities – for example, loan repurchases due to representation and warranties and servicer clean-up calls.
(d)
Includes prime, Alt-A, subprime, and option ARMs. Excludes certain loan securitization transactions entered into with Ginnie Mae, Fannie Mae and Freddie Mac.
(e)
Includes commercial and student loan securitizations.
Loans and excess MSRs sold to the GSEs, loans in securitization transactions pursuant to Ginnie Mae guidelines, and other third-party-sponsored securitization entities
In addition to the amounts reported in the securitization activity tables above, the Firm, in the normal course of business, sells originated and purchased mortgage loans and certain originated excess MSRs on a nonrecourse basis, predominantly to Fannie Mae and Freddie Mac (the “GSEs”). These loans and excess MSRs are sold primarily for the purpose of securitization by the GSEs, who provide certain guarantee provisions (e.g., credit enhancement of the loans). The Firm also sells loans into securitization transactions pursuant to Ginnie Mae guidelines; these loans are typically insured or guaranteed by another U.S. government agency. The Firm does not consolidate the securitization vehicles underlying any of the transactions described above as it is not the primary beneficiary. For a limited number of loan sales, the Firm is obligated to share a portion of the credit risk associated with the sold loans with the purchaser. See Note 29 of JPMorgan Chase’s 2014 Annual Report for additional information about the Firm’s loan sales- and securitization-related indemnifications. See Note 16 for additional information about the impact of the Firm’s sale of certain excess MSRs. The following table summarizes the activities related to loans sold to the GSEs,
 
loans in securitization transactions pursuant to Ginnie Mae guidelines, and other third-party-sponsored securitization entities.
 
Three months
ended September 30,
 
Nine months
ended September 30,
(in millions)
2015
2014
 
2015
2014
Carrying value of loans sold(a)
$
11,394

$
12,396

 
$
34,193

$
38,919

Proceeds received from loan sales as cash
139

77

 
238

166

Proceeds from loans sales as securities(b)
11,170

12,250

 
33,758

38,446

Total proceeds received from loan sales(c)
$
11,309

$
12,327

 
$
33,996

$
38,612

Gains on loan sales(d)
$
61

$
86

 
$
238

$
205

(a)
Predominantly to the GSEs and in securitization transactions pursuant to Ginnie Mae guidelines.
(b)
Predominantly includes securities from the GSEs and Ginnie Mae that are generally sold shortly after receipt.
(c)
Excludes the value of MSRs retained upon the sale of loans. Gains on loan sales include the value of MSRs.
(d)
The carrying value of the loans accounted for at fair value approximated the total proceeds received upon loan sale.


151


Options to repurchase delinquent loans
In addition to the Firm’s obligation to repurchase certain loans due to material breaches of representations and warranties as discussed in Note 21, the Firm also has the option to repurchase delinquent loans that it services for Ginnie Mae loan pools, as well as for other U.S. government agencies under certain arrangements. The Firm typically elects to repurchase delinquent loans from Ginnie Mae loan pools as it continues to service them and/or manage the foreclosure process in accordance with the applicable requirements, and such loans continue to be insured or guaranteed. When the Firm’s repurchase option becomes exercisable, such loans must be reported on the Consolidated balance sheets as a loan with a corresponding liability. As of September 30, 2015, and December 31,
 
2014, the Firm had recorded on its Consolidated balance sheets $11.3 billion and $12.4 billion, respectively, of loans that either had been repurchased or for which the Firm had an option to repurchase. Predominantly all of these amounts relate to loans that have been repurchased from Ginnie Mae loan pools. Additionally, real estate owned resulting from voluntary repurchases of loans was $327 million and $464 million as of September 30, 2015, and December 31, 2014, respectively. Substantially all of these loans and real estate owned are insured or guaranteed by U.S. government agencies. For additional information, refer to Note 13 of this Form 10-Q and Note 14 of JPMorgan Chase’s 2014 Annual Report.





Loan delinquencies and liquidation losses
The table below includes information about components of nonconsolidated securitized financial assets, in which the Firm has continuing involvement, and delinquencies as of September 30, 2015, and December 31, 2014, respectively; and liquidation losses for the three and nine months ended September 30, 2015 and 2014, respectively.
 
 
 
 
 
Liquidation losses
 
Securitized assets
 
90 days past due
 
Three months ended September 30,
 
Nine months ended September 30,
(in millions)
Sep 30,
2015
Dec 31,
2014
 
Sep 30,
2015
Dec 31,
2014
 
2015
2014
 
2015
2014
Securitized loans(a)
 
 
 
 
 
 
 
 
 
 
 
Residential mortgage:
 
 
 
 
 
 
 
 
 
 
 
Prime / Alt-A & Option ARMs
$
73,779

$
78,294

 
$
9,481

$
11,363

 
$
486

$
465

 
$
1,402

$
1,722

Subprime
23,300

25,659

 
5,730

6,473

 
380

353

 
1,105

1,556

Commercial and other
87,369

94,438

 
1,580

1,522

 
211

471

 
350

1,113

Total loans securitized(b)
$
184,448

$
198,391

 
$
16,791

$
19,358

 
$
1,077

$
1,289

 
$
2,857

$
4,391

(a)
Total assets held in securitization-related SPEs were $239.5 billion and $254.3 billion, respectively, at September 30, 2015, and December 31, 2014. The $184.4 billion and $198.4 billion, respectively, of loans securitized at September 30, 2015, and December 31, 2014, excluded: $53.3 billion and $52.2 billion, respectively, of securitized loans in which the Firm has no continuing involvement, and $1.8 billion and $3.7 billion, respectively, of loan securitizations consolidated on the Firm’s Consolidated balance sheets at September 30, 2015, and December 31, 2014.
(b)
Includes securitized loans that were previously recorded at fair value and classified as trading assets.


152


Note 16 – Goodwill and other intangible assets
For a discussion of the accounting policies related to goodwill and other intangible assets, see Note 17 of JPMorgan Chase’s 2014 Annual Report.
The following table presents goodwill attributed to the business segments.
(in millions)
September 30,
2015
December 31,
2014
Consumer & Community Banking
$
30,851

$
30,941

Corporate & Investment Bank
6,771

6,780

Commercial Banking
2,861

2,861

Asset Management
6,922

6,964

Corporate

101

Total goodwill
$
47,405

$
47,647

The following table presents changes in the carrying amount of goodwill.
 
Three months ended
September 30,
 
Nine months ended
September 30,
(in millions)
2015
2014
 
 
2015
 
2014
 
Balance at beginning of period
$
47,476

$
48,110

 
 
$
47,647

 
$
48,081

 
Changes during the period from:
 
 
 
 
 
 
 
 
Business combinations
8

6

 
 
25

 
24

 
Dispositions

(1
)
 
 
(101
)
(b) 
(1
)
 
Other(a)
(79
)
(145
)
 
 
(166
)
 
(134
)
 
Balance at September 30,
$
47,405

$
47,970

 
 
$
47,405

 
$
47,970

 
(a)
Includes foreign currency translation adjustments and other tax-related adjustments, and, during the three and nine months ended September 30, 2014, goodwill impairment associated with the Firm’s Private Equity business of $68 million.
(b)
Represents Private Equity goodwill which was disposed of as part of the Private Equity sale completed in January 2015.
 
Impairment testing
For further description of the Firm’s goodwill impairment testing process, including the primary method used to estimate the fair value of the reporting units, and the assumptions used in the goodwill impairment test, see Impairment testing on pages 271–272 of JPMorgan Chase’s 2014 Annual Report.
Goodwill was not impaired at September 30, 2015, or December 31, 2014, nor was goodwill written off due to impairment during the nine months ended September 30, 2015.
However, the Firm’s Mortgage Banking business in CCB remains at an elevated risk of goodwill impairment due to its exposure to U.S. economic conditions, such as increases in primary mortgage interest rates, lower mortgage origination volume, or from deterioration in economic conditions, including decreases in home prices that result in increased credit losses.
Declines in business performance, increases in equity capital requirements, or increases in the estimated cost of equity, could cause the estimated fair values of the Firm’s reporting units or their associated goodwill to decline in the future, which could result in a material impairment charge to earnings in a future period related to some portion of the associated goodwill.


153


Mortgage servicing rights
MSRs represent the fair value of expected future cash flows for performing servicing activities for others. The fair value considers estimated future servicing fees and ancillary revenue, offset by estimated costs to service the loans, and generally declines over time as net servicing cash flows are received, effectively amortizing the MSR asset against contractual servicing and ancillary fee income. MSRs are either purchased from third parties or recognized upon sale or securitization of mortgage loans if servicing is retained. For a further description of the MSR asset, interest rate risk management, and the valuation of MSRs, see Note 17 of JPMorgan Chase’s 2014 Annual Report and Note 3 of this Form 10-Q.
The following table summarizes MSR activity for the three and nine months ended September 30, 2015 and 2014.
 
As of or for the three months
ended September 30,
 
As of or for the nine months
ended September 30,
 
(in millions, except where otherwise noted)
2015
 
2014
 
2015
 
2014
 
Fair value at beginning of period
$
7,571

 
$
8,347

 
$
7,436

 
$
9,614

 
MSR activity:
 
 
 
 
 
 
 
 
Originations of MSRs
147

 
148

 
447

 
518

 
Purchase of MSRs
(4
)
 
3

 
435

 
9

 
Disposition of MSRs(a)

 
11

 
(375
)
 
(175
)
 
Net additions
143

 
162

 
507

 
352

 
 
 
 
 
 
 
 
 
 
Changes due to collection/realization of expected cash flows(b)
(233
)
 
(216
)
 
(677
)
 
(702
)
 
 
 
 
 
 
 
 
 
 
Changes in valuation due to inputs and assumptions:
 
 
 
 
 
 
 
 
Changes due to market interest rates and other(c)
(677
)
 
(101
)
 
(338
)
 
(832
)
 
Changes in valuation due to other inputs and assumptions:
 
 
 
 
 
 
 
 
Projected cash flows (e.g., cost to service)
(76
)
 
44

 
(103
)
 
33

 
Discount rates

 

 
(10
)
 
(459
)
(g) 
Prepayment model changes and other(d)
(12
)
 

 
(99
)
 
230

 
Total changes in valuation due to other inputs and assumptions
(88
)
 
44

 
(212
)
 
(196
)
 
Total changes in valuation due to inputs and assumptions(b)
(765
)
 
(57
)
 
(550
)
 
(1,028
)
 
Fair value at September 30,(e)
$
6,716

 
$
8,236

 
$
6,716

 
$
8,236

 
 
 
 
 
 
 
 
 
 
Change in unrealized gains/(losses) included in income related to MSRs held at
September 30,
$
(765
)
 
$
(57
)
 
$
(550
)
 
$
(1,028
)
 
Contractual service fees, late fees and other ancillary fees included in income
$
634

 
$
701

 
$
1,945

 
$
2,189

 
Third-party mortgage loans serviced at September 30, (in billions)
$
706

 
$
771

 
$
706

 
$
771

 
Net servicer advances at September 30, (in billions)(f)
$
6.6

 
$
8.6

 
$
6.6

 
$
8.6

 
(a)
For the nine months ended September 30, 2014, predominantly represents excess MSRs transferred to agency-sponsored trusts in exchange for stripped mortgage-backed securities (“SMBS”). In each transaction, a portion of the SMBS was acquired by third parties at the transaction date; the Firm acquired and has retained the remaining balance of those SMBS as trading securities. Also includes sales of MSRs for the three months ended September 30, 2014 and nine months ended September 30, 2015 and 2014.
(b)
Included changes related to commercial real estate of $(1) million and $(1) million for the three months ended September 30, 2015 and 2014, respectively, and $(3) million and $(5) million for the nine months ended September 30, 2015 and 2014, respectively.
(c)
Represents both the impact of changes in estimated future prepayments due to changes in market interest rates, and the difference between actual and expected prepayments.
(d)
Represents changes in prepayments other than those attributable to changes in market interest rates.
(e)
Included $7 million and $13 million related to commercial real estate at September 30, 2015 and 2014, respectively.
(f)
Represents amounts the Firm pays as the servicer (e.g., scheduled principal and interest, taxes and insurance), which will generally be reimbursed within a short period of time after the advance from future cash flows from the trust or the underlying loans. The Firm’s credit risk associated with these servicer advances is minimal because reimbursement of the advances is typically senior to all cash payments to investors. In addition, the Firm maintains the right to stop payment to investors if the collateral is insufficient to cover the advance. However, certain of these servicer advances may not be recoverable if they were not made in accordance with applicable rules and agreements.
(g)
For the nine months ended September 30, 2014, the decrease was primarily related to higher capital allocated to the Mortgage Servicing business, which, in turn, resulted in an increase in the option adjusted spread (“OAS”). The resulting OAS assumption continues to be consistent with capital and return requirements that the Firm believes a market participant would consider, taking into account factors such as the current operating risk environment and regulatory and economic capital requirements.

154


The following table presents the components of mortgage fees and related income (including the impact of MSR risk management activities) for the three and nine months ended September 30, 2015 and 2014.
 
 
Three months ended
September 30,
 
Nine months ended
September 30,
(in millions)
 
2015
 
2014
 
2015
 
2014
CCB mortgage fees and related income
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net production revenue
 
$
176

 
$
253

 
$
646

 
$
865

 
 
 
 
 
 
 
 
 
Net mortgage servicing revenue:
 
 
 
 
 
 
 
 
Operating revenue:
 
 
 
 
 
 
 
 
Loan servicing revenue
 
648

 
787

 
2,104

 
2,524

Changes in MSR asset fair value due to collection/realization of expected cash flows
 
(232
)
 
(214
)
 
(674
)
 
(696
)
Total operating revenue
 
416

 
573

 
1,430

 
1,828

Risk management:
 
 
 
 
 
 
 
 
Changes in MSR asset fair value due to market interest rates and other(a)
 
(677
)
 
(101
)
 
(338
)
 
(831
)
Other changes in MSR asset fair value due to other inputs and assumptions in model(b)
 
(88
)
 
44

 
(212
)
 
(196
)
Change in derivative fair value and other
 
642

 
133

 
429

 
1,040

Total risk management
 
(123
)
 
76

 
(121
)
 
13

Total net mortgage servicing revenue
 
293

 
649

 
1,309

 
1,841

 
 
 
 
 
 
 
 
 
Total CCB mortgage fees and related income
 
469

 
902

 
1,955

 
2,706

 
 
 
 
 
 
 
 
 
All other
 

 
1

 
2

 
2

Mortgage fees and related income
 
$
469

 
$
903

 
$
1,957

 
$
2,708

(a)
Represents both the impact of changes in estimated future prepayments due to changes in market interest rates, and the difference between actual and expected prepayments.
(b)
Represents the aggregate impact of changes in model inputs and assumptions such as projected cash flows (e.g., cost to service), discount rates and changes in prepayments other than those attributable to changes in market interest rates (e.g., changes in prepayments due to changes in home prices).
The table below outlines the key economic assumptions used to determine the fair value of the Firm’s MSRs at September 30, 2015, and December 31, 2014, and outlines the sensitivities of those fair values to immediate adverse changes in those assumptions, as defined below.
(in millions, except rates)
Sep 30,
2015
 
Dec 31,
2014
Weighted-average prepayment speed assumption (“CPR”)
10.19
%
 
9.80
%
Impact on fair value of 10% adverse change
$
(297
)
 
$
(337
)
Impact on fair value of 20% adverse change
(571
)
 
(652
)
Weighted-average option adjusted spread
9.09
%
 
9.43
%
Impact on fair value of 100 basis points adverse change
$
(265
)
 
$
(300
)
Impact on fair value of 200 basis points adverse change
(510
)
 
(578
)
CPR: Constant prepayment rate.
 
The sensitivity analysis in the preceding table is hypothetical and should be used with caution. Changes in fair value based on variation in assumptions generally cannot be easily extrapolated, because the relationship of the change in the assumptions to the change in fair value are often highly interrelated and may not be linear. In this table, the effect that a change in a particular assumption may have on the fair value is calculated without changing any other assumption. In reality, changes in one factor may result in changes in another, which would either magnify or counteract the impact of the initial change.
Other intangible assets
For information regarding other intangible assets, see Note 17 of JPMorgan Chase’s 2014 Annual Report.



155


Note 17 – Deposits
For further discussion on deposits, see Note 19 of JPMorgan Chase’s 2014 Annual Report.
At September 30, 2015, and December 31, 2014, noninterest-bearing and interest-bearing deposits were as follows.
(in millions)
September 30,
2015
 
December 31, 2014
U.S. offices
 
 
 
Noninterest-bearing
$
404,984

 
$
437,558

Interest-bearing:
 
 
 
Demand(a) 
77,092

 
90,319

Savings(b)
469,990

 
466,730

Time (included $9,497 and $7,501 at fair value)(c) 
76,932

 
86,301

Total interest-bearing deposits
624,014

 
643,350

Total deposits in U.S. offices
1,028,998

 
1,080,908

Non-U.S. offices
 
 
 
Noninterest-bearing
20,174

 
19,078

Interest-bearing:
 
 
 
Demand
171,290

 
217,011

Savings
1,742

 
2,673

Time (included $1,565 and $1,306 at fair value)(c) 
50,902

 
43,757

Total interest-bearing deposits
223,934

 
263,441

Total deposits in non-U.S. offices
244,108

 
282,519

Total deposits
$
1,273,106

 
$
1,363,427

(a)
Includes Negotiable Order of Withdrawal (“NOW”) accounts, and certain trust accounts.
(b)
Includes Money Market Deposit Accounts (“MMDAs”).
(c)
Includes structured notes classified as deposits for which the fair value option has been elected. For further discussion, see Note 4 of JPMorgan Chase’s 2014 Annual Report.

