Edgar Filing: JPMORGAN CHASE & CO

Document

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

Quarterly report pursuant to Section 13 or 15(d) of

the Securities Exchange Act of 1934



For the quarterly period ended	Commission file
June 30, 2016	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, 2016: 3,611,982,360

FORM 10-Q

TABLE OF CONTENTS



Part I – Financial information		Page
Item 1.	Financial Statements.
	Consolidated Financial Statements – JPMorgan Chase & Co.:
	Consolidated statements of income (unaudited) for the three and six months ended June 30, 2016 and 2015	81
	Consolidated statements of comprehensive income (unaudited) for the three and six months ended June 30 2016 and 2015	82
	Consolidated balance sheets (unaudited) at June 30, 2016, and December 31, 2015	83
	Consolidated statements of changes in stockholders’ equity (unaudited) for the six months ended June 30, 2016 and 2015	84
	Consolidated statements of cash flows (unaudited) for the six months ended June 30, 2016 and 2015	85
	Notes to Consolidated Financial Statements (unaudited)	86
	Report of Independent Registered Public Accounting Firm	166
	Consolidated Average Balance Sheets, Interest and Rates (unaudited) for the three and six months ended June 30, 2016 and 2015	167
	Glossary of Terms and Acronyms and Line of Business Metrics	169
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	8
	Consolidated Balance Sheets Analysis	12
	Off-Balance Sheet Arrangements	14
	Consolidated Cash Flows Analysis	15
	Explanation and Reconciliation of the Firm’s Use of Non-GAAP Financial Measures and Key Performance Measures	16
	Business Segment Results	18
	Enterprise-Wide Risk Management	40
	Credit Risk Management	41
	Market Risk Management	58
	Country Risk Management	62
	Capital Management	63
	Liquidity Risk Management	70
	Supervision and Regulation	75
	Critical Accounting Estimates Used by the Firm	76
	Accounting and Reporting Developments	78
	Forward-Looking Statements	80
Item 3.	Quantitative and Qualitative Disclosures About Market Risk.	177
Item 4.	Controls and Procedures.	177
Part II – Other information
Item 1.	Legal Proceedings.	177
Item 1A.	Risk Factors.	177
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds.	177
Item 3.	Defaults Upon Senior Securities.	178
Item 4.	Mine Safety Disclosures.	178
Item 5.	Other Information.	178
Item 6.	Exhibits.	178

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)																Six months ended June 30,
	2Q16			1Q16			4Q15			3Q15			2Q15			2016			2015
Selected income statement data
Total net revenue	$	24,380		$	23,239		$	22,885		$	22,780		$	23,812		$	47,619		$	47,878
Total noninterest expense	13,638			13,837			14,263			15,368			14,500			27,475			29,383
Pre-provision profit	10,742			9,402			8,622			7,412			9,312			20,144			18,495
Provision for credit losses	1,402			1,824			1,251			682			935			3,226			1,894
Income before income tax expense	9,340			7,578			7,371			6,730			8,377			16,918			16,601
Income tax expense/(benefit)	3,140			2,058			1,937			(74		)	2,087			5,198			4,397
Net income	$	6,200		$	5,520		$	5,434		$	6,804		$	6,290		$	11,720		$	12,204
Earnings per share data
Net income: Basic	$	1.56		$	1.36		$	1.34		$	1.70		$	1.56		$	2.92		$	3.02
Diluted	1.55			1.35			1.32			1.68			1.54			2.89			2.99
Average shares: Basic	3,635.8			3,669.9			3,674.2			3,694.4			3,707.8			3,652.9			3,716.6
Diluted	3,666.5			3,696.9			3,704.6			3,725.6			3,743.6			3,681.7			3,750.5
Market and per common share data
Market capitalization	224,449			216,547			241,899			224,438			250,581			224,449			250,581
Common shares at period-end	3,612.0			3,656.7			3,663.5			3,681.1			3,698.1			3,612.0			3,698.1
Share price^(a):
High	$	66.20		$	64.13		$	69.03		$	70.61		$	69.82		$	66.20		$	69.82
Low	57.05			52.50			58.53			50.07			59.65			52.50			54.27
Close	62.14			59.22			66.03			60.97			67.76			62.14			67.76
Book value per share	62.67			61.28			60.46			59.67			58.49			62.67			58.49
Tangible book value per share (“TBVPS”)^(b)	50.21			48.96			48.13			47.36			46.13			50.21			46.13
Cash dividends declared per share	0.48			0.44			0.44			0.44			0.44			0.92			0.84
Selected ratios and metrics
Return on common equity (“ROE”)	10		%	9		%	9		%	12		%	11		%	10		%	11		%
Return on tangible common equity (“ROTCE”)^(b)	13			12			11			15			14			12			14
Return on assets (“ROA”)	1.02			0.93			0.90			1.11			1.01			0.97			0.97
Overhead ratio	56			60			62			67			61			58			61
Loans-to-deposits ratio	66			64			65			64			61			66			61
High quality liquid assets (“HQLA”) (in billions)^(c)	$	516		$	505		$	496		$	505		$	532		$	516		$	532
Common equity Tier 1 (“CET1”) capital ratio^(d)	12.0%			11.9		%	11.8%			11.5		%	11.2		%	12.0		%	11.2		%
Tier 1 capital ratio^(d)	13.6			13.5			13.5			13.3			12.8			13.6			12.8
Total capital ratio^(d)	15.2			15.1			15.1			14.9			14.4			15.2			14.4
Tier 1 leverage ratio^(d)	8.5			8.6			8.5			8.4			8.0			8.5			8.0
Selected balance sheet data (period-end)
Trading assets	$	380,793		$	366,153		$	343,839		$	361,708		$	377,870		$	380,793		$	377,870
Securities	278,610			285,323			290,827			306,660			317,795			278,610			317,795
Loans	872,804			847,313			837,299			809,457			791,247			872,804			791,247
Core loans	775,813			746,196			732,093			698,988			674,767			775,813			674,767
Average core loans	760,721			737,297			715,282			680,224			654,551			749,009			643,315
Total assets	2,466,096			2,423,808			2,351,698			2,416,635			2,449,098			2,466,096			2,449,098
Deposits	1,330,958			1,321,816			1,279,715			1,273,106			1,287,332			1,330,958			1,287,332
Long-term debt^(e)	295,627			290,754			288,651			292,503			286,240			295,627			286,240
Common stockholders’ equity	226,355			224,089			221,505			219,660			216,287			226,355			216,287
Total stockholders’ equity	252,423			250,157			247,573			245,728			241,205			252,423			241,205
Headcount	240,046			237,420			234,598			235,678			237,459			240,046			237,459
Credit quality metrics
Allowance for credit losses	$	15,187		$	15,008		$	14,341		$	14,201		$	14,535		$	15,187		$	14,535
Allowance for loan losses to total retained loans	1.64%			1.66%			1.63%			1.67%			1.78%			1.64%			1.78%
Allowance for loan losses to retained loans excluding purchased credit-impaired loans^(f)	1.40			1.40			1.37			1.40			1.45			1.40			1.45
Nonperforming assets	$	7,757		$	8,023		$	7,034		$	7,294		$	7,588		$	7,757		$	7,588
Net charge-offs	1,181			1,110			1,064			963			1,007			2,291			2,059
Net charge-off rate	0.56%			0.53%			0.52%			0.49%			0.53%			0.54%			0.55%

Note: Effective January 1, 2016, the Firm adopted new accounting guidance related to (1) the recognition and measurement of debit valuation adjustments (“DVA”) on financial liabilities where the fair value option has been elected, and (2) the accounting for employee stock-based incentive payments. For additional information, see Accounting and Reporting Developments on pages 78–79 and Notes 3, 4, and 19.


