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
March 31, 2018
number 1-5805

JPMorgan Chase & Co.
(Exact name of registrant as specified in its charter)
Delaware
13-2624428
(State or other jurisdiction of
incorporation or organization)
(I.R.S. employer
identification no.)
 
 
270 Park Avenue, New York, New York
10017
(Address of principal executive offices)
(Zip Code)
 
 
Registrant’s telephone number, including area code: (212) 270-6000

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
x  Yes
o  No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
x  Yes
o  No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer x
Accelerated filer
o
 
 
 
Non-accelerated filer (Do not check if a smaller reporting company)      o
Smaller reporting company
o
 
 
 
 
Emerging growth company
o
 
 
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
o  Yes
x  No
 
Number of shares of common stock outstanding as of March 31, 2018: 3,404,776,922
 


FORM 10-Q
TABLE OF CONTENTS
Page
Item 1.
 
 
 
 
74
 
75
 
76
 
77
 
78
 
79
 
154
 
155
 
156
Item 2.
 
 
3
 
4
 
5
 
8
 
10
 
13
 
14
 
16
 
30
 
32
 
38
 
45
 
50
 
60
 
61
 
66
 
67
 
70
 
73
Item 3.
164
Item 4.
164
 
Item 1.
164
Item 1A.
164
Item 2.
164
Item 3.
165
Item 4.
165
Item 5.
165
Item 6.
166

2


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

1Q18

4Q17

3Q17

 
2Q17

 
1Q17

 
Selected income statement data
 
 
 
 
 
 
 
 
Total net revenue
$
27,907

$
24,457

$
25,578

 
$
25,731

 
$
24,939

 
Total noninterest expense
16,080

14,895

14,570

 
14,767

 
15,283

 
Pre-provision profit
11,827

9,562

11,008

 
10,964

 
9,656

 
Provision for credit losses
1,165

1,308

1,452

 
1,215

 
1,315

 
Income before income tax expense
10,662

8,254

9,556

 
9,749

 
8,341

 
Income tax expense
1,950

4,022

2,824

 
2,720

 
1,893

 
Net income
$
8,712

$
4,232

$
6,732

 
$
7,029

 
$
6,448

 
Earnings per share data
 
 
 
 
 
 
 
 
Net income:    Basic
$
2.38

$
1.08

$
1.77

 
$
1.83

 
$
1.66

 
 Diluted
2.37

1.07

1.76

 
1.82

 
1.65

 
Average shares: Basic
3,458.3

3,489.7

3,534.7

 
3,574.1

 
3,601.7

 
 Diluted
3,479.5

3,512.2

3,559.6

 
3,599.0

 
3,630.4

 
Market and per common share data
 
 
 
 
 
 
 
 
Market capitalization
374,423

366,301

331,393

 
321,633

 
312,078

 
Common shares at period-end
3,404.8

3,425.3

3,469.7

 
3,519.0

 
3,552.8

 
Share price:(a)
 
 
 
 
 
 
 
 
High
$
119.33

$
108.46

$
95.88

 
$
92.65

 
$
93.98

 
Low
103.98

94.96

88.08

 
81.64

 
83.03

 
Close
109.97

106.94

95.51

 
91.40

 
87.84

 
Book value per share
67.59

67.04

66.95

 
66.05

 
64.68

 
Tangible book value per share (“TBVPS”)(b)
54.05

53.56

54.03

 
53.29

 
52.04

 
Cash dividends declared per share
0.56

0.56

0.56

 
0.50

 
0.50

 
Selected ratios and metrics
 
 
 
 
 
 
 
 
Return on common equity (“ROE”)
15
%
7
%
11
%
 
12
%
 
11
%
 
Return on tangible common equity (“ROTCE”)(b)
19

8

13

 
14

 
13

 
Return on assets
1.37

0.66

1.04

 
1.10

 
1.03

 
Overhead ratio
58

61

57

 
57

 
61

 
Loans-to-deposits ratio
63

64

63

 
63

 
63

 
High quality liquid assets (“HQLA”) (in billions)(c)
$
539

$
560

$
568

 
$
541

 
$
528

 
Liquidity coverage ratio (“LCR”) (average)
115
%
119
%
120
%
 
115
%
 
NA
 
Common equity Tier 1 (“CET1”) capital ratio(d)
11.8

12.2

12.5

(h) 
12.5

(h) 
12.4

(h) 
Tier 1 capital ratio(d)
13.5

13.9

14.1

(h) 
14.2

(h) 
14.1

(h) 
Total capital ratio(d)
15.3

15.9

16.1

 
16.0

 
15.6

 
Tier 1 leverage ratio(d)
8.2

8.3

8.4

 
8.5

 
8.4

 
Supplementary leverage ratio (“SLR”)(e)
6.5
%
6.5
%
6.6
%
 
6.7
%
 
6.6
%
 
Selected balance sheet data (period-end)
 
 
 
 
 
 
 
 
Trading assets
$
412,282

$
381,844

$
420,418

 
$
407,064

 
$
402,513

 
Investment securities
238,188

249,958

263,288

 
263,458

 
281,850

 
Loans
934,424

930,697

913,761

 
908,767

 
895,974

 
Core loans
870,536

863,683

843,432

 
834,935

 
812,119

 
Average core loans
861,089

850,166

837,522

 
824,583

 
805,382

 
Total assets
2,609,785

2,533,600

2,563,074

 
2,563,174

 
2,546,290

 
Deposits
1,486,961

1,443,982

1,439,027

 
1,439,473

 
1,422,999

 
Long-term debt
274,449

284,080

288,582

 
292,973

 
289,492

 
Common stockholders’ equity
230,133

229,625

232,314

 
232,415

 
229,795

 
Total stockholders’ equity
256,201

255,693

258,382

 
258,483

 
255,863

 
Headcount
253,707

252,539

251,503

 
249,257

 
246,345

 
Credit quality metrics
 
 
 
 
 
 
 
 
Allowance for credit losses
$
14,482

$
14,672

$
14,648

 
$
14,480

 
$
14,490

 
Allowance for loan losses to total retained loans
1.44
%
1.47
%
1.49
%
 
1.49
%
 
1.52
%
 
Allowance for loan losses to retained loans excluding purchased credit-impaired loans(f)
1.25

1.27

1.29

 
1.28

 
1.31

 
Nonperforming assets
$
6,364

$
6,426

$
6,154

 
$
6,432

 
$
6,826

 
Net charge-offs(g)
1,335

1,264

1,265

 
1,204

 
1,654

 
Net charge-off rate(g)
0.59
%
0.55
%
0.56
%
 
0.54
%
 
0.76
%
 
Effective January 1, 2018, the Firm adopted several new accounting standards. Certain of the new accounting standards were applied retrospectively and, accordingly, prior period amounts were revised. For additional information, see Note 1.
(a)
Based on daily prices reported by the New York Stock Exchange.
(b)
TBVPS and ROTCE are non-GAAP financial measures. For a 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 14–15.
(c)
HQLA represents the average amount of assets that qualify for inclusion in the LCR for all periods presented except March 31, 2017, which represents the period-end balance. For additional information, see HQLA on page 38.
(d)
Ratios presented are calculated under the Basel III Transitional capital rules and for the capital ratios represent the lower of the Standardized or Advanced approach as required by the Collins Amendment of the Dodd-Frank Act (the “Collins Floor”). See Capital Risk Management on pages 32-37 for additional information on Basel III and the Collins Floor.
(e)
Effective January 1, 2018, the SLR was fully phased-in under Basel III. The SLR is defined as Tier 1 capital divided by the Firm’s total leverage exposure. Prior period ratios were calculated under the Basel III Transitional rules.    
(f)
Excluded the impact of residential real estate purchased credit-impaired (“PCI”) loans, a non-GAAP financial measure. For a 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 14–15. For a further discussion, see Allowance for credit losses on pages 57–59.
(g)
Excluding net charge-offs of $467 million related to the student loan portfolio sale, the net charge-off rates for the three months ended March 31, 2017 would have been 0.54%.
(h)
The prior period ratios have been revised to conform with the current period presentation.

