Edgar Filing: JPMORGAN CHASE & CO

Document

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

the Securities Exchange Act of 1934



For the quarterly period ended	Commission file
September 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 September 30, 2016: 3,578,264,278

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 nine months ended September 30, 2016 and 2015	85
	Consolidated statements of comprehensive income (unaudited) for the three and nine months ended September 30, 2016 and 2015	86
	Consolidated balance sheets (unaudited) at September 30, 2016, and December 31, 2015	87
	Consolidated statements of changes in stockholders’ equity (unaudited) for the nine months ended September 30, 2016 and 2015	88
	Consolidated statements of cash flows (unaudited) for the nine months ended September 30, 2016 and 2015	89
	Notes to Consolidated Financial Statements (unaudited)	90
	Report of Independent Registered Public Accounting Firm	169
	Consolidated Average Balance Sheets, Interest and Rates (unaudited) for the three and nine months ended September 30, 2016 and 2015	170
	Glossary of Terms and Acronyms and Line of Business Metrics	172
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	41
	Credit Risk Management	43
	Market Risk Management	60
	Country Risk Management	66
	Capital Management	67
	Liquidity Risk Management	74
	Supervision and Regulation	79
	Critical Accounting Estimates Used by the Firm	80
	Accounting and Reporting Developments	82
	Forward-Looking Statements	84
Item 3.	Quantitative and Qualitative Disclosures About Market Risk.	180
Item 4.	Controls and Procedures.	180
Part II – Other information
Item 1.	Legal Proceedings.	180
Item 1A.	Risk Factors.	180
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds.	180
Item 3.	Defaults Upon Senior Securities.	181
Item 4.	Mine Safety Disclosures.	181
Item 5.	Other Information.	181
Item 6.	Exhibits.	181

JPMorgan Chase & Co.

Consolidated financial highlights



(unaudited) As of or for the period ended, (in millions, except share, ratio, headcount data and where otherwise noted)																Nine months ended September 30,
	3Q16			2Q16			1Q16			4Q15			3Q15			2016			2015
Selected income statement data
Total net revenue	$	24,673		$	24,380		$	23,239		$	22,885		$	22,780		$	72,292		$	70,658
Total noninterest expense	14,463			13,638			13,837			14,263			15,368			41,938			44,751
Pre-provision profit	10,210			10,742			9,402			8,622			7,412			30,354			25,907
Provision for credit losses	1,271			1,402			1,824			1,251			682			4,497			2,576
Income before income tax expense	8,939			9,340			7,578			7,371			6,730			25,857			23,331
Income tax expense/(benefit)	2,653			3,140			2,058			1,937			(74		)	7,851			4,323
Net income	$	6,286		$	6,200		$	5,520		$	5,434		$	6,804		$	18,006		$	19,008
Earnings per share data
Net income: Basic	$	1.60		$	1.56		$	1.36		$	1.34		$	1.70		$	4.51		$	4.72
Diluted	1.58			1.55			1.35			1.32			1.68			4.48			4.68
Average shares: Basic	3,597.4			3,635.8			3,669.9			3,674.2			3,694.4			3,634.4			3,709.2
Diluted	3,629.6			3,666.5			3,696.9			3,704.6			3,725.6			3,664.3			3,742.2
Market and per common share data
Market capitalization	238,277			224,449			216,547			241,899			224,438			238,277			224,438
Common shares at period-end	3,578.3			3,612.0			3,656.7			3,663.5			3,681.1			3,578.3			3,681.1
Share price^(a):
High	$	67.90		$	66.20		$	64.13		$	69.03		$	70.61		$	67.90		$	70.61
Low	58.76			57.05			52.50			58.53			50.07			52.50			50.07
Close	66.59			62.14			59.22			66.03			60.97			66.59			60.97
Book value per share	63.79			62.67			61.28			60.46			59.67			63.79			59.67
Tangible book value per share (“TBVPS”)^(b)	51.23			50.21			48.96			48.13			47.36			51.23			47.36
Cash dividends declared per share	0.48			0.48			0.44			0.44			0.44			1.40			1.28
Selected ratios and metrics
Return on common equity (“ROE”)	10		%	10		%	9		%	9		%	12		%	10		%	11		%
Return on tangible common equity (“ROTCE”)^(b)	13			13			12			11			15			13			14
Return on assets (“ROA”)	1.01			1.02			0.93			0.90			1.11			0.99			1.02
Overhead ratio	59			56			60			62			67			58			63
Loans-to-deposits ratio	65			66			64			65			64			65			64
High quality liquid assets (“HQLA”) (in billions)^(c)	$	539		$	516		$	505		$	496		$	505		$	539		$	505
Common equity Tier 1 (“CET1”) capital ratio^(d)	12.0%			12.0		%	11.9%			11.8		%	11.5		%	12.0		%	11.5		%
Tier 1 capital ratio^(d)	13.6			13.6			13.5			13.5			13.3			13.6			13.3
Total capital ratio^(d)	15.1			15.2			15.1			15.1			14.9			15.1			14.9
Tier 1 leverage ratio^(d)	8.5			8.5			8.6			8.5			8.4			8.5			8.4
Selected balance sheet data (period-end)
Trading assets	$	374,837		$	380,793		$	366,153		$	343,839		$	361,708		$	374,837		$	361,708
Securities	272,401			278,610			285,323			290,827			306,660			272,401			306,660
Loans	888,054			872,804			847,313			837,299			809,457			888,054			809,457
Core loans	795,077			775,813			746,196			732,093			698,988			795,077			698,988
Average core loans	779,383			760,721			737,297			715,282			680,224			759,207			655,753
Total assets	2,521,029			2,466,096			2,423,808			2,351,698			2,416,635			2,521,029			2,416,635
Deposits	1,376,138			1,330,958			1,321,816			1,279,715			1,273,106			1,376,138			1,273,106
Long-term debt^(e)	309,418			295,627			290,754			288,651			292,503			309,418			292,503
Common stockholders’ equity	228,263			226,355			224,089			221,505			219,660			228,263			219,660
Total stockholders’ equity	254,331			252,423			250,157			247,573			245,728			254,331			245,728
Headcount	242,315			240,046			237,420			234,598			235,678			242,315			235,678
Credit quality metrics
Allowance for credit losses	$	15,304		$	15,187		$	15,008		$	14,341		$	14,201		$	15,304		$	14,201
Allowance for loan losses to total retained loans	1.61%			1.64%			1.66%			1.63%			1.67%			1.61%			1.67%
Allowance for loan losses to retained loans excluding purchased credit-impaired loans^(f)	1.37			1.40			1.40			1.37			1.40			1.37			1.40
Nonperforming assets	$	7,779		$	7,757		$	8,023		$	7,034		$	7,294		$	7,779		$	7,294
Net charge-offs	1,121			1,181			1,110			1,064			963			3,412			3,022
Net charge-off rate	0.51%			0.56%			0.53%			0.52%			0.49%			0.53%			0.53%

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 82–83 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 74.