(a)	Share prices shown for JPMorgan Chase’s common stock are from the New York Stock Exchange.


(b)	TBVPS and ROTCE are considered key financial performance measures. For further discussion of these measures, see Explanation and Reconciliation of the Firm’s Use of Non-GAAP Financial Measures and Key Financial Performance Measures on pages 16–17.


(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 additional information, see HQLA on page 70.


(d)	Ratios presented are calculated under the Basel III Transitional capital rules and represent the Collins Floor. See Capital Management on pages 63–69 for additional information on Basel III.


(e)	Included unsecured long-term debt of $220.6 billion, $216.1 billion, $211.8 billion, $214.6 billion and $209.1 billion at June 30, 2016, March 31, 2016, December 31, 2015, September 30, 2015 and June 30, 2015, respectively.


(f)	Excluded the impact of residential real estate purchased credit-impaired (“PCI”) loans, a non-GAAP financial measure. For further discussion of these measures, see Explanation and Reconciliation of the Firm’s Use of Non-GAAP Financial Measures and Key Performance Measures on pages 16–17. For further discussion, see Allowance for credit losses on pages 55–57.



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 2016.

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, 2015, filed with the U.S. Securities and Exchange Commission (“2015 Annual Report or 2015 Form 10-K”), to which reference is hereby made. See the Glossary of terms and acronyms on pages 169–176 for definitions of terms and acronyms used throughout this Form 10-Q.

The MD&A included in this Form 10-Q contains statements that are forward-looking within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are based on the current beliefs and expectations of JPMorgan Chase’s management and are subject to significant risks and uncertainties. Actual results may differ from those set forth in the forward-looking statements. For a discussion of certain of those risks and uncertainties and the factors that could cause JPMorgan Chase’s actual results to differ materially because of those risks and uncertainties, see Forward-looking Statements on page 80 of this Form 10-Q and Part I, Item 1A, Risk Factors, on pages 8–18 of JPMorgan Chase’s 2015 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 $2.5 trillion in assets and $252.4 billion in stockholders’ equity as of June 30, 2016. 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 JPMorgan Securities LLC (“JPMorgan Securities”), the Firm’s U.S. investment banking firm. The bank and nonbank subsidiaries of JPMorgan Chase operate nationally as well as through overseas branches and subsidiaries, representative offices and subsidiary foreign banks. One of the Firm’s principal operating subsidiaries in the United Kingdom (“U.K.”) is J.P. Morgan Securities plc, a subsidiary of JPMorgan Chase Bank, N.A.

For management reporting purposes, the Firm’s activities are organized into four major reportable business segments, as well as a Corporate segment. The Firm’s consumer business is the Consumer & Community Banking (“CCB”) segment. The Firm’s wholesale business segments are Corporate & Investment Bank (“CIB”), Commercial Banking (“CB”), and Asset Management (“AM”). 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 2015 Annual Report.



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)	2016			2015			Change		2016			2015			Change
Selected income statement data
Total net revenue	$	24,380		$	23,812		2	%	$	47,619		$	47,878		(1)%
Total noninterest expense	13,638			14,500			(6	)	27,475			29,383			(6	)
Pre-provision profit	10,742			9,312			15		20,144			18,495			9
Provision for credit losses	1,402			935			50		3,226			1,894			70
Net income	6,200			6,290			(1	)	11,720			12,204			(4	)
Diluted earnings per share	$	1.55		$	1.54		1	%	$	2.89		$	2.99		(3	)%
Return on common equity	10		%	11		%			10		%	11		%
Capital ratios^(a)
CET1	12.0			11.2					12.0			11.2
Tier 1 capital	13.6			12.8					13.6			12.8


(a)	Ratios presented are calculated under the transitional Basel III rules and represent the Collins Floor. See Capital Management on pages 63–69 for additional information on Basel III.

Business Overview

JPMorgan Chase reported second-quarter 2016 net income of $6.2 billion, or $1.55 per share, on net revenue of $24.4 billion. Net income was relatively flat compared with the second quarter of 2015. The Firm reported a ROE of 10% and a ROTCE of 13%.

Total net revenue was $24.4 billion, up 2% compared with the prior year. Net interest income increased primarily driven by loan growth across businesses and the impact of higher rates, partially offset by lower investment securities balances. Noninterest revenue of $13.0 billion was flat, with an increase in CIB Markets revenue offset by lower revenue in AM, lower CIB Investment Banking revenue and the impact of renegotiated Card co-brand partnership agreements.

Noninterest expense was $13.6 billion, down 6% compared with the prior year, driven by a net legal benefit in the current quarter and continued expense reduction initiatives.

The provision for credit losses was $1.4 billion, up from $935 million, reflecting an increase in the allowance for credit losses in the current quarter versus decreases in the allowance for credit losses in the prior-year quarter. The current quarter reflected higher net charge-offs in wholesale, primarily driven by the Oil & Gas and Metals & Mining portfolios.

The total allowance for credit losses was $15.2 billion at June 30, 2016. At the end of the second quarter of 2016, the Firm had a loan loss coverage ratio, excluding the PCI portfolio, of 1.40%, compared with 1.45% in the prior-year quarter. The Firm’s allowance for loan losses to retained nonaccrual loans, excluding the PCI and credit card portfolios, was 110%, compared with 109% in the prior-year quarter. The Firm’s nonperforming assets totaled $7.8

billion, down from the prior-quarter level of $8.0 billion and up from the prior-year level of $7.6 billion.

Firmwide average core loans increased 16% compared with the prior-year quarter and 3% compared with the first quarter of 2016. Within CCB, average core loans were up 23% over the prior-year quarter. CCB had record growth in average deposits, up $54 billion, or 10%, over the prior-year quarter. Credit card sales volume was up 8% and merchant processing volume was up 13% from the prior-year quarter. CCB had nearly 25 million active mobile customers in the second quarter of 2016, up 18% over the prior-year quarter.

CIB maintained its #1 ranking for Global Investment Banking fees with a 7.9% wallet share for the second quarter of 2016. Within CB, average loans were up 13% from the prior-year quarter. AM had record average loans, up 4% over the prior-year quarter and 81% of AM’s mutual fund assets under management ranked in the 1st or 2nd quartiles over the past 5 years.

