The Quarterly
JPM Q1 2016 10-Q

Jpmorgan Chase & Co (JPM) SEC Quarterly Report (10-Q) for Q2 2016

JPM Q3 2016 10-Q
JPM Q1 2016 10-Q JPM Q3 2016 10-Q


UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

the Securities Exchange Act of 1934

For the quarterly period ended

Commission file

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


2



JPMorgan Chase & Co.

Consolidated financial highlights

(unaudited)

As of or for the period ended,

(in millions, except share, ratio, headcount data and where otherwise noted)

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 .


3


INTRODUCTION

The following is management's discussion and analysis ("MD&A") of the financial condition and results of operations of JPMorgan Chase & Co. ("JPMorgan Chase" or the "Firm") for the second quarter of 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.






4


EXECUTIVE OVERVIEW

This executive overview of the MD&A highlights selected information and may not contain all of the information that is important to readers of this Form 10-Q. For a complete description of the trends and uncertainties, as well as the risks and critical accounting estimates affecting the Firm and its various lines of business, this Form 10-Q should be read in its entirety.

Financial performance of JPMorgan Chase

(unaudited)

As of or for the period ended,

Three months ended June 30,

Six months ended June 30,

(in millions, except per share data and ratios)

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 .



5


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 .



6


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).




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 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.



8


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.



9


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 .



10


Income tax expense

(in millions, except rate)

Three months ended June 30,

Six months ended June 30,

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

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 changes in the mix of income and expense subject to U.S. federal and state and local taxes.

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 .



11


CONSOLIDATED BALANCE SHEETS ANALYSIS

Consolidated balance sheets overvie w

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 .



12






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 .



13


OFF-BALANCE SHEET ARRANGEMENTS

In the normal course of business, the Firm enters into various contractual obligations that may require future cash payments. Certain obligations are recognized on-balance sheet, while others are off-balance sheet under accounting principles generally accepted in the U.S. ("U.S. GAAP"). The Firm is involved with several types of off–balance sheet arrangements, including through nonconsolidated special-purpose entities ("SPEs"), which are a type of VIE, and through lending-related financial instruments (e.g., commitments and guarantees). For further discussion, see Note 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 .



14


CONSOLIDATED CASH FLOWS ANALYSIS

Consolidated cash flows overvie w

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,

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.




15


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 .



16


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,

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 .



17


BUSINESS SEGMENT RESULTS

The Firm is managed on a line of business basis. There are four major reportable business segments – Consumer & Community Banking, Corporate & Investment Bank, Commercial Banking and Asset 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

%



18



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

%

19

%

18

%

Overhead ratio

52


56


54


57


Note: In the discussion and the tables which follow, CCB presents certain financial measures which exclude the impact of PCI loans; these are non-GAAP financial measures. For additional information, see Explanation and Reconciliation of the Firm's Use of Non-GAAP Financial Measures and Key Performance Measures on pages 16–17 .

(a)

Included operating lease depreciation expense of $460 million and $348 million for the three months ended June 30, 2016 and 2015 , respectively, and $892 million and $674 million for the six months ended June 30, 2016 and 2015 , respectively.

(b)

Included MSR risk management of $73 million and $70 million for the three months ended June 30, 2016 and 2015 , respectively, and $202 million and $2 million for the six months ended June 30, 2016 and 2015 , respectively.



19



Quarterly results

Consumer & Community Banking net income was $2.7 billion, an increase of 5%, driven by higher net revenue and lower noninterest expense, predominantly offset by higher provision for credit losses.

Net revenue was $11.5 billion, an increase of 4%. Net interest income was $7.3 billion, up 6%, driven by higher deposit balances and higher loan balances largely resulting from originations of prime mortgage loans that have been retained, partially offset by deposit spread compression. Noninterest revenue was $4.1 billion, up 1%, driven by a gain on the sale of Visa Europe interests, higher auto lease and card sales volume and higher deposit-related fees, predominantly offset by the impact of renegotiated co-brand partnership agreements in Credit Card, lower mortgage servicing revenue largely as a result of a lower level of third-party loans serviced, and higher amortization of new account origination costs in Credit Card. Noninterest revenue also included fair value losses on the investment in Square, Inc.

The provision for credit losses was $1.2 billion, an increase of 71%, reflecting increases in the allowance for loan losses. The current-quarter provision included a $175 million increase in the allowance for loan losses, reflecting increases in the credit card and auto loan portfolios, primarily driven by higher loss rates in newer card vintages, as well as growth in the card and auto loan portfolios, partially offset by reductions in the allowance for loan losses 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 prior-year provision reflected a $326 million reduction in the allowance for loan losses due to continued improvement in home prices and delinquencies in the residential real estate portfolio as well as runoff in the student loan portfolio.

Noninterest expense was $6.0 billion, a decrease of 3%, driven by lower legal expense, branch efficiencies and lower headcount-related expense, largely offset by higher auto lease depreciation.

Year-to-date results

Consumer & Community Banking net income was $5.1 billion, an increase of 8%, driven by higher net revenue and lower noninterest expense, largely offset by higher provision for credit losses.

Net revenue was $22.6 billion, an increase of 4%. Net interest income was $14.6 billion, up 5%, driven by higher deposit balances and higher loan balances largely resulting from originations of prime mortgage loans that have been retained, partially offset by deposit spread compression. Noninterest revenue was $7.9 billion, up 2%, driven by a gain on the sale of Visa Europe interests, higher auto lease and card sales volume, higher MSR risk management results and higher deposit-related fees, predominantly offset by the impact of renegotiated co-brand partnership agreements in Credit Card, lower mortgage servicing revenue largely as a result of a lower level of third-party loans serviced, and higher amortization of new account origination costs in Credit Card. See Note 16 for further information regarding changes in value of the MSR asset and related hedges,

and mortgage fees and related income. Noninterest revenue also included fair-value losses on the investment in Square, Inc.

The provision for credit losses was $2.3 billion, an increase of 38%, reflecting increases in the allowance for loan losses. The current-year provision included a $175 million increase in the allowance for loan losses, reflecting increases in the credit card and auto loan portfolios, primarily driven by higher loss rates in newer card vintages, as well as growth in the card and auto loan portfolios, partially offset by reductions in the allowance for loan losses 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 prior-year provision reflected a $451 million reduction in the allowance for loan losses due to continued improvement in home prices and delinquencies in the residential real estate portfolio as well as runoff in the student loan portfolio.

Noninterest expense was $12.1 billion, a decrease of 2%, driven by lower legal expense, branch efficiencies and lower headcount-related expense, largely offset by higher auto lease depreciation and higher investment in marketing.



20



Selected metrics

As of or for the three months
ended June 30,

As of or for the six months
ended June 30,

(in millions, except headcount)

2016

2015

Change

2016

2015

Change

Selected balance sheet data (period-end)

Total assets

$

519,187


$

472,181


10

 %

$

519,187


$

472,181


10

 %

Loans:

Consumer & Business Banking

23,588


21,940


8


23,588


21,940


8


Home equity

54,569


63,316


(14

)

54,569


63,316


(14

)

Residential mortgage and other

178,670


139,814


28


178,670


139,814


28


Mortgage Banking

233,239


203,130


15


233,239


203,130


15


Credit Card

131,591


126,025


4


131,591


126,025


4


Auto

64,056


56,330


14


64,056


56,330


14


Student

7,614


8,763


(13

)

7,614


8,763


(13

)

Total loans

460,088


416,188


11


460,088


416,188


11


Core loans

364,007


301,154


21


364,007


301,154


21


Deposits

586,074


530,767


10


586,074


530,767


10


Common equity

51,000


51,000


-


51,000


51,000


-


Selected balance sheet data (average)

Total assets

$

512,434


$

463,404


11


507,833


$

459,108


11


Loans:

Consumer & Business Banking

23,223


21,732


7


22,998


21,526


7


Home equity

55,615


64,502


(14

)

56,666


65,671


(14

)

Residential mortgage and other

175,753


132,649


32


172,224


126,687


36


Mortgage Banking

231,368


197,151


17


228,890


192,358


19


Credit Card

128,396


124,539


3


127,848


124,780


2


Auto

63,661


55,800


14


62,456


55,405


13


Student

7,757


8,907


(13

)

7,896


9,057


(13

)

Total loans

454,405


408,129


11


450,088


403,126


12


Core loans

356,380


290,330


23


350,042


282,498


24


Deposits

583,115


529,448


10


572,699


520,850


10


Common equity

51,000


51,000


-


51,000


51,000


-


Headcount

131,815


132,302


-


131,815


132,302


-

 %






21



Selected metrics

As of or for the three months
ended June 30,

As of or for the six months
ended June 30,

(in millions, except ratio data)

2016



2015


Change

2016

2015

Change

Credit data and quality statistics

Nonaccrual loans (a)(b)

$

4,980


$

5,876


(15

)%

$

4,980


$

5,876


(15

)%

Net charge-offs (c)

Consumer & Business Banking

53


68


(22

)

109


127


(14

)

Home equity

35


69


(49

)

94


156


(40

)

Residential mortgage and other

3


12


(75

)

4


29


(86

)

Mortgage Banking

38


81


(53

)

98


185


(47

)

Credit Card

860


800


8


1,690


1,589


6


Auto

46


32


44


113


83


36


Student

29


46


(37

)

66


97


(32

)

Total net charge-offs

$

1,026


$

1,027


-


2,076


$

2,081


-


Net charge-off rate (c)

Consumer & Business Banking

0.92

%

1.26

%

0.95

%

1.19


Home equity (d)

0.34


0.57


0.45


0.64


Residential mortgage and other (d)

0.01


0.05


0.01


0.06


Mortgage Banking (d)

0.08


0.21


0.10


0.25


Credit Card (e)

2.70


2.61


2.66


2.61


Auto

0.29


0.23


0.36


0.30


Student

1.50


2.07


1.68


2.16


Total net charge-off rate (d)

0.99


1.14


1.02


1.18


30+ day delinquency rate

Mortgage Banking (f)(g)

1.33

%

1.95

%

1.33


1.95


Credit Card (h)

1.40


1.29


1.40


1.29


Auto

1.16


0.95


1.16


0.95


Student (i)

1.43


2.00


1.43


2.00


90+ day delinquency rate - Credit Card (h)

0.70


0.63


0.70


0.63


Allowance for loan losses

Consumer & Business Banking

$

703


$

703


-


$

703


$

703


-


Mortgage Banking excluding PCI loans

1,488


1,788


(17

)

1,488


1,788


(17

)

Mortgage Banking - PCI loans (c)

2,654


3,215


(17

)

2,654


3,215


(17

)

Credit Card

3,684


3,434


7


3,684


3,434


7


Auto

449


349


29


449


349


29


Student

274


349


(21

)

274


349


(21

)

Total allowance for loan losses (c)

$

9,252


$

9,838


(6)%


$

9,252


$

9,838


(6)%


(a)

Excludes PCI loans. The Firm is recognizing interest income on each pool of PCI loans as they are all performing.

(b)

At June 30, 2016 and 2015 , nonaccrual loans excluded loans 90 or more days past due as follows: (1) mortgage loans insured by U.S. government agencies of $5.2 billion and $7.0 billion, respectively; and (2) student loans insured by U.S. government agencies under the Federal Family Education Loan Program ("FFELP") of $252 million and $282 million, respectively. 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 June 30, 2016 and 2015 , excluded $41 million and $55 million, respectively, and for the six months ended June 30, 2016 and 2015 , excluded $88 million and $110 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 allowances on page 56.

(d)

Excludes the impact of PCI loans. For the three months ended June 30, 2016 and 2015 , the net charge-off rates including the impact of PCI loans were as follows: (1) home equity of 0.25% and 0.43%, respectively; (2) residential mortgage and other of 0.01% and 0.04%, respectively; (3) Mortgage Banking of 0.07% and 0.17%, respectively; and (4) total CCB of 0.91% and 1.01%, respectively. For the six months ended June 30, 2016 and 2015, the net charge-off rates including the impact of PCI loans were as follows: (1) home equity of 0.33% and 0.48%, respectively; (2) residential mortgage and other of –% and 0.05%, respectively; (3) Mortgage Banking of 0.09% and 0.19%, respectively; and (4) total CCB of 0.93% and 1.05%, respectively.

(e)

Average credit card loans included loans held-for-sale of $82 million and $1.8 billion for the three months ended June 30, 2016 and 2015 , respectively, and $77 million and $2.2 billion for the six months ended June 30, 2016 and 2015 , respectively. These amounts are excluded when calculating the net charge-off rate.

(f)

At June 30, 2016 and 2015 , excluded mortgage loans insured by U.S. government agencies of $7.2 billion and $8.8 billion, respectively, that are 30 or more days past due. These amounts have been excluded based upon the government guarantee.

(g)

Excludes PCI loans. The 30+ day delinquency rate for PCI loans was 10.09% and 11.65% at June 30, 2016 and 2015 , respectively.

(h)

Period-end credit card loans included loans held-for-sale of $84 million and $1.3 billion at June 30, 2016 and 2015 , respectively. These amounts are excluded when calculating delinquency rates.

(i)

Excluded student loans insured by U.S. government agencies under FFELP of $458 million and $546 million at June 30, 2016 and 2015 , respectively, that are 30 or more days past due. These amounts have been excluded based upon the government guarantee.


22



Selected metrics

As of or for the three months
ended June 30,

As of or for the six months
ended June 30,

(in billions, except ratios and where otherwise noted)

2016


2015


Change

2016


2015


Change

Business Metrics

CCB households (in millions)

59.2


57.8


2

 %

59.2


57.8


2

 %

Number of branches

5,366


5,504


(3

)

5,366


5,504


(3

)

Active digital customers

(in thousands) (a)

42,833


37,878


13


42,833


37,878


13


Active mobile customers

(in thousands) (b)

24,817


21,001


18


24,817


21,001


18


Consumer & Business Banking

Average deposits

$

567.4


$

512.8


11


$

557.9


505.3


10


Deposit margin

1.80

%

1.92

%

1.83

%

1.95

%

Business banking origination volume

$

2.2


$

1.9


14


$

3.9


$

3.5


12


Client investment assets

224.7


221.5


1


224.7


221.5


1


Mortgage Banking

Mortgage origination volume by channel

Retail

$

11.2


$

9.8


14


$

19.9


$

17.9


11


Correspondent

13.8


19.5


(29

)

27.5


36.1


(24

)

Total mortgage origination volume (c)

$

25.0


$

29.3


(15

)

$

47.4


$

54.0


(12

)

Total loans serviced (period-end)

$

880.3


$

917.0


(4

)

$

880.3


$

917.0


(4

)

Third-party mortgage loans serviced (period-end)

629.9


723.4


(13

)

629.9


723.4


(13

)

MSR carrying value (period-end)

5.1


7.6


(33

)

5.1


7.6


(33

)

Ratio of MSR carrying value (period-end) to third-party mortgage loans serviced

(period-end)

0.81

%

1.05

%

0.81

%

1.05

%

MSR revenue multiple (d)

2.31

x

3.00

x

2.31

x

3.00

x

Credit Card, excluding Commercial Card

Sales volume

$

136.0


$

125.7


8


$

257.7


$

238.5


8


New accounts opened

(in millions)

2.7


2.1


29


5.0


4.2


19


Card Services

Net revenue rate

12.28

%

12.35

%

12.04

%

12.27

%

Commerce Solutions

Merchant processing volume

$

263.8


$

234.1


13


$

511.3


$

455.3


12


Auto

Loan and lease origination volume

$

8.5


$

7.8


9


$

18.1


$

15.1


20


Average Auto operating lease assets

10.4


7.4


40%


10.0


7.2


40%


(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)

Firmwide mortgage origination volume was $28.6 billion and $31.7 billion for the three months ended June 30, 2016 and 2015 , respectively, and $53.0 billion and $58.3 billion for the six months ended June 30, 2016 and 2015 , respectively.

