10-Q 1 corpq22014.htm FORM 10-Q CORP Q2 2014


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, 2014
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.
T 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).
T 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 T                 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 T No
 
Number of shares of common stock outstanding as of June 30, 2014: 3,761,280,910
 






FORM 10-Q
TABLE OF CONTENTS
Part I - Financial information
Page
Item 1
Consolidated Financial Statements – JPMorgan Chase & Co.:
 
 
Consolidated statements of income (unaudited) for the three and six months ended June 30, 2014 and 2013
90
 
Consolidated statements of comprehensive income (unaudited) for the three and six months ended June 30, 2014 and 2013
91
 
Consolidated balance sheets (unaudited) at June 30, 2014, and December 31, 2013
92
 
Consolidated statements of changes in stockholders’ equity (unaudited) for the six months ended June 30, 2014 and 2013
93
 
Consolidated statements of cash flows (unaudited) for the six months ended June 30, 2014 and 2013
94
 
Notes to Consolidated Financial Statements (unaudited)
95
 
Report of Independent Registered Public Accounting Firm
183
 
Consolidated Average Balance Sheets, Interest and Rates (unaudited) for the three and six months ended June 30, 2014 and 2013
184
 
Glossary of Terms and Line of Business Metrics
186
Item 2
Management’s Discussion and Analysis of Financial Condition and Results of Operations:
 
 
Consolidated Financial Highlights
3
 
Introduction
4
 
Executive Overview
6
 
Consolidated Results of Operations
10
 
Consolidated Balance Sheet Analysis
13
 
Off-Balance Sheet Arrangements
15
 
Consolidated Cash Flows Analysis
16
 
Explanation and Reconciliation of the Firm’s Use of Non-GAAP Financial Measures
17
 
Business Segment Results
19
 
Enterprise-Wide Risk Management
50
 
Credit Risk Management
51
 
Market Risk Management
69
 
Country Risk Management
72
 
Operational Risk Management
73
 
Capital Management
74
 
Liquidity Risk Management
81
 
Supervision and Regulation
85
 
Critical Accounting Estimates Used by the Firm
86
 
Accounting and Reporting Developments
88
 
Forward-Looking Statements
89
Item 3
Quantitative and Qualitative Disclosures About Market Risk
191
Item 4
Controls and Procedures
191
Part II - Other information
 
Item 1
Legal Proceedings
192
Item 1A
Risk Factors
192
Item 2
Unregistered Sales of Equity Securities and Use of Proceeds
192
Item 3
Defaults Upon Senior Securities
193
Item 4
Mine Safety Disclosure
193
Item 5
Other Information
193
Item 6
Exhibits
193

2




JPMorgan Chase & Co.
Consolidated financial highlights
(unaudited)
As of or for the period ended,
 
 
 
 
 
Six months ended June 30,
(in millions, except per share, ratio, headcount data and where otherwise noted)
2Q14
1Q14
4Q13
3Q13
2Q13
2014
2013
Selected income statement data
 
 
 
 
 
 
 
Total net revenue
$
24,454

$
22,993

$
23,156

$
23,117

$
25,211

$
47,447

$
50,333

Total noninterest expense
15,431

14,636

15,552

23,626

15,866

30,067

31,289

Pre-provision profit/(loss)
9,023

8,357

7,604

(509
)
9,345

17,380

19,044

Provision for credit losses
692

850

104

(543
)
47

1,542

664

Income before income tax expense
8,331

7,507

7,500

34

9,298

15,838

18,380

Income tax expense
2,346

2,233

2,222

414

2,802

4,579

5,355

Net income/(loss)
$
5,985

$
5,274

$
5,278

$
(380
)
$
6,496

$
11,259

$
13,025

Per common share data
 
 
 
 
 
 
 
Net income/(loss) per share: Basic
$
1.47

$
1.29

$
1.31

$
(0.17
)
$
1.61

$
2.77

$
3.22

             Diluted
1.46

1.28

1.30

(0.17
)
1.60

2.74

3.19

Cash dividends declared per share
0.40

0.38

0.38

0.38

0.38

0.78

0.68

Book value per share
55.53

54.05

53.25

52.01

52.48

55.53

52.48

Tangible book value per share (“TBVPS”)(a)
43.17

41.73

40.81

39.51

39.97

43.17

39.97

Common shares outstanding
 
 
 
 
 
 
 
Average: Basic
3,780.6

3,787.2

3,762.1

3,767.0

3,782.4

3,783.9

3,800.3

Diluted
3,812.5

3,823.6

3,797.1

3,767.0

3,814.3

3,818.1

3,830.6

Common shares at period-end
3,761.3

3,784.7

3,756.1

3,759.2

3,769.0

3,761.3

3,769.0

Share price(b)
 
 
 
 
 
 
 
High
$
61.29

$
61.48

$
58.55

$
56.93

$
55.90

$
61.48

$
55.90

Low
52.97

54.20

50.25

50.06

46.05

52.97

44.20

Close
57.62

60.71

58.48

51.69

52.79

57.62

52.79

Market capitalization
216,725

229,700

219,657

194,312

198,966

216,725

198,966

Selected ratios and metrics
 
 
 
 
 
 
 
Return on common equity (“ROE”)
11
%
10
%
10
%
(1
)%
13
%
11
%
13
%
Return on tangible common equity (“ROTCE”)(a)
14

13

14

(2
)
17

14

17

Return on assets (“ROA”)
0.99

0.89

0.87

(0.06
)
1.09

0.94

1.11

Overhead ratio
63

64

67

102

63

63

62

Loans-to-deposits ratio
57

57

57

57

60

57

60

High quality liquid assets (“HQLA”) (in billions)(c)
$
576

$
538

$
522

$
538

$
454

$
576

$
454

Common equity tier 1 (“CET1”) capital ratio(d)
9.8
%
10.9
%
10.7%

10.5
 %
10.4
%
9.8
%
10.4
%
Tier 1 capital ratio(d)
11.1

12.1

11.9

11.7

11.6

11.1

11.6

Total capital ratio(d)
12.5

14.5

14.4

14.3

14.1

12.5

14.1

Tier 1 leverage ratio(d)
7.6

7.4

7.1

6.9

7.0

7.6

7.0

Selected balance sheet data (period-end)
 
 
 
 
 
 
 
Trading assets
$
392,543

$
375,204

$
374,664

$
383,348

$
401,470

$
392,543

$
401,470

Securities(e)
361,918

351,850

354,003

356,556

354,725

361,918

354,725

Loans
746,983

730,971

738,418

728,679

725,586

746,983

725,586

Total assets
2,520,336

2,476,986

2,415,689

2,463,309

2,439,494

2,520,336

2,439,494

Deposits
1,319,751

1,282,705

1,287,765

1,281,102

1,202,950

1,319,751

1,202,950

Long-term debt(f)
269,929

274,512

267,889

263,372

266,212

269,929

266,212

Common stockholders’ equity
208,851

204,572

200,020

195,512

197,781

208,851

197,781

Total stockholders’ equity
227,314

219,655

211,178

206,670

209,239

227,314

209,239

Headcount
245,192

246,994

251,196

255,041

254,063

245,192

254,063

Credit quality metrics
 
 
 
 
 
 
 
Allowance for credit losses
$
15,974

$
16,485

$
16,969

$
18,248

$
20,137

$
15,974

$
20,137

Allowance for loan losses to total retained loans
2.08
%
2.20
%
2.25%

2.43
 %
2.69
%
2.08
%
2.69
%
Allowance for loan losses to retained loans excluding purchased credit-impaired loans(g)
1.69

1.75

1.80

1.89

2.06

1.69

2.06

Nonperforming assets
$
9,017

$
9,473

$
9,706

$
10,380

$
11,041

$
9,017

$
11,041

Net charge-offs
1,158

1,269

1,328

1,346

1,403

2,427

3,128

Net charge-off rate
0.64
%
0.71
%
0.73%

0.74
 %
0.78
%
0.68
%
0.88
%
(a)
TBVPS and ROTCE are non-GAAP financial measures. TBVPS represents the Firm’s tangible common equity divided by period-end common shares. ROTCE measures the Firm’s annualized earnings as a percentage of tangible common equity. For further discussion of these measures, see Explanation and Reconciliation of the Firm’s Use of Non-GAAP Financial Measures on pages 17–18.
(b)
Share price shown for JPMorgan Chase’s common stock is from the New York Stock Exchange. JPMorgan Chase’s common stock is also listed and traded on the London Stock Exchange and the Tokyo Stock Exchange.
(c)
HQLA is the estimated amount of assets that qualify for inclusion in the Basel III liquidity coverage ratio; see HQLA on page 84.
(d)
Basel III Transitional rules became effective on January 1, 2014; all prior period data is based on Basel I rules. As of June 30, 2014, the ratios presented are calculated under the Basel III Advanced Transitional Approach. CET1 capital under Basel III replaced Tier 1 common capital under Basel I. Prior to Basel III becoming effective on January 1, 2014, Tier 1 common capital under Basel I was a non-GAAP financial measure. See Regulatory capital on pages 74–78 for additional information on Basel III and non-GAAP financial measures of regulatory capital.
(e)
Included held-to-maturity (“HTM”) securities of $47.8 billion, $47.3 billion, $24.0 billion and $4.5 billion at June 30, 2014, March 31, 2014, December 31, 2013 and September 30, 2013, respectively. Held-to-maturity balance at June 30, 2013 was not material.
(f)
Included unsecured long-term debt of $205.6 billion, $206.1 billion, $199.4 billion, $199.2 billion and $199.1 billion at June 30, 2014, March 31, 2014, December 31, 2013, September 30, 2013 and June 30, 2013, respectively.
(g)
Excludes the impact of residential real estate purchased credit-impaired (“PCI”) loans. For further discussion, see Allowance for credit losses on pages 66–68.

