10-Q 1 corpq12016.htm 10-Q 10-Q


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
Quarterly report pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the quarterly period ended
Commission file
March 31, 2016
number 1-5805

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

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

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
x  Yes
o No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer x
Accelerated filer o
 
 
Non-accelerated filer (Do not check if a smaller reporting company)  o
Smaller reporting company o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
o  Yes
x  No
 
Number of shares of common stock outstanding as of March 31, 2016: 3,656,658,925
 



FORM 10-Q
TABLE OF CONTENTS
Part I - Financial information
Page
Item 1
 
 
71
 
72
 
73
 
74
 
75
 
76
 
149
 
150
 
151
Item 2
 
 
3
 
4
 
5
 
8
 
10
 
12
 
13
 
14
 
16
 
30
 
31
 
48
 
52
 
53
 
54
 
61
 
65
 
66
 
68
 
70
Item 3
158
Item 4
158
Part II - Other information
 
Item 1
158
Item 1A
158
Item 2
158
Item 3
159
Item 4
159
Item 5
159
Item 6
159



2


JPMorgan Chase & Co.
Consolidated financial highlights
(unaudited)
As of or for the period ended,
(in millions, except share, ratio, headcount data and where otherwise noted)
 
 
 
 
 
1Q16
4Q15
3Q15
2Q15
1Q15
Selected income statement data
 
 
 
 
 
Total net revenue
$
23,239

$
22,885

$
22,780

$
23,812

$
24,066

Total noninterest expense
13,837

14,263

15,368

14,500

14,883

Pre-provision profit
9,402

8,622

7,412

9,312

9,183

Provision for credit losses
1,824

1,251

682

935

959

Income before income tax expense
7,578

7,371

6,730

8,377

8,224

Income tax expense/(benefit)
2,058

1,937

(74
)
2,087

2,310

Net income
$
5,520

$
5,434

$
6,804

$
6,290

$
5,914

Earnings per share data
 
 
 
 
 
Net income: Basic
$
1.36

$
1.34

$
1.70

$
1.56

$
1.46

 Diluted
1.35

1.32

1.68

1.54

1.45

Average shares: Basic
3,669.9

3,674.2

3,694.4

3,707.8

3,725.3

 Diluted
3,696.9

3,704.6

3,725.6

3,743.6

3,757.5

Market and per common share data
 
 
 
 
 
Market capitalization
216,547

241,899

224,438

250,581

224,818

Common shares at period-end
3,656.7

3,663.5

3,681.1

3,698.1

3,711.1

Share price(a):
 
 
 
 
 
High
$
64.13

$
69.03

$
70.61

$
69.82

$
62.96

Low
52.50

58.53

50.07

59.65

54.27

Close
59.22

66.03

60.97

67.76

60.58

Book value per share
61.28

60.46

59.67

58.49

57.77

Tangible book value per share (“TBVPS”)(b)
48.96

48.13

47.36

46.13

45.45

Cash dividends declared per share
0.44

0.44

0.44

0.44

0.40

Selected ratios and metrics
 
 
 
 
 
Return on common equity (“ROE”)
9
%
9
%
12
%
11
%
11
%
Return on tangible common equity (“ROTCE”)(b)
12

11

15

14

14

Return on assets (“ROA”)
0.93

0.90

1.11

1.01

0.94

Overhead ratio
60

62

67

61

62

Loans-to-deposits ratio
64

65

64

61

56

High quality liquid assets (“HQLA”) (in billions)(c)
$
505

$
496

$
505

$
532

$
614

Common equity Tier 1 (“CET1”) capital ratio(d)
11.9
%
11.8
%
11.5%

11.2
%
10.7
%
Tier 1 capital ratio(d)
13.5

13.5

13.3

12.8

12.1

Total capital ratio(d)
15.1

15.1

14.9

14.4

13.6

Tier 1 leverage ratio(d)
8.6

8.5

8.4

8.0

7.5

Selected balance sheet data (period-end)
 
 
 
 
 
Trading assets
$
366,153

$
343,839

$
361,708

$
377,870

$
398,981

Securities
285,323

290,827

306,660

317,795

331,136

Loans
847,313

837,299

809,457

791,247

764,185

Core loans
746,196

732,093

698,988

674,767

641,285

Average Core loans
737,297

715,282

680,224

654,551

631,955

Total assets
2,423,808

2,351,698

2,416,635

2,449,098

2,576,619

Deposits
1,321,816

1,279,715

1,273,106

1,287,332

1,367,887

Long-term debt(e)
290,754

288,651

292,503

286,240

280,123

Common stockholders’ equity
224,089

221,505

219,660

216,287

214,371

Total stockholders’ equity
250,157

247,573

245,728

241,205

235,864

Headcount
237,420

234,598

235,678

237,459

241,145

Credit quality metrics
 
 
 
 
 
Allowance for credit losses
$
15,008

$
14,341

$
14,201

$
14,535

$
14,658

Allowance for loan losses to total retained loans
1.66%

1.63%

1.67%

1.78%

1.86%

Allowance for loan losses to retained loans excluding purchased credit-impaired loans(f)
1.40

1.37

1.40

1.45

1.52

Nonperforming assets
$
8,023

$
7,034

$
7,294

$
7,588

$
7,714

Net charge-offs
1,110

1,064

963

1,007

1,052

Net charge-off rate
0.53%

0.52%

0.49%

0.53%

0.57%

Note: Effective January 1, 2016, the Firm adopted new accounting guidance related to (1) the recognition and measurement of debit valuation adjustments (“DVA”) on financial liabilities where the fair value option has been elected, and (2) the accounting for employee stock-based incentive payments. For additional information, see Accounting and Reporting Developments on page 68–69 and Notes 3, 4, and 19.
(a)
Share prices shown for JPMorgan Chase’s common stock are from the New York Stock Exchange.
(b)
TBVPS and ROTCE are non-GAAP financial measures. For further discussion of these measures, see Explanation and Reconciliation of the Firm’s Use of Non-GAAP Financial Measures on pages 14–15.
(c)
HQLA represents the amount of assets that qualify for inclusion in the liquidity coverage ratio under the final U.S. rule (“U.S. LCR”). For additional information, see HQLA on page 61.
(d)
Ratios presented are calculated under the Basel III Transitional capital rules and represent the Collins Floor. See Capital Management on pages 54–60 for additional information on Basel III.
(e)
Included unsecured long-term debt of $216.1 billion, $211.8 billion, $214.6 billion, $209.1 billion and $209.0 billion at March 31, 2016, December 31, 2015, September 30, 2015, June 30, 2015 and March 31, 2015, respectively.
(f)
Excluded the impact of residential real estate purchased credit-impaired (“PCI”) loans, a non-GAAP financial measure. For further discussion of these measures, see Explanation and Reconciliation of the Firm’s Use of Non-GAAP Financial Measures on pages 14–15. For further discussion, see Allowance for credit losses on pages 45–47.

3


INTRODUCTION
The following is management’s discussion and analysis (“MD&A”) of the financial condition and results of operations of JPMorgan Chase & Co. (“JPMorgan Chase” or the “Firm”) for the first quarter of 2016.
This Form 10-Q should be read in conjunction with JPMorgan Chase’s Annual Report on Form 10-K for the year ended December 31, 2015, filed with the U.S. Securities and Exchange Commission (“2015 Annual Report” or “2015 Form 10-K”), to which reference is hereby made. See the Glossary of terms on pages 151–157 for definitions of terms used throughout this Form 10-Q.
The MD&A included in this Form 10-Q contains statements that are forward-looking within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are based on the current beliefs and expectations of JPMorgan Chase’s management and are subject to significant risks and uncertainties. Actual results may differ from those set forth in the forward-looking statements. For a discussion of certain of those risks and uncertainties and the factors that could cause JPMorgan Chase’s actual results to differ materially because of those risks and uncertainties, see Forward-looking Statements on page 70 of this Form 10-Q and Part I, Item 1A, Risk Factors, on pages 8–18 of JPMorgan Chase’s 2015 Annual Report.
JPMorgan Chase & Co., a financial holding company incorporated under Delaware law in 1968, is a leading global financial services firm and one of the largest banking institutions in the United States of America (“U.S.”), with operations worldwide; the Firm had $2.4 trillion in assets and $250.2 billion in stockholders’ equity as of March 31, 2016. The Firm is a leader in investment banking, financial
 
services for consumers and small businesses, commercial banking, financial transaction processing and asset management. Under the J.P. Morgan and Chase brands, the Firm serves millions of customers in the U.S. and many of the world’s most prominent corporate, institutional and government clients.
JPMorgan Chase’s principal bank subsidiaries are JPMorgan Chase Bank, National Association (“JPMorgan Chase Bank, N.A.”), a national banking association with U.S. branches in 23 states, and Chase Bank USA, National Association (“Chase Bank USA, N.A.”), a national banking association that is the Firm’s credit card-issuing bank. JPMorgan Chase’s principal nonbank subsidiary is J.P. Morgan Securities LLC (“JPMorgan Securities”), the Firm’s U.S. investment banking firm. The bank and nonbank subsidiaries of JPMorgan Chase operate nationally as well as through overseas branches and subsidiaries, representative offices and subsidiary foreign banks. One of the Firm’s principal operating subsidiaries in the United Kingdom (“U.K.”) is J.P. Morgan Securities plc, a subsidiary of JPMorgan Chase Bank, N.A.
For management reporting purposes, the Firm’s activities are organized into four major reportable business segments, as well as a Corporate segment. The Firm’s consumer business is the Consumer & Community Banking (“CCB”) segment. The Firm’s wholesale business segments are Corporate & Investment Bank (“CIB”), Commercial Banking (“CB”), and Asset Management (“AM”). For a description of the Firm’s business segments, and the products and services they provide to their respective client bases, refer to Note 33 of JPMorgan Chase’s 2015 Annual Report.





