Document

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
Quarterly report pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the quarterly period ended
Commission file
June 30, 2018
number 1-5805

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

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

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
x  Yes
o  No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer x
Accelerated filer
o
 
 
 
Non-accelerated filer (Do not check if a smaller reporting company)      o
Smaller reporting company
o
 
 
 
 
Emerging growth company
o
 
 
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
o  Yes
x  No
 
Number of shares of common stock outstanding as of June 30, 2018: 3,360,884,107
 


FORM 10-Q
TABLE OF CONTENTS
Page
Item 1.
 
 
 
 
84
 
85
 
86
 
87
 
88
 
89
 
169
 
170
 
172
Item 2.
 
 
3
 
4
 
5
 
7
 
11
 
14
 
15
 
18
 
41
 
43
 
48
 
55
 
60
 
70
 
71
 
76
 
77
 
80
 
83
Item 3.
180
Item 4.
180
 
Item 1.
180
Item 1A.
180
Item 2.
180
Item 3.
181
Item 4.
181
Item 5.
181
Item 6.
181


2

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

 
 
 
 
 
 
 
Six months ended June 30,
 
2Q18

1Q18

4Q17

3Q17

 
2Q17

 
2018

2017

 
Selected income statement data
 
 
 
 
 
 
 
 
 
 
Total net revenue
$
27,753

$
27,907

$
24,457

$
25,578

 
$
25,731

 
$
55,660

$
50,670

 
Total noninterest expense
15,971

16,080

14,895

14,570

 
14,767

 
32,051

30,050

 
Pre-provision profit
11,782

11,827

9,562

11,008

 
10,964

 
23,609

20,620

 
Provision for credit losses
1,210

1,165

1,308

1,452

 
1,215

 
2,375

2,530

 
Income before income tax expense
10,572

10,662

8,254

9,556

 
9,749

 
21,234

18,090

 
Income tax expense
2,256

1,950

4,022

2,824

 
2,720

 
4,206

4,613

 
Net income
$
8,316

$
8,712

$
4,232

$
6,732

 
$
7,029

 
$
17,028

$
13,477

 
Earnings per share data
 
 
 
 
 
 
 
 
 
 
Net income:    Basic
$
2.31

$
2.38

$
1.08

$
1.77

 
$
1.83

 
$
4.69

$
3.49

 
 Diluted
2.29

2.37

1.07

1.76

 
1.82

 
4.66

3.47

 
Average shares: Basic
3,415.2

3,458.3

3,489.7

3,534.7

 
3,574.1

 
3,436.7

3,587.9

 
 Diluted
3,434.7

3,479.5

3,512.2

3,559.6

 
3,599.0

 
3,457.1

3,614.7

 
Market and per common share data
 
 
 
 
 
 
 
 
 
 
Market capitalization
350,204

374,423

366,301

331,393

 
321,633

 
350,204

321,633

 
Common shares at period-end
3,360.9

3,404.8

3,425.3

3,469.7

 
3,519.0

 
3,360.9

3,519.0

 
Share price:(a)
 
 
 
 
 
 
 
 
 
 
High
$
115.15

$
119.33

$
108.46

$
95.88

 
$
92.65

 
$
119.33

$
93.98

 
Low
103.11

103.98

94.96

88.08

 
81.64

 
103.11

81.64

 
Close
104.20

109.97

106.94

95.51

 
91.40

 
104.20

91.40

 
Book value per share
68.85

67.59

67.04

66.95

 
66.05

 
68.85

66.05

 
Tangible book value per share (“TBVPS”)(b)
55.14

54.05

53.56

54.03

 
53.29

 
55.14

53.29

 
Cash dividends declared per share
0.56

0.56

0.56

0.56

 
0.50

 
1.12

1.00

 
Selected ratios and metrics
 
 
 
 
 
 
 
 
 
 
Return on common equity (“ROE”) (c)
14
%
15
%
7
%
11
%
 
12
%
 
14
%
11
%
 
Return on tangible common equity (“ROTCE”)(b)(c)
17

19

8

13

 
14

 
18

14

 
Return on assets(c)
1.28

1.37

0.66

1.04

 
1.10

 
1.32

1.07

 
Overhead ratio
58

58

61

57

 
57

 
58

59

 
Loans-to-deposits ratio
65

63

64

63

 
63

 
65

63

 
Liquidity coverage ratio (“LCR”) (average)(d)
115

115

119

120

 
115

 
115

115

 
Common equity Tier 1 (“CET1”) capital ratio(e)
12.0

11.8

12.2

12.5

(h)
12.5

(h)
12.0

12.5

(h)
Tier 1 capital ratio(e)
13.6

13.5

13.9

14.1

(h)
14.2

(h)
13.6

14.2

(h)
Total capital ratio(e)
15.5

15.3

15.9

16.1

 
16.0

 
15.5

16.0

 
Tier 1 leverage ratio(e)
8.2

8.2

8.3

8.4

 
8.5

 
8.2

8.5

 
Supplementary leverage ratio (“SLR”)(f)
6.5

6.5

6.5

6.6

 
6.7

 
6.5

6.7

 
Selected balance sheet data (period-end)
 
 
 
 
 
 
 
 
 
 
Trading assets
$
418,799

$
412,282

$
381,844

$
420,418

 
$
407,064

 
$
418,799

$
407,064

 
Investment securities
233,015

238,188

249,958

263,288

 
263,458

 
233,015

263,458

 
Loans
948,414

934,424

930,697

913,761

 
908,767

 
948,414

908,767

 
Core loans
889,433

870,536

863,683

843,432

 
834,935

 
889,433

834,935

 
Average core loans
877,640

861,089

850,166

837,522

 
824,583

 
869,410

815,034

 
Total assets
2,590,050

2,609,785

2,533,600

2,563,074

 
2,563,174

 
2,590,050

2,563,174

 
Deposits
1,452,122

1,486,961

1,443,982

1,439,027

 
1,439,473

 
1,452,122

1,439,473

 
Long-term debt
273,114

274,449

284,080

288,582

 
292,973

 
273,114

292,973

 
Common stockholders’ equity
231,390

230,133

229,625

232,314

 
232,415

 
231,390

232,415

 
Total stockholders’ equity
257,458

256,201

255,693

258,382

 
258,483

 
257,458

258,483

 
Headcount
252,942

253,707

252,539

251,503

 
249,257

 
252,942

249,257

 
Credit quality metrics
 
 
 
 
 
 
 
 
 
 
Allowance for credit losses
$
14,367

$
14,482

$
14,672

$
14,648

 
$
14,480

 
$
14,367

$
14,480

 
Allowance for loan losses to total retained loans
1.41
%
1.44
%
1.47
%
1.49
%
 
1.49
%
 
1.41
%
1.49
%
 
Allowance for loan losses to retained loans excluding purchased credit-impaired loans(g)
1.22