For a detailed discussion of results by line of business, refer to the Business Segment Results on pages 18–39.

The Firm maintained its fortress balance sheet and added to its capital, ending the second quarter of 2016 with a TBVPS of $50.21, up 9% over the prior-year quarter. The Firm’s estimated Basel III Advanced Fully Phased-In CET1 capital and ratio were $179 billion and 11.9%, respectively. The Fully Phased-In supplementary leverage ratio (“SLR”) for the Firm and for JPMorgan Chase Bank, N.A. was each 6.6% at June 30, 2016. The Firm also was compliant with the Fully Phased-In U.S. LCR and had $516 billion of HQLA as of June 30, 2016. For further discussion of the liquidity coverage ratio (“LCR”) and HQLA, see Liquidity Risk Management on pages 70–74.

Key performance measures: ROTCE and TBVPS are considered key financial performance measures. Each of the Fully Phased-In capital and leverage measures is considered a key regulatory capital measure.

For further discussion of Basel III Advanced Fully Phased-In measures and the SLR under the U.S. final SLR rule, see Explanation and Reconciliation of the Firm’s Use of Non-GAAP Financial Measures and Key Performance Measures on pages 16–17, and Capital Management on pages 63–69.

JPMorgan Chase continues to support consumers, businesses and communities around the globe. The Firm provided credit and raised capital of $1.2 trillion for commercial and consumer clients during the first six months of 2016. This included providing $369 billion of credit to corporations, $123 billion to consumers, and $12 billion to U.S. small businesses. During the first six months of 2016, the Firm also raised $599 billion of capital for corporate clients and non-U.S. government entities and provided credit and raised capital of $47 billion for nonprofit and U.S. government entities, including U.S. states, municipalities, hospitals and universities.

Regulatory and business developments

In March 2016, the Basel Committee proposed revisions to the operational and credit risk capital frameworks of Basel III and in April 2016, proposed a recalibration of the leverage ratio, changes to the definition of defaulted assets and finalized the treatment of interest rate risk in the banking book. As these proposals are finalized by the Basel Committee, U.S. banking regulators will propose requirements applicable to U.S. financial institutions. In March 2016, the Federal Reserve Board released a revised proposal to establish single-counterparty credit limits for large U.S. bank holding companies and foreign banking organizations. The Firm continues to assess the impacts as the proposed rules are finalized and will make appropriate adjustments to its businesses in response to these and other ongoing developments in regulatory requirements.

On April 6, 2016, the U.S. Department of Labor (“DOL”) issued its final “fiduciary” rule. The rule will deem many of the investment, rollover and asset management recommendations from broker-dealers, banks and other financial institutions to clients regarding their individual retirement accounts and other retirement accounts fiduciary “investment advice” under the Employee Retirement Income Security Act of 1974 (“ERISA”), as amended. Among the most significant impacts of the rule and related prohibited transaction exemptions will be the impact on the fee and compensation practices at financial institutions and on certain fee and revenue sharing arrangements among funds, fund sponsors and the financial institutions that offer investment advice to retail retirement clients. The related exemptions may require new client contracts, adherence to “impartial conduct” standards (including a requirement to act in the “best interest” of retirement clients) the adoption of related policies and procedures, as well as website and other disclosures to both investors and the DOL. The Firm believes it will be able to

conform its business practices to meet the requirements of the new rule and exemptions within the prescribed time periods.

On April 13, 2016, the Federal Deposit Insurance Corporation (“FDIC”) and the Board of Governors of the Federal Reserve System (the “Federal Reserve”) jointly announced determinations and provided firm-specific feedback on the 2015 resolution plans of eight systemically important domestic banking institutions, including the Firm. The FDIC and the Federal Reserve jointly determined that the 2015 resolution plan of the Firm, along with the 2015 resolution plans of four other U.S. banking institutions, was not credible or would not facilitate an orderly resolution under the U.S. Bankruptcy Code, as provided under the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”), because the plan contained certain deficiencies identified by the two agencies. If the Firm does not adequately remediate the identified deficiencies in its plan by October 1, 2016, the FDIC and the Federal Reserve may impose more stringent prudential requirements on the Firm, including more stringent capital, leverage, or liquidity requirements, as well as restrictions on the growth, activities, or operations of the Firm, or its subsidiaries. The FDIC and the Federal Reserve also identified certain shortcomings in the Firm’s 2015 resolution plan which must be satisfactorily addressed in the Firm’s resolution plan due on July 1, 2017. The Firm is committed to meeting the regulators’ expectations and fully remediating the identified deficiencies and shortcomings within the prescribed deadlines.

On June 23, 2016, the U.K. conducted a referendum and voted to leave the European Union. Many international banks, including the Firm, operate substantial parts of their European Union business from entities based in the U.K. Upon the U.K. leaving the European Union, the regulatory and legal environment that would then exist, and to which the Firm’s U.K. operations would then be subject, will depend on, in certain respects, the nature of the arrangements agreed with the European Union and other trading partners.

These arrangements cannot be predicted, but currently the Firm does not believe any of the likely identified scenarios would threaten the viability of the Firm’s business units or the Firm’s ability to serve clients across the European Union and in the U.K. However, it is possible that under some scenarios, changes to the Firm’s legal entity structure and operations would be required, which might result in a less efficient operating model across the Firm’s European legal entities.

On June 29, 2016, the Federal Reserve informed the Firm that it did not object, on either a quantitative or qualitative basis, to the Firm’s 2016 capital plan, submitted under the Comprehensive Capital Analysis and Review (“CCAR”). For additional information see Capital Management on pages 63–69.

2016 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 80 of this Form 10-Q and Risk Factors on pages 8–18 of JPMorgan Chase’s 2015 Annual Report. There is no assurance that actual results for the full year of 2016 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 2016 should be viewed against the backdrop of the global and U.S. economies, financial markets activity, the geopolitical environment, the competitive environment, client activity levels, and regulatory and legislative developments in the U.S. and other countries where the Firm does business. Each of these interrelated factors will affect the performance of the Firm and its lines of business. The Firm expects it will continue to make appropriate adjustments to its businesses and operations in response to ongoing developments in the legal and regulatory, as well as business and economic, environment in which it operates.

Assuming there are no changes in interest rates during the remainder of 2016, management expects full-year 2016 net interest income could be over $2 billion higher compared to 2015 levels, reflecting the Federal Reserve’s rate increase in December 2015 and anticipated loan growth.

Management also expects managed noninterest revenue of approximately $50 billion in 2016, although actual results will depend on market conditions. The anticipated decline from 2015 levels is expected to be driven primarily by lower Card revenue, reflecting renegotiated co-brand partnership agreements, lower Investment Banking fees and lower Asset Management revenue.