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 first quarter of 2018.
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, 2017, filed with the U.S. Securities and Exchange Commission (“2017 Annual Report” or “2017 Form 10-K”), to which reference is hereby made, and which is referred to throughout this document. See the Glossary of terms and acronyms on pages 156–163 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 further 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 73 of this Form 10-Q and Part I, Item 1A, Risk Factors, on pages 8–26 of JPMorgan Chase’s 2017 Annual Report.
JPMorgan Chase & Co., a financial holding company incorporated under Delaware law in 1968, is a leading global financial services firm and one of the largest banking institutions in the United States of America (“U.S.”), with operations worldwide; the Firm had $2.6 trillion in assets and $256.2 billion in stockholders’ equity as of March 31, 2018. 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 principal credit card-issuing bank. JPMorgan Chase’s principal nonbank subsidiary is J.P. Morgan Securities LLC (“JPMorgan Securities”), a U.S. broker-dealer. The bank and non-bank subsidiaries of JPMorgan Chase operate nationally as well as through overseas branches and subsidiaries, representative offices and subsidiary foreign banks. The Firm’s principal operating subsidiary in the United Kingdom (“U.K.”) is J.P. Morgan Securities plc, a subsidiary of JPMorgan Chase Bank, N.A.
For management reporting purposes, the Firm’s activities are organized into four major reportable business segments, as well as a Corporate segment. The Firm’s consumer business is the Consumer & Community Banking (“CCB”) segment. The Firm’s wholesale business segments are Corporate & Investment Bank (“CIB”), Commercial Banking (“CB”), and Asset & Wealth Management (“AWM”). For a description of the Firm’s business segments, and the products and services they provide to their respective
client bases, refer to Note 31 of JPMorgan Chase’s 2017 Form 10-K.




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 and incorporated documents should be read in their entirety.
Effective January 1, 2018, the Firm adopted several new accounting standards, of which the most significant to the Firm are the guidance related to revenue recognition, and recognition and measurement of financial assets. The revenue recognition guidance requires gross presentation of certain costs that were previously offset against revenue. This change was adopted retrospectively and, accordingly, prior period amounts were revised, resulting in both total net revenue and total noninterest expense increasing with no impact to net income. The adoption of the recognition and measurement guidance in the first quarter of 2018 resulted in fair value gains, which were recorded in total net revenue, on certain equity investments that were previously held at cost. For additional information, see Note 1.
Financial performance of JPMorgan Chase
 
 
(unaudited)
As of or for the period ended,
(in millions, except per share data and ratios)
Three months ended March 31,
2018

 
2017

 
Change

Selected income statement data
 
 
 
 
 
Total net revenue
$
27,907

 
$
24,939

 
12
 %
Total noninterest expense
16,080

 
15,283

 
5

Pre-provision profit
11,827

 
9,656

 
22

Provision for credit losses
1,165

 
1,315

 
(11
)
Net income
8,712

 
6,448

 
35

Diluted earnings per share
$
2.37

 
$
1.65

 
44

Selected ratios and metrics
 
 
 
 
 
Return on common equity
15
%
 
11
%
 
 
Return on tangible common equity
19

 
13

 
 
Book value per share
$
67.59

 
$
64.68

 
4

Tangible book value per share
54.05

 
52.04

 
4

Capital ratios(a)
 
 
 
 
 
CET1(b)
11.8
%
 
12.4
%
 
 
Tier 1 capital(b)
13.5

 
14.1

 
 
Total capital
15.3

 
15.6

 
 
(a)
Ratios presented are calculated under the Basel III Transitional capital rules and represent the Collins Floor. See Capital Risk Management on pages 32-37 for additional information on Basel III.
(b)
The prior period ratios have been revised to conform with the current period presentation.


 
Comparisons noted in the sections below are calculated for the first quarter of 2018 versus the first quarter of 2017, unless otherwise specified.
Firmwide overview
JPMorgan Chase reported strong results in the first quarter of 2018 with record net income of $8.7 billion, or $2.37 per share, on net revenue of $27.9 billion. Excluding the benefit of tax reform, net income was still a record for the quarter. The Firm reported ROE of 15% and ROTCE of 19%.
•
Net income increased 35%, reflecting higher net revenue and the impact of the lower U.S. federal statutory income tax rate as a result of the Tax Cuts & Jobs Acts (“TCJA”), partially offset by an increase in noninterest expense.
•
Total net revenue increased 12%. Net interest income was $13.3 billion, up 10%, driven by the impact of higher rates and loan growth, partially offset by declines in CIB Markets net interest income. Noninterest revenue was $14.6 billion, up 13%, driven by higher CIB Markets revenue, lower new account origination costs, higher auto lease income and higher management fees in AWM, partially offset by lower investment banking fees. Noninterest revenue also included $505 million of fair value gains related to the adoption of the new recognition and measurement accounting guidance for certain equity investments previously held at cost.
•
Noninterest expense was $16.1 billion, up 5%, driven by higher compensation expense, volume-related transaction costs in CIB Markets and auto lease depreciation in CCB.
•
The provision for credit losses was $1.2 billion, down from $1.3 billion in the prior year. In Wholesale, the provision for credit losses was a benefit, reflecting a reduction in the allowance of $170 million in the current quarter, driven by a single name in the Oil & Gas portfolio. The consumer provision reflected higher net charge-offs in Card in the current quarter, in line with expectations. The prior year included a $218 million write-down of the student loan portfolio, which was sold in 2017.
•
The total allowance for credit losses was $14.5 billion at March 31, 2018, and the Firm had a loan loss coverage ratio, excluding the PCI portfolio, of 1.25%, compared with 1.31% in the prior year. The Firm’s nonperforming assets totaled $6.4 billion at March 31, 2018, a decrease from $6.8 billion in the prior year.
•
Firmwide average core loans increased 7%, and excluding CIB, core loans increased 8%.
Selected capital-related metrics
•
The Firm’s Basel III Fully Phased-In CET1 capital was $184 billion, and the Standardized and Advanced CET1 ratios were 11.8% and 12.5%, respectively.
•
Effective January 1, 2018, the Firm’s SLR was fully phased-in and was 6.5% at March 31, 2018.