1.25

1.27

1.29

 
1.28

 
1.22

1.28

 
Nonperforming assets
$
5,767

$
6,364

$
6,426

$
6,154

 
$
6,432

 
$
5,767

$
6,432

 
Net charge-offs
1,252

1,335

1,264

1,265

 
1,204

 
2,587

2,858

(i)
Net charge-off rate
0.54
%
0.59
%
0.55
%
0.56
%
 
0.54
%
 
0.56
%
0.65
%
(i)
Effective January 1, 2018, the Firm adopted several new accounting standards. Certain of the new accounting standards were applied retrospectively and, accordingly, prior period amounts were revised. For additional information, refer to Note 1.
(a)
Based on daily prices reported by the New York Stock Exchange.
(b)
TBVPS and ROTCE are non-GAAP financial measures. For a further discussion of these measures, refer to Explanation and Reconciliation of the Firm’s Use of Non-GAAP Financial Measures and Key Performance Measures on pages 15–17.
(c)
Quarterly ratios are based upon annualized amounts.
(d)
For the six months ended June 30, 2017, the balance represents the Firm’s reported average LCR per the U.S. LCR public disclosure requirements effective April 1, 2017.  
(e)
Ratios presented are calculated under the Basel III Transitional capital rules and for the capital ratios represent the lower of the Standardized or Advanced approach as required by the Collins Amendment of the Dodd-Frank Act (the “Collins Floor”). Refer to Capital Risk Management on pages 43–47 for additional information on Basel III and the Collins Floor.
(f)
Effective January 1, 2018, the SLR was fully phased-in under Basel III. The SLR is defined as Tier 1 capital divided by the Firm’s total leverage exposure. Ratios prior to March 31, 2018 were calculated under the Basel III Transitional rules.    
(g)
Excluded the impact of residential real estate purchased credit-impaired (“PCI”) loans, a non-GAAP financial measure. For a further discussion of these measures, refer to Explanation and Reconciliation of the Firm’s Use of Non-GAAP Financial Measures and Key Performance Measures on pages 15–17. For a further discussion, refer to Allowance for credit losses on pages 67–69.
(h)
The prior period ratios have been revised to conform with the current period presentation.
(i)
Excluding net charge-offs of $467 million related to the student loan portfolio sale, the net charge-off rates for the six months ended June 30, 2017 would have been 0.54%.

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 2018.
This Form 10-Q should be read together with JPMorgan Chase’s Annual Report on Form 10-K for the year ended December 31, 2017 (“2017 Annual Report” or “2017 Form 10-K”), to which reference is hereby made, and which is referred to throughout this document. Refer to the Glossary of terms and acronyms and line of business metrics on pages 172–179 for definitions of terms and acronyms used throughout this Form 10-Q.
The MD&A included in this Form 10-Q contains statements that are forward-looking within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are based on the current beliefs and expectations of JPMorgan Chase’s management and are subject to significant risks and uncertainties. Actual results may differ from those set forth in the forward-looking statements. For a further discussion of certain of those risks and uncertainties and the factors that could cause JPMorgan Chase’s actual results to differ materially because of those risks and uncertainties, refer to Forward-looking Statements on page 83 of this Form 10-Q and Part I, Item 1A, Risk Factors, on pages 8–26 of JPMorgan Chase’s 2017 Annual Report.
JPMorgan Chase & Co., a financial holding company incorporated under Delaware law in 1968, is a leading global financial services firm and one of the largest banking institutions in the United States of America (“U.S.”), with operations worldwide; the Firm had $2.6 trillion in assets and $257.5 billion in stockholders’ equity as of June 30, 2018. The Firm is a leader in investment banking, financial
 
services for consumers and small businesses, commercial banking, financial transaction processing and asset management. Under the J.P. Morgan and Chase brands, the Firm serves millions of customers in the U.S. and many of the world’s most prominent corporate, institutional and government clients.
JPMorgan Chase’s principal bank subsidiaries are JPMorgan Chase Bank, National Association (“JPMorgan Chase Bank, N.A.”), a national banking association with U.S. branches in 23 states, and Chase Bank USA, National Association (“Chase Bank USA, N.A.”), a national banking association that is the Firm’s principal credit card-issuing bank. JPMorgan Chase’s principal nonbank subsidiary is J.P. Morgan Securities LLC (“J.P. Morgan Securities”), a U.S. broker-dealer. The bank and non-bank subsidiaries of JPMorgan Chase operate nationally as well as through overseas branches and subsidiaries, and representative offices. The Firm’s principal operating subsidiary in the United Kingdom (“U.K.”) is J.P. Morgan Securities plc, a subsidiary of JPMorgan Chase Bank, N.A.
For management reporting purposes, the Firm’s activities are organized into four major reportable business segments, as well as a Corporate segment. The Firm’s consumer business segment is the Consumer & Community Banking (“CCB”). The Firm’s wholesale business segments are Corporate & Investment Bank (“CIB”), Commercial Banking (“CB”), and Asset & Wealth Management (“AWM”). For a description of the Firm’s business segments and the products and services they provide to their respective
client bases, refer to Note 31 of JPMorgan Chase’s 2017 Form 10-K.




4

EXECUTIVE OVERVIEW
This executive overview of the MD&A highlights selected information and may not contain all of the information that is important to readers of this Form 10-Q. For a complete description of the trends and uncertainties, as well as the risks and critical accounting estimates affecting the Firm and its various lines of business, this Form 10-Q and and the 2017 Form 10-K should be read in their entirety.
Effective January 1, 2018, the Firm adopted several new accounting standards, of which the most significant to the Firm are the guidance related to revenue recognition, and recognition and measurement of financial assets. The revenue recognition guidance required gross presentation of certain costs that were previously offset against revenue. This change was adopted retrospectively and, accordingly, prior period amounts were revised, resulting in both total net revenue and total noninterest expense increasing with no impact to net income. The adoption of the recognition and measurement guidance resulted in $505 million of fair value gains, which were recorded in total net revenue in the first quarter of 2018, on certain equity investments that were previously held at cost. For additional information, refer to Note 1.
Financial performance of JPMorgan Chase
 
 
 
 
 
 
 
 
(unaudited)
As of or for the period ended,
(in millions, except per share data and ratios)
Three months ended June 30,
 
Six months ended June 30,
2018

 
2017

 
Change

 
2018

 
2017

 
Change

Selected income statement data
 
 
 
 
 
 
 
 
 
 
 
Total net revenue
$
27,753

 
$
25,731

 
8
 %
 
$
55,660

 
$
50,670

 
10
 %
Total noninterest expense
15,971

 
14,767

 
8

 
32,051

 
30,050

 
7

Pre-provision profit
11,782

 
10,964

 
7

 
23,609

 
20,620

 
14

Provision for credit losses
1,210

 
1,215

 
—

 
2,375

 
2,530

 
(6
)
Net income
8,316

 
7,029

 
18

 
17,028

 
13,477

 
26

Diluted earnings per share
$
2.29

 
$
1.82

 
26

 
$
4.66

 
$
3.47

 
34

Selected ratios and metrics
 
 
 
 
 
 
 
 
 
 
 
Return on common equity
14
%
 
12
%
 
 
 
14
%
 
11
%
 
 
Return on tangible common equity
17

 
14

 
 
 
18

 
14

 
 
Book value per share
$
68.85

 
$
66.05

 
4

 
$
68.85

 
$
66.05

 
4

Tangible book value per share
55.14

 
53.29

 
3

 
55.14

 
53.29

 
3

Capital ratios(a)
 
 
 
 
 
 
 
 
 
 
 
CET1(b)
12.0
%
 
12.5
%
 
 
 
12.0
%
 
12.5
%
 
 
Tier 1 capital(b)
13.6

 
14.2

 
 
 
13.6

 
14.2

 
 
Total capital
15.5

 
16.0

 
 
 
15.5

 
16.0

 
 
(a)
Ratios presented are calculated under the Basel III Transitional capital rules and represent the Collins Floor. Refer to Capital Risk Management on pages 43–47 for additional information on Basel III.
(b)
The prior period ratios have been revised to conform with the current period presentation.