4


EXECUTIVE OVERVIEW
This executive overview of the MD&A highlights selected information and may not contain all of the information that is important to readers of this Form 10-Q. For a complete description of the trends and uncertainties, as well as the risks and critical accounting estimates affecting the Firm and its various lines of business, this Form 10-Q should be read in its entirety.
Financial performance of JPMorgan Chase
 
 
(unaudited)
As of or for the period ended,
Three months ended March 31,
(in millions, except per share data and ratios)
2016
 
2015
 
Change
Selected income statement data
 
 
 
 
 
Total net revenue
$
23,239

 
$
24,066

 
(3
)%
Total noninterest expense
13,837

 
14,883

 
(7
)
Pre-provision profit
9,402

 
9,183

 
2

Provision for credit losses
1,824

 
959

 
90

Net income
5,520

 
5,914

 
(7
)
Diluted earnings per share
$
1.35

 
$
1.45

 
(7
)%
Return on common equity
9
%
 
11
%
 
 
Capital ratios(a)
 
 
 
 
 
CET1
11.9

 
10.7

 
 
Tier 1 capital
13.5

 
12.1

 
 
(a)
Ratios presented are calculated under the transitional Basel III rules and represent the Collins Floor. See Capital Management on pages 54–60 for additional information on Basel III.
Business Overview
JPMorgan Chase reported first-quarter 2016 net income of $5.5 billion, or $1.35 per share, on net revenue of $23.2 billion. The Firm reported a return on equity of 9%.
Net income decreased 7% compared with the first quarter of 2015, reflecting higher provision for credit losses and lower net revenue, largely offset by lower noninterest expense. Total net revenue was $23.2 billion, down 3% compared with the prior year primarily reflecting the impact of the challenging market environment on the results of the CIB and AM. The largest drivers of the declines were lower Fixed Income Markets revenue and lower investment banking fees in CIB, in both cases versus strong performance in the prior year; and lower asset management fees in AM. These factors were partially offset by higher net interest income across the businesses, primarily driven by loan growth and the impact of higher rates on deposits with banks, partially offset by lower investment securities balances.
Noninterest expense was $13.8 billion, down 7% compared with the prior year, driven by lower legal and CIB performance-based compensation expense.
The provision for credit losses was $1.8 billion, compared with $959 million in the prior year, predominantly due to increases in the wholesale allowance for credit losses versus a reduction in the consumer allowance for credit losses in
 
the prior-year quarter. The current quarter reflected an increase in the wholesale allowance for credit losses of $713 million primarily driven by downgrades, including $529 million in the Oil & Gas and Natural Gas Pipelines portfolios, and $162 million in the Metals & Mining portfolio.
The total allowance for credit losses was $15.0 billion. At the end of the first quarter of 2016, the Firm had a loan loss coverage ratio of 1.40%, excluding the PCI portfolio, compared with 1.52% in the prior-year quarter. The Firm’s allowance for loan losses to retained nonaccrual loans, excluding the PCI portfolio and credit card, was 107%, compared with 106% in the prior-year quarter. The Firm’s nonperforming assets totaled $8.0 billion, up from the prior quarter and prior year levels of $7.0 billion and $7.7 billion, respectively.
Firmwide average core loans increased 17% compared with the prior-year quarter and 3% compared with the fourth quarter of 2015. Within CCB, average core loans were up 25% over the prior-year quarter. CCB had record growth in average deposits of $50 billion, up 10% over the prior-year quarter. Credit card sales volume was up 8% and merchant processing volume was up 12% from the prior-year quarter. CCB had nearly 24 million active mobile customers in the first quarter of 2016, up 19% over the prior-year quarter.
CIB maintained its #1 ranking for Global Investment Banking fees with an 8.2% fee share for the first quarter of 2016. The business also had the #1 wallet share in North America, Europe, Middle East and Africa, and Latin America in the first quarter of 2016. Within CB, average loans were up 13% from the prior year and the business reported its thirteenth consecutive quarter of single-digit net charge-off rates or net recoveries. AM average loans were up 7% over the prior-year quarter and 80% of mutual fund assets under management (“AUM”) ranked in the 1st or 2nd quartiles over the past five years. For a detailed discussion of results by line of business, refer to the Business Segment Results section beginning on page 16.
The Firm maintained its fortress balance sheet and added to its capital, ending the first quarter of 2016 with a tangible book value per share of $48.96, up 8% over the prior-year quarter. The Firm’s estimated Basel III Advanced Fully Phased-In CET1 capital and ratio were $176 billion and 11.7%, respectively. The Firm’s Fully Phased-In supplementary leverage ratio (“SLR”) was 6.6% and JPMorgan Chase Bank, N.A.’s Fully Phased-In SLR was 6.7% at March 31, 2016. The Firm was also compliant with the Fully Phased-In U.S. liquidity coverage ratio (“LCR”) and had $505 billion of HQLA as of March 31, 2016. Tangible book value per share and each of these Fully Phased-In capital and leverage measures are non-GAAP financial measures and are used by management, bank regulators, investors and analysts to assess and monitor the Firm’s capital position and liquidity. For further discussion of Basel III


5


Advanced Fully Phased-In measures and the SLR under the U.S. final SLR rule, see Capital Management on pages 54–60, and for further discussion of LCR and HQLA, see Liquidity Risk Management on pages 61–65.
JPMorgan Chase continues to support consumers, businesses and communities around the globe. The Firm provided credit and raised capital of $496 billion for commercial and consumer clients during the first three months of 2016. This included providing $160 billion of credit to corporations, $59 billion to consumers, and $6 billion to U.S. small businesses. During the first three months of 2016, the Firm also raised $251 billion of capital for corporate clients and non-U.S. government entities, and $20 billion of credit was provided to, and capital was raised for, nonprofit and U.S. government entities, including states, municipalities, hospitals and universities.
Regulatory and business developments
In March 2016, the Basel Committee proposed revisions to the operational and credit risk capital frameworks of Basel III and in April 2016, proposed a recalibration of the leverage ratio, changes to the definition of defaulted assets and finalized the treatment of interest rate risk in the banking book. As these proposals are finalized by the Basel Committee, U.S. banking regulators will propose requirements applicable to U.S. financial institutions. In March 2016, the Federal Reserve Board released a revised proposal to establish single-counterparty credit limits (“SCCL”) for large U.S. bank holding companies and foreign banking organizations. Comments on the proposal are due June 3, 2016. The Firm continues to assess the impacts as the proposed rules are finalized and will make appropriate adjustments to its businesses in response to these and other ongoing developments in regulatory requirements.
On April 6, 2016, the U.S. Department of Labor (“DOL”) issued its final “fiduciary” rule. The rule will make many of the investment, rollover and asset management recommendations from broker-dealers, banks and other financial institutions to clients regarding their individual retirement accounts (“IRAs”) and other retirement accounts fiduciary “investment advice” under the Employee Retirement Income Security Act of 1974 ("ERISA"), as amended. Among the most significant impacts of the rule and related prohibited transaction exemptions will be the impact on the fee and compensation practices at financial institutions and on certain fee and revenue sharing arrangements among funds, fund sponsors and the financial institutions that offer investment advice to retail retirement clients. The related exemptions may require new client contracts, “impartial conduct” standards (including a requirement to act in the “best interest” of retirement clients) and policies and procedures, websites and other disclosures to both investors and the DOL. The Firm believes it will be able to conform its business practices to meet the requirements of the new rule and exemptions within the prescribed time periods.