5

•
The Firm continued to grow tangible book value per share (“TBVPS”), ending the first quarter of 2018 at $54.05,
up 4%.
ROTCE and TBVPS are each non-GAAP financial measures. Core loans and each of the Fully Phased-In capital and certain leverage measures are all considered key performance measures. For a further discussion of each of these measures, see Explanation and Reconciliation of the Firm’s Use of Non-GAAP Financial Measures and Key Performance Measures on pages 14–15, and Capital Risk Management on pages 32-37.
Lines of business highlights
Selected business metrics for each of the Firm’s four lines of business are presented below for the first quarter of 2018.
CCB
ROE 25%
 
•
Average core loans up 8%; average deposits of $660 billion, up 6%
•
Client investment assets of $276 billion, up 13%, with record net flows this quarter
•
Credit card sales volume up 12% and merchant processing volume up 15%
CIB
ROE 22%
 
•
Maintained #1 ranking for Global Investment Banking fees with 8.1% wallet share in 1Q18
•
Record Equity Markets revenue of $2.0 billion
•
Treasury Services revenue up 14% and Securities Services revenue up 16%
CB
ROE 20%
 
•
Average loan balances of $202 billion, up 6%
•
Strong credit quality with 0 bps net charge-off rate
AWM
ROE 34%
 
•
Record average loan balances of $133 billion, up 12%
•
Assets under management (“AUM”) of $2.0 trillion, up 10%
For a detailed discussion of results by line of business, refer to the Business Segment Results on pages 16-29.
Credit provided and capital raised
JPMorgan Chase continues to support consumers, businesses and communities around the globe. The Firm provided credit and raised capital of $617 billion for wholesale and consumer clients during the first three months of 2018:
•
$55 billion of credit for consumers
•
$5 billion of credit for U.S. small businesses
•
$217 billion of credit for corporations
•
$331 billion of capital raised for corporate clients and non-U.S. government entities
•
$9 billion of credit and capital raised for U.S. government and nonprofit entities, including states, municipalities, hospitals and universities.

 
2018 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 73 of this Form 10-Q and Risk Factors on pages 8–26 of JPMorgan Chase’s 2017 Annual Report. There is no assurance that actual results for the full year of 2018 will be in line with the outlook set forth below, and the Firm does not undertake to update any forward-looking statements.
JPMorgan Chase’s outlook for the remainder of 2018 should be viewed against the backdrop of the global and U.S. economies, financial markets activity, the geopolitical environment, the competitive environment, client and customer 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 that it will continue to make appropriate adjustments to its businesses and operations in response to ongoing developments in the legal, regulatory, business and economic environments in which it operates.
Firmwide
•
For full-year 2018, management expects net interest income, on a managed basis, to be in the $54 to $55 billion range, depending on market conditions, and assuming expected core loan growth. Management expects Firmwide average core loan growth to be in the 6% to 7% range for 2018, excluding CIB loans.
•
Management expects Firmwide noninterest revenue for full-year 2018, on a managed basis, and depending on market conditions, to be up approximately 7%. Noninterest revenue includes the $1.2 billion impact of the revenue recognition accounting guidance.
•
The Firm continues to take a disciplined approach to managing its expenses, while investing for growth and innovation. As a result, management expects Firmwide adjusted expense for full-year 2018 to be approximately $63 billion, including the approximately $1.2 billion expected impact of the new revenue recognition accounting guidance, predominantly impacting AWM with the remainder in CIB. For additional information on the new accounting guidance, see Note 1.
•
Management estimates the full-year 2018 effective income tax rate to be approximately 20%, depending upon several factors, including the geographic mix of taxable income and refinements to estimates of the impacts of the TCJA.

6

•
Management expects the full-year 2018 net charge-off rates to remain relatively flat across the wholesale and consumer portfolios, with the exception of Card.
CCB
•
In Card, management expects the full-year 2018 net charge-off rate to be approximately 3.25%.
•
Management expects the full-year 2018 Card Services net revenue rate to be at or above 11.25%.

7

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 months ended March 31, 2018 and 2017, 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 67–69 of this Form 10-Q and pages 138–140 of JPMorgan Chase’s 2017 Annual Report.
Effective January 1, 2018, the Firm adopted several new accounting standards. Certain of the new accounting standards were applied retrospectively and, accordingly, prior period amounts were revised. For additional information, see Note 1.
Revenue
 
 
 
 
 
 
Three months ended March 31,
(in millions)
2018

 
2017

 
Change

Investment banking fees
$
1,736

 
$
1,880

 
(8
)%
Principal transactions
3,952

 
3,582

 
10

Lending- and deposit-related fees
1,477

 
1,448

 
2

Asset management, administration and commissions
4,309

 
3,877

 
11

Investment securities losses
(245
)
 
(3
)
 
NM

Mortgage fees and related income
465

 
406

 
15

Card income
1,275

 
914

 
39

Other income(a)
1,626

 
771

 
111

Noninterest revenue
14,595

 
12,875

 
13

Net interest income
13,312

 
12,064

 
10

Total net revenue
$
27,907

 
$
24,939

 
12
 %
(a)
Included operating lease income of $1.0 billion and $824 million for the three months ended March 31, 2018 and 2017.
Investment banking fees decreased reflecting lower debt and equity underwriting fees, partially offset by higher advisory fees in CIB. The decrease in debt underwriting fees was primarily driven by declines in industry-wide fee levels and a lower share in leveraged finance. The decrease in equity underwriting fees was also driven by declines in industry-wide fee levels as well as a lower share of large transactions. The increase in advisory fees was driven by a higher number of large completed transactions. For additional information, see CIB segment results on pages 20-24 and Note 5.
Principal transactions revenue increased primarily reflecting:
•
higher client-driven market-making revenue in CIB as a result of strong performance across products in Equity Markets, particularly in derivatives, and Prime Services. Fixed Income Markets revenue was relatively flat, with strong performance in Currencies & Emerging Markets and Commodities, offset by lower revenue in Credit and Rates
partially offset by
•
losses on legacy private equity investments in Corporate.
For additional information, see CIB and Corporate segment results on pages 20-24 and page 29, respectively, and
Note 5.
 
For information on lending- and deposit-related fees, see the segment results for CCB on pages 17-19, CIB on pages 20-24, CB on pages 25-26 and Note 5.
Asset management, administration and commissions revenue increased as a result of:
•
higher asset management fees in AWM and CCB due to growth in assets under management, which benefited from higher market levels and net inflows, and
•
higher brokerage commissions in CIB and AWM driven by higher volumes.
For additional information, see AWM, CCB and CIB segment results on pages 27-28, pages 17-19 and pages 20-24, respectively, and Note 5.
Investment securities losses increased primarily due to sales related to the repositioning of the investment securities portfolio. For further information, see the Corporate segment discussion on page 29.
Mortgage fees and related income increased driven by higher MSR risk management results and servicing revenue, partially offset by lower net production revenue reflecting lower margins. For further information, see CCB segment results on pages 17-19 and Note 14.
Card income increased driven by:
•
lower new account origination costs,
•
higher net interchange income reflecting higher card sales volume, predominantly offset by higher reward costs and partner payments, and
•
higher merchant processing fees reflecting higher merchant processing volumes.
For further information, see CCB segment results on pages 17-19 and Note 5.
Other income increased primarily due to:
•
Fair value gains of $505 million related to the adoption of the new recognition and measurement accounting guidance for certain equity investments previously held at cost, and
•
higher operating lease income from growth in auto operating lease volume in CCB.
For further information, see Note 5.
Net interest income increased primarily driven by the net impact of higher rates and loan growth across the businesses, partially offset by declines in Markets net interest income in CIB. The Firm’s average interest-earning assets were $2.2 trillion, up $43 billion from the prior year, and the net interest yield on these assets, on a fully taxable