 
Note 18 – Earnings per share
For a discussion of the computation of basic and diluted earnings per share (“EPS”), see Note 24 of JPMorgan Chase’s 2014 Annual Report. The following table presents the calculation of basic and diluted EPS for the three and nine months ended September 30, 2015 and 2014.
(in millions, except per share amounts)
Three months ended
September 30,
 
Nine months ended
September 30,
2015
2014
 
2015
2014
Basic earnings per share
 
 
 
 
 
Net income
$
6,804

$
5,565

 
$
19,008

$
16,814

Less: Preferred stock dividends
393

304

 
1,097

799

Net income applicable to common equity
6,411

5,261

 
17,911

16,015

Less: Dividends and undistributed earnings allocated to participating securities
141

133

 
413

427

Net income applicable to common stockholders
$
6,270

$
5,128

 
$
17,498

$
15,588

 
 
 
 
 
 
Total weighted-average basic shares outstanding
3,694.4

3,755.4

 
3,709.2

3,774.4

Net income per share
$
1.70

$
1.37

 
$
4.72

$
4.13

 
 
 
 
 
 
Diluted earnings per share
 
 
 
 
 
Net income applicable to common stockholders
$
6,270

$
5,128

 
$
17,498

$
15,588

Total weighted-average basic shares outstanding
3,694.4

3,755.4

 
3,709.2

3,774.4

Add: Employee stock options, SARs and
warrants(a)
31.2

33.3

 
33.0

33.9

Total weighted-average diluted shares outstanding(b)
3,725.6

3,788.7

 
3,742.2

3,808.3

Net income per share
$
1.68

$
1.35

 
$
4.68

$
4.09

(a)
Excluded from the computation of diluted EPS (due to the antidilutive effect) were options issued under employee benefit plans. The aggregate number of shares issuable upon the exercise of such options was not material for the three and nine months ended September 30, 2015; and 1 million for each of the three and nine months ended September 30, 2014.
(b)
Participating securities were included in the calculation of diluted EPS using the two-class method, as this computation was more dilutive than the calculation using the treasury stock method.



156


Note 19 – Accumulated other comprehensive income/(loss)
AOCI includes the after-tax change in unrealized gains and losses on investment securities, foreign currency translation adjustments (including the impact of related derivatives), cash flow hedging activities, and net loss and prior service costs/(credit) related to the Firm’s defined benefit pension and OPEB plans.
As of or for the three months ended
September 30, 2015
Unrealized gains/(losses) on investment securities(a)
 
Translation adjustments, net of hedges
 
Cash flow hedges
 
Defined benefit pension and OPEB plans
 
Accumulated other comprehensive income/(loss)
(in millions)
Balance at July 1, 2015
 
$
3,443

 
 
 
$
(154
)
 
 
 
$
62

 
 
 
$
(2,249
)
 
 
 
$
1,102

 
Net change
 
(291
)
 
 
 
(5
)
 
 
 
(106
)
 
 
 
51

 
 
 
(351
)
 
Balance at September 30, 2015
 
$
3,152

 
 
 
$
(159
)
 
 
 
$
(44
)
 
 
 
$
(2,198
)
 
 
 
$
751

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
As of or for the three months ended
September 30, 2014
Unrealized gains/(losses) on investment securities(a)
 
Translation adjustments, net of hedges
 
Cash flow hedges
 
Defined benefit pension and OPEB plans
 
Accumulated other comprehensive income/(loss)
(in millions)
Balance at July 1, 2014
 
$
4,867

 
 
 
$
(126
)
 
 
 
$
(12
)
 
 
 
$
(1,291
)
 
 
 
$
3,438

 
Net change
 
(141
)
 
 
 
3

 
 
 
(58
)
 
 
 
24

 
 
 
(172
)
 
Balance at September 30, 2014
 
$
4,726

 
 
 
$
(123
)
 
 
 
$
(70
)
 
 
 
$
(1,267
)
 
 
 
$
3,266

 

As of or for the nine months ended
September 30, 2015
Unrealized gains/(losses) on investment securities(a)
 
Translation adjustments, net of hedges
 
Cash flow hedges
 
Defined benefit pension and OPEB plans
 
Accumulated other comprehensive income/(loss)
(in millions)
Balance at January 1, 2015
 
$
4,773

 
 
 
$
(147
)
 
 
 
$
(95
)
 
 
 
$
(2,342
)
 
 
 
$
2,189

 
Net change
 
(1,621
)
 
 
 
(12
)
 
 
 
51

 
 
 
144

 
 
 
(1,438
)
 
Balance at September 30, 2015
 
$
3,152

 
 
 
$
(159
)
 
 
 
$
(44
)
 
 
 
$
(2,198
)
 
 
 
$
751

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
As of or for the nine months ended
September 30, 2014
Unrealized gains/(losses) on investment securities(a)
 
Translation adjustments, net of hedges
 
Cash flow hedges
 
Defined benefit pension and OPEB plans
 
Accumulated other comprehensive income/(loss)
(in millions)
Balance at January 1, 2014
 
$
2,798

 
 
 
$
(136
)
 
 
 
$
(139
)
 
 
 
$
(1,324
)
 
 
 
$
1,199

 
Net change
 
1,928

 
 
 
13

 
 
 
69

 
 
 
57

 
 
 
2,067

 
Balance at September 30, 2014
 
$
4,726

 
 
 
$
(123
)
 
 
 
$
(70
)
 
 
 
$
(1,267
)
 
 
 
$
3,266

 
(a)
Represents the after-tax difference between the fair value and amortized cost of securities accounted for as AFS; including, as of the date of transfer during the first quarter of 2014, $9 million of net unrealized losses related to AFS securities that were transferred to HTM. Subsequent to transfer, includes any net unamortized unrealized gains and losses related to the transferred securities.














157


The following table presents the pretax and after-tax changes in the components of other comprehensive income/(loss).
 
2015
 
2014
Three months ended September 30, (in millions)
Pretax
 
Tax effect
 
After-tax
 
Pretax
 
Tax effect
 
After-tax
Unrealized gains/(losses) on investment securities:
 
 
 
 
 
 
 
 
 
 
 
Net unrealized gains/(losses) arising during the period
$
(430
)
 
$
160

 
$
(270
)
 
$
(283
)
 
$
146

 
$
(137
)
Reclassification adjustment for realized (gains)/losses included in
net income(a)
(33
)
 
12

 
(21
)
 
(6
)
 
2

 
(4
)
Net change
(463
)
 
172

 
(291
)
 
(289
)
 
148

 
(141
)
Translation adjustments:
 
 
 
 
 
 
 
 
 
 
 
Translation(b)
(912
)
 
340

 
(572
)
 
(1,133
)
 
416

 
(717
)
Hedges(b)
908

 
(341
)
 
567

 
1,185

 
(465
)
 
720

Net change
(4
)
 
(1
)
 
(5
)
 
52

 
(49
)
 
3

Cash flow hedges:
 
 
 
 
 
 
 
 
 
 
 
Net unrealized gains/(losses) arising during the period
(175
)
 
66

 
(109
)
 
(66
)
 
27

 
(39
)
Reclassification adjustment for realized (gains)/losses included in
net income(c)
5

 
(2
)
 
3

 
(31
)
 
12

 
(19
)
Net change
(170
)
 
64

 
(106
)
 
(97
)
 
39

 
(58
)
Defined benefit pension and OPEB plans:
 
 
 
 
 
 
 
 
 
 
 
Net gains/(losses) arising during the period

 

 

 
(1
)
 

 
(1
)
Reclassification adjustments included in net income(d):
 
 
 
 
 
 
 
 
 
 
 
Amortization of net loss
71

 
(27
)
 
44

 
18

 
(8
)
 
10

Prior service costs/(credits)
(9
)
 
3

 
(6
)
 
(10
)
 
4

 
(6
)
Foreign exchange and other
20

 
(7
)
 
13

 
34

 
(13
)
 
21

Net change
82

 
(31
)
 
51

 
41

 
(17
)
 
24

Total other comprehensive income/(loss)
$
(555
)
 
$
204

 
$
(351
)
 
$
(293
)
 
$
121

 
$
(172
)
 
 
 
 
 
 
 
 
 
 
 
 
 
2015
 
2014
Nine months ended September 30, (in millions)
Pretax
 
Tax effect
 
After-tax
 
Pretax
 
Tax effect
 
After-tax
Unrealized gains/(losses) on investment securities:
 
 
 
 
 
 
 
 
 
 
 
Net unrealized gains/(losses) arising during the period
$
(2,548
)
 
$
1,008

 
$
(1,540
)
 
$
3,116

 
$
(1,158
)
 
$
1,958

Reclassification adjustment for realized (gains)/losses included in
net income
(a)
(129
)
 
48

 
(81
)
 
(48
)
 
18

 
(30
)
Net change
(2,677
)
 
1,056

 
(1,621
)
 
3,068

 
(1,140
)
 
1,928

Translation adjustments:
 
 
 
 
 
 
 
 
 
 
 
Translation(b)
(1,645
)
 
601

 
(1,044
)
 
(761
)
 
274

 
(487
)
Hedges(b)
1,651

 
(619
)
 
1,032

 
823

 
(323
)
 
500

Net change
6

 
(18
)
 
(12
)
 
62

 
(49
)
 
13

Cash flow hedges:
 
 
 
 
 
 
 
 
 
 
 
Net unrealized gains/(losses) arising during the period
(104
)
 
38

 
(66
)
 
149

 
(60
)
 
89

Reclassification adjustment for realized (gains)/losses included in
net income
(c)(e)
187

 
(70
)
 
117

 
(33
)
 
13

 
(20
)
Net change
83

 
(32
)
 
51

 
116

 
(47
)
 
69

Defined benefit pension and OPEB plans:
 
 
 
 
 
 
 
 
 
 
 
Net gains/(losses) arising during the period
101

 
(39
)
 
62

 
87

 
(34
)
 
53

Reclassification adjustments included in net income(d):
 
 
 
 
 
 
 
 
 
 
 
Amortization of net loss
212

 
(80
)
 
132

 
55

 
(23
)
 
32

Prior service costs/(credits)
(27
)
 
10

 
(17
)
 
(32
)
 
13

 
(19
)
Foreign exchange and other
20

 
(53
)
 
(33
)
 
15

 
(24
)
 
(9
)
Net change
306

 
(162
)
 
144

 
125

 
(68
)
 
57

Total other comprehensive income/(loss)
$
(2,282
)
 
$
844

 
$
(1,438
)
 
$
3,371

 
$
(1,304
)
 
$
2,067

(a)
The pretax amount is reported in securities gains in the Consolidated statements of income.
(b)
Reclassifications of pretax realized gains/(losses) on translation adjustments and related hedges are reported in other income/expense in the Consolidated statements of income. The amounts were not material for the periods presented.
(c)
The pretax amounts are predominantly recorded in net interest income in the Consolidated statements of income.
(d)
The pretax amount is reported in compensation expense in the Consolidated statements of income.
(e)
In the first quarter of 2015, the Firm reclassified approximately $150 million of net losses from AOCI to other income because the Firm determined that it is probable that the forecasted interest payment cash flows will not occur. For additional information, see Note 5.

158


Note 20 – Regulatory capital
The Federal Reserve establishes capital requirements, including well-capitalized standards, for the consolidated financial holding company. The Office of the Comptroller of the Currency (“OCC”) establishes similar capital requirements and standards for the Firm’s national banks, including JPMorgan Chase Bank, N.A. and Chase Bank USA, N.A.
Under the Basel Committee's most recent capital framework (“Basel III”) for large and internationally active U.S. bank holding companies and banks, including the Firm and its insured depository institution (“IDI”) subsidiaries, revised, among other things, the definition of capital and introduced a new common equity Tier 1 capital (“CET1 capital”) requirement; presents two comprehensive methodologies for calculating risk-weighted assets (“RWA”), a general (Standardized) approach, which replaced Basel I RWA effective January 1, 2015, (“Basel III Standardized”) and an advanced approach, which replaced Basel II RWA (“Basel III Advanced”); and sets out minimum capital ratios and overall capital adequacy standards. Certain of the requirements of Basel III are subject to phase-in periods that began on January 1, 2014 and continue through the end of 2018 (“Basel III Transitional”).
There are three categories of risk-based capital under the Basel III Transitional rules: CET1 capital, as well as Tier 1 capital and Tier 2 capital. CET1 capital predominantly includes common stockholders’ equity (including capital for AOCI related to debt and equity securities classified as AFS as well as for defined benefit pension and OPEB plans), less certain deductions for goodwill, MSRs and deferred tax assets that arise from net operating loss (“NOL”) and tax credit carryforwards. Tier 1 capital predominantly consists of CET1 capital as well as perpetual preferred stock. Tier 2 capital includes long-term debt qualifying as Tier 2 and qualifying allowance for credit losses. Total capital is Tier 1 capital plus Tier 2 capital.
Beginning July 21, 2015, the Volcker Rule provisions regarding the prohibitions against proprietary trading and holding ownership interests in or sponsoring “covered funds” became effective. The deduction from Basel III Tier 1 capital associated with the permissible holdings of covered funds acquired after December 31, 2013 was not material as of September 30, 2015.
 
The following tables present the regulatory capital, assets and risk-based capital ratios for JPMorgan Chase and its significant national bank subsidiaries under both Basel III Standardized Transitional and Basel III Advanced Transitional.
 
JPMorgan Chase & Co.(e)
 
Basel III Standardized Transitional
 
Basel III Advanced Transitional
(in millions, except ratios)
Sep 30,
2015
 
Dec 31,
2014
 
Sep 30,
2015
 
Dec 31,
2014
Regulatory capital
 
 
 
 
 
 
 
CET1 capital
$
173,577

 
$
164,426

 
$
173,577

 
$
164,426

Tier 1 capital(a)
199,222

 
186,294

 
199,222

 
186,294

Total capital
234,462

 
221,225

 
223,962

 
210,684

 
 
 
 
 
 
 
 
Assets
 
 
 
 
 
 
 
Risk-weighted
1,503,370

(f) 
1,472,602

 
1,502,685

 
1,608,240

Adjusted
   average(b)
2,375,809

 
2,465,414

 
2,375,809

 
2,465,414

 
 
 
 
 
 
 
 
Capital ratios(c)
 
 
 
 
 
 
 
CET1
11.5
%
 
11.2
%
 
11.6
%
 
10.2
%
Tier 1(a)
13.3

 
12.7

 
13.3

 
11.6

Total
15.6

 
15.0

 
14.9

 
13.1

Tier 1 leverage(d)
8.4

 
7.6

 
8.4

 
7.6

 
JPMorgan Chase Bank, N.A.(e) 
 
Basel III Standardized Transitional
 
Basel III Advanced Transitional
(in millions, except ratios)
Sep 30,
2015
 
Dec 31,
2014
 
Sep 30,
2015
 
Dec 31,
2014
Regulatory capital
 
 
 
 
 
 
 
CET1 capital
$
166,636

 
$
156,567

 
$
166,636

 
$
156,567

Tier 1 capital(a)
166,900

 
156,891

 
166,900

 
156,891

Total capital
181,404

 
173,328

 
174,626

 
166,331

 
 
 
 
 
 
 
 
Assets
 
 
 
 
 
 
 
Risk-weighted
1,287,699

(f) 
1,230,358

 
1,260,657

 
1,330,175

Adjusted
average
(b)
1,920,310

 
1,968,131

 
1,920,310

 
1,968,131

 
 
 
 
 
 
 
 
Capital ratios(c)
 
 
 
 
 
 
 
CET1
12.9
%
 
12.7
%
 
13.2
%
 
11.8
%
Tier 1(a)
13.0

 
12.8

 
13.2

 
11.8

Total
14.1

 
14.1

 
13.9

 
12.5

Tier 1 leverage(d)
8.7

 
8.0

 
8.7

 
8.0



159


 
Chase Bank USA, N.A.(e)
 
Basel III Standardized Transitional
 
Basel III Advanced Transitional
(in millions,
 except ratios)
Sep 30,
2015
 
Dec 31,
2014
 
Sep 30,
2015
 
Dec 31,
2014
Regulatory capital
 
 
 
 
 
 
 
CET1 capital
$
15,256

 
$
14,556

 
$
15,256

 
$
14,556

Tier 1 capital(a)
15,256

 
14,556

 
15,256

 
14,556

Total capital
21,201

 
20,517

 
19,906

 
19,206

 
 
 
 
 
 
 
 
Assets
 
 
 
 
 
 
 
Risk-weighted
101,533

(f) 
103,468

 
149,813

 
157,565

Adjusted
average
(b)
133,525

 
128,111

 
133,525

 
128,111

 
 
 
 
 
 
 
 
Capital ratios(c)
 
 
 
 
 
 
 
CET1
15.0
%
 
14.1
%
 
10.2
%
 
9.2
%
Tier 1(a)
15.0

 
14.1

 
10.2

 
9.2

Total
20.9

 
19.8

 
13.3

 
12.2

Tier 1 leverage(d)
11.4

 
11.4

 
11.4

 
11.4

(a)
At September 30, 2015, trust preferred securities included in Basel III Tier 1 capital were $999 million and $420 million for JPMorgan Chase and JPMorgan Chase Bank, N.A., respectively. At September 30, 2015, Chase Bank USA, N.A. had no trust preferred securities.
(b)
Adjusted average assets, for purposes of calculating the Tier 1 leverage ratio, includes total quarterly average assets adjusted for on-balance sheet assets that are subject to deduction from Tier 1 Capital predominantly comprising disallowed goodwill and other intangible assets.
(c)
For each risk-based capital ratio, the capital adequacy of the Firm and its national bank subsidiaries are evaluated against the Basel III approach, Standardized or Advanced, resulting in the lower ratio.
(d)
As the Tier 1 leverage ratio is not a risk-based measure of capital, the ratios presented in the table reflect the same calculation.
(e)
Asset and capital amounts for JPMorgan Chase’s national banking subsidiaries reflect intercompany transactions; whereas the respective amounts for JPMorgan Chase reflect the elimination of intercompany transactions.
(f)
Effective January 1, 2015, the Basel III definition of the Standardized RWA became effective. Prior measures of Basel III Standardized RWA were calculated under Basel I and 2.5 rules.
Note:
Rating agencies allow measures of capital to be adjusted upward for deferred tax liabilities, which have resulted from both nontaxable business combinations and from tax-deductible goodwill. The Firm had deferred tax liabilities resulting from nontaxable business combinations totaling $111 million and $130 million at September 30, 2015, and December 31, 2014, respectively; and deferred tax liabilities resulting from tax-deductible goodwill of $3.0 billion and $2.7 billion at September 30, 2015, and December 31, 2014, respectively.