 
On April 13, 2016, the Federal Deposit Insurance Corporation (“FDIC”) and the Board of Governors of the Federal Reserve System (the “Federal Reserve”) jointly announced determinations and provided firm-specific feedback on the 2015 resolution plans of eight systemically important domestic banking institutions, including the Firm. The FDIC and Federal Reserve jointly determined that the 2015 resolution plan of the Firm, along with the 2015 resolution plans of four other U.S. banking institutions, was not credible or would not facilitate an orderly resolution under the U.S. Bankruptcy Code, as provided under the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”), because the plan contained certain deficiencies identified by the two agencies. If the Firm does not adequately remediate the identified deficiencies in its plan by October 1, 2016, the FDIC and the Federal Reserve may impose more stringent prudential requirements on the Firm, including more stringent capital, leverage, or liquidity requirements, as well as restrictions on the growth, activities, or operations of the Firm, or its subsidiaries. The FDIC and the Federal Reserve also identified certain shortcomings in the Firm’s 2015 resolution plan which must be satisfactorily addressed in the Firm’s resolution plan due on July 1, 2017. The Firm is committed to meeting the regulators’ expectations and fully remediating the identified deficiencies and shortcomings within the prescribed deadlines.
Many international banks, including the Firm, operate substantial parts of their European Union business from subsidiaries based in the United Kingdom. On June 23, 2016, the U.K. will conduct a referendum on whether the country should remain part of the European Union. If the U.K. leaves the European Union, the regulatory and legal environment that would exist, and to which the Firm’s U.K. operations would be subject, will depend on the nature of the transitional arrangements agreed following the referendum. These arrangements are hard to predict, but currently the Firm does not believe any of the likely identified transitional scenarios would threaten the viability of the Firm’s business units in the European Union or in the U.K. However, it is possible that under some scenarios, changes to the Firm’s legal entity structure would be required, which might result in a less efficient operating model across the Firm’s European legal entities.


6


2016 Business outlook
These current expectations are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements are based on the current beliefs and expectations of JPMorgan Chase’s management and are subject to significant risks and uncertainties. These risks and uncertainties could cause the Firm’s actual results to differ materially from those set forth in such forward-looking statements. See Forward-Looking Statements on page 70 of this Form 10-Q and Risk Factors on pages 8–18 of JPMorgan Chase’s 2015 Annual Report. There is no assurance that actual results for the second quarter or full year of 2016 will be in line with the outlook set forth below, and the Firm does not undertake to update any of these forward-looking statements to reflect the impact of circumstances or events that arise after the date hereof.
JPMorgan Chase’s outlook for the remainder of 2016 should be viewed against the backdrop of the global and U.S. economies, financial markets activity, the geopolitical environment, the competitive environment, client activity levels, and regulatory and legislative developments in the U.S. and other countries where the Firm does business. Each of these interrelated factors will affect the performance of the Firm and its lines of business. The Firm expects it will continue to make appropriate adjustments to its businesses and operations in response to ongoing developments in the legal and regulatory, as well as business and economic, environment in which it operates.
Assuming there are no changes in interest rates during 2016, management expects full-year 2016 net interest income could be over $2 billion higher compared to 2015 levels, reflecting the Federal Reserve’s rate increase in December 2015 and anticipated loan growth.
Management also expects managed noninterest revenue of approximately $50 billion in 2016, although actual results will depend on market conditions. The expected decline from 2015 is primarily driven by lower Card revenue reflecting renegotiated co-brand partnership agreements and lower noninterest revenue in Mortgage Banking.
Management expects core loan growth of approximately 10%-15% in 2016 as well as continued growth in retail deposits; these two factors are anticipated to increase the Firm’s average balance sheet to approximately $2.45 trillion in 2016.
The Firm continues to experience charge-offs at levels lower than its through-the-cycle expectations reflecting favorable credit trends across the consumer and wholesale portfolios, excluding the Oil & Gas and Metals & Mining portfolios. Management expects total net charge-offs of up to approximately $4.75 billion in 2016, with the increase from 2015 levels driven by loan growth as well as higher charge-offs in the Oil & Gas portfolio.
 
The Firm continues to take a disciplined approach to managing its expenses, while investing in growth and innovation. The Firm intends to leverage its scale and improve its operating efficiencies, in order to reinvest its expense savings in additional technology and marketing investments and fund other growth initiatives. As a result, Firmwide adjusted expense in 2016 is expected to be approximately $56 billion (excluding Firmwide legal expense).
In Mortgage Banking within CCB, management expects
net charge-offs to be approximately $60 million per quarter in 2016. The Card net charge-off rate is expected to be approximately 2.50% in 2016.
In CIB, management expects Securities Services revenue to be approximately $875 million per quarter for the remainder of 2016, depending on market conditions.
In CB, management expects second quarter 2016 revenue to increase modestly over the prior quarter and noninterest expense to be approximately $725 million. Additionally, management expects pre-provision net revenue to be relatively flat compared with the first quarter of 2016.
In AM, management expects second quarter 2016 revenue to be less than or equal to approximately $3 billion, depending on market conditions.


7


CONSOLIDATED RESULTS OF OPERATIONS
This section provides a comparative discussion of JPMorgan Chase’s Consolidated Results of Operations on a reported basis for the three months ended March 31, 2016 and 2015, unless otherwise specified. Factors that relate primarily to a single business segment are discussed in more detail within that business segment. For a discussion of the Critical Accounting Estimates Used by the Firm that affect the Consolidated Results of Operations, see pages 66–67 of this Form 10-Q and pages 165–169 of JPMorgan Chase’s 2015 Annual Report.
Revenue
 
 
 
 
 
 
Three months ended March 31,
(in millions)
2016

 
2015

 
Change
Investment banking fees
$
1,333

 
$
1,794

 
(26
)%
Principal transactions
2,679

 
3,655

 
(27
)
Lending- and deposit-related fees
1,403

 
1,363

 
3

Asset management, administration and commissions
3,624

 
3,807

 
(5
)
Securities gains
51

 
52

 
(2
)
Mortgage fees and related income
667

 
705

 
(5
)
Card income
1,301

 
1,431

 
(9
)
Other income(a)
801

 
582

 
38

Noninterest revenue
11,859

 
13,389

 
(11
)
Net interest income
11,380

 
10,677

 
7

Total net revenue
$
23,239

 
$
24,066

 
(3)%

(a)
Included operating lease income of $615 million and $469 million for the three months ended March 31, 2016 and 2015, respectively,
Total net revenue was down by 3% primarily reflecting the impact of the challenging market environment on the results of CIB and AM. The decline was largely driven by lower Fixed Income Markets revenue and lower investment banking fees in CIB, in both cases versus strong performance in the prior year; and lower asset management fees in AM. These factors were partially offset by higher net interest income across the businesses.
Investment banking fees decreased reflecting lower debt and equity underwriting fees, partially offset by higher advisory fees. The decrease in debt and equity underwriting fees was driven by lower industry-wide fee levels and, for debt underwriting fees, fewer large acquisition finance deals. The increase in advisory fees was driven by a greater share of fees for completed transactions. For additional information on investment banking fees, see CIB segment results on pages 21–24, CB segment results on pages 25–26 and Note 6.
 
Principal transactions revenue decreased predominantly reflecting the challenging market environment, which included significant volatility, global macro uncertainty and widening credit spreads, resulting in lower revenue in CIB. In contrast, the prior year results were driven by robust client activity resulting from macroeconomic events and conditions, including quantitative easing actions of various central banks. For additional information on principal transactions revenue, see CIB and Corporate segment results on pages 21–24 and page 29, respectively, and
Note 6.
Asset management, administration and commissions revenue decreased largely reflecting the impact of the challenging market environment. For additional information on these fees and commissions, see the segment discussions of CCB on pages 17–20, AM on pages 27–28, and Note 6.
Mortgage fees and related income decreased due to lower servicing and net production revenue, predominantly offset by higher mortgage servicing rights (“MSR”) risk management results. For further information on mortgage fees and related income, see the segment discussion of CCB on pages 17–20 and Note 16.
For additional information on lending- and deposit-related fees, see the segment results for CCB on pages 17–20, CIB on pages 21–24, and CB on pages 25–26; and card income, see CCB segment results on pages 17–20.
Other income increased reflecting a gain on the sale of an asset in AM and higher operating lease income as a result of growth in auto operating leased assets in CCB, and the impact of a loss recorded in the prior year related to the accelerated amortization of cash flow hedges associated with the exit of certain non-operating deposits.
Net interest income increased as a result of loan growth in each of the businesses and higher rates on deposits with banks, partially offset by lower investment securities balances. The Firm’s average interest-earning assets and net interest yield, on a fully taxable equivalent (“FTE”) basis, were $2.0 trillion and 2.30% (an increase of 23 basis points), respectively.