(d)

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).


23



Mortgage servicing-related matters

The Firm entered into various Consent Orders and settlements with federal and state governmental agencies and private parties related to mortgage servicing, origination, and residential mortgage-backed securities activities. The majority of these Consent Orders and settlements have subsequently been resolved and/or terminated; however, among those obligations, the mortgage servicing-related Consent Order entered into with the Federal Reserve on April 13, 2011, as amended on February 28, 2013 remains outstanding. The Audit Committee of the Board of Directors provides governance and oversight of the Federal Reserve Consent Order.

The Federal Reserve Consent Order and certain other obligations under mortgage-related settlements are the subject of ongoing reporting to various regulators and independent overseers. The Firm's compliance with certain of these settlements is detailed in periodic reports published by the independent overseers. The Firm is committed to fulfilling these commitments with appropriate due diligence and oversight.




24


CORPORATE & INVESTMENT BANK

For a discussion of the business profile of CIB, see pages 94–98 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

Investment banking fees

$

1,636


$

1,825


(10

)%

$

2,957


$

3,586


(18

)%

Principal transactions

2,965


2,657


12


5,435


6,139


(11

)

Lending- and deposit-related fees

385


400


(4

)

779


797


(2

)

Asset management, administration and commissions

1,025


1,181


(13

)

2,094


2,335


(10

)

All other income

464


170


173


744


450


65


Noninterest revenue

6,475


6,233


4


12,009


13,307


(10

)

Net interest income

2,690


2,490


8


5,291


4,998


6


Total net revenue (a)

9,165


8,723


5


17,300


18,305


(5

)

Provision for credit losses

235


50


370


694


19


NM


Noninterest expense

Compensation expense

2,737


2,656


3


5,337


5,679


(6

)

Noncompensation expense

2,341


2,481


(6

)

4,549


5,115


(11

)

Total noninterest expense

5,078


5,137


(1

)

9,886


10,794


(8

)

Income before income tax expense

3,852


3,536


9


6,720


7,492


(10

)

Income tax expense

1,359


1,195


14


2,248


2,614


(14

)

Net income

$

2,493


$

2,341


6%


$

4,472


$

4,878


(8

)%

Financial ratios

Return on common equity

15

%

14

%

13

%

15

%

Overhead ratio

55


59


57


59

%

Compensation expense as a percentage of total net revenue

30


30


31


31


(a)

Included tax-equivalent adjustments, predominantly due to income tax credits related to alternative energy investments; income tax credits and amortization of the cost of investments in affordable housing projects; as well as tax-exempt income from municipal bonds of $476 million and $396 million for the three months ended June 30, 2016 and 2015, respectively and $974 million and $828 million for the six months ended June 30, 2016 and 2015, respectively.

Selected income statement data

Three months ended June 30,

Six months ended June 30,

(in millions)

2016

2015

Change

2016

2015

Change

Revenue by business

Investment Banking

$

1,492


$

1,746


(15

)%

$

2,723


$

3,376


(19

)%

Treasury Services

892


901


(1

)

1,776


1,831


(3

)

Lending

277


302


(8

)

579


737


(21

)

Total Banking

2,661


2,949


(10

)

5,078


5,944


(15

)

Fixed Income Markets

3,959


2,931


35


7,556


7,085


7


Equity Markets

1,600


1,576


2


3,176


3,227


(2

)

Securities Services

907


995


(9

)

1,788


1,929


(7

)

Credit Adjustments & Other (a)

38


272


(86

)

(298

)

120


NM


Total Markets & Investor Services

6,504


5,774


13


12,222


12,361


(1

)

Total net revenue

$

9,165


$

8,723


5

 %

$

17,300


$

18,305


(5)%


(a)

Effective January 1, 2016, consists primarily of credit valuation adjustments ("CVA") managed by the Credit Portfolio Group, funding valuation adjustments ("FVA") and DVA on derivatives. Prior periods also include DVA on fair value option elected liabilities. Results are presented net of associated hedging activities and net of CVA and FVA amounts allocated to Fixed Income Markets and Equity Markets. Effective January 1, 2016, changes in DVA on fair value option elected liabilities is recognized in other comprehensive income. For additional information, see Notes 3 , 4 and 19 .



25


Quarterly results

Net income was $2.5 billion, up 6%, reflecting higher net revenue, partially offset by higher provisions for credit losses.

Banking revenue was $2.7 billion, down 10%. Investment banking revenue was $1.5 billion, down 15%, largely driven by lower equity underwriting fees. The Firm maintained its #1 ranking for Global Investment Banking fees, according to Dealogic. Equity underwriting fees were down 37% compared to a strong quarter in the prior year, on lower industry-wide fee levels. Debt underwriting fees were down 2% driven by declines in industry-wide fee levels. Lending revenue was $277 million, down 8%, reflecting fair value losses on hedges of accrual loans.

Markets & Investor Services revenue was $6.5 billion, up 13%. Fixed Income Markets revenue was $4.0 billion, up 35% reflecting 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 and Securitized Products also improved as client risk appetite recovered in a less volatile environment driving higher primary and secondary market activity. Securities Services revenue was $907 million, down 9%, driven by lower fees and commissions. Credit Adjustments & Other was a gain of $38 million, compared with a gain of $272 million in the prior year. The prior year quarter included gains on wider funding spreads.

The provision for credit losses was $235 million, compared with $50 million in the prior year, primarily reflecting an increase in the allowance for credit losses in the Oil & Gas portfolio driven by a single name.

Noninterest expense was $5.1 billion, down 1%.


Year-to-date results

Net income was $4.5 billion, down 8%, reflecting lower net revenue and higher provisions for credit losses, largely offset by lower noninterest expense.

Banking revenue was $5.1 billion, down 15%. Investment banking revenue was $2.7 billion, down 19%. The decrease was primarily driven by lower equity and debt underwriting fees. Equity underwriting fees were $490 million, down 42% driven by declines in industry-wide fee levels. Debt underwriting fees were $1.4 billion, down 18%, primarily driven by declines in industry-wide fee levels and fewer large acquisition financing deals. Advisory fees were $1.1 billion, up 4%, driven by a greater share of fees for completed transactions. Treasury Services revenue was $1.8 billion, down 3%, primarily driven by business simplification. Lending revenue was $579 million, down 21%, reflecting fair value losses on hedges of accrual loans.

Markets & Investor Services revenue was $12.2 billion, down 1%. Fixed Income Markets revenue of $7.6 billion was up 7% reflecting strong performance in Rates on higher client flows driven by increased issuance-related activity as well as continued demand in Japan driven by ongoing monetary easing. Performance in Credit and Securitized Products also improved as client risk appetite recovered in a less volatile environment driving higher primary and secondary market activity. Equity Markets revenue of $3.2 billion was down 2% compared to a strong prior year, particularly in Asia. Securities Services revenue was $1.8 billion, down 7%, largely driven by lower fees and commissions. Credit Adjustments & Other was a loss of $298 million on widening credit spreads compared with a gain of $120 million in the prior year.

The provision for credit losses was $694 million, compared with $19 million in the prior year, primarily reflecting increases in the allowance for credit losses in the Oil & Gas portfolio and, to a lesser extent, the Metals & Mining portfolio.

Noninterest expense was $9.9 billion, down 8%, primarily driven by lower compensation and lower legal expense.



26


Selected metrics

As of or for the three months
ended June 30,

As of or for the six months
ended June 30,

(in millions, except headcount)

2016

2015

Change

2016

2015

Change

Selected balance sheet data (period-end)

Assets

$

826,019


$

819,745


1

 %

$

826,019


$

819,745


1

 %

Loans:

Loans retained (a)

112,637


96,579


17


112,637


96,579


17


Loans held-for-sale and loans at fair value

5,600


7,211


(22

)

5,600


7,211


(22

)

Total loans

118,237


103,790


14


118,237


103,790


14


Core loans

117,821


103,235


14


117,821


103,235


14


Common equity

64,000


62,000


3


64,000


62,000


3


Selected balance sheet data (average)

Assets

$

815,886


$

845,225


(3

)

$

806,717


$

855,220


(6

)

Trading assets-debt and equity instruments

306,418


317,385


(3

)

295,770


314,837


(6

)

Trading assets-derivative receivables

61,457


68,949


(11

)

62,007


73,128


(15

)

Loans:

Loans retained (a)

111,668


94,711


18


110,190


96,900


14


Loans held-for-sale and loans at fair value

3,169


5,504


(42

)

3,187


4,786


(33

)

Total loans

114,837


100,215


15


113,377


101,686


11


Core loans

114,421


99,343


15


112,919


100,690


12


Common equity

64,000


62,000


3


64,000


62,000


3


Headcount

48,805


49,367


(1

)%

48,805


49,367


(1

)%

(a)

Loans retained includes credit portfolio loans, loans held by consolidated Firm-administered multi-seller conduits, trade finance loans, other held-for-investment loans and overdrafts.

Selected metrics

As of or for the three months
ended June 30,

As of or for the six months
ended June 30,

(in millions, except ratios)

2016

2015

Change

2016

2015

Change

Credit data and quality statistics

Net charge-offs/(recoveries)

$

90


$

(15

)

NM


$

136


$

(26

)

NM


Nonperforming assets:

Nonaccrual loans:

Nonaccrual loans retained (a)

623


324


92%


623


324


92


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

7


12


(42

)

7


12


(42

)

Total nonaccrual loans

630


336


88


630


336


88


Derivative receivables

220


256


(14

)

220


256


(14

)

Assets acquired in loan satisfactions

75


60


25


75


60


25


Total nonperforming assets

925


652


42


925


652


42


Allowance for credit losses:

Allowance for loan losses

1,669


1,086


54


1,669


1,086


54


Allowance for lending-related commitments

715


437


64


715


437


64


Total allowance for credit losses

2,384


1,523


57%


2,384


1,523


57%


Net charge-off/(recovery) rate

0.32%


(0.06

)%

0.25%


(0.05

)%

Allowance for loan losses to period-end loans retained

1.48


1.12


1.48


1.12


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

2.23


1.73


2.23


1.73


Allowance for loan losses to nonaccrual loans retained (a)

268


335


268


335


Nonaccrual loans to total period-end loans

0.53

%

0.32

 %

0.53

%

0.32

 %

(a)

Allowance for loan losses of $211 million and $64 million were held against these nonaccrual loans at June 30, 2016 and 2015, respectively.

(b)

Management uses allowance for loan losses to period-end loans retained, excluding trade finance and conduits, a non-GAAP financial measure, to provide a more meaningful assessment of CIB's allowance coverage ratio.


27


Business metrics

Three months ended June 30,

Six months ended June 30,

(in millions)

2016

2015

Change

2016

2015

Change

Advisory

$

466


$

466


-


$

1,051


$

1,008


4%


Equity underwriting

285


452


(37

)

490


851


(42

)

Debt underwriting

885


907


(2

)

1,416


1,727


(18

)

Total investment banking fees

$

1,636


$

1,825


(10)%


$

2,957


$

3,586


(18)%


League table results – wallet share

Six months ended
June 30, 2016

Full-year 2015


Share

Rank


Share

Rank

Based on fees (a)

Debt, equity and equity-related

Global

7.1

%

#

1


7.7

%

#

1


U.S.

11.7


1


11.7


1


Long-term debt (b)

Global

7.0


1


8.3


1


U.S.

11.1


2


12.0


1


Equity and equity-related

Global (c)

7.3


1


7.0


1


U.S.

13.0


1


11.2


1


M&A (d)

Global

9.9


2


8.4


2


U.S.

11.7


2


9.9


2


Loan syndications

Global

7.3


2


7.5


1


U.S.

9.1


2


10.7


2


Global investment banking fees (e)

8.0

%

#

1


7.9

%

#

1


(a)

Source: Dealogic. Reflects the ranking of revenue wallet and market share.

(b)

Long-term debt rankings include investment-grade, high-yield, supranationals, sovereigns, agencies, covered bonds, asset-backed securities ("ABS") and mortgage-backed securities ("MBS"); and exclude money market, short-term debt, and U.S. municipal securities.

(c)

Global equity and equity-related ranking includes rights offerings and Chinese A-Shares.

(d)

Global M&A reflects the removal of any withdrawn transactions. U.S. M&A revenue wallet represents wallet from client parents based in the U.S.

(e)

Global investment banking fees exclude money market, short-term debt and shelf deals

Business metrics

As of or for the three months
ended June 30,

As of or for the six months
ended June 30,

(in millions, except where otherwise noted)

2016

2015

Change

2016

2015

Change

Assets under custody ("AUC") by asset class (period-end)(in billions):

Fixed Income

$

12,539


$

12,134


3%


$

12,539


$

12,134


3%


Equity

6,138


6,652


(8

)

6,138


6,652


(8

)

Other (a)

1,793


1,711


5


1,793


1,711


5


Total AUC

$

20,470


$

20,497


-


$

20,470


$

20,497


-


Client deposits and other third party liabilities (average) (b)

$

373,671


$

401,280


(7

)

$

366,299


$

422,607


(13

)

Trade finance loans (period-end)

17,362


21,195


(18

)%

17,362


21,195


(18

)%

(a)

Consists of mutual funds, unit investment trusts, currencies, annuities, insurance contracts, options and other contracts.

(b)

Client deposits and other third party liabilities pertain to the Treasury Services and Securities Services businesses.



28


International metrics

As of or for the three months
ended June 30,

As of or for the six months
ended June 30,

(in millions, except where otherwise noted)

2016

2015

Change

2016

2015

Change

Total net revenue (a)

Europe/Middle East/Africa

$

2,823


$

2,685


5

 %

$

5,280


$

6,181


(15

)%

Asia/Pacific

1,210


1,358


(11

)

2,512


2,621


(4

)

Latin America/Caribbean

403


220


83


724


551


31


Total international net revenue

4,436


4,263


4


8,516


9,353


(9

)

North America

4,729


4,460


6


8,784


8,952


(2

)

Total net revenue

$

9,165


$

8,723


5


$

17,300


$

18,305


(5

)

Loans retained (period-end) (a)

Europe/Middle East/Africa

$

29,770


$

25,874


15


$

29,770


$

25,874


15


Asia/Pacific

15,198


17,430


(13

)

15,198


17,430


(13

)

Latin America/Caribbean

9,048


8,768


3


9,048


8,768


3


Total international loans

54,016


52,072


4


54,016


52,072


4


North America

58,621


44,507


32


58,621


44,507


32


Total loans retained

$

112,637


$

96,579


17


$

112,637


$

96,579


17


Client deposits and other third-party liabilities (average) (a)(b)

Europe/Middle East/Africa

$

135,213


$

149,055


(9

)

$

131,655


$

154,217


(15

)

Asia/Pacific

68,423


64,860


5


65,569


67,872


(3

)

Latin America/Caribbean

22,334


23,518


(5

)

22,431


23,480


(4

)

Total international

$

225,970


$

237,433


(5

)

$

219,655


$

245,569


(11

)

North America

147,701


163,847


(10

)

146,644


177,038


(17

)

Total client deposits and other third-party liabilities

$

373,671


$

401,280


(7

)

$

366,299


$

422,607


(13

)

AUC (period-end) (in billions) (a)

North America

$

12,310


$

12,068


2


$

12,310


$

12,068


2


All other regions

8,160


8,429


(3

)

8,160


8,429


(3

)

Total AUC

$

20,470


$

20,497


-


$

20,470


$

20,497


-


(a)

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

(b)

Client deposits and other third party liabilities pertain to the Treasury Services and Securities Services businesses.