(d)	Ratios presented are calculated under the Basel III Transitional capital rules and represent the Collins Floor. See Capital Management on pages 67–73 for additional information on Basel III.


(e)	Included unsecured long-term debt of $226.8 billion, $220.6 billion, $216.1 billion, $211.8 billion and $214.6 billion at September 30, 2016, June 30, 2016, March 31, 2016, December 31, 2015 and September 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 57–59.



INTRODUCTION

The following is management’s discussion and analysis (“MD&A”) of the financial condition and results of operations of JPMorgan Chase & Co. (“JPMorgan Chase” or the “Firm”) for the third quarter of 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 172–176 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 84 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 $254.3 billion in stockholders’ equity as of September 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 J.P. Morgan Securities LLC (“JPMorgan Securities”), the Firm’s U.S. investment banking firm. The bank and nonbank subsidiaries of JPMorgan Chase operate nationally as well as through overseas branches and subsidiaries, representative offices and subsidiary foreign banks. One of the Firm’s principal operating subsidiaries in the United Kingdom (“U.K.”) is J.P. Morgan Securities plc, a subsidiary of JPMorgan Chase Bank, N.A.

For management reporting purposes, the Firm’s activities are organized into four major reportable business segments, as well as a Corporate segment. The Firm’s consumer business is the Consumer & Community Banking (“CCB”) segment. The Firm’s wholesale business segments are Corporate & Investment Bank (“CIB”), Commercial Banking (“CB”), and Asset Management (“AM”). For a description of the Firm’s business segments, and the products and services they provide to their respective client bases, refer to Note 33 of JPMorgan Chase’s 2015 Annual Report.



EXECUTIVE OVERVIEW

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



Financial performance of JPMorgan Chase
(unaudited) As of or for the period ended,	Three months ended September 30,								Nine months ended September 30,
(in millions, except per share data and ratios)	2016			2015			Change		2016			2015			Change
Selected income statement data
Total net revenue	$	24,673		$	22,780		8	%	$	72,292		$	70,658		2%
Total noninterest expense	14,463			15,368			(6	)	41,938			44,751			(6	)
Pre-provision profit	10,210			7,412			38		30,354			25,907			17
Provision for credit losses	1,271			682			86		4,497			2,576			75
Net income	6,286			6,804			(8	)	18,006			19,008			(5	)
Diluted earnings per share	$	1.58		$	1.68		(6	)%	$	4.48		$	4.68		(4	)%
Selected ratios and metrics
Return on common equity	10		%	12		%			10		%	11		%
Return on tangible common equity	13			15					13			14
Tangible book value per share	$	51.23		$	47.36		8	%	$	51.23		$	47.36		8%
Capital ratios^(a)
CET1	12.0		%	11.5		%			12.0		%	11.5		%
Tier 1 capital	13.6			13.3					13.6			13.3


(a)	Ratios presented are calculated under the transitional Basel III rules and represent the Collins Floor. See Capital Management on pages 67–73 for additional information on Basel III.

Business Overview

JPMorgan Chase reported strong results in the third-quarter of 2016 with net income of $6.3 billion, or $1.58 per share, on net revenue of $24.7 billion. The Firm reported ROE of 10% and ROTCE of 13%.

Net income declined 8% compared with the prior-year reflecting higher income tax expense in the current quarter. The prior-year quarter included tax benefits of $2.2 billion due to the resolution of tax audits and the release of deferred taxes.

Total net revenue increased 8% compared with the prior-year. Net interest income was $11.6 billion, up 6%, primarily driven by loan growth and the net impact of higher interest rates, partially offset by lower investment securities balances. Noninterest revenue was $13.1 billion, up 10%, primarily driven by higher Markets and Investment Banking revenue in CIB.

Noninterest expense was $14.5 billion, down 6% compared with the prior-year, driven by lower legal expense, partially offset by higher compensation expense.

The provision for credit losses was $1.3 billion, an increase from $682 million, reflecting an increase in the allowance for credit losses in the current quarter compared with a decrease in the prior-year. The consumer provision reflected an increase in the allowance for credit losses of approximately $225 million, reflecting loan growth in the credit card portfolio, including newer vintages which, as anticipated, have higher loss rates compared to the overall portfolio. The wholesale provision was a benefit, primarily driven by a net allowance reduction of approximately $50 million in the Oil & Gas portfolio.

The total allowance for credit losses was $15.3 billion at September 30, 2016, and the Firm had a loan loss coverage ratio, excluding the PCI portfolio, of 1.37%, compared with 1.40% in the prior-year. The Firm’s nonperforming assets totaled $7.8 billion, an increase from the prior-year level of $7.3 billion.

Firmwide average core loans increased 15% compared with the prior-year quarter and increased 2% compared with the second quarter of 2016.

Within CCB, average core loans increased 19% from the prior-year. CCB had record growth in average deposits, an increase of $58 billion, or 11%, from the prior-year. Credit card sales volume increased 10%, and merchant processing volume increased 13%, from the prior-year. CCB had 26 million active mobile customers in the third quarter of 2016, an increase of 17% from the prior-year.

CIB maintained its #1 ranking for Global Investment Banking fees with a 8.1% wallet share for the nine months ended September 30, 2016. Within CB, average loans increased 14% from the prior-year as loans in the commercial and industrial client segment increased 10% and loans in the commercial real estate client segment increased 19%. AM had record average loans, an increase of 5% over the prior-year, and 80% 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 18–40.