8


Provision for credit losses
 
 
 
 
 
Three months ended March 31,
(in millions)
2016

 
2015

 
Change
Consumer, excluding credit card
$
221

 
$
142

 
56
%
Credit card
830

 
789

 
5
%
Total consumer
1,051

 
931

 
13
%
Wholesale
773

 
28

 
NM

Total provision for credit losses
$
1,824

 
$
959

 
90
%
The provision for credit losses increased as a result of additions to the wholesale allowance for credit losses of $713 million, primarily driven by downgrades in the Oil & Gas and Natural Gas Pipelines portfolios ($529 million), and in the Metals & Mining portfolio ($162 million), as well as due to an increase in the consumer provision as the prior year included a reduction in the allowance for loan losses. For a more detailed discussion of the credit portfolio and the allowance for credit losses, see the segment discussions of CCB on pages 17–20, CIB on pages 21–24, CB on pages 25–26, and the Allowance for credit losses on pages 45–47.
Noninterest expense
 
 
 
 
 
Three months ended March 31,
(in millions)
2016

 
2015

 
Change
Compensation expense
$
7,660

 
$
8,043

 
(5
)%
Noncompensation expense:
 
 
 
 
 
Occupancy
883

 
933

 
(5
)
Technology, communications and equipment
1,618

 
1,491

 
9

Professional and outside services
1,548

 
1,634

 
(5
)
Marketing
703

 
591

 
19

Other expense(a)(b)
1,425

 
2,191

 
(35
)
Total noncompensation expense
6,177

 
6,840

 
(10
)
Total noninterest expense
$
13,837

 
$
14,883

 
(7
)%
(a)
Included firmwide legal expense of $687 million for the three months ended March 31, 2015; legal expense for the three months ended March 31, 2016 was not material.
(b)
Included Federal Deposit Insurance Corporation-related (“FDIC”) expense of $269 million and $318 million for the three months ended March 31, 2016 and 2015, respectively.
Total noninterest expense decreased by 7% driven by lower legal expense and lower performance-based compensation expense, partially offset by incremental investments and growth in the businesses.
Compensation expense decreased predominantly driven by lower performance-based compensation and lower headcount in certain businesses.
 
Noncompensation expense decreased as a result of lower legal expense, partially offset by higher depreciation expense as a result of growth in auto operating leased assets, higher investments in marketing in CCB, and the impact of a benefit recorded in the prior year from a franchise tax settlement. For a further discussion of legal expense, see Note 23.
Income tax expense
 
 
(in millions, except rate)
Three months ended March 31,
2016

 
2015

 
Change
Income before income tax expense
$
7,578

 
$
8,224

 
(8
)%
 
Income tax expense
2,058

 
2,310

 
(11
)
 
Effective tax rate
27.2
%
 
28.1
%
 
 
 
The effective tax rate decreased due to the adoption of new accounting guidance related to employee stock-based incentive payments, and the change in mix of income and expense subject to U.S. federal, state and local taxes, partially offset by lower tax benefits from audit settlements. For additional details on the impact of the new accounting guidance, see Accounting and Reporting Developments on page 68–69.


9


CONSOLIDATED BALANCE SHEETS ANALYSIS
Consolidated balance sheets overview
The following is a discussion of the significant changes between March 31, 2016, and December 31, 2015.
Selected Consolidated balance sheets data
(in millions)
Mar 31,
2016
 
Dec 31,
2015
Change
Assets
 
 
 
 
Cash and due from banks
$
18,212

 
$
20,490

(11
)%
Deposits with banks
360,196

 
340,015

6

Federal funds sold and securities purchased under resale agreements
223,220

 
212,575

5

Securities borrowed
102,937

 
98,721

4

Trading assets:
 
 
 
 
Debt and equity instruments
295,944

 
284,162

4

Derivative receivables
70,209

 
59,677

18

Securities
285,323

 
290,827

(2
)
Loans
847,313

 
837,299

1

Allowance for loan losses
(13,994
)
 
(13,555
)
3

Loans, net of allowance for loan losses
833,319

 
823,744

1

Accrued interest and accounts receivable
57,649

 
46,605

24

Premises and equipment
14,195

 
14,362

(1
)
Goodwill
47,310

 
47,325


Mortgage servicing rights
5,658

 
6,608

(14
)
Other intangible assets
940

 
1,015

(7
)
Other assets
108,696

 
105,572

3

Total assets
$
2,423,808

 
$
2,351,698

3

Cash and due from banks and deposits with banks
The net increase was primarily due to growth in deposits. The Firm’s excess cash is placed with various central banks, predominantly Federal Reserve Banks.
Federal funds sold and securities purchased under resale agreements
The increase was due to a higher demand for securities to cover short positions related to client-driven market-making activities in CIB. For additional information on the Firm’s Liquidity Risk Management, see pages 61–65.
Trading assets and liabilitiesdebt and equity instruments
The increase in trading assets and liabilities was predominantly related to client-driven market-making activities in CIB. The increase in trading assets reflected higher debt instruments, partially offset by lower equity instruments. The increase in trading liabilities reflected higher levels of short positions in debt and equity instruments. For additional information, refer to Note 3.
Trading assets and liabilitiesderivative receivables and payables
The increase in derivative receivables and payables was predominantly related to client-driven market-making activities in CIB, which resulted in higher interest rate and foreign exchange derivative receivables and payables, driven by market movements. For additional information, refer to Derivative contracts on page 43, and Notes 3 and 5.
 
Loans and allowance for loan losses
The increase in loans was driven by the wholesale business’s strong originations of commercial and industrial, and real estate loans, particularly in CB, and higher retention of originated high-quality mortgages, partially offset by seasonal declines in credit card loans, both in CCB.
The increase in the allowance for loan losses was attributable to additions to the wholesale allowance, reflecting downgrades in the Oil & Gas and Natural Gas Pipelines portfolios, and in the Metals & Mining portfolio. The consumer allowances were relatively unchanged reflecting stable credit quality trends and, for the consumer, excluding credit card, allowance in particular, improved credit quality of the loan portfolio, primarily driven by originations of high-quality mortgages and the run-off of lower-quality legacy portfolios. For a more detailed discussion of loans and the allowance for loan losses, refer to Credit Risk Management on pages 31–47, and Notes 3, 4, 13 and 14.
Accrued interest and accounts receivable
The increase was driven by higher unsettled securities transactions and higher customer receivables related to client activity in CIB.
Mortgage servicing rights
For additional information on MSRs, see Note 16.


10





Selected Consolidated balance sheets data (continued)
 
(in millions)
Mar 31,
2016
 
Dec 31,
2015
Change
Liabilities
 
 
 
 
Deposits
$
1,321,816

 
$
1,279,715

3

Federal funds purchased and securities loaned or sold under repurchase agreements
160,999

 
152,678

5

Commercial paper
17,490

 
15,562

12

Other borrowed funds
19,703

 
21,105

(7
)
Trading liabilities:
 
 
 
 
Debt and equity instruments
87,963

 
74,107

19

Derivative payables
59,319

 
52,790

12

Accounts payable and other liabilities
176,934

 
177,638


Beneficial interests issued by consolidated variable interest entities (“VIE”)
38,673

 
41,879

(8
)
Long-term debt
290,754

 
288,651

1

Total liabilities
2,173,651

 
2,104,125

3

Stockholders’ equity
250,157

 
247,573

1

Total liabilities and stockholders’ equity
$
2,423,808

 
$
2,351,698

3
 %
Deposits
The increase was attributable to higher consumer and wholesale deposits. Consumer deposits increased reflecting seasonal factors and continued growth from new and existing customers. Wholesale deposits increased reflecting growth in client activity. For more information on deposits, refer to the CCB, CIB, CB and AM segment discussions on pages 17–20, pages 21–24, pages 25–26, and pages 27–28, respectively; the Liquidity Risk Management discussion on pages 61–65; and Notes 3 and 17.
 
Stockholders’ equity
The increase was due to net income, partially offset by cash dividends on common and preferred stock and repurchases of common stock. For additional information on changes in stockholders’ equity, see page 74, and on the Firm’s capital actions, see Capital actions on pages 59–60.


11


OFF-BALANCE SHEET ARRANGEMENTS
In the normal course of business, the Firm enters into various contractual obligations that may require future cash payments. Certain obligations are recognized on-balance sheet, while others are off-balance sheet under accounting principles generally accepted in the U.S. (“U.S. GAAP”). The Firm is involved with several types of off–balance sheet arrangements, including through nonconsolidated special-purpose entities (“SPEs”), which are a type of VIE, and through lending-related financial instruments (e.g., commitments and guarantees). For further discussion, see Note 21 of this Form 10-Q and Off–Balance Sheet Arrangements and Contractual Cash Obligations on pages 77–78 and Note 29 of JPMorgan Chase’s 2015 Annual Report.
Special-purpose entities
The most common type of VIE is an SPE. SPEs are commonly used in securitization transactions in order to isolate certain assets and distribute the cash flows from those assets to investors. SPEs are an important part of the financial markets, including the mortgage- and asset-backed securities and commercial paper markets, as they provide market liquidity by facilitating investors’ access to specific portfolios of assets and risks. The Firm holds capital, as deemed appropriate, against all SPE-related transactions and related exposures, such as derivative transactions and lending-related commitments and guarantees. For further information on the types of SPEs, see Note 15 of this Form 10-Q, and Note 1 and Note 16 of JPMorgan Chase’s 2015 Annual Report.
Implications of a credit rating downgrade to JPMorgan Chase Bank, N.A.
For certain liquidity commitments to SPEs, JPMorgan Chase Bank, N.A., could be required to provide funding if its short-term credit rating were downgraded below specific levels, primarily “P-1,” “A-1” and “F1” for Moody’s Investors Service (“Moody’s”), Standard & Poor’s and Fitch, respectively. These liquidity commitments support the issuance of asset-backed commercial paper by Firm-administered consolidated SPEs. In the event of a short-term credit rating downgrade, JPMorgan Chase Bank, N.A., absent other solutions, would be required to provide funding to the SPE if the commercial paper could not be reissued as it matured. The aggregate amounts of
 