 
Under the risk-based capital guidelines of the Federal Reserve, JPMorgan Chase is required to maintain minimum ratios of CET1 (beginning January 1, 2015), Tier 1 and Total capital to risk-weighted assets, as well as a minimum leverage ratio (which is defined as Tier 1 capital divided by adjusted quarterly average assets). Failure to meet these minimum requirements could cause the Federal Reserve to take action. National bank subsidiaries also are subject to these capital requirements by their respective primary regulators. The following table presents the minimum ratios to which the Firm and its national bank subsidiaries are subject as of September 30, 2015.
 
Minimum capital ratios(a)
 
Well-capitalized ratios(b)
 
Capital ratios
 
 
 
 
CET1
4.5
%
 
6.5
%
 
Tier 1
6.0

 
8.0

 
Total
8.0

 
10.0

(c) 
Tier 1 leverage
4.0

 
5.0

 
(a)
As defined by the regulations issued by the Federal Reserve, OCC and FDIC and to which the Firm and its national bank subsidiaries are subject.
(b)
Represents requirements for bank subsidiaries pursuant to regulations issued under the FDIC Improvement Act. There is no Tier 1 leverage component in the definition of a well-capitalized bank holding company.
(c)
Represents requirements for bank holding companies pursuant to regulations issued by the Federal Reserve.
As of September 30, 2015, and December 31, 2014, JPMorgan Chase and all of its banking subsidiaries were well-capitalized and met all capital requirements to which each was subject.



160


Note 21 – 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 expire without being drawn or a default occurring. As a result, the total contractual amount of these instruments is not, in the Firm’s view, representative of its actual future credit exposure or funding requirements. For further discussion of lending-related commitments and guarantees, and the Firm’s related accounting policies, see Note 29 of JPMorgan Chase’s 2014 Annual Report.
 
To provide for probable credit losses inherent in wholesale and certain consumer lending-related commitments, an allowance for credit losses on lending-related commitments is maintained. See Note 14 for further information regarding the allowance for credit losses on lending-related commitments. The following table summarizes the contractual amounts and carrying values of off-balance sheet lending-related financial instruments, guarantees and other commitments at September 30, 2015, and December 31, 2014. The amounts in the table below for credit card and home equity lending-related commitments represent the total available credit for these products. The Firm has not experienced, and does not anticipate, that all available lines of credit for these products will be utilized at the same time. The Firm can reduce or cancel credit card lines of credit by providing the borrower notice or, in some cases as permitted by law, without notice. In addition, the Firm typically closes credit card lines when the borrower is 60 days or more past due. The Firm may reduce or close home equity lines of credit when there are significant decreases in the value of the underlying property, or when there has been a demonstrable decline in the creditworthiness of the borrower.



161


Off–balance sheet lending-related financial instruments, guarantees and other commitments
 
 
Contractual amount
 
Carrying value(j)
 
September 30, 2015
Dec 31,
2014
 
Sep 30,
2015
Dec 31,
2014
By remaining maturity
(in millions)
Expires in 1 year or less
Expires after
1 year through
3 years
Expires after
3 years through
5 years
Expires after 5 years
Total
Total
 
 
 
Lending-related
 
 
 
 
 
 
 
 
 
Consumer, excluding credit card:
 
 
 
 
 
 
 
 
 
Home equity – senior lien
$
1,632

$
4,082

$
835

$
4,312

$
10,861

$
11,807

 
$

$

Home equity – junior lien
2,604

4,782

793

4,208

12,387

14,859

 


Prime mortgage(a)
13,959




13,959

8,579

 


Auto
8,380

1,416

165

25

9,986

10,462

 
2

2

Business banking
10,998

781

90

489

12,358

11,894

 
12

11

Student and other
8

4


442

454

552

 


Total consumer, excluding credit card
37,581

11,065

1,883

9,476

60,005

58,153

 
14

13

Credit card
526,433




526,433

525,963

 


Total consumer(b)
564,014

11,065

1,883

9,476

586,438

584,116

 
14

13

Wholesale:
 
 
 
 
 
 
 
 
 
Other unfunded commitments to extend credit(c)(d)
70,201

77,449

110,713

6,710

265,073

272,676

 
386

374

Standby letters of credit and other financial guarantees(c)(d)(e)
23,666

26,670

33,421

1,511

85,268

89,874

 
774

788

Other letters of credit(c)
3,362

586

59


4,007

4,331

 
1

1

Total wholesale(f)(g)
97,229

104,705

144,193

8,221

354,348

366,881

 
1,161

1,163

Total lending-related
$
661,243

$
115,770

$
146,076

$
17,697

$
940,786

$
950,997

 
$
1,175

$
1,176

Other guarantees and commitments
 
 
 
 
 
 
 
 
 
Securities lending indemnification agreements and guarantees(h)
$
184,227

$

$

$

$
184,227

$
171,059

 
$

$

Derivatives qualifying as guarantees
1,421

441

11,337

38,990

52,189

53,589

 
258

80

Unsettled reverse repurchase and securities borrowing agreements
56,525




56,525

40,993

 


Loan sale and securitization-related indemnifications:
 
 
 
 
 
 
 
 
 
Mortgage repurchase liability
NA

NA

NA

NA

NA

NA

 
184

275

Loans sold with recourse
NA

NA

NA

NA

4,685

6,063

 
89

102

Other guarantees and commitments(i)
1,429

1,556

2,206

1,619

6,810

5,720

 
(101
)
(121
)
(a)
Includes certain commitments to purchase loans from correspondents.
(b)
Predominantly all consumer lending-related commitments are in the U.S.
(c)
At September 30, 2015, and December 31, 2014, reflects the contractual amount net of risk participations totaling $321 million and $243 million, respectively, for other unfunded commitments to extend credit; $11.7 billion and $13.0 billion, respectively, for standby letters of credit and other financial guarantees; and $409 million and $469 million, respectively, for other letters of credit. In regulatory filings with the Federal Reserve these commitments are shown gross of risk participations.
(d)
At September 30, 2015, and December 31, 2014, included credit enhancements and bond and commercial paper liquidity commitments to U.S. states and municipalities, hospitals and other non-profit entities of $13.0 billion and $14.8 billion, respectively, within other unfunded commitments to extend credit; and $10.0 billion and $13.3 billion, respectively, within standby letters of credit and other financial guarantees. Other unfunded commitments to extend credit also include liquidity facilities to nonconsolidated municipal bond VIEs; for further information, see Note 15.
(e)
At September 30, 2015, and December 31, 2014, included commitments that could be utilized for standby letters of credit commitments of $45.1 billion and $45.6 billion, respectively.
(f)
At September 30, 2015, and December 31, 2014, the U.S. portion of the contractual amount of total wholesale lending-related commitments was 77% and 73%, respectively.
(g)
Effective January 1, 2015, the Firm no longer includes within its disclosure of wholesale lending-related commitments the unused amount of advised uncommitted lines of credit as it is within the Firm’s discretion whether or not to make a loan under these lines, and the Firm’s approval is generally required prior to funding. Prior period amounts have been revised to conform with the current period presentation.
(h)
At September 30, 2015, and December 31, 2014, collateral held by the Firm in support of securities lending indemnification agreements was $190.3 billion and $177.1 billion, respectively. Securities lending collateral comprises primarily cash and securities issued by governments that are members of the Organisation for Economic Co-operation and Development (“OECD”) and U.S. government agencies.
(i)
At September 30, 2015, and December 31, 2014, included unfunded commitments of $57 million and $147 million, respectively, to third-party private equity funds; and $1.4 billion and $961 million, at September 30, 2015, and December 31, 2014, respectively, to other equity investments. These commitments included $53 million and $150 million, respectively, related to investments that are generally fair valued at net asset value as discussed in Note 3. In addition, at September 30, 2015, and December 31, 2014, included letters of credit hedged by derivative transactions and managed on a market risk basis of $4.6 billion and $4.5 billion, respectively.
(j)
For lending-related products, the carrying value represents the allowance for lending-related commitments and the guarantee liability; for derivative-related products, the carrying value represents the fair value.

162


Other unfunded commitments to extend credit
Other unfunded commitments to extend credit generally comprise commitments for working capital and general corporate purposes, extensions of credit to support commercial paper facilities and bond financings in the event that those obligations cannot be remarketed to new investors, as well as committed liquidity facilities to clearing organizations.
Also included in other unfunded commitments to extend credit are commitments to noninvestment-grade counterparties in connection with leveraged finance activities, which were $30.3 billion and $23.4 billion at September 30, 2015, and December 31, 2014, respectively.
The Firm acts as a settlement and custody bank in the U.S. tri-party repurchase transaction market. In its role as settlement and custody bank, the Firm is exposed to the intra-day credit risk of its cash borrower clients, usually broker-dealers. This exposure arises under secured clearance advance facilities that the Firm extends to its clients (i.e. cash borrowers); these facilities contractually limit the Firm’s intra-day credit risk to the facility amount
and must be repaid by the end of the day. As of September 30, 2015, and December 31, 2014, the secured clearance advance facility maximum outstanding commitment amount was $10.9 billion and $12.6 billion, respectively.
 
Guarantees
The Firm considers the following off–balance sheet lending-related arrangements to be guarantees under U.S. GAAP: standby letters of credit and financial guarantees, securities lending indemnifications, certain indemnification agreements included within third-party contractual arrangements and certain derivative contracts. For a further discussion of the off–balance sheet lending-related arrangements the Firm considers to be guarantees, and the related accounting policies, see Note 29 of JPMorgan Chase’s 2014 Annual Report. The recorded amounts of the liabilities related to guarantees and indemnifications at September 30, 2015, and December 31, 2014, excluding the allowance for credit losses on lending-related commitments, are discussed below.
Standby letters of credit and other financial guarantees
Standby letters of credit (“SBLC”) and other financial guarantees are conditional lending commitments issued by the Firm to guarantee the performance of a customer to a third party under certain arrangements, such as commercial paper facilities, bond financings, acquisition financings, trade and similar transactions. The carrying values of standby and other letters of credit were $775 million and $789 million at September 30, 2015, and December 31, 2014, respectively, which were classified in accounts payable and other liabilities on the Consolidated balance sheets; these carrying values included $335 million and $235 million, respectively, for the allowance for lending-related commitments, and $440 million and $554 million, respectively, for the guarantee liability and corresponding asset.


The following table summarizes the types of facilities under which standby letters of credit and other letters of credit arrangements are outstanding by the ratings profiles of the Firm’s customers, as of September 30, 2015, and December 31, 2014.
Standby letters of credit, other financial guarantees and other letters of credit
 
September 30, 2015
 
December 31, 2014
(in millions)
Standby letters of
credit and other financial guarantees
Other letters
of credit
 
Standby letters of
credit and other financial guarantees
Other letters
of credit
Investment-grade(a)
 
$
60,841

 
$
3,362

 
 
$
66,856

 
$
3,476

Noninvestment-grade(a)
 
24,427

 
645

 
 
23,018

 
855

Total contractual amount
 
$
85,268

 
$
4,007

 
 
$
89,874

 
$
4,331

Allowance for lending-related commitments
 
$
334

 
$
1

 
 
$
234

 
$
1

Commitments with collateral
 
36,148

 
1,126

 
 
39,726

 
1,509

(a)
The ratings scale is based on the Firm’s internal ratings which generally correspond to ratings as defined by S&P and Moody’s.

163


Derivatives qualifying as guarantees
In addition to the contracts described above, the Firm transacts certain derivative contracts that have the characteristics of a guarantee under U.S. GAAP. For further information on these derivatives, see Note 29 of JPMorgan Chase’s 2014 Annual Report. The total notional value of the derivatives that the Firm deems to be guarantees was $52.2 billion and $53.6 billion at September 30, 2015, and December 31, 2014, respectively. The notional amount generally represents the Firm’s maximum exposure to derivatives qualifying as guarantees. However, exposure to certain stable value contracts is contractually limited to a substantially lower percentage of the notional amount; the notional amount on these stable value contracts was $28.2 billion and $27.5 billion at September 30, 2015, and December 31, 2014, respectively, and the maximum exposure to loss was $3.0 billion and $2.9 billion at September 30, 2015, and December 31, 2014. The fair values of the contracts reflect the probability of whether the Firm will be required to perform under the contract. The fair value related to derivatives that the Firm deems to be guarantees were derivative payables of $279 million and $102 million and derivative receivables of $21 million and $22 million at September 30, 2015, and December 31, 2014, respectively. The Firm reduces exposures to these contracts by entering into offsetting transactions, or by entering into contracts that hedge the market risk related to the derivative guarantees.
In addition to derivative contracts that meet the characteristics of a guarantee, the Firm is both a purchaser and seller of credit protection in the credit derivatives market. For a further discussion of credit derivatives, see Note 5.
Loan sales- and securitization-related indemnifications
Mortgage repurchase liability
In connection with the Firm’s mortgage loan sale and securitization activities with the GSEs, as described in Note 15 of this Form 10-Q, and Note 16 of JPMorgan Chase’s 2014 Annual Report, the Firm has made representations and warranties that the loans sold meet certain requirements. The Firm has been, and may be, required to repurchase loans and/or indemnify the GSEs (e.g., with “make-whole” payments to reimburse the GSEs for their realized losses on liquidated loans). To the extent that repurchase demands that are received relate to loans that the Firm purchased from third parties that remain viable, the Firm typically will have the right to seek a recovery of related repurchase losses from the third party. Generally, the maximum amount of future payments the Firm would be required to make for breaches of these representations and warranties would be equal to the unpaid principal balance of such loans that are deemed to have defects that were sold to purchasers (including securitization-related SPEs) plus, in certain circumstances, accrued interest on such loans and certain expense.
For additional information, see Note 29 of JPMorgan Chase’s 2014 Annual Report.
 
The following table summarizes the change in the mortgage repurchase liability for each of the periods presented.
Summary of changes in mortgage repurchase liability
 
 
 
 
 
Three months ended September 30,
 
Nine months ended September 30,
(in millions)
2015
 
2014
 
2015
 
2014
Repurchase liability at beginning of period
$
231

 
$
436

 
$
275

 
$
681

Net realized gains/(losses)(a)
1

 
17

 
18

 
36

(Benefit)/provision for repurchase(b)
(48
)
 
(62
)
 
(109
)
 
(326
)
Repurchase liability at end of period
$
184

 
$
391

 
$
184

 
$
391

(a)
Presented net of third-party recoveries and include principal losses and accrued interest on repurchased loans, “make-whole” settlements, settlements with claimants, and certain related expense. Make-whole settlements were $2 million and $5 million for the three months ended September 30, 2015 and 2014, respectively, and $6 million and $8 million for the nine months ended September 30, 2015 and 2014, respectively.
(b)
Included a provision related to new loan sales of $1 million for each of the three months ended September 30, 2015 and 2014, and $3 million for each of the nine months ended September 30, 2015 and 2014.
Private label securitizations
The liability related to repurchase demands associated with private label securitizations is separately evaluated by the Firm in establishing its litigation reserves.
For additional information regarding litigation, see Note 23 of this Form 10-Q and Note 31 of JPMorgan Chase’s 2014 Annual Report.
Loans sold with recourse
The Firm provides servicing for mortgages and certain commercial lending products on both a recourse and nonrecourse basis. In nonrecourse servicing, the principal credit risk to the Firm is the cost of temporary servicing advances of funds (i.e., normal servicing advances). In recourse servicing, the servicer agrees to share credit risk with the owner of the mortgage loans, such as Fannie Mae or Freddie Mac or a private investor, insurer or guarantor. Losses on recourse servicing predominantly occur when foreclosure sales proceeds of the property underlying a defaulted loan are less than the sum of the outstanding principal balance, plus accrued interest on the loan and the cost of holding and disposing of the underlying property. The Firm’s securitizations are predominantly nonrecourse, thereby effectively transferring the risk of future credit losses to the purchaser of the mortgage-backed securities issued by the trust. At September 30, 2015, and December 31, 2014, the unpaid principal balance of loans sold with recourse totaled $4.7 billion and $6.1 billion, respectively. The carrying value of the related liability that the Firm has recorded, which is representative of the Firm’s view of the likelihood it will have to perform under its recourse obligations, was $89 million and $102 million at September 30, 2015, and December 31, 2014, respectively.