29


COMMERCIAL BANKING

For a discussion of the business profile of CB, see pages 99–101 of JPMorgan Chase's 2015 Annual Report and Line of Business Metrics on page 175 .

Selected income statement data

Three months ended June 30,

Six months ended June 30,

(in millions)

2016

2015

Change

2016

2015

Change

Revenue

Lending- and deposit-related fees

$

227


$

242


(6

)%

$

459


$

479


(4

)%

Asset management, administration and commissions

18


22


(18

)

40


46


(13

)

All other income (a)

341


345


(1

)

643


720


(11

)

Noninterest revenue

586


609


(4

)

1,142


1,245


(8

)

Net interest income

1,231


1,130


9


2,478


2,236


11


Total net revenue (b)

1,817


1,739


4


3,620


3,481


4


Provision for credit losses

(25

)

182


NM


279


243


15


Noninterest expense

Compensation expense

322


308


5


656


617


6


Noncompensation expense

409


395


4


788


795


(1

)

Total noninterest expense

731


703


4


1,444


1,412


2


Income before income tax expense

1,111


854


30


1,897


1,826


4


Income tax expense

415


329


26


705


703


-


Net income

$

696


$

525


33%


$

1,192


$

1,123


6%


(a)

Includes revenue from investment banking products and commercial card transactions.

(b)

Total net revenue included tax-equivalent adjustments from income tax credits related to equity investments in designated community development entities that provide loans to qualified businesses in low-income communities, as well as tax-exempt income related to municipal financing activity of $124 million and $115 million for the three months ended June 30, 2016 and 2015 , respectively and $244 million and $228 million for the six months ended June 30, 2016 and 2015 , respectively.

Quarterly results

Net income was $696 million, an increase of 33%, driven by higher net revenue and a lower provision for credit losses, partially offset by higher noninterest expense.

Net revenue was $1.8 billion, an increase of 4%. Net interest income was $1.2 billion, up 9%, driven by higher average loan balances and deposit spreads.

Noninterest expense was $731 million, up 4%, driven by continued investments in technology and increased hiring of bankers.

The provision for credit losses was a benefit of $25 million, compared to an expense of $182 million in the prior-year. The current quarter benefit reflects continued strong overall credit performance in the portfolio and somewhat more stable market conditions in Oil & Gas while the prior year reflected select downgrades.

Year-to-date results

Net income was $1.2 billion, an increase of 6%, driven by higher net revenue, partially offset by a higher provision for credit losses and higher noninterest expense.

Net revenue was $3.6 billion, up 4%. Net interest income was $2.5 billion, up 11%, reflecting higher average loan balances and deposit spreads. Noninterest revenue was $1.1 billion, down 8%, driven by lower investment banking revenue compared to a record first half last year.

Noninterest expense was $1.4 billion, up 2%, driven by investments in technology, increased hiring of bankers, and prior year additions to oversight- and control-related personnel.

The provision for credit losses was $279 million reflecting downgrades in the Oil & Gas and Natural Gas Pipeline portfolios; the prior year provision for credit losses was $243 million.



30


Selected income statement data (continued)

Three months ended June 30,

Six months ended June 30,

(in millions, except ratios)

2016

2015

Change

2016

2015

Change

Revenue by product

Lending

$

917


$

867


6

 %

$

1,845


$

1,692


9

 %

Treasury services

680


646


5


1,374


1,293


6


Investment banking (a)

207


196


6


362


444


(18

)

Other

13


30


(57

)

39


52


(25

)

Total Commercial Banking net revenue

$

1,817


$

1,739


4


$

3,620


$

3,481


4


Investment banking revenue, gross (b)

$

595


$

589


1


$

1,078


$

1,342


(20

)

Revenue by client segment

Middle Market Banking (c)

$

698


$

679


3


$

1,405


$

1,344


5


Corporate Client Banking (c)

562


541


4


1,073


1,117


(4

)

Commercial Term Lending

342


318


8


703


626


12


Real Estate Banking

144


117


23


284


233


22


Other

71


84


(15

)

155


161


(4

)

Total Commercial Banking net revenue

$

1,817


$

1,739


4

 %

$

3,620


$

3,481


4

 %

Financial ratios

Return on common equity

16%


14

%

14

%

15

%

Overhead ratio

40


40


40


41


(a)

Revenue by product includes total Firm revenue from investment banking products sold to CB clients, net of revenue sharing with the CIB.

(b)

Total Firm revenue from investment banking products sold to CB clients.

(c)

Effective in the second quarter of 2016, certain clients were transferred from Middle Market Banking to Corporate Client Banking. Prior period amounts were revised to conform with the current period presentation.


31


Selected metrics

As of or for the three months
ended June 30,

As of or for the six months
ended June 30,

(in millions, except headcount)

2016

2015

Change

2016

2015

Change

Selected balance sheet data (period-end)

Total assets

$

208,151


$

201,377


3

 %

$

208,151


$

201,377


3

 %

Loans:

Loans retained

179,164


157,947


13


179,164


157,947


13


Loans held-for-sale and loans at fair value

134


1,506


(91

)

134


1,506


(91

)

Total loans

$

179,298


$

159,453


12


$

179,298


$

159,453


12


Core loans

178,809


158,568


13


178,809


158,568


13


Common equity

16,000


14,000


14


16,000


14,000


14


Period-end loans by client segment

Middle Market Banking (a)

$

51,951


$

50,735


2


$

51,951


$

50,735


2


Corporate Client Banking (a)

36,011


31,149


16


36,011


31,149


16


Commercial Term Lending

66,499


58,314


14


66,499


58,314


14


Real Estate Banking

19,233


14,231


35


19,233


14,231


35


Other

5,604


5,024


12


5,604


5,024


12


Total Commercial Banking loans

$

179,298


$

159,453


12


$

179,298


$

159,453


12


Selected balance sheet data (average)

Total assets

$

205,953


$

198,740


4


$

204,222


$

197,341


3


Loans:

Loans retained

176,229


155,110


14


173,033


152,435


14


Loans held-for-sale and loans at fair value

583


870


(33

)

516


715


(28

)

Total loans

$

176,812


$

155,980


13


$

173,549


$

153,150


13


Core loans

176,251


155,016


14


172,939


152,143


14


Average loans by client segment

Middle Market Banking (a)

$

51,939


$

50,438


3


$

51,248


$

49,983


3


Corporate Client Banking (a)

35,664


29,988


19


34,728


28,834


20


Commercial Term Lending

65,262


56,814


15


64,369


55,790


15


Real Estate Banking

18,381


13,732


34


17,701


13,603


30


Other

5,566


5,008


11


5,503


4,940


11


Total Commercial Banking loans

$

176,812


$

155,980


13

 %

$

173,549


$

153,150


13

 %

Client deposits and other third-party liabilities

170,717


197,004


(13

)

171,898


203,489


(16

)

Common equity

16,000


14,000


14


16,000


14,000


14


Headcount

8,127


7,568


7

 %

8,127


7,568


7

 %

(a)

Effective in the second quarter of 2016, certain clients were transferred from Middle Market Banking to Corporate Client Banking. Prior period amounts were revised to conform with the current period presentation.


32


Selected metrics (continued)

As of or for the three months
ended June 30,

As of or for the six months
ended June 30,

(in millions, except ratios)

2016

2015

Change

2016


2015


Change

Credit data and quality statistics

Net charge-offs/(recoveries)

$

60


$

(4

)

NM


$

66


$

7


NM


Nonperforming assets

Nonaccrual loans:

Nonaccrual loans retained (a)

1,258


384


228


1,258


384


228


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

-


14


(100

)

-


14


(100

)

Total nonaccrual loans

1,258


398


216


1,258


398


216


Assets acquired in loan satisfactions

1


5


(80

)

1


5


(80

)

Total nonperforming assets

1,259


403


212


1,259


403


212


Allowance for credit losses:

Allowance for loan losses

3,041


2,705


12


3,041


2,705


12


Allowance for lending-related commitments

226


163


39


226


163


39


Total allowance for credit losses

3,267


2,868


14

 %

3,267


2,868


14

 %

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

0.14

%

(0.01

)%

0.08

%

0.01

%

Allowance for loan losses to period-end loans retained

1.70


1.71


1.70


1.71


Allowance for loan losses to nonaccrual loans retained (a)

242


704


242


704


Nonaccrual loans to period-end total loans

0.70


0.25


0.70


0.25


(a)

Allowance for loan losses of $292 million and $42 million was held against nonaccrual loans retained at June 30, 2016 and 2015 , respectively.

(b)

Loans held-for-sale and loans at fair value were excluded when calculating the net charge-off/(recovery) rate.


33


ASSET MANAGEMENT

For a discussion of the business profile of AM, see pages 102–104 of JPMorgan Chase's 2015 Annual Report and Line of Business Metrics on pages 175–176 .

Selected income statement data

(in millions, except ratios)

Three months ended June 30,

Six months ended June 30,

2016

2015

Change

2016


2015


Change

Revenue

Asset management, administration and commissions

$

2,102


$

2,381


(12

)%

$

4,118


$

4,610


(11

)%

All other income

90


163


(45

)

319


318


-


Noninterest revenue

2,192


2,544


(14

)

4,437


4,928


(10

)

Net interest income

747


631


18


1,474


1,252


18


Total net revenue

2,939


3,175


(7

)

5,911


6,180


(4

)

Provision for credit losses

(8

)

-


NM


5


4


25


Noninterest expense

Compensation expense

1,249


1,299


(4

)

2,490


2,588


(4

)

Noncompensation expense

849


1,107


(23

)

1,683


1,993


(16

)

Total noninterest expense

2,098


2,406


(13

)

4,173


4,581


(9

)

Income before income tax expense

849


769


10


1,733


1,595


9


Income tax expense

328


318


3


625


642


(3

)

Net income

$

521


$

451


16


$

1,108


$

953


16


Revenue by line of business

Global Investment Management

$

1,424


$

1,670


(15

)

$

2,923


$

3,203


(9

)

Global Wealth Management

1,515


1,505


1


2,988


2,977


-


Total net revenue

$

2,939


$

3,175


(7

)%

$

5,911


$

6,180


(4

)

Financial ratios

Return on common equity

22

%

19

%

24

%

21

%

Overhead ratio

71


76


71


74


Pre-tax margin ratio:

Global Investment Management

30


26


31


28


Global Wealth Management

28


22


27


24


Asset Management

29


24


29


26


Quarterly results

Net income was $521 million, an increase of 16%, reflecting lower noninterest expense predominantly offset by lower net revenue.

Net revenue was $2.9 billion, a decrease of 7%, driven by weaker markets, lower performance fees and lower brokerage activity.

Noninterest expense was $2.1 billion, a decrease of 13%, primarily driven by lower legal expense. The prior-year quarter also included a loss on an asset held-for-sale.

Year-to-date results

Net income was $1.1 billion, an increase of 16%, reflecting lower noninterest expense, largely offset by lower revenue .

Net revenue was $5.9 billion, a decrease of 4%. Net interest income was $1.5 billion, up 18%, driven by higher deposit spreads and loan growth. Noninterest revenue was $4.4 billion, down 10%, driven by weaker markets and lower brokerage activity.

Noninterest expense was $4.2 billion, a decrease of 9%, due to lower legal expense as well as a reduction of expense related to the disposal of assets.



34


Selected metrics

As of or for the three months
ended June 30,

As of or for the six months
ended June 30,

(in millions, except ranking data, headcount and ratios)

2016

2015

Change

2016


2015


Change

% of JPM mutual fund assets rated as 4- or 5-star (a)

52

%

54

%

52

%

54

%

% of JPM mutual fund assets ranked in 1 st  or 2 nd  quartile: (b)

1 year

54


78


54


78


3 years

76


64


76


64


5 years

81


78


81


78


Selected balance sheet data (period-end)

Total assets

$

134,380


$

134,059


-

 %

$

134,380


$

134,059


-

 %

Loans (c)

113,319


109,336


4


113,319


109,336


4


Core loans

113,319


109,336


4


113,319


109,336


4


Deposits

148,967


141,179


6


148,967


141,179


6


Common equity

9,000


9,000


-


9,000


9,000


-


Selected balance sheet data (average)

Total assets

$

131,529


$

130,548


1


$

130,659


$

128,424


2


Loans

111,704


107,250


4


111,101


105,279


6


Core loans

111,704


107,250


4


111,101


105,279


6


Deposits

151,214


152,563


(1

)

150,915


155,386


(3

)

Common equity

9,000


9,000


-


9,000


9,000


-


Headcount

20,897


20,237


3


20,897


20,237


3


Number of client advisors

2,622


2,746


(5

)

2,622


2,746


(5

)

Credit data and quality statistics

Net charge-offs

$

2


$

(1

)

NM


$

11


$

2


450


Nonaccrual loans

254


209


22


254


209


22


Allowance for credit losses:

Allowance for loan losses

258


273


(5

)

258


273


(5

)

Allowance for lending-related commitments

4


5


(20

)

4


5


(20

)

Total allowance for credit losses

262


278


(6

)%

262


278


(6

)%

Net charge-off rate

0.01

%

-


0.02

%

-


Allowance for loan losses to period-end loans

0.23


0.25


0.23


0.25


Allowance for loan losses to nonaccrual loans

102


131


102


131


Nonaccrual loans to period-end loans

0.22


0.19


0.22


0.19


(a)

Represents the "overall star rating" derived from Morningstar for the U.S., the U.K., Luxembourg, Hong Kong and Taiwan domiciled funds; and Nomura "star rating" for Japan domiciled funds. Includes only Global Investment Management retail open ended mutual funds that have a rating. Excludes money market funds, Undiscovered Managers Fund, and Brazil and India domiciled funds.

(b)

Quartile ranking sourced from: Lipper for the U.S. and Taiwan domiciled funds; Morningstar for the U.K., Luxembourg and Hong Kong domiciled funds; Nomura for Japan domiciled funds and Fund Doctor for South Korea domiciled funds. Includes only Global Investment Management retail open ended mutual funds that are ranked by the aforementioned sources. Excludes money market funds, Undiscovered Managers Fund, and Brazil and India domiciled funds.

(c)

Included $29.2 billion and $24.0 billion of prime mortgage loans reported in the Consumer, excluding credit card, loan portfolio at June 30, 2016 and 2015 , respectively.


35


Client assets

Client assets of $2.3 trillion and assets under management of $1.7 trillion were down 3% and 5%, respectively, due to the effect of lower market levels, outflows from liquidity products and asset sales.

