CORP Q2 2013

10-Q 1 corpq22013.htm FORM 10-Q CORP Q2 2013

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, 2013	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 July 31, 2013: 3,764,198,009

FORM 10-Q

TABLE OF CONTENTS



Part I - Financial information		Page
Item 1	Consolidated Financial Statements – JPMorgan Chase & Co.:
	Consolidated statements of income (unaudited) for the three and six months ended June 30, 2013 and 2012	108
	Consolidated statements of comprehensive income (unaudited) for the three and six months ended June 30, 2013 and 2012	109
	Consolidated balance sheets (unaudited) at June 30, 2013, and December 31, 2012	110
	Consolidated statements of changes in stockholders’ equity (unaudited) for the six months ended June 30, 2013 and 2012	111
	Consolidated statements of cash flows (unaudited) for the for the six months ended June 30, 2013 and 2012	112
	Notes to Consolidated Financial Statements (unaudited)	113
	Report of Independent Registered Public Accounting Firm	209
	Consolidated Average Balance Sheets, Interest and Rates (unaudited) for the three and six months ended June 30, 2013 and 2012	210
	Glossary of Terms and Line of Business Metrics	212
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	12
	Explanation and Reconciliation of the Firm’s Use of Non-GAAP Financial Measures	15
	Business Segment Results	17
	International Operations	52
	Balance Sheet Analysis	53
	Off-Balance Sheet Arrangements	55
	Capital Management	60
	Risk Management	65
	Supervision and Regulation	103
	Critical Accounting Estimates Used by the Firm	104
	Accounting and Reporting Developments	106
	Forward-Looking Statements	107
Item 3	Quantitative and Qualitative Disclosures About Market Risk	217
Item 4	Controls and Procedures	217
Part II - Other information
Item 1	Legal Proceedings	218
Item 1A	Risk Factors	218
Item 2	Unregistered Sales of Equity Securities and Use of Proceeds	218
Item 3	Defaults Upon Senior Securities	219
Item 4	Mine Safety Disclosure	219
Item 5	Other Information	219
Item 6	Exhibits	220

JPMorgan Chase & Co.

Consolidated financial highlights



(unaudited) As of or for the period ended,																Six months ended June 30,
(in millions, except per share, ratio and headcount data)	2Q13			1Q13			4Q12			3Q12			2Q12			2013			2012
Selected income statement data
Total net revenue	$	25,211		$	25,122		$	23,653		$	25,146		$	22,180		$	50,333		$	48,232
Total noninterest expense	15,866			15,423			16,047			15,371			14,966			31,289			33,311
Pre-provision profit	9,345			9,699			7,606			9,775			7,214			19,044			14,921
Provision for credit losses	47			617			656			1,789			214			664			940
Income before income tax expense	9,298			9,082			6,950			7,986			7,000			18,380			13,981
Income tax expense	2,802			2,553			1,258			2,278			2,040			5,355			4,097
Net income	$	6,496		$	6,529		$	5,692		$	5,708		$	4,960		$	13,025		$	9,884
Per common share data
Net income per share: Basic	$	1.61		$	1.61		$	1.40		$	1.41		$	1.22		$	3.22		$	2.41
Diluted	1.60			1.59			1.39			1.40			1.21			3.19			2.41
Cash dividends declared per share^(a)	0.38			0.30			0.30			0.30			0.30			0.68			0.60
Book value per share	52.48			52.02			51.27			50.17			48.40			52.48			48.40
Tangible book value per share^(b)	39.97			39.54			38.75			37.53			35.71			39.97			35.71
Common shares outstanding
Average: Basic	3,782.4			3,818.2			3,806.7			3,803.3			3,808.9			3,800.3			3,813.9
Diluted	3,814.3			3,847.0			3,820.9			3,813.9			3,820.5			3,830.6			3,827.0
Common shares at period-end	3,769.0			3,789.8			3,804.0			3,799.6			3,796.8			3,769.0			3,796.8
Share price^(c)
High	$	55.90		$	51.00		$	44.54		$	42.09		$	46.35		$	55.90		$	46.49
Low	46.05			44.20			38.83			33.10			30.83			44.20			30.83
Close	52.79			47.46			43.97			40.48			35.73			52.79			35.73
Market capitalization	198,966			179,863			167,260			153,806			135,661			198,966			135,661
Selected ratios
Return on common equity (“ROE”)	13		%	13		%	11		%	12		%	11		%	13		%	11		%
Return on tangible common equity (“ROTCE”)^(b)	17			17			15			16			15			17			15
Return on assets (“ROA”)	1.09			1.14			0.98			1.01			0.88			1.11			0.88
Return on risk-weighted assets^(d)(e)	1.85			1.88			1.76			1.74			1.52			1.86			1.55
Overhead ratio	63			61			68			61			67			62			69
Deposits-to-loans ratio	166			165			163			158			153			166			153
Tier 1 capital ratio^(e)	11.6			11.6			12.6			11.9			11.3			11.6			11.3
Total capital ratio^(e)	14.1			14.1			15.3			14.7			14.0			14.1			14.0
Tier 1 leverage ratio	7.0			7.3			7.1			7.1			6.7			7.0			6.7
Tier 1 common capital ratio^(e)(f)	10.4			10.2			11.0			10.4			9.9			10.4			9.9
Selected balance sheet data (period-end)
Trading assets	$	401,470		$	430,991		$	450,028		$	447,053		$	417,324		$	401,470		$	417,324
Securities	354,725			365,744			371,152			365,901			354,595			354,725			354,595
Loans	725,586			728,886			733,796			721,947			727,571			725,586			727,571
Total assets	2,439,494			2,389,349			2,359,141			2,321,284			2,290,146			2,439,494			2,290,146
Deposits	1,202,950			1,202,507			1,193,593			1,139,611			1,115,886			1,202,950			1,115,886
Long-term debt	266,212			268,361			249,024			241,140			239,539			266,212			239,539
Common stockholders’ equity	197,781			197,128			195,011			190,635			183,772			197,781			183,772
Total stockholders’ equity	209,239			207,086			204,069			199,693			191,572			209,239			191,572
Headcount^(g)	254,063			255,898			258,753			259,144			260,398			254,063			260,398
Credit quality metrics
Allowance for credit losses	$	20,137		$	21,496		$	22,604		$	23,576		$	24,555		$	20,137		$	24,555
Allowance for loan losses to total retained loans	2.69		%	2.88		%	3.02		%	3.18		%	3.29		%	2.69		%	3.29		%
Allowance for loan losses to retained loans excluding purchased credit-impaired loans^(h)	2.06			2.27			2.43			2.61			2.74			2.06			2.74
Nonperforming assets	$	10,896		$	11,584		$	11,734		$	12,481		$	11,397		$	10,896		$	11,397
Net charge-offs	1,403			1,725			1,628			2,770			2,278			3,128			4,665
Net charge-off rate	0.78		%	0.97		%	0.90		%	1.53		%	1.27		%	0.88		%	1.31		%


(a)	On May 21, 2013, the Board of Directors of JPMorgan Chase increased the Firm’s quarterly stock dividend from $0.30 to $0.38 per share.

(b)

Tangible book value per share and ROTCE are non-GAAP financial measures. Tangible book value per share 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 15–16 of this Form 10-Q.


(c)	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.


(d)	Return on Basel I risk-weighted assets is the annualized earnings of the Firm divided by its average risk-weighted assets (“RWA”).

(e)

Basel 2.5 rules became effective for the Firm on January 1, 2013. The implementation of these rules in the first quarter of 2013 resulted in an increase of approximately $150 billion in risk-weighted assets compared with the Basel I rules. The implementation of these rules also resulted in decreases of the Firm’s Tier 1 capital, Total capital and Tier 1 common capital ratios by 140 basis points, 160 basis points and 120 basis points, respectively, at March 31, 2013. For further discussion of Basel 2.5, see Regulatory capital on pages 60–63 of this Form 10-Q.


(f)	Basel I Tier 1 common capital ratio (“Tier 1 common ratio”) is Tier 1 common capital (“Tier 1 common”) divided by risk-weighted assets. The Firm uses Tier 1 common capital along with the other capital measures to assess and monitor its capital position. For further discussion of the Tier 1 common ratio, see Regulatory capital on pages 60–63 of this Form 10-Q.


(g)	Effective January 1, 2013, interns are excluded from the firmwide and business segment headcount metrics. Prior periods were revised to conform with this presentation.


(h)	Excludes the impact of residential real estate purchased credit-impaired (“PCI”) loans. For further discussion, see Allowance for credit losses on pages 92–94 of this Form 10-Q.



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 212–214 for definitions of terms used throughout this Form 10-Q.

The MD&A included in this Form 10-Q contains statements that are forward-looking within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are based on the current beliefs and expectations of JPMorgan Chase’s management and are subject to significant risks and uncertainties. Actual results may differ from those set forth in the forward-looking statements. For a discussion of 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 107 and Part II, Item 1A: Risk Factors, on page 218 of this Form 10-Q; and Part I, Item 1A, Risk Factors, on pages 8–21 of JPMorgan Chase’s Annual Report on Form 10-K for the year ended December 31, 2012, filed with the U.S. Securities and Exchange Commission (“2012 Annual Report” or “2012 Form 10-K”), to which reference is hereby made.

JPMorgan Chase & Co., a financial holding company incorporated under Delaware law in 1968, is a leading global financial services firm and one of the largest banking institutions in the United States of America (“U.S.”), with operations worldwide. The Firm had $2.4 trillion in assets and $209.2 billion in stockholders’ equity as of June 30, 2013. The Firm is a leader in investment banking, financial services for consumers and small businesses, commercial banking, financial transaction processing, asset management and private equity. Under the J.P. Morgan and Chase brands, the Firm serves millions of customers in the U.S. and many of the world’s most prominent corporate, institutional and government clients.

JPMorgan Chase’s principal bank subsidiaries are JPMorgan Chase Bank, National Association (“JPMorgan Chase Bank, N.A.”), a national bank with U.S. branches in 23 states, and Chase Bank USA, National Association (“Chase Bank USA, N.A.”), a national bank that is the Firm’s credit card–issuing bank. JPMorgan Chase’s principal nonbank subsidiary is J.P. Morgan Securities LLC (“JPMorgan Securities”), the Firm’s U.S. investment banking firm. The bank and nonbank subsidiaries of JPMorgan Chase operate nationally as well as through overseas branches and subsidiaries, representative offices and subsidiary foreign banks. One of the Firm’s principal operating subsidiaries in the United Kingdom (“U.K.”) is J.P. Morgan Securities plc (formerly J.P. Morgan Securities Ltd.), a subsidiary of JPMorgan Chase Bank, N.A.

JPMorgan Chase’s activities are organized, for management reporting purposes, into four major reportable business segments, as well as a Corporate/Private Equity segment. The Firm’s consumer business is the Consumer & Community Banking segment. The Corporate & Investment Bank, Commercial Banking, and Asset Management segments comprise the Firm’s wholesale businesses. A description of the Firm’s business segments, and the products and services they provide to their respective client bases, follows.

Consumer & Community Banking

Consumer & Community Banking (“CCB”) serves consumers and businesses through personal service at bank branches and through ATMs, online, mobile and telephone banking. CCB is organized into Consumer & Business Banking, Mortgage Banking (including Mortgage Production, Mortgage Servicing and Real Estate Portfolios) and Card, Merchant Services & Auto (“Card”). Consumer & Business Banking offers deposit and investment products and services to consumers, and lending, deposit, and cash management and payment solutions to small businesses. Mortgage Banking includes mortgage origination and servicing activities, as well as portfolios comprised of residential mortgages and home equity loans, including the purchased credit-impaired (“PCI”) portfolio acquired in the Washington Mutual transaction. Card issues credit cards to consumers and small businesses, provides payment services to corporate and public sector clients through its commercial card products, offers payment processing services to merchants, and provides auto and student loan services.

Corporate & Investment Bank

The Corporate & Investment Bank (“CIB”) comprised of Banking and Markets & Investor Services, offers a broad suite of investment banking, market-making, prime brokerage, and treasury and securities products and services to a global client base of corporations, investors, financial institutions, 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.

Commercial Banking

Commercial Banking (“CB”) delivers extensive industry knowledge, local expertise and dedicated service to U.S. and U.S. multinational clients, including corporations, municipalities, financial institutions and nonprofit entities with annual revenue generally ranging from $20 million to $2 billion. CB provides financing to real estate investors and owners. Partnering with the Firm’s other businesses, CB provides comprehensive financial solutions, including lending, treasury services, investment banking and asset management to meet its clients’ domestic and international financial needs.

Asset Management

Asset Management (“AM”), with client assets of $2.2 trillion as of June 30, 2013, 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 trust and estate, loans, mortgages and deposits. The majority of AM’s client assets are in actively managed portfolios.

In addition to the four major reportable business segments outlined above, the following is a description of the Corporate/Private Equity segment.

Corporate/Private Equity

The Corporate/Private Equity segment comprises Private Equity, Treasury and Chief Investment Office (“CIO”), and Other Corporate, which includes corporate staff units and expense that is centrally managed. Treasury and CIO are predominantly responsible for measuring, monitoring, reporting and managing the Firm’s liquidity, funding, capital and structural interest rate and foreign exchange risks. The major corporate staff units include Central Technology and Operations, Internal Audit, Executive, Finance, Human Resources, Legal, Compliance, Global Real Estate, Operational Control, Risk Management, and Corporate Responsibility & Public Policy. Other centrally managed expense includes the Firm’s occupancy and pension-related expense that are subject to allocation to the businesses.



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.

Economic environment

The U.S. economy continued to grow at a modest pace in the second quarter 0f 2013 amid a contraction in government spending and slower consumer spending. The U.S. unemployment rate held steady at 7.6% in the second quarter accompanied by slow growth of the labor force. Inflation, already below the Federal Reserve’s 2% long-run target, eased further to 1%.

In the housing market, prices continued to increase and new home sales rose to the highest level in five years during the second quarter. The increase in household wealth from rising home prices and stock markets, coupled with still-low interest rates, both of which support consumer borrowing, have counterbalanced the increase in Social Security payroll taxes following passage of the American Taxpayer Relief Act of 2012 on December 31, 2012. The Federal budget deficit continued to decline in parallel with the ongoing economic recovery; after peaking at 10.5% of GDP in early 2010, it was down to 4.4% over the last twelve months.

Against the backdrop of the improving labor market, the Federal Reserve indicated it could begin tapering its quantitative easing program if the job market improved further and inflation increased. Following Federal Reserve Chairman Ben Bernanke’s remarks during the quarter that such tapering could begin in 2013, longer-term bond yields rose sharply. U.S. and international stock market indices declined at first and later recovered to new highs amid less conviction about near-term tapering.

In Europe, both the Bank of England and the European Central Bank held benchmark rates steady and indicated that policy was likely to remain accommodative for a considerable time given tight credit conditions, little growth, and elevated unemployment. Although the economies of Spain and Italy contracted further in the second quarter, several of the economies in northern Europe expanded at a moderate pace.

Asian economies have slowed in response to the economic situation in Europe. India announced the slowest GDP growth since 2003 and China’s government reduced its GDP growth target for the next decade to 7.5%. In Japan, the Bank of Japan announced an asset purchase program aimed at boosting its inflation rate. Subsequent to this announcement, Japanese stocks and currency have experienced increased volatility given uncertainty about the impact of new policies.

Across Latin America, growth remained slow, but accelerated moderately in the second quarter.



Financial performance of JPMorgan Chase
	Three months ended June 30,								Six months ended June 30,
(in millions, except per share data and ratios)	2013			2012			Change		2013			2012			Change
Selected income statement data
Total net revenue	$	25,211		$	22,180		14	%	$	50,333		$	48,232		4	%
Total noninterest expense	15,866			14,966			6		31,289			33,311			(6	)
Pre-provision profit	9,345			7,214			30		19,044			14,921			28
Provision for credit losses	47			214			(78	)	664			940			(29	)
Net income	6,496			4,960			31		13,025			9,884			32
Diluted earnings per share	1.60			1.21			32	%	3.19			2.41			32	%
Return on common equity	13		%	11		%			13		%	11		%
Capital ratios
Tier 1 capital	11.6			11.3
Tier 1 common^(a)	10.4			9.9


(a)	Basel I Tier 1 common capital ratio (“Tier 1 common ratio”) is Tier 1 common capital (“Tier 1 common”) divided by risk-weighted assets. The Firm uses Tier 1 common capital along with the other capital measures to assess and monitor its capital position. For further discussion of the Tier 1 common ratio, see Regulatory capital on pages 60–63 of this Form 10-Q.

Business Overview

JPMorgan Chase reported second-quarter 2013 net income of $6.5 billion, or $1.60 per share, on net revenue of $25.2 billion. Net income increased by $1.5 billion, or 31%, compared with net income of $5.0 billion, or $1.21 per share, in the second quarter of 2012. Return on equity for the quarter was 13%, compared with 11% for the prior-year quarter. Results in the second quarter of 2013

included the following significant items: $950 million pretax benefit ($0.15 per share after-tax increase in earnings) from a reduction in the allowance for loan losses in Real Estate Portfolios; $550 million pretax benefit ($0.09 per share after-tax increase in earnings) from a reduction in the allowance for loan losses in Card Services; and approximately $600 million pretax expense ($0.09 per

share after-tax decrease in earnings) for additional litigation reserves in Corporate. The tax rate used for each of the above significant items is 38%; for additional information, see the discussion at the end of this section on page 9.

The increase in net income from the second quarter of 2012 was driven by higher net revenue and lower provision for credit losses, partially offset by higher noninterest expense. The increase in net revenue compared with the prior year was due to higher principal transactions revenue, investment banking fees, and higher asset management, administration and commission revenue, partially offset by lower securities gains and lower mortgage fees and related income. The increase in principal transactions revenue reflected: the absence of $4.4 billion of losses on CIO’s synthetic credit portfolio, which was recorded in the second quarter of the prior year, partially offset this year by a lower gain from debit valuation adjustments (“DVA”) on structured notes and derivative liabilities of $355 million resulting from the widening of the Firm’s credit spreads, compared with a DVA gain of $755 million in the prior year. Net interest income decreased compared with the prior year, reflecting the impact of lower loan yields due to competitive pressures and loan portfolio run-off and the impact of low interest rates on investment securities yield and reinvestment opportunities, partially offset by lower long-term debt costs primarily due to a change in funding mix, and lower deposit costs.

Results in the second quarter of 2013 reflected lower estimated losses due to improved delinquency trends in the residential real estate and credit card portfolios, as well as the impact of improved home prices on the residential real estate portfolio. The provision for credit losses was $47 million, down $167 million, or 78%, from the prior year. The total consumer provision for credit losses was a benefit of $29 million in the 2013 second quarter, compared with a provision of $171 million in the prior year. The current-quarter consumer provision included a $1.5 billion reduction in the allowance for loan losses, down from a $2.1 billion reduction in the prior year. Consumer net charge-offs were $1.5 billion, compared with $2.3 billion in the prior year, resulting in net charge-off rates of 1.66% and 2.51%, respectively, excluding in each year the PCI portfolio. The decrease in consumer net charge-offs was primarily due to favorable delinquency trends. A favorable credit environment and stable credit trends also prevailed across the Firm’s wholesale loan portfolios as the Firm continued to experience low levels of criticized exposure, nonaccrual loans and net charge-offs. The wholesale provision for credit losses was $76 million, compared with $43 million in the prior year. Wholesale net recoveries were $67 million, compared with net charge-offs of $9 million in the prior year, resulting in a net recovery rate of 0.09% and a net charge-off rate of 0.01%, respectively. The Firm’s allowance for loan losses to end-of-period loans retained was 2.06%, compared with 2.74% in the prior year,

excluding in each year the PCI portfolio. The Firm’s nonperforming assets totaled $10.9 billion at June 30, 2013, down from $11.6 billion in the prior quarter and down from $11.4 billion in the prior year.

Noninterest expense was $15.9 billion, up $900 million, or 6%, compared with the prior year, driven by higher compensation expense on higher revenue and higher litigation expense, partially offset by lower mortgage servicing expense. The current quarter included $678 million of expense for additional litigation reserves, compared with $323 million in the prior year.

The Firm’s results reflected strong performance across its businesses. CCB average deposits were up 10%. Mortgage originations were $49.0 billion, up 12% compared with the prior year. Credit Card sales volume was a record $105.2 billion, up 10% from the prior year. CIB reported strong performance across products and maintained its #1 ranking for Global Investment Banking fees. CIB assets under custody were $18.9 trillion, up 7% compared with the prior year, while average client deposits and other third party liabilities were up 6% compared with the prior year. AM reported positive net long-term product flows for the seventeenth consecutive quarter, total client assets of $2.2 trillion and record loan balances of $86.0 billion.

Net income for the first six months of 2013 was $13.0 billion, or $3.19 per share, compared with $9.9 billion, or $2.41 per share, in the first half of 2012. The increase was driven by an increase in net revenue, a decrease in noninterest expense and a decrease in provision for credit losses. The increase in net revenue for the first six months of the year was driven by higher principal transactions revenue, reflecting the absence of $5.8 billion of losses from the CIO’s synthetic credit portfolio and a $545 million recovery on a Bear Stearns-related subordinated loan in the first half of 2012, higher asset management, administration and commissions, and higher investment banking fees. Largely offsetting these items were lower net interest income, the absence of the $1.1 billion benefit from the Washington Mutual bankruptcy settlement, lower mortgage fees and related income, and lower securities gains. The lower provision for credit losses reflected an improved credit environment. The decrease in noninterest expense was driven by lower litigation expense.

The Firm strengthened its balance sheet, ending the second quarter with Basel I Tier 1 common capital of $147 billion and a Tier 1 common ratio of 10.4%, including the impact of Basel 2.5 rules that became effective at the beginning of this year. The Firm estimated that its Basel III Tier 1 common ratio was approximately 9.3% at June 30, 2013, including the estimated impact of final Basel III rules issued in July 2013. (The Basel I and III Tier 1 common ratios 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 Tier 1

common capital ratios, see Regulatory capital on pages 60–63 of this Form 10-Q.)

JPMorgan Chase continued to support clients, consumers, companies, and communities around the globe. The Firm provided credit and raised capital of $1.0 trillion for commercial and consumer clients in the first six months of 2013. This included nearly $9 billion of credit provided for U.S. small businesses and $294 billion of credit provided for corporations. This also included more than $552 billion of capital for clients and more than $35 billion of credit provided to, and capital raised for, nonprofit and government entities, including states, municipalities, hospitals and universities.

Consumer & Community Banking net income decreased due to lower net revenue and higher noninterest expense, partially offset by lower provision for credit losses. Net revenue decreased, driven by lower noninterest revenue and net interest income. Noninterest revenue decreased, driven by lower mortgage fees and related income, partially offset by higher merchant servicing revenue, auto lease income and net interchange income. Net interest income decreased, driven by lower deposit margins and lower loan balances due to portfolio runoff, largely offset by higher deposit balances. The provision for credit losses was a benefit of $19 million, compared with a provision for credit losses of $179 million in the prior year. The current-quarter provision reflected a $1.5 billion reduction in the allowance for loan losses and total net charge-offs of $1.5 billion. The prior-year provision reflected a $2.1 billion reduction in the allowance for loan losses and total net charge-offs of $2.3 billion. Noninterest expense increased in the second quarter of 2013 compared with the prior year, driven by continued investments in the business, offset by lower mortgage servicing expense and lower remediation expense, inclusive of a current-quarter charge, related to an exited non-core product. Return on equity for the second quarter of 2013 was 27% on $46.0 billion of average allocated capital.

Corporate & Investment Bank net income increased compared with the prior year, reflecting higher net revenue, partially offset by higher noninterest expense. Net revenue for the second quarter of 2013 included a $355 million DVA gain on structured notes and derivative liabilities resulting from the widening of the Firm’s credit spreads, compared with a DVA gain of $755 million in the prior year. The increase in net revenue also reflected higher investment banking fees and higher Markets revenue from credit-related and equities products. Noninterest expense increased from the prior year, primarily driven by higher compensation expense on increased revenue. Return on equity for the second quarter of 2013 was 20%, or 19% excluding DVA (a non-GAAP financial measure), on $56.5 billion of average allocated capital.

Commercial Banking net income decreased compared with the prior year, reflecting a higher provision for credit losses and an increase in noninterest expense, partially offset by higher net revenue. Net revenue was slightly higher compared with the prior year, driven by higher loan and liability balances, deposit-related fees, credit card revenue, and investment banking fees, partially offset by lower purchase discounts recognized on loan repayments, spread compression on liability products and lower community development investment-related revenue. Noninterest expense increased compared with the prior year, reflecting higher headcount-related expense and increased operating expense for Commercial Card. Return on equity for the second quarter of 2013 was 18% on $13.5 billion of average allocated capital.

Asset Management net income increased compared with the prior year, reflecting higher net revenue, largely offset by higher noninterest expense. Noninterest revenue increased due to the effect of higher market levels, net client inflows, and higher performance fees. Net interest income increased due to higher loan and deposit balances, partially offset by narrower deposit and loan spreads. Noninterest expense increased from the prior year, primarily due to higher performance-based compensation and headcount-related expense. Return on equity for the second quarter of 2013 was 22% on $9.0 billion of average allocated capital.

Corporate/Private Equity net income was a loss of $552 million, compared with a loss of $1.8 billion in the prior year.

Private Equity reported net income of $212 million, compared with net income of $197 million in the prior year. Net revenue was $410 million, same as prior year.

Treasury and CIO reported a net loss of $429 million, compared with a net loss of $2.1 billion in the prior year. Net revenue was a loss of $648 million, compared with a loss of $3.4 billion in the prior year. The prior-year loss reflected $4.4 billion of principal transactions losses from the synthetic credit portfolio that had been held by CIO, partially offset by net securities gains of $1.0 billion. Net revenue in the current quarter included net securities gains of $123 million from sales of available-for-sale investment securities and a modest loss related to the redemption of trust preferred securities. Current-quarter net interest income was a loss of $558 million due to low interest rates and limited reinvestment opportunities.

Other Corporate reported a net loss of $335 million, compared with net income of $119 million in the prior year. Noninterest revenue included $545 million in the prior year related to the gain on the recovery of a Bear Stearns-related subordinated loan. The current quarter included approximately $600 million of expense for additional litigation reserves, compared with $335 million of expense for additional litigation reserves in the prior year.

Note: The Firm uses a single U.S.-based, blended marginal tax rate of 38% (“the marginal rate”) to report the estimated after-tax effects of each significant item affecting net income. This rate represents the weighted-average marginal tax rate for the U.S. consolidated tax group. The Firm uses this single marginal rate to reflect the tax effects of all significant items because (a) it simplifies the presentation and analysis for management and investors; (b) it has proved to be a reasonable estimate of the marginal tax effects; and (c) often there is uncertainty at the time a significant item is disclosed regarding its ultimate tax outcome.

2013 Business outlook

The following forward-looking statements are based on the current beliefs and expectations of JPMorgan Chase’s management and are subject to significant risks and uncertainties. These risks and uncertainties could cause the Firm’s actual results to differ materially from those set forth in such forward-looking statements. See Forward-Looking Statements on page 107 and Risk Factors on page 218 of this Form 10-Q.

JPMorgan Chase’s outlook for the remainder of 2013 should be viewed against the backdrop of the global and U.S. economies, financial markets activity, the geopolitical environment, the competitive environment, client activity levels, and regulatory and legislative developments in the U.S. and other countries where the Firm does business. Each of these linked factors will affect the performance of the Firm and its lines of business.

The Firm expects that net interest income for the third quarter of 2013 will be up modestly from the second quarter, and that net interest margin will be relatively stable for the second half of 2013.

In Mortgage Banking within CCB, management expects to continue to incur elevated default- and foreclosure-related costs, including additional costs associated with the Firm’s mortgage servicing processes, particularly its loan modification and foreclosure procedures. The Firm also expects there will be continued elevated levels of repurchases of mortgages previously sold, predominantly to U.S. government-sponsored entities (“GSEs”). However, based on current trends and estimates, management believes that the existing mortgage repurchase liability is sufficient to cover such losses.

Primary mortgage interest rates increased during the second quarter of 2013; if such rates remain at or above current levels, management estimates that the mortgage loan origination market in the U.S., including refinance and purchase, could be reduced by 30% to 40% during the second half of 2013, compared with the first half of the year. Management expects such a market environment to have a negative impact on refinancing volumes and margins, and, accordingly, the profitability of Mortgage Production within Mortgage Banking will likely be challenged.

For Real Estate Portfolios within Mortgage Banking, total net charge-offs for the third quarter are expected to be less than $250 million. If net charge-offs and delinquencies continue to trend down, the related allowance for loan losses for non credit impaired loans could be reduced over time. Additionally with continued, sustained improvement in home prices and delinquencies, the allowance for loan losses for purchased credit impaired loans could also be reduced over time.

In the Card Services business within Card, Merchant Services & Auto, the Firm expects that, if current credit trends in the credit card portfolio, including lower delinquency rates and lower balances of restructured loans, continue to improve, the related allowance for loan losses has the potential to be reduced during the second half of 2013. Management expects loan balances in Card Services could increase modestly during the second half of 2013, primarily driven by increased credit card sales volume and lower portfolio run-off.

CCB’s results will continue to be affected by U.S. economic conditions, including housing prices and the unemployment rate. Management continues to closely monitor the portfolios in these businesses.

In Private Equity, within the Corporate/Private Equity segment, earnings will likely continue to be volatile and influenced by capital markets activity, market levels, the performance of the broader economy and investment-specific factors.

For Treasury and CIO, within the Corporate/Private Equity segment, management currently believes that it may generate a quarterly net loss of approximately $300 million for the remainder of 2013, although that amount may vary each quarter driven by the implied yield curve and management decisions related to the positioning of the investment securities portfolio.

For Other Corporate, within the Corporate/Private Equity segment, management expects quarterly net income, excluding material litigation expense and significant items, if any, to be approximately $100 million, but this amount is also likely to vary each quarter.

Regulatory developments

JPMorgan Chase is subject to regulation under state and federal laws in the U.S., as well as the applicable laws of each of the various other jurisdictions outside the U.S. in which the Firm does business. The Firm is currently experiencing an unprecedented increase in regulation and supervision, and such changes could have a significant impact on how the Firm conducts business. In July 2013, the Board of Governors of the Federal Reserve System (the “Federal Reserve”), the Office of the Comptroller of the Currency (the “OCC”), and the Federal Deposit Insurance Corporation (the “FDIC”) approved the final rules for implementing Basel III in the U.S. The final rules narrowed the definition of capital, increased capital requirements for

certain exposures, set higher capital ratio requirements and minimum floors with respect the capital ratio requirements, and included a supplementary leverage ratio. The supplementary leverage ratio is defined as Tier I capital under Basel III divided by the Firm’s total leverage exposure, which is calculated by taking the Firm’s total average on-balance sheet assets, less amounts permitted to be deducted for Tier I capital, and adding certain off-balance sheet exposures, such as undrawn commitments and certain derivatives exposures. Following approval of the final Basel III rules, the U.S. banking agencies issued proposed rulemaking relating to the supplementary leverage ratio that would require U.S. bank holding companies, including JPMorgan Chase, to have a supplementary leverage ratio of at least 5%, and insured depositary institutions (“IDI”), including JPMorgan Chase Bank, N.A. and Chase Bank USA, N.A., to have a supplementary leverage ratio of at least 6%. The Firm estimates, based on its current understanding of the proposed rules, that if the rules were in effect at June 30, 2013, JPMorgan Chase’s leverage ratio at such date would have been approximately 4.7%. Management’s current objective is for the Firm to comply with the minimum supplementary leverage ratio by the beginning of 2015. This objective is based upon management’s current understanding of the proposed rules. The actual timeframe for the Firm to meet the minimum supplementary leverage ratio could depend on changes to the proposed rules and any further guidance from regulators. For further information about the supplementary leverage ratio, as well as additional information regarding Basel III, see Regulatory capital on pages 60–63 of this Form 10-Q.