8

equivalent (“FTE”) basis, was 2.48%, an increase of 15 basis points from the prior year.
Provision for credit losses
 
 
 
 
 
Three months ended March 31,
(in millions)

2018

 
2017

 
Change

Consumer, excluding credit card
$
146

 
$
442

 
(67
)%
Credit card
1,170

 
993

 
18

Total consumer
1,316

 
1,435

 
(8
)
Wholesale
(151
)
 
(120
)
 
(26
)
Total provision for credit losses
$
1,165

 
$
1,315

 
(11
)%
The provision for credit losses decreased as a result of:
•
a net $170 million reduction in the wholesale allowance for credit losses, primarily in the Oil & Gas portfolio driven by a single name, compared with a reduction of $93 million in the prior year primarily for Oil & Gas
•
and in consumer
–
$102 million of higher net charge-offs primarily in the credit card portfolio due to seasoning of newer vintages, in line with expectations, partially offset by a decrease in net charge-offs in the residential real estate portfolio, reflecting continued improvement in home prices and delinquencies, and
–
the absence of a $218 million write-down recorded in the prior year in connection with the sale of the student loan portfolio.
For a more detailed discussion of the credit portfolio and the allowance for credit losses, see the segment discussions of CCB on pages 17-19, CIB on pages 20-24, CB on pages 25-26, the Allowance for Credit Losses on pages 57–59 and
Note 12.
 
Noninterest expense
 
 
 
 
 
Three months ended March 31,
(in millions)

2018

 
2017

 
Change

Compensation expense
$
8,862

 
$
8,256

 
7
 %
Noncompensation expense:
 
 
 
 
 
Occupancy
888

 
961

 
(8
)
Technology, communications and equipment
2,054

 
1,834

 
12

Professional and outside services
2,121

 
1,792

 
18

Marketing
800

 
713

 
12

Other expense(a)(b)
1,355

 
1,727

 
(22
)
Total noncompensation expense
7,218

 
7,027

 
3

Total noninterest expense
$
16,080

 
$
15,283

 
5
 %
(a)
Included Firmwide legal expense of $70 million and $218 million for the three months ended March 31, 2018 and 2017, respectively.
(b)
Included FDIC-related expense of $383 million and $381 million for the three months ended March 31, 2018 and 2017, respectively.
Compensation expense increased driven by investments in headcount across the businesses, including bankers and business-related support staff; and higher performance-based compensation expense predominantly in CIB.
Noncompensation expense increased as a result of:
•
higher outside services expense primarily due to higher volume-related transaction costs in CIB and revenue-driven external fees in AWM
•
higher depreciation expense due to growth in auto operating lease volume in CCB
partially offset by
•
lower legal expense.
For a discussion of legal expense, see Note 22.
Income tax expense
 
 
Three months ended March 31,
(in millions)

2018

 
2017

 
Change

Income before income tax expense
$
10,662

 
$
8,341

 
28
%
Income tax expense
1,950

 
1,893

 
3

Effective tax rate
18.3
%
 
22.7
%
 
 
The effective tax rate decreased due to the reduction of the U.S. federal statutory income tax rate as a result of the TCJA. The decrease was partially offset by changes in the mix of income and expense subject to U.S. federal, state and local taxes, as well as to certain tax reserves.

9

CONSOLIDATED BALANCE SHEETS AND CASH FLOWS ANALYSIS
Effective January 1, 2018, the Firm adopted several new accounting standards. Certain of the new accounting standards were applied retrospectively and, accordingly, prior period amounts were revised. For additional information, see Note 1.
Consolidated balance sheets analysis
The following is a discussion of the significant changes between March 31, 2018, and December 31, 2017.
Selected Consolidated balance sheets data
(in millions)
Mar 31,
2018

 
Dec 31,
2017

Change

Assets
 
 
 
 
Cash and due from banks
$
24,834

 
$
25,898

(4
)%
Deposits with banks
389,978

 
405,406

(4
)
Federal funds sold and securities purchased under resale agreements
247,608

 
198,422

25

Securities borrowed
116,132

 
105,112

10

Trading assets:
 
 
 
 
Debt and equity instruments
355,368

 
325,321

9

Derivative receivables
56,914

 
56,523

1

Investment securities
238,188

 
249,958

(5
)
Loans
934,424

 
930,697

—

Allowance for loan losses
(13,375
)
 
(13,604
)
(2
)
Loans, net of allowance for loan losses
921,049

 
917,093

—

Accrued interest and accounts receivable
72,659

 
67,729

7

Premises and equipment
14,382

 
14,159

2

Goodwill, MSRs and other intangible assets
54,533

 
54,392

—

Other assets
118,140

 
113,587

4

Total assets
$
2,609,785

 
$
2,533,600

3
 %
Cash and due from banks and deposits with banks decreased primarily reflecting a shift in the deployment of excess cash from deposits with banks and investment securities into securities purchased under resale agreements. The Firm’s excess cash is largely placed with various central banks, predominantly Federal Reserve Banks.
Federal funds sold and securities purchased under resale agreements increased primarily due to the shift in the deployment of excess cash from deposits with banks and investment securities into securities purchased under resale agreements, and higher client activity in CIB. For additional information on the Firm’s Liquidity Risk Management, see pages 38–42.
Securities borrowed increased driven by higher demand for securities to cover short positions related to client-driven market-making activities in CIB.
Trading assets-debt and equity instruments increased predominantly as a result of client-driven market-making activities in CIB, primarily equity instruments in Prime Services, and debt instruments in Fixed Income Markets, driven by higher client demand. For additional information, see Notes 2 and 4.
Investment securities decreased primarily reflecting net sales, paydowns and maturities of U.S. government agency mortgage-backed securities (“MBS”), obligations of U.S. states and municipalities, and commercial MBS. For additional information on Investment securities, see Corporate segment results on page 29, Investment Portfolio Risk Management on page 60, and Notes 2 and 9.
 
Loans were relatively flat reflecting:
•
higher wholesale loans in CIB primarily driven by higher originations of commercial and industrial loans, and in AWM driven by higher loans to Private Banking clients
offset by
•
lower consumer loans driven by the seasonal decline in Card balances.
The allowance for loan losses decreased reflecting:
•
a net reduction in the wholesale allowance primarily as a result of a reduction in the allowance for the Oil & Gas portfolio driven by a single name
•
the consumer allowance for loan losses was relatively unchanged, reflecting stable credit quality trends.
For a detailed discussion of loans and the allowance for loan losses, refer to Credit Risk Management on pages 43–60, and Notes 2, 3, 11 and 12.
Accrued interest and accounts receivable increased primarily reflecting higher client receivables related to client-driven activities in CIB.
Other assets increased partly reflecting higher cash collateral pledged for derivative contracts in CIB and higher auto operating lease assets from growth in business volume in CCB.
For information on Goodwill and MSRs, see Note 14.

