false--12-31Q320182018-09-300000019617falseLarge Accelerated FilerJPMORGAN CHASE & COfalse4729534729530.00380.001620.15P10YP5Y30.760.00709.20.00703.00.00708.40.0332000000001.561.921190000000009000000000410493389541049338950.02190.020.300.200.02190.0219055500000000830.15430.0038610.00060.00160000179690000001098870000007980000000105340000001148500000005334000000014947000000165260000006374000000397400000000252000000777000000161280000001247900000011.0020000000020000000026067502776375130000000002100000041050000002100000041050000000679635064779523170

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

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

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

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files).
x  Yes
o  No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer x
Accelerated filer
o
 
 
 
Non-accelerated filer                                                                                              o
Smaller reporting company
o
 
 
 
 
Emerging growth company
o
 
 
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
o  Yes
x  No
 
Number of shares of common stock outstanding as of September 30, 2018: 3,325,410,725
 



FORM 10-Q
TABLE OF CONTENTS
Page
Item 1.
 
 
 
 
86
 
87
 
88
 
89
 
90
 
91
 
172
 
173
 
175
Item 2.
 
 
3
 
4
 
5
 
8
 
12
 
15
 
16
 
19
 
42
 
44
 
49
 
57
 
62
 
72
 
73
 
78
 
79
 
82
 
85
Item 3.
183
Item 4.
183
 
Item 1.
183
Item 1A.
183
Item 2.
183
Item 3.
184
Item 4.
184
Item 5.
184
Item 6.
184


2


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

 
 
 
 
 
 
 
Nine months ended Sept. 30,
 
3Q18

2Q18

1Q18

4Q17

 
3Q17

 
2018

2017

 
Selected income statement data
 
 
 
 
 
 
 
 
 
 
Total net revenue
$
27,260

$
27,753

$
27,907

$
24,457

 
$
25,578

 
$
82,920

$
76,248

 
Total noninterest expense
15,623

15,971

16,080

14,895

 
14,570

 
47,674

44,620

 
Pre-provision profit
11,637

11,782

11,827

9,562

 
11,008

 
35,246

31,628

 
Provision for credit losses
948

1,210

1,165

1,308

 
1,452

 
3,323

3,982

 
Income before income tax expense
10,689

10,572

10,662

8,254

 
9,556

 
31,923

27,646

 
Income tax expense
2,309

2,256

1,950

4,022

 
2,824

 
6,515

7,437

 
Net income
$
8,380

$
8,316

$
8,712

$
4,232

 
$
6,732

 
$
25,408

$
20,209

 
Earnings per share data
 
 
 
 
 
 
 
 
 
 
Net income:    Basic
$
2.35

$
2.31

$
2.38

$
1.08

 
$
1.77

 
$
7.04

$
5.26

 
 Diluted
2.34

2.29

2.37

1.07

 
1.76

 
7.00

5.22

 
Average shares: Basic
3,376.1

3,415.2

3,458.3

3,489.7

 
3,534.7

 
3,416.5

3,570.9

 
 Diluted
3,394.3

3,434.7

3,479.5

3,512.2

 
3,559.6

 
3,436.2

3,597.0

 
Market and per common share data
 
 
 
 
 
 
 
 
 
 
Market capitalization
375,239

350,204

374,423

366,301

 
331,393

 
375,239

331,393

 
Common shares at period-end
3,325.4

3,360.9

3,404.8

3,425.3

 
3,469.7

 
3,325.4

3,469.7

 
Share price:(a)
 
 
 
 
 
 
 
 
 
 
High
$
119.24

$
115.15

$
119.33

$
108.46

 
$
95.88

 
$
119.33

$
95.88

 
Low
102.20

103.11

103.98

94.96

 
88.08

 
102.20

81.64

 
Close
112.84

104.20

109.97

106.94

 
95.51

 
112.84

95.51

 
Book value per share
69.52

68.85

67.59

67.04

 
66.95

 
69.52

66.95

 
Tangible book value per share (“TBVPS”)(b)
55.68

55.14

54.05

53.56

 
54.03

 
55.68

54.03

 
Cash dividends declared per share
0.80

0.56

0.56

0.56

 
0.56

 
1.92

1.56

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

17

19

8

 
13

 
18

14

 
Return on assets(c)
1.28

1.28

1.37

0.66

 
1.04

 
1.31

1.06

 
Overhead ratio
57

58

58

61

 
57

 
57

59

 
Loans-to-deposits ratio
65

65

63

64

 
63

 
65

63

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

115

115

119

 
120

 
115

118

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

12.0

11.8

12.2

 
12.5

(h)
12.0

12.5

(h)
Tier 1 capital ratio(e)
13.6

13.6

13.5

13.9

 
14.1

(h)
13.6

14.1

(h)
Total capital ratio(e)
15.4

15.5

15.3

15.9

 
16.1

 
15.4

16.1

 
Tier 1 leverage ratio(e)
8.2

8.2

8.2

8.3

 
8.4

 
8.2

8.4

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

6.5

6.5

6.5

 
6.6

 
6.5

6.6

 
Selected balance sheet data (period-end)
 
 
 
 
 
 
 
 
 
 
Trading assets
$
419,827

$
418,799

$
412,282

$
381,844

 
$
420,418

 
$
419,827

$
420,418

 
Investment securities
231,398

233,015

238,188

249,958

 
263,288

 
231,398

263,288

 
Loans
954,318

948,414

934,424

930,697

 
913,761

 
954,318

913,761

 
Core loans
899,006

889,433

870,536

863,683

 
843,432

 
899,006

843,432

 
Average core loans
894,279

877,640

861,089

850,166

 
837,522

 
877,774

822,611

 
Total assets
2,615,183

2,590,050

2,609,785

2,533,600

 
2,563,074

 
2,615,183

2,563,074

 
Deposits
1,458,762

1,452,122

1,486,961

1,443,982

 
1,439,027

 
1,458,762

1,439,027

 
Long-term debt
270,124

273,114

274,449

284,080

 
288,582

 
270,124

288,582

 
Common stockholders’ equity
231,192

231,390

230,133

229,625

 
232,314

 
231,192

232,314

 
Total stockholders’ equity
258,956

257,458

256,201

255,693

 
258,382

 
258,956

258,382

 
Headcount
255,313

252,942

253,707

252,539

 
251,503

 
255,313

251,503

 
Credit quality metrics
 
 
 
 
 
 
 
 
 
 
Allowance for credit losses
$
14,225

$
14,367

$
14,482

$
14,672

 
$
14,648

 
$
14,225

$
14,648

 
Allowance for loan losses to total retained loans
1.39
%
1.41
%
1.44
%
1.47
%
 
1.49
%
 
1.39
%
1.49
%
 
Allowance for loan losses to retained loans excluding purchased credit-impaired loans(g)
1.23