3


INTRODUCTION
This section of the Form 10-Q provides management’s discussion and analysis (“MD&A”) of the financial condition and results of operations of JPMorgan Chase & Co. (“JPMorgan Chase” or the “Firm”). See the Glossary of terms on pages 186–189 for definitions of terms used throughout this Form 10-Q.
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, 2013, filed with the U.S. Securities and Exchange Commission (“2013 Annual Report” or “2013 Form 10-K”), to which reference is hereby made.
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 those risks and uncertainties and the factors that could cause JPMorgan Chase’s actual results to differ materially from those risks and uncertainties, see Forward-looking Statements on page 89 of this Form 10-Q and Part I, Item 1A, Risk Factors, on pages 9–18 of JPMorgan Chase’s 2013 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 $227.3 billion in stockholders’ equity as of June 30, 2014. 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 bank with U.S. branches in 23 states, and Chase Bank USA, National Association (“Chase Bank USA, N.A.”), a national bank 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.
 
JPMorgan Chase’s activities are organized, for management reporting purposes, into four major reportable business segments, as well as a Corporate/Private Equity segment. The Firm’s consumer business is the Consumer & Community Banking segment. The Corporate & Investment Bank, Commercial Banking, and Asset Management segments comprise the Firm’s wholesale businesses. A description of the Firm’s business segments, and the products and services they provide to their respective client bases, follows.
Consumer & Community Banking
Consumer & Community Banking (“CCB”) serves consumers and businesses through personal service at bank branches and through ATMs, online, mobile and telephone banking. CCB is organized into Consumer & Business Banking (“CBB”), Mortgage Banking (including Mortgage Production, Mortgage Servicing and Real Estate Portfolios) and Card, Merchant Services & Auto (“Card”). Consumer & Business Banking offers deposit and investment products and services to consumers, and lending, deposit, and cash management and payment solutions to small businesses. Mortgage Banking includes mortgage origination and servicing activities, as well as portfolios comprised of residential mortgages and home equity loans, including the purchased credit-impaired (“PCI”) portfolio acquired in the Washington Mutual transaction. Card issues credit cards to consumers and small businesses, provides payment services to corporate and public sector clients through its commercial card products, offers payment processing services to merchants, and provides auto and student loan services.
Corporate & Investment Bank
The Corporate & Investment Bank (“CIB”), comprised of Banking and Markets & Investor Services, offers a broad suite of investment banking, market-making, prime brokerage, and treasury and securities products and services to a global client base of corporations, investors, financial institutions, and government and municipal entities. Within Banking, the CIB offers a full range of investment banking products and services in all major capital markets, including advising on corporate strategy and structure, capital-raising in equity and debt markets, as well as loan origination and syndication. Also included in Banking is Treasury Services, which includes transaction services, comprised primarily of cash management and liquidity solutions, and trade finance products. The Markets & Investor Services segment of the CIB is a global market-maker in cash securities and derivative instruments, and also offers sophisticated risk management solutions, prime brokerage, and research. Markets & Investor Services also includes the Securities Services business, a leading global custodian, which includes custody, fund accounting and administration, and securities lending products sold principally to asset managers, insurance companies and public and private investment funds.


4


Commercial Banking
Commercial Banking (“CB”) delivers extensive industry knowledge, local expertise and dedicated service to U.S. and multinational clients, including corporations, municipalities, financial institutions and nonprofit entities with annual revenue generally ranging from $20 million to $2 billion. CB provides financing to real estate investors and owners. Partnering with the Firm’s other businesses, CB provides comprehensive financial solutions, including lending, treasury services, investment banking and asset management to meet its clients’ domestic and international financial needs.
Asset Management
Asset Management (“AM”), with client assets of $2.5 trillion as of June 30, 2014, is a global leader in investment and wealth management. AM clients include institutions, high-net-worth individuals and retail investors in every major market throughout the world. AM offers investment management across all major asset classes including equities, fixed income, alternatives and money market funds. AM also offers multi-asset investment management, providing solutions to a broad range of clients’ investment needs. For individual investors, AM also provides retirement products and services, brokerage and banking services including trusts and estates, loans, mortgages and deposits. The majority of AM’s client assets are in actively managed portfolios.
 
In addition to the four major reportable business segments outlined above, the following is a description of the Corporate/Private Equity segment.
Corporate/Private Equity
The Corporate/Private Equity segment comprises Private Equity, Treasury and Chief Investment Office (“CIO”) and Other Corporate, which includes corporate staff units and expense that is centrally managed. Treasury and CIO are predominantly responsible for measuring, monitoring, reporting and managing the Firm’s liquidity, funding and structural interest rate and foreign exchange risks, as well as executing the Firm’s capital plan. The major Other Corporate units include Real Estate, Enterprise Technology, Legal, Compliance, Finance, Human Resources, Internal Audit, Risk Management, Oversight & Control, Corporate Responsibility and various Other Corporate groups. Other centrally managed expense includes the Firm’s occupancy and pension-related expense that are subject to allocation to the businesses.



5


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 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
 
 
 
 
 
 
 
 
 
Three months ended June 30,
 
Six months ended June 30,
(in millions, except per share data and ratios)
2014
 
2013
 
Change
 
2014
 
2013
 
Change
Selected income statement data
 
 
 
 
 
 
 
 
 
 
 
Total net revenue
$
24,454

 
$
25,211

 
(3
)%
 
$
47,447

 
$
50,333

 
(6
)%
Total noninterest expense
15,431

 
15,866

 
(3
)
 
30,067

 
31,289

 
(4
)
Pre-provision profit
9,023

 
9,345

 
(3
)
 
17,380

 
19,044

 
(9
)
Provision for credit losses
692

 
47

 
NM

 
1,542

 
664

 
132

Net income
5,985

 
6,496

 
(8
)
 
11,259

 
13,025

 
(14
)
Diluted earnings per share
$
1.46

 
1.60

 
(9
)
 
2.74

 
3.19

 
(14
)%
Return on common equity
11
%
 
13
%
 
 
 
11
%
 
13
%
 
 
Capital ratios(a)
 
 
 
 
 
 
 
 
 
 
 
CET1
9.8

 
10.4

 
 
 
9.8

 
10.4

 
 
Tier 1 capital
11.1

 
11.6

 
 
 
11.1

 
11.6

 
 
