CORP Q2 2015


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q
Quarterly report pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934

For the quarterly period ended
Commission file
June 30, 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 June 30, 2015: 3,698,067,361
 



FORM 10-Q
TABLE OF CONTENTS
Part I - Financial information
Page
Item 1
Consolidated Financial Statements – JPMorgan Chase & Co.:
 
 
Consolidated statements of income (unaudited) for the three and six months ended June 30, 2015, and 2014
84
 
Consolidated statements of comprehensive income (unaudited) for the three and six months ended June 30, 2015, and 2014
85
 
Consolidated balance sheets (unaudited) at June 30, 2015, and December 31, 2014
86
 
Consolidated statements of changes in stockholders’ equity (unaudited) for the six months ended June 30, 2015, and 2014
87
 
Consolidated statements of cash flows (unaudited) for the six months ended June 30, 2015, and 2014
88
 
Notes to Consolidated Financial Statements (unaudited)
89
 
Report of Independent Registered Public Accounting Firm
173
 
Consolidated Average Balance Sheets, Interest and Rates (unaudited) for the three and six months ended June 30, 2015, and 2014
174
 
Glossary of Terms and Line of Business Metrics
176
Item 2
Management’s Discussion and Analysis of Financial Condition and Results of Operations:
 
 
Consolidated Financial Highlights
3
 
Introduction
4
 
Executive Overview
5
 
Consolidated Results of Operations
7
 
Consolidated Balance Sheets Analysis
10
 
Off-Balance Sheet Arrangements
12
 
Consolidated Cash Flows Analysis
13
 
Explanation and Reconciliation of the Firm’s Use of Non-GAAP Financial Measures
14
 
Business Segment Results
16
 
Enterprise-Wide Risk Management
44
 
Credit Risk Management
45
 
Market Risk Management
61
 
Country Risk Management
65
 
Operational Risk Management
66
 
Capital Management
67
 
Liquidity Risk Management
74
 
Supervision and Regulation
78
 
Critical Accounting Estimates Used by the Firm
79
 
Accounting and Reporting Developments
82
 
Forward-Looking Statements
83
Item 3
Quantitative and Qualitative Disclosures About Market Risk
183
Item 4
Controls and Procedures
183
Part II - Other information
 
Item 1
Legal Proceedings
183
Item 1A
Risk Factors
183
Item 2
Unregistered Sales of Equity Securities and Use of Proceeds
183
Item 3
Defaults Upon Senior Securities
184
Item 4
Mine Safety Disclosure
184
Item 5
Other Information
184
Item 6
Exhibits
184



2


JPMorgan Chase & Co.
Consolidated financial highlights
(unaudited)
As of or for the period ended,
 
 
 
 
 
Six months ended
June 30,
(in millions, except per share, ratio, headcount data and where
 otherwise noted)
2Q15

1Q15

4Q14

3Q14

2Q14

2015
2014
Selected income statement data
 
 
 
 
 
 
 
Total net revenue
$
23,812

$
24,066

$
22,750

$
24,469

$
24,678

$
47,878

$
47,893

Total noninterest expense
14,500

14,883

15,409

15,798

15,431

29,383

30,067

Pre-provision profit
9,312

9,183

7,341

8,671

9,247

18,495

17,826

Provision for credit losses
935

959

840

757

692

1,894

1,542

Income before income tax expense
8,377

8,224

6,501

7,914

8,555

16,601

16,284

Income tax expense
2,087

2,310

1,570

2,349

2,575

4,397

5,035

Net income
$
6,290

$
5,914

$
4,931

$
5,565

$
5,980

$
12,204

$
11,249

Earnings per share data
 
 
 
 
 
 
 
Net income: Basic
$
1.56

$
1.46

$
1.20

$
1.37

$
1.47

$
3.02

$
2.76

 Diluted
1.54

1.45

1.19

1.35

1.46

2.99

2.74

Average shares: Basic
3,707.8

3,725.3

3,730.9

3,755.4

3,780.6

3,716.6

3,783.9

 Diluted
3,743.6

3,757.5

3,765.2

3,788.7

3,812.5

3,750.5

3,818.1

Market and per common share data
 
 
 
 
 
 
 
Market capitalization
250,581

224,818

232,472

225,188

216,725

250,581

216,725

Common shares at period-end
3,698.1

3,711.1

3,714.8

3,738.2

3,761.3

3,698.1

3,761.3

Share price(a):
 
 
 
 
 
 
 
High
$
69.82

$
62.96

$
63.49

$
61.85

$
61.29

$
69.82

$
61.48

Low
59.65

54.27

54.26

54.96

52.97

54.27

52.97

Close
67.76

60.58

62.58

60.24

57.62

67.76

57.62

Book value per share
58.49

57.77

56.98

56.41

55.44

58.49

55.44

Tangible book value per share (“TBVPS”)(b)
46.13

45.45

44.60

44.04

43.08

46.13

43.08

Cash dividends declared per share
0.44

0.40

0.40

0.40

0.40

0.84

0.78

Selected ratios and metrics
 
 
 
 
 
 
 
Return on common equity (“ROE”)
11
%
11
%
9
%
10
%
11
%
11
%
11
%
Return on tangible common equity (“ROTCE”)(b)
14

14

11

13

14

14

14

Return on assets (“ROA”)
1.01

0.94

0.78

0.90

0.99

0.97

0.94

Overhead ratio
61

62

68

65

63

61

63

Loans-to-deposits ratio
61

56

56

56

57

61

57

High quality liquid assets (“HQLA”) (in billions)(c)
$
532

$
614

$
600

$
572

$
576

$
532

$
576

Common equity Tier 1 (“CET1”) capital ratio(d)
11.2
%
10.7
%
10.2%

10.2
%
9.8
%
11.2
%
9.8
%
Tier 1 capital ratio(d)
12.8

12.1

11.6

11.5

11.0

12.8

11.0

Total capital ratio(d)
14.4

13.7

13.1

12.8

12.5

14.4

12.5

Tier 1 leverage ratio(d)
8.0

7.5

7.6

7.6

7.6

8.0

7.6

Selected balance sheet data (period-end)
 
 
 
 
 
 
 