5

Comparisons noted in the sections below are calculated for the second quarter of 2018 versus the second quarter of 2017, unless otherwise specified.
Firmwide overview
JPMorgan Chase reported strong results in the second quarter of 2018 with record net income of $8.3 billion, or $2.29 per share, on net revenue of $27.8 billion. The Firm reported ROE of 14% and ROTCE of 17%.
•
Net income increased 18%, reflecting higher net revenue and the impact of the lower U.S. federal statutory income tax rate as a result of the Tax Cuts & Jobs Acts (“TCJA”), partially offset by an increase in noninterest expense.
•
Total net revenue increased 8%. Net interest income was $13.5 billion, up 10%, predominantly driven by the impact of higher rates and loan growth, partially offset by lower Markets net interest income. Noninterest revenue was $14.3 billion, up 6%, driven by higher Markets revenue, investment banking fees and auto lease income, partially offset by lower Card net interchange income. Card net interchange income includes a rewards liability adjustment of approximately $330 million, driven by an increase in redemption rate assumptions, partially offset by higher card sales volumes.
•
Noninterest expense was $16.0 billion, up 8%, driven by higher performance-related compensation expense, investments in technology, auto lease depreciation, volume-related transaction costs, and a loss of $174 million on the liquidation of a legal entity.
•
The provision for credit losses was $1.2 billion, flat compared with the prior year.
•
The total allowance for credit losses was $14.4 billion at June 30, 2018, and the Firm had a loan loss coverage ratio, excluding the PCI portfolio, of 1.22%, compared with 1.28% in the prior year. The Firm’s nonperforming assets totaled $5.8 billion at June 30, 2018, a decrease from $6.4 billion in the prior year.
•
Firmwide average core loans increased 6%, and excluding CIB, core loans increased 7%.
Selected capital-related metrics
•
The Firm’s Basel III Fully Phased-In CET1 capital was $185 billion, and the Standardized and Advanced CET1 ratios were 12.0% and 12.8%, respectively.
•
The Firm’s fully phased-in SLR was 6.5% at June 30, 2018.
•
The Firm continued to grow tangible book value per share (“TBVPS”), ending the second quarter of 2018 at $55.14, up 3%.
ROTCE and TBVPS are each non-GAAP financial measures. Core loans and each of the Fully Phased-In capital and certain leverage measures are all considered key performance measures. For a further discussion of each of these measures, refer to Explanation and Reconciliation of the Firm’s Use of Non-GAAP Financial Measures and Key Performance Measures on pages 15–17, and Capital Risk Management on pages 43–47.

 
Lines of business highlights
Selected business metrics for each of the Firm’s four lines of business are presented below for the second quarter of 2018.
CCB
ROE 26%
 
•
Average core loans up 7%; average deposits
up 5%
•
Client investment assets of $284 billion, up 12%
•
Credit card sales volume up 11% and merchant processing volume up 12%
CIB
ROE 17%
 
•
#1 Global Investment Banking fees with 8.6% wallet share year-to-date
•
Markets revenue up 13%, with Equity Markets revenue of $2.0 billion, up 24%
•
Treasury Services and Securities Services revenue each up 12%
CB
ROE 21%
 
•
Average loan balances up 4%
•
Strong credit quality with 7 bps net charge-off rate
AWM
ROE 33%
 
•
Average loan balances up 12%
•
Assets under management (“AUM”) of $2.0 trillion, up 8%
For a detailed discussion of results by line of business, refer to the Business Segment Results on pages 18–40.
Credit provided and capital raised
JPMorgan Chase continues to support consumers, businesses and communities around the globe. The Firm provided credit and raised capital of $1.4 trillion for wholesale and consumer clients during the first six months of 2018:
•
$114 billion of credit for consumers
•
$11 billion of credit for U.S. small businesses
•
$470 billion of credit for corporations
•
$743 billion of capital raised for corporate clients and non-U.S. government entities
•
$26 billion of credit and capital raised for U.S. government and nonprofit entities, including states, municipalities, hospitals and universities.
Recent events
On June 28, 2018, the Federal Reserve informed the Firm that it did not object, on either a quantitative or qualitative basis, to the Firm’s 2018 capital plan, submitted under the Comprehensive Capital Analysis and Review (“CCAR”). As a result, the Firm announced that the Board of Directors intends to increase the quarterly common stock dividend to $0.80 per share (up from the current $0.56 per share), effective the third quarter of 2018 and has authorized gross common equity repurchases of up to $20.7 billion between July 1, 2018 and June 30, 2019 under a new common equity repurchase program.
2018 outlook
At this time the Firm is not updating the outlook provided in the first quarter 2018 Form 10-Q.

6

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, 2018 and 2017, unless otherwise specified. Factors that relate primarily to a single business segment are discussed in more detail within that business segment. For a discussion of the Critical Accounting Estimates Used by the Firm that affect the Consolidated Results of Operations, refer to pages 77–79 of this Form 10-Q and pages 138–140 of JPMorgan Chase’s 2017 Annual Report.
Effective January 1, 2018, the Firm adopted several new accounting standards. Certain of the new accounting standards were applied retrospectively and, accordingly, prior period amounts were revised. For additional information, refer to Note 1.
Revenue
 
 
 
 
 
 
 
 
 
 
 
 
Three months ended June 30,
 
Six months ended June 30,
(in millions)
2018

 
2017

 
Change

 
2018

 
2017

 
Change

Investment banking fees
$
2,168

 
$
1,846

 
17
 %
 
$
3,904

 
$
3,726

 
5
 %
Principal transactions
3,782

 
3,137

 
21

 
7,734

 
6,719

 
15

Lending- and deposit-related fees
1,495

 
1,482

 
1

 
2,972

 
2,930

 
1

Asset management, administration and commissions
4,304

 
4,047

 
6

 
8,613

 
7,924

 
9

Investment securities losses
(80
)
 
(34
)
 
(135
)
 
(325
)
 
(37
)
 
NM
Mortgage fees and related income
324

 
404

 
(20
)
 
789

 
810

 
(3
)
Card income
1,020

 
1,167

 
(13
)
 
2,295

 
2,081

 
10

Other income(a)
1,255

 
1,474

 
(15
)
 
2,881

 
2,245

 
28

Noninterest revenue
14,268

 
13,523

 
6

 
28,863

 
26,398

 
9

Net interest income
13,485

 
12,208

 
10

 
26,797

 
24,272

 
10

Total net revenue
$
27,753

 
$
25,731

 
8
 %
 
$
55,660

 
$
50,670

 
10
 %
(a)
Included operating lease income of $1.1 billion and $873 million for the three months ended June 30, 2018 and 2017, respectively, and $2.2 billion and $1.7 billion for the six months ended June 30, 2018 and 2017, respectively.
Quarterly results
Investment banking fees increased reflecting higher equity underwriting and advisory fees. The increase in equity underwriting fees was driven by a higher share of fees, primarily due to strong performance in the IPO and convertible markets. The increase in advisory fees was driven by a higher number of large completed transactions. For additional information, refer to CIB segment results on pages 25–30 and Note 5.
Principal transactions revenue increased reflecting higher client-driven market-making revenue in CIB as a result of strength across products in Equity Markets, predominantly in derivatives and prime brokerage. Fixed Income Markets also recorded solid performance with good client activity. For additional information, refer to CIB segment results on pages 25–30 , and Note 5.
For information on lending- and deposit-related fees, refer to the segment results for CCB on pages 20–24, CIB on pages 25–30, CB on pages 31–34 and Note 5.
Asset management, administration and commissions revenue increased reflecting:
•
higher asset management fees in AWM and CCB driven by net long-term product inflows and higher market levels, partially offset by fee compression in AWM
•
higher brokerage commissions driven by higher volumes and higher asset-based fees in CIB driven by net client inflows and higher market levels.
 