(a)
Basel III Transitional rules became effective on January 1, 2014; all prior period data is based on Basel I rules. As of June 30, 2014, the ratios presented are calculated under the Basel III Advanced Transitional Approach. CET1 capital under Basel III replaced Tier 1 common capital under Basel I. Prior to Basel III becoming effective on January 1, 2014, Tier 1 common capital under Basel I was a non-GAAP financial measure. See Regulatory capital on pages 74–78 for additional information on Basel III and non-GAAP financial measures of regulatory capital.
Business Overview
JPMorgan Chase reported second-quarter 2014 net income of $6.0 billion, or $1.46 per share, on net revenue of $24.5 billion. Net income decreased by $511 million, compared with net income of $6.5 billion, or $1.60 per share, in the second quarter of 2013. Return on equity for the quarter was 11%, compared with 13% for the prior-year quarter.
The Firm’s results reflected strong underlying performance, notwithstanding industry-wide headwinds in Markets and Mortgage.
The decrease in net income from the second quarter of 2013 was driven by higher provision for credit losses and lower net revenue, partially offset by lower noninterest expense. Net revenue was $24.5 billion, down 3% compared with the prior year. Noninterest revenue was $13.7 billion, down 6% compared with the prior year, primarily driven by a decrease in principal transactions and lower mortgage fees and related income, partially offset by an increase in other income. Net interest income was $10.8 billion, up 1% compared with the prior year, reflecting the impact of higher yields on securities, lower yields on long-term debt and deposits, and higher average loan balances, largely offset by lower yields on loans and lower average interest-earning trading asset balances.
The provision for credit losses for the three and six months ended June 30, 2014 increased from the prior year, reflecting an increase in the consumer provision for credit losses, partially offset by a decline in the wholesale provision for credit losses. The increase in the consumer provision for credit losses was the result of a lower benefit from reductions in the consumer allowance for loan losses, partially offset by lower net charge-offs. The current-quarter consumer allowance release was primarily due to the continued improvement in home prices and
 
delinquencies in the residential real estate portfolio. The current-quarter consumer provision reflected a $354 million reduction in the allowance for credit losses, compared to a $1.5 billion reduction in the prior year. Consumer net charge-offs were $1.2 billion, compared with $1.5 billion in the prior year, resulting in net charge-off rates, excluding PCI loans, of 1.34% and 1.66%, respectively. The wholesale provision reflected a generally favorable credit environment and stable credit quality trends. The wholesale provision for credit losses was a benefit of $156 million, compared to a provision of $76 million in the prior year. Wholesale net recoveries were $44 million, compared with net recoveries of $67 million in the prior year, resulting in net recovery rate of 0.06% and 0.09%, respectively. The Firm’s allowance for loan losses to period-end loans retained, excluding PCI loans, was 1.69%, compared with 2.06% in the prior year. The Firm’s nonperforming assets totaled $9.0 billion, down from the prior quarter and prior year levels of $9.5 billion and $11.0 billion, respectively.
Noninterest expense was $15.4 billion, down $435 million, or 3%, compared with the prior year, driven by lower expense in mortgage production and servicing and lower performance-related compensation in the Corporate & Investment Bank, predominantly offset by higher control costs.
CBB average deposits were up 9% and Business Banking loan originations, a record, were up 46%. Client investment assets were a record $205.2 billion, up 19%, and credit card sales volume was $118.0 billion, up 12% from the prior year. CIB maintained its #1 ranking for Global Investment Banking fees, and assets under custody were up 14% compared with the prior year. CB period-end loan balances were up 9%, and gross investment banking


6


revenue with CB clients was up 25%. AM reported positive net long-term product flows for the twenty-first consecutive quarter, total client assets of $2.5 trillion and record period-end loan balances of $100.9 billion.
The Firm maintained its fortress balance sheet, ending the second quarter with estimated Basel III Advanced Fully Phased-in CET1 capital of $161 billion and a CET1 capital ratio of 9.8%. (Basel III Advanced Fully Phased-In measures are non-GAAP financial measures which the Firm uses, along with the other capital measures, to assess and monitor its capital position. For further discussion of the CET1 capital ratios, see Regulatory capital on pages 74–78.) The Firm’s supplementary leverage ratio (“SLR”) was 5.4% and the Firm had $576 billion of high quality liquid assets (“HQLA”) as of June 30, 2014.
JPMorgan Chase continued to support clients, consumers, companies and communities around the globe. The Firm provided credit and raised capital of over $1.0 trillion for commercial and consumer clients during the six months ended June 30, 2014. This included $10 billion of credit provided for U.S. small businesses and $296 billion of credit provided for corporations. The Firm raised more than $611 billion of capital for clients. In addition, more than $33 billion of credit was provided to, and capital was raised for, nonprofit and government entities, including states, municipalities, hospitals and universities.
Consumer & Community Banking net income was $2.4 billion, a decrease of $646 million, or 21%, compared with the prior year, due to higher provision for credit losses and lower net revenue, partially offset by lower noninterest expense. Net revenue was $11.4 billion, a decrease of $584 million, or 5%, compared with the prior year. Net interest income was $7.0 billion, down $131 million, or 2%, driven by spread compression and lower mortgage warehouse balances, largely offset by higher deposit balances. Noninterest revenue was $4.5 billion, a decrease of $453 million, or 9%, driven by lower mortgage fees and related income. The provision for credit losses was $852 million, compared with a benefit of $19 million in the prior year. The current-quarter provision reflected a $357 million reduction in the allowance for loan losses and total net charge-offs of $1.2 billion. The prior-year provision reflected a $1.5 billion reduction in the allowance for loan losses and total net charge-offs of $1.5 billion. Noninterest expense was $6.5 billion, a decrease of $408 million, or 6%, from the prior year, driven by lower Mortgage Banking expense, partially offset by higher Credit Card expense. Return on equity for the second quarter of 2014 was 19% on $51.0 billion of average allocated capital.
Corporate & Investment Bank net income was $2.0 billion, down 31% compared with $2.8 billion in the prior year, reflecting lower revenue, as well as higher noninterest expense. Net revenue was $9.0 billion compared with $9.9 billion in the prior year. Excluding the impact of a debit valuation adjustment (“DVA”) gain of $355 million in the prior year, net revenue was down 6% from $9.5 billion in the prior year, and net income was down 25% from $2.6 billion in the prior year. Noninterest expense was $6.1 billion, up 6% from the prior year, driven by higher
 
noncompensation expense, partially offset by lower performance-based compensation. Return on equity for the second quarter of 2014 was 13% on $61.0 billion of average allocated capital.
Commercial Banking net income was $658 million, up 6% compared with the prior year, reflecting a lower provision for credit losses, partially offset by higher noninterest expense and lower net revenue. Net revenue was $1.7 billion, a decrease of $27 million, or 2%, compared with the prior year. Net interest income was $1.1 billion, a decrease of $53 million, or 5%, compared with the prior year, reflecting spread compression and lower purchase discounts recognized on loan repayments, partially offset by higher loan balances. Noninterest revenue was $577 million, an increase of $26 million, or 5%, compared with the prior year, driven by higher investment banking revenue. Noninterest expense was $675 million, up 4% compared with the prior year, largely reflecting higher investments in controls. Return on equity for the second quarter of 2014 was 19% on $14.0 billion of average allocated capital.
Asset Management net income was $552 million, an increase of $52 million, or 10%, from the prior year, reflecting higher net revenue, largely offset by higher noninterest expense. Net revenue was $3.0 billion, an increase of $231 million, or 8%, from the prior year. Noninterest revenue was $2.4 billion, up $224 million, or 10%, from the prior year, due to net client inflows and the effect of higher market levels. Net interest income was $576 million, up $7 million, or 1% from the prior year, due to higher loan and deposit balances, largely offset by spread compression. Noninterest expense was $2.1 billion, an increase of $170 million, or 9%, from the prior year, primarily due to continued investment in controls and growth. Return on equity was 25% on $9.0 billion of average allocated capital and pretax margin was 30% for the second quarter of 2014.
Corporate/Private Equity net income was $369 million, compared with a net loss of $552 million in the prior year.
Private Equity reported net income of $7 million, compared with net income of $212 million in the prior year. Net revenue was $36 million, compared with $410 million in the prior year, primarily due to lower net valuation gains on privately held investments.
Treasury and CIO reported a net loss of $46 million, compared with a net loss of $429 million in the prior year. Net revenue was $87 million, compared with a loss of $648 million in the prior year. Current-quarter net interest income was a loss of $10 million, compared with a loss of $558 million in the prior year, reflecting the benefit of higher interest rates and reinvestment opportunities.
Other Corporate reported net income of $408 million, compared with a net loss of $335 million in the prior year. The current quarter included $227 million of legal expense, compared with $604 million of legal expense in the prior year. The current quarter included an after-tax benefit of over $200 million for tax adjustments.


7


2014 Business outlook
JPMorgan Chase’s outlook for the third quarter and remainder of 2014 should be viewed against the backdrop of the global and U.S. economies, including the strength of consumers and businesses, U.S. housing prices, the unemployment rate, implied market interest rates, financial market levels and 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 linked factors will affect the performance of the Firm and its lines of business, although each of these factors will affect each of the lines of business to a different degree.
Set forth below is a table summarizing management’s current expectations with respect to certain specific revenue, expense and credit items, as well as the related drivers, for the third quarter and the remainder of 2014.
 
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, are made only as of the date hereof, 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 89 of this Form 10-Q and Risk Factors on pages 9-18 of JPMorgan Chase’s 2013 Annual Report. There is no assurance that actual results for the third quarter or full year of 2014 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.