Client assets

June 30,

(in billions)

2016


2015


Change

Assets by asset class

Liquidity

$

426


$

466


(9

)%

Fixed income

383


357


7


Equity

342


380


(10

)

Multi-asset and alternatives

542


578


(6

)

Total assets under management

1,693


1,781


(5

)

Custody/brokerage/administration/deposits

651


642


1


Total client assets

$

2,344


$

2,423


(3

)

Memo:

Alternatives client assets (a)

$

151


$

173


(13

)

Assets by client segment

Private Banking

$

425


$

452


(6

)

Institutional

811


830


(2

)

Retail

457


499


(8

)

Total assets under management

$

1,693


$

1,781


(5

)

Private Banking

$

1,058


$

1,080


(2

)

Institutional

827


838


(1

)

Retail

459


505


(9

)

Total client assets

$

2,344


$

2,423


(3

)%

(a)

Represents assets under management, as well as client balances in brokerage accounts.

Client assets (continued)


Three months

ended June 30,

Six months

ended June 30,

(in billions)

2016

2015

2016


2015


Assets under management rollforward

Beginning balance

$

1,676


$

1,759


$

1,723


$

1,744


Net asset flows:

Liquidity

4


6


(23

)

5


Fixed income

10


3


21


5


Equity

(5

)

(1

)

(10

)

3


Multi-asset and alternatives

(2

)

11


4


21


Market/performance/other impacts

10


3


(22

)

3


Ending balance, June 30

$

1,693


$

1,781


$

1,693


$

1,781


Client assets rollforward

Beginning balance

$

2,323


$

2,405


$

2,350


$

2,387


Net asset flows

2


16


(5

)

33


Market/performance/other impacts

19


2


(1

)

3


Ending balance, June 30

$

2,344


$

2,423


$

2,344


$

2,423



36


International metrics

As of or for the three months
ended June 30,

As of or for the six months
ended June 30,

(in billions, except where otherwise noted)

2016

2015

Change

2016


2015


Change

Total net revenue

(in millions) (a)

Europe/Middle East/Africa

$

463


$

524


(12

)%

$

894


$

995


(10

)%

Asia/Pacific

267


302


(12

)

522


588


(11

)

Latin America/Caribbean

186


211


(12

)

358


408


(12

)

Total international net revenue

916


1,037


(12

)

1,774


1,991


(11

)

North America

2,023


2,138


(5

)

4,137


4,189


(1

)

Total net revenue

$

2,939


$

3,175


(7

)

$

5,911


$

6,180


(4

)

Assets under management

Europe/Middle East/Africa

$

293


$

315


(7

)

$

293


$

315


(7

)

Asia/Pacific

124


132


(6

)

124


132


(6

)

Latin America/Caribbean

46


47


(2

)

46


47


(2

)

Total international assets under management

463


494


(6

)

463


494


(6

)

North America

1,230


1,287


(4

)

1,230


1,287


(4

)

Total assets under management

$

1,693


$

1,781


(5

)

$

1,693


$

1,781


(5

)

Client assets

Europe/Middle East/Africa

$

342


$

366


(7

)

$

342


$

366


(7

)

Asia/Pacific

176


183


(4

)

176


183


(4

)

Latin America/Caribbean

115


114


1


115


114


1


Total international client assets

633


663


(5

)

633


663


(5

)

North America

1,711


1,760


(3

)

1,711


1,760


(3

)

Total client assets

$

2,344


$

2,423


(3

)%

$

2,344


$

2,423


(3

)%

(a)

Regional revenue is based on the domicile of the client.



37


CORPORATE

For a discussion of Corporate, see pages 105–106 of JPMorgan Chase's 2015 Annual Report.

Selected income statement data

As of or for the three months
ended June 30,

As of or for the six months
ended June 30,

(in millions, except headcount)

2016


2015


Change


2016


2015


Change

Revenue

Principal transactions

$

29


$

67


(57

)%

$

126


$

167


(25

)%

Securities gains

20


40


(50

)

71


93


(24

)

All other income/(loss)

122


(7

)

NM


243


(120

)

NM


Noninterest revenue

171


100


71


440


140


214


Net interest income

(329

)

(221

)

(49

)

(542

)

(474

)

(14

)

Total net revenue (a)

(158

)

(121

)

(31

)

(102

)

(334

)

69


Provision for credit losses

(1

)

1


NM


(3

)

(4

)

25


Noninterest expense (b)

(273

)

44


NM


(120

)

196


NM


Income/(loss) before income tax expense/(benefit)

116


(166

)

NM


21


(526

)

NM


Income tax expense/(benefit)

282


(606

)

NM


219


(1,024

)

NM


Net income/(loss)

$

(166

)

$

440


NM


$

(198

)

$

498


NM


Total net revenue

Treasury and CIO

(226

)

(163

)

(39

)

(320

)

(541

)

41


Other Corporate

68


42


62


218


207


5


Total net revenue

$

(158

)

$

(121

)

(31

)

$

(102

)

$

(334

)

69


Net income/(loss)

Treasury and CIO

(199

)

(112

)

(78

)

(310

)

(333

)

7


Other Corporate

33


552


(94

)

112


831


(87

)

Total net income/(loss)

$

(166

)

$

440


NM


$

(198

)

$

498


NM


Selected balance sheet data (period-end)

Total assets

$

778,359


$

821,736


(5

)

$

778,359


$

821,736


(5

)

Loans

1,862


2,480


(25

)

1,862


2,480


(25

)

Core loans (c)

1,857


2,474


(25

)

1,857


2,474


(25

)

Headcount

30,402


27,985


9

 %

30,402


27,985


9

 %

(a)

Included tax-equivalent adjustments, predominantly due to tax-exempt income from municipal bond investments of $227 million and $202 million for the three months ended June 30, 2016 and 2015 , respectively , and $445 million and $405 million for the six months ended June 30, 2016 and 2015 , respectively .

(b)

Included legal expense/(benefit) of $(467) million and $18 million for the three months ended June 30, 2016 and 2015 , respectively, and $(465) million and $323 million for the six months ended June 30, 2016 and 2015 , respectively.

(c)

Average core loans were $2.0 billion and $2.6 billion for the three months ended June 30, 2016 and 2015 , respectively, and $2.0 billion and $2.8 billion for the six months ended June 30, 2016 and 2015, respectively.

Quarterly results

Net loss was $166 million, compared with net income of $440 million in the prior year. The current quarter included a net legal benefit substantially offset by higher income tax expense in the current period from tax audits, compared with higher income tax benefits in the prior year from tax audits. Net revenue was a loss of $158 million, compared to a loss of $121 million in the prior year. Noninterest expense was a benefit of $273 million, down $317 million, driven by a net legal benefit in the current quarter.

Year-to-date results

Net loss was $198 million, compared with net income of $498 million in the prior year. The higher income tax expense in the current period from tax audits, compared with higher income tax benefits in the prior year from tax audits, was partially offset by lower expense resulting from a net legal benefit. Net revenue was a loss of $102 million, compared to a loss of $334 million in the prior year which included a $173 million pre-tax loss in Treasury & CIO, primarily related to the accelerated amortization of cash flow hedges associated with the exit of certain non-operational deposits. Noninterest expense was a benefit of $120 million, a decrease of $316 million, largely due to a net legal benefit in the current year.



38


Treasury and CIO overview

For a discussion of Treasury and CIO, see page 106 of the Firm's 2015 Annual Report.

At June 30, 2016 , the average credit rating of the Treasury and CIO investment securities comprising the portfolio in the table below was AA+ (based upon external ratings where available and, where not available, based primarily upon internal ratings that correspond to ratings as defined by S&P and Moody's). During the second quarter of 2016, the Firm transferred commercial mortgage-backed securities and obligations of U.S. states and municipalities with a fair value of $7.5 billion from available-for-sale ("AFS") to held-to-maturity ("HTM"). These securities were transferred at fair

value. The transfers reflect the Firm's intent to hold the securities to maturity in order to reduce the impact of price volatility on AOCI.

See Note 11 for further information on the Firm's investment securities portfolio.

For further information on liquidity and funding risk, see Liquidity Risk Management on pages 70–74 . For information on interest rate, foreign exchange and other risks, Treasury and CIO value-at-risk ("VaR") and the Firm's earnings-at-risk, see Market Risk Management on pages 58–61 .


Selected income statement and balance sheet data

As of or for the three months
ended June 30,

As of or for the six months
ended June 30,

(in millions)

2016


2015


Change


2016


2015


Change


Securities gains

$

20


$

40


(50

)%

$

71


$

93


(24

)%

Investment securities portfolio (average) (a)

278,962


322,954


(14

)

281,203


328,293


(14

)

Investment securities portfolio (period-end) (b)

275,562


314,048


(12

)

275,562


314,048


(12

)

Mortgage loans (average)

1,858


2,599


(29

)

1,932


2,694


(28

)

Mortgage loans (period-end)

1,798


2,455


(27

)

1,798


2,455


(27

)

(a)

Average investment securities included HTM balances of $53.4 billion and $50.7 billion for the three months ended June 30, 2016 and 2015 , respectively, and $50.9 billion and $50.0 billion for the six months ended June 30, 2016 and 2015 , respectively.

(b)

Period-end investment securities included HTM balances of $53.8 billion and $51.6 billion at June 30, 2016 and 2015 , respectively.

Private equity portfolio information (a)

(in millions)

June 30, 2016


December 31, 2015


Change


Carrying value

$

1,879


$

2,103


(11

)%

Cost

2,941


3,798


(23

)

(a)

For more information on the Firm's methodologies regarding the valuation of the private equity portfolio, see Note 3 of JPMorgan Chase's 2015 Annual Report .




39


ENTERPRISE-WIDE RISK MANAGEMENT

Risk is an inherent part of JPMorgan Chase's business activities. When the Firm extends a consumer or wholesale loan, advises customers on their investment decisions, makes markets in securities, or offers other products or services, the Firm takes on some degree of risk. The Firm's overall objective is to manage its businesses, and the associated risks, in a manner that balances serving the interests of its clients, customers and investors and protects the safety and soundness of the Firm.

Firmwide Risk Management is overseen and managed on an enterprise-wide basis. The Firm's approach to risk management covers a broad spectrum of risk areas, such as credit, market, liquidity, model, structural interest rate, principal, country, operational, compliance, legal, capital and reputation risk, with controls and governance established for each area, as appropriate.

The Firm believes that effective risk management requires:

Acceptance of responsibility, including identification and escalation of risk issues, by all individuals within the Firm;

Ownership of risk management within each of the lines of business and corporate functions; and

Firmwide structures for risk governance.

The Firm's Operating Committee, which consists of the Firm's Chief Executive Officer ("CEO"), Chief Risk Officer ("CRO") and other senior executives, is responsible for developing and executing the Firm's risk management framework. The framework is intended to provide controls and ongoing management of key risks inherent in the Firm's business activities and create a culture of transparency, awareness and personal responsibility through reporting, collaboration, discussion, escalation and sharing of information. The Operating Committee is responsible and accountable to the Firm's Board of Directors.

The Firm strives for continual improvement through efforts to enhance controls, ongoing employee training and development, talent retention, and other measures. The Firm follows a disciplined and balanced compensation framework with strong internal governance and independent Board oversight. The impact of risk and control issues are carefully considered in the Firm's performance evaluation and incentive compensation processes. The Firm is also engaged in a number of activities focused on conduct risk and in regularly evaluating its culture with respect to its business principles.



The following provides an index of key risk management disclosures. For further information on these disclosures, refer to the page references noted below in both this Form 10-Q and JPMorgan Chase's 2015 Annual Report.

Risk disclosure

Form 10-Q page reference

Annual Report page reference

Enterprise-Wide Risk Management

40-74

107–164

Risk governance

108–111

Credit Risk Management

41-57

112–132

Credit Portfolio

114

Consumer Credit Portfolio

42-47

115–121

Wholesale Credit Portfolio

48-54

122–129

Allowance For Credit Losses

55-57

130–132

Market Risk Management

58-61

133–139

Risk identification and classification

133

Value-at-risk

58-60

135–137

Economic-value stress testing

137–138

Earnings-at-risk

61

138–139

Country Risk Management

62

140–141

Model Risk Management

142

Principal Risk Management

143

Operational Risk Management

144–146

Operational Risk Measurement

145

Cybersecurity

145

Business and technology resiliency

145–146

Legal Risk Management

146

Compliance Risk Management

147

Reputation Risk Management

148

Capital Management

63-69

149–158

Liquidity Risk Management

70-74

159–164

HQLA

70

160

Funding

71-73

160–163

Credit ratings

73-74

164


40


CREDIT RISK MANAGEMENT

Credit risk is the risk of loss arising from the default of a customer, client or counterparty. The Firm provides credit to a variety of customers, ranging from large corporate and institutional clients to individual consumers and small businesses. For a further discussion of the Firm's Credit Risk Management framework and organization, and the identification, monitoring and management of credit risks, see Credit Risk Management on pages 112–132 of JPMorgan Chase's 2015 Annual Report.

In the following tables, reported loans include loans retained (i.e., held-for-investment); loans held-for-sale (which are carried at the lower of cost or fair value, with valuation changes recorded in noninterest revenue); and certain loans accounted for at fair value. In addition, the Firm records certain loans accounted for at fair value in trading assets. For further information regarding these loans, see Notes 3 and 4 . For additional information on the Firm's loans, lending-related commitments and derivative receivables, including the Firm's accounting policies, see Notes 13 , 21 , and 5 , respectively.

For further information regarding the credit risk inherent in the Firm's cash placed with banks, see Wholesale credit exposure – industry exposures on pages 50–52 ; for information regarding the credit risk inherent in the Firm's investment securities portfolio, see Note 11 of this Form 10-Q, and Note 12 of JPMorgan Chase's 2015 Annual Report; and for information regarding the credit risk inherent in the securities financing portfolio, see Note 12 of this Form 10-Q, and Note 13 of JPMorgan Chase's 2015 Annual Report.


Total credit portfolio

Credit exposure

Nonperforming (b)(c)

(in millions)

Jun 30,
2016

Dec 31,
2015

Jun 30,
2016

Dec 31,
2015

Loans retained

$

866,731


$

832,792


$

7,178


$

6,303


Loans held-for-sale

4,221


1,646


-


101


Loans at fair value

1,852


2,861


7


25


Total loans – reported

872,804


837,299


7,185


6,429


Derivative receivables

78,446


59,677


220


204


Receivables from customers and other

14,426


13,497


-


-


Total credit-related assets

965,676


910,473


7,405


6,633


Assets acquired in loan satisfactions

Real estate owned

NA


NA


305


347


Other

NA


NA


47


54


Total assets acquired in loan satisfactions

NA


NA


352


401


Total assets

965,676


910,473


7,757


7,034


Lending-related commitments

955,474


940,395


460


193


Total credit portfolio

$

1,921,150


$

1,850,868


$

8,217


$

7,227


Credit derivatives used

in credit portfolio management activities (a)

$

(23,185

)

$

(20,681

)

$

-


$

(9

)

Liquid securities and other cash collateral held against derivatives

(23,006

)

(16,580

)

NA


NA


(in millions,

except ratios)

Three months

ended June 30,

Six months
ended June 30,

2016


2015


2016

2015

Net charge-offs

$

1,181


$

1,007


$

2,291


$

2,059


Average retained loans

Loans – reported

855,622


765,730


846,036


757,926


Loans – reported, excluding residential real estate PCI loans

816,572


721,219


806,314


712,693


Net charge-off rates

Loans – reported

0.56

%

0.53

%

0.54

%

0.55

%

Loans – reported, excluding PCI

0.58


0.56


0.57


0.58


(a)

Represents the net notional amount of protection purchased and sold through credit derivatives used to manage both performing and nonperforming wholesale credit exposures; these derivatives do not qualify for hedge accounting under U.S. GAAP. For additional information, see Credit derivatives on page 54 and Note 5 .