commercial paper outstanding held by third parties as of March 31, 2016, and December 31, 2015, was $5.3 billion and $8.7 billion, respectively. The aggregate amounts of commercial paper issued by these SPEs could increase in future periods should clients of the Firm-administered consolidated SPEs draw down on certain unfunded lending-related commitments. These unfunded lending-related commitments were $8.6 billion and $5.6 billion at March 31, 2016, and December 31, 2015, respectively. The Firm could facilitate the refinancing of some of the clients’ assets in order to reduce the funding obligation. For further information, see the discussion of Firm-administered multiseller conduits in Note 15.
The Firm also acts as liquidity provider for certain municipal bond vehicles. The Firm’s obligation to perform as liquidity provider is conditional and is limited by certain termination events, which include bankruptcy or failure to pay by the municipal bond issuer and any credit enhancement provider, an event of taxability on the municipal bonds or the immediate downgrade of the municipal bond to below investment grade. See Note 15 for additional information.
Off–balance sheet lending-related financial instruments, guarantees, and other commitments
JPMorgan Chase provides lending-related financial instruments (e.g., commitments and guarantees) to meet the financing needs of its customers. The contractual amount of these financial instruments represents the maximum possible credit risk to the Firm should the counterparty draw upon the commitment or the Firm be required to fulfill its obligation under the guarantee, and should the counterparty subsequently fail to perform according to the terms of the contract. Most of these commitments and guarantees expire without being drawn or a default occurring. As a result, the total contractual amount of these instruments is not, in the Firm’s view, representative of its actual future credit exposure or funding requirements. For further discussion of lending-related financial instruments, guarantees and other commitments, and the Firm’s accounting for them, see Lending-related commitments on page 43 and Note 21 (including the table that presents the related amounts by contractual maturity as of March 31, 2016). For a discussion of liabilities associated with loan sales- and securitization-related indemnifications, see Note 21.


12


CONSOLIDATED CASH FLOWS ANALYSIS
For a discussion of the activities affecting the Firm’s cash flows, see Consolidated Balance Sheets Analysis on pages 10–11 of this Form 10-Q and page 75 of JPMorgan Chase’s 2015 Annual Report.
(in millions)
 
Three months ended March 31,
 
2016
 
2015
Net cash provided by/(used in)
 
 
 
 
Operating activities
 
$
(21,383
)
 
$
14,879

Investing activities
 
(34,581
)
 
(24,150
)
Financing activities
 
53,584

 
4,337

Effect of exchange rate changes on cash
 
102

 
(76
)
Net decrease in cash and due from banks
 
$
(2,278
)
 
$
(5,010
)

Operating activities
Operating assets and liabilities can vary significantly in the normal course of business due to the amount and timing of cash flows, which are affected by client-driven and risk management activities and market conditions. The Firm believes cash flows from operations, available cash balances and its capacity to generate cash through secured and unsecured sources are sufficient to meet the Firm’s operating liquidity needs.
Cash used in operating activities in 2016 resulted from an increase in accrued interest and accounts receivables due to higher unsettled securities transactions, and higher brokerage customer receivables related to client activity in CIB. Additionally, in 2016, cash used reflected an increase in trading assets, which was largely offset by cash provided by trading liabilities, predominantly due to client-driven market-making activities in CIB. In 2016 and 2015, cash was provided by net income after noncash operating adjustments; and higher net proceeds from loan securitizations and sales activities. In 2015, cash proceeds were partially offset by an increase in other assets resulting from higher cash margin balances placed with exchanges and clearing houses.
 
Investing activities
Cash used in investing activities during 2016 and 2015 resulted from increases in deposits with banks which were placed with various central banks, predominantly Federal Reserve Banks, and cash used for net originations of consumer and wholesale loans. Additionally, in 2016, cash outflows reflected a net increase in securities purchased under resale agreements due to a higher demand for securities to cover short positions related to client-driven market-making activities in CIB. Partially offsetting these cash outflows in both periods were proceeds from net maturities and sales of investment securities.
Financing activities
Cash provided by financing activities in 2016 resulted from higher consumer and wholesale deposits. Consumer deposits increased reflecting seasonal factors and continued growth from new and existing customers. Wholesale deposits increased reflecting growth in client activity. Cash provided by financing activities in 2015 resulted from higher consumer deposits partially offset by lower wholesale deposits and lower commercial paper issuances. In 2015 cash was also provided by net proceeds from long-term borrowings. For both periods, cash was used for repurchases of common stock and dividends on common and preferred stock.
* * *
For a further discussion of the activities affecting the Firm’s cash flows, see Consolidated Balance Sheets Analysis on pages 10–11, Capital Management on pages 54–60, and Liquidity Risk Management on pages 61–65.



13


EXPLANATION AND RECONCILIATION OF THE FIRM’S USE OF NON-GAAP FINANCIAL MEASURES
The Firm prepares its Consolidated Financial Statements using U.S. GAAP; these financial statements appear on pages 71–75. That presentation, which is referred to as “reported” basis, provides the reader with an understanding of the Firm’s results that can be tracked consistently from year-to-year and enables a comparison of the Firm’s performance with other companies’ U.S. GAAP financial statements.
In addition to analyzing the Firm’s results on a reported basis, management reviews the Firm’s results, including the overhead ratio and the results of the lines of business, on a “managed” basis, which are non-GAAP financial measures. The Firm’s definition of managed basis starts with the reported U.S. GAAP results and includes certain reclassifications to present total net revenue for the Firm (and each of the reportable business segments) on an FTE basis. Accordingly, revenue from investments that receive tax credits and tax-exempt securities is presented in the
 
managed results on a basis comparable to taxable investments and securities. This non-GAAP financial measure allows management to assess the comparability of revenue from year-to-year arising from both taxable and tax-exempt sources. The corresponding income tax impact related to tax-exempt items is recorded within income tax expense. These adjustments have no impact on net income as reported by the Firm as a whole or by the lines of business.
Management also uses certain non-GAAP financial measures at the business-segment level, because it believes these other non-GAAP financial measures provide information to investors about the underlying operational performance and trends of the particular business segment and, therefore, facilitate a comparison of the business segment with the performance of its competitors. Non-GAAP financial measures used by the Firm may not be comparable to similarly named non-GAAP financial measures used by other companies.

The following summary table provides a reconciliation from the Firm’s reported U.S. GAAP results to managed basis.
 
Three months ended March 31,
 
2016
 
2015
(in millions, except ratios)
Reported
results
 
Fully taxable-equivalent adjustments(a)
 
Managed
basis
 
Reported
results
 
Fully taxable-equivalent adjustments(a)
 
Managed
basis
Other income
$
801

 
$
551

 
 
$
1,352

 
$
582

 
$
481

 
 
$
1,063

Total noninterest revenue
11,859

 
551

 
 
12,410

 
13,389

 
481

 
 
13,870

Net interest income
11,380

 
293

 
 
11,673

 
10,677

 
273

 
 
10,950

Total net revenue
23,239

 
844

 
 
24,083

 
24,066

 
754

 
 
24,820

Pre-provision profit
9,402

 
844

 
 
10,246

 
9,183

 
754

 
 
9,937

Income before income tax expense
7,578

 
844

 
 
8,422

 
8,224

 
754

 
 
8,978

Income tax expense/(benefit)
$
2,058

 
$
844

 
 
$
2,902

 
$
2,310

 
$
754

 
 
$
3,064

Overhead ratio
60
%
 
NM

 
 
57
%
 
62
%
 
NM

 
 
60
%
(a) Predominantly recognized in CIB and CB business segments and Corporate.
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 TCE at period-end divided by common shares at period-end. TCE, ROTCE, and TBVPS are meaningful to the Firm, as well
 
as investors and analysts, in assessing the Firm’s use of equity.
Additionally, certain credit, liquidity and capital metrics and ratios disclosed by the Firm are non-GAAP measures. For additional information on these non-GAAP measures, see Credit Risk Management on pages 31–47, and Capital Management on pages 54–60.

Tangible common equity
Period-end
 
Average
(in millions, except per share and ratio data)
Mar 31,
2016
Dec 31,
2015
 
Three months ended March 31,
 
2016
2015
Common stockholders’ equity
$
224,089

$
221,505

 
$
221,561

$
212,352

Less: Goodwill
47,310

47,325

 
47,332

47,491

Less: Certain identifiable intangible assets
940

1,015

 
985

1,162

Add: Deferred tax liabilities(a)
3,205

3,148

 
3,177

2,862

Tangible common equity
$
179,044

$
176,313

 
$
176,421

$
166,561

 
 
 
 
 
 
Return on tangible common equity
NA

NA

 
12
%
14
%
Tangible book value per share
$
48.96

$
48.13

 
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.