The Firm added to its capital, ending the third quarter of 2016 with a TBVPS of $51.23, up 8% over the prior-year. The Firm’s estimated Basel III Advanced Fully Phased-In CET1

capital and ratio were $181 billion and 11.9%, respectively. The Fully Phased-In supplementary leverage ratio (“SLR”) for the Firm and for JPMorgan Chase Bank, N.A. were each 6.6% at September 30, 2016. The Firm also was compliant with the Fully Phased-In U.S. LCR and had $539 billion of HQLA as of September 30, 2016. For further discussion of the liquidity coverage ratio (“LCR”) and HQLA, see Liquidity Risk Management on pages 74–78.

ROTCE, TBVPS and core loans are considered key financial performance measures. Each of the Fully Phased-In capital and leverage measures is considered a key regulatory capital measure. For a further discussion of these measures, see Explanation and Reconciliation of the Firm’s Use of Non-GAAP Financial Measures and Key Performance Measures on pages 16–17, and Capital Management on pages 67–73.

JPMorgan Chase continues to support consumers, businesses and communities around the globe. The Firm provided credit and raised capital of $1.7 trillion for commercial and consumer clients during the first nine months of 2016:


•	$195 billion of credit for consumers


•	$18 billion of credit for U.S. small businesses


•	$555 billion of credit for corporations


•	$895 billion of capital raised for corporate clients and non-U.S. government entities


•	$74 billion of credit and capital raised for nonprofit and U.S. government entities, including states, municipalities, hospitals and universities

Regulatory and business developments

On October 1, 2016, the Firm filed with the Federal Reserve and the Federal Deposit Insurance Corporation (“FDIC”) its submission (the “2016 Resolution Submission”), describing how the Firm remediated the deficiencies and providing a status report of its actions to address the shortcomings identified by the agencies in the Firm’s 2015 Resolution Plan and communicated to the Firm in April 2016. On October 4, 2016, the two agencies made public a subsection of that submission which is available on the FDIC’s and Federal Reserve’s websites, as well on the Firm’s website. As previously disclosed, in April 2016, the Federal Reserve and the FDIC jointly provided firm-specific feedback on the 2015 Resolution Plans of eight systemically important domestic banking institutions, and determined that five of these 2015 Resolution Plans, including that of the Firm, were 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”). In addition to the deficiencies in the Firm’s 2015 Resolution Plan identified by the agencies, the FDIC and Federal Reserve also identified certain shortcomings which were required to be satisfactorily addressed in the Firm’s Resolution Plan due on July 1, 2017.

The Firm has taken several steps to address the FDIC’s and Federal Reserve’s feedback, including, among other actions, increasing its liquidity reserves and pre-positioning significant amounts of capital and liquidity at the Firm’s “material legal entities” (as defined in its 2016 Resolution Submission); the establishment of a new subsidiary that will become an “intermediate holding company” and will have

contributed to it the stock of substantially all of JPMorgan Chase & Co.'s direct subsidiaries (other than JPMorgan Chase Bank, N.A.), as well as other assets and intercompany indebtedness owing to JPMorgan Chase & Co., made refinements to the Firm’s liquidity and capital governance frameworks; and created a Firm-wide “trigger framework” that identifies key actions and escalations that would need to be taken, as well as decisions that would need to be made, at critical points in time if certain defined liquidity and/or capital metrics fall below defined thresholds. The FDIC and the Federal Reserve are reviewing the 2016 Resolution Submission to assess whether the Firm has adequately addressed and remediated the identified deficiencies. If the FDIC and the Federal Reserve jointly conclude that the Firm has not adequately remediated the identified deficiencies, the two agencies may jointly impose more stringent capital or liquidity requirements on the Firm as well as restrictions on the growth, activities or operations of the Firm or its subsidiaries.

Various regulatory and governmental agencies have made inquiries to the Firm about its sales practices with retail customers, including, among other matters, the Firm’s incentive-compensation structures related to such sales practices. The Firm is responding to these inquiries.

On October 3, 2016, the Firm implemented Securities and Exchange Commission ("SEC") rules governing money-market funds requiring a floating net asset value be calculated for institutional prime money-market funds. As a result of these new rules, the Firm experienced increased client activity in the third quarter and transfers from certain money-market funds into government funds and deposit products.

On October 13, 2016 the IRS issued final and temporary regulations under Section 385 of the U.S. Internal Revenue Code dealing with the recharacterization of certain related-party debt as equity for U.S. income tax purposes. These regulations significantly narrowed the scope of the proposed regulations, which were issued in April 2016. As revised, the regulations should not have a meaningful impact to the Firm.

Beginning September 1, 2016, rules promulgated by U.S. prudential regulators and the Commodity Futures Trading Commission ("CFTC") requiring both the collecting and posting of variation margin and initial margin in respect of non-centrally cleared derivatives, inclusive of inter-affiliate transactions, became effective. The Firm has implemented the requirements of the rules that have become effective.

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 businesses 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 to 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 67–73.

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.

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.

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 84 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.

Management expects fourth quarter 2016 managed net interest income to be modestly higher than in the third quarter of 2016, reflecting continued strong loan growth. Management expects average core loans to be up approximately 15% for the full year 2016 compared to the prior-year, at the higher end of the previously disclosed range.

Management also expects fourth quarter 2016 managed noninterest revenue to decline compared to the third quarter of 2016, reflecting anticipated lower markets revenue, seasonally lower Mortgage Banking Revenue and higher Card new account origination costs.

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 for full year 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, the Firm expects adjusted expense for full year 2016 to be approximately $56 billion (excluding Firmwide legal expense).

In Card, Commerce Solutions & Auto, management expects revenue to decline approximately $200 million in the fourth quarter of 2016 compared to the third quarter of 2016, driven by higher Card new account origination costs on strong, but tapering demand for Sapphire Reserve through the fourth quarter of 2016; actual results will be dependent on the number of new accounts originated.

In CIB, for the fourth quarter of 2016, management expects Securities Services revenue to be approximately $875 million, depending on market conditions.