On July 31, 2013, the U.S. District Court for the District of Columbia ruled that the Federal Reserve exceeded its authority in the manner it set a cap on debit card transaction interchange fees and established network exclusivity prohibitions in its regulation implementing the Durbin Amendment provisions of the Dodd-Frank Act. While the court’s ruling introduces uncertainty about the amount of interchange fees large banks may earn on debit card transactions in the future, and about how debit card transactions will be routed over payment networks in the future, the court said that the Federal Reserve’s current regulations would remain in effect for an as yet undetermined period of time to provide the Federal Reserve an opportunity to promulgate interim debit interchange standards or new regulations. The Federal Reserve has not yet announced whether it intends to appeal the decision. The Firm is assessing the decision, but it is too early for the Firm to determine the extent or timing of any potential negative effects the decision could have on the Firm, as any such effects (and the timing thereof) will depend on numerous factors, including whether the Federal Reserve challenges the decision, the success of any such challenge, and the substance of any new regulations that may be promulgated.

Rule making under the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”), as well as other federal banking laws, by the Federal Reserve, the OCC, and the FDIC, as well as by the Commodities Futures Trading Commission, the Securities Exchange Commission, and the Bureau of Consumer Financial Protection will be continuing. The Firm continues to work diligently in assessing and understanding the implications of the regulatory changes it is facing, and is devoting substantial resources to implementing all the new regulations while, at the same time, best meeting the needs and expectations of its clients.

The Firm is also experiencing heightened scrutiny by its regulators of its compliance with new and existing regulations, and with respect to its controls and operational processes. As previously disclosed, the Firm is subject to several Consent Orders with the Federal Reserve and the OCC, including those related to the Firm’s and certain of its bank subsidiaries’ Bank Secrecy Act/Anti-Money Laundering (“BSA/AML”) policies and procedures, and with regard to the risk management, model governance, and other control functions related to CIO and certain other trading activities at the Firm. The Firm expects that its banking supervisors will in the future continue to take more formal enforcement actions against the Firm (including Consent Orders related to certain non-mortgage consumer collections practices and certain sales of an ancillary identity theft protection product) rather than issuing informal supervisory actions or criticisms.

In addition, in the ordinary course of its business, the Firm is subject to governmental and regulatory examinations, information-gathering requests, investigations and proceedings (both formal and informal), certain of which may result in adverse judgments, settlements, fines, penalties, restitution, disgorgement, injunctions, or other relief. In addition, certain affiliates and subsidiaries of the Firm are banks, registered broker-dealers, futures commission merchants, investment advisers or other regulated entities and, in those capacities, are subject to regulation by various U.S., state and foreign securities, banking, commodities futures, consumer protection and other regulators. In connection with formal and informal inquiries by these regulators, the Firm and such affiliates and subsidiaries receive numerous requests, subpoenas and orders seeking documents, testimony and other information in connection with various aspects of their regulated activities. For example, the Firm is responding to and cooperating with the following examinations, inquiries and/or investigations:


▪	Examination requests from several states relating to unclaimed property and the Firm’s compliance with escheatment laws.


•	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 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 mortgage-backed securities transactions.


▪	A request from the SEC Division of Enforcement seeking information and documents relating to, among other matters, the Firm’s employment of certain former employees in Hong Kong and its business relationships with certain clients.


▪	A request for information from the New York State Department of Financial Services relating to forbearance practices for loans serviced by the Firm that are secured by residential property in Superstorm Sandy FEMA-designated counties in New York State.


▪	A request from the New York Attorney General’s Office seeking documents and information relating to, among other things, the use of services and data provided by consumer credit screening companies and the Firm’s compliance with the Fair Credit Reporting Act, the Equal Credit Opportunity Act and other laws.


▪	A request from the U.S. Department of Labor for documents and information relating to the Firm’s foreign exchange practices pursuant to the Employee Retirement Income Security Act of 1974.

While the effect of the changes in law and the heightened scrutiny of its regulators are likely to result in additional costs, the Firm cannot, given the current status of regulatory and supervisory developments, quantify the possible effects on its business and operations of all the significant changes that are currently underway. For further discussion of regulatory developments, see Supervision and regulation on pages 1–8 and Risk factors on pages 8–21 of JPMorgan Chase’s 2012 Form 10-K.

Business events

Issuance of preferred stock

On February 5, 2013 the Firm issued $900 million of noncumulative preferred stock. On April 23, 2013 the Firm issued $1.5 billion of noncumulative preferred stock. For additional information on the Firm’s preferred stock, see Note 22 on page 300 of the Firm’s 2012 Annual Report.

Redemption of outstanding trust preferred securities

On May 8, 2013, the Firm redeemed approximately $5.0 billion, or 100% of the liquidation amount, of the following eight series of trust preferred securities: JPMorgan Chase Capital X, XI, XII, XIV, XVI, XIX, XXIV, and BANK ONE Capital VI. For a further discussion of trust preferred securities, see Note 21 on pages 297–299 of JPMorgan Chase’s 2012 Annual Report.

Increase in common stock dividend

On May 21, 2013, the Board of Directors increased the Firm’s quarterly common stock dividend from $0.30 per share to $0.38 per share, effective with the dividend paid on July 31, 2013, to shareholders of record on July 5, 2013.

One Equity Partners

As announced on June 14, 2013, One Equity Partners (“OEP”) will raise its next fund from an external group of limited partners and then become independent from JPMorgan Chase. Until it becomes independent from the Firm, OEP will continue to make direct investments for JPMorgan Chase, and thereafter will continue to manage the then-existing group of portfolio companies for JPMorgan Chase to maximize value for the Firm.

Subsequent events

On July 26, 2013, the Firm announced that it is pursuing strategic alternatives for its physical commodities businesses, including its remaining holdings of commodities assets and its physical trading operations. The Firm will explore a full range of options over time, including, but not limited to: a sale, spin off or strategic partnership. During the process, the Firm will continue to run its physical commodities business as a going concern. The Firm remains fully committed to its traditional banking activities in the commodity markets, including financial derivatives and the vaulting and trading of precious metals.

On July 29, 2013, the Firm issued $1.5 billion of noncumulative preferred stock. On August 1, 2013, the Firm announced that it would redeem all of its outstanding 8.625% noncumulative preferred stock, Series J on September 1, 2013. For additional information on the Firm’s preferred stock, see Note 22 on page 300 of the Firm’s 2012 Annual Report.



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, 2013 and 2012. Factors that relate primarily to a single business segment are discussed in more detail within that

business segment. For a discussion of the Critical Accounting Estimates Used by the Firm that affect the Consolidated Results of Operations, see pages 104–106 of this Form 10-Q and pages 178–182 of JPMorgan Chase’s 2012 Annual Report.



Revenue
	Three months ended June 30,							Six months ended June 30,
(in millions)	2013		2012			Change		2013		2012		Change
Investment banking fees	$	1,717	$	1,257		37	%	$	3,162	$	2,638	20	%
Principal transactions	3,760		(427		)	NM		7,521		2,295		228
Lending- and deposit-related fees	1,489		1,546			(4	)	2,957		3,063		(3	)
Asset management, administration and commissions	3,865		3,461			12		7,464		6,853		9
Securities gains	124		1,014			(88	)	633		1,550		(59	)
Mortgage fees and related income	1,823		2,265			(20	)	3,275		4,275		(23	)
Card income	1,503		1,412			6		2,922		2,728		7
Other income^(a)	226		506			(55	)	762		2,018		(62	)
Noninterest revenue	14,507		11,034			31		28,696		25,420		13
Net interest income	10,704		11,146			(4	)	21,637		22,812		(5	)
Total net revenue	$	25,211	$	22,180		14	%	$	50,333	$	48,232	4	%


(a)	Included operating lease income of $363 million and $328 million for the three months ended June 30, 2013 and 2012, respectively, and $712 million and $651 million for the six months ended June 30, 2013 and 2012, respectively.

Total net revenue for the three months ended June 30, 2013, was $25.2 billion, an increase of $3.0 billion, or 14%, compared with the three months ended June 30, 2012. For the six months ended June 30, 2013, total net revenue was $50.3 billion, an increase of $2.1 billion, or 4%, from the same period of the prior year. In both periods, higher principal transactions revenue, investment banking fees, and asset management, administration and commissions revenue were offset partially by lower securities gains, mortgage fees and related income, net interest income and other income.

Investment banking fees for both the three and six months ended June 30, 2013, increased compared with the prior year, due to higher debt and equity underwriting fees. Despite weaker credit markets towards the end of the second quarter of 2013, the Firm’s debt underwriting fees in the first half of 2013 were close to historical records, driven in part by record industry-wide high-yield bond issuance. In equity capital markets, the Firm ranked #1 in wallet share for the first half of 2013, according to Dealogic. For additional information on investment banking fees, which are primarily recorded in CIB, see CIB segment results pages 34–40 and Note 6 on pages 143–144 of this Form 10-Q.

Principal transactions revenue increased significantly for both the three and six months ended June 30, 2013, compared with the prior year. The prior year periods included $4.4 billion and $5.8 billion, respectively, of losses on the synthetic credit portfolio that had been held by CIO. The current year periods reflected solid client revenue in fixed income and equity markets, partially offset by lower

private equity gains in the six months of 2013, and the absence of a $545 million gain recognized in the second quarter of 2012 in Other Corporate, representing the recovery on a Bear Stearns-related subordinated loan. The three and six month periods of 2013 included a DVA gain on structured notes and derivative liabilities of $355 million and $481 million, respectively, compared with a DVA gain of $755 million and a DVA loss of $152 million for the three and six month periods of 2012, respectively, as a result of changes in the Firm’s credit spreads. For additional information on principal transactions revenue, see CIB and Corporate/Private Equity segment results on pages 34–40 and 49–51, respectively, and Note 6 on pages 143–144 of this Form 10-Q.

Lending- and deposit-related fees decreased modestly compared with both the three and six months ended June 30, 2012. The decrease was predominantly due to lower deposit-related fees in CCB, resulting from reductions in certain product and transaction fees. For additional information on lending- and deposit-related fees, which are mostly recorded in CCB, CIB and CB, see the segment results for CCB on pages 19–33, CIB on pages 34–40 and CB on pages 41–44 of this Form 10-Q.

Asset management, administration and commissions revenue increased compared with both the three and six months ended June 30, 2012. The increase was driven by higher investment management fees in AM, due to the effect of higher market levels, net client inflows and higher performance fees, as well as increased investment sales revenue in CCB. For additional information on these fees and commissions, see the segment discussions for CCB on

pages 19–33, AM on pages 45–48, and Note 6 on pages 143–144 of this Form 10-Q.

Securities gains decreased compared with both prior-year periods, reflecting the results of repositioning the CIO available-for-sale (“AFS”) portfolio. For additional information on securities gains, which are predominantly recorded in the Firm’s Corporate/Private Equity segment, see the Corporate/Private Equity segment discussion on pages 49–51, and Note 11 on pages 147–150 of this Form 10-Q.

Mortgage fees and related income decreased compared with both prior-year periods. The decrease resulted from lower mortgage production revenue and mortgage servicing revenue. The decrease in mortgage production revenue reflected lower revenue margins due to tightening of primary/secondary spreads, as well as pricing pressure due to increased capacity in the market, partially offset by higher volumes. The decrease in mortgage servicing revenue was predominantly due to lower mortgage servicing rights (“MSR”) risk management results. For additional information on mortgage fees and related income, which is recorded predominantly in CCB, see CCB’s Mortgage Production and Mortgage Servicing discussion on pages 25–28, and Note 16 on pages 184–187 of this

Form 10-Q.

Card income increased compared with the three and six months ended June 30, 2012. The increase was driven by higher net interchange income on credit and debit cards, and higher merchant servicing revenue, both due to growth

in business volume. For additional information on credit card income, see the CCB segment results on pages 19–33 of this Form 10-Q.

Other income decreased compared with the three and six months ended June 30, 2012. The three months ended June 30, 2013, included a modest loss recorded on the redemption of trust preferred securities. The six months ended June 30, 2012 reflected a $1.1 billion benefit from the Washington Mutual bankruptcy settlement. The decrease compared with the three and six months ended June 30, 2012 was offset partially by higher revenue from client-driven activity in CIB.

Net interest income decreased compared with the three and six months ended June 30, 2012. The decrease primarily reflects the impact of lower loan yields due to competitive pressures and loan portfolio run-off, the impact of low interest rates on investment securities yield and reinvestment opportunities, partially offset by lower long-term debt costs, primarily due to a change in funding mix, and lower deposit costs. The Firm’s average interest-earning assets were $2.0 trillion for the three months ended June 30, 2013, and the net interest yield on those assets, on a fully taxable-equivalent (“FTE”) basis, was 2.20%, a decrease of 27 basis points from the prior year. For the six months ended June 30, 2013, the Firm’s average interest-earning assets were $1.9 trillion, and the net interest yield on those assets, on a FTE basis, was 2.28%, a decrease of 26 basis points from the prior year.



Provision for credit losses
	Three months ended June 30,								Six months ended June 30,
(in millions)	2013			2012			Change		2013			2012			Change
Consumer, excluding credit card	$	(493	)	$	(424	)	(16	)%	$	(530	)	$	(423	)	(25	)%
Credit card	464			595			(22	)	1,046			1,231			(15	)
Total consumer	(29		)	171			NM		516			808			(36	)
Wholesale	76			43			77		148			132			12
Total provision for credit losses	$	47		$	214		(78	)%	$	664		$	940		(29	)%

The provision for credit losses decreased from both the three and six months ended 2012, due to a decline in the provision for total consumer credit losses, partially offset by an increase in the provision for wholesale credit losses. The decline in the total consumer credit losses provision was due to lower net charge-offs offset partially by a smaller reduction in the allowance for loan losses compared with the prior-year periods, reflecting lower estimated losses due to improved delinquency trends in the residential real

estate and credit card portfolios, as well as the impact of improved home prices on the residential real estate portfolio. The wholesale credit losses provision in the current periods reflected stable credit trends. For a more detailed discussion of the credit portfolio and the allowance for credit losses, see the segment discussions for CCB on pages 19–33, CIB on pages 34–40 and CB on pages 41–44, and the Allowance for credit losses section on pages 92–94 of this Form 10-Q.



Noninterest expense
	Three months ended June 30,						Six months ended June 30,
(in millions)	2013		2012		Change		2013		2012		Change
Compensation expense	$	8,019	$	7,427	8	%	$	16,433	$	16,040	2	%
Noncompensation expense:
Occupancy	904		1,080		(16	)	1,805		2,041		(12	)
Technology, communications and equipment	1,361		1,282		6		2,693		2,553		5
Professional and outside services	1,901		1,857		2		3,635		3,652		—
Marketing	578		642		(10	)	1,167		1,322		(12	)
Other expense^(a)(b)	2,951		2,487		19		5,252		7,319		(28	)
Amortization of intangibles	152		191		(20	)	304		384		(21	)
Total noncompensation expense	7,847		7,539		4		14,856		17,271		(14	)
Total noninterest expense	$	15,866	$	14,966	6	%	$	31,289	$	33,311	(6	)%


(a)	Included litigation expense of $678 million and $323 million for the three months ended June 30, 2013 and 2012, respectively, and $1.0 billion and $3.0 billion for the six months ended June 30, 2013 and 2012, respectively.


(b)	Included FDIC-related expense of $392 million and $413 million for the three months ended June 30, 2013 and 2012, respectively, and $771 million and $814 million for the six months ended June 30, 2013 and 2012, respectively.

Total noninterest expense for the three months ended June 30, 2013, was $15.9 billion, up by $900 million, or 6%, compared with the prior year. The increase was due to higher compensation and other expense offset partially by lower occupancy expense. For the six months ended June 30, 2013, total noninterest expense was $31.3 billion, down by $2.0 billion, or 6%, compared with the prior year. The decrease was due to lower litigation expense in Corporate/Private Equity.

Compensation expense increased compared with the three and six months ended June 30, 2012, predominantly due to higher performance-based compensation across the businesses, and the impact of investments in the businesses, including front office sales and support staff.

Noncompensation expense increased in the three months ended June 30, 2013, compared with the prior year, due to higher other expense, in particular, litigation expense in Corporate/Private Equity, partially offset by lower

occupancy expense, reflecting the recognition of charges in 2012 related to vacating excess space. For the six months ended June 30, 2013, noncompensation expense decreased due to lower other expense, in particular, litigation expense, as well as lower occupancy expense, which reflected the aforementioned charges in 2012. The decline in litigation expense resulted from the $2.5 billion expense in Corporate/Private Equity recorded in the first quarter of 2012 for additional litigation reserves, predominantly for mortgage-related matters, partially offset by higher litigation expense in CIB in the current year. In addition to the above factors, there were other items contributing to the variances in both periods. The impact of business growth and investments in the businesses was offset partially by lower mortgage servicing and foreclosure-related expense, as well as marketing expense, in CCB. For a further discussion of litigation expense, see Note 23 on pages 198–206 of this Form 10-Q.



Income tax expense
(in millions, except rate)	Three months ended June 30,						Six months ended June 30,
(in millions, except rate)	2013			2012			2013			2012
Income before income tax expense	$	9,298		$	7,000		$	18,380		$	13,981
Income tax expense	2,802			2,040			5,355			4,097
Effective tax rate	30.1		%	29.1		%	29.1		%	29.3		%

The increase in the effective tax rate during the three months ended June 30, 2013, compared with the prior year, was predominantly the result of higher reported pretax income in combination with changes in the mix of income and expense subject to U.S. federal and state and local taxes. The decrease in the effective tax rate during the six months ended June 30, 2013, compared with the prior year, was largely attributable to tax benefits recognized in the first quarter of 2013 associated with prior year tax

adjustments and the settlement of tax audits. This was partially offset by the impact of higher reported pretax income in combination with changes in the mix of income and expense subject to U.S. federal and state and local taxes. The prior year included deferred tax benefits associated with state and local income taxes. For additional information on income taxes, see Critical Accounting Estimates Used by the Firm on pages 104–106 of this Form 10-Q.

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 108–112 of this Form 10-Q. That presentation, which is referred to as “reported” basis, provides the reader with an understanding of the Firm’s results that can be tracked consistently from year to year and enables a comparison of the Firm’s performance with other companies’ U.S. GAAP financial statements.

In addition to analyzing the Firm’s results on a reported basis, management reviews the Firm’s results and the results of the lines of business on a “managed” basis, which is a non-GAAP financial measure. The Firm’s definition of managed basis starts with the reported U.S. GAAP results and includes certain reclassifications to present total net revenue for the Firm (and each of the business segments) on a FTE basis. Accordingly, revenue from investments that receive tax credits and tax-exempt securities is presented in the managed results on a basis comparable to taxable

investments and securities. This non-GAAP financial measure allows management to assess the comparability of revenue arising from both taxable and tax-exempt sources. The corresponding income tax impact related to tax-exempt items is recorded within income tax expense. These adjustments have no impact on net income as reported by the Firm as a whole or by the lines of business.

Management also uses certain non-GAAP financial measures at the business-segment level, because it believes these other non-GAAP financial measures provide information to investors about the underlying operational performance and trends of the particular business segment and, therefore, facilitate a comparison of the business segment with the performance of its competitors. Non-GAAP financial measures used by the Firm may not be comparable to similarly named non-GAAP financial measures used by other companies.

The following summary table provides a reconciliation from the Firm’s reported U.S. GAAP results to managed basis.



	Three months ended June 30,
	2013								2012
(in millions, except ratios)	Reported results			Fully taxable-equivalent adjustments^(a)		Managed basis			Reported results			Fully taxable-equivalent adjustments^(a)		Managed basis
Other income	$	226		$	582	$	808		$	506		$	517	$	1,023
Total noninterest revenue	14,507			582		15,089			11,034			517		11,551
Net interest income	10,704			165		10,869			11,146			195		11,341
Total net revenue	25,211			747		25,958			22,180			712		22,892
Pre-provision profit	9,345			747		10,092			7,214			712		7,926
Income before income tax expense	9,298			747		10,045			7,000			712		7,712
Income tax expense	$	2,802		$	747	$	3,549		$	2,040		$	712	$	2,752
Overhead ratio	63		%	NM		61		%	67		%	NM		65		%

	Six months ended June 30,
	2013								2012
(in millions, except ratios)	Reported results			Fully taxable-equivalent adjustments^(a)		Managed basis			Reported results			Fully taxable-equivalent adjustments^(a)		Managed basis
Other income	$	762		$	1,146	$	1,908		$	2,018		$	1,051	$	3,069
Total noninterest revenue	28,696			1,146		29,842			25,420			1,051		26,471
Net interest income	21,637			327		21,964			22,812			366		23,178
Total net revenue	50,333			1,473		51,806			48,232			1,417		49,649
Pre-provision profit	19,044			1,473		20,517			14,921			1,417		16,338
Income before income tax expense	18,380			1,473		19,853			13,981			1,417		15,398
Income tax expense	$	5,355		$	1,473	$	6,828		$	4,097		$	1,417	$	5,514
Overhead ratio	62		%	NM		60		%	69		%	NM		67		%


(a)	Predominantly recognized in CIB and CB business segments and Corporate/Private Equity.

Tangible common equity (“TCE”), ROTCE, tangible book value per share (“TBVS”), and Tier 1 common under Basel I and III rules 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. TBVS represents the Firm’s tangible common equity divided by period-end common shares. Tier 1 common under Basel I and III rules are used by management, along with other capital measures, to assess and monitor the Firm’s capital position. TCE, ROTCE, and TBVS are meaningful to the Firm, as well as analysts and investors, in assessing the Firm’s use of equity.

For additional information on Tier 1 common under Basel I and III, see Regulatory capital on pages 60–63 of this Form10-Q. All of the aforementioned measures are useful

to the Firm, as well as analysts and investors, in facilitating comparisons of the Firm with competitors.



Average tangible common equity
	Three months ended June 30,						Six months ended June 30,
(in millions, except per share and ratio data)	2013			2012			2013			2012
Common stockholders’ equity	$	197,283		$	181,021		$	196,016		$	179,366
Less: Goodwill	48,078			48,157			48,123			48,188
Less: Certain identifiable intangible assets	2,026			2,923			2,093			3,029
Add: Deferred tax liabilities^(a)	2,869			2,734			2,849			2,729
Tangible common equity	$	150,048		$	132,675		$	148,649		$	130,878

Return on tangible common equity (“ROTCE”)	17		%	15		%	17		%	15		%
Tangible book value per share	$	39.97		$	35.71		$	39.97		$	35.71


(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.

Core net interest income

In addition to reviewing JPMorgan Chase’s 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 (which excludes the impact of CIB’s market-based activities). The core data presented below are non-GAAP financial measures due to the

exclusion of CIB’s market-based net interest income and related assets. Management believes this exclusion provides investors and analysts a more meaningful measure by which to analyze the non-market-related business trends of the Firm and provides a comparable measure to other financial institutions that are primarily focused on core lending, investing and deposit-raising activities.



Core net interest income data^(a)
	Three months ended June 30,								Six months ended June 30,
(in millions, except rates)	2013			2012			Change		2013			2012			Change
Net interest income – managed basis^(b)(c)	$	10,869		$	11,341		(4	)%	$	21,964		$	23,178		(5	)%
Less: Market-based net interest income	1,345			1,345			—		2,777			2,914			(5	)
Core net interest income^(b)	$	9,524		$	9,996		(5	)	$	19,187		$	20,264		(5	)

Average interest-earning assets	$	1,980,466		$	1,843,627		7		$	1,938,508		$	1,832,570		6
Less: Average market-based earning assets	512,631			505,282			1		510,796			498,016			3
Core average interest-earning assets	$	1,467,835		$	1,338,345		10	%	$	1,427,712		$	1,334,554		7	%
Net interest yield on interest-earning assets – managed basis	2.20		%	2.47		%			2.28		%	2.54		%
Net interest yield on market-basedactivities	1.05			1.07					1.10			1.18
Core net interest yield on core average interest-earning assets	2.60		%	3.00		%			2.71		%	3.05		%


(a)	Includes core lending, investing and deposit-raising activities on a managed basis across the Firm’s business segments and Corporate/Private Equity; excludes the market-based activities within the CIB.


(b)	Interest includes the effect of related hedging derivatives. Taxable-equivalent amounts are used where applicable.


(c)	For a reconciliation of net interest income on a reported and managed basis, see reconciliation from the Firm’s reported U.S. GAAP results to managed basis on page 15 of this Form 10-Q.

Quarterly and year-to-date results

Core net interest income decreased by $472 million to $9.5 billion and by $1.1 billion to $19.2 billion for the three and six months ended June 30, 2013, respectively, compared with the prior year periods. Core average interest-earning assets increased by $129.5 billion to $1,467.8 billion and by $93.2 billion to $1,427.7 billion for the three and six months ended June 30, 2013, respectively, compared with the prior year periods. The decline in core net interest income primarily reflected the impact of lower loan yields due to competitive pressures and loan portfolio run-off and the impact of low interest rates on investment securities yield and reinvestment opportunities. The decline was partially offset by lower long-term debt costs, primarily due to a change in funding mix, and lower deposit costs. The increase in average interest-earning assets was primarily driven by higher

deposits with banks. The core net interest yield decreased by 40 basis points to 2.60% and by 34 basis points to 2.71% for the three and six months ended June 30, 2013, respectively, primarily driven by a significant increase in deposits with banks, lower loan and investment securities yields, partially offset by lower long-term debt costs and deposit rates.

Other financial measures

The Firm also discloses the allowance for loan losses to total retained loans, excluding residential real estate purchased credit-impaired loans. For a further discussion of this credit metric, see Allowance for credit losses on pages 92–94 of this Form 10-Q.



BUSINESS SEGMENT RESULTS

The Firm is managed on a line of business basis. The business segment financial results presented reflect the current organization of JPMorgan Chase. There are four major reportable business segments – Consumer & Community Banking, Corporate & Investment Bank, Commercial Banking and Asset Management. In addition, there is a Corporate/Private Equity segment.

The business segments are determined based on the products and services provided, or the type of customer served, and they reflect the manner in which financial information is currently evaluated by management. Results of these lines of business are presented on a managed basis. For a definition of managed basis, see Explanation and Reconciliation of the Firm’s use of non-GAAP financial measures, on pages 15–16 of this Form 10-Q.

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.

For a further discussion of those methodologies, see Business Segment Results – Description of business segment reporting methodology on pages 78–79 of JPMorgan Chase’s 2012 Annual Report. The Firm continues to assess the assumptions, methodologies and reporting classifications used for segment reporting, and further refinements may be implemented in future periods.

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) and economic risk measures. The amount of capital assigned to each business is referred to as equity. Effective January 1, 2013, the Firm further refined the capital allocation framework to align it with the line of business structure described above, which had become effective in the fourth quarter of 2012. The increase in equity levels for the lines of businesses is largely driven by regulatory guidance on Basel III requirements, principally for CIB and CIO, and by anticipated business growth. For further information about these capital changes, see Line of business equity on pages 63–64 of this Form 10-Q.

Segment Results – Managed Basis

The following table summarizes the business segment results for the periods indicated.



Three months ended June 30,	Total net revenue^(a)								Total Noninterest expense^(a)						Pre-provision profit/(loss)^(a)
(in millions)	2013			2012			Change		2013		2012		Change		2013			2012			Change
Consumer & Community Banking	$	12,015		$	12,450		(3	)%	$	6,864	$	6,837	—	%	$	5,151		$	5,613		(8	)%
Corporate & Investment Bank	9,876			8,986			10		5,742		5,293		8		4,134			3,693			12
Commercial Banking	1,728			1,691			2		652		591		10		1,076			1,100			(2	)
Asset Management	2,725			2,364			15		1,892		1,701		11		833			663			26
Corporate/Private Equity	(386		)	(2,599		)	85		716		544		32		(1,102		)	(3,143		)	65
Total	$	25,958		$	22,892		13	%	$	15,866	$	14,966	6	%	$	10,092		$	7,926		27	%



Three months ended June 30,	Provision for credit losses								Net income/(loss)^(a)								Return on common equity
(in millions, except ratios)	2013			2012			Change		2013			2012			Change		2013		2012
Consumer & Community Banking	$	(19	)	$	179		NM		$	3,089		$	3,282		(6	)%	27	%	31	%
Corporate & Investment Bank	(6		)	29			NM		2,838			2,376			19		20		20
Commercial Banking	44			(17		)	NM		621			673			(8	)	18		28
Asset Management	23			34			(32	)%	500			391			28		22		22
Corporate/Private Equity	5			(11		)	NM		(552		)	(1,762		)	69		NM		NM
Total	$	47		$	214		(78	)%	$	6,496		$	4,960		31	%	13	%	11	%



Six months ended June 30,	Total net revenue^(a)								Total Noninterest expense^(a)						Pre-provision profit/(loss)^(a)
(in millions)	2013			2012			Change		2013		2012		Change		2013			2012			Change
Consumer & Community Banking	$	23,630		$	24,802		(5	)%	$	13,654	$	13,882	(2	)%	$	9,976		$	10,920		(9	)%
Corporate & Investment Bank	20,016			18,324			9		11,853		11,504		3		8,163			6,820			20
Commercial Banking	3,401			3,348			2		1,296		1,189		9		2,105			2,159			(3	)
Asset Management	5,378			4,734			14		3,768		3,430		10		1,610			1,304			23
Corporate/Private Equity	(619		)	(1,559		)	60		718		3,306		(78	)	(1,337		)	(4,865		)	73
Total	$	51,806		$	49,649		4	%	$	31,289	$	33,311	(6	)%	$	20,517		$	16,338		26	%



Six months ended June 30,	Provision for credit losses							Net income/(loss)^(a)								Return on common equity
(in millions, except ratios)	2013		2012			Change		2013			2012			Change		2013		2012
Consumer & Community Banking	$	530	$	821		(35	)%	$	5,675		$	6,207		(9	)%	25	%	29	%
Corporate & Investment Bank	5		26			(81	)	5,448			4,409			24		19		19
Commercial Banking	83		60			38		1,217			1,264			(4	)	18		27
Asset Management	44		53			(17	)	987			777			27		22		22
Corporate/Private Equity	2		(20		)	NM		(302		)	(2,773		)	89		NM		NM
Total	$	664	$	940		(29	)%	$	13,025		$	9,884		32	%	13	%	11	%


(a)	For the 2012 periods, certain income statement line items were revised to reflect the transfer of certain functions and staff from Corporate/Private Equity to CCB, effective January 1, 2013.



CONSUMER & COMMUNITY BANKING

For a discussion of the business profile on CCB, see pages 80–91 of JPMorgan Chase’s 2012 Annual Report and the Introduction on page 4 of this Form 10-Q.