1.22

1.25

1.27

 
1.29

 
1.23

1.29

 
Nonperforming assets
$
5,034

$
5,767

$
6,364

$
6,426

 
$
6,154

 
$
5,034

$
6,154

 
Net charge-offs
1,033

1,252

1,335

1,264

 
1,265

 
3,620

4,123

(i)
Net charge-off rate
0.43
%
0.54
%
0.59
%
0.55
%
 
0.56
%
 
0.52
%
0.62
%
(i)
Effective January 1, 2018, the Firm adopted several new accounting standards. Certain of the new accounting standards were applied retrospectively and, accordingly, prior period amounts were revised. For additional information, refer to Note 1.
(a)
Based on daily prices reported by the New York Stock Exchange.
(b)
TBVPS and ROTCE are non-GAAP financial measures. For a further discussion of these measures, refer to Explanation and Reconciliation of the Firm’s Use of Non-GAAP Financial Measures and Key Performance Measures on pages 16-18.
(c)
Quarterly ratios are based upon annualized amounts.
(d)
For the nine months ended September 30, 2017, the percentage represents the Firm’s reported average LCR per the U.S. LCR public disclosure requirements effective April 1, 2017.  
(e)
Ratios presented are calculated under the Basel III Transitional capital rules and for the capital ratios represent the lower of the Standardized or Advanced approach. Refer to Capital Risk Management on pages 44-48 for additional information on Basel III.
(f)
Effective January 1, 2018, the SLR was fully phased-in under Basel III. The SLR is defined as Tier 1 capital divided by the Firm’s total leverage exposure. Ratios prior to March 31, 2018 were calculated under the Basel III Transitional rules.    
(g)
Excluded the impact of residential real estate purchased credit-impaired (“PCI”) loans, a non-GAAP financial measure. For a further discussion of these measures, refer to Explanation and Reconciliation of the Firm’s Use of Non-GAAP Financial Measures and Key Performance Measures on pages 16-18. For a further discussion, refer to Allowance for credit losses on pages 69–71.
(h)
The prior period ratios have been revised to conform with the current period presentation.
(i)
Excluding net charge-offs of $467 million related to the student loan portfolio sale, the net charge-off rate for the nine months ended September 30, 2017 would have been 0.55%.

3


INTRODUCTION
The following is management’s discussion and analysis (“MD&A”) of the financial condition and results of operations of JPMorgan Chase & Co. (“JPMorgan Chase” or the “Firm”) for the third quarter of 2018.
This Form 10-Q should be read together with JPMorgan Chase’s Annual Report on Form 10-K for the year ended December 31, 2017 (“2017 Annual Report” or “2017 Form 10-K”), to which reference is hereby made, and which is referred to throughout this document. Refer to the Glossary of terms and acronyms and line of business metrics on pages 175–182 for definitions of terms and acronyms used throughout this Form 10-Q.
This Form 10-Q contains statements that are forward-looking within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are based on the current beliefs and expectations of JPMorgan Chase’s management and are subject to significant risks and uncertainties. Actual results may differ from those set forth in the forward-looking statements. For a further discussion of certain of those risks and uncertainties and the factors that could cause JPMorgan Chase’s actual results to differ materially because of those risks and uncertainties, refer to Forward-looking Statements on page 85 of this Form 10-Q and Part I, Item 1A, Risk Factors, on pages 8–26 of JPMorgan Chase’s 2017 Annual Report.
JPMorgan Chase & Co., a financial holding company incorporated under Delaware law in 1968, is a leading global financial services firm and one of the largest banking institutions in the United States of America (U.S.), with operations worldwide; the Firm had $2.6 trillion in assets and $259.0 billion in stockholders’ equity as of September 30, 2018. The Firm is a leader in investment
 
banking, financial services for consumers and small businesses, commercial banking, financial transaction processing and asset management. Under the J.P. Morgan and Chase brands, the Firm serves millions of customers in the U.S. and many of the world’s most prominent corporate, institutional and government clients.
JPMorgan Chase’s principal bank subsidiaries are JPMorgan Chase Bank, National Association (JPMorgan Chase Bank, N.A.), a national banking association with U.S. branches in 23 states as of September 30, 2018, and Chase Bank USA, National Association (Chase Bank USA, N.A.), a national banking association that is the Firm’s principal credit card-issuing bank. JPMorgan Chase’s principal nonbank subsidiary is J.P. Morgan Securities LLC (J.P. Morgan Securities), a U.S. broker-dealer. The bank and non-bank subsidiaries of JPMorgan Chase operate nationally as well as through overseas branches and subsidiaries, and representative offices. The Firm’s principal operating subsidiary in the United Kingdom (U.K.) is J.P. Morgan Securities plc, a subsidiary of JPMorgan Chase Bank, N.A.
For management reporting purposes, the Firm’s activities are organized into four major reportable business segments, as well as a Corporate segment. The Firm’s consumer business segment is Consumer & Community Banking (CCB). The Firm’s wholesale business segments are Corporate & Investment Bank (CIB), Commercial Banking (CB), and Asset & Wealth Management (AWM). For a description of the Firm’s business segments and the products and services they provide to their respective
client bases, refer to Note 31 of JPMorgan Chase’s 2017 Form 10-K.




4


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

 
2017

 
Change

 
2018

 
2017

 
Change

Selected income statement data
 
 
 
 
 
 
 
 
 
 
 
Total net revenue
$
27,260

 
$
25,578

 
7
 %
 
$
82,920

 
$
76,248

 
9
 %
Total noninterest expense
15,623

 
14,570

 
7

 
47,674

 
44,620

 
7

Pre-provision profit
11,637

 
11,008

 
6

 
35,246

 
31,628

 
11

Provision for credit losses
948

 
1,452

 
(35
)
 
3,323

 
3,982

 
(17
)
Net income
8,380

 
6,732

 
24

 
25,408

 
20,209

 
26

Diluted earnings per share
$
2.34

 
$
1.76

 
33

 
$
7.00

 
$
5.22

 
34

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

 
13

 
 
 
18

 
14

 
 
Book value per share
$
69.52

 
$
66.95

 
4

 
$
69.52

 
$
66.95

 
4

Tangible book value per share
55.68

 
54.03

 
3

 
55.68

 
54.03

 
3

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

 
14.1

 
 
 
13.6

 
14.1

 
 
Total capital
15.4

 
16.1

 
 
 
15.4

 
16.1

 
 
(a)
Ratios presented are calculated under the Basel III Transitional capital rules. Refer to Capital Risk Management on pages 44-48 for additional information on Basel III.
(b)
The prior period ratios have been revised to conform with the current period presentation.