Trading assets
$
377,870

$
398,981

$
398,988

$
410,657

$
392,543

$
377,870

$
392,543

Securities(e)
317,795

331,136

348,004

366,358

361,918

317,795

361,918

Loans
791,247

764,185

757,336

743,257

746,983

791,247

746,983

Core loans
674,767

641,285

628,785

607,617

603,440

674,767

603,440

Total assets
2,449,599

2,577,148

2,572,773

2,526,655

2,519,995

2,449,599

2,519,995

Deposits
1,287,332

1,367,887

1,363,427

1,334,534

1,319,751

1,287,332

1,319,751

Long-term debt(f)
286,693

280,608

276,836

268,721

269,929

286,693

269,929

Common stockholders’ equity
216,287

214,371

211,664

210,876

208,520

216,287

208,520

Total stockholders’ equity
241,205

235,864

231,727

230,939

226,983

241,205

226,983

Headcount
237,459

241,145

241,359

242,388

245,192

237,459

245,192

Credit quality metrics
 
 
 
 
 
 
 
Allowance for credit losses
$
14,535

$
14,658

$
14,807

$
15,526

$
15,974

$
14,535

$
15,974

Allowance for loan losses to total retained loans
1.78%

1.86%

1.90%

2.02%

2.08%

1.78
%
2.08
%
Allowance for loan losses to retained loans excluding purchased credit-impaired loans(g)
1.45

1.52

1.55

1.63

1.69

1.45

1.69

Nonperforming assets
$
7,588

$
7,714

$
7,967

$
8,390

$
9,017

$
7,588

$
9,017

Net charge-offs
1,007

1,052

1,218

1,114

1,158

2,059

2,427

Net charge-off rate
0.53%

0.57%

0.65%

0.60%

0.64%

0.55%

0.68%

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 14–15, as well as Accounting and Reporting Developments on page 82 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 14–15.
(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 2Q15 and 1Q15, the estimated amount as of 4Q14 and 3Q14, and the amount included under the Basel III Liquidity Coverage Ratio (“Basel III LCR”) for 2Q14; for additional information, see HQLA on page 74.
(d)
The ratios presented are calculated under Basel III Advanced Transitional. See Regulatory capital on pages 67–71 for additional information on Basel III.
(e)
Included held-to-maturity (“HTM”) securities of $51.6 billion, $49.3 billion, $49.3 billion, $48.8 billion, and $47.8 billion at June 30, 2015, March 31, 2015, December 31, 2014, September 30, 2014, and June 30, 2014, respectively.
(f)
Included unsecured long-term debt of $209.6 billion, $209.5 billion, $207.5 billion, $204.7 billion, and $205.6 billion at June 30, 2015, March 31, 2015, December 31, 2014, September 30, 2014, and June 30, 2014, respectively.
(g)
Excluded the impact of residential real estate PCI loans. For further discussion, see Allowance for credit losses on pages 58–60.

3


INTRODUCTION
The following is management’s discussion and analysis (“MD&A”) of the financial condition and results of operations of JPMorgan Chase & Co. (“JPMorgan Chase” or the “Firm”) for the second quarter of 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 176–179 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 83 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 $241.2 billion in stockholders’ equity as of June 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 June 30,
 
Six months ended June 30,
(in millions, except per share data and ratios)
2015
 
2014
 
Change
 
2015
 
2014
 
Change
Selected income statement data
 
 
 
 
 
 
 
 
 
 
 
Total net revenue
$
23,812

 
$
24,678

 
(4
)%
 
$
47,878

 
$
47,893

 

Total noninterest expense
14,500

 
15,431

 
(6
)
 
29,383

 
30,067

 
(2
)
Pre-provision profit
9,312

 
9,247

 
1

 
18,495

 
17,826

 
4

Provision for credit losses
935

 
692

 
35

 
1,894

 
1,542

 
23

Net income
6,290

 
5,980

 
5

 
12,204

 
11,249

 
8

Diluted earnings per share
$
1.54

 
$
1.46

 
5
 %
 
$
2.99

 
$
2.74

 
9
 %
Return on common equity
11
%
 
11
%
 
 
 
11
%
 
11
%
 
 
Capital ratios(a)
 
 
 
 
 
 
 
 
 
 
 
CET1
11.2

 
9.8

 
 
 
11.2

 
9.8

 
 
Tier 1 capital
12.8

 
11.0

 
 
 
12.8

 
11.0

 
 
(a)
The ratios presented are calculated under Basel III Advanced Transitional. See Regulatory capital on pages 67–71 for additional information on Basel III.
Business Overview
JPMorgan Chase reported second-quarter 2015 net income of $6.3 billion, or $1.54 per share, on net revenue of $23.8 billion. The Firm delivered strong performance in the second quarter and reported a return on equity of 11%.
Net income increased 5% compared with the second quarter of 2014, reflecting lower noninterest expense and lower taxes, predominantly offset by lower net revenue and a higher provision for credit losses. Net revenue was $23.8 billion, down 4% compared with the prior year. Net interest income was $10.7 billion, relatively flat compared with the prior year, reflecting lower loan yields and lower investment securities balances, predominantly offset by higher average loan balances and lower deposit and long-term debt interest expense. Noninterest revenue was $13.1 billion, down 5% compared with the prior year, driven by lower Mortgage Banking revenue and lower CIB Markets revenue related to business simplification, partially offset by higher revenue in Asset Management.
The provision for credit losses was $935 million, up 35% compared with the prior year, as a result of higher wholesale provision for credit losses, reflecting the impact of select downgrades, including within the Oil & Gas portfolio. The consumer provision for credit losses decreased, driven by lower net charge-offs, partially offset by a lower reduction in the allowance for loan losses, reflecting stabilization of the credit environment. Consumer net charge-offs were $1.0 billion, compared with $1.2 billion in the prior year, resulting in net charge-off rates, excluding purchased credit-impaired (“PCI”) loans, of 1.06% and 1.34%, respectively.
The Firm’s allowance for loan losses to period-end loans retained, excluding PCI loans, was 1.45%, compared with
 
