CORP Q2 2014 10-Q 1 corpq22014.htm FORM 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q Quarterly report pursuant to Section 13 or 15(d) of The Securities Exchange Act of 1934 For the quarterly period ended Commission file June 30, 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   https://www.sec.gov/Archives/edgar/data/19617/000001961714000409/corpq22014.htm[10/8/14, 12:41:43 PM] CORP Q2 2014 FORM 10-Q TABLE OF CONTENTS Part I - Financial information Item 1 Page   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 https://www.sec.gov/Archives/edgar/data/19617/000001961714000409/corpq22014.htm[10/8/14, 12:41:43 PM] CORP Q2 2014 JPMorgan Chase & Co. Consolidated financial highlights (unaudited) As of or for the period ended,   (in millions, except per share, ratio, headcount data and where otherwise noted)   2Q14 Selected income statement data   Total net revenue $ Total noninterest expense Pre-provision profit/(loss) Provision for credit losses Income before income tax expense Income tax expense 1Q14 $ $ Per common share data   Net income/(loss) per share: Basic $              Diluted   22,993 $ 14,636 15,552 9,023 8,357 7,604 692 850 104 8,331 7,507 7,500 5,985 2,233 $ 5,274   1.47 $ 5,278   1.29 $ $ 1.28 1.30   25,211 $   47,447 $ 50,333 30,067 31,289 (509) 9,345 17,380 19,044 (543) 47 1,542 664 9,298 15,838 18,380 414 $ 2013 15,866 (380)   1.31 $ 34 $ 2014   23,117 23,626 2,222 $ 2Q13   23,156 Six months ended June 30,   3Q13 15,431 1.46 Cash dividends declared per share   4Q13   24,454 2,346 Net income/(loss)   2,802 $ 6,496   (0.17) $ (0.17) 4,579 $ 11,259   1.61 $ 1.60 5,355 $ 13,025   2.77 $ 2.74 3.22 3.19 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 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 $ 3,800.3   61.48 $ 55.90 Low 52.97 54.20 50.25 50.06 46.05 52.97 Close 57.62 60.71 58.48 51.69 52.79 57.62 52.79 216,725 229,700 219,657 194,312 198,966 216,725 198,966 Market capitalization Selected ratios and metrics             44.20   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 (0.06) 0.99 0.89 0.87 1.09 0.94 1.11 Overhead ratio Return on assets (“ROA”) 63 64 67 102 63 63 62 Loans-to -deposits ratio 57 57 57 57 60 57 High quality liquid assets (“HQLA”) (in billions) (c) $ 576 $ 9.8% 538 $ $ $ 454 $ 576 60 $ 10.5 % 10.4% 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 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 $ 9.8% 454 11.1 Tier 1 leverage ratio (d) 10.7% 538 Tier 1 capital ratio (d) Common equity tier 1 (“CET1”) capital ratio (d) 10.9% 522   401,470 $ 10.4%   392,543 $ 401,470 Securities (e) 361,918 351,850 354,003 356,556 354,725 361,918 Loans 746,983 730,971 738,418 728,679 725,586 746,983 354,725 725,586 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 Allowance for loan losses to total retained loans 2.08% 2.20% Allowance for loan losses to retained loans excluding purchased creditimpaired loans(g) 1.69 1.75 Nonperforming assets Net charge-offs Net charge-off rate $ 9,017 1,158 0.64% $ 9,473 1,269 0.71% $   16,969 $ 2.25% 1.80 $ 9,706 $ 1,328 0.73% https://www.sec.gov/Archives/edgar/data/19617/000001961714000409/corpq22014.htm[10/8/14, 12:41:43 PM]   18,248 $   20,137 $   15,974 $ 20,137 2.43 % 2.69% 2.08% 2.69% 1.89 2.06 1.69 2.06 10,380 1,346 0.74 % $ 11,041 1,403 0.78% $ 9,017 2,427 0.68% $ 11,041 3,128 0.88% CORP Q2 2014 (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’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. 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. 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. 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. 4 Commercial Banking   Commercial Banking (“CB”) delivers extensive industry knowledge, In addition to the four major reportable business segments outlined above, the following is a description of the Corporate/Private Equity https://www.sec.gov/Archives/edgar/data/19617/000001961714000409/corpq22014.htm[10/8/14, 12:41:43 PM] CORP Q2 2014 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. 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. 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. 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   2014 Selected income statement data   Total net revenue $ Total noninterest expense Pre-provision profit Provision for credit losses Net income $ CET1 Tier 1 capital   2013    Change       $ 25,211   (3)%   $ 15,431   15,866   (3) 9,023   9,345   (3) 692   47   5,985   6,496   1.46   1.60     13%           Six months ended June 30,   2014    24,454 11%   Return on common equity Capital ratios(a)        Three months ended June 30, (in millions, except per share data and ratios) Diluted earnings per share      2013    Change    47,447  $ 50,333   (6)%   30,067   31,289   (4)   17,380   19,044     1,542   664   132 (8)   11,259   13,025   (14) (9)   2.74   3.19   (14)% NM         11%   (9) 13%           9.8   10.4      9.8   10.4    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 nonGAAP 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, delinquencies in the residential real estate portfolio. The currentquarter 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, https://www.sec.gov/Archives/edgar/data/19617/000001961714000409/corpq22014.htm[10/8/14, 12:41:43 PM] CORP Q2 2014 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 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 interestearning 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 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. noncompensation expense, partially offset by lower performancebased 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. https://www.sec.gov/Archives/edgar/data/19617/000001961714000409/corpq22014.htm[10/8/14, 12:41:43 PM] CORP Q2 2014 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. 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 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 Firmwide Adjusted expense ($ in billions)(a) $14.8 $59.0 CCB, excluding MB, expense $5,150   Current management outlook Expect $58 billion +/- adjusted expense for FY14; final Firmwide expense   will be affected by performance-related compensation for FY14 $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 CCB Servicing-related net revenue(b) $693 $2,869 CCB Reduction in NCI Real Estate Portfolios allowance for loan losses $— $(2,300) CCB Card revenue rate Expect small negative Production pretax income in 3Q14 – market dependent     Expect Servicing revenue to be $600 million +/- in 3Q14 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 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 CIB CIB 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 Fixed Income & Equities revenue (Markets revenue) $4,647 Securities Services revenue $1,137 $20,226 Expect current environment to persist into 3Q14 with normal seasonal trends   $4,082 Expect Securities Services revenue to decrease by approximately $100 million   in 3Q14 vs. 2Q14 due to seasonality CIB Treasury Services (TS) revenue AM Pretax margin $1,012 $4,135 30% 29% 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 Expect FY14 pretax margin and ROE to be lower than 2Q14 – as the   business continues to invest in both infrastructure and controls – AM Return on equity 25% 23% as well as select front office hiring – but on track to deliver through-the-   cycle  targets for FY15 (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. https://www.sec.gov/Archives/edgar/data/19617/000001961714000409/corpq22014.htm[10/8/14, 12:41:43 PM] CORP Q2 2014 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 Revenue 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.              (in millions) 2014   2013        Three months ended June 30, Change     Change 3,171   $ 3,162   — 2014   2013 1,751   $ 1,717   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 3,865   124   4   Securities gains 4,007   12   (90)   7,843   42   7,464   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   1 675   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) 24,454   $ 25,211   47,447   $ 50,333   (6)% Investment banking fees Other $ income (a) Total net revenue $ 2%   $    Six months ended June 30, (3)%   $ 5 (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 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 https://www.sec.gov/Archives/edgar/data/19617/000001961714000409/corpq22014.htm[10/8/14, 12:41:43 PM] CORP Q2 2014 commissions income. 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. 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. 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. 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 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. run-off of higher-yielding loans and new originations of loweryielding 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 runoff 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 longterm 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. 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 Provision for credit losses      (in millions) Consumer, excluding credit card   Three months ended June 30,   2014 (37)   $ $   2013   Change (493)      Six months ended June 30,   2014 92%   $ 82   $   Change (530)   NM  2013 Credit card 885   464   91   1,573   1,046   Total consumer 848   (29)   NM    1,655   516   221 (156)   76   NM    (113)   148   NM  47   NM   $ 1,542   $ 664   Wholesale Total provision for credit losses 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 692   $ $ (in millions) 132% 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   50%          Three months ended June 30, 2014   2013   Change https://www.sec.gov/Archives/edgar/data/19617/000001961714000409/corpq22014.htm[10/8/14, 12:41:43 PM]           Six months ended June 30, 2014   2013   Change CORP Q2 2014 Compensation expense $ 7,610   $ Noncompensation expense:      8,019   (5)%   $ 15,469   $          16,433   (6)%    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   2 650   578   12   1,214   1,167   4 2,701   2,951   (8)   4,634   5,252   (12) 132   152   (13)   263   304   (13) 7,821   7,847   —   14,598   14,856   (2) 15,431   $ 15,866   30,067   $ 31,289   (4)% Occupancy Marketing Other expense (a)(b) Amortization of intangibles Total noncompensation expense Total noninterest expense $ (3)%   $ (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. 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. 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 headcountrelated 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. Income tax expense        Three months ended June 30, (in millions, except rate)   2014 Income before income tax expense $ Income tax expense 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 taxexempt 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   Change   8,331  $ 9,298   (10)%   $ 2,346   2,802   (16) 28.2%   Effective tax rate 2013 30.1%               Six months ended June 30, 2014   2013   15,838  $ 18,380   (14)% 5,355   (14) 4,579   28.9%   Change 29.1%   decrease in the effective tax rate was partially offset by the writedown 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 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. https://www.sec.gov/Archives/edgar/data/19617/000001961714000409/corpq22014.htm[10/8/14, 12:41:43 PM] CORP Q2 2014 Assets      Cash and due from banks $ 27,523   $ 393,909   Deposits with banks 39,771 (31)% 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:      330,165   308,905 7 Derivative receivables 65,759 (5) Securities 62,378   361,918   354,003 2 Loans 746,983   738,418 1 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) 100,562   110,101 (9) Other assets Total assets $ 2,520,336   $ Liabilities      Deposits $ 1,319,751   $ Federal funds purchased and securities loaned or sold under repurchase agreements Commercial paper Other borrowed funds Trading liabilities:   2,415,689 1,287,765 2 216,561   181,163 20 63,804   57,848 10 34,713   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. 27,994 24    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 4 227,314   211,178 8 $ Securities The increase was largely due to higher levels of U.S. mortgagebacked securities and obligations of U.S. states and municipalities, partially offset by a lower level of non-U.S. residential mortgagebacked 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.   87,861   Total liabilities and stockholders’ equity Trading assets and liabilities–derivative receivables and payables The decrease in both receivables and payables was due to clientdriven 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. 4 Debt and equity instruments Stockholders’ equity The increase in trading liabilities was related to client-driven marketmaking activities in CIB, which resulted in a higher level of short positions in debt securities. For additional information, refer to Note 3.   Debt and equity instruments Allowance for loan losses Trading assets and liabilities–debt and equity instruments The increase in trading assets was related to client-driven marketmaking activities in CIB, which resulted in a higher level of debt securities, and to a lesser extent, equity securities.   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. 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 https://www.sec.gov/Archives/edgar/data/19617/000001961714000409/corpq22014.htm[10/8/14, 12:41:43 PM] CORP Q2 2014 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 assetsdebt 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 10Q 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 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 Lendingrelated commitments on page 64 and Note 21 (including the table that https://www.sec.gov/Archives/edgar/data/19617/000001961714000409/corpq22014.htm[10/8/14, 12:41:43 PM] CORP Q2 2014 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. presents the related amounts by contractual maturity as of June 30, 2014). For a discussion of loan repurchase liabilities, see Note 21. 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. 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.   Six months ended June 30, (in millions)   Net cash provided by/(used in)       Operating activities  $ 10,296   $ Investing activities   (97,938)   (142,245) Financing activities   75,436   30,108 Effect of exchange rate changes on cash   (42)   Net decrease in cash and due from banks  $ 2014   (12,248)   $ 2013 88,484 (856) (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 shortand 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 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 https://www.sec.gov/Archives/edgar/data/19617/000001961714000409/corpq22014.htm[10/8/14, 12:41:43 PM] CORP Q2 2014 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. 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. 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 taxexempt sources. The corresponding income tax impact related to taxexempt 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. 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 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. NonGAAP 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 Reported results (in millions, except ratios) Other income $ 675   Fully taxableequivalent adjustments (a)    $ 651   $ Managed basis 1,326   2013   Fully taxableequivalent adjustments (a)  $ Reported results 226      $ 582   $ Managed basis 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 2,346  $ 895   $ 3,241  $ 2,802  $ 747   $ Income tax expense $ 63%   Overhead ratio               61%   Reported results $ 1,066   63%      Six months ended June 30, Fully taxableequivalent adjustments (a)    $ 1,295   $ Managed basis 2,361    $ NM        2014 (in millions, except ratios) Other income NM   3,549 61%    2013 Reported results 762   Fully taxableequivalent adjustments (a)    $ 1,146   $ Managed basis 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  $ 1,765   $  $ 1,473   $ Income tax expense $ 4,579 6,344  $ https://www.sec.gov/Archives/edgar/data/19617/000001961714000409/corpq22014.htm[10/8/14, 12:41:43 PM] 5,355 6,828 CORP Q2 2014 63%   Overhead ratio 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) Common stockholders’ equity Three months ended June Six months ended June   30, 30, 2014   2013   2014   2013   $197,283   $203,989   $196,016 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 $206,159 Less: Goodwill Tangible common equity $159,611   $150,048   $157,386   $148,649              Return on tangible common equity 14%   Tangible book value per share $ 43.17 17%     $ 39.97 14%     $ 43.17 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 nonGAAP 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)   (in millions, except rates) Net interest income – managed 2014 basis(b)(c) $ Less: Market-based net interest income Core net interest   Three months ended June 30, income (b)   Average interest-earning assets $ 1,030 $   $ Less: Average market-based earning assets Core average interest-earning assets 11,042 2013 10,012 2,023,945 $   $ 502,413 $ 1,521,532 $   Change 10,869   1,345   9,524   1,980,466      512,631   1,467,835     2%   $ (23)   5  $ 2     $ (2)   4%   $ Six months ended June 30, 2014 21,935 2013 $ 2,086 19,849 2,014,846 $   $ 504,942 1,509,904 $   Change 21,964   — 2,777   (25) 19,187   3      4 1,938,508 510,796   1,427,712   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%     (1)    (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. https://www.sec.gov/Archives/edgar/data/19617/000001961714000409/corpq22014.htm[10/8/14, 12:41:43 PM] 6% CORP Q2 2014 (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. 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. 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. 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. 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 Segment Results – Managed Basis The following table summarizes the business segment results for the periods indicated. Three months ended June 30, (in millions) Consumer & Community Banking   Total net revenue 2014 $ Corporate & Investment Bank 2013 11,431 $ 8,991 Change 12,015 9,876     Total Noninterest expense 2014 2013 (5)%  $ 6,456 $ 6,864 (9)   6,058 5,742 Change   Pre-provision profit/(loss) 2014 2013  $ 4,975 $ 5,151 6   2,933 4,134 (29) (5) (6)% Commercial Banking 1,701 1,728 (2)   675 652 4   1,026 1,076 Asset Management 2,956 2,725 8   2,062 1,892 9   894 833 NM   180 716 (75)   90 (1,102) 9,918 $ 10,092 Corporate/Private Equity Total 270 $ 25,349 $ Three months ended June 30, 2014 $ Corporate & Investment Bank 2013 852 $ (84) Commercial Banking Asset Management Corporate/Private Equity   Total 25,958 (2)% $  $ 15,431 $   Provision for credit losses (in millions, except ratios) Consumer & Community Banking (386) Change   15,866 (3)% 2013  $   Net income/(loss) 2014 Change Change   (3)% 7 NM (2)% Return on common equity 2014 2013 (19) NM  $ 2,443 $ 3,089 (21)%   19% 27% (6) NM   1,963 2,838 (31)   13 20 (67) 44 NM   658 621 6   19 18 1 23 (96)%   552 500 10   25 22 (10) 5 NM   369 (552) NM   NM NM 47 NM  $ 692 $ 5,985 $ 6,496 https://www.sec.gov/Archives/edgar/data/19617/000001961714000409/corpq22014.htm[10/8/14, 12:41:43 PM] (8)%   11% 13% CORP Q2 2014 Six months ended June 30, (in millions) Consumer & Community Banking 2014 $ 2013 Change (10)% (12)   11,662 11,853 (2)   5,935 8,163 (27) 3,401 (1)   1,361 1,296 5   1,991 2,105 (5) 5,378 7   4,137 3,768 10   1,597 1,610 (1) NM    14 718 (98)   624 (1,337) 19,145 $ 20,517 5,734 Consumer & Community Banking (7)% (619) 51,806 (5)% 2014 $ 2013 1,668 $  $ 30,067 $   Provision for credit losses (in millions, except ratios) Change 9,976 3,352 Six months ended June 30, 2013 8,998 $ Asset Management 49,212 $ 2014  $ Commercial Banking $ Pre-provision profit/(loss)   Change (6)% 20,016 638 2013 13,654 17,597 Corporate/Private Equity 2014 12,893 $ 23,630 Corporate & Investment Bank     Total Noninterest expense  $ 21,891 $ Total   Total net revenue   Change 530 215% 31,289   Net income/(loss) 2014  $ (4)% 2013 (7)% Return on common equity   Change NM  2014 2013  $ 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 (8) 44 NM    993 987 1   22 22 (21) 2 NM    709 (302) NM    NM NM Asset Management Corporate/Private Equity 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, (in millions, except ratios)   2014 Revenue   Lending- and deposit-related fees $ 2013      Change     $ 727   521   561   (7) Mortgage fees and related income 1,290   1,819   Card income 1,486   1,445   421   369 Noninterest revenue 4,468   Net interest income 6,963 11,431 All other income Total net revenue           Provision for credit losses Noninterest expense 852     2013       Change     1,453  $ 1,450    —   1,024   1,094    (6) (29)   1,804   3,269    (45) 3   2,834   2,807    1   14   787   707    11 4,921   (9)   7,902   9,327    (15)   7,094   (2)   13,989   14,303    (2)   12,015   (5)   21,891   23,630    (7)               (19)         3%   $     Six months ended June 30, 2014    750 Asset management, administration and commissions      NM      1,668            530              215         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) 1,680   2,081   (19)   2,951   3,771    (22) 2,443  $ 3,089   (21)%   $ 4,379  $ 5,675    (23)% Income tax expense Net income $       Financial ratios             https://www.sec.gov/Archives/edgar/data/19617/000001961714000409/corpq22014.htm[10/8/14, 12:41:43 PM]                     CORP Q2 2014 Return on common equity 19%   Overhead ratio 56   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. 27%       17%        59 57 25%             58 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 $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. 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 $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. 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 chargeoffs of $2.5 billion. The prior-year provision reflected a $2.7 billion 20 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. 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.    Selected metrics       As of or for the three months ended June 30,   (in millions, except headcount) 2014   Selected balance sheet data (period-end)      Total assets $ 447,277   $ Loans:      2013     Change 2014         (3)%   $ 447,277   $             As of or for the six months ended June 30,      460,642      2013   Change    460,642   (3)%    390,211   392,067   —   390,211   392,067   — 8,881   15,274   (42)   8,881   15,274   (42) Total loans 399,092   407,341   (2)   399,092   407,341   (2) Deposits 488,681   456,814   7   488,681   456,814   7 Equity (b) 51,000   46,000   11   51,000   46,000   11 Loans retained Loans held-for-sale and loans at fair value(a) Selected balance sheet data (average)      Total assets $ 443,204   $ Loans:         457,644   (3)           $ 446,794   $          460,569   (3)    388,252   392,935   (1)   388,464   395,014   (2) 7,303   18,199   (60)   7,700   19,682   (61) 411,134   453,586   (4)   7   396,164   478,862   414,696   447,494   (4) Deposits 395,555   486,064   Equity (b) 51,000   46,000   11   51,000   46,000   11 Loans retained Loans held-for-sale and loans at fair value(a) Total loans   Headcount      141,688      157,886      (10)%      141,688      157,886   7 (10)% (a) Predominantly consists of prime mortgages originated with the intent to sell that are accounted for at fair value and classified as trading assets on the Consolidated Balance Sheets. https://www.sec.gov/Archives/edgar/data/19617/000001961714000409/corpq22014.htm[10/8/14, 12:41:43 PM] CORP Q2 2014 (b) 2014 includes $3.0 billion of capital held at the CCB level related to legacy mortgage servicing matters. 21 Selected metrics          As of or for the three months ended June 30,   (in millions, except ratios and where otherwise noted) Credit data and quality statistics   charge-offs (a) $ Nonaccrual loans:   Net Nonaccrual loans retained Nonaccrual loans held-for-sale and loans at fair value   2013    1,208     $ 1,481      As of or for the six months ended June 30,   Change     2014    (18)%   $         2013    2,474     $ Change    3,180      (22)%    6,840   8,540   (20)   6,840   8,540   (20) 202   41   393   202   41   393 7,042   8,581   (18)   7,042   8,581   (18) assets(b)(c)(d) 7,594   9,212   (18)   7,594   9,212   (18) losses (a) 11,284   15,095   (25)   11,284   15,095   (25) Total nonaccrual loans (b)(c)(d) Nonperforming   2014    Allowance for loan Net charge-off rate (a)(e) 1.25%   Net charge-off rate,  excluding PCI loans (e) 1.44   Allowance for loan losses to period-end loans retained 2.89 Allowance for loan losses to period-end loans retained,  excluding PCI loans (f) Allowance for loan losses to nonaccrual loans retained, excluding credit card(b)(f) 1.51%       1.28%   1.62%     1.77      1.48   1.90      3.85      2.89   3.85    2.22   2.80      2.22   2.80    58   58      58   58    Nonaccrual loans to total period-end loans, excluding credit card 2.58   3.03      2.58   3.03    Nonaccrual loans to total period-end loans, excluding credit card and PCI loans (b) 3.16   3.79      3.16   3.79    Business metrics                  Number of:                  Branches 5,636   5,657   —   5,636   5,657   — ATMs(g) 20,394   19,852   3   20,394   19,852   3 Active online customers (in thousands) 35,105   32,245   9   35,105   32,245   9 17,201   14,013   17,201   14,013   23% Active mobile customers (in thousands) 23%   (a) Net charge-offs and the net charge-off rates excluded $48 million and $109 million of write-offs in the PCI portfolio for the three and six months ended June 30, 2014, respectively. These write-offs decreased the allowance for loan losses for PCI loans. For further information, see Consumer Credit Portfolio on pages 120–129 of JPMorgan Chase’s 2013 Annual Report. (b) Excludes PCI loans. The Firm is recognizing interest income on each pool of PCI loans as they are all performing. (c) Certain mortgage loans originated with the intent to sell are classified as trading assets on the Consolidated Balance Sheets. (d) At June 30, 2014 and 2013, nonperforming assets excluded: (1) mortgage loans insured by U.S. government agencies of $8.1 billion and $10.1 billion, respectively, that are 90 or more days past due; (2) real estate owned insured by U.S. government agencies of $2.1 billion and $1.8 billion, respectively; and (3) student loans insured by U.S. government agencies under the Federal Family Education Loan Program (“FFELP”) of $316 million and $488 million, respectively, that are 90 or more days past due. These amounts have been excluded from nonaccrual loans based upon the government guarantee. (e) Loans held-for-sale and loans accounted for at fair value were excluded when calculating the net charge-off rate. (f) The allowance for loan losses for PCI loans was $3.7 billion and $5.7 billion at June 30, 2014 and 2013, respectively; these amounts were also excluded from the applicable ratios. (g) Includes Express Banking Kiosks (“EBK”). Prior periods were revised to conform with the current presentation. 22 Consumer & Business Banking https://www.sec.gov/Archives/edgar/data/19617/000001961714000409/corpq22014.htm[10/8/14, 12:41:43 PM] CORP Q2 2014 Selected financial statement data          As of or for the three months ended June 30,   (in millions, except ratios)   2014 Revenue   Lending- and deposit-related fees $   2013       As of or for the six months ended June 30,     Change      2014       4%   $ 1,438   $ 747  $ 717   507   454   12   990   Card income 406   378   7   All other income 162   124   31   782   284   Noninterest revenue 1,822   1,673   9   Net interest income 2,770   2,614   6 Total net revenue 4,592   4,287   7 Asset management, administration and commissions         Provision for credit losses Noninterest expense Income before income tax expense Net income $     Return on common equity Change    1,428   880   727   8 243   17 3,494   3,278   7   5,478   5,186   6   8,972   8,464   6 135      5 13 74      (11)      142   3,026      3,042      (1)      6,091   6,083      — 1,500   1,171   28   2,739   2,246   22 698   28  $ 1,634   $ 1,339   22         30%         $    33%   66 11,000 25%       71  $ Quarterly results Consumer & Business Banking net income was $894 million, an increase of $196 million, or 28%, compared with the prior year, predominantly due to higher net revenue. 11,000      1%      894 $   2013 66 Overhead ratio Equity (period-end and average)             25%     68   —%   $ 72 11,000   $ 11,000      — Year-to-date results Consumer & Business Banking net income was $1.6 billion, an increase of $295 million, or 22%, compared with the prior year, due to higher net revenue, partially offset by higher noninterest expense and higher provision for credit losses.   Net revenue was $4.6 billion, up 7% compared with the prior year. Net interest income was $2.8 billion, up 6% compared with the prior year, driven by higher deposit balances, partially offset by deposit spread compression. Noninterest revenue was $1.8 billion, an increase of 9%, driven by higher investment revenue, reflecting record client investment assets, higher deposit-related fees and debit card revenue. Net revenue was $9.0 billion, up 6% compared with the prior year. Net interest income was $5.5 billion, up 6% compared with the prior year, driven by higher deposit balances, partially offset by deposit spread compression. Noninterest revenue was $3.5 billion, an increase of 7%, driven by higher investment revenue, reflecting record client investment assets and higher debit card revenue. Noninterest expense was $3.0 billion, approximately flat from the prior year, driven by investments in controls, partially offset by efficiency gains in the branches. Noninterest expense was $6.1 billion, an increase of $8 million from prior year, driven by investments in controls, predominantly offset by efficiency gains in the branches and lower professional fees. 23    Selected metrics       As of or for the three months ended June 30,   (in millions, except ratios and where otherwise noted) 2014 Business metrics   Business banking origination volume $ Period-end loans Period-end deposits:   2013    1,917 20,276    $     1,317        200,560   179,801   Savings 249,175   228,879   24,421   29,255   2014    46%   $ 7    Checking Time and other   Change      As of or for the six months ended June 30,      18,950      2013    3,421 20,276     $     Change    2,551   34% 18,950   7       12   200,560   179,801   9   249,175   228,879   9 (17)   24,421   29,255   (17) https://www.sec.gov/Archives/edgar/data/19617/000001961714000409/corpq22014.htm[10/8/14, 12:41:43 PM] 12 CORP Q2 2014 Total period-end deposits Average loans 474,156   437,935   8   474,156   437,935   8 19,928   18,758   6   19,691   18,734   5   Average deposits:                Checking 197,490   175,496   13   193,511   172,115   12 Savings 249,240   227,453   10   246,386   224,440   10 24,832   29,840   (17)   25,153   30,432   (17) 471,562   432,789     465,050   426,987   9 Time and other Total average deposits 2.23%   Deposit margin Average assets $ 37,810  $ 2.31%     37,250       Net charge-offs  $   69 1.39%   Net charge-off rate Allowance for loan losses $ Nonperforming assets 74  $ 697   335   461      Net new investment assets $ Client investment assets 4,324 205,206  $     Number of: 37,964  $    (7)   $    $ 1 145 1.48%    $ (27)      1 171,925   19 33%      $   36,779   3    135   7 1.45%      $ 697   1 335   461   (27)    8,565 205,206      2.34%     703          $ 2.25%      4,269 38%   % managed accounts 2 1.58%     703 Retail branch business metrics     Credit data and quality statistics $ 9  $      9,201   (7) 171,925   19 38%      33%           2,408   1,691   42   2,408   1,691   42 Personal bankers 21,728   22,825   (5)   21,728   22,825   (5) Sales specialists 4,405   6,326   (30)   4,405   6,326   (30) Chase Private Client locations Client advisors Chase Private Clients Accounts (in thousands)(a) Households (in millions) (a) Includes checking accounts and Chase 3,075   3,024   2   3,075   3,024   2 262,965   165,331   59   262,965   165,331   59 30,144   28,937   4   30,144   28,937   4 25.5   24.7   3%   25.5   24.7   3% Liquid ® cards. 24 Mortgage Banking Selected financial statement data    As of or for the three months ended June 30,   (in millions, except ratios) Revenue Mortgage fees and related income   2014   2013         $  $ 1,819     101 All other income 1,290 (17)      Change      As of or for the six months ended June 30,   2014        $   (29)%   $   NM 1,804 (20)   2013 Change    3,269     194   (45)% NM  Noninterest revenue 1,273   1,920   (34)   1,784   3,463   (48) Net interest income 1,013   1,138   (11)   2,071   2,313   (10) Total net revenue 2,286   3,058   (25)   3,855   5,776   (33)     Provision for credit losses   (188)           (657)   71      (211)         (855)   75 Noninterest expense 1,306      1,834      (29)      2,709      3,640      (26) Income before income tax expense 1,168   1,881   (38)   1,357   2,991   (55)  $ 1,142   (38)  $  $ 1,815   (55) Net income $     Return on common equity 709    16%      23%          https://www.sec.gov/Archives/edgar/data/19617/000001961714000409/corpq22014.htm[10/8/14, 12:41:43 PM] 823    9%      19%     CORP Q2 2014 57      Overhead ratio Equity (period-end and average) $ 60         $ 18,000     19,500 (8)%   $ 70       $ 18,000 63        19,500   (8)% Quarterly results   Mortgage Banking net income was $709 million, a decrease of $433 million from the prior year, driven by lower net revenue and a lower benefit from the provision for credit losses, partially offset by lower noninterest expense. Year-to-date results Mortgage Banking net income was $823 million, a decrease of $992 million from the prior year, driven by lower net revenue and lower benefit from the provision for credit losses, partially offset by lower noninterest expense. Net revenue was $2.3 billion, a decrease of $772 million compared with the prior year. Net interest income was $1.0 billion, a decrease of $125 million, or 11%, driven by lower warehouse loans balances as well as lower loan balances due to portfolio runoff. Noninterest revenue was $1.3 billion, a decrease of $647 million, driven by lower mortgage fees and related income. Net revenue was $3.9 billion, a decrease of $1.9 billion compared with the prior year. Net interest income was $2.1 billion, a decrease of $242 million, or 10%, driven by lower warehouse loans balances as well as lower loan balances, partially offset by higher yield on Ginnie Mae loans. Noninterest revenue was $1.8 billion, a decrease of $1.7 billion, driven by lower mortgage fees and related income. The provision for credit losses was a benefit of $188 million, compared with a benefit of $657 million in the prior year. The current quarter reflected a $300 million reduction in the purchased creditimpaired allowance for loan losses, reflecting continued improvement in home prices and delinquencies. The prior year included a $950 million reduction in the non credit-impaired allowance for loan losses. Net charge-offs were $112 million, compared with $293 million in the prior year. The provision for credit losses was a benefit of $211 million, compared with a benefit of $855 million in the prior year. The current year reflected a $500 million reduction in the allowance for loan losses, reflecting continued improvement in home prices and delinquencies. The prior year included a $1.6 billion reduction in the allowance for loan losses. Net charge-offs were $289 million, compared with $745 million in the prior year. Noninterest expense was $2.7 billion, a decrease of $931 million, or 26%, from the prior year, due to lower expense in production and servicing. Noninterest expense was $1.3 billion, a decrease of $528 million, or 29%, from the prior year, due to lower expense in production and servicing. 25    Functional results   Production revenue and other   income (a) Production-related net interest $ income (a) Production-related revenue, excluding repurchase (losses)/benefits Production   2014 Mortgage Production expense (b) Income, excluding repurchase (losses)/benefits Repurchase (losses)/benefits Income before income tax expense   Loan servicing revenue and other income (a)   2013    251  $    (78)%   $ 2,152   (79)% 178   352   (49) 339   1,286   (74)   631   2,504   (75) 413   720   (43)   891   1,430   (38) (74)   566   NM   (260)   1,074   NM  137   16   NM   265   (65)   NM  63   582   (89)   5                   Default servicing expense 340   475 Core servicing expense (b) 212   141    $   (237) Income before income tax expense 453    (47) 930 Income, excluding MSR risk management    Change     MSR risk management, including related net interest income/(expense)   2013 166 66 Servicing-related revenue   2014     Changes in MSR asset fair value due to collection/realization of expected cash flows Six months ended June 30,        Servicing-related net interest   1,120 864 income (a) Change    88     Mortgage Servicing     Three months ended June 30, (in millions, except ratios)      31   1,055   1,009         113   (12)   17   (482)     (28)   704   972   (28) 240   (12)   430   480   (10)   55   156   272   96   183 338   78   333   (63)   (64)   2 479   133   260   209     NM  (285)         https://www.sec.gov/Archives/edgar/data/19617/000001961714000409/corpq22014.htm[10/8/14, 12:41:43 PM] 1,735   153   1,888   (100)       (16)    1,024          2,033   (15) 58   164 2,091   (10) (543)   32    11 CORP Q2 2014 Real Estate Portfolios               Noninterest revenue (79)   (34)   (132)   Net interest income 858   942   (9)   1,740   779   908   (14)   1,616   Total net revenue         Provision for credit losses Noninterest expense Income before income tax expense Mortgage Banking income before income tax expense $ Mortgage Banking net income $       Overhead ratios (189)      342      626   1,168  $ 709  $    87%   Mortgage Servicing 53   Real Estate Portfolios 44     71      (215)           (15)      688      1,166   (46)   1,143   1,881   (38)  $ 1,357  $ 1,142   (38)%   $ 823  $ (662)   404       Mortgage Production (124)                (51)   (143) 1,904   (9) 1,853   (13)    (864)   75      (10) 1,950   (41) 2,991   (55) 1,815   (55)% 767             55%       99%   58%     84      84   98    44      43   41    (a) Prior periods were revised to conform with the current presentation. (b) Includes provision for credit losses. 26 Quarterly results   Mortgage Production pretax income was $63 million, a decrease of $519 million from the prior year, reflecting lower revenue, partially offset by lower expense and lower repurchase losses. Mortgage production-related revenue, excluding repurchase losses, was $339 million, a decrease of $947 million, from the prior year, primarily on lower market volumes. Production expense was $413 million, a decrease of $307 million from the prior year, predominantly due to lower headcount-related expense. Year-to-date results Mortgage Production pretax income was $5 million, a decrease of $1.0 billion from the prior year, reflecting lower revenue, partially offset by lower expense and lower repurchase losses. Mortgage production-related revenue, excluding repurchase losses, was $631 million, a decrease of $1.9 billion, from the prior year, driven by lower market volumes due to higher levels of mortgage interest rates. Production expense was $891 million, a decrease of $539 million from the prior year, driven by lower headcount-related expense. Mortgage Servicing pretax income was $479 million, compared with $133 million in the prior year, reflecting higher MSR risk management income and lower expenses, partially offset by lower revenue. Mortgage net servicing-related revenue was $693 million, a decrease of $77 million from the prior year. MSR risk management income was $338 million, driven by approximately $220 million of positive model assumption updates on slower prepayments, compared with $78 million in the prior year. See Note 16 for further information regarding changes in value of the MSR asset and related hedges. Servicing expense was $552 million, a decrease of $163 million from the prior year, reflecting lower headcount-related expense. Mortgage Servicing pretax income was $209 million, compared with $32 million in the prior year, reflecting lower expenses, partially offset by lower revenue. Mortgage net servicing-related revenue was $1.4 billion, a decrease of $142 million from the prior year. MSR risk management was a loss of $63 million, compared with a MSR risk management loss of $64 million in the prior year. See Note 16 for further information regarding changes in value of the MSR asset and related hedges. Servicing expense was $1.1 billion, a decrease of $318 million from the prior year, reflecting lower headcount-related expense. Real Estate Portfolios pretax income was $626 million, down $540 million from the prior year, due to a lower benefit from the provision for credit losses and lower net revenue, partially offset by lower expense. Net revenue was $779 million, a decrease of $129 million, or 14%, from the prior year. This decrease was largely due to lower net interest income resulting from lower loan balances due to portfolio runoff. The provision for credit losses was a benefit of $189 million, compared with a benefit of $662 million in the prior year. The current-quarter provision reflected a $300 million reduction in the purchased credit-impaired allowance for loan losses, reflecting continued improvement in home prices and delinquencies. The prioryear provision included a $950 million reduction in the non creditimpaired allowance for loan losses. Net charge-offs were $111 million, compared with $288 million in the prior year. See Consumer Credit Portfolio on pages 52–59 for the net charge-off amounts and rates. Noninterest expense was $342 million, a decrease of $62 million, or 15%, compared with the prior year, driven by lower foreclosed asset expense. Real Estate Portfolios pretax income was $1.1 billion, down $807 million from the prior year, due to a lower benefit from the provision for credit losses and lower net revenue, partially offset by lower expense. Net revenue was $1.6 billion, a decrease of $237 million, or 13%, from the prior year. This decrease was largely due to lower net interest income resulting from lower loan balances due to portfolio runoff. The provision for credit losses was a benefit of $215 million, compared with a benefit of $864 million in the prior year. The current-year provision reflected a $300 million reduction in the purchased credit-impaired allowance for loan losses and $200 million in the non credit-impaired allowance for loan losses, reflecting continued improvement in home prices and delinquencies. The prioryear provision included a $1.6 billion reduction in the allowance for loan losses from the non credit-impaired allowance. Net charge-offs were $285 million, compared with $736 million in the prior year. See Consumer Credit Portfolio on pages 52–59 for the net charge-off amounts and rates. Noninterest expense was $688 million, a decrease of $79 million, or 10%, compared with the prior year, driven by lower foreclosed asset expense. https://www.sec.gov/Archives/edgar/data/19617/000001961714000409/corpq22014.htm[10/8/14, 12:41:43 PM] CORP Q2 2014 27 Mortgage Production and Mortgage Servicing          Selected metrics            As of or for the three months ended June 30,   (in millions, except ratios) Selected balance sheet data Period-end loans: Prime mortgage, including option ARMs (a) Prime mortgage, including option   2013                        $ 14,964 8,231 Average assets Repurchase liability (period-end) Credit data and quality statistics   Net charge-offs:    $ 15,567     15,274        (9)   8,231  $ 15,567     15,274      Change (4)% (46)    15,440   17,242   (10) 6,894   18,199   (62)   7,338   19,682   (63) 41,101   59,880   (31)   43,482   62,037   (30) 406   2,245   (82)   406   2,245   (82)                  5    0.03%   $ 14,964    16,933   rate (c)        1 Prime mortgage, including option ARMs (4)%   $ (46) 15,489 Prime mortgage, including option ARMs Nonperforming assets (d)   2014    value(b) Net charge-off rate:      ARMs (a) Loans held-for-sale and loans at fair Change      Average loans:   2013   Loans held-for-sale and loans at fair value(b) 30+ day delinquency   2014 As of or for the six months ended June 30,        (80)      3.46    513  $ 707           4    0.12%     2.16         9           0.05%     2.16   3.46    513  $ 707   (27)%   $ (56) 0.11%     (27)% (a) Predominantly represents prime mortgage loans repurchased from Government National Mortgage Association (“Ginnie Mae”) pools, which are insured by U.S. government agencies. (b) Predominantly consists of prime mortgages originated with the intent to sell that are accounted for at fair value and classified as trading assets on the Consolidated Balance Sheets. (c) At June 30, 2014 and 2013, excluded mortgage loans insured by U.S. government agencies of $9.6 billion and $11.2 billion, respectively, that are 30 or more days past due. These amounts have been excluded based upon the government guarantee. For further discussion, see Note 13 which summarizes loan delinquency information. (d) At June 30, 2014 and 2013, nonperforming assets excluded: (1) mortgage loans insured by U.S. government agencies of $8.1 billion and $10.1 billion, respectively, that are 90 or more days past due; and (2) real estate owned insured by U.S. government agencies of $2.1 billion and $1.8 billion, respectively. These amounts have been excluded from nonaccrual loans based upon the government guarantee. For further discussion, see Note 13 which summarizes loan delinquency information. Selected metrics            As of or for the three months ended June 30,   (in billions, except ratios)   2014   2013    As of or for the six months ended June 30,   Change        2014   2013 Business metrics                  Mortgage origination volume by channel                  Retail $ Correspondent(a) Total mortgage origination volume (b) $ Mortgage application volume by channel   Retail Third-party mortgage loans serviced (period-end) Third-party mortgage loans serviced (average) MSR carrying value (period-end) Ratio of MSR carrying value (period-end) to thirdparty mortgage loans serviced (period-end)  $ 9.6   16.8  $ 23.3   25.7   49.0      (69)%   $ (63)   (66)  $    13.9  $ 19.9   33.8  $    49.5   (72)% 52.2   (62) 101.7   (67)       15.7  $ 36.8   (57)  $ 30.3  $ 71.5   (58) 14.4   28.2   (49)   25.9   54.0   (52) $ 30.1  $ 65.0   (54)  $ 56.2  $ 125.5   (55) $ 786.2  $ 832.0   (6)  $ 786.2  $ 832.0   (6) 794.7   840.6   (5)   802.0   847.4   (5) 8.3   9.3   (11)%   8.3   9.3   (11)% $ Correspondent(a) Total mortgage application volume 7.2 Change 1.06%   1.12%       https://www.sec.gov/Archives/edgar/data/19617/000001961714000409/corpq22014.htm[10/8/14, 12:41:43 PM] 1.06%   1.12%     CORP Q2 2014 Ratio of annualized loan servicing-related revenue to third-party mortgage loans serviced (average) 0.35 MSR revenue multiple(c) 3.03x          0.36 2.73x       2.94x   0.41   0.42    2.67x     (a) Includes rural housing loans sourced through correspondents, and prior to November 2013, through both brokers and correspondents, which are underwritten and closed with prefunding loan approval from the U.S. Department of Agriculture Rural Development, which acts as the guarantor in the transaction. (b) Firmwide mortgage origination volume was $18.0 billion and $52.0 billion for the three months ended June 30, 2014 and 2013, respectively, and $36.2 billion and $107.1 billion for the six months ended June 30, 2014 and 2013, respectively. (c) 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). 28 Real Estate Portfolios Selected metrics                                As of or for the six months ended June 30, As of or for the three months ended June 30,   (in millions) 2014   2013   Change   2014   2013   Change Loans, excluding PCI                  Period-end loans owned:                  $ 54,485   $ 62,326   (13)%   $ 54,485   $ 62,326   54,709   44,003   24   54,709   44,003   24 6,636   7,703   (14)   6,636   7,703   (14) 510   589   (13)   510   589   (13) Home equity Prime mortgage, including option ARMs Subprime mortgage Other Total period-end loans owned Average loans owned: Home equity $ 116,340   $      $ 55,329   $ 63,593   53,132   6,754   43,007   7,840   520   597   (13) Prime mortgage, including option ARMs Subprime mortgage Other 114,621    $ 116,340   $        $ 56,167   $ 64,856   (13) 24   (14)   51,940   6,880   42,411   7,989   (14)   530   608   (13) 1         Period-end loans owned:            $ 18,070   $ 19,992   (10)  $ 18,070   $ 19,992   (10) 11,302   12,976   (13)   11,302   12,976   (13) 3,947   4,448   (11)   3,947   4,448   (11) 16,799   19,320   (13)   16,799   19,320   (13) 56,736   (12)  $ 50,118   $ 56,736   (12)       Home equity Prime mortgage Subprime mortgage Option ARMs          115,864   22 PCI loans    115,517   $    115,735   $ 1  $ 1 $ Total average loans owned 115,037   (13) 114,621   (13)% —       $ 50,118   $      $ 18,295   $ 20,245   (10)  $ 18,506   $ 20,494   (10) 11,487   13,152   (13)   11,677   13,337   (12) 4,001   4,488   (11)   4,064   4,538   (10) 17,074   19,618   (13)   17,379   19,920   (13) $ 50,857   $ 57,503   (12)  $ 51,626   $ 58,289   (11) Total Real Estate Portfolios                  Period-end loans owned:                  $  $   72,555   $ 82,318   (12) 82,810   76,299   9 Total period-end loans owned Average loans owned: Home equity Prime mortgage Subprime mortgage Option ARMs Total average loans owned       72,555   $ 82,318   (12) Prime mortgage, including option ARMs 82,810   76,299   9 Subprime mortgage 10,583   12,151   (13)   10,583   12,151   (13) 510   589   (13)   510   589   (13) 171,357   (3) 171,357   (3) Home equity Other Total period-end loans owned $ 166,458   $  $ https://www.sec.gov/Archives/edgar/data/19617/000001961714000409/corpq22014.htm[10/8/14, 12:41:43 PM] 166,458   $ CORP Q2 2014      $ 73,624   $ 83,838   (12) Prime mortgage, including option ARMs 81,693   75,777   Subprime mortgage 10,755   520   Average loans owned: Home equity Other Total average loans owned Average assets              $ 74,673   $ 85,350   (13) 8   80,996   75,668   7 12,328   (13)   10,944   12,527   (13) 597   (13)   530   608   (13) $ 166,592   $ 172,540   (3)  $ 167,143   $ 174,153   (4) $ 163,583   $ 163,593   —  $ 164,110   $ 164,975   (1) 802   Home equity origination volume 499   61%   1,457   901   62% 29    Credit data and quality statistics As of or for the three months ended June 30,   (in millions, except ratios)   2014 Net charge-offs/(recoveries), excluding PCI loans: (a) Home equity   $ Prime mortgage, including option ARMs Subprime mortgage Other Total net charge-offs/(recoveries), excluding PCI loans $ Net charge-off/(recovery) rate, excluding PCI loans:     2013     $ (12) (5) 3 111 Change     (47)%   $   16   NM   33   NM   3   — 288   (61)  $      2014    236      2013    291  $   (19)   8   5  $    As of or for the six months ended June 30,      125    285       569     60     100   (92)   7   (29) 736   (61)  $    0.91%   1.49%       1.04%   1.77%     Prime mortgage, including option ARMs 0.15         1.69      (0.07)   0.23   0.29 Subprime mortgage (0.09)   (0.30)   2.52    Other 2.31   2.02      1.90   2.32    0.38   1.00      0.50   1.28          Net charge-off/(recovery) rate – reported:(a)         Prime mortgage, including option ARMs 0.68%   (0.06)   Subprime mortgage (0.19)   1.07      0.15 Other 2.31   2.02      Total net charge-off/(recovery) rate – reported 0.27   0.67      30+ day delinquency rate, excluding PCI loans (b) 3.04%   4.17%       3.04%   Home equity Allowance for loan losses, excluding PCI loans Allowance for PCI Allowance for loan losses Nonperforming $ loans (a) assets (c) $ 1.13%     0.08         0.79%   (0.05)   (49)% NM     Home equity Total net charge-off/(recovery) rate, excluding PCI loans Change    1.34%     0.16      1.61    1.90   2.32    0.34   0.85    4.17%     2,368  $ 3,268   (28)  $ 2,368  $ 3,268   (28) 3,749   5,711   (34)   3,749   5,711   (34) 6,117  $ 8,979   (32)  $ 6,117  $ 8,979   (32) 6,445   7,801   (17)%   6,445   7,801   (17)% Allowance for loan losses to period-end loans retained 3.68%   Allowance for loan losses to period-end loans retained, excluding PCI loans 2.04   5.24%       3.68%        2.04 2.85   5.24%     2.85    (a) Net charge-offs and the net charge-off rates excluded $48 million and $109 million of write-offs in the PCI portfolio for the three and six months ended June 30, 2014, respectively. These write-offs decreased the allowance for loan losses for PCI loans. For further information, see Consumer Credit Portfolio on pages 120–129 of JPMorgan Chase’s 2013 Annual Report. (b) The 30+ day delinquency rate for PCI loans was 14.08% and 17.92% at June 30, 2014 and 2013, respectively. (c) Excludes PCI loans. The Firm is recognizing interest income on each pool of PCI loans as they are all performing.   Mortgage servicing-related matters The financial crisis resulted in unprecedented levels of delinquencies and defaults of 1-4 family residential real estate loans. Such loans required varying degrees of loss mitigation activities. Foreclosure is usually a last resort, and accordingly, the Firm has made, and regulatory requirements, include enhanced mortgage servicing and foreclosure standards and processes. The Firm has satisfied or is committed to satisfying these obligations within the mandated timeframes. https://www.sec.gov/Archives/edgar/data/19617/000001961714000409/corpq22014.htm[10/8/14, 12:41:43 PM] CORP Q2 2014 continues to make, significant efforts to help borrowers remain in their homes. The mortgage servicing Consent Orders and settlements are subject to ongoing oversight by the Mortgage Compliance Committee of the Firm’s Board of Directors. In addition, certain of the Consent Orders and settlements are the subject of ongoing reporting to various regulators and independent overseers. 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 mortgagebacked 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”, that may include principal reductions, 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 The Firm’s compliance with the Global Settlement and the RMBS Settlement are detailed in periodic reports published by the independent overseers. For further information on these settlements and Consent Orders, see Note 2 and Note 31 of JPMorgan Chase’s 2013 Annual Report. 30 Card, Merchant Services & Auto Selected financial statement data    As of or for the three months ended June 30 ,   (in millions, except ratios)   2014 Revenue   Card income $   2013     $ 1,080 Change     2014    1%   $    As of or for the six months ended June 30,      1,067        2013    2,052  $ Change    2,080   (1)% 293   261   12   572   506   13 1,373   1,328   3   2,624   2,586   1 Net interest income 3,180   3,342   (5)   6,440   6,804   (5) Total net revenue 4,553   4,670   (3)   9,064   9,390   (3) All other income Noninterest revenue         Provision for credit losses Noninterest expense Income before income tax expense Net income $     Return on common equity 974      564      73      1,737      1,250      39 2,124      1,988      7      4,093      3,931      4 1,455   2,118   (31)   3,234   4,209   (23)  $ 1,249   (33)  $ 1,922  $ 2,521   (24) 840    18%   Overhead ratio Equity (period-end and average)   47 $  $ 19,000 Quarterly results Card, Merchant Services & Auto net income was $840 million, a decrease of $409 million, or 33%, compared with the prior year, driven by higher provision for credit losses, higher noninterest expense and lower net revenue. Net revenue was $4.6 billion, down $117 million, or 3%, compared with the prior year. Net interest income was $3.2 billion, down $162 million compared with the prior year, driven by spread compression. Noninterest revenue was $1.4 billion, up $45 million from the prior year, driven by higher net interchange income, largely offset by higher amortization of new account origination costs. The provision for credit losses was $974 million, compared with $564 million in the prior year. The current-quarter provision reflected lower net charge-offs and a $53 million reduction in the allowance for loan losses, primarily in Student. The prior year provision reflected a $550 million reduction in the allowance for loan losses. Noninterest expense was $2.1 billion, up $136 million, or 7% from the           20%        45 32%     43 15,500   23%   $    19,000    $    33%     42 15,500      23% Year-to-date results Card, Merchant Services & Auto net income was $1.9 billion, a decrease of $599 million, or 24%, compared with the prior year, driven by higher provision for credit losses and lower net revenue. Net revenue was $9.1 billion, down $326 million, or 3%, compared with the prior year. Net interest income was $6.4 billion, down $364 million compared with the prior year, driven by spread compression. Noninterest revenue was $2.6 billion, up $38 million compared with the prior year, driven by higher net interchange income and auto lease income, predominately offset by higher amortization of new account origination costs and lower revenue from an exited non-core product. The provision for credit losses was $1.7 billion, compared with $1.3 billion in the prior year. The current-year provision reflects lower net charge-offs and a $303 million reduction in the allowance for loan losses. The reduction in the allowance for loan losses is primarily related to a decrease in the asset-specific allowance resulting from increased granularity of the impairment estimates related to credit card loans modified in TDRs and run-off in the student loan portfolio. The https://www.sec.gov/Archives/edgar/data/19617/000001961714000409/corpq22014.htm[10/8/14, 12:41:43 PM] CORP Q2 2014 prior year, largely driven by investments in controls, timing of marketing investment in Credit Card and higher legal expense. prior-year provision included a $1.1 billion reduction in the allowance for loan losses. Noninterest expense was $4.1 billion, up $162 million, or 4% from the prior year primarily driven by investments in controls, higher operating lease depreciation and higher legal expense, partially offset by a regulatory charge in the prior year. 31    Selected metrics As of or for the three months ended June 30,   (in millions, except ratios and where otherwise noted)   2014   2013    As of or for the six months ended June 30,     Change      2014   2013 Change Selected balance sheet data (period-end)                  Loans:                  Credit Card $ Auto 126,129 $ Selected balance sheet data (average)   Total assets $ Loans:   124,288   1%  $  $ 126,129 124,288   1% 53,042   50,865   4   53,042   50,865   4 9,992   11,040   (9)   9,992   11,040   (9) 186,193   2 186,193   2 Student Total loans  $ 189,163  $    200,710  $  $    196,921  $ 189,163          $ 2     $ 201,238 196,778   2             123,679   122,855   1   123,471   123,208   — Auto 52,818   50,677   4   52,780   50,362   5 Student 10,155   11,172   (9)   10,301   11,315   (9) 184,704   1 184,885   1 Credit Card Total loans $ Business metrics   Credit Card, excluding Commercial Card   Sales volume (in billions) $ 186,652  $          118.0  $  $ 186,552        $       105.2   12  $              $ 222.5 199.9   11 2.1   1.5   40   4.2   3.2   31 Open accounts 65.8   64.8   2   65.8   64.8   2 Accounts with sales activity 31.8   30.0   6   31.8   30.0   6 New accounts opened 54%   % of accounts acquired online Merchant Services (Chase Paymentech Solutions)   Merchant processing volume (in billions) $    209.0 Total transactions (in billions) 9.3 Auto   Origination volume (in billions) $ 53%         $   13 8.8   6   6.8     18.4 360.8   12 17.1   8     $ 4%     $ 404.4      52%         $     $ 53%      185.0    7.1       $ 13.8 13.3   4% 32    Selected metrics As of or for the three months ended June 30,       As of or for the six months ended June 30,     (in millions, except ratios)   Credit data and quality statistics                   Net charge-offs:                   Credit Card  $ Auto     2014 885 29  $     2013 1,014   23     Change   (13)%   $ 26 https://www.sec.gov/Archives/edgar/data/19617/000001961714000409/corpq22014.htm[10/8/14, 12:41:43 PM]     2014 1,773 70  $     2013 2,096   63   Change (15)% 11 CORP Q2 2014   Student Total net charge-offs  $ Net charge-off rate:    Card (a)   113  $ 1,027 77   47   1,114   (8)  $      2.88%   Auto   0.22   Student   4.46   Total net charge-off rate   2.21   Delinquency rates    30+ day delinquency rate:      197  $ 2,040    141   40 2,300   (11)       3.31%       2.90%   0.18      0.27   0.25    2.76      3.86   2.51    2.42      2.21   2.51                                       1.41   1.69      1.41   1.69    Auto   0.93   0.95      0.93   0.95    Student (c)   2.67   2.23      2.67   2.23      Credit Credit Card (b) 3.43%     1.34   1.52      1.34   1.52      0.69   0.82      0.69   0.82    Nonperforming assets(d)  $ 301  $ 243    $ 301  $ 243   Allowance for loan losses:    Total 30+ day delinquency rate 90+ day delinquency rate – Credit Card (b) Credit Card  $ Auto & Student   Total allowance for loan losses  $     $ 4,444   (19)  $ 954   (11)   5,399   (18)%   $    Credit Card (b)   2.86%   Auto & Student   1.35   Total allowance for loan losses to period-end loans   2.36      4,445   850    Allowance for loan losses to period-end loans:     $ 3,594 24        $ 3,594    4,445   (19) 954   (11) 5,399   (18)%   850  $ 4,444    24       3.58%       2.86%   3.58%     1.54      1.35   1.54    2.90      2.36   2.90    (a) Average credit card loans included loans held-for-sale of $405 million for the three months ended June 30, 2014 and $360 million for the six months ended June 30, 2014. These amounts are excluded when calculating the net charge-off rate. There were no loans held-for-sale for the three and six months ended June 30, 2013. (b) Period-end credit card loans included loans held-for-sale of $508 million at June 30, 2014. This amount was excluded when calculating delinquency rates and the allowance for loan losses to period-end loans. There were no loans held-for-sale at June 30, 2013. (c) Excluded student loans insured by U.S. government agencies under the FFELP of $630 million and $812 million at June 30, 2014 and 2013, respectively, that are 30 or more days past due. These amounts have been excluded based upon the government guarantee. (d) Nonperforming assets excluded student loans insured by U.S. government agencies under the FFELP of $316 million and $488 million at June 30, 2014 and 2013, respectively, that are 90 or more days past due. These amounts have been excluded from nonac crual loans based upon the government guarantee. Card Services supplemental information        (in millions, except ratios)   Revenue          Noninterest revenue  $  $ 994   Net interest income   2,764   2,863 Total net revenue   3,746   3,857          Three months ended June 30,   2014 982   2013 Change     2013   Change 1,866  $ 1,932   (3)%   5,593   5,833   (4)   (3)   7,459   7,765   (4) 464      91      1,573      1,046      50 6      3,090      3,038      2   2,796   3,681   (24) 1,661  $ 2,206   (25)% Noninterest expense 1,625      1,537      Income before income tax expense   1,236   1,856   (33) Net income  $  $ 1,093   (35)%   $         Percentage of average loans: 2014         709 Six months ended June 30, (1)%   $ (3)                885 Provision for credit losses                                     Noninterest revenue   3.18%   3.25%      3.05%   3.16%    Net interest income   8.96   9.35      9.13   9.55    Total net revenue   12.15   12.59      12.18   12.71    33 https://www.sec.gov/Archives/edgar/data/19617/000001961714000409/corpq22014.htm[10/8/14, 12:41:43 PM] CORP Q2 2014 CORPORATE & INVESTMENT BANK For a discussion of the business profile of CIB, see pages 98–102 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, (in millions, except ratios)   2014   2013    Change      Six months ended June 30,   2014   2013 Change               $ 1,773  $ 1,717    $ 3,217  $ 3,150   2,782   3,288   (15)   5,668   7,249   (22) 449   486   (8)   893   959   (7) 1,186   1,289   (8)   2,365   2,456   (4) 341   391   (13)   624   714   (13) Noninterest revenue 6,531   7,171   (9)   12,767   14,528   (12) Net interest income 2,460   2,705   (9)   4,830   5,488   (12) Total net revenue (b) 8,991   9,876   (9)   17,597   20,016   (12) Revenue Investment banking fees Principal transactions (a) Lending- and deposit-related fees Asset management, administration and commissions All other income     Provision for credit losses   Noninterest expense (84)          3%    (6)         NM            (35)               5            2% NM        Compensation expense 2,757   2,988   (8)   5,627   6,364   (12) Noncompensation expense 3,301   2,754   20   6,035   5,489   10 Total noninterest expense 6,058   5,742   6   11,662   11,853   (2) Income before income tax expense 3,017   4,140   (27)   5,970   8,158   (27) Income tax expense 1,054   1,302   (19)   2,028   2,710   (25) 1,963  $ 2,838   (31)%  $ 3,942  $ 5,448   (28)% Net income $   Financial ratios Return on common Overhead equity (c) ratio (d) Compensation expense as a percentage of total net revenue(e)                13%   20%       13%   67   58      66   19%     59    31   30      32   32    (a) Included FVA (effective fourth quarter 2013) and DVA on OTC derivatives and structured notes, measured at fair value. Net FVA and DVA gains were $173 million for the three months ended June 30, 2014, and $143 million for the six months ended June 30, 2014. DVA gains were $355 million for the three months ended June 30, 2013, and $481 million for the six months ended June 30, 2013. Results are presented net of associated hedging activities. (b) Included tax-equivalent adjustments, predominantly due to income tax credits related to affordable housing and alternative energy investments, as well as tax-exempt income from municipal bond investments of $606 million and $550 million for the three months ended June 30, 2014 and 2013, respectively, and $1.2 billion and $1.1 billion for the six months ended June 30, 2014 and 2013, respectively. (c) Return on equity excluding DVA, a non-GAAP financial measure, was 19% and 18% for the three and six months ended June 30, 2013, respectively. (d) Overhead ratio excluding DVA, a non-GAAP financial measure, was 60% and 61% for the three and six months ended June 30, 2013. (e) Compensation expense as a percentage of total net revenue excluding DVA, a non-GAAP financial measure, was 31% and 33% for the three and six months ended June 30, 2013. Note: Prior to January 1, 2014, CIB provided several non-GAAP financial measures excluding the impact of implementing the funding valuation adjustment (“FVA”) framework (effective fourth quarter 2013) and DVA on: net revenue, net income, overhead ratio, compensation ratio and return on equity. Beginning in the first quarter https://www.sec.gov/Archives/edgar/data/19617/000001961714000409/corpq22014.htm[10/8/14, 12:41:43 PM] CORP Q2 2014 2014, the Firm did not exclude FVA and DVA from its assessment of business performance; however, the Firm continues to present these non-GAAP measures for the periods prior to January 1, 2014, as they reflected how management assessed the underlying business performance of the CIB in those prior periods. 34    Selected income statement data        Three months ended June 30, (in millions)   2014 2013      Change Six months ended June 30, 2014   2013   Change            $ Equity underwriting 397   $ 477   304   457   31%   $   4 780   $ 830   Debt underwriting 899   956   (6)   1,607   1,861   (14) Total investment banking fees 1,773   1,717   3   3,217   3,150   2 Treasury Services 1,012   1,051   (4)   2,021   2,095   (4) 297   373   (20)   581   871   (33) Total Banking 3,082   3,141   (2)   5,819   6,116   (5) Fixed Income Markets 3,482   4,078   (15)   7,242   8,830   (18) Equity Markets 1,165   1,296   (10)   2,460   2,636   (7) 1,137   1,087   5   2,148   2,061   4 125   274   (54)   (72)   373   Total Markets & Investor Services 5,909   6,735   (12)   11,778   13,900   (15) Total net revenue 8,991   $ 9,876   17,597   $ 20,016   (12)% Revenue by business Advisory Lending Securities Services Credit Adjustments & Other (a) $         (9)%   $    559   40% 730   14 NM  (a) Consists primarily of credit valuation adjustments (“CVA”) managed by the credit portfolio group, and FVA (effective fourth quarter 2013) and DVA on OTC derivatives and structured notes. Results are presented net of associated hedging activities and net of CVA and FVA amounts allocated to Fixed Income Markets and Equity Markets. Quarterly results   Net income was $2.0 billion, down 31% compared with $2.8 billion in the prior year. These results primarily reflected 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 DVA gain of $355 million in the prior year, net revenue was down 6% from $9.5 billion, and net income was down 25% from $2.6 billion. Banking revenue was $3.1 billion, down 2% from the prior year. Investment banking fees were $1.8 billion, up 3% from the prior year. The increase was driven by higher advisory fees of $397 million, up 31% from the prior year on stronger wallet share of completed transactions, as well as higher equity underwriting fees of $477 million, up 4% from the prior year on stronger industry-wide issuance. These were partially offset by lower debt underwriting fees of $899 million, down 6% from the prior year, primarily related to lower loan syndication fees on lower industry-wide wallet levels. Treasury Services revenue was $1.0 billion, down 4% compared with the prior year driven by lower trade finance revenue as well as the impact of business simplification initiatives. Lending revenue was $297 million, down from $373 million in the prior year primarily due to lower net interest income. Markets & Investor Services revenue was $5.9 billion, down 12% from the prior year. Fixed Income Markets revenue of $3.5 billion was down 15% from the prior year on historically low levels of volatility and lower client activity across products. Equity Markets revenue of $1.2 billion was down 10% compared with the prior year, primarily on lower derivatives revenue. Securities Services revenue was $1.1 billion, up 5% from the prior year primarily driven by higher net interest income on increased deposits. Credit Adjustments & Other revenue was a gain of $125 million driven by gains, net of hedges, related to funding valuation adjustments/DVA, compared with a gain of $274 million in the prior year which was primarily driven by DVA. Noninterest expense was $6.1 billion, up 6% from the prior year, driven by higher noncompensation expense, partially offset by lower performance-based compensation. The current quarter noninterest expense included approximately $300 million of legal expense and approximately $300 million of costs related to business simplification. The ratio of compensation expense to total net revenue was 31%. Return on equity was 13% on $61.0 billion of average allocated capital. Year-to-date results Net income was $3.9 billion, down 28% compared with $5.4 billion in the prior year. These results primarily reflected lower revenue, partially offset by lower noninterest expense. Net revenue was $17.6 billion compared with $20.0 billion in the prior year. Excluding the impact of a DVA gain of $481 million in the prior year, net revenue was down 10% from $19.5 billion in the prior year, and net income was down 23% from $5.2 billion in the prior year. Banking revenue was $5.8 billion, down 5% from the prior year. Investment banking fees were $3.2 billion, up 2% from the prior year. The increase was driven by higher advisory and equity underwriting fees, predominantly offset by lower debt underwriting fees. Advisory fees of $780 million were up 40% on stronger wallet share of completed transactions. Equity underwriting fees of $830 million were up 14% on stronger industry-wide issuance. Debt underwriting fees were $1.6 billion, down 14%, primarily related to lower loan syndication fees on lower industry-wide wallet levels. Treasury Services revenue was https://www.sec.gov/Archives/edgar/data/19617/000001961714000409/corpq22014.htm[10/8/14, 12:41:43 PM] CORP Q2 2014 35 $2.0 billion, down 4% compared with the prior year, primarily driven   by lower trade finance revenue as well as the impact of business simplification initiatives. Lending revenue was $581 million, down from $871 million in the prior year, primarily driven by lower gains on securities received from restructured loans, as well as lower net interest income. Markets & Investor Services revenue was $11.8 billion, down 15% from the prior year. Fixed income Markets revenue of $7.2 billion was down 18% from the prior year on historically low levels of volatility and lower client activity across products. Equity Markets revenue of $2.5 billion was down 7% primarily on lower derivatives revenue. Securities Services revenue was $2.1 billion, up 4% from the prior year, primarily driven by higher net interest income on increased deposits. Credit Adjustments & Other revenue was a loss of $72 million, driven by net CVA losses, partially offset by gains, net of hedges, related to funding valuation adjustments/DVA, compared with a gain of $373 million in the prior year which was driven primarily by DVA. Noninterest expense was $11.7 billion, down 2% from the prior year, primarily driven by lower performance-based compensation, partially offset by higher noncompensation expense due to higher investments in controls, as well as costs related to business simplification. The compensation expense to net revenue ratio was 32%. Return on equity was 13% on $61.0 billion of average allocated capital.    Selected metrics             As of or for the three months As of or for the six months   ended June 30, ended June 30,   (in millions, except headcount) 2014 Selected balance sheet data (period  end)      2013   Change      Assets $873,288   $873,527   Loans:   Loans retained (a)    9,048   4,564   Total loans 108,781   110,812   Equity 61,000   56,500   Selected balance sheet data         (average) Assets Loans heldfor-sale and loans at fair value   Change    (6)           99,733   106,248   9,048   4,564   (2)   108,781   110,812   8      61,000      — 56,500   (6) 98 (2) 8    (4)   $848,791   $874,657   (3) 317,054   336,118   (6)   311,627   339,203   (8) Trading assetsderivative receivables Loans retained (a)    2013   $873,288   $873,527      98   $846,142   $878,801   Trading assetsdebt and equity instruments Loans: —    99,733   106,248   Loans heldfor-sale and loans at fair value    2014 59,560        72,036      96,750   107,654   8,891   (17)   5,950   Total loans 105,641   113,604      (10)   49   61,811      71,576      96,277   107,226   8,491   (14) 5,604   (7)   104,768   112,830   (10) 52 (7) Equity 61,000   56,500   8   61,000   56,500   8 Headcount 51,729   51,771   —   51,729   51,771   — https://www.sec.gov/Archives/edgar/data/19617/000001961714000409/corpq22014.htm[10/8/14, 12:41:43 PM] CORP Q2 2014 (a) Loans retained includes credit portfolio loans, trade finance loans, other heldfor-investment loans and overdrafts. 36   Selected metrics          As of or for the three months ended June 30,   (in millions, except ratios and where otherwise noted)   2014   2013 As of or for the six months ended June 30,   Change   2014 Net charge-offs/(recoveries) $ Nonperforming assets:                  Nonaccrual loans:                   $ (82)        2013   (4)         Credit data and quality statistics retained (a)(b)       95%   $    (5)  $ Change    (63)   92% 111   227   (51)   111   227   (51) 167   293   (43)   167   293   (43) 278   520   (47)   278   520   (47) Derivative receivables 361   448   (19)   361   448   (19) Assets acquired in loan satisfactions 106   46   130   106   46   130 745   1,014   (27)   745   1,014   (27) Nonaccrual loans Nonaccrual loans  held-for-sale and loans at fair value Total nonaccrual loans Total nonperforming assets   Allowance for credit losses: Allowance for loan losses Allowance for lending-related commitments Total allowance for credit losses Net charge-off/(recovery) rate (a)       Allowance for loan losses to period-end loans Allowance for loan losses to period-end loans retained, excluding trade finance and conduits (c) Allowance for loan losses to nonaccrual loans retained (a)(b) Nonaccrual loans to total period-end loans       1,112   1,287   (14)   1,112   1,287   (14) 479   556   (14)   479   556   (14) 1,591   1,843   (14)   1,591   1,843   (14) (0.31)%       (0.01)%   (0.02)%   retained (a)    (0.12)%     1.11   1.21      1.11   1.21    1.80   2.35      1.80   2.35    1,002   567      1,002   567    0.26   0.47      0.26   0.47    Business metrics                  Assets under custody (“AUC”) by asset class (period-end)   (in billions):                  Fixed Income $ 12,579  $ 11,421   10  $ 12,579  $ 11,421   10 Equity 7,275   5,961   22   7,275   5,961   22 Other (d) 1,805   1,547   17   1,805   1,547   17 $ 21,659  $ 18,929   14  $ 21,659  $ 18,929   14 Client deposits and other third party liabilities (average) $ 403,268  $ 369,108   9  $ 407,884  $ 363,218   12 36,375   36,375   Total AUC Trade finance loans (period-end) 28,291   (22)%   28,291   (22)% (a) Loans retained includes credit portfolio loans, trade finance loans, other held-for-investment loans and overdrafts. (b) Allowance for loan losses of $22 million and $70 million were held against these nonaccrual loans at June 30, 2014 and 2013, respectively. (c) Management uses allowance for loan losses to period-end loans retained, excluding trade finance and conduits, a non-GAAP financial measure, to provide a more meaningful assessment of CIB’s allowance coverage ratio. (d) Consists of mutual funds, unit investment trusts, currencies, annuities, insurance contracts, options and other contracts. 37 League table results – wallet (a) Six months ended   June 30, 2014   Share Rank            Full-year 2013   Share Rank Debt, equity and https://www.sec.gov/Archives/edgar/data/19617/000001961714000409/corpq22014.htm[10/8/14, 12:41:43 PM] CORP Q2 2014 equity-related   Global U.S. Long-term     7.4%   #1       1     10.6 debt(b)   Global U.S. Equity and equityrelated          8.0   11.7         8.3%   #1   1 11.4      1     1             8.2   1 11.6   1          Global(c) 6.9   3     8.4   2 U.S. 9.3   4     11.4   1 M&A (d)   Global U.S. Loan syndications     8.8   10.8     Global U.S. Global investment banking fees(e)      2     2         U.S. Equity and equity-related 1     9.9   1 13.9   1 8.2   1     8.5   1      U.S.         Full-year 2013   Share      #1     Rank     7.3%   #1   1     1          6.7   1     7.2   1 11.3   1     11.7   1     11.9              7.3   2     8.2   2 10.4   12.1   2     4          21.5   4     23.1   2 29.6   4     35.3   2   Global Loan syndications Rank       U.S. M&A announced (d)     1     11.8 Global(c) 2     Global     6.8%   U.S. Long-term debt(b) 2 8.8 9.6   Global   12.9 Share Debt, equity and equity-related 7.7      League table results – volumes (f) Six months ended   June 30, 2014                          Global 10.4   1     9.9   1 U.S. 18.6   1     17.6   1 (a) (b) (c) (d) (e) (f) Source: Dealogic. Reflects the ranking of fees and revenue wallet share. Long-term debt rankings include investment-grade, high-yield, supranationals, sovereigns, agencies, covered bonds, asset-backed securities (“ABS”) and mortgagebacked securities; and exclude money market, short-term debt, and U.S. municipal securities. Global equity and equity-related rankings include rights offerings and Chinese A-Shares. M&A and Announced M&A rankings reflect the removal of any withdrawn transactions. U.S. M&A wallet represents wallet from client parents based in the U.S. U.S. announced M&A volumes represents any U.S. involvement ranking. Global investment banking fees rankings exclude money market, short-term debt and shelf deals. Source: Dealogic. Reflects transaction volume and market share. Global announced M&A is based on transaction value at announcement; because of joint M&A assignments, M&A market share of all participants will add up to more than 100%. All other transaction volume-based rankings are based on proceeds, with full credit to each book manager/equal if joint. 38 International metrics       https://www.sec.gov/Archives/edgar/data/19617/000001961714000409/corpq22014.htm[10/8/14, 12:41:43 PM]          CORP Q2 2014 As of or for the three months ended June 30,   (in millions, except where otherwise noted)   2014   2013 Change      $ 3,335   $ 2,955   1,105   1,403   (21) 284   397   Total international net revenue 4,724   4,755   North America 4,267   5,121   9,876   (9) Total net revenue (a) Europe/Middle East/Africa Asia/Pacific Latin America/Caribbean As of or for the six months ended June 30,          2014   2013 Change          13%   $ 6,354   $ 6,338   —   2,131   2,568   (17) (28)   554   797   (30) (1)   9,039   9,703   (7) (17)   8,558   10,313   (17)  $ 17,597   $ 20,016   (12)             Total net revenue $ 8,991   $   Loans (period-end)(a)           Europe/Middle East/Africa $ 29,831   $ 32,685   (9)  $ 29,831   $ 32,685   (9) 25,004   26,616   (6)   25,004   26,616   (6) Latin America/Caribbean 8,811   10,434   (16)   8,811   10,434   (16) Total international loans 63,646   36,087   69,735   36,513   (9)     69,735   36,513   (9) (1) 63,646   36,087   106,248   (6)  $ 99,733   $ 106,248   (6)              $ 147,205   $ 137,085   7 Asia/Pacific North America             (1) Total loans $ 99,733   $   Client deposits and other third-party liabilities (average)(a)           Europe/Middle East/Africa $ 147,859   $ 139,801   6 Asia/Pacific 65,387   51,666   27   63,165   51,830   22 Latin America/Caribbean 23,619   15,012   57   22,834   13,604   68 236,865   $ 206,479   15  $ 233,204   $ 202,519   15 166,403   162,629   2   174,680   160,699   9 369,108   9  $ 407,884   $ 363,218   12             10  $ 11,764   $ 10,672   10 20   9,895   8,257   20 21,659   $ 18,929   Total international $ North America       Total client deposits and other third-party liabilities $ 403,268   $   AUC (period-end) (in billions)(a)           North America $ 11,764   $ 10,672   9,895   8,257   21,659   $ 18,929   All other regions Total AUC $       14%   $             14% (a) Total net revenue is based predominantly on the domicile of the client or location of the trading desk, as applicable. Loans outstanding (excluding loans held-for-sale and loans at fair value), client deposits and other third-party liabilities, and AUC are based predominantly on the domicile of the client. 39 COMMERCIAL BANKING For a discussion of the business profile of CB, see pages 103–105 of JPMorgan Chase’s 2013 Annual Report and the Introduction on page 5 of this Form 10-Q. Selected income statement data     Three months ended June 30, (in millions, except ratios) 2014     2013 Change   2014 Revenue      Lending- and deposit-related fees $ 252   $ 265   26   30   (13)   49 299   256   17   577   551   5 1,124   1,177   1,728   Asset management, administration and commissions All other income (a) Noninterest revenue Net interest income Total net revenue (b) 1,701        Six months ended June 30,    (5)%   $   2013       524     62   (21) 588   500   18   1,135   1,086   5 (5)   2,217   2,315   (4) (2)   3,352   3,401   (1) https://www.sec.gov/Archives/edgar/data/19617/000001961714000409/corpq22014.htm[10/8/14, 12:41:43 PM] 498  $ Change (5)% CORP Q2 2014 (67)   Provision for credit losses Noninterest expense   44        NM    Compensation expense 292   286   Noncompensation expense (62)      83      NM     2   599   575   4 378   361   5   752   709   6 Amortization of intangibles 5   5   —   10   12   (17) Total noninterest expense 675   652   4   1,361   1,296   5 1,093   1,032   6   2,053   2,022   2 435   411   6   817   805   1 621   6  $ 1,217   2 Income before income tax expense Income tax expense Net income $ 658   $ Revenue by product      Lending $    1,236     $       877   $ 971   (10)  $ 1,740  $ 1,895   (8) Treasury services 627   607   3   1,237   1,212   2 Investment banking 166   132   26   312   250   25 31   18   72   63   44   43 1,728   (2)  $ 3,352  $ 3,401   (1)      25     $ 928     $ 726      28 Other 1,701   $ Total Commercial Banking net revenue $     $ 481   $   Revenue by client segment           Middle Market Banking $ 709   $ 777   (9) Corporate Client Banking 477   444   7   923 Commercial Term Lending 307   315   (3)   Real Estate Banking 129   113   14   79   —   1,728   (2)%   $ Investment banking revenue, gross (c)    Other $ 1,701   $ Financial ratios      40   Overhead ratio          19%   Return on common equity (c)       79   Total Commercial Banking net revenue (a) (b) 385        $ 1,530   (8)   877   5 615   606   1 245   225   9 162   163   (1) 3,401   (1)% 1,407 3,352     $  $    18%       18%        41 38          18%       38    Includes revenue from investment banking products and commercial card transactions. Total net revenue included tax-equivalent adjustments from income tax credits related to equity investments in designated community development entities that provide loans to qualified businesses in low-income communities, as well as tax-exempt income from municipal bond activity of $105 million and $90 million for the three months ended June 30, 2014 and 2013, respectively, and $209 million and $183 million for the six months ended June 30, 2014 and 2013, respectively. Represents the total revenue related to investment banking products sold to CB clients. 