5


Comparisons noted in the sections below are for the third quarter of 2018 versus the third quarter of 2017, unless otherwise specified.
Firmwide overview
JPMorgan Chase reported strong results in the current quarter of 2018, with record net income and EPS for a third quarter of $8.4 billion, or $2.34 per share, on net revenue of $27.3 billion. Excluding the impact of the Tax Cuts & Jobs Acts (”TCJA”), net income and EPS were still records for a third quarter. The Firm reported ROE of 14% and ROTCE of 17%.
Net income increased 24%, reflecting higher net revenue and the impact of the lower U.S. federal statutory income tax rate as a result of the TCJA, partially offset by an increase in noninterest expense.
Total net revenue increased 7%. Net interest income was $13.9 billion, up 9%, driven by the net impact of higher rates, which includes lower Markets net interest income in CIB, as well as loan and deposit growth. Noninterest revenue was $13.4 billion, up 4%, largely driven by higher Markets noninterest revenue and auto lease income, partially offset by markdowns on certain legacy private equity investments of approximately $220 million.
Noninterest expense was $15.6 billion, up 7%, predominantly driven by investments in the business, including higher compensation expense on increased headcount, technology, marketing and real estate, and higher revenue-related costs, including auto lease depreciation.
The provision for credit losses was $948 million, down from $1.5 billion in the prior year. The decrease was driven by the consumer portfolio, largely reflecting a net reduction to the allowance for credit losses in the current quarter, compared to a net addition in the prior year.
The total allowance for credit losses was $14.2 billion at September 30, 2018, and the Firm had a loan loss coverage ratio, excluding the PCI portfolio, of 1.23%, compared with 1.29% in the prior year. The Firm’s nonperforming assets totaled $5.0 billion at September 30, 2018, a decrease from $6.2 billion in the prior year, reflecting improved credit performance in the consumer portfolio, and reductions in the wholesale portfolio including repayments and loan sales.
Firmwide average core loans increased 7%, and excluding CIB, core loans increased 6%.

 
Selected capital-related metrics
The Firm’s Basel III Fully Phased-In CET1 capital was $185 billion, and the Standardized and Advanced CET1 ratios were 12.0% and 12.9%, respectively.
The Firm’s Fully Phased-In SLR was 6.5% at September 30, 2018.
The Firm continued to grow tangible book value per share (“TBVPS”), ending the third quarter of 2018 at $55.68, up 3%.
ROTCE and TBVPS are each non-GAAP financial measures. Core loans and each of the Fully Phased-In capital and certain leverage measures are all considered key performance measures. For a further discussion of each of these measures, refer to Explanation and Reconciliation of the Firm’s Use of Non-GAAP Financial Measures and Key Performance Measures on pages 16-18, and Capital Risk Management on pages 44-48.


6


Lines of business highlights
Selected business metrics for each of the Firm’s four lines of business are presented below for the third quarter of 2018.
CCB
ROE 31%
 
Average core loans up 6%; average deposits of $674 billion up 4%
Client investment assets of $298 billion, up 14%
Credit card sales volume up 12% and merchant processing volume up 14%
CIB
ROE 14%
 
#1 Global Investment Banking fees with 8.7% wallet share year-to-date
Equity Markets revenue of $1.6 billion, up 17%
Treasury Services revenue up 12% and Securities Services revenue up 5%
CB
ROE 21%
 
Average loan balances up 4%
Strong credit quality with a net recovery of 3 bps
AWM
ROE 31%
 
Average loan balances up 12%
Assets under management (“AUM”) of $2.1 trillion, up 7%
For a detailed discussion of results by line of business, refer to the Business Segment Results on pages 19-41.
Credit provided and capital raised
JPMorgan Chase continues to support consumers, businesses and communities around the globe. The Firm provided credit and raised capital of $1.9 trillion for wholesale and consumer clients during the first nine months of 2018:
$174 billion of credit for consumers
$16 billion of credit for U.S. small businesses
$682 billion of credit for corporations
$960 billion of capital raised for corporate clients and non-U.S. government entities
$41 billion of credit and capital raised for U.S. government and nonprofit entities, including states, municipalities, hospitals and universities.
Recent events
On August 29, 2018, JPMorgan Chase announced the launch of You Invest, a new U.S. digital investment platform.
On September 12, 2018, JPMorgan Chase announced the creation of AdvancingCities, a new $500 million, five-year initiative to drive inclusive growth and create greater economic opportunity in cities across the world.
 
2018 outlook
These current expectations are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements are based on the current beliefs and expectations of JPMorgan Chase’s management and are subject to significant risks and uncertainties. For a further discussion of certain of those risks and uncertainties and the factors that could cause JPMorgan Chase’s actual results to differ materially because of those risks and uncertainties, refer to Forward-Looking Statements on page 85 of this Form 10-Q and Risk Factors on pages 8–26 of JPMorgan Chase’s 2017 Annual Report. There is no assurance that actual results for the full year of 2018 will be in line with the outlook set forth below, and the Firm does not undertake to update any forward-looking statements.
JPMorgan Chase’s outlook for the remainder of 2018 should be viewed against the backdrop of the global and U.S. economies, financial markets activity, the geopolitical environment, the competitive environment, client and customer activity levels, and regulatory and legislative developments in the U.S. and other countries where the Firm does business. Each of these interrelated factors will affect the performance of the Firm and its lines of business. The Firm expects that it will continue to make appropriate adjustments to its businesses and operations in response to ongoing developments in the legal, regulatory, business and economic environments in which it operates.
Firmwide
For full-year 2018, management expects net interest income, on a managed basis, to be approximately $55.5 billion, depending on market conditions.
Management expects full-year 2018 noninterest revenue growth of 7-8% on a managed basis, depending on market conditions.
The Firm continues to take a disciplined approach to managing its expenses, while investing for growth and innovation. As a result, management expects full-year 2018 adjusted expense of approximately $63.5 billion (excluding Firmwide legal expense).
Management estimates the full-year 2018 effective tax rate to be approximately 20%, depending upon several factors, including the geographic mix of taxable income and refinements to estimates of the impacts of the TCJA.
Management expects average core loan growth, excluding CIB, of 6-7% for full-year 2018.


7


CONSOLIDATED RESULTS OF OPERATIONS
This section provides a comparative discussion of JPMorgan Chase’s Consolidated Results of Operations on a reported basis for the three and nine months ended September 30, 2018 and 2017, unless otherwise specified. Factors that relate primarily to a single business segment are discussed in more detail within that business segment. For a discussion of the Critical Accounting Estimates Used by the Firm that affect the Consolidated Results of Operations, refer to pages 79–81 of this Form 10-Q and pages 138–140 of JPMorgan Chase’s 2017 Annual Report.
Effective January 1, 2018, the Firm adopted several new accounting standards. Certain of the new accounting standards were applied retrospectively and, accordingly, prior period amounts were revised. For additional information, refer to Note 1.
Revenue
 
 
 
 
 
 
 
 
 
 
 
 
Three months ended September 30,
 
Nine months ended September 30,
(in millions)
2018

 
2017

 
Change

 
2018

 
2017

 
Change

Investment banking fees
$
1,832

 
$
1,868

 
(2
)%
 
$
5,736

 
$
5,594

 
3
 %
Principal transactions
2,964

 
2,721

 
9

 
10,698

 
9,440

 
13

Lending- and deposit-related fees
1,542

 
1,497

 
3

 
4,514

 
4,427

 
2

Asset management, administration and commissions
4,310

 
4,072

 
6

 
12,923

 
11,996

 
8

Investment securities losses
(46
)
 
(1
)
 
NM

 
(371
)
 
(38
)
 
NM

Mortgage fees and related income
262

 
429

 
(39
)
 