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 nine months ended September 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 80–81 of this Form 10-Q and pages 165–169 of JPMorgan Chase’s 2015 Annual Report.



Revenue
	Three months ended September 30,						Nine months ended September 30,
(in millions)	2016		2015		Change		2016		2015		Change
Investment banking fees	$	1,866	$	1,604	16	%	$	4,843	$	5,231	(7	)%
Principal transactions^(a)	3,451		2,367		46		9,106		8,856		3
Lending- and deposit-related fees	1,484		1,463		1		4,290		4,244		1
Asset management, administration and commissions	3,597		3,845		(6	)	10,902		11,667		(7	)
Securities gains	64		33		94		136		129		5
Mortgage fees and related income	624		469		33		1,980		1,957		1
Card income	1,202		1,447		(17	)	3,861		4,493		(14	)
Other income^(b)	782		628		25		2,844		1,796		58
Noninterest revenue	13,070		11,856		10		37,962		38,373		(1	)
Net interest income	11,603		10,924		6		34,330		32,285		6
Total net revenue	$	24,673	$	22,780	8%		$	72,292	$	70,658	2%


(a)	Effective January 1, 2016, changes in DVA on fair value option elected liabilities previously recorded in principal transactions revenue are recorded in other comprehensive income (“OCI”). For additional information, see the segments results of CIB and Accounting and Reporting Developments on pages 25–30 and pages 82–83, respectively.


(b)	Included operating lease income of $708 million and $536 million for the three months ended September 30, 2016 and 2015, respectively, and $2.0 billion and $1.5 billion for the nine months ended September 30, 2016 and 2015, respectively.

Quarterly results

Total net revenue increased by 8% primarily reflecting higher noninterest revenue driven by strong performance in CIB, and higher net interest income in the Firm’s reportable business segments.

Investment banking fees increased reflecting strong performance across products. Equity underwriting fees increased primarily driven by growth in industry-wide issuance, with a stable market backdrop and strong investor demand; debt underwriting fees increased reflecting strong industry-wide bond issuance; and advisory fees increased driven by a greater share of fees for completed transactions. For additional information on investment banking fees, see CIB segment results on pages 25–30, CB segment results on pages 31–34 and Note 6.

Principal transactions revenue increased reflecting broad-based strength across products in CIB’s Fixed Income Markets business. Rates performance was particularly strong, as markets remained active throughout the quarter, post the Brexit vote and in anticipation of central bank actions and the new rules governing money market funds. Credit and Securitized Products revenue was also higher, driven by improving market sentiment across primary and secondary markets which produced robust issuance volumes and strong client trading activity. The increase in the Fixed Income Markets business was partially offset by the net results in Credit Adjustments & Other, which had a loss of $149 million in 2016 primarily driven by derivative valuation adjustments; the prior year had a $154 million gain, which included funding spread gains on fair value option elected liabilities. For additional information on

principal transactions revenue, see CIB segment results on pages 25–30 and Note 6.

Lending- and deposit-related fees were relatively flat. For information on lending- and deposit-related fees, see the segment results for CCB on pages 19–24, CIB on pages 25–30, and CB on pages 31–34.

Asset management, administration and commissions revenue decreased reflecting lower performance fees in AM, and lower brokerage commissions in CIB. For additional information on these fees and commissions, see the segment discussions of CCB on pages 19–24, AM on pages 35–38 and Note 6.

Mortgage fees and related income increased due to higher mortgage servicing rights (“MSR”) risk management results and higher net production revenue on higher margins, partially offset by lower servicing revenue predominantly as a result of a lower level of third party loans serviced. 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 predominantly driven by higher new account origination costs, and the impact of renegotiated co-brand partnership agreements, partially offset by higher card-related fees and card sales volume. For further information, see CCB segment results on pages 19–24.

Other income increased due to higher operating lease income reflecting growth in auto operating lease assets

in CCB.

Net interest income increased primarily driven by loan growth across the businesses and the net impact of higher rates, partially offset by lower investment securities balances. The Firm’s average interest-earning assets and net interest yield, on a fully taxable equivalent (“FTE”) basis, were $2.1 trillion and 2.24%, respectively.

Year-to-date results

Total net revenue increased by 2% primarily reflecting higher net interest income in the Firm’s reportable business segments, and several gains in other income, partially offset by lower asset management fees in AM, lower investment banking fees in CIB, and lower card income in CCB.

Investment banking fees decreased due to lower equity and debt underwriting fees, partially offset by higher advisory fees. The decrease in equity and debt underwriting fees was driven by declines in industry-wide fee levels and, for debt underwriting fees, also due to fewer large acquisition financing deals. Advisory fees increased due to a greater share of fees for completed transactions.

Principal transactions revenue increased reflecting higher Fixed Income Markets revenue in Rates, Credit and Securitized Products in CIB. Rates performance was strong, with elevated market activity driven by central bank actions, and higher issuance-based flows. Credit and Securitized Products revenue improved as client risk appetite recovered driving higher primary and secondary market activity. The increase in Fixed Income Markets revenue was partially offset by the net results in Credit Adjustments & Other, which had a loss of $447 million driven by derivative valuation adjustments and wider credit spreads; the prior year had a gain of $274 million, which included funding spread gains on fair value option elected liabilities.

Lending- and deposit-related fees were relatively flat, with the increase in deposit fees associated with growth in business volume in CCB offset by lower lending-related service fees.

Asset management, administration and commissions revenue decreased reflecting the impact of weaker markets and lower performance fees in AM, and lower brokerage commissions and other fees in CIB and AM.

Mortgage fees and related income were relatively flat, with higher MSR risk management results offset by lower mortgage servicing revenue predominantly as a result of a lower level of third-party loans serviced.

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

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

Net interest income increased primarily driven by loan growth across the businesses and the net impact of higher rates, partially offset by lower investment securities balances and higher interest expense on long-term debt largely associated with hedging activity. The Firm’s average interest-earning assets and net interest yield, on a FTE basis, were $2.1 trillion and 2.26%, respectively.