40 Quarterly results   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. Selected metrics            As of or for the three months ended June 30,   (in millions, except headcount) Year-to-date results Net income was $1.2 billion, up 2%, compared with the prior year, reflecting a lower provision for credit losses, predominantly offset by higher noninterest expense and lower net revenue. Net revenue was $3.4 billion, a decrease of $49 million, or 1%, compared with the prior year. Net interest income was $2.2 billion, a decrease of $98 million, or 4%, reflecting spread compression and lower purchase discounts recognized on loan repayments, partially offset by higher loan and liability balances. Noninterest revenue was $1.1 billion, up $49 million, or 5%, driven by higher investment banking revenue. Noninterest expense was $1.4 billion, an increase of $65 million, or 5%, from the prior year, largely reflecting higher investments in controls. 2014   2013        Change https://www.sec.gov/Archives/edgar/data/19617/000001961714000409/corpq22014.htm[10/8/14, 12:41:43 PM]      As of or for the six months ended June 30, 2014   2013   Change CORP Q2 2014 Selected balance sheet data (period-end)      Total assets $ 192,523   $ Loans:   184,124      Loans retained $ Equity 8 1,094   430   154   1,094   430   154 142,275   $ 130,917   9  $ 142,275   $ 130,917   9 14,000   13,500   4   14,000   13,500   4 53,247   $ 52,053   Corporate Client Banking 21,585   19,933   Commercial Term Lending 50,986   11,903   45,865   9,395   4,554   Other Total Commercial Banking loans $ 142,275   $ Selected balance sheet data (average)             Total assets $ 192,363   $ Loans:                        2  $ 53,247   $ 52,053   2 8   21,585   19,933   8 11     45,865   9,395   11 27 50,986   11,903   3,671   24   4,554   3,671   24 130,917   9 130,917   9       184,951   4    139,848   130,338   982   1,251   Loans held-for-sale and loans at fair value  $ 192,554   $       27       183,792   5    138,259   129,419   1,010   1,027   7 (2) 140,830   $ 131,589   7  $ 139,269   $ 130,446   7 199,979   195,232   2   201,453   195,598   3 14,000   13,500   4   14,000   13,500   4    52,763   $ 52,205   1 Corporate Client Banking 21,435   21,344   Commercial Term Lending 50,451   Real Estate Banking        $ 52,255   $ 52,110   — —   21,138   21,203   — 45,087   12   49,926   44,469   12 11,724   9,277   26   11,567   8,979   29 4,457   3,676   21   4,383   3,685   19 131,589   7 130,446   7 Other                       $ Headcount 142,275   $ 7 Middle Market Banking $  $       (22) Average loans by client segment Total Commercial Banking loans    130,487   $ Equity    5% 141,181   Middle Market Banking Client deposits and other third-party liabilities    184,124           $ 192,523   $    8     Total loans 5%   $      Loans retained    130,487   Period-end loans by client segment Real Estate Banking    141,181   Loans held-for-sale and loans at fair value Total loans       140,830   $       7,155    $ 139,269   $    6,660      7%         7,155   6,660         7% 41   Selected metrics          As of or for the three months ended June 30,   (in millions, except ratios) Credit data and quality statistics   2014     2013     $   Change        2014     $  $ 2                  Nonaccrual loans:                  Assets acquired in loan satisfactions Total nonperforming assets Allowance for credit losses:   Change    $ Total nonaccrual loans (40)     Nonaccrual loans held-for-sale and loans at fair value NM    2013 Nonperforming assets Nonaccrual loans 9   Net charge-offs/(recoveries) retained (a) (26) As of or for the six months ended June 30, NM  429   505   (15)%   429   505   17   8   113   17   8   446   513   (13)   446   (13) 12   30   (60)   12   513   30   458   543   (16)   458   543   (16)          https://www.sec.gov/Archives/edgar/data/19617/000001961714000409/corpq22014.htm[10/8/14, 12:41:43 PM]       (15) 113 (60) CORP Q2 2014 Allowance for loan losses Allowance for lending-related commitments Total allowance for credit losses Net charge-off/(recovery) rate (b) 2,637   2,691   (2)   2,637   2,691   (2) 155   183   (15)   155   183   (15) 2,792   2,874     2,792   2,874   0.03%       (0.06)%   —    (0.07)%   loans  retained (3)% 1.87   2.06      1.87   2.06     Allowance for loan losses to nonaccrual loans retained (a) 615   533      615   533     Nonaccrual loans to total period-end loans 0.31   0.39      0.31   0.39     Allowance for loan losses to period-end (a) (b) (3)% Allowance for loan losses of $75 million and $79 million was held against nonaccrual loans retained at June 30, 2014 and 2013, respectively. Loans held-for-sale and loans at fair value were excluded when calculating the net charge-off/(recovery) rate. 42 ASSET MANAGEMENT For a discussion of the business profile of AM, see pages 106–108 of JPMorgan Chase’s 2013 Annual Report and the Introduction on page 5 of this Form 10-Q. Selected income statement data     Three months ended June 30, (in millions, except ratios)   2014 Revenue   Asset management, administration and commissions $   2013           2014      2013       2,018   11%   $ 3,901     138   —   256   349   (27) 2,380   2,156   10   4,598   4,250   8 Net interest income 576   569   1   1,136   1,128   1 Total net revenue 2,956   2,725   8   5,734   5,378   7 Noninterest revenue           Provision for credit losses Noninterest expense 2,242 1      23            (96)            4,342 (8)        $ Change 138 All other income  $ Change Six months ended June 30,      44            11% NM        1,231   1,155   7   2,487   2,325   7 Noncompensation expense 811   716   13   1,610   1,400   15 Amortization of intangibles 20   21   (5)   40   43   (7) Total noninterest expense 2,062   1,892   9   4,137   3,768   10 Income before income tax expense 893   810   10   1,605   1,566   2 Income tax expense 341   310   10   612   579   6 552  $ 500   10  $ 993  $ 987   1 Compensation expense Net income Revenue by client $ segment (a) Private Banking               $  $ 1,479   5  $ 3,065  $ 2,925   5 1,556    Institutional 571   568   1   1,071   1,135   (6) Retail 829   678   22   1,598   1,318   21 2,725   5,734  $ 5,378   Total net revenue $ Financial ratios   2,956  $    Overhead ratio 25%   70   Pretax margin ratio 30 Return on common equity   8%   $          22%     69         22%   72        28 30   7%    22%     70    29    (a) Effective January 1, 2014, prior period amounts were reclassified to conform with current period presentation. Quarterly results 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.   Year-to-date results Net income was $993 million, an increase of $6 million, or 1%, from the prior year, reflecting higher noninterest revenue and lower provision for credit losses, predominantly offset by higher noninterest expense. https://www.sec.gov/Archives/edgar/data/19617/000001961714000409/corpq22014.htm[10/8/14, 12:41:43 PM] CORP Q2 2014 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. Net revenue was $5.7 billion, an increase of $356 million, or 7%, from the prior year. Noninterest revenue was $4.6 billion, up $348 million, or 8%, from the prior year, due to net client inflows and the effect of higher market levels, partially offset by lower valuations of seed capital investments. Net interest income was $1.1 billion, up $8 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. Noninterest expense was $4.1 billion, an increase of $369 million, or 10%, from the prior year, primarily due to continued investment in controls and growth. 43 Selected metrics As of or for the three months ended June 30, (in millions, except headcount, ranking data and where otherwise noted) 2014 Number of:   Client advisors 2013    2,828 % of customer assets in 4 & 5 Star Funds(a)     51%   % of AUM in 1 st  and 2 nd quartiles:(b)     Change      2,804   2014 1%             2013    2,828   51%     Change    2,804   1% 52%           1 year 48   73      48   73    3 years 67   77      67   77    69   76      69   76                     $115,157   11   17   $128,362   $115,157   100,907   145,655     11   17 5 years Selected balance sheet data (period  end) Total assets $128,362 Loans(c) 100,907   Deposits 145,655   137,289   9,000     —           $111,431 Equity Selected balance sheet data (average)   Total assets Loans 98,695     86,043 83,621 9,000   136,577   9,000 20,322      19,026 147,747 Equity Headcount 9,000 $125,492 Deposits   As of or for the six months ended June 30,    52%          86,043   137,289   9,000              13   18   $124,088   $109,681       13   19     148,585   9,000 6 8 9,000 97,186   —         7%   20,322 81,821   138,001   9,000      19,026 6   —   8   —      7% (a) Derived from Morningstar for the U.S., the U.K., Luxembourg, France, Hong Kong and Taiwan; and Nomura for Japan. (b) Quartile ranking sourced from: Lipper for the U.S. and Taiwan; Morningstar for the U.K., Luxembourg, France and Hong Kong; and Nomura for Japan. (c) Included $20.4 billion and $14.8 billion of prime mortgage loans reported in the Consumer, excluding credit card, loan portfolio at June 30, 2014 and 2013, respectively. For the same periods, excluded $3.2 billion and $4.8 billion of prime mortgage loans reported in the CIO portfolio within the Corporate/Private Equity segment, respectively. As of or for the three months https://www.sec.gov/Archives/edgar/data/19617/000001961714000409/corpq22014.htm[10/8/14, 12:41:43 PM] As of or for the six months CORP Q2 2014 Selected metrics (in millions, except ratios and where otherwise noted)   2014 Credit data and quality statistics   Net charge-offs $ Nonaccrual loans Allowance for credit losses:   ended June 30,    (13)  $ 182     Allowance for loan losses Allowance for lending-related commitments Total allowance for credit losses Net charge-off rate   2013 Change    4   244      ended June 30,     2014    NM (25)%      2013     $ (8)   182     $   Change    27   244      NM  (25)%    276   270   2   276   270   2 5   6   (17)   5   6   (17) 281   276   2   281   276   2 (0.05)%   0.02%       (0.02)%   0.31      0.27   0.07%     0.31    Allowance for loan losses to period-end loans 0.27   Allowance for loan losses to nonaccrual loans 152   111      152   111    Nonaccrual loans to period-end loans 0.18   0.28      0.18   0.28                  AM firmwide disclosures (a)     Total net revenue $ Client assets (in billions)(b) Number of client advisors                   3,606  $ 3,226   12  $ 6,993  $ 6,338   10 2,680   2,323   15   2,680   2,323   15 5,904   5,828     5,904   5,828   1% 1% (a) Includes Chase Wealth Management (“CWM”), which is a unit of Consumer & Business Banking. The firmwide metrics are presented in order to capture AM’s partnership with CWM. (b) Excludes CWM client assets that are managed by AM. 44 Client assets Client assets were $2.5 trillion, an increase of $316 billion, or 15%, compared with the prior year. Assets under management were $1.7 trillion, an increase of $237 billion, or 16%, from the prior year, due to the effect of higher market levels and net inflows to long-term products.   Custody, brokerage, administration and deposit balances were $766 billion, up $79 billion, or 11%, from the prior year, due to the effect of higher market levels and custody inflows, partially offset by brokerage outflows. Client assets June 30, (in billions) 2014   2013   Change Assets by asset class      Liquidity $ 435   $ 431   325   316   13 Equity 367   390   Multi-asset and alternatives 515   398   29 1,707   1,470   16 766   687   11 2,157   15 Fixed income Total assets under management Custody/brokerage/administration/deposits    1% 23 Total client assets $ 2,473   $   Memo:           Alternative client assets (a) $ 163   $   Assets by client segment           Private Banking $ 383   $ 340   13 Institutional 798   723   10 Retail 526   407   29       147   11       Total assets under management $ 1,707   $ 1,470   16 Private Banking $ 1,012   $ 910   11 798   723   10 Institutional https://www.sec.gov/Archives/edgar/data/19617/000001961714000409/corpq22014.htm[10/8/14, 12:41:43 PM] CORP Q2 2014 663   Retail 524   27 2,157   15 Total client assets $ 2,473   $ Mutual fund assets by asset class      Liquidity $ 377   $ 379   (1) Fixed income 147   139   6 Equity 214   120   164   60   100 858   $ 742   Multi-asset and alternatives Total mutual fund assets $    30 16% (a) Represents assets under management, as well as client balances in brokerage accounts.   Three months ended June 30, (in billions) 2014 Assets under management rollforward     Six months ended June 30,   2013   2014   2013          Beginning balance $ 1,648   $ 1,483   $ 1,598   $ 1,426 Net asset flows:            (11)   (22)   (17)   (24) Fixed income 20   4   25   6 Equity —   7   3   22 Multi-asset and alternatives 14   36   14   (16)   26   72   27 Liquidity Market/performance/other impacts 13 Ending balance, June 30 $ 1,707   $ 1,470   $ 1,707   $ 1,470 Client assets rollforward   Beginning balance $ 2,394   $ 2,171   $ 2,343   $ 2,095          Net asset flows 21   (4)   36   16 Market/performance/other impacts 58   (10)   94   46 Ending balance, June 30 $ 2,473   $ 2,157   $ 2,473   $ 2,157 45 As of or for the three months ended June 30, International metrics (in billions, except where otherwise noted) 2014   2013   Total net revenue (in millions)(a)      Europe/Middle East/Africa $ 518   $ 435   289   Asia/Pacific Latin America/Caribbean North America As of or for the six months ended June 30,   Change      2014   2013   Change          19%  $ 995   $ 872   14% 291   (1)   565   568   (1) (5) 214   230   (7)   413   436   1,935   1,769   9   3,761   3,502   7 2,725   8  $ 5,734   $ 5,378   7       Total net revenue $ 2,956   $ Assets under management      Europe/Middle East/Africa $ 327   $ 261   25  $ 327   $ 261   25 138   124   11   138   124   11 48   1,194   40   1,045   20     40   1,045   20 14 48   1,194   1,470   16  $ 1,707   $ 1,470   16        $ 393   $ Asia/Pacific Latin America/Caribbean North America Total assets under management $ 1,707   $ Client assets      Europe/Middle East/Africa $ 393   $       317   24 https://www.sec.gov/Archives/edgar/data/19617/000001961714000409/corpq22014.htm[10/8/14, 12:41:43 PM]    14    317   24 CORP Q2 2014 Asia/Pacific 186   171   9   186   171   9 Latin America/Caribbean 119   105   13   119   105   13 1,775   1,564   13   1,775   1,564   13 2,473   $ 2,157   15%  $ 2,473   $ 2,157   15% North America Total client assets $ (a) Regional revenue is based on the domicile of the client. 46 CORPORATE/PRIVATE EQUITY For a discussion of Corporate/Private Equity, see pages 109–111 of JPMorgan Chase’s 2013 Annual Report and the Introduction on page 5 of this Form 10-Q.   Selected income statement data         As of or for the three months ended June 30, (in millions, except headcount) 2014 2013   Revenue     Principal transactions $   Change            As of or for the six months ended June 30, 2014         2013   Change    28 $ 393   (93)%   $ 378   $ 131   189% Securities gains 11 124   (91)   37   633   (94) All other income 312 (227)   NM   460   (113)   Noninterest revenue 351 290   21   875   651   34 Net interest income (81) (676)   88   (237)   (1,270)   81 (386)   NM   638   (619)   NM  NM         (21)         Total net revenue (a) 270           Provision for credit losses Noninterest expense (10)          5         693 624   Noncompensation expense (b) 1,091 Subtotal Compensation expense Net expense allocated to other businesses   1,380   1,197   15 1,345   (19)   1,774   1,987   (11) 1,784 1,969   (9)   3,154   3,184   (1) (1,604) (1,253)   (28)   (3,140)   (2,466)   (27) (75)   14   718   (98)   645   (1,339)     (64)   (1,037)   94  $ 709   $ (302)   NM        (91)  $ 399   $ 134   198 180 716   Income/(loss) before income tax expense/(benefit) 100 (1,107)   (555)   (269) Net income/(loss) $ 369 $ Total net revenue     Private equity $ 36 $ Treasury and CIO Other Corporate NM  11 Total noninterest expense Income tax expense/(benefit)          2         NM  (552)   NM 52 NM    410   NM     87 (648)   NM   89   (535)   NM  147 (148)   NM   150   (218)   NM  (386)   NM  $ 638   $ (619)   NM         $ 222   $ Total net revenue $ 270 $ Net income/(loss)     Private equity $ 7 $    212   (97)    30   NM  Treasury and CIO (46) (429)   89   (140)   (405)   65 Other Corporate 408 (335)   NM   627   73   NM  Total net income/(loss) $ 369 $ (552)   NM  $ 709   $ (302)   NM  Total assets (period-end) $ 878,886 $ 806,044   9  $ 878,886   $ 806,044   9 24,298   18,720   30% Headcount (a) (b) 24,298 18,720   30%   Included tax-equivalent adjustments, predominantly due to tax-exempt income from municipal bond investments of $180 million and $105 million for the three months ended June 30, 2014 and 2013, respectively, and $344 million and $208 million for the six months ended June 30, 2014 and 2013, respectively. Included legal expense of $227 million and $603 million for the three months ended June 30, 2014 and 2013, respectively, and $225 million and $595 million for the https://www.sec.gov/Archives/edgar/data/19617/000001961714000409/corpq22014.htm[10/8/14, 12:41:43 PM] CORP Q2 2014 six months ended June 30, 2014 and 2013. 47 Quarterly results Net income was $369 million, compared with a net loss of $552 million in the prior year. Treasury and CIO reported a net loss of $140 million, compared with a net loss of $405 million in the prior year. Securities gains were $37 million, compared with $626 million in the prior year, due to the repositioning of the investment securities portfolio. Net revenue was a gain of $89 million, compared with a loss of $535 million in the prior year. Net interest income was a loss of $97 million compared with a loss of $1.0 billion in the prior year, reflecting the benefit of higher interest rates and reinvestment opportunities.   Private Equity reported a 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 $627 million, compared with net income of $73 million in the prior year. The current year included $224 million of legal expense compared with $595 million of legal expense in the prior year. The current year included an after-tax benefit of over$100 million for tax adjustments, compared with an after-tax benefit of over $200 million for tax adjustments in the prior year. 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. Treasury and CIO overview 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. For further discussion of Treasury and CIO, see page 110 of the Firm’s 2013 Annual Report. At June 30, 2014, the total Treasury and CIO investment securities portfolio was $354.0 billion; the average credit rating of the securities comprising the Treasury and CIO investment securities portfolio was AA+ (based on external ratings where available and where not available, based primarily upon internal ratings that correspond to ratings as defined by S&P and Moody’s). See Note 11 for further information on the details of the Firm’s investment securities portfolio. For further information on liquidity and funding risk, see Liquidity Risk Management on pages 81–85. For information on interest rate, foreign exchange and other risks, Treasury and CIO Value-at-risk (“VaR”) and the Firm’s structural interest rate-sensitive revenue at risk (“Earnings-at-risk”), see Market Risk Management on pages 69– 71. Year-to-date results Net income was $709 million, compared with a net loss of $302 million in the prior year. Private Equity reported net income of $222 million, compared with net income of $30 million in the prior year. Net revenue of $399 million was up from $134 million in the prior year, primarily due to higher net valuation gains on publicly held investments and net gains on sales.    Selected income statement and balance sheet data As of or for the three  months ended June 30,   2014   (in millions) Securities gains $ (average) (a) 2013   11   $ 123      As of or for the six months ended June 30,   Change      2014   (91)%   $ 2013   37   $ 626   Change (94)% 348,841   355,920   (2)   347,004   360,753   (4) 353,989   349,044   1   353,989   349,044   1 Mortgage loans (average) 3,425   5,556   (38)   3,547   6,033   (41) Mortgage loans (period-end) 3,295   4,955   (34)   3,295   4,955   (34) Investment securities portfolio Investment securities portfolio (period-end) (b) (a) (b) Average investment securities included held-to-maturity balances of $47.5 billion for the three months ended June 30, 2014 and $45.7 billion for the six months ended June 30, 2014. Held-to-maturity average balances for the three and six months ended June 30, 2013 were not material. Period-end investment securities included held-to-maturity balance of $47.8 billion at June 30, 2014. Held-to-maturity balance at June 30, 2013, was not material. 48 Private Equity Portfolio          Selected income statement and balance sheet data              (in millions) Three months ended June 30, 2014   2013   Change   https://www.sec.gov/Archives/edgar/data/19617/000001961714000409/corpq22014.htm[10/8/14, 12:41:43 PM] Six months ended June 30, 2014   2013   Change CORP Q2 2014 Private equity gains/(losses)      Realized gains/(losses) $ 513   $       972   $    NM  $ 88   NM  (467)   375   NM   (527)   48   NM  Total direct investments 46   415   (89)%   445   136   227% Third-party fund investments 19   24     18   44   (59) 463   $ 180   157% Unrealized gains/(losses)(a) Total private equity gains/(losses) (b) (a) (b) $ 40      65   $ (21) 439   (85)%   $ Unrealized gains/(losses) contain reversals of unrealized gains and losses that were recognized in prior periods and have now been realized. Included in principal transactions revenue in the Consolidated Statements of Income. Private equity portfolio information (a)    (in millions) June 30, 2014   December 31, 2013   Change      $ 1,035   Cost 657   $ 373   672   (44) Quoted public value 673   1,077   (38) Publicly held securities Carrying value   Privately held direct securities    4,541   5,756   Carrying value Cost   Third-party fund investments (b)       (37)%    5,065   (10) 6,022   (4)    Carrying value 570   1,768   (68) Cost 605   1,797   (66) Total private equity portfolio      Carrying value $ 5,768   $ 7,868   (27)% 6,734   8,491   (21) Cost (a) (b)    For more information on the Firm’s methodologies regarding the valuation of the private equity portfolio, see Note 3 of JPMorgan Chase’s 2013 Annual Report. Unfunded commitments to third-party private equity funds were $130 million and $215 million at June 30, 2014, and December 31, 2013, respectively. The carrying value of the private equity portfolio at June 30, 2014 was $5.8 billion, down from $7.9 billion at December 31, 2013. The decrease in the portfolio was predominantly driven by sales of investments, partially offset by unrealized gains. 49 ENTERPRISE-WIDE RISK MANAGEMENT Risk is an inherent part of JPMorgan Chase’s business activities. The   Firm employs a holistic approach to risk management that is intended to ensure the broad spectrum of risk types inherent in the Firm’s business activities are considered in managing its business activities. The Firm believes effective risk management requires: • Personal responsibility for risk management, including identification and escalation of risk issues by all individuals within the Firm; • Ownership of risk management within each line of business; and • Firmwide structures for risk governance and oversight. Firmwide Risk Management is overseen and managed on an enterprise-wide basis. The Firm’s Chief Executive Officer (“CEO”), Chief Financial Officer (“CFO”), Chief Risk Officer (“CRO”) and Chief Operating Officer (“COO”) develop and set the risk management framework and governance structure for the Firm, which is intended to provide comprehensive controls and ongoing management of the major risks inherent in the Firm’s business activities. The Firm’s risk management framework is designed to create a culture of risk transparency and awareness and personal responsibility throughout the Firm where collaboration, discussion, escalation and sharing of information are encouraged. The CEO, CFO, CRO and COO are ultimately responsible and accountable to the Firm’s Board of Directors. Employees are expected to operate with the highest standards of integrity and identify, escalate, and actively manage risk issues. The Firm’s risk culture strives for continual improvement through ongoing employee training and development, as well as talent retention. The Firm also approaches its incentive compensation arrangements through an integrated risk, compensation and financial management framework to encourage a culture of risk awareness and personal accountability. The Firm’s overall objective in managing risk is to protect the safety and soundness of the Firm, and avoid excessive risk taking. The following provides an index of key risk management disclosures. For further information on these disclosures, refer to the page references https://www.sec.gov/Archives/edgar/data/19617/000001961714000409/corpq22014.htm[10/8/14, 12:41:43 PM] CORP Q2 2014 noted below in both this Form 10-Q and JPMorgan Chase’s 2013 Annual Report. Risk disclosure Form 10-Q page reference Annual Report page reference 50 113–116 Enterprise- Wide Risk Management   Risk governance 114-116 Credit Risk Management 117–141 51-68   Credit Portfolio 119 Consumer Credit Portfolio 52-59 120-129 Wholesale Credit Portfolio 60-65 130-138 Community Reinvestment Act Exposure 66 138 Allowance For Credit Losses 66-68 139-141 Market Risk Management 69-71 142-148   Risk identification and classification 142-143 Value-at-risk 144-146 69-71   Economic-value stress testing 147 Earnings-at-risk 71 147-148 72 149-152   Risk monitoring and control: Limits 148 Country Risk Management Model risk   153 Principal Risk Management   154 Operational Risk Management 73 Operational Risk Capital Measurement 73 Cybersecurity 73 155-157   156 Business resiliency   157 Legal Risk, Regulatory Risk, and Compliance Risk Management   158 Fiduciary Risk management   159 Reputation Risk Management   159 Capital Management 74-80 160-167 Liquidity Risk Management 81-85 168-173 Funding 81-84 168-172 HQLA 172 Contingency funding plan 84 85 Credit ratings 85 172 173 50 CREDIT RISK MANAGEMENT Credit risk is the risk of loss from obligor or counterparty default. The   Firm provides credit to a variety of customers, ranging from large corporate and institutional clients to individual consumers and small businesses. For a further discussion of the Firm’s Credit Risk Management framework and organization, and the identification, monitoring and management of credit risks, see Credit Risk Management on pages 117–141 of JPMorgan Chase’s 2013 Annual Report. In the following tables, reported loans include loans retained (i.e., held-for-investment); loans held-for-sale (which are carried at the lower of cost or fair value, with valuation changes recorded in noninterest revenue); and certain loans accounted for at fair value. In addition, the Firm records certain loans accounted for at fair value in Three months ended June 30, (in millions, except ratios) 2014 Net charge-offs $ Average retained loans   Loans – reported Loans – reported, excluding residential real estate PCI loans Net charge-off rates 1,158   2013 $ 1,403   727,030 676,168   Loans – reported Loans – reported, https://www.sec.gov/Archives/edgar/data/19617/000001961714000409/corpq22014.htm[10/8/14, 12:41:43 PM]  $ 2014 2,427      723,798 662,776   672,166    0.78%   2013 $ 3,128   720,290   0.64%   Six months ended June 30, 719,684 661,382   0.68% 0.88% CORP Q2 2014 trading assets. For further information regarding these loans see Note 3 of this Form 10-Q. For additional information on the Firm’s loans and derivative receivables, including the Firm’s accounting policies, see Note 13 and Note 5 of this Form 10-Q. excluding PCI For information on the changes in the credit portfolio, see Consumer Credit Portfolio on pages 52–59, and Wholesale Credit Portfolio on pages 60–65 of this Form 10-Q.       Credit exposure Jun 30, 2014 (in millions) Loans retained    $ Loans held-for-sale Dec 31, 2013 735,369 $ 7,311   724,177  $ 12,230     Nonperforming(b)(c)(d) Jun 30, 2014 Dec 31, 2013 7,634 $ 176 8,317 4,303 2,011 171 197 746,983 738,418   7,981 8,540 Derivative receivables 62,378 65,759   361 415 Receivables from customers and other 31,732 26,883   — — Total credit-related assets 841,093 831,060   8,342 8,955 Loans at fair value Assets acquired in loan satisfactions        NA NA   638 710 Other NA NA   37 41 Total assets acquired in loan satisfactions NA NA   675 751 841,093 831,060   9,017 9,706 1,041,373 1,031,672   122 206 1,862,732  $ 9,139 $ — $ Lending-related commitments Total credit portfolio $ 1,882,466 $ Credit portfolio management derivatives notional, net(a) $ (34,971) $ (27,996)  $ (13,240) (14,435)   Liquid securities and other cash collateral held against derivatives 0.73 0.95   Real estate owned Total assets   26   Total loans – reported 0.85 (a) Represents the net notional amount of protection purchased and sold through credit derivatives used to manage both performing and nonperforming wholesale credit exposures; these derivatives do not qualify for hedge accounting under U.S. GAAP. For additional information, see Credit derivatives on page 65 and Note 5. (b) Excludes PCI loans. The Firm is recognizing interest income on each pool of PCI loans as they are all performing. (c) At June 30, 2014, and December 31, 2013, nonperforming assets excluded: (1) mortgage loans insured by U.S. government agencies of $8.1 billion and $8.4 billion, respectively, that are 90 or more days past due; (2) real estate owned insured by U.S. government agencies of $2.1 billion and $2.0 billion, respectively; and (3) student loans insured by U.S. government agencies under the FFELP of $316 million and $428 million, respectively, that are 90 or more days past due. These amounts have been excluded from nonaccrual loans based upon the government guarantee. In addition, the Firm’s policy is generally to exempt credit card loans from being placed on nonaccrual status as permitted by regulatory guidance issued by the Federal Financial Institutions Examination Council (“FFIEC”). (d) At June 30, 2014, and December 31, 2013, total nonaccrual loans represented 1.07% and 1.16%, respectively, of total loans. For further information regarding the credit risk inherent in the Firm’s investment securities portfolio, see Note 11 of this Form 10-Q and Note 12 of JPMorgan Chase’s 2013 Annual Report. Total credit portfolio 0.69 NA 9,912 (5) NA 51 CONSUMER CREDIT PORTFOLIO JPMorgan Chase’s consumer portfolio consists primarily of residential   real estate loans, credit card loans, auto loans, business banking loans, and student loans. The Firm’s focus is on serving the prime segment of the consumer credit market. For further information on consumer loans, see Note 13 of this Form 10-Q and Consumer Credit Portfolio on pages 120–129 and Note 14 of JPMorgan Chase’s 2013 Annual Report. The credit performance of the consumer portfolio continues to benefit from the improvement in the economy and home prices. Early-stage residential real estate delinquencies (30–89 days delinquent), excluding government guaranteed loans, declined during the first half of the year. Late-stage delinquencies (150+ days delinquent) continued to decline but remain elevated. The elevated level of the late-stage delinquent loans is due to loss mitigation activities currently being undertaken and to elongated foreclosure processing timelines. Losses related to these loans continue to be recognized in accordance with the Firm’s standard charge-off practices, but some delinquent loans that would otherwise have been foreclosed upon remain in the mortgage and home equity loan portfolios. The Credit Card 30+ day delinquency rate is at a historic low and continues to improve. 52 The following table presents consumer credit-related information with respect to the credit portfolio held by CCB as well as for prime mortgage https://www.sec.gov/Archives/edgar/data/19617/000001961714000409/corpq22014.htm[10/8/14, 12:41:43 PM] CORP Q2 2014 loans held in the Asset Management and the Corporate/Private Equity segments for the dates indicated. Consumer credit portfolio           Credit exposure Jun 30, 2014 (in millions, except ratios) Consumer, excluding credit card Loans, excluding PCI loans and loans held-for-sale Dec 31, 2013         Jun 30, 2014     Dec 31, 2013   2014   2014 2013 Six months ended June 30,   Net chargeoffs/(recoveries) (h)     2014   2013 Average annual net chargeoff/(recovery) rate (h)(i) 2014 2013                                                                 17,113   Home equity – junior lien 38,263 Prime mortgage, including option ARMs   40,750   1,671 1,876   93,239   87,162   2,455 2,666   6,552   7,104   1,273 1,390 Auto(a) 53,042   52,757   103 Business banking 19,453   18,951   326 11,325   11,557   238,096   235,394   $ Subprime mortgage Student and other Total loans, excluding PCI loans and loans held-for-sale Loans – PCI 2013 Average annual net chargeoff/(recovery) rate (h)(i)   16,222 Home equity – senior lien   Three months ended June 30, Net chargeoffs/(recoveries) (h) Nonaccrual loans(f)(g)   $     $ 32   0.46 % 0.69%  $ 204   1.09 1.82   (6) 22   (0.03) 0.11   (9)   (5) 33   (0.30) 1.69   161   29 23   0.22 0.18 385   69 74   1.44 170 86   105 68   6,907 7,496   317 456   909     $ 932    $ 19 $ 106      75   0.55 % 0.80% 494   1.25 2.17 72   (0.02) 0.19 8 100   0.23 2.52   70 63   0.27 0.25 1.59   145 135   1.53 1.46 3.70 2.30   180 125   3.17 2.11 0.54 0.79   685 1,064   0.58 0.92      46 $ 245           Home equity 18,070   18,927   NA NA   NA NA   NA NA   NA NA   NA NA Prime mortgage 11,302   12,038   NA NA   NA NA   NA NA   NA NA   NA NA 3,947   4,175   NA NA   NA NA   NA NA   NA NA   NA NA Option ARMs 16,799   17,915   NA NA   NA NA   NA NA   NA NA   NA NA Total loans – PCI 50,118   53,055   NA NA   NA NA   NA NA   NA NA   NA NA 288,214   288,449   6,907 7,496   317 456   0.44 0.63   685 1,064   0.48 0.74 163 —   — —   — —   — —   — — 7,496   317 456   0.44 0.63   685 1,064   0.48 Subprime mortgage Total loans – retained Loans held-for-sale 964 Total consumer, excluding credit card loans Lending-related commitments(b) Receivables from customers (c) Total consumer exposure, excluding credit card Credit card (e)  289,178   56,410   104   345,692     614 289,063 (e)    7,070 0.74 56,057                           139                           345,259                                                         125,621   127,465   — —   885 1,014   2.88 3.31   1,773 2,096   2.90 3.43 508   326   — —   — —   — —   — —   — — Total credit card loans 126,129   127,791   — —   885 1,014   2.88 3.31   1,773 2,096   2.90 3.43 Lending-related commitments(c) 533,688   529,383                           659,817   657,174                           Loans retained(d) Loans held-for-sale Total credit card exposure Total consumer credit portfolio $ 1,005,509   $ 1,002,433   $ 7,070 $ 7,496  $ 1,202 $ 1,470   1.17 % 1.43%  $ 2,458 $ 3,160   1.20 % 1.54% Memo: Total consumer credit portfolio, excluding PCI $ 955,391   $ 949,378   $ 7,070 $ 7,496  $ 1,202 $ 1,470   1.34 % 1.66%  $ 2,458 $ 3,160   1.38 % 1.79% (a) At June 30, 2014, and December 31, 2013, excluded operating lease-related assets of $6.1 billion and $5.5 billion, respectively. (b) Credit card and home equity lending-related commitments represent the total available lines of credit for these products. The Firm has not experienced, and does not anticipate, that all available lines of credit would be used at the same time. For credit card and home equity commitments (if certain conditions are met), the Firm can reduce or cancel these lines of credit by providing the borrower notice or, in some cases as permitted by law, without notice. (c) Receivables from customers represent margin loans to retail brokerage customers, and are included in accrued interest and accounts receivable on the Consolidated Balance Sheets. (d) Includes accrued interest and fees net of an allowance for the uncollectible portion of accrued interest and fee income. (e) Predominantly represents prime mortgage loans held-for-sale. (f) At June 30, 2014, and December 31, 2013, nonaccrual loans excluded: (1) mortgage loans insured by U.S. government agencies of $8.1 billion and $8.4 billion, respectively, that are 90 or more days past due; and (2) student loans insured by U.S. government agencies under the FFELP of $316 million and $428 million , respectively, that are 90 or more days past due. These amounts have been excluded from nonaccrual loans based upon the government guarantee. In addition, the Firm’s policy is generally to exempt credit card loans from being placed on nonaccrual status as permitted by regulatory guidance. (g) Excludes PCI loans. The Firm is recognizing interest income on each pool of PCI loans as they are all performing. (h) Net charge-offs and the net charge-off rates excluded $48 million and $109 million of write-offs in the PCI portfolio for the three and six months ended June 30, 2014, respectively. These write-offs decreased the allowance for loan losses for PCI loans. See Consumer Credit Portfolio on pages 120–129 of JPMorgan Chase’s 2013 Annual Report for further details. (i) Average consumer loans held-for-sale were $710 million and $8 million for the three months ended June 30, 2014, and 2013, respectively, and $683 million and $4 million , for the six months ended June 30, 2014, and 2013, respectively. These amounts were excluded when calculating net charge-off rates. 53 Consumer, excluding credit card   probability of default and loss severity assumptions. Certain factors, such as future developments in both unemployment rates and home https://www.sec.gov/Archives/edgar/data/19617/000001961714000409/corpq22014.htm[10/8/14, 12:41:43 PM] CORP Q2 2014 Portfolio analysis Consumer loan balances were relatively flat during the six months ended June 30, 2014, as prime mortgage, business banking and auto originations were offset by paydowns and the charge-off or liquidation of delinquent loans. Credit performance has improved across most portfolios but delinquent residential real estate loans and home equity charge-offs remain elevated compared with pre-recessionary levels. prices, could have a significant impact on the performance of these loans. The Firm manages the risk of HELOCs during their revolving period by closing or reducing the undrawn line to the extent permitted by law when borrowers are exhibiting a material deterioration in their credit risk profile or when the collateral does not support the loan amount. The Firm will continue to evaluate both the near-term and longerterm repricing and recast risks inherent in its HELOC portfolio to ensure that changes in the Firm’s estimate of incurred losses are appropriately considered in the allowance for loan losses and that the Firm’s account management practices are appropriate given the portfolio’s risk profile. In the following discussion of loan and lending-related categories, PCI loans are excluded from individual loan product discussions and are addressed separately below. For further information about the Firm’s consumer portfolio, including information about delinquencies, loan modifications and other credit quality indicators, see Note 14 of JPMorgan Chase’s 2013 Annual Report. High-risk second liens are loans where the borrower has a first mortgage loan that is either delinquent or has been modified. At June 30, 2014, the Firm estimated that its home equity portfolio contained approximately $1.9 billion of current junior lien loans that were considered high risk seconds, compared with $2.3 billion at December 31, 2013. Such loans are considered to pose a higher risk of default than junior lien loans for which the senior lien is neither delinquent nor modified. The Firm estimates the balance of its total exposure to high-risk seconds on a quarterly basis using internal data and loan level credit bureau data (which typically provides the delinquency status of the senior lien). The estimated balance of these high-risk seconds may vary from quarter to quarter for reasons such as the movement of related senior liens into and out of the 30+ day delinquency bucket. Home equity: The home equity portfolio declined from year-end primarily reflecting loan paydowns and charge-offs. Early-stage delinquencies showed improvement from December 31, 2013. Late stage-delinquencies were flat to December 31, 2013 and continue to be elevated as improvement in the number of loans becoming severely delinquent was offset by higher average carrying values on these delinquent loans, reflecting improving collateral values. Both senior and junior lien nonaccrual loans decreased from December 31, 2013. Net charge-offs for both senior and junior lien home equity loans declined when compared with the same period of the prior year as a result of improvement in home prices and delinquencies. Approximately 15% of the Firm’s home equity portfolio consists of home equity loans (“HELOANs”) and the remainder consists of home equity lines of credit (“HELOCs”). Approximately half of the HELOANs are senior liens and the remainder are junior liens. For further information on the Firm’s home equity portfolio, see Consumer Credit Portfolio on pages 120–129 of JPMorgan Chase’s 2013 Annual Report. Current high risk junior liens The unpaid principal balance of non-PCI HELOCs outstanding was $48 billion at June 30, 2014. Of this balance, approximately $29 billion have recently recast or are scheduled to recast from interestonly to fully amortizing payments over the next several years, with $4 billion recasting in 2014 and $7 billion per year scheduled to recast in 2015, 2016, and 2017. However, of the total $29 billion, $2 billion have already recast in 2014 and $11 billion are expected to recast. The remaining $16 billion represents loans to borrowers who are expected either to pre-pay (including borrowers who appear to have the ability to refinance based on the borrower’s LTV ratio and FICO risk score) or charge-off. The Firm has considered this payment recast risk in its allowance for loan losses based upon the estimated amount of payment shock (i.e., the excess of the fully-amortizing payment over the interest-only payment in effect prior to recast) expected to occur at the payment recast date, along with the corresponding estimated December 31, 2013 June 30, 2014 (in billions)   Junior liens subordinate to:          Modified current senior lien    $ 0.7   $ Senior lien 30 – 89 days delinquent    0.6   0.6 Senior lien 90 days or more delinquent (a)    0.6   0.8    1.9   Total current high risk junior liens (a) Junior liens subordinate classified as nonaccrual excluded approximately not current, which were regulatory guidance. $ $ 0.9 2.3 to senior liens that are 90 days or more past due are loans. At June 30, 2014, and December 31, 2013, $100 million of junior liens that are performing but placed on nonaccrual status in accordance with the Of the estimated $1.9 billion of high-risk junior liens at June 30, 2014, the Firm owns approximately 10% and services approximately 25% of the related senior lien loans to the same borrowers. The performance of the Firm’s junior lien loans is generally consistent regardless of whether the Firm owns, services or does not own or service the senior lien. The increased probability of default associated with these higherrisk junior lien loans was considered in estimating the allowance for loan losses. 54 Mortgage: Prime mortgages, including option adjustable-rate   mortgages (“ARMs”) and loans held-for-sale, increased as retained originations exceeded paydowns, the run-off of option ARM loans and the charge-off or liquidation of delinquent loans. Excluding loans insured by U.S. government agencies, both early-stage and late-stage delinquencies showed improvement from December 31, 2013. Nonaccrual loans decreased from the prior year but remain elevated primarily as a result of loss mitigation activities currently being increased compared with the same period of the prior year, but are consistent with expectations. The auto loan portfolio reflects a high concentration of prime-quality credits. Business banking: Business banking loans increased compared with December 31, 2013 due to an increase in loan originations. Nonaccrual loans improved compared with December 31, 2013. Net charge-offs increased slightly from the prior year but are consistent with expectations. https://www.sec.gov/Archives/edgar/data/19617/000001961714000409/corpq22014.htm[10/8/14, 12:41:43 PM] CORP Q2 2014 undertaken and to elongated foreclosure processing timelines. Net charge-offs continued to improve, resulting in a net recovery of losses due to improvement in home prices and delinquencies. Student and other: Student and other loans decreased from year end due primarily to the run-off of the student loan portfolio. At both June 30, 2014, and December 31, 2013, the Firm’s prime mortgage portfolio included $14.3 billion of mortgage loans insured and/or guaranteed by U.S. government agencies, of which $9.6 billion were, at each such date, 30 days or more past due (of which $8.1 billion and $8.4 billion, respectively, were 90 days or more past due). The Firm has entered into a settlement regarding loans insured under federal mortgage insurance programs overseen by the FHA, HUD, and VA; the Firm will continue to monitor exposure on future claim payments for government insured loans, but any financial impact related to exposure on future claims is not expected to be significant and was considered in estimating the allowance for loan losses. For further discussion of the settlement, see Note 31 of JPMorgan Chase’s 2013 Annual Report. Purchased credit-impaired loans: PCI loans acquired in the Washington Mutual transaction decreased as the portfolio continues to run off. As of June 30, 2014, approximately 17% of the option ARM PCI loans were delinquent and approximately 56% of the portfolio have been modified into fixed-rate, fully amortizing loans. Substantially all of the remaining loans are making amortizing payments, although such payments are not necessarily fully amortizing. This latter group of loans are subject to the risk of payment shock due to future payment recast. Default rates generally increase on option ARM loans when payment recast results in a payment increase. The expected increase in default rates is considered in the Firm’s quarterly impairment assessment. At June 30, 2014, and December 31, 2013, the Firm’s prime mortgage portfolio included $15.9 billion and $15.6 billion, respectively, of interest-only loans, which represented 17% and 18%, respectively, of the prime mortgage portfolio. These loans have an interest-only payment period generally followed by an adjustable-rate or fixed-rate fully amortizing payment period to maturity and are typically originated as higher-balance loans to higher-income borrowers. To date, losses on this portfolio generally have been consistent with the broader prime mortgage portfolio and the Firm’s expectations. The Firm continues to monitor the risks associated with these loans. The following table provides a summary of lifetime principal loss estimates included in either the nonaccretable difference or the allowance for loan losses. Summary of lifetime principal loss estimates Lifetime loss  estimates(a)   Jun 30, 2014 (in billions) Jun 30, 2014   Dec 31, 2013 14.7   $ 12.2   $ 12.1 Prime mortgage 3.8   3.8   3.4   3.3 Subprime mortgage 3.3   3.3   2.7   2.6 Option ARMs 9.9   10.2   9.1   8.8 27.4   $ 26.8 Total Auto: Auto loans increased slightly during the first half of the year due to new originations, largely offset by paydowns and payoffs. Delinquent and nonaccrual loans improved compared with December 31, 2013. Net charge-offs   14.6   $ Home equity Subprime mortgages continued to decrease due to portfolio runoff. Early-stage and late-stage delinquencies have improved from December 31, 2013, but remain at elevated levels. Net charge-offs continued to improve as a result of improvement in home prices and delinquencies. Dec 31, 2013   LTD liquidation  losses (b)   $ $ 31.6   $ 32.0   $ (a) Includes the original nonaccretable difference established in purchase accounting of $30.5 billion for principal losses plus additional principal losses recognized subsequent to acquisition through the provision and allowance for loan losses. The remaining nonaccretable difference for principal losses was $3.3 billion and $3.8 billion at June 30, 2014, and December 31, 2013, respectively. (b) Life-to-date (“LTD”) liquidation losses represent both realization of loss upon loan resolution and any principal forgiven upon modification. LTD liquidation losses included $162 million and $53 million of write-offs of prime mortgages at June 30, 2014, and December 31, 2013, respectively. 55 Current estimated LTVs of residential real estate loans The current estimated average LTV ratio for residential real estate loans retained, excluding mortgage loans insured by U.S. government agencies and PCI loans, was 72% at June 30, 2014, compared with 75% at December 31, 2013. The following table presents the current estimated LTV ratios for PCI loans, as well as the ratios of the carrying value of the underlying loans to the current estimated collateral value. Because such loans were initially measured at fair value, the ratios of the carrying value to the current estimated collateral value will be lower than the current estimated LTV ratios, which are based on the unpaid principal balances. The estimated collateral values used to calculate these ratios do not represent actual appraised loan-level collateral values; as such, the resulting ratios are necessarily imprecise and should therefore be viewed as estimates. LTV ratios and ratios of carrying values to current estimated collateral values – PCI loans   (in millions, except ratios) Home equity      $ June 30, 2014 Unpaid principal balance 18,849 Current estimated Net carrying value(c) LTV ratio (a) 85% (b)   $ 16,312   Ratio of net carrying value to current estimated collateral value(c) 74%         $       December 31, 2013 Unpaid principal balance 19,830 https://www.sec.gov/Archives/edgar/data/19617/000001961714000409/corpq22014.htm[10/8/14, 12:41:43 PM] Current estimated Net carrying value(c) LTV ratio (a) 90% (b)   $ 17,169     Ratio of net carrying value to current estimated collateral value(c) 78%   CORP Q2 2014 Prime mortgage   11,087 79   9,685 69     11,876 83   10,312 72   Subprime mortgage   5,102 86   3,767 63     5,471 91   3,995 66   Option ARMs   17,838 77   16,605 72     19,223 82   17,421 74   (a) Represents the aggregate unpaid principal balance of loans divided by the estimated current property value. Current property values are estimated at least quarterly based on home valuation models that utilize nationally recognized home price index valuation estimates; such models incorporate actual data to the extent available and forecasted data where actual data is not available. (b) Represents current estimated combined LTV for junior home equity liens, which considers all available lien positions, as well as unused lines, related to the property. All other products are presented without consideration of subordinate liens on the property. (c) Net carrying value includes the effect of fair value adjustments that were applied to the consumer PCI portfolio at the date of acquisition and is also net of the allowance for loan losses at June 30, 2014, and December 31, 2013 of $1.6 billion and $1.7 billion for prime mortgage, respectively, $194 million and $494 million for option ARMs, respectively, and $1.8 billion for home equity and $180 million for subprime mortgage for both periods. The current estimated average LTV ratios were 80% and 94% for   California and Florida PCI loans, respectively, at June 30, 2014, compared with 85% and 103%, respectively, at December 31, 2013. Average LTV ratios have declined consistent with recent improvements in home prices. Although home prices have improved, home prices in most areas of California and Florida are still lower than at the peak of the housing market; this continues to negatively contribute to current estimated average LTV ratios and the ratio of net carrying value to current estimated collateral value for loans in the PCI portfolio. For further information on current estimated LTVs of residential real estate loans, see Note 13. 56 Geographic composition of residential real estate loans For information on the geographic composition of the Firm’s residential real estate loans, see Note 13. Loan modification activities – residential real estate loans For both the Firm’s on–balance sheet loans and loans serviced for others, approximately 1.6 million mortgage modifications have been offered to borrowers and more than 763,000 have been approved since the beginning of 2009. Of these, approximately 759,000 have achieved permanent modification as of June 30, 2014. Of the remaining modifications offered, 18% are in a trial period or still being reviewed for a modification, while 82% have dropped out of the modification program or otherwise were deemed not eligible for final modification. The performance of modified loans generally differs by product type due to differences in both the credit quality and the types of modifications provided. Performance metrics for modifications to the residential real estate portfolio, excluding PCI loans, that have been seasoned more than six months show weighted-average redefault rates of 18% for senior lien home equity, 20% for junior lien home equity, 15% for prime mortgages including option ARMs, and 27% for subprime mortgages. The cumulative performance metrics for modifications to the PCI residential real estate portfolio seasoned more than six months show weighted average redefault rates of 19% for home equity, 16% for prime mortgages, 14% for option ARMs and 30% for subprime mortgages. The favorable performance of the PCI option ARM modifications is the result of a targeted proactive program which fixes the borrower’s payment at the current level. The cumulative redefault rates reflect the performance of modifications completed under both the Home Affordable Modification Program (“HAMP”) and the Firm’s proprietary modification programs from October 1, 2009, through June 30, 2014. Certain loans that were modified under HAMP and the Firm’s proprietary modification programs (primarily the Firm’s modification program that was modeled after HAMP) have interest rate reset provisions (“step-rate modifications”). Interest rates on these loans will generally increase beginning in 2014 by 1% per year until the rate reaches a specified cap, typically at a prevailing market interest rate for a fixed-rate loan as of the modification date. The carrying value of non-PCI loans modified in step-rate modifications was $5 billion at   The following table presents information as of June 30, 2014, and December 31, 2013, relating to modified retained residential real estate loans for which concessions have been granted to borrowers experiencing financial difficulty. For further information on modifications for the three and six months ended June 30, 2014 and 2013, see Note 13. Modified residential real estate loans   June 30, 2014 December 31, 2013 Non-accrual retained  loans (d) Non-accrual Retained retained   loans  loans (d) Retained loans (in millions)   Modified residential real estate loans, excluding    PCI loans (a)(b)          Home equity – senior lien $ 1,119 $ 629   $ 1,146 $ 641 Home equity – junior lien 1,310 641   1,319 666 Prime mortgage, including option ARMs 6,718 1,703   7,004 1,737 Subprime mortgage 3,478 1,078   3,698 1,127 4,171 Total modified residential real estate loans, excluding PCI loans $ 12,625 $ 4,051   $ 13,167 $ Modified PCI loans (c)          2,619 NA   $ 2,619 NA Prime mortgage 6,682 NA   6,977 NA Subprime mortgage 3,956 NA   4,168 NA 12,461 NA   13,131 NA 25,718 NA   $ 26,895 NA Home equity $ Option ARMs Total modified PCI loans $ (a) Amounts represent the carrying value of modified residential real estate loans. (b) At June 30, 2014, and December 31, 2013, $6.7 billion and $7.6 billion, respectively, of loans modified subsequent to repurchase from Ginnie Mae in accordance with the standards of the https://www.sec.gov/Archives/edgar/data/19617/000001961714000409/corpq22014.htm[10/8/14, 12:41:43 PM] CORP Q2 2014 June 30, 2014, with $1 billion per year scheduled to experience the initial interest rate increase in 2015 and 2016. The unpaid principal balance of PCI loans modified in step-rate modifications was $11 billion at June 30, 2014, with $2 billion and $3 billion scheduled to experience the initial interest rate increase in 2015 and 2016, respectively. The impact of these potential interest rate increases is considered in the Firm’s allowance for loan losses. The Firm will continue to monitor this risk exposure to ensure that it is appropriately considered in the Firm’s allowance for loan losses. appropriate government agency (i.e., FHA, VA, RHS) are not included in the table above. When such loans perform subsequent to modification in accordance with Ginnie Mae guidelines, they are generally sold back into Ginnie Mae loan pools. Modified loans that do not re-perform become subject to foreclosure. For additional information about sales of loans in securitization transactions with Ginnie Mae, see Note 15. (c) Amounts represent the unpaid principal balance of modified PCI loans. (d) As of June 30, 2014, and December 31, 2013, nonaccrual loans included $3.1 billion and $3.0 billion, respectively, of TDRs for which the borrowers were less than 90 days past due. For additional information about loans modified in a TDR that are on nonaccrual status, see Note 13. 57 Nonperforming assets The following table presents information as of June 30, 2014, and December 31, 2013, about consumer, excluding credit card, nonperforming assets. Nonperforming assets(a)      June 30, 2014 (in millions)   Nonaccrual loans (b)      Residential real estate $ 6,471   $ Other consumer Total nonaccrual loans Assets acquired in loan satisfactions   Real estate owned Other Total assets acquired in loan satisfactions Total nonperforming assets $ Active and suspended foreclosure: At June 30, 2014, and December 31, 2013, the Firm had non-PCI residential real estate loans, excluding those insured by U.S. government agencies, with a carrying value of $1.7 billion and $2.1 billion, respectively, not included in real estate owned (“REO”), that were in the process of active or suspended foreclosure. The Firm also had PCI residential real estate loans that were in the process of active or suspended foreclosure at June 30, 2014, and December 31, 2013, with an unpaid principal balance of $3.8 billion and $4.8 billion, respectively.   December 31, 2013 Nonaccrual loans: The following table presents changes in consumer, excluding credit card, nonaccrual loans for the six months ended June 30, 2014 and 2013. 6,864 599   632 7,070   7,496    515   614 37   41 552   655 7,622   $ 8,151 Nonaccrual loans    Six months ended June 30,    (in millions)   Beginning balance  $ 7,496 $ 9,174 Additions   2,656 3,942 2014 2013    Reductions: (a) At June 30, 2014, and December 31, 2013, nonperforming assets excluded: (1) mortgage loans insured by U.S. government agencies of $8.1 billion and $8.4 billion, respectively, that are 90 or more days past due; (2) real estate owned insured by U.S. government agencies of $2.1 billion and $2.0 billion, respectively; and (3) student loans insured by U.S. government agencies under the FFELP of $316 million and $428 million, respectively, that are 90 or more days past due. These amounts have been excluded from nonaccrual loans based upon the government guarantee. (b) Excludes PCI loans that were acquired as part of the Washington Mutual transaction, which are accounted for on a pool basis. Since each pool is accounted for as a single asset with a single composite interest rate and an aggregate expectation of cash flows, the past-due status of the pools, or that of individual loans within the pools, is not meaningful. Because the Firm is recognizing interest income on each pool of loans, they are all considered to be performing.   other (a)     780 689 Charge-offs   752 1,012 Returned to performing status   1,227 2,250 Foreclosures and other liquidations   323 589 Total reductions   3,082 4,540 Net additions/(reductions)   Ending balance  $ Principal payments and (426) 7,070 $ (598) 8,576 (a) Other reductions includes loan sales. Nonaccrual loans in the residential real estate portfolio totaled $6.5 billion at June 30, 2014, of which 33% were greater than 150 days past due, compared with nonaccrual residential real estate loans of $6.9 billion at December 31, 2013, of which 34% were greater than 150 days past due. In the aggregate, the unpaid principal balance of residential real estate loans greater than 150 days past due was charged down by approximately 51% to the estimated net realizable value of the collateral at both June 30, 2014, and December 31, 2013. Loss mitigation activities and the elongated foreclosure processing timelines are expected to continue to result in elevated levels of nonaccrual loans in the residential real estate portfolios. 58 Credit Card Total credit card loans decreased from December 31, 2013 due to seasonality. The 30+ day delinquency rate decreased to 1.41% at June 30, 2014, from 1.67% at December 31, 2013. For the three months ended June 30, 2014 and 2013, the net charge-off rates were   Modifications of credit card loans At June 30, 2014, and December 31, 2013, the Firm had $2.5 billion and $3.1 billion, respectively, of credit card loans outstanding that have been modified in TDRs. These balances included both credit card loans with modified payment terms and credit card loans that https://www.sec.gov/Archives/edgar/data/19617/000001961714000409/corpq22014.htm[10/8/14, 12:41:43 PM] CORP Q2 2014 reverted back to their pre-modification payment terms because the cardholder did not comply with the modified payment terms. The decrease in modified credit card loans outstanding from December 31, 2013, was attributable to a reduction in new modifications as well as ongoing payments and charge-offs on previously modified credit card loans. 2.88% and 3.31%, respectively. For the six months ended June 30, 2014 and 2013, the net charge-off rates were 2.90% and 3.43%, respectively. Charge-offs have improved compared with a year ago as a result of improvement in delinquent loans. The credit card portfolio continues to reflect a well-seasoned, largely rewards-based portfolio that has good U.S. geographic diversification. For information on the geographic composition of the Firm’s credit card loans, see Note 13. Consistent with the Firm’s policy, all credit card loans typically remain on accrual status until charged-off. However, the Firm establishes an allowance, which is offset against loans and charged to interest income, for the estimated uncollectible portion of accrued interest and fee income. For additional information about loan modification programs to borrowers, see Consumer Credit Portfolio on pages 52–59 and Note 13. 59 WHOLESALE CREDIT PORTFOLIO The wholesale businesses of the Firm are exposed to credit risk through their underwriting, lending and derivatives activities with and for clients and counterparties, as well as through their operating services activities, such as cash management and clearing activities. A portion of the loans originated or acquired by the Firm’s wholesale businesses is generally retained on the balance sheet; the Firm’s syndicated loan business distributes a significant percentage of originations into the market and is an important component of portfolio management. As of June 30, 2014, wholesale credit exposure (primarily CIB, CB, and AM) continued to experience a generally favorable credit environment and stable credit quality trends with low levels of criticized exposure, nonaccrual loans and charge-offs. Wholesale credit portfolio   Credit exposure Jun 30, 2014 (in millions) Dec 31, 2013     Nonperforming (c) Jun 30, 2014 Dec 31, 2013 321,534 $ 308,263   $ 727 $ 821 5,839 11,290   13 26 Loans at fair value 4,303 2,011   171 197 Loans – reported 331,676 321,564   911 1,044 Derivative receivables 62,378 65,759   361 415 Receivables from customers and other (a) 31,628 26,744   — — Total wholesale creditrelated assets 425,682 414,067   1,272 1,459 Lending-related commitments 451,275 446,232   122 206 $ 876,957 $ 860,299   $ 1,394 $ Credit portfolio management derivatives notional, net (b) $ (34,971) $ (27,996)   $ — $ Liquid securities and other cash collateral held against derivatives (13,240) (14,435)   Loans retained $ Loans held-for-sale Total wholesale credit exposure NA 1,665 (5) NA (a) Receivables from customers and other include $31.5 billion and $26.5 billion of margin loans at June 30, 2014, and December 31, 2013, respectively, to prime and retail brokerage customers; these are classified in accrued interest https://www.sec.gov/Archives/edgar/data/19617/000001961714000409/corpq22014.htm[10/8/14, 12:41:43 PM] CORP Q2 2014 and accounts receivable on the Consolidated Balance Sheets. (b) Represents the net notional amount of protection purchased and sold through credit derivatives used to manage both performing and nonperforming wholesale credit exposures; these derivatives do not qualify for hedge accounting under U.S. GAAP. For additional information, see Credit derivatives on page 65, and Note 5. (c) Excludes assets acquired in loan satisfactions. 60 The following tables present the maturity and ratings profiles of the wholesale credit portfolio as of June 30, 2014, and December 31, 2013. The ratings scale is based on the Firm’s internal risk ratings, which generally correspond to the ratings as defined by S&P and Moody’s. Wholesale credit exposure – maturity and ratings profile        Maturity profile(e) June 30, 2014 (in millions, except ratios) Due after 1 Due in 1 year year through Due after 5 or less 5 years years Loans retained $ Derivative receivables     Less: Liquid securities and other cash collateral held against derivatives     119,788 $ 126,397 Total               Ratings profile   Investment-grade   Noninvestment-grade     AAA/Aaa to BBB -/Baa3   BB+/Ba1 & below   Total   $ 321,534 Total % of IG $ 321,534    $ 235,691     $   62,378              62,378     (13,240)              (13,240)   $ 75,349 85,843 73% 11,092 15,411 22,635 49,138    40,083     9,055   49,138 82 Lending-related commitments 175,950 264,098 11,227 451,275    358,312     92,963   451,275 79 Subtotal 306,830 405,906 109,211 821,947    634,086     187,861   821,947 77 Total derivative receivables, net of all collateral Loans held-for-sale and loans at fair value (a)       10,142              10,142   Receivables from customers and other       31,628              31,628   Total exposure – net of liquid securities and other cash collateral held against derivatives       $ 863,717              $ 863,717   Credit Portfolio Management derivatives net notional by reference entity ratings profile(b)(c)(d) $ (1,529) $    $     $   $ (25,443) $ (7,999) $   (34,971)   Maturity profile(e) December 31, 2013 (in millions, except ratios) Due after 1 Due in 1 year year through or less 5 years (30,977) Due after 5 years Total $ 75,760 (3,994) (34,971) 89% Ratings profile   Investment-grade   Noninvestment-grade     AAA/Aaa to BBB -/Baa3   BB+/Ba1 & below   Total Total % of IG Loans retained $ $ 308,263    $ 226,070     $   $ 308,263 Derivative receivables       65,759              65,759   Less: Liquid securities and other cash collateral held against derivatives       (14,435)              (14,435)   108,392 $ 124,111 82,193 73% 13,550 15,935 21,839 51,324    41,104   10,220 (f)  51,324 80 Lending-related commitments 179,301 255,426 11,505 446,232    353,974     92,258   446,232 79 Subtotal 301,243 395,472 109,104 805,819    621,148     184,671   805,819 77 Total derivative receivables, net of all collateral (f)  Loans held-for-sale and loans at fair value (a)       13,301              13,301   Receivables from customers and other       26,744              26,744   Total exposure – net of liquid securities and other cash collateral held against derivatives       $ 845,864              $ 845,864   Credit Portfolio Management derivatives net notional by reference entity ratings profile(b)(c)(d) $ (1,149) $    $     $   $ (a) (b) (c) (d) (e) (f) (19,516) $ (7,331) $ (27,996) (24,649) (3,347) (27,996) 88% Represents loans held-for-sale, primarily related to syndicated loans and loans transferred from the retained portfolio, and loans at fair value. These derivatives do not qualify for hedge accounting under U.S. GAAP. The notional amounts are presented on a net basis by underlying reference entity and the ratings profile shown is based on the ratings of the reference entity on which protection has been purchased. Predominantly all of the credit derivatives entered into by the Firm where it has purchased protection, including Credit Portfolio Management derivatives, are executed with investment grade counterparties. The maturity profile of retained loans, lending-related commitments and derivative receivables is based on the remaining contractual maturity. Derivative contracts that are in a receivable position at June 30, 2014, may become a payable prior to maturity based on their cash flow profile or changes in market conditions. The prior period amounts have been revised to conform with the current period presentation. Wholesale credit exposure – selected industry exposures   The Firm focuses on the management and diversification of its industry exposures, paying particular attention to industries with actual or potential credit concerns. Exposures deemed criticized align with the U.S. banking regulators’ definition of criticized exposures, which consist of the special mention, substandard and doubtful categories. The total criticized component of the portfolio, excluding loans held-for-sale and loans at fair value, increased by 1% to $12.3 billion at June 30, 2014, from $12.2 billion at December 31, 2013. https://www.sec.gov/Archives/edgar/data/19617/000001961714000409/corpq22014.htm[10/8/14, 12:41:43 PM] CORP Q2 2014 61 Below are summaries of the top 25 industry exposures as of June 30, 2014, and December 31, 2013. For additional information on industry concentrations, see Note 5 of JPMorgan Chase’s 2013 Annual Report.                                         Selected metrics Noninvestment-grade 30 days or more past due and accruing loans As of or for the six months ended June 30, 2014 Credit exposure (d) (in millions) Top 25 industries (a)   Investmentgrade       $ Noncriticized Criticized performing         $ Criticized nonperforming     Year-to -date net charge-offs/ (recoveries)     67,890   23,727   Banks & Finance Cos 60,209 50,322   9,262   551 74 23 (7) Oil & Gas 48,211 33,357   14,489   325 40 77 Healthcare 46,716 38,679   7,338   677 22 1 Real Estate $ 93,793 $ 1,887 $ 289 $ 147 $ Credit portfolio manage-ment credit derivative hedges(e) (15) Liquid securities and other cash collateral held against derivative receivables   $ (61) $ (29) (2,288) (5,550) — (214) (110) — (117) (240) Consumer Products 40,021 23,798   15,516   700 7 38 — (46) Asset Managers 34,455 28,100   6,350   5 — 17 (12) (8) (2,906) State & Municipal Govt(b) 33,440 32,698   664   78 — 71 24 (151) (104) Utilities 28,308 24,966   3,051   260 31 — — (376) (205) — Retail & Consumer Services 26,112 16,663   8,219   1,185 45 26 4 (99) Central Govt 22,478 22,050   374   54 — — — (11,488) Technology 20,547 13,227   6,693   607 20 — — (290) — Machinery & Equipment Mfg 20,083 11,832   7,951   300 — 7 (2) (161) (2) — (1,534) Transportation 16,406 11,319   4,986   78 23 5 (3) (74) (73) Metals/Mining 16,365 8,660   6,622   1,081 2 8 18 (440) (4) Business Services 14,538 7,385   6,849   279 25 14 1 (10) (1) Media 14,172 8,386   5,426   334 26 1 (10) (75) (6) Telecom Services 14,019 8,258   5,602   149 10 — — (609) (8) Building Materials/Construction 13,376 6,259   6,410   700 7 24 — (142) — Insurance 12,663 10,060   2,314   84 205 — — — Automotive 12,496 8,000   4,365   131 — 1 — (371) (1,677) — Chemicals/Plastics 12,064 8,227   3,719   118 — 11 (2) Securities Firms & Exchanges 11,856 9,871   1,970   12 3 12 4 (4,984) (277) Agriculture/Paper Mfg 7,319 4,743   2,419   154 3 41 — (4) (7) Aerospace/Defense 5,877 5,002   851   24 — 1 — (67) (1) 5,469 2,924   1,906   484 155 4 204,194 183,313   19,873   785 223 1,039 645,989   $ 176,946   Leisure All other (c) Subtotal 835,187 $ Loans held-for-sale and loans at fair value 10,142               Receivables from customers and other 31,628             876,957             Total $ $ $ 11,042 $ 1,210 $ 1,568 (11) — (31) $ (31) — (5) (19) (12,880) (487) $ (34,971) $                       (13,240) 62 Selected metrics Noninvestment-grade https://www.sec.gov/Archives/edgar/data/19617/000001961714000409/corpq22014.htm[10/8/14, 12:41:43 PM] 30 days or Credit portfolio Liquid securities and other cash CORP Q2 2014 more past due and accruing loans As of or for the year ended December 31, 2013 (in millions) Credit exposure (d) Investmentgrade Criticized performing Noncriticized Criticized nonperforming Full year net charge-offs/ (recoveries) manage- ment credit derivative hedges(e) collateral held against derivative receivables Top 25 industries (a) Real Estate $ 87,102 $ 62,964 $ 21,505 $ 2,286 $ 347 Banks & Finance Cos 66,881 56,675 9,707 431 68 Oil & Gas 46,934 34,708 11,779 436 Healthcare 45,910 37,635 7,952 317 Consumer Products 34,145 21,100 12,505 537 Asset Managers 33,506 26,991 6,477 38 $ 178 $ 6 $ (66) $ (2,692) (125) 14 (22) 11 34 13 (227) (67) 6 49 3 (198) (195) 3 4 11 (149) (1) — 217 (5) (3,191) (7) (6,227) State & Municipal Govt(b) 35,666 34,563 826 157 120 40 1 (161) (144) Utilities 28,983 25,521 3,045 411 6 2 28 (445) (306) Retail & Consumer Services 25,068 16,101 8,453 492 22 6 — (91) Central Govt 21,049 20,633 345 71 — — — (10,088) Technology 21,403 13,787 6,771 825 20 — — (512) Machinery & Equipment Mfg 19,078 11,154 7,549 368 7 20 (18) (257) (8) Transportation 13,975 9,683 4,165 100 27 10 8 (68) — (36) — (1,541) — Metals/Mining 17,434 9,266 7,508 594 66 1 16 (621) Business Services 14,601 7,838 6,447 286 30 9 10 (10) (2) Media 13,858 7,783 5,658 315 102 6 36 (26) (5) Telecom Services 13,906 9,130 4,284 482 10 — 7 (272) (8) Building Materials/Construction 12,901 5,701 6,354 839 7 15 3 (132) — Insurance 13,761 10,681 2,757 84 239 — (2) (98) Automotive 12,532 7,881 4,490 159 2 3 (3) (472) — Chemicals/Plastics 10,637 7,189 3,211 222 15 — — (13) (83) Securities Firms & Exchanges 10,035 4,208 14 7 1 (68) (4,169) (175) Agriculture/Paper Mfg 7,387 4,238 3,064 82 3 31 — (4) (4) Aerospace/Defense 6,873 5,447 1,426 — — — — (142) (1) Leisure 5,331 2,950 1,797 495 89 5 — (10) (14) 201,298 180,460 19,911 692 235 1,249 (7,068) (367) All other (c) Subtotal $ Loans held-for-sale and loans at fair value $ 634,287 5,806 $ (f)  173,792 $ 10,733 $ 1,442 $ 1,894 (6) $ 16 $ (27,996) $ (14,435) 13,301 Receivables from customers and other Total 820,254 (f)  (1,935) 26,744 $ 860,299 (a) The industry rankings presented in the table as of December 31, 2013, are based on the industry rankings of the corresponding exposures at June 30, 2014, not actual rankings of such exposures at December 31, 2013. (b) In addition to the credit risk exposure to states and municipal governments (both U.S. and non-U.S.) at June 30, 2014, and December 31, 2013, noted above, the Firm held: $7.5 billion and $7.9 billion, respectively, of trading securities; $28.1 billion and $29.5 billion, respectively, of AFS securities; and $8.3 billion and $920 million, respectively, of HTM securities, issued by U.S. state and municipal governments. For further information, see Note 3 and Note 11. (c) All other includes: individuals, private education and civic organizations; SPEs; and holding companies, representing approximately 66%, 20% and 5%, respectively, at June 30, 2014, and 64%, 22% and 5%, respectively, at December 31, 2013. (d) Credit exposure is net of risk participations and excludes the benefit of “Credit Portfolio Management derivatives net notional” held against derivative receivables or loans and “Liquid securities and other cash collateral held against derivative receivables”. (e) Represents the net notional amounts of protection purchased and sold through credit derivatives used to manage the credit exposures; these derivatives do not qualify for hedge accounting under U.S. GAAP. The all other category includes purchased credit protection on certain credit indices. (f) The prior period amounts have been revised to conform with the current period presentation. 63 Loans   In the normal course of its wholesale business, the Firm provides loans to a variety of customers, ranging from large corporate and institutional clients to high-net-worth individuals. For further discussion on loans, including information on credit quality indicators, see Note 13. The Firm actively manages its wholesale credit exposure. One way of managing credit risk is through secondary market sales of loans and lending-related commitments. During the six months ended June 30, 2014 and 2013, the Firm sold $14.1 billion and $8.3 billion, respectively, of loans and lending-related commitments. The following table presents the change in the nonaccrual loan portfolio for the six months ended June 30, 2014 and 2013. Lending-related commitments JPMorgan Chase uses lending-related financial instruments, such as commitments (including revolving credit facilities) and guarantees, to meet the financing needs of its customers. The contractual amounts of these financial instruments represent the maximum possible credit risk should the counterparties draw down on these commitments or the Firm fulfills its obligations under these guarantees, and the counterparties subsequently fails to perform according to the terms of these contracts. In the Firm’s view, the total contractual amount of these wholesale lending-related commitments is not representative of the Firm’s likely actual future credit exposure or funding requirements. In determining the amount of credit risk exposure the Firm has to wholesale lendingrelated commitments, which is used as the basis for allocating credit https://www.sec.gov/Archives/edgar/data/19617/000001961714000409/corpq22014.htm[10/8/14, 12:41:43 PM] CORP Q2 2014 Wholesale nonaccrual loan activity    Six months ended June 30,    (in millions)   Beginning balance  $ Additions   Reductions:    risk capital to these commitments, the Firm has established a “loanequivalent” amount for each commitment; this amount represents the portion of the unused commitment or other contingent exposure that is expected, based on average portfolio historical experience, to become drawn upon in an event of a default by an obligor. The loanequivalent amount of the Firm’s lending-related commitments was $221.5 billion and $218.9 billion as of June 30, 2014, and December 31, 2013, respectively.   2013(a) 2014 1,044 $ 1,717 450 728   Paydowns and other   Gross charge-offs   77 116 Returned to performing status   92 134 Sales   57 240 Total reductions   583 1,143 Net reductions   (133) Ending balance  $ 357 Derivative contracts In the normal course of business, the Firm uses derivative instruments predominantly for market-making activities. Derivatives enable customers to manage exposures to fluctuations in interest rates, currencies and other markets. The Firm also uses derivative instruments to manage its own credit exposure. For further discussion of derivative contracts, see Note 5. 653 (415) 911 $ The following table summarizes the net derivative receivables for the periods presented. 1,302 (a) During 2013, certain loans that resulted from restructurings that were previously classified as performing were reclassified as nonperforming loans. Derivative receivables Loans – reported Average loans retained 2014   2013   Interest rate Six months ended June 30, 2014 June 30, 2014 (in millions) Wholesale net charge-offs Three months ended June 30, $ $ 315,415      $  $ 308,277 312,244 2,964 1,516 11,625 16,790 9,377 12,227 Commodity   Liquid securities and other cash collateral held against derivative receivables $ Total, net of collateral 306,110 Gross   charge-offs 9 50   77 116 Gross recoveries (53) (117)   (108) (148) Net   recoveries (44) (67)   (31) (32) Net recovery rate (0.06)% (0.02)% (0.02)% (0.09)%   25,782 Foreign exchange Equity 2013 28,829 $ December 31, 2013 Credit derivatives Total, net of cash collateral     Derivative receivables The following table presents net charge-offs/recoveries, which are defined as gross charge-offs less recoveries, for the three and six months ended June 30, 2014 and 2013. The amounts in the table below do not include gains or losses from sales of nonaccrual loans. (in millions, except ratios)   $ 9,583 9,444 62,378 65,759 (13,240) (14,435) 49,138 $ 51,324 64 Derivative receivables reported on the Consolidated Balance Sheets were $62.4 billion and $65.8 billion at June 30, 2014, and December 31, 2013, respectively. These amounts represent the fair value of the derivative contracts, after giving effect to legally enforceable master netting agreements and cash collateral held by the Firm. However, in management’s view, the appropriate measure of current credit risk should also take into consideration additional liquid securities (primarily U.S. government and agency securities and other G7 government bonds) and other cash collateral held by the Firm aggregating $13.2 billion and $14.4 billion at June 30, 2014, and December 31, 2013, respectively, that may be used as security when the fair value of the client’s exposure is in the Firm’s favor. In addition to the collateral described in the preceding paragraph, the Firm also holds additional collateral (primarily cash, G7 government securities, other liquid   government-agency and guaranteed securities, and corporate debt and equity securities) delivered by clients at the initiation of transactions, as well as collateral related to contracts that have a non-daily call frequency and collateral that the Firm has agreed to return but has not yet settled as of the reporting date. Although this collateral does not reduce the balances and is not included in the table above, it is available as security against potential exposure that could arise should the fair value of the client’s derivative transactions move in the Firm’s favor. As of June 30, 2014, and December 31, 2013, the Firm held $33.3 billion and $29.0 billion, respectively, of this additional collateral. The derivative receivables fair value, net of all collateral, also does not include other credit enhancements, such as letters of credit. For additional information on the Firm’s use of collateral agreements, see Note 5. https://www.sec.gov/Archives/edgar/data/19617/000001961714000409/corpq22014.htm[10/8/14, 12:41:43 PM] CORP Q2 2014 The following table summarizes the ratings profile by derivative counterparty of the Firm’s derivative receivables, including credit derivatives, net of other liquid securities collateral, for the dates indicated.   