1.69% in the prior year. The Firm’s allowance for loan losses to retained nonaccrual loans, excluding PCI loans, was 161%, compared with 152% in the prior year. The Firm’s nonperforming assets totaled $7.6 billion, down from the prior quarter and prior year levels of $7.7 billion and $9.0 billion, respectively.
Noninterest expense was $14.5 billion, down 6% compared with the prior year, driven by business simplification, lower legal expense, and lower Mortgage Banking noninterest expense.
Firmwide core loans increased 12% compared with the prior year and 5% compared with the first quarter of 2015. Within Consumer & Community Banking, Consumer & Business Banking (“CBB”) average deposits were up 9%, client investment assets were a record $221.5 billion, up 8%, and credit card sales volume was $125.7 billion, up 7%, from the prior year. CIB maintained its #1 ranking for Global Investment Banking fees with an 8.2% fee share for the second quarter of 2015. CB average loan balances were up 11% from the prior year and up 4% from the first quarter of 2015. Gross investment banking revenue from CB clients was up 22% from the prior year. AM reported positive net long-term flows for the twenty-fifth consecutive quarter, assets under management were up 4%, and average loan balances were up 9% over the prior year.
For a detailed discussion of results by line of business,
refer to the Business Segment Results section beginning on page 16.
The Firm maintained its fortress balance sheet and added to its capital, ending the second quarter with estimated Basel III Advanced Fully Phased-In CET1 capital and ratio of $168.9 billion and 11.0%, respectively. The Firm’s supplementary leverage ratio (“SLR”) was 6.0% and


5


JPMorgan Chase Bank, N.A.’s SLR was 6.1%. The Firm also had $532 billion of high quality liquid assets (“HQLA”) as of June 30, 2015. The CET1 and SLR measures under the Basel III Advanced Fully Phased-In rules are each non-GAAP financial measures. These measures are used by management, bank regulators, investors and analysts to assess and monitor the Firm’s capital position. 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 67–71.
JPMorgan Chase continued to support consumers, businesses and communities around the globe. The Firm provided credit and raised capital of $1.0 trillion for commercial and consumer clients during the first six months of 2015. This included providing $314 billion of credit to corporations, $115 billion to consumers, and $11 billion to U.S. small businesses. During the first half of 2015, the Firm also raised $556 billion of capital for clients and $35 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 83 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 third 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 third quarter and 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 inter-related factors will affect the performance of the Firm and its lines of business.
Management expects core loan growth of approximately 10% in the second half of 2015. The Firm continues to experience 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 in 2015 is expected to be approximately $57 billion, excluding firmwide legal expense.
In Mortgage Banking within CCB, management expects noninterest revenue for 2015 to decline by approximately $1 billion compared with 2014 driven by lower servicing revenue as well as lower repurchase benefits. In Card Services within CCB, management expects the revenue rate in 2015 to remain at the low end of the target range of 12% to 12.5% and the full year net charge-off rate to be slightly less than 2.5%.
In CIB, Markets revenue in the third quarter of 2015 is expected to be impacted by the Firm’s business simplification, which was completed in 2014, resulting in a decline of approximately 9%, as well as a decline in noninterest expense, compared with the prior year third quarter. In Treasury Services within CIB, management expects revenue to be approximately $875 million in each of the remaining quarters of 2015 which reflects the transfer of Trade Finance revenue to Lending. In Securities Services within CIB, management expects revenue to be in the range of $950 million to $1 billion in each of the remaining quarters of 2015, depending on seasonality.
In CB, management expects noninterest expense to be approximately $720 million in each of the remaining quarters of 2015.
In AM, management expects the 2015 pretax margin and ROE to be at the low end of the business’s through-the-cycle targets of 30-35%, and 25% or higher, respectively.
Business events and subsequent events
For a discussion of business events during the six months ended June 30, 2015, and subsequent events, 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 six months ended June 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 79–81 of this Form 10-Q and pages 161–165 of JPMorgan Chase’s 2014 Annual Report.

Revenue
 
 
 
 
 
 
 
 
 
 
 
 
Three months ended June 30,
 
Six months ended June 30,
(in millions)
2015

 
2014

 
Change
 
2015

 
2014

 
Change
Investment banking fees
$
1,833

 
$
1,751

 
5
 %
 
$
3,627

 
$
3,171

 
14
 %
Principal transactions
2,834

 
2,908

 
(3
)
 
6,489

 
6,230

 
4

Lending- and deposit-related fees
1,418

 
1,463

 
(3
)
 
2,781

 
2,868

 
(3
)
Asset management, administration and commissions
4,015

 
4,007

 

 
7,822

 
7,843

 

Securities gains
44

 
12

 
267

 
96

 
42

 
129

Mortgage fees and related income
783

 
1,291

 
(39
)
 
1,488

 
1,805

 
(18
)
Card income
1,615

 
1,549

 
4

 
3,046

 
2,957

 
3

Other income(a)
586

 
899

 
(35
)
 
1,168

 
1,512

 
(23
)
Noninterest revenue
13,128

 
13,880

 
(5
)
 
26,517

 
26,428

 

Net interest income
10,684

 
10,798

 
(1
)
 
21,361

 
21,465

 

Total net revenue
$
23,812

 
$
24,678

 
(4)%

 
$
47,878

 
$
47,893

 

(a)
Included operating lease income of $504 million and $422 million for the three months ended June 30, 2015 and 2014, respectively, and $973 million and $820 million for the six months ended June 30, 2015 and 2014, respectively.
Total net revenue for the three months ended June 30, 2015 was down by 4% compared with the prior year, predominantly due to lower revenues in Fixed Income Markets, lower mortgage-related revenue, the absence in the current period of a benefit recognized in the prior year from a franchise tax settlement, and certain losses in Corporate. These items were partially offset by higher revenues in Equity Markets, and higher asset management fees on continued net long-term inflows. For the six months ended June 30, 2015, total net revenue was flat compared with the prior year, predominantly reflecting the net reduction from the aforementioned factors, partially offset by higher investment banking fees.
Investment banking fees increased from the three months ended June 30, 2014, reflecting higher advisory and debt underwriting fees. For the six months ended June 30, 2015, investment banking fees increased across products due to strong relative performance and an increased share of fees compared with the prior year. The increase in advisory fees for both periods was driven by the combined impact of a greater share of fees for completed transactions and growth in industry-wide fee levels; the increase in debt underwriting fees for both periods was attributable to a higher share of fees for high grade bond issuance and growth in industry-wide fee levels; and the increase in equity underwriting fees for the six months ended June 30, 2015 was due to a greater share of fees. 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 29–33, CB segment results on pages 34–37, and Note 6.
 