1,051

 
1,239

 
(15
)
Card income
1,328

 
1,242

 
7

 
3,623

 
3,323

 
9

Other income(a)
1,160

 
952

 
22

 
4,041

 
3,197

 
26

Noninterest revenue
13,352

 
12,780

 
4

 
42,215

 
39,178

 
8

Net interest income
13,908

 
12,798

 
9

 
40,705

 
37,070

 
10

Total net revenue
$
27,260

 
$
25,578

 
7
 %
 
$
82,920

 
$
76,248

 
9
 %
(a)
Included operating lease income of $1.2 billion and $928 million for the three months ended , respectively, and $3.3 billion and $2.6 billion for the nine months ended , respectively.
Quarterly results
Investment banking fees decreased slightly compared to a strong prior year, with overall share gains, driven by higher equity underwriting fees, which were more than offset by lower debt underwriting and advisory fees. The increase in equity underwriting fees was driven by a higher share of fees including a strong performance in the IPO market. The decrease in debt underwriting fees was driven by declines in industry-wide fee levels, and advisory fees declined compared to a strong prior year. For additional information, refer to CIB segment results on pages 26-31 and Note 5.
Principal transactions revenue increased primarily reflecting higher revenue in CIB driven by:
higher Equity Markets revenue in derivatives and prime brokerage reflecting strong client activity, and
in Fixed Income Markets, higher revenue in Currencies & Emerging Markets on increased activity levels, as well as in Commodities compared to a challenging prior year. The increase was partially offset by lower revenue in Credit and Securitized Products. For additional information, refer to CIB segment results on pages 26-31 , and Note 5.
The increase in CIB was partially offset by private equity losses reflecting markdowns on certain legacy private equity investments in Corporate.
For information on lending- and deposit-related fees, refer to the segment results for CCB on pages 21–25, CIB on pages 26-31, CB on pages 32-35 and Note 5.
 
Asset management, administration and commissions revenue increased reflecting:
higher asset management fees in AWM and CCB driven by higher market levels and net long-term product inflows, partially offset by fee compression in AWM, and
higher brokerage commissions driven by higher volumes in CIB.
For additional information, refer to AWM, CCB and CIB segment results on pages 36–39, pages 21–25 and pages 26-31, respectively, and Note 5.
For further information on investment securities gains/(losses) and the investment securities portfolio, refer to Corporate segment results on pages 40–41 and Note 9.
Mortgage fees and related income decreased driven by lower net mortgage servicing revenue reflecting lower MSR risk management results and lower servicing revenue on a lower level of third-party loans serviced, as well as lower net production revenue reflecting lower production margins and volumes. For further information, refer to CCB segment results on pages 21–25 and Note 14.

8


Card income increased driven by:
lower new account origination costs, and
higher merchant processing fees on higher volumes,
largely offset by
lower net interchange income reflecting higher rewards costs and partner payments, largely offset by higher card sales volumes.
For further information, refer to CCB segment results on pages 21–25 and Note 5.
Other income reflects higher operating lease income from growth in auto operating lease volume in CCB. For further information, refer to Note 5.
Net interest income increased primarily due to the net impact of higher rates, which includes lower Markets net interest income in CIB, as well as loan and deposit growth. The Firm’s average interest-earning assets were $2.2 trillion, up $26.1 billion from the prior year, and the net interest yield on these assets, on a fully taxable equivalent (“FTE”) basis, was 2.51%, an increase of 14 basis points from the prior year. The net interest yield excluding CIB Markets was 3.30%, an increase of 40 basis points from the prior year. Net interest yield excluding CIB Markets is a non-GAAP financial measure. For a further discussion of this measure, refer to Explanation and Reconciliation of the Firm’s Use of Non-GAAP Financial Measures and Key Performance Measures on pages 16-18.
Year-to-date results
Investment banking fees increased reflecting:
higher equity underwriting and advisory fees in CIB. The increase in equity underwriting fees was driven by a higher share of fees, primarily due to strong performance in the IPO market; the increase in advisory fees was driven by a higher number of large completed transactions,
partially offset by
lower debt underwriting fees primarily driven by declines in industry-wide fee levels and a lower share in leveraged finance.
Principal transactions revenue increased primarily reflecting higher revenue in CIB driven by:
strength across products in Equity Markets, primarily in derivatives and prime brokerage, reflecting strong client activity, and
in Fixed Income Markets, higher revenue in Commodities compared to a challenging prior year, and strong performance in Currencies & Emerging Markets, largely offset by lower revenue in Credit.
The increase in CIB was partially offset by private equity losses reflecting markdowns on certain legacy private equity investments compared with gains in the prior year in Corporate.
 
Asset management, administration and commissions revenue increased reflecting:
higher asset management fees in AWM and CCB driven by higher market levels and net long-term product inflows partially offset by fee compression in AWM
higher brokerage commissions driven by higher volumes in CIB and AWM, and higher asset-based fees in CIB driven by net client inflows and higher market levels.
Investment securities losses increased due to sales related to the repositioning of the investment securities portfolio.
Mortgage fees and related income decreased driven by lower net production revenue reflecting lower production margins, as well as lower net servicing revenue reflecting lower servicing revenue on a lower level of third-party loans serviced, partially offset by higher MSR risk management results.
Card income increased driven by:
lower new account origination costs, and
higher merchant processing fees on higher volumes,
largely offset by
lower net interchange income reflecting higher rewards costs and partner payments, largely offset by higher card sales volumes. The rewards costs included an adjustment to the credit card rewards liability of approximately $330 million in the second quarter of 2018, driven by an increase in redemption rate assumptions.
Other income increased reflecting:
higher operating lease income from growth in auto operating lease volume in CCB
fair value gains of $505 million recognized in the first quarter of 2018 related to the adoption of the new recognition and measurement accounting guidance for certain equity investments previously held at cost,
partially offset by
the absence of a legal benefit of $645 million that was recorded in the prior year in Corporate related to a settlement with the FDIC receivership for Washington Mutual and with Deutsche Bank as trustee to certain Washington Mutual trusts.
Net interest income increased primarily due to the net impact of higher rates, which includes lower Markets net interest income in CIB, as well as loan and deposit growth. The Firm’s average interest-earning assets were $2.2 trillion, up $37.9 billion from the prior year, and the net interest yield on these assets, on an FTE basis, was 2.49%, an increase of 15 basis points from the prior year. The net interest yield excluding CIB Markets was 3.21%, an increase of 40 basis points from the prior year.