Ratings profile of derivative receivables   Rating equivalent    Exposure net of collateral AAA/Aaa to AA-/Aa3 $ A+/A1 to A-/A3 BBB+/Baa1 to BBB-/Baa3 23%   $ 12,150 25 16,864 8,163 892 CCC+/Caa1 and below Total $ % of exposure net of   collateral 11,069 BB+/Ba1 to B-/B3 49,138 December 31, 2013(a)   June 30, 2014 (in millions, except ratios)   Exposure net of collateral % of exposure net of collateral 12,953 25%   12,930 25 34   15,220 30 16   6,806 13 2   3,415 7 51,324 100% 100%   $ (a) The prior period amounts have been revised to conform with the current period presentation. As noted above, the Firm uses collateral agreements to mitigate   counterparty credit risk. The percentage of the Firm’s derivatives transactions subject to collateral agreements – excluding foreign exchange spot trades, which are not typically covered by collateral agreements due to their short maturity – was 87% as of June 30, 2014, largely unchanged compared with 86% as of December 31, 2013. management activities, see Credit derivatives in Note 5 of this Form 10-Q, and Note 6 of JPMorgan Chase’s 2013 Annual Report. Credit derivatives used in credit portfolio management activities Notional amount of protection purchased and sold (a)   Credit derivatives The Firm uses credit derivatives for two primary purposes: first, in its capacity as a market-maker; and second, as an end-user, to manage the Firm’s own credit risk associated with various exposures. For a detailed description of credit derivatives, see Credit derivatives in Note 5 of this Form 10-Q, and Note 6 of JPMorgan Chase’s 2013 Annual Report. June 30, 2014   (in millions)      Loans and lending-related commitments $ 3,082   $ Credit derivatives used to manage: Derivative receivables Total net protection purchased Credit portfolio management activities Included in the Firm’s end-user activities are credit derivatives used to mitigate the credit risk associated with traditional lending activities (loans and unfunded commitments) and derivatives counterparty exposure in the Firm’s wholesale businesses (collectively, “credit portfolio management” activities). Information on credit portfolio management activities is provided in the table below. For further information on derivatives used in credit portfolio Total net protection sold Credit portfolio management derivatives notional, net $ December 31, 2013 2,764 31,984   25,328 35,066   28,092 95   96 34,971   $ 27,996 (a) Amounts are presented net, considering the Firm’s net protection purchased or sold with respect to each underlying reference entity or index. 65 COMMUNITY REINVESTMENT ACT EXPOSURE The Community Reinvestment Act (“CRA”) encourages banks to   meet the credit needs of borrowers in all segments of their communities, including neighborhoods with low or moderate incomes. The Firm is a national leader in community development by providing loans, investments and community development services in communities across the United States. At June 30, 2014, and December 31, 2013, the Firm’s CRA loan portfolio was approximately $20 billion and $18 billion, respectively. At June 30, 2014, and December 31, 2013, 47% and 50%, respectively, of the CRA portfolio were residential mortgage loans; 30% and 26%, respectively, were commercial real estate loans; 15% and 16%, respectively, were business banking loans; and 8%, for both periods, were other loans. CRA nonaccrual loans were 3% of the Firm’s total nonaccrual loans for both June 30, 2014, and December 31, 2013. As a percentage of the Firm’s net charge-offs, net charge-offs in the CRA portfolio were 1% for each of the three months ended June 30, 2014 and 2013, and 1% and 2%, respectively, for the six months ended June 30, 2014 and 2013. ALLOWANCE FOR CREDIT LOSSES JPMorgan Chase’s allowance for loan losses covers both the consumer (primarily scored) portfolio and wholesale (risk-rated) portfolio. The allowance represents management’s estimate of   The consumer, excluding credit card, allowance for loan losses reflected a reduction from December 31, 2013, due to the continued improvement in home prices and delinquency trends in the residential https://www.sec.gov/Archives/edgar/data/19617/000001961714000409/corpq22014.htm[10/8/14, 12:41:43 PM] CORP Q2 2014 probable credit losses inherent in the Firm’s loan portfolio. Management also determines an allowance for wholesale and certain consumer lending-related commitments. real estate portfolio and the run-off of the student loan portfolio. For additional information about delinquencies and nonaccrual loans in the consumer, excluding credit card, loan portfolio, see Consumer Credit Portfolio on pages 52–59 and Note 13. For a further discussion of the components of the allowance for credit losses and related management judgments, see Critical Accounting Estimates Used by the Firm on pages 86–88 of this Form 10-Q and Note 15 of JPMorgan Chase’s 2013 Annual Report. The credit card allowance for loan losses reflected a reduction from December 31, 2013, primarily due to a reduction in the asset-specific allowance due to increased granularity of impairment estimates for loans modified in TDRs. For additional information about delinquencies in the credit card loan portfolio, see Consumer Credit Portfolio on pages 52–59 and Note 13. At least quarterly, the allowance for credit losses is reviewed by the CRO, the CFO and the Controller of the Firm, and discussed with the Risk Policy and Audit Committees of the Board of Directors of the Firm. As of June 30, 2014, JPMorgan Chase deemed the allowance for credit losses to be appropriate and sufficient to absorb probable credit losses inherent in the portfolio. The wholesale allowance was relatively unchanged, reflecting a generally favorable credit environment and stable credit quality trends. 66    Summary of changes in the allowance for credit losses   Allowance for loan losses   Beginning balance at January 1, $ Gross charge-offs loans (a) Provision for loan losses Other $ Impairment methodology   Asset-specific (b) $   3,795 685 1,773 109 — 81 1,573 7,743 3,594 $   4,013 (55)     12,292 $ $ $ 1,458 Wholesale   5,501 $ 2,414 (394) Total   4,143 $ 116 (318) 21,936 3,988 (148) (860) 2,427   1,064 2,096 109   — — — — 1,599   (531) 1,046 64 579 15,326   138  $ Credit card   (1)   — $ 16,264 (716) — 3,989    3,143 (31)   583 $ (108) $   credit card Total 77 (1) $   598 $ (209) — Ending balance at June 30, Wholesale 1,982 (399) Net charge-offs/(recoveries) Write-offs of PCI $ 1,084 Gross recoveries 2013 excluding Credit card   8,456     Consumer, Consumer, excluding credit card (in millions, except ratios)     2014 Six months ended June 30,    $ (6) 10,691    1,319 (6) $ 4,445    $ 713 (32) $ 9 $ 4,248   1,227 3,128 $ (3) $ 19,384   228 $ 2,168 Formula-based 3,396 3,011 3,851 10,258   4,267 3,218 4,020 11,505 PCI 3,749 — — 3,749   5,711 — — 5,711 Total allowance for loan losses $ Allowance for lending-related commitments   Beginning balance at January 1, $ Provision for lending-related commitments 7,743 $   8 $ 1 Other $ Impairment methodology   Asset-specific $ Formula-based 9 — $ — $ 9 697 639 $ — 43 9 $ — $ 639 Total allowance for credit losses $ 7,752 $ 3,594 $ 4,628 Memo:   Retained loans, average $ 288,214 288,443 $   125,621 123,111 $ $  $ 7 (57)   1 —   — 312,244 8 $ — — $ — — $ 661 $ 745 $ 668 85 — $ 19,384     — $ 84 — $ 4,248      $ $ — $ 753   79 $ 79   8 $ 648  $ 8 $ — $ 745 $ 753 $ 15,974  $ 10,699 $ 4,445 $ 4,993 $ 20,137   321,534  $    43 4,445   705 648 $ 605 596 $ Retained loans, end of period $ 10,691      Total allowance for lending-related commitments (c)   $ — $ 15,326     — $ (58) — $ 3,989     — $ — — Ending balance at June 30, 3,594  $ $    —   735,369  $ 287,388 723,798   290,366 https://www.sec.gov/Archives/edgar/data/19617/000001961714000409/corpq22014.htm[10/8/14, 12:41:43 PM] $ 666   124,288 123,208 $ 674   308,208 306,110 $ 719,884 719,684 CORP Q2 2014 PCI loans, end of period 50,118 —   Credit ratios 5   50,123       Allowance for loan losses to retained loans 2.69% 2.86% 1.24 % 2.08%   Allowance for loan losses to retained nonaccrual loans (c) 112 NM 549 201 Allowance for loan losses to retained nonaccrual loans excluding credit card 112 NM 549 0.48 2.90 (0.02) Net charge-off/(recovery) rates Credit ratios, excluding residential real estate PCI loans     Allowance for loan losses to retained loans   56,736 —      12 56,748     3.72% 3.58% 1.38 % 2.69%   125 NM 424 202 154   125 NM 424 156 0.68   0.74 3.43 (0.02) 0.88            1.68 2.86 1.24 1.69   2.16 3.58 1.38 2.06 Allowance for loan losses to retained nonaccrual loans (d) 58 NM 549 152   58 NM 424 143 Allowance for loan losses to retained nonaccrual loans excluding credit card 58 NM 549 105   58 NM 424 96 Net charge-off/(recovery) rates 0.58% 2.90% (0.02)% 0.73%   0.92% 3.43% (0.02)% 0.95% (a) Write-offs of PCI loans are recorded against the allowance for loan losses when actual losses for a pool exceed estimated losses that were recorded as purchase accounting adjustments at the time of acquisition. Any write-offs of PCI loans are recognized when the underlying loan is removed from a pool (e.g., upon liquidation). (b) Includes risk-rated loans that have been placed on nonaccrual status and loans that have been modified in a TDR. (c) The allowance for lending-related commitments is reported in other liabilities on the Consolidated Balance Sheets. (d) The Firm’s policy is generally to exempt credit card loans from being placed on nonaccrual status as permitted by regulatory guidance. 67 Provision for credit losses For the three and six months ended June 30, 2014, the provision for   credit losses was $692 million and $1.5 billion respectively, compared with $47 million and $664 million respectively, from the prior year periods. The consumer provision for the six months ended June 30, 2014 reflected an $804 million reduction in the allowance for loan losses,     Three months ended June 30, Six months ended June 30, Provision for loan Provision for lending-related Total provision for Provision for loan         losses commitments credit losses losses   (in millions) Consumer, excluding credit card compared with a $2.7 billion reduction in the prior year period. The decrease in the consumer allowance for loan loss reduction from the prior year was partially offset by lower charge-offs. The wholesale provision for credit losses reflected a generally favorable credit environment and stable credit quality trends. 2014 $ (38) $ 2013   (494)   $ 2014 1 $ 2013   2013   2014 1  $ (37) $ (493)   $ 2014 2013   81 $ (531)   $ Provision for lendingrelated commitments 2014 1 $   Total provision for credit losses 2013   1  $ 2014 2013 82 $ (530) Credit card 885 464   — —   885 464   1,573 1,046   — —   1,573 1,046 Total consumer 847 (30)   1 1   848 (29)   1,654 515   1 1   1,655 516 (165) 40   9 36   (156) 76   64   (58) 84   (57) $ 85   $ 1,542 $ Wholesale Total provision for credit losses $ 682 $ 10   $ 10 $ 37   $ 692 $ (55) 47   $ 1,599 $ 579   $ (113) 148 664 68 MARKET RISK MANAGEMENT Market risk is the potential for adverse changes in the value of the   Firm’s assets and liabilities resulting from changes in market variables such as interest rates, foreign exchange rates, equity prices, commodity prices, implied volatilities or credit spreads. For a discussion of the Firm’s market risk management organization, risk identification and classification, and tools to measure risk, see Market Risk Management on pages 142–148 of JPMorgan Chase’s 2013 In addition, for certain products, specific risk parameters are not captured in VaR due to the lack of inherent liquidity and availability of appropriate historical data. The Firm uses proxies to estimate the VaR for these and other products when daily time series are not available. It is likely that using an actual price-based time series for these products, if available, would affect the VaR results presented. The Firm uses alternative methods to capture and measure those risk https://www.sec.gov/Archives/edgar/data/19617/000001961714000409/corpq22014.htm[10/8/14, 12:41:43 PM] CORP Q2 2014 Annual Report. For a discussion of the Firm’s risk monitoring and control and market risk limits, see Limits on page 148 of JPMorgan Chase’s 2013 Annual Report. Value-at-risk JPMorgan Chase utilizes VaR, a statistical risk measure, to estimate the potential loss from adverse market moves in a normal market environment consistent with the day-to-day risk decisions made by the lines of business. Since VaR is based on historical data, it is an imperfect measure of market risk exposure and potential losses, and it is not used to estimate the impact of stressed market conditions or to manage any impact from potential stress events. In addition, based on their reliance on available historical data, limited time horizons, and other factors, VaR measures are inherently limited in their ability to measure certain risks and to predict losses, particularly those associated with market illiquidity and sudden or severe shifts in market conditions. In addition to VaR, the Firm considers other measures such as stress testing to capture and manage its market risk positions. parameters that are not otherwise captured in VaR, including economic-value stress testing, nonstatistical measures and risk identification for large exposures. For further information, see Market Risk Management on page 147 of the 2013 Annual Report. The Firm’s VaR model calculations are periodically evaluated and enhanced in response to changes in the composition of the Firm’s portfolios, changes in market conditions, improvements in the Firm’s modeling techniques and other factors. Such changes will also affect historical comparisons of VaR results. Model changes go through a review and approval process by the Model Review Group prior to implementation into the operating environment. For further information, see Model risk on page 153 of the 2013 Annual Report. The Firm’s Risk Management VaR is calculated assuming a one-day holding period and an expected tail-loss methodology which approximates a 95% confidence level. For risk management purposes, the Firm believes this methodology provides a stable measure of VaR that closely aligns to the day-to-day risk management decisions made by the lines of business and provides information to respond to risk events on a daily basis. The Firm also calculates a daily Regulatory VaR which is used to derive the Firm’s regulatory VaR-based capital requirements under Basel III. For further information regarding the key differences between Risk Management VaR and Regulatory VaR, see page 146 of the 2013 Annual Report. For additional information on Regulatory VaR and the other components of market risk regulatory capital for the Firm (e.g. VaR-based measure, stressed VaR-based measure and the respective backtesting), see JPMorgan Chase’s Basel III Pillar 3 Regulatory Capital Disclosures reports, which are available on the Firm’s website (http://investor.shareholder.com/jpmorganchase/basel.cfm), and Capital Management on pages 74–80 of this Form 10-Q and pages 160–167 of the 2013 Annual Report. 69 The table below shows the results of the Firm’s Risk Management VaR measure using a 95% confidence level. Total VaR    Avg. CIB trading VaR by risk type   Fixed income $ 38   8   Equities Commodities and other Diversification benefit to CIB trading VaR   $ 31   5       $ 45   13      Avg.        $ 35     7   Min   $ 23   5   $ 49   11          $ 34     6   2013       $ 44   5   2014       $ 37   7   $ 10   21     15   18   14 9   7   14     13   11   17     9   12   10   (a)(c)   10   Diversification benefit to CIB VaR (6) CIB VaR 43   (a)(c)     NM NM 28   8   (b)   49   12         NM (b)   NM (b)     34           (9) (a)    40        15       5   4   5     5   4   Asset Management VaR 3   3   4     5   4   Diversification benefit to other VaR (8) Other VaR 20   (8) (a)  $ 55   NM 7   NM (b)   $ 38   NM 27   NM (b)   $ 70         (10) (a)  NM 15   (10) 54     (b)   NM $     (32) (a)  (30) 14 (a)(c)  (34) 34   9   47   13   38   12   14 (5) (a)  (8) (a)  (7) (a)  (9) 38   52   43   51 7     5   5   5   8 5     4   5   3   5 (b)   (b)   61   https://www.sec.gov/Archives/edgar/data/19617/000001961714000409/corpq22014.htm[10/8/14, 12:41:43 PM]         (5)   (a)    (a)  (9) $   17 (a)  (12) 14   (a)  56     13   (7) 13   (a)    $ 40   13   (10) 7   (5)   46 3   NM $   (30) (a)  14      22   (b)   29     21   NM 9   (a)    $ 45   8     NM (b)     25     (b)   49   16   NM (b)   Treasury and CIO VaR (b)   NM 21   11   20   (b)   28   NM 36   13   (b)   Mortgage Banking VaR (a)  3   56   (33) (a)  45 7 (c)  14   (b)   2013     Credit portfolio VaR Total VaR   Average 21   39 (c)  Diversification benefit to CIB and other VaR   Six months ended June 30,   At June 30,   2014   Max     10   (30)     Max     14 (c)  CIB trading VaR   Min   2013   2014 (in millions) Foreign exchange    Three months ended June 30, (8) $ 18 (a)  49   (10) $ 59 CORP Q2 2014 (a) Average portfolio VaR and period-end portfolio VaR were less than the sum of the VaR of the components described above, due to portfolio diversification. The diversification effect reflects the fact that the risks were not perfectly correlated. (b) Designated as not meaningful (“NM”), because the minimum and maximum may occur on different days for different risk components, and hence it is not meaningful to compute a portfolio-diversification effect. (c) These amounts have been updated from those included in the June 30, 2014 earnings supplement. As presented in the table above, average Total VaR increased for the   three months ended June 30, 2014, when compared with the respective 2013 period. The increase was due to a change in the Mortgage Servicing Rights hedge position in Mortgage Banking in advance of an anticipated update to certain MSR model assumptions. When such updates were implemented late in the second quarter, the MSR VaR decreased to prior levels. MSR model assumptions are continuously evaluated and periodically updated to reflect recent market behavior. VaR back-testing The Firm evaluates the effectiveness of its VaR methodology by backtesting, which compares the daily Risk Management VaR results with the daily gains and losses recognized on market-risk related revenue. Effective during the fourth quarter of 2013, the Firm revised its definition of market risk-related gains and losses to be consistent with the definition used by the banking regulators under Basel III. Under this definition market risk-related gains and losses are defined as: profits and losses on the Firm’s Risk Management positions, excluding fees, commissions, certain valuation adjustments (e.g., liquidity and DVA), net interest income, and gains and losses arising from intraday trading. The average Total VaR for the six months ended June 30, 2014 decreased from the respective 2013 period. The decrease was primarily driven by the risk reduction of the synthetic credit portfolio and lower volatility in the historical one-year look-back period. The following chart compares the daily market risk-related gains and losses on the Firm’s Risk Management positions during the six months ended June 30, 2014, under the revised definition. As the chart presents market risk-related gains and losses related to those positions included in the Firm’s Risk Management VaR, the results in the table below differ from the results of backtesting disclosed in the Market Risk section of the Firm’s Basel III Pillar 3 Regulatory Capital Disclosures reports, which are based on Regulatory VaR applied to covered positions. The chart shows that for the six months ended June 30, 2014, the Firm observed no VaR band breaks and posted gains on 89 of the 127 days in this period. The Firm observed no VaR band breaks and posted gains on 42 of the 64 days in the second quarter of 2014. The Firm’s average Total VaR diversification benefit was $8 million or 13% of the sum for the three months ended June 30, 2014, compared with $10 million or 18% of the sum for the comparable 2013 period. In general, over the course of the year, VaR exposure can vary significantly as positions change, market volatility fluctuates and diversification benefits change. 70   Earnings-at-risk The VaR and stress-test measures described above illustrate the total economic sensitivity of the Firm’s Consolidated Balance Sheets to JPMorgan Chase’s 12-month pretax core net interest income sensitivity profiles. https://www.sec.gov/Archives/edgar/data/19617/000001961714000409/corpq22014.htm[10/8/14, 12:41:43 PM] CORP Q2 2014 (Excludes the impact of trading activities and MSRs) changes in market variables. The effect of interest rate exposure on the Firm’s reported net income is also important as interest rate risk represents one of the Firm’s significant market risks. Interest rate risk arises not only from trading activities but also from the Firm’s traditional banking activities, which include extension of loans and credit facilities, taking deposits and issuing debt. Instantaneous change in rates (in millions) +200bps June 30, 2014 $ 4,635 +100bps $ -100bps 2,798 NM -200bps (a)  NM (a)  (a) Downward 100- and 200-basis-points parallel shocks result in a federal funds target rate of zero and negative three- and six-month treasury rates. The earnings-at-risk results of such a low-probability scenario are not meaningful. The Firm conducts simulations of changes in structural interest ratesensitive revenue under a variety of interest rate scenarios. Earningsat-risk scenarios estimate the potential change in this revenue, and the corresponding impact to the Firm’s pretax core net interest income, over the following 12 months utilizing multiple assumptions. These scenarios highlight exposures to changes in interest rates, pricing sensitivities on deposits, optionality and changes in product mix. The scenarios include forecasted balance sheet changes, as well as prepayment and reinvestment behavior. Mortgage prepayment assumptions are based on current interest rates compared with underlying contractual rates, the time since origination, and other factors which are updated periodically based on historical experience. The Firm’s earnings-at-risk scenarios are periodically evaluated and enhanced in response to changes in the composition of the Firm’s balance sheet, changes in market conditions, improvements in the Firm’s simulation and other factors. The Firm’s benefit to rising rates is largely a result of reinvesting at higher yields and assets re-pricing at a faster pace than deposits. Additionally, another interest rate scenario used by the Firm — involving a steeper yield curve with long-term rates rising by 100 basis points and short-term rates staying at current levels — results in a 12-month pretax core net interest income benefit of $530 million. The increase in core net interest income under this scenario reflects the Firm reinvesting at the higher long-term rates, with funding costs remaining unchanged. 71 COUNTRY RISK MANAGEMENT Country risk is the risk that a sovereign event or action alters the value   or terms of contractual obligations of obligors, counterparties and issuers, or adversely impacts markets related to a country. The Firm has a comprehensive country risk management framework for assessing country risks, determining risk tolerance, and measuring and monitoring direct country exposures in the Firm. The Country Risk Management group is responsible for developing guidelines and policy for managing country risk in both emerging and developed countries. The Country Risk Management group actively monitors the various portfolios giving rise to country risk with an objective of ensuring the Firm’s country risk exposures are diversified and that exposure levels are appropriate given the Firm’s strategy and risk tolerance relative to a country. For a discussion of the Firm’s Country Risk Management organization, and country risk identification, measurement, monitoring and control, see pages 149–152 of JPMorgan Chase’s 2013 Annual Report. The following table presents the Firm’s top 20 exposures by country (excluding the U.S.). The selection of countries is based solely on the Firm’s largest total exposures by country, based on the Firm’s internal country risk management approach, and does not represent the Firm’s view of any actual or potentially adverse credit conditions.   Top 20 country exposures       (in billions)   Lending(a) United Kingdom  $ 28.8 $ 42.3 $ 1.5 $ 72.6 Germany   11.9 23.6 0.2 35.7 June 30, 2014 Trading and investing (b)(c) Other (d) Total exposure Netherlands   9.2 22.2 2.3 33.7 France   13.7 16.3 0.3 30.3 Australia   7.2 11.4 0.1 18.7 Canada   12.7 5.3 0.6 18.6 China   11.9 5.6 0.5 18.0 Switzerland   8.0 2.5 1.8 12.3 Brazil   6.2 5.7 — 11.9 Hong Kong   3.4 3.8 4.5 11.7 Japan   8.6 2.6 0.3 11.5 India   5.0 6.1 0.4 11.5 Korea   5.1 4.8 0.1 10.0 Spain   3.4 4.9 — 8.3 Italy   3.5 4.2 0.3 8.0 Mexico   2.6 3.9 — 6.5 Luxembourg   2.8 1.5 1.5 5.8 https://www.sec.gov/Archives/edgar/data/19617/000001961714000409/corpq22014.htm[10/8/14, 12:41:43 PM] CORP Q2 2014 Singapore   3.2 1.6 0.9 5.7 Sweden   1.7 3.4 — 5.1 Taiwan   2.2 2.6 — 4.8 (a) Lending includes loans and accrued interest receivable, net of collateral and the allowance for loan losses, deposits with banks, acceptances, other monetary assets, issued letters of credit net of participations, and undrawn commitments to extend credit. Excludes intra-day and operating exposures, such as from settlement and clearing activities. (b) Includes market-making inventory, securities held in AFS accounts, counterparty exposure on derivative and securities financings net of collateral and hedging. (c) Includes single-name and index and tranched credit derivatives for which one or more of the underlying reference entities is in a country listed in the above table. (d) Includes capital invested in local entities and physical commodity inventory. The Firm’s country exposure to Russia was $4.6 billion at June 30, 2014. The Firm is closely monitoring events in the region, the impact of current and potential new sanctions on Russia, and the uncertainty this situation is creating in the markets. The Firm is also focused on the economic impact of events to Russia’s financial condition, possible potential for contagion effects, including the risk of disruptions in the natural gas markets, and the impact that any potential sovereign downgrades or credit deterioration would have on the Firm’s credit portfolio, the allowance for loan losses and overall risk exposures. 72 OPERATIONAL RISK MANAGEMENT Operational risk is the risk of loss resulting from inadequate or failed   processes or systems, including human errors, or due to external events that are neither market- nor credit- related. Operational Risk is inherent in each of the Firm’s businesses and Corporate functions, and it can manifest itself in various ways including errors, fraudulent acts, business interruptions, and inappropriate behavior of employees or vendors. These events could result in financial losses, including litigation and regulatory fines, as well as other damage to the Firm, including reputational harm. To monitor and control operational risk, the Firm maintains an overall framework that includes oversight and governance, risk self-assessment, capital measurement, and reporting and monitoring. Risk management is responsible for prescribing this framework for the lines of business and Corporate functions, whose activities give rise to operational risk, which is intended to enable the Firm to function with a sound and well-controlled operational environment. For a further discussion of JPMorgan Chase’s Operational Risk Management, see pages 155–157 of JPMorgan Chase’s 2013 Annual Report. Operational Risk Capital Measurement The Firm’s capital methodology incorporates four required elements of the Advanced Measurement Approach (“AMA”): • Internal losses, • External losses, • Scenario analysis, and • Business environment and internal control factors (“BEICF”). The primary component of the operating risk capital estimate is the result of a statistical model, the Loss Data Approach (“LDA”), which simulates the frequency and severity of future operational risk losses based on historical data. The LDA model is used to estimate an aggregate operational loss distribution over a one-year time horizon, Cybersecurity The Firm devotes significant resources to maintain and regularly update its systems and processes that are designed to protect the security of the Firm’s computer systems, software, networks and other technology assets against attempts by unauthorized parties to obtain access to confidential information, destroy data, disrupt or degrade service, sabotage systems or cause other damage. The Firm and several other U.S. financial institutions continue to experience significant distributed denial-of-service attacks from technically sophisticated and well-resourced unauthorized parties which are intended to disrupt online banking services. The Firm is also regularly targeted by unauthorized parties using malicious code and viruses, and has also experienced other attempts to breach the security of the Firm’s systems and data which, in certain instances, have resulted in unauthorized access to customer account data. The Firm has established, and continues to establish, defenses on an ongoing basis to mitigate these attacks, and these cyberattacks have not, to date, resulted in any material disruption to the Firm’s operations or material harm to the Firm’s customers, and have not had a material adverse effect on the Firm’s results of operations. The Board of Directors and the Audit Committee are regularly apprised regarding the cybersecurity policies and practices of the Firm as well as of significant cybersecurity events. Third parties with which the Firm does business or that facilitate the Firm’s business activities (e.g., vendors, exchanges, clearing houses, central depositories, and financial intermediaries) could also be sources of cybersecurity risk to the Firm, including with respect to breakdowns or failures of their systems, misconduct by the employees of such parties, or cyberattacks which could affect their ability to deliver a product or service to the Firm or result in lost or compromised information of the Firm or its clients. The Firm is working with appropriate government agencies and other https://www.sec.gov/Archives/edgar/data/19617/000001961714000409/corpq22014.htm[10/8/14, 12:41:43 PM] CORP Q2 2014 at a 99.9% confidence level, based on historical internal and external operational loss data in a manner that aligns with the Firm’s LOB structure and the “Basel Event Type” risk categorization. The LDA model incorporates actual operational losses in the quarter following the period in which those losses were realized, and the calculation generally continues to reflect such losses irrespective of whether the issues or business activity giving rise to the losses have been remediated or reduced.  businesses, including the Firm’s third-party service providers, to continue to enhance defenses and improve resiliency to cybersecurity threats. The LDA is supplemented by both management’s view of plausible tail risk, which is captured as part of the Scenario Analysis process, and evaluation of key LOB internal control metrics (BEICF). The Firm may further supplement such analysis to incorporate management judgment and feedback from its bank regulators. For information related to operational risk RWA, see Regulatory capital on pages 74–78. 73 CAPITAL MANAGEMENT The following discussion of JPMorgan Chase’s capital management   highlights developments since December 31, 2013, and should be read in conjunction with the Capital Management section at pages 63-70 and 160–167 of JPMorgan Chase’s first quarter 2014 Form 10-Q and 2013 Annual Report, respectively. A strong capital position is essential to the Firm’s business strategy and competitive position. The Firm’s capital strategy focuses on longterm stability, which enables the Firm to build and invest in marketleading businesses, even in a highly stressed environment. In its capital management, the Firm uses three primary disciplines, which are further described below: • Regulatory capital • Economic risk capital • Line of business equity Regulatory capital The Federal Reserve establishes capital requirements, including wellcapitalized standards, for the consolidated financial holding company. The Office of the Comptroller of the Currency (“OCC”) establishes similar capital requirements and standards for the Firm’s national banks, including JPMorgan Chase Bank, N.A. and Chase Bank USA, N.A. The U.S. capital requirements follow the Capital Accord of the Basel Committee, as amended from time to time. Prior to January 1, 2014, the Firm and its banking subsidiaries were subject to the capital requirements of Basel I and Basel 2.5. Effective January 1, 2014, the Firm became subject to Basel III which incorporates Basel 2.5. Basel III overview Basel III, for U.S. bank holding companies and banks, revises, among other things, the definition of capital and introduces a new common equity Tier 1 capital (“CET1 capital”) requirement; presents two comprehensive methodologies for calculating risk-weighted assets (“RWA”), a general (Standardized) approach, which replaces Basel I RWA (“Basel III Standardized”) and an advanced approach, which replaces Basel II RWA(“Basel III Advanced”); and sets out minimum capital ratios and overall capital adequacy standards. Certain of the requirements of Basel III are subject to phase-in periods commencing January 1, 2014 through the end of 2018 (“Transitional period”) as described below. For large and internationally active banks, including the Firm and its insured depository institution (“IDI”) subsidiaries, both Basel III Standardized and Basel III Advanced became effective Reserve and the OCC informed the Firm and its national bank subsidiaries that they had satisfactorily completed the parallel run requirements and were approved to calculate capital under Basel III Advanced, in addition to Basel III Standardized, as of April 1, 2014. In conjunction with its exit from the parallel run, the capital adequacy of the Firm and its national bank subsidiaries is evaluated against the Basel III approach (Standardized or Advanced) which results, for each quarter beginning with the second quarter of 2014, in the lower ratio (the “Collins Floor”), as required by the Collins Amendment of the Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”). Definition of capital Basel III revises Basel I and II by narrowing the definition of capital and increasing the capital requirements for specific exposures. Under Basel III, CET1 capital predominantly includes common stockholders’ equity (including capital for AOCI related to debt and equity securities classified as AFS as well as for defined benefit pension and other postretirement employee benefit (“OPEB”) plans), less certain deductions for goodwill, MSRs and deferred tax assets that arise from net operating loss and tax credit carryforwards. Tier 1 capital is predominantly comprised of CET1 capital as well as perpetual preferred stock. Tier 2 capital includes Tier 1 capital as well as long-term debt qualifying as Tier 2 and qualifying allowance for credit losses. The revisions to CET1 capital, Tier 1 capital and Tier 2 capital are subject to phase-in periods commencing January 1, 2014, through the end of 2018, and during that period, CET1 capital, Tier 1 capital and Tier 2 capital represent Basel III Transitional capital. Risk-weighted assets Basel III establishes two comprehensive methodologies for calculating RWA, a Standardized approach and an Advanced approach. Key differences in the calculation of RWA between the Standardized and Advanced approaches include: (1) for Basel III Advanced, credit risk RWA is based on risk-sensitive approaches which largely rely on the use of internal credit models and parameters, whereas for Basel III Standardized, RWA is generally based on supervisory risk-weightings which vary only by counterparty type and asset class; and (2) Basel III Advanced includes RWA for operational risk, whereas Basel III Standardized does not. In addition to the RWA calculated under these methodologies, the Firm may supplement such amounts to incorporate management judgment and feedback from its bank regulators. Supplementary leverage ratio (“SLR”) https://www.sec.gov/Archives/edgar/data/19617/000001961714000409/corpq22014.htm[10/8/14, 12:41:43 PM] CORP Q2 2014 commencing January 1, 2014. Basel III also includes a requirement for Advanced Approach banking organizations, including the Firm, to calculate a SLR. For additional information on SLR, see page 78. Prior to the implementation of Basel III Advanced, the Firm was required to complete a qualification period (“parallel run”) during which it needed to demonstrate that it met the requirements of the rule to the satisfaction of its U.S. banking regulators. On February 21, 2014, the Federal 74 Capital ratios The basis to calculate the Firm’s capital ratios (both risk-based and leverage) under Basel III during the transitional period and when fully phasedin are shown in the table below.           Capital (Numerator)     RWA (Denominator)               Leverage (Denominator)           (a) (b) (c) 2Q14 – 4Q14           Transitional period   Standardized Approach Advanced Approach Leverage Supplementary leverage(a)     2015 – 2017 2018   Fully Phased-In   2019+           Basel III Capital         Basel III Transitional Capital(b) Basel I with 2.5                                     Basel III Standardized   Basel III Advanced                              Adjusted average     assets(c) Adjusted average assets(c)  + certain off-balance sheet exposures Beginning in 2015, the Firm will report its SLR to its regulators under an observation period. Beginning in 2018, the Firm will be required to publicly disclose its SLR. Trust preferred securities (“TruPS”) are to be phased out from inclusion in Basel III Capital commencing January 1, 2014, through the end of 2021. Adjusted average assets, for purposes of calculating the leverage ratio and SLR, includes total quarterly average assets adjusted for unrealized gains/(losses) on securities, less deductions for disallowed goodwill and other intangible assets, investments in certain subsidiaries, and the total adjusted carrying value of nonfinancial equity investments that are subject to deductions from Tier 1 capital. Risk-based capital regulatory minimums   The Basel III rules include minimum capital ratio requirements that are also subject to phase-in periods and will become fully phased-in on January 1, 2019. In addition to the regulatory minimum capital requirements, global systemically important banks (“GSIBs”) will be required to maintain additional amounts of capital ranging from 1% to 2.5% across all tiers of regulatory capital. In November 2013, the Financial Stability Board (“FSB”) indicated that certain GSIBs, including the Firm, would be required to hold the additional 2.5% of capital; the requirement will be phased-in beginning January 1, 2016. The Basel Committee has stated that GSIBs could in the future be required to hold 3.5% or more of additional capital if their relative systemic importance were to increase. Currently, no GSIB is required to hold more than the additional 2.5% of capital; however, there is no assurance that the Firm, or one or more of the other GSIBs, will not be required to hold more than the additional 2.5% of capital in the future. Further, certain banking organizations, including the Firm, will be required to hold an additional 2.5% of CET1 capital to serve as a “capital conservation buffer.” The capital conservation buffer is intended to be used to absorb potential losses in times of financial or economic stress; if not maintained, the Firm could be limited in the amount of capital that may be distributed, including dividends and common equity repurchases. The capital conservation buffer will be phased-in beginning January 1, 2016. Basel III also establishes a minimum 6.5% Tier I common equity standard for the definition of “well capitalized” under the Prompt Corrective Action (“PCA”) requirements of the FDIC Improvement Act (“FDICIA”). The Tier I common equity standard is effective beginning with the first quarter of 2015. Basel III Advanced Fully Phased-In Basel III capital rules will become fully phased-in on January 1, 2019, at which point the Firm will continue to calculate its capital ratios under both the Basel III Standardized and Advanced Approaches, and the Firm will continue to have its capital adequacy evaluated against the approach that results in the lower ratio. The Firm is currently managing each of its lines of business (including line of business equity allocations), as well as its Corporate functions, on a Basel III Advanced Fully Phased-In basis. Currently the Firm’s capital, RWA and capital ratios that are presented under Basel III Advanced Fully Phased-In (and CET1 under Basel I as of December 31, 2013), are non-GAAP financial measures. However, such measures are used by bank regulators, investors and analysts to assess the Firm’s capital position and to compare the Firm’s capital to that of other financial services companies. The Firm’s estimates of its Basel III Advanced Fully Phased-In capital, RWA and capital ratios and of the Firm’s, JPMorgan Chase Bank, N.A.’s, and Chase Bank USA, N.A.’s SLRs reflect management’s current understanding of the U.S. Basel III rules based on the current published rules and on the application of such rules to https://www.sec.gov/Archives/edgar/data/19617/000001961714000409/corpq22014.htm[10/8/14, 12:41:43 PM] CORP Q2 2014 Consequently, beginning January 1, 2019, the effective minimum Basel III CET1 capital ratio requirement for the Firm is expected to be 9.5%, comprised of the minimum ratio of 4.5% plus the 2.5% GSIB requirement and the 2.5% capital conservation buffer. the Firm’s businesses as currently conducted. The actual impact on the Firm’s capital ratios and SLR as of the effective date of the rules may differ from the Firm’s current estimates depending on changes the Firm may make to its businesses in the future, further implementation guidance from the regulators, and 75 regulatory approval of certain of the Firm’s internal risk models (or, alternatively, regulatory disapproval of the Firm’s internal risk models that have previously been conditionally approved). A reconciliation of total stockholders’ equity to Basel III Advanced Fully Phased-In CET1 capital, Tier 1 capital and Total qualifying capital is presented in the table below.   The following table presents the estimated Basel III Fully Phased-In Capital ratios for JPMorgan Chase at June 30, 2014.         June 30, 2014   Fully phased-in Fully phased-in minimum capital well-capitalized ratios (c) ratios (b)   CET1 capital   Tier 1 capital   10.9   Total capital   12.2   Leverage ratio: 9.8%    (in millions)   $ 227,314 Less: Preferred stock 18,463 Common stockholders’ equity 208,851   Less: Goodwill (a)   45,286 Other intangible assets(a) 9.5% 6.5% 11.0 13.0   June 30, 2014 Total stockholders’ equity       Basel III Advanced Fully Phased-In   Basel III Advanced Fully Phased    In Risk-based capital    ratios: Risk-based capital components and assets 1,194 Other CET1 capital adjustments 1,772 8.0 CET1 capital 160,599 10.0 Preferred stock 18,463     Less: Tier 1   7.6   4.0 5.0 SLR   5.4 (a)  3.0 5.0 Other additional Tier 1 adjustments 137 Total Tier 1 capital 178,925 Long-term debt and other instruments qualifying as Tier 2 (a) Reflects the U.S. Final Leverage Ratio NPR issued on April 8, 2014. (b) Represents the minimum capital ratios applicable to the Firm under fully phased-in Basel III rules. (c) Represents the minimum Basel III Fully Phased-In capital ratios applicable to the Firm under the PCA requirements of FDICIA. 15,316 Qualifying allowance for credit losses 5,270 Other (77) Total Tier 2 capital 20,509 Total qualifying capital $ 199,434 Credit risk RWA $ 1,063,270 Market risk RWA 177,507 Operational risk RWA 400,000 Total RWA $ 1,640,777 SLR leverage exposure $ 3,319,183 (a) Goodwill and other intangible assets are net of any associated deferred tax liabilities. 76 Capital rollforward The following table presents the changes in CET1 capital, Tier 1 capital and Tier 2 capital for the six months ended June 30, 2014. Under Basel I CET1 represents Tier 1 common capital. Six months ended June 30, (in millions) Basel I CET1 capital at December 31, 2013 Effect of rule changes (a) Basel III Advanced Fully Phased-In CET1 capital at December 31, 2013 2014 $ 148,887 RWA rollforward The following table presents changes in the components of RWA under Basel III Advanced Fully Phased-In for the six months ended June 30, 2014. The amounts in the rollforward categories are estimates, based on the predominant driver of the change.   Six Months ended June 30, 2014 2,315 151,202 Net income applicable to common equity 10,764 Dividends declared on common stock (3,023) Net purchase of treasury stock   (200) Credit risk RWA (in billions) Basel I RWA at December 31, 2013 Effect of rule changes (a) https://www.sec.gov/Archives/edgar/data/19617/000001961714000409/corpq22014.htm[10/8/14, 12:41:43 PM] Market   risk RWA   $ 1,223   $ (168)   165   (4)   Operational risk RWA   NA   $ 375   Total RWA 1,388 203 CORP Q2 2014 Changes in capital surplus (949) Changes related to AOCI 2,112 Adjustment related to FVA/DVA on structured notes and OTC derivatives $   $ changes (b) Effect of rule Basel III Advanced Fully Phased-In Tier 1 capital at December 31, 2013 7,305 (145) Increase in Tier 1 capital 16,557 Basel III Advanced Fully Phased-In Tier 1 capital at June 30, 2014 $     Basel I Tier 2 capital at December 31, 2013 $ Effect of rule changes (c) Basel III Advanced Fully Phased-In Tier 2 capital at December 31, 2013 178,925   (29)   (34) (31)   (3)   —  8   17   25   178   $ 400   $ 50 1,641 Basel III Transitional Basel III Transitional capital requirements became effective on January 1, 2014, and remain in effect until Basel III becomes fully phased-in at the end of 2018. The following table presents a reconciliation of the Firm’s estimated Basel III Fully Phased-In CET1 capital to the Firm’s Basel III Transitional CET1 capital as of June 30, 2014. 33,623 (11,644) 21,979 Change in long-term debt and other instruments qualifying as Tier 2 113 (a) Effect of rule changes refers to movements in levels of RWA as a result of changing to calculating RWA under the Basel III Advanced Fully Phased-In rules. See Regulatory capital on pages 74–78 for additional information on the calculation of RWA under Basel III. (b) Model & data changes refer to movements in levels of RWA as a result of revised methodologies and/or treatment per regulatory guidance (exclusive of rule changes). (c) Portfolio runoff for credit risk RWA reflects lower loan balances in Mortgage Banking and for market risk RWA reflects reduced risk from position rolloffs in legacy portfolios. (d) Movement in portfolio levels for credit risk RWA refers to changes in book size, composition, credit quality, and market movements; and for market risk RWA, refers to changes in position and market movements. 162,368 9,397 25   (19)   165,663 Net issuance of noncumulative perpetual preferred stock 1,591 (10)   Basel III Advanced Fully Phased-In RWA at June 30, 2014 $ 1,063   $ Change in CET1 capital 375   —  Increase in RWA (3,295) Other 39   160,599   Basel I Tier 1 capital at December 31, 2013 49   runoff (c) Movement in portfolio levels (d) 9,397 Basel III Advanced Fully Phased-In CET1 capital at June 30, 2014 161   Portfolio 79 Increase in CET1 capital 1,055   changes (b) Model & data 614 Other Basel III Advanced Fully Phased-In RWA at December 31, 2013 (1,379) Change in allowance for credit losses (721) Other 630 Decrease in Tier 2 capital (1,470) Basel III Advanced Fully Phased-In Tier 2 capital at June 30, 2014 June 30, 2014 (in millions, except ratios)   Estimated Basel III Fully Phased-In CET1 capital $ Adjustments related to $ 20,509 Basel III Advanced Fully Phased-In Total capital at June 30, 2014 $ 199,434 AOCI(a) (2,860) Adjustment for deferred tax assets related to net operating loss and foreign tax credit carryforwards 572 All other adjustments (b) (a) Predominantly represents: (1) the addition of certain exposures, which were deducted from capital under Basel I, that are risk-weighted under Basel III; (2) adjustments related to AOCI for AFS securities and defined benefit pension and OPEB plans; and (3) a deduction for deferred tax assets related to net operating loss and foreign tax credit carryforwards. (b) Predominantly represents the exclusion of TruPS from Tier 1 capital under Basel III. (c) Predominantly represents a change in the calculation of qualifying allowance for credit losses under Basel III. 160,599 1,775 Basel III Transitional CET1 capital $ 160,086 Basel III Advanced Transitional RWA(c) $ 1,626,427 (a) Includes the remaining balance of AOCI related to AFS securities and employee benefit plans that will qualify as Basel III CET1 capital upon full phase-in but are not included in Basel III Transitional CET1 capital. (b) Predominantly includes identified intangible assets and DVA/FVA on structured notes and OTC derivatives related to the Firm’s own credit quality that will no longer qualify as Basel III CET1 capital upon full phase-in. (c) The difference between the calculation of the Firm’s Basel III Advanced Fully Phased-In RWA and its Basel III Advanced Transitional RWA is predominantly due to a change in the risk-weighting of MSRs. 77 The following table presents the regulatory capital ratios as of June 30,   2014, under Basel III Standardized Transitional and Basel III Advanced Transitional. Also included in the table are the regulatory minimum ratios in effect as of June 30, 2014.   June 30, 2014 Basel III Standardized Transitional   Risk-based capital ratios(a) :   Basel III Advanced Transitional             Wellcapitalized ratios (c)   Minimum capital   ratios (b)     January 12, 2014, the Basel Committee issued a revised framework for the calculation of the denominator of the SLR. On April 8, 2014, the U.S. banking regulators issued an Notice of Proposed Rulemaking (“NPR”) for calculating the SLR. The Firm expects the Basel Committee’s revisions to be adopted by the U.S. banking agencies prior to the effective date of the SLR. The Firm estimates, based on its current understanding of the U.S. rules, including the NPR, and the revised Basel framework, that if the rules were in effect at June 30, 2014, the Firm’s SLR would have been approximately 5.4% and JPMorgan Chase Bank, N.A.’s and Chase Bank USA, N.A.’s SLRs would have been approximately 5.6% and https://www.sec.gov/Archives/edgar/data/19617/000001961714000409/corpq22014.htm[10/8/14, 12:41:43 PM] CORP Q2 2014 8.2%, respectively, at that date. CET1 capital 11.0% Tier 1 capital 12.3 14.7 Total capital Leverage ratio: Tier 1 leverage     4.0% NA (d)   11.1   5.5 6.0%   12.5   8.0 9.8%   7.6    7.6   10.0   4.0 Comprehensive Capital Analysis and Review (“CCAR”) The Federal Reserve requires large bank holding companies, including the Firm, to submit a capital plan on an annual basis. The Federal Reserve uses the CCAR and Dodd-Frank Act stress test processes to ensure that large bank holding companies have sufficient capital during periods of economic and financial stress, and have robust, forward-looking capital assessment and planning processes in place that address each bank holding company’s unique risks to enable them to have the ability to absorb losses under certain stress scenarios. Through the CCAR, the Federal Reserve evaluates each bank holding company’s capital adequacy and internal capital adequacy assessment processes, as well as its plans to make capital distributions, such as dividend payments or stock repurchases.     5.0   (a) The lower of the Standardized Transitional or Advanced Transitional ratio represents the Collins Floor. (b) Represents the minimum capital ratios for 2014 currently applicable to the Firm under Basel III. (c) Represents the minimum capital ratios for 2014 currently applicable to the Firm under the PCA requirements of the FDICIA. (d) In addition to the 2014 well-capitalized standards, beginning January 1, 2015, Basel III Transitional CET1 capital, and the Basel III Standardized Transitional and the Basel III Advanced Transitional CET1 capital ratios become relevant capital measures under the prompt corrective action requirements defined by the regulations. For the 2014 CCAR process, the Federal Reserve introduced, in addition to the Basel I CET1 capital standards, a Basel III CET1 capital regulatory minimum of 4% for 2014 projections and 4.5% for 2015 projections. On March 26, 2014, the Federal Reserve informed the Firm that it did not object, on either a quantitative or qualitative basis, to the Firm’s 2014 capital plan. For information on actions taken by the Firm’s Board of Directors following the 2014 CCAR results, see Capital Actions on pages 79-80. At June 30, 2014, JPMorgan Chase maintained Basel III Standardized Transitional and Basel III Advanced Transitional capital ratios in excess of the well-capitalized standards established by the Federal Reserve. Additional information regarding the Firm’s capital ratios and the U.S. federal regulatory capital standards to which the Firm is subject is presented in Note 20 of this Form 10-Q, and the Supervision and Regulation section of JPMorgan Chase’s 2013 10-K. For further information on the Firm’s Basel III measures and additional market risk disclosures, see the Firm’s consolidated Basel III Pillar 3 Regulatory Capital Disclosures reports, which are available on the Firm’s website (http://investor.shareholder.com/jpmorganchase/basel.cfm). Regulatory capital outlook The Firm’s capital targets and minimums are calibrated to the U.S. Basel III requirements. The Firm’s key Basel III Advanced Fully Phased-In target ratios are 10%+ for the CET1 capital ratio and 11%+ for the Tier 1 capital ratio, both targeted to be reached by the end of 2014, and a long-term target of 10-10.5% for the CET1 capital ratio. Additionally, management has established a long-term target ratio for the Firm’s SLR of 5.5%+/- and for JPMorgan Chase Bank, N.A.’s SLR of 6%+. Supplementary leverage ratio Basel III also includes a requirement for Advanced Approach banking organizations, including the Firm, to calculate a SLR. The SLR, a non-GAAP financial measure, is defined as Tier 1 capital under Basel III divided by the Firm’s total leverage exposure. Total leverage exposure is calculated by taking the Firm’s total average on-balance sheet assets, less amounts permitted to be deducted for Tier 1 capital, and adding certain off-balance sheet exposures, such as undrawn commitments and derivatives potential future exposure. These target levels will enable the Firm to retain market access, continue the Firm’s strategy to invest in and grow its businesses and maintain flexibility to distribute excess capital. The Firm intends to manage its capital so that it achieves the required capital levels and composition in line with, or ahead of, required timetables. The U.S. banking agencies have issued proposed rulemaking relating to the SLR that would require U.S. bank holding companies, including the Firm, to have a minimum SLR of at least 5% and IDIs, including JPMorgan Chase Bank, N.A. and Chase Bank USA, N.A., to have a minimum SLR of at least 6%. The SLR for the Firm and its IDI subsidiaries will become effective beginning on January 1, 2018. On 78 Economic risk capital   Economic risk capital is another of the disciplines the Firm uses to assess the capital required to support its businesses. Economic risk capital is a measure of the capital needed to cover JPMorgan Chase’s business activities in the event of unexpected losses. The Firm measures economic risk capital using internal risk-assessment methodologies and models based primarily on four risk factors: credit, market, operational and private equity risk and considers factors, assumptions and inputs that differ from those required to be used for regulatory capital requirements. Accordingly, economic risk capital provides a complementary measure to regulatory capital. As economic risk capital is a separate component of the capital framework for Effective January 1, 2014, the Firm revised the capital allocated to certain businesses and will continue to assess the level of capital required for each line of business, as well as the assumptions and methodologies used to allocate capital to the business segments. Further refinements may be implemented in future periods. Capital actions Dividends The Firm’s common stock dividend policy reflects JPMorgan Chase’s earnings outlook, desired dividend payout ratio, capital objectives, and alternative investment opportunities. The Firm’s current expectation is to continue to target a payout ratio https://www.sec.gov/Archives/edgar/data/19617/000001961714000409/corpq22014.htm[10/8/14, 12:41:43 PM] CORP Q2 2014 Advanced Approach banking organizations under Basel III, the Firm is in the process of enhancing its economic risk capital framework. of approximately 30% of normalized earnings over time. Following the Federal Reserve’s release of the 2014 CCAR results, on May 20, 2014, the Board of Directors increased the quarterly common stock dividend from $0.38 to $0.40 per share, effective with the dividend paid on July 31, 2014, to stockholders of record on July 3, 2014. Line of business equity Equity for a line of business represents the amount the Firm believes the business would require if it were operating independently, considering capital levels for similarly rated peers, regulatory capital requirements (as estimated under Basel III Advanced Fully Phased-In) and economic risk measures. Capital is also allocated to each line of business for, among other things, goodwill and other intangibles associated with acquisitions effected by the line of business. ROE is measured and internal targets for expected returns are established as key measures of a business segment’s performance. Line of business equity    (in billions)   June 30, 2014   December 31, 2013 Consumer & Community Banking  $ 51.0   $ 46.0 Corporate & Investment Bank   61.0   56.5 Commercial Banking   13.5 Asset Management   14.0   9.0   Corporate/Private Equity   73.9   75.0 Total common stockholders’ equity   $ 208.9   $ 200.0 Line of business equity   Quarterly average (in billions)   Consumer & Community Banking  $ 51.0   $ 46.0   $ 46.0 Corporate & Investment Bank   61.0   56.5   56.5 2Q14   At June 30, 2014, the Firm had outstanding 59.8 million warrants to purchase shares of common stock of the Firm. The warrants are exercisable, in whole or in part, at any time and from time to time until October 28, 2018. The number of shares issuable upon the exercise of each warrant and the exercise price are subject to adjustment upon the occurrence of certain events, including, but not limited to, the extent regular quarterly cash dividends exceed $0.38 per share. On July 1, 2014, the Firm announced, in accordance with the terms of the warrants, the warrant exercise price was reduced from $42.42 to $42.405 per share effective as of the close of business on July 3, 2014. This adjustment resulted from the aforementioned dividend increase to $0.40 per share on the outstanding shares of the Firm’s common stock. This dividend increase did not result in a change in the number of shares issuable upon the exercise of each warrant. For information regarding dividend restrictions, see Note 22 and Note 27 of JPMorgan Chase’s 2013 Annual Report. 9.0 4Q13   Preferred stock During the three and six months ended June 30, 2014, the Firm issued $3.4 billion and $7.3 billion, respectively, of noncumulative preferred stock. Preferred stock dividends declared were $268 million and $495 million for the three and six months ended June 30, 2014, respectively. Assuming all preferred stock issuances were outstanding for the entire period and quarterly dividends were declared on such issuances, preferred stock dividends would have been $300 million for the quarter ended June 30, 2014. For additional information on the Firm’s preferred stock, see Note 22 of JPMorgan Chase’s 2013 Annual Report and Note 2 of this Form 10-Q. Common equity On March 13, 2012, the Board of Directors authorized a $15.0 billion common equity (i.e., common stock and warrants) repurchase program. The amount of equity that 2Q13 Commercial Banking   14.0   13.5   13.5 Asset Management   9.0   9.0   9.0 Corporate/Private Equity   71.2   71.4   72.3 Total common stockholders’ equity  $ 206.2   $ 196.4   $ 197.3 79 may be repurchased by the Firm is also subject to the amount that is   set forth in the Firm’s annual capital plan submitted to the Federal Reserve as part of the CCAR process. In conjunction with the Federal Reserve’s release of its 2014 CCAR results, the Firm’s Board of Directors has authorized the Firm to repurchase $6.5 billion of common equity between April 1, 2014, and March 31, 2015. As of June 30, 2014, $5.0 billion (on a trade-date basis) of such repurchase capacity remains. This authorization includes shares repurchased to offset issuances under the Firm’s equity-based compensation plans. The following table sets forth the Firm’s repurchases of common equity for the three and six months ended June 30, 2014 and 2013, on a trade-date basis. As of June 30, 2014, $6.8 billion (on a trade-date basis) of authorized capacity remained under the $15.0 billion repurchase program. There were no warrants repurchased during the three and six months ended June 30, 2014 and 2013.     Three months ended June 30, (in millions)   2014 Total shares of common stock repurchased Aggregate common stock     26       2013 24   Six months ended June 30,   2014 33   2013 78 Broker-dealer regulatory capital JPMorgan Chase’s principal U.S. broker-dealer subsidiaries are J.P. Morgan Securities LLC (“JPMorgan Securities”) and J.P. Morgan Clearing Corp. (“JPMorgan Clearing”). JPMorgan Clearing is a subsidiary of JPMorgan Securities and provides clearing and settlement services. JPMorgan Securities and JPMorgan Clearing are each subject to Rule 15c3-1 under the Securities Exchange Act of 1934 (the “Net Capital Rule”). JPMorgan Securities and JPMorgan Clearing are also each registered as futures commission merchants and subject to Rule 1.17 of the Commodity Futures Trading Commission (“CFTC”). JPMorgan Securities and JPMorgan Clearing have elected to compute their minimum net capital requirements in accordance with the “Alternative Net Capital Requirements” of the Net Capital Rule. At June 30, 2014, JPMorgan Securities’ net capital, as defined by the Net Capital Rule, was $13.6 billion, exceeding the minimum requirement by $11.4 billion, and JPMorgan Clearing’s net capital was $8.0 billion, exceeding the minimum requirement by $6.0 billion. In addition to its minimum net capital requirement, JPMorgan Securities is required to hold tentative net capital in excess of $1.0 billion and is also required to notify the Securities and Exchange https://www.sec.gov/Archives/edgar/data/19617/000001961714000409/corpq22014.htm[10/8/14, 12:41:43 PM] CORP Q2 2014 repurchases  $ 1,462  $ 1,201  $ 1,862  $ Commission (“SEC”) in the event that tentative net capital is less than $5.0 billion, in accordance with the market and credit risk standards of Appendix E of the Net Capital Rule. As of June 30, 2014, JPMorgan Securities had tentative net capital in excess of the minimum and notification requirements. 3,801 The Firm may, from time to time, enter into written trading plans under Rule 10b5-1 of the Securities Exchange Act of 1934 to facilitate repurchases in accordance with the common equity repurchase program. A Rule 10b5-1 repurchase plan allows the Firm to repurchase its equity during periods when it would not otherwise be repurchasing common equity — for example, during internal trading “black-out periods.” All purchases under a Rule 10b5-1 plan must be made according to a predefined plan established when the Firm is not aware of material nonpublic information. J.P. Morgan Securities plc is a wholly owned subsidiary of JPMorgan Chase Bank, N.A. and is the Firm’s principal operating subsidiary in the U.K. It has authority to engage in banking, investment banking and broker-dealer activities. J.P. Morgan Securities plc is jointly regulated by the U.K. Prudential Regulation Authority (“PRA”) and Financial Conduct Authority (“FCA”). Commencing January 1, 2014, J.P. Morgan Securities plc became subject to the U.K. Basel III capital rules. At June 30, 2014, J.P. Morgan Securities plc had estimated total capital of $27.6 billion and its estimated CET1 capital ratio of 8.2% and estimated Total capital ratio of 11.2% both exceeded the minimum standards applicable under European Union (“EU”)/U.K. Basel III capital rules (5.1% and 9.1%, respectively), including all required add-ons applied by the U.K. PRA. The authorization to repurchase common equity will be utilized at management’s discretion, and the timing of purchases and the exact amount of common equity that may be repurchased is subject to various factors, including market conditions; legal and regulatory considerations affecting the amount and timing of repurchase activity; the Firm’s capital position (taking into account goodwill and intangibles); internal capital generation; and alternative investment opportunities. The repurchase program does not include specific price targets or timetables; may be executed through open market purchases or privately negotiated transactions, or utilizing Rule 10b5-1 programs; and may be suspended at any time. For additional information regarding repurchases of the Firm’s equity securities, see Part II, Item 5: Market for registrant’s common equity, related stockholder matters and issuer purchases of equity securities on pages 20–21 of JPMorgan Chase’s 2013 Form 10-K. 80 LIQUIDITY RISK MANAGEMENT Liquidity risk management is intended to ensure that the Firm has the   appropriate amount, composition and tenor of funding and liquidity in support of its assets. The primary objectives of effective liquidity management are to ensure that the Firm’s core businesses are able to operate in support of client needs and meet contractual and contingent obligations through normal economic cycles, as well as during market stress events, and to maintain debt ratings that enable the Firm to optimize its funding mix and liquidity sources while minimizing costs. The following discussion of JPMorgan Chase’s Liquidity Risk Management should be read in conjunction with pages 168–173 of JPMorgan Chase’s 2013 Annual Report. Management considers the Firm’s liquidity position to be strong as of June 30, 2014, and believes that the Firm’s unsecured and secured funding capacity is sufficient to meet its on- and off-balance sheet obligations. LCR and NSFR In December 2010, the Basel Committee introduced two new measures of liquidity risk: the liquidity coverage ratio (“LCR”), which is intended to measure the amount of “high-quality liquid assets” (“HQLA”) held by the Firm in relation to estimated net cash outflows within a 30-day period during an acute stress event; and the net stable funding ratio (“NSFR”), which is intended to measure the “available” amount of stable funding relative to the “required” amount of stable funding over a one-year horizon. The standards require that the LCR be no lower than 100% and the NSFR be greater than 100%. In January 2013, the Basel Committee introduced certain amendments to the formulation of the LCR, and a revised timetable to phase in the standard. The LCR will become effective on January 1, 2015, but the minimum requirement will begin at 60%, increasing in equal annual The Firm’s LCR may fluctuate from period-to-period due to normal flows from client activity. Funding Sources of funds The Firm funds its global balance sheet through diverse sources of funding, including a stable deposit franchise as well as secured and unsecured funding in the capital markets. The Firm’s loan portfolio, aggregating approximately $747.0 billion at June 30, 2014, is funded with a portion of the Firm’s deposits aggregating approximately $1,319.8 billion at June 30, 2014, and through securitizations and, with respect to a portion of the Firm’s real estate-related loans, with secured borrowings from the Federal Home Loan Banks. Deposits in excess of the amount utilized to fund loans are primarily invested in the Firm’s investment securities portfolio or deployed in cash or other short-term liquid investments based on their interest rate and liquidity risk characteristics. Capital markets secured financing assets and trading assets are primarily funded by the Firm’s capital markets secured financing liabilities, trading liabilities and a portion of the Firm’s long-term debt and equity. In addition to funding capital markets assets, proceeds from the Firm’s debt and equity issuances are used to fund certain loans, and other financial and non-financial assets, or may be invested in the Firm’s investment securities portfolio. See the discussion below for additional disclosures relating to Deposits, Short-term funding, and Long-term funding and issuance. Deposits A key strength of the Firm is its diversified deposit franchise, through each of its lines of business, which provides a stable source of funding and limits reliance on the wholesale funding markets. The Firm’s https://www.sec.gov/Archives/edgar/data/19617/000001961714000409/corpq22014.htm[10/8/14, 12:41:43 PM] CORP Q2 2014 increments to reach 100% on January 1, 2019. At June 30, 2014, the Firm was compliant with the fully phased-in Basel III LCR standard. loans-to-deposits ratio was 57% at both June 30, 2014, and December 31, 2013. On October 24, 2013, the U.S. banking regulators released a proposal to implement a U.S. quantitative liquidity requirement consistent with, but more conservative than, Basel III LCR for large banks and bank holding companies(“U.S. LCR”). The proposal also provides for an accelerated transition period compared with current requirements under the Basel III LCR rules. At June 30, 2014, the Firm was also compliant with the fully phased-in U.S. LCR based on its current understanding of the proposed rules. As of June 30, 2014, total deposits for the Firm were $1,319.8 billion, compared with $1,287.8 billion at December 31, 2013 (58% of total liabilities at both June 30, 2014, and December 31, 2013). The increase was attributable to both higher consumer and wholesale deposits. For further information, see Balance Sheet Analysis on pages 13–14. 81 The Firm typically experiences higher customer deposit inflows at period-ends. Therefore, the Firm believes average deposit balances are more representative of deposit trends. The table below summarizes, by line of business, the deposits balance as of June 30, 2014, and December 31, 2013, respectively, as well as average deposits for the three and six months ended June 30, 2014 and 2013, respectively.     Deposits (in millions)     Three months ended June 30,   Six months ended June 30,   June 30, December 31,   2014 2013   Average 2014 Average   2013 2014 2013 488,681 $ 464,412   $ 486,064 $ 453,586   $ 478,862 $ 447,494 Corporate & Investment Bank 463,898 446,237   402,532 370,189   406,853 363,369 Commercial Banking 202,966 206,127   186,369 181,844   187,571 182,020 145,655 147,747 138,001 21,287 136,577   31,437   148,585 18,551 146,183   24,806   22,268 27,907 1,319,751 $ 1,287,765   $ 1,243,999 $ 1,173,633   $ Consumer & Community Banking $ Asset Management Corporate/Private Equity Total Firm $ 1,244,139 $ 1,158,791 A significant portion of the Firm’s deposits are consumer deposits (37% and 36% at June 30, 2014, and December 31, 2013, respectively), which are considered more stable as they are less sensitive to interest rate changes or market volatility. Additionally, the majority of the Firm’s wholesale deposits are also considered to be stable sources of funding since they are generated from customers that maintain operating service relationships with the Firm. For further discussions of deposit and liability balance trends, see the discussion of the results for the Firm’s business segments and the Balance Sheet Analysis on pages 19–49 and pages 13–14, respectively. The following table summarizes short-term and long-term funding, excluding deposits, as of June 30, 2014, and December 31, 2013, and average balances for the three and six months ended June 30, 2014 and 2013, respectively. For additional information, see the Balance Sheet Analysis on pages 13–14 and Note 12.       Sources of funds (excluding deposits) December 31,   June 30, 2014 2013 (in millions) Commercial paper: Wholesale funding Three months ended June   30,   Average 2014 Six months ended June 30, 2013   Average 2014 2013               $ 18,445 $ 17,249   $ 18,559 $ 19,352   $ 18,791 $ 18,426 45,359 40,599   41,201 35,039   40,433 35,315 59,760 $ 54,391   $ 59,224 $   Client cash management Total commercial paper $ 63,804 $ 57,848   $         32,720 $    33,618   $ 31,085 $               155,808   $ 184,724 $ 231,358   $ 178,520 $ Other borrowed funds $ 34,713 $    27,994   $                 $ 192,541 $ Securities loaned or sold under agreements to repurchase: Securities sold under agreements to repurchase Securities loaned Total securities loaned or sold under agreements to repurchase (a)(b)(c) $     Total senior notes Trust preferred securities Subordinated debt 19,509   20,501 $ 213,042 $   140,015 $ 28,346   23,631 175,317   $ 208,355 $      135,754   $ 139,722 $ 259,704   $    23,189 53,741 30,600 225,355 27,591 201,709 $   140,573   $ 138,716 $ 252,946 138,119 5,474 5,445   5,468 7,472   5,462 8,922 29,200 29,578   29,053 27,426   29,227 26,956 https://www.sec.gov/Archives/edgar/data/19617/000001961714000409/corpq22014.htm[10/8/14, 12:41:43 PM] CORP Q2 2014 Structured notes Total long-term unsecured funding $     Credit card securitization Other 205,567 $ $     equity (f) $    203,956   28,447   $ 28,472 $ 28,391 3,151 3,563   3,196 3,614 60,385 61,876   6,633   61,189 59,463   6,196   61,246 52,438 5,976 6,212 98,342   $ 99,076 $ 97,669   $ 98,890 $ 95,869 $   $   29,377 $ 29,959 203,081 $ 3,253   3,977 Total long-term secured funding 29,676 205,137   $ 3,068 Other long-term secured funding (e) Preferred stock (f)    26,580   $ 28,439 $ FHLB advances 29,666   30,403 199,380   $ 204,646 $   $ securitizations (d) Common stockholders’ 28,603   30,878    11,158   $      90,655   15,763 $ 11,095   $ 14,666 $ 10,355 200,020   $ 206,159 $ 197,283   $ 203,989 $ 196,016 18,463 $ 208,851 $ 5,359 (a) Excludes federal funds purchased. (b) Excluded long -term structured repurchase agreements of $2.4 billion and $4.6 billion as of June 30, 2014, and December 31, 2013, respectively, and average balance of $3.7 billion and $3.3 billion for the three months ended June 30, 2014 and 2013, respectively, and $4.4 billion and $3.3 billion for the six months ended June 30, 2014 and 2013, respectively. (c) Excluded long -term securities loaned of $483 million as of December 31, 2013; there were no long -term securities loaned as of, or for the three months ended, June 30, 2014. Excluded average balance of $453 million for the three months ended June 30, 2013, and $48 million and $454 million for the six months ended June 30, 2014 and 2013, respectively. 82 (d) Other securitizations includes securitizations of residential mortgages and student loans. The Firm’s wholesale businesses also securitize loans for client-driven transactions; those client-driven loan securitizations are not considered to be a source of funding for the Firm and are not included in the table. (e) Includes long -term structured notes which are secured. (f) For additional information on preferred stock and common stockholders’ equity see Capital Management on pages 74–80 and the Consolidated Statements of Changes in Stockholders’ Equity on page 93 of this Form 10-Q, and Note 22 and Note 23 of JPMorgan Chase’s 2013 Annual Report. Short-term funding   A significant portion of the Firm’s total commercial paper liabilities, approximately 71% as of June 30, 2014, are not sourced from wholesale funding markets, but were originated from deposits that customers choose to sweep into commercial paper liabilities as a cash management program offered to customers of the Firm. The Firm’s sources of short-term secured funding primarily consist of securities loaned or sold under agreements to repurchase. Securities loaned or sold under agreements to repurchase are secured predominantly by high-quality securities collateral, including government-issued debt, agency debt and agency MBS, and constitute a significant portion of the federal funds purchased and securities loaned or sold under purchase agreements. The amount of securities loaned or sold under agreements to repurchase at June 30, 2014, compared with the balance at December 31, 2013, increased 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. The decrease in average balances for the three months and six months ended June 30, 2014, compared with June 30, 2013, was primarily driven by lower trading assets-debt and equity instruments funding through secured financing activities, and a change in the mix of the Firm’s funding sources. The balances associated with securities loaned or sold under agreements to repurchase fluctuate over time due to customers’ investment and financing activities; the Firm’s demand for financing; the ongoing management of the mix of the Firm’s liabilities, including its secured and unsecured financing (for both the investment securities and market-making portfolios); and other market and portfolio factors. Long-term funding and issuance Long-term funding provides additional sources of stable funding and liquidity for the Firm. The Firm’s long-term funding plan is driven by expected client activity and the liquidity required to support this activity. Long-term funding objectives include maintaining diversification, maximizing market access and optimizing funding cost, as well as maintaining a certain level of pre-funding at the parent holding company. The Firm evaluates various funding markets, tenors and currencies in creating its optimal long-term funding plan. Three months ended June 30, Long-term unsecured funding (in millions) 2014 Six months ended June 30, 2013 2014 2013 Issuance         Senior notes issued in the U.S. market $ 3,991 $ 5,434 $ 13,478 $ 18,832 1,618 5,419 5,466 6,774 5,609 10,853 18,944 25,606 — 1,989 — 1,989 4,569 4,619 10,305 9,664 $ 10,178 $ 17,461 $ 29,249 $ Maturities/redemptions                 Total senior notes $ 8,583 $ 9,506 $ 17,400 $ Senior notes issued in non-U.S. markets Total senior notes Subordinated debt Structured notes Total long-term unsecured funding – issuance   Trust preferred securities — Subordinated debt Structured notes Total long-term unsecured funding – maturities/redemptions $ 5,052 — 37,259 13,513 5,052 — — 600 2,417 4,034 4,668 8,850 9,478 12,617 $ 19,226 $ 26,850 $ 30,460 The Firm raises secured long-term funding through securitization of consumer credit card loans and advances from the FHLBs. It may also in the future raise long-term funding through securitization of residential mortgages, auto loans and student loans, which would increase funding and investor diversity. The majority of the Firm’s long-term unsecured funding is issued by https://www.sec.gov/Archives/edgar/data/19617/000001961714000409/corpq22014.htm[10/8/14, 12:41:43 PM] CORP Q2 2014 the parent holding company to provide maximum flexibility in support of both bank and nonbank subsidiary funding. The following table summarizes long-term unsecured issuance and maturities or redemptions for the three months and six months ended June 30, 2014 and 2013. For additional information, see Note 21 of JPMorgan Chase’s 2013 Annual Report. 83 The following table summarizes the securitization issuance and Federal Home Loan Bank (“FHLB”) advances and their respective maturities or redemption for the three and six months ended June 30, 2014 and 2013, respectively.   Long-term secured funding   Issuance (in millions) 2014 2013 Other securitizations (a) — FHLB advances — 4,850   $ 3,800 $ 2014   2013 2,473 $ 1,481 Six months ended June 30,   Maturities/Redemptions   2,860   $ —   Credit card securitization   Three months ended June 30, 2014 2,147   $ 119   93   Issuance 2   2013 5,550 $ — 1,000   Maturities/Redemptions 2014 4,760   $ —   2013 3,774 $ 19,550   6,265 185 220 2,490 706 Other long-term secured funding $ 293 $ 69   $ 2,899 $ 23   $ 333 $ 195   $ 2,996 $ 116 Total long-term secured funding $ 4,093 $ 7,779   $ 6,946 $ 2,291   $ 6,883 $ 24,505   $ 9,445 $ 7,307 (a) Other securitizations includes securitizations of residential mortgages and student loans. Subsequent to June 30, 2014, the Firm securitized $500 million of consumer credit card loans. The Firm’s wholesale businesses also securitize loans for client-driven transactions; those client-driven loan securitizations are not considered to be a source of funding for the Firm and are not included in the table above. For further description of the client-driven loan securitizations, see Note 16 of JPMorgan Chase’s 2013 Annual Report. Parent holding company and subsidiary funding The parent holding company acts as an important source of funding to its subsidiaries. The Firm’s liquidity management is intended to ensure that liquidity at the parent holding company is maintained at levels sufficient to fund the operations of the parent holding company and its subsidiaries for an extended period of time in a stress environment where access to normal funding sources is disrupted. To effectively monitor the adequacy of liquidity and funding at the parent holding company, the Firm targets pre-funding of the parent holding company to ensure that both contractual and non-contractual obligations can be met for at least 18 months assuming no access to wholesale funding markets. However, due to conservative liquidity management actions taken by the Firm, the current pre-funding of such obligations is greater than target. For further discussion on liquidity at the parent holding company see Liquidity Risk Management on pages 168–173 of JPMorgan Chase’s 2013 Annual Report. HQLA HQLA is the estimated amount of assets that qualify for inclusion in the Basel III LCR. HQLA primarily consists of cash and certain unencumbered high quality liquid assets as defined in the rule. As of June 30, 2014, HQLA was estimated to be approximately $576 billion, compared with $522 billion as of December 31, 2013. The increase in HQLA was due to higher cash balances primarily driven by higher deposit balances, increased securities sold under repurchase agreements and preferred stock issuance, partially offset by higher loan balances. HQLA may fluctuate from period-to-period primarily due to normal flows from client activity.   The following table presents the estimated HQLA included in the Basel III LCR broken out by HQLA-eligible cash and HQLA-eligible securities as of June 30, 2014. (in billions) HQLA (a) Eligible cash (b) Eligible securities (c) June 30, 2014   $ 348 228 Total HQLA $ 576 (a) HQLA under the proposed U.S. LCR is estimated to be lower than the total HQLA shown in this table primarily due to exclusions of certain security types, based on the Firm’s understanding of the proposed rule. (b) Primarily cash on deposit at central banks. (c) Primarily includes U.S. agency mortgage-backed securities, U.S. Treasuries, sovereign bonds and other government-guaranteed or government-sponsored securities. In addition to HQLA, as of June 30, 2014, the Firm had approximately $262 billion of unencumbered marketable securities, such as equity securities and fixed income debt securities, available to raise liquidity, if required. Furthermore, the Firm maintains borrowing capacity at various FHLBs, the Federal Reserve Bank discount window and various other central banks as a result of collateral pledged by the Firm to such banks. Although available, the Firm does not view the borrowing capacity at the Federal Reserve Bank discount window and the various other central banks as a primary source of liquidity. As of June 30, 2014, the Firm’s remaining borrowing capacity at various FHLBs and the Federal Reserve Bank discount window was approximately $145 billion. This borrowing capacity excludes the benefit of securities included in HQLA or other unencumbered securities held at the Federal Reserve Bank discount window for which the Firm has not drawn liquidity. Stress testing Liquidity stress tests are intended to ensure sufficient liquidity for the Firm under a variety of adverse scenarios. Results of stress tests are therefore considered in the formulation of the Firm’s funding plan and assessment of its liquidity position. For additional information on liquidity stress tests see Liquidity Risk Management on pages 168– https://www.sec.gov/Archives/edgar/data/19617/000001961714000409/corpq22014.htm[10/8/14, 12:41:43 PM] CORP Q2 2014 173 of JPMorgan Chase’s 2013 Annual Report. 