Selected income statement data^(a)
	Three months ended June 30,								Six months ended June 30,
(in millions, except ratios)	2013			2012			Change		2013			2012			Change
Revenue
Lending- and deposit-related fees	$	727		$	782		(7	)%	$	1,450		$	1,535		(6	)%
Asset management, administration and commissions	561			540			4		1,094			1,075			2
Mortgage fees and related income	1,819			2,265			(20	)	3,269			4,273			(23	)
Card income	1,445			1,359			6		2,807			2,622			7
All other income	369			343			8		707			770			(8	)
Noninterest revenue	4,921			5,289			(7	)	9,327			10,275			(9	)
Net interest income	7,094			7,161			(1	)	14,303			14,527			(2	)
Total net revenue	12,015			12,450			(3	)	23,630			24,802			(5	)

Provision for credit losses	(19		)	179			NM		530			821			(35	)

Noninterest expense
Compensation expense	2,966			2,917			2		5,972			5,833			2
Noncompensation expense	3,789			3,776			—		7,465			7,758			(4	)
Amortization of intangibles	109			144			(24	)	217			291			(25	)
Total noninterest expense	6,864			6,837			—		13,654			13,882			(2	)
Income before income tax expense	5,170			5,434			(5	)	9,446			10,099			(6	)
Income tax expense	2,081			2,152			(3	)	3,771			3,892			(3	)
Net income	$	3,089		$	3,282		(6	)%	$	5,675		$	6,207		(9	)%

Financial ratios
Return on common equity	27		%	31		%			25		%	29		%
Overhead ratio	57			55					58			56


(a)	For the 2012 periods, certain income statement line items (predominantly net interest income, compensation and noncompensation expense) were revised to reflect the transfer of certain technology and operations, as well as real estate-related functions and staff, from Corporate/Private Equity to CCB, effective January 1, 2013.

Quarterly results

Consumer & Community Banking net income was $3.1 billion, a decrease of $193 million, or 6%, compared with the prior year, due to lower net revenue and higher noninterest expense, partially offset by lower provision for credit losses.

Net revenue was $12.0 billion, a decrease of $435 million, or 3%, compared with the prior year. Net interest income was $7.1 billion, down $67 million, or 1%, driven by lower deposit margins and lower loan balances due to portfolio runoff, largely offset by higher deposit balances. Noninterest revenue was $4.9 billion, a decrease of $368 million, or 7%, driven by lower mortgage fees and related income, partially offset by higher merchant servicing revenue, auto lease income and net interchange income.

The provision for credit losses was a benefit of $19 million, compared with a provision for credit losses of $179 million in the prior year. The current-quarter provision reflected a $1.5 billion reduction in the allowance for loan losses and total net charge-offs of $1.5 billion. The prior-year provision reflected a $2.1 billion reduction in the allowance for loan losses and total net charge-offs of $2.3 billion. For

more information, including net charge-off amounts and rates, see Consumer Credit Portfolio on pages 74–83 of this Form 10-Q.

Noninterest expense was $6.9 billion, an increase of $27 million from the prior year, driven by continued investments in the business, offset by lower mortgage servicing expense and lower remediation expense, inclusive of a current-quarter charge, related to an exited non-core product.

Year-to-date results

Consumer & Community Banking net income was $5.7 billion, a decrease of $532 million, or 9%, compared with the prior year, due to lower net revenue, partially offset by lower provision for credit losses and noninterest expense.

Net revenue was $23.6 billion, a decrease of $1.2 billion, or 5%, compared with the prior year. Net interest income was $14.3 billion, down $224 million, or 2%, driven by lower deposit margins and lower loan balances due to portfolio runoff, largely offset by higher deposit balances. Noninterest revenue was $9.3 billion, a decrease of

$948 million, or 9%, driven by lower mortgage fees and related income.

The provision for credit losses was $530 million compared with $821 million in the prior year. The current-year provision reflected a $2.7 billion reduction in the allowance for loan losses and total net charge-offs of $3.2 billion. The prior-year provision reflected a $3.9 billion reduction in the allowance for loan losses and total net charge-offs of $4.7 billion. For more information, including net charge-off

amounts and rates, see Consumer Credit Portfolio on pages 74–83 of this Form 10-Q.

Noninterest expense was $13.7 billion, a decrease of $228 million, or 2%, compared with the prior year driven by lower mortgage servicing expense and lower remediation expense, inclusive of a current-period charge, related to an exited non-core product, largely offset by continued investments in the business.



Selected metrics
	As of or for the three months ended June 30,						As of or for the six months ended June 30,
(in millions, except headcount)	2013		2012		Change		2013		2012		Change
Selected balance sheet data (period-end)^(a)
Total assets	$	460,642	$	466,650	(1	)%	$	460,642	$	466,650	(1	)%
Loans:
Loans retained	392,067		408,066		(4	)	392,067		408,066		(4	)
Loans held-for-sale and loans at fair value^(b)	15,274		14,366		6		15,274		14,366		6
Total loans	407,341		422,432		(4	)	407,341		422,432		(4	)
Deposits	456,814		415,564		10		456,814		415,564		10
Equity	46,000		43,000		7		46,000		43,000		7
Selected balance sheet data (average)^(a)
Total assets	$	457,644	$	469,296	(2	)	$	460,569	$	472,079	(2	)
Loans:
Loans retained	392,935		410,774		(4	)	395,014		414,396		(5	)
Loans held-for-sale and loans at fair value^(b)	18,199		18,476		(1	)	19,682		17,459		13
Total loans	411,134		429,250		(4	)	414,696		431,855		(4	)
Deposits	453,586		411,292		10		447,494		406,453		10
Equity	46,000		43,000		7		46,000		43,000		7

Headcount^(a)	157,886		167,480		(6	)%	157,886		167,480		(6	)%


(a)	For the 2012 periods, certain balance sheet line items (predominantly total assets) as well as headcount were revised to reflect the transfer of certain technology and operations, as well as real estate-related functions and staff, from Corporate/Private Equity to CCB, effective January 1, 2013.


(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.



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 and where otherwise noted)	2013			2012			Change		2013			2012			Change
Credit data and quality statistics
Net charge-offs	$	1,481		$	2,280		(35	)%	$	3,180		$	4,672		(32	)%
Nonaccrual loans:
Nonaccrual loans retained	8,540			8,016			7		8,540			8,016			7
Nonaccrual loans held-for-sale and loans at fair value	41			98			(58	)	41			98			(58	)
Total nonaccrual loans^(a)(b)(c)(d)	8,581			8,114			6		8,581			8,114			6
Nonperforming assets^(a)(b)(c)(d)	9,212			8,864			4		9,212			8,864			4
Allowance for loan losses	15,095			19,405			(22	)	15,095			19,405			(22	)
Net charge-off rate^(e)	1.51		%	2.23		%			1.62		%	2.27		%
Net charge-off rate,excluding PCI loans^(e)	1.77			2.64					1.90			2.68
Allowance for loan losses to period-end loans retained	3.85			4.76					3.85			4.76
Allowance for loan losses to period-end loans retained,excluding PCI loans^(f)	2.80			3.96					2.80			3.96
Allowance for loan losses to nonaccrual loans retained, excluding credit card^(a)(d)(f)	58			102					58			102
Nonaccrual loans to total period-end loans, excluding credit card^(d)	3.03			2.72					3.03			2.72
Nonaccrual loans to total period-end loans, excluding credit card and PCI loans^(a)(d)	3.79			3.45					3.79			3.45
Business metrics
Number of:
Branches	5,657			5,563			2		5,657			5,563			2
ATMs	19,075			18,132			5		19,075			18,132			5
Active online customers (in thousands)	32,245			30,361			6		32,245			30,361			6
Active mobile customers (in thousands)	14,013			10,646			32	%	14,013			10,646			32	%


(a)	Excludes PCI loans. Because the Firm is recognizing interest income on each pool of PCI loans, they are all considered to be performing.


(b)	Certain mortgage loans originated with the intent to sell are classified as trading assets on the Consolidated Balance Sheets.

(c)

At June 30, 2013 and 2012 nonperforming assets excluded: (1) mortgage loans insured by U.S. government agencies of $10.1 billion and $11.9 billion, respectively, that are 90 or more days past due; (2) real estate owned insured by U.S. government agencies of $1.8 billion and $1.3 billion, respectively; and (3) student loans insured by U.S. government agencies under the Federal Family Education Loan Program (“FFELP”) of $488 million and $547 million, respectively, that are 90 or more days past due. These amounts were excluded as reimbursement of insured amounts is proceeding normally.


(d)	Nonaccrual loans included $1.9 billion of Chapter 7 loans at June 30, 2013.


(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 $5.7 billion at both June 30, 2013 and 2012; this amount was also excluded from the applicable ratios.

Consumer & Business Banking



Selected financial statement data^(a)
	As of or for the three months ended June 30,								As of or for the six months ended June 30,
(in millions, except ratios)	2013			2012			Change		2013			2012			Change
Revenue
Lending- and deposit-related fees	$	717		$	770		(7	)%	$	1,428		$	1,512		(6	)%
Asset management, administration and commissions	454			415			9		880			827			6
Card income	378			344			10		727			659			10
All other income	124			126			(2	)	243			253			(4	)
Noninterest revenue	1,673			1,655			1		3,278			3,251			1
Net interest income	2,614			2,661			(2	)	5,186			5,314			(2	)
Total net revenue	4,287			4,316			(1	)	8,464			8,565			(1	)

Provision for credit losses	74			(2		)	NM		135			94			44

Noninterest expense	3,042			2,757			10		6,083			5,630			8
Income before income tax expense	1,171			1,561			(25	)	2,246			2,841			(21	)
Net income	$	698		$	931		(25	)	$	1,339		$	1,694		(21	)

Return on common equity	25		%	42		%			25		%	38		%
Overhead ratio	71			64					72			66
Overhead ratio, excluding core deposit intangibles^(b)	70			63					71			65
Equity (period-end and average)	$	11,000		$	9,000		22	%	$	11,000		$	9,000		22	%


(a)	For the 2012 periods, certain income statement line items were revised to reflect the transfer of certain functions and staff from Corporate/Private Equity to CCB, effective January 1, 2013.

(b)

Consumer & Business Banking (“CBB”) uses the overhead ratio (excluding the amortization of core deposit intangibles (“CDI”)), a non-GAAP financial measure, to evaluate the underlying expense trends of the business. Including CDI amortization expense in the overhead ratio calculation would result in a higher overhead ratio in the earlier years and a lower overhead ratio in later years; this method would therefore result in an improving overhead ratio over time, all things remaining equal. This non-GAAP ratio excluded CBB’s CDI amortization expense related to prior business combination transactions of $41 million and $50 million for the three months ended June 30, 2013 and 2012, respectively, and $82 million and $101 million for the six months ended June 30, 2013 and 2012, respectively.

Quarterly results

Consumer & Business Banking net income was $698 million, a decrease of $233 million, or 25%, compared with the prior year, due to higher noninterest expense, a small benefit in the prior-year provision for credit losses and lower net revenue.

Net revenue was $4.3 billion, down 1% compared with the prior year. Net interest income was $2.6 billion, down 2% compared with the prior year, driven by lower deposit margins, predominantly offset by higher deposit balances. Noninterest revenue was $1.7 billion, an increase of 1%, driven by higher debit card revenue and investment sales revenue, predominantly offset by lower deposit-related fees.

The provision for credit losses and net charge-offs were both $74 million, compared with a benefit of $2 million and net charge-offs of $98 million in the prior year.

Noninterest expense was $3.0 billion, up 10% from the prior year, primarily driven by investments in the business and certain adjustments in the prior year.

Year-to-date results

Consumer & Business Banking net income was $1.3 billion, a decrease of $355 million, or 21%, compared with the prior year, due to higher noninterest expense, lower net revenue and a higher provision for credit losses.

Net revenue was $8.5 billion, down 1% compared with the prior year. Net interest income was $5.2 billion, down 2% compared with the prior year, driven by lower deposit margins, predominantly offset by the impact of higher deposit balances. Noninterest revenue was $3.3 billion, an increase of 1%, driven by higher debit card revenue and investment sales revenue, largely offset by lower deposit-related fees.

The provision for credit losses and net charge-offs were both $135 million, compared with a provision for credit losses of $94 million and net charge-offs of $194 million in the prior year.

Noninterest expense was $6.1 billion, up 8% from the prior year, primarily driven by investments in the business and certain adjustments in the prior year.



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 and where otherwise noted)	2013			2012			Change		2013			2012			Change
Business metrics
Business banking origination volume	$	1,317		$	1,787		(26	)%	$	2,551		$	3,327		(23	)%
Period-end loans	18,950			18,218			4		18,950			18,218			4
Period-end deposits:^(a)
Checking	179,801			156,482			15		179,801			156,482			15
Savings	228,879			203,910			12		228,879			203,910			12
Time and other	29,255			34,406			(15	)	29,255			34,406			(15	)
Total period-end deposits	437,935			394,798			11		437,935			394,798			11
Average loans	18,758			17,934			5		18,734			17,800			5
Average deposits:^(a)
Checking	175,496			151,770			16		172,115			149,632			15
Savings	227,453			202,685			12		224,440			199,942			12
Time and other	29,840			35,099			(15	)	30,432			35,609			(15	)
Total average deposits	432,789			389,554			11		426,987			385,183			11
Deposit margin	2.31		%	2.62		%			2.34		%	2.65		%
Average assets^(a)	$	37,250		$	33,763		10		$	36,779		$	34,030		8
Credit data and quality statistics
Net charge-offs	$	74		$	98		(24	)	$	135		$	194		(30	)
Net charge-off rate	1.58		%	2.20		%			1.45		%	2.19		%
Allowance for loan losses	$	697		$	698		—		$	697		$	698		—
Nonperforming assets	461			597			(23	)	461			597			(23	)
Retail branch business metrics
Investment sales volume	$	9,463		$	6,171		53		$	18,683		$	12,769		46
Client investment assets	171,925			147,641			16		171,925			147,641			16
% managed accounts	33		%	26		%			33		%	26		%
Number of:
Chase Private Client locations	1,691			738			129		1,691			738			129
Personal bankers	22,825			24,052			(5	)	22,825			24,052			(5	)
Sales specialists	6,326			6,179			2		6,326			6,179			2
Client advisors	3,024			3,075			(2	)	3,024			3,075			(2	)
Chase Private Clients	165,331			50,649			226		165,331			50,649			226
Accounts (in thousands)^(b)	28,937			27,406			6	%	28,937			27,406			6	%


(a)	For the 2012 periods, certain balance sheet line items were revised to reflect the transfer of certain functions and staff from Corporate/Private Equity to CCB, effective January 1, 2013.


(b)	Includes checking accounts and Chase Liquid^SM cards.

Mortgage Banking



Selected financial statement data
	As of or for the three months ended June 30,								As of or for the six months ended June 30,
(in millions, except ratios)	2013			2012			Change		2013			2012			Change
Revenue
Mortgage fees and related income	$	1,819		$	2,265		(20	)%	$	3,269		$	4,273		(23	)%
All other income	101			123			(18	)	194			254			(24	)
Noninterest revenue	1,920			2,388			(20	)	3,463			4,527			(24	)
Net interest income	1,138			1,221			(7	)	2,313			2,471			(6	)
Total net revenue	3,058			3,609			(15	)	5,776			6,998			(17	)

Provision for credit losses	(657		)	(553		)	(19	)	(855		)	(745		)	(15	)

Noninterest expense	1,834			1,984			(8	)	3,640			4,127			(12	)
Income before income tax expense	1,881			2,178			(14	)	2,991			3,616			(17	)
Net income	$	1,142		$	1,321		(14	)	$	1,815		$	2,300		(21	)

Return on common equity	23		%	30		%			19		%	26		%
Overhead ratio	60			55					63			59
Equity (period-end and average)	$	19,500		$	17,500		11	%	$	19,500		$	17,500		11	%

Quarterly results

Mortgage Banking net income was $1.1 billion, a decrease of $179 million, or 14%, compared with prior year, driven by lower net revenue, partially offset by lower noninterest expense and lower provision for credit losses.

Net revenue was $3.1 billion, a decrease of $551 million compared with the prior year. Net interest income was $1.1 billion, a decrease of $83 million, or 7%, driven by lower loan balances due to portfolio runoff. Noninterest revenue was $1.9 billion, a decrease of $468 million, driven by lower mortgage fees and related income.

The provision for credit losses was a benefit of $657 million, compared with a benefit of $553 million in the prior year. The current quarter reflected a $950 million reduction in the allowance for loan losses due to lower estimated losses reflecting continued home price improvement and favorable delinquency trends across all products, compared with a reduction of $1.25 billion in the prior year.

Noninterest expense was $1.8 billion, a decrease of $150 million from with the prior year, due to lower servicing expenses, including lower costs associated with the Independent Foreclosure Review, partially offset by higher headcount-related expense as Mortgage Production built origination capacity.

Year-to-date results

Mortgage Banking net income was $1.8 billion, a decrease of $485 million, or 21%, compared with prior year, driven by lower net revenue, partially offset by lower noninterest expense and lower provision for credit losses.

Net revenue was $5.8 billion, a decrease of $1.2 billion compared with the prior year. Net interest income was $2.3 billion, a decrease of $158 million, or 6%, driven by lower loan balances due to portfolio runoff. Noninterest revenue was $3.5 billion, a decrease of $1.1 billion, driven by lower mortgage fees and related income.

The provision for credit losses was a benefit of $855 million, compared with a benefit of $745 million in the prior year. The current year reflected a $1.6 billion reduction in the allowance for loan losses due to lower estimated losses reflecting continued home price improvement and favorable delinquency trends across all products, compared with a reduction of $2.25 billion in the prior year.

Noninterest expense was $3.6 billion, a decrease of $487 million from the prior year, due to lower servicing expenses, including lower costs associated with the Independent Foreclosure Review, partially offset by higher headcount-related expense as Mortgage Production built origination capacity.



Functional results
	Three months ended June 30,								Six months ended June 30,
(in millions, except ratios)	2013			2012			Change		2013			2012			Change
Mortgage Production
Production revenue	$	1,064		$	1,362		(22	)%	$	2,059		$	2,794		(26	)%
Production-related net interest & other income	222			199			12		445			386			15
Production-related revenue, excluding repurchase losses	1,286			1,561			(18	)	2,504			3,180			(21	)
Production expense^(a)	720			620			16		1,430			1,193			20
Income, excluding repurchase losses	566			941			(40	)	1,074			1,987			(46	)
Repurchase losses	16			(10		)	NM		(65		)	(312		)	79
Income before income tax expense	582			931			(37	)	1,009			1,675			(40	)

Mortgage Servicing
Loan servicing revenue	945			1,004			(6	)	1,881			2,043			(8	)
Servicing-related net interest & other income	110			108			2		210			220			(5	)
Servicing-related revenue	1,055			1,112			(5	)	2,091			2,263			(8	)
Changes in MSR asset fair value due to collection/realization of expected cash flows	(285		)	(327		)	13		(543		)	(678		)	20
Default servicing expense	475			705			(33	)	972			1,595			(39	)
Core servicing expense	240			248			(3	)	480			509			(6	)
Income/(loss), excluding MSR risk management	55			(168		)	NM		96			(519		)	NM
MSR risk management, including related net interest income/(expense)	78			233			(67	)	(64		)	424			NM
Income/(loss) before income tax expense/(benefit)	133			65			105		32			(95		)	NM

Real Estate Portfolios
Noninterest revenue	(34		)	13			NM		(51		)	21			NM
Net interest income	942			1,027			(8	)	1,904			2,100			(9	)
Total net revenue	908			1,040			(13	)	1,853			2,121			(13	)

Provision for credit losses	(662		)	(554		)	(19	)	(864		)	(746		)	(16	)

Noninterest expense	404			412			(2	)	767			831			(8	)
Income before income tax expense	1,166			1,182			(1	)	1,950			2,036			(4	)
Mortgage Banking income before income tax expense	$	1,881		$	2,178		(14	)	$	2,991		$	3,616		(17	)
Mortgage Banking net income	$	1,142		$	1,321		(14	)%	$	1,815		$	2,300		(21	)%

Overhead ratios
Mortgage Production	55		%	40		%			58		%	42		%
Mortgage Servicing	84			94					98			105
Real Estate Portfolios	44			40					41			39


(a)	Includes provision for credit losses associated with Mortgage Production.



Selected income statement data
	Three months ended June 30,								Six months ended June 30,
(in millions)	2013			2012			Change		2013			2012			Change
Supplemental mortgage fees and related income details
Net production revenue:
Production revenue	$	1,064		$	1,362		(22	)%	$	2,059		$	2,794		(26	)%
Repurchase losses	16			(10		)	NM		(65		)	(312		)	79
Net production revenue	1,080			1,352			(20	)	1,994			2,482			(20	)
Net mortgage servicing revenue:
Operating revenue:
Loan servicing revenue	945			1,004			(6	)	1,881			2,043			(8	)
Changes in MSR asset fair value due to collection/realization of expected cash flows	(285		)	(327		)	13		(543		)	(678		)	20
Total operating revenue	660			677			(3	)	1,338			1,365			(2	)
Risk management:
Changes in MSR asset fair value due to market interest rates and other^(a)	1,072			(1,193		)	NM		1,618			(549		)	NM
Other changes in MSR asset fair value due to other inputs and assumptions in model^(b)	(36		)	76			NM		(273		)	28			NM
Changes in derivative fair value and other	(957		)	1,353			NM		(1,408		)	947			NM
Total risk management	79			236			(67	)	(63		)	426			NM
Total net mortgage servicing revenue	739			913			(19	)	1,275			1,791			(29	)
Mortgage fees and related income	$	1,819		$	2,265		(20	)%	$	3,269		$	4,273		(23	)%


(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.


(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).

Quarterly results

Mortgage Production pretax income was $582 million, a decrease of $349 million from the prior year, reflecting lower revenue margins and higher expense, partially offset by higher volumes and lower repurchase losses. Mortgage production-related revenue, excluding repurchase losses, was $1.3 billion, a decrease of $275 million, or 18%, from the prior year, reflecting lower revenue margins. Production expense was $720 million, an increase of $100 million from the prior year, driven by higher headcount-related expense as the business built origination capacity. Repurchase losses for the current quarter reflected a benefit of $16 million, compared with losses of $10 million in the prior year. The current quarter reflected a $185 million reduction in the repurchase liability and lower realized repurchase losses compared with prior year. For further information, see Mortgage repurchase liability on pages 55–59 of this Form 10-Q.

Mortgage Servicing pretax income was $133 million, an increase of $68 million from the prior year. Mortgage servicing revenue, including changes to the MSR asset fair value, was $770 million, a decrease of $15 million, or 2%, from the prior year. MSR risk management income, including related net interest expense, was $78 million, compared with $233 million in the prior year, driven by the net impact of various changes in model inputs and assumptions. See Note 16 on pages 184–187 of this Form 10-Q for further information regarding changes in value of the MSR asset and related hedges. Servicing expense was

$715 million, a decrease of $238 million from the prior year, reflecting lower servicing headcount and lower costs associated with the Independent Foreclosure Review.

Real Estate Portfolios pretax income was $1.2 billion, down $16 million from the prior year. Net revenue was $908 million, a decrease of $132 million, or 13%, from the prior year. The decrease was largely driven by a decline in net interest income, resulting from lower loan balances due to portfolio runoff. The provision for credit losses was a benefit of $662 million, compared with a benefit of $554 million in the prior year. The current-quarter provision reflected a $950 million reduction in the allowance for loan losses due to lower estimated losses reflecting continued home price improvement and favorable delinquency trends, compared with a reduction of $1.25 billion in the prior year. Current-quarter net charge-offs totaled $288 million, compared with $696 million in the prior year. See Consumer Credit Portfolio on pages 74–83 of this Form 10-Q for the net charge-off amounts and rates. Noninterest expense was $404 million, a decrease of $8 million, or 2%, compared with the prior year.

Year-to-date results

Mortgage Production pretax income was $1.0 billion, a decrease of $666 million from the prior year, reflecting lower revenue margins and higher expense, partially offset by higher volumes and lower repurchase losses. Mortgage production-related revenue, excluding repurchase losses, was $2.5 billion, a decrease of $676 million, or 21%, from the prior year, reflecting lower revenue margins, partially

offset by higher volumes. Production expense was $1.4 billion, an increase of $237 million from the prior year, driven by higher headcount-related expense as the business built origination capacity. Repurchase losses were $65 million, compared with $312 million in the prior year. The current year reflected a $285 million reduction in the repurchase liability and lower realized repurchase losses compared with prior year. For further information, see Mortgage repurchase liability on pages 55–59 of this Form 10-Q.

Mortgage Servicing pretax income was $32 million, an increase of $127 million from the prior year. Mortgage servicing revenue, including changes to the MSR asset fair value was $1.5 billion, a decrease of $37 million, or 2%, from the prior year. MSR risk management, including related net interest expense, was a loss of $64 million, compared with income of $424 million in the prior year, driven by the net impact of various changes in model inputs and assumptions. See Note 16 on pages 184–187 of this Form 10-Q for further information regarding changes in value of the MSR asset and related hedges. Servicing expense was $1.5 billion, a decrease of $652 million from the prior year, reflecting lower costs associated with the Independent Foreclosure Review, lower servicing headcount and the impact of approximately $150 million for foreclosure-related matters in the prior year.

Real Estate Portfolios pretax income was $2.0 billion, down $86 million from the prior year. Net revenue was $1.9 billion, a decrease of $268 million, or 13%, from the prior year. The decrease was largely driven by a decline in net interest income, resulting from lower loan balances due to portfolio runoff. The provision for credit losses was a benefit of $864 million, compared with a benefit of $746 million in the prior year. The current-year provision reflected a $1.6 billion reduction in the allowance for loan losses due to lower estimated losses reflecting continued home price improvement and favorable delinquency trends, compared with a reduction of $2.25 billion in the prior year. Current-year net charge-offs totaled $736 million,

compared with $1.5 billion in the prior year. See Consumer Credit Portfolio on pages 74–83 of this Form 10-Q for the net charge-off amounts and rates. Noninterest expense was $767 million, a decrease of $64 million, or 8%, compared with the prior year, primarily driven by lower foreclosed asset expense due to lower foreclosure inventory.

PCI Loans

Included within Real Estate Portfolios are PCI loans that the Firm acquired in the Washington Mutual transaction. For PCI loans, the excess of the undiscounted gross cash flows expected to be collected over the carrying value of the loans (the “accretable yield”) is accreted into interest income at a level rate of return over the expected life of the loans.

The net spread between the PCI loans and the related liabilities are expected to be relatively constant over time, except for any basis risk or other residual interest rate risk that remains and for certain changes in the accretable yield percentage (e.g., from extended loan liquidation periods and from prepayments). As of June 30, 2013, the remaining weighted-average life of the PCI loan portfolio is expected to be 8 years. The loan balances are expected to decline more rapidly over the next three to four years as the most troubled loans are liquidated, and more slowly thereafter as the remaining troubled borrowers have limited refinancing opportunities. Similarly, default and servicing expense are expected to be higher in the earlier years and decline over time as liquidations slow down.

To date the impact of the PCI loans on Real Estate Portfolios’ net income has been negative. This is largely due to the provision for loan losses recognized subsequent to their acquisition, and the higher level of default and servicing expense associated with the portfolio. Over time, the Firm expects that this portfolio will contribute positively to net income.

For further information, see Note 14, PCI loans, on pages 168–169 of this Form 10-Q.



Mortgage Production and Mortgage Servicing
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)	2013			2012			Change		2013			2012			Change
Selected balance sheet data
Period-end loans:
Prime mortgage, including option ARMs^(a)	$	15,567		$	17,454		(11	)%	$	15,567		$	17,454		(11	)%
Loans held-for-sale and loans at fair value^(b)	15,274			14,254			7		15,274			14,254			7
Average loans:
Prime mortgage, including option ARMs^(a)	16,933			17,478			(3	)	17,242			17,358			(1	)
Loans held-for-sale and loans at fair value^(b)	18,199			17,694			3		19,682			16,658			18
Average assets	59,880			60,534			(1	)	62,037			59,698			4
Repurchase liability (period-end)	2,245			2,997			(25	)	2,245			2,997			(25	)
Credit data and quality statistics
Net charge-offs:
Prime mortgage, including option ARMs	5			1			400		9			1			NM
Net charge-off rate:
Prime mortgage, including option ARMs	0.12		%	0.02		%			0.11		%	0.01		%
30+ day delinquency rate^(c)	3.46			3.00					3.46			3.00
Nonperforming assets^(d)	$	707		$	708		—	%	$	707		$	708		—	%


(a)	Predominantly represents prime mortgage loans repurchased from Government National Mortgage Association (“Ginnie Mae”) pools, which are insured by U.S. government agencies. See further discussion of loans repurchased from Ginnie Mae pools in Mortgage repurchase liability on pages 55–59 and Note 21 on pages 193–197 of this Form

10-Q.


(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, 2013 and 2012, excluded mortgage loans insured by U.S. government agencies of $11.2 billion and $13.0 billion, respectively, that are 30 or more days past due. These amounts were excluded as reimbursement of insured amounts is proceeding normally. For further discussion, see Note 13 on pages 153–175 of this Form 10-Q which summarizes loan delinquency information.

(d)

At June 30, 2013 and 2012, nonperforming assets excluded: (1) mortgage loans insured by U.S. government agencies of $10.1 billion and $11.9 billion, respectively, that are 90 or more days past due; and (2) real estate owned insured by U.S. government agencies of $1.8 billion and $1.3 billion, respectively. These amounts were excluded as reimbursement of insured amounts is proceeding normally. For further discussion, see Note 13 on pages 153–175 of this Form 10-Q which summarizes loan delinquency information.



Selected metrics
	As of or for the three months ended June 30,								As of or for the six months ended June 30,
(in billions, except ratios)	2013			2012			Change		2013			2012			Change
Business metrics
Mortgage origination volume by channel
Retail	$	23.3		$	26.1		(11	)%	$	49.5		49.5			—	%
Wholesale^(a)	0.1			0.2			(50	)	0.2			0.2			—
Correspondent^(a)	25.6			17.6			45		52.0			32.6			60
Total mortgage origination volume^(b)	$	49.0		$	43.9		12		$	101.7		$	82.3		24
Mortgage application volume by channel
Retail	$	36.8		$	43.1		(15	)	$	71.5		$	83.1		(14	)
Wholesale^(a)	—			0.1			NM		0.2			0.3			(33	)
Correspondent^(a)	28.2			23.7			19		53.8			43.4			24
Total mortgage application volume	$	65.0		$	66.9		(3	)	$	125.5		$	126.8		(1	)
Third-party mortgage loans serviced (period-end)	$	832.0		$	860.0		(3	)	$	832.0		$	860.0		(3	)
Third-party mortgage loans serviced (average)	840.6			866.7			(3	)	847.4			879.6			(4	)
MSR carrying value (period-end)	9.3			7.1			31	%	9.3			7.1			31	%
Ratio of MSR carrying value (period-end) to third-party mortgage loans serviced (period-end)	1.12		%	0.83		%			1.12		%	0.83		%
Ratio of annualized loan servicing-related revenue to third-party mortgage loans serviced (average)	0.41			0.47					0.42			0.47
MSR revenue multiple^(c)	2.73x			1.77x					2.67x			1.77x


(a)	Includes rural housing loans sourced through brokers and correspondents, which are underwritten and closed with pre-funding 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 $52.0 billion and $46.0 billion for the three months ended June 30, 2013 and 2012, respectively, and $107.1 billion and $86.5 billion for the six months ended June 30, 2013 and 2012, 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).