10

Selected Consolidated balance sheets data (continued)
 
(in millions)
Mar 31,
2018

 
Dec 31,
2017

Change

Liabilities
 
 
 
 
Deposits
$
1,486,961

 
$
1,443,982

3
 %
Federal funds purchased and securities loaned or sold under repurchase agreements
179,091

 
158,916

13

Short-term borrowings
62,667

 
51,802

21

Trading liabilities:
 
 
 
 
Debt and equity instruments
99,588

 
85,886

16

Derivative payables
36,949

 
37,777

(2
)
Accounts payable and other liabilities
192,295

 
189,383

2

Beneficial interests issued by consolidated variable interest entities (“VIEs”)
21,584

 
26,081

(17
)
Long-term debt
274,449

 
284,080

(3
)
Total liabilities
2,353,584

 
2,277,907

3

Stockholders’ equity
256,201

 
255,693

—

Total liabilities and stockholders’ equity
$
2,609,785

 
$
2,533,600

3
 %
Deposits increased due to:
•
higher consumer deposits reflecting the continuation of growth from new and existing customers, low attrition rates, and the impact of seasonality in CCB
•
higher wholesale deposits driven by growth in client activity in CIB’s Treasury Services and Securities Services businesses, partially offset by the impact of seasonality
in CB.
For more information, refer to the Liquidity Risk Management discussion on pages 38–42; and Notes 2
and 15.
Federal funds purchased and securities loaned or sold under repurchase agreements increased reflecting higher secured financing of trading assets-debt and equity instruments, partially offset by a change in the mix of funding to short-term borrowings in CIB.
Short-term borrowings increased driven by a change in
the mix of funding for CIB activities from federal funds
sold under repurchase agreements to other borrowed funds, and the net issuance of commercial paper. For additional information, see Liquidity Risk Management on pages 38–42.
 
Trading liabilities–debt and equity instruments increased predominantly related to client-driven market-making activities in CIB Markets, driven by higher levels of short positions in both debt and equity instruments. For additional information, refer to Derivative contracts on pages 55–56, and Notes 2 and 4.
Beneficial interests issued by consolidated VIEs decreased due to maturities of credit card securitizations. For further information on Firm-sponsored VIEs and loan securitization trusts, see Off-Balance Sheet Arrangements on page 13 and Notes 13 and 20.
Long-term debt decreased primarily driven by net maturities of senior debt and lower Federal Home Loan Bank (“FHLB”) advances. For additional information on the Firm’s long-term debt activities, see Liquidity Risk Management on pages 38–42.
For information on changes in stockholders’ equity, see page 77, and on the Firm’s capital actions, see Capital actions on page 32.

11

Consolidated cash flows analysis
The following is a discussion of cash flow activities during the three months ended March 31, 2018 and 2017.
(in millions)
 
Three months ended March 31,
 
2018

 
2017

Net cash provided by/(used in)
 
 
 
 
Operating activities
 
$
(35,109
)
 
$
(22,559
)
Investing activities
 
(45,021
)
 
47,112

Financing activities
 
60,589

 
43,605

Effect of exchange rate changes on cash
 
3,049

 
2,574

Net increase/(decrease) in cash and due from banks and deposits with banks
 
$
(16,492
)
 
$
70,732

Operating activities
•
In 2018, cash used primarily reflected increases in trading assets-debt and equity instruments, and securities borrowed.
•
In 2017, cash used reflected an increase in trading assets-debt and equity instruments; decreases in trading liabilities-derivative payables, and accounts payable and other liabilities.
 
Investing activities
•
In 2018, cash used reflected an increase in securities purchased under resale agreements, partially offset by lower investment securities.
•
In 2017, cash provided reflected a decrease in securities purchased under resale agreements and lower investment securities.
Financing activities
•
In 2018 and 2017, cash provided reflected higher deposits, and securities loaned or sold under repurchase agreements, partially offset by a decrease in long-term borrowings.
•
Additionally, for both periods, cash was used for repurchases of common stock and dividends on common and preferred stock.
For a further discussion of the activities affecting the Firm’s cash flows, see Consolidated Balance Sheets Analysis on pages 10–12, Capital Risk Management on pages 32-37, and Liquidity Risk Management on pages 38–42 of this Form 10-Q, and pages 92–97 of JPMorgan Chase’s 2017 Annual Report.

12

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).
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.
The Firm has no commitments to issue its own stock to support any SPE transaction, and its policies require that transactions with SPEs be conducted at arm’s length and reflect market pricing. Consistent with this policy, no JPMorgan Chase employee is permitted to invest in SPEs with which the Firm is involved where such investment would violate the Firm’s Code of Conduct.
The table below provides an index of where in this Form 10-Q a discussion of the Firm’s various off-balance sheet arrangements can be found. In addition, see Note 1 for information about the Firm’s consolidation policies.
Type of off-balance sheet arrangement
Location of disclosure
Page references
Special-purpose entities: variable interests and other obligations, including contingent obligations, arising from variable interests in nonconsolidated VIEs
See Note 13
130-135
Off-balance sheet lending-related financial instruments, guarantees, and other commitments
See Note 20
145-148



13

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 74-78. That presentation, which is referred to as “reported” basis, provides the reader with an understanding of the Firm’s results that can be tracked consistently from year-to-year and enables a comparison of the Firm’s performance with other companies’ U.S. GAAP financial statements.
In addition to analyzing the Firm’s results on a reported basis, management reviews Firmwide results, including the overhead ratio, on a “managed” basis; these Firmwide managed basis results are non-GAAP financial measures. The Firm also reviews the results of the lines of business on a managed basis. The Firm’s definition of managed basis starts, in each case, with the reported U.S. GAAP results and includes certain reclassifications to present total net revenue for the Firm (and each of the reportable business segments) on 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. These financial measures allow management to assess the comparability of revenue from year-to-year arising from both taxable and tax-exempt sources. The corresponding
 
income tax impact related to tax-exempt items is recorded within income tax expense. These adjustments have no impact on net income as reported by the Firm as a whole or by the lines of business.
Management also uses certain non-GAAP financial measures at the Firm and business-segment level, because these other non-GAAP financial measures provide information to investors about the underlying operational performance and trends of the Firm or of the particular business segment, as the case may be, and, therefore, facilitate a comparison of the Firm or the business segment with the performance of its relevant competitors. For additional information on these non-GAAP measures, see Business Segment Results on pages 16-29.
Additionally, certain credit metrics and ratios disclosed by the Firm exclude PCI loans, and are therefore non-GAAP measures. For additional information on these non-GAAP measures, see Credit and Investment Risk Management on pages 43–60.
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 March 31,
 
2018
 
2017
(in millions, except ratios)
Reported
results
 
Fully taxable-equivalent adjustments(a)(b)
 
Managed
basis
 
Reported
results
 
Fully taxable-equivalent adjustments(a)
 
Managed
basis
Other income
$
1,626

 
$
455

 
 
$
2,081

 
$
771

 
$
582

 
 
$
1,353

Total noninterest revenue
14,595

 
455

 
 
15,050

 
12,875

 
582

 
 
13,457

Net interest income
13,312

 
158

 
 
13,470

 
12,064

 
329

 
 
12,393

Total net revenue
27,907

 
613

 
 
28,520

 
24,939

 
911

 
 
25,850

Pre-provision profit
11,827

 
613

 
 
12,440

 
9,656

 
911

 
 
10,567

Income before income tax expense
10,662

 
613

 
 
11,275

 
8,341

 
911

 
 
9,252

Income tax expense
$
1,950

 
$
613

 
 
$
2,563

 
$
1,893

 
$
911

 
 
$
2,804

Overhead ratio
58
%
 
NM

 
 
56
%
 
61
%
 
NM

 
 
59
%
Effective January 1, 2018, the Firm adopted several new accounting standards. Certain of the new accounting standards were applied retrospectively and, accordingly, prior period amounts were revised. For additional information, see Note 1.
(a)
Predominantly recognized in CIB and CB business segments and Corporate.
(b)
The decrease in fully taxable-equivalent adjustments in the three months ended March 31, 2018, reflects the impact of the TCJA.
Net interest income excluding CIB’s Markets businesses
In addition to reviewing net interest income on a managed basis, management also reviews net interest income excluding net interest income arising from CIB’s Markets businesses to assess the performance of the Firm’s lending, investing (including asset-liability management) and deposit-raising activities. This net interest income is referred to as non-markets related net interest income. CIB’s Markets businesses are Fixed Income Markets and
 
Equity Markets. Management believes that disclosure of non-markets related net interest income provides investors and analysts with another measure by which to analyze the non-markets-related business trends of the Firm and provides a comparable measure to other financial institutions that are primarily focused on lending, investing and deposit-raising activities.