Management expects core loan growth of approximately 10%-15% in 2016 as well as continued growth in consumer deposits; as a result of these two factors, the Firm’s average balance sheet is anticipated to reach approximately $2.45 trillion in 2016.

The Firm continues to experience charge-offs at levels lower than its through-the-cycle expectations reflecting favorable credit trends across the consumer and wholesale portfolios (excluding the Oil & Gas and Metals & Mining portfolios). Management expects total net charge-offs of up to approximately $4.75 billion in 2016, with the increase from 2015 levels driven by loan growth as well as higher charge-offs in the Oil & Gas portfolio.

The Firm continues to take a disciplined approach to managing its expenses, while investing in growth and innovation. The Firm intends to leverage its scale and improve its operating efficiencies, in order to reinvest its expense savings in additional technology and marketing investments and fund other growth initiatives. As a result, Firmwide adjusted expense in 2016 is expected to be approximately $56 billion (excluding Firmwide legal expense).



CONSOLIDATED RESULTS OF OPERATIONS

This section provides a comparative discussion of JPMorgan Chase’s Consolidated Results of Operations on a reported basis for the three and six months ended June 30, 2016 and 2015, unless otherwise specified. Factors that relate primarily to a single business segment are discussed in more detail within that business segment. For a discussion of the Critical Accounting Estimates Used by the Firm that affect the Consolidated Results of Operations, see pages 76–77 of this Form 10-Q and pages 165–169 of JPMorgan Chase’s 2015 Annual Report.



Revenue
	Three months ended June 30,						Six months ended June 30,
(in millions)	2016		2015		Change		2016		2015		Change
Investment banking fees	$	1,644	$	1,833	(10	)%	$	2,977	$	3,627	(18	)%
Principal transactions	2,976		2,834		5		5,655		6,489		(13	)
Lending- and deposit-related fees	1,403		1,418		(1	)	2,806		2,781		1
Asset management, administration and commissions	3,681		4,015		(8	)	7,305		7,822		(7	)
Securities gains	21		44		(52	)	72		96		(25	)
Mortgage fees and related income	689		783		(12	)	1,356		1,488		(9	)
Card income	1,358		1,615		(16	)	2,659		3,046		(13	)
Other income^(a)	1,261		586		115		2,062		1,168		77
Noninterest revenue	13,033		13,128		(1	)	24,892		26,517		(6	)
Net interest income	11,347		10,684		6		22,727		21,361		6
Total net revenue	$	24,380	$	23,812	2%		$	47,619	$	47,878	(1)%


(a)	Included operating lease income of $651 million and $504 million for the three months ended June 30, 2016 and 2015, respectively, and $1.3 billion and $973 million for the six months ended June 30, 2016 and 2015, respectively.

Quarterly results

Total net revenue was up by 2% primarily reflecting higher net interest income. Noninterest revenue was flat, with the increase in Markets revenue in CIB and higher other income, which included a gain in CCB on the sale of Visa Europe interests offset by lower revenue in AM, lower CIB Investment Banking revenue and the impact of renegotiated Card co-brand partnership agreements.

Investment banking fees decreased predominantly driven by lower equity underwriting fees compared to a strong quarter in the prior year, reflecting lower industry-wide fee levels. For additional information on investment banking fees, see CIB segment results on pages 25–29, CB segment results on pages 30–33 and Note 6.

Principal transactions revenue increased largely reflecting higher Fixed Income Markets revenue in CIB as a result of strong performance in Rates and Currencies & Emerging Markets on higher client flows driven by increased issuance-related activity, improved global emerging market sentiment and increased volumes in foreign exchange markets. Performance in Credit Products also improved as client risk appetite recovered in a less volatile environment driving higher primary and secondary market activity. The increase was partially offset by a net reduction in Credit Adjustments & Other in CIB, and fair value losses on the investment in Square in CCB. For additional information on principal transactions revenue, see CIB segment results on pages 25–29 and Note 6.

Lending- and deposit-related fees were flat. For information on lending- and deposit-related fees, see the segment results for CCB on pages 19–24, CIB on pages 25–29, and CB on pages 30–33.

Asset management, administration and commissions revenue decreased largely reflecting the impact of weaker markets (including generally lower average equity market values compared with the prior year), lower performance fees and lower brokerage activity, particularly in AM. For additional information on these fees and commissions, see the segment discussions of CCB on pages 19–24, AM on pages 34–37, and Note 6.

Mortgage fees and related income decreased due to lower servicing revenue, largely as a result of a lower level of third-party loans serviced, partially offset by higher net production revenue. For further information on mortgage fees and related income, see the segment discussion of CCB on pages 19–24 and Note 16.

Card income decreased due to the impact of renegotiated co-brand partnership agreements and higher amortization of new account origination costs. For further information, see CCB segment results on pages 19–24.

Other income increased predominantly reflecting a gain on the sale of Visa Europe interests and higher operating lease income reflecting growth in auto operating leased assets, both in CCB.

Net interest income increased primarily driven by loan growth across businesses and the impact of higher rates, partially offset by lower investment securities balances and higher interest expense on long-term debt primarily associated with hedging activity. The Firm’s average interest-earning assets and net interest yield, on a fully taxable equivalent (“FTE”) basis, were $2.1 trillion and 2.25% (an increase of 16 basis points), respectively.

Year-to-date results

Total net revenue was flat, with the decrease in noninterest revenue offset by the increase in net interest income. The decrease in noninterest revenue was primarily driven by lower revenue in CIB and AM, and the impact of renegotiated Card co-brand partnership agreements, partially offset by higher other income, which included a gain in CCB on the sale of Visa Europe interests.

Investment banking fees decreased driven by lower equity and debt underwriting fees reflecting a decline in industry-wide fee levels. Debt underwriting fees were also impacted by fewer large acquisition finance deals.

Principal transactions revenue decreased largely reflecting the following in CIB: a net reduction in Credit Adjustments

& Other on widening credit spreads, and lower Equity Markets revenue compared with a strong prior year, particularly in Asia.

Lending- and deposit-related fees were flat. For information on lending- and deposit-related fees, see the segment results for CCB on pages 19–24, CIB on pages 25–29, and CB on pages 30–33.

Asset management, administration and commissions revenue decreased largely reflecting the impact of the challenging market environment, particularly in AM.

Mortgage fees and related income decreased due to lower servicing revenue, largely as a result of a lower level of third-party loans serviced, and lower net production revenue, largely offset by higher mortgage servicing rights (“MSR”) risk management results.

Card income decreased due to the impact of renegotiated co-brand partnership agreements and higher amortization of new account origination costs, partially offset by higher card sales volume. For further information, see CCB segment results on pages 19–24.

Other income increased predominantly reflecting a gain on the sale of Visa Europe interests in CCB, a gain on sale of an asset in AM, higher operating lease income reflecting growth in auto operating leased assets in CCB, and the impact of a loss recorded in the prior year related to the accelerated amortization of cash flow hedges associated with the exit of certain non-operating deposits.