Provision for credit losses
	Three months ended September 30,								Nine months ended September 30,
(in millions)	2016			2015			Change		2016		2015			Change
Consumer, excluding credit card	$	262		$	(389	)	NM		$	578	$	(345	)	NM
Credit card	1,038			759			37	%	2,978		2,348			27	%
Total consumer	1,300			370			251	%	3,556		2,003			78	%
Wholesale	(29		)	312			NM		941		573			64	%
Total provision for credit losses	$	1,271		$	682		86	%	$	4,497	$	2,576		75	%

Quarterly results

The provision for credit losses increased as a result of an addition to the consumer allowance for loan losses, compared with a reduction in the prior year. The addition to the consumer allowance was approximately $225 million reflecting loan growth in the credit card portfolio, including newer vintages which, as anticipated, have higher loss rates compared to the overall portfolio, as well as loan growth in the auto loan portfolio. The prior-year provision reflected a $575 million reduction in the residential real estate portfolio, due to the continued improvement in home prices and delinquencies, and increased granularity in the impairment estimates. The increase in the consumer provision for credit losses in the current quarter was partially offset by a benefit in the wholesale provision for credit losses, primarily driven by a net allowance reduction

of approximately $50 million in the Oil & Gas portfolio as a result of paydowns, loan sales, and select upgrades, partially offset by select downgrades. The prior year wholesale provision for credit losses included a net allowance increase reflecting the impact of select downgrades, including within the Oil & Gas 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 25–30, CB on pages 31–34 and the Allowance for credit losses on pages 57–59.

Year-to-date results

The provision for credit losses increased as a result of net additions to the consumer allowance for loan losses, compared with reductions in the prior year. The additions to the consumer allowance were approximately $400 million reflecting loan growth in the credit card portfolio, including newer vintages which, as anticipated, have higher loss rates compared to the overall portfolio, as well as loan growth in the auto loan portfolio; these were partially offset by reductions in the allowance for loan losses in the residential real estate portfolio due to continued improvement in home

prices and delinquencies, as well as runoff in the student loan portfolio. The prior-year provision reflected a $1.0 billion reduction in the residential real estate portfolio, due to the continued improvement in home prices and delinquencies, and increased granularity in the impairment estimates, as well as runoff in the student loan portfolio. The provision for credit losses increased also in the current period as a result of additions to the wholesale allowance for credit losses, reflecting the impact of downgrades in the Oil & Gas, Natural Gas Pipelines, and Metals & Mining portfolios.



Noninterest expense
	Three months ended September 30,						Nine months ended September 30,
(in millions)	2016		2015		Change		2016		2015		Change
Compensation expense	$	7,669	$	7,320	5	%	$	23,107	$	23,057	—
Noncompensation expense:
Occupancy	899		965		(7	)	2,681		2,821		(5	)
Technology, communications and equipment	1,741		1,546		13		5,024		4,536		11
Professional and outside services	1,665		1,776		(6	)	4,913		5,178		(5	)
Marketing	825		704		17		2,200		1,937		14
Other expense^(a)(b)	1,664		3,057		(46	)	4,013		7,222		(44	)
Total noncompensation expense	6,794		8,048		(16	)	18,831		21,694		(13	)
Total noninterest expense	$	14,463	$	15,368	(6	)%	$	41,938	$	44,751	(6	)%


(a)	Included firmwide legal expense of $(71) million and $1.3 billion for the three months ended September 30, 2016 and 2015, respectively, and $(547) million and $2.3 billion for the nine months ended September 30, 2016 and 2015, respectively


(b)	Included FDIC-related expense of $360 million and $298 million for the three months ended September 30, 2016 and 2015, respectively, and $912 million and $916 million for the nine months ended September 30, 2016 and 2015, respectively.

Quarterly results

Total noninterest expense decreased by 6% driven by lower legal expense and the effect of continued expense initiatives, partially offset by higher compensation expense and investments and growth in the businesses.

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

Noncompensation expense decreased as a result of lower legal expense (including lower legal professional services expense), less utilization of contractors and reduced occupancy expense. These factors were partially offset by higher depreciation expense from growth in auto operating lease assets; higher investments in marketing; liabilities from a merchant bankruptcy in Commerce Solutions; a modest increase in reserves for mortgage servicing; and a net increase related to higher FDIC surcharges. For a further discussion of legal matters, see Note 23.

Year-to-date results

Total noninterest expense decreased by 6% driven by lower legal expense and the effect of continued expense initiatives, partially offset by investments and growth in the businesses.

Compensation expense was relatively flat, with higher performance-based compensation expense and investments in the businesses offset by the impact of continued expense reduction initiatives, including lower headcount in certain businesses.

Noncompensation expense decreased as a result of lower legal expense (including lower legal professional services expense); less utilization of contractors and reduced occupancy expense; lower regulatory-related expense; and the impact of the disposal of assets in AM. These factors were partially offset by higher depreciation expense from growth in auto operating lease assets; higher investments in marketing; liabilities from a merchant bankruptcy in Commerce Solutions; a modest increase in reserves for mortgage servicing; and the impact of a benefit recorded in the prior year from a franchise tax settlement. For a further discussion of legal matters, see Note 23.



Income tax expense
(in millions, except rate)	Three months ended September 30,								Nine months ended September 30,
(in millions, except rate)	2016			2015			Change		2016			2015			Change
Income before income tax expense	$	8,939		$	6,730		33	%	$	25,857		$	23,331		11	%
Income tax expense/(benefit)	2,653			(74		)	NM		7,851			4,323			82
Effective tax rate	29.7		%	(1.1		)%			30.4		%	18.5		%

Quarterly results

The effective tax rate in the current quarter was affected by the change in mix of income and expense subject to U.S. federal and state and local taxes. The effective tax rate in 2015 was affected by $2.2 billion of tax benefits, which reduced the Firm's effective tax rate by 32.0 percentage points. The recognition of tax benefits in 2015 resulted from the resolution of various tax audits, as well as the release of U.S. deferred taxes associated with the restructuring of certain non-U.S. entities.