For additional information, refer to AWM, CCB and CIB segment results on pages 35–38, pages 20–24 and pages 25–30, respectively, and Note 5.
Investment securities losses increased primarily due to sales related to the repositioning of the investment securities portfolio. For further information on the investment securities portfolio, refer to the Corporate segment discussion on pages 39–40 and Note 9.
Mortgage fees and related income decreased driven by lower net production revenue, reflecting lower margins, and lower servicing revenue, partially offset by higher MSR risk management results.
For further information, refer to CCB segment results on pages 20–24 and Note 14.
Card income decreased driven by:
•
lower net interchange income reflecting higher rewards costs and partner payments, partially offset by higher card sales volumes. The rewards costs included an adjustment to the credit card rewards liability of approximately $330 million driven by an increase in redemption rate assumptions
the lower net interchange income was largely offset by
•
lower new account origination costs
•
higher merchant processing fees reflecting higher merchant processing volumes.
For further information, refer to CCB segment results on pages 20–24 and Note 5.

7

Other income reflects:
•
higher operating lease income from growth in auto operating lease volume in CCB
which was more than offset by
•
the absence of a $645 million legal benefit in Corporate related to a settlement with the FDIC receivership for Washington Mutual and with Deutsche Bank as trustee to certain Washington Mutual trusts.
For further information, refer to Note 5.
Net interest income increased primarily driven by the net impact of higher rates and loan growth across the businesses, partially offset by declines in Markets net interest income in CIB. The Firm’s average interest-earning assets were $2.2 trillion, up $45 billion from the prior year, and the net interest yield on these assets, on a fully taxable equivalent (“FTE”) basis, was 2.46%, an increase of 15 basis points from the prior year.
Year-to-date results
Investment banking fees increased reflecting:
•
higher advisory and equity underwriting fees in CIB. The increase in advisory fees was driven by a higher number of large completed transactions. The increase in equity underwriting fees was driven by a higher share of fees, primarily due to strong performance in the IPO market
partially offset by
•
lower debt underwriting fees primarily driven by declines in industry-wide fee levels and a lower share in leveraged finance.
Principal transactions revenue increased primarily reflecting:
•
higher client-driven market-making revenue in CIB driven by strength across products in Equity Markets, predominantly derivatives and prime brokerage. Fixed Income Markets also recorded strong performance in Commodities and Currencies & Emerging Markets, largely offset by lower revenue in Credit
the increase in client-driven market-making revenue in CIB was partially offset by
•
private equity losses of $45 million compared with gains of $153 million in the prior year on legacy investments in Corporate.
 
Asset management, administration and commissions revenue increased reflecting:
•
higher asset management fees in AWM and CCB driven by net long-term product inflows and higher market levels, partially offset by fee compression in AWM
•
higher brokerage commissions driven by higher volumes in CIB and AWM, and higher asset-based fees in CIB driven by net client inflows and higher market levels.
Investment securities losses increased primarily due to sales related to the repositioning of the investment securities portfolio.
Mortgage fees and related income decreased driven by lower net production revenue, reflecting lower margins, and lower servicing revenue, predominantly offset by higher MSR risk management results.
Card income increased driven by:
•
lower new account origination costs
•
higher merchant processing fees reflecting higher merchant processing volumes
largely offset by
•
lower net interchange income reflecting higher rewards costs and partner payments, largely offset by higher card sales volumes. The rewards costs included an adjustment to the credit card rewards liability of approximately $330 million driven by an increase in redemption rate assumptions.
Other income increased reflecting:
•
fair value gains of $505 million recognized in the first quarter of 2018 related to the adoption of the new recognition and measurement accounting guidance for certain equity investments previously held at cost
•
higher operating lease income from growth in auto operating lease volume in CCB
partially offset by
•
the absence of a legal benefit of $645 million in Corporate related to a settlement with the FDIC receivership for Washington Mutual and with Deutsche Bank as trustee to certain Washington Mutual trusts.
Net interest income increased primarily driven by the net impact of higher rates and loan growth across the businesses, partially offset by declines in Markets net interest income in CIB. The Firm’s average interest-earning assets were $2.2 trillion, up $44 billion from the prior year, and the net interest yield on these assets, on a FTE basis, was 2.47%, an increase of 15 basis points from the prior year.

8

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

2018

 
2017

 
Change

 
2018

 
2017

 
Change

Consumer, excluding credit card
$
(56
)
 
$
12

 
NM

 
$
90

 
$
454

 
(80
)%
Credit card
1,164

 
1,387

 
(16
)%
 
2,334

 
2,380

 
(2
)
Total consumer
1,108

 
1,399

 
(21
)
 
2,424

 
2,834

 
(14
)
Wholesale
102

 
(184
)
 
NM

 
(49
)
 
(304
)
 
84

Total provision for credit losses
$
1,210

 
$
1,215

 
—
 %
 
$
2,375

 
$
2,530

 
(6
)%
Quarterly results
The provision for credit losses was flat as a result of:
•
a decrease in the consumer provision predominantly reflecting
–
no addition to the allowance for credit losses in CCB in the current quarter, compared with a net addition in the prior year primarily in the credit card portfolio
–
lower net charge-offs, primarily in the residential real estate portfolio, which includes a recovery from a loan sale, and reflects the continued improvement in home prices and delinquencies, predominantly offset by an increase in net charge-offs in the credit card portfolio due to seasoning of newer vintages, in line with expectations
the decrease in the consumer provision was offset by
•
an increase in the wholesale provision reflecting
–
a net expense in the current period as a result of net portfolio activity, including new exposures and loan sales, compared with a net benefit in the prior year driven by a reduction in the allowance for credit losses in the Oil & Gas, Natural Gas Pipelines, and Metals and Mining portfolios.
For a more detailed discussion of the credit portfolio and the allowance for credit losses, refer to the segment discussions of CCB on pages 20–24, CIB on pages 25–30, CB on pages 31–34, the Allowance for Credit Losses on pages 67–69 and Note 12.
 