Principal transactions revenue decreased in the three months ended June 30, 2015 compared with the prior year, largely reflecting CIB’s lower Fixed Income Markets revenue, driven by the impact of business simplification, continued weakness in Credit and Securitized Products and lower revenue in Currencies & Emerging Markets, partially offset by strength in Rates. The decline in Fixed Income Markets was partially offset by higher Equity Markets revenue, primarily on higher derivatives and cash revenue. For the six months ended June 30, 2015, principal transactions revenue increased compared with the prior year, due to higher Equity Markets revenue on higher derivative and cash revenue, partially offset by lower Fixed Income Markets revenue, as well as lower private equity gains in Corporate. The decline in Fixed Income Markets revenue was driven by the impact of business simplification and weakness in Credit and Securitized Products, largely offset by higher revenue in Rates and Currencies & Emerging Markets. For additional information on principal transactions revenue, see CIB and Corporate segment results on pages 29–33 and pages 42–43, respectively, and
Note 6.
Asset management, administration and commissions revenue for the three and six months ended June 30, 2015, was relatively flat compared with the prior year, with higher asset management fees in AM and CCB reflecting higher market levels and net client inflows, offset by lower commissions and other fees in CIB. For additional information on these fees and commissions, see the segment discussions of CCB on pages 17–28, AM on pages 38–41, and Note 6.


7


Mortgage fees and related income decreased compared with the three months ended June 30, 2014, driven by lower MSR risk management income, reflecting the absence in 2015 of a positive $220 million model assumption update in the prior year, lower servicing revenue and lower repurchase benefit. Compared with the six months ended June 30, 2014, mortgage fees and related income decreased, driven by lower servicing revenue and lower repurchase benefit. For further information on mortgage fees and related income, see the segment discussion of CCB on pages 17–28 and Note 16.
For additional information on lending- and deposit-related fees, see the segment results for CCB on pages 17–28, CIB on pages 29–33 and CB on pages 34–37; securities gains, see the Corporate segment discussion on pages 42–43 and Note 11; and card income, see CCB segment results on pages 17–28.
Other income for the three and six months ended June 30, 2015 decreased compared with the prior year, as a result of the absence in the current period of a benefit recognized in the second quarter of 2014 from a franchise tax settlement, the impact of business simplification in CIB, and a loss recognized on the early redemption of trust preferred securities in Corporate. These factors were partially offset
 
by higher auto lease income as a result of growth in auto operating lease assets in CCB. The decrease during the six months ended June 30, 2015, also reflected losses related to the accelerated amortization of cash flow hedges associated with the exit of certain non-operational deposits, and a loss recognized on the early redemption of long-term debt that was recognized in the first quarter of 2015 in Corporate.
Net interest income was relatively flat in the three and six months ended June 30, 2015 compared with the prior year, predominantly reflecting lower loan yields due to the runoff of higher-yielding loans, new originations of lower- yielding loans, and lower average investment securities balances, offset by higher average loan balances and the impact of lower deposit and long-term debt interest expense. The Firm’s average interest-earning assets were $2.1 trillion in the three months ended June 30, 2015, and the net interest yield on these assets, on a fully taxable-equivalent (“FTE”) basis, was 2.09%, a decrease of 10 basis points from the prior year. For the six months ended June 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 2.08%, a decrease of 12 basis points from the prior year.

Provision for credit losses
 
 
 
 
 
 
 
 
 
 
 
Three months ended June 30,
 
Six months ended June 30,
(in millions)
2015

 
2014

 
Change
 
2015
 
2014
 
Change
Consumer, excluding credit card
$
(98
)
 
$
(37
)
 
(165
)%
 
$
44

 
$
82

 
(46
)%
Credit card
800

 
885

 
(10
)%
 
1,589

 
1,573

 
1
 %
Total consumer
702

 
848

 
(17
)%
 
1,633

 
1,655

 
(1
)%
Wholesale
233

 
(156
)
 
NM

 
261

 
(113
)
 
NM

Total provision for credit losses
$
935

 
$
692

 
35
 %
 
$
1,894

 
$
1,542

 
23
 %
The provision for credit losses in the three and six months ended June 30, 2015 increased from the prior year as a result of higher wholesale provision for credit losses, reflecting the impact of select downgrades, including within the Oil & Gas portfolio. The total consumer provision for credit losses decreased in the three months ended June 30, 2015, driven by lower net charge-offs, partially offset by a lower reduction in the allowance for loan losses. For the six months ended June 30, 2015, the total consumer provision
 
for credit losses reflected lower net charge-offs offset by a lower reduction in the allowance for loan losses. The lower reduction in the allowance for loan losses reflected the stabilization of the credit environment compared with the prior year. For a more detailed discussion of the credit portfolio and the allowance for credit losses, see the segment discussions of CCB on pages 17–28, CIB on pages 29–33 and CB on pages 34–37, and the Allowance for credit losses on pages 58–60.

Noninterest expense
 
 
 
 
 
 
 
 
 
 
 
Three months ended June 30,
 
Six months ended June 30,
(in millions)
2015

 
2014

 
Change
 
2015
 
2014
 
Change
Compensation expense
$
7,694

 
$
7,610

 
1
 %
 
$
15,737

 
$
15,469

 
2
 %
Noncompensation expense:
 
 
 
 
 
 
 
 
 
 
 
Occupancy
923

 
973

 
(5
)
 
1,856

 
1,925

 
(4
)
Technology, communications and equipment
1,499

 
1,433

 
5

 
2,990

 
2,844

 
5

Professional and outside services
1,768

 
1,932

 
(8
)
 
3,402

 
3,718

 
(8
)
Marketing
642

 
650

 
(1
)
 
1,233

 
1,214

 
2

Other expense(a)(b)
1,974

 
2,833

 
(30
)
 
4,165

 
4,897

 
(15
)
Total noncompensation expense
6,806

 
7,821

 
(13
)
 
13,646

 
14,598

 
(7
)
Total noninterest expense
$
14,500

 
$
15,431

 
(6
)%
 
$
29,383

 
$
30,067

 
(2
)%
(a)
Included firmwide legal expense of $291 million and $669 million for the three months ended June 30, 2015 and 2014, respectively, and $978 million and $707 million for the six months ended June 30, 2015 and 2014, respectively
(b)
Included Federal Deposit Insurance Corporation-related (“FDIC”) expense of $300 million and $266 million for the three months ended June 30, 2015, and 2014, respectively, and $618 million and $559 million for the six months ended June 30, 2015 and 2014, respectively.