Year-to-date results

The effective tax rate in the current period was affected by changes in the mix of income and expense subject to U.S. federal and state and local taxes, and tax benefits from the adoption of new accounting guidance related to employee stock-based incentive payments. The effective tax rate in 2015 was affected by $2.7 billion of tax benefits, which reduced the Firm's effective tax rate by 11.7 percentage points. The recognition of tax benefits in 2015 resulted from the resolution of various tax audits, as well as the release of U.S. deferred taxes associated with the restructuring of certain non-U.S. entities. For additional details on the impact of the new accounting guidance, see Accounting and Reporting Developments on pages 82–83.



CONSOLIDATED BALANCE SHEETS ANALYSIS

Consolidated balance sheets overview

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



Selected Consolidated balance sheets data
(in millions)	Sep 30, 2016			Dec 31, 2015			Change
Assets
Cash and due from banks	$	21,390		$	20,490		4	%
Deposits with banks	396,200			340,015			17
Federal funds sold and securities purchased under resale agreements	232,637			212,575			9
Securities borrowed	109,197			98,721			11
Trading assets:
Debt and equity instruments	309,258			284,162			9
Derivative receivables	65,579			59,677			10
Securities	272,401			290,827			(6	)
Loans	888,054			837,299			6
Allowance for loan losses	(14,204		)	(13,555		)	5
Loans, net of allowance for loan losses	873,850			823,744			6
Accrued interest and accounts receivable	64,333			46,605			38
Premises and equipment	14,208			14,362			(1	)
Goodwill	47,302			47,325			—
Mortgage servicing rights	4,937			6,608			(25	)
Other intangible assets	887			1,015			(13	)
Other assets	108,850			105,572			3
Total assets	$	2,521,029		$	2,351,698		7	%

Cash and due from banks and deposits with banks

The increase was primarily due to deposit growth and an increase in long-term debt. The Firm’s excess cash is placed with various central banks, predominantly Federal Reserve Banks.

Federal funds sold and securities purchased under resale agreements

The increase was due to the deployment of excess cash by Treasury, and higher demand for securities to cover short positions related to client-driven market-making activities in CIB. For additional information on the Firm’s Liquidity Risk Management, see pages 74–78.

Securities borrowed

The increase was driven by higher demand for securities to cover short positions related to client-driven market-making activities in CIB.

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 to facilitate client demand resulting in increased inventory levels, partially offset by lower equity instruments. The increase in trading liabilities reflected higher levels of short positions in both debt and equity instruments. For additional information, refer to Note 3.

Trading assets and liabilities–derivative receivables and payables

The change in derivative receivables and payables was predominantly related to client-driven market-making activities in CIB. The increase in derivative receivables reflected the impact of market movements, which increased interest rate receivables. The decrease in derivative payables reflected the impact of market movements, which reduced foreign exchange and commodity payables and increased interest rate payables.

For additional information, refer to Derivative contracts on pages 55–56, and Notes 3 and 5.

Securities

The decrease was predominantly due to net sales, maturities and paydowns of non-U.S. residential mortgage-backed securities ("MBS") and corporate debt 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 was due to retention of originated high-quality prime mortgages in CCB and AM, and growth in auto and credit card loans in CCB.

The increase in the allowance for loan losses was attributable to additions to both the consumer and wholesale allowances. The increase in the consumer allowance was primarily driven by loan growth in the credit card portfolio, including newer vintages which, as anticipated, have higher loss rates compared to the overall portfolio, as well as loan growth in the auto loan portfolio; these were partially offset by reductions in the allowance for loan losses in the residential real estate portfolio due to continued improvement in home prices and delinquencies, and runoff in the student loan portfolio. The increase in the wholesale allowance reflected downgrades in the Oil & Gas, Natural Gas Pipelines, and Metals & Mining portfolios. For a more detailed discussion of loans and the allowance for loan losses, refer to Credit Risk Management on pages 43–59, 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.

Other assets

The modest increase reflected higher auto operating lease assets from growth in business volume.



Selected Consolidated balance sheets data (continued)
(in millions)	Sep 30, 2016		Dec 31, 2015		Change
Liabilities
Deposits	$	1,376,138	$	1,279,715	8	%
Federal funds purchased and securities loaned or sold under repurchase agreements	168,491		152,678		10
Commercial paper	12,258		15,562		(21	)
Other borrowed funds	24,479		21,105		16
Trading liabilities:
Debt and equity instruments	95,126		74,107		28
Derivative payables	48,143		52,790		(9	)
Accounts payable and other liabilities	190,412		177,638		7
Beneficial interests issued by consolidated variable interest entities (“VIEs”)	42,233		41,879		1
Long-term debt	309,418		288,651		7
Total liabilities	2,266,698		2,104,125		8
Stockholders’ equity	254,331		247,573		3
Total liabilities and stockholders’ equity	$	2,521,029	$	2,351,698	7	%

Deposits

The increase was attributable to higher wholesale and consumer deposits. The increase in wholesale deposits was mainly driven by growth in client activity in CIB’s Treasury Services business, and inflows in AM partly related to the new rules governing money market funds. The increase in consumer deposits reflected continuing strong growth from existing and new customers, and the impact of low attrition rates. For more information on deposits, refer to the Liquidity Risk Management discussion on pages 74–78; and Notes 3 and 17.

Federal funds purchased and securities loaned or sold under repurchase agreements

The increase was predominantly due to higher client-driven market-making activities in CIB. For additional information on the Firm’s Liquidity Risk Management, see pages 74–78.

Commercial paper

The decrease reflected lower issuance in the wholesale markets consistent with Treasury’s short-term funding plans. For additional information, see Liquidity Risk Management on pages 74–78.

Accounts payable and other liabilities

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

Long-term debt

The increase was due to net issuance consistent with Treasury’s long-term funding plans, which included liquidity actions related to the 2016 Resolution Submission. For additional information on the Firm’s long-term debt activities, see Liquidity Risk Management on pages 74–78.

Stockholders’ equity

The increase was due to net income and 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 88, and on the Firm’s capital actions, see Capital actions on page 72.



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 September 30, 2016, and December 31, 2015, was $3.7 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 $9.1 billion and $5.6 billion at September 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 are refinanced, extended, cancelled, or 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 55 and Note 21 (including the table that presents the related amounts by contractual maturity as of September 30, 2016). For a discussion of liabilities associated with loan sales and securitization-related indemnifications, see Note 21.