9


Provision for credit losses
 
 
 
 
 
 
 
 
 
 
 
Three months ended September 30,
 
Nine months ended September 30,
(in millions)

2018

 
2017

 
Change

 
2018

 
2017

 
Change

Consumer, excluding credit card
$
(242
)
 
$
206

 
NM

 
$
(152
)
 
$
660

 
NM

Credit card
1,223

 
1,319

 
(7
)%
 
3,557

 
3,699

 
(4
)
Total consumer
981

 
1,525

 
(36
)
 
3,405

 
4,359

 
(22
)
Wholesale
(33
)
 
(73
)
 
55

 
(82
)
 
(377
)
 
78

Total provision for credit losses
$
948

 
$
1,452

 
(35
)%
 
$
3,323

 
$
3,982

 
(17
)%
Quarterly results
The provision for credit losses decreased as a result of:
a decrease in the consumer provision in CCB due to
a $250 million reduction in the allowance for loan losses in the residential real estate PCI portfolio, reflecting continued improvement in home prices and lower delinquencies,
a $150 million addition to the allowance for loan losses in the credit card portfolio, due to loan growth and higher loss rates, as anticipated, compared to a $300 million addition in the prior year,
lower net charge-offs in the residential real estate portfolio, largely driven by a recovery of approximately $80 million from a loan sale, and
lower net charge-offs in the auto portfolio as the prior year included $49 million of incremental charge-offs recorded in accordance with regulatory guidance
partially offset by
higher net charge-offs in the credit card portfolio due to seasoning of more recent vintages, as anticipated
the decrease in the consumer provision was partially offset by a lower net benefit in the wholesale provision in the current period, which includes net recoveries predominantly related to a loan sale in CIB.
For a more detailed discussion of the credit portfolio and the allowance for credit losses, refer to the segment discussions of CCB on pages 21–25, CIB on pages 26-31, CB on pages 32-35, the Allowance for Credit Losses on pages 69–71 and Note 12.
 
Year-to-date results
The provision for credit losses decreased as a result of:
a decrease in the consumer provision in CCB due to
a $150 million addition to the allowance for loan losses in the credit card portfolio, due to loan growth and higher loss rates, as anticipated, compared to a $650 million addition in the prior year,
lower net charge-offs in the residential real estate portfolio, largely driven by recoveries from loan sales, and
a $250 million reduction in the allowance for loan losses in the residential real estate PCI portfolio, reflecting continued improvement in home prices and lower delinquencies, compared to a $175 million reduction in the non credit-impaired portfolio in the prior year
partially offset by
higher net charge-offs in the credit card portfolio due to seasoning of more recent vintages, as anticipated
the prior year included a $218 million write-down recorded in connection with the sale of the student loan portfolio
the decrease in the consumer provision was partially offset by a lower net benefit in the wholesale provision with the current period net benefit primarily driven by loan sales and other activity related to a single name in the Oil & Gas portfolio, partially offset by other net portfolio activity. The prior year benefit was driven by a reduction in the allowance for credit losses in the Oil & Gas, Natural Gas Pipelines, and Metals and Mining portfolios.
Noninterest expense
 
 
 
 
 
 
 
 
 
 
 
Three months ended September 30,
 
Nine months ended September 30,
(in millions)

2018

 
2017

 
Change

 
2018

 
2017

 
Change
Compensation expense
$
8,108

 
$
7,697

 
5
%
 
$
25,308

 
$
23,710

 
7
 %
Noncompensation expense:
 
 
 
 
 
 
 
 
 
 
 
Occupancy
1,014

 
930

 
9

 
2,883

 
2,803

 
3

Technology, communications and equipment
2,219

 
1,972

 
13

 
6,441

 
5,677

 
13

Professional and outside services
2,086

 
1,955

 
7

 
6,333

 
5,646

 
12

Marketing
798

 
710

 
12

 
2,396

 
2,179

 
10

Other expense(a)(b)
1,398

 
1,306

 
7

 
4,313

 
4,605

 
(6
)
Total noncompensation expense
7,515

 
6,873

 
9

 
22,366

 
20,910

 
7

Total noninterest expense
$
15,623

 
$
14,570

 
7
%
 
$
47,674

 
$
44,620

 
7
 %
(a)
Included Firmwide legal expense/(benefit) of $20 million and $(107) million for the three months ended September 30, 2018 and 2017, respectively, and $90 million and $172 million for the nine months ended September 30, 2018 and 2017.
(b)
Included FDIC-related expense of $349 million and $353 million for the three months ended September 30, 2018 and 2017, respectively, and $1.1 billion for each of the nine months ended September 30, 2018 and 2017.

10


Quarterly results
Compensation expense increased driven by investments in headcount across the businesses, including bankers and advisors, as well as technology and other support staff; and higher revenue-related compensation expense.
Noncompensation expense increased as a result of:
higher depreciation expense due to growth in auto operating lease volume in CCB
higher legal expense; the prior year was a net benefit
higher outside services expense primarily due to higher volume-related transaction costs in CIB and higher external fees on revenue growth in AWM
higher investments in technology, and
higher marketing expense in CCB.
For a discussion of legal expense, refer to Note 22.

 
Year-to-date results
Compensation expense increased driven by investments in headcount across the businesses, including bankers and advisors, as well as technology and other support staff, and higher revenue-related compensation expense largely in CIB.
Noncompensation expense increased as a result of:
higher outside services expense primarily due to higher volume-related transaction costs in CIB and higher external fees on revenue growth in AWM
higher depreciation expense due to growth in auto operating lease volume in CCB
higher marketing expense in CCB
a loss of $174 million recorded in other expense in Corporate on the liquidation of a legal entity, and
higher investments in technology.
For additional information on the liquidation of a legal entity, refer to Note 17.
Income tax expense
 
 
 
 
 
 
 
 
Three months ended September 30,
 
Nine months ended September 30,
(in millions)

2018

 
2017

 
Change

 
2018

 
2017

 
Change
Income before income tax expense
$
10,689

 
$
9,556

 
12
 %
 
$
31,923

 
$
27,646

 
15
 %
Income tax expense
2,309

 
2,824

 
(18
)
 
6,515

 
7,437

 
(12
)
Effective tax rate
21.6
%
 
29.6
%
 
 
 
20.4
%
 
26.9
%
 


Quarterly results
The effective tax rate decreased due to the TCJA, including the reduction in the U.S. federal statutory income tax rate as well as a $132 million net tax benefit resulting from changes in the estimates related to the remeasurement of certain deferred taxes and the deemed repatriation tax on non-U.S. earnings. These items that reduced the effective tax rate were partially offset by the impact of higher pre-tax income, and the change in mix of income and expense subject to U.S. federal, state and local taxes.
 
Year-to-date results
The effective tax rate decreased due to the TCJA, including the reduction in the U.S. federal statutory income tax rate as well as a $305 million net tax benefit recorded in the first nine months of 2018 resulting from changes in the estimates related to the remeasurement of certain deferred taxes and the deemed repatriation tax on non-U.S. earnings. These items that reduced the effective tax rate were partially offset by the impact of higher pre-tax income, and the change in mix of income and expense subject to U.S. federal, state and local taxes.