84 Contingency funding plan   The Firm’s contingency funding plan (“CFP”), which is reviewed and approved by the Asset and Liability Committee (“ALCO”), provides a documented framework for managing both temporary and longer-term unexpected adverse liquidity stress. The CFP incorporates the limits and indicators set by the Liquidity Risk Oversight group. These limits and indicators are reviewed regularly to identify emerging risks or increased vulnerabilities in the Firm’s liquidity position. The CFP is also regularly updated to identify alternative contingent liquidity resources that can be accessed under adverse liquidity circumstances. Credit ratings The cost and availability of financing are influenced by credit ratings. Reductions in these ratings could have an adverse effect on the Firm’s access to liquidity sources, increase the cost of funds, trigger additional collateral or funding requirements and decrease the number of investors and counterparties willing to lend to the Firm. Additionally, the Firm’s funding requirements for VIEs and other third party commitments may be adversely affected by a decline in credit ratings. For additional information on the impact of a credit ratings downgrade on the funding requirements for VIEs, and on derivatives and collateral agreements, see Special-purpose entities on page 15, and Credit risk, liquidity risk and credit-related contingent features in Note 5. The credit ratings of the parent holding company and certain of the Firm’s significant operating subsidiaries as of June 30, 2014, were as follows. JPMorgan Chase & Co.   JPMorgan Chase Bank, N.A. Chase Bank USA, N.A.     J.P. Morgan Securities LLC Long-term issuer Short-term issuer Outlook   Long-term issuer Short-term issuer Outlook   Long-term issuer Short-term issuer Outlook Moody’s Investor Services A3 P-2 Stable   Aa3 P-1 Stable   Aa3 P-1 Stable Standard & Poor’s A A-1 Negative   A+ A-1 Stable   A+ A-1 Stable A+ F1 Stable   A+ F1 Stable   A+ F1 Stable June 30, 2014 Fitch Ratings Downgrades of the Firm’s long-term ratings by one or two notches   could result in a downgrade of the Firm’s short-term ratings. If this were to occur, the Firm believes its cost of funds could increase and access to certain funding markets could be reduced. The nature and magnitude of the impact of ratings downgrades depends on numerous contractual and behavioral factors (which the Firm believes are incorporated in its liquidity risk and stress testing metrics). The Firm believes it maintains sufficient liquidity to withstand a potential decrease in funding capacity due to ratings downgrades. or require additional collateral, based on unfavorable changes in the Firm’s credit ratings, financial ratios, earnings, or stock price. Critical factors in maintaining high credit ratings include a stable and diverse earnings stream, strong capital ratios, strong credit quality and risk management controls, diverse funding sources, and disciplined liquidity monitoring procedures. Rating agencies continue to evaluate economic and geopolitical trends, regulatory developments, rating uplift assumptions surrounding government support, future profitability, risk management practices, and litigation matters, all of which could lead to adverse ratings actions. For example, S&P has announced that it may change its ratings methodology for hybrid capital securities (including preferred stock), and Fitch has announced a review of the ratings differential that it applies between bank holding companies and their bank subsidiaries. Although the Firm closely monitors and endeavors to manage factors influencing its credit ratings, there is no assurance that its credit ratings will not be changed in the future. JPMorgan Chase’s unsecured debt does not contain requirements that would call for an acceleration of payments, maturities or changes in the structure of the existing debt, provide any limitations on future borrowings SUPERVISION AND REGULATION For further information on Supervision and Regulation, see the   Supervision and regulation section on pages 1–9 of JPMorgan Chase’s 2013 Form 10-K. Dividends At June 30, 2014, JPMorgan Chase estimated that its banking subsidiaries could pay, in the aggregate, approximately $39 billion in dividends to their respective bank holding companies without the prior approval of their relevant banking regulators. 85 CRITICAL ACCOUNTING ESTIMATES USED BY THE FIRM JPMorgan Chase’s accounting policies and use of estimates are integral to understanding its reported results. The Firm’s most   1% increase in unemployment from current levels could imply an increase to modeled annual loss estimates of approximately $150 https://www.sec.gov/Archives/edgar/data/19617/000001961714000409/corpq22014.htm[10/8/14, 12:41:43 PM] CORP Q2 2014 complex accounting estimates require management’s judgment to ascertain the appropriate carrying value of assets and liabilities. The Firm has established detailed policies and control procedures intended to ensure that estimation methods, including any judgments made as part of such methods, are well-controlled, independently reviewed and applied consistently from period-to-period. The methods used and judgments made reflect, among other factors, the nature of the assets or liabilities and the related business and risk management strategies, which may vary across the Firm’s businesses and portfolios. In addition, the policies and procedures are intended to ensure that the process for changing methodologies occurs in an appropriate manner. The Firm believes its estimates for determining the carrying value of its assets and liabilities are appropriate. The following is a brief description of the Firm’s critical accounting estimates involving significant judgment. million. • For the residential real estate portfolio, excluding PCI loans, a combined 5% decline in housing prices and a • A one-notch downgrade in the Firm’s internal risk ratings for its entire wholesale loan portfolio could imply an increase in the Firm’s modeled loss estimates of approximately $2.0 billion. It is difficult to estimate how potential changes in specific factors might affect the allowance for credit losses because management considers a variety of factors and inputs in estimating the allowance for credit losses. Changes in these factors and inputs may not occur at the same rate and may not be consistent across all geographies or product types, and changes in factors may be directionally inconsistent, such that improvement in one factor may offset deterioration in other factors. In addition, it is difficult to predict how changes in specific economic conditions or assumptions would affect borrower behavior or other factors considered by management in estimating the allowance for credit losses. Given the process the Firm follows and the judgments made in evaluating the risk factors related to its loans and credit card loss estimates, management believes that its current estimate of the allowance for credit loss is appropriate. As noted in the discussion on pages 174–176 of JPMorgan Chase’s 2013 Annual Report, the Firm’s allowance for credit losses is sensitive to numerous factors, depending on the portfolio. Changes in economic conditions or in the Firm’s assumptions could affect its estimate of probable credit losses inherent in the portfolio at the balance sheet date. For example, deterioration in the following inputs would have the following effects on the Firm’s modeled loss estimates as of June 30, 2014, without consideration of any offsetting or correlated effects of other inputs in the Firm’s allowance for loan losses: For PCI loans, a combined 5% decline in housing prices and a 1% increase in unemployment from current levels could imply an increase to modeled credit loss estimates of approximately $1.0 billion. A 50 basis point deterioration in forecasted credit card loss rates could imply an increase to modeled annualized credit card loan loss estimates of approximately $600 million. The purpose of these sensitivity analyses is to provide an indication of the isolated impacts of hypothetical alternative assumptions on modeled loss estimates. The changes in the inputs presented above are not intended to imply management’s expectation of future deterioration of those risk factors. In addition, these analyses are not intended to estimate changes in the overall allowance for loan losses, which would also be influenced by the judgment management applies to the modeled loss estimates to reflect the uncertainty and imprecision of these modeled loss estimates based on then current circumstances and conditions. Allowance for credit losses JPMorgan Chase’s allowance for credit losses covers the retained consumer and wholesale loan portfolios, as well as the Firm’s consumer and wholesale lending-related commitments. The allowance for loan losses is intended to adjust the carrying values of the Firm’s loan assets to reflect probable credit losses inherent in the loan portfolio as of the balance sheet date. Similarly, the allowance for lending-related commitments is established to cover probable credit losses inherent in the lending-related commitments portfolio as of the balance sheet date. For further discussion of the methodologies used in establishing the Firm’s allowance for credit losses, see Allowance for credit losses on pages 139–141 and Note 15 of JPMorgan Chase’s 2013 Annual Report; for amounts recorded as of June 30, 2014 and 2013, see Allowance for credit losses on pages 66–68 and Note 14 of this Form 10-Q. • • 86 Fair value of financial instruments, MSRs and commodities   inventory Assets measured at fair value The following table includes the Firm’s assets measured at fair value and the portion of such assets that are classified within level 3 of the valuation hierarchy. For further information, see Note 3. June 30, 2014 (in billions, except ratio data) Total assets at fair Total level 3 value assets Trading debt and equity instruments $ Derivative receivables Trading assets 330.2   $ 25.8 62.3   12.5 392.5   38.3 level of liquidity for the product or within the market as a whole. Effective the fourth quarter of 2013, the Firm applies an FVA framework to incorporate the impact of funding into its valuation estimates for OTC derivatives and structured notes, reflecting an industry migration towards incorporating the market cost of unsecured funding in the valuation of such instruments. Implementation of the FVA framework required a number of important management judgments including: (i) determining when the accumulation of market evidence was sufficiently compelling to implement the FVA framework; (ii) estimating the market clearing price for funding in the relevant market; and (iii) determining the interaction between DVA and FVA, given that DVA already reflects credit spreads, which are a https://www.sec.gov/Archives/edgar/data/19617/000001961714000409/corpq22014.htm[10/8/14, 12:41:43 PM] CORP Q2 2014 314.1   1.8 Loans 4.3   4.2 MSRs 8.3   8.3 Private equity investments 5.5   4.9 37.4   2.9 762.1   60.4 3.4   2.8 AFS securities Other Total assets measured at fair value on a recurring basis Total assets measured at fair value on a nonrecurring basis Total assets measured at fair value $ 765.5   $ Total Firm assets $ 2,520.3     Level 3 assets as a percentage of total Firm assets     2.5% Level 3 assets as a percentage of total Firm assets at fair value     8.3% significant component of funding spreads that drive FVA. For further discussion of valuation adjustments applied by the Firm, including FVA, see Note 3. Imprecision in estimating unobservable market inputs or other factors can affect the amount of gain or loss recorded for a particular position. Furthermore, while the Firm believes its valuation methods are appropriate and consistent with those of other market participants, the methods and assumptions used reflect management judgment and may vary across the Firm’s businesses and portfolios. The Firm uses various methodologies and assumptions in the determination of fair value. The use of methodologies or assumptions different than those used by the Firm could result in a different estimate of fair value at the reporting date. For a detailed discussion of the Firm’s valuation process and hierarchy, and its determination of fair value for individual financial instruments, see Note 3. 63.2 Goodwill impairment Management applies significant judgment when testing goodwill for impairment. For a description of the significant valuation judgments associated with goodwill impairment, see Goodwill impairment on pages 177–178 of JPMorgan Chase’s 2013 Annual Report. Valuation Estimating fair value requires the application of judgment. The type and level of judgment required is largely dependent on the amount of observable market information available to the Firm. For instruments valued using internally developed models that use significant unobservable inputs and are therefore classified within level 3 of the valuation hierarchy, judgments used to estimate fair value are more significant than those required when estimating the fair value of instruments classified within levels 1 and 2. During the six months ended June 30, 2014, the Firm updated the discounted cash flow valuation of its Mortgage Banking business in CCB, which continues to have an elevated risk for goodwill impairment due to its exposure to U.S. economic conditions and the effects of regulatory and legislative changes. As of June 30, 2014, the estimated fair value of the Firm’s Mortgage Banking business in CCB did not exceed its carrying value; however, the implied fair value of the goodwill allocated to the Mortgage Banking business exceeded its carrying value of approximately $2 billion. In arriving at an estimate of fair value for an instrument within level 3, management must first determine the appropriate model to use. Second, the lack of observability of certain significant inputs requires management to assess all relevant empirical data in deriving valuation inputs — including, for example, transaction details, yield curves, interest rates, prepayment rates, default rates, volatilities, correlations, equity or debt prices, valuations of comparable instruments, foreign exchange rates and credit curves. For further discussion of the valuation of level 3 instruments, including unobservable inputs used, see Note 3. The Firm also updated the discounted cash flow valuation of its Private Equity business, based on the anticipated future decline in portfolio balances and business activity. As of June 30, 2014, the estimated fair value of the Firm’s Private Equity business exceeded its carrying value; however, the goodwill balance associated with this business For instruments classified in levels 2 and 3, management judgment must be applied to assess the appropriate level of valuation adjustments to reflect counterparty credit quality, the Firm’s creditworthiness, liquidity considerations, unobservable parameters, and for certain portfolios that meet specified criteria, the size of the net open risk position. The judgments made are typically affected by the type of product and its specific contractual terms, and the 87 is anticipated to decline or could become impaired in future periods.   For its other businesses, the Firm reviewed current conditions (including the estimated effects of regulatory and legislative changes and current estimated market cost of equity) and prior projections of business performance. Based upon the updated valuation of its Private Equity and Mortgage Banking businesses and reviews of its other businesses, the Firm concluded that goodwill allocated to all of its reporting units was not impaired at June 30, 2014. Deterioration in economic market conditions, increased estimates of the effects of recent regulatory or legislative changes, or additional regulatory or legislative changes may result in declines in projected business performance beyond management’s current expectations. For example, in the Firm’s Mortgage Banking business, such declines that result in increased credit losses. Declines in business performance, increases in equity capital requirements, or increases in the estimated cost of equity, could cause the estimated fair values of the Firm’s reporting units or their associated goodwill to decline in the future, which could result in a material impairment charge to earnings in a future period related to some portion of the associated goodwill. For additional information on goodwill, see Note 16. Income taxes For a description of the significant assumptions, judgments and interpretations associated with the accounting for income taxes, see Income taxes on page 178 of JPMorgan Chase’s 2013 Annual Report. Litigation reserves https://www.sec.gov/Archives/edgar/data/19617/000001961714000409/corpq22014.htm[10/8/14, 12:41:43 PM] CORP Q2 2014 For a description of the significant estimates and judgments associated with establishing litigation reserves, see Note 23 of this Form 10-Q, and Note 31 of JPMorgan Chase’s 2013 Annual Report. could result from increases in primary mortgage interest rates, lower mortgage origination volume, higher costs to resolve foreclosurerelated matters or from deterioration in economic conditions, including decreases in home prices ACCOUNTING AND REPORTING DEVELOPMENTS Repurchase agreements and similar transactions   In June 2014, the FASB issued guidance that amends the accounting for certain secured financing transactions, and requires enhanced disclosures with respect to transactions recognized as sales in which exposure to the derecognized asset is retained through a separate agreement with the counterparty. In addition, the guidance requires enhanced disclosures with respect to the types and quality of financial assets pledged in secured financing transactions. The guidance will become effective in the first quarter of 2015, except for the disclosures regarding the types and quality of financial assets pledged, which will become effective in the second quarter of 2015. The adoption of this guidance is not expected to have a material impact on the Firm’s Consolidated Balance Sheets or its results of operations. Reporting discontinued operations and disclosures of disposals of components of an entity In April 2014, the FASB issued guidance that changes the criteria for determining whether a disposition qualifies for discontinued operations presentation and requires enhanced disclosures about discontinued operations and significant dispositions that do not qualify to be presented as discontinued operations. The guidance will be effective in the first quarter of 2015, with early adoption permitted but only for dispositions or assets held-for-sale that have not been reported in financial statements previously issued or available for issuance. The adoption of this guidance is not expected to have a material impact on the Firm’s Consolidated Financial Statements. Investments in qualified affordable housing projects In January 2014, the FASB issued guidance regarding the accounting for investments in affordable housing projects that qualify for the low-income housing tax credit. The guidance replaces the effective yield method and allows companies to make an accounting policy election to amortize the cost of its investments in proportion to the tax benefits received if certain criteria are met, and to present the amortization as a component of income tax expense. The guidance will become effective in the first quarter of 2015, with early adoption permitted. The Firm is currently evaluating the potential impact on the Consolidated Financial Statements. Revenue Recognition – Revenue from Contracts with Customers In May 2014, the FASB issued revenue recognition guidance that is intended to create greater consistency with respect to how and when revenue from contracts with customers is shown in the income statement. The guidance requires that revenue from contracts with customers be recognized upon delivery of a good or service based on the amount of consideration expected to be received, and requires additional disclosures about revenue. The guidance will be effective in the first quarter of 2017 and early adoption is prohibited. The Firm is currently evaluating the potential impact on the Consolidated Financial Statements. 88 FORWARD-LOOKING STATEMENTS From time to time, the Firm has made and will make forward-looking   statements. These statements can be identified by the fact that they do not relate strictly to historical or current facts. Forward-looking statements often use words such as “anticipate,” “target,” “expect,” “estimate,” “intend,” “plan,” “goal,” “believe,” or other words of similar meaning. Forward-looking statements provide JPMorgan Chase’s current expectations or forecasts of future events, circumstances, results or aspirations. JPMorgan Chase’s disclosures in this Form 10-Q contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. The Firm also may make forward-looking statements in its other documents filed or furnished with the Securities and Exchange Commission. In addition, the Firm’s senior management may make forward-looking statements orally to analysts, investors, representatives of the media and others. All forward-looking statements are, by their nature, subject to risks and uncertainties, many of which are beyond the Firm’s control. JPMorgan Chase’s actual future results may differ materially from those set forth in its forward-looking statements. While there is no assurance that any list of risks and uncertainties or risk factors is complete, below are certain factors which could cause actual results to differ from those in the forward-looking statements: • Local, regional and international business, economic and political conditions and geopolitical events; • Ability of the Firm to develop new products and services, and the extent to which products or services previously sold by the Firm (including but not limited to mortgages and asset-backed securities) require the Firm to incur liabilities or absorb losses not contemplated at their initiation or origination; • Ability of the Firm to address enhanced regulatory requirements affecting its mortgage business; • Acceptance of the Firm’s new and existing products and services by the marketplace and the ability of the Firm to increase market share; • Ability of the Firm to attract and retain employees; • Ability of the Firm to control expense; • Competitive pressures; • Changes in the credit quality of the Firm’s customers and counterparties; • Adequacy of the Firm’s risk management framework, disclosure controls and procedures and internal control over financial reporting; • Adverse judicial or regulatory proceedings; • Changes in applicable accounting policies; • Ability of the Firm to determine accurate values of certain assets and liabilities; https://www.sec.gov/Archives/edgar/data/19617/000001961714000409/corpq22014.htm[10/8/14, 12:41:43 PM] CORP Q2 2014 • Changes in laws and regulatory requirements, including as a result of recent financial services legislation; • Changes in trade, monetary and fiscal policies and laws; • Securities and capital markets behavior, including changes in market liquidity and volatility; • Changes in investor sentiment or consumer spending or savings behavior; • Ability of the Firm to manage effectively its capital and liquidity, including approval of its capital plans by banking regulators; • Changes in credit ratings assigned to the Firm or its subsidiaries; • Damage to the Firm’s reputation; • Ability of the Firm to deal effectively with an economic slowdown or other economic or market disruption; • Technology changes instituted by the Firm, its counterparties or competitors; • The success of the Firm’s business simplification initiatives and the effectiveness of its control agenda; • Occurrence of natural or man-made disasters or calamities or conflicts, including any effect of any such disasters, calamities or conflicts on the Firm’s power generation facilities and the Firm’s other physical commodity-related activities; • Ability of the Firm to maintain the security of its financial, accounting, technology, data processing and other operating systems and facilities; The other risks and uncertainties detailed in Part I, Item 1A: Risk Factors in the Firm’s Annual Report on Form 10-K for the year ended December 31, 2013. Any forward-looking statements made by or on behalf of the Firm speak only as of the date they are made, and JPMorgan Chase does not undertake to update forward-looking statements to reflect the impact of circumstances or events that arise after the date the forward-looking statements were made. The reader should, however, consult any further disclosures of a forward-looking nature the Firm may make in any subsequent Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, or Current Reports on Form 8-K. 89 JPMorgan Chase & Co. Consolidated statements of income (unaudited) Three months ended June 30,       Six months ended June 30,     (in millions, except per share data)   Revenue             Investment banking fees 1,751   $ 1,717   $ 3,171   $ 3,162 Principal transactions  $   2,908   3,760   6,230   7,521 Lending- and deposit-related fees   1,463   1,489   2,868   2,957 Asset management, administration and commissions   4,007   3,865   7,843   7,464   12   124   42   633 Mortgage fees and related income   1,291   1,823   1,805   3,275 Credit card income   1,549   1,503   2,957   2,922 Other income   675   226   1,066   762 Noninterest revenue   13,656   14,507   25,982   28,696 Interest income   12,861   13,072   25,654   26,437 Interest expense   2,063   2,368   4,189   4,800 Net interest income   10,798   10,704   21,465   21,637 24,454   25,211   47,447   50,333 Securities gains (a) 2014 2013 2014   2013 Total net revenue            Noninterest expense       Compensation expense   7,610   8,019   15,469   16,433 Occupancy expense   973   904   1,925   1,805 Technology, communications and equipment expense   1,433   1,361   2,844   2,693 Professional and outside services     1,901   578   3,718   1,214   3,635 Marketing 1,932   650   Other expense   2,701   2,951   4,634   5,252 Amortization of intangibles   132   152   263   304 Total noninterest expense   15,431   15,866   30,067   31,289 Provision for credit losses    692         https://www.sec.gov/Archives/edgar/data/19617/000001961714000409/corpq22014.htm[10/8/14, 12:41:43 PM]    47            1,542         664 1,167 CORP Q2 2014 Income before income tax expense   8,331   9,298   15,838   18,380 Income tax expense   2,346   2,802   4,579   5,355 Net income  $ 5,985   $ 6,496   $ 11,259   $ 13,025 Net income applicable to common stockholders  $ 5,573   $ 6,101   $ 10,470   $ 12,232 Net income per common share data             Basic earnings per share  $   1.47   $ 1.46   1.61   $ 1.60   2.77   $ 3.22 2.74   3.19 Diluted earnings per share   Weighted-average basic shares      3,780.6      3,782.4      3,783.9   3,800.3 Weighted-average diluted shares   3,812.5   3,814.3   3,818.1   3,830.6 Cash dividends declared per common share  $ 0.40   $    0.38   $ 0.78   $ 0.68 (a) The Firm recognized other-than-temporary impairment (“OTTI”) losses related to securities the Firm intends to sell of $2 million for the six months ended June 30, 2014; the Firm did not recognize OTTI losses for the three months ended June 30, 2014. The Firm recognized OTTI losses of $6 million for the three and six months ended June 30, 2013.          The Notes to Consolidated Financial Statements (unaudited) are an integral part of these statements. 90 JPMorgan Chase & Co. Consolidated statements of comprehensive income (unaudited) Three months ended June 30,       Six months ended June 30,     (in millions)   Net income 5,985   $ 6,496   $ 11,259   $ Other comprehensive income/(loss), after-tax  $             Unrealized gains/(losses) on investment securities   (3,731)   (3,091)   (38)   2,069   Translation adjustments, net of hedges 1,075   12   10   (51) Cash flow hedges   68   (290)   127   (352) Defined benefit pension and OPEB plans   7   64   33   168 Total other comprehensive income/(loss), after-tax   1,162   (3,355)   2,239   (3,966) Comprehensive income  $ 7,147   $ 13,498   $ 9,059 2014 2013   2014 3,141   $ 2013 13,025 The Notes to Consolidated Financial Statements (unaudited) are an integral part of these statements. 91 JPMorgan Chase & Co. Consolidated balance sheets (unaudited) (in millions, except share data) Jun 30, 2014 Assets   Cash and due from banks $   Dec 31, 2013    27,523   $ 39,771 Deposits with banks 393,909   316,051 Federal funds sold and securities purchased under resale agreements (included $27,837 and $25,135 at fair value) 248,149   248,116 Securities borrowed (included $2,134 and $3,739 at fair value) 113,967   111,465 Trading assets (included assets pledged of $128,995 and $106,299) 392,543   374,664 Securities (included $314,069 and $329,977 at fair value and assets pledged of $33,449 and $23,446) 361,918   354,003 Loans (included $4,303 and $2,011 at fair value) 746,983   738,418 Allowance for loan losses (15,326)   (16,264) 731,657   722,154 77,096   65,160 Loans, net of allowance for loan losses Accrued interest and accounts receivable https://www.sec.gov/Archives/edgar/data/19617/000001961714000409/corpq22014.htm[10/8/14, 12:41:43 PM] CORP Q2 2014 Premises and equipment 15,216   14,891 Goodwill 48,110   48,081 8,347   9,614 Mortgage servicing rights Other intangible assets Other assets (included $12,893 and $15,187 at fair value and assets pledged of $386 and $2,066) 1,339   1,618 100,562   110,101 Total assets(a) $ 2,520,336   $ Liabilities      Deposits (included $7,922 and $6,624 at fair value) $ 1,319,751   $ 2,415,689 1,287,765 216,561   181,163 63,804   34,713   57,848 Trading liabilities 138,656   137,744 Accounts payable and other liabilities (included $45 and $25 at fair value) 203,885   194,491 Beneficial interests issued by consolidated variable interest entities (included $2,094 and $1,996 at fair value) 45,723   269,929   267,889 2,293,022   2,204,511 Federal funds purchased and securities loaned or sold under repurchase agreements (included $2,630 and $5,426 at fair value) Commercial paper Other borrowed funds (included $15,403 and $13,306 at fair value) Long-term debt (included $31,142 and $28,878 at fair value) Total liabilities(a) Commitments and contingencies (see Notes 21 and 23)      Stockholders’ equity      Preferred stock ($1 par value; authorized 200,000,000 shares; issued 1,846,250 and 1,115,750 shares) Common stock ($1 par value; authorized 9,000,000,000 shares; issued 4,104,933,895 shares) Capital surplus Retained earnings Accumulated other comprehensive income/(loss) 27,994 49,617 18,463   11,158 4,105   4,105 92,879   93,828 123,497   115,756 3,438   1,199 (21)   (21) Treasury stock, at cost (343,652,985 and 348,825,583 shares) (15,047)   (14,847) Total stockholders’ equity 227,314   211,178 Shares held in RSU Trust, at cost (472,953 and 476,642 shares) Total liabilities and stockholders’ equity $ 2,520,336   $ 2,415,689 (a) The following table presents information on assets and liabilities related to VIEs that are consolidated by the Firm at June 30, 2014, and December 31, 2013. The difference between total VIE assets and liabilities represents the Firm’s interests in those entities, which were eliminated in consolidation. Jun 30, 2014 (in millions) Assets   Trading assets $ 6,006 All other assets $ Liabilities   Beneficial interests issued by consolidated variable interest entities $  $ 6,366 64,598   70,072 2,048   2,168 72,652  $ 78,606    45,723 All other liabilities 1,027 Total liabilities Dec 31, 2013    Loans Total assets   $ 46,750  $ 49,617    $ 1,061 50,678 The assets of the consolidated VIEs are used to settle the liabilities of those entities. The holders of the beneficial interests do not have recourse to the general credit of JPMorgan Chase. At both June 30, 2014, and December 31, 2013, the Firm provided limited program-wide credit enhancement of $2.6 billion related to its Firm-administered multi-seller conduits, which are eliminated in consolidation. For further discussion, see Note 15. The Notes to Consolidated Financial Statements (unaudited) are an integral part of these statements. 92 JPMorgan Chase & Co. Consolidated statements of changes in stockholders’ equity (unaudited)   https://www.sec.gov/Archives/edgar/data/19617/000001961714000409/corpq22014.htm[10/8/14, 12:41:43 PM]   Six months ended June 30, CORP Q2 2014 (in millions, except per share data)     Preferred stock       Balance at January 1 11,158   $ 9,058 Issuance of preferred stock  $   7,305   2,400 Balance at June 30   18,463   11,458 Common stock    Balance at January 1 and June 30   Capital surplus    Balance at January 1   93,828   Shares issued and commitments to issue common stock for employee stock-based compensation awards, and related tax effects   (901)   (1,164) Other   (48)   (24) Balance at June 30   92,879   Retained earnings    Balance at January 1   115,756   104,223 Net income   11,259   13,025 Dividends declared:    2014 2013    4,105   4,105    94,604 93,416       Preferred stock   (495)   (386) Common stock ($0.78 and $0.68 per share)   (3,023)   (2,646) Balance at June 30   123,497   Accumulated other comprehensive income    Balance at January 1   1,199   4,102 Other comprehensive income/(loss)   2,239   (3,966) Balance at June 30   3,438   Shares held in RSU Trust, at cost    Balance at January 1 and June 30   Treasury stock, at cost    Balance at January 1   (14,847)   (12,002) Purchase of treasury stock   (1,761)   (3,750) Reissuance from treasury stock   1,561   1,681 Balance at June 30   (15,047)   (14,071) Total stockholders’ equity  $ 227,314   $ 209,239 114,216    136    (21)   (21)    The Notes to Consolidated Financial Statements (unaudited) are an integral part of these statements. 93 JPMorgan Chase & Co. Consolidated statements of cash flows (unaudited)   Six months ended June 30, (in millions) 2014   Operating activities      Net income $ 11,259   $ Adjustments to reconcile net income to net cash provided by/(used in) operating activities:      2013 13,025 Provision for credit losses 1,542   664 Depreciation and amortization 2,163   2,105 263   304 2,467   2,167 Amortization of intangibles Deferred tax expense https://www.sec.gov/Archives/edgar/data/19617/000001961714000409/corpq22014.htm[10/8/14, 12:41:43 PM] CORP Q2 2014 Investment securities gains (42)   Stock-based compensation 1,142   Originations and purchases of loans held-for-sale Proceeds from sales, securitizations and paydowns of loans held-for-sale Net change in:   (633) 1,227 (34,940)   (44,974) 38,853   46,924    (14,764)   68,142 (2,507)   1,877 Accrued interest and accounts receivable (11,220)   (19,483) Other assets 17,214   (7,250) Trading liabilities (7,140)   8,194 1,736   19,768 4,270   (3,573) 10,296   88,484 Trading assets Securities borrowed Accounts payable and other liabilities Other operating adjustments Net cash provided by operating activities Investing activities      Net change in:      Deposits with banks Federal funds sold and securities purchased under resale agreements Held-to-maturity securities:   Proceeds from paydowns and maturities Purchases Available-for-sale securities:   (77,858)   (189,630) (1,427)   43,431    1,667   1 (6,312)   —    Proceeds from paydowns and maturities 41,248   52,646 Proceeds from sales 14,976   38,053 Purchases (54,227)   (87,180) 9,170   Proceeds from sales and securitizations of loans held-for-investment Other changes in loans, net Net cash used in business acquisitions or dispositions All other investing activities, net Net cash used in investing activities Financing activities   Net change in:   6,087 (24,730)   (19)   (3,785) (426)   (1,823) (97,938)   (142,245) (45)       Deposits 33,419   (6,299) Federal funds purchased and securities loaned or sold under repurchase agreements 35,364   18,904 Commercial paper and other borrowed funds 11,119   4,927 (5,665)   (6,230) Proceeds from long-term borrowings and trust preferred securities 36,469   62,016 Payments of long-term borrowings and trust preferred securities (36,628)   (38,111) Beneficial interests issued by consolidated variable interest entities 357   Excess tax benefits related to stock-based compensation 88 7,249   2,376 Treasury stock purchased (1,761)   (3,750) Dividends paid (3,360)   (2,727) All other financing activities, net (1,127)   (1,086) Net cash provided by financing activities 75,436   30,108 Proceeds from issuance of preferred stock (42)   (856) Net decrease in cash and due from banks (12,248)   (24,509) Cash and due from banks at the beginning of the period 39,771   53,723 Effect of exchange rate changes on cash and due from banks Cash and due from banks at the end of the period $ 27,523   $ 29,214 Cash interest paid $ 4,007   $ 4,735 https://www.sec.gov/Archives/edgar/data/19617/000001961714000409/corpq22014.htm[10/8/14, 12:41:43 PM] CORP Q2 2014 (739)   Cash income taxes (refunded)/paid, net 2,684 The Notes to Consolidated Financial Statements (unaudited) are an integral part of these statements. 94 See Glossary of Terms for definitions of terms used throughout the Notes to Consolidated Financial Statements. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) Note 1 – Basis of presentation Consolidated statements of cash flows During the first quarter of 2014, the Firm transferred U.S. government agency mortgage-backed securities and obligations of U.S. states and municipalities with a fair value of $19.3 billion from available-forsale (“AFS”) to held-to-maturity (“HTM”). This transfer was a noncash transaction. For additional information regarding this transaction, see Note 11.   JPMorgan Chase & Co. (“JPMorgan Chase” or the “Firm”), 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 is a leader in investment banking, financial services for consumers and small business, commercial banking, financial transaction processing and asset management. For a discussion of the Firm’s business segments, see Note 24. Note 2 – Business changes and developments Business events The accounting and financial reporting policies of JPMorgan Chase and its subsidiaries conform to accounting principles generally accepted in the U.S. (“U.S. GAAP”). Additionally, where applicable, the policies conform to the accounting and reporting guidelines prescribed by regulatory authorities. Regulatory Update Comprehensive Capital Analysis and Review (“CCAR”) On March 26, 2014, the Federal Reserve informed the Firm that it did not object, on either a quantitative or qualitative basis, to the Firm’s 2014 capital plan. The unaudited Consolidated Financial Statements prepared in conformity with U.S. GAAP require management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expense, and the disclosures of contingent assets and liabilities. Actual results could be different from these estimates. In the opinion of management, all normal, recurring adjustments have been included for a fair statement of this interim financial information. Basel III Effective January 1, 2014, the Firm became subject to Basel III. Prior to January 1, 2014, the Firm and its banking subsidiaries were subject to the capital requirements of Basel I and Basel 2.5. Additionally, the Firm is approved to calculate capital under the Basel III Advanced Approach, in addition to the Basel III Standardized Approach effective April 1, 2014. These unaudited Consolidated Financial Statements should be read in conjunction with the audited Consolidated Financial Statements, and related notes thereto, included in JPMorgan Chase’s Annual Report on Form 10-K for the year ended December 31, 2013, as filed with the U.S. Securities and Exchange Commission (the “2013 Annual Report”). For further information on the implementation of Basel III, refer to Note 20. Preferred stock issuances During the three and six months ended June 30, 2014, the Firm issued $3.4 billion and $7.3 billion, respectively, of Non-Cumulative Preferred Stock. For further information on the Firm’s preferred stock, see Note 22 of JPMorgan Chase’s 2013 Annual Report. Certain amounts reported in prior periods have been reclassified to conform with the current presentation. Offsetting assets and liabilities U.S. GAAP permits entities to present derivative receivables and derivative payables with the same counterparty and the related cash collateral receivables and payables on a net basis on the balance sheet when a legally enforceable master netting agreement exists. U.S. GAAP also permits securities sold and purchased under repurchase agreements to be presented net when specified conditions are met, including the existence of a legally enforceable master netting agreement. The Firm has elected to net such balances when the specified conditions are met. For further information on offsetting assets and liabilities, see Note 1 of JPMorgan Chase’s 2013 Annual Report. Physical commodities businesses The Firm continues to execute a business simplification agenda that will allow it to focus on core activities for its core clients and better manage its operational, regulatory, and litigation risks. On March 19, 2014, the Firm announced that it had agreed to sell certain of its physical commodities operations, including its physical oil, gas, power, warehousing facilities and energy transportation operations, to Mercuria Energy Group Limited. The after-tax impact of this transaction is not expected to be material. The sale is subject to normal regulatory approvals and is expected to close before the end of 2014. The Firm remains fully committed to its traditional banking activities in the commodities markets, including financial derivatives and the trading of precious metals, which are not part of the physical commodities operations sale. 95 https://www.sec.gov/Archives/edgar/data/19617/000001961714000409/corpq22014.htm[10/8/14, 12:41:43 PM] CORP Q2 2014 Increase in common stock dividend   The Board of Directors increased the Firm’s quarterly common stock dividend from $0.38 per share to $0.40 per share, effective with the dividend paid on July 31, 2014, to shareholders of record on July 3, 2014. Note 3 – Fair value measurement For a discussion of the Firm’s valuation methodologies for assets, liabilities and lending-related commitments measured at fair value and the fair value hierarchy, see Note 3 of JPMorgan Chase’s 2013 Annual Report. 96 The following table presents the asset and liabilities reported at fair value as of June 30, 2014, and December 31, 2013, by major product category and fair value hierarchy.   Assets and liabilities measured at fair value on a recurring basis       Fair value hierarchy June 30, 2014 (in millions) Federal funds sold and securities purchased under resale agreements Level 1 $ Securities borrowed Trading assets: Debt instruments: Mortgage -backed securities:   Level 2 — $ — 27,837   2,134           Level 3 $     —   —   Netting adjustments $ — Total fair value $ — 2,134                                           U.S. government agencies (a) 9 27,837 25,682   1,125   — 26,816 Residential – nonagency — 1,622   543   — 2,165 Commercial – nonagency — 1,265   327   — 1,592 Total mortgage-backed securities 9 28,569   1,995   — 30,573 27,221 6,893   —   — 34,114 Obligations of U.S. states and municipalities — 6,413   1,079   — 7,492 Certificates of deposit, bankers’ acceptances and commercial paper — 1,918   —   — 1,918 28,957 25,865   128   — 54,950 Corporate debt securities — 27,357   4,793   — 32,150 Loans (b) — 19,669   13,521   — 33,190 Asset-backed securities — 3,090   1,216   — 4,306 56,187 119,774   22,732   — 198,693 112,284 846   704   — 113,834 5,337 4,212   3   — 9,552 5,745   2,341   — 8,086 130,577   25,780   — U.S. Treasury and government agencies (a) Non-U.S. government debt securities Total debt instruments Equity securities Physical commodities (c) Other — Total debt and equity instruments(d) Derivative receivables: 173,808   Interest rate Credit Foreign exchange Equity Commodity Total derivative receivables(e) Total trading assets Available -for-sale securities: Mortgage -backed securities:           330,165   496 815,033   4,772   (791,472) 28,829 — 78,004   3,048   (78,088) 2,964 464 111,149   1,638   (101,626) 11,625 — 47,293   2,501   (40,417) 9,377 210 35,344   572   (26,543) 9,583 1,170 1,086,823   12,531   (1,038,146) 62,378 174,978 1,217,400   38,311   (1,038,146) 392,543                             U.S. government agencies (a) — 64,512   —   — 64,512 Residential – nonagency — 58,139   100   — 58,239 Commercial – nonagency — 17,999   414   — 18,413 https://www.sec.gov/Archives/edgar/data/19617/000001961714000409/corpq22014.htm[10/8/14, 12:41:43 PM] CORP Q2 2014 — 140,650   514   — 141,164 19,230 129   —   — 19,359 Obligations of U.S. states and municipalities — 28,086   —   — 28,086 Certificates of deposit — 1,410   —   — 1,410 26,024 31,821   —   — 57,845 — 21,356   —   — 21,356 Total mortgage-backed securities U.S. Treasury and government agencies (a) Non-U.S. government debt securities Corporate debt securities Asset-backed securities:     Collateralized loan obligations — 27,652   798   — 28,450 — 12,584 524 — 13,108 3,291 —   —   — 3,291 48,545 263,688   1,836   — 314,069 — 76   4,227   — 4,303 —   8,347   — Loans Mortgage servicing rights —     Private equity investments (f) All other Total other assets       4,883   — 5,540 4,280 297   2,776   — 7,353 615   7,659   4,619 (g)   $ 228,142 $ 1,511,750 Deposits $ — $ 5,084   2,630 13,865 — Other borrowed funds —     Debt and equity instruments (d) Derivative payables: 69,704   Credit Foreign exchange Equity Commodity Total derivative payables(e) 18,077 — (g)   $ 12,893 (1,038,146) $ 762,126 2,838     —   — 2,630   1,538   — 15,403 — 87,861 $ $ — $ 7,922       80           612 783,367   3,239   (772,129) 15,089 — 76,642   2,914   (76,724) 2,832 481 111,371   2,832   (103,002) 11,682 — 48,817   4,707   (42,500) 11,024 121 36,046   694   (26,693) 10,168 1,056,243   14,386   (1,021,048) 50,795 1,074,320   14,466   (1,021,048) 138,656 1,214 Total trading liabilities 60,380       Interest rate 8,347   318 $ Federal funds purchased and securities loaned or sold under repurchase agreements     339 Total assets measured at fair value on a recurring basis Trading liabilities:     Other Other assets:       Equity securities Total available-for-sale securities     70,918 Accounts payable and other liabilities — —   45   — 45 Beneficial interests issued by consolidated VIEs — 1,032   1,062   — 2,094 Long-term debt — 19,396   11,746   — 31,142 1,116,327   31,695   Total liabilities measured at fair value on a recurring basis $ 70,918 $ $ $ (1,021,048) $ 197,892 97 Fair value hierarchy December 31, 2013 (in millions) Federal funds sold and securities purchased under resale agreements Securities borrowed Level 1 $ Level 2 — $ Level 3 25,135 $ Netting adjustments — $ — Total fair value $ 25,135 — 3,739 — — 3,739 Trading assets: Debt instruments: Mortgage -backed securities: U.S. government agencies (a) 4 25,582 1,005 — 26,591 Residential – nonagency — 1,749 726 — 2,475 Commercial – nonagency — 871 432 — 1,303 Total mortgage-backed securities 4 28,202 2,163 — 30,369 https://www.sec.gov/Archives/edgar/data/19617/000001961714000409/corpq22014.htm[10/8/14, 12:41:43 PM] CORP Q2 2014 U.S. Treasury and government agencies (a) 14,933 10,547 — — 25,480 Obligations of U.S. states and municipalities — 6,538 1,382 — 7,920 Certificates of deposit, bankers’ acceptances and commercial paper — 3,071 — — 3,071 25,762 22,379 143 — 48,284 Corporate debt securities — 24,802 5,920 — 30,722 Loans (b) — 17,331 13,455 — 30,786 Asset-backed securities — 3,647 1,272 — 4,919 40,699 116,517 24,335 — 181,551 107,667 954 885 — 109,506 4,968 5,217 4 — 10,189 — 5,659 2,000 — 7,659 153,334 128,347 27,224 — 308,905 419 848,862 5,398 (828,897) — 79,754 3,766 (82,004) 1,516 434 151,521 1,644 (136,809) 16,790 12,227 Non-U.S. government debt securities Total debt instruments Equity securities Physical commodities (c) Other Total debt and equity instruments(d) Derivative receivables: Interest rate Credit Foreign exchange Equity 25,782 — 45,892 7,039 (40,704) 320 34,696 722 (26,294) 9,444 1,173 1,160,725 18,569 (1,114,708) 65,759 154,507 1,289,072 45,793 (1,114,708) 374,664 U.S. government agencies (a) — 77,815 — — 77,815 Residential – nonagency — 61,760 709 — 62,469 Commercial – nonagency — 15,900 525 — 16,425 Total mortgage-backed securities — 155,475 1,234 — 156,709 Commodity Total derivative receivables(e) Total trading assets Available -for-sale securities: Mortgage -backed securities: U.S. Treasury and government agencies (a) 21,091 298 — — 21,389 Obligations of U.S. states and municipalities — 29,461 — — 29,461 Certificates of deposit — 1,041 — — 1,041 25,648 30,600 — — 56,248 — 21,512 — — 21,512 Collateralized loan obligations — 27,409 821 — 28,230 Other — 11,978 267 — 12,245 3,142 — — — 3,142 49,881 277,774 2,322 — 329,977 Loans — 80 1,931 — 2,011 Mortgage servicing rights — — 9,614 — 9,614 7,509 Non-U.S. government debt securities Corporate debt securities Asset-backed securities: Equity securities Total available-for-sale securities Other assets: Private equity investments (f) 606 429 6,474 — All other 4,213 289 3,176 — 7,678 Total other assets 4,819 718 9,650 — 15,187 Total assets measured at fair value on a recurring basis $ 209,207 $ 1,596,518 (g)   $ 69,310 (g)   $ Deposits $ — $ 4,369 $ 2,255 $ (1,114,708) $ — $ 760,327 6,624 Federal funds purchased and securities loaned or sold under repurchase agreements — 5,426 — — 5,426 Other borrowed funds — 11,232 2,074 — 13,306 61,262 19,055 113 — 80,430 321 822,014 3,019 (812,071) — 78,731 3,671 (80,121) 2,281 443 156,838 2,844 (144,178) 15,947 Trading liabilities: Debt and equity instruments (d) Derivative payables: Interest rate Credit Foreign exchange Equity Commodity Total derivative payables(e) Total trading liabilities 13,283 — 46,552 8,102 (39,935) 14,719 398 36,609 607 (26,530) 11,084 1,162 1,140,744 18,243 (1,102,835) 57,314 (1,102,835) 137,744 62,424 1,159,799 18,356 Accounts payable and other liabilities — — 25 — 25 Beneficial interests issued by consolidated VIEs — 756 1,240 — 1,996 Long-term debt Total liabilities measured at fair value on a recurring basis — $ 62,424 18,870 $ 1,200,452 https://www.sec.gov/Archives/edgar/data/19617/000001961714000409/corpq22014.htm[10/8/14, 12:41:43 PM] 10,008 $ 33,958 — $ (1,102,835) $ 28,878 193,999 CORP Q2 2014 (a) At June 30, 2014, and December 31, 2013, included total U.S. government-sponsored enterprise obligations of $80.6 billion and $91.5 billion, respectively, which were predominantly mortgage-related. (b) At June 30, 2014, and December 31, 2013, included within trading loans were $15.5 billion and $14.8 billion, respectively, of residential first-lien mortgages, and $4.4 billion and $2.1 billion, respectively, of commercial first-lien mortgages. Residential mortgage loans include conforming mortgage loans originated with the intent to sell to U.S. government agencies of $6.6 billion and $6.0 billion, respectively, and reverse mortgages of $3.7 billion and $3.6 billion, respectively. (c) Physical commodities inventories are generally accounted for at the lower of cost or market. “Market” is a term defined in U.S. GAAP as not exceeding fair value less costs to sell (“transaction costs”). Transaction costs for the Firm’s physical commodities inventories are either not applicable or immaterial to the value of the inventory. Therefore, market 98 approximates fair value for the Firm’s physical commodities inventories. When fair value hedging has been applied (or when market is below cost), the carrying value of physical commodities approximates fair value, because under fair value hedge accounting, the cost basis is adjusted for changes in fair value. For a further discussion of the Firm’s hedge accounting relationships, see Note 5. To provide consistent fair value disclosure information, all physical commodities inventories have been included in each period presented. (d) Balances reflect the reduction of securities owned (long positions) by the amount of securities sold but not yet purchased (short positions) when the long and short positions have identical Committee on Uniform Security Identification Procedures numbers (“CUSIPs”). (e) As permitted under U.S. GAAP, the Firm has elected to net derivative receivables and derivative payables and the related cash collateral received and paid when a legally enforceable master netting agreement exists. For purposes of the tables above, the Firm does not reduce derivative receivables and derivative payables balances for this netting adjustment, either within or across the levels of the fair value hierarchy, as such netting is not relevant to a presentation based on the transparency of inputs to the valuation of an asset or liability. Therefore, the balances reported in the fair value hierarchy table are gross of any counterparty netting adjustments. However, if the Firm were to net such balances within level 3, the reduction in the level 3 derivative receivables and payables balances would be $4.2 billion and $7.6 billion at June 30, 2014, and December 31, 2013, respectively; this is exclusive of the netting benefit associated with cash collateral, which would further reduce the level 3 balances. (f) Private equity instruments represent investments within the Corporate/Private Equity line of business. The cost basis of the private equity investment portfolio totaled $6.3 billion and $8.0 billion at June 30, 2014, and December 31, 2013, respectively. (g) Includes investments in hedge funds, private equity funds, real estate and other funds that do not have readily determinable fair values. The Firm uses net asset value per share when measuring the fair value of these investments. At June 30, 2014, and December 31, 2013, the fair values of these investments were $2.2 billion and $3.2 billion, respectively, of which $590 million and $899 million , respectively, were classified in level 2, and $1.6 billion and $2.3 billion, respectively, in level 3. Transfers between levels for instruments carried at fair value on a   recurring basis For the three and six months ended June 30, 2014 and 2013, there were no significant transfers between levels 1 and 2, or from level 2 into level 3. The range of values presented in the table is representative of the highest and lowest level input used to value the significant groups of instruments within a product/instrument classification. The input range does not reflect the level of input uncertainty; instead it is driven by the different underlying characteristics of the various instruments within the classification. For example, two option contracts may have similar levels of market risk exposure and valuation uncertainty, but may have significantly different implied volatility levels because the option contracts have different underlyings, tenors, or strike prices. Where provided, the weighted averages of the input values presented in the table are calculated based on the fair value of the instruments that the input is being used to value. In the Firm’s view, the input range and the weighted average value do not reflect the degree of input uncertainty or an assessment of the reasonableness of the Firm’s estimates and assumptions. Rather, they reflect the characteristics of the various instruments held by the Firm and the relative distribution of instruments within the range of characteristics. The input range and weighted average values will therefore vary from period-to-period and parameter to parameter based on the characteristics of the instruments held by the Firm at each balance sheet date. For the Firm’s derivatives and structured notes positions classified within level 3 at June 30, 2014, the equity and interest rate correlation inputs used in estimating fair value were concentrated at the upper end of the range presented, while the credit correlation inputs were distributed across the range presented and the foreign exchange correlation inputs were concentrated at the lower end of the range presented. In addition, the interest rate volatility inputs used in estimating fair value were concentrated at the upper end of the range presented, while equity volatilities were concentrated at the lower end of the range. The forward commodity prices used in estimating the fair value of commodity derivatives were concentrated within the lower end of the range presented. During the three months ended June 30, 2014, transfers from level 3 into level 2 included $3.0 billion and $2.9 billion of equity derivative receivables and payables, respectively, due to increased observability of certain equity options. During the three months ended March 31, 2013, certain highly rated collateralized loan obligations (“CLOs”), including $27.3 billion held in the Firm’s AFS securities portfolio and $1.3 billion held in the trading portfolio, were transferred from level 3 to level 2, based on increased liquidity and price transparency. All transfers are assumed to occur at the beginning of the quarterly reporting period in which they occur. Level 3 valuations For further information on the Firm’s valuation process and a detailed discussion of the determination of fair value for individual financial instruments, see Note 3 of JPMorgan Chase’s 2013 Annual Report. The following table presents the Firm’s primary level 3 financial instruments, the valuation techniques used to measure the fair value of those financial instruments, the significant unobservable inputs, the range of values for those inputs and, for certain instruments, the weighted averages of such inputs. While the determination to classify an instrument within level 3 is based on the significance of the unobservable inputs to the overall fair value measurement, level 3 financial instruments typically include observable components (that is, components that are actively quoted and can be validated to external sources) in addition to the unobservable components. The level 1 and/or level 2 inputs are not included in the table. In addition, the Firm manages the risk of the observable components of level 3 financial instruments using securities and derivative positions that are classified within levels 1 or 2 of the fair value hierarchy. 99 Level 3 inputs (a) https://www.sec.gov/Archives/edgar/data/19617/000001961714000409/corpq22014.htm[10/8/14, 12:41:43 PM]   CORP Q2 2014 June 30, 2014 (in millions, except for ratios and basis points) Fair value Product/Instrument Residential mortgage-backed securities $ and loans     Principal valuation technique 9,931   Discounted cash flows   Unobservable inputs       Range of input values Weighted average Yield 2 % - 15%      Prepayment speed 0 % - 21% 6%        Conditional default rate 0 % - 100% 29%        Loss severity 0 % - 100% 22% Yield 3 % - 28% 15% Commercial mortgage-backed securities and loans (b)   2,500   Discounted cash flows      Conditional default rate 0 % - 100% 10%      Loss severity 0 % - 40% 35% Corporate debt securities, obligations of 16,933   Discounted cash flows U.S. states and municipalities, and      other (c) 4,078   Market comparables 1,533   Option pricing Net interest rate derivatives   Net credit 6%   derivatives (b)(c)    134   Discounted cash flows Credit spread 53 bps Yield - 365 bps 1 % Price — 9% - 120 94 (75)% - 97%   0 % - 60%   Credit correlation 44 % - 86%   75%     Interest rate correlation Interest rate spread volatility Net foreign exchange derivatives (1,194)   Option pricing Foreign exchange correlation 48 % - Net equity derivatives (2,206)   Option pricing Equity volatility 20 % - 50% 20 - $160 (122)   Discounted cash flows Net commodity derivatives 798   Discounted cash flows Collateralized loan obligations 167 bps - 43% Forward commodity price $ Credit spread 240 bps - per megawatt hour 500 bps 252 bps        Prepayment speed 20% 20%        Conditional default rate 2% 2%          379   Market comparables Loss severity 0 Mortgage servicing rights (“MSRs”) 8,347   Discounted cash flows Refer to Note 16. Private equity direct investments 4,419   Market comparables EBITDA multiple   464   Net asset value Private equity fund investments Long-term debt, other borrowed funds, and deposits (d)      14,763   Option pricing Net asset value(e) - 40% 108 79   2.7x Liquidity adjustment 0 % - 12.3x 7.6x - 49% 13%     (75)% - 97%   0 % - 75%   Equity correlation (55)% - 80%   Credit correlation 44 % - 86%   Interest rate correlation      Foreign exchange correlation      1,359   Discounted cash flows 40% Price (a) The categories presented in the table have been aggregated based upon the product type, which may differ from their classification on the Consolidated Balance Sheets. (b) The unobservable inputs and associated input ranges for approximately $389 million of credit derivative receivables and $342 million of credit derivative payables with underlying commercial mortgage risk have been included in the inputs and ranges provided for commercial mortgage-backed securities and loans. (c) The unobservable inputs and associated input ranges for approximately $1.1 billion of credit derivative receivables and $972 million of credit derivative payables with underlying asset-backed securities risk have been included in the inputs and ranges provided for corporate debt securities, obligations of U.S. states and municipalities and other. (d) Long-term debt, other borrowed funds and deposits include structured notes issued by the Firm that are predominantly financial instruments containing embedded derivatives. The estimation of the fair value of structured notes is predominantly based on the derivative features embedded within the instruments. The significant unobservable inputs are broadly consistent with those presented for derivative receivables. (e) The range has not been disclosed due to the wide range of possible values given the diverse nature of the underlying investments. 100 Changes in and ranges of unobservable inputs   For a discussion of the impact on fair value of changes in unobservable inputs and the relationships between unobservable inputs as well as a description of attributes of the underlying instruments and external market factors that affect the range of inputs used in the valuation of the Firm’s positions see Note 3 of JPMorgan Chase’s 2013 Annual Report. significance of the unobservable parameters to the overall fair value measurement. However, level 3 financial instruments typically include, in addition to the unobservable or level 3 components, observable components (that is, components that are actively quoted and can be validated to external sources); accordingly, the gains and losses in the table below include changes in fair value due in part to observable factors that are part of the valuation methodology. Also, the Firm risk-manages the observable components of level 3 financial https://www.sec.gov/Archives/edgar/data/19617/000001961714000409/corpq22014.htm[10/8/14, 12:41:43 PM] CORP Q2 2014 Changes in level 3 recurring fair value measurements The following tables include a rollforward of the Consolidated Balance Sheets amounts (including changes in fair value) for financial instruments classified by the Firm within level 3 of the fair value hierarchy for the three and six months ended June 30, 2014 and 2013. When a determination is made to classify a financial instrument within level 3, the determination is based on the instruments using securities and derivative positions that are classified within level 1 or 2 of the fair value hierarchy; as these level 1 and level 2 risk management instruments are not included below, the gains or losses in the following tables do not reflect the effect of the Firm’s risk management activities related to such level 3 instruments. 101       Fair value measurements using significant unobservable inputs Three months ended June 30, 2014 (in millions) Total realized/unrealized gains/(losses) Fair value at April 1, 2014     Purchases(g)       Sales Settlements Transfers into and/or out of level 3 (h) Change in unrealized gains/(losses) related to financial instruments held at June 30, 2014 Fair value at June 30, 2014 Assets:                          Trading assets:                                                   Mortgage-backed securities:                          U.S. government agencies $ 27   $ (12)   $ (33) $ Debt instruments: 1,150 $ $ (19)  $ 1,125   $ 28   Residential – nonagency 715 67   181 (314)   (12) (94)   543   21   Commercial – nonagency 465 8   260 (187)   (34) (185)   327   —   Total mortgage-backed securities 2,330 102   453 (513)   (79) (298)   1,995   49   Obligations of U.S. states and municipalities 1,219 (35)   — (105)   —   1,079   (44)   52 3   25 (3)   (1) 52   128   3   4,873 130   1,163 (663)   (823) 113   4,793   74   12,521 372   3,129 (1,108)   (1,172) (221)   13,521   376   1,156 46   807 (776)   (151) 134   1,216   32   22,151 618   5,577 (3,168)   (2,226) (220)   22,732   490   885 18   49 (56)   (25) (167)   704   83   3 —   — —   — — —   1,284 266   656 (127)   (67) 24,323 902 (c)  6,282 (3,351)   (2,318) Non-U.S. government debt securities Corporate debt securities Loans Asset-backed securities Total debt instruments Equity securities Physical commodities Other Total trading assets – debt and equity instruments Net derivative receivables:(a)   Interest rate   2,090 Credit           3 329   2,341   173   (58)   25,780   746 (c)               50 (63)   (427) (119)   1,533   (49)   (124)   164 (21)   (79) (50)   134   (91)   2 244 Foreign exchange (1,282) (143)   33 (3)   206 (5)   (1,194)   (141)   Equity (1,060) (774)   46 (521)   327 (224)   (2,206)   (204)   (58) (18)   — —   29 (75)   (122)   16   (608)   56 (473)   (1,855)   Commodity Total net derivative receivables Available-for-sale securities: (1,057) (c)  (66)       293              (469) (c)        Asset-backed securities 1,127 (9)   225 —   (21) —   1,322   (9)   Other 1,190 1   2   122 —   (27) (772)   514   347 —   (48) (772)   1,836   (7) (d)   (c)  2,396 —   (480) —   4,227   21 (149) (e)  181 2   (239) —   8,347   Total available-for-sale securities 2,317 (8) (d)   Loans 2,271 40 Mortgage servicing rights 8,552 Other assets:   12       Private equity investments 5,335 168 (c)  All other 2,984 47 (f)                       (c)  (149) (e)        22 (469)   (132) (41)   4,883   131 (c)  62 (117)   (200) —   2,776   47 (f)        https://www.sec.gov/Archives/edgar/data/19617/000001961714000409/corpq22014.htm[10/8/14, 12:41:43 PM]            CORP Q2 2014       Fair value measurements using significant unobservable inputs Three months ended June 30, 2014 (in millions) Liabilities: (b) Deposits Total realized/unrealized (gains)/losses Fair value at April 1, 2014   $ Other borrowed funds Trading liabilities – debt and equity instruments Accounts payable and other liabilities Beneficial interests issued by consolidated VIEs Long-term debt 2,386     $ (c)  74 1,535 (132) (c)  101 (4) (c)      Purchases   $   Sales —   Issuances     $ — Transfers into and/or out of level 3 (h) $ Settlements   519 $ Change in unrealized (gains)/losses related to financial instruments held at June 30, 2014 Fair value at June 30, 2014          (24) $  $ 2,838   172   1,538   (117) $   63 (c)  (30) (c)  — — 1,343 (1,380) (46) 71 — (4) (38)   80   1 (c)  18 27 (c)  — — — — —   45   27 (c)  1,160 54 (c)  — — 4 (54) (102)   1,062   58 (c)  11,203 437 (c)  — — 1,912 (1,369) (437)   11,746   410 (c)  102       Fair value measurements using significant unobservable inputs Three months ended June 30, 2013 (in millions) Total realized/unrealized gains/(losses) Fair value at April 1, 2013 Purchases(g) Sales Settlements Transfers into and/or out of level 3 (h) Fair value at June 30, 2013 Change in unrealized gains/(losses) related to financial instruments held at June 30, 2013 $ $ Assets: Trading assets: Debt instruments: Mortgage-backed securities: U.S. government agencies (26) $ — 203 135 (336) (20) — 615 1,151 (39) 302 (113) (30) — 1,271 (49) Total mortgage-backed securities 2,603 270 439 (449) (76) — 2,787 200 Obligations of U.S. states and municipalities 1,432 (23) (22) Residential – nonagency Commercial – nonagency Non-U.S. government debt securities Corporate debt securities Loans Asset-backed securities Total debt instruments Equity securities Physical commodities Other Total trading assets – debt and equity instruments $ 819 633 85 $ 106 $ 9 2 $ — $ 901 114 135 52 (37) (203) — 1,221 333 (397) (4) 110 136 11 4,852 (41) 2,251 (955) (822) 450 5,735 28 10,032 41 3,782 (2,265) (688) 38 10,940 21 1,579 95 444 (557) (12) (121) 1,428 56 20,583 351 7,301 (4,660) (1,805) 477 22,247 294 111 1,039 1,172 (57) (56) (121) — (10) — — — — 16 16 — 948 43 54 (18) (52) 130 1,105 38 22,703 384 7,466 (4,735) (1,913) 502 24,407 324 (c)  (8) (c)  Net derivative receivables:(a) Interest rate 2,791 125 46 (63) (989) 191 2,101 Credit 1,317 (335) 3 (1) (76) 13 921 Foreign exchange (1,516) Equity (1,000) Commodity Total net derivative receivables 182 1,774 161 8 (323) (i)   295 465 — (77) (c)  522 — (i)   137 (568) (i)   (588) — (632) (412) (1,928) 156 (360) (8) (1,218) 71 (277) (2,291) 654 6 71 (75) (416) 63 584 (c)  Available-for-sale securities: Asset-backed securities Other Total available-for-sale securities 1,130 — — — (5) — 1,125 — 837 — 7 — (20) — 824 — — (d)   7 — (25) — 1,949 — (d)   103 (7) (323) — 1,843 9 (c)  1,967 Loans 2,064 6 (c)  Mortgage servicing rights 7,949 1,038 (e)  655 (19) (288) — 9,335 1,038 (e)  Private equity investments 6,831 434 (c)  122 (7) (275) — 7,105 206 (c)  All other 3,985 1 (f)  83 (292) (97) — 3,680 (11) (f)  Other assets: https://www.sec.gov/Archives/edgar/data/19617/000001961714000409/corpq22014.htm[10/8/14, 12:41:43 PM] CORP Q2 2014 Fair value measurements using significant unobservable inputs Three months ended June 30, 2013 (in millions) Total realized/unrealized (gains)/losses Fair value at April 1, 2013 Purchases Sales Issuances Transfers into and/or out of level 3 (h) Settlements Fair value at June 30, 2013 Change in unrealized (gains)/ losses related to financial instruments held at June 30, 2013 $ $ Liabilities: (b) Deposits $ 2,015 Other borrowed funds Trading liabilities – debt and equity instruments Accounts payable and other liabilities (110) (c)  $ — 251 (60) (c)  (374) — 818 Long-term debt — 2,137 33 Beneficial interests issued by consolidated VIEs $ (243) (c)  — $ 316 $ (44) $ 13 — 2,389 (1,695) 85 454 — (21) (146) 2,190 2,673 (110) (c)  33 — — — (1) — 32 — — — 30 (44) — 863 54 (430) (c)  — — 1,878 (1,246) (84) (c)  (48) (c)  104 (c)  59 9,084 $ (c)  (292) (c)  9,202 103       Fair value measurements using significant unobservable inputs Six months ended June 30, 2014 (in millions) Fair value at January 1, 2014 Total realized/unrealized gains/(losses)     Purchases(g)   Sales     Settlements Transfers into and/or out of level 3 (h) Change in unrealized gains/(losses) related to financial instruments held at June 30, 2014 Fair value at June 30, 2014 Assets:                          Trading assets:                                                   Mortgage-backed securities:                          U.S. government agencies $ 30   $ (174)   $ (60) $ Debt instruments: 1,005 $ 343 $ (19)  $ 1,125   $ 32   Residential – nonagency 726 91   373 (514)   (24) (109)   543   29   Commercial – nonagency 432 28   581 (481)   (48) (185)   327   4   1,297 (1,169)   (132) (313)   1,995   65   Total mortgage-backed securities 2,163 149   Obligations of U.S. states and municipalities 1,382 (13)   — (290)   — —   1,079   7   19   435 (519)   (2) 52   128   24   5,920 368   2,360 (2,015)   (1,664) (176)   4,793   280   13,455 691   5,287 (2,902)   (2,718) (292)   13,521   882   1,272 70   1,357 (1,332)   (171) 20   1,216   43   24,335 1,284   10,736 (8,227)   (4,687) (709)   22,732   1,301   885 99   85 (75)   (34) (256)   704   147   4 —   — —   (1) —   3   —   2,000 169   710 (178)   (95) (265)   2,341   146   27,224 1,552 11,531 (8,480)   (4,817) (1,230)   25,780   1,594 Non-U.S. government debt securities 143 Corporate debt securities Loans Asset-backed securities Total debt instruments Equity securities Physical commodities Other Total trading assets – debt and equity instruments Net derivative receivables:(a)   Interest rate   2,379 Credit 95 (c)                     (c)    26   98 (106)   (765) (99)   1,533   (690)   (239)   222 (21)   127 (50)   134   (186)   Foreign exchange (1,200) (342)   94 (19)   255 18   (1,194)   (291)   Equity (1,063) (703)   847 (1,554)   452 (185)   (2,206)   343   (172)   1   (13) (53)   (122)   (156)   (369)   (1,855)   (980) (c)  Commodity 115 Total net derivative receivables Available-for-sale securities: (1,430) (c)  326       — 1,262   (1,700)       56              Asset-backed securities 1,088 (11)   225 (2)   (41) 63   1,322   (11)   Other 1,234 (2)   (1)   Total available-for-sale securities 2,322 (13) (d)   Loans 1,931 72 (c)  122 —   (68) (772)   514   347 (2)   (109) (709)   1,836   (12) (d)   3,080 (142)   (714) —   4,227   47 (c)  https://www.sec.gov/Archives/edgar/data/19617/000001961714000409/corpq22014.htm[10/8/14, 12:41:43 PM] CORP Q2 2014 Mortgage servicing rights Other assets:     Private equity investments All other   (971) (e)  9,614   264 3,176 (26) (f)      (c)  6,474   376   109     (486)   (1,487) 135     (186) (154)           (41) (355)   8,347    (436)     —       4,883   —   2,776    Liabilities: (b) Deposits Fair value at January 1, 2014   $ 2,255 Other borrowed funds Trading liabilities – debt and equity instruments Accounts payable and other liabilities Beneficial interests issued by consolidated VIEs Long-term debt   Total realized/unrealized (gains)/losses Purchases       $ (c)  $ 111     Issuances   — 2,074 (93) (c)  — 113 (4) (c)  (262)   $ — $ 809 (c)    119   (26) (f)        Transfers into and/or out of level 3 (h)   Sales       Fair value measurements using significant unobservable inputs Six months ended June 30, 2014 (in millions) (971) (e)    Settlements     $ (66) $ Change in unrealized (gains)/losses related to financial instruments held at June 30, 2014 Fair value at June 30, 2014        98 (c)    84 (c)   $ 2,838   368   1,538 (271)   $ — 2,676 (3,487) 279 — (8) (38)   80   1 (c)  —   45   27 (c)  25 27 (c)  — — — (7) 1,240 101 (c)  — — 82 (259) (102)   1,062   88 (c)  539 (c)  — — 3,744 (2,379) (166)   11,746   585 (c)  10,008 104       Fair value measurements using significant unobservable inputs Six months ended June 30, 2013 (in millions) Fair value at January 1, 2013 Total realized/unrealized gains/(losses) Purchases(g) Sales Settlements Transfers into and/or out of level 3 (h) Fair value at June 30, 2013 Change in unrealized gains/(losses) related to financial instruments held at June 30, 2013 $ $ Assets: Trading assets: Debt instruments: Mortgage-backed securities: U.S. government agencies Residential – nonagency Commercial – nonagency $ 498 663 $ 140 $ 312 393 $ (79) (51) $ — (49) (5) (178) (72) — 1,271 (142) (997) (172) (5) 2,787 188 434 (740) 439 1,266 $ 901 615 153 177 1,207 (125) Total mortgage-backed securities 2,368 327 Obligations of U.S. states and municipalities 1,436 18 53 (83) (203) — 1,221 17 67 11 634 (682) (4) 110 136 11 Non-U.S. government debt securities Corporate debt securities Loans Asset-backed securities Total debt instruments Equity securities Physical commodities Other Total trading assets – debt and equity instruments 5,308 (124) 5,178 (3,518) (1,447) 338 5,735 30 10,787 (131) 5,408 (3,750) (1,391) 17 10,940 (229) 3,696 159 1,040 (1,534) (147) (1,786) 1,428 74 23,662 260 13,579 (10,564) (3,364) (1,326) 22,247 91 204 (148) (65) (57) 1,039 (28) 1,114 (9) — — — — — 863 87 126 (20) (81) 25,639 338 13,909 (10,732) (3,510) 115 (125) (1,847) 205 2,101 50 (1) (189) 12 921 (c)  16 16 — 130 1,105 139 24,407 202 (1,237) (c)  Net derivative receivables:(a) Interest rate 3,322 431 Credit 1,873 (824) Foreign exchange (1,750) 45 Equity (1,806) 539 Commodity Total net derivative receivables 254 1,893 (7) (i)   653 844 (c)  536 (3) (i)   (647) (i)   513 (16) (1,218) (810) (103) (2,291) 11 (3) (854) 10 705 (779) (3,187) 108 71 (416) 45 (836) (5) 604 240 48 (c)  Available-for-sale securities: Asset-backed securities Other Total available-for-sale securities 28,024 892 28,916 5 (9) (4) (d)   400 — (44) 7 (13) (53) 407 (13) (97) https://www.sec.gov/Archives/edgar/data/19617/000001961714000409/corpq22014.htm[10/8/14, 12:41:43 PM] (27,260) — (27,260) 1,125 5 824 3 1,949 8 (d)   CORP Q2 2014 2,282 (29) (c)  328 (56) (682) — 1,843 7,614 1,347 (e)  1,339 (418) (547) — 9,335 Private equity investments 7,181 165 (c)  203 (103) (341) — 7,105 (188) (c)  All other 4,258 (25) (f)  135 (295) (393) — 3,680 (41) (f)  Loans Mortgage servicing rights (43) (c)  1,347 (e)  Other assets: Fair value measurements using significant unobservable inputs Six months ended June 30, 2013 (in millions) Fair value at January 1, 2013 Total realized/unrealized (gains)/losses Purchases Sales Issuances Settlements Transfers into and/or out of level 3 (h) Fair value at June 30, 2013 Change in unrealized (gains)/losses related to financial instruments held at June 30, 2013 $ $ Liabilities: (b) Deposits Other borrowed funds Trading liabilities – debt and equity instruments Accounts payable and other liabilities Beneficial interests issued by consolidated VIEs Long-term debt $ 1,983 $ (105) (c)  1,619 (269) (c)  205 (68) (c)  36 925 8,476 $ — $ — (1,859) — $ 612 $ (157) $ — 4,151 (2,919) 2,006 — (34) (146) — — (5) — 1 (f)  25 (c)  — — 51 (138) (905) (c)  — — 3,733 (1,603) — (143) 91 — (499) 2,190 2,673 104 32 863 9,202 (97) (c)  74 (c)  (78) (c)  1 (f)  26 (c)  (321) (c)  (a) All level 3 derivatives are presented on a net basis, irrespective of the underlying counterparty. (b) Level 3 liabilities as a percentage of total Firm liabilities accounted for at fair value (including liabilities measured at fair value on a nonrecurring basis) were 16% and 18% at June 30, 2014, and December 31, 2013, respectively. 105 (c) Predominantly reported in principal transactions revenue, except for changes in fair value for Consumer & Community Banking (“CCB”) mortgage loans, lending-related commitments originated with the intent to sell, and mortgage loan purchase commitments, which are reported in mortgage fees and related income. (d) Realized gains/(losses) on securities, as well as other-than-temporary impairment losses that are recorded in earnings, are reported in securities gains. Unrealized gains/(losses) are reported in OCI. Realized gains/(losses) and foreign exchange remeasurement adjustments recorded in income on AFS securities were $(11) million and $3 million for the three months ended June 30, 2014 and 2013, and $(12) million and $(15) million for the six months ended June 30, 2014 and 2013, respectively. Unrealized gains/(losses) recorded on AFS securities in OCI were $3 million and $(3) million for the three months ended June 30, 2014 and 2013 and $(1) million and $11 million for the six months ended June 30, 2014 and 2013, respectively. (e) Changes in fair value for CCB mortgage servicing rights are reported in mortgage fees and related income. (f) Predominantly reported in other income. (g) Loan originations are included in purchases. (h) All transfers into and/or out of level 3 are assumed to occur at the beginning of the quarterly reporting period in which they occur. (i) The prior period amounts have been revised. The revision had no impact on the Firm’s Consolidated Balance Sheets or its results of operations. Level 3 analysis   Consolidated Balance Sheets changes Level 3 assets (including assets measured at fair value on a nonrecurring basis) were 2.5% of total Firm assets at June 30, 2014. The following describes significant changes to level 3 assets since December 31, 2013, for those items measured at fair value on a recurring basis. For further information on changes impacting items measured at fair value on a nonrecurring basis, see Assets and liabilities measured at fair value on a nonrecurring basis on page 107. Three months ended June 30, 2014 Level 3 assets were $60.4 billion at June 30, 2014, reflecting a decrease of $2.8 billion from March 31, 2014, largely due to the following: • $4.9 billion decrease in derivative receivables, largely driven by client-driven market-making activity and a transfer of equity derivative receivables from level 3 to level 2 due to increase in observability of certain equity options; • $2.0 billion increase in loans due to originations; • $1.5 billion increase in trading assets - debt and equity instruments largely driven by trading loans purchases and new client-driven financing transactions; Six months ended June 30, 2014 Level 3 assets decreased by $8.9 billion in the first six months of 2014, mainly due to the following: • $6.0 billion decrease in derivative receivable, predominantly driven by equity derivative receivables due to maturities and a transfer from level 3 to level 2 as a result of increase in observability of certain equity options; Gains and losses The following describes significant components of total realized/unrealized gains/(losses) for instruments measured at fair value on a recurring basis for the periods indicated. For further information on these instruments, see Changes in level 3 recurring fair value measurements rollforward tables on pages 99–106. Three months ended June 30, 2014 • $1.1 billion net losses on derivatives, largely due to client-driven market-making activities in equity derivatives. Three months ended June 30, 2013 • $1.0 billion of gains on MSRs. For further discussion of the change, refer to Note 16. Six months ended June 30, 2014 • $1.6 billion of net gains in trading assets - debt and equity instruments, largely driven by client-driven activities in corporate debt and trading loans; • $1.4 billion of net losses on derivatives, largely driven by foreign exchange derivatives due to fluctuations in foreign exchange rates and client-driven market-making activities in equity derivatives. • $1.0 billion of losses on MSRs. For further discussion of the change, refer to Note 16. Six months ended June 30, 2013 • $1.3 billion of gains on MSRs. For further discussion of the change, refer to Note 16. • $(905) million of gains on long-term debt, due to market movements. https://www.sec.gov/Archives/edgar/data/19617/000001961714000409/corpq22014.htm[10/8/14, 12:41:43 PM] CORP Q2 2014 • $2.3 billion increase in loans due to originations; • $1.6 billion decrease in private equity investments, driven by sales of investments. • $1.4 billion decrease in trading assets - debt and equity instruments, largely driven by net sales and maturities of corporate debt securities. • $1.3 million decrease in MSRs. For further discussion of the change, refer to Note 16; 106 Credit & funding adjustments The following table provides the credit and funding adjustments, excluding the effect of any associated hedging activities, reflected within the Consolidated Balance Sheets as of the dates indicated.   Jun 30, 2014   Dec 31, 2013 (in millions) 62,378   $ 65,759 Derivative payables balance(a) 50,795   57,314 Derivatives CVA (b)(c) (2,099)   (2,352) (483)   (322) Derivative receivables Derivatives DVA and Structured notes balance(a) $ FVA (b)(d) balance(a)(e) Structured notes DVA and FVA (b)(f) 54,467   48,808 1,131   952 (a) Balances are presented net of applicable credit valuation adjustments (“CVA”) and debit valuation adjustments (“DVA”)/funding valuation adjustments (“FVA”). (b) Positive CVA and DVA/FVA represent amounts that increased receivable balances or decreased payable balances; negative CVA and DVA/FVA represent amounts that decreased receivable balances or increased payable balances. (c) Derivatives CVA includes results managed by the credit portfolio group and other businesses. (d) At June 30, 2014, and December 31, 2013, included derivatives DVA of $620 million and $715 million, respectively. (e) Structured notes are predominantly financial instruments containing embedded derivatives that are measured at fair value based on the Firm’s election under the fair value option. At June 30, 2014, and December 31, 2013, included $1.2 billion and $1.1 billion, respectively, of financial instruments with no embedded derivative for which the fair value option has also been elected. For further information on these elections, see Note 4. (f) At June 30, 2014, and December 31, 2013 included structured notes DVA of $1.4 billion and $1.4 billion, respectively. The following table provides the impact of credit adjustments on Principal transactions revenue in the respective periods, excluding the effect of any associated hedging activities.   (in millions) Three months ended June 30,       2014 2013 Six months ended June 30, 2014   2013            $ 272   $ 549   $ 253   $ Derivative DVA and FVA (b) (36)   104   (161)   99 Structured note DVA and FVA (c) 162   251   179   382 Credit adjustments: Derivative CVA (a)  881 Assets and liabilities measured at fair value on a nonrecurring basis At June 30, 2014 and 2013, assets measured at fair value on a nonrecurring basis were $3.4 billion and $1.6 billion, respectively, which predominantly consisted of loans that had fair value adjustments in each of the first six months of 2014 and 2013. At June 30, 2014, $597 million and $2.8 billion of these assets were classified in levels 2 and 3 of the fair value hierarchy, respectively. At June 30, 2013, $95 million and $1.5 billion of these assets were classified in levels 2 and 3 of the fair value hierarchy, respectively. Liabilities measured at fair value on a nonrecurring basis were not significant at June 30, 2014 and 2013. For the three and six months ended June 30, 2014 and 2013, there were no significant transfers between levels 1, 2, and 3. Of the $3.4 billion of assets measured at fair value on a nonrecurring basis, $2.1 billion related to trade finance loans that were reclassified to held-for-sale during the fourth quarter of 2013 and subject to a lower of cost or fair value adjustment. These loans were classified as level 3, as they are valued based on the indicative pricing received from external investors, which ranged from a spread of 58 bps to 70 bps, with a weighted average of 62 bps. At June 30, 2014, assets measured at fair value on a nonrecurring basis also included $542 million related to residential real estate loans measured at the net realizable value of the underlying collateral (i.e., collateral-dependent loans and other loans charged off in accordance with regulatory guidance). These amounts are classified as level 3 as they are valued using a broker’s price opinion and discounted based upon the Firm’s experience with actual liquidation values. These discounts to the broker price opinions ranged from 12% to 64%, with a weighted average of 29%. The total change in the recorded value of assets and liabilities for which a fair value adjustment has been included in the Consolidated Statements of Income for the three months ended June 30, 2014 and 2013, related to financial instruments held at those dates, was a reduction of $318 million and $293 million, respectively; and for the six months ended June 30, 2014 and 2013, was a reduction of $456 million and $521 million. For information about the measurement of impaired collateraldependent loans, and other loans where the carrying value is based on the fair value of the underlying collateral (e.g., residential mortgage loans charged off in accordance with regulatory guidance), see Note 14 of JPMorgan Chase’s 2013 Annual Report. (a) Derivatives CVA includes results managed by the credit portfolio group and https://www.sec.gov/Archives/edgar/data/19617/000001961714000409/corpq22014.htm[10/8/14, 12:41:43 PM] CORP Q2 2014 other businesses. (b) Included derivatives DVA of $(1) million and $104 million for the three months ended June 30, 2014 and 2013 and $(95) million and $99 million for the six months ended June 30, 2014 and 2013, respectively. (c) Included structured notes DVA of $134 million and $251 million for the three months ended June 30, 2014 and 2013 and $19 million and $382 million for the six months ended June 30, 2014 and 2013, respectively. 107 Additional disclosures about the fair value of financial instruments that are not carried on the Consolidated Balance Sheets at fair value The following table presents the carrying values and estimated fair values at June 30, 2014, and December 31, 2013, of financial assets and liabilities, excluding financial instruments which are carried at fair value on a recurring basis, and information is provided on their classification within the fair value hierarchy. For additional information regarding the financial instruments within the scope of this disclosure, and the methods and significant assumptions used to estimate their fair value, see Note 3 of JPMorgan Chase’s 2013 Annual Report.     June 30, 2014     Estimated fair value hierarchy Carrying value (in billions)   Level 1 Level 2 Total estimated fair value Level 3 December 31, 2013        Estimated fair value hierarchy Carrying value Level 1 Level 2 Total estimated fair value Level 3 Financial assets                      Cash and due from banks $ 27.5 $ 27.5 $ — $ — $ 27.5   $ 39.8 $ 39.8 $ — $ — $ 39.8 393.9 387.3 6.6 — 393.9   77.1 — 76.9 0.2 77.1   65.2 — 64.9 0.3 65.2 Federal funds sold and securities purchased under resale agreements 220.3 — 220.3 — 220.3   223.0 — 223.0 — 223.0 Securities borrowed 111.8 — 111.8 — 111.8   107.7 — 107.7 — 107.7 47.8 — 49.2 — 49.2   24.0 — 23.7 — 23.7 727.4 — 18.2 713.5 731.7   720.1 — 23.0 697.2 720.2 6.7 56.5   58.2 Deposits with banks Accrued interest and accounts receivable Securities, held-to-maturity (a) Loans, net of allowance for loan losses (b) Other (c) 52.8 — 49.8 316.1 309.7 6.4 — 316.1 — 54.5 7.4 61.9 Financial liabilities                      Deposits $ 1,311.8 $ — $ 1,310.9 $ 1.2 $ 1,312.1   $ 1,281.1 $ — $ 1,280.3 $ 1.2 $ Federal funds purchased and securities loaned or sold under repurchase agreements 213.9 Commercial paper 63.8 Other borrowed funds 19.3 — — 1,281.5 — 213.9   175.7 — 175.7 — 175.7 63.8 — 57.8 — 57.8 — 57.8 19.3 — 63.8   19.3   14.7 — 14.7 — 14.7 213.9 Accounts payable and other liabilities 175.2 — 172.5 2.6 175.1   160.2 — 158.2 1.8 160.0 Beneficial interests issued by consolidated VIEs 43.6 — 40.6 3.0 43.6   47.6 — 44.3 3.2 47.5 238.8 — 242.7 3.4 246.1   239.0 — 240.8 6.0 246.8 Long-term debt and junior subordinated deferrable interest debentures (d) (a) Carrying value includes unamortized discount or premium. (b) Fair value is typically estimated using a discounted cash flow model that incorporates the characteristics of the underlying loans (including principal, contractual interest rate and contractual fees) and other key inputs, including expected lifetime credit losses, interest rates, prepayment rates, and primary origination or secondary market spreads. For certain loans, the fair value is measured based on the value of the underlying collateral. The difference between the estimated fair value and carrying value of a financial asset or liability is the result of the different methodologies used to determine fair value as compared with carrying value. For example, credit losses are estimated for a financial asset’s remaining life in a fair value calculation but are estimated for a loss emergence period in the allowance for loan loss calculation; future loan income (interest and fees) is incorporated in a fair value calculation but is generally not considered in the allowance for loan losses. For a further discussion of the Firm’s methodologies for estimating the fair value of loans and lending-related commitments, see Valuation hierarchy on pages 197–215 of JPMorgan Chase’s 2013 Annual Report and pages 96–109 of this Note. (c) Current period numbers have been updated to include certain nonmarketable equity securities. Prior period amounts have been revised to conform to the current presentation. (d) Carrying value includes unamortized original issue discount and other valuation adjustments. https://www.sec.gov/Archives/edgar/data/19617/000001961714000409/corpq22014.htm[10/8/14, 12:41:43 PM] CORP Q2 2014 108 The majority of the Firm’s lending-related commitments are not carried at fair value on a recurring basis on the Consolidated Balance Sheets, nor are they actively traded. The carrying value and estimated fair value of the Firm’s wholesale lending-related commitments were as follows for the periods indicated.     June 30, 2014     (in billions)   Estimated fair value hierarchy Carrying value(a) Wholesale lending-related commitments $ Level 1 0.6 $ — $ Level 2 — $ Level 3 December 31, 2013    Total estimated fair   value Carrying value(a) 0.8   $ 0.8 $   Estimated fair value hierarchy Level 1 0.7 $ Level 2 — $ Total estimated fair value Level 3 — $ 1.0 $ 1.0 (a) Represents the allowance for wholesale lending-related commitments. Excludes the current carrying values of the guarantee liability and the offsetting asset, each of which are recognized at fair value at the inception of guarantees. The Firm does not estimate the fair value of consumer lending-related commitments. In many cases, the Firm can reduce or cancel these commitments by providing the borrower notice or, in some cases as permitted by law, without notice. For a further discussion of the valuation of lending-related commitments, see page 198 of JPMorgan Chase’s 2013 Annual Report. Trading assets and liabilities – average balances Average trading assets and liabilities were as follows for the periods indicated.     Three months ended June 30, (in millions)   2014 Trading assets – debt and equity instruments Trading assets – derivative receivables  $   Trading liabilities – debt and equity instruments (a) Trading liabilities – derivative payables    Six months ended June 30, 2013 325,426     $   2014 357,285 $ 2013 320,197   $ 363,952 60,830     75,310 62,814   75,115   85,123     75,671 85,230   73,103   49,487     66,246 51,305   67,458 (a) Primarily represent securities sold, not yet purchased. 109 Note 4 – Fair value option For a discussion of the primary financial instruments for which the fair value option was previously elected, including the basis for those elections and the determination of instrument-specific credit risk, where relevant, see Note 4 of JPMorgan Chase’s 2013 Annual Report. Changes in fair value under the fair value option election The following table presents the changes in fair value included in the Consolidated Statements of Income for the three and six months ended June 30, 2014 and 2013, for items for which the fair value option was elected. The profit and loss information presented below only includes the financial instruments that were elected to be measured at fair value; related risk management instruments, which are required to be measured at fair value, are not included in the table.   Three months ended June 30,     2014 Principal transactions (in millions) Federal funds sold and securities purchased under resale agreements $ Securities borrowed Trading assets:     $ —   245 Other changes in fair value —       Changes in instrument-specific credit risk Loans: $ (2) Debt and equity instruments, excluding loans Loans reported as trading assets: 96 Total changes in fair value   Other income recorded   3   391 3 (b)   38 (b)   400      $ (2)          248      (b)     96 394 438   https://www.sec.gov/Archives/edgar/data/19617/000001961714000409/corpq22014.htm[10/8/14, 12:41:43 PM]        2013 Principal transactions Total changes in fair value recorded Other income (287) $ —   (8) —     (14)   4   $ (8)   (b)     (10)   26 (b)   211 (94) 253   237 (b)     (287) 159   CORP Q2 2014 Changes in instrument-specific credit risk Other changes in fair value Other assets Deposits (a) Federal funds purchased and securities loaned or sold under repurchase agreements Other borrowed funds (a)  20 —   20   24 —   7 (30) (c)  24   (23)   (1) —   (1) 21 —   21 22 (20) (c)  2 (107) —   (107)   219 —   219 (18) —   (18)   41 —   41 (911) —   (911)   734 —   734 (3) (3)   (48)   (14) (14) (69) —   —   (27)   — —   — Beneficial interests issued by consolidated VIEs (48) —   —   Other liabilities (27) —   Trading liabilities   Long-term debt: Changes in instrument-specific credit   risk (a)       —   —   82 Other changes in fair value   (773) 82   (773)       (69)   —   —   159 1,000 159 1,000 110   Six months ended June 30,     2014 Principal transactions (in millions) Federal funds sold and securities purchased under resale agreements $ 56 Securities borrowed Other income $     Debt and equity instruments, excluding loans Loans reported as trading assets: 475     1   Changes in instrument-specific credit risk Other changes in fair value $   12 (b)   102 (b)   692     (b)   754   Loans: —   —   (5) Trading assets: Total changes in fair value recorded   Principal   transactions 56   $ (358) $ —   18 —           242     766   539 794     Total changes in fair value Other income recorded (5)   476     2013   (78)   7 $ 18   (b)   249       38 (b)   1,205 (b)       (358) 577 1,127   Changes in instrument-specific credit risk 28 —   28   (6) —   (6) Other changes in fair value 31 —   31   21 —   21 Other assets 12 (142) (c)  (130)   21 (89) (c)  (68) Deposits (a) (211) —   (211)   297 —   297 (34) —   (34)   45 —   45 (1,171) —   (1,171)   380 —   380 (9) —   (9)   (32) —   (32) (137) —   (137)   (97) —   (97) Federal funds purchased and securities loaned or sold under repurchase agreements Other borrowed funds (a)  Trading liabilities Beneficial interests issued by consolidated VIEs Other liabilities   Long-term debt:   Changes in instrument-specific credit risk (a)  Other changes in fair —   (27) 5 value(b) (791)   (27)     — (1) (c)  (1)         —   5   192 —     192 —   (791)   969 —   969 (a) Total changes in instrument-specific credit risk (DVA) related to structured notes were $134 million and $251 million for the three months ended June 30, 2014 and 2013 and $19 million and $382 million for the six months ended June 30, 2014 and 2013, respectively. These totals include such changes for structured notes classified within deposits and other borrowed funds, as well as long-term debt. (b) Reported in mortgage fees and related income. (c) Reported in other income. 111 https://www.sec.gov/Archives/edgar/data/19617/000001961714000409/corpq22014.htm[10/8/14, 12:41:43 PM] CORP Q2 2014 Difference between aggregate fair value and aggregate remaining contractual principal balance outstanding The following table reflects the difference between the aggregate fair value and the aggregate remaining contractual principal balance outstanding as of June 30, 2014, and December 31, 2013, for loans, long-term debt and long-term beneficial interests for which the fair value option has been elected.     June 30, 2014 Contractual principal outstanding (in millions)   Fair value over/(under) contractual principal outstanding Fair value   December 31, 2013 Contractual principal outstanding   Fair value over/(under) contractual principal outstanding Fair value Loans(a)                  Nonaccrual loans                  $ 4,462   $ 1,270 $ (3,192)   $ 5,156   $ 1,491 $ Loans reported as trading assets 214   Loans 4,676   Subtotal   All other performing loans Loans reported as trading assets Loans (60)   209   (3,252)   5,365   154 1,424            (3,665) 154 (55) 1,645 (3,720)     35,185   31,920 (3,265)   33,069   29,295 (3,774) 3,934   3,877 (57)   1,618   1,563 (55) Total loans $ 43,795   $ 37,221 $ (6,574)   $ 40,052   $ 32,503 $ Long-term debt                  $ (c)  15,882 $ (c)  $ 15,909 $ 112 15,260 248   $ NA   12,969 NA 31,142 NA 28,878 NA Principal-protected debt 15,634 $ Nonprincipal-protected debt(b) NA   Total long-term debt NA   $     NA   $ 2,094 NA NA   $ 2,094 NA   Long-term beneficial interests Nonprincipal-protected debt(b) Total long-term beneficial interests 15,797 NA       (7,549) NA   $       NA   $ 1,996 NA   NA   $ 1,996 NA      (a) There were no performing loans that were ninety days or more past due as of June 30, 2014, and December 31, 2013. (b) Remaining contractual principal is not applicable to nonprincipal-protected notes. Unlike principal-protected structured notes, for which the Firm is obligated to return a stated amount of principal at the maturity of the note, nonprincipal-protected structured notes do not obligate the Firm to return a stated amount of principal at maturity, but to return an amount based on the performance of an underlying variable or derivative feature embedded in the note. However, investors are exposed to the credit risk of the Firm as issuer for both nonprincipal-protected and principal protected notes. (c) Where the Firm issues principal-protected zero-coupon or discount notes, the balance reflected as the remaining contractual principal is the final principal payment at maturity. At June 30, 2014, and December 31, 2013, the contractual amount of letters of credit for which the fair value option was elected was $4.5 billion and $4.5 billion, respectively, with a corresponding fair value of $(106) million and $(99) million, respectively. For further information regarding off-balance sheet lending-related financial instruments, see Note 29 of JPMorgan Chase’s 2013 Annual Report, and Note 21 of this Form 10-Q. Structured note products by balance sheet classification and risk component The table below presents the fair value of the structured notes issued by the Firm, by balance sheet classification and the primary risk to which the structured notes’ embedded derivative relates.     June 30, 2014 Other borrowed funds Long-term debt (in millions) Deposits Total December 31, 2013 Other borrowed funds Long-term   debt Deposits Total Risk exposure                  Interest rate $ 10,505 $ 461 $ 1,735 $ 12,701   $ 9,516 $ 615 $ 1,270 $ 11,401 4,248 13 — 4,261 2,321 194 27 2,542 Credit 4,429 124 — Foreign exchange 2,307 136 16 4,553   2,459   12,512 13,510 4,184 30,206   11,082 11,936 3,736 26,754 1,154 589 1,570 3,313   1,260 310 1,133 2,703 Equity Commodity Total structured notes $ 30,907 $ 14,820 $ 7,505 $ 53,232   $ 112 https://www.sec.gov/Archives/edgar/data/19617/000001961714000409/corpq22014.htm[10/8/14, 12:41:43 PM] 28,427 $ 13,068 $ 6,166 $ 47,661 CORP Q2 2014 Note 5 – Derivative instruments JPMorgan Chase makes markets in derivatives for customers and also   uses derivatives to hedge or manage its own risk exposures. For a further discussion of the Firm’s use of and accounting policies regarding derivative instruments, see Note 6 of JPMorgan Chase’s 2013 Annual Report. accounting relationships and are disclosed according to the type of hedge (fair value hedge, cash flow hedge, or net investment hedge). Derivatives not designated in hedge accounting relationships include certain derivatives that are used to manage certain risks associated with specified assets or liabilities (“specified risk management” positions) as well as derivatives used in the Firm’s market-making businesses or for other purposes. The Firm’s disclosures are based on the accounting treatment and purpose of these derivatives. A limited number of the Firm’s derivatives are designated in hedge The following table outlines the Firm’s primary uses of derivatives and the related hedge accounting designation or disclosure category. Type of Derivative Use of Derivative Affected segment or unit Designation and disclosure Manage specifically identified risk exposures in qualifying hedge accounting relationships:     10-Q page reference   ◦ Interest rate Hedge fixed rate assets and liabilities Fair value hedge Corporate/PE 119-120 ◦ Interest rate Hedge floating rate assets and liabilities Cash flow hedge Corporate/PE 121 ◦  Foreign exchange Hedge foreign currency-denominated assets and liabilities Fair value hedge Corporate/PE 119-120 ◦  Foreign exchange Hedge forecasted revenue and expense Cash flow hedge Corporate/PE 121 ◦  Foreign exchange Hedge the value of the Firm’s investments in non-U.S. subsidiaries Net investment hedge Corporate/PE 122 ◦  Commodity Fair value hedge CIB     Hedge commodity inventory Manage specifically identified risk exposures not designated in qualifying hedge accounting relationships: 119-120   ◦  Interest rate Manage the risk of the mortgage pipeline, warehouse loans and MSRs Specified risk management CCB 122 ◦  Credit Manage the credit risk of wholesale lending exposures Specified risk management CIB 122 ◦  Commodity Manage the risk of certain commodities-related contracts and investments Specified risk management CIB 122 Manage the risk of certain other specified assets and liabilities Specified risk management Corporate/PE 122      Interest rate and ◦ foreign exchange Market-making derivatives and other activities:   ◦ Various Market-making and related risk management Market-making and other CIB 122 ◦ Various Other derivatives Market-making and other CIB, Corporate/PE 122 113 Notional amount of derivative contracts The following table summarizes the notional amount of derivative contracts outstanding as of June 30, 2014, and December 31, 2013. Notional amounts (c)   December 31, 2013 June 30, 2014 (in billions)     $ 30,929 $ 35,221 12,556 11,251 Written options (a) 4,305 4,046 Purchased options 4,704 4,187 52,494 54,705 5,100 5,331 Interest rate contracts Swaps Futures and forwards Total interest rate contracts Credit derivatives (a)(b) https://www.sec.gov/Archives/edgar/data/19617/000001961714000409/corpq22014.htm[10/8/14, 12:41:43 PM] CORP Q2 2014   Foreign exchange contracts   Cross-currency swaps 3,680 3,488 Spot, futures and forwards 4,310 3,773 Written options 725 659 Purchased options 716 652 Total foreign exchange contracts 9,431   Equity contracts 8,572   Swaps(a) 198 187 46 50 Written options 474 425 Purchased options 391 380 1,109 1,042 Futures and forwards (a) Total equity contracts   Commodity contracts   Swaps 130 124 Spot, futures and forwards 218 234 Written options 200 202 Purchased options 196 203 Total commodity contracts 744 Total derivative notional amounts $ 763 68,878 $ 70,413 (a) The prior period amount has been revised. This revision had no impact on the Firm’s Consolidated Balance Sheets or its results of operations. (b) For more information on volumes and types of credit derivative contracts, see the Credit derivatives discussion on page 123 of this Note. (c) Represents the sum of gross long and gross short third-party notional derivative contracts. While the notional amounts disclosed above give an indication of the volume of the Firm’s derivatives activity, the notional amounts significantly exceed, in the Firm’s view, the possible losses that could arise from such transactions. For most derivative transactions, the notional amount is not exchanged; it is used simply as a reference to calculate payments. 114 Impact of derivatives on the Consolidated Balance Sheets The following table summarizes information on derivative receivables and payables (before and after netting adjustments) that are reflected on the Firm’s Consolidated Balance Sheets as of June 30, 2014, and December 31, 2013, by accounting designation (e.g., whether the derivatives were designated in qualifying hedge accounting relationships or not) and contract type. Free-standing derivative receivables and payables (a)            June 30, 2014 (in millions) Gross derivative receivables Not designated as hedges Trading assets and liabilities   Interest rate $ Designated as hedges Total derivative receivables Net derivative receivables (b)           Gross derivative payables Not designated as hedges Designated as hedges Total derivative Net derivative payables payables (b)                817,201 $ 3,100 $ 820,301 $ 28,829   $ 784,808 $ 2,410 $ 787,218 $ 15,089 81,052 — 81,052 2,964   79,556 — 79,556 2,832 112,243 1,008 113,251 11,625   113,357 1,327 114,684 11,682 Equity 49,794 — 49,794 9,377   53,524 — 53,524 11,024 Commodity 35,843 283 36,126 9,583   36,181 680 36,861 10,168 50,795 Credit Foreign exchange Total fair value of trading assets and liabilities $ 1,096,133 $ 4,391 $ 1,100,524 $ 62,378   $ 1,067,426 $ 4,417 $ 1,071,843 $                          December 31, 2013 Gross derivative receivables Not designated Designated as Total derivative Net derivative Gross derivative payables Not designated (b) https://www.sec.gov/Archives/edgar/data/19617/000001961714000409/corpq22014.htm[10/8/14, 12:41:43 PM] Designated   Total derivative Net derivative (b) CORP Q2 2014 (in millions) as hedges Trading assets and liabilities   Interest rate $ Credit hedges receivables receivables   as hedges as hedges payables payables                851,189 $ 3,490 $ 854,679 $ 25,782   $ 820,811 $ 4,543 $ 825,354 $ 13,283 83,520 — 83,520 1,516   82,402 — 82,402 2,281 152,240 1,359 153,599 16,790   158,728 1,397 160,125 15,947 Equity 52,931 — 52,931 12,227   54,654 — 54,654 14,719 Commodity 34,344 1,394 35,738 9,444   37,605 9 37,614 11,084 1,180,467 $ 65,759   $ 1,154,200 $ 5,949 $ 1,160,149 $ 57,314 Foreign exchange Total fair value of trading assets and liabilities $ 1,174,224 $ 6,243 $ (a) Balances exclude structured notes for which the fair value option has been elected. See Note 4 for further information. (b) As permitted under U.S. GAAP, the Firm has elected to net derivative receivables and derivative payables and the related cash collateral receivables and payables when a legally enforceable master netting agreement exists. 115 The following table presents, as of June 30, 2014, and December 31, 2013, the gross and net derivative receivables by contract and settlement type. Derivative receivables have been netted on the Consolidated Balance Sheets against derivative payables and cash collateral payables to the same counterparty with respect to derivative contracts for which the Firm has obtained an appropriate legal opinion with respect to the master netting agreement. Where such a legal opinion has not been either sought or obtained, the receivables are not eligible under U.S. GAAP for netting on the Consolidated Balance Sheets, and are shown separately in the table below.     June 30, 2014 Gross derivative receivables (in millions) U.S. GAAP nettable derivative receivables Interest rate contracts: Over–the–counter (“OTC”) Amounts netted on the Consolidated balance sheets Net derivative Gross derivative   receivables receivables Net derivative receivables                                 $ 498,230 $ (475,647)   $ 22,583   $ 486,449 $ (466,493)   $ 316,030 (315,825)   205   362,426 (362,404)   22 — —   —   — —   — 814,260 (791,472)   22,788   848,875 (828,897)   traded (a) Total interest rate contracts Credit contracts: December 31, 2013   OTC–cleared Exchange Amounts netted on the Consolidated balance sheets              19,956 19,978   OTC 69,143 (68,041)   1,102   66,269 (65,725)   544 OTC–cleared 11,422 (10,047)   1,375   16,841 (16,279)   562 80,565 (78,088)   2,477   83,110 (82,004)   1,106 Total credit contracts Foreign exchange contracts:   OTC traded (a) Total foreign exchange contracts Equity contracts:          8,678   —   148,953 48 (101,578)   (48)   — —   110,304 (101,626)   110,256 OTC–cleared Exchange               12,190 46 (136,763)   (46)   —   — —   — 8,678   148,999 (136,809)   12,190        —   23,441 (23,026)   415   31,870 (29,289)   2,581 — —   —   — —   — Exchange traded (a) 20,052 (17,391)   2,661   17,732 (11,415)   6,317 Total equity contracts 43,493 (40,417)   3,076   49,602 (40,704)   8,898 OTC OTC–cleared Commodity contracts:   OTC OTC–cleared Exchange traded (a) Total commodity contracts Derivative receivables with appropriate legal opinion $          21,951 (14,860)   7,091   — 13,414 —   (11,683)   —   1,731   35,365 (26,543)   1,083,987 $ (1,038,146) (b)  $       21,619 (15,082)   6,537 — 12,528 —   (11,212)   1,316 8,822   34,147 (26,294)   7,853 45,841   $ 1,164,733 $ (1,114,708) (b)   $ 50,025 https://www.sec.gov/Archives/edgar/data/19617/000001961714000409/corpq22014.htm[10/8/14, 12:41:43 PM] — CORP Q2 2014 Derivative receivables where an appropriate legal opinion has not been either sought or obtained Total derivative receivables recognized on the Consolidated Balance Sheets $ 16,537     1,100,524     16,537   62,378   $ $ 15,734     1,180,467     15,734 $ 65,759 (a) Exchange traded derivative amounts that relate to futures contracts are settled daily. (b) Included cash collateral netted of $62.0 billion and $63.9 billion at June 30, 2014, and December 31, 2013, respectively. 116 The following table presents, as of June 30, 2014, and December 31, 2013, the gross and net derivative payables by contract and settlement type. Derivative payables have been netted on the Consolidated Balance Sheets against derivative receivables and cash collateral receivables from the same counterparty with respect to derivative contracts for which the Firm has obtained an appropriate legal opinion with respect to the master netting agreement. Where such a legal opinion has not been either sought or obtained, the payables are not eligible under U.S. GAAP for netting on the Consolidated Balance Sheets, and are shown separately in the table below.     June 30, 2014 (in millions) U.S. GAAP nettable derivative payables Interest rate contracts: OTC Net derivative payables                                 $ 472,544 $ (461,345)   $ 11,199   $ 467,850 $ (458,081)   $ 311,744 (310,784)   960   354,698 (353,990)   708 — —   —   — —   — 784,288 (772,129)   12,159   822,548 traded (a) Total interest rate contracts Credit contracts: Amounts netted on the Consolidated balance sheets Net derivative Gross derivative   payables payables   OTC–cleared Exchange Amounts netted on the Consolidated balance sheets Gross derivative payables December 31, 2013            (812,071)   9,769 10,477     OTC 67,182 (65,923)   1,259   65,223 (63,671)   1,552 OTC–cleared 11,910 (10,801)   1,109   16,506 (16,450)   56 79,092 (76,724)   2,368   81,729 (80,121) Total credit contracts Foreign exchange contracts:              1,608     110,876 (102,961)   7,915   155,110 (144,119)   10,991 OTC–cleared 41 — —   —   61 Exchange traded (a) (41)   —   (59)   —   — 110,917 (103,002)   7,915   155,171 OTC Total foreign exchange contracts Equity contracts:   OTC       —    (144,178)   10,993   (25,109)   4,113   33,295 (28,520)   4,775 — — —   —   — —   18,257 (17,391)   866   17,349 (11,415)   Total equity contracts 47,479 (42,500)   4,979   50,644 (39,935) Commodity contracts:   OTC OTC–cleared Exchange traded (a) Total commodity contracts Derivative payables with appropriate legal opinions $ Derivative payables where an appropriate legal opinion has not been either sought or obtained Total derivative payables recognized on the Consolidated Balance Sheets $   29,222 Exchange traded (a) OTC–cleared 2            5,934 10,709     20,689 (15,010)   5,679   21,993 (15,318)   6,675 — —   —   — —   — 13,177 (11,683)   1,494   12,367 (11,212)   1,155 33,866 (26,693)   7,173   34,360 (26,530) 7,830 34,594   $ 1,144,452 $ 1,055,642 $ (1,021,048) (b)  $ 16,201     1,071,843     16,201   $ 50,795   $ (1,102,835) (b)   $ 15,697     1,160,149     41,617 15,697 $ 57,314 (a) Exchange traded derivative balances that relate to futures contracts are settled daily. (b) Included cash collateral netted of $44.9 billion and $52.1 billion related to OTC and OTC-cleared derivatives at June 30, 2014, and December 31, 2013, respectively. 117 https://www.sec.gov/Archives/edgar/data/19617/000001961714000409/corpq22014.htm[10/8/14, 12:41:43 PM] CORP Q2 2014 non-cash financial instruments (generally U.S. government and agency securities and other G7 government bonds), (b) the amount of collateral held or transferred exceeds the fair value exposure, at the individual counterparty level, as of the date presented, or (c) the collateral relates to derivative receivables or payables where an appropriate legal opinion has not been either sought or obtained. In addition to the cash collateral received and transferred that is   presented on a net basis with net derivative receivables and payables, the Firm receives and transfers additional collateral (financial instruments and cash). These amounts mitigate counterparty credit risk associated with the Firm’s derivative instruments but are not eligible for net presentation, because (a) the collateral is comprised of The following tables present information regarding certain financial instrument collateral received and transferred as of June 30, 2014, and December 31, 2013, that is not eligible for net presentation under U.S. GAAP. The collateral included in these tables relates only to the derivative instruments for which appropriate legal opinions have been obtained; excluded are (i) additional collateral that exceeds the fair value exposure and (ii) all collateral related to derivative instruments where an appropriate legal opinion has not been either sought or obtained.    Derivative receivable collateral   Derivative receivables with appropriate legal opinions   June 30, 2014 Collateral not nettable on the Consolidated balance sheets Net derivative receivables (in millions) $   Collateral not nettable on the Consolidated balance sheets Net derivative receivables (10,707) (a)   $ 35,134   $ 45,841 $ Net derivative payables (in millions) $ Collateral not nettable on the Consolidated balance sheets   Net amount(c)         Net amount(c) December 31, 2013 Collateral not nettable on the Consolidated balance sheets Net derivative payables (7,302) (a)   $ 27,292   $ 34,594 $ Net exposure       June 30, 2014   (12,414) (a)  $ 37,611 50,025 $        December 31, 2013 Net exposure   Derivative payable collateral(b) Derivative payables with appropriate legal opinions   (6,873) (a)  $ 34,744 41,617 $ (a) Represents liquid security collateral as well as cash collateral held at third party custodians. For some counterparties, the collateral amounts of financial instruments may exceed the derivative receivables and derivative payables balances. Where this is the case, the total amount reported is limited to the net derivative receivables and net derivative payables balances with that counterparty. (b) Derivative payable collateral relates only to OTC and OTC-cleared derivative instruments. Amounts exclude collateral transferred related to exchange-traded derivative instruments. (c) Net amount represents exposure of counterparties to the Firm. Liquidity risk and credit-related contingent features For a more detailed discussion of liquidity risk and credit-related contingent features related to the Firm’s derivative contracts, see Note 6 of JPMorgan Chase’s 2013 Annual Report.   OTC and OTC-cleared derivative payables containing downgrade triggers The following table shows the aggregate fair value of net derivative payables related to OTC and OTC-cleared derivatives that contain contingent collateral or termination features that may be triggered upon a ratings downgrade, and the associated collateral the Firm has posted in the normal course of business, at June 30, 2014, and December 31, 2013. December 31, 2013 June 30, 2014 (in millions) Aggregate fair value of net derivative payables $ Collateral posted 22,077 $ 24,631 17,569 20,346 118 The following table shows the impact of a single-notch and two-notch downgrade of the long-term issuer ratings of JPMorgan Chase & Co. and its subsidiaries, predominantly JPMorgan Chase Bank, National Association (“JPMorgan Chase Bank, N.A.”), at June 30, 2014, and December 31, 2013, related to OTC and OTC-cleared derivative contracts with contingent collateral or termination features that may be triggered upon a ratings downgrade. Derivatives contracts generally require additional collateral to be posted or terminations to be triggered when the predefined threshold rating is breached. A downgrade by a single rating agency that does not result in a rating lower than a preexisting corresponding rating provided by another major rating agency will generally not result in additional collateral, except in certain instances in which additional initial margin may be required upon a ratings downgrade, or termination payment requirements. The liquidity impact in the table is calculated based upon a downgrade below the lowest current rating of the rating agencies referred to in the derivative contract. Liquidity impact of downgrade triggers on OTC and OTC-cleared derivatives   (in millions)        June 30, 2014 Single-notch downgrade Two-notch downgrade https://www.sec.gov/Archives/edgar/data/19617/000001961714000409/corpq22014.htm[10/8/14, 12:41:43 PM]       December 31, 2013 Single-notch downgrade Two-notch downgrade CORP Q2 2014 Amount of additional collateral to be posted upon downgrade(a) $ 3,337   $ 929 $ 952 $ 3,244 Amount required to settle contracts with termination triggers upon downgrade(b) 920   578 540 876 (a) Includes the additional collateral to be posted for initial margin. (b) Amounts represent fair value of derivative payables, and do not reflect collateral posted. Impact of derivatives on the Consolidated Statements of Income The following tables provide information related to gains and losses recorded on derivatives based on their hedge accounting designation or purpose. Fair value hedge gains and losses The following tables present derivative instruments, by contract type, used in fair value hedge accounting relationships, as well as pretax gains/(losses) recorded on such derivatives and the related hedged items for the three and six months ended June 30, 2014 and 2013, respectively. The Firm includes gains/(losses) on the hedging derivative and the related hedged item in the same line item in the Consolidated Statements of Income.   Three months ended June 30, 2014 (in millions) Derivatives Contract type   rate (a) $ Interest   Gains/(losses) recorded in income Hedged items     578 $ (261) $ Foreign exchange (b) (388) 307 Commodity (c) (561) 652    317 $ (371) $ 698 $         Derivatives Hedged items       Interest $ (2,107) $ 2,434 $ Foreign exchange (b) Total $ (368) 457 (1,087) (1,370) $ $   13 78  $ 56 327   $ 327  $ (88)   (630)   (391)   $ 271   Income statement impact due to:    979 $ 274 (81) Total income statement impact   Hedge ineffectiveness(e) rate (a) 280 43    Contract type Commodity (c)(d)   — Gains/(losses) recorded in income Three months ended June 30, 2013 (in millions)  $ Excluded components (f) (81)   91 Total   Income statement impact due to: Total income statement impact   Hedge ineffectiveness(e) Excluded components (f)   (60) $ 387 — (88) 6 (636) (54) $ (337) 119     Gains/(losses) recorded in income Six months ended June 30, 2014 (in millions) Derivatives Total income statement impact   Hedge ineffectiveness(e) Excluded components (f) Hedged items Contract type       Interest rate (a) $ 1,321 $ (668) $ Foreign exchange (b) Commodity (c)    653  $ 28 105 133 $ 154 $ 477 $            Gains/(losses) recorded in income       Interest rate (a) $ (2,606) $ 3,309 $ 4,033 (4,120) 100 $ 531   Income statement impact due to: Total income statement impact   Hedge ineffectiveness(e) Excluded components (f) Hedged items Contract type Foreign 581   514   exchange (b) $ (155) (381) Derivatives 72 — 631 Total Six months ended June 30, 2013 (in millions)   (155)   (786) 631   $   Income statement impact due to:    703  $ (87)   (c)(d) https://www.sec.gov/Archives/edgar/data/19617/000001961714000409/corpq22014.htm[10/8/14, 12:41:43 PM]   (100) — $ 803 (87) CORP Q2 2014 Commodity Total $ (604)   1,208 (1,812) 2,635 $ (2,623) $ 12 (12)  $ (592) (112) $ 124 (a) Primarily consists of hedges of the benchmark (e.g., London Interbank Offered Rate (“LIBOR”)) interest rate risk of fixed-rate long-term debt and AFS securities. Gains and losses were recorded in net interest income. The current presentation excludes accrued interest. (b) Primarily consists of hedges of the foreign currency risk of long-term debt and AFS securities for changes in spot foreign currency rates. Gains and losses related to the derivatives and the hedged items, due to changes in foreign currency rates, were recorded in principal transactions revenue and net interest income. (c) Consists of overall fair value hedges of physical commodities inventories that are generally carried at the lower of cost or market (market approximates fair value). Gains and losses were recorded in principal transactions revenue. (d) The prior period amounts have been revised. This revision had no impact on the Firm’s Consolidated Balance Sheets or its results of operations. (e) Hedge ineffectiveness is the amount by which the gain or loss on the designated derivative instrument does not exactly offset the gain or loss on the hedged item attributable to the hedged risk. (f) The assessment of hedge effectiveness excludes certain components of the changes in fair values of the derivatives and hedged items such as forward points on foreign exchange forward contracts and time values.              120 Cash flow hedge gains and losses The following tables present derivative instruments, by contract type, used in cash flow hedge accounting relationships, and the pretax gains/(losses) recorded on such derivatives, for the three and six months ended June 30, 2014 and 2013, respectively. The Firm includes the gain/(loss) on the hedging derivative and the change in cash flows on the hedged item in the same line item in the Consolidated Statements of Income. Gains/(losses) recorded in income and other comprehensive income/(loss)(c)   Derivatives – effective portion reclassified from AOCI to income Three months ended June 30, 2014 (in millions) Contract type Interest rate (a)     $ (10) $ Foreign exchange (b) Total 39 $ 29 $     — $ (10) $ — 39 — $ 29 Total change in OCI for period Derivatives – effective portion recorded in OCI Total income statement impact   $ 71 $ 81 72 33 143 $ Derivatives – effective portion reclassified from AOCI to income Three months ended June 30, 2013 (in millions) Hedge ineffectiveness recorded directly in income (d)   Contract type rate (a) $ Foreign exchange (b) Total $   Derivatives – effective portion recorded in OCI Total income statement impact   Total change in OCI for period     (500) $ (14) $ — $ (14) $ (20) — (20) (34) $ — $ (34) $ (486) (12) 8 (512) $ (478) Gains/(losses) recorded in income and other comprehensive income/(loss)(c)   Derivatives – effective portion reclassified from AOCI to income Six months ended June 30, 2014 (in millions) Hedge ineffectiveness recorded directly in income (d) Total change in OCI for period Derivatives – effective portion recorded in OCI Total income statement impact Contract type           Interest rate (a) $ (36) $ — $ (36) $ 134 $ Foreign 114 Gains/(losses) recorded in income and other comprehensive income/(loss)(c)   Interest Hedge ineffectiveness recorded directly in income (d) exchange (b) Total 38 $ — 2 $ 38 — $ 2 170 81 $ 43 215 $ 213 Gains/(losses) recorded in income and other comprehensive income/(loss)(c)   Derivatives – effective portion reclassified from AOCI to income Six months ended June 30, 2013 (in millions) Hedge ineffectiveness recorded directly in income (d) Derivatives – effective portion recorded in OCI Total income statement impact Total change in OCI for period Contract type           Interest rate (a) $ (41) $ — $ (41) $ (526) $ (b) https://www.sec.gov/Archives/edgar/data/19617/000001961714000409/corpq22014.htm[10/8/14, 12:41:43 PM] (485) CORP Q2 2014 Foreign exchange Total $ (22) — (22) (116) (63) $ — $ (63) $ (642) $ (94) (579) (a) Primarily consists of benchmark interest rate hedges of LIBOR-indexed floating-rate assets and floating-rate liabilities. Gains and losses were recorded in net interest income. (b) Primarily consists of hedges of the foreign currency risk of non-U.S. dollar-denominated revenue and expense. The income statement classification of gains and losses follows the hedged item – primarily noninterest revenue and compensation expense. (c) The Firm did not experience any forecasted transactions that failed to occur for the three and six months ended June 30, 2014 and 2013. (d) Hedge ineffectiveness is the amount by which the cumulative gain or loss on the designated derivative instrument exceeds the present value of the cumulative expected change in cash flows on the hedged item attributable to the hedged risk. Over the next 12 months, the Firm expects that $71 million (after-tax) of net gains recorded in accumulated other comprehensive income (“AOCI”) at June 30, 2014, related to cash flow hedges will be recognized in income. The maximum length of time over which forecasted transactions are hedged is 9 years, and such transactions primarily relate to core lending and borrowing activities. 121 Net investment hedge gains and losses The following table presents hedging instruments, by contract type, that were used in net investment hedge accounting relationships, and the pretax gains/(losses) recorded on such instruments for the three and six months ended June 30, 2014 and 2013. Gains/(losses) recorded in income and other comprehensive income/(loss)       2014 Excluded components recorded directly in income (a) Three months ended June 30, (in millions)   Foreign exchange derivatives (122)   $ Effective portion recorded in OCI 2013 Excluded components recorded directly in income (a)   (208)   $   (85)   $ Effective portion recorded in OCI $ 571 Gains/(losses) recorded in income and other comprehensive income/(loss)       2014 Excluded components recorded directly in income (a) Six months ended June 30, (in millions)   Foreign exchange derivatives (227)   $ Effective portion recorded in OCI $ 2013 Excluded components recorded directly in income (a)   (362)     $ (162)   Effective portion recorded in OCI $ 991 (a)Certain components of hedging derivatives are permitted to be excluded from the assessment of hedge effectiveness, such as forward points on foreign exchange forward contracts. Amounts related to excluded components are recorded in current-period income. The Firm measures the ineffectiveness of net investment hedge accounting relationships based on changes in spot foreign currency rates, and therefore there was no material ineffectiveness for net investment hedge accounting relationships during the three and six months ended June 30, 2014 and 2013.                         Gains and losses on derivatives related to market-making activities Gains and losses on derivatives used for specified risk management   and other derivatives purposes The Firm makes markets in derivatives in order to meet the needs of The following table presents pretax gains/(losses) recorded on a customers and uses derivatives to manage certain risks associated with limited number of derivatives, not designated in hedge accounting net open risk positions from the Firm’s market-making activities, relationships, that are used to manage risks associated with certain including the counterparty credit risk arising from derivative specified assets and liabilities, including certain risks arising from the receivables. These derivatives, as well as all other derivatives that are mortgage pipeline, warehouse loans, MSRs, wholesale lending not included in the hedge accounting or specified risk management exposures, foreign currency-denominated liabilities, and categories above, are included in this category. Gains and losses on commodities-related contracts and investments. these derivatives are primarily recorded in principal transactions Derivatives gains/(losses) revenue. See Note 6 for information on principal transactions revenue.   recorded in income Three months ended June 30,   (in millions) 2014 Six months ended June 30, 2013 2014 2013 Contract type         Interest rate (a) $ 589 $ 269 $ 1,107 $ 727 (8) (41) (39) Credit (b) (24) https://www.sec.gov/Archives/edgar/data/19617/000001961714000409/corpq22014.htm[10/8/14, 12:41:43 PM] CORP Q2 2014 Foreign exchange (c) (3) Commodity (d) Total (21) $ 541 $ — 40 301 $ (3) 1 162 74 1,225 $ 763 (a) Primarily represents interest rate derivatives used to hedge the interest rate risk inherent in the mortgage pipeline, warehouse loans and MSRs, as well as written commitments to originate warehouse loans. Gains and losses were recorded predominantly in mortgage fees and related income. (b) Relates to credit derivatives used to mitigate credit risk associated with lending exposures in the Firm’s wholesale businesses. These derivatives do not include credit derivatives used to mitigate counterparty credit risk arising from derivative receivables, which is included in gains and losses on derivatives related to marketmaking activities and other derivatives. Gains and losses were recorded in principal transactions revenue. (c) Primarily relates to hedges of the foreign exchange risk of specified foreign currency-denominated liabilities. Gains and losses were recorded in principal transactions revenue. (d) Primarily relates to commodity derivatives used to mitigate energy price risk associated with energy-related contracts and investments. Gains and losses were recorded in principal transactions revenue. 122 Credit derivatives For a more detailed discussion of credit derivatives, see Note 6 of JPMorgan Chase’s 2013 Annual Report. Total credit derivatives and credit-related notes     Maximum payout/Notional amount June 30, 2014 (in millions) Protection Net protection purchased with Protection sold identical underlyings(c) (sold)/purchased (d)   Other protection purchased (e)   Credit derivatives     $ Other credit derivatives (a) (2,370,387)   (63,840)   Total credit derivatives (2,434,227)   2,621,356 (114)   — Credit default swaps Credit-related notes   $         2,573,221 $   $ 19,406   48,135 Total $ (2,434,341)   $           202,834 (15,705)   24,692     44,098   (114)   2,892   187,129 2,621,356 $ 187,015   Maximum payout/Notional amount   $ 46,990           December 31, 2013 (in millions) Protection Net protection purchased with Protection sold identical underlyings(c) (sold)/purchased (d)   Other protection purchased (e)   Credit derivatives           Credit default swaps $ (2,601,581)   8,617   $ 8,722   45,921 1,784 (b)   20,480 (b)   10,401   29,202   (130)   2,720       $ 2,610,198 $ Other credit derivatives (a) (44,137) Total credit derivatives (2,645,718)   2,656,119 (130)   — Credit-related notes Total $ (b)   (2,645,848)   $ 2,656,119 $ 10,271   31,922   $ (a) Other credit derivatives predominantly consists of credit swap options. (b) The prior period amounts have been revised. This revision had no impact on the Firm’s Consolidated Balance Sheets or its results of operations. (c) Represents the total notional amount of protection purchased where the underlying reference instrument is identical to the reference instrument on protection sold; the notional amount of protection purchased for each individual identical underlying reference instrument may be greater or lower than the notional amount of protection sold. (d) Does not take into account the fair value of the reference obligation at the time of settlement, which would generally reduce the amount the seller of protection pays to the buyer of protection in determining settlement value. (e) Represents protection purchased by the Firm on referenced instruments (single-name, portfolio or index) where the Firm has not sold any protection on the identical reference instrument. The following tables summarize the notional amounts by the ratings and maturity profile, and the total fair value, of credit derivatives as of June 30, 2014, and December 31, 2013, where JPMorgan Chase is the seller of protection. The maturity profile is based on the remaining contractual maturity of the credit derivative contracts. The ratings profile is based on the rating of the reference entity on which the credit derivative contract is based. The ratings and maturity profile of credit derivatives and credit-related notes where JPMorgan Chase is the purchaser of protection are comparable to the profile reflected below. Protection sold – credit derivatives and credit-related notes ratings(a) /maturity profile Total https://www.sec.gov/Archives/edgar/data/19617/000001961714000409/corpq22014.htm[10/8/14, 12:41:43 PM]   Fair value of   Fair value of     Net fair CORP Q2 2014 June 30, 2014 (in millions)   <1 year   1–5 years Risk rating of reference entity     Investment-grade $ (416,698)   $ (1,280,933)   (150,449)   (463,834)   (27,698)   (567,147)   $ (1,744,767)   $ (122,427)   Noninvestment-grade Total $ December 31, 2013 (in millions)   <1 year Risk rating of reference entity   Investment-grade Noninvestment-grade $ (b)   (368,712)         $ (1,469,773) (b)   (94,729)   >5 years $ $   $ (b)   (544,671)   (28,943)   (509,252)   $ (2,014,444)   $ (122,152)   (1,792,360)   $   $ (b)   (1,931,694) (2,645,848)     33,363   $ (2,403)   $ 30,960   (14,775)   12,192   (17,178)   $ 43,152     $     (b)   31,730 59,156   $     (b)   (5,664)   Net fair value   $ 27,426   $   Fair value of payables (c)     (714,154)   $   Fair value of receivables (c) $   value   60,330   $     payables (c)     26,967   (2,434,341)   Total notional amount   (140,540)       (641,981)     (93,209) receivables (c)   notional amount     $   1–5 years   $ Total     >5 years   $ 26,066 (b)   (16,674)   10,752   (22,338)   $ 36,818   (a) The ratings scale is based on the Firm’s internal ratings, which generally correspond to ratings as defined by S&P and Moody’s. (b) The prior period amounts have been revised. This revision had no impact on the Firm’s Consolidated Balance Sheets or its results of operations. (c) Amounts are shown on a gross basis, before the benefit of legally enforceable master netting agreements and cash collateral received by the Firm. 123 Note 6 – Noninterest revenue   For a discussion of the components of and accounting policies for the Firm’s noninterest revenue, see Note 7 of JPMorgan Chase’s 2013 Annual Report. The following table presents the components of investment banking fees. (c) Includes revenue on private equity investments held in the Private Equity business within Corporate/Private Equity, as well as those held in other business segments. The following table presents the components of firmwide asset management, administration and commissions. Three months ended June   30,   Three months ended June   30,   (in millions)   2014 Six months ended June 30,   2013   2014 (in millions) 2013 Underwriting            Equity $ 477   $ 457   $ 830   $ 1,559   1,873 Debt Total underwriting Advisory Total investment banking fees 730 876   956   1,353   1,413   2,389   2,603 398   304   782   559 1,751   $ 1,717   $ 3,171   $ 3,162 The following table presents all realized and unrealized gains and losses recorded in principal transactions revenue. This table excludes interest income and interest expense on trading assets and liabilities, which are an integral part of the overall performance of the Firm’s client-driven market-making activities. See Note 7 for further information on interest income and interest expense. Trading revenue is presented primarily by instrument type. The Firm’s client-driven market-making businesses generally utilize a variety of instrument types in connection with their market-making and related risk management activities; accordingly, the trading revenue presented in the table below is not representative of the total revenue of any individual line of business.   Three months ended June   30, (in millions) 2014 Trading revenue by instrument type (a)     2013   Six months ended June 30, 2014   2013          626   $ 434   $ 981   $ Credit 603   701   1,129   2,002 Foreign exchange 342   701   868   1,202 Interest rate $ 884   2013   2014   2013 Asset management fees            Investment management fees(a) $ 2,260   $ 1,948   $ 4,356   $ 131   139   254   263 2,391   2,087   4,610   4,036 All other asset management fees(b) Total asset management fees   $ 2014 Six months ended June 30, Total administration fees(c)  Commission and other fees      564                548         3,773    1,091   1,075       Brokerage commissions 567   625   1,199   1,205 All other commissions and fees 485   605   943   1,148 1,052   1,230   2,142   2,353 4,007   $ 3,865   $ 7,843   $ 7,464 Total commissions and fees Total asset management, administration and commissions $ (a) Represents fees earned from managing assets on behalf of Firm clients, including investors in Firm-sponsored funds and owners of separately managed investment accounts. (b) Represents fees for services that are ancillary to investment management services, such as commissions earned on the sales or distribution of mutual funds to clients. (c) Predominantly includes fees for custody, securities lending, funds services and securities clearance. Other income Included in other income is operating lease income of $422 million https://www.sec.gov/Archives/edgar/data/19617/000001961714000409/corpq22014.htm[10/8/14, 12:41:43 PM] CORP Q2 2014 Equity 759   897   1,564   1,986 Commodity (b) 347   547   1,035   1,239 2,677   3,280   5,577   7,313 231   480   653   208 2,908   $ 3,760   $ 6,230   $ Total trading revenue Private equity  gains/(losses)(c) Principal transactions $ 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. 7,521 (a) Prior to the second quarter of 2014, trading revenue was presented by major underlying type of risk exposure, generally determined based upon the business primarily responsible for managing that risk exposure. Prior period amounts have been revised to conform with the current period presentation. This revision had no impact on the Firm’s Consolidated Balance Sheets or results of operations. (b) Includes realized gains and losses and unrealized losses on physical commodities inventories that are generally carried at the lower of cost or market (market approximates fair value), subject to any applicable fair value hedge accounting adjustments, and gains and losses on commodity derivatives and other financial instruments that are carried at fair value through income. Commodity derivatives are frequently used to manage the Firm’s risk exposure to its physical commodities inventories. For gains/(losses) related to commodity fair value hedges see Note 5. 124 Note 7 – Interest income and Interest expense For a description of JPMorgan Chase’s accounting policies regarding interest income and interest expense, see Note 8 of JPMorgan Chase’s 2013 Annual Report. Details of interest income and interest expense were as follows. Three months ended June 30,   (in millions) 2014 Interest income Loans       $ 8,039   1,940   Taxable securities Tax-exempt securities Total securities   2013     $ 8,341   1,581   2014     2013           $ 16,078   3,840   $ 16,854   3,288   337   197   654   380   2,277   1,778   4,494   3,668   3,598   4,335 (d)   1,827   Trading assets Six months ended June 30,   2,124 (d)   398   490   834   1,004   (131)   (30)   (219)   (36)   Deposits with banks 279   222   535   385   Other assets (b) 172   147   334   227   Federal funds sold and securities purchased under resale agreements Securities borrowed (a)  Total interest income Interest expense 12,861     liabilities(c) Beneficial interests issued by consolidated VIEs Total interest expense 442 Provision for credit losses $       843   (d)     1,084   900 (d)   883   1,086   1,261   2,253   2,556   105   126   210   260   2,368 (d)   2,063   Net interest income   26,437 (d)   25,654   539   455   Long-term debt Net interest income after provision for credit losses   417   Interest-bearing deposits Short-term and other   13,072 (d)   4,800 (d)   4,189   10,798   10,704   21,465   21,637   692   47   1,542   664   10,106   $ 10,657   $ 19,923   $ 20,973   (a) Negative interest income for the three and six months ended June 30, 2014 and 2013, is a result of increased client-driven demand for certain securities combined with the impact of low interest rates; the offset of this matched book activity is reflected as lower net interest expense reported within short-term and other liabilities. (b) Largely margin loans. (c) Includes brokerage customer payables. (d) Effective January 1,2014, prior period amounts (and the corresponding amounts on the Consolidated statements of income) have been reclassified to conform with the current period presentation. https://www.sec.gov/Archives/edgar/data/19617/000001961714000409/corpq22014.htm[10/8/14, 12:41:43 PM] CORP Q2 2014 125 Note 8 – Pension and other postretirement employee benefit plans For a discussion of JPMorgan Chase’s pension and other postretirement employee benefit (“OPEB”) plans, see Note 9 of JPMorgan Chase’s 2013 Annual Report. The following table presents the components of net periodic benefit costs reported in the Consolidated Statements of Income for the Firm’s U.S. and non-U.S. defined benefit pension, defined contribution and OPEB plans.      Pension plans     U.S. 2014 Three months June 30, (in millions) 2013   Non-U.S. 2014   2013     OPEB plans 2014 2013 Components of net periodic benefit cost               Benefits earned during the period $ 70 $ 79   $ 8 $ 8  $ — $ Interest cost on benefit obligations 134 Expected return on plan assets (246)   Amortization: Net (gain)/loss Prior service cost/(credit) Net periodic defined benefit cost Other defined benefit pension plans (a) 111   36 (238)   (45)        30   9 (34)   (25)    — 9 (24)   7 67   12 12   — — (12) (11)   — —   — — (47) 8   11 16   (16) (15) 4 4   1 4   NA NA Total defined benefit plans (43) 12   12 20   (16) (15) Total defined contribution plans 110 115   87 80   NA NA (15) Total pension and OPEB cost included in compensation expense $ 67 $ 127   $ 99 $ 100   $ (16) $                                        Pension plans     U.S. 2014 Six months ended June 30, (in millions) 2013   Non-U.S. 2014   2013   OPEB plans 2014 2013 Components of net periodic benefit cost               Benefits earned during the period $ 140 $ 157   $ 17 $ 17   $ — $ Interest cost on benefit obligations Expected return on plan assets Amortization: — 268 223   70 60   18 18 (492) (477)   (89) (68)   (50) (46)                13 135   24 24   — 1 (22) (21)   — (1)   — — (93) 22 (27) 3 32   6   (32) 7 17   7   NA NA Total defined benefit plans (86) 24   25 38   (32) (27) Total defined contribution plans 218 220   167 159   NA NA 132 $ 244   $ 192 $ 197   $ (32) $ (27) Net (gain)/loss Prior service cost/(credit) Net periodic defined benefit cost Other defined benefit pension plans (a) Total pension and OPEB cost included in compensation expense $ (a) Includes various defined benefit pension plans which are individually immaterial. The fair values of plan assets for the U.S. defined benefit pension and   OPEB plans and for the material non-U.S. defined benefit pension plans were $16.7 billion and $3.8 billion, as of June 30, 2014, and $16.1 billion and $3.5 billion respectively, as of December 31, 2013. See Note 19 for further information on unrecognized amounts (i.e., net loss and prior service costs/(credit)) reflected in AOCI for the three and six month periods ended June 30, 2014, and 2013. The Firm does not anticipate any contribution to the U.S. defined benefit pension plan in 2014 at this time. For 2014, the cost associated with funding benefits under the Firm’s U.S. non-qualified defined benefit pension plans is expected to total $37 million. The 2014 contributions to the non-U.S. defined benefit pension and OPEB plans are expected to be $49 million and $2 million, respectively. https://www.sec.gov/Archives/edgar/data/19617/000001961714000409/corpq22014.htm[10/8/14, 12:41:43 PM] CORP Q2 2014 126 Note 9 – Employee stock-based incentives Note 10 – Noninterest expense   For a discussion of the accounting policies and other information relating to employee stock-based incentives, see Note 10 of JPMorgan Chase’s 2013 Annual Report. The following table presents the components of noninterest expense.   The Firm recognized the following noncash compensation expense related to its various employee stock-based incentive plans in its Consolidated Statements of Income.   Three months ended   June 30, (in millions) 2014 Cost of prior grants of restricted stock units (“RSUs”) and stock appreciation rights (“SARs”) that are amortized over their applicable vesting periods $ Accrual of estimated costs of stock awards to be granted in future periods including those to full-career eligible employees Total noncash compensation expense related to employee stock-based incentive plans   2013   (in millions) 2014   372   $ 214   Noncompensation expense:            Occupancy expense Technology, communications and equipment expense Marketing Amortization of intangibles 471 Total noncompensation expense $ 524   $ 586   $ 1,142   $ 1,227 2013 15,469   $ 756 397     2014 8,019   $ Other expense (a)(b) 189     2013 Six months ended June 30, 7,610   $ 2013 745   $   2014 Professional and outside services 335   $   $ Compensation expense Six months ended June 30, Three months ended June 30, Total noninterest expense $ 16,433 973   904   1,925   1,805 1,433   1,361   2,844   2,693 1,932 1,901 3,718   3,635     650   578   1,214   1,167 2,701   2,951   4,634   5,252 132 152 263     7,821   7,847   15,431   $ 15,866   $   304 14,598   14,856 30,067   $ 31,289 (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. (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. In the first quarter of 2014, in connection with its annual incentive grant for the 2013 performance year, the Firm granted 36 million RSUs with a weighted-average grant date fair value of $57.87 per RSU. Separately, on July 15, 2014, the Compensation Committee and Board of Directors determined that the Chairman and Chief Executive Officer had met all requirements for the vesting of the 2 million SAR awards originally issued in January 2008 and thus, the awards have become exercisable. The SARs, which will expire in January 2018, have an exercise price of $39.83 (the price of JPMorgan Chase common stock on the date of issuance). 127 Note 11 – Securities Securities are classified as AFS, HTM or trading. Securities classified as trading are discussed in Note 3. Predominantly all of the Firm’s AFS and HTM investment securities (the “investment securities portfolio”) are held by Treasury and Chief Investment Office (“CIO”) in connection with its asset-liability management objectives. At both June 30, 2014, and December 31, 2013, the average credit rating of the debt securities comprising the investment securities portfolio was AA+ (based upon external ratings where available and, where not available, based primarily upon internal ratings which correspond to ratings as defined by S&P and Moody’s). For additional information regarding the investment securities portfolio, see Note 12 of JPMorgan Chase’s 2013 Annual Report. During the first quarter of 2014, the Firm transferred U.S. government agency mortgage-backed securities and obligations of U.S. states and municipalities with a fair value of $19.3 billion from available-forsale to held-to-maturity. These securities were transferred at fair value. Accumulated other comprehensive income included net pretax unrealized losses of $9 million on the securities at the date of transfer.   Realized gains and losses The following table presents realized gains and losses and other-thantemporary impairment losses (“OTTI”) from AFS securities that were recognized in income. Three months ended June 30,   (in millions) Realized gains $ 76 $ (64) Net realized gains (a) OTTI losses: 2013   2014 Realized losses 143   $ (13)   130   12          Six months ended June 30, 2014   224   (180)   2013 $ (25) 44     664 639   Securities the Firm intends to sell — (6)   (2) (b)   (6) Total OTTI losses recognized in income — (6)   (2)   (6) 124   $ 42   Net securities gains $ https://www.sec.gov/Archives/edgar/data/19617/000001961714000409/corpq22014.htm[10/8/14, 12:41:43 PM] 12 $ $ 633 CORP Q2 2014 (a) Total proceeds from securities sold were within approximately 1% and 1% of amortized cost for the three and six months ended June 30, 2014, respectively and 1% and 3% of amortized cost for the three and six months ended June 30, 2013. (b) Excludes realized losses of $1 million for the six months ended June 30, 2014 that had been previously reported as an OTTI loss due to the intention to sell the securities. The transfers reflect the Firm’s intent to hold the securities to maturity in order to reduce the impact of price volatility on accumulated other comprehensive income and certain capital measures under Basel III. The amortized costs and estimated fair values of the investment securities portfolio were as follows for the dates indicated.     June 30, 2014 Gross unrealized gains Amortized cost (in millions) December 31, 2013 Gross unrealized gains Gross unrealized Amortized losses Fair value   cost Gross unrealized losses Fair value Available-for-sale debt securities                      Mortgage-backed securities:                      $ 62,353 $ 2,328 $ 169   $ 64,512   $ 76,428 $ 2,364 $ 977   $                      U.S. government agencies(a)  Residential: Prime and Alt-A 3,535   2,744 61 27   2,778 —   835   908 23 1   930 1,403 —   53,869   57,448 1,314 1   58,761 601 4   18,413   15,891 560 26   16,425 136,937 4,427 200   141,164   153,419 4,322 1,032   156,709 19,279 82 2   19,359   21,310 385 306   21,389 26,480 1,694 88   28,086   29,741 707 987   29,461 3,487 75 27 Subprime 815 20 Non-U.S. 52,466 17,816 Commercial Total mortgage-backed securities U.S. Treasury and government agencies(a) Obligations of U.S. states and municipalities 77,815 1,411 1 2   1,410   1,041 1 1   1,041 Non-U.S. government debt securities 56,727 1,170 52   57,845   55,507 863 122   56,248 Corporate debt securities 20,779 590 13   21,356   21,043 498 29   21,512 Certificates of deposit   Asset-backed securities:                    Collateralized loan obligations 28,299 224 73   28,450   28,130 236 136   28,230 Other 12,890 218 —   13,108   12,062 186 3   12,245 302,802 8,406 430   310,778   322,253 7,198 2,616   326,835 3,278 13 —   3,291   3,125 17 —   3,142 $ 306,080 $ 8,419 $ 430   $ 314,069   $ 325,378 $ 7,215 $ 2,616   $ 329,977 $ 47,849 $ 1,314 $ —   49,163   $ 24,026 $ 22 $ 317   Total available-for-sale debt securities Available-for-sale equity securities Total available-for-sale securities Total held-to-maturity securities (b) $ $ 23,731 (a) Included total U.S. government-sponsored enterprise obligations with fair values of $58.2 billion and $67.0 billion at June 30, 2014, and December 31, 2013, respectively. (b) As of June 30, 2014, consists of MBS issued by U. S. government-sponsored enterprises with an amortized cost of $35.4 billion, MBS issued by U.S. government agencies with an amortized cost of $4.1 billion and obligations of U.S. states and municipalities with an amortized cost of $8.3 billion. As of December 31, 2013, consists of MBS issued by U.S. government-sponsored enterprises with an amortized cost of $23.1 billion and obligations of U.S. states and municipalities with an amortized cost of $920 million. 128 Securities impairment The following tables present the fair value and gross unrealized losses for investment securities by aging category at June 30, 2014, and December 31, 2013.   Securities with gross unrealized losses     Less than 12 months June 30, 2014 (in millions) Gross unrealized losses Fair value   12 months or more Gross unrealized losses Fair value     Total fair value Total gross unrealized losses Available-for-sale debt securities              Mortgage-backed securities:              17   $    7,131 $ 152 $ 8,485 $       U.S. government agencies $ 1,354 $ Residential:     Prime and Alt-A 536 2   462 https://www.sec.gov/Archives/edgar/data/19617/000001961714000409/corpq22014.htm[10/8/14, 12:41:43 PM] 25 998 169 27 CORP Q2 2014 Subprime — —   — — — — Non-U.S. — —   — — — — — —   165 4 165 4 1,890 19   7,758 181 9,648 200 Commercial Total mortgage-backed securities — —   1,994 2 1,994 2 Obligations of U.S. states and municipalities 3,574 75   556 13 4,130 88 Certificates of deposit 1,276 2   — — 1,276 2 Non-U.S. government debt securities 8,925 18   1,481 34 10,406 52 8   337 U.S. Treasury and government agencies Corporate debt securities Asset-backed securities: 2,193   Collateralized loan obligations Other Total available-for-sale debt securities Available-for-sale equity securities Held-to-maturity securities Total securities with gross unrealized losses $      5   2,530   13   9,052 28   5,102 45 14,154 73 — —   — — — — 26,910 150   17,228 280 44,138 430 — —   — — — — — —   — 26,910 $ 150   $ 17,228 $   — 280 $ — — 44,138 $ 430 Securities with gross unrealized losses     Less than 12 months December 31, 2013 (in millions) Gross unrealized losses Fair value     12 months or more Gross unrealized losses Fair value   Total gross unrealized losses Total fair value Available-for-sale debt securities              Mortgage-backed securities:              U.S. government agencies $ 20,293 $ 895   $ 1,150 $ 82 $ 21,443 $ Residential:              977 1,061 27   — — 1,061 27 Subprime 152 1   — — 152 1 Non-U.S. — —   158 1 158 1 3,980 26   — — 3,980 26 25,486 1,308 83 26,794 1,032 6,293 949   250   237 56 6,530 306 15,387 975   55 12 15,442 987 988 1   — — 988 1 11,286 110   21   821 12 12,107 122 505 8 2,085 29 Prime and Alt-A Commercial Total mortgage-backed securities U.S. Treasury and government agencies Obligations of U.S. states and municipalities Certificates of deposit Non-U.S. government debt securities Corporate debt securities Asset-backed securities: 1,580   Collateralized loan obligations Other Total available-for-sale debt securities Available-for-sale equity securities            18,369 129   1,114 3   — — 1,114 3 80,503 2,438   3,319 178 83,822 2,616 — —   — — — — 393 7 18,762 136 Held-to-maturity securities $ 20,745 $ 317   $ — $ — $ 20,745 $ 317 Total securities with gross unrealized losses $ 101,248 $ 2,755   $ 3,319 $ 178 $ 104,567 $ 2,933 129 Changes in the credit loss component of credit-impaired debt securities The following table presents a rollforward for the three and six months ended June 30, 2014 and 2013, of the credit loss component of https://www.sec.gov/Archives/edgar/data/19617/000001961714000409/corpq22014.htm[10/8/14, 12:41:43 PM] CORP Q2 2014 OTTI losses that have been recognized in income related to AFS debt securities that the Firm does not intend to sell. Three months ended June 30,   (in millions) Six months  ended June 30,   2013   2014 2014 2013 Balance, beginning of period $ 1 $ 519   $ 1 $ Reductions:          Sales and redemptions of credit-impaired securities Balance, end of period — $ 1 $ —   522 — 519   $ (3) 1 $ 519 Gross unrealized losses Gross unrealized losses have generally decreased since December 31, 2013. Though losses on securities that have been in an unrealized loss position for 12 months or more have increased, the increase is not material. The Firm has recognized the unrealized losses on securities it intends to sell. As of June 30, 2014, the Firm does not intend to sell any investment securities with unrealized losses recorded in AOCI, and it is not likely that the Firm will be required to sell these securities before recovery of their amortized cost basis. Except for the securities noted above for which credit losses have been recognized in income, the Firm believes that the securities in an unrealized loss position are not other-than-temporarily impaired as of June 30, 2014.       130 Contractual maturities and yields The following table presents the amortized cost and estimated fair value at June 30, 2014, of JPMorgan Chase’s investment securities portfolio by contractual maturity. By remaining maturity June 30, 2014 (in millions) Due in one year or less Available-for-sale debt securities Mortgage-backed securities (a)       Amortized cost $ 683 Average yield(b) 2.50% U.S. Treasury and government Amortized cost   $ Fair value Amortized cost   $ Amortized cost Fair value Average yield(b)   60 $   1,357 2.67% $ $ 53 3.28% https://www.sec.gov/Archives/edgar/data/19617/000001961714000409/corpq22014.htm[10/8/14, 12:41:43 PM]   976 19,359 0.34% $ 26,480 28,086 6.82% $ 19,279   24,546   — $ 26,068 4.28%   52 2.86% 0.72% $ 136,937 141,164 1,032 1,467 4.40%   1,359 $   1,407 $ 3.07% 0.30% $   108,668   1,887   467   112,132 1,890 491 2.61% $ $ 0.51% 60 Average yield(b)   3,998 $ 2.67% 4,007 0.27% Fair value Certificates of deposit $ Total   9,278 9,538 1.69%   12,418 $ Due after 10 years (c)     18,314 18,811 12,430 Average yield(b) Obligations of U.S. states and municipalities $ Due after five years through 10 years     677 Fair value agencies(a) Due after one year through five years 6.63%   — — — —% —% $ 1,411 1,410 2.69% CORP Q2 2014   Non-U.S. government debt securities Amortized cost $ Fair value Average yield(b) $ Amortized cost $ 3,692 Amortized cost $ Fair value $   Amortized cost $ Fair value $ $   Amortized cost $ Fair value — $ — Average yield(b) Amortized cost $ Fair value 30,167 $ 30,228 yield(b) Amortized cost $ Fair value — $ — yield(b) 61,719 56 —% 158,674 $ 346 358 4.28% 4.75% $ $ 310,778 2.70% 3,278 $ 3,278 3,291 0.18%   161,952 $ 167,389 306,080 314,069 3.36% $ 302,802     56 1.82% 0.18% 1.78%   41,558 3,291 63,124 2.02%   $ 41,189     $ $ 3.42% —%   52,242 20,269 164,098 — 53,328 1.95%   Total held-to-maturity securities — 2.35% 1.80% $ 20,779 21,356     $ $ 20,482 1.78% —%   $ 63,124   — —   61,719 2.06% —% 1.79% $ 57,845 — 17,653 — —%   Total available-for-sale securities 17,523 2.02%   $ 56,727     $ $ 1.20% 2.47% 53,328 1.95% Available-for-sale equity securities 6,244   52,242 4,215 4,384 6,510 2.10%   30,167 $   3,382     3,408 30,228 Average yield(b) 10,843 $ 1.25% 2.35% 2.15% Total available-for-sale debt securities 25,380 26,066 11,139 15 Average yield(b) $     15   2.51% 2.15%   Asset-backed securities 15,186   3,707 Average yield(b)   15,419 3.52%   Fair value Average 11,946 11,976 Corporate debt securities Average   2.67%   47,447 $ 48,749 47,849 49,163 3.91% 3.92% (a) U.S. government-sponsored enterprises were the only issuers whose securities exceeded 10% of JPMorgan Chase’s total stockholders’ equity at June 30, 2014. (b) Average yield is computed using the effective yield of each security owned at the end of the period, weighted based on the amortized cost of each security. The effective yield considers the contractual coupon, amortization of premiums and accretion of discounts, and the effect of related hedging derivatives. Taxable-equivalent amounts are used where applicable. The effective yield excludes unscheduled principal prepayments; and accordingly, actual maturities of securities may differ from their contractual or expected maturities as certain securities may be prepaid. (c) Includes securities with no stated maturity. Substantially all of the Firm’s residential mortgage-backed securities and collateralized mortgage obligations are due in 10 years or more, based on contractual maturity. The estimated duration, which reflects anticipated future prepayments based on a consensus of dealers in the market, is approximately six years for agency residential mortgage-backed securities, three years for agency residential collateralized mortgage obligations and four years for nonagency residential collateralized mortgage obligations. 131 Note 12 – Securities financing activities For a discussion of accounting policies relating to securities financing   activities, see Note 13 of JPMorgan Chase’s 2013 Annual Report. For further information regarding securities borrowed and securities lending agreements for which the fair value option has been elected, see Note 4. For further information regarding assets pledged and collateral received in securities financing agreements, see Note 22. The following table presents as of June 30, 2014, and December 31, 2013, the gross and net securities purchased under resale agreements and securities borrowed. Securities purchased under resale agreements have been presented on the Consolidated Balance Sheets net of securities sold under repurchase agreements where the Firm has obtained an appropriate legal opinion with respect to the master netting agreement, and where the other relevant criteria have been met. Where such a legal opinion has not been either sought or obtained, the securities purchased under resale agreements are not eligible for netting and are shown separately in the table below. Securities borrowed are presented on a gross basis on the Consolidated Balance Sheets.     June 30, 2014 Gross asset Amounts netted on the Consolidated   Net asset https://www.sec.gov/Archives/edgar/data/19617/000001961714000409/corpq22014.htm[10/8/14, 12:41:43 PM]   December 31, 2013 Gross asset Amounts netted on the Consolidated Net asset CORP Q2 2014 (in millions) balance Securities purchased under resale agreements Securities purchased under resale agreements with an appropriate legal opinion Balance Sheets balance     balance Balance Sheets balance                    $ 365,647 $ (124,143) $ 241,504    $ 354,814 $ (115,408) $ 239,406   Securities purchased under resale agreements where an appropriate legal opinion has not been either sought or obtained 6,318   6,318   Total securities purchased under resale agreements $ 371,965 $ Securities borrowed $ 113,967 (124,143) $ NA $   247,822 (a)  8,279    $ 8,279   363,093 $ 113,967 (b)(c)     $ 247,685 (a)  (115,408) $ 111,465 111,465 (b)(c)   NA $ (a) At June 30, 2014, and December 31, 2013, included securities purchased under resale agreements of $27.8 billion and $25.1 billion, respectively, accounted for at fair value. (b) At June 30, 2014, and December 31, 2013, included securities borrowed of $2.1 billion and $3.7 billion, respectively, accounted for at fair value. (c) Included $27.2 billion and $26.9 billion at June 30, 2014, and December 31, 2013, respectively, of securities borrowed where an appropriate legal opinion has not been either sought or obtained with respect to the master netting agreement. The following table presents information as of June 30, 2014, and December 31, 2013, regarding the securities purchased under resale agreements and securities borrowed for which an appropriate legal opinion has been obtained with respect to the master netting agreement. The below table excludes information related to resale agreements and securities borrowed where such a legal opinion has not been either sought or obtained.     June 30, 2014       Net asset balance (in millions) Amounts not nettable on the Consolidated Balance Sheets(a)   Financial instruments (b)   Cash collateral December 31, 2013    Net exposure   Net asset balance   Amounts not nettable on the Consolidated Balance Sheets(a)     Financial instruments (b) Cash collateral Securities purchased under resale agreements with an appropriate legal opinion $ 241,504   $ (238,035) $ (192) $ 3,277   $ 239,406   $ (234,495) $ Securities borrowed $ 86,802   $ (84,106) $ — $ 2,696   $ 84,531   $ (81,127) $ Net exposure (98) $ — $ 4,813 3,404 (a) For some counterparties, the sum of the financial instruments and cash collateral not nettable on the Consolidated Balance Sheets may exceed the net asset balance. Where this is the case the total amounts reported in these two columns are limited to the balance of the net reverse repurchase agreement or securities borrowed asset with that counterparty. As a result a net exposure amount is reported even though the Firm, on an aggregate basis for its securities purchased under resale agreements and securities borrowed, has received securities collateral with a total fair value that is greater than the funds provided to counterparties. (b) Includes financial instrument collateral received, repurchase liabilities and securities loaned liabilities with an appropriate legal opinion with respect to the master netting agreement; these amounts are not presented net on the Consolidated Balance Sheets because other U.S. GAAP netting criteria are not met. 132 The following table presents as of June 30, 2014, and December 31, 2013, the gross and net securities sold under repurchase agreements and securities loaned. Securities sold under repurchase agreements have been presented on the Consolidated Balance Sheets net of securities purchased under resale agreements where the Firm has obtained an appropriate legal opinion with respect to the master netting agreement, and where the other relevant criteria have been met. Where such a legal opinion has not been either sought or obtained, the securities sold under repurchase agreements are not eligible for netting and are shown separately in the table below. Securities loaned are presented on a gross basis on the Consolidated Balance Sheets.     