CONSOLIDATED CASH FLOWS ANALYSIS

Consolidated cash flows overview

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



(in millions)	Nine months ended September 30,
(in millions)	2016			2015
Net cash provided by/(used in)
Operating activities	$	(18,715	)	$	57,299
Investing activities	(112,102		)	79,722
Financing activities	131,699			(143,513		)
Effect of exchange rate changes on cash	18			(81		)
Net increase/(decrease) in cash and due from banks	$	900		$	(6,573	)

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 client-driven market-making activities in CIB that resulted in an increase in trading assets, which were largely offset by an increase in trading liabilities; an increase in accrued interest and accounts receivables driven by higher client receivables; and an increase in securities borrowed driven by higher demand for securities to cover short positions; and higher net originations and purchases of loans held-for-sale. In 2016 and 2015, cash was also provided by net income after noncash operating adjustments. In 2015, cash was provided by a decrease in trading assets predominantly due to lower client-driven market-making activities in CIB resulting in lower levels of equity securities; and higher

net proceeds from loan securitizations and sales activities. These outflows were partially offset by a decrease in accounts payable and other liabilities due to lower brokerage customer payables related to client activity

in CIB.

Investing activities

Cash used in investing activities during 2016 resulted from net originations of consumer and wholesale loans; an increase in deposits with banks primarily due to growth in deposits and an increase in long-term debt; and an increase in securities purchased under resale agreements due to the deployment of excess cash by Treasury and higher demand for securities to cover short positions related to client-driven market-making activities in CIB. 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 reflected a net decrease in deposits with banks due to the Firm’s actions to reduce wholesale non-operating deposits; and net proceeds from paydowns,

maturities, sales and purchases of investment securities. Partially offsetting these net inflows was cash used for net originations of consumer and wholesale loans.

Financing activities

Cash provided by financing activities in 2016 resulted from higher consumer and wholesale deposits; an increase in securities loaned or sold under repurchase agreements predominantly due to higher client-driven market-making activities in CIB; and higher net proceeds from long-term borrowings consistent with Treasury’s long-term funding plans, which included liquidity actions related to the 2016 Resolution Submission. Cash used in financing activities in 2015 reflected the aforementioned actions to reduce wholesale non-operating deposits, partially offset by higher consumer deposits; and lower levels of commercial paper due to the discontinuation of a cash management product (which offered customers the option of sweeping their deposits into commercial paper) and lower issuances in the wholesale markets. Partially offsetting these outflows were net proceeds from long-term borrowings and the issuance of preferred stock. For both periods, cash was used for repurchases of common stock and dividends on common and preferred stock.

* * *

For a further discussion of the activities affecting the Firm’s cash flows, see Consolidated Balance Sheets Analysis on pages 12–13, Capital Management on pages 67–73, and Liquidity Risk Management on pages 74–78 of this Form 10-Q, and page 75 of JPMorgan Chase’s 2015 Annual Report.

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

Non-GAAP financial measures

The Firm prepares its Consolidated Financial Statements using U.S. GAAP; these financial statements appear on pages 85–89. 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. For additional information on these non-GAAP measures, see Business Segment Results on pages 18–40.

Additionally, certain credit metrics and ratios disclosed by the Firm exclude PCI loans, and are therefore non-GAAP measures. For additional information on these non-GAAP measures, see Credit Risk Management on pages 43–59.

Non-GAAP financial measures used by the Firm may not be comparable to similarly named non-GAAP financial measures used by other companies.

The following summary table provides a reconciliation from the Firm’s reported U.S. GAAP results to managed basis.



	Three months ended September 30,
	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	$	782		$	540	$	1,322		$	628		$	477	$	1,105
Total noninterest revenue	13,070			540		13,610			11,856			477		12,333
Net interest income	11,603			299		11,902			10,924			278		11,202
Total net revenue	24,673			839		25,512			22,780			755		23,535
Pre-provision profit	10,210			839		11,049			7,412			755		8,167
Income before income tax expense	8,939			839		9,778			6,730			755		7,485
Income tax expense	$	2,653		$	839	$	3,492		$	(74	)	$	755	$	681
Overhead ratio	59		%	NM		57		%	67		%	NM		65		%

	Nine months ended September 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	$	2,844		$	1,620	$	4,464		$	1,796		$	1,405	$	3,201
Total noninterest revenue	37,962			1,620		39,582			38,373			1,405		39,778
Net interest income	34,330			897		35,227			32,285			823		33,108
Total net revenue	72,292			2,517		74,809			70,658			2,228		72,886
Pre-provision profit	30,354			2,517		32,871			25,907			2,228		28,135
Income before income tax expense	25,857			2,517		28,374			23,331			2,228		25,559
Income tax expense	$	7,851		$	2,517	$	10,368		$	4,323		$	2,228	$	6,551
Overhead ratio	58		%	NM		56		%	63		%	NM		61		%

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

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 activities. 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 September 30,								Nine months ended September 30,
(in millions, except rates)	2016			2015			Change		2016			2015			Change
Net interest income – managed basis^(a)(b)	$	11,902		$	11,202		6	%	$	35,227		$	33,108		6	%
Less: Markets-based net interest income^(c)	1,442			1,164			24		4,240			3,661			16
Net interest income excluding markets^(a)	$	10,460		$	10,038		4		$	30,987		$	29,447		5

Average interest-earning assets	$	2,116,493		$	2,056,890		3		$	2,080,133		$	2,100,773		(1	)
Less: Average markets-based interest-earning assets	488,971			476,120			3		490,364			495,460			(1	)
Average interest-earning assets excluding markets	$	1,627,522		$	1,580,770		3	%	$	1,589,769		$	1,605,313		(1	)%
Net interest yield on average interest-earning assets – managed basis	2.24		%	2.16		%			2.26		%	2.11		%
Net interest yield on average markets-based interest-earning assets	1.17			0.97					1.15			0.99
Net interest yield on average interest-earning assets excluding markets	2.56		%	2.52		%			2.60		%	2.45		%


(a)	Interest includes the effect of related hedges. Taxable-equivalent amounts are used where applicable.