11


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

 
Dec 31,
2017

Change

Assets
 
 
 
 
Cash and due from banks
$
23,225

 
$
25,898

(10
)%
Deposits with banks
395,872

 
405,406

(2
)
Federal funds sold and securities purchased under resale agreements
217,632

 
198,422

10

Securities borrowed
122,434

 
105,112

16

Trading assets:
 
 
 
 
Debt and equity instruments
359,765

 
325,321

11

Derivative receivables
60,062

 
56,523

6

Investment securities
231,398

 
249,958

(7
)
Loans
954,318

 
930,697

3

Allowance for loan losses
(13,128
)
 
(13,604
)
(3
)
Loans, net of allowance for loan losses
941,190

 
917,093

3

Accrued interest and accounts receivable
78,792

 
67,729

16

Premises and equipment
14,180

 
14,159


Goodwill, MSRs and other intangible assets
54,697

 
54,392

1

Other assets
115,936

 
113,587

2

Total assets
$
2,615,183

 
$
2,533,600

3
 %
Cash and due from banks and deposits with banks decreased primarily as a result of net long-term debt maturities. The Firm’s excess cash is largely placed with various central banks, predominantly Federal Reserve Banks.
Federal funds sold and securities purchased under resale agreements increased primarily due to higher client-driven market-making activities and higher demand for securities to cover short positions in CIB. For additional information on the Firm’s Liquidity Risk Management, refer to pages 49–54.
Securities borrowed increased driven by higher demand for securities to cover short positions related to client-driven market-making activities in CIB.
Trading assets-debt and equity instruments increased predominantly as a result of client-driven market-making activities in CIB, primarily equity instruments in prime brokerage, and debt instruments in Fixed Income Markets, driven by higher client demand. For additional information, refer to Notes 2 and 4.
Investment securities decreased primarily reflecting net sales, paydowns and maturities of U.S. government agency mortgage-backed securities (“MBS”), commercial MBS, and obligations of U.S. states and municipalities. For additional information on Investment securities, refer to Corporate segment results on pages 40–41, Investment Portfolio Risk Management on page 72, and Notes 2 and 9.
 
Loans increased reflecting:
higher wholesale loans across all lines of business, predominantly driven by CIB, including loans to financial institution and commercial and industrial clients, and in AWM due to an increase in loans to Wealth Management clients globally, and
higher consumer loans driven by retention of high-quality prime mortgages in CCB and AWM, predominantly offset by lower home equity loans, run-off of PCI loans, lower auto loans, and mortgage loan sales.
The allowance for loan losses decreased driven by:
a $250 million reduction in the CCB allowance for loan losses in the residential real estate PCI portfolio, reflecting continued improvement in home prices and lower delinquencies, as well as a $151 million reduction in the allowance for write-offs of PCI loans partially due to loan sales. These reductions were partially offset by a $150 million addition in the credit card portfolio, due to loan growth and higher loss rates, as anticipated.
a reduction in the wholesale allowance primarily driven by loan sales related to a single name in the Oil & Gas portfolio in the first quarter of 2018 and other net portfolio activity.
For a detailed discussion of loans and the allowance for loan losses, refer to Credit Risk Management on pages 55-72, and Notes 2, 3, 11 and 12.
Accrued interest and accounts receivable increased primarily reflecting higher client receivables related to client-driven activities in CIB.

12


Other assets increased reflecting higher auto operating lease assets from growth in business volume in CCB.
 
For information on Goodwill and MSRs, refer to Note 14.
Selected Consolidated balance sheets data (continued)
 
(in millions)
Sep 30,
2018

 
Dec 31,
2017

Change

Liabilities
 
 
 
 
Deposits
$
1,458,762

 
$
1,443,982

1
 %
Federal funds purchased and securities loaned or sold under repurchase agreements
181,608

 
158,916

14

Short-term borrowings
64,635

 
51,802

25

Trading liabilities:
 
 
 
 
Debt and equity instruments
109,457

 
85,886

27

Derivative payables
41,693

 
37,777

10

Accounts payable and other liabilities
209,707

 
189,383

11

Beneficial interests issued by consolidated variable interest entities (“VIEs”)
20,241

 
26,081

(22
)
Long-term debt
270,124

 
284,080

(5
)
Total liabilities
2,356,227

 
2,277,907

3

Stockholders’ equity
258,956

 
255,693

1

Total liabilities and stockholders’ equity
$
2,615,183

 
$
2,533,600

3
 %
Deposits increased in CIB and CCB, largely offset by decreases in AWM and CB.
The increase in CIB was predominantly driven by growth in client activity in Treasury Services, and in CCB driven by the continuation of growth from new customers, partially offset by balance migration into investment-related products.
The decrease in AWM was driven by balance migration predominantly into the Firm’s investment-related products, and in CB primarily driven by the impact of seasonality and migration of non-operating deposits into higher-yielding investment products.
For more information, refer to the Liquidity Risk Management discussion on pages 49–54; and Notes 2
and 15.
Federal funds purchased and securities loaned or sold under repurchase agreements increased reflecting higher secured financing of trading assets-debt and equity instruments and client-driven market-making activities in CIB.
Short-term borrowings increased due to the net issuance of commercial paper and short-term advances from Federal Home Loan Banks (“FHLBs”). For additional information, refer to Liquidity Risk Management on pages 49–54.
 
Trading liabilities–debt and equity instruments increased predominantly as a result of client-driven market-making activities in CIB, primarily debt instruments in Fixed Income Markets, and equity instruments in prime brokerage. For additional information, refer to Note 2 .
Trading liabilities–derivative payables increased predominantly as a result of client-driven market-making activities, which increased equity and commodity derivative payables. For additional information, refer to Derivative contracts on pages 67–68, and Notes 2 and 4.
Accounts payable and other liabilities increased partly as a result of higher client payables related to prime brokerage activities in CIB.
Beneficial interests issued by consolidated VIEs decreased due to net maturities of credit card securitizations. For further information on Firm-sponsored VIEs and loan securitization trusts, refer to Off-Balance Sheet Arrangements on page 15 and Notes 13 and 20.
Long-term debt decreased primarily driven by lower FHLB advances, partially offset by net issuance of structured notes in CIB. For additional information on the Firm’s long-term debt activities, refer to Liquidity Risk Management on pages 49–54.
For information on changes in stockholders’ equity, refer to page 89, and on the Firm’s capital actions, refer to Capital actions on pages 47-48.


13


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

 
2017

Net cash provided by/(used in)
 
 
 
 
Operating activities
 
$
13,765

 
$
(23,381
)
Investing activities
 
(39,782
)
 
47,706

Financing activities
 
16,319

 
36,405

Effect of exchange rate changes on cash
 
(2,509
)
 
7,272

Net increase/(decrease) in cash and due from banks and deposits with banks
 
$
(12,207
)
 
$
68,002

Operating activities
In 2018, cash provided primarily reflected net income, increased trading liabilities and accounts payable and other liabilities, partially offset by increases in trading assets and securities borrowed.
In 2017, cash used primarily reflected increases in trading assets, and decreases in trading liabilities, and accounts payable and other liabilities, partially offset by net income and a decrease in other assets.
 
Investing activities
In 2018, cash used reflected higher net loan originations and an increase in securities purchased under resale agreements, partially offset by lower investment securities.
In 2017, cash provided reflected a decrease in securities purchased under resale agreements and lower investment securities, partially offset by higher net loan originations.
Financing activities
In 2018, cash provided reflected higher securities loaned or sold under repurchase agreements, deposits and short-term borrowings, partially offset by a decrease in long-term borrowings.
In 2017, cash provided reflected higher deposits and short-term borrowings, partially offset by a decrease in long-term borrowings.
Additionally, for both periods, cash was used for repurchases of common stock and dividends on common and preferred stock.
For a further discussion of the activities affecting the Firm’s cash flows, refer to Consolidated Balance Sheets Analysis on pages 12–14, Capital Risk Management on pages 44-48, and Liquidity Risk Management on pages 49–54 of this Form 10-Q, and pages 92–97 of JPMorgan Chase’s 2017 Annual Report.