(b)

Excludes PCI loans. The Firm is recognizing interest income on each pool of PCI loans as they are all performing.

(c)

At June 30, 2016 , and December 31, 2015 , nonperforming assets excluded: (1) mortgage loans insured by U.S. government agencies of $5.2 billion and $6.3 billion , respectively, that are 90 or more days past due; (2) student loans insured by U.S. government agencies under the FFELP of $252 million and $290 million , respectively, that are 90 or more days past due; and (3) real estate owned ("REO") insured by U.S. government agencies of $355 million and $343 million , respectively. These amounts have been excluded based upon the government guarantee. In addition, the Firm's policy is generally to exempt credit card loans from being placed on nonaccrual status as permitted by regulatory guidance issued by the Federal Financial Institutions Examination Council ("FFIEC").



41


CONSUMER CREDIT PORTFOLIO

The Firm's consumer portfolio consists primarily of residential real estate loans, credit card loans, auto loans, business banking loans and student loans, and associated lending-related commitments. The Firm's focus is on serving the prime segment of the consumer credit market. For

further information on consumer loans, see Note 13 of this Form 10-Q and Consumer Credit Portfolio on pages 115–121 and Note 14 of JPMorgan Chase's 2015 Annual Report. For further information on lending-related commitments, see note 21 of this Form 10-Q.


The following table presents consumer credit-related information with respect to the credit portfolio held by CCB, prime mortgage and home equity loans held by AM, and prime mortgage loans held by Corporate.

Consumer credit portfolio

Three months ended June 30,

Six months ended June 30,


(in millions, except ratios)

Credit exposure

Nonaccrual

loans (h)(i)

Net charge-offs (j)

Average annual net charge-off rate (j)(k)

Net charge-offs (j)

Average annual net charge-off rate (j)(k)

Jun 30,
2016

Dec 31,
2015

Jun 30,
2016

Dec 31,
2015

2016

2015

2016

2015

2016

2015

2016

2015

Consumer, excluding credit card

Loans, excluding PCI loans and loans held-for-sale

Home equity

$

42,371


$

45,559


$

2,012


2,191


$

36


71


0.34

%

0.57

%

$

95


$

162


0.43

%

0.64

%

Residential mortgage

184,704


166,239


2,365


2,503


3


12


0.01


0.04


3


27


-


0.04


Auto (a)

64,056


60,255


208


116


46


32


0.29


0.23


113


83


0.36


0.30


Business banking (b)

22,047


21,208


290


263


53


68


0.98


1.34


109


127


1.02


1.26


Student and other

9,512


10,096


210


242


29


43


1.21


1.62


67


91


1.38


1.70


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

322,690


303,357


5,085


5,315


167


226


0.21


0.34


387


490


0.25


0.38


Loans – PCI

Home equity

14,000


14,989


NA


NA


NA


NA


NA

NA

NA


NA


NA

NA

Prime mortgage

8,240


8,893


NA


NA


NA


NA


NA

NA

NA


NA


NA

NA

Subprime mortgage

3,089


3,263


NA


NA


NA


NA


NA

NA

NA


NA


NA

NA

Option ARMs (c)

13,031


13,853


NA


NA


NA


NA


NA

NA

NA


NA


NA

NA

Total loans – PCI

38,360


40,998


NA


NA


NA


NA


NA

NA

NA


NA


NA

NA

Total loans – retained

361,050


344,355


5,085


5,315


167


226


0.19


0.29


387


490


0.22


0.32


Loans held-for-sale

255


(g)

466


(g)

-


98


-


-


-


-


-


-


-


-


Total consumer, excluding credit card loans

361,305


344,821


5,085


5,413


167


226


0.19


0.29


387


490


0.22


0.32


Lending-related commitments (d)

59,224


58,478


Receivables from customers (e)

138


125


Total consumer exposure, excluding credit card

420,667


403,424


Credit card

Loans retained (f)

131,507


131,387


-


-


860


800


2.70


2.61


1,690


1,589


2.66


2.61


Loans held-for-sale

84


76


-


-


-


-


-


-


-


-


-


-


Total credit card loans

131,591


131,463


-


-


860


800


2.70


2.61


1,690


1,589


2.66


2.61


Lending-related commitments (d)

539,105


515,518


Total credit card exposure

670,696


646,981


Total consumer credit portfolio

$

1,091,363


$

1,050,405


$

5,085


$

5,413


$

1,027


$

1,026


0.85

%

0.95

%

$

2,077


$

2,079


0.87

%

0.98

%

Memo: Total consumer credit portfolio, excluding PCI

$

1,053,003


$

1,009,407


$

5,085


$

5,413


$

1,027


$

1,026


0.92

%

1.06

%

$

2,077


$

2,079


0.95

%

1.10

%

(a)

At June 30, 2016 , and December 31, 2015 , excluded operating lease assets of $10.9 billion and $9.2 billion , respectively.

(b)

Predominantly includes Business Banking loans as well as deposit overdrafts.

(c)

At June 30, 2016 , and December 31, 2015 , approximately 66% and 64% of the PCI option adjustable rate mortgage ("ARMs") portfolio has been modified into fixed-rate, fully amortizing loans, respectively.

(d)

Credit card and home equity lending-related commitments represent the total available lines of credit for these products. The Firm has not experienced, and does not anticipate, that all available lines of credit would be used at the same time. For credit card and home equity commitments (if certain conditions are met), the Firm can reduce or cancel these lines of credit by providing the borrower notice or, in some cases as permitted by law, without notice.

(e)

Receivables from customers represent margin loans to retail brokerage customers, and are included in accrued interest and accounts receivable on the Consolidated balance sheets.

(f)

Includes accrued interest and fees net of an allowance for the uncollectible portion of accrued interest and fee income.

(g)

Predominantly represents prime mortgage loans held-for-sale.

(h)

At June 30, 2016 , and December 31, 2015 , nonaccrual loans excluded loans 90 or more days past due as follows: (1) mortgage loans insured by U.S. government agencies of $5.2 billion and $6.3 billion , respectively; and (2) student loans insured by U.S. government agencies under the FFELP of $252 million and $290 million , respectively. These amounts have been excluded from nonaccrual loans based upon the government guarantee. In addition, the Firm's policy is generally to exempt credit card loans from being placed on nonaccrual status as permitted by regulatory guidance issued by the FFIEC.

(i)

Excludes PCI loans. The Firm is recognizing interest income on each pool of PCI loans as they are all performing.

(j)

Net charge-offs and the net charge-off rates excluded write-offs in the PCI portfolio of $41 million and $55 million for the three months ended June 30, 2016 and 2015 respectively, and $88 million and $110 million for the six months ended June 30, 2016 and 2015 , respectively. These write-offs decreased the allowance for loan losses for PCI loans. See Allowance for Credit Losses on pages 55–57 for further details.

(k)

Average consumer loans held-for-sale were $354 million and $2.1 billion for the three months ended June 30, 2016 and 2015 , respectively, and $389 million and $2.5 billion for the six months ended June 30, 2016 and 2015 , respectively. These amounts were excluded when calculating net charge-off rates.


42


Consumer, excluding credit card

Portfolio analysis

Consumer loan balances increased during the six months ended June 30, 2016 , predominantly due to originations of high-quality prime mortgage and auto loans that have been retained on the balance sheet, partially offset by paydowns and the charge-off or liquidation of delinquent loans. Credit performance has continued to improve across most portfolios as the economy strengthened and home prices increased.

PCI loans are excluded from the following discussions of individual loan products and are addressed separately below. For further information about the Firm's consumer portfolio, including information about delinquencies, loan modifications and other credit quality indicators, see

Note 13 .

Home equity: The home equity portfolio declined from the 2015 year-end primarily reflecting loan paydowns and charge-offs. Both early-stage and late-stage delinquencies showed improvement from December 31, 2015 . Nonaccrual loans decreased from December 31, 2015 primarily as a result of loss mitigation activities. Net charge-offs for the three and six months ended June 30, 2016 , declined when compared with the same periods of the prior year as a result of improvement in home prices and delinquencies.

At June 30, 2016 , approximately 85% of the Firm's home equity portfolio consists of home equity lines of credit ("HELOCs") and the remainder consists of home equity loans ("HELOANs"). For further information on the Firm's home equity portfolio, see Note 13 of this Form 10-Q and Consumer Credit Portfolio on pages 115–121 of JPMorgan Chase's 2015 Annual Report.

The unpaid principal balance of HELOCs outstanding was $38 billion at June 30, 2016 . Of such amounts, approximately:

$13 billion have recast from interest-only to fully amortizing payments or have been modified,

$18 billion are scheduled to recast from interest-only to fully amortizing payments in future periods, and

$7 billion are interest-only balloon HELOCs, which primarily mature after 2030.


The following chart illustrates the payment recast composition of the approximately $ 25 billion of HELOCs scheduled to recast in the future, based upon their current contractual terms.

HELOCs scheduled to recast

(at June 30, 2016)

The Firm has considered this payment recast risk in its allowance for loan losses based upon the estimated amount of payment shock (i.e., the excess of the fully-amortizing payment over the interest-only payment in effect prior to recast) expected to occur at the payment recast date, along with the corresponding estimated probability of default and loss severity assumptions. As part of its allowance estimate, the Firm also expects, based on observed activity in recent years, that approximately 25% of the unpaid principal balance of HELOCs scheduled to recast will voluntarily pre-pay prior to or after the recast. The HELOCs that have previously recast to fully amortizing payments generally have higher delinquency rates than the HELOCs within the revolving period, primarily as a result of the payment shock at the time of recast. Certain other factors, such as future developments in both unemployment rates and home prices, could also have a significant impact on the performance of these loans.

The Firm manages the risk of HELOCs during their revolving period by closing or reducing the undrawn line to the extent permitted by law when borrowers are exhibiting a material deterioration in their credit risk profile. The Firm will continue to evaluate both the near-term and longer-term recast risks inherent in its HELOC portfolio to ensure that changes in the Firm's estimate of incurred losses are appropriately considered in the allowance for loan losses and that the Firm's account management practices are appropriate given the portfolio's risk profile.



43


High-risk seconds are junior lien loans where the borrower has a senior lien loan that is either delinquent or has been modified. Such loans are considered to pose a higher risk of default than junior lien loans for which the senior lien is neither delinquent nor modified. At June 30, 2016 , the Firm estimated that the unpaid principal balance of its home equity portfolio contained approximately $1.3 billion of current junior lien loans that were considered high risk seconds, compared with $1.4 billion at December 31, 2015 . The Firm estimates the balance of its total exposure to high-risk seconds on a quarterly basis using internal data and loan level credit bureau data (which typically provides the delinquency status of the senior lien). The Firm considers the increased probability of default associated with these high-risk seconds in estimating the allowance for loan losses and classifies those loans that are subordinated to a first lien loan that is more than 90 days delinquent as nonaccrual loans. The estimated balance of these high-risk seconds may vary from quarter to quarter for reasons such as the movement of related senior liens into and out of the 30+ day delinquency bucket. The Firm continues to monitor the risks associated with these loans. For further information, see Note 13.

Residential mortgage: The residential mortgage portfolio predominantly consists of high-quality prime mortgage loans, with a small component (approximately 2% ) of the residential mortgage portfolio in subprime mortgage loans. These subprime mortgage loans continue to run-off and are performing in line with expectations. The residential mortgage portfolio, including loans held-for-sale, increased from December 31, 2015 due to retained originations of high-quality prime mortgage loans partially offset by paydowns and the charge-off or liquidation of delinquent loans. Originations for the three and six months ended June 30, 2016 were primarily high-quality prime mortgage loans with fixed interest rates, and included both jumbo and conforming loans. Both early-stage and late-stage delinquencies showed improvement from December 31, 2015 . Nonaccrual loans decreased from December 31, 2015 primarily as a result of loss mitigation activities. Net charge-offs for the three and six months ended June 30, 2016 remain low, reflecting continued improvement in home prices and delinquencies.

At June 30, 2016 , and December 31, 2015 , the Firm's residential mortgage portfolio included $10.2 billion and $11.1 billion , respectively, of mortgage loans insured and/or guaranteed by U.S. government agencies, of which $7.2 billion and $8.4 billion , respectively, were 30 days or more past due (of these past due loans, $5.2 billion and $6.3 billion , respectively, were 90 days or more past due). The Firm monitors its exposure to any potential unrecoverable claim payments related to government insured loans and considers this exposure in estimating the allowance for loan losses. The financial impact related to exposure for future claims of government guaranteed loans is not expected to be significant.

At both June 30, 2016 , and December 31, 2015 , the Firm's residential mortgage portfolio included $17.8 billion of interest-only loans. These loans have an interest-only payment period generally followed by an adjustable-rate or fixed-rate fully amortizing payment period to maturity and are typically originated as higher-balance loans to higher-income borrowers. To date, losses on this portfolio generally have been consistent with the broader residential mortgage portfolio and the Firm's expectations. The Firm continues to monitor the risks associated with these loans.

Auto: Auto loans increased compared with December 31, 2015 , as new originations outpaced paydowns and payoffs. Nonaccrual loans increased compared with December 31, 2015 . Net charge-offs for the three and six months ended June 30, 2016 increased compared with the same periods of the prior year as a result of higher retail auto loan balances and a moderate increase in loss severity. The auto loan portfolio predominantly consists of prime-quality credits.

Business banking: Business banking loans increased compared with December 31, 2015 due to growth in loan originations. Nonaccrual loans increased compared with December 31, 2015 . Net charge-offs for the three and six months ended June 30, 2016 decreased from prior year due to continued discipline in credit underwriting.

Student and other: Student and other loans decreased from December 31, 2015 , due primarily to the run-off of the student loan portfolio as the Firm ceased originations of student loans during the fourth quarter of 2013. Nonaccrual loans declined from December 31, 2015 and net charge-offs for the three and six months ended June 30, 2016 declined from prior year as a result of the run-off of the student loan portfolio.

Purchased credit-impaired loans: PCI loans decreased as the portfolio continues to run off. As of June 30, 2016 , approximately 12% of the option ARM PCI loans were delinquent and approximately 66% of the portfolio has been modified into fixed-rate, fully amortizing loans. Substantially all of the remaining loans are making amortizing payments, although such payments are not necessarily fully amortizing. This latter group of loans is subject to the risk of payment shock due to future payment recast. Default rates generally increase on option ARM loans when payment recast results in a payment increase. The expected increase in default rates is considered in the Firm's quarterly impairment assessment.



44


The following table provides a summary of lifetime principal loss estimates included in either the nonaccretable difference or the allowance for loan losses.

Summary of PCI loans lifetime principal loss estimates

Lifetime loss

 estimates (a)

LTD liquidation

 losses (b)

(in billions)

Jun 30,
2016

Dec 31,
2015

Jun 30,
2016

Dec 31,
2015

Home equity

$

14.6


$

14.5


$

12.8


$

12.7


Prime mortgage

4.0


4.0


3.7


3.7


Subprime mortgage

3.2


3.3


3.0


3.0


Option ARMs

10.0


10.0


9.6


9.5


Total

$

31.8


$

31.8


$

29.1


$

28.9


(a)

Includes the original nonaccretable difference established in purchase accounting of $30.5 billion for principal losses plus additional principal losses recognized subsequent to acquisition through the provision and allowance for loan losses. The remaining nonaccretable difference for principal losses was $1.3 billion and $1.5 billion at June 30, 2016 , and December 31, 2015 , respectively.