Selected outlook items
 
 
 
 
(in millions, except ratios and where otherwise noted)
 
 
 
 
LOB
Line item
2Q14
FY13
 
Current management outlook
Firmwide
Adjusted expense
($ in billions)(a)
$14.8
$59.0
 
Expect $58 billion +/- adjusted expense for FY14; final Firmwide expense will be affected by performance-related compensation for FY14
 
CCB, excluding MB, expense
$5,150
$20,240
 
Expect CCB, excluding MB, expense to increase by approximately 1% for FY14 vs. FY13, in-line with previous guidance
 
CB expense
$675
$2,610
 
Expect expense of a little less than $700 million for 3Q14
 
AM expense
$2,062
$8,016
 
Expect AM expense to increase modestly in 3Q14 vs. 2Q14
CCB
Production-related pretax income, excluding repurchase (losses)/benefits
$(74)
$494
 
Expect small negative Production pretax income in 3Q14 – market dependent
CCB
Servicing-related net revenue(b)
$693
$2,869
 
Expect Servicing revenue to be $600 million +/- in 3Q14
CCB
Reduction in NCI Real Estate Portfolios allowance for loan losses
$—
$(2,300)
 
Expect a $500 million to $1 billion reduction in the allowance over the next couple of years, as the credit quality of the portfolio continues to improve
CCB

Card revenue rate
12.15%
12.49%
 
Expect net revenue rate to be at the lower end of the 12.0-12.5% guidance – with fluctuations by quarter due to seasonality
CCB
Reduction in Card allowance for loan losses
$—
$(1,706)
 
Do not expect any significant reductions in the Card allowance for loan losses based on the current credit environment
CIB
Fixed Income & Equities revenue (Markets revenue)
$4,647
$20,226
 
Expect current environment to persist into 3Q14 with normal seasonal trends
CIB
Securities Services revenue
$1,137
$4,082
 
Expect Securities Services revenue to decrease by approximately $100 million in 3Q14 vs. 2Q14 due to seasonality
CIB
Treasury Services (TS) revenue
$1,012
$4,135
 
Expect TS revenue to be flat vs. 2Q14, at approximately $1 billion in 3Q14 – primarily due to the impact of business simplification and lower trade finance balances and spreads
AM

Pretax margin
30%
29%
 
Expect FY14 pretax margin and ROE to be lower than 2Q14 – as the business continues to invest in both infrastructure and controls –
as well as select front office hiring – but on track to deliver through-the-cycle targets for FY15
AM
Return on equity
25%
23%
 
(a)
Firmwide adjusted expense, a non-GAAP financial measure, excludes total Firmwide legal expenses and foreclosure-related matters. Management believes this information helps investors understand the effect of these items on reported results and provides an alternate presentation of the Firm’s performance.
(b)
This line item is net of changes in the MSR asset fair value due to collection/realization of expected cash flows; plus net interest income.
Note: The table above includes abbreviations to denote the following: for the years ended December 31, 2015 (“FY15”), 2014 (“FY14”) and 2013 (“FY13”), respectively; for the three months ended September 30, 2014 (“3Q14”), June 30, 2014 (“2Q14”) and June 30, 2013 (“2Q13”), respectively; line of business (“LOB”); and Non credit-impaired (“NCI”).

8


Business events
Regulatory Update
Effective April 1, 2014, the Firm was approved to calculate capital under the Basel III Advanced Approach, in addition to the Basel III Standardized Approach. For further information on Basel III, refer to Capital management on pages 74–80.
CEO Health Disclosure
On July 1, 2014, Jamie Dimon, Chairman and Chief Executive Officer, announced he had been diagnosed with throat cancer. The prognosis is excellent and his condition is curable. Treatment should take approximately eight weeks. During this time, Mr. Dimon intends to continue to be actively involved in the business and the Firm as usual.
For Business events during the six months ended June 30, 2014, see Note 2.



9


CONSOLIDATED RESULTS OF OPERATIONS
The following 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, 2014 and 2013. 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 86–88 of this Form 10-Q and pages 174–178 of JPMorgan Chase’s 2013 Annual Report.

Revenue
 
 
 
 
 
 
 
 
 
 
 
 
Three months ended June 30,
 
Six months ended June 30,
(in millions)
2014
 
2013
 
Change
 
2014
 
2013
 
Change

Investment banking fees
$
1,751

 
$
1,717

 
2
%
 
$
3,171

 
$
3,162

 

Principal transactions
2,908

 
3,760

 
(23
)
 
6,230

 
7,521

 
(17
)
Lending- and deposit-related fees
1,463

 
1,489

 
(2
)
 
2,868

 
2,957

 
(3
)
Asset management, administration and commissions
4,007

 
3,865

 
4

 
7,843

 
7,464

 
5

Securities gains
12

 
124

 
(90
)
 
42

 
633

 
(93
)
Mortgage fees and related income
1,291

 
1,823

 
(29
)
 
1,805

 
3,275

 
(45
)
Card income
1,549

 
1,503

 
3

 
2,957

 
2,922

 
1

Other income(a)
675

 
226

 
199

 
1,066

 
762

 
40

Noninterest revenue
13,656

 
14,507

 
(6
)
 
25,982

 
28,696

 
(9
)
Net interest income
10,798

 
10,704

 
1

 
21,465

 
21,637

 
(1
)
Total net revenue
$
24,454

 
$
25,211

 
(3
)%
 
$
47,447

 
$
50,333

 
(6
)%
(a)
Included operating lease income of $422 million and $363 million for the three months ended June 30, 2014 and 2013, respectively, and $820 million and $712 million for the six months ended June 30, 2014 and 2013, respectively.
Total net revenue for the three months ended June 30, 2014, decreased by $757 million compared with the three months ended June 30, 2013. The decrease was predominantly due to lower principal transactions revenue and lower mortgage fees and related income, partially offset by higher other income. For the six months ended June 30, 2014, total net revenue decreased by $2.9 billion from the same period of the prior year. The decrease was predominantly due to lower mortgage fees and related income, principal transactions revenue, and securities gains, partially offset by higher asset management, administration and commissions income.
Investment banking fees for the three and six months ended June 30, 2014, increased slightly compared with the prior year, due to higher advisory and equity underwriting fees, largely offset by lower debt underwriting fees. The increase in advisory fees was related to stronger wallet share of completed transactions. The increase in equity underwriting fees was driven by stronger industry-wide issuance. The decrease in debt underwriting fees was primarily related to lower loan syndication fees on lower industry-wide wallet levels. For additional information on investment banking fees, see CIB segment results on pages 34–39 and Note 6.
Principal transactions revenue decreased compared with the stronger results of the three and six months ended June 30, 2013, reflecting, in CIB, lower fixed income markets revenue on historically low levels of volatility and lower client activity across products, as well as lower equity markets revenue on lower derivatives revenue. Private equity gains in the three months ended June 30, 2014 decreased from the prior year as a result of lower net valuation gains on privately held investments. For the six months ended June 30, 2014, private equity gains increased due to higher net valuation gains on publicly held
 
investments and gains on sales. For additional information on principal transactions revenue, see CIB and Corporate/Private Equity segment results on pages 34–39 and pages 47–49, respectively, and Note 6.
Asset management, administration and commissions revenue increased compared with the three and six months ended June 30, 2013, reflecting higher net client inflows and the effect of higher market levels in AM and CCB. The increase was offset partially by lower revenue in CCB related to the exit of a non-core product in the second half of 2013. For additional information on these fees and commissions, see the segment discussions for CCB on pages 20–33, AM on pages 43–46, and Note 6.
Securities gains in the three and six months ended June 30, 2014, decreased compared with the prior periods, reflecting the repositioning of the investment securities portfolio. For additional information, see the Corporate/Private Equity segment discussion on pages 47–49, and Note 11.
Mortgage fees and related income in the three and six months ended June 30, 2014, decreased compared with the prior periods. For both periods, the decrease was predominantly related to lower net production revenue, driven by lower volumes. The decrease from the three months of the prior year was offset partially by higher mortgage servicing rights (“MSR”) risk management results, driven by approximately $220 million of positive model assumption updates on slower prepayments, compared with $79 million in the prior year. MSR risk management results for the six months ended June 30, 2014, were flat compared with the prior year. For additional information, see pages 28–30, and Note 16.