14


OFF-BALANCE SHEET ARRANGEMENTS
In the normal course of business, the Firm enters into various contractual obligations that may require future cash payments. Certain obligations are recognized on-balance sheet, while others are off-balance sheet under accounting principles generally accepted in the U.S. (“U.S. GAAP”).
The Firm is involved with several types of off–balance sheet arrangements, including through nonconsolidated special-purpose entities (“SPEs”), which are a type of VIE, and through lending-related financial instruments (e.g., commitments and guarantees).
The Firm holds capital, as deemed appropriate, against all SPE-related transactions and related exposures, such as derivative transactions and lending-related commitments and guarantees.
The Firm has no commitments to issue its own stock to support any SPE transaction, and its policies require that transactions with SPEs be conducted at arm’s length and reflect market pricing. Consistent with this policy, no JPMorgan Chase employee is permitted to invest in SPEs with which the Firm is involved where such investment would violate the Firm’s Code of Conduct.
The table below provides an index of where in this Form 10-Q a discussion of the Firm’s various off-balance sheet arrangements can be found. In addition, refer to Note 1 for information about the Firm’s consolidation policies.
Type of off-balance sheet arrangement
Location of disclosure
Page references
Special-purpose entities: variable interests and other obligations, including contingent obligations, arising from variable interests in nonconsolidated VIEs
Refer to Note 13
148-153
Off-balance sheet lending-related financial instruments, guarantees, and other commitments
Refer to Note 20
162-165



15


EXPLANATION AND RECONCILIATION OF THE FIRM’S USE OF NON-GAAP FINANCIAL MEASURES AND KEY PERFORMANCE MEASURES
Non-GAAP financial measures
The Firm prepares its Consolidated Financial Statements using U.S. GAAP; these financial statements appear on pages 86-90. That presentation, which is referred to as “reported” basis, provides the reader with an understanding of the Firm’s results that can be tracked consistently from year-to-year and enables a comparison of the Firm’s performance with other companies’ U.S. GAAP financial statements.
In addition to analyzing the Firm’s results on a reported basis, management reviews Firmwide results, including the overhead ratio, on a “managed” basis; these Firmwide managed basis results are non-GAAP financial measures. The Firm also reviews the results of the lines of business on a managed basis. The Firm’s definition of managed basis starts, in each case, with the reported U.S. GAAP results and includes certain reclassifications to present total net revenue for the Firm (and each of the reportable business segments) on an FTE basis. Accordingly, revenue from investments that receive tax credits and tax-exempt securities is presented in the managed results on a basis comparable to taxable investments and securities. These
 
financial measures allow management to assess the comparability of revenue from year-to-year arising from both taxable and tax-exempt sources. The corresponding income tax impact related to tax-exempt items is recorded within income tax expense. These adjustments have no impact on net income as reported by the Firm as a whole or by the lines of business.
Management also uses certain non-GAAP financial measures at the Firm and business-segment level, because these other non-GAAP financial measures provide information to investors about the underlying operational performance and trends of the Firm or of the particular business segment, as the case may be, and, therefore, facilitate a comparison of the Firm or the business segment with the performance of its relevant competitors. For additional information on these non-GAAP measures, refer to Business Segment Results on pages 19-41.
Non-GAAP financial measures used by the Firm may not be comparable to similarly named non-GAAP financial measures used by other companies.
The following summary tables provide a reconciliation from the Firm’s reported U.S. GAAP results to managed basis.
 
Three months ended September 30,
 
2018
 
2017
(in millions, except ratios)
Reported
results
 
Fully taxable-equivalent adjustments(a)(b)
 
Managed
basis
 
Reported
results
 
Fully taxable-equivalent adjustments(a)
 
Managed
basis
Other income
$
1,160

 
$
408

 
 
$
1,568

 
$
952

 
$
555

 
 
$
1,507

Total noninterest revenue
13,352

 
408

 
 
13,760

 
12,780

 
555

 
 
13,335

Net interest income
13,908

 
154

 
 
14,062

 
12,798

 
319

 
 
13,117

Total net revenue
27,260

 
562

 
 
27,822

 
25,578

 
874

 
 
26,452

Pre-provision profit
11,637

 
562

 
 
12,199

 
11,008

 
874

 
 
11,882

Income before income tax expense
10,689

 
562

 
 
11,251

 
9,556

 
874

 
 
10,430

Income tax expense
$
2,309

 
$
562

 
 
$
2,871

 
$
2,824

 
$
874

 
 
$
3,698

Overhead ratio
57
%
 
NM

 
 
56
%
 
57
%
 
NM

 
 
55
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Nine months ended September 30,
 
2018
 
2017
(in millions, except ratios)
Reported
results
 
Fully taxable-equivalent adjustments(a)(b)
 
Managed
basis
 
Reported
results
 
Fully taxable-equivalent adjustments(a)
 
Managed
basis
Other income
$
4,041

 
$
1,337

 
 
$
5,378

 
$
3,197

 
$
1,733

 
 
$
4,930

Total noninterest revenue
42,215

 
1,337

 
 
43,552

 
39,178

 
1,733

 
 
40,911

Net interest income
40,705

 
473

 
 
41,178

 
37,070

 
987

 
 
38,057

Total net revenue
82,920

 
1,810

 
 
84,730

 
76,248

 
2,720

 
 
78,968

Pre-provision profit
35,246

 
1,810

 
 
37,056

 
31,628

 
2,720

 
 
34,348

Income before income tax expense
31,923

 
1,810

 
 
33,733

 
27,646

 
2,720

 
 
30,366

Income tax expense
$
6,515

 
$
1,810

 
 
$
8,325

 
$
7,437

 
$
2,720

 
 
$
10,157

Overhead ratio
57
%
 
NM

 
 
56
%
 
59
%
 
NM

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

16


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



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

(in millions, except rates)
Three months ended September 30,
 
Nine months ended September 30,
2018

2017

 
Change

 
2018
2017
 
Change
Net interest income – managed basis(a)(b)
$
14,062

$
13,117

 
7
 %
 
$
41,178

$
38,057

 
8
 %
Less: CIB Markets net interest income(c)
704

1,070

 
(34
)
 
2,488

3,509

 
(29
)
Net interest income excluding CIB Markets(a)
$
13,358

$
12,047

 
11

 
$
38,690

$
34,548

 
12

 
 
 
 
 
 
 
 
 
 
Average interest-earning assets
$
2,220,258

$
2,194,174

 
1

 
$
2,215,377

$
2,177,520

 
2

Less: Average CIB Markets interest-earning assets(c)
613,737

544,867

 
13

 
605,653

535,044

 
13

Average interest-earning assets excluding CIB Markets
$
1,606,521

$
1,649,307

 
(3
)%
 
$
1,609,724

$
1,642,476

 
(2
)%
Net interest yield on average interest-earning assets – managed basis
2.51
%
2.37
%
 