14

The data presented below are non-GAAP financial measures due to the exclusion of markets-related net interest income arising from CIB.

(in millions, except rates)
Three months ended March 31,
2018

2017

 
Change

Net interest income – managed basis(a)(b)
$
13,470

$
12,393

 
9
 %
Less: CIB Markets net interest income(c)
1,030

1,364

 
(24
)
Net interest income excluding CIB Markets(a)
$
12,440

$
11,029

 
13

 
 
 
 
 
Average interest-earning assets
$
2,203,413

$
2,160,912

 
2

Less: Average CIB Markets interest-earning assets(c)
591,547

522,759

 
13

Average interest-earning assets excluding CIB Markets
$
1,611,866

$
1,638,153

 
(2
)%
Net interest yield on average interest-earning assets – managed basis
2.48
%
2.33
%
 
 
Net interest yield on average CIB Markets interest-earning assets(c)
0.71

1.06

 
 
Net interest yield on average interest-earning assets excluding CIB Markets
3.13
%
2.73
%
 
 
(a)
Interest includes the effect of related hedges. Taxable-equivalent amounts are used where applicable.
(b)
For a reconciliation of net interest income on a reported and managed basis, see reconciliation from the Firm’s reported U.S. GAAP results to managed basis on page 14.
(c)
For further information on CIB’s Markets businesses, see page 23.
 
Tangible common equity, ROTCE and TBVPS
Tangible common equity (“TCE”), ROTCE and TBVPS are each non-GAAP financial measures. TCE represents the Firm’s common stockholders’ equity (i.e., total stockholders’ equity less preferred stock) less goodwill and identifiable intangible assets (other than MSRs), net of related deferred tax liabilities. ROTCE measures the Firm’s net income applicable to common equity as a percentage of average TCE. TBVPS represents the Firm’s TCE at period-end divided by common shares at period-end. TCE, ROTCE, and TBVPS are utilized by the Firm, as well as investors and analysts, in assessing the Firm’s use of equity.
The following summary table provides a reconciliation from the Firm’s common stockholders’ equity to TCE.
 
Period-end
 
Average
(in millions, except per share and ratio data)
Mar 31,
2018

Dec 31,
2017

 
Three months ended March 31,
 
 
2018

2017

 
Common stockholders’ equity
$
230,133

$
229,625

 
$
227,615

$
227,703

 
Less: Goodwill
47,499

47,507

 
47,504

47,293

 
Less: Other intangible assets
832

855

 
845

853

 
Add: Certain Deferred tax liabilities(a)(b)
2,216

2,204

 
2,210

3,228

 
Tangible common equity
$
184,018

$
183,467

 
$
181,476

$
182,785

 
 
 
 
 
 
 
 
Return on tangible common equity
NA

NA

 
19
%
13
%
 
Tangible book value per share
$
54.05

$
53.56

 
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.
(b)
Includes the effect from the revaluation of the Firm’s net deferred tax liability as a result of the TCJA.
Key performance measures
The Firm considers the following to be key regulatory capital measures:
▪
Capital, risk-weighted assets (“RWA”), and capital and leverage ratios presented under Basel III Standardized and Advanced Fully Phased-In rules, and
▪
SLR calculated under Basel III Advanced Fully Phased-In rules.
The Firm, as well as banking regulators, investors and analysts use these measures to assess the Firm’s regulatory capital position and to compare the Firm’s regulatory capital to that of other financial services companies.
 
For additional information on these measures, see Capital Risk Management on pages 32-37.
Core loans are also considered a key performance measure. Core loans represent loans considered central to the Firm’s ongoing businesses; and exclude loans classified as trading assets, runoff portfolios, discontinued portfolios and portfolios the Firm has an intent to exit. Core loans is a measure utilized by the Firm and its investors and analysts in assessing actual growth in the loan portfolio.

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 & Wealth Management. In addition, there is a Corporate segment.
The business segments are determined based on the products and services provided, or the type of customer served, and they reflect the manner in which financial information is currently evaluated by management. Results of these lines of business are presented on a managed basis. For a definition of managed basis, see Explanation and Reconciliation of the Firm’s use of Non-GAAP Financial Measures and Key Performance Measures on pages 14–15.
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 includes the allocation of certain income and expense items. For further information about line of business capital, see Line of business equity on page 35.
 
The Firm periodically assesses the assumptions, methodologies and reporting classifications used for segment reporting, and further refinements may be implemented in future periods.
Business segment capital allocation
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. For additional information on business segment capital allocation, see Line of business equity on page 88 of JPMorgan Chase’s 2017 Annual Report.
For a further discussion of those methodologies, see Business Segment Results – Description of business segment reporting methodology on pages 55–56 of JPMorgan Chase’s 2017 Annual Report.

Segment results – managed basis
Effective January 1, 2018, the Firm adopted several new accounting standards. Certain of the new accounting standards were applied retrospectively and, accordingly, prior period amounts were revised. For additional information, see Note 1.
Net income in the first quarter of 2018 for the business segments reflects the favorable impact of the reduction in the U.S. federal statutory income tax rate as a result of the TCJA.
The following tables summarize the business segment results for the periods indicated.
Three months ended March 31,
Total net revenue
 
Total noninterest expense
 
Pre-provision profit/(loss)
(in millions)
2018

2017

Change
 
2018

2017

Change

 
2018

2017

Change

Consumer & Community Banking
$
12,597

$
10,970

15
 
$
6,909

$
6,395

8
 %
 
$
5,688

$
4,575

24
 %
Corporate & Investment Bank
10,483

9,599

9
 
5,659

5,184

9

 
4,824

4,415

9

Commercial Banking
2,166

2,018

7
 
844

825

2

 
1,322

1,193

11

Asset & Wealth Management
3,506

3,288

7
 
2,581

2,781

(7
)
 
925

507

82

Corporate
(232
)
(25
)
NM
 
87

98

(11
)
 
(319
)
(123
)
(159
)
Total
$
28,520

$
25,850

10
 
$
16,080

$
15,283

5
 %
 
$
12,440

$
10,567

18
 %
Three months ended March 31,
Provision for credit losses
 
 
Net income/(loss)
 
Return on equity
(in millions, except ratios)
2018

2017

Change

 
2018

2017

Change
 
2018

2017

Consumer & Community Banking
$
1,317

$
1,430

(8
)%
 
$
3,326

$
1,988

67
 
25
%
15
%
Corporate & Investment Bank
(158
)
(96
)
(65
)
 
3,974

3,241

23
 
22

18

Commercial Banking
(5
)
(37
)
86

 
1,025

799

28
 
20

15

Asset & Wealth Management
15

18

(17
)
 
770

385

100
 
34

16

Corporate
(4
)
—

NM
 
(383
)
35

NM
 
NM
NM
Total
$
1,165

$
1,315

(11
)%
 
$
8,712

$
6,448

35
 
15
%
11
%

The following sections provide a comparative discussion of business segment results as of or for the three months ended March 31, 2018 versus the corresponding period in the prior year, unless otherwise specified.