June 30, 2014   December 31, 2013     Amounts netted on the Consolidated Balance Sheets Net liability   balance (in millions) Amounts netted on the Gross liability Consolidated balance Balance Sheets Securities sold under repurchase agreements            $ 300,208 $ (124,143) $ 176,065    $ Securities sold under repurchase agreements with an appropriate legal opinion Securities sold under repurchase agreements where an appropriate legal opinion has not been either sought or obtained(a) 18,910   Total securities sold under repurchase agreements $ 319,118 $ Securities loaned (b) $ 26,206 Net liability   balance 18,910   (124,143) $ NA $ Gross liability   balance         257,630 (f)  $ (115,408) $ 18,143 (f)     $ 275,773   26,206 (d)(e)    $ 25,769   194,975 (c)  $   142,222 (f)  18,143 (f)  (115,408) $ NA $ 160,365 (c)  25,769 (d)(e)   (a) Includes repurchase agreements that are not subject to a master netting agreement but do provide rights to collateral. (b) Included securities-for-securities borrow vs. pledge transactions of $5.7 billion and $5.8 billion at June 30, 2014, and December 31, 2013, respectively, when acting as lender and as presented within other liabilities in the Consolidated Balance Sheets. (c) At June 30, 2014, and December 31, 2013, included securities sold under repurchase agreements of $2.6 billion and $4.9 billion, respectively, accounted for at fair value. (d) At December 31, 2013, included securities loaned of $483 million accounted for at fair value; there were no securities loaned accounted for at fair value as of June 30, 2014. https://www.sec.gov/Archives/edgar/data/19617/000001961714000409/corpq22014.htm[10/8/14, 12:41:43 PM] CORP Q2 2014 (e) Included $472 million and $397 million at June 30, 2014, and December 31, 2013, respectively, of securities loaned where an appropriate legal opinion has not been either sought or obtained with respect to the master netting agreement. (f) The prior period amounts have been revised with a corresponding impact in the table below. This revision had no impact on the Firm’s Consolidated Balance Sheets or its results of operations. The following table presents information as of June 30, 2014, and December 31, 2013, regarding the securities sold under repurchase agreements and securities loaned for which an appropriate legal opinion has been obtained with respect to the master netting agreement. The below table excludes information related to repurchase agreements and securities loaned where such a legal opinion has not been either sought or obtained.   June 30, 2014       Net liability   balance (in millions) Securities sold under repurchase agreements with an appropriate legal opinion $ Securities loaned Amounts not nettable on the Consolidated balance   sheets(a) $ Financial instruments (b) Cash collateral   December 31, 2013    Amounts not nettable on the Consolidated balance sheets(a)   Net liability   Net amount(c)   balance 176,065   $ (173,730) $ (345) $ 1,990   $ 25,734   $ (25,390) $ — $ 344   $ Financial instruments (b)   142,222 (d)  $ 25,372   (139,051) (d)  $ (25,125)   $   Cash collateral $ Net amount(c) (450) $ 2,721 — $ 247 (a) For some counterparties the sum of the financial instruments and cash collateral not nettable on the Consolidated Balance Sheets may exceed the net liability balance. Where this is the case the total amounts reported in these two columns are limited to the balance of the net repurchase agreement or securities loaned liability with that counterparty. (b) Includes financial instrument collateral transferred, reverse repurchase assets and securities borrowed assets with an appropriate legal opinion with respect to the master netting agreement; these amounts are not presented net on the Consolidated Balance Sheets because other U.S. GAAP netting criteria are not met. (c) Net amount represents exposure of counterparties to the Firm. (d) The prior period amounts have been revised with a corresponding impact in the table above. This revision had no impact on the Firm’s Consolidated Balance Sheets or its results of operations. Transfers not qualifying for sale accounting At June 30, 2014, and December 31, 2013, the Firm held $14.1 billion   and $14.6 billion, respectively, of financial assets for which the rights have been transferred to third parties; however, the transfers did not qualify as a sale in accordance with U.S. GAAP. These transfers have been recognized as collateralized financing transactions. The transferred assets are recorded in trading assets, other assets and loans, and the corresponding liabilities are recorded in other borrowed funds, and accounts payable and other liabilities, on the Consolidated Balance Sheets. 133 Note 13 – Loans Loan accounting framework The accounting for a loan depends on management’s strategy for the   loan, and on whether the loan was credit-impaired at the date of acquisition. The Firm accounts for loans based on the following categories: • Originated or purchased loans held-for-investment (i.e., “retained”), other than purchased credit-impaired (“PCI”) loans • Loans held-for-sale • Loans at fair value • PCI loans held-for-investment For a detailed discussion of loans, including accounting policies, see Note 14 of JPMorgan Chase’s 2013 Annual Report. See Note 4 of this Form 10-Q for further information on the Firm’s elections of fair value accounting under the fair value option. See Note 3 of this Form 10-Q for further information on loans carried at fair value and classified as trading assets. Loan portfolio The Firm’s loan portfolio is divided into three portfolio segments, which are the same segments used by the Firm to determine the allowance for loan losses: Consumer, excluding credit card; Credit card; and Wholesale. Within each portfolio segment, the Firm monitors and assesses the credit risk in the following classes of loans, based on the risk characteristics of each loan class: Consumer, excluding credit card (a) Residential real estate – excluding PCI • Home equity – senior lien • Home equity – junior lien • Prime mortgage, including    option ARMs • Subprime mortgage Credit card   Wholesale (c)   • Credit card loans Other consumer loans • Auto(b) https://www.sec.gov/Archives/edgar/data/19617/000001961714000409/corpq22014.htm[10/8/14, 12:41:43 PM] • • • • • Commercial and industrial Real estate Financial institutions Government agencies Other (d) CORP Q2 2014 • Business banking(b) • Student and other Residential real estate – PCI • Home equity • Prime mortgage • Subprime mortgage • Option ARMs     (a) Includes loans held in CCB, and prime mortgage loans held in the AM business segment and in Corporate/Private Equity. (b) Includes certain business banking and auto dealer risk-rated loans that apply the wholesale methodology for determining the allowance for loan losses; these loans are managed by CCB, and therefore, for consistency in presentation, are included with the other consumer loan classes. (c) Includes loans held in CIB, CB and AM business segments and in Corporate/Private Equity. Classes are internally defined and may not align with regulatory definitions. (d) Other primarily includes loans to special-purpose entities (“SPEs”) and loans to private banking clients. See Note 1 of JPMorgan Chase’s 2013 Annual Report for additional information on SPEs. 134 The following tables summarize the Firm’s loan balances by portfolio segment. June 30, 2014   Consumer, excluding credit card (in millions) Credit card(a) Wholesale   Total 288,214 $ 125,621 $ 321,534 $ 735,369 (b)   Held-for-sale 964 508 5,839 7,311   At fair value — — 4,303 4,303   Retained $ Total $ 289,178 $ 126,129 $ 331,676 $ 746,983                 December 31, 2013 Consumer, excluding credit card (in millions) Retained $ Credit card(a) Wholesale   Total 724,177 (b)   288,449 $ 127,465 $ Held-for-sale 614 326 11,290 12,230   At fair value — — 2,011 2,011   Total $ 289,063 $ 308,263 $ 127,791 $ 738,418   321,564 $ (a) Includes billed finance charges and fees net of an allowance for uncollectible amounts. (b) Loans (other than PCI loans and those for which the fair value option has been elected) are presented net of unearned income, unamortized discounts and premiums, and net deferred loan costs of $1.9 billion at both June 30, 2014, and December 31, 2013. The following tables provide information about the carrying value of retained loans purchased, sold and reclassified to held-for-sale during the periods indicated. These tables exclude loans recorded at fair value. The Firm manages its exposure to credit risk on an ongoing basis. Selling loans is one way that the Firm reduces its credit exposures.   Three months ended June 30, (in millions)     Consumer, excluding credit card   (a)(b)   Credit card Purchases  $ 2,167 Sales   1,352   — Retained loans reclassified   to held-for-sale 802   215     Six months ended June 30, (in millions)          2014   $ Wholesale — $   Total   (a)(b)     (a)(b)   Credit card Wholesale Total 1,590 2,323 3,675   1,233   — 1,425 2,658 212 1,229   708   — 677 1,385   Credit card Consumer, excluding credit card 2,323   $ 156 $        2014 Consumer, excluding credit card   2013 Wholesale Total     $ 328 $   191 $   2,109   2013 Consumer, excluding credit card   (a)(b)   Credit card Wholesale Total Purchases  $ 3,749 4,026   $ 4,215 Sales   2,243   — 4,679 6,922   2,662   — 2,578 5,240 Retained loans reclassified   to held-for-sale 802   215 509 1,526   708   — 1,021 1,729 $ — $ 277 $ $ 328 $ 286 $ 4,829 (a) Purchases predominantly represent the Firm’s voluntary repurchase of certain delinquent loans from loan pools as permitted by Ginnie Mae guidelines. The Firm https://www.sec.gov/Archives/edgar/data/19617/000001961714000409/corpq22014.htm[10/8/14, 12:41:43 PM] CORP Q2 2014 typically elects to repurchase these delinquent loans as it continues to service them and/or manage the foreclosure process in accordance with applicable requirements of Ginnie Mae, the Federal Housing Administration (“FHA”), Rural Housing Services (“RHS”) and/or the U.S. Department of Veterans Affairs (“VA”). (b) Excluded retained loans purchased from correspondents that were originated in accordance with the Firm’s underwriting standards. Such purchases were $2.4 billion and $1.3 billion for the three months ended June 30, 2014 and 2013, respectively, and $4.1 billion and $2.2 billion for the six months ended June 30, 2014 and 2013, respectively. The following table provides information about gains/(losses) on loan sales by portfolio segment.   Three months ended June 30,   (in millions) 2014   2013 Net gains/(losses) on sales of loans (including lower of cost or fair value adjustments) (a)     Consumer, excluding credit card $ 84 $ Credit card Wholesale Total net gains/(losses) on sales of loans (including lower of cost or fair value adjustments) $ Six months ended June 30, 2014 2013     112   $   126 $ 256 — —   — — 3 (14)   27 (7) 87 $ 98   $ 153 $ 249 (a) Excludes sales related to loans accounted for at fair value. 135 Consumer, excluding credit card loan portfolio Residential real estate – excluding PCI loans The following table provides information by class for residential real estate – excluding retained PCI loans in the consumer, excluding credit card, portfolio segment. Consumer loans, excluding credit card loans, consist primarily of   residential mortgages, home equity loans and lines of credit, auto loans, business banking loans, and student and other loans, with a focus on serving the prime consumer credit market. The portfolio also includes home equity loans secured by junior liens, prime mortgage loans with an interest-only payment period, and certain paymentoption loans originated by Washington Mutual that may result in negative amortization. The following factors should be considered in analyzing certain credit statistics applicable to the Firm’s residential real estate – excluding PCI loans portfolio: (i) junior lien home equity loans may be fully charged off when the loan becomes 180 days past due, and the value of the collateral does not support the repayment of the loan, resulting in relatively high charge-off rates for this product class; and (ii) the lengthening of loss-mitigation timelines may result in higher delinquency rates for loans carried at the net realizable value of the collateral that remain on the Firm’s Consolidated Balance Sheets. The table below provides information about retained consumer loans, excluding credit card, by class. December 31, 2013 June 30, 2014 (in millions) Residential real estate –   excluding PCI     Home equity:     Senior lien $ 16,222 $ 17,113 38,263 40,750 Junior lien Mortgages:   Prime, including option ARMs Subprime Other consumer loans   93,239 87,162 6,552 7,104     Auto 53,042 52,757 Business banking 19,453 18,951 Student and other 11,325 11,557 Residential real estate – PCI     Home equity 18,070 18,927 Prime mortgage 11,302 12,038 3,947 4,175 Subprime mortgage Option ARMs Total retained loans $ 16,799 17,915 288,214 $ 288,449 For further information on consumer credit quality indicators, see Note 14 of JPMorgan Chase’s 2013 Annual Report. 136 https://www.sec.gov/Archives/edgar/data/19617/000001961714000409/corpq22014.htm[10/8/14, 12:41:43 PM] CORP Q2 2014 Residential real estate – excluding PCI loans       Home equity   Senior lien Jun 30, 2014 (in millions, except ratios) Loan delinquency (a) Current   $ 15,630 Dec 31, 2013        $  $ 16,470 37,503            Junior lien Jun 30, 2014   Dec 31, 2013        $  $ 39,864                          Mortgages Prime, including option ARMs Jun 30, 2014 82,780   Dec 31, 2013        $  $ 76,108   Subprime Jun 30, 2014 5,618 Dec 31, 2013        $  $ 5,956 Total residential real estate – excluding PCI Jun 30, 2014 Dec 31, 2013   141,531 $ 138,398 30–149 days past due 251 298   526 662   3,466 3,155   569 646   4,812 4,761 150 or more days past due 341 345   234 224   6,993 7,899   365 502   7,933 8,970 Total retained loans $ % of 30+ days past due to   total retained loans(b) 90 or more days past due and   still accruing 16,222 $ 3.65% $ 90 or more days past due and   government guaranteed (c) Nonaccrual loans 17,113 3.76%  $   —  $ — —   909 932   — $ 38,263 $ 1.99% 40,750 2.17%  $   93,239 $ 1.75% 87,162 2.32%  $ 6,552   14.26% —  $ — —   7,326 7,823   1,671 1,876   2,455 2,666   — $ — $ —  $ $ 7,104  $ 16.16%   154,276 $ 2.54% 3.09% —  $ — —   7,326 7,823 1,273 1,390   6,308 6,864 — $ — $ Current estimated LTV ratios(d)(e)(f)                         Greater than 125% and refreshed   FICO scores:                         $ 40  $ 628 $  $ 954 $  $ $  $ 22   192   181 Equal to or greater than 660 $ Less than 660 101% to 125% and refreshed   FICO scores:   Equal to or greater than 660 Less than 660 80% to 100% and refreshed FICO scores:   150 212 74 107     654 Less than 660 258   Equal to or greater than 660 Less than 660 U.S. government-guaranteed Total retained loans $   California $ 858   326   1,101 346   3,510 1,012         7,165 4,645 932 1,407   451 1,924       7,995   2,128     303       1,084 1,243    22 102    1,433 176 687   428    4,528   1,579     52 197       3,800   976    1,626 $ 487    2,277 868   249   4,768 6,539 597   1,965 2,798   545   —      614   12,164 1,141   4,401      13,995 5,174   12,794 13,186   20,357 19,732   66,928 58,477   2,011 1,961   102,090 93,356 2,258 2,362   3,475 3,396   5,286 5,359   2,292 2,293   13,311 13,410 —   —   13,712   —   13,464 13,712 87,162  $ — Geographic region        Equal to or greater than 660 Less than 80% and refreshed FICO scores: 22 12 152,129 16,222 $ 17,113   2,286 $  $ — 38,263    $ 40,750   2,397  $ 8,680 $  $ 13,464 93,239    $   9,240  $ 24,057 $ — 6,552    $ 7,104   21,876  $ 994 $  $ 154,276    1,069 $ 152,129    $ 36,017 $ 34,582 New York 2,636 2,732   7,987 8,429   14,976 14,085   867 942   26,466 26,188 Illinois 1,199 1,248   2,655 2,815   5,699 5,216   257 280   9,810 9,559 Florida 806 847   2,029 2,167   4,778 4,598   825 885   8,438 8,497 1,875 2,044   1,106 1,199   4,041 3,565   202 220   7,224 7,028 New Jersey 609 630   2,323 2,442   2,878 2,679   306 339   6,116 6,090 Arizona 957 1,019   1,704 1,827   1,525 1,385   135 144   4,321 4,375 Washington 531 555   1,300 1,378   2,084 1,951   138 150   4,053 4,034 Michigan 757 799   907 976   1,061 998   165 178   2,890 2,951 Ohio 1,219 1,298   832 907   509 466   147 161   2,707 2,832 All other (g) 3,347 3,544   8,740 9,370   31,631 30,343   2,516 2,736   46,234 45,993  $ 93,239 87,162  $ 6,552 7,104  $ Texas Total retained loans $ 16,222 $ 17,113  $ 38,263 $ 40,750 $ $ 154,276 $ 152,129 (a) Individual delinquency classifications include mortgage loans insured by U.S. government agencies as follows: current included $4.6 billion and $4.7 billion; 30–149 days past due included $2.9 billion and $2.4 billion; and 150 or more days past due included $6.0 billion and $6.6 billion at June 30, 2014, and December 31, 2013, respectively. (b) At June 30, 2014, and December 31, 2013, Prime, including option ARMs loans excluded mortgage loans insured by U.S. government agencies of $8.8 billion and $9.0 billion, respectively. These amounts have been excluded from nonaccrual loans based upon the government guarantee. (c) These balances, which are 90 days or more past due but insured by U.S. government agencies, are excluded from nonaccrual loans. In predominantly all cases, 100% of the principal balance of the loans is insured and interest is guaranteed at a specified reimbursement rate subject to meeting agreed-upon servicing guidelines. These amounts have been excluded from nonaccrual loans based upon the government guarantee. At June 30, 2014, and December 31, 2013, these balances included $4.3 billion and $4.7 billion, respectively, of loans that are no longer accruing interest because interest has been curtailed by the U.S. government agencies although, in predominantly all cases, 100% of the principal is still insured. For the remaining balance, interest is being accrued at the guaranteed reimbursement rate. (d) Represents the aggregate unpaid principal balance of loans divided by the estimated current property value. Current property values are estimated, at a minimum, quarterly, based on home valuation models using nationally recognized home price index valuation estimates incorporating actual data to the extent available and forecasted data where actual data is not available. These property values do not represent https://www.sec.gov/Archives/edgar/data/19617/000001961714000409/corpq22014.htm[10/8/14, 12:41:43 PM] CORP Q2 2014 actual appraised loan level collateral values; as such, the resulting ratios are necessarily imprecise and should be viewed as estimates. (e) Junior lien represents combined LTV, which considers all available lien positions, as well as unused lines, related to the property. All other products are presented without consideration of subordinate liens on the property. (f) Refreshed FICO scores represent each borrower’s most recent credit score, which is obtained by the Firm on at least a quarterly basis. (g) At June 30, 2014, and December 31, 2013, included mortgage loans insured by U.S. government agencies of $13.5 billion and $13.7 billion, respectively. 137 The following tables represent the Firm’s delinquency statistics for junior lien home equity loans and lines as of June 30, 2014, and December 31, 2013.     June 30, 2014   Delinquencies     150+ days past due          (in millions, except ratios) 30–89 days past 90–149 days past       due due HELOCs:(a)             Within the revolving period (b)  $ 254   $ 85   $ 144   $ 28,300   Beyond the revolving period   77   24   74   6,443   2.72 HELOANs   65   21   16   3,520   2.90 Total  $ 396   $ 130   $ 234   $ 38,263            December 31, 2013         Delinquencies     (in millions, except ratios) HELOCs:(a)              $ 341   $ 104   $ 162   $ 31,848   Within the revolving Total 30+ day delinquency rate    30–89 days past 90–149 days past       due due period (b) 150+ days past due   Total loans     Total loans 1.71% 1.99% Total 30+ day delinquency rate    1.91%   84   21   46   4,980   3.03 HELOANs   86   26   16   3,922   3.26 Total  $ 511   $ 151   $ 224   $ 40,750   Beyond the revolving period 2.17% (a) These HELOCs are predominantly revolving loans for a 10-year period, after which time the HELOC converts to a loan with a 20-year amortization period, but also include HELOCs originated by Washington Mutual that require interest-only payments beyond the revolving period. (b) The Firm manages the risk of HELOCs during their revolving period by closing or reducing the undrawn line to the extent permitted by law when borrowers are experiencing financial difficulty or when the collateral does not support the loan amount. Home equity lines of credit (“HELOCs”) beyond the revolving period   and home equity loans (“HELOANs”) have higher delinquency rates than do HELOCs within the revolving period. That is primarily because the fully-amortizing payment that is generally required for those products is higher than the minimum payment options available for HELOCs within the revolving period. The higher delinquency rates associated with amortizing HELOCs and HELOANs are factored into the loss estimates produced by the Firm’s delinquency roll-rate methodology, which estimates defaults based on the current delinquency status of a portfolio. Impaired loans The table below sets forth information about the Firm’s residential real estate impaired loans, excluding PCI loans. These loans are considered to be impaired as they have been modified in a troubled debt restructuring (“TDR”). All impaired loans are evaluated for an asset-specific allowance as described in Note 14.     Home equity   Senior lien Dec 31, 2013 Jun 30, 2014 (in millions)     Junior lien Dec 31, 2013 Jun 30, 2014     Mortgages Prime, including option ARMs   Dec 31, 2013 Jun 30, 2014     Subprime Dec 31, 2013 Jun 30, 2014   Total residential  real estate – excluding PCI Dec 31, 2013 Jun 30, 2014 Impaired loans                         With an allowance $ 556 $ 567   $ 724 $ 727   $ 5,443 $ 5,871   $ 2,724 $ 2,989   $ 9,447 $ 563 579   586 592   1,275 1,133   Without an allowance (a) Total impaired loans (b)(c) 754 709   3,178 10,154 3,013 $ 1,119 $ 1,146   $ 1,310 $ 1,319   $ 6,718 $ 7,004   $ 3,478 $ 3,698   $ 12,625 $ 13,167 Allowance for loan losses related to impaired loans $ 97 $ 94   $ 170 $ 162   $ 139 $ 144   $ 87 $ 94   $ 493 $ 494 Unpaid principal balance https://www.sec.gov/Archives/edgar/data/19617/000001961714000409/corpq22014.htm[10/8/14, 12:41:43 PM] CORP Q2 2014 of impaired loans (d) 1,480 1,515   2,635 2,625   8,582 8,990   5,069 5,461   17,766 18,591 Impaired loans on nonaccrual status (e) 629 641   641 666   1,703 1,737   1,078 1,127   4,051 4,171 (a) Represents collateral-dependent residential mortgage loans that are charged off to the fair value of the underlying collateral less cost to sell. The Firm reports, in accordance with regulatory guidance, residential real estate loans that have been discharged under Chapter 7 bankruptcy and not reaffirmed by the borrower (“Chapter 7 loans”) as collateral-dependent nonaccrual TDRs, regardless of their delinquency status. (b) At June 30, 2014, and December 31, 2013, $6.7 billion and $7.6 billion, respectively, of loans modified subsequent to repurchase from Government National Mortgage Association (“Ginnie Mae”) in accordance with the standards of the appropriate government agency (i.e., FHA, VA, RHS) are not included in the table above. When such loans perform subsequent to modification in accordance with Ginnie Mae guidelines, they are generally sold back into Ginnie Mae loan pools. Modified loans that do not re-perform become subject to foreclosure. (c) Predominantly all residential real estate impaired loans, excluding PCI loans, are in the U.S. (d) Represents the contractual amount of principal owed at June 30, 2014, and December 31, 2013. The unpaid principal balance differs from the impaired loan balances due to various factors, including chargeoffs, net deferred loan fees or costs; and unamortized discounts or premiums on purchased loans. (e) As of June 30, 2014, and December 31, 2013, nonaccrual loans included $3.1 billion and $3.0 billion, respectively, of TDRs for which the borrowers were less than 90 days past due. For additional information about loans modified in a TDR that are on nonaccrual status refer to the Loan accounting framework in Note 14 of JPMorgan Chase’s 2013 Annual Report. 138 The following tables present average impaired loans and the related interest income reported by the Firm. Three months ended June 30, Average impaired loans   (in millions) 2014   Home equity Senior lien   $ Junior lien Mortgages 2013    1,128 $ 1,158   $ 1,296       Subprime 2014   1,316 Prime, including option ARMs Interest income on impaired loans (a) 7,219   3,578 3,833   $ 12,845 $ 13,506   $          Six months ended June 30, (in millions)      14 $ 14   $ 21   20   Total residential real estate – excluding PCI Average impaired loans   2014   2013 Interest income on impaired loans on a cash basis(a)   2013    6,823   2014 2013   10 $ 10 13 14      66 70   14 15 47 50   13 14 50 $ 53 147 $ 155   $      Interest income on impaired loans (a) 2014     Interest income on impaired loans on a cash basis(a)   2013 2014 2013 Home equity               Senior lien $ 1,135 $ 1,149   $ 28 $ 29   $ 19 $ 20 1,318 1,284   41 41   27 27 Junior lien Mortgages     Prime, including option ARMs 6,889 Subprime 3,623 Total residential real estate – excluding PCI $      7,203   3,830   134 96 13,466   $ 12,965 $    299 $   139   100   27 29 26 29 309   $ 99 $ 105 (a) Generally, interest income on loans modified in TDRs is recognized on a cash basis until such time as the borrower has made a minimum of six payments under the new terms. Loan modifications The Firm is required to provide “borrower relief” under the terms of   certain Consent Orders and settlements entered into by the Firm related to its mortgage servicing, originations and residential mortgage-backed securities activities. This “borrower relief” includes reductions of principal and forbearance. For further information on these Consent Orders and settlements, see Business changes and developments in Note 2 of JPMorgan Chase’s 2013 Annual Report. Modifications of residential real estate loans, excluding PCI loans, are generally accounted for and reported as TDRs. There are no additional commitments to lend to borrowers whose residential real estate loans, excluding PCI loans, have been modified in TDRs. 139 TDR activity rollforward The following tables reconcile the beginning and ending balances of residential real estate loans, excluding PCI loans, modified in TDRs for the periods presented.   Home equity Three months ended Senior lien   Junior lien     Mortgages Prime, including option ARMs https://www.sec.gov/Archives/edgar/data/19617/000001961714000409/corpq22014.htm[10/8/14, 12:41:43 PM]   Subprime Total residential real estate – excluding   PCI CORP Q2 2014 June 30, (in millions) 2014 Beginning balance of TDRs $ 2014   2013 2014   2013 2014   2013 2014 2013 1,136 $ 1,155   $ 1,319 $ 1,286   $ 6,894 $ 7,223   $ 3,625 $ 20 39   46 94   52 318   25 89   143 540 (5) (8)   (11) (24)   (4) (14)   (11) (27)   (31) (73) (5) (5)   (4) (7)   (16) (39)   (9) (19)   (34) (70) (27) (21)   (40) (34)   (208) (185)   (152) (61)   (427) (301) New TDRs Charge-offs   2013 post-modification (a) Foreclosures and other liquidations (e.g., short sales) Principal payments and other 3,843   $ 12,974 $ 13,507 Ending balance of TDRs $ 1,119 $ 1,160   $ 1,310 $ 1,315   $ 6,718 $ 7,303   $ 3,478 $ 3,825   $ 12,625 $ 13,603 Permanent modifications $ 1,083 $ 1,117   $ 1,306 $ 1,309   $ 6,625 $ 7,035   $ 3,404 $ 3,676   $ 12,418 $ 13,137 Trial modifications $ 36 $ 43   $ 4 $ 6   $ 93 $ 268   $ 74 $ 149   $ 207 $                             Home equity Six months ended June 30, (in millions) 2014 Beginning balance of TDRs $ 2013 Junior lien   2014 2013       2014   1,146 $ 1,092   $ 47 140   104 229   (11) (18)   (30) (11) (9)   New TDRs Charge-offs   Senior lien post-modification (a) Foreclosures and other liquidations (e.g., short sales)   Mortgages Prime, including option ARMs 1,223   $ 2013 466 Total residential real estate – excluding   PCI Subprime 2014   2013 2014 2013 7,118   $ 3,698 $ 119 628   53 217   323 (57)   (11) (33)   (33) (65)   (85) (173) (6) (11)   (44) (74)   (21) (38)   (82) (132) (350) (336)   (219) (101)   (698) (551) 1,319 $ 7,004 $ 3,812   $ 13,167 $ 13,245 1,214 (52) (45)   (77) (69)   Ending balance of TDRs $ 1,119 $ 1,160   $ 1,310 $ 1,315   $ 6,718 $ 7,303   $ 3,478 $ 3,825   $ 12,625 $ 13,603 Permanent modifications $ 1,083 $ 1,117   $ 1,306 $ 1,309   $ 6,625 $ 7,035   $ 3,404 $ 3,676   $ 12,418 $ 13,137 Trial modifications $ 36 $ 43   $ 4 $ 6   $ 93 $ 268   $ 74 $ Principal payments and other 149   $ 207 $ 466 (a) Includes charge-offs on unsuccessful trial modifications. Nature and extent of modifications Making Home Affordable (“MHA”), as well as the Firm’s proprietary   modification programs, generally provide various concessions to financially troubled borrowers including, but not limited to, interest rate reductions, term or payment extensions and deferral of principal and/or interest payments that would otherwise have been required under the terms of the original agreement. 140 The following tables provide information about how residential real estate loans, excluding PCI loans, were modified under the Firm’s loss mitigation programs during the periods presented. These tables exclude Chapter 7 loans where the sole concession granted is the discharge of debt. At June 30, 2014, there were approximately 35,200 of such Chapter 7 loans, consisting of approximately 8,300 senior lien home equity loans, 21,200 junior lien home equity loans, 2,900 prime mortgage, including option ARMs, and 2,800 subprime mortgages.   Home equity   Senior lien Three months ended June 30, 2014 Number of loans approved for a trial modification 218 Number of loans permanently modified Concession granted: (a) 2013 226     2014 562   157 405   699      Interest rate reduction 64% 70%   Term or payment extension 86 73 Principal and/or interest deferred 12 Prime, including option     ARMs Junior lien 2013     261 1,353   386    88% 85%     83 76 11   22 Principal forgiveness 30 37   Other (b) — —   2014 172     Mortgages 2013   2014 856   529 1,137   493      65% 73%     79 69 25   30 29 33   — —     Subprime 2013   2014 2013 1,123   1,165 2,713 1,458   1,804      68% 72%     71 53 29   15 22 39   18 24   https://www.sec.gov/Archives/edgar/data/19617/000001961714000409/corpq22014.htm[10/8/14, 12:41:43 PM] Total residential real estate excluding PCI 4,353   75% 76%   79 66 12   20 20 35 46   29 39 9 13   6 11 CORP Q2 2014               Home equity   Senior lien Six months ended June 30, 2014 Number of loans approved for a trial modification Interest rate reduction 1,062   950   419 Number of loans permanently modified Concession granted: (a) 2013   521     2014 1,657 368   2,669     2014 516 917           Total residential real estate excluding PCI   Subprime 2013   2014 2013   2014 2013 1,832   1,028 2,612   2,304 5,874 2,613   3,147   4,355   88%   86%   Mortgages   2013 341 72%      Prime, including option     ARMs Junior lien    65%     1,260      74%   62%    71%   63% 9,379   72% 77% Term or payment extension 83 73   83 77   84 69   72 51   80 66 Principal and/or interest deferred 14 10   22 24   32 28   18 11   22 19 Principal forgiveness 30 38   28 36   27 40   38 52   31 43 Other (b) — —   — —   17 24   12 15   7 12 (a) Represents concessions granted in permanent modifications as a percentage of the number of loans permanently modified. The sum of the percentages exceeds 100% because predominantly all of the modifications include more than one type of concession. A significant portion of trial modifications include interest rate reductions and/or term or payment extensions. (b) Represents variable interest rate to fixed interest rate modifications. 141 Financial effects of modifications and redefaults The following tables provide information about the financial effects of the various concessions granted in modifications of residential real estate loans, excluding PCI, under the Firm’s loss mitigation programs and about redefaults of certain loans modified in TDRs for the periods presented. Because the specific types and amounts of concessions offered to borrowers frequently change between the trial modification and the permanent modification, the following tables present only the financial effects of permanent modifications. These tables also excludes Chapter 7 loans where the sole concession granted is the discharge of debt.   Home equity Three months ended June 30, (in millions, except weighted-average data and number of loans) 2014 Weighted-average interest rate of loans with interest rate reductions – before TDR 6.58% 6.78%   Weighted-average interest rate of loans with interest rate reductions – after TDR 2.93 3.34 Weighted-average remaining contractual term (in years) of loans with term or payment extensions – before TDR 17 Weighted-average remaining contractual term (in years) of loans with term or payment extensions – after TDR 29   Senior lien 2013   Junior lien 2014 2013   Prime, including option ARMs     2014   4.94% 5.10%     2.04 2.28 17   19 31   34   Total residential real Mortgages 2013 5.17% 5.09%     2.54 2.78 19   25 34   37 23  $   Subprime 2014 2013   7.28% 7.26%     3.47 3.50 25   24 37   35 2014 2013 5.82% 5.76%   2.72 2.94 24   23 24 35   35 36 2  $ Principal deferred 1 1   3 7   10 32   4 11   18 51 Principal forgiven 3 7   6 13   8 57   11 55   28 132 67 95   195 248   163 189   269 317   694 849 Charge-offs recognized upon permanent modification $ Number of loans that redefaulted within one year of permanent modification (a) Balance of loans that redefaulted within one year of permanent modification (a) $     — 4 $ $ 7    $ 8 3    $ $ 6   2014 Weighted-average interest rate of loans with interest rate reductions – before TDR 6.63% Senior lien 2013     6.53%   44    $ $ Junior lien 2014 4.83% 2013 6 54     Home equity Six months ended June 30, (in millions, except weighted-average data and number of loans)  $ 2  $ estate – excluding PCI  $ 28    $ 3 $ 31   Prime, including option ARMs     2014   5.20% https://www.sec.gov/Archives/edgar/data/19617/000001961714000409/corpq22014.htm[10/8/14, 12:41:43 PM] 2013 5.37%   10  $ 79    $ $ 34 98     Total residential real Mortgages   5.14%   —  $ Subprime 2014 7.44% 2013     7.48%   estate – excluding PCI 2014 5.88% 2013 5.99% CORP Q2 2014 Weighted-average interest rate of loans with interest rate reductions – after TDR 2.98 3.44   1.91 2.22   2.67 2.83   3.43 3.54   2.75 2.98 Weighted-average remaining contractual term (in years) of loans with term or payment extensions – before TDR 18 18   19 19   24 24   24 24   23 23 Weighted-average remaining contractual term (in years) of loans with term or payment extensions – after TDR 30 31   35 34   37 37   36 34   36 35 4  $ 22 42  $ 11  $  $ 28 3   14   67   21   42 105 6 17   17 29   25 130   32 139   80 315 133 226   388 594   285 397   436 629   1,242 1,846 104  $ Charge-offs recognized upon permanent modification $ 1 Principal deferred 2 Principal forgiven Number of loans that redefaulted within one year of permanent modification (a) Balance of loans that redefaulted within one year of permanent modification (a) $ $ 10 $ 6  $ 17 $ 6 $ 13 4 $ 23  $ 70 $ 1 $ 11 43 $ 6 63 $   $ 129 63 $ 197 (a) Represents loans permanently modified in TDRs that experienced a payment default in the periods presented, and for which the payment default occurred within one year of the modification. The dollar amounts presented represent the balance of such loans at the end of the reporting period in which such loans defaulted. For residential real estate loans modified in TDRs, payment default is deemed to occur when the loan becomes two contractual payments past due. In the event that a modified loan redefaults, it is probable that the loan will ultimately be liquidated through foreclosure or another similar type of liquidation transaction. Redefaults of loans modified within the last 12 months may not be representative of ultimate redefault levels. 142 Approximately 85% of the trial modifications approved on or after July 1, 2010 (the approximate date on which substantial revisions were made to the Home Affordable Modification Program (“HAMP”) program), that are seasoned more than six months have been successfully converted to permanent modifications. Default rates of Chapter 7 loans vary significantly based on the delinquency status of the loan and overall economic conditions at the time of discharge. Default rates for Chapter 7 residential real estate loans that were less than 60 days past due at the time of discharge have ranged between approximately 10% and 40% in recent years based on the economic conditions at the time of discharge. At June 30, 2014, Chapter 7 residential real estate loans included approximately 18% of senior lien home equity, 11% of junior lien home equity, 28% of prime mortgages, including option ARMs, and 18% of subprime mortgages that were 30 days or more past due.   The primary performance indicator for TDRs is the rate at which permanently modified loans redefault. At June 30, 2014, the cumulative redefault rates of residential real estate loans that have been modified under the Firm’s loss mitigation programs, excluding PCI loans, based upon permanent modifications that were completed after October 1, 2009, and that are seasoned more than six months, are 18% for senior lien home equity, 20% for junior lien home equity, 15% for prime mortgages, including option ARMs, and 27% for subprime mortgages. At June 30, 2014, the weighted-average estimated remaining lives of residential real estate loans, excluding PCI loans, permanently modified in TDRs were 6 years for senior lien home equity, 7 years for junior lien home equity, 9 years for prime mortgages, including option ARMs, and 8 years for subprime mortgages. The estimated remaining lives of these loans reflect estimated prepayments, both voluntary and involuntary (i.e., foreclosures and other forced liquidations). 143 Other consumer loans The table below provides information for other consumer retained loan classes, including auto, business banking and student loans.   Auto Jun 30, 2014 (in millions, except ratios) Loan delinquency(a)   Current $ 30–119 days past due 120 or more days past due Total retained loans % of 30+ days past due to total retained loans $   Dec 31, 2013           Jun 30, 2014      204 280   621 4   6   152 160   293   53,042  $ 0.93%   52,757  $ 1.15%   19,453 1.83% $ 18,511 18,951  $ 2.32%   Dec 31, 2013     599 $  $     19,097   Student and other 489 52,152  $ Dec 31, 2013 Jun 30, 2014     $   52,549  $   Business banking 10,411 11,325 2.51%   $ (d)   90 or more days past due and still  (b) https://www.sec.gov/Archives/edgar/data/19617/000001961714000409/corpq22014.htm[10/8/14, 12:41:43 PM]   Total other consumer Jun 30, 2014     660   $   368   10,529 11,557 2.52%   $ (d)   Dec 31, 2013       82,057   $ 1,314       81,192     1,539   449   534   83,820   83,265   1.35% $ (d)   1.60% (d)   CORP Q2 2014 accruing $ Nonaccrual loans  $ —   103 Geographic region   California $ — 161     $ —      5,615  $ 2,740 New York 3,689   3,898   Illinois 2,966   2,917   Florida 2,094   2,012 Texas 5,310   New Jersey 1,942 Arizona 1,949 Washington Michigan Total retained loans $ Loans by risk ratings(c)   Noncriticized $ 385    $ All other — 326 5,957 Ohio $  $ 316   170   $      428 86     2,374  $ 1,124 3,128 3,084   1,248 1,296 1,341   750     708 646   536 5,310   2,592 2,646     2,014   407 392   1,855   981 1,046 1,001   950   238 1,771   1,902   316   599       $     $   $   9,821   8,065 740   5,012   539   870   878   390     253   234   235 1,363 1,383   $   $     $   428   632     9,101     8,200     4,998   3,338   3,197     8,772   8,834   397   2,739   2,803   252   3,183   3,153     227   1,474   1,411   489   513   3,623   3,798   1,112 1,218 2,148   2,229   1,304 1,316   670   708   4,122   4,253   24,215   24,055   4,696 4,489   4,760   4,973   33,671   33,517   53,042  $ 52,757  $   $ 83,820   $ 83,265       23,334   $ 23,590   774   765   271   354       $ 9,269 Criticized performing 34   Criticized nonaccrual —   19,453    9,968 54 38   18,951    $   $  $   $ 11,325    11,557         13,622   NA   740 711   NA   NA   $   271 316   NA   NA   14,065 $ NA   (a) Individual delinquency classifications included loans insured by U.S. government agencies under the Federal Family Education Loan Program (“FFELP”) as follows: current included $4.7 billion and $4.9 billion; 30-119 days past due included $359 million and $387 million; and 120 or more days past due included $271 million and $350 million at June 30, 2014, and December 31, 2013, respectively. (b) These amounts represent student loans, which are insured by U.S. government agencies under the FFELP. These amounts were accruing based upon the government guarantee. (c) For risk-rated business banking and auto loans, the primary credit quality indicator is the risk rating of the loan, including whether the loans are considered to be criticized and/or nonaccrual. (d) June 30, 2014, and December 31, 2013, excluded loans 30 days or more past due and still accruing, which are insured by U.S. government agencies under the FFELP, of $630 million and $737 million, respectively. These amounts were excluded based upon the government guarantee. 144 Other consumer impaired loans and loan modifications The table below sets forth information about the Firm’s other consumer impaired loans, including risk-rated business banking and auto loans that have been placed on nonaccrual status, and loans that have been modified in TDRs.   Auto   Impaired loans With an allowance $ Without an allowance (a) Allowance for loan losses related to   impaired loans Impaired loans on nonaccrual status loans (c)   December 31, 2013 June 30, 2014   Total other consumer(d) December 31, 2013 June 30, 2014             51 $ 96   $ 47   414 $ 475   $ —   465 $ 38 Total impaired loans (b) Unpaid principal balance of impaired December 31, 2013 June 30, 2014 (in millions)   Business banking — 38 571 47 $ 89 $ 143   $ 414 $ 475   $ 503 $ 618 $ 8 $ 13   $ 79 $ 94   $ 87 $ 107 169 235   480 553   649 788 63 113   277 328   340 441 (a) When discounted cash flows, collateral value or market price equals or exceeds the recorded investment in the loan, the loan does not require an allowance. This typically occurs when the impaired loans have been partially charged off and/or there have been interest payments received and applied to the loan balance. (b) Predominantly all other consumer impaired loans are in the U.S. (c) Represents the contractual amount of principal owed at June 30, 2014, and December 31, 2013. The unpaid principal balance differs from the impaired loan balances due to various factors, including charge-offs; interest payments received and applied to the principal balance; net deferred loan fees or costs; and unamortized discounts or premiums on purchased loans. (d) Excludes $63 million of impaired student loans with a related allowance for loan losses of $18 million, all of which were on nonaccrual status, at June 30, 2014. There were no impaired student and other loans at December 31, 2013. The following table presents average impaired loans for the periods presented. https://www.sec.gov/Archives/edgar/data/19617/000001961714000409/corpq22014.htm[10/8/14, 12:41:43 PM] CORP Q2 2014 Average impaired loans (a)(b)   Three months ended June 30, 2014 (in millions) Auto   2013 103   $ $ Six months ended June 30, 129     2014 2013 119   $ Business banking 487   528     475   Total other consumer 590   657     594   $ $ $ $ 137 536 $ 673 (a) The related interest income on impaired loans, including those on a cash basis, was not material for the three and six months ended June 30, 2014 and 2013. (b) Excludes impaired student loans for the three and six months ended June 30, 2014. Loan modifications The following table provides information about the Firm’s other consumer loans modified in TDRs. All of these TDRs are reported as impaired loans in the tables above.   Auto December 31, 2013 June 30, 2014 (in millions) Loans modified in TDRs (a)(b) 89   $ $ December 31, 2013 June 30, 2014 107   $ 234   77   97   63   TDRs on nonaccrual status     Business banking $   Total other consumer(c) December 31, 2013 June 30, 2014 271   $ 323   124   160   $ 378 201 (a) These modifications generally provided interest rate concessions to the borrower or term or payment extensions. (b) Additional commitments to lend to borrowers whose loans have been modified in TDRs as of June 30, 2014, and December 31, 2013, were immaterial. (c) Excludes impaired student loans modified in TDRs at June 30, 2014. 145 TDR activity rollforward The following tables reconcile the beginning and ending balances of other consumer loans modified in TDRs for the periods presented. Beginning balance of TDRs   Auto Three months ended June 30, (in millions) 2014 $   2013 Business banking 2014 140   $ 97 $ 2013   Total other consumer(a)   2014 341   $ 249 $ 2013 346 $ 481 New TDRs 17 22   16 18   33 40 Charge-offs post-modification — (2)   (2) —   (2) (2) Foreclosures and other liquidations (2) —   (1) —   (3) — (23) (36)   (28) (35)   (51) (71) 448 Principal payments and other Ending balance of TDRs $ 89 $ 124   $ 234 $ 324   $ 323 $                 Auto Six months ended June 30, (in millions) Beginning balance of TDRs   2014 $   2013 107 $ 150   $ Business banking 2014 2013 271 $   Total other consumer(a)   2014 352   $ 2013 378 $ 502 New TDRs 37 42   24 40   61 82 Charge-offs post-modification — (5)   (2) (2)   (2) (7) (5) —   (63)   (1) (58) —   (66)   (108) 124   $ 234 $ 324   $ Foreclosures and other liquidations Principal payments and other Ending balance of TDRs (50) $ 89 $ (6) 323 $ — (129) 448 (a) Excludes student loans modified in TDRs during the three and six months ended June 30, 2014. Financial effects of modifications and redefaults For auto loans, TDRs typically occur in connection with the   bankruptcy of the borrower. In these cases, the loan is modified with a revised repayment plan that typically incorporates interest rate reductions and, to a lesser extent, principal forgiveness. For business banking loans, concessions are dependent on individual borrower circumstances and can be of a short-term nature for borrowers who need temporary relief or longer term for borrowers experiencing more fundamental financial difficulties. Concessions are of auto loans modified in TDRs that experienced a payment default, and for which the payment default occurred within one year of the modification, was $11 million and $15 million during the three months ended June 30, 2014 and 2013, respectively and $22 million and $28 million during the six months ended June 30, 2014 and 2013, respectively. A payment default is deemed to occur as follows: (1) for scored auto and business banking loans, when the loan is two payments past due; and (2) for risk-rated business banking loans and auto loans, when the borrower has not made a loan payment by its https://www.sec.gov/Archives/edgar/data/19617/000001961714000409/corpq22014.htm[10/8/14, 12:41:43 PM] CORP Q2 2014 predominantly term or payment extensions, but also may include interest rate reductions. The balance of business banking loans modified in TDRs that experienced a payment default, and for which the payment default occurred within one year of the modification, was $7 million and $11 million during the three months ended June 30, 2014 and 2013, respectively, and $14 million and $23 million during the six months ended June 30, 2014 and 2013, respectively. The balance scheduled due date after giving effect to the contractual grace period, if any. In May 2014 the Firm began extending the deferment period for up to 24 months for certain student loans, which resulted in extending the maturity of the loans at their original contractual interest rates. These modified loans are considered TDRs and placed on nonaccrual status. The following table provides information about the financial effects of the various concessions granted in modifications of other consumer loans, excluding student loans, for the periods presented. Three months ended June 30,       Auto   2014 Weighted-average interest rate of loans with interest rate reductions – before TDR Business banking   2013 2014 13.46%   12.02% Six months ended June 30,   2013   Auto 2014   2013 7.11% 7.58%     6.04 6.16   4.97 4.94 NM   3.1 1.6   NM NM   4.6 3.8   NM Weighted-average interest rate of loans with interest rate reductions – after TDR 4.98 4.82 Weighted-average remaining contractual term (in years) of loans with term or payment extensions – before TDR NM Weighted-average remaining contractual term (in years) of loans with term or payment extensions – after TDR NM Business banking 2014 13.19%   13.10% 2013 7.35% 7.94%   6.28 5.84 NM   2.6 1.5 NM   4.3 3.1 146 Purchased credit-impaired loans For a detailed discussion of PCI loans, including the related accounting policies, see Note 14 of JPMorgan Chase’s 2013 Annual Report. Residential real estate – PCI loans The table below sets forth information about the Firm’s consumer, excluding credit card, PCI loans.   Home equity Jun 30, 2014 (in millions, except ratios) Carrying value (a) $ Related allowance for loan losses (b) Loan delinquency (based on unpaid principal balance) Current $ 1,758   $ 30–149 days past due 150 or more days past due Total loans 18,070 Dec 31, 2013 $ % of 30+ days past due to total loans 18,927 1,758   17,317 $    $   11,302  $ Dec 31, 2013 $ 1,617    18,135   Prime mortgage Jun 30, 2014 12,038 1,726   9,563 $    $   Subprime mortgage Jun 30, 2014 3,947  $ $ 180    10,118 Dec 31, 2013 4,175 180   3,828 $      $   16,799  $ Dec 31, 2013 $ 194    4,012   Option ARMs Jun 30, 2014 17,915 494   14,725 $    $   Total PCI Jun 30, 2014 50,118  $ $ 3,749    15,501 Dec 31, 2013 4,158   45,433 $ 583   538 589   591 662   930 1,006   2,524 2,840 1,067 1,112   986 1,169   683 797   2,183 2,716   4,919 5,794 18,849 $ 8.13% 19,830 8.55%  $   11,087 $ 13.75% 11,876 14.80%  $ 5,102   24.97% $ 5,471  $ 26.67%   17,838 $ 17.45% 19,223 19.36%  $   52,876 $ 14.08%                       Greater than 125% and refreshed FICO scores:                         Less than 660 101% to 125% and refreshed FICO scores: $ 411   Equal to or greater than 660 662 1,189   1,168   2,568 Less than 660 80% to 100% and refreshed FICO scores: 772    $   118 158    240  $ 290     3,248   715 1,541   552    $   74 274    115  $ 459     1,017   249 884   688    $ 156 309      784 919   1,052 https://www.sec.gov/Archives/edgar/data/19617/000001961714000409/corpq22014.htm[10/8/14, 12:41:43 PM]    301  $ 1,120 575   1,152   316   $      $ 1,824 1,986   1,164   4,316 1,563   3,481    56,400 15.31%   $ 47,766 465 Current estimated LTV ratios (based on unpaid principal balance) (c)(d) Equal to or greater than 660 53,055 5,745 4,907   CORP Q2 2014 Equal to or greater than 660 4,365 4,473   2,400 2,787   552 544   2,741 3,311   10,058 11,115 Less than 660 1,758 1,782   1,537 1,699   1,131 1,197   2,339 2,769   6,765 7,447 Lower than 80% and refreshed FICO scores:                         Equal to or greater than 660 5,739 5,077   3,425 2,897   641 521   6,410 5,671   16,215 14,166 Less than 660 2,047 1,879   2,182 2,062   1,493 1,400   4,047 3,869   9,769 9,210  $ 5,102 5,471  $ Total unpaid principal balance $ Geographic region (based on unpaid principal balance)   California $ 18,849 $ 19,830   11,341 $  $ 11,087 $    11,937  $ 11,876   6,393 $    $ 6,845  $   1,218 $ 17,838    1,293 $ 19,223    $ 9,814 $  $ 52,876    10,419  $ $ 56,400   28,766 $ 30,494 New York 922 962   748 807   514 563   1,048 1,196   3,232 3,528 Illinois 429 451   324 353   258 283   445 481   1,456 1,568 Florida 1,786 1,865   772 826   494 526   1,631 1,817   4,683 5,034 302 327   100 106   305 328   91 100   798 861 Texas New Jersey 362 381   316 334   187 213   614 701   1,479 1,629 Arizona 343 361   179 187   90 95   245 264   857 907 1,020 1,072   244 266   103 112   428 463   1,795 1,913 58 62   177 189   139 145   193 206   567 602 21 23   50 55   79 84   72 75   222 237 2,265 2,389   1,784 1,908   1,715 1,829   3,257 3,501   9,021 9,627  $ 5,102 5,471  $ Washington Michigan Ohio All other Total unpaid principal balance $ 18,849 $ 19,830  $ 11,087 $ 11,876 $ 17,838 $ 19,223  $ 52,876 $ 56,400 (a) Carrying value includes the effect of fair value adjustments that were applied to the consumer PCI portfolio at the date of acquisition. (b) Management concluded as part of the Firm’s regular assessment of the PCI loan pools that it was probable that higher expected credit losses would result in a decrease in expected cash flows. As a result, an allowance for loan losses for impairment of these pools has been recognized. (c) Represents the aggregate unpaid principal balance of loans divided by the estimated current property value. Current property values are estimated, at a minimum, quarterly, based on home valuation models using nationally recognized home price index valuation estimates incorporating actual data to the extent available and forecasted data where actual data is not available. These property values do not represent actual appraised loan level collateral values; as such, the resulting ratios are necessarily imprecise and should be viewed as estimates. Current estimated combined LTV for junior lien home equity loans considers all available lien positions, as well as unused lines, related to the property. (d) Refreshed FICO scores represent each borrower’s most recent credit score, which is obtained by the Firm on at least a quarterly basis. 147 Approximately 20% of the PCI home equity portfolio are senior lien loans; the remaining balance are junior lien HELOANs or HELOCs. The following tables set forth     June 30, 2014   delinquency statistics for PCI junior lien home equity loans and lines of credit based on unpaid principal balance as of June 30, 2014, and December 31, 2013.   Delinquencies              (in millions, except ratios) 30–89 days past 90–149 days past 150+ days past         due due due HELOCs:(a)              $   174   $ 60   60   $ 20   467   $ 120   HELOANs   20   8   40   Total  $ 254   $ 88   $ 627   $ 14,760            December 31, 2013       Within the revolving period (b) Beyond the revolving period (c) Delinquencies     Total loans      10,802   6.36 812   8.37 (in millions, except ratios) HELOCs:(a)              $ 243   $ 88   $ 526   $ 12,670   Within the revolving period (c) 6.49% 3,146   30–89 days past 90–149 days past 150+ days past         due due due period (b) Total 30+ day delinquency rate Total loans   6.57% Total 30+ day delinquency rate    6.76%   54   21   82   2,336   6.72 HELOANs   24   11   39   908   8.15 Total  $ 321   $ 120   $ 647   $ Beyond the revolving 15,914   6.84% (a) In general, these HELOCs are revolving loans for a 10-year period, after which time the HELOC converts to an interest-only loan with a balloon payment at the end of https://www.sec.gov/Archives/edgar/data/19617/000001961714000409/corpq22014.htm[10/8/14, 12:41:43 PM] CORP Q2 2014 the loan’s term. (b) Substantially all undrawn HELOCs within the revolving period have been closed. (c) Includes loans modified into fixed rate amortizing loans. The table below sets forth the accretable yield activity for the Firm’s PCI consumer loans for the three and six months ended June 30, 2014 and 2013, and represents the Firm’s estimate of gross interest income expected to be earned over the remaining life of the PCI loan portfolios. The table excludes the cost to fund the PCI portfolios, and therefore the accretable yield does not represent net interest income expected to be earned on these portfolios. Total PCI (in millions, except ratios) Beginning balance Three months ended June 30,   Six months ended June 30, 2014   2014 $ 2013 15,782 Accretion into interest income $ (495) Changes in interest rates on variable-rate loans $ 15,275 Accretable yield percentage   (66) (110) 183  $ 18,606 4.24% 18,457 (1,138) (342)   $ $ (1,009) 49 33 Balance at June 30 16,167 (565)   (45) Other changes in expected cash flows (a)  $ 19,464 2013 1,397 15,275 4.38%   $ 18,606 4.28% 4.36% (a) Other changes in expected cash flows may vary from period to period as the Firm continues to refine its cash flow model and periodically updates model assumptions. For the three and six months ended June 30, 2014, and for the three months ended June 30, 2013, other changes in expected cash flows were driven by changes in prepayment assumptions. For the six months ended June 30, 2013, other changes in expected cash flows were due to refining the expected interest cash flows on HELOCs with balloon payments, partially offset by changes in prepayment assumptions. The factors that most significantly affect estimates of gross cash flows expected to be collected, and accordingly the accretable yield balance, include: (i) changes in the benchmark interest rate indices for variablerate products such as option ARM and home equity loans; and (ii) changes in prepayment assumptions. 148 Credit card loan portfolio The table below sets forth information about the Firm’s credit card loans.   At June 30, 2014, and December 31, 2013, $179 million and $226 million , respectively, of loans have reverted back to the pre-modification payment terms of the loans due to noncompliance with the terms of the modified loans. The remaining $115 million and $143 million at June 30, December 31, 2013 June 30, 2014 (in millions, except ratios) Loan delinquency   Current and less than 30 days   past due and still accruing $   2014, and December 31, 2013, respectively, of these loans are to borrowers who have successfully completed a short-term modification program. The Firm continues to report these loans as TDRs since the borrowers’ credit lines remain closed. (e) Predominantly all impaired credit card loans are in the U.S. 30–89 days past due and still accruing 910 1,108 The following table presents average balances of impaired credit card loans and interest income recognized on those loans. 90 or more days past due and still accruing 862 1,022   — — Nonaccrual loans Total retained credit card loans $ Loan delinquency ratios   % of 30+ days past due to total retained loans % of 90+ days past due to total retained loans Credit card loans by geographic   region California $ 123,849 125,621 $ $ 125,335 127,465   1.41% 1.67% 0.69 0.80   17,040 $ 17,194 Texas 10,464 10,400 New York 10,425 10,497 Illinois 7,313 7,412 Florida 7,039 7,178 New Jersey 5,516 5,554 Ohio 4,736 4,881 Three months ended   June 30, (in millions) Average impaired credit card loans Interest income on impaired credit card loans 2014 $ 2013   Six months ended June 30, 2014 2013 2,617 $ 4,070   $ 2,776 $ 32 52   68 4,294 110 Loan modifications The Firm may modify loans to credit card borrowers who are experiencing financial difficulty. Most of these loans have been modified under programs that involve placing the customer on a fixed payment plan with a reduced interest rate, generally for 60 months. All of these credit card loan modifications are considered to be TDRs. New enrollments in these loan modification programs for the three months ended June 30, 2014 and 2013, were $193 million and $288 million, respectively and for the six months ended June 30, 2014 and 2013, were $426 million and $627 million, respectively. For additional information about credit card loan modifications, see Note 14 of JPMorgan Chase’s 2013 Annual Report. https://www.sec.gov/Archives/edgar/data/19617/000001961714000409/corpq22014.htm[10/8/14, 12:41:43 PM] CORP Q2 2014 Pennsylvania 4,347 4,462 Michigan 3,502 3,618 Virginia 3,172 3,239 All other 52,067 53,030 Total retained credit card loans $ Percentage of portfolio based on carrying value with estimated refreshed FICO scores 125,621 $   Financial effects of modifications and redefaults The following table provides information about the financial effects of the concessions granted on credit card loans modified in TDRs and redefaults for the periods presented. 127,465   Equal to or greater than 660 86.2% 85.1% Less than 660 13.8 14.9 Credit card impaired loans and loan modifications For a detailed discussion of impaired credit card loans, including credit card loan modifications, see Note 14 of JPMorgan Chase’s 2013 Annual Report. Impaired credit card loans with an allowance (a)(b)     Credit card loans with modified payment terms (c) $ 2,173 $ Total impaired credit card loans (e) $ 2,467 $ 3,115 Allowance for loan losses related to impaired credit card loans $ 583 $ 971 Modified credit card loans that have reverted to pre-modification payment terms (d) Weighted-average interest rate of loans – before TDR 15.05% 15.38%   $   4.27 29 $ 41   2014 2013 15.04% 15.44% 4.36  $ 63 4.88 $ 85 (a) Represents loans modified in TDRs that experienced a payment default in the periods presented, and for which the payment default occurred within one year of the modification. The amounts presented represent the balance of such loans as of the end of the quarter in which they defaulted. For credit card loans modified in TDRs, payment default is deemed to have occurred when the loans become two payments past due. A substantial portion of these loans is expected to be charged-off in accordance with the Firm’s standard charge-off policy. Based on historical experience, the estimated weighted-average default rate was expected to be 29.17% and 30.72% for credit card loans modified as of June 30, 2014, and December 31, 2013, respectively. 2,746 294 2013 Loans that redefaulted within one year of modification (a) December 31, 2013 June 30, 2014 2014 4.33 Six months ended June 30,   (in millions, except weighted-average data) Weighted-average interest rate of loans – after TDR The table below sets forth information about the Firm’s impaired credit card loans. All of these loans are considered to be impaired as they have been modified in TDRs. (in millions) Three months ended June 30, 369 (a) The carrying value and the unpaid principal balance are the same for credit card impaired loans. (b) There were no impaired loans without an allowance. (c) Represents credit card loans outstanding to borrowers enrolled in a credit card modification program as of the date presented. (d) Represents credit card loans that were modified in TDRs but that have subsequently reverted back to the loans’ pre-modification payment terms. 149 Wholesale loan portfolio Wholesale loans include loans made to a variety of customers, ranging   from large corporate and institutional clients to high-net-worth individuals. The primary credit quality indicator for wholesale loans is the risk rating assigned each loan. For further information on these risk ratings, see Note 14 and Note 15 of JPMorgan Chase’s 2013 Annual Report. The table below provides information by class of receivable for the retained loans in the Wholesale portfolio segment. Commercial  and industrial   (in millions,  except ratios) Jun 30, 2014 Loans by risk ratings   Investment-grade $ Noninvestment-grade:     Dec 31, 2013   58,802 $   Jun 30, 2014    57,690    $   Real estate Dec 31, 2013   56,282    $   Financial institutions Jun 30, 2014    52,195    $   Dec 31, 2013   30,736    $ 26,712   9,362    $ 9,979   80,509    $ 79,494   235,691    $ 226,070   2,625 2,385   1,841 2,229   235 272   3 42   425 480   5,129 5,408 Criticized nonaccrual 256 294   288 346   21 25   — 1   162 155   727 821 49,549 46,156   17,344 16,956   8,304 6,971   283 483   10,363 11,627   85,843 82,193 $ 108,351 $ 103,846  $ 73,626 69,151  $  $ 90,872 91,121  $ 321,534 $ 308,263 2.66% 2.58%   2.89% 3.72%   39,040 0.66% $ 33,683 0.88%  $   9,645 0.03% $ 9,776  $ Dec 31, 2013 43,477 $ 440 Jun 30, 2014          46,668 % of total criticized to total retained loans 280  $ Dec 31, 2013 Total retained loans Noncriticized Total retained loans 6,674 Jun 30, 2014            Other (d) Criticized performing Total noninvestment  grade 8,048  $ Dec 31, 2013     15,215 14,381 Jun 30, 2014          Government agencies 10,462 0.41% https://www.sec.gov/Archives/edgar/data/19617/000001961714000409/corpq22014.htm[10/8/14, 12:41:43 PM]   0.65% $ 10,992   79,987 75,964 0.70%   1.82% 2.02% CORP Q2 2014 % of nonaccrual loans to total retained loans 0.24   Loans by geographic       distribution (a)   0.28     0.39     34,440  $ 72,954 69,406   70,861 Total retained loans $ 108,351 $ 103,846  $ 73,626                 $ 103,357  $ Total non-U.S. $ Total U.S. Loan delinquency (b) 35,397 Current and less than 30 days past due and still accruing $ 107,836 30–89 days past due and still accruing $   0.50       2,765 $ $ $ 25,531 67,782   13,509 69,151  $ 39,040 $ 38,967  $ 1,421 10,957   8,224 33,683  $ 9,645       $ 9,574 0.18 $ $     2,146  $ 44,589 8,316   46,283  $ 90,872 10,462 $ 89,671 0.27     43,376  $ 109,703 $ 104,057 47,745   211,831 204,206 91,121  $ 321,534 $ 308,263      $ 10,421 0.23       $       $   0.17            $ 33,426   0.01     22,726      $ —       $       68,627   0.07      $ 1,369     73,191 0.05             $  $ 89,717     319,239 $ 305,548 233 181   125 164   50 226   18 40   1,032 1,233   1,458 1,844 26 14   22 14   2 6   53 —   7 16   110 50 Criticized nonaccrual 256 294   288 346   21 25   — 1   162 155   727 821 Total retained loans $ 108,351 $ 103,846 321,534 $ 308,263 90 or more days past due and still accruing(c)  $ 73,626 $  $ 69,151 39,040 $  $ 33,683 9,645 $  $ 10,462 90,872 $  $ 91,121 (a) The U.S. and non-U.S. distribution is determined based predominantly on the domicile of the borrower. (b) The credit quality of wholesale loans is assessed primarily through ongoing review and monitoring of an obligor’s ability to meet contractual obligations rather than relying on the past due status, which is generally a lagging indicator of credit quality. For a discussion of more significant risk factors, see Note 14 of JPMorgan Chase’s 2013 Annual Report. (c) Represents loans that are considered well-collateralized and therefore still accruing interest. (d) Other primarily includes loans to SPEs and loans to private banking clients. See Note 1 of JPMorgan Chase’s 2013 Annual Report for additional information on SPEs. The following table presents additional information on the real estate class of loans within the Wholesale portfolio segment for the periods indicated. For further information on real estate loans, see Note 14 of JPMorgan Chase’s 2013 Annual Report.   Multifamily Jun 30, 2014 (in millions, except ratios) Real estate retained loans $ 46,711 Criticized exposure % of criticized nonaccrual to total real estate retained loans $ 44,389 935 % of criticized exposure to total real estate retained loans Criticized nonaccrual Dec 31, 2013 1,142 2.00% $ 159 $ 0.34%    $   Jun 30, 2014 Dec 31, 2013 16,833 $   6.68% 191  $ 127 0.43%   0.75% $  $ Dec 31, 2013 3,944 $      $ 3,674   Other Jun 30, 2014 Dec 31, 2013 6,138 $ Total real estate loans Jun 30, 2014   5,139  $ Dec 31, 2013 73,626 $   48 81   22 29   8.30%   1.22% 2.20%   0.36% 0.56%   2.89% 143  $ —  $ 288 0.90%   —%   0.39% 1,323 2.57% Jun 30, 2014   15,949 1,124 Commercial construction and development   Commercial lessors $  $ 3 0.08% 2   $ 9 0.03% 0.18% 69,151 2,129 2,575 3.72% $ 346 0.50% 150 Wholesale impaired loans and loan modifications Wholesale impaired loans are comprised of loans that have been placed on nonaccrual status and/or that have been modified in a TDR. All impaired loans are evaluated for an asset-specific allowance as described in Note 14. The table below sets forth information about the Firm’s wholesale impaired loans. Commercial and industrial Jun 30, 2014 (in millions) Impaired loans   With an allowance $ Without an allowance (a) 232   Dec 31, 2013        $ 32 236 58  $   Jun 30, 2014 Dec 31, 2013   200 $ 89 Financial institutions   Real estate   Jun 30, 2014    Dec 31, 2013   258  $ 5 109   8 $ Government  agencies     Jun 30, 2014    17 8   Dec 31, 2013    $ —   — $   Jun 30, 2014    1 —  $     Other 104 Dec 31, 2013        $ 62 Total retained loans Jun 30, 2014   Dec 31, 2013           85  $ 541   597   73   191   248   $ $ 264 $ 294  $ 289 $ 367  $ 13 $ 25  $ — $ 1  $ 166 $ 158  $ 732 (c)  $ 845 (c)  Allowance for loan losses related to impaired loans $ 60 $ 75  $ 43 $ 63  $ 11 $ 16  $ — $ —  $ 24 $ 27  $ 138   181     12 24   —   954   1,168   Total impaired loans Unpaid principal balance of impaired    loans(b) 325 448   366 454 1   251 241 $ (a) When the discounted cash flows, collateral value or market price equals or exceeds the recorded investment in the loan, the loan does not require an allowance. This typically occurs when the impaired loans have been partially charged-off and/or there have been interest payments received and applied to the loan balance. (b) Represents the contractual amount of principal owed at June 30, 2014, and December 31, 2013. The unpaid principal balance differs from the impaired loan balances due to various factors, including charge-offs; interest payments received and applied to the carrying value; net deferred loan fees or costs; and unamortized discount or premiums on purchased loans. (c) Based upon the domicile of the borrower, predominantly all wholesale impaired loans are in the U.S. https://www.sec.gov/Archives/edgar/data/19617/000001961714000409/corpq22014.htm[10/8/14, 12:41:43 PM] CORP Q2 2014 The following table presents the Firm’s average impaired loans for the periods indicated. Three months ended June 30,   (in millions) 2014 Six months ended June 30,     2013 2014 2013 249 $ 387   270 $ 496 306 518   330 526 Financial institutions 19 11   21 9 Government agencies — —   — — 159 226   164 225 Commercial and industrial $ Real estate Other Total (a) $ $ 1,142   $ 733 $ 785 $ 1,256 (a) The related interest income on accruing impaired loans and interest income recognized on a cash basis were not material for the three and six months ended June 30, 2014 and 2013. 151 Loan modifications Certain loan modifications are considered to be TDRs as they provide various concessions to borrowers who are experiencing financial difficulty. All TDRs are reported as impaired loans in the tables above. For further information, see Note 14 of JPMorgan Chase’s 2013 Annual Report. The following table provides information about the Firm’s wholesale loans that have been modified in TDRs, including a reconciliation of the beginning and ending balances of such loans and information regarding the nature and extent of modifications during the periods presented.   Commercial and industrial   Three months ended June 30, (in millions)   2014     Beginning balance of TDRs   New TDRs 2013 84   $ 254     25   $ 27 Increases to existing TDRs   10   $   Real estate   2014 78     — 1   $   2013 124     10   —   —   $   Other  (b)   2014 $ Total   2013   2014  $ 43   3   15   28   52 —   —   10   1 31 $  $ 2013 193 421 Charge-offs post -modification   —   —   —   —   —   —   —   — Sales and other (a)   (9)   (173)   (4)   (23)   (12)   (24)   (25)   (220) Ending balance of TDRs   109   74   111   34   206  $      $ 110   $          Commercial and industrial   Six months ended June 30, (in millions)   2014     Beginning balance of TDRs   New TDRs Increases to existing TDRs 2013 77   $ 575     48   $ 41   11   4 Charge-offs post -modification   —   Sales and other (a)   (26)   Ending balance of TDRs   $ 110   TDRs on nonaccrual status   $ 110   Additional commitments to lend to borrowers whose loans have been modified in TDRs   145   $ $ $      88     10   — (1)   (510)   $ 109   $ 102   22   22       2014 99     41   3   —   — —   (3)   (24)   (26)   $ 74   $ 111   $ 22 $ 67   $ 82   $ —   —   $ $ $  $ Total   2013     37     —   (1)   —   (13)   (25)    $ 34   19  $ 27   —   1   254      22 33 $     Other  (b)   2013  $      Real estate 2014 $   2014 2013  $ 696 61   119 11   4 (1)   (4) (63)   (561) $ 206  $ 254 $ 196  $ 211 145   $ 198 23 (a) Sales and other are largely sales and paydowns. (b) Includes loans to Financial institutions, Government agencies and Other. Financial effects of modifications and redefaults   Wholesale loans modified as TDRs are typically term or payment extensions and, to a lesser extent, deferrals of principal and/or interest on commercial and industrial and real estate loans. For the three months ended June 30, 2014 and 2013, the average term extension granted on wholesale loans with term or payment extensions was zero and 0.9 years, respectively. The weighted-average remaining term for all loans modified during these periods was 2.8 years and 1.4 years, respectively. There were no wholesale TDR loans that redefaulted within one year of the modification during the three months ended For the six months ended June 30, 2014 and 2013, the average term extension granted on wholesale loans with term or payment extensions was 1.0 years and 2.1 years, respectively. The weighted-average remaining term for all loans modified during these periods was 2.7 years and 1.6 years, respectively. There were no wholesale TDR loans that redefaulted within one year of the modification during the six months ended June 30, 2014. Wholesale TDR loans that redefaulted within one year of the modification during the six months ended June 30, 2013 was $1 million. A payment default is deemed to occur when the borrower has not made a loan payment by its scheduled due date https://www.sec.gov/Archives/edgar/data/19617/000001961714000409/corpq22014.htm[10/8/14, 12:41:43 PM] CORP Q2 2014 June 30, 2014. Wholesale TDR loans that redefaulted within one year of the modification during the three months ended June 30, 2013 was $1 million. after giving effect to any contractual grace period. 152 Note 14 – Allowance for credit losses For detailed discussion of the allowance for credit losses and the related accounting policies, see Note 15 of JPMorgan Chase’s 2013 Annual Report. Allowance for credit losses and loans and lending-related commitments by impairment methodology The table below summarizes information about the allowance for loan losses, loans by impairment methodology, the allowance for lending-related commitments and lending-related commitments by impairment methodology.     2014 Six months ended June 30, (in millions) Consumer, excluding credit card   Allowance for loan losses       Beginning balance at January 1, $ Gross charge-offs 8,456   1,084   Credit card $   Wholesale   3,795   1,982   77   (108) $ 4,013 (399)   Net charge-offs/(recoveries) 685   1,773   (31) Write-offs of PCI loans(a) 109   —   — Provision for loan losses 81   1,573   (55) Other —     — 7,743   Gross recoveries Ending balance at June 30, $   Allowance for loan losses by impairment methodology     Asset-specific(b) $ (209) (1) $ 3,594           $   Total     3,989         $   12,292   3,143   1,458   1,064   109   —   1,599   (531)     (6)   (1)   $         1,319   $ 15,326     3,396   3,011   3,851 10,258 PCI 3,749   —   — 7,743   3,594   Total allowance for loan losses $   Loans by impairment methodology     Asset-specific $ Formula-based PCI Total retained loans $   Impaired collateral-dependent loans     Net charge-offs/(recoveries) $ Loans measured at fair value of collateral less cost to sell   Allowance for lending-related commitments     Beginning balance at January 1, $ Provision for lending-related commitments Other Ending balance at June 30, $   Allowance for lending-related commitments by impairment methodology     Asset-specific $ $         $ 138 3,989         $ $ 307,164 643,996 12 56,748 287,388   124,288           76   $ 3,571   1                 705   $ —     —   (58) (57) —   —   — 9   —   $ $         —   $ $ $ 697 639         —   $ $ $ $ 1,227 (c)  $   3,218   4,020 11,505 5,711   —   — 5,711 10,691   4,445   132   3,152   $ $ $ 1 —   648   $           $ $ 228 4,248         $ $ —   —   $ $ $ 2,168 19,384     1,032 308,208                   https://www.sec.gov/Archives/edgar/data/19617/000001961714000409/corpq22014.htm[10/8/14, 12:41:43 PM] $           43 $         7     43       $   19,384 —   8         $ 120,431 735,369 321 4,248             $ 56,736 125,621             216,401   — 4,445 (3)   288,214         9         (6) 3,857 50,123 3,250 579   668,856 (5) $ 64   5 $   1,046 14,251 320,797   — $   — —   — $ —   16,390 123,154   3,128       81 (32) (860)     50,118           2,096 3,988 $ 224,905         (148)     $ 116   21,936 15,326   321,534   $     $ 2,414 4,143 3,749 2,467 $   4,267   $   5,501 $ Total       732     (318) $ Wholesale     $     713 13,191 $ 10,691 $     Formula-based (c)  $ (394) 2,427   583   Credit card       598 $     16,264 (716) $ 2013 Consumer, excluding credit card $ $ 19,140 719,884     10 $ 394         142 3,546     —     —   84 85 —   —   — — 8   —   $ $         —   $ $ $ 661 745         —   $ $ $ 668 753     79 $ 79 CORP Q2 2014 Formula-based 9   Total allowance for lending-related commitments $ 9     Lending -related commitments by impairment methodology     Asset-specific $ Formula-based Total lending-related commitments $ $ —   —           —   56,410   56,410   $ 639         —   533,688   533,688   $ $ 596 $ 605   648   $         $     $ 122 $ 451,153 $ 451,275 $ 122   1,041,251   1,041,373   $ 8   8   $ —   —           —   62,303   62,303   $ $ 666 $ 745         —   532,359   532,359   $ 674 $     283 $ 445,189 $ 753 445,472 283 1,039,851 $ 1,040,134 (a) Write-offs of PCI loans are recorded against the allowance for loan losses when actual losses for a pool exceed estimated losses that were recorded as purchase accounting adjustments at the time of acquisition. Any write-offs of PCI loans are recognized when the underlying loan is removed from a pool (e.g., upon liquidation). (b) Includes risk-rated loans that have been placed on nonaccrual status and loans that have been modified in a TDR. (c) The asset-specific credit card allowance for loan losses is related to loans that have been modified in a TDR; such allowance is calculated based on the loans’ original contractual interest rates and does not consider any incremental penalty rates. 153 Note 15 – Variable interest entities For a further description of JPMorgan Chase’s accounting policies regarding consolidation of variable interest entities (“VIEs”), see Note 1 of JPMorgan Chase’s 2013 Annual Report. The following table summarizes the most significant types of Firm-sponsored VIEs by business segment. Line-of-Business Transaction Type Activity CCB Credit card securitization trusts Securitization of both originated and purchased credit card receivables   Mortgage securitization trusts Securitization of both originated and purchased residential mortgages 154-156   Other securitization trusts Securitization of originated student loans 154-156 CIB Mortgage and other securitization trusts Securitization of both originated and purchased residential and commercial mortgages, automobile and student loans 154-156 Multi-seller conduits   Investor intermediation activities: Form 10-Q page reference Assist clients in accessing the financial markets in a costefficient manner and structures transactions to meet investor needs 154 156   Municipal bond vehicles   156-157   Credit-related note and asset swap vehicles   157 The Firm also invests in and provides financing and other services to VIEs sponsored by third parties, as described on page 157 of this Note. Significant Firm-sponsored variable interest entities Credit card securitizations For a more detailed discussion of JPMorgan Chase’s involvement with credit card securitizations, see Note 16 of JPMorgan Chase’s 2013 Annual Report. Firm-sponsored mortgage and other securitization trusts The Firm securitizes (or has securitized) originated and purchased residential mortgages, commercial mortgages and other consumer loans (including automobile and student loans) primarily in its CCB and CIB businesses. Depending on the particular transaction, as well as the respective business involved, the Firm may act as the servicer of the loans and/or retain certain beneficial interest in the securitization trusts.   As a result of the Firm’s continuing involvement, the Firm is considered to be the primary beneficiary of its Firm-sponsored credit card securitization trusts. This includes the Firm’s primary card securitization trust, Chase Issuance Trust. See the table on page 158 of this Note for further information on consolidated VIE assets and liabilities. For a detailed discussion of the Firm’s involvement with Firmsponsored mortgage and other securitization trusts, as well as the accounting treatment relating to such trusts, see Note 16 of JPMorgan Chase’s 2013 Annual Report. 154 The following table presents the total unpaid principal amount of assets held in Firm-sponsored private-label securitization entities, including those in which the Firm has continuing involvement, and those that are consolidated by the Firm. Continuing involvement includes servicing the loans; holding senior interests or subordinated interests; recourse or guarantee arrangements; and derivative transactions. In certain instances, the Firm’s only continuing involvement is servicing the loans. See Securitization activity on page 159 of this Note for further information regarding the Firm’s cash flows with and interests retained in nonconsolidated VIEs, and Loans and excess mortgage servicing rights sold to the GSEs, loans in securitization transactions pursuant to Ginnie Mae guidelines, and other third-party-sponsored securitization entities on pages 159–160 of this Note for information on the Firm’s loan sales to U.S. government agencies. JPMorgan Chase interest in securitized assets in https://www.sec.gov/Archives/edgar/data/19617/000001961714000409/corpq22014.htm[10/8/14, 12:41:43 PM] CORP Q2 2014     Principal amount outstanding Assets held in nonconsolidated securitization VIEs with continuing involvement Total assets held Assets by securitization held in consolidated VIEs securitization VIEs June 30, 2014(a) (in billions) nonconsolidated VIEs (c)(d)(e)   Trading assets AFS securities Total interests held by JPMorgan Chase Securitization-related              Residential mortgage:              $ 101.7 $ 2.4 $ 85.2   $ 0.4 $ 0.3 $ 0.7 1.9 26.0   0.1 — 0.1 126.9 0.2 94.2   0.5 3.3 3.8 258.4 $ 4.5 $ 1.0 $ 3.6 $ 4.6 Prime/Alt-A and Option ARMs Subprime Commercial and 29.8 other (b) Total $   205.4   $   Principal amount outstanding Total assets held by securitization VIEs December 31, 2013(a) (in billions) JPMorgan Chase interest in securitized assets in nonconsolidated VIEs (c)(d)(e) Assets held in nonconsolidated securitization VIEs with continuing Total interests held   Trading assets AFS securities by JPMorgan Chase involvement Assets held in consolidated securitization VIEs Securitization-related              Residential mortgage:              $ 109.2 $ 3.2 $ 90.4   $ 0.5 $ 0.3 $ 0.8 1.3 28.0   0.1 — 0.1 130.4 — 98.0   0.5 3.5 4.0 271.7 $ 4.5 $ 1.1 $ 3.8 $ 4.9 Prime/Alt-A and Option ARMs Subprime Commercial and Total 32.1 other (b) $ 216.4   $ (a) Excludes U.S. government agency securitizations. See Loans and excess mortgage servicing rights sold to the GSEs, loans in securitization transactions pursuant to Ginnie Mae guidelines, and other third-party-sponsored securitization entities on pages 159–160 of this Note for information on the Firm’s loan sales to U.S. government agencies. (b) Consists of securities backed by commercial loans (predominantly real estate) and non-mortgage-related consumer receivables purchased from third parties. The Firm generally does not retain a residual interest in its sponsored commercial mortgage securitization transactions. (c) The table above excludes the following: retained servicing (see Note 16 for a discussion of MSRs); securities retained from loans sales to U.S. government agencies; interest rate and foreign exchange derivatives primarily used to manage interest rate and foreign exchange risks of securitization entities (See Note 5 for further information on derivatives); senior and subordinated securities of $105 million and $55 million, respectively, at June 30, 2014, and $151 million and $30 million, respectively, at December 31, 2013, which the Firm purchased in connection with CIB’s secondary market-making activities. (d) Includes interests held in re-securitization transactions. (e) As of June 30, 2014, and December 31, 2013, 69% of the Firm’s retained securitization interests, which are carried at fair value, were risk-rated “A” or better, on an S&P-equivalent basis. The retained interests in prime residential mortgages consisted of $437 million and $551 million of investment-grade and $238 million and $260 million of noninvestment-grade retained interests at June 30, 2014, and December 31, 2013, respectively. The retained interests in commercial and other securitizations trusts consisted of $3.6 billion and $3.9 billion of investment-grade and $124 million and $80 million of noninvestment-grade retained interests at June 30, 2014, and December 31, 2013, respectively. 