 
 
2.49
%
2.34
%
 
 
Net interest yield on average CIB Markets interest-earning assets(c)
0.46

0.78

 
 
 
0.55

0.88

 
 
Net interest yield on average interest-earning assets excluding CIB Markets
3.30
%
2.90
%
 
 
 
3.21
%
2.81
%
 
 
(a)
Interest includes the effect of related hedges. Taxable-equivalent amounts are used where applicable.
(b)
For a reconciliation of net interest income on a reported and managed basis, refer to reconciliation from the Firm’s reported U.S. GAAP results to managed basis on page 16.
(c)
For further information on CIB’s Markets businesses, refer to page 30.
The Firm also reviews adjusted expense, which is noninterest expense excluding Firmwide legal expense and is therefore a non-GAAP financial measure. Additionally, certain credit metrics and ratios disclosed by the Firm exclude PCI loans, and are therefore non-GAAP measures. Management believes these measures help investors
 
understand the effect of these items on reported results and provide an alternate presentation of the Firm’s performance. For additional information on credit metrics and ratios excluding PCI loans, refer to Credit and Investment Risk Management on pages 55-72.


17


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

Dec 31,
2017

 
Three months ended September 30,
 
Nine months ended September 30,
 
2018

2017

 
2018

2017

Common stockholders’ equity
$
231,192

$
229,625

 
$
230,439

$
231,861

 
$
228,995

$
229,937

Less: Goodwill
47,483

47,507

 
47,490

47,309

 
47,496

47,297

Less: Other intangible assets
781

855

 
795

818

 
820

836

Add: Certain Deferred tax liabilities(a)(b)
2,239

2,204

 
2,233

3,262

 
2,221

3,243

Tangible common equity
$
185,167

$
183,467

 
$
184,387

$
186,996

 
$
182,900

$
185,047

 
 
 
 
 
 
 
 
 
Return on tangible common equity
NA

NA

 
17
%
13
%
 
18
%
14
%
Tangible book value per share
$
55.68

$
53.56

 
NA

NA

 
NA

NA

(a)
Represents deferred tax liabilities related to tax-deductible goodwill and to identifiable intangibles created in nontaxable transactions, which are netted against goodwill and other intangibles when calculating TCE.
(b)
Amounts presented for December 31, 2017 and later periods include the effect from the revaluation of the Firm's net deferred tax liability as a result of the TCJA.
Key performance measures
The Firm considers the following to be key regulatory capital measures:
Capital, risk-weighted assets (“RWA”), and capital and leverage ratios presented under Basel III Standardized and Advanced Fully Phased-In rules, and
SLR calculated under Basel III Advanced Fully Phased-In rules.
The Firm, as well as banking regulators, investors and analysts use these measures to assess the Firm’s regulatory capital position and to compare the Firm’s regulatory capital to that of other financial services companies.
For additional information on these measures, refer to Capital Risk Management on pages 44-48.
 
Core loans are also considered a key performance measure. Core loans represent loans considered central to the Firm’s ongoing businesses; and exclude loans classified as trading assets, runoff portfolios, discontinued portfolios and portfolios the Firm has an intent to exit. Core loans is a measure utilized by the Firm and its investors and analysts in assessing actual growth in the loan portfolio.

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 & Wealth Management. In addition, there is a Corporate segment.
The business segments are determined based on the products and services provided, or the type of customer served, and they reflect the manner in which financial information is currently evaluated by management. Results of these lines of business are presented on a managed basis. For a definition of managed basis, refer to Explanation and Reconciliation of the Firm’s use of Non-GAAP Financial Measures and Key Performance Measures on pages 16-18.
 
Description of business segment reporting methodology
Results of the business segments are intended to present each segment as if it were a stand-alone business. The management reporting process that derives business segment results includes the allocation of certain income and expense items. For further information about line of business capital, refer to Line of business equity on page 47. The Firm periodically assesses the assumptions, methodologies and reporting classifications used for segment reporting, and further refinements may be implemented in future periods.
Business segment capital allocation
The amount of capital assigned to each business is referred to as equity. On at least an annual basis, the Firm assesses the level of capital required for each line of business as well as the assumptions and methodologies used to allocate capital. For additional information on business segment capital allocation, refer to Line of business equity on pages 88-89 of JPMorgan Chase’s 2017 Annual Report.
For a further discussion of those methodologies, refer to Business Segment Results – Description of business segment reporting methodology on pages 55–56 of JPMorgan Chase’s 2017 Annual Report.

19


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

2017

Change
 
2018

2017

Change

 
2018

2017

Change

Consumer & Community Banking
$
13,290

$
12,033

10
 
$
6,982

$
6,495

7
 %
 
$
6,308

$
5,538

14
 %
Corporate & Investment Bank
8,805

8,615

2
 
5,175

4,793

8

 
3,630

3,822

(5
)
Commercial Banking
2,271

2,146

6
 
853

800

7

 
1,418

1,346

5

Asset & Wealth Management
3,559

3,472

3
 
2,585

2,408

7

 
974

1,064

(8
)
Corporate
(103
)
186

NM
 
28

74

(62
)
 
(131
)
112

NM

Total
$
27,822

$
26,452

5
 
$
15,623

$
14,570

7
 %
 
$
12,199

$
11,882

3
 %
Three months ended September 30,
Provision for credit losses
 
Net income/(loss)
 
Return on equity
(in millions, except ratios)
2018

2017

Change

 
2018

2017

Change
 
2018

2017

Consumer & Community Banking
$
980

$
1,517

(35
)%
 
$
4,086

$
2,553

60
 
31
%
19
%
Corporate & Investment Bank
(42
)
(26
)
(62
)
 
2,626

2,546

3
 
14

13

Commercial Banking
(15
)
(47
)
68

 
1,089

881

24
 
21

17

Asset & Wealth Management
23

8

188

 
724

674

7
 
31

29

Corporate
2


NM

 
(145
)
78

NM
 
NM

NM

Total
$
948

$
1,452

(35
)%
 
$
8,380

$
6,732

24
 
14
%
11
%
Nine months ended September 30,
Total net revenue
 
Total noninterest expense
 
Pre-provision profit/(loss)
(in millions)
2018

2017

Change
 
2018

2017

Change
 
2018

2017

Change
Consumer & Community Banking
$
38,384

$
34,415

12
 
$
20,770

$
19,390

7
 
$
17,614

$
15,025

17
Corporate & Investment Bank
29,211

27,139

8
 
16,237

14,854

9
 
12,974

12,285

6
Commercial Banking
6,753

6,252

8
 
2,541

2,415

5
 
4,212

3,837

10
Asset & Wealth Management
10,637

10,197

4
 
7,732

7,606

2
 
2,905

2,591

12
Corporate
(255
)
965

NM
 
394

355

11
 
(649
)
610

NM
Total
$
84,730

$
78,968

7
 
$
47,674

$
44,620

7
 
$
37,056

$
34,348

8
Nine months ended September 30,
Provision for credit losses
 
Net income/(loss)
 
Return on equity
(in millions, except ratios)