16


CONSUMER & COMMUNITY BANKING
For a discussion of the business profile of CCB, see pages 57-61 of JPMorgan Chase’s 2017 Annual Report and Line of Business Metrics on page 161.
Selected income statement data
 
 
 
 
 
Three months ended March 31,
(in millions, except ratios)
2018

 
2017

 
Change

Revenue
 
 
 
 
 
Lending- and deposit-related fees
$
857

 
$
812

 
6
 %
Asset management, administration and commissions
575

 
539

 
7

Mortgage fees and related income
465

 
406

 
15

Card income
1,170

 
817

 
43

All other income
1,072

 
743

 
44

Noninterest revenue
4,139

 
3,317

 
25

Net interest income
8,458

 
7,653

 
11

Total net revenue
12,597

 
10,970

 
15

 
 
 
 
 
 
Provision for credit losses
1,317

 
1,430

 
(8
)
 
 
 
 
 
 
Noninterest expense
 
 
 
 
 
Compensation expense(a)
2,660

 
2,526

 
5

Noncompensation expense(a)(b)
4,249

 
3,869

 
10

Total noninterest expense
6,909

 
6,395

 
8

Income before income tax expense
4,371

 
3,145

 
39

Income tax expense
1,045

 
1,157

 
(10
)
Net income
$
3,326

 
$
1,988

 
67
 %
 
 
 
 
 
 
Revenue by line of business
 
 
 
 
 
Consumer & Business Banking
$
5,722

 
$
4,906

 
17

Home Lending
1,509

 
1,529

 
(1
)
Card, Merchant Services & Auto
5,366

 
4,535

 
18

 
 
 
 
 
 
Mortgage fees and related income details:
 
 
 
 
 
Net production revenue
95

 
141

 
(33
)
Net mortgage servicing revenue(c)
370

 
265

 
40

Mortgage fees and related income
$
465

 
$
406

 
15
 %
 
 
 
 
 
 
Financial ratios
 
 
 
 
 
Return on equity
25
%
 
15
%
 
 
Overhead ratio
55

 
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.
(a)
Effective in the first quarter of 2018, certain operations staff were transferred from CCB to CB. The prior period amounts have been revised to conform with the current period presentation. For a further discussion of this transfer, see CB segment results on page 25.
(b)
Included operating lease depreciation expense of $777 million and $599 million for the three months ended March 31, 2018 and 2017, respectively.
(c)
Included MSR risk management results of $17 million and $(52) million for the three months ended March 31, 2018 and 2017, respectively.
 
Quarterly results
Net income was $3.3 billion, an increase of 67%, driven by higher net revenue, partially offset by higher noninterest expense.
Net revenue was $12.6 billion, an increase of 15%.
Net interest income was $8.5 billion, up 11%, driven by:
•
higher deposit margins and growth in deposit balances, and
•
margin expansion and higher loan balances in Card,
partially offset by
•
loan spread compression from higher rates in Home Lending and Auto, and
•
the impact of the sale of the student loan portfolio in the prior year.
Noninterest revenue was $4.1 billion, up 25%, driven by:
•
lower new account origination costs in Card,
•
higher auto lease volume,
•
higher MSR risk management results,
•
higher net interchange reflecting higher card sales volume, predominantly offset by higher reward costs and partner payments,
•
higher deposit-related fees, and
•
higher merchant processing fees reflecting higher merchant processing volumes
partially offset by
•
lower net production revenue reflecting lower mortgage production margins.
See Note 14 for further information regarding changes in value of the MSR asset and related hedges, and mortgage fees and related income.
Noninterest expense was $6.9 billion, up 8%, driven by:
•
investments in technology and marketing,
•
higher auto lease depreciation, and
•
continued business growth.
The provision for credit losses was $1.3 billion, a decrease of 8% from the prior year, driven by:
•
$105 million of higher net charge-offs, primarily in the credit card portfolio due to seasoning of newer vintages, in line with expectations, partially offset by a decrease in net charge-offs in the residential real estate portfolio reflecting continued improvement in home prices and delinquencies, and
•
the absence of a $218 million write-down recorded in the prior year in connection with the sale of the student loan portfolio.

17


Selected metrics
 
 
 
 
 
 
As of or for the three months
ended March 31,
(in millions, except headcount)
2018

 
2017

 
Change

Selected balance sheet data (period-end)
 
 
 
 
 
Total assets
$
540,659

 
$
524,770

 
3
 %
Loans:
 
 
 
 
 
Consumer & Business Banking
25,856

 
24,386

 
6

Home equity
40,777

 
48,234

 
(15
)
Residential mortgage
199,548

 
185,114

 
8

Home Lending
240,325

 
233,348

 
3

Card
140,414

 
135,016

 
4

Auto
66,042

 
65,568

 
1

Student
—

 
6,253

 
NM
Total loans
472,637

 
464,571

 
2

Core loans
409,296

 
381,393

 
7

Deposits
685,170

 
646,962

 
6

Equity
51,000

 
51,000

 
—

Selected balance sheet data (average)
 
 
 
 
 
Total assets
$
538,938

 
$
532,098

 
1

Loans:
 
 
 
 
 
Consumer & Business Banking
25,845

 
24,359

 
6

Home equity
41,786

 
49,278

 
(15
)
Residential mortgage
198,653

 
183,756

 
8

Home Lending
240,439

 
233,034

 
3

Card
142,927

 
137,211

 
4

Auto
65,863

 
65,315

 
1

Student
—

 
6,916

 
NM
Total loans
475,074

 
466,835

 
2

Core loans
410,147

 
381,016

 
8

Deposits
659,599

 
622,915

 
6

Equity
51,000

 
51,000

 
—

 
 
 
 
 
 
Headcount(a)
133,408

 
133,176

 
—

(a)
Effective in the first quarter of 2018, certain operations staff were transferred from CCB to CB. The prior period amount has been revised to conform with the current period presentation. For further discussion of this transfer, see CB segment results on page 25.
 