8


Total noninterest expense for the three months ended June 30, 2015 decreased by 6% from the prior year, driven by the impact of business simplification, lower legal expense and lower professional services expense. For the six months ended June 30, 2015, total noninterest expense decreased by 2% reflecting the impact of business simplification and lower professional services expense, partially offset by higher legal expense.
Compensation expense increased compared with the three and six months ended June 30, 2014, predominantly driven by the impact of investments in the businesses, including headcount for controls, and higher postretirement benefit costs, partially offset by lower headcount in CCB.
 
Noncompensation expense in the three and six months ended June 30, 2015 decreased compared with the prior year, due to lower other expense, reflecting the impact of business simplification in CIB, and lower amortization of intangibles, partially offset by the impact of a loss from a held-for-sale asset in AM. Lower professional and outside services expense, largely reflecting lower legal services expense and the impact of a reduced number of contractors in several businesses, also contributed to the decrease in both periods. Legal expense (which is included in other expense) was lower in the three months ended June 30, 2015, but higher in the six months ended June 30, 2015, compared with the respective prior year periods. For a further discussion of legal expense, see Note 23.

Income tax expense
 
 
 
 
 
 
 
 
 
(in millions, except rate)
Three months ended June 30,
 
Six months ended June 30,
2015

 
2014

 
Change
 
2015
 
2014
 
Change
Income before income tax expense
$
8,377

 
$
8,555

 
(2
)%
 
 
$
16,601

 
$
16,284

 
2
 %
 
Income tax expense
2,087

 
2,575

 
(19
)
 
 
4,397

 
5,035

 
(13
)
 
Effective tax rate
24.9
%
 
30.1
%
 
 
 
 
26.5
%
 
30.9
%
 


 

The effective tax rate in the three and six months ended June 30, 2015 decreased compared with the respective prior year periods, predominantly due to higher tax benefits associated with the settlement of certain tax audits (which reduced the Firm’s gross unrecognized tax benefits), as well as due to lower nondeductible legal-related expense in the current period and the change in mix of income and expense subject to U.S. federal and state and local taxes. Tax audits of the Firm that were being conducted by a number of taxing authorities, most notably the Internal Revenue Service, New York State and City, and the State of California, continue to be resolved. Based upon the current status of such audits, it is reasonably possible that over the next three to six months the resolution of these audits could result in a further reduction in the gross balance of the Firm’s unrecognized tax benefits; the Firm currently estimates the expected reduction to be in the range of $0 to approximately $2 billion for full year 2015. For further information, see Note 26 of JPMorgan Chase’s 2014 Annual Report.




9


CONSOLIDATED BALANCE SHEETS ANALYSIS
Selected Consolidated Balance Sheets data
(in millions)
Jun 30,
2015
 
Dec 31,
2014
Change
Assets
 
 
 
 
Cash and due from banks
$
24,095

 
$
27,831

(13
)%
Deposits with banks
398,807

 
484,477

(18
)
Federal funds sold and securities purchased under resale agreements
212,850

 
215,803

(1
)
Securities borrowed
98,528

 
110,435

(11
)
Trading assets:
 
 
 
 
Debt and equity instruments
310,419

 
320,013

(3
)
Derivative receivables
67,451

 
78,975

(15
)
Securities
317,795

 
348,004

(9
)
Loans
791,247

 
757,336

4

Allowance for loan losses
(13,915
)
 
(14,185
)
(2
)
Loans, net of allowance for loan losses
777,332

 
743,151

5

Accrued interest and accounts receivable
69,642

 
70,079

(1
)
Premises and equipment
15,073

 
15,133


Goodwill
47,476

 
47,647


Mortgage servicing rights
7,571

 
7,436

2

Other intangible assets
1,091

 
1,192

(8
)
Other assets
101,469

 
102,597

(1
)
Total assets
$
2,449,599

 
$
2,572,773

(5
)
Liabilities
 
 
 
 
Deposits
$
1,287,332

 
$
1,363,427

(6
)
Federal funds purchased and securities loaned or sold under repurchase agreements
180,897

 
192,101

(6
)
Commercial paper
42,238

 
66,344

(36
)
Other borrowed funds
30,061

 
30,222

(1
)
Trading liabilities:
 
 
 


Debt and equity instruments
80,396

 
81,699

(2
)
Derivative payables
59,026

 
71,116

(17
)
Accounts payable and other liabilities
191,749

 
206,939

(7
)
Beneficial interests issued by consolidated VIEs
50,002

 
52,362

(5
)
Long-term debt
286,693

 
276,836

4

Total liabilities
2,208,394

 
2,341,046

(6
)
Stockholders’ equity
241,205

 
231,727

4

Total liabilities and stockholders’ equity
$
2,449,599

 
$
2,572,773

(5
)%

 
Consolidated Balance Sheets overview
JPMorgan Chase’s total assets and total liabilities decreased by 5% and 6%, respectively, compared with December 31, 2014.
The following is a discussion of the significant changes.
Cash and due from banks and deposits with banks
The net decrease was attributable to lower wholesale non-operating deposits. The Firm’s excess cash was placed with various central banks, predominantly Federal Reserve Banks.
Securities borrowed
The decrease was predominantly driven by lower demand for securities to cover customer short positions in CIB, and a shift in the deployment of excess cash from securities borrowed to deposits with banks.
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 and maturities. For additional information, refer to Derivative contracts on pages 56–57, and Notes 3 and 5.
Securities
The decrease was largely due to paydowns and maturities
of non-U.S. residential mortgage-backed securities (“MBS”) and non-U.S. government debt securities. For additional information related to securities, refer to the discussion
in the Corporate segment on pages 42–43, and Notes 3
and 11.
Loans and allowance for loan losses
The increase in loans reflects 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 reflected higher originations and utilization of existing commitments, particularly in CB. For a more detailed discussion of loans and the allowance for loan losses, refer to Credit Risk Management on pages 45–60, and Notes 3, 4, 13 and 14.
Mortgage servicing rights
For additional information on MSRs, see Note 16.
Other assets
Other assets was relatively flat, due to lower private equity investments reflecting the sale of a portion of the One Equity Partners (“OEP”) portfolio and other portfolio sales, partially offset by higher auto operating lease assets from growth in business volume.