Real Estate Portfolios
Selected metrics
	As of or for the three months ended June 30,						As of or for the six months ended June 30,
(in millions)	2013		2012		Change		2013		2012		Change
Loans, excluding PCI
Period-end loans owned:
Home equity	$	62,326	$	72,833	(14	)%	$	62,326	$	72,833	(14	)%
Prime mortgage, including option ARMs	44,003		42,037		5		44,003		42,037		5
Subprime mortgage	7,703		8,945		(14	)	7,703		8,945		(14	)
Other	589		675		(13	)	589		675		(13	)
Total period-end loans owned	$	114,621	$	124,490	(8	)	$	114,621	$	124,490	(8	)
Average loans owned:
Home equity	$	63,593	$	74,069	(14	)	$	64,856	$	75,334	(14	)
Prime mortgage, including option ARMs	43,007		42,543		1		42,411		43,122		(2	)
Subprime mortgage	7,840		9,123		(14	)	7,989		9,304		(14	)
Other	597		684		(13	)	608		696		(13	)
Total average loans owned	$	115,037	$	126,419	(9	)	$	115,864	$	128,456	(10	)
PCI loans
Period-end loans owned:
Home equity	$	19,992	$	21,867	(9	)	$	19,992	$	21,867	(9	)
Prime mortgage	12,976		14,395		(10	)	12,976		14,395		(10	)
Subprime mortgage	4,448		4,784		(7	)	4,448		4,784		(7	)
Option ARMs	19,320		21,565		(10	)	19,320		21,565		(10	)
Total period-end loans owned	$	56,736	$	62,611	(9	)	$	56,736	$	62,611	(9	)
Average loans owned:
Home equity	$	20,245	$	22,076	(8	)	$	20,494	$	22,282	(8	)
Prime mortgage	13,152		14,590		(10	)	13,337		14,783		(10	)
Subprime mortgage	4,488		4,824		(7	)	4,538		4,869		(7	)
Option ARMs	19,618		21,823		(10	)	19,920		22,109		(10	)
Total average loans owned	$	57,503	$	63,313	(9	)	$	58,289	$	64,043	(9	)
Total Real Estate Portfolios
Period-end loans owned:
Home equity	$	82,318	$	94,700	(13	)	$	82,318	$	94,700	(13	)
Prime mortgage, including option ARMs	76,299		77,997		(2	)	76,299		77,997		(2	)
Subprime mortgage	12,151		13,729		(11	)	12,151		13,729		(11	)
Other	589		675		(13	)	589		675		(13	)
Total period-end loans owned	$	171,357	$	187,101	(8	)	$	171,357	$	187,101	(8	)
Average loans owned:
Home equity	$	83,838	$	96,145	(13	)	$	85,350	$	97,616	(13	)
Prime mortgage, including option ARMs	75,777		78,956		(4	)	75,668		80,014		(5	)
Subprime mortgage	12,328		13,947		(12	)	12,527		14,173		(12	)
Other	597		684		(13	)	608		696		(13	)
Total average loans owned	$	172,540	$	189,732	(9	)	$	174,153	$	192,499	(10	)
Average assets	$	163,593	$	177,698	(8	)	$	164,975	$	179,976	(8	)
Home equity origination volume	499		360		39	%	901		672		34	%



Credit data and quality statistics
	As of or for the three months ended June 30,								As of or for the six months ended June 30,
(in millions, except ratios)	2013			2012			Change		2013			2012			Change
Net charge-offs, excluding PCI loans
Home equity	$	236		$	466		(49	)%	$	569		$	1,008		(44	)%
Prime mortgage, including option ARMs	16			114			(86	)	60			245			(76	)
Subprime mortgage	33			112			(71	)	100			242			(59	)
Other	3			4			(25	)	7			9			(22	)
Total net charge-offs, excluding PCI loans	$	288		$	696		(59	)	$	736		$	1,504		(51	)
Net charge-off rate, excluding PCI loans:
Home equity	1.49		%	2.53		%			1.77		%	2.69		%
Prime mortgage, including option ARMs	0.15			1.08					0.29			1.14
Subprime mortgage	1.69			4.94					2.52			5.23
Other	2.02			2.35					2.32			2.60
Total net charge-off rate, excluding PCI loans	1.00			2.21					1.28			2.35
Net charge-off rate – reported:
Home equity	1.13		%	1.95		%			1.34		%	2.08		%
Prime mortgage, including option ARMs	0.08			0.58					0.16			0.62
Subprime mortgage	1.07			3.23					1.61			3.43
Other	2.02			2.35					2.32			2.60
Total net charge-off rate – reported	0.67			1.48					0.85			1.57
30+ day delinquency rate, excluding PCI loans^(a)	4.17		%	5.16		%			4.17		%	5.16		%
Allowance for loan losses, excluding PCI loans	$	3,268		$	6,468		(49	)	$	3,268		$	6,468		(49	)
Allowance for PCI loans	5,711			5,711			—		5,711			5,711			—
Allowance for loan losses	$	8,979		$	12,179		(26	)	$	8,979		$	12,179		(26	)
Nonperforming assets^(b)(c)	7,801			7,340			6	%	7,801			7,340			6	%
Allowance for loan losses to period-end loans retained	5.24		%	6.51		%			5.24		%	6.51		%
Allowance for loan losses to period-end loans retained, excluding PCI loans	2.85			5.20					2.85			5.20


(a)	The 30+ day delinquency rate for PCI loans was 17.92% and 21.38% at June 30, 2013 and 2012, respectively.


(b)	Excludes PCI loans. Because the Firm is recognizing interest income on each pool of PCI loans, they are all considered to be performing.


(c)	Beginning September 30, 2012, nonperforming assets included Chapter 7 loans.

Card, Merchant Services & Auto



Selected financial statement data
	As of or for the three months ended June 30,								As of or for the six months ended June 30,
(in millions, except ratios)	2013			2012			Change		2013			2012			Change
Revenue
Card income	$	1,067		$	1,015		5	%	$	2,080		$	1,963		6	%
All other income	261			231			13		506			534			(5	)
Noninterest revenue	1,328			1,246			7		2,586			2,497			4
Net interest income	3,342			3,279			2		6,804			6,742			1
Total net revenue	4,670			4,525			3		9,390			9,239			2

Provision for credit losses	564			734			(23	)	1,250			1,472			(15	)

Noninterest expense	1,988			2,096			(5	)	3,931			4,125			(5	)
Income before income tax expense	2,118			1,695			25		4,209			3,642			16
Net income	$	1,249		$	1,030		21		$	2,521		$	2,213		14

Return on common equity	32		%	25		%			33		%	27		%
Overhead ratio	43			46					42			45
Equity (period-end and average)	$	15,500		$	16,500		(6	)%	$	15,500		$	16,500		(6	)%

Quarterly results

Card, Merchant Services & Auto net income was $1.2 billion, an increase of $219 million, or 21%, compared with the prior year, driven by lower provision for credit losses, higher net revenue and lower noninterest expense.

Net revenue was $4.7 billion, up $145 million, or 3%, compared with the prior year. Net interest income was $3.3 billion, up $63 million compared with the prior year. The impact of lower revenue reversals associated with lower net charge-offs in Credit Card was largely offset by lower average credit card loan balances and spread compression in Auto. Noninterest revenue was $1.3 billion, up $82 million compared with the prior year, primarily driven by higher merchant servicing revenue, auto lease income and net interchange income.

The provision for credit losses was $564 million, compared with $734 million in the prior year. The current-quarter provision reflected lower net charge-offs and a $550 million reduction in the allowance for loan losses due to lower estimated losses reflecting improved delinquency trends. The prior-year provision included a $751 million reduction in the allowance for loan losses. The Credit Card net charge-off rate¹ was 3.31%, down from 4.32% in the prior year; and the 30+ day delinquency rate¹ was 1.69%, down from 2.13% in the prior year. The Auto net charge-off rate was 0.18%, up from 0.17% in the prior year.

Noninterest expense was $2.0 billion, a decrease of $108 million, or 5%, from the prior year, primarily driven by lower remediation expense, inclusive of a current-quarter charge, related to an exited non-core product.

Year-to-date results

Card, Merchant Services & Auto net income was $2.5 billion, an increase of $308 million, or 14%, compared with the prior year, driven by lower provision for credit losses, lower noninterest expense and higher net revenue.

Net revenue was $9.4 billion, up $151 million, or 2%, compared with the prior year. Net interest income was $6.8 billion, up $62 million compared with the prior year. The impact of lower revenue reversals associated with lower net charge-offs in Credit Card was largely offset by lower average credit card loan balances and spread compression in Auto. Noninterest revenue was $2.6 billion, up $89 million compared with the prior year, primarily driven by higher net interchange income, merchant servicing revenue and auto lease income, partially offset by a gain on an investment security in the prior year.

The provision for credit losses was $1.3 billion, compared with $1.5 billion in the prior year. The current-year provision reflected lower net charge-offs and a $1.1 billion reduction in the allowance for loan losses due to lower estimated losses reflecting improved delinquency trends. The prior-year provision included a $1.5 billion reduction in the allowance for loan losses. The Credit Card net charge-off rate¹ was 3.43%, down from 4.34% in the prior year. The Auto net charge-off rate was 0.25%, up from 0.23% in the prior year.

Noninterest expense was $3.9 billion, a decrease of $194 million, or 5%, from the prior year, primarily driven by lower remediation expense, inclusive of a current-period charge, related to an exited non-core product.

¹ The net charge-off and 30+ day delinquency rates presented for credit card loans, which include loans held-for-sale, are non-GAAP financial measures. Management uses this as an additional measure to assess the performance of the portfolio.



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 and where otherwise noted)	2013			2012			Change		2013			2012			Change
Selected balance sheet data (period-end)
Loans:
Credit Card	$	124,288		$	124,705		—	%	$	124,288		$	124,705		—	%
Auto	50,865			48,468			5		50,865			48,468			5
Student	11,040			12,232			(10	)	11,040			12,232			(10	)
Total loans	$	186,193		$	185,405		—		$	186,193		$	185,405		—
Selected balance sheet data (average)
Total assets	$	196,921		$	197,301		—		$	196,778		$	198,375		(1	)
Loans:
Credit Card	122,855			125,195			(2	)	123,208			126,405			(3	)
Auto	50,677			48,273			5		50,362			47,989			5
Student	11,172			12,944			(14	)	11,315			13,146			(14	)
Total loans	$	184,704		$	186,412		(1	)	$	184,885		$	187,540		(1	)
Business metrics
Credit Card, excluding Commercial Card
Sales volume (in billions)	$	105.2		$	96.0		10		$	199.9		$	182.9		9
New accounts opened	1.5			1.6			(6	)	3.2			3.3			(3	)
Open accounts	64.8			63.7			2		64.8			63.7			2
Accounts with sales activity	30.0			29.3			2		30.0			29.3			2
% of accounts acquired online	53		%	49		%			52		%	48		%
Merchant Services (Chase Paymentech Solutions)
Merchant processing volume (in billions)	$	185.0		$	160.2		15		$	360.8		$	313.0		15
Total transactions (in billions)	8.8			7.1			24		17.1			13.9			23
Auto & Student
Origination volume (in billions)
Auto	$	6.8		$	5.8		17		$	13.3		$	11.6		15
Student	—			—			—	%	0.1			0.1			—	%



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)	2013			2012			Change		2013			2012			Change
Credit data and quality statistics
Net charge-offs:
Credit Card	$	1,014		$	1,345		(25	)%	$	2,096		$	2,731		(23	)%
Auto	23			21			10		63			54			17
Student	77			119			(35	)	141			188			(25	)
Total net charge-offs	$	1,114		$	1,485		(25	)	$	2,300		$	2,973		(23	)
Net charge-off rate:
Credit Card^(a)	3.31		%	4.35		%			3.43		%	4.37		%
Auto	0.18			0.17					0.25			0.23
Student	2.76			3.70					2.51			2.88
Total net charge-off rate	2.42			3.22					2.51			3.20
Delinquency rates
30+ day delinquency rate:
Credit Card^(b)	1.69			2.14					1.69			2.14
Auto	0.95			0.90					0.95			0.90
Student^(c)	2.23			1.95					2.23			1.95
Total 30+ day delinquency rate	1.52			1.80					1.52			1.80
90+ day delinquency rate – Credit Card^(b)	0.82			1.04					0.82			1.04
Nonperforming assets^(d)(e)	$	243		$	219		11		$	243		$	219		11
Allowance for loan losses:
Credit Card	$	4,445		$	5,499		(19	)	$	4,445		$	5,499		(19	)
Auto & Student	954			1,009			(5	)	$	954		$	1,009		(5	)
Total allowance for loan losses	$	5,399		$	6,508		(17	)%	$	5,399		$	6,508		(17	)%
Allowance for loan losses to period-end loans:
Credit Card^(b)	3.58		%	4.41		%			3.58		%	4.41		%
Auto & Student	1.54			1.66					1.54			1.66
Total allowance for loan losses to period-end loans	2.90			3.51					2.90			3.51


(a)	Average credit card loans included loans held-for-sale of $782 million for the three months ended June 30, 2012 and $801 million for the six months ended June 30, 2012. 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 $112 million at June 30, 2012. This amount is excluded when calculating delinquency rates and the allowance for loan losses to period-end loans. No allowance for loan losses was recorded for these 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 $812 million and $931 million at June 30, 2013 and 2012, respectively, that are 30 or more days past due. These amounts are excluded as reimbursement of insured amounts is proceeding normally.


(d)	Nonperforming assets excluded student loans insured by U.S. government agencies under the FFELP of $488 million and $547 million at June 30, 2013 and 2012, respectively, that are 90 or more days past due. These amounts are excluded as reimbursement of insured amounts is proceeding normally.


(e)	Beginning September 30, 2012, nonperforming assets included Chapter 7 loans.



Card Services supplemental information
	Three months ended June 30,								Six months ended June 30,
(in millions, except ratios)	2013			2012			Change		2013			2012			Change
Revenue
Noninterest revenue	$	994		$	953		4	%	$	1,932		$	1,902		2	%
Net interest income	2,863			2,755			4		5,833			5,683			3
Total net revenue	3,857			3,708			4		7,765			7,585			2

Provision for credit losses	464			595			(22	)	1,046			1,231			(15	)

Noninterest expense	1,537			1,703			(10	)	3,038			3,339			(9	)
Income before income tax expense	1,856			1,410			32		3,681			3,015			22
Net income	$	1,093		$	860		27	%	$	2,206		$	1,839		20	%

Percentage of average loans:
Noninterest revenue	3.25		%	3.06		%			3.16		%	3.03		%
Net interest income	9.35			8.85					9.55			9.04
Total net revenue	12.59			11.91					12.71			12.07



CORPORATE & INVESTMENT BANK

For a discussion of the business profile on CIB, see pages 92–95 of JPMorgan Chase’s 2012 Annual Report and the Introduction on page 4 of this Form 10-Q.

CIB provides several non-GAAP financial measures which exclude the impact of DVA on: net revenue, net income, compensation ratio, and return on equity. The ratio for the allowance for loan losses to end-of-period loans is calculated excluding the impact of trade finance and consolidated Firm-administered multi-seller conduits, to provide a more meaningful assessment of CIB’s allowance coverage ratio. These measures are used by management to assess the underlying performance of the business and for comparability with peers.



Selected income statement data
	Three months ended June 30,							Six months ended June 30,
(in millions)	2013			2012		Change		2013		2012		Change
Revenue
Investment banking fees	$	1,717		$	1,245	38	%	$	3,150	$	2,620	20	%
Principal transactions^(a)	3,288			3,070		7		7,249		6,281		15
Lending- and deposit-related fees	486			488		—		959		963		—
Asset management, administration and commissions	1,289			1,207		7		2,456		2,426		1
All other income	391			251		56		714		459		56
Noninterest revenue	7,171			6,261		15		14,528		12,749		14
Net interest income	2,705			2,725		(1	)	5,488		5,575		(2	)
Total net revenue^(b)	9,876			8,986		10		20,016		18,324		9

Provision for credit losses	(6		)	29		NM		5		26		(81	)

Noninterest expense
Compensation expense	2,988			2,718		10		6,364		6,341		—
Noncompensation expense	2,754			2,575		7		5,489		5,163		6
Total noninterest expense	5,742			5,293		8		11,853		11,504		3
Income before income tax expense	4,140			3,664		13		8,158		6,794		20
Income tax expense	1,302			1,288		1		2,710		2,385		14
Net income	$	2,838		$	2,376	19	%	$	5,448	$	4,409	24	%


(a)	Includes DVA on structured notes and derivative liabilities measured at fair value. DVA gains/(losses) were $355 million and $755 million for the three months ended June 30, 2013 and 2012, and $481 million and $(152) million for the six months ended June 30, 2013 and 2012, respectively.


(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 $550 million and $494 million for the three months ended June 30, 2013 and 2012, and $1.1 million and $1.0 billion for the six months ended June 30, 2013 and 2012, respectively.



Selected income statement data
	Three months ended June 30,								Six months ended June 30,
(in millions, except ratios)	2013			2012			Change		2013			2012			Change
Financial ratios
Return on common equity^(a)	20		%	20		%			19		%	19		%
Overhead ratio	58			59					59			63
Compensation expense as a percentage of total net revenue^(b)	30			30					32			35
Revenue by business
Advisory	$	304		$	356		(15	)%	$	559		$	637		(12	)%
Equity underwriting	457			250			83		730			526			39
Debt underwriting	956			639			50		1,861			1,457			28
Total investment banking fees	1,717			1,245			38		3,150			2,620			20
Treasury Services	1,051			1,074			(2	)	2,095			2,126			(1	)
Lending	373			370			1		871			592			47
Total Banking	3,141			2,689			17		6,116			5,338			15
Fixed Income Markets^(c)	4,078			3,493			17		8,830			8,509			4
Equity Markets	1,296			1,043			24		2,636			2,467			7
Securities Services	1,087			1,078			1		2,061			2,040			1
Credit Adjustments & Other^(d)(e)	274			683			(60	)	373			(30		)	NM
Total Markets & Investor Services	6,735			6,297			7		13,900			12,986			7
Total net revenue	$	9,876		$	8,986		10	%	$	20,016		$	18,324		9	%


(a)	Return on equity excluding DVA, a non-GAAP financial measure, was 19% and 16% for the three months ended June 30, 2013 and 2012, and 18% and 19% for the six months ended June 30, 2013 and 2012, respectively.


(b)	Compensation expense as a percentage of total net revenue excluding DVA, a non-GAAP financial measure, was 31% and 33% for the three months ended June 30, 2013 and 2012, and 33% and 34% for the six months ended June 30, 2013 and 2012, respectively.


(c)	Includes results of the synthetic credit portfolio that was transferred from CIO effective July 2, 2012.


(d)	Primarily includes credit portfolio credit valuation adjustments (“CVA”) net of associated hedging activities; DVA on structured notes and derivative liabilities; and nonperforming derivative receivable results.


(e)	Includes DVA on structured notes and derivative liabilities measured at fair value. DVA gains/(losses) were $355 million and $755 million for the three months ended June 30, 2013 and 2012, and $481 million and $(152) million for the six months ended June 30, 2013 and 2012, respectively.

Quarterly results

Net income was $2.8 billion, up 19% compared with the prior year. These results primarily reflected higher net revenue, partially offset by higher noninterest expense. Net revenue was $9.9 billion, compared with $9.0 billion in the prior year. Net revenue included a $355 million gain from DVA on structured notes and derivative liabilities resulting from the widening of the Firm’s credit spreads; the prior year included a gain from DVA of $755 million. Excluding the impact of DVA, net income was $2.6 billion, up 37% from the prior year, and net revenue was $9.5 billion, up 16% from the prior year.

Banking revenue was $3.1 billion, compared with $2.7 billion in the prior year. Investment banking fees were $1.7 billion (up 38%), driven by higher debt underwriting fees of $956 million (up 50%) despite weaker credit markets towards the end of the second quarter, and equity underwriting fees of $457 million (up 83%), reflecting higher industry-wide issuance as well as a #1 ranking in equity capital markets wallet share for the quarter, according to Dealogic. These were partially offset by lower advisory fees of $304 million (down 15%) reflecting lower industry-wide M&A completed deal volumes for the second quarter compared with the prior year. Treasury Services revenue was $1.1 billion, down 2% compared with the prior year, driven by lower trade finance spreads, predominantly

in Asia. Lending revenue was $373 million, primarily reflecting net interest income on retained loans and fees on lending-related commitments, compared with $370 million in the prior year.

Markets & Investor Services revenue was $6.7 billion, up 7% from the prior year. Fixed Income and Equity Markets combined revenue was $5.4 billion, up 18% from the prior year. Fixed Income markets revenue of $4.1 billion was up 17% from the prior year, reflecting solid client revenue as well as improved credit-related products performance, benefiting from reduced Eurozone uncertainty and a stronger U.S. housing market compared with the prior year. Equity markets revenue of $1.3 billion was up 24% from the prior year, driven by strong performance in equity derivatives and cash equities. Securities Services revenue was $1.1 billion, up 1% from the prior year. Growth in asset-based custody fees was consistent with growth in assets under custody of $18.9 trillion, which were up 7% from the prior year; this was predominantly offset by lower revenue in agent lending, due to lower balances and spreads, as well as securities clearance, due primarily to lower volumes. Credit Adjustments & Other revenue was $274 million, compared with $683 million in the prior year; both periods were predominantly driven by the impact of DVA.

The provision for credit losses was a benefit of $6 million, compared with a provision for credit losses of $29 million in the prior year. Net recoveries were $82 million compared with net recoveries of $10 million in the prior year. The ratio of the allowance for loan losses to period-end loans retained was 1.21%, compared with 1.31% in the prior year. Excluding the impact of the consolidation of Firm-administered multi-seller conduits and trade finance loans, the ratio of the allowance for loan losses to period-end loans retained was 2.35%, compared with 2.75% in the prior year.

Noninterest expense was $5.7 billion, up 8% from the prior year, primarily driven by higher compensation expense on increased revenue. The compensation ratio for the current quarter was 31%, excluding the impact of DVA.

Return on equity was 20% (19% excluding DVA) on $56.5 billion of average allocated capital.

Year-to-date results

Net income was $5.5 billion, up 24% compared with the prior year. These results reflected higher net revenue partially offset by higher noninterest expense. Net revenue was $20.0 billion, compared with $18.3 billion in the prior year. Net revenue included a $481 million gain from DVA on structured notes and derivative liabilities resulting from the widening of the Firm’s credit spreads; the prior year included a loss from DVA of $152 million. Excluding the impact of DVA, net income was $5.2 billion, up 14% from the prior year and net revenue was $19.5 billion, up 6% from the prior year.

Banking revenue was $6.1 billion, compared with $5.3 billion in the prior year. Investment banking fees were $3.2 billion (up 20%), driven by higher debt underwriting fees of $1.9 billion (up 28%) and equity underwriting fees of $730 million (up 39%), partially offset by lower advisory fees of $559 million (down 12%). Debt underwriting fees in the first half of 2013 were close to historical records, driven in part by record industry-wide high-yield bond issuance. Equity underwriting results were driven by higher industry-wide issuance, as well as a #1 ranking in equity capital markets wallet share for the first half of 2013, according to Dealogic. Advisory fees were lower compared with the prior

year, as industry-wide completed M&A volume remained flat, but the number of deals completed declined from the prior year period, according to Dealogic. Treasury Services revenue was $2.1 billion, down 1% compared with the prior year driven by lower trade finance spreads. Lending revenue was $871 million, compared with $592 million in the prior year; the current period primarily reflected net interest income on retained loans and fees on lending-related commitments, as well as gains on securities received from restructured loans.

Markets & Investor Services revenue was $13.9 billion, up 7% from the prior year. Fixed Income and Equity Markets combined revenue was $11.5 billion, up 4% from the prior year, reflecting solid client revenue and stronger results in credit-related and equity products, partially offset by lower results in rates-related products. Securities Services revenue was $2.1 billion, up 1% from the prior year. Growth in asset-based custody fees was consistent with growth in assets under custody of $18.9 trillion, which were up 7% compared with the prior year; this was predominantly offset by lower revenue in agent lending, due to lower balances and spreads, as well as securities clearance, due primarily to lower volumes. Credit Adjustments & Other revenue was $373 million, compared with a loss of $30 million in the prior year; both periods were primarily driven by the impact of DVA.

The provision for credit losses was $5 million, compared with $26 million in the prior year. CIB continues to experience stable trends in the credit portfolio with low levels of nonaccrual loans and charge-offs. Net recoveries were $63 million compared with net recoveries of $45 million in the prior year.

Noninterest expense was $11.9 billion, up 3% from the prior year, driven by higher noncompensation expense primarily related to litigation expense. The compensation ratio, excluding the impact of DVA, was 33% and 34% for the six months ended June 30, 2013 and 2012, respectively.

Return on equity was 19% (18% excluding DVA) on $56.5 billion of average allocated capital.



Selected metrics
	As of or for the three months ended June 30,						As of or for the six months ended June 30,
(in millions, except headcount)	2013		2012		Change		2013		2012		Change
Selected balance sheet data (period-end)
Assets	$	873,527	$	897,413	(3	)%	$	873,527	$	897,413	(3	)%
Loans:
Loans retained^(a)	106,248		114,620		(7	)	106,248		114,620		(7	)
Loans held-for-sale and loans at fair value	4,564		2,375		92		4,564		2,375		92
Total loans	110,812		116,995		(5	)	110,812		116,995		(5	)
Equity	56,500		47,500		19		56,500		47,500		19
Selected balance sheet data (average)
Assets	$	878,801	$	859,026	2		$	874,657	$	856,578	2
Trading assets-debt and equity instruments	336,118		305,972		10		339,203		310,574		9
Trading assets-derivative receivables	72,036		74,960		(4	)	71,576		75,590		(5	)
Loans:
Loans retained^(a)	107,654		112,952		(5	)	107,226		110,050		(3	)
Loans held-for-sale and loans at fair value	5,950		3,256		83		5,604		3,063		83
Total loans	113,604		116,208		(2	)	112,830		113,113		—
Equity	56,500		47,500		19		56,500		47,500		19

Headcount	51,771		52,336		(1	)%	51,771		52,336		(1	)%


(a)	Loans retained includes credit portfolio loans, trade finance loans, other held-for-investment loans and overdrafts.



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 and where otherwise noted)	2013			2012			Change		2013			2012			Change
Credit data and quality statistics
Net charge-offs/(recoveries)	$	(82	)	$	(10	)	NM		$	(63	)	$	(45	)	(40	)%
Nonperforming assets:
Nonaccrual loans:
Nonaccrual loans retained^(a)(b)	227			661			(66	)%	227			661			(66	)
Nonaccrual loansheld-for-sale and loans at fair value	148			158			(6	)	148			158			(6	)
Total nonaccrual loans	375			819			(54	)	375			819			(54	)
Derivative receivables	448			451			(1	)	448			451			(1	)
Assets acquired in loan satisfactions	46			68			(32	)	46			68			(32	)
Total nonperforming assets	869			1,338			(35	)	869			1,338			(35	)
Allowance for credit losses:
Allowance for loan losses	1,287			1,498			(14	)	1,287			1,498			(14	)
Allowance for lending-related commitments	556			542			3		556			542			3
Total allowance for credit losses	1,843			2,040			(10	)	1,843			2,040			(10	)
Net charge-off/(recovery) rate^(a)	(0.31		)%	(0.04		)%			(0.12		)%	(0.08		)%
Allowance for loan losses to period-end loans retained^(a)	1.21			1.31					1.21			1.31
Allowance for loan losses to period-end loans retained, excluding trade finance and conduits^(c)	2.35			2.75					2.35			2.75
Allowance for loan losses to nonaccrual loans retained^(a)(b)	567			227					567			227
Nonaccrual loans to total period-end loans	0.34			0.70					0.34			0.70
Business metrics
Assets under custody (“AUC”) by asset class (period-end) in billions:
Fixed Income	$	11,421		$	11,302		1		$	11,421		$	11,302		1
Equity	5,961			5,025			19		5,961			5,025			19
Other^(d)	1,547			1,338			16		1,547			1,338			16
Total AUC	$	18,929		$	17,665		7		$	18,929		$	17,665		7
Client deposits and other third party liabilities (average)	$	369,108		$	348,102		6		$	363,218		$	352,533		3
Trade finance loans (period-end)	36,375			35,291			3	%	36,375			35,291			3	%


(a)	Loans retained includes credit portfolio loans, trade finance loans, other held-for-investment loans and overdrafts.


(b)	Allowance for loan losses of $70 million and $202 million were held against these nonaccrual loans at June 30, 2013 and 2012, 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.



Market shares and rankings^(a)
	Six months ended June 30, 2013			Full-year 2012
	Market Share		Rankings	Market Share		Rankings
Global investment banking fees^(b)	8.9	%	#1	7.5	%	#1
Debt, equity and equity-related
Global	7.4		1	7.2		1
U.S.	11.7		1	11.5		1
Syndicated loans
Global	10.0		1	9.6		1
U.S.	17.3		1	17.6		1
Long-term debt^(c)
Global	7.4		1	7.1		1
U.S.	11.9		1	11.6		1
Equity and equity-related
Global^(d)	7.5		2	7.8		4
U.S.	11.6		3	10.4		5
Announced M&A^(e)
Global	24.3		2	19.8		2
U.S.	37.6		1	24.3		2

(a)

Source: Dealogic. Global Investment Banking fees reflects the ranking of fees and market share. The remaining rankings 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.


(b)	Global investment banking fees rankings exclude money market, short-term debt and shelf deals.


(c)	Long-term debt rankings include investment-grade, high-yield, supranationals, sovereigns, agencies, covered bonds, asset-backed securities (“ABS”) and mortgage-backed securities; and exclude money market, short-term debt, and U.S. municipal securities.


(d)	Global equity and equity-related ranking includes rights offerings and Chinese A-Shares.


(e)	Announced M&A reflects the removal of any withdrawn transactions. U.S. announced M&A represents any U.S. involvement ranking.



International metrics
	As of or for the three months ended June 30,						As of or for the six months ended June 30,
(in millions)	2013		2012		Change		2013		2012		Change
Total net revenue^(a)
Europe/Middle East/Africa	$	2,955	$	2,885	2	%	$	6,338	$	5,935	7	%
Asia/Pacific	1,403		1,020		38		2,568		2,130		21
Latin America/Caribbean	397		375		6		797		795		—
Total international net revenue	4,755		4,280		11		9,703		8,860		10
North America	5,121		4,706		9		10,313		9,464		9
Total net revenue	$	9,876	$	8,986	10		$	20,016	$	18,324	9

Loans (period-end)^(a)
Europe/Middle East/Africa	$	32,685	$	33,041	(1	)	$	32,685	$	33,041	(1	)
Asia/Pacific	26,616		27,058		(2	)	26,616		27,058		(2	)
Latin America/Caribbean	10,434		9,982		5		10,434		9,982		5
Total international loans	69,735		70,081		—		69,735		70,081		—
North America	36,513		44,539		(18	)	36,513		44,539		(18	)
Total loans	$	106,248	$	114,620	(7	)	$	106,248	$	114,620	(7	)

Client deposits and other third-party liabilities (average)^(a)
Europe/Middle East/Africa	$	139,801	$	127,173	10		$	137,085	$	127,484	8
Asia/Pacific	51,666		50,331		3		51,830		50,264		3
Latin America/Caribbean	15,012		10,453		44		13,604		11,153		22
Total international	$	206,479	$	187,957	10		$	202,519	$	188,901	7
North America	162,629		160,145		2		160,699		163,632		(2	)
Total client deposits and other third-party liabilities	$	369,108	$	348,102	6		$	363,218	$	352,533	3

AUC (period-end) (in billions)^(a)
North America	$	10,672	$	10,048	6		$	10,672	$	10,048	6
All other regions	8,257		7,617		8		8,257		7,617		8
Total AUC	$	18,929	$	17,665	7	%	$	18,929	$	17,665	7	%


(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 carried at fair value), client deposits and other third-party liabilities, and AUC are based predominantly on the domicile of the client.



COMMERCIAL BANKING

For a discussion of the business profile of CB, see pages 96–98 of JPMorgan Chase’s 2012 Annual Report and the Introduction on page 5 of this Form 10-Q.