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Note 22 – Pledged assets and collateral
For a discussion of the Firm’s pledged assets and collateral, see Note 30 of JPMorgan Chase’s 2014 Annual Report.
Pledged assets
The Firm may pledge financial assets that it owns to maintain potential borrowing capacity with central banks and for other purposes, including to secure borrowings and public deposits, and to collateralize repurchase and other securities financing agreements. Certain of these pledged assets may be sold or repledged by the secured parties and are identified as financial assets owned (pledged to various parties) on the Consolidated balance sheets. At September 30, 2015, and December 31, 2014, the Firm had pledged assets of $364.7 billion and $324.5 billion, respectively, at Federal Reserve Banks and Federal Home Loan Banks (“FHLBs”). In addition, as of September 30, 2015, and December 31, 2014, the Firm had pledged $51.8 billion and $60.1 billion, respectively, of financial assets that may not be sold or repledged by the secured parties. Total assets pledged do not include assets of consolidated VIEs; these assets are used to settle the liabilities of those entities. See Note 15 for additional information on assets and liabilities of consolidated VIEs. For additional information on the Firm’s securities financing activities, see Note 12. For additional information on the Firm’s long-term debt, see Note 21 of JPMorgan Chase’s 2014 Annual Report.
Collateral
At September 30, 2015, and December 31, 2014, the Firm had accepted financial assets as collateral that it could sell or repledge, deliver or otherwise use with a fair value of $781.8 billion and $761.7 billion, respectively. This collateral was generally obtained under resale agreements, securities borrowing agreements, customer margin loans and derivative agreements. Of the collateral received, $636.7 billion and $596.8 billion, respectively, were sold or repledged, generally as collateral under repurchase agreements, securities lending agreements or to cover short sales and to collateralize deposits and derivative agreements.


 
Note 23 – Litigation
Contingencies
As of September 30, 2015, the Firm and its subsidiaries are defendants or putative defendants in numerous legal proceedings, including private, civil litigations and regulatory/government investigations. The litigations range from individual actions involving a single plaintiff to class action lawsuits with potentially millions of class members. Investigations involve both formal and informal proceedings, by both governmental agencies and self-regulatory organizations. These legal proceedings are at varying stages of adjudication, arbitration or investigation, and involve each of the Firm’s lines of business and geographies and a wide variety of claims (including common law tort and contract claims and statutory antitrust, securities and consumer protection claims), some of which present novel legal theories.
The Firm believes the estimate of the aggregate range of reasonably possible losses, in excess of reserves established, for its legal proceedings is from $0 to approximately $5.0 billion at September 30, 2015. This estimated aggregate range of reasonably possible losses is based upon currently available information for those proceedings in which the Firm believes that an estimate of reasonably possible loss can be made. For certain matters, the Firm does not believe that such an estimate can be made. Moreover, the Firm’s estimate of the aggregate range of reasonably possible losses involves significant judgment, given the number, variety and varying stages of the proceedings (including the fact that many are in preliminary stages), the existence in many such proceedings of multiple defendants (including the Firm) whose share of liability has yet to be determined, the numerous yet-unresolved issues in many of the proceedings (including issues regarding class certification and the scope of many of the claims) and the attendant uncertainty of the various potential outcomes of such proceedings, particularly proceedings that could result from government investigations. Accordingly, the Firm’s estimate will change from time to time, and actual losses may vary.
Set forth below are descriptions of the Firm’s material legal proceedings.
Auto Dealer Regulatory Matter. The U.S. Department of Justice (“DOJ”) is investigating potential statistical disparities in markups charged to borrowers of different races and ethnicities by automobile dealers on loans originated by those dealers and purchased by the Firm.
CIO Litigation. The Firm has been sued in a consolidated shareholder class action, a consolidated putative class action brought under the Employee Retirement Income Security Act (“ERISA”) and seven shareholder derivative actions brought in Delaware state court and in New York federal and state courts relating to 2012 losses in the synthetic credit portfolio managed by the Firm’s Chief Investment Office (“CIO”). Six of the shareholder derivative actions have been dismissed, and plaintiffs in four of those actions have appealed the dismissals. One appeal initially


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was affirmed, but that opinion was subsequently withdrawn and the appeal remains pending.
Credit Default Swaps Investigations and Litigation. In July 2013, the European Commission (the “EC”) filed a Statement of Objections against the Firm (including various subsidiaries) and other industry members in connection with its ongoing investigation into the credit default swaps (“CDS”) marketplace. The EC asserts that between 2006 and 2009, a number of investment banks acted collectively through the International Swaps and Derivatives Association (“ISDA”) and Markit Group Limited (“Markit”) to foreclose exchanges from the potential market for exchange-traded credit derivatives. The Firm submitted a response to the Statement of Objections in January 2014, and the EC held a hearing in May 2014. DOJ also has an ongoing investigation into the CDS marketplace, which was initiated in July 2009.
Separately, the Firm and other defendants have entered separate agreements to settle a consolidated putative class action filed in the United States District Court for the Southern District of New York on behalf of purchasers and sellers of CDS. The complaint in this action had alleged that the defendant investment banks and dealers, including the Firm, as well as Markit and/or ISDA, collectively prevented new entrants into the market for exchange-traded CDS products. These settlements are subject to Court approval.
Custody Assets Investigation. The U.K. Financial Conduct Authority (“FCA”) is conducting an investigation concerning compliance by JPMorgan Chase Bank, N.A., London branch and J.P. Morgan Europe Limited with the FCA’s rules regarding the provision of custody services relating to the administration of client assets. JPMorgan Chase Bank, N.A., London branch and J.P. Morgan Europe Limited are responding to and cooperating with the investigation.
Foreign Exchange Investigations and Litigation. The Firm previously reported settlements with certain government authorities relating to its foreign exchange (“FX”) sales and trading activities and controls related to those activities, including settlements in May 2015 with DOJ and the Board of Governors of the Federal Reserve System (the “Federal Reserve”). Under the DOJ settlement, the Firm agreed to plead guilty to a single violation of federal antitrust law and to pay a fine of $550 million. Under the Federal Reserve settlement, the Firm agreed to the entry of a Consent Order, to pay a fine of $342 million, and to take various remedial actions. FX-related investigations and inquiries by other non-U.S. government authorities, including competition authorities, remain ongoing, and the Firm is cooperating with those matters.
Since November 2013, class actions have been filed in the United States District Court for the Southern District of New York against foreign exchange dealers, including the Firm, principally for alleged violations of federal antitrust laws based on an alleged conspiracy to manipulate foreign exchange rates reported on the WM/Reuters service. In March 2014, plaintiffs filed a consolidated amended U.S. class action complaint; two other class actions were brought by non-U.S.-based plaintiffs. The Court denied defendants’
 
motion to dismiss the U.S. class action and granted the motion to dismiss the two non-U.S. class actions. In January 2015, the Firm entered into a settlement agreement in the U.S. class action. Following this settlement, a number of additional class actions were filed seeking damages for persons who transacted FX futures and options on futures (the “exchanged-based actions”), consumers who purchased foreign currencies at allegedly inflated rates, and participants or beneficiaries of qualified ERISA plans. In July 2015, the plaintiffs in the U.S. class action filed an amended complaint, adding new claims as well as new parties. The Court also consolidated the exchange-based actions into the U.S. class action. The Firm has entered into a revised settlement agreement to resolve the consolidated U.S. class action, and that agreement is subject to Court approval.
In September 2015, two class actions were filed in Canada against the Firm as well as a number of other FX dealers, principally for alleged violations of the Canadian Competition Act based on an alleged conspiracy to fix the prices of currency purchased in the FX market. The first action was filed in the province of Ontario, and seeks to represent all persons in Canada who transacted any FX instrument. The second action seeks to represent only those persons in Quebec who engaged in FX transactions.
General Motors Litigation. JPMorgan Chase Bank, N.A. participated in, and was the Administrative Agent on behalf of a syndicate of lenders on, a $1.5 billion syndicated Term Loan facility (“Term Loan”) for General Motors Corporation (“GM”). In July 2009, in connection with the GM bankruptcy proceedings, the Official Committee of Unsecured Creditors of Motors Liquidation Company (“Creditors Committee”) filed a lawsuit against JPMorgan Chase Bank, N.A., in its individual capacity and as Administrative Agent for other lenders on the Term Loan, seeking to hold the underlying lien invalid based on the filing of a UCC-3 termination statement relating to the Term Loan. In March 2013, the Bankruptcy Court granted JPMorgan Chase Bank, N.A.’s motion for summary judgment and dismissed the Creditors Committee’s complaint on the grounds that JPMorgan Chase Bank, N.A. did not authorize the filing of the UCC-3 termination statement at issue. The Creditors Committee appealed the Bankruptcy Court’s dismissal of its claim to the United States Court of Appeals for the Second Circuit. In January 2015, the Court of Appeals reversed the Bankruptcy Court’s dismissal of the Creditors Committee’s claim and remanded the case to the Bankruptcy Court with instructions to enter partial summary judgment for the Creditors Committee as to the termination statement. Continued proceedings in the Bankruptcy Court are anticipated with respect to, among other things, additional defenses asserted by JPMorgan Chase Bank, N.A. and the value of additional collateral on the Term Loan, which was not the subject of the termination statement. In addition, two purported class actions have been filed by certain Term Loan lenders in federal court in New York against JPMorgan Chase Bank, N.A. and Simpson Thacher & Bartlett LLP, seeking indemnification and asserting claims for breach of


166


contract, gross negligence and fraudulent concealment against JPMorgan Chase Bank, N.A. and claims for malpractice, professional negligence and negligent misrepresentation against Simpson Thacher & Bartlett LLP. In October 2015, the lenders who brought these class actions voluntarily dismissed them without prejudice. 
Interchange Litigation. A group of merchants and retail associations filed a series of class action complaints alleging that Visa and MasterCard, as well as certain banks, conspired to set the price of credit and debit card interchange fees, enacted respective rules in violation of antitrust laws, and engaged in tying/bundling and exclusive dealing. The parties have entered into an agreement to settle the cases for a cash payment of $6.1 billion to the class plaintiffs (of which the Firm’s share is approximately 20%) and an amount equal to ten basis points of credit card interchange for a period of eight months to be measured from a date within 60 days of the end of the opt-out period. The agreement also provides for modifications to each credit card network’s rules, including those that prohibit surcharging credit card transactions. In December 2013, the Court issued a decision granting final approval of the settlement. A number of merchants appealed, and oral argument was held in September 2015. Certain merchants and trade associations have also filed a motion with the District Court seeking to set aside the approval of the class settlement on the basis of alleged improper communications between one of MasterCard’s former outside counsel and one of plaintiffs’ outside counsel. That motion remains pending. Certain merchants that opted out of the class settlement have filed actions against Visa and MasterCard, as well as against the Firm and other banks. Defendants’ motion to dismiss those actions was denied in July 2014.
Investment Management Litigation. The Firm is defending two pending cases that allege that investment portfolios managed by J.P. Morgan Investment Management (“JPMIM”) were inappropriately invested in securities backed by residential real estate collateral. Plaintiffs Assured Guaranty (U.K.) and Ambac Assurance UK Limited claim that JPMIM is liable for losses of more than $1 billion in market value of these securities. Discovery is proceeding.
Lehman Brothers Bankruptcy Proceedings. In May 2010, Lehman Brothers Holdings Inc. (“LBHI”) and its Official Committee of Unsecured Creditors (the “Committee”) filed a complaint (and later an amended complaint) against JPMorgan Chase Bank, N.A. in the United States Bankruptcy Court for the Southern District of New York that asserts both federal bankruptcy law and state common law claims, and seeks, among other relief, to recover $7.9 billion in collateral (after deducting $700 million of returned collateral) that was transferred to JPMorgan Chase Bank, N.A. in the weeks preceding LBHI’s bankruptcy. The amended complaint also seeks unspecified damages on the grounds that JPMorgan Chase Bank, N.A.’s collateral requests hastened LBHI’s bankruptcy. The Court dismissed certain of the claims in the amended complaint that sought
 
to void the allegedly constructively fraudulent and preferential transfers made to the Firm during September 2008, but did not dismiss the other claims, including claims for duress and fraud. The Firm has filed counterclaims against LBHI alleging that LBHI fraudulently induced the Firm to make large extensions of credit against inappropriate collateral in connection with the Firm’s role as the clearing bank for Lehman Brothers Inc. (“LBI”), LBHI’s broker-dealer subsidiary. These extensions of credit left the Firm with more than $25 billion in claims against the estate of LBI. In September 2015, the District Court, to which the case had been transferred from the Bankruptcy Court, granted summary judgment in favor of JPMorgan Chase Bank, N.A. on most of the remaining claims in the action, including the claims for duress and fraud. The District Court denied the plaintiffs’ motion for summary judgment on certain of their claims and for dismissal of the Firm’s counterclaims. The remaining claims challenge the propriety of the Firm’s post-petition payment, from collateral posted by LBHI, of approximately $1.9 billion of derivatives, repo and securities lending claims.
In the Bankruptcy Court proceedings, LBHI and several of its subsidiaries that had been Chapter 11 debtors have filed a separate complaint and objection to derivatives claims asserted by the Firm alleging that the amount of the derivatives claims had been overstated and challenging certain set-offs taken by JPMorgan Chase entities to recover on the claims. The Firm responded to this separate complaint and objection in February 2013. LBHI and the Committee have also filed an objection to the claims asserted by JPMorgan Chase Bank, N.A. against LBHI with respect to clearing advances made to LBI, principally on the grounds that the Firm had not conducted the sale of the securities collateral held for its claims in a commercially reasonable manner. Discovery regarding both objections is ongoing. In January 2015, LBHI filed additional objections relating to a variety of claims that the Firm had filed in the Bankruptcy Court proceedings. The bankruptcy claims and other claims of the Firm against Lehman entities have been paid in full, subject to potential adjustment depending on the outcome of the objections filed by LBHI and the Committee.
LIBOR and Other Benchmark Rate Investigations and Litigation. JPMorgan Chase has received subpoenas and requests for documents and, in some cases, interviews, from federal and state agencies and entities, including DOJ, the U.S. Commodity Futures Trading Commission (“CFTC”), the U.S. Securities and Exchange Commission (“SEC”) and various state attorneys general, as well as the EC, the FCA, the Canadian Competition Bureau, the Swiss Competition Commission and other regulatory authorities and banking associations around the world relating primarily to the process by which interest rates were submitted to the British Bankers Association (“BBA”) in connection with the setting of the BBA’s London Interbank Offered Rate (“LIBOR”) for various currencies, principally in 2007 and 2008. Some of the inquiries also relate to similar processes by which information on rates is submitted to the European


167


Banking Federation (“EBF”) in connection with the setting of the EBF’s Euro Interbank Offered Rates (“EURIBOR”) and to the Japanese Bankers’ Association for the setting of Tokyo Interbank Offered Rates (“TIBOR”), as well as processes for the setting of U.S. dollar ISDAFIX rates and other reference rates in various parts of the world during similar time periods. The Firm is responding to and continuing to cooperate with these inquiries. As previously reported, the Firm has resolved EC inquiries relating to Yen LIBOR and Swiss Franc LIBOR. In May 2014, the EC issued a Statement of Objections outlining its case against the Firm (and others) as to EURIBOR, to which the Firm has filed a response and made oral representations. Other inquiries have been discontinued without any action against JPMorgan Chase, including by the FCA and the Canadian Competition Bureau.
In addition, the Firm has been named as a defendant along with other banks in a series of individual and class actions filed in various United States District Courts, in which plaintiffs make varying allegations that in various periods, starting in 2000 or later, defendants either individually or collectively manipulated the U.S. dollar LIBOR, Yen LIBOR, Swiss franc LIBOR, Euroyen TIBOR and/or EURIBOR rates by submitting rates that were artificially low or high. Plaintiffs allege that they transacted in loans, derivatives or other financial instruments whose values are affected by changes in U.S. dollar LIBOR, Yen LIBOR, Swiss franc LIBOR, Euroyen TIBOR or EURIBOR and assert a variety of claims including antitrust claims seeking treble damages.
The U.S. dollar LIBOR-related putative class actions and most U.S. dollar LIBOR-related individual actions were consolidated for pre-trial purposes in the United States District Court for the Southern District of New York (“Multi-District Litigation”). In March 2013, the Court granted in part and denied in part the defendants’ motions to dismiss the claims in the three lead putative class actions, dismissing with prejudice the antitrust claims, and permitting certain claims under the Commodity Exchange Act and common law. In September 2013, class plaintiffs in two of the three lead putative class actions filed amended complaints, which defendants moved to dismiss. In June 2014, the Court granted in part and denied in part defendants’ motions to dismiss, further limiting the subset of Commodity Exchange Act and common law claims that may proceed. Plaintiffs in the third putative class action appealed the dismissal of the antitrust claims, and the United States Court of Appeals for the Second Circuit dismissed the appeal for lack of jurisdiction. In January 2015, the United States Supreme Court reversed the decision of the Court of Appeals, holding that plaintiffs have the jurisdictional right to appeal, and remanded the case to the Court of Appeals for further proceedings. Defendants also moved to dismiss certain individual actions in the Multi-District Litigation. In August 2015, the Court granted in part and denied in part defendants’ motions, dismissing various claims, but allowing certain Commodity Exchange Act and common law claims to proceed. Motions to dismiss
 
are pending in three additional putative class actions. Several other individual and class actions remain stayed.
The Firm is one of the defendants in a putative class action alleging manipulation of Euroyen TIBOR and Yen LIBOR which was filed in the United States District Court for the Southern District of New York on behalf of plaintiffs who purchased or sold exchange-traded Euroyen futures and options contracts. In March 2014, the Court granted in part and denied in part the defendants’ motions to dismiss, including dismissal of plaintiff’s antitrust and unjust enrichment claims. Discovery is proceeding in this action. The Firm is also named as one of the defendants in a second putative class action filed on behalf of plaintiffs who transacted in financial instruments allegedly affected by Yen LIBOR or Euroyen TIBOR.
The Firm is one of the defendants in a putative class action filed in the United States District Court for the Southern District of New York relating to the interest rate benchmark EURIBOR. Plaintiff filed an amended complaint in August 2015, which defendants have moved to dismiss. The Firm is also a defendant in a putative class action filed in the United States District Court for the Southern District of New York relating to the interest rate benchmark Swiss franc LIBOR. Defendants have filed a motion to dismiss this action.
The Firm is one of the defendants in a number of putative class actions alleging that defendant banks and ICAP conspired to manipulate the U.S. dollar ISDAFIX rates. Plaintiffs primarily assert claims under the federal antitrust laws and Commodities Exchange Act. In February 2015, plaintiffs filed a consolidated amended class action complaint, which defendants have moved to dismiss.
Madoff Litigation. Various subsidiaries of the Firm, including J.P. Morgan Securities plc, have been named as defendants in lawsuits filed in Bankruptcy Court in New York arising out of the liquidation proceedings of Fairfield Sentry Limited and Fairfield Sigma Limited, so-called Madoff feeder funds. These actions seek to recover payments made by the funds to defendants totaling approximately $155 million. All but two of these actions have been dismissed.
In addition, a putative class action was brought by investors in certain feeder funds against JPMorgan Chase in the United States District Court for the Southern District of New York, as was a motion by separate potential class plaintiffs to add claims against the Firm and certain subsidiaries to an already pending putative class action in the same court. The allegations in these complaints largely track those previously raised by the court-appointed trustee for Bernard L. Madoff Investment Securities LLC. The District Court dismissed these complaints and the United States Court of Appeals for the Second Circuit affirmed the District Court’s decision. The United States Supreme Court denied plaintiffs’ petition for a writ of certiorari in March 2015. Plaintiffs subsequently served a motion in the Court of Appeals seeking to have the Court reconsider its prior decision in light of another recent appellate decision. That motion remains pending.