155 Residential mortgages   For a more detailed description of the Firm’s involvement with residential mortgage securitizations, see Note 16 of JPMorgan Chase’s 2013 Annual Report. At June 30, 2014, and December 31, 2013, the Firm did not consolidate the assets of certain Firm-sponsored residential mortgage securitization VIEs in which the Firm had continuing involvement, primarily due to the fact that the Firm did not hold an interest in these trusts that could potentially be significant to the trusts. See the table on page 158 of this Note for more information on the consolidated residential mortgage securitizations, and the table on the previous page of this Note for further information on interests held in nonconsolidated residential mortgage securitizations. Commercial mortgages and other consumer securitizations CIB originates and securitizes commercial mortgage loans, and engages in underwriting and trading activities involving the securities As of June 30, 2014, and December 31, 2013, total assets (including the notional amount of interest-only securities) of nonconsolidated Firm-sponsored private-label re-securitization entities in which the Firm has continuing involvement were $3.0 billion and $2.8 billion, respectively. At June 30, 2014, and December 31, 2013, the Firm held approximately $2.3 billion and $1.3 billion, respectively, of interests in nonconsolidated agency re-securitization entities, and $37 million and $6 million, respectively, of senior and subordinated interests in nonconsolidated private-label re-securitization entities. See the table on page 155 of this Note for further information on interests held in nonconsolidated securitizations. Multi-seller conduits For a more detailed description of JPMorgan Chase’s principal involvement with Firm-administered multi-seller conduits, see Note 16 of JPMorgan Chase’s 2013 Annual Report. In the normal course of business, JPMorgan Chase makes markets in https://www.sec.gov/Archives/edgar/data/19617/000001961714000409/corpq22014.htm[10/8/14, 12:41:43 PM] CORP Q2 2014 issued by securitization trusts. For a more detailed description of the Firm’s involvement with commercial mortgage and other consumer securitizations, see Note 16 of JPMorgan Chase’s 2013 Annual Report. See the table on the previous page of this Note for more information on interests held in nonconsolidated securitizations. and invests in commercial paper, including commercial paper issued by the Firm-administered multi-seller conduits. The Firm held $7.4 billion and $4.1 billion of the commercial paper issued by the Firmadministered multi-seller conduits at June 30, 2014, and December 31, 2013, which was eliminated in consolidation. The Firm’s investments were not driven by market liquidity and the Firm is not obligated under any agreement to purchase the commercial paper issued by the Firm-administered multi-seller conduits. Re-securitizations For a more detailed description of JPMorgan Chase’s participation in re-securitization transactions, see Note 16 of JPMorgan Chase’s 2013 Annual Report. Deal-specific liquidity facilities, program-wide liquidity, and credit enhancement provided by the Firm to the multi-seller conduits have been eliminated in consolidation. Unfunded lending-related commitments made to clients of the Firm-administered multi-seller conduits were $9.2 billion and $9.1 billion at June 30, 2014, and December 31, 2013, respectively, and are reported as off-balance sheet lending-related commitments. For more information on offbalance sheet lending-related commitments, see Note 21. During the three months ended June 30, 2014 and 2013, The Firm transferred $8.0 billion and $2.9 billion, respectively, of securities to agency VIEs, and $264 million and zero, respectively, of securities to private-label VIEs. During the six months ended June 30, 2014 and 2013, The Firm transferred $13.3 billion and $7.1 billion, respectively, of securities to agency VIEs, and $433 million and zero, respectively, of securities to private-label VIEs. VIEs associated with investor intermediation activities Municipal bond vehicles For a more detailed description of JPMorgan Chase’s principal involvement with municipal bond vehicles, see Note 16 of JPMorgan Chase’s 2013 Annual Report. As of June 30, 2014, and December 31, 2013, the Firm did not consolidate any agency re-securitizations. As of June 30, 2014, and December 31, 2013, the Firm consolidated $83 million and $86 million, respectively, of assets, and $22 million and $23 million, respectively, of liabilities of private-label re-securitizations. See the table on page 158 of this Note for more information on consolidated re-securitization transactions. 156 The Firm’s exposure to nonconsolidated municipal bond VIEs at June 30, 2014, and December 31, 2013, including the ratings profile of the VIEs’ assets, was as follows. Fair value of assets held by VIEs (in billions) Nonconsolidated municipal bond vehicles June 30, 2014       $ 11.5 $ 6.4 $ 5.1 $ 6.4 11.8 6.9 4.9 6.9 Ratings profile of VIE assets (b)       Noninvestment- grade Investment-grade AAA to AAA- (in billions, except where otherwise noted) December 31, 2013 Maximum exposure   December 31, 2013 June 30, 2014 Excess/(deficit) (a) Liquidity facilities $ AA+ to AA- 2.7 $ 2.7 8.6 $ 8.9 A+ to A- BBB+ to BBB-   BB+ and below Fair value of Wt. avg. assets held by expected life of VIEs assets (years) 0.2 $ —  $ — $ 11.5 5.1 0.2 —   — 11.8 7.2 (a) Represents the excess/(deficit) of the fair values of municipal bond assets available to repay the liquidity facilities, if drawn. (b) The ratings scale is presented on an S&P-equivalent basis. Credit-related note and asset swap vehicles   For a more detailed description of JPMorgan Chase’s principal involvement with credit-related note and asset swap vehicles, see Note 16 of JPMorgan Chase’s 2013 Annual Report. VIEs sponsored by third parties The Firm enters into transactions with VIEs structured by other parties. These include, for example, acting as a derivative counterparty, liquidity provider, investor, underwriter, placement agent, trustee or custodian. These transactions are conducted at arm’slength, and individual credit decisions are based on the analysis of the specific VIE, taking into consideration the quality of the underlying assets. Where the Firm does not have the power to direct the activities of the VIE that most significantly impact the VIE’s economic performance, or a variable interest that could potentially be significant, the Firm records and reports these positions on its Consolidated Balance Sheets similarly to the way it would record and report positions in respect of any other third-party transaction. https://www.sec.gov/Archives/edgar/data/19617/000001961714000409/corpq22014.htm[10/8/14, 12:41:43 PM] CORP Q2 2014 157 Consolidated VIE assets and liabilities The following table presents information on assets and liabilities related to VIEs consolidated by the Firm as of June 30, 2014, and December 31, 2013.     Assets June 30, 2014 (in billions)(a) Trading assets   VIE program type Total assets (e) Other (d)   Loans         28.4 $ — $ 43.7 $ 0.7 $ — 17.0 0.2 Municipal bond vehicles 3.0 — — 2.3 1.6 Mortgage securitization entities(b) Other (c) 0.7 2.3 3.0   2.5 — 2.5 — 3.9   2.9 0.8 3.7 1.1 4.1   2.3 0.2 2.5 $ 6.0 $ 64.6 $ 2.0 $            45.7 $ 1.0 $       Assets Total assets (e) Other (d)   Loans 28.4 9.6 Total Trading assets — $ —   December 31, 2013 (in billions)(a)   9.6 72.6   $   Total liabilities Other (g)    Firm-administered multi-seller conduits $ Beneficial interests in VIE assets (f)   44.4   $ 17.2   Firm-sponsored credit card trusts Liabilities   46.7 Liabilities Beneficial interests in VIE assets (f) Total liabilities Other (g) VIE program type                Firm-sponsored credit card trusts $ — $ 46.9 $ 1.1 $ 48.0   $ 26.6 $ — $ 26.6 — 19.0 0.1 19.1   14.9 — 14.9 2.9 — 2.9 2.9 0.9 3.8 2.3 0.2 2.5 Firm-administered multi-seller conduits Municipal bond vehicles 3.4 — — Mortgage securitization entities(b) 2.3 1.7 — 3.4   4.0   Other (c) 0.7 2.5 1.0 4.2   Total $ 6.4 $ 70.1 $ 2.2 $ 78.7   $ 49.6 $ 1.1 $ 50.7 (a) Excludes intercompany transactions which were eliminated in consolidation. (b) Includes residential and commercial mortgage securitizations as well as re-securitizations. (c) Primarily comprises student loan securitization entities. The Firm consolidated $2.5 billion of student loan securitization entities as of June 30, 2014, and December 31, 2013. (d) Includes assets classified as cash, AFS securities, and other assets within the Consolidated Balance Sheets. (e) The assets of the consolidated VIEs included in the program types above are used to settle the liabilities of those entities. The difference between total assets and total liabilities recognized for consolidated VIEs represents the Firm’s interest in the consolidated VIEs for each program type. (f) The interest-bearing beneficial interest liabilities issued by consolidated VIEs are classified in the line item on the Consolidated Balance Sheets titled, “Beneficial interests issued by consolidated variable interest entities.” The holders of these beneficial interests do not have recourse to the general credit of JPMorgan Chase. Included in beneficial interests in VIE assets are long-term beneficial interests of $33.6 billion and $31.8 billion at June 30, 2014, and December 31, 2013, respectively. The maturities of the long-term beneficial interests as of June 30, 2014, were as follows: $6.5 billion under one year, $19.1 billion between one and five years, and $8.0 billion over five years, all respectively. (g) Includes liabilities classified as accounts payable and other liabilities in the Consolidated Balance Sheets. Loan Securitizations   The Firm securitizes a variety of loans, including residential mortgage, credit card, automobile, student and commercial (primarily related to real estate) loans. For a further description of the Firm’s accounting policies regarding securitizations, see Note 16 of JPMorgan Chase’s 2013 Annual Report. 158 Cash flows from securitizations The following table provides information related to the Firm’s securitization activities for the three months ended June 30, 2014 and 2013, related to assets held in JPMorgan Chase-sponsored securitization entities that were not consolidated by the Firm, and where sale accounting was achieved based on the accounting rules in effect at the time of the securitization.   Three months ended June 30,   https://www.sec.gov/Archives/edgar/data/19617/000001961714000409/corpq22014.htm[10/8/14, 12:41:43 PM] Six months ended June 30, CORP Q2 2014   2014 (in millions, except rates) (a) Residential mortgage (d)   Commercial and other (e)     2013 Residential mortgage (d) Commercial and other (e)     2014 Residential mortgage (d) Commercial and other (e) 2013 Residential mortgage (d)   Commercial and other (e) $ 304 $ 2,612   $ 443 $ 3,078   $ 660 $ 4,639   $ 1,059 $ All cash flows during the   period:                    312 $ 2,664   $ 446 $ 3,149   $ 663 $ 4,708   $ 1,080 $ Principal securitized Proceeds from new securitizations (b) $ 158 5,426 137 1   Purchases of previously transferred financial assets (or the underlying collateral) (c) 64 —   19 —   67 —   271 — Cash flows received on interests 41 397   30 78   85 459   55 142 Servicing fees collected 2   5,284 276 2   285 3 (a) Excludes re-securitization transactions. (b) For the three and six months ended June 30, 2014, $312 million and $642 million of proceeds from residential mortgage securitizations were received as securities classified in level 2 and zero and $21 million of proceeds classified as level 3 of the fair value hierarchy, respectively. For the three and six months ended June 30, 2014, $2.3 billion and $4.3 billion, respectively, of proceeds from commercial mortgage securitizations were received as securities classified in level 2 and $130 million of proceeds classified as level 3 of the fair value hierarchy, and $280 million of proceeds from commercial mortgage securitization were received as cash. For the three and six months ended June 30, 2013, $446 million and $1.1 billion, respectively, of proceeds from residential mortgage securitizations were received as securities classified in level 2 of the fair value hierarchy. For the three and six months ended June 30, 2013, $3.1 billion and $5.2 billion, respectively, of proceeds from commercial mortgage securitizations were received as securities classified in level 2 of the fair value hierarchy, and zero and $207 million, respectively, of proceeds from commercial mortgage securitizations were received as cash. All loans transferred into securitization vehicles during the three and six months ended June 30, 2014 and 2013, were classified as trading assets; changes in fair value were recorded in principal transactions revenue, and there were no significant gains or losses associated with the securitization activity. (c) Includes cash paid by the Firm to reacquire assets from off–balance sheet, nonconsolidated entities – for example, loan repurchases due to representation and warranties and servicer clean-up calls. (d) Includes prime, Alt-A, subprime, and option ARMs. Excludes certain loan securitization transactions entered into with Ginnie Mae, Fannie Mae and Freddie Mac. (e) Includes commercial and student loan securitizations. Loans and excess mortgage servicing rights sold to the GSEs, loans  in securitization transactions pursuant to Ginnie Mae guidelines, and other third-party-sponsored securitization entities In addition to the amounts reported in the securitization activity tables above, the Firm, in the normal course of business, sells originated and purchased mortgage loans and certain originated excess mortgage servicing rights on a nonrecourse basis, predominantly to Fannie Mae and Freddie Mac (the “GSEs”). These loans and excess mortgage servicing rights are sold primarily for the purpose of securitization by the GSEs, who provide certain guarantee provisions (e.g., credit enhancement of the loans). The Firm also sells loans into securitization transactions pursuant to Ginnie Mae guidelines; these loans are typically insured or guaranteed by another U.S. government agency. The Firm does not consolidate the securitization vehicles underlying any of the transactions described above as it is not the primary beneficiary. For a limited number of loan sales, the Firm is obligated to share a portion of the credit risk associated with the sold loans with the purchaser. See Note 29 of JPMorgan Chase’s 2013 Annual Report for additional information about the Firm’s loan salesand securitization-related indemnifications. See Note 16 for additional information about the impact of the Firm’s sale of certain excess mortgage servicing rights. The following table summarizes the activities related to loans sold to the GSEs, loans in securitization transactions pursuant to Ginnie Mae guidelines, and other third-party-sponsored securitization entities. Three months ended June 30,   (in millions) Carrying value of loans sold (a) 2014 $ Proceeds received from loan sales as cash 2013 12,603 $     48,045   $ Six months ended June 30, 2014 2013 26,523 $ 102,925 50 295   89 461 Proceeds from loans sales as securities (b) 12,461 47,223   26,196 101,392 Total proceeds received from loan sales(c) $ 12,511 $ 47,518   $ 26,285 $ 101,853 Gains on loan sales (d) $ 82 $ 112   $ 119 $ 250 (a) Predominantly to the GSEs and in securitization transactions pursuant to Ginnie Mae guidelines. (b) Predominantly includes securities from the GSEs and Ginnie Mae that are generally sold shortly after receipt. (c) Excludes the value of MSRs retained upon the sale of loans. Gains on loans sales include the value of MSRs. (d) The carrying value of the loans accounted for at fair value approximated the proceeds received upon loan sale. 159 Options to repurchase delinquent loans   In addition to the Firm’s obligation to repurchase certain loans due to material breaches of representations and warranties as discussed in Note 21, the Firm also has the option to repurchase delinquent loans that it services for Ginnie Mae loan pools, as well as for other U.S. government agencies under certain arrangements. The Firm may elect December 31, 2013, the Firm had recorded on its Consolidated Balance Sheets $14.3 billion, respectively, of loans that either had been repurchased or for which the Firm had an option to repurchase. Predominantly all of these amounts relate to loans that have been repurchased from Ginnie Mae loan pools. Additionally, real estate owned resulting from voluntary repurchases of loans was $2.1 billion https://www.sec.gov/Archives/edgar/data/19617/000001961714000409/corpq22014.htm[10/8/14, 12:41:43 PM] CORP Q2 2014 to repurchase delinquent loans from Ginnie Mae loan pools as it continues to service them and/or manage the foreclosure process in accordance with the applicable requirements, and such loans continue to be insured or guaranteed. When the Firm’s repurchase option becomes exercisable, such loans must be reported on the Consolidated Balance Sheets as a loan with a corresponding liability. As of June 30, 2014, and and $2.0 billion as of June 30, 2014, and December 31, 2013, respectively. Substantially all of these loans and real estate owned are insured or guaranteed by U.S. government agencies. For additional information, refer to Note 13 of this Form 10-Q and Note 14 of JPMorgan Chase’s 2013 Annual Report.        Loan delinquencies and liquidation losses The table below includes information about components of nonconsolidated securitized financial assets, in which the Firm has continuing involvement, and delinquencies as of June 30, 2014, and December 31, 2013, respectively; and liquidation losses for the three months ended June 30, 2014 and 2013, respectively.            Securitized assets Dec 31, 2013 Jun 30, 2014 (in millions)       90 days past due Dec 31, 2013 Jun 30, 2014   Liquidation losses Three months ended   June 30, 2014 2013 Six months ended June 30,   2014 2013 Securitized loans (a)                     Residential mortgage:                     $ 85,193 $ 90,381   $ 13,158 $ 14,882   $ 598 $ 25,998 28,008   6,762 7,726   464 94,192 98,018   1,198 2,350   408 Prime / Alt-A & Option ARMs Subprime Commercial and other Total loans securitized(b) $ 205,383 $ 216,407   $ 21,118 $ 24,958   $ 1,470 $ 1,310   1,257 $ 2,959 756   1,203 1,539 184   642 330 2,250   $ $ 3,102 $ 4,828 (a) Total assets held in securitization-related SPEs were $258.4 billion and $271.7 billion, respectively, at June 30, 2014, and December 31, 2013. The $205.4 billion and $216.4 billion, respectively, of loans securitized at June 30, 2014, and December 31, 2013, excluded: $48.5 billion and $50.8 billion, respectively, of securitized loans in which the Firm has no continuing involvement, and $4.5 billion of loan securitizations consolidated on the Firm’s Consolidated Balance Sheets at June 30, 2014, and December 31, 2013. (b) Includes securitized loans that were previously recorded at fair value and classified as trading assets. 160 Note 16 – Goodwill and other intangible assets For a discussion of the accounting policies related to goodwill and   other intangible assets, see Note 17 of JPMorgan Chase’s 2013 Annual Report. Goodwill and other intangible assets consist of the following. (in millions) Goodwill $ Mortgage servicing rights Other intangible assets: Purchased credit card relationships 48,110 $ 48,081 8,347 9,614   $ Other credit card-related intangibles Core deposit intangibles Other intangibles Total other intangible assets December 31, 2013 June 30, 2014 $   41 $ 131 146 173 74 159 1,078 1,155 1,339 $ 1,618 Goodwill The following table presents goodwill attributed to the business segments. (in millions) Consumer & Community Banking Corporate & Investment Bank June 30, 2014 $ December 31, 2013 30,999 $ 30,985 6,893 6,888 Goodwill impairment testing For further description of the Firm’s goodwill impairment testing process, including the primary method used to estimate the fair value of the reporting units, and the assumptions used in the goodwill impairment test, see Impairment testing on pages 299–300 of JPMorgan Chase’s 2013 Annual Report. Goodwill was not impaired at June 30, 2014, or December 31, 2013, nor was any goodwill written off due to impairment during the three and six months ended June 30, 2014 and 2013. However, the Firm expects that the goodwill associated with its Private Equity business in Corporate will decline or could become impaired in future periods. In addition, the Firm’s Mortgage Banking business in CCB remains at an elevated risk of goodwill impairment due to its exposure to U.S. economic conditions, such as increases in primary mortgage interest rates, lower mortgage origination volume, or decreases in home prices, and the effects of regulatory and legislative changes, including higher costs to resolve foreclosure-related matters. Deterioration in the assumptions used in the goodwill impairment test could cause the estimated fair values of these reporting units and their associated goodwill to decline in the future, which may result in a material impairment charge to earnings in a future period related to some portion of the associated goodwill. https://www.sec.gov/Archives/edgar/data/19617/000001961714000409/corpq22014.htm[10/8/14, 12:41:43 PM] CORP Q2 2014 Commercial Banking 2,862 2,862 Asset Management 6,979 6,969 Corporate/Private Equity 377 Total goodwill $ 377 48,110 $ 48,081 The following table presents changes in the carrying amount of goodwill. Three months ended June 30,   (in millions) 2014 Balance at beginning of period (a) Six months ended June 30,     2013 2014 2013 $ 48,065 $ 48,067   $ 48,081 $ Changes during the period   from:        Business combinations Dispositions Other (b) Balance at June 30,(a) $ 48,175 9 11   18 36 — (5)   — (5) 36 (16)   11 (149) 48,110 $ 48,057   $ 48,110 $ 48,057 (a) Reflects gross goodwill balances as the Firm has not recognized any impairment losses to date. (b) Includes foreign currency translation adjustments and other tax-related adjustments. 161 Mortgage servicing rights Mortgage servicing rights represent the fair value of expected future cash flows for performing servicing activities for others. The fair value considers estimated future servicing fees and ancillary revenue, offset by estimated costs to service the loans, and generally declines over time as net servicing cash flows are received, effectively amortizing the MSR asset against contractual servicing and ancillary fee income. MSRs are either purchased from third parties or recognized upon sale or securitization of mortgage loans if servicing is retained. For a further description of the MSR asset, interest rate risk management, and the valuation of MSRs, see Note 17 of JPMorgan Chase’s 2013 Annual Report and Note 3 of this Form 10-Q. The following table summarizes MSR activity for the three and six months ended June 30, 2014 and 2013. As of or for the three months   (in millions, except where otherwise noted) Fair value at beginning of period   2014 $ 8,552     MSR activity: Originations of MSRs Purchase of MSRs Disposition of MSRs Net additions           Changes due to collection/realization of expected cash flows (a) Changes in valuation due to inputs and assumptions: Changes due to market interest rates and other (b) Changes in valuation due to other inputs and assumptions: 2013 $     As of or for the six months ended June 30,   ended June 30,   7,949     2014 2013     $ 9,614   $ 7,614             178   652   370   1,342   3   3   6   (3)   2   (19)   183   636       (239)           (369)             (288)           1,074       (186) (f)  (418) (f)  190     (486)       921         (731)       (547)       1,620       290 (h)   —   —   (11)   Discount rates (10)   —   (459) (g)   (78)   Prepayment model changes and other (c) 230   (36)   230   (485) (i)   220   (36)   (240)   (273)   (149)   1,038   (971)   1,347   Projected cash flows (e.g., cost to service) Total changes in valuation due to other inputs and assumptions Total changes in valuation due to inputs and assumptions (a) (d) https://www.sec.gov/Archives/edgar/data/19617/000001961714000409/corpq22014.htm[10/8/14, 12:41:43 PM] CORP Q2 2014 Fair value at June 30, $ 8,347   $ 9,335   $ 8,347   $ 9,335   Change in unrealized gains/(losses) included in income related to MSRs   held at June 30, $ (149)   $ 1,038   $ (971)   $ 1,347   835   $ 1,488   $ 1,704   Contractual service fees, late fees and other ancillary fees included in income $ 731   $ Third-party mortgage loans serviced at June 30, (in billions) $ 791   $ 839   $ 791   $ 839   Net servicer advances at June 30, (in billions)(e) $ 8.8   $ 10.1   $ 8.8   $ 10.1   (a) Included changes related to commercial real estate of $(2) million for the three months ended June 30, 2014, and $(4) million and $(2) million for the six months ended June 30, 2014 and 2013, respectively. (b) Represents both the impact of changes in estimated future prepayments due to changes in market interest rates, and the difference between actual and expected prepayments. (c) Represents changes in prepayments other than those attributable to changes in market interest rates. (d) Included $14 million and $21 million related to commercial real estate at June 30, 2014 and 2013, respectively. (e) Represents amounts the Firm pays as the servicer (e.g., scheduled principal and interest to a trust, taxes and insurance), which will generally be reimbursed within a short period of time after the advance from future cash flows from the trust or the underlying loans. The Firm’s credit risk associated with recoverable servicer advances is minimal because reimbursement of the advances is typically senior to all cash payments to investors. In addition, the Firm maintains the right to stop payment to investors if the collateral is insufficient to cover the advance. However, certain of these servicer advances may not be recoverable if they were not made in accordance with applicable rules and agreements. Servicer advances are recognized net of an allowance for unrecoverable advances. (f) Predominantly represents excess mortgage servicing rights transferred to agency-sponsored trusts in exchange for stripped mortgage-backed securities (“SMBS”). In each transaction, a portion of the SMBS was acquired by third parties at the transaction date; the Firm acquired and has retained the remaining balance of those SMBS as trading securities. Also includes sales of MSRs for the three and six months ended June 30, 2014 and 2013. (g) For the six months ended June 30, 2014, the decrease was primarily related to higher capital allocated to the Mortgage Servicing business, which, in turn, resulted in an increase in the option adjusted spread (“OAS”). The resulting OAS assumption continues to be consistent with capital and return requirements that the Firm believes a market participant would consider, taking into account factors such as the current operating risk environment and regulatory and economic capital requirements. (h) For the six months ended June 30, 2013, the increase was driven by the inclusion in the MSR valuation model of servicing fees receivable on certain delinquent loans. (i) For the six months ended June 30, 2013, the decrease was driven by changes in the inputs and assumptions used to derive prepayment speeds, primarily increases in home prices. 162 The following table presents the components of mortgage fees and related income (including the impact of MSR risk management activities) for the three and six months ended June 30, 2014 and 2013. Three months ended June 30,       Six months ended June 30,     (in millions)   CCB mortgage fees and related income    Net production revenue:    Production revenue  $   137   16   265   (65)   Net production revenue   323   1,080   612   1,994   Net mortgage servicing revenue                         Repurchase (losses)/benefits 2014 2013         186   $         1,064     2014 $   2013           347   $     2,059             Loan servicing revenue   867   945   1,737   1,881   Changes in MSR asset fair value due to collection/realization of expected  cash flows   (237)   (285)   (482)   (543)     630   660   1,255   1,338             Operating revenue: Total operating revenue    Risk management: other (a)       (368)   1,072   (730)   1,618   Other changes in MSR asset fair value due to other inputs and assumptions in  model (b)   220   (36)   (240)   (273)   Change in derivative fair value and other   485   (957)   907   (1,408)   Total risk management   337   79   (63)   (63)   Total CCB net mortgage servicing revenue   967   739   1,192   1,275   All other   1   4   1   6   Mortgage fees and related income  $ Changes in MSR asset fair value due to market interest rates and 1,291   $ 1,823   $ 1,805   $ 3,275   (a) Represents both the impact of changes in estimated future prepayments due to changes in market interest rates, and the difference between actual and expected prepayments. https://www.sec.gov/Archives/edgar/data/19617/000001961714000409/corpq22014.htm[10/8/14, 12:41:43 PM] CORP Q2 2014 (b) Represents the aggregate impact of changes in model inputs and assumptions such as projected cash flows (e.g., cost to service), discount rates and changes in prepayments other than those attributable to changes in market interest rates (e.g., changes in prepayments due to changes in home prices). The sensitivity analysis in the preceding table is hypothetical and should be used with caution. Changes in fair value based on variation in assumptions generally cannot be easily extrapolated, because the relationship of the change in the assumptions to the change in fair value are often highly interrelated and may not be linear. In this table, the effect that a change in a particular assumption may have on the fair value is calculated without changing any other assumption. In reality, changes in one factor may result in changes in another, which would either magnify or counteract the impact of the initial change.   The table below outlines the key economic assumptions used to determine the fair value of the Firm’s MSRs at June 30, 2014, and December 31, 2013, and outlines the sensitivities of those fair values to immediate adverse changes in those assumptions, as defined below. Jun 30, 2014 (in millions, except rates) Weighted-average prepayment speed assumption (“CPR”) Impact on fair value of 10% adverse change Dec 31, 2013 8.56%   $ Impact on fair value of 20% adverse change 8.07% (363)  $ (362) (704)   (705) 9.14%   Weighted-average option adjusted spread Impact on fair value of 100 basis points adverse change   $ Impact on fair value of 200 basis points adverse change Other intangible assets The $279 million decrease in other intangible assets during the six months ended June 30, 2014, was due to amortization. 7.77% (343)  $ (389) (660)   (750) CPR: Constant prepayment rate. 163 The components of credit card relationships, core deposits and other intangible assets were as follows.       June 30, 2014 Gross amount(a) Accumulated amortization (a) Accumulated amortization Net carrying value (in millions)   Purchased credit card relationships  $ Other credit card-related intangibles   542 396 146   542 369 173 Core deposit intangibles   4,131 4,057 74   4,133 3,974 159   2,257 1,179 1,078   2,374 1,219 1,155 Other intangibles (b) 3,540 $ Net carrying value   December 31, 2013 Gross amount 41   $ 3,499 $ 3,540 $ 3,409 $ 131 (a) The decrease in the gross amount and accumulated amortization from December 31, 2013, was due to the removal of fully amortized assets. (b) Includes intangible assets of approximately $600 million consisting primarily of asset management advisory contracts, which were determined to have an indefinite life and are not amortized. Amortization expense The following table presents amortization expense related to credit card relationships, core deposits and other intangible assets.       (in millions)   Purchased credit card relationships 45 $ 52   $ 90 $ Other credit card-related intangibles  $   14 27 29 Core deposit intangibles   42 15   50   85 100 Other intangibles   31 35   61 70 Total amortization expense  $ Three months ended June 30, 2014   2013 132 $ Six months ended June 30, 2014 152   $ 2013 105 263 $ 304 Future amortization expense The following table presents estimated future amortization expense related to credit card relationships, core deposits and other intangible assets at June 30, 2014. Purchased credit card relationships For the year (in millions) 2014(a) 2015 $ Other credit card-related intangibles Core deposit intangibles 102 $ Other intangibles Total 96 $ 51 $ 12 39 26 111 $ 93 360 170 2016 9 34 14 75 132 2017 5 29 7 59 100 https://www.sec.gov/Archives/edgar/data/19617/000001961714000409/corpq22014.htm[10/8/14, 12:41:43 PM] CORP Q2 2014 2018 3 20 5 53 81 (a) Includes $90 million, $27 million, $85 million and $61 million of amortization expense related to purchased credit card relationships, other credit card-related intangibles, core deposit intangibles and other intangibles, respectively, recognized during the six months ended June 30, 2014. 164 Note 17 – Deposits   For further discussion on deposits, see Note 19 of JPMorgan Chase’s 2013 Annual Report. At June 30, 2014, and December 31, 2013, noninterest-bearing and interest-bearing deposits were as follows. (in millions) June 30, 2014   U.S. offices      Noninterest-bearing $ 417,607   $ Interest-bearing:      Demand (a)  81,449   Savings(b) 457,111   Time (included $6,856 and $5,995 at fair value) (c)  Total interest-bearing deposits Total deposits in U.S. offices Non-U.S. offices   Interest-bearing:   389,863 84,631 450,405 91,356 623,781   626,392 1,041,388   1,016,255    17,611    Demand 219,911   214,391 1,687   1,083 39,008   38,425 Total interest-bearing deposits 260,606   253,899 Total deposits in non-U.S. offices 278,363   271,510 Total deposits $ 1,319,751   $ Three months ended June 30, (in millions, except per share amounts) Savings Time (included $1,066 and $629 at fair value) (c)  For a discussion of the computation of basic and diluted earnings per share (“EPS”), see Note 24 of JPMorgan Chase’s 2013 Annual Report. The following table presents the calculation of basic and diluted EPS for the three and six months ended June 30, 2014 and 2013. December 31, 2013 85,221   17,757   Noninterest-bearing Note 18 – Earnings per share 1,287,765 (a) Includes Negotiable Order of Withdrawal (“NOW”) accounts, and certain trust accounts. (b) Includes Money Market Deposit Accounts (“MMDAs”). (c) Includes structured notes classified as deposits for which the fair value option has been elected. For further discussion, see Note 4 of JPMorgan Chase’s 2013 Annual Report. 2014 Six months ended June 30,   2013   2014 2013 Basic earnings per share           Net income $ 5,985 $ 6,496   $ 11,259 $ Less: Preferred stock dividends 13,025 268 204   495 386 Net income applicable to common equity 5,717 6,292   10,764 12,639 Less: Dividends and undistributed earnings allocated to participating securities 144 191   294 407 Net income applicable to   common stockholders $   6,101   $ 10,470 $           Total weightedaverage   basic shares outstanding 3,782.4   3,780.6 Net income per share $   5,573 $ Total weightedaverage   basic shares outstanding Add: Employee stock options,   SARs and   warrants(a) Total weightedaverage   diluted shares outstanding (b) Net income per share $ 3,800.3 1.47 $ 1.61   $ 2.77 $                 5,573 $ 6,101   $ 10,470 $ 12,232   Diluted earnings per   share Net income applicable to   common stockholders $ 3,783.9 12,232 3.22 3,780.6 3,782.4   3,783.9 3,800.3 31.9 31.9   34.2 30.3 3,812.5 3,814.3   3,818.1 3,830.6 1.46 $ 1.60   $ 2.74 $ 3.19 (a) Excluded from the computation of diluted EPS (due to the antidilutive effect) were options issued under employee benefit plans and the warrants originally issued in 2008 under the U.S. Treasury’s Capital Purchase Program to purchase shares of the Firm’s common stock. The aggregate number of shares issuable upon the exercise of such options and warrants was 1 million and 8 million for the three months ended June 30, 2014 and 2013, respectively, and 1 million and 11 million for the six https://www.sec.gov/Archives/edgar/data/19617/000001961714000409/corpq22014.htm[10/8/14, 12:41:43 PM] CORP Q2 2014 months ended June 30, 2014 and 2013, respectively. (b) Participating securities were included in the calculation of diluted EPS using the two-class method, as this computation was more dilutive than the calculation using the treasury stock method. 165 Note 19 – Accumulated other comprehensive income/(loss) AOCI includes the after-tax change in unrealized gains and losses on investment securities, foreign currency translation adjustments (including the impact of related derivatives), cash flow hedging activities, and net loss and prior service costs/(credit) related to the Firm’s defined benefit pension and OPEB plans. As of or for the three months ended June 30, 2014 (in millions) Translation Unrealized adjustments, net of gains/(losses) on   Cash flow hedges   hedges investment securities (a)   Net change   $   (138)   1,075 (b)    $    Balance at June 30, 2014   $ 4,867     $ (126)                 As of or for the three months ended June 30, 2013 Unrealized Translation gains/(losses) on adjustments, net of   Cash flow hedges   investment securities (a)   hedges Balance at April 1, 2014 (in millions) 3,792   12     $ (12)               As of or for the six months ended June 30, 2014 Unrealized Translation gains/(losses) on adjustments, net of   Cash flow hedges   investment securities (a)   hedges Balance at June 30, 2014 (146)        $ Net change   $ 68      Balance at June 30, 2013   $   3,137      Net change (in millions) (108)   (3,091) (c)    $    (80)     $   Balance at April 1, 2013 6,228     $ (38)   58         (290)        $ (232)      (136)   2,069 (b)    $      $ 4,867     $             As of or for the six months ended June 30, 2013 Unrealized Translation gains/(losses) on adjustments, net of   Cash flow hedges   investment securities (a)   hedges Balance at January 1, 2014 (in millions) 2,798     $   $ (139)         127      (126)     $ (12)                 10     $   6,868   (3,731) (c)    $    (95)     $ 120      Net change (51)      (352)      Balance at June 30, 2013   $ 3,137     $ (146)     $ (232)      Balance at January 1, 2013 Defined benefit pension and OPEB plans (1,298)   Accumulated other comprehensive   income/(loss) 7      $    1,162   $ (1,291)      $ 3,438              $ Defined benefit pension and OPEB plans (2,687)   $ $ 2,276   Accumulated other comprehensive   income/(loss) 64      $    (3,355)   (2,623)      $ 136   Defined benefit pension and OPEB plans (1,324)   3,491   Accumulated other comprehensive   income/(loss) 1,199   33      $    $ (1,291)      $ 3,438              $ Defined benefit pension and OPEB plans (2,791)   $ $ 2,239   Accumulated other comprehensive   income/(loss) 168      $    (3,966)   4,102   (2,623)      $ 136   (a) Represents the after-tax difference between the fair value and amortized cost of securities accounted for as AFS; including, as of the date of transfer during the first quarter of 2014, $9 million of net unrealized losses related to AFS securities that were transferred to HTM. Subsequent to transfer, includes any net unamortized unrealized gains and losses related to the transferred securities. (b) The net change for the three and six months ended June 30, 2014, was primarily due to higher market valuations of obligations of U.S. states and municipalities and U.S. mortgage-backed securities in the Firm’s AFS investment securities portfolio. (c) The net change for the three and six months ended June 30, 2013, was primarily related to the decline in fair value of U.S. government agency issued MBS and obligations of U.S. states and municipalities due to market changes, as well as net realized gains. 166 The following table presents the pretax and after-tax changes in the components of other comprehensive income/(loss).     2014 Three months ended June 30, (in millions) Unrealized gains/(losses) on investment securities: Net unrealized gains/(losses) arising during the period Pretax   $       1,778   $ Tax effect   After-tax      (695)   $ Reclassification adjustment for realized (gains)/losses included in https://www.sec.gov/Archives/edgar/data/19617/000001961714000409/corpq22014.htm[10/8/14, 12:41:43 PM] 2013 Pretax   Tax effect   After-tax          1,083   $ (4,947)   $ 1,931   $ (3,016) CORP Q2 2014 net income (a) Net change Translation adjustments:   Translation (b) Hedges(b) (12)   4   (8)   (124)   49   (75) 1,766   (691)   1,075   (5,071)   1,980   (3,091)     218   (208)      (79)   81   10   2   Net change Cash flow hedges:       Net unrealized gains/(losses) arising during the period Defined benefit pension and OPEB plans: $ Translation adjustments:   Translation (b) Hedges(b) Defined benefit pension and OPEB plans: 21     19       11   19   (12)   (7)   5   12   (7)   79   (11)   (31)   5   (6) (15)   6   (9)   (1)   1   — 11   (4)   7   104   (40)   64 37         (15)      1,162   $ (5,481)   $ 2,126   $                     Tax effect $   After-tax   22    (739)   $     48 (3,355) 2013 Pretax   Tax effect   After-tax             (1,304)   $ 2,095   $ (5,462)   $ 2,116   $ (3,346) (42)   16   (26)   (633)   248   (385) 3,357   (1,288)   2,069   (6,095)   2,364   (3,731)     372   (362)      (142)   142   10   —                   230   (1,034)   381   (653) (220)   991   (389)   602 10   (43)   (8)         (51)    215   (87)   128   (642)   252   (2)   1   (1)   63   (25)   38 213   (86)   127   (579)   227   (352)     88         Prior service costs/(credits) Foreign exchange and other Net change $    $ 3,399   Amortization of net loss Total other comprehensive income/(loss)    (311)    (8)      1,901   Net gains/(losses) arising during the period Reclassification adjustments included in net    (290)   income (d) :    188   Reclassification adjustment for realized (gains)/losses included in net income (c) Net change    (38) (478)     Net unrealized gains/(losses) arising during the period (2)   68   Net change Cash flow hedges: (36)   (46)   Reclassification adjustment for realized (gains)/losses included in net income (a) Net change 12   114   Pretax   346 (13)   2014 Net unrealized gains/(losses) arising during the period (225)   34     Unrealized gains/(losses) on investment securities: 571   (18)   Net change Six months ended June 30, (in millions) (127)   11   Foreign exchange and other   (384) (29)   Prior service costs/(credits)   223   201   Amortization of net loss $ (607)   (512)     Total other comprehensive income/(loss) 139   86   Net gains/(losses) arising during the period Reclassification adjustments included in net    (57)     income (d) :    143   Reclassification adjustment for realized (gains)/losses included in net income (c) Net change          (34)         54         85      (390)    (25)   60    37   (22)   (15)   9   22   (13)   160   (22)   (62)   (19)   (11)   (30)   36   (13)   23 84   (51)   33   259   (91)   168 (1,425)   $ 2,239   $ (6,458)   $ 2,492   $ 3,664   $ 9   98 (13) (3,966) (a) The pretax amount is reported in securities gains in the Consolidated Statements of Income. (b) Reclassifications of pretax realized gains/(losses) on translation adjustments and related hedges are reported in other income in the Consolidated Statements of Income. The amounts were not material for the three and six months ended June 30, 2014, and 2013. (c) The pretax amount is reported in the same line as the hedged items, which are predominantly recorded in net interest income in the Consolidated Statements of Income. (d) The pretax amount is reported in compensation expense in the Consolidated Statements of Income. 167 https://www.sec.gov/Archives/edgar/data/19617/000001961714000409/corpq22014.htm[10/8/14, 12:41:43 PM] CORP Q2 2014 Note 20 – Regulatory capital The Federal Reserve establishes capital requirements, including well-   capitalized standards, for the consolidated financial holding company. The Office of the Comptroller of the Currency (“OCC”) establishes similar capital requirements and standards for the Firm’s national banks, including JPMorgan Chase Bank, N.A., and Chase Bank USA, N.A. Basel III rules under the transitional Standardized and Advanced Approaches (“Basel III Standardized Transitional” and “Basel III Advanced Transitional,” respectively) became effective on January 1, 2014; all prior period data is based on Basel I rules. For 2014, Basel III Standardized Transitional requires the Firm to calculate its capital ratios using the Basel III definition of capital divided by the Basel I definition of RWA, inclusive of Basel 2.5 for market risk. On February 21, 2014, the Federal Reserve and the OCC informed the Firm and its national bank subsidiaries that they were approved to calculate capital under Basel III Advanced, in addition to Basel III Standardized, as of April 1, 2014. The following tables present the regulatory capital, assets and riskbased capital ratios for JPMorgan Chase and its significant banking subsidiaries under both Basel III Standardized Transitional and Basel III Advanced Transitional at June 30, 2014, and under Basel I at December 31, 2013. As of January 1, 2014, there are three categories of risk-based capital: Common Equity Tier 1 capital (“CET1 capital”) under the Basel III Transitional rules, as well as Tier 1 capital and Tier 2 capital. CET1 capital predominantly includes common stockholders’ equity (including capital for AOCI related to debt and equity securities classified as AFS as well as for defined benefit pension and OPEB plans), less certain deductions for goodwill, MSRs and deferred tax assets that arise from net operating loss and tax credit carryforwards. Tier 1 capital is predominantly comprised of CET1 capital as well as perpetual preferred stock. Tier 2 capital includes Tier 1 capital as well as long-term debt qualifying as Tier 2 and qualifying allowance for credit losses. Total capital is Tier 1 capital plus Tier 2 capital.     Assets   JPMorgan Chase & Co. (d)     (in millions, except ratios) Basel III Standardized Transitional Jun 30, 2014 Basel I   Jun 30, 2014   Dec 31, 2013    160,086  $ 160,086   Tier 1 capital (a) 179,884   179,884  $ 165,663 Total capital 213,780   203,076   199,286 CET1 capital $ Risk-weighted Adjusted average (b)     Capital ratios(c)         1,458,620   2,374,025   Tier 1,626,427   1,387,863 2,374,025   2,343,713       11.0%   1 (a) Total Tier 1 leverage NA             CET1 9.8%   NA 12.3   11.1   11.9% 14.7   12.5   14.4 7.6   7.6   7.1 JPMorgan Chase Bank, N.A. (d)   Basel III Standardized Transitional   (in millions, except ratios) Jun 30, 2014 CET1 capital Tier 1 $ capital (a) Total capital     Assets     Basel III Advanced Transitional   Jun 30, 2014    Regulatory capital   As a result of becoming subject to Basel III Advanced on April 1, 2014, the capital adequacy of the Firm and its national bank subsidiaries will be evaluated against the Basel III approach (Standardized or Advanced) that results, for each quarter beginning with the second quarter of 2014, in the lower ratio (the “Collins Floor”), as required by the Collins Amendment of the Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”).      Regulatory capital   Basel III establishes two comprehensive methodologies for calculating RWA, a Standardized approach and an Advanced approach. Key differences in the calculation of RWA between the Standardized and Advanced approaches include: (1) for Basel III Advanced, credit risk RWA is based on risk-sensitive approaches which largely rely on the use of internal credit models and parameters, whereas for Basel III Standardized, RWA is generally based on supervisory risk-weightings which vary only by counterparty type and asset class; and (2) Basel III Advanced includes RWA for operational risk, whereas Basel III Standardized does not.   Basel III Advanced Transitional   Basel I   Dec 31, 2013    149,961  $ 149,961   149,961   149,961  $ 139,727 168,636   160,749   165,496       NA       Risk-weighted 1,241,565   1,349,140   1,171,574 Adjusted average (b) 1,895,540   1,895,540   1,900,770     Capital ratios(c)   CET1 Tier 1 (a) Total Tier 1 leverage       12.1%         11.1%   NA 12.1   11.1   11.9% 13.6   11.9   14.1 7.9   7.9   7.4 168   Chase Bank USA, N.A. (d)     Basel III Standardized Transitional   Basel III Advanced Transitional   Basel I Under the risk-based capital guidelines of the Federal Reserve, JPMorgan Chase is required to maintain minimum ratios of Tier 1 and Total capital to risk-weighted assets, as well as minimum leverage ratios (which are defined as Tier 1 capital divided by adjusted quarterly average assets). Failure to meet https://www.sec.gov/Archives/edgar/data/19617/000001961714000409/corpq22014.htm[10/8/14, 12:41:43 PM] CORP Q2 2014 (in millions, except ratios) Jun 30, 2014 Tier 1 $ capital (a) Total capital     Assets   Risk-weighted   Capital ratios(c)      13,626   13,626   13,626  $ 12,956 19,526   18,276   16,389           NA       154,964 114,031               Capital ratios    109,731 CET1   NA   4.0% Tier 1   6.0%   5.5 Total     8.0 (a)  4.0 Tier 1 (a) 13.8   8.8   12.8% Total 19.8   11.8   16.2 Tier 1 leverage 12.0   12.0   11.8 (c) (d) Minimum capital ratios (b) 100,990 13.8%   (b)           8.8%   Wellcapitalized ratios (b)   CET1 (a) these minimum requirements could cause the Federal Reserve to take action. Bank subsidiaries also are subject to these capital requirements by their respective primary regulators. The following table presents the minimum ratios to which the Firm and its national bank subsidiaries are subject as of June 30, 2014. Dec 31, 2013  $ 114,031     13,626 98,509 Adjusted average (b) Jun 30, 2014    Regulatory capital   CET1 capital   NA Tier 1 leverage (a) (b) At June 30, 2014, trust preferred securities included in Basel III Tier 1 capital were $2.7 billion and $300 million for JPMorgan Chase and JPMorgan Chase Bank, N.A., respectively. At June 30, 2014, Chase Bank USA, N.A. had no trust preferred securities. Adjusted average assets, for purposes of calculating the leverage ratio, include total quarterly average assets adjusted for unrealized gains/(losses) on securities, less deductions for disallowed goodwill and other intangible assets, investments in certain subsidiaries, and the total adjusted carrying value of nonfinancial equity investments that are subject to deductions from Tier 1 capital. Beginning April 1, 2014, the lower ratio represents the Collins Floor. Asset and capital amounts for JPMorgan Chase’s banking subsidiaries reflect intercompany transactions; whereas the respective amounts for JPMorgan Chase reflect the elimination of intercompany transactions.   10.0 5.0 Represents requirements for bank subsidiaries pursuant to regulations issued under the FDIC Improvement Act. There is no Tier 1 leverage component in the definition of a well-capitalized bank holding company. As defined by the regulations issued by the Federal Reserve, OCC and FDIC. In addition to the 2014 well-capitalized standards, beginning January 1, 2015, Basel III Transitional CET1 capital and the Basel III Standardized Transitional and the Basel III Advanced Transitional CET1 capital ratios become relevant capital measures under the prompt corrective action requirements defined by the regulations. As of June 30, 2014, and December 31, 2013, JPMorgan Chase and all of its banking subsidiaries were well-capitalized and met all capital requirements to which each was subject. Note: Rating agencies allow measures of capital to be adjusted upward for deferred tax liabilities, which have resulted from both non-taxable business combinations and from tax-deductible goodwill. The Firm had deferred tax liabilities resulting from non-taxable business combinations totaling $145 million and $192 million at June 30, 2014, and December 31, 2013, respectively; and deferred tax liabilities resulting from tax-deductible goodwill of $2.8 billion at both June 30, 2014, and December 31, 2013. 169 Note 21 – 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 commitments and guarantees, and the Firm’s related accounting policies, see Note 29 of JPMorgan Chase’s 2013 Annual Report. To provide for probable credit losses inherent in consumer (excluding credit card) and wholesale lending commitments, an allowance for credit losses on lending-related commitments is maintained. See Note 14 for further discussion regarding the allowance for credit losses on lending-related commitments. The following table summarizes the contractual amounts and carrying values of off-balance sheet lendingrelated financial instruments, guarantees and other commitments at June 30, 2014, and December 31, 2013. The amounts in the table below for credit card and home equity lending-related commitments represent the total available credit for these products. The Firm has not experienced, and does not anticipate, that all available lines of credit for these products will be utilized at the same time. The Firm can reduce or cancel credit card lines of credit by providing the borrower notice or, in some cases as permitted by law, without notice. The Firm may reduce or close home equity lines of credit when there are significant decreases in the value of the underlying property, or when there has been a demonstrable decline in the creditworthiness of the borrower. Also, the Firm typically closes credit card lines when the borrower is 60 days or more past due. https://www.sec.gov/Archives/edgar/data/19617/000001961714000409/corpq22014.htm[10/8/14, 12:41:43 PM] CORP Q2 2014 170 Off–balance sheet lending-related financial instruments, guarantees and other commitments       Carrying value(j)   Contractual amount Dec 31, 2013 Jun 30, 2014   Dec 31, 2013 Jun 30, 2014 Expires after Expires after 1 year through 3 years 3 years through 5 years By remaining maturity (in millions) Expires in 1 year or less Lending-related           Consumer, excluding credit card:         $ 2,332 $ 4,303 $ 3,050 $ Home equity – senior lien Expires after 5 years                      2,268 $ 11,953 $ 13,158   $ — $ — — — — — Total Total Home equity – junior lien 3,707 6,338 3,460 2,261 15,766 Prime mortgage 6,679 — — — 6,679 17,837   4,817   — — — — — —   — — 9,006 371 122 22 9,521 8,309   1 1 8 7 — — Subprime mortgage Auto Business banking 10,516 886 117 377 11,896 Student and other 99 37 2 457 595 11,251   685   32,339 11,935 6,751 5,385 56,410 56,057   9 8 533,688 — — — 533,688 529,383   — — 566,027 11,935 6,751 5,385 590,098 585,440   9 8 Total consumer, excluding credit card (a) Credit card(b) Total consumer   Wholesale: Other unfunded commitments to extend credit (c)(d) Standby letters of credit and other financial guarantees (c)(d)(e) Unused advised lines of credit Other letters of credit (c) Total wholesale (f)                59,664 76,645 108,410 8,628 253,347 246,495   410 432 23,884 32,699 33,020 2,126 91,729 92,723   851 943 — — 1 2 1,262 1,377 1,271 $ 1,385 89,000 11,649 559 473 101,681 3,402 994 122 — 4,518 101,994   5,020   175,950 121,987 142,111 11,227 451,275 446,232   16,612 $ 1,041,373 $ 1,031,672   $ Total lending-related $ 741,977 $ 133,922 $ 148,862 $ Other guarantees and commitments                  Securities lending indemnification agreements and guarantees (g) $ 208,317 $ — $ — $ — $ 208,317 $ 169,709   $ — $ — 56,274   44 72 38,211   — Derivatives qualifying as guarantees 1,088 Unsettled reverse repurchase and securities borrowing agreements (h) Loan sale and securitization-related indemnifications: 795 74,198   13,836 —   37,733 —   53,452 —   74,198        —   Mortgage repurchase liability NA NA NA NA NA NA   436 681 Loans sold with recourse NA NA NA NA 6,775 7,692   115 131 437 353 2,616 2,099 5,505 6,786   (79) (99) Other guarantees and commitments(i) (a) Predominantly all consumer, excluding credit card, lending-related commitments contractual amounts are in the U.S. (b) Predominantly all credit card lending-related commitments contractual amounts are in the U.S. (c) At June 30, 2014, and December 31, 2013, reflects the contractual amount net of risk participations totaling $184 million and $476 million, respectively, for other unfunded commitments to extend credit; $14.3 billion and $14.8 billion, respectively, for standby letters of credit and other financial guarantees; and $538 million and $622 million, respectively, for other letters of credit. In regulatory filings with the Federal Reserve these commitments are shown gross of risk participations. (d) At June 30, 2014, and December 31, 2013, included credit enhancements and bond and commercial paper liquidity commitments to U.S. states and municipalities, hospitals and other non-profit entities of $17.0 billion and $18.9 billion, respectively, within other unfunded commitments to extend credit; and $15.2 billion and $17.2 billion, respectively, within standby letters of credit and other financial guarantees. Other unfunded commitments to extend credit also include liquidity facilities to nonconsolidated municipal bond VIEs; for further information, see Note 15. (e) At June 30, 2014, and December 31, 2013, included unissued standby letters of credit commitments of $44.8 billion and $42.8 billion, respectively. (f) At June 30, 2014, and December 31, 2013, the U.S. portion of the contractual amount of total wholesale lending-related commitments was 67% and 68%, respectively. (g) At June 30, 2014, and December 31, 2013, collateral held by the Firm in support of securities lending indemnification agreements was $216.3 billion and $176.4 billion, respectively. Securities lending collateral comprises primarily cash and securities issued by governments that are members of the Organisation for Economic Co-operation and Development (“OECD”) and U.S. government agencies. (h) At June 30, 2014, and December 31, 2013, the amount of commitments related to forward-starting reverse repurchase agreements and securities borrowing agreements were $40.7 billion and $9.9 billion, respectively. Commitments related to unsettled reverse repurchase agreements and securities borrowing agreements with regular-way settlement periods were https://www.sec.gov/Archives/edgar/data/19617/000001961714000409/corpq22014.htm[10/8/14, 12:41:43 PM] CORP Q2 2014 $33.5 billion and $28.3 billion, at June 30, 2014, and December 31, 2013, respectively. (i) At June 30, 2014, and December 31, 2013, included unfunded commitments of $130 million and $215 million, respectively, to third-party private equity funds; and $691 million and $1.9 billion, at June 30, 2014, and December 31, 2013, to other equity investments. These commitments included $111 million and $184 million, respectively, related to investments that are generally fair valued at net asset value as discussed in Note 3. In addition, at both June 30, 2014, and December 31, 2013, included letters of credit hedged by derivative transactions and managed on a market risk basis of $4.5 billion. (j) For lending-related products, the carrying value represents the allowance for lending-related commitments and the guarantee liability; for derivative-related products, the carrying value represents the fair value. 171 Other unfunded commitments to extend credit   Other unfunded commitments to extend credit generally comprise commitments for working capital and general corporate purposes, and extensions of credit to support commercial paper facilities and bond financings in the event that those obligations cannot be remarketed to new investors, as well as committed liquidity facilities to clearing organizations. Guarantees The Firm considers the following off–balance sheet lending-related arrangements to be guarantees under U.S. GAAP: standby letters of credit and financial guarantees, securities lending indemnifications, certain indemnification agreements included within third-party contractual arrangements and certain derivative contracts. For a further discussion of the off–balance sheet lending-related arrangements the Firm considers to be guarantees, and the related accounting policies, see Note 29 of JPMorgan Chase’s 2013 Annual Report. The recorded amounts of the liabilities related to guarantees and indemnifications at June 30, 2014, and December 31, 2013, excluding the allowance for credit losses on lending-related commitments, are discussed below. Also included in other unfunded commitments to extend credit are commitments to noninvestment-grade counterparties in connection with leveraged finance activities, which were $23.1 billion and $18.3 billion at June 30, 2014, and December 31, 2013, respectively. For further information, see Note 3 and Note 4. In addition, the Firm acts as a clearing and custody bank in the U.S. tri-party repurchase transaction market. In its role as clearing and custody bank, the Firm is exposed to intra-day credit risk of the cash borrowers, usually broker-dealers; however, this exposure is secured by collateral and typically extinguished through the settlement process by the end of the day. Tri-party repurchase daily balances averaged $181 billion and $279 billion for the three months ended June 30, 2014 and 2013, respectively, and $182 billion and $287 billion for the six months ended June 30, 2014 and 2013, respectively. The prior period amounts have been revised to conform with the current period presentation. Standby letters of credit and other financial guarantees Standby letters of credit (“SBLC”) and other financial guarantees are conditional lending commitments issued by the Firm to guarantee the performance of a customer to a third party under certain arrangements, such as commercial paper facilities, bond financings, acquisition financings, trade and similar transactions. The carrying values of standby and other letters of credit were $852 million and $945 million at June 30, 2014, and December 31, 2013, respectively, which were classified in accounts payable and other liabilities on the Consolidated Balance Sheets; these carrying values included $229 million and $265 million, respectively, for the allowance for lending-related commitments, and $623 million and $680 million, respectively, for the guarantee liability and corresponding asset. The following table summarizes the types of facilities under which standby letters of credit and other letters of credit arrangements are outstanding by the ratings profiles of the Firm’s customers, as of June 30, 2014, and December 31, 2013. Standby letters of credit, other financial guarantees and other letters of credit     June 30, 2014 Standby letters of credit and other financial guarantees (in millions) Other letters of credit December 31, 2013 Standby letters of credit and other financial   guarantees Other letters of credit Investment-grade (a)   Noninvestment-grade (a)   Total contractual amount   $ 91,729   $ 4,518     $ 92,723   $ 5,020 Allowance for lending-related commitments   $ 228   $ 1    $ 263   $ 2 Commitments with collateral   (a) $ 68,440   $ 23,289   3,551     $ 967     40,331   1,718     69,109   $ 23,614   40,410   3,939 1,081 1,473 The ratings scale is based on the Firm’s internal ratings which generally correspond to ratings as defined by S&P and Moody’s. Derivatives qualifying as guarantees   In addition to the contracts described above, the Firm transacts certain derivative contracts that have the characteristics of a guarantee under U.S. GAAP. For further information on these derivatives, see Note 29 of JPMorgan Chase’s 2013 Annual Report. The total notional value of the derivatives that the Firm deems to be guarantees was $53.5 billion and $56.3 billion at June 30, 2014, and December 31, 2013, respectively. The notional amount generally represents the Firm’s maximum exposure to derivatives qualifying as guarantees. However, exposure to certain stable value contracts is contractually limited to a substantially lower percentage of the notional amount; the notional amount on these stable value contracts was $27.2 billion and $27.0 billion at June 30, 2014, and December 31, 2013, respectively, and the maximum exposure to loss was $2.9 billion and 2.8 billion at June 30, 2014, and December 31, 2013, respectively. The fair values of the contracts reflect the probability of whether the Firm will be required to perform under the contract. The fair value related to derivatives that the Firm deems to be guarantees were derivative payables of $86 million and https://www.sec.gov/Archives/edgar/data/19617/000001961714000409/corpq22014.htm[10/8/14, 12:41:43 PM] CORP Q2 2014 172 $109 million and derivative receivables of $42 million and $37 million   at June 30, 2014, and December 31, 2013, respectively. The Firm reduces exposures to these contracts by entering into offsetting transactions, or by entering into contracts that hedge the market risk related to the derivative guarantees. The following table summarizes the change in the mortgage repurchase liability for each of the periods presented. In addition to derivative contracts that meet the characteristics of a guarantee, the Firm is both a purchaser and seller of credit protection in the credit derivatives market. For a further discussion of credit derivatives, see Note 5.   Loan sales- and securitization-related indemnifications Mortgage repurchase liability In connection with the Firm’s mortgage loan sale and securitization activities with the GSEs, as described in Note 15 of this Form 10-Q, and Note 16 of JPMorgan Chase’s 2013 Annual Report, the Firm has made representations and warranties that the loans sold meet certain requirements. The Firm has been, and may be, required to repurchase loans and/or indemnify the GSEs (e.g., with “make-whole” payments to reimburse the GSEs for their realized losses on liquidated loans). To the extent that repurchase demands that are received relate to loans that the Firm purchased from third parties that remain viable, the Firm typically will have the right to seek a recovery of related repurchase losses from the third party. Generally, the maximum amount of future payments the Firm would be required to make for breaches of these representations and warranties would be equal to the unpaid principal balance of such loans that are deemed to have defects that were sold to purchasers (including securitization-related SPEs) plus, in certain circumstances, accrued interest on such loans and certain expense. Net realized gains/(losses)(b) Summary of changes in mortgage repurchase liability(a) (in millions) Repurchase liability at beginning of period Three months ended June 30,       2014 $ (Benefit)/provision for repurchase (c) Repurchase liability at end of period $ 2013 Six months ended June 30, 2014   564   $ 2,674   $ 681   $ 8   (191)   19   (136)   (7)   (264)   436   $ 2,476   $ 436   $ 2013 2,811 (403) 68 2,476 (a) On October 25, 2013, the Firm announced that it had reached a $1.1 billion agreement with the FHFA to resolve, other than certain limited types of exposures, outstanding and future mortgage repurchase demands associated with loans sold to the GSEs from 2000 to 2008. (b) Presented net of third-party recoveries and include principal losses and accrued interest on repurchased loans, “make-whole” settlements, settlements with claimants, and certain related expense. Make-whole settlements were $1 million and $133 million for the three months ended June 30, 2014 and 2013, respectively and $3 million and $254 million for the six months ended June 30, 2014 and 2013, respectively. (c) Included a provision related to new loan sales of $1 million and $6 million for the three months ended June 30, 2014 and 2013, respectively, and $2 million and $14 million for the six months ended June 30, 2014 and 2013, respectively. Private label securitizations The liability related to repurchase demands associated with private label securitizations is separately evaluated by the Firm in establishing its litigation reserves. For additional information, see Note 29 of JPMorgan Chase’s 2013 Annual Report. For additional information regarding litigation, see Note 23 of this Form 10-Q and Note 31 of JPMorgan Chase’s 2013 Annual Report. Loans sold with recourse The Firm provides servicing for mortgages and certain commercial lending products on both a recourse and nonrecourse basis. In nonrecourse servicing, the principal credit risk to the Firm is the cost of temporary servicing advances of funds (i.e., normal servicing advances). In recourse servicing, the servicer agrees to share credit risk with the owner of the mortgage loans, such as Fannie Mae or Freddie Mac or a private investor, insurer or guarantor. Losses on recourse servicing predominantly occur when foreclosure sales proceeds of the property underlying a defaulted loan are less than the sum of the outstanding principal balance, plus accrued interest on the loan and the cost of holding and disposing of the underlying property. The Firm’s securitizations are predominantly nonrecourse, thereby effectively transferring the risk of future credit losses to the purchaser of the mortgage-backed securities issued by the trust. At June 30, 2014, and December 31, 2013, the unpaid principal balance of loans sold with recourse totaled $6.8 billion and $7.7 billion, respectively. The carrying value of the related liability that the Firm has recorded, which is representative of the Firm’s view of the likelihood it will have to perform under its recourse obligations, was $115 million and $131 million at June 30, 2014, and December 31, 2013, respectively. 173 Note 22 – Pledged assets and collateral For a discussion of the Firm’s pledged assets and collateral, see Note 30 of JPMorgan Chase’s 2013 Annual Report.   Note 23 – Litigation Contingencies As of June 30, 2014, the Firm and its subsidiaries are defendants or https://www.sec.gov/Archives/edgar/data/19617/000001961714000409/corpq22014.htm[10/8/14, 12:41:43 PM] CORP Q2 2014 putative defendants in numerous legal proceedings, including private, civil litigations and regulatory/government investigations. The litigations range from individual actions involving a single plaintiff to class action lawsuits with potentially millions of class members. Investigations involve both formal and informal proceedings, by both governmental agencies and self-regulatory organizations. These legal proceedings are at varying stages of adjudication, arbitration or investigation, and involve each of the Firm’s lines of business and geographies and a wide variety of claims (including common law tort and contract claims and statutory antitrust, securities and consumer protection claims), some of which present novel legal theories. Pledged assets At June 30, 2014, financial assets were pledged to maintain potential borrowing capacity with central banks and for other purposes, including to secure borrowings and public deposits, and to collateralize repurchase and other securities financing agreements. Certain of these pledged assets may be sold or repledged by the secured parties and are identified as financial assets owned (pledged to various parties) on the Consolidated Balance Sheets. At June 30, 2014, and December 31, 2013, the Firm had pledged assets of $269.0 billion and $251.3 billion, respectively, at Federal Reserve Banks and FHLBs. In addition, as of June 30, 2014, and December 31, 2013, the Firm had pledged $53.9 billion and $60.6 billion, respectively, of financial assets it owns that may not be sold or repledged by the secured parties. Total assets pledged do not include assets of consolidated VIEs; these assets are used to settle the liabilities of those entities. See Note 15 for additional information on assets and liabilities of consolidated VIEs. For additional information on the Firm’s securities financing activities, see Note 12. For additional information on the Firm’s long-term debt, see Note 21 of JPMorgan Chase’s 2013 Annual Report. The Firm believes the estimate of the aggregate range of reasonably possible losses, in excess of reserves established, for its legal proceedings is from $0 to approximately $4.6 billion at June 30, 2014. This estimated aggregate range of reasonably possible losses is based upon currently available information for those proceedings in which the Firm is involved, taking into account the Firm’s best estimate of such losses for those cases for which such estimate can be made. For certain cases, the Firm does not believe that an estimate can currently be made. The Firm’s estimate involves significant judgment, given the varying stages of the proceedings (including the fact that many are currently in preliminary stages), the existence in many such proceedings of multiple defendants (including the Firm) whose share of liability has yet to be determined, the numerous yet-unresolved issues in many of the proceedings (including issues regarding class certification and the scope of many of the claims) and the attendant uncertainty of the various potential outcomes of such proceedings. Accordingly, the Firm’s estimate will change from time to time, and actual losses may vary. Collateral At June 30, 2014 and December 31, 2013, the Firm had accepted financial assets as collateral that it could sell or repledge, deliver or otherwise use with a fair value of approximately $777.3 billion and $726.7 billion, respectively. This collateral was generally obtained under resale agreements, securities borrowing agreements, customer margin loans and derivative agreements. Of the collateral received, approximately $586.6 billion and $543.5 billion, respectively, were sold or repledged, generally as collateral under repurchase agreements, securities lending agreements or to cover short sales and to collateralize deposits and derivative agreements. Set forth below are descriptions of the Firm’s material legal proceedings. CIO Investigations and Litigation. The Firm has been sued in a consolidated shareholder purported class action, a consolidated purported class action brought under the Employee Retirement Income Security Act (“ERISA”) and shareholder derivative actions brought in Delaware state court and in New York federal and state court relating to 2012 losses in the synthetic credit portfolio managed by the Firm’s Chief Investment Office (“CIO”). Plaintiffs in two of the shareholder derivative actions and the ERISA action have appealed the dismissal of their claims. The Firm also continues to cooperate with ongoing government investigations. Credit Default Swaps Investigations and Litigation. In July 2013, the European Commission (the “EC”) filed a Statement of Objections against the Firm (including various subsidiaries) and other industry members in connection with its ongoing investigation into the credit default swaps (“CDS”) marketplace. The EC asserts that between 2006 174 and 2009, a number of investment banks acted collectively through the  International Swaps and Derivatives Association (“ISDA”) and Markit Group Limited (“Markit”) to foreclose exchanges from the potential market for exchange-traded credit derivatives. The Firm submitted a response to the Statement of Objections in January 2014, and the EC held a hearing in May 2014. The U.S. Department of Justice (the “DOJ”) also has an ongoing investigation into the CDS marketplace, which was initiated in July 2009. Separately, the Firm and other industry members are defendants in nine purported class actions (all consolidated in the United States District Court for the Southern District of New York) filed on behalf against the Firm and other banks, which are subject to pending motions to dismiss. Investment Management Litigation. The Firm is defending two pending cases that allege that investment portfolios managed by J.P. Morgan Investment Management (“JPMIM”) were inappropriately invested in securities backed by residential real estate collateral. Plaintiffs Assured Guaranty (U.K.) and Ambac Assurance UK Limited claim that JPMIM is liable for losses of more than $1 billion in market value of these securities. Discovery is proceeding. Italian Proceedings. City of Milan. In January 2009, the City of Milan, Italy (the “City”) https://www.sec.gov/Archives/edgar/data/19617/000001961714000409/corpq22014.htm[10/8/14, 12:41:43 PM] CORP Q2 2014 of purchasers and sellers of CDS and asserting federal antitrust law claims. Each of the complaints refers to the ongoing investigations by the EC and DOJ into the CDS market, and alleges that the defendant investment banks and dealers, including the Firm, as well as Markit and/or ISDA, collectively prevented new entrants into the CDS market. Defendants moved to dismiss in May 2014. issued civil proceedings against (among others) JPMorgan Chase Bank, N.A. and J.P. Morgan Securities plc in the District Court of Milan alleging a breach of advisory obligations in connection with a bond issue by the City in June 2005 and an associated swap transaction. The Firm has entered into a settlement agreement with the City to resolve the City’s civil proceedings. Foreign Exchange Investigations and Litigation. The Firm has received information requests, document production notices and related inquiries from various U.S. and non-U.S. government authorities regarding the Firm’s foreign exchange trading business. The Firm is responding to and continuing to cooperate with the relevant authorities. Four current and former JPMorgan Chase employees and JPMorgan Chase Bank, N.A. (as well as other individuals and three other banks) were directed by a criminal judge to participate in a trial that started in May 2010. As it relates to JPMorgan Chase individuals, two were acquitted and two were found guilty of aggravated fraud with sanctions of prison sentences, fines and a ban from dealing with Italian public bodies for one year. JPMorgan Chase (along with other banks involved) was found liable for breaches of Italian administrative law. JPMorgan Chase and the individuals appealed, and the Court fully acquitted JPMorgan Chase Bank, N.A. and its employees, stating that there was no case to answer. The deadline to file an appeal to the Italian Supreme Court has passed without an appeal being filed. Since November 2013, a number of class actions have been filed in the United States District Court for the Southern District of New York against a number of foreign exchange dealers, including the Firm, for alleged violations of federal and state antitrust laws and unjust enrichment based on an alleged conspiracy to manipulate foreign exchange rates reported on the WM/Reuters service. In March 2014, plaintiffs filed a consolidated amended class action complaint, which defendants moved to dismiss in May 2014. Parmalat. In 2003, following the bankruptcy of the Parmalat group of companies (“Parmalat”), criminal prosecutors in Italy investigated the activities of Parmalat, its directors and the financial institutions that had dealings with them following the collapse of the company. In March 2012, the criminal prosecutor served a notice indicating an intention to pursue criminal proceedings against four former employees of the Firm (but not against the Firm) on charges of conspiracy to cause Parmalat’s insolvency by underwriting bonds and continuing derivatives trading when Parmalat’s balance sheet was false. A preliminary hearing, in which the judge will determine whether to recommend that the matter go to a full trial, is ongoing. Interchange Litigation. A group of merchants and retail associations filed a series of class action complaints alleging that Visa and MasterCard, as well as certain banks, conspired to set the price of credit and debit card interchange fees, enacted respective rules in violation of antitrust laws, and engaged in tying/bundling and exclusive dealing. The parties have entered into an agreement to settle the cases, for a cash payment of $6.1 billion to the class plaintiffs (of which the Firm’s share is approximately 20%) and an amount equal to ten basis points of credit card interchange for a period of eight months to be measured from a date within 60 days of the end of the opt-out period. The agreement also provides for modifications to each credit card network’s rules, including those that prohibit surcharging credit card transactions. In December 2013, the Court issued a decision granting final approval of the settlement. A number of merchants have appealed. Certain merchants that opted out of the class settlement have filed actions against Visa and MasterCard, as well as In addition, the administrator of Parmalat commenced five civil actions against JPMorgan Chase entities including: two claw-back actions; a claim relating to bonds issued by Parmalat in which it is alleged that JPMorgan Chase kept Parmalat “artificially” afloat and delayed the declaration of insolvency; and similar allegations in two claims relating to derivatives transactions. Lehman Brothers Bankruptcy Proceedings. In May 2010, Lehman Brothers Holdings Inc. (“LBHI”) and its Official Committee of Unsecured Creditors (the “Committee”) filed a complaint (and later an amended complaint) against 175 JPMorgan Chase Bank, N.A. in the United States Bankruptcy Court   for the Southern District of New York that asserts both federal bankruptcy law and state common law claims, and seeks, among other relief, to recover $7.9 billion in collateral that was transferred to JPMorgan Chase Bank, N.A. in the weeks preceding LBHI’s bankruptcy. The amended complaint also seeks unspecified damages on the grounds that JPMorgan Chase Bank, N.A.’s collateral requests hastened LBHI’s bankruptcy. The Court dismissed the counts of the amended complaint that sought to void the allegedly constructively fraudulent and preferential transfers made to the Firm during the months of August and September 2008. The Firm has filed counterclaims against LBHI alleging that LBHI fraudulently induced the Firm to make large clearing advances to Lehman against inappropriate collateral, which left the Firm with more than $25 billion in claims (the “Clearing Claims”) against the estate of Lehman Brothers Inc., LBHI’s broker-dealer subsidiary. Discovery is ongoing. LBHI and the Committee have filed an objection to the claims asserted parts of the world during similar time periods. The Firm is responding to and continuing to cooperate with these inquiries. In December 2013, JPMorgan Chase reached a settlement with the EC regarding its Japanese Yen LIBOR investigation and agreed to pay a fine of €80 million. Investigations by the EC with regard to other reference rates remain open. In May 2014, the EC issued a Statement of Objections outlining its case against the Firm (and others) as to EURIBOR. The Firm will file a response. In January 2014, the Canadian Competition Bureau announced that it has discontinued its investigation related to Yen LIBOR. In addition, the Firm has been named as a defendant along with other banks in a series of individual and class actions filed in various United States District Courts, in which plaintiffs make varying allegations that in various periods, starting in 2000 or later, defendants either individually or collectively manipulated the U.S. dollar LIBOR, Yen LIBOR, Euroyen TIBOR and/or EURIBOR rates by submitting rates that were artificially low or high. Plaintiffs allege that they transacted in loans, derivatives or other financial instruments whose values are impacted by changes in U.S. dollar LIBOR, Yen LIBOR, Euroyen https://www.sec.gov/Archives/edgar/data/19617/000001961714000409/corpq22014.htm[10/8/14, 12:41:43 PM] CORP Q2 2014 by JPMorgan Chase Bank, N.A. against LBHI with respect to the Clearing Claims, principally on the grounds that the Firm had not conducted the sale of the securities collateral held for such claims in a commercially reasonable manner. TIBOR or EURIBOR and assert a variety of claims including antitrust claims seeking treble damages. The U.S. dollar LIBOR-related purported class actions have been consolidated for pre-trial purposes in the United States District Court for the Southern District of New York. In March 2013, the Court granted in part and denied in part the defendants’ motions to dismiss the claims in three lead class actions, including dismissal with prejudice of the antitrust claims, and the United States Court of Appeals for the Second Circuit dismissed the appeals for lack of jurisdiction. In September 2013, class plaintiffs in two of the three lead class actions filed amended complaints and others sought leave to amend their complaints to add additional allegations. Defendants moved to dismiss the amended complaints and opposed the requests to amend. In June 2014, the Court issued a further order granting in part and denying in part defendants’ motions to dismiss the remaining claims. In relation to the Firm, the Court has permitted certain claims under the Commodity Exchange Act and common law claims to proceed. With respect to the third lead class action, which the Court dismissed in its entirety, after plaintiff’s appeal was dismissed by the Second Circuit, plaintiff sought and obtained leave to appeal to the U.S. Supreme Court on the question whether its appeal could proceed before final resolution of the other consolidated class actions. To date, the other U.S. dollar LIBOR cases have been stayed. LBHI and several of its subsidiaries that had been Chapter 11 debtors have also filed a separate complaint and objection to derivatives claims asserted by the Firm alleging that the amount of the derivatives claims had been overstated and challenging certain set-offs taken by JPMorgan Chase entities to recover on the claims. The Firm responded to this separate complaint and objection in February 2013. The Clearing Claims and the derivatives claims, together with other claims of the Firm against Lehman entities, have been paid in full, subject to the outcome of the objections filed by LBHI and the Committee. Discovery in both cases is ongoing. LIBOR and Other Benchmark Rate Investigations and Litigation. JPMorgan Chase has received subpoenas and requests for documents and, in some cases, interviews, from federal and state agencies and entities, including the DOJ, the Commodity Futures Trading Commission (the “CFTC”), the Securities and Exchange Commission (the “SEC”) and various state attorneys general, as well as the EC, the U.K. Financial Conduct Authority (the “FCA”), Canadian Competition Bureau, Swiss Competition Commission and other regulatory authorities and banking associations around the world relating primarily to the process by which interest rates were submitted to the British Bankers Association (“BBA”) in connection with the setting of the BBA’s London Interbank Offered Rate (“LIBOR”) for various currencies, principally in 2007 and 2008. Some of the inquiries also relate to similar processes by which information on rates is submitted to the European Banking Federation (“EBF”) in connection with the setting of the EBF’s Euro Interbank Offered Rates (“EURIBOR”) and to the Japanese Bankers’ Association for the setting of Tokyo Interbank Offered Rates (“TIBOR”) as well as to other processes for the setting of other reference rates in various The purported class action alleging manipulation of Euroyen TIBOR and Yen LIBOR was filed in the United States District Court for the Southern District of New York on behalf of plaintiffs who purchased or sold exchange-traded Euroyen futures and options contracts. In March 2014, the Court granted in part and denied in part the defendants’ motions to dismiss including dismissal of plaintiff’s antitrust and unjust enrichment claims. Defendants have filed 176 motions to reconsider, seeking dismissal of the remaining claims.   