10


Deposits
The decrease was attributable to lower wholesale deposits, partially offset by higher consumer deposits. The decrease in wholesale deposits reflects the impact of the previously announced plan to reduce non-operating deposits, 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, maturing of recent branch builds, and net new business. For more information on deposits, refer to the CCB segment discussion on pages 17–28; the Liquidity Risk Management discussion on pages 74–78; and Notes 3 and 17. For more information on wholesale client deposits, refer to the AM, CB and CIB segment discussions on pages 38–41, pages 34–37, and pages 29–33, respectively.
Federal funds purchased and securities loaned or sold under repurchase agreements
The decrease reflects lower secured financing of trading assets-debt and equity instruments and the investment securities portfolio. For additional information on the Firm’s Liquidity Risk Management, see pages 74–78.
Commercial paper
The decrease was due to the discontinuation of a cash management product, currently in process, 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 liquidity and short-term funding plans. For additional information on the Firm’s other borrowed funds, see Liquidity Risk Management on pages 74–78.
 
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 74–78.
Stockholders’ equity
The increase was due to net income and preferred stock issuance, 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 72–73.









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, Standard & Poor’s and Fitch, respectively. These liquidity commitments support the issuance of asset-backed commercial paper by Firm-administered consolidated SPEs. In the event of a short-term credit rating downgrade, JPMorgan Chase Bank, N.A., absent other solutions, would be required to provide funding to the SPE, if the commercial paper could not be reissued as it matured. The aggregate amounts of commercial paper outstanding held by third parties as of June 30, 2015, and December 31, 2014, was $13.0 billion and $12.1 billion, respectively. The aggregate amounts of commercial paper 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 $9.9 billion at both June 30, 2015, and December 31, 2014. 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 or 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 56 and Note 21 (including the table that presents the related amounts by contractual maturity as of June 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)
 
Six months ended June 30,
 
2015
 
2014
Net cash provided by/(used in)
 
 
 
 
Operating activities
 
$
32,175

 
$
10,296

Investing activities
 
77,471

 
(97,938
)
Financing activities
 
(113,429
)
 
75,436

Effect of exchange rate changes on cash
 
47

 
(42
)
Net decrease in cash and due from banks
 
$
(3,736
)
 
$
(12,248
)

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 and 2014 resulted from net income after noncash operating adjustments. Additionally in 2015, cash was provided by a decrease in trading assets which more than offset cash used by a decrease in trading liabilities predominantly due to client-driven market-making activities in CIB; and a decrease in securities borrowed resulting from lower demand for securities to cover customer short positions in CIB. In 2014, cash was provided by a decrease in other assets driven by lower cash margin balances placed with exchanges and clearing houses; and higher net proceeds from loan sales activities.
 
Investing activities
Cash provided by investing activities during 2015 predominantly resulted from a net decrease in deposits with banks which was attributable to lower wholesale non-operating deposits; and net proceeds from paydowns, maturities and sales of investment securities. Partially offsetting these 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; and net purchases of investment securities. Additionally in 2014, loans increased due to net originations of wholesale loans.
Financing activities
Cash used in financing activities in 2015 resulted from lower wholesale deposits, partially offset by higher consumer deposits. The increase in consumer deposits reflected a continuing positive growth trend resulting from strong customer retention, maturing of recent branch builds, and net new business. 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 Balance Sheet Analysis on pages 10–11.



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 84–88. 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 June 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
$
586

 
$
447

 
$
1,033

 
$
899

 
$
415

 
$
1,314

Total noninterest revenue
13,128

 
447

 
13,575

 
13,880

 
415

 
14,295

Net interest income
10,684

 
272

 
10,956

 
10,798

 
244

 
11,042

Total net revenue
23,812

 
719

 
24,531

 
24,678

 
659

 
25,337

Pre-provision profit
9,312

 
719

 
10,031

 
9,247

 
659

 
9,906

Income before income tax expense
8,377

 
719

 
9,096

 
8,555

 
659

 
9,214

Income tax expense
$
2,087

 
$
719

 
$
2,806

 
$
2,575

 
$
659

 
$
3,234

Overhead ratio
61
%
 
NM

 
59
%
 
63
%
 
NM

 
61
%
 
Six months ended June 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
$
1,168

 
$
928

 
$
2,096

 
$
1,512

 
$
827

 
$
2,339

Total noninterest revenue
26,517

 
928

 
27,445

 
26,428

 
827

 
27,255

Net interest income
21,361

 
545

 
21,906

 
21,465

 
470

 
21,935

Total net revenue
47,878

 
1,473

 
49,351

 
47,893

 
1,297

 
49,190

Pre-provision profit
18,495

 
1,473

 
19,968

 
17,826

 
1,297

 
19,123

Income before income tax expense
16,601

 
1,473

 
18,074

 
16,284

 
1,297

 
17,581

Income tax expense
$
4,397

 
$
1,473

 
$
5,870

 
$
5,035

 
$
1,297

 
$
6,332

Overhead ratio
61
%
 
NM

 
60
%
 
63
%
 
NM

 
61
%
(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 67–71.