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The Firm is a defendant in five other Madoff-related individual investor actions pending in New York state court. The allegations in all of these actions are essentially identical, and involve claims against the Firm for, among other things, aiding and abetting breach of fiduciary duty, conversion and unjust enrichment. In August 2014, the Court dismissed all claims against the Firm. Plaintiffs’ appeal of that decision is pending.
A putative class action has been filed in the United States District Court for the District of New Jersey by investors who were net winners (i.e., Madoff customers who had taken more money out of their accounts than had been invested) in Madoff’s Ponzi scheme and were not included in the previous class action settlement. These plaintiffs allege violations of the federal securities law, federal and state racketeering statutes and multiple common law and statutory claims including breach of trust, aiding and abetting embezzlement, unjust enrichment, conversion and commercial bad faith. A similar action has been filed in the United States District Court for the Middle District of Florida, although it is not styled as a class action, and includes a claim pursuant to a Florida statute. The Firm has moved to transfer both the Florida and New Jersey actions to the United States District Court for the Southern District of New York. The Florida court denied the transfer motion, and that decision was subsequently affirmed. The Florida court granted the Firm’s motion to dismiss the case in September 2015 and plaintiffs subsequently filed a notice of appeal. The Firm moved to dismiss the case pending in New York.
Three shareholder derivative actions have also been filed in New York federal and state court against the Firm, as nominal defendant, and certain of its current and former Board members, alleging breach of fiduciary duty in connection with the Firm’s relationship with Bernard Madoff and the alleged failure to maintain effective internal controls to detect fraudulent transactions. The actions seek declaratory relief and damages. All three actions have been dismissed and two are on appeal.
Mortgage-Backed Securities and Repurchase Litigation and Related Regulatory Investigations. JPMorgan Chase and affiliates (together, “JPMC”), Bear Stearns and affiliates (together, “Bear Stearns”) and certain Washington Mutual affiliates (together, “Washington Mutual”) have been named as defendants in a number of cases in their various roles in offerings of mortgage-backed securities (“MBS”). These cases include class action suits on behalf of MBS purchasers, actions by individual MBS purchasers and actions by monoline insurance companies that guaranteed payments of principal and interest for particular tranches of MBS offerings. Following the settlements referred to under “Repurchase Litigation” and “Government Enforcement Investigations and Litigation” below, there are currently pending and tolled investor and monoline insurer claims involving MBS with an original principal balance of approximately $13.2 billion, of which $11.5 billion involves JPMC, Bear Stearns or Washington Mutual as issuer and $1.7 billion involves JPMC, Bear Stearns or Washington
 
Mutual solely as underwriter. The Firm and certain of its current and former officers and Board members have also been sued in shareholder derivative actions relating to the Firm’s MBS activities, and trustees have asserted or have threatened to assert claims that loans in securitization trusts should be repurchased.
Issuer Litigation – Class Actions. JPMC has reached agreements to settle all pending putative class actions on behalf of purchasers of MBS, although certain of these settlements are subject to court approval.
Issuer Litigation – Individual Purchaser Actions. In addition to class actions, the Firm is defending individual actions brought against JPMC, Bear Stearns and Washington Mutual as MBS issuers (and, in some cases, also as underwriters of their own MBS offerings). The Firm has settled a number of these actions. Several actions remain pending in federal and state courts across the U.S. and are in various stages of litigation.
Monoline Insurer Litigation. The Firm is defending two pending actions relating to the same monoline insurer’s guarantees of principal and interest on certain classes of 11 different Bear Stearns MBS offerings. These actions are pending in state court in New York and are in various stages of litigation.
Underwriter Actions. In actions against the Firm involving offerings where the Firm was solely an underwriter of other issuers’ MBS offerings, the Firm has contractual rights to indemnification from the issuers. However, those indemnity rights may prove effectively unenforceable in various situations, such as where the issuers are now defunct. Currently there is one such action pending against the Firm relating to a single offering of another issuer, and in a previously settled action, plaintiffs filed a notice of appeal to contest the District Court’s reduction in the requested award of attorneys’ fees.
Repurchase Litigation. The Firm is defending a number of actions brought by trustees, securities administrators or master servicers of various MBS trusts and others on behalf of purchasers of securities issued by those trusts. These cases generally allege breaches of various representations and warranties regarding securitized loans and seek repurchase of those loans or equivalent monetary relief, as well as indemnification of attorneys’ fees and costs and other remedies. Deutsche Bank National Trust Company, acting as trustee for various MBS trusts, has filed such a suit against JPMorgan Chase Bank, N.A. and the Federal Deposit Insurance Corporation (the “FDIC”) in connection with a significant number of MBS issued by Washington Mutual; that case is described in the Washington Mutual Litigations section below. Other repurchase actions, each specific to one or more MBS transactions issued by JPMC and/or Bear Stearns, are in various stages of litigation.
In addition, the Firm and a group of 21 institutional MBS investors made a binding offer to the trustees of MBS issued by JPMC and Bear Stearns providing for the payment of $4.5 billion and the implementation of certain servicing


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changes by JPMC, to resolve all repurchase and servicing claims that have been asserted or could have been asserted with respect to 330 MBS trusts issued between 2005 and 2008. The offer does not resolve claims relating to Washington Mutual MBS. The seven trustees (or separate and successor trustees) for this group of 330 trusts have accepted the settlement for 319 trusts in whole or in part and excluded from the settlement 16 trusts in whole or in part. The trustees’ acceptance is subject to a judicial approval proceeding initiated by the trustees and pending in New York state court. Certain investors in some of the trusts for which the settlement has been accepted have intervened in the judicial approval proceeding, challenging the trustees’ acceptance of the settlement. A final hearing date has been scheduled for January 2016. In October 2015, JPMC reached agreements to resolve repurchase and servicing claims of four trusts among the 16 that were previously excluded from the settlement. These agreements are subject to a judicial approval proceeding.
Additional actions have been filed against third-party trustees that relate to loan repurchase and servicing claims involving trusts sponsored by JPMC, Bear Stearns and Washington Mutual.
Derivative Actions. Shareholder derivative actions relating to the Firm’s MBS activities have been filed against the Firm, as nominal defendant, and certain of its current and former officers and members of its Board of Directors, in New York state court and California federal court. Two of the New York actions have been dismissed and one is on appeal. A consolidated action in California federal court has been dismissed without prejudice for lack of personal jurisdiction and plaintiffs are pursuing discovery.
Government Enforcement Investigations and Litigation. The Firm is responding to an ongoing investigation being conducted by DOJ’s Criminal Division and two United States Attorney’s Offices relating to MBS offerings securitized and sold by the Firm and its subsidiaries. The Firm has also received subpoenas and informal requests for information from state authorities concerning the issuance and underwriting of MBS-related matters. The Firm continues to respond to these MBS-related regulatory inquiries.
In addition, the Firm continues to cooperate with investigations by DOJ, including the United States Attorney’s Office for the District of Connecticut, the SEC Division of Enforcement and the Office of the Special Inspector General for the Troubled Asset Relief Program, all of which relate to, among other matters, communications with counterparties in connection with certain secondary market trading in residential and commercial MBS.
The Firm has entered into agreements with a number of entities that purchased MBS that toll applicable limitations periods with respect to their claims, and has settled, and in the future may settle, tolled claims. There is no assurance that the Firm will not be named as a defendant in additional MBS-related litigation.
 
Mortgage-Related Investigations and Litigation. One shareholder derivative action has been filed in New York Supreme Court against the Firm’s Board of Directors alleging that the Board failed to exercise adequate oversight as to wrongful conduct by the Firm regarding mortgage servicing. In December 2014, the court granted defendants’ motion to dismiss the complaint and plaintiff has appealed.
The Civil Division of the United States Attorney’s Office for the Southern District of New York is conducting an investigation concerning the Firm’s compliance with the Fair Housing Act and Equal Credit Opportunity Act (“ECOA”) in connection with its mortgage lending practices. In addition, three municipalities and a school district have commenced litigation against the Firm alleging violations of an unfair competition law and of the Fair Housing Act and ECOA and seeking statutory damages for the unfair competition claim, and, for the Fair Housing Act and ECOA claims, damages in the form of lost tax revenue and increased municipal costs associated with foreclosed properties. One of the municipal actions and the school district action were dismissed with prejudice, and motions to dismiss are pending in the remaining actions.
The Firm has received inquiries from federal government authorities seeking information regarding documents filed by the Firm in bankruptcy proceedings, including proofs of claim, mortgage payment change notices, affidavits, declarations and other sworn statements. The Firm is responding to these inquiries. In March 2015, JPMorgan Chase Bank, N.A entered into a settlement agreement with the Executive Office for United States Bankruptcy Trustees and the United States Trustee Program to resolve issues relating to mortgage payment change notices and escrow statements in bankruptcy proceedings.
Municipal Derivatives Litigation. Several civil actions were commenced in New York and Alabama courts against the Firm relating to certain Jefferson County, Alabama (the “County”) warrant underwritings and swap transactions. The claims in the civil actions generally alleged that the Firm made payments to certain third parties in exchange for being chosen to underwrite more than $3 billion in warrants issued by the County and to act as the counterparty for certain swaps executed by the County. The County filed for bankruptcy in November 2011. In June 2013, the County filed a Chapter 9 Plan of Adjustment, as amended (the “Plan of Adjustment”), which provided that all the above-described actions against the Firm would be released and dismissed with prejudice. In November 2013, the Bankruptcy Court confirmed the Plan of Adjustment, and in December 2013, certain sewer rate payers filed an appeal challenging the confirmation of the Plan of Adjustment. All conditions to the Plan of Adjustment’s effectiveness, including the dismissal of the actions against the Firm, were satisfied or waived and the transactions contemplated by the Plan of Adjustment occurred in December 2013. Accordingly, all the above-described actions against the Firm have been dismissed pursuant to the terms of the Plan of Adjustment. The appeal of the


170


Bankruptcy Court’s order confirming the Plan of Adjustment remains pending.
Parmalat. In 2003, following the bankruptcy of the Parmalat group of companies (“Parmalat”), criminal prosecutors in Italy investigated the activities of Parmalat, its directors and the financial institutions that had dealings with them following the collapse of the company. In March 2012, the criminal prosecutor served a notice indicating an intention to pursue criminal proceedings against four former employees of the Firm (but not against the Firm) on charges of conspiracy to cause Parmalat’s insolvency by underwriting bonds and continuing derivatives trading when Parmalat’s balance sheet was false. A preliminary hearing, in which the judge will determine whether to recommend that the matter go to a full trial, is ongoing.
In addition, the administrator of Parmalat commenced five civil actions against JPMorgan Chase entities including: two claw-back actions; a claim relating to bonds issued by Parmalat in which it is alleged that JPMorgan Chase kept Parmalat “artificially” afloat and delayed the declaration of insolvency; and similar allegations in two claims relating to derivatives transactions. The Firm has entered into an agreement to settle these actions.
Petters Bankruptcy and Related Matters. JPMorgan Chase and certain of its affiliates, including One Equity Partners (“OEP”), have been named as defendants in several actions filed in connection with the receivership and bankruptcy proceedings pertaining to Thomas J. Petters and certain affiliated entities (collectively, “Petters”) and the Polaroid Corporation. The principal actions against JPMorgan Chase and its affiliates have been brought by a court-appointed receiver for Petters and the trustees in bankruptcy proceedings for three Petters entities. These actions generally seek to avoid certain putative transfers in connection with (i) the 2005 acquisition by Petters of Polaroid, which at the time was majority-owned by OEP; (ii) two credit facilities that JPMorgan Chase and other financial institutions entered into with Polaroid; and (iii) a credit line and investment accounts held by Petters. The actions collectively seek recovery of approximately $450 million. Defendants have moved to dismiss the complaints in the actions filed by the Petters bankruptcy trustees.
Power Matters. The United States Attorney’s Office for the Southern District of New York is investigating matters relating to the bidding activities that were the subject of the July 2013 settlement between J.P. Morgan Ventures Energy Corp. and the Federal Energy Regulatory Commission. The Firm is responding to and cooperating with the investigation.
Proprietary Products Investigations and Litigation. The Firm has received information requests, subpoenas and related inquiries from the SEC, the CFTC and other government authorities regarding client disclosure concerning conflicts associated with the Firm’s sale and use of proprietary products, such as J.P. Morgan mutual funds, in the Firm’s wealth management businesses and the U.S. Private Bank’s disclosures concerning the use of hedge funds that pay
 
placement agent fees to JPMorgan Chase broker-dealer affiliates. The Firm continues to cooperate with the investigations and is currently engaged in resolution discussions with the SEC and the CFTC. There is no assurance that such discussions will result in settlements. A putative class action was filed in the United States District Court for the Northern District of Illinois on behalf of financial advisory clients from 2007 to the present whose funds were invested in proprietary funds and who were charged investment management fees. The Court granted the Firm’s motion to dismiss. Plaintiffs’ appeal of the dismissal is pending.
Referral Hiring Practices Investigations. Various regulators are investigating, among other things, the Firm’s compliance with the Foreign Corrupt Practices Act and other laws with respect to the Firm’s hiring practices related to candidates referred by clients, potential clients and government officials, and its engagement of consultants in the Asia Pacific region. The Firm is responding to and cooperating with these investigations.
Sworn Documents, Debt Sales and Collection Litigation Practices. In July 2015, the Firm announced a series of settlements with the Consumer Financial Protection Bureau (“CFPB”) and 47 state Attorneys General (and the District of Columbia) regarding practices involving credit card collections litigation (including with respect to sworn documents) and the sale of consumer credit card debt. Under the settlements, the Firm agreed to pay $96 million to the state Attorneys General (as well as $11 million for investigative costs) and $30 million to the CFPB.  The Office of the Comptroller of the Currency also imposed a $30 million civil money penalty on the Firm arising out of its 2013 Consent Order covering the same matters. Under the settlements, the Firm will also complete remediation of affected consumers. The California and Mississippi state Attorneys General filed separate civil actions against the Firm alleging violations of law relating to debt collection practices. In October 2015, the Firm reached a settlement with the California state Attorney General, agreeing to pay $50 million and to complete a remediation of affected customers. This settlement is subject to court approval. The Mississippi case remains pending.
Washington Mutual Litigations. Proceedings related to Washington Mutual’s failure are pending before the United States District Court for the District of Columbia and include a lawsuit brought by Deutsche Bank National Trust Company, initially against the FDIC and amended to include JPMorgan Chase Bank, N.A. as a defendant, asserting an estimated $6 billion to $10 billion in damages based upon alleged breaches of certain representations and warranties given by certain Washington Mutual affiliates in connection with mortgage securitization agreements. The case includes assertions that JPMorgan Chase Bank, N.A. may have assumed liabilities for the alleged breaches of representations and warranties in the mortgage securitization agreements. In June 2015, the court ruled in favor of JPMorgan Chase Bank, N.A. on the question of whether the Firm or the FDIC bears responsibility for


171


Washington Mutual Bank’s repurchase obligations, holding that JPMorgan Chase Bank, N.A. assumed only those liabilities that were reflected on Washington Mutual Bank’s financial accounting records as of September 25, 2008, and only up to the amount of the book value reflected therein. In September 2015, the court certified that ruling for immediate appeal by the FDIC to the United States Court of Appeals for the D.C. Circuit.
Certain holders of Washington Mutual Bank debt filed an action against JPMorgan Chase which alleged that by acquiring substantially all of the assets of Washington Mutual Bank from the FDIC, JPMorgan Chase Bank, N.A. caused Washington Mutual Bank to default on its bond obligations. JPMorgan Chase and the FDIC moved to dismiss this action and the District Court dismissed the case except as to the plaintiffs’ claim that JPMorgan Chase tortiously interfered with the plaintiffs’ bond contracts with Washington Mutual Bank prior to its closure. Discovery in this action has been stayed pending a decision on JPMorgan Chase’s motion to dismiss the plaintiffs’ remaining claim.
JPMorgan Chase has also filed complaints in the United States District Court for the District of Columbia against the FDIC, both in its capacity as receiver for Washington Mutual Bank and in its corporate capacity asserting multiple claims for indemnification under the terms of the Purchase & Assumption Agreement between JPMorgan Chase and the FDIC relating to JPMorgan Chase’s purchase of most of the assets and certain liabilities of Washington Mutual Bank.
Wendel. Since 2012, the French criminal authorities have been investigating a series of transactions entered into by senior managers of Wendel Investissement (“Wendel”) during the period from 2004 through 2007 to restructure their shareholdings in Wendel. JPMorgan Chase Bank, N.A., Paris branch provided financing for the transactions to a number of managers of Wendel in 2007. In April 2015, JPMorgan Chase Bank, N.A. was notified that the authorities were formally investigating its role in the transactions. JPMorgan Chase is responding to and cooperating with the investigation. In addition, civil proceedings have been commenced against JPMorgan Chase Bank, N.A. by a number of the managers. The claims are separate, involve different allegations and are at various stages of proceedings.
* * *
In addition to the various legal proceedings discussed above, JPMorgan Chase and its subsidiaries are named as defendants or are otherwise involved in a substantial number of other legal proceedings. The Firm believes it has meritorious defenses to the claims asserted against it in its currently outstanding legal proceedings and it intends to defend itself vigorously in all such matters. Additional legal proceedings may be initiated from time to time in the future.
 