(b)

Life-to-date ("LTD") liquidation losses represent both realization of loss upon loan resolution and any principal forgiven upon modification.

Current estimated LTVs of residential real estate loans

The current estimated average loan-to-value ("LTV") ratio for residential real estate loans retained, excluding mortgage loans insured by U.S. government agencies and PCI loans, was 58% at June 30, 2016 , compared with 59% at December 31, 2015 . The current estimated average LTV ratio for residential real estate PCI loans, based on the unpaid principal balances, was 66% at June 30, 2016 , compared with 69% at December 31, 2015 .

Average LTV ratios have declined consistent with recent improvements in home prices. For further information on current estimated LTVs on residential real estate loans, see Note 13 .

Geographic composition of residential real estate loans

For information on the geographic composition of the Firm's residential real estate loans, see Note 13 .

Loan modification activities – residential real estate loans

The performance of modified loans generally differs by product type due to differences in both the credit quality and the types of modifications provided. The performance of modifications completed under both the U.S. Government's Home Affordable Modification Program ("HAMP") and the Firm's proprietary modification programs (primarily the Firm's modification program that was modeled after HAMP), as measured through cumulative redefault rates, was not materially different from December 31, 2015. For further information on the Firm's cumulative redefault rates see Consumer Credit Portfolio on pages 115–121 of JPMorgan Chase's 2015 Annual Report.

Certain loans that were modified under HAMP and the Firm's proprietary modification programs have interest rate reset provisions ("step-rate modifications"). Interest rates on these loans generally began to increase commencing in 2014 by 1% per year, and will continue to do so, until the rate reaches a specified cap, typically at a prevailing market interest rate for a fixed-rate loan as of the modification date. The carrying value of non-PCI loans modified in step-rate modifications was $4 billion at June 30, 2016 . The unpaid principal balance of PCI loans modified in step-rate modifications was $9 billion at June 30, 2016 . The Firm continues to monitor this risk exposure and the impact of these potential interest rate increases is considered in the Firm's allowance for loan losses.

The following table presents information as of June 30, 2016 , and December 31, 2015 , relating to modified retained residential real estate loans for which concessions have been granted to borrowers experiencing financial difficulty. For further information on modifications for the three and six months ended June 30, 2016 and 2015 , see Note 13 .

Modified residential real estate loans

June 30, 2016

December 31, 2015

(in millions)

Retained loans

Non-accrual
retained loans (d)

Retained loans

Non-accrual
retained loans (d)

Modified residential real estate loans, excluding

PCI loans (a)(b)

Home equity

$

2,304


1,144


$

2,358


1,220


Residential mortgage

6,377


1,846


6,690


1,957


Total modified residential real estate loans, excluding PCI loans

$

8,681


$

2,990


$

9,048


$

3,177


Modified PCI loans (c)

Home equity

$

2,493


NA


$

2,526


NA


Prime mortgage

5,372


NA


5,686


NA


Subprime mortgage

3,078


NA


3,242


NA


Option ARMs

9,859


NA


10,427


NA


Total modified PCI loans

$

20,802


NA


$

21,881


NA


(a)

Amounts represent the carrying value of modified residential real estate loans.

(b)

At June 30, 2016 , and December 31, 2015 , $3.7 billion and $3.8 billion , respectively, of loans modified subsequent to repurchase from Ginnie Mae in accordance with the standards of the appropriate government agency (i.e., FHA, VA, RHS) are not included in the table above. When such loans perform subsequent to modification in accordance with Ginnie Mae guidelines, they are generally sold back into Ginnie Mae loan pools. Modified loans that do not re-perform become subject to foreclosure. For additional information about sales

of loans in securitization transactions with Ginnie Mae, see Note 15 .

(c)

Amounts represent the unpaid principal balance of modified PCI loans.

(d)

As of June 30, 2016 , and December 31, 2015 , nonaccrual loans included $2.4 billion and $2.5 billion , respectively, of troubled debt restructurings ("TDRs") for which the borrowers were less than 90 days past due. For additional information about loans modified in a TDR that are on nonaccrual status, see Note 13 .



45


Nonperforming assets

The following table presents information as of June 30, 2016 , and December 31, 2015 , about consumer, excluding credit card, nonperforming assets.

Nonperforming assets (a)

(in millions)

June 30,
2016

December 31,
2015

Nonaccrual loans (b)

Residential real estate

$

4,377


$

4,792


Other consumer

708


621


Total nonaccrual loans

5,085


5,413


Assets acquired in loan satisfactions

Real estate owned

231


277


Other

45


48


Total assets acquired in loan satisfactions

276


325


Total nonperforming assets

$

5,361


$

5,738


(a)

At June 30, 2016 , and December 31, 2015 , nonperforming assets excluded: (1) mortgage loans insured by U.S. government agencies of $5.2 billion and $6.3 billion , respectively, that are 90 or more days past due; (2) student loans insured by U.S. government agencies under the FFELP of $252 million and $290 million , respectively, that are 90 or more days past due; and (3) real estate owned insured by U.S. government agencies of $355 million and $343 million , respectively. These amounts have been excluded based upon the government guarantee.

(b)

Excludes PCI loans which are accounted for on a pool basis. Since each pool is accounted for as a single asset with a single composite interest rate and an aggregate expectation of cash flows, the past-due status of the pools, or that of individual loans within the pools, is not meaningful. Because the Firm is recognizing interest income on each pool of loans, they are all considered to be performing.

Nonaccrual loans in the residential real estate portfolio decreased to $4.4 billion at June 30, 2016 from $4.8 billion at December 31, 2015 , of which 30% and 31% were greater than 150 days past due, respectively. In the aggregate, the unpaid principal balance of residential real estate loans greater than 150 days past due was charged down by approximately 43% and 44% to the estimated net realizable value of the collateral at June 30, 2016 , and December 31, 2015 , respectively.

Active and suspended foreclosure: For information on loans that were in the process of active or suspended foreclosure, see Note 13 .

Nonaccrual loans: The following table presents changes in consumer, excluding credit card, nonaccrual loans for the six months ended June 30, 2016 and 2015 .

Nonaccrual loans

Six months ended June 30,

(in millions)

2016

2015

Beginning balance

$

5,413


$

6,509


Additions

1,802


1,805


Reductions:



Principal payments and other (a)

730


784


Charge-offs

354


395


Returned to performing status

853


872


Foreclosures and other liquidations

193


279


Total reductions

2,130


2,330


Net additions/(reductions)

(328

)

(525

)

Ending balance

$

5,085


$

5,984


(a)

Other reductions includes loan sales.



46


Credit Card

Total credit card loans were relatively flat from December 31, 2015 . The June 30, 2016 30+ day delinquency rate decreased to 1.40% from 1.43% at December 31, 2015 , and remains near record lows. For the three months ended June 30, 2016 and 2015 , the net charge-off rates were 2.70% and 2.61% , respectively. For the six months ended June 30, 2016 and 2015 , the net charge-off rates were 2.66% and 2.61% , respectively. The credit card portfolio continues to reflect a largely well-seasoned, rewards-based portfolio that has good U.S. geographic diversification. New originations continue to grow as a percentage of the total portfolio, in line with the Firm's credit parameters; these originations are expected to generate loss rates higher than the more seasoned portion of the portfolio, given the higher mix of near-prime accounts being originated. These near-prime accounts have net revenue rates and returns on equity that are higher than the portfolio average. For information on the geographic and FICO composition of the Firm's credit card loans, see Note 13 .

Modifications of credit card loans

At June 30, 2016 , and December 31, 2015 , the Firm had $1.3 billion and $1.5 billion , respectively, of credit card loans outstanding that have been modified in TDRs. These balances included both credit card loans with modified payment terms and credit card loans that reverted back to their pre-modification payment terms because the cardholder did not comply with the modified payment terms. The decrease in modified credit card loans outstanding from December 31, 2015 , was attributable to a reduction in new modifications as well as ongoing payments and charge-offs on previously modified credit card loans.

Consistent with the Firm's policy, all credit card loans typically remain on accrual status until charged-off. However, the Firm establishes an allowance, which is offset against loans and charged to interest income, for the estimated uncollectible portion of accrued interest and fee income.

For additional information about loan modification

programs to borrowers, see Note 13 .




47


WHOLESALE CREDIT PORTFOLIO

The Firm's wholesale businesses are exposed to credit risk through underwriting, lending, market-making, and hedging activities with and for clients and counterparties, as well as through various operating services such as cash management and clearing activities. A portion of the loans originated or acquired by the Firm's wholesale businesses is generally retained on the balance sheet. The Firm distributes a significant percentage of the loans it originates into the market as part of its syndicated loan business and to manage portfolio concentrations and credit risk.

The wholesale credit portfolio, excluding the Oil & Gas, Natural Gas Pipelines and Metals & Mining portfolios, continued to be generally stable for the six months ended June 30, 2016, characterized by low levels of criticized exposure, nonaccrual loans and charge-offs. See industry discussion on pages 50–52 for further information. Growth in loans retained was driven by increased client activity, notably in Commercial Term Lending and Real Estate Banking within commercial real estate. Discipline in underwriting across all areas of lending continues to remain a key point of focus. The wholesale portfolio is actively managed, in part by conducting ongoing, in-depth reviews of client credit quality and transaction structure, inclusive of collateral where applicable; and of industry, product and client concentrations.

Wholesale credit portfolio

Credit exposure

Nonperforming (c)

(in millions)

Jun 30,
2016

Dec 31,
2015

Jun 30,
2016

Dec 31,
2015

Loans retained

$

374,174


$

357,050


$

2,093


$

988


Loans held-for-sale

3,882


1,104


-


3


Loans at fair value

1,852


2,861


7


25


Loans – reported

379,908


361,015


2,100


1,016


Derivative receivables

78,446


59,677


220


204


Receivables from customers and other (a)

14,288


13,372


-


-


Total wholesale credit-related assets

472,642


434,064


2,320


1,220


Lending-related commitments

357,145


366,399


460


193


Total wholesale credit exposure

$

829,787


$

800,463


$

2,780


$

1,413


Credit derivatives used in credit portfolio management activities (b)

$

(23,185

)

$

(20,681

)

$

-


$

(9

)

Liquid securities and other cash collateral held against derivatives

(23,006

)

(16,580

)

NA


NA


(a)

Receivables from customers and other include $14.0 billion and $13.3 billion of margin loans at June 30, 2016 , and December 31, 2015 , respectively, to prime brokerage customers; these are classified in accrued interest and accounts receivable on the Consolidated balance sheets.

(b)

Represents the net notional amount of protection purchased and sold through credit derivatives used to manage both performing and nonperforming wholesale credit exposures; these derivatives do not qualify for hedge accounting under U.S. GAAP. For additional information, see Credit derivatives on page 54 , and Note 5 .

(c)

Excludes assets acquired in loan satisfactions.



48


The following tables present the maturity and ratings profiles of the wholesale credit portfolio as of June 30, 2016 , and December 31, 2015 . The ratings scale is based on the Firm's internal risk ratings, which generally correspond to the ratings as defined by S&P and Moody's. For additional information on wholesale loan portfolio risk ratings, see Note 14 of JPMorgan Chase's 2015 Annual Report.

Wholesale credit exposure – maturity and ratings profile

Maturity profile (e)

Ratings profile

June 30, 2016

Due in 1 year or less

Due after 1 year through 5 years

Due after 5 years

Total

Investment-grade

Noninvestment-grade

Total

Total % of IG

(in millions, except ratios)

AAA/Aaa to BBB-/Baa3

BB+/Ba1 & below

Loans retained

$

118,067


$

160,076


$

96,031


$

374,174


$

280,084


$

94,090


$

374,174


75

%

Derivative receivables

78,446


78,446


Less: Liquid securities and other cash collateral held against derivatives

(23,006

)

(23,006

)

Total derivative receivables, net of all collateral

17,749


11,578


26,113


55,440


45,221


10,219


55,440


82


Lending-related commitments

92,902


252,253


11,990


357,145


263,740


93,405


357,145


74


Subtotal

228,718


423,907


134,134


786,759


589,045


197,714


786,759


75


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

5,734


5,734


Receivables from customers and other

14,288


14,288


Total exposure – net of liquid securities and other cash collateral held against derivatives

$

806,781


$

806,781


Credit derivatives used in credit portfolio management activities by reference entity ratings profile (b)(c)(d)

$

(1,151

)

$

(17,352

)

$

(4,682

)

$

(23,185

)

$

(19,682

)

$

(3,503

)

$

(23,185

)

85

%

Maturity profile (e)

Ratings profile

December 31, 2015

Due in 1 year or less

Due after 1 year through 5 years

Due after 5 years

Total

Investment-grade

Noninvestment-grade

Total

Total % of IG

(in millions, except ratios)

AAA/Aaa to BBB-/Baa3

BB+/Ba1 & below

Loans retained

$

110,348


$

155,902


$

90,800


$

357,050


$

267,736


$

89,314


$

357,050


75

%

Derivative receivables

59,677


59,677


Less: Liquid securities and other cash collateral held against derivatives

(16,580

)

(16,580

)

Total derivative receivables, net of all collateral

11,399


12,836


18,862


43,097


34,773


8,324


43,097


81


Lending-related commitments

105,514


251,042


9,843


366,399


267,922


98,477


366,399


73


Subtotal

227,261


419,780


119,505


766,546


570,431


196,115


766,546


74


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

3,965


3,965


Receivables from customers and other

13,372


13,372


Total exposure – net of liquid securities and other cash collateral held against derivatives

$

783,883


$

783,883


Credit derivatives used in credit portfolio management activities by reference entity ratings profile (b)(c)(d)

$

(808

)

$

(14,427

)

$

(5,446

)

$

(20,681

)

$

(17,754

)

$

(2,927

)

$

(20,681

)

86

%

(a)

Represents loans held-for-sale, primarily related to syndicated loans and loans transferred from the retained portfolio, and loans at fair value.

(b)

These derivatives do not qualify for hedge accounting under U.S. GAAP.

(c)

The notional amounts are presented on a net basis by underlying reference entity and the ratings profile shown is based on the ratings of the reference entity on which protection has been purchased.

(d)

Predominantly all of the credit derivatives entered into by the Firm where it has purchased protection, including credit derivatives used in credit portfolio management activities, are executed with investment-grade counterparties.

(e)

The maturity profile of retained loans, lending-related commitments and derivative receivables is based on the remaining contractual maturity. Derivative contracts that are in a receivable position at June 30, 2016 , may become payable prior to maturity based on their cash flow profile or changes in market conditions.



49


Wholesale credit exposure – industry exposures

The Firm focuses on the management and diversification of its industry exposures, paying particular attention to industries with actual or potential credit concerns. Exposures deemed criticized align with the U.S. banking regulators' definition of criticized exposures, which consist

of the special mention, substandard and doubtful categories. The total criticized component of the portfolio, excluding loans held-for-sale and loans at fair value, was $21.0 billion at June 30, 2016 , compared with $14.6 billion at December 31, 2015 , driven by downgrades within the Oil & Gas, Natural Gas Pipelines and Metals & Mining portfolios.