Net interest income increased primarily driven by loan growth across businesses and the impact of higher rates, partially offset by lower investment securities balances and higher interest expense on long-term debt primarily associated with hedging activity. The Firm’s average interest-earning assets and net interest yield, on a FTE basis, were $2.1 trillion and 2.28% (an increase of 20 basis points), respectively.



Provision for credit losses
	Three months ended June 30,							Six months ended June 30,
(in millions)	2016		2015			Change		2016		2015		Change
Consumer, excluding credit card	$	95	$	(98	)	NM		$	316	$	44	NM
Credit card	1,110		800			39	%	1,940		1,589		22	%
Total consumer	1,205		702			72	%	2,256		1,633		38	%
Wholesale	197		233			(15	)%	970		261		272	%
Total provision for credit losses	$	1,402	$	935		50	%	$	3,226	$	1,894	70	%

Quarterly results

The provision for credit losses increased due to additions to the allowance for credit losses compared with reductions in the prior year, and higher net charge-offs. The Consumer provision reflected an increase in the allowance for credit losses primarily driven by higher loss rates in newer credit card vintages, as well as growth in the credit card and auto loan portfolios, partially offset by reductions in the allowance due to continued improvement in home prices and delinquencies in the residential real estate portfolio, as well as runoff in the student loan portfolio. The Wholesale provision reflected higher net charge-offs primarily driven by Oil & Gas and Metals & Mining and a net addition to the allowance for credit losses of approximately $50 million; the allowance reflected an increase of approximately $200 million, driven by a single Oil & Gas name in the CIB, which was largely offset by releases in the allowance across the remainder of the portfolio.

For a more detailed discussion of the credit portfolio and the allowance for credit losses, see the segment discussions of CCB on pages 19–24, CIB on pages 25–29, CB on pages 30–33, and the Allowance for credit losses on pages 55–57.

Year-to-date results

The provision for credit losses increased due to additions to the allowance for credit losses compared with reductions in the prior year, and higher net charge-offs. The Consumer provision reflected an increase in the allowance for credit losses primarily driven by higher loss rates in newer credit card vintages, as well as growth in the credit card and auto loan portfolios, partially offset by reductions in the allowance due to continued improvement in home prices and delinquencies in the residential real estate portfolio, as well as runoff in the student loan portfolio. The Wholesale provision reflected higher net charge-offs primarily driven by Oil & Gas and Metals & Mining and an addition to the allowance for credit losses of approximately $750 million, reflecting an increase of approximately $700 million related to the Oil & Gas and Natural Gas Pipelines portfolios.



Noninterest expense
	Three months ended June 30,						Six months ended June 30,
(in millions)	2016		2015		Change		2016		2015		Change
Compensation expense	$	7,778	$	7,694	1	%	$	15,438	$	15,737	(2	)%
Noncompensation expense:
Occupancy	899		923		(3	)	1,782		1,856		(4	)
Technology, communications and equipment	1,665		1,499		11		3,283		2,990		10
Professional and outside services	1,700		1,768		(4	)	3,248		3,402		(5	)
Marketing	672		642		5		1,375		1,233		12
Other expense^(a)(b)	924		1,974		(53	)	2,349		4,165		(44	)
Total noncompensation expense	5,860		6,806		(14	)	12,037		13,646		(12	)
Total noninterest expense	$	13,638	$	14,500	(6	)%	$	27,475	$	29,383	(6	)%


(a)	Included firmwide legal expense of $(430) million and $291 million for the three months ended June 30, 2016 and 2015, respectively, and $(476) million and $978 million for the six months ended June 30, 2016 and 2015, respectively


(b)	Included FDIC-related expense of $283 million and $300 million for the three months ended June 30, 2016 and 2015, respectively, and $552 million and $618 million for the six months ended June 30, 2016 and 2015, respectively.

Quarterly results

Total noninterest expense decreased by 6% driven by a net legal benefit in the current quarter compared with a legal expense in the prior year, and the impact of continued expense reduction initiatives.

Compensation expense increased predominantly driven by higher performance-based compensation expense in CIB, partially offset by the impact of continued expense reduction initiatives, including lower headcount in certain businesses (offset by higher headcount in Corporate).

Noncompensation expense decreased as a result of a net legal benefit in the current quarter (compared with a legal expense in the prior year), and lower professional services expense, including lower legal services expense; the prior year included a loss on an asset held for sale in AM. These factors were partially offset by higher depreciation expense reflecting growth in auto operating leased assets in CCB. For a further discussion of legal matters, see Note 23.

Year-to-date results

Total noninterest expense decreased by 6% driven by a net legal benefit in the current year compared with a legal expense in the prior year, lower performance-based compensation expense, and the impact of continued expense reduction initiatives, partially offset by incremental investments and growth in the businesses.

Compensation expense decreased predominantly driven by lower performance-based compensation expense in CIB and AM, and the impact of continued expense reduction initiatives, including lower headcount in certain businesses (offset by higher headcount in Corporate).

Noncompensation expense decreased as a result of a net legal benefit in the current year (compared with a legal expense in the prior year); lower professional services expense, including lower legal services and contractors; lower regulatory-related expense; and the impact of the disposal of assets recorded in AM, partially offset by higher depreciation expense from growth in auto operating leased assets and higher investments in marketing, both in CCB; and the impact of a benefit recorded in the prior year from a franchise tax settlement. For a further discussion of legal matters, see Note 23.



Income tax expense
(in millions, except rate)	Three months ended June 30,								Six months ended June 30,
(in millions, except rate)	2016			2015			Change		2016			2015			Change
Income before income tax expense	$	9,340		$	8,377		11	%	$	16,918		$	16,601		2	%
Income tax expense	3,140			2,087			50		5,198			4,397			18
Effective tax rate	33.6		%	24.9		%			30.7		%	26.5		%

Quarterly results

Year-to-date results

The effective tax rate increased due to higher income tax expense in the current period from tax audits, compared with higher income tax benefits in the prior year from tax audits. The increase was partially offset by tax benefits from the adoption of new accounting guidance related to employee stock-based incentive payments, and changes in the mix of income and expense subject to U.S. federal and state and local taxes. For additional details on the impact of the new accounting guidance, see Accounting and Reporting Developments on pages 78–79.



CONSOLIDATED BALANCE SHEETS ANALYSIS

Consolidated balance sheets overview

The following is a discussion of the significant changes between June 30, 2016, and December 31, 2015.