Year-to-date results
The provision for credit losses decreased as a result of:
•
a lower consumer provision predominantly reflecting
–
no addition to the allowance for credit losses in CCB in the current year, compared with a net addition in the prior year primarily in the credit card portfolio
partially offset by
–
higher net charge-offs in the credit card portfolio due to seasoning of newer vintages, in line with expectations. These were largely offset by lower net charge-offs in the residential real estate portfolio, which includes a recovery from a loan sale and reflects the continued improvement in home prices and delinquencies
–
the prior year included a $218 million write-down recorded in connection with the sale of the student loan portfolio
the decrease in the consumer provision was partially offset by
•
a lower net benefit in the wholesale provision reflecting
–
a net benefit in the current period, primarily driven by a single name in the Oil & Gas portfolio, partially offset by other net portfolio activity, compared with a net benefit in the prior year, driven by a reduction in the allowance for credit losses in the Oil & Gas, Natural Gas Pipelines, and Metals and Mining portfolios.
Noninterest expense
 
 
 
 
 
 
 
 
 
 
 
Three months ended June 30,
 
Six months ended June 30,
(in millions)

2018

 
2017

 
Change

 
2018

 
2017

 
Change
Compensation expense
$
8,338

 
$
7,757

 
7
 %
 
$
17,200

 
$
16,013

 
7
 %
Noncompensation expense:
 
 
 
 
 
 
 
 
 
 
 
Occupancy
981

 
912

 
8

 
1,869

 
1,873

 
—

Technology, communications and equipment
2,168

 
1,871

 
16

 
4,222

 
3,705

 
14

Professional and outside services
2,126

 
1,899

 
12

 
4,247

 
3,691

 
15

Marketing
798

 
756

 
6

 
1,598

 
1,469

 
9

Other expense(a)(b)
1,560

 
1,572

 
(1
)
 
2,915

 
3,299

 
(12
)
Total noncompensation expense
7,633

 
7,010

 
9

 
14,851

 
14,037

 
6

Total noninterest expense
$
15,971

 
$
14,767

 
8
 %
 
$
32,051

 
$
30,050

 
7
 %
(a)
Included Firmwide legal expense of $61 million for the three months ended June 30, 2017, and $70 million and $279 million for the six months ended June 30, 2018 and 2017, respectively; there was no legal expense for the three months ended June 30, 2018.
(b)
Included FDIC-related expense of $368 million and $376 million for the three months ended June 30, 2018 and 2017, respectively and $751 million and $757 million for the six months ended June 30, 2018 and 2017, respectively.


9

Quarterly results
Compensation expense increased driven by investments in headcount across the businesses, including bankers, advisors and business-related support staff; and higher performance-related compensation expense predominantly in CIB.
Noncompensation expense increased as a result of:
•
higher outside services expense primarily due to higher volume-related transaction costs in CIB and higher external fees on revenue growth in AWM
•
higher depreciation expense due to growth in auto operating lease volume in CCB
•
a loss of $174 million recorded in other expense in Corporate on the liquidation of a legal entity
•
higher investments in technology
For additional information on the liquidation of a legal entity, refer to Note 17.

 
Year-to-date results
Compensation expense increased driven by investments in headcount across the businesses, including bankers, advisors and business-related support staff, and higher performance-related compensation expense predominantly in CIB.
Noncompensation expense increased as a result of:
•
higher outside services expense primarily due to higher volume-related transaction costs in CIB and higher external fees on revenue growth in AWM
•
higher depreciation expense due to growth in auto operating lease volume in CCB
•
a loss of $174 million recorded in other expense in Corporate on the liquidation of a legal entity
•
higher investments in technology
partially offset by
•
lower legal expense
For a discussion of legal expense, refer to Note 22.
Income tax expense
 
 
 
 
 
 
 
 
Three months ended June 30,
 
Six months ended June 30,
(in millions)

2018

 
2017

 
Change

 
2018

 
2017

 
Change
Income before income tax expense
$
10,572

 
$
9,749

 
8
 %
 
$
21,234

 
$
18,090

 
17
 %
Income tax expense
2,256

 
2,720

 
(17
)
 
4,206

 
4,613

 
(9
)
Effective tax rate
21.3
%
 
27.9
%
 
 
 
19.8
%
 
25.5
%
 


Quarterly results
The effective tax rate decreased due to the TCJA, including the reduction in the U.S. federal statutory income tax rate as well as a $189 million tax benefit resulting from a change in the estimate for the deemed repatriation tax on non-U.S. earnings. The decrease was partially offset by the change in mix of income and expense subject to U.S. federal, state and local taxes.

 
Year-to-date results
The effective tax rate decreased due to the TCJA, including the reduction in the U.S. federal statutory income tax rate as well as a $189 million tax benefit recorded in the second quarter of 2018 resulting from a change in the estimate for the deemed repatriation tax on non-U.S. earnings. The decrease was partially offset by higher pre-tax income, and the change in mix of income and expense subject to U.S. federal, state and local taxes.


10

CONSOLIDATED BALANCE SHEETS AND CASH FLOWS ANALYSIS
Effective January 1, 2018, the Firm adopted several new accounting standards. Certain of the new accounting standards were applied retrospectively and, accordingly, prior period amounts were revised. For additional information, refer to Note 1.
Consolidated balance sheets analysis
The following is a discussion of the significant changes between June 30, 2018, and December 31, 2017.
Selected Consolidated balance sheets data
(in millions)
Jun 30,
2018

 
Dec 31,
2017

Change

Assets
 
 
 
 
Cash and due from banks
$
23,680

 
$
25,898

(9
)%
Deposits with banks
381,500

 
405,406

(6
)
Federal funds sold and securities purchased under resale agreements
226,505

 
198,422

14

Securities borrowed
108,246

 
105,112

3

Trading assets:
 
 
 
 
Debt and equity instruments
360,289

 
325,321

11

Derivative receivables
58,510

 
56,523

4

Investment securities
233,015

 
249,958

(7
)
Loans
948,414

 
930,697

2

Allowance for loan losses
(13,250
)
 
(13,604
)
(3
)
Loans, net of allowance for loan losses
935,164

 
917,093

2

Accrued interest and accounts receivable
75,669

 
67,729

12

Premises and equipment
14,132

 
14,159

—

Goodwill, MSRs and other intangible assets
54,535

 
54,392

—

Other assets
118,805

 
113,587

5

Total assets
$
2,590,050

 
$
2,533,600

2
 %
Cash and due from banks and deposits with banks decreased primarily as a result of net long-term debt maturities and a shift in the deployment of excess cash from deposits with banks into securities purchased under resale agreements. The Firm’s excess cash is largely placed with various central banks, predominantly Federal Reserve Banks.
Federal funds sold and securities purchased under resale agreements increased primarily due to higher client activity in CIB and the shift in the deployment of excess cash from deposits with banks into securities purchased under resale agreements. For additional information on the Firm’s Liquidity Risk Management, refer to pages 48–52.
Trading assets-debt and equity instruments increased predominantly as a result of client-driven market-making activities in CIB, primarily debt instruments in Fixed Income Markets, and equity instruments in prime brokerage, driven by higher client demand. For additional information, refer to Notes 2 and 4.
Investment securities decreased primarily reflecting net sales, paydowns and maturities of U.S. government agency mortgage-backed securities (“MBS”), commercial MBS, and obligations of U.S. states and municipalities. For additional information on Investment securities, refer to Corporate segment results on pages 39–40, Investment Portfolio Risk Management on page 70, and Notes 2 and 9.
 