Selected metrics
 
 
 
 
 
As of or for the three months
ended March 31,
(in millions, except ratio data)
2018


2017

 
Change

Credit data and quality statistics
 
 
 
 
 
Nonaccrual loans(a)(b)
$
4,104


$
4,442


(8
)%
 
 
 
 
 
 
Net charge-offs(c)
 
 
 
 
 
Consumer & Business Banking
53

 
57

 
(7
)
Home equity
16

 
47

 
(66
)
Residential mortgage
2

 
3

 
(33
)
Home Lending
18

 
50

 
(64
)
Card
1,170

 
993

 
18

Auto
76

 
81

 
(6
)
Student
—

 
498

(g) 
NM

Total net charge-offs
$
1,317

 
$
1,679

(g) 
(22
)
 
 
 
 
 
 
Net charge-off rate(c)
 
 
 
 
 
Consumer & Business Banking
0.83
%
 
0.95
%
 
 
Home equity(d)
0.21

 
0.52

 
 
Residential mortgage(d)
—

 
0.01

 
 
Home Lending(d)
0.03

 
0.10

 
 
Card
3.32

 
2.94

 
 
Auto
0.47

 
0.50

 
 
Student
—

 
NM

 
 
Total net charge-off rate(d)
1.20

 
1.58

(g) 
 
 
 
 
 
 
 
30+ day delinquency rate
 
 
 
 
 
Home Lending(e)(f)
0.98
%
 
1.08
%
 
 
Card
1.82

 
1.66

 
 
Auto
0.71

 
0.93

 
 
 
 
 
 
 
 
90+ day delinquency rate — Card
0.95

 
0.87

 
 
 
 
 
 
 
 
Allowance for loan losses
 
 
 
 
 
Consumer & Business Banking
$
796

 
$
753

 
6

Home Lending, excluding PCI loans
1,003

 
1,328

 
(24
)
Home Lending — PCI loans(c)
2,205

 
2,287

 
(4
)
Card
4,884

 
4,034

 
21

Auto
464

 
474

 
(2
)
Total allowance for loan losses(c)
$
9,352

 
$
8,876

 
5
 %
(a)
Excludes PCI loans. The Firm is recognizing interest income on each pool of PCI loans as each of the pools is performing.
(b)
At March 31, 2018 and 2017, nonaccrual loans excluded mortgage loans 90 or more days past due and insured by U.S. government agencies of $4.0 billion and $4.5 billion, respectively. Student loans insured by U.S. government agencies under the Federal Family Education Loan Program (“FFELP”) and 90 or more days past due were also excluded from nonaccrual loans prior to sale of the student loan portfolio in the second quarter of 2017. These amounts have been excluded based upon the government guarantee.
(c)
Net charge-offs and the net charge-off rates for the three months ended March 31, 2018 and 2017, excluded $20 million and $24 million, respectively, of write-offs in the PCI portfolio. These write-offs decreased the allowance for loan losses for PCI loans. For further information on PCI write-offs, see Summary of changes in the allowance for credit losses on page 58.

18


(d)
Excludes the impact of PCI loans. For the three months ended March 31, 2018 and 2017, the net charge-off rates including the impact of PCI loans were as follows: (1) home equity of 0.16% and 0.39%, respectively; (2) residential mortgage of -% and 0.01%, respectively; (3) Home Lending of 0.03% and 0.09%, respectively; and (4) total CCB of 1.12% and 1.46%, respectively.
(e)
At March 31, 2018 and 2017, excluded mortgage loans insured by U.S. government agencies of $5.7 billion and $6.3 billion, respectively, that are 30 or more days past due. These amounts have been excluded based upon the government guarantee.
(f)
Excludes PCI loans. The 30+ day delinquency rate for PCI loans was 9.49% and 9.11% at March 31, 2018 and 2017, respectively.
(g)
Excluding net charge-offs of $467 million related to the student loan portfolio sale, the total net charge-off rate for the three months ended March 31, 2017 would have been 1.14%.
 
Selected metrics
 
 
 
 
 
As of or for the three months
ended March 31,
(in billions, except ratios and where otherwise noted)
2018

 
2017

 
Change

Business Metrics
 
 
 
 
 
Number of branches
5,106

 
5,246

 
(3
)%
Active digital customers
(in thousands)(a)
47,911

 
45,463

 
5

Active mobile customers
(in thousands)(b)
30,924

 
27,256

 
13

Debit and credit card sales volume(c)
$
232.4


$
209.4


11

 
 
 
 
 
 
Consumer & Business Banking
 
 
 
 
 
Average deposits
$
646.4

 
$
609.0

 
6

Deposit margin
2.20
%
 
1.88
%
 
 
Business banking origination volume
$
1.7

 
$
1.7

 
(3
)
Client investment assets
276.2

 
245.1

 
13

 
 
 
 
 
 
Home Lending
 
 
 
 
 
Mortgage origination volume by channel
 
 
 
 
 
Retail
$
8.3

 
$
9.0

 
(8
)
Correspondent
9.9

 
13.4

 
(26
)
Total mortgage origination volume(d)
$
18.2

 
$
22.4

 
(19
)
 
 
 
 
 
 
Total loans serviced (period-end)
$
804.9

 
$
836.3

 
(4
)
Third-party mortgage loans serviced (period-end)
539.0

 
582.6

 
(7
)
MSR carrying value (period-end)
6.2

 
6.1

 
2

Ratio of MSR carrying value (period-end) to third-party mortgage loans serviced (period-end)
1.15
%
 
1.05
%
 
 
 
 
 
 
 
 
MSR revenue multiple(e)
3.19
x
 
3.00
x
 
 
 
 
 
 
 
 
Card, excluding Commercial Card
 
 
 
 
 
Credit card sales volume
$
157.1

 
$
139.7

 
12

New accounts opened (in millions)
2.0

 
2.5

 
(20
)
 
 
 
 
 
 
Card Services
 
 
 
 
 
Net revenue rate
11.61
%
 
10.15
%
 
 
 
 
 
 
 
 
Merchant Services
 
 
 
 
 
Merchant processing volume
$
316.3

 
$
274.3

 
15

 
 
 
 
 
 
Auto
 
 
 
 
 
Loan and lease origination volume
$
8.4

 
$
8.0

 
5

Average Auto operating lease assets
17.6

 
13.8

 
28
 %
(a)
Users of all web and/or mobile platforms who have logged in within the past 90 days.
(b)
Users of all mobile platforms who have logged in within the past 90 days.
(c)
The prior period amount has been revised to conform with the current period presentation.
(d)
Firmwide mortgage origination volume was $20.0 billion and $25.6 billion for the three months ended March 31, 2018 and 2017, respectively.
(e)
Represents the ratio of MSR carrying value (period-end) to third-party mortgage loans serviced (period-end) divided by the ratio of annualized loan servicing-related revenue to third-party mortgage loans serviced (average).


19

CORPORATE & INVESTMENT BANK
For a discussion of the business profile of CIB, see pages 62–66 of JPMorgan Chase’s 2017 Annual Report and Line of Business Metrics on page 161.
Effective January 1, 2018, the Firm adopted several new accounting standards; the guidance which had the most significant impact on the CIB segment results was revenue recognition, and recognition and measurement of financial assets. The revenue recognition guidance was applied retrospectively and, accordingly, prior period amounts were revised. For additional information, see Note 1.
Selected income statement data
 
 
 
Three months ended March 31,
(in millions, except ratios)
2018
 
2017
 
Change
Revenue
 
 
 
 
 
Investment banking fees
$
1,696

 
$
1,875

 
(10
)%
Principal transactions
4,029

 
3,507

 
15

Lending- and deposit-related fees
381

 
388

 
(2
)
Asset management, administration and commissions
1,131

 
1,052

 
8

All other income
680

 
177

 
284

Noninterest revenue
7,917

 
6,999

 
13

Net interest income
2,566

 
2,600

 
(1
)
Total net revenue(a)
10,483

 
9,599

 
9

 
 
 
 
 
 
Provision for credit losses
(158
)
 
(96
)
 
(65
)
 
 
 
 
 
 
Noninterest expense
 
 
 
 
 
Compensation expense
3,036

 
2,799

 
8

Noncompensation expense
2,623

 
2,385

 
10

Total noninterest expense
5,659