Tangible common equity
Period-end
 
Average
 
 
Three months ended June 30,
 
Six months ended June 30,
(in millions, except per share and ratio data)
Jun 30,
2015
Dec 31,
2014
 
 
 
2015
2014
 
2015
2014
Common stockholders’ equity
$
216,287

$
211,664

 
$
213,738

$
206,159

 
$
213,049

$
203,989

Less: Goodwill
47,476

47,647

 
47,485

48,084

 
47,488

48,069

Less: Certain identifiable intangible assets
1,091

1,192

 
1,113

1,416

 
1,138

1,482

Add: Deferred tax liabilities(a)
2,876

2,853

 
2,873

2,952

 
2,868

2,948

Tangible common equity
$
170,596

$
165,678

 
$
168,013

$
159,611

 
$
167,291

$
157,386

 
 
 
 
 
 
 
 
 
Return on tangible common equity
NA

NA

 
14
%
14
%
 
14
%
14
%
Tangible book value per share
$
46.13

$
44.60

 
NA

NA

 
NA

NA

(a)
Represents deferred tax liabilities related to tax-deductible goodwill and to identifiable intangibles created in non-taxable 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 June 30,
 
Six months ended June 30,
(in millions, except rates)
2015
2014
 
Change
 
2015
2014
 
Change
Net interest income – managed basis(a)(b)
$
10,956

$
11,042

 
(1
)%
 
$
21,906

$
21,935

 

Less: Markets-based net interest income
1,238

1,291

 
(4
)
 
2,497

2,560

 
(2
)
Net interest income excluding markets(a)
$
9,718

$
9,751

 

 
$
19,409

$
19,375

 

 
 
 
 
 
 
 
 
 
 
Average interest-earning assets
$
2,097,637

$
2,023,945

 
4

 
$
2,123,078

$
2,014,846

 
5

Less: Average markets-based interest earning assets
500,915

502,413

 

 
505,290

504,942

 

Average interest-earning assets excluding markets
$
1,596,722

$
1,521,532

 
5
 %
 
$
1,617,788

$
1,509,904

 
7
 %
Net interest yield on interest-earning assets – managed basis
2.09
%
2.19
%
 
 
 
2.08
%
2.20
%
 
 
Net interest yield on markets-based activities
0.99

1.03

 
 
 
1.00

1.02

 
 
Net interest yield on average interest-earning assets excluding markets
2.44
%
2.57
%
 
 
 
2.42
%
2.59
%
 
 
(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.
Quarterly and year-to-date results
Net interest income excluding CIB’s markets-based activities was flat at $9.7 billion and $19.4 billion, respectively, for the three and six months ended June 30, 2015, when compared with the prior year periods. Results in 2015 reflected lower loan yields due to the runoff of higher yielding loans, new originations of lower yielding loans and lower average investment securities balances, offset by higher average loan balances and the impact of lower deposits and long-term debt interest expense. Average
 
interest-earning assets excluding assets related to CIB’s markets-based activities increased by $75.2 billion to $1.6 trillion and by $107.9 billion to $1.6 trillion, respectively, for the three and six months ended June 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 decreased by 13 basis points to 2.44% and by 17 basis points to 2.42%, respectively, for the three and six months ended June 30, 2015.


15


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 14–15.
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
Each business segment is allocated capital by taking into consideration stand-alone peer comparisons, regulatory capital requirements (as estimated under Basel III Advanced Fully Phased-In) and economic risk measures. The amount of capital assigned to each business is referred to as equity. On at least an annual basis, the Firm assesses the level of capital required for each line of business as well as the assumptions and methodologies used to allocate capital to its lines of business and updates the equity allocations to its lines of business as refinements are implemented. For further information about these capital changes, see Line of business equity on page 72.

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

2014

Change
 
2015

2014

Change
 
2015

2014

Change
Consumer & Community Banking
$
11,015

$
11,518

(4)%

 
$
6,210

$
6,456

(4)%

 
$
4,805

$
5,062

(5)%

Corporate & Investment Bank
8,723

9,265

(6
)
 
5,137

6,058

(15
)
 
3,586

3,207

12

Commercial Banking
1,739

1,731


 
703

675

4

 
1,036

1,056

(2
)
Asset Management
3,175

2,982

6

 
2,406

2,062

17

 
769

920

(16
)
Corporate
(121
)
(159
)
24

 
44

180

(76
)
 
(165
)
(339
)
51

Total
$
24,531

$
25,337

(3)%

 
$
14,500

$
15,431

(6)%

 
$
10,031

$
9,906

1%

Three months ended June 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
$
702

$
852

(18
)%
 
$
2,533

$
2,496

1%

 
19
%
19
%
Corporate & Investment Bank
50

(84
)
NM

 
2,341

2,131

10

 
14

13

Commercial Banking
182

(67
)
NM

 
525

677

(22
)
 
14

19

Asset Management

1

(100
)
 
451

569

(21
)
 
19

25

Corporate
1

(10
)
NM

 
440

107

311

 
NM
NM
Total
$
935

$
692

35
 %
 
$
6,290

$
5,980

5%

 
11%

11
%
Six months ended June 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
$
21,719

$
22,052

(2)%

 
$
12,400

$
12,893

(4
)%
 
$
9,319

$
9,159

2
 %
Corporate & Investment Bank
18,305

18,107

1

 
10,794

11,662

(7
)
 
7,511

6,445

17

Commercial Banking
3,481

3,409

2

 
1,412

1,361

4

 
2,069

2,048

1

Asset Management
6,180

5,782

7

 
4,581

4,137

11

 
1,599

1,645

(3
)
Corporate
(334
)
(160
)
(109
)
 
196

14

NM

 
(530
)
(174
)
(205
)
Total
$
49,351

$
49,190


 
$
29,383

$
30,067

(2
)%
 
$
19,968

$
19,123

4
 %
Six months ended June 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
$
1,632

$
1,668

(2)%

 
$
4,752

$
4,477

6%

 
18
%
17
%
Corporate & Investment Bank
19

(35
)
NM

 
4,878

4,256

15

 
15

13

Commercial Banking
243

(62
)
NM

 
1,123

1,271

(12
)
 
15

18

Asset Management
4

(8
)
NM

 
953

1,023

(7
)
 
21

22

Corporate
(4
)
(21
)
81

 
498

222

124

 
NM
NM
Total
$
1,894

$
1,542

23%

 
$
12,204

$
11,249

8%

 
11%

11
%

16



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 180.
Selected income statement data
 
 
 
 
 
 
 
 
 
 
 
 
 