Below are summaries of the Firm's exposures as of June 30, 2016 , and December 31, 2015 . For additional information on industry concentrations, see Note 5 of JPMorgan Chase's 2015 Annual Report.

Wholesale credit exposure  industries (a)

Selected metrics

30 days or more past due and accruing
loans

Net

charge-offs/
(recoveries)

Credit derivative hedges (f)

Liquid securities
and other cash collateral held against derivative
receivables

Noninvestment-grade

As of or for the Six months ended

Credit exposure (e)

Investment- grade

Noncriticized

Criticized performing

Criticized nonperforming

June 30, 2016

(in millions)

Real Estate

$

125,215


$

96,714


$

27,331


$

947


$

223


$

60


$

-


$

(105

)

$

(146

)

Consumer & Retail

82,682


53,316


27,676


1,461


229


20


18


(594

)

(34

)

Industrials

56,546


37,678


17,709


1,080


79


34


1


(552

)

(21

)

Technology, Media & Telecommunications

55,831


32,659


21,749


1,413


10


81


3


(941

)

(50

)

Healthcare

47,494


36,722


10,251


454


67


49


18


(266

)

(330

)

Banks & Finance Cos

43,434


35,105


7,698


611


20


19


(1

)

(1,405

)

(6,007

)

Oil & Gas

39,675


18,685


10,234


9,392


1,364


1


137


(1,270

)

(34

)

Utilities

31,930


26,591


4,815


387


137


3


-


(279

)

(30

)

Asset Managers

31,655


27,061


4,554


40


-


55


-


(5

)

(5,974

)

State & Municipal Govt (b)

28,417


27,707


664


6


40


17


-


(130

)

(126

)

Central Govt

24,519


24,095


392


32


-


2


-


(11,226

)

(4,342

)

Chemicals/Plastics

18,117


13,344


4,585


158


30


1


-


(54

)

(3

)

Transportation

17,773


12,224


5,229


281


39


34


-


(96

)

(229

)

Automotive

15,015


9,169


5,637


208


1


2


-


(496

)

(6

)

Metals & Mining

13,816


5,102


7,020


1,506


188


-


27


(484

)

(7

)

Insurance

11,655


9,882


1,646


-


127


22


-


(307

)

(1,843

)

Financial Markets Infrastructure

11,466


10,552


914


-


-


-


-


-


(1,686

)

Securities Firms

5,117


1,633


3,484


-


-


-


-


(232

)

(501

)

All other (c)

149,408


131,202


17,760


227


219


924


11


(4,743

)

(1,637

)

Subtotal

$

809,765


$

609,441


$

179,348


$

18,203


$

2,773


$

1,324


$

214


$

(23,185

)

$

(23,006

)

Loans held-for-sale and loans at fair value

5,734


Receivables from customers and interests in purchased receivables

14,288


Total (d)

$

829,787



50



















Selected metrics









30 days or more past due and accruing
loans

Net
charge-offs/
(recoveries)

Credit derivative hedges (f)

Liquid securities
and other cash collateral held against derivative
receivables





Noninvestment-grade

As of or for the year ended

Credit
exposure (e)

Investment-

grade


Noncriticized


Criticized performing

Criticized nonperforming

December 31, 2015

(in millions)

Real Estate

$

116,857


$

88,076



$

27,087



$

1,463


$

231


$

208


$

(14

)

$

(54

)

$

(47

)

Consumer & Retail

85,460


53,647



29,659



1,947


207


18


13


(288

)

(94

)

Industrials

54,386


36,519



16,663



1,164


40


59


8


(386

)

(39

)

Technology, Media & Telecommunications

57,382


29,205



26,925



1,208


44


5


(1

)

(806

)

(21

)

Healthcare

46,053


37,858



7,755



394


46


129


(7

)

(24

)

(245

)

Banks & Finance Cos

43,398


35,071



7,654



610


63


17


(5

)

(974

)

(5,509

)

Oil & Gas

42,077


24,379



13,158



4,263


277


22


13


(530

)

(37

)

Utilities

30,853


24,983



5,655



168


47


3


-


(190

)

(289

)

Asset Managers

23,815


20,214



3,570



31


-


18


-


(6

)

(4,453

)

State & Municipal Govt (b)

29,114


28,307



745



7


55


55


(8

)

(146

)

(81

)

Central Govt

17,968


17,871



97



-


-


7


-


(9,359

)

(2,393

)

Chemicals/Plastics

15,232


10,910



4,017



274


31


9


-


(17

)

-


Transportation

19,227


13,258



5,801



167


1


15


3


(51

)

(243

)

Automotive

13,864


9,182



4,580



101


1


4


(2

)

(487

)

(1

)

Metals & Mining

14,049


6,522



6,434



1,008


85


1


-


(449

)

(4

)

Insurance

11,889


9,812



1,958



26


93


23


-


(157

)

(1,410

)

Financial Markets Infrastructure

7,973


7,304



669



-


-


-


-


-


(167

)

Securities Firms

4,412


1,505



2,907



-


-


3


-


(102

)

(256

)

All other (c)

149,117


130,488



18,095



370


164


1,015


10


(6,655

)

(1,291

)

Subtotal

$

783,126


$

585,111



$

183,429



$

13,201


$

1,385


$

1,611


$

10


$

(20,681

)

$

(16,580

)

Loans held-for-sale and loans at fair value

3,965




















Receivables from customers and interests in purchased receivables

13,372




















Total (d)

$

800,463




















(a)

The industry rankings presented in the table as of December 31, 2015 , are based on the industry rankings of the corresponding exposures at June 30, 2016 , not actual rankings of such exposures at December 31, 2015 .

(b)

In addition to the credit risk exposure to states and municipal governments (both U.S. and non-U.S.) at June 30, 2016 , and December 31, 2015 , noted above, the Firm held: $9.2 billion and $ 7.6 billion , respectively, of trading securities; $32.1 billion and $33.6 billion , respectively, of AFS securities; and $14.5 billion and $12.8 billion , respectively, of HTM securities, issued by U.S. state and municipal governments. For further information, see Note 3 and Note 11 .

(c)

All other includes: individuals; SPEs; holding companies; and private education and civic organizations, representing approximately 54%, 37%, 5% and 4%, respectively, at June 30, 2016 , and 54% , 37%, 5% and 4%, respectively, at December 31, 2015 .

(d)

Excludes cash placed with banks of $355.8 bi llion and $351.0 billion, at June 30, 2016 , and December 31, 2015 , respectively, placed with various central banks, predominantly Federal Reserve Banks.

(e)

Credit exposure is net of risk participations and excludes the benefit of credit derivatives used in credit portfolio management activities held against derivative receivables or loans and liquid securities and other cash collateral held against derivative receivables.

(f)

Represents the net notional amounts of protection purchased and sold through credit derivatives used to manage the credit exposures; these derivatives do not qualify for hedge accounting under U.S. GAAP. The All other category includes purchased credit protection on certain credit indices.



51


Presented below is a discussion of certain industries to which the Firm has significant exposures and which present actual or potential credit concerns.

Oil & Gas and Natural Gas Pipelines


The following table presents Oil & Gas and Natural Gas Pipeline exposures as of June 30, 2016, and December 31, 2015.

June 30, 2016

(in millions, except ratios)

Loans and Lending-related Commitments

Derivative Receivables

Credit exposure

% Investment-grade

% Drawn

Exploration & Production ("E&P") and Oilfield Services (a)

$

21,060


$

813


$

21,873


26

%

40

%

Other Oil & Gas (b)

16,888


913


17,801


73


30


Total Oil & Gas

37,948


1,726


39,674


47


35


Natural Gas Pipelines (c)

4,552


192


4,744


67


37


Total Oil & Gas and Natural Gas Pipelines

$

42,500


$

1,918


$

44,418


49


35


December 31, 2015

(in millions, except ratios)

Loans and Lending-related Commitments

Derivative

Receivables

Credit exposure

% Investment-

grade

% Drawn

E&P and Oilfield Services (a)

$

23,055


$

400


$

23,455


44

%

36

%

Other Oil & Gas (b)

17,120


1,502


18,622


76


27


Total Oil & Gas

40,175


1,902


42,077


58


32


Natural Gas Pipelines (c)

4,093


158


4,251


64


21


Total Oil & Gas and Natural Gas Pipelines

$

44,268


$

2,060


$

46,328


59


31


(a)

Noninvestment-grade exposure to E&P and Oilfield Services is largely secured.

(b)

Other Oil & Gas includes Integrated Oil & Gas companies, Midstream/Oil Pipeline companies and refineries.

(c)

Natural Gas Pipelines is reported within the Utilities industry.

Exposure to the Oil & Gas and Natural Gas Pipelines portfolios was approximately 5.4% of the Firm's total wholesale exposure as of June 30, 2016 and 5.8% as of December 31, 2015 . Exposure to these industries decreased by $1.9 billion during the six months ended June 30, 2016 to $44.4 billion ; of the $44.4 billion , $15.7 billion was drawn. As of June 30, 2016 , approximately $21.9 billion of the exposure was investment grade, of which $5.7 billion was drawn, and approximately $22.5 billion of the exposure was noninvestment-grade, of which $10.0 billion was drawn; 25% of the exposure to the Oil & Gas and Natural Gas Pipelines industries was criticized. Secured lending, of which approximately half is reserve-based lending to the Exploration & Production sub-sector of the Oil & Gas industry, was $13.8 billion as of June 30, 2016 ; 48% of the secured lending exposure was drawn. Exposure to commercial real estate, which is reported within the Real Estate industry, in certain areas of Texas, California and Colorado, that are deemed sensitive to the Oil & Gas industry, was approximately $4 billion as of June 30, 2016 . While the overall trends and sentiment have been improving, the Firm continues to actively monitor and manage its exposure to these portfolios.  The Firm is also actively monitoring potential contagion effects to other related or dependent industries and geographies; however, to date, the Firm has not observed any material deterioration in these related or dependent industries and geographies in the wholesale portfolio.


Metals & Mining : Exposure to the Metals & Mining industry was approximately 1.7% and 1.8% of the Firm's total wholesale exposure as of June 30, 2016 , and December 31, 2015 , respectively. Exposure to the Metals & Mining industry decreased by $233 million during the six months ended June 30, 2016 to $13.8 billion , of which $4.6 billion was drawn. The portfolio largely consisted of exposure in North America, and was concentrated in the Steel and Diversified Mining sub-sectors. Approximately 37% and 46% of the exposure in the Metals & Mining portfolio was investment-grade as of June 30, 2016 , and December 31, 2015 , respectively.




52


Loans

In the normal course of its wholesale business, the Firm provides loans to a variety of customers, ranging from large corporate and institutional clients to high-net-worth individuals. The Firm actively manages its wholesale credit exposure. One way of managing credit risk is through secondary market sales of loans and lending-related commitments. For further discussion on loans, including information on credit quality indicators and sales of loans, see Note 13 .

The following table presents the change in the nonaccrual loan portfolio for the six months ended June 30, 2016 and 2015 .

Wholesale nonaccrual loan activity (a)

Six months ended June 30,

(in millions)

2016


2015


Beginning balance

$

1,016


$

624


Additions

1,902


792


Reductions:

Paydowns and other

419


284


Gross charge-offs

226


31


Returned to performing status

149


199


Sales

24


3


Total reductions

818


517


Net changes

1,084


275


Ending balance

$

2,100


$

899


(a)

Loans are placed on nonaccrual status when management believes full payment of principal or interest is not expected, regardless of delinquency status, or when principal or interest have been in default for a period of 90 days or more, unless the loan is both well-secured and in the process of collection.

The following table presents net charge-offs/recoveries, which are defined as gross charge-offs less recoveries, for the three and six months ended June 30, 2016 and 2015 . The amounts in the table below do not include gains or losses from sales of nonaccrual loans.

Wholesale net charge-offs/(recoveries)

(in millions, except ratios)

Three months ended
June 30,

Six months ended
June 30,

2016


2015


2016

2015

Loans – reported

Average loans retained

$

369,706


$

331,924


$

365,006


$

329,921


Gross charge-offs

159


4


228


33


Gross recoveries

(5

)

(23

)

(14

)

(53

)

Net

charge-offs/(recoveries)

154


(19

)

214


(20

)

Net

charge-off/(recovery) rate

0.17

%

(0.02

)%

0.12

%

(0.01

)%

Lending-related commitments

The Firm uses lending-related financial instruments, such as commitments (including revolving credit facilities) and guarantees, to meet the financing needs of its customers. The contractual amounts of these financial instruments represent the maximum possible credit risk should the counterparties draw down on these commitments or the Firm fulfills its obligations under these guarantees, and the counterparties subsequently fail to perform according to the terms of these contracts.

In the Firm's view, the total contractual amount of these wholesale lending-related commitments is not representative of the Firm's likely actual future credit exposure or funding requirements. In determining the amount of credit risk exposure the Firm has to wholesale lending-related commitments, which is used as the basis for allocating credit risk capital to these commitments, the Firm has established a "loan-equivalent" amount for each commitment; this amount represents the portion of the unused commitment or other contingent exposure that is expected, based on average portfolio historical experience, to become drawn upon in an event of a default by an obligor. The loan-equivalent amount of the Firm's wholesale lending-related commitments was $212.7 billion and $212.4 billion as of June 30, 2016 , and December 31, 2015 , respectively.

Derivative contracts

In the normal course of business, the Firm uses derivative instruments predominantly for market-making activities. Derivatives enable clients to manage exposures to fluctuations in interest rates, currencies and other markets. The Firm also uses derivative instruments to manage its own credit and other market risk exposure. For further discussion of derivative contracts, see Note 5 .

The following table summarizes the net derivative receivables for the periods presented.

Derivative receivables

(in millions)

Derivative receivables

June 30,
2016

December 31,
2015

Interest rate

$

37,885


$

26,363


Credit derivatives

1,794


1,423


Foreign exchange

24,083


17,177


Equity

7,127


5,529


Commodity

7,557


9,185


Total, net of cash collateral

78,446


59,677


Liquid securities and other cash collateral held against derivative receivables (a)

(23,006

)

(16,580

)

Total, net of collateral

$

55,440


$

43,097


(a)

Includes collateral related to derivative instruments where an appropriate legal opinion has not been either sought or obtained.



53


Derivative receivables reported on the Consolidated balance sheets were $78.4 billion and $59.7 billion at June 30, 2016 , and December 31, 2015 , respectively. These amounts represent the fair value of the derivative contracts after giving effect to legally enforceable master netting agreements and cash collateral held by the Firm. However, in management's view, the appropriate measure of current credit risk should also take into consideration additional liquid securities (primarily U.S. government and agency securities and other group of seven nations ("G7") government bonds) and other cash collateral held by the Firm aggregating $23.0 billion and $16.6 billion at June 30, 2016 , and December 31, 2015 , respectively, that may be used as security when the fair value of the client's exposure is in the Firm's favor. The increase in derivative receivables at June 30, 2016 from December 31, 2015 , was predominantly related to client-driven market-making activities in CIB, which resulted in higher interest rate and foreign exchange derivative receivables, driven by market movements.