Plaintiff filed a motion for leave to further amend the complaint to add additional parties and claims. In March 2014, the Firm was added as a defendant in a putative class action pending in the United States District Court for the Southern District of New York relating to the interest rate benchmark EURIBOR. The Firm was also named as a nominal defendant in a derivative action in the Supreme Court of New York in the County of New York against certain current and former members of the Firm’s board of directors for alleged breach of fiduciary duty in connection with the Firm’s purported role in manipulating LIBOR. In March 2014, the Court granted the defendants’ motion to dismiss and plaintiff did not appeal this decision. Madoff Litigation and Investigations. Settlements with the courtappointed trustee (the “Trustee”) for Bernard L. Madoff Investment Securities LLC (“BLMIS”) and with plaintiffs representing a class of former BLMIS customers who lost all or a portion of their principal investments with BLMIS have now been approved. Certain customers have opted out of the class action settlement. Various subsidiaries of the Firm, including J.P. Morgan Securities plc, have been named as defendants in lawsuits filed in Bankruptcy Court in New York arising out of the liquidation proceedings of Fairfield Sentry Limited and Fairfield Sigma Limited (together, “Fairfield”), in Madoff’s Ponzi scheme and were not included in the class action settlement. These plaintiffs allege violations of the federal securities law, federal and state racketeering statutes and multiple common law claims including breach of trust, aiding and abetting embezzlement, unjust enrichment, conversion and commercial bad faith. The complaint seeks compensatory damages in the amount of the last statement balance for each plaintiff and punitive damages. A similar action has been filed in the United States District Court for the Middle District of Florida (the “Florida Action”), although it is not styled as a class action, and the plaintiffs, in addition to net winners, include a small number of net loser opt-outs. Plaintiffs filed an amended complaint in the Florida Action which includes only net winners, includes a claim pursuant to a Florida statute and dismisses three common law claims that were included in the earlier complaint. Three shareholder derivative actions have also been filed in New York federal and state court against the Firm, as nominal defendant, and certain of its current and former Board members, alleging breach of fiduciary duty in connection with the Firm’s relationship with Bernard Madoff and the alleged failure to maintain effective internal controls to detect fraudulent transactions. The actions seek declaratory relief and damages. In July 2014, the federal court granted defendants’ motions to dismiss two of the actions and defendants have filed a motion to dismiss the remaining state court action. MF Global. J.P. Morgan Securities LLC has been named as one of several defendants in a number of purported class actions filed by https://www.sec.gov/Archives/edgar/data/19617/000001961714000409/corpq22014.htm[10/8/14, 12:41:43 PM] CORP Q2 2014 so-called Madoff feeder funds. These actions seek to recover payments made by the funds to defendants totaling approximately $155 million. All but two of these actions have been dismissed. purchasers of MF Global’s publicly traded securities asserting violations of federal securities laws and alleging that the offering documents contained materially false and misleading statements and omissions regarding MF Global. The Firm also has responded to inquiries from the CFTC relating to the Firm’s banking and other business relationships with MF Global, including as a depository for MF Global’s customer segregated accounts. In addition, a purported class action was brought by investors in certain feeder funds against JPMorgan Chase in the United States District Court for the Southern District of New York, as was a motion by separate potential class plaintiffs to add claims against the Firm and certain subsidiaries to an already pending purported class action in the same court. The allegations in these complaints largely track those raised by the Trustee. The Court dismissed these complaints and plaintiffs have appealed. In September 2013, the United States Court of Appeals for the Second Circuit affirmed the District Court’s decision. The plaintiffs then petitioned the entire Court for a rehearing of the appeal, and in May 2014 the Court denied the petition. Mortgage-Backed Securities and Repurchase Litigation and Related Regulatory Investigations. JPMorgan Chase and affiliates (together, “JPMC”), Bear Stearns and affiliates (together, “Bear Stearns”) and certain Washington Mutual affiliates (together, “Washington Mutual”) have been named as defendants in a number of cases in their various roles in offerings of mortgage-backed securities (“MBS”). These cases include purported class action suits on behalf of MBS purchasers, actions by individual MBS purchasers and actions by monoline insurance companies that guaranteed payments of principal and interest for particular tranches of MBS offerings. Following the settlements referred to under “Repurchase Litigation” and “Government Enforcement Investigations and Litigation” below, there are currently pending and tolled investor and monoline insurer claims involving MBS with an original principal balance of approximately $48 billion, of which $42 billion involves JPMC, Bear Stearns or Washington Mutual as issuer and $6 billion involves JPMC, Bear Stearns or Washington Mutual solely as underwriter. The Firm and The Firm is a defendant in five other Madoff-related investor actions pending in New York state court. The allegations in all of these actions are essentially identical, and involve claims against the Firm for, among other things, aiding and abetting breach of fiduciary duty, conversion and unjust enrichment. The Firm has moved to dismiss these actions. In May 2014, the parties submitted briefs on the res judicata effect of the class action settlement and a decision is pending. A purported class action has been filed in the United States District Court for the District of New Jersey by investors who were net winners (i.e., Madoff customers who had taken more money out of their accounts than had been invested) 177 certain of its current and former officers and Board members have also   been sued in shareholder derivative actions relating to the Firm’s MBS activities, and trustees have asserted or have threatened to assert claims that loans in securitization trusts should be repurchased. Issuer Litigation – Class Actions. Three purported class actions were brought against JPMC and Bear Stearns as MBS issuers (and, in some cases, also as underwriters of their own MBS offerings) in the United States District Courts for the Eastern and Southern Districts of New York. The Firm has reached an agreement to settle one of these purported class actions, pending in the United States District Court for the Eastern District of New York. That settlement has received final court approval. Motions to dismiss have largely been denied in the remaining two cases pending in the United States District Court for the Southern District of New York, which are in various stages of litigation. Issuer Litigation – Individual Purchaser Actions. In addition to class actions, the Firm is defending individual actions brought against JPMC, Bear Stearns and Washington Mutual as MBS issuers (and, in some cases, also as underwriters of their own MBS offerings). These actions are pending in federal and state courts across the United States and are in various stages of litigation. Monoline Insurer Litigation. The Firm is defending two pending actions relating to a monoline insurer’s guarantees of principal and interest on certain classes of 11 different Bear Stearns MBS offerings. These actions are pending in state court in New York and are in various stages of litigation. Underwriter Actions. In actions against the Firm solely as an underwriter of other issuers’ MBS offerings, the Firm has contractual rights to indemnification from the issuers. However, those indemnity rights may prove effectively unenforceable in various situations, such as where the issuers are now defunct. There are currently such actions pending against the Firm in federal and state courts in various stages of litigation. In addition, the Firm received threatened litigation demands by securitization trustees, as well as demands by investors directing trustees to investigate claims or bring litigation, which allege obligations to repurchase loans and to address servicing deficiencies. These include but are not limited to a demand from a law firm, as counsel to a group of 21 institutional MBS investors, to various trustees to investigate potential repurchase and servicing claims. These investors purported to have 25% or more of the voting rights in trusts sponsored by the Firm or its affiliates with an original principal balance of more than $174 billion (excluding 52 trusts sponsored by Washington Mutual, with an original principal balance of more than $58 billion). Pursuant to a settlement agreement, JPMC and this investor group have made a binding offer to the trustees of MBS issued by JPMC and Bear Stearns providing for the payment of $4.5 billion and the implementation of certain servicing changes by JPMC, to resolve all repurchase and servicing claims that have been asserted or could have been asserted with respect to the 330 MBS trusts. The offer, which is subject to acceptance by the trustees, and potentially a judicial approval process, does not resolve claims relating to Washington Mutual MBS. On August 1, 2014, the trustees announced their determination to accept the offer in whole or in part for 310 of the 330 MBS trusts and to proceed with seeking judicial approval of such acceptance. The trustees rejected the settlement offer in whole or in part for six trusts that are subject to pending monoline insurer or repurchase litigation, and received a 60-day extension to solicit investor direction on whether the offer should be accepted for an additional 14 trusts and for certain loan groups in 13 trusts for which the offer was accepted in part on August 1, 2014. There are additional repurchase and servicing claims made against trustees not affiliated with the Firm but involving trusts that the Firm sponsored. Derivative Actions. Shareholder derivative actions relating to the Firm’s MBS activities have been filed against the Firm, as nominal https://www.sec.gov/Archives/edgar/data/19617/000001961714000409/corpq22014.htm[10/8/14, 12:41:43 PM] CORP Q2 2014 defendant, and certain of its current and former officers and members of its Board of Directors, in New York state court and California federal court. Two of the New York actions have been dismissed and defendants have filed, or intend to file, motions to dismiss the remaining actions. Repurchase Litigation. The Firm is defending a number of actions brought by trustees or master servicers of various MBS trusts and others on behalf of purchasers of securities issued by those trusts. These cases generally allege breaches of various representations and warranties regarding securitized loans and seek repurchase of those loans or equivalent monetary relief, as well as indemnification of attorneys’ fees and costs and other remedies. Deutsche Bank National Trust Company, acting as trustee for various MBS trusts, has filed such a suit against JPMorgan Chase Bank, N.A., Washington Mutual and the Federal Deposit Insurance Corporation (the “FDIC”) in connection with a significant number of MBS issued by Washington Mutual; that case is described in the Washington Mutual Litigations section below. Other repurchase actions, each specific to one or more MBS transactions issued by JPMC and/or Bear Stearns, are in various stages of litigation. Government Enforcement Investigations and Litigation. The Firm is responding to an ongoing investigation being conducted by the Criminal Division of the United States Attorney’s Office for the Eastern District of California relating to MBS offerings securitized and sold by the Firm and its subsidiaries. The Firm has also received other subpoenas and informal requests for information from federal and state authorities concerning the issuance and underwriting of MBSrelated matters. The Firm continues to respond to these MBS-related regulatory inquiries. In addition, the Firm is responding to and continuing to cooperate with requests for information from the U.S. Attorney’s Office for the District of Connecticut, subpoenas and requests from the SEC Division of Enforcement, and a 178 request from the Office of the Special Inspector General for the   Troubled Asset Relief Program to conduct a review of certain activities, all of which relate to, among other matters, communications with counterparties in connection with certain secondary market trading in residential and commercial MBS. The Firm has entered into agreements with a number of entities that purchased MBS that toll applicable limitations periods with respect to their claims, and has settled, and in the future may settle, tolled claims. There is no assurance that the Firm will not be named as a defendant in additional MBS-related litigation. Mortgage-Related Investigations and Litigation. The Attorney General of Massachusetts filed an action against the Firm, other servicers and a mortgage recording company, asserting claims for various alleged wrongdoings relating to mortgage assignments and use of the industry’s electronic mortgage registry. The court granted in part and denied in part the defendants’ motion to dismiss the action, which remains pending. The Firm is named as a defendant in a purported class action lawsuit relating to its mortgage foreclosure procedures. The plaintiffs have moved for class certification. One shareholder derivative action has been filed in New York Supreme Court against the Firm’s Board of Directors alleging that the Board failed to exercise adequate oversight as to wrongful conduct by the Firm regarding mortgage servicing. In June 2014, defendants filed a motion to dismiss, which is pending. The Civil Division of the United States Attorney’s Office for the Southern District of New York is conducting an investigation concerning the Firm’s compliance with the Fair Housing Act (“FHA”) and Equal Credit Opportunity Act (“ECOA”) in connection with its mortgage lending practices. In addition, three municipalities have commenced litigation against the Firm alleging violations of the FHA and ECOA and seeking damages in the form of lost tax revenue and increased municipal costs associated with foreclosed properties. A motion to dismiss has been filed in one of the actions. JPMorgan Chase Bank, N.A. is responding to inquiries by the Executive Office of the U.S. Bankruptcy Trustee and various regional U.S. Bankruptcy Trustees relating to mortgage payment change notices and escrow statements in bankruptcy proceedings. Municipal Derivatives Litigation. Several civil actions were all the above-described actions against the Firm would be released and dismissed with prejudice. In November 2013, the Bankruptcy Court confirmed the Plan of Adjustment, and in December 2013, certain sewer rate payers filed an appeal challenging the confirmation of the Plan of Adjustment. All conditions to the Plan of Adjustment’s effectiveness, including the dismissal of the actions against the Firm, were satisfied or waived and the transactions contemplated by the Plan of Adjustment occurred in December 2013. Accordingly, all the above-described actions against the Firm have been dismissed pursuant to the terms of the Plan of Adjustment. The appeal of the Bankruptcy Court’s order confirming the Plan of Adjustment remains pending. Petters Bankruptcy and Related Matters. JPMorgan Chase and certain of its affiliates, including One Equity Partners (“OEP”), have been named as defendants in several actions filed in connection with the receivership and bankruptcy proceedings pertaining to Thomas J. Petters and certain affiliated entities (collectively, “Petters”) and the Polaroid Corporation. The principal actions against JPMorgan Chase and its affiliates have been brought by a court-appointed receiver for Petters and the trustees in bankruptcy proceedings for three Petters entities. These actions generally seek to avoid certain purported transfers in connection with (i) the 2005 acquisition by Petters of Polaroid, which at the time was majority-owned by OEP; (ii) two credit facilities that JPMorgan Chase and other financial institutions entered into with Polaroid; and (iii) a credit line and investment accounts held by Petters. The actions collectively seek recovery of approximately $450 million. Defendants have moved to dismiss the complaints in the actions filed by the Petters bankruptcy trustees. Power Matters. The United States Attorney’s Office for the Southern District of New York is investigating matters relating to the bidding activities that were the subject of the July 2013 settlement between J.P. Morgan Ventures Energy Corp. and the Federal Energy Regulatory Commission. The Firm is responding to and cooperating with the investigation. Referral Hiring Practices Investigations. Various regulators are investigating, among other things, the Firm’s compliance with the Foreign Corrupt Practices Act and other laws with respect to the Firm’s hiring practices related to candidates referred by clients, potential clients and government officials, and its engagement of consultants in the Asia Pacific region. The Firm is responding to and https://www.sec.gov/Archives/edgar/data/19617/000001961714000409/corpq22014.htm[10/8/14, 12:41:43 PM] CORP Q2 2014 continuing to cooperate with these investigations. commenced in New York and Alabama courts against the Firm relating to certain Jefferson County, Alabama (the “County”) warrant underwritings and swap transactions. The claims in the civil actions generally alleged that the Firm made payments to certain third parties in exchange for being chosen to underwrite more than $3 billion in warrants issued by the County and to act as the counterparty for certain swaps executed by the County. The County filed for bankruptcy in November 2011. In June 2013, the County filed a Chapter 9 Plan of Adjustment, as amended (the “Plan of Adjustment”), which provided that Sworn Documents, Debt Sales and Collection Litigation Practices. The Firm has been responding to formal and informal inquiries from various state and federal regulators regarding practices involving credit card collections litigation (including with respect to sworn documents), the sale of consumer credit card debt and securities backed by credit card receivables. Separately, the Consumer Financial Protection Bureau and multiple state Attorneys General are conducting investigations into the Firm’s collection and sale of 179 consumer credit card debt. The California and Mississippi Attorneys   General have filed separate civil actions against JPMorgan Chase & Co., Chase Bank USA, N.A. and Chase BankCard Services, Inc. alleging violations of law relating to debt collection practices. Washington Mutual Litigations. Proceedings related to Washington Mutual’s failure are pending before the United States District Court for the District of Columbia and include a lawsuit brought by Deutsche Bank National Trust Company, initially against the FDIC and amended to include JPMorgan Chase Bank, N.A. as a defendant, asserting an estimated $6 billion to $10 billion in damages based upon alleged breach of various mortgage securitization agreements and alleged violation of certain representations and warranties given by certain Washington Mutual affiliates in connection with those securitization agreements. The case includes assertions that JPMorgan Chase may have assumed liabilities for the alleged breaches of representations and warranties in the mortgage securitization agreements. The District Court denied as premature motions by JPMorgan Chase and the FDIC that sought a ruling on whether the FDIC retained liability for Deutsche Bank’s claims. The defendants have filed additional motions as to that issue. An action filed by certain holders of Washington Mutual Bank debt against JPMorgan Chase, which alleges that JPMorgan Chase acquired substantially all of the assets of Washington Mutual Bank from the FDIC at a price that was allegedly too low, remains pending. JPMorgan Chase and the FDIC moved to dismiss this action and the District Court dismissed the case except as to the plaintiffs’ claim that JPMorgan Chase tortiously interfered with the plaintiffs’ bond contracts with Washington Mutual Bank prior to its closure. Discovery is ongoing. outstanding legal proceedings each quarter to assess its litigation reserves, and makes adjustments in such reserves, upwards or downward, as appropriate, based on management’s best judgment after consultation with counsel. The Firm incurred legal expense of $669 million and $678 million during the three months ended June 30, 2014 and 2013, respectively, and $707 million and $1.0 billion during the six months ended June 30, 2014 and 2013, respectively. There is no assurance that the Firm’s litigation reserves will not need to be adjusted in the future. In view of the inherent difficulty of predicting the outcome of legal proceedings, particularly where the claimants seek very large or indeterminate damages, or where the matters present novel legal theories, involve a large number of parties or are in early stages of discovery, the Firm cannot state with confidence what will be the eventual outcomes of the currently pending matters, the timing of their ultimate resolution or the eventual losses, fines, penalties or impact related to those matters. JPMorgan Chase believes, based upon its current knowledge, after consultation with counsel and after taking into account its current litigation reserves, that the legal proceedings currently pending against it should not have a material adverse effect on the Firm’s consolidated financial condition. The Firm notes, however, that in light of the uncertainties involved in such proceedings, there is no assurance the ultimate resolution of these matters will not significantly exceed the reserves it has currently accrued; as a result, the outcome of a particular matter may be material to JPMorgan Chase’s operating results for a particular period, depending on, among other factors, the size of the loss or liability imposed and the level of JPMorgan Chase’s income for that period. JPMorgan Chase has also filed a complaint in the United States District Court for the District of Columbia against the FDIC in its capacity as receiver for Washington Mutual Bank and in its corporate capacity asserting multiple claims for indemnification under the terms of the Purchase & Assumption Agreement between JPMorgan Chase and the FDIC relating to JPMorgan Chase’s purchase of most of the assets and certain liabilities of Washington Mutual Bank. *** In addition to the various legal proceedings discussed above, JPMorgan Chase and its subsidiaries are named as defendants or are otherwise involved in a substantial number of other legal proceedings. The Firm believes it has meritorious defenses to the claims asserted against it in its currently outstanding legal proceedings and it intends to defend itself vigorously in all such matters. Additional legal proceedings may be initiated from time to time in the future. The Firm has established reserves for several hundred of its currently outstanding legal proceedings. In accordance with the provisions of U.S. GAAP for contingencies, the Firm accrues for a litigation-related https://www.sec.gov/Archives/edgar/data/19617/000001961714000409/corpq22014.htm[10/8/14, 12:41:43 PM] CORP Q2 2014 liability when it is probable that such a liability has been incurred and the amount of the loss can be reasonably estimated. The Firm evaluates its 180 Note 24 – Business segments   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 further discussion concerning JPMorgan Chase’s business segments, see Business Segment Results on page 19 of this Form 10-Q, and pages 84–85 and Note 33 of JPMorgan Chase’s 2013 Annual Report. Segment results The accompanying tables provide a summary of the Firm’s segment results for the three and six months ended June 30, 2014 and 2013, on a managed basis. Total net revenue (noninterest revenue and net interest income) for each of the segments is presented on a fully taxable-equivalent (“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/(benefit). Effective January 1, 2014, the Firm revised the capital allocated to certain businesses and will continue to assess the level of capital required for each line of business, as well as the assumptions and methodologies used to allocate capital to the business segments. Further refinements may be implemented in future periods. Segment results and reconciliation (a) As of or for the three months ended June 30, (in millions, except ratios) Noninterest revenue $ Consumer & Community Banking   2014   2013 4,468 $ 2014 4,921  $ Net interest income 6,963 7,094   Total net revenue 11,431 12,015   Provision for credit losses Corporate & Investment Bank (19)   852 2013   Commercial Banking     2014   2013 7,171  $ 2,460 2,705   1,124 8,991 9,876   1,701 6,531 $ 577 (6)   (84) $  $ 551 Asset Management 2014 2013 2,380 $ 2,156 1,177   576 569 1,728   2,956 2,725 (67) 44   1 23 Noninterest expense 6,456 6,864   6,058 5,742   675 652   2,062 1,892 Income/(loss) before income tax expense/(benefit) 4,123 5,170   3,017 4,140   1,093 1,032   893 810 Income tax expense/(benefit) 1,680 2,081   1,054 1,302   435 411   341 310 1,963 $ 2,838  $ 658 $ 621  $ 552 $ 500 61,000 $ 56,500  $ 14,000 $ 13,500  $ 9,000 $ 9,000 Net income/(loss) $ 2,443 $ 3,089  $ Average common equity $ 51,000 $ 46,000  $ Total assets 447,277 460,642   Return on average common equity 19% 27%   Overhead ratio 56 57 873,288   Noninterest revenue 13% 20%   67 58 Corporate/Private Equity As of or for the three months ended June 30, (in millions, except ratios) 2014 $   873,527 2013 351 $ 192,523     184,124 19% 18%   40 38     Reconciling Items (b)     2014   290   $ 2013 128,362 115,157 25% 22% 70 69 Total 2014 2013 (651) $ (582)   $ 13,656 $ 14,507 Net interest income (81) (676)   (244) (165)   10,798 10,704 Total net revenue 270 (386)   (895) (747)   24,454 25,211 Provision for credit losses (10) 5   — —   692 47 Noninterest expense 180 716   — —   15,431 15,866 Income/(loss) before income tax expense/(benefit) 100 (1,107)   (895) (747)   8,331 9,298 (555)   (895) (747)   2,346 2,802 Income tax expense/(benefit) Net income/(loss) (269) $ 369 $ (552)   $ — $ https://www.sec.gov/Archives/edgar/data/19617/000001961714000409/corpq22014.htm[10/8/14, 12:41:43 PM] —  $ 5,985 $ 6,496 CORP Q2 2014 Average common equity $ 72,283   $ 71,159 $ 878,886 806,044   Return on average common equity NM Overhead ratio NM NM   NM   Total assets —  $ — $ NA NA   NM NM   NM   NM 206,159 $ 2,520,336 197,283 2,439,494 11% 13% 63 63 181 Segment results and reconciliation (a) As of or for the six months ended June 30, (in millions, except ratios) Noninterest revenue Consumer & Community Banking   2014   $ 2013 7,902 $ 9,327 Corporate & Investment Bank 2014  $ 2013 12,767 $ 14,528   Commercial Banking     2014   2013  $ 1,135 $ Asset Management 2014 2013 1,086  $ 4,598 $ 4,250 Net interest income 13,989 14,303   4,830 5,488   2,217 2,315   1,136 1,128 Total net revenue 21,891 23,630   17,597 20,016   3,352 3,401   5,734 5,378 1,668 530   5   83   Noninterest expense 12,893 13,654   11,662 11,853   1,361 1,296   4,137 3,768 Income/(loss) before income tax expense/(benefit) 7,330 9,446   5,970 8,158   2,053 2,022   1,605 1,566 Income tax expense/(benefit) 2,951 3,771   2,028 2,710   817 805   612 579 Provision for credit losses (35) (62) (8) 44 Net income/(loss) $ 4,379 $ 5,675  $ 3,942 $ 5,448  $ 1,236 $ 1,217  $ 993 $ 987 Average common equity $ 51,000 $ 46,000  $ 61,000 $ 56,500  $ 14,000 $ 13,500  $ 9,000 $ 9,000 Total assets 447,277 460,642   Return on average common equity 17% 25%   Overhead ratio 59 58 873,288   Noninterest revenue 873,527 13% 19%   66 59 Corporate/Private Equity As of or for the six months ended June 30, (in millions, except ratios) 2014 $ 2013 (237) Total net revenue 638 Provision for credit losses (21) Income/(loss) before income tax expense/(benefit) Income tax expense/(benefit) 192,523     184,124 18% 18%   41 38 Reconciling Items (b)     2014   2013 128,362     651   $ 875 $ Net interest income Noninterest expense   115,157 22% 22% 72 70 Total 2014 2013 (1,295) $ (1,146)   $ 25,982 (1,270)   (470) (327)   21,465 21,637 (619)   (1,765) (1,473)   47,447 50,333 $ 28,696 2   — —   1,542 664 14 718   — —   30,067 31,289 645 (1,339)   (1,765) (1,473)   15,838 18,380 (64) (1,037)   (1,765) (1,473)   4,579 5,355 Net income/(loss) $ 709 $ (302)   $ — $ —  $ 11,259 $ 13,025 Average common equity $ 68,989 $ 71,016   $ — $ —  $ 203,989 $ 196,016 878,886 806,044   NA NA   Return on average common equity NM NM   NM NM   11% 13% Overhead ratio NM NM   NM NM   63 62 Total assets (a) (b) 2,520,336 2,439,494 Managed basis starts with the reported U.S. GAAP results and includes certain reclassifications that do not have any impact on net income as reported by the lines of business or by the Firm as a whole. Segment managed results reflect revenue on a FTE basis with the corresponding income tax impact recorded within income tax expense/(benefit). These FTE adjustments are eliminated in reconciling items to arrive at the Firm’s reported U.S. GAAP results. 182 https://www.sec.gov/Archives/edgar/data/19617/000001961714000409/corpq22014.htm[10/8/14, 12:41:43 PM] CORP Q2 2014 Report of Independent Registered Public Accounting Firm   To the Board of Directors and Stockholders of JPMorgan Chase & Co.: We previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheet as of December 31, 2013, and the related consolidated statements of income, comprehensive income, changes in stockholders’ equity, and cash flows for the year then ended (not presented herein), and in our report dated February 19, 2014, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying consolidated balance sheet as of December 31, 2013, is fairly stated in all material respects in relation to the consolidated balance sheet from which it has been derived. We have reviewed the accompanying consolidated balance sheet of JPMorgan Chase & Co. and its subsidiaries (the “Firm”) as of June 30, 2014, and the related consolidated statements of income and comprehensive income for the three-month and six-month periods ended June 30, 2014 and June 30, 2013, and the consolidated statements of changes in stockholders’ equity and cash flows for the six-month periods ended June 30, 2014 and June 30, 2013, included in the Firm’s Quarterly Report on Form 10-Q for the period ended June 30, 2014. These interim financial statements are the responsibility of the Firm’s management. We conducted our review in accordance with the standards of the Public Company Accounting Oversight Board (United States). A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the Public Company Accounting Oversight Board (United States), the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion. August 4, 2014 Based on our review, we are not aware of any material modifications that should be made to the accompanying consolidated interim financial statements for them to be in conformity with accounting principles generally accepted in the United States of America. PricewaterhouseCoopers LLP, 300 Madison Avenue, New York, NY 10017 183 JPMorgan Chase & Co. Consolidated average balance sheets, interest and rates https://www.sec.gov/Archives/edgar/data/19617/000001961714000409/corpq22014.htm[10/8/14, 12:41:43 PM] CORP Q2 2014 (Taxable-equivalent interest and rates; in millions, except rates)            Three months ended June 30, 2014 Average balance   Interest(d)   Rate (annualized)   Rate (annualized) Interest(d)                334,953 $ 279   0.33 %    $ 265,821 $ 222   0.34%   Federal funds sold and securities purchased under resale agreements 237,440 398   0.67     231,972 490   0.85 Securities borrowed (a) 114,905 (131)   (0.46)     115,194 (30)   (0.11)   Assets Deposits with banks $     Three months ended June 30, 2013 Average balance 1,882   2.10 (e)  727,499 8,381   4.62     39,920 147   1.48       1,980,466 13,237 (f)  2.68 (f)  1,846   3.62     240,952 2,145 Securities 353,278 2,457   2.79 (e)    359,108 Loans 737,613 8,084   4.40     41,514 172   1.66   2,023,945 13,105   2.60 Total interest-earning assets Allowance for loan losses   (f)  204,242 (15,729)           (f)    3.57 Trading assets – debt instruments Other assets (b)   (20,775)         26,294           39,700         121,184           116,333         Trading assets – derivative receivables 60,830           75,310         Goodwill 48,084           48,078         Cash and due from banks Trading assets – equity instruments   Other intangible assets: Mortgage servicing rights Purchased credit card relationships Other intangibles Other assets                    8,298           8,229         63           239         1,354           1,787         146,313           150,603         Total assets $ 2,420,636          $ 2,399,970         Liabilities                      Interest-bearing deposits $ 863,163 $ 417   0.19 %    $ 810,096 $ 539   0.27%   212,555 160   0.30     264,240 159   0.24   59,760 34   0.23     54,391 29   0.21   0.50 (f)  Federal funds purchased and securities loaned or sold under repurchase agreements Commercial paper Trading liabilities – debt, short-term and other liabilities(c) Beneficial interests issued by consolidated VIEs Long-term debt Total interest-bearing liabilities (f)  221,001 261   0.48     201,668 47,407 105   0.89     56,742 126   0.89   271,194 1,086   1.61     270,796 1,261   1.87   1,675,080 2,063   0.49     1,657,933 2,368 (f)  0.57 (f)  254 380,836           363,537         Trading liabilities – equity instruments 15,505           13,737         Trading liabilities – derivative payables 49,487           66,246         All other liabilities, including the allowance for lendingrelated commitments 77,806           90,139         2,198,714           2,191,592                            15,763           11,095         Common stockholders’ equity 206,159           197,283         Total stockholders’ equity 221,922           208,378         2,420,636          $ 2,399,970         2.11 %               $ 10,869   Noninterest-bearing deposits Total liabilities Stockholders’ equity   Preferred stock Total liabilities and stockholders’ equity $ Interest rate spread       Net interest income and net yield on interest-earning assets   $ 11,042   2.19 2.11%   2.20   (a) Negative interest income and yield is a result of increased client-driven demand for certain securities combined with the impact of low interest rates; the offset of this matched book activity is reflected as lower net interest expense reported within trading liabilities - debt, short-term and other liabilities. (b) Includes margin loans. https://www.sec.gov/Archives/edgar/data/19617/000001961714000409/corpq22014.htm[10/8/14, 12:41:43 PM] CORP Q2 2014 (c) Includes brokerage customer payables. (d) Interest includes the effect of related hedging derivatives. Taxable-equivalent amounts are used where applicable. (e) For the three months ended June 30, 2014 and 2013, the annualized rates for Securities, based on amortized cost, were 2.85% and 2.16%, respectively; this does not give effect to changes in fair value that are reflected in accumulated other comprehensive income/(loss). (f) Effective January 1, 2014, prior period amounts have been reclassified to conform with the current period presentation. 184 JPMorgan Chase & Co. Consolidated average balance sheets, interest and rates (Taxable-equivalent interest and rates; in millions, except rates)               Six months ended June 30, 2014 Average balance   Interest(d) Rate (annualized)   Assets       Deposits with banks $ 327,085 $ 535                    Six months ended June 30, 2013 Average balance Rate (annualized) Interest(d)            0.33 %    $ 211,705 $ 385       0.37%   Federal funds sold and securities purchased under resale agreements 241,395 834   0.70     231,699 1,004   Securities borrowed (a) 116,556 (219)   (0.38)     117,751 (36)   Trading assets – debt instruments 203,319 3,637   3.61     245,700 4,380 (f)  3.59 (f)  Securities 351,037 4,839   2.78 (e)    363,864 3,869   2.14 (e)  Loans 733,982 16,164   4.44     726,318 16,935   4.70   41,472 334   1.62     41,471 227   1.10   2,014,846 26,124   2.61     1,938,508 26,764 (f)  2.78 (f)  Other assets (b) Total interest-earning assets 0.87   (0.06)   Allowance for loan losses (15,948)           (21,315)         Cash and due from banks 27,014           43,246         116,878   62,814                         118,252   75,115         48,069           48,123                                                8,188   253     Purchased credit card relationships 8,760   86         Other intangibles 1,397           1,840         147,804           149,005         2,411,720          $ 2,361,215             Trading assets – equity instruments Trading assets – derivative receivables Goodwill   Other intangible assets: Mortgage servicing rights Other assets Total assets $ Liabilities                Interest-bearing deposits $ 864,952 $ 843   0.20 %    $ 799,045 $ 1,084   206,769 322   0.31     257,571 326   0.25   59,224 67   0.23     53,741 55   0.21   0.54 (f)  Federal funds purchased and securities loaned or sold under repurchase agreements Commercial paper Trading liabilities – debt, short-term and other liabilities(c) Beneficial interests issued by consolidated VIEs Long-term debt Total interest-bearing liabilities 217,922 494   0.46     193,293 519   0.27%   (f)  48,228 210   0.88     58,531 260   0.90   270,303 2,253   1.68     262,606 2,556   1.96   1,667,398 4,189   0.51     1,624,787 4,800 (f)  0.60 (f)  379,187           359,746         Trading liabilities – equity instruments 15,966           13,471         Trading liabilities – derivative payables 51,305           67,458         All other liabilities, including the allowance for lendingrelated commitments 79,209           89,382         2,193,065           2,154,844         Noninterest-bearing deposits Total liabilities https://www.sec.gov/Archives/edgar/data/19617/000001961714000409/corpq22014.htm[10/8/14, 12:41:43 PM] CORP Q2 2014            14,666         Common stockholders’ equity 203,989       Total stockholders’ equity 218,655     Stockholders’ equity   Preferred stock           10,355             196,016               206,371              $ 2,361,215           Total liabilities and stockholders’ equity $ 2,411,720     Interest rate spread       2.10 %        Net interest income and net yield on interest-earning assets   $ 21,935        $ 21,964   2.20 2.18%   2.28   (a) Negative interest income and yield is a result of increased client-driven demand for certain securities combined with the impact of low interest rates; the offset of this matched book activity is reflected as lower net interest expense reported within trading liabilities - debt, short-term and other liabilities. (b) Includes margin loans. (c) Includes brokerage customer payables. (d) Interest includes the effect of related hedging derivatives. Taxable-equivalent amounts are used where applicable. (e) For the six months ended June 30, 2014 and 2013, the annualized rates for Securities, based on amortized cost, were 2.83% and 2.20%, respectively; this does not give effect to changes in fair value that are reflected in accumulated other comprehensive income/(loss). (f) Effective January 1, 2014, prior period amounts have been reclassified to conform with the current period presentation. 185 GLOSSARY OF TERMS Active foreclosures: Loans referred to foreclosure where formal   foreclosure proceedings are ongoing. Includes both judicial and nonjudicial states. Allowance for loan losses to total loans: Represents period-end allowance for loan losses divided by retained loans. Beneficial interests issued by consolidated VIEs: Represents the interest of third-party holders of debt, equity securities, or other obligations, issued by VIEs that JPMorgan Chase consolidates. Benefit obligation: Refers to the projected benefit obligation for pension plans and the accumulated postretirement benefit obligation for OPEB plans. Credit derivatives: Financial instruments whose value is derived from the credit risk associated with the debt of a third party issuer (the reference entity) which allow one party (the protection purchaser) to transfer that risk to another party (the protection seller). Upon the occurrence of a credit event by the reference entity, which may include, among other events, the bankruptcy or failure to pay its obligations, or certain restructurings of the debt of the reference entity, neither party has recourse to the reference entity. The protection purchaser has recourse to the protection seller for the difference between the face value of the CDS contract and the fair value at the time of settling the credit derivative contract. The determination as to whether a credit event has occurred is generally made by the relevant International Swaps and Derivatives Association (“ISDA”) Determinations Committee. CUSIP number: A CUSIP (i.e., Committee on Uniform Securities Identification Procedures) number consists of nine characters (including letters and numbers) that uniquely identify a company or issuer and the type of security and is assigned by the American Bankers Association and operated by Standard & Poor’s. This system facilitates the clearing and settlement process of securities. A similar system is used to identify non- U.S. securities (CUSIP International Numbering System). G7 government bonds: Bonds issued by the government of one of the G7 nations. Headcount-related expense: Includes salary and benefits (excluding performance-based incentives), and other noncompensation costs related to employees. Home equity - senior lien: Represents loans and commitments where JPMorgan Chase holds the first security interest on the property. Home equity - junior lien: Represents loans and commitments where JPMorgan Chase holds a security interest that is subordinate in rank to other liens. Investment-grade: An indication of credit quality based on JPMorgan Chase’s internal risk assessment system. “Investment grade” generally represents a risk profile similar to a rating of a “BBB-”/“Baa3” or better, as defined by S&P and Moody’s. LLC: Limited Liability Company. Loan-to-value (“LTV”) ratio: For residential real estate loans, the relationship, expressed as a percentage, between the principal amount of a loan and the appraised value of the collateral (i.e., residential real estate) securing the loan. Current estimated LTV ratio An estimate of the LTV as of a certain date. The current estimated LTV ratios are calculated using estimated collateral values derived from a nationally recognized home price index measured at the metropolitan statistical area (“MSA”) level. These MSA-level home price indices comprise actual data to the extent available and forecasted data where actual data is not available. As a result, the estimated collateral values used to calculate these ratios do not represent actual appraised loan-level collateral values; as such, the resulting LTV ratios are necessarily imprecise and should therefore be viewed as estimates. Exchange traded derivatives: Derivative contracts that are executed on an exchange and settled via a central clearing house. Combined LTV ratio The LTV ratio considering all available lien positions, as well as unused lines, related to the property. Combined LTV ratios are used for junior lien home equity products. FICO score: A measure of consumer credit risk provided by credit bureaus, typically produced from statistical models by Fair Isaac Corporation utilizing data collected by the credit bureaus. Managed basis: A non-GAAP presentation of financial results that includes reclassifications to present revenue on a fully taxableequivalent basis. Management uses this non- GAAP financial measure https://www.sec.gov/Archives/edgar/data/19617/000001961714000409/corpq22014.htm[10/8/14, 12:41:43 PM] CORP Q2 2014 at the segment level, because it believes this provides information to enable investors to understand the underlying operational performance and trends of the particular business segment and facilitates a comparison of the business segment with the performance of competitors. Forward points: Represents the interest rate differential between two currencies, which is either added to or subtracted from the current exchange rate (i.e., “spot rate”) to determine the forward exchange rate. Group of Seven (“G7”) nations: Countries in the G7 are Canada, France, Germany, Italy, Japan, the United Kingdom and the United States. Master netting agreement: An agreement between two counterparties who have multiple contracts with each other that provides for the net settlement of all contracts, as well as cash collateral, through a single payment, in a single currency, in the event of default on or termination of any one contract. 186 Mortgage product types: Alt-A Alt-A loans are generally higher in credit quality than subprime loans but have characteristics that would disqualify the borrower from a traditional prime loan. Alt-A lending characteristics may include one or more of the following: (i) limited documentation; (ii) a high combined loan-to-value (“CLTV”) ratio; (iii) loans secured by nonowner occupied properties; or (iv) a debt-to-income ratio above normal limits. A substantial proportion of the Firm’s Alt-A loans are those where a borrower does not provide complete documentation of his or her assets or the amount or source of his or her income. Option ARMs The option ARM real estate loan product is an adjustable-rate mortgage loan that provides the borrower with the option each month to make a fully amortizing, interest-only or minimum payment. The minimum payment on an option ARM loan is based on the interest rate charged during the introductory period. This introductory rate is usually significantly below the fully indexed rate. The fully indexed rate is calculated using an index rate plus a margin. Once the introductory period ends, the contractual interest rate charged on the loan increases to the fully indexed rate and adjusts monthly to reflect movements in the index. The minimum payment is typically insufficient to cover interest accrued in the prior month, and any unpaid interest is deferred and added to the principal balance of the loan. Option ARM loans are subject to payment recast, which converts the loan to a variable-rate fully amortizing loan upon meeting specified loan balance and anniversary date triggers. Prime Prime mortgage loans are made to borrowers with good credit records and a monthly income at least three to four times greater than their monthly housing expense (mortgage payments plus taxes and other debt payments). These borrowers provide full documentation and generally have reliable payment histories. Subprime Subprime loans are loans to customers with one or more high risk characteristics, including but not limited to: (i) unreliable or poor payment histories; (ii) a high LTV ratio of greater than 80% (without borrower-paid mortgage insurance); (iii) a high debt-to-income ratio; (iv) an occupancy type for the loan is other than the borrower’s primary residence; or (v) a history of delinquencies or late payments on the loan. NA: Data is not applicable or available for the period presented. Net charge-off/(recovery) rate: Represents net chargeoffs/(recoveries) (annualized) divided by average retained loans for the reporting period.   Net yield on interest-earning assets: The average rate for interestearning assets less the average rate paid for all sources of funds. NM: Not meaningful. Over-the-counter derivatives (“OTC”): Derivative contracts that are negotiated, executed and settled bilaterally between two derivative counterparties, where one or both counterparties is a derivatives dealer. Over-the-counter cleared derivatives (“OTC cleared”): Derivative contracts that are negotiated and executed bilaterally, but subsequently settled via a central clearing house, such that each derivative counterparty is only exposed to the default of that clearing house. Overhead ratio: Noninterest expense as a percentage of total net revenue. Participating securities: Represents unvested stock-based compensation awards containing nonforfeitable rights to dividends or dividend equivalents (collectively, “dividends”), which are included in the earnings per share calculation using the two-class method. JPMorgan Chase grants restricted stock and RSUs to certain employees under its stock-based compensation programs, which entitle the recipients to receive nonforfeitable dividends during the vesting period on a basis equivalent to the dividends paid to holders of common stock. These unvested awards meet the definition of participating securities. Under the two-class method, all earnings (distributed and undistributed) are allocated to each class of common stock and participating securities, based on their respective rights to receive dividends. Pre-provision profit/(loss): Represents total net revenue less noninterest expense. The Firm believes that this financial measure is useful in assessing the ability of a lending institution to generate income in excess of its provision for credit losses. Principal transactions revenue: Principal transactions revenue includes realized and unrealized gains and losses recorded on derivatives, other financial instruments, private equity investments, and physical commodities used in market-making and client-driven activities. In addition, Principal transactions revenue also includes certain realized and unrealized gains and losses related to hedge accounting and specified risk management activities including: (a) certain derivatives designated in qualifying hedge accounting relationships (primarily fair value hedges of commodity and foreign exchange risk), (b) certain derivatives used for specified risk management purposes, primarily to mitigate credit risk, foreign exchange risk and commodity risk, and (c) other derivatives. Purchased credit-impaired (“PCI”) loans: Represents loans that were acquired in the Washington Mutual transaction and deemed to be credit-impaired on the acquisition date in accordance with the guidance of the Financial Accounting Standards Board (“FASB”). The https://www.sec.gov/Archives/edgar/data/19617/000001961714000409/corpq22014.htm[10/8/14, 12:41:43 PM] CORP Q2 2014 guidance allows purchasers to aggregate credit-impaired loans acquired in the same 187 fiscal quarter into one or more pools, provided that the loans have   common risk characteristics (e.g., product type, LTV ratios, FICO scores, past due status, geographic location). A pool is then accounted for as a single asset with a single composite interest rate and an aggregate expectation of cash flows. Suspended foreclosures: Loans referred to foreclosure where formal foreclosure proceedings have started but are currently on hold, which could be due to bankruptcy or loss mitigation. Includes both judicial and non-judicial states. Taxable-equivalent basis: In presenting managed results, the total net revenue for each of the business segments and the Firm is presented on a tax-equivalent 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; the corresponding income tax impact related to tax-exempt items is recorded within income tax expense. Receivables from customers: Primarily represents margin loans to prime and retail brokerage customers which are included in accrued interest and accounts receivable on the Consolidated Balance Sheets. Reported basis: Financial statements prepared under U.S. GAAP, which excludes the impact of taxable-equivalent adjustments. Retained loans: Loans that are held-for-investment (i.e. excludes loans held-for-sale and loans at fair value). Trade-date and settlement-date: For financial instruments, the trade-date is the date that an order to purchase, sell or otherwise acquire an instrument is executed in the market. The trade-date may differ from the settlement-date, which is the date on which the actual transfer of a financial instrument between two parties is executed. The amount of time that passes between the trade-date and the settlementdate differs depending on the financial instrument. For repurchases under the common equity repurchase program, except where the tradedate is specified, the amounts disclosed are presented on a settlementdate basis. In the Capital Management section on pages 74–80, and where otherwise specified, repurchases under the common equity repurchase program are presented on a trade-date basis because the trade-date is used to calculate the Firm’s regulatory capital. Risk-weighted assets (“RWA”): Risk-weighted assets consist of onand off-balance sheet assets that are assigned to one of several broad risk categories and weighted by factors representing their risk and potential for default. On-balance sheet assets are risk-weighted based on the perceived credit risk associated with the obligor or counterparty, the nature of any collateral, and the guarantor, if any. Off-balance sheet assets such as lending-related commitments, guarantees, derivatives and other applicable off-balance sheet positions are risk-weighted by multiplying the contractual amount by the appropriate credit conversion factor to determine the on-balance sheet credit equivalent amount, which is then risk-weighted based on the same factors used for on-balance sheet assets. Risk-weighted assets also incorporate a measure for market risk related to applicable trading assets-debt and equity instruments, and foreign exchange and commodity derivatives. The resulting risk-weighted values for each of the risk categories are then aggregated to determine total riskweighted assets. Troubled debt restructuring (“TDR”): A TDR is deemed to occur when the Firm modifies the original terms of a loan agreement by granting a concession to a borrower that is experiencing financial difficulty. Unaudited: Financial statements and information that have not been subjected to auditing procedures sufficient to permit an independent certified public accountant to express an opinion. Seed capital: Initial JPMorgan capital invested in products, such as mutual funds, with the intention of ensuring the fund is of sufficient size to represent a viable offering to clients, enabling pricing of its shares, and allowing the manager to develop a track record. After these goals are achieved, the intent is to remove the Firm’s capital from the investment. U.S. GAAP: Accounting principles generally accepted in the United States of America. U.S. government-sponsored enterprise obligations: Short sale: A short sale is a sale of real estate in which proceeds from selling the underlying property are less than the amount owed the Firm under the terms of the related mortgage and the related lien is released upon receipt of such proceeds. Obligations of agencies originally established or chartered by the U.S. government to serve public purposes as specified by the U.S. Congress; these obligations are not explicitly guaranteed as to the timely payment of principal and interest by the full faith and credit of the U.S. government. Structural interest rate risk: Represents interest rate risk of the nontrading assets and liabilities of the Firm. U.S. Treasury: U.S. Department of the Treasury. Value-at-risk (“VaR”): A measure of the dollar amount of potential loss from adverse market moves in an ordinary market environment. Structured notes: Structured notes are predominantly financial instruments containing embedded derivatives. Where present, the embedded derivative is the primary driver of risk. 188 Wallet: Proportion of fee revenues based on estimates of investment   banking fees generated across the industry (i.e. the revenue wallet) from investment banking transactions in M&A, equity and debt underwriting, and loan syndications. Source: Dealogic, a third party provider of investment banking competitive analysis and volumebased league tables for the above noted industry products. Warehouse loans: Consist of prime mortgages originated with the intent to sell that are accounted for at fair value and classified as trading assets. Washington Mutual transaction: On September 25, 2008, JPMorgan Chase acquired certain of the assets of the banking operations of Washington Mutual Bank (“Washington Mutual”) from https://www.sec.gov/Archives/edgar/data/19617/000001961714000409/corpq22014.htm[10/8/14, 12:41:43 PM] CORP Q2 2014 the FDIC. LINE OF BUSINESS METRICS CONSUMER & COMMUNITY BANKING (“CCB”)   Active online customers - Users of all internet browsers and mobile platforms who have logged in within the past 90 days. Active mobile customers - Users of all mobile platforms, which include: SMS, mobile smartphone and tablet, who have logged in within the past 90 days. Consumer & Business Banking (“CBB”) Description of selected business metrics within CBB: Client investment managed accounts - Assets actively managed by Chase Wealth Management on behalf of clients. The percentage of managed accounts is calculated by dividing managed account assets by total client investment assets. Client advisors - Investment product specialists, including private client advisors, financial advisors, financial advisor associates, senior financial advisors, independent financial advisors and financial advisor associate trainees, who advise clients on investment options, including annuities, mutual funds, stock trading services, etc., sold by the Firm or by third-party vendors through retail branches, Chase Private Client locations and other channels. Personal bankers - Retail branch office personnel who acquire, retain and expand new and existing customer relationships by assessing customer needs and recommending and selling appropriate banking products and services. Sales specialists - Retail branch office and field personnel, including relationship managers and loan officers, who specialize in marketing and sales of various business banking products (i.e., business loans, letters of credit, deposit accounts, Chase Paymentech, etc.) and mortgage products to existing and new clients. Deposit margin/deposit spread - Represents net interest income expressed as a percentage of average deposits. Chase Liquid ® cards - Refers to a prepaid, reloadable card product. Households - A household is a collection of individuals or entities aggregated together by name, address, tax identifier and phone. CBB households are households that have a personal or business deposit, personal investment or business credit relationship with Chase. Reported on a one-month lag. Mortgage Banking Mortgage Production and Mortgage Servicing revenue comprises the following: Net production revenue includes net gains or losses on originations and sales of mortgage loans, other production-related fees and losses related to the repurchase of previously-sold loans. Net mortgage servicing revenue includes the following components: a) Operating revenue predominantly represents the return on Mortgage Servicing’s MSR asset and includes: • Actual gross income earned from servicing third-party mortgage loans, such as contractually specified servicing fees and ancillary income; and • The change in the fair value of the MSR asset due to the collection or realization of expected cash flows. b) Risk management represents the components of Mortgage Servicing’s MSR asset that are subject to ongoing risk management activities, together with derivatives and other instruments used in those risk management activities. Mortgage origination channels comprise the following: Retail - Borrowers who buy or refinance a home through direct contact with a mortgage banker employed by the Firm using a branch office, the Internet or by phone. Borrowers are frequently referred to a mortgage banker by a banker in a Chase branch, real estate brokers, home builders or other third parties. Correspondent - Banks, thrifts, other mortgage banks and other financial institutions that sell closed loans to the Firm. Card, Merchant Services & Auto (“Card”) Description of selected business metrics within Card, Merchant Services & Auto: Card Services includes the Credit Card and Merchant Services businesses. Merchant Services is a business that primarily processes transactions for merchants. Total transactions - Number of transactions and authorizations processed for merchants. Commercial Card provides a wide range of payment services to corporate and public sector clients worldwide through the commercial card products. Services include procurement, corporate travel and entertainment, expense 189 management services, and business-to-business payment solutions. Sales volume - Dollar amount of cardmember purchases, net of returns. Open accounts - Cardmember accounts with charging privileges. Auto origination volume - Dollar amount of auto loans and leases originated. CORPORATE & INVESTMENT BANK (“CIB”) Definition of selected CIB revenue: Investment banking fees include advisory, equity underwriting, bond   Description of certain business metrics: Client deposits and other third-party liabilities pertain to the Treasury Services and Securities Services businesses, and include deposits, as well as deposits that are swept to on-balance sheet liabilities (e.g., commercial paper, federal funds purchased and securities loaned or sold under repurchase agreements) as part of the Firm’s client cash management program. Assets under custody (“AUC”) represents activities associated with the safekeeping and servicing of assets on which Securities Services earns fees. https://www.sec.gov/Archives/edgar/data/19617/000001961714000409/corpq22014.htm[10/8/14, 12:41:43 PM] CORP Q2 2014 underwriting and loan syndication fees. Treasury Services includes both transaction services and trade finance. Transaction services offers a broad range of products and services that enable clients to manage payments and receipts, as well as invest and manage funds. Products include U.S. dollar and multicurrency clearing, ACH, lockbox, disbursement and reconciliation services, check deposits, and currency-related services. Trade finance enables the management of cross-border trade for bank and corporate clients. Products include loans tied directly to goods crossing borders, export/import loans, commercial letters of credit, standby letters of credit, and supply chain finance. Lending includes net interest income, fees, gains or losses on loan sale activity, gains or losses on securities received as part of a loan restructuring, and the risk management results related to the credit portfolio (excluding trade finance). Fixed Income Markets primarily include revenue related to marketmaking across global fixed income markets, including foreign exchange, interest rate, credit and commodities markets. Equity Markets primarily include revenue related to market-making across global equity products, including cash instruments, derivatives, convertibles and Prime Services. Securities Services includes primarily custody, fund accounting and administration, and securities lending products sold principally to asset managers, insurance companies and public and private investment funds. Also includes clearance, collateral management and depositary receipts business which provides broker-dealer clearing and custody services, including tri-party repo transactions, collateral management products, and depositary bank services for American and global depositary receipt programs. Credit Adjustments & Other primarily credit portfolio credit valuation adjustments (“CVA”), funding valuation adjustments (“FVA”) (effective fourth quarter 2013) and debit valuation adjustments (“DVA”) on OTC derivatives and structured notes, and nonperforming derivative receivable results. Results are presented net of associated hedging activities. COMMERCIAL BANKING (“CB”) CB Client Segments: Middle Market Banking covers corporate, municipal and nonprofit clients, with annual revenue generally ranging between $20 million and $500 million. Corporate Client Banking covers clients with annual revenue generally ranging between $500 million and $2 billion and focuses on clients that have broader investment banking needs. Commercial Term Lending primarily provides term financing to real estate investors/owners for multifamily properties as well as financing office, retail and industrial properties. Real Estate Banking provides full-service banking to investors and developers of institutional-grade real estate properties. Other primarily includes lending and investment activity within the Community Development Banking and Chase Capital businesses. CB Revenue: Lending includes a variety of financing alternatives, which are primarily provided on a basis secured by receivables, inventory, equipment, real estate or other assets. Products include term loans, revolving lines of credit, bridge financing, asset-based structures, leases, commercial card products and standby letters of credit. Treasury services includes revenue from a broad range of products and services (as defined by Treasury Services revenue in the CIB description of revenue) that enable CB clients to manage payments and receipts, as well as invest and manage funds. Investment banking includes revenue from a range of products providing CB clients with sophisticated capital-raising alternatives, as well as balance sheet and risk management tools through advisory, equity underwriting, and loan syndications. Revenue from Fixed income and Equity market products (as defined by Fixed Income Markets and Equity Markets revenue in the CIB description of revenue) available to CB clients is also included. Investment banking revenue, gross, represents total revenue related to investment banking products sold to CB clients. 190 Other product revenue primarily includes tax-equivalent adjustments   generated from Community Development Banking activity and certain income derived from principal transactions. Description of selected business metrics within CB: Client deposits and other third-party liabilities include deposits, as well as deposits that are swept to on-balance sheet liabilities (e.g., commercial paper, federal funds purchased and securities loaned or sold under repurchase agreements) as part of the Firm’s client cash management program. ASSET MANAGEMENT (“AM”) Assets under management - Represent assets actively managed by AM on behalf of its Private Banking, Institutional and Retail clients. Includes “Committed capital not Called,” on which AM earns fees. Client assets - Represent assets under management, as well as custody, brokerage, administration and deposit accounts. Multi-asset - Any fund or account that allocates assets under management to more than one asset class. Alternative assets - The following types of assets constitute alternative investments - hedge funds, currency, real estate, private Item 3    Quantitative and Qualitative Disclosures about Market Risk For a discussion of the quantitative and qualitative disclosures about market risk, see the Market Risk Management section of Management’s discussion and analysis on pages 69–71 of this Form 10-Q and pages 142–148 of JPMorgan Chase’s 2013 Annual Report. Item 4    Controls and Procedures As of the end of the period covered by this report, an evaluation was carried out under the supervision and with the participation of the Firm’s management, including its Chairman and Chief Executive Officer and its Chief Financial Officer, of the effectiveness of its disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934). Based on that evaluation, the Chairman and Chief Executive Officer and the Chief Financial Officer concluded that these disclosure controls and procedures were effective. See Exhibits 31.1 and 31.2 for the Certification statements issued by the Chairman and Chief Executive Officer and Chief Financial Officer. The Firm is committed to maintaining high standards of internal control over financial reporting. Nevertheless, because of its inherent limitations, internal control over financial reporting may not prevent or https://www.sec.gov/Archives/edgar/data/19617/000001961714000409/corpq22014.htm[10/8/14, 12:41:43 PM] CORP Q2 2014 equity and other investment funds designed to focus on nontraditional strategies. AM’s client segments comprise the following: Private Banking offers investment advice and wealth management services to high- and ultra-high-net-worth individuals, families, money managers, business owners and small corporations worldwide, including investment management, capital markets and risk management, tax and estate planning, banking, capital raising and specialty-wealth advisory services. Institutional brings comprehensive global investment services – including asset management, pension analytics, asset-liability management and active risk-budgeting strategies – to corporate and public institutions, endowments, foundations, nonprofit organizations and governments worldwide. Retail provides worldwide investment management services and retirement planning and administration, through financial intermediaries and direct distribution of a full range of investment products. Pretax margin: Represents income before income tax expense divided by total net revenue, which is, in management’s view, a comprehensive measure of pretax performance derived by measuring earnings after all costs are taken into consideration. It is one basis upon which management evaluates the performance of AM against the performance of their respective competitors. detect misstatements. In addition, in a firm as large and complex as JPMorgan Chase, lapses or deficiencies in internal controls may occur from time to time, and there can be no assurance that any such deficiencies will not result in significant deficiencies or material weaknesses in internal controls in the future. For further information, see “Management’s report on internal control over financial reporting” on page 182 of JPMorgan Chase’s 2013 Annual Report. There was no change in the Firm’s internal control over financial reporting (as defined in Rule 13a-15(f) under the Securities Exchange Act of 1934) that occurred during the three months ended June 30, 2014, that has materially affected, or is reasonably likely to materially affect, the Firm’s internal control over financial reporting. 191 Part II Other Information Item 1    Legal Proceedings   For information that updates the disclosures set forth under Part I, Item 3: Legal Proceedings, in the Firm’s 2013 Annual Report on Form 10-K, see the discussion of the Firm’s material litigation in Note 23 of this Form 10-Q. Item 1A    Risk Factors For a discussion of certain risk factors affecting the Firm, see Part I, Item 1A: Risk Factors on pages 9–18 of JPMorgan Chase’s 2013 Annual Report on Form 10-K and Forward-Looking Statements on page 89 of this Form 10-Q. Item 2    Unregistered Sales of Equity Securities and Use of Proceeds During the three months ended June 30, 2014, there were no shares of common stock of JPMorgan Chase & Co. issued in transactions exempt from registration under the Securities Act of 1933, pursuant to Section 4(2) thereof. Repurchases under the common equity repurchase program On March 13, 2012, the Board of Directors authorized a $15.0 billion common equity (i.e., common stock and warrants) repurchase program. The amount of equity that may be repurchased by the Firm is also subject to the amount that is set forth in the Firm’s annual capital plan submitted to the Federal Reserve as part of the CCAR process. In conjunction with the Federal Reserve’s release of its 2014 CCAR results, the Firm’s Board of Directors has authorized the Firm to repurchase $6.5 billion of common equity between April 1, 2014, and March 31, 2015. As of June 30, 2014, $5.0 billion (on a trade-date basis) of such repurchase capacity remains. This authorization includes shares repurchased to offset issuances under the Firm’s equity-based compensation plans. The following table sets forth the Firm’s repurchases of common equity for the three and six months ended June 30, 2014 and 2013, on a trade-date basis. As of June 30, 2014, $6.8 billion (on a trade-date basis) of authorized capacity remained under the $15.0 billion repurchase program. There were no warrants repurchased during the three and six months ended June 30, 2014 and 2013.     Three months ended June 30,   (in millions)   2014     Total shares of common stock repurchased Aggregate common stock repurchases    $ 26 1,462    $ 2013 24 1,201    $ Six months ended June 30,   2014 33 1,862    $ 2013 78 3,801 The Firm may, from time to time, enter into written trading plans under Rule 10b5-1 of the Securities Exchange Act of 1934 to facilitate repurchases in accordance with the common equity repurchase program. A Rule 10b5-1 repurchase plan allows the Firm to repurchase its equity during periods when it would not otherwise be repurchasing common equity — for example, during internal trading “black-out periods.” All purchases under a Rule 10b5-1 plan must be made according to a predefined plan established when the Firm is not aware of material nonpublic information. The authorization to repurchase common equity will be utilized at management’s discretion, and the timing of purchases and the exact amount of common equity that may be repurchased is subject to various factors, including market conditions; legal and regulatory considerations affecting the amount and timing of repurchase activity; the Firm’s capital position (taking into account goodwill and intangibles); internal capital generation; and alternative investment opportunities. The repurchase program does not include specific price targets or timetables; may be executed through open market purchases or privately negotiated transactions, or utilizing Rule 10b5-1 programs; and may be suspended at any time. https://www.sec.gov/Archives/edgar/data/19617/000001961714000409/corpq22014.htm[10/8/14, 12:41:43 PM] CORP Q2 2014 Shares repurchased, on a settlement-date basis, pursuant to the common equity repurchase program during the six months ended June 30, 2014, were as follows. Dollar value of remaining authorized repurchase (in millions)(b) Six months ended June 30, 2014 Aggregate Average price repurchases of Total shares of paid per share common equity (in common stock of common   repurchased       millions)(a) stock (a) First quarter   6,733,494   $ 57.31   $ 386   $ 8,258 April   1,987,971   57.33   114   8,144 May   12,470,413   54.11   675   7,469 June   10,310,877   56.90   586   6,883 Second quarter   24,769,261   55.53   1,375   6,883 Year-to-date   31,502,755   $ 55.91   $ 1,761   $ 6,883 (a) Excludes commissions cost. (b) The amount authorized by the Board of Directors excludes commissions cost. 192 Repurchases under the stock-based incentive plans Participants in the Firm’s stock-based incentive plans may have shares   of common stock withheld to cover income taxes. Shares withheld to pay income taxes are repurchased pursuant to the terms of the applicable plan and not under the Firm’s repurchase program. Shares repurchased pursuant to these plans during the six months ended June 30, 2014, were as follows. There were no repurchases during the three months ended June 30, 2014. Six months ended June 30, 2014 Total shares of common stock repurchased First quarter Second quarter Year-to-date   1,245   $ Average price paid per share of common stock 57.99 —   1,245   $ — 57.99   Powers Act, as amended. CWT had approximately $5,000 in gross revenues attributable to these transactions. CWT has informed the Firm that it intends to continue to engage in this activity so long as such activity is permitted under U.S. law. Item 6    Exhibits 10.1 Terms and Conditions of Fixed Allowance (UK) (a)(b) 15 Letter re: Unaudited Interim Financial Information (b) 31.1 Certification(b) 31.2 Certification(b) 32 Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002(c) 101.INS XBRL Instance Document (b)(d) Item 3    Defaults Upon Senior Securities None. 101.SCH XBRL Taxonomy Extension Schema Document (b) Item 4    Mine Safety Disclosure Not applicable. 101.LAB XBRL Taxonomy Extension Label Linkbase Document (b) Item 5    Other Information Pursuant to Section 219 of the Iran Threat Reduction and Syria Human Rights Act of 2012, which added Section 13(r) to the Securities Exchange Act of 1934, as amended (the “Exchange Act”), an issuer is required to disclose in its annual or quarterly reports, as applicable, whether it or any of its affiliates knowingly engaged in certain activities, transactions or dealings relating to Iran or with individuals or entities designated pursuant to certain Executive Orders. Disclosure is generally required even where the activities, transactions or dealings were conducted in compliance with applicable law. Except as set forth below, as of the date of this report, the Firm is not aware of any other activity, transaction or dealing by any of its affiliates during the three months ended June 30, 2014 that requires disclosure under Section 219. Carlson Wagonlit Travel (“CWT”), a business travel management 101.CAL XBRL Taxonomy Extension Calculation Linkbase Document (b) 101.PRE XBRL Taxonomy Extension Presentation Linkbase Document (b) 101.DEF XBRL Taxonomy Extension Definition Linkbase Document (b) (a) This exhibit is a management contract or compensatory plan or arrangement. (b) Filed herewith. (c) Furnished herewith. This exhibit shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, or otherwise subject to the liability of that Section. Such exhibit shall not be deemed incorporated into any filing under the Securities Act of 1933 or the Securities Exchange Act of 1934. (d) Pursuant to Rule 405 of Regulation S-T, includes the following financial information included in the Firm’s Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2014, formatted in XBRL (eXtensible Business Reporting Language) interactive data files: (i) the Consolidated statements of income (unaudited) for the three and six months ended June 30, 2014 and 2013, (ii) the Consolidated statements of comprehensive income (unaudited) for the three and six months ended June 30, 2014 and 2013, (iii) https://www.sec.gov/Archives/edgar/data/19617/000001961714000409/corpq22014.htm[10/8/14, 12:41:43 PM] CORP Q2 2014 firm in which JPMorgan Chase has invested through its merchant banking activities, may be deemed to be an affiliate of the Firm, as that term is defined in Exchange Act Rule 12b-2. CWT has informed the Firm that, during the three months ended June 30, 2014, it booked approximately 2 flights (of the approximately 15 million transactions it booked during the period) to Iran on Iran Air for passengers, including employees of foreign governments and/or nongovernmental organizations. All of such flights originated outside of the United States from countries that permit travel to Iran, and none of such passengers were persons designated under Executive Orders 13224 or 13382 or were employees of foreign governments that are targets of U.S. sanctions. CWT and the Firm believe that this activity is permissible pursuant to certain exemptions from U.S. sanctions for travel-related transactions under the International Emergency Economic the Consolidated balance sheets (unaudited) as of June 30, 2014, and December 31, 2013, (iv) the Consolidated statements of changes in stockholders’ equity (unaudited) for the six months ended June 30, 2014 and 2013, (v) the Consolidated statements of cash flows (unaudited) for the six months ended June 30, 2014 and 2013, and (vi) the Notes to Consolidated Financial Statements (unaudited). 193 SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. JPMorgan Chase & Co. (Registrant) By: Date: /s/ Mark W. O’Donovan   Mark W. O’Donovan   Managing Director and Corporate Controller   (Principal Accounting Officer) August 4, 2014 194 INDEX TO EXHIBITS Exhibit No.   10.1   15   Description of Exhibit      Terms and Conditions of Fixed Allowance (UK)      Letter re: Unaudited Interim Financial Information https://www.sec.gov/Archives/edgar/data/19617/000001961714000409/corpq22014.htm[10/8/14, 12:41:43 PM] CORP Q2 2014   31.1   31.2   32        Certification      Certification      Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002† 101.INS      XBRL Instance Document 101.SCH   XBRL Taxonomy Extension Schema Document 101.CAL   XBRL Taxonomy Extension Calculation Linkbase Document 101.LAB   XBRL Taxonomy Extension Label Linkbase Document 101.PRE   XBRL Taxonomy Extension Presentation Linkbase Document 101.DEF   XBRL Taxonomy Extension Definition Linkbase Document      † This exhibit shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, or otherwise subject to the liability of that Section. Such exhibit shall not be deemed incorporated into any filing under the Securities Act of 1933 or the Securities   Exchange Act of 1934. 195 https://www.sec.gov/Archives/edgar/data/19617/000001961714000409/corpq22014.htm[10/8/14, 12:41:43 PM]