The Firm has established reserves for several hundred of its currently outstanding legal proceedings. In accordance with the provisions of U.S. GAAP for contingencies, the Firm accrues for a litigation-related liability when it is probable that such a liability has been incurred and the amount of the loss can be reasonably estimated. The Firm evaluates its outstanding legal proceedings each quarter to assess its litigation reserves, and makes adjustments in such reserves, upwards or downward, as appropriate, based on management’s best judgment after consultation with counsel. The Firm incurred legal expense of $1.3 billion and $1.1 billion during the three months ended September 30, 2015 and 2014, respectively, and $2.3 billion and $1.8 billion during the nine months ended September 30, 2015 and 2014, respectively. There is no assurance that the Firm’s litigation reserves will not need to be adjusted in the future.
In view of the inherent difficulty of predicting the outcome of legal proceedings, particularly where the claimants seek very large or indeterminate damages, or where the matters present novel legal theories, involve a large number of parties or are in early stages of discovery, the Firm cannot state with confidence what will be the eventual outcomes of the currently pending matters, the timing of their ultimate resolution or the eventual losses, fines, penalties or impact related to those matters. JPMorgan Chase believes, based upon its current knowledge, after consultation with counsel and after taking into account its current litigation reserves, that the legal proceedings currently pending against it should not have a material adverse effect on the Firm’s consolidated financial condition. The Firm notes, however, that in light of the uncertainties involved in such proceedings, there is no assurance the ultimate resolution of these matters will not significantly exceed the reserves it has currently accrued; as a result, the outcome of a particular matter may be material to JPMorgan Chase’s operating results for a particular period, depending on, among other factors, the size of the loss or liability imposed and the level of JPMorgan Chase’s income for that period.


172


Note 24 – Business segments
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 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 further discussion concerning JPMorgan Chase’s business segments, see Business Segment Results on page 17, and pages 79–80, and Note 33 of JPMorgan Chase’s 2014 Annual Report.
 
Segment results
The accompanying tables provide a summary of the Firm’s segment results for the three and nine months ended September 30, 2015 and 2014, on a managed basis. Total net revenue (noninterest revenue and net interest income) for each of the segments is presented on a fully taxable-equivalent (“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. This non-GAAP financial measure allows management to assess the comparability of revenue arising from both taxable and tax-exempt sources. The corresponding income tax impact related to tax-exempt items is recorded within income tax expense/(benefit).
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 to its lines of business and updates equity allocations to its lines of business as refinements are implemented.


Segment results and reconciliation(a)
As of or for the three months ended September 30,
(in millions, except ratios)
Consumer &
Community Banking
 
Corporate &
Investment Bank
 
Commercial Banking
 
Asset Management
2015
2014
 
2015
2014
 
2015
2014
 
2015
2014
Noninterest revenue
$
3,729

$
4,214

 
$
5,748

$
6,129

 
$
522

$
571

 
$
2,261

$
2,422

Net interest income
7,150

7,153

 
2,420

2,976

 
1,122

1,132

 
633

624

Total net revenue
10,879

11,367

 
8,168

9,105

 
1,644

1,703

 
2,894

3,046

Provision for credit losses
389

902

 
232

(67
)
 
82

(79
)
 
(17
)
9

Noninterest expense
6,237

6,305

 
6,131

6,035

 
719

668

 
2,109

2,081

Income before income tax expense
4,253

4,160

 
1,805

3,137

 
843

1,114

 
802

956

Income tax expense
1,623

1,631

 
341

1,457

 
325

443

 
327

366

Net income
$
2,630

$
2,529

 
$
1,464

$
1,680

 
$
518

$
671

 
$
475

$
590

Average common equity
$
51,000

$
51,000

 
$
62,000

$
61,000

 
$
14,000

$
14,000

 
$
9,000

$
9,000

Total assets
484,253

448,033

 
801,133

873,971

 
201,157

191,563

 
131,412

130,296

Return on common equity
20%

19%

 
8%

10%

 
14%

18%

 
20%

25%

Overhead ratio
57

55

 
75

66

 
44

39

 
73

68

As of or for the three months ended September 30,
(in millions, except ratios)
Corporate
 
Reconciling Items(b)
 
Total
2015
2014
 
2015
2014
 
2015
2014
Noninterest revenue
$
73

$
450

 
$
(477
)
$
(424
)
 
$
11,856

$
13,362

Net interest income
(123
)
(525
)
 
(278
)
$
(253
)
 
10,924

11,107

Total net revenue
(50
)
(75
)
 
(755
)
$
(677
)
 
22,780

24,469

Provision for credit losses
(4
)
(8
)
 


 
682

757

Noninterest expense
172

709

 


 
15,368

15,798

Income/(loss) before income tax expense/(benefit)
(218
)
(776
)
 
(755
)
(677
)
 
6,730

7,914

Income tax expense/(benefit)
(1,935
)
(871
)
 
(755
)
(677
)
 
(74
)
2,349

Net income
$
1,717

$
95

 
$

$

 
$
6,804

$
5,565

Average common equity
$
81,023

$
74,621

 
$

$

 
$
217,023

$
209,621

Total assets
799,166

882,792

 
NA

NA

 
2,417,121

2,526,655

Return on common equity
NM

NM

 
NM

NM

 
12
%
10
%
Overhead ratio
NM

NM

 
NM

NM

 
67

65



173


Segment results and reconciliation(a)
As of or for the nine months ended September 30,
(in millions, except ratios)
Consumer &
Community Banking
 
Corporate &
Investment Bank
 
Commercial Banking
 
Asset Management
2015
2014
 
2015
2014
 
2015
2014
 
2015
2014
Noninterest revenue
$
11,554

$
12,116

 
$
19,055

$
18,874

 
$
1,767

$
1,706

 
$
7,189

$
7,020

Net interest income
21,044

21,303

 
7,418

8,338

 
3,358

3,406

 
1,885

1,808

Total net revenue
32,598

33,419

 
26,473

27,212

 
5,125

5,112

 
9,074

8,828

Provision for credit losses
2,021

2,570

 
251

(102
)
 
325

(141
)
 
(13
)
1

Noninterest expense
18,637

19,198

 
16,925

17,697

 
2,131

2,029

 
6,690

6,218

Income/(loss) before
income tax expense/(benefit)
11,940

11,651

 
9,297

9,617

 
2,669

3,224

 
2,397

2,609

Income tax expense/(benefit)
4,558

4,645

 
2,955

3,681

 
1,028

1,282

 
969

996

Net income
$
7,382

$
7,006

 
$
6,342

$
5,936

 
$
1,641

$
1,942

 
$
1,428

$
1,613

Average common equity
$
51,000

$
51,000

 
$
62,000

$
61,000

 
$
14,000

$
14,000

 
$
9,000

$
9,000

Total assets
484,253

448,033

 
801,133

873,971

 
201,157

191,563

 
131,412

130,296

Return on common equity
18%

18
%
 
13%

12
%
 
15%

18
%
 
20%

23
%
Overhead ratio
57

57

 
64

65

 
42

40

 
74

70

As of or for the nine months ended September 30,
(in millions, except ratios)
Corporate
 
Reconciling Items(b)
 
Total
2015
2014
 
2015
2014
 
2015
2014
Noninterest revenue
$
213

$
1,325

 
$
(1,405
)
$
(1,251
)
 
$
38,373

$
39,790

Net interest income
(597
)
(1,560
)
 
(823
)
(723
)
 
32,285

32,572

Total net revenue
(384
)
(235
)
 
(2,228
)
(1,974
)
 
70,658

72,362

Provision for credit losses
(8
)
(29
)
 


 
2,576

2,299

Noninterest expense
368

723

 


 
44,751

45,865

Income/(loss) before income tax expense/(benefit)
(744
)
(929
)
 
(2,228
)
(1,974
)
 
23,331

24,198

Income tax expense/(benefit)
(2,959
)
(1,246
)
 
(2,228
)
(1,974
)
 
4,323

7,384

Net income
$
2,215

$
317

 
$

$

 
$
19,008

$
16,814

Average common equity
$
78,389

$
70,888

 
$

$

 
$
214,389

$
205,888

Total assets
799,166

882,792

 
NA

NA

 
2,417,121

2,526,655

Return on common equity
NM

NM

 
NM

NM

 
11%

10
%
Overhead ratio
NM

NM

 
NM

NM

 
63

63

(a)
Managed basis starts with the reported U.S. GAAP results and includes certain reclassifications that do not have any impact on net income as reported by the lines of business or by the Firm as a whole.
(b)
Segment managed results reflect revenue on an FTE basis with the corresponding income tax impact recorded within income tax expense/(benefit). These FTE adjustments are eliminated in reconciling items to arrive at the Firm’s reported U.S. GAAP results.

174


Report of Independent Registered Public Accounting Firm


To the Board of Directors and Stockholders of JPMorgan Chase & Co.:
We have reviewed the accompanying consolidated balance sheet of JPMorgan Chase & Co. and its subsidiaries (the “Firm”) as of September 30, 2015, and the related consolidated statements of income and comprehensive income for each of the three-month and nine-month periods ended September 30, 2015 and 2014 and changes in stockholders’ equity and cash flows for each of the nine-month periods ended September 30, 2015 and 2014. These interim financial statements are the responsibility of the Firm’s management.
We conducted our review in accordance with the standards of the Public Company Accounting Oversight Board (United States). A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the Public Company Accounting Oversight Board (United States), the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should be made to the accompanying consolidated interim financial statements for them to be in conformity with accounting principles generally accepted in the United States of America.
 


We previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheet as of December 31, 2014, and the related consolidated statements of income, comprehensive income, changes in stockholders’ equity, and cash flows for the year then ended (not presented herein), and in our report dated February 24, 2015, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying consolidated balance sheet as of December 31, 2014, is fairly stated in all material respects in relation to the consolidated balance sheet from which it has been derived.
November 2, 2015




























PricewaterhouseCoopers LLP, 300 Madison Avenue, New York, NY 10017

175


JPMorgan Chase & Co.
Consolidated average balance sheets, interest and rates
(Taxable-equivalent interest and rates; in millions, except rates)
 
 
 
 
 
Three months ended September 30, 2015
 
Three months ended September 30, 2014
 
Average
balance
Interest(d)
 
Rate
(annualized)
 
Average
balance
Interest(d)
 
Rate
(annualized)
Assets
 
 
 
 
 
 
 
 
 
 
 
Deposits with banks
$
413,038

$
291

 
0.28
 %
 
 
$
362,434

$
300

 
0.33
 %
 
Federal funds sold and securities purchased under resale agreements
201,673

431

 
0.85

 
 
224,088

400

 
0.71

 
Securities borrowed
98,193

(118
)
(e) 
(0.48
)
 
 
118,014

(150
)
(e) 
(0.50
)
 
Trading assets – debt instruments
202,388

1,553

 
3.04

 
 
213,335

1,874

 
3.49

 
Taxable securities
264,407

1,553

 
2.33

 
 
324,619

1,903

 
2.32

 
Nontaxable securities(a)
42,957

655

 
6.05

 
 
35,746

580

 
6.45

 
Total securities
307,364

2,208

 
2.85

(f) 
 
360,365

2,483

 
2.73

(f) 
Loans
793,584

8,480

 
4.24

 
 
741,831

8,101

 
4.33

 
Other assets(b)
40,650

172

 
1.67

 
 
41,718

171

 
1.63

 
Total interest-earning assets
2,056,890

13,017

 
2.51

 
 
2,061,785

13,179

 
2.54

 
Allowance for loan losses
(13,942
)
 
 
 
 
 
(15,186
)
 
 
 
 
Cash and due from banks
21,753

 
 
 
 
 
23,975

 
 
 
 
Trading assets – equity instruments
96,868

 
 
 
 
 
118,201

 
 
 
 
Trading assets – derivative receivables
69,646

 
 
 
 
 
65,786

 
 
 
 
Goodwill
47,428

 
 
 
 
 
48,081

 
 
 
 
Mortgage servicing rights
7,213

 
 
 
 
 
8,250

 
 
 
 
Other intangible assets
1,064

 
 
 
 
 
1,308

 
 
 
 
Other assets
134,788

 
 
 
 
 
142,672

 
 
 
 
Total assets
$
2,421,708

 
 
 
 
 
$
2,454,872

 
 
 
 
Liabilities
 
 
 
 
 
 
 
 
 
 
 
Interest-bearing deposits
$
852,219

$
293

 
0.14
 %
 
 
$
865,041

$
399

 
0.18
 %
 
Federal funds purchased and securities loaned or sold under repurchase agreements
188,006

159

 
0.34

 
 
213,975

137

 
0.25

 
Commercial paper
26,167

24

 
0.35

 
 
59,359

32

 
0.22

 
Trading liabilities – debt, short-term and other liabilities(c)(g)
198,876

132

 
0.26

 
 
219,666

69

 
0.12

 
Beneficial interests issued by consolidated VIEs
49,855

115

 
0.92

 
 
47,336

98

 
0.82

 
Long-term debt
288,858

1,092

 
1.50

 
 
266,639

1,084

 
1.61

 
Total interest-bearing liabilities
1,603,981

1,815

 
0.45

 
 
1,672,016

1,819

 
0.43

 
Noninterest-bearing deposits
418,742

 
 
 
 
 
404,634

 
 
 
 
Trading liabilities – equity instruments(g)
17,595

 
 
 
 
 
17,385

 
 
 
 
Trading liabilities – derivative payables
61,754

 
 
 
 
 
51,524

 
 
 
 
All other liabilities, including the allowance for lending-related commitments
76,895

 
 
 
 
 
81,090

 
 
 
 
Total liabilities
2,178,967

 
 
 
 
 
2,226,649

 
 
 
 
Stockholders’ equity
 
 
 
 
 
 
 
 
 
 
 
Preferred stock
25,718

 
 
 
 
 
18,602

 
 
 
 
Common stockholders’ equity
217,023

 
 
 
 
 
209,621

 
 
 
 
Total stockholders’ equity
242,741

 
 
 
 
 
228,223

 
 
 
 
Total liabilities and stockholders’ equity
$
2,421,708

 
 
 
 
 
$
2,454,872

 
 
 
 
Interest rate spread
 
 
 
2.06
 %
 
 
 
 
 
2.11
 %
 
Net interest income and net yield on interest-earning assets
 
$
11,202

 
2.16

 
 
 
$
11,360

 
2.19

 
(a)
Represents securities which are tax exempt for U.S. federal income tax purposes.
(b)
Includes margin loans.
(c)
Includes brokerage customer payables.
(d)
Interest includes the effect of related hedging derivatives. Taxable-equivalent amounts are used where applicable.
(e)
Negative interest income and yield is a result of increased client-driven demand for certain securities combined with the impact of low interest rates; this is matched book activity and the negative interest expense on the corresponding securities loaned is recognized in interest expense and reported within trading liabilities – debt, short-term and other liabilities.
(f)
For the three months ended September 30, 2015 and 2014, the annualized rates for securities, based on amortized cost, were 2.90% and 2.79%, respectively; this does not give effect to changes in fair value that are reflected in accumulated other comprehensive income/(loss).
(g)
Included trading liabilities – debt and equity instruments of $78,439 million and $85,407 million for the three months ended September 30, 2015 and 2014, respectively.