In addition to the collateral described in the preceding paragraph, the Firm also holds additional collateral (primarily cash, G7 government securities, other liquid government-agency and guaranteed securities, and corporate debt and equity securities) delivered by clients at the initiation of transactions, as well as collateral related to contracts that have a non-daily call frequency and collateral that the Firm has agreed to return but has not yet settled as of the reporting date. Although this collateral does not reduce the balances and is not included in the table above, it is available as security against potential exposure that could arise should the fair value of the client's derivative transactions move in the Firm's favor.

The derivative receivables fair value, net of all collateral, also does not include other credit enhancements, such as letters of credit. For additional information on the Firm's use of collateral agreements, see Note 5 .


The following table summarizes the ratings profile by derivative counterparty of the Firm's derivative receivables, including credit derivatives, net of other liquid securities collateral, at the dates indicated. The ratings scale is based on the Firm's internal ratings, which generally correspond to the ratings as defined by S&P and Moody's.

Ratings profile of derivative receivables

Rating equivalent

June 30, 2016

December 31, 2015


(in millions, except ratios)

Exposure net of collateral

% of exposure net of collateral

Exposure net of collateral

% of exposure net of collateral

AAA/Aaa to AA-/Aa3

$

13,921


25

%

$

10,371


24

%

A+/A1 to A-/A3

13,382


24


10,595


25


BBB+/Baa1 to BBB-/Baa3

17,918


32


13,807


32


BB+/Ba1 to B-/B3

9,160


17


7,500


17


CCC+/Caa1 and below

1,059


2


824


2


Total

$

55,440


100

%

$

43,097


100

%


As previously noted, the Firm uses collateral agreements to mitigate counterparty credit risk. The percentage of the Firm's derivatives transactions subject to collateral agreements - excluding foreign exchange spot trades, which are not typically covered by collateral agreements due to their short maturity - was 87% at each of June 30, 2016 , and December 31, 2015 , respectively.

Credit derivatives

The Firm uses credit derivatives for two primary purposes: first, in its capacity as a market-maker, and second, as an end-user, to manage the Firm's own credit risk associated with various exposures. For a detailed description of credit derivatives, see Credit derivatives in Note 5 of this Form

10-Q, and Note 6 of JPMorgan Chase's 2015 Annual Report.

Credit portfolio management activities

Included in the Firm's end-user activities are credit derivatives used to mitigate the credit risk associated with traditional lending activities (loans and unfunded commitments) and derivatives counterparty exposure in the Firm's wholesale businesses (collectively, "credit portfolio

management" activities). Information on credit portfolio management activities is provided in the table below. For further information on derivatives used in credit portfolio management activities, see Credit derivatives in Note 5 of this Form 10-Q , and Note 6 of JPMorgan Chase's 2015 Annual Report.

Credit derivatives used in credit portfolio management activities

Notional amount of protection

purchased and sold (a)

(in millions)

June 30,
2016

December 31,
2015

Credit derivatives used to manage:

Loans and lending-related commitments

$

2,755


$

2,289


Derivative receivables

20,430


18,392


Credit derivatives used in credit portfolio management activities

$

23,185


$

20,681


(a)

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




54


ALLOWANCE FOR CREDIT LOSSES

JPMorgan Chase 's allowance for loan losses covers both the consumer (primarily scored) portfolio and wholesale (risk-rated) portfolio. The allowance represents management's estimate of probable credit losses inherent in the Firm's loan portfolio. Management also determines an allowance for wholesale and certain consumer lending-related commitments.

For a further discussion of the components of the allowance for credit losses and related management judgments, see Critical Accounting Estimates Used by the Firm on pages 76–77 and Note 14 of this Form 10-Q, and Critical Accounting Estimates Used by the Firm on pages 165–169 and Note 15 of JPMorgan Chase's 2015 Annual Report.

At least quarterly, the allowance for credit losses is reviewed by the CRO, the Chief Financial Officer and the Controller of the Firm, and discussed with the Board of Directors Risk Policy Committee and the Audit Committee of the Board of Directors. As of June 30, 2016 , JPMorgan Chase deemed the allowance for credit losses to be appropriate and sufficient to absorb probable credit losses inherent in the portfolio.

The consumer allowance for loan losses increased from December 31, 2015 , due to higher loss rates in newer credit card vintages, as well as growth in the credit card and auto loan portfolios, partially offset by a reduction in the allowance primarily due to improved credit quality of the residential real estate loan portfolio, reflecting originations of high-quality mortgages and the run-off of lower-quality legacy portfolios. For additional information about delinquencies and nonaccrual loans in the consumer, excluding credit card, loan portfolio, see Consumer Credit Portfolio on pages 42–47 and Note 13 .

The wholesale allowance for credit losses increased from December 31, 2015 , primarily driven by downgrades in the Oil & Gas, Natural Gas Pipelines, and Metals & Mining portfolios. Excluding these portfolios, the wholesale portfolio continued to experience generally stable credit quality trends and low charge-off rates.



55


Summary of changes in the allowance for credit losses

2016

2015

Six months ended June 30,

Consumer, excluding

credit card

Credit card

Wholesale

Total

Consumer, excluding

credit card

Credit card

Wholesale

Total

(in millions, except ratios)

Allowance for loan losses

Beginning balance at January 1,

$

5,806


$

3,434


$

4,315


$

13,555


$

7,050


$

3,439


$

3,696


$

14,185


Gross charge-offs

688


1,874


228


2,790


827


1,776


33


2,636


Gross recoveries

(301

)

(184

)

(14

)

(499

)

(337

)

(187

)

(53

)

(577

)

Net charge-offs/(recoveries)

387


1,690


214


2,291


490


1,589


(20

)

2,059


Write-offs of PCI loans (a)

88


-


-


88


110


-


-


110


Provision for loan losses

316


1,940


796


3,052


42


1,589


265


1,896


Other

(1

)

-


-


(1

)

-


(5

)

8


3


Ending balance at June 30,

$

5,646


$

3,684


$

4,897


$

14,227


$

6,492


$

3,434


$

3,989


$

13,915


Impairment methodology

Asset-specific (b)

$

365


$

361


$

525


$

1,251


$

436


$

518


$

147


$

1,101


Formula-based

2,627


3,323


4,372


10,322


2,841


2,916


3,842


9,599


PCI

2,654


-


-


2,654


3,215


-


-


3,215


Total allowance for loan losses

$

5,646


$

3,684


$

4,897


$

14,227


$

6,492


$

3,434


$

3,989


$

13,915


Allowance for lending-related commitments

Beginning balance at January 1,

$

14


$

-


$

772


$

786


$

13


$

-


$

609


$

622


Provision for lending-related commitments

-


-


174


174


2


-


(4

)

(2

)

Ending balance at June 30,

$

14


$

-


$

946


$

960


$

15


$

-


$

605


$

620


Impairment methodology

Asset-specific

$

-


$

-


$

143


$

143


$

-


$

-


$

55


$

55


Formula-based

14


-


803


817


15


-


550


565


Total allowance for lending-related commitments (c)

$

14


$

-


$

946


$

960


$

15


$

-


$

605


$

620


Total allowance for credit losses

$

5,660


$

3,684


$

5,843


$

15,187


$

6,507


$

3,434


$

4,594


$

14,535


Memo:

Retained loans, end of period

$

361,050


$

131,507


$

374,174


$

866,731


$

316,781


$

124,705


$

338,219


$

779,705


Retained loans, average

353,259


127,771


365,006


846,036


305,463


122,542


329,921


757,926


PCI loans, end of period

38,360


-


4


38,364


43,806


-


4


43,810


Credit ratios

Allowance for loan losses to retained loans

1.56

%

2.80

%

1.31

%

1.64

%

2.05

%

2.75

%

1.18

 %

1.78

%

Allowance for loan losses to retained nonaccrual loans (d)

111


NM

234


198


112


NM

457


209


Allowance for loan losses to retained nonaccrual loans excluding credit card

111


NM

234


147


112


NM

457


158


Net charge-off/(recovery) rates

0.22


2.66


0.12


0.54


0.32


2.61


(0.01

)

0.55


Credit ratios, excluding residential real estate PCI loans

Allowance for loan losses to retained loans

0.93


2.80


1.31


1.40


1.20


2.75


1.18


1.45


Allowance for loan losses to retained nonaccrual loans (d)

59


NM

234


161


57


NM

457


161


Allowance for loan losses to retained nonaccrual loans excluding credit card

59


NM

234


110


57


NM

457


109


Net charge-off/(recovery) rates

0.25

%

2.66

%

0.12

%

0.57

%

0.38

%

2.61

%

(0.01

)%

0.58

%

Note: In the table above, the financial measures which exclude the impact of PCI loans are non-GAAP financial measures. For additional information, see Explanation and Reconciliation of the Firm's Use of Non-GAAP Financial Measures and Key Performance Measures on pages 16–17 .

(a)

Write-offs of PCI loans are recorded against the allowance for loan losses when actual losses for a pool exceed estimated losses that were recorded as purchase accounting adjustments at the time of acquisition. A write-off of a PCI loan is recognized when the underlying loan is removed from a pool (e.g., upon liquidation).

(b)

Includes risk-rated loans that have been placed on nonaccrual status and loans that have been modified in a TDR. The asset-specific credit card allowance for loan losses modified in a TDR is calculated based on the loans' original contractual interest rates and does not consider any incremental penalty rates.

(c)

The allowance for lending-related commitments is reported in accounts payable and other liabilities on the Consolidated balance sheets.

(d)

The Firm's policy is generally to exempt credit card loans from being placed on nonaccrual status as permitted by regulatory guidance.


56


Provision for credit losses

For the three and six months ended June 30, 2016 , the provision for credit losses was $1.4 billion and $3.2 billion , respectively, compared with $935 million and $1.9 billion , respectively, in the prior year periods.

The total consumer provision for credit losses for the three and six months ended June 30, 2016 increased when compared with the prior year, as the prior year included a reduction in the allowance for loan losses and the current year included an increase. The current year increase in the allowance for loan losses was a result of 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 for credit losses for the six months ended June 30, 2016 reflected higher net charge-offs and the impact of downgrades in the Oil & Gas, Natural Gas Pipelines, and Metals & Mining portfolios.



Three months ended June 30,

Six months ended June 30,

Provision for loan losses

Provision for lending-related commitments

Total provision for

credit losses

Provision for loan losses

Provision for lending-related commitments

Total provision for credit losses

(in millions)

2016


2015


2016


2015


2016


2015


2016


2015


2016


2015


2016


2015


Consumer, excluding credit card

$

95


$

(99

)

$

-


$

1


$

95


$

(98

)

$

316


$

42


$

-


$

2


$

316


$

44


Credit card

1,110


800


-


-


1,110


800


1,940


1,589


-


-


1,940


1,589


Total consumer

1,205


701


-


1


1,205


702


2,256


1,631


-


2


2,256


1,633


Wholesale

251


207


(54

)

26


197


233


796


265


174


(4

)

970


261


Total

$

1,456


$

908


$

(54

)

$

27


$

1,402


$

935


$

3,052


$

1,896


$

174


$

(2

)

$

3,226


$

1,894




57


MARKET RISK MANAGEMENT

Market risk is the potential for adverse changes in the value of the Firm's assets and liabilities resulting from changes in market variables such as interest rates, foreign exchange rates, equity prices, commodity prices, implied volatilities or credit spreads. For a discussion of the Firm's market risk management organization, risk identification and classification, tools used to measure risk, and risk monitoring and control, see Market Risk Management on pages 133–139 of JPMorgan Chase's 2015 Annual Report.

Value-at-risk

JPMorgan Chase utilizes VaR, a statistical risk measure, to estimate the potential loss from adverse market moves in a normal market environment. The Firm has a single VaR framework used as a basis for calculating Risk Management VaR and Regulatory VaR.

Since VaR is based on historical data, it is an imperfect measure of market risk exposure and potential losses, and it is not used to estimate the impact of stressed market conditions or to manage any impact from potential stress events. In addition, based on their reliance on available historical data, limited time horizons, and other factors, VaR measures are inherently limited in their ability to measure certain risks and to predict losses, particularly those associated with market illiquidity and sudden or severe shifts in market conditions. The Firm therefore considers other measures in addition to VaR, such as stress testing, to capture and manage its market risk positions.

In addition, for certain products, specific risk parameters are not captured in VaR due to the lack of inherent liquidity and availability of appropriate historical data. The Firm uses proxies to estimate the VaR for these and other products when daily time series are not available. It is likely that using an actual price-based time series for these products, if available, would affect the VaR results presented.

The Firm uses alternative methods to capture and measure those risk parameters that are not otherwise captured in VaR, including economic-value stress testing and nonstatistical measures. For further information, see Market Risk Management on pages 133–139 of the 2015 Annual Report.

The Firm's VaR model calculations are periodically evaluated and enhanced in response to changes in the composition of the Firm's portfolios, changes in market conditions, improvements in the Firm's modeling techniques and other factors. Such changes may affect historical comparisons to current VaR results. For information regarding model reviews and approvals, see Model Risk Management on page 142 of the 2015 Annual Report.

The Firm's Risk Management VaR is calculated assuming a one-day holding period and an expected tail-loss methodology which approximates a 95% confidence level. For risk management purposes, the Firm believes this methodology provides a stable measure of VaR that closely aligns to the day-to-day risk management decisions made by the lines of business, and provides the necessary and appropriate information to respond to risk events on a daily basis. The Firm calculates separately a daily aggregated VaR in accordance with regulatory rules ("Regulatory VaR"), which is used to derive the Firm's regulatory VaR-based capital requirements under Basel III. For further information regarding the key differences between Risk Management VaR and Regulatory VaR, see page 135 of the 2015 Annual Report. For additional information on Regulatory VaR and the other components of market risk regulatory capital for the Firm (e.g. VaR-based measure, stressed VaR-based measure and the respective backtesting), see JPMorgan Chase's Pillar 3 Regulatory Capital Disclosures reports, which are available on the Firm's website at:

(http://investor.shareholder.com/jpmorganchase/basel.cfm).




58


The table below shows the results of the Firm's Risk Management VaR measure using a 95% confidence level.

Total VaR

Three months ended June 30,

Six months ended June 30,

2016

2015

At June 30,

Average

(in millions)

 Avg.

Min

Max

 Avg.

Min

Max

2016

2015

2016

2015

CIB trading VaR by risk type

Fixed income

$

46


$

37


$

62


$

41


$

31


$

52


$

60


$

45


$

46


$

38


Foreign exchange

12


7


17


9


6


13


16


9


11


9


Equities

14


10


20


16


11


25


11


23


18


17


Commodities and other

9


7


10


9


8


13


10


9


9


9


Diversification benefit to CIB trading VaR

(37

)

(a)

 NM


(b)

 NM


(b)

(37

)

(a)

NM


(b)

NM


(b)

(48

)

(a)

(35

)

(a)

(35

)

(a)

(37

)

(a)

CIB trading VaR

44


35


59


38


28


51


49


51


49


36


Credit portfolio VaR

12


11


13


15


12


19


13


13


12


16


Diversification benefit to CIB VaR

(12

)

(a)

 NM


(b)

 NM


(b)

(10

)

(a)

NM


(b)

NM


(b)

(12

)

(a)

(11

)

(a)

(11

)

(a)

(9

)

(a)

CIB VaR

44


34


59


43


35


53


50


53


50


43


Mortgage Banking VaR

3


1


5


4


3


7


2


5


4


4


Treasury and CIO VaR