Selected income statement data
	Three months ended June 30,								Six months ended June 30,
(in millions, except ratios)	2013			2012			Change		2013			2012			Change
Revenue
Lending- and deposit-related fees	$	265		$	264		—	%	$	524		$	540		(3	)%
Asset management, administration and commissions	30			34			(12	)	62			70			(11	)
All other income^(a)	256			264			(3	)	500			509			(2	)
Noninterest revenue	551			562			(2	)	1,086			1,119			(3	)
Net interest income	1,177			1,129			4		2,315			2,229			4
Total net revenue^(b)	1,728			1,691			2		3,401			3,348			2
Provision for credit losses	44			(17		)	NM		83			60			38
Noninterest expense
Compensation expense^(c)	286			245			17		575			501			15
Noncompensation expense^(c)	361			339			6		709			674			5
Amortization of intangibles	5			7			(29	)	12			14			(14	)
Total noninterest expense	652			591			10		1,296			1,189			9
Income before income tax expense	1,032			1,117			(8	)	2,022			2,099			(4	)
Income tax expense	411			444			(7	)	805			835			(4	)
Net income	$	621		$	673		(8	)	$	1,217		$	1,264		(4	)
Revenue by product
Lending	$	971		$	920		6		$	1,895		$	1,812		5
Treasury services	607			603			1		1,212			1,205			1
Investment banking	132			129			2		250			249			—
Other^(d)	18			39			(54	)	44			82			(46	)
Total Commercial Banking net revenue	$	1,728		$	1,691		2		$	3,401		$	3,348		2

Investment banking revenue, gross^(e)	$	385		$	384		—		$	726		$	723		—

Revenue by client segment
Middle Market Banking^(f)	$	777		$	740		5		$	1,530		$	1,471		4
Corporate Client Banking^(f)	444			436			2		877			867			1
Commercial Term Lending	315			291			8		606			584			4
Real Estate Banking	113			114			(1	)	225			219			3
Other	79			110			(28	)	163			207			(21	)
Total Commercial Banking net revenue	$	1,728		$	1,691		2	%	$	3,401		$	3,348		2	%
Financial ratios
Return on common equity	18		%	28		%			18		%	27		%
Overhead ratio	38			35					38			36


(a)	Includes revenue from investment banking products and commercial card transactions.

(b)

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 $90 million and $99 million for the three months ended June 30, 2013 and 2012, respectively, and $183 million and $193 million for the six months ended June 30, 2013 and 2012, respectively.

(c)

Effective July 1, 2012, certain Treasury Services product sales staff supporting CB were transferred from CIB to CB. As a result, compensation expense for these sales staff is now reflected in CB’s compensation expense rather than as an allocation from CIB in noncompensation expense. CB’s and CIB’s previously reported headcount, compensation expense and noncompensation expense have been revised to reflect this transfer.


(d)	Other revenue in the fourth quarter of 2012 included a $49 million year-to-date reclassification of tax equivalent revenue to Corporate/Private Equity.


(e)	Represents the total revenue related to investment banking products sold to CB clients.


(f)	Effective January 1, 2013, the financial results of financial institution clients were transferred to Corporate Client Banking from Middle Market Banking. Prior periods were revised to conform with this presentation.

Quarterly results

Net income was $621 million, a decrease of $52 million, or 8% compared with the prior year, reflecting a higher provision for credit losses and an increase in noninterest expense, partially offset by higher net revenue.

Net revenue was $1.7 billion, an increase of $37 million, or 2%, compared with the prior year. Net interest income was $1.2 billion, an increase of $48 million, or 4%, driven by higher loan and liability balances, partially offset by lower purchase discounts recognized on loan repayments and spread compression on liability products. Noninterest revenue was $551 million, a decrease of $11 million, or 2% compared with the prior year, driven by lower community development investment-related revenue, partially offset by increased deposit-related fees, credit card revenue, and investment banking fees.

Revenue from Middle Market Banking was $777 million, an increase of $37 million, or 5%, from the prior year. Revenue from Corporate Client Banking was $444 million, an increase of $8 million, or 2%, compared with the prior year. Revenue from Commercial Term Lending was $315 million, an increase of $24 million, or 8%, compared with the prior year. Revenue from Real Estate Banking was $113 million, flat compared with the prior year.

The provision for credit losses was $44 million, compared with a benefit of $17 million in the prior year. Net charge-offs were $9 million (0.03% net charge-off rate), compared with net recoveries of $9 million (0.03% net recovery rate) in the prior year. The allowance for loan losses to period-end loans retained was 2.06%, down from 2.20% in the prior year. Nonaccrual loans were $513 million, down $404 million, or 44%, from the prior year mainly due to repayments.

Noninterest expense was $652 million, up 10% compared with the prior year, reflecting higher headcount-related expense and increased operating expense for Commercial Card.

Year-to-date results

Net income was $1.2 billion, a decrease of $47 million, or 4%, compared with the prior year. The decrease reflected higher noninterest expense and provision for credit losses, partially offset by an increase in net revenue.

Net revenue was $3.4 billion, an increase of $53 million, or 2%, compared with the prior year. Net interest income was $2.3 billion, an increase of $86 million, or 4%, driven by growth in loan balances, partially offset by lower purchase discounts recognized on loan repayments. Noninterest revenue was $1.1 billion, down $33 million, or 3%, driven by lower community development investment-related revenue and lower lending-related fees.

On a client segment basis, revenue from Middle Market Banking was $1.5 billion, an increase of $59 million, or 4%, from the prior year. Revenue from Corporate Client Banking was $877 million, up $10 million, or 1%, compared with the prior year. Revenue from Commercial Term Lending was $606 million, an increase of $22 million, or 4%, compared with the prior year. Revenue from Real Estate Banking was $225 million, an increase of $6 million, or 3%.

The provision for credit losses was $83 million, compared with $60 million in the prior year. Net charge-offs were $2 million compared with $3 million in the prior year. The allowance for loan losses to period-end loans retained was 2.06%, down from 2.20% in the prior year. Nonaccrual loans were $513 million, down $404 million, or 44%, from the prior year due to commercial real estate repayments, charge-offs and loan sales.

Noninterest expense was $1.3 billion, an increase of $107 million, or 9%, from the prior year, reflecting higher headcount-related expense and increased operating expense for Commercial Card.



Selected metrics
	As of or for the three months ended June 30,						As of or for the six months ended June 30,
(in millions, except headcount and ratios)	2013		2012		Change		2013		2012		Change
Selected balance sheet data (period-end)
Total assets	$	184,124	$	163,698	12	%	$	184,124	$	163,698	12	%
Loans:
Loans retained^(a)	130,487		119,946		9		130,487		119,946		9
Loans held-for-sale and loans at fair value	430		547		(21	)	430		547		(21	)
Total loans	$	130,917	$	120,493	9		$	130,917	$	120,493	9
Equity	13,500		9,500		42		13,500		9,500		42

Period-end loans by client segment
Middle Market Banking^(b)	$	52,053	$	47,472	10		$	52,053	$	47,472	10
Corporate Client Banking^(b)	19,933		19,005		5		19,933		19,005		5
Commercial Term Lending	45,865		40,972		12		45,865		40,972		12
Real Estate Banking	9,395		8,819		7		9,395		8,819		7
Other	3,671		4,225		(13	)	3,671		4,225		(13	)
Total Commercial Banking loans	$	130,917	$	120,493	9		$	130,917	$	120,493	9

Selected balance sheet data (average)
Total assets	$	184,951	$	163,423	13		$	183,792	$	162,249	13
Loans:
Loans retained^(a)	130,338		117,835		11		129,419		115,357		12
Loans held-for-sale and loans at fair value	1,251		599		109		1,027		740		39
Total loans	$	131,589	$	118,434	11		$	130,446	$	116,097	12
Client deposits and other third-party liabilities	195,232		193,280		1		195,598		196,729		(1	)
Equity	13,500		9,500		42		13,500		9,500		42
Average loans by client segment
Middle Market Banking^(b)	$	52,205	$	46,679	12		$	52,110	$	45,755	14
Corporate Client Banking^(b)	21,344		18,789		14		21,203		18,260		16
Commercial Term Lending	45,087		40,060		13		44,469		39,454		13
Real Estate Banking	9,277		8,808		5		8,979		8,575		5
Other	3,676		4,098		(10	)	3,685		4,053		(9	)
Total Commercial Banking loans	$	131,589	$	118,434	11		$	130,446	$	116,097	12

Headcount^(c)(d)	6,660		6,042		10	%	6,660		6,042		10	%


(a)	Effective January 1, 2013, whole loan financing agreements, previously reported as other assets, were reclassified as loans. For the three months ended June 30, 2013, the impact on period-end loans was $2.1 billion, and the impact on average loans was $1.8 billion.


(b)	Effective January 1, 2013, the financial results of financial institution clients were transferred to Corporate Client Banking from Middle Market Banking. Prior periods were revised to conform with this presentation.


(c)	Effective July 1, 2012, certain Treasury Services product sales staff supporting CB were transferred from CIB to CB. For further discussion of this transfer, see footnote (c) on page 41 of this Form 10-Q.


(d)	Effective January 1, 2013, headcount includes transfers from other business segments largely related to operations, technology and other support staff.



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)	2013			2012			Change		2013			2012			Change
Credit data and quality statistics
Net charge-offs/(recoveries)	$	9		$	(9	)	NM		$	2		$	3		(33	)%
Nonperforming assets
Nonaccrual loans:
Nonaccrual loans retained^(a)	505			881			(43	)%	505			881			(43	)
Nonaccrual loans held-for-sale and loans at fair value	8			36			(78	)	8			36			(78	)
Total nonaccrual loans	513			917			(44	)	513			917			(44	)
Assets acquired in loan satisfactions	30			36			(17	)	30			36			(17	)
Total nonperforming assets	543			953			(43	)	543			953			(43	)
Allowance for credit losses:
Allowance for loan losses	2,691			2,638			2		2,691			2,638			2
Allowance for lending-related commitments	183			209			(12	)	183			209			(12	)
Total allowance for credit losses	2,874			2,847			1	%	2,874			2,847			1	%
Net charge-off/(recovery) rate^(b)	0.03		%	(0.03		)%			—		%	0.01		%
Allowance for loan losses to period-end loansretained	2.06			2.20					2.06			2.20
Allowance for loan losses to nonaccrual loans retained^(a)	533			299					533			299
Nonaccrual loans to total period-end loans	0.39			0.76					0.39			0.76


(a)	Allowance for loan losses of $79 million and $143 million was held against nonaccrual loans retained at June 30, 2013 and 2012, respectively.


(b)	Loans held-for-sale and loans at fair value were excluded when calculating the net charge-off/(recovery) rate.



ASSET MANAGEMENT

For a discussion of the business profile of AM, see pages 99–101 of JPMorgan Chase’s 2012 Annual Report and the Introduction on page 5 of this Form 10-Q.



Selected income statement data
	Three months ended June 30,								Six months ended June 30,
(in millions, except ratios)	2013			2012			Change		2013			2012			Change
Revenue
Asset management, administration and commissions	$	2,018		$	1,701		19	%	$	3,901		$	3,322		17	%
All other income	138			151			(9	)	349			417			(16	)
Noninterest revenue	2,156			1,852			16		4,250			3,739			14
Net interest income	569			512			11		1,128			995			13
Total net revenue	2,725			2,364			15		5,378			4,734			14

Provision for credit losses	23			34			(32	)	44			53			(17	)

Noninterest expense
Compensation expense	1,155			1,024			13		2,325			2,144			8
Noncompensation expense	716			655			9		1,400			1,241			13
Amortization of intangibles	21			22			(5	)	43			45			(4	)
Total noninterest expense	1,892			1,701			11		3,768			3,430			10
Income before income tax expense	810			629			29		1,566			1,251			25
Income tax expense	310			238			30		579			474			22
Net income	$	500		$	391		28		$	987		$	777		27
Revenue by client segment
Private Banking	$	1,483		$	1,341		11		$	2,929		$	2,620		12
Institutional	588			537			9		1,177			1,094			8
Retail	654			486			35		1,272			1,020			25
Total net revenue	$	2,725		$	2,364		15	%	$	5,378		$	4,734		14	%
Financial ratios
Return on common equity	22		%	22		%			22		%	22		%
Overhead ratio	69			72					70			72
Pretax margin ratio	30			27					29			26

Quarterly results

Net income was $500 million, an increase of $109 million, or 28%, from the prior year, reflecting higher net revenue, largely offset by higher noninterest expense.

Net revenue was $2.7 billion, an increase of $361 million, or 15%, from the prior year. Noninterest revenue was $2.2 billion, up $304 million, or 16%, from the prior year, due to the effect of higher market levels, net client inflows, and higher performance fees. Net interest income was $569 million, up $57 million, or 11%, from the prior year, due to higher loan and deposit balances, partially offset by narrower deposit and loan spreads.

Revenue from Private Banking was $1.5 billion, up 11% compared with the prior year. Revenue from Retail was $654 million, up 35%. Revenue from Institutional was $588 million, up 9%.

The provision for credit losses was $23 million, compared with $34 million in the prior year.

Noninterest expense was $1.9 billion, an increase of $191 million, or 11%, from the prior year, primarily due

to higher performance-based compensation and higher headcount-related expense driven by continued front office expansion efforts.

Year-to-date results

Net income was $987 million, an increase of $210 million, or 27%, from the prior year, reflecting higher net revenue, largely offset by higher noninterest expense.

Net revenue was $5.4 billion, an increase of $644 million, or 14%, from the prior year. Noninterest revenue was $4.3 billion, up $511 million, or 14%, from the prior year, due to net client inflows, the effect of higher market levels, and higher performance fees. Net interest income was $1.1 billion, up $133 million, or 13%, from the prior year, due to higher loan and deposit balances, partially offset by narrower deposit and loan spreads.

Revenue from Private Banking was $2.9 billion, up 12% from the prior year. Revenue from Retail was $1.3 billion, up 25%. Revenue from Institutional was $1.2 billion, up 8%.

The provision for credit losses was $44 million, compared with $53 million in the prior year.

Noninterest expense was $3.8 billion, an increase of $338 million, or 10%, from the prior year, primarily due to higher headcount-related expense driven by continued front

office expansion efforts and performance-based compensation.



Selected metrics	As of or for the three months ended June 30,								As of or for the six months ended June 30,
(in millions, except headcount, ranking data and where otherwise noted)	2013			2012			Change		2013			2012			Change
Number of:
Client advisors	2,804			2,739			2	%	2,804			2,739			2	%
% of customer assets in 4 & 5 Star Funds^(a)	52		%	43		%			52		%	43		%
% of AUM in 1^st and 2^nd quartiles:^(b)
1 year	73			65					73			65
3 years	77			72					77			72
5 years	76			74					76			74
Selected balance sheet data (period-end)
Total assets	$	115,157		$	98,704		17		$	115,157		$	98,704		17
Loans^(c)	86,043			70,470			22		86,043			70,470			22
Deposits	137,289			128,251			7		137,289			128,251			7
Equity	9,000			7,000			29		9,000			7,000			29
Selected balance sheet data (average)
Total assets	$	111,431		$	96,670		15		$	109,681		$	93,126		18
Loans	83,621			67,093			25		81,821			63,202			29
Deposits	136,577			128,087			7		138,001			127,811			8
Equity	9,000			7,000			29		9,000			7,000			29

Headcount	19,026			17,660			8	%	19,026			17,660			8	%


(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 $14.8 billion and $6.7 billion of prime mortgage loans reported in the Consumer, excluding credit card, loan portfolio at June 30, 2013 and 2012, respectively. Excluded $4.8 billion and $9.9 billion of prime mortgage loans reported in the CIO portfolio within the Corporate/Private Equity segment at June 30, 2013 and 2012, respectively.



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 and where otherwise noted)	2013			2012			Change		2013			2012			Change
Credit data and quality statistics
Net charge-offs	$	4		$	28		(86	)%	$	27		$	55		(51	)%
Nonaccrual loans	244			256			(5	)	244			256			(5	)
Allowance for credit losses:
Allowance for loan losses	270			220			23		270			220			23
Allowance for lending-related commitments	6			6			—		6			6			—
Total allowance for credit losses	276			226			22		276			226			22
Net charge-off rate	0.02		%	0.17		%			0.07		%	0.18		%
Allowance for loan losses to period-end loans	0.31			0.31					0.31			0.31
Allowance for loan losses to nonaccrual loans	111			86					111			86
Nonaccrual loans to period-end loans	0.28			0.36					0.28			0.36

AM firmwide disclosures^(a)
Total net revenue	$	3,226		$	2,726		18		$	6,338		$	5,436		17
Client assets (in billions)^(b)	2,323			2,098			11		2,323			2,098			11
Number of client advisors	5,828			5,814			—	%	5,828			5,814			—	%


(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. Management reviews firmwide metrics in assessing the financial performance of AM’s client asset management business.


(b)	Excludes CWM client assets that are managed by AM.

Client assets

Client assets were $2.2 trillion, an increase of $189 billion, or 10%, compared with the prior year. Assets under management were $1.5 trillion, an increase of $123 billion, or 9%, from the prior year, due to net inflows to long-term products and the effect of higher market levels, partially

offset by net outflows from liquidity products. Custody, brokerage, administration and deposit balances were $687 billion, up $66 billion, or 11%, from the prior year, due to the effect of higher market levels and custody inflows.



Client assets	June 30,
(in billions)	2013		2012		Change
Assets by asset class
Liquidity	$	431	$	452	(5	)%
Fixed income	325		309		5
Equity	316		250		26
Multi-asset and alternatives	398		336		18
Total assets under management	1,470		1,347		9
Custody/brokerage/administration/deposits	687		621		11
Total client assets	$	2,157	$	1,968	10

Alternative client assets^(a)	147		144		2

Assets by client segment
Private Banking	$	340	$	297	14
Institutional	723		702		3
Retail	407		348		17
Total assets under management	$	1,470	$	1,347	9
Private Banking	$	910	$	816	12
Institutional	723		702		3
Retail	524		450		16
Total client assets	$	2,157	$	1,968	10
Mutual fund assets by asset class
Liquidity	$	379	$	408	(7	)
Fixed income	139		119		17
Equity	164		124		32
Multi-asset and alternatives	60		43		40
Total mutual fund assets	$	742	$	694	7	%

(a) Represents assets under management, as well as client balances in brokerage accounts.



	Three months ended June 30,						Six months ended June 30,
(in billions)	2013			2012			2013			2012
Assets under management rollforward
Beginning balance	$	1,483		$	1,382		$	1,426		$	1,336
Net asset flows:
Liquidity	(22		)	(24		)	(24		)	(48		)
Fixed income	4			6			6			15
Equity	7			3			22			3
Multi-asset and alternatives	14			4			27			11
Market/performance/other impacts	(16		)	(24		)	13			30
Ending balance, June 30	$	1,470		$	1,347		$	1,470		$	1,347
Client assets rollforward
Beginning balance	$	2,171		$	2,013		$	2,095		$	1,921
Net asset flows	(4		)	(6		)	16			2
Market/performance/other impacts	(10		)	(39		)	46			45
Ending balance, June 30	$	2,157		$	1,968		$	2,157		$	1,968



International metrics	As of or for the three months ended June 30,						As of or for the six months ended June 30,
(in billions, except where otherwise noted)	2013		2012		Change		2013		2012		Change
Total net revenue (in millions)^(a)
Europe/Middle East/Africa	$	435	$	379	15	%	$	872	$	784	11	%
Asia/Pacific	291		230		27		568		466		22
Latin America/Caribbean	230		166		39		436		341		28
North America	1,769		1,589		11		3,502		3,143		11
Total net revenue	$	2,725	$	2,364	15		$	5,378	$	4,734	14
Assets under management
Europe/Middle East/Africa	$	261	$	261	—		$	261	$	261	—
Asia/Pacific	124		103		20		124		103		20
Latin America/Caribbean	40		41		(2	)	40		41		(2	)
North America	1,045		942		11		1,045		942		11
Total assets under management	$	1,470	$	1,347	9		$	1,470	$	1,347	9
Client assets
Europe/Middle East/Africa	$	317	$	315	1		$	317	$	315	1
Asia/Pacific	171		144		19		171		144		19
Latin America/Caribbean	105		101		4		105		101		4
North America	1,564		1,408		11		1,564		1,408		11
Total client assets	$	2,157	$	1,968	10	%	$	2,157	$	1,968	10	%

(a) Regional revenue is based on the domicile of the client.



CORPORATE/PRIVATE EQUITY

For a discussion of Corporate/Private Equity, see pages 102–104 of JPMorgan Chase’s 2012 Annual Report and the Introduction on page 5 of this Form 10-Q.



Selected income statement data^(a)
	As of or for the three months ended June 30,								As of or for the six months ended June 30,
(in millions, except headcount)	2013			2012			Change		2013			2012			Change
Revenue
Principal transactions	$	393		$	(3,576	)	NM		$	131		$	(4,123	)	NM
Securities gains	124			1,013			(88	)%	633			1,462			(57	)%
All other income	(227		)	150			NM		(113		)	1,250			NM
Noninterest revenue	290			(2,413		)	NM		651			(1,411		)	NM
Net interest income	(676		)	(186		)	(263	)	(1,270		)	(148		)	NM
Total net revenue^(b)	(386		)	(2,599		)	85		(619		)	(1,559		)	60

Provision for credit losses	5			(11		)	NM		2			(20		)	NM

Noninterest expense
Compensation expense	624			523			19		1,197			1,221			(2	)
Noncompensation expense^(c)	1,345			1,169			15		1,987			4,360			(54	)
Subtotal	1,969			1,692			16		3,184			5,581			(43	)
Net expense allocated to other businesses	(1,253		)	(1,148		)	(9	)	(2,466		)	(2,275		)	(8	)
Total noninterest expense	716			544			32		718			3,306			(78	)
Income/(loss) before income tax expense/(benefit)	(1,107		)	(3,132		)	65		(1,339		)	(4,845		)	72
Income tax expense/(benefit)	(555		)	(1,370		)	59		(1,037		)	(2,072		)	50
Net income/(loss)	$	(552	)	$	(1,762	)	69		$	(302	)	$	(2,773	)	89
Total net revenue
Private equity	$	410		$	410		—		$	134		$	664		(80	)
Treasury and CIO	(648		)	(3,434		)	81		(535		)	(3,667		)	85
Other Corporate^(a)	(148		)	425			NM		(218		)	1,444			NM
Total net revenue	$	(386	)	$	(2,599	)	85		$	(619	)	$	(1,559	)	60
Net income/(loss)
Private equity	$	212		$	197		8		$	30		$	331		(91	)
Treasury and CIO	(429		)	(2,078		)	79		(405		)	(2,305		)	82
Other Corporate^(a)	(335		)	119			NM		73			(799		)	NM
Total net income/(loss)	$	(552	)	$	(1,762	)	69		$	(302	)	$	(2,773	)	89
Total assets (period-end)^(a)	$	806,044		$	663,681		21		$	806,044		$	663,681		21
Headcount^(a)	18,720			16,880			11	%	18,720			16,880			11	%


(a)	For the 2012 periods, certain income statement (including net expense allocated to other businesses) and balance sheet line items, as well as headcount were revised to reflect the transfer of certain functions and staff from Corporate/Private Equity to CCB, effective January 1, 2013. For further information on this transfer, see footnote (a) on page 19 of this Form 10-Q.


(b)	Included tax-equivalent adjustments, predominantly due to tax-exempt income from municipal bond investments of $105 million and $118 million for the three months ended June 30, 2013 and 2012, respectively, and $208 million and $217 million for the six months ended June 30, 2013 and 2012, respectively.


(c)	Included litigation expense of $603 million and $332 million for the three months ended June 30, 2013 and 2012, respectively, and $595 million and $2.8 billion for the six months ended June 30, 2013 and 2012.

Quarterly results

Net income was a loss of $552 million, compared with a loss of $1.8 billion in the prior year.

Private Equity reported net income of $212 million, compared with net income of $197 million in the prior year. Net revenue was $410 million, same as prior year.

Treasury and CIO reported a net loss of $429 million, compared with a net loss of $2.1 billion in the prior year. Net revenue was a loss of $648 million, compared with a loss of $3.4 billion in the prior year. The prior-year loss reflected $4.4 billion of principal transactions losses from the synthetic credit portfolio that had been held by CIO, partially offset by securities gains of $1.0 billion. Net revenue in the current quarter included net securities gains of $123 million from sales of available-for-sale investment securities and a modest loss related to the redemption of trust preferred securities. Current-quarter net interest income was a loss of $558 million due to low interest rates and limited reinvestment opportunities as well as the impact of repositioning into Liquidity Coverage Ratio ("LCR") eligible securities and cash.

Year-to-date results

Net Income was a loss of $302 million, compared with a loss of $2.8 billion in the prior year.

Private Equity reported net income of $30 million, compared with net income of $331 million in the prior year. Net revenue of $134 million was down from $664 million in the prior year, primarily due to lower net valuation gains on public and private investments.

Treasury and CIO reported a net loss of $405 million, compared with a net loss of $2.3 billion in the prior year. Net revenue was a loss of $535 million, compared with a loss of $3.7 billion in the prior year. The prior-year loss reflected $5.8 billion of principal transactions losses from the synthetic credit portfolio that had been held by CIO, partially offset by securities gains of $1.5 billion. Current year net revenue included net securities gains of $626 million from sales of available-for-sale investment securities and a modest loss related to the redemption of trust preferred securities. Net interest income was a loss of $1.0 billion due to low interest rates and limited reinvestment opportunities.

Other Corporate reported net income of $73 million, compare with a net loss of $799 million in the prior year. Noninterest revenue of $1.7 billion in prior year was driven by a $1.1 billion benefit from the Washington Mutual bankruptcy settlement and a $545 million gain on the recovery of a Bear Stearns-related subordinated loan. The current year included approximately $600 million of expense for additional litigation reserves, compared with $2.8 billion of expense for additional litigation reserves in the prior year.

Treasury and CIO overview

Treasury and CIO are predominantly responsible for measuring, monitoring, reporting and managing the Firm’s liquidity, funding, capital and structural interest rate and foreign exchange risks. The risks managed by Treasury and CIO arise from the activities undertaken by the Firm’s four major reportable business segments to serve their respective client bases, which generate both on- and off-balance sheet assets and liabilities. For further discussion of Treasury and CIO, see page 103 of the Firm’s 2012 Annual Report.

CIO achieves the Firm’s asset-liability management objectives generally by investing in high-quality securities that are managed for the longer-term as part of the Firm’s AFS investment portfolio. CIO also uses derivatives, as well as securities that are not classified within the AFS portfolio, to meet the Firm’s asset-liability management objectives. For further information on derivatives, see Note 5 on pages 131–142 of this Form 10-Q. For further information about securities not classified within the AFS portfolio, see Note 3 on pages 114–127 of this Form 10-Q. The Treasury and CIO AFS portfolio consists of U.S. and non-U.S. government securities, agency and non-agency mortgage-backed securities, other asset-backed securities and corporate and municipal debt securities. At June 30, 2013, the total Treasury and CIO AFS portfolio was $349.0 billion; the average credit rating of the securities comprising the Treasury and CIO AFS portfolio was AA+ (based upon 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 on pages 147–150 of this Form 10-Q for further information on the details of the Firm’s AFS portfolio.

For further information on liquidity and funding risk, see Liquidity Risk Management on pages 66–72 of this Form 10-Q. For information on interest rate, foreign exchange and other risks, CIO VaR and the Firm’s nontrading interest rate-sensitive revenue at risk, see Market Risk Management on pages 95–99 of this Form 10-Q.



Selected income statement and balance sheet data
	As of or for the three months ended June 30,						As of or for the six months ended June 30,
(in millions)	2013		2012		Change		2013		2012		Change
Securities gains	$	123	$	1,013	(88	)%	$	626	$	1,466	(57	)%
Investment securities portfolio (average)	355,920		359,130		(1	)	360,753		360,366		—
Investment securities portfolio (period-end)	349,044		348,610		—		349,044		348,610		—
Mortgage loans (average)	5,556		11,012		(50	)	6,033		11,824		(49	)
Mortgage loans (period-end)	4,955		10,332		(52	)%	4,955		10,332		(52	)%



Private Equity Portfolio
Selected income statement and balance sheet data
	Three months ended June 30,							Six months ended June 30,
(in millions)	2013		2012			Change		2013		2012			Change
Private equity gains/(losses)
Realized gains/(losses)	$	40	$	(116	)	NM		$	88	$	(50	)	NM
Unrealized gains/(losses)^(a)	375		589			(36	)%	48		768			(94	)%
Total direct investments	415		473			(12	)	136		718			(81	)
Third-party fund investments	24		(9		)	NM		44		74			(41	)
Total private equity gains/(losses)^(b)	$	439	$	464		(5	)%	$	180	$	792		(77	)%


(a)	Unrealized gains/(losses) contain reversals of unrealized gains and losses that were recognized in prior periods and have now been realized.


(b)	Included in principal transactions revenue in the Consolidated Statements of Income.



Private equity portfolio information^(a)
Direct investments
(in millions)	June 30, 2013		December 31, 2012		Change
Publicly-held securities
Carrying value	$	550	$	578	(5	)%
Cost	346		350		(1	)
Quoted public value	550		578		(5	)
Privately-held direct securities
Carrying value	5,448		5,379		1
Cost	6,831		6,584		4
Third-party fund investments^(b)
Carrying value	1,958		2,117		(8	)
Cost	1,968		1,963		—
Total private equity portfolio
Carrying value	$	7,956	$	8,074	(1	)
Cost	$	9,145	$	8,897	3	%


(a)	For more information on the Firm’s policies regarding the valuation of the private equity portfolio, see Note 3 on pages 114–127 of this Form 10-Q.


(b)	Unfunded commitments to third-party private equity funds were $251 million and $370 million at June 30, 2013, and December 31, 2012, respectively.



INTERNATIONAL OPERATIONS

During the three and six months ended June 30, 2013, managed revenue derived from clients, customers and counterparties domiciled outside of North America was approximately $6.6 billion and $13.6 billion, respectively. Of those amounts, approximately 63% and 66%, respectively, were derived from Europe/Middle East/Africa (“EMEA”); approximately 27% and 25%, respectively, from Asia/Pacific; and approximately 10% and 9%, respectively, from Latin America/Caribbean.

During the three and six months ended June 30, 2012, managed revenue derived from clients, customers and counterparties domiciled outside of North America was approximately $2.0 billion and $7.5 billion, respectively. Of those amounts, approximately 4% and 47%, respectively, were derived from EMEA; approximately 69% and 38%, respectively, from Asia/Pacific; and approximately 27% and 15%, respectively, from Latin America/Caribbean. For

additional information regarding international operations, see Note 32 on page 326 of JPMorgan Chase’s 2012 Annual Report.

International wholesale activities

The Firm is committed to further expanding its wholesale product capabilities outside of the United States as part of a comprehensive and coordinated international business strategy to address the needs of the Firm’s clients located in these regions.

Set forth below are certain key metrics related to the Firm’s wholesale international operations, including, for each of EMEA, Asia/Pacific and Latin America/Caribbean, the number of countries in each such region in which they operate, front-office headcount, number of clients, revenue and selected balance-sheet data.