Selected Consolidated balance sheets data
(in millions)	Jun 30, 2016			Dec 31, 2015			Change
Assets
Cash and due from banks	$	19,710		$	20,490		(4	)%
Deposits with banks	345,595			340,015			2
Federal funds sold and securities purchased under resale agreements	237,267			212,575			12
Securities borrowed	103,225			98,721			5
Trading assets:
Debt and equity instruments	302,347			284,162			6
Derivative receivables	78,446			59,677			31
Securities	278,610			290,827			(4	)
Loans	872,804			837,299			4
Allowance for loan losses	(14,227		)	(13,555		)	5
Loans, net of allowance for loan losses	858,577			823,744			4
Accrued interest and accounts receivable	64,911			46,605			39
Premises and equipment	14,262			14,362			(1	)
Goodwill	47,303			47,325			—
Mortgage servicing rights	5,072			6,608			(23	)
Other intangible assets	917			1,015			(10	)
Other assets	109,854			105,572			4
Total assets	$	2,466,096		$	2,351,698		5

Federal funds sold and securities purchased under resale agreements

The increase was due to higher demand for securities to cover short positions related to client-driven market-making activities in CIB, and the deployment of excess cash by Treasury. For additional information on the Firm’s Liquidity Risk Management, see pages 70–74.

Trading assets and liabilities–debt and equity instruments

The increase in trading assets and liabilities was predominantly related to client-driven market-making activities in CIB. The increase in trading assets reflected higher debt instruments, partially offset by lower equity instruments. The increase in trading liabilities reflected higher levels of short positions in debt and equity instruments. For additional information, refer to Note 3.

Trading assets and liabilities–derivative receivables and payables

The increase in derivative receivables and payables was predominantly related to client-driven market-making activities in CIB, which resulted in higher interest rate and foreign exchange derivative receivables and payables, driven by market movements. For additional information, refer to Derivative contracts on pages 53–54, and Notes 3 and 5.

Securities

The decrease was predominantly due to net sales, maturities and paydowns in corporate debt securities and non-U.S. residential mortgage-backed securities reflecting a shift to loans. For additional information, see Notes 3

and 11.

Loans and allowance for loan losses

The increase in loans was driven by higher wholesale and consumer loans. The increase in wholesale loans was driven by strong originations of commercial and industrial loans in CB and CIB, and commercial real estate loans in CB. The increase in consumer loans reflects retention of originated high-quality prime mortgages and growth in auto loans.

The increase in the allowance for loan losses was attributable to additions to both the wholesale and consumer allowances. The increase in the wholesale allowance reflects downgrades in the Oil & Gas, Natural Gas Pipelines, and Metals & Mining portfolios. The increase in the consumer allowance was primarily driven by higher loss rates in newer credit card vintages, as well as growth in the credit card and auto loan portfolios, partially offset by reductions in the allowance due to continued improvement in home prices and delinquencies in the residential real estate portfolio, as well as runoff in the student loan portfolio. For a more detailed discussion of loans and the allowance for loan losses, refer to Credit Risk Management on pages 41–57, and Notes 3, 4, 13 and 14.

Accrued interest and accounts receivable

The increase was driven by higher client receivables related to client-driven market-making activities in CIB.

Mortgage servicing rights

For additional information on MSRs, see Note 16.



Selected Consolidated balance sheets data (continued)
(in millions)	Jun 30, 2016		Dec 31, 2015		Change
Liabilities
Deposits	$	1,330,958	$	1,279,715	4
Federal funds purchased and securities loaned or sold under repurchase agreements	166,044		152,678		9
Commercial paper	17,279		15,562		11
Other borrowed funds	19,945		21,105		(5	)
Trading liabilities:
Debt and equity instruments	101,194		74,107		37
Derivative payables	57,764		52,790		9
Accounts payable and other liabilities	184,635		177,638		4
Beneficial interests issued by consolidated variable interest entities (“VIEs”)	40,227		41,879		(4	)
Long-term debt	295,627		288,651		2
Total liabilities	2,213,673		2,104,125		5
Stockholders’ equity	252,423		247,573		2
Total liabilities and stockholders’ equity	$	2,466,096	$	2,351,698	5	%

Deposits

The increase was attributable to higher consumer and wholesale deposits. The increase in consumer deposits was due to continued growth from new and existing customers, as well as the impact of low attrition rates. The increase in wholesale deposits was mainly driven by growth in client activity in CIB’s Treasury Services business. For more information on deposits, refer to the Liquidity Risk Management discussion on pages 70–74; and Notes 3

and 17.

Federal funds purchased and securities loaned or sold under repurchase agreements

The increase was due to higher secured financing of investment securities in the Chief Investment Office (“CIO”), and higher client-driven market-making activities in CIB. For additional information on the Firm’s Liquidity Risk Management, see pages 70–74.

Stockholders’ equity

The increase was due to net income and higher accumulated other comprehensive income (“AOCI”), partially offset by cash dividends on common and preferred stock and repurchases of common stock. For additional information on changes in stockholders’ equity, see page 84, and on the Firm’s capital actions, see Capital actions on page 68.



OFF-BALANCE SHEET ARRANGEMENTS

In the normal course of business, the Firm enters into various contractual obligations that may require future cash payments. Certain obligations are recognized on-balance sheet, while others are off-balance sheet under accounting principles generally accepted in the U.S. (“U.S. GAAP”). The Firm is involved with several types of off–balance sheet arrangements, including through nonconsolidated special-purpose entities (“SPEs”), which are a type of VIE, and through lending-related financial instruments (e.g., commitments and guarantees). For further discussion, see Note 21 of this Form 10-Q and Off–Balance Sheet Arrangements and Contractual Cash Obligations on pages 77–78 and Note 29 of JPMorgan Chase’s 2015 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 2015 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 Investor Service (“Moody’s”), Standard & Poor’s and Fitch, respectively. These liquidity commitments support the issuance of asset-backed commercial paper by Firm-administered consolidated SPEs. In the event of a short-term credit rating downgrade, JPMorgan Chase Bank, N.A., absent other solutions, would be required to provide funding to the SPE if the commercial paper could not be reissued as it matured. The aggregate amounts of

commercial paper outstanding held by third parties as of June 30, 2016, and December 31, 2015, was $5.4 billion and $8.7 billion, respectively. The aggregate amounts of commercial paper issued by these SPEs could increase in future periods should clients of the Firm-administered consolidated SPEs draw down on certain unfunded lending-related commitments. These unfunded lending-related commitments were $9.0 billion and $5.6 billion at June 30, 2016, and December 31, 2015, 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 53 and Note 21 (including the table that presents the related amounts by contractual maturity as of June 30, 2016). For a discussion of liabilities associated with loan sales- and securitization-related indemnifications, see Note 21.



CONSOLIDATED CASH FLOWS ANALYSIS

Consolidated cash flows overview

The following is a discussion of cash flow activities during the six months ended June 30, 2016 and 2015.



(in millions)	Six months ended June 30,
(in millions)	2016			2015
Net cash provided by/(used in)
Operating activities	$	(22,907	)	$	32,175
Investing activities	(52,064		)	77,471
Financing activities	74,159			(113,429		)
Effect of exchange rate changes on cash	32			47
Net decrease in cash and due from banks	$	(780	)	$	(3,736	)

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 sources are sufficient to meet the Firm’s operating liquidity needs.