Three months ended June 30,
 
Six months ended June 30,
(in millions, except ratios)
2015

 
2014

 
Change
 
2015
 
2014
 
 
Change
Revenue
 
 
 
 
 
 
 
 
 
 
 
 
Lending- and deposit-related fees
$
766

 
$
750

 
2
 %
 
$
1,484

 
$
1,453

 
 
2
 %
Asset management, administration and commissions
553

 
521

 
6

 
1,083

 
1,024

 
 
6

Mortgage fees and related income
782

 
1,290

 
(39
)
 
1,486

 
1,804

 
 
(18
)
Card income
1,506

 
1,486

 
1

 
2,830

 
2,834

 
 

All other income
482

 
421

 
14

 
942

 
787

 
 
20

Noninterest revenue
4,089

 
4,468

 
(8
)
 
7,825

 
7,902

 
 
(1
)
Net interest income
6,926

 
7,050

 
(2
)
 
13,894

 
14,150

 
 
(2
)
Total net revenue
11,015

 
11,518

 
(4
)
 
21,719

 
22,052

 
 
(2
)
 
 
 
 
 
 
 
 
 
 
 
 
 
Provision for credit losses
702

 
852

 
(18
)
 
1,632

 
1,668

 
 
(2
)
 
 
 
 
 
 
 
 
 
 
 
 
 
Noninterest expense
 
 
 
 
 
 
 
 
 
 
 
 
Compensation expense
2,478

 
2,637

 
(6
)
 
5,008

 
5,376

 
 
(7
)
Noncompensation expense
3,732

 
3,819

 
(2
)
 
7,392

 
7,517

 
 
(2
)
Total noninterest expense
6,210

 
6,456

 
(4
)
 
12,400

 
12,893

 
 
(4
)
Income before income tax expense
4,103

 
4,210

 
(3
)
 
7,687

 
7,491

 
 
3

Income tax expense
1,570

 
1,714

 
(8
)
 
2,935

 
3,014

 
 
(3
)
Net income
$
2,533

 
$
2,496

 
1
 %
 
$
4,752

 
$
4,477

 
 
6
 %
 
 
 
 
 
 
 
 
 
 
 
 
 
Financial ratios
 
 
 
 
 
 
 
 
 
 
 
 
Return on common equity
19
%
 
19
%
 
 
 
18
%
 
17
%
 
 
 
Overhead ratio
56

 
56

 
 
 
57

 
58

 
 
 
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 14–15.
Quarterly results
Consumer & Community Banking net income was $2.5 billion, an increase of 1% compared with the prior year.
Net revenue was $11.0 billion, a decrease of 4% compared with the prior year. Net interest income was $6.9 billion, down 2%, driven by spread compression, largely offset by higher deposit balances, higher loan balances and lower reversals of interest and fees due to lower net charge-offs in Credit Card. Noninterest revenue was $4.1 billion, down 8%, driven by lower mortgage fees and related income, partially offset by higher Auto lease income and higher net interchange income in Credit Card.
The provision for credit losses was $702 million, a decrease of 18% compared with the prior year, reflecting lower net charge-offs, partially offset by a lower reduction in the allowance for loan losses. The current-quarter provision reflected a $326 million reduction in the allowance for loan losses. The prior year included a $357 million reduction in the allowance for loan losses. For more information, including net charge-off amounts and rates, see Consumer Credit Portfolio on pages 46–51.
Noninterest expense was $6.2 billion, a decrease of 4% from the prior year, predominantly driven by lower Mortgage Banking expense.
 
Year-to-date results
Consumer & Community Banking net income was $4.8 billion, an increase of 6% compared with the prior year, driven by lower noninterest expense, largely offset by lower net revenue.
Net revenue was $21.7 billion, a decrease of 2% compared with the prior year. Net interest income was $13.9 billion, down 2%, driven by spread compression, largely offset by higher deposit and loan balances. Noninterest revenue was $7.8 billion, down 1%, driven by lower mortgage fees and related income, predominantly offset by higher Auto lease income and higher net interchange income in Credit Card.
The provision for credit losses was $1.6 billion, a decrease of 2% from the prior year, reflecting lower net charge-offs, predominantly offset by a lower reduction in the allowance for loan losses. The current-year provision reflected a $451 million reduction in the allowance for loan losses. The prior year included a $807 million reduction in the allowance for loan losses. For more information, including net charge-off amounts and rates, see Consumer Credit Portfolio on pages 46–51.
Noninterest expense was $12.4 billion, a decrease of 4% from the prior year, predominantly driven by lower Mortgage Banking expense.


17



Selected metrics
 
 
 
 
 
 
 
 
 
 
 
 
As of or for the three months
ended June 30,
 
As of or for the six months
ended June 30,
(in millions, except headcount)
2015
 
2014
 
Change
 
2015
 
2014
 
Change
Selected balance sheet data (period-end)
 
 
 
 
 
 
 
 
 
 
 
Total assets
$
472,181

 
$
447,277

 
6
 %
 
$
472,181

 
$
447,277

 
6
 %
Trading assets – loans(a)
6,700

 
7,409

 
(10
)
 
6,700

 
7,409

 
(10
)
Loans:
 
 
 
 
 
 
 
 
 
 
 
Loans retained
413,363

 
390,211

 
6

 
413,363

 
390,211

 
6

Loans held-for-sale(b)
2,825

 
1,472

 
92

 
2,825

 
1,472

 
92

Total loans
416,188

 
391,683

 
6

 
416,188

 
391,683

 
6

Core loans
301,154

 
253,817

 
19

 
301,154

 
253,817

 
19

Deposits
530,767

 
488,681

 
9

 
530,767

 
488,681

 
9

Equity(c)
51,000

 
51,000

 

 
51,000

 
51,000

 

Selected balance sheet data (average)
 
 
 
 
 
 
 
 
 
 
 
Total assets
$
463,404

 
$
443,204

 
5

 
$
459,108

 
$
446,794

 
3

Trading assets – loans(a)
7,068

 
6,593

 
7

 
7,528

 
7,017

 
7

Loans:
 
 
 
 
 
 
 
 
 
 
 
Loans retained
406,029

 
388,252

 
5

 
400,587

 
388,464

 
3

Loans held-for-sale(d)
2,100

 
710

 
19