	EMEA								Asia/Pacific								Latin America/Caribbean
(in millions, except headcount and where otherwise noted)	Three months ended June 30,				Six months ended June 30,				Three months ended June 30,				Six months ended June 30,				Three months ended June 30,				Six months ended June 30,
(in millions, except headcount and where otherwise noted)	2013		2012		2013		2012		2013		2012		2013		2012		2013		2012		2013		2012
Revenue^(a)	$	4,093	$	74	$	8,931	$	3,461	$	1,779	$	1,358	$	3,288	$	2,876	$	637	$	549	$	1,253	$	1,155
Countries of operation^(b)	33		33		33		33		17		16		17		16		9		9		9		9
Total headcount^(c)	15,346		15,745		15,346		15,745		21,179		20,327		21,179		20,327		1,457		1,367		1,457		1,367
Front-office headcount	5,801		5,804		5,801		5,804		4,237		4,169		4,237		4,169		591		562		591		562
Significant clients^(d)	1,037		957		1,037		957		520		499		520		499		179		150		179		150
Deposits (average)^(e)	$	188,123	$	165,879	$	182,848	$	166,722	$	55,585	$	59,507	$	56,012	$	60,539	$	5,279	$	4,608	$	5,312	$	4,693
Loans (period-end)^(f)	44,599		41,391		44,599		41,391		29,819		30,969		29,819		30,969		30,154		28,513		30,154		28,513
Assets under management (in billions)	261		261		261		261		124		103		124		103		40		41		40		41
Client assets (in billions)	317		315		317		315		171		144		171		144		105		101		105		101
Assets under custody (in billions)	6,515		5,925		6,515		5,925		1,513		1,434		1,513		1,434		229		258		229		258

Note: International wholesale operations is comprised of CIB, AM, CB, Treasury and CIO.


(a)	Revenue is based predominantly on the domicile of the client, the location from which the client relationship is managed, or the location of the trading desk.


(b)	Countries of operation represents locations where the Firm has a physical presence with employees actively engaged in “client facing” activities.


(c)	Total headcount includes all employees, including those in service centers, located in the region. Effective January 1, 2013, interns are excluded from the firmwide and business segment headcount metrics. Prior periods were revised to conform with this presentation.


(d)	Significant clients are defined as companies with over $1 million in revenue over a trailing 12-month period in the region (excludes private banking clients).


(e)	Deposits are based on the location from which the client relationship is managed.


(f)	Loans outstanding are based predominantly on the domicile of the borrower and exclude loans held-for-sale and loans carried at fair value.



BALANCE SHEET ANALYSIS



Selected Consolidated Balance Sheets data
(in millions)	June 30, 2013			December 31, 2012			Change
Assets
Cash and due from banks	$	29,214		$	53,723		(46	)%
Deposits with banks	311,318			121,814			156
Federal funds sold and securities purchased under resale agreements	252,507			296,296			(15	)
Securities borrowed	117,158			119,017			(2	)
Trading assets:
Debt and equity instruments	327,719			375,045			(13	)
Derivative receivables	73,751			74,983			(2	)
Securities	354,725			371,152			(4	)
Loans	725,586			733,796			(1	)
Allowance for loan losses	(19,384		)	(21,936		)	(12	)
Loans, net of allowance for loan losses	706,202			711,860			(1	)
Accrued interest and accounts receivable	81,562			60,933			34
Premises and equipment	14,574			14,519			—
Goodwill	48,057			48,175			—
Mortgage servicing rights	9,335			7,614			23
Other intangible assets	1,951			2,235			(13	)
Other assets	111,421			101,775			9
Total assets	$	2,439,494		$	2,359,141		3
Liabilities
Deposits	$	1,202,950		$	1,193,593		1
Federal funds purchased and securities loaned or sold under repurchase agreements	258,962			240,103			8
Commercial paper	56,631			55,367			2
Other borrowed funds	30,385			26,636			14
Trading liabilities:
Debt and equity instruments	84,208			61,262			37
Derivative payables	64,385			70,656			(9	)
Accounts payable and other liabilities	211,432			195,240			8
Beneficial interests issued by consolidated VIEs	55,090			63,191			(13	)
Long-term debt	266,212			249,024			7
Total liabilities	2,230,255			2,155,072			3
Stockholders’ equity	209,239			204,069			3
Total liabilities and stockholders’ equity	$	2,439,494		$	2,359,141		3	%

Consolidated Balance Sheets overview

For a description of each of the significant line item captions on the Consolidated Balance Sheets, see pages 106–108 of JPMorgan Chase’s 2012 Annual Report.

JPMorgan Chase’s total assets increased by $80.4 billion or 3%, and total liabilities increased $75.2 billion or 3% from December 31, 2012. The increase in total assets was due to higher deposits with banks and higher accrued interest and

accounts receivable. These items were partially offset by lower trading assets - debt and equity instruments, federal funds sold and securities purchased under resale agreements, and cash and due from banks. The increase in total liabilities was related to higher trading liabilities - debt and equity instruments, federal funds purchased and securities loaned or sold under repurchase agreements, long-term debt, and accounts payable and other liabilities. Stockholders’ equity also increased.

The following is a discussion of the significant changes in the specific line item captions on the Consolidated Balance Sheets from December 31, 2012.

Cash and due from banks and deposits with banks

The net increase reflected the placement of the Firm’s excess funds with various central banks, primarily Federal Reserve Banks. For additional information, refer to the Liquidity Risk Management discussion on pages 66–72 of this Form 10-Q.

Federal funds sold and securities purchased under resale agreements; and securities borrowed

The decrease in securities purchased under resale agreements and securities borrowed was due primarily to a shift in the deployment of the Firm’s excess cash by Treasury.

Trading assets and liabilities–debt and equity instruments

The decrease in trading assets was driven by client-driven market-making activity in CIB, which resulted in lower levels of debt securities, equity securities and physical commodities. For additional information, refer to Note 3 on pages 114–127 of this Form 10-Q.

The increase in trading liabilities was driven by client-driven market-making activity in CIB, which resulted in higher levels of short debt and equity securities.

Trading assets and liabilities–derivative receivables and payables

Derivative receivables decreased primarily due to reductions in interest rate derivative receivables driven by an increase in interest rates. The decreases were partially offset by an increase in equity derivative receivables driven by a rise in equity markets.

Derivative payables decreased primarily due to reductions in interest rate derivative payables driven by the increase in interest rates. The decreases were partially offset by an increase in equity derivative payables primarily driven by a rise in equity markets.

For additional information, refer to Derivative contracts on page 90, and Notes 3 and 5 on pages 114–127 and 131–142, respectively, of this Form 10-Q.

Securities

The decrease was largely due to repositioning of the AFS securities portfolio, which resulted in lower levels of corporate debt, non-U.S. government securities and non-U.S. residential mortgage-backed securities (“MBS”); the decrease was partially offset by higher levels of U.S. Treasury and government agency obligations, U.S. government agency-issued MBS and obligations of U.S. states and municipalities. For additional information related to securities, refer to the discussion in the Corporate/Private Equity segment on pages 49–51, and Notes 3 and 11 on pages 114–127 and 147–150, respectively, of this Form 10-Q.

Loans and allowance for loan losses

Loan balances decreased as a result of lower credit card loans due to seasonality and higher repayment rates, and lower consumer excluding credit card loans, predominantly due to mortgage-related paydowns, portfolio run-off and net charge-offs.

The allowance for loan losses decreased as a result of a $2.7 billion reduction, reflecting lower estimated losses due to improved delinquency trends in the residential real estate and credit card portfolios, as well as the impact of improved home prices on the residential real estate portfolio.

For a more detailed discussion of the loan portfolio and the allowance for loan losses, refer to Credit Risk Management on pages 73–94, and Notes 3, 4, 13 and 14 on pages 114–127, 128–130, 153–175 and 176, respectively, of this Form 10-Q.

Accrued interest and accounts receivable

The increase was due to higher brokerage receivables and margin loan balances driven by client activity, primarily in CIB, and the timing of merchant receivables payments related to CCB’s Card Services business.

Mortgage servicing rights

The increase was due to changes in market interest rates and originations. This increase was partially offset by dispositions, collections/realization of expected cash flows and changes in valuation due to inputs and assumptions. For additional information on MSRs, see Note 16 on pages 184–187 of this Form 10-Q.

Deposits

The increase was due to growth in consumer deposits, partially offset by a decrease in deposit balances in the wholesale businesses. Consumer deposit balances increased from the effect of continued strong growth in business volumes. The decrease in wholesale client balances reflected the normalization of deposit levels from year-end seasonal inflows, particularly in CB and AM. For more information on deposits, refer to the CCB and AM segment discussions on pages 19–33 and 45–48, respectively; the Liquidity Risk Management discussion on pages 66–72; and Notes 3 and 17 on pages 114–127 and 188, respectively, of

this Form 10-Q. For more information on wholesale client deposits, refer to the CB and CIB segment discussions on pages 41–44 and 34–40, respectively, of this Form 10-Q.

Federal funds purchased and securities loaned or sold under repurchase agreements

The increase was predominantly due to higher secured financing of the Firm’s assets and higher client financing activity. For additional information on the Firm’s Liquidity Risk Management, see pages 66–72 of this Form 10-Q.

Commercial paper and other borrowed funds

Commercial paper increased due to higher issuances, partially offset by a decline in liability balances related to the Firm’s client cash management program. Other borrowed funds increased due to higher unsecured and secured short-term borrowings. For additional information on the Firm’s Liquidity Risk Management and other borrowed funds, see pages 66–72 of this Form 10-Q.

Accounts payable and other liabilities

The increase was predominantly due to higher CIB brokerage payables, and the timing of merchant payables payments related to CCB’s Card Services business.

Beneficial interests issued by consolidated VIEs

The decrease was primarily due to maturities and unwinds of municipal bond vehicles; and a reduction in outstanding conduit commercial paper held by third parties, offset partially by net issuances of credit card interests. For additional information on Firm-sponsored VIEs and loan securitization trusts, see Note 15 on pages 177–184 of this Form 10-Q.

Long-term debt

The increase was primarily due to net issuances of long-term borrowings. For additional information on the Firm’s long-term debt activities, see the Liquidity Risk Management discussion on pages 66–72 of this

Form 10-Q.

Stockholders’ equity

The increase was predominantly due to net income and issuances of preferred stock. The increase was partially offset by a net decrease in AOCI, repurchases of common stock and the declaration of cash dividends on common and preferred stock. The net decrease in AOCI 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.



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 Off–Balance Sheet Arrangements and Contractual Cash Obligations on pages 109–115 of JPMorgan Chase’s 2012 Annual Report.

Special-purpose entities

The most common type of VIE is an SPE. SPEs are commonly used in securitization transactions in order to isolate certain assets and distribute the cash flows from those assets to investors. SPEs are an important part of the financial markets, including the mortgage- and asset-backed securities and commercial paper markets, as they provide market liquidity by facilitating investors’ access to specific portfolios of assets and risks. The Firm holds capital, as deemed appropriate, against all SPE-related transactions and related exposures, such as derivative transactions and lending-related commitments and guarantees. For further information on the types of SPEs, see Note 15 on pages 177–184 of this Form 10-Q, and Note 1 on pages 193–194 and Note 16 on pages 280–291 of JPMorgan Chase’s 2012 Annual Report.

Implications of a credit rating downgrade to JPMorgan Chase Bank, N.A.

For certain liquidity commitments to SPEs, JPMorgan Chase Bank, N.A., could be required to provide funding if its short-term credit rating were downgraded below specific levels, primarily “P-1,” “A-1” and “F1” for Moody’s, Standard & Poor’s and Fitch, respectively. These liquidity commitments support the issuance of asset-backed commercial paper by both Firm-administered consolidated and third-party-sponsored nonconsolidated 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, issued by both Firm-administered and third-party-sponsored SPEs, that are held by third parties as of June 30, 2013, and December 31, 2012, was $15.6 billion and $18.1 billion, respectively. The aggregate amounts of commercial paper outstanding could increase in future periods should clients of the Firm-administered consolidated or third-party-sponsored nonconsolidated SPEs draw down on certain unfunded lending-related commitments. These unfunded lending-related commitments were $12.2 billion and $10.9 billion at June 30, 2013, and December 31, 2012, respectively. The Firm could facilitate the refinancing of some of the clients’ assets in order to reduce the funding obligation.

Off–balance sheet lending-related financial instruments, guarantees, and other commitments

JPMorgan Chase provides lending-related financial instruments (e.g., commitments and guarantees) to meet the financing needs of its customers. The contractual amount of these financial instruments represents the maximum possible credit risk to the Firm should the counterparty draw upon the commitment or the Firm be required to fulfill its obligation under the guarantee, and should the counterparty subsequently fail to perform according to the terms of the contract. Most of these commitments and guarantees expire without being drawn or a default occurring. As a result, the total contractual amount of these instruments is not, in the Firm’s view, representative of its actual future credit exposure or funding requirements. For further discussion of lending-related commitments and guarantees and the Firm’s related accounting policies, see Lending-related commitments on page 89, and Note 21 (including a table that presents, as of June 30, 2013, the amounts, by contractual maturity, of off-balance sheet lending-related financial instruments, guarantees and other commitments) on pages 193–197 of this Form 10-Q. For a discussion of loan repurchase liabilities, see Mortgage repurchase liability on pages 55–59 and Note 21 on pages 193–197 of this Form 10-Q.

Mortgage repurchase liability

In connection with the Firm’s mortgage loan sale and securitization activities with Fannie Mae and Freddie Mac (the “GSEs”) and other mortgage loan sale and private-label securitization transactions, the Firm has made representations and warranties that the loans sold meet certain requirements. The Firm may be, and has been, required to repurchase loans and/or indemnify the GSEs and other investors for losses due to material breaches of these representations and warranties. 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. For additional information regarding loans sold to the GSEs, see Mortgage repurchase liability on pages 111–115 of JPMorgan Chase’s 2012 Annual Report.

The Firm also sells loans in securitization transactions with Ginnie Mae; these loans are typically insured or guaranteed by another government agency. The Firm, in its role as servicer, may repurchase certain delinquent loans from loan pools, including those that have been sold back to Ginnie Mae subsequent to modification, as permitted by Ginnie Mae guidelines. However, the Firm is typically not required to repurchase such loans other than for modification or foreclosure purposes (i.e., these repurchases typically do not result from repurchase demands due to breaches of representations and warranties). Because principal amounts due under the terms of these repurchased loans continue to

be insured and the reimbursement of insured amounts continues to proceed normally, the Firm has not recorded any mortgage repurchase liability related to these loans. However, the United States Attorney’s Office for the Southern District of New York is conducting an investigation concerning the Firm’s compliance with the requirements of the Federal Housing Administration’s Direct Endorsement Program. The Firm is cooperating in that investigation.

From 2005 to 2008, the Firm and certain acquired entities made certain loan level representations and warranties in connection with approximately $450 billion of residential mortgage loans that were sold or deposited into private-label securitizations. While the terms of the securitization transactions vary, they generally differ from loan sales to the GSEs in that, among other things: (i) in order to direct the trustee to investigate potential claims, the security holders must make a formal request for the trustee to do so, and typically, this requires agreement of the holders of a specified percentage of the outstanding securities; (ii) generally, the mortgage loans are not required to meet all GSE eligibility criteria; and (iii) in many cases, the party demanding repurchase is required to demonstrate that a loan-level breach of a representation or warranty has materially and adversely affected the value of the loan. Of the $450 billion originally sold or deposited (including $165 billion by Washington Mutual, as to which the Firm maintains that certain of the repurchase obligations remain with the FDIC receivership), approximately $202 billion of principal has been repaid (including $74 billion related to Washington Mutual). In addition, approximately $125 billion of the principal amount of such loans has been liquidated (including $45 billion related to Washington Mutual), with an average loss severity of 60%. Accordingly, the remaining outstanding principal balance of these loans (including Washington Mutual) was, as of June 30, 2013, approximately $123 billion, of which $32 billion was 60 days or more past due. The remaining outstanding principal balance of loans related to Washington Mutual was approximately $46 billion, of which $11 billion was 60 days or more past due. For additional information regarding loans sold to private investors, see Mortgage repurchase liability on pages 111–115 of JPMorgan Chase’s 2012 Annual Report.

There have been generalized allegations, as well as specific demands, that the Firm repurchase loans sold or deposited into private-label securitizations (including claims from insurers that have guaranteed certain obligations of the securitization trusts). Although the Firm encourages parties to use the contractual repurchase process established in the governing agreements, these private-label repurchase claims have generally manifested themselves through threatened or pending litigation. Accordingly, the liability related to repurchase demands associated with all of the private-label securitizations described above is separately evaluated by the Firm in establishing its litigation reserves. For additional information regarding litigation, see Note 23 on pages 198–206 of this Form 10-Q, and Note 31 on pages 316–325 of JPMorgan Chase’s 2012 Annual Report.

Estimated mortgage repurchase liability

The Firm has recognized a mortgage repurchase liability of $2.5 billion and $2.8 billion, as of June 30, 2013, and December 31, 2012, respectively. The Firm’s mortgage repurchase liability is intended to cover losses associated with all loans previously sold in connection with loan sale and securitization transactions with the GSEs, regardless of when those losses occur or how they are ultimately resolved (e.g., repurchase, make-whole payment). While uncertainties continue to exist with respect to both GSE behavior and the economic environment, the Firm believes that the model inputs and assumptions that it uses to estimate its mortgage repurchase liability have become increasingly seasoned and stable. Based on these model inputs, which take into account all available information, and also considering projections regarding future uncertainty, including the GSEs’ behavior, the Firm has become increasingly confident in its ability to estimate reliably its mortgage repurchase liability. For these reasons, the Firm believes that its mortgage repurchase liability at June 30, 2013, is sufficient to cover probable future repurchase losses arising from loan sale and securitization transactions with the GSEs. For additional information about the process that the Firm uses to estimate its mortgage repurchase liability and the factors it considers in connection with that process, see Mortgage repurchase liability on pages 111–115 of JPMorgan Chase’s 2012 Annual Report.

The following table provides information about outstanding repurchase demands and unresolved mortgage insurance rescission notices, excluding those related to Washington Mutual and those asserted in or arising in connection with pending repurchase litigation, by counterparty type, at each of the past five quarter-end dates. The table includes repurchase demands received from the GSEs as well as repurchase demands associated with private label securitizations that have been presented to the Firm by trustees who assert authority to present such claims under the terms of the underlying sale or securitization agreement.

All mortgage repurchase demands associated with private-label securitizations (however asserted) are evaluated separately by the Firm in establishing its litigation reserves; they are not considered in the Firm’s mortgage repurchase liability. Accordingly, as noted above, the Firm’s mortgage repurchase liability is intended to cover losses associated with all loans previously sold in connection with loan sale and securitization transactions with the GSEs.



Outstanding repurchase demands and unresolved mortgage insurance rescission notices by counterparty type
(in millions)	Jun 30, 2013			Mar 31, 2013			Dec 31, 2012				Sep 30, 2012			Jun 30, 2012
GSEs	$	970		$	1,022		$	1,166			$	1,533		$	1,646
Mortgage insurers	852			924			1,014				1,036			1,004
Other	1,072			992			887			^(b)	1,697			981
Overlapping population^(a)	(51		)	(64		)	(86		)		(150		)	(125		)
Total	$	2,843		$	2,874		$	2,981			$	4,116		$	3,506


(a)	Because the GSEs and others may make repurchase demands based on mortgage insurance rescission notices that remain unresolved, certain loans may be subject to both an unresolved mortgage insurance rescission notice and an outstanding repurchase demand.

(b)

The decrease from September 30, 2012 predominantly relates to repurchase demands from private-label securitizations that had been presented in this table as of September 30, 2012 but that subsequently became subject to repurchase litigation in the fourth quarter of 2012; private-label securitization repurchase demands asserted or arising in connection with pending repurchase litigation are excluded from this table.

The following tables provide information about repurchase demands and mortgage insurance rescission notices received, excluding those related to Washington Mutual and those asserted in or arising in connection with pending repurchase litigation, by loan origination vintage, for the past five quarters. The Firm expects repurchase demands to remain at elevated levels or to increase if there is a significant increase in private-label repurchase demands outside of pending repurchase litigation. Additionally, repurchase demands from the GSEs continue to fluctuate from period to period, as reflected in the table immediately below. The Firm considers probable future repurchase demands, including this potential volatility, in estimating its mortgage repurchase liability.



Quarterly mortgage repurchase demands received by loan origination vintage^(a)
(in millions)	Jun 30, 2013		Mar 31, 2013			Dec 31, 2012		Sep 30, 2012		Jun 30, 2012
Pre-2005	$	53	$	45		$	42	$	33	$	28
2005	116		217		^(b)	42		103		65
2006	258		287			292		963		506
2007	546		419			241		371		420
2008	113		151			114		196		311
Post-2008	60		62			87		124		191
Total repurchase demands received	$	1,146	$	1,181		$	818	$	1,790	$	1,521


(a)	All mortgage repurchase demands associated with private-label securitizations are separately evaluated by the Firm in establishing its litigation reserves.


(b)	The increase from December 31, 2012, predominantly relates to repurchase demands from private-label securitizations received in the first quarter of 2013 that have not been asserted in, or in connection with, pending repurchase litigation.



Quarterly mortgage insurance rescission notices received by loan origination vintage^(a)
(in millions)	Jun 30, 2013		Mar 31, 2013		Dec 31, 2012		Sep 30, 2012		Jun 30, 2012
Pre-2005	$	14	$	12	$	6	$	6	$	9
2005	18		13		18		14		13
2006	25		15		35		46		26
2007	68		52		83		139		121
2008	22		20		26		37		51
Post-2008	6		8		7		8		6
Total mortgage insurance rescissions received	$	153	$	120	$	175	$	250	$	226


(a)	Mortgage insurance rescissions typically result in a repurchase demand from the GSEs. This table includes mortgage insurance rescission notices for which the GSEs also have issued a repurchase demand.

Since the beginning of 2011, the Firm’s cumulative cure rate (excluding loans originated by Washington Mutual) is approximately 60%. A significant portion of repurchase demands currently relate to loans with a longer pay history, which historically have had higher cure rates. Repurchases that have resulted from mortgage insurance rescissions are reflected in the Firm’s overall cure rate. While the actual cure rate may vary from quarter to quarter, the Firm expects that the cumulative cure rate will remain in the 55-65% range for the foreseeable future.

The Firm has not observed a direct relationship between the type of defect that allegedly causes the breach of representations and warranties and the severity of the realized loss. Therefore, the loss severity assumption is estimated using the Firm’s historical experience and projections regarding changes in home prices. Actual principal loss severities on finalized repurchases and “make-whole” settlements to date (excluding loans originated by Washington Mutual) currently average approximately 50%, but may vary from quarter to quarter based on the characteristics of the underlying loans and changes in home prices.

When a loan was originated by a third-party originator, the Firm typically has the right to seek a recovery of related repurchase losses from the third-party originator. Estimated and actual third-party recovery rates may vary from quarter to quarter based upon the underlying mix of third-party originators (e.g., active, inactive, out-of-business originators) from which recoveries are being sought.

Substantially all of the estimates and assumptions underlying the Firm’s established methodology for computing its recorded mortgage repurchase liability — including the amount of probable future demands from the GSEs (based on both historical experience and the Firm’s expectations about the GSEs’ future behavior), the ability of the Firm to cure identified defects, the severity of loss upon repurchase or foreclosure and recoveries from third parties — require application of a significant level of management judgment. While the Firm uses the best information available to it in estimating its mortgage repurchase liability, this estimate is inherently uncertain and imprecise.

The following table summarizes the change in the mortgage repurchase liability for each of the periods presented.



Summary of changes in mortgage repurchase liability^(a)
	Three months ended June 30,						Six months ended June 30,
(in millions)	2013			2012			2013			2012
Repurchase liability at beginning of period	$	2,674		$	3,516		$	2,811		$	3,557
Net realized losses^(b)	(191		)	(259		)	(403		)	(623		)
Provision for repurchase losses^(c)	(7		)	36			68			359
Repurchase liability at end of period	$	2,476		$	3,293		$	2,476		$	3,293


(a)	All mortgage repurchase demands associated with private-label securitizations are separately evaluated by the Firm in establishing its litigation reserves.

(b)

Realized repurchase losses are 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 $133 million and $107 million for the three months ended June 30, 2013 and 2012, respectively and $254 million and $293 million for the six months ended June 30, 2013 and 2012, respectively.


(c)	Included $6 million and $28 million of provision related to new loan sales for the three months ended June 30, 2013 and 2012, respectively and $14 million and $55 million for the six months ended June 30, 2013 and 2012, respectively.

The following table summarizes the total unpaid principal balance of certain repurchases during the periods indicated.



Unpaid principal balance of mortgage loan repurchases^(a)
	Three months ended June 30,				Six months ended June 30,
(in millions)	2013		2012		2013		2012
Ginnie Mae^(b)	$	1,372	$	1,619	$	3,523	$	3,126
GSEs^(c)	216		302		461		621
Other^(c)(d)	14		47		40		107
Total	$	1,602	$	1,968	$	4,024	$	3,854

(a)

This table includes: (i) repurchases of mortgage loans due to breaches of representations and warranties, and (ii) loans repurchased from Ginnie Mae loan pools as described in (b) below. This table does not include mortgage insurance rescissions; while the rescission of mortgage insurance typically results in a repurchase demand from the GSEs, the mortgage insurers themselves do not present repurchase demands to the Firm. This table also excludes mortgage loan repurchases associated with repurchase demands asserted in or in connection with pending repurchase litigation.

(b)

In substantially all cases, these repurchases represent either voluntary repurchases of certain delinquent loans from loan pools as permitted by Ginnie Mae guidelines or required repurchases of loans for modification or foreclosure purposes (i.e., these repurchases typically do not result from repurchase demands due to breaches of representations and warranties). The Firm typically repurchases these loans as it continues to service them and/or manage the foreclosure process in accordance with applicable policies and requirements of Ginnie Mae, the Federal Housing Administration (“FHA”), Rural Housing Services (“RHS”) and/or the U.S. Department of Veterans Affairs (“VA”).


(c)	Nonaccrual loans held-for-investment included $424 million and $487 million at June 30, 2013 and 2012, respectively, of loans repurchased as a result of breaches of representations and warranties.


(d)	Represents loans repurchased from parties other than the GSEs, excluding those repurchased in connection with pending repurchase litigation.

For additional information regarding the mortgage repurchase liability, see Note 21 on pages 193–197 of this Form 10-Q, and Note 29 on pages 308–315 of JPMorgan Chase’s 2012 Annual Report.

The Firm also faces a variety of exposures resulting from repurchase demands and litigation arising out of its various roles as issuer and/or sponsor of mortgage-backed securities (“MBS”) offerings in private-label securitizations. For further information, see Note 23, Litigation on pages 198–206 of this Form 10-Q.



CAPITAL MANAGEMENT

The following discussion of JPMorgan Chase’s capital management highlights developments since December 31, 2012, and should be read in conjunction with Capital Management on pages 116–122 of JPMorgan Chase’s 2012 Annual Report.

The Firm’s capital management objectives are to hold capital sufficient to:


•	Cover all material risks underlying the Firm’s business activities;


•	Maintain “well-capitalized” status under regulatory requirements;


•	Maintain debt ratings that enable the Firm to optimize its funding mix and liquidity sources while minimizing costs;


•	Retain flexibility to take advantage of future investment opportunities; and


•	Build and invest in businesses, even in a highly stressed environment.

These objectives are achieved through ongoing monitoring of the Firm’s capital position, regular stress testing, and a capital governance framework.

Capital governance

The Firm’s senior management recognizes the importance of a capital management function that supports strategic decision-making. For a more detailed discussion of the Firm’s capital governance and processes, see pages 116–117 of JPMorgan Chase’s 2012 Annual Report.

Comprehensive Capital Analysis and Review

On January 7, 2013, the Firm submitted its capital plan to the Federal Reserve under the Federal Reserve’s 2013 CCAR process. On March 14, 2013, the Federal Reserve informed the Firm that it did not object to the Firm’s 2013 capital plan, but asked the Firm to submit an additional capital plan, as described more fully below. On May 21, 2013, the Board of Directors increased the second-quarter common stock dividend to $0.38 per share from $0.30 per share. The Board of Directors also authorized the Firm to repurchase up to $6 billion of common equity commencing with the second quarter of this year through the end of the first quarter of 2014. For additional information on dividends and common equity repurchases, see Capital actions on page 64 of this Form 10-Q.

As noted above, the Federal Reserve asked the Firm to submit by the end of the third quarter of 2013 an additional capital plan addressing the weaknesses it identified in the Firm’s CCAR capital planning processes.

The Firm intends to fully address the Federal Reserve’s requirements. Following its review of the additional capital plan, the Federal Reserve could require the Firm to modify its capital distributions.

Regulatory capital

The Federal Reserve establishes capital requirements, including well-capitalized standards, for the consolidated financial holding company. The 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.

In connection with the U.S. Government’s Supervisory Capital Assessment Program in 2009 (“SCAP”), U.S. banking regulators developed an additional measure of capital, Tier 1 common, which is defined as Tier 1 capital less elements of Tier 1 capital not in the form of common equity, such as perpetual preferred stock, noncontrolling interests in subsidiaries and trust preferred securities. The Federal Reserve employs a minimum 5% Tier 1 common ratio standard for CCAR purposes, in addition to the other minimum capital requirements.

Basel I and Basel 2.5

The minimum risk-based capital requirements adopted by the U.S. federal banking agencies follow the Capital Accord (“Basel I”) of the Basel Committee on Banking Supervision (“Basel Committee”). In June 2012, U.S. federal banking agencies published the final rule that specifies revised market risk regulatory capital requirements (“Basel 2.5”). While the Firm is still subject to the capital requirements of Basel I, Basel 2.5 rules also became effective for the Firm on January 1, 2013. The Basel 2.5 final rule revised the scope of positions subject to the market risk capital requirements and introduced new market risk measures, which resulted in additional capital requirements for covered positions as defined. The implementation of Basel 2.5 in the first quarter of 2013 resulted in an increase of approximately $150 billion in risk-weighted assets compared with the Basel I rules at March 31, 2013. The implementation of these rules also resulted in decreases of the Firm’s Tier 1 capital, Total capital and Tier 1 common capital ratios by 140 basis points, 160 basis points and 120 basis points, respectively, at March 31, 2013.

The following table presents the risk-based capital ratios for JPMorgan Chase at June 30, 2013, and December 31, 2012, under Basel I (and, for June 30, 2013, Basel 2.5). As of June 30, 2013, and December 31, 2012, JPMorgan Chase and all of its banking subsidiaries were well-capitalized and each met all capital requirements to which it was subject.



Risk-based capital ratios
	June 30, 2013		December 31, 2012
Capital ratios
Tier 1 capital	11.6	%	12.6	%
Total capital	14.1		15.3
Tier 1 leverage	7.0		7.1
Tier 1 common^(a)	10.4		11.0


(a)	The Tier 1 common ratio is Tier 1 common capital divided by RWA.

At June 30, 2013, and December 31, 2012, JPMorgan Chase maintained Tier 1 and Total capital ratios in excess of the well-capitalized standards established by the Federal Reserve, as indicated in the above tables. In addition, at June 30, 2013, and December 31, 2012, the Firm’s Tier 1 common ratio was significantly above the 5% CCAR standard. For more information, see Note 28 on pages 306–308 of the Firm’s 2012 Annual Report.

The following table presents a reconciliation of total stockholders’ equity to Tier 1 common, Tier 1 capital and Total qualifying capital; the components of risk-weighted assets; and total adjusted average assets.