Cash used in operating activities in 2016 resulted from an increase in accrued interest and accounts receivables driven by higher client receivables related to client-driven market-making activities in CIB. Additionally, in 2016, cash used reflected an increase in trading assets, which was predominantly offset by an increase in trading liabilities, reflecting client-driven market-making activities in CIB. In 2016 and 2015, cash was provided by net income after noncash operating adjustments; partially offset by higher net originations and purchases of loans held-for-sale. 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.

Investing activities

Cash used in investing activities during 2016 resulted from net originations of consumer and wholesale loans. The increase in wholesale loans was driven by strong originations of commercial and industrial loans in CB and CIB, and commercial real estate loans in CB. The increase in consumer loans reflects retention of originated high-quality prime mortgages and growth in auto loans. Additionally, in 2016, cash outflows reflected an increase in securities purchased under resale agreements due to higher demand for securities to cover short positions related to client-driven market-making activities in CIB, and the deployment of excess cash by Treasury. Partially offsetting these cash outflows were net proceeds from paydowns, maturities, sales and purchases of investment securities. 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, sales and purchases of investment securities. Partially offsetting these inflows was cash used for net originations of consumer and wholesale loans.

Financing activities

Cash provided by financing activities in 2016 resulted from higher consumer and wholesale deposits. Consumer deposits increased due to the continued growth from new and existing customers, as well as the impact of low attrition rates. Wholesale deposits increased reflecting growth in client activity in Treasury Services. Cash was also provided in 2016 by an increase in securities loaned or sold under repurchase agreements due to higher secured financing of investment securities in CIO, and higher client-driven market-making activities in CIB; and net proceeds from long-term borrowings. Cash used in financing activities in 2015 resulted from lower wholesale deposits, reflecting the Firm’s actions to reduce non-operating deposits, partially offset by higher consumer deposits. Partially offsetting these outflows were net proceeds from long-term borrowings. For both periods, cash was used for repurchases of common stock and dividends on common and preferred stock. In 2015 cash was provided by the issuance of preferred stock.

* * *

For a further discussion of the activities affecting the Firm’s cash flows, see Consolidated Balance Sheets Analysis on pages 12–13, Capital Management on pages 63–69, and Liquidity Risk Management on pages 70–74 of this Form 10-Q, and page 75 of JPMorgan Chase’s 2015 Annual Report.

EXPLANATION AND RECONCILIATION OF THE FIRM’S USE OF NON-GAAP FINANCIAL MEASURES AND KEY PERFORMANCE MEASURES

Non-GAAP financial measures

The Firm prepares its Consolidated Financial Statements using U.S. GAAP; these financial statements appear on pages 81–85. 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 are non-GAAP financial measures. 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 from year-to-year arising from both taxable and tax-exempt sources. The corresponding income tax impact related to tax-exempt items is recorded within income tax expense. These adjustments have no impact on net income as reported by the Firm as a whole or by the lines of business.

Management also uses certain non-GAAP financial measures at the 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,
	2016								2015
(in millions, except ratios)	Reported results			Fully taxable-equivalent adjustments^(a)		Managed basis			Reported results			Fully taxable-equivalent adjustments^(a)		Managed basis
Other income	$	1,261		$	529	$	1,790		$	586		$	447	$	1,033
Total noninterest revenue	13,033			529		13,562			13,128			447		13,575
Net interest income	11,347			305		11,652			10,684			272		10,956
Total net revenue	24,380			834		25,214			23,812			719		24,531
Pre-provision profit	10,742			834		11,576			9,312			719		10,031
Income before income tax expense	9,340			834		10,174			8,377			719		9,096
Income tax expense	$	3,140		$	834	$	3,974		$	2,087		$	719	$	2,806
Overhead ratio	56		%	NM		54		%	61		%	NM		59		%

	Six months ended June 30,
	2016								2015
(in millions, except ratios)	Reported results			Fully taxable-equivalent adjustments^(a)		Managed basis			Reported results			Fully taxable-equivalent adjustments^(a)		Managed basis
Other income	$	2,062		$	1,080	$	3,142		$	1,168		$	928	$	2,096
Total noninterest revenue	24,892			1,080		25,972			26,517			928		27,445
Net interest income	22,727			598		23,325			21,361			545		21,906
Total net revenue	47,619			1,678		49,297			47,878			1,473		49,351
Pre-provision profit	20,144			1,678		21,822			18,495			1,473		19,968
Income before income tax expense	16,918			1,678		18,596			16,601			1,473		18,074
Income tax expense	$	5,198		$	1,678	$	6,876		$	4,397		$	1,473	$	5,870
Overhead ratio	58		%	NM		56		%	61		%	NM		60		%

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

Additionally, certain credit metrics and ratios disclosed by the Firm are non-GAAP measures. For additional information on these non-GAAP measures, see Credit Risk Management on pages 41–57.

Net interest income excluding markets-based activities

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 the Firm’s 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-markets-related business trends of the Firm and provides a comparable measure to other financial institutions that are primarily focused on lending, investing and deposit-raising activities.



Net interest income excluding CIB markets-based activities data
	Three months ended June 30,								Six months ended June 30,
(in millions, except rates)	2016			2015			Change		2016			2015			Change
Net interest income – managed basis^(a)(b)	$	11,652		$	10,956		6	%	$	23,325		$	21,906		6	%
Less: Markets-based net interest income	1,420			1,238			15		2,798			2,497			12
Net interest income excluding markets^(a)	$	10,232		$	9,718		5		$	20,527		$	19,409		6

Average interest-earning assets	$	2,079,525		$	2,097,637		(1	)	$	2,061,754		$	2,123,078		(3	)
Less: Average markets-based interest-earning assets	494,303			500,915			(1	)	491,068			505,290			(3	)
Average interest-earning assets excluding markets	$	1,585,222		$	1,596,722		(1	)%	$	1,570,686		$	1,617,788		(3	)%
Net interest yield on average interest-earning assets – managed basis	2.25		%	2.09		%			2.28		%	2.08		%
Net interest yield on average markets-based interest-earning assets	1.16			0.99					1.15			1.00
Net interest yield on average interest-earning assets excluding markets	2.60		%	2.44		%			2.63		%	2.42		%


(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 16

Key performance measures

Tangible common equity (“TCE”), ROTCE and TBVPS are considered key financial performance measures. TCE represents the Firm’s common stockholders’ equity (i.e., total stockholders’ equity less preferred stock) less goodwill and identifiable intangible assets (other than MSRs), net of related deferred tax liabilities. ROTCE measures the Firm’s net income applicable to common equity as a percentage of average TCE. TBVPS represents the Firm’s TCE at period-end divided by common shares at period-end. TCE, ROTCE, and TBVPS are meaningful to the Firm, as well as investors and analysts, in assessing the Firm’s use of equity.

The following summary table provides a reconciliation from the Firm’s common stockholders’ equity to TCE.