Loans increased reflecting:
•
higher wholesale loans across all lines of business, predominantly driven by CIB, including loans to financial institution and commercial and industrial clients, and in AWM due to higher loans to international and domestic Private Banking clients
partially offset by
•
lower consumer loans driven by the seasonal decline in credit card balances, paydown of home equity loans, run-off of PCI loans, and a mortgage loan sale, predominantly offset by higher retention of high-quality prime mortgages in CCB and AWM.
The allowance for loan losses decreased reflecting:
•
a net reduction in the wholesale allowance primarily in the Oil & Gas portfolio driven by a single name
•
the consumer allowance was relatively flat.
For a detailed discussion of loans and the allowance for loan losses, refer to Credit Risk Management on pages 53–70, and Notes 2, 3, 11 and 12.
Accrued interest and accounts receivable increased primarily reflecting higher client receivables related to client-driven activities in CIB.
Other assets increased largely reflecting higher auto operating lease assets from growth in business volume in CCB.
For information on Goodwill and MSRs, refer to Note 14.

11

Selected Consolidated balance sheets data (continued)
 
(in millions)
Jun 30,
2018

 
Dec 31,
2017

Change

Liabilities
 
 
 
 
Deposits
$
1,452,122

 
$
1,443,982

1
 %
Federal funds purchased and securities loaned or sold under repurchase agreements
175,293

 
158,916

10

Short-term borrowings
63,918

 
51,802

23

Trading liabilities:
 
 
 
 
Debt and equity instruments
107,327

 
85,886

25

Derivative payables
42,511

 
37,777

13

Accounts payable and other liabilities
196,984

 
189,383

4

Beneficial interests issued by consolidated variable interest entities (“VIEs”)
21,323

 
26,081

(18
)
Long-term debt
273,114

 
284,080

(4
)
Total liabilities
2,332,592

 
2,277,907

2

Stockholders’ equity
257,458

 
255,693

1

Total liabilities and stockholders’ equity
$
2,590,050

 
$
2,533,600

2
 %
Deposits increased due to:
•
higher deposits in the consumer business reflecting the continuation of growth from new and existing customers and low attrition rates in CCB, partially offset by balance migration as customers shift from deposits largely into the Firm’s investment-related products; and in the wholesale business reflecting an increase in CIB’s Treasury Services business driven by growth in client activity
partially offset by
•
lower deposits in the other wholesale businesses primarily driven by the impact of seasonality in CB and AWM, and balance migration in AWM predominantly into the Firm’s investment-related products.
For more information, refer to the Liquidity Risk Management discussion on pages 48–52; and Notes 2
and 15.
Federal funds purchased and securities loaned or sold under repurchase agreements increased reflecting higher secured financing of trading assets-debt and equity instruments, partially offset by a change in the mix of funding to short-term borrowings in CIB.
Short-term borrowings increased driven by a change in
the mix of funding for CIB activities from securities sold under repurchase agreements to short-term borrowings, and the net issuance of commercial paper. For additional information, refer to Liquidity Risk Management on pages 48–52.
 
Trading liabilities–debt and equity instruments increased predominantly as a result of client-driven market-making activities in CIB, primarily debt instruments in Fixed Income Markets, and equity instruments in prime brokerage. For additional information, refer to Note 2 .
Trading liabilities–derivative payables increased predominantly as a result of client-driven market-making activities in CIB Markets, which increased equity and interest rate derivative payables. For additional information, refer to Derivative contracts on pages 65–66, and Notes 2 and 4.
Beneficial interests issued by consolidated VIEs decreased due to net maturities of credit card securitizations. For further information on Firm-sponsored VIEs and loan securitization trusts, refer to Off-Balance Sheet Arrangements on page 14 and Notes 13 and 20.
Long-term debt decreased primarily driven by lower Federal Home Loan Bank (“FHLB”) advances and net maturities of senior debt. For additional information on the Firm’s long-term debt activities, refer to Liquidity Risk Management on pages 48–52.
For information on changes in stockholders’ equity, refer to page 87, and on the Firm’s capital actions, refer to Capital actions on pages 46–47.



12

Consolidated cash flows analysis
The following is a discussion of cash flow activities during the six months ended June 30, 2018 and 2017.
(in millions)
 
Six months ended June 30,
 
2018

 
2017

Net cash provided by/(used in)
 
 
 
 
Operating activities
 
$
576

 
$
(18,486
)
Investing activities
 
(38,974
)
 
24,539

Financing activities
 
13,766

 
47,911

Effect of exchange rate changes on cash
 
(1,492
)
 
5,408

Net increase/(decrease) in cash and due from banks and deposits with banks
 
$
(26,124
)
 
$
59,372

Operating activities
•
In 2018, cash provided primarily reflected increased trading liabilities-debt and equity instruments and accounts payable and other liabilities, offset by increases in trading assets-debt and equity instruments.
•
In 2017, cash used primarily reflected increases in trading assets-debt and equity instruments and accrued interest and accounts receivable, and decreases in trading liabilities-derivative payables, and accounts payable and other liabilities, partially offset by a decrease in other assets.
 
Investing activities
•
In 2018, cash used reflected an increase in securities purchased under resale agreements and higher net loans originated, partially offset by lower investment securities.
•
In 2017, cash provided reflected a decrease in securities purchased under resale agreements and lower investment securities, partially offset by a net increase in loan originations.
Financing activities
•
In 2018, cash provided reflected higher securities loaned or sold under repurchase agreements, short-term borrowings and deposits, partially offset by a decrease in long-term borrowings.
•
In 2017, cash provided reflected higher deposits, and short-term borrowings, partially offset by a decrease in long-term borrowings.
•
Additionally, for both periods, cash was used for repurchases of common stock and dividends on common and preferred stock.
For a further discussion of the activities affecting the Firm’s cash flows, refer to Consolidated Balance Sheets Analysis on pages 11–13, Capital Risk Management on pages 43–47, and Liquidity Risk Management on pages 48–52 of this Form 10-Q, and pages 92–97 of JPMorgan Chase’s 2017 Annual Report.


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).
The Firm holds capital, as deemed appropriate, against all SPE-related transactions and related exposures, such as derivative transactions and lending-related commitments and guarantees.
The Firm has no commitments to issue its own stock to support any SPE transaction, and its policies require that transactions with SPEs be conducted at arm’s length and reflect market pricing. Consistent with this policy, no JPMorgan Chase employee is permitted to invest in SPEs with which the Firm is involved where such investment would violate the Firm’s Code of Conduct.
The table below provides an index of where in this Form 10-Q a discussion of the Firm’s various off-balance sheet arrangements can be found. In addition, refer to Note 1 for information about the Firm’s consolidation policies.
Type of off-balance sheet arrangement
Location of disclosure
Page references
Special-purpose entities: variable interests and other obligations, including contingent obligations, arising from variable interests in nonconsolidated VIEs
Refer to Note 13
145-150
Off-balance sheet lending-related financial instruments, guarantees, and other commitments
Refer to Note 20
159-162