14


Net interest income excluding markets-based activities
In addition to reviewing net interest income on a managed basis, management also reviews net interest income excluding CIB’s markets-based activities to assess the performance of the Firm’s lending, investing (including asset-liability management) and deposit-raising activities. The data presented below are non-GAAP financial measures due to the exclusion of CIB’s markets-based net interest income and related assets. Management believes this exclusion provides investors and analysts with another measure by which to analyze the non-market-related business trends of the Firm and provides a comparable measure to other financial institutions that are primarily focused on lending, investing and deposit-raising activities.
Net interest income excluding CIB markets-based activities data
 
 
 
 
 
Three months ended March 31,
(in millions, except rates)
2016
2015
 
Change
Net interest income – managed basis(a)(b)
$
11,673

$
10,950

 
7
 %
Less: Markets-based net interest income
1,378

1,259

 
9

Net interest income excluding markets(a)
$
10,295

$
9,691

 
6

 
 
 
 
 
Average interest-earning assets
$
2,043,983

$
2,148,801

 
(5
)
Less: Average markets-based interest-earning assets
487,833

509,714

 
(4
)
Average interest-earning assets excluding markets
$
1,556,150

$
1,639,087

 
(5
)%
Net interest yield on average interest-earning assets
   – managed basis
2.30
%
2.07
%
 
 
Net interest yield on average markets-based interest-earning assets
1.14

1.00

 
 
Net interest yield on average interest-earning assets excluding markets
2.66
%
2.40
%
 
 
(a)
Interest includes the effect of related hedging derivatives. Taxable-equivalent amounts are used where applicable.
(b)
For a reconciliation of net interest income on a reported and managed basis, see reconciliation from the Firm’s reported U.S. GAAP results to managed basis on page 14
 
Quarterly results
Net interest income excluding CIB’s markets-based activities increased by $604 million for the three months ended March 31, 2016, compared with the prior year as a result of loan growth in each of the businesses and higher rates on deposits with banks, partially offset by lower investment securities balances. Average interest-earning assets excluding assets related to CIB’s markets-based activities for the three months ended March 31, 2016, decreased $83 billion to $1.6 trillion; this decrease primarily reflected the impact of lower deposits with banks and lower investment securities balances, partially offset by higher loan balances. The net interest yield excluding CIB’s markets-based activities for the three months ended March 31, 2016, increased 26 bps to 2.66%.



15


BUSINESS SEGMENT RESULTS
The Firm is managed on a line of business basis. There are four major reportable business segments – Consumer & Community Banking, Corporate & Investment Bank, Commercial Banking and Asset Management. In addition, there is a Corporate segment.
The business segments are determined based on the products and services provided, or the type of customer served, and they reflect the manner in which financial information is currently evaluated by management. Results of these lines of business are presented on a managed basis. For a definition of managed basis, see Explanation and Reconciliation of the Firm’s use of Non-GAAP Financial Measures, on pages 14–15.
Description of business segment reporting methodology
Results of the business segments are intended to reflect each segment as if it were a stand-alone business. The management reporting process that derives business segment results allocates income and expense using
 
market-based methodologies. The Firm also assesses the level of capital required for each line of business on at least an annual basis. For further information about line of business capital, see Line of business equity on page 58.
The Firm periodically assesses the assumptions, methodologies and reporting classifications used for segment reporting, and further refinements may be implemented in future periods.
For a further discussion of those methodologies, see Business Segment Results – Description of business segment reporting methodology on pages 83–84 of JPMorgan Chase’s 2015 Annual Report.
The following discussions of the business segment results are based on a comparison of the three months ended March 31, 2016 versus the corresponding period in the prior year, unless otherwise specified.


Segment Results – Managed basis
The following tables summarize the business segment results for the periods indicated.
Three months ended March 31,
Total net revenue
 
Total noninterest expense
 
Pre-provision profit/(loss)
(in millions)
2016

2015

Change
 
2016

2015

Change
 
2016

2015

Change
Consumer & Community Banking
$
11,117

$
10,704

4%

 
$
6,088

$
6,190

(2)%

 
$
5,029

$
4,514

11%

Corporate & Investment Bank
8,135

9,582

(15
)
 
4,808

5,657

(15
)
 
3,327

3,925

(15
)
Commercial Banking
1,803

1,742

4

 
713

709

1

 
1,090

1,033

6

Asset Management
2,972

3,005

(1
)
 
2,075

2,175

(5
)
 
897

830

8

Corporate
56

(213
)
NM

 
153

152

1

 
(97
)
(365
)
73

Total
$
24,083

$
24,820

(3)%

 
$
13,837

$
14,883

(7)%

 
$
10,246

$
9,937

3%

Three months ended March 31,
Provision for credit losses
 
Net income/(loss)
 
Return on common equity
(in millions, except ratios)
2016

2015

Change
 
2016

2015

Change
 
2016

2015

Consumer & Community Banking
$
1,050

$
930

13
%
 
$
2,490

$
2,219

12%

 
19
%
17
%
Corporate & Investment Bank
459

(31
)
NM

 
1,979

2,537

(22
)
 
11

16

Commercial Banking
304

61

398

 
496

598

(17
)
 
11

17

Asset Management
13

4

225

 
587

502

17

 
25

22

Corporate
(2
)
(5
)
60

 
(32
)
58

NM

 
NM
NM
Total
$
1,824

$
959

90
%
 
$
5,520

$
5,914

(7)%

 
9%

11
%


16



CONSUMER & COMMUNITY BANKING
For a discussion of the business profile of CCB, see pages 85–93 of JPMorgan Chase’s 2015 Annual Report and Line of Business Metrics on page 155.
Selected income statement data
 
 
 
 
 
As of or for the three months ended March 31,
(in millions, except ratios and headcount)
2016

 
2015

 
Change
Revenue
 
 
 
 
 
Lending- and deposit-related fees
$
769

 
$
718

 
7
 %
Asset management, administration and commissions
530

 
530

 

Mortgage fees and related income
667

 
704

 
(5
)
Card income
1,191

 
1,324

 
(10
)
All other income
649

 
460

 
41

Noninterest revenue
3,806

 
3,736

 
2

Net interest income
7,311

 
6,968

 
5

Total net revenue
11,117

 
10,704

 
4

 
 
 
 
 
 
Provision for credit losses
1,050

 
930

 
13

 
 
 
 
 
 
Noninterest expense
 
 
 
 
 
Compensation expense
2,382

 
2,530

 
(6
)
Noncompensation expense
3,706

 
3,660

 
1

Total noninterest expense(a)
6,088

 
6,190

 
(2
)
Income before income tax expense
3,979

 
3,584

 
11

Income tax expense
1,489

 
1,365

 
9

Net income
$
2,490

 
$
2,219

 
12

 
 
 
 
 
 
Revenue by line of business
 
 
 
 
 
Consumer & Business Banking
$
4,550

 
$
4,358

 
4

Mortgage Banking
1,876

 
1,749

 
7

Card, Commerce Solutions & Auto
4,691

 
4,597

 
2
 %
Financial ratios
 
 
 
 
 
Return on common equity
19
%
 
17
%
 
 
Overhead ratio
55

 
58

 
 
Note: In the discussion and the tables which follow, CCB presents certain financial measures which exclude the impact of PCI loans; these are non-GAAP financial measures. For additional information, see Explanation and Reconciliation of the Firm’s Use of Non-GAAP Financial Measures on pages 14–15.
(a)
Included operating lease depreciation expense of $432 million and $326 million for the three months ended March 31, 2016 and 2015, respectively.
 
Quarterly results
Consumer & Community Banking net income was $2.5 billion, an increase of 12%, driven by higher net revenue and lower noninterest expense, partially offset by higher provision for credit losses.
Net revenue was $11.1 billion, an increase of 4%. Net interest income was $7.3 billion, up 5%, driven by higher deposit balances and higher loan balances largely resulting from originations of prime mortgage loans that have been retained, partially offset by deposit spread compression. Noninterest revenue was $3.8 billion, up 2%, driven by higher MSR risk management results and higher auto lease and card sales volume, predominantly offset by the impact of renegotiated co-brand partnership agreements in Credit Card and lower mortgage servicing revenue largely as a result of lower third-party loans serviced. See Note 16 for further information regarding changes in value of the MSR asset and related hedges, and mortgage fees and related income.
The provision for credit losses was $1.1 billion, an increase of 13%, driven by a $125 million reduction in the allowance for loan losses in the prior year due to continued improvement in home prices and delinquencies in the residential real estate portfolio and runoff in the student loan portfolio.
Noninterest expense was $6.1 billion, a decrease of 2%, driven by branch efficiencies, lower headcount-related expense and lower legal expense, largely offset by higher auto lease depreciation and higher investment in marketing.