10


Other income increased in the three and six months ended June 30, 2014 compared with the prior year, reflecting a benefit from a franchise tax settlement, the absence of a modest loss on the redemption of trust preferred securities recorded in the second quarter of 2013, and higher auto operating lease income in CCB, resulting from growth in lease volume. The increase in the six months ended June 30, 2014, was partially offset by lower valuations of seed capital investments in AM.
Net interest income increased in the three months ended June 30, 2014, compared with the prior year; for the six months ended June 30, 2014, net interest income decreased compared with the prior year. The increase from the three months ended June 30, 2013, primarily reflected the impact of higher yields on securities, lower yields on long-term debt and deposits, and higher average loan balances, largely offset by lower yields on loans (due to the
 
run-off of higher-yielding loans and new originations of lower-yielding loans), and lower average interest-earning trading asset balances. The decrease from the six months ended June 30, 2013, primarily reflected the impact of lower yields on loans (due to the run-off of higher yielding loans and new originations of lower yielding loans), and lower average interest-earning trading asset balances, largely offset by higher yields on securities and lower yields on long-term debt and deposits. The Firm’s average interest-earning assets were $2.0 trillion for the three months ended June 30, 2014, and the net interest yield on those assets, on a fully taxable-equivalent (“FTE”) basis, was 2.19%, a decrease of 1 basis point from the prior year. For the six months ended June 30, 2014, the Firm’s average interest-earning assets were $2.0 trillion, and the net interest yield on those assets, on a FTE basis, was 2.20%, a decrease of 8 basis points from the prior year.

Provision for credit losses
 
 
 
 
 
Three months ended June 30,
 
Six months ended June 30,
(in millions)
2014
 
2013
 
Change
 
2014
 
2013
 
Change
Consumer, excluding credit card
$
(37
)
 
$
(493
)
 
92
%
 
$
82

 
$
(530
)
 
NM 

Credit card
885

 
464

 
91

 
1,573

 
1,046

 
50
%
Total consumer
848

 
(29
)
 
NM 

 
1,655

 
516

 
221

Wholesale
(156
)
 
76

 
NM 

 
(113
)
 
148

 
NM 

Total provision for credit losses
$
692

 
$
47

 
NM 

 
$
1,542

 
$
664

 
132
%
The provision for credit losses for the three and six months ended June 30, 2014 increased from the prior year, reflecting an increase in the consumer provision for credit losses, partially offset by a decline in the wholesale provision for credit losses. The increase in the consumer provision for credit losses was the result of a lower benefit from reductions in the consumer allowance for loan losses, partially offset by lower net charge-offs. The consumer allowance release was primarily due to the continued
 
improvement in home prices and delinquencies in the residential real estate portfolio. The wholesale provision reflected a generally favorable credit environment and stable credit quality trends. For a more detailed discussion of the credit portfolio and the allowance for credit losses, see the segment discussions for CCB on pages 20–33, CIB on pages 34–39 and CB on pages 40–42, and the Allowance for credit losses section on pages 66–68.

Noninterest expense
 
 
 
 
 
 
 
 
 
 
 
Three months ended June 30,
 
Six months ended June 30,
(in millions)
2014
 
2013
 
Change
 
2014
 
2013
 
Change
Compensation expense
$
7,610

 
$
8,019

 
(5
)%
 
$
15,469

 
$
16,433

 
(6
)%
Noncompensation expense:
 
 
 
 
 
 
 
 
 
 
 
Occupancy
973

 
904

 
8

 
1,925

 
1,805

 
7

Technology, communications and equipment
1,433

 
1,361

 
5

 
2,844

 
2,693

 
6

Professional and outside services
1,932

 
1,901

 
2

 
3,718

 
3,635

 
2

Marketing
650

 
578

 
12

 
1,214

 
1,167

 
4

Other expense(a)(b)
2,701

 
2,951

 
(8
)
 
4,634

 
5,252

 
(12
)
Amortization of intangibles
132

 
152

 
(13
)
 
263

 
304

 
(13
)
Total noncompensation expense
7,821

 
7,847

 

 
14,598

 
14,856

 
(2
)
Total noninterest expense
$
15,431

 
$
15,866

 
(3
)%
 
$
30,067

 
$
31,289

 
(4
)%
(a)
Included firmwide legal expense of $669 million and $678 million for the three months ended June 30, 2014 and 2013, respectively, and $707 million and $1.0 billion for the six months ended June 30, 2014 and 2013, respectively.
(b)
Included FDIC-related expense of $266 million and $392 million for the three months ended June 30, 2014 and 2013, respectively, and $559 million and $771 million for the six months ended June 30, 2014 and 2013, respectively.

11


Total noninterest expense for the three months ended June 30, 2014, decreased by $435 million compared with the prior year. For the six months ended June 30, 2014, total noninterest expense decreased by $1.2 billion from the prior year. For both periods, the decrease was driven by lower compensation and other expense.
Compensation expense decreased compared with the three and six months ended June 30, 2013, predominantly driven by lower performance-based compensation expense in CIB, lower headcount-related expense in MB, and lower postretirement benefit costs. The decrease in compensation expense was partially offset by higher headcount related to the Firm’s investments in controls.
 
Noncompensation expense in the three and six months ended June 30, 2014, decreased compared with the prior year. The decrease from the three months of the prior year was largely due to lower other expense, in particular, lower FDIC-related assessments, and lower production and servicing-related expense in Mortgage Banking. For the six months ended June 30, 2014, the decrease from the prior year was largely due to the aforementioned items, as well as lower legal-related expense in Corporate/Private Equity, and lower foreclosed asset expense. The decrease in both periods was offset partially by investments in controls, and the costs related to business simplification initiatives in CIB. For a further discussion of legal expense, see Note 23.

Income tax expense
 
 
 
 
 
 
 
(in millions, except rate)
Three months ended June 30,
 
Six months ended June 30,
2014
 
2013
 
Change
 
2014
 
2013
 
Change
Income before income tax expense
$
8,331

 
$
9,298

 
(10
)%
 
$
15,838

 
$
18,380

 
(14
)%
Income tax expense
2,346

 
2,802

 
(16
)
 
4,579

 
5,355

 
(14
)
Effective tax rate
28.2
%
 
30.1
%
 
 
 
28.9
%
 
29.1
%
 


The decrease in the effective tax rate compared with the prior year was largely attributable to lower reported pre-tax income in combination with changes in the mix of income and expense items subject to U.S. federal, state and local taxes, and the impact of tax-exempt income and business tax credits. The current-year second quarter included tax benefits associated with the settlement of tax audits. In addition, for the six months ended June 30, 2014, the
 
decrease in the effective tax rate was partially offset by the write-down of deferred tax assets as a result of tax law changes enacted in New York State and lower tax benefits associated with prior year tax adjustments and the settlement of tax audits. For additional information on income taxes, see Critical Accounting Estimates Used by the Firm on pages 86–88.



 






12


CONSOLIDATED BALANCE SHEETS ANALYSIS
Selected Consolidated Balance Sheets data
 
(in millions)
Jun 30,
2014
 
Dec 31,
2013
Change
Assets
 
 
 
 
Cash and due from banks
$
27,523

 
$
39,771

(31
)%
Deposits with banks
393,909

 
316,051

25

Federal funds sold and securities purchased under resale agreements
248,149

 
248,116


Securities borrowed
113,967

 
111,465

2

Trading assets:
 
 
 
 
Debt and equity instruments
330,165

 
308,905

7

Derivative receivables
62,378

 
65,759

(5
)
Securities
361,918

 
354,003

2

Loans
746,983

 
738,418

1

Allowance for loan losses
15,326

 
16,264

(6
)
Loans, net of allowance for loan losses
731,657

 
722,154

1

Accrued interest and accounts receivable
77,096

 
65,160

18

Premises and equipment
15,216

 
14,891

2

Goodwill
48,110

 
48,081


Mortgage servicing rights
8,347

 
9,614

(13
)
Other intangible assets
1,339

 
1,618

(17
)
Other assets
100,562

 
110,101

(9
)
Total assets
$
2,520,336

 
$
2,415,689

4

Liabilities
 
 
 
 
Deposits
$
1,319,751

 
$
1,287,765

2

Federal funds purchased and securities loaned or sold under repurchase agreements
216,561

 
181,163

20

Commercial paper
63,804

 
57,848

10

Other borrowed funds
34,713

 
27,994

24

Trading liabilities:
 
 
 


Debt and equity instruments
87,861

 
80,430

9

Derivative payables
50,795

 
57,314

(11
)
Accounts payable and other liabilities
203,885

 
194,491

5

Beneficial interests issued by consolidated VIEs
45,723

 
49,617

(8
)
Long-term debt
269,929

 
267,889

1

Total liabilities
2,293,022

 
2,204,511

4

Stockholders’ equity
227,314

 
211,178

8

Total liabilities and stockholders’ equity
$
2,520,336

 
$
2,415,689

4
 %
Consolidated Balance Sheets overview
JPMorgan Chase’s total assets increased by $104.6 billion, and total liabilities increased by $88.5 billion from December 31, 2013.
The following is a discussion of the significant changes in the specific line item captions on the Consolidated Balance Sheets from December 31, 2013.
 