176


JPMorgan Chase & Co.
Consolidated average balance sheets, interest and rates
(Taxable-equivalent interest and rates; in millions, except rates)
 
 
 
 
 
Nine months ended September 30, 2015
 
Nine months ended September 30, 2014
 
Average
balance
Interest(d)
 
Rate
(annualized)
 
Average
balance
Interest(d)
 
Rate
(annualized)
Assets
 
 
 
 
 
 
 
 
 
 
 
Deposits with banks
$
443,420

$
944

 
0.28
 %
 
 
$
338,998

$
835

 
0.33
 %
 
Federal funds sold and securities purchased under resale agreements
208,132

1,167

 
0.75

 
 
235,561

1,234

 
0.70

 
Securities borrowed
105,475

(397
)
(e) 
(0.50
)
 
 
117,048

(369
)
(e) 
(0.42
)
 
Trading assets – debt instruments
207,065

5,063

 
3.27

 
 
206,695

5,511

 
3.57

 
Taxable securities
280,506

4,885

 
2.33

 
 
320,817

5,743

 
2.39

 
Nontaxable securities(a)
41,484

1,887

 
6.08

 
 
33,363

1,579

 
6.32

 
Total securities
321,990

6,772

 
2.81

(f) 
 
354,180

7,322

 
2.76

(f) 
Loans
775,274

24,600

 
4.24

 
 
736,628

24,265

 
4.40

 
Other assets(b)
39,417

492

 
1.67

 
 
41,555

505

 
1.63

 
Total interest-earning assets
2,100,773

38,641

 
2.46

 
 
2,030,665

39,303

 
2.59

 
Allowance for loan losses
(14,025
)
 
 
 
 
 
(15,691
)
 
 
 
 
Cash and due from banks
23,219

 
 
 
 
 
25,990

 
 
 
 
Trading assets – equity instruments
108,819

 
 
 
 
 
117,324

 
 
 
 
Trading assets – derivative receivables
75,732

 
 
 
 
 
63,815

 
 
 
 
Goodwill
47,468

 
 
 
 
 
48,073

 
 
 
 
Mortgage servicing rights
6,989

 
 
 
 
 
8,588

 
 
 
 
Other intangible assets
1,112

 
 
 
 
 
1,423

 
 
 
 
Other assets
140,432

 
 
 
 
 
146,075

 
 
 
 
Total assets
$
2,490,519

 
 
 
 
 
$
2,426,262

 
 
 
 
Liabilities
 
 
 
 
 
 
 
 
 
 
 
Interest-bearing deposits
$
875,164

$
965

 
0.15
 %
 
 
$
864,981

$
1,242

 
0.19
 %
 
Federal funds purchased and securities loaned or sold under repurchase agreements
196,054

444

 
0.30

 
 
209,197

459

 
0.29

 
Commercial paper
44,943

88

 
0.26

 
 
59,270

99

 
0.22

 
Trading liabilities – debt, short-term and other liabilities(c)(g)
211,739

459

 
0.29

 
 
218,510

563

 
0.34

 
Beneficial interests issued by consolidated VIEs
50,737

323

 
0.85

 
 
47,927

308

 
0.86

 
Long-term debt
283,662

3,254

 
1.53

 
 
269,069

3,337

 
1.66

 
Total interest-bearing liabilities
1,662,299

5,533

 
0.45

 
 
1,668,954

6,008

 
0.48

 
Noninterest-bearing deposits
426,802

 
 
 
 
 
387,763

 
 
 
 
Trading liabilities – equity instruments(g)
17,442

 
 
 
 
 
16,444

 
 
 
 
Trading liabilities – derivative payables
67,298

 
 
 
 
 
51,379

 
 
 
 
All other liabilities, including the allowance for lending-related commitments
78,932

 
 
 
 
 
79,842

 
 
 
 
Total liabilities
2,252,773

 
 
 
 
 
2,204,382

 
 
 
 
Stockholders’ equity
 
 
 
 
 
 
 
 
 
 
 
Preferred stock
23,357

 
 
 
 
 
15,992

 
 
 
 
Common stockholders’ equity
214,389

 
 
 
 
 
205,888

 
 
 
 
Total stockholders’ equity
237,746

 
 
 
 
 
221,880

 
 
 
 
Total liabilities and stockholders’ equity
$
2,490,519

 
 
 
 
 
$
2,426,262

 
 
 
 
Interest rate spread
 
 
 
2.01
 %
 
 
 
 
 
2.11
 %
 
Net interest income and net yield on interest-earning assets
 
$
33,108

 
2.11

 
 
 
$
33,295

 
2.19

 
(a)
Represents securities which are tax exempt for U.S. federal income tax purposes.
(b)
Includes margin loans.
(c)
Includes brokerage customer payables.
(d)
Interest includes the effect of related hedging derivatives. Taxable-equivalent amounts are used where applicable.
(e)
Negative interest income and yield is a result of increased client-driven demand for certain securities combined with the impact of low interest rates; this is matched book activity and the negative interest expense on the corresponding securities loaned is recognized in interest expense and reported within trading liabilities – debt, short-term and other liabilities.
(f)
For the nine months ended September 30, 2015 and 2014, the annualized rates for securities, based on amortized cost, were 2.87% and 2.82% and respectively; this does not give effect to changes in fair value that are reflected in accumulated other comprehensive income/(loss).
(g)
Included trading liabilities – debt and equity instruments of $81,913 million and $85,289 million for the nine months ended September 30, 2015 and 2014, respectively.

177


GLOSSARY OF TERMS
Active foreclosures: Loans referred to foreclosure where formal foreclosure proceedings are ongoing. Includes both judicial and non-judicial states.
Allowance for loan losses to total loans: Represents period-end allowance for loan losses divided by retained loans.
Beneficial interests issued by consolidated VIEs: Represents the interest of third-party holders of debt, equity securities, or other obligations, issued by VIEs that JPMorgan Chase consolidates.
Benefit obligation: Refers to the projected benefit obligation for pension plans and the accumulated postretirement benefit obligation for OPEB plans.
Client deposits and other third party liabilities: Deposits, as well as deposits that are swept to on-balance sheet liabilities (e.g., commercial paper, federal funds purchased and securities loaned or sold under repurchase agreements) as part of client cash management programs.
Central counterparty (“CCP”): A CCP is a clearing house that interposes itself between counterparties to contracts traded in one or more financial markets, becoming the buyer to every seller and the seller to every buyer and thereby ensuring the future performance of open contracts. A CCP becomes counterparty to trades with market participants through novation, an open offer system, or another legally binding arrangement.
Commercial Card provides a wide range of payment services to corporate and public sector clients worldwide through the commercial card products. Services include procurement, corporate travel and entertainment, expense management services, and business-to-business payment solutions.
Core loans: Loans considered central to the Firm’s ongoing businesses; core loans exclude loans classified as trading assets, runoff portfolios, discontinued portfolios and portfolios the Firm has an intent to exit.
Credit derivatives: Financial instruments whose value is derived from the credit risk associated with the debt of a third party issuer (the reference entity) which allow one party (the protection purchaser) to transfer that risk to another party (the protection seller). Upon the occurrence of a credit event by the reference entity, which may include, among other events, the bankruptcy or failure to pay its obligations, or certain restructurings of the debt of the reference entity, neither party has recourse to the reference entity. The protection purchaser has recourse to the protection seller for the difference between the face value of the CDS contract and the fair value at the time of settling the credit derivative contract. The determination as to whether a credit event has occurred is generally made by the relevant International Swaps and Derivatives Association (“ISDA”) Determinations Committee.
 
Distributed denial-of-service attack: The use of a large number of remote computer systems to electronically send a high volume of traffic to a target website to create a service outage at the target. This is a form of cyberattack.
Exchange-traded derivatives: Derivative contracts that are executed on an exchange and settled via a central clearing house.
Fee share: Proportion of fee revenue based on estimates of investment banking fees generated across the industry from investment banking transactions in M&A, equity and debt underwriting, and loan syndications. Source: Dealogic, a third party provider of investment banking fee competitive analysis and volume-based league tables for the above noted industry products.
FICO score: A measure of consumer credit risk provided by credit bureaus, typically produced from statistical models by Fair Isaac Corporation utilizing data collected by the credit bureaus.
Forward points: Represents the interest rate differential between two currencies, which is either added to or subtracted from the current exchange rate (i.e., “spot rate”) to determine the forward exchange rate.
Group of Seven (“G7”) nations: Countries in the G7 are Canada, France, Germany, Italy, Japan, the United Kingdom and the United States.
G7 government bonds: Bonds issued by the government of one of the G7 nations.
Headcount-related expense: Includes salary and benefits (excluding performance-based incentives), and other noncompensation costs related to employees.
Home equity – senior lien: Represents loans and commitments where JPMorgan Chase holds the first security interest on the property.
Home equity – junior lien: Represents loans and commitments where JPMorgan Chase holds a security interest that is subordinate in rank to other liens.
Impaired loan: Impaired loans are loans measured at amortized cost, for which it is probable that the Firm will be unable to collect all amounts due, including principal and interest, according to the contractual terms of the agreement. Impaired loans include the following:
All wholesale nonaccrual loans
All TDRs (both wholesale and consumer), including ones that have returned to accrual status
Interchange income: A fee paid to a credit card issuer in the clearing and settlement of a sales or cash advance transaction.


178


Investment-grade: An indication of credit quality based on JPMorgan Chase’s internal risk assessment system. “Investment grade” generally represents a risk profile similar to a rating of a “BBB-”/“Baa3” or better, as defined by independent rating agencies.
LLC: Limited Liability Company.
Loan-to-value (“LTV”) ratio: For residential real estate loans, the relationship, expressed as a percentage, between the principal amount of a loan and the appraised value of the collateral (i.e., residential real estate) securing the loan.
Current estimated LTV ratio
An estimate of the LTV as of a certain date. The current estimated LTV ratios are calculated using estimated collateral values derived from a nationally recognized home price index measured at the metropolitan statistical area (“MSA”) level. These MSA-level home price indices comprise actual data to the extent available and forecasted data where actual data is not available. As a result, the estimated collateral values used to calculate these ratios do not represent actual appraised loan-level collateral values; as such, the resulting LTV ratios are necessarily imprecise and should therefore be viewed as estimates.
Combined LTV ratio
The LTV ratio considering all available lien positions, as well as unused lines, related to the property. Combined LTV ratios are used for junior lien home equity products.
Managed basis: A non-GAAP presentation of financial results that includes reclassifications to present revenue on a fully taxable-equivalent basis. Management uses this non- GAAP financial measure at the segment level, because it believes this provides information to enable investors to understand the underlying operational performance and trends of the particular business segment and facilitates a comparison of the business segment with the performance of competitors.
Master netting agreement: An agreement between two counterparties who have multiple contracts with each other that provides for the net settlement of all contracts, as well as cash collateral, through a single payment, in a single currency, in the event of default on or termination of any one contract.
Mortgage product types:
Alt-A
Alt-A loans are generally higher in credit quality than subprime loans but have characteristics that would disqualify the borrower from a traditional prime loan. Alt-A lending characteristics may include one or more of the following: (i) limited documentation; (ii) a high combined loan-to-value (“CLTV”) ratio; (iii) loans secured by non-owner occupied properties; or (iv) a debt-to-income ratio above normal limits. A substantial proportion of the Firm’s Alt-A loans are those where a borrower does not provide complete documentation of his or her assets or the amount or source of his or her income.
 
Option ARMs
The option ARM real estate loan product is an adjustable-rate mortgage loan that provides the borrower with the option each month to make a fully amortizing, interest-only or minimum payment. The minimum payment on an option ARM loan is based on the interest rate charged during the introductory period. This introductory rate is usually significantly below the fully indexed rate. The fully indexed rate is calculated using an index rate plus a margin. Once the introductory period ends, the contractual interest rate charged on the loan increases to the fully indexed rate and adjusts monthly to reflect movements in the index. The minimum payment is typically insufficient to cover interest accrued in the prior month, and any unpaid interest is deferred and added to the principal balance of the loan. Option ARM loans are subject to payment recast, which converts the loan to a variable-rate fully amortizing loan upon meeting specified loan balance and anniversary date triggers.
Prime
Prime mortgage loans are made to borrowers with good credit records who meet specific underwriting requirements, including prescriptive requirements related to income and overall debt levels. New prime mortgage borrowers provide full documentation and generally have reliable payment histories.
Subprime
Subprime loans are loans that, prior to mid-2008, were offered to certain customers with one or more high risk characteristics, including but not limited to: (i) unreliable or poor payment histories; (ii) a high LTV ratio of greater than 80% (without borrower-paid mortgage insurance); (iii) a high debt-to-income ratio; (iv) an occupancy type for the loan is other than the borrower’s primary residence; or (v) a history of delinquencies or late payments on the loan.
NA: Data is not applicable or available for the period presented.
Net charge-off/(recovery) rate: Represents net charge-offs/(recoveries) (annualized) divided by average retained loans for the reporting period.
Net yield on interest-earning assets: The average rate for interest-earning assets less the average rate paid for all sources of funds.
NM: Not meaningful.
Nonaccrual loans: Loans for which interest income is not recognized on an accrual basis. Loans (other than credit card loans and certain consumer loans insured by U.S. government agencies) are placed on nonaccrual status when full payment of principal and interest is not expected or when principal and interest has been in default for a period of 90 days or more unless the loan is both well-secured and in the process of collection. Collateral-dependent loans are typically maintained on nonaccrual status.


179


Nonperforming assets: Nonperforming assets include nonaccrual loans, nonperforming derivatives and certain assets acquired in loan satisfaction, predominantly real estate owned and other commercial and personal property.
Over-the-counter (“OTC”) derivatives: Derivative contracts that are negotiated, executed and settled bilaterally between two derivative counterparties, where one or both counterparties is a derivatives dealer.
Over-the-counter cleared (“OTC cleared”) derivatives: Derivative contracts that are negotiated and executed bilaterally, but subsequently settled via a central clearing house, such that each derivative counterparty is only exposed to the default of that clearing house.
Overhead ratio: Noninterest expense as a percentage of total net revenue.
Participating securities: Represents unvested stock-based compensation awards containing nonforfeitable rights to dividends or dividend equivalents (collectively, “dividends”), which are included in the earnings per share calculation using the two-class method. JPMorgan Chase grants restricted stock and RSUs to certain employees under its stock-based compensation programs, which entitle the recipients to receive nonforfeitable dividends during the vesting period on a basis equivalent to the dividends paid to holders of common stock. These unvested awards meet the definition of participating securities. Under the two-class method, all earnings (distributed and undistributed) are allocated to each class of common stock and participating securities, based on their respective rights to receive dividends.
Pre-provision profit/(loss): Represents total net revenue less noninterest expense. The Firm believes that this financial measure is useful in assessing the ability of a lending institution to generate income in excess of its provision for credit losses.
Principal transactions revenue: Principal transactions revenue includes realized and unrealized gains and losses recorded on derivatives, other financial instruments, private equity investments, and physical commodities used in market-making and client-driven activities. In addition, Principal transactions revenue also includes certain realized and unrealized gains and losses related to hedge accounting and specified risk management activities including: (a) certain derivatives designated in qualifying hedge accounting relationships (primarily fair value hedges of commodity and foreign exchange risk), (b) certain derivatives used for specified risk management purposes, primarily to mitigate credit risk, foreign exchange risk and commodity risk, and (c) other derivatives.
Purchased credit-impaired (“PCI”) loans: Represents loans that were acquired in the Washington Mutual transaction and deemed to be credit-impaired on the acquisition date in accordance with the guidance of the Financial Accounting Standards Board (“FASB”). The guidance allows purchasers to aggregate credit-impaired loans acquired in the same
 
fiscal quarter into one or more pools, provided that the loans have common risk characteristics (e.g., product type, LTV ratios, FICO scores, past due status, geographic location). A pool is then accounted for as a single asset with a single composite interest rate and an aggregate expectation of cash flows.
Receivables from customers: Primarily represents margin loans to prime and retail brokerage customers which are included in accrued interest and accounts receivable on the Consolidated balance sheets.
Reported basis: Financial statements prepared under U.S. GAAP, which excludes the impact of taxable-equivalent adjustments.
Retained loans: Loans that are held-for-investment (i.e. excludes loans held-for-sale and loans at fair value).
Risk-weighted assets (“RWA”): Basel III establishes two comprehensive methodologies for calculating RWA (a Standardized approach and an Advanced approach) which include capital requirements for credit risk, market risk, and in the case of Basel III Advanced, also operational risk. Key differences in the calculation of credit risk RWA between the Standardized and Advanced approaches are that for Basel III Advanced, credit risk RWA is based on risk-sensitive approaches which largely rely on the use of internal credit models and parameters, whereas for Basel III Standardized, credit risk RWA is generally based on supervisory risk-weightings which vary primarily by counterparty type and asset class. Market risk RWA is calculated on a generally consistent basis between Basel III Standardized and Basel III Advanced, both of which incorporate the requirements set forth in Basel 2.5.
Seed capital: Initial JPMorgan capital invested in products, such as mutual funds, with the intention of ensuring the fund is of sufficient size to represent a viable offering to clients, enabling pricing of its shares, and allowing the manager to develop a track record. After these goals are achieved, the intent is to remove the Firm’s capital from the investment.
Short sale: A short sale is a sale of real estate in which proceeds from selling the underlying property are less than the amount owed the Firm under the terms of the related mortgage and the related lien is released upon receipt of such proceeds.
Structural interest rate risk: Represents interest rate risk of the non-trading assets and liabilities of the Firm.
Structured notes: Structured notes are predominantly financial instruments containing embedded derivatives. Where present, the embedded derivative is the primary driver of risk.
Suspended foreclosures: Loans referred to foreclosure where formal foreclosure proceedings have started but are currently on hold, which could be due to bankruptcy or loss mitigation. Includes both judicial and non-judicial states.


180


Taxable-equivalent basis: In presenting managed results, the total net revenue for each of the business segments and the Firm is presented on a tax-equivalent 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; the corresponding income tax impact related to tax-exempt items is recorded within income tax expense.
Troubled debt restructuring (“TDR”): A TDR is deemed to occur when the Firm modifies the original terms of a loan agreement by granting a concession to a borrower that is experiencing financial difficulty.
Unaudited: Financial statements and information that have not been subjected to auditing procedures sufficient to permit an independent certified public accountant to express an opinion.
U.S. GAAP: Accounting principles generally accepted in the United States of America.
 
U.S. government-sponsored enterprise obligations: Obligations of agencies originally established or chartered by the U.S. government to serve public purposes as specified by the U.S. Congress; these obligations are not explicitly guaranteed as to the timely payment of principal and interest by the full faith and credit of the U.S. government.
U.S. Treasury: U.S. Department of the Treasury.
Value-at-risk (“VaR”): A measure of the dollar amount of potential loss from adverse market moves in an ordinary market environment.
Warehouse loans: Consist of prime mortgages originated with the intent to sell that are accounted for at fair value and classified as trading assets.
Washington Mutual transaction: On September 25, 2008, JPMorgan Chase acquired certain of the assets of the banking operations of Washington Mutual Bank (“Washington Mutual”) from the FDIC.