17



Selected metrics
 
 
 
 
 
 
As of or for the three months
ended March 31,
(in millions)
2016
 
2015
 
Change
Selected balance sheet data (period-end)
 
 
 
 
 
Total assets
$
505,071

 
$
455,624

 
11
 %
Loans:
 
 
 
 
 
Consumer & Business Banking
22,889

 
21,608

 
6

Home equity
56,627

 
65,705

 
(14
)
Residential mortgage
and other
172,413

 
125,956

 
37

Mortgage Banking
229,040


191,661

 
20

Credit Card
126,090

 
123,257

 
2

Auto
62,937

 
55,455

 
13

Student
7,890

 
9,053

 
(13
)
Total loans
448,846

 
401,034

 
12

Core loans
348,802

 
280,252

 
24

Deposits
582,026

 
531,027

 
10

Equity
51,000

 
51,000

 

Selected balance sheet data (average)
 
 
 
 
 
Total assets
$
503,231

 
$
454,763

 
11

Loans:
 
 
 
 
 
Consumer & Business Banking
22,775

 
21,317

 
7

Home equity
57,717

 
66,854

 
(14
)
Residential mortgage and other
168,694

 
120,658

 
40

Mortgage Banking
226,411

 
187,512

 
21

Credit Card
127,299

 
125,025

 
2

Auto
61,252

 
55,005

 
11

Student
8,034

 
9,209

 
(13
)
Total loans
445,771

 
398,068

 
12

Core loans
343,705

 
274,578

 
25

Deposits
562,284

 
512,157

 
10

Equity
51,000

 
51,000

 

Headcount
129,925

 
135,908

 
(4)%



 
Selected metrics
 
 
 
 
 
As of or for the three months
ended March 31,
(in millions, except ratio data)
2016

 
2015

 
Change
Credit data and quality statistics
 
 
 
 
 
Nonaccrual loans(a)(b)
$
5,117

 
$
6,143

 
(17
)%
 
 
 
 
 
 
Net charge-offs(c)
 
 
 
 
 
Consumer & Business Banking
56

 
59

 
(5
)
Home equity
59

 
87

 
(32
)
Residential mortgage and other
1

 
17

 
(94
)
Mortgage Banking
60

 
104

 
(42
)
Credit Card
830

 
789

 
5

Auto
67

 
51

 
31

Student
37

 
51

 
(27
)
Total net charge-offs
$
1,050

 
$
1,054

 

 
 
 
 
 
 
Net charge-off rate(c)
 
 
 
 
 
Consumer & Business Banking
0.99
%
 
1.12
%
 
 
Home equity(d)
0.55

 
0.71

 
 
Residential mortgage and
other(d)

 
0.08

 
 
Mortgage Banking(d)
0.13

 
0.30

 
 
Credit Card(e)
2.62

 
2.62

 
 
Auto
0.44

 
0.38

 
 
Student
1.85

 
2.25

 
 
Total net charge-off rate(d)
1.04

 
1.22

 
 
 
 
 
 
 
 
30+ day delinquency rate
 
 
 
 
 
Mortgage Banking(f)(g)
1.41
%
 
2.30
%
 
 
Credit Card(h)
1.45

 
1.41

 
 
Auto
0.94

 
0.90

 
 
Student(i)
1.41

 
1.77

 
 
 
 
 
 
 
 
90+ day delinquency rate — Credit Card(h)
0.75

 
0.73

 
 
 
 
 
 
 
 
Allowance for loan losses
 
 
 
 
 
Consumer & Business Banking
$
703

 
$
703

 

Mortgage Banking excluding PCI loans
1,588

 
2,088

 
(24
)
Mortgage Banking — PCI loans(c)
2,695

 
3,270

 
(18
)
Credit Card
3,434

 
3,434

 

Auto
399

 
350

 
14

Student
299

 
374

 
(20
)
Total allowance for loan losses(c)
$
9,118

 
$
10,219

 
(11)%

(a)
Excludes PCI loans. The Firm is recognizing interest income on each pool of PCI loans as they are all performing.
(b)
At March 31, 2016 and 2015, nonaccrual loans excluded: (1) mortgage loans insured by U.S. government agencies of $5.7 billion and $7.5 billion, respectively, that are 90 or more days past due; (2) student loans insured by U.S. government agencies under the Federal Family Education Loan Program (“FFELP”) of $269 million and $346 million, respectively, that are 90 or more days past due. These amounts have been excluded based upon the government guarantee.
(c)
Net charge-offs and the net charge-off rates for the three months ended March 31, 2016 and 2015, excluded $47 million and $55 million, respectively, of write-offs in the PCI portfolio. These write-offs decreased the allowance for loan losses for PCI loans. For further


18



information on PCI write-offs, see summary of changes in the allowances on page 46.
(d)
Excludes the impact of PCI loans. For the three months ended March 31, 2016 and 2015, the net charge-off rates including the impact of PCI loans were as follows: (1) home equity of 0.41% and 0.53%, respectively; (2) residential mortgage and other of -% and 0.06%, respectively; (3) Mortgage Banking of 0.11% and 0.23%, respectively; and (4) total CCB of 0.95% and 1.08%, respectively.
(e)
Average credit card loans included loans held-for-sale of $72 million and $2.7 billion for the three months ended March 31, 2016 and 2015, respectively. These amounts are excluded when calculating the net-charge-off rate.
(f)
At March 31, 2016 and 2015, excluded mortgage loans insured by U.S. government agencies of $7.6 billion and $9.2 billion, respectively, that are 30 or more days past due. These amounts have been excluded based upon the government guarantee.
(g)
Excludes PCI loans. The 30+ day delinquency rate for PCI loans was 10.47% and 12.25% at March 31, 2016 and 2015, respectively.
(h)
Period-end credit card loans included loans held-for-sale of $78 million and $2.4 billion at March 31, 2016 and 2015, respectively. These amounts are excluded when calculating delinquency rates.
(i)
Excluded student loans insured by U.S. government agencies under FFELP of $471 million and $596 million at March 31, 2016 and 2015, respectively, that are 30 or more days past due. These amounts have been excluded based upon the government guarantee.

 
Selected metrics
 
 
 
 
 
As of or for the three months
ended March 31,
(in billions, except ratios and where otherwise noted)
2016

 
2015

 
Change
Business Metrics
 
 
 
 
 
CCB households (in millions)
58.5

 
57.4

 
2
 %
Number of branches
5,385

 
5,570

 
(3
)
Active digital customers
(in thousands)(a)
42,458

 
37,696

 
13

Active mobile customers
(in thousands)(b)
23,821

 
19,962

 
19

 
 
 
 
 
 
Consumer & Business Banking
 
 
 
 
 
Average deposits
$
548.4

 
$
497.6

 
10

Deposit margin
1.86
%
 
1.99
%
 
 
Business banking origination volume
$
1.7

 
$
1.5

 
10

Client investment assets
220.0

 
219.2

 

 
 
 
 
 
 
Mortgage Banking
 
 
 
 
 
Mortgage origination volume by channel
 
 
 
 
 
Retail
$
8.7

 
$
8.1

 
7

Correspondent
13.7

 
16.6

 
(17
)
Total mortgage origination volume(c)
$
22.4

 
$
24.7

 
(9
)
 
 
 
 
 
 
Total loans serviced (period-end)
$
898.7

 
$
924.3

 
(3
)
Third-party mortgage loans serviced (period-end)
655.4

 
723.5

 
(9
)
MSR carrying value (period-end)
5.7

 
6.6

 
(14
)
Ratio of MSR carrying value (period-end) to third-party mortgage loans serviced
(period-end)
0.87
%
 
0.91
%
 
 
 
 
 
 
 
 
MSR revenue multiple(d)
2.49
x
 
2.53
x
 
 
 
 
 
 
 
 
Credit Card, excluding Commercial Card
 
 
 
 
 
Sales volume
$
121.7

 
$
112.8

 
8

New accounts opened
(in millions)
2.3

 
2.1

 
10

 
 
 
 
 
 
Card Services
 
 
 
 
 
Net revenue rate
11.81
%
 
12.19
%
 
 
 
 
 
 
 
 
Commerce Solutions
 
 
 
 
 
Merchant processing volume
$
247.5

 
$
221.2

 
12

 
 
 
 
 
 
Auto
 
 
 
 
 
Loan and lease origination volume
$
9.6

 
$
7.3

 
32

Average Auto operating lease assets
9.6

 
6.9

 
39%

(a)
Users of all web and/or mobile platforms who have logged in within the past 90 days.
(b)
Users of all mobile platforms who have logged in within the past 90 days.
(c)
Firmwide mortgage origination volume was $24.4 billion and $26.6 billion for the three months ended March 31, 2016 and 2015, respectively.
(d)
Represents the ratio of MSR carrying value (period-end) to third-party mortgage loans serviced (period-end) divided by the ratio of annualized loan servicing-related revenue to third-party mortgage loans serviced (average).