Cash and due from banks and deposits with banks
The net increase was attributable to a higher level of excess funds, which the Firm placed with various central banks, predominantly Federal Reserve Banks.
Trading assets and liabilitiesdebt and equity instruments
The increase in trading assets was related to client-driven market-making activities in CIB, which resulted in a higher level of debt securities, and to a lesser extent, equity securities.
The increase in trading liabilities was related to client-driven market-making activities in CIB, which resulted in a higher level of short positions in debt securities. For additional information, refer to Note 3.
Trading assets and liabilitiesderivative receivables and payables
The decrease in both receivables and payables was due to client-driven market-making activity in equity derivatives, and maturities of foreign exchange derivatives. For additional information, refer to Derivative contracts on pages 64–65, and Notes 3 and 5.
Securities
The increase was largely due to higher levels of U.S. mortgage-backed securities and obligations of U.S. states and municipalities, partially offset by a lower level of non-U.S. residential mortgage-backed securities. For additional information related to securities, refer to the discussion in the Corporate/Private Equity segment on pages 47–49, and Notes 3 and 11.
Loans and allowance for loan losses
The increase in loans was attributable to net originations of wholesale loans, which continued to experience a favorable credit environment and stable credit quality trend. The increase in wholesale loans was partially offset by lower consumer loans, predominantly reflecting seasonality in the credit card portfolio.
The decrease in allowance for loan losses was driven by a reduction in the consumer allowance, predominantly as a result of continued improvement in home prices and delinquency trends in the residential real estate portfolio, a reduction in the credit card asset-specific allowance due to increased granularity of impairment estimates for loans modified in troubled debt restructurings (“TDRs”), as well as run-off in the student loan portfolio. The wholesale allowance was relatively unchanged, reflecting a generally favorable credit environment and stable credit quality trend. For a more detailed discussion of the loan portfolio and the allowance for loan losses, refer to Credit Risk Management on pages 51–68, and Notes 3, 4, 13 and 14.


13


Accrued interest and accounts receivable
The increase was due to higher receivables from security sales that did not settle, and higher client receivables, reflecting client-driven market-making activity in CIB.
Mortgage servicing rights
The decrease was predominantly due to the impact of total changes in valuation due to inputs and assumptions. For additional information on MSRs, see Note 16.
Deposits
The increase was attributable to higher consumer and wholesale deposits. The increase in consumer deposits reflected a continuing positive growth trend, which was the result of strong customer retention, maturing of recent branch builds, and net new business. The increase in wholesale deposits was related to strong client deposit inflows toward the end of June 2014. For more information on consumer deposits, refer to the CCB segment discussion on pages 20–33; the Liquidity Risk Management discussion on pages 81–85; and Notes 3 and 17. For more information on wholesale client deposits, refer to the AM, CB and CIB segment discussions on pages 43–46, pages 40–42 and pages 34–39, respectively.
Federal funds purchased and securities loaned or sold under repurchase agreements
The increase in securities sold under repurchase agreements was predominantly due to higher financing of the Firm’s trading assets-debt and equity instruments as well as investment securities portfolio, and a change in the mix of the Firm’s funding sources. For additional information on the Firm’s Liquidity Risk Management, see pages 81–85.
Accounts payable and other liabilities
The increase was attributable to higher client short positions and higher payables from security purchases that did not settle, both in CIB; and higher payables to merchants pending settlement of sales transactions in Card. The increase was partially offset by a decline in other liabilities in Corporate, largely reflecting the settlement of previously disclosed legal and regulatory matters.
Stockholders’ equity
The increase was due to net income, preferred stock issuances, and higher accumulated other comprehensive income. The increase was partially offset by the declaration of cash dividends on common and preferred stock, and repurchases of common stock. For additional information on accumulated other comprehensive income, see Note 19; for the Firm’s capital actions, see Capital actions on pages 79-80.



14


OFF-BALANCE SHEET ARRANGEMENTS
JPMorgan Chase is involved with several types of off–balance sheet arrangements, including through nonconsolidated special-purpose entities (“SPEs”), which are a type of variable interest entity (“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 77–79 and Note 29 of JPMorgan Chase’s 2013 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 2013 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, Standard & Poor’s and Fitch, respectively. These liquidity commitments support the issuance of asset-backed commercial paper by Firm-administered consolidated SPEs. In the event of a short-term credit rating downgrade, JPMorgan Chase Bank, N.A., absent other solutions, would be required to provide funding to the SPE, if the commercial paper could not be reissued as it matured. The aggregate amounts of commercial paper outstanding held by third parties as of June 30, 2014, and December 31, 2013, was $9.7 billion and $15.5 billion, respectively. The aggregate amounts of commercial paper outstanding 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 $9.2 billion at both June 30, 2014, and December 31, 2013. The Firm could facilitate the refinancing of some of the clients’ assets in order to reduce the funding obligation.


 


Off–balance sheet lending-related financial instruments, guarantees, and other commitments
JPMorgan Chase provides lending-related financial instruments (e.g., commitments and guarantees) to meet the financing needs of its customers. The contractual amount of these financial instruments represents the maximum possible credit risk to the Firm should the counterparty draw upon the commitment or the Firm be required to fulfill its obligation under the guarantee, and should the counterparty subsequently fail to perform according to the terms of the contract. Most of these commitments and guarantees expire without being drawn or a default occurring. As a result, the total contractual amount of these instruments is not, in the Firm’s view, representative of its actual future credit exposure or funding requirements. For further discussion of lending-related financial instruments, guarantees and other commitments, and the Firm’s accounting for them, see Lending-related commitments on page 64 and Note 21 (including the table that presents the related amounts by contractual maturity as of June 30, 2014). For a discussion of loan repurchase liabilities, see Note 21.


15


CONSOLIDATED CASH FLOWS ANALYSIS
For a discussion of the activities affecting the Firm’s cash flows, see pages 80–81 of JPMorgan Chase’s 2013 Annual Report and Balance Sheet Analysis of this Form 10-Q.
(in millions)
 
Six months ended June 30,
 
2014
 
2013
Net cash provided by/(used in)
 
 
 
 
Operating activities
 
$
10,296

 
$
88,484

Investing activities
 
(97,938
)
 
(142,245
)
Financing activities
 
75,436

 
30,108

Effect of exchange rate changes on cash
 
(42
)
 
(856
)
Net decrease in cash and due from banks
 
$
(12,248
)
 
$
(24,509
)
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 ability to generate cash through short- and long-term borrowings are sufficient to fund the Firm’s operating liquidity needs.
Cash provided by operating activities predominantly resulted from net income after noncash operating adjustments; a decrease in other assets driven by lower cash margin balances placed with exchanges and clearing houses; and higher net proceeds from loan sales activities. Cash provided during 2013 predominantly resulted from lower trading assets from client-driven market-making activities in CIB, and an increase in accounts payable and other liabilities predominantly due to higher brokerage payables; partially offset by an increase in accounts receivables due to higher brokerage receivables and margin loan balances from client-driven activities predominantly in CIB; and the timing of merchant receivables payments related to CCB’s Card Services business.
 
Investing activities
Cash used in investing activities during 2014 and 2013 predominantly resulted from increases in deposits with banks reflecting the placement of the Firm’s excess funds with various central banks, predominantly Federal Reserve banks; and, in 2014, net purchases of investment securities. Additionally in 2014, loans increased due to net originations of wholesale loans, which continued to experience a generally favorable credit environment and stable credit quality trends. Partially offsetting cash outflows in 2013 was a decline in securities purchased under resale agreements due to a shift in the deployment of the Firm’s excess cash by Treasury; and a decline in available-for-sale (“AFS”) securities from proceeds of net maturities and sales.
Financing activities
Cash provided by financing activities in 2014 predominantly resulted from higher consumer and wholesale deposits — the increase in consumer deposits reflected a continuing positive growth trend, which was the result of strong customer retention, maturing of recent branch builds, and net new business; an increase in securities loaned or sold under repurchase agreements due to higher financing of the Firm’s trading assets-debt and equity instruments as well as investment securities portfolio, and a change in the mix of the Firm’s funding sources; and proceeds from preferred stock issuances. Further, issuances of long-term borrowings were offset by maturities and redemptions. Cash provided in 2013 was predominantly driven by net proceeds from long-term borrowings; an increase in securities loaned or sold under repurchase agreements predominantly due to higher secured financing of the Firm’s assets and higher client financing activity; and proceeds from the issuance of preferred stock. Partially offsetting these cash inflows in 2014 and 2013 were repurchases of common stock and payments of dividends on common and preferred stock.