Risk-based capital components and assets
(in millions)	June 30, 2013			December 31, 2012
Total stockholders’ equity	$	209,239		$	204,069
Less: Preferred stock	11,458			9,058
Common stockholders’ equity	197,781			195,011
Effect of certain items in accumulated other comprehensive income/(loss) excluded from Tier 1 common	(282		)	(4,198		)
Less: Goodwill^(a)	45,414			45,663
Other intangible assets^(a)	2,220			2,311
Fair value DVA on structured notes and derivative liabilities related to the Firm’s credit quality	1,869			1,577
Investments in certain subsidiaries and other	1,039			920
Tier 1 common	146,957			140,342
Preferred stock	11,458			9,058
Qualifying hybrid securities and noncontrolling interests^(b)	5,618			10,608
Other	(6		)	(6		)
Total Tier 1 capital	164,027			160,002
Long-term debt and other instruments qualifying as Tier 2	17,406			18,061
Qualifying allowance for credit losses	17,723			15,995
Other	(8		)	(22		)
Total Tier 2 capital	35,121			34,034
Total qualifying capital	$	199,148		$	194,036
Credit risk risk-weighted assets	$	1,217,094		$	1,156,102
Market risk risk-weighted assets^(c)	$	192,987		114,276
Total risk-weighted assets^(c)	$	1,410,081		$	1,270,378
Total adjusted average assets	$	2,333,416		$	2,243,242


(a)	Goodwill and other intangible assets are net of any associated deferred tax liabilities.

(b)

Primarily includes trust preferred securities of certain business trusts. Under the Basel III final rule approved by U.S. federal banking agencies in July 2013, trust preferred securities will be phased out from inclusion as Tier 1 capital, but included as Tier 2 capital, beginning in 2014 through the end of 2015 and phased out from inclusion as Tier 2 capital beginning in 2016 through the end of 2021.

(c)

Reflects the implementation of Basel 2.5 in the first quarter of 2013, which resulted in an increase of approximately $150 billion in risk-weighted assets compared with the Basel I rules at March 31, 2013. The implementation of these rules also resulted in decreases of the Firm’s Tier 1 capital, Total capital and Tier 1 common capital ratios by 140 basis points, 160 basis points and 120 basis points, respectively, at March 31, 2013.

Capital rollforward

The following table presents the changes in Tier 1 common, Tier 1 capital and Tier 2 capital for the six months ended June 30, 2013.



Six months ended June 30, (in millions)	2013
Tier 1 common at December 31, 2012	$	140,342
Net income	13,025
Dividends declared	(3,032		)
Net issuance of treasury stock	(2,069		)
Changes in capital surplus	(1,188		)
Effect of certain items in accumulated other comprehensive income/(loss) excluded from Tier 1 common	(51		)
Qualifying non-controlling minority interests in consolidated subsidiaries	(49		)
DVA on structured notes and derivative liabilities	(292		)
Goodwill and other nonqualifying intangibles (net of deferred tax liabilities)	340
Other	(69		)
Increase in Tier 1 common	6,615
Tier 1 common at June 30, 2013	$	146,957

Tier 1 capital at December 31, 2012	$	160,002
Change in Tier 1 common	6,615
Issuance of noncumulative perpetual preferred stock	2,400
Redemption of trust preferred securities	(4,940		)
Other	(50		)
Increase in Tier 1 capital	4,025
Tier 1 capital at June 30, 2013	$	164,027

Tier 2 capital at December 31, 2012	$	34,034
Change in long-term debt and other instruments qualifying as Tier 2	(655		)
Change in qualifying allowance for credit losses	1,728
Other	14
Increase in Tier 2 capital	1,087
Tier 2 capital at June 30, 2013	$	35,121
Qualifying capital at June 30, 2013	$	199,148

Risk-weighted assets

The following table presents the changes in credit risk RWA and market risk RWA for the six months ending June 30, 2013.



Changes in RWA components
Six months ended June 30, (in millions)	2013
Credit risk RWA at December 31, 2012	$	1,156,102
Increase in credit risk RWA	60,992
Credit risk RWA at June 30, 2013	$	1,217,094

Market risk RWA at December 31, 2012	$	114,276
Increase in market risk RWA	78,711
Market risk RWA at June 30, 2013	$	192,987
Total RWA at June 30, 2013	$	1,410,081

The increase in credit risk RWA is predominantly attributable to the implementation of Basel 2.5 in the first quarter of 2013; positions previously captured under market risk RWA under Basel I are, as a result of the implementation of Basel 2.5, now included as non-covered positions and calculated under credit risk RWA. The increase in credit risk RWA is also due to growth in other assets,

including higher margin loans and receivables from unsettled activity. The increase in market risk RWA was also predominantly attributable to the implementation of Basel 2.5 in the first quarter of 2013. This increase was partially offset by a decrease in market risk RWA predominantly attributable to lower levels of risk, including reduced risk in the synthetic credit portfolio and a reduction in fixed income positions.

Additional information regarding the Firm’s capital ratios and the federal regulatory capital standards to which the Firm is subject is presented at Note 20 on pages 191–192 of this Form 10-Q. For further information on the Firm’s Basel 2.5 measures and additional market risk disclosures, see the Firm’s consolidated Basel 2.5 Market Risk Pillar 3 Reports which are available on the Firm’s website (http://investor.shareholder.com/jpmorganchase/basel.cfm) within 45 days after the end of the quarter.

Basel II

In 2004, the Basel Committee published a revision to the Capital Accord (“Basel II”). The goal of the Basel II framework is to provide more risk-sensitive regulatory capital calculations and promote enhanced risk management practices among large, internationally active banking organizations. U.S. banking regulators published a final Basel II rule in December 2007, which requires JPMorgan Chase to implement Basel II at the holding company level, as well as at certain of its key U.S. bank subsidiaries.

Prior to full implementation of the Basel II framework, JPMorgan Chase is required to complete a qualification period of at least four consecutive quarters during which it needs to demonstrate that it meets the requirements of the rule to the satisfaction of its U.S. banking regulators. JPMorgan Chase is currently in the qualification period and expects to be in compliance with all relevant Basel II rules within the established timelines. In addition, the Firm has adopted, and will continue to adopt, based on various established timelines, Basel II rules in certain non-U.S. jurisdictions, as required.

Basel III

In June 2012, U.S. federal banking agencies published a Notice for Proposed Rulemaking (“NPR”) for implementing further revisions to the Capital Accord in the U.S. (such further revisions are commonly referred to as “Basel III”). In July 2013, U.S. federal banking agencies approved a final rule for implementing Basel III in the U.S. Basel III revised Basel II by, among other things, narrowing the definition of capital, and increasing capital requirements for specific exposures. Basel III also includes higher capital ratio requirements and provides that the Tier 1 common capital requirement will be increased to 7%, comprised of a minimum ratio of 4.5% plus a 2.5% capital conservation buffer. Implementation of the 7% Tier 1 common capital requirement is required by January 1, 2019.

In addition, global systemically important banks (“GSIBs”) will be required to maintain Tier 1 common requirements

above the 7% minimum in amounts ranging from an additional 1% to an additional 2.5%. In November 2012, the Financial Stability Board (“FSB”) indicated that it would require the Firm, as well as three other banks, to hold the additional 2.5% of Tier 1 common; the requirement will be phased in beginning in 2016. The Basel Committee also stated that certain GSIBs could be required to hold as much as 3.5% of Tier 1 common if they were to take actions that further increase their systemic importance. Currently, no GSIB (including the Firm) is required to hold more than the additional 2.5% of Tier 1 common.

In addition, pursuant to the requirements of the Dodd-Frank Act, U.S. federal banking agencies have implemented a floor under the Basel III capital calculations for advanced approach banking organizations, such as the Firm. The floor references the General Risk-Based Capital rules, which are the Basel I rules in 2014 and the Basel III Standardized rules from 2015 forward.

The following table presents a comparison of the Firm’s Tier 1 common under Basel I rules to its estimated Tier 1 common under Basel III rules, along with the Firm’s estimated risk-weighted assets. Tier 1 common under Basel III includes additional adjustments and deductions not included in Basel I Tier 1 common, such as the inclusion of accumulated other comprehensive income (“AOCI”) related to AFS securities and defined benefit pension and other postretirement employee benefit (“OPEB”) plans.

The Firm estimates that its Tier 1 common ratio under Basel III rules would be 9.3% as of June 30, 2013. The Tier 1 common ratio under both Basel I and Basel III are non-GAAP financial measures. However, such measures are used by bank regulators, investors and analysts as a key measure to assess the Firm’s capital position and to compare the Firm’s capital to that of other financial services companies.



June 30, 2013 (in millions, except ratio)
Tier 1 common under Basel I rules	$	146,957
Adjustments related to AOCI for AFS securities and defined benefit pension and OPEB plans	514
All other adjustments	554
Estimated Tier 1 common under Basel III rules	$	148,025
Estimated risk-weighted assets under Basel III rules^(a)	$	1,587,399
Estimated Tier 1 common ratio under Basel III rules^(b)	9.3		%

(a)

Key differences in the calculation of risk-weighted assets between Basel I and Basel III include: (1) Basel III credit risk RWA is based on risk-sensitive approaches which largely rely on the use of internal credit models and parameters, whereas Basel I RWA is based on fixed supervisory risk-weightings which vary only by counterparty type and asset class; and (2) Basel III includes RWA for operational risk,

whereas Basel I does not. Effective January 1, 2013, market risk

RWA requirements under Basel 2.5 are consistent across Basel I and Basel III.


(b)	The Tier 1 common ratio is Tier 1 common divided by RWA.

The Firm’s estimate of its Tier 1 common ratio under Basel III reflects its current understanding of the Basel III rules based on the recently published final rule and on the application of such rules to its businesses as currently conducted. The actual impact on the Firm’s capital ratios

upon implementation of Basel III rules may differ from the Firm’s current estimates. The actual impact could depend on changes the Firm may make to its businesses in the future as a result of implementing the Basel III rules, regulatory approval of certain of the Firm’s internal risk models, and any further implementation guidance from the regulators.

The Basel III final rule also included a requirement for advanced approach banking organizations, including the Firm, to calculate a supplementary leverage ratio. The supplementary leverage ratio, a non-GAAP financial measure, is 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 future exposure.

Following approval of the final Basel III rules, the U.S. banking agencies issued proposed rulemaking relating to the supplementary leverage ratio that would require U.S. bank holding companies, including JPMorgan Chase, to have a supplementary leverage ratio of at least 5% and insured depositary institutions, including JPMorgan Chase Bank, N.A. and Chase Bank USA, N.A., to have a supplementary leverage ratio of at least 6%.

The Basel III capital requirements are subject to prolonged transition periods. In July 2013, as part of the approval of the Basel III final rule, U.S. federal banking agencies announced a January 1, 2014, Basel III effective date for advanced approach banking organizations, including the Firm. The additional capital requirements for GSIBs will be phased in starting January 1, 2016, with full implementation on January 1, 2019. The Firm and its IDI subsidiaries are not required to meet the minimum supplementary leverage ratio until January 1, 2018. Management’s current objective is for the Firm to reach, by the end of 2013, an estimated Basel III Tier I common ratio of 9.5%.

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, 2013, JPMorgan Securities’ net capital, as defined by the Net Capital Rule,

was $13.8 billion, exceeding the minimum requirement by $12.0 billion, and JPMorgan Clearing’s net capital was $6.7 billion, exceeding the minimum requirement by $5.0 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 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, 2013, JPMorgan Securities had tentative net capital in excess of the minimum and notification requirements.

J.P. Morgan Securities plc (formerly J.P. Morgan Securities Ltd.) 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”) (together, formerly the U.K. Financial Services Authority). At June 30, 2013, J.P. Morgan Securities plc had total capital of $22.1 billion, or a Pillar 1 Total capital ratio of 16.4%, which exceeded the 8% well-capitalized standard applicable to it under Basel 2.5.

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. The methodologies and models used to measure economic risk capital consider factors, assumptions and inputs that differ from those required to be used for regulatory capital requirements, and therefore provide a complementary measure to regulatory capital. As economic risk capital is a component of capital for advanced approach banking organizations under Basel III, the Firm is currently in the process of enhancing its economic risk capital framework to address the newly finalized Basel III requirements.

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) 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, 2013		December 31, 2012
Consumer & Community Banking	$	46.0	$	43.0
Corporate & Investment Bank	56.5		47.5
Commercial Banking	13.5		9.5
Asset Management	9.0		7.0
Corporate/Private Equity	72.8		88.0
Total common stockholders’ equity	$	197.8	$	195.0



Line of business equity	Quarterly Averages
(in billions)	2Q13		4Q12		2Q12
Consumer & Community Banking	$	46.0	$	43.0	$	43.0
Corporate & Investment Bank	56.5		47.5		47.5
Commercial Banking	13.5		9.5		9.5
Asset Management	9.0		7.0		7.0
Corporate/Private Equity	72.3		85.0		74.0
Total common stockholders’ equity	$	197.3	$	192.0	$	181.0

Effective January 1, 2013, the Firm further refined the capital allocation framework to align it with the revised line of business structure that became effective in the fourth quarter of 2012. The increase in equity levels for the lines of businesses is largely driven by regulatory guidance on Basel III requirements, principally for CIB and CIO, and by anticipated business growth.

Capital actions

Dividends

On May 21, 2013, the Board of Directors increased the Firm’s quarterly common stock dividend from $0.30 to $0.38 per share, effective with the dividend paid on July 31, 2013, to shareholders of record on July 5, 2013. 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 return to a payout ratio of approximately 30% of normalized earnings over time.

For information regarding dividend restrictions, see Note 22 and Note 27 on pages 300 and 306, respectively, of JPMorgan Chase’s 2012 Annual Report.

Preferred stock

On February 5, 2013 the Firm issued $900 million of noncumulative preferred stock. On each of April 23, 2013, and July 29, 2013, the Firm issued $1.5 billion of noncumulative preferred stock. On August 1, 2013, the Firm announced that it would redeem all of its outstanding 8.625% noncumulative preferred stock, Series J on September 1, 2013. For additional information on the Firm’s preferred stock, see Note 22 on page 300 of the Firm’s 2012 Annual Report.

Redemption of outstanding trust preferred securities

Common equity repurchases

On March 13, 2012, the Board of Directors authorized a $15.0 billion common equity (i.e., common stock and warrants) repurchase program. The following table shows the Firm’s repurchases of common equity for the three and six months ended June 30, 2013 and 2012. As of June 30, 2013, $9.6 billion (on a trade-date basis) of authorized repurchase capacity remained under the program.



	Three months ended June 30,				Six months ended June 30,
(in millions)	2013		2012		2013		2012
Total shares of common stock repurchased	24		27		78		31
Aggregate common stock repurchases	$	1,201	$	1,139	$	3,801	$	1,329
Total warrants repurchased	—		18		—		18
Aggregate warrant repurchases	$	—	$	238	$	—	$	238

Pursuant to CCAR, the Firm is authorized to repurchase up to $6 billion of common equity between April 1, 2013 and March 31, 2014. Such repurchases are being done pursuant to the $15.0 billion common equity repurchase program.

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 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. For additional information regarding repurchases of the Firm’s equity securities, see Part II, Item 2, Unregistered Sales of Equity Securities and Use of Proceeds, on pages 218–219 of this Form 10-Q.



RISK MANAGEMENT

Risk is an inherent part of JPMorgan Chase’s business activities. The Firm’s risk management framework and governance structure are intended to provide comprehensive controls and ongoing management of the major risks inherent in its business activities. The Firm employs a holistic approach to risk management intended to ensure the broad spectrum of risk types are considered in managing its business activities. The Firm’s risk management framework is intended to create a culture of risk awareness and personal responsibility throughout the Firm where collaboration, discussion, escalation and sharing of information are encouraged.

The Firm’s overall risk appetite is established in the context of the Firm’s capital, earnings power, and diversified business model. The Firm employs a formalized risk

appetite framework to integrate the Firm’s objectives with return targets, risk controls and capital management. The Risk Policy Committee of the Firm’s Board of Directors approves the risk appetite policy on behalf of the Board of Directors. The Firm’s Chief Executive Officer (“CEO”), Chief Financial Officer (“CFO”), Chief Risk Officer (“CRO”) and Chief Operating Officer (“COO”) are responsible for setting and approving the Firm’s risk appetite parameters. The lines of business CEOs, CFOs and CROs are responsible for setting the risk appetite parameters for their respective lines of business, subject to approval by the Firm’s CEO, CFO, CRO and COO. The Firmwide Risk Committee, which is co-chaired by the Firm’s CEO and CRO, is responsible for reviewing risk appetite results at the LOB and firmwide levels.

The following provides an index of key risk management disclosures. For further information on these disclosures, refer to the page references noted below in both this Form 10-Q and JPMorgan Chase’s 2012 Annual Report.



Risk disclosure	Form 10-Q page reference	Annual Report page reference
Risk Management	65	123-126
Risk governance		123-125
Model risk		125-126
Liquidity Risk Management	66–72	127-133
Funding	66–70	127-130
HQLA	70
Contingency funding plan		130
Credit ratings	70–71	131
Credit Risk Management		134-159
Credit Portfolio	73	136-137
Consumer Credit Portfolio	74–83	138-149
Wholesale Credit Portfolio	84–91	150-159
Community Reinvestment Act Exposure	92	159
Allowance For Credit Losses	92–94	159-162
Market Risk Management	95–99	163-169
Risk identification and classification		163
Value-at-risk	95–98	163-167
Economic-value stress testing	98	167-168
Nontrading interest rate-sensitive revenue-at-risk	99	168-169
Risk monitoring and control: Limits		169
Country Risk Management	100–102	170-173
Selected European exposure	100–102	172-173
Principal Risk Management	103	174
Operational Risk Management	103	175-176
Cybersecurity	103	176
Legal, Fiduciary and Reputation Risk Management	103	177



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 framework highlights developments since December 31, 2012, and should be read in conjunction with pages 127–133 of JPMorgan Chase’s 2012 Annual Report.

Management considers the Firm’s liquidity position to be strong as of June 30, 2013, 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: Liquidity Coverage Ratio (“LCR”), which is intended to measure the amount of “high-quality liquid assets” (“HQLA”) held by the Firm during an acute stress event, in relation to the estimated net cash outflows within a 30-day period; 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 1-year horizon. The standards require that the LCR be no lower than 100% and the NSFR be greater than 100%. For further discussion, see HQLA discussion on page 70 of this Form 10-Q.

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 continue to become effective on January 1, 2015, but the minimum requirement will begin at 60%, increasing in equal annual increments to reach 100% on January 1, 2019. During the second quarter of 2013, the Firm accelerated compliance with the proposed Basel III LCR and became compliant, based on its current understanding of the proposed rules. The 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 $706.2 billion, net of allowance, at June 30, 2013 is funded with a portion of the Firm’s deposits (aggregating approximately $1,203.0 billion at June 30, 2013), 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 available-for-sale 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 market secured financing liabilities, trading liabilities and a portion of the Firm's long-term debt and equity.

In addition to funding capital markets assets, components of the Firm's debt and equity are used to fund certain loans, and other financial and non-financial assets, or may be invested in the Firm's available for sale 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. As of June 30, 2013, the Firm’s deposits-to-loans ratio was 166%, compared with 163% at December 31, 2012.

As of June 30, 2013, total deposits for the Firm were $1,203.0 billion, compared with $1,193.6 billion at December 31, 2012 (54% and 55% of total liabilities at June 30, 2013, and December 31, 2012, respectively). The increase in deposits was predominantly due to growth in consumer deposits. For further information, see Balance Sheet Analysis on pages 53–54 of this Form 10-Q.

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 deposit balance as of June 30, 2013, and December 31, 2012, respectively, as well as average deposits for the three and six months ended June 30, 2013 and 2012, respectively.



Deposits					Three months ended June 30,				Six months ended June 30,
	June 30,		December 31,		Average				Average
(in millions)	2013		2012		2013		2012		2013		2012
Consumer & Community Banking	$	456,814	$	438,517	$	453,586	$	411,292	$	447,494	$	406,453
Corporate & Investment Bank	383,720		385,560		370,189		346,079		363,369		348,612
Commercial Banking	189,310		198,383		181,844		179,078		182,020		181,883
Asset Management	137,289		144,579		136,577		128,087		138,001		127,811
Corporate/Private Equity	35,817		26,554		31,437		28,710		27,907		31,105
Total Firm	$	1,202,950	$	1,193,593	$	1,173,633	$	1,093,246	$	1,158,791	$	1,095,864

A significant portion of the Firm’s deposits are consumer deposits (38% and 37% at June 30, 2013, and December 31, 2012, respectively), which are considered particularly stable as they are less sensitive to interest rate changes or market volatility. Additionally, the majority of the Firm’s institutional 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 17–51 and 53–54, respectively, of this Form 10-Q.

The following table summarizes short-term and long-term funding, excluding deposits, as of June 30, 2013, and December 31, 2012, and average balances for the three and six months ended June 30, 2013 and 2012, respectively. For additional information, see the Balance Sheet Analysis on pages 53–54 and Note 12 on pages 151–152 of this Form 10-Q.



	June 30, 2013		December 31, 2012		Three months ended June 30,				Six months ended June 30,
Sources of funds (excluding deposits)					Average				Average
(in millions)					2013		2012		2013		2012
Commercial paper:
Wholesale funding	$	19,505	$	15,589	$	19,352	$	13,569	$	18,426	$	10,692
Client cash management	37,126		39,778		35,039		35,222		35,315		37,883
Total commercial paper	$	56,631	$	55,367	$	54,391	$	48,791	$	53,741	$	48,575

Other borrowed funds	$	30,385	$	26,636	$	33,618	$	26,310	$	30,600	$	25,839

Securities loaned or sold under agreements to repurchase:
Securities sold under agreements to repurchase	$	230,430	$	212,278	$	231,358	$	220,881	$	225,355	$	215,936
Securities loaned	24,389		23,125		28,346		19,872		27,591		17,355
Total securities loaned or sold under agreements to repurchase^(a)(b)(c)	$	254,819	$	235,403	$	259,704	$	240,753	$	252,946	$	233,291

Total senior notes	$	136,601	$	130,297	$	140,573	$	148,074	$	138,119	$	148,766
Trust preferred securities	5,471		10,399		7,472		20,499		8,922		20,668
Subordinated debt	28,229		29,731		27,426		29,599		26,956		29,801
Structured notes	28,816		30,194		29,666		31,505		29,959		32,338
Total long-term unsecured funding	$	199,117	$	200,621	$	205,137	$	229,677	$	203,956	$	231,573

Credit card securitization	$	28,597	$	30,123	$	28,447	$	28,274	$	28,391	$	30,368
Other securitizations^(d)	3,460		3,680		3,563		4,047		3,614		4,100
FHLB advances	60,887		42,045		59,463		13,760		52,438		14,102
Other long-term secured funding^(e)	6,208		6,358		6,196		7,057		6,212		7,196
Total long-term secured funding	$	99,152	$	82,206	$	97,669	$	53,138	$	90,655	$	55,766

Preferred stock^(f⁾	$	11,458	$	9,058	$	11,095	$	7,800	$	10,355	$	7,800
Common stockholders’ equity^(f)	$	197,781	$	195,011	$	197,283	$	181,021	$	196,016	$	179,366


(a)	Excludes federal funds purchased.


(b)	Excluded long-term structured repurchase agreements of $3.2 billion and $3.3 billion as of June 30, 2013, and December 31, 2012, respectively, and average balance of $3.3 billion and $7.2 billion for the three months ended June 30, 2013 and 2012, and $3.3 billion and $6.8 billion for the six months ended June 30, 2013 and 2012, respectively.


(c)	Excluded long-term securities loaned of $452 million and $457 million as of June 30, 2013, and December 31, 2012, respectively, and average balance of $453 million for the three months ended June 30, 2013, and $454 million for the six months ended June 30, 2013, respectively. There were no average balances of long-term securities loaned for the three and six months ended June 30, 2012.


(d)	Other securitizations includes securitizations of residential mortgages, auto loans 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 60–64 and Consolidated Statements of Changes in Stockholders’ Equity on page 111 of this Form 10-Q; Note 22 on page 300 and Note 23 on pages 300-301 of JPMorgan Chase’s 2012 Annual Report.

Short-term funding

A significant portion of the total commercial paper liabilities, approximately 66% as of June 30, 2013, as shown in the table above, were originated from deposits that customers choose to sweep into commercial paper liabilities as a cash management program offered by CIB and are not sourced from wholesale funding markets.

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 amounts of securities loaned or sold under agreements to repurchase at June 30, 2013, increased predominantly due to higher secured financing of the Firm’s assets and higher client financing activity. 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 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 majority of the Firm’s long-term unsecured funding is issued by 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 and six months ended June 30, 2013 and 2012, respectively. For additional information, see Note 21 on pages 297–299 of JPMorgan Chase’s 2012 Annual Report.



Long-term unsecured funding	Three months ended June 30,				Six months ended June 30,
(in millions)	2013		2012		2013		2012
Issuance
Senior notes issued in the U.S. market	$	5,434	$	—	$	18,832	$	6,234
Senior notes issued in non-U.S. markets	5,419		—		6,774		2,050
Total senior notes	10,853		—		25,606		8,284
Subordinated debt	1,989		—		1,989		—
Structured notes	4,619		2,457		9,664		8,422
Total long-term unsecured funding – issuance	$	17,461	$	2,457	$	37,259	$	16,706

Maturities/redemptions
Total senior notes	$	9,506	$	17,678	$	13,513	$	21,779
Trust preferred securities	5,052		452		5,052		452
Subordinated debt	—		—		2,417		1,000
Structured notes	4,668		3,970		9,478		10,024
Total long-term unsecured funding – maturities/redemptions	$	19,226	$	22,100	$	30,460	$	33,255

On May 8, 2013, the Firm redeemed approximately $5.0 billion, or 100% of the liquidation amount, of trust preferred

securities pursuant to the optional redemption provisions set forth in the documents governing those trust preferred

securities.

The Firm announced on August 1, 2013 that it would redeem all of its outstanding 8.625% Non-Cumulative Preferred Stock, Series J on September 1, 2013.

During July 2013 and through August 7, 2013, the Firm issued $1.0 billion of senior notes in the U.S. market.

The Firm raises secured long-term funding through securitization of consumer credit card loans, residential mortgages, auto loans and student loans as well as through advances from the FHLBs, all of which increase funding and investor diversity.

The following table summarizes the securitization issuance and FHLB advances and their respective maturities or redemption for the three and six months ended June 30, 2013 and 2012, respectively.



	Three months ended June 30,								Six months ended June 30,
Long-term secured funding	Issuance				Maturities/Redemption				Issuance				Maturities/Redemption
(in millions)	2013		2012		2013		2012		2013		2012		2013		2012
Credit card securitization	$	2,860	$	3,850	$	2,147	$	8,549	$	4,760	$	3,850	$	6,265	$	8,603
Other securitizations^(a)	—		—		119		127		—		—		220		231
FHLB advances	4,850		6,100		2		1		19,550		6,100		706		4,512
Other long-term secured funding	69		122		23		544		195		372		116		1,273
Total long-term secured funding	$	7,779	$	10,072	$	2,291	$	9,221	$	24,505	$	10,322	$	7,307	$	14,619


(a)	Other securitizations includes securitizations of residential mortgages, auto loans and student loans.

In addition, in July 2013, the Firm securitized $900 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 15 on pages 177–184 of this Form 10-Q.

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 127–133 of JPMorgan Chase’s 2012 Annual Report.

High Quality Liquid Assets

High Quality Liquid Assets (“HQLA”) is the estimated amount of assets the Firm believes will qualify for inclusion in the Basel III LCR based on the Firm’s current understanding of the rules. HQLA primarily consists of cash and certain unencumbered high quality, liquid assets as defined in the rule.

As of June 30, 2013, HQLA was estimated to be approximately $454 billion, compared with $341 billion as of December 31, 2012. The increase in HQLA was due to higher cash balances driven by increased secured borrowings, trading liabilities and long term debt issuance as well as a reduction in trading assets, securities purchased under resale agreements and investment securities. HQLA may fluctuate from period to period due to normal flows from client activity.

The following table presents the estimated HQLA broken out by HQLA-eligible cash and HQLA-eligible securities as of June 30, 2013.



(in billions)	June 30, 2013
HQLA
Eligible cash	$	279
Eligible securities	175
Total HQLA	$	454

Additional available liquidity resources

In addition to HQLA, as of June 30, 2013, the Firm has approximately $278 billion 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, 2013, the Firm's borrowing capacity at various FHLBs and the Federal Reserve Bank discount window was approximately $94 billion, excluding the benefit from securities pledged which have been included above in HQLA eligible securities and other unencumbered securities.

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 55, and Credit risk, liquidity risk and credit-related contingent features in Note 5 on pages 131–142, of this Form 10-Q.

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.

The credit ratings of the parent holding company and certain of the Firm’s significant operating subsidiaries as of June 30, 2013, were as follows.



	JPMorgan Chase & Co.			JPMorgan Chase Bank, N.A. Chase Bank USA, N.A.			J.P. Morgan Securities LLC
June 30, 2013	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	A2	P-1	Negative	Aa3	P-1	Stable	A1	P-1	Stable
Standard & Poor’s	A	A-1	Negative	A+	A-1	Stable	A+	A-1	Stable
Fitch Ratings	A+	F1	Stable	A+	F1	Stable	A+	F1	Stable

On June 11, 2013, S&P announced a reassessment of its government support assumptions reflected in the holding company ratings of eight systemically important financial institutions (“SIFIs”), including the Firm. As a result of this reassessment, the outlook for the parent company was revised to negative from stable; the outlook for the Firm’s operating subsidiaries remained unchanged at stable. Moody's is undertaking a similar reassessment as a result of which Moody's outlook on the Firm's parent company ratings remains negative.

Downgrades of the Firm’s long-term ratings by one notch 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 further ratings downgrades depends on numerous contractual and behavioral factors (which the Firm believes are incorporated in the its liquidity risk and stress testing metrics). The Firm believes it maintains sufficient liquidity to withstand a potential decrease in funding capacity due to further ratings downgrades.

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 or require additional collateral, based on unfavorable changes in the Firm’s credit ratings, financial ratios, earnings, or stock price.

Rating agencies continue to evaluate various ratings factors, such as regulatory reforms, rating uplift assumptions surrounding government support, and economic uncertainty and sovereign creditworthiness, and their potential impact on ratings of financial institutions. 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.

Cash flows

As of June 30, 2013 and 2012, cash and due from banks was $29.2 billion and $44.9 billion, respectively. These balances decreased by $24.5 billion and $14.7 billion from December 31, 2012 and 2011, respectively. The following discussion highlights the major activities and transactions that affected JPMorgan Chase’s cash flows during the six months ended June 30, 2013 and 2012.

Cash flows from operating activities

JPMorgan Chase’s operating assets and liabilities support the Firm’s capital markets and lending activities, including the origination or purchase of loans initially designated as held-for-sale. 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. Management believes cash flows from operations, available cash balances and the Firm’s ability to generate cash through short- and long-term borrowings are sufficient to fund the Firm’s operating liquidity needs.

For the six months ended June 30, 2013, net cash provided by operating activities was $88.5 billion. This resulted from a decrease in trading assets - debt and equity instruments driven by client-driven market-making activity in CIB; a decline in trading assets - derivative receivables due to reductions in interest rate derivative receivables, partly offset by an increase in equity derivative receivables; and an increase in accounts payable and other liabilities predominantly due to higher CIB brokerage payables, and the timing of merchant payables payments related to CCB’s Card business. Net cash generated from operating activities was higher than net income, partially as a result of adjustments for noncash items such as deferred tax expense and depreciation and amortization. Cash proceeds received from sales and paydowns of loans originated and purchased with an initial intent to sell was higher than the cash used to acquire such loans, and also reflected higher levels of activities over the prior-year period. Additionally, trading liabilities - debt and equity instruments increased which was partly offset by a decrease in trading liabilities - derivative payables primarily due to reductions in interest rate derivative payables. Partially offsetting these cash proceeds was an increase in accounts receivables due to higher brokerage receivables and margin loan balances driven by client activity, primarily in CIB, and the timing of

merchant receivables payments related to CCB’s Card business.