19



Mortgage servicing-related matters
The Firm has entered into various Consent Orders and settlements with federal and state governmental agencies and private parties related to mortgage servicing, origination, and residential mortgage-backed securities activities. The requirements of these Consent Orders and settlements vary, but in the aggregate, include cash compensatory payments (in addition to fines) and/or “borrower relief,” which may include principal reduction, refinancing, short sale assistance, and other specified types of borrower relief. Other obligations required under certain Consent Orders and settlements, as well as under new regulatory requirements, include enhanced mortgage servicing and foreclosure standards and processes.
On January 4, 2016, the Office of the Comptroller of the Currency (“OCC”) terminated its mortgage servicing-related Consent Order with the Firm, which had been outstanding since April 2011. The Firm remains under the mortgage servicing-related Consent Order entered into with the Federal Reserve on April 13, 2011, as amended on February 28, 2013 (the “Federal Reserve Consent Order”). The Audit Committee of the Board of Directors will provide governance and oversight of the Federal Reserve Consent Order in 2016.
The Federal Reserve Consent Order and certain other mortgage-related settlements are the subject of ongoing reporting to various regulators and independent overseers. The Firm’s compliance with certain of these settlements is detailed in periodic reports published by the independent overseers. The Firm is committed to fulfilling all of these commitments with appropriate due diligence and oversight.



20


CORPORATE & INVESTMENT BANK
For a discussion of the business profile of CIB, see pages 94–98 of JPMorgan Chase’s 2015 Annual Report and Line of Business Metrics on page 155.
Selected income statement data
 
 
 
Three months ended March 31,
(in millions, except ratios)
2016

 
2015

 
Change
Revenue
 
 
 
 
 
Investment banking fees
$
1,321

 
$
1,761

 
(25
)%
Principal transactions
2,470

 
3,482

 
(29
)
Lending- and deposit-related fees
394

 
397

 
(1
)
Asset management, administration and commissions
1,069

 
1,154

 
(7
)
All other income
280

 
280

 

Noninterest revenue
5,534

 
7,074

 
(22
)
Net interest income
2,601

 
2,508

 
4

Total net revenue(a)
8,135

 
9,582

 
(15
)
 
 
 
 
 
 
Provision for credit losses
459

 
(31
)
 
NM

 
 
 
 
 
 
Noninterest expense
 
 
 
 
 
Compensation expense
2,600

 
3,023

 
(14
)
Noncompensation expense
2,208

 
2,634

 
(16
)
Total noninterest expense
4,808

 
5,657

 
(15
)
Income before income tax expense
2,868

 
3,956

 
(28
)
Income tax expense
889

 
1,419

 
(37
)
Net income
$
1,979

 
$
2,537

 
(22
)%
Financial ratios
 
 
 
 
 
Return on common equity
11
%
 
16
%
 
 
Overhead ratio
59

 
59

 
 
Compensation expense as a percentage of total net revenue
32

 
32

 
 
(a)
Included tax-equivalent adjustments, predominantly due to income tax credits related to alternative energy investments; income tax credits and amortization of the cost of investments in affordable housing projects; as well as tax-exempt income from municipal bond investments of $498 million and $432 million for the three months ended March 31, 2016 and 2015, respectively.

 
Selected income statement data
 
 
 
Three months ended March 31,
(in millions)
2016
 
2015
 
Change
Revenue by business
 
 
 
 
 
Investment Banking
$
1,231

 
$
1,630

 
(24
)%
Treasury Services
884

 
930

 
(5
)
Lending
302

 
435

 
(31
)
Total Banking
2,417

 
2,995

 
(19
)
Fixed Income Markets
3,597

 
4,154

 
(13
)
Equity Markets
1,576

 
1,651

 
(5
)
Securities Services
881

 
934

 
(6
)
Credit Adjustments & Other(a)
(336
)
 
(152
)
 
(121
)
Total Markets & Investor Services
5,718

 
6,587

 
(13
)
Total net revenue
$
8,135

 
$
9,582

 
(15
)%
(a)
Effective January 1, 2016, consists primarily of credit valuation adjustments (“CVA”) managed by the Credit Portfolio Group, funding valuation adjustments (“FVA”) and debit valuation adjustments (“DVA”) on derivatives. Prior periods also include DVA on fair value option elected liabilities. Results are presented net of associated hedging activities and net of CVA and FVA amounts allocated to Fixed Income Markets and Equity Markets. Effective January 1, 2016, changes in DVA on fair value option elected liabilities is recognized in other comprehensive income. For additional information, see Notes 3, 4
and 19.
Quarterly results
Net income was $2.0 billion, down 22%, reflecting lower net revenue and higher provisions for credit losses, partially offset by lower noninterest expense.
Banking revenue was $2.4 billion, down 19%. Investment banking revenue was $1.2 billion, down 24% on lower debt and equity underwriting fees, partially offset by higher advisory fees. Debt underwriting fees were down 35% driven by declines in industry-wide fee levels and fewer large acquisition financing deals. Equity underwriting fees were down 49% driven by declines in industry-wide fee levels. Advisory fees were up 8% driven by a greater share of fees for completed transactions. Treasury Services revenue was $884 million, down 5%, driven by business simplification. Lending revenue was $302 million, down 31%, reflecting fair value losses on hedges of accrual loans and lower gains on securities received from restructurings.
Markets & Investor Services revenue was $5.7 billion, down 13%. Fixed Income Markets revenue was $3.6 billion, down 13%. The current quarter’s performance reflected the challenging market environment, which included significant volatility, global macroeconomic uncertainty and widening credit spreads. In contrast, the prior year results were driven by robust client activity resulting from macroeconomic events and conditions, including quantitative easing actions of various central banks. These factors resulted in lower revenue in the current quarter reflecting an increase in Rates which was more than offset by lower performance across other asset classes. Equity Markets revenue of $1.6 billion was down 5% reflecting


21


weaker results in Americas derivatives, partially offset by strong results in Asia derivatives. Securities Services revenue was $881 million, down 6%. Credit Adjustments & Other was a loss of $336 million on widening credit spreads.
The provision for credit losses was $459 million, compared to a benefit of $31 million in the prior year, primarily reflecting increases in the allowance for credit losses in the Oil & Gas and Metals & Mining portfolios.
Noninterest expense was $4.8 billion, down 15%, primarily driven by lower performance-based compensation and lower legal expense.
Selected metrics
 
 
 
 
 
As of or for the three months
ended March 31,
(in millions, except headcount)
2016
 
2015
 
Change
Selected balance sheet data (period-end)
 
 
 
 
 
Assets
$
801,053

 
$
854,275

 
(6
)%
Loans:
 
 
 
 
 
Loans retained(a)
109,132

 
98,625

 
11

Loans held-for-sale and loans at fair value
2,381

 
3,987

 
(40
)
Total loans
111,513

 
102,612

 
9

Core loans
111,050

 
101,537

 
9

Equity
64,000

 
62,000

 
3

Selected balance sheet data (average)
 
 
 
 
 
Assets
$
797,548

 
$
865,327

 
(8
)
Trading assets-debt and equity instruments
285,122

 
312,260

 
(9
)
Trading assets-derivative receivables
62,557

 
77,353

 
(19
)
Loans:
 
 
 
 
 
Loans retained(a)
108,712

 
99,113

 
10

Loans held-for-sale and loans at fair value
3,204

 
4,061

 
(21
)
Total loans
111,916

 
103,174

 
8

Core loans
111,417

 
102,052

 
9

Equity
64,000

 
62,000

 
3

Headcount
49,067

 
50,634

 
(3
)%
(a)
Loans retained includes credit portfolio loans, loans held by consolidated Firm-administered multi-seller conduits, trade finance loans, other held-for-investment loans and overdrafts.
 
Selected metrics
 
 
 
 
 
 
As of or for the three months
ended March 31,
(in millions, except ratios)
2016
 
2015
 
Change
Credit data and quality statistics
 
 
 
 
 
Net charge-offs/(recoveries)
$
46

 
$
(11
)
 
NM
Nonperforming assets:
 
 
 
 
 
Nonaccrual loans:
 
 
 
 
 
Nonaccrual loans retained(a)
650

 
251

 
159%

Nonaccrual loans held-for-sale and loans at fair value
7

 
12

 
(42
)
Total nonaccrual loans
657

 
263

 
150

Derivative receivables
212

 
249

 
(15
)
Assets acquired in loan satisfactions
62

 
63

 
(2
)
Total nonperforming assets
931

 
575

 
62

Allowance for credit losses:
 
 
 
 
 
Allowance for loan losses
1,497

 
1,047

 
43

Allowance for lending-related commitments
744

 
411

 
81

Total allowance for credit losses
2,241

 
1,458

 
54%

Net charge-off/(recovery) rate
0.17%

 
(0.05
)%
 
 
Allowance for loan losses to period-end loans retained
1.37

 
1.06

 
 
Allowance for loan losses to period-end loans retained, excluding trade finance and conduits(b)
2.11