16


EXPLANATION AND RECONCILIATION OF THE FIRM’S USE OF NON-GAAP FINANCIAL MEASURES
The Firm prepares its Consolidated Financial Statements using accounting principles generally accepted in the U.S. (“U.S. GAAP”); these financial statements appear on pages 90–94. 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 and the results of the lines of business on a “managed” basis, which is a non-GAAP financial measure. 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 business segments) on a 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 arising from both taxable and tax-exempt sources. The corresponding income tax impact related to tax-exempt items is recorded within income tax expense. These adjustments have no impact on net income as reported by the Firm as a whole or by the lines of business.
Management also uses certain non-GAAP financial measures at the business-segment level, because it believes these other non-GAAP financial measures provide information to investors about the underlying operational performance and trends of the particular business segment and, therefore, facilitate a comparison of the business segment with the performance of its competitors. Non-GAAP financial measures used by the Firm may not be comparable to similarly named non-GAAP financial measures used by other companies.


The following summary table provides a reconciliation from the Firm’s reported U.S. GAAP results to managed basis.
 
Three months ended June 30,
 
2014
 
2013
(in millions, except ratios)
Reported
results
 
Fully taxable-equivalent adjustments(a)
 
Managed
basis
 
Reported
results
 
Fully taxable-equivalent adjustments(a)
 
Managed
basis
Other income
$
675

 
$
651

 
$
1,326

 
$
226

 
$
582

 
$
808

Total noninterest revenue
13,656

 
651

 
14,307

 
14,507

 
582

 
15,089

Net interest income
10,798

 
244

 
11,042

 
10,704

 
165

 
10,869

Total net revenue
24,454

 
895

 
25,349

 
25,211

 
747

 
25,958

Pre-provision profit/(loss)
9,023

 
895

 
9,918

 
9,345

 
747

 
10,092

Income before income tax expense
8,331

 
895

 
9,226

 
9,298

 
747

 
10,045

Income tax expense
$
2,346

 
$
895

 
$
3,241

 
$
2,802

 
$
747

 
$
3,549

Overhead ratio
63
%
 
NM

 
61
%
 
63
%
 
NM

 
61
%
 
 
 
 
 
 
 
 
 
 
 
 
 
Six months ended June 30,
 
2014
 
2013
(in millions, except ratios)
Reported
results
 
Fully taxable-equivalent adjustments(a)
 
Managed
basis
 
Reported
results
 
Fully taxable-equivalent adjustments(a)
 
Managed
basis
Other income
$
1,066

 
$
1,295

 
$
2,361

 
$
762

 
$
1,146

 
$
1,908

Total noninterest revenue
25,982

 
1,295

 
27,277

 
28,696

 
1,146

 
29,842

Net interest income
21,465

 
470

 
21,935

 
21,637

 
327

 
21,964

Total net revenue
47,447

 
1,765

 
49,212

 
50,333

 
1,473

 
51,806

Pre-provision profit
17,380

 
1,765

 
19,145

 
19,044

 
1,473

 
20,517

Income before income tax expense
15,838

 
1,765

 
17,603

 
18,380

 
1,473

 
19,853

Income tax expense
$
4,579

 
$
1,765

 
$
6,344

 
$
5,355

 
$
1,473

 
$
6,828

Overhead ratio
63
%
 
NM

 
61
%
 
62
%
 
NM

 
60
%
(a)
Predominantly recognized in CIB and CB business segments and Corporate/Private Equity.
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 earnings as a
 
percentage of average TCE. TBVPS represents the Firm’s tangible common equity divided by period-end common shares. TCE, ROTCE, and TBVPS are meaningful to the Firm, as well as investors and analysts, in assessing the Firm’s use of equity.



17


Average tangible common equity
(in millions, except per share and ratio data)
Three months ended June 30,
 
Six months ended June 30,
2014
 
2013
 
2014
 
2013
Common stockholders’ equity
$
206,159

 
$
197,283

 
$
203,989

 
$
196,016

Less: Goodwill
48,084

 
48,078

 
48,069

 
48,123

Less: Certain identifiable intangible assets
1,416

 
2,026

 
1,482

 
2,093

Add: Deferred tax liabilities(a)
2,952

 
2,869

 
2,948

 
2,849

Tangible common equity
$
159,611

 
$
150,048

 
$
157,386

 
$
148,649

 
 
 
 
 
 
 
 
Return on tangible common equity
14
%
 
17
%
 
14
%
 
17
%
Tangible book value per share
$
43.17

 
$
39.97

 
$
43.17

 
$
39.97


(a)
Represents deferred tax liabilities related to tax-deductible goodwill and to identifiable intangibles created in non-taxable transactions, which are netted against goodwill and other intangibles when calculating TCE.
Additionally, certain capital ratios disclosed by the Firm are non-GAAP measures. For additional information on these non-GAAP measures, see Regulatory capital on pages 74–78.
Core net interest income
In addition to reviewing net interest income on a managed basis, management also reviews core net interest income to assess the performance of its core lending, investing (including asset-liability management) and deposit-raising activities. Core net interest income excludes the impact of
 
CIB’s market-based activities. Because of the exclusion of CIB’s market-based net interest income and the related assets, the core data presented below are non-GAAP financial measures. Management believes this data provides investors and analysts a more meaningful measure by which to analyze the non-market-related business trends of the Firm and provides a comparable measure to other financial institutions that are primarily focused on core lending, investing and deposit-raising activities.

Core net interest income data(a)
 
Three months ended June 30,
 
Six months ended June 30,
(in millions, except rates)
2014
2013
 
Change
 
2014
2013
 
Change
Net interest income – managed basis(b)(c)
$
11,042

$
10,869

 
2
%
 
$
21,935

$
21,964

 

Less: Market-based net interest income
1,030

1,345

 
(23
)
 
2,086

2,777

 
(25
)
Core net interest income(b)
$
10,012

$
9,524

 
5

 
$
19,849

$
19,187

 
3

 
 
 
 
 
 
 
 
 
 
Average interest-earning assets
$
2,023,945

$
1,980,466

 
2

 
$
2,014,846

$
1,938,508

 
4

Less: Average market-based earning assets
502,413

512,631

 
(2
)
 
504,942

510,796

 
(1
)
Core average interest-earning assets
$
1,521,532

$
1,467,835

 
4
%
 
$
1,509,904

$
1,427,712

 
6
%
Net interest yield on interest-earning assets – managed basis
2.19
%
2.20
%
 
 
 
2.20
%
2.28
%
 
 
Net interest yield on market-based activities
0.82

1.05

 
 
 
0.83

1.10

 
 
Core net interest yield on core average interest-earning assets
2.64
%
2.60
%
 
 
 
2.65
%
2.71
%
 
 
(a)
Includes core lending, investing and deposit-raising activities on a managed basis across each of the business segments and Corporate/Private Equity; excludes the market-based activities within the CIB.
(b)
Interest includes the effect of related hedging derivatives. Taxable-equivalent amounts are used where applicable.
(c)
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 17.
Quarterly and year-to-date results
Core net interest income increased by $488 million to $10.0 billion and by $662 million to $19.8 billion for the three and six months ended June 30, 2014, respectively, compared with the prior year periods. Core average interest-earning assets increased by $53.7 billion to $1.5 trillion, and by $82.2 billion to $1.5 trillion for the three and six months ended June 30, 2014, respectively, compared with the prior year periods. The increase in net interest income primarily reflected the impact of higher yields on securities, lower yields on long-term debt and
 
deposits, partially offset by lower yields on loans due to run-off of higher yielding loans and originations of lower yielding loans. The increase in average interest-earning assets primarily reflected the impact of higher average balance of deposits with banks. These changes in net interest income and interest-earning assets resulted in the core net interest yield increasing by 4 basis points to 2.64% for the three months ended June 30, 2014, and decreasing by 6 basis points to 2.65% for the six months ended June 30, 2014.



18


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/Private Equity 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, on pages 17–18.
Description of business segment reporting methodology
Results of the business segments are intended to reflect each segment as if it were essentially a stand-alone business. The management reporting process that derives business segment results allocates income and expense using market-based methodologies. The Firm continues to
 
assess 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 84–85 of JPMorgan Chase’s 2013 Annual Report.
Business segment capital allocation changes
Each business segment is allocated capital by taking into consideration stand-alone peer comparisons, regulatory capital requirements (as estimated under Basel III Advanced Fully Phased-In) and economic risk measures. The amount of capital assigned to each business is referred to as equity. Effective January 1, 2014, the Firm revised the capital allocated to certain businesses. For further information about these capital changes, see Line of business equity on page 79.