14

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 84–88. That presentation, which is referred to as “reported” basis, provides the reader with an understanding of the Firm’s results that can be tracked consistently from year-to-year and enables a comparison of the Firm’s performance with other companies’ U.S. GAAP financial statements.
In addition to analyzing the Firm’s results on a reported basis, management reviews Firmwide results, including the overhead ratio, on a “managed” basis; these Firmwide managed basis results are non-GAAP financial measures. The Firm also reviews the results of the lines of business on a managed basis. The Firm’s definition of managed basis starts, in each case, with the reported U.S. GAAP results and includes certain reclassifications to present total net revenue for the Firm (and each of the reportable business segments) on an FTE basis. Accordingly, revenue from investments that receive tax credits and tax-exempt securities is presented in the managed results on a basis comparable to taxable investments and securities. These financial measures allow management to assess the comparability of revenue from year-to-year arising from
 
both taxable and tax-exempt sources. The corresponding income tax impact related to tax-exempt items is recorded within income tax expense. These adjustments have no impact on net income as reported by the Firm as a whole or by the lines of business.
Management also uses certain non-GAAP financial measures at the Firm and business-segment level, because these other non-GAAP financial measures provide information to investors about the underlying operational performance and trends of the Firm or of the particular business segment, as the case may be, and, therefore, facilitate a comparison of the Firm or the business segment with the performance of its relevant competitors. For additional information on these non-GAAP measures, refer to 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, refer to Credit and Investment Risk Management on pages 53–70.
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 tables provide a reconciliation from the Firm’s reported U.S. GAAP results to managed basis.
 
Three months ended June 30,
 
2018
 
2017
(in millions, except ratios)
Reported
results
 
Fully taxable-equivalent adjustments(a)(b)
 
Managed
basis
 
Reported
results
 
Fully taxable-equivalent adjustments(a)
 
Managed
basis
Other income
$
1,255

 
$
474

 
 
$
1,729

 
$
1,474

 
$
596

 
 
$
2,070

Total noninterest revenue
14,268

 
474

 
 
14,742

 
13,523

 
596

 
 
14,119

Net interest income
13,485

 
161

 
 
13,646

 
12,208

 
339

 
 
12,547

Total net revenue
27,753

 
635

 
 
28,388

 
25,731

 
935

 
 
26,666

Pre-provision profit
11,782

 
635

 
 
12,417

 
10,964

 
935

 
 
11,899

Income before income tax expense
10,572

 
635

 
 
11,207

 
9,749

 
935

 
 
10,684

Income tax expense
$
2,256

 
$
635

 
 
$
2,891

 
$
2,720

 
$
935

 
 
$
3,655

Overhead ratio
58
%
 
NM

 
 
56
%
 
57
%
 
NM

 
 
55
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Six months ended June 30,
 
2018
 
2017
(in millions, except ratios)
Reported
results
 
Fully taxable-equivalent adjustments(a)(b)
 
Managed
basis
 
Reported
results
 
Fully taxable-equivalent adjustments(a)
 
Managed
basis
Other income
$
2,881

 
$
929

 
 
$
3,810

 
$
2,245

 
$
1,178

 
 
$
3,423

Total noninterest revenue
28,863

 
929

 
 
29,792

 
26,398

 
1,178

 
 
27,576

Net interest income
26,797

 
319

 
 
27,116

 
24,272

 
668

 
 
24,940

Total net revenue
55,660

 
1,248

 
 
56,908

 
50,670

 
1,846

 
 
52,516

Pre-provision profit
23,609

 
1,248

 
 
24,857

 
20,620

 
1,846

 
 
22,466

Income before income tax expense
21,234

 
1,248

 
 
22,482

 
18,090

 
1,846

 
 
19,936

Income tax expense
$
4,206

 
$
1,248

 
 
$
5,454

 
$
4,613

 
$
1,846

 
 
$
6,459

Overhead ratio
58
%
 
NM

 
 
56
%
 
59
%
 
NM

 
 
57
%
Effective January 1, 2018, the Firm adopted several new accounting standards. Certain of the new accounting standards were applied retrospectively and, accordingly, prior period amounts were revised. For additional information, refer to Note 1.
(a)
Predominantly recognized in CIB and CB business segments and Corporate.
(b)
The decrease in fully taxable-equivalent adjustments in the three and six months ended June 30, 2018, reflects the impact of the TCJA.

15

Net interest income excluding CIB’s Markets businesses
In addition to reviewing net interest income on a managed basis, management also reviews net interest income excluding net interest income arising from CIB’s Markets businesses to assess the performance of the Firm’s lending, investing (including asset-liability management) and deposit-raising activities. This net interest income is referred to as non-markets related net interest income. CIB’s Markets businesses are Fixed Income Markets and
 
Equity Markets. Management believes that disclosure of non-markets related net interest income provides investors and analysts with another measure by which to analyze the non-markets-related business trends of the Firm and provides a comparable measure to other financial institutions that are primarily focused on lending, investing and deposit-raising activities.

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

(in millions, except rates)
Three months ended June 30,
 
Six months ended June 30,
2018

2017

 
Change

 
2018
2017
 
Change
Net interest income – managed basis(a)(b)
$
13,646

$
12,547

 
9
 %
 
$
27,116

$
24,940

 
9
 %
Less: CIB Markets net interest income(c)
754

1,075

 
(30
)
 
1,784

2,439

 
(27
)
Net interest income excluding CIB Markets(a)
$
12,892

$
11,472

 
12

 
$
25,332

$
22,501

 
13

 
 
 
 
 
 
 
 
 
 
Average interest-earning assets
$
2,222,277

$
2,177,109

 
2

 
$
2,212,897

$
2,169,055

 
2

Less: Average CIB Markets interest-earning assets(c)
611,432

537,263

 
14

 
601,544

530,051

 
13

Average interest-earning assets excluding CIB Markets
$
1,610,845

$
1,639,846

 
(2
)%
 
$
1,611,353

$
1,639,004

 
(2
)%
Net interest yield on average interest-earning assets – managed basis
2.46
%
2.31
%
 
 
 
2.47
%
2.32
%
 
 
Net interest yield on average CIB Markets interest-earning assets(c)
0.49

0.80

 
 
 
0.60

0.93

 
 
Net interest yield on average interest-earning assets excluding CIB Markets
3.21
%
2.81
%
 
 
 
3.17
%
2.77
%
 
 
(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, refer to reconciliation from the Firm’s reported U.S. GAAP results to managed basis on page 15.
(c)
For further information on CIB’s Markets businesses, refer to page 29.

16

Tangible common equity, ROTCE and TBVPS
Tangible common equity (“TCE”), ROTCE and TBVPS are each non-GAAP financial measures. TCE represents the Firm’s common stockholders’ equity (i.e., total stockholders’ equity less preferred stock) less goodwill and identifiable intangible assets (other than MSRs), net of related deferred tax liabilities. ROTCE measures the Firm’s net income
 
applicable to common equity as a percentage of average TCE. TBVPS represents the Firm’s TCE at period-end divided by common shares at period-end. TCE, ROTCE, and TBVPS are utilized by the Firm, as well as investors and analysts, in assessing the Firm’s use of equity.
The following summary table provides a reconciliation from the Firm’s common stockholders’ equity to TCE.
 