(b)	For a reconciliation of net interest income on a reported and managed basis, see reconciliation from the Firm’s reported U.S. GAAP results to managed basis on page 16

(c)

Markets-based net interest income, in the table above, is lower than the net interest income line item in the CIB Markets table on page 29 by $183 million and by $129 million for the three months ended September 30, 2016 and 2015, respectively, and by $463 million and by $358 million, for the nine months ended September 30, 2016 and 2015, respectively. The primary difference is markets-based net interest income, in the table above, excludes net interest income from loans held in CIB Markets.

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)	Sep 30, 2016		Dec 31, 2015		Three months ended September 30,						Nine months ended September 30,
(in millions, except per share and ratio data)	Sep 30, 2016		Dec 31, 2015		2016			2015			2016			2015
Common stockholders’ equity	$	228,263	$	221,505	$	226,089		$	217,023		$	224,034		$	214,389
Less: Goodwill	47,302		47,325		47,302			47,428			47,314			47,468
Less: Certain identifiable intangible assets	887		1,015		903			1,064			938			1,112
Add: Deferred tax liabilities^(a)	3,232		3,148		3,226			2,991			3,205			2,909
Tangible common equity	$	183,306	$	176,313	$	181,110		$	171,522		$	178,987		$	168,718

Return on tangible common equity	NA		NA		13		%	15		%	13		%	14		%
Tangible book value per share	$	51.23	$	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, risk-weighted assets ("RWA"), and capital and leverage ratios that are presented under Basel III Standardized and Advanced Fully Phased-In rules and the Firm’s, 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 regulatory capital position and to compare the Firm’s regulatory capital to that of other financial services companies.

For additional information on these measures, see Capital Management on pages 67–73.

Core loans are also considered a key performance measure. Core loans include loans considered central to the Firm’s ongoing businesses; and exclude loans classified as trading assets, runoff portfolios, discontinued portfolios and portfolios the Firm has an intent to exit. Core loans are meaningful to the Firm and its investors and analysts in assessing actual growth in the loan portfolio.



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 71.

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 nine months ended September 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 September 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	$	11,328		$	10,879		4%	$	6,510	$	6,237	4%		$	4,818		$	4,642		4%
Corporate & Investment Bank	9,455			8,168			16	4,934		6,131		(20	)	4,521			2,037			122
Commercial Banking	1,870			1,644			14	746		719		4		1,124			925			22
Asset Management	3,047			2,894			5	2,130		2,109		1		917			785			17
Corporate	(188		)	(50		)	NM	143		172		(17	)	(331		)	(222		)	(49	)
Total	$	25,512		$	23,535		8%	$	14,463	$	15,368	(6)%		$	11,049		$	8,167		35%



Three months ended September 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	$	1,294		$	389		233	%	$	2,204		$	2,630	(16)%	16	%	20	%
Corporate & Investment Bank	67			232			(71	)	2,912			1,464		99	17		8
Commercial Banking	(121		)	82			NM		778			518		50	18		14
Asset Management	32			(17		)	NM		557			475		17	24		20
Corporate	(1		)	(4		)	75		(165		)	1,717		NM	NM		NM
Total	$	1,271		$	682		86	%	$	6,286		$	6,804	(8)%	10%		12	%



Nine months ended September 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	$	33,896		$	32,598		4%		$	18,602	$	18,637	—		$	15,294		$	13,961		10	%
Corporate & Investment Bank	26,755			26,473			1		14,820		16,925		(12	)	11,935			9,548			25
Commercial Banking	5,490			5,125			7		2,190		2,131		3		3,300			2,994			10
Asset Management	8,958			9,074			(1	)	6,303		6,690		(6	)	2,655			2,384			11
Corporate	(290		)	(384		)	24		23		368		(94	)	(313		)	(752		)	58
Total	$	74,809		$	72,886		3%		$	41,938	$	44,751	(6	)%	$	32,871		$	28,135		17	%



Nine months ended September 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	$	3,545		$	2,021		75%		$	7,350		$	7,382	—	18	%	18	%
Corporate & Investment Bank	761			251			203		7,384			6,342		16	14		13
Commercial Banking	158			325			(51	)	1,970			1,641		20	15		15
Asset Management	37			(13		)	NM		1,665			1,428		17	24		20
Corporate	(4		)	(8		)	50		(363		)	2,215		NM	NM		NM
Total	$	4,497		$	2,576		75%		$	18,006		$	19,008	(5)%	10%		11	%



CONSUMER & COMMUNITY BANKING

For a discussion of the business profile of CCB, see pages 85–93 of JPMorgan Chase’s 2015 Annual Report and Line of Business Metrics on page 177.



Selected income statement data
	Three months ended September 30,						Nine months ended September 30,
(in millions, except ratios)	2016		2015		Change		2016		2015		Change
Revenue
Lending- and deposit-related fees	$	841	$	836	1	%	$	2,390	$	2,320	3	%
Asset management, administration and commissions	531		565		(6	)	1,596		1,648		(3	)
Mortgage fees and related income	624		469		33		1,980		1,955		1
Card income	1,099		1,335		(18	)	3,543		4,165		(15	)
All other income	773		524		48		2,303		1,466		57
Noninterest revenue	3,868		3,729		4		11,812		11,554		2
Net interest income	7,460		7,150		4		22,084		21,044		5
Total net revenue	11,328		10,879		4		33,896		32,598		4

Provision for credit losses	1,294		389		233		3,545		2,021		75

Noninterest expense
Compensation expense	2,453		2,413		2		7,255		7,421		(2	)
Noncompensation expense^(a)	4,057		3,824		6		11,347		11,216		1
Total noninterest expense	6,510		6,237		4		18,602		18,637		—
Income before income tax expense	3,524		4,253		(17	)	11,749		11,940		(2	)
Income tax expense	1,320		1,623		(19	)	4,399		4,558		(3	)
Net income	$	2,204	$	2,630	(16	)	$	7,350	$	7,382	—

Revenue by line of business
Consumer & Business Banking	$	4,719	$	4,555	4		$	13,885	$	13,396	4
Mortgage Banking	1,874		1,555		21		5,671		5,137		10
Card, Commerce Solutions & Auto	4,735		4,769		(1	)	14,340		14,065		2