181


LINE OF BUSINESS METRICS
CONSUMER & COMMUNITY BANKING (“CCB”)
Households – A household is a collection of individuals or entities aggregated together by name, address, tax identifier and phone. Reported on a one-month lag.
Consumer & Business Banking (“CBB”)
Description of selected business metrics within CBB:
Client investment managed accounts – Assets actively managed by Chase Wealth Management on behalf of clients. The percentage of managed accounts is calculated by dividing managed account assets by total client investment assets.
Client advisors – Investment product specialists, including private client advisors, financial advisors, financial advisor associates, senior financial advisors, independent financial advisors and financial advisor associate trainees, who advise clients on investment options, including annuities, mutual funds, stock trading services, etc., sold by the Firm or by third-party vendors through retail branches, Chase Private Client locations and other channels.
Personal bankers – Retail branch office personnel who acquire, retain and expand new and existing customer relationships by assessing customer needs and recommending and selling appropriate banking products and services.
Sales specialists – Retail branch office and field personnel, including relationship managers and loan officers, who specialize in marketing and sales of various business banking products (i.e., business loans, letters of credit, deposit accounts, Chase Paymentech, etc.) and mortgage products to existing and new clients.
Deposit margin/deposit spread - Represents net interest income expressed as a percentage of average deposits.
Chase Liquid® cards – Refers to a prepaid, reloadable card product.
Mortgage Banking (“MB”)
Mortgage Production and Mortgage Servicing revenue comprises the following:
Net production revenue includes net gains or losses on originations and sales of mortgage loans, other production-related fees and losses related to the repurchase of previously-sold loans.
 
Net mortgage servicing revenue includes the following components:
a) Operating revenue predominantly represents the return on Mortgage Servicing’s MSR asset and includes:
Actual gross income earned from servicing third-party mortgage loans, such as contractually specified servicing fees and ancillary income; and
The change in the fair value of the MSR asset due to the collection or realization of expected cash flows.
b) Risk management represents the components of Mortgage Servicing’s MSR asset that are subject to ongoing risk management activities, together with derivatives and other instruments used in those risk management activities.
Mortgage origination channels comprise the following:
Retail – Borrowers who buy or refinance a home through direct contact with a mortgage banker employed by the Firm using a branch office, the Internet or by phone. Borrowers are frequently referred to a mortgage banker by a banker in a Chase branch, real estate brokers, home builders or other third parties.
Correspondent – Banks, thrifts, other mortgage banks and other financial institutions that sell closed loans to the Firm.
Card, Commerce Solutions & Auto (“Card”)
Description of selected business metrics within Card, Commerce Solutions & Auto:
Card Services includes the Credit Card and Commerce Solutions businesses.
Commerce Solutions is a business that primarily processes transactions for merchants.
Sales volume – Dollar amount of cardmember purchases, net of returns.
Open accounts – Cardmember accounts with charging privileges
Total transactions – Number of transactions and authorizations processed for merchants.
Auto loan and lease origination volume – Dollar amount of auto loans and leases originated.
CORPORATE & INVESTMENT BANK (“CIB”)
Definition of selected CIB revenue:
Investment banking revenue incorporates all revenue associated with investment banking activities, and is reported net of investment banking revenue shared with other lines of business.



182


Treasury Services offers a broad range of products and services that enable clients to manage payments and receipts, as well as invest and manage funds. Products include U.S. dollar and multi-currency clearing, ACH, lockbox, disbursement and reconciliation services, check deposits, and currency-related services.
Lending includes net interest income, fees, gains or losses on loan sale activity, gains or losses on securities received as part of a loan restructuring, and the risk management results related to the credit portfolio. Lending also includes Trade Finance, which includes loans tied directly to goods crossing borders, export/import loans, commercial letters of credit, standby letters of credit, and supply chain finance.
Fixed Income Markets primarily include revenue related to market-making across global fixed income markets, including foreign exchange, interest rate, credit and commodities markets.
Equity Markets primarily include revenue related to market-making across global equity products, including cash instruments, derivatives, convertibles and Prime Services.
Securities Services includes primarily custody, fund accounting and administration, and securities lending products sold principally to asset managers, insurance companies and public and private investment funds. Also includes clearance, collateral management and depositary receipts business which provides broker-dealer clearing and custody services, including tri-party repo transactions, collateral management products, and depositary bank services for American and global depositary receipt programs.
Description of certain business metrics:
Assets under custody (“AUC”) represents activities associated with the safekeeping and servicing of assets on which Securities Services earns fees.

Investment banking fees include advisory, equity underwriting, bond underwriting and loan syndication fees.
COMMERCIAL BANKING (“CB”)
CB is divided into four primary client segments: Middle Market Banking, Corporate Client Banking, Commercial Term Lending, and Real Estate Banking.
Middle Market Banking covers corporate, municipal and nonprofit clients, with annual revenue generally ranging between $20 million and $500 million.
Corporate Client Banking covers clients with annual revenue generally ranging between $500 million and $2 billion and focuses on clients that have broader investment banking needs.
Commercial Term Lending primarily provides term financing to real estate investors/owners for multifamily properties as well as office, retail and industrial properties.
 
Real Estate Banking provides full-service banking to investors and developers of institutional-grade real estate investment properties.
Other primarily includes lending and investment activity within the Community Development Banking and Chase Capital businesses.
CB product revenue comprises the following:
Lending includes a variety of financing alternatives, which are primarily provided on a basis secured by receivables, inventory, equipment, real estate or other assets. Products include term loans, revolving lines of credit, bridge financing, asset-based structures, leases, and standby letters of credit.
Treasury services includes revenue from a broad range of products and services (as defined by Treasury Services revenue in the CIB description of revenue) that enable CB clients to manage payments and receipts, as well as invest and manage funds.
Investment banking includes revenue from a range of products providing CB clients with sophisticated capital-raising alternatives, as well as balance sheet and risk management tools through advisory, equity underwriting, and loan syndications. Revenue from Fixed income and Equity market products (as defined by Fixed Income Markets and Equity Markets revenue in the CIB description of revenue) used by CB clients is also included. Investment banking revenue, gross, represents total revenue related to investment banking products sold to CB clients.
Other product revenue primarily includes tax-equivalent adjustments generated from Community Development Banking activity and certain income derived from principal transactions.
ASSET MANAGEMENT (“AM”)
Assets under management – Represent assets actively managed by AM on behalf of its Private Banking, Institutional and Retail clients. Includes “Committed capital not Called,” on which AM earns fees.
Client assets – Represent assets under management, as well as custody, brokerage, administration and deposit accounts.
Multi-asset – Any fund or account that allocates assets under management to more than one asset class.


183


Alternative assets – The following types of assets constitute alternative investments – hedge funds, currency, real estate, private equity and other investment funds designed to focus on nontraditional strategies.
AM’s lines of business comprise the following:
Global Investment Management provides comprehensive global investment services - including asset management, pension analytics, asset-liability management and active risk-budgeting strategies.
Global Wealth Management offers investment advice and wealth management, including investment management, capital markets and risk management, tax and estate planning, banking, lending and specialty-wealth advisory services.
AM’s client segments comprise the following:
Private Banking clients include high- and ultra-high-net-worth individuals, families, money managers, business owners and small corporations worldwide.
Institutional clients include both corporate and public institutions, endowments, foundations, nonprofit organizations and governments worldwide.
Retail clients include financial intermediaries and individual investors.
J.P. Morgan Asset Management has two high-level measures of its overall fund performance:
Percentage of mutual fund assets under management in funds rated 4- or 5-star: Mutual fund rating services rank funds based on their risk-adjusted performance over various periods. A 5-star rating is the best rating and represents the top 10% of industry-wide ranked funds.
A 4-star rating represents the next 22.5% of industry-wide ranked funds. A 3-star rating represents the next 35% of industry-wide ranked funds. A 2-star rating represents the next 22.5% of industry-wide ranked funds. A 1-star rating is the worst rating and represents the bottom 10% of industry-wide ranked funds. The “overall Morningstar rating” is derived from a weighted average of the performance figures associated with a fund’s three-, five- and ten-year (if applicable) Morningstar Rating metrics. For U.S. domiciled funds, separate star ratings are given at the individual share class level. The Nomura “star rating” is based on three-year risk-adjusted performance only. Funds with fewer than three years of history are not rated and hence excluded from this analysis. All ratings, the assigned peer categories and the asset values used to derive this analysis are sourced from these fund rating providers. The data providers re-denominate the asset values into USD. This % of AUM is based on star ratings at the share class level for U.S. domiciled funds, and at a “primary share class” level to represent the star rating of all other funds except for Japan where Nomura provides ratings at the fund level. The “primary share class”, as defined by Morningstar,
 
denotes the share class recommended as being the best proxy for the portfolio and in most cases will be the most retail version (based upon annual management charge, minimum investment, currency and other factors). The performance data could have been different if all funds/accounts would have been included. Past performance is not indicative of future results.
Percentage of mutual fund assets under management in funds ranked in the 1st or 2nd quartile (one, three and five years): All quartile rankings, the assigned peer categories and the asset values used to derive this analysis are sourced from the fund ranking providers. Quartile rankings are done on the net-of-fee absolute return of each fund. The data providers re-denominate the asset values into USD. This % of AUM is based on fund performance and associated peer rankings at the share class level for U.S. domiciled funds, at a “primary share class” level to represent the quartile ranking of Luxembourg, U.K. and Hong Kong funds and at the fund level for all other funds. The “primary share class”, as defined by Morningstar, denotes the share class recommended as being the best proxy for the portfolio and in most cases will be the most retail version (based upon annual management charge, minimum investment, currency and other factors). Where peer group rankings given for a fund are in more than one “primary share class” territory both rankings are included to reflect local market competitiveness (applies to “Offshore Territories” and “HK SFC Authorized” funds only). The performance data could have been different if all funds/accounts would have been included. Past performance is not indicative of future results.



184


Item 3    Quantitative and Qualitative Disclosures about Market Risk
For a discussion of the quantitative and qualitative disclosures about market risk, see the Market Risk Management section of Management’s discussion and analysis on pages 63–66 of this Form 10-Q and pages 131–136 of JPMorgan Chase’s 2014 Annual Report.
Item 4    Controls and Procedures
As of the end of the period covered by this report, an evaluation was carried out under the supervision and with the participation of the Firm’s management, including its Chairman and Chief Executive Officer and its Chief Financial Officer, of the effectiveness of its disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934). Based on that evaluation, the Chairman and Chief Executive Officer and the Chief Financial Officer concluded that these disclosure controls and procedures were effective. See Exhibits 31.1 and 31.2 for the Certification statements issued by the Chairman and Chief Executive Officer and Chief Financial Officer.
The Firm is committed to maintaining high standards of internal control over financial reporting. Nevertheless, because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. In addition, in a firm as large and complex as JPMorgan Chase, lapses or deficiencies in internal controls do occur from time to time, and there can be no assurance that any such deficiencies will not result in significant deficiencies or material weaknesses in internal controls in the future. For further information, see “Management’s report on internal control over financial reporting” on page 170 of JPMorgan Chase’s 2014 Annual Report. There was no change in the Firm’s internal control over financial reporting (as defined in Rule 13a-15(f) under the Securities Exchange Act of 1934) that occurred during the three months ended September 30, 2015, that has materially affected, or is reasonably likely to materially affect, the Firm’s internal control over financial reporting.
Part II Other Information
Item 1    Legal Proceedings
For information that updates the disclosures set forth under Part I, Item 3: Legal Proceedings, in the Firm’s 2014 Annual Report on Form 10-K, see the discussion of the Firm’s material legal proceedings in Note 23 of this Form 10-Q.
Item 1A    Risk Factors
For a discussion of certain risk factors affecting the Firm,
see Part I, Item 1A: Risk Factors on pages 8–17 of JPMorgan Chase’s 2014 Annual Report on Form 10-K and Forward-Looking Statements on page 85 of this Form 10-Q.

 
Item 2    Unregistered Sales of Equity Securities and Use of Proceeds
During the three months ended September 30, 2015, there were no shares of common stock of JPMorgan Chase & Co. issued in transactions exempt from registration under the Securities Act of 1933, pursuant to Section 4(2) thereof.
Repurchases under the common equity repurchase program
Following receipt of the Federal Reserve’s non-objection to the Firm’s 2015 capital plans submitted under CCAR, the Firm’s Board of Directors authorized the Firm to repurchase up to $6.4 billion of common equity (common stock and warrants) between April 1, 2015, and June 30, 2016. This authorization includes shares repurchased to offset issuances under the Firm’s equity-based compensation plans.
The following table sets forth the Firm’s repurchases of common equity for the nine months ended September 30, 2015 and 2014. There were no warrants repurchased during the three and nine months ended September 30, 2015 and 2014.
 
 
Three months ended
September 30,
 
Nine months ended September 30,
(in millions)
 
2015
2014
 
2015
2014
Total shares of common stock repurchased
 
19.1

25.5

 
70.8

57.0

Aggregate common stock repurchases
 
$
1,248

$
1,489

 
$
4,397

$
3,250

The Firm may, from time to time, enter into written trading plans under Rule 10b5-1 of the Securities Exchange Act of 1934 to facilitate repurchases in accordance with the common equity repurchase program. A Rule 10b5-1 repurchase plan allows the Firm to repurchase its equity during periods when it would not otherwise be repurchasing common equity — for example, during internal trading blackout periods. All purchases under a Rule 10b5-1 plan must be made according to a predefined plan established when the Firm is not aware of material nonpublic information.


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The authorization to repurchase common equity will be utilized at management’s discretion, and the timing of purchases and the exact amount of common equity that may be repurchased is subject to various factors, including market conditions; legal and regulatory considerations affecting the amount and timing of repurchase activity; the Firm’s capital position (taking into account goodwill and
 
intangibles); internal capital generation; and alternative investment opportunities. The repurchase program does not include specific price targets or timetables; may be executed through open market purchases or privately negotiated transactions, or utilizing Rule 10b5-1 programs; and may be suspended at any time.

Shares repurchased pursuant to the common equity repurchase program during the nine months ended September 30, 2015, were as follows.
nine months ended September 30, 2015
Total shares of common stock repurchased
 
Average price paid per share of common stock(b)
 
Aggregate repurchases
of common equity
(in millions)(b)
 
Dollar value
of remaining
authorized
repurchase
(in millions)(b)
 
First quarter
32,531,294

 
$
58.40

 
$
1,900

 
$
1,984

(a) 
Second quarter(a)
19,129,714

 
65.32

 
1,249

 
5,180

 
July
3,994,476

 
68.03

 
272

 
4,908

 
August
9,689,663

 
65.69

 
637

 
4,271

 
September
5,416,250

 
62.58

 
339

 
3,932

 
Third quarter
19,100,389

 
65.30

 
1,248

 
3,932

 
Year-to-date
70,761,397

 
$
62.13

 
$
4,397

 
$
3,932

(c) 
(a)
The unused portion under the prior Board authorization was canceled when the $6.4 billion program was authorized. Repurchases during the second quarter included $29 million under the prior program.
(b)
Excludes commissions cost.
(c)
Dollar value remaining under the new $6.4 billion program.

Item 3    Defaults Upon Senior Securities
None.
Item 4    Mine Safety Disclosure
Not applicable.
Item 5    Other Information
None.

 
Item 6    Exhibits
15
Letter re: Unaudited Interim Financial Information(a)
31.1
Certification(a)
31.2
Certification(a)
32
Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002(b)
101.INS XBRL
Instance Document(a)(c)
101.SCH XBRL
Taxonomy Extension Schema Document(a)
101.CAL XBRL
Taxonomy Extension Calculation Linkbase Document(a)
101.LAB XBRL
Taxonomy Extension Label Linkbase Document(a)
101.PRE XBRL
Taxonomy Extension Presentation Linkbase Document(a)
101.DEF XBRL
Taxonomy Extension Definition Linkbase Document(a)
(a)
Filed herewith.
(b)
Furnished herewith. This exhibit shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, or otherwise subject to the liability of that Section. Such exhibit shall not be deemed incorporated into any filing under the Securities Act of 1933 or the Securities Exchange Act of 1934.
(c)
Pursuant to Rule 405 of Regulation S-T, includes the following financial information included in the Firm’s Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2015, formatted in XBRL (eXtensible Business Reporting Language) interactive data files: (i) the Consolidated statements of income (unaudited) for the three and nine months ended September 30, 2015 and 2014, (ii) the Consolidated statements of comprehensive income (unaudited) for the three and nine months ended September 30, 2015 and 2014, (iii) the Consolidated balance sheets (unaudited) as of September 30, 2015, and December 31, 2014, (iv) the Consolidated statements of changes in stockholders’ equity (unaudited) for the nine months ended September 30, 2015 and 2014, (v) the Consolidated statements of cash flows (unaudited) for the nine months ended September 30, 2015 and 2014, and (vi) the Notes to Consolidated Financial Statements (unaudited).


186


SIGNATURE



Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
JPMorgan Chase & Co.
(Registrant)


By:
/s/ Mark W. O’Donovan
 
Mark W. O’Donovan
 
Managing Director and Corporate Controller
 
(Principal Accounting Officer)


Date:
November 2, 2015






187



INDEX TO EXHIBITS




Exhibit No.
 
Description of Exhibit
 
 
 
15
 
Letter re: Unaudited Interim Financial Information
 
 
 
31.1
 
Certification
 
 
 
31.2
 
Certification
 
 
 
32
 
Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002†
 
 
 
101.INS
 
XBRL Instance Document
101.SCH
 
XBRL Taxonomy Extension Schema Document
101.CAL
 
XBRL Taxonomy Extension Calculation Linkbase Document
101.LAB
 
XBRL Taxonomy Extension Label Linkbase Document
101.PRE
 
XBRL Taxonomy Extension Presentation Linkbase Document
101.DEF
 
XBRL Taxonomy Extension Definition Linkbase Document
 
 
 
 
This exhibit shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, or otherwise subject to the liability of that Section. Such exhibit shall not be deemed incorporated into any filing under the Securities Act of 1933 or the Securities Exchange Act of 1934.



188