Tangible common equity	Period-end				Average
(in millions, except per share and ratio data)	Jun 30, 2016		Dec 31, 2015		Three months ended June 30,						Six months ended June 30,
(in millions, except per share and ratio data)	Jun 30, 2016		Dec 31, 2015		2016			2015			2016			2015
Common stockholders’ equity	$	226,355	$	221,505	$	224,429		$	213,738		$	222,995		$	213,049
Less: Goodwill	47,303		47,325		47,309			47,485			47,320			47,488
Less: Certain identifiable intangible assets	917		1,015		928			1,113			957			1,138
Add: Deferred tax liabilities^(a)	3,220		3,148		3,213			2,873			3,195			2,868
Tangible common equity	$	181,355	$	176,313	$	179,405		$	168,013		$	177,913		$	167,291

Return on tangible common equity	NA		NA		13		%	14		%	12		%	14		%
Tangible book value per share	$	50.21	$	48.13	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.

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 considered key regulatory capital measures. 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. For additional information on these measures, see Capital Management on pages 63–69.



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 and Key Performance Measures, on pages 16–17.

Description of business segment reporting methodology

Results of the business segments are intended to reflect each segment as if it were a stand-alone business. The management reporting process that derives business segment results allocates income and expense using

market-based methodologies. The Firm also assesses the level of capital required for each line of business on at least an annual basis. For further information about line of business capital, see Line of business equity on page 67.

The Firm periodically assesses 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 83–84 of JPMorgan Chase’s 2015 Annual Report.

The following discussions of the business segment results are based on a comparison of the three and six months ended June 30, 2016 versus the corresponding period in the prior year, unless otherwise specified.

Segment Results – Managed basis

The following tables summarize the business segment results for the periods indicated.



Three months ended June 30,	Total net revenue								Total noninterest expense							Pre-provision profit/(loss)
(in millions)	2016			2015			Change		2016			2015		Change		2016		2015			Change
Consumer & Community Banking	$	11,451		$	11,015		4%		$	6,004		$	6,210	(3)%		$	5,447	$	4,805		13%
Corporate & Investment Bank	9,165			8,723			5		5,078			5,137		(1	)	4,087		3,586			14
Commercial Banking	1,817			1,739			4		731			703		4		1,086		1,036			5
Asset Management	2,939			3,175			(7	)	2,098			2,406		(13	)	841		769			9
Corporate	(158		)	(121		)	(31	)	(273		)	44		NM		115		(165		)	NM
Total	$	25,214		$	24,531		3%		$	13,638		$	14,500	(6)%		$	11,576	$	10,031		15%



Three months ended June 30,	Provision for credit losses							Net income/(loss)						Return on common equity
(in millions, except ratios)	2016			2015		Change		2016			2015		Change	2016		2015
Consumer & Community Banking	$	1,201		$	702	71	%	$	2,656		$	2,533	5%	20	%	19	%
Corporate & Investment Bank	235			50		370		2,493			2,341		6	15		14
Commercial Banking	(25		)	182		NM		696			525		33	16		14
Asset Management	(8		)	—		NM		521			451		16	22		19
Corporate	(1		)	1		NM		(166		)	440		NM	NM		NM
Total	$	1,402		$	935	50	%	$	6,200		$	6,290	(1)%	10%		11	%



Six months ended June 30,	Total net revenue								Total noninterest expense							Pre-provision profit/(loss)
(in millions)	2016			2015			Change		2016			2015		Change		2016		2015			Change
Consumer & Community Banking	$	22,568		$	21,719		4%		$	12,092		$	12,400	(2	)%	$	10,476	$	9,319		12	%
Corporate & Investment Bank	17,300			18,305			(5	)	9,886			10,794		(8	)	7,414		7,511			(1	)
Commercial Banking	3,620			3,481			4		1,444			1,412		2		2,176		2,069			5
Asset Management	5,911			6,180			(4	)	4,173			4,581		(9	)	1,738		1,599			9
Corporate	(102		)	(334		)	69		(120		)	196		NM		18		(530		)	NM
Total	$	49,297		$	49,351		—		$	27,475		$	29,383	(6	)%	$	21,822	$	19,968		9	%



Six months ended June 30,	Provision for credit losses							Net income/(loss)							Return on common equity
(in millions, except ratios)	2016			2015			Change	2016			2015		Change		2016		2015
Consumer & Community Banking	$	2,251		$	1,632		38%	$	5,146		$	4,752	8%		19	%	18	%
Corporate & Investment Bank	694			19			NM	4,472			4,878		(8	)	13		15
Commercial Banking	279			243			15	1,192			1,123		6		14		15
Asset Management	5			4			25	1,108			953		16		24		21
Corporate	(3		)	(4		)	25	(198		)	498		NM		NM		NM
Total	$	3,226		$	1,894		70%	$	11,720		$	12,204	(4)%		10%		11	%



CONSUMER & COMMUNITY BANKING

For a discussion of the business profile of CCB, see pages 85–93 of JPMorgan Chase’s 2015 Annual Report and Line of Business Metrics on page 174.



Selected income statement data
	Three months ended June 30,								Six months ended June 30,
(in millions, except ratios)	2016			2015			Change		2016		2015		Change
Revenue
Lending- and deposit-related fees	$	780		$	766		2	%	$	1,549	$	1,484	4	%
Asset management, administration and commissions	535			553			(3	)	1,065		1,083		(2	)
Mortgage fees and related income	689			782			(12	)	1,356		1,486		(9	)
Card income	1,253			1,506			(17	)	2,444		2,830		(14	)
All other income	881			482			83		1,530		942		62
Noninterest revenue	4,138			4,089			1		7,944		7,825		2
Net interest income	7,313			6,926			6		14,624		13,894		5
Total net revenue	11,451			11,015			4		22,568		21,719		4

Provision for credit losses	1,201			702			71		2,251		1,632		38

Noninterest expense
Compensation expense	2,420			2,478			(2	)	4,802		5,008		(4	)
Noncompensation expense	3,584			3,732			(4	)	7,290		7,392		(1	)
Total noninterest expense^(a)	6,004			6,210			(3	)	12,092		12,400		(2	)
Income before income tax expense	4,246			4,103			3		8,225		7,687		7
Income tax expense	1,590			1,570			1		3,079		2,935		5
Net income	$	2,656		$	2,533		5		$	5,146	$	4,752	8

Revenue by line of business
Consumer & Business Banking	$	4,616		$	4,483		3		$	9,166	$	8,841	4
Mortgage Banking	1,921			1,833			5		3,797		3,582		6
Card, Commerce Solutions & Auto	4,914			4,699			5		9,605		9,296		3

Mortgage fees and related income details:
Net production revenue	261			233			12		423		470		(10	)
Net mortgage servicing revenue^(b)	428			549			(22	)	933		1,016		(8	)
Mortgage fees and related income	$	689		$	782		(12	)%	$	1,356	$	1,486	(9	)%


Financial ratios
Return on common equity	20		%	19		%