For the six months ended June 30, 2012, net cash provided by operating activities was $46.2 billion. This resulted from a decrease in trading assets–debt and equity instruments driven by lower levels of equity and corporate debt securities, and physical commodities, partially offset by an increase in U.S. government securities; and a decrease in derivative receivables, primarily due to foreign exchange and credit products, partially offset by increased equity derivative balances. Net cash generated from operating activities was higher than net income, partially as a result of adjustments for noncash items such as depreciation and amortization, stock-based compensation and the provision for credit losses. Additionally, cash proceeds received from sales and paydowns of loans was higher than the cash used to acquire such loans originated and purchased with an initial intent to sell. Partially offsetting these cash proceeds was an increase in accrued interest and accounts receivables predominantly due to higher receivables from securities transactions pending settlement, and an increase in CIB customer margin receivables due to changes in client activity.

Cash flows from investing activities

The Firm’s investing activities predominantly include loans originated to be held for investment, the AFS securities portfolio and other short-term interest-earning assets. For the six months ended June 30, 2013, net cash of $142.2 billion was used in investing activities. This resulted from a significant increase in deposits with banks reflecting the placement of the Firm’s excess funds with various central banks, primarily Federal Reserve banks. Partially offsetting this cash outflow were a decline in securities purchased under resale agreements due primarily to a shift in deployment of the Firm’s excess cash by Treasury; a decrease in loan balances as a result of cash proceeds from sales and securitizations, lower credit card loans due to seasonality and higher repayment rates, and lower consumer excluding credit card loans, predominantly due to mortgage-related paydowns and portfolio run-off; and proceeds from maturities and sales that were higher than the cash used to acquire new AFS securities.

For the six months ended June 30, 2012, net cash of $66.0 billion was used in investing activities. This resulted from a significant increase in deposits with banks reflecting the placement of the Firm’s excess funds with various central banks, including Federal Reserve Banks; an increase in securities purchased under resale agreements due to the deployment of excess cash by Treasury; and an increase in loans due to a higher level of wholesale loans driven by increased client activity across all regions and most businesses. Partially offsetting these cash outflows were a decrease in securities, largely due to paydowns and maturities, as well as repositioning of the AFS portfolio; and a decline in the level of consumer, excluding credit card, loans due to paydowns and portfolio run-off, and credit card loans due to seasonality and higher repayment rates.

Cash flows from financing activities

The Firm’s financing activities predominantly include taking customer deposits, and issuing long-term debt as well as preferred and common stock. For the six months ended June 30, 2013, net cash provided by financing activities was $30.1 billion. This was driven by net issuances of long-term borrowings; an increase in securities loaned or sold under repurchase agreements predominantly due to higher secured financing of the Firm’s assets and higher client financing activity; and proceeds from the issuance of preferred stock. Partially offsetting these cash inflows were repurchases of common stock and payments of dividends on common and preferred stock.

For the six months ended June 30, 2012, net cash provided by financing activities was $4.9 billion. This was driven by securities loaned or sold under repurchase agreements predominantly in CIB, reflecting higher client financing activity and a change in the mix of liabilities. Partially offsetting these cash proceeds were a decrease in deposits, predominantly due to a decline in client balances in the wholesale businesses, particularly in CIB and CB, partially offset by an overall growth in retail deposits; net redemptions and maturities of long-term borrowings; and payments of cash dividends on common and preferred stock and repurchases of common stock and warrants.



CREDIT PORTFOLIO

The following tables present JPMorgan Chase’s credit portfolio as of June 30, 2013, and December 31, 2012. Total credit exposure was $1.9 trillion at June 30, 2013, an increase of $2.8 billion from December 31, 2012, reflecting an increase in the wholesale portfolio of $9.5 billion, largely offset by a decrease in the consumer portfolio of $6.7 billion. For further information on the changes in the credit portfolio, see Consumer Credit Portfolio on pages 74–83, and Wholesale Credit Portfolio on pages 84–91, of this Form 10-Q.

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 trading assets. For further information regarding these loans see Note 3 on pages 114–127 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 on pages 153–175 and 131–142, respectively, of this Form 10-Q.

For further discussion of the Firm’s Credit Risk Management framework, see pages 134–135 of JPMorgan Chase’s 2012 Annual Report.

For further information regarding the credit risk inherent in the Firm’s investment securities portfolio, see Note 11 on pages 147–150 of this Form 10-Q and Note 12 on pages 244–248 of JPMorgan Chase’s 2012 Annual Report.



Total credit portfolio
	Credit exposure						Nonperforming^(b)(c)(d)
(in millions)	Jun 30, 2013			Dec 31, 2012			Jun 30, 2013			Dec 31, 2012
Loans retained	$	719,884		$	726,835		$	9,578		$	10,609
Loans held-for-sale	3,779			4,406			60			18
Loans at fair value	1,923			2,555			96			93
Total loans – reported	725,586			733,796			9,734			10,720
Derivative receivables	73,751			74,983			448			239
Receivables from customers and other	23,852			23,761			—			—
Total credit-related assets	823,189			832,540			10,182			10,959
Assets acquired in loan satisfactions
Real estate owned	NA			NA			678			738
Other	NA			NA			36			37
Total assets acquired in loan satisfactions	NA			NA			714			775
Total assets	823,189			832,540			10,896			11,734
Lending-related commitments	1,040,134			1,027,988			283			355
Total credit portfolio	$	1,863,323		$	1,860,528		$	11,179		$	12,089
Credit portfolio management derivatives notional, net^(a)	$	(24,812	)	$	(27,447	)	$	(10	)	$	(25	)
Liquid securities and other cash collateral held against derivatives	(13,276		)	(15,201		)	NA			NA



(in millions, except ratios)	Three months ended June 30,						Six months ended June 30,
	2013			2012			2013			2012
Net charge-offs	$	1,403		$	2,278		$	3,128		$	4,665
Average retained loans
Loans – reported	720,290			719,878			719,684			715,047
Loans – reported, excluding residential real estate PCI loans	662,776			656,547			661,382			650,985
Net charge-off rates
Loans – reported	0.78		%	1.27		%	0.88		%	1.31		%
Loans – reported, excluding PCI	0.85			1.40			0.95			1.44

(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. Excludes the synthetic credit portfolio. For additional information, see Credit derivatives on pages 90–91 and Note 5 on pages 131–142 of this Form 10-Q.


(b)	Nonperforming includes nonaccrual loans, nonperforming derivatives, commitments that are risk rated as nonaccrual, real estate owned and other commercial and personal property owned. Excludes PCI loans. Because the Firm is recognizing interest income on each pool of PCI loans, they are all considered to be performing.

(c)

At June 30, 2013, and December 31, 2012, nonperforming assets excluded: (1) mortgage loans insured by U.S. government agencies of $10.1 billion and $10.6 billion, respectively, that are 90 or more days past due; (2) real estate owned insured by U.S. government agencies of $1.8 billion and $1.6 billion, respectively; and (3) student loans insured by U.S. government agencies under the FFELP of $488 million and $525 million, respectively, that are 90 or more days past due. These amounts were excluded from nonaccrual loans as reimbursement of insured amounts is proceeding normally. 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, 2013, and December 31, 2012, total nonaccrual loans represented 1.34% and 1.46%, respectively, of total loans.



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 primary focus is on serving the prime segment of the consumer credit market. For further information on consumer loans, see Note 13 on pages 153–175 of this Form 10-Q.

A substantial portion of the consumer loans acquired in the Washington Mutual transaction were identified as PCI based on an analysis of high-risk characteristics, including product type, loan-to-value (“LTV”) ratios, FICO risk scores and delinquency status. These PCI loans are accounted for on a pool basis, and the pools are considered to be performing. For further information on PCI loans see Note 13 on pages 153–175 of this Form 10-Q.

The credit performance of the consumer portfolio continues to improve as the economy continues to slowly expand and home prices improved in the first half of the year. Early-stage residential real estate delinquencies (30–89 days delinquent), excluding government guaranteed loans, decreased during the first half of the year and late-stage delinquencies (150+ days delinquent) continued to decline but remain elevated. The elevated level of the late-stage delinquent loans is due, in part, 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 following table presents consumer credit-related information with respect to the credit portfolio held by CCB as well as for prime mortgage loans reported in the Asset Management and the Corporate/Private Equity segments for the dates indicated. For further information about the Firm’s nonaccrual and charge-off accounting policies, see Note 13 on pages 153–175 of this Form 10-Q.



Consumer credit portfolio									Three months ended June 30,								Six months ended June 30,
(in millions, except ratios)	Credit exposure				Nonaccrual loans^(g)(h)				Net charge-offs				Average annual net charge-off rate⁽ⁱ⁾				Net charge-offs				Average annual net charge-off rate⁽ⁱ⁾
	Jun 30, 2013		Dec 31, 2012		Jun 30, 2013		Dec 31, 2012		2013		2012		2013		2012		2013		2012		2013		2012
Consumer, excluding credit card
Loans, excluding PCI loans and loans held-for-sale
Home equity – senior lien	$	18,277	$	19,385	$	927	$	931	$	32	$	55	0.69	%	1.05	%	$	75	$	111	0.80	%	1.04	%
Home equity – junior lien	44,049		48,000		2,059		2,277		204		411		1.82		3.12		494		897		2.17		3.35
Prime mortgage, including option ARMs	79,179		76,256		3,330		3,445		22		118		0.11		0.62		72		252		0.19		0.66
Subprime mortgage	7,703		8,255		1,594		1,807		33		112		1.69		4.94		100		242		2.52		5.23
Auto^(a)	50,865		49,913		126		163		23		21		0.18		0.17		63		54		0.25		0.23
Business banking	18,730		18,883		454		481		74		98		1.59		2.20		135		194		1.46		2.19
Student and other	11,849		12,191		86		70		68		109		2.30		3.22		125		170		2.11		2.47
Total loans, excluding PCI loans and loans held-for-sale	230,652		232,883		8,576		9,174		456		924		0.79		1.55		1,064		1,920		0.92		1.61
Loans – PCI^(b)
Home equity	19,992		20,971		NA		NA		NA		NA		NA		NA		NA		NA		NA		NA
Prime mortgage	12,976		13,674		NA		NA		NA		NA		NA		NA		NA		NA		NA		NA
Subprime mortgage	4,448		4,626		NA		NA		NA		NA		NA		NA		NA		NA		NA		NA
Option ARMs	19,320		20,466		NA		NA		NA		NA		NA		NA		NA		NA		NA		NA
Total loans – PCI	56,736		59,737		NA		NA		NA		NA		NA		NA		NA		NA		NA		NA
Total loans – retained	287,388		292,620		8,576		9,174		456		924		0.63		1.23		1,064		1,920		0.74		1.27
Loans held-for-sale^(c)	708		—		—		—		—		—		—		—		—		—		—		—
Total consumer, excluding credit card loans	288,096		292,620		8,576		9,174		456		924		0.63		1.23		1,064		1,920		0.74		1.27
Lending-related commitments
Home equity – senior lien^(d)	14,222		15,180
Home equity – junior lien^(d)	19,765		21,796
Prime mortgage	7,701		4,107
Subprime mortgage	—		—
Auto	8,596		7,185
Business banking	11,293		11,092
Student and other	726		796
Total lending-related commitments	62,303		60,156
Receivables from customers^(e)	129		113
Total consumer exposure, excluding credit card	350,528		352,889
Credit card
Total credit card loans^(f)	124,288		127,993		1		1		1,014		1,345		3.31		4.35		2,096		2,731		3.43		4.37
Lending-related commitments^(d)	532,359		533,018
Total credit card exposure	656,647		661,011
Total consumer credit portfolio	$	1,007,175	$	1,013,900	$	8,577	$	9,175	$	1,470	$	2,269	1.43	%	2.14	%	$	3,160	$	4,651	1.54	%	2.17	%
Memo: Total consumer credit portfolio, excluding PCI	$	950,439	$	954,163	$	8,577	$	9,175	$	1,470	$	2,269	1.66	%	2.51	%	$	3,160	$	4,651	1.79	%	2.55	%


(a)	At June 30, 2013, and December 31, 2012, excluded operating lease-related assets of $5.1 billion and $4.7 billion, respectively.


(b)	Charge-offs are not recorded on PCI loans until actual losses exceed estimated losses that were recorded as purchase accounting adjustments at the time of acquisition. To date, no charge-offs have been recorded for these loans.


(c)	Represents prime mortgage loans held-for-sale.

(d)

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, without notice as permitted by law.


(e)	Receivables from customers primarily represent margin loans to retail brokerage customers, which are included in accrued interest and accounts receivable on the Consolidated Balance Sheets.


(f)	Includes accrued interest and fees net of an allowance for the uncollectible portion of accrued interest and fee income.

(g)

At June 30, 2013, and December 31, 2012, nonaccrual loans excluded: (1) mortgage loans insured by U.S. government agencies of $10.1 billion and $10.6 billion, respectively, that are 90 or more days past due; and (2) student loans insured by U.S. government agencies under the FFELP of $488 million and $525 million, respectively, that are 90 or more days past due. These amounts were excluded from nonaccrual loans as reimbursement of insured amounts is proceeding normally. In addition, the Firm’s policy is generally to exempt credit card loans from being placed on nonaccrual status as permitted by regulatory guidance.


(h)	Excludes PCI loans. Because the Firm is recognizing interest income on each pool of PCI loans, they are all considered to be performing.


(i)	Average consumer loans held-for-sale were $8 million and $782 million for the three months ended June 30, 2013 and 2012, respectively, and $4 million and $802 million for the six months ended June 30, 2013 and 2012, respectively. These amounts were excluded when calculating net charge-off rates.

Consumer, excluding credit card

Portfolio analysis

Consumer loan balances declined during the six months ended June 30, 2013, due to paydowns and the charge-off or liquidation of delinquent loans, partially offset by new prime mortgage and auto loan originations. Credit performance has improved across most portfolios but residential real estate charge-offs and delinquent loans remain above normal historical levels.

The following discussion relates to the specific loan and lending-related categories. PCI loans are generally 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 13 on pages 153–175 of this Form

10-Q.

Home equity: The home equity portfolio at June 30, 2013, was $62.3 billion, compared with $67.4 billion at December 31, 2012. The decrease in this portfolio primarily reflected loan paydowns and charge-offs. Early-stage delinquencies showed improvement from December 31, 2012, while late stage-delinquencies were flat due, in part, to loss mitigation activities currently being undertaken and to elongated foreclosure processing timelines. Both senior and junior lien nonaccrual loans decreased from December 31, 2012. 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 delinquencies and home prices.

Approximately 20% of the Firm’s home equity portfolio consists of home equity loans (“HELOANs”) and the remainder consists of home equity lines of credit (“HELOCs”). HELOANs are generally fixed-rate, closed-end, amortizing loans, with terms ranging from 3–30 years. Approximately half of the HELOANs are senior liens and the remainder are junior liens. In general, HELOCs originated by the Firm are revolving loans for a 10-year period, after which time the HELOC recasts into a fully-amortizing variable-rate loan with a 20-year amortization period. At the time of origination, the borrower typically selects one of two minimum payment options that will generally remain in effect during the revolving period: a monthly payment of 1% of the outstanding balance, or interest-only payments based on a variable index (typically prime). HELOCs originated by Washington Mutual were generally 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 the loan’s term.

Of the approximately $54 billion unpaid principal balance of non-PCI HELOCs outstanding at June 30, 2013, approximately $39 billion are fully amortizing, currently possess an ability to refinance, are interest-only balloon loans, or are expected to paydown or charge-off prior to recasting. The remaining $15 billion represents borrowers who do not currently possess the ability to refinance, and

are expected to experience a recast in future periods. These recasts will primarily occur from 2015 through 2017, at which time the borrower must begin to make fully-amortizing payments. 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 corresponding estimated probability of default and loss severity assumptions. Certain factors, such as future developments in both unemployment and home prices, could have a significant impact on the expected and/or actual 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 longer-term 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 credit losses and that the Firm’s account management practices are appropriate given the portfolio’s risk profile.

At June 30, 2013, the Firm estimated that its home equity portfolio contained approximately $2.7 billion of current junior lien loans where the borrower has a first mortgage loan that is either delinquent or has been modified (“high-risk seconds”), compared with $3.1 billion at December 31, 2012. Such loans are considered to pose a higher risk of default than that of 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, loan level credit bureau data, which typically provides the delinquency status of the senior lien, as well as information from a database maintained by one of the bank regulatory agencies. 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+ days past due delinquency bucket.



Current high risk junior liens
(in billions)	Jun 30, 2013			Dec 31, 2012
Junior liens subordinate to:
Modified current senior lien		$	1.0		$	1.1
Senior lien 30 – 89 days delinquent		0.8			0.9
Senior lien 90 days or more delinquent^(a)		0.9			1.1
Total current high risk junior liens		$	2.7		$	3.1


(a)	Junior liens subordinate to senior liens that are 90 days or more past due are classified as nonaccrual loans. At both June 30, 2013, and December 31, 2012, excluded approximately $100 million of junior liens that are performing but not current, which were also placed on nonaccrual in accordance with the regulatory guidance.

Of the estimated $2.7 billion of high-risk junior liens at June 30, 2013, the Firm owns approximately 5% and services approximately 30% 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 higher-risk junior lien loans was considered in estimating the allowance for loan losses.

Mortgage: Mortgage loans at June 30, 2013, including prime, subprime and loans held-for-sale, were $87.6 billion, compared with $84.5 billion at December 31, 2012. The mortgage portfolio increased during the quarter as retained prime mortgage originations outpaced paydowns and the charge-off or liquidation of delinquent loans. Net charge-offs decreased from the same period of the prior year, reflecting continued home price improvement and favorable delinquency trends. However, delinquency levels remain elevated compared with historical levels.

Prime mortgages, including option adjustable-rate mortgages (“ARMs”) and loans held-for-sale, were $79.9 billion at June 30, 2013, compared with $76.3 billion at December 31, 2012. These loans increased as prime mortgage retained originations exceeded charge-off or liquidation of delinquent loans, paydowns, and portfolio run-off of option ARM loans. Excluding loans insured by U.S. government agencies, both early-stage and late-stage delinquencies showed improvement during the six months ended June 30, 2013. Nonaccrual loans improved compared with the prior year but remain elevated as a result of ongoing foreclosure processing delays. Net charge-offs continued to improve, as a result of improvement in delinquencies and home prices.

At June 30, 2013 and December 31, 2012, the Firm’s prime mortgage portfolio included $15.0 billion and $16.0 billion, respectively, of interest-only loans with balloon payments due at the end of the term, which represented 19% and 21% of the prime mortgage portfolio, respectively. These loans are typically originated as higher-balance loans to higher-income borrowers. The decrease in this portfolio was primarily due to voluntary prepayments, as borrowers are generally refinancing into lower rate products. 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.

Option ARM loans, which are included in the prime mortgage portfolio, were $6.0 billion and $6.5 billion and represented 8% and 9% of the prime mortgage portfolio at June 30, 2013, and December 31, 2012, respectively. The decrease in option ARM loans resulted from portfolio run-off. As of June 30, 2013, approximately 5% of option ARM borrowers were delinquent, 1% were making interest-only or negatively amortizing payments, and 94% were making amortizing payments (such payments are not necessarily fully amortizing). Approximately 84% of borrowers within

the portfolio are subject to risk of payment shock due to future payment recast, as only a limited number of these loans have been modified. The cumulative amount of unpaid interest added to the unpaid principal balance due to negative amortization of option ARMs was not material at either June 30, 2013, or December 31, 2012. The Firm estimates the following balances of option ARM loans will undergo a payment recast that results in a payment increase: $301 million in 2013, $513 million in 2014 and $646 million in 2015. Default rates generally increase when payment recast results in a payment increase. However, as the Firm’s option ARM loans, other than those held in the PCI portfolio, are primarily loans with lower LTV ratios and higher borrower FICO scores, it is possible that many of these borrowers will be able to refinance into a lower rate product, which would reduce this payment recast risk. Accordingly, the Firm expects substantially lower losses on this portfolio when compared with the PCI option ARM portfolio. To date, losses realized on option ARM loans that have undergone payment recast have been immaterial and consistent with the Firm’s expectations. The option ARM portfolio was acquired by the Firm as part of the Washington Mutual transaction.

Subprime mortgages at June 30, 2013, were $7.7 billion, compared with $8.3 billion at December 31, 2012. The decrease was due to portfolio run-off and the charge-off or liquidation of delinquent loans. Early-stage and late-stage delinquencies as well as nonaccrual loans have improved from December 31, 2012, but remain at elevated levels. Net charge-offs decreased from the prior year.

Auto: Auto loans at June 30, 2013, were $50.9 billion, compared with $49.9 billion at December 31, 2012. Loan balances increased due to new originations, partially offset by paydowns and payoffs. Delinquent and nonaccrual loans improved compared with December 31, 2012. Net charge-offs increased from the prior year, but loss levels are considered low as a result of favorable trends in both loss frequency and loss severity, mainly due to enhanced underwriting standards and a strong used car market. The auto loan portfolio reflected a high concentration of prime-quality credits.

Business banking: Business banking loans at June 30, 2013, decreased to $18.7 billion from $18.9 billion at December 31, 2012, as new originations were lower than paydowns and charge-offs. Nonaccrual loans improved compared with December 31, 2012, and net charge-offs declined from the prior year due to favorable trends in the credit environment.

Student and other: Student and other loans at June 30, 2013, were $11.8 billion, compared with $12.2 billion at December 31, 2012. The decrease was primarily due to paydowns and charge-offs of student loans. Other loans primarily include other secured and unsecured consumer loans. Nonaccrual loans increased from December 31, 2012, while net charge-offs decreased from the prior year.

Purchased credit-impaired loans: PCI loans at June 30, 2013, were $56.7 billion, compared with $59.7 billion at December 31, 2012. This portfolio represents loans acquired in the Washington Mutual transaction, which were recorded at fair value at the time of acquisition. PCI HELOCs originated by Washington Mutual were generally 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 the loan’s term. Substantially all undrawn HELOCs within the revolving period have been blocked.

During the six months ended June 30, 2013, no change in impairment was recognized in connection with the Firm’s review of the PCI portfolios’ expected cash flows. At both June 30, 2013, and December 31, 2012, the allowance for loan losses for the home equity, prime mortgage, option ARM and subprime mortgage PCI portfolios was $1.9 billion, $1.9 billion, $1.5 billion and $380 million, respectively.

As of June 30, 2013, approximately 24% of the Option ARM PCI loans were delinquent. Approximately 67% of the loans in the portfolio that are not delinquent have been modified into fixed-rate, fully amortizing loans and 33% 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 estimates of expected cash flows for the PCI portfolio. The cumulative amount of unpaid interest added to the unpaid principal balance of the option ARM PCI pool was $812 million and $879 million at June 30, 2013, and December 31, 2012, respectively. The Firm estimates the following balances of option ARM PCI loans will undergo a payment recast that results in a payment increase: $77 million in 2013, $392 million in 2014, and $788 million in 2015.

The following table provides a summary of lifetime principal loss estimates included in either the nonaccretable difference or the allowance for loan losses. Lifetime principal loss estimates were relatively unchanged from December 31, 2012, to June 30, 2013. Principal charge-offs will not be recorded on these pools until the nonaccretable difference has been fully depleted.



Summary of lifetime principal loss estimates
	Lifetime loss estimates^(a)				LTD liquidation losses^(b)
(in billions)	Jun 30, 2013		Dec 31, 2012		Jun 30, 2013		Dec 31, 2012
Home equity	$	14.8	$	14.9	$	11.8	$	11.5
Prime mortgage	4.1		4.2		3.1		2.9
Subprime mortgage	3.6		3.6		2.4		2.2
Option ARMs	11.3		11.3		8.3		8.0
Total	$	33.8	$	34.0	$	25.6	$	24.6

(a)

Includes the original nonaccretable difference established in purchase accounting of $30.5 billion for principal losses only plus additional principal losses recognized subsequent to acquisition through the provision and allowance for loan losses. The remaining nonaccretable difference for principal losses only was $4.9 billion and $5.8 billion at June 30, 2013, and December 31, 2012, respectively.


(b)	Life-to-date (“LTD”) liquidation losses represent both realization of loss upon loan resolution and any principal forgiven upon modification.

Geographic composition of residential real estate loans

At both June 30, 2013, and December 31, 2012, California had the greatest concentration of residential real estate loans with 24% of the total retained residential real estate loan portfolio, excluding mortgage loans insured by U.S. government agencies and PCI loans. Of the total retained residential real estate loan portfolio, excluding mortgage loans insured by U.S. government agencies and PCI loans, $74.4 billion, or 55%, were concentrated in California, New York, Arizona, Florida and Michigan at June 30, 2013, compared with $74.1 billion, or 54%, at December 31, 2012. The unpaid principal balance of PCI loans concentrated in these five states represented 72% of total PCI loans at both June 30, 2013, and December 31, 2012.

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 76% at June 30, 2013, compared with 81% at December 31, 2012. Excluding mortgage loans insured by U.S. government agencies and PCI loans, 14% of the retained portfolio had a current estimated LTV ratio greater than 100%, and 4% of the retained portfolio had a current estimated LTV ratio greater than 125% at June 30, 2013, compared with 20% and 8%, respectively, at December 31, 2012. Although home prices have begun to recover, the decline in home prices from 2007 has had a significant impact on the collateral values underlying the Firm’s residential real estate loan portfolio. In general, the delinquency rate for loans with high LTV ratios is greater than the delinquency rate for loans in which the borrower has equity in the collateral. While a large portion of the loans with current estimated LTV ratios greater than 100% continue to pay and are current, the continued willingness and ability of these borrowers to pay remains a risk.

The following table presents the current estimated LTV ratios, as well as the ratios of the carrying value of the underlying loans to the current estimated collateral value, with respect to the Firm’s PCI loans. 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
	June 30, 2013									December 31, 2012
(in millions, except ratios)	Unpaid principal balance		Current estimated LTV ratio^(a)			Net carrying value^(c)		Ratio of net carrying value to current estimated collateral value^(c)		Unpaid principal balance		Current estimated LTV ratio^(a)			Net carrying value^(c)		Ratio of net carrying value to current estimated collateral value^(c)
Home equity	$	21,092	101	%	^(b)	$	18,084	86	%	$	22,343	111	%	^(b)	$	19,063	95	%
Prime mortgage	13,004		94			11,047		79		13,884		104			11,745		88
Subprime mortgage	5,966		99			4,068		68		6,326		107			4,246		72
Option ARMs	21,109		92			17,826		77		22,591		101			18,972		85


(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 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 of $1.9 billion for home equity, $1.9 billion for prime mortgage, $1.5 billion for option ARMs, and $380 million for subprime mortgage at both June 30, 2013, and December 31, 2012.

The current estimated average LTV ratios were 98% and 114% for California and Florida PCI loans, respectively, at June 30, 2013, compared with 110% and 125%, respectively, at December 31, 2012. Average LTV ratios have declined consistent with recent improvement in home prices. Although prices have improved, home prices in California and Florida are still lower than at the peak of the housing market, which 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. Of the PCI portfolio, 40% had a current estimated LTV ratio greater than 100%, and 14% had a current LTV ratio of greater than 125% at June 30, 2013, compared with 55% and 24%, respectively, at December 31, 2012.

While the current estimated collateral value is greater than the net carrying value of PCI loans, the ultimate performance of this portfolio is highly dependent on borrowers’ behavior and ongoing ability and willingness to continue to make payments on homes with negative equity, as well as on the cost of alternative housing. For further information on the geographic composition and current estimated LTVs of residential real estate – non-PCI and PCI loans, see Note 13 on pages 153–175 of this Form 10-Q.

Loan modification activities – residential real estate loans

For both the Firm’s on–balance sheet loans and loans serviced for others, nearly 1.5 million mortgage modifications have been offered to borrowers and approximately 684,000 have been approved since the beginning of 2009. Of these, approximately 673,000 have achieved permanent modification as of June 30, 2013. Of the remaining modifications offered, 12% are in a trial period or still being reviewed for a modification, while 88%

have dropped out of the modification program or otherwise were deemed not eligible for final modification.

The Firm is participating in the U.S. Treasury’s Making Home Affordable (“MHA”) programs and is continuing to offer its other loss-mitigation programs to financially distressed borrowers who do not qualify for the U.S. Treasury’s programs. The MHA programs include the Home Affordable Modification Program (“HAMP”) and the Second Lien Modification Program (“2MP”). The Firm’s other loss-mitigation programs for troubled borrowers who do not qualify for HAMP include the traditional modification programs offered by the GSEs and other governmental agencies, as well as the Firm’s proprietary modification programs, which include concessions similar to those offered under HAMP and 2MP but with expanded eligibility criteria. In addition, the Firm has offered specific targeted modification programs to higher risk borrowers, many of whom were current on their mortgages prior to modification. For further information about how loans are modified, see Note 13, Loan modifications, on pages 160–167 of this Form 10-Q.

Loan modifications under HAMP and under one of the Firm’s proprietary modification programs, which is largely modeled after HAMP, require at least three payments to be made under the new terms during a trial modification period, and must be successfully re-underwritten with income verification before the loan can be permanently modified. In the case of specific targeted modification programs, re-underwriting the loan or a trial modification period is generally not required, unless the targeted loan is delinquent at the time of modification. When the Firm modifies home equity lines of credit, future lending

commitments related to the modified loans are canceled as part of the terms of the modification.

The primary indicator used by management to monitor the success of the modification programs is the rate at which the modified loans redefault. Modification redefault rates are affected by a number of factors, including the type of loan modified, the borrower’s overall ability and willingness to repay the modified loan and macroeconomic factors. Reduction in payment size for a borrower continues to be the most significant driver in improving redefault rates.

The performance of modified loans generally differs by product type and also on whether the underlying loan is in the PCI portfolio, due both to differences in credit quality and in 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 19% for senior lien home equity, 18% for junior lien home equity, 14% for prime mortgages including option ARMs, and 24% 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, 13% for option ARMs and 28% for subprime mortgages. The favorable performance of the 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 HAMP and the Firm’s proprietary modification programs from October 1, 2009, through June 30, 2013.

The following table presents information as of June 30, 2013, and December 31, 2012, relating to modified on–balance sheet residential real estate loans for which concessions have been granted to borrowers experiencing financial difficulty. Modifications of PCI loans continue to be accounted for and reported as PCI loans, and the impact of the modification is incorporated into the Firm’s quarterly assessment of estimated future cash flows. Modifications of consumer loans other than PCI loans are generally accounted for and reported as troubled debt restructurings (“TDRs”). For further information on TDRs for the three and six months ended June 30, 2013 and 2012, see Note 13 on pages 153–175 of this Form 10-Q.



Modified residential real estate loans
	June 30, 2013				December 31, 2012
(in millions)	On–balance sheet loans		Nonaccrual on–balance sheet loans^(d)		On–balance sheet loans		Nonaccrual on–balance sheet loans^(d)
Modified residential real estate loans, excluding PCI loans^(a)(b)
Home equity – senior lien	$	1,160	$	648	$	1,092	$	607
Home equity – junior lien	1,315		683		1,223		599
Prime mortgage, including option ARMs	7,303		2,084		7,118		1,888
Subprime mortgage	3,825		1,242		3,812		1,308
Total modified residential real estate loans, excluding PCI loans	$	13,603	$	4,657	$	13,245	$	4,402
Modified PCI loans^(c)
Home equity	$	2,554	NA		$	2,302	NA