Period-end
 
Average
(in millions, except per share and ratio data)
Jun 30,
2018

Dec 31,
2017

 
Three months ended June 30,
 
Six months ended June 30,
 
2018

2017

 
2018

2017

Common stockholders’ equity
$
231,390

$
229,625

 
$
228,901

$
230,200

 
$
228,261

$
228,959

Less: Goodwill
47,488

47,507

 
47,494

47,290

 
47,499

47,292

Less: Other intangible assets
806

855

 
822

838

 
833

845

Add: Certain Deferred tax liabilities(a)(b)
2,227

2,204

 
2,221

3,239

 
2,216

3,234

Tangible common equity
$
185,323

$
183,467

 
$
182,806

$
185,311

 
$
182,145

$
184,056

 
 
 
 
 
 
 
 
 
Return on tangible common equity
NA

NA

 
17
%
14
%
 
18
%
14
%
Tangible book value per share
$
55.14

$
53.56

 
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.
(b)
Includes the effect from the revaluation of the Firm’s net deferred tax liability as a result of the TCJA.
Key performance measures
The Firm considers the following to be key regulatory capital measures:
•
Capital, risk-weighted assets (“RWA”), and capital and leverage ratios presented under Basel III Standardized and Advanced Fully Phased-In rules, and
•
SLR calculated under Basel III Advanced Fully Phased-In rules.
The Firm, as well as banking regulators, investors and analysts use these measures to assess the Firm’s regulatory capital position and to compare the Firm’s regulatory capital to that of other financial services companies.
For additional information on these measures, refer to Capital Risk Management on pages 43–47.
 
Core loans are also considered a key performance measure. Core loans represent loans considered central to the Firm’s ongoing businesses; and exclude loans classified as trading assets, runoff portfolios, discontinued portfolios and portfolios the Firm has an intent to exit. Core loans is a measure utilized by the Firm and its investors and analysts in assessing actual growth in the loan portfolio.

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 & Wealth Management. In addition, there is a Corporate segment.
The business segments are determined based on the products and services provided, or the type of customer served, and they reflect the manner in which financial information is currently evaluated by management. Results of these lines of business are presented on a managed basis. For a definition of managed basis, refer to Explanation and Reconciliation of the Firm’s use of Non-GAAP Financial Measures and Key Performance Measures on pages 15–17.
 
Description of business segment reporting methodology
Results of the business segments are intended to present each segment as if it were a stand-alone business. The management reporting process that derives business segment results includes the allocation of certain income and expense items. For further information about line of business capital, refer to Line of business equity on page 46. The Firm periodically assesses the assumptions, methodologies and reporting classifications used for segment reporting, and further refinements may be implemented in future periods.
Business segment capital allocation
The amount of capital assigned to each business is referred to as equity. On at least an annual basis, the Firm assesses the level of capital required for each line of business as well as the assumptions and methodologies used to allocate capital. For additional information on business segment capital allocation, refer to Line of business equity on pages 88-89 of JPMorgan Chase’s 2017 Annual Report.
For a further discussion of those methodologies, refer to Business Segment Results – Description of business segment reporting methodology on pages 55–56 of JPMorgan Chase’s 2017 Annual Report.

18

Segment results – managed basis
Effective January 1, 2018, the Firm adopted several new accounting standards. Certain of the new accounting standards were applied retrospectively and, accordingly, prior period amounts were revised. For additional information, refer to Note 1.
Net income in 2018 for the business segments reflects the favorable impact of the reduction in the U.S. federal statutory income tax rate as a result of the TCJA.
The following tables summarize the business segment results for the periods indicated.
Three months ended June 30,
Total net revenue
 
Total noninterest expense
 
Pre-provision profit/(loss)
(in millions)
2018

2017

Change

 
2018

2017

Change
 
2018

2017

Change

Consumer & Community Banking
$
12,497

$
11,412

10
 %
 
$
6,879

$
6,500

6
 
$
5,618

$
4,912

14
 %
Corporate & Investment Bank
9,923

8,925

11

 
5,403

4,877

11
 
4,520

4,048

12

Commercial Banking
2,316

2,088

11

 
844

790

7
 
1,472

1,298

13

Asset & Wealth Management
3,572

3,437

4

 
2,566

2,417

6
 
1,006

1,020

(1
)
Corporate
80

804

(90
)
 
279

183

52
 
(199
)
621

NM

Total
$
28,388

$
26,666

6
 %
 
$
15,971

$
14,767

8
 
$
12,417

$
11,899

4
 %
Three months ended June 30,
Provision for credit losses
 
Net income/(loss)
 
Return on equity
(in millions, except ratios)
2018

2017

Change

 
2018

2017

Change
 
2018

2017

Consumer & Community Banking
$
1,108

$
1,394

(21
)%
 
$
3,412

$
2,223

53
 
26
%
17
%
Corporate & Investment Bank
58

(53
)
NM

 
3,198

2,710

18
 
17

15

Commercial Banking
43

(130
)
NM

 
1,087

902

21
 
21

17

Asset & Wealth Management
2

4

(50
)
 
755

624

21
 
33

27

Corporate
(1
)
—

NM

 
(136
)
570

NM
 
NM

NM

Total
$
1,210

$
1,215

—

 
$
8,316

$
7,029

18
 
14
%
12
%
Six months ended June 30,
Total net revenue
 
Total noninterest expense
 
Pre-provision profit/(loss)
(in millions)
2018

2017

Change
 
2018

2017

Change

 
2018

2017

Change
Consumer & Community Banking
$
25,094

$
22,382

12
 
$
13,788

$
12,895

7
 %
 
$
11,306

$
9,487

19
Corporate & Investment Bank
20,406

18,524

10
 
11,062

10,061

10

 
9,344

8,463

10
Commercial Banking
4,482

4,106

9
 
1,688

1,615

5

 
2,794

2,491

12
Asset & Wealth Management
7,078

6,725

5
 
5,147

5,198

(1
)
 
1,931

1,527

26
Corporate
(152
)
779

NM
 
366

281

30

 
(518
)
498

NM
Total
$
56,908

$
52,516

8
 
$
32,051

$
30,050

7
 %
 
$
24,857

$
22,466

11
Six months ended June 30,
Provision for credit losses
 
Net income/(loss)
 
Return on equity
(in millions, except ratios)
2018

2017

Change

 
2018

2017

Change
 
2018

2017

Consumer & Community Banking
$
2,425

$
2,824

(14
)%
 
$
6,738

$
4,211

60
 
26
%
16
%
Corporate & Investment Bank
(100
)
(149
)
33

 
7,172

5,951

21
 
20

16

Commercial Banking
38

(167
)
NM

 
2,112

1,701

24
 
20

16

Asset & Wealth Management
17

22

(23
)
 
1,525

1,009

51
 
33

22

Corporate
(5
)
—

NM

 
(519
)
605

NM
 
NM

NM

Total
$
2,375

$
2,530

(6
)%
 
$
17,028

$
13,477

26
 
14
%
11
%
The following sections provide a comparative discussion of business segment results as of or for the three and six months ended June 30, 2018 versus the corresponding period in the prior year, unless otherwise specified.


19


CONSUMER & COMMUNITY BANKING
For a discussion of the business profile of CCB, refer to pages 57-61 of JPMorgan Chase’s 2017 Annual Report and Line of Business Metrics on page 177.
Selected income statement data
 
 
 
 
 
 
 
 
 
 
 
Three months ended June 30,
 
Six months ended June 30,
(in millions, except ratios)
2018

 
2017

 
Change

 
2018

 
2017

 
Change
Revenue
 
 
 
 
 
 
 
 
 
 
 
Lending- and deposit-related fees
$
875

 
$
850

 
3
 %
 
$
1,732

 
$
1,662

 
4
 %