Segment Results – Managed Basis
The following table summarizes 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)
2014
2013
Change

 
2014
2013
Change
 
2014
2013
Change
Consumer & Community Banking
$
11,431

$
12,015

(5
)%
 
$
6,456

$
6,864

(6
)%
 
$
4,975

$
5,151

(3
)%
Corporate & Investment Bank
8,991

9,876

(9
)
 
6,058

5,742

6

 
2,933

4,134

(29
)
Commercial Banking
1,701

1,728

(2
)
 
675

652

4

 
1,026

1,076

(5
)
Asset Management
2,956

2,725

8

 
2,062

1,892

9

 
894

833

7

Corporate/Private Equity
270

(386
)
NM

 
180

716

(75
)
 
90

(1,102
)
NM

Total
$
25,349

$
25,958

(2
)%
 
$
15,431

$
15,866

(3
)%
 
$
9,918

$
10,092

(2
)%
Three months ended June 30,
Provision for credit losses
 
Net income/(loss)
 
Return on common equity
(in millions, except ratios)
2014
2013
Change
 
2014
2013
Change
 
2014
2013
Consumer & Community Banking
$
852

$
(19
)
NM

 
$
2,443

$
3,089

(21
)%
 
19
%
27
%
Corporate & Investment Bank
(84
)
(6
)
NM

 
1,963

2,838

(31
)
 
13

20

Commercial Banking
(67
)
44

NM

 
658

621

6

 
19

18

Asset Management
1

23

(96
)%
 
552

500

10

 
25

22

Corporate/Private Equity 
(10
)
5

NM

 
369

(552
)
NM

 
NM

NM

Total
$
692

$
47

NM

 
$
5,985

$
6,496

(8
)%
 
11
%
13
%
Six months ended June 30,
Total net revenue
 
Total Noninterest expense
 
Pre-provision profit/(loss)
(in millions)
2014
2013
Change

 
2014
2013
Change
 
2014
2013
Change
Consumer & Community Banking
$
21,891

$
23,630

(7
)%
 
$
12,893

$
13,654

(6
)%
 
$
8,998

$
9,976

(10
)%
Corporate & Investment Bank
17,597

20,016

(12
)
 
11,662

11,853

(2
)
 
5,935

8,163

(27
)
Commercial Banking
3,352

3,401

(1
)
 
1,361

1,296

5

 
1,991

2,105

(5
)
Asset Management
5,734

5,378

7

 
4,137

3,768

10

 
1,597

1,610

(1
)
Corporate/Private Equity
638

(619
)
NM 

 
14

718

(98
)
 
624

(1,337
)
NM 

Total
$
49,212

$
51,806

(5
)%
 
$
30,067

$
31,289

(4
)%
 
$
19,145

$
20,517

(7
)%
Six months ended June 30,
Provision for credit losses
 
Net income/(loss)
 
Return on common equity
(in millions, except ratios)
2014
2013
Change
 
2014
2013
Change
 
2014
2013
Consumer & Community Banking
$
1,668

$
530

215
%
 
$
4,379

$
5,675

(23
)%
 
17
%
25
%
Corporate & Investment Bank
(35
)
5

NM 

 
3,942

5,448

(28
)
 
13

19

Commercial Banking
(62
)
83

NM 

 
1,236

1,217

2

 
18

18

Asset Management
(8
)
44

NM 

 
993

987

1

 
22

22

Corporate/Private Equity
(21
)
2

NM 

 
709

(302
)
NM 

 
NM

NM

Total
$
1,542

$
664

132
%
 
$
11,259

$
13,025

(14
)%
 
11
%
13
%

19



CONSUMER & COMMUNITY BANKING
For a discussion of the business profile of CCB, see pages 86–97 of JPMorgan Chase’s 2013 Annual Report and the Introduction on page 4 of this Form 10-Q.
Selected income statement data
 
 
 
 
 
 
 
 
 
 
 
 
Three months ended June 30,
 
Six months ended June 30,
(in millions, except ratios)
2014
 
2013
 
Change
 
2014
 
2013
 
 
Change
Revenue
 
 
 
 
 
 
 
 
 
 
 
 
Lending- and deposit-related fees
$
750

 
$
727

 
3
%
 
$
1,453

 
$
1,450

 
 

Asset management, administration and commissions
521

 
561

 
(7
)
 
1,024

 
1,094

 
 
(6
)
Mortgage fees and related income
1,290

 
1,819

 
(29
)
 
1,804

 
3,269

 
 
(45
)
Card income
1,486

 
1,445

 
3

 
2,834

 
2,807

 
 
1

All other income
421

 
369

 
14

 
787

 
707

 
 
11

Noninterest revenue
4,468

 
4,921

 
(9
)
 
7,902

 
9,327

 
 
(15
)
Net interest income
6,963

 
7,094

 
(2
)
 
13,989

 
14,303

 
 
(2
)
Total net revenue
11,431

 
12,015

 
(5
)
 
21,891

 
23,630

 
 
(7
)
 
 
 
 
 
 
 
 
 
 
 
 
 
Provision for credit losses
852

 
(19
)
 
NM

 
1,668

 
530

 
 
215

 
 
 
 
 
 
 
 
 
 
 
 
 
Noninterest expense
 
 
 
 
 
 
 
 
 
 
 
 
Compensation expense
2,637

 
2,966

 
(11
)
 
5,376

 
5,972

 
 
(10
)
Noncompensation expense
3,725

 
3,789

 
(2
)
 
7,329

 
7,465

 
 
(2
)
Amortization of intangibles
94

 
109

 
(14
)
 
188

 
217

 
 
(13
)
Total noninterest expense
6,456

 
6,864

 
(6
)
 
12,893

 
13,654

 
 
(6
)
Income before income tax expense
4,123

 
5,170

 
(20
)
 
7,330

 
9,446

 
 
(22
)
Income tax expense
1,680

 
2,081

 
(19
)
 
2,951

 
3,771

 
 
(22
)
Net income
$
2,443

 
$
3,089

 
(21
)%
 
$
4,379

 
$
5,675

 
 
(23
)%
 
 
 
 
 
 
 
 
 
 
 
 
 
Financial ratios
 
 
 
 
 
 
 
 
 
 
 
 
Return on common equity
19
%
 
27
%
 
 
 
17
%
 
25
%
 
 
 
Overhead ratio
56

 
57

 
 
 
59

 
58

 
 
 
Quarterly results
Consumer & Community Banking net income was $2.4 billion, a decrease of $646 million, or 21%, compared with the prior year, due to higher provision for credit losses and lower net revenue, partially offset by lower noninterest expense.
Net revenue was $11.4 billion, a decrease of $584 million, or 5%, compared with the prior year. Net interest income was $7.0 billion, down $131 million, or 2%, driven by spread compression and lower mortgage warehouse balances, largely offset by higher deposit balances. Noninterest revenue was $4.5 billion, a decrease of $453 million, or 9%, driven by lower mortgage fees and related income.
The provision for credit losses was $852 million, compared with a benefit of $19 million in the prior year. The current-quarter provision reflected a $357 million reduction in the allowance for loan losses and total net charge-offs of $1.2 billion. The prior-year provision reflected a $1.5 billion reduction in the allowance for loan losses and total net charge-offs of $1.5 billion. For more information, including net charge-off amounts and rates, see Consumer Credit Portfolio on pages 52–59.
 
Noninterest expense was $6.5 billion, a decrease of $408 million, or 6%, from the prior year, driven by lower Mortgage Banking expense, partially offset by higher Credit Card expense.
Year-to-date results
Consumer & Community Banking net income was $4.4 billion, a decrease of $1.3 billion, or 23%, compared with the prior year, due to lower net revenue and higher provision for credit losses, partially offset by lower noninterest expense.
Net revenue was $21.9 billion, a decrease of $1.7 billion, or 7%, compared with the prior year. Net interest income was $14.0 billion, down $314 million, or 2%, driven by spread compression in Credit Card, Auto and Consumer & Business Banking and by lower mortgage warehouse balances, largely offset by higher deposit balances. Noninterest revenue was $7.9 billion, a decrease of $1.4 billion, or 15%, driven by lower mortgage fees and related income.
The provision for credit losses was $1.7 billion, compared with $530 million in the prior year. The current-year provision reflected a $807 million reduction in the allowance for loan losses and total net charge-offs of $2.5 billion. The prior-year provision reflected a $2.7 billion


20



reduction in the allowance for loan losses and total net charge-offs of $3.2 billion. For more information, including net charge-off amounts and rates, see Consumer Credit Portfolio on pages 52–59.
 
Noninterest expense was $12.9 billion, a decrease of $761 million, or 6%, from the prior year, driven by lower Mortgage Banking expense, partially offset by higher Credit Card expense.

Selected metrics
 
 
 
 
 
 
 
 
 
 
 
As of or for the three months
ended June 30,
 
As of or for the six months
ended June 30,
(in millions, except headcount)
2014
 
2013
 
Change
 
2014
 
2013
 
Change
Selected balance sheet data (period-end)